FreakOut Holdings, inc.

Programmatic advertising transactions, the Group's primary revenue source, have come to account for a substantial share within the industry, but some media outlets have shown a return to non-programmatic advertising transactions, leaving uncertainty about future prospects. In addition, the overall advertising market is highly susceptible to economic conditions and changes in advertisers' strategies, and a slowdown in ad spending by clients in certain industries due to disruptions in international affairs (Middle East, Russia-Ukraine) has become apparent. As countermeasures, the Group is focusing on geographic diversification through overseas expansion and growth in businesses other than the Advertising Business.

In the programmatic advertising transaction field, multiple domestic and overseas competitors exist, and new entrants accompanying market expansion are expected to intensify competition and increase cost burdens. In the creator-related business operated by subsidiary UUUM Co., Ltd., multiple competitors also exist, and successive new entrants are anticipated as the market expands. UUUM claims competitive advantage through its know-how in managing top creators and its direction capabilities in business co-creation, but intensifying competition could have a material impact on business performance.

The Group manages content on YouTube and receives a fixed percentage of revenue based on a contract (CONTENT HOSTING SERVICES AGREEMENT) with Google LLC (formerly Google Ireland Limited), which forms the foundation of the video content business. This contract can be terminated early with 30 days' notice, and grounds for termination include bankruptcy or other insolvency, business transfer, and breach of confidentiality obligations. If the contract is terminated, it could have a material impact on the Group's business and results of operations.

If a creator with a popular channel suspends or ceases activities, or if their activities are affected by scandals or online controversies, this will directly impact the Group's business performance. Exclusive production contracts have a limited term, and there is no guarantee they will be renewed each time; failure to renew a contract could also affect business performance. Furthermore, there is a risk of lost opportunities due to concentration of projects on specific creators exceeding the maximum number of projects that can be handled.

In the internet-related field, in addition to existing laws such as the Act on the Protection of Personal Information and cookie regulations, the enactment of new laws and revisions to existing laws for stricter regulation are continuously being considered. Since the video distribution and creator-utilizing promotion businesses are new business models, issues may arise regarding the interpretation and application of the Copyright Act, the Act against Unjustifiable Premiums and Misleading Representations, the Act on Specified Commercial Transactions, tax law, and other regulations. If stricter regulations or changes in legal interpretation occur, this could affect the Group's business operations and results of operations.

In the internet and advertising industries, the pace of technological innovation and changes in customer needs is rapid, with new advertising methods and technologies being developed one after another. If the Group fails to respond appropriately to these changes, its competitiveness in the industry may decline, potentially affecting its business and results of operations. As a countermeasure, the Group continuously works to strengthen its development capabilities and expand its supplier base.

If systems go down due to unpredictable factors such as overload, power outages, software malfunctions, computer viruses, unauthorized external intrusion, or natural disasters, business activities may be disrupted. If system malfunctions or defects result in a loss of trust, leading to suspension of transactions or claims for damages, this could have a material impact on the Group's business and results of operations. As countermeasures, the Group is strengthening its systems and security for stable operation and establishing a rapid recovery system.

A significant portion of the Group's net sales comes from overseas subsidiaries, and excessive fluctuations in foreign exchange rates could affect its financial position and results of operations. Budget plans are prepared based on assumed exchange rates set at the beginning of the period, but the details of hedging measures against fluctuations exceeding these assumptions have not been disclosed. As overseas expansion increases, the significance of this foreign exchange risk may grow.

The Group positions M&A and capital and business alliances as effective means of business expansion and plans to continue pursuing them going forward. However, if issues not identified or anticipated during due diligence come to light after an M&A transaction is executed, or if business development does not proceed as planned due to changes in market conditions, impairment of the investment value of the target company may occur, affecting business performance and development. In addition, financial covenants attached to commitment line agreements may also affect business performance.

The Group holds personal information of creators and merchandise purchasers, among others, and if an information leak occurs, it could have a material impact on business performance due to the incurrence of damages compensation costs and loss of social credibility. While the Group has established management systems, including various regulations and manuals and thorough dissemination to employees, it is difficult to completely eliminate risks such as cyberattacks and internal misconduct.