AppBank. inc.

The Group has recorded operating losses for nine consecutive fiscal years through the previous fiscal year, and recorded an operating loss of ¥170,888 thousand in the current consolidated fiscal year, giving rise to conditions that raise material doubt about the going concern assumption. As a countermeasure, the Group has raised funds through the issuance of stock acquisition rights and new shares (the 13th series: ¥721,622 thousand, the 15th series: ¥186,000 thousand raised by the end of the current consolidated fiscal year), securing ¥735,756 thousand in cash and cash equivalents as of the end of the current consolidated fiscal year. While the Group is pursuing improvements in business profitability and cost optimization toward achieving early profitability, uncertainty remains regarding the effectiveness of these measures.

The revenue base of the Media Business is heavily dependent on video platforms such as YouTube and Niconico, as well as the App Store and Google Play. Should the operators of these platforms change their management policies, business models, or fee rates, this could have a material impact on the Group's revenue outlook. In addition, the Group pays collection agency fees and system usage fees to Apple Inc. and Google LLC, and there is a risk of changes to these fee rates. The Group's ability to build alternative means is limited, and the structure in which its performance is influenced by the trends of platform operators continues.

Barriers to entry are low in the character business market and internet-related market, and new entrants have continued to appear, particularly in IP collaboration and YouTube-related businesses. If competition with rivals intensifies and the Group is unable to maintain its competitive advantage, this could lead to a decline in net sales and deterioration in profitability. As countermeasures, the Group is working to improve AppBank.net's content production capabilities and optimize operations through AI utilization, as well as strengthening its unique planning capabilities and sales structure in the IP & Commerce Business.

Representative Director and President Mitsuzo Shiraishi plays an extremely important role in both business activities and management activities, and should he become unable to perform his duties for any reason, this could have a material impact on the Group's business and performance. In addition, the trademark rights for "Max Murai" are registered in the personal name of founder Tomotake Murai, and if the license to use it were to become unavailable, this could also affect the business. The Group is working to strengthen its management structure and build a division-of-labor system through delegation of authority, but the dependency risk has not been completely eliminated.

The Group is subject to a wide range of laws and regulations, including the Act on the Protection of Personal Information, the Telecommunications Business Act, the Copyright Act, the Trademark Act, the Unfair Competition Prevention Act, and the Food Sanitation Act, among others, and its business could be constrained by the introduction of new regulations or changes in the interpretation of existing laws. There is also a risk of copyright infringement in video content (infringement by third parties and infringement against third parties), and should litigation or claims arise, this could affect the Group's business and performance. While the Group seeks to minimize risk through advice from lawyers and other specialists, the possibility of unintended infringement cannot be eliminated.

Regarding personal information of members and others, the Group has implemented security measures such as internal regulations based on ISMS standards, access authority management, strict management at external data centers, and firewalls; however, should information leakage occur due to unauthorized external access or internal error, there is a risk of reputational decline and claims for damages. In addition, should a system failure occur due to a natural disaster, unforeseen accident, or a sudden surge in access, this could lead to service outages or data loss/leakage. Since November 2020, the Group has switched to operating under its own internal regulations rather than obtaining external ISMS certification, and there is no assurance provided by external certification.

The video content of the Media Business relies on the performances of specific performers, and should a performer become unable to appear due to illness, accident, scandal, or other reasons, there is a risk that sales could decline due to a reduced ability to supply content. In addition, should the number of users decline due to changes in market conditions or user preferences, this could also lead to weak sales. While content planning and production is conducted in-house, disclosure of specific alternative measures to reduce dependence on particular performers is limited.

In the character business market and internet-related market, the pace of technological innovation and changes in customer needs are extremely rapid, and should the Group fail to respond in a timely manner when innovative technologies are developed, this could lead to a decline in competitiveness. In addition, should substantial additional system development costs be incurred in order to respond to new technologies, this could adversely affect the Group's financial condition. While the Group is promoting the introduction of the latest technologies such as data analysis, user trend research, and AI utilization, continuous investment is required to keep pace with rapid technological change.

The Group has adopted a policy of actively pursuing the launch of new businesses and services aimed at expanding the scale of its business and diversifying revenue sources, and profit margins may decline due to additional expenditures for organizational structuring, personnel recruitment, system investment, and advertising expenses. Entry into new markets involves many uncertain factors, and should development not proceed as expected, this could adversely affect performance. While the Group is pursuing expansion into new areas such as the Media Co-creation Planning Business, AI solutions business, and regional revitalization business, uncertainty remains regarding the outlook for monetization.

Due to the spread of social media and the persistence of information on websites, should reputational damage arise and spread through online posts or media coverage, this could affect the Group's brand appeal, performance, and financial condition. In addition, should video content be judged to contain socially inappropriate elements, this could affect the Group's business and performance through reputational decline. While the Group thoroughly enforces a policy of not publishing content that violates public order and morals or infringes on rights, it is difficult to completely eliminate cases that are subsequently judged to be inappropriate.