Colan Totte.Co.,Ltd.

In the fiscal year under review, necklace-type products accounted for 81.6% of total net sales, and the flagship product line "Colantotte TAO" alone accounted for 51.6% of necklace sales, resulting in a high degree of product concentration risk. If sales of the flagship product decline due to the emergence of attractive competing products or changes in consumer preferences, this could have a significant impact on overall business performance. The Company seeks to reduce this dependence through continuous development of new products and diversification of its product lineup, but the structural concentration remains high.

In connection with the manufacture and sale of controlled medical devices (home-use magnetic therapy devices), the Company has obtained a Type II Medical Device Marketing Business License (valid until May 2028) and Medical Device Manufacturing Business Registration (renewal in 2026 and 2030) from Osaka Prefecture, and is subject to strict regulation under the Pharmaceuticals and Medical Devices Act. If additional response costs arise due to legal amendments or tightened regulations, or if licenses or permits are revoked or renewal is denied due to unforeseeable factors, there is a risk that business activities could be suspended. At present, no factors that would impede the continuation of licenses and permits have arisen.

The Company holds customers' personal information such as names, addresses, and phone numbers, and if information leakage occurs due to unauthorized access or other causes, this could damage brand value and give rise to legal liability. In addition to establishing personal information handling regulations and thoroughly training employees, the Company obtained Privacy Mark (P-Mark) certification in September 2020 and has established a management system; however, amendments to personal information protection laws in relevant jurisdictions also constitute an additional risk factor.

The Company uses external cloud services for the operation of core data and its proprietary e-commerce site, and if the system becomes inoperative due to natural disasters, computer viruses, unauthorized access, human error, or other causes, there is a risk that services on the Company's own site could be suspended and transaction data, including customer information, could be lost. The Company seeks to mitigate this risk by carefully selecting cloud services with highly durable facilities, but it is difficult to completely eliminate the possibility of failures arising from any cause.

The Company strives to maintain appropriate inventory levels by comparing purchasing and sales conditions with demand forecasts; however, if slow-moving inventory arises due to sudden changes in demand or errors in sales forecasting, this could affect financial position and business results through the recognition of inventory valuation losses, among other effects. This risk is assessed as having a "medium" likelihood of occurrence in the Annual Securities Report and is recognized as relatively more likely to materialize compared with other risks.

The Company employs a fabless production system, outsourcing all product manufacturing to external parties. If unforeseen circumstances arise at an outsourced manufacturer, such as sudden changes in contract terms, quality problems, business difficulties, or natural disasters, there is a risk that stable product supply could become difficult. The Company seeks to mitigate this risk by diversifying its outsourced manufacturers and intends to pursue further diversification going forward, but the inherent dependence risk arising from the fabless structure remains.

If customers are unable to feel the effects of the Company's products, or if trouble such as health problems occurs, there is a risk that media reports or social media could lead to a decline in product image and loss of trust. Furthermore, similar effects could arise from trouble or reputational damage caused by counterfeit or imitation products not directly related to the Company's products. The Company strives to provide safe and reliable products, but given the speed at which information spreads through social media, the scope of impact could expand rapidly and widely.

Amid intensifying competition with other companies in the health-related market, if investment in new product development and marketing activities fails to produce the expected results, or if customers decline due to the emergence of attractive competing products, this could affect the Company's financial position and business results. The Company seeks to maintain competitiveness through aggressive investment in new product development and strengthened marketing of existing products, but an increase in new entrants to the health-related market also constitutes a potential risk factor.

The Company has established risk and compliance regulations and thoroughly ensures compliance with product-related laws and regulations; however, if compliance is compromised due to unexpected misconduct or other causes, there is a risk that social trust and brand value could be damaged. Given the nature of the business, which handles health-related products and medical devices, compliance with regulations such as the Pharmaceuticals and Medical Devices Act is particularly important, and if a violation occurs, the impact on the business could be extensive.

Representative Director and President Katsumi Komatsu has extensive business experience and strong relationships with major customers and suppliers, and if he becomes unable to continue his duties for any reason, there is a risk that business operations could be disrupted. The Company is working to reduce this dependence through the appointment of personnel to clarify organizational structure and strengthen personnel development, but the structural dependence on a founder-type manager is difficult to resolve in the short term. In addition, the Representative Director and President and related parties hold 69.0% of the total number of issued shares, and this concentration also presents a governance-related risk.