GENDAI AGENCY INC.

The majority of net sales depend on advertising demand from the pachinko hall industry, where regulations on advertising expressions, notification content, and notification methods are being tightened against the backdrop of measures against gambling addiction. If regulations are further tightened or the decline in the number of players and per-player spending accelerates, advertising demand within the market may decrease, potentially deteriorating business performance. As a countermeasure, the Company is developing customers in other industries, such as fitness facility operators, to reduce dependence on any particular industry.

Pachinko halls, the Company's major clients, are subject to regulation under the "Act on Control and Improvement of Amusement Business, etc." and prefectural ordinances, and industry associations also implement self-regulation. As measures against addiction problems, various restrictions have already been imposed on advertising expressions, notification content, and notification methods; if these are further tightened, advertising demand for the Company Group may decrease, potentially deteriorating business performance. Although the Company Group itself is not directly subject to legal regulation, the structure is such that tightening of regulations on its clients indirectly affects business performance.

In the internet advertising market, each advertising media may review its content placement standards and criteria for restricted industries through strengthened self-regulation. This poses a risk that part of the advertising services provided by the Company may become subject to usage restrictions, deteriorating profitability. The Company responds by flexibly exploring advertising methods that comply with each media's policies, but if self-regulation exceeds expectations, it may affect operating results.

In the internet advertising domain, services similar to those of the Company may be developed and launched by competitors. If this reduces the uniqueness or competitive advantage of the Company's services, it may adversely affect profitability. As a countermeasure, the Company continuously strengthens measures to enhance the added value of its services and differentiation strategies.

The rapid evolution of generative AI technology and its implementation in search engines may change internet users' website browsing behavior and search behavior. If this results in decreased impressions of display advertising due to fewer site views or decreased click counts for search-linked advertising, demand for advertising services provided by the Company Group may decline, adversely affecting profitability. As a countermeasure, the Company is focusing on developing new advertising methods suited to the AI era and creating high-value-added marketing support services leveraging its data analysis capabilities.

Against the backdrop of inflation-driven increases in raw material costs, rising labor costs, and rising energy prices due to the situation in the Middle East, procurement prices for advertising production materials, mainly paper media, are on an upward trend. While the policy is to appropriately pass these costs on to selling prices, price negotiations may become difficult due to deteriorating profitability among customers caused by factors such as naphtha shortages, and if the pass-through is insufficient, the Company Group's profitability may deteriorate, potentially affecting operating results. At present, it is difficult to calculate the specific amount of impact.

The sustainable growth of the Company Group depends significantly on human resources, and recruiting, developing, and improving the retention rate of necessary personnel is an important issue. If recruitment and development cannot proceed as planned, or if personnel turnover occurs, it may affect business performance. As a countermeasure, the Company is working to systematically recruit excellent personnel and create an environment conducive to their success through continuous improvement of its human resources system.