ERI HOLDINGS CO.,LTD.

Four subsidiaries, including Japan ERI Co., Ltd., operate as institutions designated/registered by the Minister of Land, Infrastructure, Transport and Tourism under the Building Standards Act and the Housing Quality Assurance Act, and there is a possibility that they may have their designation/registration revoked, renewal refused, or operations suspended due to violations of legal regulations. If such a disposition is imposed, it would disrupt the business activities of the relevant subsidiary and could have a material impact on the overall performance of the group. In response, internal control and risk management systems have been established, and as of the filing date of the Annual Securities Report, no事由 (grounds) falling under legal regulations have occurred.

Under the Building Standards Act, if the proportion of voting rights held by shareholders engaged in restricted industries (design and construction supervision, construction, real estate, and elevator manufacturing/supply) exceeds one-third of total shareholder voting rights, the designation/registration of building confirmation and inspection services and housing performance evaluation services by the Minister of Land, Infrastructure, Transport and Tourism may be revoked. As of May 31, 2025, the proportion of voting rights held by restricted industries was 25.8% (19,575 units), which currently remains within the threshold, but the risk could materialize due to changes in the shareholder composition. The Company continuously conducts attribute verification and surveys based on the shareholder register and discloses the proportion.

Building Confirmation & Inspection Business and housing performance evaluation services are subject to regulation under numerous laws including the Building Standards Act and the Housing Quality Assurance Act, and the Solutions Business also requires various registrations such as registration as a first-class architect office, construction consultant registration, surveyor registration, and compensation consultant registration. If these laws are amended or abolished, or new laws are enacted in the future, it is difficult to predict or control their content and impact in advance, which may affect the group's performance. As a countermeasure, the Company continuously monitors legal and regulatory trends, but specific details of countermeasures are not disclosed.

Building Confirmation & Inspection Business and housing performance evaluation services, which are the core businesses of the Group, are closely linked to the housing market, and if home buyers' purchasing motivation declines due to changes in external factors such as employment conditions, economic trends, interest rate trends, land price trends, and housing tax systems, this may affect performance. In the past, the number of building confirmations has significantly declined due to confusion caused by the enforcement of the revised Building Standards Act (June 2007), the Lehman Brothers collapse (September 2008), the rebound from the rush in demand before the consumption tax hike (FY2014: down 14.1% year on year), the COVID-19 pandemic (FY2020), and other events. Since external factors in the housing market are beyond the control of the Group, this remains an ongoing risk factor.

In the Building Confirmation & Inspection Business, as of the end of May 2025, 128 institutions had received designation, and competition with regionally focused institutions is intense. In the housing performance evaluation business as well, 123 institutions are registered, and competition over expanding transactions among major home builders is intensifying. The Group holds the largest position in the industry in both building confirmation & inspection and housing performance evaluation (ranked No.1 with a 22% share of design evaluation certificates issued in FY2024), but the Annual Securities Report explicitly states that there is no guarantee that the Group will be able to maintain its position as the largest player in the future.

Carrying out Building Confirmation & Inspection Business and housing performance evaluation services requires securing personnel holding statutory qualifications such as "confirmation inspector," "deputy confirmation inspector," and "evaluator," and for the Group, which operates 33 branches nationwide (as of May 31, 2025), securing confirmation inspectors and other qualified personnel at each location is essential. If the number of qualified personnel secured is insufficient relative to the volume of work, this would hinder the performance of Building Confirmation & Inspection Business and housing performance evaluation services. In the Solutions Business as well, qualified personnel are needed for renewal of registrations such as construction consultant, surveyor, and compensation consultant registrations, and the Group strives to secure qualified personnel through talent development and recruitment.

On-site inspection revenue at the time of building completion (completion inspection and construction housing performance evaluation), which accounts for approximately 30% of the Group's net sales, tends to be concentrated in March, September, and December, when building completions are concentrated. If completion projects are pushed back to the following fiscal period due to unforeseen circumstances such as a rebound from rush demand ahead of a consumption tax hike, or construction suspensions caused by natural disasters or infectious diseases, this may affect performance in the relevant period. In addition, in the Solutions Business, since delivery deadlines for work for government agencies are concentrated at the end of the fiscal year, net sales also tend to be concentrated in the fourth quarter of the consolidated fiscal year.

Building Confirmation & Inspection Business and housing performance evaluation services are subject to administrative appeals under the Administrative Appeal Act, and the Group may be subject to litigation regardless of whether it was at fault. If an administrative appeal filed by nearby residents becomes a problem or develops into litigation, this may affect the Group's credibility as a fair and neutral professional third-party institution, regardless of the propriety of the building confirmation performed by the Group. The Group has taken out "Liability Insurance for Building Confirmation & Inspection Institutions and Housing Performance Evaluation Institutions" to prepare for damages arising from the performance of its operations, but risks such as reputational damage from unforeseen litigation remain.

The Group holds a large amount of personal information, including customer information, and if a large-scale information leak or similar incident occurs, this may affect performance through administrative dispositions from regulatory authorities, claims for damages, and damage to social credibility. In response, each company has established information management regulations such as the "Basic Regulations for Protection of Personal Information" and has thoroughly communicated these internally through education and training for officers and employees; however, the Annual Securities Report explicitly states that these measures do not completely eliminate the risk.

The Group utilizes M&A as a measure for business expansion and plans to continue to implement it as necessary in the future. If, after an M&A transaction, business cannot be developed as planned due to the occurrence of contingent liabilities or changes in the business environment, impairment of goodwill or shares in affiliated companies may occur, which may affect the Group's performance. As a countermeasure, the Group conducts detailed prior investigation and consideration of the target company's financial condition, contractual relationships, and other matters, striving to eliminate uncertainty as much as possible; however, M&A based on future forecasts inherently involves uncertainty.