KOSHIDAKA HOLDINGS Co.,LTD.

If a decline in karaoke usage progresses due to substitution by more attractive entertainment services or the occurrence of social issues within the industry, this could affect the performance of the karaoke business. The Company is promoting investment in content development and other areas under its medium-term management vision "Entertainment as Infrastructure," but if these initiatives are not accepted by customers, a similar risk arises. The karaoke business recorded net sales of ¥61,246 million and segment profit of ¥11,493 million in FY2024 (ended August 2024), and forms the foundation of the Group's earnings.

If an infectious disease such as a new strain of influenza or COVID-19 spreads, the Company's 664 domestic karaoke outlets, hot spring bathing facilities, and other stores, as well as overseas outlets in South Korea, Malaysia, Thailand, and Indonesia, may be forced to temporarily close or shorten operating hours. In FY2021 (ended August 2021), the karaoke segment recorded net sales of ¥19,195 million and a segment loss of ¥6,591 million, demonstrating from past results that the spread of infectious diseases can have a severe impact on the Group's financial position, operating results, and cash flows.

In the real estate management business, the Company conducts sublease operations in which it master-leases buildings and other properties and subleases them to tenants, under contracts that require it to pay a fixed monthly rent to the property owner regardless of tenant occupancy or the amount of rent received. If tenants vacate abruptly or long-term or large-scale vacancies occur, the fixed cost burden could significantly squeeze earnings, potentially causing a material impact on the performance of the real estate management business. The Company strives to reduce vacancy risk through thorough tenant management, but the impact of changes in the external environment cannot be entirely eliminated.

The karaoke business is characterized by seasonal fluctuation, with sales and profit concentrated in the second quarter (December to January), which includes the year-end and New Year bonenkai/shinnenkai (year-end and New Year party) season. In the second quarter of FY2024 (ended August 2024), the karaoke segment recorded net sales of ¥16,883 million and segment profit of ¥4,548 million, accounting for approximately 40% of the full-year profit in that single period, meaning operating performance during this period has a major impact on the Group's overall operating results. If an infectious disease outbreak or natural disaster were to coincide with this period, the impact on annual performance would be particularly significant.

Contracts with financial institutions related to borrowings include financial covenants, and a breach of these covenants could hinder fundraising and adversely affect operating results and financial position. Stable fundraising is essential to continue the multi-store expansion strategy, and a breach of financial covenants during a downturn in performance would heighten liquidity risk. The Company strives to maintain financial discipline, but responding to this risk may become difficult in the event of a sudden change in the external environment.

As the Group's basic strategy is multi-store expansion through leased properties, it conducts impairment testing every fiscal period for store fixed assets, subsidiary shares, monetary claims, and other assets, and impairment losses may be recognized for stores that continue to record operating losses, closed stores, or underperforming subsidiaries. In addition, there is a risk that security deposits and guarantee deposits placed for leased properties may become difficult to recover due to deterioration in the financial condition of property owners. The recognition of such losses directly affects the Group's performance and financial position.

As a customer service business operating multiple stores, securing capable personnel such as store managers and managers responsible for store operations remains an ongoing challenge. If sufficient personnel cannot be secured due to increasingly severe recruitment difficulties or rising staff turnover, this could impair service quality and store operations, potentially affecting the Group's overall performance. The Company has established educational systems for each business and conducts planned recruitment and training activities, but the risk is increasing amid a continuing tight labor market.

Under its policy of "new business formats within existing industries," the Group is promoting business expansion through new business development, M&A, alliances with other companies, and establishment of subsidiaries, but there is a possibility that generating profitability may take longer than initially planned due to numerous uncertainties. If unexpected losses arise from sudden changes in market conditions, or if acquired businesses or subsidiaries underperform, there is a risk of an impact on the Group's overall performance. The Company itself recognizes that there is no guarantee that all management initiatives will achieve results as planned.

In businesses that operate membership systems both domestically and overseas, the Company obtains customers' personal information, requiring compliance not only with Japan's Personal Information Protection Act but also with related laws and regulations in various overseas countries. If an unforeseen incident results in the leakage of personal information to outside parties, this could damage the Company's credibility and lead to claims for damages, potentially affecting performance. The Company follows guidelines to thoroughly conduct internal training and manage the storage of customer information, but it is difficult to completely eliminate external threats such as cyberattacks.

The karaoke and hot spring bathing businesses are subject to regulation under the Food Sanitation Act, and violations such as the occurrence of food poisoning could result in dispositions such as revocation of business licenses, affecting business performance and corporate image. The Company also bears fire prevention obligations under the Fire Service Act and the Building Standards Act, and if a fire results in death or injury, there is a risk of reputational damage and claims for damages. Furthermore, there are risks of stricter new regulations arising from amendments to juvenile welfare ordinances, as well as risks of legal violations related to drinking and smoking by persons under 20 years of age.