EduLab, Inc.

Specific customers account for approximately 40% of total net sales, and any change in contract terms with these customers could have a material impact on the Company's business results and financial position. The Company is working to diversify its customer base through value-added enhancement and cross-selling, leveraging its strengths in ability measurement technology and large-scale test operation track record, but the structure of high dependence continues.

In the Test Administration & Outsourcing Business, orders are often placed by domestic public institutions, and the bidding process makes it difficult to secure long-term continuous contracts, creating the risk that contracts may not be awarded depending on the results of each year's bidding. In particular, failure to win large-scale projects such as the Ministry of Education, Culture, Sports, Science and Technology's National Assessment of Academic Ability could significantly impact business results and financial position. There is also the possibility of intensified competition from new entrants, and it cannot be said that a stable, reliable order environment exists.

In the Test Administration & Outsourcing Business, printing costs and grading expenses account for a high proportion of cost of sales, and rising part-time wages and outsourcing costs may prevent the Company from achieving expected profit margins. Additional costs arise when grading or aggregation troubles occur, but since it is difficult to pass these costs on to the outsourcing fees, the structure is such that increased costs directly compress profits.

The structural trend of the declining birthrate continues in the domestic education market, and the resulting decline in demand across the industry as a whole may affect the business results and financial position of the Company's group. The Company is addressing this by capturing expansion opportunities such as earlier English learning ages, reskilling demand, and the shift to CBT, but the declining birthrate trend itself is an irreversible structural problem.

Changes in education-related systems by administrative authorities, such as revisions to the Courses of Study, the school attendance support fund system, and the tax exemption measures for education fund gifts, may affect the business environment. Failure to promptly detect and adequately respond to such regulatory changes could result in lost business opportunities and declining customer acquisition, thereby affecting business results and financial position.

The Company develops education-related systems in-house, and if development costs exceed expectations, funding needs may arise before service launch. Continuous content development is essential for test and learning products, and if product competitiveness is insufficient and service revenue falls short of plans, it will affect business results and financial position. In addition, if the profitability of owned software and other assets deteriorates significantly, an impairment loss may need to be recognized.

Technological progress in areas such as the internet, cloud computing, and AI is rapid, and there is a risk that technological innovation exceeding the Company's group's expectations could cause its existing technologies and services to lose competitiveness. The Company is working to keep pace with technological progress through software investment and other measures, but delayed response to rapid technological change could affect business results and financial position.

The Institute for Educational Measurement, Inc. is a personal information handling business operator holding personal information such as membership data for Ei-Navi! and CASEC test taker information, and any information leakage could result in loss of trust and claims for damages. The Company continues to conduct awareness-raising activities such as obtaining Privacy Mark certification and internal training, but leakage risk cannot be completely eliminated.

The Company entered into a capital and business alliance agreement with Zoshinkai Holdings Co., Ltd. in July 2022 and became its affiliated company; however, if the relationship changes due to termination of the alliance or other reasons, this could result in increased reputational risk, the risk of having to independently carry out joint projects, and the loss of fundraising support. If the business alliance or profitability enhancement does not proceed as planned, this may affect the business, business results, and financial position.

Following corrections made to prior-year securities reports and other documents in October 2021 and February 2022, the Tokyo Stock Exchange designated the Company's shares as a "Securities on Alert" issue in April 2022; however, this designation was lifted in May 2023 in recognition of the Company's efforts to strengthen its internal control system. The Company continues to develop and strengthen its internal control system even after the designation was lifted, but if deficiencies recur, this could lead to loss of trust and affect the stock price.