OKADA AIYON CORPORATION

Sales of core products such as Hydraulic Breaker, Crushers, Forestry Machinery, and Cable Crane may be affected by decreases in public investment, weak demand in Europe, the US, and Asia, decreases in urban demolition work, and changes in national forestry-related policies. Since each product depends on different policy and market environments, there is a risk that multiple segments could deteriorate simultaneously. The Company is addressing this by promoting product development aligned with customer needs, but it is difficult to completely avoid changes in the external environment.

If market prices for key raw materials rise significantly, demands from suppliers for price increases may intensify, and the Company may be unable to fully absorb the rise in raw material costs, adversely affecting business performance. Purchasing staff continuously monitor market prices and negotiate with suppliers, but this may become difficult to manage in the event of a sharp market surge. Note that because there is a lead-time lag before increases in raw material costs are reflected in performance, price fluctuations do not necessarily affect performance immediately.

With the overseas sales ratio reaching 23.4%, exchange rate fluctuations may affect the yen-converted amounts of foreign-currency-denominated assets and liabilities and procurement costs in import/export transactions of goods, products, and raw materials. The Company employs hedging measures such as forward exchange contracts, but in the event of sudden exchange rate fluctuations, these may not fully cover the exposure, potentially affecting performance. With the expansion of overseas operations, the significance of foreign exchange risk remains at a high level.

Given the overseas sales ratio of 23.4%, unforeseen changes in laws and regulations or unfavorable changes in tax systems may make business development difficult. The Company strives to prevent and avoid such risks through information gathering within the group and the use of external consultants, but it cannot fully control changes in the regulatory environment of each country. If these risks materialize, they could seriously impede the continuation of overseas operations and the securing of profits.

The Company depends on specific suppliers for goods, products, and some raw materials, and if changes in the order status or management strategy of such suppliers lead to a decrease in supply volume or a supply halt, this may affect business performance. Trading relationships are currently proceeding favorably, but supply risk arising from circumstances on the supplier side always exists. There is no explicit mention in the securities report of measures such as securing alternative procurement sources.

In M&A undertaken for the purpose of business expansion, if the progress of business plans falls significantly short of expectations or if impairment losses on goodwill occur, this may adversely affect business performance and financial condition. When conducting M&A, the Company thoroughly examines the securing of stable future profits, but it cannot completely eliminate changes in the post-acquisition business environment or integration risks. Impairment of goodwill could temporarily significantly worsen the financial condition.

If an accident occurs due to an unexpected product defect, costs for addressing product liability and burden of damages may arise, adversely affecting business performance. The Company has product liability insurance (PL insurance), but there is no guarantee that the full amount of damages will be covered. The Company strives to comply with laws and regulations related to quality and safety and to maintain and improve quality and reliability, but it is difficult to completely eliminate this risk.

Domestic and overseas business activities may become subject to litigation, disputes, or legal proceedings, the outcomes of which cannot be predicted at this time, potentially adversely affecting business performance and financial position. Currently, a patent infringement lawsuit has been filed by Matsumoto System Engineering Co., Ltd. regarding certain specifications of the hybrid bucket (Forestry Machinery), and this represents a concrete legal risk that has already materialized. Depending on the outcome of the litigation, there could be significant impacts on the continued sale of the product and on the financial condition.

If a large-scale natural disaster such as an earthquake or flood, or an infectious disease such as COVID-19, occurs at domestic or overseas production, sales, or service sites, there is a risk of delays or interruptions in the procurement of materials and parts, production activities, and sales/service activities, adversely affecting operating results. As countermeasures, the Company has established guidelines such as promoting commuting by private car, staggered work hours, working from home, use of web conferencing, and restraint on business travel, building a system to minimize damage. However, in the event of a severe disaster, recovery within a short period may be difficult.

If future fluctuations in business performance cause taxable income to decrease and temporary differences cannot be resolved as planned, deferred tax assets may need to be written down, adversely affecting business performance. In addition, for tangible fixed assets and other long-term assets, a decline in business profitability or deterioration in market conditions may result in loss processing associated with the application of impairment accounting. These accounting risks could further worsen the financial condition during a downturn in business performance.