TOSE CO., LTD.

In the digital content market, technological evolution and changes in user preferences are accelerating, and the pace of change in the market environment is increasing. If market development is hindered by unforeseen factors, this could have a significant impact on the business performance of the Group. The Group has established a system for continuously refining technology and analyzing trends to respond to this risk.

Rapid technological innovation is progressing, including the emergence of cross-reality technologies such as AR and VR, AI-utilizing content, and the transition and diversification of platforms. If it takes time to respond to these developments, it could lead to a decline in competitiveness and have a significant impact on business performance. The Group is continuously working to accumulate advanced and sophisticated technologies and know-how.

There are numerous competitors in the digital content business field, and if a competitor emerges that surpasses the Group's competitive advantages, requests from clients may decrease, significantly impacting business performance. The Group is differentiating itself through one of the largest domestic development structures capable of providing one-stop services from planning to development and operation, as well as through know-how and planning capabilities cultivated over many years.

The Group uses a revenue recognition method based on the percentage of completion for contract agreements. If an increase in work hours occurs due to specification changes or schedule changes attributable to the client, this could increase estimated costs and cause fluctuations in the percentage of completion, significantly impacting business performance. The Group has established and operates a system to improve the accuracy of cost forecasts and to check for abnormal values during project progress, but complete avoidance of this risk is difficult.

The development period for the Group's core game content is increasingly long, with some projects exceeding three years. There is a possibility of discrepancies between projections made at the planning stage and the actual development period. If unforeseen circumstances arise at the planning stage, such as additional specifications or changes in delivery dates, this could have a significant impact on business performance. The Group strives to minimize such impacts by avoiding large, comprehensive contracts and instead dividing them into multiple individual contracts.

Personnel with specialized skills, such as artists, programmers, and sound creators, form the foundation of the business. If, amid intensifying competition for talent, attrition occurs or recruitment and training plans are not achieved, this could have a significant impact on business performance. The Group is actively working to strengthen the recruitment of personnel with advanced technical and planning capabilities, as well as to develop and retain existing personnel.

The Group holds personal information and confidential information related to development and sales activities. If confidential information is leaked due to external threats such as unauthorized access, cyberattacks, or natural disasters, or due to human error or internal misconduct, this could lead to a loss of trust and claims for damages, significantly impacting business performance. In addition, if a system failure occurs due to computer viruses, ransomware, or similar causes, there is a risk of business suspension and damage to information assets. The Group has implemented measures such as installing anti-virus software, utilizing cloud services, and conducting security education.

A wide range of intellectual property rights, including copyrights, patents, trademarks, utility model rights, and design rights, are relevant to the business, and it is practically difficult to fully investigate and identify all third-party intellectual property rights. If the Group's content, technology, trademarks, etc. are found to infringe on third-party intellectual property rights, and royalty payments, injunctions, or damages are sought, this could have a significant impact on business performance. The Group conducts sufficient investigations regarding intellectual property rights, but complete avoidance is difficult.

The Group holds securities such as domestic and foreign stocks and bonds for the effective utilization of surplus funds. If the stock and bond markets, foreign exchange rates, or economic conditions fluctuate sharply, this could result in impairment or valuation losses on the securities held, significantly impacting business performance. Although the Group's policy is to manage assets safely and efficiently, market fluctuation risk cannot be completely eliminated.

The Group has subsidiaries in the Philippines (currently undergoing liquidation procedures) and the People's Republic of China, and the business activities of these subsidiaries may be affected depending on the policies and circumstances of the countries in which they are located and neighboring countries. In addition, the Group aims to expand transactions with overseas clients, and the circumstances and policies of the countries where clients are located may affect transactions, significantly impacting business performance. The Group strives to detect risks at an early stage by regularly monitoring local conditions, implementing proactive measures, and maintaining close communication with clients.