ASAHI CO.,LTD.

In connection with the expansion of directly-operated stores, the Company has deposited leasehold and guarantee deposits totaling ¥5,252,535 million (9.6% of total assets) and construction cooperation funds totaling ¥654,859 million (1.2% of total assets) with lessors, and there is a risk that some or all of these amounts may become unrecoverable due to the lessor's financial insolvency or other events. In addition, early termination of leased properties may result in the payment of penalty fees under the relevant contracts. As countermeasures, the Company regularly monitors the creditworthiness of lessors and works to review deposit amounts and partially recover deposits.

Demand for bicycles and related products peaks in spring, coinciding with the school-entrance and new-employment season, resulting in net sales being weighted toward the first half of the fiscal year (in the current fiscal year: 56.9% in the first half versus 43.1% in the second half). Since fixed costs are roughly evenly distributed between the first and second halves, operating income is extremely concentrated in the first half (in the current fiscal year: 86.8% in the first half versus 13.2% in the second half). This creates a structural risk whereby a deterioration in second-half performance or an unexpected decline in demand could significantly affect full-year results.

Production of private-brand products is mainly outsourced to China, with purchases from such outsourced production reaching ¥18,834,896 million in the current fiscal year (42.9% of total purchases). Changes in China's political, social, or economic environment could cause production disruptions or increased production costs, potentially affecting the Company's financial position and operating results. The Company addresses this by maintaining appropriate pricing through timely model changes, but there remains a risk that the time lag between purchasing and sales could delay price adjustments during certain periods.

The ratio of imported purchases reached 45.3% in the current fiscal year, and foreign exchange fluctuations associated with imports from overseas manufacturers, primarily in China, could affect the Company's financial position and operating results. The Company conducts negotiations on purchase and selling price revisions in parallel, but if exchange rate movements exceed expectations or the timing of forward exchange contracts is inappropriate, it may be difficult to respond adequately. The Company has established foreign exchange forward contract operation guidelines and seeks to mitigate fluctuation risk through forward exchange transactions executed at appropriate timing.

Because franchise stores are independently managed entities, it may be difficult to fully instill the Company's management policies and know-how, and deterioration in a franchisee's business or the occurrence of a serious complaint could damage the credibility of the "Cycle Base Asahi" brand as a whole. In addition, if a dispute between the Company and a franchisee escalates to termination of the franchise agreement or litigation, it could adversely affect business performance and financial position. The Company addresses this by selecting franchisees only after obtaining sufficient understanding of and agreement with its management policies.

As the Company aggressively expands new store openings through directly-operated stores, if it is unable to secure and develop personnel with specialized skills in bicycle assembly, maintenance, and repair quickly enough, this could slow the pace of store openings and lower the quality of customer service, potentially affecting the Company's financial position and operating results. The Company addresses this through agile recruitment throughout the year, support for obtaining public qualifications such as bicycle mechanic and bicycle safety maintenance technician certifications, introduction of an in-house "Meister System," and promotion of part-time employees to full-time staff to secure immediately effective personnel.

If an accident or injury occurs due to a defect in bicycle assembly or maintenance performed at a store, the Company could face claims for damages or compensation. In addition, private-brand products and Louis Garneau brand products are subject to the Product Liability Act (PL Law), and if a product defect occurs, the Company could face not only damages claims but also costs related to product recalls, exchanges, repairs, or design changes, as well as reputational damage. The Company addresses this by setting its own quality standards, with JIS standard compliance as a minimum requirement, mandating quality inspections of samples and finished products, and maintaining product liability insurance.

The Company holds a large number of tangible and intangible fixed assets related to its stores, and if store profitability declines such that book values become unrecoverable, the Company may need to recognize impairment losses, potentially affecting its financial position and operating results. As the Company continues its aggressive new store opening strategy, deterioration in existing store profitability due to intensifying competition or demand fluctuations increases the structural risk of impairment. The Company addresses this by setting store opening criteria according to store format and conducting prior review of investment recovery.

The Company holds customer information through bicycle anti-theft registration, its "Cycle Mate" membership service, and internet mail-order sales, and if information is leaked due to unauthorized access or other causes, this could result in direct damages and a decline in the Company's credibility, potentially affecting its financial position and operating results. The Company addresses this through strict management under its "Personal Information Protection Management Regulations," security measures such as firewalls, and personnel training through in-house education.

If, in the course of planning and developing private-brand products, the Company becomes involved in litigation or other disputes for allegedly infringing on the patents, trademarks, or design rights of other companies, substantial costs could be incurred, potentially affecting the Company's financial position and operating results. Although the Company exercises great care regarding intellectual property infringement during product development, given that private-brand products account for 42.9% of total purchases, the impact of any such dispute could be correspondingly significant.