NIHONWASOU HOLDINGS,INC.

The Company's principal source of revenue is fees received from contracted companies within the "Japan Wasou" (kimono) business, and diversification of operations is limited. If dramatic changes in social conditions or culture make the business model unable to be generally deployed, this could have a direct and material impact on the Group's business performance. The high degree of dependence on a specific business implies low resilience to changes in the external environment.

The retail market for the kimono industry, in which the Group acts as an intermediary, has been on a long-term declining trend, and although there are signs of the decline bottoming out, no dramatic recovery has been achieved. If the market contraction accelerates sharply, contracted companies may find it difficult to continue their sales activities, which would directly affect the Company's intermediary fee revenue. The Company is working to create new demand and surface latent demand through its "Free Kimono Dressing Classes" (Muryo Kimono Kitsuke Kyoshitsu), but the structural risk of market contraction persists.

Similar operators that imitate the format of the "Free Kimono Dressing Classes" have been reported in the media for aggressive sales tactics and illegal refusal of cancellations, creating a risk that the Company could be confused with such similar operators. If general consumers are unable to distinguish the Company from illegal operators, this may lead to a decrease in the number of applicants for classes, potentially reducing fee revenue. The Company has clarified its consumer-first stance through its "Kimono Peace of Mind Declaration" (Kimono Anshin Sengen) and the establishment of a "Customer Consultation Office," but image damage caused by external factors cannot be completely controlled.

If an already-contracted company ceases to meet compliance standards due to changes in its business environment or a change in management, the Company may suspend the transaction from a consumer protection standpoint. If this business stance is not sufficiently understood by the contracted company and inaccurate information is spread, this could damage the Company's credibility with the industry and general consumers, leading to a decrease in the number of applicants for classes and affecting the business overall. Maintaining compliance standards and managing relationships with contracted companies remain important challenges.

In the "Japan Wasou" business, the majority of payment collection from consumers is conducted via credit, which is subject to the Installment Sales Act. If the credit industry is significantly affected by future amendments, changes in interpretation, or tightening of this law, it could affect the business execution and performance of the Group, including Nichikure Co., Ltd. within the Group. Tightened regulations, such as obligations to investigate consumers' expected payment capacity or restrictions on credit extension, carry a risk directly linked to a reduction in sales opportunities.

The Company conducts advertising through various media to recruit class participants, but if the advertising expenditure does not yield commensurate results and the planned enrollment quota is not reached, contracted companies' sales activities may slow, directly reducing fee revenue. Since the Company's revenue structure is highly dependent on the number of class participants, a decline in advertising efficiency immediately affects business performance. The Company scrutinizes advertising content through consultations with advertising agencies, but there is no guarantee of effectiveness.

Personal information is handled in cases such as recruiting class participants and the use of shopping credit, and if information leakage occurs due to malicious hacking or similar external attacks, this could damage social credibility and result in the expenditure of damages, affecting business operations. The Group has appointed a personal information protection manager and is working to establish a company-wide framework, but it is difficult to completely eliminate external threats such as cyberattacks.

The Group procures funds necessary for business operations through borrowings from financial institutions, and sharp fluctuations in financial market conditions or economic trends, or a decline in the Group's creditworthiness, could adversely affect fundraising, such as through an increase in procurement interest rates. In addition, due to the structure in which payment collection from consumers is prolonged in the installment sales brokerage conducted by Nichikure Co., Ltd., if timely fundraising from financial institutions cannot be executed, this poses a risk of adversely affecting the Group's overall cash flow and financial condition. As a countermeasure, the Company has entered into overdraft agreements and commitment line agreements with multiple financial institutions.

In the installment sales brokerage conducted by Nichikure Co., Ltd., if payment collection from consumers is delayed or becomes uncollectible, an increase in the allowance for doubtful accounts or the occurrence of bad debt losses could adversely affect the Group's business performance. In addition, since settlement to each contracted company is made 10 days after the sale date, if a large amount of payment collection is delayed, this could affect the Company's cash flow and financial condition. The Group works to secure liquidity through intragroup fund transfers and cooperation with multiple financial institutions.

If large-scale natural disasters such as earthquakes, tsunamis, or floods, accidents such as fires, the spread of infectious diseases, or other forms of social disruption occur, this could impede the suspension or continuation of business activities of the Group and its business partners, affecting business results and financial condition. Drawing on its experience with the COVID-19 pandemic, the Company holds response meetings as needed when such events occur, and works to ensure employee safety and business continuity through the formulation of response guidelines and the introduction of remote work.