AI CROSS Inc.

The SMS delivery service market is an oligopoly comprising four companies, including the Company's group, and a slowdown in market growth or a sudden shift in market share due to new entrants could affect business performance. In addition, the Company's group faces domestic and overseas competitors in each of its Messaging Service, AI-related Service, and Marketing Solutions Service businesses, and further intensification of the competitive environment is a concern. The Company's group addresses this by continuing to develop and provide services that leverage the technological capabilities and know-how it has accumulated.

A single major customer of the Messaging Service accounts for 12.5% of net sales, and a significant decrease in transaction volume due to changes in that customer's policies or other factors could affect business performance. In addition, the Company has entered into direct connection agreements with four major mobile phone carriers for the operation of the SMS delivery platform, and if it becomes difficult to continue an agreement with any of these carriers, or if SMS transmission unit prices are raised, this could have a material impact on business performance. At present, no factors that would impede the continuation of these agreements have arisen.

In industries utilizing AI technology, new technologies are developed and new services introduced frequently, resulting in rapid change, and if the Company's group is slow to respond to technological innovation, the competitiveness of its services could decline. In addition, if unplanned system investments become necessary to respond to new technologies, this could affect the business and business performance. The Company's group maintains a policy of continuously incorporating new technological elements, but the risk of delayed response cannot be eliminated.

Because the Company's business foundation depends on the internet, if a communication network outage occurs due to a natural disaster or accident, or if server downtime occurs due to access concentration, this could impede service provision. If unauthorized external intrusion or personnel error causes a significant impact on the system, in addition to direct damages such as claims for compensation, a significant impact on business performance is also a concern due to loss of trust. As countermeasures, the Company strives to strengthen security and build a stable operating structure through regular system backups and the use of external data centers.

The Company's group handles confidential information and personal information of client companies, and if an information leak occurs, it could result in loss of social trust and claims for damages, affecting the business and business performance. As countermeasures, the Company has obtained the Privacy Mark (valid until October 16, 2026) and ISO/IEC 27001:2022 (valid until August 28, 2027), and Roupe Co., Ltd. has obtained ISO/IEC 27001:2022+Amd 1:2024 (valid until October 27, 2028), and is appropriately managing and protecting information assets. However, if certification is revoked due to a significant certification violation, this could also affect the business and business performance.

The Company's group provides telecommunications services based on the Telecommunications Business Act, and unpredictable changes to or the establishment of new laws and regulations could affect business performance, and in the event of violations, there is a risk of license revocation. In addition, if a customer commits a legal violation in SMS delivery subject to the Act on Regulation of Transmission of Specified Electronic Mail, business improvement orders or penalties could affect the Company's business performance. Furthermore, in response to the new Freelance Act, which came into effect in November 2024, and the amended Act against Delay in Payment of Subcontract Proceeds, which comes into effect in January 2026, the Company is implementing appropriate contract execution and transaction management as well as training for officers and employees, but changes in legal interpretation and other factors may necessitate a review of business practices.

The Company's group has a policy of actively pursuing capital and business alliances and M&A for the purpose of expanding business scale and improving competitiveness, and depending on the acquisition price, this could result in increased amortization expenses or the recognition of valuation losses due to deteriorating business performance of alliance partners or investees. If the excess earning power of goodwill declines significantly due to changes in the management environment after an M&A transaction, impairment losses could occur, affecting business performance. As countermeasures, the validity and rationality of transactions are carefully deliberated at the panel of experts meeting and the Board of Directors, and the monitoring status after M&A transactions is also reported to the same body to identify risks.

Continuous and active software investment is an important issue from the perspective of ensuring competitiveness and improving profitability, but if investment recovery does not proceed as initially planned due to significant delays in development plans, increased development costs, or downward revisions to revenue plans, impairment losses could occur, affecting the business and business performance. As countermeasures, investments are made only after the validity and rationality of transactions are carefully deliberated at the panel of experts meeting and the Board of Directors, and regular monitoring is conducted after investments are made and reported to the same body, striving to avoid impairment risk.

The Company's group's CVC business focuses primarily on strategic returns through investments in startups in the communications business domain and female entrepreneurs, but if it is determined that investment value has been impaired due to deterioration in the financial condition of investee companies or other factors, impairment losses will need to be recognized, potentially affecting the financial position and business results. When making investments, detailed due diligence is conducted, and after investment, thorough regular monitoring of business progress is carried out to avoid risk, but the uncertainties inherent in startup investments cannot be eliminated.

The Company grants stock acquisition rights for the purpose of providing incentives to directors and employees, and as of the end of the current consolidated fiscal year, the number of potential shares was 293,200 shares, equivalent to 7.18% of the total number of issued shares of 4,083,850 shares. The Company may issue additional stock acquisition rights in the future to secure talented personnel, and if these are exercised, the total number of issued shares will increase, potentially diluting the value of shares per unit.