Lovable Marketing Group, inc.

The Company has adopted a stock option system aimed at providing incentives to directors and employees, and is considering continued use of this system going forward. In addition to the stock acquisition rights currently granted, if stock acquisition rights to be granted in the future are exercised within the exercise period, the value of shares held by existing shareholders may be diluted. The likelihood of occurrence is assessed as high, making this one of the financial risks that investors should be aware of.

Changes in algorithms, API provision policies, or advertising-related terms of major SNS platforms such as Instagram, Facebook, and X may restrict marketing methods that were previously available. The Group's revenue composition is highly dependent on the digital marketing domain centered on SNS, and there is a risk that platform-side developments directly affect business performance. Although the Group monitors market trends as a countermeasure, a delayed response to change could have a material impact on competitiveness and business performance.

In providing its services, the Group acquires personal information of customers, service member users, and SNS users, and in the event of unauthorized external access or an internal information leak, this could result in damages claims, administrative measures, and a decline in credibility. While the Group is strengthening the development and operation of its information management system across the entire group, including subsidiaries added through M&A, the complexity of management is increasing as the number of subsidiaries grows. Deficiencies in compliance with the Personal Information Protection Act and other related laws and regulations could also affect business performance.

The Group's transactions are strongly influenced by clients' advertising and marketing budgets, and there is a structural tendency for public relations and advertising budgets to be relatively reduced during economic downturns. If economic conditions deteriorate beyond expectations, this could have a significant impact on the Group's business results and financial position. While the Group gathers information on economic trends and changes in the market environment, fundamental countermeasures against sudden changes in the external environment are limited.

The Group has a structure in which part of its operations are received via orders through major advertising agencies, and a decrease in orders from a specific agency could affect its business results and financial position. In addition, the Group's revenue composition remains highly dependent on the digital marketing domain centered on SNS, and a slowdown in growth in this domain poses a risk that directly affects overall business performance. While the Group is working to diversify its revenue sources through M&A and new service development, if these initiatives do not proceed as planned, the dependence risk may not be sufficiently reduced.

Legal frameworks concerning the collection and use of social media data may continue to change in the future, and the enactment of new laws or amendments to existing laws could restrict the methods of information collection and provision in the Group's service delivery. In addition, uncertainty regarding the legal interpretation of copyright, portrait rights, and trademark rights related to content creation using generative AI is also increasing, posing a risk that changes in the legal environment surrounding digital advertising could affect business activities. While the Group gathers information on these developments, the impact on business would be significant if regulatory tightening materializes.

While the SNS marketing domain continues to grow, new entrants and service diversification are actively progressing, and if competitors develop more advanced tools or price-competitive services, the Group's competitive advantage could decline, affecting business performance. The Group seeks to differentiate itself through its track record of operations since the early days of the industry, in-house developed tools, operational support systems, and risk management as strengths, but the competitive environment is becoming increasingly severe as new marketing support tools utilizing generative AI actively enter the market.

The Group's business requires personnel with deep understanding of the SNS and digital domain and advanced specialized skills, and the importance of personnel with the literacy to utilize new technologies such as generative AI is also increasing. If the Group is unable to secure the necessary personnel as planned, or if existing personnel leave for other companies, this could become a factor limiting competitiveness and business expansion. While the Group is working on internal training, knowledge sharing, and establishing flexible working systems such as remote work, competition for hiring digital talent is intensifying across the industry as a whole.

The rapid spread of generative AI technology has led to the rise of content creation, marketing automation, and automated operation services, which may compete with the Group's core businesses. If client companies increasingly use generative AI and various marketing tools to bring operations in-house, outsourcing demand may decline, posing a risk to the revenue model. While the Group is promoting product development utilizing generative AI and internal efficiency improvements, a delayed response to the speed of technological innovation could lead to a decline in the value provided.

The promotion of the M&A strategy has increased the number of consolidated subsidiaries; in FY2026 (ending March 2026), Elmarke Inc. and Rice Curry LS Inc. were made consolidated subsidiaries, further increasing the importance of maintaining and strengthening group-wide governance, internal controls, information management, and compliance systems. If post-merger integration (PMI) with acquired companies does not proceed smoothly, the realization of anticipated synergies may be delayed or may not materialize. While the Group is establishing a dedicated M&A team, strengthening its administrative departments, and standardizing subsidiary management, if these efforts do not proceed as planned, business performance could be affected.