ADJUVANT HOLDINGS CO.,LTD.

In addition to a decline in the beauty-conscious population due to population decrease and a decrease in the number of customers per store, competition is intensifying due to new entrants from competitors and other industries. Competition is particularly pronounced in the "natural cosmetics" and "organic" fields, and if the Group fails to respond to changes in the competitive environment or its management strategy does not align with customer needs, this may adversely affect its business results and financial condition. The Group is addressing this by focusing on the development of safe and reliable cosmetics.

Since the Group's core business is the manufacture and sale of cosmetics, it is necessary to obtain and maintain a manufacturing and marketing business license (renewed every 5 years) under the Pharmaceuticals and Medical Devices Act. If a license is revoked, a business suspension order is issued, or unexpected changes or new legislation in laws and regulations occur, business activities may be restricted, adversely affecting the Group's business results and financial condition. The Group addresses this by thoroughly complying with related laws and regulations.

Developing products that meet customer needs may take a long time, and there is a risk that expected profits may not be achieved if the discovery of new technologies or new ingredients becomes apparent only after launch. In addition, if defects are found in products sold, this may adversely affect the Group's business results and financial condition through customer claims for damages, mass returns, and loss of credibility. The Group is committed to thorough quality control while continuously introducing new products and renewed products.

The Group's product manufacturing depends on external contract manufacturing plants, and if manufacturing facilities are damaged by natural disasters or other events, or if a plant experiences business failure or a decline in manufacturing capacity, this may hinder the maintenance of product quality and stable supply. The Group continues to maintain good relationships with contract manufacturing plants and to work on quality control and stable supply, but there are limits to its ability to respond to unforeseen circumstances.

Materials and raw materials necessary for product manufacturing are mainly procured through contract manufacturing plants, and if unforeseen circumstances arise due to external factors, it may become difficult to continue procurement at appropriate prices. Increases in procurement costs or supply shortages will adversely affect the Group's business results and financial condition. The Group strives to manage procurement while receiving reports and communications from contract manufacturing plants.

If personal information or confidential information related to product development is leaked, this may adversely affect business activities through claims for damages and loss of credibility. The Group strives for thorough management by establishing an information security operation system, conducting employee study sessions, and performing internal audits, but complete prevention is difficult.

If the Group's intellectual property rights are infringed by means beyond expectation, this may adversely affect business activities through the leakage of technology and information and the distribution of counterfeit products in the market. In addition, if a product developed and sold before the publication of another company's patent application infringes on a third party's patent, there is a risk of incurring costs for product specification changes or recalls, or of receiving claims for damages. The Group conducts careful patent and trademark research while proceeding with product development.

In strategic investment activities, if the originally intended results are not achieved due to unforeseeable changes in the environment, or if the financial condition of an investee deteriorates, impairment of shares and other assets may become necessary, which may adversely affect the Group's business results and financial condition. The Group gathers and examines necessary information when making investment decisions, but there are limits to its ability to respond to changes in the external environment.

If it becomes difficult to secure new agencies and salons that can comply with the sales policy based on counseling sales, or if, in the EC business, the cost of acquiring new customers exceeds expectations and sales commensurate with advertising expenses cannot be recorded, this may adversely affect the Group's business results and financial condition. The Group is proceeding with development of new areas, but ensuring consistency with its sales policy remains a challenge.