cotta CO.,LTD

In the Confectionery & Bakery Materials and Beauty-related Products Sales Business, inventory volume and value have tended to increase due to the expansion of private brand products and bulk purchasing aimed at volume discounts. If discrepancies arise in sales analysis or demand forecasting, or if campaign effectiveness is insufficient, excess or insufficient inventory may occur, potentially affecting business results and financial condition. As countermeasures, the Group is thoroughly analyzing sales trends and customer needs, refining sales plans through strategic campaigns, and working to secure warehouse space and improve inventory management efficiency.

In addition to changes in the fee structure for courier delivery services and inefficiencies in picking operations, there is a risk that procurement costs may rise due to crude oil price fluctuations and currency exchange fluctuations, given the significant handling of plastic products and imported goods. If supplier trading companies are unable to absorb such cost increases, this could result in the risk being passed on to the Group or a deterioration in sales conditions due to price increases. The Group continuously reviews and selects optimal procurement sources to address this risk, but direct hedging measures remain limited.

As of the end of the current consolidated fiscal year, interest-bearing debt, including lease obligations, stood at ¥3,974,720 thousand, representing 38.6% of total assets. Depending on future monetary policy trends, rises in market interest rates, or a decline in the Group's credit rating, there is a possibility of increased funding costs and adverse effects on financial condition. The Group strives for smooth repayment based on a reasonable and feasible funding plan, but sensitivity to changes in the external environment remains high.

The Company has continued active group expansion, including making TERAZ Co., Ltd., which operates a System Engineering Service (SES) business, a consolidated subsidiary in October 2024, and the Works Group, which operates a beauty and hair products sales business, a consolidated subsidiary in November 2024. If business progress is unsatisfactory, the business environment changes, business plans do not align as expected, or business management deteriorates, this could affect the Group's overall business results and financial condition. While the Company maintains a policy of thorough management of its subsidiaries' operations, it may acquire additional subsidiaries in the future, raising concerns about an increased management burden.

As the Group's core business is EC sales, information related to procurement, inventory, customer data, orders, payments, shipping, and manufacturing is centrally managed through a core system, meaning that system failures directly result in lost revenue opportunities. If unauthorized external access causes system outages, data tampering, information leaks, or computer virus intrusions, there is no guarantee that cyber risk insurance will cover all resulting damages. While the Group is working to establish backup and recovery systems and strengthen system performance, the high degree of dependence on EC means the scope of risk impact is broad.

The Confectionery & Bakery Materials and Beauty-related Products Sales Business relies primarily on EC orders and sales as its business foundation, making continued expansion of the EC market essential for sustained growth. If changes in social structure or an increase in internet transaction disputes impede the growth of the EC market, this could have a material impact on the Group's business results and financial condition. The Group's policy is to gather information on market trends and respond promptly to changes in circumstances.

The Confectionery & Bakery Materials Sales Business depends on demand related to Christmas, Valentine's Day, cherry blossom viewing, and similar events, leading to a tendency for business performance to be concentrated in the first half of the fiscal year; in the fiscal year ended September 2025, operating profit was heavily skewed at 72.3% in the first half and 27.7% in the second half. There is a risk that a deterioration in second-half performance could directly affect full-year results, warranting careful attention in investment decisions. The Group is working to stabilize annual performance through the expansion of household goods offerings and efforts toward regular/subscription sales, and the consolidation of the Works Group has reduced the first-half concentration compared to before.

With the increase in general individual customers, the volume of customer information and personal information managed by the Group has expanded, and if officers, employees, or others intentionally or maliciously misuse or leak such information outside the company, this could result in loss of credibility and damages claims, affecting business results and financial condition. The Company obtained Privacy Mark certification in September 2008 and actively conducts information management training, and no material problems have occurred to date. Customer information and personal information are also managed within the Human Resources Solutions Business and the Beauty-related Products Sales Business, meaning the scope of managed information is broad.

As of the end of the current consolidated fiscal year, the number of employees was small at 163 (excluding part-time staff, employees on leave, and temporary workers), and the internal management structure is also small in scale. In particular, if system development employees were to resign or take leave within a short period, this could significantly hinder business operations and expansion. In addition, the Group remains highly dependent on founder and Representative Director and Chairman Seiichi Sato, and there is a risk of impact should he become unable to carry out management activities. While the Group is working to mitigate this risk through delegation of authority, promotion of organizational activities, and personnel development, the current level of dependence remains high.

The Group is subject to a wide range of legal regulations, including the Act on Specified Commercial Transactions, the Installment Sales Act, the Personal Information Protection Act, and the Act on Regulation of Transmission of Specified Electronic Mail relating to EC sales, as well as the Food Sanitation Act, the JAS Act, and the Product Liability Act relating to food manufacturing. Strengthening of these regulations or the enactment of new laws could increase business operation costs or force changes to the business model. Subsidiary Petit Papa Co., Ltd. works to strengthen quality control and comply with relevant laws and regulations to ensure food safety, and has also taken out product liability insurance; however, the risk remains that insurance may not fully cover damages in certain cases.