BALNIBARBI Co.,Ltd.

New store openings require a preparation period of more than one year, so if opening delays or cancellations occur, the assumptions underlying the annual budget are undermined, directly affecting business performance. Additionally, in periods when multiple stores open simultaneously, opening costs such as advertising expenses, personnel expenses, and supply expenses are recorded in advance, creating a risk of short-term losses. In response, the Company conducts individual progress management and appropriate cost review at Board of Directors and management meetings.

Personnel expenses and other expenses each account for approximately 30% of net sales, and personnel expenses continue to rise due to minimum wage increases and social pressure for wage hikes. In addition, increases in settlement fees associated with the shift to cashless payments and increases in reservation site and system usage fees are putting pressure on store profits. The Company addresses this through monthly profit and loss management by store, productivity improvements through the use of mobile ordering, and expansion of bonus allocations, but cost increase pressure remains an ongoing risk.

In the Estate Build-Up Business, substantial investments are made at each stage of land acquisition, development, and construction, and a certain number of years are required for recovery. Various factors such as changes in real estate demand, natural disasters, contractor bankruptcies, and delays in obtaining permits and approvals may cause cost increases and schedule delays, potentially affecting financial position, business results, and market valuation. The Company addresses this primarily through an alliance finance scheme utilizing real estate SPCs, along with appropriate planning and construction management.

In connection with the Estate Build-Up Business, the Company holds substantial tangible and intangible fixed assets and inventory assets such as real estate for sale, and there is a risk that asset values may decline due to extended holding periods resulting from development delays, market price fluctuations, rising investor expected yields, and rising market interest rates. The Company monitors the factors and trends affecting asset value fluctuations while working to mitigate risk through strengthening market competitiveness via product planning and service improvement.

Since most stores feature designs integrated with the surrounding environment and have terrace seating, they are highly susceptible to weather conditions, and terrace seat utilization significantly affects store profitability. In addition to the extremely cold period from January to February, in recent years profits have also declined significantly from July to September due to extreme heat, expanding the seasonal fluctuation risk. The Company addresses this through measures such as rain shelters and heating/cooling equipment, as well as procurement and personnel expense control based on customer forecasts.

All stores are operated under real estate lease agreements, and inherent risks include rent increases, cancellation risk associated with fixed-term lease agreements, and the risk that lease deposits may not be returned due to deterioration in the lessor's financial condition. If these risks materialize, they would directly affect the continuity of store operations and business performance. For high-risk properties, the Company seeks to stabilize store operations and improve its financial structure by acquiring the land, buildings, or leasehold interests.

If raw material prices rise sharply or food safety issues occur, procurement costs will increase and store operations may be disrupted, affecting business performance. If food safety problems such as food poisoning or foreign object contamination occur, in addition to a direct impact on business performance, there is also a risk of damage to brand reputation. The Company addresses this by securing multiple procurement routes, conducting regular store hygiene inspections, appointing food hygiene managers, and thoroughly managing employee health.

The growth of the Group depends on improving staff motivation and developing the management of store-operating subsidiaries. If there are delays in developing management staff or a decline in recruiting capability due to reputational deterioration, this may hinder the execution of store opening plans and the maintenance of store quality. While the operating policy emphasizing creativity and ingenuity not bound by manuals is considered a source of recruiting strength, the Company addresses this through ongoing efforts to identify talent from inside and outside the company and provide individualized development.

If indications of impairment are recognized for held fixed assets due to significant declines in market prices, unexpected changes in the environment, or declining store profitability due to intensified competition, this could have a material impact on financial position and business results. This risk is expected to increase particularly in the Estate Build-Up Business, which holds substantial real estate-related assets. The Company conducts ongoing profit management through monthly financial results tracking by store and the implementation of various measures.

Changes to a wide range of legal regulations, including the Food Sanitation Act, Labor Standards Act, Fire Service Act, and Personal Information Protection Act, could result in compliance costs and impacts on business activities and reputation. In particular, given the structure of employing a large number of part-time workers, the expansion of criteria for mandatory social insurance enrollment poses a risk of directly increasing personnel expense costs. The Company addresses this through continuous information gathering on relevant laws and regulations by relevant departments and the development of meticulous personnel expense control know-how.