NIHON KOHDEN CORPORATION

Response to laws and regulations in each country and region is required, including Japan's Act on Pharmaceuticals and Medical Devices, the US FDA, and Europe's MDR/IVDR, and regulatory abolition/amendment or introduction of new regulations may extend the period until new product launch. In the fiscal year under review, delays occurred in responding to regulations concerning wireless communication and battery transport, but these were largely addressed by the end of the fiscal year under review. From April 2026, a regular progress management system through the "Regulatory Response Promotion Council" has been established to reduce risk.

Since medical devices require extremely high levels of quality, if a quality issue occurs, measures such as suspension of sales or recall may be required, and damages lawsuits associated with medical accidents or damage to social credibility may affect business performance and financial condition. In the fiscal year under review, one recall occurred in Japan and voluntary recall was implemented; the provision for product warranties at the end of the fiscal year under review was ¥1,850 million (including free repair costs during the warranty period and future recall-related costs, etc.). The Company has established and operates a quality management system based on ISO, and has built a mechanism for gathering and disseminating information from medical settings.

In the domestic market, which accounts for approximately 60% of consolidated net sales, healthcare system reforms aimed at controlling medical costs and improving the quality of medical care are underway, and revisions to medical fee schedules and similar measures may affect the Group's business performance. Additionally, as AEDs become more widespread, the customer base has expanded to include private companies that are more susceptible to economic conditions, creating a risk of decreased demand during economic downturns. The Group is diversifying risk by pursuing sustainable growth in the domestic business alongside expansion of overseas business.

In emerging countries, the proportion of public hospitals is high, and there are many tender projects susceptible to the influence of elections and budget execution timing, and measures such as local assembly production may be needed to respond to trends favoring domestic products. If economic downturns, political/social unrest, or changes in laws and regulations occur in each country, there is a risk of decreased demand or restrictions on business activities. The Group maintains a product supply system to countries worldwide through overseas subsidiaries and distributors, while enhancing risk management systems and oversight.

The Group is subject to a wide range of laws and regulations in Japan and overseas (Act on Pharmaceuticals and Medical Devices, Companies Act, Financial Instruments and Exchange Act, Antimonopoly Act, trade and environment-related regulations, etc.), and if a violation occurs, the Group may be subject to criminal penalties, dispositions, or sanctions, and its social credibility and corporate image may be damaged, which may affect business performance and financial condition. Under the Global Compliance Program, the Company has established the "Nihon Kohden Charter of Conduct," the "Nihon Kohden Code of Ethical Conduct," and the "Compliance Promotion Regulations," and the Compliance Committee handles regulatory response, education and training, operation of the internal whistleblowing hotline, and monitoring of compliance status.

While there are currently no lawsuits or similar matters that could materially affect business performance or financial condition, the Group may become subject to significant litigation in the future related to product liability, quality issues, intellectual property rights, labor issues, or violations of laws and regulations. If litigation is brought, regardless of the merits of the underlying facts, there is a risk of impact on business performance and financial condition. The Group is taking preventive measures through strengthening its quality control system and thorough compliance.

If IT system outages, service interruptions, or information leaks occur due to cyberattacks, new types of computer virus infections, or communication network failures, the Group's social credibility and corporate image may be damaged, potentially affecting business performance and financial condition. The Group has implemented measures including establishing and strengthening training for its CSIRT structure, launching a PSIRT in April 2022 to handle product security, formulating a Basic Policy on Product Security in May 2023, and establishing Guidelines for the Use of Generative AI in February 2025. Various security measures are also implemented for products and services that utilize communication networks.

If natural disasters associated with climate change, shortages in the supply of resources such as water, or the spread of terrorism, war, or infectious diseases occur, this may disrupt parts procurement, product supply, and sales/service activities, potentially affecting business performance and financial condition. The Group has formulated a Business Continuity Plan (BCP), implements regular company-wide training, and takes procurement countermeasures including consideration of alternative products. In addition, the Group expressed its support for the TCFD recommendations in May 2022 and is promoting disclosure of climate-change-related information. Since March 2024, the Group has begun certifying products under the Green Product Label and continues efforts toward achieving carbon neutrality and promoting a circular economy.

The uncertain situation continues due to the prolonged situation in Ukraine and heightened tensions in the Middle East, and if geopolitical risk or a surge in crude oil prices intensifies, delays or suspensions in production of products and consumables due to difficulty in procuring materials, as well as restrictions on sales and service activities, are anticipated. Sales in Russia and Ukraine account for less than 0.1% of consolidated net sales, and sales in the Middle East account for approximately 1% of consolidated net sales, so the direct impact on sales is limited. However, the Group continues to monitor and implement alternative procurement measures regarding the indirect impact on materials procurement.

Response is required to digital and AI-related regulations for medical devices, including the US FDA Cybersecurity Guidance (published October 2018), the AI-Enabled Medical Device Guideline (published September 2023), and the Clinical Decision Support Software Guidance (published January 2026), and delays in response may affect new product launch schedules and market entry. The Group launched its PSIRT in April 2022 to work on improving product security and responding to incidents, and formulated and has been implementing its Basic Policy on Product Security since May 2023.