NexTone Inc.

In the music copyright management business market, JASRAC holds the majority share, and the Group's share remains limited. If the market size does not expand as expected due to structural changes in the entertainment industry, or if differentiation strategies (such as the Digital Content Distribution (DD) Business) fail to succeed, this could materially affect operating results. The Company is pursuing differentiation by promoting utilization and monetization businesses such as the DD Business.

The Company is a copyright and related rights management business operator registered with the Commissioner of the Agency for Cultural Affairs under the "Act on Copyright and Related Rights Management Business" (registration number 01005), and bears various obligations to trustors, users, and the Commissioner of the Agency for Cultural Affairs. If regulatory tightening or new regulations arise from amendments to laws, or if registration is revoked due to violation of Article 21 of the said Act, this could cause significant disruption to business continuity and materially affect the financial position, operating results, and cash flows. Currently, the Company strives to comply with laws and regulations, and no factors that would impede business continuity have arisen.

In the music distribution market where the Group operates, the market size may not develop as expected due to telecommunications carriers' policies, technological innovation, changes in consumer behavior driven by distribution platforms, and intensifying competition in the streaming market. In addition, as overseas platforms expand their market share, the impact of foreign exchange fluctuations also warrants attention, and deterioration in the external environment could affect operating results.

The Group continuously carries out strategic investments for growth, including new businesses, talent acquisition, system investments, and M&A. While the Group conducts financial, tax, and legal due diligence by internal and external experts and valuations by third-party evaluation institutions prior to executing investments, if the business environment changes rapidly after an investment or if the business does not develop as planned, this could affect the financial position and operating results.

The Group continuously makes system investments across its businesses and holds intangible fixed assets, including customer-related assets recognized upon the consolidation of RecoChoku as a subsidiary. Depending on the future cash flows generated by these assets, recognition of impairment losses may become necessary, which could affect business performance.

The Group's business depends on computer systems and the internet, and system failures may occur due to errors by officers and employees, sudden surges in access, or server hardware malfunctions. In the event of a failure, there is a possibility of reduced revenue for a certain period, loss of user trust, and damage to brand image. Although measures such as service monitoring systems and backups have been implemented, complete prevention is difficult.

The Group handles personal information of copyright holders, music users, users of music distribution services, indie artists, and others. Cyberattacks by malicious third parties could result in unauthorized acquisition of customer information, tampering with services, or loss of system availability. Although measures such as obtaining ISMS (ISO27001) certification at NexTone Systems, obtaining the Privacy Mark at RecoChoku, and establishing a check system by external security vendors have been implemented, if an information leak occurs, it could affect business and performance due to legal liability and damage to corporate image.

The occurrence of natural disasters such as major earthquakes or accidents may make it difficult to provide various services or may cause system failures. While efforts are made to prevent such events in advance and enhance availability through measures such as maintaining operational manuals, regular backups, and data management across multiple data centers, if a large-scale disaster occurs near the Company's location, damage to facilities or restrictions on power supply could disrupt business continuity and affect operating results and profitability.

If legal violations occur, such as service unavailability due to system failures, infringement of intellectual property rights, or information leakage, this could give rise to new litigation or liability for damages. If these risks materialize, they could have a significant impact on the financial position, operating results, and cash flows.

The Group has consolidated subsidiaries including RecoChoku and NexTone Systems, and the business environment, information security measures, and financial condition of each company could affect the performance of the Group as a whole. Risks such as impairment of customer-related assets recognized in connection with the consolidation of RecoChoku, as well as differences in information security measures among subsidiaries, could pose challenges for Group management.