SIGMAKOKI CO., LTD.

The Group conducts planned production based on demand forecasts for Basic Optical Equipment Products, Automated Application Products, and Optical Elements & Thin-Film Products, and holds a substantial amount of inventory to enable timely delivery. If events occur that materially affect inventory valuation due to environmental standards or sudden changes in the business environment, this may have a material impact on business performance and financial position. This is a structural risk arising from the multi-item catalog sales business model, and the accuracy of demand forecasting is directly linked to financial soundness.

The Group promotes new product planning and development by leveraging its network with leading research institutions and private-sector companies in various industrial fields. However, if there is a discrepancy between anticipated technology trends and market changes and actual conditions, there is a risk of being unable to develop products that meet customer needs. Failure in new product development may significantly affect future growth potential and profitability, and is also directly linked to the maintenance of competitive advantage.

Price competition with domestic and overseas competitors may intensify due to market maturation, changes in industrial structure, foreign exchange issues, and other factors. In addition to the ongoing commoditization of conventional products, low-price strategies adopted by competitors, and sharp price declines caused by the inflow of low-priced overseas products into the domestic market, if there is a sharp rise in energy prices or procurement costs for raw materials and parts, or if cost increases cannot be appropriately passed on, this may have a material impact on business performance and financial position.

The Group has established production and sales subsidiaries in the United States and China, and sales subsidiaries in France and Singapore, expanding into overseas markets. Risks exist in these locations, including unforeseen political and economic changes, changes in laws and regulations, social unrest such as terrorism, disruption of social infrastructure due to disasters, and difficulty in recruiting or retention of human resources. If these risks materialize, they may have a material impact on the business performance and financial position of the Group as a whole.

As the Group operates businesses both domestically and internationally, there is a possibility that its own intellectual property rights may be infringed by competitors and others. In addition, if the Group is alleged to have infringed on a third party's intellectual property rights during the process of product development or production, this could develop into a dispute and have a material impact on business performance and financial position. While the Group is committed to thorough management of intellectual property rights, including patent rights, risks exist on multiple fronts as a result of its global business expansion.

Although products are manufactured under thorough quality control, if a serious defect occurs in product quality or safety, this could result in claims for damages and a decline in confidence in product quality, thereby having a material impact on business performance and financial position. As a precaution against unforeseen circumstances, the Group has taken out product liability insurance, thereby implementing certain risk mitigation measures.

In addition to important information such as technical information, the Group handles a large volume of transaction information from many business partners and customers, as catalog sales are its main sales format. Should any of this information leak, it could not only damage corporate value but also lead to economic losses, thereby having a material impact on business performance and financial position. Given the wide variety and volume of information involved, continuous countermeasures against cyberattacks and internal misconduct are required.

The one-stop provision of services combining optical technology with core technologies such as machining, electrical design, software development, and system integration is the source of the Group's competitive differentiation, and securing highly specialized, skilled personnel is key to business continuity. If the Group is unable to secure the necessary personnel due to labor shortages caused by the declining birthrate and aging population, or failure to build an attractive employment environment, this could lead to a deterioration in product quality and operational standards, thereby having a material impact on business performance and financial position. The Group is implementing measures such as strengthening new graduate recruitment, mid-career hiring, expanding education and training programs, establishing personnel evaluation systems, and promoting personnel exchange among group companies.

If business activities at development or production sites, or those of business partners, are suspended due to natural disasters such as earthquakes, fires, floods, or infectious diseases, or if problems arise in social infrastructure such as electricity, communications, or transportation, delays in production and shipment may occur, which could have a material impact on business performance and financial position. In the event of the spread or prolonged duration of an infectious disease, there is also a risk of reduced order opportunities due to restrictions on the movement of sales personnel, as well as delays in product delivery caused by mass infection among employees. Under a risk management system overseen by the Crisis Management Committee, the Group implements measures based on its business continuity plan to reduce the impact on its business activities.