MUROMACHI CHEMICALS INC.

Pharmaceutical active pharmaceutical ingredients (APIs) are procured mainly from overseas, creating a risk that purchase prices may rise due to market fluctuations and sharp movements in exchange rates. In addition, procurement of APIs may be delayed, become difficult, or become impossible due to the management conditions, supply systems, or local political situations of overseas API manufacturers. The Company strives to maintain a continuous procurement system, but if such circumstances occur, they may affect the Company's business results and financial condition.

Sales volume of pharmaceutical APIs is affected by demand fluctuations in the formulation market and the movements of competing products, while in the liquid processing market, demand changes depending on customers' factory operation rates and capital investment trends. In the fiscal year ended May 2025, the top five customers accounted for 32.8% of net sales, indicating a relatively high dependence on specific customers, and changes in customers' sales strategies, production inventory adjustments, and corporate restructuring may significantly affect transaction amounts. Should such fluctuations occur, they may affect the Company's business results and financial condition.

The Company operates its business under a wide range of laws and regulations, including the Pharmaceuticals and Medical Devices Act, GMP Ministerial Ordinance, the Poisonous and Deleterious Substances Control Act, and the Food Sanitation Act, and maintains licenses and approvals such as pharmaceutical manufacturing business licenses, sales business licenses, and psychotropic drug importer licenses. If administrative dispositions such as license revocation or business suspension are imposed due to an unintended violation of laws and regulations, there is a risk of significant disruption to business continuity. In addition, if unexpected changes in laws, regulations, or their interpretation require new countermeasures, this may also affect the Company's business, business results, and financial condition.

The Company has established a production system compliant with domestic GMP and food GMP, but if quality deterioration occurs due to external factors, this could lead to a decline in social credibility and competitiveness. If pharmaceutical side effects, foreign matter contamination, or an unfavorable evaluation in a re-examination occur, this may result in suspension of sales, product recalls, or claims for damages. For imported APIs as well, continuous management of overseas manufacturing processes is essential, and a recall situation after delivery may affect the Company's business results and financial condition.

Prescription drug insurance prices are set according to the government's drug price standards, and periodic drug price revisions may result in price reductions for well-selling items. After a drug price revision, effects may arise such as lower sales prices and reduced profit margins in pharmaceutical manufacturing and sales, as well as demand fluctuations, lower sales prices, and reduced profit margins in API sales. Combined with fundamental reforms of the government's medical insurance system, this may affect the Company's business results and financial condition.

The Company holds numerous fixed assets, and there is a risk that asset values may fluctuate significantly due to changes in economic conditions. Manufacturing facilities include assets that have been in use for a long period since installation, and unexpected equipment malfunctions or failures due to aging may affect manufacturing schedules. If a significant deviation from the initial plan occurs due to delays in the launch of newly developed products or a decrease in sales volume, impairment of fixed assets may become necessary, which may affect the Company's business results and financial condition.

All production sites for pharmaceuticals, health foods, and chemicals are concentrated in Fukuoka Prefecture, and since the Company's plants cannot be immediately replaced, there is a high business continuity risk in the event of a disaster or accident. Although the plant sites are distributed between Fukuoka Prefecture and Ibaraki Prefecture, the majority of manufacturing functions are concentrated in Fukuoka Prefecture, and in the event of a large-scale disaster, damage to manufacturing facilities, suspension of production lines, and compensation to business partners and neighboring residents may occur. Such events could have a significant impact on the Company's business, business results, and financial condition.

The Company procures manufacturing facilities and working capital through borrowings from financial institutions, and if borrowing interest rates rise due to an increase in market interest rates, the financial burden will increase. In addition, borrowings are subject to financial covenants requiring the maintenance of certain levels of net assets, ordinary income, and net income, and if these covenants are breached due to deteriorating business performance, immediate repayment of borrowings may be required. Such events may affect the Company's financial condition.

The Company conducts its business activities using communication networks and various IT systems connecting its sites and external parties, and if these networks or systems stop functioning or malfunction due to management deficiencies, system failures, natural disasters, or cyberattacks, the continuation of normal business activities may become difficult. Although the Company strives for appropriate management, external threats such as cyberattacks are difficult to fully defend against, and this may affect the Company's business, business results, and financial condition.

Chemical substances used or generated in the manufacturing, analysis, and research processes include substances that may adversely affect the human body, ecosystems, and the environment, creating a risk of unforeseen phenomena or outcomes. The Company thoroughly complies with relevant laws and regulations, prevents leakage of hazardous substances, and ensures lawful waste disposal, but if an environmental problem were to occur, it could result in liability for damages or damage to the Company's brand image. In addition, if substantial countermeasure costs arise due to revisions of relevant laws and regulations, this may also affect the Company's business, business results, and financial condition.