Risk Information

Relationship with GMO Internet Group

Our Position within the GMO Internet Group

Our corporate group is part of the GMO Internet Group, a business group centered around GMO Internet Group, Inc. (hereinafter referred to as "GMO Internet Group"). As of the end of December 2024, GMO Internet Group, Inc. directly holds 9.66% of our voting rights and indirectly holds 47.35%.

GMO Internet Group operates under the corporate slogan "Internet for Everyone" and is engaged in various businesses, including Internet Infrastructure, Online Advertising & Media, Internet Finance, Crypto Assets, and Incubation. Among these businesses, our corporate group is positioned as a core company responsible for the Online Advertising & Media business within the GMO Internet Group.

As a result, any changes in GMO Internet Group’s fundamental policies regarding our corporate group could impact our business operations and financial performance.

Furthermore, as of January 1, 2025, based on the absorption-type company split agreement dated June 25, 2024, entered into with GMO Internet Group, Inc., new shares were issued as consideration for the business succession. As a result, GMO Internet Group, Inc. now holds 90% or more of our voting rights.

Concurrent Directorships with GMO Internet Group, Inc.

Among our 7 directors (excluding Audit and Supervisory Committee members, consisting of 4 directors and 3 directors who are Audit and Supervisory Committee members), 3 individuals also serve as executives at GMO Internet Group, Inc. Their positions in our company, their names, and their respective roles at GMO Internet Group, Inc. are as follows:

Mr. Masatoshi Kumagai and Mr. Masashi Yasuda, who serve as part-time directors, have been appointed to provide advice on the business of our corporate group. However, the management policies of GMO Internet Group may have an impact on our corporate group's business operations and financial performance.

Ensuring Independence from GMO Internet Group, Inc.

In our corporate group's business activities and management decisions, all operations are independently executed and developed based on our own decision-making process. Additionally, the concurrent roles held by executives at GMO Internet Group, Inc. do not hinder our independent management decisions. We consider that our corporate group's management autonomy is fully ensured, maintaining independence from GMO Internet Group, Inc..

Regarding our business transactions, the status of transactions with GMO Internet Group, Inc. is outlined in Section ② above. However, the majority of our corporate group's business transactions are conducted with general companies that do not have capital relationships with our company. Furthermore, when conducting transactions with GMO Internet Group, Inc. or other companies within its group, we carefully assess the appropriateness of transaction terms by comparing them with those of third-party transactions before execution.

In particular, for resolutions involving transactions or actions that could result in conflicts of interest with minority shareholders, we establish a special committee centered on independent outside directors who are members of the Audit and Supervisory Committee each time such transactions arise. This ensures that decisions are made from an independent and objective standpoint.

Business Activities of Each Business in Our Corporate Group

Internet Infrastructure business

In the Internet Infrastructure business, we have internalized our development structure to provide products and services that meet customer needs. We offer one-stop services that serve as the foundation for individuals, corporations, and local governments to disseminate information and conduct economic activities on the Internet. Most of these are stock-type services, which form a strong revenue base for our group. However, in the cloud and hosting service field, due to low barriers to entry, there are many competitors in the industry, resulting in intense competition.

To address the increasingly sophisticated and diverse customer needs, our corporate group adopts a multi-brand strategy. However, if competition further intensifies due to factors such as price wars, it could impact our corporate group's financial performance. In addition, domain coordination and management are centrally handled by ICANN (The Internet Corporation for Assigned Names and Numbers), a private nonprofit organization based in the U.S. Depending on ICANN’s actions, there could be effects on the development of our business.

For our Internet connectivity services, we procure network lines from telecommunications carriers. If the terms of these agreements were to deteriorate due to contract changes or other factors, it could also impact our group’s financial performance.

Online Advertisement and Media segment

In the Online Advertisement and Media segment, we aim to establish a dominant market position and are strengthening our capabilities in the ad technology field and enhancing the development of our proprietary products and media, in order to adapt to the anticipated complexities and multifaceted changes in the Internet advertising market. However, if there are delays in responding to new technologies or if services are provided that diverge from user preferences, the number of users for each platform we handle may decline, potentially affecting the sales of ad inventory on those platforms.

Furthermore, if any of the Internet advertising media operators we deal with are found to be involved in so-called “ad fraud,” advertising exposure from affected advertisers may decrease, leading to a reduction in our corporate group’s advertising volume, which could impact our overall business performance.

The Online Advertisement and Media segment includes companies that act as authorized agencies for LINE Yahoo Corporation and Google, Inc., and a significant portion of our group’s consolidated transaction volume is comprised of products from these two companies. While we currently maintain good relationships with these partners, changes in their business strategies, contract renewal terms, or industry trends could result in decreased transaction volumes, which may affect the performance of our corporate group.

Global Business Development and Activities with Global Companies

Our corporate group is promoting operations at overseas offices and business alliances with overseas companies in order to respond to business expansion and technological innovation. These partnerships comply with local laws and regulations; however, the implementation or revision of laws related to the import and export of services, taxation systems such as tariffs, corporate mergers or dissolutions of local partners, or other unforeseen local legal or governmental policy changes may result in administrative recommendations, procedural requirements, or orders and guidance by authorities. These may restrict the execution of such business and could impact our corporate group’s financial condition and business performance.

In addition, if overseas partners are affected by social or political turmoil such as war, terrorism, conflict, riots, or other factors, it could impact our corporate group’s business activities.

Information Security

Our corporate group, through its business activities, handles sensitive information from users and business partners, including personal information. We recognize that maintaining a robust and appropriate information asset management system is a critical priority.

However, in the event of a leakage of information related to users or business partners from our corporate group, our social credibility may be significantly damaged, which could have a serious impact on our business performance and continuity.

System Management

Our corporate group specializes in Internet-related services and, in some cases, outsources critical operations such as Internet connectivity and data center maintenance.

As a result, if system failures occur in areas beyond our control—such as unauthorized access by malicious third parties, hardware or software defects (including so-called bugs), or other disruptions—part or all of the network systems used in our business may malfunction. This could lead to the loss or alteration of important data, unauthorized acquisition of data by third parties, or suspension of transactions.

These incidents could not only result in lost revenue opportunities but may also expose our corporate group to significant claims for damages from third parties, administrative guidance from regulatory authorities, suspension of business operations, or other administrative sanctions, potentially having a serious impact on our business activities and financial performance.

Compliance

Maintenance of Legal and Regulatory Compliance Systems

Our corporate group recognizes the need for continuous enhancement of comprehensive risk management and is striving to ensure thorough compliance throughout the organization. We are strengthening our compliance framework through initiatives such as the operation of an Internal Audit Office reporting directly to the President and CEO, the internal whistleblowing system (GMO Internet Helpline System), implementation of internal control systems under the Financial Instruments and Exchange Act, and the establishment and operation of internal control systems under the Companies Act.

However, in cases where compliance systems fail to keep up with rapid business expansion or sudden increases in personnel, we may not be able to completely avoid compliance-related risks, including individual or organizational misconduct. If any legal violations occur, it could affect our corporate group’s performance.

Various Laws and Regulations

Telecommunications Business Act

This law was enacted to ensure the proper and rational operation of telecommunications services, in consideration of their public nature, to protect user interests, promote sound development of telecommunications, and enhance public welfare. We are a registered telecommunications carrier under this Act. As such, we are subject to regulations concerning the prohibition of censorship, protection of communication privacy, obligations relating to operations and equipment, interconnection of facilities, handling of specific user information, and regulations on the external transmission of user information (Cookie regulations).

Our corporate group has implemented various measures to comply with these obligations. However, there is no guarantee that such measures are sufficient, and we may be subject to guidance or recommendations from regulatory authorities. In some cases, we could face increased contract cancellations or decreased new contracts, which may impact our performance.

Act on Control and Improvement of Amusement Businesses

This law aims to preserve public morals and a clean environment and to prevent actions that may hinder the sound development of young people. It restricts the hours and locations of adult entertainment and related businesses, prohibits minors from entering such premises, and promotes the proper conduct of such businesses. The law primarily regulates those who directly operate adult entertainment businesses.

Under this law, providers of services such as server space and rental servers used in conjunction with Internet access may be subject to a duty to make efforts to prevent the transmission of obscene images if they become aware that such images have been recorded by a video-transmitting adult entertainment business on their servers. Therefore, this law may also apply to our corporate group.

We clearly state in our service terms with users that users are responsible for the content of websites they operate, and we actively raise awareness of legal compliance. Through such voluntary regulations, we seek to prevent the distribution of illegal or harmful content. However, there is no guarantee that these measures are sufficient, and we may face administrative guidance, complaints, damage claims, or recommendations from users, viewers, related parties, or regulatory authorities regarding the websites operated by our users.

Act on Prohibition of Unauthorized Computer Access

This law was enacted to prevent crimes involving computers via telecommunications lines and to maintain the order of telecommunications realized through access control functions, thereby contributing to the sound development of an advanced information and telecommunications society. It prohibits unauthorized access to computers.

Administrators of computers connected to telecommunications lines are also subject to a duty to take necessary measures to defend against unauthorized access. Our corporate group, as an administrator of such systems, is subject to this obligation.

Act on Specified Commercial Transactions

This law was enacted to ensure fairness in specified commercial transactions (such as door-to-door sales and mail order), to prevent potential harm to consumers, and to promote sound development of the national economy through proper distribution of goods and services. It sets out administrative regulations such as mandatory disclosure of business names, prohibitions on improper solicitation and false or exaggerated advertising, as well as civil rules including the introduction of opt-in rules for advertising emails, cooling-off periods, and caps on damages.

Given the increasing problems with returns, unsolicited advertising emails, and credit card information leaks in Internet transactions, this law also applies to e-commerce transactions.

Since our Online Advertisement and Media segment and the email distribution of advertisements to users fall under the scope of this law, amendments to the law may impose further restrictions on these business activities and marketing efforts.

Act on Regulation of Transmission of Specified Electronic Mail

This law was enacted to prevent disruption to email communications caused by the mass distribution of profit-oriented advertisements and to create a sound environment for email usage. It mandates that senders of specified commercial emails include contact information and comply with related obligations.

This law has shifted from an opt-out model to an opt-in model, strengthened enforcement, and enhanced international cooperation. Our Online Advertisement and Media segment and the distribution of advertising emails to users are regulated under this law. Therefore, amendments to the law may impose additional restrictions on our operations and marketing activities.

Act on Development of an Environment that Provides Safe and Secure Internet Use for Young People

This law was enacted in light of the widespread availability of harmful content on the Internet. It aims to enable youth to use the Internet in a safer and more secure manner, thereby protecting their rights.

Under this law, our services that involve server management—such as Internet connectivity, hosting, and bulletin board services—are subject to obligations such as providing filtering services and restricting access to harmful content for youth. Additionally, any deletion or restriction of information under this law may affect freedom of expression. Therefore, when identifying and restricting harmful content, our corporate group is required to make careful and appropriate decisions.

We strive for prudent operation to ensure such decisions are appropriate. However, if a court or administrative body later deems our decision inappropriate, we may be subject to complaints, damage claims, administrative guidance, or recommendations from content creators or other related parties.

Act against Unjustifiable Premiums and Misleading Representations

This law aims to protect consumers by prohibiting unfair premiums and misleading representations in product and service transactions that could hinder consumers’ independent and rational choices.

Our corporate group makes efforts to properly display product and service details and prices on websites, to ensure promotional campaigns comply with legal requirements, and to provide internal training on this law.

However, if a product or service purchased by a user is defective, or if false or misleading advertisements are issued by us or our partners, or if a regulatory body or consumer determines that an advertisement is inappropriate, we may face complaints, compensation claims, class actions, or administrative penalties such as surcharge orders. These situations may significantly impact our business operations and performance, or damage our corporate group’s credibility.

Potential Legal Actions

Our Internet Infrastructure business provides a wide range of information, products, and services across all fields via the Internet, and stable service operations are essential. However, in the event of system failures caused by natural disasters, DDoS attacks by malicious third parties, unauthorized access to our facilities, or other incidents beyond our technical defense capabilities, there is a risk of significant damage to users or third parties.

To address this, we have implemented measures such as uninterruptible power supplies, 24/365 system monitoring and customer support with backup systems, and security enhancements. We also include disclaimers in our service agreements. Nonetheless, lawsuits or compensation claims may still be filed against us by users or third parties.

In addition, recognizing the importance of intellectual property rights, our corporate group takes measures to protect IP and prevent infringement. However, there remains the possibility of lawsuits being filed against us by third parties claiming IP infringement and seeking damages or injunctions.

If such lawsuits or legal actions occur, they may significantly affect our business operations and financial performance, and could harm our social credibility.

Talent Acquisition and Development

As our corporate group expands and the workload increases, we recognize that securing and developing talented personnel across all business areas is a critical management priority. To address this, we are actively strengthening our business planning and management structures, conducting proactive hiring, and focusing on enhancing organizational development and talent training through various educational programs.

However, if changes occur in the employment environment or labor supply and demand, we may need to revise existing business strategies, slow down the pace of business development, and diversify our recruitment methods, which could result in increased costs and may impact our corporate group’s business performance and financial condition.

New Business Development and Business Investment

Our corporate group may establish new companies, invest in existing companies, or develop joint ventures as a means of business expansion and growth. These investment activities are reviewed through internal committees consisting of key members with specialized knowledge, where profitability and risk analyses are carefully examined to provide a system of checks and balances in determining whether to proceed with the investment.

However, it is difficult to accurately predict the business conditions of the investment targets or the impact of new businesses on our corporate group. If, after the investment, unforeseen factors arise—such as the discovery of previously unidentified liabilities, the occurrence of contingent liabilities not detected during due diligence, or if investment activities or new businesses do not progress as planned—there is a risk that investment recovery may become difficult, which could have a significant impact on our corporate group’s business performance.

Organizational Reform

Our corporate group is committed to continuously reviewing the functions of existing organizations, while also implementing measures such as cost optimization and asset reduction. Depending on the progress of these initiatives, if significant temporary expenses arise due to the restructuring of existing organizations, businesses, or operations, it may impact our corporate group's business performance and financial condition.