DIGITAL HEARTS HOLDINGS Co., Ltd.

The proliferation of AI technology may automate production processes such as game development and translation, potentially shrinking demand for debugging in the DH Group Business. In the AGEST Group Business as well, AI-driven test automation is advancing, creating a risk that manual testing work will be replaced. If the Group is unable to appropriately advance service sophistication and business model transformation through AI utilization, this could lead to a decline in competitiveness and a reduction in order opportunities.

While the AGEST Group Business continues to expand, the DH Group Business serving the gaming industry still accounts for a high proportion of profit. If a large-scale contraction occurs in the gaming industry, this could directly affect the Group's overall performance as a whole. Although the Group is working to diversify its business portfolio, its short-term dependence remains high.

The Group has formulated its business plan on the assumption that outsourcing of QA Solutions operations will progress; if this does not proceed as expected, it could affect business performance. In recent years, outsourcing demand has tended to expand against the backdrop of diversifying and increasingly specialized testing knowledge requirements, but changes in trends such as customer companies reverting to in-house operations pose a risk.

Stably securing a large number of temporary employees (testers) is a critical issue for business continuity, and intensifying competition in the labor market or the departure of key personnel could make it difficult to secure and develop personnel as planned. A shortage of personnel poses a risk directly linked to delays in service provision and the loss of order opportunities. Although measures such as optimizing salary levels, strengthening recruitment, and enhancing training systems are being implemented, this risk cannot be completely eliminated.

Due to the nature of software testing services, the Group frequently handles undisclosed or confidential information belonging to client companies, and if an information leak occurs, it could lead to claims for damages and loss of social trust. Although leak-prevention measures such as fingerprint and vein authentication for room access control and installation of surveillance cameras have been implemented, complete prevention is difficult.

The Group is actively pursuing corporate acquisitions, capital alliances, and joint venture establishment aimed at strengthening competitiveness, but there is a possibility that expected synergies may not be realized due to changes in the business environment or differences in strategy and culture with joint venture partners. The economic burden and personnel support required in connection with a decline in the performance or corporate value of an acquired company could affect the Group's business performance and cash flow. The Group strives to reduce these risks through multifaceted analysis covering technology, finance, and legal matters.

As the testing outsourcing market expands, the number of new market entrants is increasing, raising the risk of the Group's know-how and technology leaking out through the departure of personnel. There is a possibility that external third parties may provide similar services that imitate the Group's technology and know-how, which could lead to a decline in competitive advantage. The Group strives to differentiate itself through the accumulation of know-how and human resource development.

In contracted software development work, if significant specification changes occur at the client company's discretion or if there is a discrepancy in understanding regarding deliverables, it may become difficult to maintain quality, cost, and delivery deadlines, potentially causing a project to become unprofitable. Depending on the scale of unprofitable projects, this could affect the Group's business performance; although project managers implement quality, delivery, cost, and risk management, this risk cannot be completely eliminated.

As the Group promotes the expansion of service operations overseas, unexpected changes in laws and regulations, shifts in political and economic conditions, exchange rate fluctuations, differences in business customs, and changes in tax systems may delay business progress. Natural disasters and differences in employment systems and labor-management practices are also risk factors in business operations, which could affect the Group's business performance.

The Group conducts staffing operations under a license obtained pursuant to the Worker Dispatching Act, and changes to related laws and regulations or their interpretation could affect business activities. In addition, since the Group employs a large number of temporary testers, an expansion in the scope of mandatory social insurance enrollment could increase personnel costs and affect the Group's business performance.