NAKANISHI INC.

The Group has a relatively high ratio of overseas sales, and since foreign currency-denominated transactions and assets are converted into yen when preparing the consolidated financial statements, fluctuations in exchange rates directly affect business performance and financial condition. Given the business structure premised on global expansion, this impact is a persistent factor. The annual securities report does not describe specific hedging measures, indicating a structural vulnerability to exchange rate fluctuation risk.

The Group's core products, medical devices, are subject to legal regulations concerning medical and environmental aspects in various countries, including Japan's Pharmaceuticals and Medical Devices Act, the EU's MDR (Medical Device Regulation), and U.S. FDA regulations. If these regulations change, additional costs and time may be required to obtain and maintain product approvals, potentially affecting business performance and financial condition. The Group must simultaneously comply with differing regulatory systems in multiple major markets, meaning regulatory change risk is geographically dispersed.

Although the Group has established a rigorous quality control system based on ISO9001, ISO13485, and GMP, the possibility of unforeseen defects occurring in the future cannot be ruled out. Given the nature of medical devices as products, if quality issues arise, the impact on business performance and financial condition could be significant, including product recalls, business suspension, and loss of trust. While risk is reduced to some extent through compliance with international quality management system standards, complete elimination of the risk is explicitly stated to be difficult.

The Group pursues M&A with companies expected to generate synergies with existing businesses for sustainable growth, making decisions after conducting detailed due diligence. However, if the expected earnings are not achieved after an acquisition due to deterioration in the business environment or other factors, this could affect business performance and financial condition. There is a latent risk of impairment of goodwill and other items included in the acquisition consideration.

The Group is exposed to multifaceted intellectual property risks, including the filing of infringement lawsuits by third parties, invalidation petitions against its own patents, and deterioration of licensing terms for third-party patents. In certain countries and regions, the effectiveness of intellectual property protection is low, which could lead to declines in sales and price competition due to counterfeit products. Although the Group strives for prevention through continuous third-party patent investigations and securing its own rights, the risk of incurring significant damages, manufacturing injunctions, and other disadvantages remains.

Although the Group strives to ensure safety at the design, development, and manufacturing stages of medical devices, there is a risk that accidental malfunctions during use could cause harm to others, resulting in liability claims. There is also a possibility of exposure to litigation risk arising from laws and regulations in the future, and it is explicitly stated that such events could have a material impact on business results and financial condition. As a medical device manufacturer, product liability can involve high litigation amounts given the nature of the products.

While the Group strives to ensure information security through the formulation of a basic information security policy, establishment of organizational structures, and ongoing employee training, if a cyberattack, virus infection, or similar event causes a shutdown of business systems, information leakage, or IT system failure, this could affect business performance and financial condition. Due to global expansion, the range of sites and systems that could become targets of attack is extensive, resulting in a broad scope of risk management.

If natural disasters such as typhoons, earthquakes, and tsunamis, or infectious diseases such as novel coronavirus or new strains of influenza, occur or spread on a scale far exceeding expectations, this could affect business performance and financial condition through prolonged difficulty in operating factories and offices and impacts on customer industries. Although crisis management systems and countermeasures have been established, responding to events exceeding the assumed scale may prove difficult. Suspension of manufacturing site operations is also a risk directly linked to the stable supply of medical devices.

As the Group operates globally, it may be affected by rising geopolitical tensions in specific regions, acts of terrorism, and policy changes due to regime changes. In addition, economic security regulations, sanctions, export restrictions on strategic materials, and procurement restrictions in various countries could disrupt the stable procurement of raw materials and components, as well as production and sales activities. It is explicitly stated that if these events materialize, they could affect business results and financial condition, and given recent international circumstances, the potential scope of impact is broad.