SANKYO CO., LTD.

Deterioration in the operating environment of parlors and changes in market structure affect the sales performance of the Group. In recent years, there has been a growing tendency among parlors to selectively introduce only popular products, resulting in many products failing to attract sufficient attention. As machine development takes one to two years, changes in market needs after development has commenced, and overlaps in sales timing with competitors' popular products, may affect sales plans and business results.

The development, manufacture, and sale of gaming machines require strict compliance with various laws and regulations, including the Act on Control and Improvement of Amusement Business, etc. If significant changes are made to these laws and regulations, this could have a direct impact on the Group's sales activities and business results. Compliance with regulations is a prerequisite for business continuity, and delays in responding to changes could lead to lost business opportunities.

As gaming machines featuring tie-ups with celebrities, anime, and popular characters have become mainstream, disputes over intellectual property rights such as portrait rights and copyrights have increased. While the Group conducts thorough investigations centered on its Intellectual Property Division, there is a risk that if new intellectual property rights unrecognized by the Company are established, the Company could face claims for damages from rights holders. If an infringement is found to have occurred, this could affect the Group's business results, among other factors.

For pachinko and pachislot gaming machines, compliance with type testing conducted by testing institutions designated by the National Public Safety Commission (such as Hotsuukyo) is a prerequisite for sales. While it is necessary to respond to increasingly sophisticated fan needs and evolving technological structures, if type testing is prolonged or compliance is not achieved, the Group's business results may be affected. The Group strives to launch new models as planned, leveraging its development technology and know-how cultivated over many years.

If infectious diseases such as COVID-19 spread, a decline in operations at parlors nationwide, which are the Group's main customers, could create a difficult business environment, potentially affecting sales of pachinko and pachislot machines as well as the interior construction and orders for supply devices. Disruptions to the supply chain associated with the spread of infectious diseases are also anticipated. The Group has adopted a policy of securing multiple procurement sources, placing advance orders, and arranging alternative products to minimize the impact on unit sales and schedules.

The Group's production uses electronic components such as semiconductors and petroleum-derived raw materials such as resin. Fluctuations in the global supply-demand balance, disruptions to the supply chain, and escalating tensions in the Middle East, among other factors, could lead to price surges or procurement difficulties. Should these occur, there is a risk of impact on business results and financial condition. The Group strives to curb the risk of rising procurement costs and to ensure stable procurement by securing components early, strengthening relationships with suppliers, and diversifying procurement sources.