KLASS Corporation

The tatami business and interior business within the Professional Segment are affected by fluctuations in new housing starts and trends in renovation work. New housing starts are projected to decline over the long term, and a sharp decline occurring over a short period would directly impact operating results. The Company plans to respond by expanding its product lineup, expanding market share, and expanding sales markets, but its ability to respond to sudden short-term changes is limited.

Due to the Westernization of housing and the decline in new housing starts, demand for tatami continues to shrink, and the number of tatami stores also continues to decrease. The Company provides management modernization consulting utilizing its Computerized Tatami Manufacturing System to approximately 700 tatami stores nationwide in an effort to expand market share, but if the decline in tatami demand spreads to these consulting clients, it could affect operating results through a decrease in sales of tatami manufacturing equipment.

The Company holds an overwhelming share of the wallpaper pasting machine market, but if a new method emerges in the future to replace the current wallpapering method, this market could shrink and affect operating results. While no specific developments regarding alternative methods have been identified at present, this is recognized as a structural risk that could shake the foundation of the Company's core product category.

The Company has established a solid position in the interior finishing equipment, tatami manufacturing equipment, and industrial equipment markets, backed by over 70 years of development and manufacturing track record; however, if the Company is unable to maintain the superiority of its products due to improvements in the quality of competing products, this could affect business development and operating results. The Company continues to differentiate itself through the supply of high-quality products and adaptation to customer needs, but ongoing responses to changes in the competitive environment are necessary.

Rising energy prices, including crude oil prices, and the continuing yen depreciation trend have led to persistent increases in the procurement prices of raw materials and merchandise. The Company undertook a comprehensive revision of interior product prices in April 2025 (Reiwa 7) to maintain an appropriate profit margin, but if procurement prices rise further, this could affect operating results.

Working capital and capital expenditure are funded primarily through borrowings from financial institutions, and in a rising interest rate environment, increased interest payments could worsen the financial balance, affecting operating results and financial condition. In addition, if the Company breaches financial covenants in its loan agreements, this could result in requests for interest rate increases or loss of the benefit of time on borrowings, posing a risk to borrowing costs and fundraising capacity.

For some of its diverse product lines, the Company depends on specific suppliers. If continuous and stable procurement becomes difficult due to natural disasters, quality issues, or deterioration in a supplier's business condition, the Company may be forced to switch to alternative suppliers, which could affect business development, financial condition, and operating results. Currently, stable procurement is maintained through strengthened collaboration such as information exchange, but the status of securing alternative supply sources is not disclosed.

The Company promotes research and development of differentiating technologies and seeks protection through patent acquisition, but it cannot completely eliminate the risk of unauthorized infringement of intellectual property rights by third parties, or the risk that the Company's products may infringe on third parties' intellectual property rights. There is also a possibility that damages lawsuits could be filed due to the establishment of patent rights of which the Company is unaware, and in either case, this could affect operating results.

Business operations depend on systems, and if a major disruption occurs due to server outages, hacker intrusions, computer viruses, or similar causes, this could disrupt order-taking and production activities, affecting operating results. The Company is working to ensure the smooth operation of hardware and software and to prevent virus-related disruptions, but risks associated with the sophistication of cyber threats remain.

Representative Director and President Masaki Koroyasu plays a central role in formulating and determining management policies and strategies, resulting in a high degree of dependence on him. The Company is working to reduce excessive dependence through strengthening its management planning function and developing personnel at the officer and department head level, but if he becomes unable to perform his duties for any reason, this could affect the Company's business and operating results.