AVAL DATA CORPORATION

Semiconductor Manufacturing Equipment Related is the Company's most critical business field, and sharp fluctuations in semiconductor market conditions have the greatest impact on business performance. Unexpected significant contraction in market size could lead to reduced orders and increased inventory, potentially adversely affecting business performance and cash flow. While the Company is working to diversify its business fields and differentiate its products, it is difficult to completely eliminate the risk of market fluctuations.

Price competition is intensifying year by year in the three product groups of Embedded Modules, Image Processing Modules, and Measurement & Communication Equipment, raising concerns about medium-term impact on business performance. The Company is working to expand market share and pursue high profitability through differentiation using composite technologies across the three product groups and proposal-based sales leveraging its proprietary technological resources. However, there remains a risk of declining profitability due to continued intensification of the competitive environment.

The Company is promoting new product development with embedded, image processing, and high-speed communication technologies as core technologies, but there are many new elemental technology development components, which could result in delays in the timing of new product launches. Although the Company is promoting research and development of elemental technologies at a new base dedicated to research and development, development delays risk causing the Company to miss opportunities to contribute to the evolution of customers' equipment, potentially affecting business performance.

The Company's products use high-performance components centered on semiconductors, and there are procurement sources that are difficult to replace. If a temporary supply delay or quality issue occurs at a procurement source, it could disrupt production and shipment of products, potentially affecting business performance. The Company seeks to reduce this risk by building and maintaining good relationships with procurement sources and establishing a system for rapid response in the event of defects.

The Company holds listed and unlisted investment securities for the purpose of maintaining and developing business transaction relationships. For listed shares, substantial impairment losses could arise depending on stock market trends, and for unlisted shares, there is a risk of recognizing impairment losses if recoverability declines due to investees failing to meet business plans or deteriorating financial condition. In either case, this could affect the Company's financial position and business results.

The Company's products utilize advanced technology, which inherently carries the risk of unexpected defective products. Although the Company has established a quality assurance system, including ISO9001 certification, as well as service and support systems, if quality issues occur, they could affect business performance through loss of customer trust and the incurrence of response costs.

Amid significant changes and increasing complexity in the recruitment environment, failure to secure sufficient human resources or the occurrence of employee attrition could affect the Company's financial position and business results. The Company strives to create a comfortable working environment through flat organizational management, appropriate personnel placement, initiatives toward being a health-conscious excellent company, and the establishment of basic policies related to human capital, but it is difficult to completely eliminate this risk.

Although the Company's ratio of direct overseas sales is low at approximately 2%, most of its customers have a high dependency on overseas sales, and foreign currency-denominated transactions also exist in parts procurement. Sharp fluctuations in exchange rates constitute a risk factor in terms of sales and delivery prices, and could indirectly affect the Company's financial position and business results.

If natural disasters such as major earthquakes, fires, typhoons, or floods, or various infectious diseases cause devastating damage to development and manufacturing sites and procurement sources, it could result in operational interruption and delays in production and shipment, potentially affecting the Company's financial position and business results through decreased sales and increased recovery costs. The Company has formulated and is actively pursuing a Business Continuity Plan (BCP) centered on ensuring employee safety, fulfilling supply responsibilities to customers, and contributing to local communities.