geechs inc.

The rapid evolution and adoption of generative AI has replaced certain routine development tasks, leading to increasingly sophisticated and diversified skill requirements and market needs for IT talent sought by companies. If the Group fails to respond in a timely manner to rapid changes in market needs, this could materially affect its business and results of operations. As a countermeasure, the Group is promoting the recruitment of advanced digital talent capable of handling requirements definition and project management, and is advancing solution proposals through hybrid teams combining full-time employees and IT freelancers.

As the Group advances the provision of solutions utilizing personnel hired as full-time employees, if it is unable to secure projects and achieve utilization as planned, there is a risk that an increase in personnel expense burden could put pressure on profitability. The increase in fixed costs in the IT Human Resources Business is a structural risk that directly affects business performance. The Group is working to reduce this risk by strengthening the recruitment of advanced digital talent and securing higher value-added projects.

If IT freelancers or full-time engineers working through the Group's services cause incidents such as information leaks or breaches of discipline at the client or dispatch destination, this could damage the Group's social credibility and affect its business activities and results of operations. Behavioral management of deployed personnel is an area that is difficult for the Group to directly control, requiring continuous compliance education and the development of monitoring systems.

Billing and payment amounts in the IT Human Resources Business are managed through a proprietary core system, with some information such as unit prices and working hours entered manually. If errors occur in the entered data, the financial position and results of operations may not be appropriately presented, and if a system failure occurs, this could materially affect the business and results of operations. The persistence of manual entry processes is the primary cause of data entry error risk, and continued system development remains a challenge.

In the Australian business operated by consolidated subsidiaries such as Launch Group Holdings Pty Ltd, requirements for appointing local resident directors and distinctive business customs complicate the management structure, potentially affecting management flexibility. In addition, external factors such as changes in monetary policy, labor-related laws, and tax systems, foreign exchange fluctuations, and changes in the competitive environment could affect business operations and profitability. The Group addresses this by securing specialized personnel well-versed in local laws, collaborating with external specialized institutions, and developing internal control systems.

In the Philippines, where consolidated subsidiaries such as NexSeed Inc. operate, restrictions on foreign capital ratios are imposed on certain businesses including education-related businesses, making cooperation with local partners essential for maintaining and expanding management control. If the trust relationship with a Filipino national partner is lost, there is a risk that directors could be appointed against the Company's wishes, resulting in the loss of substantive management control. Due to this structural constraint, there are limits to management decision-making by the Group alone, which could affect the feasibility of business plans.

In overseas business locations, there is a possibility of political instability due to terrorism, political upheaval, or coups, labor disputes, infrastructure failures, outbreaks of infectious diseases, unexpected changes in tax systems or foreign exchange regulations, and problems arising from differences in culture and business customs. These unforeseen events could affect the Group's business performance and future business development. The Group strives to address this by securing local specialized personnel and collaborating with external specialized institutions, but it is difficult to completely eliminate these risks.

The Group has overseas subsidiaries, and since consolidated financial statements are presented in Japanese yen, fluctuations in exchange rate levels could affect business performance. If significant exchange rate fluctuations occur, this could affect the Group's business, results of operations, and financial position, and it is recognized that it is difficult to completely eliminate foreign exchange fluctuation risk. There is exposure across multiple currencies including those of Australia and the Philippines.

The Group is promoting an M&A strategy as part of its growth strategy, but if the expected synergies or business expansion results are not achieved due to changes in the business environment after acquisition or unforeseen circumstances, impairment losses could occur, affecting business performance. The risk that the integration process after M&A execution or changes in the business environment fall short of the initial plan is directly linked to the financial soundness of the Group as a whole.

The Group's business areas are subject to multiple legal regulations, including the Freelance Protection New Act (effective November 2024), the Act on Prevention of Delay in Payment of Subcontracting Charges for Manufacturing Outsourcing (effective January 2026), the Worker Dispatching Act, and the Personal Information Protection Act. If new legal regulations are introduced or existing regulations are strengthened in the future, this could affect business performance and business development. The Group addresses this through thorough dissemination of compliance, strengthening defenses against unauthorized access, and enhancing efforts to prevent information leaks.