SEPTENI HOLDINGS CO., LTD.

The internet advertising industry has expanded rapidly over the past decade or more, but advertising businesses are highly susceptible to economic conditions, and if an economic downturn causes advertisers to cut advertising expenditures, this could materially affect the Group's business activities, financial position, and operating results. In addition, the same risk may arise if measures to establish competitive advantage fail to succeed in the continuing intense competitive environment. The Group is implementing various measures to strengthen its competitiveness, but the effectiveness of such measures is not guaranteed.

The Group's greatest asset is its human resources, and recruiting, developing, and continuously securing excellent personnel is recognized as an important issue. If the Group is unable to secure and develop the necessary personnel due to intensifying competition for talent or changes in the supply-demand balance of the labor market, this could materially affect its business activities, financial position, and operating results. The Group is working to address this through improving the working environment, establishing support systems, and promoting work-style reforms, among other measures.

The Group is promoting the use of generative AI to improve business competitiveness and operational efficiency, but risks exist such as leakage of personal information, data tampering, infringement of intellectual property rights, dissemination of misinformation, and the promotion of unintended bias. If these risks materialize, they could result in damage to social credibility, customer attrition, and claims for damages, among other consequences. In addition, the AI regulatory framework is changing rapidly, and additional resources may be required to respond to new laws and regulations. The Group is working on the creation and operation of guidelines, awareness-raising activities, and the introduction of technical countermeasures, among other initiatives.

Multiple companies within the Group handle personal information through their business activities, and there is a possibility of personal information leakage due to system malfunctions, negligence or willful misconduct by related parties, or criminal acts. If a leak occurs, it could lead to claims for damages and loss of credibility, potentially materially affecting the Group's business activities, financial position, and operating results. In addition to formulating a personal information protection policy and establishing a management system, the Group is working to obtain Privacy Mark and ISMS certifications and to comply with the GDPR and CCPA, among other measures.

The Group's policy is to utilize M&A as a means of business expansion, but issues that could not be identified through prior due diligence, such as the occurrence of contingent liabilities or the discovery of previously unrecognized liabilities, may arise after an acquisition. In addition, if business development does not proceed as planned and impairment of goodwill becomes necessary, this could materially affect the Group's financial position and operating results. The Group conducts detailed prior due diligence on the target company's financial condition, contractual relationships, and other matters, and makes decisions after sufficient risk consideration.

Dentsu Group Inc. is the largest shareholder, holding 52.48% of the Company's total issued shares (52.49% of voting rights) as of the end of the fiscal year under review, and has dispatched one director and one corporate auditor. Based on the capital and business alliance agreement dated October 28, 2021, the Company is working to maximize business synergies; however, there is a possibility that the initially expected effects may not be achieved due to unforeseen events or changes in the environment, and there is also a possibility that the capital and business alliance may be terminated in the future. If these factors materialize, they could materially affect the Group's business activities, financial position, and operating results.

The Group's business areas are subject to regulation under numerous laws and guidelines issued by regulatory authorities, including the Act against Unjustifiable Premiums and Misleading Representations, the Pharmaceuticals and Medical Devices Act, the Specified Commercial Transactions Act, the Personal Information Protection Act, and the Freelance Protection Act. Going forward, the enactment of new related laws, amendments to or changes in the interpretation of existing laws, or the establishment of industry self-regulation could, depending on their content, materially affect the Group's business activities, financial position, and operating results. The Group closely monitors developments in various laws and regulations and strives to respond appropriately.

The Group actively conducts business in many overseas countries and regions, including the United States and various Asian countries, and the presence of its overseas business is gradually increasing. In overseas business, various risk factors exist, including global economic conditions, foreign exchange trends, amendments to laws and regulations concerning investment and competition, differences in business customs, labor relations, conflicts, terrorism, and international politics. If these risks materialize, they could materially affect the Group's business activities, financial position, and operating results.

The Group provides certain services to customers via the internet through computer systems centered on servers, and if a system failure occurs due to equipment malfunction, natural disaster, a sharp increase in access volume, computer viruses, or other causes, or if unauthorized access results in program tampering, this could lead to service outages, decline in customer trust, and claims for damages, among other consequences. The Group continuously implements measures to ensure stable operations, such as strengthening systems and enhancing backup systems.

In the Group's main business areas, transactions with specific customers may expand significantly and the proportion of sales they represent may increase, driven by increases in advertising budgets and improvements in the cost-effectiveness of internet advertising. If transactions with such customer companies were to shrink significantly in the future due to changes in their business policies, business performance trends, or other reasons, this could materially affect the Group's business activities, financial position, and operating results. The Group strives to diversify its customer base, but increasing dependence on specific customers is recognized as a structural risk.