TOTECH CORPORATION

The building equipment industry is highly susceptible to economic fluctuations and government economic policy, and if private-sector capital investment or public investment stagnates beyond expectations, it will directly impact both the core Product Sales business and Construction Work business. As the Group's mainstay operations are air conditioning equipment sales for commercial use and instrumentation and control work, dependence on the construction investment cycle is high, and there is an inherent risk of deteriorating business performance during economic downturns.

Competition with other companies in the industry is intensifying in both the Product Sales business and Construction Work business fields within the building equipment industry, creating a risk that profitability could decline due to deepening price competition or aggressive moves by competitors. The Group is working to maintain competitiveness by strengthening its sales capabilities and technical capabilities, but unexpected changes in the competitive environment could affect business results.

Purchases from Daikin Industries, Ltd. accounted for 23.4% of total purchases (including those via trading companies) in FY2026 (ending March 2026), indicating a high degree of dependence on a specific supplier. If unexpected changes occur in the quality or production capacity of major suppliers, or if the trading relationship with the Group changes, the stability of product supply could be undermined, potentially having a material impact on business results.

Securing capable human resources is fundamental to corporate growth. The Group is working on talent development through the hiring of 140 new graduates joining in April 2026, mid-career recruitment (primarily for technical positions), and hands-on training at the Tohtech Group Technical Center. However, if the Group is unable to secure and develop the necessary personnel, this could lead to a decline in technical capabilities and constraints on business expansion, potentially having a significant negative impact on corporate growth.

In the Construction Work business, which centers on instrumentation and control work, there is a constant risk of human and material accidents and disasters. The Group has established a Health and Safety Management Office, operates a health and safety cooperation association, and conducts regular health and safety conventions and training, but in the event of an accident, loss of social credibility and liability for damages could arise, potentially having a material impact on business results.

The Group is subject to legal regulations such as the Construction Business Act, the Industrial Safety and Health Act, and the Telecommunications Business Act, and has obtained licenses and permits including a Special Construction Business License (valid until July 28, 2030), a General Construction Business License, and an Electrical Construction Business License. If there are changes to or new enactments of laws and regulations, administrative dispositions, or violations of laws and regulations, this could hinder the continuation of the Construction Work business, including the risk of license revocation, potentially having a material impact on business results.

In the course of its business, the Group holds information on business partners, personal information, and building facility information, and is working to strengthen management of this information. If an information leak occurs due to unforeseen circumstances, this could result in loss of trust from business partners and customers and legal liability, potentially affecting business results and financial condition.

As of the end of FY2026 (ending March 2026), the Group's consolidated interest-bearing liabilities from external financial institutions (total of short-term and long-term borrowings) stood at ¥5,294 million, with interest-bearing debt dependence relative to consolidated total assets at 4.6%. If interest rates rise in the future or the Company's creditworthiness declines, an increase in funding costs could affect business results and financial condition.

The Group conducts business activities through overseas subsidiaries in Singapore, Indonesia, Vietnam, and other locations, and is exposed to country risks such as unexpected changes in laws and regulations, fragility of industrial infrastructure, difficulty securing human resources, and social and political turmoil caused by terrorism or war. If these risks materialize, overseas business activities could be disrupted, potentially affecting the business results and financial condition of the Group as a whole.

In the event of large-scale natural disasters such as earthquakes, tsunamis, or floods, accidents and disasters such as fires, the spread of infectious diseases, or other social disruptions, there is a risk that business activities of the Group or its major business partners could be halted or disrupted in their continuation. Given the characteristics of the building equipment industry, which is highly dependent on on-site work, this could have a material impact on business results in situations where the effectiveness of business continuity plans (BCP) is tested.