TAY TWO CO., LTD.

The progression of the declining birthrate and aging population, the expansion of the content distribution market, and the evolution of information technology and telecommunications infrastructure may have a significant impact on the Multi-Package Sales Business. It carries a structural risk in which the shrinking demand for physical media accelerates in conjunction with the spread of digital distribution. The Company is considering measures such as reviewing its product lineup, but if the shift in business strategy does not succeed, this could have a material impact on operating results.

Unlike new merchandise, procurement volumes for used merchandise are difficult to adjust, and stable procurement in terms of both volume and quality cannot be guaranteed. Because the business model relies on in-store purchases from general consumers, changes in market conditions and consumer behavior directly affect procurement volumes. If stable procurement becomes difficult, this could affect operating results through the loss of sales opportunities.

Sales of new home video game software and hardware, the Company's core merchandise, are subject to seasonal fluctuations concentrated around the year-end and New Year holidays, spring break, and summer vacation, resulting in high dependence on sales during specific periods. In addition, if release delays occur due to development delays by product manufacturers, there is a risk that sales plans for the relevant period could fall significantly short. If these factors coincide, the range of fluctuation in quarterly results may widen, potentially affecting operating results.

In the multi-format development of businesses such as Furuhon Ichiba, Furuichi, and Trading Card Park, if it becomes difficult to secure store properties as planned, this may hinder the execution of the growth strategy. Even for existing stores, if profitability deteriorates due to changes in location or the competitive environment, losses associated with store closures may occur, affecting operating results. In addition, if it becomes difficult to recover the initial investment, including fixed assets and leased depreciable assets, there is a risk that impairment losses or extraordinary losses may occur.

The Company holds a large amount of personal information through identity verification at the time of purchase based on the Act on Secondhand Articles Dealing and through customer information management in electronic commerce transactions. The Company has implemented measures such as a personal information protection policy, internal regulations, and the introduction of security management software, but if an information leakage incident occurs, this may lead to claims for damages and a decline in sales due to loss of trust. In internet mail-order sales, there is also concern that unauthorized access such as hacking could affect users' computers via the network.

The core "New Head Office (Customer Information) System" supports sales activities such as individual inventory management of merchandise and purchase history analysis, and business continuity would become difficult in the event of a large-scale disaster, a wide-area communication failure, or a program failure. The Company has taken measures such as storing the system on a cloud service and outsourcing maintenance to a specialized vendor, but in EC sales, a system failure directly leads to the loss of sales opportunities. System failures caused by malicious unauthorized access (hacking) and the like could also develop into secondary damage to users.

The business of purchasing and selling used merchandise is subject to regulation under the Act on Secondhand Articles Dealing, imposing obligations such as obtaining permission from the prefectural public safety commission, identity verification, and record keeping. The Company has established its own rules (identity verification for all purchases, prohibition of purchasing two or more units of the same item from the same customer, etc.) to ensure sound operations, but unforeseen circumstances could affect business operations. In addition, if there are revisions to laws such as the Large-Scale Retail Store Location Act, the Fire Service Act, or the Act on Specified Commercial Transactions, this could result in increased costs to prepare responses and affect store opening plans.

The Company employs many part-time workers, who serve as an important workforce in store operations. If the criteria for the application of employees' pension insurance are expanded, there is a risk that a decrease in the number of people willing to work and an increase in the Company's insurance premium burden could occur simultaneously. These factors could affect operating results through rising store operating costs and difficulty in securing personnel.

The Company operates almost all of its stores in leased properties, and in addition to placing security deposits with lessors, in some cases it lends a portion of construction costs to lessors as construction cooperation funds. If the return of security deposits or construction cooperation funds becomes impossible due to the lessor's financial failure or other circumstances, the Company may incur losses. In addition, in the case of early termination for reasons attributable to the Company, it may be necessary to waive the right to claim a refund or to pay a penalty.

In preparing the consolidated financial statements, the Company uses accounting estimates and assumptions related to impairment of fixed assets, valuation of slow-moving inventory, recoverability of deferred tax assets, provisions, and asset retirement obligations. These estimates are inherently uncertain, and if changes in the business environment occur that exceed expectations, actual results may diverge significantly from these estimates, potentially affecting operating results. Management confirms the reasonableness of its estimates, but in particular, impairment of fixed assets and the recoverability of deferred tax assets are affected by business performance trends.