R.C.CORE CO.,LTD.

The Company has recorded operating losses for six consecutive fiscal years, and early recovery in business performance is recognized as an important issue. Although working capital has been secured through the April 2023 sale of the Daikanyama asset, urgent action is needed to break free from the chronic loss-making structure, requiring steady conversion of the order backlog into sales and execution of management strategy. The Company has determined that there is no material uncertainty regarding the going concern assumption, but this remains a risk that investors should monitor closely.

The Group's earnings are highly dependent on the BESS Business (nature-oriented individualistic housing such as log houses), and although new businesses such as the Specialty Construction Business are also being developed, the majority of management resources are currently allocated to the BESS Business. If competition with conventional housing intensifies or the market environment changes rapidly, this could hinder sales expansion and have a material impact on business performance and financial condition. Although the Company emphasizes the universality of its business concept, the structural risk of dependence on a single business remains.

Regional sales companies operating under franchise agreements—17 companies with 29 locations nationwide (24.6% of consolidated net sales in FY2026 (ending March 2026))—face risks whereby deterioration of local economies, infectious diseases, natural disasters, etc. could cause business downturns at these regional sales companies, leading to decreased sales for the Group, bad debt losses, and damage to brand image. In addition, the Company implements support measures involving the bulk transfer of BESS LOGWAY exhibition hall packages with installment collection of proceeds, and there is a risk of delayed collection or bad debt with respect to such proceeds. There is also an inherent risk of brand damage arising from improper brand use or misconduct by regional sales companies.

From April 2025, compliance with energy efficiency standards will be mandatory for all buildings, and because log houses, due to the characteristics of log construction methods, do not use insulation material on exterior walls, the method of compliance with the standards may affect design, pricing, and the regions in which the product can be offered. The Company is proceeding with responses such as product improvements, but there are concerns about the impact on cost increases and product competitiveness. Depending on future trends in regulatory tightening, additional responses may become necessary.

If sharp increases in the prices of construction materials including lumber, exchange rate fluctuations, or procurement difficulties arising from abnormal weather, terrorism, war, epidemics, etc. occur, this could affect business performance through increased procurement costs. With respect to components directly imported from Europe (approximately 600,000 euros annually), there are also risks of exchange rate fluctuations arising from euro-denominated settlement, as well as risks of increased transportation costs and delays associated with maritime shipping. Should the yen's depreciation against the euro persist over the long term, or should sharp exchange rate fluctuations occur at fiscal year-end, an impact on financial condition is also anticipated.

BESS products, which use natural wood for exterior walls, are limited in the regions where construction is permitted due to fire prevention regulations; although the Company has already completed measures to enable construction in semi-fire-prevention districts, future tightening of regulations could further limit the regions where construction is possible. Tightening of regulations through amendments to the Building Standards Act concerning structure, energy efficiency, and building confirmation procedures poses risks of necessitating product specification changes, incurring response costs, increasing construction costs, and extending review periods. These factors may affect the Group's business performance and financial condition.

The Company provides defect warranties of up to 60 years (the BESS Comprehensive Peace-of-Mind Warranty System), and if the number of complaints and warranty repair work increases along with an increase in the number of units delivered, this could affect business performance and financial condition. If design or construction defects occur and give rise to significant complaints, there is a risk of reputational decline. Although the Company is working to thoroughly enforce quality control systems including at subcontractors, the risk of construction defects arising from inadequate enforcement of rules cannot be eliminated.

The Group and its regional sales companies hold and share personal information of LOGWAY visitors and other confidential information such as BESS operational know-how and sales information, and there is a risk of information leakage due to cyberattacks, unauthorized access, ransomware damage, human error, etc. Should an information leakage occur, this could result in liability for damages, administrative sanctions, response costs, business disruption, and loss of trust. Although the Company has established internal regulations, access authority management, employee training, and system security measures, there remains an inherent risk of inadequate management at regional sales companies and outsourcing partners.

Since the Company's primary customers are individual consumers, it may be affected by declines in personal consumption resulting from worsening employment conditions, fluctuations in land prices, rising interest rates, changes in housing-related tax systems, natural disasters, and outbreaks of epidemic disease. Rising mortgage interest rates directly affect customers' purchasing intent and financing capacity, posing a risk of declining orders and sales. These changes in the external environment may affect the Group's business performance and financial condition.

If inappropriate labor management practices such as excessive workload or harassment occur, this could result in loss of social credibility due to legal violations and risk of claims for damages. Although the Company has established safety rules and guidance systems covering occupational accidents involving subcontractors engaged in construction work, should a serious accident occur, this could affect business performance and financial condition through loss of credibility, compensation to victims, and damages arising from construction delays. The Company addresses this through attendance and health management systems, but the difficulty of managing subcontractors remains a residual risk.