DANTO HOLDINGS CORPORATION

In the current consolidated fiscal year, the Company recorded an operating loss of ¥664 million and a decrease in cash flows from operating activities of ¥288 million, giving rise to conditions that raise substantial doubt about the going concern assumption. As countermeasures, the Company aims to achieve early operating profitability by strengthening the sales structure and expanding sales of high-value-added products in the tile business to improve profit margins, developing new customers in the real estate business, and expanding revenue in the power generator and renewable energy businesses. On the funding side, the Company states that it holds assets to respond to sudden changes in the market environment, but escaping from its loss-making structure remains an urgent priority.

The manufacture, sale, and installation of ceramics for construction (tiles), the Company's core business, is heavily dependent on trends in housing starts. If a decline in housing starts, intensifying price competition, and changes in personal consumption occur simultaneously, this could have a material impact on both sales and profit. As the Company has already recorded an operating loss, any further deterioration in the market environment poses a risk of placing additional strain on management.

If the prices of energy and raw materials such as heavy metals used in the manufacturing process rise sharply, manufacturing costs could increase, adversely affecting operating results. Particularly in a market environment with intense price competition, it may be difficult to pass on cost increases to selling prices, creating a risk of further pressure on profit margins. The annual securities report does not disclose any specific hedging measures.

The Group manufactures products using internal standards such as for slip resistance and ISO quality management systems, and has also taken out product liability insurance. However, in the event of a product accident or quality issue, the resulting compensation costs and loss of credibility could affect operating results. Risks remain separately for damages not covered by insurance and for reputational damage.

Because the Company handles a wide variety of products (combinations of colors and shapes), it manages operations by setting standard inventory levels for each item; however, if a gap arises between sales forecasts and actual results, there is a risk of large amounts of slow-moving inventory arising. An increase in slow-moving inventory could lead to recording inventory valuation losses and disposal losses, further worsening the financial position. In a situation where an operating loss has already been recorded, improving the accuracy of inventory management is a particularly important issue.

The Group holds foreign-currency-denominated assets, and sharp fluctuations in exchange rates could affect operating results and financial position. The annual securities report does not disclose the specific currencies involved, the amounts, or any hedging measures, so the scale of the risk is unclear. Movements in either the yen-appreciation or yen-depreciation direction could affect the valuation of foreign-currency-denominated assets and transaction profitability.

In the event of a natural disaster such as an earthquake, in addition to the risk of harm to employees, significant damage could occur to production facilities and inventory assets at production sites, potentially causing delays in production and shipment due to operational suspension. The annual securities report does not disclose the degree of concentration of production sites or the existence of alternative production arrangements, so the extent of potential damage is unclear. An operational suspension occurring while profitability is already deteriorating poses a risk of seriously affecting cash flow.

In the event of an infectious disease outbreak, there is a risk of employee infection, and an operational suspension could delay production and shipment, affecting operating results. Given the nature of the manufacturing business, many processes are difficult to shift to remote work, making the maintenance of production during an outbreak a challenge. The annual securities report does not disclose the specific status of business continuity plan (BCP) preparation.