AIZAWA SECURITIES GROUP CO., LTD.

The Group's core business is premised on registration under the Financial Instruments and Exchange Act (Director-General of the Kanto Local Finance Bureau (Financial Instruments) No. 3283), and if a violation of laws and regulations is found, the Group may be subject to registration revocation, business suspension, or improvement orders. Although the Group currently believes there are no facts constituting grounds for revocation, revocation of registration would cause serious disruption to its core business activities. Failure to meet capital adequacy ratio requirements (obligation to maintain 120% or higher) could also trigger business suspension or registration revocation.

If trading volume and value in the secondary market contract due to a decline or stagnation in stock and bond prices, or if plans in the primary market are postponed or cancelled, brokerage commission income may decrease, potentially affecting operating results and financial condition. Since securities companies' earnings are directly linked to market conditions, a significant decline in earnings is anticipated during periods of market stagnation.

The Group conducts proprietary trading, and fluctuations in market prices such as stock prices, bond prices, interest rates, and foreign exchange rates may directly affect operating results and financial condition. Because the Group holds positions that inherently carry market risk, unexpected losses may arise during periods of sharp market fluctuations.

The competitive environment surrounding the industry has become increasingly severe year by year due to the liberalization of brokerage commissions, new entrants from other industries following deregulation, the rise of online-only brokers, and the lifting of the ban on financial instruments intermediary services by banks. If competitiveness declines, both the customer base and earnings may be adversely affected.

Margin trading involves extending credit to customers, and if the value of pledged securities declines due to a sudden change in stock market conditions, the Group may be unable to fully recover loans even after disposing of substitute securities from customers who do not respond to additional margin calls. Similar risks exist in futures and options transactions (short positions), and any resulting uncollectible amounts would directly affect operating results and financial condition.

Future changes to the Financial Instruments and Exchange Act, as well as laws, regulations, business practices, and interpretations by self-regulatory organizations such as financial instruments exchanges and the Japan Securities Dealers Association, may affect the Group's business operations and earnings structure. Tightened regulation could lead to increased compliance costs and restrictions on the scope of business.

Although the Group has established internal controls and conducts compliance training, it cannot guarantee the complete elimination of intentional illegal acts by officers and employees or the misuse or leakage of non-public information. If illegal acts are discovered, the Group may face claims for damages, sanctions from regulatory authorities, and loss of social credibility, which could have a material impact on operating results and financial condition.

If the internet trading system or internal computer systems experience failures due to line malfunctions, unauthorized external access, disasters, power outages, or similar causes, business continuity may be disrupted, potentially affecting operating results and financial condition. Similarly, unauthorized leakage of important internal information, including customer information, could have a similar impact. The Group has responded by establishing a Risk Management Committee and formulating information security management regulations, but complete prevention is difficult.

Due to the nature of the securities business, the Group must flexibly and stably procure large amounts of funds for its day-to-day operations, and addresses this through long- and short-term borrowings, committed credit lines, and diversification of funding sources. However, a deterioration in economic conditions or in the Group's financial condition could make it difficult to raise funds from financial and capital markets, or could raise funding costs.

Aizawa Securities' branch network is concentrated in the greater Tokyo area, Tokai, and Kansai regions, which are areas with a high frequency of earthquakes, making it vulnerable to damage. If a large-scale earthquake, tsunami, typhoon, or other natural disaster, or a terrorist attack, computer virus, or similar event causes physical damage to financial infrastructure, harm to employees, or damage to customers, it could adversely affect operating results.