Japan Medical Dynamic Marketing, INC.

If issues arise with parts procurement sources or logistics delays/stoppages occur in the procurement of the Company's own products from ODEV and in purchased goods from other companies, this may affect the Group's profit and financial position. Given the characteristics of medical devices, for which alternative procurement is difficult, supply disruption directly leads to lost sales opportunities. As countermeasures, the Group is promoting diversification of parts procurement sources and increasing the ratio of in-house manufacturing.

Unexpected product defects or intensified competition with other companies could be factors reducing sales, posing a risk of adverse effects on profit and financial position. The orthopedic implant market is highly competitive, and the occurrence of defects could lead to product recalls or loss of trust. The Group has established a system to review the status of defect occurrences and other companies' sales trends on a monthly basis in order to reduce this risk.

In Japan, the biennial revision of the medical fee schedule, and in the United States, administrative policies related to the healthcare system, each pose a risk of affecting the profit and financial position of the Japan operations and the US subsidiary, respectively. Medical device prices are largely dependent on officially set prices, and depending on the extent of revisions, profitability could decline significantly. As countermeasures, the Group is promoting an increase in the sales ratio of its own products and a reduction in cost of sales through raising the in-house manufacturing ratio.

Fluctuations in exchange rates pose a risk of affecting profit and financial position through US dollar-denominated import purchases from ODEV and the yen conversion of US dollar-denominated financial statements in the consolidated financial statements. In a yen depreciation phase, an increase in procurement costs and translation losses on consolidated results could occur simultaneously. The Group has established a foreign exchange hedging policy and strives to reduce the foreign exchange risk associated with US dollar-denominated imports through operations based on this policy.

In the research and development of new products, there is a risk that development may be discontinued if efficacy and safety cannot be confirmed. In addition, regarding the regulatory approvals required in each market to commence sales, there is a risk that whether approval can be obtained and the time required to obtain it may not proceed as planned, which could delay or prevent the recovery of development investment. Medical device regulations differ by country, and uncertainty regarding obtaining approvals is particularly high in global expansion.

If products handled or medical tools, etc. infringe on the patents or other intellectual property rights of other companies, this could lead to disputes, suspension of sales, or payment of damages, posing a risk of a material impact on profit and financial position. The orthopedic implant field is an area where patent litigation frequently occurs, and a sales suspension would directly damage sales. The Group strives to reduce this risk through investigation of other companies' patents at the product development stage and appropriate consultation with external experts.

There is a possibility of litigation being filed regarding fair trade, patents, sales contracts, product liability, labor issues, and other matters, and depending on developments, this could affect profit and financial position. In addition, if inappropriate conduct by officers or employees or violations of relevant laws and regulations are identified, the Company may receive guidance or restrictions from administrative agencies, which could restrict sales activities to some customers and reduce sales. The Group strives to prevent risks before they occur through strengthening the compliance system related to sales and enhancing employee education.

The recoverability of deferred tax assets is judged based on reasonable estimates of future taxable income; however, if changes in uncertain future economic conditions make it necessary to revise these estimates, this could affect business results and financial position. If deferred tax assets are written down due to a change in estimates, this would lead to a decrease in net income for the period. The securities report does not describe specific countermeasures, and this matter largely depends on management judgment.

Due to guidelines issued by health administrations in various countries in response to the spread of infectious diseases, medical institutions may postpone non-urgent surgeries such as artificial joint replacement, posing a risk of affecting the Group's profit and financial position. Because artificial joint surgery is an elective procedure, it has a structural vulnerability in that demand can decline sharply during an infectious disease outbreak. The securities report does not describe specific countermeasures, and this is recognized as a risk dependent on the external environment.

Acute and chronic climate change caused by global warming, as well as GHG emission regulation policies by governments and regions, could significantly affect the market environment and raw material procurement, posing a risk of adverse effects on business continuity and business results. If increases in raw material procurement costs or logistics disruptions occur, this could lead to higher manufacturing costs and reduced supply stability. The Group has established a Sustainability Promotion Office and strives to reduce this risk through company-wide planning and promotion of climate change response measures and strengthening of ESG activities.