KASAI KOGYO CO., LTD.

An operating loss in the previous consolidated fiscal year resulted in a breach of financial covenants, and the failure to submit the Annual Securities Report within the statutory deadline resulted in a breach of covenant conditions; the Company had requested waivers of acceleration rights from its financial institutions. In the current consolidated fiscal year, the Company achieved profitability at the operating income level and obtained waiver consent from all financial institutions as of March 31, 2026. However, given the three factors of (1) low capital adequacy, (2) the North America business still being in the process of improvement, and (3) performance dependent on OEM support, the Company recognizes that events still exist that raise material doubt about the going concern assumption. The Company continues to pursue efforts to improve profitability, strengthen its financial position, and stabilize cash flow based on the medium-term management plan "Kasai Turnaround Aspiration," and has determined that material uncertainty regarding the going concern assumption no longer exists, resolving the going concern note in the current consolidated fiscal year.

At the end of the current consolidated fiscal year, the interest-bearing debt dependency ratio was a considerably high 51.1% (interest-bearing debt of ¥74,233 million against total assets of ¥145,329 million), and interest expense of ¥2,160 million (1.1% of net sales) has been on an increasing trend. If borrowing rates rise due to increases in market interest rates, this may affect the Company's financial position and operating results, and if a breach of financial covenants occurs, the Company may lose the benefit of time, which could have a material impact on business continuity. The Company aims to restrain further increases in its interest-bearing debt dependency ratio through appropriate capital expenditure planning and asset efficiency improvements.

The Company's major customer OEMs are the Nissan Motor group and the Honda Motor group, which together accounted for 74.2% of consolidated net sales in the current consolidated fiscal year. Automobile sales trends at both companies could significantly affect the Company Group's operating results, and demand fluctuation risk is particularly high given that Nissan Motor is currently undergoing business restructuring. The Company aims to maintain and develop its business relationships with both groups while promoting diversification of customer OEMs to achieve stable business operations.

The Company issued 5,827,274 shares of Class A preferred stock to Nissan Motor Co., Ltd. effective November 1, 2024. If all such shares were converted into common stock at the initial acquisition price, the dilution ratio would reach 261.00%. Additionally, if all Class A preferred shares were converted at once, this could result in a breach of the 25% or higher tradable share ratio required for maintaining listing on the Standard Market of the Tokyo Stock Exchange, which could also adversely affect share supply and demand. Furthermore, as cumulative unpaid dividends (compounding at an annual rate of 7.0%) increase, the scale of dilution will expand, and from April 1, 2028, exercise of the cash redemption right will require lump-sum payment, which may affect the Company's financial position and cash flows.

The Class A preferred stock carries voting rights equivalent to common stock, and upon full conversion, Nissan Motor would become a controlling shareholder holding more than two-thirds of voting rights. Under the investment agreement, prior consent from Nissan Motor is required for material matters, giving it influence over the Company's decision-making. If Nissan Motor sells shares on the market after the transfer restriction period expires on March 31, 2028, depending on the scale of the sale, this could affect the share price and supply-demand relationship.

Material weaknesses requiring disclosure in internal controls over financial reporting occurred over multiple years in connection with corrections to prior-period and quarterly financial results, with accounting errors at consolidated subsidiaries, deficiencies in business processes, and weaknesses in governance structures being the primary causes of the financial restatements and delayed submission of the Annual Securities Report. The Company submitted an improvement status report to the Tokyo Stock Exchange on May 15, 2026, and is working on measures to prevent recurrence; however, if continuous implementation and strengthening of internal management systems are not appropriately carried out, this may adversely affect operating results, financial position, reputation, and relationships with financial institutions, shareholders, business partners, and others.

Sales in the North America region account for 55.5% of consolidated net sales, and economic conditions, demand fluctuations in the automobile market in that region, and trends in U.S. trade policy (tariffs) could significantly affect operating results. Regarding the impact of U.S. tariffs, the Company is working to minimize profit pressure through consultations with customer OEMs and others, but the North America segment continues to record operating losses and remains in the process of improvement. The Company is promoting multi-regional expansion, including Europe and Asia, with the aim of achieving a balanced management structure.

The overseas sales ratio is high at 73.6%, and at overseas production sites, geopolitical risks such as political and economic instability, changes in laws and tax systems, terrorism, escalating tensions in the Middle East, and the situation in Russia and Ukraine could cause problems in business execution. In particular, escalating tensions in the Middle East surrounding military conflict between the United States and Iran could lead to fluctuations in raw material and energy prices and instability in the supply of certain raw materials. The Company aims to minimize the impact through diversification of raw material procurement sources, consideration of alternative materials, and continuous cross-departmental monitoring.

If the supply of raw materials or parts is interrupted or becomes unstable due to unforeseen accidents, earthquakes, or other events at suppliers, this could adversely affect the business. Additionally, if raw material or parts prices rise sharply due to increases in crude oil prices or other factors, this could affect operating results, and price fluctuation risk due to geopolitical factors has also become apparent. The Company is taking measures against supply shortages by building multiple supply networks and securing multiple procurement sources.

Cyberterrorism, unauthorized access, computer virus infections, and similar incidents could cause information system failures, loss of important data, and leakage of confidential or personal information, and overseas subsidiaries of the Company Group have actually experienced cyberattacks in the past. The Company has implemented measures such as installing firewalls, real-time virus checking, redundancy of servers and network lines, promotion of cloud service use, establishment of backup systems, and logical separation of production networks from office automation networks. Based on past incidents, the Company continues to strengthen information security measures and work to prevent recurrence.