OPTOELECTRONICS CO.,LTD.

In the fiscal year ended November 2025, the Company recorded an operating loss of ¥254,842 thousand, an ordinary loss of ¥421,635 thousand, and a net loss attributable to owners of the parent of ¥226,025 thousand, marking two consecutive years of losses, giving rise to events that raise material doubt about the going concern assumption. Borrowings of ¥852,036 thousand from certain financial institutions are in breach of financial covenants, entailing a risk of acceleration of the loss of the benefit of time. As countermeasures, the Company is implementing personnel cost reductions, gross margin improvement through new product development, and price increases, and has secured cash and deposits of ¥3,734,650 thousand, judging that there is no concern regarding cash flow over the next one year.

As of the end of the current consolidated fiscal year, interest-bearing debt stood at ¥5,263,652 thousand, and against total assets of ¥11,346,548 thousand, the ratio of interest-bearing debt dependence was at a high level of 46.4% (50.5% in the previous consolidated fiscal year). Interest expense of ¥62,414 thousand was recorded, and if interest rate fluctuations occur, the financial burden may increase and affect operating results. As no forward exchange contracts are in place, hedging measures against both interest rate and foreign exchange market fluctuation risks are limited.

Since establishing the dollar-denominated shipment system from the 34th fiscal year, under which overseas subsidiaries purchase products directly from outsourcing partners in US dollars, a certain degree of foreign exchange risk has been mitigated; however, as no forward exchange contracts are in place, larger-than-expected fluctuations in exchange rates may affect operating results. As the Company operates globally, with sales bases in the Netherlands, the United States, Europe, Asia, and Australia, foreign exchange exposure exists across multiple currencies. The lack of hedging measures constitutes a financial vulnerability.

In the automatic identification device industry, the shift from one-dimensional barcodes to two-dimensional codes is progressing globally, and the practical application of new technologies including RFID is also advancing. If an innovative automatic identification technology emerges that dramatically transforms the industry and the Group fails to respond appropriately, it may have a material impact on operating results. The Group is concentrating its management resources on the development of two-dimensional products, centering its response on the development of two-dimensional imager Modules.

There are only two companies in the world, including the Group, developing ultra-compact laser module engines, which is a source of the Group's competitive advantage in the market; however, if new entrants appear, there is a risk of falling into price competition. In addition, the global shift from one-dimensional barcodes to two-dimensional codes is progressing rapidly, and the advantage of laser-based systems dedicated to one-dimensional barcodes is diminishing. The combination of these factors may lead to a decline in the competitiveness of core products and a deterioration in profitability.

The Group holds patents and other intellectual property rights both domestically and internationally to maintain its competitiveness, but if third parties file objections or invalidation claims, assert infringement of intellectual property rights, or if substantial royalty payments or injunctions against use arise, this may affect operating results. There is also a risk that new restrictions may be imposed as a result of M&A, and a risk that the intellectual property rights held may not provide a competitive advantage. As a company engaged in advanced technology development, the effective utilization and defense of intellectual property rights are important issues for business continuity.

Mass-produced products are outsourced to multiple overseas companies outside the Group, resulting in a high degree of dependence on outsourcing. If any disruption occurs in the business relationship with outsourcing partners, product supply may be delayed, affecting operating results. Low-volume, high-mix products are manufactured at the Ashibetsu Plant of the subsidiary Hokkaido Electronics Industry Co., Ltd., but the alternative production system for mass-produced products is limited.

While the Group is progressing toward a system in which manufacturing outsourcing partners outside the Group procure components directly, some parts are still supplied by the Group. If fluctuations in market supply and demand, sharp increases in materials prices, or changes in procurement channels occur, this may disrupt the procurement of parts for production and affect operating results. The concentration of procurement sources for certain parts and the securing of alternative procurement means are key to stable supply.

Transactions with major OEM customers account for approximately half of domestic sales, resulting in a high degree of dependence on specific customers. If a significant reduction in transactions occurs due to deterioration in the sales trends or business conditions of OEM customers, or the emergence of competitors, this may have a direct and material impact on the Company's operating results. While the continuity of transactions is currently considered favorable, diversifying this concentration risk remains a challenge.

Securing engineers necessary to respond to technological innovation, sales personnel to drive global sales, and internal management personnel is a prerequisite for business continuity and expansion. If the Company is unable to sufficiently secure the human resources it seeks, or if excellent personnel currently employed leave the Company, this may disrupt business promotion and affect operating results. While the Company has adopted a policy of strengthening recruitment and promoting employee awareness, organizational revitalization, and personnel retention, there is a risk that securing human resources will become increasingly difficult amid continued losses.