TANAKEN Inc.

Unexpected fluctuations in the macroeconomic environment, including geopolitical risks, could cause a significant decline in private-sector construction demand. Cost increases associated with soaring materials and labor costs could also affect business operations, financial condition, and operating results. Although the Company has built a flexible response framework by diversifying the industries and business types of clients ordering work (developers, general contractors, end users, redevelopment projects, etc.), there remains a risk that unexpected fluctuations cannot be fully addressed.

If credit concerns regarding business counterparties materialize during an economic downturn, bad debt losses could occur and affect financial condition and operating results. The Company strives to minimize this risk by rigorously screening counterparties' creditworthiness and payment terms based on its credit management regulations, but there may be cases where an unexpected economic downturn cannot be fully addressed.

If unexpected circumstances arise during construction resulting in work that does not conform to contract, this could lead to contract termination, claims for damages, requests for remedial work, or price reductions, affecting business operations, financial condition, and operating results. The Company implements measures such as construction management based on ISO9001, use of IT tools referencing past cases, and prior involvement of head office engineers in high-risk projects, but unexpected circumstances cannot be completely eliminated.

The Company holds special construction business licenses (for demolition work, scaffolding and earthwork, etc.) and a general construction business license (valid until November 20, 2030) from the Minister of Land, Infrastructure, Transport and Tourism under the Construction Business Act. If these licenses were to be revoked due to a violation of laws or regulations, it would significantly impede business continuity. The demolition business is subject to a wide range of regulations, including the Construction Recycling Act, the Waste Management Act, the Industrial Safety and Health Act, the Soil Contamination Countermeasures Act, and the Air Pollution Control Act, and the Company must continuously respond to new legal regulations.

If a serious occupational accident occurs at a demolition work site, confidence in the Company's occupational health and safety management system could be undermined, potentially constraining order-taking activities. The Company has implemented measures such as obtaining ISO45001 certification, establishing a health and safety committee, providing planned safety education, and conducting safety patrols by executives and the Safety and Environmental Management Department, but the risk cannot be reduced to zero.

In the construction business, securing capable licensed personnel and maintaining a good track record of construction performance are prerequisites for business expansion, and the assignment of chief engineers at worksites is mandatory. If the Company is unable to continuously secure the necessary personnel, this could cause problems in construction capability. The Company has implemented measures such as a full five-day workweek, a long-vacation system, renewal of the working environment through relocation to a new head office, restructuring of the personnel, evaluation, and compensation improvement system in March 2025, and enhancement of qualification and technical allowances, but the risk remains amid the ongoing labor shortage across the construction industry.

Securing, developing, and newly recruiting capable partner companies that actually carry out the work is essential, and it may become difficult to secure partner companies if worksites in regional areas increase as business expands. The Company is working to expand a complementary system with new contractors, centered on partner companies with which it has had long-standing relationships, but if unexpected problems arise in construction capability, this could affect business operations, financial condition, and operating results.

If, due to unexpected circumstances on a large-scale project, actual costs significantly exceed the initially estimated costs, the project could become unprofitable, affecting financial condition and operating results. The Company recognizes revenue using the input method (the ratio of costs incurred to estimated total costs) and conducts cost management through continuous review of estimated total costs and scheduled construction periods for each project, but the risk of unexpected cost overruns on large-scale projects cannot be eliminated.

If a large-scale natural disaster such as an earthquake or typhoon occurs, substantial costs may be incurred to restore worksites, and delays in construction progress may occur. The Company has implemented safety measures such as its

During demolition work, complaints from neighboring residents regarding noise, vibration, dust, and other issues may arise, and if such trouble escalates into litigation, this could lead to claims for damages, work suspension, and other consequences affecting business operations, financial condition, and operating results. The Company thoroughly provides careful explanations to neighboring residents before starting work and responds to requests during construction, but the risk of trouble developing for some reason remains.