YOMEISHU SEIZO CO., LTD.

Approximately 70% of net sales are accounted for by "Yomeishu," resulting in an extremely high degree of dependence on a specific product. If intensifying competition from supplements, health foods, energy drinks, etc., changes in consumer preferences, or climate variations such as mild winters adversely affect sales, this could have a material impact on business performance and financial condition. The Company is working to strengthen collaboration with distributors and retailers and to acquire new customers, but the establishment of alternative revenue sources remains a work in progress.

As the Company's sales are centered on domestic sales, there is a risk that a deterioration in the domestic economy or population decline could reduce consumption more than expected. Although the Company is working to expand into major Asian markets, the proportion of overseas sales remains limited at present, resulting in a structure in which a contraction in domestic demand tends to directly affect business performance.

The crude drug raw materials for "Yomeishu" are procured both domestically and from overseas, including China, and there is a risk that securing sufficient quantities could become difficult due to adverse weather, disasters, or regulations in the source regions. A significant surge in prices would also affect business performance and financial condition through higher manufacturing costs. The Company addresses this through planned medium- to long-term raw material securing and expansion of procurement sources and contract cultivation, but there are limits to responding to force majeure events.

"Yomeishu" is classified as a Category 2 over-the-counter drug, and strict quality control is implemented based on GMP standards; however, if an unforeseen quality issue occurs, it could affect business performance and financial condition through product recalls, loss of trust, etc. The same level of quality and safety control is applied to other products, but events beyond the scope of these efforts cannot be ruled out.

Since manufacturing plants are concentrated in Komagane City, Nagano Prefecture, there is a risk that business activities could be suspended in the event of a large-scale natural disaster such as an earthquake or an outbreak of an emerging infectious disease. The Company is advancing seismic reinforcement, securing market inventory, and establishing rapid recovery systems, but it may be difficult to respond to disasters or disease outbreaks that exceed expectations.

Production, sales, and management information, as well as customer personal information obtained through mail order sales and other channels, are managed via information systems. If a system failure or information leak occurs due to computer virus infection, unauthorized access, or similar causes, it could affect business performance, financial condition, and corporate trust. Although appropriate security measures are implemented, there are limits to addressing threats that exceed expectations.

The Company is subject to a wide range of legal regulations, including the Pharmaceuticals and Medical Devices Act, the Food Sanitation Act, the Liquor Tax Act, and the Act against Unjustifiable Premiums and Misleading Representations. Changes in laws or violations thereof could affect business continuity and performance. The Company is working to strengthen its compliance system, but ongoing responses to changes in the regulatory environment are required.

Due to the oligopolistic nature of over-the-counter drug wholesalers, dependence on sales to specific business partners has increased, creating a risk that a deterioration in the management or creditworthiness of such a partner could affect both sales and trade receivables. The Company works to prevent bad debt losses through credit limit setting based on credit management rules, trade credit insurance, and receivables guarantees, but this has not fundamentally resolved the concentration risk.

The Company holds marketable securities for purposes such as strengthening relationships with business partners. If market value declines significantly due to worsening economic conditions or deterioration in the issuing company's performance, this could affect business performance and financial condition through the recognition of impairment losses. The Company periodically reviews the appropriateness of its holdings, but it may be difficult to respond to sudden changes in market conditions.

Climate change poses a risk of affecting the business through factors such as the procurement environment for crude drug raw materials and winter demand (reduced sales due to mild winters). The Company has established a system in which the Sustainability Committee, under the direct oversight of the Management Planning Council, identifies and evaluates risks and opportunities, which are then integrated into company-wide risk management by the Compliance Committee. However, if events occur that exceed the scope of these efforts, business performance and financial condition could be affected.