Nousouken Corporation

In FY2025 (ending August 2025), sales to Life Corporation accounted for 13.6% of total sales, indicating a high degree of dependence on a specific customer. If this company changes its policies or other circumstances arise, it could have a material impact on the Company's business results and financial position. The Company aims to reduce this dependence by acquiring new supermarkets and other customers, but there is a risk that the high level of dependence will continue if such acquisition does not proceed smoothly.

The Company's business expansion is premised on an increase in the number of participating stores, such as supermarkets that set up Sanchoku corners, and an increase in the number of registered producers who ship agricultural products. If these do not proceed smoothly, or if supermarkets and other partners change their policies, business growth may stagnate, which could affect the Company's business results and financial position. The Company continues to promote the acquisition of new supermarkets and other customers, but there is no guarantee that this will be achieved.

Although the Company stipulates in agreements with registered producers compliance with safe pesticide use standards and adherence to the JAS Law, Food Sanitation Law, and other regulations, the possibility of mislabeling or provision of false information by registered producers cannot be ruled out. In addition, if new laws and regulations are established regarding food radioactive contamination issues, immediate response may be difficult. If such events occur, the Company's business results and financial position could be affected by administrative sanctions, damage claims from consumers, deterioration of brand image, and other factors.

There is a risk that agricultural product market prices may fluctuate more than expected due to imbalances in supply and demand caused by good or poor harvests. When prices fall due to a good harvest, logistics efficiency deteriorates and operating margin declines; when prices rise due to a poor harvest, registered producers may prefer to sell through existing agricultural product markets, leading to decreased use of the Company's system. In either case, this could affect the Company's business results and financial position.

The Company has established a system to mitigate the impact of abnormal weather and natural disasters in specific regions by dispersing collection centers across the country. However, if abnormal weather conditions become more severe, prolonged, or widespread than expected, shortages or quality deterioration due to reduced distribution volume may occur, which could affect the Company's business results and financial position. Given the nature of the business, which relies primarily on agricultural products, there is a structural vulnerability to climate change risk.

While the Company's core business is the Consignment Sales System (net recognition, high profit margin), depending on contracts with supermarkets and other partners, transactions may be conducted under Wholesale (Branding Wholesale) (gross recognition, low profit margin) or Purchase Consignment Sales (gross recognition). If the proportion of Wholesale (Branding Wholesale) or Purchase Consignment Sales increases more than expected, there is a risk that while net sales increase, the gross profit margin will decline. Investors need to accurately understand the impact that differences in recognition basis have on financial indicators.

The barcode issuing system used at collection centers is entirely dependent on communication networks, and system downtime due to natural disasters, accidents, or unforeseeable factors directly affects business operations. In addition, system development and maintenance are outsourced to external contractors, and if service degradation or server downtime occurs at the contractor, resulting in an inability to smoothly maintain internet connectivity or system operation, this could also affect the Company's business results and financial position. The high degree of dependence on external parties inherently poses a risk of becoming a single point of failure.

The Company holds personal information of registered producers and has established a management system including personal information protection regulations, access restrictions, and thorough employee awareness. However, in the event that personal information is leaked, this could have a material impact on business results and financial condition due to the incurrence of damages compensation costs and loss of social credibility. As the number of registered producers increases, the volume of personal information held also increases, requiring continuous strengthening of the management system.

The current management team plays an important role across all aspects of business activities, including management policy and strategy, and the Company's dependence on them is high. While efforts are underway to reduce this dependence through delegation of authority to employees, if the current management team becomes unable to perform their duties for any reason, this could affect the Company's business results and financial position. Developing successors and establishing organizational structures are key to medium- to long-term management stability.

If the Company is unable to secure and develop personnel commensurate with business expansion, this could lead to a decline in service quality and a stagnation of business expansion. In addition, if trained personnel leave the Company, this could result not only in a decline in human resource capabilities but also in the risk of leakage of know-how, intellectual property, and confidential information. Although the Company has introduced transparent personnel evaluations and an employee stock ownership plan, there is no guarantee that these measures will function effectively.