AINAVO HOLDINGS Co.,Ltd.

The construction industry to which the Group belongs is highly susceptible to business cycle fluctuations and the impact of government economic policies. Since the Group's two core pillars are the construction business and the merchandise sales business for tiles, housing equipment, and HVAC equipment, any delay in responding to market needs could significantly affect its operating results and financial condition. The Group is diversifying through expansion of renovation materials and increased orders in the non-residential market, but the structural risk of market contraction continues.

The Group's performance is directly affected by fluctuations in the number of new housing starts. Concerns exist that a significant decline in housing starts due to the reduction or abolition of the mortgage tax deduction system, increases in consumption tax or long-term interest rates, etc., could adversely affect performance. The Group is addressing this by expanding renovation materials for the stock market and expanding orders in the non-residential market through the expanded handling of wood-frame precut materials, siding, tiles, and other products, but its structural dependence on the housing market remains.

The Group's customers are contractors, general contractors, and homebuilders, and credit management—including the collection management of trade receivables in light of industry practices—is recognized as an important management issue. Although the Group closely monitors industry and market trends and maintains thorough credit management, the occurrence of a large amount of bad debt could significantly affect its operating results and financial condition. Credit risk inherent in the commercial distribution structure peculiar to the construction industry is present.

In the fiscal year ended September 2025, 38.4% of the Group's consolidated merchandise and material purchases were from LIXIL Corporation, indicating a high degree of dependence on a specific supplier. If, for any reason, transactions with this company become impossible, securing alternative suppliers could be difficult, potentially causing a material impact on performance. Disclosure of diversification measures against this supplier concentration risk is limited.

The Group is subject to various laws and regulations, including the Companies Act, the Financial Instruments and Exchange Act, the Corporation Tax Act, the Antimonopoly Act, and the Construction Business Act, as well as domestic and international regulations related to quality, environment, and accounting standards. If future changes in social conditions lead to legal amendments or new regulations, this could result in increased compliance costs or business restrictions, potentially affecting the Group's operating results and financial condition.

The Group owns multiple parcels of land and buildings as business-use real estate. If impairment accounting is applied to fixed assets and impairment losses become necessary, this could affect the Group's operating results and financial condition. Deterioration in real estate market conditions or declining profitability could trigger impairment, but quantitative disclosure of the specific scale of held assets and impairment risk is limited.

In the construction business, the Group estimates total revenue and total cost for each construction contract, and has established and operates internal controls to review estimated costs and construction periods for each project at monthly meetings. However, if unforeseeable additional costs arise due to mid-construction design changes, rework, or sharp increases in raw material prices, resulting in unprofitable construction projects, this could affect performance. Revenue recognition under the percentage-of-completion method and the recording of provisions for construction contract losses involve accounting estimation uncertainty.

If a new infectious disease outbreak, pandemic, or other public health issue occurs in the regions where the Group operates, external conditions such as the real estate market and the number of housing starts could deteriorate, raising concerns about a decline in order volume. Such sudden changes in external conditions could affect the Group's operating results and financial condition, and disclosure of specific countermeasures such as a Business Continuity Plan (BCP) is limited.