TOUMEI CO.,LTD.

The two services "Office Hikari 119" and "Office Denki 119" accounted for 85.9% of net sales for the fiscal year under review, resulting in a structure highly dependent on specific services. If the expansion of these two services does not proceed as planned due to the rise of competing services or new market entrants, this could have a material impact on the Company's financial position and business results. As a countermeasure, the Company is working to create a third and fourth stock-type business and develop new services through customer follow-up.

The fiber-optic lines used in the core business "Office Hikari 119" are procured entirely from Nippon Telegraph and Telephone East Corporation and Nippon Telegraph and Telephone West Corporation, and the "Agreement Concerning the Optical Collaboration Model" with both companies is a precondition for business activities. This agreement may be terminated upon 90 days' prior notice, and if grounds for cancellation arise—such as loss of telecommunications carrier qualification, credit impairment, or filing for bankruptcy—this could have a material impact on business activities. The Company strives to prevent factors that could impede continuation of the agreement through enhanced compliance and efficient business operations.

If electricity procurement prices surge over an extended period due to fluctuations in fuel prices, exchange rates, or supply-demand conditions, customer cancellations may increase, potentially affecting the Company's financial position and business results. Although the Company has introduced plans that allow for price adjustments, there may be limits to this response during prolonged periods of price surges. The Company seeks to reduce this risk by appealing to customers through the introduction of the Renewable Energy Plan and by securing multiple electricity procurement sources.

As a retail electricity provider, the Company is obligated under the planned value simultaneous-simultaneous system to match demand forecasts with actual demand every 30 minutes, and if the supply-demand balance is significantly disrupted, substantial imbalance charges may be incurred. Although supply-demand management is outsourced to ensure appropriate operation, if the outsourced provider's management does not function properly, this could affect the Company's financial position and business results.

Numerous companies handle optical collaboration, retail electricity sales, information and communication equipment, LED lighting fixtures, and similar products, and the market environment is relatively easy to enter for new competitors. If competition intensifies, this could affect the Company's financial position and business results through rising customer acquisition costs and increased cancellation rates. The Company is working to curb cancellation rates by focusing on customer follow-up and improving customer satisfaction.

The Company is subject to legal regulations including the Telecommunications Business Act, the Electricity Business Act, the Act on Specified Commercial Transactions, and the Insurance Business Act, and violations of laws or unexpected legal amendments may impose constraints on business operations. The Company also holds licenses and registrations such as a secondhand dealer's license, registered electrical contractor registration, and general construction business license, and if grounds for revocation arise, this could result in suspension of operations or revocation of registration. The Company conducts compliance training at least once a year for all officers and employees to strengthen its legal compliance system.

In the course of business operations, the Company handles large volumes of confidential customer information and personal data, and if an information leak occurs due to intentional acts or negligence by related parties, this could affect the Company's financial position and business results through claims for damages or loss of social credibility. The Company has obtained the Privacy Mark certification and has established a rigorous personal information management system, while also conducting information management training at least twice a year for all officers and employees.

Since the Company's main customers are small and medium-sized enterprises and sole proprietors, it holds numerous small-lot receivables, and if the financial condition of business partners deteriorates due to the spread of infectious disease or economic downturn, actual bad debt losses may exceed estimated amounts. The allowance for doubtful accounts is calculated based on available information and certain assumptions, but if additional provisions become necessary, this could affect the Company's financial position and business results. The Company works to suppress the occurrence of non-performing receivables through the establishment of an appropriate credit management system and regular confirmation of receivables collection status.

Representative Director and Chairman Fumihiko Yamamoto and Representative Director and President Naoto Hibino play important roles in determining and promoting management policy and strategy, and if either of them becomes unable to be involved in management for any reason, this could affect the Company's financial position and business results. The Company is working to build a system that eliminates excessive dependence on specific individuals through delegation of authority to officers and executive employees and information sharing at Board of Directors meetings and management meetings.

A total of 1,430,400 shares (4.8% of the 30,061,000 total issued shares) held by three executives—Naoto Hibino, Jun Mizushima, and Shinichi Naoi—have been pledged as collateral to The Sanjushi Bank, Ltd., and if a specified event such as default occurs, the pledged shares may be sold. If such a sale is carried out, or if the possibility of such a sale becomes apparent, this could affect the market price of the Company's shares.