BESTERRA CO.,LTD

The Company holds a special construction business license (Tokutei Kensetsugyo Kyoka) granted by the Tokyo Metropolitan Governor under the Construction Business Act (valid until November 3, 2027). If the Company loses the requirements for this license or falls under grounds for disqualification resulting in revocation, continuation of business operations would become difficult. In addition, if the Company violates the wide range of applicable laws and regulations, including the Construction Recycling Act, the Waste Management and Public Cleansing Act, the Industrial Safety and Health Act, and the Soil Contamination Countermeasures Act, or if unforeseen circumstances arise due to legal amendments, this could have a material impact on business performance. The Company is promoting the establishment of a compliance framework and developing systems capable of appropriately responding to regulatory changes and abolitions.

The Company's major customers include large enterprises such as the JFE Group, the Nippon Steel Group, and Tokyo Energy & Systems Inc., and the degree of sales dependence on these major customers fluctuates significantly from year to year depending on the presence or absence of large-scale construction projects. If the sales base is impaired due to deterioration in relationships with major customers or intensified order competition, this could affect business performance. While the Company strives to maintain good relationships with major customers, it is also promoting the development of new customers to strengthen its sales base.

Orders for the demolition and maintenance business are linked to the execution of the medium- to long-term business plans of plant-owning clients, and if there is a sharp slowdown or deterioration in the Japanese economy, clients' capital investment plans could be revised, potentially reducing orders placed with the Company. Since changes in the external economic environment, which are beyond the Company's control, directly affect order volume, this can be a factor causing fluctuations in business performance. While medium- to long-term demand for demolition is expected to increase due to the aging of plants built during the period of rapid economic growth, there is a risk that such demand could be deferred during economic downturns.

In plant demolition work, issues such as soil contamination may be discovered after construction has begun, potentially resulting in extended construction periods or additional work, which may force changes to the construction plan. While revisions to order amounts and construction costs associated with additional work are subject to negotiation with customers and subcontractors, if changes to the construction plan prevent the use of the Company's patented construction methods or know-how, profitability could decline and affect business performance. The Company continuously reviews the estimated total cost and planned construction period for each project, and maintains a system for recording a provision for construction losses when the estimated total cost exceeds the contract amount.

Plant demolition work sites involve hazardous working environments including work at height and heavy machinery operations, and if a serious occupational accident occurs, confidence in the Company's occupational safety and health management system could be undermined, potentially constraining order-taking activities. The Company has established an in-house Occupational Safety and Health Council, conducts routine safety education and awareness activities, and carries out safety patrols by management executives and dedicated safety and health officers. Nevertheless, if a serious accident occurs despite these measures, it could have a material impact on business performance and corporate credibility.

At plant demolition work sites, the assignment of qualified personnel such as chief engineers is legally required, and there are concerns about a chronic shortage of skilled technical workers across the construction industry as a whole. If the Company is unable to secure the necessary personnel as planned, or if there is an outflow of personnel, this could hinder the order-taking and construction execution systems and affect business performance. The Company itself entered the human resources services business in January 2013 and is working to acquire know-how in recruitment and training.

The Company holds and has commercialized patented construction methods and dedicated robots related to plant demolition, and specialization in construction management utilizing patented methods is a source of competitive advantage. However, if the Company fails to respond swiftly and adequately to the development of new construction methods by third parties, new market entrants after patent expiration, or competitors' follow-on efforts, barriers to entry could be lowered, potentially affecting business performance. The Company is establishing barriers to entry against other companies by acquiring related peripheral patents, while continuously working on the development and commercialization of new construction methods.

The Group's net sales of completed construction contracts exhibit seasonality according to customers' capital investment plans, with a tendency for a higher proportion to be recorded in the fourth quarter (November to January). In the fiscal year under review (February 2024 to January 2025), quarterly net sales of completed construction contracts fluctuated significantly: ¥2,887,282 million in the first quarter, ¥2,735,424 million in the second quarter, ¥2,166,104 million in the third quarter, and ¥2,806,203 million in the fourth quarter, and this concentration in specific quarters is a factor increasing uncertainty in cash flow management and performance forecasting.

The Company has issued stock acquisition rights in cooperation with Hayate Investment Co., Ltd. under a framework of "true direct financing," receiving funds directly from institutional investors. If these stock acquisition rights are exercised, new shares will be issued, potentially diluting the value of existing shareholders' holdings and their voting rights ratio. While this measure is intended to secure growth capital and strengthen the financial base, the degree of dilution will vary depending on the exercise status.

As the Company is a small-scale organization, its business execution system is correspondingly limited in scale, giving rise to the risk that the development of internal management systems may not keep pace during phases of business expansion. Although the Company's policy is to develop personnel training, recruitment, and enhance its business execution system, if these measures do not proceed in a timely and appropriate manner, business performance could be affected. There is also a risk of construction delays and significant restoration costs arising from natural disasters (earthquakes, typhoons, etc.), which the Company seeks to mitigate through seismic diagnosis of its head office building and site-specific safety measures.