EDP Corporation

Due to sluggish seed crystal sales and delays in launching operations at SFD India and SFD Antwerp, sales for the current consolidated fiscal year fell below the previous year, and cash flow from operating activities continued to show a substantial negative amount, giving rise to material events that raise significant doubt about the going concern assumption. As countermeasures, the Company has raised funds through the completion of exercise of the 17th series stock acquisition rights, completed the payment for the issuance of new shares and the 18th series stock acquisition rights through a third-party allotment in June 2026, and implemented cost reductions through emergency management reforms. At present, the Company has determined that no material uncertainty exists.

Following the revision of the Export Trade Control Order that took effect on May 28, 2025, the destination for export license applications for diamond products was changed from the Kinki Bureau of Economy, Trade and Industry to the head office of the Ministry of Economy, Trade and Industry, resulting in the time required to obtain permits increasing from approximately two weeks to two to three months. This has led to situations where customers cannot obtain products when needed, creating risks of order cancellations or difficulty in receiving orders. Additionally, regarding unlicensed exports between December 2022 and April 2023, the Company received a strict warning from the Ministry of Economy, Trade and Industry in May 2024, and has established a Trade Control Committee to work on preventing recurrence.

Excessive dependence on two users in different fields continues, with the top user in the Substrates and Wafers field accounting for 27.3% of sales and the largest user of Seed Crystal accounting for 10.9%. If orders decrease due to policy changes by specific users or changes in their business environment, this could directly impact the Company's operating results and financial condition. While user diversification is expected in FY2027 (ending March 2027) due to the progress of multiple projects, resolution in the short term remains difficult.

The exclusive ordinary license period for the AIST patent, which forms the foundation of the Company's production technology, will expire on October 31, 2026, requiring the conclusion of an agreement to amend the license period. If the exclusive ordinary license cannot be renewed, other companies could obtain a non-exclusive ordinary license from AIST and become competitors, potentially having a material impact on the Company's financial condition and operating results. Note that under the contract, non-exclusive licenses will be granted until the expiration of each patent even after the license period ends, and the Company believes it can maintain competitive advantage through its accumulated extensive know-how.

There exist companies that sell pseudo-single crystal diamond as seed crystal, with reports of production of large crystals measuring 20x20mm or larger, increasing competitive pressure on the seed crystal market, which is the Company's core product. In addition, moves by Lab-Grown Diamond manufacturing companies to produce their own seed crystals in-house continue, raising the possibility that the Company's cost competitiveness could be lost. The Company has strengthened product competitiveness by putting 30x30mm single crystals into practical use in February 2025 and announcing the sale of large seed crystals of 16-20mm in May 2026.

Regarding the 2-inch mosaic wafer, the Company was unable to produce mosaic crystals meeting the target quality and size during the current consolidated fiscal year, with cracking and fissures due to stress at the single crystal joint sections remaining an issue. On the other hand, if a competitor achieves practical use of large wafers ahead of the Company, it could significantly impact the Company's planned commercialization. The Company disclosed the successful development of a 53x53mm mosaic crystal in May 2026 and is working toward commercialization of the 2-inch wafer in the second half of FY2027 (ending March 2027).

SFD India, established in Surat, India in July 2024, experienced delays in obtaining licenses to import seed crystals and other materials from Japan, resulting in a situation where it was effectively unable to conduct business during the current consolidated fiscal year. The import of raw stones for processing faces a similar situation, and at present, the necessary permits have not been obtained from relevant authorities, and the Company recognizes that implementation of this plan is difficult for the time being. The Company is working with relevant authorities to consider the possibility of obtaining permits and practical measures, but if this does not proceed as expected, it could impact business development, operating results, and financial condition.

As of June 16, 2026, the number of potential shares from stock options and stock acquisition rights was 3,587,000 shares, equivalent to 22.49% of the total issued shares of 15,947,100 shares as of the same date. If these rights are exercised, the value of shares and voting rights ratio of existing shareholders could be diluted, potentially affecting future stock prices. In May 2026, the Company announced the issuance of new shares and the 18th series stock acquisition rights through a third-party allotment, raising funds necessary for wafer development and other purposes.

The ratio of foreign currency-denominated transactions for the current consolidated fiscal year was 51.5%, and the Company's policy is to hedge risk through forward exchange contracts when a clear yen appreciation trend emerges. In addition, the Trump administration's tariff policy has raised local prices for products exported to the U.S. (mainly Substrates and Wafers), potentially leading to price reduction requests from users or transaction difficulties. While the Company's products are considered to hold an advantageous position in terms of shape and characteristics not offered by other companies, or not offered at all by others, depending on the outcome of Japan-U.S. negotiations, the planned increase in Substrates and Wafers sales may not be achieved, potentially causing operating results to deteriorate more than expected.

Representative Director and President Naoji Fujimori, a former director of the AIST Diamond Research Center, is central to the development of new products and technologies, and the Company's dependence on him is extremely high in terms of both technical knowledge and industry connections. While progress is being made in building a structure less dependent on him through the employment and training of engineers, if for some reason he becomes unable to perform his duties, this could delay new product development and production efficiency improvements, potentially impacting operating results and financial condition.