FFRI Security, Inc.

Although quality checks are conducted during the development process, it is difficult to completely eliminate bugs or defects due to the nature of programs. The company has established a system to limit losses through disclaimer clauses in the event of a defect, but there is a possibility that compensation costs could balloon and affect business performance.

As a Cyber Security Business operator, if the company itself or users who have implemented its products and services are subject to cyberattacks resulting in tampering with or theft of confidential information, there is a risk of losing trust in its technical capabilities. Sales of products and services may stagnate until trust is restored, potentially affecting business performance.

In the cyber security field, market needs change rapidly due to new threats and technological innovation. The company seeks differentiation through continuous R&D and focus on National Security Services, but there is a possibility that it may fail to keep up with a competitive advantage if it lags in responding to changes in the environment or if competitors emerge.

The Group specializes in the Cyber Security Business, and if IT capital investment is curtailed due to a deterioration in economic conditions or sudden changes in the global situation, there is no other business to compensate for the impact, resulting in a direct and significant effect on business performance. The structure does not allow for the diversification effect that business diversification would provide.

Cyber security products use advanced and complex programming technology, making it difficult to clearly define the scope of intellectual property rights. There is a risk that the company's own rights claims may not be recognized, or that it may unintentionally be sued by other companies for intellectual property rights infringement, either of which could affect business performance.

Currently, an organizational structure appropriate to the scale of business has been established, but if growth occurs faster than planned, difficulties in securing necessary personnel, insufficient training for new hires, delays in adapting internal systems, and redundant reporting structures may arise, potentially causing internal controls to become ineffective. In addition, if a partner cannot be secured when a large-scale development project arises, there is also a risk of investment losses or claims for damages.

In the course of business, the company handles highly confidential information such as users' security system information and malware samples. Although this is managed through the development of regulations and manuals and employee training, malicious leaks, in particular by insiders, are difficult to prevent completely, and if they occur, they could have a material impact on business performance due to loss of credibility and claims for damages.

Although the advanced security services market is expected to expand, market changes are rapid and growth may be slower than anticipated. Even during market expansion, there is a risk that the company will be unable to increase its market share due to new entrants and the provision of free or low-cost security features by competitors.

At present, there are no direct legal regulations governing the Group's business, but future enactment or revision of laws could result in the business becoming subject to regulation. In particular, if legal regulations are imposed on the management and handling of malware samples used in R&D, the company could be forced to incur substantial costs to comply or to change its management policies.

Revenue and profit tend to be concentrated from December to March, with cumulative net sales for the nine months ended December 2025 (Q3 FY2026 (ending March 2026)) of ¥2,885,872 million against full-year net sales of ¥4,348,797 million, meaning the fourth quarter alone accounts for approximately 34% of the total. Because economic conditions and IT capital investment trends at fiscal year-end have a significant impact on business performance, the structure results in large fluctuations in performance between quarters.