KARADANOTE, INC.

Operating cash flow has been negative for four consecutive fiscal years, giving rise to events that raise material doubt about the company's ability to continue as a going concern. The negative figure for the current period is attributed to a temporary impact from a corrective consumption tax filing, and excluding this factor, cash flow is said to turn positive; however, if structural profitability improvement is not realized, business continuity may be affected. The company is implementing measures to address the issues that need to be resolved, and at present judges that no material uncertainty exists.

On December 4, 2023, a lawsuit was filed by Mr. Akira Nonomura, a shareholder of FPO Inc., seeking payment of ¥610 million in share transfer consideration plus attorney fees and expenses totaling ¥671 million, as well as damages for delay. The company asserts that the closing conditions were not satisfied and that the termination is valid; however, depending on the outcome of the litigation, there is a possibility of a material impact on the company's business, operating results, and cash flows. The company states that it is currently difficult to estimate the impact on business performance.

Through the Family Data Platform Business, the company holds a large volume of sensitive personal information, such as expected due dates and children's birthdays, and there is a risk of information leakage due to unauthorized external access or deficiencies in internal management systems. In the event of an information leak, this could lead to damage claims, loss of social trust, and damage to brand image, potentially causing serious harm to business continuity. As countermeasures, the company has obtained Privacy Mark certification, established regulations for handling personal information, and conducts internal training for all employees.

The birth rate in Japan is on a declining trend, creating a risk that the number of users acquired by the company's core family-oriented media business will decrease over the medium to long term. If the decline in births accelerates, the number of users acquired through the company's own media and external advertising could decrease, directly impacting the performance-based compensation business model that is the company's main revenue source. The company states that there is room for sales growth by increasing user acquisition through the development and expansion of new clients, but the structural demographic risk cannot be eliminated.

As the number of companies entering the internet-related business increases, there is a risk that the company's sales could decline due to the emergence of competitors offering innovative services. Intensifying competition could force down service prices and increase advertising expenses for user acquisition, potentially putting pressure on profitability. The company is focusing on responding to customer needs and acquiring users through its own content, but there is a possibility that its response to competition may not achieve the expected results.

The company positions M&A as an effective means of business expansion, but there is a risk that issues not identified or anticipated during due diligence could arise or come to light after an M&A transaction is completed. If post-M&A business development does not proceed as planned, not only may the expected contribution to earnings fail to materialize, but impairment of the investment value of the acquired company may also become necessary, potentially having a material impact on finances. The company's policy is to reduce risk through detailed due diligence, but uncertainty cannot be completely eliminated.

In the internet-related market, the pace of technological innovation and changes in customer needs is extremely fast, and there is a risk that competitiveness will decline if the company cannot respond in a timely manner. Responding to such changes may require significant costs such as system investment and personnel expenses, which could put pressure on profitability. The company is addressing this by building a system to track the latest technology trends and by securing and training talented personnel.

The company is subject to a wide range of legal regulations, including the Personal Information Protection Act, the Unauthorized Computer Access Law, the Act against Delay in Payment of Subcontract Proceeds, and the EU's GDPR, and there is a risk that future legal amendments or the emergence of new regulatory targets could constrain business operations. In particular, tightening domestic and international regulations concerning personal information protection could increase system-related compliance costs or force changes to the business model. The company is responding through employee training and the development and strengthening of compliance systems, but there is no guarantee that it can fully adapt to changes in the regulatory environment.

There is a risk that unexpected events such as sudden surges in access, software defects, computer viruses, or natural disasters could cause service outages, leading to lost revenue opportunities and damage to social trust. In particular, since the company's business locations are concentrated in the Greater Tokyo area, service provision could be temporarily suspended in the event of a large-scale natural disaster. The company works to prevent system failures through continuous capital investment and constant monitoring of servers and networks.

As the company expands its business and develops new ventures, it needs to secure and train personnel essential to media operations, including engineers, in a timely manner; if it is unable to secure the necessary personnel or if training does not proceed as planned, this could result in declining competitiveness or constraints on business expansion. In addition, there is a high degree of management dependence on founder and Representative Director Tatsuya Sato, and there is a risk that an unforeseen event affecting him could have a material impact on management. The company is working to strengthen its organizational structure by enhancing information sharing at board meetings and promoting delegation of authority.