4Cs HD Co., Ltd.

In the fiscal year under review, the Company recorded an operating loss of ¥165 million (¥165,319 thousand) and a net loss attributable to owners of the parent of ¥243 million (¥243,929 thousand), and has been unable to consistently achieve an operating surplus and positive operating cash flow, while fund levels have also declined. Operating losses in the Retail Business and Consulting Business have continued, giving rise to events that raise material doubt about the going concern assumption. Countermeasures (revenue expansion, cost reduction, and fundraising in each business) are either in progress or not yet implemented, and the method, amount, and timing of fundraising remain undetermined, and accordingly material uncertainty is recognized at this time.

The Consulting Business employs a business model of acquiring solar power plants and battery storage facilities and subsequently selling them, and there is a possibility that the sales schedule will not proceed as planned. Even for high-voltage power plants for which sale contracts have already been concluded, changes in construction progress have occurred, and cash and deposits have decreased significantly due to an increase in advance payments. Revenue and profit may fluctuate depending on the pricing terms with buyers, and there is also a risk that advance payments may become unrecoverable. Although risk mitigation is being pursued through contracts with suppliers, the possibility of procedural delays remains.

The Company Group applies accounting standards related to impairment of fixed assets, and impairment occurred in the fiscal year under review as well. Additional impairment losses may occur in the future due to declines in profitability or falls in market prices resulting from significant deterioration in the business environment, among other factors. Should such circumstances arise, they may affect the Company Group's financial position and business results.

The manufacturing of cosmetics, health foods, and other products is outsourced to external parties, and if a sudden termination of contracts with manufacturing contractors or subcontractors occurs, or if production facilities are damaged by a natural disaster, this could disrupt the smooth supply of products. In addition, if claims regarding product safety arise, costs for recalling defective products and compensation for damages may be incurred, and reputational damage may occur even in the absence of an actual product defect. Although the Company has established product specification documents and quality control procedure manuals to address these issues, it is difficult to be fully prepared for unforeseen circumstances.

Cosmetics and aroma-related products are subject to regulation under the Pharmaceuticals and Medical Devices Act, while health foods are subject to the Food Sanitation Act, the Health Promotion Act, and the health functional food system, and the Company is also subject to a wide range of laws and regulations, including the Act on Specified Commercial Transactions, the Act against Unjustifiable Premiums and Misleading Representations, product liability law, and the Act on the Protection of Personal Information. Although the Company conducts compliance awareness activities and training, if these regulations are violated, the Company could become subject to administrative sanctions, which may affect its business results. While the quality control department oversees compliance efforts, costs associated with responding to regulatory changes will also continue to arise.

As mail order sales are one of the Company's main sales channels, it holds a large amount of customer personal information, and if a leakage of personal information occurs due to unforeseen circumstances, it could have a material impact on the business and reduce social credibility. The Company is working to comply with personal information protection laws and internal regulations, strengthen its information management system, and thoroughly train employees, but it is difficult to completely eliminate external threats such as cyberattacks.

While the Company is pursuing strategic scrap-and-build initiatives, difficulties in negotiations with developers and upfront costs associated with new store openings (advertising expenses, personnel costs, etc.) may affect business results. There is also a risk that store profitability as initially planned may not be achieved due to changes in transportation access or new entry by competitors. Furthermore, there is a risk that security deposits and guarantee deposits may become unrecoverable due to deterioration in the lessor's financial condition, which may affect the financial position and business results.

At certain companies within the Company Group, sales are concentrated with specific business partners (sales destinations). If sales to such business partners decrease for any reason, or if a sudden change occurs in the business relationship, this may affect the Company Group's business results. There is no specific description in the securities report regarding countermeasures such as diversification of business partners.

While the Company maintains a thorough maintenance and management system for operational management systems such as sales management, order management, and attendance management, if a system failure occurs due to unforeseen circumstances such as a disaster, software or hardware defects, or computer virus infection, this could disrupt business operations. Should a system failure occur, it may affect the financial position and business results.

With the rapid spread of social media, the number of posts on review sites has increased, and if reputational damage arising from such posts occurs and spreads through media coverage, this may affect the financial position and business results. The Company Group regularly monitors online reputation, but given the nature of social media, where information spreads rapidly, it is difficult to completely prevent such damage. If linked with claims regarding product safety, reputational damage could be further amplified.