WingArc1st Inc.

The information and communications industry is a rapidly changing field where new technologies such as generative AI and IoT continuously emerge. The Group continues research and development, but if it falls behind in responding to new technologies, this may affect business performance and financial condition. In addition, there is an inherent risk that demand for products may decline if the frequency of use of the forms and documents targeted by the core product "SVF (Super Visual Formade)" decreases among companies.

"SVF (Super Visual Formade)" and "SVF Archiver / SVF Transact (formerly invoiceAgent)" compete with similar products in the forms and electronic forms market, while "Dr.Sum" and "MotionBoard" compete in the business intelligence market. If market trends are not adequately grasped, there is a risk of a relative decline in competitiveness against competing products or a reduction in market share due to competitors' pricing strategies, which may affect business performance and financial condition. The Group addresses this through continuous version upgrades to enhance functionality and improve quality.

As of the end of the current consolidated fiscal year, goodwill amounted to ¥27,674 million and other intangible assets amounted to ¥15,055 million, together accounting for 62.4% of consolidated total assets. Under IFRS, these are not amortized but are subject to an impairment test each period; if business profitability declines, a substantial impairment loss may need to be recognized. Sensitivity analysis indicates that the recoverable amount would equal the carrying amount if the discount rate increased by 12.8% or if the estimated future cash flows decreased by 66.6%.

At the end of the current consolidated fiscal year, the consolidated balance of interest-bearing debt was ¥8,558 million (12.5% of total assets), and the syndicated loan agreements with multiple financial institutions contain financial covenants. There is a risk that breaching these covenants would result in the loss of the benefit of the grace period, requiring immediate repayment. The Group carried out a refinancing in February 2024 to improve interest rate terms, and is addressing this risk through profitability-focused management and a funding plan that emphasizes financial balance.

The Group operates cloud services that rely on alliance partners such as Amazon Web Services, Inc. and Salesforce.com Japan Co., Ltd. If services fail to operate normally due to natural disasters, terrorism, cyberattacks, system failures, or other causes, this may result in loss of recurring revenue and a decline in customer trust. In addition, if operating costs such as support costs increase beyond expectations, this may also affect business performance and financial condition.

Sales of the Group's core products are primarily channeled through SIers (system integrators). If an SIer commits a legal violation, causes an information leak, or ceases operations, this would directly affect the Group's business performance. In addition, the sales structure via SIers makes it difficult to grasp end-user needs in a timely and appropriate manner, creating a risk of misjudging market trends. Termination of contracts with key partners or significant changes to sales terms may also affect business performance and financial condition.

The Group has obtained ISO27001 certification and has implemented measures such as IC card-based access control, hard disk encryption for laptop computers, and remote work guidelines supporting company-wide work-from-home arrangements. However, in the event that personal information is leaked, this could lead to claims for damages from customers, fines under the Act on the Protection of Personal Information, and a decline in social credibility, which may affect business performance and financial condition.

The Group's business operations depend on experienced management, sales, and development personnel with specialized expertise, and as industry- and business-specific cloud services expand, the need for personnel well-versed in each respective industry is further increasing. If the Group is unable to secure personnel in a timely manner due to tightness in the labor market or other factors, this may constrain its business and future strategy, thereby affecting business performance and financial condition.

The Group utilizes M&A and capital and business alliances to complement and strengthen its business domains, and conducts due diligence in the course of implementation. However, matters not identified or anticipated during due diligence may later come to light, or the business environment may change rapidly after an acquisition, potentially preventing the initially expected investment effects from being realized. There is also a risk that the Group's revenue structure may change as a result of M&A and similar transactions.

IW.DX Partners Inc. (holding 22.02% of voting rights), whose parent company is ITOCHU Corporation, and Toshiba Digital Solutions Corporation (holding 13.27% of voting rights) both qualify as other affiliated companies of the Company. If either company changes its management policy or business strategy (including its shareholding policy) in the future, this may affect the liquidity of the Company's shares and its share price formation, among other matters. At present, the Company recognizes that its independence and autonomy are being maintained.