AMITA HOLDINGS CO.,LTD.

The circular material business is subject to regulation under the Waste Management Act, and if requirements such as prohibitions on illegal dumping, unlicensed operations, or falsification of manifests are violated, the company could be subject to a business suspension order or license revocation. Amita Circular Co., Ltd. holds a total of 10 licenses in Himeji City, Ibaraki Prefecture, Kitakyushu City, Miyagi Prefecture, and Hyogo Prefecture, and if these are revoked, it would become impossible for the company's own manufacturing plants to conduct circular material manufacturing operations. Although regular compliance checks are conducted through internal audits and other means, this risk cannot be completely eliminated.

Under the Waste Management Act, industrial waste disposal business licenses are generally valid for 5 years (7 years for certified excellent operators), and if compliance with statutory standards is not confirmed at the time of renewal, the license may not be renewed, potentially halting operations at circular material manufacturing facilities and elsewhere. The Miyagi Prefecture governor's license (expiring June 8, 2026) is the soonest requiring renewal. Currently, the company meets the required standards and there are no circumstances preventing renewal, but maintaining compliance at future renewal points remains an ongoing challenge.

At the Himeji Circular Resource Manufacturing Plant, part of the facility site (7,505.55 sq.m out of a total area of 21,487.43 sq.m) and part of the factory building are leased, and at the Kitakyushu Circular Resource Manufacturing Plant, the facility site is leased; there is a risk that the lessor could unexpectedly propose termination due to changes in circumstances on their part. Given the nature of these facilities as intermediate processing facilities for industrial waste, securing alternative sites or buildings is expected to be considerably difficult. While the current relationship with lessors is good and the likelihood of termination is considered low, an adverse impact on operations could result if alternative arrangements cannot be secured in a timely manner.

The company has entered into a syndicated loan agreement that includes financial covenants based on consolidated net assets on the consolidated balance sheet and net income/loss for the period on the consolidated income statement. If these covenants are breached, the company could be required to repay borrowings ahead of schedule, potentially materially affecting its financial position and operating results. The ratio of borrowings to total assets as of the end of FY2025 (ending December 2025) was 34.7%, and rising interest rates would increase interest expense burdens while heightening the risk of covenant breach.

As a result of capital investment in circular resource manufacturing plants, IT equipment investment, expansion of the sales network and staff, and increased working capital, the ratio of borrowings to total assets reached 34.7% as of the end of FY2025 (ending December 2025). Should interest rates rise due to future changes in economic conditions, the increased burden of interest payments could adversely affect the company's financial position and operating results. While reliance on borrowings is essential for business expansion, it also entails vulnerability to changes in the interest rate environment.

Amid a gradual decline in the volume of industrial waste generated in recent years, competition has intensified due to the spread of the internet lowering the cost of waste disposal matching services and an increase in new entrants driven by the expansion of the environmental market. While the company group is pursuing differentiation through its network built over more than 45 years and its integrated proposal capabilities, if intensifying competition leads to customer attrition, it could adversely affect the company's financial position and operating results. Although the company seeks differentiation through upgrading to the circular material business, ongoing responsiveness to changes in the market environment is required.

The generated materials (waste, etc.) handled by the company group arise incidentally from the manufacturing processes of resource-generating companies, and if significant production adjustments occur in manufacturing industries, the volume of generated materials handled may fall below expectations, adversely affecting the company's financial position and operating results. Because performance is structurally linked to the production trends of client companies, there is a risk that earnings could be squeezed during economic downturns or when production in specific industries contracts. Heightened risk to global procurement resulting from the materialization of geopolitical risks could also affect the expansion of consulting service provision through a slowdown in clients' ESG management and decarbonization plans.

Circular resource manufacturing plants are equipped with manufacturing equipment such as shredders and mixers and handle large quantities of combustible materials; in the event of a major accident, operations could be suspended and substantial investment may be required to restore facilities. Additionally, uncontrollable events such as large-scale earthquakes, typhoons, or other natural disasters, as well as war or terrorism, occurring at domestic or overseas manufacturing sites or offices, could disrupt business activities or cause environmental contamination. Business continuity plans (BCPs) have been established at core sites aiming to minimize damage to business assets and ensure the continuation and prompt restoration of critical operations.

In the course of conducting business, the company group holds a large amount of personal information and trade secrets related to its various services, and there is a risk that information systems could become dysfunctional due to computer viruses, system failures, disasters, terrorism, or other events, or that information could be leaked and improperly obtained or used by third parties. Although information management measures have been implemented, it is difficult to completely eliminate unforeseen incidents, and if an information leak occurs, it could adversely affect the business, financial position, and operating results.

In the environmental certification audit services provided by the company group, audits are conducted by the Soil Association for FSC and by ASI (Accreditation Service International) for MSC and ASC; if the company fails to pass these audits, its qualification to provide audit and certification services could be suspended or revoked. Although the company works to maintain and improve its QMS (quality management system), a suspension or revocation of qualification would have a direct adverse impact on this business. Environmental certification audit services form part of the company group's business diversification, and maintaining qualification is a prerequisite for the continuation of this business.