KIKUCHI SEISAKUSHO CO.,LTD.

Operating losses continued to occur in the consolidated fiscal year under review, and material doubt exists regarding the going concern assumption. At the end of the previous consolidated fiscal year, the company was in breach of the financial covenant (net assets criterion) under its term loan agreement, but the breach was resolved by the end of the current consolidated fiscal year. The company judges that there is no material uncertainty, as it aims to secure funds on hand through order expansion, production efficiency improvements, direct cost reductions, and utilization of listed securities held; however, the risk remains that profitability recovery may not proceed as planned.

Fluctuations in customers' (automobile, watch component, office equipment manufacturers, etc.) new product development plans, model change cycles, and development budgets directly affect business performance. Uncertainty in the external environment continues, including U.S. monetary policy, instability in Eastern Europe, and global supply concerns for electronic component parts, and new development projects in the consumer electronics field have continued to decline from previous levels. Information is shared through monthly regular executive meetings and weekly executive liaison meetings, and the company promotes operational adjustments and DX to achieve agile responses.

"Prototype-less" technology, in which models equivalent to prototype units are created in a computer's virtual environment to evaluate performance and quality, is becoming widespread, creating a risk that it will substitute for conventional physical prototype demand. If technological innovation occurs beyond the company's expectations, the technological competitiveness of the company, which is based on precision mold technology, could decline, potentially affecting operating results and financial condition. The company's strength lies in the production technology and precision mold technology accumulated since its founding, but responding to the rapid progress of virtualization technology is a challenge.

The company is actively engaged in the development and manufacture of support and service robots such as Muscle Suits, drones, and delivery robots, but risks exist including labor shortages, development delays, and the time required for various demonstrations and certification processes. Although group startups have raised funds to promote development and expand orders, the uncertainty until commercialization remains high. If these new businesses do not proceed as planned, operating results and financial condition may be affected.

Due to the shortening of new product development cycles, customers constantly demand the provision of new technologies, and there is a risk of losing order opportunities if the company cannot make proposals with an advantage over competitors. The Group continues to work on improving mold, prototype, and mass-production technologies, but there is no guarantee that it can consistently provide new technologies that meet customer requirements. A decline in technological competitiveness directly affects operating results and financial condition through a decrease in orders received.

The average age of employees of the filing company is 45.7 years (as of the end of April 2025), and against the backdrop of a declining working population due to Japan's low birthrate and aging population, there is a possibility that difficulties may arise in the succession of production technology. If the retirement of skilled engineers and business expansion outpace the securing of human resources and training of engineers, delivery delays and quality deterioration may occur, creating a risk that it becomes difficult to secure continuous orders. Currently, the situation is supported by the contributions of employees with a sense of crisis awareness, and strengthening the structural human resource base remains a challenge.

The company handles a large amount of highly confidential information related to customers' new product development and research, and information leakage poses a risk of loss of credibility, decreased orders, and liability for damages. Measures have been taken, including the establishment of the "Information Management Regulations," internal training, entry/exit management, designation of restricted work areas, and obtaining confidentiality agreements from all employees and subcontractors, but the risk of leakage cannot be completely eliminated. External leakage of confidential information could have a material impact on operating results and financial condition.

The Group's factories are concentrated in Hachioji City, Tokyo, and in Fukushima Prefecture, and if a natural disaster exceeding the company's expectations occurs, there is a risk that factory production capacity will be significantly reduced. The geographic concentration of manufacturing sites represents a vulnerability in the business continuity plan (BCP), and in the event of a disaster, operating results and financial condition could be materially affected. The annual securities report does not specify concrete measures such as diversification.

The Group's products mainly use metals (iron, copper, brass, etc.) and resins as raw materials, and if it becomes difficult to obtain materials due to soaring crude oil prices or fluctuations in metal markets, there is a risk of manufacturing delays and increased costs. If increases in material costs cannot be passed on to sales prices, profitability may deteriorate, potentially affecting operating results and financial condition. The annual securities report does not specify concrete hedging measures or procurement diversification strategies.

The Group conducts manufacturing operations in China and South Korea and purchases some of its products from there, so there is a risk that exchange rate fluctuations in foreign currency-denominated transactions will affect transaction prices, sales, and the yen-converted amounts of assets and liabilities. The company states that it strives to mitigate and avoid exchange rate fluctuation risk, but specific details of hedging measures are not disclosed in the annual securities report. Fluctuations in either the yen's depreciation or appreciation may affect procurement costs and financial figures.