Asukanet Company,Limited

In the funeral industry, service prices are generally trending downward due to declining attendee numbers, creating pressure to lower the unit sales price of memorial photos. In addition, the increase in direct cremation (cremation performed without a funeral ceremony) has led to a rising number of cases where memorial photos are not created, potentially threatening the revenue base of the Funeral Business. The Company is responding through differentiation via higher quality and greater efficiency in image processing operations, but if these measures fail to succeed, business performance and financial condition may be affected.

In the Memorial Photo Digital Processing & Remote Printing Service under the Funeral Business and in the Photobook Business, there is a risk that the Company's advantages in quality, customer base, and development capability could be lost due to the entry of competitors with new technologies and methods or the strengthening of existing competitors. In particular, in the Photobook Business, if a company with strong capabilities in both technology development and marketing enters the market, intensified competition could lead to deteriorating profitability. The Company is responding by maintaining and strengthening its proprietary technology, nationwide support locations, and customer base, but future technology substitution risk cannot be eliminated.

The Aerial Display Business, which utilizes aerial imaging technology, carries the risk that further technology development may require more time and cost than expected, and mass production may not proceed as planned. In addition, developing strategic and sales partners and building product awareness may take time, which could result in revenue generation not progressing as expected. Furthermore, there is a risk that superior technology could emerge, rendering the Company's technology obsolete.

Approximately two-thirds of the production capacity of the Funeral Business and most of the production capacity of the Photobook Business are concentrated at the head office and its surrounding area in Hiroshima City, Hiroshima Prefecture, creating a risk that the supply of products and services could be significantly disrupted in the event of a natural disaster, fire, power outage, or logistics disruption. The Funeral Business has mitigated this risk by establishing operation centers dispersed across three locations in Japan (Hiroshima, Chiba, and Shiga), but concentration risk remains for the Photobook Business.

In the course of conducting business, the Company handles a wide range of information assets, including personal and customer information. If an unforeseen leakage or loss occurs, it could significantly affect business performance and financial condition through a decline in social credibility or payment of damages. As countermeasures, the Company implements password-based access control, moral education for employees, strengthened internal audits, and ISMS certification acquisition and operation; however, these measures cannot completely eliminate the risk.

Given the nature of the business, which is based on communication networks, a network disconnection or system malfunction caused by a natural disaster, fire, power outage, computer virus, or other unauthorized external intrusion could significantly disrupt business operations. The Company has implemented measures such as building automatic backup systems, thoroughly preparing for emergency response, and introducing private power generation equipment, but if a system failure occurs despite these measures, business performance and financial condition may be affected.

In the Photobook Business, OEM Supply to NTT DOCOMO, INC. accounts for a certain proportion of sales, creating a risk of sales concentration on a specific business partner. Although the Company currently maintains a favorable and stable relationship, changes in trading terms, reduction of transactions, or termination of contracts could directly affect the Group's business performance and financial condition.

The Company is pursuing expansion into overseas markets in the Photobook Business (the United States, etc.) and the Aerial Display Business, but there is a risk that revenue generation may not progress as expected due to marketing difficulties arising from differences in culture, language, and customs, insufficient development of appropriate distributor networks, and delays in service awareness. In addition, deterioration in relationships with key sales agents could also affect business performance and financial condition.

The Group conducts M&A and investments in venture companies as part of its growth strategy, and acquired all shares of BET Co., Ltd. in the fiscal year ended April 2024. If matters not anticipated or confirmed during due diligence come to light after an M&A transaction, if business development does not proceed as planned due to changes in market conditions, or if impairment of goodwill becomes necessary, business performance and financial condition may be affected. Venture investments also carry risks in cases where anticipated synergies are not fully realized or where growth takes longer than expected.

As of the end of the current consolidated fiscal year, the organization is relatively small in scale, with 6 directors, 3 corporate auditors, and 430 employees, and operations may in some cases depend on specific individuals. If the organization is unable to respond appropriately and in a timely manner to business expansion, or if specific officers or employees leave the Company, this could adversely affect business execution and expansion. The Company is introducing an executive officer system, promoting delegation of authority, and securing and developing replacement personnel, but vulnerabilities stemming from the small organizational scale remain.