PEPPER FOOD SERVICE CO.,LTD.

As a restaurant operator, the company is subject to regulation under the Food Sanitation Act, and if food poisoning or similar incidents occur at directly operated, consigned, or FC stores, business license revocation or suspension orders could be issued, potentially causing a material impact on business performance. While the company conducts regular inspections and microbiological testing in compliance with ISO9001 and HACCP, and provides guidance on compliance with temperature control and sanitation management manuals, the risk of a violation occurring cannot be eliminated.

The core business, Ikinari! Steak, depends on beef as a single ingredient, and approximately 70% of food supply is sourced from a single food supplier. There is a risk that difficulty in securing raw materials due to disease, adverse weather, or natural disasters, or a spike in procurement prices due to exchange rate or market price fluctuations, could push up cost of sales. While measures such as developing new production areas and diversifying procurement are being pursued, a disruption in supply could adversely affect the entire business.

While inbound demand has shown signs of recovery, labor shortages, rising raw material prices, and yen depreciation remain ongoing challenges. Social issues such as natural disasters, infectious diseases, and BSE, as well as changes in consumer preferences and food poisoning risks, could affect business performance. The company is responding through cost reductions via DX, brand awareness improvement, and new business format development, but there are limits to responding to sudden changes in the external environment.

Ikinari! Steak seeks to enhance brand value through multi-store expansion of a single business format, but full-scale competition from competitors operating similar businesses could affect business performance. There is also a risk of patent imitation due to the disclosure of patent information, and the advantage of the unique in-store system may be diminished if other companies develop similar equipment. There is also a risk of trademark infringement, and if a cease-and-desist order or damages claim occurs, business performance could be affected.

IT systems serve as a critical infrastructure for store operations, ordering, sales, attendance management, and accounting operations. If systems fail to operate normally due to cyberattacks including ransomware, system or network failures, issues caused by outsourced vendors, power outages, or communication failures, this could result in business disruption, interruption of store services, and substantial recovery costs, potentially affecting business performance and financial condition.

If education and operational guidance for FC franchise contract holders is insufficient, brand value impairment may occur due to declines in safety, hygiene, quality, or service. In addition, if an FC franchisee defaults, this could affect the collection of receivables such as trade receivables for ingredients, royalties, and loans. Business performance could also be affected if new FC franchise stores do not increase as planned or if franchise agreements are terminated.

With FC business expansion as a core pillar of the business, securing and developing personnel, particularly supervisors responsible for providing operational guidance to FC stores, is an important challenge. While the company utilizes recruitment advertising, staffing agencies, and its own personnel development system, if it is unable to secure sufficient personnel or if development does not proceed as planned, management of FC franchise stores may become inadequate, potentially affecting the business.

Although the company has established a Personal Information Protection Policy and Personal Information Management Regulations to promote leak prevention, if personal information is leaked due to issues in internal management systems or unauthorized external intrusion, this could affect business performance through loss of trust and damages claims.

As of December 31, 2025, the company operates 12 overseas FC stores and plans further overseas expansion including in Southeast Asia, such as the Philippines, and China. If country-specific risks (such as disease, infectious disease, political instability, economic fluctuations, laws and regulations, business customs, and exchange rate fluctuations) materialize, business performance could be affected.

At the Board of Directors meeting held on December 8, 2022, the company resolved to issue stock acquisition rights with exercise price adjustment provisions through a third-party allotment to allottees including Inflection II Investment Limited Partnership. If these stock acquisition rights are exercised, new shares will be issued, potentially diluting the value of shares held by existing shareholders and their voting ratio.