EF-ON INC.

The Green Energy Business, the Group's core business, operates power generation businesses based on the FIT system implemented in July 2012. If existing power plants become ineligible for the system due to policy shifts or other factors, or if the procurement purchase price for newly constructed power plants diverges from the original plan, this could have a material impact on the business plan and results of operations. The procurement periods and purchase prices for existing power plants (Hita, Bungo-Ono, Mibu, and Shingu) have already been certified and will not change, but the risk of the system itself being discontinued cannot be ruled out.

Stable operation of woody biomass power plants requires continuous securing of fuel, and the Group is dependent on procurement from fuel manufacturing companies. If supply is disrupted due to unforeseen circumstances such as natural disasters, or if fuel prices remain elevated or rise sharply, this could affect performance through decreased power generation volume and increased procurement costs. Since the fuel is processed from crushed felled timber, waste wood, construction waste wood, and similar materials, diversifying supply sources remains a challenge.

Stabilizing fuel quality is important for the stable operation of woody biomass power plants, and the Group has entered into contracts and agreements with fuel manufacturing companies to manage quality. However, if fuel that does not meet specifications is supplied, or if foreign matter contamination occurs, this could damage power generation equipment and affect performance through shortfalls in planned power generation volume and the occurrence of repair costs. Because the fuel is naturally derived, there are structural limits to achieving uniform quality.

In the Electricity Retail Business, if trading prices on the Japan Electric Power Exchange (JEPX) fluctuate significantly, cash flow could deteriorate due to increased electricity procurement costs. In addition, at the Shirakawa power plant, which has already transitioned to FIP, the premium price is determined by reference to JEPX trading prices, so fluctuations in market prices directly affect electricity sales revenue. The Group hedges a certain amount of price fluctuation risk through electricity futures trading via TOCOM, but the difference between the market price and futures price at the end of the period could affect performance and financial condition.

The Group procures working capital and capital expenditure funds from financial institutions and leasing companies, and as of June 30, 2025, the ratio of interest-bearing debt (borrowings) to total assets stood at a high level of 49.4%. If interest rates rise in the future, this could affect performance and financial condition through increased financial expenses. The high dependence on interest-bearing debt increases financial vulnerability to changes in the financial environment.

Certain subsidiaries have entered into syndicated loan agreements to raise funds for power plant construction, and these agreements include financial covenants. If these covenants are breached due to a deterioration in performance or other factors, the Group could be required to repay the relevant debt in full immediately, posing a risk of a material impact on the Group's financial condition. The stability of earnings from the power generation business is directly linked to maintaining compliance with the loan terms.

The woody biomass power plants and other business facilities owned by the Group could experience disruptions to business operations due to unforeseen circumstances such as natural disasters, human error, terrorism, or fuel supply disruptions. In addition, if forest products are damaged by disasters such as landslides or forest fires in the forestry business's operating areas, this could also affect performance and financial condition. Since equipment damage directly leads to shortfalls in planned power generation volume, the impact on business earnings is significant.

Electricity retailers are obligated to align the supply-demand balance of electricity sold (sales volume and procurement volume), and if a discrepancy arises between the pre-planned figures and the actual supply-demand volume, settlement of the difference (imbalance charges) occurs. In addition, if transactions with general transmission and distribution utilities involve electricity volumes that differ significantly from planned figures, this could also affect performance and financial condition. Improving demand forecast accuracy is key to stabilizing earnings.

Nippon Techno Co., Ltd., the largest shareholder, held 32.58% of the Company's total issued shares as of June 30, 2025, and the exercise of voting rights at general shareholders' meetings could affect the Company's governance. The Company recognizes that a cooperative relationship with this shareholder contributes to enhancing corporate value and states that independence in business operations is ensured, but there remains a latent risk that the intentions of the major shareholder could influence management decisions.

In FIT woody biomass power generation, the unit price of electricity sales varies depending on the mixing ratio of unused wood, general wood, and recycled wood, with the biomass ratio calculated based on heat value, moisture content, purchase volume, and other factors. Because the fuel is naturally derived, these factors are constantly changing, which can cause the gross profit margin to fluctuate in a given period. This is a structural risk that reduces the predictability of earnings.