ALMADO, INC.

The Company outsources all product manufacturing to external parties, and subcontracting to further sub-contractors also exists. Quality issues at manufacturing outsourcing partners could damage customer trust through seller liability, and contract terminations with outsourcing partners or damage to production facilities from natural disasters could halt product supply. As countermeasures, the Company conducts regular audits, diversifies the locations of outsourcing partners, and requires submission of product inspection records.

The Company depends on a specific supplier for the majority of its procurement of eggshell membrane, the main raw material, and if this supplier becomes unable to continue its business, or if raw material shortages or drastic changes in the economic environment occur, it may become difficult to secure appropriate prices and quantities. In addition, outsourced processing of some raw materials also depends on a specific business partner, and if the continuation of this transaction becomes impossible, securing an alternative supplier or bringing production in-house would require time and cost. The Company strives to maintain good relationships with this supplier, but the concentration risk structurally remains.

If stockouts or excess inventory occur due to errors in demand forecasting, this could affect business performance through opportunity losses or inventory valuation losses. The Company conducts monthly order quantity adjustments and inventory monitoring, and formulates additional sales measures for products forecast to remain in stock in order to minimize this risk.

The Company continues to make active advertising investments to expand direct sales centered on its own EC site, but there is a risk that planned revenue will not be achieved if sufficient effects are not obtained, or due to rising costs or prolonged investment periods. The Company periodically checks the effectiveness of sales expansion measures and continuously reviews the content of these measures, but the uncertainty of advertising effectiveness cannot be eliminated.

The Company's direct sales are highly dependent on communication networks, and if a system outage occurs due to a natural disaster, cyberattack, sudden surge in access, or other causes, sales activities could be temporarily halted, potentially affecting business performance. The Company recognizes that there are limits to mitigation and avoidance through its own management measures alone, and is working on formulating and strengthening its information system strategy.

The Company accumulates a large amount of customer personal information through its direct sales business, and if such information were to leak externally, this could result in a decline in sales due to loss of customer trust and payment of damages. Through obtaining the Privacy Mark, establishing an information security policy, and thoroughly implementing employee training, the Company recognizes that the likelihood of this risk materializing is low.

QVC Japan, Inc. and Audio Co., Ltd. are each major sales customers accounting for approximately 10% of sales composition, and there is a possibility that a deterioration in their business performance, changes in their product policies, or delays in delivery timing could affect the Company's business performance. In addition, sales to QVC Japan depend on the television appearances of former representative director Yumi Suzue, and there is a risk that sales through this channel could be significantly affected if she becomes unable to perform her duties.

At present, there are not many strong competing products with eggshell membrane as the main ingredient, but if competitors or OEM partners introduce numerous similar products as awareness of eggshell membrane increases, this could affect business performance through a deteriorating competitive environment. The Company addresses this through continued research on eggshell membrane and differentiation via product and raw material improvements, but recognizes that this risk cannot be completely eliminated.

As a manufacturer and distributor of cosmetics and health foods, the Company is subject to numerous laws and regulations including the Act on Specified Commercial Transactions, the Pharmaceuticals and Medical Devices Act, the Act against Unjustifiable Premiums and Misleading Representations, the Health Promotion Act, and the Food Sanitation Act, and violations could subject the Company to administrative dispositions, license revocation, business suspension, or other measures that could have a material impact on business performance. The cosmetics manufacturing and marketing license and the quasi-drug manufacturing and marketing license are valid until December 2027 (renewed every 5 years), and the Company has established a system of prior review utilizing external experts and internal advertising guidelines.

With a small organization of 105 employees (including temporary staff) and 12 personnel in administrative departments, if recruitment does not proceed as planned or personnel turnover occurs, this could hinder the internal management system and business expansion. The Company strives to secure stable personnel through recruitment activities, and recognizes that the likelihood of this risk materializing is low, as there are no notable problems with the current organizational structure.