SAKURAI LTD.

In the Automotive Parts Manufacturing Business, sales are concentrated among a few major customers, and a significant decline in sales may occur due to economic conditions or deteriorating performance of customer manufacturers. As countermeasures, the Company is broadly developing new business partners from the perspectives of quality, price, and delivery time, while also pursuing risk diversification through rationalization and efficiency improvements in production.

In the motorcycle industry, the shift of production overseas is accelerating, and domestic production volumes are on a declining trend, which may affect order volumes in the Company Group's Automotive Parts Manufacturing Business. This structural decline in demand poses a risk of pressuring the Company's sales and earnings base over the medium to long term.

If cost competition with competitors intensifies further in the Automotive Parts Manufacturing Business, profitability may decline. There is also a risk that production adjustments by parent manufacturers to which products are delivered, caused by external factors, could affect the management of the Company Group.

In the special-purpose machine tool field, there are many competing manufacturers, and price competition to secure orders tends to lower selling prices, which may affect business performance. The Company Group is differentiating itself through strengthening its new product development capabilities by leveraging manufacturing know-how from the Automotive Parts Manufacturing Business, together with customer-focused sales activities.

As overseas transactions increase in the Machine Tool Manufacturing Business, if product liability arises from claims related to product defects, this could have a material impact on the Company's business results. As a preventive measure, the Company has adopted a policy of thoroughly improving the skill levels of all employees and ensuring the succession of technical expertise.

Fluctuations in exchange rates may affect the Company Group's business performance and financial condition with respect to technical support fees and trade receivables related to the consolidated subsidiary SAKURAI VIETNAM CO., LTD., as well as overseas transactions denominated in US dollars in the Machine Tool Manufacturing Business. To mitigate this risk, the Company conducts forward foreign exchange contract transactions.

The Company received notice from the Tokyo Stock Exchange on April 15, 2026, designating it as a stock under supervision for delisting, and is scheduled to be delisted on October 1, 2026. Delisting will result in the loss of access to capital markets and stock liquidity, which will have a material impact on fundraising methods and relationships with investors.

In the Machine Tool Manufacturing Business, if the Company is slow to respond to trends such as the development of new technologies, adoption of new systems, and sales of new products in the market, this may affect business performance. The Company Group is working to strengthen its new product development capabilities by leveraging its proven manufacturing know-how from the Automotive Parts Manufacturing Business.

As a countermeasure to product liability risk, the Company has positioned improving the skill levels of all employees and ensuring the succession of technical expertise as an important issue; if technology succession is delayed, there is a risk of decline in product quality and competitiveness. Particularly in the special-purpose machine tool field, where advanced technical capability is a source of competitive advantage, maintaining a system for human resource development and technology succession is essential.

In overseas business operations conducted through the consolidated subsidiary SAKURAI VIETNAM CO., LTD., changes in the local economic and political environment, as well as exchange rate fluctuations, may affect the Company Group's business performance. Since technical support fees and trade receivables arise in foreign currencies, risk management of the overseas subsidiary has become an important issue in the Group's overall financial management.