BUNKYODO GROUP HOLDINGS CO.,LTD.

For the fiscal year under review, the Company recorded an operating loss of ¥88 million, an ordinary loss of ¥83 million, and a net loss attributable to owners of the parent of ¥154 million, marking the sixth consecutive fiscal year of operating and ordinary losses. Agreement with lending financial institutions regarding the medium-term plan, repayment of borrowings, and fundraising for the period after August 2025—when the plan period of the business turnaround ADR procedure established in September 2019 ends—has not yet been reached, and it has been determined that conditions exist that raise material doubt about the going-concern assumption. The Company is currently formulating a medium-term plan centered on expanding the introduction of stationery, sundries, trading cards, and similar products, and continues negotiations toward agreement with the relevant creditors, but final agreement has not yet been reached.

In the publishing distribution industry, sales continue to decline amid prolonged sluggish personal consumption, while inter-company competition is intensifying due to the proliferation of competitor stores, which could adversely affect the Group's business and financial condition. As a countermeasure, with the cooperation of Nippan Group Holdings Co., Ltd., a major business partner, the Group is implementing an action plan that includes the nationwide rollout of an area manager system and a review of customer service and store operations.

The plan period of the business turnaround ADR procedure established in September 2019 will end in August 2025, but agreement with lending financial institutions regarding subsequent repayment of borrowings and fundraising for new investments has not yet been reached. While the Company has received support from its major shareholder, Nippan Group Holdings Co., Ltd., including a ¥500 million capital contribution and revised debt repayment terms, there remains a possibility of impact on cash flow after the end of the plan period.

The programming classes operated as part of the education platform business are based on a franchise agreement with YP Switch Co., Ltd., and as the franchisee, the Company entrusts operational policy to the franchisor's management policy. Changes in the franchisor's management policy or business condition could cause material disruption to the operation of the programming classes, potentially affecting the Group's business performance.

An increase in shoplifting at bookstores could adversely affect the Group's business performance. As an industry-wide countermeasure, the Group has requested publishers to attach IC tags and has requested support measures related to purchasing at used bookstores, while within the Group it has increased the number of security personnel and thoroughly enforced employee risk management; however, shoplifting has not been eradicated.

Malfunctions or outages of the POS system installed at all stores could make real-time tracking of sales and inventory conditions difficult, potentially adversely affecting business performance. As a countermeasure, the Group outsources operational management of the sales management system, performs backups in preparation for data loss, and works to prevent data leakage through access authorization settings and password management.

The number of new entrants into the programming classes market is increasing, raising the possibility of intensified competition in quality, price, and service. If the Group's services fail to maintain an advantage over competitors, or if the Group cannot adequately respond to competition, its business performance could be adversely affected.

The resale price maintenance system (saihan system) applied to publications is permitted under an exemption provision of the Antimonopoly Act, but the Japan Fair Trade Commission continues its policy of urging the industry toward flexible operation of the current system, raising the possibility of future abolition. The securities report notes that if the system is abolished, it is expected to create an even more favorable environment for the Group, which has an advantage in merchandise procurement capability and profitability; the timing of any abolition remains undetermined.