Livesense

RISK FACTORS

1. RISKS RELATING TO THE INTERNET MARKET

(1) Internet-Related Market

Livesense is primarily engaged in the Internet media business. As such, a fundamental condition for the expansion of our business is improvement of the Internet usage environment and market expansion. As the Internet becomes cheaper and more convenient to use, advancements are made in related technologies, and services expand, we expect increased usage among individuals and companies, so we anticipate that the market will continue to expand. However, there is a possibility that Livesense’s business and earnings could be adversely impacted if unforeseen factors hinder the expansion of the Internet-related market, for example new regulations, slower technological innovation or unfavorable moves by communications businesses such as increases in usage fees.

(2) Working with Search Engines

The sites operated by our Group get most of their users through certain search engines (YAHOO! JAPAN and Google). We work to diversify risk by implementing various measures to attract visitors, including web advertisements, in addition to search engine optimization (SEO) efforts that are designed to strengthen our ability to attract users. However, if for some reason our existing SEO initiatives stop working effectively, such as a change in the logic by which search engine results are displayed, this could adversely impact our ability to attract users to Livesense sites and seriously impact Group earnings.

(3) Technological Innovation

The Internet industry is characterized by extremely fast cycles of technological innovation and changes in customer needs, which is bringing a number of new services based on new technologies to the market. To ensure that we respond flexibly in such a rapidly changing environment, Livesense intends to actively build up our knowledge and know-how of leading-edge technologies, including open source, and to hire excellent, highly skilled engineers.
However, acquiring and building up knowledge and know-how of leading-edge technology can, in certain cases, require great expense if we do not respond appropriately and timely to technological innovation and therefore must make large system investments and pay high personnel costs. If such events occur, it is possible that the Company’s technical superiority and service competitiveness would be compromised and have an adverse impact on the Company’s business and earnings.

(4) Competition with Other Internet-Related Enterprises

Livesense is primarily engaged in the Internet media business, but many other enterprises, including some large ones, are also engaged in the same field, and the low barriers to entry make it a very competitive field.
If in future we are unable to sufficiently distinguish our brand or enhance our services’ functionality, or if new entrants make the market significantly more competitive, it could have an adverse impact on the Company’s business and earnings.

2. RISKS RELATED TO NATURE OF THE BUSINESS AND SERVICES

(1) Dependence on the HR Information Media Business

Livesense primarily derives its revenue from the HR information media business. This business accounted for 84.7% (¥4,543 million) of our net sales (¥5,366 million) in FY2016 (ended December 31, 2016), indicating that our dependence on this business remains very high. Thus a decrease in revenue from the HR information media business, such as might occur if competition increases with other media in the job advertising market, could have an adverse impact on the Company’s business and earnings.
Additionally, though we are launching new businesses to diversify our portfolio and provide a more stable base of income, if these new businesses do not do as well as originally planned and we remain highly dependent on sales from the HR information media business, a change in sales from this area could have a significantly adverse impact on the Company’s business and earnings.

(2) Impact of HR Information Media Business Market Trends on Earnings

The HR information media business mainly consists of job advertising, and hiring plans of enterprises placing job ads could change earnings from this business. Livesense recognizes that hiring needs vary owing to school schedules, holiday seasons, etc., but if these needs were to rise or fall more than expected, it could have an adverse impact on earnings from this business.
In addition, because the HR information media business is easily impacted by trends in the job market and job climate, if relevant market conditions were to rise or fall more than expected, it could have an adverse impact on Company earnings.

(3) Fraud in the HR Information Media Business

In the employment information media business, a service is considered to have been performed when a service user submits an appropriate report. There is no charge for site use, as fees are collected for service successes (success fees), which means that service users could engage in fraud such as hiding the fact that a service success has occurred on which a success fee should be paid.
It is Livesense’s policy to take proactive measures against fraud, such as implementing system-based preventive measures, forbidding fraud in the terms of use, raising user awareness and taking strict action against violators. However, if means of fraud occur that are more malicious than anticipated by the Company, it could have an adverse impact on Company business and earnings.

(4) Impact of Real Estate Information Media Business Market Trends on Earnings

The real estate information media business consists primarily of advertising of leasehold properties, etc., and thus changes in real estate management companies’ earnings, their advertising budgets, etc., could have an adverse impact on earnings from this business. Livesense recognizes that these companies’ needs for attracting customers vary owing to the real estate business’s particular busy seasons, etc., but if these needs were to rise or fall more than expected, it could have an adverse impact on earnings from this business.
In addition, because the real estate information media business is easily impacted by business conditions in the real estate industry in general and by regulatory trends, etc., pertaining to it, if relevant market conditions were to rise or fall more than expected, it could have an adverse impact on Company earnings.

(5) New Businesses

Livesense will continue to proactively take part in developing new services and businesses, but this could create additional expenses (system investments, advertising costs, personnel expenses etc.), which could lower profitability.
Moreover, if unforeseen circumstances occur and these new services and businesses do not develop as planned, it is possible the Company would be unable to recover its investment, which could have an adverse impact on Company business and earnings.

(6) Postings on Our Websites

Livesense operates the career change discussion website “Tenshoku Kaigi” and other websites targeting unspecified large number of individual users with various types of communication functions. With these services, while each user or registered member is able to access useful information concerning companies, etc. normally difficult to obtain, not all of the contents are good-natured, with postings also made on points requiring improvement, subjective opinions and from other perspectives. There is also the possibility of inappropriate actions such as infringements upon the ownership rights, intellectual property rights, reputation, privacy or other rights of other parties, violations of laws and regulations and so forth.
Within its websites, the Company clearly specifies that it assumes no responsibility whatever for the information and other comments posted on its websites, while upon monitoring of posted contents and discovery that contents are in clear violation of laws or regulations, correspond to defamation, etc., strives to promptly delete the portions in question. However, if troubles occur as a result of inappropriate actions by users or registered members, or if the Company fails to discover inappropriate postings or is tardy in making such discoveries, resulting declines in user support of the said website, questions about the Company’s responsibilities as the website operator and other matters could have an adverse impact on Company earnings.

(7) Utilization of Big Data

Today there are high expectations for the creation and development of new services utilizing big data (high volume, high variety data), which advances in ICT (information and communication technology) have made easier to generate, collect and store. In the midst of this environment, Livesense is working to develop and provide services to collect, analyze and utilize various open data on the Internet. However, in the event that it becomes difficult to collect the information necessary to provide these services due to restrictions on automatic data collection by software or legal regulations on the use of big data, or the results of data analysis do not match the level of user expectations, it could have an adverse impact on the Company’s business and earnings.

(8) Regarding Business Partnerships, Collaborations and Investments in Other Companies

The Company proactively pursues partnerships and collaborations with other companies, investments and M&A including the republishing of website listing information and service provision, as well as investment opportunities as we seek to expand operations and develop new business segments. Partnerships, collaborations, investments and M&A are based on the careful evaluation of and due diligence on potential synergy with the partner company or business, risk and return, the financial condition of the company in question and agreements. However, in the event that the initially expected synergy is not achieved due to a failure to exercise sufficient control or monitoring with respect to management of the investee, various circumstances result in changes or the cancelation of contracts, it becomes necessary to record an impairment loss on goodwill due to a change in performance, contingent liabilities arise or unrecognized debt is discovered after acquisition, it could have an adverse impact on the Company’s business and earnings.

(9) Impact of Exchange Rate

Through consolidated subsidiary waja Co., Ltd., Livesense provides mostly CtoC cross-border EC services. In principle, that Company’s main business, fashion EC site “waja,” is conducted in yen, so exchange rate fluctuations have no direct impact. However, the service model is such that products sold on waja are purchased overseas by individual sellers who set their prices individually. For that reason, sudden fluctuations in the exchange rate could affect product prices, and in the event that the number of product listings decreases or users refrain from making purchases due to high prices, it could have an adverse impact on the Company’s business and earnings.
Additionally, the Company prepares consolidated financial statements and other such materials after converting net sales, expenses, liabilities, etc. generated in the local currency of overseas consolidated subsidiaries, into yen. For that reason, fluctuations in the foreign exchange rate may impact the performance and financial standing of the Company. At the end of December 2015, US consolidated subsidiary Livesense America has been liquidated, so we do not have any overseas consolidated subsidiaries.

3. SYSTEM-RELATED RISKS

(1) System Failures

Livesense’s business is fully dependent on the communications networks that connect PCs and computer systems, and if any cutoff of these communications networks were to occur because of natural disaster, accident, etc., it would seriously impact the Company’s business and earnings. Also, though Livesense takes measures such as increasing its server facilities and using data centers with off-grid power plants in case of power failure, a rapid increase in access to our sites, etc., computer system failures caused by any of a number of unforeseen factors could have an adverse impact on Company business and earnings.
Though Livesense takes appropriate security measures and makes every effort to prevent unauthorized access from the outside to our computer systems, a system failure caused by computer virus, hacker infiltration, etc., could have an adverse impact on Company business and earnings.

(2) Capital Investment as Business Expands

Livesense recognizes the necessity of making prior investment in systems and infrastructure in keeping with the growth of our services in order to enhance service operating stability and user satisfaction. The Company plans to make ongoing capital investments to be prepared for the forecast increase in user and access numbers in future, for the introduction of new services and for enhanced security, but if actual user and access numbers are significantly different from our original forecast, the Company may need to move up its capital investments or bear a greater investment burden than originally planned, which could have an adverse impact on Company business and earnings.

4. RISKS RELATED TO LEGAL REGULATIONS, INTELLECTUAL PROPERTY, ETC.

(1) Protection of Personal Information

Livesense collects and uses personal information, such as application information from job applicants, and thus has obligations as a business operator handling personal information under the Act on the Protection of Personal Information.
Livesense recognizes that, in order to prevent leaks, improper use, tampering, etc., of personal information, the management of that information is an important part of our business operations. Therefore we have established basic rules on the protection of personal information, etc., have prescribed a workflow for the handling of personal information and practice strict management of it. We also give thorough training to all employees and take other steps to ensure compliance with the Act on the Protection of Personal Information, other relevant laws as well as relevant guidelines that apply to the Company. Above all, we work proactively to protect personal information.
However, it is not possible to completely eliminate the risk that personal information in our possession may be leaked, tampered with or used in unauthorized ways. Thus, if such a situation were to occur, there could be a substantial cost burden to respond appropriately, affected parties could demand compensation, or trust in the Company could be damaged, which could have an adverse impact on Company business and earnings.

(2) Intellectual Property Rights

Livesense surveys for the possibility of infringement of third-party intellectual property rights as far as we are able, but it is possible that intellectual property rights of which we are not aware have already been established in our fields of business, or that a third party could establish new copyright, etc., in our fields of business. In such a case, the Company could receive a demand for compensation, injunction, royalties, etc., for infringement of a third party’s intellectual property rights, which could have an adverse impact on Company business and earnings.

(3) Legal Regulations, etc.

Livesense’s business is governed by legal regulations, including the Telecommunications Business Act, the Act on the Limitation of Liability for Damages of Specified Telecommunications Service Providers and the Right to Demand Disclosure of Identification Information of the Senders (“Provider Liability Limitation Act”), the Act on the Prohibition of Unauthorized Computer Access (“Unauthorized Computer Access Law”), the Act against Unjustifiable Premiums and Misleading Representations, fair competition rules, the Act on Specified Commercial Transactions and the Secondhand Articles Dealer Act.
Among other requirements, the Telecommunications Business Act obliges us to protect the confidentiality of communications. Moreover, Livesense is considered a “specified telecommunications service provider” under the Provider Liability Limitation Act, meaning that if another party’s rights are infringed in the distribution of information by telecommunications intended to be received by an unspecified party, we have an obligation to the infringed party to disclose information relating to the sender of the information involved. Furthermore, because the Company would be the media by which infringing information was sent, it could receive a demand for compensation for illegal activities under civil law, and it could also face a lawsuit or other dispute on these points. The Unauthorized Computer Access Law obliges Livesense as an “access manager” to make every effort to prevent unauthorized computer access, taking certain protective measures against it. In the event that new regulations or laws are enacted pertaining to business domains such as Internet-related businesses, recruiting, real estate and cross-border EC or interpretation of existing laws changes in the future, it could have an adverse impact on the Company’s business and earnings.
Additionally, Livesense has obtained various permits as a paid employment placement business and housing land and building dealer. In the event that we were to lose a permit for some reason, there is a possibility that we would no longer be able to operate the business in question, and that could have an adverse impact on the Company’s business and earnings.

(4) Possibility of Other Disputes

Through its Board of Directors, Compliance Committee and corporate governance initiatives, Livesense surveys and examines the possibility of disputes relating to its business.
However, it is possible that the Company could face a lawsuit in future relating to areas and rights that have not been anticipated. While the Company believes there is little possibility of such disputes adversely impacting its business, it is of course possible that in future it will be judged that an infringement has taken place in some aspect of the Company’s business, and if so it could have an adverse impact on Company business and earnings.

5. RISKS RELATED TO BUSINESS OPERATIONS SYSTEM

(1) Concerning Organization Structure and Securing and Fostering of Human Resources

As the Company still is in the process of growth, we must plan for the securing and fostering of human resources that matches the growth of our business operations as well as work to develop our business structure and strengthen internal management to ensure adaptability to the scope of our operations.
However, there is the possibility that Company business or performance might be affected in the event that the plans of securing and fostering of human resources do not proceed as planned, or if the Company experiences an exodus of existing human resources.

(2) Dependence on Specific persons

President and Representative Director Taichi Murakami is a founder of Livesense and has served as Director since the Company’s establishment. He is deeply experienced with and knowledgeable of Internet-related businesses and web marketing and plays a very important role in setting and executing the Company’s management policies and business strategies. Livesense is working to strengthen its management organization and information sharing among the executive officers and senior staff on its Board of Directors, etc. and to set up a system not overly dependent on Mr. Murakami. However, if for some reason it becomes difficult for him to continue his duties at Livesense, it could have an adverse impact on the Company business and earnings.

6. OTHER

(1) Share Price Dilution from Exercise of Stock Warrants

Livesense gives stock warrants to its executive officers and employees as an incentive. When stock warrants are exercised, new shares of Livesense stock are issued, which can dilute the share value and percentage of voting rights held by existing shareholders. As of the end of February 2017, there are 595,000 issuable shares available by exercising stock warrants, equivalent to 2.12% of the 28,110,400 shares outstanding.

MANAGEMENT POLICY