KITAGAWA SEIKI CO.,LTD.

The IT industry fluctuates cyclically and significantly, having repeated large-amplitude booms and busts in the past. If capital expenditure in the IT industry decreases substantially, it could directly impact the Group's order intake, financial position, and operating results. The Group has adopted a policy of applying lessons learned from its responses during past downturns to management, but it is difficult to completely avoid fluctuations in the external environment.

In the industry for press equipment, the Company's core product, price competition is extremely fierce, and the rise of the Chinese economy has increased the number of suppliers of low-priced competing products. There is a risk that maintaining market share and securing profitability may become difficult, which could affect the Company's financial position and operating results. The Company has established a "Production Management Section" and is responding by thoroughly implementing process control and cost reduction.

The Group manufactures products using steel and other materials as principal raw materials, and raw material prices have been rising due to yen depreciation, geopolitical risks, and other factors. If prices surge more than expected or remain elevated over a prolonged period, this could adversely affect the Company's financial position and operating results. The Company is responding by thoroughly implementing process control and cost reduction, but there is no guarantee that it can fully absorb price increases.

The Company exports its products to various countries, including China, and since some transactions are denominated in foreign currencies, it is affected by fluctuations in exchange rates. Yen appreciation could reduce the competitiveness of product sales and affect the Company's financial position and operating results. The Company seeks to reduce this risk by shifting overseas transactions to yen-denominated terms and utilizing forward exchange contracts, but complete hedging is difficult.

The Group's principal user markets are experiencing remarkable technological progress, requiring rapid response to user needs. If the Group's technological and development capabilities fall behind technological progress, its competitiveness may decline, potentially affecting its financial position and operating results. The Company has established a "Market Development Section" and a "Technology Development Section" and is responding by continuing research into new technologies.

The Group holds numerous patents and develops and sells one-of-a-kind products, but there is a risk that its held patents could be invalidated or misused by third parties. Additionally, in some countries, the enforcement of patent rights may be difficult or restricted, and there is also the possibility of improper disclosure or misappropriation of trade secrets by employees or contracting parties. If these risks materialize, the Company's competitive advantage could be undermined, potentially affecting its financial position and operating results.

As a high-technology company, securing and developing excellent employees is fundamental to the Group's business continuity. If a large number of excellent personnel leave the Company, or if it becomes difficult to recruit and develop talent, this could adversely affect future growth. The Company is working to create a comfortable working environment through diverse hiring, prohibition of discrimination, enhanced benefits premised on lifetime employment, and reduction of overtime work.

Most of the Company's products are manufactured to individual customer orders, and it is not possible to completely eliminate the possibility of defects and resulting accidents in any product. If an unexpected serious accident or a significant quality defect occurs, it could damage the Company's social credibility and, through sluggish sales and the occurrence of substantial damages, affect its financial position and operating results. In addition to thorough quality control through the establishment of a "Quality Assurance Section," the Company has taken out product liability (PL) insurance to prepare for potential accidents.

The Company conducts business activities overseas as well, and is subject to the laws and regulations of each country, creating a risk that unforeseeable legal amendments could restrict business activities. Additionally, internal control systems, including compliance, have certain limitations, and there is a possibility that legal penalties, litigation, or damage to corporate value could affect the Company's financial position and operating results. The Company has established a "Compliance Committee" and strives to reduce risk through thorough dissemination of corporate ethics and codes of conduct and collaboration with its retained legal counsel.

If a large-scale natural disaster such as an earthquake or typhoon, or an unexpected fire, act of terrorism, or war occurs, human and physical damage could halt business activities, adversely affecting the Company's financial position and operating results. The Company has taken measures such as constructing factories on elevated ground with stable soil, taking out appropriate insurance, replenishing emergency supplies, and establishing emergency communication networks. However, it remains difficult to be fully prepared for large-scale and unforeseen events.