EDIA CO.,LTD.

The mobile internet services market is subject to rapid change, and there is a risk that demand for music- and publishing-related industries may decline due to domestic and overseas economic downturns or reduced consumer spending. The merchandise/music CD business of consolidated subsidiary Team Entertainment Co., Ltd. and the publishing/e-publishing business of Hifumi Shobo Co., Ltd. are significantly affected by domestic and overseas market trends as well as consumer preferences and purchasing behavior. Unexpected changes in the market environment may affect the Group's business performance and business development.

In mobile-related fields, new technologies and services are being developed on a daily basis, and smartphones and tablet devices are rapidly becoming more sophisticated and multifunctional. If the Group's response to such technological innovation is delayed, its competitiveness may decline, potentially affecting business performance and business development. Although the Group strives to expand its services, the rapid pace of change requires continuous adaptation.

In the entertainment services market, the pace of technological innovation and changes in customer needs is rapid, and various content services are being introduced one after another. If the Group fails to develop and provide attractive services and cannot differentiate itself from competitors, this could lead to a decline in the number of customers, potentially affecting business performance and business development. Although the Group strives to expand its services, intensifying competitive conditions remain an ongoing risk.

If an unforeseen event occurs at a platform operator, or if a service provision agreement with the Company is terminated due to a change in the operator's business policy, the Group may be unable to provide its services stably. In addition, changes in platform operators' standards regarding sexual or violent content may make it impossible to continue providing the relevant services. The Group's business is highly dependent on platform operators, and their behavior has a structural, direct impact on the Group's business performance.

If a system failure occurs due to a large-scale program defect, increased server load from a surge in access, or unauthorized access/information leakage such as cyberattacks, this could not only disrupt business activities but also undermine the reliability of the Group's services. The Group uses major cloud service providers and has implemented redundant backup management and enhanced security measures, but complete prevention is difficult. In addition, because the Group's business locations are concentrated in Tokyo, damage to facilities or restrictions on power supply caused by natural disasters such as major earthquakes or typhoons could also disrupt business activities.

The Group is subject to numerous laws and regulations, including the Act on the Protection of Personal Information, the Payment Services Act, the Act on Specified Commercial Transactions, and the Act against Delay in Payment of Subcontract Proceeds, etc. to Subcontractors. If these laws are strengthened or amended, or if new laws are enacted, the Group's business activities may be restricted. In particular, with the increasing number of minor users, if new regulations concerning the sale of paid items and content are enacted, this could affect business development and performance. The Group is working to foster a sound market environment through participation in industry associations (Computer Entertainment Supplier's Association) and information exchange with the Consumer Affairs Agency.

The Group collects personal information from service users, and if such information is leaked or misused due to unauthorized external access or misconduct by internal personnel, this could affect business performance and business development through monetary compensation for damages and deterioration of the Company's image. The Group has implemented measures such as establishing a personal information protection policy, setting database access permissions, and adopting security measures against external intrusion, but complete prevention cannot be guaranteed.

Competition for talent in the entertainment market is extremely intense, and if the Group is unable to secure necessary personnel in a timely manner, this could affect business performance and business development. In particular, the planning and production of content IP requires highly specialized know-how and networks, making it difficult to necessarily find substitute personnel; if officers or employees resign and suitable replacements cannot be secured, this could affect the performance of the relevant business. If personnel development does not proceed as planned, issues such as increased outsourcing costs and difficulty accumulating know-how within the Group may also arise.

The Company has granted stock options to officers and employees, and as of the end of the month preceding the filing date of this document, the number of potential shares from stock acquisition rights was 1,060,400 shares, equivalent to 17.1% of the total number of issued shares of 6,198,000 shares. If these stock acquisition rights are exercised in the future, the value of held shares may be diluted. The dilution rate of 17.1% is relatively high, raising concerns about the impact on existing shareholders.

The Group is pursuing measures such as M&A, the establishment of joint ventures, and business alliances to achieve further growth, but if these measures fail to produce the expected effects, this could affect business performance. The implementation of M&A and similar measures may also significantly change the business environment surrounding the Group. In addition, from the 27th fiscal period (March 1, 2025 to February 28, 2026) onward, when the Company's tax loss carryforwards are exhausted, corporate tax and other burdens will be based on the standard tax rate, which may significantly affect net income for the period and operating cash flow.