SCAT Inc.

In the Nursing Care Services Business, if residents, users, or employees contract an infectious disease that develops into a cluster infection, this could cause significant disruption to business continuity. Although the reclassification of COVID-19 to a Category V infectious disease has reduced the overall economic risk, the Group continues to maintain a high level of vigilance regarding infection control measures given the nature of nursing care facilities. If a cluster infection occurs, it may affect the Group's financial position and operating results.

The Beauty ICT Business is based on ICT-related technologies, and the industry is in a rapidly changing environment with a continuous stream of new technologies and services being introduced. If the Group's response to technological innovation is delayed, there is a risk of declining competitiveness as well as increased investment in systems and human resources. These factors may affect the Group's business development, financial position, and operating results.

In the Beauty ICT Business, there are multiple competing software vendors, as well as an increasing number of new entrants leveraging smartphone applications and cloud technologies. If competition with other companies intensifies and the Group's competitive advantage is lost, or if prices decline more than expected, this may affect the Group's financial position and operating results. The Group's policy is to differentiate itself through the introduction of high-function, high-value-added products, but continuous response to changes in the competitive environment is required.

The Beauty ICT Business primarily operates industry-specific business applications for the beauty salon industry, and its performance structure is dependent on trends in the beauty salon industry and its capital investment activity. If the beauty salon industry's performance remains sluggish or capital investment continues to stagnate, this may affect the Group's financial position and operating results. Although the Group is working to create new markets and new businesses, it currently has a high degree of dependence on a specific industry.

In the Beauty ICT Business, the Group makes development investments in software, and those that meet certain requirements are capitalized as assets. If the sales plan is discontinued or sales fall significantly short of expectations such that recoverability is deemed uncertain, additional software amortization expenses may need to be recorded. This may affect the Group's financial position and operating results.

The Beauty ICT Business is highly dependent on computer systems and networks, and if a system failure or network infrastructure failure occurs due to natural disasters such as earthquakes or fires, or due to cyber terrorism, service interruptions or degradation in service quality may result. The Group has implemented operational monitoring services, server redundancy configurations, and measures to prevent unauthorized external access and virus infection, but complete prevention is difficult. If a significant failure occurs, it may affect business development, financial position, and operating results.

In the Nursing Care Services Business, the Long-Term Care Insurance Act establishes staffing standards such as the assignment of qualified personnel, and if it becomes difficult to secure necessary personnel or existing personnel leave, this may result in declining service quality, reductions in long-term care benefit payments, or difficulty continuing services. In addition, improvements in treatment and increased recruitment costs to secure personnel are also anticipated. While the Group does not currently recognize any significant disruption, the personnel shortage across the nursing care industry as a whole is a structural issue.

The Beauty ICT Business, Business Services, and Nursing Care Services Business all handle a large amount of confidential information, including customer information, financial information, and resident information. The Group has implemented measures such as establishing a confidential information management system, thoroughly educating employees, and introducing information leakage prevention software, but if confidential information is leaked externally due to unforeseen circumstances, this may result in response costs, business suspension, or loss of social credibility, and may affect the Group's financial position and operating results.

The Nursing Care Services Business has received various designations under the Long-Term Care Insurance Act (13 licenses across Tochigi Prefecture, Gunma Prefecture, Nagano Prefecture, and Komoro City, including Specified Facility Long-Term Care for Residents, Day Care Services, and Home-Visit Care), and is obligated to maintain personnel, facility, and operational standards. In the event of legal violations or failure to meet standards, the relevant prefectural governor or municipal mayor may revoke the designation. In addition, if unfavorable revisions are made to the long-term care benefit rates, which are revised every three years, this may affect the Group's financial position and operating results.

Business Services operates primarily in Tochigi Prefecture, and the Nursing Care Services Business is concentrated in three facilities in Tochigi Prefecture, Gunma Prefecture, and Nagano Prefecture. If a large-scale natural disaster occurs mainly in the Kanto region, this geographic concentration could force multiple businesses to suspend operations simultaneously, or result in substantial repair costs due to damage to buildings and facilities. This may have a significant impact on the Group's financial position and operating results.