DAIREI CO.,LTD.

If a large volume of unforeseen product complaints occurs that cannot be fully covered by hygiene and quality control at domestic and overseas partner factories of suppliers, costs for product recalls and compensation to affected parties may arise. In addition, if shipment restrictions or import bans are imposed due to food safety issues in raw material procurement or processing countries, this may hinder raw material procurement and product supply. The Company strives to ensure thorough hygiene and quality control at partner factories, but complete elimination of such risks is difficult.

Raw materials such as marine products and livestock meat procured by partner factories are affected by stricter fishing regulations, fluctuations in catch volumes and market prices, and declines in production due to infectious diseases. If raw material market fluctuations exceed expectations, this may result in shortages of the Company's products and affect business performance. The Company seeks to avoid concentration in specific suppliers and secure stable quantities through diversified procurement and planned ordering.

The Company's business structure is directly exposed to exchange rate fluctuations, as overseas procurement, including boneless fish, accounts for approximately 55% of purchases. If a delay occurs in passing on procurement price increases caused by sharp yen depreciation or other factors to sales prices, this may adversely affect the Company's financial position and business performance. Specific countermeasures such as foreign exchange hedging are not explicitly disclosed in the annual securities report.

The Company relies on Hi-Tech Noorin Co., Ltd.'s frozen food logistics function for consolidated delivery of most of its purchased products, resulting in a high degree of concentration on this company. If the company's logistics system becomes dysfunctional due to a large-scale disaster such as a natural disaster or other causes, normal storage and delivery of products may be disrupted, potentially affecting business performance. The Company conducts comparative reviews with other companies as needed regarding conditions such as logistics costs.

Purchases from key suppliers Sansho Co., Ltd. and Seisho Foods Co., Ltd. account for high proportions of the Company's total purchases, at 13.0% and 14.2% respectively (FY2026, ending March 2026). If contracts with these companies are terminated or their production systems suffer significant disruption due to natural disasters, this may affect the Company's business performance. The Company seeks to reduce dependence through diversified procurement from partner factories, but a certain degree of concentration risk remains.

If a customer experiences an unexpected business failure, the Company may be unable to collect accounts receivable, which could affect its financial position and business performance. The Company focuses on credit management and information gathering to protect receivables, but complete elimination of this risk is difficult. Managing counterparty credit risk remains an ongoing challenge in the food distribution industry.

Related party transactions involving the purchase and sale of products exist with Mukashitei Co., Ltd., Furuta Foods Co., Ltd., and Miyaki Sangyo Co., Ltd., companies in which Mr. Koji Furuta—the substantial controlling person of Furuta Co., Ltd. (the Company's largest shareholder, holding 51.44% of issued shares)—holds a majority of voting rights. In FY2026 (ending March 2026), product purchases from Mukashitei amounted to ¥1,148,483 thousand and from Furuta Foods ¥357,582 thousand, both substantial in scale, with Furuta Foods' "American Dog" product in particular being difficult to obtain from other companies. Although transaction prices are stated to be determined on the same basis as arm's-length transactions with third parties, there is a latent risk of conflict of interest with the controlling shareholder.

Sales, purchasing, and management information is managed via computer systems, and if unauthorized access using technology beyond expectations or computer virus infection results in information system failure or leakage of internal information to outside parties, this may affect the Company's financial position and business performance. The Company has implemented measures against virus infection and hacking, but complete defense is difficult given the increasing sophistication of technology.

The Company is subject to various laws and regulations including the Food Sanitation Act, Product Liability Act, Food Recycling Act, and JAS Act. If new legal regulations are established or existing regulations are revised or strengthened, this may increase constraints on business operations and compliance costs, affecting the Company's financial position and business performance. While there are currently no violations of legal regulations and the Company strives for compliance, ongoing response to changes in the regulatory environment surrounding the food industry is necessary.

Securing and developing talented personnel in sales, development, business management, and other areas is recognized as an important challenge for achieving future growth. If it becomes difficult to secure and develop human resources, achieving business objectives may become difficult. The Company states that it is implementing necessary measures, but human resource risk remains an ongoing challenge amid intensifying competition in the labor market.