STEP CO.,LTD.

In Kanagawa Prefecture, where the Company operates, the population aged 15 is projected to decline from approximately 78,000 currently to approximately 72,000 by 2030, and a long-term contraction of the cram school market is expected. Although the Company aims to address this through share expansion, there is a possibility that the overall number of enrolled students will decrease. The declining birthrate is a structural risk that directly affects the cram school industry.

Numerous competitors exist in both high school and university entrance exam preparation, and there is a risk that if the Company's exam pass results decline significantly, or if competitors' pass results relatively improve, this could lead to a decrease in new enrollments or the withdrawal of enrolled students. Since exam pass results directly affect a cram school's ability to attract students, this could have a significant impact on business performance.

The Company's policy is to employ teachers in principle as full-time employees and develop them in-house. If personnel recruitment and development do not proceed as planned, or if a large number of teachers resign, this could hinder business operations. Since the quality and quantity of teachers directly affect service quality and classroom expansion, this personnel risk is a critical issue for business continuity.

Entrance examination systems and the Courses of Study change over time, with the university entrance examination system significantly revised in 2020 most recently. The Company has established a dedicated teaching materials development department to respond through creation of original materials, but if the Company is slow to flexibly respond to system changes, this could affect its business performance and other results.

The Company holds vast amounts of personal information, including that of enrolled students and their families, and there is a risk that if information leakage or unauthorized use occurs, this could result in loss of trust and legal liability. While no leakage incidents have occurred to date under the current security framework, unforeseen events could occur due to the rapid evolution of IT technology and its misuse. Although strict rules for collection, management, and use have been established, the risk cannot be completely eliminated.

The Company has established its own safety assurance guidelines in compliance with the guidelines of the National Cram School Association, and strives to maintain a safe and secure learning environment. However, if a situation arises in which the Company's management responsibility is called into question for any reason, this could affect its business performance and other results through reputational decline and increased related costs.

The Company's classrooms are concentrated in Kanagawa Prefecture and surrounding areas, and if a large-scale natural disaster such as a major earthquake or tsunami occurs, part or all of business operations could become difficult, and there is also a possibility of a significant decrease in new enrollments. Because the business model is regionally concentrated, there is a risk that a large-scale disaster in a specific region could directly deal a significant blow to the entire business.

If an infectious disease such as COVID-19 spreads and leads to school closures or similar situations, it becomes necessary to switch from in-person classes to online classes using tools such as Zoom. If a situation in which in-person classes cannot be conducted continues over a long period, this could affect business performance through delays in student recruitment, among other factors.

The operation of cram schools is subject to numerous laws and regulations, including the Act on Specified Commercial Transactions, the Consumer Contract Act, the Act on the Protection of Personal Information, the Act against Unjustifiable Premiums and Misleading Representations, and the Copyright Act. Violations could give rise to litigation risk such as claims for damages. While the Company has been building an organizational preventive framework to prevent exaggerated advertising and developing a copyright compliance manual, the possibility of future litigation cannot be completely ruled out, and this could affect its business performance and other results.

With the advancement of work-style reforms, there is a need to respond to the tightening of various labor laws and regulations, and the Company is proactively working to address this. Insufficient response could lead to legal risk and increased personnel and administrative costs, and this is an issue requiring ongoing attention for the Company, which adopts an employment policy centered on full-time employees.