Classico, Inc.

Since a large portion of products are procured from overseas trading partners and trading companies, there is a risk that foreign exchange fluctuations and increases in labor costs, raw material costs, and transportation costs will push up costs. If cost ratio reduction measures cannot be implemented as expected, this will directly impact business performance. As countermeasures, the Company is implementing more sophisticated production planning, expanding production in third countries, and appropriately passing on price increases.

For some purchasing transactions with trading companies, the Company has adopted a business practice of setting a certain holding period for consigned inventory after manufacturing, and as of the end of the current fiscal year, consigned inventory not recognized as a liability amounted to ¥169,589 thousand. If the consumption of products stagnates, the potential liabilities that may arise in the future could expand, potentially affecting the financial position. While this transaction format aims to reduce costs through expanded production lots and improve administrative efficiency, management of inventory consumption status is important.

Elan Co., Ltd. is the largest shareholder, holding 28.15% of the total issued shares outstanding, and 38.5% of net sales in the current fiscal year are attributable to transactions with this company. Changes in the company's management policy, business strategy, or shareholding policy could give rise to a potential competitive relationship in the future or a risk of a significant decline in sales. The Company is working to resolve this state of excessive dependence through strengthening of domestic EC and overseas expansion, but the medium-term impact remains significant.

The Company operates in six countries and regions overseas—Taiwan, China, Malaysia, Thailand, the Philippines, Singapore, Hong Kong, and the Middle East—requiring compliance with the legal regulations, business practices, and government regulations of each country. In addition to changes in political and social conditions and exchange rate fluctuations, there are also risks associated with upfront investments such as overseas product development, inventory investment, and advertising expenses. The Company addresses these risks through efficient upfront investment, compliance with local laws and regulations, and the training and hiring of overseas personnel, but the impact on business performance can be significant should risks materialize.

Competition may intensify due to an increase in new entrants into the medical apparel market and the emergence of domestic and overseas companies with technological capabilities surpassing those of the Company. If the Company is unable to maintain its competitiveness, or if customers choose competitors' products, this could lead to a decline in net sales. The Company strives to maintain its competitive advantage by enhancing its product planning, development, and sales capabilities and strengthening relationships with existing customers.

Although Lab Coats & Scrubs (Classico brand), being uniforms in nature, are less susceptible to trend fluctuations, if sales volume forecasts are off the mark due to changes in customer needs or mistimed product launches, this could result in long-term stagnant inventory, leading to recognition of inventory valuation losses or opportunity losses due to stockouts. While the Company implements appropriate inventory management utilizing its business management system and external warehouses, the complexity of inventory management is increasing in line with expanding overseas operations.

In January 2025, the Company signed a memorandum concerning a capital and business alliance with MN Interfashion Co., Ltd., and approximately 34% of the total purchase amount from all outsourcing partners in the current fiscal year was attributable to purchases from this company. Following the capital and business alliance, there is a possibility that the proportion of purchases from this company will increase significantly, heightening procurement risk should transactions with this company become unable to continue. The Company is working to mitigate this risk by securing multiple alternative suppliers, but close monitoring of the rising level of dependence is necessary.

The Company holds important information such as customer information and personal information, and if an information leak occurs due to human operational error or other unforeseen factors, this could result in the burden of costs based on liability for damages or a contraction in transactions due to loss of social credibility. The Company addresses this through the development of personal information protection regulations and information security regulations, thorough access management, and regular training for officers and employees.

Arata Yamato, Representative Director and President, is the founder and a major shareholder holding 32.87% of the total issued shares outstanding, and plays an important role in management strategy and business strategy. Should he become unable to continue his duties, or should a large volume of his shares be sold off, this could have a material impact on the continuity of management and stock price formation. The Company is promoting information sharing and delegation of authority to officers and employees, and is working to develop a management structure that avoids excessive dependence.

There is seasonality in which demand rises every year from February to April due to personnel turnover at medical institutions, while demand declines from November to January due to purchase restraint. In the first quarter (November to January) of the current fiscal year, the operating loss reached ¥160,121 thousand, making it difficult to assess the full-year outlook based solely on performance in a specific quarter. The concentration of sales recognition timing for certain products, such as Patient Gowns (lifte brand), in specific quarters is also a factor contributing to this variability.