NoticeThis document is an excerpt translation of the original Japanese document andis only for reference purposes. In the event of any discrepancy between thistranslated document and the original Japanese document, the latter shallprevail.

Presentation Material for FY04/2022
Full Year Financial Results

June 10, 2022

HEROZ, Inc.（4382）
11. Executive Summary
2. Business Overview
3. FY04/2022 Full Year
Performance
4. FY04/2023 Forecast
5. Growth Strategy
6. Reference Materials

Executive Summary of FY04/2022◼ Net sales were 1,482 million yen (-4.7% YoY), consisting of◼ AI (B-to-B) services: net sales of 564 million yen(-17.4% YoY)

◼ AI (B-to-C) services: net sales of 918 million yen (+5.2％ YoY)
◼ In the AI (B-to-B) service, sales decreased 17.4% YoY due to the termination ofservices for game operations with our AI and delays in acquiring initial setup fees,
etc. In the AI (B-to-C) service, sales increased 5.2% YoY due to the effects of "Shogi
Wars", including increased attention to Shogi following the achievement of Sota
Fujii's fifth championship and events held in the application.
◼ EBITDA was 188 million yen (-48.4% YoY), operating profit was 34 million yen(-88.2% YoY), ordinary profit was 87 million yen(-69.3% YoY).This was due toincreases in labor costs, depreciation and amortization, and recruiting and training
expenses, but the investments were generally within the scope of the plan, as they
contribute to our medium-term growth. Net income was 49 million yen (-76.2%
YoY),due to the impact of the expansion of income tax credits associated with theseincreased expenses, etc.
◼ Difference from forecast mainly due to lower sales in AI (B-to-B) services.

3

Strategy of FY04/2023◼ In FY4/2023, in addition to stable growth of AI (B-to-C) services, we will strengthen sales andmarketing functions for growth of AI (B-to-B) services, and as a growth investment, we will
strengthen promotion of collaboration with VarioSecure Inc.
◼ Stable business growth mainly by Shogi Wars

AI（B-to-C）
services

AI（B-to-B）
services◼ In May 2022, dlshogi with HEROZ won the World Computer Shogi
Championship. We launched "Kishin Analytics," which supports professional
Shogi AI research using our Shogi AI, for professional Shogi players
through AI SaaS model.
◼ Although the company has not focused on customer acquisition activities
due to its focus on its highly skilled engineering team, the company will
launch a sales and marketing organization by May 2022 and strengthen ourcustomer acquisition activities for our future growth.
◼ Several AI products under development will be available by the end of
FY04/2023.

Investment
For Growth◼ Collaboration with VarioSecure Inc., to establish an "AI Security Company"
between the two companies.
◼ As a first step, we will incorporate our AI into the managed security services
provided by VarioSecure to strengthen product attraction.
4

1. Executive Summary

2. Business Overview
3. FY04/2022 Full Year
Performance
4. FY04/2023 Forecast
5. Growth Strategy
6. Reference Materials

Company Overview
2022
Moved to the Tokyo Stock Exchange Prime Market

Name

HEROZ, Inc.

2021

Location

PMO Tamachi 2F, 5-31-17 Shiba, Minato-ku,
Tokyo

2019

Established

April 20092018

Representatives

Takahiro Hayashi/Tomohiro Takahashi

Business
Description

AI (B-to-B) services: HEROZ Kishin
AI (B-to-C) services: “Shogi Wars”, etc.

MembershipJapan Deep Learning Association,
The Japanese Society for Artificial Intelligence

Capital and business alliance with VarioSecure Inc.
Listed on the First Section of Tokyo Stock Exchange (TSE)
Listed on Tokyo Stock Exchange (TSE) Mothers
Capital and business alliance with Netmarble Games Corporation

2017
Capital and business alliances with Takenaka Corporation and Koei
Tecmo Games2016

Capital and business alliance with Bandai Namco Entertainment

2013
Shogi AI, developed by engineers who was member of Heroz at thattime formerly with HEROZ, defeated a shogi professional

Representative Director and Co-CEO

2012

Graduated from Waseda University
Joined NEC as a technology engineer
Experience at IT strategy division, businessplanning division
Founded HEROZ

Shogi Track Record

Takahiro Hayashi

Launched mobile app, “Shogi Wars”
Amateur 6th dan (highest rank after becoming
national amateur champion)
7th dan, Shogi Wars
Amateur Kisen Champion (7-time title defender as national
champion)
Played against Yoshiharu Habu (permanent 7 title holder)

Representative Director and Co-CEO

Director, and COO

Director and CTO

Tomohiro Takahashi

Daisuke Asahara

Keiichi Iguchi

Graduated from Waseda University
Joined NEC as a technology engineer
Experience at Business Planning Division, BIGLOBE

Graduated from Kyoto University
MBA from Wharton School
ex-Goldman Sachs

Graduated from
Tokyo Institute of Technology
Joined NEC Central Research Labs

Founded HEROZ

6

Our Vision

Creating the future throughartificial intelligence (AI)revolutions

7

Global Leader in Mind Game AI

Chess AI

Shogi AI

Go AI

Deep Blue (’97)
defeated aprofessional ChessplayerAI developed by ourengineers who wasmember of HEROZ at thattime defeated aprofessional Shogi(Japanese Chess) player(’13)

Google acquired Deep Mind(’14)
AlphaGo, developed by
Deep Mind, defeated aprofessional Go player
(’16)

IBM

Google8

B-to-B Services: Machine Learning by Replacing
Shogi Game Records with Other Data

Shogi game records

Structural design data,
financial data, etc.

HEROZ Kishin
Deep learning and other machine learning:
AI SaaS (AI Software as a Service)

Shogi AI

Construction AI, Finance AI, etc.

AI Software：What is AI Software as a Service?
Provides models, developed by machine/deep learning, as a service

9B-to-B Services: Profit Model and High Switching Costs
Research/develop Shogi AI

Standardize AI technology accumulated
through shogi AI
Establish “HEROZ Kishin”=AI SaaS（AI Software as a Service）

Client’s data sent to HEROZ
Kishin/model developed bymachine learning

Output after machinelearning throughdeep learning, etc.

Output applied inbusiness settings

Establish an infrastructure which allows
HEROZ to provide AI services efficiently
to solve various challenges in various
industries just by changing input data
Provide comprehensive AI services withmassive servers

Accumulated data to be used forfurther machine learning

Output precision increases throughrepeated machine learning

Achieve stable, sustained earnings andhigh switching costs

Earning structure: initial setup fee
and ongoing fees10

B-to-B Services: Engines included in HEROZ Kishin
and Examples of Applications◼ Create AI products by combining engines and achieve an efficient operating structure

Know-how ondevelopment andservice operations

AI-related technology
and R&D capabilities(deep learning, etc.)(massive servers, etc.)
Construction

Mind gameengineGameprocessing
enginePlacement
Route
optimization optimizationengineenginePredictionengineStructural design
support, Control ofbuilding equipment

Finance

Market forecast,Fraud detection

Entertainment

Mind game AI

HEROZ Kishin
Media
OptimalsolutionsearchengineClassificationengineAnomalydetectionengineTextprocessing
engineImage
recognitionengineUser retention,
OptimizationHR

Matching
jobseekers withcorporations

OthersReal estaterevenue/logistics
optimization, Sales
forecast

We aim to create the industry standard for AI in each sector throughcollaboration with companies which own high-quality private data11

B-to-B Services:
Areas of Focus and Examples of Services Provided◼ Focusing on construction, finance, and entertainment for the foreseeable future◼ Earning structure is initial setup fee and ongoing fees
*Examples of clients served
Construc-tion

Structural design support,
Construction support, Control ofbuilding equipment, etc

Finance

Market forecast, Fraud use
detection, etc

Entertainment

Creation of high-quality NPCs,
game balance adjustment, etc.
(In B-to-B service, HEROZ is
not a game
operator/publisher but abackground AI provider)

Initial setup fees: new revenue recognition standard are applied since May 2021
Ongoing fees: mostly fixed fees recognized monthly
12

B-to-C Services: Fees from Application Users
Charging fees for B-to-C content which user AI◼ Shogi Wars has grown into a solid revenue base through the distribution of brain
games such as Shogi that utilize AI-related technologies.
◼ Shogi Wars is a platform that matches users with each other in real time, and thenumber of paying active users for Shogi Wars has exceeded both the previous year
and the initial plan.
◼ The number of paid active users is on an upward trend due to the increased attention
to Shogi by Sota Fujii's fifth championships, and events held in Shogi Wars.

◼ In May 2022, Shogi AI service "Kishin Analytics" launched, initially for professional
Shogi players, with plans to introduce for general users in the future.

Earning structure: monthly
membership fees, Kishin (AI) usage
fees, etc.
Shogi Wars

Animal Shogi Wars
13

1. Executive Summary
2. Business Overview

3. FY04/2022 Full Year
Performance
4. FY04/2023 Forecast
5. Growth Strategy
6. Reference Materials

Our Key Performance Indicator◼ We believe that EBITDA, as calculated below, is our key performance indicator

EBITDA = Operating Profit +Depreciation/Amortization
Expenses◼ In AI-related businesses, investments in compute servers, etc. are required to engage inadvanced machine learning, leading to various depreciation/amortization expenses. We
aim to continuously enhance enterprise value/equity value via EBITDA growth, without
being concerned about fluctuations in one-time depreciation/amortization expenses.
◼ In-house compute servers are mainly depreciated based on the declining-balancemethod with a useful life of 5 years.
15

FY04/2022 Full Year Financial Performance◼ Net sales: AI (B-to-B) service decreased from the previous year due to the termination ofgame operations with our AI and delays in acquiring initial setup fees. AI (B-to-C) service
continued to generate stable growth from the previous year due to increased attention to
Shogi and events held in “Shogi Wars”.
◼ EBITDA: Decreased due to depreciation and amortization associated with the purchaseequipment for machine learning, telecommunication expenses, human resource-related
expenses, and an increase in product development expenses.

(Units: JPY millions)(Reference)
FY04/2021
Results

FY04/2022
ActualFY04/2022
Forecast

YoY

Actual to
Forecast(%)

Net Sales

1,482

1,556

-4.7%

1,700

87.2%

EBITDA*

188

366-48.4%

280

67.4%

EBITDA Margin

12.7%

23.5%

－

16.5%

－

Operating Profit

34

294

-88.2%

100

34.8%

Operating Margin

2.3%

18.9%

－

5.9%

－

Ordinary Profit

87

285

-69.3%

90

97.5%

Net Income

49

207

-76.2%

63

78.4%* EBITDA = Operating Profit + Depreciation Expenses + Amortization of Lease Deposits

16Net sales and EBITDA Trends◼ Sales of AI (B-to-B) services decreased due to the termination of some existing projects.
However, the business is gradually recovering toward the end of the period, including a
new project related to data analysis for future introduction of AI.

◼ Sales in AI (B-to-C) services exceeded the previous year's sales due to continued stablesales growth of "Shogi Wars" and other services.
(Units: JPY millions)

1,544
30.9%

1,377

877

872

94

FY04/2017

549

23.5%

918 12.7%

523

470

357

824 10.7%
53

727

828
908

1,482

33.9%
34.2%

1,155

1,556

817

683

366

564 188247
FY04/2018

Net Sales（BtoB）

FY04/2019

FY04/2020

Net Sales（BtoC）

FY04/2021

EBITDA

FY04/2022

EBITDA margin
17

COGS and SG&A Trends◼ Aggressive investments were made in SG&A, including an increase in depreciation andcommunication expenses (121 million yen) due to the purchase of equipment such asservers for machine learning, etc., an increase in personnel recruitment expenses (16million yen), and an increase in R&D expenses (42 million yen).
◼ In FY4/2023, plan to increase personnel expenses by forming a sales and marketing team,aiming to grow sales of AI (B-to-B) services.
(Units: JPY millions)
1,448
1,262

1,085
956
417

372

9
4

339

8

338

187

2

215

56

427

800

788

495

37
191
49

233

21
201
63

244

476

508

FY04/2021

FY04/2022

248

235

305

381

FY04/2017

FY04/2018

FY04/2019

FY04/2020

labor costdepreciation cost

app commission fees

42

152

70

advertisement expenses

others(COGS/SG&A)

18

Balance Sheet (End of April 2022)◼ On September 10, 2021, we concluded a capital and business contract with
VarioSecure Inc. and acquired its affiliated company shares (1,995 million yen(including related costs)).
◼ Cash and deposits will be used for investments to realize our Medium-term growthstrategy.
Units: JPY millions

Current Assets

As of 4/30/2022

As of 4/30/2021

3,959

5,786

3,660

5,554

2,675

759

Property, plant and equipment

260

424

Intangible assets

25

17

2,390

318

6,635

6,546

Current Liabilities

194

143

Fixed Liabilities

－

－

6,440

6,403

Cash and deposits
Fixed Assets

Investments and other assets
Total Assets

Net Assets

19

1. Executive Overview
2. Business Overview
3. FY04/2022 Full Year
Performance

4. FY04/2023 Forecast
5. Growth Strategy
6. Reference Materials

FY04/2023 Financial Forecast◼ Recognizing that demand is expected to continue to grow in the AI-related market◼ We will continue to invest aggressively for the growth of AI (B-to-B) services by
establishing a sales and marketing organization.
◼ we expect net sales of 1.7 billion yen and EBITDA of 200 million yen. The company expects
to receive approximately 50 million yen in dividends from VarioSecure Inc. The plan does
not include the contribution to sales of "Kishin Analytics," a new service to be launched.
(Units: JPY millions)(Units: JPY
millions)

FY04/2022
ActualFY04/2023
Forecast

YoY(%)

Net Sales

1,482

1,700

+14.6％EBITDA

188

200

+5.9％

EBITDA Margin

12.7%

11.8%

－

Operating Profit

3450+43.7％

2.3%

2.9%

－

Ordinary Profit

87

100

+13.9％Net Income

49

60+21.4％

OperatingMargin21

AI（B-to-C）Services Strategy◼ Stable business growth centered on Shogi Wars
◼ The service was launched on May 21, 2012. The number of users is steadily increasing and thenumber of games played between users exceed 700 million by April 2022.
◼ In addition to acquiring monthly users, our Shogi AI (Kishin) has been widely used, providing
experiences where users can generally experience the use of AI in the world of Shogi.
◼ In May 2022, dlshogi with HEROZ won the World Computer Shogi Championship.
◼ Started providing "Kishin Analytics," which supports professional Shogi AI research using our Shogi
AI for professional Shogi players through AI SaaS model.
Kijin Analytics Screen

Shogi Wars Related Sales Trends
1,000
900

(Units: JPY millions)

800
700
600
500
400
300
200

100
0
2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

22

AI（B-to-B）Services Strategy◼ As a group of highly skilled engineers, we promote AI (B-to-B) services to solve various problems ofour clients.
◼ On the other hand, since the company has not focused on customer acquisition activities due to its
focus on its group of highly skilled engineers, sales growth peaked in FY04/2020, and sales havebeen declining due to the termination of existing projects.
◼ The company aims to achieve sales growth by strengthening client acquisition activities in
conjunction with the launch of a sales and marketing organization by May 2022, focusing on
cultivating existing clients and developing new clients.
◼ Currently working to promote AI/DX in the industry by deploying AI products, some of them arescheduled to be available by the end of FY04/2023.

deepen cultivation of existingcustomers X cultivation of new
customers)

AI Product Deployment

Other Industry
Entertainment AI
Financial AI

Automatic design support AI service (incooperation with Draft Co., Ltd.)AI for automatic creation of architectural plans(in cooperation with Tusk Inc.), etc.

Constraction AI# of Projects# of Clinets

23

1. Executive Overview
2. Business Overview
3. FY04/2022 Full Year
Performance
4. FY04/2023 Forecast

5. Growth Strategy
6. Reference Materials

Medium-to-long term Growth Strategy◼ We plan to expand AI (B-to-B) services by what we have cultivated in our AI(B-to-C) services. We aim to create industry-standard AI, to form an
ecosystem based on it, and to expand across industries

B-to-B
Provide AI services
to businesses
B-to-C
Shogi AI,
other mind games AI
stable cash cow

Growth area
→core operation forthe medium-to-longterm

・EBITDAAI B-to-B
ongoing fee（profitable,
growth market） ￥AI B-to-B
initial setup fee(growthmarket)￥￥AI B-to-C(stable CF)Time

Shogi AI

Refining
technology

AI (B-to-B)
business

Industry top-downIssue identification
Partnership Strategy

Industry standard AI
Horizontal expansion Ecosystem around our AI
Vertical expansion
Cross-industry expansion
25

Initiatives Aimed at Achieving the Growth Strategy Ⅰ～ Collaboration with VarioSecure Inc. to Realize AI Security ～By utilizing a variety of corporate data, we will provide customers with a new level ofsafety and security in the age of zero trust through the power of AI.
And aiming to support corporate safety and security, and supporting digitaltransformation
Automation of one-stop
service for customers

device data
Various hardware
usage data stored
in the company's
network✓ AI replaces complicated security
settings and operations✓ Anyone can easily implement
advanced security

transmission data
User behavior
data collected via
the network

Aggregation ofa wide variety of data

Insight Extraction

Advanced andsemi-automatedoperations

systemdevelopment

data scienceAIdevelopment

SaaS usage data
Usage data for
multiple SaaS
accounts

personalized data
Data varies by
individual andindividualcompany

Basic AI Technology

Turning Non-IT
Professionals into IT
Professionals✓ Setting up and maintaining asecurity environment on thesame level as largeorganizations

Reproduction of theprofessional skills of amaster craftsman✓ Identifying and handlingirregularities that only an
experienced veteran would
notice.

26

Initiatives Aimed at Achieving the Growth Strategy Ⅰ～ Implementation of our AI in VarioSecure's VSR ～◼ Capital and business alliance with VarioSecure Inc, and joint development of services◼ Through this alliance, we aim for further growth by establishing a system for continuous
creation of new services that can only be achieved by a group of technology specialists, basedon "HEROZ's AI human resources" and "VarioSecure's domain knowledge of rare security
personnel".

x
AI人材

domain knowledge ofrare security personnel◼ From May 2022, a closed beta version of a traffic prediction monitor and VSR resource
monitoring monitor based on AI analysis using HEROZ Kishin is included in the VSR "n Series"
of managed security services sold by VarioSecure Inc.

27

Initiatives Aimed at Achieving the Growth Strategy Ⅱ～ Shogi AI utilization platform "Kishin Analytics" launched～◼ “Kishin Analytics” is available from May 2022.The company launches "Kishin
Analytics," a platform to support professional Shogi AI research using Shogi AI.
◼ Kishin Analytics" is a service that allows users to easily analyze the latest Shogi AI
using a browser. The service supports Shogi AI research by providing a UI/UX
environment that can be easily operated by anyone at the touch of a button, without
expensive initial investment.

◼ The scope of the service will be expanded in stages, and in the future, the service will
be offered to all Shogi fans.

KishinAnalytics
screen on PC(smartphoneversion also
provided)28

Initiatives Aimed at Achieving the Growth Strategy Ⅲ～ Won the World Computer Shogi Championship "Developing theworld's strongest AI ～◼ Team "dlshogi with HEROZ", consisting of HEROZ AI engineers, won the 32nd World
Computer Shogi Championship in May 2022.
◼ The World Computer Shogi Championship is held once a year by the Computer Shogi
Association of Japan with the aim of improving the skills of Shogi software. 51 teams
participated in this year's tournament.
◼ Through the development of brain games, we will continue to accumulate AI-related
methods based on machine learning that can be applied to other fields and provide
them to various industries.
◼ “dlshogi with HEROZ" team members
Kaoru Kawashima (HEROZ AI engineer, pen name: Tadao Yamaoka)
Kunihiko Kano (HEROZ AI engineer)Interview with the winnerYuhei Omori (HEROZ AI engineer)
Yu Yamaguchi

LIVE Report: Final League
The 32nd World Computer Shogi Championship
From the official YouTube channel

29

1. Executive Overview
2. Business Overview
3. FY04/2022 Full Year
Performance
4. FY04/2023 Forecast
5. Growth Strategy

6. Reference Materials

Potential AI Demand in Our Areas of Focus◼ We believe there is also significant potential demand for enhancing operational
efficiency through AI in the construction industry, which is one of our areas of focus◼ There will be a shortage of 110,000 construction technicians by 2025
(source: Human Touch Research Institute, “status quo” scenario in the Proprietary
Analysis Monthly Report, December 2017)

Challenges
faced by theConstruction
Industry

Chronic
Shortageof Manpower◼ Over 1/3 of first-class registered architects are over 60 (average: 56.2 years old)(source: Report on Construction-related Administration Aimed at Securing Safety ofArchitecture, Social Infrastructure Council, August 2006)◼ The number of construction and mining industry workers is expected to decrease
from 5.05 million in 2014 to 4.16–4.24 million in 2030, with some variability
depending on future economic growth and labor market participation trends(source: JILPT, 2015 Estimated Labor Supply/Demand)

Soaring
Materials
Prices◼ The national construction materials price index has increased by 17% since 2010(source: Economic Research Association)◼ We entered into a capital and business alliance with Takenaka Corporation in2017 and became a member of i-Construction. We aim to create theindustry standard AI for the construction industry, enhancing productivity
and creating a new, attractive construction site

31

Japan:Potential AI Demand is Among the Largest Worldwide◼ Potential AI demand in Japan can be expected to be among the largest worldwide, as
the working population is expected to decrease significantly going forward
Projection of Population Age 15-64◼ When defining the working population as
those aged 15-64, the world average is
forecasted to increase by about 12%
from 2020 to 2035 and by about 21%
from 2020 to 2055. On the other hand,
the working population is expected todecrease by about 11% and about 28%
About 28%
decrease during the same periods, respectively(Median Prediction Interval, 2020=100)
140
120
100
80
60
40
20
0

2021
2020年

2025
2025年

2030
2030年

Global全世界

2035
2035年 2040
2040年 2045
2045年 2050
2050年 2055
2055年
China
中国

Japan
日本

米国
US

Source: Prepared by HEROZ based on United Nations,
World Population Prospects, The 2019 revision◼ Based on such forecasts, the Japaneseworking population will show the largest
decrease among leading GDP nations
32

Use of Our AI in DX◼ Domestic DX (digital transformation) is expected to accelerate due to the future
decrease in the working population as well as the impact of the COVID-19 pandemic◼ AI allows for DX of a wide variety of operations including those involving decisionmaking, which were previously considered difficult to automateStandard Decision- Creative
Tasks
making Tasks, etc.

Structured
data◼ DX will begin with standard tasks based on
structured data and is expect to expand to decisionmaking and tasks which utilize unstructured data
◼ Our AI can automate a wide variety of operations
including those requiring decision-making. We havealso achieved DX for unstructured data, which weretraditionally considered difficult for DX

Unstructured
data
TraditionalIT

Our AI◼ We are promoting DX and building a track record inareas including construction, finance, andentertainment
33

Disclaimer
The contents set out in this material are prepared based on generally acknowledged
economic, social and other conditions, and on certain assumptions deemed rational by
HEROZ, Inc. and may therefore be subject to change without prior notice due to changes
in the managerial environment or for other reasons.
The forward-looking statements set out in this material including performance outlooks
are based on information currently available to HEROZ, Inc. and on certain assumptions
deemed rational, and may therefore differ materially from actual results due touncertainties in judgements or assumptions, or for other reasons.
Such factors of uncertainty and change include both general, domestic and international
economic conditions, such as general industry and market conditions, interest rates, andforeign exchange fluctuations. HEROZ, Inc. shall not undertake any obligations to updateor revise any forward-looking information set out in this material even in the event thatnew information becomes available or certain events occur hereafter.
This material is an excerpt translation of the original Japanese material and is only forreference purposes. In the event of any discrepancy between this translated material
and the original Japanese material, the latter shall prevail.

34