ZUKEN INC.

As the Group's main customers are in the electronics manufacturing and automotive-related/industrial equipment manufacturing industries, its business performance is affected by the economic conditions and capital expenditure trends of these manufacturing industries. If a downturn in performance or stagnation in capital expenditure in the manufacturing industry continues, it may directly affect the Group's sales and profits. The Group is working to expand its business by entering new promising markets and technology fields, but the high degree of dependence remains a structural risk.

If new product development or functional enhancements do not proceed as planned, there is a risk of lost sales opportunities and delays in business development. In addition, if a serious defect occurs in a product, there is a risk of bearing the burden of repair costs and warranty liability, as well as a loss of confidence in the solutions. The Group has established thorough quality improvement and management systems as well as a rapid repair response system, but development delays and quality issues have a direct impact on business performance.

Securing intellectual property rights such as copyrights, patents, and trademarks is extremely important in the Group's solutions business, but rights requiring examination by government authorities are not always obtainable. It is practically difficult to fully investigate and ascertain whether the Group is infringing on third parties' intellectual property rights, and there is a risk of being required to pay royalties, being subject to injunctions against use, or being claimed for damages. If these risks materialize, they may have a material impact on business performance and business continuity.

The Group has built long-term partnerships with numerous influential partner companies in product development and sales, but there is a risk that these partnerships may be terminated due to a partner company's bankruptcy, liquidation, acquisition, or strategic changes. If multiple or important partnerships are terminated, it could weaken the business foundation and stall new business development, potentially affecting business performance.

The Group establishes subsidiaries and affiliated companies, forms capital alliances, and conducts corporate acquisitions to expand and strengthen its business, but there is a risk that performance may not grow as initially planned or that cost burdens may increase. If the business performance or financial condition of an acquired or established company deteriorates, it may affect the overall performance of the Group.

The Group conducts business in Europe, the United States, and various Asian countries, and is exposed to risks such as sudden changes in political and economic environments, exchange rate fluctuations, unexpected changes in laws and regulations, difficulty in securing human resources, and social disruption caused by terrorism, war, or infectious diseases. If these risks materialize, they may cause deterioration in the earnings of overseas businesses and hinder business continuity, potentially affecting the Group's business performance.

The Group holds a large amount of important confidential information, such as customers' design data and new product information, as well as personal information of customers, shareholders, employees, and others, and if an information leak occurs, there is a risk of claims for damages and loss of credibility. The Group strives for thorough information management through the development of internal information systems, the conclusion of confidentiality agreements, the establishment of internal regulations, and employee training, but complete prevention is difficult, and the impact of a leak on business performance and brand would be significant.

The Company and some of its consolidated subsidiaries have defined benefit retirement lump-sum payment plans, and some overseas consolidated subsidiaries have defined benefit pension plans, and there is a risk that retirement benefit obligations and expenses may increase due to changes in calculation conditions, deterioration in pension asset management, or changes in laws or accounting standards. If these burdens become substantial, they may affect the Group's financial condition and business performance.

The Group has business locations in Japan and around the world, and there is a risk that major development and sales sites could suffer devastating damage due to major earthquakes, fires, or the spread of infectious diseases, or that employees could become unable to work. If business activities are interrupted or delayed and substantial costs are incurred for recovery, it may have a material impact on the Group's business performance. The Group pays close attention to disaster prevention and countermeasures, but there are limits to complete preparedness for large-scale disasters.