CROPS CORPORATION

The Mobile Communications Business is built on an agency agreement with KDDI, resulting in an extremely high dependence rate of 99.0% for procurement and 91.6% for sales (in the consolidated fiscal year under review). The agreement contains a clause allowing KDDI to terminate the contract with three months' prior notice, and changes in KDDI's management policy or a decline in its competitiveness could have a material impact on the Group's business performance. It has been disclosed that, at present, no factors have arisen that would impede continuation of the agreement.

Revenue in the Mobile Communications Business is structured to depend on sales commissions, work-related commissions, and line-related commissions received from KDDI. Since the amounts, applicable periods, and payment terms of these commissions are determined and changed based on KDDI's business policy, a significant change in terms would directly affect business performance. There is also a risk that commissions may not be paid due to an increase in customer cancellations within a certain period.

The Group has recorded a substantial amount of goodwill in connection with M&A activities, and while it judges that this appropriately reflects future earning capacity, an impairment loss would need to be recognized if changes in the business environment or other factors cause the assessed value of goodwill to fall below book value. Recognition of an impairment loss could have a material impact on the Group's business performance. While the Group strives to avoid such risks in advance as a countermeasure, it is difficult to fully address unforeseen circumstances.

With the Mobile Communications Business as a stable foundation, the Group's strategy is to actively pursue M&A and business alliances in new business fields to expand the scope of the Group's operations. Although the Group strives to avoid risks in advance, there is a possibility that expected results may not be achieved due to subsequent changes in market conditions or unforeseen circumstances. Failure to achieve expected results poses a risk of impacting business performance.

Agency operations in the Mobile Communications Business are regulated by numerous laws and guidelines, including the Telecommunications Business Act, the Act against Unjustifiable Premiums and Misleading Representations, the Antimonopoly Act, and the Secondhand Articles Dealers Act. Violation of these laws could result in loss of trust, claims for damages, or termination of agency agreements. The Group has obtained permits under the Secondhand Articles Dealers Act, and there is a risk that business suspension could be ordered in the event of falling under disqualification criteria or violating laws and regulations.

Securing excellent human resources is essential for the Group's stable growth, and the Group is also working to develop personnel capable of responding to changes in the working environment. If personnel shortages arise due to worsening retention rates or difficulties in new hiring, business performance could be affected. In the Staffing Business as well, if securing registered temporary staff does not proceed as planned, there is a risk of missing staffing opportunities.

If personal information is leaked or misused, business performance could be affected due to loss of social credibility and liability for damages. The Mobile Communications Business handles large volumes of sensitive personal information, such as customers' communication contract information, making the maintenance of information management systems an important issue.

An explosive outbreak of an infectious disease such as COVID-19 could lead to reduced willingness to open new stores, an increase in sublease contract cancellations, an increase in vacant properties, requests for rent reductions, and rent arrears or non-collectible rent. Tempo Innovation Co., Ltd. strives to prevent the risk of arrears through sales activities to successor tenants, early rent collection, and rent negotiations with landlords, but in the event of a large-scale, long-lasting pandemic, business performance and financial condition could be affected.

The Wholesale Business procures goods from overseas, primarily from China, and there is a risk that procurement may not proceed as planned due to changes in the political, economic, and social conditions of each region or trends in various regulations. In addition, significant fluctuations in exchange rates could raise procurement costs and affect business performance. Regarding inventory management, the Group is strengthening its subsidiary management system, including enhancing internal audits.

The Overseas Business operates in 11 countries, primarily in the Asian region, and unexpected changes in laws and regulations or political instability could affect business performance. In addition, because the business model presupposes cross-border mobility of personnel, if restrictions on worker movement due to the spread of infectious diseases or a pandemic persist over a long period, business performance could be materially affected.