TOMY COMPANY, LTD.

The toy business has a structure in which business performance is significantly affected by the success or failure of specific products or specific content. The presence or absence of hit products may directly affect the financial position and operating results. As countermeasures, the Company is strengthening its development capabilities for the continuous creation of hit products, enhancing its product lineup, and cultivating content.

If a serious safety or quality problem occurs with products handled by the Company, there is a risk that substantial costs may be incurred due to product liability compensation or recalls. This could lead to a decline in brand value and may affect the financial position and operating results. The Company is working to improve quality and ensure safety based on strict quality control standards.

If natural disasters such as earthquakes, floods, and typhoons, cyberattacks, war or terrorism, infectious disease pandemics, or infrastructure outages such as power failures occur, part or all of business activities may be significantly disrupted. Substantial costs may arise due to physical and human damage, which could significantly affect the financial position and operating results. The Company is working on developing a business continuity plan (BCP), among other measures.

The toy business exhibits pronounced seasonal fluctuations, with sales concentrated in the third quarter, which corresponds to the Christmas and year-end shopping season, and this trend is expected to continue. Dependence on a specific quarter poses a risk of undermining the stability of business performance. The Company is working to smooth out this seasonality by introducing focus products for other seasons and expanding its toy-related peripheral businesses.

The majority of toys for domestic sale are imported from overseas denominated in US dollars, so significant fluctuations in exchange rates directly affect procurement costs. This may also affect the financial position and operating results through changes in the profit and loss of overseas consolidated subsidiaries and fluctuations in the yen-converted amounts of assets and liabilities at fiscal year-end. Hedging through forward exchange contracts and other means is implemented based on the Group's foreign exchange risk hedging policy.

As the Company advances global expansion in both sales and production, it is exposed to a variety of country-specific risks, including political and financial instability, changes in legal systems, rising labor costs, and inadequate protection of intellectual property rights. Sudden changes in the political, economic, and legal systems of various countries may affect the financial position and operating results. The Company is promoting a shift of production away from its China-centric production system toward Vietnam and other locations, as well as strengthening countermeasures against counterfeit products.

As the Company handles toys that primarily use plastic and zinc die-cast alloy as raw materials, fluctuations in crude oil prices and metal material prices affect manufacturing costs. If raw material prices surge or supply shortages occur, this may affect the financial position and operating results. The Company is working on devising raw material procurement methods, including through manufacturing subcontractors, and improving the efficiency of its production and logistics systems.

The Company Group has entered into several material contracts with third parties, and if for some reason these contracts cannot be continued, this may affect the financial position and operating results. The specific contents of these contracts are described in the "Material Contracts, etc." section of the Annual Securities Report. Maintaining and strengthening the contract management system remains an ongoing challenge.

The Company holds important business information as well as confidential information and personal information of customers and business partners, and there is a risk of unforeseen external leakage. If an information leak occurs, this could lead to a decline in trust and may affect the financial position and operating results. The Company is working to maintain confidentiality by strengthening and thoroughly implementing information security measures.

As a result of the acquisition of the TOMY International group, the Company has recorded a substantial amount of intangible fixed assets, and if the performance of this business does not progress as planned, the likelihood of recording impairment losses in the future increases. If impairment occurs, this may affect the financial position and operating results. The Company amortizes these assets annually using the straight-line method and implements necessary impairment treatment as needed, and at present recognizes that no additional impairment losses need to be recorded.