JSS CORPORATION

According to the Ministry of Internal Affairs and Communications' population estimates (as of April 1, 2026), the child population aged 0-14 stands at 13.3 million, or 10.8% of the total population, marking a new record low. Membership fees and contracted service fees, which account for 92.7% (¥7,918 million) of the Company's net sales, rely heavily on child members, who represent 88.4% of the membership base, making the progression of the declining birthrate a direct risk factor for acquiring new members. Although the Company is implementing measures such as shifting adult members to school memberships and various other initiatives, the structural decline in the child population poses a risk that threatens the medium- to long-term revenue base.

Customers of the Swimming School business are general individual consumers, and factors such as economic downturns, changes in employment conditions, spending restraint due to consumption tax increases, and reduced leisure time resulting from reviews of relaxed education policies affect membership numbers and membership fee revenue. Since 92.7% (¥7,918 million) of net sales consist of membership fees, contracted service fees, and extracurricular activity sales, changes in consumer sentiment directly impact business performance. Although the Company seeks to differentiate itself through community-based, education-focused management, the risk of fluctuations in the macroeconomic environment cannot be eliminated.

Against the backdrop of heightened health consciousness, entry into the fitness industry from other sectors and expansion of multi-store operations are progressing, intensifying the competitive environment. If a competing facility opens within the area of one of the Company's facilities, a decline in sales and cost increases from higher advertising and sales promotion expenses could worsen profitability, and in the worst case, could force the withdrawal of a facility. The Company seeks to differentiate itself through a strategy focused on swimming schools, community engagement, and education, but the risk of competitor entry remains ongoing.

Operating swimming schools requires substantial consumption of electricity and fuel for pool water temperature control, air conditioning, and shuttle bus operations, resulting in a high proportion of energy costs within business expenses. If electricity rates or fuel prices rise, the resulting cost increases will directly pressure business performance. Although the Company works to manage costs, since energy prices are subject to external factors, the risk of deteriorating profitability during periods of price increases is high.

As of the end of FY2026 (ending March 2026), interest-bearing debt stood at ¥2,075 million against total assets of ¥7,340 million (28.3% of total assets), with capital expenditures for new store openings primarily funded through financial institution borrowings. As business expansion continues, the outstanding borrowing balance may increase further, and if interest rates rise or financial institutions change their lending policies, the financial burden would increase. There is a risk that changes in financial conditions could affect funding costs and business continuity.

The Group holds fixed assets such as buildings at its business locations, and if a decline in profitability due to reduced membership or other factors makes investment recovery unlikely, recognition of an impairment loss would be required. In addition, a decline in the market value of idle assets held by the Company could also be a factor triggering impairment recognition. Should an impairment be recorded, it could have a significant, temporary impact on performance for the fiscal period in question.

The balance of leasehold and guarantee deposits at the end of FY2026 (ending March 2026) stood at ¥709 million, and if doubts arise regarding recoverability due to deterioration in a lessor's financial condition, this could result in the recognition of an allowance for doubtful accounts or a bad debt loss. In addition, leasehold and guarantee deposits totaling ¥232 million across 22 properties are not fully refundable upon early termination, and losses would be confirmed if such contracts are terminated before their expiration. As long as the Company continues its store expansion strategy based on lease agreements, this risk remains ongoing.

The establishment and operation of swimming schools require permits and licenses based on laws such as the Fire Service Act, the Building Standards Act, and the Septic Tank Act, as well as local ordinances, and if business permits are not granted or approvals are delayed, the Company may be forced to revise its store opening plans. In addition, compliance is required with the guidelines of the Ministry of Education, Culture, Sports, Science and Technology, the Ministry of Land, Infrastructure, Transport and Tourism, and the Ministry of Health, Labour and Welfare regarding pool safety and hygiene, and violations carry the risk of administrative sanctions such as business suspension. The Company has established a Risk Management Committee to ensure thorough legal compliance, but increased costs due to regulatory tightening are also anticipated.

Securing specialized personnel for swimming instruction is essential to business expansion, but if the Company is unable to secure and train excellent personnel as planned through both new graduate and mid-career hiring, this could lead to a decline in service quality and delays in business expansion. The Company has stated a policy of focusing on new graduate recruitment, mid-career recruitment, and education and training, but the risk that intensifying competition in the labor market will make securing personnel difficult remains ongoing.

The Group holds members' personal information, including names, addresses, and phone numbers, and if an information leak occurs due to unauthorized external access or inadequate internal management, this could affect business performance through damage claims and loss of social credibility. In addition, if an accident, food poisoning, or food allergy incident occurs at a business location or during extracurricular activities, a serious accident exceeding the coverage amount of liability insurance would result in a direct financial impact as well as reputational damage risk. The Company has implemented measures such as establishing personal information protection regulations and taking out liability insurance, but such risks cannot be completely eliminated.