ZETT CORPORATION

If the domestic consumption market changes beyond expectations due to the progression of the declining birthrate and aging population, changes in consumer purchasing behavior, economic fluctuations, natural disasters, the spread of infectious diseases, etc., this could have a significant impact on domestic sales activities, which account for the majority of sales. As countermeasures, the Company is strengthening its ability to respond to change as a specialized wholesaler by expanding its sales channels and product lineup and thoroughly managing inventory liquidity.

In overseas production at local partner factories in China, Vietnam, Taiwan, and other countries, changes in political and social conditions, natural disasters, and the outbreak of infectious or epidemic diseases could lead to a stoppage or delay in product supply and increases in raw material and energy prices. As a countermeasure, the Company diversifies production countries and, for some products, switches to domestic production in emergencies.

Since many of the products handled are manufactured overseas, there is a risk that fluctuations in exchange rates will raise procurement prices and manufacturing costs. For its own products, the Company seeks to reduce risk through forward foreign exchange contracts within the scope of actual demand, but it is impossible to completely eliminate foreign exchange risk, which could adversely affect the Company's financial position and operating results.

The Company manufactures and sells certain brands under license agreements with other companies, and if such agreements are terminated due to changes in the licensor's sales strategy or other reasons, product supply may become impossible. In addition, if disagreements arise between the parties due to management, financial, or other reasons, problems may arise in continuing the licensed business, which could adversely affect the Company's financial position and operating results.

If a product recall or damage claim occurs due to a product defect, this could lead to a decline in brand image and the Company's social reputation. Although the Company has product liability insurance, there is no guarantee that all damages will be covered by insurance, which could adversely affect the Company's financial position and operating results.

For inventory assets, the Company records write-downs for the difference between estimated fair value based on future demand and market conditions and cost; however, if market conditions change, additional write-downs or losses on product sales may occur. This could adversely affect the Company's financial position and operating results.

Since much of the Company's operations depend on information systems, cyberattacks, information leaks, system failures, and similar incidents could result in the suspension of business activities, leakage of customer information, decline in social credibility, and occurrence of damage compensation liabilities. Given the high degree of dependence on information systems, the impact of such events on the Company's financial position and operating results could be significant.

Signs of impairment may arise for owned land due to declines in land prices, and if a decrease in the value in use of fixed assets or a decline in net realizable value is recognized due to a decline in profitability from changes in the business environment or obsolescence of equipment, recognition of an impairment loss will be required. This could adversely affect the Company's financial position and operating results.

If the Company is sued by a third party for allegedly infringing intellectual property rights, or if a third party infringes the rights of the Company's group, this could result in an injunction against manufacturing and sales or the occurrence of substantial damages or settlement payments. The Company strives to reduce this risk through continuous awareness-raising, investigation, confidentiality of technology, and education and training, but the financial impact could be significant if a dispute arises.

The Company has adopted health-oriented management as one of its management policies and is implementing measures such as improving employee benefit programs, establishing work-life balance, and supporting self-development through participatory and online training programs; however, if the securing and development of human resources does not proceed as planned, this could adversely affect the Company's financial position and operating results.