NAKAMURA CHOUKOU CO.,LTD.

Arbitration proceedings are ongoing at the Singapore International Arbitration Centre (SIAC) regarding a contract with Jiangsu Sanchao in China. An interim award dated May 20, 2025 found the Company to be in breach of contract and ordered payment of direct damages and interest incurred by Jiangsu Sanchao, with the payment amount to be separately determined in the ongoing arbitration proceedings. If a substantial payment is ordered, it could have a material impact on the Group's business performance and financial condition.

The Company is promoting a new business centered on Nano-size Zeolite as its core product. While mass-production adoption has been achieved in some applications, further development time is expected to be required at companies currently conducting sample evaluations. If the Company is unable to secure mass-production customers, it will continue to bear fixed costs and will need to reconsider the probability of commercialization, which could affect business performance and financial condition.

Reciprocal tariffs imposed by the United States and additional tariffs on specific products such as automobiles are affecting the Japanese economy as a whole, and a decline in exports from Japan to the U.S. and lower capacity utilization among domestic manufacturers are expected. This could lead to a decrease in orders and sales of the Company's products, potentially affecting business performance and financial condition.

Resource prices and logistics costs remain elevated due to tensions in the Middle East, the prolonged Russia-Ukraine conflict, unstable international conditions, and the depreciation of the yen. If raw material and energy costs rise to a level that makes it difficult to pass on the increase to sales prices, manufacturing costs will rise and profits will decline, potentially affecting business performance and financial condition.

The operations of the Group rely heavily on key members of management, including Representative Director and Chairman Makoto Inoue. Should an event such as illness or death occur, it could have a significant impact on business performance and financial condition. Furthermore, failure to secure and develop key personnel could also affect growth, business performance, and financial condition, making ongoing efforts toward human resource development an ongoing challenge.

The number of shares issued has increased due to multiple issuances of stock acquisition rights. As of the end of March 2026, the Company had 15,094 shareholders, with individual shareholders accounting for 98.7% and a share price of ¥775, indicating an absence of stable shareholders and a depressed share price. While financial condition is improving, the possibility of a corporate acquisition due to the absence of stable shareholders and depressed share price cannot be ruled out, which could affect business performance and financial condition.

The overseas sales ratio as a proportion of consolidated net sales for FY2026 (ending March 2026) was 49.7%, and the Company plans to expand sales of diamond wire for overseas markets in the D-Next Business going forward, requiring continued attention to overseas transaction risk. Should heightened geopolitical risk, sharp exchange rate fluctuations, or troubles arising from differences in business practices materialize, this could affect business performance and financial condition. The Company is thoroughly managing credit risk by strengthening legal checks and raising the ratio of advance payments received, among other measures.