GMO Pepabo, Inc.

The parent company, GMO Internet Group, Inc., holds 60.9% of voting rights, and if there is a change in its basic policy or a significant change in transaction terms, it may affect the business and performance of the Company's group. The Company's main outsourcing partners are also GMO Internet, Inc. and GMO GlobalSign Holdings K.K., and dependence on the group is also high in terms of server and rack supply. In order to maintain economic rationality of transaction terms, the Company periodically reviews contracts and makes transaction decisions based on market principles.

If troubles with third parties, misconduct by officers or employees, or false rumors and reports occur within the GMO Internet Group, the credibility of the entire group may be damaged, potentially leading to deterioration of the Company's group's corporate image and adverse effects on its business performance and financial condition. This is a structural risk in which the Company's group is affected by sharing the group brand even if the issue is not its own. There is currently no specific description of preventive measures, and it depends on the governance of the group as a whole.

Attacks by hackers or other malicious third parties may result in unauthorized acquisition of customer information (breach of confidentiality), tampering with customer sites (breach of integrity), or service outages due to denial-of-service attacks (breach of availability). If these occur, they could have a significant impact on business and performance through legal liability and damage to corporate image. As countermeasures, in addition to systemic measures such as firewalls and countermeasure equipment, the Company promotes organizational information security measures through a specialized team.

As a personal information handling business operator under the Personal Information Protection Act, if a serious problem such as a leak of personal information occurs, it may affect the business and performance through claims for damages and loss of credibility. The Company's group has established a strict internal system including limiting access to personal information, password management, and log management, and manages personal information at a data center with 24-hour security management. The Company plans to further strengthen this system going forward.

The Company's group's services depend on communication networks, and if a communication outage occurs due to a disaster or accident, a server becomes inoperable due to a sudden increase in access, or hardware malfunctions occur, it may become difficult to provide stable service 24 hours a day, 365 days a year. In such cases, in addition to direct damage such as refunds of usage fees to customers, it may affect business and performance through loss of credibility and damage to brand image. Although the Company has taken measures such as a system monitoring structure and backups, complete prevention is stated to be difficult.

In the hosting, EC Support, and Handmade business fields, competition may intensify due to technological development competition, price competition, and new entrants. "Lolipop!" is recognized as the largest personal rental server service in Japan, but there are numerous competing services in the same price range, and the rise of alternative services and the expansion of internet usage forms other than rental servers is also anticipated. The Company's group develops multiple service brands with different targets and price ranges, adopting a comprehensive strategy to expand overall market share.

In addition to related laws such as the Telecommunications Business Act, the Act on the Limitation of Liability for Damages of Specified Telecommunications Service Providers, the Unauthorized Computer Access Law, and the Act against Unjustifiable Premiums and Misleading Representations, discussions on legal regulations surrounding the internet and electronic commerce continue, and new legislation or strengthened self-regulation may be required. If the cost of responding to new legislation becomes heavy and difficult to manage, business operations may be restricted, affecting performance. The Company's group constantly strives to gather information in order to respond promptly.

There is a risk that store owners, purchasers, and others on the Company's group's services may engage in illegal acts such as trading in prohibited goods, fraud, infringement of intellectual property rights, or posting content that violates public order and morals. If prevention in advance is not possible, the Company's group, as a provider of a venue for transactions and expression, may also be held responsible, and there is a possibility that service provision may be interrupted due to server seizure, etc. The Company continuously implements measures such as monitoring usage status by customer support, issuing warnings based on the terms of service, and removing illegal information.

In the procurement of servers and racks and the purchase of domains, if infrastructure prices rise or procurement costs increase due to foreign exchange fluctuations or soaring resource and energy prices, it may adversely affect operating results and financial condition. Dependence on outsourcing partners is high, and if an unexpected termination of a transaction occurs due to deterioration in the outsourcing partner's management, etc., there is also a risk that additional costs may arise for server removal or relocation to another data center. There is currently no specific description of hedging measures.

Securing, developing, and retaining excellent human resources is necessary for medium- to long-term growth, but if recruitment plans do not proceed as planned or existing excellent personnel leave the company, it may affect business and performance. In addition, aggressive investment in new services and new businesses may result in additional expenditures such as personnel, system investment, and advertising expenses, potentially reducing profits. The Company's group states that it continuously focuses on securing and developing human resources, but there is no detailed description of specific measures.