HOSOYA PYRO-ENGINEERING CO.,LTD.

The Company's main products are Defense Equipment (Pyrotechnics) for the Ministry of Defense, and gunpowder and explosives are used as raw materials. Although strictly regulated under the Explosives Control Act, an explosives accident could lead to a temporary suspension of plant operations, and the Company considers this its greatest management risk. The Company is addressing this by treating thorough quality and safety management as its top priority.

A large portion of the Company's transaction value is attributable to the Ministry of Defense, resulting in an extremely high degree of dependence on a specific customer. Since orders from the Ministry of Defense are affected by trends in the national budget, budget cuts or policy changes could have a significant impact on the Company's earnings. As a countermeasure, the Company is working to develop new customers in the High-Energy Materials Evaluation Testing and Combustion Disposal Services businesses for pyrotechnics.

Since the Company's main customers are government agencies, including the Ministry of Defense, product delivery deadlines tend to be concentrated in the fourth quarter, resulting in a tendency for business performance to be skewed toward the fiscal year-end. An increase in the proportion of sales to government agencies strengthens this tendency and also leads to production inefficiency. The Company aims to level out sales by expanding sales of products for private-sector customers and increasing orders in the first half.