GDEP ADVANCE, Inc.

The Company conducts transactions with some domestic suppliers in foreign currencies and procures some hardware parts overseas, and if rapid foreign exchange fluctuations occur, procurement costs will rise, directly affecting business performance. The Company addresses this through passing costs on to sales prices, securing multiple procurement routes, and procuring foreign currency on a real-demand basis, but there is a risk that rapid fluctuations cannot be fully addressed.

In the AI and visualization fields targeted by the Company, the speed of technological innovation is extremely fast, and if the Company's response is delayed, its competitive advantage will be impaired, causing a material impact on business performance. The Company addresses this by leveraging its position as a certified partner to catch up on technological innovation information and by participating in seminars, but keeping pace with rapid changes is key to maintaining competitiveness.

If, due to heightened geopolitical tensions such as the US-China trade friction, Russia's invasion of Ukraine, and the risk of armed conflict between China and Taiwan, various countries invoke or strengthen export control regulations, tariffs, or sanctions, there is a risk of disruption or delay in the supply chain, including the procurement of some parts from Taiwan. The Company seeks to reduce risk by securing multiple suppliers and diversifying procurement sources, but when geopolitical risks materialize, an impact on business performance is unavoidable.

Regarding semiconductors, which are essential for providing solutions, if the necessary quantities cannot be secured due to sharp price increases or supplier issues, the provision of products and services to customers will be delayed, affecting business performance. The Company addresses this by securing multiple procurement sources and increasing inventory, but stable procurement is not guaranteed in an environment of tight supply and demand.

The Company is heavily dependent on capital expenditure demand from customer companies and researchers, and if the business environment of customers deteriorates due to changes in economic conditions, this will affect business performance. In the past, front-loaded demand ahead of the 2019 consumption tax increase and the decline in capital expenditure demand in the early stages of the COVID-19 pandemic in 2020 have affected business performance. A deterioration in the domestic market due to US tariff policy is also cited as a concern.

In order to maintain the competitive advantage of responding quickly to rapid technological innovation, it is essential to secure and develop personnel with advanced technical capabilities and expertise. The Company strives to secure personnel through strengthening recruitment activities, in-house education through OJT, and the introduction of a stock option system, but if this does not proceed as planned and excellent personnel leave, it would have a material impact on the business and business performance.

Representative Director and CEO Masamichi Iino has played an important role since the Company's founding, from determining management policy and business strategy to developing and commercializing new businesses, and if he becomes unable to perform his duties, the impact on business performance would be significant. The Company is working to reduce this dependence through delegation of authority, personnel development, and information sharing at board of directors meetings, but at present the degree of dependence on him remains high.

In FY2025 (ended May 2025), the proportion of NVIDIA products in the Company's purchases reached approximately 70%, and if NVIDIA's market size shrinks or its management strategy changes, the impact on business performance would be significant. The Company is working to expand its handling of products from other manufacturers such as Intel and AMD, but its dependence remains at a high level at present.

With the acceleration of practical application of generative AI, the scale of individual projects has grown larger, and quarterly net sales fluctuate significantly depending on the timing of recognition of sales from large-scale projects. In FY2025 (ended May 2025), quarterly net sales showed large variance: ¥1,249,213 million in the first quarter, ¥2,745,905 million in the second quarter, ¥1,444,214 million in the third quarter, and ¥1,191,598 million in the fourth quarter. The Company strives to smooth this out and provide information through the expansion of recurring revenue from Service & Support and Subscription Service, as well as through disclosure of quarterly sales forecasts.

Japan GPU Computing LLP (Limited Liability Partnership) has been certified at the Elite level in multiple fields under NVIDIA's partner certification program, and in FY2025 (ended May 2025), purchases related to this partner certification accounted for approximately 50% of total purchases. If the LLP were to be dissolved or have its partner certification revoked, this could cause material disruption to the Company's procurement and business operations, but the Company currently maintains smooth relationships with the member companies of the partnership.