BEAUTY GARAGE Inc.

Products sold in the merchandise sales business include items that customers use in direct or indirect contact with their bodies, so if defects occur, this could affect business performance and financial condition. The Company addresses this through thorough product checks and appropriate labeling of usage instructions, but complete elimination of such risk is difficult.

While there is currently no direct competitor to the Group's overall business model, competitors exist in each business unit, including merchandise sales, salon design, and peripheral solutions. In particular, in the merchandise sales business, which accounts for a large proportion of sales, if competition intensifies or new entrants emerge in the e-commerce platform space for beauty salons, this could adversely affect Group performance.

The Group is subject to a wide range of laws and regulations, including the Pharmaceuticals and Medical Devices Act, the Secondhand Articles Dealer Act, the Electrical Appliances and Materials Safety Act, the Building Lots and Buildings Transaction Business Act, the Architects Act, the Construction Business Act, the Act on Specified Commercial Transactions, and the Unfair Competition Prevention Act. Although the Company has established compliance manuals and conducts reviews by its legal department, insufficient response to regulatory amendments or the enactment of new laws could affect business performance and financial condition.

In connection with the sale and purchase of beauty and hairdressing supplies and the provision of related services, the Company holds a large volume of customers' personal information. While internal systems have been established and strengthened through the establishment and observance of the "Personal Information Handling Regulations," any leakage or misuse could damage the Company's corporate image and result in monetary compensation, thereby affecting business performance and financial condition.

Since many of the Company's original brand products are procured from overseas manufacturers and factories, a depreciation of the yen would raise procurement costs and affect business performance. The Company works to mitigate this risk through forward exchange contracts and other means, but complete hedging is difficult, and profitability could decline during sustained yen depreciation.

Representative Director, CEO and COO Hideki Nomura plays a central role in formulating and promoting the Company's management vision, business strategy, medium-term management plan, and new businesses, resulting in a high degree of dependence on him. Although the Company plans to strengthen its management structure from 2025 by transitioning to a two-representative-director system, if he becomes unable to continue his duties for any reason, this could affect the Group's business and operating results.

Growth in sales of "BEAUTY GARAGE Online Shop," the growth engine of the merchandise sales business, depends on trends in the e-commerce market and the progress of digitalization among beauty salons. While no environmental changes are currently expected to hinder growth in the e-commerce market, a halt or contraction in e-commerce market growth could adversely affect Group performance.

The merchandise sales business conducted through "BEAUTY GARAGE Online Shop" is a key pillar of the Company's operations. Should a system or network failure occur due to natural disasters such as earthquakes or fires, power outages, unauthorized external access, or errors by officers or employees, this could seriously affect business operations. In the event of such a failure, in addition to direct damages, there is a risk of litigation, damage claims, and loss of social credibility.

The Group seeks to protect its rights for important products through trademark and design patent applications, but may not be able to fully prevent imitation or reverse engineering in countries with inadequate intellectual property protection. In addition, if the Company receives claims or is sued by third parties for alleged infringement of patents or other intellectual property rights, this could require substantial cost and time and adversely affect business strategy, performance, and financial condition.

For the leasing of certain business locations, the Company continues to receive debt guarantees free of charge from Representative Director, CEO and COO Hideki Nomura, constituting an ongoing related party transaction. While the Company intends to resolve these debt guarantees through negotiations with landlords, delays in doing so could leave governance concerns unresolved.