Ai ROBOTICS INC.

The cosmetics market has low entry barriers due to the availability of OEM utilization, and competition with new entrants and existing competitors is intensifying. Entry by large-capital, well-known companies and the sale of similar products may lead to customer attrition and increased costs to address these issues. The Company is responding by leveraging its AI marketing know-how and customer database to enhance brand value and build customer relationships.

Approximately 40% of procurement depends on overseas import transactions, and increases in foreign-currency-denominated procurement prices and import-related costs due to exchange rate fluctuations may adversely affect the financial position. In addition, increases in raw materials, packaging materials, and logistics costs due to crude oil price fluctuations directly lead to higher procurement prices. The Company addresses this through diversification and development of outsourced manufacturers and strengthened collaboration with suppliers, but sufficient mitigation may be difficult during periods of sharp fluctuation.

The Company's business depends on the internet environment, and unexpected system failures such as hardware/software malfunctions, computer viruses, or cyberattacks by third parties may disrupt business activities. The Company conducts regular security vulnerability diagnoses by external organizations and takes countermeasures as needed when issues arise.

The Company is subject to numerous laws and regulations, including the Act on Specified Commercial Transactions, the Act against Unjustifiable Premiums and Misleading Representations, the Pharmaceuticals and Medical Devices Act, and the Act on the Protection of Personal Information, and future legal amendments or the enactment of new laws may restrict business activities. The Company implements oversight and monitoring through its Risk and Compliance Committee and provides training for officers and employees, and also operates a checklist system for advertising display management reviewed by attorneys specializing in the Pharmaceuticals and Medical Devices Act and the Act against Unjustifiable Premiums and Misleading Representations.

In connection with operating its EC sites, the Company holds customers' personal information, and if such information is leaked due to unauthorized external access or other causes, it may adversely affect the financial position and operating results. The Company obtained Privacy Mark certification in July 2023, has established personal information protection regulations and access management regulations, and conducts regular internal training for all employees.

The Company plans to finalize the PPA and goodwill amounts related to the BJC shares acquired effective April 1, 2026, and if the originally expected profitability is not achieved due to future changes in the business environment or competitive landscape, an impairment loss may be recognized. In particular, if a substantial impairment loss occurs, it may have a material impact on the financial position and operating results of the Group.

The Company depends on external contractors for the manufacturing of all its products, and if contract terminations or disruptions in stable product supply occur, sales activities to customers may be hindered, potentially causing material adverse effects on the financial position and operating results. The Company seeks to mitigate this risk through regular on-site inspections for quality and hygiene control checks and by diversifying manufacturing across multiple factories.

As business scale expands, headcount increases, and the number of group companies grows, if the development of internal control systems, compliance systems, and governance systems does not proceed appropriately and in a timely manner, it may hinder appropriate business operations. While the Company conducts thorough due diligence and PMI when executing M&A, if the expected synergies are not achieved or if system integration and business process unification do not proceed smoothly, this may lead to additional costs and reduced operational efficiency.

The in-house developed AI system "SELL" handles functions such as new product development, demand forecasting, inventory management, and advertising effectiveness prediction. If significant errors occur in the analysis results due to unexpected surges in advertising market prices or significant deterioration of market conditions, the Company may fail to achieve its expected results, adversely affecting its financial position and operating results. There is particular concern about the risk of business operations proceeding without detecting such errors.

Working capital needs continue to arise from business expansion, including product procurement, advertising expenses, inventory holding, and staffing increases, and increases in accounts receivable balances and lengthening of cash collection periods due to the expansion of wholesale sales may affect cash flow. If necessary funding cannot be secured in a timely manner due to changes in financial conditions or changes in financial institutions' lending policies, business operations may be hindered, and if equity financing is conducted, dilution of existing shareholders' ownership ratio may occur.