inspec Inc.

If capital expenditure demand in Japan, Taiwan, and China declines due to economic fluctuations, this will have a direct impact on the Company's business performance. The Company's main business countries are Taiwan and China, and deterioration of the economic environment in these regions directly leads to a decline in sales. At present, no specific countermeasures are described, and structural vulnerability to demand fluctuation risk remains.

The Company's competitiveness relies on its in-house developed core technology, and if other companies develop systems with equal or superior performance, the Company may lose its competitiveness, potentially affecting its business performance. Maintaining technological superiority is fundamental to business continuity, but the possibility of competitors catching up with or surpassing the Company's technology cannot be denied. The Company has stated a policy of maintaining competitiveness through continuous investment in research and development.

New product development requires long-term upfront investment and substantial resource allocation, but there is no guarantee that such investment will lead to the creation of new products or technologies, nor that products developed will be sold successfully. If forecasts of user needs are incorrect, there is a risk that upfront investment will not contribute to sales and will put pressure on business performance. It is also explicitly stated that there is no guarantee that the necessary funds and resources can be sufficiently secured.

In the semiconductor and precision printed circuit board fields, technological innovation is rapid, and performance improvements are required within short periods. If development is delayed, there is a risk of being unable to respond to customer needs and losing order opportunities. Continuous improvement of equipment performance to meet the needs for miniaturization and downsizing in the digital home appliance field is essential, and maintaining development speed is an important competitive issue.

Interest-bearing debt for the fiscal year under review (FY2026, ending April 2026) was ¥2,227,886 thousand, and the ratio of dependence on interest-bearing debt rose to 59.6% from 55.4% in the previous period, indicating a high level of financial leverage. In a rising interest rate environment, increased interest payment burdens may adversely affect business performance. The Company continues to rely on a certain scale of interest-bearing debt as part of its financial strategy, resulting in high sensitivity to changes in the interest rate environment.

Masashi Sugawara, Representative Director, President and Representative Executive Officer, plays an extremely important role, from determining management policy and strategy to top-level sales activities with major clients, resulting in a high degree of dependence on a specific individual. If he were to leave the Company for any reason, this could have a material impact on business activities. The Company states that it is working to build a system that does not rely on him, but risk remains until this system is fully established.

With 85 employees (as of April 30, 2026), the Company is a small organization, and its internal systems remain commensurate with this organizational scale. If the development of internal systems fails to keep pace with business expansion, prompt and appropriate internal management may become difficult, potentially constraining business operations.

The Company is promoting overseas expansion centered on Taiwan and China, but risks exist including unpredictable changes in regulations and laws, political instability, social unrest, foreign exchange fluctuations, and difficulty securing human resources. While the Company is working to strengthen sales and establish support systems in cooperation with distributors, geopolitical risks and changes in the regulatory environment may affect its business results and financial condition.

Software for dedicated image processing computers, among other things, is held as know-how, and there is a risk of imitation or use by other companies. On the other hand, if the Company infringes on the intellectual property rights of a third party, it may be subject to claims for damages or injunctions to cease use, and the Company recognizes that it is difficult to fully grasp the entire scope of intellectual property rights in its business field. Although the Company adopts a patent application policy that considers cost-effectiveness, there are limits to the comprehensiveness of rights protection.

In M&A and capital alliances aimed at business expansion and strengthening competitiveness, if the expected synergies are not realized due to changes in the business environment, or if the invested company's performance deteriorates, the Company may need to recognize impairment losses on goodwill or the book value of shares. While the Company states that it makes decisions after conducting risk analysis of target companies, the risk of failing to achieve plans due to changes in the external environment remains.