TAUNS Laboratories,Inc.

Achieving the medium- to long-term management plan, including overseas business expansion, requires securing and developing personnel with new product development capabilities, global personnel, and professional personnel. If the Company is unable to secure the necessary personnel, or if personnel costs increase in order to secure them, this could have a significant impact on its business and results. The Company is working on year-round recruitment regardless of nationality, securing diverse personnel, and strengthening growth-oriented education tailored to career plans.

The Company holds multiple business licenses (marketing authorization license, manufacturing registration, etc.) required for the manufacture and sale of in vitro diagnostics and medical devices, but there is a possibility that amendments, abolition, or introduction of new regulations under related laws could result in revocation of licenses or restrictions on business operations. In particular, response to the EU IVDR (deadline 2027) and the U.S. QMSR (effective February 2026) is required, and any delay in compliance could make it difficult to continue sales in European and U.S. markets. The Company is proceeding with information gathering on regulatory trends, sharing such information with relevant departments, and responding to each product sequentially.

The Company recognizes that the amount of its interest-bearing debt is large relative to net sales, and a rise in market interest rates leading to higher borrowing costs could affect business results. In addition, its loan agreements contain financial covenants relating to a decrease in net assets and the recording of an ordinary loss; if a deterioration in business results causes a breach of these covenants, the Company could be required to immediately repay its borrowings, which could have a material impact on its financial position.

Since the Company's production is concentrated at a single site, the Kamishima Plant, a suspension of operations due to a major earthquake, wind or flood damage, fire, accident, or other event could significantly reduce production and supply capacity, potentially having a material impact on business operations and results. As a fundamental countermeasure, the Company is constructing a new plant in Mishima City (targeting commencement of operations in February 2026), and has also formulated a BCP and maintains two to three months' worth of product inventory at multiple external warehouses.

Since the COVID-19 pandemic, novel coronavirus-related testing kits have accounted for a large proportion of net sales, and if the scale of the epidemic contracts or demand unexpectedly declines, there is concern of a material impact on business results, including inventory write-downs and disposal losses. The Company aims to reduce its dependence on specific products by developing products responsive to new infectious diseases and strengthening areas outside of infectious diseases, but resolving this dependent structure will take time.

In vitro diagnostics can only be launched after obtaining regulatory approval in Japan and overseas, and delays or discontinuation of R&D could make it difficult to recover investment. In addition, if competitors' innovative technologies erode the competitive advantage of the Company's products, product sales could decline. The Company is working to strengthen its development capabilities through collaboration between R&D and sales departments, joint research with universities and medical institutions, and the introduction of external technologies.

Although the Company has established a quality control system based on QMS and ISO 13485:2016, if a serious quality problem occurs with a product, this could lead to a decline in net sales, increased costs, restrictions on business activities due to legal sanctions, damage to reputation, and other impacts. The Company continuously works to reduce quality risk through risk management for each product, internal and external audits, and post-market surveillance.

In its business expansion into Europe, Asia, and other regions, the Company is exposed to additional risks such as country risk, foreign exchange risk, differences in laws and regulations, differences in business customs, and geopolitical risk. As the Company intends to increase its ratio of overseas sales going forward, the materialization of these risks could affect business results. The Company seeks to control these risks through obtaining regulatory approvals via local distributors, credit risk management, and gathering information on local medical conditions.

In FY2025 (ended June 2025), sales to the Suzuken Group accounted for 59.4% of net sales, indicating an extremely high degree of dependence on a specific customer. If Suzuken changes its management policy or terminates or reduces transactions with the Company, this could have a direct and material impact on the Company's business results. The Company is working to strengthen relationships with other customers, develop new customers, and expand overseas sales in order to reduce this dependence, but the current level of concentration remains high.

CITIC (now Trustar) Group holds 40.66% of the Company's total issued shares, and its policy regarding disposal of its shareholding could affect the liquidity and market price of the Company's shares. In addition, its continued holding of a substantial number of shares, or further purchases, could materially affect the outcome of resolutions at general shareholders' meetings, such as the appointment or dismissal of officers, organizational restructuring, and amendments to the articles of incorporation.