KONDOTEC INC.

Domestic construction investment (public and private capital investment), which accounts for a significant portion of net sales, continues to face a situation in which substantial growth cannot be expected, creating a risk that a downturn in the construction industry or a decline in demand could reduce net sales and profits. As countermeasures, the Company is promoting growth strategies such as developing new sales channels, offering new products, expanding into overseas markets, and pursuing M&A.

Approximately 85% of procurement sources are in China, creating a risk that securing materials could become difficult due to US-China trade friction or changes in Chinese laws and regulations. In addition, since purchase prices are affected by exchange rate fluctuations, significant currency movements could have a material impact on business results. As countermeasures, the Company is working to develop new supply sources and to enter into forward exchange contracts.

In each product market and regional market, where substantial growth cannot be expected, competition with rival companies is intensifying, creating a risk that net sales and profits could decline if it becomes difficult to maintain appropriate pricing amid escalating price competition. As countermeasures, the Company is working to strengthen price competitiveness through productivity improvements and to develop and offer higher value-added products.

Steel, copper, and aluminum, the Company's principal raw materials, tend to fluctuate in price depending on global supply-demand trends, and significant market fluctuations could have a material impact on business results. As countermeasures, the Company is working to improve profitability through prompt pass-through to selling prices, securing multiple supply sources, and cost reductions through production technology.

If operations are suspended at any of the Company's four plants nationwide due to disasters, power outages, infectious disease outbreaks, or other causes, there is a risk that production capacity could decline even with mutual coverage between plants or outsourcing to partner factories. In addition, supply of products could be disrupted for an extended period due to suspension of operations at domestic or overseas suppliers or subcontractors, or disruption of logistics routes. As countermeasures, the Company maintains a production system for core products at all plants, conducts regular equipment maintenance and inspections, secures inventory at sales offices nationwide, and secures multiple supply sources.

As the Company holds personal information and confidential information, there is a risk that information leakage or tampering caused by unauthorized access, computer virus infection, system failure, or other causes could result in loss of social trust, compensation to business partners, and impact on business continuity. As countermeasures, the Company has established information security management regulations, developed a data backup system, and built a defense system against unauthorized access.

There is a risk that business continuity could be affected if the spread of an infectious disease for which no established treatment exists causes prolonged global supply chain disruption, delays in project progress, or restraint on private-sector capital investment, or if infections among employees or clusters at business sites occur. As countermeasures, the Company has established a manual in preparation for the outbreak of infectious diseases and has implemented safety measures and measures to ensure business continuity.

Amid an uncertain economic outlook due to sharp currency fluctuations, rising labor costs, and persistently high materials and energy prices, there is a risk that profits could decline if a bad debt loss occurs due to the bankruptcy of a business partner or similar event. As a countermeasure, the Company sets credit limits according to the creditworthiness of business partners and works to prevent the occurrence of non-performing receivables.

Having carried out multiple M&A transactions in recent years, the Company has recorded corresponding goodwill and customer-related assets, and there is a possibility that an impairment loss could occur and have a material impact on business results if it is determined, due to significant changes in the business environment or business conditions, that the cash flows originally expected cannot be generated. As a countermeasure, the Company conducts thorough examination of the financial condition and business plans of target companies when carrying out M&A transactions.