HARD OFF CORPORATION Co.,Ltd.

While the reuse market is expanding due to growing environmental awareness and cost-consciousness among consumers, if competitors develop similar businesses and pursue aggressive store openings, the performance of existing stores could deteriorate. There is also a risk that securing desired store properties may not proceed as planned due to competitors' aggressive expansion. The Company aims to establish a nationwide network at an early stage based on a store-opening policy targeting a trade area population of 100,000 per store.

Operation of the reuse business requires a secondhand dealer license from the Niigata Prefectural Public Safety Commission, and if a violation of the Secondhand Articles Dealers Act is found, the Public Safety Commission may suspend operations or revoke the license under Article 24 of the Act. If the license is revoked, it could have a material impact on business activities. The Company has established internal systems including thorough management of secondhand goods ledgers, and no events falling under grounds for revocation have occurred to date.

The Company's purchasing is fundamentally a self-sufficient model based on buying from general individual customers within store trade areas, and the ability to secure purchased merchandise may be affected by economic trends, competitor behavior, and changes in customer sentiment. In particular, if competitors raise purchase prices to secure popular items, the Company's profits could be squeezed. Furthermore, the spread of internet-based purchasing services has increased new competitors without physical stores, which may also affect the securing of merchandise.

The Company purchases items at fair prices using appraisal standards based on a product database of approximately 21 million items, but if competitors raise purchase prices, the Company's profits may be affected. Revenue management that also accounts for maintenance costs such as repair and cleaning is required. Maintaining and improving appraisal accuracy is fundamental to competitiveness.

Under the Secondhand Articles Dealers Act, if an item purchased is found to be stolen within one year of purchase, the victim may demand its return free of charge from the secondhand dealer, which could result in a loss equivalent to the purchase amount. The Company has established a lawful gratuitous return system through thorough management of secondhand goods ledgers, but the risk cannot be completely eliminated.

When new FC franchise stores open, reuse merchandise is supplied and employees are dispatched from directly operated stores, and if FC franchisee openings become concentrated, sales at directly operated stores could be affected due to a decrease in merchandise and temporary reduction in store staff. Although the burden on directly operated stores is gradually being reduced as FC franchisees improve their merchandise procurement and store operation capabilities, risk remains during periods of concentrated openings.

The Company aims to establish a nationwide network based on a target trade area population of 100,000 per store, but the wide geographic distribution of stores may increase store operating costs and affect profit. For stores exceeding 1,000 square meters in floor area subject to the Large-Scale Retail Store Location Act, review processes concerning traffic congestion, noise, waste, and other factors are required, which may affect store-opening costs and timelines.

Opening large stores exceeding 1,000 square meters in floor area requires review under the Large-Scale Retail Store Location Act, and responses reflecting local residents' opinions regarding impacts on the living environment, such as traffic congestion, parking, noise, and waste, are required. This could result in delays or forced changes to store-opening plans.

The Group has designated overseas business expansion as one of its growth strategies, but various risks exist, including differences in laws and regulations, culture and business customs in each country, and exchange rate fluctuations. If unforeseen problems arise, recovery of investment could become difficult, potentially affecting the Group's business performance and financial condition.

If a natural disaster such as an earthquake, typhoon, or abnormal weather occurs in regions where store openings are concentrated, continuing store operations could become difficult, potentially affecting the Group's business performance and financial condition through decreased sales, reduced purchasing intake, and the incurrence of facility restoration costs. The Group has established a risk management system based on its risk management regulations and regularly conducts education and training related to evacuation and disaster prevention.