Artiza Networds,Inc.

The Group's major customers are concentrated in the R&D and manufacturing divisions of telecommunications carriers and telecom equipment manufacturers, and its business performance is significantly affected by these customers' management trends and the progress of telecommunications network development. Although the Group is working to diversify its customer base and acquire new customers, if this concentration is not alleviated, there is a risk of continuing to be directly affected by fluctuations in the business conditions of specific industries.

The Company's products have a structure in which adoption from the initial stage of new technology development in the R&D departments of telecommunications carriers and telecom equipment manufacturers leads to subsequent expansion into their manufacturing and maintenance departments. If a competitor's product is adopted at the R&D stage instead, the Company could broadly lose subsequent order opportunities, and business performance could be adversely affected through write-downs of inventory book value, impairment of fixed assets, and impacts on the recorded amount of deferred tax assets. As countermeasures, the Company continues to develop products that support the latest technologies and actively approach customers' R&D departments.

Due to intensifying technology development competition in the telecommunications industry, projects with extremely short development periods of just a few months are increasing, heightening the risk that delivery delays or product defects could affect customers' development plans. If defects occur, they could significantly damage the reputation of the Group and its products, and if defect-related costs exceed expectations and surpass the estimated warranty reserve, additional losses could arise. The Company strives to improve quality and meet delivery deadlines through ISO9001 certification, but complete avoidance cannot be guaranteed.

While the Company's hardware products have long product lifecycles of three to seven years, technological innovation in electronic components is rapid, creating a risk that components used in a product could be discontinued during the shipping period. In addition, some semiconductor-related components depend on specific suppliers, and in the event of a supply delay, alternative procurement may be difficult in some cases. Combined with rising resource prices triggered by the situation in Ukraine and rapid yen depreciation-driven exchange rate fluctuations, securing components at reasonable prices may become difficult. The Company strives to diversify procurement channels and adopt long-life components, but the impact on sales and production plans cannot be completely eliminated.

The Group sometimes proceeds with software development in advance of signing sales contracts, based on a relationship of trust with customers. If a contract is subsequently not concluded, or if demand from other customers does not materialize, this could lead to write-downs of inventory book value due to reduced profitability, impairment of fixed assets, and impacts on the recorded amount of deferred tax assets, adversely affecting business performance. Although no major problems have occurred to date, the possibility that similar risks could materialize due to changes in market conditions or deterioration of customer relationships cannot be denied.

The Group has historically not been proactive in filing patent applications or registering copyrights, and there is a risk that business and performance could be adversely affected if trade secrets are improperly leaked to third parties, if the Company's acquired patents are infringed by other companies, or if imitations that damage brand value occur. Additionally, if the Group is alleged to infringe on other companies' intellectual property rights, license fee payments or design change costs may arise. The Company has indicated a policy of actively pursuing the acquisition of patents and other intellectual property rights domestically and internationally going forward.

The Group's competitiveness relies heavily on the development capabilities of its development engineers, and if the recruitment of talented engineers does not proceed as planned, this could seriously impact product development progress and adversely affect business performance. Given that each internal department currently operates with a small number of staff, there is a risk that the resignation of employees in key roles could also disrupt management operations and disclosure-related work. The Company has implemented measures such as obtaining ISO45001 certification and enhancing work-life balance and diversity promotion, but there is no guarantee these will be realized as planned.

The Group is advancing overseas market development through the recruitment of foreign nationals, but economic fluctuations in various overseas countries and regions that shrink demand, unforeseen changes in laws, regulations, or tax systems, and social unrest caused by sudden shifts in political conditions could adversely affect business performance. There are also numerous uncertain factors, such as delays in the transition to next-generation communication systems due to the management trends of telecommunications carriers in each country, and differences in business customs. The Group's presence in new markets is currently low and its business experience is insufficient, limiting its ability to respond when these risks materialize.

The Group conducts transactions denominated in foreign currencies, and recent rapid fluctuations in exchange rates could affect the yen-converted amounts of foreign currency deposits, accounts receivable, and accounts payable on the consolidated financial statements, thereby affecting business performance. The Group also holds securities and investment securities, and fluctuations in credit risk, interest rate trends, foreign exchange markets, and stock markets could reduce their fair value, resulting in losses. Furthermore, regarding deferred tax assets, if future taxable income falls below expectations, the recorded amount could fluctuate significantly, posing a risk of adversely affecting business results and financial condition.

The Group holds personal information and trade secrets through product sales and support activities, and in the event of an information leak, there is a risk of claims for damages due to violations of laws or confidentiality obligations, as well as a decline in social credibility. Although the Group has established thorough compliance based on the "Artiza Philosophy" and an internal whistleblowing system, if a violation of laws or a deviation from social norms occurs, this could result in customers suspending transactions, penalties, or claims for damages. Since the Company develops products subject to regulations such as the Radio Act, there is also a concurrent risk of liability for damages under the Product Liability Act.