BRUNO, Inc.

Home-related lifestyle products (home appliances, interior goods, travel goods, cosmetics, bags, etc.) are subject to significant short-term shifts in fashion and consumer preferences, creating a risk that business performance may deteriorate if developed products fail to match consumer needs or if new product development is delayed. The Group seeks to hedge this risk by diversifying its product categories across interior goods, travel products, cosmetics, and others.

As China is the Group's primary source of merchandise procurement, a weaker yen raises procurement costs, directly affecting business performance. The Group utilizes forward foreign exchange contracts to stabilize procurement costs, and is also working to diversify country risk by considering production bases outside China and expanding procurement from domestic manufacturers.

In export sales to China, Hong Kong, Taiwan and other markets, yen appreciation reduces sales profit and affects business performance. There is also a risk that unforeseen events such as natural disasters, terrorism, war, or epidemics in export destination regions could disrupt product sales. The Group strives to diversify this risk while balancing it against domestic sales.

Given the product characteristics subject to rapid changes in fashion and preferences, there is a risk of excess inventory arising from misjudged demand trends. If dead stock increases, write-downs based on the holding period and expected sale price are recorded, adversely affecting business performance. The Group strives to optimize inventory levels by, among other measures, minimizing order quantities.

If a contract manufacturing factory is closed or production is suspended due to technical problems, disruption of raw material supply, pandemics, fire, earthquakes, or other disasters, product supply could be impeded, potentially affecting business performance. The securities report does not describe specific countermeasures; this is disclosed and recognized as a risk.

The recoverability of deferred tax assets is assessed based on forecasts and assumptions regarding future taxable income; if these forecasts or assumptions change, deferred tax assets may be reduced, potentially affecting the Group's financial position and results of operations. This is a risk in which the accuracy of taxable income forecasts is directly linked to financial soundness.

The Group has close relationships, including personnel secondments and business transactions, with its major shareholder RIZAP Group, Inc.; a significant change in this relationship could affect the Group's business strategy and results of operations. The Group strives to mitigate this risk through appropriate information exchange with the parent company.

Securing and developing talented personnel in product planning, development, and sales is essential for sustained growth; if recruitment fails to keep pace with business expansion or a mass exodus of personnel occurs, business performance could be affected. The Group is working to build an attractive workplace environment through the introduction of telework and the establishment of a personnel evaluation system that emphasizes creativity.

Given the business characteristic of using design as a primary means of differentiation, disputes over design rights and similar matters could lead to damages claims or reputational decline, affecting business performance. In addition, the Product Liability Act applies to products manufactured by overseas contract manufacturers and to products manufactured at the subsidiary Japan Gals Co., Ltd.'s own factory, creating a similar risk in the event of product defects. The Group takes measures such as utilizing external experts to secure rights and prevent infringement, thorough quality control, and obtaining insurance.

The manufacture, import, and sale of cosmetics and quasi-drugs are regulated under the Act on Securing Quality, Efficacy and Safety of Products Including Pharmaceuticals and Medical Devices, and the Group conducts its business under licenses such as "Cosmetics Manufacturing Business," "Cosmetics Marketing Business," and "Quasi-Drug Manufacturing Business." If any of these licenses were to expire or be revoked, it could seriously impede business continuity and affect business performance.