PROGRESS TECHNOLOGIES GROUP, Inc.

As of the end of the current consolidated fiscal year, goodwill of ¥4,964 million arising from the restructuring of the corporate structure is recorded on the consolidated statement of financial position, and the Company also holds other tangible and intangible fixed assets. If the profitability of related businesses declines, the difference between book value and recoverable amount may need to be recognized as an impairment loss, potentially affecting business performance and financial condition. Impairment tests are conducted every fiscal year to confirm that recoverable amounts exceed book values, but the risk may materialize due to future changes in the business environment.

Providing end-to-end services in the design and development field requires securing and developing experienced personnel well-versed in the relevant domain, which is an essential management challenge. If the necessary personnel cannot be secured as planned, this may constrain business expansion and affect business performance. As countermeasures, the Company is working to strengthen new graduate and mid-career recruitment, enhance educational systems, review personnel evaluation systems, and improve the working environment.

Due to the nature of the business, which involves handling confidential information such as customers' unpublished product development information and technical information, there is a risk of system failures caused by cyber attacks such as unauthorized access or hacking, as well as information leakage due to human error. If an information leak occurs, it could lead to contract terminations by business partners, claims for damages, and a decline in trust in the Company's services, potentially having a material impact on operations and business results. Regulations and rules have been established, and regular information management education and training are provided to officers and employees, but complete prevention is difficult.

In the technology field, technological innovation and changes in customer needs occur extremely rapidly, and intense competition in development technology and sales takes place. If the Company is slow to respond to unexpected technological innovations or rapid changes in customer needs, its competitiveness may decline, potentially having a significant impact on business performance. The Company addresses this through continuous analysis of the latest technology and market trends and ongoing efforts in research and development of new technologies and products.

In part of the Solutions Business, the Company undertakes work under contract agreements and bears the completion liability to complete and deliver solutions that meet customer requirements by the delivery deadline. As requirements become more sophisticated and complex and delivery periods shorten, if a project cannot be completed as scheduled in terms of delivery date or estimated man-hours, this could lead to claims for damages from customers and loss of credibility, potentially affecting business expansion and performance. The Company works to prevent troubles and losses through risk identification prior to contracting and appropriate progress management.

In the fifth fiscal year of consolidation, sales to the Honda Motor Co., Ltd. group accounted for 36.4% of net sales (¥2,056 million), and Hitachi Astemo, Ltd. accounted for 13.9% (¥787 million), with the top two customers representing over 50% of net sales combined. If transactions with major customers are terminated or significantly reduced for any reason, this could have a material impact on business performance and financial condition. As a countermeasure, the Company is pursuing new customer development beyond its major customers, but the high degree of dependence remains an ongoing risk factor.

Part of the Company's services involves the dispatch of consultants and engineers under the Worker Dispatching Act, and the Company conducts this business under a worker dispatching business license (valid until May 31, 2029). If the Company violates applicable laws and regulations, it could face revocation of its worker dispatching business license or a business suspension order, which could significantly disrupt business activities and have a material impact on business performance and financial condition. The Company addresses this through strengthening its legal compliance system, continuing internal education, and gathering information on regulatory trends.

As of May 2, 2025, funds for which JAFCO Group Co., Ltd. provides investment advice held 45.32% of the outstanding shares, and depending on the policy for holding or disposing of the shares, this could affect share liquidity and price formation. In addition, the substantial shareholding may significantly influence the outcome of shareholder meeting resolutions such as the election or dismissal of officers, organizational restructuring, and amendments to the articles of incorporation. The fund has a policy of reducing its ownership ratio over the medium to long term, but the timing and method of disposal have not been determined.

Representative Director Takehito Nakayama has played a key role since the Company's founding, from determining management policy and business strategy to sales activities, new business development, and business model construction. If, for any reason, he becomes unable to continue performing his duties, this could affect the business performance and financial condition of the Group as a whole. The Company is working to build a management structure that does not overly depend on a specific individual, through delegation of authority, personnel development, and information sharing at board of directors and management meetings.

As a result of substantial borrowings related to the LBO, the outstanding loan balance as of the end of the current consolidated fiscal year was ¥2,777 million, representing a high ratio of 75.94% of total equity under IFRS. Although refinancing was carried out in September 2023 to improve terms to the level of general corporate loans without financial covenants, if interest rates rise in the future due to financial market trends, this could affect business performance and financial condition.