DAIKOKU DENKI CO., LTD.

Pachinko halls are subject to regulation under the Entertainment Business Control Law and prefectural ordinances, and industry associations may also implement voluntary self-regulation. If new regulations or self-regulatory measures impose restrictions on pachinko hall operations, this may cause abrupt changes in capital expenditure trends and could affect the Group's business performance. The Group addresses inventory risk and sales slowdowns through thorough information gathering and rapid strategy formulation.

For pachinko and pachislot gaming machines, passing the model testing under Article 20, Paragraph 5 of the Entertainment Business Control Law and obtaining certification conformity from the prefectural Public Safety Commission are prerequisites for sales. If the increasing technical complexity of gaming machines results in test approval taking longer than expected or in non-conformity, this could significantly disrupt gaming machine manufacturers' sales plans and affect the Group's business performance. The Group is working to improve design quality and development productivity by clarifying the roles of group companies to enhance specialization and pursue operational efficiency.

It is generally considered difficult to completely eliminate bugs in increasingly sophisticated software, and there have been past cases where bugs were discovered after delivery. If a bug causing system shutdown or inaccurate data display is discovered, this could affect the Group's business performance. The Group is working to strengthen its analytical capabilities for market complaints and in-process defects during production, and to prevent recurrence and latent defects through collaboration among related departments.

In the gaming machine market, while certain popular models achieve significant sales growth, an increasing number of models see sales end after only a few thousand units, with a strengthening trend of winners and losers among individual models. This could affect the Group's business performance if the initially planned delivery volumes to each manufacturer cannot be achieved, or if orders are cancelled. The Group strives to minimize unexpected cost burdens through demand forecasting based on an understanding of gaming machine market trends and by gathering the latest sales information through collaboration with gaming machine manufacturers' sales departments.

It is difficult to fully grasp all infringements of the Group's intellectual property rights, and conversely, the Group may receive claims alleging infringement of other companies' patent rights. In video and audio production, the Group may also receive claims for unintentionally infringing copyright or the Unfair Competition Prevention Act, and even where copyright has been licensed, the Group may be affected by the intentions of the rights holder. The Group has established a dedicated department for intellectual property rights management and strives to reliably acquire and protect its intellectual property rights.

Since part interchangeability is not permitted for pachinko and pachislot gaming machines in order to ensure manufacturing uniformity with the certified model, if electronic components used in the unit products supplied by the Company are discontinued, or if supply becomes unavailable due to corporate bankruptcy, disaster, or other reasons, the Company may be unable to manufacture or supply its products, which could affect business performance. The Group has established

If an abnormal situation such as a pandemic like the COVID-19 outbreak or a large-scale disaster occurs to an extent exceeding the Company's expectations, and prolonged closure of pachinko halls results, this could have a significant impact on the Group's financial position and operating results. A decline in the number of pachinko fans due to prolonged closures is also recognized as an anticipated risk. The Group has established a response framework for abnormal situations through the regular convening of the Compliance and Risk Management Committee based on its risk management regulations, among other measures.

The Group holds fixed assets, including business-use real estate, as well as goodwill, and if a decline in fair value or profitability makes recovery of the invested amount unlikely, impairment processing may become necessary. If impairment processing is carried out, this could affect the Group's financial position and operating results. The Group regularly monitors the status of its fixed assets through its risk management regulations and financial reporting meetings.