M.H.GROUP LTD.

The majority of the Group's operating revenue is highly dependent on economic trends in Japan, and the Beauty Salon Operations, the Group's core business, is structured to be directly affected by such trends. In the event of an economic downturn or a decline in consumer sentiment, a decrease in the number of customers and average spending per customer could adversely affect business performance and financial condition.

The Beauty Salon Operations is highly seasonal, with July, December, and March as the main peak demand periods, and faces the risk of significant demand fluctuations due to unusual weather such as cool summers or warm winters. If unpredictable weather conditions occur, sales during peak periods may fall below expectations, potentially having a material impact on business development and operating conditions.

The Group's Beauty Salon Operations is based on licensed brands that use trademarks owned by overseas partners. Although relations with these partners are favorable, if the terms or conditions of the agreement change upon contract renewal, it may become difficult to continue using the brand, which could have a significant impact on operating results and business development.

The Beauty Salon Operations requires the employment of hairdressers holding national qualifications, and the business structure is highly dependent on sales generated by individual hairdressers who enjoy strong customer support. If a large number of skilled technicians were to leave, this could lead to customer attrition and a decline in sales, directly and adversely affecting operating results.

The Group holds a large amount of personal information in the course of customer management at its stores, and has established management systems through internal rules and ongoing improvements to security systems. However, in the event of an information leak, this could damage the Group's social credibility and adversely affect operating results.

The Group intends to expand its business through investments, including acquisitions of and capital participation in companies primarily in the beauty industry, aiming to maximize integration effects with target companies. However, if the integration of corporate culture and management strategy does not proceed as planned, the expected profits and synergy effects may not be realized.

In preparing the consolidated financial statements, the Group makes a wide range of estimates and judgments regarding the valuation of assets and liabilities and the recognition of revenues and expenses, including assumptions about future demand, market forecasts, and various statistical figures. Although these estimates are based on reasonable judgment derived from past results and other factors, if actual results differ from the estimates, this could affect the Group's financial condition and operating results.

The Group is actively pursuing overseas expansion, primarily in Asian markets, and is exposed to a wide range of risks, including regional risks related to laws, tax systems, and distribution channels, intellectual property risks related to counterfeit brands and products, foreign exchange risk, and risks related to sentiment toward Japan. If these risks materialize, they could affect operating results through a decline in the profitability of overseas operations; the Company is addressing these risks through thorough verification and the establishment of organizational systems.

If a large-scale earthquake, typhoon, or other natural disaster occurs in the areas where the Group operates, damage to stores may make it difficult to conduct normal business activities. Depending on the extent of the damage, there is a risk of a material impact on operating results and financial condition.

COVID-19 was reclassified as a Category 5 infectious disease under the Infectious Diseases Control Law in May 2023, and its current impact on the Group's business is limited. However, if economic restrictions are implemented in the future due to the spread of a new infectious disease, beauty salons may be forced to limit customer visits or suspend operations, which could have a significant impact on business development and operating results.