JOHNAN ACADEMIC PREPARATORY INSTITUTE,INC.

The domestic tutoring school market is shrinking due to the ongoing decline in the birthrate, while customer needs are becoming more diversified alongside education reforms and university entrance examination reforms promoted by the Ministry of Education, Culture, Sports, Science and Technology. This is intensifying competition further and may affect the Group's business results and financial condition. No specific countermeasures have been explicitly stated by the Group, but this is recognized as a structural challenge for the industry as a whole.

The areas where the Group operates schools have large numbers of students and high commuting convenience, resulting in a proliferation of group tutoring schools and private tutoring schools, as well as the possibility of new entrants from other industries. If intensifying competition causes market share to stagnate, this may affect business results and financial condition. As a countermeasure, the Group is pursuing differentiation by rolling out a new type of school format that combines group lessons and private tutoring with AI incorporated.

Since the Group's business expansion depends on increasing the number of schools and classrooms, there is a risk that business results will stagnate if suitable properties cannot be secured. In addition, in regions where brand recognition is low, forming a dominant presence may take time, potentially making expansion as planned difficult. Delays in securing properties or in regional penetration directly affect the revenue plan.

Providing diverse educational services to a range of customers from infants to working adults requires securing and developing high-quality personnel, including employees, instructors, and part-time staff. If personnel cannot be secured and developed as planned, this could lead to a decline in service quality and affect business results and financial condition. The Group recognizes personnel recruitment and development as an important issue, but specific details of countermeasures have not been disclosed.

The Group records tangible fixed assets such as schools and classrooms, intangible fixed assets such as learning systems, and goodwill arising from the acquisition of subsidiaries. If the profitability of a business falls short of planned values, an impairment loss may be recorded, which could have a material effect on business results and financial condition. In particular, since goodwill depends on the acquisition consideration, there is a risk that losses could materialize if the business environment deteriorates after an M&A transaction.

The Group has carried out M&A and business alliances aimed at expanding its business, including the early childhood education business, and maximizing corporate value. Although decisions are made following due diligence and deliberation by the Board of Directors, if previously unrecognized matters come to light after an M&A transaction, or if business expansion does not proceed as planned due to significant changes in the market environment or intensifying competition, this may affect business results and financial condition.

The Group handles a large volume of personal information on students, creating a risk of information leakage due to unauthorized external access or intentional or negligent actions by employees or related personnel. If security measures fail to keep pace with increasingly sophisticated and elaborate attacks, information leakage or service outages could occur, potentially affecting business results and financial condition. The Group continues to strengthen security within a reasonable scope, but it is recognized that complete prevention is difficult.

Internet-based services provided by the Group, such as the online learning material "Dekitas (Online Learning Material)," carry the risk that communication system failures could make stable service provision difficult. If a system failure occurs, resulting customer attrition and loss of trust due to service interruption could affect business results and financial condition.

If a natural disaster such as a large-scale earthquake, or an infectious disease such as a new strain of influenza or COVID-19, occurs on a scale far exceeding expectations, this could result in the suspension of in-person instruction and restrictions on accepting new students, potentially making it difficult to conduct classes over an extended period. A combination of factors such as power outages, transportation disruptions, and movement restrictions could have a material impact on business results. While the Group has put in place systems such as establishing a response headquarters, its ability to respond to disasters or pandemics of an unexpected scale is limited.

Education reforms and university entrance examination reforms promoted by the Ministry of Education, Culture, Sports, Science and Technology may require the tutoring school industry to change its instructional content and service formats. If the Group is slow to respond to such institutional changes, a mismatch with customer needs could arise, leading to a decline in competitiveness. The Group is addressing this by rolling out new types of school formats, but depending on the direction and pace of institutional reforms, additional investment and response costs may be incurred.