TOSHO CO.,LTD.

While the Sports Club Business remains the core operation, the Group also operates the Hotel Business and Real Estate Business. Sales may decline or a business may be withdrawn due to domestic economic trends or price competition with competitors. As the business composition changes, the range of external factors affecting business performance may also change. There is a risk that the positioning of the core business could shift due to entry into new businesses or the downsizing/withdrawal of existing businesses.

In new development of the Sports Club, Hotel, and Real Estate Businesses, business performance may be affected if it becomes difficult to secure candidate sites, if there is insufficient securing of necessary personnel, or if other unforeseen circumstances arise. The Group's policy is to proceed with store openings at appropriate timing by leveraging its proprietary marketing know-how and diverse fundraising methods, but there is a risk that plans may not proceed as intended.

The Group's primary means of raising funds for facility development is borrowings from financial institutions, which are procured on a short-term (approximately 1 year), medium-term (3 to 6 years), and long-term (8 to 10 years) basis. While interest rates on long-term funds have been fixed, an increase in interest rates on short-term and medium-term funds could affect business performance. As additional borrowings are expected in connection with future acquisitions of property, plant and equipment, there is a risk that changes in the interest rate environment will directly affect financial costs.

If facilities are damaged by a large-scale earthquake, flood, fire, or similar disaster, or if a state of emergency declaration or business suspension request is issued due to a pandemic, the Sports Club Business may find it difficult to provide services, and the Hotel Business may experience a decline in occupancy rates and room rates. Since the Group generates revenue through the provision of facilities and services, physical damage to facilities or restrictions on their use directly affects business performance. Although the Group's policy is to continue safe and secure facility operations to the extent possible, the impact of external factors cannot be entirely eliminated.

The Group has applied impairment accounting standards for fixed assets since fiscal year 2005, and if revenue or valuations decline significantly due to changes in market conditions or other factors, impairment losses on property, plant and equipment may need to be recognized, which could affect business performance and financial condition. The Group is examining impairment for certain sports club outlets showing declining profitability, and this is disclosed as a critical accounting estimate in the notes to the consolidated financial statements. While the Group addresses this through monitoring profitability on a store-by-store basis and discussing improvement measures at board meetings and similar forums, the risk of recognizing losses remains depending on changes in the external environment.

As of the end of March 2026, leasehold and security deposits totaling ¥2,307 million have been placed with lessors under land and building lease agreements. If a lessor's financial condition deteriorates and deposits become irrecoverable, bad debt losses may arise to the extent they cannot be offset against rent or demolition costs, which could affect business performance. Going forward, the Group intends to reduce this risk by increasing the proportion of properties it owns outright, including the land.

The Group manages a wide variety of personal information in connection with the Sports Club Business, Hotel Business, and other operations, and if information leakage or unauthorized use occurs, business performance could be affected due to loss of credibility and other factors. The Group addresses the risk of information leakage through regular monitoring, the introduction of up-to-date systems, and employee training, among other measures. While the Group continues to maintain strict management of information security, it is difficult to completely eliminate external threats such as cyberattacks.

The Group is subject to numerous legal regulations, including the Public Bathhouse Act and the Air Pollution Control Act for the sports club business, the Hotel Business Act, the Food Sanitation Act, and the Act on Proper Transactions of Specified Subcontracting for the hotel business, the Building Lots and Buildings Transaction Business Act and the Financial Instruments and Exchange Act for the real estate business, the Construction Business Act and the Architects Act for the construction business, and, more broadly, the Fire Service Act, the Act against Unjustifiable Premiums and Misleading Representations, and the Industrial Safety and Health Act. The introduction of new legal regulations, revisions or changes in interpretation of existing regulations, or a serious violation of laws could affect business performance or the continuity of operations. While there has been no past instance of business development being constrained by legal regulations, the fact that the Group's diversified business operations span a wide range of regulatory scope is a risk factor.