GENERATION PASS Co.,Ltd

The Group employs an EPO approach that relies on EC malls such as Rakuten Ichiba and Yahoo! Shopping as its primary sales channels, meaning changes in mall operating policies (such as bans on operating multiple stores or increases in sales royalty rates) directly affect business performance. While the Group is diversifying risk by opening stores across multiple malls and operating its own independent sites, a structural dependence on specific malls remains.

The EC market has low barriers to entry, creating a risk of excessive price competition. In addition, if major catalog mail-order companies with extensive product lineups, customer bases, and sales know-how substantially strengthen their internet sales operations, the Group may fail to secure its expected market share, potentially worsening business performance. The Group is seeking differentiation through marketing optimization via EPO, but continuous response to changes in the competitive environment is required.

Product delivery relies on Sagawa Express, Yamato Transport, and others, and the outlook remains uncertain due to labor shortages and rising personnel costs stemming from the logistics industry's "2024 problem." If these carriers request significant increases in shipping fees or reduce business dealings, the resulting cost increases could put pressure on business performance. To diversify risk, the Group strives to maintain good business relationships with each carrier and build relationships with alternative delivery providers.

Many of the products the Group purchases are manufactured in China, Vietnam, and other countries, and in March 2024 the Group established "NEW FIBER LAO SOLE CO.,LTD" in Laos to expand production bases. In addition to geopolitical and social risks in these regions, exchange rate fluctuations affect business performance through changes in purchase prices from manufacturers and wholesalers. In the product planning-related business, transactions denominated in foreign currency are also conducted with Vietnamese suppliers, creating a structure directly exposed to exchange rate movements.

The Group adopts a policy of handling only cosmetics, health foods, and similar products from major manufacturers, and strives to confirm quality by obtaining third-party certification, among other measures; however, the possibility of misrepresentation by manufacturers or producers, or the provision of false information regarding quality, cannot be ruled out. Should such an event occur, it could lead to administrative sanctions, damage claims from consumers, and a decline in external credibility, potentially having a material impact on the business and performance.

The Group is subject to legal regulations such as the Act against Unjustifiable Premiums and Misleading Representations, the Act on Specified Commercial Transactions, and the Pharmaceuticals and Medical Devices Act, and violations of these could damage brand image and reduce customer trust. If regulatory tightening occurs due to legal amendments or new legislation, restrictions on business operations and increased compliance costs could affect performance. The Group addresses this by having relevant business departments thoroughly develop compliance systems and provide employee training.

Through its EC sales operations, the Group holds a large volume of customers' personal information, including names and addresses, and qualifies as a personal information handling business operator under the Personal Information Protection Act. Should an information leak occur, it could result in damage claims and loss of social credibility, affecting the business and performance. The Group strives to strengthen its information management system through access controls, the development of information management regulations, and renewal of its Privacy Mark certification, among other measures.

Nearly all operations, from order receipt, ordering, purchasing, inventory, and shipping to sales, depend on the business management system, and system failures caused by sudden surges in access, computer viruses, malicious sabotage, or application malfunctions could threaten business continuity. Although the Group implements measures such as redundancy systems, firewalls, and virus checks, along with regular maintenance, the impact of a system failure on performance could be significant.

Representative Director Hiroaki Okamoto is the central figure behind the Company's founding and plays a critical role across the full range of business activities, including management policy and strategy, resulting in a high degree of dependence on him. Should he become unable to perform his duties for any reason, this could have a material impact on the business and performance. The Group is working to reduce this dependence by delegating authority to other directors and employees.

Deferred tax assets are expected to be recovered through taxable income generated from operating transactions; however, if business results fall short of plan and doubts arise regarding recoverability, a write-down of deferred tax assets would become necessary. Should such a write-down occur, it could have a direct adverse effect on the Group's financial position and business results.