Aqualine Ltd.

The Group has continued to record operating losses, ordinary losses, and net losses attributable to owners of the parent over multiple consecutive fiscal years, giving rise to material doubt regarding the going concern assumption. The main causes are a shortage of franchise store staff and a delay in the recovery of incoming call volume, with cash and deposits at the end of the current consolidated fiscal year standing at only ¥347,615 thousand. Although the Company has raised funds through third-party allotment of new shares, stock acquisition rights, corporate bonds, and borrowings from March 2025 through February 2026, these countermeasures are still in progress and the material uncertainty has not been resolved.

The Tokyo Stock Exchange determined that the Company's internal control system and related structures had not been appropriately established, and designated the Company's shares as a security to be delisted effective April 30, 2026, with the notice stating that delisting would take effect on June 1, 2026. The delisting followed designation as a Securities on Alert and then as a Securities Under Supervision (under review), resulting in a direct loss of liquidity for investors. Deficiencies in the internal control system are cited as the root cause, and a serious governance issue has become apparent.

In its Water-Related Service Support Business, the Company employs a franchise business model under which franchise store staff with no capital relationship with the Company provide services through a mail-order sales format, and there is a possibility that management oversight of franchise stores may not extend to every detail. If an event adversely affecting the Company occurs at a franchise store, it could affect the Group's business performance and financial condition. Dependence on sales from specific franchise stores is high, and the impact on business performance could be significant if there is any disruption in transactions with such franchise stores.

The Water-Related Service Support Business operates under a mail-order sales format, but if operations are not conducted in accordance with the prescribed business flow, the activity may be deemed door-to-door sales and become subject to the Act on Specified Commercial Transactions. The Group is subject to a wide range of legal regulations, including the Consumer Contract Act, the Act on the Protection of Personal Information, the Act against Unjustifiable Premiums and Misleading Representations, and labor-related laws and regulations, and any violation could result in administrative sanctions, loss of public trust, and deterioration of business performance. There is also a risk that reputational damage to the industry as a whole—arising from violations detected at other companies in the same industry or media coverage—could spill over and affect the Company's business performance.

As of the end of February 2026, the Company is a small-scale organization with 43 employees, and its internal control system and business execution structure remain at a correspondingly limited scale. The Tokyo Stock Exchange determined that the Company's internal control system and related structures had not been appropriately established, which led to delisting, making the strengthening of these systems an urgent priority. If the strengthening of the internal control system and business execution structure does not proceed as planned, it could affect the Group's business and business performance.

The Company does not operate sales branches, and adopts a structure in which service staff travel directly from their homes to construction/service sites and return home directly, making it difficult to maintain a consistent level of technical skill and conduct among individual staff members. Management of cash, inventory, vehicles, and compliance controls is also difficult, and if service levels decline or misconduct by staff occurs, it could severely damage the Group's image and reputation, materially affecting its business and business performance. Although monthly sales meetings and joint training sessions are conducted, the structural limitations of managing a dispersed workforce remain a persistent challenge.

In operating the Water-Related Service Support Business, the Company handles the personal information of a large number of users, and if unauthorized disclosure or a leakage incident occurs, there is a risk of liability for damages and loss of trust. The Company is strengthening its information management system through monitoring of system access status and continuous security improvements, but the possibility of information leakage due to unforeseeable circumstances cannot be ruled out. The Company is subject to the Act on the Protection of Personal Information, and legal sanctions and impacts on business performance and financial condition could occur simultaneously.

The Company continuously implements SEO measures and relies on high search engine rankings as its primary means of customer acquisition, but there is a risk that changes in search engine operators' ranking policies or algorithms could reduce the effectiveness of these SEO measures. If customer acquisition effectiveness declines, it could directly affect the Group's business and business performance through a decrease in incoming call volume. The delayed recovery in incoming call volume has already been a contributing factor to the deterioration in business performance, and the fragility of the customer acquisition base is directly linked to financial impact.

Demand in the Water-Related Service Support Business tends to increase during the homecoming seasons of August, December, and January, and during winter when water pipes freeze, while it tends to decline during spring and the rainy season, resulting in a structure in which net sales and operating income are weighted toward the second half of the fiscal year. External environmental factors such as changes in consumer spending trends and weather conditions in the second half have a significant impact on full-year business performance, resulting in high volatility risk. In a situation where losses have already been recorded on a continuing basis, any downturn caused by seasonal fluctuations could further intensify the impact on cash flow.

In the market for emergency water-related repairs and renovation, the number of participating operators—centered on construction companies and home improvement centers—is trending upward, intensifying price competition and the battle for market share with operators that have greater brand recognition and financial strength. While the decline in the number of housing units due to the declining birthrate and aging population is a long-term factor in market contraction, an increase in the number of older housing units supports underlying demand; however, if the Company is unable to respond to intensifying competition in a timely and efficient manner, it could affect its business, business performance, and financial condition. The Company is already in a phase of deteriorating business performance, and there is a risk that reduced competitiveness could make earnings recovery even more difficult.