KAN-NANMARU CORPORATION

Although the company achieved increased revenue and profit on an ordinary income basis in FY2025 (ended June 2025), it has not yet returned to profitability, and material events or conditions that raise significant doubt about its ability to continue as a going concern continue to exist. As of the end of the fiscal year under review, the company held cash and deposits of ¥516,629 thousand and net assets of ¥426,215 thousand. The company has determined that no material uncertainty exists, given the implementation of profitability improvement measures (menu and operational improvements, thorough cost management) and financial stabilization measures. Investors should continue to monitor the timing of the return to profitability and the trend in cash and deposit levels.

The company has entered into a franchise chain membership agreement with Daisho Co., Ltd., which is a material contract fundamental to its business. Should this agreement be terminated, cancelled, or significantly altered for any reason, it could have a material impact on the company's business performance. Because the company's business model has a high degree of dependence on the Daisho brand, the risk of changes in contract terms should be recognized as an ever-present risk.

If unfounded rumors regarding food ingredients or hygiene issues at stores occur, this could affect the company's business performance. The company's mission is to provide safe and reliable food, and it implements strict quality and hygiene management; however, reputational damage caused by external factors may sometimes fall outside the scope of its control. In the restaurant industry, food safety issues are directly linked to customer attrition and business suspension, so the impact on business performance could be substantial.

The company's basic store opening strategy is to expand gradually into surrounding areas centered on Saitama; however, if store openings cannot proceed as planned for various reasons, or if competing stores open, this could affect business performance. The regionally concentrated store opening strategy inherently carries vulnerability to changes in the market environment of specific areas, and there is also a risk of declining sales at existing stores due to intensifying competition. In FY2025 (ended June 2025), the company carried out renewals at 7 stores, including unplanned format conversions, and flexible review of its store opening and business format strategy is required.

The company leases the buildings for its stores and, at the time of opening, places security deposits with the building owners. If a building owner (corporate or individual) falls into bankruptcy or a similar situation, continued use of the building and recovery of the security deposit receivable may become difficult, which could affect the company's business performance. Given the structure in which security deposits are placed across multiple stores, there is a risk that financial damage could accumulate if multiple owners encounter problems simultaneously.

Because developing store managers, head chefs, and similar personnel takes time, if there is a shortage of personnel or employee turnover, the level of cooking and customer service operations may decline, which could affect business performance. The company focuses on new hiring, promotion of part-time staff to full-time employee status, and training and education; however, in an environment of fierce competition for talent across the restaurant industry as a whole, there is a risk that recruitment and retention could become difficult. A decline in operational quality directly affects sales at existing stores through reduced customer satisfaction.

If a novel infectious disease or similar illness becomes widespread, the economy could slow significantly due to difficulties in store operations, a decline in personal consumption, and stagnation of production and logistics functions, which could affect the company's business results. The restaurant industry is particularly susceptible to restrictions such as self-imposed restraint from going out, shortened business hours, and restrictions on serving alcohol during the spread of infectious diseases, and the direct impact on sales can be substantial. As the company is already in a situation where it has not yet returned to profitability, a decline in sales due to an infectious disease outbreak carries the risk of further increasing its financial vulnerability.

In FY2025 (ended June 2025), the company carried out renewals and business format conversions at 7 stores, including unplanned conversions, resulting in increased burden from opportunity losses during closure periods and opening expenses. If stores fail to reach the expected level of profitability after business format conversion, recovery of the investment may become difficult, potentially further worsening the financial condition. The company has stated that investment related to business format conversion has reached a stopping point, and has indicated a policy of focusing going forward on stabilizing already-invested stores and improving their profitability.