MEDICAL SYSTEM NETWORK Co.,Ltd.

The interest-bearing debt dependency ratio (interest-bearing debt as a percentage of total assets) stood at a high level of 47.0% in the fiscal year under review. Funds for pharmacy acquisitions and new store openings are financed mainly through borrowings from financial institutions, and there is a risk that interest expenses could increase due to variable interest rate loans or rising interest rates upon refinancing. While the policy is to improve the financial structure through enhanced profitability and stronger capital adequacy, if such improvement does not proceed as planned, it may affect the business plan and results of operations.

Dispensing sales in the Regional Pharmacy Division are structured to be directly affected by revisions, as both the drug price standards and dispensing fee points are determined by public notice of the Minister of Health, Labour and Welfare. In addition, while dispensing sales are exempt from consumption tax, pharmaceutical purchases are subject to consumption tax, so if a consumption tax rate revision is not reflected in the drug price standards, it results in a substantial cost increase. These system revisions may directly affect the business results of the Group.

The Group is pursuing business expansion through M&A, primarily in the Regional Pharmacy Division, and holds long-lived assets such as goodwill. If economic conditions or industry environment changes after an acquisition cause a divergence between the business plan and actual results, or if the anticipated synergies are not realized, an impairment loss on goodwill or similar assets may occur, affecting business results and financial position. Although the basic policy is to recover investments through future cash flows, responding to changes in the environment remains a challenge.

The Group holds long-lived assets such as real estate for regional pharmacy stores, real estate for Service-Provided Senior Housing, and goodwill, and applies impairment accounting to these assets. While such accounting is currently applied appropriately, if future changes in the environment cause a decline in expected future cash flows, additional impairment may become necessary, which could affect business results. Leasehold and guarantee deposits (deposits related to leases) amounted to ¥4,541 million as of March 31, 2026, and there is also a risk of non-recovery due to deterioration in the creditworthiness of lessors or other factors.

The Act on Pharmaceuticals and Medical Devices requires the assignment of pharmacists to each pharmacy store, with the required number of pharmacists determined according to the number of prescriptions handled. Recruiting and retaining pharmacists has become an important industry-wide challenge, and if the Group is unable to secure sufficient pharmacists, it may affect store operations and store opening plans. As of March 31, 2026, the Group operated 472 stores, and the importance of securing human resources will increase further as store expansion continues.

The Group handles sensitive personal information such as prescriptions and medical records in the Regional Pharmacy Division, the Digital Shift Division (Tsunagaru Yakkyoku), and home nursing care operations, and pharmacists are subject to a strict duty of confidentiality under Article 134, Paragraph 1 of the Penal Code. In the event of a personal information leak, the Group could face significant damages payments, administrative sanctions, and a decline in social credibility, which could affect business results. Although a strict management system has been established both in terms of systems and operations, it is difficult to completely eliminate this risk.

The establishment and operation of pharmacies are subject to legal regulations under the Act on Pharmaceuticals and Medical Devices and the Health Insurance Act, among others, requiring permits, designations, licenses, and notifications from each prefecture and other authorities. If the Group is unable to obtain necessary permits, neglects renewal procedures, violates laws and regulations, or if there are legal amendments, this may affect store opening plans and business results. There is also a risk of impact on business results in the Pharmaceutical Manufacturing & Sales Division and the Pharmaceutical Logistics Division in the event of license revocation or business suspension orders.

If a dispensing error occurs, the Group may be required to pay damages through litigation and may suffer a decline in social credibility, which could affect business results. The Group considers medical safety measures to be a key management priority and works to prevent dispensing errors through training sessions and mechanization, while all stores are enrolled in pharmacy liability insurance. The home nursing care business is also covered by nursing liability insurance, but the risk of being held liable for negligence due to worsening of a patient's condition or other factors remains.

The Digital Shift Division operates a business supporting the establishment of a primary pharmacy relationship using the LINE official account, and is highly dependent on the internet environment and the LINE platform. If hardware or software defects, system failures, the introduction of internet regulations, a decline in the number of LINE users, or a suspension of LINE services occur, and as a result the introduction of services to pharmacies does not proceed as planned, this may affect business results. Dependence on a specific platform constitutes a structural risk in the business model.

The Pharmaceutical Manufacturing & Sales Division outsources the manufacturing of generic drugs, and if issues at the manufacturing contractor disrupt product supply, or if supply is halted due to termination or change of contract, this may affect business results. There is also a risk that unexpected side effects or contamination of products with impurities could force product recalls or discontinuation of sales. The Pharmaceutical Logistics Division also faces a risk of supply chain disruption due to circumstances at outsourced contractors or force majeure events such as earthquakes.