note inc.

The entry of companies with strong capital and brand recognition, or the emergence of similar services with superior price advantages, could lead to user attrition and a decline in competitive advantage. The Company is countering this through continuous improvement of the UI/UX of "note" and the development of an environment attractive to both creators and readers, but intensifying competition in the content platform market could affect business operations, financial position, and operating results.

In addition to the risk of automatically generated inappropriate content and misinformation posts arising from the spread of generative AI, there is a risk of platform trust being damaged by defamatory content posts. The Company has established community guidelines, introduced monitoring systems utilizing AI/machine learning, and conducts patrols by dedicated teams; however, if such measures prove insufficient, reputation risks such as online controversies could materialize, potentially leading to user attrition and social criticism.

The Group continues to invest in the hiring and development of development personnel to improve UI/UX and in the intellectual property (IP) business, and operating income and operating cash flow turned positive in the fiscal year under review. However, if the effects of investment in the IP business fail to materialize as expected due to intensifying market competition or changes in user needs, or if advance investments fail to produce the anticipated results due to abrupt changes in the business environment, this could affect the Group's financial position and operating results.

In the sales composition for the fiscal year under review, categories such as public sports betting (e.g., horse racing) and business, investment, and IT, which are closely linked to users' economic benefits, account for a high proportion of the distribution amount. Should the distribution amount in these categories decline for any reason, this could affect the Group's financial position and operating results. The Company is working to diversify this exposure through varied content exposure on its top page and by expanding revenue from note pro and Corporate Services (note Contest).

The Group handles a wide variety and large volume of corporate and personal information, and if information leakage or misuse occurs due to unauthorized access or other causes, this could have a significant impact on business operations, operating results, financial position, and social credibility. Amendments to personal information protection laws and regulations in each jurisdiction could also affect business operations. The Company has established a management framework based on its personal information protection policy, conducts employee training, and undergoes third-party vulnerability assessments.

Should a system failure occur—such as disconnection of communication networks or server outages due to natural disasters, accidents, or unauthorized access—this could result in a decline in system reliability due to service interruption and direct damages. The Company has implemented measures such as system redundancy, vulnerability testing, and defenses against unauthorized access; however, should a failure occur despite these measures, it could affect business operations and operating results.

Sadaaki Kato, the founder and Representative Director and CEO, has played an extremely important role in determining management policy and business strategy since the Company's founding in 2011, leveraging his extensive knowledge, experience, and network in the publishing and content industries. Should he become unable to continue his duties for any reason, this could affect business operations and operating results. The Company is working to reduce this dependence by strengthening information sharing at the Board of Directors and other bodies and by reinforcing its management organization.

The Group's policy is to pursue non-continuous growth through aggressive business expansion, including M&A. Where this involves fundraising through share exchanges, equity financing via new share issuance, or borrowing and bond issuance, there is a risk of impaired financial stability due to share dilution or an increased debt ratio. There is also a risk of dispersed management resources and increased administrative costs due to errors in business selection policy. The Company addresses this by establishing a KPI monitoring framework overseen by the Board of Directors.

As of the end of the fiscal year under review, the Company has tax loss carryforwards. If performance progresses favorably relative to the business plan and these loss carryforwards are resolved, corporate tax, resident tax, and enterprise tax will be recorded based on the standard tax rate. This could affect operating results and cash flow conditions, and the Company recognizes that the likelihood of this occurring is high and could materialize within the next few years.

In addition to existing regulations such as the Unauthorized Computer Access Law, the Act on the Limitation of Liability for Damages of Specified Telecommunications Service Providers, the Payment Services Act, and the Act on Specified Commercial Transactions on Digital Platforms, new legislation—including strengthened regulation of AI technology—or changes in the interpretation of existing laws could constrain business operations. The Company aims to respond swiftly to the changing regulatory environment through involvement in legislative amendments via the Creator Economy Association and cooperation with its retained legal counsel.