(1) Regarding the industry environment

① About national medical policy

In Japan, each prefecture is required to estimate the medical demand and the necessary number of hospital beds for each medical function, and to formulate a "Regional Medical Care Plan" that includes measures to realize a medical care delivery system tailored to local circumstances. This plan promotes differentiation and collaboration among the four medical functions: advanced acute care, acute care, recovery care, and chronic care. Our group strives to gather detailed information on changes in regional medical policies and the external environment, as well as the management status of medical institutions. We intend to implement measures that will further contribute to regional medical care, such as strengthening our proposal capabilities through the promotion of solution businesses and improving logistics efficiency by leveraging economies of scale. However, as functional differentiation and consolidation among medical institutions are promoted, there is a possibility that the medical equipment purchased by each medical institution will be consolidated, potentially reducing the number of medical institutions that will be our customers, and that competition in the medical equipment sales industry will be further intensified, which may affect our group's sales and profits.

② Revision of reimbursement prices for medical supplies

The reimbursement price is the price at which medical institutions can claim medical materials (specific insured medical materials) as part of the medical fees that they can bill the insurer (partially borne by the patient) under the public health insurance system. In principle, the reimbursement price is revised in accordance with the revision of medical fees, which takes place every two years. The selling price of specific insured medical materials to medical institutions and the purchase price from suppliers are based on the reimbursement price, but they are not fixed. Furthermore, the revised reimbursement price differs for each medical material. Therefore, it is difficult to calculate in advance the impact on sales and profits due to revisions in the reimbursement price. In our group, sales of specific insured medical materials subject to such reimbursement prices account for about one-third of our total sales, and if revisions in the reimbursement price affect the downward trend in our group's sales prices and gross profit margin, it may have an impact on our group's sales and profits.

(2) Management strategy and issues to be addressed

① About M & A

Our group aims to expand its corporate scale through M&A with companies closely tied to each region as a medium- to long-term management strategy in order to maintain growth in response to the changing industry environment and to meet the diversifying needs of the medical field. We intend to achieve stable growth and improve corporate value by leveraging economies of scale to reduce costs and improve operational efficiency. However, the medical device sales industry is dominated by small and medium-sized enterprises, most of which are not listed companies, and there is not necessarily a market price that can serve as a basis for calculating corporate value. We also recognize that the precision and transparency of financial statements are not sufficient. When determining acquisition prices and merger ratios, our group intends to conduct preliminary investigations and comprehensively consider the financial situation, the progress of business plans, and future prospects, and to negotiate and discuss as carefully as possible, taking into account the results of corporate valuation by independent third-party valuation institutions depending on the scale, etc. However, there is no guarantee that the business plan on which the deal is based will be achieved, and if it is determined that the projected profits will not be obtained as expected, there is a possibility that an impairment loss on goodwill may be recorded, which may affect our group's profits. Furthermore, while we intend to conduct preliminary investigations with the utmost care and accuracy, there is a possibility that off-balance-sheet liabilities or compliance issues may arise after the acquisition or merger, which could affect our group's profitability. We also recognize that each company targeted for M&A has its own unique corporate culture and employees. Our group respects the localized corporate culture and employees of each company and intends to work together as a group. However, if the integration of corporate cultures and personnel exchanges cannot be carried out smoothly, resulting in a brain drain or failure to thoroughly integrate core systems and business procedures, the expected effects of M&A, such as operational efficiency improvements and synergy effects, may not be realized, which could affect our group's sales and profitability.

② About new business

Our group is committed to enhancing corporate value by implementing measures that will further contribute to regional healthcare, such as strengthening our proposal capabilities through the promotion of solution businesses and improving logistics efficiency by leveraging economies of scale, in order to meet the diversifying needs of the medical field. When our group undertakes a new business, a business plan is formulated after thorough prior consideration and approved by the Board of Directors. However, new business development often requires upfront investment, and it is expected that it will take a considerable amount of time for the business to generate stable profits, which may temporarily lower our group's profit margin. In addition, if the business does not develop as initially planned due to changes in the medical industry environment, it may not be possible to recover the investment, which could affect our group's profitability.

③ Regarding efficient management structure

Our group is working to improve efficiency and strengthen internal controls by introducing a core system that links and integrates various operations, from purchasing to sales, billing, and payment, to our group operating companies. We plan to continue working to enhance the system's functionality and further improve it, while gathering information and opinions from the sales field and management departments that operate the system, and to build a system environment with higher added value. However, while building a system environment requires significant capital investment, if discrepancies arise between the system and the operations and diversifying needs of the medical field, or if the maturation of new operations does not progress as expected, it could actually decrease sales productivity and operational efficiency. This could result in the inability to recoup the investment and could affect our group's sales and profits.

(3) Legal regulations related to our group's business

Our group is subject to the following legal regulations in conducting our business. Therefore, as a company involved in healthcare, our group has adopted the principle of "When faced with a situation where we must choose between justice and profit, we will choose justice without hesitation" as the basic stance of our corporate activities. We strive to reduce the risk of violations of legal regulations by thoroughly disseminating the code of conduct for our group's officers and employees through the formulation of compliance guidelines and an in-house training system using e-learning. In addition, we are working to build a system for compliance with laws and regulations by conducting internal audits by our internal audit office, which is independent of other business execution departments, to verify and evaluate the appropriateness and effectiveness of our internal control system and to encourage its improvement. However, even with these measures in place, it may not be possible to completely avoid the risk of violations of legal regulations, including personal misconduct by officers and employees. In the event of any violation of legal regulations, depending on the nature of the violation, there is a possibility of legal sanctions such as revocation of licenses and permits, other administrative penalties, and fines. In addition, there is a possibility of business partners ceasing transactions, impacting sales activities due to a decline in trust in our group, incurring significant costs for compensation for damages incurred by victims, and improving and strengthening internal control systems, which could affect our group's sales and profits.

① About permits, etc.

Medical device sales, lending, repair, manufacturing and sales, and sales of pharmaceuticals and regenerative medicine products are subject to regulations under the Pharmaceuticals and Medical Devices Act. Therefore, it is subject to regulations by various business laws such as the Poisonous and Deleterious Substances Control Law, the Nursing Care Insurance Law, and the Construction Business Law. The main licenses, etc. obtained based on various business laws including the Pharmaceuticals and Medical Devices Act are as follows.

② About antitrust law and antitrust law

Our group's customers include public medical institutions such as national and public hospitals, and because transactions involve bidding, we must comply with anti-bribery laws and the Antimonopoly Act, which prohibits bid rigging. In addition, our group handles a large number of medical devices from American manufacturers, so we must pay attention not only to domestic anti-bribery laws but also to foreign laws such as the U.S. Foreign Corrupt Practices Act (FCPA).

③ About the prize labeling law and the fair competition rules for the medical equipment industry

The Premiums and Representations Act establishes special premium regulations that apply to industries such as the medical device industry, including the medical device sales industry, and our group does not use premiums as a means of unfairly inducing medical institutions, etc. to trade in medical devices. It is prohibited to provide goods or services necessary for the use of medical devices or other prizes beyond what is deemed appropriate in light of normal business practices. Regarding premium regulations, in addition to the regulations of the Act, we must also comply with the Medical Device Industry Fair Competition Code established by the Medical Device Industry Fair Trade Council, a self-regulatory organization for the industry to which our group belongs.

④ About the Personal Information Protection Law

In addition to the personal information of employees, the Group may handle personal information held by medical institutions and personal information of individual sales destinations of medical equipment and long-term care welfare equipment. When handling personal information, it is necessary to establish a management system for proper acquisition and leakage prevention based on the Personal Information Protection Law.

(4) Regarding large-scale natural disasters and emerging infectious diseases

① About large-scale natural disasters

Our group has bases in various regions, including the Tokyo metropolitan area, and conducts business activities over a wide area. In preparation for natural disasters such as earthquakes, fires, typhoons, floods, and snow damage, we have formulated a business continuity plan (BCP), and as a member of the medical industry, we are working to establish a stable supply system to ensure the continuity of medical infrastructure. In preparation for disasters, we have a seismically isolated logistics center in Kanagawa Prefecture and a large-scale logistics center with a warehouse area of over 19,000 m2 in Gunma Prefecture, and are working to expand our backup system to maintain product supply. However, our group's business scope is wide, and in light of the increasing scale of disasters due to recent climate change, it is difficult to avoid all risks in the event of a disaster. If the scale of the disaster were to far exceed expectations and damage was caused to the Group's headquarters, business locations, warehouse facilities, etc., resulting in damage to products, soiling or damage, making it difficult for employees to work, making deliveries difficult due to the disruption of distribution routes, or making sales and purchasing difficult due to damage to customers and suppliers, this could disrupt ordinary business operations and affect the Group's sales and profits.

② About emerging infectious diseases

The Group conducts its business activities in close daily contact with medical institutions such as hospitals and clinics. As medical professionals, the Group has formulated an emerging infectious disease BCP manual that includes infection prevention measures similar to those of medical institutions, and strives to implement safety measures for employees, customers and business partners. However, if a large-scale emerging infectious disease such as a new strain of influenza or COVID-19 occurs and the scale and speed of infection spread far exceeds expectations, it may disrupt ordinary business operations, such as temporary business suspension, delays in purchasing, inventory backlog, and delays in collection of accounts receivable, which may affect the sales and profits of the Group.

(5) About our group's products

① About the expiration date management of the products we handle

Some of the products handled by our group, including medical devices and pharmaceuticals, have expiration dates set by the manufacturers. Our group aims to deliver safer and higher-quality products to medical and nursing care facilities, and we are working to improve and strengthen our expiration date management system by conducting regular physical inventory counts, thoroughly verifying and implementing other operational procedures, and utilizing IT systems. However, in the unlikely event that products past their expiration date are distributed due to human error or system failures within our group, resulting in serious health damage, there is a possibility that our sales activities may be affected by the revocation of licenses and permits related to the sale of medical devices, etc., and a decline in trust in our group. Furthermore, significant costs may be incurred for compensation to patients and medical institutions, and for improving and strengthening our expiration date management system, which could affect our group's sales and profits.

② About private brand products

Our group sells private brand products that prioritize the needs of medical institutions, and as these are medical-related products, we strive to ensure reliable quality. Having shifted from a dealer to a manufacturer, we strive to select and supply products responsibly. However, if an unforeseen defect or malfunction occurs in a private brand product, in addition to the significant costs of product recalls and compensation for damages, a loss of trust in our group could have an impact on our group's sales and profits.

③ About innovation of medical technology

Medical technology is advancing day by day, and the medical devices used are also changing, for example, with the development of minimally invasive medicine in the treatment of heart disease. As a general dealer of medical equipment, the Group handles medical equipment in almost all areas without being biased to a specific area, but future innovations in medical technology will reduce the use of the medical equipment we handle. In some cases, it may affect the sales amount and profits of the Group.

(6) Bad debt risk

The Group strives to prevent and minimize bad debts by thoroughly managing credit by assessing and judging each client's current situation, future prospects, management, industry circumstances, etc. and setting credit limits for each client in accordance with credit management regulations. However, if an unexpected bad debt risk becomes apparent due to a client's worsening business performance, etc., and it becomes necessary to record losses and reserves, this could affect the Group's profits.