LION OFFICE PRODUCTS CORP.

Otsuka Corporation is the largest shareholder, holding 37.47% of the Company's issued shares, and transactions with Otsuka Corporation account for 12.9% of net sales and 14.8% of purchases in the consolidated fiscal year under review. The EC platform "NAVILION" is also built on Otsuka Corporation's information and logistics systems, and any change in this relationship could have a material impact on business performance and operations. As a countermeasure, the Company has established a board approval process based on its related party management regulations and appointed two independent outside directors.

If business sites, production plants, and logistics warehouses deployed across Japan are damaged by disasters exceeding expectations, such as large-scale earthquakes or floods, or by acts of terrorism, significant damage to production, sales, and logistics could occur, potentially disrupting the supply chain. Disruption to business operations due to damage to external data centers or interruption of communication systems is also anticipated, and the impact is assessed as "large". Although disaster prevention measures have been implemented, the ability to respond to events exceeding expectations remains a challenge.

If harassment or human rights issues occur in the course of business activities or within the supply chain, this could adversely affect business performance and financial condition through reputational damage and reduced sales, and the impact is assessed as "large". The Company has established "Compliance Action Guidelines" declaring that it will not engage in discriminatory speech or various forms of harassment, but managing this across the entire supply chain is highly complex. Although the Company addresses this through compliance-focused management, it is difficult to eliminate the possibility of occurrence entirely.

Sales of ICT equipment in the education business are heavily influenced by government policy and local government budgets; the acceleration of the GIGA School Program led to a substantial increase in sales and profit in FY2021 (ending September 2021). In addition, the office furniture and supplies industry has peak demand in March, resulting in a first-half-weighted structure with sales and profit concentrated in the second quarter. The Company is working to expand its enterprise business and enhance its EC platform in order to smooth out performance fluctuations.

Over 90% of the Group's net sales are generated domestically, and business performance is heavily affected by trends in capital expenditure by domestic companies and public investment by national and local governments. If corporate earnings deteriorate, reducing appetite for capital expenditure, or if public investment is cut, this could adversely affect business performance and financial condition. The diversification effect from geographic spread is limited, resulting in a structure highly sensitive to fluctuations in the domestic economy.

Many of the products handled by the Company, such as files, storage cabinets, paper folding machines, and shredders, are premised on paper use, and there is a risk that demand will decline as digitalization and paperless trends progress. If such structural market changes accelerate, sales of existing products could continue to shrink, adversely affecting business performance and financial condition. In response, the Company is actively promoting new products such as private booths and web conferencing tools, as well as its "Total Office Proposal".

Competition in the market for office products and services is intensifying due to entry from companies in other industries, and the Company does not necessarily maintain a price advantage. Deepening price competition could adversely affect business performance and financial condition through a decline in gross profit margin. The Group is responding through differentiation via total proposals combining products and services, but securing a price advantage remains a challenge.

There is a risk that purchasing costs will rise due to sharp increases in the prices of key raw materials such as paper, resin, and steel sheet, rises in crude oil prices, and foreign exchange fluctuations. Although the proportion of foreign-currency-denominated transactions is not large, exchange rate fluctuations could affect purchase prices and generate foreign exchange gains or losses from the revaluation of foreign-currency-denominated receivables, adversely affecting business performance and financial condition. The securities report does not describe specific hedging measures, making cost pass-through capability an important response factor.

The Company holds confidential business information, customer information, and personal information, and there is a risk that system failures or information leaks could occur due to cyberattacks or unauthorized access exceeding expectations, or due to inadequate management of outsourcing partners. If information leakage occurs, it could damage the Company's brand and credibility and adversely affect business performance and financial condition. The reporting company has established a personal information protection system compliant with JIS Q 15001 and has obtained and operates under the "Privacy Mark".

The number of potential shares from outstanding stock acquisition rights issued as stock options for directors, executive officers, and employees is 2,662,000 shares, equivalent to 8.31% of the total issued shares of 32,022,000 shares. If these are exercised in the future, this could dilute the share value and voting ratio of existing shareholders. The likelihood of occurrence is assessed as "high", making this a risk that existing shareholders should take note of.