WATT MANN CO.,LTD.

Following the 2021 acquisition of the Game Station business and the acquisition of Hobby Search Co., Ltd., the Group continues to consider M&A activities on a medium- to long-term basis. In executing M&A, in addition to the financial and personnel risks of target companies, impairment of intangible fixed assets including goodwill or unexpected amortization may occur, potentially materially affecting the Group's financial position and results of operations. As countermeasures, the Group has appointed an M&A specialist as an outside director and implements direct involvement of parent company management through an IMO (Integration Management Office) structure, along with formulation and progress management of PMI (Post-Merger Integration) plans.

Since purchases from general customers account for more than 90% of procurement in the reuse business, the entry of competing stores into the trade area, competitors' promotional campaigns, and the penetration of flea market apps pose a risk of insufficient buyback procurement, resulting in lost sales opportunities. Competitiveness is quantitatively evaluated through monthly aggregation of buyback transaction counts and amounts by individual and by store, as well as quarterly mystery shopper surveys. As a countermeasure, the company promotes "Tokoton Kaitori" (thorough buyback, covering both breadth and depth of merchandise), and maximizes purchasing opportunities by re-reusing overseas merchandise that is difficult to resell domestically.

As of the end of FY2025 (ending March 2025), all 59 domestic stores are operated in a dominant strategy concentrated in Kanagawa Prefecture. In the event of a large-scale natural disaster such as an earthquake or typhoon, or a serious epidemic outbreak, insufficient risk diversification could materially affect business results and financial position. Risk assessment assumes business disruption of up to two months, and the company holds cash and deposits equivalent to approximately two months of monthly sales, exceeding the level of other companies in the industry, as a preparation against damage. In the event of an emergency, the company plans to immediately establish a response headquarters led by the president to build a rapid response structure.

The Group conducts asset grouping on a per-business-location basis (for goodwill, on a per-company basis), and there is a risk of recognizing impairment losses if operating income is expected to remain negative on a continuing basis. After store openings, the company estimates future sales forecasts, gross profit margins, and sales growth rates based on reuse market trends, and continuously evaluates the achievement status of profit plans post-investment with respect to goodwill. As a countermeasure, the company promotes reduction of initial costs and operational efficiency improvements at the time of new store openings, aiming for early monthly profitability (before allocation of head office costs) shortly after opening.

Execution of the inorganic growth strategy requires key personnel capable of delivering high performance in challenging positions. Given the limited pool of internal and external talent with matching skills, a decline in retention could delay strategy execution and materially affect business results and financial position. Engagement status is continuously evaluated through aggregation of turnover rates by department and exit interviews. As a countermeasure, in addition to providing high compensation to high-value-added personnel based on the "PAY for VALUE" principle, the president regularly holds sessions to explain the company's purpose and career development opportunities.

The reuse business is subject to regulation under the Secondhand Goods Dealer Act (Kobutsu Eigyo Ho) and requires permission from the prefectural Public Safety Commission. If business operations were suspended or permission revoked due to violation of laws and regulations, this could materially affect business activities. The company continuously evaluates compliance with the Secondhand Goods Dealer Act by referencing guidelines published by the Public Safety Commission and prefectural police, and no violations have occurred to date. The company plans to continue making maximum efforts toward legal compliance, including thorough management of secondhand goods ledgers and establishing a system for free restitution to victims of stolen goods.

In the reuse business conducted through a local subsidiary in the Kingdom of Thailand (established in May 2019), country risks such as rising procurement prices and falling sales prices due to exchange rate fluctuations, rising local costs, changes in political and economic conditions, legal and tax reform, and natural disasters, war, or terrorism could materially affect business results and financial position. As of June 2025, the company has switched from direct store operation to wholesale sales (exporting and selling merchandise difficult to resell in Japan), taking into account profitability and operational efficiency, and aims to minimize losses based on the basic policy of "Small Start, Quick Win."

Much of the store and head office operations depend on information systems and communication networks. In the event of information system shutdown, data loss, leakage, or tampering due to large-scale power outages, disasters, software defects, computer virus infections, or unauthorized access, business operations could be disrupted, materially affecting business results and financial position. The company strengthens systems and implements countermeasures against unauthorized access in cooperation with external system vendors, and has established a legacy operation backup system using paper forms such as buyback slips in the event of a prolonged system failure.

The company employs a large number of part-time workers, and personnel expenses are expected to increase due to social insurance and labor condition systems and legal reforms, potentially materially affecting business results. The evaluation criterion is whether the labor share of income can be maintained at approximately the 40% level, and risk is assessed on the assumption of strengthened labor legislation. While the company maintains a policy of accepting a certain degree of increase in personnel expenses for the sake of securing talent, it takes various measures based on the "PAY for VALUE" principle to avoid increases in personnel expenses that are not accompanied by increased added value.

Store openings are based primarily on leasing arrangements, and as of the end of FY2025 (ending March 2025), the balance of deposits and guarantee money paid reached ¥431 million (8.5% of total assets). There is a risk that part or all of this amount may become uncollectible due to the lessor's economic insolvency or other reasons, and penalty payments may be required upon early termination of contracts. As a countermeasure, the company conducts credit investigations through research firms and reviews certificates of registered matters according to the amount of guarantee money, and seeks to minimize penalty payments by maintaining a certain degree of flexibility in contract terms.