MATSUO ELECTRIC CO.,LTD.

The Company supplies products to diverse regions including Japan, Asia, Europe, and the Americas, and changes in economic conditions or demand fluctuations in each country or region may adversely affect business results and financial condition. There is an inherent risk that an economic downturn or sharp decline in demand in a specific region could directly impact net sales.

Tantalum powder, the principal raw material for Tantalum Capacitors, is a rare metal, and since global oligopolistic companies control its production, there is downward rigidity in market prices. The Company is placed in a disadvantageous position in price competition with other types of capacitors, and rising purchase prices may directly and adversely affect the Company's profit and loss.

Although production is basically made to order, there is a risk that forecast-based production items may become obsolete inventory due to changes in customers' production plans. If intense price competition in the electronic components industry causes the net selling price to fall below manufacturing cost, the write-down amount based on inventory valuation standards is included in cost of sales, which may adversely affect operating income.

Products for car electronics account for more than 40% of net sales, and among them, sales to the Denso Group account for approximately 37% of net sales, representing a high degree of customer concentration risk. Changes in the Denso Group's management strategy or procurement policy may significantly affect the Company's business results.

As the miniaturization, thinning, higher frequency response, and enhanced safety of electronic devices progress rapidly, advance development of high-quality, low-cost products is regarded as the most critical challenge. Development plans may be delayed due to human resource and funding constraints, and even after successful development, products may become obsolete due to the speed of technological innovation, which may adversely affect future growth and profitability.

Environmental regulations are being strengthened both in Japan and overseas, and the Company is promoting acquisition of international environmental standards and compliance with halogen-free requirements. However, if the Company's products fail to comply with these regulations, sales activities may be restricted, which may adversely affect business results.

While the Company has formulated a BCP and established preventive activities and response systems against natural disasters such as typhoons and earthquakes and other sudden events, adverse effects on production facilities cannot be completely eliminated. If product supply becomes difficult due to the suspension of production facilities or other causes, business results and financial condition may be adversely affected.

There is a risk that the spread of infectious diseases could affect the entire supply chain, including suppliers, customers, and the Company's own factories. Even if the spread of infection among employees disrupts the production system, business results and financial condition may be adversely affected.

Although the Company manufactures products in accordance with globally recognized quality control standards, there is no guarantee that product defects will not occur in the future. If a product defect results in substantial losses, business results and financial condition may be materially and adversely affected.

The Company is subject to a wide range of laws and regulations both in Japan and overseas, including those relating to commercial transactions, antitrust law, intellectual property rights, product liability, the environment, and labor affairs, and violations could result in sanctions by regulatory authorities, litigation, or damage to corporate brand value. The Representative Director and President appoints an officer responsible for compliance management, and the Company addresses this risk by establishing ethical standards and an antitrust compliance policy and developing internal audit and whistleblowing systems; however, the risk of regulatory violations cannot be completely eliminated amid global business expansion.