HANDSMAN CO., LTD.

New store openings and floor space expansions exceeding 1,000㎡ in sales floor area are subject to regulation under the Large-Scale Retail Store Location Act, requiring coordination with local residents and municipalities. This may result in longer lead times for store openings and increased opening costs. The Company adopts store structures and operating methods that take local environmental factors into consideration, and proceeds with store openings while coordinating with local residents and municipalities.

Under the revised City Planning Act, which took effect in November 2007, the opening of large-scale retail stores with sales floor space of 10,000㎡ or more is restricted to commercial districts, neighborhood commercial districts, and quasi-industrial districts, imposing restrictions on suburban store openings. Furthermore, if individual municipalities enact ordinances that supplement the so-called "Three Machizukuri Laws" (town planning laws), this could affect store opening plans, including reductions in sales floor space and longer lead times for store openings. This poses a risk that constrains the Company's medium- to long-term room for store openings, given that multi-store expansion of home centers is its growth strategy.

The Company has a high proportion of sales in products associated with outdoor work, particularly DIY Products, and deteriorating weather conditions such as increased rainfall or low temperatures directly lead to a decline in customer traffic and the number of items purchased. Such weather factors may adversely affect the Company's business performance and financial condition. Weather is an external factor and represents a risk that is difficult for the Company to directly control.

In the event of a large-scale earthquake or typhoon exceeding expectations, physical damage to store facilities, power outages, disruption of communication networks, and disruption of the logistics network may occur, which may adversely affect the Company's business performance and financial condition. The Company has implemented measures such as seismic reinforcement of store facilities and the establishment of disaster prevention manuals, but the risk of being unable to fully respond to an unexpectedly large-scale disaster remains.

The Company operates many large-format stores and applies accounting standards for impairment of fixed assets. If store profitability deteriorates or the market value of held assets declines significantly in the future, impairment losses may be recognized, which may adversely affect the Company's business performance and financial condition. Given the large scale of investment in large-format stores, the financial impact when impairment occurs could be correspondingly significant.

The Company holds a substantial amount of personal information through its operation of internet mail-order sales and other businesses. If such information were to leak externally, it could result in a loss of social trust and give rise to liability for damages, which may adversely affect the Company's business performance and financial condition. While the Company maintains strict management through the development of internal control systems and the establishment of information security systems, the risk of leakage cannot be completely eliminated.