EXTREME CO.,LTD.

The Digital Talent Business falls under worker dispatch business requiring a license from the Minister of Health, Labour and Welfare (valid until April 30, 2030), and there is a risk that business suspension could be ordered due to disqualification events or legal violations. There is also a risk of "disguised contracting," where some contracting arrangements are effectively deemed worker dispatch. Compliance status is periodically confirmed through internal audits, but amendments to laws and regulations could adversely affect the business.

In the Digital Talent Business, engineers are the most critical management resource, and amid a high utilization rate driven by strong order intake, competition to recruit immediately productive talent is intensifying. If the company fails to secure sufficient technical staff or resignations increase, it may become unable to meet client companies' design and development needs. The company is working to improve retention through measures such as establishing in-house technical exchange facilities, but intensifying competition for talent across the software industry remains an ongoing challenge.

In the Digital Talent Business, a large number of engineers are employed as full-time staff on an ongoing basis in accordance with the Worker Dispatch Act, resulting in a fixed personnel cost structure. If client demand declines sharply due to changes in economic conditions or other factors, the number of dispatched staff, utilization rate, and unit rates could all decline simultaneously, raising the risk of increased cost ratios. The company addresses this by maintaining high value-added services and high utilization rates, but this entails a structural vulnerability to economic fluctuations.

While the number of dispatched workers in FY2024 expanded to approximately 2.20 million (up 3.9% year on year), the technical staffing industry requires securing excellent engineers and qualitative differentiation of sales capabilities, intensifying competition among companies. Low-price strategies by competitors and price reduction requests from clients pose a risk of making it difficult to secure orders and maintain technical service fees. The company aims to secure appropriate profitability through strategic sales and technical training, but intensifying price competition could pressure business performance.

In the Contract Development Business, there is a risk of low profitability or losses if man-hours increase due to specification changes or additional work. Delivery delays may result in liquidated damages, and ultimate failure to deliver could result in damages claims. The company seeks to mitigate this risk by clearly defining specifications and inspection methods in individual contracts for each project, but complete avoidance is difficult for complex development projects.

In the Contract Development Business, the company handles multiple maintenance and operation projects providing 365-day, 24-hour service, creating risks of system failures due to server downtime from excessive access, communication failures, or malicious attacks from outside parties. In the event of a failure, clients may claim damages, which could also affect business credibility. The company implements server load balancing, security measures, and regular monitoring, but cannot completely eliminate failures caused by unforeseen factors.

In the Content Property Business, the company licenses intellectual property such as game titles and characters domestically and internationally, creating risks of third-party rights infringement and damage from counterfeit products. If rights protection is not properly managed, this could hinder trademark and design registration, damage the brand, and result in lost revenue opportunities. The company has assigned personnel in the management department to conduct internal and external investigations, but rights protection overseas requires handling that is specific to each licensing region, adding complexity.

In the Content Property Business, developing proprietary characters and new IP requires a considerable amount of investment and a certain development period, creating risks of additional expenditure due to development delays or stagnation, and failure to secure revenue as planned. If investment recovery becomes difficult, impairment losses and other effects could impact business performance and financial condition. As the company's policy is to actively create content with the aim of expanding business scale and diversifying revenue sources, investment risk exists on an ongoing basis.

In addition to the translation of financial statements of the Vietnamese subsidiary EXTREME VIETNAM Co., Ltd. into yen, the majority of licensing revenue from the Content Property Business is received in foreign currency, meaning significant exchange rate fluctuations could affect business performance. The company also holds investment securities such as foreign currency-denominated bonds, creating a risk of valuation losses due to declines in bond prices or exchange rate fluctuations. Investments are made following board of directors' resolutions based on internal investment management rules, but no specific measures such as foreign exchange hedging are described.

The Group regards M&A as an option for business expansion aimed at strengthening existing services, global expansion, and developing new business areas, conducting due diligence through lawyers, certified public accountants, and others. However, if the anticipated effects are not achieved after an acquisition, there is a risk that goodwill amortization or impairment losses could occur. In addition, deterioration in the financial condition of an invested company could lead to a decline in creditworthiness across the Group as a whole, and various disputes arising from the implementation of M&A strategy could potentially develop into litigation.