Intermestic Inc.

There is no clear legal provision as to whether refraction measurement performed at the time of eyeglasses sales constitutes a medical practice. If, due to amendments to laws and regulations or changes in interpretation, the Group's refraction measurement activities are determined to constitute a medical practice, the Group's business activities could be restricted, resulting in a decrease in net sales and other adverse effects that could materially impact its business performance and financial condition. The Company positions this activity as "support for customers in selecting lenses with the appropriate power for their needs" and does not perform diagnoses or examinations that would constitute medical practice, while thoroughly conducting internal employee education. Probability of occurrence: medium; Impact: large.

Contact lenses and hearing aids fall under the category of specially controlled medical devices, and their sale requires permits from regulatory authorities. If such permits were revoked due to violations of laws and regulations, this could materially impact the Group's business performance and financial condition. The Group continuously satisfies permit conditions and carries out periodic renewals, while constantly monitoring trends in legal and regulatory amendments. Probability of occurrence: medium; Impact: large.

Since much of the Group's mainstay product, eyeglass frames, is imported directly from overseas countries such as China, procurement costs are affected by fluctuations in foreign exchange rates, and the yen-denominated translation of the financial statements of overseas consolidated subsidiaries is also affected. If exchange rates fluctuate sharply, the resulting rise in import procurement costs or fluctuations in the yen-denominated financial figures of overseas consolidated subsidiaries could materially impact the Group's business performance and financial condition. As countermeasures, the Group is considering the use of forward exchange contracts and the diversification of production bases. Probability of occurrence: medium; Impact: large.

Among the domestic eyewear retail market, which is the Group's core business, the vision-correction eyewear market has become increasingly mature. If the overall market were to shrink significantly due to the competitive environment or other structural changes, this could materially impact the Group's business performance and financial condition. As countermeasures, the Group is working to improve domestic profitability by reviewing its store openings and sales formats, while also expanding into overseas markets and new business areas. Probability of occurrence: medium; Impact: large.

If competitors offering higher added value than the Group emerge due to business model transformations by competitors, new entrants from other industries or overseas, this could reduce the Group's competitiveness and net sales, materially impacting its business performance and financial condition. In addition, the spread of alternative services such as vision-correction surgery and the emergence of new vision-correction methods through technological innovation could also act as factors shrinking the overall eyewear retail market. The Group seeks to differentiate itself through clear and reasonable pricing, proactive product development, expansion of functional products, and enhanced appeal as a fashion item. Probability of occurrence: medium; Impact: large.

The Group outsources product manufacturing to cooperating factories and companies overseas. If a significant disruption occurs in procurement or logistics networks due to natural disasters or sudden surges in demand, this could materially impact the Group's business performance and financial condition. In addition, rising prices for raw materials and supplies due to climate change, geopolitical risks and other factors, as well as increased logistics costs (due to driver shortages and rising fuel costs), pose risks of pushing up procurement costs and store opening expenses. The Group seeks to reduce these impacts through consideration of diversifying production bases, reviewing product specifications and selling prices, and improving logistics efficiency. Probability of occurrence: medium; Impact: large.

With the advancement of IT utilization, information security risks are increasing. If important information is leaked, systems are disrupted, or data is tampered with due to unauthorized access or other causes, this could materially impact the Group's business performance and financial condition. In addition, the Group holds personal information such as customers' names and addresses, and in the event of an external leak, loss of trust could lead to a decline in net sales and other adverse effects. The Group has established regulations such as its "Information Security Policy," continues to conduct employee education and training, collaborates with specialized information security firms, and conducts regular monitoring through its "Personal Information Protection Committee." Probability of occurrence: medium; Impact: large.

Realizing the Group's aggressive new store opening plans requires securing and developing high-quality store staff and store supervisors. If it becomes difficult to secure personnel as planned due to a shrinking labor force resulting from the declining birthrate and aging population, rising labor costs, or changes in the labor market environment, this could delay store opening plans and reduce the Group's ability to differentiate itself from competitors, materially impacting its business performance and financial condition. The Group is promoting more active mid-career hiring, continued new graduate recruitment, group training and web-based training, the development of a support program for obtaining the Certified Optician qualification, and productivity improvements through the introduction of digital tools. Probability of occurrence: medium; Impact: large.

The Group entered Hong Kong and Singapore in 2017 and is considering further expansion into overseas markets. If risks such as violations of various laws and regulations, unexpected legal amendments or tightened regulations, policy changes, rising labor costs and difficulty in hiring, underdeveloped infrastructure, international tax risks such as transfer pricing taxation, or social disruption due to terrorism, war, disease, or disasters were to materialize, this could materially impact the Group's business performance and financial condition. The Group conducts thorough research into markets, competition, and legal regulations prior to entry, continuously monitors changes in the environment after entry, collaborates with local law firms, and appropriately addresses transfer pricing taxation. Probability of occurrence: medium; Impact: large.

The Group has recorded goodwill on its consolidated financial statements as a result of corporate acquisitions aimed at business expansion and strengthening competitiveness. If estimates of future cash flows are revised downward due to changes in the business environment after acquisition, intensifying competition, changes in consumer trends, failure to achieve synergy effects, or deterioration in business results, the Group may need to record an impairment loss on goodwill, which could materially impact its business performance and financial condition. The Group conducts careful examination of future prospects, earning power, and synergy effects at the time of acquisition, performs reasonable corporate valuations, continuously monitors post-acquisition business performance and business environment, regularly verifies indications of impairment, and implements measures such as business plan reviews and business structure improvements. Probability of occurrence: medium; Impact: large.