Enjin Co., Ltd.

Revenue related to owned media such as "KENJA GLOBAL" and "Watashi no Kakugo" accounted for approximately 24.74% of total revenue in FY2023 (ended May 2023), 21.33% in FY2024 (ended May 2024), and 23.95% in FY2025 (ended May 2025), continuing to represent roughly a fifth or more of total revenue. If the revenue or profit of the owned media were to deteriorate rapidly due to some circumstance, the transition to alternative media may not keep pace, potentially having a material impact on business performance and financial condition. Although the Group is working to reduce this dependence by expanding partnerships with multiple external media outlets, concentration risk remains until the substitution effect becomes apparent.

Some services within the PR business depend on search results from search sites such as Yahoo! and Google, and there is a risk that changes in the business strategies of the operating companies or changes to search algorithms could make it difficult to continue providing services. In addition, a decline in the number of search engine users or the emergence of alternative services due to technological innovation could reduce the value of these services as a marketing medium. As a countermeasure, the Group has established a system for continuous monitoring of search results and rapid response to algorithm changes, but the underlying structure of dependence on external platforms has not been fundamentally resolved.

PR-related budgets are susceptible to economic fluctuations, and client companies tend to cut PR budgets during economic downturns, which directly affects the Group's revenue. The PR industry as a whole tends to have a cautious business sentiment, and the risk of fluctuating demand is also a structural issue for the industry. The Group seeks to mitigate this impact by actively working to uncover client needs, but it is difficult to completely avoid the effects of a macroeconomic downturn.

New entrants are continually emerging in the PR business, and as the internet and social media environment evolves, competition is also likely to arise in new business areas. Although the Group considers barriers to entry to be high because building diverse media relations takes time, if it is unable to achieve effective differentiation amid intensifying competition, business performance could be affected. The Group conducts thorough research on the information environment before launching new businesses, but there is a risk of a delayed response to environmental changes or the entry of competitors after a business has been launched.

As a business handling personal information for a large number of clients, the Group is subject to obligations under the Act on the Protection of Personal Information. If a data leak were to occur, it could lead to a decline in trust, resulting in reduced revenue and the incurrence of damages costs. The Group has taken measures such as formulating personal information handling management regulations and establishing internal management systems, but the risk of leakage due to unauthorized external access or inadequate internal management cannot be completely eliminated. This risk is also linked to the risk of cyberattacks on information systems, and a compound impact may occur.

The Group may, upon commission from medical institutions, produce "advertisements" that are subject to regulation under the Medical Care Act, requiring compliance with medical advertising guidelines. If an advertisement is deemed illegal, the Group may face claims for damages, and as the proportion of clients in the medical field increases, compliance risk also expands. The Group has established a checking system in line with the guidelines on a case-by-case basis, but issues may arise if there is a delayed response to changes in regulatory interpretation or revisions to new guidelines.

The Group's service provision and internal management systems depend on communication networks, and if a network outage occurs due to a natural disaster or other cause, or if unauthorized data use or virus infection occurs due to a cyberattack, it could disrupt service provision and affect business performance. There is also a risk that continued use of servers could become difficult due to the bankruptcy of a rental server provider. The Group has enhanced its internal management systems, promoted employee education, and made reviews and improvements in line with advances in information technology, but the risk of failures due to external factors remains.

Securing excellent human resources is essential for stable growth, and the Group is working to acquire talent through new graduate and mid-career hiring, as well as to develop human resources through practical education. However, if the Group is unable to secure and train personnel who share its management philosophy at a pace that keeps up with business expansion, this could lead to a decline in service quality and lost growth opportunities. This is also linked to the risk of rising production costs, as intensifying competition to acquire highly skilled talent could raise outsourcing costs and labor costs, worsening the cost structure.

Representative Director, President and Group CEO Kodai Honda holds 58.64% of the total issued shares, including through his asset management company, giving him a dominant influence over the resolution of important matters at shareholders' meetings. If his voting rights ratio were to decline in the future, or if shares were transferred to a specific third party, this could affect the stock market price and business strategy. While Mr. Honda has stated a policy of pursuing the common interests of shareholders while also giving consideration to the interests of minority shareholders, the risk of governance concentration is structurally inherent.

There is a risk that impairment losses may need to be recognized on property, plant and equipment, intangible assets including goodwill, and investments and other assets such as investment securities, due to changes in the market or business environment. In particular, goodwill recorded through M&A and other transactions could be subject to lump-sum amortization if the acquired business's performance deteriorates, potentially having a material impact on profit or loss for the fiscal year. In addition, there is a risk that the value of shares held by existing shareholders could be diluted due to the issuance of stock options (358,400 potential shares, equivalent to 4.92% of total issued shares) and restricted stock.