GOKURAKUYU HOLDINGS CO.,LTD.

Directly operated stores adopt a leasehold arrangement based on fixed-term land leases, requiring building removal and restoration to original condition upon lease expiration or early termination. Although asset retirement obligations are recorded, additional costs may arise depending on circumstances and affect business performance. This is a structural risk stemming from the business model of not purchasing land.

The establishment and operation of super sento (super public bathhouses) are subject to regulations under laws such as the Public Bathhouse Act, the Food Sanitation Management Act, and the Building Standards Act, as well as local government ordinances and administrative guidance. If operating licenses are not granted or approval is delayed, store opening plans may need to be revised, and legal violations at existing stores could result in administrative sanctions such as business suspension, significantly affecting performance. There is also a risk of cost increases due to tightened regulations.

Water quality management in bathtubs at hot spring bathing facilities is a top priority, and incidents caused by Legionella bacteria have occurred in the past at other companies in the industry. Although employees conduct patrols and water quality inspections every one to two hours, should an incident occur, it could damage the "Gokuraku-yu" and "RAKU SPA" brands and reduce the number of customer visits, and reputation may take a long time to recover even after the lifting of any business suspension.

The company holds fixed assets such as tangible fixed assets and software, and if profitability declines due to changes in the business environment or other factors, making recovery of the invested amount unlikely, the book value must be reduced and an impairment loss recorded. Recording an impairment loss could adversely affect the financial position and operating results.

The syndicated loan agreement entered into by the company includes financial covenants relating to the maintenance of net assets and profit levels. If these covenants are breached, an increase in interest rates or loss of the benefit of time (acceleration) could occur, potentially having a material impact on business performance and cash flow.

Costs related to energy such as electricity rates may fluctuate significantly, and since operating super sento facilities is a business format that consumes large amounts of energy, the impact is significant. Increased energy costs could raise facility maintenance and operating expenses, potentially adversely affecting the financial position and operating results.

Misconduct at an FC franchise store could undermine customer trust in the "Gokuraku-yu" brand as a whole, potentially reducing customer visits across all stores, including directly operated ones. In addition, deterioration in the financial condition of a franchise partner could make it impossible to collect franchise fees and loan receivables.

In providing services to members, the company holds confidential customer information, and implements employee training, thorough confidentiality obligations, and guidance to system maintenance contractors. Should customer information be leaked externally, it could result in damage claims and a decline in customer visits due to loss of trust, adversely affecting business performance.

The company operates as a small-scale organization, and its internal control system remains commensurate with that scale. If the recruitment and development of personnel needed for business expansion does not proceed appropriately, or if existing personnel leave, this could hinder business operations.

In the event of a large-scale natural disaster, there is a risk that securing personnel, goods, and electricity could be affected, disrupting store operations. If lifeline services such as electricity, gas, water, and telephone are disrupted extensively and for a prolonged period, business performance could be affected through shortened operating hours or store closures. The company seeks to mitigate the impact on performance by taking necessary insurance measures.