Goodpatch Inc.

As the DX market expands, there is a risk of intensifying competition for personnel acquisition from low-priced competitors and well-capitalized companies. Intensified competition in both project acquisition and personnel recruitment could affect operating results and financial condition. As countermeasures, the Company is strengthening its competitiveness by expanding its marketing structure and creating new projects through alliances, as well as expanding its service domains into areas such as "Design x Business Strategy" and "Design x Organization."

The Design Partner Business, the core business of the Group, is premised on growth in the DX market. If market conditions remain depressed for a prolonged period due to an economic downturn exceeding expectations, this could result in decreased inquiries for design support projects, project downsizing, or quality deterioration. As a countermeasure, the Company is leveraging its strengths in UI/UX design to support large enterprises' DX strategy execution, promoting the building of long-term relationships that involve client companies' management teams.

The pace of innovation in internet-related technologies is extremely rapid. If the Company fails to respond promptly to innovative technologies such as AI, or if substantial additional system development costs are incurred to respond, this could affect operating results and financial condition. As countermeasures, the Company actively gathers information on and trials the latest technologies, hires experts, and has established a system for sharing AI technology utilization knowledge company-wide.

If recruitment and development do not proceed as planned due to a tight labor market or business expansion, or if personnel attrition through resignations exceeds expectations, this could result in reduced project volume or quality deterioration, affecting operating results and financial condition. As countermeasures, the Company works to prevent personnel attrition by grasping market trends through the operation of "ReDesigner," expanding recruitment channels, conducting systematic design training, and improving working conditions such as full-flex work, remote work, and the promotion of DE&I.

The Design Partner Business employs a quality control structure led by lead designers, but if lead designer resources become insufficient, variation in project quality could occur, potentially leading to decreased customer satisfaction and brand impairment. As countermeasures, the Company conducts weekly hearings with project members, status assessments for all projects, and direct hearings on customer satisfaction, continuously working to improve quality standards.

Takashi Tsuchiya, President and Representative Director, has played an important role in business promotion since the launch of the Design Partner Business. If he becomes unable to carry out management duties due to sudden illness, accident, or other reasons, this could affect operating results and financial condition. As countermeasures, the Company is strengthening its organizational structure through information sharing and delegation of authority at Board of Directors meetings, while Mr. Tsuchiya himself conducts new employee training and monthly business performance briefings to disseminate his experience and knowledge throughout the company.

The Group is pursuing strategic investments through M&A, but if unrecognized liabilities or contingent liabilities that could not be identified during due diligence are discovered afterward, this could affect operating results and financial condition. As countermeasures, the Company conducts due diligence utilizing external institutions from financial, business, legal, and human resources perspectives, and carefully selects targets after comprehensively considering the merits of the acquisition.

If future cash flows expected from owned fixed assets deteriorate due to an economic downturn, depressed market conditions, changes in the competitive environment, or other factors, resulting in a significant decline in economic value, impairment of tangible fixed assets or goodwill and intangible assets associated with M&A may become necessary, affecting operating results and financial condition. As countermeasures, the Company works to improve profitability through the timely grasp of performance and implementation of profitability improvement measures via the dispatch of officers to consolidated subsidiaries, and through the cultivation of synergies with the Company.

In the course of handling confidential information and personal information of numerous client companies, if important information leaks externally due to unauthorized access, computer viruses, information security defects, or other causes, this could result in loss of public trust, claims for damages, and brand impairment, affecting operating results and financial condition. As countermeasures, the Company has established a system including the formulation of a basic information security policy, obtaining Privacy Mark certification (compliant with JIS Q 15001), employee training, and access authority management.

"ReDesigner" in the Design Platform Business requires a paid employment placement business license under the Employment Security Act (License No. 13-Yu-309448, valid until April 30, 2026) that is essential for business continuity. If the license is revoked for any reason, this could have a material impact on the business and results. Additionally, impacts could arise from existing regulations such as the Act against Delay in Payment of Subcontract Proceeds and the Telecommunications Business Act, as well as from the enactment or revision of new regulations. As countermeasures, the Company has established a system for immediately obtaining information on new regulations through retained legal counsel, conducting legal compliance reviews by legal staff, and performing legal checks on contracts.