ENPLAS CORPORATION

The accelerating pace of technological innovation in the electronic components industry has shortened product replacement cycles and intensified price competition with competitors. If a sharp inventory adjustment occurs, it could adversely affect business performance through declines in product prices. As a countermeasure, the Company is actively allocating management resources to launching newly developed products based on patent-protected proprietary technologies and to strengthening its research and development system aimed at commercializing high-value-added products.

Overseas sales account for approximately 85% of consolidated net sales, a high proportion, and fluctuations in exchange rates directly affect the yen-converted amounts of revenues, expenses, assets, and liabilities related to foreign currency-denominated transactions. In particular, a sharp appreciation of the yen against the US dollar could adversely affect business performance and financial condition. To minimize the exchange rate fluctuation risk associated with the collection of foreign currency-denominated receivables, the Company hedges using forward exchange contracts, but there is no guarantee that the risk can be completely avoided.

With respect to inventories such as finished products, work in process, and raw materials, if market value declines significantly due to obsolescence resulting from shortened product life cycles or intensified price competition, valuation write-downs or disposal may become necessary. The Company and its domestic consolidated subsidiaries apply the cost method based on the total average method (with book value write-downs based on declines in profitability), while overseas consolidated subsidiaries mainly apply the lower of cost or market method. If valuation losses occur, they could adversely affect business performance.

The Enplas Group strives to accumulate proprietary technologies and know-how and protect them through intellectual property rights in order to secure competitive advantage in its business. However, if the Group infringes on the intellectual property rights of a third party of which it is unaware, or if the Group's own intellectual property rights are infringed upon by a third party, this could adversely affect business performance. Although the Group works to prevent infringement of other companies' rights through thorough internal risk management, complete avoidance is difficult.

Because the Group operates globally across North America, Europe, Asia, and other regions, changes in the political and economic conditions of each country and revisions to laws and tax systems could adversely affect business performance and financial condition. Heightened geopolitical risks, such as US-China tensions, the situation in Russia and Ukraine, and instability in the Middle East, raise concerns about impacts on raw material procurement and product supply through energy price fluctuations, supply chain disruptions, and tightened import/export regulations. As a countermeasure, the Group has established a Procurement Task Force to gather relevant information and respond promptly.

If important production facilities are damaged by natural disasters such as earthquakes or wind and flood damage, or by accidents and disasters such as fires, this could significantly affect production capacity. In addition, in the event of an outbreak of an infectious disease for which no established treatment exists, business operations may need to be suspended to ensure employee safety, factory operations may be temporarily halted at the request of national or local governments, and supply chain disruptions could affect the procurement of materials and the shipment of products. The Group has established a General Risk Management Committee and strives to strengthen its risk management system, but there is no guarantee of complete prevention or mitigation.