・In this quarter, the number of software users increased as a result of steady progress in acquiring newusers, mainly those who switched from competitors.
・Sales of monthly services, including usage fee and support service fee for network server and database,increased as the number of software users increased.
・In parallel with acquiring new users, we have promoted provision of monthly subscription (SaaS)contracts for the “.NS Series,” which is the current mainstay product.

・This will enable quick and smooth transition to the new cloud software, the “.c Series ,” which isscheduled to be fully launched in the fourth quarter.
・These attempts not only stabilize sales as stock revenue increases, but also make progress in shifting to ahigher-margin sales mix.
・Associated with the transition to the new cloud software, the “.c Series,” we are strategically shifting to amonthly revenue model at an early stage, assuming sales of current product will be terminated. Therefore,we expect a major change in our revenue structure.
・The decline in sales associated with the shift to monthly subscription is seemingly negative, but not onlywill the quality of profits improve through the transition to monthly subscription contracts, but it will alsoenable an accelerated increase in sales and profits in the future.・Revenue decreased by 84 million yen year on year to 5,195 million yen.
・Despite a reactionary decline in sales of devices, stock revenue, which is linked to the number of softwareusers, increased.
・Software sales have been affected by the ongoing shift to monthly subscription, which caused sales todecline by around 100 million yen in this quarter.
・Factors behind this include the installation of the new cloud software, the “.c Series,” to specific majorclients in advance and the decision to refrain from selling software with a trade-in of remaining leasepayment.
・Transition to monthly subscription will temporarily lower the sales of the current product, the “.NSSeries,” but it will accelerate the shift to monthly sales, which is strategically positive situation.
・Consolidated operating profit increased by 62 million yen to 672 million yen.
・Sales mix improved due to an increase in the monthly sales ratio. Under the COVID-19 pandemic,operating expenses decreased due to increased efficiency in operating activities by promoting DX,including online and remote operations.

・In addition, the number of inquiries for DX-related products from user companies (industries) isincreasing, and in the sense of promoting DX, the environment caused by COVID-19 pandemic is atailwind for us.
・Although DX tools are still a minor sales in the current quarter, contract acquisition is in favorablecondition.・From this quarter, monthly subscription sales of software are disclosed as “SaaS.”・“SaaS” is comprised of sales of the “.c Series,” which has been installed to major users in advance, andmonthly subscription sales of the current mainstay product, the “.NS Series,” as well as sales of the tablettype business software “CarpodTab."・“Basic” of “Platform” includes the sales of the infrastructure service necessary to operate software suchas the “.NS Series.”・“SaaS,” “Basic,” and “EDI” are all sales of our cloud platform services.
・In this quarter, sales of these cloud services grew to about 40% of total sales.
・“Application” includes lump-sum sales of multi-year license of software such as the “.NS Series.”・Automotive sector of ”By industry” steadily acquired contracts, including the acquisition of new users.
・On the other hand, non-automotive sector, including mobile phone shops, travel agencies, and busoperators, continued to struggle due to the impact of COVID-19.

Reference: Detailed breakdown by revenue categories (1Q) (P.20)

・ From “Platform” category, the followings are revenue recognized on a monthly basis: “SaaS,” “Basic”excluding lump-sum payments, “EDI/settlement,” “Support services,” and “Others.”・Full-fledged acceleration in sales of “SaaS” will be after the launch of cloud-based software “.c Series” tonormal clients.
・Prior to this, in software sales, we are promoting monthly subscription contracts for the current product“.NS Series.”・“Support services and Others” refer to monthly sales of DX tools including monthly support services,website creation tools, and groupware such as GoogleWorkSpace, etc.
・Monthly support service contracts increased by 11.3 points year-on-year to 53.6%.
・Among the DX tools, sales of the website creation tool “BL Homepage” are growing. Currently, it hasbeen installed to more than 500 companies.
・Although there used to be many cases in which we failed to obtain contracts, demand rapidly increasedfrom the end of last year to the beginning of this year, and the basic website service with a price of 10thousand yen per month grew.

・We are also offering groupware such as Google Workspace, and plan to promote DX eventually targetingall users (about 37,000 companies).
・As explained, our monthly sales are not only proportional to the number of users of software, but also theaccelerating elements of monthly sales are already in place. In addition, it will accelerate further triggeredby the full-scale launch of the “.c Series.”・By strategically promoting the transition to the “.c Series” at an early stage, it will greatly accelerate ourfuture revenue. Therefore, if the needs for the “.c Series” increases, we will attempt to shift our usersahead of schedule.・Purchase cost declined due to a reactionary decline in the big deal of devices.
・In addition, cost of sales declined as higher-margin monthly service absorbed the increase in amortizationexpenses related to cloud services.
・Consequently, despite decrease in revenue, gross profit increased by 27 million yen and the gross profitmargin recovered to the 70% level.
・In addition, in SG&A expenses, advertising expenses increased, including participation in large-scaleexhibitions that were not held last year.
・On the other hand, with COVID-19 showing no sign of termination, we promoted the establishment ofonline operating activities and reduced sales-related expenses.
・Consequently, operating profit increased by 62 million yen.・In terms of assets, intangible assets increased from the end of previous fiscal year due to investments incloud service development.
・In terms of debt, short-term interest-bearing debts increased due to borrowing.
・In terms of total equity, retained earnings decreased due to dividends payouts, while profit was recorded.
・Short-term borrowings were made partly due to seasonal factors, but the Company maintained a soundfinancial position.・No change from results forecast announced on February 12 for the first half and full year.・Revenue in the second quarter is expected decrease by 648 million yen year on year.
・Due to promotion of software sales in the form of monthly subscription and controlling of the number ofacquired contracts, sales are expected to decline by around 600 million yen.
・Transition to monthly subscription is scheduled to be sequentially implemented by installing the newcloud software, the “.c Series,” to major users in advance.
・For other users, we will provide the current product, the “.NS Series,” as a SaaS in the form of monthlysubscription, in order to shift to the “.c Series” quickly and smoothly in the future.
・As a result of these measures, software usage fee will change from recording sales of multiple yearslicense in a lump-sum to recording sales on a monthly basis, so sales will initially decline.
・Controlling of the number of acquired contracts is to recommend not to trade in the amount of remaininglicense period but to use the current software until the expiration of the current contract for the usersplanning to shift to the “.c Series.”・As a result, the number of contract renewals for a certain period of time, such as fiscal years and quarters,will decrease, and this impact will become apparent from the second quarter of this fiscal year.

・ Decrease in revenue is not due to losing sales power, but is a result of strategical shift to monthly revenue.
・Operating profit in the second quarter is expected to decline by 989 million yen.
・ In addition to decrease in revenue, increase in costs related to cloud services including the “.c Series” isexpected to be a factor behind the decline in profits.・The establishment of “SaaS” in revenue categories has resulted in recomposition as described in thematerial.
・In addition to the recomposition, forecasts for “Support” of “Platform” and “Others” were revised upwarddue to the steady progress of both the support services and the DX tools.
・Against this backdrop, the probability of achieving sales forecast for the first half rose, making it easier tostrategically accelerate the transition from the lump sum recording of software sales to monthlysubscription. Therefore, we reduced the sales forecast for “By industry” of “Application.”・Revenue for the second half is expected to decrease by 330 million yen year on year.
・The main factor is the promotion of monthly subscriptions in software sales, and sales is expected todecrease by about 800 million yen.
・On the other hand, in addition to monthly services which are proportional to the increase in the number ofusers, software sales in the form of monthly subscription will also be gradually accelerating as thetransition progresses.

・We assume that the accumulation of these monthly sales will cover the decline associated with shift tosubscription to a certain extent.
・Operating profit for the second half is expected to decrease by 807 million yen.
・In addition to decrease in revenue, upfront costs to accelerate monthly subscription sales are expected toincrease significantly, including promotional campaigns in conjunction with the full-scale launch of the“.c Series.”・Continued growth in the number of users is a tailwind for us in driving our strategy.
・From this fiscal year to the next fiscal year, we will largely promote the shift to monthly subscription, andthis is positioned as a basic strategy for the early and smooth transition to the “.c Series.”・Similarly, forecast for the full fiscal year was recomposed as well.
・In the second half, in addition to the recomposition, the forecasts for both “Support” and “Others” of“Platform” were revised upward.
・In line with this, we decided to further accelerate the shift to monthly subscription for software sales, andlowered the sales forecast for “By industry” of “Application.”・We are promoting measures to complete transition to monthly subscription as early as possible, whilemonitoring the landing status of business performance.・Purchase costs are expected to decline due to a reactionary decline in the big deal in sales of devices.
・On the other hand, amortization expenses related to cloud services are expected to increase, and variouscosts associated with upgrading and maintaining service infrastructure are expected to increase.
・In addition, in conjunction with the full-scale development of the “.c Series,” we will strengthenadvertising and sales activities.
・On the other hand, we are promoting the reduction of sales-related expenses by promoting theestablishment of online sales activities and streamlining sales activities.
・In the second half of the fiscal year, we have formulated a cost plan based on the assumption ofnormalization of sales activities. However, depending on the situation of COVID-19, we may revise thebreakdown of sales revenue and the cost outlook.・Dividend policy changed from FY12/2021.
・We increased linkage of dividends to business performance and raise the target consolidated dividendpayout ratio to 35% or more.
・We are now in the transition phase of the revenue model, and for FY12/2021, we anticipate a decline inprofits.
・We recognize that this is the process of evolving into a highly profitable and high-growth company in thefuture.

I would like to ask for the continued support of our shareholders and investors.