THine Electronics, Inc.

The Group's products are sold to customer manufacturers primarily in Japan, the United States, South Korea, Taiwan, and China, and are distributed worldwide as final products. As such, geopolitical risks such as US-China friction, US tariff policy, and drastic changes in the economic environment due to the spread of infectious diseases may affect business performance and financial condition. Impacts on the business are anticipated in both phases of demand expansion and contraction. No specific countermeasures are described, and structural vulnerability to changes in the external environment remains.

The markets for semiconductor products and IoT products are highly competitive, with frequent technological innovation, changes in customer needs, and new market entrants. The Group addresses this through product development based on new technologies and competitive pricing, but if situations arise that are difficult to counter due to low-price competition or an increase in new entrants, this may adversely affect business performance and financial condition. Given the market structure, downward price pressure remains a continuing risk factor.

In the LSI Business, the proportion of manufacturing outsourced to three companies—ASE, TSMC, and Vanguard—stands at 80.6%, while in the AIoT Business, the proportion of procurement from a single supplier, SIMCom Wireless Solutions, stands at 84.5%, indicating an extremely high degree of dependence on specific suppliers. If stable supply from these companies cannot be secured due to export restrictions between the US and China or supply chain tightness, this may disrupt product supply and have a material impact on business performance. While efforts are made to maintain relationships with multiple partners, the high degree of concentration remains a structural risk.

In the fiscal year under review, sales to three companies—Macnica, Kaga Electronics, and Fujitsu—accounted for 47.0% of total net sales, indicating a high degree of dependence on specific customers. If, for any reason, product provision through these three companies becomes difficult, net sales may decline significantly, materially affecting business performance. At present, there is no description of specific measures to diversify sales channels.

Total inventories as of the end of December 2025 amounted to ¥934 million, and this amount may increase when launching new businesses or when customer forecasts are unstable. Inventories with reduced profitability, such as long-term stagnant inventory, may require write-downs or disposal, which would affect business performance if it occurs. Although monthly inventory management is implemented, the risk continues to exist given the large demand fluctuations in the semiconductor market.

The Group continuously conducts research and development of new technologies and new products based on mixed-signal LSI technology for information utilization applications such as 8K televisions, office equipment, amusement, and automobiles. Each R&D project is undertaken in anticipation of the needs of growth markets, but there is no guarantee that the full amount of R&D expenditure invested will be recovered, and if it becomes unrecoverable, this may affect profitability. In the semiconductor industry, where technological innovation is rapid, the risk that development outcomes fail to align with market needs is always present.

The Group strengthens its quality management system and implements strict quality control, but there is no guarantee that all products are free of defects or that claims for damages will not arise. It is explicitly stated that if a claim for damages were to arise, this could have a material impact on business performance. Since semiconductor products are also used in high-reliability applications such as automobiles and industrial equipment, the scope of impact in the event of a quality problem could be extensive.

The Group strives to secure and protect intellectual property such as patent rights, but it may not be possible to completely prevent unauthorized misappropriation by third parties. In addition, while a dedicated department has been established to manage and avoid infringement of other companies' intellectual property rights, it is explicitly stated that if the Group is sued by another company for patent infringement or similar claims due to differences in interpretation, this could have a material impact on business performance. Patent litigation risk is high in the semiconductor industry, and the impact of litigation costs and damages on finances cannot be disregarded.

The Group has built an information management system including virus detection, firewall construction, redundant data management, and restricted access administration, but it is explicitly stated that if information leakage, tampering, or deletion were to occur despite these measures, this could have a material impact on business performance. Leakage of R&D information or customer information carries the risk of loss of competitive advantage and damage to trust.

The Group has built a structure that is less susceptible to the effects of exchange rate fluctuations by conducting both sales and procurement transactions in US dollars, but as of the end of December 2025, it held approximately US$9 million in dollar-denominated cash and deposits, and exchange rate fluctuations may change the yen-equivalent value of these assets, affecting business performance. Since the local-currency-denominated assets, sales, and expenses of overseas group companies are also translated into yen in the consolidated financial statements, a stronger yen environment would exert downward pressure on business performance.