NF HOLDINGS CORPORATION

Since the Company Group's products are primarily geared toward research and development and manufacturing lines, its business performance is structurally susceptible to trends in customers' capital expenditure. During economic downturns or periods of restrained capital expenditure, orders may decrease, potentially adversely affecting the business, results of operations, and financial condition. A high degree of dependence on specific demand segments is a factor that amplifies this risk.

Price competition is intensifying in the industry to which the Company Group belongs, making continuous cost reduction efforts essential. If cost reduction efforts fall behind those of competitors, there is a risk of losing price competitiveness and order opportunities. This could adversely affect business performance and financial condition through declining profit margins.

Technological capability is a key competitive factor in the business fields in which the Company Group operates, and the continued timely development and provision of new products is a prerequisite for business continuity. If the Company Group fails to continuously maintain and develop its technological capabilities, it may lose competitiveness relative to competitors, leading to decreased orders and reduced market share. In fields where the pace of technological innovation is rapid, continued investment in development is essential.

The future development of the Company Group depends heavily on securing talented personnel in the fields of development, production, sales, and management. If the Company Group falls behind in recruitment and retention amid intense competition for talent, its product development and business operation capabilities may decline, potentially adversely affecting business performance. In particular, a shortage of technical personnel poses a risk directly linked to delays in new product development and quality deterioration.

The Company Group develops and manufactures products based on ISO9001 certification and its own internal standards; however, in the unlikely event a defect occurs, product recall and compensation costs may arise, along with the risk of damage to the Company Group's social reputation. Loss of customer trust directly leads to loss of order opportunities and may have a material adverse effect on the business, results of operations, and financial condition. Continuous strengthening of the quality control system is required.

The Company Group handles a wide range of confidential information related to development, production, sales, and management, including information received from customers, and while it has established a confidentiality management framework, the risk of leakage is not zero. If confidential information is leaked, it could lead to loss of customer trust and a decline in competitiveness, potentially adversely affecting the business, results of operations, and financial condition. There is also a risk of disruption to the continuation of transactions with customers.

Some of the products developed and manufactured by the Company Group are subject to security export control regulations, and the Company Group implements export controls based on its own internal standards. In the unlikely event of a regulatory violation, in addition to legal sanctions (such as suspension of exports and penalties), the Company Group could face social criticism, potentially causing serious disruption to the continuation of business activities. There is also a risk that the items and content subject to regulation may change in response to shifts in the international situation.

There is a risk that a large-scale natural disaster could halt business activities for a certain period. In addition, if uncertain international conditions, including Russia's invasion of Ukraine and escalating tensions in the Middle East, become prolonged or intensify, delays or suspensions in the procurement of raw materials and declines in production and sales activities are anticipated, potentially adversely affecting business performance. If the risk of supply chain disruption materializes, the impact could be extensive.

The Company Group utilizes computer systems and IT networks throughout its overall business operations, but there is a risk that unauthorized external access or intrusion by computer viruses could result in the leakage, falsification, or destruction of personal and corporate information. In addition, if a system failure occurs due to human error, natural disaster, accident, or other causes and recovery takes time, this could result in the suspension of business activities and adversely affect operating results. With the advancement of digitalization, the threat of cyberattacks is increasing.