Global Kids Company Corp.

The number of births in 2024 was 686,173, a decrease of 41,115 from the previous year, and the number of waitlisted children nationwide as of April 2025 also decreased by 313 year-on-year to 2,254, indicating a deteriorating external environment. Since the Group's revenue mainly fluctuates according to the number of enrolled children, failure to secure the projected number of children would directly affect business performance. Although the Group's concentrated development in Tokyo provides a relatively favorable environment for securing enrollment, there is a risk that future demographic changes could make this impact more pronounced.

Changes in policy by the national government or local authorities could lead to reductions in subsidies or the withdrawal of permission for corporations to open nursery schools. The main relevant laws and regulations include the Child Welfare Act, the Act on Support for Children and Child Rearing, and the Food Sanitation Act, and there is a risk that the enactment, revision, or abolition of these laws could constrain business activities. Since changes in the regulatory environment concern the fundamental basis of the business model, the impact on business performance could be significant.

The nursery schools operated by the Group are operated after obtaining licenses through review by each local government, and there have been no past instances of license revocation, nor are there currently any circumstances anticipated that would lead to revocation. However, if a license were revoked for any reason, or if licenses for new facilities could not be obtained, this could impede the continuation of facility operations and expansion plans, potentially affecting business performance. Since licensing is a prerequisite for business continuity, the significance of this risk is high.

No accidents that would have a significant impact on business performance have occurred to date; however, should a serious accident occur, the Group could receive a business suspension order from local authorities, or face litigation or reputational damage leading to a large number of children withdrawing from nursery schools or after-school clubs. Given the nature of childcare facilities, accidents are directly linked to loss of social trust, and there is a risk that the impact on business performance could be extensive. The Group states that it maintains a thorough system for ensuring safety.

Securing nursery teachers, instructors, and staff is an urgent priority for maintaining and improving appropriate childcare quality, and the Group is implementing various measures to strengthen recruitment and promote long-term employment, including enhanced new graduate hiring and the establishment of in-house training systems. If planned staffing falls behind schedule, this could cause delays in operational plans for existing facilities or opening plans for new facilities, potentially affecting business performance. Amid the ongoing labor shortage across the childcare industry, securing human resources could constrain business expansion.

In the event of an outbreak of infectious diseases such as novel influenza, norovirus, or COVID-19, a large number of nursery teachers, instructors, and staff could be absent from work simultaneously, making facility operations difficult. Although the Group implements infection control measures such as regular disinfection, the risk of infection spread cannot be structurally eliminated given the nature of group-based childcare facilities. Suspension or reduction of facility operations would lead directly to a decrease in revenue.

The balance of borrowings at the end of the consolidated fiscal year was ¥6,687 million, representing 33.3% of total assets. Since capital expenditure funds for past new nursery school openings have been procured through borrowings from financial institutions, a significant rise in interest rates could affect business performance through increased interest expenses. There is a risk that changes in the interest rate environment could directly increase the financial burden.

The Group groups assets on a per-facility basis, and if a facility's performance deteriorates significantly, or if there is no prospect of performance improvement even after a certain period following a new opening, an impairment loss is recognized to reduce the book value to the recoverable amount. Changes in the underlying assumptions of business plans or the operating environment could necessitate the recognition of impairment losses, affecting the Group's financial position and operating results. While the Group states that it conducts careful examination, responding to this could become difficult in the event of a sudden change in the external environment.

When a new nursery school is opened, enrollment among children aged 3 to 5 may not reach full capacity, which can result in operating losses for the first several years after opening. In addition, opening preparation costs are recorded as non-operating expenses, and the adoption of the surplus appropriation method results in a structure in which substantial depreciation expenses are recorded after opening. As a result of continued aggressive new openings, the impact on operating results had become significant; however, as the ratio of new facilities to total operated facilities declines, this impact is expected to ease going forward.

The Group may hold shares for the purpose of maintaining or strengthening business strategies and business relationships, and such holdings are implemented after prior examination of the target company's financial condition and risks. However, if it is determined after implementation that the initially expected results have not been achieved due to changes in the business environment or other factors, this could affect the Group's financial position and operating results through the recognition of impairment losses on intangible fixed assets such as goodwill or on investment securities, etc.