TONE CO.,LTD.

In the Company Group's major domestic and overseas markets, if corporate earnings deteriorate, leading to reduced capital expenditure or a decline in end-user consumption trends, sales may decrease, potentially affecting business results. As the Company Group's main products are tools for the manufacturing industry, its business structure is susceptible to economic cycles. As a countermeasure, the Group intends to promote the development of new markets and new customers, as well as the sale of new products that meet latent demand.

If prices of metal materials such as special steel and other raw materials surge or procurement becomes difficult, manufacturing costs may rise, adversely affecting business results. Should tight supply-demand conditions in raw material markets or geopolitical risks materialize, continuity of procurement could also be disrupted. As a countermeasure, the Group intends to diversify procurement sources to reduce the risk of dependence on specific suppliers.

The Company Group primarily sells through machine tool distributor routes, and if rapid changes in distribution cause the business performance of existing business partners to deteriorate, sales could be materially affected. A structure with high dependence on specific distribution channels is directly susceptible to the effects of channel restructuring. As a countermeasure, the Group intends to pursue the development of new markets, new customers, and new sales routes.

Although strict quality control based on ISO9001 is implemented, there is no guarantee that product defects can be completely eliminated, and if claims or product liability compensation arise, this could significantly affect financial condition and business results through substantial cost burdens and damage to corporate reputation. This risk is also directly linked to a decline in sales. As a countermeasure, the Group has secured financial risk coverage by taking out product liability insurance (PL insurance).

If difficulties arise in collecting receivables due to bankruptcy or financial instability of business partners, this may affect the Company Group's profit and loss. Although the Group states it has no dependence on specific unstable business partners, in a downturn the credit risk of multiple business partners could increase simultaneously. As a countermeasure, the Group reduces risk by setting credit limits, and by introducing advance payment systems and factoring systems.

The Group holds shares of major business partners and financial institutions with which it transacts, and if share prices decline due to stock market conditions, the economic environment, or corporate earnings trends, valuation losses from impairment could arise, affecting profit and loss. As cross-shareholdings are affected by market conditions, this risk is particularly likely to materialize during sharp stock market declines. As a countermeasure, the Board of Directors periodically reviews the rationale for holding these shares, including fluctuations in market value.

If a disaster or other unforeseen event occurs at production facilities, production and delivery activities may be suspended, potentially materially affecting financial condition and business results. Although the Group is working to establish a crisis management system, there is no guarantee that all disaster risks can be completely prevented. As a countermeasure, in addition to reducing physical and human damage through the establishment of a crisis management system, the Group secures financial coverage by taking out casualty insurance.

If demand forecasting errors or sluggish sales due to an economic downturn occur, inventory holding periods may lengthen, necessitating inventory revaluation, which may affect the Company Group's profit and loss. As a manufacturer holding both finished product inventory and purchased goods, inventory risk relative to demand fluctuations can be of a considerable scale. As a countermeasure, the Group strives to maintain appropriate inventory levels and prevent the occurrence of slow-moving inventory.

If counterfeit products bearing the Company's brand circulate in domestic and overseas markets, brand value may be damaged, potentially materially affecting financial condition and business results. In overseas markets in particular, there are differences in the enforcement of intellectual property protection, making it difficult to completely prevent the circulation of counterfeit goods. As a countermeasure, the Group intends to continue efforts to file for and register trademarks and obtain patents both domestically and overseas.