MORISHITA JINTAN CO., LTD.

Many of the Group's products and merchandise are subject to regulations under the Act on Securing Quality, Efficacy and Safety of Pharmaceuticals, Medical Devices, Regenerative and Cellular Therapy Products, Gene Therapy Products, and Cosmetics (Pharmaceuticals and Medical Devices Act), as well as the JAS Act, the Food Sanitation Act, the Act on Specified Commercial Transactions, the Act against Unjustifiable Premiums and Misleading Representations, and other laws. Changes in administrative trends or violations of laws and regulations could affect the Group's business performance. Although the Group has established compliance regulations and is committed to thorough legal compliance, the risk of regulatory tightening or the occurrence of violations cannot be eliminated.

The Group holds a large amount of personal information through its mail-order business, and if an information leak occurs for any reason, it could adversely affect business performance through loss of social credibility, damages lawsuits, and other consequences. Although the Group has established personal information protection regulations and strives for strict management, risks such as cyberattacks and internal misconduct cannot be completely eliminated.

The Solutions Business receives many large orders from major domestic and overseas manufacturers and others, and order volumes tend to fluctuate significantly depending on the demand trends of client companies, which can have a significant impact on business performance. To diversify this risk, the Group is promoting the expansion of its client base and the development of capsule formulation technology applicable to a wide range of fields, including industrial applications, but the risk of dependence on specific customers remains.

In the health-related products market, competition is intensifying year by year due to the entry of major companies from other industries and an increase in emerging companies. If the Group fails to adequately anticipate market trends and changes in demand and develop appealing products and merchandise, differentiation from other companies may become insufficient, potentially affecting business performance. The Group continuously engages in research and development of new products, but the success or failure of such development is subject to market conditions.

Inventory assets are valued using the cost method based on the total average method (with book value write-down for decreased profitability). If products become non-current or obsolete due to shortened product life cycles, or if intensifying price competition leads to a significant decline in market value, write-downs or disposal may become necessary, potentially adversely affecting business performance. Given the rapidly changing trends in the health food market, the risk of inventory obsolescence is prone to materializing.

The Group recognizes the securing of intellectual property rights such as patents and trademarks as an important matter, and pays attention to protecting its proprietary technologies and know-how and preventing infringement of third parties' rights. However, if issues related to intellectual property rights arise, they could affect business performance. If proprietary technologies such as capsule formulation technology are imitated by competitors, or if a third party alleges infringement, litigation risk may also arise.

The Group conducts part of its procurement and sales activities overseas, and changes in laws, regulations, or tax systems in the countries where it operates, as well as changes in political and socioeconomic conditions, infectious diseases, large-scale disasters, terrorism, war, and other forms of political instability, could affect the Group's financial position and business results. Heightened geopolitical risk and uncertainty in the regulatory environment in emerging countries pose risks that could disrupt business continuity.