SATO FOODS INDUSTRIES CO., LTD.

The Company has established a quality control system, including receiving written assurances from raw material manufacturers regarding compliance with the Food Sanitation Act, the JAS Act, the Act against Unjustifiable Premiums and Misleading Representations, and other regulations. However, in the event of an unforeseen accident, a large-scale product recall or liability for damages could arise. In addition, quality-related problems affecting society at large, not limited to issues specific to the Company, could also affect its business performance.

As the Company's core business is the manufacture and sale of tea extracts, natural seasonings, plant extracts, and powdered alcohol, it is subject to a wide range of laws and regulations, including the Food Sanitation Act, the JAS Act, the Product Liability Act, the Containers and Packaging Recycling Act, the Waste Management Act, and the Liquor Tax Act. If the Company unintentionally violates any laws or regulations, it could face suspension of business or administrative sanctions, which could have a material impact on its business performance.

Prices of key raw materials such as tea leaves, dried bonito flakes, kelp, shiitake mushrooms, and dextrin may fluctuate due to weather conditions and international supply-demand trends. In addition, sharp increases in crude oil prices affect packaging materials, manufacturing costs, and transportation costs. While the Company follows a policy of diversifying its procurement routes, if such cost increases cannot be absorbed through improved production efficiency or price pass-through to customers, its business performance may be affected.

The Company's business sites are concentrated in Aichi Prefecture. In the event of an unforeseen occurrence such as a natural disaster, accident, or large-scale infectious disease outbreak, damage to production facilities or interruption of business activities could result in losses. In addition, if a business partner is affected by a disaster and this disrupts the supply of raw materials, the Company's business performance and financial condition may also be affected.

The Company determines the recoverability of deferred tax assets based on forecasts and assumptions regarding future taxable income. If these forecasts or assumptions regarding future taxable income change, part or all of the deferred tax assets may be deemed unrecoverable and written down. In such a case, the Company's business performance may be affected.