G-FACTORY CO., LTD.

Japanese eel, the main ingredient in the Restaurant Business, has been designated an endangered species by the IUCN, and catch volumes have continued a long-term declining trend. In addition, ingredients such as rice and vegetables carry risks of procurement price increases due to pests and diseases, unfavorable weather, and exchange rate fluctuations. If stable procurement of ingredients is disrupted, this could lead to lower sales volume and higher cost ratios. The Company strives to secure multiple procurement routes, but the risk of resource depletion remains a structural challenge.

In the sublease business under Property Information Support, there is a risk that losses arising from customer rent delinquency or bankruptcy cannot be fully covered by security deposits, and eviction litigation costs may also arise. Under Interior Equipment Support (GF Lease / Lease Support) and All-in-One Support (e-Tenpo Marugoto Lease), in addition to the risk of difficulty collecting lease payments due to counterparty bankruptcy, there is also an inherent risk of fraudulent contracts such as multiple leasing or sham leasing arising from collusion between customers and equipment vendors. The Company conducts screening, credit management, and monitoring, but if bad debt losses exceeding expectations occur, this could materially affect business performance.

Fixed assets related to interior equipment at each Restaurant Business store and to clients supported under All-in-One Support in the Management Support Business are exposed to impairment risk. If economic value declines due to deteriorating store performance or changes in the business conditions of supported clients, additional impairment losses may need to be recognized. The Company states that necessary impairment losses have been recognized as of the current time, but future business trends could affect financial position and operating results. Operating income of the Restaurant Business for FY2025 (ending December 2025) was ¥43,503 million (converted from disclosed figures in thousands of yen, equivalent to approximately ¥43 million), a low level, and the potential for impairment risk to materialize is not small.

If hygiene issues such as food poisoning or foreign object contamination occur at directly-operated stores, this could result in business suspension or prohibition orders, damage claims from affected parties, and deterioration of business performance due to brand image decline and reduced customer traffic. The Company obtains business permits under the Food Sanitation Act, files notifications of food sanitation managers, conducts inspections by area managers, and performs audits by the internal audit department, but complete elimination of this risk is difficult. No major hygiene incidents have occurred as of the date of submission of this document, but given the nature of the restaurant business, continuous management is essential.

The buying and selling of restaurant fixtures (equipment and interior) under Property Information Support in the Management Support Business is subject to regulation under the Antique Dealing Business Act, requiring a license from the prefectural public safety commission. Major legal amendments or violations could result in license revocation, disrupting business activities. Additionally, if stolen goods are purchased without detection, the Company bears an obligation to return them to victims free of charge, resulting in losses equivalent to the purchase amount. The Company implements measures such as thorough management of antique ledgers and verification of sellers' identification, but the risk of legal amendments remains an external factor.

Funds for opening new Restaurant Business stores and for Store Opening/Closing Support in the Management Support Business are primarily procured through borrowings from financial institutions. The ratio of interest-bearing debt (the sum of long-term borrowings due within one year and long-term borrowings) to total assets was 21.5% in FY2024 (ending December 2024) and 19.7% in FY2025 (ending December 2025). In a future rising interest rate environment, interest payment burdens may increase, potentially affecting business performance. There is no mention of hedging measures against changes in the interest rate environment, and the borrowing-dependent funding structure continues.

Through Property Information Support and other services in the Management Support Business, the Company holds a large amount of customer personal information, and bears certain obligations as a "personal information handling business operator" under the Personal Information Protection Act. The Company has established personal information handling regulations and internal management systems, but if an external leak occurs, this could affect business performance through reduced sales due to loss of trust and the incurrence of damage compensation costs. With the advancement of digitalization, threats such as cyberattacks are also increasing, requiring continuous strengthening of countermeasures.

The Management Support Business offers overseas expansion packages primarily centered on ASEAN, and the Restaurant Business is also promoting directly-operated store openings and license agreements with local overseas companies. However, various risks are inherent, including foreign exchange risk, political instability, uncertainty in economic trends, and differences in laws, regulations, and business customs. If the business performance of overseas local partner companies deteriorates, this could reduce business revenue and affect performance. The annual securities report explicitly states there is no guarantee that the initially envisioned business expansion can be achieved.

The Company treats M&A as an option for business expansion aimed at strengthening existing services, accelerating global expansion, and developing new business areas, but there is a possibility that the initially envisioned synergies or business expansion effects may not be achieved. If the business of a subsidiary deteriorates after becoming part of the group, or if amortization or impairment of goodwill occurs, this could affect operating results and financial position. The Company conducts due diligence by lawyers, tax accountants, and certified public accountants to reduce risk, but the possibility of additional risk factors specific to new business areas cannot be ruled out.

Nadai Unatoto in the Restaurant Business has seasonality with sales concentrated around "Ushi no Hi" (the Day of the Ox) from July to early August, and the Management Support Business also experiences fluctuations in sales due to changes in customer store opening/closing needs. In the quarterly operating income for FY2025 (ending December 2025), the Restaurant Business recorded an operating loss of ¥894 thousand in the third quarter, reflecting the impact of seasonal fluctuations in the figures. The Company strives to level out performance, but seasonal fluctuations are expected to continue, creating a risk that deteriorated performance in specific periods could affect full-year results.