TriIs Incorporated

Operating losses have occurred intermittently since FY2021 (ended December 2021), and the Group recorded an operating loss of ¥204 million in the current consolidated fiscal year, with negative operating cash flow continuing. Although net sales increased from the previous period, this has not led to a rapid recovery in profit, and it is recognized that events or conditions exist that raise substantial doubt about the going concern assumption. As countermeasures, the Group plans to redirect its real estate investment strategy, strengthen personnel in the Construction Consulting Business, and expand the royalty business in the Fashion Brand Business. As of the end of the current consolidated fiscal year, the Group held ¥3,293 million in cash and deposits, and states that there is no material concern regarding immediate fund-raising.

The Construction Consulting Business, operated by subsidiary Crearia Co., Ltd., primarily engages in water-related public works such as dams, rivers, and coasts, and could be significantly affected if the national government, the Ministry of Land, Infrastructure, Transport and Tourism, or local governments decide to substantially cut or halt public works projects. The business is highly dependent on policy changes to public works budgets, resulting in a revenue structure vulnerable to changes in the external environment. As a countermeasure, the Group aims to expand net sales and operating profit by securing and strengthening personnel.

The Fashion Brand Business is subject to a wide range of risk factors, including product planning, raw material market conditions, domestic and overseas production systems, foreign exchange market conditions, logistics systems, sales locations, consumer trends, weather, and economic fluctuations. If events occur that significantly exceed expectations, the Group's business results could be materially affected. As a countermeasure, the Group aims to expand net sales and operating profit through expansion of the royalty business for "CLATHAS."

For licensed brand products handled in the Fashion Brand Business, in addition to ordinary business risks, the Group's business results could be affected if the popularity or value of the brand itself declines significantly. The value of licensed brands depends on the brand owner's strategy and market evaluation, and thus involves risks that the Group cannot control on its own. No specific countermeasures are described in the Annual Securities Report.

The U.S. real estate investment business, operated by subsidiary TRIIS INTERNATIONAL AMERICA INC., is exposed to risks from fluctuations in the U.S. real estate market, global economic trends, and rent levels, which could significantly affect the Group's business results. Over the long term, it may also be affected by foreign exchange market conditions, carrying compound risks specific to overseas operations. As a countermeasure, the Group aims to re-recognize capital costs with a focus on domestic real estate investment and shift toward investments expected to yield favorable investment returns.

In the domestic real estate investment business, the Group's business results could be significantly affected by construction delays due to poor weather or changes in government regulations, among other factors. Increases in inventory assets related to real estate investment are one of the main causes of negative operating cash flow, and construction delays also have a direct impact on cash flow. As a countermeasure, the Group aims to improve operating cash flow by reducing inventory assets.

Fluctuations in foreign exchange market conditions may affect raw material procurement and overseas production systems in the Fashion Brand Business, as well as long-term earnings from the U.S. real estate investment business. In particular, long-term foreign exchange risk is explicitly noted for the U.S. real estate investment business, and earnings could be affected in either a yen depreciation or appreciation scenario. No specific countermeasures such as hedging methods are described in the Annual Securities Report.

The Group is pursuing M&A and capital alliances with the aim of expanding its business scope through acquisition of business portfolios; however, there is a risk that, depending on M&A market conditions, the Group may not be able to acquire desired businesses at appropriate prices, preventing plans from proceeding as intended. It is also explicitly noted that business expansion through M&A could be affected by reputational risk to the Company. If these risks materialize, they could affect the fundamentals of the Group's growth strategy.

The Group plans to secure and strengthen high-quality personnel in connection with organizational restructuring, business expansion, and the development of internal control systems; however, if personnel attrition occurs or if development and retention of personnel are insufficient, this could affect the Group's business development, business results, and growth outlook from a long-term perspective. In particular, in the Construction Consulting Business, securing and strengthening personnel is positioned as a key measure for expanding net sales and operating profit, and materialization of personnel-related risk would directly lead to deteriorating earnings.

A variety of risks may affect the Group's business results, including rapid changes in social infrastructure, intensifying market competition, changes in financial and management conditions accompanying the expansion of Group scale, various regulations in major domestic and overseas markets, and significant fluctuations in the stock and bond markets. Expansion of Group scale involves increased management costs and greater complexity of internal controls, and the risk of deteriorating business results increases if the development of the management control system fails to keep pace. No specific countermeasures are described in the Annual Securities Report.