Digital Media Professionals Inc.

The rapid advancement of image processing, graphics processing, and AI technologies creates a risk that the business environment could change abruptly due to the development and spread of new technologies not anticipated by the Company. If competitors develop technology that surpasses the Company's, the Company's technology could become obsolete, potentially leading to a decline in sales of products and services. While the Company's policy is to respond by monitoring technology trends and improving its technological capabilities, this does not guarantee a prompt and appropriate response.

The Company's products are intended for markets such as amusement equipment, automotive, industrial equipment, and mobile devices, all of which have short life cycles and rapid technological innovation. If market trends change beyond the Company's expectations, delays in new product development or new market development could make it difficult to maintain or expand sales and profits. The Company works to respond to market changes by analyzing information from customers and external organizations, but depending on the speed of change, there is a risk that its response could lag behind.

R&D projects in the fields of image processing, graphics processing, and AI are conducted with anticipated functions needed by growth markets in mind, but full recovery of the R&D expenses invested is not guaranteed. If development is significantly delayed or is abandoned altogether, this could have a material impact on business results. As a fabless IP vendor that places R&D at the core of its business, this risk is regarded as particularly important.

Securing and developing excellent personnel is essential for business expansion, but even with compensation systems and stock-based compensation plans in place, continuous recruitment of personnel is not guaranteed. If the Company is unable to secure sufficient qualified personnel, business expansion could be constrained, affecting business results. In particular, amid intensifying competition for highly skilled technical talent, securing personnel at the Company's scale poses a structural challenge.

Representative Director Tatsuo Yamamoto has comprehensive expertise across the Company's technology and personally handles sales activities both domestically and overseas, resulting in a high degree of dependence on him in both technical and sales aspects. If he were to step down or otherwise become unable to perform his duties, business operations could be disrupted, potentially affecting business results and business development. The status of succession planning is not explicitly disclosed in the securities report.

Sales of LSI products are basically conducted through distributor sales via trading companies, and sales to the Company's main sales distributor, Lester Co., Ltd., amounted to ¥1,952 million in the current fiscal year, accounting for 80.2% of total sales. If problems arise in the relationship with this company, significant disruption could occur in the sales of LSI products, affecting business results. While the relationship is currently favorable, the high dependence on a single distributor represents a structural risk.

As a fabless company, the Company outsources product manufacturing to semiconductor manufacturers and module manufacturers. If there is insufficient production capacity secured at the subcontractor, equipment trouble, or difficulty in securing an alternative subcontractor upon termination of the outsourcing contract, disruption could occur in the manufacturing of LSI products. The Company carefully considers technical standards, manufacturing capacity, and management stability when selecting subcontractors, but risks arising from external factors cannot be entirely eliminated. Since problems with manufacturing subcontractors directly lead to a halt in product supply, the impact on business results is significant.

If delivery of products to the Company is delayed due to a shortage of semiconductors and materials caused by global demand increases and supply chain vulnerabilities, product sales could decline, affecting business results. There is also a risk that royalty income could decrease due to delays in the manufacturing of customer products. The Company works to reduce lost opportunities by securing production lines in advance and placing early orders, but there are limits to what can be done in the face of global supply chain disruptions.

It is difficult to completely eliminate the possibility that the technology and expressions of the IP cores and LSI products provided by the Company may infringe on the patent rights or other intellectual property rights of third parties. If claims or infringement lawsuits are brought, this could result in an injunction against business operations or financial burdens such as damages, potentially affecting business results and the Company's social credibility. As of the end of the current fiscal year, the Company has not received any notices from third parties, but it continues to conduct ongoing investigations into the possibility of patent infringement related to IP core technology.

Given the nature of the Company's business, which centers on R&D, the management of technical information and other data is extremely important, and the Company has implemented measures such as virus detection, firewalls, access restrictions, confidentiality agreements, and entry/exit control. However, even with these measures, it is difficult to completely eliminate the possibility of information leakage, and if technical information or other data were to leak outside the Company, this could undermine its competitive advantage and affect business results and operations. As a fabless IP vendor, technical information is the Company's most critical asset, and the damage to the business in the event of a leak would be particularly significant.