Hatena Co., Ltd.

If servers go down due to natural disasters such as earthquakes or typhoons, or unforeseen events such as fires or power outages, this could lead to a decline in social credibility and brand image and the payment of damages, potentially affecting business performance and financial condition. The services provided by the Company depend on communication networks and computer systems, and the risk of unexpected damage is increasing as disasters become larger in scale due to climate change. As countermeasures, the Company uses data centers equipped with seismic isolation/earthquake-resistant structures and private power generation equipment, and has established a safety confirmation system.

The Company handles personal information such as users' email addresses, names, gender, and postal codes, and if leakage, tampering, or unauthorized use occurs, this could affect business performance and financial condition through a decline in social credibility, response cost burdens, and payment of damages. The need for thorough management is increasing further due to the amended Act on the Protection of Personal Information that came into effect in April 2022 and international regulatory tightening such as the GDPR and CCPA. As countermeasures, the Company has obtained TRUSTe and ISMS certification, and has developed internal education and protection management systems.

Amendments to existing laws such as the Telecommunications Business Act, the Act on the Countermeasures for the Information Distribution Platform, and the Act on the Prohibition of Unauthorized Computer Access, or the enactment of new legislation, could result in changes to service content and new costs, potentially affecting business performance. In particular, as a "specified telecommunications service provider" under the Act on the Countermeasures for the Information Distribution Platform, the Company bears an obligation to disclose information that infringes rights, and there are concerns about the impact on business performance and financial condition if litigation or other disputes arise. As countermeasures, the Company conducts legal compliance reviews by the General Affairs Department personnel, legal checks of contracts, and internal awareness activities.

The Company depends on a specific search engine for the majority of user acquisition for its UGC services, and also uses the technology and services of specific business partners for advertising space operation and analytics tools; if the relationship changes or an external service is discontinued, a decline in sales could become apparent and prolonged. Furthermore, the generative AI-utilizing service "toitta" uses a specific large language model (LLM) as its underlying technology, creating a risk of dependence on external technology. As countermeasures, the Company is expanding the number of business partners and diversifying its customer base, continuously researching and verifying alternative technologies, and adapting to multiple technology platforms.

The internet marketing-related market is susceptible to economic conditions, and the risk of declining revenue could become apparent due to changes in users' device environments, seasonal fluctuations, the sales strategies of advertising agencies, and intensifying competition with rivals. Since the Company is also affected by the sales strategies and sales capabilities of the advertising agencies and media reps used for advertising sales, there is a risk that the stability of revenue could be impaired. As countermeasures, the Company is working to improve its cost structure, understand market trends through market research, and strengthen new service development.

In contracted services under lump-sum contracts, unforeseeable circumstances could result in work hours exceeding the initial estimate, leading to cost overruns, free-of-charge remedial work based on liability for nonconformity with the contract, and claims for damages arising from delivery delays or quality defects. If a project results in a loss, this could affect business performance and financial condition, and there is also a risk of escalation into disputes including litigation. As countermeasures, the Company strives to identify risks at the planning stage, improve estimation accuracy, and enhance project management skills and quality control systems.

If the Company is unable to secure and develop personnel as planned in line with business expansion, or if unforeseen circumstances befall employees who form the core of its business, operations could be delayed, making smooth management activities difficult and potentially resulting in the failure to achieve future business plans. The Company is a small organization with 6 directors, 3 auditors, and approximately 200 employees, and since business processes may depend on specific individuals, there is a risk that the departure of specific officers or employees could lead to a dysfunction of corporate governance. As countermeasures, the Company plans and implements new graduate and mid-career recruitment, enhances its education and training system, and improves the workplace environment to foster job satisfaction.

Large companies with significant capital, technological capabilities, and sales power exist as competitors in the internet industry, potentially leading to intensified price competition and a decline in market share. In particular, due to the recent advancement and spread of generative AI, new competitive relationships have arisen with major IT companies developing LLMs, and there is a risk that failure to adapt to rapid changes in the technological environment could lead to service obsolescence and a decline in competitiveness. As countermeasures, the Company is promoting the understanding of the latest technology trends, building a rapid service development structure, cultivating and securing specialized generative AI personnel, and differentiating through highly unique services.

If internal information is leaked or tampered with due to unexpected cyberattacks, unauthorized access, computer virus infection, or other causes, this could affect business performance and financial condition. The Company handles information that can identify service users and personal information held by customers, and while it implements maximum measures to prevent system-related troubles, it is not possible to completely eliminate the risk. As countermeasures, the Company has established personal information protection regulations, thoroughly implements internal education, has developed various regulations such as document management rules, and conducts awareness activities regarding information management.

Regarding development costs recorded as intangible fixed assets for software intended for internal use, if the utility value declines due to a divergence from market needs, or if the software ceases to function due to serious bugs, an impairment could result in a large one-time expense, potentially affecting business performance and financial condition. In contracted software development as well, there is a risk that estimates of total costs could fluctuate, potentially having a significant impact on revenue recognition. As countermeasures, the Company conducts regular verification through the application of impairment accounting, has established a system for formulating and approving execution budgets, and conducts progress verification by the Accounting Department.