INTER ACTION Corporation

Demand for the Company's core products, light source devices, is directly linked to trends in capital investment by semiconductor manufacturers for CCD/CMOS image sensors, and there is a risk that demand could fluctuate significantly due to changes in manufacturers' management policies or deterioration in market conditions. As a countermeasure, the Company suppresses fixed costs through a lean, elite personnel structure and a semi-fabless production system, and has built a framework that can respond flexibly, such as through the use of temporary staffing and the partial cancellation of leased space.

The market for light source devices and Hitomi Modules is supplied by several companies including the Company, and there is a risk that its market competitiveness and market share could decline if competitors adopt aggressive low-price strategies or if new entrants emerge domestically or overseas. As a countermeasure, the Company is promoting the development and sale of customized products that respond to the sophistication of image sensors, as well as risk diversification through business diversification.

In response to new devices for 3D sensing technology and increasingly high-pixel, high-functionality CCD/CMOS image sensors, more advanced light source devices and Hitomi Modules are required to be developed, and there is a risk of an adverse impact on business performance if development of products incorporating new technologies is delayed or fails. In addition, since markets for new businesses are not yet formed, the Company minimizes risk by making personnel and capital investment decisions only after verifying hypotheses based on customer needs and market trends.

The Company is a small organization with 130 employees (as of May 31, 2025) and is highly dependent on human resources centered on highly specialized engineers, so if the Company is unable to secure and develop excellent personnel as planned, or if employees leave for other companies, business operations could be disrupted. On the other hand, rapid expansion in scale carries the risk of increasing fixed costs, and the Company addresses this through information sharing within departments, individual interviews, and the conclusion of confidentiality agreements.

In addition to the risk of technology and know-how leakage to outside contractors, there is a risk of manufacturing delays occurring due to a sudden deterioration in a contractor's business condition or an expansion of orders resulting from a rapid recovery in market conditions. Furthermore, if product defect liability arises, business performance could be affected if the provision for product warranties is insufficient; the Company addresses this through precise order management, advance procurement of parts, and thorough quality control.

To maintain and strengthen the technological development capabilities that are core to its market competitiveness, the Company allocates much of its personnel to research and development, which may put pressure on profits until results are achieved. In addition, focused investment in research and development carries the risk of relative resource shortages in sales, manufacturing, and internal management; the Company addresses this by reducing the fixed cost burden through a lean, elite personnel structure and the use of temporary staffing.

As of May 31, 2025, the Company held interest-bearing debt of ¥748 million, consisting of ¥440 million in short-term borrowings and ¥308 million in long-term borrowings including the current portion, and there is a risk of an impact on business performance if it becomes difficult to obtain new borrowings. As a countermeasure, in addition to properly managing the balance of interest-bearing debt, the Company has entered into a commitment line agreement with financial institutions (unused borrowing balance of ¥5,000 million) to secure liquidity.

With respect to specific raw materials such as lenses and electronic components used in products and units, there is a risk of an adverse impact on business performance if the continuity of transactions with suppliers becomes unstable, resulting in manufacturing delays or missed delivery deadlines. As a countermeasure, the Company has built a risk mitigation framework through advance procurement and purchasing from multiple suppliers.

While there are currently no legal regulations that would significantly impede business operations, there is a risk of an impact on business performance if, in the future, the export or import of the Company's products or key components becomes subject to legal regulations or requires the acquisition of permits. The relevant business divisions and administrative departments coordinate with each other to share information on and ensure compliance with relevant laws and regulations.

There is a possibility that recession risk stemming from trade issues originating in the United States and trends in various countries could affect business performance; although sales to the United States are minor and the direct impact is considered limited, there is a risk that tariff policies could indirectly affect business performance through, for example, companies withholding capital investment. The Company's policy is to respond flexibly and promptly to changes in the market.