Kurogane Kosakusho Ltd.

The Group has recorded operating losses for eight consecutive fiscal years through the current consolidated fiscal year, and circumstances exist that raise material doubt about its ability to continue as a going concern. As countermeasures, the Group is advancing the establishment of a revenue base based on the medium-term management plan "Revive2025," and has secured working capital through an overdraft agreement with MUFG Bank (¥400 million) and long-term borrowings (totaling ¥400 million), among other measures. However, in the current consolidated fiscal year, the Group again recorded an operating loss due to delivery delays on large-scale projects, among other factors. Although the Group has formulated a new medium-term management plan, "Power Up 2028," aiming to maintain stable profitability, the certainty of a recovery in earnings remains unclear.

Changes in the number of new construction starts and completions of office buildings, stores, factories, hospitals, etc., as well as fluctuations in the business performance of client companies and changes in consumer demand for durable goods, directly affect the Group's product sales. Such demand fluctuations may affect the Group's business results and financial position. The Group is working to diversify its revenue base through measures such as expanding orders for custom-order fixtures and expanding its office design and proposal business.

Steel sheet prices, the Group's key raw material, are considerably affected by domestic and overseas demand trends, and may affect business results and financial position in terms of both price and volume. Although the Group strives to absorb costs, full pass-through is difficult; the Group is advancing pass-through to sales prices through measures such as revising catalog prices and revising sales prices of OEM products. The impact on product costs continues, compounded by rising import product prices due to the rapid depreciation of the yen.

The Group procures some products from outside the Group, and if raw material price increases and other factors persist over the long term, pressure to raise procurement prices from suppliers may intensify, potentially affecting business results and financial position. Rising raw material prices and increases in import product prices due to the rapid depreciation of the yen have become a reality, and the Group is advancing efforts to pass these costs through to sales prices; however, there is a risk that delays in such pass-through will squeeze profitability.

Although the Group manufactures products under strict quality standards, recalls and similar events may occur due to unforeseen circumstances. While the Group maintains product liability insurance, there is no guarantee that it will fully cover any losses incurred, and in addition to the impact on business results and financial position, such events may lead to a decline in confidence in the Group's products.

The Group's production sites have been consolidated and concentrated at the Tsu Plant (Tsu City, Mie Prefecture), and if a large-scale natural disaster such as an earthquake were to occur in this region, production activities could be halted and the logistics network disrupted, potentially having a material impact on the Group's business results and financial position. While the Group enjoys cost efficiency benefits from production concentration, reliance on a single site increases BCP-related risk.

The Group holds securities of major business partners and financial institutions with which it transacts, and since all securities with market value are marked to market, fluctuations in market value may affect the Group's business results and financial position. In addition, the Group positions the flexible sale of pledged investment securities and other assets as a means of securing cash on hand, creating a structure in which stock market trends indirectly affect the Group's cash flow as well.

The Group procures products and raw materials from overseas markets, and although it mitigates foreign exchange fluctuation risk through partial forward contracts and other measures, it cannot eliminate the impact entirely. If a sharp fluctuation in foreign exchange rates occurs (particularly yen depreciation), procurement costs for imported products and raw materials may rise, potentially affecting business results and financial position.

The Group has formulated a cybersecurity response policy and has established a system for monitoring the behavior of all servers and PCs, AI-based detection, antivirus measures, and other safeguards; however, complete defense against targeted cyberattacks is difficult. In addition, if network functions were to be halted due to unforeseen circumstances such as a natural disaster, there is a risk that order-receiving and order-placing operations could become impossible, and if such events occur, they may have a material impact on the Group's business results and financial position.

During the current consolidated fiscal year, significant delivery delays occurred, particularly on large-scale projects, contributing to the recording of an operating loss. As the Group advances its strategy of expanding custom-order products made through varied-type, varied-volume production as a pillar of revenue, similar delivery delay risks may materialize as orders for large-scale projects increase. The Group is addressing this through strategic renewal investment in aging production facilities and strengthening its organizational structure by increasing sales personnel.