Wagokoro co., ltd.

The Group derives its primary revenue from inbound demand in major domestic cities and tourist destinations, and a decline in the number of foreign visitors to Japan due to war, conflict, terrorism, infectious disease, natural disasters, deterioration in diplomatic relations, or other factors would directly affect business performance. In addition, if the market structure changes suddenly due to entry by companies from other industries against the backdrop of growing demand for Japanese cultural products, the competitive environment could deteriorate. Although the Company views market expansion positively, the risk of sudden changes in the external environment is ever-present.

The Inbound MD Business (including the Anime & Game MD Division (OEM Service)) targets general consumers as end customers and is constantly in competition with domestic and overseas competitors in terms of products, services, and prices. If the Company's relative appeal declines and customers choose competitors instead, this would adversely affect sales and earnings. Except for certain OEM Division projects, all businesses are exposed to competitive risk.

Most of the production for the Inbound MD Business is outsourced to overseas manufacturers in China and Thailand, and market risk, credit risk, and geopolitical risk in these regions affect procurement costs and supply stability. In addition, significant fluctuations in foreign exchange rates directly increase procurement costs and could affect business performance and financial condition. The geographic concentration of production bases heightens this risk.

The Company has adopted a stock option plan for directors, employees, and external collaborators. As of the end of the month preceding the filing date of this document, the number of potential shares outstanding was 2,898,600 shares, equivalent to 44.2% of the total issued shares of 6,511,724 shares. If the stock acquisition rights are exercised, the value of shares held by existing shareholders could be significantly diluted. Given that the ratio of potential shares to issued shares exceeds 40%, a relatively high level, the dilution impact is comparatively large.

The Company obtains and uses personal information such as membership data and is subject to obligations under the Act on the Protection of Personal Information. While the Company has established an information management system, including the selection and management of outsourced vendors, backups, and virus countermeasures, if personal information is lost or leaked due to unforeseen circumstances, this could result in claims for damages and loss of social credibility, affecting business performance and financial condition.

Tomohiro Mori, the founder and Representative Director, plays an extremely important role in overall business activities, including decisions on management policy and business strategy. While the Company is working to strengthen its division-of-labor structure through the expansion of its management team, including Senior Managing Director Yumeto Mogami, and delegation of authority, if this individual becomes unable to carry out his duties for any reason, this could hinder the continuity of business operations.

Due to the declining working-age population and changes in employment patterns, competition to hire employees is intensifying, and if appropriate recruitment and staff assignment cannot be achieved, business performance could be affected. In addition, if the hourly wage rate for non-regular employees rises in order to secure the necessary workforce, this could increase the ratio of personnel costs and put pressure on profitability. Given the business model centered on operating retail stores in tourist areas, securing on-site personnel is fundamental to business continuity.

All stores are directly operated under lease arrangements, and there is a risk that bankruptcy of a lessor could make it difficult to continue using a store or to recover security deposits. While the Company comprehensively considers rent, trade area, and competitive conditions when opening new stores, if properties meeting the required conditions cannot be secured, store openings may not proceed as planned, and if profitability declines after a store opens, an impairment loss on store assets could occur, affecting business performance and financial condition.

The Company operates a business subject to legal regulations such as the Copyright Act and the Trademark Act, and while it is developing systems to prevent infringement of third parties' intellectual property rights, if a product were to infringe a third party's intellectual property rights, a damages lawsuit could be filed. The outcome of such litigation could hinder business operations, damage corporate image, and impose financial burdens, affecting business performance and financial condition.

The Inbound MD Business is subject to a wide range of legal regulations, including the Food Sanitation Act, the Product Liability Act, the Copyright Act, the Act on Specified Commercial Transactions, the Act on the Protection of Personal Information, the Act on Electronic Consumer Contracts, the Trademark Act, and the Act against Unjustifiable Premiums and Misleading Representations. If new legislation is enacted, existing laws are amended, or interpretations change in the future, part of the business could be restricted or forced to take new countermeasures, potentially affecting business performance and financial condition.