MICRONICS JAPAN CO.,LTD.

Since the Group's core business is the manufacture and sale of inspection equipment and measuring instruments for semiconductors and FPDs, a collapse in the supply-demand balance or changes in the economic environment that lead customers to freeze capital expenditure, reduce production, or change plans could have a significant impact on operating results. While technological innovation can stimulate demand, there is an inherent risk that performance could deteriorate rapidly during a downturn in the market cycle. As a countermeasure, the Group is promoting diversification of its product and business portfolio.

As consolidation and restructuring among major semiconductor and FPD manufacturer customers has progressed, the proportion of net sales accounted for by specific customers has increased, heightening the risk that changes in such customers' capital expenditure, production plans, or business strategies will directly affect operating results. In addition, demands from customers for cost reductions could lower selling prices and pressure profitability. As a countermeasure, the Group is continuously monitoring market conditions and promoting customer diversification.

Given the nature of products that utilize cutting-edge technology, if unforeseen defects occur, delivery delays, production stoppages, recalls, and other issues could result in liability for damages and additional expenses associated with product recovery, potentially leading to a decline in net sales and a loss of customer trust. As a countermeasure, the Group continues to promote improvements across the entire development, manufacturing, procurement, and service process through QDCCSS activities, and to develop and strengthen its quality assurance system based on ISO9001.

If the Group is unable to meet the technology and schedule requirements demanded by customers, or if competitors take the lead with superior new technologies or products, the Group's products could lose competitiveness, making it difficult to maintain profitability. As the technological innovation cycle in the semiconductor market shortens, failure to bring products to market in a timely manner could lead to a permanent loss of market share. As a countermeasure, the Group has established a system for early identification of future needs through regular technical exchanges with customers and for proactively initiating technology development.

If cyberattacks such as unauthorized access, computer viruses, ransomware, or DoS attacks occur, or if officers or employees misuse or improperly use information systems, this could make business continuity difficult and result in legal claims, litigation, damages, fines, and other consequences, significantly affecting the Group's social credibility and operating results. As a countermeasure, the Group regularly reviews its information security policy, conducts periodic vulnerability assessments of its IT systems, and has taken out cyber risk insurance.

The outflow or unauthorized use of intellectual property outside the company due to employee turnover or information leaks, invalidation of the Group's own intellectual property rights, insufficient protection in certain regions, and lawsuits alleging infringement of third-party intellectual property rights could all have a significant impact on operating results. In addition, if the Group is unable to obtain the licenses necessary for commercialization, its business development itself could be constrained. As a countermeasure, the Group conducts investigations of third-party intellectual property from the early stages of development in cooperation with external experts such as attorneys and patent attorneys, and promotes the acquisition of its own patents through an incentive program.

For some materials and processing involving cutting-edge technology, it is difficult to find alternative suppliers or subcontractors, and if supply delays, processing delivery delays, or quality problems occur, this could interrupt product manufacturing or cause quality deterioration, significantly affecting operating results. If the structural vulnerability of single-source dependence becomes apparent, it could become difficult to meet delivery deadlines for customers, potentially leading to lost order opportunities. As a countermeasure, in addition to maintaining good relationships with partner companies, the Group has established a procurement and outsourcing system that takes into account alternative products and second sources.

Securing and developing capable personnel, particularly in the development and engineering departments, is essential for achieving sustainable growth; however, if recruitment of necessary personnel does not proceed as expected, or if key personnel leave the company, this could significantly affect business development and operating results. As competition for engineers intensifies in the semiconductor and precision equipment fields, a shortage of personnel directly leads to delays in new product development and a decline in technological competitiveness. As a countermeasure, the Group is enhancing its personnel treatment system, actively recruiting, expanding training and education programs, and conducting engagement surveys.

As the Group has manufacturing, sales, and service bases in Taiwan, China, the United States, Germany, South Korea, Singapore, and other countries, and has many overseas customers, it faces risks including reduced orders due to changes in the international situation, difficulty ensuring the safety of local employees, expatriates, and business travelers due to conflicts, wars, terrorism, or infectious diseases, and the suspension of business activities. In particular, developments in US-China security and export control policies related to the semiconductor industry could directly affect the business. As a countermeasure, the Group monitors developments in the international situation, security, and industrial policy, and has established a system for the timely collection of information from its overseas locations.

The Group is required to comply with a wide range of laws and regulations both domestically and internationally, covering product safety, security, import/export, business practices, patents, product liability, the environment, labor, taxation, and other matters; as these become increasingly complex, it is difficult to completely eliminate the risk of violations by officers and employees. If a violation occurs, it could result in a loss of social credibility, suspension of transactions, fines, and penalties, significantly affecting business development and operating results. As a countermeasure, the Group has established an internal control system, distributes a