W-SCOPE Corporation

In the current consolidated fiscal year, a significant decline in net sales (from ¥31,047 million in FY2025 (ending January 2025) to ¥3,630 million in FY2026 (ending January 2026)) and the continued recording of substantial and ongoing operating losses have given rise to material events casting significant doubt on the going concern assumption. The Company has determined that no material uncertainty exists, citing the recording of positive operating cash flow, securing of cash on hand, a funding plan involving financial institutions, and the expected receipt of Hungarian government subsidies as grounds; however, demand recovery with Samsung SDI is only expected from the fourth quarter of FY2027 (ending January 2027) onward. If mass production of automotive and ESS projects for new customers or new Ion Exchange Membrane contracts do not proceed as planned, this could have a material impact on the Company's financial position.

In the current consolidated fiscal year, a single customer accounted for 51.5% of net sales, indicating extremely high customer concentration. A decrease or discontinuation of purchases by this customer poses a risk of directly and severely impacting business performance, and net sales in FY2026 (ending January 2026) actually declined significantly compared to the previous fiscal year. While the Company intends to pursue diversification of sales, it anticipates that dependence on a limited number of customers will continue going forward.

The Separator Business, on a simple aggregate basis including the net sales of equity-method affiliate WCP, accounts for 90.7% of the Group's (simple aggregate) net sales, indicating limited diversification of the business portfolio. Although sales are made to a variety of fields, including ESS, EV, HEV, and consumer portable devices, a contraction in demand in these markets would directly affect the Group's overall business performance. The Company is developing new businesses (such as desalination filters), but there is no guarantee that these efforts will produce results.

100% of the Group's products are manufactured in South Korea, resulting in a structure in which the Group is exposed in a concentrated manner to geopolitical risks, natural disasters, and regulatory changes. If South Korea's corporate tax incentives (reductions and exemptions under the Special Tax Treatment Control Law) are terminated or if grounds for additional tax assessment arise, the tax burden could increase, potentially affecting the Company's financial position. In addition, there is a risk that social disruptions caused by terrorism, war, infectious diseases, natural disasters, and the like could directly affect production and shipment.

In the market for Separators for lithium-ion secondary batteries, major companies hold the majority of market share, and the Group, as a late entrant, is at a disadvantage in terms of customer base, financial resources, technology, and human resources. If competitors advance the development of higher-performance products through technological innovation or offer lower-priced products, the Group may be unable to demonstrate sufficient competitiveness. While the Company's policy is to strengthen R&D for ultra-thin film development and improved heat resistance, securing a competitive advantage remains an ongoing challenge.

Technological innovation is accelerating across the lithium-ion secondary battery industry as a whole, and demands for improved performance of components are increasing. If technological innovation occurs faster than the Group anticipates, there is a risk of losing market competitiveness due to delays in the launch of new products or the obsolescence of existing products. While the Company's policy is to strengthen R&D for ultra-thin film Separators and improved heat resistance, the possibility that it may be unable to keep pace with the speed of technological innovation cannot be ruled out.

Products are manufactured in South Korea and sold worldwide mainly in U.S. dollars, resulting in a structure that is affected by exchange rate fluctuations. Overseas sales in the current consolidated fiscal year amounted to ¥3,551 million (overseas sales ratio of 97.8%), meaning that nearly all sales are directed overseas; significant exchange rate fluctuations could therefore affect business performance and financial position. The Company itself recognizes that it is difficult to completely eliminate foreign exchange fluctuation risk in the course of its business activities.

Polyolefin, the main raw material for Separators, is manufactured from naphtha, and fluctuations in crude oil prices affect both raw material costs and utility costs required for facility operations. Combined with dependence on specific suppliers, if supply tightness, delays, or price surges occur, procurement costs could increase significantly, potentially causing material adverse effects on business performance and financial position. The Company is working to secure alternative supply sources but states that there is no guarantee of a stable supply.

As of the end of the current consolidated fiscal year, the number of potential shares outstanding was 4,753,900 shares (including 1,199,900 shares allotted to third parties), representing 8.2% of the total number of issued shares of 58,025,700. The Company may continue to issue stock options in the future, and if stock acquisition rights are exercised, share value will be diluted. While the system is intended to maintain the motivation of officers and employees to improve business performance, effects on existing shareholders may continue to arise.

Under an asymmetric organizational structure comprising 6 employees at the Japan head office and 268 employees at overseas consolidated subsidiaries, manufacturing facilities are concentrated in South Korea, and the Company has adopted a distinctive structure in which 2 of its 7 directors are stationed in South Korea. If the strengthening of personnel and internal control systems fails to keep pace, or if communication across the Group cannot be conducted promptly due to disruptions in cross-border communication channels or similar factors, governance could become dysfunctional, potentially affecting business execution and expansion. While the Company's policy is to enhance communication across the Group, there is no guarantee that the necessary personnel can be secured.