TKLF 6-K
Tokyo Lifestyle Co., Ltd. (TKLF)
UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
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FORM 6-K
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REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO RULE 13a-16 OR 15d-16 UNDER THE SECURITIES EXCHANGE ACT OF 1934
For the month of September 2024
Commission File Number: 001-41181
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Yoshitsu Co., Ltd
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Harumi Building, 2-5-9 Kotobashi, Sumida-ku, Tokyo, 130-0022 Japan (Address of Principal Executive Office)
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Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F:
Form 20-F ☒ Form 40-F ☐
Convocation of Adjourned Meeting of the 18th Annual General Meeting of Shareholders of Yoshitsu Co., Ltd
In accordance with the rules and regulations of the Japanese Companies Act, Yoshitsu Co., Ltd has sent a notice and accompanying information, including proxy instructions, to all holders of its ordinary shares and American Depositary Shares with respect to its Adjourned Meeting of the 18th Annual General Meeting of Shareholders (the “Adjourned Meeting”). The Adjourned Meeting is to be held in Tokyo, Japan on September 26, 2024. A complete copy of the notice is furnished hereto as Exhibit 99.1.
Exhibit 99.1 furnished hereto shall not be deemed “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of that section.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| Yoshitsu Co., Ltd | ||
|---|---|---|
| Date: September 24, 2024 | By: | /s/ Mei Kanayama |
| Name: | Mei Kanayama | |
| Title: | Representative Director and Director<br>(Principal Executive Officer) |
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EXHIBIT INDEX
| Exhibit No. | Description |
|---|---|
| 99.1 | Notice of Adjourned Meeting of the 18th Annual General Meeting of Shareholders to be held on September 26, 2024 |
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Exhibit 99.1
[This is an English translation of the original issued in Japanese]
[Note] The Company assumes no responsibility for this translation or for direct, indirect, or other forms of damages arising from the translation. This document has been translated from the Japanese original for reference purposes only. In the event of any discrepancy between this translated document and the Japanese original, the original shall prevail.
September 11, 2024
Dear Shareholders,
Harumi Building, 2-5-9 Kotobashi, Sumida-ku, Tokyo, 130-0022, Japan Yoshitsu Co., Ltd. Representative Director and Director (Principal Executive Officer) Mei Kanayama
Notice of the Adjourned Meeting of the 18th Ordinary General Meeting of Shareholders
We would like to extend our deepest appreciation for the support of our shareholders.
You are cordially invited to the adjourned meeting (the “Adjourned Meeting”) of the 18th Ordinary General Meeting of the Shareholders of Yoshitsu Co., Ltd held on June 27, 2024 (the “18th Ordinary General Meeting”).
Please note that the Adjourned Meeting will form an integral part of the 18th Ordinary General Meeting, and the shareholders attending the Adjourned Meeting will be those who were entitled to exercise voting rights at the 18th Ordinary General Meeting.
1. The Reason for Holding an Adjourned Meeting
We had planned to report to our shareholders during the 18th Ordinary General Meeting the business report (the “Business Report”) for the 18th fiscal year (from April 1, 2023, to March 31, 2024), including the financial statements and the audit report on the financial statements by the accounting auditors and the board of corporate auditors (the “Audit Report”).
However, we were not able to obtain the Audit Report, which should have been attached to the Business Report at the 18th Ordinary General Meeting, and we decided that we had no choice but to abandon the Business Report.
After the approval of the shareholders present at the 18th Ordinary General Meeting, we decided to hold an Adjourned Meeting of the 18th Ordinary General Meeting, the date, time, and place of which were left at Mr. Mei Kanayama’s discretion, and present an updated business report (the “Updated Business Report”) at the Adjourned Meeting.
2. Date and Time: September 26, 2024, at 11:00 AM (Registration starts at 10:00 AM), Japan Standard Time
3. Address: 5th Floor, Harumi Building, 2-5-9 Kotohashi, Sumida-ku, Tokyo, Japan
4. Agenda Items
| Report Items: | Updated Business Report for the 18th fiscal year (from April 1, 2023, to March 31, 2024), including the financial statements and the Audit Report of the financial statements by the accounting auditors and the board of statutory auditors. |
|---|
For those attending the meeting, please submit the enclosed attendance form at the reception desk upon arrival.
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Business Report
From April 1, 2023 To March 31, 2024
Statutory Financial Statements Prepared in Accordance with Japanese GAAP
Note: The statutory financial statements on the following pages have been prepared in accordance with Japanese GAAP. These results differ in material respects from our audited consolidated financial results under U.S. GAAP, which are included in our Annual Report on Form 20-F filed with the U.S. Securities and Exchange Commission and available at www.sec.gov. The attached financial statements are provided to our shareholders and ADS holders solely in accordance with requirements under the Japanese Companies Act in connection with our Annual Meeting.
1. Current status of the Company
(1) Business progress and results
During the fiscal year under review, the global economy recovered as the COVID-19 pandemic subsided at the beginning of the year, economic activity as a whole became more normal, and consumption increased mainly in the United States on the back of rising real wages.
On the other hand, in China, the pace of recovery in production and consumption has been moderate, mainly due to the slump in the real estate market, and the inflation rate has been hovering around 0%, indicating that the economic recovery has stalled.
In Japan, while the corporate sector, including business conditions and profits, has been brisk, this has not been sufficiently linked to wages and investment, and domestic demand has been lacking in strength.
As a result, net sales for the fiscal year under review were 25,615,177,000 yen (up 18.2% year on year), operating income was 236,278,000 yen (down 51.2% year on year), and ordinary income was 328,353,000 yen (up 70.2% year on year).
(2) Status of Funding
The Company has established a credit limit of 7,850,000,000 yen for working capital through syndicated loans managed by MUFG Bank, Ltd. and Mizuho Bank, Ltd. The outstanding amount of borrowings executed under this agreement at the end of the fiscal year under review was 7,850,000,000 yen, and the amount of reduction from the previous fiscal year was 200,000,000 yen.
The Company has raised funds of 591,625,000 yen mainly for capital investment through the issuance of American Depositary Shares on the NASDAQ market.
The Company has secured financing of 200,000,000 yen from Resona Bank in order to convert the equipment loan of 200,000,000 yen from Resona Merchant Bank Asia Limited (Singapore), which was borrowed by our subsidiary, Tokyo Lifestyle Limited (Hong Kong), into an intra-group loan.
(3) Status of Significant Organizational Restructuring
The Company transferred all shares of its subsidiary Kaikakokusai Co., Ltd. on June 30, 2023.
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(4) Trend in Assets and Profits/Losses
(thousands of yen)
| By Period Segment | FY 15 FY <br>ended <br>March 2021 | FY 16 FY <br>ended <br>March 2022 | FY 17 FY <br>ended <br>March 2023 | FY 18 FY <br>ended <br>March 2024 |
|---|---|---|---|---|
| Sales | 23,480,468 | 25,655,250 | 21,667,575 | 25,615,177 |
| Ordinary profit | 936,477 | 486,715 | 192,962 | 328,353 |
| Net income | 556,209 | 192,523 | ∆884,219 | 216,417 |
| Net income per share (yen) | 5,984 | 5 | ∆24 | 5 |
| Total assets | 12,394,392 | 14,860,428 | 22,505,180 | 21,054,009 |
| Net assets | 2,583,847 | 5,628,047 | 4,701,910 | 5,701,950 |
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(Note) Net income per share is calculated based on the total number of shares outstanding at the end of the period.
(5) Issues to be Addressed by the Company
The business and financial issues to be addressed by the Company are as follows.
• Improvement and Stabilization of Internal Control System
In order to prevent the recurrence of issues such as the additional and delinquent tax due to consumption tax correction related to inadequacies in consumption tax procedures, the Company has positioned the strengthening of the internal control system as a top management issue and will work to build a governance system.
• Restructuring of the business model with an eye toward the post-COVID-19 era
In Japan, the Company will reexamine unprofitable stores and the products handled in the e-commerce business, and in the overseas markets, the Company will restructure its business model to prioritize improving profit margins, taking actions such as the development of in-house apps, full-scale expansion into Southeast Asia, and full-scale operation of its overseas warehouses.
The Company will make concerted efforts to overcome the above issues. We look forward to your continued support and encouragement.
(6) Main Business (as of March 31, 2024)
Operation of Drug Store Stores in Japan
Operation and Management of E-Commerce in Japan
Domestic and overseas (including trading) Wholesale
(7) Main Offices and Stores
| Head Office | Harumi Building 2-5-9 Kotobashi, Sumida-ku, Tokyo |
|---|---|
| Saitama Center | 3-1-5 Ryutsudanchi, Koshigaya-shi, Saitama |
Office of the Subsidiary
| Trade Name | Address |
|---|---|
| Tokyo Lifestyle Limited | Unit 11, 12/F., Wing On Plaza, No.62 Mody Road, Tsim Sha Tsui East, Kowloon |
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(Note) As of June 30, 2023, all shares of Kaika Kokusai, Co., Ltd. were transferred and the company was excluded from subsidiaries.
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The names and addresses of domestic drugstores are as follows:
| Store name | Address | Store name | Address |
|---|---|---|---|
| Shinbashi Store <br>Nishikasai Store <br>Yokohama Chinatown Store | Minato-ku, Tokyo <br>Edogawa-ku, Tokyo <br>Yokohama, Kanagawa | Koshigaya - Ryutsudanchi <br>Quiz Gate Urawa <br>Nishikawaguchi | Koshigaya-city, Saitama Saitama-city, Saitama Kawaguchi City, Saitama |
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(Note) The Kameido store and Hakuba store closed in December 1.2023 and March 2024, respectively.
(Note) The Hirai and Kamata stores were switched to franchise stores operated by another company in June 2.2023.
(Note) The Nishi-Kasai store was switched to franchise stores operated by the Company in September 3.2023.
(8) Employees (as of March 31, 2024)
| Number of employees | Change from end of <br>previous fiscal year | Average age | Average length <br>of service |
|---|---|---|---|
| 113 persons | ∆33 persons | 38 years 2 months | 3 years 10 months |
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(Note) The number of employees includes 77 part-time employees.
(9) Significant Subsidiaries
| Company Name | Address | Capital | Business | Investment <br>ratio |
|---|---|---|---|---|
| Tokyo Lifestyle Limited | Hong Kong | HK$1,000,000 | Wholesale & Retail | 100% |
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(Note) As of June 30, 2023, all shares of Kaika Kokusai, Co., Ltd. were transferred and the company was excluded from subsidiaries.
(10) Major Lenders and Borrowings (as of March 31, 2024)
Commitment Line Agreement
(thousands of yen)
| Borrowings | Outstanding <br>borrowings |
|---|---|
| Mizuho Bank, Ltd. | 1,550,000 |
| MUFG Bank, Ltd. | 1,300,000 |
| Resona Bank, Ltd. | 943,396 |
| Sumitomo Mitsui Banking Corporation | 849,056 |
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(Note) 1. The Company has concluded a credit limit agreement with a maximum borrowing amount of 7,850,000,000 yen for stable and efficient procurement of working capital. This agreement is a syndicated loan and consists of cofinancing from a total of 17 banks managed by MUFG Bank, Ltd. and Mizuho Bank, Ltd.
(Note) 2. Outstanding borrowings at the end of the fiscal year under review under this agreement are 7,850,000,000 yen.
2. Status of shares (as of March 31, 2024)
| Total number of shares authorized | 100,000,000 shares |
|---|---|
| Total number of shares issued | 42,220,206 shares |
| Number of shareholders | 5 |
| Major shareholders |
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| Shareholder name | Number of <br>shares held | Percentage of <br>shares held | |
|---|---|---|---|
| THE BANK OF NEW YORK MELLON | 19,628,666 shares | 46.49 | % |
| Tokushin G. K. | 12,975,050 shares | 30.73 | % |
| Mei Kanayama | 7,216,436 shares | 17.09 | % |
| XIN TIANXIA TRADING DEVELOPMENT LIMITED | 1,800,000 shares | 4.26 | % |
| SHUR Co., Ltd. | 600,054 shares | 1.43 | % |
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(Note) THE BANK OF NEW YORK MELLON is a depository receipt company that issues American Depository Receipts (ADR).
3. Matters regarding stock acquisition rights, etc. of the company (as of March 31, 2024)
The total number of stock acquisition rights, etc. at the end of the fiscal year under review is as follows.
(1) 1st series stock acquisition rights
Total number of stock acquisition rights 300,000
Class and number of shares to be issued upon exercise of the stock acquisition rights
300,000 shares of common stock of the Company represented by the American Depositary Shares in the United States
Amount to be paid in for the stock acquisition rights
US $0.01 multiplied by the number of the stock acquisition rights offered
Value of assets to be contributed upon exercise of the stock acquisition rights
(i) US $4.80 per share of common stock
Exercise period of the stock acquisition rights
From July 6, 2022 to January 7, 2027
Capital stock and capital surplus to be increased upon the issuance of shares upon the exercise of the stock acquisition rights
1. Amount of capital stock to be increased upon the exercise of the stock acquisition rights
The amount shall be 1/2 of the Maximum Amount of Increase in Stated Capital calculated in accordance with Article 17, Paragraph 1 of the Ordinance on Corporate Accounting. Any fraction less than 1 yen arising as a result of the calculation shall be rounded up.
2. Amount of Capital Surplus to be Increased by Exercise of Stock Acquisition Rights
The amount shall be the Maximum Amount of Increase in Stated Capital calculated in accordance with Article 17, Paragraph 1 of the Ordinance on Corporate Accounting less the amount of increase in stated capital.
Allottee of Stock Acquisition Rights — Univest Securities, LLC
(2) 2nd Series of Stock Acquisition Rights
Total Number of Stock Acquisition Rights 5,970,152
Class and Number of Shares Subject to Stock Acquisition Rights
5,970,152 shares of the Company’s common stock represented by American Depositary Shares in the United States
Amount to be Paid in for Stock Acquisition Rights
No Payment Required
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Value of assets to be contributed upon exercise of stock acquisition rights
(i) US $0.67 per share of common stock
Exercise period of stock acquisition rights
From January 30, 2024 to July 30, 2029
Capital stock and capital surplus to be increased upon the issuance of shares upon the exercise of stock acquisition rights
1. Amount of capital stock to be increased upon the exercise of stock acquisition rights
The amount shall be 1/2 of the maximum amount of increase in capital stock, etc., calculated in accordance with Article 17, Paragraph 1 of the Rules of Corporate Accounting. Any fraction of less than 1 yen arising as a result of the calculation shall be rounded up.
2. Amount of capital surplus to be increased upon the exercise of stock acquisition rights
The amount shall be the maximum amount of increase in capital stock, etc., calculated in accordance with Article 17, Paragraph 1 of the Rules of Corporate Accounting, less the amount of capital stock to be increased.
Allottees of stock acquisition rights
| Assigned to | Number of <br>Assigned |
|---|---|
| LIND GLOBAL FUND II LP | 746,269 pieces |
| S.H.N. FINANCIAL INVESTMENTS LTD | 746,269 pieces |
| L1 CAPITAL GLOBAL OPPORTUNITIES MASTER FUND | 746,269 pieces |
| ALTO OPPORTUNITY MASTER FUND, | 746,269 pieces |
| INTRACOASTAL CAPITAL LLC | 746,269 pieces |
| CVI Investments, By: Heights Capital Management, Inc., | 746,269 pieces |
| Hudson Bay Master Fund Ltd. | 746,269 pieces |
| Empery Asset Master, LTD | 414,861 pieces |
| Empery Tax Efficient, LP | 147,466 pieces |
| Empery Tax Efficient III, LP | 183,942 pieces |
4. Matters concerning corporate officers (as of March 31, 2024)
(1) Status of Directors and Audit & Supervisory Board Members
| Position | Name | Responsibilities and significant concurrent positions |
|---|---|---|
| President and Representative Director | Mei Kanayama | President & Chief Executive Officer |
| Director | Yoichiro Haga | Executive Officer, Administrative Department |
| Director | Tetsuya Sato | Director, RSK Co., Ltd. Executive Officer, MGB Co., Ltd. |
| Director | Yoji Takenaka | Lawyer |
| Auditor | Tadao Iwamatsu | None |
| Auditor | Keiichi Kimura | Administrative Scrivener Auditor, Palpito Co., Ltd. |
| Auditor | Junji Sato | Director, Seihinkokusai Co., Ltd. |
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(Note) 1. Directors Tetsuya Sato, Yoji Takenaka, are outside directors as stipulated in Article 2, Item 15 of the Companies Act.
2. Corporate Auditors Keiichi Kimura and Junji Sato are outside auditors as stipulated in Article 2, Item 16 of the Companies Act.
3. At the conclusion of the Ordinary General Meeting of Shareholders held on June 30, 2023, Mr. Sen Uehara and Mr. Yukihisa Kitamura resigned as Directors.
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(2) Total amount of compensation, etc. of officers for the fiscal year under review
(thousands of yen)
| Number of <br>members <br>Number | Total <br>amount of <br>compensation | Total amount by type of compensation | ||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Ward min | Monetary <br>compensation | Performance-linked <br>compensation | Non-monetary <br>compensation | |||||||
| Directors<br>(including Outside | 4 | 51,300 | 51,300 | — | — | |||||
| Directors) | (2 | ) | (7,800 | ) | (7,800 | ) | (— | ) | (— | ) |
| Corporate Auditors (including Outside Audit & Supervisory | 3 | 9,600 | 9,600 | — | — | |||||
| Board Members) | (2 | ) | (3,600 | ) | (3,600 | ) | (— | ) | (— | ) |
| Total<br>(including Outside | 7 | 60,900 | 60,900 | — | — | |||||
| Officers) | (4 | ) | (11,400 | ) | (11,400 | ) | (— | ) | (— | ) |
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(Note) 1. The maximum amount of compensation for Directors was resolved at the Ordinary General Meeting of Shareholders held on May 26, 2021 to be 150,000,000 yen per year.
2. The maximum amount of compensation for Audit & Supervisory Board Members was resolved at the Extraordinary General Meeting of Shareholders held on October 19, 2021 to be 30,000,000 yen per year.
5. Accounting Auditor (as of July 1, 2024)
(1) Name
Sakurazaka Audit Corporation
(2) Amount of Remuneration, etc.
The amount of remuneration, etc. pertaining to the services set forth in Article 2, paragraph (1) of the Certified Public Accountants Act (Act No. 103 of 1948): 16,500,000 yen
The board of company auditors shall review the content of the audit plan of the accounting auditor, the status of performance of accounting audit duties and remuneration estimates.
The Company has approved the remuneration of the accounting auditor after conducting the necessary verification on the appropriateness of the grounds, etc.
(3) Policy for Determining the Dismissal and Non-Reappointment of the Accounting Auditor
If there is any impediment to the execution of duties by the accounting auditor, and if the Board of Corporate Auditors deem it necessary to do so, the Board of Corporate Auditors will decide the content of proposals regarding the dismissal or non-reappointment of the accounting auditor to be submitted to the General Meeting of Shareholders.
(4) Change of Accounting Auditor
Effective July 1, 2024, the Company changed its accounting auditor to Sakurazaka Audit Corporation. As a result, the audit contract with Shine Wing Japan LLC was terminated on the same date.
6. System to Ensure the Appropriateness of Business Operations (as of March 31, 2024)
(1) System to ensure that the execution of duties by directors and employees complies with laws and regulations and the Articles of Incorporation:
Directors of the Company and its subsidiaries shall comply with laws and regulations and the Articles of Incorporation and promote the establishment of a compliance system.
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Directors of the Company and its subsidiaries shall develop a compliance system and manage and supervise the status of compliance in order to ensure that the employees comply with laws and regulations and the Articles of Incorporation.
Audit & Supervisory Board Members shall investigate the status of the compliance system and whether there are any problems under laws and regulations and the Articles of Incorporation and report to the Board of Directors. The Board of Directors shall periodically review the compliance system and endeavor to identify and improve problems.
The Company has established rules concerning whistleblowing and will develop a whistleblowing system to promptly report and consult with directors and employees of the Company and its subsidiaries when they are found to have committed acts that are suspected of violating laws and regulations.
(2) System for the Preservation and Management of Information Related to the Execution of Duties by Directors
Information related to the execution of duties by Directors shall be prepared and stored in accordance with laws and regulations and internal rules. It shall also be managed in a manner that is accessible to directors, corporate auditors and accounting auditors as necessary.
The status of the preparation, preservation and management of information related to the execution of duties by directors shall be audited by corporate auditors.
(3) Regulations and other systems related to the management of risk of loss
The Company shall formulate the Basic Regulations on Risk Management as the basis of the risk management system for the entire Group (as defined below) and shall establish a risk management system in accordance with the Regulations. In addition, in the event of an unforeseen event, the Company shall establish a Crisis Management Committee chaired by the President and Representative Director, and shall prepare a system to prevent and minimize the expansion of damage by taking prompt action while receiving advice from corporate lawyers, etc.
Directors and employees shall formulate procedures and be in charge of risk management in each division, identify, analyze and evaluate inherent risks, consider and implement appropriate measures, and periodically review the status of such risk management.
Corporate Auditors shall audit the status of risk management in each division and report the results to the Board of Directors. The Board of Directors shall periodically review the risk management system and strive to identify and improve problems.
(4) System to Ensure the Efficient Execution of Duties by Directors
With the aim of enhancing corporate value, the Company shall conduct activities to achieve the goals based on business plans and manage the progress of such activities.
As the basis of the system to ensure the efficient execution of duties by Directors, the Company shall hold regular Board of Directors meetings (once a month) and extraordinary Board of Directors meetings as necessary.
The Company shall establish various internal rules, such as rules on division of duties and rules on authority and decision-making authority, to clarify the authority and responsibility of each officer and employee, and to establish a system for the appropriate and efficient execution of duties.
The Company shall supervise the establishment and operation of internal control systems at subsidiaries to maintain a balance between the efficient and prompt execution of duties by directors.
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(5) System for Ensuring the Appropriateness of Business in the Corporate Group Comprising the Company and Its Subsidiaries (the “Group”)
In order to ensure the appropriateness of business in the entire Group, including subsidiaries, the Company shall strive to establish a compliance system for the entire Group.
(6) System relating to employees who assist the duties of Audit & Supervisory Board Members, their independence from Directors, and matters relating to the effectiveness of instructions given to such employees.
Employees who assist in the performance of duties of the Audit & Supervisory Board Members shall be assigned when requested by such Audit & Supervisory Board Members, and the approval of the Board of Audit & Supervisory Board Members shall be obtained for the transfer and evaluation of such employees.
(7) System for Directors and employees to report to Audit & Supervisory Board Members, other systems relating to reporting to Audit & Supervisory Board Members, and other systems to ensure that audits by Audit & Supervisory Board Members are conducted effectively.
Directors and employees of the Company and its subsidiaries shall immediately report to Audit & Supervisory Board Members of the Company if they discover any fact that may cause damage to the Company.
Corporate auditors attend important meetings of the Board of Directors, etc., and receive reports from directors, etc. of the Company and its subsidiaries on the status of the performance of their duties.
Corporate auditors may access important documents related to the execution of business, request forms and explanations from directors and employees of the Company and its subsidiaries.
Corporate auditors and representative directors shall hold meetings to exchange opinions on a regular basis to promote mutual communication.
(8) To ensure that persons who report to Corporate Auditors are not treated unfavorably because of their reports System
The Company and its subsidiaries are prohibited from treating any person who reports adverse effects to the Corporate Auditors unfavorably and the Company shall ensure that this rule is widely disseminated.
(9) Procedures for advance payment or reimbursement of expenses incurred in the execution of duties by Corporate Auditors and other matters related to policies on the disposal of expenses or liabilities incurred in the execution of such duties
When Corporate Auditors request advance payment or reimbursement of expenses incurred in the execution of their duties,
the Company shall promptly respond to such requests.
(10) Basic Approach to Eliminating Anti-Social Forces and Development Status
In order to ensure sound corporate management, the Company has a basic policy of taking a resolute stance against anti-social forces.
The Company’s basic policy is to have no relationship with anti-social forces.
The General Affairs Department is the department in charge of dealing with anti-social forces, and the General Manager of the General Affairs Department is in charge. In addition, the Company works closely with legal counsel and external organizations such as the police and the National Federation of Special Violence Prevention Measures within the jurisdiction of the Metropolitan Police Department to develop a system that enables the entire organization to respond promptly and collect information, and to thoroughly educate employees.
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7. Overview of the Operating Status of the System to Ensure the Appropriateness of Business Operations
The Company develops a system to ensure the appropriateness of business operations, and continuously identifies and analyzes managerial risks at meetings such as meeting of the Board of Directors, and considers countermeasures. As a result, the Company reviews internal rules and operations as necessary to improve the effectiveness of the internal control system. In addition to audits by Audit & Supervisory Board Members, the Company has developed a system that enables Audit & Supervisory Board Members to monitor the status of business execution and risks related to compliance by attending important internal meetings. Furthermore, by conducting internal audits on a regular basis, the Company verifies whether daily business operations violate laws and regulations, the Articles of Incorporation, internal rules, etc.
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Financial statements Balance Sheet As of March 31, 2024
(thousands of yen)
| Assets | Liabilities | ||
|---|---|---|---|
| Account | Amount | Account | Amount |
| Current Assets | 13,769,305 | Current liabilities | 13,832,401 |
| Cash and deposits | 301,324 | Accounts payable | 3,532,652 |
| Accounts receivable trade | 12,332,359 | Short-term borrowings | 8,050,000 |
| Merchandise inventories | 424,823 | Current portion of long-term debt | 209,679 |
| Advances paid | 1,794 | Other payables | 1,117,698 |
| Prepaid expenses | 16,062 | Accrued expenses | 6,979 |
| Short-term loans receivable | 200,000 | Deposits received | 4,020 |
| Employee advances | 1,172 | Suspense receipts | 10,288 |
| Suspense payments | 290,508 | Accrued income taxes | 595,828 |
| Accounts receivable | 10,820 | Accrued consumption taxes | 227,594 |
| Accrued refund consumption taxes | 314,730 | Provision for bonuses | 8,961 |
| Allowance for doubtful accounts | ∆124,290 | Provision for points | 734 |
| Fixed assets | 7,241,156 | Contractual liabilities | 6,926 |
| Property, plant and equipment | 1,090,799 | Short-term lease obligations | 31,650 |
| Building | 409,595 | Asset retirement obligations | 27,358 |
| Buildings Accessories | 388,793 | Fixed liabilities | 1,519,658 |
| Structures | 32,204 | Long-term borrowings | 809,000 |
| Vehicle delivery equipment | 14,190 | Deposit received for guarantee | 21,050 |
| Tools, furniture and fixtures | 118,514 | Long-term accounts payable | 135,714 |
| Tangible lease assets | 179,278 | Long-term lease obligations | 42,887 |
| Land | 340,148 | Deferred tax liabilities | 385,609 |
| Accumulated depreciation | ∆366,189 | Allowance for retirement benefits | 35,744 |
| Accumulated impairment loss | ∆25,737 | Asset retirement obligations | 89,653 |
| Intangible assets | 298,941 | Total liabilities | 15,352,059 |
| Intangible lease assets | 19,643 | ||
| Software suspense account | 279,297 | Net assets | |
| Investments and other assets | 5,851,415 | Account | Amount |
| Capital | 2,010 | Shareholders’ equity | 5,701,939 |
| Deposit | 87,130 | Capital stock | 1,955,786 |
| Security deposit | 134,814 | Capital surplus | 1,704,804 |
| Insurance reserve | 23,270 | Capital reserve | 1,704,804 |
| Recycling deposit | 18 | Retained earnings | 2,041,348 |
| Long-term prepaid expenses | 5,596 | Other retained earnings | 2,041,348 |
| Long-term accounts receivable | 1,775,934 | Retained earnings brought forward | 2,041,348 |
| Bankrupt and unsecured claims | 107,400 | Stock acquisition rights | 11 |
| Shares of subsidiaries and associates | 392,673 | Total net assets | 5,701,950 |
| Long-term accounts receivable | 3,482,538 | Total liabilities and net assets | 21,054,009 |
| Allowance for doubtful accounts | ∆159,970 | ||
| Deferred assets | 43,547 | ||
| Stock issuance expenses | 43,547 | ||
| Total assets | 21,054,009 |
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Statement of income From April 1, 2023 To March 31, 2024
(thousands of yen)
| Department Eye | Amount | |
|---|---|---|
| Sales | 25,615,177 | |
| Cost of sales | 23,250,146 | |
| Gross profit | 2,365,031 | |
| Selling, general and administrative expenses | 2,128,753 | |
| Operating profit | 236,278 | |
| Non-operating income | ||
| Interest and dividends income | 724 | |
| Foreign exchange gains | 106,565 | |
| Miscellaneous income | 128,951 | 236,241 |
| Non-operating expenses | ||
| Interest expense | 108,363 | |
| Amortization of deferred assets | 2,561 | |
| Loan fees | 33,231 | |
| Casualty loss | 8 | 144,165 |
| Ordinary profit | 328,353 | |
| Extraordinary profit | ||
| Gain on sales of fixed assets | 112,101 | |
| Gain on sales of investment securities | 4,999 | 117,101 |
| Extraordinary losses | ||
| Loss on disposal of fixed assets | 4,714 | |
| Impairment loss | 25,737 | 30,452 |
| Income before income taxes | 415,003 | |
| Income taxes, taxes inhabitants and enterprise taxes | 570,793 | |
| Income taxes | ∆372,207 | 198,585 |
| Net income | 216,417 |
12
Statement of changes in net assets From April 1, 2023 To March 31, 2024
(thousands of yen)
| Shareholders’ equity | Stock <br>acquisition <br>rights | Total net <br>assets | ||||||
|---|---|---|---|---|---|---|---|---|
| Capital | Capital surplus | Retained earnings | Total <br>shareholders’ <br>equity | |||||
| Other <br>retained <br>earnings | ||||||||
| Capital <br>surplus | Total <br>capital <br>surplus | Retained <br>earnings <br>brought <br>forward | Total <br>retained <br>earnings | |||||
| April 1, 2023 | 1,659,974 | 1,408,991 | 1,408,991 | 1,632,933 | 1,632,933 | 4,701,898 | 11 | 4,701,910 |
| Balance of errors due to corrections cumulative effects | — | — | — | 191,997 | 191,997 | 191,997 | — | 191,997 |
| After Retroactive Processing Balance at the Beginning of the Current Period | 1,659,974 | 1,408,991 | 1,408,991 | 1,824,930 | 1,824,930 | 4,893,896 | 11 | 4,893,907 |
| Changes during the Fiscal Year | 295,812 | 295,812 | 295,812 | — | — | 591,625 | — | 591,625 |
| Net income of items other than shareholders’ equity during the fiscal year | — | — | — | 216,417 | 216,417 | 216,417 | — | 216,417 |
| Net Changes | — | — | — | — | — | — | — | — |
| During the fiscal year <br>Total changes | 295,812 | 295,812 | 295,812 | 216,417 | 216,417 | 808,042 | — | 808,042 |
| March 31, 2023 Balance | 1,955,786 | 1,704,804 | 1,704,804 | 2,041,348 | 2,041,348 | 5,701,939 | 11 | 5,701,950 |
13
Notes to Individual Securities
1. Notes on Going Concern Assumption
The Company has been affected by the COVID pandemic and other factors triggered by the spread of the new coronavirus infection, and the accounts receivable collection term with overseas business partners have been prolonged. In addition, during the current fiscal year, the Tokyo Regional Taxation Bureau pointed out deficiencies in export licenses and other documentation, resulting in the additional consumption tax collection.
This has caused instability in cash management, and there are events or circumstances that raise significant doubts about the company's ability to continue as a going concern.
To resolve these events or conditions, the Company has developed a business plan that emphasizes cash management, including the shortening of accounts receivable collection sites, and has requested that financial institutions with which it does business relax the terms of repayment of loan principal, and has obtained the consent of all financial institutions to which such requests were made.
However, the Company recognizes that there are significant uncertainties regarding the premise of a going concern because the Company's financial strength is not yet strong and the loan agreements concluded with financial institutions are subject to renewal in the short term, although they are based on the premise of continued support in the future.
The financial statements have been prepared on a going concern basis and do not reflect the effect of material uncertainties regarding the going concern assumption.
2. Notes to Significant Accounting Policies
(1) Valuation Basis and Method of Securities
Shares of subsidiaries and affiliates ........... Stated at cost by the moving-average method
(2) Valuation basis and method of inventories
Stated at cost by the moving-average method
(Balance sheet values are calculated by devaluing book values due to a decline in profitability)
(3) Depreciation method of fixed assets
Property, plant and equipment (excluding leased assets)
Declining-balance method, except for buildings (excluding attached facilities) acquired on or after April 1, 1998
Buildings attached facilities and structures acquired on or after April 1, 2016 are depreciated using the straight-line method.
The useful lives of major items are as follows:
| Buildings | 38 to 50 years |
|---|---|
| Attached facilities | 3 to 18 years |
| Structures | 10 to 30 years |
| Vehicle Deliverables | 2 to 7 years |
| Tools, furniture and fixtures | 2 to 20 years |
Lease assets
Lease assets under finance lease transactions that do not transfer ownership
The straight-line method is used with the lease term as the useful life and the residual value as zero.
14
(4) Provision for Allowance
Provision for doubtful accounts
To prepare for possible losses due to bad debts, the Company provides an estimated amount of uncollectible receivables based on the actual bad debt ratio for general receivables and the collectibility of specific receivables such as doubtful receivables.
Provision for bonuses
To prepare for the payment of bonuses to employees, the Company provides an estimated amount corresponding to the current fiscal year out of the estimated payment amount.
Provision for retirement benefits
To prepare for the payment of retirement benefits to employees, the Company provides an amount deemed to have accrued at the end of the current fiscal year based on the retirement benefit obligation at the end of the current fiscal year.
In addition, the retirement benefit obligation is calculated based on the amount required to be voluntarily paid at the end of the fiscal year under the provisions for retirement benefits.
The retirement benefit obligation is calculated based on the amount required to be voluntarily paid at the end of the fiscal year under the provisions for retirement benefits.
Provision for points
Of the Company’s points issued under the point system for sales promotion purposes, which are not attributable to sales
The Company records the amount expected to be used in the future based on the rate of actual use in the past.
(5) Standards for recording revenues and expenses
The Company’s main business is the sale of cosmetics and household goods.
With respect to the sale of these products, the Company recognizes revenue at the time of delivery.
The Company judges that the customer has acquired control over the products at the time of delivery and that the performance obligation will be satisfied. Revenue is measured at the amount of consideration promised under the contract with the customer.
Returns, discounts and rebates are deducted from the consideration promised under the contract with the customer.
Consideration for the transaction is received within one year after fulfillment of the performance obligation.
(6) Other important matters that form the basis for the preparation of non-consolidated financial statements
Accounting for consumption taxes
Accounting for consumption taxes is based on the tax exclusion method.
15
3. Notes on revenue recognition
(1) Breakdown of revenue
The Company engages in wholesale and retail businesses and e-commerce businesses for the domestic and overseas markets. The main types of goods and services in each business are daily goods, cosmetics, and pharmaceuticals.
| Net sales in each business | Domestic wholesale | 5,424,983,000 yen |
|---|---|---|
| Domestic e-commerce | 1,231,801,000 yen | |
| Domestic retail | 1,982,848,000 yen | |
| Overseas wholesale | 16,976,862,000 yen |
(2) Information that serves as the basis for understanding revenues
As stated in “Standards for recognition of revenues and expenses” of “Notes on significant accounting policies.”
4. Notes to the balance sheet
(1) Assets provided as collateral and obligations related to collateral
| Assets pledged as collateral | Land | 340,148,000 yen |
|---|---|---|
| Buildings | 381,947,000 yen | |
| Total | 722,096,000 yen | |
| Collateral | Long-term borrowings | 630,000,000 yen |
(2) Monetary receivables and payables to affiliates
| Accounts receivable | 3,000,109,000 yen |
|---|---|
| Prepaid expenses | 10,000,000 yen |
| Short-term loans receivable | 200,000,000 yen |
| Temporary payments | 290,000,000 yen |
| Accounts receivable | 5,523,000 yen |
| accounts payable | 2,000,000 yen |
(3) Monetary liabilities to directors
| Accounts payable | 4,374,000 yen |
|---|
(4) Guarantee obligations
The Company provides guarantees for borrowings from financial institutions of other companies.
| Tokyo Lifestyle Limited | 31,423,000 yen |
|---|---|
| Total amount of guarantees | 31,423,000 yen |
5. Notes to Income Statement
Transactions with affiliated companies
Transactions through operating transactions
| Net sales | 4,544,268,000 yen |
|---|---|
| Purchases | 14,583,000 yen |
| Selling, general and administrative expenses | 33,079,000 yen |
| Transactions other than operating transactions | 39,306,000 yen |
16
6. Notes to the Statement of Changes in Net Assets
Class and total number of issued shares at the end of the current business year
| Common stock | 42,220,206 shares |
|---|
Class and number of shares underlying stock acquisition rights (excluding those for which the first day of the exercise period has not yet arrived) at the end of the current business year
| Common stock | 6,270,152 shares |
|---|
7. Notes to Tax Effect Accounting
Breakdown of Deferred Tax Assets and Deferred Tax Liabilities by Major Causes
| (Deferred Tax Assets) | |
|---|---|
| Accrued Business Tax | 35,896,000 yen |
| Accrued Business Tax | 455,000 yen |
| Allowance for doubtful accounts | 87,054,000 yen |
| Provision for bonuses | 2,744,000 yen |
| Provision for points | 224,000 yen |
| Loss on devaluation of commodity prices | 2,973,000 yen |
| Asset retirement obligations | 35,834,000 yen |
| Accumulated impairment loss | 3,188,000 yen |
| Accrued retirement benefits | 10,946,000 yen |
| Subtotal of deferred tax assets | 179,318,000 yen |
| Valuation allowance | ∆125,456,000 yen |
| Total deferred tax assets | 53,861,000 yen |
| (Deferred tax liabilities) | |
| --- | --- |
| Retirement expenses corresponding to asset retirement obligations | ∆15,250,000 yen |
| Damages received | ∆424,221,000 yen |
| Total deferred tax liabilities | ∆439,471,000 yen |
| Net amount of deferred tax liabilities | ∆385,609,000 yen |
8. Notes on financial instruments
(1) Status of financial instruments
Borrowings are used for working capital (mainly short-term) and capital investment (long-term).
(2) Market value of financial instruments
Carrying amount on the balance sheet, fair value and the difference between them as of March 31, 2024 (the closing date of the fiscal year under review) are as follows.
17
Notes on cash are omitted, and notes on deposits, accounts receivable, accounts payable and short-term borrowings are omitted because their fair values approximate their book values because they are settled in a short period of time.
(thousands of yen)
| Carrying <br>amount on the <br>balance sheet <br>(*1) | Time value <br>(*1) | Difference | |||
|---|---|---|---|---|---|
| Long-term loans payable (*2) | (1,018,679 | ) | (1,018,103 | ) | 575 |
____________
(*1) Liabilities are indicated in ( ).
(*2) Long-term borrowings due within one year are included.
(Note 1) Calculation method of fair value of financial instruments
Negative bonds
Long-term borrowings
The fair value of long-term borrowings is calculated by discounting the total amount of principal and interest by the interest rate assumed in the case of a similar new borrowing.
Among long-term borrowings, those with floating interest rates reflect market interest rates in a short period (within one year). As long as the Company’s credit status does not differ significantly after the borrowings are executed, the fair value approximates the book value. Therefore, the book value is used.
(Note 2) Book value of stocks, etc. without market value
(thousands of yen)
| Account | Amount <br>recorded <br>on the <br>balance sheet |
|---|---|
| Shares of affiliates | 392,673 |
Shares of affiliates are not subject to market value disclosure because they do not have market prices.
9. Notes on transactions with related parties
(1) Subsidiaries and affiliates
(thousands of yen)
| Type | Name of <br>Company, etc. | of Voting <br>Rights, etc. <br>Percentage of <br>Ownership | Details of Transaction | Transaction Amount | Amount of <br>Transaction | Account | Year-End <br>Balance |
|---|---|---|---|---|---|---|---|
| Subsidiaries | Tokyo<br>Lifestyle<br>Limited | Direct ownership <br>100% | Purchase of goods<br>Sale of goods<br>Trademark fees and secondment expenses<br>Monetary loans | Purchases<br>Sales<br>Miscellaneous income<br>Interest income | 435<br>3,677,727<br>33,198<br>614 | Accounts receivable<br> <br>Short-term loans receivable<br> <br>Temporary payments<br> <br>Accounts receivable<br> <br>Guarantee obligations (Note 2) | 3,000,103<br>200,000<br>290,000<br>5,160<br>31,423 |
| Subsidiaries | Shenzhen qingzhiliangpin Network Technology Co., Ltd. | Ownership Indirect <br>100% | Purchase of goods<br>Sale of goods | Purchase<br>Sales | 15,697<br>1,786 |
____________
Transaction terms and policy for determining transaction terms
(Note 1) Prices and other transaction terms are determined by price negotiations taking market performance into account.
(Note 2) Debt guarantees are provided for borrowings from financial institutions. Guarantee fees from subsidiaries are not exchanged.
We don’t accept delivery.
18
(2) Officers and Individual Major Shareholders, etc.
(thousands of yen)
| Type | Name of <br>Company, etc. | of Voting <br>Rights, etc. <br>Percentage of <br>Ownership | Details of <br>Transaction | Subject of <br>Transaction | Transaction <br>amount | Account | Balance at <br>the end of the <br>period |
|---|---|---|---|---|---|---|---|
| Officers and their close relatives hold a majority of voting rights Companies, etc. | Tokushin G. K. | None | Sale of assets <br>(Vehicles) | Gain on sales of fixed assets | 155 | ||
| Directors and their close relatives hold a majority of the voting rights Companies, etc. | Seihin Kokusai <br>Co., Ltd. | None | Purchase of products<br>Sale of products<br>Rent, rent, etc.<br>Secondment expenses | Purchases<br>Net sales<br>Selling, general and administrative expenses<br>Miscellaneous income | 11,349<br>850,844<br>33,079<br>5,338 | Accounts receivable<br>Prepaid expenses<br>Accounts receivable<br>Accounts payable | 6<br>10,000<br>363<br>2,000 |
| If officers and their close relatives hold a majority of their voting rights Owned companies, etc. | Kaikakokusai Co., Ltd. | None | Purchase of products | Purchases | 1,011 |
____________
Transaction terms and policy for determining transaction terms
(Note) Prices and other transaction terms are determined by price negotiations taking market performance into account.
10. Notes on Fixed Assets Used under Lease
In addition to the fixed assets recorded on the balance sheet, certain office equipment, etc., are used under finance lease agreements that do not transfer ownership.
11. Notes on Information per shares
(1) Net assets per share 135.05 yen
(2) Net income per share 5.13 yen
12. Notes on Significant Subsequent Events
(1) Decrease in capital
At a meeting of the Board of Directors held on May 21, 2024, the Company resolved to reduce its capital stock (“Capital Reduction”), which was approved at the Ordinary General Meeting of Shareholders held on June 27, 2024. Based on this resolution, effective July 15, 2024, the Company's capital was reduced from 1,955,786 thousand yen to 99,000 thousand yen, and the entire amount of the reduced capital was designated as capital reserve.
The creditor protection procedures in this capital reduction have been properly completed.
(2) Payment of corporate tax, etc. for the period of March 2024
The Company has applied to the National Tax Administration Bureau (435,928 thousand yen), the Tokyo Metropolitan Government Sumida Taxation Office (75,117 thousand yen), and the Saitama Prefectural Taxation Office (52,237 thousand yen) for deferment of realization of corporate tax, enterprise tax, prefectural inhabitant tax, etc. (total amount: 595,828 thousand yen) in connection with its tax return for the year ended March 31, 2024, and has discussed payment in installments. The Company has applied to the Tokyo Metropolitan Sumida Tax Office (75,117 thousand yen) and the Saitama Prefectural Koshigaya Tax Office (52,237 thousand yen) for deferment of revaluation, and has discussed payment in installments.
Approval has been received from the Tokyo Metropolitan Government Sumida Metropolitan Tax Office (75,117 thousand yen) effective as of August 1, 2024.
13. Other notes
Amounts less than 1,000 yen have been rounded down.
19
Supplementary Schedule
From April 1, 2023 To March 31, 2024
1. Details of tangible fixed assets and intangible fixed assets (including those that give rise to amortization expenses recorded in investments and other assets)
(thousands of yen)
| Category | of assets Type | Beginning of <br>year <br>Book value | Current <br>period <br>Increase | Current <br>period <br>Decrease | Current <br>period <br>Amortization | End of <br>period <br>Book value | Impairment <br>loss <br>Accumulated <br>amount | Depreciation <br>Accumulated <br>amount | End of <br>period <br>Acquisition <br>price |
|---|---|---|---|---|---|---|---|---|---|
| Property, plant<br>and equipment | Buildings | 552,875 | — | 156,659 | 14,268 | 381,947 | — | 27,647 | 409,595 |
| Building accessory equipment | 337,428 | — | 28,658 | 52,168<br>(16,376) | 256,601 | 16,376 | 115,815 | 388,793 | |
| Structures | 31,351 | — | 1,801 | 2,109 | 27,440 | — | 4,764 | 32,204 | |
| Vehicle Conveyance Equipment | 20,974 | — | 12,292 | 7,760 | 921 | — | 13,268 | 14,190 | |
| tools, furniture and fixtures | 65,451 | 353 | 925 | 20,149<br>(1,361) | 44,730 | 1,361 | 72,422 | 118,514 | |
| land | 464,107 | — | 123,958 | — | 340,148 | — | — | 340,148 | |
| tangible leased assets | 80,596 | — | 981 | 40,605<br>(7,999) | 39,009 | 7,999 | 132,269 | 179,278 | |
| Total | 1,552,785 | 353 | 325,278 | 137,061 | 1,090,799 | 25,737 | 366,189 | 1,482,726 | |
| Intangible<br>fixed asset | Intangible leased assets | 35,907 | — | — | 16,264 | 19,643 | |||
| Software suspense account | 279,297 | — | — | — | 279,297 | ||||
| Total | 315,205 | — | — | 16,264 | 298,941 | ||||
| Investments & Others<br>Capital | Long-term prepaid expenses | 8,131 | 776 | 2,754 | 556 | 5,596 | |||
| Total | 8,131 | 776 | 2,754 | 556 | 5,596 |
____________
(Note) Amounts in parentheses in the “Amortization for the current period” column indicate the amount of impairment loss recorded for the current period.
2. Details of provisions
(thousands of yen)
| Department Item | Balance at the <br>beginning of the <br>period | Increase in the <br>current period | Decrease in the <br>current period | Balance at <br>the end of the <br>period |
|---|---|---|---|---|
| Allowance for doubtful accounts | 264,150 | 20,110 | — | 284,260 |
| Provision for bonuses | 20,225 | 8,961 | 20,225 | 8,961 |
| Provision for points | 2,659 | 734 | 2,659 | 734 |
| Provision for retirement benefits | 25,782 | 15,116 | 5,154 | 35,744 |
20
3. Details of selling, general and administrative expenses
(thousands of yen)
| Department Item | Balance at end <br>of period | Removal <br>Necessary |
|---|---|---|
| Advertising expenses | 12,483 | |
| Sales promotion expenses | 19,427 | |
| Packaging freight | 257,091 | |
| Provision for points | ∆1,925 | |
| Training expenses | 70 | |
| Loss on inventory disposal | 120 | |
| Compensation for officers | 60,900 | |
| Salary allowance | 336,899 | |
| Bonuses | 8,240 | |
| Provision for bonuses | 1,910 | |
| Statutory welfare expenses | 58,927 | |
| Welfare expenses | 1,287 | |
| Depreciation expenses | 124,450 | |
| Repair expenses | 71 | |
| Sanitation expenses | 2,485 | |
| Consumables expenses | 17,645 | |
| Utilities | 19,997 | |
| Travel expenses | 79,296 | |
| Fees | 754,310 | |
| Taxes and public charges | 79,726 | |
| Entertainment and entertainment expenses | 50,632 | |
| Insurance premiums | 19,818 | |
| Communications expenses | 4,352 | |
| Membership expenses | 200 | |
| Vehicle expenses | 2,922 | |
| Provision for allowance for doubtful accounts | 20,110 | |
| Lease payments | 8,342 | |
| Rent | 158,285 | |
| Advisory fees | 13,545 | |
| Meeting expenses | 1,149 | |
| Miscellaneous expenses | 305 | |
| Retirement benefit expenses | 15,116 | |
| Amortization of long-term prepaid expenses | 556 | |
| Selling, general and administrative expenses | 2,128,753 |
21
Audit Report
In regard to the directors’ performance of their duties for the 18th business year from April 1, 2023 to March 31, 2024, the audit and supervisory board has prepared this Audit Report after deliberations based on the audit reports prepared by each audit and supervisory board member and reports as follows.
- Method and Contents of Audits by the Audit and Supervisory Board Members and the Audit and Supervisory Board
(1) The audit and supervisory board determined the audit policies and division of duties, etc. and received reports from each audit and supervisory board member regarding the implementation status and results of their audits, in addition to which it received reports from the directors, etc. and the accounting auditor regarding the status of the performance of their duties and requested explanations as necessary.
(2) In compliance with the audit and supervisory board member audit standards established by the audit and supervisory board and in accordance with the audit policies and division of duties, etc., each audit and supervisory board member communicated with the directors, the internal audit department, and other employees, etc., endeavored to gather information and develop the audit environment, and conducted audits using the following methods.
(i) The audit and supervisory board members attended meetings of the board of directors and other important meetings, received reports from directors and employees, etc. regarding the status of the performance of their duties, requested explanations as necessary, viewed important decision-making documents, etc., and inspected the status of operations and assets at the head office and main business locations. Additionally, regarding subsidiaries, the audit and supervisory board members communicated and exchanged information with the directors and audit and supervisory board members, etc. of subsidiaries and received reports on business from subsidiaries as necessary.
(ii) In regard to the content of resolutions of the board of directors regarding the development of systems to ensure that the directors’ performance of their duties complies with laws, regulations, and the articles of incorporation and other systems provided for in Article 100, paragraph (1) and paragraph (3) of the Ordinance for Enforcement of the Companies Act as systems necessary to ensure the appropriateness of operations of the corporate group composed of a stock company and its subsidiaries, as well as the systems developed pursuant to those resolutions (i.e., internal control systems) stated in the business report, the audit and supervisory board members periodically received reports from directors and employees, etc. regarding the status of the establishment and operation of those systems and as necessary requested explanations and expressed opinions in regard thereto.
(iii) The audit and supervisory board members oversaw and verified whether the accounting auditor maintained an independent position and conducted an appropriate audit, received reports from the accounting auditor on the status of the performance of its duties, and requested explanations as necessary. Additionally, the audit and supervisory board members received notification from the accounting auditor that, in accordance with the “Quality Control Standards for Audits” (Business Accounting Council, October 28, 2005), etc., it had developed systems in order to ensure that its duties are appropriately performed (i.e., notification of the matters stated in the items of Article 131 of the Ordinance on Accounting of Companies) and requested explanations as necessary.
- Audit Results
(1) Results of audit of business report, etc.
(i) We find that the business report and the supplementary schedules thereto accurately present the status of the company in accordance with laws, regulations, and the articles of incorporation.
(ii) We do not find any misconduct nor any material fact constituting a violation of any law, regulation, or the articles of incorporation in relation to the directors’ performance of their duties.
(iii) We find the content of the resolutions of the board of directors regarding internal control systems to be reasonable. Additionally, we do not find any matters that should be commented upon in regard to the statements in the business report or the directors’ performance of their duties relating to the internal control systems.
22
(2) Results of audit of accounting documents and supplementary schedules thereto We find the methods and results of the audit by the accounting auditor, SAKURAZAKA Audit Corporation to be reasonable.
Friday
September 6, 2024
Yoshitsu Co., Ltd.; Audit and Supervisory Board
Full-time Audit and Supervisory Board Member
Tadao Iwamatsu
Audit and Supervisory Board Member
Keiichi Kimura
Audit and Supervisory Board Member
Junji Sato
(Note) Keiichi Kimura, Auditor, and Junji Sato, Auditor, are Outside auditor as stipulated in Article 2, Item 16 of the Companies Act.
23
Independent Auditor’s Report
(English Translation)
September 6, 2024
To the Board of Directors Yoshitsu Co., Ltd.
SAKURAZAKA Audit Corporation
Chiyoda-ku, Tokyo
Shinsuke Hitachi, CPA
Representative Partner
Engagement Partner
Audit Opinion
Pursuant to Article 436, Paragraph 2, Item 1 of the Companies Act, we have audited the accompanying financial statements, which comprise the balance sheet, the statement of income, the statement of changes in equity and the related notes, and the accompanying supplementary schedules of Yoshitsu Co., Ltd. (hereinafter referred to as the “Company”) for the 18th fiscal year from April 1, 2023 through March 31, 2024.
In our opinion, the financial statements and the accompanying supplementary schedules referred to above present fairly, in all material respects, the financial position of the Company as of March 31, 2024, and the results of its operations for the year then ended in conformity with accounting principles generally accepted in Japan.
Basis for the Audit Opinion
We conducted our audit in accordance with auditing standards generally accepted in Japan. Our responsibility under the auditing standards is stated in “Auditor’s Responsibility for the Audit of the Financial Statements and the Accompanying Supplementary Schedules.” We are independent of the Company in accordance with the provisions related to professional ethics in Japan and are fulfilling other ethical responsibilities as an auditor. We deem that we have obtained sufficient and appropriate audit evidence to provide a basis for our audit opinion.
Significant Uncertainty Concerning the Premise of a Going Concern
As described in the note on the premise of a going concern, the Company is experiencing instability in its smooth financing due to the prolonged collection period for accounts receivable and the additional consumption tax levy. As a result, we believe that events or conditions exist that raise substantial doubt about the premise of a going concern and that there is significant uncertainty concerning the premise of a going concern at this point. The Company’s measures to address these events or conditions and the reason for significant uncertainty are described in the note. The financial statements and the accompanying supplementary schedules are prepared on the premise of a going concern, and the effect of such significant uncertainty is not reflected in them.
Our opinion is not modified with respect to this matter.
Other Information
Other information refers to the business report and accompanying supplementary schedules. Management is responsible for the preparation and disclosure of other information. Corporate auditors and the board of corporate auditors are responsible for overseeing the execution of duties by Directors in the establishment and operation of the Company’s reporting process for other information.
Other information is not included in the scope of our opinion on the financial statements and the accompanying supplementary schedules, and we express no opinion on it.
Our responsibility with respect to the audit of the financial statements and the accompanying supplementary schedules is to read through other information and, in this process, to consider whether any material differences exist between other information and the financial statements and the accompanying supplementary schedules, or knowledge we have gained through the auditing process; also, to remain alert for any other indications of material error in other information.
24
We are required to report any matter that we consider constitutes a material error in other information, based on the work we have undertaken.
We have nothing to report regarding other information.
Responsibilities of Management, Corporate Auditors, and the Board of Corporate Auditors for the Financial Statements and the Accompanying Supplementary Schedules
Management is responsible for the preparation and fair presentation of the financial statements and the accompanying supplementary schedules in accordance with accounting principles generally accepted in Japan, and for maintaining and operating such internal control as management determines is necessary to enable the preparation and fair presentation of the financial statements and the accompanying supplementary schedules that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements and the accompanying supplementary schedules, management is responsible for assessing whether it is appropriate to prepare the financial statements and the accompanying supplementary schedules in accordance with the premise of a going concern, and for disclosing matters relating to going concern when it is required to do so in accordance with accounting principles generally accepted in Japan.
Corporate auditors and the board of corporate auditors are responsible for monitoring the execution of Directors’ duties related to maintaining and operating the financial reporting process.
Auditor’s Responsibility for the Audit of the Financial Statements and the Accompanying Supplementary Schedules
Our responsibility is to obtain reasonable assurance about whether the financial statements and the accompanying supplementary schedules as a whole are free from material misstatement, whether due to fraud or error, and to express an opinion on the financial statements and the accompanying supplementary schedules from an independent standpoint in an audit report, based on our audit. Misstatements can occur as a result of fraud or error and are deemed material if they can be reasonably expected to, either individually or collectively, influence the decisions of users taken on the basis of the financial statements and the accompanying supplementary schedules.
We make professional judgment in the audit process in accordance with auditing standards generally accepted in Japan and perform the following while maintaining professional skepticism.
• Identify and assess the risks of material misstatement, whether due to fraud or error. Design and implement audit procedures to address the risks of material misstatement. The audit procedures shall be selected and applied as determined by the auditor. In addition, sufficient and appropriate audit evidence shall be obtained to provide a basis for the audit opinion.
• In making those risk assessments, the auditor considers internal control relevant to the entity’s audit in order to design audit procedures that are appropriate in the circumstances, although the purpose of the audit of the financial statements and the accompanying supplementary schedules is not to express an opinion on the effectiveness of the entity’s internal control.
• Assess the appropriateness of accounting policies adopted by management and the method of their application, as well as the reasonableness of accounting estimates made by management and the adequacy of related notes.
• Determine whether it is appropriate for management to prepare the financial statements and the accompanying supplementary schedules on the premise of a going concern and, based on the audit evidence obtained, determine whether there is a significant uncertainty in regard to events or conditions that may cast significant doubt on the entity’s ability to continue as a going concern. If there is a significant uncertainty concerning the premise of a going concern, the auditor is required to call attention to the notes to the financial statements and the accompanying supplementary schedules in the audit report, or if the notes to the financial statements and the accompanying supplementary schedules pertaining to the significant uncertainty are inappropriate, issue a modified opinion on the financial statements and the
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accompanying supplementary schedules. While the conclusions of the auditor are based on the audit evidence obtained up to the date of the audit report, depending on future events or conditions, an entity may be unable to continue as a going concern.
• Besides assessing whether the presentation of and notes to the financial statements and the accompanying supplementary schedules are in accordance with accounting principles generally accepted in Japan, assess the presentation, structure, and content of the financial statements and the accompanying supplementary schedules including related notes, and whether the financial statements and the accompanying supplementary schedules fairly present the transactions and accounting events on which they are based.
The auditor reports to corporate auditors and the board of corporate auditors regarding the scope and timing of implementation of the planned audit, material audit findings including material weaknesses in internal control identified in the course of the audit, and other matters required under the auditing standards.
Interest
Our firm and engagement partners have no interests in the Company requiring disclosure under the provisions of the Certified Public Accountants Act of Japan.
| Notice to Readers:<br> <br>The original non-consolidated financial statements, which consist of the balance sheet, the statement of income, the statement of changes in equity, the notes to the financial statements and the supplementary schedules thereof, are written in Japanese. |
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