ENDO MANUFACTURING CO.,LTD.

The Group employs an OEM production model, and its business performance is significantly affected by the sales and outsourcing policies of the manufacturers with which it deals. As dependence on sales to specific customers increases, the Group becomes more strongly influenced by that customer's sales policies. Conversely, expanding the number of customers carries the risk of diluting relationships with major customers, requiring careful management to balance customer diversification with strengthening existing relationships.

The Group has three subsidiaries in Thailand, and items denominated in local currency (sales, expenses, assets, and liabilities) are affected by exchange rate fluctuations when translated into yen. Foreign exchange risk also arises in transactions denominated in Thai baht and US dollars. Although the Group seeks to minimize adverse effects through rationalization of its Thai production plants and forward exchange contracts, significant fluctuations in exchange rates may affect business performance and financial condition.

In the golf club market, price and quality competition is intensifying, and Chinese-made products are expanding their market presence. Although the Group is highly regarded for its technological capabilities and quality, further cost reduction measures will be essential going forward. If such efforts prove insufficient, the Group could lose market share, adversely affecting business performance and financial condition.

If prices of raw materials and supplies used in manufacturing, including titanium, rise beyond expectations and such conditions persist over the long term, manufacturing costs will increase, potentially affecting business performance and financial condition. Raw material price fluctuations depend largely on external factors, and difficulty in passing on cost increases could lead to deteriorating profitability.

In the golf club market, product cycles are becoming shorter and production is shifting toward greater variety in smaller lots, requiring rapid and continuous product development capabilities. Although the Group is working to strengthen its development and production technology capabilities, changes in market conditions or customers' sales policies could cause such efforts to fall short, potentially affecting business performance and financial condition.

For Forged Components (Automobiles, Motorcycles, Agricultural Machinery) manufactured in the Forging Business, the Group maintains a thorough quality control system out of consideration for safety. However, should a serious recall or product defect leading to liability claims occur, it would result in loss of trust and substantial costs. Such an occurrence could have a material impact on business performance and financial condition.

Production facilities are concentrated in Thailand, while core functions such as development and part of production are concentrated in Tsubame City, Niigata Prefecture. Should a disaster such as an earthquake or flood occur, production activities could be disrupted, adversely affecting business results. Thailand in particular has a history of major flooding, and the geographic concentration of production facilities heightens this risk.

The Group has its main production base in Thailand, and its importance continues to grow. Prolonged social and economic disruption due to political instability, avian influenza, novel influenza, or other unforeseen events or regulatory changes could affect business performance and financial condition. Given the high degree of dependence on local operations, the impact on business continuity should country risk materialize would be significant.