The Lead Co., Inc.

The Company depends on Subaru Corporation and its affiliated parts manufacturers for 81.7% of net sales in FY2026 (ending March 2026), creating a risk of order decline in the event of an economic downturn or a reduction in passenger vehicle production and sales due to semiconductor supply shortages. In addition, if Subaru significantly shifts its production bases overseas, orders received by the Company may decrease because the Company does not have overseas production bases. If the Company is slow to respond to changes in the order structure for mass-produced parts and repair parts, this may affect its financial position and business results.

Automotive Parts accounted for 89.8% of net sales in FY2026 (ending March 2026), and the competitive environment is changing significantly due to the globalization of automakers, the breakdown of supplier keiretsu, the expansion of modularization, and accelerating technological innovation. Competition has also intensified for Bicycle Parking Products (In-house Products) due to new entrants and other factors. The Company is striving to strengthen its competitiveness through business rationalization and cost reduction activities, but if it is unable to achieve this as planned, its financial position and business results may be affected.

In the Automotive Parts division, the rapid provision of highly reliable, advanced technology is essential for growth, while in the In-house Products division, the development of innovative products in areas such as the environmental field is essential for growth. This requires the training and securing of highly skilled engineers and key personnel, as well as the expansion of digital development and performance/reliability analysis facilities, and the investment amounts required for these may become substantial. Since such investments may not always translate immediately into increased sales or profits, this may affect the Company's financial position and business results.

Although the Company takes every precaution in quality control, including its inspection and shipping systems, there is no guarantee that defects will not occur in any of its products. While the Company carries product liability insurance, there is no guarantee that the final amount of damages will be fully covered, and the occurrence of a defect may also affect the Company's reputation. This risk applies to all products, including In-house Products.

The Company procures materials, parts, and other items necessary for production activities from numerous suppliers, but it depends on specific suppliers for some items, and delays or interruptions in delivery could disrupt production activities. If defective goods are mixed in, this may also affect the reliability and reputation of the Company's products. In addition, if market prices rise sharply and the Company is unable to absorb increases in raw material costs, this may affect its business results.

The Company procures funds for production facilities and working capital through borrowings from financial institutions and leases from leasing companies. As of FY2026 (ending March 2026), the balance of interest-bearing debt was ¥4,233 million, and the ratio of interest-bearing debt to total assets of ¥8,705 million stood at a high level of 48.6%. If new facility installations and new orders in the Automotive Parts division overlap, capital expenditure costs may increase, further raising this dependence. If interest rates rise significantly in the future, this may affect the Company's financial position and business results; interest expense increased from ¥42 million in FY2025 (ended March 2025) to ¥58 million in FY2026 (ending March 2026).

The Company's business is subject to a wide range of environmental laws and regulations governing noise, air pollution, water pollution, soil contamination, industrial waste disposal, hazardous substances, and other matters. If these regulations become stricter in the future, an increase in compliance costs is expected. If the cost of responding to stricter regulations increases, this may affect the Company's financial position and business results.

There is no guarantee that the impact of disasters, power outages, or other disruptive events at production facilities can be completely prevented or mitigated, and production capacity may temporarily decline as a result. The Company implements risk management measures to minimize the negative impact of production line interruptions, but the effectiveness of such measures has its limits. If a production interruption is prolonged, this may have a material effect on the Company's financial position and business results.

If an infectious disease such as COVID-19 were to occur or spread, net sales are expected to decline significantly due to the suspension of operations or production adjustments at Subaru, the Company's main customer, and the slowdown in economic activity among customers of its In-house Products. The Company aims to minimize the decline in profits through cost reduction measures such as improving productivity and optimizing personnel allocation, as well as through the use of employment adjustment subsidies; however, if the impact of an infectious disease becomes severe or prolonged, this may affect the Company's financial position and business results.

Securing and developing human resources to achieve customer satisfaction is important, but planned recruitment is becoming increasingly difficult due to greater labor mobility and the declining birthrate and aging population. The Company is working to develop human resources by continuing new graduate recruitment and focusing on its education system, but if it is unable to sufficiently secure and develop personnel due to the effects of the declining birthrate and other factors, this may affect its financial position and business results. In addition, if a serious industrial accident occurs due to unforeseen circumstances, this may also affect the Company's financial position and business results.