OKAYA ELECTRIC INDUSTRIES CO.,LTD.

Uncertainty is increasing due to the impact of U.S. tariff measures and trade policies in various countries. While demand for the mainstay air conditioning equipment segment is on a gradual recovery trend, demand for industrial equipment continues to face a harsh environment as the recovery has been delayed more than expected due to prolonged inventory adjustments. Since industry trends across the entire supply chain directly affect business performance, fluctuations in demand could have a significant impact on net sales and profit. In response, the Company continues to diversify its customers and suppliers, build a flexible production system, and strengthen its technological capabilities for new product development.

If the Company fails to reflect technological innovation and changing customer needs in its products and services, there is a risk that customers will switch to competitors' products or alternative technologies. In particular, if competitors introduce new products with a competitive advantage in key fields such as industrial equipment and air conditioning equipment, the impact on net sales is expected to be significant. In response, the Company is advancing new technology development in its engineering departments, participating in academic societies and collaborating with universities, and strengthening its ability to propose EMC countermeasures.

If the products or services provided fail to conform to contracts or have defects, serious malfunctions or safety defects could result in substantial liability for damages, which insurance and other means may not fully cover. This could have a significant impact on business performance and financial condition, in addition to causing a marked decline in corporate reputation. In response, the Company has obtained ISO9001 certification and undergoes periodic audits, conducts regular internal quality inspections, and implements company-wide corrective and improvement activities.

Soaring international commodity prices and disruptions to transportation networks could lead to increased procurement costs and shipment delays caused by difficulties in procuring raw materials. Rising raw material prices and transportation costs directly translate into downside risk to business performance. In response, the Company is working to identify supply chain issues, purchase from multiple suppliers, reform its cost structure, and refine production management and order management.

When product demand rises sharply, the Company has no choice but to respond by increasing personnel, which becomes a factor in the deterioration of the cost ratio. Labor costs are rising markedly in China, a key production base, and upward pressure on labor costs is also continuing at the Sri Lanka plant, where the Company intends to increase production capacity under the 12th Medium-Term Management Plan. In response, the Company's policy is to promote mechanization and automation of production and to expand production volume and the number of items handled at the Sri Lanka plant.

Data leaks or removal of data, as well as malicious cyberattacks from external parties, could result in the leakage of important confidential information or the malfunction of internal systems, which could adversely affect business operations and, through a loss of trust, adversely affect operating results. In the event of a large-scale failure of infrastructure such as servers, it may take time to restore normal operations, potentially impacting the business. In response, the Company has established information management regulations, continuously updates its IT infrastructure, and raises awareness through information security training.

In addition to responding to legal regulations such as permits and licenses, commercial transactions, import/export, and environmental regulations in each country where the Company operates, customer demands are also becoming more sophisticated, including avoidance of intellectual property rights infringement, compliance with the RBA Code of Conduct, and CSR procurement requirements. Failure to respond appropriately to these could result in a loss of trust from all stakeholders, including shareholders, customers, and suppliers, and could have a significant impact on business performance. In response, the Company shares information on legal amendments and industry trends, thoroughly disseminates information through training, and has established the Okaya Group Human Rights Policy.

If air pollution, water pollution, soil contamination, or other environmental damage occurs as a result of business activities, it could seriously affect business operations, damage brand trust, and cause losses to nearby residents and local governments. The occurrence of liability for damages or litigation could also significantly worsen operating results and financial condition. In response, the Company is working to comply with laws and regulations and reduce environmental impact through the establishment and operation of an environmental management system based on ISO14001 and periodic audits by certification bodies.

Fluctuations in foreign exchange rates could adversely affect the financial condition arising from transactions denominated in foreign currencies, including net sales, purchases, and assets and liabilities. The Company seeks to reduce foreign exchange rate fluctuation risk by adopting a balanced sales strategy between domestic and overseas markets, avoiding dependence on sales to any specific country.

If a production base suffers catastrophic damage due to disasters such as fires or earthquakes, infectious diseases, war, or terrorism, this could significantly impact business operations and performance through production interruptions and the cost of repairing facilities. A shortage of electricity supply could also disrupt operations. In response, the Company formulates and conducts drills for its Business Continuity Plan (BCP), establishes BCP-related regulations, and continuously updates and improves its internal infrastructure.