NEW COSMOS ELECTRIC CO.,LTD.

Residential city gas alarms are the Group's core product, but due to the past extension of their expiration period from three to five years, a two-year gap in replacement demand cycle continues to persist. If demand fluctuations caused by this cycle worsen earnings, this could have a significant impact on the Group's business performance. In addition, price competition and development competition with competitors in LP gas alarms and residential fire alarms, as well as changes in the security policies of major sales customers, are also factors that could cause fluctuations in business performance.

Industrial Fixed Gas Detection Alarms are used primarily for security purposes at gas and oil plants, semiconductor factories, and similar facilities, and are strongly affected by capital investment cycles linked to economic trends. Compared to consumer products, the replacement frequency is extremely low, and opportunities to acquire new users are also limited, creating a risk that demand recovery may be delayed. Changes in project plans, occurrence of disasters, and intensifying competition with competitors may also affect business performance.

Commercial Portable Gas Detectors face intense competition with other companies in the industry, and new product development competition continues. If the launch of new products is delayed or if current products become obsolete due to the rapid emergence of new technologies, this could lead to declines in product prices and adversely affect the Group's business performance. The Group treats research and development of cutting-edge Gas Sensors as its most important management priority, but the risk of fluctuations in the period during which products are supported by the market cannot be eliminated.

The gas detection alarms and other products handled by the Group are subject to regulation under multiple laws, including the High Pressure Gas Safety Act, the Liquefied Petroleum Gas Safety Act, the Gas Business Act, the Industrial Safety and Health Act, and the Fire Service Act. The introduction of new laws and regulations or the revision or abolition of existing laws, both domestically and internationally, could directly affect product specifications, sales systems, and maintenance and inspection operations, potentially affecting the Group's business performance. The Group has established a risk management framework and strives to keep abreast of regulatory trends.

The Group manufactures products and conducts maintenance and inspections based on domestic and international quality control standards and internal standards. However, unforeseen circumstances such as product defects could lead to quality issues resulting in recalls or product liability claims. In such cases, the Group could incur substantial costs and suffer a significant decline in reputation, adversely affecting its business performance and financial condition. Given the nature of these products as safety equipment, quality issues can also have significant social impact.

Based on technological capabilities cultivated over many years, the Group treats research and development of cutting-edge Gas Sensors and new product development as its most important management priority. However, the period during which products are supported by the market may fluctuate due to technological advances or the emergence of alternative technologies and products, and research and development activities do not necessarily contribute to business performance. If returns on research and development investment cannot be expected, this poses a risk of becoming a financial burden.

The Group has obtained numerous intellectual property rights, including patents related to products, designs, and manufacturing methods, both domestically and internationally, but not all applications are necessarily registered as rights. There is a possibility that third parties may bring competing products to market that circumvent the Group's patents. Additionally, given the nature of products that utilize a wide range of technologies, there is a risk of becoming a party to litigation regarding third parties' intellectual property rights. These risks could affect business performance through a decline in competitiveness or the incurrence of litigation costs.

The Group is expanding its business in the United States and the Asian region (primarily China, Taiwan, and South Korea), and changes in the political, economic, and social conditions in these regions, trends in various regulations, and exchange rate fluctuations could constrain business activities. In addition, shortages of raw materials and sharp increases in raw material prices caused by geopolitical risks could constrain the production and supply system, adversely affecting business performance. Trends in capital investment and expenditure accompanying changes in the economic environment are also factors that could cause fluctuations in business performance.

The Group's sales and production sites are located throughout Japan, and if a large-scale disaster occurs in these regions, or if a large-scale infectious disease becomes widespread, business activities could be significantly disrupted. While the status of business continuity plan (BCP) development is disclosed, the impact on business performance would be significant if the risk of site concentration were to materialize.

The Company holds a large amount of personal information in connection with its business activities, and while it takes thorough care in managing this information, the possibility of information leakage due to unforeseen circumstances cannot be completely eliminated. If information leakage occurs, the Company could incur substantial costs to respond and suffer a decline in social credibility, which could adversely affect the Group's business performance.