GMO Internet, Inc.

GMO Internet Group, Inc. directly holds 90.59% of the Company's voting rights, and changes in the parent company's basic policies may affect the Company's business and operating results. In connection with the business transfer under the absorption-type company split agreement effective January 1, 2025, new shares were issued, bringing the parent's controlling ratio to over 90%. Three of the Company's seven officers concurrently hold positions at the parent company, presenting a risk of influence on management policy; however, the Company has established a conflict-of-interest management framework centered on a special committee composed mainly of independent outside directors.

The Company's consolidated group handles important information and personal data of users and business partners through its business activities, and if an information leak were to occur, it could severely damage the group's social credibility and materially affect business performance and continuity. The Company is obligated to implement safety control measures and restrictions on third-party provision under the Personal Information Protection Act, and must also comply with guidelines set by supervisory authorities and industry associations. While the Company recognizes the ongoing maintenance of an appropriate information asset management framework as an important issue and is addressing it accordingly, there is no guarantee that leaks can be completely prevented.

The Company outsources part of its internet connectivity and data center maintenance operations to external parties, and failures in areas beyond the Company's control, unauthorized access by malicious third parties, or defects in hardware or software could cause its networks and systems to malfunction. This could result in the loss, alteration, or unauthorized acquisition of important data, and suspension of transactions, leading not only to lost business opportunities but also to the risk of substantial damages claims or administrative sanctions. The Company has established a 24-hour, 365-day management and maintenance framework utilizing uninterruptible power supply systems and backup systems, but risks of failures from events exceeding expectations, such as DDoS attacks, remain.

Cloud and hosting services have low barriers to entry, and numerous competitors exist, resulting in intense competitive conditions. While the Company's consolidated group employs a multi-brand strategy to address increasingly sophisticated and diversified customer needs, further intensification of the competitive environment through price competition and other factors could affect operating results. In addition, trends at ICANN, which has sole authority over domain management, and deteriorating contractual terms with telecommunications carriers providing the lines used for internet connection services, could also affect business operations.

The Internet Advertising & Media Business includes companies that serve as official agencies for LINE Yahoo Corporation and Google, Inc., and the proportion of consolidated handling volume accounted for by these two companies' products is significant. If transaction volume were to decline due to changes in each company's business policies, changes in contract renewal terms, or industry trends, it could affect the operating results of the Company's consolidated group. In addition, if a business partner operating an internet advertising platform were to be involved in ad fraud, this could reduce advertisers' ad exposure and consequently reduce the Company's advertising handling volume.

As a registered telecommunications carrier under the Telecommunications Business Act, the Company is obligated to protect the secrecy of communications, handle specified user information appropriately, and comply with cookie regulations, among other requirements; inadequate compliance could result in guidance or recommendations from administrative agencies, an increase in contract cancellations, and other effects on business performance. The Company is also subject to a wide range of regulations, including the Act on Control and Improvement of Amusement Business, etc., the Unauthorized Computer Access Law, the Provider Liability Limitation Act, the Act on Specified Commercial Transactions, the Act on Regulation of Transmission of Specified Electronic Mail, the Act on Development of an Environment that Provides Safe and Secure Internet Use for Young People, and the Act against Unjustifiable Premiums and Misleading Representations. Legal amendments, administrative guidance, damages claims, or surcharge payment orders could have a material impact on business activities and performance.

The Company's consolidated group is expanding operations at overseas offices and business alliances with overseas operators; on March 31, 2025, the Company acquired shares and related loan receivables of eight overseas subsidiaries centered on the internet infrastructure business held by GMO Internet Group, Inc. Business operations could be constrained by regulations on the export and import of services, revisions to tariff systems, and changes in local laws or government policies. In addition, if social or political turmoil, such as war, terrorism, or conflict, were to affect overseas business operators, it could affect the business activities, financial condition, and operating results of the Company's consolidated group.

The Company's consolidated group raises funds through borrowings from financial institutions and bond issuances; a rise in interest rates due to changes in monetary policy or financial markets could increase funding costs and affect operating results and financial condition. In addition, since the consolidated financial statements are prepared by translating the financial statements of overseas consolidated subsidiaries into yen, and some businesses involve expenditures denominated in foreign currencies, fluctuations in foreign exchange rates could have a material impact on business performance. The Company works to mitigate foreign exchange risk through hedging transactions using derivatives such as forward foreign exchange contracts, but complete avoidance is difficult.

The Company's consolidated group recognizes goodwill arising from corporate acquisitions and organizational restructuring; if indications of impairment arise due to deterioration in the operating results of the acquired companies and the recoverable amount falls below the book value of the goodwill, impairment accounting will be required. Should impairment accounting occur, it could affect the business performance and financial condition of the Company's consolidated group. In new business development and business investments as well, unforeseen factors—such as the discovery of unrecognized liabilities or the occurrence of contingent liabilities after an investment has been made—could arise, making it difficult to recover the investment.

To respond to the increase in workload accompanying business expansion, the Company's consolidated group recognizes securing and developing excellent talent in each field as an important management issue, and is focusing on active recruitment activities as well as education, training, and organizational development. However, if the employment environment or labor supply-demand conditions change, this could lead to a review of existing businesses, a slowdown in the pace of business development, and increased costs from diversifying recruitment methods, thereby affecting business performance and financial condition. In addition, if progress in organizational reform results in significant one-time expenses associated with the review of existing organizations and businesses, this could also affect business performance and financial condition.