Qualtec Co.,Ltd.

Sales of the Reliability Evaluation Business, the Company's main business, are heavily dependent on R&D and production trends in the automotive industry. If the industry structure changes significantly due to a game change caused by EV adoption or new entrants from other industries, this could have a material impact on business performance. As a countermeasure, the Company is promoting expansion of its existing customer base and entry into new fields to reduce its dependence on the automotive industry.

In the Reliability Evaluation Business, the proportion of sales to companies related to the Toyota Motor Group's supply chain is high. In particular, sales to DENSO Corporation accounted for ¥597,248 thousand (14.8% of net sales) in the fiscal year ended June 2025. There is a risk that fluctuations in the performance of the DENSO group could directly affect the Company's performance. The Company is working to reduce this dependence by capturing demand related to automotive electrification and expanding its share in other industries.

Although the Company has secured a competitive advantage as an independent inspection company through its technical capabilities and track record, there is a risk that market competition will intensify due to an increase in new entrants both domestically and internationally, or the emergence of companies with technical capabilities exceeding those of the Company. If customers switch to competitors' services, this could affect business performance and financial condition through a decrease in orders received.

The Company is investing significant management resources in R&D to respond to rapid technological innovation, primarily in the automotive industry. However, if the results of R&D fail to meet customer requirement levels and are not adopted as services, this could have a material impact on business performance. The Company continuously works to grasp technology trends and develop responsive services through participation in academic conferences and training, as well as internal study sessions.

Since testing equipment is a key differentiating factor, the Company actively invests in capital expenditures. However, if testing equipment becomes obsolete due to changes in the market environment and the amount invested cannot be expected to be recovered, this could affect business performance and financial condition. The risk of equipment obsolescence is a structural challenge that increases as technological innovation accelerates.

While highly motivated personnel with technical skills support the Company's business foundation, it is becoming increasingly difficult to secure human resources over the medium to long term due to the declining working population caused by the falling birthrate and aging population. If the Company is unable to secure and develop personnel as planned, this could hinder service quality and business growth. The Company is working to improve retention rates through appropriate working hour management, harassment prevention, and other workplace environment improvements.

Due to the nature of the business, which involves handling confidential customer information, an information leak could have a material impact on business performance and financial condition through a loss of social credibility. The Company has implemented measures such as establishing information security regulations, managing access to confidential data, controlling entry and exit with electronic keys, and monitoring entrances and exits with surveillance cameras; however, it is difficult to completely eliminate this risk.

If officers, employees, outsourcing partners, or others violate laws and regulations or engage in socially inappropriate conduct, there is a risk of legal sanctions, litigation, or social punishment. In addition to a loss of social trust, this could result in physical, psychological, or financial harm to employees. The Company addresses this through the development of compliance regulations, awareness activities promoting legal compliance, and internal audits.

If employees or testing equipment are damaged by natural disasters such as earthquakes, fires, or accidents, this could result in a decrease in net sales as well as unexpectedly high equipment repair and replacement costs, potentially having a material impact on business performance and financial condition. Since testing equipment is central to the Company's differentiation, the loss of equipment also entails a risk directly linked to a decline in competitiveness.

At present, the Company judges the direct impact of U.S. tariff policy to be minor, as its main business consists of reliability evaluation and analysis work at the R&D and design stages. However, the outlook remains uncertain, and depending on future policy trends, this could affect business performance and financial condition through changes in customer investment behavior. As the timing of occurrence is close, within one year, continuous monitoring is required.