TETSUJIN Holdings, Inc.

In the current consolidated fiscal year, the ratio of dependence on interest-bearing debt stood at a high level of 51.6%, reflecting the Group's reliance on financial institution borrowings to fund capital expenditure and working capital for its wholly directly-operated karaoke room operation business. If future interest rate increases occur or planned fundraising becomes difficult, this could lead to increased interest payments or the suspension of new store openings. In addition, a portion of the borrowings (balance of ¥1,859 million as of the end of August 2025) is subject to financial covenants based on ordinary income/loss and net assets, and there is a risk of acceleration of the loan (loss of the benefit of time) if these covenants are breached.

As of the end of the current consolidated fiscal year, guarantee deposits placed with lessors under lease agreements for operating stores amounted to ¥1,134 million, representing a high ratio of 25.1% to total assets. If these deposits are not returned due to deterioration in the lessors' financial condition or other circumstances on the lessor's side, this could directly impact the Group's business results and financial condition. The concentration risk of these deposits is relatively large compared to the scale of the business, making it a significant financial risk.

The Group has already recorded impairment losses of ¥329 million in the current consolidated fiscal year, applying impairment accounting for fixed assets. If operating income/loss and cash flows of each business deteriorate further, or if market prices of fixed assets decline going forward, additional impairment losses may need to be recorded, which could affect business results. The large balance of fixed assets resulting from the multi-store expansion increases the potential scale of this risk.

Due to the evolution of manufacturer karaoke equipment and changes in the market environment following the COVID-19 pandemic, the expansion strategy in the karaoke room operation business faces difficulties. In response, the Group has shifted toward a diversification strategy encompassing food and beverage, beauty, and other businesses; however, if the market environment for each business deteriorates or customer acquisition does not proceed as planned, the Group's overall business results could be affected. While the transition to a holding company structure aims to achieve sustainable growth for each business, the success of this strategic shift remains uncertain.

The Group is strategically operating "Karaoke no Tetsujin Collabo Mix" stores fully specialized in collaborations with anime, games, and other content; however, since these stores target niche users, there is a risk that customer traffic could decline significantly if the provided content is not well received by core users. In addition, if the Group is unable to obtain licenses to use intellectual property (IP), and the number of popular content offerings falls short of plan, this could affect business operations and results.

Urban properties, mainly in the greater Tokyo and Chukyo (Nagoya) areas, face intense competition from other industries, creating risks of failing to secure properties on desired terms or of delays in store openings. On the other hand, for existing stores, the Group pursues a policy of closure when profitability is not expected due to changes in the surrounding environment (such as relocation of universities or companies, or the opening of competing stores), and the resulting restoration costs, losses on retirement of fixed assets, and impairment losses could put pressure on business results. There is also a risk of store closures or business suspensions arising from external factors such as the intentions of building owners or municipal land readjustment projects.

There is a risk that securing part-time and full-time employees necessary for operating 50 karaoke and food and beverage stores may not proceed as planned due to the worsening labor shortage in society. In the beauty business, hiring licensed hairdressers is essential, and the mass departure of stylists with high customer support would directly affect business results. While the Group is implementing measures to improve retention rates, such as improving evaluation systems, training, and labor management, if these measures do not achieve the expected effects, business operations could be affected.

The Group is required to comply with a wide range of laws and regulations, including the Food Sanitation Act, the Fire Service Act, the Copyright Act, ordinances preventing passive smoking, the Act against Unjustifiable Premiums and Misleading Representations, and the Cosmetologist Act, as well as self-regulation within the karaoke industry (such as the Tokyo Karaoke Box Business Crime Prevention Cooperation Association). If ordinances are revised or newly enacted, or if self-regulation is strengthened going forward, this could result in significant renovation and equipment costs or force store withdrawals. In the event of a violation of laws or self-regulation, there is a risk of serious impact on the Group's reputation and business continuity.

In the entertainment business utilizing design rights, trademark rights, patent rights, and other intellectual property related to anime, games, and other content, there are risks related to rights management, including licenses from third parties. Specific risks identified include damages claims or injunctions due to rights infringement, cancellation of events due to breach of contract or unclear rights ownership, forfeiture of rights due to missed registration renewals, and uncertainty regarding rights protection when expanding overseas. While the Group aims to reduce these risks through strengthening its legal function and thorough contract management, unforeseen events cannot be completely ruled out.

In pursuing new business format development and the promotion of store-format businesses, the Group is considering corporate acquisitions, business acquisitions, and joint ventures. While the Group intends to conduct sufficient due diligence and refer to expert opinions, if there is insufficient synergy with existing businesses, deterioration of the business environment after acquisition, failure to achieve planned revenues, or impairment of goodwill, this could affect business results. In addition, there is a risk of recording valuation losses on shares of affiliated companies if it is determined that recovery is difficult due to the poor performance of each such company.