LITALICO Inc.

The Employment Support Business and Child Welfare Business, which are based on the Comprehensive Support for Persons with Disabilities Act and the Child Welfare Act, derive their primary revenue from government-provided fees, and their performance is directly affected by fee revisions, which occur in principle every three years, and by amendments or abolition of laws and regulations. In addition, since designations are received from prefectural governors and other authorities on a per-facility basis, if a designation is revoked or business operations are suspended, this could result in deterioration of performance in the relevant segment as well as a risk of suspension of new store openings for a certain period. As a countermeasure, the Company has established a system to prevent misinterpretation of laws, regulations, and notifications by confirming appropriately with local governments.

The Company Group operates some facilities with over-capacity enrollment within a range that does not trigger fee reductions or designation revocation, relying on current local government operational practices and notifications. If, in the future, local governments change their operational practices or revise notification content such that over-capacity operations are no longer permitted, this could have a direct adverse impact on revenue in both the Employment Support Business and Child Welfare Business segments. The Company addresses this by advancing its business operations while confirming the interpretation of laws and notifications with local governments.

Through its facility services and platform services, the Company Group holds a large volume of personal information of customers and guardians, including names, addresses, and occupations, and there is a risk of information leakage due to unauthorized access, computer viruses, and similar causes. If a leak were to occur, it could give rise to liability for damages and loss of social trust, potentially having a material impact on performance. The Company works to prevent personal information leaks through the development of various regulations and internal education targeting all employees.

Support services for people with developmental and psychiatric disabilities rely heavily on personnel with specialized knowledge and instructional skills, and securing such personnel has become an urgent matter as new facilities are opened and platforms are built and operated. If the securing and development of personnel cannot keep pace with the speed of facility openings and service development, this could constrain business expansion and adversely affect performance. The Company addresses this through active recruitment and continuous personnel development via training departments established at the business unit level.

The Company relies on systems for core operations such as customer management, HR processing, and accounting, and if a system failure occurs due to unauthorized access, computer viruses, or similar causes, this could make business operations difficult and give rise to liability for damages. In addition, if revisions to billing systems cannot be completed in time for changes in laws or fee revisions, there is a risk of degraded quality of SaaS products and delays in billing for publicly funded services. The Company addresses this through operational monitoring and safety verification by the Information Systems Department and the operation of information management regulations.

In operating facilities for people with developmental and psychiatric disabilities, there is a risk of litigation arising from serious accidents or the worsening of users' conditions, and if the Company is found liable for negligence, this could affect its financial position and results of operations. In the event of an accident, there is also a possibility of losing customers or having designations revoked. The Company has established accident prevention and emergency response systems through education and training for all employees and the development of manuals.

In the disability welfare services industry, performance tends to be strongly influenced by the quality of personnel, and the Company Group's recruitment capabilities and personnel development know-how are considered difficult to replicate in a short period of time. However, if competitors expand their businesses or new entrants increase, this could adversely affect the Company Group's performance. The Company positions the continuous strengthening of its recruitment capabilities and personnel development know-how as a source of competitive advantage.

If the value of fixed assets such as tangible fixed assets, software, and goodwill declines due to reduced profitability or other factors, it may become necessary to recognize impairment losses, which could adversely affect the Company's financial position and results of operations. In addition, if relocations or renovations of existing facilities due to aging or other factors are concentrated within a certain period, the resulting costs of retiring fixed assets could affect performance.

The Company primarily procures working capital and capital expenditure funds for new facility openings through borrowings from financial institutions, and if interest rate levels fluctuate or funds cannot be procured as planned, this could affect performance. In addition, foreign currency-denominated items in the Overseas Business are also exposed to foreign exchange rate fluctuation risk.

The Company Group's business is founded on collaboration with customers, families, employer companies, government agencies, educational institutions, medical institutions, and local residents, and if employee misconduct occurs or unfavorable rumors spread, this could have a material impact on performance and financial position. The Company addresses this by thoroughly implementing employee education aimed at instilling its mission and vision and raising awareness of compliance.