HYUGA PRIMARY CARE Co.,Ltd.

Revenue in the Home-Visit Pharmacy Business consists of drug income based on the drug price standard and income based on dispensing fee points, and reductions from annual drug price revisions and biennial dispensing fee revisions (most recently April 2026) directly affect performance. If the reduction in procurement prices fails to keep pace with the magnitude of drug price cuts, or if dispensing fee points are reduced, profitability deteriorates. As the Group has not clearly indicated countermeasures, structural vulnerability to system revision risk remains.

The business is operated by obtaining numerous licenses and permits (valid for 3 to 6 years), including pharmacy establishment permits, designation as an insurance pharmacy, and narcotics retailer licenses, and there is a risk of business suspension or revocation if renewal procedures are deficient or laws are violated. Revisions to the Act on Pharmaceuticals and Medical Devices, the Health Insurance Act, the Long-Term Care Insurance Act, and other laws may also constrain business operations and store opening plans. While there has been no track record of disciplinary action to date, maintaining a management system spanning multiple laws remains an ongoing challenge.

The Primary Care Home Business is centered on services covered by the public long-term care insurance system, and is directly affected by revisions to the Long-Term Care Insurance Act and care fee revisions (most recently April 2024), which occur every three years. If fee unit prices are reduced or calculation requirements are tightened, business profitability may deteriorate. The frequency of system revisions is high, making this a structural risk factor for the stability of business planning.

In the Home-Visit Pharmacy Business, the Group holds long-term assets such as pharmacy store assets and goodwill arising from M&A, and there is a risk of impairment losses if profitability declines due to relocation or closure of nearby medical institutions or intensifying competition. While the basic policy for M&A is investment recovery, if the post-acquisition environment changes or expected synergies are not realized, goodwill impairment could materially affect performance. While impairment processing is currently conducted appropriately, risk may accumulate as the aggressive M&A strategy continues.

The Group is pursuing aggressive new store openings, including M&A, in the Home-Visit Pharmacy Business, but if suitable properties cannot be secured or if sales after opening do not reach planned levels, a divergence from the business plan may occur. Risk factors also include declining sales due to relocation or closure of medical institutions, and failure to achieve synergies due to changes in the economic or industry environment. Although the Group maintains an investment recovery policy focused on profitability, uncertainty regarding changes in the external environment remains high.

The Home-Visit Pharmacy Business and Primary Care Home Business handle large volumes of sensitive personal information, including patients' medical histories and medication records, and there is a risk of substantial damages, administrative sanctions, or criminal penalties if information is leaked due to unauthorized external access or internal management errors. Pharmacists are subject to a strict duty of confidentiality under Article 134, Paragraph 1 of the Penal Code, making the legal risk of violations particularly high. While internal regulations are in place and compliance with guidelines is checked, the ability to respond to external threats such as cyberattacks remains an ongoing challenge.

Business expansion is premised on securing and developing diverse personnel, including licensed professionals such as pharmacists, nurses, certified care workers, and care managers, as well as sales staff and IT engineers. The recruitment market for specialized professionals is highly competitive, and if recruitment and development do not proceed as planned, or if key personnel leave, this becomes a constraint on business expansion and affects performance and financial condition. While the Group is focused on strengthening new graduate and mid-career recruitment and improving retention rates, risk remains at a high level in the medical and long-term care industry, which continues to face a structural labor shortage.

If dispensing errors or accidents involving users at care facilities occur, this may affect performance and financial condition through payment of damages or loss of social credibility. While a double-check system, mechanization, and training are implemented to prevent dispensing errors, and all stores are covered by liability insurance, care services target elderly individuals with high care needs, inherently carrying a risk of serious accidents. While measures are also implemented based on the Act on the Prevention of Elder Abuse, there is a risk of legal punishment, litigation, and loss of social trust if inappropriate care or abuse occurs.

The M3, Inc. group is a major shareholder holding 28% of total issued shares, and if it changes its management policy or its policy regarding holding the Company's shares, this may affect the Company's business, share liquidity, and share price formation. While there are currently no personal relationships such as executive appointments or matters requiring prior approval, and no competition is anticipated, the risk of future policy changes cannot be ruled out. There are transactional relationships such as staffing and referral services, and the Company states it strives to ensure the appropriateness of transaction terms.

While revenue from dispensing and care services is exempt from consumption tax, procurement of pharmaceuticals and other items is subject to tax, making the Group the final bearer of consumption tax; if the consumption tax rate revision is not linked to drug price revisions, profitability is squeezed. Additionally, since provisional prices are recorded for the period between a drug price revision and the finalization of procurement prices with pharmaceutical wholesalers, if a significant discrepancy arises between the provisional and final prices, distortions in performance may occur between quarters. These are structural risks stemming from industry practices, and there are limits to what an individual company can address.