CAVE Interactive CO.,LTD.

Due to the rapid evolution of smartphone and tablet device hardware and browsers, the forms of content and services accepted by the market continue to change. If the Group is unable to appropriately respond to such changes in the business environment, the competitiveness of existing services may decline, potentially adversely affecting future business performance. The risk of technological obsolescence exists in both PC games and mobile games.

The businesses operated by the Group have low barriers to entry, with numerous operators offering similar services and a continuous stream of new entrants. Competition is particularly fierce for smartphone native games, as all games are provided within the same environment on the "App Store" and "Google Play," and business performance is heavily influenced by the popularity of the games offered. In addition, since the Group's businesses are not protected by patents or similar rights, it is difficult to maintain a competitive advantage.

With the growing penetration of smartphones and tablet devices, the Group has been actively rolling out content for smartphones in an effort to capture new revenue opportunities. However, billing mechanisms and user trends in mobile content usage change on a daily basis, and if customer acquisition or billing does not proceed as anticipated, this may affect future business performance. While the entire world serves as the target customer base, how the Group responds to changes in the market significantly influences business performance.

The Group's businesses depend on internet connectivity, and there is a risk that services may be suspended due to natural disasters, accidents, increased server load from concentrated access, or defects in hardware or software. In addition, unauthorized external access, virus infection, or human error on the part of personnel may cause system disruptions. Should such failures occur, in addition to direct damages, they may lead to a loss of trust in the system, potentially affecting future business performance.

The Group has implemented measures to protect personal information, including strict management of IDs and passwords and restriction of access privileges, and to date no leakage of personal information has been identified. However, if personal information were to be leaked due to unauthorized external access or other causes, this could result in claims for damages and loss of social trust, potentially having a material impact on future business performance. Although the Group strives to ensure thorough awareness of information management among all officers and employees, this risk cannot be completely eliminated.

The Group's content business depends on contracts for the licensing of copyrighted works and business cooperation, as well as permission to use copyrights and related rights granted by rights holders. If a rights holder refuses to continue, changes, or terminates a contract, independently pursues a similar business initiative, or if the Group fails to secure high-quality licensed content, this may affect operating results and future business development. In addition, some contracts obligate the Group to pay minimum guaranteed royalties, which may become a financial burden.

Currently, there are no legal regulations that directly regulate the Group's business activities. However, if legal regulations targeting internet and digital content-related operators are established in the future, this may affect the Group's business activities. Depending on the content, scope, and timing of implementation of such regulations, changes to the business model or additional costs may be required.

The Group recognizes the need to strengthen its workforce with appropriate personnel in line with business expansion, and is working to secure experienced personnel capable of immediate contribution through mid-career hiring. However, if the Group is unable to secure necessary personnel in a timely manner, or if core employees leave the company, this may disrupt business operations and affect future business performance. Where dependence on specific personnel is high, the departure of such individuals can have a significant impact on business continuity.

The Group considers and executes business growth and expansion through M&A and business alliances both domestically and overseas, conducting detailed due diligence on target companies. However, if issues not identified during due diligence arise, if relationship-building does not proceed as planned, if anticipated synergies are not realized, or if an alliance is dissolved, the Group may be unable to recover profits commensurate with the funds, time, and other resources invested. The execution of M&A involves financial risk and may affect future business performance.

The Group depends on payment platforms provided by payment agency service providers for the collection of service usage fees and sales proceeds. If a payment agency service provider changes its business policy, or if its relationship with the Group deteriorates, this may disrupt the means of collecting payments and affect future business performance. Although the Group currently maintains good relationships with such providers, dependence on external operators remains a risk factor.