FUJITA CORPORATION Co.,Ltd.

Interest-bearing debt stands at ¥2,025,340 thousand (71.9% of total liabilities and net assets), a high level relative to available liquidity, and the Company continues to receive relief on repayment terms from certain financial institutions, giving rise to a material doubt about its ability to continue as a going concern. Although operating income of ¥160,599 thousand and net income of ¥125,115 thousand were recorded, improvement of the financial structure is an urgent priority, and if normalization of relations with financial institutions is not achieved, this could seriously affect the continuity of the business. As countermeasures, the Company is requesting continued relaxation of principal repayment terms on long-term borrowings and implementing company-wide cost reduction activities.

The Food Service & Retail business, which accounts for 89.4% of net sales, depends on franchise agreements with Duskin, Baby Face, Mos Food Services, and others, with "Mister Donut" (46.1% of total net sales) being the largest brand. Breach of franchisee obligations (such as prohibitions on operating similar businesses or leaking know-how) could result in contract termination, damages claims, and suspension of operations, as well as a decline in social credibility that would make it difficult to enter into new franchise agreements. Changes in franchisors' management policies or product strategies may also cause a decrease in the number of customers visiting stores or a decline in average customer spending.

Funds for security deposits, interior fixtures, franchise fees, and other costs associated with new store openings are financed through borrowings from financial institutions, and the interest-bearing debt ratio stood at a high level of 71.9% (interest-bearing debt of ¥2,025,340 thousand) at the end of the consolidated fiscal year under review. Interest expenses for the consolidated fiscal year were ¥49,832 thousand, and there is a risk that the financial burden will increase further in a rising interest rate environment. Although strengthening equity capital is stated as a policy, concrete progress remains limited.

It is explicitly stated that the Food Service & Retail Division and the Manufacturing & Wholesale Division are subject to regulation under the Food Sanitation Act, and that should a food poisoning incident occur, it could seriously affect the Group's business performance. Countermeasures such as compliance with hygiene management manuals, periodic inspections by outside specialist firms, and enrollment in product liability insurance have been implemented, and there has been no record of a major incident to date. Given the nature of the food service industry, food safety risk is ever-present, and the potential for brand damage, administrative sanctions, and liability claims in the event of an incident is significant.

Of the 47 stores in the Food Service & Retail Division, 36 are located in Hokkaido and 11 in Tohoku, concentrating operations in the Kanto region and areas further north, making performance susceptible to changes in regional economic conditions and demographics. More than half of store locations are within shopping centers or other mixed-use facilities, creating a risk that store openings may not proceed as planned due to changes in the surrounding environment or difficulty securing suitable properties. Shortfalls in store openings directly delay sales growth plans and also affect the franchise expansion plans of the Franchisor Business (Katsuten and Ramen Oppeshan).

Of the 47 stores, 44 lease land and/or buildings, with lease and guarantee deposits accounting for 14.2% of total assets. There is a risk that all or part of the security deposits may not be returned if the lessor's financial condition deteriorates, or if a lease is terminated due to unprofitability. In addition, termination of a lease could make it difficult to lease other properties from the same lessor.

Store managers are positioned as "acting presidents" and developed under a policy of taking sufficient time for training, but there is a risk that securing and developing the necessary personnel will not proceed as planned amid the labor shortage in the food service industry. As of the end of the consolidated fiscal year under review, the Company employed 351 temporary staff, and if the expansion of employees' pension insurance coverage to part-time workers is implemented, an increase in insurance premium burden is anticipated. A shortage of personnel could lead to a decline in product and service quality, potentially resulting in a decrease in the number of customers visiting stores.

Issues such as misrepresentation of ingredient origin and rising ingredient prices affect the food service industry as a whole, and if there is a shortage in the supply of safe ingredients or a significant fluctuation in market conditions, it could affect the Group's business performance. A decline in consumer dining-out activity could also lead to a decrease in the number of customers visiting stores. The Group prioritizes food safety and strives to secure a stable supply of ingredients, but its ability to respond to global supply chain risks is limited.

Since the Group's customer base consists mainly of individuals, there is a risk that the number of customers visiting stores may decrease due to changes in weather, trends, or preferences. The regional concentration in Hokkaido and Tohoku makes the business susceptible to the effects of climate variation and tourism trends, and business formats with high seasonality may experience significant fluctuations in sales. Under a restaurant store structure with a high proportion of fixed costs, a decline in the number of customers has a direct and substantial impact on profitability.

If impairment accounting becomes necessary for fixed assets held by the Group, it could affect the Group's business performance. The existence of unprofitable stores or deterioration in sales conditions after store opening could serve as impairment triggers. Under the current financial condition, with interest-bearing debt at a high level, the recognition of impairment losses risks further eroding equity capital and accelerating the deterioration of the Group's financial structure.