MANDARAKE INC.

Antique items such as used manga books, anime-related merchandise, and dead stock items may experience price surges and reduced distribution volumes as image and price information becomes widespread online. This could lead to decreased purchasing or slowing sales, potentially affecting the Company's business performance. As a countermeasure, the Company works to enhance product awareness and ensure liquidity through its website and various advertisements.

After media developments such as anime adaptations or live-action films come to an end, consumers' willingness to sell rises rapidly, making appropriate price control and volume management by purchasing staff essential. If there is a shortage of staff or delays or deficiencies in obtaining product information, purchasing activities may stagnate, potentially hindering the securing of sales revenue. The Company maintains a policy of continuous monitoring of inventory quantities and distribution volumes, along with timely revisions of purchase prices, to sustain stable purchasing activities.

The Company is highly dependent on Representative Director and Chairman Masuzo Furukawa for the valuation of highly rare and specialized items such as manuscripts, original artwork, and colored paper (shikishi). If any unforeseen event were to occur to him, it could have a significant impact on overall operations, particularly on product procurement. Representative Director and President Mikinori Tanaka, along with all other officers, are working to share responsibilities by leveraging their knowledge and experience, aiming to reduce and eventually eliminate this dependence.

As the variety and volume of handled products expand, it has become essential to continuously enhance POS system functionality and add to the database. If system enhancement, development, and operation do not proceed as planned, inventory management could be compromised, adversely affecting sales operations and potentially impacting business performance. The Company intends to continue investing personnel and funds related to systems in order to maintain and strengthen them.

The Company operates 15 stores across 13 locations domestically and plans to open additional stores, primarily in major metropolitan areas. However, due to the diversity and large volume of handled products, large properties are required, and the additional condition of being located near major metropolitan terminal stations can make it difficult to secure properties that meet these requirements. If suitable properties cannot be secured, the Company may be forced to change its store opening plans, potentially affecting business performance. The Company maintains a policy of maximizing sales through both in-store sales and mail-order sales.

The outstanding balance of borrowings at the end of the fiscal year under review was ¥4,914 million, with the Company relying primarily on financial institution borrowings to fund working capital and store opening costs. If the performance of existing stores falls significantly short of expectations, or if new store openings do not proceed as planned, operating cash flow, which serves as the source of loan repayment, may become insufficient, potentially affecting business performance depending on the degree of dependence on borrowings. The Company continues to strengthen relationships with financial institutions and strives to secure stable financial support.

The Company's publications are sold under a consignment sales system, under which returns are accepted within the consignment period. If large-scale returns occur, this results in the recognition of losses on product valuation and disposal. In situations where the returned inventory is judged to be significantly excessive, disposal may also become unavoidable, potentially affecting business performance. The Company works to reduce returns by making appropriate sales forecasts before publication and setting suitable print run quantities.

The majority of the Company's purchases consist of buybacks from individual customers, and the Company practices the obligation to verify counterparties in accordance with regulations under the Secondhand Goods Business Act (Kobutsu Eigyo Ho). If new regulations are established through future revisions of the Secondhand Goods Business Act, driven by changes in attitudes toward copyright and other factors, this could disrupt purchasing activities and lead to a decrease in handled products, potentially affecting business performance. The Company strives to gather the latest information and respond appropriately by participating in training sessions for the secondhand goods business and maintaining good relationships with relevant government authorities.

The Company holds customers' private information obtained through mail-order orders and other channels. If this data were to leak externally due to management deficiencies or other causes, it could result in claims for damages or a decline in trust, potentially affecting business performance. While the Company has established rules for protection and strives to comply with them, information management risk remains an ongoing challenge. As part of system development and enhancement, the Company places emphasis on information management functions and continues to pursue the latest and most robust information protection measures.

Media adaptations of manga and other works, such as anime adaptations, live-action films, TV broadcasts, and theatrical releases, cause a rapid surge in purchasing intent, leading to increases in both the sales prices and purchase prices of related products. However, once such media developments come to an end, a decline in purchasing intent and a rapid rise in the desire to sell occur simultaneously. If the Company is unable to effectively manage the volume of purchases and control prices appropriately in response to these sharp fluctuations in supply and demand, this could affect business performance. Purchasing staff with extensive knowledge and experience in each product category respond to this by reviewing prices on a daily basis.