CHIMNEY CO., LTD.

If issues arise regarding the safety of ingredients used or hygiene-related incidents occur at stores, this could materially affect operating results and financial condition. In addition, unstable procurement of ingredients, materials, and consumables, or sharp increases in raw material prices, may occur due to poor weather, natural disasters, infectious diseases, exchange rate fluctuations, or crude oil price movements. Although the Company implements measures such as thorough quality control and temperature management at distribution centers, the impact of such external factors cannot be entirely eliminated.

Securing excellent personnel is essential for business expansion, but if changes in the recruitment environment prevent the Company from attracting the necessary personnel, or if the training of hired personnel fails to reach an adequate level, this could hinder store opening plans and store operations. Under a labor structure in which part-time and temporary staff account for approximately 70.7% of employees, and foreign nationals account for approximately 7.0%, changes in the labor market or amendments to laws and regulations directly affect personnel acquisition. The Company continues to work on strengthening its recruitment framework and enhancing its training system.

As the Company operates stores only within Japan, it is directly affected by domestic economic fluctuations and government economic policy. In recent years, sluggish personal consumption—caused by rising prices without accompanying wage growth—combined with increases in raw material costs, labor costs, utility costs, and construction costs, may put pressure on earnings. If these cost increases cannot be passed on through pricing, this will affect operating results and financial condition.

Competition is intensifying with restaurant companies in other industries, independently operated restaurants, and the prepared meals (nakashoku) market, and customers are becoming more discerning in their choices. Amid a shrinking izakaya (Japanese-style pub) market, there is a risk of losing competitive advantage relative to rivals if the Company fails to grasp and respond to customer preferences in a timely and accurate manner. The Company is working to develop and strengthen formats catering to "dining demand" and "family use," as well as specialized formats, but delayed responses could affect operating results.

There is a risk that receivables such as royalties and ingredient purchase payments may become uncollectible due to sudden accidents involving FC (franchise) owners. In addition, if the number of FC stores declines sharply due to the shrinking izakaya market or deteriorating performance of FC stores, royalty income and ingredient sales would decrease, affecting operating results. While individual management based on FC management regulations helps curb the emergence of new non-performing receivables, the impact of external factors cannot be eliminated.

For fixed assets such as interior fixtures and kitchen equipment at directly operated stores, there is a risk that impairment losses will be recognized if store operating profit/loss deteriorates significantly. In addition, for goodwill recorded in connection with the MBO and organizational restructuring, impairment losses may be recognized if the assessed value falls significantly below book value. The recognition of such impairment losses would directly affect operating results and financial condition.

The Company's basic store opening format is leasing, and as of the end of the current consolidated fiscal year, it had placed ¥3,174 million in security and guarantee deposits with property owners. In the event of store closures, there is a possibility that such deposits may become uncollectible depending on the financial condition of the property owner, which would affect operating results and financial condition. Although the Company conducts credit checks on property owners at the time of contract, the risk of future financial deterioration cannot be entirely eliminated.

The Company is subject to a wide range of laws and regulations, including the Food Sanitation Act, the Act on Control and Improvement of Amusement Business, the Immigration Control Act, the Food Recycling Act, and the amended Health Promotion Act, and violations could result in administrative penalties such as business suspension or loss of reputation. In particular, the complete smoking ban under the amended Health Promotion Act may cause customers to shift to stores exempt from the regulation, given the high smoking rate in the izakaya format. The Company has established a compliance framework centered on its General Affairs Department and continuously consults with its retained legal counsel, but responding to legal amendments may also entail additional costs.

If a large-scale earthquake, typhoon, or other natural disaster occurs in the Kanto region or other major urban areas where stores are concentrated, this could lead to a decrease in customer traffic and difficulty conducting normal business activities. In addition, if a novel infectious disease pandemic leads to voluntary restrictions on outings or movement restrictions, this could result in decreased sales, deteriorating profitability, and the recognition of impairment losses on fixed assets and goodwill. The structure of procuring seafood from fishing ports across the country is also susceptible to the effects of natural disasters.

Yamaya Corporation, the parent company, holds 50.53% of the Company's total issued shares, and the total transaction value with the Yamaya Group reached ¥686 million in the 18th fiscal period. The Yamaya Group also includes Tsubohachi Co., Ltd., which operates in the same restaurant business, giving rise to the possibility of conflicts of interest. If there is a significant change in the parent company's shareholding ratio or a change in the Yamaya Group's business strategy in the future, this could affect the operating results and financial condition of the Company's group.