SD ENTERTAINMENT,Inc.

The Group primarily targets individual consumers, and in economic phases where personal consumption stagnates, business performance may be affected. On the other hand, market expansion is expected over the medium to long term due to rising health consciousness, making sensitivity to business cycles a key challenge.

Providing the Group's services requires personnel with specialized knowledge and qualifications, and if personnel recruitment fails to keep pace with the increase in the number of facilities, business performance may be affected. While recruitment efforts are being strengthened through referrals from business alliances with staffing agencies, competition for hiring specialized personnel remains an ongoing challenge.

The Group is required to comply with laws that form the foundation of its business, such as the Child Welfare Act and the Long-Term Care Insurance Act, and if issues arise in business management, business operations may be affected. While efforts are being made for daily checks through strengthened business management systems and internal control functions, the risk to business continuity is high in the event of a legal violation.

The Group provides security deposits and guarantee deposits when opening new locations, and if the land or building owner becomes insolvent, continued use of the facility may become difficult. Additionally, if a replacement tenant cannot be introduced upon early termination for the Group's own reasons, the security deposits and guarantee deposits may need to be forfeited, resulting in a loss. Rights are confirmed prior to opening new locations, but this risk cannot be completely eliminated.

Depending on trends in land prices and the profitability of fixed assets, new properties may newly meet the requirements for recognition of impairment losses. Additionally, when fixed assets are sold, a loss on sale of fixed assets may arise depending on the sale price, affecting business performance and financial condition.

If operating facilities are damaged, destroyed, or deteriorated due to fire, earthquake, or other causes, business operations may be hindered. While fire insurance covering all facilities is maintained, earthquake insurance is not maintained for economically rational reasons, and business performance may be affected in the event of earthquake damage.

At present, there are no borrowings subject to financial covenants, but depending on future financing conditions, new borrowings with financial covenants attached may arise. If such covenants are breached, business performance and financial condition may be affected due to increased interest rates, loss of the benefit of time, and other consequences.

The Group holds and manages a large amount of customers' personal information, and if an information leak occurs, it may result in claims for damages and a decline in sales due to loss of social credibility. While measures such as developing internal regulations, strengthening information system security, and conducting employee training are being implemented, complete prevention is difficult.

If an infectious disease outbreak such as COVID-19 occurs, restrictions on economic activity and voluntary restraint may force stores to close or shorten operating hours, and a decline in the number of customers visiting stores may affect business performance and financial condition. Given the business characteristic of primarily providing in-person services, there is a structural vulnerability to infectious disease risk.