PowerX, Inc.

The Group imports the entire volume of its battery modules from a single supplier in China, and procurement may become difficult due to the materialization of geopolitical risk, a decline in supply capacity, quality issues, or other factors. The Group is proceeding with the evaluation of alternative suppliers and considering procurement from East Asia and Southeast Asia; however, changing suppliers would incur additional man-hours and costs, creating a risk that smooth continuation of product manufacturing and sales could become difficult.

The Group's battery storage products are eligible for subsidies under the 7th Strategic Energy Plan, which significantly influences customers' adoption decisions. If the government or local governments revise their policies or discontinue subsidies without notice, demand for battery storage products and other offerings may decline, potentially affecting the Group's business and financial results. There is no guarantee that subsidy levels will continue at their current levels.

Although the 7th Strategic Energy Plan targets a renewable energy ratio of 40-50% by FY2040, the market could shrink due to changes in government energy strategy, the restart of nuclear power plants, technological innovation in carbon-based energy, and other factors. Even if the market size estimate itself is accurate, intensifying competition could prevent the Group's business from growing. The Group estimates market size based on third-party data and its own analysis, but realizing such estimates involves many uncertainties.

The Group outsources the entire volume of manufacturing of its large-scale stationary battery storage system, PowerX Mega Power, to Mitsui E&S Tokki Engineering Co., Ltd., and the contract could be terminated due to changes in that company's management policy or other factors. The Group plans to increase production capacity at its own factory, which is expected to mitigate this risk once completed; however, if the contract becomes difficult to continue before completion, this could cause serious disruption to manufacturing. As of the date of submission of this document, no factors that would impede continuation of the contract have arisen.

The Group provides capacity warranties of up to 20 years, among other guarantees, and if the actual operational lifespan falls short of expectations, or if the frequency or severity of warranty-covered incidents exceeds expectations, warranty liabilities beyond those anticipated may arise. If the warranty period provided by suppliers of battery modules and other components is shorter than 20 years, the Group may bear liability for damages after that period expires. Although the Group records a provision for product warranties, if costs exceeding estimates arise, this could affect the Group's business and financial results.

The Group raises operating funds for capital expenditure, research and development, working capital, and other purposes through capital increases and borrowings from financial institutions, among other means; however, deterioration in business and financial results or changes in financial market conditions may make it impossible to raise funds at the desired amount, timing, or terms. In addition, if the Group violates financial covenants attached to loan agreements, this could seriously affect business continuity or adversely affect borrowing costs and subsequent fund-raising.

There is a risk that price competition with domestic and overseas competitors will intensify, preventing the Group from securing expected profits. Some major domestic competitors have larger business scale than the Group, and there is no guarantee that the advantage of domestic manufacturers from an economic security standpoint will continue in the future. If new entrants have stronger competitiveness than the Group, this could affect the Group's business and financial results.

Prices of key components for battery storage products fluctuate in response to changes in demand trends and trade policy, among other factors, and since a portion of procurement is conducted mainly in US dollars, the Group is also affected by exchange rate fluctuations. The Group takes measures such as negotiating reductions in purchase prices, using forward exchange contracts, and passing on price increases to customers; however, if these measures are unsuccessful, or if market prices or exchange rates fluctuate more than expected, this could affect the Group's business and financial results.

The BESS Business operates under a business model in which it takes an average of three to four months from initial contact to contract execution, and an average of six to seven months from formal order receipt to delivery and closing, creating a risk that revenue recognition and fund collection may be delayed beyond expectations. Contracts may also not be performed as scheduled due to delays in site selection or foundation work, changes in customers' financial condition, trends in subsidy approval decisions, and other factors. Delays in acceptance inspection due to product defects or payment of late-payment penalties may also occur.

There is a possibility that innovative energy storage technologies that could substitute for batteries may be developed, or that technologies or products offering lower cost and higher quality than the lithium iron phosphate batteries currently adopted by the Group may emerge, undermining the Group's competitive advantage. Technological innovation in fossil fuels, nuclear power, geothermal energy, and other areas could also undermine the competitiveness of the Group's products and services. If these occur, this could affect the Group's business and financial results.