OKAMOTO MACHINE TOOL WORKS,LTD.

The Machine Tools and Semiconductor-related Equipment industries are highly susceptible to economic fluctuations. During periods of economic stagnation, sluggish capital expenditure and personal consumption reduce total industry-wide order values, which can be a factor in earnings deterioration. In response, the Company has set forth a long-term vision to become the global No.1 as a "comprehensive abrasive machining equipment manufacturer" in Surface Grinders and semiconductor wafer polishing equipment, and is working to enhance competitiveness and secure stable sales and gross profit.

While the Company diversifies its fundraising methods through bank borrowings and syndicated loans, breaching financial covenants attached to such agreements could have a material impact on cash flow. Although diversification of fundraising methods provides a degree of risk dispersion, the risk of covenant breach cannot be eliminated.

The Company has production sites in Thailand, Singapore, and China, and sales sites in the United States, Europe, and Asia. Exchange rate movements, political deterioration, and stagnation in economic activity due to unforeseen legal or regulatory changes may affect business performance and financial condition. In response, the Company carefully determines raw material procurement sources, transaction currencies, and optimal production sites, and secures and develops personnel who enable timely and smooth information sharing with each site.

If events such as the spread of COVID-19 or large-scale natural disasters occur at multiple domestic and overseas sites, business activities at each site may stagnate, affecting business performance and financial condition. The Company has formulated a BCP (Business Continuity Plan) at the Annaka Plant of its head office to minimize losses in the event of an emergency.

The Company holds fixed assets primarily consisting of production equipment. A decline in business profitability due to deteriorating management conditions or a significant drop in the market value of held assets may result in the recognition of impairment losses. Recognition of impairment losses poses a risk of directly adversely affecting business performance and financial condition.

The Company applies tax effect accounting and records deferred tax assets. If estimates and assumptions regarding future taxable income deviate from actual results, all or part of the deferred tax assets may be judged unrecoverable and written down. A reduction in deferred tax assets would affect business performance and financial condition.

The Company conducts production activities based on order backlog and order forecasts and strives to maintain appropriate inventory levels. However, if changes in market conditions or shifts in customers' capital expenditure trends result in slow-moving inventory, valuation losses on inventories may arise, affecting business performance and financial condition.

Affected by trends in customers' capital expenditure, shipments and delivery deadlines tend to concentrate at the end of the fiscal period, resulting in seasonal fluctuations in which sales and profit are skewed toward the second half. In response, the Company is promoting visualization of production and development capacity, aiming to improve the efficiency of production activities by linking production, development, and sales plans.

The Company holds and manages various information assets in the course of its business activities. Cyberattacks or unauthorized access may lead to leakage of information assets, suspension of production activities, and the incurrence of recovery costs. Should such events occur, they pose a risk of materially affecting business performance and financial condition.