Consolidated Financial Statements for the Year Ended March 31, 2025 and Independent Auditor's Report

Consolidated Financial Statements for the Year Ended March 31, 2025, and Independent Auditor's Report

Deloitte Touche Tohmatsu LLC Meijiyasudaseimei Kobe Building 8-3-5 Isogami-dori, Chuo-ku

Kobe 651-0086

Japan

Tel: +81 (78) 221 8161

Fax: +81 (78) 221 8225

https://www.deloitte.com/jp/en

INDEPENDENT AUDITOR'S REPORT

To the Board of Directors of

TEIKOKU ELECTRIC MFG. CO., LTD.:

We have audited the consolidated financial statements of TEIKOKU ELECTRIC MFG. CO., LTD. and its subsidiaries (the "Group"), which comprise the consolidated balance sheet as of March 31, 2025, and the consolidated statement of income, consolidated statement of comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows for the year then ended, and notes to the consolidated financial statements, including a summary of significant accounting policies, all expressed in Japanese yen.

In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Group as of March 31, 2025, and its consolidated financial performance and its consolidated cash flows for the year then ended in accordance with accounting principles generally accepted in Japan.

Convenience Translation

Our audit also comprehended the translation of Japanese yen amounts into U.S. dollar amounts and, in our opinion, such translation has been made in accordance with the basis stated in Note 1 to the consolidated financial statements. Such U.S. dollar amounts are presented solely for the convenience of readers outside Japan.

Basis for Opinion

We conducted our audit in accordance with auditing standards generally accepted in Japan. Our responsibilities under those standards are further described in the Auditor's Responsibilities for the Audit of the Consolidated Financial Statements section of our report. We are independent of the Group in accordance with the provisions of the Code of Professional Ethics in Japan, and we have fulfilled our other ethical responsibilities as auditors. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Key Audit Matter

A key audit matter is a matter that, in our professional judgment, was of most significance in our audit of the consolidated financial statements of the current period. The matter was addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on the matter.

Member of

Other Information

Other information comprises the information included in the Group's disclosure documents accompanying the audited consolidated financial statements, but does not include the consolidated financial statements and our auditor's report thereon.

We determined that no such information existed and therefore, we did not perform any work thereon.

Responsibilities of Management and the Audit and Supervisory Committee for the Consolidated Financial Statements

Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with accounting principles generally accepted in Japan, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the consolidated financial statements, management is responsible for assessing the Group's ability to continue as a going concern, disclosing, as applicable, matters related to going concern in accordance with accounting principles generally accepted in Japan and using the going concern basis of accounting unless management either intends to liquidate the Group or to cease operations, or has no realistic alternative but to do so.

The Audit and Supervisory Committee is responsible for overseeing the Directors' execution of duties relating to the design and operating effectiveness of the controls over the Group's financial reporting process.

Auditor's Responsibilities for the Audit of the Consolidated Financial Statements

Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with auditing standards generally accepted in Japan will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements.

As part of an audit in accordance with auditing standards generally accepted in Japan, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:

• Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks. The procedures selected depend on the auditor's judgment. In addition, we obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

• Obtain, when performing risk assessment procedures, an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group's internal control.

• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.

• Conclude on the appropriateness of management's use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor's report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor's report. However, future events or conditions may cause the Group to cease to continue as a going concern.

• Evaluate whether the overall presentation and disclosures of the consolidated financial statements are in accordance with accounting principles generally accepted in Japan, as well as the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

• Plan and perform the group audit to obtain sufficient appropriate audit evidence regarding the financial information of the entities or business units within the Group as a basis for forming an opinion on the group financial statements. We are responsible for the direction, supervision and review of the audit work performed for purposes of the group audit. We remain solely responsible for our audit opinion.

We communicate with the Audit and Supervisory Committee regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

We also provide the Audit and Supervisory Committee with a statement that we have complied with relevant ethical requirements regarding independence, and communicate with it all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, actions taken to eliminate threats or safeguards applied.

From the matters communicated with the Audit and Supervisory Committee, we determine those matters that were of most significance in the audit of the consolidated financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor's report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.

Fees for audit and other services for the year ended March 31, 2025, which were charged by us and our network firms to TEIKOKU ELECTRIC MFG. CO., LTD. and its subsidiaries were ¥43,421 thousand and ¥27,888 thousand, respectively.

Interest Required to Be Disclosed by the Certified Public Accountants Act of Japan

Our firm and its designated engagement partners do not have any interest in the Group which is required to be disclosed pursuant to the provisions of the Certified Public Accountants Act of Japan.

Deloitte Touche Tohmatsu LLC July 31, 2025

Consolidated Balance Sheet

March 31, 2025

Thousands of

U.S. Dollars

Thousands of

U.S. Dollars

Consolidated Statement of Income

Year Ended March 31, 2025

Thousands of Yen

Thousands of

U.S. Dollars

(Note 1)

See notes to consolidated financial statements.

Consolidated Statement of Comprehensive Income

Year Ended March 31, 2025

Thousands of Yen

Thousands of

U.S. Dollars

(Note 1)

See notes to consolidated financial statements.

Consolidated Statement of Changes in Equity

Year Ended March 31, 2025

Thousands of Yen

Number of Accumulated Other Comprehensive Income

Thousands of U.S. Dollars (Note 1)

Accumulated Other Comprehensive Income

- 9 -

Consolidated Statement of Cash Flows

Year Ended March 31, 2025

Thousands of Yen

Thousands of

U.S. Dollars

(Note 1)

2025 2024 2025

OPERATING ACTIVITIES:

Net cash provided by operating activities 3,944,667 2,395,100 26,380

INVESTING ACTIVITIES:

Net cash provided by (used in) investing

activities 1,470,432 (2,973,355) 9,834

FINANCING ACTIVITIES:

FOREIGN CURRENCY TRANSLATION ADJUSTMENTS

ON CASH AND CASH EQUIVALENTS 455,774 585,389 3,048

NET INCREASE (DECREASE) IN CASH AND CASH

EQUIVALENTS—(Forward) ¥ 1,164,198 ¥ (4,068,940) $ 7,786

Consolidated Statement of Cash Flows

Year Ended March 31, 2025

Thousands of Yen

Thousands of

U.S. Dollars

(Note 1)

Notes to Consolidated Financial Statements

Year Ended March 31, 2025

1. BASIS OF PRESENTATION OF CONSOLIDATED FINANCIAL STATEMENTS

   The accompanying consolidated financial statements have been prepared in accordance with the provisions set forth in the Japanese Financial Instruments and Exchange Act and its related accounting regulations and in accordance with accounting principles generally accepted in Japan ("Japanese GAAP"), which are different in certain respects as to the application and disclosure requirements of IFRS Accounting Standards.

   In preparing these consolidated financial statements, certain reclassifications and rearrangements have been made to the consolidated financial statements issued domestically in order to present them in a form which is more familiar to readers outside Japan. In addition, certain reclassifications have been made in the 2024 consolidated financial statements to conform to the classifications used in 2025.

   The consolidated financial statements are stated in Japanese yen, the currency of the country in which TEIKOKU ELECTRIC MFG. CO., LTD. (the "Company") is incorporated and operates. The translations of Japanese yen amounts into U.S. dollar amounts are included solely for the convenience of readers outside Japan and have been made at the rate of ¥149.53 to $1, the approximate rate of exchange at March 31, 2025. Such translations should not be construed as representations that the Japanese yen amounts could be converted into U.S. dollars at that or any other rate.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

   1. Consolidation—The consolidated financial statements as of March 31, 2025, include the accounts of the Company and all of its 12 (12 in 2024) subsidiaries (together, the "Group").

      Foreign subsidiaries (except for HYDRODYNE TEIKOKU (INDIA) PVT. LTD.) are consolidated using the financial statements as of December 31, 2024, because the difference between the closing date of the subsidiaries and that of the Company did not exceed three months. Significant transactions have been adjusted in consolidation.

      Under the control and influence concepts, those companies in which the Company, directly or indirectly, is able to exercise control over operations are fully consolidated.

      All significant intercompany balances and transactions have been eliminated in consolidation. All material unrealized profit included in assets resulting from transactions within the Group is also eliminated.

   2. Unification of Accounting Policies Applied to Foreign Subsidiaries for the Consolidated Financial Statements—Under Accounting Standards Board of Japan ("ASBJ") Practical Issues Task Force (PITF) No. 18, "Practical Solution on Unification of Accounting Policies Applied to Foreign Subsidiaries for the Consolidated Financial Statements," the accounting policies and procedures applied to a parent company and its subsidiaries for similar transactions and events under similar circumstances should in principle be unified for the preparation of the consolidated financial statements. However, financial statements prepared by foreign subsidiaries in accordance with either IFRS Accounting Standards or generally accepted accounting principles in the United States of America (Financial Accounting Standards Board Accounting Standards Codification) tentatively may be used for the consolidation process, except for the following items that should be adjusted in the consolidation process so that net income is accounted for in accordance with Japanese GAAP, unless they are not material: (a) amortization of goodwill;

      (b) scheduled amortization of actuarial gain or loss of pensions that has been recorded in equity through other comprehensive income; (c) expensing capitalized development costs of R&D;

      (d) cancellation of the fair value model of accounting for property, plant and equipment and investment properties and incorporation of the cost model of accounting; and (e) recording a gain or loss through profit or loss on the sale of an investment in an equity instrument for the difference between the acquisition cost and selling price, and recording impairment loss through profit or loss for other-than-temporary declines in the fair value of an investment in an equity instrument, where a foreign subsidiary elects to present in other comprehensive income subsequent changes in the fair value of an investment in an equity instrument.

   3. Cash Equivalents—Cash equivalents are short-term investments that are readily convertible into cash and that are exposed to insignificant risk of changes in value.

      Cash equivalents include time deposits, certificates of deposit, commercial paper and bond funds, all of which mature or become due within three months of the date of acquisition.

   4. Marketable and Investment Securities—Marketable and investment securities are classified and accounted for, depending on management's intent, as follows: (1) trading securities, which are held for the purpose of earning capital gains in the near term, are reported at fair value, and the related unrealized gains and losses are included in earnings; (2) held-to-maturity debt securities, for which there is a positive intent and ability to hold to maturity, are reported at amortized cost; and (3) available-for-sale securities, which are not classified as either of the aforementioned securities, are reported at fair value, with unrealized gains and losses, net of applicable taxes, reported in a separate component of equity.

      Nonmarketable available-for-sale equity securities are stated at cost determined by the moving-average method. For other-than-temporary declines in fair value, investment securities are reduced to net realizable value by a charge to income.

   5. Allowance for Doubtful Accounts—The allowance for doubtful accounts is stated in amounts considered to be appropriate based on the companies' past credit loss experience and an evaluation of potential losses in the receivables outstanding.
   6. Inventories—Inventories are stated at the lower of cost, determined by the average cost method, or net selling value for the Company and its domestic subsidiaries and at the lower of cost, determined by the first-in, first-out method, or net selling value for foreign subsidiaries.
   7. Property, Plant and Equipment—Property, plant and equipment are stated at cost. Depreciation of property, plant and equipment of the Company and its consolidated domestic subsidiaries other than buildings acquired on or after April 1, 1998, and building improvements and structures acquired on or after April 1, 2016, is computed using the declining-balance method, while depreciation of property, plant and equipment of its consolidated foreign subsidiaries is mainly computed using the straight-line method at rates based on estimated useful lives of the assets. Buildings of the Company and its consolidated domestic subsidiaries acquired on or after April 1, 1998, and building improvements and structures of the Company and its consolidated domestic subsidiaries acquired on or after April 1, 2016, are depreciated using the straight-line method. The range of useful lives is principally from 15 to 50 years for buildings and structures, and from 7 to 12 years for machinery and equipment. The useful lives for lease assets are the terms of the respective leases.
   8. Long-Lived Assets—The Group reviews its long-lived assets for impairment whenever events or changes in circumstance indicate the carrying amount of an asset or asset group may not be recoverable. An impairment loss is recognized if the carrying amount of an asset or asset group exceeds the sum of the undiscounted future cash flows expected to result from the continued use and eventual disposition of the asset or asset group. The impairment loss would be measured as the amount by which the carrying amount of the asset exceeds its recoverable amount, which is the higher of the discounted cash flows from the continued use and eventual disposition of the asset or the net selling price at disposition. Accumulated impairment losses are included in accumulated depreciation in the consolidated balance sheet.
   9. Software—Software for internal use is amortized using the straight-line method over the estimated usable life. The estimated usable life is 5 years.
   10. Retirement and Pension Plans—The liabilities (assets) for retirement benefits of employees are accounted for based on projected benefit obligations and plan assets at the consolidated balance sheet date. The actuarial differences are mainly amortized from the next year using the

       declining-balance method over 10 years, which is within the average remaining service period. The prior service costs are mainly amortized using the declining-balance method over 10 years, which is within the average remaining service period.

       Actuarial gains and losses and past service costs that are yet to be recognized in profit or loss are recognized within equity (accumulated other comprehensive income), after adjusting for tax effects, and any resulting deficit or surplus is recognized as a liability (liability for retirement benefits) or asset (asset for retirement benefits).

   11. Research and Development Costs—Research and development costs are charged to income as incurred.
   12. Leases—Finance lease transactions are capitalized by recognizing lease assets and lease obligations in the balance sheet.
   13. Provision for Loss on Liquidation of a Subsidiary—The provision for liquidation of a subsidiary is estimated and recorded to provide for losses associated with the liquidation of the subsidiary.
   14. Revenue Recognition—The Group recognizes revenue in an amount that reflects the consideration to which it expects to be entitled in exchange for satisfying performance obligations to transfer the goods or services promised in contracts with customers. The nature of performance obligations for each of the Group's major industry and when such obligations are satisfied are as follows:

       In the pump business, the Group mainly manufactures and sells canned motor pump, and its performance obligation is primarily to deliver a finished product to the customer in accordance with the sales contract. In principle, it is deemed that control of the product is transferred to the customer and the performance obligation is satisfied at the time of delivery of the finished product to the customer; therefore, the Group recognizes sales at the time the products are shipped, inspected, or based on incoterms. However, since some products are manufactured based on the specifications that are unique to a customer, the Group determines that its performance obligations in such contracts are satisfied over time, and estimates the progress in satisfying the performance obligations and recognizes revenue based on the progress in satisfying the performance obligations.

       In the electronic components business, the Group mainly manufactures and sells automotive electronic components, and its performance obligation is primarily to deliver a finished product to the customer in accordance with the sales contract. In principle, it is deemed that control of the product is transferred to the customer and the performance obligation is satisfied at the time of delivery of the finished product to the customer; therefore, the Group recognizes sales at the time the products are shipped.

       Consideration for these performance obligations is generally received within one year after the performance obligation is satisfied, according to separately determined payment conditions, and does not include any significant financing components.

   15. Income Taxes—The provision for income taxes is computed based on the pretax income included in the consolidated statement of income. The asset and liability approach is used to recognize deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax bases of assets and liabilities. Deferred taxes are measured by applying currently enacted income tax rates to the temporary differences.
   16. Foreign Currency Transactions—All short-term and long-term monetary receivables and payables denominated in foreign currencies are translated into Japanese yen at the exchange rates at the balance sheet date. The foreign exchange gains and losses from translation are recognized in the consolidated statement of income to the extent that they are not hedged by forward exchange contracts.
   17. Foreign Currency Financial Statements—The balance sheet accounts of the consolidated foreign subsidiaries are translated into Japanese yen at the current exchange rate as of the balance sheet date except for equity, which is translated at the historical rate. Differences arising from such translation are shown as "Foreign currency translation adjustments" under accumulated other comprehensive income in a separate component of equity. Revenue and expense accounts of consolidated foreign subsidiaries are translated into yen at the average exchange rate.
   18. Per Share Information—Basic net income per share is computed by dividing net income attributable to common shareholders by the weighted-average number of common shares outstanding for the period.

       The weighted-average number of common shares outstanding used in the computation was 17,382,551 and 17,981,014 for the fiscal years ended March 31, 2025 and 2024, respectively.

       Diluted net income per share is not presented because there are no potentially dilutive securities outstanding.

       Cash dividends per share presented in the accompanying consolidated statement of income are dividends applicable to the respective fiscal years, including dividends to be paid after the end of the year.

   19. Accounting Changes and Error Corrections—Under ASBJ Statement No. 24, "Accounting Standard for Accounting Changes and Error Corrections," and ASBJ Guidance No. 24, "Guidance on Accounting Standard for Accounting Changes and Error Corrections," accounting treatments are required as follows: (1) Changes in Accounting Policies—When a new accounting policy is applied following revision of an accounting standard, the new policy is applied retrospectively unless the revised accounting standard includes specific transitional provisions, in which case the entity shall comply with the specific transitional provisions. (2) Changes in Presentation—When the presentation of financial statements is changed, prior-period financial statements are reclassified in accordance with the new presentation. (3) Changes in Accounting Estimates—A change in an accounting estimate is accounted for in the period of the change if the change affects that period only, and is accounted for prospectively if the change affects both the period of the change and future periods. (4) Corrections of Prior-Period Errors—When an error in prior-period financial statements is discovered, those statements are restated.
   20. New Accounting Pronouncements

       • "Accounting Standard for Leases" (ASBJ Statement No. 34, September 13, 2024)

       • "Implementation Guidance on Accounting Standard for Leases" (ASBJ Guidance No. 33, September 13, 2024), etc.

         1. Summary

            As part of the process to align Japanese GAAP with international accounting standards, the ASBJ has conducted deliberations in a basis of international accounting standards to develop lease accounting standards that recognize assets and liabilities for all leases of lessees. As a basic principle, the standards are based on the single accounting model of IFRS 16. However, instead of adopting all provisions of IFRS 16, only the key provisions have been incorporated. This approach aims to create lease accounting standards that are simplified and practical. By focusing on the major provisions, the standards are designed to, in most cases, require no significant modifications when IFRS 16 is applied to individual financial statements. These lease accounting standards have now been publicly announced.

            With regard to the lessee's accounting treatment, a single accounting model is applied to the lessee's method of allocating expenses for all leases, regardless of whether the lease is classified as a finance lease or an operating lease, in which depreciation on right-of-use assets and interest on the lease liability are recorded, as prescribed by IFRS 16.

         2. Scheduled date of application

            It is scheduled to be applied from the beginning of the fiscal year ending March 31, 2028.

         3. Effect of application of aforementioned accounting standard, etc.

         The effect of the adoption of "Accounting Standard for Leases" on the consolidated financial statements is currently being assessed.

3. ACCOUNTING CHANGE

   The Group has applied the "Accounting Standard for Current Income Taxes" (ASBJ Statement No. 27, October 28, 2022; the "Revised Accounting Standard of 2022") and other relevant ASBJ regulations from the beginning of the fiscal year ended March 31, 2025.

   Revisions to the classification of income taxes (taxation on other comprehensive income) are in accordance with the transitional treatment prescribed in the proviso of paragraph 20-3 of the 2022 Revised Accounting Standard and the proviso of paragraph 65-2 (2) of the "Guidance on Accounting Standard for Tax Effective Accounting" (ASBJ Guidance No. 28, October 28, 2022; hereinafter referred to as the "Guidance on the 2022 Revised Accounting Standard"). These changes in accounting policies have no impact on the consolidated financial statements.

   In addition, The Group has adopted the Guidance on the 2022 Revised Accounting Standard related to the revision of the treatment in consolidated financial statements of the deferral for tax purposes of gain or loss on sale of shares of subsidiaries, etc. among consolidated companies, taking effect since the beginning of the fiscal year ended March 31, 2025. These changes in accounting policies have been applied retrospectively, and the figures concerning the previous fiscal year's consolidated financial statements have been prepared on a retrospective basis. These changes in accounting policies have no impact on the previous fiscal year's consolidated financial statements.

4. SHORT-TERM INVESTMENTS AND INVESTMENT SECURITIES

   Short-term investments and investment securities as of March 31, 2025 and 2024, consisted of the following:

   	Thousands of Yen	Thousands of U.S. Dollars
   	2025 2024	2025
   Current: Time deposits other than cash equivalents	¥ 1,469,347 ¥ 3,471,321	$ 9,826
   Restricted deposits	418,607 —	2,800
   Total	¥ 1,887,954 ¥ 3,471,321	$ 12,626
   Non-current: Marketable equity securities	¥ 1,144,000 ¥ 1,205,375	$ 7,651
   Unquoted equity securities	3,727 3,727	25
   Total	¥ 1,147,727 ¥ 1,209,102	$ 7,676

   The costs and aggregate fair values of marketable and investment securities at March 31, 2025 and 2024, were as follows:

   Thousands of Yen

   March 31, 2025 Cost

   Unrealized

   Gains

   Unrealized

   Losses

   Fair

   Value

   Securities classified as:

   Available-for-sale:

   Equity securities ¥ 170,501 ¥ 973,499 — ¥ 1,144,000

   March 31, 2024

   Securities classified as:

   Available-for-sale:

   Equity securities ¥ 249,462 ¥ 955,913 — ¥ 1,205,375

   Thousands of U.S. Dollars

   March 31, 2025 Cost

   Unrealized

   Gains

   Unrealized

   Losses

   Fair

   Value

   Securities classified as:

   Available-for-sale:

   Equity securities $ 1,140 $ 6,511 — $ 7,651

   Available-for-sale securities sold during the years ended March 31, 2025 and 2024, were as follows:

   Thousands of Yen

   Thousands of

   U.S. Dollars

   2025 2024 2025

   Proceeds from sales ¥ 189,232 — $ 1,266

   Gain on sales 108,652 — 727

5. INVENTORIES

   Inventories at March 31, 2025 and 2024, consisted of the following:

   Thousands of Yen

   Thousands of

   U.S. Dollars

   	2025	2024	2025
   Finished products	¥ 2,856,379	¥ 2,352,243	$ 19,102
   Work in process	2,339,497	2,096,141	15,646
   Raw materials and supplies	2,163,258	2,089,734	14,467
   Total	¥ 7,359,134	¥ 6,538,118	$ 49,215

6. LONG-TERM DEBT

   The annual interest rate applicable to current portion of long-term debt at March 31, 2024, was 8.92%.

7. RETIREMENT AND PENSION PLANS

   The Company and certain consolidated subsidiaries have severance payment plans for employees. Under most circumstances, employees terminating their employment are entitled to retirement benefits determined based on the rate of pay at the time of termination, years of service and certain other factors. Such retirement benefits are made in the form of a lump-sum severance payment from the Company or from certain consolidated subsidiaries and annuity payments from a trustee.

   In addition, the Company have set an employee's retirement benefit trust to a lump-sum severance payment.

   The Company has contributory funded defined benefit pension plans and unfunded retirement benefit plans for employees. The certain consolidated subsidiaries have unfunded retirement benefit plans.

   1. The changes in defined benefit obligation for the years ended March 31, 2025 and 2024, were as follows:

      Thousands of Yen

      Thousands of

      U.S. Dollars

      2025 2024 2025

      Balance at beginning of year	¥ 1,721,620	¥ 1,769,176	$ 11,514
      Current service cost	151,055	126,990	1,010
      Interest cost	25,155	19,809	168
      Actuarial gains	(90,768)	(28,496)	(607)
      Benefits paid	(296,863)	(168,035)	(1,985)
      Others	(1,034)	2,176	(7)
      Balance at end of year	¥ 1,509,165	¥ 1,721,620	$ 10,093

   2. The changes in plan assets for the years ended March 31, 2025 and 2024, were as follows:

      Thousands of Yen

      Thousands of

      U.S. Dollars

      	2025	2024	2025
      Balance at beginning of year	¥ 1,406,185	¥ 1,329,727	$ 9,404
      Expected return on plan assets	31,303	26,595	209
      Actuarial gains (losses)	(65,289)	77,616	(437)
      Contributions from the employer	20,768	21,237	139
      Benefits paid	(11,840)	(48,990)	(79)
      Others	72	—	1
      Balance at end of year	¥ 1,381,199	¥ 1,406,185	$ 9,237

   3. Reconciliation between the liability recorded in the consolidated balance sheet and the balances of defined benefit obligation and plan assets was as follows:

      Thousands of Yen

      Thousands of

      U.S. Dollars

      	2025	2024	2025
      Funded defined benefit obligation	¥ 1,410,531	¥ 1,387,094	$ 9,433
      Plan assets	(1,381,199)	(1,406,185)	(9,237)
      Total	29,332	(19,091)	196
      Unfunded defined benefit obligation	98,634	334,526	660
      Net liability arising from defined benefit obligation	¥ 127,966	¥ 315,435	$ 856
      			Thousands of
      	Thousands of Yen		U.S. Dollars
      	2025 2024		2025
      Liability for retirement benefits	¥ 364,299 ¥ 543,254		$ 2,436
      Asset for retirement benefits	(236,333) (227,819)		(1,580)
      Net liability arising from defined benefit obligation	¥ 127,966 ¥ 315,435		$ 856

   4. The components of net periodic benefit costs for the years ended March 31, 2025 and 2024, were as follows:

      Thousands of Yen

      Thousands of

      U.S. Dollars

      	2025	2024	2025
      Service cost	¥ 151,055	¥ 126,990	$ 1,010
      Interest cost	25,155	19,809	168
      Expected return on plan assets	(31,303)	(26,595)	(209)
      Recognized actuarial losses	1,150	9,661	8
      Net periodic benefit costs	¥ 146,057	¥ 129,865	$ 977

   5. Amounts recognized in other comprehensive income (before income tax effect) in respect of defined retirement benefit plans for the years ended March 31, 2025 and 2024, were as follows:

      	Thousands of Yen	Thousands of U.S. Dollars
      	2025 2024	2025
      Actuarial losses	¥ 26,629 ¥ 115,447	$ 178
      Total	¥ 26,629 ¥ 115,447	$ 178

   6. Amounts recognized in accumulated other comprehensive income (before income tax effect) in respect of defined retirement benefit plans as of March 31, 2025 and 2024, were as follows:

      Thousands of Yen

      Thousands of

      U.S. Dollars

      2025 2024 2025

      Unrecognized actuarial losses ¥ 80,324 ¥ 53,695 $ 537

      Total ¥ 80,324 ¥ 53,695 $ 537

   7. Plan assets

      1. Components of plan assets

         Plan assets as of March 31, 2025 and 2024, consisted of the following:

         	2025	2024
         Domestic debt investments	16 %	42 %
         Domestic equity investments	11	16
         Foreign debt investments	18	18
         Foreign equity investments	15	16
         General account assets of life insurance	7	6
         Cash and cash equivalents	32	1
         Others	1	1
         Total	100 %	100 %

      2. Method of determining the expected rate of return on plan assets

         The expected rate of return on plan assets is determined considering the long-term rates of return which are expected currently and in the future from the various components of the plan assets.

   8. Assumptions used for the years ended March 31, 2025 and 2024, are set forth as follows:

      2025		2024
      Discount rate	2.32–2.41%	1.58–1.67%
      Expected rate of return on plan assets	2.00%	2.00%

   9. Defined contribution plans

   The amount of required contribution to the defined contribution plans of the Company was

   ¥20,132 thousand ($135 thousand) and ¥19,907 thousand for the years ended March 31, 2025 and 2024, respectively.

8. EQUITY

   Japanese companies are subject to the Companies Act of Japan (the "Companies Act"). The significant provisions in the Companies Act that affect financial and accounting matters are summarized below:

   1. Dividends

      Under the Companies Act, companies can pay dividends at any time during the fiscal year in addition to the year-end dividend upon resolution at the shareholders' meeting. Additionally, for companies that meet certain criteria including (1) having a Board of Directors, (2) having independent auditors, (3) having an Audit & Supervisory Board, and (4) the term of service of the directors being prescribed as one year rather than the normal two-year term by its articles of incorporation, the Board of Directors may declare dividends (except for dividends-in-kind) at any time during the fiscal year if the company has prescribed so in its articles of incorporation.

      However, the Company does not meet all the above criteria.

      The Companies Act permits companies to distribute dividends-in-kind (noncash assets) to shareholders subject to a certain limitation and additional requirements.

      Semiannual interim dividends may also be paid once a year upon resolution by the Board of Directors if the articles of incorporation of the company so stipulate. The Companies Act provides certain limitations on the amounts available for dividends or the purchase of treasury stock. The limitation is defined as the amount available for distribution to the shareholders, but the amount of net assets after dividends must be maintained at no less than ¥3 million.

   2. Increases/Decreases and Transfer of Common Stock, Reserve and Surplus

      The Companies Act requires that an amount equal to 10% of dividends must be appropriated as a legal reserve (a component of retained earnings) or as additional paid-in capital (a component of capital surplus), depending on the equity account charged upon the payment of such dividends, until the aggregate amount of legal reserve and additional paid-in capital equals 25% of the common stock. Under the Companies Act, the total amount of additional paid-in capital and legal reserve may be reversed without limitation. The Companies Act also provides that common stock, legal reserve, additional paid-in capital, other capital surplus and retained earnings can be transferred among the accounts within equity under certain conditions upon resolution of the shareholders.

   3. Treasury Stock and Treasury Stock Acquisition Rights

      The Companies Act also provides for companies to purchase treasury stock and dispose of such treasury stock by resolution of the Board of Directors. The amount of treasury stock purchased cannot exceed the amount available for distribution to the shareholders which is determined by a specific formula. Under the Companies Act, stock acquisition rights are presented as a separate component of equity. The Companies Act also provides that companies can purchase both treasury stock acquisition rights and treasury stock. Such treasury stock acquisition rights are presented as a separate component of equity or deducted directly from stock acquisition rights.

9. INCOME TAXES

   The Company and its domestic subsidiaries are subject to Japanese national and local income taxes which, in the aggregate, resulted in a normal effective statutory tax rate of approximately 30.6% for the years ended March 31, 2025 and 2024.

   The tax effects of significant temporary differences and tax loss carryforwards which resulted in deferred tax assets and liabilities at March 31, 2025 and 2024, are as follows:

   Thousands of Yen

   Thousands of

   U.S. Dollars

   		2025		2024	2025
   Deferred tax assets: Accrued bonuses	¥	147,566	¥	164,985	$ 987
   Inventories		101,792		89,506	681
   Accrued enterprise tax		40,283		28,055	269
   Unrealized intercompany profits		237,827		191,302	1,590
   Liability for retirement benefits		334,047		381,366	2,234
   Golf club membership		5,390		5,542	36
   Impairment loss		107,784		221,728	721
   Tax loss carryforwards		400,837		1,092	2,681
   Other	353,438		362,576		2,363
   Total of tax loss carryforwards and temporary differences	1,728,964		1,446,152		11,562
   Less valuation allowance for tax loss carryforwards	(398,225)		(1,092)		(2,663)
   Less valuation allowance for temporary
   differences	(132,934)		(341,052)		(889)
   Total valuation allowance	(531,159)		(342,144)		(3,552)

   Total 1,197,805 1,104,008 8,010

   Deferred tax liabilities:

   Undistributed earnings of foreign subsidiaries	850,171	870,867	5,685
   Reserve for advanced depreciation of
   non-current assets	62,906	63,743	421
   Net unrealized gain on available-for-sale
   securities	306,652	294,937	2,051
   Other	122,508	97,614	819

   Total 1,342,237 1,327,161 8,976

   Net deferred tax liabilities ¥ (144,432) ¥ (223,153) $ (966)

   Note: Compared to the previous fiscal year, valuation allowance has increased by

   ¥189,015 thousand ($1,264 thousand) for the year ended March 31, 2025. While the valuation allowance related to the total amount of future deductible temporary differences for the Company and HIRAFUKU ELECTRIC MFG. CO., LTD., a consolidated subsidiary, was reduced, the valuation allowance for tax loss carryforwards for HIRAFUKU ELECTRIC MFG. CO., LTD. was additionally recognized.

   The expiration of tax loss carryforwards, the related valuation allowances and the resulting net deferred tax assets as of March 31, 2025, were as follows:

   Thousands of Yen

   March 31, 2025

   1. Year

      or Less

      After 1 Year through

   2. Years

      After 2 Years through

   3. Years

      After 3 Years through

   4. Years

      After 4 Years through

   5. Years

      After

      5 Years Total

      Deferred tax assets relating to tax loss

      carryforwards ¥ 400,837 ¥ 400,837

      Less valuation allowances for tax

      loss carryforwards (398,225) (398,225)

      Net deferred tax assets relating to tax loss

      carryforwards 2,612 2,612

      Thousands of U.S. Dollars

      March 31, 2025

      1. Year

         or Less

         After 1 Year through

      2. Years

         After 2 Years through

      3. Years

         After 3 Years through

      4. Years

         After 4 Years through

      5. Years

   After

   5 Years Total

   Deferred tax assets relating to tax loss

   carryforwards $ 2,681 $ 2,681

   Less valuation allowances for tax

   loss carryforwards (2,663) (2,663)

   Net deferred tax assets relating to tax loss

   carryforwards 18 18

   Since the expiration of tax loss carryforwards, the related valuation allowances and the resulting net deferred tax assets for the year ended March 31, 2024, were immaterial, disclosure of details is omitted.

   A reconciliation between the normal effective statutory tax rate and the actual effective tax rate reflected in the accompanying consolidated statement of income for the year ended March 31, 2024, is as follows:

   	2024
   Normal effective statutory tax rate	30.6%
   Expenses not deductible for income tax purposes	0.7
   Inhabitant tax on per capita basis	0.3
   Lower income tax rates applicable to income in certain foreign countries	(3.0)
   Change in valuation allowance	5.7
   Tax credits	(0.9)
   Other—net	(0.8)
   Actual effective tax rate	32.6%

   Since the actual effective tax rate for the year ended March 31, 2025, differed from the normal effective statutory tax rate by less than 5.0%, disclosure of details is omitted.

   On March 31, 2025, a tax reform law was enacted in Japan which changed the normal effective statutory tax rate from approximately 30.6% to 31.5%, effective for years beginning on or after April 1, 2026.

   The effect of these changes was immaterial.

10. REVENUE

    1. Disaggregation of Revenue

       Revenues from contracts with customers on a disaggregated basis are disclosed in Note 18, "SEGMENT INFORMATION."

    2. Basic Information to Understand Revenues from Contracts with Customers

       The information is disclosed in Note 2, "SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES."

    3. Contract Balances

       Receivables from contract with customers, contract assets and contract liabilities at the beginning and the end of the years ended March 31, 2025 and 2024, were as follows:

       	Thousands of Yen		Thousands of U.S. Dollars
       	2025 2024		2025
       Receivables from contracts with customers:
       Balance at beginning of year	¥ 9,860,775 ¥ 8,791,961		$ 65,945
       Balance at end of year	10,230,424 9,860,775		68,417
       Contract assets:
       Balance at beginning of year	495,797	129,408	3,316
       Balance at end of year	453,357	495,797	3,032
       Contract liabilities:
       Balance at beginning of year	1,460,423	1,714,538	9,767
       Balance at end of year	1,800,836	1,460,423	12,043

    4. Transaction Prices Allocated to Remaining Performance Obligations

    As the Group does not have significant contracts with an expected term in excess of one year, the Group has applied the practical expedient and omitted the information on remaining performance obligations.

11. RESEARCH AND DEVELOPMENT COSTS

    Research and development costs charged to income were ¥524,162 thousand ($3,505 thousand) and

    ¥572,283 thousand for the years ended March 31, 2025 and 2024, respectively.

12. LOSS ON LIQUIDATION OF A SUBSIDIARY

    For the Year Ended March 31, 2025

    The loss on liquidation of a subsidiary is a loss incurred due to the suspension of operations of HIRAFUKU ELECTRIC MFG. CO., LTD. The amount consists of ¥460,232 thousand

    ($3,078 thousand) for extra retirement benefits to employees of HIRAFUKU ELECTRIC MFG. CO., LTD. under the career transition support program, which was conditional on their continued service until the date (December 31, 2024) required by the Group, ¥89,500 thousand ($599 thousand) for the career transfer support service and ¥60,929 thousand ($407 thousand) for the others.

    Gain on sales of fixed assets (machinery and equipment) resulting from the suspension of operations of ¥137,692 thousand ($921 thousand) is netted against loss on liquidation of a subsidiary

    For the Year Ended March 31, 2024

    The loss on liquidation of a subsidiary mainly consisted of impairment of fixed assets of

    ¥547,799 thousand and extra retirement benefits of ¥23,091 thousand, due to the decision to suspend operations of HIRAFUKU ELECTRIC MFG. CO., LTD., a consolidated subsidiary. Employees of HIRAFUKU ELECTRIC MFG. CO., LTD. are entitled to extra retirement benefits if they serve until December 31, 2024, which is a date required by the Group under the career transition support program. The extra retirement benefits are recognized as an expense over the period of service required under the program. The amount is estimated based on employees who applied for the program as of March 31, 2024. Impairment losses on fixed assets were recorded for the following asset group.

    Location Use Category

    Taishi-cho, Ibo-gun, Hyogo, etc.

    Business assets Buildings and structures, machinery and

    equipment, land, lease assets and others

    The assets of the Group are mainly grouped based on business segment and use. For the year ended March 31, 2024, an impairment loss of ¥547,799 thousand was recognized as loss on liquidation of a subsidiary because the carrying amounts of an asset group to be disposed of in accordance with the decision to suspend operations of HIRAFUKU ELECTRIC MFG. CO., LTD., a consolidated subsidiary exceeds the recoverable amount. The amount consists of ¥56,600 thousand for the buildings and structures, ¥11,565 thousand for the machinery and equipment,

    ¥195,337 thousand for the land, ¥278,051 thousand for the lease assets and ¥6,246 thousand for the others.

    The recoverable amount of the asset group was measured at the net selling price as its value in use was less than the net selling price. The net selling value of the land, buildings and structures was calculated by making a reasonable adjustment to the appraisal value based on the real estate appraisal standards. Other assets that were difficult to divert or sell were assessed at a net sale price of zero.

13. LEASE

The Group leases certain "buildings and structures" and "machinery and equipment."

Annual maturities of long-term lease obligations as of March 31, 2025, for the next five years and thereafter were as follows:

The Group uses financial instruments, mainly long-term debt including bank loans, based on its capital financing plan. Cash surpluses, if any, are invested in low risk financial assets. Short-term bank loans are used to fund the Group's ongoing operations.

1. Nature and Extent of Risks Arising from Financial Instruments and Risk Management for Financial Instruments

   Receivables, such as trade notes, trade accounts and electronically recorded monetary claims— trade, are exposed to customer credit risk. The Group manages its credit risk from receivables on the basis of internal guidelines. Although receivables in foreign currencies are exposed to the market risk of fluctuation in foreign currency exchange rates, those risks are controlled by netting against the balance of payables in the same foreign currency and exchanging into yen timely monitoring market trends so as not to increase assets in foreign currencies excessively.

   Investment securities, mainly equity instruments of customers and suppliers of the Group, are exposed to the risk of market price fluctuations. Such investments are managed by monitoring market values and the financial position of issuers on a regular basis.

   Payment terms of payables, such as trade notes, trade accounts and electronically recorded obligations—trade, are less than one year. Although payables in foreign currencies are exposed to the market risk of fluctuation in foreign currency exchange rates, those risks are netted against the balance of receivables denominated in the same foreign currency as noted above.

2. Fair Values of Financial Instruments

   1. Fair value of financial instruments

      Fair values of financial instruments are as follows: Investments in equity instruments that do not have a quoted market price in an active market are not included in the following table.

      The fair values of "cash and cash equivalents," "short-term investments," "receivables," "payables," "current portion of long-term loans," and "income taxes payable" are not disclosed because their maturities are short and the carrying amounts approximate fair value.

      Thousands of Yen
      March 31, 2025	Carrying Amount	Fair Value	Unrealized Gain (Loss)
      Investment securities	¥ 1,144,000	¥ 1,144,000
      Total	¥ 1,144,000	¥ 1,144,000
      March 31, 2024
      Investment securities	¥ 1,205,375	¥ 1,205,375
      Total	¥ 1,205,375	¥ 1,205,375
      Thousands of U.S. Dollars
      March 31, 2025	Carrying Amount	Fair Value	Unrealized Gain (Loss)
      Investment securities	$ 7,651	$ 7,651
      Total	$ 7,651	$ 7,651

   2. Carrying amount of investments in equity instruments that do not have a quoted market price in an active market

      Thousands of Yen

      Thousands of

      U.S. Dollars

      2025 2024 2025

      Unlisted equity instruments ¥ 3,727 ¥ 3,727 $ 25

3. Maturity Analysis for Financial Assets and Securities with Contractual Maturities

Thousands of Yen

March 31, 2025

Due in 1 Year

or Less

Due after 1 Year through

5 Years

Due after 5 Years through

10 Years

Due after

10 Years

Cash and cash equivalents ¥ 11,998,609 Receivables:

Trade notes 82,040

Electronically recorded

monetary claims—trade 1,324,581

Trade accounts 8,823,803 Short-term investments and

investment securities:

Time deposits other than

Short-term investments and investment securities:

Time deposits other than

Thousands of U.S. Dollars

March 31, 2025

Due in 1 Year

or Less

Due after 1 Year through

5 Years

Due after 5 Years through

10 Years

Due after

10 Years

Short-term investments and investment securities: Time deposits other than

The fair value of financial instruments is categorized into the following three levels, depending on the observability and significance of the inputs used in making fair value measurements:

Level 1: Fair values measured by using quoted prices (unadjusted) in active markets for identical assets or liabilities

Level 2: Fair values measured by using inputs other than quoted prices included within Level 1 that are observable for the assets or liabilities, either directly or indirectly

Level 3: Fair values measured by using unobservable inputs for the assets or liabilities

If multiple inputs are used that have a significant impact on the measurement of fair value, fair value is categorized at the lowest level in the fair value measurement among the levels to which each of these inputs belongs.

The financial assets and liabilities measured at the fair values in the consolidated balance sheet

Thousands of Yen

March 31, 2025 Level 1 Level 2 Level 3 Total

Investment securities:

Available-for-sale securities:

Equity securities ¥ 1,144,000 ¥ 1,144,000

Total assets ¥ 1,144,000 ¥ 1,144,000

Thousands of U.S. Dollars

March 31, 2025 Level 1 Level 2 Level 3 Total

Investment securities:

Available-for-sale securities:

Equity securities $ 7,651 $ 7,651

Total assets $ 7,651 $ 7,651

The following is a description of valuation methodologies and inputs used for measurement of the fair value of assets and liabilities:

Investment Securities

The fair values of listed equity securities are measured at the quoted market price. Since listed equity securities are traded in active markets, the fair values are categorized as Level 1.

1. CONTINGENT LIABILITIES

   Trade Notes Endorsed

   At March 31, 2025, contingent liabilities for notes endorsed with recourse totaled

   ¥1,073,610 thousand ($7,180 thousand).

2. OTHER COMPREHENSIVE INCOME

   The components of other comprehensive income for the years ended March 31, 2025 and 2024, were as follows:

   Thousands of Yen

   Thousands of

   U.S. Dollars

   	2025		2024 2025
   securities: Gains arising during the year ¥	126,238	¥	439,594 $ 844
   Reclassification adjustments to profit or loss	(108,652)		—		(727)
   Amount before income tax effect	17,586		439,594		117
   Income tax effect		(11,715)		(135,821)	(78)
   Total	¥	5,871	¥	303,773	$ 39
   Foreign currency translation adjustments: Adjustments arising during the year	¥	1,016,877	¥	711,749	$ 6,800
   Amount before income tax effect		1,016,877		711,749	6,800
   Total	¥	1,016,877	¥	711,749	$ 6,800
   Defined retirement benefit plans: Adjustments arising during the year	¥	25,479	¥	105,786	$ 170
   Reclassification adjustments to profit or loss		1,150		9,661	8
   Amount before income tax effect		26,629		115,447	178
   Income tax effect		(8,871)		(35,327)	(59)
   Total	¥	17,758	¥	80,120	$ 119
   Total other comprehensive income	¥ 1,040,506	¥ 1,095,642		$ 6,958

   Unrealized gain (loss) on available-for-sale

3. SUBSEQUENT EVENT

The following appropriation of retained earnings at March 31, 2025, was approved at the Company's shareholders' meeting held on June 26, 2025:

Thousands of Yen

Thousands of

U.S. Dollars

Year-end cash dividends, ¥69 ($0.46) per share ¥ 1,146,025 $ 7,664