LIHIT LAB.,INC.

Domestic production and logistics facilities are concentrated in Kikugawa City, Shizuoka Prefecture. In the event of a fire or natural disaster, production and logistics equipment could be damaged, making normal business operations difficult. Limitations in alternative measures due to the concentration of bases could directly affect business performance and financial condition. The Annual Securities Report states a policy of striving to avoid such occurrences and to respond appropriately if they occur, but does not mention specific plans for developing alternative production bases.

In the Office Supplies and Related Business, the proportion of overseas sales and procurement is increasing, and changes in tariff systems, differences in business practices in counterpart countries, unexpected enactment or amendment of laws and regulations, and changes in economic and social conditions could hinder stable transactions. In particular, at the Vietnamese production subsidiary, changes in Vietnam's tariff system and operations, as well as changes in the political and economic situation, could reduce productivity and profitability and create a risk that additional investment may become necessary. The Group's policy is to strive to avoid the occurrence of such risks and to respond appropriately if they occur.

Due to the expansion of overseas transactions and the impact of the accounting system of the Vietnamese production subsidiary, the proportion of US dollar-denominated receivables and payables is increasing. Fluctuations in the dollar-yen exchange rate may affect business performance and financial condition, and exposure to exchange rate risk is on an expanding trend going forward. The Annual Securities Report does not mention specific hedging measures.

Some loan agreements include financial covenants, and if these covenants are violated, the Company could lose the benefit of the grace period and be required to repay the relevant borrowings in a lump sum. Should lump-sum repayment become necessary, it would have a material impact on financial condition and operating results. Details of the financial covenants are disclosed in the notes to the consolidated financial statements (Consolidated Balance Sheet related items).

In the Office Supplies and Related Business, petroleum products are used as a primary raw material, and social conditions in the Middle East, developments in the Russia-Ukraine situation, and changes in supply-demand relationships in the US, Europe, China, and elsewhere affect raw material prices and stable procurement. Should raw material costs rise or procurement difficulties arise, this could adversely affect business performance and financial condition. The structure involves a complex interplay of geopolitical risks.

The Real Estate Leasing Business is centered on rental office space in the head office building, with rental income mainly from Rental Apartments, Rental Warehouses, and parking facilities. Since occupancy rates are affected by domestic economic trends, real estate market conditions, and corporate performance, a downturn in the leasing market or a decline in occupancy rates due to building deterioration, among other factors, could affect business performance and financial condition. The revenue base of this business is structurally dependent on the external environment.

With advances in IT technology and the spread of telework, the digitalization and networking of information has progressed, increasing the risk of intrusion into and attacks on internal systems from outside as well as the risk of leakage of confidential corporate information and personal data. In the event of a system failure or information leakage, in addition to disruption to business continuity, the Company could suffer reputational damage and be held liable for damages, potentially affecting business performance and financial condition. The Annual Securities Report does not mention specific details of security measures.

The Group has established a thorough quality inspection and assurance management system and strives to maintain quality, but there is no guarantee that all products are free of defects and that product liability claims will never arise. If non-conforming products are delivered to customers due to unforeseen circumstances, costs related to product returns, exchanges, and damage claims could arise, materially affecting business performance. Although the quality control system continues to be enhanced, complete elimination of this risk remains difficult.