Human Metabolome Technologies, Inc.

Due to the subsidy execution cycle of universities and public research institutions, our primary customers, net sales tend to concentrate in the third quarter (January to March). There is a risk that delays in sample receipt may make it difficult to complete analysis within the fiscal year, leading to order cancellations, as well as a risk of lost opportunities when the volume of analysis exceeds processing capacity. As countermeasures, the Company is working to expand orders from private companies and from overseas customers whose fiscal year-end differs from Japan's.

Competition is increasing both domestically and internationally in the mainstay metabolome analysis outsourcing service, and price competition has arisen in some areas, which may impair profitability. In analysis outsourcing services other than metabolome analysis, competition with existing competitors is unavoidable as the market expands, and securing market share depends on technological development capabilities and sales proposal capabilities. As countermeasures, the Company is working to reduce costs through productivity improvements, expand its proprietary services, and maintain and strengthen its competitive advantage by providing one-stop analysis services.

The growth of the Group depends on innovation through new development, but highly novel development entails the risk of failure, and there is a possibility that development may stall or that unexpected obstacles may arise, prolonging the time required to achieve results. These factors could affect the overall growth strategy. As countermeasures, the Company has established a development council that scrutinizes project priorities and enables prompt decision-making by management on a monthly basis, as well as a system that allocates a certain proportion of working hours to new development.

The analysis software "KEIO Master Hands," which serves as the foundation for metabolome analysis, depends on a license granted by Keio University (Gakko Hojin Keio Gijuku), and if the contract is terminated for any reason, it could have a material impact on the Group's business performance and future business development. The Group has separately concluded an "Agreement Concerning Renewal of Use" to secure a multi-year license contract, but this cannot completely eliminate the risk.

The majority of the analysis outsourcing services, which are the core of the Group's revenue, are concentrated at the Tsuruoka head office, and if a natural disaster or other accident causes significant damage, restoration costs will be incurred and there is a risk of lost business opportunities due to a suspension of operations for a certain period, as well as a risk that customers may transfer to competitors. Although the Group has taken measures such as insurance coverage and power outage countermeasures, it is explicitly stated that there are limits to such measures, as dispersing analysis equipment given the Group's scale would significantly impair operational productivity.

As of the end of the fiscal year under review, the Group was a small organization consisting of 5 officers and 62 employees, and since individual officers and employees play a significant role, if a certain number of personnel were to leave, business operations in the relevant field could be disrupted for a period of time. The Group is working to build a highly transparent corporate culture and has introduced performance-linked bonuses to curb personnel outflow and ensure fair profit distribution, but constraints related to organizational size remain an ongoing risk factor.

Because the Group handles information related to customers' trade secrets while providing analysis outsourcing services to support customers' research and development, if information leakage were to occur due to gross negligence or a cybersecurity incident, it could cause significant damage to customers, and the Group itself could also be exposed to the risk of damage compensation liability and reputational risk. As countermeasures, the Group is working to strengthen its internal information management system and enhance its cybersecurity measures.