FreeBit Co., Ltd.

Telecommunications and internet-related services depend on communication lines from NTT DOCOMO Business, NTT East and NTT West, and the internet advertising business has a high degree of procurement dependence on Google LLC, LINE Yahoo, and Meta Platforms. If these companies change their business policies or if transaction terms deteriorate, this could directly affect the Group's business performance. In addition, total sales to the major providers of ISP services for apartment complexes account for approximately 30% of consolidated net sales, and the impact would be significant should transactions be discontinued.

Servers used in the telecommunications and internet-related businesses accumulate customers' communication records and personal information, and the internet advertising business also collects members' personal information. If information leakage or unauthorized use occurs, this could result in business improvement orders from regulatory authorities, claims for damages, and loss of credibility, and the personal information leakage insurance the Company has subscribed to may not cover all losses. The Group addresses this risk through the development of various internal regulations, technical measures, employee training, and confidentiality agreements with outsourcing partners.

In the ISP business, data center business, MVNO/MVNE business, cloud computing-related business, internet advertising business, and other areas, the Group competes with major companies that have superior capital strength, marketing capabilities, and brand recognition. Intensifying competition or a substantial increase in countermeasure costs could reduce profitability and sales capability, affecting business performance. The Group addresses this through differentiation measures for its products and services and its proprietary affiliate platform "afb" as a source of competitiveness.

Cutting-edge technologies such as 5G, Web3, and AI have the potential to transform existing industrial structures, posing a risk of negative impact on the Group's existing businesses. If technological changes that are difficult to respond to occur, or if technological innovation requiring substantial investment arises, this could affect the Group's business and performance. The Group is addressing this through the hiring of specialized personnel and the promotion of R&D, and has achieved certain results such as operating one of the world's leading numbers of nodes for a Layer 1 blockchain in the Web3 domain.

The supply-demand balance for communication line facilities has become unstable due to a rapid increase in rich content and IoT communications and expanding demand for remote work, and costs may rise due to increased procurement of lines and bandwidth needed to maintain service quality. In addition, if equipment prices surge due to semiconductor shortages, foreign exchange effects, or international competition among equipment manufacturers, procurement delays and cost increases could result in lost opportunities and deteriorating profitability. The Group addresses this through efficient procurement of lines and bandwidth and highly efficient network operations, including data optimization.

Securing funds for investment in networks, server equipment, system development, M&A, and other purposes may become difficult if business performance deteriorates. Some borrowings from financial institutions are subject to financial covenants, and if these covenants are breached, the Company may be required to immediately repay the borrowings, which could have a significant impact on its financial position. There is also a risk that a rapid rise in interest rates could affect operating results and financial position.

The Group may conduct corporate acquisitions with the aim of rapidly expanding scale and supplementing business resources, and may recognize a certain amount of goodwill at the time of acquisition. Although due diligence is conducted, if unforeseen liabilities arise after an acquisition or if sufficient group synergies are not achieved due to changes in the business environment, this could affect business performance. There is also a similar risk that investments in personnel, systems, and advertising for launching new businesses may not translate into profits.

The Company and its subsidiaries comply with the Telecommunications Business Act and other laws as telecommunications carriers, but related laws and regulations are continually being developed, including stricter penalties for online defamation, revisions to the Act on the Protection of Personal Information, and clarification of consumer contract rules. If new internet-related regulations are enacted, or if violations of laws and regulations occur, this could result in certain restrictions on operations or affect business performance. The Group strives to respond promptly in coordination with industry associations.

Due to the rapid expansion of the internet market, there is a chronic shortage of personnel with specialized knowledge and skills, and there is no guarantee that the necessary number of personnel can be secured in a timely manner. If hiring based on personnel plans cannot be carried out, or if unexpected personnel attrition occurs, this could disrupt business operations and affect performance. The Group strives to prevent the outflow of personnel through active recruitment activities as well as the enhancement of employee benefits and the establishment of training systems.

If a system failure occurs due to unpredictable events such as cyberattacks, hardware malfunctions, large-scale power outages, natural disasters exceeding expectations, or terrorism, the Group may be forced to suspend services for a certain period. This could damage the Group's credibility and result in claims for damages, affecting its business and performance. The Group has implemented business continuity measures such as redundant configurations, earthquake-resistant structures, and backup power sources, but complete elimination of this risk is difficult.