Terra Drone Corporation

While the industrial drone market is expected to grow significantly both domestically and internationally, changes in Japanese government policy or legal amendments in the countries where overseas subsidiaries are based may restrict business scope or slow growth. In addition, new entrants from other industries are accelerating their entry into this growth field, and intensifying competition may affect business performance. In response, the Company timely monitors government policy and related laws through lawyers and other experts, and diversifies its revenue-generating areas.

As the Group operates globally, changes in local laws or their interpretation in the countries of overseas subsidiaries may require securing additional personnel and incurring compliance costs to obtain new licenses/permits and establish legal compliance systems. Enactment, amendment, or abolition of regulations in each country, as well as changes in regulatory authorities' interpretation of laws, may alter the scope of business, operating costs, and risks, potentially affecting business performance and continuity. The timing of potential occurrence has not been specified.

The Company actively utilizes M&A to expand its business, but if unforeseen matters that were not anticipated prior to execution come to light afterward, or if business development does not proceed as planned due to changes in market conditions, this may affect operating results and financial position. There is also a risk of goodwill impairment associated with acquisitions of companies in nascent markets, which may affect financial position and operating results. In response, the Company conducts detailed due diligence, minimizes risk through staged capital contributions, and places emphasis on PMI (post-merger integration).

Major customers in the agriculture and UTM businesses are limited to major conglomerates and government bodies (aviation authorities). If a contract is awarded to another company instead of the Group, the likelihood of replacement is low given the nature of long-term contracts, resulting in a significant impact on business performance. The high barriers to entry conversely increase the Company's risk of losing contracts. The timing of potential occurrence has not been specified.

While the Company is developing its internal control systems in line with business expansion and employee growth, if appropriate personnel and organizational responses fail to keep pace, this may affect business performance. In particular, if recruitment of personnel with high business experience and technical capability does not proceed as planned, or if mass attrition occurs, this would constrain business expansion. Amid an anticipated shortage of DX personnel domestically, securing personnel to expand the flight operations management business is a challenge.

If a serious drone-related accident occurs, whether involving the Group or not, this may lead to a decline in social trust, resulting in reduced demand, tightened regulation, and slower market growth. If an aircraft manufactured by the Company crashes or otherwise causes damage to people or property, product liability compensation, recall costs, and loss of social trust may occur, potentially affecting business performance. The Company bears product liability for laser-related trouble.

Toru Tokushige, Representative Director and President, also serves as Representative Director and President of Terra Charge Co., Ltd., resulting in a division of his working hours and location. In addition, in key situations such as business alliances with major companies, capital contributions and financing, and personnel recruitment, there is a high degree of dependence on Mr. Tokushige's credibility, and if he becomes unable to perform his duties for any reason, this may affect financial position and operating results. In response, the Company has established a quarterly monitoring system through a voluntary nomination and compensation committee, and has delegated authority to executive directors and officers.

The Company actively pursues overseas business activities as a pillar of its global growth strategy, but international conditions, country-specific political and economic environments, risks in collection of accounts receivable, and unforeseen contractual issues arising during cross-border M&A execution may occur. While the Company seeks to reduce risk by avoiding dependence on specific regions, these events may affect financial position and operating results. The likelihood of materialization is high, and the timing of potential occurrence is considered medium-term.

The Group holds assets and liabilities denominated in local currencies in the countries of its overseas subsidiaries, and is affected by fluctuations in exchange rates, primarily the US dollar and euro. Fluctuations in the yen conversion rate used in preparing consolidated financial statements may affect operating results and financial position, and the Company has not implemented hedging measures such as forward exchange contracts. The likelihood of materialization is high, but the degree of impact is considered small, and short-term occurrence is anticipated.

As of the filing date of this document, the number of potential shares from stock acquisition rights is 1,591,300 shares, equivalent to 14.58% of the total of issued shares and potential shares of 10,911,000 shares. Continued use of the stock option system is anticipated going forward, and if stock acquisition rights are exercised, the value of held shares may be diluted. The likelihood of materialization is high, and short-term occurrence is anticipated, but the degree of impact is considered small.