MATSUMOTO INC.

In the fiscal year under review, the Company recorded an operating loss of ¥265 million, an ordinary loss of ¥261 million, and a net loss of ¥653 million, marking two consecutive years of losses and three consecutive years of negative operating cash flow. On-hand funds, calculated as cash and deposits less borrowings, stood at ¥173 million, a decrease of ¥241 million from the previous fiscal year-end, giving rise to significant concerns regarding cash flow within one year. As countermeasures, the Company plans to optimize selling prices, reduce operating expenses, and sell held assets, among other measures; however, these are all still in progress and final agreements with related parties have not been reached in some cases, and therefore material uncertainty exists regarding the going concern assumption.

The School Albums segment, which accounts for approximately 80% of net sales, faces a market that is shrinking year by year due to the decline in the number of students and schools resulting from the declining birthrate, with competition among peer companies intensifying every year. The difficult operating environment is expected to continue for some time, creating a structural risk in which declining sales volume puts pressure on earnings. As countermeasures, the Company is promoting competitiveness through the introduction of the latest high-performance inkjet printers and the development of AI-based album manuscript editing software, aiming for shorter delivery times, higher quality, and improved production efficiency.

Since 60–70% of annual sales in the School Albums segment are concentrated in February and March, the graduation season, the Company tends to record a gross loss through the cumulative nine-month period, as fixed costs are incurred in advance. If significant delays occur in production and delivery during the peak season due to the spread of infectious diseases such as novel viruses, this could have a material impact on the Company's financial position and operating results. Although the Company conducts its business operations based on this seasonal fluctuation, it inherently carries a structural cash flow burden.

In the General Commercial Printing segment, the accelerating shift to paperless operations driven by digitalization is expected to reduce demand for print media and shrink the market. Amid the need for a structural transformation of the printing industry as a whole, the Company is working to increase sales under the main theme of "integration of printing and IT," by expanding its lineup of Internet-Related Business offerings, including digital photo albums, photo print sales, self-publishing services, and print mail order.

The Company holds fixed assets including production facilities and land, and if future cash flows expected from these assets decline significantly due to changes in the business environment, impairment losses may arise, affecting operating results and financial position. As countermeasures, the Company is working to stabilize performance and improve profitability through strengthening competitiveness in the School Albums segment and expanding the Internet-Related Business and introducing hologram printing in the General Commercial Printing segment.

If economic activity is restricted due to a resurgence of infectious diseases such as novel viruses, a significant decline in demand for printed materials would affect the performance of the General Commercial Printing segment. In addition, delays or reductions in the collection of sales proceeds may occur due to shifts in the sales timing of the School Albums segment or declines in sales in the General Commercial Printing segment, creating a risk of temporary cash decline. As a countermeasure, the Company has established an emergency coordination framework with its main financial institutions to ensure smooth fundraising even in the event of unforeseen circumstances.

While recent price increases across various goods have raised the manufacturing costs of school albums, excessive competition stemming from the declining birthrate has suppressed selling prices, contributing to earnings stagnation. To improve profitability, the Company plans to negotiate with customers to pass on increased manufacturing costs and optimize selling prices, but the success of such price negotiations amid a competitive environment remains uncertain. If this delay in cost pass-through continues, it could lead to further losses.

On-hand funds, calculated as cash and deposits less borrowings, stood at ¥173 million, a decrease of ¥241 million from the previous fiscal year-end, and the structure of funding advance payments of trade payables and various expenses incurred in December and January through on-hand funds and bank borrowings continues. The Company plans to promptly implement autonomous fundraising measures (such as sales of securities and idle real estate, or converting them into rental income), but these have not yet been realized, and reliance on external financial institutions continues. If fundraising does not proceed as planned, this could seriously affect the continuity of business operations.

The allocation of management resources in line with the seasonal skew of business activities has led to persistently high fixed costs, continuously pressuring earnings. As countermeasures, the Company plans to reduce personnel expenses by approximately 3% year on year through measures such as restraining new employee hiring and reducing the number of directors, and to reduce expenses by approximately 15% year on year through reviews of outsourcing costs, utilities, and repair expenses, among others. In addition, the Company's policy is to limit new capital investment to replacement investment only for the time being.

Amid the contraction of the school album market due to the declining birthrate, competition among peer companies is intensifying every year, and deepening price competition is making it difficult to maintain market share. The Company seeks to differentiate itself through the introduction of the latest high-performance inkjet printers, the development of AI-based software, and the introduction of hologram printing, but competitors may pursue similar measures. If the Company fails to establish a competitive advantage, further declines in sales volume and deterioration in earnings are expected.