J Frontier Co.,Ltd.

Customer acquisition costs, including television infomercial advertising and internet advertising, are substantial, and if advertising rates increase or advertising efficiency deteriorates, this could impact business performance through a decline in sales or an increase in advertising expenses. While the Company is working to improve efficiency through the selection of advertising placements and revision of advertising content, vulnerability to changes in the external environment remains.

The mail-order sales business is subject to regulation under the Act on Specified Commercial Transactions and the Act against Unjustifiable Premiums and Misleading Representations. In the event of exaggerated advertising, misleading representations regarding superiority, or misleading representations regarding advantageous terms, the Company could become subject to corrective orders or surcharge payment orders equivalent to 3% of sales attributable to the violation. While the Company addresses this risk through regular compliance training, internal review using advertising manuals and checklists, and consultation with external organizations, the risk of violation cannot be eliminated.

The sale of the Company's proprietary brand pharmaceutical products such as "Whitepure" and "Seikansen® Boufuutsushousan," as well as health food products such as the "Koh Suiso 328 Sen Series," is subject to regulation under the Pharmaceutical and Medical Device Act, the Food Labeling Act, the Food Sanitation Act, and other laws. Violations could result in administrative dispositions such as business suspension, revocation of licenses, or product recalls. Although the Company manages its advertising to avoid claims of pharmaceutical efficacy, the risk of regulatory violation continues to exist.

The "SOKUYAKU" business is subject to related laws and regulations including the Medical Practitioners' Act, the Pharmacists Act, the Medical Care Act, and the Health Insurance Act, in addition to the Ministry of Health, Labour and Welfare's "Guidelines on the Proper Implementation of Online Medical Consultations," and frequent revisions to laws and regulations are expected to continue. In the event of a regulatory violation or business restriction, this could lead to business suspension or partial curtailment of services, and medical issues arising from inappropriate medical consultation or medication guidance could also undermine social trust.

The Company handles large volumes of personal information and confidential information of general consumers, and since the "SOKUYAKU" business also collects sensitive personal information, the impact of any information leakage would be particularly severe. Although the Company has implemented measures such as obtaining Privacy Mark and ISMS (ISO27001) certification, data center management, and access restrictions, in the event of an unforeseen leak, this could result in loss of social credibility, decreased sales, and liability for damages.

The Healthcare Sales Business has low barriers to entry, and competition is intensifying due to an increasing number of competitors handling products similar to the Company's mainstay products such as the "Koh Suiso 328 Sen Series." The health food market tends to be susceptible to changes in consumer preferences and to have short product life cycles, creating a risk of significant fluctuations in sales due to changes in consumption trends and economic conditions.

Mr. Atsuhiro Nakamura, the founder, a major shareholder holding 65% of total issued shares, and Representative Director, President and Executive Officer, plays a critical role in determining management policy and business strategy. If he were to become unable to continue his duties, this could cause significant disruption to business operations. While the Company is implementing measures such as organizational development and personnel training, dependence on him is expected to continue for the time being. In addition, a decline in his shareholding ratio could affect the Company's share price and the exercise of voting rights.

The Group holds long-term assets such as goodwill, and if future cash flows cannot be generated due to declining profitability or a significant drop in market value, it may become necessary to recognize impairment losses, which could impact business performance. Although the Company manages profitability through due diligence at the time of investment and ongoing periodic monitoring after investment, the risk of failing to achieve expected returns due to changes in the market environment or other factors remains.

In the previous consolidated fiscal year, the Company recorded operating losses for two consecutive periods and negative operating cash flow for three consecutive periods, resulting in a breach of financial covenants under certain financial institution borrowings. In the current consolidated fiscal year, the Company returned to profitability with operating income of ¥293,746 thousand and operating cash flow of ¥509,015 thousand, and following the completion of a third-party allotment capital increase of ¥500,014 thousand in March 2025, it was determined that the going concern doubt had been resolved. However, the breach of financial covenants continued as of the end of the current consolidated fiscal year, and the Company remains in a situation where it has received forbearance from financial institutions regarding the exercise of rights related to acceleration of debt maturity.

In the previous consolidated fiscal year, doubts arose regarding inappropriate accounting treatment in the recording of revenue and cost of sales for certain advertising sales transactions, leading to the establishment of a special investigation committee to conduct an inquiry. Preventive measures against recurrence were announced on December 11, 2024, and improvements to internal controls were implemented; however, if deficiencies in the internal management system arise again, this could result in loss of credibility and impact on the share price.