airCloset,Inc.

The Company handles data containing sensitive personal information such as facial photographs and body measurements. If leakage, tampering, or unauthorized use occurs, it may result in damages payable to customers and a decline in service credibility. The Company addresses this through a design that does not retain credit card information, access privilege management, strict management at an external data center, and cyber insurance coverage; however, this is recognized as a significant risk.

As the number of users increases, timely expansion of warehouses and staff is required, and delays in such expansion may affect the business and results of operations. The same risk applies if logistics facilities are damaged by natural disasters such as earthquakes or typhoons. The Company has prepared recovery measures through in-house development of cleaning know-how, pre-arrangement of emergency response factories, and fire insurance coverage.

The Company is subject to numerous laws and regulations, including the Specified Commercial Transactions Act, the Act against Unjustifiable Premiums and Misleading Representations, the Act on the Protection of Personal Information, the Secondhand Articles Dealers Act, and the Cleaning Business Act. Violations of existing regulations or the introduction of new regulations could affect business operations. The Company has established a compliance framework through the establishment of a Risk and Compliance Committee and cooperation with legal counsel, but this is recognized as a significant risk.

The Company uses AWS as its service platform. If AWS goes down due to natural disasters, system errors, malicious acts, or other causes, this could result in damages to customers and a decline in service credibility. The Company monitors AWS's operational status at all times and has established a system for prompt recovery upon detection of failures, but dependence on AWS remains an important matter in business operations.

The Company has been implementing phased warehouse expansion and relocation from FY2025 (ending June 2025) through FY2026 (ending June 2026), and fixed costs have increased due to capital expenditures and increases in contracted floor space. If business expansion or collaboration with other companies does not proceed as expected, this may adversely affect operating results and financial condition through deterioration in profitability.

The number of monthly members is an important KPI for the Company. If new member acquisition does not proceed as planned or existing member attrition exceeds the plan due to the materialization of various risks or unforeseen circumstances, this will affect operating results and financial condition. The Company addresses this through internal and external information gathering and maintaining and enhancing relationships with related organizations.

"airCloset" employs a purchase-based procurement model, and if demand deviates significantly from expectations due to changes in market trends or customer preferences, impairment of rental assets may be required, affecting operating results and financial condition. The Company considers market trends and customer preferences at the time of purchasing, but this is a significant issue linked to the risk of impairment of fixed assets.

The Company outsources cleaning and maintenance operations as well as pickup and delivery operations to specific third parties. Changes in transaction terms or deterioration of the relationship with these partners could affect operating results and financial condition. The Company strives to maintain good relationships through accumulating in-house know-how for outsourced operations and through capital and business alliances with some outsourcing partners.

Rising apparel procurement costs due to increases in raw material prices and yen depreciation, as well as rising logistics costs due to crude oil price and foreign exchange fluctuations and rising labor costs in the logistics industry, could affect operating results and financial condition. The Company is considering transactions with multiple suppliers, diversification of procurement channels (purchasing from the secondhand market), building efficient systems, and passing on costs to service prices as necessary.

As of the end of the fiscal year under review, the Company had net operating loss carryforwards of ¥3,674,700 thousand. If taxable income does not arise as planned, restrictions on the tax use of these carryforwards could result in taxation at the standard corporate tax rate, affecting net income and cash flow. The Company achieved profitability at the net income level for the first time in FY2025 (ending June 2025), but continued achievement of its plans remains a precondition.