YAMASHIN-FILTER CORP.

In FY2026 (ending March 2026), sales to the Construction Machinery Filter Business account for approximately 90% of total sales, meaning that deterioration in the performance of construction machinery manufacturers or a stagnant economy will directly affect the Group's business results. In addition, if structural innovation in construction machinery relating to hydraulic oil filters or technological innovation replacing hydraulic power occurs, there is a risk that demand for construction machinery filters will structurally decline. Since the plan is for this sales ratio to remain high over the medium to long term as well, the concentration risk in the business portfolio will continue.

While the hydraulic excavator market, a key market for the Group, is expected to expand in emerging countries over the medium to long term, the rise of imitation products and low-priced products is also anticipated. The Group intends to continue stable supply as genuine parts to major construction machinery manufacturers, but if sales of imitation and low-priced products by competitors increase, sales of construction machinery filters may decline, potentially adversely affecting business results.

The Group has production bases in Japan, the Philippines, and Vietnam, and sales bases in the United States, Belgium, Thailand, China, and other countries, with business activities such as raw material procurement, logistics, and sales conducted in foreign currencies. Since foreign-currency-denominated assets and liabilities are affected by exchange rate fluctuations, currency movements may impact business results.

Parts and materials account for a large proportion of product costs, and fluctuations in raw material markets or supply tightness lead to increases in manufacturing costs. In addition, if prolonged transportation lead times due to fluctuations in container ship demand, and elevated ocean freight and logistics costs, continue, this may adversely affect business results. The Group is responding through cost reductions, review of selling prices, and strengthened cooperation among relevant departments, but there is a risk that it may not be able to fully cope with price increases or supply tightness that greatly exceed expectations.

Approximately 90% of sales are OEM products, meaning the production and parts sales plans of construction machinery manufacturers directly affect the Company's production plans. There is a risk of holding excess inventory due to sudden changes in order volumes or delivery schedule adjustments from construction machinery manufacturers, which may affect business results and financial condition. The Group strives to maintain appropriate inventory levels through regular information exchange with construction machinery manufacturers.

In FY2026 (ending March 2026), approximately 60% of production in the Construction Machinery Filter Business (on a sales price basis) is concentrated in the Philippines, creating a risk that natural disasters such as earthquakes and floods, or war and terrorism, could delay or disrupt parts procurement, production, and sales activities. Although risk response measures assuming disasters of a certain scale are in place, if damage occurs that cannot be recovered from within a short period, it may have a material impact on business results and financial condition.

While the Group has established a quality control system across the group and manufactures products based on strict quality standards, if customer required specifications are not met or nonconformities occur, serious quality claims may arise. Large-scale claims or product defects leading to product liability compensation may result in substantial costs and seriously affect relationships with customers and the Group's reputation, potentially leading to reduced sales.

The Group's business activities are affected by policy trends and specific regulations in each country, and if new tariffs, currency controls, or tax systems are introduced, response costs may arise and affect business results. Because the Group operates production and sales bases globally, it is structurally exposed simultaneously to regulatory change risks across multiple countries.

The Group holds customer information and confidential business and technical information, and implements management systems and technical measures to protect against unauthorized access, tampering, and leakage. In the unlikely event that an incident such as an information leak occurs, it may adversely affect the Group's reputation and credibility, and impact business results and financial condition.

The Group positions M&A and business alliances as an important strategy for business expansion, and strives to avoid risk through due diligence, but the possibility of unforeseen circumstances such as the discovery of contingent liabilities after an acquisition cannot be completely eliminated. If changes in the business environment after an acquisition impede the execution of the original business plan, impairment losses on goodwill may occur, potentially affecting operating results and financial condition.