coconala Inc.

With the advancement and cost reduction of generative AI technology, there is a risk that some services provided within coconala's Skill Market could be directly substituted by generative AI, or that equivalent functions could be offered at lower cost. If user demand shifts toward alternative means utilizing generative AI, this could impair revenue opportunities and competitive advantage in the market. The Group aims to enhance business productivity and strengthen competitiveness by expanding AI utilization in stages, but if such efforts do not proceed as expected, this could have a material impact on business performance and financial condition.

Because transactions of intangible goods on "coconala Skill Market" are completed within chat rooms, there are structural limitations to comprehensively monitoring listed services and transaction content. If the monitoring system fails to function effectively, serious problems could occur or increase, undermining platform reliability and leading to user attrition. Although the Group has taken measures such as providing escrow functionality, assigning dedicated staff, and developing internal manuals, there remains a possibility that claims for damages could be brought against the Group as the platform operator.

There is a risk that services potentially in violation of laws and regulations such as the Financial Instruments and Exchange Act and the Act against Unjustifiable Premiums and Misleading Representations could be listed, such as fortune-telling services in the "Fortune-telling" category or informational products in the "Money, Side Business, Affiliate" category. Although the Group has established guidelines and a monitoring system based on legal reviews by attorneys, there are limits to the elimination of inappropriate services, and if a serious problem occurs, this could result in requests for stricter monitoring and listing standards or user attrition, potentially affecting business performance.

As the domestic skill-sharing market expands, new entrants may continue to emerge, and major overseas operators are also expected to make a full-scale entry into the Japanese market. Although the Group has established a category-leading position in terms of number of listings and reviews, intensifying competition could lead to higher user acquisition costs and a decline in market share, affecting business performance. The Group continues to respond by enhancing services from the user's perspective and implementing measures to raise brand awareness.

Continuous acquisition of new users and retention of existing users are essential to the Group's business growth, and there is a risk that business performance could stagnate if marketing effectiveness is insufficient or if services matching user needs cannot be secured. While the Group intends to carefully evaluate the cost-effectiveness of advertising activities, including TV commercials, there is no guarantee that the expected advertising effect will be achieved, and business performance could be affected if such activities do not lead to increased revenue or if advertising expenses beyond expectations become necessary.

"coconala Skill Market" holds personal information such as email addresses and is subject to the Act on the Protection of Personal Information. If personal information were to leak externally for any reason and be misused, this could damage the Group's social credibility as a company in addition to affecting business performance. Although the Group has established a management framework through personal information protection policies, internal regulations, and thorough employee training, complete defense against external threats such as cyberattacks is difficult.

The Group's smartphone applications depend on the platforms of Apple Inc. and Google Inc., and the ability to offer apps through these companies is an important precondition for the business. If these platform operators change their business strategies, or if app store policies or fee structures are revised, this could have a direct impact on the Group's business and performance. At present, securing alternative means is difficult, and this high degree of dependence constitutes a structural risk.

The Group is subject to numerous laws and regulations, including the Telecommunications Business Act, the Payment Services Act, the Consumer Contract Act, and the Act on Specified Commercial Transactions, and there is a risk that business activities could be constrained by future enactment of new laws or strengthening of existing ones. The sharing economy market remains immature, and there is a possibility of tightened regulation triggered by the development of legal frameworks or industry troubles. The Group works to improve industry soundness and contribute to policy proposals through participation in industry associations such as the Sharing Economy Association and the Creator Economy Association.

As a result of aggressive investment in human resources and advertising, the Group had tax loss carryforwards as of the end of the 14th consolidated fiscal year. If these loss carryforwards expire due to future tax reforms or the expiration of the carryforward period, the burden of corporate tax, inhabitant tax, and enterprise tax would increase, potentially adversely affecting net income/loss for the period and cash flow. Because the period during which loss carryforwards can be utilized is limited by statutory carryforward periods, there is a risk that the Group may not be able to fully enjoy the tax benefits depending on the timing of any earnings recovery.

The Group is a small organization with 5 directors and 266 employees, and Representative Director Ayumu Suzuki plays an important role in formulating management policy and business strategy. If he were to become unable to continue his duties, or if the Group fails to secure and develop capable personnel as planned, or if personnel attrition progresses, this could impair the effective functioning of the internal management and business execution systems, potentially disrupting business operations. While the Group has introduced an executive officer system to reduce dependence on a specific individual, given the small size of the organization, the impact of human resource risk remains relatively significant.