TOHO LAMAC CO., LTD.

The Company recorded operating losses for seven consecutive fiscal periods through the fiscal year ended December 2023, and net losses for six consecutive fiscal periods. In the current fiscal year, the Company recorded an operating loss of ¥120 million, and material events regarding the going concern assumption exist. The main cause is attributed to a valuation loss (a temporary factor) on products for which discontinuation of handling was decided in the following fiscal year; however, the Company plans to continue implementing four measures toward stabilizing its earnings structure: sophistication of inventory management systems, optimization of the product portfolio, improvement of gross profit margin, and strengthening of the management control system.

If the financial condition of major business partners deteriorates, delays or defaults in the collection of accounts receivable may occur, which could adversely affect the Company's business results and financial condition. Similar effects are also anticipated if a business partner is involved in a corporate scandal or other incident or accident. The securities report does not describe specific credit management measures.

Seasonal products such as sandals and boots are susceptible to sales fluctuations due to weather changes such as cool summers or warm winters, which may directly affect business results. For the Company, which has a highly seasonal product mix, unseasonable weather also poses risks such as reduced accuracy in demand forecasting and excess inventory. The securities report does not describe specific hedging measures.

The Company outsources much of its product manufacturing to overseas partner factories, and since import transactions are settled in Chinese yuan and US dollars, fluctuations in exchange rates against the yen affect business results through procurement costs. As a risk mitigation measure, the Company enters into forward foreign exchange contracts, but this cannot completely eliminate the impact of exchange rate fluctuations.

If deregulation under the WTO, FTAs, and similar frameworks leads to a surge in imported goods, temporary market disruption may occur, resulting in a decline in product unit prices. The Company has a high ratio of production outsourced to overseas partner factories, and intensified competition with imported goods directly affects profitability. The securities report does not describe specific countermeasures.

The Company outsources much of its product manufacturing to overseas partner factories, with a particularly high ratio of production in China. If sudden changes in the situation in China (political, economic, regulatory, etc.) result in reduced production capacity or a sharp rise in procurement prices, this could impede stable product supply and the securing of earnings. The securities report does not describe specific countermeasures such as diversification of production bases.

If overseas partner factories are unable to operate smoothly due to terrorism, natural disasters, or similar events, stable supply of products may become difficult, which could affect the Company's business results. Given the structure in which production outsourcing is concentrated overseas, the risk of supply chain disruption is a persistent concern. The securities report does not describe specific countermeasures such as securing alternative procurement sources.

The main cause of the ¥120 million operating loss in the current fiscal year was the recording of a valuation loss on products for which discontinuation of handling was decided in the following fiscal year, demonstrating that deficiencies in product portfolio management have a direct impact on financial results. Going forward, the Company plans to strengthen its management system for product input quantities and sales progress, refine profitability management by brand and by product, and review its management system to optimize inventory levels.

The Company has a history of recording operating losses for seven consecutive fiscal periods through the fiscal year ended December 2023, and the fragility of its earnings structure remains a long-term challenge. To secure stable gross profit margins, the Company plans to review purchasing terms, restructure its sales pricing strategy, and strengthen profitability management by sales channel; however, sustained efforts are needed to ensure improvements take hold.

Optimization of the product portfolio through the reduction of low-profitability product groups and the expansion of high-value-added products has been identified as a challenge; however, if the Company is slow to respond to changes in the market environment or consumer needs, there is a risk that earnings improvement will not proceed as planned. The Company plans to build a system for early identification of risks through monthly monitoring at management meetings and for swift decision-making.