LEADER ELECTRONICS CORPORATION

As video distribution business shifts from broadcasting to telecommunications, the market for broadcasting-related measuring instruments, the Group's mainstay, is expected to gradually decline. The Group is hedging this risk by diversifying its product lineup into television radio wave measuring instruments and camera test systems, and by developing new businesses offering automation and labor-saving solutions for video production and editing based on automatic picture quality evaluation technology.

To respond to increasingly sophisticated digital technologies, the Group is accelerating development speed by integrating technological capabilities, product development capabilities, and cost competitiveness with its consolidated subsidiary Leader Electronics of Europe Limited. The Group is also taking measures to secure and develop engineers and prevent their departure; however, if these measures do not succeed, competitiveness may decline.

As a fabless manufacturer, the Company outsources production, and there is a risk that continued production could become difficult if a contractor's business deteriorates, or if production capacity or quality problems occur. The Company believes it can transfer product-specific technology and know-how, which it manages in-house, to other companies; however, if arrangements with an alternative contractor are delayed or if the transfer takes a long time to complete, business performance may be affected.

The outlook for economic activity remains uncertain due to U.S. tariff policy, the Russia-Ukraine conflict, and the situation in the Middle East. If the complexity of tariff policy or prolonged conflicts leads to a slowdown in the global economy, exchange rate fluctuations, or disruptions in securing materials and logistics, business performance may be affected. As a countermeasure, the Group is working to maximize reductions in selling, general and administrative expenses, including optimizing research and development expenses.

The Group is pursuing an M&A strategy to strengthen its revenue base and grow its business through global expansion; however, if previously unrecognized off-balance-sheet liabilities or contingent liabilities materialize after an acquisition, or if expected results are not achieved due to sudden changes in the business environment or competitive landscape, an impairment loss on goodwill may occur. Although the Group conducts sufficient due diligence and risk assessment in advance, uncertainty remains.

If a product defect occurs, there is a risk of liability for damages to customers and loss of trust. The Group properly operates a quality management system based on ISO9001, and when defects occur, it hedges risk by investigating the cause, responding promptly, and applying horizontal deployment of countermeasures to other products.

Business performance may be affected by fluctuations in exchange rates in connection with the yen conversion of consolidated subsidiaries' financial statements denominated in local currencies, as well as in foreign currency-denominated transactions. The Group hedges foreign currency-denominated trade receivables individually using derivative transactions (forward foreign exchange contracts), and also seeks to reduce credit risk through credit management, due date management, and balance management for each business partner.

Some of the Company's products are subject to security export control regulations, and there is a risk of export suspension or administrative sanctions if a regulatory violation occurs. The Company manages exports in accordance with its security export control regulations filed with the Ministry of Economy, Trade and Industry, and addresses this risk by maintaining a level that raises no concerns in inspections by the Ministry.

With respect to listed shares held by the Group, if a valuation loss occurs due to a decline in share price or poor performance of an investee, business performance and financial condition may be affected. The Group monitors this risk by ascertaining fair value on a quarterly basis.

If it is determined that an impairment loss should be recognized based on the accounting standards for impairment of fixed assets, the book value of the relevant assets must be reduced to the recoverable amount, which may affect business performance and financial condition. Changes in the business environment or a decline in profitability could trigger an impairment determination, requiring continuous monitoring.