Innovation Holdings CO.,LTD.

The Store Sublease Business, the Company's core business, focuses mainly on restaurant properties, and sudden fluctuations in economic conditions, land prices, real estate market conditions, the restaurant industry market, and financial conditions directly affect business performance. Because performance depends on market conditions in both the restaurant and real estate industries, a downturn in either industry could affect business performance and financial position. No specific hedging measures against particular external environmental changes are explicitly disclosed in the Annual Securities Report.

As of the end of March 2026, the balance of security deposits related to store properties was ¥7,887,689 thousand, representing a high concentration of 42.3% of total assets. If a lessor becomes bankrupt, insolvent, or subject to enforcement of a mortgage, a large amount of the deposits may become unrecoverable, potentially having a material impact on business performance and financial position. The Company manages this risk through credit investigations at the start of transactions and periodically thereafter, but the risk cannot be completely eliminated.

Under lease agreements with real estate owners, the Company is obligated to pay a fixed monthly rent regardless of whether a tenant is occupying the property, resulting in continuous vacant rent costs during periods when a store is unoccupied. If no tenant is found within a certain period, the Company proceeds with cancellation, which incurs additional cancellation costs and puts pressure on business performance. Although the Company's policy is to promptly attract tenants after new property acquisitions, there is a risk that vacancy periods could become prolonged depending on market conditions.

All 3,021 leased store properties (as of the end of March 2026) are concentrated in Tokyo and its surrounding areas. If a large-scale disaster such as an earthquake, tsunami, fire, or terrorist attack occurs, damage to or unavailability of properties could simultaneously materialize as an impact on business performance. In addition, a decline in consumers' desire to eat out due to a disaster could lead to a decrease in the number of prospective restaurant tenants, causing a sharp decline in demand for the sublease business. Because there is no geographic diversification, the structure carries a high degree of single-region risk.

The Store Sublease Business requires a high degree of difficulty in building property procurement routes and takes a long time to become profitable, so entry by other companies has so far been limited, giving the Group a competitive advantage. However, many major real estate companies exist in the industry, and if these companies undertake full-scale entry into this field in the future, competition could intensify and affect business performance and financial position. Although barriers to entry exist, there are limited means to completely prevent entry by major capital.

As of the end of March 2026, the parent company, Crops Corporation, held 56.8% (10,040,400 shares) of the Company's total issued shares, positioning the Group as a consolidated subsidiary. Currently, there is no competitive relationship or significant transactions with the parent company group, and the Company's independence is maintained; however, if a significant change in the relationship with the parent company group occurs in the future, it could affect the management of the Group. The parent company's representative director serves as a non-executive director of the Company, but parent company approval is not required for management decisions.

The Company is subject to regulation under the Secondhand Articles Dealer Act with respect to the sale of fixtures, and operates its business under a secondhand dealer license (No. 304360809505). Violations of laws and regulations or unforeseen legal amendments or new legislation could constrain business operations, and if the license were revoked for any reason, it could hinder business continuity. Although the Company states that no grounds for license revocation currently exist, this is recognized as a risk.

The sublease business for restaurant properties and other stores is operated based on the current legal framework, including the Civil Code and the Act on Land and Building Leases. If unforeseen changes to these laws occur, it could affect the business model and contract terms. Because the fundamental structure of the sublease business depends on this legal framework, the impact of legal amendments could directly affect business performance and financial position. No specific developments regarding legal amendments are mentioned in the Annual Securities Report at this time.

In the course of business operations, the Company obtains personal information of lessees, lessors, and others, and is subject to regulations such as the Act on the Protection of Personal Information. Although the Company has established information protection procedures and strives to manage such information, if information leakage occurs due to intentional or negligent conduct by related parties, it could result in claims for damages or loss of social credibility, affecting business performance and financial position. Detailed content of the information management system is not disclosed in the Annual Securities Report.

In the Real Estate Sales Business, the Company holds real estate for sale, and changes in market conditions could cause significant deviation from the original sales plan. If stagnation or the need to revise sales prices occurs due to deterioration in the real estate market, this could affect business performance and financial position through the recording of valuation losses, among other effects. Although the Company states that it conducts appropriate real estate management based on its sales plan, the risk of market fluctuations cannot be completely avoided.