StemCell Institute Inc.

If the "Specific Cell Processing Product Manufacturing License" (facility numbers FA3150022, FA3200007), which is essential for the continuation of the Company's core business, is revoked, it would impede major business activities, have a material impact on business results and financial condition, and could make it difficult to continue the business. The Company estimates that the likelihood of occurrence is low and, if it were to occur, would be in the medium-to-long-term future. As a countermeasure, the Company regularly checks for non-conformities against standards through ISO9001 internal audits and AABB inspections (once every two years).

If the evaluation of the efficacy of regenerative medicine using cord blood and umbilical cord tissue becomes prolonged, or if efficacy is not clearly established, there is a risk that the appeal of the storage service will decline, leading to a decrease in new storage customers. The emergence of other new treatment methods could have a similar impact, and if this situation persists, it may become difficult to continue the business. As a countermeasure, the Company has established multiple business development pipelines in partnership with academia and medical institutions providing regenerative medicine, and continuously promotes the potential of its services.

There is a risk that revisions or strengthening of industry-specific regulations such as the Act on the Safety of Regenerative Medicine and the Act on Promotion of Provision of Hematopoietic Stem Cells, or the enactment of new laws and regulations, could result in additional compliance costs or constraints on the business. If unexpected deviations or accidents occur in cell processing or facility operations, related business activities may be temporarily suspended. As a countermeasure, the Company has introduced third-party certification audits such as internal audits, ISO9001, AABB accreditation, and the Privacy Mark, and gathers information through academic societies and industry associations.

Even in cases unrelated to the Company's group, if a medical accident or violation in regenerative medicine is reported by mass media or on social media, the entire industry may suffer reputational damage, which could affect the Company's business results and, if prolonged, make it difficult to continue the business. The Company's policy is to gather information through academic societies and industry associations and to respond promptly through press releases and timely disclosure when incidents occur, but it cannot completely prevent the occurrence or spread of reputational damage.

The number of births in Japan in 2025 was 671,236, continuing a declining trend, and further decreases are expected according to estimates by the National Institute of Population and Social Security Research. A decline in births exceeding expectations would directly lead to a contraction of the market for the Cell Bank Business (Single Segment), which could affect future business and performance. As a countermeasure, in addition to expanding the domestic storage rate, the Company is advancing business expansion into Southeast Asia, centered on Singapore.

Highly confidential personal information is obtained in connection with cord blood storage, and if leakage or unauthorized use occurs, it could affect the business and performance through a decline in social trust and payment of damages, potentially making it difficult to continue the business. As a countermeasure, the Company has established a strict personal information management system based on the Privacy Mark (MEDIS) system for the healthcare and welfare field.

If the Cell Processing Center, Cell Storage Center, or essential resources such as liquid nitrogen and reagents become inoperable due to unforeseen events such as earthquakes, prolonged power outages, or supply disruptions, it could affect business results, and if prolonged, make it difficult to continue the business. As a countermeasure, the Company has selected buildings rated Seismic Grade A (Is value of 0.821), installed its own dedicated emergency power generators, and established a stable procurement system for liquid nitrogen through transactions with a major gas company that operates multiple plants.

Since much of the work involved in cell transport, separation, and storage is manual, there is a possibility that human error could affect the business and performance. As a countermeasure, the Company actively adopts external certification systems such as ISO, AABB, and the Privacy Mark, and works to establish check systems, although the risk cannot be completely eliminated.

Representative Director Takafumi Shimizu possesses extensive knowledge, experience, and networks related to the medical business as a whole, and plays an important role in determining management policies and business strategies. If he were to leave the Company or become unable to adequately perform his duties, it could have a significant impact on the business and performance. As a countermeasure, the Company is proceeding with the recruitment and development of personnel to establish a management structure that does not excessively rely on him.

Nihon Trim Co., Ltd. (listed on the Tokyo Stock Exchange Prime Market) is the parent company holding 71.3% of the Company's voting rights, and as it has decision-making authority and veto power over fundamental matters, it may influence the decision-making of the Company's group. In addition, there are related party transactions, such as equipment purchase transactions with Strex Co., Ltd., a group company of the parent company (transaction amount of ¥3,998 thousand for the current consolidated fiscal year). The Company states that it independently determines its management policies and makes decisions without requiring prior approval from the parent company, but the risk that the interests of minority shareholders could be impaired cannot be denied.