KAPPA CREATE CO.,LTD.

Intensifying competition with rival companies in the domestic and overseas conveyor-belt sushi markets and changes in consumer needs may affect business performance. Rising prices of materials such as rice and fish are also a factor pressuring profitability. The Company operates large-scale suburban stores (generally 120 seats or more) in Japan, South Korea, and Indonesia, making differentiation strategy important.

The Company holds numerous store facilities and other assets centered on the Conveyor-Belt Sushi Business. If store-level profit and loss deteriorates and operating income/loss continues to be negative, impairment losses may be recognized. The recognition of impairment losses would have a direct impact on the Group's business performance.

The Company procures funds for capital expenditures, leasehold and guarantee deposits, and other purposes mainly through borrowings and bonds, and the interest-bearing debt dependency ratio for FY2026 (ending March 2026) stood at 31.7% (total interest-bearing debt of ¥9,198 million). Borrowings and bonds at variable interest rates are exposed to interest rate fluctuation risk, and a rise in interest rates could increase interest expenses and affect business performance.

As of the end of March 2026, 298 of 302 stores were leased properties, and leasehold and guarantee deposits accounted for 12.0% of consolidated total assets. Deterioration in the financial condition of lessors could result in the partial or total non-recovery of guarantee deposits, or could impede the continued operation of stores.

Although each company thoroughly manages freshness, quality, and hygiene, the occurrence of food poisoning or other hygiene-related issues could lead to a decline in credibility and a decrease in store sales. In addition, production stoppages or reduced utilization rates at factories due to issues other than hygiene problems could also affect business performance.

Natural disasters such as earthquakes, as well as fires and accidents, could disrupt store operations and factory production. This could affect business performance and financial condition through decreased sales and costs incurred for repairing or replacing business locations.

While actively promoting DX and IT adoption, unforeseen system failures caused by power outages, equipment defects, hackers, computer viruses, or other causes could result in leakage of confidential data or disruption to store operations. This could affect business performance, including through legal claims and liability for damages.

Surges in raw material and energy prices, driven by global political instability, exchange rate fluctuations, and geopolitical risk, have continued. Although measures are being implemented to mitigate the impact of purchase price fluctuations on operating results, the impact on business performance may continue.

Hama-zushi Co., Ltd. filed a lawsuit with the Tokyo District Court on December 27, 2023, seeking damages of ¥511 million, and depending on future developments, this could affect consolidated business performance. Following the indictment on October 21, 2022, the Company is working to continuously strengthen compliance education, including trade secret management.

In overseas operations in South Korea and Indonesia, differences in local laws and regulations, religion, and customs, as well as policy changes, economic conditions and exchange rate fluctuations, and country risks such as terrorism and war, could affect business performance. In addition, assets and liabilities denominated in local currencies at overseas subsidiaries are translated into yen when preparing consolidated financial statements, and are therefore also subject to the effects of exchange rate fluctuations.