Ascentech K.K.

The virtualization solutions market experiences rapid technological innovation, and if the Group is unable to keep pace, there is a risk of failing to comply with industry standards or failing to capture customer needs. While the Group has not experienced difficulty in grasping cutting-edge technology to date, any delay in response could affect the Group's financial position and business results. No specific countermeasures have been disclosed.

In the IT Infrastructure Business, competition for orders among operators is intense and is expected to intensify further going forward. If differentiation from competitors becomes difficult, securing orders and profitability may become challenging, potentially affecting business activities, financial position, and business results. The Company seeks to maintain and enhance its competitiveness through online advertising, seminars, strengthening relationships with overseas vendors, and partner support, among other measures.

In the IT Infrastructure Business, dependence on specific customers increases depending on the timing of clients' IT infrastructure deployment. In the consolidated fiscal year under review (February 2024 to January 2025), sales to Hitachi, Ltd. amounted to ¥1,774 million, representing 12.2% of total sales. While the Company aims to reduce this dependence by expanding the number of partners, there is a risk that the high level of dependence will continue.

Dependence on Citrix Systems Japan K.K. for procurement was extremely high at 63.6% in the consolidated fiscal year under review, and dependence on Atrust Computer Corporation was 19.0%. The Company has entered into distributor agreements with its major suppliers, but these agreements could be terminated at the suppliers' discretion, and any termination of transactions or change in terms could have a material impact on the Group's financial position and business results. While the Company strives to build good relationships, the time required to consider alternative measures varies by supplier.

Under the strategic partner agreement with Cloud Software Group, Inc., conditions have been set requiring payment of a certain amount in line with expected revenue over a fixed sales period for the company's products, and the Group plans to recognize approximately ¥12,000 million in assets and liabilities as of March 3, 2025 (the amount is provisional). If the expected revenue is not sufficiently achieved, this may affect the Group's business results. The fact that the amount remains undetermined also increases financial uncertainty.

The software provided by the Group for building virtual desktop environments is embedded in customers' core business systems, and if defects occur, there is a risk that the Group could be held liable for damages by customers. Although the Group conducts its own quality testing and final confirmation based on agreements with customers, some projects do not include exemption clauses, which could affect business results.

Payments for software and hardware procured from overseas are settled in U.S. dollars, and exchange rate fluctuations may affect business results. While the Group's basic policy is to use forward exchange contracts to manage this risk, if the volume proportion of foreign currency-denominated transactions increases in line with business expansion, it may not be possible to adequately hedge the risk.

The Group is subject to relevant laws and regulations such as the Act on the Protection of Personal Information, the Worker Dispatching Act, and the Electrical Appliances and Materials Safety Act. If legal violations occur, or if the Group's business activities become constrained due to changes in laws or the enactment of new laws, this may affect the Group's financial position and business results. The Group strives to comply with relevant laws and regulations, but responding to changes in the regulatory environment remains a challenge.

The Company is a small organization with 86 employees, and much of its management policy, business strategy, and client relationships depend on Chairman of the Board Naohiro Sato and President and Representative Director Takashi Matsuura. If either of these individuals becomes unable to continue their duties, this could have a material impact on the Group's financial position and business results. While the Group is working to establish an organizational structure and develop human resources, a high degree of dependence on these two individuals is expected to continue for the time being.

The largest shareholder, Shinichi Eimori, holds 23.45% (3,281,600 shares) of the total number of issued shares (excluding treasury shares) and has indicated a medium- to long-term holding policy, but depending on stock price movements, there is a possibility that shares could be sold in a relatively short period. If a large volume of shares is sold on the market, this could affect the Company's stock price, and if shares are transferred to a specific party, this could also affect the Company's business strategy and other matters.