Use technology to create new value and work together with clients to build success.

The following are matters that are considered potential risk factors related to the business development and other aspects of our group. Additionally, even matters that do not necessarily fall under such risk factors but are deemed important for investment decisions are proactively disclosed from the perspective of information disclosure to investors. Please note that the forward-looking statements in this document are based on judgments made by our group as of the end of March 2025 and do not cover all risks that may arise in the future.

(1) Risks related to the business climate

① Trends in the Internet Advertising Market and Competitive Environment

The internet advertising industry, in which our group primarily operates, has rapidly expanded in market size over the past decade. Advertising businesses, not limited to the internet, generally tend to be sensitive to economic conditions. If the economy deteriorates, advertising budgets are reduced, or the market size does not expand as expected, it may affect our group’s financial condition and business performance.
Additionally, the rapid advancement of generative AI is expected to bring significant transformation to the existing business models in the internet advertising market. While our group is implementing various measures to establish competitive advantages and enhance competitiveness amid intense competition, these measures may not necessarily succeed in securing such advantages. In such cases, our group’s financial condition and business performance could be adversely affected.

② Response to Technological Innovation

Our group’s services are based on internet-related technologies, but the internet-related field is highly dynamic, with continuous development of new technologies and introduction of new services. Furthermore, in terms of devices displaying advertisements, the rapid proliferation of smartphones, tablets, and other devices has led to the rollout of new services adapted to these technologies.
Therefore, our group focuses on recruiting and training engineers, fostering a creative work environment, and particularly acquiring technologies, knowledge, and expertise related to smartphones.
However, if acquiring such knowledge and expertise proves difficult, or if our group’s response to technological innovation is delayed, it may lead to a decline in our group’s technological capabilities, resulting in reduced service quality and competitiveness, which could negatively impact our financial condition and business performance. Moreover, if responding to new technologies becomes necessary, additional expenditures such as system investments and personnel costs may increase.

③ Risks Related to Advertising Platform Business at Overseas Bases

Our group has subsidiaries in Singapore, Vietnam, Indonesia, as well as India and North America, and operates internet advertising businesses primarily in Asia and North America. The advertising platform business at overseas bases is positioned as a future growth investment for our group, and we will continue to develop the business as appropriate.
However, if business promotion becomes difficult due to inability to respond to country-specific business customs, government regulations, or other factors, investments may not be recovered, which could adversely affect our group’s financial condition and business performance.

④ Natural Disasters and Other Events

Regarding servers necessary for our group’s business activities, we strive to prevent or avoid system troubles by utilizing external data centers, conducting regular backups, and monitoring operational status in preparation for natural disasters, accidents, and other incidents.
However, in the event that a major earthquake, typhoon, or other natural disaster or accident occurs in Tokyo, where our headquarters is located, causing damage to equipment or restrictions on power supply, it may disrupt the continuity of services we provide.
Additionally, costs related to repairing damaged equipment and compensating affected employees may arise, which could impact our group’s financial condition and business performance.

(2) Risks related to our businesses

① About the Advertising Platform Business

i) Seasonal Fluctuations

The sales of our Group’s advertising platform business are composed of advertisers’ advertising budgets, and thus are influenced by the monthly budget allocations of advertisers. Sales tend to concentrate in December and the fiscal year-end month (mainly March).
Therefore, compared to industries with stable monthly performance, sales and profits are more prone to fluctuations. Additionally, it is necessary to secure labor capable of continuing operations during busy periods. If fluctuations are large and downside deviations are significant, this may adversely affect the Group’s financial condition and operating results.

ii) Strengthening the Monitoring System for Inappropriate Ad Distribution

Our Group recognizes that thorough quality control of advertisements we distribute is a critical issue to ensure the value provided to customers. Specifically, we strive to monitor advertisements for fraudulent displays, misleading advertisements, and ads placed on internet media containing illegal content.
Furthermore, for advertisements subject to legal regulations such as the Pharmaceutical and Medical Device Act and the Act against Unjustifiable Premiums and Misleading Representations, the business division and legal department confirm whether the ads can be published during the ad review stage, and publication is conducted following appropriate procedures.
However, if unforeseen factors cause deficiencies in these measures, compensation for damages to customers may be required, which could impact the Group’s financial condition and operating results.

② About the Marketing SaaS Business

In the Marketing SaaS business, we started offering the marketing automation tool “GENIEE MA” in July 2016, the SFA (Sales Force Automation)/CRM (Customer Relationship Management) system “GENIEE SFA/CRM” in June 2018, and the chat customer service tool “GENIEE CHAT” in November 2018. In November 2020, we made Business Search Technology Co., Ltd., which provides on-site search services and e-commerce site search services, a wholly owned subsidiary.
We also made REACT Inc. a wholly owned subsidiary in August 2021, CATS Inc. in February 2022, and Hypersonic Inc. in July 2022, actively expanding our business domains. Currently, we are focusing on gaining market share and expanding the business.
However, if progress in acquiring client companies or monetization strategies does not proceed as planned, profitability of the business may be delayed, potentially affecting the Group’s financial condition and operating results.

(3) Risks associated with business expansion and development

① Dependence on Specific Businesses

As of the end of the current consolidated fiscal year, the revenue of our Group remains heavily concentrated in the core business "GENIEE SSP," to which management resources have been focused since the founding period. On the other hand, we are strengthening and expanding our revenue base by diversifying business areas, including "GENIEE DSP," digital OOH (Out-Of-Home) business, CRM (Customer Relationship Management)/SFA (Sales Force Automation) system "GENIEE SFA/CRM," marketing automation "GENIEE MA," and chat customer service tool "GENIEE CHAT." Additionally, through the acquisition of Social Wire Inc., we are actively promoting business expansion in the PR domain. Moving forward, we will focus on expanding market share in each business and actively work on developing new functions and new services.
However, if these initiatives do not progress as planned due to changes in the business environment, or if there is a decrease in transaction volume caused by changes in distribution policies of business partners or system failures, it may affect the Group’s financial condition and operating results.

② Expansion of Service Areas

Our Group’s service areas encompass a wide range of businesses centered on the internet, where technology and business models change rapidly. We enter new service areas with the aim of creating new services and building business models that align with the times. Starting new services may require considerable upfront investment and introduce unique risk factors specific to those services.
Risks not described in this section may also become risk factors for our Group. Depending on the speed of market expansion and growth scale in newly entered markets, the initially expected results may not be achieved. Furthermore, suspension or withdrawal of services may result in losses due to disposal or amortization of business assets. In such cases, the Group’s financial condition and operating results may be affected.

③ Risks Related to Acquisitions and Investments in Other Companies

As part of our growth strategy, our Group may acquire other companies or invest in them. When making acquisitions, we conduct detailed due diligence on the target company’s business model, financial condition, contractual relationships, and labor relations to minimize business risks. However, after acquisition, contingent liabilities or unrecognized liabilities may arise, and there is a possibility that internal controls over the acquired company may not be properly or effectively operated, potentially leading to fraud or compliance issues. Additionally, if the acquired or invested companies fail to achieve expected performance, it may impact the Group’s financial condition and operating results.

(4) Risks related to the management

① Securing and Developing Human Resources

The greatest asset supporting the growth of our Group is human resources, and we recognize that recruiting and developing talented personnel is an important challenge for the Group.
Therefore, we make every effort to secure and develop excellent human resources. However, if we fail to secure or develop the necessary personnel due to rapid changes in business content, increased workload from rapid business expansion, supply-demand imbalances in the labor market, or other factors, or if there is an outflow of key personnel or an unexpectedly high number of resignations, it may affect the Group’s financial condition and operating results.

② System risks

Our Group’s business services are provided to customers via the internet through computer systems centered on servers. We continuously implement measures such as system enhancements and strengthening backup systems to ensure stable operation.
However, if system or network failures occur due to equipment malfunctions, natural disasters, sudden unexpected spikes in access, computer viruses, or if program contents are tampered with due to unauthorized access, service suspension may be unavoidable. Depending on the situation, this could lead to a loss of customer trust or claims for damages, potentially impacting the Group’s financial condition and operating results.

③ Litigation Risks and Transactional Troubles

While our Group continuously improves its risk management system, as we actively expand business domestically and internationally, there is a risk of lawsuits claiming infringement of rights or interests of third parties including customers, business partners, shareholders, and employees. Such lawsuits could disrupt business operations, damage corporate image, and result in financial burdens, thereby affecting the Group’s performance.

④ Legal Regulations

In Japan, the Act on the Protection of Personal Information regulates the internet. Our Group may collect user behavior data (such as accessed URLs, content, and referral paths) through cookie technology on websites partnered with us via platforms like SSP, DSP, and DMP.
Although this has not currently hindered our business, future enactment or amendment of laws related to internet advertising services or demands for self-regulation could restrict service provision and impact the Group’s financial condition and operating results.

⑤ Information Security and Personal Information Management

Our Group manages information assets such as customer information entrusted by client companies through CRM/SFA system “GENIEE SFA/CRM,” marketing automation “GENIEE MA,” and chat customer service tool “GENIEE CHAT.” We have established and comply with a privacy policy and maintain and improve standards by acquiring PrivacyMark certification.
However, if unauthorized external access or inappropriate employee actions cause system failures or information leaks, it could lead to loss of social trust and claims for damages from affected companies or individuals, potentially impacting the Group’s financial condition and operating results.

⑥ Intellectual Property Rights

Our Group conducts investigations within feasible limits regarding potential infringement of third-party intellectual property rights. However, it is difficult to fully ascertain all possible infringements related to our services. If our intellectual property rights are infringed or if we infringe on others’ rights and face injunctions or damage claims, it may affect the Group’s financial condition and operating results.

⑦ Internal Control System

Our Group recognizes that effective corporate governance is essential for sustainable corporate value enhancement. We strive to ensure proper business operations, reliability of financial reporting, and thorough compliance based on sound ethics by strengthening internal control systems.
However, rapid business expansion may cause delays in establishing adequate internal controls, making proper business management difficult and potentially impacting the Group’s financial condition and operating results. We also conduct regular internal audits and compliance checks to prevent fraud by internal personnel and ensure adherence to domestic and international laws and rules. Nonetheless, there remains a possibility of legal violations or internal fraud, which, if they occur, could affect the Group’s financial condition and operating results.

(5) Other risks

① Dividend Policy

Our basic policy regarding profit distribution is to continue stable dividends while securing internal reserves necessary for future business development and strengthening our management foundation. However, at present, we do not pay dividends, and the possibility and timing of future dividend payments are undecided.
Future dividends to shareholders will be considered comprehensively, taking into account business performance trends, financial condition, future business and investment plans, and balancing with internal reserves.

② Dilution of Share Value Due to Exercise of Stock Options

We grant stock options to our directors and employees as incentives for long-term corporate value enhancement, and we may issue stock options in the future to secure talented personnel. When these stock options are exercised, new shares will be issued, which may dilute the value per share held by existing shareholders.
As of the end of March 2025, the number of potential shares from these stock options is 31,850 shares, equivalent to 0.3% of the total issued shares (excluding treasury stock) of 12,105,983 shares.