DREAM VISION CO.,LTD.

The Group recorded an operating loss and a net loss for the current consolidated fiscal year, and the non-consolidated financial statements continue to show a negative net worth condition. Following on from the previous consolidated fiscal year, conditions exist that raise substantial doubt about the Group's ability to continue as a going concern. The Group has judged that no material uncertainty exists on the premise that financial support from the parent company will continue, but whether such support continues holds the key to business survival. Cash flow improvement measures such as closing unprofitable stores and reducing inventory are being implemented, but the domestic apparel business and jewelry business continue to face difficult conditions.

Many products are manufactured overseas, primarily in China, and procurement costs are directly or indirectly affected by exchange rate fluctuations. As no hedging measures such as forward exchange contracts are currently in place, a rapid depreciation of the yen could directly lead to an increase in accounts payable and deterioration of the cost ratio. In addition, increases in local raw material costs and labor costs due to changes in economic conditions in sourcing countries could also push up procurement costs and affect business performance.

With the expansion of the internet mail-order market, suppliers' D2C expansion, major retail chains' full-scale entry into e-commerce, and entry by overseas operators have occurred one after another. Furthermore, as consumer preferences have shifted from "goods consumption" to "experience consumption," competition for discretionary income with other industries has also intensified, making the competitive environment more multifaceted. Delayed responses to customer needs and increased advertising and logistics costs associated with competitive measures may affect business performance.

In the apparel, toy, and general merchandise industries, trends change rapidly and product life cycles are short, so advance procurement based on demand forecasts carries the risk of lost sales opportunities or excess inventory. If actual sales fall below forecast demand, excess inventory may result, potentially affecting cash flow and causing inventory valuation losses. A decline in the main target customer segment (young women) due to the declining birthrate and aging population is also recognized as a factor contributing to weak sales.

Business performance for apparel and general merchandise is affected by unpredictable weather changes such as cool summers, warm winters, and typhoons. In recent years there has been a tendency for high temperatures to persist longer from midsummer heat, making it difficult to respond using conventional spring/summer and autumn/winter seasonal merchandising plans. For the current consolidated fiscal year, quarterly revenue was ¥3,534,583 thousand against an operating loss of ¥385,200 thousand, and abnormal weather worldwide could significantly affect revenue and operating income.

Many products of the Company and Naraka Michejapan Co., Ltd. are manufactured at cooperative factories overseas, including in China, and if geopolitical risks (regional conflicts, political instability), the spread of infectious diseases, changes in labor conditions, regulatory changes, or customs clearance troubles occur, the product supply system may be disrupted. In the jewelry business as well, many gemstones and precious metals are dependent on overseas imports, and sudden changes in gold and platinum prices or exchange rate fluctuations carry the risk of significantly increasing procurement costs. A delayed response to these risks may materially affect business performance.

As internet mail order is the main sales channel, stable operation of systems and the internet connectivity environment is a prerequisite for business operations. If natural disasters, sudden traffic surges, software malfunctions, unauthorized access (including third-party unauthorized acquisition and use of IDs and passwords), or computer virus infections occur, stable service provision may become difficult, affecting business performance. Although continuous data backup and security enhancement measures are in place, they do not guarantee complete protection.

The Group holds a large amount of customers' personal information and has implemented measures such as establishing personal information protection regulations, conducting internal training, and managing data on physically separated dedicated servers. However, if information leakage due to intentional acts or negligence by related parties or outsourced vendors, or unauthorized use resulting from unauthorized access occurs, it may lead to legal liability including damages claims and damage to trust and brand reputation, affecting business operations and financial results. This is also linked to litigation risk, and large damages payments may occur.

The internet mail order, apparel, and general merchandise businesses are subject to a wide range of legal regulations, including the Act on Specified Commercial Transactions, the Personal Information Protection Act, the Product Liability Act, the Pharmaceuticals and Medical Devices Act, and the Freelance Act. Although efforts are made to comply with laws and regulations through the establishment of internal controls and compliance systems, the occurrence of violations or future legal amendments and the introduction of new regulations may affect business operations and performance. Continuous response to changes in the regulatory environment, particularly the newly enacted Freelance Act and similar laws, is required.

The Company outsources product storage and inbound/outbound operations for the apparel business, and if communication line failures, service interruptions at the outsourcing partner, or changes to the basic contract occur, the receiving and shipping operations may be affected. In addition, for tangible fixed assets (including right-of-use assets) grouped by store, if store profitability declines, impairment losses may occur, affecting financial results. Although the Company is proceeding with closures of unprofitable stores, the risk of losses arising from store closures, temporary suspensions, or reduced operating hours also remains.