ARTNATURE INC.

If large-scale earthquakes, typhoons, floods, or other natural disasters strike the head office and sales locations concentrated in the Tokyo metropolitan area, the logistics centers in Yokohama, Osaka, and Niigata, the manufacturing base in the Philippines, or manufacturing subcontractors in China and other parts of Asia, there is a risk of business interruption and substantial recovery costs. As countermeasures, the Company has formulated a BCP and conducts regular drills, stores inventory dispersed across three logistics centers, stockpiles raw materials at overseas manufacturing sites, and standardizes manufactured items across multiple sites.

Compound factors such as natural disasters, infectious diseases, geopolitical factors, and cyberattacks may cause logistics problems in the globally deployed supply chain for the Company's core product (custom-made wigs), potentially resulting in delays or disruptions to product shipments. As countermeasures, the Company continuously monitors procurement, sourcing, inventory, and production status, maintains a policy of sourcing raw materials for core products from multiple domestic suppliers, and has established localized disaster response systems at each site.

Fluctuations in raw material procurement costs due to exchange rate movements, as well as rising labor costs and inflation at manufacturing sites such as the Philippines, could increase manufacturing costs and put pressure on profits. As countermeasures, the Company has established manufacturing sites and subcontractors in multiple countries while monitoring conditions in each country, is exploring alternative raw materials, has introduced partial mechanization of production processes, and is considering product price revisions as necessary.

As cyberattacks increase in frequency and sophistication, large-scale server outages, system failures, or the tampering, leakage, or loss of critical data could occur, potentially leading to business interruption or asset impairment. As countermeasures, the Company has built key servers at data centers, implements multi-layered defense measures through vulnerability assessments, threat intelligence gathering, and regular drills, and has established system recovery procedures.

The Company group holds a large volume of personal information, including sensitive data such as customers' physical characteristics. If an information leak occurs, whether internally or through an outsourcing partner, this could result in direct damages such as compensation payments as well as significant loss of social trust. As countermeasures, the Company has established internal management systems including access rights settings, controls on the use of external storage media, and connection restrictions; strictly selects and manages outsourcing partners; obtained Privacy Mark certification (obtained in 2006, renewed periodically); and provides regular information security training to employees.

Since the majority of production activities take place at the manufacturing base in the Philippines and manufacturing subcontractors in China and other parts of Asia, manufacturing costs and product procurement prices are directly affected by exchange rate fluctuations, which could have a significant impact on business performance. As countermeasures, the head office centrally manages the impact of foreign exchange translation on imports and exports with overseas manufacturing sites, and mitigates the risk of sudden exchange rate fluctuations by continuously purchasing several months' worth of foreign currency for purchases from manufacturing subcontractors.

In new store openings, relocations, renovation investments, and active M&A and business alliances, changes in the business environment or the emergence of unforeseen uncertainties could result in failure to recover investment amounts, or in impairment of goodwill and additional costs. As countermeasures, the Company deliberates the validity of profit-and-loss plans and the feasibility of investment recovery at meeting bodies commensurate with the investment amount, conducts prior due diligence on M&A targets including financial and contractual review and management interviews, and continuously monitors post-investment business performance and governance status.

While the domestic hair industry market is on a gradual downward trend, growing demand for hair growth and hair restoration and increased e-commerce purchasing have prompted entry from other industries such as pharmaceutical sales and AGA (androgenetic alopecia) clinics, potentially intensifying competition not only among peers but also with entrants from other industries. As countermeasures, the Company leverages its integrated manufacturing-and-sales business model to closely grasp customer needs, swiftly brings competitive new products and services to market, and formulates strategy reflecting the external environment in its medium-term management plan and annual business plans.

Due to a declining working-age population from the falling birthrate and aging population, along with diversifying values, it may become difficult to secure licensed hairdressing stylists, DX-skilled personnel, staff capable of handling overseas business, and next-generation management talent, potentially preventing business strategies from proceeding as planned. As countermeasures, the Company systematically conducts new graduate and mid-career hiring, has established internal education and training programs, has revised its personnel system and improved compensation, and promotes diversity management through obtaining

The since the primRL友力media outSNS and mass media, spread easily regarding the Company's core product, custom-made wigs, given the characteristic that information exchange between customers is limited. Because fascts are difficult to verify, this could easily lead to damage to brand value and a decline in social credibility. As countermeasures, the Company proactively discloses information through position papers and official statements, conducts internet monitoring, provides IT literacy training to employees, and has taken out corporate insurance covering reputational risk.