Risks of Businesses

Since the majority of the Group’s stores are located in Japan, the Group’s business, performance, and financial position may be affected by economic fluctuations in Japan and the government’s economic policies, including the consumption tax rate hike. In particular, a decrease in consumers’ disposable income due to changes in employment levels, etc., a decrease in spending on eating out or takeout, including kaiten-sushi, and an increase in the cost of purchasing fresh fish due to fluctuations in exchange rates (mainly a weak JPY) could affect the Group’s business, financial condition and operating results.

In addition to competitors in the same industry, such as family restaurants, fast food restaurants, and other restaurants, as well as independent and family-owned restaurants, the Group also competes with convenience stores, take-out and delivery services, and supermarkets.

While we believe that quality, taste, and price are the most important competitive factors in our Group’s business, we also believe that other factors such as location, convenience and accessibility, breadth of menu, and brand recognition of our Group are also important. The Group strives to differentiate itself from its competitors in terms of sushi quality and taste and strives to maintain a slightly higher COGS ratio than its competitors in order to procure carefully selected ingredients and provide fresh, high-quality sushi. Competition based on price is particularly fierce in the low-cost kaiten-sushi industry, and the Group may be required to compete with competitors’ prices while also focusing on ensuring the quality and variety of its sushi and side menu items.

In addition, Japan’s declining population may slow the overall growth in the size of the Japanese restaurant and food and beverage industry, which could lead to increased competition. In addition to this, an increase in the number of sushi restaurants in the low-cost kaiten-sushi industry may lead to a decrease in the number of customers per store, and the Group may face competition not only from its main competitors in the low-cost kaiten-sushi industry, but also among the Group’s stores. The Group believes that increasing the value it provides to customers and average customer ticket prices by improving its menu is important to remain competitive, but failure to remain competitive could have a material adverse effect on the Group’s business, financial condition, and results of operations.

To gain an edge over the competition, a company must, among other things, spend money on advertising and devote resources to marketing in order to attract customers. However, such marketing strategies may not be successful. For example, the introduction of new menu items to increase customer counts, or seasonal, regional, or promotional campaigns may not be successful, which may result in a decrease in revenues. In addition, some of our competitors may be able to devote more resources to marketing and advertising activities than we can. In addition, consolidation in the restaurant industry as a whole or the acquisition of one of our major competitors by a larger restaurant chain could result in such competitor gaining greater purchasing and marketing power than our Group. If our competitors were to increase their marketing and advertising expenditures relative to our group, this could result in a decrease in customer counts and revenue per store, which could adversely affect our group’s financial condition and results of operations.

The restaurant and food service industry in which our Group operates is affected by rapidly changing consumer preferences. The Group’s mission is to provide fresh, high-quality sushi at attractive prices, along with quality customer service, through a clean and comfortable kaiten-sushi format. The Group believes that low-priced kaiten-sushi is a stable market supported by a wide range of customers. However, if consumer preferences diverge from the Group’s core Sushiro store concept or the menu that the Group primarily offers, the Group’s business and the performance of its stores could be adversely affected. However, if consumer preferences diverge from the Group’s core Sushiro store concept or from the Group’s main menu items, this could have a negative impact on the Group’s business and the performance of its stores.

In recent years, the Group has expanded its sushi and non-sushi menus to provide customers with more choices, and has also taken measures to increase customer counts during off-peak hours. However, there is no guarantee that these efforts will have the expected impact on the Group’s performance.

Furthermore, a major change in consumer preferences for a store-visit business model due to infectious diseases or other factors, as seen in the restrictions on behavior during the spread of the new COVID virus, could have a negative impact on our business and the performance of our group stores.

If the Group is unable to accurately predict or understand consumer preferences or respond to them, the Group may lose market share, which may adversely affect the Group’s business, financial condition, and results of operations.

The Group’s basic menu consists of a variety of ingredients, including marine products, and if these ingredients are not properly procured, stored, transported, prepared, or served, food safety issues may arise. Food safety is a top priority for the Group, and the Group invests significant resources to reduce the risk of food safety-related accidents by complying with the Food Sanitation Law and other applicable food safety laws throughout the procurement, storage, transportation, preparation, and serving processes. In addition, the Group has been taking new initiatives through its growth strategy, specific examples of which are the possession of central kitchens, the increase in the number of franchised stores, the diversification of sales formats such as take-out, and the renewal of management systems to adapt to changes in risk due to overseas expansion. We are also taking countermeasures against infectious diseases such as the new COVID virus, which spreads not through food but through people, recognizing this as a new risk.

However, despite the Group’s efforts, it is difficult to completely eliminate the possibility of food poisoning incidents due to norovirus, Staphylococcus aureus, Vibrio parahaemolyticus, or other factors, or product recalls due to violations of food labeling laws. With the Group’s dependence on third-party suppliers for raw materials such as marine products, there is a risk that food poisoning incidents may occur due to factors beyond the Group’s control. In addition, new or different strains of diseases or diseases with long incubation periods that are resistant to preventive measures may occur, which may make it difficult to quickly identify the cause and take remedial measures. In addition, an outbreak of a new COVID virus or other serious infectious disease could spread among customers and employees within the facilities operated by the Group, threatening the safety of customers and employees.

In addition, we will not tolerate any media reports, rumors or complaints (whether or not grounded) related to food safety (including incidents of food poisoning, foreign material contamination or pollution) or the spread of infectious diseases in our group or in the food and beverage industry as a whole. In addition, media reports, rumors, or complaints (regardless of whether they are grounded or not) related to food safety (including incidents of food poisoning, foreign material contamination, or contamination) or the spread of infectious diseases in our group or the restaurant industry as a whole may adversely affect the reputation of our group. In such cases, the reputation, business, financial condition, and results of operations of our group may be severely affected.

Although the Group has insurance coverage for food poisoning incidents, a large number of customers, distributors, and Group stores could be affected in the event of a food poisoning incident or product recall caused by products or raw materials manufactured in the central kitchen. In addition, if a portion of the Group’s inventory of food products is contaminated, the Group may be required to dispose of inventory even for portions that are not confirmed to be contaminated. These could result in huge one-time costs.

In addition, the Group is subject to numerous food safety laws and regulations, including the Food Sanitation Law. Failure of the Group to comply with food safety laws and regulations could result in administrative penalties, including revocation or suspension of central kitchen or store operating licenses, as well as fines and other sanctions. In addition, the Group’s overall operating costs may increase due to the implementation or revision of laws, rules, or regulations related to food safety.

In order to maintain the profitability of the Group’s business, it is important to correctly forecast and appropriately respond to changes in the prices of fresh fish and other food ingredients and store supplies. For example, the prices of food ingredients such as fish and shellfish, and store supplies may be affected by: the progression of inflation in Japan and abroad; environmental changes such as rising sea water temperatures; the occurrence of unseasonable weather, abnormal weather, or natural disasters; a sudden increase in demand and price hikes due to the continuous growth of emerging countries; logistical obstacles; the imposition of import restrictions by the government; international fishing restrictions; suspension of supply due to bankruptcy of suppliers, accidents, or disasters; problems related to food sanitation; and other factors. The Group may be affected by such factors as the occurrence of natural disasters, rapid increases in demand and price hikes due to the continued growth of emerging countries, logistics disruptions, the imposition of import restrictions by governments, international fishing restrictions, supply disruptions due to bankruptcy of suppliers or accidents and disasters, shipment restrictions and harmful rumors due to food sanitation problems, currency fluctuations, and tax increases. If the Group is unable to control these factors and is faced with uncertainty over the procurement of raw materials and other materials or price hikes due to factors that are difficult to predict, the Group’s operating results may be affected by an increase in the COGS ratio and other factors.

In addition, if the prices of fresh fish, rice, or other food ingredients used by the Group rise in the future and the Group is unable to pass on such price increases to its customers, the Group’s operating income will decrease. Furthermore, inflation or exchange rate fluctuations in Japan could further increase the cost of procuring food ingredients. If we are unable to effectively adjust for these cost increases, our business may be severely impacted, even if we are able to improve the efficiency of our procurement operations or pass on higher costs to our customers in a manner that does not affect our Revenue or customer base.

Increases in store utility costs (primarily electricity, water, and gas costs) could also adversely affect the Group’s operating income if the Group is unable or chooses not to pass on the increased costs to its customers.

The Group may revise product sales prices in response to sudden changes in the business environment, such as a sharp rise in food procurement costs, logistics costs, land rent, labor costs, and equipment and construction materials due to the depreciation of the JPY or a decrease in marine resources. If these revisions cause customers to migrate to competitors or change their consumption behavior, the Group’s customer count may decrease and revenue per store may decline, which may affect the Group’s financial position and operating results.

The Group may be forced to change its procurement methods for food ingredients and other items in some of the areas in which it operates due to import restrictions and harmful rumors associated with the release of ALPS treated water from TEPCO’s Fukushima Daiichi Nuclear Power Station, the state of response by governments in other countries, and other factors. Any change from the appropriate procurement method may have a significant impact on the financial position and business performance of our group due to an increase in the COGS ratio, etc.

In November 2024, our group announced the “Medium-Term Management Plan for the Fiscal Year Ending September 30, 2024-September 30, 2026” (hereinafter referred to as the “Medium-Term Management Plan”). In November 2024, the Group announced its “Medium-Term Management Plan for the period from September 2024 to September 2026” (hereinafter referred to as the “Medium-Term Management Plan”), which sets forth a growth strategy centered on (1) expanding overseas operations, (2) strengthening domestic operations, and (3) strengthening initiatives to address the key issues of sustainable management.

However, the Group’s ability to achieve such goals is subject to a number of risks and challenges, including those described in this section.

In developing its medium-term management plan, the Group has made various assumptions. There is no guarantee that these assumptions are correct, and even if they are incorrect, the Group may not be able to change its growth strategy or business operations in a timely manner in response.

Under its medium-term management plan, the Group aims to achieve growth through a steady stream of new store openings. The Group is striving to improve its store development capabilities by strengthening its store development team and improving simulations related to Revenue forecasting and store leasing and location selection. At present, the Group’s core business, the domestic sushi business, is focused on opening new stores in urban areas.

Since the initial costs required for the Group’s store openings vary depending on the location, the Group’s operating results may be affected in the event that the Group is unable to recover its investment on an operating income basis for a given store, or in the event that it is unable to open new stores as planned due to a decrease in store opening space. The Group’s future store performance will be affected by various factors, including the type of new markets and store locations the Group chooses and the degree to which the Group’s store concepts are accepted in those markets. The Group’s store concept for suburban or urban areas may not be attractive enough to customers in areas where the Group’s brand recognition is low, and the popularity of the Group’s store concept may wane in existing markets. Furthermore, new stores may not be successful, and the Group may not be able to maintain revenue per store as it has in the past.

In addition, we may not be able to achieve the number of new store openings in a cost-effective manner as planned. Delays or failures in opening new stores could adversely affect the Group’s growth strategy and earnings forecasts.

The Group’s store locations and store characteristics are mainly suburban stores located along main roads, and store sizes are mainly large stores with approximately 200 customer seats, based on the efficiency of the Group’s store operations. Therefore, the construction of stores requires the securing of sufficient space, including parking lots.

In addition, urban stores are opened in favorable locations in front of train stations, and some stores are large in size as well as suburban stores.

In addition, the Group’s stores occupy leased land or buildings for lease. Therefore, the Group’s ability to continue to operate is affected by its ability to continue to lease these locations on favorable terms.

If there is a significant increase in rent at new or existing stores, the Group’s operating costs will increase. In addition, the Group’s ability to enter into, maintain, or renew lease contracts in more favorable locations is subject to risks related to the lessor, such as whether the lessor agrees to renew the lease at the end of the lease term, If such risks materialize, we may not be able to maintain the lease contract in the relevant location and may be forced to relocate. Furthermore, in considering a new location for a new store, if competition arises with other stores or other potential lessees, the cost of rent and other expenses may increase, and if we are unable to incur such costs, we may lose an attractive opportunity. In addition, such increased costs may generally be more expensive in urban areas. In addition, the Group may incur losses from the disposal of assets or other related losses if it is forced to close a store due to lease termination, profitability, or other reasons. Furthermore, in the event of bankruptcy or other bankruptcy of the landlord, the Group’s business, financial condition, and operating results could be adversely affected due to the possibility of being unable to collect security deposits, guarantee money, and construction cooperation money.

In the event of a natural disaster such as a large-scale earthquake, flood, typhoon, infectious disease pandemic, or other catastrophe, social or political incident, or upheaval in the regions or countries in which the Group operates, the Group’s business, financial condition, and operating results could be adversely affected, including disruption of raw material procurement, suspension of head office functions, damage to stores, and customers leaving the Group’s stores. This could have a negative impact on the Group’s business, financial condition and results of operations.

In the areas affected by the above natural disasters, daily life may be affected, resulting in lost opportunities at the Group’s stores, damage to the Group’s head office, stores, assets including equipment and facilities, or distribution facilities where materials are transported, and restrictions on the use of lifelines such as water, electricity, and gas, which may result in the suspension of the Group’s store operations. In addition, the Group’s store operations may be suspended due to restrictions on the use of water, electricity, gas, and other lifelines. In addition, the Group’s suppliers could be in a similar situation, and as a result, the supply chain could be disrupted. Outbreaks of infectious diseases could also adversely affect both the dining out trends of customers and the work capacity of the Group’s employees. Since the majority of the Group’s store operating costs are fixed and quasi-fixed costs, a decrease in Revenue due to the above factors could reduce operating income and lead to an operating loss. The disaster insurance our group carries may not be sufficient to cover the costs of recovery.

Our group is in the business of operating a large number of stores, and securing a large number of employees, including part-timers, is an important management issue. In recent years, however, Japan’s working population has continued to decline, and there are concerns that it will be difficult to secure the same quality and quantity of human resources as in the past. In particular, there has been a marked decline in the younger population, and the number of part-time student workers, who have traditionally served as the main labor force, has been decreasing. In addition, the number of foreign students is also decreasing, and there is a risk of a shortage of part-time workers.

The hiring environment is also becoming more difficult for permanent employees. In Japan, in addition to the decline in the working population, the increasing fluidity of the labor market is making it easier for workers to change jobs. This is an opportunity for our group to recruit human resources from outside the company, but at the same time, it is a risk for us to lose valuable internal human resources.

For this reason, the Group is diligently implementing measures to attract and retain quality human resources.

DE&I is one of the pillars of this policy, which includes creating a workplace environment where diverse human resources can feel fulfilled in their work, reviewing personnel systems, and enhancing education, training, and career support.

On the other hand, wages have been on a continuous upward trend in Japan in recent years, and this also poses a risk to corporate management. The possibility of wage hikes, especially in anticipation of the Osaka Expo in 2025, is also a concern.

If the number of part-time workers who reach the “annual income barrier” increases and they tend to work fewer shifts, it will be difficult to secure enough operating hours for part-time workers in store operations, which may adversely affect the quality and efficiency of services provided in stores. This could have a negative impact on the quality and efficiency of services provided at our stores.

Wage increases also lead to higher business operating costs. Although we have incorporated a certain amount of wage increases into our business plan, if hourly wages for part-time employees or employee wages rise more than expected, the increase in labor costs could have an adverse effect on our group’s operating results.

Store managers, who form the core of store operations, and employees to promote overseas business development, require a certain period of time for training, as they must be highly capable and experienced.

As explained in (10) Risks, the working population is declining and the labor market is becoming more fluid, so the risk of an exodus of our group employees and a shortage of human resources necessary for business operations is higher than ever.

Inability to fill the number of store managers and personnel who could be dispatched overseas could hinder the planned opening of new stores and overseas store development, and as a result, slow the growth of the Group’s business.

The Group relies heavily on information and communication systems in its overall business operations, including supply chain management, reception systems, touch panel ordering, order and on-lane management, and disposal management. In February 2015, the Group also implemented the Sushiro application for smartphones, which includes functions such as making reservations at stores, checking wait times, and ordering takeout. Therefore, the reliability and ability of these systems to effectively manage the Group’s overall business and to effectively coordinate the preparation, delivery, and sale of menu items with each other is critical. If these systems do not operate effectively, if there are problems upgrading or migrating to alternative systems, if there is a significant network breach in the security of these systems as a result of a cyber attack, or if the Group is unable to maintain a continuous and secure online platform due to any other cause, the Group may be forced to discontinue the operation of these systems. Failure to maintain a continuous and secure online platform could cause delays in customer service, reduce the efficiency of the Group’s operations, require significant capital expenditures to remedy the problem, or create rumors that could damage the Group’s reputation.

In maintaining such systems, we outsource the operation of these systems to application service providers and outsource the management of our Group’s data to cloud service providers. Mistakes by the application service providers or cloud service providers could result in the leakage of personal and confidential information or other security breaches and disruptions to the Group’s systems. There is also a risk that the Group’s operations could be disrupted if the application service provider or cloud service provider ceases to operate for any reason. In addition, our competitors may develop more effective information and communication systems, which may make them more attractive to customers or enhance their stores or business operations.

If rumors spread through various postings and videos on the Internet, such as the unauthorized use of our Group’s trademarks, foreign substances in products, complaints, etc., regardless of the accuracy of the content, our Group’s business, financial position, performance, brand image, and social credibility could be affected. In addition, if an employee or a third party is involved, the Group’s business, financial condition, business performance, brand image, and public trust may be affected. In addition, the Group’s business, financial position, performance, brand image, and public trust may also be damaged by inappropriate behavior or other incidents involving employees or third parties.

Reputational damage may result from allegations of illegal, unfair, or inconsistent employee conduct; employee dissatisfaction, illness, or injury; inappropriate posts or videos in the media or on the Internet or social networking sites; criminal activity; data privacy violations; inadequate internal controls; or scandal involving employees of the Group or other companies in the same or similar industries. or scandals involving employees of the Group or employees of other companies in the same or similar industries. Whether or not the allegations or complaints are upheld, unfavorable publicity regarding the Group’s stores, competitors’ stores, the kaiten-sushi market, or the broader Japanese foodservice industry could adversely affect the credibility of all of the Group’s stores. In addition, rumors about the Group or its industry (including those related to food safety, the results of government or trade association investigations into food products, environmental issues related to overfishing, or operational problems at the Group’s stores) ) could damage the Group’s reputation, adversely affect the Group’s ability to attract customers and revenues, and have a material adverse effect on the Group’s business, financial condition, and results of operations.

Our group has been operating 183 stores in Korea, Taiwan, Singapore, Hong Kong, Thailand, mainland China, Indonesia, and the United States as of the end of the consolidated fiscal year under the slogan, “Deliver delicious sushi to customers around the world. and to concretely promote our overseas strategy, we operate 183 stores as of the end of the current consolidated fiscal year in South Korea, Taiwan, Singapore, Hong Kong, Thailand, Mainland China, Indonesia, and the United States. Revenue from these overseas stores accounted for approximately 26% of the Group’s total revenue for the consolidated fiscal year under review. The Group is also considering the possibility of expanding its overseas operations to other overseas markets, especially in Asia.

In addition to the limited track record of overseas store operations, the Group’s overall overseas operations are subject to differences in consumer preferences, price consciousness, dining out preferences and consumption trends, low brand recognition, competition from other options such as dining out at local stores, changes in consumption trends or raw material costs, distribution costs and labor costs, changes in local economies, fluctuations in material and foreign exchange rates, acts of war, terrorist attacks, epidemics, political upheavals and other events beyond the Group’s control, the Group’s ability to operate or incur costs in the relevant market We may face a number of challenges, including changes in local economic conditions affecting consumption trends or raw material, distribution, and labor costs; fluctuations in material costs and foreign exchange rates; acts of war, terrorist attacks, epidemics, political upheavals, and other events beyond our control; changes in local legal and regulatory requirements affecting our ability to operate or the cost of doing business in a given market. The Group may face a number of challenges, such as changes in local laws and regulatory requirements that affect the Group’s ability or cost of doing business in a given market. These challenges may adversely affect our financial condition, results of operations, and growth strategy.

In addition, the import restrictions and harmful rumors associated with the release of ALPS treated water from TEPCO’s Fukushima Daiichi Nuclear Power Station, as well as the situation regarding the response of governments in each country, differ from area to area, and the impact of such restrictions and rumors on our business performance also differs greatly from area to area. If such an event were to occur as we expand our overseas operations, it could have a significant impact on our group’s financial position, business performance, and growth strategy.

The Group is subject to the risk of litigation from third parties, including customers, lessors, suppliers, and employees, concerning product liability, breach of contract, personal injury, and labor and employment claims arising in the ordinary course of business. Regardless of the validity of the claims against the Group and whether or not the Group is ultimately held liable, such claims may be costly to defend, time-consuming and expensive, and consequently may have an adverse effect on the Group’s business results. If such claims are not covered by the insurance policies that the Group has in place, or if a judgment is rendered that significantly exceeds the coverage of the insurance, the Group’s financial position and operating results may be severely adversely affected. Rumors arising from these claims could also adversely affect our Group’s reputation or prospects and further adversely affect our operating results.

The Group obtains and holds a variety of information from numerous individual customers. With respect to customer information, the Group, as a business operator handling personal information, is required to comply with obligations and other requirements related to the protection of personal information in accordance with the Act on the Protection of Personal Information.

The Group regularly collects personal information through its credit card processing system and ordering system using the Sushiro application and website for smartphones, including the Group’s loyalty point system for customers. In the event of a leak of personal information, the Group’s reputation could be damaged by claims for damages and administrative penalties, and the Group could be required to incur substantial remediation costs, which could adversely affect the Group’s business performance.

In the operation of our group’s business, it is important to build and maintain brand value by utilizing our group’s trademarks, patents, and other proprietary intellectual property rights, including store names and logos used by our group in Japan and overseas, and store designs. If the Group fails to protect its intellectual property rights, or if a third party misuses or infringes on the Group’s intellectual property rights, or if the Group’s intellectual property rights become known to competitors or are independently developed by competitors, the value of the Group’s brands may be damaged, and this may cause the Group’s business to suffer. This could have a material adverse effect on our business, and our brands may not be accepted in the market, or we may not be able to maintain the value of our brands. In addition, the Group may be subject to claims from prior users of similar intellectual property rights in the areas in which it operates or intends to operate. This could damage the Group’s image, brand, or competitiveness, and the Group could incur substantial penalties and costs.

The Group’s operations are affected by fluctuations in foreign exchange rates and changes in regulations pertaining to foreign exchange. While most of the procurement costs and other costs of fresh food ingredients purchased from the Group’s direct suppliers, such as trading companies and wholesalers, are denominated in yen, the procurement costs associated with some suppliers are denominated in foreign currencies. If these foreign currencies strengthen against the Japanese yen, or if suppliers try to pass on increased costs to our group due to such market fluctuations, our group’s procurement costs may increase. To cope with the risk of exchange rate fluctuations, the Group may in the future engage in hedging transactions or other measures to minimize exchange rate fluctuation risk, but even if such measures are taken, there is no guarantee that the Group will be able to fully avoid the risk of foreign exchange rate fluctuations.

Intangible assets (especially brands) and goodwill represent a substantial portion of the Group’s assets. The Group’s brands and the goodwill arising from the acquisition of the former Akindo Sushiro Co. Under IFRS, brands and goodwill are not subject to amortization, but are tested for impairment annually and whenever an indication of impairment is recognized. The Group’s operating assets are also tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.

Determining whether an impairment should be recorded requires a high degree of judgment. In particular, factors such as a significant decrease in future cash flows of the stores that benefit from the assets, legal factors, or significant adverse changes in the business environment could lead to impairment. An unfavorable change in these factors could materially affect the recoverability of these assets and adversely affect the financial position and results of operations of the Group. The Group cannot accurately predict the amount and timing of any impairment of its assets. If the value of the Group’s assets were to be impaired, the Group’s financial condition and results of operations could be materially adversely affected.

The Group raises funds by entering into loan agreements with financial institutions as lenders and by issuing bonds. The ability to raise funds in a flexible manner may have a significant impact on the Group’s business.

The Group’s ability to refinance in the future will be affected by the financial and capital markets and the Group’s financial condition at that time. There is no guarantee that the Group will be able to refinance on favorable terms, which may adversely affect the Group’s financial position and business operations.

The principal amount of some of the Group’s borrowings is denominated in yen with floating interest rates and is therefore subject to fluctuations in market interest rates. If there is a change in interest rate policy and JPY interest rates rise, the interest rate applicable to the Group’s variable-rate borrowings will rise, and interest payments on such borrowings will increase unless hedging is in place. In addition, because a portion of the Group’s long-term borrowings are at fixed interest rates, an increase in market interest rates would increase the Group’s interest payments when refinancing such borrowings or when increasing borrowings to fund operations or capital expenditures.

In addition, the loan agreements contain financial covenants. In the event of a breach of these covenants, the Group would lose the benefit of time under the contract if the lender so demands, and it would be necessary to immediately secure funds to repay the debt, which could affect the financial position and cash flow of the Group. The Group believes that the source of funds for interest and other repayments will come primarily from cash flows, and the Group’s ability to make these payments will depend on its future performance. If the Group does not have sufficient funds, it may need to refinance all or part of its existing borrowings, sell assets, or borrow further money. The Group may not be able to make these alternatives on terms acceptable to the Group, or at all.

The Company has adopted a stock acquisition rights issuance and stock option plan to provide incentives to directors and employees of the Company and its subsidiaries.

In addition, the Company may continue to utilize stock option plans to secure talented personnel, and if stock acquisition rights to be granted in the future are exercised in addition to the stock acquisition rights currently granted, the per-share value of the Company’s stock may be diluted.

In addition to general laws and regulations such as the Companies Act, tax laws, and labor-related laws, our group is subject to various domestic and international legal regulations related to the business we operate, including the Food Sanitation Law, the Law Concerning the Promotion of Recycling of Recyclable Food Resources (Food Recycling Law), and the Act against Unjustifiable Premiums and Misleading Representations. If these legal regulations are strengthened, the Group’s business, financial position, and operating results may be affected due to new costs incurred to comply with them.

Violations of such legal regulations may cause the Group’s social credibility to decline, which may affect the Group’s business, financial position, and operating results.

The Group seeks to expand its business and enhance its competitiveness through corporate acquisitions, business alliances, and the establishment of joint ventures. At the stage of considering corporate acquisitions, etc., the Group conducts due diligence on the target company and verifies the operations of the target company after the acquisition or investment. However, if the initially expected effects are not achieved, the Group’s operating results may be affected.