Morpho,Inc.

The Group, whose core business centers on image processing technology, faces complex technology risks including the obsolescence of existing technology due to the rapid evolution of AI technology, the emergence of competing products, delays in product launches, mismatches with market needs, and sudden changes in the development environment. Should these risks materialize, they could lead to a decline in product competitiveness and loss of sales opportunities. As countermeasures, the Group is promoting continuous efforts in product and technology development, including cutting-edge AI technology, actively recruiting and developing capable personnel, and securing a diverse development environment.

The Group is exposed to both the risk of infringement of its own intellectual property rights by third parties and the risk of litigation arising from its products infringing on the intellectual property rights of third parties. Should an intellectual property dispute occur, it could have a material impact on the Group's business performance and financial condition through damages or suspension of product sales. As countermeasures, the Group actively acquires and protects patents and conducts sufficient prior investigation of third-party intellectual property at the product development stage.

There is a risk that the Group's business performance could fluctuate significantly if a slowdown or decline occurs in specific markets or if changes occur in the trading environment with major customers. A structure with a high degree of sales dependence on specific customers or markets is directly susceptible to deteriorating trading conditions or reductions in customers' business scale. As countermeasures, the Group strives to maintain continuous and favorable relationships with business partners, while accelerating business expansion into various regions, applications, and customers to diversify risk.

There is a risk that the Group's business growth could be impeded if the business strategy set forth in the medium-term management plan "Vision2027" does not progress as planned due to changes in the economic environment or other factors. Failure to achieve the plan could also lead to a loss of investor confidence and adversely affect the stock price. As countermeasures, the Group intends to carefully observe the external environment while effectively utilizing its own assets, such as its high technological capabilities, to promote its business strategy.

Should country risks (such as changes in laws, regulations, and tax systems, or shifts in political and economic conditions) in countries such as China, or geopolitical risks such as overseas conflicts, materialize, there is a risk that the businesses of the Group and its customers and business partners could be disrupted through a decline in semiconductor supply or impacts on the automotive business. In particular, the automotive-related business has a high degree of dependence on the semiconductor supply chain, which could result in a significant impact. As countermeasures, the Group is expanding business into various regions, applications, and customers, building a global management structure, and strengthening internal controls, including information-gathering systems.

There is a risk that fluctuations in foreign exchange rates could affect the Group's business performance and financial condition due to its overseas business operations. In a yen appreciation phase, the yen-converted amount of overseas sales may decrease, potentially putting pressure on profits. As a countermeasure, the Group utilizes risk-hedging measures such as forward exchange contracts to reduce foreign exchange risk.

There is a risk that the Group's business development, performance, and financial condition could be adversely affected if the expected profits or results are not sufficiently achieved through business or capital alliances and acquisitions with other companies. Unforeseen problems in the integration process following M&A or an alliance could become a factor that pushes down performance. As countermeasures, the Group conducts risk assessment through due diligence and a thorough decision-making process at the time of an alliance, and also works to identify and address at an early stage any factors that could impede business execution after an alliance or acquisition.

Deficiencies in internal controls at overseas subsidiaries, deficiencies in management systems including the securing of personnel for administrative departments, and the occurrence of misconduct or illegal acts by officers or employees pose a risk of having a material impact on the Group's business performance and credibility. In particular, at overseas subsidiaries, differences in local business customs and regulatory environments can make it difficult to thoroughly implement internal controls. As a countermeasure, the Group is promoting the appropriate operation, enhancement, and strengthening of its internal control systems, including those at overseas subsidiaries.

Should the Group's proprietary technical information or technical information received from customers be leaked, or should access to technical information be blocked due to ransomware or other causes, there is a risk of a serious impact on business continuity, customer trust, and competitive advantage. Given the nature of the business, which centers on image processing and AI technology, the leakage of technical information could undermine the very foundation of its competitiveness. As countermeasures, the Group is conducting training and security drills for officers and employees, and strengthening its systems, including endpoint security.

There is a risk that the Group's business could be disrupted in the event of natural disasters such as earthquakes or typhoons, accidents or fires, or the spread of infectious diseases. Business disruption could lead not only to the loss of sales opportunities but also to delivery delays to customers and a decline in trust. As countermeasures, the Group has established a response structure as a unified group, including the setting up of a response headquarters depending on the nature of the event, and intends to prioritize ensuring employee safety and implementing infection prevention measures.