Advance Create Co.,Ltd.

In the current consolidated fiscal year, the Company recorded an operating loss of ¥606 million, an ordinary loss of ¥924 million, and a net loss attributable to owners of the parent of ¥1,539 million, marking three consecutive fiscal years of operating and ordinary losses, four consecutive fiscal years of net losses, and three consecutive fiscal years of negative operating cash flow. At the end of the previous consolidated fiscal year, the Company fell into a capital deficit of ¥4,973 million; although approximately ¥7,000 million was raised through a third-party allotment of common shares and Class A shares, resolving the capital deficit, a violation of financial covenants has also arisen, giving rise to material doubt about the going concern assumption. While the Company is proceeding with earnings recovery, fixed cost optimization, and measures to address the financial covenant breach, these countermeasures are still in the process of implementation, and material uncertainty remains.

A discrepancy from actual conditions was discovered in the present value (PV) calculation of Insurance Agency Commission Income (Life & Non-Life Insurance), leading to the restatement of sales for prior periods spanning the 25th fiscal period (fiscal year ended September 2020) through the 28th fiscal period (fiscal year ended September 2023). This restatement resulted in a capital deficit of ¥4,973 million at the end of the previous consolidated fiscal year, requiring the submission of an "Improvement Report" to each stock exchange. While the thorough implementation of recurrence prevention measures is positioned as the top priority issue, if deficiencies in the establishment and operation of internal controls continue, there is a possibility of reduced reliability of financial reporting and adverse effects on business results and reputation.

As of September 30, 2025, the Company does not meet the listing maintenance criteria of the Tokyo Stock Exchange Prime Market (the tradable share market capitalization criterion and the tradable share ratio criterion). While the Company aims to achieve compliance through earnings recovery and enhancement of corporate value, if compliance cannot be achieved within the planned period, a market segment transfer to the Standard Market is also being considered as an option. If a market transfer becomes a reality, there is a possibility of effects on shareholders and investors, such as exclusion from the investment universe of institutional investors.

In the current consolidated fiscal year, sales to MetLife Insurance K.K. accounted for 23.7% of total sales, indicating a high degree of dependence on a specific insurance company. If reputational issues concerning this company or its insurance products, or changes in its sales policies, occur, this would directly affect the number of new insurance policies and the continuation rate of existing insurance policies, potentially significantly affecting the Group's business results. There is also a risk that, in the event of a deterioration in the financial condition or bankruptcy of a partner insurance company, the Group's business foundation could be damaged due to the lapse or cancellation of policies held.

The Group is registered as a non-life insurance agency and life insurance solicitor under the Insurance Business Act, and faces the risk of administrative sanctions such as revocation of agency registration, business suspension, or business improvement orders in the event of violations of prohibited acts such as false explanations or inducement of non-disclosure. In recent years, the level of standards required for insurance solicitation management systems has increased, including the strengthening of the duty to ascertain customer intentions and the duty to provide information, raising the cost of responding to amendments to laws and supervisory guidelines and increasing compliance violation risk. Although the Company is strengthening employee training and internal audit systems and advancing system development, if it fails to respond promptly to legal changes, this could have a material impact on its business and business results.

Customer acquisition for the insurance comparison site "Hoken Ichiba" is largely dependent on search engines, and the display ranking of search results is left to the discretion of each search engine operator, leaving no room for the Group to intervene. If changes to ranking policies work unfavorably for search results, the effectiveness of customer acquisition to the site would decline, directly affecting business results. In addition, if SEO-related costs increase, this could lead to an increase in cost of sales.

The Group acquires and holds a large volume of personal information in the course of promotional activities and insurance solicitation, and there is a risk of information leakage due to unauthorized external access, virus infection, or deficiencies in internal management. Should a leak occur, in addition to a loss of trust in the Group and significant impact on business activities, an increase in post-incident response costs could adversely affect business results. Although measures such as defense against unauthorized external access and strengthening of internal management systems have been implemented, complete prevention cannot be guaranteed.

Mr. Yoshiharu Hamada, the founder and Representative Director and President, plays a critical role in determining management policy and strategy and in building relationships with business partners, resulting in a high degree of dependence on him. Although the Company is proceeding with delegation of authority and the securing of external personnel to reduce this dependence, if for some reason he becomes unable to perform his executive duties before such a system is established, this could have a material impact on business results and business development.

The subsidiary Advance Create Reinsurance Incorporated conducts the Reinsurance Business, which has the unique business structure in which the insurance claims to be paid are determined after the occurrence of an accident. If unpredictable events occur, such as an increase in accident frequency, catastrophic disasters, or large-scale accidents, future insurance claim payments could fluctuate significantly, potentially affecting the Group's financial condition and business results. Currently, the Company addresses this risk by focusing primarily on the so-called "third sector" (injury, illness, nursing care, etc.), which carries a relatively smaller risk range.

The Company is in direct competition with face-to-face small-store-format agencies, telemarketing agencies, insurance solicitation by credit card companies and mail-order companies, and numerous internet-based insurance agencies, resulting in an intensifying competitive environment. While the Company seeks to differentiate itself through enhanced content for internet promotion, proactive promotional activities, and strengthened collaboration with partner insurance companies, the Group's business and business results could be affected by an increase in new entrants and changes in the competitive landscape.