TOHOKUSHINSHA FILM CORPORATION

During the fiscal year under review, a consolidated subsidiary was subject to a ransomware attack, and leakage of certain information has been confirmed. Business suspension or tampering with or unauthorized use of important data may impact the Group's social credibility and business performance. There is also a risk of intrusion via external contractors or group companies. As countermeasures, the Group is reviewing its backup systems, strengthening monitoring and defense capabilities, utilizing cyber risk insurance, and advancing evaluation of security standards including those of outsourcing partners.

Regarding graniph Co., Ltd., which became a wholly owned subsidiary as of April 30, 2026, if PMI does not proceed as expected due to differences in business format or corporate culture, or if realization of anticipated synergies is delayed, recovery of the investment may be delayed, potentially affecting business performance. Additionally, if the acquired company's earnings base falls short of its business plan, an impairment loss may need to be recognized on goodwill or other fixed assets recorded on the consolidated balance sheet. The Group addresses this through a cross-departmental promotion structure, integration of management and reporting systems, and continuous monitoring of business performance.

During the fiscal year under review, certain events requiring improvement in labor management were identified at some group companies, and corrective actions are being pursued; additionally, some instances of inappropriate conduct by officers and employees and deficiencies in internal controls have been confirmed. Failure to conduct appropriate labor management could result in damage claims, administrative guidance, or loss of social credibility, potentially affecting business performance. The Group addresses this through correction of excessive working hours, establishment of a structure overseeing labor management across group companies, implementation of compliance training, and enhancement of the effectiveness of the internal reporting system.

Through the acquisition of graniph as a wholly owned subsidiary, the Group has newly entered the apparel and multi-store retail business, an area in which it lacks prior expertise. Various risks specific to this business exist, including inventory and supply-demand management, e-commerce operations and payment processing, store-level profitability, legal compliance related to procurement, quality, and labeling, and supply chain management including logistics contractors. The Group addresses this through improved accuracy of demand forecasting, fraud detection and security measures, strengthened management of contractors, quality, and labeling, and enhanced monitoring of stores and locations including those overseas.

The rapid advancement of generative AI may substitute for production work such as commercial production and sound/subtitle work, or significantly change production methods; failure to adapt may reduce revenue in related businesses. On the other hand, delays in responding to new expression and distribution domains such as the metaverse and XR could result in missed medium- to long-term growth opportunities. The Group strives to maintain and strengthen its competitiveness through proactive utilization of AI and other new technologies, acquisition of related skills by personnel, and initiatives in growth areas such as games and animation and overseas expansion.

The Group's earnings are heavily weighted toward the advertising production business, with transactions concentrated among certain advertising agencies and clients. Fluctuations in revenue from specific businesses or clients due to economic changes, shifts in policy by major business partners, or progress in clients' insourcing (in-house production) could affect the Group's overall business performance. The Group is working to diversify its business portfolio and clients to disperse its earnings base.

If personnel optimization and progress in outsourcing (BPO) associated with structural reforms do not proceed as planned, delays in fixed cost reductions or concentration of workload on remaining employees could affect achievement of the plan. Additionally, if business development and investment activities (including M&A) aimed at growth do not proceed as expected, this could also affect achievement of the plan. The Group regularly verifies progress on the plan and revises measures as necessary.

The rise of streaming services and diversification of viewing needs are causing the pay TV market to contract; failure to respond appropriately to declining subscriber numbers could reduce earnings in the media business. This is driven by the trend away from television, particularly among younger viewers, and the spread of video platforms. The Group is working toward appropriately sizing the business through strengthening its distribution business by leveraging distinctive IP, selecting and concentrating on viable channels, and reducing fixed costs.

The Company has a controlling shareholder, and there is a risk that conflicts of interest with minority shareholders may arise in connection with corporate acquisitions and other important decisions, as well as the possibility that shareholders and investors may question the transparency of decision-making. Failure to appropriately address these matters could affect market confidence. The Group strives to ensure objectivity and transparency in decision-making through the functioning of the Board of Directors, including independent outside directors, a voluntary nomination and compensation committee, and the use of external experts.

If new businesses, acquisitions, newly established companies, or capital and business alliances fall short of the original business plan, it may become necessary to recognize impairment on goodwill or other fixed assets, potentially affecting business performance. Additionally, exchange rate fluctuations associated with overseas content procurement and apparel product imports could affect performance through increased procurement costs. The Group addresses this through detailed review of profit plans and continuous monitoring of business progress at periodic budget meetings, and through the use of hedging instruments such as foreign exchange forward contracts.