DAIWA INDUSTRIES LTD.

In the commercial refrigerator/freezer, showcase, and ice machine markets, fierce competition with other companies has created a structure in which selling prices are susceptible to fluctuation. There is also a risk that surging raw material prices, including steel materials, resulting from sharp exchange rate fluctuations, could worsen costs. If these factors overlap, there is a possibility of a significant impact on business results and financial position.

The Company's business typically experiences a busy season in summer, while performance tends to be sluggish in winter, creating a structure prone to seasonal skew in earnings. This seasonal fluctuation creates disparities in sales and profit between quarters, affecting the stability of full-year performance. There is also a risk that demand during the busy season could fall short of expectations if an economic downturn or abnormal weather conditions coincide.

Fluctuations in market interest rates may affect the Company's funding costs and the valuation of its financial assets held, potentially impacting business results and financial position. In a rising interest rate environment, there is concern that increased borrowing costs will heighten the financial burden. No specific countermeasures are explicitly stated in the securities report at this time.

The Company has established a quality assurance department within its factories, has taken out product liability insurance, and has implemented PSE countermeasures; however, if unforeseeable product malfunctions or defects occur, warranty and replacement response costs may be incurred. Product defects could lead not only to a direct adverse impact on business results and financial position but also to a decline in social reputation. Given the safety-critical nature of commercial refrigeration equipment, the risk of developments such as recalls cannot be ruled out.

The products handled by the Company include components subject to legal regulations on fluorocarbons and similar substances, and depending on the content of amendments to related laws and regulations, business activities may be affected. At present, there is no impediment to business activities under compliance with laws and regulations, but given the trend toward stricter environmental regulations, future regulatory amendments could affect product design and manufacturing costs. It is also anticipated that additional development investment may be required, such as for responding to alternative refrigerants.

Regarding patent rights, design rights, and other intellectual property rights used in technology development, there is a possibility that the Company is using third-party rights without permission, beyond the Company's awareness. While there are currently no lawsuits filed that would have a material impact on business activities, if disputes arise in the future, significant costs and disruption to business activities could result. Amid the increasing complexity of intellectual property management, it is difficult to completely eliminate this risk.

The Company has developed internal management systems and built systems for handling confidential information such as business partner information and personal information; however, problems occurring outside the Company's control could result in social sanctions or lawsuits. If an information leak occurs, in addition to a loss of corporate trust, legal liability and damages risks could arise. Against the backdrop of increasingly sophisticated and diverse cyberattacks, responding to external threats remains an ongoing challenge.

If a large-scale earthquake, typhoon, or other natural disaster occurs at the locations of factories, the head office, branches, sales offices, etc., business activities may become difficult depending on the extent of the damage, potentially adversely affecting business results and financial position. If a manufacturing site is damaged, there is a risk that lost sales due to production stoppage and recovery costs will occur simultaneously. The securities report does not explicitly state the specific status of BCP (business continuity plan) development.

Aggressive investment may be required for the development of high-value-added products, and in some cases this may entail higher potential risk than conventional business risk. If an investment fails to generate the expected results, it could adversely affect business results and financial position. Key risk factors cited include the lengthening of the payback period for new product development investment and the failure to meet demand expectations after market launch.

If economic activity is significantly restricted due to a new virus or the resurgence of a previously prevalent virus, this could adversely affect the Company's business results and financial position. For the Company, whose core business is commercial refrigeration equipment for the food service and retail industries, a sharp decline in demand from the restaurant industry would directly lead to a decrease in sales. The spread of infectious disease also risks disrupting factory operations and logistics, with the potential to affect the entire supply chain.