CROSSFOR Co.,Ltd.

Sales of products and parts using "Dancing Stone" accounted for 35.9% of total net sales in the actual results for FY2025 (ended July 2025), indicating a high degree of dependence on a single technology/product. If demand for the product declines or diverges from market needs, it will directly impact business performance. As a countermeasure, the company is diversifying revenue sources by expanding sales of "Tennis Chain," "EXL-LOCK," "Single Dancing Stone," and other products.

The domestic Japanese patent for "Dancing Stone" (registration number 5424435) will expire on September 13, 2033, after which other companies will be able to use the same technology. Since the proportion of net sales accounted for by patented products is high, intensified competition after patent expiration could have a significant impact on business performance. There is also a concurrent risk of intellectual property infringement and circulation of counterfeit goods by third parties, and the company continues to take measures to protect its rights.

As of the end of July 2025, interest-bearing debt stood at ¥2,986,752 thousand, with an interest-bearing debt dependence ratio of a high 59.1%. If interest rates rise significantly due to changes in financial conditions, increased financial costs could worsen the financial position and business results. The company aims to improve its interest-bearing debt dependence ratio using surplus funds generated from expanded operating cash flow, but the possibility of additional borrowing for new capital investment remains.

Overseas transactions are conducted in foreign currencies such as US dollars, Hong Kong dollars, and Chinese yuan, and if there is a significant divergence between the assumed exchange rate and the actual market rate, it will adversely affect business performance and financial condition. In addition, since the financial statements of overseas subsidiaries are prepared in local currencies, exchange rate fluctuations at the time of yen conversion for consolidated financial statements also affect business performance. As the company pursues aggressive overseas expansion, an increase in foreign-currency-denominated transactions is expected, raising concerns about expanding risk.

The company is expanding its network of distributors and agents in major global markets, centered on Crossfor H.K. Ltd. and Gesifu Jewelry (Shenzhen) Co., Ltd., but there is a risk that business promotion will become difficult if it fails to address differences in laws, regulations, political and social conditions, business customs, religion, and user preferences in each country. Since the proportion of overseas net sales is high and much of profit depends on overseas operations, failure in overseas expansion will directly impact overall business performance. The company is addressing this by promoting sales activities suited to local conditions.

The purchase prices of gold, platinum, diamonds, and other primary raw materials used in key products fluctuate in line with overseas market conditions. If raw material prices rise sharply, there may be cases where the increase cannot be timely passed on to product prices due to supply-demand conditions, potentially worsening profitability. Since rising raw material procurement costs directly affect financial position and business results, continuous monitoring of market trends is necessary.

The company continues to make capital investments to improve the manufacturing, quality, and productivity of products such as Tennis Chain, and conducts impairment tests when there are indications that the book value of tangible fixed assets may not be recoverable. If the test results indicate that assets will not generate sufficient future cash flows, recognition of an impairment loss will be required, potentially affecting financial position and business results. As capital investment continues, the risk of future impairment remains ever-present.

Business operations are heavily dependent on the knowledge and judgment of key management personnel, including Representative Director and President Hidetaka Tsuchihashi (scheduled to move to Representative Director and Chairman effective October 24, 2025). If key management personnel become unable to perform their duties for any reason, it could affect the financial position and business results. The company is working to strengthen its management organization and develop personnel to avoid excessive dependence, but a high degree of dependence continues at present.

As of the end of July 2025, the company was a small-scale organization with 10 officers and 69 employees, and its internal control system remains commensurate with this scale. It is unclear whether the company can respond organizationally in a timely manner to business expansion and personnel increases, and inadequate response could lead to a decline in organizational efficiency. While the company intends to further enhance its internal control system as business expands, delays in system development could pose a management risk.

The company acquires and manages a large amount of customers' personal information, and there is a risk of unauthorized external access, human error, or intentional leakage, alteration, or improper use by employees. If an information leak or similar incident occurs, it could result in loss of trust and losses from damage claims, potentially affecting financial position and business results. The company is strengthening information management by clarifying and enforcing internal rules, but continuous response to external threats such as cyberattacks is also required.