QD Laser, Inc.

While the laser-related market is expected to grow, if technological innovation leads to the introduction of low-cost, mass-producible alternative products, the market could contract. There is also a risk that market growth could slow due to economic deterioration in Japan and overseas or a decline in capital expenditure appetite. The Company's business is centered on industrial and medical equipment applications, and changes in the external environment could directly affect its business results.

In FY2026 (ending March 2026), the overseas sales ratio reached 54%, and part of the manufacturing process is also outsourced to overseas partners, so legal regulations and changes in international conditions in each country and region may affect the business. In addition, if unexpected exchange rate fluctuations occur, although risk-hedging measures are in place, they may affect business results and financial position. The Company seeks to diversify risk by expanding in a balanced manner across regions.

The Laser & Optical Solutions Business Division aims to achieve profitability in FY2027 (ending March 2027), and in FY2026 (ending March 2026) is utilizing joint development fees from external customers to reduce its own burden of R&D expenses. However, if the effects of R&D are insufficient or development costs increase, the medium-term management plan may not be achieved, and profitability could be further delayed. The Company's policy is to judge budget necessity based on cost-effectiveness, but uncertainty remains high.

With business expansion, demand for working capital, R&D investment, and capital expenditure is expected to increase, and depending on the state of earnings and fundraising, the financial position may be affected. The Company has also raised funds through stock acquisition rights with exercise price revision clauses, and if new shares are issued through the exercise of stock acquisition rights or through stock option/stock compensation programs, there is a risk of dilution of existing shareholders' share value and voting ratio. In addition, the Company has not paid dividends since its founding and is not currently in a position to pay dividends.

If, due to various factors such as the situation in the Middle East or rare earth regulations, the supply of parts and materials required for production and R&D becomes unstable, prices surge, or quality deteriorates, it may become difficult to maintain product delivery times and quality, and price increases could also affect sales. Although the Company maintains a certain inventory of key materials and parts, if changes in procurement conditions extend to a wide range of items or persist over a very long period, this may affect business results and financial position.

In April 2026, the Laser Devices Business relocated its base to Totsuka-ku, Yokohama, and relocated the MBE equipment (crystal growth equipment using molecular beam epitaxy), which requires delicate handling. Although the Company has a thorough system in place, drawing on past experience, if the equipment start-up after relocation does not proceed as planned, production activities may be disrupted, which could affect business results and financial position.

The Company is a small organization with 50 employees, and its internal control system remains commensurate with its current scale. Against the backdrop of a shrinking labor force in Japan and rising labor costs, if it becomes difficult to secure personnel at appropriate labor costs due to skill and wage mismatches, business efficiency and expansion could be hindered. There is also a risk that if departing employees develop related technologies at other companies or if technology and know-how leak out, the Company's uniqueness and market appeal could decline.

As a research and development-oriented company, it is difficult to completely avoid intellectual property infringement issues, and both cases where the Company's technology is infringed and cases where the Company is alleged to have infringed on third-party technology may require significant time and cost to resolve. Currently, there are no lawsuits or claims, and the Company strives to avoid infringement through continuous technology research; however, if a legal dispute arises, the Company's policy is to respond on a case-by-case basis in consultation with attorneys and patent attorneys.

The Company adopts a fabless manufacturing policy, outsourcing product manufacturing to external partner companies. If a manufacturing partner experiences business deterioration or a quality incident, although the partner can be changed, product supply may be disrupted during the period required to rebuild a new production system, which could affect business results and financial position. The Company manages this risk by conducting quality inspections and confirming the business condition of each partner company.

The Company handles technical and business information under confidentiality agreements with customers, and if an information leak occurs, it may affect business results and financial position. In addition, if hardware is damaged by disasters such as earthquakes or fires, or if system troubles or data destruction occur due to cyberattacks or computer viruses, this could disrupt business operations such as accounting and sales management. Currently, the acquisition of personal information is limited, but continued strengthening of the information management system is required.