DAIWA CYCLE CO.,LTD.

PB products are procured mainly from consignment production factories in China, and there is a possibility that rising unit costs or product shortages may occur due to local labor cost and price inflation, rising container freight rates, and Chinese authorities' environmental regulations and export policies. There is also a compounded risk that product procurement could become difficult due to suspension of operations at consignment factories during an infectious disease outbreak. The Company is taking countermeasures by securing multiple consignment manufacturing factories, but if these events occur, they could have a material impact on its financial position and business results.

Since PB products are mainly imported from China, and many NB products are also assembled in China and imported to Japan, exchange rate fluctuations directly affect procurement costs. The Company hedges this risk to a certain extent through price revision negotiations with overseas and domestic suppliers and by securing options for multiple currencies, but if fluctuations become larger than expected, it could affect the financial position and business results.

Steel materials such as steel and aluminum, as well as carbon resin, are used in the bicycle frames that are the Company's main products, and synthetic rubber is used in tires, so raw material prices may surge due to natural disasters, market trends, economic conditions, fuel costs, exchange rates, and other factors. The Company strives to curb procurement prices through negotiations with suppliers and the adoption of alternative raw materials, but if it is unable to respond adequately, this could affect the financial position and business results.

Bicycles face fierce competition not only through existing channels such as specialty stores, home centers, and consumer electronics retailers, but also in internet sales. The Company seeks to differentiate itself through a wide product lineup, a comfortable store atmosphere, and customer-oriented service, but if it is unable to differentiate itself sufficiently, this could affect the financial position and business results.

Bicycles and bicycle-related products, the Company's main products, see peak demand during the spring school-entrance and job-starting season, and net sales in the first half tend to exceed those in the second half. Since fixed costs vary little throughout the year, operating income is also concentrated in the first half, creating a risk that a deterioration in second-half performance could have a significant impact on full-year results.

Since it takes time to train personnel capable of bicycle maintenance and repair, a decline in the number of hires or an increase in the turnover rate could hinder the Company's ability to secure and train personnel in line with the pace of store expansion. This could lead to a slowdown in the pace of new store openings and a decline in the quality of customer service, thereby affecting the financial position and business results. The Company addresses this by focusing on hiring new graduates from universities and high schools as well as mid-career hires.

The Company holds fixed assets related to store interior fixtures and other items, and if the profitability of stores declines, there is a possibility that impairment losses will arise because the book value of these fixed assets cannot be recovered. The Company conducts a detailed analysis of future profitability at the time of new store openings, and after opening, the Board of Directors reviews monthly performance and implements countermeasures, but if unexpected deterioration in profitability occurs, this could affect the financial position and business results.

If a customer accident or injury occurs due to a defect in bicycle assembly or maintenance at a store, the Company may be held liable for damages or compensation. Since PB products are subject to the Product Liability Act (PL Act), the Company addresses this risk by establishing proprietary quality standards with JIS standard compliance as a minimum requirement and by taking out PL insurance, but if a defect is discovered, this could affect the financial position and business results.

The Company holds customer information through bicycle anti-theft registration, its membership service system, and EC site operations, and if an information leak occurs due to unauthorized access or other causes, this could affect the financial position and business results through direct damage or loss of trust. The Company implements strict management based on its personal information protection regulations and security measures such as firewalls, but risks such as cyberattacks cannot be completely eliminated.

Representative Director and President Yoshihisa Wakumoto is a central figure in the Company's growth and plays an important role in determining and executing management policy and business strategy. If he becomes unable to perform his duties, this could affect the financial position and business results. The Company is working to reduce this dependence through information sharing with executive staff, delegation of authority, and the hiring and training of management personnel, but this organizational development is still a work in progress. In addition, he and his asset management company are major shareholders holding 65.3% of the total number of issued shares, and a future sale of shares could affect the market price and trading conditions.