mbs,inc.

The Home Makeup brand relies heavily on human capital, making the acquisition and development of personnel responsible for planning and executing sales strategies essential. If the Company is unable to secure sufficient personnel, if employed staff leave, or if there are delays in development plans or staffing misallocation, this could result in deteriorating business performance and force a reassessment of branch establishment plans. Although the Company has established its own training program and allows hiring from outside the industry, the risk persists on an ongoing basis, compounded by the industry-wide issue of declining numbers of construction technicians.

Representative Director and President Takashi Yamamoto is the founder and largest shareholder, and plays a central role in management policy and strategy decisions as well as business execution. It is explicitly stated that if he were to step down from management for any reason, this could have a significant impact on business operations. While the Company is working to mitigate this risk by strengthening its management structure and personnel development, the current degree of dependence remains high.

The British-made specialty functional coating used in the Home Makeup business is procured from Sika Japan Ltd., and purchases from this company accounted for approximately 63% of total purchases in FY2025 (ended May 2025). If the Company is unable to agree on trading terms with this company, or if the company refuses to renew or terminates the contract, securing alternative supply sources may prove difficult, potentially having a material impact on business performance. While the Company strives to maintain a good relationship with this company on a mutually complementary basis, the high degree of dependence constitutes a structural risk.

If raw material and materials prices, as well as labor costs, rise sharply after a construction contract has been concluded, the cost of completed construction work will increase. If it is difficult to pass these cost increases on to contract prices, gross profit on completed construction contracts will decrease, potentially affecting business results and financial condition. Labor cost inflation due to the shortage of skilled construction workers also compounds this, creating ongoing upward pressure on costs.

If the construction and real estate market contracts sharply due to worsening economic conditions or unforeseen events, or if the competitive environment intensifies, this could affect business performance. Both the Home Makeup business and the construction business, the Company's core operations, depend on this market, and changes in the market environment have a direct impact on both net sales and order volume.

The Company's business is subject to a wide range of legal regulations, including the Construction Business Act, the Building Standards Act, the Real Estate Transaction Business Act, the City Planning Act, and the Antimonopoly Act, and it operates its business under a construction business license (license from the Minister of Land, Infrastructure, Transport and Tourism). If laws are abolished or amended, new legal regulations are enacted, or applicable standards change, or if illegal conduct occurs within the Company, this could affect business performance. Similar risks arise if the outcome of litigation differs from the Company's assertions or expectations.

If defects occur in properties designed and constructed by the Company, additional construction costs for repairs and damages based on serious liability for contract non-conformity may arise, potentially affecting business performance. The Home Makeup business offers a 10-year warranty, and the cost of addressing defects during the warranty period is also a potential risk. Unexpected serious accidents during construction and delays in construction periods due to poor weather, schedule slippage, or seasonal factors are also cited as factors affecting business performance.

In the construction industry, the number of skilled workers is trending downward due to an aging workforce and declining rates of entry and retention among younger workers. If this decline progresses further, intensified competition for talent among companies could drive up labor costs, and difficulty securing personnel could shrink construction capacity, potentially reducing order volume. Additionally, if there is a shortage of workers with construction experience in specific work categories or holders of specific qualifications, there is a risk of missing order opportunities due to a lack of qualified personnel for bidding and construction management.

If a client ordering construction work experiences credit difficulties, uncollected construction payments and bad debts could arise, potentially affecting business performance. Additionally, if suppliers or subcontractors experience credit difficulties, adjustments involving alternative contractors could cause construction delays, potentially affecting business performance. Given the characteristics of the construction industry, where a certain period elapses between order receipt and payment collection, ongoing management of changes in counterparties' credit standing is required.

If a large-scale earthquake, typhoon, or other natural disaster occurs, substantial costs may be incurred to restore facilities at the head office, business locations, and construction sites. Depending on the extent of the damage, this could force a slowdown in order-taking activities, a decrease in net sales, sharp increases in construction material prices, and interruption of on-site work, potentially affecting business activities, operating results, and financial condition. Costs associated with disaster response for property owners and residents could also be an additional cost factor.