SLD Entertainment Inc.

The Company assigns a food hygiene manager to all stores and operates a hygiene management manual in accordance with the Food Sanitation Act; however, if a hygiene problem such as food poisoning occurs, there is a risk that business license revocation, suspension of operations, damage claims from victims, and reputational damage may result. Since the Company's core business is Food & Beverage Service, a suspension of operations would lead directly to a loss of sales, having a significant impact on business continuity.

The Company plans and operates collaboration cafés and sells related merchandise based on agreements with content holders or licensors regarding IP content such as anime, games, manga, idols, and music artists. If the right to use merchandising licenses is suspended for reasons not attributable to the Company, continuation of the relevant collaboration business may become difficult, potentially affecting operating results and financial position. Since the business model is highly dependent on IP content, there is a risk that the circumstances of licensing partners directly affect performance.

Because the food and beverage industry has low barriers to entry and attracts many new entrants, an increase in competitors adopting culture-content concepts similar to the Company's could intensify competition for customers and reduce sales. The Company seeks to differentiate itself through corporate branding strategies such as enriching music and art culture content, curating BGM selections, and holding workshops; however, a decline in planning capability or the development of more competitive content by rivals could lead to a decrease in customer numbers.

While the Company's basic policy is to open stores in central urban areas, the greater metropolitan area, and major regional cities, there is a possibility that properties meeting location and leasing criteria cannot be secured. In addition, there are risks that fixed asset write-offs, penalty fees, and restoration costs associated with format changes or closures of underperforming stores may exceed expectations, and that discrepancies may arise in the store opening plan if staff recruitment and training for new stores fail to keep pace or if the turnover rate rises significantly.

The Company places deposits with landlords when leasing directly operated stores; however, there is a risk that all or part of the deposit may not be returned in the event of the landlord's deteriorating financial condition or early termination of the lease. Furthermore, refusal of contract renewal or early termination due to circumstances on the landlord's side could force unplanned store closures even at stores performing well, affecting operating results and financial position.

The Company procures part of its working capital and store opening funds through borrowings from financial institutions and its parent company; the balance of interest-bearing debt as of the end of the fiscal year ended February 2025 stood at ¥100 million (interest-bearing debt dependence ratio of 9.3%), an improvement from ¥183 million and 17.5% in the previous fiscal year. Since this includes long-term borrowings at variable interest rates, a rise in interest rates could increase funding costs and affect operating results and financial position.

The Company applies impairment accounting with each store treated as an independent cash-generating unit; if profitability declines significantly due to sudden changes in the external environment, or if a decision is made to close a store, an impairment loss may be recognized. As the number of stores increases, the scale of assets exposed to impairment risk also expands, meaning that a downturn in performance could result in a one-time loss that worsens the financial position.

Securing sufficient personnel, both full-time employees and part-time staff, is essential for proactive business expansion, and if recruitment and training do not proceed as planned, business expansion could be constrained. In addition, if labor costs rise due to the expansion of mandatory social insurance enrollment criteria or increases in the minimum wage, this could affect operating results and financial position.

Although the Company is not dependent on any specific ingredient, if poor crop harvests or food safety issues occur due to external factors such as abnormal weather or disasters, there is a possibility that limitations on procurement volume or increases in procurement prices could disrupt the securing of ingredients. Since rising ingredient costs directly affect the profit structure of the Food & Beverage Service business, there is a risk that a decline in profit margins could result if price pass-through is difficult.

If a large-scale natural disaster such as an earthquake or typhoon, or an infectious disease such as a new strain of influenza or COVID-19, occurs or spreads on a scale far exceeding expectations, store operations could be directly or indirectly disrupted, affecting operating results and financial position. While the Company strives to maintain a crisis management framework, its business model, which relies on attracting customers to commercial facilities in central urban areas, is structurally susceptible to the effects of measures such as voluntary restrictions on outings.