Internet Initiative Japan Inc.

In the domestic business, which accounts for 87% of net sales, there is a possibility that demand for Network Services and Systems Integration may not grow as expected due to economic downturns or a decline in corporate appetite for system investment. Systems Integration in particular is strongly affected by trends in the domestic economy and capital expenditure, and if price declines or contract cancellations progress, expanding or maintaining sales and profits may become difficult. It is also explicitly stated that dividends may not be paid as forecast.

Capital expenditure for FY2026 (ending March 2026) is trending upward at ¥32.2 billion (up from ¥26.3 billion in the previous fiscal year), and in connection with the construction of the third building of the company's own data center in Shirai City, Chiba Prefecture, additional investment of approximately ¥18.0 billion (with a cumulative total of approximately ¥27.0 billion expected) is planned for FY2027 (ending March 2027). There is a risk that capital expenditure could increase beyond expectations, or that construction could not be completed on the planned schedule, due to soaring construction material and labor costs or a shortage of labor supply. If the yen continues to depreciate, procurement costs for US dollar-denominated equipment and software, as well as depreciation of capital expenditures, could increase further.

Because the company depends on the NTT Group, KDDI, and others for backbone and access lines, and procures equipment such as routers and software mainly from specific suppliers in the United States, there is a risk that service provision could be interrupted for an extended period if supply is halted, quality deteriorates, or prices rise. In FY2025 (ended March 2025), a significant increase in license fees actually occurred in connection with Broadcom's acquisition of VMware, and the impact would be substantial if alternative procurement proves difficult. Soaring electricity rates and unstable electricity supply could also affect data center operating costs.

There is a risk that networks and systems could be halted due to natural disasters, power outages, cyberattacks, or human error, and in April 2025 an information leak actually occurred in the corporate email security service due to unauthorized access exploiting an unknown vulnerability in third-party software, temporarily suspending part of the service. The company holds domestic and overseas customer information, including personal information related to mobile services, and if leakage, loss, or falsification occurs, there is a risk of loss of trust and liability for damages. Although the company has obtained BCR approval for the EU's GDPR, there is also a possibility that large fines could be imposed for violations of regulations in various countries.

In corporate network services, the company competes with telecommunications carriers such as NTT DOCOMO Business and KDDI; in Systems Integration, with major SIers such as NEC, Fujitsu, and NTT DATA; and in cloud services, with major foreign companies such as AWS and Microsoft, some of which have greater capital strength, technological capabilities, and sales power than the company. In consumer mobile services, competition with major carriers and MVNO operators is intense, and if price reductions progress, sales and profit levels could deteriorate. If the company is unable to differentiate itself, this could have a material impact on the Group's business results and financial condition.

The company has invested a cumulative total of ¥9.0 billion (a 34.8% ownership stake) in Decurret Holdings Inc., an equity-method affiliate, and the cumulative equity-method losses as of the end of FY2026 (ending March 2026) have reached ¥7.2 billion. Since Decurret's digital currency business is still in its launch phase, if the business does not grow as expected, additional equity-method investment losses, impairment, or capital contributions may be required. In addition, the Group's total goodwill balance at the end of FY2026 (ending March 2026) is ¥10.8 billion (of which ¥4.7 billion relates to PTC SYSTEM and ¥5.8 billion relates to domestic network and SI businesses), and there is a risk that impairment losses could be recorded if significant changes occur in business conditions.

The company is a designated business operator obligated by the Minister of Internal Affairs and Communications under Article 41 of the Telecommunications Business Act to properly manage telecommunications facilities, and is subject to stronger oversight than ordinary registered telecommunications business operators. If business practices are deemed inappropriate, measures such as business improvement orders and administrative guidance accompanied by public disclosure of the company name may be taken, leading to increased response costs and damage to corporate image. Regulatory tightening continues, including strengthened obligations to remove content and stricter identity verification under the revised Act on Countermeasures against Damage from Information Distribution Platforms, which could result in additional processing costs and capital expenditure.

The enforcement of the Economic Security Promotion Act and the Act on the Protection and Utilization of Critical Economic Security Information, as well as the enactment of the Act to Promote Cybersecurity Response Capabilities, could affect data center construction plans and the operation of services for specified critical infrastructure operators. Overseas affiliated companies are required to comply with the US FCPA, the EU's GDPR, and various countries' data localization regulations, and violations could result in substantial fines and business restrictions. The international business (net sales of ¥45.7 billion in FY2026 (ending March 2026)) carries higher uncertainty than the domestic business in terms of institutions, geopolitics, and culture, and inappropriate responses to local legal systems could impede business development.

In the telecommunications services industry, changes in technology, industry standards, and customer needs occur rapidly, and there is a risk that delays in adopting new technologies or failure to obtain licenses for key technologies could reduce the marketability of existing services. If the Group falls behind in responding to and developing talent for the rapid advancement of AI technology, its competitiveness could decline, and improvements in business productivity may not be realized. If risks related to AI-related intellectual property and personal information protection (such as unintended data being used for training, generation of misinformation, and leakage through inference of training data) are not adequately addressed, this could result in liability for damages and other burdens.

The number of employees at the end of FY2026 (ending March 2026) continues to expand, reaching 5,533 (an increase of 312 from the previous fiscal year), and if the company is unable to secure personnel in technology, sales, and planning/management functions at the appropriate time, this could impede business promotion. In line with the current economic environment, upward revisions to wage levels are necessary, and labor-related expenses could increase beyond expectations due to labor market conditions and legal revisions. Systems Integration also makes extensive use of outsourced personnel, but outsourcing unit costs are rising against the backdrop of a shrinking labor force, and if man-hours are not properly managed, there is a risk of losses on individual projects.