Presentation Material for
FY04/2024 Q１ Financial Results
September 8,2023
HEROZ, Inc. ｜4382｜

NoticeThis document is an excerpt translation of the original Japanese document and is only
for reference purposes. In the event of any discrepancy between this translated
document and the original Japanese document, the latter shall prevail.

Contents
1. Financial Highlights

2. FY04/2024 First Quarter Performance (Consolidated)
3. Initiatives in each business segment
4. Frequently Asked Questions and Answers
5. HEROZ Group Structure
6. Reference Materials© 2023 HEROZ Co., ltd.

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01
Financial Highlights© 2023 HEROZ Co., ltd.

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※ Consolidated financial statements are disclosed from the third quarter of the fiscal year ending April 30, 2023.
Please note that YoY comparisons are based on consolidated figures for the current quarter and nonconsolidated(non-consolidated) figures for the same period last year.

Financial Highlights

FY04/2024 First Quarter
Performance Summary

Initiatives for
FY04/2024 First Quarter◼

Net sales were 1,118 million yen (+198%, YoY) ,and EBITDA was 170 million yen (+309%, YoY), andOperating Profit was 73 million yen (+410% YoY).

◼

Growth was driven by two M&As and organic growth mainly in the B-to-C business.

◼

Inquiries related to LLM are increasing, and we expect further sales growth from the Second Quarter ofthis fiscal year onward.

◼

We aggressively focus not only in the LLM field, but also in various fields as building new
businesses and making new products.

◼

As initiatives with the two M&A companies, promoted AI SOC with VarioSecure, and started AI
implementation in StrategIT's product "JOINT".

◼

We will continue to work to expand synergies among group companies.

◼

Decided to release beta version of “HEROZ Knowledge System built with ChatGPT”◼

Our LLM products are tuned by reading industry-specific knowledge, laws and regulations, as well as
each company's rules, case studies, and know-how, to improve the efficiency of our customers' on-site
operations.

◼

In addition, as an in-house application of LLM, we have developed an in-house product that
automatically categorizes various inquiries received from users at “Shogi-Wars” and generates
responses. We plan to develop this product as a CS solution for our group companies and the gaming
industry in the future.

Initiatives of LLM Group© 2023 HEROZ Co., ltd.

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02
FY04/2024 First Quarter Performance(Consolidated)© 2023 HEROZ Co., ltd.

5

Our Key Performance Indicator◼ We have set EBITDA, a measure of cash generation, as a key performance indicator and aim to sustainably

Performance Indicators for
Business Profitability
EBITDAEBITDA

increase corporate and share value through EBITDA growth.
◼ Formula: Operating profit + amortization and other non-cash expenses (amortization of goodwill, security deposits,stock compensation expense, etc.)◼ Years of depreciation

・Investment in servers for machine learning: Mainly 5-year useful life and declining-balance method
・ Amortization period of goodwill (amount)
VarioSecure, Inc. 14 years（2,180 million yen）,StrategIT, Inc. 9years（219 million yen）

◼ We intend to address more generic problem solving with AI SaaS as our group strategy.

Performance Indicators for
AI SaaS Business

ARR*
ARR
リカーリング売上
Recurring Revenue Ratio
解約率
Churn
rate

We will focus our management efforts on the following indicators that are important to our AI SaaS business model.
◼ ARR（Annual Recurring Revenue）

An important indicator essential for understanding the growth and profitability of SaaS businesses.
Estimated as 12 times the last month of the quarter.
◼ Recurring Revenue Ratio

Indicator of ongoing sales that can be booked on a regular monthly basis.
◼ Churn rate

The churn rate of existing customers is an important indicator of the stability of the above recurring sales.

© 2023 HEROZ Co., ltd.

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Performance Summary ： Achieved significant growth through M&A
HEROZ Group Consolidated(FY04/2024 Q1)
Net Sales

1,118

mil yenYoY ＋197.7%

EBITDA170

mil yenYoY ＋309.2%

Operating Profit73

mil yenYoY ＋410.1%

AI SaaS KPI

ARR

2,898

mil yenYoY ＋370.3%

Recurring Revenue Ratio

AI Security
Recurring churn rate

64.9%

0.8%

YoY ＋24.4%pt

YoY ±0%pt* Recurring Revenue is the sum of HEROZ’s BtoB recurring sales and BtoC subscription sales, VarioSecure's managed security services sales, and StrategIT's subscription sales and maintenance sales.
** Recurring churn rate is the churn rate for managed security services in the AI Security service.
© 2023 HEROZ Co., ltd.

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Performance Overview (May-2023-July 2023)◼ Both net sales and income grew significantly YoY due to M&A effects and organic growth.
◼ Although progress against the earnings forecast is slightly behind schedule,

the number of projects is increasing, and we expect to achieve the target for the full year.

FY04/2023
Q1 Results

FY04/2024
Q1 Actual(Non-Consolidated)（Consolidated ）Net sales

375

EBITDA

Earnings Forecast

Progress against
Earnings Forecast

YoY(Announced onJune 9, 2023)

1,118+197.7%

4,800

23.3%

41

170

+309.2%

800

21.3%

Operating Profit

14

73+410.1%

400

18.4%

Ordinary Profit

460+1,389.1%

385

15.7%

Net Income (loss)

7

-47

-

30

-

(Units: JPY millions)

attributable toowners of the parent© 2023 HEROZ Co., ltd.

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Key Performance KPIs (by Quarter)
EBITDANet Sales※Various investments for
growth in the next fiscal year

(Units: JPY millions)(Units: JPY millions)

1,100
1,114

1,200

1,118

300

258 256
250

1,000

※
200

800

170
150

600

400

367 386 374

108

429
354

374 371 381 375 389

100

95
83

79

78
53

47

50

200

41

40
22

0

0
1Q

2Q

3Q

FY04
2021

4Q

1Q

2Q

3Q

FY04
2022

4Q

1Q

2Q

3Q

FY04
2023

4Q

1Q
FY04
2024

1Q

2Q

3Q

FY04
2021

4Q

1Q

2Q

3Q

FY04
2022

4Q

1Q

2Q

3Q

FY04
2023

4Q

1Q
FY04
2024

© 2023 HEROZ Co., ltd.

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Recurring Revenue Ratio increased significantly◼ With the AI SaaS strategy, we emphasize the importance on the ratio of recurring revenue to total revenue (Recurring Revenue ratio)◼ Recurring Revenue ratio in 1Q was 64.9%, thanks to the effect of the two companies becoming group companies and thestrong performance of the existing B-to-C business.
(Units: JPY millions)

1,200

Net Sales

Recurring Revenue

Raito of Recurring Revenue

100.0%
90.0%

1,000

64.9%
800

600

400

64.8%

64.1%

1,114
37.5%

38.5%

40.1%

39.3%

40.5%

70.0%
60.0%

1,118

1,100

80.0%

39.9%

50.0%

714

713

725
40.0%

200

374

354

133

381

371
149

144

389

375
150

152

30.0%

155

0

20.0%

1Q

2Q

3Q

FY04/2022

4Q

1Q

2Q

3Q

FY04/2023

4Q

1Q
FY04/2024© 2023 HEROZ Co., ltd.

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ARR of the entire group is approximately 2.9 billion yen.
(Units: JPY millions)

ARR

3,500

ARR grows significantly
2,872 2,827 2,898

3,000

2,500

370.3%
ARR is 2,898 mil yen

YoY growth +◼ Recurring Revenue is the sum of BtoC and
2,000

BtoB subscription revenue and BtoB
recurring revenue in AI/DX services,and management security service revenue in
AI Security services.

1,500◼ In management security services, the

1,000

543

600

600

597

616

company continues to enjoy a high share of
the market for SMEs, due to its consistent
support system.

621

500

◼ In the current quarter, we maintained high

0
1Q

2Q

3Q

FY04/2022

4Q

1Q

2Q

3Q

FY04/2023

4Q

1Q
FY04/2024

ARR due to the strong performance of our
BtoC business (Shogi Wars, etc.).

© 2023 HEROZ Co., ltd.

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Breakdown of Recurring Revenue and Churn Rate
Breakdown of Recurring Revenue
for this Quarter

AI Security： Churn Rate Trends for Managed
Security Services(Units: JPY millions)
1.6%
700

600

50
105

BtoB Recurring Contracts/Subscriptions
Operate a lot of long-term projects
lasting more than one year

500

1.4%

1.2%
1.2%

1.1%
1.0%
1.0%

Subscription of Shogi Wars ,etc.
(Reference Values)

400

1.4%

0.9%

0.9%

0.8%

0.6%

0.7%

0.9%
0.8%

0.8% 0.7%

0.8%

Membership grew steadily, up 7.7% YoY
300

0.9%
0.9%

0.8%

0.8%0.8%
0.8%

0.8% 0.8%

0.8%

569

0.6%
0.4%

200

0.8% 0.8%

0.5%

AI Security
Managed Security Services
0.2%

100

Churn rate remains low at less than 1%.
0.0%

1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q
FY02/2018 FY02/2019 FY02/2020 FY02/2021 FY02/2022 FY02/2023 FY02/2024

0※ The above graphs are based on VarioSecure’s discloser materials.
© 2023 HEROZ Co., ltd.

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Performance by Segments (May-2023-July-2023)◼ AI/DX services significant growth due to M&A and organic growth ,also, EBITDA margin at 31.9%, high profitability◼ AI Security service is deployed by VarioSecure and maintains high profitability with an EBITDA margin of 43.3%.

FY04/2023
Q1 Results

FY04/2024
Q1 Actual(Non-Consolidated)（Consolidated）

Net Sales

375

Segment Profit
EBITDA（Units: JPY millions）

AI/DX
services

EBITDA Margin

AI Security
services

Segment Profit
adjustment

YoY

YoY

（Consolidated ）（Excluding M&A
impact）

479+27.6%

+7.4%

14

118

-

-

41

153

-

-

11.1%

31.9%

-

-

Net Sales

643

Segment Profit

216

EBITDA

278

EBITDA Margin43.3%

Segment Profit-261※ The Company has changed its business segments from the third quarter of last fiscal year. The segment income adjustment of -261 million yen represents
corporate expenses that are not allocated to each segment.
For the previous year's figures, corporate expenses are included in AI/DX services. Therefore, year-on-year comparisons are not shown for Segment profit,
EBITDA, and EBITDA margin.

© 2023 HEROZ Co., ltd.

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AI/DX Services Segment◼ This segment includes BtoC, mainly Shogi Wars, BtoB, which handles AI Solution for customers, and SaaS

implementation and SaaS-linked development business, which is being developed by StrategIT.

High profitability with EBITDA margin of 31.9%

FY04/2023
Actual（Units: JPY millions）

Recurring Revenue Ratio
Net Sales

479

32.5％

◼ Shogi Wars continued to see solid revenue growth from theprevious quarter. Continue to reach out to a wide range of users
with the aim of maximizing the Shogi population.
◼ In HEROZ's BtoB business, the number of LLM-related projects,

including ChatGPT, increased significantly. We expect further sales
growth from the second quarter of this fiscal year onward.

Operating Margin
Operating
ProfitEBITDA

118
153

24.7％

◼ StrategIT Corporation is advancing the development of its SaaS

EBITDA Margin◼ "JOINT" is expected to be equipped with AI that our company

31.9％

integration product, "JOINT", with plans to start offering it at the
beginning of the new year. Moreover, the company aims tostrengthen its revenue base and grow its recurring sales.
develops.

© 2023 HEROZ Co., ltd.

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AI Security service◼ This segment is developing the business of implementing the HEROZ Group's AI into the security business developed by

VarioSecure.

Recurring sales ratio is high at 86.4%.

FY04/2023
Actual（Units: JPY millions）

Recurring Revenue Ratio
Net Sales

643

88.5 ％◼ In managed security services, differentiate the company with value-

added features in addition to a stable sales base.
◼ Compared to the same period last year, improvements were seen

in various profits due to a review of cost allocation and othermeasures.

Operating
Profit216

Operating Margin◼ In addition, we will expand our business to adjacent businesses,

33.7 ％

leveraging our high market share for small and medium-sizedenterprises.
◼ Specifically, the company will expand sales of EDR products for the

EBITDA Margin
EBITDA

278

43.3 ％

remote work era by developing distributors and provide antiransomware solutions mainly to the medical industry.
◼ Around autumn in 2023, we plan to start streamlining operations

using our AI in Security Operation Center (SOC).

© 2023 HEROZ Co., ltd.

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Balance Sheet (as of July 31, 2023)◼ The cash and deposits currently held by the Company will be gradually appropriated for investments to realize the Company's mid- to longterm growth strategy.
◼ With the grouping of VarioSecure Inc. and StrategIT Corporation, there is a goodwill balance of 2.2 billion yen in intangible fixed assets.

Units: JPY millions

As of 4/30/2023（Consolidated)（A）

As of 7/31/2023(Consolidated)（B）

Increase and decrease
（B-A）

4,963

4,776

-187

3,798

3,578

-219

3,709

3,703

-5

273

227

-9

2,640

2,642

1

831

833

2

8,673

8,479

-193

Current Liabilities

994

976

-17

Fixed Liabilities

1,598

1,512

-85

Net Assets

6,080

5,990

-89

Current Assets
Cash and deposits
Fixed Assets
Property, plant and equipment
Intangible assets
Investments and other assets
Total Assets© 2023 HEROZ Co., ltd.

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03
Initiatives in each business segment© 2023 HEROZ Co., ltd.

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Group Business Structure

AI/DX Services
Segment

BtoC

Business
Contents

Main KPI

BtoB

AI Security
Services

Shogi SaaS business forindividuals, including "Shogi Wars,"
utilizing AI and other technologicalcapabilities that won the World
Computer Shogi Championship.

Provide solutions to customer issues
through data analysis and AI
development.
Provide AI Solution that can beutilized in practical operations for awide variety of customers.

Support for SaaS implementationand development of systems that
integrate APIs between SaaS. Selling
API applications on the app market.

Managed security and integration
services for secure Internet use,
primarily for small and medium-sizedbusinesses.

Recurring Revenue⚫ MAU※1⚫ Billing rate
⚫ MPU※2⚫ ARPPU※3

Recurring Revenue and Solution
revenue⚫ Recurring Revenue Ratio⚫ number of customers⚫ number of employees⚫ utilization rate/unit cost
⚫ revenue per employee

Recurring Revenue and Solution
revenue⚫ number of customers⚫ number of employees⚫ utilization rate/unit cost
⚫ revenue per employee⚫ number of apps
acquired/churned⚫ ARPPU※3

Recurring Revenue⚫ number of customers⚫ churned⚫ revenue per customer※1 MAU：Monthly Active User
※2 MPU：Monthly Paid User
※3 ARPPU：Average Revenue Per Paid User

© 2023 HEROZ Co., ltd.

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Announcement regarding the issuance of new sharesas restricted stock compensation.
◼ At the board of directors meeting on August 22, our company resolved to issue new shares as restricted stock compensation
to our officers and employees.

◼ The purpose of introducing restricted stock compensation is to encourage our directors and executive officers to share themerits and risks of stock price fluctuations with our shareholders, and to further enhance their motivation to contribute to stock
price increases and corporate value improvement.
Going forward, we will continue to work together as a team to promote further corporate efforts towards increasing stock
prices and improving corporate value.

details：https://heroz.co.jp/ir-files/en/20230822/Notice_Concerning_Issuance_of_New_Shares_as_Remuneration_for_Restricted_Stock.pdf© 2023 HEROZ Co., ltd.

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Initiatives in AI/DX Services

Main Achievements in theFirst Quarter of
FY04/2024

Initiatives for
FY04/2024◼

The dedicated LLM group at HEROZ has decided to release the beta version of "HEROZ Knowledge System
built with ChatGPT" which was announced in April. As a Customized ChatGPT that can be utilized in thefieldwork of each company, it aims to differentiate itself from competitors. Usage has already begun internally,such as in the operation of "Shogi Wars".

◼

In "Shogi Wars", the total number of games played has exceeded 800 million, boosted by the recent popularity ofthe shogi world. Following the analysis tool for professionals, "Kishin Analytics", preparations for other shogirelated services are also underway. The aim is to establish a "Shogi Wars" economic zone.

◼

While focusing on the development of products such as JOINT, StrategIT continues to promote services such as
SaaS implementation support. In July, as a partner of Money Forward Inc., the company released the start ofcloud implementation support services for their products..

◼

For LLM-related products, we continue to promote the development of multiple products.
In addition to systems that respond to the individual situations of each company, which are currently underdevelopment in beta version, we are also preparing to create products that address common challenges for eachcompany, such as ChatBots and email creation systems that are specialized for individual needs.

◼

New initiatives are underway in the entertainment field and others.
We are focusing on creating new value in its traditional business areas, such as collaborating with Radio NIKKEI
using AI, and co-developing the full-scale NFT trading card game "Kamiyagura" with DEA and DM2C Studio.

◼

Utilizing HEROZ's AI to promote operational efficiency in VarioSecure Inc.'s SOC.
VarioSecure Inc.'s network security monitoring service (SOC) has been equipped with HEROZ's AI for theapplied "AI SOC". Operations are scheduled to start this autumn.

© 2023 HEROZ Co., ltd.

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From Digital Transformation (DX) to AI Transformation（AIX）
We have been helping companies DX in their core operations, but the asymptotic process of digitization was inevitable
Going forward, we will support discontinuous change by maximizing the power of the Large Language Model (LLM).

AI Transformation
Can be directed and interacted with in natural language, eliminating
the need for an asymptotic process for digitization.

✓ Automation of crossorganizational/whole businessand manufacturing processes
achieved with fewer resources

Realizing of LEAP FROG

Continuous process is inevitable

Digitalization✓ Digitization of
analog and physical data

DigitalTransformation

Digitalization✓ Digitalization of businessprocesses across theorganization✓ Digitization of individual
business andmanufacturing processes✓ Changing business model
for customer-driven value
creation✓ Reform business model for"superior customer-driven
value creation

Possible with more generic AI.

Specialized AI is assumed.

※ Based on the definition in the DX Report by the Ministry of Economy, Trade and Industry© 2023 HEROZ Co., ltd.

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We have joined as a supporting partnerof Microsoft's "Azure OpenAI Service Reference Architecture".
◼ We have joined as a supporting partner of the "Azure OpenAI Service Reference Architecture", a service for developers provided
by Microsoft Corporation.
◼ "Azure OpenAI Service Reference Architecture" is a document that summarizes the example scenarios and architecture of Azure
OpenAI Service recommended by Microsoft.
It can be used as a reference material for enterprise companies when incorporating Generative AI models into their business.
◼ As a supporting partner, we will collaborate with Microsoft to share our case studies and know-how in various industries andoperations. We will continue to support the promotion of Generative AI in our customers' business scenarios to advance AI in
Japan.

[About the Azure OpenAI Service Reference Architecture Supporting Partner Program]
The Azure OpenAI Service Reference Architecture Supporting Partner Program is a new partner program that certifies
partners who agree with the Azure OpenAI Service Reference Architecture published by Microsoft. By widely introducing
Microsoft partners who agree with the reference architecture, along with their solutions and achievements, we will help
customers choose the right partner for AI implementation. For more details about the partner program, please see theMicrosoft Partner Blog.

Details of the Azure OpenAI Service Reference Architecture ：https://www.microsoft.com/ja-jp/events/azurebase/blog/aoai-referencearchitecture-release/© 2023 HEROZ Co., ltd.

22

The release of the β version of our company's LLM product has been decided.
◼ We established a specialized unit (LLM Group) in May of this year with the purpose of applying Generative AI. We arepositioning various Generative AI technologies, including ChatGPT, at the core of our AI SaaS strategy, and by providing
superior AI services with limited resources, we aim to accelerate the AI transformation of society and are advancing
development.
◼ We have decided to release the β version of the "HEROZ Knowledge System built with ChatGPT" which is currently underdevelopment. With the release of the β version, we will be more actively expanding our sales activities.

対話ストーリー生成

法規QA

要約

ﾌﾟﾛﾝﾌﾟﾄ管理
ID管理

ﾄﾞｷｭﾒﾝﾄ管理

HEROZ
AI SaaS
API連携

カスタマ―サクセス

課金管理

基本機能
音声合成・生成音声認識
AI© 2023 HEROZ Co., ltd.

23

The classification of LLM services as seen by HEROZ and our positioning.
The mainstream service in the current market is the construction service using Azure OpenAI.
We looking ahead to future trends, offers customization to meet the individual needs of each company at a realistic cost using LLM.

• The currently mainstream ChatGPT
service in the market.

Original LLM• In the future, as Bing Chat Enterpriseand ChatGPT Enterprise become thefirst choice for customer companies,
similar services will be phased out.

Cost

This approach could have thegreatest effect if successful,
but it is overwhelmingly
expensive.

Fine Tuning
Construction
service using
Azure OpenAI

ChatGPT

In-context
Learning

The approach that will
become a trend in the
future.

The mainstream approachbased on Vector Store andPrompting.

low

high
Degree of customization ≒ Added value© 2023 HEROZ Co., ltd.

24

Example: Advanced application of LLM in CS operations.
We are developing an in-house product that automatically classifies various inquiries from users in Shogi Wars and generates responses.
We plan to deploy it as a CS solution for group companies and the gaming industry in the future.

“I can’t sign in the game.”

User

FeaturesandResults

Category: Forgotten Password→ Reply Draft Generate

LLM

Minor revision of reply draft

Management team

➢ Upon receiving an inquiry, it immediately classifies which type it is from dozens of categories
and generates a reply draft.
➢

By preparing multiple templates, the quality of veteran staff is ensured.

➢

Approximately 80-90% of all inquiries can be efficiently responded to with Human in the Loop.

➢

Since tasks requiring experience can be automated, education costs and personnel expenses
can be reduced.
© 2023 HEROZ Co., ltd.

25

Regarding our cooperation using AI for the Radio NIKKEI program .
◼ We provided technical cooperation for the production of a special program on Radio NIKKEI that was broadcast on August 11,
2023. In the program, we used 'ChatGPT' to conduct a challenge of having a conversation with AI. In addition, by combining
speech recognition technology and speech synthesis technology, we were able to achieve a more human-like conversation.
◼ We will continue to focus on the research and development of machine learning such as deep learning centered on
advanced AI, as well as continue to take on challenges for practical applications in business.
【Radio Program Overview】

Program Name: Summer Vacation with AI Girl
Broadcast Media: Radio NIKKEI First, Rajiko
Broadcast Date: August 11, 2023 (Friday) 16:30-17:00
Appearances: Kanade (AI Girl), Mitsuo Kaya, Kazu Hashimoto

Used Services: OpenAI's Generative AI chat tool "ChatGPT",
Text-to-speech software using voice synthesis technology "VOICEVOX: Shikoku
Metan“© 2023 HEROZ Co., ltd.

26

"KAMIYAGURA " is a project that DM2C Studio has newly joined as a co-partner.
The release is planned for the year 2024.
◼ Regarding the digital trading card game “KAMIYAGURA" that our company and DEA are jointly developing, DM2C Studio of
DMM Group has newly joined as a co-partner. We’re in charge of implementing the logic of the battle system and developing
AI for deck building.

◼ "KAMIYAGURA" is a next-generation trading card game with a concept of utilizing NFT and cryptocurrency to realize a newexperience in the digital world. Not only can you collect and trade high-design NFT cards, but you can also enjoy a grandworldview where gods dwell in all things and people who believe in them live together with many races. We plan to distributeit in 2024.

© 2023 HEROZ Co., ltd.

27

Released "JOINT", a platform
for planning/building/operating SaaS
◼ On May 18, 2023, StrategIT issued a press release for “JOINT” .
We plan to officially provide it to customers from the beginning of the new year, and development is progressing smoothly.
◼ JOINT is a platform that provides the following three types of support necessary for each growth phase of a company as abusiness partner of a SaaS provider to accelerate the expansion of the SaaS market.
1. Products：Commercialization of non-core parts required for SaaS planning, construction, and operation
2. Consulting Services：Consulting services for SaaS planning, strategy formulation, API development, etc.

3. Professional Supports： Services such as maintenance, operation, and linked application construction services utilizing JOINT

Everything here for the growing SaaS vendor

1/3

API integration
A highly versatile, integrated solution for complex workflows
and on-premise systems can be built in low-code for many
companies.

2/3

Design your appstore
Delivery format can be selected according to requirements.
You can also integrate the app store into your company's
website or products. You can also change the design of yourown product-occupied app store.

3/3

Platform to build SaaS
Even if you are strengthening the integration with othercompanies' SaaS and cannot build an integrated application
because your product or the SaaS you are integrating withdoes not have an API, you can build an API and standardize
your product API with the introduction of Joint.

© 2023 HEROZ Co., ltd.

28

Utilizing HEROZ's AI, we are promoting the improvement of quality and efficiency
in VarioSecure's SOC operations.
◼ We plan to apply our AI to the network security operation monitoring tasks of VarioSecure's managed security services,and we plan to start operation this fall.

◼ By automating some of the operation tasks of the Security Operation Center (SOC) that were traditionally done manually,
we aim to improve service quality by reducing human errors and strengthening the 24-hour monitoring system. In addition,
it is possible to reduce manpower and costs in the SOC.
◼ In the future, our company will continue to leverage the insights gained through the LLM Group, consider expanding theautomation area in managed security services and providing OEM for "AI SOC", and promote joint projects with
VarioSecure.

© 2023 HEROZ Co., ltd.

29

Initiatives in AI/Security Services

Main Achievements in theFirst Quarter of
FY04/2024◼ Provides services to make corporate Internet use safe and comfortable. Boasts the top share of
the firewall/UTM operation and monitoring service market in Japan for small- and medium-sizedbusinesses, with a churn rate that remains low at less than 1%.
◼ Launches Managed LAN/Wi-Fi service as part of its efforts to enter the growing security
market, with sales to begin in May 2023.
◼ WithSecure, an Endpoint Security Service partner, nominated VarioSecure for the GrowthPartner Award for exceptional performance in new sales or managed service sales.

◼ Strengthen competitiveness of managed services• In addition to gateway security, expand coverage from LAN to cloud computing and strengthen
competitiveness by utilizing other companies‘ products• Building next-generation operational infrastructure through the use of AI

Initiatives for
FY04/2024◼ Entering the growing security market
Entering the zero-trust security domain by leveraging knowledge from existing services◼ Reinforcement of new sales structure
In addition to the existing stable sales structure centered on sales via distributors, build a strong
direct sales structure by aggressively investing in online marketing and inside sales© 2023 HEROZ Co., ltd.

30

Direction ①Expand the scope of managed services
and strengthen competitiveness◼ In addition to gateway security, expand coverage from LAN to cloud computing and strengthen competitiveness byutilizing other companies' products.
◼ Building a next-generation operational infrastructure using AI to enhance the efficient operation of managed services, astable revenue base.

Managed services for othercompanies' productsManaged Cloud Security

Managed LAN/Wi-Fi

Gateway Security

FY02/2023

FY02/2027© 2023 HEROZ Co., ltd.

31

Direction ② Entering the growing security market◼ Entering the Zero Trust Security Domain by Leveraging Existing ServicesAs for progress in 1Q, Vario Managed
LAN/Wi-Fi has been launched and the service release plan is on track.

1Q（progressing according to plan）

Vario Managed LAN/Wi-Fi
Already launched in June 2023

Enhanced terminal visibility
through implementation of
Vario-NSS employee masterfunction
Deployment of Zero Trust Platform

Enhanced vulnerability
management anddiagnostic services forservers
Expanding the scope of cyberattack countermeasures centeredon user PCs as a vulnerability
management and diagnostic
service for corporate servers

High-end endpoint security
services
Enhanced high-end endpoint andnetwork security service lineup

Starting IDaaS Business
Launched Zero Trust Platform
service with enhanced functionality
based on Vario-NSS.

Operation of managed
security services throughthe operation of network
security equipment
purchased in-house
Service is also launched forcorporate clients operating othercompanies' crises.

© 2023 HEROZ Co., ltd.

32

Direction ③ Strengthen direct sales structurethat differs from the existing sales network◼ Build a strong direct sales structure by aggressively investing in online marketing and inside sales, in addition to theexisting stable sales structure centered on sales via distributors.

FY02/2023
FY02/2023

FY02/2027

End users

End users

Sales
Networks

Sales agents

FY02/2023
FY02/2023
Existing sales
agents
FY02/2023

Agency TechnicalSupportAgency TechnicalSupportNew sales
agentsMarketing and Inside Sales

Sales
Actions© 2023 HEROZ Co., ltd.

33

04
Frequently Asked Questions and Answers© 2023 HEROZ Co., ltd.

34

Frequently Asked Questions and Answers ①◼ Some of the frequently asked questions and answers we receive in relation to our most recent financial results announcement.

Q1. Regarding the earnings forecast for FY04/2024, what kind of growth are you expecting for HEROZ alone?
⇒ We do not disclose specific numerical targets for our company alone, but we are expecting growth of about 10% for
our BtoC business, and 10% or more sales in BtoB business.

Q2. How will LLM products be used in the business world?
⇒We believe that the most familiar use of ChatGPT in the business scene is "research search". Some say that 30-40% of
a white-collar worker's work is devoted to research, and we believe that proper use of ChatGPT can centralize searchtools and make a significant contribution to operational efficiency.
Q3. How does HEROZ's LLM product differentiate itself from other products?
⇒Our LLM product, "HEROZ Knowledge System built with ChatGPT," is unique in that it is tuned to the client's industry,
department, and company-specific circumstances, and is loaded with industry information, regulations, and company
case studies to enable its use in actual on-site operations. The point is to tune the system so that it can be utilized in
actual business operations on site. By implementing the above, we can provide answers based on the latest and mostaccurate information, as well as more specific information tailored to each company's situation,
By doing the above, we can provide answers based on the latest and most accurate information, as well as more
specific answers tailored to each company's situation.

© 2023 HEROZ Co., ltd.

35

Frequently Asked Questions and Answers ②◼ Some of the frequently asked questions and answers we receive in relation to our most recent financial results announcement.

Q4. At present, VarioSecure's managed security services account for the majority of the group's recurring revenue.
However, is there a prospect of increasing SaaS sales outside of managed security services in the future?
⇒As you pointed out, currently, VarioSecure's managed security services make up a significant portion of our group’srecurring revenue, and it is a high-quality revenue with extremely low cancellation rates.
In the future, we expect an increase in recurring revenue across the group through the release of SaaS products,
Including LLM- related products and the SaaS interconnection system "JOINT" developed by StrategIT.

Q５. Regarding your future group strategy, does the company plan to actively engage in M&A?
⇒ As part of our future group strategy, we will continue to promote "AI SaaS" and actively carry out investments,
including M&A.

© 2023 HEROZ Co., ltd.

36

05
HEROZ Group Structure© 2023 HEROZ Co., ltd.

37

Company Overview
Name

HEROZ, Inc.

Location

PMO Tamachi , 5-31-17 Shiba, Minato -k u,
Tok yoEstablished

April 2009

Representatives

Tak ahiro Hayashi/Tomohiro Tak ahashi

Business
Description

AI/DX Service
AI Security Service▍Director and Officer
Representative Director CEO

Takahiro Hayashi
Graduated from Waseda University
Joined NEC as a technology engineer
Experience at IT strategy division, business planning division
Founded HEROZ

Representative Director CRO

Membership

Tomohiro Takahashi

Japan Deep Learning Association
The Japan Society for Artificial Intelligence

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

Acquires shares of VarioSecure, Inc. through third -party allotment andmakes it a consolidated subsidiary
Acquired shares of StrategIT Corporation and made it a consolidated
subsidiary.
Moved to the Tokyo Stock Exchange Prime Market

Director CTO

2021

Capital and business alliances with VarioSecure

Keiichi Iguchi

2019

Listed on the First Section of Tokyo Stock Exchange (TSE)2018

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

JVA2016 Small and Medium Enterprise Award
Capital and business alliance with Bandai Namco Entertainment

2022

2013
2012

Director CFO

Shogi AI, developed by engineers who was member of HEROZ at that time formerly
with HEROZ, defeated a shogi professional

Hiroya Mori
Executive officer
in charge LLM strategy

Kyota Seki
Executive Officer
in charge
Business Success Division

Shu Kikuchi

Graduated from Tokyo Institute of Technology
Joined NEC Central Research Labs
Graduated from Aoyama Gakuin University
Passed the CPA Examination
After joining an auditing firm and a consulting firm, served as General Managerof the Finance Division of PERSOL HOLDINGS CORPORATION
Graduated with a Master's degree from the University of Tokyo
Joined Panasonic Corporation and Deloitte Tohmatsu Consulting G.K.
Involved in projects such as new business strategy development
Joined NYK Corporation, Apple Computer Inc,
Just Systems Corporation, and other AI solution companies,.
Appointed as Executive Officer of the Company in July 2023

Launched mobile app, “Shogi Wars”© 2023 HEROZ Co., ltd.

38

Global Leader in Mind Game AI

Chess AI

Shogi AI

Go AI

Deep Blue (’97) defeated aprofessional Chess player

AI developed by our engineers who
was member of HEROZ at that time
defeated a professional Shogi(Japanese Chess) player (’13)

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

IBM

Google© 2023 HEROZ Co., ltd.

39

Our Vision

Creating the future throughartificial intelligence (AI) revolutions© 2023 HEROZ Co., ltd.

40

The AI revolution we started in the chess world
Shogi Wars, our core business, is not just a Shogi application, but a Gaming Platform that has contributed greatly
to the revolution of the Shogi world itself through cutting-edge AI technology.

➢7 mil users➢500 thousands MAU➢Played a total of over 800 mil times

From "competition" to "collaboration”
The Age of Humans vs.AI

The Age of Human with AI

Evolution of the Shogi world

Growing pessimism that shogi is over

Human intelligence evolves with AI

A new era has arrived in which
practicing with AI is the norm.

In 2017, PONANZA won against thenMeijin Amahiko Sato

Professionals are now studying Shogi
through AI(we also launched Kishin Analytics)

Sota Fujii, the 7th crown, is the poster
child of AI.

.
© 2023 HEROZ Co., ltd.

41

The Importance of the "AI Revolution" we have caused in the Shogi WorldTo advance society by properly implementing innovative technologies in the world.

A Revolution in
Learning

A Revolution insense of values➢ Shogi is taught steadily by alimited number of masters➢ Belonging to Encouragement
association is authoritative.

➢ Shogi is warfare. Being strongin chess is a principle that runs
through everything➢ Using AI to measure the board
and look back on moves is thenorm.

➢ Shogi is a game. The
attractiveness of each chessplayer is important.

➢ Dan acquisition is now possible
through an app.

➢ Technology became a partner inco-creation.

Non-professionals can achieve
a professional look in less time.

Not simply improving productivity,
but fundamentally transforming thevalue we provide.

➢ Technology is a competitor

A Revolution inentertainment value➢ Only the core fans will enjoy
watching it.

➢ Shogi is a game to be playedand enjoyed by oneself.

➢ AI makes it clear at a glance
which move changed the game➢ Shogi is also enjoyable to watch

Gamification
makes daily work more fun

The direction we are heading© 2023 HEROZ Co., ltd.

42

Group Structure◼ With the consolidation of VarioSecure Inc. and StrategIT Inc. as consolidated subsidiaries, we have shifted to the group management

structure.

◼ Owns approximately 43% of thecompany◼ Appoints majority of directors◼ Owns approximately 89% of the company◼ Dispatches 2 directors◼ Dispatches 3 directors

Listed on the TSE Standard Market (4494)
Deemed acquisition date ：2022/8/31

Venture company inits 5th year of operation
Deemed acquisition date ：2022/9/30© 2023 HEROZ Co., ltd.

43

06
Reference Materials© 2023 HEROZ Co., ltd.

44

HEROZ Group Strategy◼ Based on the knowledge gained from our experience in solving individual customer issues, we will aim for

SaaS-type business management driven by intelligence such as our data utilization and AI in the future.（HEROZ 2.0）

HEROZ 1.0

HEROZ 2.0
More versatile issue resolution

Individual issue resolution●●prediction AI

×customer

data

HEROZ AIHEROZ GroupWe will expand AI to a wider range of society by realizing intelligent SaaS,
utilizing the core technology of algorithm and AI development cultivated through Shogi AI, and the advanced knowhow accumulated through solving individual problems.

© 2023 HEROZ Co., ltd.

45

Overall Group Strategy ：AI SaaS
◼ We will evolve the products of our company and group companies into more intelligent data-driven software by making the most of ouraccumulated expertise in advanced AI implementation and our strength as an engineering group.

Pillars ofBusiness

AI SaaS Products

Customized AI

Mind Sports

VarioSecure Security Services

StrategIT iPaaS

data

Advanced AI implementation
know-howUsing Deep LearningWorld’s Strongest Shogi AI

Engineers committed towinning cultivated by Shogi AI.

Data analysis technology toapply customer Big Data

Preparation for the implementation of vision

HEROZ Group

Embodying the vision throughout the group© 2023 HEROZ Co., ltd.

46

Aspect of the SaaS market and our views of the major trends◼ While the SaaS market in Japan is expected to grow steadily, there is still room for further penetration.
◼ To reach the approximately 10 trillions yen potential market, it is necessary to grasp the trends in the Japanese SaaS market.

Our view of future trends
in the SaaS market
in the SaaS market

Enterprise Software Market
in Japan （SI）

10.8

tn yentn yen potential market

10

SaaS Market in Japan(2026)

1.7 tn yen
CAGR

11%

SaaS Market in Japan(2022)

Diversification of needs

Diversifying market needs will accelerate SaaS adoption,and increase demand for operational expertise

Integration with legacy systems
For the foreseeable future, the integration of on-premiseand cloud systems is inevitable, and the transition to zerotrust security will be done in phases.

Need for integrated management
Multiple SaaS deployments increase the burden ofsystem management and operations

1.1tn yen(Source: IDC Japan Domestic Enterprise IT Market Forecast, Fuji Chimera Research Institute, Software Business New Market 2022 Edition)© 2023 HEROZ Co., ltd.

47

Our perception of the challenges of implementing SaaS
By resolving trends that could be barriers to SaaS adoption through technology, we aim to materialize a latent market.

Diversification of needs◼ Rapid changes in the business environment

Issue hypothesis
behind the trend

have led to diversification of issues andcircumstances faced by customers.
◼ Many high-level IT professionals are

unevenly distributed among SIers andcannot promote implementation andoperation customized to the specific needsof each company.

Integration with legacy systems◼ Traditional perimeter defenses are reaching◼ Handling multiple SaaS is becoming thetheir limits as remote work and cloud
adoption accelerate.
◼ Especially, small and medium-sizedenterprises (SMEs), where "one-person
information systems" is an issue, are unable
to respond to recent security trends such as
Zero Trust.

Security

Advanced AI implementation
know-how

Need for integrated management

norm, and management costs are becoming
bloated.
◼

Therefore, there is a need for a migration
service to ensure consistency andcentralized management of information
managed within each SaaS.

iPaaS

Products of our group companies
Machine resources to increase the value of the product© 2023 HEROZ Co., ltd.

48

What we think AI SaaS should be like
We will support the provision of the ideal SaaS usage environment required by our clients by making full use of ouraccumulated know-how and technology.

顧客

CRM

HEROZ GROUP

HR

Automated and optimized
SaaS-to-SaaS collaboration
Automated operations
and maintenance

mail

SaaS Big Data
accumulated through business activities

Chat

Advanced Security

MA
Learning with AI© 2023 HEROZ Co., ltd.

49

Social implementation of AI with "real-world capabilities" to promote AIX
Accelerate your company's AI Transformation (AIX) by enhancing core operations with AI.

Takenaka
Corporation

Toyo Engineering
Corporation～Spave Control System～

IRIS OHYAMA Inc.～
Sales Forecast ～~EPC Toughening System ~AI to accelerate
structural design
work

Stock Suggestion AI
based on domestic
stock holdings

Risk detection AI for
constructability

AI to control the balance
between comfort and energy
savings

Takenaka
Corporation～ Structural Design~

Sales Forecast AI

SMBC Nikko Securities Inc.
～ Stock Portfolio Diagnosis ～© 2023 HEROZ Co., ltd.

50

Overview of VarioSecure Inc.
Name

VarioSecure Inc.

Established

June 2001

capital

749 million yen

Employees

81

Performance(FY02/2023)(IFRS)Sales revenue: 2,634 million yen
Operating profit: 581 million yen
Net income: 383 million yen

Head Office
Location

Sumitomo Corporation Nishiki-cho Building 5F,
1-6 Kanda Nishiki-cho, Chiyoda-ku, Tokyo

Osaka Office Location

Osaka Office
Fukuoka Office

1-2-19 Kitahorie, Nishi-ku, Osaka-shi, Osaka

Fukuoka Office Location

1-12-17, Hakataekihigashi,
Hakata-ku, Fukuoka-shi, Fukuoka

Business

Managed Security Services
Integration Services

President and Representative Director
Director
Director
Director (From HEROZ)
Director (From HEROZ)
Director (From HEROZ)
Outside Director
Director and Audit Committee
Director and Audit Committee
Director and Audit Committee

Yasushi Kajiura
Satoshi Yamamori
Hideko Isoe
Takahiro Hayashi
Keiichi Iguchi
Hiroya Mori
Masataka Shiba
Kenji Sakai
Hideo Fukai
Hidetaka Nishina

Webhttps://www.variosecure.net/

Certification

ITSMS（ISO20000）、ISMS（ISO27001）、privacy markTokyo Head
Office(As of August 31, 2023 ）© 2023 HEROZ Co., ltd.

51

Toward the Realization of an AI Security Company
Provide customers with new safety and security in the age of zero-trust through the power of AI by utilizing a variety of corporate data.
Supporting Digital Transformation by supporting corporate safety and security from the ground up

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 datacollected 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 andindividual company

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.

© 2023 HEROZ Co., ltd.

52

(Reference) Providing services
that make Internet use safe and comfortable
Service Category

Managed Security Services

Integration Services

Service Form

Installation support, operation and maintenance
24 hours/365 days, nationwide in Japan

Equipment sales and construction

Revenue Model

Recurring type (monthly charge)

one-time fee-type① Integrated Internet Security Services(Managed type)Protecting Internet Entrances

For organizations with less than 50
members

Dedicated equipment for managed security services

Integrated security equipment for SMEs

VSR—VarioSecure Router

VCR—VarioCommunicate Router

Data retention in case of emergency② Data Backup Services
Service Content① Sales of intefrated security equipment for SMEs
(Sales type)

Dedicated equipment for data backup services

VDaP—Vario Data Protect② Network Integration Services• Procurement and construction of network
equipment
Construction of company network(wireless LAN network)

Rogue Terminal Detection, Vulnerability
Management③ Vario-NSS(Network Security Suite)

Assists in detecting and responding to cyberattacks④ Vario-EDR Services© 2023 HEROZ Co., ltd.

53

(Reference) VarioSecure's business model◼ Provided mainly as an adjunct to the Internet connection

Collective offer
Proposal and Sales

agency agreement(OEM/Distributor)
Sales Support

Internetconnection＋
Security
Services

Sales
Agent

Security
Services

Cutomers

Usage fees￥￥

Monthly fee

Monthly fee(Japanese
Companies)

supports© 2023 HEROZ Co., ltd.

54

Overview of StrategIT Inc.

Name

StrategIT Inc.

Establish

July,2019

Capital74 million yen

Employees

25(excludes outsourcing)

Location

PMO Tamachi 7F, 5-31-17 Shiba, Minato-ku, Tokyo

Buisiness

SaaS Solution Implementation Support
SaaS API Linkage Development Service
Operation of app store (SaaStainer)

President andRepresentative
Director
Director and CTO
Director
Director
Director

Fumie KatoWeb

https://www.StrategIT.jp/

Our vision is to contribute to management improvement by integrating"Strategy" and "IT“
And our mission is to bring the power of SaaS to all companies
We aim to be a company that promotes the utilization and valueenhancement of SaaS

Yuhei Kawamoto
Masaki Moriwaki（Outside Director）
Takahiro Hayashi（Outside Director)
Hiroya Mori（Outside Director）© 2023 HEROZ Co., ltd.

55

StrategIT’s Business Overview
Develop various APIs (linked systems) for SaaS vendors to improve the convenience of SaaS, utilizing know-how gained
through SaaS introduction consulting for BtoB.
Business model to sell developed APIs to general companies through our SaaStainer (app store)

１）Existing Services● SaaS Implementation
SaaS Solution Implementation Support

・Main and high-growth/high-profitability business
・Focus on mid-size projects (from 30 million yen)・Incorporation of Microsoft Dynamics(NetSuite, freee, Microsoft Dynamics, etc.)●

Collaborative Development
API integration development
System integration, development of linked
applications

・Developed an API system for SaaS vendors to link SaaS
vendors by utilizing our know-how of SaaS implementation
・ Have contacts with top SaaS listed companies ARR

Official Apps
Apps for major SaaS solution functions●

SaaStainer
App store（SaaStainer）
Providing a platform for SaaS solution information

・Recurring Sales Model
・Number of registered SaaStainer accounts: 1,091
companies
・Number of listed apps: 60, Number of paid apps: 18
・Pillars of future growth２）New Products Development
MasterHub API Platform（MAPIP）
Collaborative Platform Application

・In-house development of API integration platform application

・Provide customers with an environment that allows them todevelop their own API integration© 2023 HEROZ Co., ltd.

56

Notes◼ The forward-looking statements contained in this material are based on information currently
available to the Company, but are not guarantees of future performance and are subject to various
risks and uncertainties. Actual results may differ from the forward-looking statements contained ordeemed to be contained herein due to changes in the business environment and other factors.

◼ This document contains information about our company and other companies, etc., and we makeno representations or warranties as to the accuracy or completeness of the information contained
herein.

© 2023 HEROZ Co., ltd.

57