OXIDE Corporation

In FY2025 (ending February 2025), sales to six specific customers accounted for approximately 65% of total sales. Should these customers change their business policies, experience business deterioration, or shift their outsourcing policies, this could directly impact the financial position and business performance of the Group. Although dependence has decreased by 2 percentage points from the previous year, it remains high, and the Group aims to reduce dependency risk by pursuing new customer development in parallel with expanding sales to key customers.

Overseas sales account for more than 80% of net sales, with China as the largest sales destination followed by the United States. Tariff policies and export control regulations between the U.S. and China pose risks to material procurement from China and product shipments to both countries. In addition, the consolidated subsidiary Raicol Crystals Ltd. (Israel) faces concerns over delays in production plans and impacts on business strategy due to the ongoing armed conflict since October 2023. The Group addresses these risks through regular business monitoring and situation assessment at management meetings and the Board of Directors, but the risk level remains elevated.

Lutetium oxide, used in the manufacture of Scintillator Single Crystal for the healthcare business, is procured from China, and any procurement issues arising from China's national policies could disrupt production plans. In addition, since only a few companies domestically and internationally can manufacture key laser components for the semiconductor business, difficulty in securing these components could result in opportunity losses or increased raw material costs due to yield deterioration. The Group works to ensure stable procurement through multi-vendor purchasing, increased inventory levels, and strengthened collaboration with suppliers.

Lutetium oxide (a rare earth) used in the healthcare business is subject to significant price fluctuations, and if price increases cannot be passed on to selling prices, this could adversely affect the Group's financial position and business performance. The Group has established a management decision-making framework, including monitoring price trends at management meetings and the Board of Directors and advancing raw material purchases, and is also working to establish mechanisms for passing costs on to selling prices.

Demand for the Group's products tends to follow customers' advance investment in next-generation product development, and delays in next-generation investment or product transitions among customer companies could adversely affect business performance. There is also a risk that significant exchange rate fluctuations, tariff policies of various countries, and geopolitical factors could affect entire target industries such as semiconductors, medical devices, and quantum technology. The Group seeks to diversify risk by strengthening its business portfolio through the provision of products to a wide range of industry sectors.

For fixed assets grouped by factory or business unit (Plants No. 1, 2, and 6, the semiconductor business, Plant No. 3, Raicol, Oxide Powercrystal, etc.), if significant changes in the business environment or deterioration in profitability necessitate recording an impairment loss, this could adversely affect the Group's financial position and business performance. Although no indications of impairment have been identified at this time, the Group continuously monitors the situation through business planning and budget-versus-actual management.

In certain regions, full protection through intellectual property rights is difficult, and the Group may be unable to prevent third parties from manufacturing similar products. Conversely, there is a risk that technologies and know-how used by the Group could unintentionally infringe on the intellectual property rights of other companies, leading to disputes. The Group rigorously investigates third-party intellectual property rights from the early stages of the development process, referencing the opinions of external experts, to prevent such issues from arising.

The head office, Plants No. 1 through No. 6, and Oxide Powercrystal are concentrated in Hokuto City, Yamanashi Prefecture, and if a natural disaster, fire, explosion, or other unforeseen accident occurs, this could result in a significant decline in sales due to the suspension of production activities and substantial costs for equipment restoration. There is also a risk of business interruption due to large-scale power outages or disruption of information networks. The Group addresses these risks through regular disaster prevention inspections, equipment maintenance, diversification of laser production sites, establishment of backup systems for core systems, and fire insurance coverage.

Securing capable personnel for optical-related engineering, administrative, and sales functions is a prerequisite for the continuation and expansion of business, but if recruitment does not proceed as planned, increased hiring costs and difficulty in appropriate personnel allocation could constrain business expansion. The Group is promoting efforts such as strengthening the human resources department, centered on recruiting personnel, and enhancing outreach to potential job changers.

Interest-bearing debt at the end of the consolidated fiscal year reached 57.0% of total assets, and due to impairment of goodwill and other factors, the Group is in breach of financial covenants on some borrowings. Although the Group has reached an agreement with the relevant financial institution to repay long-term borrowings as originally contracted and to repay short-term borrowings in the same amount, there remains a risk of continued financial fragility. The Group is working to strengthen its financial position by switching from variable to fixed interest rates and by accelerating debt repayment using operating cash flow.