Asukanet : Non-Consolidated Financial Results for the Fiscal Year Ended April 30,2022

Non-Consolidated Financial Results

for the Fiscal Year Ended April 30, 2022

[Japanese GAAP]

June 10, 2022

Company name: Asukanet Co., Ltd.

Stock exchange listing: Tokyo Stock Exchange

Code number: 2438

URL: https://www.asukanet.co.jp

Representative: Yuji Matsuo, Representative Director & President

Contact: Kenya Kono, Senior Managing Director & CFO

Phone: +81-82-850-1200

Scheduled date of Annual General Meeting of Shareholders: July 28, 2022

Scheduled date of commencing dividend payments: July 29, 2022

Scheduled date of filing annual securities report: July 29, 2022

Availability of supplementary briefing material on annual financial results: Available

Schedule of annual financial results briefing session: Scheduled (for institutional investors and analysts)

(Note) Diluted earnings per share is not presented as there were no potential shares.

(2) Non-Consolidated Financial Position

2. Dividends

3. Non-Consolidated Financial Results Forecast for the Fiscal Year Ending April 30, 2023 (May 1, 2022 to April 30, 2023)

(% indicates changes from the previous corresponding period.)

As the Company manages its financial results at an annual base, the financial results forecast for the first half is not disclosed.

* Notes:

1. Changes in accounting policies, changes in accounting estimates and retrospective restatement
2. 1. Changes in accounting policies due to the revision of accounting standards: Yes
   2. Changes in accounting policies other than 1) above: No
   3. Changes in accounting estimates: No
   4. Retrospective restatement: No
3. Total number of issued shares (common shares)
4. 1. Total number of issued shares at the end of the period (including treasury shares):

April 30, 2022: 17,464,000 shares

April 30, 2021: 17,464,000 shares

1. Total number of treasury shares at the end of the period: April 30, 2022: 657,657 shares
   April 30, 2021: 615,057 shares
2. Average number of shares during the period:

Fiscal year ended April 30, 2022: 16,841,606 shares

Fiscal year ended April 30, 2021: 16,845,874 shares

• These financial results are outside the scope of audit by a certified public accountant or an audit corporation.
• Explanation of the proper use of financial results forecast and other notes

The earnings forecasts and other forward-looking statements herein are based on information currently available to the Company and certain assumptions that the Company believes are reasonable, and actual results may differ significantly from these forecasts due to a wide range of factors.

4. Overview of Business Results

1. Overview of Business Results for this Fiscal Year

During this fiscal year, as the effects of the coronavirus pandemic still show no signs of ending, there were nonetheless signs of a return to regular economic activity as vaccinations and other infection countermeasures became widely available. However factors such as rising raw material prices caused by a global semiconductor shortage and supply chain disruptions, and the crisis in Ukraine, continue to make for an uncertain future.

Asukanet operates three business areas, each with different positioning and characteristics. They are (1) the funeral business, which adds digital processing and remote output services for photos of the deceased to a funeral business that is largely unaffected by economic trends, (2) the photo book business, which provides ideas for new photo output methods that allow users to create complete photo collections beginning from just a single book, and (3) the aerial display business, which is utilizing unique, recently-developed technologies aiming to create a new market and achieve dreams.

In January 2022, we invested in a venture fund which invests primarily in the key growth areas of XR and 3D.

Beginning from the previous fiscal year, the memorial design business was renamed the funeral business, the personal publishing business was renamed the photo book business, and the aerial imaging business was renamed the aerial display business.

Following is an overview of the business results for each segment. The result figures for each segment include internal inter- segment sales.

(Funeral business)

In this business, although funerals continue to be reduced in size as a result of the coronavirus pandemic, there was an increase in the holding of funerals themselves compared to the same period in the previous year. Revenue from our primary business area - processing photos of the deceased - resulted in greater growth than was initially projected. In addition to the steady acquisition of new contracts through effective marketing utilizing our focus restoration technology, this was a result of the increasing number of funerals held nationwide. As a result, there was a steady increase in sales from hardware and frames, paper, and other supplies.

Programs in this area involved strengthening the functions of our "tsunagoo" DX service for the funeral industry, including the release of "tsunagoo AFTER" - a service that is useful during the coronavirus pandemic when numbers of funeral attendees are limited. We also worked to expand sales, and as a result saw large growth in the use of our services. We also established links with services aimed at resolving inheritance, real estate, and other problems which the bereaved are facing.

In terms of income, there was an increase in expenses including higher PR expenses, transportation costs, and supply costs resulting from participation in exhibitions. However factors such as higher sales and a higher operating rate at our operations center resulted in growth in segment income. On the other hand, as a result of the increase in the use of our services for processing photos of the deceased, the operations center became overloaded during the peak season and we are now working to improve our operations including with the addition of more personnel.

As a result, sales were 2,773,460 thousand yen (111.3% year-on-year), and segment income was 713,054 thousand yen (115.6% year-on-year).

(Photo book business)

This business operates AsukaBook for the professional photography market in Japan, and MyBook for the general Japanese consumer market. We are also engaged in OEM supply of photo albums and photo prints based on photos that were taken with smartphones.

In the domestic professional photographers market, although our primary product of wedding photo albums continues to be severely affected by wedding ceremony delays, especially in urban areas, as well as smaller wedding sizes and other effects from the coronavirus pandemic, weddings incorporating measures to prevent coronavirus infections were held, primarily in rural areas, and the market recovered better than expected. Therefore, there was steady growth in sales of photo albums for studios, and sales were higher than the same period in the previous fiscal year. In addition, in order to adapt to the pandemic environment, we endeavored to revitalize the market by expanding our online seminars, conducting online and video streaming, and holding events such as "life-size photo contests".

The general domestic consumer market continues to face difficult conditions of reduced opportunities and demand for photo books resulting from the effects of voluntary restrictions on activities such as traveling and events due to the coronavirus

pandemic. The same trends can be seen in "My Book" and OEM supply as well. Despite the difficult conditions, we worked to stimulate demand through various campaigns, the use of SNS, and other means. We also conducted promotions for our on-site photo shooting service with a life-size photo album from the Tokyo area.

As a result, although sales for the general consumer market were difficult, we were able to steadily grow sales in the professional photographer market thanks to a faster recovery in the wedding market and strong sales of photo albums for studios.

In terms of profit and loss, although there were large increases in the cost of raw materials, advertising expenses, and in travel expenses, we saw a large increase in segment income resulting from our success in controlling general expenses, such as delivery expense and rent, and in increasing the operating rate of our factory.

As a result, sales were 3,410,229 thousand yen (108.0% year-on-year), and segment income was 644,083 thousand yen (136.7% year-on-year).

(Aerial display business)

This business is aiming to create a market through new image and video expressions utilizing aerial imaging technologies. We are developing, manufacturing, and selling both glass and plastic "ASKA3D plates" that utilize our original technologies to project images in mid-air.

In the area of marketing, we are carrying out sales centered on our Marketing Division in Japan, and centered on our agents overseas. In Japan, we have been steadily extending our record, including successful sales of products for signage applications, use by local governments, and demonstration tests at convenience stores and apartment buildings. Overseas, the effects of the coronavirus pandemic have continued for longer than was predicted at the start of the year. Sales activities at our agents and sales support from our company were subjected to large restrictions, and activity was particularly difficult in the China market. As a result, we were forced to accept delays to promising potential orders, resulting in adverse effects on sales growth. As for exhibitions, we exhibited in three countries based on cooperation with our overseas agents, though there were no opportunities to participate in exhibitions in Japan.

In the areas of production and development, we are working to stabilize production and improve yield for both glass and plastic plates. In particular, we accelerated the production of larger-size plates with new production equipment by outsourcing production operations. At the technical development center, we are challenging ourselves to achieve internal production of glass plates, and have expanded both floor space and the number of production machines. We are working for stable production of the basic mid-size plates.

In terms of expenses, in addition to an increase in advance expenses related to our technical development center, there were increases in other expenses including research and development expenses for larger outsourced ASKA3D plates, patent- related expenses, and travel and transportation expenses.

As a result, sales were 148,116 thousand yen (119.2% year-on-year), and segment loss was 352,037 thousand yen (compared to a loss of 272,628 thousand yen in the same period of the previous fiscal year).

As results of the above, sales were 6,331,332 thousand yen (109.7% compared to the same period of the previous fiscal year). In terms of income, the increase in segment income in the funeral business and the photo book business resulted in ordinary income of 452,715 thousand yen (136.8% compared to the same period of the previous fiscal year) and net income was 332,810 thousand yen (147.6% compared to the same period of the previous fiscal year).

(2) Overview of the Financial Status during this Fiscal Year

(Overall situation)

Total assets at the end of this fiscal year increased by 430,885 thousand yen to reach 6,896,235 thousand yen. This increase was primarily due to an increase in cash and deposits of 184,089 thousand yen and an increase in inventory of 150,940 thousand yen. The equity ratio also decreased by 2.8 points from the end of the previous fiscal year to reach 87.3%.

(Current assets)

Current assets at the end of this fiscal year increased by 362,341 thousand yen from the end of the previous fiscal year to reach 3,433,537 thousand yen. This increase was primarily due to an increase in cash and deposits of 184,089 thousand yen and an increase in inventory of 150,940 thousand yen.

(Fixed assets)

Fixed assets at the end of this fiscal year increased by 68,544 thousand yen to reach 3,462,698 thousand yen. This increase was primarily due to an increase in machinery and equipment of 54,695 thousand yen and an increase in investment securities of 54,233 thousand yen.

(Current liabilities)

Current liabilities at the end of this fiscal year increased by 231,465 thousand yen from the end of the previous fiscal year to reach 864,587 thousand yen. This increase was primarily due to an increase of 50,742 thousand yen in accounts payable and an increase of 116,000 thousand yen in income taxes payable.

(Fixed liabilities)

Fixed liabilities at the end of this fiscal year increased by 4,233 thousand yen from the end of the previous fiscal year to reach 10,862 thousand yen.

(Net assets)

Net assets at the end of this fiscal year increased by 195,186 thousand yen from the end of the previous fiscal year to reach 6,020,785 thousand yen. This increase was primarily due to an increase of 214,867 thousand yen in retained earnings.

(3) Overview of cash flows in this fiscal year

Cash and cash equivalents (hereafter referred to as "Funds") at the end of this fiscal year increased by 584,089 thousand yen from the end of the previous fiscal year to reach 1,994,178 thousand yen due to an increase in net income and a shift from long- term deposit into short-term deposit.

(Cash flows from operating activities）

Net Funds acquired as a result of operating activities during this fiscal year were 827,132 thousand yen (compared to 359,336 thousand yen acquired during the previous fiscal year). The primary factors affecting this result were pre-tax net income of 452,043 thousand yen and depreciation expenses of 468,455 thousand yen.

(Cash flows from investing activities）

Net Funds expended as a result of investment activities during this fiscal year were 91,260 thousand yen (compared to 335,819 thousand yen expended during the previous fiscal year). This was primarily due to the acquisition of 370,085 thousand yen in tangible fixed assets and the acquisition of 65,510 thousand yen in intangible assets, while there was also the return of 400,000 thousand yen from long-term deposits.

(Cash flows from financing activities）

Net Funds expended as a result of financing activities during this fiscal year were 157,761 thousand yen (compared to 169,864 thousand yen expended during the previous fiscal year). This was primarily due to the payment of 118,502 thousand yen in dividends.

(4) Future Outlook

Information about the future outlook and about the risks associated with the coronavirus pandemic is provided below. Beginning from the fiscal year ended April 30, 2022, the memorial design business was renamed the funeral business, the personal publishing business will be renamed the photo book business, and the aerial imaging business will be renamed the aerial display business.

With the prolonged economic slowdown resulting from the coronavirus pandemic, and the growing uncertainty resulting from factors including the semiconductor shortage and the crisis in Ukraine, continuing difficult economic conditions are expected during the coming fiscal year.

Our company is operating a business that is consistent with the current times in which services are customized to meet individual needs even for minimum lot sizes, and aims to capture stable demand. We have constructed strong business models in both the funeral business and photo book business, and despite the effects of the coronavirus pandemic, we are experiencing an ongoing recovery in sales. In the aerial display business where we are challenging ourselves and working to create a new market, more time has been required to achieve profitability than we initially expected. However there has been strong interest in the use of aerial imaging operations, and we will make use of this opportunity to expand this business. We will also continue to challenge ourselves in the development of new business and services.

The coronavirus pandemic has had a large effect on society, and there is the possibility that customer needs in our areas of