Happiness and D Co.,Ltd.

Due to the rapid depreciation of the yen and soaring prices since FY2022 (ending August 2022), sales of imported brand products have declined, and the Company has recorded operating losses, ordinary losses, and net losses attributable to owners of the parent continuously since FY2023 (ending August 2023), creating a situation that raises material doubt about the going concern assumption. Cash and deposits at the end of the current fiscal year stood at only ¥689,512 thousand, and the Company has requested and received consent from its financing banks for modified repayment terms on loan principal. As of November 4, 2025, the Company issued stock acquisition rights with exercise price adjustment provisions and unsecured ordinary bonds through a third-party allotment to secure funds; however, the Company has determined that no material uncertainty regarding the going concern assumption exists.

If a significant decline in store profitability occurs or a decision is made to close stores, there is a risk that impairment losses on fixed assets will be recorded. Given the store expansion structure concentrated in suburban shopping centers (SCs), shifts in trade areas or SC closures can be a direct trigger. As countermeasures, the Company is pursuing a shift in its sales policy centered on imported brands, expanding sales of high-profitability merchandise, and improving overall company profitability through headquarters cost reductions.

Sales and profits are heavily weighted toward the year-end period in December, centered on the Christmas season, creating a structural issue where profits are not leveled throughout the fiscal year. If a natural disaster or infectious disease outbreak occurs in December, purchasing behavior could be suppressed, resulting in a significant decline in sales and profits. The Company is working to level out performance through strengthened seasonal product lineups and enhanced assortments of standard profit-generating merchandise.

Changes in supply policies by overseas brands, disruptions in distribution channels, and stagnation of economic activity in producing countries due to natural disasters or infectious disease outbreaks could extremely restrict procurement of imported brand products. High dependence on specific brands poses a risk of a significant decline in sales and profits. As countermeasures, the Company is increasing its private brand pipeline, adjusting the balance between domestic and overseas procurement, and diversifying overseas sourcing countries and regions.

Intensifying competition for talent and an increase in turnover due to an active job market could result in a shortage of personnel needed for store operations. A labor shortage would make store operations more difficult, directly linking to a risk of decreased sales and profits. As countermeasures, the Company is strengthening recruitment and improving retention rates through improved employee treatment, reducing early turnover among new graduate hires through follow-up support, and diversifying recruitment methods.

As of the end of August 2025, interest-bearing debt stood at ¥3,966 million, with the interest-bearing debt ratio to total assets at a high level of 70.2%. If support from financial institutions is not obtained, cash flow could become strained, and rising market interest rates pose a risk of directly impacting performance through increased interest expenses. As countermeasures, the Company is promoting the maintenance and strengthening of relationships with financial institutions, reducing interest-bearing debt through cash flow improvement, and utilizing equity finance.

Since the Group's stores are concentrated in suburban shopping centers (SCs), there is a risk that shifts in trade area centers, changes in customer demographics and needs due to changes in visitors, or SC closures could result in losses from store closures, erosion of sales and profits, and losses associated with the cancellation of lease agreements. As countermeasures, the Company is promoting business format development and securing new businesses through M&A, as well as improving profitability through review of merchandise offerings.

Cyberattacks, human error, natural disasters, and other factors could cause failures in computer systems or communication networks, resulting in the leakage of personal information such as member information, credit card information, purchase history, and employee information. If an information leak occurs, there is a risk of decreased credibility, incurring incident response costs, and damage claims from affected parties. As countermeasures, the Company implements unauthorized access prevention and antivirus measures, establishes various regulations, and ensures proper handling of information media.

Contingent liabilities or unrecognized liabilities may arise after an M&A transaction is completed, and there is a risk that impairment of goodwill and other assets may become necessary if there is a significant shortfall against the business plan. There is also a possibility that investment recovery could become difficult due to a misjudgment of profitability. As countermeasures, the Company conducts detailed due diligence on target companies, monitors its business portfolio, and implements planned post-merger integration (PMI).

Since production bases for national brand and private brand products are located overseas, the Company is directly affected by exchange rate fluctuations and is also exposed to geopolitical and market risks. It is difficult to promptly reflect fluctuations in precious metal prices, a raw material for jewelry and other products, in selling prices, creating a risk that declining perceived value could reduce customer traffic and that reduced consumer sentiment due to soaring prices could pressure sales and profits. As countermeasures, the Company is promoting expansion of its private brand pipeline and launching a new jewelry business.