kaihan co.,Ltd.

On a non-consolidated basis, the company has recorded operating losses, ordinary losses, and net losses continuously since FY2019 (ended March 2019), and on a consolidated basis since FY2023 (ended March 2023). In the fiscal year under review, it recorded an operating loss of ¥1,438,401 thousand, an ordinary loss of ¥1,591,004 thousand, and a net loss attributable to owners of the parent of ¥5,135,249 thousand. The company is in breach of financial covenants on borrowings from certain financial institutions, giving rise to material doubt about its ability to continue as a going concern. As countermeasures, the company has raised funds through third-party allotment of new shares, stock acquisition rights, and unsecured corporate bonds, but material uncertainty remains at this time.

As of March 31, 2026, against total assets of ¥5,016,866 thousand, the balance of interest-bearing debt stood at ¥2,780,964 thousand, a high dependency ratio of 55.4% of total assets. The company's policy for future fundraising related to new store openings and other initiatives is to rely mainly on borrowings from financial institutions and leases, and in a rising interest rate environment, financial expenses may increase, adversely affecting business performance. The company states it will strive to maintain an appropriate level of interest-bearing debt while comprehensively considering economic conditions, interest rate trends, and financial balance.

The food service industry's business environment is undergoing significant change due to economic trends, population decline, growth of the ready-to-eat (home meal replacement) market, changes in consumer behavior due to infectious disease, and soaring energy and raw material prices. The izakaya (Japanese pub) industry has low barriers to entry, and stagnant real wages and declining alcohol consumption among younger generations have intensified competition, creating a risk that existing store sales may decline due to an increase in competing stores with similar concepts. The Group is seeking to differentiate itself through advantages in food procurement, brand development, service improvement, menu changes, and interior/exterior renovations.

A high proportion of the Group's stores are located in the Tokai region (Aichi, Gifu, and Mie Prefectures). If region-specific changes in economic conditions or natural disasters (earthquakes, typhoons, etc.) occur, difficulties in customer visits and procurement could arise across multiple stores, resulting in a broad decline in sales and profit. Depending on the extent of damage, significant costs such as repair expenses and disposal losses could also be incurred. The Group's dominant-area store opening strategy structurally reinforces this geographic concentration.

The Medical business (BOBS Co., Ltd. and Kaihan Medical Co., Ltd.), consolidated as subsidiaries in August 2024, operates as an MS (medical service) corporation contracted by Iryo Hojin Daibikai to provide consulting services for its beauty clinics. In the fiscal year under review, Daibikai accounted for approximately 70% of Medical business revenue. Changes in Daibikai's management strategy or business trends could directly affect the Group's financial condition and operating results. No specific measures for diversifying clients have been disclosed at this time.

The Group's renewable energy business depends on the Feed-in Tariff (FIT) system for electricity, and if national energy policy changes result in a reduction of the purchase price or a shortening of the purchase period, electricity sales revenue could decrease, affecting business performance. In addition, since the power generation output of solar power plants is affected by weather conditions (hours of sunshine), an increase in cloudy or rainy days due to climate change could directly lead to a decrease in electricity sales revenue. The Group is seeking to diversify its revenue sources through participation in a hydroelectric power business in Nepal (total planned generation capacity of 281.4 MW).

The Group is expanding overseas business activities, including a hydroelectric power business in Nepal (through the wholly-owned subsidiary NEPAL HYDRO POWER HOLDINGS). If unforeseen circumstances arise, such as changes in the political, economic, or social conditions of the countries or regions where the Group operates, or legal amendments due to changes in government, this could disrupt transaction terms and business continuity, affecting business performance. The business also carries risks specific to emerging markets, such as legal systems, infrastructure, and foreign exchange, making the development of risk management systems a challenge.

While the Group's policy is to continuously develop new businesses and expand its store network, labor shortages in the food service industry and tightening labor regulations (such as overtime caps and equal pay for equal work) create a risk that securing capable personnel will become difficult and labor costs will rise. If the Group is unable to sufficiently secure and develop human resources, it could lead to a decline in service standards, reduced customer draw, delays in planned store openings, and delays in new business development, affecting operating results and financial condition. Although the Group provides internal and external employee training, there is also a risk of employee misconduct due to insufficient training.

While the Group complies with the Food Sanitation Act and has appointed food hygiene managers at each store, it cannot completely eliminate the risk of food poisoning occurring in its multi-store food service business. Should an infectious disease or similar incident caused by food or beverages occur, it could result in business suspension, damages claims, and damage to brand image, potentially having a material impact on business performance. Although the Group conducts routine checks and internal audits with guidance for improvement, ensuring thorough management across multiple stores remains an ongoing challenge.

The Group operates "Shinjidai" as a franchisee of Fads Co., Ltd., and the proportion of procurement accounted for by purchases from Fads through its supply arrangement is high. If any disruption occurs in the procurement relationship with Fads, food ingredient procurement could be disrupted until a transition to alternative suppliers is completed, potentially affecting business performance. Specific disclosure regarding the status of securing alternative suppliers or the length of any transition period has not been provided, and quantitative information on the degree of dependence is also limited.