SOPHIA HOLDINGS CO.,LTD.

Following the report by the independent investigation committee established in response to the June 2022 arrest of an executive of a consolidated subsidiary, the Company announced recurrence prevention measures in October of the same year. These primarily consist of correcting personalized business execution structures, strengthening subsidiary management supervision functions, raising compliance awareness, and completely withdrawing from incoming call billing services. If these measures are not appropriately implemented, there is a possibility of impact on business activities, performance, and financial activities. Implementation began promptly after the announcement, and the Company continues to execute measures and strengthen internal controls on an ongoing basis.

If misconduct or compliance violations occur among directors or employees, there is a risk of decreased social credibility, suspension of transactions by customers, and imposition of substantial fines or damage claims. As part of the recurrence prevention measures, the Company is working to raise compliance awareness among officers and employees and strengthen risk assessment and supervisory functions over subsidiaries, striving for early detection and response to inappropriate activities through monitoring of business activities.

Dispensing sales consist of drug revenue based on the drug price standards set by the Ministry of Health, Labour and Welfare, and dispensing technical fees, so revisions to drug price standards or dispensing fees may affect performance and financial condition. As countermeasures, the Company aims to concretize the 'Pharmacy Vision for Patients,' enhancing the functions of home pharmacies, building community collaboration pharmacies and specialized medical institution collaboration pharmacies, and strengthening efforts toward online medication guidance.

The pace of technological innovation in the software industry is rapid, and if the Company cannot consistently develop products that adapt to technological innovation, this may affect performance and financial condition. To respond to changing user needs, the Company actively pursues technology development while advancing research into cutting-edge and foundational technologies related to information services.

The Company seeks corporate acquisitions and capital alliances aimed at stabilizing its foundational businesses, expanding growth-driving businesses, and creating next-generation businesses, but due to uncertainties in business activities, there is a possibility that the initially expected effects may not be achieved, which may affect performance and financial condition. Investment decisions are made after due diligence by external experts and thorough discussion at the Board of Directors, and after M&A execution, performance trends are monitored monthly; for investees of concern, revenue improvement measures or early divestiture are considered and executed.

The Company holds tangible and intangible fixed assets, including goodwill and other intangible assets arising from M&A, and if the fair value of assets declines significantly or the profitability of businesses deteriorates, impairment losses may occur, which may affect performance and financial condition. The Board of Directors deliberates on the appropriateness of profit and loss plans and the feasibility of investment recovery, while monthly monitoring the performance trends of investees; for those of concern regarding performance, revenue improvement measures or early divestiture are considered and executed.

As the Company primarily procures funds necessary for M&A and other purposes through borrowings from financial institutions, if financial market deterioration or rising interest rates prevent fund procurement or refinancing on favorable terms, this may affect performance and financial condition. The Company strives to strengthen its financial base by securing stable earnings and reducing interest-bearing debt, improving the ratio of equity attributable to owners of the parent, and maintaining good relationships with financial institutions.

In addition to the risk of being unable to secure system development and project management personnel due to intensifying competition for talent in the ICT industry, there is a risk that pharmacist shortages could directly impact business continuity, since the Pharmacists Act and the Act on Pharmaceuticals and Medical Devices require the placement of pharmacists. The Company continuously works to acquire and develop excellent talent and improve employee satisfaction, while at dispensing pharmacies, it strives to secure personnel through improvements to working and treatment arrangements and employment management.

The Company manages and holds customer and business partner information, and if information leakage occurs due to cyberattacks or information incidents, there is a possibility of adverse effects on financial condition and operating results due to damage claims, loss of credibility, and reduced competitiveness from technology leakage. The Company positions information management as a critical management matter, strengthening the operation of information management systems in accordance with its privacy policy, conducting internal education and awareness activities, and implementing and continuously reviewing cyberattack countermeasures, network management, and entry/exit security systems.

If a competitive relationship arises between the parent company's business and that of the Company's group, if the alliance relationship is dissolved due to a change in the parent company's management policy, or if the parent company takes actions not in the interest of minority shareholders, this may affect operating results and financial condition. The Company has established rules for procedures related to transactions with controlling shareholders, and has set up a standing Conflict of Interest Transaction Monitoring Committee that conducts prior screening of target transactions and determines whether a conflict of interest exists, while also aiming to enhance corporate value through strengthened collaboration with the parent company, such as sharing pharmaceutical procurement and dispensing pharmacy operation know-how.