SANSHIN ELECTRONICS CO., LTD.

In the Device Business, purchases from the top three suppliers and their respective group companies accounted for approximately 65% of total purchases in the current fiscal year, indicating a high degree of dependence on specific suppliers. Changes in major suppliers' product strategies, production policies, or distributor policies, as well as factory shutdowns due to pandemics or corporate restructuring, could have a significant impact on net sales and profit. As countermeasures, the Company is diversifying its supplier base by expanding its lineup of overseas manufacturers' products and focusing on AI/IoT solutions business.

In the Device Business, sales to the top four customers and their respective group companies accounted for approximately 50% of net sales in the current fiscal year, with a high degree of concentration among consumer electronics and mobile device manufacturers. Changes in major customers' product strategies or procurement policies (including those arising from tariff policies of various countries) or corporate restructuring could have a significant impact on net sales and profit. The Solutions Business also has a revenue structure dependent on major customers, and the Company is working to strengthen sales expansion through increased personnel and to broaden its customer base by introducing new AI-centered products.

As a semiconductor trading company, the Company maintains a certain level of inventory to ensure stable supply to customers and shorten lead times; however, changes or cancellations in customers' production plans could render inventory obsolete, resulting in the recognition of valuation losses on inventory that could have a significant impact on profit. The Company has established an Inventory Committee to maintain appropriate inventory levels across the group and prevent excess or obsolete inventory, and works to obtain early information on changes in customers' production plans and discuss responses with suppliers.

Trade receivables at the end of the current fiscal year totaled ¥44.6 billion (as stated in the original text of the securities report), and the trade receivables turnover period was a relatively long approximately 3.1 months, creating a risk of uncollectibility should problems arise in customers' financial condition. The Company has established a Receivables Management Committee to manage credit and prevent bad debt across the group, and takes risk-hedging measures such as credit insurance and factoring when concerns arise regarding creditworthiness. For receivables of concern regarding collectability, the Company appropriately estimates the expected uncollectible amount and records an allowance for doubtful accounts.

Due to a financial structure in which the collection period for trade receivables is longer than the payment period for trade payables, working capital needs arise as sales increase, leading to reliance on external borrowing. Borrowings at the end of the current fiscal year totaled ¥19.7 billion (as stated in the original text of the securities report), and an increase in borrowings or a rise in interest rates could lead to higher interest expenses and a decline in the equity ratio (currently 50.5%), potentially impeding the flexible implementation of capital policy. The Company works to hedge these risks through diversified management of repayment dates, use of long-term fixed-rate borrowings and interest rate derivatives, and early cash conversion through securitization of receivables.

Approximately 70% of net sales and approximately 75% of purchases are denominated in U.S. dollars, and fluctuations in exchange rates could result in foreign exchange losses at the time of settlement or valuation of foreign-currency-denominated assets and liabilities. In addition, the translation of foreign-currency-denominated financial statements of overseas subsidiaries, primarily in Asia, into yen could have a significant impact on consolidated results. The Company works to hedge these risks through the use of forward exchange contracts, currency matching (marrying), and foreign-currency-denominated borrowings.

In response to climate change issues, regulatory tightening and market changes are progressing in various countries and regions, and failure to properly assess and respond to risks and opportunities could lead to a decline in competitiveness and loss of social credibility. This is positioned as a company-wide risk given its potential significant impact on net sales and profit, and the Company is advancing its response based on its sustainability philosophy and initiatives.

The Company may invest in business partners to develop new products and new suppliers for future growth, but investments in companies carry high uncertainty, and if business plans do not proceed as expected, the Company may recognize investment losses that could have a significant impact on profit. The Company has established an Investment Committee to carefully examine the financial condition of investees, the feasibility of their strategies, and expected investment returns when deciding whether to invest, and conducts regular monitoring and reporting to the Board of Directors after investment. If a significant divergence arises between an investee's business plan and actual results, the Company writes down the valuation to substantial value and recognizes a valuation loss on investment securities.