Consolidated Financial Statements and Notes to the Consolidated Financial Statements

Consolidated Balance Sheet

Millions of yen

Thousands of

U.S. dollars (Note 1)

Net property, plant and equipment 89,942 73,235 569,255

Investments and other assets:

Millions of yen

Thousands of

U.S. dollars

(Note 1)

Non-current liabilities:

Net assets (Notes 11 and 18): Share capital Common shares

- authorized, 500,000,000 shares in 2024 and 197,000,000 shares in 2023

(Note) The Company conducted a 3-for-1 stock split for common shares on January 1, 2024. The number of issued shares and treasury shares above is on a post-split basis. Following the stock split, pursuant to Article 184, Paragraph 2 of the Companies Act of Japan, the number of authorized shares as stipulated in Article 6 of the Company's Articles of Incorporation was changed to 500,000,000 shares effective January 1, 2024.

See notes to consolidated financial statements.

Consolidated Statement of Income

Millions of yen

Thousands of

U.S. dollars (Note 1)

Consolidated Statement of Income

Yen U.S. dollars

2024 2023 2024

Per share information (Notes 11 and 18):

(Note) The Company conducted a 3-for-1 stock split for common shares on January 1, 2024. Basic earnings per share" and "Diluted earnings per share" are calculated assuming that the stock split had been conducted on January 1, 2023.

See notes to consolidated financial statements.

Consolidated Statement of Comprehensive Income

Thousands of

U.S. dollars

Millions of yen (Note 1)

See notes to consolidated financial statements.

Consolidated Statement of Changes in Equity

Thousand shares Millions of yen

Accumulated other

comprehensive income (loss)

Number of shares of common shares

outstanding

Share

capital

Capital

surplus

Retained

earnings

Treasury

shares

Valuation difference on available-for-sale

securities

Foreign currency translation

adjustments

Remeasurements of defined benefit

plans Subtotal

Share acquisition

rights

Non-controlling

interests

Total

net assets

(Note) The Company conducted a 3-for-1 stock split for common shares on January 1, 2024. The amount of dividends of surplus with the record date belonging to the fiscal year ended December 31, 2023 is on a pre-split basis.

Consolidated Statement of Changes in Equity

Thousands of U.S. dollars (Note 1)

Accumulated other

comprehensive income (loss)

Dividends of surplus:

(Note) The Company conducted a 3-for-1 stock split for common shares on January 1, 2024. The amount of dividends of surplus with the record date belonging to the fiscal year ended December 31, 2023 is on a pre-split basis.

See notes to consolidated financial statements.

Consolidated Statement of Cash Flows

Millions of yen

Thousands of

U.S. dollars

(Note 1)

2024 2023 2024

Operating activities:

Investing activities:

Consolidated Statement of Cash Flows

Millions of yen

Thousands of

U.S. dollars

(Note 1)

See notes to consolidated financial statements.

Notes to Consolidated Financial Statements Fiscal Years Ended December 31, 2024 and 2023

1. BASIS OF PRESENTING 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 conformity with accounting principles generally accepted in Japan ("Japanese GAAP"), which are different in certain respects as to disclosure requirements of International Financial Reporting Standards ("IFRS").

   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 amounts reported in prior years have been reclassified to conform to the current year's presentation.

   The consolidated financial statements are stated in Japanese yen, the currency of the country in which TOKYO OHKA KOGYO 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 ¥158 to $1, the approximate rate of exchange at December 31, 2024. 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.

   Amounts of less than one million yen have been rounded down. As a result, the totals shown in the accompanying consolidated financial statements do not necessarily agree with the sum of the individual amounts.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

   1. Consolidation- The consolidated financial statements include the accounts of the Company and its six consolidated subsidiaries (together, the "Group").

      Under the control or influence concept, those companies in which the Company, directly or indirectly, is able to exercise control over operations are fully consolidated, and those companies over which the Group has the ability to exercise significant influence are accounted for by the equity method.

      Investments in an unconsolidated subsidiary and associates are not accounted for by the equity method but are stated at cost as their impact on the consolidated financial statements is immaterial.

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

   2. Cash and Cash Equivalents- Cash and cash equivalents on the consolidated statement of cash flows include cash on hand, demand deposits, and short-term investments with original maturities of three months or less that are readily convertible into cash and exposed to insignificant risk of changes in value.

   3. Allowance for Doubtful Accounts-Allowance for doubtful accounts is stated in amounts considered to be appropriate based on the Group's past credit loss experience and an evaluation of potential losses in outstanding receivables.

   4. Inventories- Inventories are stated primarily at cost determined by the weighted average method or the first-in, first-out method or net selling value.

   5. Securities-Securities are classified and accounted for, depending on management's intent, as follows: (i) held-to-maturity debt securities, which are expected to be held to maturity with the positive intent and ability to hold to maturity, are reported at cost and (ii) available-for-sale securities, other than stocks, etc. without market value, are reported at fair value, with unrealized gains and losses, net of applicable taxes, reported in a separate component of net assets.

      Stocks, etc. without market value 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.

   6. Property, Plant and Equipment- Property, plant and equipment are stated at cost. Depreciation of property, plant and equipment, except for lease assets and right-of-use assets, of the Company and its consolidated domestic subsidiaries is computed by the straight-line method. The range of useful lives is principally from ten to 50 years for buildings and structures, and from three to eight years for machinery, equipment and vehicles, and tools, furniture and fixtures.

   7. 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 is 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.

   8. Intangible Assets- Intangible assets are stated at cost less accumulated amortization, which is calculated by the straight-line method principally over five years.

   9. Retirement Benefits

      Retirement benefits to employees (including officers)- The Company and its certain consolidated subsidiaries have funded defined benefit pension plans and lump-sum retirement payment plans. The Company has set up a retirement benefit trust.

      The Company principally records retirement benefit obligations based on projected benefit obligations and plan assets at each balance sheet date.

      Prior service cost is amortized by the straight-line method over 10 years. Actuarial gains and losses are amortized by the straight-line method over 10 years from the next period in which they arise.

      J. Research and Development Costs- Research and development costs are charged to income as incurred.

      1. Leases -Assets and liabilities related to finance lease arrangements where the ownership is not transferred to lessees at the end of lease terms are recognized as lease assets and lease obligations in the consolidated balance sheet.

         All other leases are accounted for as operating leases.

      2. Provision for Bonuses for Officers- Bonuses for officers are accrued at the year-end to which such bonuses are attributable.

      3. Income Taxes-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 tax laws to the temporary differences.

      4. Revenue and Expenses-The Group mainly manufactures and sells electronic functional materials and high-purity chemicals, and recognizes revenue when merchandise or finished goods are delivered to a customer. However, revenue from domestic sales is recognized when the shipment is completed if control of the merchandise or finished goods is transferred to customers within a normal period after the shipment. Revenue from export sales is recognized when the risk is transferred to a customer based on trade terms set mainly by the Incoterms, etc.

         Variable consideration included in contracts with customers is included in the transaction price only to the extent that it is probable that a significant decrease in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved. Revenue from transactions in which the Group is determined to be acting as an agent is recognized at the amount received in exchange for the merchandise provided by another party net of the amount to be paid to another party.

         No significant financing component is included in transaction consideration as consideration is generally received within one year after the performance obligation is satisfied.

      5. Foreign Currency-Denominated Transactions- All monetary receivables and payables denominated in foreign currencies are translated into Japanese yen at the current exchange rates as of the balance sheet date. Foreign exchange gains and losses arising from translation are charged to income to the extent that they are not hedged by forward exchange contracts.

      6. Foreign Currency-Denominated Financial Statements- Assets and liabilities of the consolidated foreign subsidiaries are translated into Japanese yen at the current exchange rate as of the balance sheet date. Revenue and expense accounts are translated into Japanese yen at the average exchange rate during the period. Differences arising from such translation are recorded in "Foreign currency translation adjustments" and "Non-controlling interests" in Net assets.

      7. Derivative and Hedging Activities- The Group uses derivative financial instruments to manage its exposures to the fluctuation in foreign currency exchange. Foreign currency forward contracts are utilized to hedge foreign exchange risk. The Group does not enter into derivatives for trading or speculative purposes.

         Monetary receivables and payables denominated in foreign currencies for which foreign currency forward contracts are used to hedge foreign exchange risk are translated at the contracted rate if the forward contracts qualify for hedge accounting.

      8. Per Share Information- Basic earnings per share is computed by dividing profit attributable to common shareholders by the average number of common shares outstanding during the period.

      Diluted earnings per share reflects the potential dilution that could occur if share acquisition rights were exercised and converted into common shares. Diluted earnings per share is computed on the assumption that all outstanding share acquisition rights were converted at the beginning of the year.

      Cash dividends per share presented in the accompanying consolidated statement of income include dividends to be paid after the fiscal year-end.

3. SIGNIFICANT ACCOUNTING ESTIMATES

   There was no accounting estimate which may have significant impacts on the consolidated financial statements for the fiscal year ending December 31, 2025.

4. ACCOUNTING STANDARD ISSUED BUT NOT YET ADOPTED

   • "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. Overview

      As part of efforts to align the Japanese standards with international standards, the Accounting Standards Board of Japan has deliberated on developing accounting standards for leases that require lessees to recognize assets and liabilities for all leases, taking into account international accounting standards, and issued the accounting standard for leases, etc. whose basic policy is to adopt a single accounting model under IFRS 16 but adopt only key provisions of IFRS 16, not all, to create a simplified and user-friendly standard that will generally not require any adjustments when provisions of IFRS 16 are applied to non-consolidated financial statements.

      For lessees, the single accounting model is applied for allocating lease expenses, under which depreciation of right-of-use assets and interest on lease liabilities are recorded for all leases, regardless of whether they are classified as finance leases or operating leases, in line with IFRS 16.

   2. Scheduled date of application

      These accounting standards, etc. are scheduled to be applied from the beginning of the fiscal year ending December 31, 2028.

   3. Impact of the application of the accounting standards, etc.

   The impact of applying "Accounting Standard for Leases," etc. on the consolidated financial statements is currently being evaluated.

5. ADDITIONAL INFORMATION

   (Transaction to grant the Company's shares to employees, etc. through a trust)

   Based on the resolution at the Board of Directors meeting held on August 7, 2019, the Company introduced "Trust-Type Employee Stock Ownership Plan" ("Plan") with an aim to enhance the Company's welfare program as well as to improve its medium- to long-term corporate value by providing employees with incentives for an increase in share prices.

   (1) Overview of the transaction

   The Plan is an incentive plan for all employees in the "Tokyo Ohka Employees Stockholding Association" ("Stockholding Association"). Under the Plan, the Company sets up the "Tokyo Ohka Employee Stockholding Association Trust" ("Stockholding Trust") at a trust bank, and the Stockholding Trust purchases in advance the number of the Company's shares expected to be purchased by the Stockholding Association over five years from the date the trust is set up and sells the shares to the Stockholding Association every month on a certain date. Any gains on sale of shares accumulated in the trust upon expiry of the Stockholding Trust will be distributed as residual assets to those satisfying the beneficiary eligibility requirements. As the Company provides guarantee for borrowings made by the Stockholding Trust to purchase the Company's shares, the Company is liable to pay the outstanding balance of borrowings, equivalent to loss on sale of shares accumulated in the Stockholding Trust due to a decline in share prices, upon expiry of the Stockholding Trust.

   The Plan aims to improve our medium- to long-term corporate value by providing employees with incentives for an increase in share prices and also to support employees' asset building as a measures to enhance our welfare program by promoting purchase and holding of shares through enhancement of the Stockholding Association.

   The Plan was terminated as of September 27, 2024, which was the expiration date of the trust period established at the time of its introduction.

6. CASH AND CASH EQUIVALENTS

   The balances of cash and deposits reflected in the consolidated balance sheet at December 31, 2024 and 2023 were reconciled to the balances of cash and cash equivalents as presented in the consolidated statement of cash flows for the years then ended as follows:

   Millions of yen

   Thousands of

   U.S. dollars

   2024 2023 2024

   Cash and deposits	¥	55,361	¥	41,788	$ 350,387
   Securities	999		999		6,328
   Cash and cash equivalents	¥ 56,361		¥ 42,788		$ 356,716

7. INVESTMENT SECURITIES

   Investment securities as of December 31, 2024 and 2023 consisted of the following:

   Thousands of

   Millions of yen U.S. dollars

   Current: Trust beneficiary interests	2024 ¥ 3,000	2023 ¥ 3,000	2024 $ 18,987
   Commercial paper	999	999	6,328
   Total	¥ 3,999	¥ 3,999	$ 25,316
   Non-current: Stocks	¥ 19,656	¥ 20,427	$ 124,408
   Total	¥ 19,656	¥ 20,427	$ 124,408

   Costs and fair values of investment securities at December 31, 2024 and 2023 were as follows:

   Millions of yen

   December 31, 2024	Cost	Unrealized Gains	Unrealized Losses	Fair Value
   Securities classified as:
   Held-to-maturity	¥ 3,999	¥ －	¥ －	¥ 3,999
   Available-for-sale	¥ 6,405	¥13,332	¥ (80)	¥ 19,656
   Millions of yen
   December 31, 2023	Cost	Unrealized Gains	Unrealized Losses	Fair Value
   Securities classified as:
   Held-to-maturity	¥ 3,999	¥ －	¥ －	¥ 3,999
   Available-for-sale	¥ 6,817	¥13,674	¥ (64)	¥ 20,427
   Thousands of U.S. dollars
   December 31, 2024	Cost	Unrealized Gains	Unrealized Losses	Fair Value
   Securities classified as:
   Held-to-maturity	$ 25,316	$ －	$ －	$ 25,316
   Available-for-sale	$ 40,539	$ 84,381	$ (511)	$124,408

   Stocks whose fair values are not readily determinable are not included in "Available-for-sale securities" in the above table. Available-for-sale securities sold during the fiscal years ended December 31, 2024 and 2023 were as follows:

   Millions of yen

   Thousands of

   U.S. dollars

   2024 2023 2024

   Amount sold	¥	921	¥	133	$ 5,830
   Total gains Total losses		508 -		103 -	3,218 -

8. INVENTORIES

   Inventories at December 31, 2024 and 2023 consisted of the following:

   Millions of yen

   Thousands of

   U.S. dollars

   2024 2023 2024

   Merchandise and finished goods	¥ 12,602	¥ 11,060	$ 79,760
   Work in process	9,539	7,397	60,377
   Raw materials and supplies	14,744	14,624	93,319
   Total	¥ 36,886	¥ 33,083	$	233,458

9. LONG-TERM BORROWINGS

   Long-term borrowings at December 31, 2024 and 2023 consisted of the following:

   Millions of yen

   Thousands of

   U.S. dollars

   2024 2023 2024

   Current portion of long-term borrowings	¥	3,900	¥	-	$ 24,683
   Unsecured loan from a bank, with average interest rate of 0.47% and
   0.44% for the fiscal years ended December 31, 2024 and 2023,
   respectively	6,100		10,000		38,607
   Total	¥ 10,000		¥ 10,000		$ 63,291

   The aggregate annual maturities of long-term borrowings are summarized below:

   Fiscal years ending December 31, Millions of yen

   Thousands of

   U.S. dollars

   2025	¥	3,900	$ 24,683
   2026		-	-
   2027		-	-
   2028		3,900	24,683
   2029		-	-
   2030 and thereafter	2,200		13,924
   Total	¥ 10,000		$ 63,291

10. RETIREMENT AND PENSION PLANS

    The Company and its certain consolidated subsidiaries have funded defined benefit pension plans and lump-sum retirement payment plans. The Company has set up a retirement benefit trust.

    The defined benefit corporate pension plans provide lump-sum payment or pension based on salary and service period.

    The lump-sum retirement payment plans provide lump-sum payment as retirement benefit based on factors such as service period.

    The Company resolved on October 18, 2024 to revise the regulations in connection with the extension of the retirement age from 60 to 65 and the introduction of a retirement allowance point system. As a result, prior service cost (reduction of retirement benefit obligations) of ¥3,214 million was recognized.

    The details of the plans are as follows:

    1. Defined benefit pension plans

       1. Retirement benefit obligations Millions of yen

          Thousands of

          U.S. dollars

          2024 2023 2024

          Beginning balance	¥	15,945	¥	15,548	$ 100,920
          Service cost		769		702	4,870
          Interest cost		84		85	535
          Actuarial differences incurred during the year		(1,660)		388	(10,506)
          Prior service cost incurred during the year		(3,214)		-	(20,347)
          Payment of retirement benefit		(826)		(767)	(5,232)
          Effects of the transfer to defined contribution plans		-		(12)	-
          Ending balance	¥ 11,097			¥ 15,945		$ 70,240

          Note: Certain consolidated subsidiaries apply a simplified method to calculate retirement benefit obligations.

       2. Pension assets Millions of yen

          Thousands of

          U.S. dollars

          2024 2023 2024

          Beginning balance	¥	14,592	¥	13,642	$ 92,355
          Expected return on plan assets		364		341	2,308
          Actuarial differences incurred during the year		719		824	4,553
          Contributions from employer		448		432	2,840
          Payment of retirement benefit	(720)		(648)		(4,558)
          Ending balance	¥ 15,404		¥ 14,592		$ 97,499

       3. Employee retirement benefit trust Millions of yen

          Thousands of

          U.S. dollars

          2024 2023 2024

          Beginning balance	¥	4,811	¥	4,734	$ 30,451
          Expected return on plan assets		12		11	76
          Actuarial differences incurred during the year	(6)		65		(42)
          Ending balance	¥ 4,816		¥ 4,811		$ 30,484

       4. Reconciliation between ending balance of retirement benefit obligations and pension assets and retirement benefit liability and retirement benefit asset recorded on the consolidated balance sheet

          Thousands of

          Millions of yen U.S. dollars

          2024 2023 2024

          Retirement benefit obligations under the funded plan	¥	10,817	¥	15,734	$ 68,465
          Pension assets		(15,404)		(14,592)	(97,499)
          Employee retirement benefit trust	(4,816)		(4,811)		(30,484)
          	(9,404)		(3,668)		(59,519)
          Retirement benefit obligations under the unfunded plan	280		210		1,775
          Net liabilities or assets recorded on the consolidated balance sheet	(9,123)		(3,458)		(57,744)
          Retirement benefit liability	280		809		1,775
          Retirement benefit asset	(9,404)		(4,267)		(59,519)
          Net liabilities or assets recorded on the consolidated balance sheet	¥ (9,123)		¥ (3,458)		$ (57,744)
          (e) Net periodic benefit cost and its components					Thousands of

          Millions of yen U.S. dollars

          2024 2023 2024

          Service cost	¥	795	¥	702	$ 5,033
          Interest cost		84		85	535
          Expected return on plan assets		(376)		(352)	(2,385)
          Amortized actuarial differences		155		153	982
          Amortized prior service cost	(53)		(256)		(339)
          Net periodic benefit cost of defined benefit plan	¥ 604		¥ 331		$ 3,826

          Note: Net periodic benefit cost of consolidated subsidiaries applying the simplified method is recorded as "Service cost."

          1. Remeasurements of defined benefit plans (Other comprehensive income)

             Thousands of

             Millions of yen U.S. dollars

             2024 2023 2024

             Prior service cost	¥	3,161	¥	(256)	$ 20,008
             Actuarial differences	2,527		653		15,999
             Total	¥ 5,689		¥ 397		$ 36,008

          2. Remeasurements of defined benefit plans (Accumulated other comprehensive income)

             Thousands of

             Millions of yen U.S. dollars

             2024 2023 2024

             Unrecognized prior service cost	¥	3,161	¥	-	$ 20,008
             Unrecognized actuarial differences	2,018		(509)		12,775
             Total	¥ 5,179		¥ (509)		$ 32,784

          3. Plan assets and employee retirement benefit trust

          (i)	Components of plan assets
          		2024	2023
          Debt securities		50%	49%
          Stocks		38%	37%
          Other		12%	14%
          Total		100%	100%
          (ii) Components of employee retirement benefit trust
          		2024	2023
          Debt securities		34%	51%
          Collective investment trust		65%	48%
          Other		1%	1%
          Total		100%	100%

          (iii) Long-term rate of return

          Long-term rate of return on plan assets and employee retirement benefit trust is determined based on the current and expected allocation of plan assets and employee retirement benefit trust and current and expected long-term rate of return of various assets composing plan assets and employee retirement benefit trust.

          (i)	Basis for calculation of actuarial differences
          		2024	2023
          Discount rate Long-term expected rate of return Defined benefit corporate pension plan		Mainly 1.83% 2.50%	Mainly 0.53% 2.50%
          Employee retirement benefit trust		0.25%	0.25%

          (Note) The discount rate applied at the beginning of the fiscal year ended December 31, 2024 was 0.53%. However, upon reassessment at year-end, it was determined that a change in the discount rate would have a significant impact on the amount of retirement benefit obligations, and therefore the rate was revised to 1.83%.

    2. Defined contribution plans

       The amounts of required contributions to defined contribution pension plans by the Company and its consolidated subsidiaries for the fiscal years ended December 31, 2024 and 2023 were ¥273 million ($1,733 thousand) and ¥254 million, respectively.

    3. Other retirement benefits

    The amount of liabilities to be transferred to a defined contribution pension plan in relation to a partial transfer from a funded defined benefit plan to a defined contribution pension plan in April 2023 was ¥12 million ($75 thousand), and the transfer was completed during the fiscal year ended December 31, 2024.

11. NET ASSETS

    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 based on a resolution at the shareholders meeting. For companies that meet certain criteria such as; (1) having the Board of Directors, (2) having independent auditors, (3) having the Board of Corporate Auditors, and (4) the term of service of the directors is prescribed as one year rather than two years by its articles of incorporation, the Board of Directors may declare dividends (except for dividends in kind) if the company has prescribed so in its articles of incorporation. The Company meets all the above criteria.

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

       Semi-annual interim dividends may also be paid once a year based on a 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 shares. The limitation is defined as the amount available for distribution to shareholders, but the amount of net assets after dividends must be maintained at no less than ¥3 million.

    2. Increases/decreases and transfer of share capital, reserve and surplus

       The Companies Act requires that an amount equal to 10% of dividends must be appropriated as legal capital surplus (a component of capital surplus) or as legal retained earnings (a component of retained earnings) until the total of legal capital surplus and legal retained earnings on the date of the dividend payment equals 25% of share capital. Under the Companies Act, there is no limitation on the total amount of legal capital surplus and legal retained earnings. The Companies Act also provides that share capital, legal retained earnings, legal capital surplus, other capital surplus, and other retained earnings may be transferred among the accounts based on a resolution at the shareholders meeting.

    3. Treasury shares and treasury share acquisition rights

    The Companies Act also provides that companies may purchase and dispose of treasury shares based on a resolution by the Board of Directors. The amount of treasury shares purchased cannot exceed the amount available for distribution to shareholders which is determined by a specific formula.

    Under the Companies Act, share acquisition rights are presented as a separate component of net assets.

    The Companies Act also provides that companies may purchase both treasury shares and treasury share acquisition rights. Treasury share acquisition rights are presented as a separate component of net assets or deducted directly from share acquisition rights.

    The accompanying consolidated financial statements do not include any provision for the year-end dividend of ¥34 ($0.21) per share approved at the general shareholders meeting held on March 28, 2025, aggregating ¥4,078 million ($25,811 thousand) with the record date of December 31, 2024.

12. STOCK OPTIONS

    1. Outline, number and changes of stock options

       1. Outline of stock options

          Stock options outstanding as of December 31, 2024 were as follows. The Company conducted a 3-for-1 stock split for common shares on January 1, 2024, and the figures presented below reflect the stock split.

          Stock option 2019 Stock option 2018 Stock option 2017 Stock option

          Category and number of eligible person

          2 representative directors of the Company

          4 directors of the Company 7 executive officers of the Company

          1 representative director of the Company

          5 directors of the Company

          6 executive officers of the Company

          1 representative director of the Company

          5 directors of the Company 5 executive officers of the Company

          Number of options granted by share class

          Common share: 98,400 shares

          Common share: 60,600 shares

          Common share: 43,500 shares

          Date of grant May 16, 2019 May 16, 2018 August 4, 2017 Service period Not specified Not specified Not specified

          16, 2049

          Exercise period From May 17, 2019 to May

          From May 17, 2018 to May

          16, 2048

          From August 5, 2017 to

          August 4, 2047

          Stock option 2016 Stock option 2015 Stock option 2014 Stock option

          Category and number of eligible person

          1 representative director of the Company

          5 directors of the Company

          6 executive officers of the Company

          1 representative director of the Company

          5 directors of the Company 8 executive officers of the Company

          1 representative director of the Company

          5 directors of the Company 7 executive officers of the Company

          Number of options granted by share class

          Common share: 87,900 shares

          Common share: 65,700 shares

          Common share: 94,500 shares

          Date of grant August 4, 2016 August 4, 2015 August 5, 2014 Service period Not specified Not specified Not specified

          August 4, 2046

          Exercise period From August 5, 2016 to

          From August 5, 2015 to

          August 4, 2045

          From August 6, 2014 to

          August 5, 2044

       2. Number and changes of stock options

          Movement in stock options during the fiscal year ended December 31, 2024 was as follows:

          Number of shares

          	2019	2018	2017
          Unvested stock options:
          As of December 31, 2023	-		-	-
          Granted	-		-	-
          Forfeited	-		-	-
          Vested	-		-	-
          Unvested options as of December 31, 2024	-		-	-
          Vested stock options:
          As of December 31, 2023	48,000		22,800	15,000
          Vested	-		-	-
          Exercised	4,200		3,300	2,400
          Forfeited	-		-	-
          Unexercised options as of December 31, 2024	43,800		19,500	12,600

          Yen

          Exercise price ¥ 1 ¥ 1 ¥ 1

          Average share price at the time of exercise

          Fair value per share at grant date

          Exercise price

          Average share price at the time of exercise

          Fair value per share at grant

          ¥ 4,378 ¥ 4,378 ¥ 4,378

          ¥ 2,690 ¥ 4,164 ¥ 3,363

          U.S. dollars

          $	0.01	$	0.01	$	0.01
          $	27.70	$	27.70	$	27.70
          $	17.02	$	26.35	$	21.28

          date

          Number of shares

          	2016	2015	2014
          Unvested stock options:
          As of December 31, 2023	-		-	-
          Granted	-		-	-
          Forfeited	-		-	-
          Vested	-		-	-
          Unvested options as of December 31, 2024	-		-	-
          Vested stock options:
          As of December 31, 2023	27,900		14,400	10,800
          Vested	-		-	-
          Exercised	5,100		3,300	-
          Forfeited	-		-	-
          Unexercised options as of December 31, 2024	22,800		11,100	10,800

          Yen

          Exercise price ¥ 1 ¥ 1 ¥ 1

          Average share price at the time

          of exercise

          Fair value per share at grant date

          Exercise price

          Average share price at the time of exercise

          Fair value per share at grant

          ¥ 4,378 ¥ 4,378 ¥ －

          ¥ 2,757 ¥ 3,192 ¥ 2,292

          U.S. dollars

          $	0.01	$	0.01	$	0.01
          $	27.70	$	27.70	$	27.70
          $	17.44	$	20.20	$	14.50

          date

    2. Method of estimating fair value of stock options Not applicable.

    3. Method of estimating number of vested stock options

    Only the actual number of forfeited stock options is reflected because it is difficult to reasonably estimate the number of future forfeitures.

13. 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 30.4% for the fiscal years ended December 31, 2024 and 2023. Foreign subsidiaries are subject to income taxes of the countries in which they operate.

    Tax effects of significant temporary differences which resulted in deferred tax assets and liabilities at December 31, 2024 and 2023 were as follows:

    Millions of yen

    Thousands of

    U.S. dollars

    2024 2023 2024

    Deferred tax assets: Accrued bonuses for employees	¥	1,031	¥ 743	$ 6,530
    Unrealized gains on finished goods		1,685	1,293	10,669
    Loss on valuation of inventories		373	417	2,365
    Loss on valuation of investment securities		286	295	1,812
    Loss on valuation of investments in capital		164	164	1,040
    Retirement benefit liability		56	489	355
    Impairment losses		392	428	2,484
    Allowance for doubtful accounts		20	17	127
    Other		2,356	2,276	14,914
    Less valuation allowance	(855)		(870)	(5,411)
    Total	5,512		5,256	34,887
    Deferred tax liabilities:
    Retirement benefit assets	(1,318)		-	(8,347)
    Reserve for advanced depreciation	(147)		(157)	(936)
    Valuation difference on available-for-sale securities	(3,741)		(3,850)	(23,681)
    Undistributed earnings of subsidiaries	(3,314)		(2,903)	(20,980)
    Accelerated depreciation	(615)		(710)	(3,898)
    Other	(61)		(39)	(389)
    Total	(9,201)		(7,661)	(58,234)
    Net deferred tax assets (liabilities)	¥ (3,688)		¥(2,404)	$ (23,346)

    Reconciliation between the normal effective statutory tax rates and the actual effective tax rates reflected in the consolidated statement of income for the fiscal years ended December 31, 2024 and 2023 were as follows:

    	2024	2023
    Normal effective statutory tax rate	30.4 %	30.4 %
    Adjustments: Non-taxable dividend income	(7.2)	(5.1)
    Different income tax rates applicable to consolidated foreign subsidiaries	(6.3)	(6.6)
    Dividends from consolidated foreign subsidiaries	7.4	5.2
    Tax credit for research and development costs	(3.4)	(2.7)
    Effects of sale of shares of subsidiaries and associates	-	1.5
    Other - net	2.2	4.1
    Actual effective tax rate	23.1 %	26.8 %

14. RESEARCH AND DEVELOPMENT COSTS

    Research and development costs recorded on the consolidated statement of income were as follows:

    Thousands of

    	Millions of yen	U.S. dollars
    	2024 2023	2024
    General and administrative expenses	¥ 14,379 ¥ 12,495	$ 91,007
    Manufacturing costs	140 162	888
    Total	¥ 14,519 ¥ 12,658	$ 91,896

15. FINANCIAL INSTRUMENTS

    1. Group policy for financial instruments

       The Group raises the funds necessary for its business operation and capital expenditure by taking into consideration the capital structure suitable for the economic environment and the actual state of the entity. Derivatives are used to avoid risks described below, and not for speculative purposes.

    2. Nature and extent of risks arising from financial instruments

       Trade receivables such as notes receivable - trade and accounts receivable - trade are exposed to customer credit risk. Also, trade receivables denominated in foreign currencies arising from exporting products, etc. are exposed to the risk of exchange rate fluctuations.

       Securities and investment securities consist mainly of debt securities held to maturity and stocks of companies having business relationship with the Group, and stocks are exposed to the risk of market price fluctuations.

       Payment terms of trade payables, such as notes and accounts payable - trade, are less than one year. A part of those trade payables are denominated in foreign currencies and exposed to the risk of exchange rate fluctuations.

       Long-term borrowings have fixed interest rates, in principle, to hedge the risk of interest rate fluctuations.

       Derivatives mainly include foreign currency forward contracts and currency option contracts, which are used to manage exposure to foreign exchange rate fluctuations related to monetary receivables and payables denominated in foreign currencies. Please see Note 16 for more details about derivatives.

    3. Risk management for financial instruments

       Credit risk management (risk of default by counterparties)

       The Group manages its credit risk from trade receivables in accordance with internal guidelines, which include regular monitoring of payment terms and balances of major customers by the credit administration department to identify the default risk of customers in the early stages.

       With respect to held-to-maturity debt securities, the Group manages its exposure to credit risk by limiting its holdings to high credit rating bonds.

       With respect to derivatives, the Group manages its exposure to credit risk by limiting its counterparties to major and creditworthy financial institutions.

       The maximum credit risk exposure of financial assets is limited to their carrying amounts as of December 31, 2024. Market risk management (foreign exchange and interest rate fluctuation risk)

       Foreign currency-denominated monetary receivables and payables are exposed to the risk of exchange rate fluctuations, which is managed monthly by currency and hedged mainly by foreign currency forward contracts and currency option contracts. Long-term borrowings have fixed interest rates, in principle, to hedge the risk of interest rate fluctuations.

       Investment securities are managed by regularly monitoring fair values and financial position of issuers (business partners), and the holding status is reviewed on an ongoing basis by considering the relationship with business partners.

       Derivative transactions are executed and managed in accordance with "Financial Risk Management Rules."

    4. Fair values of financial instruments

       Fair values of financial instruments are measured using variable factors, and therefore using different assumptions may result in different values. Please see Note 16 for the details of fair value of derivatives.

       The carrying amount and the fair value of financial instruments and the difference between these values are as follows:

       Millions of yen

       Carrying

       Fair value Difference

       December 31, 2024

       Securities and investment securities (Note 2):

       amount

       Held-to-maturity debt securities Available-for-sale securities	¥ 3,999 19,656	¥ 3,999 19,656	¥	- -
       Shares of associates	2,021	3,343		1,321
       Total assets	¥ 25,677	¥ 26,999	¥	1,321
       Long-term borrowings	¥ 6,100	¥ 5,899	¥	200
       Total liabilities	¥ 6,100	¥ 5,899	¥	200
       Derivative transactions	¥ (9)	¥ (9)	¥	-

       Millions of yen

       Carrying

       Fair value Difference

       December 31, 2023

       Securities and investment securities (Note 2):

       amount

       Held-to-maturity debt securities	¥	3,999	¥	3,999	¥	-
       Available-for-sale securities		20,427		20,427		-
       Shares of associates		1,988		6,939		4,950
       Long-term time deposits	12,000		12,000			-
       Total assets	¥ 38,416		¥ 43,367		¥	4,950
       Long-term borrowings	¥ 10,000		¥ 9,824		¥	175
       Total liabilities	¥ 10,000		¥ 9,824		¥	175
       Derivative transactions	¥ (3)		¥ (3)		¥	-

       Thousands of U.S. dollars

       Carrying

       Fair value Difference

       December 31, 2024

       Securities and investment securities (Note 2):

       amount

       Held-to-maturity debt securities	$ 25,313	$ 25,313	$ －
       Available-for-sale securities	124,408	124,408	-
       Shares of associates	12,792	21,158	8,366
       Total assets	$ 162,514	$ 170,880	$ 8,366
       Long-term borrowings	$ 38,607	$ 37,337	$ 1,270
       Total liabilities	$ 38,607	$ 37,337	$ 1,270
       Derivative transactions	$ (58)	$ (58)	$ －

       (Notes) 1. Cash and deposits, Notes receivable - trade, Accounts receivable - trade, and Notes and accounts payable -trade are omitted from the table above because they are either cash or settled within a short period of time and their carrying amount approximates their fair value.

       2. Stocks, etc. without market value are not included in "Securities and investment securities."

       Their carrying amount is as follows:

       Carrying amount

       Thousands of

       Millions of yen U.S. dollars

       2024 2023					2024
       Unlisted stocks, etc.	¥	469	¥	357	$ 2,969
       Investments in capital		84		88	535

    5. Maturity analysis for monetary receivables and securities with contractual maturities

       Millions of yen

       December 31, 2024

       Due in 1 year or

       less

       Due after 1 year through

       5 years

       Due after

       5 years

       Cash and deposits	¥	55,361	¥	-	¥	-
       Time deposits		3,686		-		-
       Notes receivable - trade		1,001		-		-
       Accounts receivable - trade Securities and investment securities:		41,845		-		-
       Held-to-maturity debt securities Trust beneficiary interests	3,000		-		-
       Commercial paper	999		-		-

       Total ¥ 105,894 ¥ －

       Millions of yen

       December 31, 2023

       Due in 1 year or

       less

       Due after 1 year through

       5 years

       Due after

       5 years

       Cash and deposits	¥	41,788	¥	-	¥	-
       Time deposits		15,027		-		-
       Notes receivable - trade		916		-		-
       Accounts receivable - trade Securities and investment securities: Held-to-maturity debt securities		32,982		-		-
       Trust beneficiary interests	3,000			-			-
       Commercial paper	999			-			-
       Long-term time deposits	-			12,000			-
       Total	¥ 94,715			¥ 12,000		¥	-

       Thousands of U.S. dollars

       December 31, 2024

       Due in 1 year or

       less

       Due after 1 year through

       5 years

       Due after

       5 years

       Cash and deposits	$ 350,387	$ －	$ －
       Time deposits	23,329	-	-
       Notes receivable - trade	6,339	-
       Accounts receivable - trade	264,842		-
       Securities and Investment securities:
       Held-to-maturity debt securities
       Trust beneficiary interests	18,987	-	-
       Commercial paper	6,328	-	-
       Total	$ 670,215	$ －

    6. Fair value, etc. of financial instruments and breakdown of fair value by level

       Fair value of financial instruments is categorized into the following three levels based on observability and significance of the inputs used in fair value measurement.

       Level 1: Fair value measured using observable inputs that reflect quoted prices of the assets or liabilities in active markets

       Level 2: Fair value measured using observable inputs other than Level 1 inputs Level 3: Fair value measured using unobservable inputs

       When fair value is measured using inputs from more than one level, the fair value is categorized based on the lowest priority level input that is significant to the entire measurement.

       1. Financial instruments recorded on the consolidated balance sheet at fair value

          Millions of yen 2024

          Fair value

          Classification Level 1 Level 2 Level 3 Total Securities and investment securities

          Available-for-sale securities

          Stocks	¥ 19,656			¥	-		¥	-		¥	19,656
          Derivatives
          Currency-related	-				-			-			-
          Total assets	¥ 19,656			¥	-		¥	-		¥	19,656
          Derivatives
          Currency-related	¥	-		¥	9		¥	-		¥	9
          Total liabilities	¥	-		¥	9		¥	-		¥	9

          Millions of yen 2023

          Fair value

          Classification Level 1 Level 2 Level 3 Total Securities and investment securities

          Stocks ¥ 20,427			¥		-	¥		-	¥		20,427
          Currency-related －					0			-			0
          Total assets ¥ 20,427				¥ 0			¥	-		¥	20,427
          vatives Currency-related	¥	-		¥	4		¥	-		¥	4
          Total liabilities	¥	-		¥	4		¥	-		¥	4

          Available-for-sale securities Derivatives

          Deri

          Thousands of U.S. dollars 2024

          Fair value

          Classification Level 1 Level 2 Level 3 Total Securities and investment securities

          Available-for-sale securities

          Stocks	$ 124,408		$ －		$ －		$ 124,408
          Derivatives
          Currency-related	-		-		-		-
          Total assets	$ 124,408		$ －		$ －		$ 124,408
          Derivatives
          Currency-related	$ －		$ 58		$ －		$ 58
          Total liabilities	$ －		$ 58		$ －		$ 58

       2. Financial instruments other than those recorded on the consolidated balance sheet at fair value

    Millions of yen 2024

    Fair value

    Classification	Level 1				Level 2			Level 3			Total
    Securities and investment securities Held-to-maturity debt securities
    Other Shares of associates	¥ －			¥	3,999		¥	-		¥	3,999
    Stocks		3,343			-			-			3,343
    	Total assets	¥ 3,343		¥	3,999		¥	-		¥	7,342
    Long-term borrowings	¥	-		¥	5,899		¥	-		¥	5,899
    Total liabilities	¥	-		¥	5,899		¥	-		¥	5,899

    Millions of yen 2023

    Fair value

    Classification	Level 1		Level 2					Level 3			Total
    Securities and investment securities Held-to-maturity debt securities
    Other Shares of associates	¥ －		¥ 3,999				¥	-		¥	3,999
    Stocks	6,939			-				-			6,939
    Long-term time deposits	-			12,000				-			12,000
    Total assets	¥ 6,939			¥ 15,999			¥	-		¥	22,939
    Long-term borrowings	¥	-		¥	9,824		¥	-		¥	9,824
    Total liabilities	¥	-		¥	9,824		¥	-		¥	9,824

    Thousands of U.S. dollars 2024

    Fair value

    Classification		Level 1	Level 2		Level 3			Total
    Securities and investment securities Held-to-maturity debt securities
    Other Shares of associates		$ －	$ 25,313		$ －		$	25,313
    Stocks		21,158	-		-		21,158
    	Total assets	$ 21,158	$ 25,313		$ －		$ 46,471
    Long-term borrowings		$ －		$ 37,337		$ －		$ 37,337
    Total liabilities		$ －		$ 37,337		$ －		$ 37,337

    (Note) Valuation technique used to measure fair value and inputs to fair value measurement Securities and investment securities

    Fair value of listed stocks is measured based on the quoted prices and is categorized in Level 1 as listed stocks are traded on active markets. Fair value of debt securities is measured based on the prices provided by the counterparty financial institutions and is categorized in Level 2.

    Long-term time deposits

    Fair value of long-term time deposits is measured by discounting the sum of principal and interest by the interest rate assumed to be applied to a similar new deposit and is categorized in Level 2.

    Long-term borrowings

    Fair value of long-term borrowings is measured by discounting the sum of principal and interest by the interest rate assumed to be applied to a similar new borrowing and is categorized in Level 2.

    Derivatives

    Fair value of derivatives is measured based on the prices provided by the counterparty financial institutions and is categorized in Level 2.

16. DERIVATIVES

The Group enters into foreign currency forward contracts to hedge the exchange rate fluctuation risk associated with certain monetary receivables and payables denominated in foreign currencies.

All derivative transactions are entered into to hedge the exchange rate fluctuation risk arising from its business activities. Accordingly, market risk in these derivatives is basically offset by opposite movements in the value of hedged assets or liabilities.

Because the counterparties to these derivatives are limited to major international financial institutions, the Group does not anticipate any losses arising from credit risk.

Derivative transactions entered into by the Group have been made in accordance with internal policies which regulate the credit limit amounts and authorization.

(1) Derivative transactions to which hedge accounting is not applied

Millions of yen

2024 2023

Contract

Contract amount due after

Fair

Unrealized

Contract

Contract amount due after

Fair

Unrealized

Foreign currency forward contracts: Sell:

amount

one year value gain (loss) amount

one year

value

gain (loss)

Thousands of

U.S. dollars 2024

Contract amount

Foreign currency forward contracts: Sell:

Contract

amount

due after

one year

Fair

value

Unrealized

gain (loss)

* The fair value is based on prices provided by counterparty financial institutions.