SENSHUKAI CO.,LTD.

The Group has recorded significant operating losses for four consecutive fiscal periods, giving rise to circumstances that raise material doubt about its ability to continue as a going concern. On a consolidated basis, the Group holds cash and deposits of ¥6,937 million, and has reduced its outstanding borrowings from ¥2,600 million in the previous fiscal period to ¥300 million; however, performance improvement measures are still in the process of implementation and may not achieve sufficient profit and loss or financial effects. Various fundraising measures and additional support from financial institutions remain unconfirmed, and material uncertainty regarding the going concern assumption is recognized to exist.

While the mail order market is expected to expand due to the spread of the internet and smartphones, intensifying competition from existing operators and the provision of high value-added services by new entrants is anticipated. The Group is shifting its focus from its traditional catalog-centered style toward EC, but if its competitiveness declines, this may affect its business performance. Under the reconstruction plan, the Group is promoting a shift in its business model toward EC as the main battleground, but establishing a viable revenue model is still in the process of verification and improvement.

The Group holds tangible and intangible fixed assets used in its business, and if the expected future cash flows from these assets decrease due to a sharp deterioration in business earnings or failure of acquired businesses to achieve planned targets, impairment losses may occur. Given the current situation of operating losses for four consecutive fiscal periods, the impairment risk is potentially at a high level. Application of the "Accounting Standard for Impairment of Fixed Assets" may have a material impact on business performance and financial condition.

Since a certain proportion of products are highly seasonal and a certain period is required from product planning to sale, there is a risk that fluctuations in weather and trends may cause a divergence between the plans made at the time of product planning and actual sales results, leading to reduced profitability. If sales volumes fluctuate unexpectedly and result in excess inventory, valuation losses may be recorded, affecting business performance. The Group is working to refine its purchasing, sales, and inventory plans and strengthen inventory control, but there are limits to its ability to respond to unusual weather and market fluctuations.

The Company and certain subsidiaries qualify as personal information handling business operators under the Act on the Protection of Personal Information, and due to the nature of the mail order business, hold large volumes of customers' personal information. If an information leak occurs, it may lead to a loss of corporate trust and reputational damage, affecting business performance and financial condition. Measures such as appointing personnel responsible for personal information management, strengthening internal control systems, and obtaining Privacy Mark certification have been implemented, but the risk cannot be completely eliminated.

The mail order business is subject to a wide range of legal regulations, including the Act against Unjustifiable Premiums and Misleading Representations, the Act on Specified Commercial Transactions, the Pharmaceuticals and Medical Devices Act, and the Product Liability Act. Amendments to laws, the introduction of new regulations, or violations of regulations may damage the Company's corporate image and affect its business and performance. The Company has built a legal compliance system through thorough employee education and strengthened compliance frameworks, but it must continually respond to changes in the regulatory environment. In particular, trends toward tighter regulation in the mail order and EC fields require ongoing monitoring.

The majority of products sold by the Group are imported from Asian countries such as China, and changes in the political situation, deterioration of the economic environment, natural disasters, or other events in these countries and regions may affect the Group's business performance and financial condition. The geographic concentration of the supply chain increases procurement risk, making the securing of alternative supply sources a challenge. Against the backdrop of heightened geopolitical risk, the procurement structure's dependence on China could become a mid- to long-term vulnerability.

In the mail order business, a portion of the products handled are imported from overseas denominated in foreign currencies, and significant fluctuations in exchange rates may increase procurement costs, affecting business performance and financial condition. In particular, in a yen-depreciation phase, increased import costs risk squeezing profits, and given the current situation of operating losses for four consecutive fiscal periods, the capacity to absorb cost increases is limited. The securities report does not describe specific countermeasures such as foreign exchange hedging.

Nearly all operations are conducted through computer processing, and if systems are affected by natural disasters such as earthquakes, typhoons, and floods, as well as by hardware or software failures, terrorism, or cyberterrorism, recovery may take time and affect business performance and financial condition. As EC sales are strengthened, dependence on systems is further increasing, and the business continuity risk in the event of a system failure is growing. While measures such as system redundancy have been implemented, continuous response to the increasing sophistication and diversification of cyberattacks is required.

The Group may engage in strategic alliances, including corporate acquisitions and capital alliances, to expand its business foundation or enter new businesses, and there is a risk that contingent or unrecognized liabilities may become apparent after such acquisitions or alliances. In addition, if business plans do not progress as originally planned after an acquisition or alliance, this may affect business performance. While the Company states that it conducts sufficient investigation and analysis, M&A activity undertaken while the Company's financial base remains fragile during the execution of its reconstruction plan may further increase financial risk.