LOBTEX CO., LTD.

As of the end of the current consolidated fiscal year, interest-bearing debt amounted to ¥2,492 million (net interest-bearing debt of ¥516 million), and the Group seeks to reduce risk by combining variable-rate and fixed-rate borrowings. If financial markets change significantly at the time of new investments for future business expansion or technological innovation, financing conditions may deteriorate, potentially affecting the Group's financial position or operating results. The Group aims to secure stable financing by maintaining and strengthening favorable relationships with its financial institutions.

If a business partner's credit condition deteriorates, unexpected credit losses or the need to record an allowance for doubtful accounts may arise, potentially affecting the Group's financial position or operating results. For business partners judged to have lower creditworthiness, the Group enters into credit guarantee agreements with financial institutions and manages the security of trade receivables and credit conditions.

The business relies on computer network systems, and if a system failure occurs due to a natural disaster, accident, computer virus intrusion, or other cause, it could significantly disrupt sales and logistics operations, potentially affecting operating results. As countermeasures, the Group has established a management system enabling early recovery of operations, including migrating systems to the cloud and backing up various data.

In the course of business activities, the Group may face litigation related to product liability, environmental impact, and other matters. In addition to focusing on quality assurance, the Group has taken out insurance for product liability compensation to prepare for unforeseen events.

Changes in the market environment for the construction industry, manufacturing industry, and other sectors may cause net sales to increase or decrease, potentially causing fluctuations in operating income/loss, ordinary income/loss, and net income/loss attributable to owners of the parent. The Group continuously works to strengthen its financial structure in order to respond to changes in the demand environment.

A surge in raw material and energy prices due to changes in the market environment may increase the cost of sales ratio, significantly affecting profit and loss. The Group addresses this profit and loss fluctuation risk by strengthening its financial structure.

Violations of domestic and international laws and regulations or misconduct by employees, if they occur, could affect the Group's business, operating results, and social credibility. The Group strives to raise employees' compliance awareness while developing its risk management framework and periodically reviewing its internal systems.

If an infectious disease caused by an unknown virus, such as the novel coronavirus, spreads or becomes widespread domestically or internationally, it could make it difficult for the Group and its related business partners to carry out business activities, potentially significantly affecting the Group's financial position or operating results. The Group seeks to reduce this risk by establishing a remote work system, formulating employee codes of conduct, and implementing measures to prevent the spread of infection within the company.

Sales derived from transactions with major distributors TRUSCO NAKAYAMA CORPORATION and YAMAZEN CORPORATION amounted to ¥2,323 million in FY2026 (ending March 2026), accounting for 40.7% of consolidated net sales, indicating a high degree of dependence. Changes in these distributors' management policies or business practices could affect the Group's business performance and financial position. The Group seeks to avoid this risk by building a customer base that is not dependent on specific customers through the expansion of market share.