E-SUPPORTLINK, Ltd.

The proportion of sales attributable to imported fruit and vegetable supply chain-related operators and major mass retailers is relatively high, resulting in significant dependence on specific customers. If a customer's changing business environment leads to a review of system usage or a shift toward in-house handling of operations, this could directly affect operating results through a decline in system usage data volume and transaction processing volume. Because the billing structure is usage-based (pay-per-use), a decrease in customer usage translates immediately into a decline in sales.

The Company manages confidential information such as customers' production and sales volumes and purchase/sales prices, as well as personal information of agricultural producers. If a system failure occurs due to unauthorized access, computer virus infection, or disaster, there is a risk of information leakage, data tampering, or data loss. As countermeasures, the Company has obtained ISO/IEC27001:2022 and ISO/IEC20000-1:2018 certifications, strengthened security, and concluded confidentiality agreements with outsourcing partners; however, threats exceeding these anticipated measures cannot be completely eliminated. Should such an event occur, it could result in a loss of social trust and adversely affect operating results.

Since the production volume and quality of fresh fruits and vegetables are subject to weather conditions, a significant decline in production due to abnormal weather or natural disasters would directly affect sales through a reduction in transaction volume handled by the Company's usage-based billing services. In addition, sharp increases in agricultural product purchase prices or declines in sales prices would compress profitability in the agricultural product sales business to retailers and others. For imported fruits and vegetables, a decline in import volume to Japan resulting from changes in conditions in producing countries or exchange rate fluctuations could also affect operating results.

The Company is actively pursuing the development of new businesses to expand operations and strengthen its earnings base; however, changes in the business environment, such as industry and market trends or legal regulations, may make it difficult to achieve initial plans. If the Company is unable to record sufficient returns commensurate with its investments, this poses a risk of adverse effects on operating results and financial condition. Given the nature of new businesses, there is a high degree of uncertainty, and the outlook for investment recovery is prone to change.

Given the nature of the information services business, ongoing recruitment and development of human resources are essential; insufficient recruitment or training could hinder business expansion and company growth. In addition, if trained personnel leave the Company, this entails not only a decline in human capital but also a risk of leakage of know-how, intellectual property, and confidential information. As countermeasures, the Company has established personnel systems based on its human resources policy, implemented measures to improve employee engagement, and obtains confidentiality pledges upon employee resignation; however, these measures do not guarantee future effectiveness.

The possibility that the Company's information systems or business model infringe upon third-party intellectual property rights cannot be completely ruled out; if claims for damages or injunctions are filed, this could have a material impact on business continuity and operating results. Conversely, if the Company's own intellectual property rights are infringed by a third party, there is a risk of incurring substantial litigation costs to protect those rights. Furthermore, there is also litigation risk in the event that system failures or serious human error in the provided systems cause damage to customers.

The Company has formulated a business continuity plan (BCP) anticipating large-scale disasters such as a Nankai Trough megaquake or an earthquake directly beneath the Tokyo metropolitan area, as well as the outbreak of infectious diseases such as novel influenza; however, given the increasing scale of disasters associated with climate change, events of unanticipated scale may occur, and it is difficult to avoid all risks. Should such an event occur, the Company may be forced to scale back business activities, potentially affecting operating results and financial condition.

If business profitability declines due to a significant deterioration in the business environment, or if the market value of fixed assets held by the Company falls significantly, the application of impairment accounting could result in an impairment loss that affects business performance. Depending on the scale of the fixed assets involved, this could be a factor causing a substantial, if temporary, deterioration in financial condition.