ODAWARA AUTO-MACHINE MFG.CO.,LTD.

Products related to fare collection for bus operators require high reliability, and if unexpected quality issues occur, the resulting rework costs and other expenses may affect business performance and business development. The Company has established a dedicated quality control department and is working to achieve "quality assurance," but complete elimination of such risk is difficult.

Since the Company receives orders for entire fare collection systems as a package, if unexpected events arising from internal or external factors occur on large-scale projects, delays in product development, delivery delays, and the incurrence of additional development costs may occur, potentially affecting business performance. The Company manages development progress on a project-by-project basis and strives to improve and streamline each process, but this risk cannot be completely eliminated.

If the recruitment and development of excellent personnel does not proceed as planned, the know-how for product development and manufacturing may not be successfully passed on, potentially leading to a decline in technical capability. The personalization of technical skills to specific individuals and the loss of personnel are risks that directly affect product development capability, which is fundamental to the Group's competitiveness. The Group strives to recruit and develop personnel, but achieving its plans may become difficult due to intensifying competition in the labor market and other factors.

If bus operators' capital investment plans change due to economic conditions, fluctuations in fuel prices, changes in the number of bus users, revisions to subsidy systems for bus operators, or other factors, this may affect the Group's business performance. The Group's sales are highly dependent on trends in bus operators' capital investment, resulting in a structure in which changes in the external environment directly lead to fluctuations in demand. The Group addresses this through careful budget formulation that takes into account economic conditions and market trends, but it cannot completely shield itself from the effects of external factors.

Temporary special demand may arise due to the circulation of new banknotes and coins, fare revisions accompanying changes in the consumption tax rate, and simultaneous system installation or replacement. Business performance and financial condition may fluctuate significantly before, during, and after the occurrence and conclusion of such special demand, which is a factor that makes it difficult to formulate stable earnings plans. Demand fluctuations caused by such external events are difficult to predict and carry the risk of requiring sudden adjustments to production and sales systems.

Establishing a system to promptly detect and control risks is essential for achieving the medium-term management plan, and if such a system cannot be appropriately established, business performance may be affected through decreases in sales and profit, a significant decline in market share, loss of credibility, and other factors. The establishment of a risk management system is a precondition for achieving management goals, and deficiencies in the system could develop into compound management risks.

Since orders from public bus operators are placed through a competitive bidding system, a decline in bid prices or the winning of bids by competitors may affect business performance. If price competition with competitors intensifies among private bus operators as well, there is a risk that sales may decrease. In addition, if bus operators carry out simultaneous replacement of equipment, sales may become concentrated on specific customers, and business performance may fluctuate significantly depending on the status of order acquisition.

The Company conducts intellectual property investigations at each stage of product development, but if it infringes on the intellectual property rights of others, this may lead to litigation. In addition, if unexpected events result in claims for damages related to the Company's products, this may affect business performance and financial condition. Litigation risk can lead not only to the burden of costs but also to the suspension of product supply and damage to corporate credibility.

If an event exceeding expectations occurs due to computer virus infection, cyberterrorism, or similar causes, this may result in the suspension of information systems, the leakage of confidential information, and other issues, which could disrupt business operations and affect business performance. The Company implements measures on both the hardware and software fronts and continuously monitors operational status, but this does not guarantee complete defense against increasingly sophisticated cyberattacks.

The Company records tangible and intangible fixed assets such as business-use assets and goodwill, as well as deferred tax assets, and if expected cash flows cannot be generated due to divergence from future business plans, a decline in fair value, or other factors, impairment of goodwill or write-off of deferred tax assets may occur, potentially affecting business results and financial position. It should be noted that the existence of goodwill arising from corporate acquisitions can become an additional downward pressure on finances during periods of deteriorating business performance.