LEC,INC.

To reduce costs for daily sundries, the Group relies heavily on cooperating factories and manufacturing subsidiaries in China for production. Should changes in China's political or economic system disrupt the procurement of parts or products, this could affect the Group's financial position and business performance. As the Group intends to continue production in China going forward, ongoing monitoring of geopolitical risk remains necessary.

Purchasing transactions, primarily centered on imports from China, are mainly denominated in U.S. dollars, exposing the Group to foreign exchange fluctuation risk. Although the Group hedges this exposure through forward exchange contracts and other means, sharp and unpredictable currency fluctuations caused by conflicts or other events could affect its financial position and business performance. Responding to sudden fluctuations that exceed the limits of hedging instruments remains a challenge.

Should large-scale natural disasters such as typhoons or earthquakes, fires, or the spread of epidemics occur at the Group's business sites, this could disrupt business continuity and affect the Group's financial position and business performance. Depending on the extent of damage, there is a risk that production and sales activities could be significantly restricted. The annual securities report does not mention specific details of a business continuity plan (BCP).

The Group procures raw materials, parts, and outsourced processed products necessary for manufacturing from external sources, and there is a risk that price surges or procurement difficulties may arise due to global economic conditions or changes in the environment of raw material producing countries. Rising procurement costs directly affect product costs and could pressure profitability in the highly price-competitive daily sundries industry. The annual securities report does not describe specific countermeasures such as diversifying procurement sources.

The Group, which handles a wide variety of products in its daily sundries business, focuses on planning and development to respond to changes in consumer preferences and demand, launching new products into the market; however, if it falls behind in responding to market trends, this could affect its financial position and business performance. As consumer needs are constantly changing, the risk of product lineup obsolescence persists on an ongoing basis.

Should an accident arise from a product defect, this could result in damages claims under the Product Liability Act, affecting the Group's financial position and business performance. The Group seeks to mitigate this risk by establishing a strict quality control system across the entire process of planning, manufacturing, and sales, as well as by maintaining product liability insurance. However, risk remains in the event of large-scale damages or reputational harm that exceed the coverage of such insurance.