JELLY BEANS GROUP Co., Ltd.

The decline in net sales since FY2016 (ending January 2016) has been compounded by the impact of the COVID-19 pandemic, resulting in eight consecutive fiscal periods of operating losses and negative operating cash flow, including the current consolidated fiscal year, and ten consecutive fiscal periods of net losses attributable to owners of the parent (¥242 million in the current period), giving rise to material doubt about the going-concern assumption. Net sales for the current consolidated fiscal year increased 331.8% year on year to ¥3,590 million, but the company recorded an operating loss of ¥33 million. As countermeasures, the company has implemented business domain expansion, cost structure reform, and third-party allotment capital increases (cumulative funds raised of ¥8,006 million), but these have not yet led to a fundamental improvement in profitability.

The Group has repeatedly issued new shares and share warrants through third-party allotments in January 2020, April 2021, April 2022, August 2024, and August 2025, with cumulative funds raised reaching ¥8,006 million. As unexercised share warrants remain outstanding and the Group has stated it will consider further capital increases going forward, the risk of dilution to existing shareholders' ownership interests continues. If financial stability is not achieved, further capital increases may become necessary.

As the company's core products—women's shoes, sports shoes, and ice cream—are highly susceptible to fashion trends and seasonality, changes in fashion trends or abnormal weather such as cool summers or warm winters could cause a divergence between expected demand and actual market needs, potentially affecting business performance and financial condition. As a countermeasure, the company is pursuing diversification of its business operations, building a structure in which deterioration in the performance of any particular brand or business can be offset by other businesses.

The company acquires and holds personal information of general customers through its directly operated retail stores and e-commerce operations. Should an unforeseen event lead to an information leak, it could result in a decline in creditworthiness and claims for damages, potentially affecting business performance and financial condition. While the company has established internal management systems including internal regulations and operational manuals, employee training, and strengthened network security, the risk of unauthorized external intrusion cannot be completely eliminated.

Product procurement depends on direct imports from Chinese and South Korean manufacturers as well as indirect imports through domestic manufacturers. Fluctuations in exchange rates, significant changes in material costs, and changes in the logistics environment could affect business performance and financial condition. In addition, changes in the political systems of China and South Korea or rising labor costs could affect the procurement structure.

When expanding overseas, or if a sales partner independently distributes products outside Japan, use of a trademark may be restricted or prohibited if a third party has already registered the same trademark. This could limit opportunities for brand licensing businesses, and depending on how a third party uses the same trademark, brand value could also be adversely affected.

If a sales partner independently distributes products outside Japan, the Group could be found to have infringed a third party's intellectual property rights, potentially resulting in litigation such as claims for damages or injunctions against use. Should such litigation arise, it could result in response costs and adversely affect business performance and financial condition.

The spread of COVID-19 has historically caused a significant decline in the Group's net sales. Should a similar infectious disease spread or persist in the future, in addition to the impact on consumption from store closures, disruptions to promotional activities and production schedules could also occur, potentially affecting business performance and financial condition.

The Group outsources the manufacturing of shoes and ice cream to external contractors. A sudden termination of contracts by these contractors, or damage to production facilities due to natural disasters, could disrupt the smooth supply of products. Additionally, should complaints regarding product safety arise, costs related to recalling defective products and damages could be incurred, and reputational damage could occur even in the absence of actual defects, potentially affecting business performance.

The Group applies accounting standards related to impairment of fixed assets, and impairment occurred in the current period as well. In the future, significant deterioration in the business environment or other factors could lead to declining profitability or falling market prices, potentially resulting in additional impairment losses that affect financial condition and business results. In the renewable energy business (sales of self-generation equipment fueled by recycled heavy oil), there is also a risk that sales and profit could fluctuate due to delays in business progress or pricing terms with buyers.