SAKURA internet Inc.

The Company may be at a disadvantage relative to major cloud service providers in terms of capital strength, sales capabilities, and brand recognition, creating a risk of declining competitiveness. Following the official adoption of the government cloud in March 2026, the Company is promoting ecosystem development and sales channel expansion utilizing its partner program and cloud certification, but if sufficient differentiation from competitors is not achieved, this may hinder its market share expansion plans.

While the Company's data centers have implemented measures such as 24-hour staffed management, dual power supplies, and network redundancy, an unforeseen large-scale natural disaster or infectious disease pandemic causing facility shutdowns could render service provision impossible, potentially having a material impact on business performance. Although the Company continuously conducts disaster drills and reviews emergency response procedures, complete preparedness against unforeseen events is difficult to achieve.

Cyber threats such as virus infections, cracking, unauthorized access, and DoS attacks constantly exist, and if a large-scale attack beyond expectations occurs or countermeasures fail to function, damage to corporate image, liability for damages, and service disruption could result. Although appropriate security measures have been implemented, complete defense cannot be guaranteed given the increasing sophistication of attack methods.

The Company accumulates a wide range of customer information spanning individuals, corporations, education, and public sector clients, and if information leakage occurs due to unauthorized access or virus intrusion, this could impact business performance through response costs, customer claims for damages, and declines in new subscriptions or increases in cancellations due to reputational damage. Although the Company has implemented measures such as establishing a dedicated department, strengthening system security, and providing regular training for officers and employees, complete prevention is difficult given the heightening cyber risks.

The Company consumes large amounts of electricity to operate its numerous servers, creating a risk of deteriorating business performance if increases in electricity prices beyond expectations cannot be passed on to service prices. In addition, long-term delivery delays may occur for components dependent on overseas procurement, such as semiconductors, due to global demand surges and logistics constraints, and rising construction material and labor costs associated with the expansion of the Ishikari Data Center may also pressure profitability.

The Company plans continued large-scale investment for data center optimization, additional procurement of GPU resources, and new service development, premised on stable fundraising through financial institution borrowings and leases. If significant fluctuations occur in financial markets or the external environment, fundraising may become difficult or fundraising costs may increase, potentially adversely affecting the execution of investment plans and business performance.

While rapid response to new technologies is required to provide comprehensive cloud solutions, if the securing and development of engineers and sales/marketing personnel does not proceed smoothly, this could lead to declining competitiveness and delays in business expansion. The departure of key personnel or failure to control personnel-related expenses arising from aggressive hiring could also affect business performance.

As a telecommunications carrier, the Company is obligated to comply with requirements under the Telecommunications Business Act, such as the "secrecy of communications" and "fairness of use," and violations could result in business improvement orders or penalties from the competent minister. Future revisions to laws and regulations or the establishment of new regulations or industry rules could also affect business operations.

The Company holds large-scale fixed assets such as data center facilities, and if a significant deterioration in the business environment reduces business profitability such that recovery of invested amounts becomes unlikely, impairment losses could occur and materially affect business performance. As the balance of fixed assets increases due to continued aggressive investment in GPUs and other equipment, particular attention should be paid to the risk of customer acquisition falling short of plan.

The Company plans to conduct disposal of treasury stock based on its restricted stock compensation plan in FY2027 (ending March 2027) as well, and has already conducted a public offering of new shares in June 2024. The Company may conduct further fundraising involving the issuance of new shares as necessary in the future, and if such issuances are carried out, there is a risk of dilution of existing shareholders' share value and voting rights ratio.