OUG Holdings Inc.

Marine products are natural resources, and there is a risk that sharp fluctuations in catch volumes and aquaculture production volumes due to changes in the marine environment, among other factors, could disrupt the supply-demand balance and cause significant changes in market conditions. If this is compounded by sudden changes in consumption trends, discrepancies may arise in sales plans, potentially leading to a decline in net sales and a decrease in profit margins. The Company responds by meticulously collecting and analyzing information on producers, consumers, and market conditions, but complete avoidance of this risk is difficult.

To ensure the safety and quality of handled goods and products, the Company has established a quality control department and strives to improve hygiene management standards and eliminate foreign object contamination at processing departments and outsourced processing partners. However, if an event exceeding expectations occurs, there is a risk that sales and manufacturing activities may be halted and products may need to be recalled or disposed of. This could result in a decline in net sales as well as the incurrence of recall/disposal costs and damage compensation costs, potentially leading to a decline in creditworthiness. Given that the business is primarily focused on food products, the impact on operating results could be substantial.

The Company operates aquaculture businesses for Farmed Yellowtail (Buri), Farmed Tuna, and other species in Kyushu and Shikoku, and is exposed to risks of farmed fish escaping into the ocean or dying due to typhoons, tsunamis, red tides, fish diseases, and other occurrences. Although the Company disperses its aquaculture farms across six locations and takes measures related to facilities, feeding methods, and farming density, a large-scale natural disaster or a fish disease that is difficult to prevent could result in the loss of a large volume of farmed fish. In addition to a decline in net sales, this could result in the recording of inventory valuation losses and disposal losses, which may adversely affect operating results.

As the Company has business locations nationwide, there is a risk that a large-scale natural disaster such as a Nankai Trough earthquake, typhoon, or heavy rain could cause human and physical damage or power outages, disrupting business operations. Although the Company takes measures such as considering disaster risk when selecting locations and ensuring the earthquake and fire resistance of buildings, if multiple events beyond expectations occur simultaneously, this could result in a decline in net sales, facility renovation costs, and disposal losses on inventories of goods and products.

Major consolidated subsidiaries have built nationwide network systems that perform centralized processing at computer centers, and are exposed to risks such as data corruption due to natural disasters, computer virus intrusion, and information leakage due to unauthorized access. Although measures such as infrastructure redundancy, data backup, and enhanced security have been implemented, if a large-scale failure occurs, business continuity could be disrupted due to system outages and a decline in creditworthiness, potentially resulting in a decline in net sales and the incurrence of recovery costs.

Given the business model of procuring marine products from Japan and overseas and selling to domestic and overseas customers, there is a risk that if a pandemic of a serious infectious disease occurs, business operations could be disrupted due to prohibitions on employees working, closures of sales destinations, and suspension of overseas transactions. The Company's major sales destinations include wholesale market intermediate wholesalers, mass retailers, restaurant operators, and lodging operators, and if these industries are broadly affected, net sales could decline significantly. The Company addresses this through thorough infection prevention measures and diversification of procurement and sales routes, but there are limits to what can be done in the face of an event on the scale of a pandemic.

As of the end of March 2026, the consolidated balance of borrowings was ¥22,307 million. If interest rates rise significantly due to sudden changes in economic conditions or other factors, there is a risk that increased interest expenses could adversely affect operating results. The Company addresses this by reducing the absolute amount of borrowings and selecting appropriate financing methods according to the intended use of funds, but in a phase of rapid interest rate increases, it may be forced to scale back or postpone procurement and sales activities and capital expenditures.

The Company is affected by foreign exchange rate fluctuations in the procurement of imported marine products and the sale of exported marine products. If a sudden exchange rate fluctuation occurs, there is a risk that procurement prices and sales prices could fluctuate significantly, disrupting business operations. The Company basically hedges by executing forward foreign exchange contracts for each transaction, but in a phase of rapid fluctuation, complete hedging becomes difficult, and this may adversely affect operating results through a decline in net sales, among other effects.

The Company is subject to a wide range of domestic and international laws and regulations, including the Wholesale Market Act, the Fisheries Act, and the Food Sanitation Act. If a violation of laws or regulations occurs, there is a risk that restrictions such as the suspension of business activities could disrupt the business operations of the entire Group. The Company addresses this through measures such as establishing a quality control department, formulating a Group code of conduct, providing compliance training, and setting up an internal reporting hotline. However, if responses to legal amendments or thorough implementation at the operational level are insufficient, this could result in a decline in net sales and losses related to unlawful acts.

With business locations dispersed nationwide and management operations decentralized, if a serious act of fraud or illegal conduct by an officer or employee occurs, there is a risk that a decline in creditworthiness and business restrictions arising from investigations could disrupt the business operations of the entire Group. The Company has established internal controls such as formulating a Group code of conduct, providing compliance training, and setting up an internal reporting hotline, but if a situation arises in which multiple internal controls fail to function, this could result in a decline in net sales and the recording of losses related to the fraudulent conduct.