CONVUM Ltd.

Because the Company's products are highly diversified, demand forecasting is difficult, and if forecasts prove inaccurate, delivery deadlines may not be met, resulting in lost orders. Most users belong to the industrial machinery industry, where extremely short delivery times are demanded. While the Company promotes planned production, if it cannot adequately respond to demand fluctuations, business performance may be affected. As a countermeasure, the Company focuses on quickly collecting and analyzing information on users' capital expenditure plans and responding promptly to trends.

Most domestic sales are made through distributors, mainly specialized FA equipment trading companies, and long-term supply contracts regarding delivery volumes and prices have not been concluded with individual distributors. Changes in the purchasing policies of major distributors may affect business performance. The Company seeks to stabilize trading relationships by improving product functionality and technical services, but structural dependency risk remains.

Overseas sales are mainly conducted through overseas distributors, and if distributors change their sales policies or sales support fails to achieve the expected results, business performance may be affected. The Group provides sales support through explanatory sessions and exhibitions regarding product performance and usage examples, but dependence on distributors is high and control is limited.

Since most users belong to the industrial machinery industry, product sales are directly affected by trends in capital expenditure demand driven by mining and manufacturing production activity. In periods of economic downturn or restrained capital expenditure, demand may decline significantly, resulting in a high risk of performance volatility. The securities report does not describe specific countermeasures, and the structurally high sensitivity to economic conditions remains a challenge.

The Group's main production base is concentrated at a single location, the Iwate Plant, and if operations are disrupted for any reason, product supply may become impossible, potentially having a material impact on business performance. As there is no alternative production base, risk diversification has not been achieved. The securities report does not describe specific business continuity plan (BCP) countermeasures.

If large-scale natural disasters such as earthquakes, typhoons, or floods occur, or if unknown infectious diseases such as COVID-19 emerge, order fulfillment and product supply may become impossible, affecting business performance. Although disaster prevention and epidemic control measures are implemented, there are limits to responding to large-scale disasters exceeding expectations or major power outages and shortages. Since production is concentrated at a single location, the Iwate Plant, the impact of a disaster could be particularly severe.

As of the end of the current consolidated fiscal year, the Group had 91 consolidated employees and 67 on a non-consolidated basis, a small scale, and the internal management structure remains commensurate with this size. If business operations expand in the future, the current structure may be unable to provide adequate and appropriate human and organizational responses. While the Company plans to strengthen staffing and enhance internal management systems, if such efforts fail to keep pace, business performance and internal controls could be affected.

In the industrial machinery components industry for vacuum equipment and related products, there are few personnel with the necessary specialized knowledge, skills, and qualifications, and there is a risk that securing needed personnel may not proceed as planned or may incur costs exceeding expectations. Stably securing and training excellent engineers is a key challenge for business expansion, and personnel shortages directly affect product development and quality maintenance. The Company plans to continue strengthening new graduate and mid-career hiring and providing education and support for engineers, but industry-wide personnel shortages remain a structural challenge.

In addition to legal regulations such as the Fire Service Act, the Waste Management and Public Cleansing Act, and the Water Pollution Control Act, growing environmental awareness in recent years may lead to further amendments to laws related to environmental protection. If regulations on waste disposal are further tightened, business performance may be affected due to increased compliance costs, among other factors. The Company currently complies with each applicable regulation, but depending on the content and timing of any regulatory tightening, there is a risk of additional capital expenditure or operating costs.