Precision System Science Co., Ltd.

The consolidated fiscal year under review falls within the business turnaround phase, during which the Company recorded an operating loss, ordinary loss, and net loss attributable to owners of the parent, giving rise to conditions that raise material doubt about the going concern assumption. The foundation for securing profits is gradually being established through the conclusion of a five-year ODM supply agreement with ELITechGroup and improved utilization rates at the second plant of the Odate Reagent Center. Refinancing of short-term borrowings was also completed in May 2025, and the Company judges that there is no material concern regarding cash flow for the time being. However, the conditions giving rise to material doubt still exist, and there is a risk that the financial condition could deteriorate if progress on the business turnaround falls short of the plan.

In FY2025 (ended June 2025), the Company's sales dependence on ODM customers such as ELITechGroup was extremely high at approximately 76%, meaning that the sales conditions of ODM customers directly affect the Group's business performance. The Company has concluded a mid- to long-term supply agreement with ELITechGroup covering the five-year period from July 2024 to June 2029, with expected orders totaling more than ¥7.0 billion, aiming to secure a stable order base. However, as long as the structure of high dependence on specific customers continues, deterioration in the business environment of such customers or changes in their strategy would have a significant impact on business performance.

Continuous fund procurement is necessary to cover development costs for product launch and sales, capital expenditures, and increases in working capital, and if funds cannot be procured as planned, this could affect business strategy and performance. Borrowings with financial covenants have already been repaid, and the Company expects continued support by maintaining close relationships with existing lending banks, centered on its main bank. The Company addresses this risk by building and maintaining a sound financial structure and by reviewing its funding plans from time to time based on the latest sales and production plans.

The Group holds numerous tangible fixed assets and intangible fixed assets such as technology assets, and if production facilities become idle or utilization rates decline due to sudden changes in the business environment, impairment losses may occur, affecting business performance. Given the current business turnaround phase, particular attention must be paid to impairment risk in the event that plans are not achieved. The Company addresses this by reviewing production plans from time to time based on the latest sales and order information.

The Group's IVD testing equipment and IVD reagents are subject to laws and regulations in each country where they are sold, and tightening of regulations or the introduction of new regulations may affect business strategy and performance. Continuation of business activities requires approvals and permits from authorities in each country, and if such approvals or permits cannot be obtained for projects under development, launching and selling the products may become difficult. The Group's policy is to comply with relevant laws and regulations and to continue responding to regulations in each country.

If a material contract relating to business operations is terminated due to expiration, cancellation, or other reasons, or is revised on terms unfavorable to the Group, this could have a material impact on business strategy and performance. In particular, contracts with major business partners such as ODM supply agreements account for the majority of sales, so changes in contract terms have a significant impact on business performance. Thorough contract management and strengthening relationships with business partners are required as countermeasures.

The proprietary brand product business (sales dependence of just under 24% in FY2025 (ended June 2025)) relies on the sales performance of local distributors in Japan and overseas, and there is a risk that changes in the distributors' business conditions or sales strategies could affect business performance. If a distributor's business deteriorates or its policy changes, this could lead to the loss of a sales channel. The Company seeks to stabilize sales by strengthening partnerships with distributors having strong sales capabilities and by improving the accuracy of sales forecasts.

Product liability risk is inherent in all products and component parts handled by the Group, and if a defect in a product is discovered during clinical trials or testing processes, the Group could bear large-scale liability exceeding the coverage limits of its insurance. The Group hedges a certain level of risk by maintaining product liability insurance, but if a situation arises that exceeds the insurance coverage, this could lead to financial losses and a decline in social trust.

The Group protects its proprietary technology through patents in order to exclude competitors, but if registered patents are invalidated or expire, the Group could lose its competitive advantage, affecting business strategy and performance. Technological differentiation in the IVD field is fundamental to business continuity, and the loss of patent protection increases the risk of imitation by competitors. Appropriate management and maintenance of the patent portfolio remains an ongoing challenge.

As a healthcare company, securing excellent personnel with specialized knowledge and skills is essential to maintaining competitiveness, but if the Group is unable to secure such personnel or if essential personnel leave the Company, this could affect business strategy and performance. Given the current business turnaround phase, consideration must also be given to the risk that organizational instability could lead to personnel attrition. The Group seeks to secure and retain personnel through the practice of its human resource management policy. In terms of information security, there is also a risk of decline in social trust due to leakage of confidential information or personal data, and the Group strives for strict management in this regard.