First of all, it is assumed that the acquisition price of the four former Avice stores is recoverable from the cash flow from the four stores, and there is no actual problem from the standpoint of investment recovery, i.e., from the standpoint of M&A.

Rather, GENDA has repeatedly rolled up amusement arcade M&As and generated numerous synergies, and in fact, the four former Avice stores (now referred to as three stores due to a change in store definition) have a high comparable store growth rate of 107% in GENDA’s pre- and post-GENDA in-place comparison.

Despite this, the goodwill impairment is due to the following structural factors in management accounting.

Briefly stated, the four former Avice stores will incur a loss in management accounting if GENDA GiGO Entertainment’s Headquarters SG&A expenses are allocated to the four former Avice stores. However, the existing GiGO stores will incur less expenses, and their profits will increase in management accounting, by the same amount that the Headquarters’ SG&A expenses are allocated to the four former Avice stores. Therefore, the debate is which store will have its profits prorated for management accounting purposes.

On the other hand, from a company-wide perspective, the acquisition of the four former Avice stores has increased both company-wide profits and cash flow, and the increased cash flow will be used to recover the original acquisition price, so there is no problem with this investment.

For details, please refer to page 11 of the “Financial Results for the Fiscal Year Ended January 31, 2024 and Forecast for the Fiscal Year Ending January 31, 2025” disclosed on March 11, 2024.

https://ssl4.eir-parts.net/doc/9166/ir_material_for_fiscal_ym/152154/00.pdf#page=11