Cross Marketing Group Inc.

The Group's businesses are based on the internet, and if communication networks are severed or servers become inoperable due to natural disasters, accidents, unauthorized access, or other causes, business operations may become impossible. In the event of a failure, in addition to direct damage, this could lead to a decline in trust in the systems, potentially resulting in customer attrition or termination of business relationships. Such failures are recognized as a risk that could have a material impact on the Group's business performance.

The Group actively engages in M&A and other transactions, and while future stable earnings capacity is fully considered at the time of acquisition, an impairment loss on goodwill may arise if earnings do not materialize as planned. The occurrence of an impairment loss would have a direct impact on the Group's financial position and business performance. In particular, as the Group promotes its M&A strategy including overseas expansion, there is concern that the absolute amount of this risk may expand along with the increase in goodwill balances.

In the Digital Marketing Business, Data Marketing Business, and Insight Business, there has been a continuous stream of new entrants and expansion by operators offering similar services, partly due to low entry barriers. In the Data Marketing Business and Insight Business, industry consolidation including M&A is proceeding in response to the growing scale of research projects and price competition, and the competitive environment is expected to intensify further going forward. If performance does not proceed as planned and the Group is unable to respond efficiently, this may affect the Group's business performance.

In the Data Marketing Business and Insight Business, personal information of survey respondents is obtained, and in the event of an information leak, there is a risk of loss of social credibility and legal liability. As countermeasures, Cross Marketing Inc., Research Panel Inc., and Medilead Inc. have become accredited operators under the Privacy Mark system, and have established appropriate systems for the acquisition, management, and operation of such information. However, it is difficult to completely eliminate the risk of information leakage due to cyberattacks or internal misconduct.

The Group is actively pursuing business expansion into overseas markets, and a wide range of risks exist depending on regional characteristics, including business risk, intellectual property rights risk, and foreign exchange risk. If unforeseen political, economic, or social developments occur in each country, this may have a significant impact on business performance. While the Group proceeds with overseas expansion after conducting sufficient verification and establishing organizational structures to minimize risk, uncertainty cannot be completely eliminated.

Since the financial statements of overseas subsidiaries are prepared in local currencies, fluctuations in exchange rates at the time of yen conversion for consolidated financial statement preparation may affect the Group's financial position and business performance. Going forward, as foreign currency-denominated transactions increase, if a significant gap arises between initially assumed rates and actual market rates, there is concern that the impact on business and performance could expand further. With the acceleration of overseas expansion, the significance of this risk is expected to increase.

In the Data Marketing Business and Insight Business, the Group primarily uses registered monitors of its affiliate, Research Panel Inc., and currently the Group uses these monitors exclusively. Although the Group has built a relationship of trust with Research Panel Inc. and its parent company, CARTA HOLDINGS, Inc., through business and capital alliances, if for some reason the use of registered monitors becomes difficult, this could hinder business continuity and affect performance.

The Group recruits personnel with an emphasis on specialized skills and interpersonal relationship-building ability, and considers the enhancement of training and evaluation systems to be an important policy measure. However, if competition for talent intensifies due to improving economic conditions, or if human resource development does not proceed smoothly, business growth may be hindered. In the knowledge-intensive marketing research business, human resources are fundamental to competitiveness, and failure in recruitment and retention could affect medium- to long-term business performance.

Each business operated by the Group is subject to rapid changes in commercial technologies and industry standards, and changes and diversification of user needs are also anticipated. If the Group fails to respond appropriately and in a timely manner to such changes, its competitiveness within the industry may decline, potentially affecting business performance. Continuous technology investment and service innovation are required across the Digital Marketing, Data Marketing, and Insight business areas.

The Group is pursuing M&A and the establishment of new subsidiaries, primarily overseas, to achieve sustainable growth, and since funding is obtained through internal funds or borrowings from financial institutions, the balance of borrowings may increase. If there are changes in significant affiliated companies due to M&A or other transactions, this may affect the Group's financial position and business performance. An increase in financial leverage also carries the risk of a greater interest payment burden in a rising interest rate environment.