MEIHO ENTERPRISE Co.,Ltd.

Changes in economic conditions, such as economic downturn, significant interest rate increases, or declines in sales prices due to large-scale new supply, may reduce customers' purchasing intent and affect the Group's business performance. Similarly, such changes in economic conditions may also be a factor affecting fluctuations in the purchase price of business land, entailing the risk that land acquisition may not proceed as planned. The Group strives to avoid the occurrence of such risks and, in the event they materialize, aims to minimize their impact.

In the real estate development business, building construction is carried out based on construction contracts with contractors. If procurement costs for materials and parts or labor costs surge due to domestic or overseas economic conditions, this could lead to an increase in the Group's construction costs and affect business performance. If cost increases cannot be passed through to sales prices, this becomes a factor pressuring profit margins. The Group has a policy of minimizing the impact should such risks materialize.

The Group primarily funds its real estate development business through borrowings from financial institutions, and its reliance on interest-bearing debt is at a high level of 54.7% for FY2025 (ending July 2025) (interest-bearing debt balance of ¥15,929,460 thousand, total assets of ¥29,099,099 thousand). If current interest rate levels fluctuate significantly, this may affect business performance and financial condition due to increased interest payments, among other factors. The reliance on interest-bearing debt has decreased from 60.2% in FY2024 (ending July 2024) to 54.7% in FY2025 (ending July 2025).

In the real estate development business, since sales revenue is recognized at the time of delivery to customers, deliveries tend to concentrate in February to March, a period with high relocation and moving demand, resulting in a tendency for revenue recognition to be skewed toward the second half of the fiscal year. If delivery timing is delayed beyond the fiscal year-end due to unforeseen events such as natural disasters, or if properties planned for completion and delivery near the fiscal year-end are pushed into the following fiscal year, this could have a material impact on that period's business performance. The Group has a policy of minimizing the impact should such risks materialize.

If defects or deficiencies arising from design or construction issues occur within a certain period after building completion, costs such as damages, including indirect damages, may arise and affect business performance. The Group has established its own "Standard Specifications," "Quality Control Standards," and "After-Sales Service Standards," and strives to build high-quality housing by inspecting and confirming key points at each stage from the design phase through completion. However, these measures cannot completely eliminate the risk.

Under Accounting Standards Board Statement No. 9, "Accounting Standard for Measurement of Inventories," if the fair value (net realizable value) of inventories held at fiscal year-end falls below their acquisition cost, the difference must be recognized as an expense in cost of sales. If inventories with fair value below acquisition cost arise due to economic fluctuations or deterioration in the real estate market, this may affect the Group's business performance. Given that the Group is primarily engaged in the real estate development business, the scale of its inventories is large, and the impact of this risk could be correspondingly significant.

Real estate transactions are subject to legal regulations such as the Building Lots and Buildings Transaction Business Act, the National Land Use Planning Act, the Building Standards Act, the City Planning Act, and the Real Estate Specified Joint Enterprise Act, and the Group, as a licensed real estate transaction business operator, is subject to these regulations. If these legal regulations are amended or abolished, or new legal regulations are established in the future, this could affect the Group's business operations. The Group has obtained a license under the Building Lots and Buildings Transaction Business Act and conducts its business lawfully.

If natural disasters such as earthquakes, storms, or floods, or man-made disasters such as war, terrorism, or fire occur, the value of real estate owned by the Group may decline significantly, affecting business performance. The real estate held by the Group is concentrated in the Tokyo metropolitan area, and if a large-scale disaster occurs in this region or the metropolitan economy deteriorates, there is a risk that the impact due to this regional concentration will be particularly significant. Given the limited geographic diversification, the Group's structure is highly sensitive to risks specific to the Tokyo metropolitan area.

If the spread of infectious diseases such as COVID-19 forces the closure of business locations or necessitates working from home, it may become difficult to secure the personnel necessary for business continuity, hindering sales activities and reducing productivity, thereby affecting business performance. The Group has established response policies related to infectious diseases and strives to prevent infection, but depending on the scale and nature of the spread, these measures may not function sufficiently. At present, economic activity across society as a whole is on a recovery trend amid the relaxation and lifting of various restrictions.

Representative Director Mitsuru Yabuki plays an important role in determining management policies and strategies, and if he becomes unable to perform his duties for any reason, this could affect business promotion and performance. In addition, as the largest shareholder, he holds a 44.82% shareholding ratio, and since there are no restrictions on the sale of shares under the Articles of Incorporation, depending on the circumstances of any sale, this could have a material impact on the supply-demand balance of shares and the market price. The Company is working to establish a management structure that is not excessively dependent on him through information sharing and delegation of authority at the Board of Directors and other bodies.