Yoshitsu Co. Ltd. Sponsored ADR (TKLF) Risk Analysis

As of March 31, 2023, we had approximately $60.6 million in short-term borrowings and $13.1 million in long-term borrowings outstanding. The amount of our debt could have significant consequences on our operations, including: - reducing the availability of our cash flow to fund working capital, capital expenditures, acquisitions, and other general corporate purposes as a result of our debt service obligations;         - limiting our ability to obtain additional financing;         - limiting our flexibility in planning for, or reacting to, changes in our business, the industry in which we operate, and the general economy;         - increasing the cost of any additional financing; and         - limiting the ability of our subsidiary to pay dividends to us for working capital or return on our investment. Any of these factors and other consequences that may result from our substantial indebtedness could have a material adverse effect on our business, financial condition, results of operations, and cash flows impacting our ability to meet our payment obligations under our debts. Our ability to meet our payment obligations under our outstanding indebtedness depends on our ability to generate significant cash flow in the future. This, to some extent, is subject to general economic, financial, competitive, legislative, and regulatory factors as well as other factors that are beyond our control.

To improve the in-store experience of our customers, our physical stores have an ongoing need for maintenance and renovations and other capital improvements, including replacement, from time to time, of furniture, fixtures, and equipment. These capital improvements may give rise to the following risks: - possible environmental liabilities;         - construction cost overruns and delays;         - a decline in revenue while stores are out of service due to capital improvement projects;         - a possible shortage of available cash to fund capital improvements and the related possibility that financing for these capital improvements may not be available to us on favorable terms, or at all;         - uncertainties as to market demand or a loss of market demand after capital improvements have begun; and         - bankruptcy or insolvency of a contracted party during a capital improvement project or other situation that renders them unable to complete their work. The costs of all these capital improvements or any of the above noted factors could have a material adverse effect on us, including our financial condition, liquidity, and results of operations.

One of the key means of achieving our growth strategies will be through opening and operating new stores on a profitable basis for the foreseeable future. During the fiscal year ended March 31, 2021, we added a franchise store in Canada, but we did not open any new directly-operated physical store and closed a franchise store in the U.S. and a franchise store in Hong Kong due to the impact of the COVID-19 pandemic. During the fiscal year ended March 31, 2022, we opened three new directly-operated physical stores in Hong Kong, opened two new overseas online stores and two new domestic online stores, added two franchise stores, and developed 16 new wholesale customers. During the period from April 1, 2022 to the date of this annual report, we opened two new directly-operated physical stores in Japan and six new directly-operated physical stores in Hong Kong, opened two new overseas online stores and two new domestic online stores, added one franchise store, and developed 66 new wholesale customers; however, during the same period, we closed three directly-operated physical stores in Japan and four directly-operated physical stores in Hong Kong, transited four directly-operated physical stores in Japan into franchise stores, and transited four franchise stores in Canada into wholesale customers. We identify target markets, taking into account numerous factors, such as the locations of our current stores, demographics, traffic patterns, information gathered from various sources, and, recently, whether known consumer patterns will remain at the same level as prior to the COVID-19 pandemic and if we need to modify the layout of our new stores to minimize contact with customers. We may not be able to open our planned new stores within budget or on a timely basis, if at all, given the uncertainty of these factors, which could adversely affect our business, financial condition, and results of operations. As we operate more stores, our rate of expansion relative to the size of our store base will eventually decline. The number and timing of new stores opened during any given period may be negatively impacted by a number of factors, including: - epidemics or pandemics, such as the COVID-19 pandemic;         - our ability to increase brand awareness and beauty and health product consumption in areas where we open stores;         - the identification and availability of sites for store locations with the appropriate size, traffic patterns, local retail and business attractions, and infrastructure that will drive high levels of customer traffic and sales per unit;         - competition in existing and new markets, including competition for store sites;         - the negotiation of acceptable lease terms;         - our ability to obtain all required governmental permits on a timely basis;         - our ability to control construction and development costs of new stores;         - the maintenance of adequate distribution capacity, information systems, and other operational system capabilities;         - integrating new stores into our existing procurement, manufacturing, distribution, and other support operations;         - the hiring, training, and retention of store management and other qualified personnel;         - assimilating new store employees into our corporate culture;         - the effective management of inventory to meet the needs of our stores and wholesale customers on a timely basis; and         - the availability of sufficient levels of cash flow and financing to support our expansion activities. Unavailability of attractive store locations, delays in the acquisition or opening of new stores, delays or costs resulting from a decrease in commercial development due to capital constraints, difficulties in staffing and operating new store locations, or lack of customer acceptance of stores in new market areas may negatively impact our new store growth and the costs or the profitability associated with new stores. Additionally, customer trends, preferences, and demand may vary significantly by region, and our experience in the markets in which our products are currently sold may not be applicable in other regions or countries. As a result, we may not be able to leverage our experience to expand into other parts of Japan and overseas. When we enter new markets, we may face intense competition from companies with greater experience or an established presence in the targeted geographical areas or from other companies with similar expansion targets. In addition, our business model may not be successful in new and untested markets and markets with a different business environment. We may not be able to grow our revenue in the new cities we enter, but we will incur substantial costs in connection with any such expansion. Consequently, we cannot assure you that we will achieve our planned growth or, even if we are able to grow our store base as planned, that any new stores will be profitable, which could have a material adverse effect on our results of operations.

As a public company, we are subject to the reporting requirements of the Exchange Act, the Sarbanes-Oxley Act of 2002, the Dodd-Frank Wall Street Reform and Consumer Protection Act, the listing requirements of Nasdaq, and other applicable securities rules and regulations. Despite recent reforms made possible by the JOBS Act, compliance with these rules and regulations will nonetheless increase our legal, accounting, and financial compliance costs and investor relations and public relations costs, make some activities more difficult, time-consuming, or costly, and increase demand on our systems and resources, particularly after we are no longer an "emerging growth company." The Exchange Act requires, among other things, that we file annual reports and reports of foreign private issuer with respect to our business and operating results as well as proxy statements. As a result of disclosure of information in the Form 20-F and in filings required of a public company, our business and financial condition are more visible, which we believe may result in threatened or actual litigation, including by competitors and other third parties. If such claims are successful, our business and operating results could be harmed, and even if the claims do not result in litigation or are resolved in our favor, these claims, and the time and resources necessary to resolve them, could divert the resources of our management and adversely affect our business, brand and reputation, and results of operations. Being a public company and these new rules and regulations make it more expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced coverage or incur substantially higher costs to obtain coverage. These factors could also make it more difficult for us to attract and retain qualified members of our board of directors and senior management.

We have been growing rapidly in recent years, and we intend to continue to expand our business by opening new physical and online stores. Since this rapid expansion is a new strategy for us and our management has a limited history managing such an expansion, we may not be able to adapt quickly to such major business change, compete successfully in new markets, build our brand in new countries or areas, or generate sufficient net income from our new stores. As a result, it is difficult for us to predict our results of operations with respect to our newly opened stores and you should not rely on our historical results of operations as an indication of our future financial performance. This growth strategy has placed, and will continue to place, substantial demands on our managerial, operational, technological, and other resources. Our growth strategy will also place significant demands on us to maintain the quality of our product and customer services to ensure that our brand does not suffer as a result of any deviations, whether actual or perceived, in the quality of our product and customer services. To accommodate our growth, we anticipate that we will need to implement a variety of new and upgraded operational and financial systems, procedures, and controls, including the improvement of our accounting and other internal management systems. We will also need to continue to expand, train, manage, and motivate our workforce and manage our relationships with customers, suppliers, and other service providers. As we selectively increase our product offerings, we will need to work with different groups of new suppliers efficiently and establish and maintain mutually beneficial relationships with our existing and new suppliers. All of these endeavors involve risks and will require substantial management effort and significant additional expenditures. We cannot assure you that we will be able to effectively manage our growth or execute our strategies effectively, and any failure to do so may have a material adverse effect on our results of operations and profitability.