CHARLE CO., LTD.

In the current fiscal year, the company recorded an operating loss of ¥1,115 million and a net loss attributable to owners of the parent of ¥3,544 million, continuing a pattern of losses following the previous fiscal year's operating loss of ¥961 million and net loss of ¥1,012 million. The company recognizes that this constitutes a material event raising substantial doubt about its ability to continue as a going concern. As countermeasures, it is promoting a review of the product portfolio, procurement cost reductions, and operational efficiency improvements through digitalization. Based on cash and deposits of ¥4,854 million and an equity ratio of 76.5% as of the end of March 2026, the company has determined that no material uncertainty exists. However, there is a risk that the impact on financial position and operating results will continue if the countermeasures do not prove effective.

The core ladies' innerwear business belongs to the door-to-door sales industry, and the number of consumers who do not choose to purchase through door-to-door sales is increasing due to a decline in the at-home rate driven by women's increasing participation in the workforce, as well as diversification of sales channels. In addition, the aging of sales representatives (agents and distributors) and their declining motivation for business activities are causing sales activity to decline, creating a risk that sluggish acquisition of customers and sales representatives will lead to decreased sales. The company is implementing measures to improve the business environment and support sales activities as appropriate, but responding to the structural market contraction remains key to its performance.

There is a risk of misjudging demand forecasts due to changes in domestic economic and consumption trends, intensifying competition with rivals, unusual weather, and shifts in consumer preferences, which could lead to increased inventory losses and lost sales opportunities. In addition, if fluctuations in exchange rates or rises in raw material prices caused by international conflicts, in connection with local procurement associated with overseas production, cannot be fully absorbed through pass-through to selling prices, this could affect performance. Furthermore, rising domestic delivery costs could also be a factor pressuring profitability.

The company has positioned new business development as a pillar of its management strategy and is promoting the creation of group synergies through investments such as M&A. However, there is a risk that expected results will not be achieved if the anticipated synergy effects are not realized or if demand for acquired businesses cannot be sustained. Regarding goodwill arising from M&A transactions, impairment losses may need to be recognized if actual performance falls significantly short of future plans. In addition, when structural reforms such as the withdrawal from or restructuring of unprofitable businesses are implemented, temporary losses may occur, potentially affecting operating results and financial position.

The company holds large volumes of personal information on consumers and sales representatives as well as confidential corporate information, and if an information leak occurs due to unexpected unauthorized access or other causes, it could have a material impact on performance and social credibility. In particular, in the ladies' innerwear business, sales representatives (agents and distributors) handle consumer information, creating a risk of information leakage via sales representatives as well. While technical safety control measures and internal training are being implemented, maintaining a management framework that includes outsourced partners remains a challenge.

The company is subject to a wide range of laws and regulations, including the Act on Specified Commercial Transactions, the Act on Pharmaceuticals and Medical Devices, the Act against Unjustifiable Premiums and Misleading Representations, the Consumer Contract Act, and the Antimonopoly Act, and changes in laws or tightening of regulations could affect social credibility and performance. There is also a risk of being sued for damages due to unintended infringement of third parties' patent rights, utility model rights, design rights, and the like. The company is also required to respond to various issues in the domestic and overseas supply chain, making continuous strengthening of its compliance framework necessary.

In the ladies' innerwear business, sportswear business, and fine bubble business alike, there is a risk of litigation under the Product Liability Act if a product accident occurs. If defective products are found to have been shipped, recall costs and damages may arise, and complaints or reputational damage related to safety concerns could also affect performance. Each business has established its own quality standards, pre-shipment inspection systems, and customer consultation desks, but thorough quality control, including at outsourced manufacturers, remains an ongoing challenge.

If a large-scale natural disaster such as an earthquake, typhoon, or flood, or an accident such as a fire, causes severe damage to facilities or employees at outsourced manufacturing plants, business partners, or the company's own business locations, this could seriously disrupt business continuity. In addition, since computers are used across all operations, if unauthorized intrusion, system failures, or communication line troubles occur, this could affect performance through the suspension of business operations and the incurrence of recovery costs. While the company is considering BCP development and implementing disaster drills and information security enhancements, risk management across the entire supply chain is required.

If a new infectious disease outbreak occurs, this could have a material impact on performance due to supply chain dysfunction, stagnation of sales representatives' activities, and weakening consumption trends, and the extent of the impact may be difficult to estimate. As countermeasures, the company has established remote work arrangements, travel restrictions, and dissemination of activity guidelines, but depending on the scale and nature of the infectious disease, there are limits to the effectiveness of such measures. The ladies' innerwear business, which relies primarily on door-to-door sales, is particularly susceptible to constraints on face-to-face activities and could be significantly affected.

Regarding real estate held for lease, there is a possibility that expected rental income cannot be secured due to fluctuations in real estate market conditions, decreased rental demand, or rising vacancy rates. In addition, if land or buildings are damaged by a natural disaster, repair costs may be incurred and asset use may be suspended, and if the value of the assets is impaired due to a decline in real estate prices, it may become necessary to recognize an impairment loss. If these risks materialize, they could affect financial position and operating results.