SEKIDO CO.,LTD.

The decline in revenue following the termination of the flagship brand in the beauty business, which began in the prior fiscal year, continued into the current fiscal year, resulting in operating losses, ordinary losses, and net losses, as well as negative operating cash flow for two consecutive fiscal years. In addition, the company is in breach of financial covenants under the "Transfer Collateral Security Agreement" concluded with certain financial institution creditors, giving rise to material doubt regarding the going concern assumption. As a countermeasure, the company raised over ¥900 million through the issuance of stock acquisition rights (15th through 19th series), but because the exercise of these rights depends on stock price and supply-demand conditions, material uncertainty remains.

The company has already breached financial covenants under the "Transfer Collateral Security Agreement" concluded with certain financial institution creditors, and has confirmed the understanding and support of these financial institutions by explaining corrective measures. While the agreement stipulates that the acceleration clause will not be immediately triggered provided corrective measures are implemented, there is a risk that continued financing may become difficult depending on future business performance. Stabilization of the financial base depends on the status of exercise of stock acquisition rights, and there is no guarantee of certainty regarding fundraising.

The beauty business has grown as the exclusive import distributor for a Korean cosmetics brand, but revenue declined significantly following the termination of the contract for the flagship brand, leading to losses recorded for two consecutive fiscal years. Exclusive import distribution agreements inherently carry the risk of changes to or termination of contract terms, and a business structure highly dependent on a specific brand undermines earnings stability. The company is currently pursuing diversification with facial devices and other new product categories, as well as its own proprietary cosmetics brand, as new growth pillars, but the monetization of these new products entails uncertainty.

The fashion business tends to show a marked concentration of performance in the second half of the fiscal year (October to March), particularly in December and January, due to the concentration of Christmas and year-end/New Year shopping demand. Depending on the results of this seasonal sales period, there is a risk of a material impact on overall annual performance, as well as a risk of widening disparity between first-half and second-half results. This highly seasonal earnings structure increases vulnerability to external factors such as weather, consumer trends, and competitive conditions during the peak sales period.

The company procures approximately 37% of its total purchases through direct imports from overseas, and foreign exchange rate fluctuations such as yen depreciation may impact performance through increased procurement costs. Given a business model centered on imported branded products, profitability may be significantly affected depending on the presence and extent of foreign exchange hedging. The annual securities report does not disclose specific hedging measures, and the status of the company's response to foreign exchange risk is unclear.

During the current fiscal year, the company recorded an impairment loss of ¥312 million on fixed assets such as stores. There is a risk that additional impairment losses may occur in the future due to changes in market conditions or deterioration in store profitability, further worsening the company's financial condition. Additional impairment amid continued weak performance could accelerate the erosion of net assets and further intensify the breach of financial covenants.

The company handles a large volume of customers' personal information through the "GINZA LoveLove smartphone app," the "&choa! smartphone app," and the "GINZA LoveLove card," and any information leakage could have a material impact on business operations, performance, and brand credibility. The company has established a personal information protection policy and a personal information management manual and has taken countermeasures accordingly, and no incidents of customer information leakage have occurred to date. However, future risk cannot be ruled out given the increasing sophistication of cyberattacks.

The spread of COVID-19 has historically had a major impact on lifestyle changes and domestic and international economic conditions, and any future spread of infectious diseases could adversely affect the company's performance through impacts on consumer trends in the company's business areas as well as on the production regions and logistics of imported branded products. Given the business structure's high reliance on imported goods, disruption to overseas supply chains poses a risk of directly impeding product procurement.

Natural disasters such as abnormal weather, earthquakes, and volcanic activity occur frequently both domestically and internationally, and in addition to occurrences at the company's business locations, large-scale disasters occurring elsewhere could also affect performance. In the fashion business, which operates physical stores, physical damage to stores or a sharp decline in customer traffic could directly lead to a decrease in sales.

The armed conflict in Eastern Europe that broke out in April 2022 and the conflict in the Middle East that began in February 2026 have had unpredictable effects on the international community, and could impact the company's performance through rising logistics costs, difficulty in procuring imported branded products, and deteriorating consumer sentiment. Given a business structure centered on imported branded products, the company's sensitivity to supply chain disruptions caused by geopolitical risk is relatively high.