KYOWA ELECTRONIC INSTRUMENTS CO., LTD.

The Group sells products and services to a wide range of fields including government offices, universities, automobiles, electrical equipment, and steel, but if the economic environment or capital expenditure trends in Japan, its main market, deteriorate significantly, this may affect business performance through decreased product orders or obsolescence of inventory. In addition, with the progress of overseas expansion, economic conditions in overseas countries, fluctuations in exchange rates, and changes in legal regulations may also affect business performance. As a countermeasure, the Group is advancing overseas business expansion and diversifying its demand base.

The Group conducts research and development of sensors and measuring instrument-related equipment with strain gauges as its core skill, but technological progress in the measuring instrument industry is remarkable, and it may become difficult to maintain a broad technological advantage as a comprehensive manufacturer in the field of stress measurement. Rapid technological progress or the emergence of unexpected alternative technologies may reduce demand and affect business performance. The Group is prioritizing management resources to its technology division and is engaged in technology development and product development while constantly paying attention to technology trends.

Quality and skill levels in Asian countries, including China, have been improving remarkably, and if the Group loses competitiveness in terms of quality in the future, price competition for some products may intensify in combination with wage differentials, affecting business performance. The Group's strengths are its long experience and know-how in stress measurement and high-quality, high-performance products made by highly skilled technicians, but there is a risk that this advantage could be eroded. At present, the specific details of countermeasures are not disclosed in the securities report.

Due to high-mix, low-volume production, some production forms are labor-intensive, and product quality and production capacity depend significantly on the skills of technicians. If the transfer of technology and skills is delayed due to the aging or retirement of skilled technicians, this may affect production activities and business performance. In response, the Group is working to make inherited skills explicit and to systematically train successors.

The Group procures raw materials and parts used in its products from suppliers outside the Group, and lengthening lead times for electronic components, among others, continue in some areas. If the procurement environment further deteriorates, this may affect production activities and business performance. In addition, the Group outsources part of its manufacturing processes, and if a subcontractor or its suppliers were to go bankrupt, production activities could also be affected; accordingly, the Group provides appropriate guidance in terms of production management and quality control.

The Group manufactures products in accordance with ISO9000 series quality management standards, but if a recall or similar event occurs due to unforeseen circumstances, this may damage trust and affect business performance. Although the Group has insurance for product liability compensation, there is no guarantee that the final compensation amount will be fully covered, creating a risk of financial loss. The Group continuously implements quality control to prevent defects in all products and goods.

The Group manages credit by setting credit limits based on the financial statements of business partners, but a sudden deterioration in the financial condition of a business partner or similar event could result in bad debts, affecting business performance. Although credit management systems are in place, there is a risk that the Group's response could lag behind in the event of a sudden financial deterioration.

The Group holds financial assets such as securities, and fluctuations in their fair value may affect business performance. In addition, with respect to fixed assets such as factory equipment, declines in profitability or fluctuations in fair value may result in impairment losses, affecting business performance. Specific hedging measures against these risks of asset value fluctuation are not disclosed in the securities report.

Business offices and production sites may suffer significant damage from natural disasters such as large-scale earthquakes, typhoons, and floods, or from sudden accidents such as fires. If business operations are affected by delays in production or shipment, or if substantial costs are incurred to restore or repair damaged equipment, this will affect business performance. The specific details of a business continuity plan (BCP) are not disclosed in the securities report.

The Group holds internal confidential and important information such as business partner information and development information, and has formulated and is implementing information security countermeasures. However, if an information leak occurs due to an unforeseen accident, this may lead to claims for damages or a decline in social credibility, affecting business performance. Given the increasing sophistication and diversification of cyberattacks, continuous strengthening of countermeasures is required.