CGS HOLDINGS INC.

If capital expenditure declines due to deteriorating corporate performance in the manufacturing sector (particularly mold-related businesses), it could adversely affect the business performance and financial condition of the Group. The business structure is inherently vulnerable to fluctuations in domestic economic trends. As a countermeasure, the Group is promoting a shift in its revenue structure—including product mix, service content, and pricing—to increase the proportion of sales, such as software usage licenses and maintenance/services, that are less susceptible to economic fluctuations.

The Group has expanded overseas operations with subsidiaries in Thailand, Canada, and the United States. Unexpected changes in laws, regulations, or tax systems by governments in each country, changes in social, political, or economic conditions, credit risk of business partners arising from differing business customs, and exchange rate fluctuations, among other factors, could affect business operations, performance, and financial condition. To mitigate these risks, the Group is strengthening information sharing with and governance over each subsidiary.

Mr. Kazuyuki Toriyama, Representative Director of Tritech International, LLC, which operates the Mold Manufacturing Business, plays a critical role in the Group's business operations, including formulating management and business policies, and the Group is highly dependent on him. If unforeseen circumstances make it difficult for him to carry out his duties, it could affect the Group's business performance. In response, the Group is strengthening its management structure through personnel recruitment and development, as well as reinforcing management oversight from the parent company.

As the Group operates an R&D-oriented business, insufficient recruitment of R&D personnel or delays in personnel development could weaken the competitiveness of its products and technical services, thereby affecting business performance. The Group aims to mitigate this risk by establishing a dedicated R&D department and focusing on personnel recruitment and training.

While the Group's software products maintain a certain level of competitiveness in their target markets, intensified development competition could dilute product competitiveness and lead to price competition with rival products, adversely affecting business performance. As a countermeasure, the Group continuously implements advanced feature enhancements to maintain its competitive advantage.

The Group actively pursues business partnerships and alliances with other companies, including OEM supply of part of its technology. If the expected benefits of such partnerships are not realized, or if changes occur due to a partner's management trends or decisions, or if there is a significant reduction in transactions, business performance could be adversely affected. To mitigate this risk, the Group reduces its dependence on any single company by providing OEM supply to multiple companies.

Risks exist regarding unauthorized copying and illegal distribution of software, the possibility that the Group's products or technologies infringe on the intellectual property rights of others, and constraints arising from third-party software or intellectual property rights used by the Group, any of which could adversely affect business performance. In response, the Group continues to develop enhanced security technologies to protect copyrights, clarifies the legal basis for holding intellectual property through patent acquisition and other means, and carefully reviews contract terms when using third-party intellectual property.

If critical information related to product development (such as design information and source programs) is lost due to unforeseen circumstances such as natural disasters, it could slow development speed and disrupt support activities, adversely affecting business performance. As a countermeasure, the Group implements effective information management measures, such as distributed storage of important development information.

The Group's products and services handle data processing for customers' critical manufacturing processes. If defects or failures occur, they could cause serious losses to customers, leading to claims for damages and a decline in social credibility. In response, the Group thoroughly conducts technical field evaluations of new products, operates systems to ensure high quality, and maintains a system for promptly providing information in the event of a defect.