ZOOM CORPORATION

Of net sales of ¥6,850,967 million, overseas sales amounted to ¥5,635,297 million (approximately 82%), the majority of which is denominated in US dollars. As a result, yen appreciation reduces sales and gross profit after conversion into yen. In addition, because the company uses the total average method, if a yen appreciation trend continues, purchase prices from prior periods of yen depreciation remain reflected in cost of sales, creating a structural risk of a rising cost of sales ratio. As countermeasures, the company formulates budgets that factor in yen appreciation, manages the balance of US dollar-denominated assets and liabilities, and enters into forward foreign exchange contracts for a portion of accounts receivable.

Since all production is outsourced to China or Southeast Asia, the company is directly affected by additional tariffs (reciprocal tariffs) imposed by the US government, and an increase in cost of sales has already materialized. Although the US Supreme Court ruled on February 20, 2026 that reciprocal tariffs were illegal, the timing of tax refunds and the possibility of alternative trade protection policies being introduced remain uncertain, creating a risk that further expansion of tariff coverage could reduce cost competitiveness in the US market. The company continuously obtains information on legal changes in each country from local agents and law firms, and utilizes advice from specialized consultants in high-risk areas such as transfer pricing taxation.

Since products are sold in countries around the world, deteriorating economic conditions in each country and intensifying price competition with competitors affect business performance. Because the customer base includes a relatively large proportion of younger users, the company faces a complex set of market risks, including a future decline in the number of customers in developed countries due to the declining birthrate, a shrinking target customer base due to diversifying hobbies, and dependence on the trends of a limited pool of users such as musicians and creators. The company addresses this through the strategic goal of continuously developing new product categories.

Just as smartphones displaced the portable music player and camera markets, there is a risk that existing product categories could be eroded by technological innovation or the emergence of products with new concepts. In addition, competition could intensify if major companies with substantial financial and technological resources enter the company's product categories. The company seeks to differentiate itself by continuously developing unique and original products that are not offered by competitors, based on its "Five Principles of Product Development."

The company aims to develop unique, world-first products, but if expected results are not achieved and commercialization is abandoned, or if development delays result in additional costs or delayed product launches, business performance will be affected. Since sales volumes of existing products tend to decline due to the emergence of competing products and technological innovation, the continuous introduction of new products is essential for sustained business growth. The company manages progress through weekly development meetings and diversifies risk by developing multiple products in parallel.

The overseas sales ratio is extremely high at 83.3% (fiscal year ended December 2025), and sales and promotional activities in countries other than North America, Southern Europe, and Central Europe, which are handled by subsidiaries, depend on local agents. Termination of contracts with major agents or deterioration of relationships poses a risk of losing retailers and customers, leakage of know-how to competitors, and a decline in sales capability. The company works to maintain relationships by holding regular meetings and strengthening communication through new product training.

Production is fully outsourced to EMS companies in China and Southeast Asia, creating a risk that production costs will rise due to increases in local labor costs and logistics expenses. Combined with the tariff issue, rising costs could push up the cost of sales ratio and squeeze profitability. The company addresses this by raising product shipment prices as necessary and selecting EMS companies in a manner that avoids overreliance on any single country.

If disputes or litigation arise from allegations that the company has infringed on the intellectual property rights of other companies during product development, business performance could be affected. In addition, if the company's trademark or patent rights are infringed and counterfeit products circulate, this could damage brand value and lead to a deterioration in medium- to long-term business performance. The company thoroughly investigates other companies' patents and trademarks in advance when developing new products, and maintains a policy of taking firm action, including legal measures, when infringement of its own intellectual property is discovered.

Continuous new product development is essential for sustainable growth, and securing and developing engineers, who serve as a constraint on product development, is a key challenge. Against the backdrop of a declining young and working-age population in Japan, if the company fails to secure and develop talented personnel as planned, or if the outflow of personnel continues, this could lead to a decline in competitiveness and delays in business plans. The company addresses this by expanding new graduate recruitment, improving skills through graduate school assignments and job rotation, and hiring mid-career personnel as needed.

Due to concentrated demand during the year-end shopping season in the company's key markets of Europe and the United States, sales and profit tend to increase in the second half compared to the first half, creating a structure in which business performance is heavily dependent on the second half. There is a risk that if second-half sales and profit fall short of expectations due to factors such as foreign exchange fluctuations or rising production costs, the impact on full-year performance will be significant. The securities report does not describe specific countermeasures, and this is recognized as a structural risk.