Here is my English translation of the document from Cover Corporation concluding the question and answer session at its shareholder meeting:

July 20, 2023

To Our Shareholders:

Answers to Questions from the 7th Annual Shareholders Meeting

We would like to express our sincere gratitude for your continued support. Below please find a summary and answers to the questions received during the Q&A session at the 7th Annual Shareholders Meeting, as well as answers to questions submitted in advance.

1. Shareholders Meeting Related

Q: Regarding the first proposal, what are your thoughts on ensuring transparency in a virtual-only shareholders meeting?

A: With a virtual-only shareholders meeting, unlike the livestream of this year's meeting, voting rights can be exercised and questions and motions can be submitted on the day, in the same format as previous in-person shareholder meetings, so we believe shareholders' rights will not be compromised. We plan to answer questions submitted in advance on our website at a later date. Details such as whether the next meeting will be virtual-only are still undecided, but we will consider the opinions received in making our decision.

Q: Regarding the second proposal, please explain the appointment of Yoichi Wada.

A: Our company is currently developing sandbox-style games as part of our metaverse business. Sandbox games have elements similar to MMORPGs, and Mr. Wada has experience as the person responsible for developing and operating MMORPGs during his time at Square Enix. We believe he has important expertise that will benefit our development efforts. Also, from the perspective of "management during a period of business expansion," Mr. Wada has experience as an executive at Square Enix during a period of business expansion, so we believe he can provide helpful advice tailored to Cover Corporation's stage after going public.

Q: Regarding the second proposal, please explain the appointment of Shuhei Ueda.

A: Mr. Ueda has long experience as the representative of Gamepot Inc., where he was responsible for operating online games and managing game communities. We believe his expertise will be important for the development of our metaverse business. Mr. Ueda also serves as co-representative director of JOGA, but we do not believe this will have any particular impact on his appointment as director.

Q: I believe that in-person shareholder meetings are important for shareholders. Will you hold them in the future?

A: The annual shareholders meeting is a valuable opportunity to engage directly with shareholders, and as a company we want as many shareholders as possible to attend. While we are considering holding more open shareholder meetings by providing more opportunities for shareholders to participate and ask questions online, details such as the format and venue for future meetings are still undecided, so we must refrain from answering in detail at this time.

Q: Please hold the virtual-only shareholder meeting in a metaverse space.

A: No decisions have been made at this time, but we will consider your opinion as we plan for future meetings.

Q: Why were you unable to publish the answers to advance questions before the meeting?

A: We received more advance questions than expected, making it difficult to prepare answers in advance. We will publish answers to advance questions on our website at a later date and invite shareholders to contact our IR department if they have any additional questions. We will also consider publishing answers in advance for future meetings.

Q: What is the company's stance on meeting venue capacity and the lottery system?

A: Due to the concentrated schedule for shareholder meetings, we had to book the venue in 2022. At that time, the number of shareholders and the COVID-19 situation were unclear, so after consulting with external experts, we selected the venue. We sincerely apologize for the inconvenience and humbly ask for your understanding.

Q: Please confirm the number of shareholders who did not win the lottery to attend the shareholder meeting and the policy for how next year's meeting will be held.

A: There were around 580 applicants for the lottery. The format for next year is undecided, so we will notify you once a decision is made.

Q: The shareholder meeting excluding some people creates a negative image. Please be careful and take countermeasures.

A: We will keep your comments in mind as we plan future initiatives.

Q: Do you have any plans to insource the virtual-only shareholder meeting system?

A: Future meetings are still undecided. We will need to comply with the Companies Act, so we are considering using third-party tools as well as developing our own system.

Q: Why did you eliminate shareholder gifts at the shareholder meeting?

A: To avoid any perception of unfairness due to the lottery system, we decided not to provide gifts.

2. Business Related

Q: In times of stagnant performance, how do you view changes in strategy and other aspects of the company's growth strategy?

A: Our business is centered around our intellectual property (IP), but within that, we aim to pursue multifaceted initiatives that do not rely solely on a single media format. For example, recently our presence in the music field has been growing, and our product sales through non-EC retailers have also been expanding. We have also seen diversification in our customer base across dimensions like age, gender, and region, and going forward, we hope to capture an even larger market. The metaverse we are currently developing is another new business area we are preparing for, and by continuously updating our technology and content, we aim to achieve sustainable growth.

Q: Please explain the pace and strategy for future investments such as human capital investment related to intangible assets.

A: We believe it is necessary to continue actively investing in order to increase our brand value. Specifically, this includes R&D investments for technical improvements in service development and investments in creative staff to improve content quality. These investments will appear as software assets, number of employees, or personnel expenses in our financial reporting. For this fiscal year, we expect the pace of employee growth to be about the same as last year.

Q: How does the company view the future outlook for the VTuber market?

A: We believe the VTuber market still has room for expansion. It is still in the phase of increasing recognition among the general public, and together with competitor companies, we are in the process of carving out our respective positions in the market and growing the industry as a whole, rather than competing directly against each other.

Q: Are you considering consulting services that leverage your VTuber expertise?

A: In our case, we are concerned that consultant services and solution services do not directly strengthen our core competencies, and the businesses tend to be labor-intensive. We currently do not envision pursuing them.

Q: How do you see the impact of macroeconomic risks like inflation and currency fluctuations in the U.S. on your performance?

A: We do not believe factors like U.S. price inflation and exchange rate fluctuations have a major impact on our YouTube revenue at this time. However, with changes in the macro environment such as the easing of global pandemic countermeasures, we recognize changes are occurring on YouTube as well, such as the popularity of short videos. We will strive to achieve sustainable growth by flexibly responding to such changes.

Q: With the post-COVID era, how does the company view the outlook for declines in viewing times and number of viewers?

A: We do not use metrics like viewing times as key performance indicators. In the post-COVID era we now find ourselves in, lifestyles have changed, and demand has greatly increased for content like short clips and derivative works. And with the expansion of real-world events, live shows, licensing, and tie-ups, overall exposure is increasing, not limited to the content we provide.

Q: How do you plan to secure funding for developing new services, etc. going forward?

A: We believe the funds raised at our IPO and cash flows from existing businesses will cover development of new services to some extent in the short term, so we do not foresee needing large additional funding. Of the development projects already announced, the main one is our metaverse service. We expect development costs through the end of fiscal year 2023 to be around 2-3 billion yen, which will be capitalized on the balance sheet and then amortized starting in 2024 after the service launch. We anticipate it will take time to build an audience and generate revenue after launch, so our plan is to conservatively recover development costs over a timescale of several years.

Q: Do you have a target market capitalization?

A: We have not disclosed specific numerical targets for market capitalization, but the VTuber market remains in a strong growth phase, and we believe there is still ample room for expanding our business. Looking at the domestic and overseas markets separately, in Japan we believe the mainstreaming of our services through music, media mix, etc. is progressing, whereas overseas, we have not been able to provide the full suite of services offered in Japan, such as live concerts and merchandise sales. Expanding partnerships with overseas IP licensors should increase distribution of our IP services overseas, and we expect significant growth potential.

Q: Do you have a medium-term management plan?

A: The VTuber market is adjacent to the IP entertainment market of anime and games, so there is ample room for business expansion accompanying the increased influence of IP. VTuber streaming participants and viewers are also increasing globally, and expanding related consumption across a wide range of customer segments is a tailwind for us as well. Since the market itself is still expanding

Here is the continuation of the English translation:

we have not disclosed a quantitative medium-term sales plan, but while pursuing sustainable business expansion, we aim for an operating profit margin of around 30% over the medium to long term.

Q: Please tell us about new businesses after the metaverse.

A: We cannot provide details on matters beyond the scope of public information, but we want to continue developing new businesses that leverage our strengths.

Q: What kind of world are you envisioning with your mission to create "culture loved by the world"?

A: We aim for a situation where our services are recognized by everyone around the world.

Q: I feel there is some conflict between VTubers and the company/shareholders regarding how profits are allocated. Does the company have any priorities?

A: While our first priority as a company is to support the activities of our talent, by diversifying and distributing our business portfolio, we believe profitability can also be improved. For example, expanding the licensing business increases revenue not directly dependent on VTuber activities, which can improve profitability and flexibility in individual VTubers' activities, making it easier to balance the needs of various stakeholders.

Q: Are you considering using generative AI?

A: We cannot provide details, but we believe it has a certain effectiveness in reducing operational burdens.

Q: I hope you will work hard to establish business practices to return profits to external creators/talent.

A: We will keep your feedback in mind as we run the company.

Q: What are your plans for expanding into Chinese-speaking and Indian markets?

A: Rather than limiting ourselves to specific regions, global expansion is important. This includes overseas VTuber debuts in EN, ID, etc. as well as localization.

3. Hololive Production Related

Q: Please explain the company's policy on new VTuber debuts.

A: As announced in our previous financial results briefing, we are planning "multiple new VTuber debuts in Japan and overseas with the goal of capturing a wider fanbase." Please look forward to future announcements about debut timing.

Q: Please explain the operating policies for each group.

A: Thank you for your various opinions. At our company, we have talented VTubers with diverse appeals. While singing is of course important, each VTuber has unique appeals such as gaming, talking, etc. As a company, while respecting the individuality of each talent, we consider and implement support and initiatives tailored to each VTuber to maximize their appeal.

We cannot share all details, but for male VTubers, we have established policies to maximize each VTuber's appeal and expand their potential audience, providing support such as participation in various events. We will continue to take measures to facilitate overall growth of our VTubers. Due to COVID-19, providing diverse opportunities such as use of our studio and large events for overseas VTubers has been difficult, but we have finally been able to hold overseas concerts. In addition to the over 20 overseas events we exhibited at last year, going forward we want to actively increase opportunities for our talents to be active, creating a virtuous cycle between their usual streaming activities and venues to showcase the results.

We sincerely appreciate your continued support.

Q: What is the company's stance on official fan clubs and official memberships?

A: The Hololive official fan club and Hololive official YouTube channel memberships have different concepts and value propositions, so our policy is to operate them appropriately based on those distinctions.

Q: Please be more proactive in pursuing external collaborations to acquire new fan segments.

A: The number of large events and competitions hosted by external organizations that our talents participate in has been increasing, and we want to actively incorporate opportunities that facilitate VTuber and corporate activities, while respecting each talent's policies.

Q: I'm worried going public could change Hololive Production's strengths. Please explain how you view the impact.

A: We do not believe going public has caused any significant risks or changes to the essential appeal of our content. We will continue developing new content and projects leveraging our strengths, while disseminating the appeal of Hololive Production to more people.

Q: How do you plan and assess progress for each project?

A: Thank you for your various opinions. All projects undergo appropriate reviews of plans etc. at suitable timings, but we cannot comment on details of individual projects.

Q: What was the intent behind publishing the "Oshi Activity Guidelines"? I sense the perspective of the management.

A: The "Oshi Activity Guidelines" have aspects geared towards allowing fans to enjoy content comfortably, as well as requests from the company and talents. As a company, we believe healthy fan community management is important. We make efforts to build a better environment through day-to-day moderation and customer support in streams, and regular information sharing and communication with talents.

Q: What is your strategy for approaching the younger demographic?

A: As awareness of VTubers and Hololive Production spreads, we understand even fans in their teens are increasing. We are already increasing posts on SNS frequented by younger users like short video apps, and optimizing content accordingly. At the same time, we plan regular new talent debuts to expand our reach.

Q: There are multiple Twitter accounts, which fragments information. How do you intend to divide roles between accounts?

A: We currently divide roles between accounts by function and consolidate/distribute accordingly. For important information, we take care to avoid people missing info by retweeting from each account. While maintaining differentiation of information by account, we plan to continue improvements where possible.

Q: What is the company's stance on UGC between users? Will you continue encouraging it?

A: We have published secondary creation guidelines for fans, broadly encouraging secondary creation activities. However, in principle we ask that you refrain from usage with profit motives beyond personal/hobby levels, as well as usage by corporations. We periodically expand the guidelines to support richer creative activities by fans, and will continue examining content to facilitate fans' secondary creation activities going forward.

Q: Please explain the company's policy on countermeasures against slander/defamation.

A: While we cannot comment on individual response measures, we have taken necessary steps to eliminate defamation towards our talents. With the recent establishment of an anti-defamation study group, we believe that by acting as a large organization engaging the industry, we can achieve certain results through negotiations difficult for individual companies, and want to continue these industry-wide efforts to contribute to the future.

Q: There have been flaming incidents in the past. Please explain the details of current countermeasures by the company.

A: We apologize for any deficiencies in past content. Currently, we have expanded crisis management systems, thoroughly managing concerning content by halting or modifying it in advance. We regularly share information and communicate with talents about precautions and crisis management awareness in activities, following the guidelines of each platform.

Q: How do you view compliance responses?

A: We have strengthened backup systems like crisis management and legal teams, thoroughly managing risky or concerning content. We also take appropriate actions following laws and practices in each country, but strive to provide content viewers can enjoy with the base of operations for each talent group.

Q: Are talents compensated fairly?

A: We believe we offer a competitive compensation system. While both corporate employment and freelancing have advantages, we believe strengths like being able to hold lives, events, sell merchandise, and form tie-ups are merits of being affiliated with a company. Currently, talent compensation comes from multiple revenue sources related to the above, not just streaming activities. We will consider systems that allow flexible response to environmental changes in the future as well.

Q: I feel talents lack operational support for their initiatives. What is the company doing?

A: While it depends on the project, fundamentally we provide support from operations even for individual projects, and avoid having an operational feel visible to viewers so that fans can enjoy the content. As a company, we respect VTuber opinions in implementing projects, while focusing on expanding Hololive Production through promotion, acquiring projects, etc.

Q: As talents continue long-term activities, risks of retirement also increase. How is the company managing these risks?

A: We do not believe VTuber appeal diminishes over time. Instead, their appeal and activity style evolve by stage while continuing activities. Naturally, we as a company must also adapt the environment we provide talents to their stage, assessing appropriately.

There are risks of reduced earnings due to talents ending activities, but revenue does not depend on individual VTubers, with diversification achieved. Currently, VTubers are active while taking appropriate breaks, and as a company we support optimization of activities for each talent.

Q: Does the company provide lessons, training, and support for talents?

A: We cannot provide details as they are company confidential, but before debut we designate a certain period, providing various lessons and training. We also provide support contributing to activities as needed during activities, such as additional required education and lessons.

Q: What is the company's policy for responding to rule violations by talents?

A: We will not comment on opinions about individual talents, but provide periodic talent education for all. For discovered violations, we will consider strict responses, including dismissal.

Q: How is the company managing VTuber health as talents?

A: Centered around talent managers, we monitor talent health day-to-day and share information about streaming frequency, length, etc. with talents

Here is the continuation of the English translation:

to promote health management in an environment that facilitates it.

Q: How does the company view issues like insufficient staffing and delays for streaming lives at the new studio?

A: We sincerely apologize for causing concern and inconvenience to fans and shareholders. We are currently working to enable 3D streaming and resolve equipment issues with the cooperation of partner companies. In addition to strengthening recruiting through large hiring briefing sessions, we are securing additional external outsourcing partners, and aim to resolve resource shortages within this fiscal year.

Q: How is the company addressing risks of relying on streaming platforms?

A: Our business centers around our IP, but within that we aim to pursue multifaceted initiatives that do not rely solely on a single media format. For example, recently our presence in the music field has been growing, and our product sales through non-EC retailers have also been expanding. We have also seen diversification in our customer base across dimensions like age, gender, and region, and going forward, we hope to capture an even larger market. The metaverse we are currently developing is another new business area we are preparing for, and by continuously updating our technology and content, we aim to achieve sustainable growth.

Q: Please explain the company's stance on issues like insufficient capacity and resales for lives/events.

A: For our lives, we select venues so that all guests in attendance can have the best experience regardless of seating. Going forward, while pursuing technological innovation and performance improvements, we will also consider larger venues to the extent that does not compromise the experience value, in order to have more guests experience the live in-person. We also recognize resales are an issue and will implement appropriate countermeasures as needed.

Q: I think it would be good to use inactive IPs for merchandise etc. What do you think?

A: While it is difficult for the company to unilaterally decide regarding inactive IPs considering factors like fan sentiment, we appreciate your valuable feedback as a reference.

Q: Does the company refer to competing companies regarding merchandise sales or talent compensation?

A: We cannot mention other companies whose internal affairs we do not know, but talents are paid commensurate with their work. Also, while merchandise was previously made-to-order focused, we have started more general merchandise initiatives for the general public, taking into account strategies of other IP companies.

Q: Why do you use other companies' streaming platforms for lives/events?

A: While our own streaming will be possible with Holoearth development, we select appropriate platforms based on streaming content and needs. We plan to continue using our own and other companies' platforms as suitable going forward.

6. Other

Q: What is the company's stance on shareholder returns (dividends, shareholder benefits, etc.)?

A: Nothing concrete yet, but we want to consider appropriate methods according to the company's situation. Currently, we want to meet shareholder expectations by maintaining a certain level of internal reserves, investing in business growth, and expanding the company scale.

Q: How much facility investment will you do, and what will you do about dividends/shareholder benefits?

A: Once current forward investments settle and businesses get on track, we plan to consider dividends/benefits.

Q: Please tell us the timing of changing to the TSE Prime Market.

A: We are currently assessing the appropriate timing. We will promptly notify you through appropriate means once a decision is made.

Q: What is the company's stance on share price and stock splits?

A: Share price is an evaluation by the market, so we cannot comment. In terms of share price level, we do not believe it has reached a point yet where trading is difficult for many shareholders, so we are not currently considering measures like stock splits.

Q: Please tell us about future hiring plans.

A: We currently expect increasing headcount at a pace of 100-150 people annually in line with business expansion. However, excessive growth in personnel also greatly impacts management, so we want to determine an appropriate level carefully.

Q: What is your policy on appointing female officers and managers?

A: Our board of directors recognizes ensuring diversity, including outside perspectives, as an important issue in order to incorporate diverse opinions into our management. While we have been promoting female managers internally, we will continue considering appointing female officers on an ongoing basis.

Q: Please provide specifics about information security.

A: While we cannot provide details about specific security initiatives and tools due to information security considerations, we have implemented multi-layered defenses including UTM (unified threat management). We also regularly gather information and appropriately update or replace communication devices based on firmware updates and end-of-support, selecting devices mainly from domestic and US manufacturers. Suspicious activity is investigated as needed based on communication logs from security tools (MDM, UTM, etc.) installed on PCs.

In addition, we implement appropriate access controls for information assets for talents and others who access our information assets, placing restrictions on taking out confidential information. If suspicious behavior or operation is detected, we have systems and frameworks in place to receive reports, investigate logs, and conduct interviews. While endpoint security utilizes MDM, security software etc., we continually review and aim for more secure environments.

Q: What is the current status of trademarks, patents, etc?

A: Our specialist team appropriately handles these matters.

Q: What is your policy on invoice reforms, specifically whether you will encourage registration for taxable entities, absorb extra costs, or utilize small business groups?

A: We will not unilaterally require switching to taxable entity status or suspend transactions with tax-exempt entities. We also currently do not plan on encouraging the establishment or joining of small business groups. The impact on our income statement of reduced input tax credit is expected to be minor during the transitional period. We will carefully examine invoice reforms going forward, taking into account industry trends and future tax revisions.

Q: Do you have any measures to encourage overseas investors to purchase your stock?

A: We disclose IR materials in Japanese and English for all investors. For overseas investors, purchasing our shares is possible through securities companies that handle Japanese stocks, and we proactively disclose IR materials in Japanese and English as a reference. We also actively engage in IR meetings, etc. focused on institutional investors overseas.

That concludes the report on the Q&A from the 7th Annual Shareholders Meeting.