Star seeds Co., Ltd.

In the current fiscal year, the company recorded an operating loss of ¥282 million, and due to continued operating losses and negative consolidated operating cash flow, there exist events that raise material doubt about the company's ability to continue as a going concern. Cash and deposits at the end of the current fiscal year stood at only ¥281 million, raising concerns about tight cash flow. The company has cited measures to improve business revenue (leveraging SNS and entering new businesses) and securing funds through the unexercised balance of stock acquisition rights issued in March 2024 (43,180 units, 4,318,000 shares) as countermeasures, but has determined that no material uncertainty exists.

Fashion products such as apparel and accessories are susceptible to changes in consumer preferences due to sluggish personal consumption from economic fluctuations, competition with other companies, and shifting fashion trends, creating a risk that initially planned sales may not be achieved. In particular, sudden trend shifts can lead to inventory obsolescence and discount sales, potentially significantly impairing profitability. The company has not disclosed specific countermeasures, and this is recognized as a structural risk.

Sales of fashion products such as apparel and accessories tend to fluctuate depending on weather conditions, and if unpredictable weather anomalies such as cool summers, warm winters, or typhoons occur, performance during peak seasons may stagnate. The company addresses this by shortening the product introduction cycle, but given the increasing frequency of abnormal weather, the impact cannot be ruled out. For the company, which has a highly seasonal product mix, the loss of sales opportunities in a specific season is a risk directly linked to annual performance.

The Group is actively engaged in business format development and brand development, but if the market environment changes rapidly, there is a risk that initially planned sales may not be achieved. Although the company states that it conducts sufficient research and investigation, if the return on investment in new business formats is delayed or falls short, it could further worsen the financial condition. In particular, expansion into areas different from existing businesses, such as entry into the Grid-Connected Battery Storage Business and the consolidation of MF6 as a subsidiary, carries elevated risk.

If a supplier's capacity to supply goods significantly decreases due to credit concerns, deteriorating business environment, business failure, or other factors, delays in the delivery of goods to the Group could occur, potentially resulting in losses such as decreased sales. The company is strengthening its internal systems to assess supplier creditworthiness, but if there is high dependence on small and medium-sized suppliers with weak financial foundations, there is a risk that securing alternative procurement sources may become difficult.

As all stores are leased properties, security deposits have been paid to landlords, but there is a risk that part or all of the security deposits may become unrecoverable in the event of the landlord's bankruptcy or other issues during the contract period. Additionally, in cases where sales proceeds are held by the landlord for a certain period under contract, there is a possibility that a portion of the sales proceeds may become unrecoverable due to deterioration in the landlord's financial condition. In a retail format with a large number of stores, the financial impact of multiple landlord risks materializing simultaneously cannot be ignored.

The Group obtains personal information from customers, and if such personal information is leaked for any reason, it could damage trust and affect business performance. Although measures such as thorough employee training have been implemented, the risk of information leakage due to cyberattacks or internal misconduct cannot be completely eliminated. If administrative penalties or damage claims arise from violations of the Personal Information Protection Act, it would deal a blow both financially and to the brand.

If the pace of new store openings slows due to changes in the opening plans of prospective shopping centers, or if the performance of newly opened stores diverges from planned figures, this could affect business performance. There is a risk that one-time costs such as losses on disposal of fixed assets or impairment losses may arise at the time of store closures, and given the current situation of continued operating losses, additional loss recognition could further strain the company's finances. Furthermore, in fixed-term building lease agreements, if the counterparty does not wish to renew the contract upon expiration, maintaining the store network may become difficult.

The Group employs a large number of temporary employees, who account for a high proportion of its workforce, and if costs related to temporary employees increase due to legal amendments or changes in employment conditions, this could affect business performance. Increases in the minimum wage and strengthened regulations related to equal pay for equal work could become structural factors driving up labor cost. Given that the company is already recording operating losses, there is a heightened risk that rising labor costs will become an obstacle to earnings improvement.

The Group plans to transition to a holding company structure, which will require changes to the management structure and restructuring of business processes associated with group reorganization. During the transition period, there is a possibility of increased administrative costs and more complex decision-making processes, and establishing a group management structure that includes new consolidated subsidiaries such as MF6 will be a challenge. Large-scale organizational restructuring at a time when material doubt about going concern has arisen carries the risk of dispersing management resources.