KOKEN LTD.

The Group, as an R&D-oriented company, allocates management resources to the "Clean, Health, Safety" fields, but not all research and development efforts necessarily lead to new product development or increased operating revenue, and discontinuation of development due to various circumstances may also affect business performance. As a countermeasure, the Group has established a "matrix-type" R&D structure spanning four locations—the Basic Research Institute, Development Department, Divisions, and Techno Yards—and promotes product development that combines novelty, marketability, and profitability through cross-departmental project teams.

The Group holds numerous patents and other intellectual property rights, but there are limits to fully protecting proprietary technology through legal restrictions alone, and there is a risk that expected revenue may not be obtained due to the manufacture and sale of imitation or similar products by third parties. In addition, if the Group's products unintentionally infringe on the intellectual property of a third party, there is a risk of being subject to claims for damages. As a countermeasure, the Group continues to thoroughly manage its intellectual property rights.

The Group's business is related to a variety of laws and regulations, including the Industrial Safety and Health Act, the Pharmaceuticals and Medical Devices Act, and the Product Liability Act, and if non-compliance events occur, product recalls or business restrictions may result. In addition, the enactment or amendment of new laws and regulations may generate additional costs such as capital expenditures, which may affect business performance. As a countermeasure, the Group works to gather information on regulatory changes and strengthen its compliance structure and internal controls.

The Group's products are expected to be used in harsh environments and are required to have high durability and reliability in order to protect the safety and health of users. If the Ministry of Health, Labour and Welfare's respiratory protective equipment procurement tests identify non-conformities, or if product defects or failures occur, the burden of recall and repair costs, among other expenses, may affect business performance. As a countermeasure, the Group has established a Quality Assurance Office reporting directly to the President, and implements the construction and maintenance of a quality management system based on ISO 9001, as well as monitoring of manufacturing and inspection processes through the assignment of product inspectors at each Techno Yard.

If events that impede business continuity occur at the Techno Yards, the Group's manufacturing sites, such as production suspension due to natural disasters like direct-hit earthquakes or typhoons, unexpected accidents, or the spread of infectious diseases, business performance may be affected. As a countermeasure, the Group has previously undergone earthquake risk assessments and works to establish a system that enables production to resume without disruption even in the event of an earthquake disaster.

Soil and groundwater contamination by trichloroethylene has occurred at two locations, the former research institute and a Techno Yard, and remediation measures are currently underway; however, it is difficult to estimate when remediation will be completed. If remediation measures require a long period of time, the associated costs may affect the Group's business performance. As a countermeasure, the Group continues remediation measures while monitoring the remediation standards set by laws and ordinances.

The Group holds a large amount of confidential information related to technology, sales, and other areas, and if an information security incident such as a cyberattack occurs, business performance may be affected. As a countermeasure, the ICT management section implements integrated threat management, targeted email attack training, and monitoring of information handling, in addition to conducting vulnerability diagnostics using simulated attacks by third parties. Regarding personal information, the Group has established a management system based on the Act on the Protection of Personal Information, the Personal Information Management Regulations, and the My Number Information Management Regulations.

The Group strives to enhance its internal control system from the perspectives of the effectiveness and efficiency of operations, reliability of financial reporting, compliance with laws and regulations, and asset preservation; however, the system has certain limitations, and if unforeseen events occur, business performance may be affected. As a countermeasure, the Group continues ongoing review and reconsideration to strengthen the system in order to prevent the occurrence of risks.

SIAM KOKEN LTD., a production subsidiary in Thailand, exports the entire volume of its disposable dust masks (including N95 masks) to Japan, but business performance may be affected by Thailand's political and social conditions, laws and regulations, exchange rate trends, natural disasters, and the spread of infectious diseases. In 2020, the Thai government imposed export restrictions in connection with the outbreak of COVID-19, and there is a risk that similar export restrictions could recur. As a countermeasure, the Group is expanding domestic production facilities for disposable dust masks to increase total production volume.

If military conflicts occurring around the world intensify, expand, or become prolonged, risks such as rising raw material prices due to higher crude oil prices, increased geopolitical risk, and accelerating global inflation may expand, potentially having a greater impact on the Group's business performance than before. While no specific countermeasures by the Group are explicitly stated in the securities report, the Group conducts continuous risk monitoring.