LEOCLAN Co.,Ltd.

In the Medical Total Solution Business, the Company operates by obtaining numerous licenses and permits, including licenses for the sale and rental of controlled medical devices under the Act on Pharmaceuticals and Medical Devices, licenses for the general sale of poisonous and deleterious substances, and specific construction business licenses. If a violation of licensing requirements or related laws occurs at a business site, the relevant license or permit could be revoked, potentially having a material impact on business performance. While there has been no history of denial or revocation of licenses to date, the importance of regulatory compliance is particularly high because many of the handled products are controlled medical devices.

Comprehensive Medical Equipment Sales (Total Pack System), which accompanies new construction, relocation, or reorganization of medical institutions, involves large amounts and concentrated sales timing, causing significant skew in monthly and quarterly sales. Due to the fiscal year timing of client medical institutions, sales tend to concentrate in March and September each year; in the 25th fiscal year, there was a large divergence between second-quarter sales of ¥9,769,095 thousand and first-quarter sales of ¥3,171,222 thousand. As a result, it is difficult to assess the full-year outlook based solely on performance in a specific quarter, creating a risk that complicates investors' evaluation of business performance.

The core Medical Total Solution Business depends on demand for relocation, new construction, and renovation/expansion of medical institutions, and orders for large-scale projects—and thus business performance—may fluctuate depending on trends in medical administration, health and welfare budgets, and construction costs. In addition, when the schedules of large-scale projects overlap, there are limits to the allocation of dedicated personnel, which could constrain business expansion. Changes in demographics and disease structure, as well as reviews of the medical system, may also affect business strategy and operating results.

Amid the continuation of an unstable international situation, the progression of yen depreciation, and price increases stemming from the global surge in resource prices, there are concerns about the impact on business performance if the prices of medical equipment and other handled products rise sharply. In addition, soaring construction costs may suppress trends in relocation, new construction, and renovation/expansion of medical institutions, potentially reducing opportunities to receive orders for large-scale projects. These changes in the external environment could affect both the cost structure and demand of the Group.

The Group manages customers' personal information and confidential information on information systems, and although safety management measures are in place, if information leakage, tampering, or loss occurs due to system failure or unauthorized intrusion, it could affect business performance. In particular, in the Remote Diagnostic Imaging Service Business, patients' medical information is included in radiology department information management systems and electronic medical records; if an incident occurs that violates the Act on the Protection of Personal Information, it could lead to damages lawsuits or the suspension of transactions with business partners. Because the Group handles highly sensitive medical data, maintaining and strengthening the information management system remains an ongoing challenge.

Founder Shogo Sugita has played an important role in determining management policy and strategy and in promoting business operations. Koji Takeuchi assumed the position of President and Representative Director effective October 1, 2024, and the Company is working to build a management structure that reduces dependence on a specific individual; however, if for any reason Mr. Takeuchi becomes unable to continue executing management duties, it could affect business performance and business development. The development of a succession framework is ongoing, and governance risk during the transition period remains.

The consulting operations of the Medical Total Solution Business are highly specialized, requiring particularly significant time to develop personnel and accumulate know-how; business performance may fluctuate if there are difficulties in securing and developing personnel, or if existing personnel leave the Company. When the schedules of large-scale projects overlap, there are limits to the allocation of dedicated personnel, which could also constrain business expansion. Establishing a system for recruiting, retaining, and developing personnel is key to business growth.

In the Remote Diagnostic Imaging Service Business, if a diagnostic error by a contracted physician occurs, there is a risk of being subject to a damages lawsuit. In addition to litigation-related costs, a decline in social credibility could lead to the loss of business partners and difficulty acquiring new contracts, potentially affecting business performance. Because the accuracy of medical information directly relates to patients' lives and health, maintaining a quality control system is essential.

If food poisoning or similar incidents occur in the Food Service Business, the Company could be required to pay substantial damages, and a decline in social credibility could affect business performance. In addition, if specialized personnel such as registered dietitians, dietitians, and cooks cannot be secured, business development itself could be hindered. Given the nature of food services provided to medical institutions, inadequate hygiene management could directly harm patients' health, making this risk particularly significant.

If the Company violates the fair competition code established by the Fair Trade Council of the Medical Device Industry (jointly certified by the Commissioner of the Consumer Affairs Agency and the Fair Trade Commission based on the Act against Unjustifiable Premiums and Misleading Representations), it could be subject to penalties such as fines. In addition to such penalties, a decline in credibility could lead to the loss of business partners, affecting business performance. This is a form of self-regulation unique to the medical device industry, and thorough management of matters such as the provision of premiums in sales activities is continuously required.