Risk Information

(1) Purchase of Reuse Goods

Purchasing reuse goods is the core activity that generates income for the Company Group. However, compared to the purchase of new products, the supply of reuse goods is less certain, depending as it does on the number of goods brought in by customers.
To strengthen the stability of its purchasing sources, the Company Group improves web marketing, provides outstanding customer support, and offers pre-appraisals via telephone and social media apps, to encourage customers to sell goods at buying offices. Efforts are also being made to enhance the purchasing structure, through implementation of delivery buying, in-home buying, online buying, and purchases through alliances in addition to in-office buying. The Company Group has also begun buying reuse products overseas.
Nevertheless, the Company Group financial results may be adversely affected by challenges in sourcing reuse goods due to changing economic trends, growing competition, changing customer preferences, or changes in the market price of jewelry, precious metals, and bullion.

(2) Purchasing Staff

With the exception of gold and platinum, whose prices are set by the market, reuse goods lack predetermined market prices. The popularity of luxury brands and the recent increase in market volume for reuse goods requires purchasing staff who are capable of inspecting the authenticity of reuse goods in line with the Company Group standards and providing appropriate purchase prices in accordance with individual circumstances. Accordingly, the Company Group recognizes the importance of developing purchasing staff with specialized knowledge and experience.
If the Company Group fails to develop sufficient purchasing staff in line with projections, this could hinder buying office operations and opening of new buying offices, which in turn could adversely affect the Company Group financial results.

(3) Risk of Purchasing Counterfeit Goods

Counterfeit goods of well-known luxury brand items such as bags and watches are broadly distributed and have emerged as a social issue. The Company Group cultivates purchasing staff’s ability to confirm the authenticity of reuse goods to prevent the purchase of counterfeit goods. The Company Group also performs careful inspections to determine the authenticity of reuse goods before sale to provide safe and secure goods to customers (both partners and general consumers). Counterfeit goods mistakenly purchased are returned or disposed of to prevent resale. The Company Group may ask third-party institutions to assess the authenticity of reuse goods. The nature of its business—purchasing reuse goods from general consumers through secondary distribution rather than from authorized brand stores—poses the constant risk of buying and selling counterfeit goods. The Company Group financial results may be adversely affected by problems or loss of credibility associated with the purchase and sale of counterfeit goods.

(4) Risk of Purchasing Stolen Goods

In the event that the Company Group identifies the purchase of any stolen goods, the Company Group attempts to return said items to the rightful owner at no charge within 2 years pursuant to the Civil Code or within 1 year after purchase as permitted under the Civil Code pursuant to the provisions of the Secondhand Articles Dealer Act and when purchased from public markets. The Company Group maintains a firm stance against the purchase of suspected stolen goods in any form and works closely with law enforcement to establish structures to prevent the distribution of stolen goods.
From the perspective of compliance with the Secondhand Articles Dealer Act and Civil Code, the Company Group has linked its secondhand articles ledger (detailed records of reuse goods purchase) with its business system to facilitate timely and appropriate cooperation with law enforcement investigations in the event the Company Group discovers purchases of stolen goods and to facilitate the return of stolen goods to the owner at no charge.
Nevertheless, the nature of its business makes it difficult to eliminate the purchase of stolen goods entirely. The Company Group financial results may be adversely affected by returns of purchases traceable to the purchase of stolen goods and the loss of creditability arising from such events, etc.

(1) Future Buying Office Opening

The Company Group secures reuse goods through buying offices both within and outside Japan. Overseas, the Company Group also has buying offices in cooperation with its partners.
To achieve further growth, the Company Group must continue to improve its capacity to purchase reuse products. The Company Group financial results may be adversely affected if the opening of its buying offices or partner buying offices fail to proceed smoothly and the purchase of reuse goods falls short of plans.

(2) Business Areas

The Company Group has numerous buying offices in the Special Wards of Tokyo, Osaka, Nagoya, and surrounding areas, all located at the center of 3 major metropolitan areas supporting relatively large markets for reuse goods. The Company Group financial results may be adversely affected by the destruction of operating facilities or constraints on the use of a wide range of infrastructure in the event of large-scale disasters affecting the 3 major metropolitan and surrounding areas.

(3) Lease Contracts for Buying Offices and Retail Stores

The Company Group enters into lease contracts for its buying offices and retail stores and if for some reason the contract cannot be renewed, or if the rents rise upon contract renewal, the Company Group financial results may be adversely affected.

(4) Asset Impairment Accounting

The Company Group operates buying offices and retail stores. Appropriation or losses associated with the application of asset impairment accounting may occur if the profitability of each office decreases due to changes in the management environment. The Company Group strives to manage profits at each location to prevent impairment and takes appropriate measures at locations marked by deteriorating profitability. Nevertheless, an increase in unprofitable locations leading to the closure of multiple locations over a short period may lead to significant impairment losses, adversely affecting the Company Group financial results.

(1) Changes in Financial Results Associated With Changes in the External Environment

The Company Group mainly handles reuse products such as brand name products, precious metals, and jewelry, as well as antiques and art objects. The Company Group has established a stable business structure that reduces dependence on specific items. To increase earnings further, the Company Group is expanding its lines of merchandise handled to include real estate, automobiles, and other property and will handle a wide range of real assets that will have the same value all over the world.
However, the prices of some items may decline due to economic obsolescence associated with changes in trends, sharp fluctuations in exchange rates and stock prices or rapid changes in business sentiment, and changes in market prices of precious metals, bullion, and watches. As a result, net sales may be adversely affected if procurement and sales cannot proceed as planned. Additionally, although the Company Group has multiple sales channels, including auctions, and is able to choose appropriate sales channels based on market trends to ensure inventory turnover does not become prolonged, there is a possibility that gross profit margin cannot be maintained as planned, which could affect the Company Group financial results.

(2) Effects of Natural Disasters

The Company Group operates both purchasing offices and retail stores. While all possible measures are implemented to address natural disasters, accidents such as fires, and the spread of infectious diseases, the occurrence of large-scale natural disasters such as earthquakes or typhoons, or widespread infectious diseases, could hinder the continuation of business operations. Combined with associated costs incurred for recovery and restoration, the above could all affect the Company Group financial results.

(3) Decrease of Sales and Profitability Declines Associated With Changes in Exchange Rates

The Company Group sells purchased reuse goods to reuse goods dealers both in Japan and overseas via its independent auctions. Successful bid prices in auctions are influenced by exchange rates since many auction participants are from overseas. When the yen is weaker, there are more bids from overseas and prices tend to increase; successful bid prices tend to fall when the yen is stronger.
While the Company Group believes this tendency will be diluted by the participation in the auctions of participants from a broader range of countries and regions, the Company Group financial results may be affected by the timing of exchange rate fluctuations and the proportions of participants in auctions from specific countries.
Additionally, approximately 60% of net sales at retail stores are generated by inbound demand (foreign tourists visiting Japan). Therefore, if factors such as a rapid appreciation of the yen lead to a decline in inbound demand, net sales at retail stores may decrease, potentially affecting the Company Group financial results.

(4) Intensified Competition

In the reuse industry to which the Company Group belongs, there is competition with other companies to purchase items. The Company Group seeks to improve its competitiveness and promote differentiation from competitors by strengthening its marketing, opening convenient buying locations, improving service at buying offices, and continuing human resource training and education.
However, the Company Group financial results may be adversely affected if competition increases due to new entries into the reuse products industry.

(5) Dependence on Interest-Bearing Debt

The Company Group depends heavily on loans from financial institutions to procure working capital. Accordingly, the Company Group business expansion may be adversely affected if capital procurement fails to proceed as planned due to changes in its financial position. As of August 31, 2024, interest-bearing debt (including lease obligations) was 16.46 billion yen (The interest-bearing debt ratio* was 252.2%). In addition, although retail sales will be strengthened in the future, the interest-bearing debt ratio may increase due to the growing ratio of retail sales.
The Company Group secures sufficient liquidity of funds by entering into the Commitment Line Agreements with multiple financial institutions totaling 11 billion yen. In addition, the Company Group recognizes that maintaining and improving stable external financing capabilities is an important management issue and maintains favorable business relationships with major financial institutions. Moreover, if an increase in interest rates, etc., increases the cost of capital procurement, the Company Group financial results may be affected by the resulting pressure on profits.

(1) Restrictions Imposed by the Secondhand Articles Dealer Act

The Company Group is a Certified Secondhand Articles Dealer approved by the Local Public Safety Committee and is obligated to comply with the Secondhand Articles Dealer Act. While Secondhand Articles Dealer certification does not expire, violations of the Secondhand Articles Dealer Act or other laws and regulations regarding the secondhand article business, coupled with the inability to immediately identify or prevent the purchase and sale of stolen goods, may result in business suspension or the revocation of certification by the Local Public Safety Committee, in accordance with Article 24 of the Secondhand Articles Dealer Act.
The Company Group purchases and sells secondhand articles under the said certification and operates a market for the purchase and sale of secondhand articles among dealers and international partners with the permission of the secondhand article market owners. The Company Group complies with the Secondhand Articles Dealer Act and related laws and regulations by providing detailed internal training and education regarding the said act and related laws and regulations, confirming the identification of sellers in accordance with the said act and related laws and regulations, and the careful management of secondhand article ledgers. This strengthens the Company Group’s level of confidence that no problems affecting the Company Group’s business continuity will arise.
However, the Company Group financial results may be adversely affected if certification is revoked due to the events and conditions referenced above.

(2) Personal Information Management

The Company Group handles customer addresses, names, occupations, ages, and credit card information, which are recorded and managed in ledgers in written form or by electromagnetic means. The Company Group has established a system that ensures appropriate protective measures for personal information. The Company Group has also acquired Privacy Mark certification and established internal regulations and other rules. It seeks continually to strengthen internal management structures, provide thorough employee training and education, and enhance information system security to improve its personal information protection management. The Company Group also strives to comply with the Act on the Protection of Personal Information to prevent leaks of personal information. The Company Group also maintains systems to ensure compliance with laws and regulations in other countries, including the EU General Data Protection Regulation (GDPR), the California Consumer Privacy Act (CCPA), and the Singapore Personal Data Protection Act (PDPA).
Nevertheless, the Company Group financial results may be adversely affected, its reputation and societal standing compromised, and significant costs incurred in the event of a personal information leak.

(3) Laws and Regulations regarding the Prevention of Criminal Proceeds Transfer

The Criminal Proceeds Transfer Prevention Act applies to the Company Group’s businesses. The Company Group financial results may be adversely affected if the Company Group fails to comply with the said act and related laws and regulations and is subject to guidance, advice, recommendation, or penalties by government agencies.

The Company Group handles customer information such as addresses, names, occupations, ages, and credit card details in areas such as store operations and promotional activities. The Company Group takes thorough measures to ensure the security of such information and strives to prevent risks such as loss, destruction, alteration, and leakage, operating and building systems to ensure the effectiveness of information security measures.
However, despite these efforts, incidents such as information leakage or system malfunctions could occur due to factors such as increasingly sophisticated and diversified computer viruses and cyberattacks, management deficiencies by employees or contractors, or system failures, leading to a loss of public trust. Furthermore, obligations for compensating victims, as well as costs associated with implementing information security measures, including defending against external cyberattacks, could affect the Company Group financial results.

The Company Group continues to develop overseas businesses to expand its business. The Company Group financial results may be adversely affected in the event of business fluctuations, political and social unrest, changes in laws and regulations, and significant changes in exchange rates in specific countries. In addition, because partner buying offices for overseas expansion are operated using the Company Group’s business name, in the event of negative information or reports related to buying offices operations of local partners, the Company Group financial results may be adversely affected by a decline in brand image.

The Company Group’s founder and Representative Director, Shinsuke Sakimoto, plays a critical role in advancing the Company Group’s business, including determining management policies, business strategies, and overseeing their implementation and promotion. While the Company Group is working to strengthen its organizational structure to avoid dependence on specific individuals, actively fostering internal talent, and developing a management system that does not overly rely on Mr. Sakimoto, any unforeseen circumstances affecting him could potentially affect the Company Group financial results.

The Company Group provides share acquisition rights and restricted stock compensation to the Company Group directors and employees as incentives. While the Company Group is considering using these programs in the future as well, the exercise of stock options or the issue of transfer-restricted shares may cause the dilution of shares.

The Company Group considers corporate acquisitions as one of the options for expanding business domains or acquiring and enhancing necessary functions in the future. When conducting acquisitions, the Company Group performs due diligence on the financial condition, contractual relationships, and other aspects of the target company. Decisions are made after thoroughly examining the appropriateness of the acquisition price and associated risks. However, if post-acquisition changes in the business environment or competitive landscape prevent the business plan from progressing as initially anticipated, there may be impairments on the acquisition price of the target company’s shares or goodwill, which could affect the Company Group financial results. When launching new investments or new businesses, the Company Group sets the hurdle rate used to assess the viability of projects above the Weighted Average Cost of Capital (WACC) calculated by the Company Group, striving to mitigate risks and maintain management focused on capital efficiency. The Company Group also conducts advanced and multifaceted risk evaluations, including investigations by external experts into the content of the business or contracts. Decisions are made after thorough discussions at the Executive Management Meeting and the Board of Directors. However, if business plans do not progress as initially envisioned due to significant deterioration in the management environment, impairment losses may occur, potentially affecting the Company Group financial results.

The Company Group relies on in-store purchases for approximately 90% of its operations, which leads to a tendency for customer traffic and procurement to decrease during periods such as February, when there are fewer business days compared to other months, and the average temperature is the lowest of the year. Additionally, for in-house auctions, which account for over 50% of the Company Group’s total transaction volume, participating businesses tend to accelerate procurement during July and August in preparation for the year-end sales season. These factors contribute to a tendency for the Company Group’s performance to be skewed toward the second half of the fiscal year.

(Note) The interest-bearing debt ratio is calculated by dividing the total amount of short-term loans payable, current portion of bonds payable, current portion of long-term loans payable, bonds payable, long-term loans payable, and lease obligations by the amount obtained by deducting share acquisition rights from total net assets.