TAYA Co.,Ltd.

While the financial base is improving, as evidenced by two consecutive years of operating income and ordinary income surpluses and a return to positive operating cash flow for the first time since FY2019 (ended March 2019), stable profit generation has not yet been achieved, and there exists an event that raises material doubt about the going-concern assumption. Cash and deposits at the end of the fiscal year under review stood at ¥531 million, and the Company is securing funds through capital increases dated January 27, 2025 and January 13, 2026, as well as support from its client financial institutions. At present, the Company judges that no material uncertainty exists; however, if stabilization of the earnings base is not achieved, this could have a material impact on the financial position and operating results.

The Company's business operations require the recruitment of hairstylists holding national licenses, who are hired in principle as full-time employees and trained at training facilities and each location. If recruitment and training do not proceed as planned, it may become difficult to maintain or improve service quality, potentially affecting business development and operating results. Under a management policy centered on investment in human capital, the Company is working to enhance employee engagement through the sophistication of its education system and the clarification of career paths.

Nationally licensed hairstylists with strong customer support underpin the Company's earnings base, and a mass resignation of such personnel would directly lead to customer attrition and could have a material impact on business development and operating results. The Company is working to improve employee engagement through the sophistication of its education system and the clarification of career paths, aimed at enhancing hairstylists' technical skills and proposal capabilities. Maximizing the value of human capital is positioned at the core of the management strategy, and improving the retention rate is an urgent issue.

The Company's net sales are seasonally concentrated in July, December, and March, and unfavorable weather such as cool summers, warm winters, prolonged rain, or typhoons, as well as the spread of epidemics, may reduce the number of customer visits and affect operating results. The concentration of sales in specific months is a structural risk that undermines the stability of performance, and the Company aims to level this out by increasing the visit frequency and per-customer spending of existing customers. It is also promoting new customer acquisition through e-commerce and digital initiatives as a means of stabilizing earnings.

The Company operates more stores in leased properties and in-shop locations than in properties it owns, and if the continuity of the lessor's or developer's business is jeopardized, there is a risk of bad debt on lease deposits/guarantee deposits or of store withdrawal or inability to continue operations. While relations with lessors and developers are currently considered favorable, deterioration in the counterparty's business condition is a structural risk that would directly affect the Company's business development and operating results. Maintaining good relationships with developers is an important precondition for maintaining and expanding the store network.

The Cosmetologist Act, which applies to the Company's business, may be revised or its interpretation changed in the future in response to changes in social conditions, posing a risk of impact on business operations. Depending on the content of any legal amendments, hiring requirements, scope of business, facility standards, etc. may change, potentially requiring additional cost burdens or a review of the business model. The Company intends to respond while closely monitoring regulatory developments.

The Company maintains a customer database and works to protect personal information through improvements to security systems, thorough employee training, restriction of personnel with access to information, and the establishment of checking systems. However, if personal information is leaked due to cyberattacks or internal misconduct, this could result in loss of customer trust, legal liability, and damages, potentially affecting business development and operating results. The Company continues to improve its access environment and security systems and to strengthen its internal management framework.

If impairment accounting becomes necessary for assets held by the Company due to a decline in their substantive value, this could affect operating results. If store profitability deteriorates or stores are closed, there is a risk of impairment losses on store-related assets, and given that the Company's financial base is still in the process of improvement, additional loss recognition would have a significant impact on operating results. Continuously monitoring trends in the substantive value of assets is an important issue.