Shinnihonseiyaku Co., Ltd.

The "PERFECT ONE All-in-One Beauty Gel Series" is the flagship product accounting for the majority of net sales, and there is a risk that brand value impairment or a significant decline in sales volume due to quality defects or similar issues with this product could directly affect the Company's financial position and business performance. The Company is working to reduce this dependence through rebranding efforts to maintain and enhance brand strength, as well as by nurturing a third pillar brand following "PERFECT ONE FOCUS" and "Fun and Health" and diversifying its product lineup, but there remains a possibility that the development of new brands may not achieve the initially intended results.

The cosmetics market has low barriers to entry due to the availability of OEM production, and in addition to intensifying competition with existing domestic and overseas competitors, there is a continuous increase in new entrants with high brand recognition and strong brand power, as well as similar products. If competition intensifies and results in customer attrition, the increase in marketing costs required to counter this could put pressure on profitability. The Company addresses this through product development based on consumer needs, proactive marketing, and relationship-building utilizing its customer database.

Whether the development of new brands and products, as well as marketing activities, can adapt to changes in consumer needs has a significant impact on sales and profit. Since product development inherently involves uncertainty, if the initially intended results are not achieved, this could adversely affect the Company's financial position and business performance. The Company addresses this by broadly collecting customer feedback through its call center and continuously carrying out new product development and product improvements.

The manufacture and sale of cosmetics, quasi-drugs, and pharmaceuticals require licenses under the Pharmaceuticals and Medical Devices Act, and the Company's Type II Pharmaceutical Marketing Business License, Quasi-Drug Marketing Business License, and Cosmetics Marketing Business License all have an expiration date of August 31, 2026. If a business suspension order or license revocation is issued due to a violation of Article 12-2 or other provisions of the Pharmaceuticals and Medical Devices Act, or if the Company is unable to respond to future regulatory tightening, this could result in significant constraints on the continuation of its business. The Company maintains compliance through the appointment of the three key responsible officers, adherence to GQP and GVP standards, and renewal procedures conducted every five years.

As the Company primarily sells through mail order sales, it is subject to regulation under the Act on Specified Commercial Transactions, and due to its active advertising and provision of promotional items, it is also subject to regulation under the Act against Unjustifiable Premiums and Misleading Representations. If a violation occurs for any reason, this could adversely affect the Company's financial position and business performance through administrative sanctions and loss of credibility, among other consequences. The Company conducts strict checks based on the Act on Specified Commercial Transactions and its enforcement order, as well as the fair competition code of the Japan Cosmetic Industry Fair Trade Council, through its examination department.

The Company outsources the manufacture of the majority of its cosmetics, including its flagship "All-in-One Beauty Gel" product, to two companies, TOA Corporation and Mikimoto Pharmaceutical Co., Ltd. There is a risk that a sudden termination of contract or damage to production facilities due to a natural disaster or other cause could disrupt the smooth supply of products. Although the Company seeks to mitigate this risk by diversifying manufacturing, securing alternative suppliers requires a certain amount of time, and a short-term supply disruption could adversely affect the Company's financial position and business performance. The Company strives to reduce this risk through strict manufacturing and quality control over both companies and by diversifying manufacturing.

As the Company primarily engages in mail order sales, it holds a large volume of personal information, and if an information leak were to occur, this could result in claims for damages and loss of credibility, among other consequences, adversely affecting the Company's financial position and business performance. The Company has implemented measures such as strict access restrictions to its servers, multi-layered security measures, acquisition of Privacy Mark (JIS Q 15001) certification, and audits by external consultants, but it cannot completely eliminate the risk of leaks due to cyberattacks or internal misconduct. The Company also continuously implements the development of internal regulations and thorough employee training in response to amendments to the Act on the Protection of Personal Information.

There is a risk that if the prices of key raw materials rise due to trends in raw material prices or fluctuations in exchange rates, the purchase prices of products from manufacturing subcontractors could increase, putting pressure on profitability. In addition, since the Company provides free delivery services to customers who make purchases above a certain amount, a rise in delivery costs directly leads to an increase in selling expenses. Although the Company seeks to stabilize prices by diversifying suppliers through its manufacturing subcontractors and by using multiple delivery companies, there is no guarantee that it will be able to absorb the entirety of any cost increases.

Against the backdrop of a declining working-age population due to the falling birthrate and aging population, as well as changes in the industrial structure, competition to continuously secure the necessary human resources is intensifying, driving up recruitment and personnel costs. If the Company is unable to secure human resources as planned, or if the rise in personnel costs continues, this could hinder business operations by increasing costs and impede the execution of its growth strategy, adversely affecting its financial position and business performance. The Company addresses this by actively conducting new graduate and mid-career recruitment nationwide using a variety of media and methods.

Founder Eijiro Yamada and his spouse Emi Yamada (both former Representative Directors) together hold 47.34% of the Company's shares (excluding treasury shares), including shares directly owned and shares subject to aggregation, and depending on future share price trends, there is a possibility that they may sell shares in the short term. If a large-scale sale occurs in the market, or if the possibility of such a sale arises, this could affect the market price of the Company's shares. In addition, if shares are transferred to a specific party outside the market, this could affect the Group's management strategy, among other matters, depending on the policies of the transferee.