Pacific Net Co.,Ltd.

In the ITAD business, the Company handles large volumes of confidential information and personal data contained in used IT equipment. If an information leakage occurs, it could result in loss of credibility, legal liability, and compensation costs, potentially having a material impact on business performance. As countermeasures, the Company has obtained ISMS (ISO27001) certification, strengthened physical security at its technical centers, thoroughly implemented internal training and internal audits, and implemented measures to prevent unauthorized external access.

External threats such as malware infection, ransomware, and DDoS attacks are increasing, and if system outages, data tampering, or information leakage occur, this could significantly impact business performance and credibility. While the Company implements comprehensive countermeasures including IDS/IPS, endpoint security, vulnerability management, backups, and security assessments by external experts, it is difficult to achieve complete protection against unknown attack methods or sophisticated attacks exploiting zero-day vulnerabilities.

The pace of technological innovation related to IT is rapid, and there is a possibility that new products and services may become obsolete or prices may decline. The Group leverages its unique service model comprising "hardware," "IT technology," and "logistics/facilities" as a strength, and seeks to expand its competitive advantage, improve efficiency, and create new services through active use of new technologies such as AI. However, if technological innovation occurs more rapidly than anticipated, it could affect business performance.

Securing and developing IT engineers is extremely important for sustainable growth, and the Company strives to strengthen its technical capabilities through active recruitment, IT training for new graduates, and a certification incentive program. However, if the Company fails to develop and secure sufficient talent, this could reduce competitiveness and constrain business expansion, potentially adversely affecting business performance.

In the IT subscription business, the Company procures and holds rental assets. If procurement uncertainty arising from semiconductor supply-demand conditions or obsolescence and declining utilization rates of held assets due to technological innovation occur, this could result in impairment losses and declines in asset valuation, affecting business performance and financial condition. The Company manages asset utilization rate as a key indicator, strengthens management, and promotes digitalization of operations to establish a system capable of maintaining high utilization levels.

The Company relies on borrowings from financial institutions to fund its IT subscription business. Although procurement is basically conducted at fixed interest rates, uncertainty in financial markets, inflation risk, and changes in interest rate policy could increase procurement costs and financial burden. If a sharp rise in interest rates or financial market turmoil occurs, this could lead to declining profit margins and deteriorating financial condition, potentially having a material impact on business performance.

Subscription services involve credit-granting transactions, and if large-scale bad debts occur due to a sharp deterioration in a client company's performance or bankruptcy, this could affect business performance. The Company targets highly creditworthy corporations, primarily mid-sized and large enterprises, and its bad debt track record and risk remain at extremely low levels. In cases of non-payment or bankruptcy, the Company minimizes risk through prompt recovery and redeployment of rental assets and thorough credit management.

The Company conducts business by obtaining permits for each business location based on Article 3 of the Secondhand Dealer Business Law (Kobutsu Eigyoho). If a violation of this law occurs for any reason, the Company could face permit revocation, business suspension, criminal penalties, or other sanctions, potentially affecting business performance. While the Company implements strict preventive measures aimed at preventing the circulation of stolen goods, it is difficult to reduce the risk of legal violations to zero.

Industrial waste generated through business activities must be properly disposed of in accordance with the Waste Management and Public Cleansing Law (Haikibutsu Shori Ho). If the Company fails to respond promptly to future legal amendments or regulatory tightening, this could have a material impact on business performance. The Company strives for legal compliance through proper waste disposal, employee training, and internal audits.

If natural disasters such as earthquakes, large-scale flooding, fires, or explosions, or infectious disease pandemics such as COVID-19 occur, this could have a material impact on business activities and performance, and in recent years the frequency and severity of such events have been increasing. While the Company has established response systems including organizing disaster prevention teams, conducting regular drills, formulating business continuity plans (BCP), introducing remote work, strengthening the supply chain, and optimizing inventory management, the risk of occurrences exceeding anticipated damage levels remains.