Financial Statements · Provision for bonuses 137,085 134,693 Provision for loss on orders received 130,000 74,400 Other current liablities 391 971 Total current liabilities 1,780,446

KAJI TECHNOLOGY CORPORATION

Financial Statements

KPMG AZSA LLCJune 2019

Auditors' ReportTogether with Independent

For the Year Ended March 31, 2019

Balance SheetsKAJI TECHNOLOGY CORPORATION

As ofASSETS Current Assets： Cash and deposits ￥ 555,875 ￥ 509,791 Notes receivable - trade 688,671 623,884 Accounts receivable 1,789,260 1,395,157 Finished product 8,540 35,073 Raw materials 307,343 267,369 Work in progress 1,105,303 1,119,879 Supplies 18,500 17,746 Advance payments - 27 Deposits paid 2,500,000 2,700,000 Prepaid expenses 8,653 4,981 Other current assets 109,724 71,590 Allowance for doubtful accounts (20,100) (16,200) Total current assets 7,071,768 6,729,296

Non-Current Assets： Property, plant and equipment： Buildings 770,940 771,199 Accumulated depreciation (676,729) (667,257) Buildings (net) 94,211 103,942 Structures 155,113 159,724 Accumulated depreciation (126,446) (127,726) Structures (net) 28,667 31,998 Machinery and equipment 1,518,002 1,547,041 Accumulated depreciation (1,440,925) (1,430,542) Machinery and equipment (net) 77,078 116,499 Vehicles 21,247 21,247 Accumulated depreciation (21,247) (21,247) Vehicles (net) 0 0 Tools, furniture and fixtures 378,961 361,959 Accumulated depreciation (344,971) (328,617) Tools, furniture and fixtures (net) 33,991 33,342 Land 447,526 447,526 Construction in progress 66,739 1,351 Total property, plant and equipment 748,211 734,658

Intangible fixed assets： Software 28,983 47,487 Telephone subscription rights 2,879 2,879 Other intangible fixed assets 8,000 8,000 Total intangible fixed assets 39,862 58,366

Investments and other assets： Long-term prepaid expenses 2,132 6,893 Deferred tax assets 372,623 326,312 Other investments and other assets 40,741 34,053 Allowance for doubtful accounts (1,400) (550) Total investments and other assets 414,096 366,708

Total non-current assets 1,202,169 1,159,733

Total assets ￥ 8,273,937 ￥ 7,889,029

March 31, 2019 March 31, 2018FY2017

Thousands of yen

FY2018

As ofLIABILITIES Current Liabilities： Notes payable - trade ￥ 780,767 ￥ 587,628 Accounts payable 295,121 241,838 Short-term loans payable 50,000 60,000 Accounts payable - other 4,956 4,877 Accrued expenses 222,977 165,889 Accrued income taxes 76,190 42,101 Accrued consumption taxes 28,734 - Advances received 45,335 84,921 Deposit received 8,890 8,846 Provision for bonuses 137,085 134,693 Provision for loss on orders received 130,000 74,400 Other current liablities 391 971 Total current liabilities 1,780,446 1,406,164

Non-Current Liabilities： Provision for retirement benefits 564,165 586,563 Other non-current liabilities 27,130 53,980 Total non-current liabilities 591,295 640,543 Total liabilities 2,371,741 2,046,707

NET ASSETS Shareholders’ Equity： Capital stock 1,440,000 1,440,000 Capital surplus Capital reserve 1,203,009 1,203,009 Total capital surplus 1,203,009 1,203,009 Retained earnings Legal reserve 141,600 141,600 Other retained earnings General reserve 625,000 625,000 Retained earnings brought forward 2,601,388 2,541,832 Total retained earnings 3,367,988 3,308,432 Treasury stock (108,529) (108,445) Total shareholders’ equity 5,902,468 5,842,996 Valuation And Translation Adjustments： Deferred hedge profit (loss) (272) (674) Total valuation and translation adjustments (272) (674) Total net assets 5,902,196 5,842,322Total liabilities and net assets ￥ 8,273,937 ￥ 7,889,029

Thousands of yen

FY2018 FY2017March 31, 2019 March 31, 2018

Statements of IncomeKAJI TECHNOLOGY CORPORATION

For the years ended Net Sales ￥ 5,407,014 ￥ 4,364,806Cost of SalesFinished product at beginning of year 35,073 17,540Product costs 3,995,045 3,101,533Total 4,030,118 3,119,073Finished product at end of year 8,540 35,073Provision for loss on orders received 55,600 (14,600)Valuation difference of inventories (344) (142)Total cost of sales 4,076,834 3,069,258Gross profit 1,330,180 1,295,548Selling, General and Administrative Expenses Directors' compensation 118,947 121,883 Salaries and bonuses 266,103 274,690 Provision of bonuses 30,677 33,846 Legal welfare expenses 51,038 54,739 Retirement benefit expense 15,492 17,166 Travel expenses 43,831 45,673 Depreciation 16,426 18,235 Rent 31,178 30,721 Provision of allowance for doubtful accounts 3,900 (5,300) Research expenses 136,845 106,663 Estimation cost of customers' inquiries 199,321 183,242 Miscellaneous expenses 191,929 195,053 Total selling, general and administrative expenses 1,105,686 1,076,611Operating income 224,494 218,937Non-operating incomeInterest 8,044 7,529Compensation for damage 1,706 299Subsidy income 12,281 -Other non-operationg income 5,465 3,272Total non-operating income 27,497 11,100Non-operating expensesInterest expense 348 536Loss on sales of non-current assets 540 751Loss on disposal of non-current assets 196 239Foreign exchange losses - 1,665Other non-operationg expenses 136 375Total non-operating expenses 1,220 3,566Ordinary income 250,771 226,471Extraordinary gainInsurance revenue 30,894 -Total extraordinary gain 30,894 -Extraordinary lossesImpairment loss of fixed assets 17,185 -Loss on disaster 47,548 -Litigation expenses 2,646 -Provision of allowance for doubtful accounts 850 -Loss on golf club memberships 300 -Total extraordinary losses 68,530 -Net income before income taxes 213,135 226,471Income taxes 100,746 83,674Income taxes - deferred (46,488) (15,461)Total income taxes 54,258 68,213Net Income ￥ 158,877 ￥ 158,258

Thousands of yen

FY2018 FY2017March 31, 2019 March 31, 2018

Statements of Changes in Net AssetsKAJI TECHNOLOGY CORPORATION

(Thousands of yen)

Capital reserve Total capital surplus General reserve Retained earnings brought forward

￥ 1,440,000 ￥ 1,203,009 ￥ 1,203,009 ￥ 141,600 ￥ 625,000 ￥2,482,921 ￥ 3,249,521

(99,347) (99,347)

158,258 158,258

- - - - - 58,911 58,911

￥ 1,440,000 ￥ 1,203,009 ￥ 1,203,009 ￥ 141,600 ￥ 625,000 ￥2,541,832 ￥ 3,308,432

Treasury stock Total shareholders’ equity Net unrealized holding gains on

available-for-sale securitiesDeferred hedge profit (loss)

Total valuation and translationadjustments

￥(107,243) ￥ 5,785,287 - ￥ 173 ￥ 173 ￥ 5,785,460

(99,347) (99,347)

158,258 158,258

(1,202) (1,202) (1,202)

- (847) (847) (847)

(1,202) 57,709 - (847) (847) 56,862

￥(108,445) ￥ 5,842,996 - ￥ (674) ￥ (674) ￥ 5,842,322

(Thousands of yen)

Capital reserve Total capital surplus General reserve Retained earnings brought

￥ 1,440,000 ￥ 1,203,009 ￥ 1,203,009 ￥ 141,600 ￥ 625,000 ￥2,541,832 ￥ 3,308,432

(99,322) (99,322)

158,877 158,877

- - - - - 59,556 59,556

￥ 1,440,000 ￥ 1,203,009 ￥ 1,203,009 ￥ 141,600 ￥ 625,000 ￥ 2,601,388 ￥ 3,367,988

Treasury stock Total shareholders’ equity Net unrealized holding gains on

available-for-sale securitiesDeferred hedge profit (loss)

Total valuation and translationadjustments

￥(108,445) ￥ 5,842,996 - ￥ (674) ￥ (674) ￥ 5,842,322

(99,321) (99,321)

158,877 158,877

(83) (83) (83)

- 402 402 402

(83) 59,472 - 402 402 59,875

￥(108,529) ￥ 5,902,467 - ￥ (272) ￥ (272) ￥ 5,902,196

Net income for the year

Purchases of treasury stock

(Net) change in items other thanshareholders’ equity during the fiscal year

Total change during the fiscal year

Balance at End of FY2018

Valuation And Translation AdjustmentsTotal net assets

Balance at Beginnig of FY2018

Change during the fiscal year

Cash dividends

(Net) change in items other thanshareholders’ equity during the fiscal year



Shareholders’ Equity



Cash dividends




Capital Stock Capital Surplus

Retained earnings

Legal reserveOther retained earnings

Total retained earnings



Cash dividends



Capital Stock Capital Surplus

Retained earnings

Legal reserveOther retained earnings

Total retained earnings

Shareholders’ Equity Valuation And Translation AdjustmentsTotal net assets



(Net) change in items other than shareholders’equity during the fiscal year






Cash dividends



(Net) change in items other than shareholders’equity during the fiscal year

Statements of Cash FlowsKAJI TECHNOLOGY CORPORATION

For the years ended Cash Flows from Operating Activities:Net income before income taxes ￥ 213,135 ￥ 226,471Depreciation 89,061 97,080Impairment loss of fixed assets 17,186 -Increase (decrease) in provision for retirement benefits (22,398) (11,034)Increase (decrease) in allowance for doubtful accounts 4,750 (5,300)Increase (decrease) in provision for bonuses 2,392 (5,970)Increase (decrease) in provision for loss on order received 55,600 (14,600)Interest and dividend income (8,044) (7,529)Interest expense 348 536Loss on disposal of non-current assets 121 239(Gain) loss on sales of non-current assets 540 751(Increase) decrease in trade notes and accounts receivable (458,890) 663,029(Increase) decrease in inventories 382 (281,963)(Increase) decrease in other current assets (41,785) (44,949)Increase (decrease) in trade notes and accounts payable 229,045 (20,653)Other, net 24,493 21,652Subtotal 105,935 617,760Interest and dividends received 8,044 7,529Interest paid (342) (523)Income taxes paid (70,528) (83,283) Net cash provided by operating activities 43,109 541,483

Cash Flows from Investing ActivitiesPurchase of property, plant and equipment (79,053) (36,094)Proceeds from sales of property, plant and equipment 49 -Payments from disposal of property, plant and equipment - (944)Purchase of intangible fixed assets (8,144) (3,948)Income from cancellation of insurance 9,615 -Income from withdrawal from golf club memberships 2,500 -Deposit placement 200,000 (300,000)Other incomes - 203Other payments 13,071 - Net cash used in investing activities 111,896 (340,783)

Cash Flows from Financing ActivitiesProceeds from short-term loans payable (10,000) (70,000)Purchase of treasury stock (83) (1,203)Cash dividends paid (98,838) (98,921) Net cash used in financing activities (108,921) (170,124)

Net Increase (Decrease) in Cash and Cash Equivalents 46,084 30,576Cash and Cash Equivalents at Beginning of Year 509,791 479,215Cash and Cash Equivalents at End of Year ￥ 555,875 ￥ 509,791

Thousands of yen

FY2018 FY2017March 31, 2019 March 31, 2018

Notes to the Financial StatementsKAJI TECHNOLOGY CORPORATION

March 31, 2019 and 2018

(Summary of significant accounting policies)

The following is a summary of the significant accounting and reporting policies adopted by the KAJI TECHNOLOGY CORPORATION (the "Company")

in the preparation of the accompanying financial statements.

1. Inventory valuation basis and method

Inventory held for sale purposes

Inventories are accounted for by the cost method. (The value on the Balance Sheet is calculated by devaluing the book value based on lower profitability.)

(1) Finished product and work in progress

Specific cost method

(2) Raw materials

Moving average method

(3) Supplies

Last purchase price method

2. Fixed asset depreciation method (1) Property, plant and equipment

Main useful lives are as below. Buildings： 3～41 years

Machinery and equipment： 4～12 years

(2) Intangible fixed assets

defined useful life of 5 years.

3. Calculation of allowance

(1) Allowance for doubtful accounts

(2) Provision for bonuses

For payment of bonuses to employees, we provide the partial amount of the estimated payment that needs to be put aside within

the fiscal year.

(3) Provision for loss on orders received

(4) Provision for retirement benefits

① The method of attributing expected benefits to periods

The method of attributing expected benefits to periods of service is applied on a benefit formula basis.

② Expense method of actuarial differences, prior service cost and transitional liability for defined benefit plan

Unrecognized actuarial differences are treated as expense in the following fiscal period by the straight-line method based on average

Prior service cost is treated as expense at the time of occurrence.

4. Hedge accounting method

(1) Hedge accounting method

(2) Hedging instruments and items

Hedging instruments： Forward exchange contracts

Hedge items： Monetary assets and liabilities and forecasted transactions denominated in foreign currencies

(3) Hedging policy

5. Statements of Cash Flows

6. Other significant matters for preparing financial statements

Accounting for consumption tax

Accounting for consumption tax is based on the tax exclusion method.

The declining balance method is applied. However, the straight-line method is applied to buildings, excluding building and accompanying facilities acquired after April 1, 1998. and facilities attached to buildings and structures, which were acquired since April 1, 2016.

The straight-line method is applied. Furthermore, with regards to software, the straight-line method is applied based on the internally

For possible loss on doubtful accounts, we provide allowance for estimated uncollectible amounts based on the actual rate of loss for general

accounts and the collectability of special cases in which the risk of loss is more significant.

For payment of retirement benefits to employees, we provide the partial amount of the estimated payment based on the retirement

benefit liabilities and pension assets expected at the end of the fiscal year.

remaining working years of the employees (14～17 years).

For possible loss in relation to received orders in which a loss on outstanding orders at the end of the term is reasonably certain and the amount

of loss may be rationally estimated, we provide the estimated amount of loss.

onwards it is possible to forecast the complete offset of exchange rate fluctuation or cash flow fluctuation, an evaluation of hedging efficacy is omitted

In preparing the statements of cash flows, cash on hand, readily available deposits, time deposits and deposits paid with maturities not exceeding threemonths at the time of purchase are considered cash and cash equivalents.

As a general rule, deferred hedge treatment is adopted. Furthermore, designation treatment is adopted for exchange contracts that fulfill the

conditions of designation treatment.

In ordinary operating activities, the transactions are executed as forward exchange reservation transactions in order to minimize the risks of

foreign currency transactions derived from future exchange rate fluctuations.

As the notional amounts of hedging instruments and significant conditions related to the hedging items are the same and as at the hedging start and

(4) Evaluation method for hedging effectiveness

Changes in presentation method

Additional information

(Occurrence of Damage by typhoon Jebi)The company has recognized damage on buildings caused by the typhoon Jebi in the fiscal year ended March 31, 2019. The loss amounted to 47,548thousand yen and has been recorded as extraordinary loss.The loss was mainly consisted of repair expenses. The amount is the best estimate using theinformation available at the time and the final amount might differ from the estimate booked. Insurance revenue of 30,894 thousand yen related to thedamage has been recorded as extraordinary gain.

The following standard and guidance were issued but not yet adopted.- “Accounting Standard for Revenue Recognition” (ASBJ Statement No.29, March 30, 2018)- “Implementation Guidance on Accounting Standard for Revenue Recognition” (ASBJ Guidance No.30, March 30, 2018)

(1) OverviewThe above standard and guidance provide comprehensive principles for revenue recognition. Under the standard and guidance, revenue is recognized by applyingfollowing 5 steps:Step1: Identify contract(s) with customers.Step2: Identify the performance obligations in the contract.Step3: Determine the transaction price.Step4: Allocate the transaction price to the performance obligation in the contract.Step5; Recognize revenue when (or as) the entity satisfies a performance obligation.(2) Effective dateEffective from the beginning of the fiscal year ending March 31, 2022.

(3) Effects of the application of the standardsThe Company is currently in the process of determining the effects of these new standards on the financial statements.

(Changes due to adoption of “Partial Amendments to Accounting Standard for Tax Effect Accounting”)Upon application of “Partial Amendments to Accounting Standard for Tax Effect Accounting” (ASBJ Statement No. 28, February 16, 2018 ) from thebeginning of the current fiscal year, the Company changed the presentation and related notes of deferred tax assets and deferred tax liabilities, such thatdeferred tax assets and deferred tax liabilities are classified as part of ‘investments and other assets’ and ‘non-current liabilities’, respectively.As a result, deferred tax assets of 131,172 thousand yen classified as “current assets” have been included in deferred tax assets (326,312 thousand yen)in “investments and other assets.”

(Standards and guidance not yet adopted)

Income Taxes

1. Significant components of deferred tax assets and liabilities were as follows：

(Thousands of yen)

Deferred tax assets

Provision for bonuses

Provision for retirement benefits

Loss on golf club memberships

Long-term accounts payable - other

Experiment and research expenses

Allowance for doubtful accounts

Others

Subtotal deferred tax assets

Valuation allowance

Total deferred tax assets

Deferred tax liabilities

Insurance revenue

Total deferred tax liabilities

Net deferred tax assets

2. The following table summarizes the significant differences between the statutory tax rate and the Company's effective tax rate

Deduction for experiments and reseach expenses (2.3) －

Effective tax rate 25.5% －

Movement in valuation allowance (5.9) －

Others (0.1) －

Non-deductible expenses for tax purposes (e.g., entertainmentexpenses)

0.9 －

Resident tax on per capita basis 2.3 －

Statutory tax rate 30.60% －

Adjustments

372,623 326,312

For the years endedFY 2018

March 31, 2019FY 2017

March 31, 2018

Valuation allowance decreased by 12,680 thousand yen from the previous fiscal year, mainly due to a decrease of 12,145 thousandyen in valuation allowance regarding Long-term accounts payable - other.

(9,453) -

(9,453) -

(24,563)

382,076 326,312

41,948 41,216

As ofFY 2018

March 31, 2019FY 2017

March 31, 2018

The differences between the aggregate statutory tax rate and the effective tax rate after applying tax effect accounting was omittedfor the years ended March 31, 2018 as the differences between them was less than 5%.

50,523 28,110

172,634 179,488

8,304 8,045

13,457 22,978

6,150 4,957

100,939 66,081

393,958 350,875

(11,882)

Segment Information

FY2018 and 2017

As the Company is composed of a single reportable segment ("Compressors"), segment information has been omitted.

Related Party Transactions

1. Transactions with major shareholders of the Company are as follows:

FY 2018

Trading conditions and policy for deciding such conditions, etc.　With regard to deposits, interest rates are determined by referring to market rates based on the basic agreement

FY 2017

Trading conditions and policy for deciding such conditions, etc.(1) With regard to sales of compressors, the trading conditions including prices are determined by adopting the equivalent conditions of third parties. The Company does not have a disadvantage with the conditions.(2) The transaction amounts do not include consumption taxes. However, the balance of notes receivable includes consumption taxes.(3) With regard to deposits, interest rates are determined by referring to market rates based on the basic agreement.

Balance at the end offiscal year

(Thousands of yen)

300,000

Deposits paid 2,700,000

7,529

Transactionamount

(Thousands ofyen)

Account

Parent companyMitsui Engineering &Shipbuilding Co., Ltd.

Chuo, Tokyo

Business relationshipDetails of

transactions

Fund transactions

Proceedingdeposits

Receivinginterests

Category Name LocationAmount of capital(Millions of yen)

Industry Voting rights

51.30% of the Company'srights are owned by

Mitsui Engineering &Shipbuilding Co., Ltd.

directly

44,384

59,786

Manufacturing

Sales of the Company's productsSales of

compressors42,855

Accountsreceivable

AccountCategory Name LocationAmount of

capital(Millions of yen)

Industry Voting rights Business relationshipDetails of

transactions

(4) As of April 1, 2018, Mitsui Engineering ＆ Shipbuilding Co., Ltd. changed to a holding company by company split, and was renamed Mitsui E ＆ S Holdings Co., Ltd. . As a result, among the rights and obligations relevant to transactions between the Company andMitsui Engineering ＆ Shipbuilding Co., Ltd, the ones generated by fund transactions were taken over by Mitsui E ＆ S Holdings Co., Ltd. and the ones generated by other transactions were taken over by its subsidiaries.

Balance at the end offiscal year

(Thousands of yen)

Parent companyMitsui Engineering &Shipbuilding Co., Ltd.

Chuo, Tokyo 44,384 Manufacturing

51.30% of theCompany's rights are

owned by MitsuiEngineering &

Shipbuilding Co., Ltd.directly

Fund transactions

Proceedingdeposits

(200,000)

Deposits paid 2,500,000Receivinginterests

8,044

Transactionamount

(Thousands ofyen)

Per Share Information

(Yen)

Net assets per share

Net income per share

(Notes)

3. The basis for the calculation of net income per share is as follows:

4. The basis for the calculation of net assets per share is as follows:

As of

FY 2018March 31, 2019

FY 2017March 31, 2018

Total net assets (thousands of yen) 5,902,196 5,842,322

Number of ordinary shares used in calcualtion ofnet assets per share (shares)

1,655,333 1,655,363

Amount excluded from total net assets (thousandsof yen)

-

Net assets attributable to ordinary shares(thousands of yen)

5,902,196 5,842,322

Net income attributable to ordinary shares(thousands of yen)

158,877 158,258

Average number of shares outstanding during theperiod (shares)

1,655,333 1,655,560

Net income (thousands of yen) 158,877 158,258

Amount not attributable to ordinary shareholders(thousands of yen)

-

For the years ended

FY 2018March 31, 2019

FY 2017March 31, 2018

Net income per share

2. The Company implemented a share consolidation in which ten shares were consolidated into one share on October 1,2017. Net assets per share and net income per share were calculated based on the assumption that the share consolidationwas executed at the beginning of the fiscal year ended March 31, 2018.

FY 2018March 31, 2019

FY 2017March 31, 2018

3,565.56 3,529.33

95.98 95.59

1. Diluted net income per share is not reported since there were no outstanding securities with a potential dilutive effect.

Documents

Financial Statements · Provision for bonuses 137,085 134,693 Provision for loss on orders received 130,000 74,400 Other current liablities 391 971 Total current liabilities 1,780,446