Gunosy Inc.

The Group's revenue base depends on internet advertising, and since the advertising market is sensitive to corporate economic trends, there is a risk that sudden economic changes could reduce advertising demand. In addition, continued competition with other media such as television means that changes in the market environment could directly affect business performance. As a countermeasure, the Group continuously monitors market trends, but structural vulnerability to changes in the external environment remains.

The entry of new competitors with strong capital resources and brand recognition may intensify competition, leading to user attrition and increased user acquisition costs. Depending on the situation of competitors and competing services, it is uncertain whether the Group can maintain its competitive advantage, which could make it difficult to maintain and enhance corporate value. Specific countermeasures are not detailed in the Annual Securities Report at this time.

The Group's business is centered on smartphone applications, making dependence on the Apple Inc. and Google Inc. platforms a critical precondition for its business. Changes by either company to terms of use, search algorithms, or business strategy could directly affect the Group's app distribution and revenue model. The Group's available responses to decisions made by these platform operators are limited.

The pace of technological innovation in internet-related markets is rapid, and in particular the swift advancement of Generative AI and large language models (LLMs) is having a major impact on the business environment and competitive structure. If new technologies emerge faster than anticipated, delayed response could relatively weaken the competitiveness of the Group's services. In addition, external regulations and social discourse concerning copyright, ethics, and privacy related to AI use could constrain business operations. The Group is addressing this through talent acquisition, monitoring of technology trends, and internal/external study sessions.

If a major natural disaster, cyberattack, human error, or failure at an outsourcing partner or another company's cloud service causes significant damage to systems, service outages or information leakage could occur, affecting business operations and performance. The Group continues to strengthen measures such as utilizing domestic and international data centers and cloud environments, distributing systems, building backup capabilities, and providing employee training, but risks such as access concentration exceeding expectations cannot be eliminated.

The Group holds some personal information of users through its services, and if such information is leaked externally due to intentional or negligent conduct by related parties, the Group could face legal liability, including damages claims. In addition, damage to service reliability could lead to user attrition, affecting performance. The Group addresses this through the use of highly reliable external servers and the establishment of personal information protection workflows, but complete prevention is difficult.

In addition to existing regulations such as the Unauthorized Computer Access Law, the Personal Information Protection Act, and the Copyright Act, the enactment of new laws targeting internet-related businesses, including internet advertising, or changes in the interpretation of existing laws, could constrain business operations and affect performance. Violations of laws such as the Pharmaceuticals and Medical Devices Act and the Food Sanitation Act, or regulatory changes affecting business partners (in food, cosmetics, health food, telecommunications, travel, etc.), could also spill over into the Group's advertising business. At present, there are no legal regulations considered to have a significant impact on business continuity, but continued monitoring of the regulatory environment is necessary.

The Group is pursuing M&A with the aim of securing stable cash flow and improving capital efficiency, but if, after integration, issues such as misalignment of management policy, talent attrition, or delays in system integration arise, the initially expected profitability and business contribution may not be realized. Goodwill and other intangible assets related to acquired companies may be impaired due to future changes in profitability, posing a risk to the Group's financial position. In addition, entering business areas not previously handled by the Group may give rise to new risks stemming from the laws, regulations, and competitive environment specific to those businesses.

The Group engages in external investment to capture high-growth fields with the aim of achieving discontinuous growth, but if the performance of investee companies deteriorates and valuation losses are recorded on held securities, this could affect performance and financial position. The Group makes investment decisions based on strict investment criteria and conducts monitoring and support according to the status of investees, but it is difficult to fully control changes in the business environment of investees.

The number of new users acquired and the user retention rate are extremely important factors for the Group's business, and if advertising and promotional measures do not proceed as planned, or if a decline in retained users occurs due to misjudged measures or troubles, this could affect performance. Since business plans are premised on retention rate estimates based on past results, there is an inherent risk of downside to performance if actual results diverge from these estimates. The Group seeks to maintain and improve retention rates through measures such as enhancing user convenience and enriching services, but the impact of changes in the external environment cannot be eliminated.