Annual Securities Report
The 25th Fiscal Year

From April 1, 2019 to March 31, 2020

Digital Arts Inc.

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Annual Securities Report
1. This document is a printed output of the annual securities report underParagraph 1, Article 24 of the Financial Instruments and Exchange Act withdata provided using the Electronic Disclosure for Investors’ NETwork(EDINET) as set forth in Article 27-30-2 of the said Act, with the table ofcontents and page numbers attached.
2. This document includes the Independent Auditors’ Audit Report attached to
the Annual Securities Report provided using the method described above andthe Internal Control Audit Report and the Representation from Management,
both of which were provided together with the Annual Securities Report
described above, at the end hereof.

―2―

ContentsPage
The 25th Fiscal Year Annual Securities Report
Cover ............................................................................................................................................................................................... 4
Part I. Corporate Information ........................................................................................................................................................ 5
Section I. Corporate Summary ................................................................................................................................................... 5
1. Financial Highlights....................................................................................................................................................... 5
2. Corporate History .......................................................................................................................................................... 7
3. Business Summary......................................................................................................................................................... 8
4. Related Companies .......................................................................................................................................................11
5. Employment Data .........................................................................................................................................................11
Section II. Business Summary ................................................................................................................................................. 12
1. Management Policy, Operating Environment and Business Issues to Be Considered ...................................................... 12
2. Business and Other Risks ............................................................................................................................................. 13
3. Analysis of Financial Conditions, Operating Results and Cash Flows by the Management.............................................. 16
4. Material Contracts Affecting Management of the Company, etc. .................................................................................... 21
5. Research and Development .......................................................................................................................................... 21
Section III. Properties.............................................................................................................................................................. 22
1. Summary of Capital Investment, etc. ............................................................................................................................ 22
2. Major Facilities............................................................................................................................................................ 22
3. Plans for Capital Investment, Disposals of Properties etc. .............................................................................................. 23
Section IV. Information on the Reporting Company.................................................................................................................. 24
1. Stock Information ........................................................................................................................................................ 24
2. Information on Acquisition, etc. of Treasury Shares ...................................................................................................... 36
3. Dividend Policy ........................................................................................................................................................... 37
4. Corporate Governance ................................................................................................................................................. 38
Section V. Financial Information.............................................................................................................................................. 48
1. Consolidated Financial Statements ............................................................................................................................... 48
2. Financial Statements of the Reporting Company ........................................................................................................... 75
Section VI. Stock Information of the Reporting Company ........................................................................................................ 84
Section VII Reference Information on the Reporting Company................................................................................................. 85
1. Information on Parent Entities of the Reporting Company ............................................................................................. 85
2. Other Reference Information ........................................................................................................................................ 85
Part II. Information Concerning Guarantors of the Reporting Company ........................................................................................ 86
Report of Independent Auditors
Report on Internal Controls and Compliance
Representation from Management―3―

[Cover][Document Filed]Annual Securities Report[Applicable Law]

Article 24, Paragraph 1 of the Financial Instruments and Exchange Act of Japan[Filed with]

Director, Kanto Local Finance Bureau[Filing Date]

Monday, June 22, 2020

[Fiscal Year]

25th fiscal year (from April 1, 2019 to March 31, 2020)[Company Name]

Digital Arts Inc.

[Title and Name of Representative]

Toshio Dogu, Representative Director, President and CEO[Address of Head Office]1-5-1 Otemachi, Chiyoda-ku, Tokyo, Japan[Phone No.]03-5220-1160[Contact Person]

Isao Konishi, General Manager of the Administration Department[Contact Address]

1-5-1 Otemachi, Chiyoda-ku, Tokyo, Japan[Phone No.]03-5220-6045[Contact Person]

Isao Konishi, General Manager of the Administration Department[Place for Public Inspection]

Tokyo Stock Exchange, Inc.
(2-1 Nihonbashikabutocho, Chuo-ku, Tokyo)―4―

Part I. Corporate Information
Section I. Corporate Summary
1. Financial Highlights(1) Consolidated Management Indicators, etc.
Fiscal Year

21st fiscal year 22nd fiscal year 23rd fiscal year

24th fiscal year

25th fiscal year

Year end

March 2016

March 2017

March 2018

March 2019

March 2020

Net sales(Thousand yen)

4,000,620

5,058,685

5,116,969

5,841,287

5,641,805

Ordinary profit(Thousand yen)994,311

1,811,279

1,909,377

2,630,963

2,326,930

Profit attributable toowners of parent(Thousand yen)

545,983

1,125,043

1,281,924

1,961,276

1,590,784

Comprehensive income(Thousand yen)

536,688

1,127,741

1,275,222

1,977,567

1,587,892

Net assets(Thousand yen)

4,642,033

5,270,339

6,247,602

7,802,894

8,680,224

Total assets(Thousand yen)

6,133,859

7,380,958

7,928,532

9,859,347

10,852,234

Net assets per share(Yen)

329.03375.07446.43558.33617.27

Basic profit per share

(Yen)

39.26

80.92

92.46

141.11113.69Diluted profit per share

(Yen)

39.14

80.68

92.13

140.80110.83

Capital ratio

(%)

74.7

70.2

78.2

78.7

79.7

Return on equity

(%)

12.4

23.0

22.5

28.1

19.4

Price earnings ratio(Times)

62.35

37.63

44.45

64.13

41.08

(Thousand yen)

1,027,287

2,012,282

1,663,158

3,091,862

2,686,572(Thousand yen)(441,185)(671,798)(774,868)(908,784)

111,013(Thousand yen)

(187,807)(503,262)(293,407)(429,712)(709,214)(Thousand yen)

2,443,875

3,298,836

3,826,443

5,569,172

7,651,645

192

194

207

207

236

Cash flows fromoperating activities
Cash flows from investing
activities
Cash flows fromfinancing activities
Cash and cash equivalents
at end of period
Number of employees(Persons)[Average number of part[25]
[30]
[33]
[26]
[22]
time employees, etc.](Notes) 1. Net sales do not include consumption tax, etc.
2. The figures in parentheses in the number of employees section (which are not included in the totals) indicate the annual
average number of part-time employees (temporary staff, etc.).

―5―

(2) Financial Data of the Reporting Company
Fiscal Year

21st fiscal year 22nd fiscal year 23rd fiscal year 24th fiscal year

25th fiscal year

Year end

March 2016

March 2017

March 2018

March 2019

March 2020

Net sales(Thousand yen)

4,018,839

5,104,469

5,046,537

5,752,991

5,336,838

Ordinary profit(Thousand yen)

1,328,681

2,056,138

2,097,906

2,777,431

2,359,152

Profit(Thousand yen)

840,586

1,339,017

860,611

1,784,866

1,613,156

Share capital(Thousand yen)

713,590

713,590

713,590

713,590

713,590(Shares)

14,133,000

14,133,000

14,133,000

14,133,000

14,133,000

Net assets(Thousand yen)

5,063,459

5,882,583

6,451,473

7,804,423

8,714,933

Total assets(Thousand yen)

6,633,333

7,948,956

8,149,757

9,870,395

10,839,105359.28420.53462.20559.74620.45

15

24

28

48

50

[7]

[10]

[14]

[18]

[25]

Number of issued shares

Net assets per share(Yen)

Dividend per share(Yen)[Interim dividend per share]
Basic profit per share

(Yen)

60.45

96.31

62.07

128.42115.29Diluted profit per share

(Yen)

60.25

96.02

61.85

128.14112.39

Capital ratio

(%)

75.5

73.1

78.7

78.8

80.2

Return on equity

(%)

18.0

24.8

14.1

25.1

19.6

Price earnings ratio(Times)

40.50

31.62

66.21

70.47

40.51

Dividend payout ratio

(%)

24.8

24.9

45.1

37.4

43.4

186

186

194

201

214

[25]

[30]

[33]

[26]

[21]

Number of employees[Average number of parttime employees, etc.](Persons)

Total shareholder return

(%)

207.3

259.6

351.6

771.5

407.0

[Benchmark index: TOPIX(Tokyo Stock Price Index)](%)[89.2][102.3][118.5][112.5][101.8]Year high

(Yen)

2,514

3,450

5,060

9,560

11,240Year low

(Yen)

1,168

2,120

2,701

3,980

3,625

(Notes) 1. Net sales do not include consumption tax, etc.
2. The figures in parentheses in the number of employees section (which are not included in the totals) indicate the annual
average number of part-time employees (temporary staff, etc.).
3. Year high and year low indicate price on the Tokyo Stock Exchange (first section).

―6―2. Corporate History
Month/Year

Description

June 1995

January 2000

Digital Arts Inc. is incorporated (capital: 10 million yen) in Minato-ku, Tokyo and commences operations todevelop and market software for the internet
Digital Arts Inc. develops the first web filtering software in Japan and launches initiatives to accumulate
information on harmful websites
Digital Arts Inc. increases capital to 40 million yen

January 2000

Digital Arts Inc. relocates head office to Kita-Aoyama, Minato-ku, Tokyo

March 2000

Digital Arts Inc. increases capital to 491 million yen

May 2000

Digital Arts Inc. launches NET iScope, an internet monitoring service

August 1998

September 2002

March 2005

Digital Arts Inc. is listed on Nasdaq Japan of the Osaka Securities Exchange (currently JASDAQ Standard)
Digital Arts Inc. increases capital to 552.2 million yen
Digital Arts Inc. transfers NET iScope (internet monitoring service) business to shift corporate focus tofiltering software
Digital Arts Inc. begins operations at Kyushu Branch Office (currently Kyushu Sales Office)Digital Arts Inc. acquires patent in 22 countries and regions for internet access control involving filtering
technology
Digital Arts Inc. obtains 100% stock share of IQS. Co. Ltd., making the company its subsidiary

October 2005

Digital Arts Inc. relocates head office to Nagatacho, Chiyoda-ku, Tokyo

August 2006

Digital Arts Inc. begins operations at Osaka Sales Office (currently Kansai Sales Office)November 2007

Digital Arts Inc. begins operations at Nagoya Sales Office (currently Chubu Sales Office)September 2004
October 2004
February 2005

February 2008

Digital Arts Inc. is certified as a Privacy Mark enterprise

January 2009

Digital Arts Inc. begins operations at Sapporo Sales Office (currently Hokkaido Sales Office)December 2009
April 2011
November 2011

Digital Arts Inc. begins operations at Tohoku Sales Office
Digital Arts America, Inc. is established as a US subsidiary
Digital Arts Europe Ltd. is established as a UK subsidiary
Digital Arts Inc. relocates head office to Otemachi, Chiyoda-ku, Tokyo

February 2012

Digital Arts Inc. is listed on the Second Section of the Tokyo Stock Exchange

June 2012

Digital Arts Investment, Inc. is established as a US subsidiary

March 2013
May 2013

Digital Arts Inc. is listed on the First Section of the Tokyo Stock Exchange
Digital Arts Inc. establishes Polkast Japan, Inc. as a subsidiary
Digital Arts Inc. forms the business alliance with Polkast LLC (US)FinalCode, Inc. is established in the US as a local subsidiary

April 2014
November 2015

Digital Arts Asia Pacific Pte. Ltd. is established as a Singapore subsidiary

February 2016

UK subsidiary changes trade name to FinalCode Europe Ltd.
Singapore subsidiary changes trade name to FinalCode Asia Pacific Pte. Ltd.

April 2016
October 2016
December 2018

Digital Arts Consulting Inc. is established
Digital Arts Inc. begins operations at Chushikoku Sales Office
UK subsidiary changes trade name to Digital Arts Europe Limited
Singapore subsidiary changes trade name to Digital Arts Asia Pacific Pte. Ltd.

―7―

3. Business Summary
The Digital Arts Group is comprised of Digital Arts Inc. and its four consolidated subsidiaries and is principally engaged in internet
security, email security, the planning, development, sale, etc. of file encryption and tracking solutions, and information security
consulting.
Business positioning of Digital Arts Inc. and its consolidated subsidiaries

Company namePrincipal business

Digital Arts Inc.

Planning, development and sale of internet security software and appliance products

Digital Arts America, Inc.

Sale of FinalCode (a file encryption and tracking solution)

Digital Arts Asia Pacific Pte. Ltd.

Sale of FinalCode (a file encryption and tracking solution)

Digital Arts Europe Limited

Sale of FinalCode (a file encryption and tracking solution)

Digital Arts Consulting Inc.

Information security consulting, etc.

In the world of the Internet, we are endlessly inundated with all kinds of information. Although using the Internet has made it mucheasier to gather information, ways of controlling and protecting information posted on the Internet have yet to be established andinternet users run a very high risk of unintentionally encountering problematic websites. Meanwhile, email, though an essential
business tool, also poses many challenges, such as measures to prevent mis-transmission, storage and effective utilization of large
amounts of emails, antispam measures and internet security measures. Additionally, files, which are important management assets, arealso exposed to risks such as the leakage or unauthorized taking-out of personal information by interested parties within organizations,
theft, loss, mis-transmission and other operational errors, and leakage by contractors.
With many companies and other organizations facing the challenges and risks outlined above, the modus operandi of “targeted attacks”
that target specific organizations have also become more advanced, diverse and sophisticated in recent years. Information security
officers are seeking to combat these attacks by means of multilayer defense, etc. through the adoption of multiple solutions. However,
one after another, systems are hacked using a new modus operandi and the damage is escalating.
The Digital Arts Group’s mission as an Internet security company is to provide countermeasures against information leaks from withincompanies and organizations and solutions to combat attacks from outside, such as targeted attacks.
The Digital Arts Group has no business segments that need to be reported on separately and therefore has only one reportable segment:
the Security Business.
Main Products
User category

Main productsCompany nameEnterprise Sector- i-FILTER (web security)- m-FILTER (mail security)- D-SPA (DigitalArts Secure Proxy Appliance)(web security appliance)- FinalCode(file encryption and tracking solution)

Digital Arts Inc.
Digital Arts America, Inc.
Digital Arts Asia Pacific Pte. Ltd.
Digital Arts Europe Limited
Digital Arts Consulting Inc.

Public Sector- i-FILTER (web security)- m-FILTER (mail security)- D-SPA (DigitalArts Secure Proxy Appliance)(web security appliance)- FinalCode(file encryption and tracking solution)

Digital Arts Inc.
Digital Arts America, Inc.
Digital Arts Asia Pacific Pte. Ltd.
Digital Arts Europe Limited
Digital Arts Consulting Inc.

- i-FILTER (Web filtering software)

Digital Arts Inc.

Consumer Sector―8―Features of Main Products
Main products

FeaturesWeb filtering to counter information leaks and targeted attacks
Web filtering uses a whitelist database to block access to dangerous URLs not registered in the
database. It categorizes adult websites and other websites with inappropriate content for working andlearning environments and stops users from viewing them in line with the policy of the organization inquestion.

i-FILTER

m-FILTER

Main Applications- Protection against targeted attacks- Protection against watering hole attacks- Protection against phishing- Internet access control- Access log monitoring

m-FILTER possesses email filtering, email archiving and antispam capabilities, protecting against
targeted attacks and information leaks such as mis-transmission, promoting internal control through thestorage and management of all emails, and improving business efficiency through protection against
spam emails.
Email filtering is a function that only allows users to receive safe emails, preventing them fromreceiving targeted emails by storing safe senders in a whitelist database and determining the safety ofsenders and also identifying fake email attachments and emails. It also stops intentional and accidental
information leaks by forwarding messages to a sender’s manager for approval or delaying transmission
for a certain period.
Main Applications- Protection against targeted emails- Prevention of e-mail mis-transmission- Email archiving- Protection against spam emails

D-SPA

Appliance comprising both hardware and i-FILTER software
Pre-built, pre-configured and ready-to-run appliance that saves time and labor by removing the need to
select and purchase hardware, operating systems and applications separately

Password-less encryption service for tracking and remotely controlling files
Enables designation of file recipients, configuration of permissions, access log monitoring by fileowner, permission changes after file distribution and remote file deletion
FinalCodeMain Applications- Protection against leakage of confidential information- Protection against internal fraud- Protection against supply chain attacks- File encryption and access control- File tracking- Remote file deletion

Filtering software mainly for families, libraries, internet cafes, etc. Protects users of smartphones,
tablets and computers from dangers of the Internet by restricting access to harmful websites.
i-FILTER (Consumer)

Main Applications- Web filtering- Web usage reporting- Restriction of time spent online―9―The Group’s business organization chart is as follows.

End users

Agents, Distributors, etc.

(Consolidated Subsidiaries)
Digital Arts America, Inc.
Digital Arts Asia Pacific Pte. Ltd.
Digital Arts Europe Limited(Consolidated Subsidiaries)
Digital Arts Consulting Inc.

Digital Arts Inc.

Sales and provision of services―10―

4. Related Companies
Company nameShare capital
Percentage ofPrincipal business(thousand yen)voting rights (%)

Address

Relationship(Consolidated Subsidiaries)
Digital Arts America, Inc.

4675 Stevens Creek Blvd. Suite
130 Santa Clara, CA 95051, USA

24,534

Securitybusiness

100.0

Sale of the Company’s products
Business outsourcing
Interlocking directorates

Digital Arts Asia Pacific Pte. Ltd.
(Note) 1

3 Temasek Avenue, #21-00
Centennial Tower, Singapore,
039190227,701

Securitybusiness

100.0

Sale of the Company’s products
Business outsourcing
Interlocking directorates

Digital Arts Europe Limited

337 Bath Road, Slough,Berkshire SL1 5PR, United
Kingdom

23,981

Securitybusiness

100.0

Sale of the Company’s products
Business outsourcing
Interlocking directorates

Digital Arts Consulting Inc.
(Note) 1

1-5-1 Otemachi, Chiyoda-ku,
Tokyo, Japan73,000

Securitybusiness

92.1

Provision of services
Business outsourcing
Interlocking directorates(Note) 1. Digital Arts Asia Pacific Pte. Ltd. and Digital Arts Consulting Inc. fall under the category of a specified subsidiary.

5. Employment Data
(1) Consolidated Basis
As of March 31, 2020
Category

Number of employees

Security business
Total

236

(22)

236

(22)

(Notes) 1. The figures in parentheses in the number of employees section (which are not included in the totals) indicate the annual
average number of part-time employees (temporary staff, etc.).
2. The number of employees increased by 29 from March 31, 2019. The increase is mainly attributable to the hiring ofadditional employees during the fiscal year as a result of expansion of business operations.
3. Segment information is omitted because the Digital Arts Group operates in one segment only (the security business) andhas no other business segments.
(2) The Reporting Company
Number of employees
214 (21)

As of March 31, 2020
Average annual salary(thousand yen)

Average length ofservice in years

Average age
35.4

6.1

6,162

(Notes) 1. The figures in parentheses in the number of employees section (which are not included in the totals) indicate the annual
average number of part-time employees (temporary staff, etc.).
2. Segment information is omitted because the Company operates in one segment only (the security business) and has noother business segments.
3. Average annual salary includes any bonuses and extra wages.
(3) Relationship with Labor Union
A labor union has not been established, but amicable labor-management relations have been maintained.

―11―Section II. Business Summary
1. Management Policy, Operating Environment and Business Issues to Be Considered
Matters concerning the future stated below are based on the Group’s assessments as of the end of the fiscal year under review.
(1) Management Policy
Based on our corporate philosophy of “Contributing to a more convenient, comfortable and safer Internet life,” the Group aims toprovide software to ensure that the benefits of the Internet, which is a great asset for humankind, are used as a positive force.
(2) Management Strategies, etc.
In accordance with the corporate philosophy described above, the Group will accelerate growth by focusing on strengthening its
presences as a general security solution provider in the Japanese market.
In September 2017, we released a solution that protects against the leakage of information from within companies and organizations,which has been our core business since our foundation, and that also counters threats from outside such as targeted attacks. Since its
release, this solution has not only notched up sales but has also been widely reported as an effective product in many case studies andhas also been highly rated as protection against targeted attacks. The Group will continue to concentrate its resources on this businessdomain and, whilst earning the trust of users and distributors, will seek to achieve a brand change from a manufacturer of filtering
software to a general security solution provider.
(3) Objective Indicators for Judging Status of Achievement of Management Goals
The Group has adopted the contract amount growth rate, the net sales growth rate, the operating margin, and return on equity (ROE) as
objective indicators for judging the status of achievement of management goals. The Group’s contract structure is such that theminimum contract term is one year and, upon contract initiation, the Group receives an amount according to the contract term based ona price schedule established for each product, but the method of recording sales for accounting purposes varies for each product. The
component ratio of the type of products where the majority of the contract value is recorded as sales for accounting purposes upon
contract initiation used to be high and the contract amount growth rate and the net sales growth rate were similar. However, recently, achange in the weighting of each product that make up our contract amount is evident and the type of products where recognition ofmost of the contract value is deferred has grown relative to other products and a disparity between the contract amount growth rate andthe net sales growth rate has arisen. Since the Group and its distributors conduct sales activities with the aim of achieving growth in thecontract amount, we attach importance to the contract amount growth rate as well as to other commonly used management indicators.
(4) Operating Environment and Business and Financial Issues to Be Addressed
In the security industry to which the Group belongs, cyber attacks, including targeted attacks that threaten specific companies,
organizations and national institutions, are occurring one after another and, as IT becomes more and more widely used in areas such as
virtual currencies, cloud computing, the IoT, AI and 5G, the risks facing companies and organizations are increasing.
Meanwhile, in Japan, against the backdrop of decline in the working population, workstyle reform aimed at improving employee
productivity is being promoted under government initiatives. In addition, the COVID-19 pandemic recently accelerated the adoptionof teleworking, with many employees suddenly working from home. As a result, demand for cloud-computing products that deliver
improvements in business efficiency is growing and there is a pressing need to tighten security.
In this environment, the Group became more widely recognized for its security solution that not only protects against the leakage of
information from within companies and organizations, which has been its core business since its foundation in line with its mission as
an internet security company, but that also counter threats from outside such as targeted attacks, thus taking its first step as a Japanmade general security solution provider.
The Group believes it has a responsibility to create a society in which anyone can use the Internet with peace of mind by quickly andaccurately grasping the issues that need addressing in a rapidly changing world and by offering solutions through the pursuit of “Madein Japan” quality, and we will contribute to the rapidly evolving Internet society in line with this mission.

―12―

(i) Stable and continuous growth of existing business
The Group has maintained long-standing relationships and achieved stable and continuous growth by sincerely addressing andmeeting the requirements of its users and distributors. We will continue to put our relationships with our users and distributors firstand strive to strengthen our products and improve our services with the aim of achieving stable and continuous growth.
(ii) Identification of new needs
As the areas in which IT is used become more widespread with the emergence of virtual currencies, cloud computing, the IoT, AI and
5G, new threats associated with internet use are constantly emerging. In this environment, the Group will put effort into market
research and research and development in the belief that it is important to predict potential future needs and to offer new solutions
that are the “Only One” of their kind.
(iii) Securing and developing human resources
The Group recognizes that securing and developing talented human resources is important for its growth in the medium and longterm. The Group has therefore been actively seeking to secure talented human resources both through new graduate and mid-career
recruitment. However, in view of the difficulties involved in securing human resources from outside the Group, we are also
continuing to review our personnel programs especially pay and evaluation and striving to retain talented human resources. It is alsoa priority for us that existing employees increase their productivity and acquire knowledge and experience and we will seek todevelop human resources by supporting employees to gain qualifications and by providing internal training.
(iv) Awareness-raising activities
Smartphones are rapidly becoming more popular and there has been a sharp rise in problems and social issues associated with theInternet and SNS. Meanwhile, many adults who give guidance to young people or are involved in their upbringing do not fully
understand the potential dangers and problems that young people face when using smartphones. To tackle this situation, the Groupwill provide seminars and lectures upon request in regions throughout Japan and provide information to users of smartphones andother mobile devices to help increase their digital literacy, and we will also stress the importance of filtering.
(v) Response to the COVID-19 pandemic
If the COVID-19 pandemic drags on, the business activities of the Group and its distributors may be affected. We will, therefore,
give top priority to the health of all our business associates and employees and encourage them to conduct seminars and negotiations
online, thus promoting efficient digital sales activities, with the aim of achieving stable and continuous business growth.

2. Business and Other Risks
Material risks recognized by management as risks that could materially affect the financial condition, operating results and cash flows
of consolidated companies included in the Business Summary, Financial Information and other sections of this Annual Securities
Report are as follows. These forward-looking statements are being made at the determination of the Group as of the date of submissionof this Annual Securities Report (June 22, 2020).
(a) Risks related to changes in the sales situation and operating environment of major distributors affecting the GroupThe Group’s products are mostly sold to users through its distributors. Client sales conditions and changes in management climate(such as M&A or bankruptcy) could lead to a significant fluctuation in the Group’s net sales. Major distributors also handle theproducts of the Group’s competitors. The Group, therefore, endeavors to expand net sales by reaching out effectively to
distributors. However, there is a risk that competitors’ products may be given preference over the Group’s products. Furthermore,
any changes in the sales situation or operating environment (such as M&A or bankruptcy) of major distributors that cause delayedor uncollectable payment of debt could also significantly impact the Group’s performance and financial standing.
(b) Risks associated with changes in the national budget and local government policies affecting the Group’s product sales to schools
and local municipalities
The Group’s product sales to public schools and local municipalities may be significantly impacted by fluctuations in the national―13―

budget and its distribution to local municipalities, as well as the budget expenditures of these municipalities.
(c) Risks related to internet regulations, free services provided by NPOs and other organizations, and services mounted on future OSs
at no cost
In the event internet regulations move forward to allow government or NPOs to offer initiatives similar to the Group’s web
filtering software at low or no cost, the Group may have no choice but to amend the Group’s business model and earning model.
It is also possible that, in the future, services similar to the Group’s web filtering software may be mounted on computer OSs at avery low or no cost, and although the quality of such “service” may be inferior to the web filtering solutions offered by the Group,
users may actively choose to use these “services.” Such instances may significantly impact the Group’s performance and financial
standing.
(d) Risks of specializing in the security business
The Group is dedicated to the security business, which involves developing and selling web filtering software and email filtering
software. Future declines in security market demands due to deteriorating economic climate and other factors may significantly
impact the Group’s performance and financial standing.
(e) Risks related to fluctuation in the Group’s quarterly net sales results
There is an inclination that the Group’s fourth quarter earnings are higher compared to other quarters in terms of net sales for thefull fiscal year. This is mainly attributable to the common practice by private enterprises and public sectors to place orders for IT
products in March, at the end of their fiscal year. The Group takes this seasonal factor into account when making its full year plans
and is continuing to pursue to maintain and expand the current sales level. However, the Group’s performance and financial
standing may see a significant impact if the Group fails to acquire orders as planned for the relevant period for any reason, or
experiences delays in receiving orders due to matters related to the client and distributors. If products for which most of thecontract price is subject to deferred revenue recognition account for a higher percentage of total sales than products for which the
majority of the contract price is recognized at contract inception or if temporary special demand arises as a result of change in thelaw or government initiatives, there is a risk that the Group’s quarterly financial results will fluctuate.
(f) Risks associated with laws and regulations
The Group operates on a global scale and conducts business activities appropriately, in compliance with national and regional laws
and regulations. However, changes in laws and regulations related to aspects such as imports and exports, product liability, andtransfer pricing arrangements as well as legal interpretations by the regulatory authorities may lead to an unforeseeable situation.
If the Group spends a significant amount of time and money on complying with such changes, this could impact on the Group’s
performance and financial standing.
(g) Risks associated with the future decline of internet use in business, schools and homes
The internet is a technology that developed rapidly on a global scale, and today, is considered an indispensable form of
information infrastructure. Currently, the Group’s net sales is mainly composed of products and services related to the internet,
therefore, if the existence of the internet fades or the use of internet declines in the Group’s target markets of “Business/Enterprise,”“School,” “Government,” and “Home,” this may have a significant impact on the Group’s performance and financial standing.
(h) Limitation in protecting intellectual property rights (including patents)
The Group takes appropriate measures both domestically and overseas to protect any and all independently developed technology
and know-how, however, there are certain areas in the world where the Group’s intellectual property rights may have no or limited
protection due to legal restrictions. For this reason, the Group may not be able to completely prevent its competitors fromanalyzing and researching the Group’s proprietary technologies and providing similar products to the market. While the Grouppays utmost attention to avoid infringing intellectual property rights and copyrights when offering new products and services,
there may be a risk at some future point where other parties may deem that the Group is infringing on their intellectual property
rights and copyrights.

―14―(i) Risks associated with the Group’s technology obsolescence and deterioration of technological innovation
The Group conducts development activities to upgrade technology and enhance quality for current/future products and services.
However, if the products and services provided by the Group became obsolete or the Group’s technological innovation
deteriorated, the Group may lose its competitive edge against other products and services on the market. This may have asignificant impact on the Group’s future performance and financial standing.
(j) Risks associated with bugs and defects on products offered by the GroupThe Group develops and markets various products around the framework of “web filtering software”. Countless quality controls
are performed in course of developing and marketing software in order to take all possible means to ensure that the program
operates properly. However, software bugs (defects) unexpected at the time of launch may be confirmed post-launch, and in suchcircumstances, the Group promptly releases update patches to correct the issue. However, if such bug issues prevent the Group
from providing services, if the Group requires a long period of time to resolve the issue, or if the issue could not be resolved, this
could lead to a reduction of sales, goods being returned and to a decline in the Group’s credibility, which may significantly impact
the Group’s business performance and financial standing.
(k) Risks associated with issues in the mainstay system (server) owned by the GroupThe Group’s services essentially take the form of providing URL and other information from servers administered by the Group.
The Group positions these servers as the most critical mainstay system and makes every effort to provide consistent service bytaking necessary safeguards, such as server duplication and backups. However, servers are hardware and problems such as
unexpected shutdown, malfunction, and loss of material information (such as URL database, client data and technologicalinformation that are at the core of the Group’s service) may result in service suspension.
The Group’s service may also be interrupted due to suspension of business at the facility where the Group’s server is located,problems with internet service providers, telecommunication carriers and other cloud services, and information security incidents
such as the leakage of information due to hacking attacks and theft of material data. The Group has acquired the Privacy Mark anddeveloped a system in compliance with Information Security Management System (ISMS) requirements. However, in the event
the Group’s service is suspended due to such issues, this suspension could lead to a decline in the Group’s credibility, which may
significantly impact the Group’s business performance and financial standing.
(l) Reliance on key management, and securing/developing talent
The Group’s operation is heavily dependent on key management personnel, such as CEO Toshio Dogu. In the event thesemanagement personnel takes an extended leave due to illness or injury, leaves the Group or dies, such factors may have asignificant impact on the Group’s performance and financial standing. The Group works on securing and developing talent, butfailing to secure and develop sufficient talent in the future may adversely affect the Group’s competitiveness and efficiency andhave a significant impact on the Group’s business performance and financial standing.
(m) Risks pertaining to merger and acquisitions, and assignment/acquisition of business rights
Digital Arts Inc. is a public company listed on the First Section of Tokyo Stock Exchange, where CEO Toshio Dogu is the largest
shareholder with 2,503,003 shares (which account for approximately 17.7%, including shares held by the shareholders’ association
made up of directors) out of 14,133,000 issued and outstanding shares (including treasury shares) as of March 31, 2020. As apublic company, the possibilities of mergers and acquisitions cannot be denied, and the entire or part of the Group or its businessrights may be acquired, merged or assigned at some point in the future. Such factors may significantly impact the Group’s
performance and financial standing.
Similar impact would be seen if the Group performs mergers and acquisitions, or acquires business rights.
(n) Risks associated with natural disaster, disaster, terrorist activities, war, the spread of infections and power outage
The Group’s business performance and business activities may be significantly affected due to unforeseen situations, such as
disasters, including earthquakes and other acts of God, terrorist activities or the outbreak of war at home or abroad, and the spread―15―

of infections such as influenza and COVID-19. In addition, insufficient power supply due to nationwide/regional power outage or
problems in the buildings where the Group performs its business may cause the Group to suspend its business activities andservices, and may, in turn, significantly impact its business performance and financial position.
(o) Risks associated with COVID-19
If the COVID-19 pandemic drags on, the business activities of the Group may be affected. If the Group is forced to suspend
business activities due to the emergence of cases of COVID-19 within the Group, this may affect the Group’s businessperformance and financial standing. To address this risk, the Group is working to continue business activities by urging employees
to work from home to promote teleworking and by conducting seminars, negotiations and other sales activities online.

3. Analysis of Financial Conditions, Operating Results and Cash Flows by the Management(1) Overview of operating results, etc.
An overview of the financial condition, operating results and cash flows (hereinafter operating results, etc.) of the Digital Arts Group(Digital Arts Inc. and its consolidated subsidiaries) during the consolidated fiscal year under review is as follows.
(i) Financial condition and operating results
During the consolidated fiscal year under review (April 1, 2019 – March 31, 2020), the Japanese economy saw a continued recovery
in employment and corporate income amid the turnaround in consumer spending and capital investment. Meanwhile, the outlook on
the world economy remained unclear amid intensification of the trade friction between the United States and China, anxiety over thepolitical management of the U.S. administration and growing geopolitical risks. In addition, the impact of the COVID-19
coronavirus pandemic came to the surface to drag the global and Japanese economy down sharply.
In the security industry where the Digital Arts Group (hereinafter “the Group”) operates, demand is expanding amid successive casesof diversifying cyberattacks including ransomware and Emotet. Apart from demand from large-sized organizations as conventionallymain sources of demand, demand for the new introduction of security measures is growing from medium- and small-sizedenterprises, which are comparatively lagging in such measures. In addition, IoT, AI and other technologies were increasingly used
and the practice of working from home spread quickly to stop the proliferation of the COVID-19 coronavirus, security personnel
must now manage increasingly diversifying and advancing risks, and the demand for security services is expected to continuously
grow. On the other hand, for the consolidated fiscal year under review, there was a surge in demand for the replacement purchases ofcomputers due to the consumption tax increase and the termination of support for Windows 7. Our sales partners remained busy withnegotiations on replacement purchases of computers.
Under these circumstances, the Group’s domestic operations continuously endeavored to expand sales of i-FILTER Ver. 10 and mFILTER Ver. 5 in the enterprise sector and public sector markets in a bid to offer solutions for a secure Internet environment tocustomers of all sizes. Apart from that, as more and more people work from home, web services and e-mail environments are rapidly
shifting to the cloud. Launched in May 2018, the Group’s cloud services of i-FILTER@Cloud and m-FILTER@Cloud were repriced
so that webpages could be viewed without worry and that e-mail messages could be opened without hesitation in the cloudenvironment. The Group also released Chat@Cloud. It is a business tool supporting not only text chat but also video chat to pave theway for online conferencing. The Group thus released a new product that is expected to be increasingly used under the current
circumstances, in which teleworking, including working from home, is quickly expanded amid the COVID-19 coronavirus crisis.
In the consumer sector market, smartphones are increasingly used not only by senior high schoolers but by junior high schoolers or
younger children. In view of that, the Act on Development of an Environment that Provides Safe and Secure Internet Use for Young
People was revised on February 1, 2018. This revision toughened enforcement of the introduction of filtering to young people, which
had been compulsory before the revision. The Group continued to work with mobile network carriers and mobile virtual network
operations (MVNOs) to further promote i-FILTER for smartphones.
As a result of the above, the financial condition and operating results for the consolidated fiscal year under review are as follows.
a. Financial condition(Assets)―16―

Total assets at the end of the consolidated fiscal year under review increased 992,887 thousand yen from the end of the previous
consolidated fiscal year, to 10,852,234 thousand yen. This chiefly reflected an increase of 1,482,473 thousand yen in cash anddeposits, which offset decreases of 299,968 thousand yen in securities and 177,721 thousand yen in notes and accounts receivable trade.
(Liabilities)
Total liabilities at the end of the consolidated fiscal year under review rose 115,557 thousand yen from the end of the previous
fiscal year, to 2,172,010 thousand yen. This was due mainly to an increase of 138,407 thousand yen in income taxes payable.
(Net assets)
Net assets at the end of the consolidated fiscal year under review climbed 877,329 thousand yen from the end of the previous
consolidated fiscal year, to 8,680,224 thousand yen. This was due mainly to an increase of 822,412 thousand yen in retained
earnings, which offset factors for decrease due to the exercise of share acquisition rights.
b. Operating results
Consolidated net sales for the fiscal year under review stood at 5,641,805 thousand yen, down 3.4% year on year, operating profit
fell 11.5% year on year to 2,328,036 thousand yen, ordinary profit declined 11.6% to 2,326,930 thousand yen, and profit
attributable to owners of parent decreased 18.9% to 1,590,784 thousand yen.
The following describes business performance in separate markets.
Enterprise Sector Market
In this market, the Group carried out active sales promotion activities for high-end models for which full-scale sales started in the
consolidated fiscal year under review, specifically i-FILTER Ver. 10 and m-FILTER Ver. 5. They increased the recognition of theutility of both products and helped gain some new projects, but this achievement was smaller than expected as a result of thestriking increase in demand for replacement purchases of computers due to the termination of support for Windows 7. Meanwhile,the shortage of security professionals and the spread of teleworking accelerated the use of cloud services to reduce the burden of
security operations. The sales share of i-FILTER Browser & Cloud and other cloud service products among the Group’s products
increased gradually and contributed to a sales rise. While license sales are recorded in a lump at the time of shipping, recorded
sales of cloud services are apportioned on a monthly basis throughout the service provision period. As a result, the balance ofadvances received increased. The balance will be posted from the next consolidated fiscal year.
Net sales in this market reached 3,284,873 thousand yen, up 4.8% year on year.
Public Sector Market
In this market, the Group traditionally enjoyed high recognition and a large market share as a provider of Japan-made security
solutions with a focus on internal data leakage. Highly regarded for its track record and reliability, it bolstered its presence as a
general security solution provider in the market earlier than in the enterprise sector market. Providing advanced security measures,
including those against targeted attacks, i-FILTER Ver. 10 and m-FILTER Ver. 5 made goods sales. As in the enterprise sector
market, the cloud shift is seen in this market as well. The sales share of cloud service products is gradually increasing. The sales
balance to be posted for the following and later consolidated fiscal years expanded. On the other hand, there was a reactionary
sales decline following the large-scale project that helped increase net sales for the consolidated previous fiscal year. A
supplementary budget proposal approved by the Japanese Cabinet in December 2019 included an amount of 231.8 billion yen for
the GIGA School Concept envisioning integrated development of providing every school-aged child with a learning terminal andconstructing high-speed and high-capacity communication networks. That led to the revision to the details of projects undernegotiation, and these projects, which were expected to be ordered in the consolidated fiscal year under review, are now expected
to be delayed until the following or later consolidated fiscal year.
As a consequence, net sales in this market stood at 1,911,173 thousand yen, down 12.8% year on year.

―17―Consumer Sector Market
In this market, the Group focused its efforts on collaboration with mobile network carriers and MVNOs and on sales of i-FILTER
for Multiple Devices, which can be used on multiple operating systems with a single serial ID. Advances in the introduction offiltering amid widespread use of smartphones among young people and strong sales of multi-year packages and i-FILTER for
Multiple Devices contributed to an increase in licenses. However, net sales tumbled due to revisions to the prices for sales tomobile network carriers.
Net sales in this market amounted to 445,759 thousand yen, shrunk 13.6% year on year.
Net sales for the consolidated fiscal year under review (April 1, 2019 - March 31, 2020)
Enterprise Sector Market

Public Sector Market

Consumer Sector Market

Million yen

Million yen

Million yen

Million yen

3,284

1,911

445

5,641

3,133

2,191

516

5,841

Fiscal Year Ended
March 31, 2020
Fiscal Year Ended
March 31, 2019

Total

(Figures shown are rounded down to the nearest million yen.)(ii) State of cash flows
In the consolidated fiscal year under review, cash and cash equivalents increased 2,082,473 thousand yen from the end of theprevious consolidated fiscal year to 7,651,645 thousand yen. Cash flows in each category are as follows:(Cash flows from operating activities)
Net cash provided by operating activities stood at 2,686,572 thousand yen (net cash provided of 3,091,862 thousand yen in theprevious consolidated fiscal year), chiefly reflecting a profit before income taxes of 2,326,026 thousand yen and depreciation of805,723 thousand yen.
(Cash flows from investing activities)
Net cash provided by investing activities reached 111,013 thousand yen (net cash used of 908,784 thousand yen in the previous
consolidated fiscal year), due mainly to a decrease in time deposits and proceeds from the redemption of securities despite theacquisition of intangible assets.
(Cash flows from financing activities)
Net cash used in financing activities was 709,214 thousand yen (net cash used of 429,712 thousand yen in the previous consolidated
fiscal year), primarily due to dividends paid and the purchase of treasury shares, although there were proceeds from disposal oftreasury shares.
(iii) Results for production, orders received and sales
a. Results of production
Fiscal year under review(from April 1, 2019 to March 31, 2020)(thousand yen)

Change YoY (%)

Enterprise Sector Market

3,187,513

108.4

Public Sector Market

1,883,048

88.0

447,91187.2

5,518,473

98.6

Consumer Sector Market
Total(Notes) 1. Production amounts are based on selling prices.
2. The above amounts do not include consumption tax, etc.
3. Segment information is omitted because the Group operates in one segment only (the security business).

―18―

b. Results of orders received
Not applicable as the Group does not build products to order.
c. Results of sales
Fiscal year under review(from April 1, 2019 to March 31, 2020)(thousand yen)

Change YoY (%)

Enterprise Sector Market

3,284,873

104.8

Public Sector Market

1,911,173

87.2

445,759

86.4

5,641,805

96.6

Consumer Sector Market
Total(Notes) 1. The above amounts do not include consumption tax, etc.
2. There are no export sales.
3. Segment information is omitted because the Group operates in one segment only (the security business).
4. The results of sales by major customer and the ratio of sales by major customer to total sales in the fiscal year are as
follows.
Previous fiscal year
Fiscal year under review(from April 1, 2018 to March 31, 2019) (from April 1, 2019 to March 31, 2020)
CustomerAmountAmountRatio (%)
Ratio (%)
(thousand yen)(thousand yen)
SB C&S Corp.

1,247,566

21.4

1,166,937

21.9

Daiwabo Information System
Co., Ltd.

1,160,228

19.9

1,109,164

20.8(Note) The name of SoftBank Commerce & Service Corp. changed to SB C&S Corp. on January 1, 2019.
(2) Details of analysis and examination concerning the state of operating results, etc. from the perspective of the management
The details of understanding, analysis and examination concerning the state of operating results, etc. for the Group from theperspective of the management are as follows.
Matters concerning the future stated below are based on assessments as of the end of the fiscal year under review.
(i) Significant accounting policies and accounting estimates
The Group’s consolidated financial statements were prepared in accordance with Generally Accepted Accounting Principles in Japan(JGAAP). In preparing these consolidated financial statements, the Group was required to make estimates and forecasts that might
affect its financial condition, operating results and cash flows at the end of the consolidated fiscal year under review. The Company
always bases its estimates and forecasts on assumptions that it believes to be reasonable based on past results and conditions. Due tothe uncertain nature of estimates, in some cases actual results may vary from these estimates.
(ii) Details of understanding, analysis and examination concerning the state of operating results, etc. for the fiscal year under review
The Group’s operating results, etc. in the consolidated fiscal year under review are as follows.
a. State of operating results, etc.
(Net sales)
Consolidated net sales for the fiscal year under review stood at 5,641,805 thousand yen, down 199,481 thousand yen or 3.4% year
on year.
This decrease is largely attributable to a striking increase in demand for replacement purchases of computers due to the terminationof support for Windows 7, offsetting increases in sales of i-FILTER Ver. 10 and m-FILTER Ver. 5 in the Enterprise Sector Market;
reactionary sales decline following the large-scale project that helped increase net sales for the consolidated previous fiscal year
and revision to the details of projects under negotiation, which are now expected to be delayed until the following or later
consolidated fiscal year due to the GIGA School Concept in the Public Sector Market; and downward revisions to the prices forsales to mobile network carriers associated with carriers’ provision of free services to end users in the Consumer Sector Market.

―19―

(Cost of sales, gross profit)
Cost of sales during the consolidated fiscal year under review stood at 1,361,682 thousand yen, up 302,237 thousand yen comparedto the previous consolidated fiscal year (an increase of 28.5% year on year). Meanwhile, gross profit stood at 4,280,123 thousand
yen, down 501,719 thousand yen compared to the previous consolidated fiscal year (a decrease of 10.5% year on year).
Gross profit declined, mainly reflecting an increase in depreciation after the release of a new product and higher personnel
expenses mainly due to an increase in consultant personnel.
(Selling, general and administrative expenses, operating profit)
Selling, general and administrative expenses were 1,952,086 thousand yen, down 200,664 thousand yen compared to the previous
consolidated fiscal year (a fall of 9.3% year on year). Meanwhile, operating profit stood at 2,328,036 thousand yen, down 301,055
thousand yen compared to the previous consolidated fiscal year (a decrease of 11.5% year on year).
Consolidated operating profit for the fiscal year under review declined as a result of decreased net sales despite improvement inselling, general and administrative expenses through Group restructuring based on a review of overseas strategy in the previous
fiscal year.
(Ordinary profit)
In the consolidated fiscal year under review, ordinary profit amounted to 2,326,930 thousand yen (a decrease of 11.6% year onyear), mainly due to the recording of non-operating income such as miscellaneous income of 2,354 thousand yen and gain on
forfeiture of unclaimed dividends of 840 thousand yen and non-operating expenses such as foreign exchange losses of 4,812
thousand yen.
(Profit attributable to owners of parent)
Profit attributable to owners of parent decreased 18.9% to 1,590,784 thousand yen due to the absence of the effect of reduction intax expenses associated with the liquidation of a U.S subsidiary in the previous consolidated fiscal year.
b. Analysis of objective indicators for judging status of achievement of management goals
Objective indicators used in the consolidated fiscal year under review are as shown below. The contract amount growth rate
decreased primarily due to the factors described in “a. State of operating results, etc. (Net sales)” The gap between the contract
amount growth rate and the net sales growth rate largely reflects the fact that net sales for the fiscal year under review include net
sales from contract amounts of previous fiscal years which were treated as deferred revenue.

Previous fiscal year
(from April 1, 2018 to March 31, 2019)

Fiscal year under review(from April 1, 2019 to March 31, 2020)

Contract amount growth rate (%)

19.3

(8.6)

Net sales growth rate (%)

14.2

(3.4)

Operating margin (%)

45.0

41.3

Return on equity (ROE) (%)

28.1

19.4

c. Analysis of capital resources and liquidity
The Group’s basic capital policy is to aim for sustainable improvement in corporate value by comprehensively considering
securing enough internal reserves to enable prompt investment in growing areas and returning profits to shareholders.
At the end of the consolidated fiscal year under review, the Group had no outstanding interest-bearing debt whilst cash and cash
equivalents stood at 7,651,645 thousand yen.
A major component of the Group’s demand for working capital is personnel expenses to secure and develop the talented humanresources necessary to provide high added value solutions. When allocating internal reserves, the Group will give priority tosecuring and developing human resources, and we will maintain the stable and continuous growth of existing business while also
actively striving to identify new needs.

―20―

d. Factors that have a significant impact on operating results
As stated in “Section II. Business Summary 2. Business and Other Risks”

4. Material Contracts affecting Management of the Company, etc.
Not applicable.

5. Research and Development
The Group’s research and development activities are conducted by the Company’s Development Department, which conducts
investigations, comparisons and analysis to improve the usability of the Company’s products and examines ways to improve existingproducts. The Company’s Development Department also investigates, researches and develops technologies for products and services
for coming fiscal years and conducts activities for bringing new products and services to market.
In the consolidated fiscal year under review total research and development expenses were 873 thousand yen.

―21―

Section III. Properties
1. Summary of Capital Investment, etc.
In the consolidated fiscal year under review, the Group made capital investment totaling 53,130 thousand yen. This mainly consisted of
office equipment work and purchases of computers, servers, and other information equipment.
Meanwhile, the Group made investments in intangible assets totaling 740,170 thousand yen, mainly for software development.

2. Major Facilities
Major facilities of the Company are as follows. (The major facilities of the Company are shown because this report omits segment
information.)(1) The Reporting Company(As of March 31, 2020)

Branch name (location)

Description ofequipment

Headquarters(Chiyoda-ku, Tokyo)

Administration,
development andsales facility

Recreational facility(Atami, Shizuoka
Prefecture)

Recreational
facility

Buildings
Area
(m2)

Amount(thousandyen)Book value
Furniture
andVehiclesfixtures(thousand(thousand
yen)
yen)

Land
Amount(thousand
yen)

Area
(m2)

Total
(thousandyen)

Number of
employees

1,626.42(1,626.42)

17,975

4,637

104,097――

126,710214 (21)71.85

72,719―942

10,017.49

26,284

99,946―(Notes) 1. The amounts described above do not include consumption taxes, etc.
2. The figure in parentheses in the Buildings section is included in the total and is the area that is leased.
3. The figures in parentheses in the number of employees section (which are not included in the totals) indicate the annual
average number of part-time employees (temporary staff, etc.).
4. Other branches are the Hokkaido Sales Office (zero employees), the Tohoku Sales Office (two employees), the Chubu
Sales Office (six employees), the Kansai Sales Office (eight employees), the Chushikoku Sales Office (three employees),
and the Kyushu Sales Office (five employees).
5. The head office of the reporting company includes a building leased to Digital Arts Consulting Inc., which is a subsidiaryof the reporting company.
(2) Domestic Subsidiaries(As of March 31, 2020)
Book value
Furniture andNumber of
Total
Company nameBranch name (location) Description of equipment
fixturesemployees(thousand(thousandyen)
yen)Headquarters (Chiyoda- Administration and sales
Digital Arts Consulting Inc.
4,277
4,277
22
ku, Tokyo)
facility(Notes) 1. The amounts described above do not include consumption taxes, etc.
2. Digital Arts Consulting Inc. leases the whole building from the reporting company.
(3) Overseas Subsidiaries(As of March 31, 2020)
Book value
Furniture andNumber of
Total
Company nameBranch name (location) Description of equipment
fixturesemployees(thousand(thousandyen)
yen)Headquarters (San Jose, Administration and sales
Digital Arts America, Inc.
―――
CA, USA)facility
Digital Arts Asia Pacific Pte. Headquarters
Administration and sales
102
102
―
Ltd.
(Singapore)
facility
Headquarters
Administration and sales
Digital Arts Europe Limited―――(Berkshire, UK)facility(Note) The amounts described above do not include consumption taxes, etc.

―22―

3. Plans for Capital Investment, Disposals of Properties, etc.
(1) New Construction of Important Facilities, etc.
None in particular(2) Retirement of Important Facilities, etc.
None in particular―23―

Section IV. Information on the Reporting Company
1. Stock Information(1) Total Number of Shares, etc.
(i) Total Number of SharesClassification

Total number of shares authorized to be issued (shares)

Common shares

45,036,000

Total

45,036,000(ii) Issued SharesClassification

Common shares

Number of shares
Number of sharesissued as of the end of issued as of the filing
Listed stock exchange
Description
date (shares)
fiscal year (shares)(March 31, 2020)(June 22, 2020)
Tokyo Stock Exchange Number of shares in trading unit
14,133,000
14,133,000First Section
100

Total

14,133,000―

14,133,000―(Note) The figures in the “Number of shares issued as of the filing date” column do not include the number of shares issued upon
the exercise of share acquisition rights between June 1, 2020 and the filing date of this Annual Securities Report.
(2) Information on the Share Acquisition Rights, etc.
(i) Details of Stock Option Plans
Share acquisition rights issued in accordance with the Companies Act are as follows.
i) Resolution of the Board of Directors Meeting held on November 12, 2015
As of the end of the fiscal year
(March 31, 2020)
Category and number of persons subject to grants

As of the end of the month
before the filing date
(May 31, 2020)

Four directors, 151 employees

Number of share acquisition rights

1,600

1,596

Number of share acquisition rights that are own shareoptions
Class of shares to be acquired upon exercise of shareacquisition rights
Number of shares to be acquired upon exercise of shareacquisition rights‒‒

Common shares

Same as on the left

160,000 shares

159,600 shares

Amount to be paid upon exercise of share acquisition rights

2,034 yen per share

Same as on the left

Exercise period of share acquisition rights
Issue price for shares that will be issued through the exerciseof share acquisition rights and the amount capitalized ascommon shares

From July 1, 2017
to May 31, 2027
Issue price: 2,036 yen
Amount capitalized ascommon shares: 1,018 yen

Same as on the left
Same as on the left

Conditions for exercise of share acquisition rights(Note 2)Same as on the left

Matters regarding transfer of share acquisition rights

Any transfer of share acquisitionrights is subject to approval by
the Board of Directors of theCompany.

Same as on the left‒‒

Matters regarding substitute payment

Matters regarding grant of share acquisition rights(Note 5)Same as on the left
accompanying reorganization(Notes) 1. The share acquisition rights were issued with a charge of 200 yen per share acquisition right.
2. Conditions for exercise of share acquisition rights(1) Share acquisition rights can be exercised up to the percentage of the allocated share acquisition rights specified in―24―each item below by each holder of share acquisition rights only if operating profit reaches the level specified ineach item below in the fiscal year ended March 31, 2017, the fiscal year ended March 31, 2018, or the fiscal year
ended March 31, 2019.
(a) If operating profit exceeds 1.5 billion yen, 20% of share acquisition rights can be exercised.
(b) If operating profit exceeds 2.0 billion yen, 50% of share acquisition rights can be exercised.
(c) If operating profit exceeds 2.5 billion yen, 100% of share acquisition rights can be exercised.
In the items above, the operating profit stated in the consolidated statements of income in the Company’s annual
securities report (or the statements of income if no consolidated statements of income are prepared) shall bereferenced. If the concept of items to be referenced changes significantly due to the application of the International
Financial Reporting Standards, etc. indicators to be referenced shall be determined by the Board of Directors. Any
fraction of less than one share acquisition right arising in the number of the share acquisition rights that can be
exercised by each holder of share acquisition rights when calculating the percentage that can be exercised shall be
rounded down.
(2) The holder of the share acquisition rights must continue to be a director or an employee of the Company toexercise share acquisition rights. Provided, however, this provision shall not apply to holders who have retired due
to expiration of their terms of office, or holders who have retired upon reaching the mandatory retirement age orfor other legitimate reasons that the Board of Directors may deem appropriate.
(3) Exercise of the share acquisition rights by heirs of holders of the share acquisition rights shall not be permitted.
(4) Share acquisition rights may not be exercised when doing so would cause the total number of shares of theCompany outstanding after exercise of such rights to exceed the number of shares authorized at the time of theexercise.
(5) Share acquisition rights may not be exercised in less than one unit.
3. The number of shares granted shall be adjusted according to the following formula if the Company conducts a stock split(includes allotment of the common shares of the Company without consideration; hereinafter the same) or a stock
consolidation after the allotment date of the share acquisition rights. Provided, however, that such adjustment shall bemade only with respect to the number of shares to be issued upon exercise of the share acquisition rights that have not yet
been exercised at the time of adjustment, and any fraction less than one share arising from the adjustment shall be
rounded down.
Number of shares granted after adjustment = Number of shares granted before adjustment x Ratio of split (orconsolidation)
If the Company performs a merger or company split, or reduces its share capital, or any other similar matter where theadjustment of the number of shares granted becomes necessary, after the allotment date of the share acquisition rights,
the number of shares granted shall, to a reasonable extent, be adjusted as appropriate.
4. The value of assets to be contributed upon exercise of the share acquisition rights shall be an amount obtained bymultiplying the amount to be paid in per share (the “Exercise Price”) by the number of shares granted.
The Exercise Price shall be 2,034 yen, which is equal to the closing price of the Company’s stock in regular trading on
the Tokyo Stock Exchange on November 11, 2015, which is the day before the date of the resolution of the Board of
Directors concerning the issuance of the share acquisition rights.
(1) If the Company conducts a stock split or stock consolidation, the Exercise Price shall be adjusted according to thefollowing formula, and any fraction less than one yen resulting from the adjustment shall be rounded up.
1
Exercise price
Exercise price after×=
before adjustment
adjustment
Ratio of split (or consolidation)(2) If the Company issues new common shares or disposes of its treasury shares at a price below the market price of its
common shares (excluding the case of the issuance of new shares and the disposal of treasury shares upon exerciseof share acquisition rights and the transfer of treasury shares through the exchange of shares), the Exercise Priceshall be adjusted according to the following formula, and any fraction less than one yen resulting from theadjustment shall be rounded up.
Number of shares
Amount to be paid
×
newly issued
per share
Number of shares+
outstanding
Market price per share prior to the issuance
Exercise price
Exercise price=×
before adjustment
after adjustment
Number of shares outstanding + Number of shares newly issued
In the above formula, the “number of shares outstanding” shall be the amount obtained by subtracting the numberof treasury shares pertaining to the common shares of the Company from the total number of shares outstanding
pertaining to the common shares of the Company. If the Company undertakes the disposal of treasury sharespertaining to its common shares, the “number of shares to be newly issued” shall be read as the “number oftreasury shares to be disposed of.”(3) If the Company performs a merger with another company, company split, or any other similar matter where theadjustment of the Exercise Price becomes necessary, after the allotment date of the share acquisition rights, theCompany may, to a reasonable extent, adjust the Exercise Price as appropriate.

―25―

5. If the Company conducts a merger (limited to the case where the Company is dissolved due to the merger), an
absorption-type or incorporation-type company split, or a share exchange or transfer (collectively, the “Reorganization”),
the Company shall, in each of the above cases, allot share acquisition rights of the relevant company from among thoselisted in “a” through “e” of Article 236, Paragraph 1, Item 8 of the Companies Act (the “Reorganized Company”) to theholders of the share acquisition rights as of the effective date of the relevant Reorganization. Provided, however, that theforegoing shall be on the condition that the allotment of such share acquisition rights by the Reorganized Company inaccordance with each of the following items is stipulated in an absorption-type merger agreement, a consolidation-typemerger agreement, an absorption-type company split agreement, an incorporation-type company split plan, a shareexchange agreement or a share transfer plan.
(1) Number of share acquisition rights of the Reorganized Company to be allotted
The same number as the number of share acquisition rights held by the holder of the share acquisition rights shallbe allotted in each case.
(2) Class of shares of the Reorganized Company to be issued upon exercise of share acquisition rights
Common shares of the Reorganized Company(3) Number of shares of the Reorganized Company to be issued upon exercise of share acquisition rights
To be determined as follows, taking the terms and conditions of the Reorganization into consideration.
If the Company conducts Reorganization with respect to common shares of the Company after the allotment date,
the number of shares granted shall be adjusted according to the following formula and any fraction of less than one
share resulting from the adjustment shall be rounded down.
Number of shares granted after adjustment = Number of shares granted before adjustment x Ratio of split (orconsolidation)(4) Value of assets to be contributed upon exercise of each share acquisition right
The value of assets to be contributed upon exercise of each share acquisition right to be allotted shall be theamount obtained by multiplying the exercise price after Reorganization, obtained through adjustment taking into
consideration, among other matters, the terms and conditions of the Reorganization, by the number of shares of theReorganized Company to be issued upon exercise of each of such share acquisition rights as determined inaccordance with (3) above.
(5) Exercise period of share acquisition rights
From and including the later of the commencement date of the period during which the share acquisition rights
may be exercised as provided for separately or the effective date of the Reorganization, to and including the
expiration date of the period during which the share acquisition rights may be exercised as provided for separately.
(6) Matters concerning share capital and legal capital surplus to be increased due to issuance of shares upon exerciseof share acquisition rights
To be determined as follows.
(i) The amount by which the stated share capital increases through the issuance of shares upon the exercise ofshare acquisition rights shall be one-half (1/2) of the upper limit of the increase in the amounts of stated sharecapital and other items calculated pursuant to the provisions of Article 17, Paragraph 1 of the Company
Accounting Ordinance. Any fraction of less than one yen arising from the calculation shall be rounded up.
(ii) The amount by which the legal capital surplus increases through the issuance of shares upon the exercise ofshare acquisition rights shall be the upper limit of the increase in the amounts of stated share capital and otheritems described in (i) above, less the increase in the amount of stated share capital set out in (i) above.
(7) Restriction on acquisition of share acquisition rights by transfer
Any acquisition of share acquisition rights by transfer shall be subject to approval by resolution of the Board of
Directors of the Company.
(8) Clause on the acquisition of share acquisition rights
If a proposal for a merger agreement under which the Company is to be the dissolving company, a company split
agreement or a company split plan under which the Company is to be the splitting company, or a share exchange
agreement or share transfer plan under which the Company is to be a wholly-owned subsidiary is approved byresolution of the general meeting of shareholders (or if a resolution is made by the Company’s Board of Directors
in the case when the approval of the Company’s general meeting of shareholders is not required), the Company
may acquire all share acquisition rights without consideration on a date to be separately determined by the Boardof Directors of the Company.

―26―ii) Resolution of the Board of Directors Meeting held on November 10, 2016
As of the end of the fiscal year
(March 31, 2020)
Category and number of persons subject to grants

As of the end of the month
before the filing date
(May 31, 2020)Three directors, 96 employees

Number of share acquisition rights

6,892

3,156

Number of share acquisition rights that are own shareoptions
Class of shares to be acquired upon exercise of shareacquisition rights
Number of shares to be acquired upon exercise of shareacquisition rights‒‒

Common shares

Same as on the left

689,200 shares

315,600 shares

Amount to be paid upon exercise of share acquisition rights

2,639 yen per share

Same as on the left

Exercise period of share acquisition rights
Issue price for shares that will be issued through the exerciseof share acquisition rights and the amount capitalized ascommon shares

From July 1, 2018
to May 31, 2028
Issue price: 2,663 yen
Amount capitalized as commonshares: 1,332 yen

Same as on the left
Same as on the left

Conditions for exercise of share acquisition rights(Note 2)Same as on the left

Matters regarding transfer of share acquisition rights

Any transfer of share acquisitionrights is subject to approval by
the Board of Directors of theCompany.

Same as on the left‒‒

Matters regarding substitute payment

Matters regarding grant of share acquisition rights(Note 5)Same as on the left
accompanying reorganization(Notes) 1. The share acquisition rights were issued with a charge of 2,400 yen per share acquisition right.
2. Conditions for exercise of share acquisition rights(1) Share acquisition rights can be exercised up to the percentage of the allocated share acquisition rights specified ineach item below by each holder of share acquisition rights only if operating profit reaches the level specified ineach item below in the fiscal year ended March 31, 2018, the fiscal year ended March 31, 2019, or the fiscal year
ended March 31, 2020.
(a) If operating profit exceeds 2.0 billion yen, 20% of share acquisition rights can be exercised.
(b) If operating profit exceeds 2.5 billion yen, 50% of share acquisition rights can be exercised.
(c) If operating profit exceeds 2.8 billion yen, 100% of share acquisition rights can be exercised.
In the items above, the operating profit stated in the consolidated statements of income in the Company’s annual
securities report (or the statements of income if no consolidated statements of income are prepared) shall bereferenced. If the concept of items to be referenced changes significantly due to the application of the International
Financial Reporting Standards, etc. indicators to be referenced shall be determined by the Board of Directors. Any
fraction of less than one share acquisition right arising in the number of the share acquisition rights that can be
exercised by each holder of share acquisition rights when calculating the percentage that can be exercised shall be
rounded down.
(2) The holder of the share acquisition rights must continue to be a director or an employee of the Company toexercise share acquisition rights. Provided, however, this provision shall not apply to holders who have retired due
to expiration of their terms of office, or holders who have retired upon reaching the mandatory retirement age orfor other legitimate reasons that the Board of Directors may deem appropriate.
(3) Exercise of the share acquisition rights by heirs of holders of the share acquisition rights shall not be permitted.
(4) Share acquisition rights may not be exercised when doing so would cause the total number of shares of theCompany outstanding after exercise of such rights to exceed the number of shares authorized at the time of theexercise.
(5) Share acquisition rights may not be exercised in less than one unit.
3. The number of shares granted shall be adjusted according to the following formula if the Company conducts a stock split(includes allotment of the common shares of the Company without consideration; hereinafter the same) or a stock
consolidation after the allotment date of the share acquisition rights. Provided, however, that such adjustment shall bemade only with respect to the number of shares to be issued upon exercise of the share acquisition rights that have not yet
been exercised at the time of adjustment, and any fraction less than one share arising from the adjustment shall be
rounded down.
Number of shares granted after adjustment = Number of shares granted before adjustment x Ratio of split (or―27―consolidation)
If the Company performs a merger or company split, or reduces its share capital, or any other similar matter where theadjustment of the number of shares granted becomes necessary, after the allotment date of the share acquisition rights,
the number of shares granted shall, to a reasonable extent, be adjusted as appropriate.
4. The value of assets to be contributed upon exercise of the share acquisition rights shall be an amount obtained bymultiplying the amount to be paid in per share (the “Exercise Price”) by the number of shares granted.
The Exercise Price shall be 2,639 yen, which is equal to the closing price of the Company’s stock in regular trading on
the Tokyo Stock Exchange on November 9, 2016, which is the day before the date of the resolution of the Board of
Directors concerning the issuance of the share acquisition rights.
(1) If the Company conducts a stock split or stock consolidation, the Exercise Price shall be adjusted according to thefollowing formula, and any fraction less than one yen resulting from the adjustment shall be rounded up.
1
Exercise price
Exercise price after×=
before adjustment
adjustment
Ratio of split (or consolidation)(2) If the Company issues new common shares or disposes of its treasury shares at a price below the market price of its
common shares (excluding the case of the issuance of new shares and the disposal of treasury shares upon exerciseof share acquisition rights and the transfer of treasury shares through the exchange of shares), the Exercise Priceshall be adjusted according to the following formula, and any fraction less than one yen resulting from theadjustment shall be rounded up.
Number of shares
Amount to be paid
×
newly issued
per share
Number of shares+
outstanding
Market price per share prior to the issuance
Exercise price
Exercise price=×
before adjustment
after adjustment
Number of shares outstanding + Number of shares newly issued
In the above formula, the “number of shares outstanding” shall be the amount obtained by subtracting the numberof treasury shares pertaining to the common shares of the Company from the total number of shares outstanding
pertaining to the common shares of the Company. If the Company undertakes the disposal of treasury sharespertaining to its common shares, the “number of shares to be newly issued” shall be read as the “number oftreasury shares to be disposed of.”(3) If the Company performs a merger with another company, company split, or any other similar matter where theadjustment of the Exercise Price becomes necessary, after the allotment date of the share acquisition rights, theCompany may, to a reasonable extent, adjust the Exercise Price as appropriate.
5. If the Company conducts a merger (limited to the case where the Company is dissolved due to the merger), an
absorption-type or incorporation-type company split, or a share exchange or transfer (collectively, the “Reorganization”),
the Company shall, in each of the above cases, allot share acquisition rights of the relevant company from among thoselisted in “a” through “e” of Article 236, Paragraph 1, Item 8 of the Companies Act (the “Reorganized Company”) to theholders of the share acquisition rights as of the effective date of the relevant Reorganization. Provided, however, that theforegoing shall be on the condition that the allotment of such share acquisition rights by the Reorganized Company inaccordance with each of the following items is stipulated in an absorption-type merger agreement, a consolidation-typemerger agreement, an absorption-type company split agreement, an incorporation-type company split plan, a shareexchange agreement or a share transfer plan.
(1) Number of share acquisition rights of the Reorganized Company to be allotted
The same number as the number of share acquisition rights held by the holder of the share acquisition rights shallbe allotted in each case.
(2) Class of shares of the Reorganized Company to be issued upon exercise of share acquisition rights
Common shares of the Reorganized Company(3) Number of shares of the Reorganized Company to be issued upon exercise of share acquisition rights
To be determined as follows, taking the terms and conditions of the Reorganization into consideration.
If the Company conducts Reorganization with respect to common shares of the Company after the allotment date,
the number of shares granted shall be adjusted according to the following formula and any fraction of less than one
share resulting from the adjustment shall be rounded down.
Number of shares granted after adjustment = Number of shares granted before adjustment x Ratio of split (orconsolidation)(4) Value of assets to be contributed upon exercise of each share acquisition right
The value of assets to be contributed upon exercise of each share acquisition right to be allotted shall be theamount obtained by multiplying the exercise price after Reorganization, obtained through adjustment taking into
consideration, among other matters, the terms and conditions of the Reorganization, by the number of shares of theReorganized Company to be issued upon exercise of each of such share acquisition rights as determined inaccordance with (3) above.
(5) Exercise period of share acquisition rights
From and including the later of the commencement date of the period during which the share acquisition rights―28―

may be exercised as provided for separately or the effective date of the Reorganization, to and including the
expiration date of the period during which the share acquisition rights may be exercised as provided for separately.
(6) Matters concerning share capital and legal capital surplus to be increased due to issuance of shares upon exerciseof share acquisition rights
To be determined as follows.
(i) The amount by which the stated share capital increases through the issuance of shares upon the exercise ofshare acquisition rights shall be one-half (1/2) of the upper limit of the increase in the amounts of stated sharecapital and other items calculated pursuant to the provisions of Article 17, Paragraph 1 of the Company
Accounting Ordinance. Any fraction of less than one yen arising from the calculation shall be rounded up.
(ii) The amount by which the legal capital surplus increases through the issuance of shares upon the exercise ofshare acquisition rights shall be the upper limit of the increase in the amounts of stated share capital and otheritems described in (i) above, less the increase in the amount of stated share capital set out in (i) above.
(7) Restriction on acquisition of share acquisition rights by transfer
Any acquisition of share acquisition rights by transfer shall be subject to approval by resolution of the Board of
Directors of the Company.
(8) Clause on the acquisition of share acquisition rights
If a proposal for a merger agreement under which the Company is to be the dissolving company, a company split
agreement or a company split plan under which the Company is to be the splitting company, or a share exchange
agreement or share transfer plan under which the Company is to be a wholly-owned subsidiary is approved byresolution of the general meeting of shareholders (or if a resolution is made by the Company’s Board of Directors
in the case when the approval of the Company’s general meeting of shareholders is not required), the Company
may acquire all share acquisition rights without consideration on a date to be separately determined by the Boardof Directors of the Company.

―29―iii) Resolution of the Board of Directors Meeting held on February 16, 2018
As of the end of the fiscal year
(March 31, 2020)
Category and number of persons subject to grants

Three directors, 151 employees

Number of share acquisition rights
Number of share acquisition rights that are own shareoptions
Class of shares to be acquired upon exercise of shareacquisition rights
Number of shares to be acquired upon exercise of shareacquisition rights
Amount to be paid upon exercise of share acquisition rights
Exercise period of share acquisition rights
Issue price for shares that will be issued through the exerciseof share acquisition rights and the amount capitalized ascommon shares

As of the end of the month
before the filing date
(May 31, 2020)

11,883

11,666‒‒

Common shares

Same as on the left

1,188,300 shares

1,166,600 shares

3,400 yen per share

Same as on the left

From July 1, 2021
to May 31, 2028
Issue price: 3,401 yen
Amount capitalized as commonshares: 1,701 yen

Same as on the left
Same as on the left

Conditions for exercise of share acquisition rights(Note 2)Same as on the left

Matters regarding transfer of share acquisition rights

Any transfer of share acquisitionrights is subject to approval by
the Board of Directors of theCompany.

Same as on the left‒‒

Matters regarding substitute payment

Matters regarding grant of share acquisition rights(Note 5)Same as on the left
accompanying reorganization(Notes) 1. The share acquisition rights were issued with a charge of 100 yen per share acquisition right.
2. Conditions for exercise of share acquisition rights(1) Holders of share acquisition rights can exercise the share acquisition rights allocated to each of them only if theoperating profit of the Company exceeds 4 billion yen in the fiscal year ending March 31, 2021.
In the items above, the operating profit stated in the consolidated statements of income in the Company’s annual
securities report (or the statements of income if no consolidated statements of income are prepared) shall bereferenced. If the concept of items to be referenced changes significantly due to the application of the International
Financial Reporting Standards, etc. indicators to be referenced shall be determined by the Board of Directors.
(2) The holder of the share acquisition rights must continue to be a director or an employee of the Company toexercise share acquisition rights. Provided, however, this provision shall not apply to holders who have retired due
to expiration of their terms of office, or holders who have retired upon reaching the mandatory retirement age orfor other legitimate reasons that the Board of Directors may deem appropriate.
(3) Exercise of the share acquisition rights by heirs of holders of the share acquisition rights shall not be permitted.
(4) Share acquisition rights may not be exercised when doing so would cause the total number of shares of theCompany outstanding after exercise of such rights to exceed the number of shares authorized at the time of theexercise.
(5) Share acquisition rights may not be exercised in less than one unit.
3. The number of shares granted shall be adjusted according to the following formula if the Company conducts a stock split(includes allotment of the common shares of the Company without consideration; hereinafter the same) or a stock
consolidation after the allotment date of the share acquisition rights. Provided, however, that such adjustment shall bemade only with respect to the number of shares to be issued upon exercise of the share acquisition rights that have not yet
been exercised at the time of adjustment, and any fraction less than one share arising from the adjustment shall be
rounded down.
Number of shares granted after adjustment = Number of shares granted before adjustment x Ratio of split (orconsolidation)
If the Company performs a merger or company split, or reduces its share capital, or any other similar matter where theadjustment of the number of shares granted becomes necessary, after the allotment date of the share acquisition rights,
the number of shares granted shall, to a reasonable extent, be adjusted as appropriate.
4. The value of assets to be contributed upon exercise of the share acquisition rights shall be an amount obtained bymultiplying the amount to be paid in per share (the “Exercise Price”) by the number of shares granted.
The Exercise Price shall be 3,400 yen, which is equal to the closing price of the Company’s stock in regular trading on
the Tokyo Stock Exchange on February 15, 2018, which is the day before the date of the resolution of the Board of―30―

Directors concerning the issuance of the share acquisition rights.
(1) If the Company conducts a stock split or stock consolidation, the Exercise Price shall be adjusted according to thefollowing formula, and any fraction less than one yen resulting from the adjustment shall be rounded up.
1
Exercise price
Exercise price after=×
before adjustment
adjustment
Ratio of split (or consolidation)(2) If the Company issues new common shares or disposes of its treasury shares at a price below the market price of its
common shares (excluding the case of the issuance of new shares and the disposal of treasury shares upon exerciseof share acquisition rights and the transfer of treasury shares through the exchange of shares), the Exercise Priceshall be adjusted according to the following formula, and any fraction less than one yen resulting from theadjustment shall be rounded up.
Number of shares
Amount to be paid
×
newly issued
per share
Number of shares+
outstanding
Market price per share prior to the issuance
Exercise price
Exercise price=×
before adjustment
after adjustment
Number of shares outstanding + Number of shares newly issued
In the above formula, the “number of shares outstanding” shall be the amount obtained by subtracting the numberof treasury shares pertaining to the common shares of the Company from the total number of shares outstanding
pertaining to the common shares of the Company. If the Company undertakes the disposal of treasury sharespertaining to its common shares, the “number of shares to be newly issued” shall be read as the “number oftreasury shares to be disposed of.”(3) If the Company performs a merger with another company, company split, or any other similar matter where theadjustment of the Exercise Price becomes necessary, after the allotment date of the share acquisition rights, theCompany may, to a reasonable extent, adjust the Exercise Price as appropriate.
5. If the Company conducts a merger (limited to the case where the Company is dissolved due to the merger), an
absorption-type or incorporation-type company split, or a share exchange or transfer (collectively, the “Reorganization”),
the Company shall, in each of the above cases, allot share acquisition rights of the relevant company from among thoselisted in “a” through “e” of Article 236, Paragraph 1, Item 8 of the Companies Act (the “Reorganized Company”) to theholders of the share acquisition rights as of the effective date of the relevant Reorganization. Provided, however, that theforegoing shall be on the condition that the allotment of such share acquisition rights by the Reorganized Company inaccordance with each of the following items is stipulated in an absorption-type merger agreement, a consolidation-typemerger agreement, an absorption-type company split agreement, an incorporation-type company split plan, a shareexchange agreement or a share transfer plan.
(1) Number of share acquisition rights of the Reorganized Company to be allotted
The same number as the number of share acquisition rights held by the holder of the share acquisition rights shallbe allotted in each case.
(2) Class of shares of the Reorganized Company to be issued upon exercise of share acquisition rights
Common shares of the Reorganized Company(3) Number of shares of the Reorganized Company to be issued upon exercise of share acquisition rights
To be determined as follows, taking the terms and conditions of the Reorganization into consideration.
If the Company conducts Reorganization with respect to common shares of the Company after the allotment date,
the number of shares granted shall be adjusted according to the following formula and any fraction of less than one
share resulting from the adjustment shall be rounded down.
Number of shares granted after adjustment = Number of shares granted before adjustment x Ratio of split (orconsolidation)(4) Value of assets to be contributed upon exercise of each share acquisition right
The value of assets to be contributed upon exercise of each share acquisition right to be allotted shall be theamount obtained by multiplying the exercise price after Reorganization, obtained through adjustment taking into
consideration, among other matters, the terms and conditions of the Reorganization, by the number of shares of theReorganized Company to be issued upon exercise of each of such share acquisition rights as determined inaccordance with (3) above.
(5) Exercise period of share acquisition rights
From and including the later of the commencement date of the period during which the share acquisition rights
may be exercised as provided for separately or the effective date of the Reorganization, to and including the
expiration date of the period during which the share acquisition rights may be exercised as provided for separately.
(6) Matters concerning share capital and legal capital surplus to be increased due to issuance of shares upon exerciseof share acquisition rights
To be determined as follows.
(i) The amount by which the stated share capital increases through the issuance of shares upon the exercise ofshare acquisition rights shall be one-half (1/2) of the upper limit of the increase in the amounts of stated sharecapital and other items calculated pursuant to the provisions of Article 17, Paragraph 1 of the Company―31―

Accounting Ordinance. Any fraction of less than one yen arising from the calculation shall be rounded up.
(ii) The amount by which the legal capital surplus increases through the issuance of shares upon the exercise ofshare acquisition rights shall be the upper limit of the increase in the amounts of stated share capital and otheritems described in (i) above, less the increase in the amount of stated share capital set out in (i) above.
(7) Restriction on acquisition of share acquisition rights by transfer
Any acquisition of share acquisition rights by transfer shall be subject to approval by resolution of the Board of
Directors of the Company.
(8) Clause on the acquisition of share acquisition rights
If a proposal for a merger agreement under which the Company is to be the dissolving company, a company split
agreement or a company split plan under which the Company is to be the splitting company, or a share exchange
agreement or share transfer plan under which the Company is to be a wholly-owned subsidiary is approved byresolution of the general meeting of shareholders (or if a resolution is made by the Company’s Board of Directors
in the case when the approval of the Company’s general meeting of shareholders is not required), the Company
may acquire all share acquisition rights without consideration on a date to be separately determined by the Boardof Directors of the Company.
(ii) Information on Shareholder Rights Plans
Not applicable.
(iii) Status of Share Acquisition Rights and Other Plans
Not applicable.
(3) Information on Moving Strike Convertible Bonds, etc.
Not applicable.
(4) Changes in the Total Number of Issued Shares and the Amount of Share Capital and Other
Date

Change in the total Balance of the total Change in sharenumber of issued number of issued capital (thousand
sharessharesyen)

Balance of sharecapital (thousandyen)

Change in legal
capital surplus(thousand yen)

Balance of legal
capital surplus(thousand yen)

April 1, 2013
13,991,670
14,133,000―
713,590―
700,222(Note 1)
(Note) The Company conducted a 100-for-1 common shares split on April 1, 2013 based on a resolution at the meeting of the Boardof Directors held on February 28, 2013. This stock split increased the number of shares outstanding to 14,133,000 shares, anincrease of 13,991,670 shares.
(5) Shareholders Composition
As of March 31, 2020
Status of shares (one unit of stock: 100 shares)
Category

Government
andmunicipality

Financial
institution

Financial
instruments
business
operator

Other
institution

Foreign corporations, etc.
Nonindividuals

Individuals

Individuals
and others

Total

Number ofshares lessthan one unit
(shares)Number of
―
33
45
82
163
16
7,123
7,462
―
share-holders
Share ownership―
31,967
2,283
10,84238,82568
57,252
141,237
9,300(units)Ownership
percentage of
―
22.63
1.62
7.68
27.49
0.05
40.53
100.00―shares (%)(Note) Of 116,042 treasury shares, 1,160 units are included in the “Individuals and others” column, while 42 shares are included in the“Number of shares less than one unit” column.

―32―

(6) Major Shareholders

Name

Address

As of March 31, 2020
Ratio (%) of the numberof owned shares to theSharetotal number ofownership
outstanding shares(shares)(excluding treasury
shares)Toshio Dogu

Minato-ku, Tokyo

2,503,003

17.86

Japan Trustee Services Bank, Ltd.
(Trust Account)

1-8-11 Harumi, Chuo-ku, Tokyo

1,271,500

9.07

The Master Trust Bank of Japan, Ltd.
(Trust Account)

2-11-3 Hamamatsucho, Minato-ku, Tokyo

771,800

5.51

DAM Corporation

1-3-1 Minami-Aoyama, Minato-ku, Tokyo

710,000

5.07

THE BANK OF NEW YORK, NONTREATY JASDEC ACCOUNT(Standing proxy: MUFG Bank, Ltd.)NORTHERN TRUST CO.(AVFC) RE
MONDRIAN INTERNATIONALSMALL CAP EQUITY FUND, L.P.
(Standing proxy: HSBC Tokyo Branch,
Custody Service Department)

225 LIBERTY STREET, NEW YORK, NEW
YORK 10286, USA(2-7-1 Marunouchi, Chiyoda-ku, Tokyo)

400,000

2.85

50 BANK STREET CANARY WHARF LONDON
E14 5NT, UK(3-11-1 Nihonbashi, Chuo-ku, Tokyo)

298,200

2.13

BNYM AS AGT/CLTS 10 PERCENT(Standing proxy: MUFG Bank, Ltd.)

225 LIBERTY STREET, NEW YORK, NY 10286,
UNITED STATES(2-7-1 Marunouchi, Chiyoda-ku, Tokyo)

262,646

1.87

BNYM TREATY DTT 15 (Standing
proxy: MUFG Bank, Ltd.)

225 LIBERTY STREET, NEW YORK, NEW
YORK 10286, USA(2-7-1 Marunouchi, Chiyoda-ku, Tokyo)

246,951

1.76

BNY GCM CLIENT ACCOUNT JPRD
AC ISG (FE-AC) (Standing proxy:
MUFG Bank, Ltd.)PETERBOROUGH COURT 133 FLEET STREETLONDON EC4A 2BB UNITED KINGDOM(2-7-1 Marunouchi, Chiyoda-ku, Tokyo)

235,176

1.68

GOVERNMENT OF NORWAY(Standing proxy: Citibank N.A., Tokyo
Branch)BANKPLASSEN 2, 0107 OSLO 1 OSLO 0107 NO(6-27-30 Shinjuku, Shinjuku-ku, Tokyo)

226,228

1.61

Total

―

6,925,504

49.41(Notes) 1. The number of shares held by Mr. Toshio Dogu includes his shares of stock in Digital Arts Inc.’s officers’ shareholding
association.
2. The number of shares pertaining to the trust services of Japan Trustee Services Bank, Ltd. (Trustee Account) could not be
confirmed by the Company and is, therefore, omitted.
3. The number of shares pertaining to the trust services of Master Trust Bank of Japan, Ltd. (Trust Account) could not be
confirmed by the Company and is, therefore, omitted.
4. In addition to the forgoing, the Company holds 116,042 treasury shares.

―33―

5. The content of reports on large shareholders whose shareholdings could not be confirmed as of March 31, 2020 (changereports) is as follows.
(1) A report on large shareholders (change report) naming Asset Management One Co., Ltd. and Asset Management One
International Ltd. as joint holders was submitted on July 5, 2019 by Mizuho Securities Co., Ltd., but this change is
not taken into consideration in “Major Shareholders” above as the Company cannot confirm the actual number ofshares held as of March 31, 2020.
The content of this report on large shareholders is as shown below.
Number of
Ownership ratio
shareof share
Name
Address
certificates, etc.
certificates (%)
held (shares)
Asset Management One Co.,
1-8-2 Marunouchi, Chiyoda-ku, Tokyo, Japan
1,069,400
7.57
Ltd.
Asset Management One
International Ltd.
Mizuho House, 30 Old Bailey, London,
39,5000.28(Asset Management One
EC4M 7AU, UK
International Ltd.)
Total

―

1,108,900

7.85(2) A report on large shareholders (change report) naming Asset Management One Co., Ltd. and Mizuho Securities Co.,
Ltd. as joint holders was submitted on December 20, 2019 by Asset Management One Co., Ltd., but this change is
not taken into consideration in “Major Shareholders” above as the Company cannot confirm the actual number ofshares held as of March 31, 2020.
The content of this report on large shareholders is as shown below.
Number of
Ownership ratio
shareof share
Name
Address
certificates, etc.
certificates (%)
held (shares)
Asset Management One Co.,
1-8-2 Marunouchi, Chiyoda-ku, Tokyo, Japan
383,700
2.71
Ltd.
Mizuho Securities Co., Ltd.

1-5-1 Otemachi, Chiyoda-ku, Tokyo, Japan

31,400

0.22

Total

―

415,100

2.94(3) A report on large shareholders (change report) naming Sumitomo Mitsui Trust Asset Management Co., Ltd. andNikko Asset Management Co., Ltd. as joint holders was submitted on March 19, 2020 by Sumitomo Mitsui Trust
Asset Management Co., Ltd., but this change is not taken into consideration in “Major Shareholders” above as theCompany cannot confirm the actual number of shares held as of March 31, 2020.
The content of this report on large shareholders is as shown below.
Number of
Ownership ratio
shareof share
Name
Address
certificates, etc.
certificates (%)
held (shares)
Sumitomo Mitsui Trust Asset
1-1-1 Shibakoen, Minato-ku, Tokyo, Japan
435,100
3.08
Management Co., Ltd.
Nikko Asset Management
9-7-1 Akasaka, Minato-ku, Tokyo, Japan
299,700
2.12
Co., Ltd.
Total

―

―34―

734,800

5.20

(7) Information on Voting Rights(i) Issued Shares
As of March 31, 2020
Category

Number of shares (shares)

Number of voting rights

Description

Shares without voting right

―

―

―

Shares with restricted voting right(treasury shares, etc.)

―

―

―

Shares with restricted voting right (others)

―

―

―

―

―

Shares with full voting right (treasury
shares, etc.)
Shares with full voting right (others)
Shares less than one unit

CommonsharesCommonsharesCommonshares116,000

Number of issued shares

9,300

―

―

14,133,000

―

―

―

Total number of voting rights―

140,077

14,007,700―

140,077(ii) Treasury Shares, etc.

Name of shareholder

Digital Arts Inc.
Total

Address

As of March 31, 2020
Ownership
Number of shares Number of shares
Total shares held percentage to theheld under own held under the(shares)
total number ofnamename of others
issued shares (%)

1-5-1 Otemachi, Chiyodaku, Tokyo, Japan

116,000―

116,000

0.8―

116,000―

116,000

0.8―35―

2. Information on Acquisition, etc. of Treasury SharesClass of shares

Acquisition of common shares under Article 155 (iii) of the Companies Act and acquisition of commonshares under Article 155 (vii) of the Companies Act(1) Acquisition of treasury shares resolved at the general meeting of shareholders
Not applicable.
(2) Acquisition of treasury shares resolved at the Board of Directors meetings
Category

Number of shares (shares)

Status of resolution at meeting of Board of Directors(November 11, 2019)(Acquisition period: from November 12, 2019 toNovember 15, 2019)

Total amount (yen)60,000300,000,000

Treasury shares acquired before this fiscal year――

Treasury shares acquired during this fiscal year

49,400299,605,000

10,600395,000

17.7

0.1

Treasury shares acquired during the current period――

Ratio of treasury shares yet to be acquired as of June22, 2020 (%)

17.7

0.1

Total number and total value of treasury shares still tobe acquired based on resolution
Ratio of treasury shares yet to be acquired as of March
31, 2020 (%)(3) Details of acquisition of treasury shares not based on the resolutions of the general meeting of shareholders or the Board of
Directors meetings.
Category

Number of shares (shares)

Total amount (yen)Treasury shares acquired during this fiscal year

22

125,180

Treasury shares acquired during the current period――(Note) Treasury shares acquired during the current period do not include the number of shares acquired through purchases ofshares constituting less than one full unit between June 1, 2020 and June 22, 2020.
(4) Status of the disposition and holding of acquired treasury shares
Current business year
Category

Current period

Number of shares(shares)

Total disposition
amount (yen)Number of shares(shares)

Total disposition
amount (yen)

―

―

―

―

―

―

―

―

―

―

―

―

Other (Note)

165,700

226,542,666

100

327,577

Total number of treasury shares held

116,042―

115,942―

Acquired treasury shares which were
offered to subscribers
Acquired treasury shares which werecanceled
Acquired treasury shares which weretransferred due to merger, share exchange
or company split(Notes) 1. “Other” for the current business year and current period represents the exercise of share acquisition rights.
2. Total number of treasury shares held in the current period does not include the number of shares held through theexercise of share acquisition rights or purchases of shares constituting less than one full unit between June 1, 2020 andJune 22, 2020.

―36―

3. Dividend Policy
We aim to continuously increase our corporate value and also consider the return of profits to shareholders to be an importantmanagement goal. From this perspective, we have decided to make decisions on dividends of surplus, etc. based on our operating
environment and the following policy.
Our basic policy is to continuously provide a stable dividend, and we aim to achieve a consolidated dividend payout ratio of at least
30%, comprehensively taking into consideration such factors as the results of our operations and financial condition each fiscal year
and our future prospects.
We will use our internal reserves to strengthen our financial condition, invest in business areas with future growth potential and tofinance capital expenditures and R&D spending.
Our Articles of Incorporation state that we may, by resolution of the Board of Directors, pay interim dividends with a record date of
September 30 each year, and our dividend forecast for the year ending March 31, 2021 is 55 yen per share (which includes an interim
dividend of 25 yen).
Dividends of surplus for the current business year are as shown below.

Resolution date

Total amount of dividends(thousand yen)

Resolution of the Board of Directors Meeting
held on October 29, 2019
Resolution of the Annual General Shareholders
Meeting held on June 19, 2020

―37―

Dividend per share (yen)351,352

25

350,423

25

4. Corporate Governance(1) Corporate Governance(i) Corporate Governance Policy
The Company’s corporate governance policy consists of “engaging in speedy decision-making and clarifying the roles andresponsibilities incidental to this,” “maintaining objective checking systems both internally and externally” and “ensuring timely andfair disclosure” and we will endeavor to continue maintaining and strengthening this approach in the future.
(ii) Overview of the corporate governance structure and reasons for its adoption
A. Overview of the corporate governance structure
We transitioned to a company with an Audit & Supervisory Board based on a resolution of the 21st Annual General Meeting of
Shareholders held on June 24, 2016. We established an Audit & Supervisory Board that is comprised of a majority of Outside
Directors, and Directors who are Audit & Supervisory Board Members, who include Outside Directors with expertise in fields suchas finance, law and business management, conduct audits not only on legality but also on appropriateness.
The status of major activities is as follows.
(1) Board of Directors
The Board of Directors is comprised of the following five Directors, of whom two (40%) are Outside Directors. As the highest
decision-making body, the Board of Directors is convened once a month, in principle, to make decisions on important matters thatare fundamental to management.
Toshio Dogu (Chairman, Representative Director, President & CEO, Internal Director)
Takuya Matsumoto (Internal Director)
Kiyoto Inomata (Standing Audit & Supervisory Board Member, Internal Director)
Hidekazu Kubokawa (Audit & Supervisory Board Member, Outside Director)
Masataka Uesugi (Audit & Supervisory Board Member, Outside Director)(2) Audit & Supervisory Board
The Audit & Supervisory Board is comprised of the following three Directors (one of whom is a Standing Audit & Supervisory
Board Member), two of whom are Outside Directors.
The Audit & Supervisory Board deliberates important matters specified in the Audit & Supervisory Board Rules and endeavors tostrengthen audits and supervision.
Kiyoto Inomata (Chairman, Standing Audit & Supervisory Board Member, Internal Director)
Hidekazu Kubokawa (Audit & Supervisory Board Member, Outside Director)
Masataka Uesugi (Audit & Supervisory Board Member, Outside Director)(3) Other
The Company convenes the Executive Committee, which is comprised of the Representative Director, Directors (excluding
Directors who are Audit & Supervisory Board Members) and the General Managers of each Department, once a month, as a body
preceded by the Board of Directors, to determine individual management strategies based on the prior deliberations and decisionmaking of the Board of Directors. The Company also convenes the Management Reporting and Liaison Committee, which iscomprised of the General Managers of each Department and Section and higher-ranking members, once a week to report on thestate of progress of operations in each division and to build consensus. Through these meeting bodies, we clarify individual roles
and responsibilities and seek to give shape to the decisions made at meetings of the Board of Directors. We have also establishedfunctional departments responsible for clarifying the segregation of duties and ensuring checks and balances to maintain corporate
governance.

―38―

An overview of the Group’s management organization and systems for maintaining corporate governance are as shown in thefollowing figure.
General meeting of shareholders
Election
Dismissal

Election
Dismissal

Board of Directors
Audit &
Supervisory Board
AuditsExecutive Directors
Internal Directors

Preliminary
deliberation

Election/
Dismissal

Executive
Committee

Representative
Director
ReportingNon-executive Directors
Internal Directors/
Outside Directors

Supervision

Election
Dismissal

Cooperation
Cooperation

Instructions
AuditsReporting
Building ofconsensus

Person in charge ofinternal audits

Accounting Auditor
Cooperation
Instructions

Audits
Accounting audit

Each department/subsidiary and associate(Note) The Executive Committee includes the Management Reporting and Liaison Committee.
B. Reasons for adoption of the corporate governance structure
The Board of Directors and the Executive Committee are responsible for most of the important decision-making related to executionof the Company’s business. The Board of Directors, which is comprised of five Directors, two of whom are Outside Directors,
convenes, in principle, once monthly and also meets on an ad hoc basis whenever necessary. To complement managerial judgments
on other important matters, the Executive Committee, which is comprised of the Representative Director, Directors (excluding
Directors who are Audit & Supervisory Board Members) and General Managers of departments, etc., convenes once a month to
make decision related to business execution and also to confirm the status of business execution.
Directors who are Audit & Supervisory Board Members receive reports on the status of execution of duties from Directors (excludes
Directors who are Audit & Supervisory Board Members) and from employees, etc., asks them for explanations where necessary andviews important resolution documentation in accordance with the audit policy and audit plan, etc. specified by the Audit &Supervisory Board. They also work to maintain and improve the efficiency of corporate management and ensure legality bycooperating closely with the accounting auditor, persons in charge of internal audits, etc. We believe, therefore, that this structure
allows us to ensure management objectivity.
We adopted our current structure based on the judgment that it further strengthens corporate governance by rationalizing decisionmaking and execution of duties by Directors and ensuring effective audits and supervision.
(iii) Other matters related to corporate governance
A. Status of development of internal control system
a. Systems to ensure that the Group’s Directors and employees execute duties in compliance with laws and regulations and the
Articles of Incorporation(1) The Group considers compliance to be its highest priority and establishes rules relating to compliance to ensure that the Group’s
officers and employees execute their duties in compliance with laws and regulations and the Articles of Incorporation and healthysocial norms, implements initiatives such as providing training and a whistleblowing system, and develops systems under which
any problems that arise are reported to the Company’s Board of Directors and Audit & Supervisory Board.

―39―

(2) The Company is required to convene a meeting of the Board of Directors once a month, in principle, and on an ad hoc basis
whenever necessary. At meetings of the Board of Directors, the Company makes decisions about the execution of the Group’s
important business and also supervises the execution of duties by Directors. The Company also seeks to ensure that Directors andemployees comply with laws and regulations, the Articles of Incorporation, various regulations and stipulated business processes
and it also works to strengthen risk management system and seeks to enhance internal control systems.
(3) The Company appoints persons in charge of internal audits and builds internal control systems through internal audits. Persons incharge of internal audits regularly conduct internal audits of the Group’s business management and all its business activities,
evaluates and verifies compliance with laws and regulations, the Articles of Incorporation, various rules and stipulated businessprocesses and reports to the Company’s Board of Directors and Audit & Supervisory Board in a timely manner.
b. Systems for storage and management of information relating to the execution of duties by the Company’s Directors(1) In accordance with the Document Management Rules, the Company records, stores and manages information relating to the
execution of duties by Directors in the form of paper or electronic means, including the minutes of meetings of the Board of
Directors and other important meetings and documents approved by each Director in accordance with the Rules on
Administrative Authority. Directors may view these documents, etc. at any time.
(2) To ensure the effectiveness of internal audits, the Company establishes rules setting out the management method and storage
period of important documents (including electronic media) relating to the execution of duties by Directors and stores andmanages them in accordance with these rules.
c. Rules and other systems relating to management of loss risks of the Group(1) To establish systems relating to management of loss risks of the Group, the Company establishes rules relating to the Group’s
risk management and raises awareness of these rules among Directors and employees.
(2) The Company appoints persons in charge of internal audits, and the persons in charge of internal audits regularly examine theappropriateness of the audit items and audit methods used in the Group’s business audits and revise audit items and audit method
where necessary.
d. Systems to ensure the effective and efficient execution of duties by the Group’s Directors(1) To ensure the effective and efficient execution of duties by Directors, the Group formulates a business plan every fiscal year andverifies progress through monthly performance assessments.
(2) Regarding the execution of routine duties by Directors, the Board of Directors delegates authority for the execution of duties to
employees in accordance with the Rules on Administrative Authority and Rules on the Segregation of Duties and these
employees assume responsibility for efficient execution of the delegated duties.
e. Systems for reporting to the Company matters related to the execution of duties by the Group’s Directors(1) The Company conducts internal audits of each division and subsidiary of the Company by persons in charge of internal audits at
the Company in accordance with the Internal Audit Rules, establishes internal control systems within the Group, and reports thenature and frequency of risks within each division and subsidiary and the impact on the Company, etc. to the Board of Directors
and Audit & Supervisory Board of the Company in a timely manner.
(2) The Company makes it mandatory for each Group company to regularly report to the Company on its operating results, financial
condition and certain other important matters related to management.
f. Matters related to Directors and employees to assist the duties of the Audit & Supervisory Board
Upon a request from the Audit & Supervisory Board for the assignment of employees required to assist the duties of the Audit &Supervisory Board, the Company promptly assigns the appropriate personnel.
g. Matters related to the independence of Directors and employees required to assist the duties of the Audit & Supervisory Board
from Directors (excludes said Directors and Directors who are Audit & Supervisory Board Members) and matters for ensuring theeffectiveness of instructions to Directors and employees required to assist the duties of the Audit & Supervisory Board(1) Employees required to assist the duties of the Audit & Supervisory Board are only under the command of the Audit &Supervisory Board with respect to the work they are instructed to do by the Audit & Supervisory Board.
(2) The Company will listen to the opinions of the Audit & Supervisory Board before determining matters such as personnel
transfers and personnel evaluations of employees required to assist the duties of the Audit & Supervisory Board.
h. Systems for reporting to the Audit & Supervisory Board(1) The Company’s Directors report the status of execution of their duties at meetings of the Board of Directors attended by Audit &―40―

Supervisory Board Members and other important meetings as and when necessary.
(2) The Directors and employees of the Group report to the Company’s Audit & Supervisory Board any violations of laws andregulations and any fact that might be damaging to the Company immediately upon discovery thereof.
(3) The division in charge of the Group’s whistleblowing system regularly reports to the Audit & Supervisory Board the status ofwhistleblowing reports by Group officers and employees.
i. Systems to ensure that persons are not treated disadvantageously for making reports to the Audit & Supervisory Board Members
The Company does not permit Group officers or employees who have made reports to the Audit & Supervisory Board to be treateddisadvantageously and makes this known to all officers and employees of the Group.
j. Matters regarding policy on handling advance payment or repayment of expenses resulting from execution of duties by Audit &Supervisory Board Members (only expenses related to the execution of duties of the Audit & Supervisory Board) or otherexpenses or debts arising from said execution of duties
If the Company receives a request for advance payment, etc., of expenses under the provisions of Article 399-2, Paragraph 4 of theCompanies Act in relation to the performance of duties by a Member of the Audit & Supervisory Board, the Company, after
discussions at the division in charge, immediately settles said expenses or debts, except where it is determined that said costs or
debts were not necessary for the performance of duties by a Member of the Audit & Supervisory Board.
k. Other systems used to ensure that the Audit & Supervisory Board can conduct audits effectively(1) The Representative Director regularly holds meetings with the Audit & Supervisory Board to exchange views on matters such as
issues to be addressed by the Company, the status of development of the environment for audits by Audit & Supervisory Board
Members and important audit-related issues.
(2) The Audit & Supervisory Board, persons in charge of internal audits and the accounting auditor seek to improve the quality ofaudits by strengthening cooperation with each other, including exchanging information and opinions where necessary.
l. Systems for eliminating antisocial forces
The Company maintains a firm stance to respond, as an organization, to any unjustified demands by antisocial forces and develops
internal systems so that it does not have any business relationship or any other relationship whatsoever with antisocial forces.
B. Status of improvement of risk management system
The Company establishes Risk Management Rules and exercises integrated management in relation to business risks that might arise
as a result of its business activities to prevent risks and deal with any risks that arise.
As a body preceded by the Board of Directors, the Executive Committee quickly grasps and discusses business risks, including thepossibility of risks emerging, and makes reports to the Board of Directors where necessary.
The Audit & Supervisory Board conducts audits to assess whether the Board of Directors makes policy decisions and conducts
monitoring and supervision in relation to business risks in an appropriate manner.
C. Status of development of systems for ensuring the appropriateness of operations of subsidiaries
The Company and Group companies have formulated a Corporate Code of Conduct based on the Group’s management philosophy
and make group-wide efforts to increase the corporate value of the entire group.
Regarding the business management of Group companies, Directors of the parent company serve concurrently as Directors ofsubsidiaries and are involved in important decision-making and gain an understanding of important information relating to theirbusiness. The Audit & Supervisory Board and persons in charge of internal control audits also monitor Group companies and theAffiliated Company Management Rules stipulate systems through which Group companies seek approval from and report to theCompany.
D. Quorum of Directors
The Articles of Incorporation of the Company stipulate that the Company shall have not more than six Directors (excluding Audit &Supervisory Board Members) and that it shall have not more than four Directors who are Audit & Supervisory Board Members.
E. Requirements for resolutions of the election of Directors
The Articles of Incorporation of the Company stipulate that resolutions for the election of the Directors shall be made by a majority―41―

of voting rights of the shareholders in attendance who hold one-third (1/3) or more of the total voting rights of the shareholders who
can exercise such rights. The Articles of Incorporation of the Company stipulate that resolutions for the election of Directors shallnot be by cumulative voting.
They further state that a resolution on the dismissal of a Director shall be made with the approval of a majority of the voting rights ofshareholders who are present and hold a majority of the total voting rights of the shareholders who can exercise such rights.
F. Decision-making body for acquisition of treasury shares
To facilitate a flexible capital policy, the Articles of Incorporation of the Company stipulate that the Company may, by the resolutionof the Board of Directors, acquire its own shares pursuant to Article 165, Paragraph 2 of the Companies Act.
G. Interim dividends
The Articles of Incorporation of the Company stipulate that the Company may, by a resolution of the Board of Directors, pay interim
dividends with a record date of September 30 of each year, pursuant to Article 454, Paragraph 5 of the Companies Act. The aim is toenable flexibility in regard to return of profit to shareholders.
H. Content and outline of agreements for limitation of liability
In accordance with the provisions of Article 427, Paragraph 1 of the Companies Act, the Company concludes agreements with
Directors who are Audit & Supervisory Board Members to limit the liability for damages pursuant to Article 423, Paragraph 1 of theCompanies Act. The maximum amount of liability for compensation of damages under these agreements is the amount set forth inlaws and regulations. Limitation of liability is allowed only if a Director who is an Audit & Supervisory Board Member was
performing the duties said to be the cause of damages, in good faith and without gross negligence.
I. Exemption of Directors from liability
The Articles of Incorporation of the Company stipulate that the Company may, by resolution of the Board of Directors, exempt any
Director prescribed in Article 423, Paragraph 1 of the Companies Act (including former directors) from liabilities to the extent
provided in laws and regulations, for the reasonable limitation of Directors’ liability.
J. Requirement for special resolutions of general shareholders meetings
The Articles of Incorporation of the Company stipulate that a special resolution of general meetings of shareholders as stipulated in
Article 309, Paragraph 2 of the Companies Act shall be adopted by a two-thirds (2/3) majority vote of shareholders present at themeeting, at which shareholders representing at least one-third (1/3) of the total voting rights of all shareholders who are entitled tovote are present. The purpose is to relax the quorum for special resolutions at general meetings of shareholders to ensure themeetings proceed smoothly.

―42―

(2) Officers(i) List of Officers
Men: 5 persons, Women: ‒ person (Women’s percentage to total number of officers: ‒%)
Title

Name

Term ofofficeShareownership(shares)

Representative Director, President & CEO, Digital Arts Inc.
General Manager-Corporate Planning
Director, IQS' Co., Ltd.
Representative Director, President & CEO, IQS' Co., Ltd.
Representative Director, President & CEO, DAM Corporation(incumbent)
April 2011
Director, President & CEO, Digital Arts America, Inc.
(incumbent)
June 2012
Director, Digital Arts Investment, Inc. (incumbent)
May 2013
Representative Director, President & CEO, Polkast Japan LLC
October 2013 Representative Director, President & CEO, DA Corporation(incumbent)
October 2013 Representative Director, President & CEO, DM Corporation(incumbent)
April 2014
Director, President & CEO, FinalCode, Inc.
November 2014 Representative Director, President & CEO, General ManagerSales, Digital Arts Inc.
(Note 2)February 17, 1968
April 2015
Representative Director, President & CEO, General ManagerSales, General Manager-FinalCode Business
November 2015 Director, Digital Arts Asia Pacific Pte. Ltd. (incumbent)
April 2016
Representative Director, President & CEO, General ManagerSales, Digital Arts Inc.
April 2016
Representative Director, Chairman, Digital Arts Consulting
Inc. (incumbent)
September 2016 Director, Digital Arts Europe Limited (incumbent)
April 2017
Representative Director, President & CEO, General ManagerSales, General Manager-Marketing, General ManagerCorporation Planning, Digital Arts Inc.
April 2018
Representative Director, President & CEO, General ManagerSales, General Manager-Marketing
October 2019 Representative Director, President & CEO, General ManagerSales, General Manager-Marketing, General ManagerCorporation Planning, General Manager- Administration
February 2020 Representative Director, President and CEO (incumbent)

2,503,003

Date of birthBusiness experience
October 1997
October 2003
March 2005
November 2005
December 2006

Representative
Director, President
and CEO

Director, General
ManagerDevelopment

ToshioDogu

TakuyaMatsumoto

April 1999
April 2003
April 2014
October 2016
June 2017
November 4, 1976
December 2017
April 2018
October 2019

Joined COMAS Co., Ltd.
Joined Digital Arts Inc., Development
Associate General Manager-Development
General Manager-Development
Director, General Manager-Development
Director, General Manager-Development, General ManagerNew Development
Director, General Manager-Development (incumbent)
Director, Digital Arts Consulting Inc. (incumbent)

April 1995

Joined Tokyo Gas Co., Ltd.

3,012

(Note 3)100

January 2003

Director (Audit &Supervisory Board
Member)KiyotoInomata

July 7, 1967

Personnel Dept. (Dispatched to Digital Arts Inc. formanagement training)
July 2004
Seconded to Energy Advance Co., Ltd. (currently Tokyo Gas
Engineering Solutions Corporation)
November 2005 Joined Digital Arts Inc., Corporate Planning
April 2006
Deputy General Manager- Development
June 2007
General Manager-Corporate Planning
June 2008
Director, IQS' Co., Ltd.
April 2011
General Manager-Internal Audit, Digital Arts Inc.
April 2015
Associate General Manager-Development, General ManagerQuality Assurance
June 2020
Director (Audit & Supervisory Board Member), Digital Arts
Inc. (incumbent)
June 2020
Audit & Supervisory Board Member, Digital Arts Consulting
Inc. (incumbent)(Note 2)―43―

TitleDirector (Audit &Supervisory Board
Member)Name

Hidekazu
Kubokawa

Date of birthBusiness experience

November 1976 Joined Chuo Audit Corporation(currently PricewaterhouseCoopers Aarata LLC)
July 1986
Founded Kubokawa CPA Office (currently Yotsuya Partners
Accounting Firm), Representative Partner (incumbent)
February 1989 Outside Audit & Supervisory Board Member, SoftBank
Corp. Japan (currently SoftBank Group Corp.) (incumbent)
February 20, 1953
March 2000
Outside Auditor, Digital Arts Inc.
June 2005
Outside Corporate Auditor, Kyoritsu Printing Co., Ltd.
(incumbent)
June 2006
Outside Auditor, Pado Corporation
June 2016
Outside Director (Audit & Supervisory Board Member),
Digital Arts Inc. (incumbent)

Shareownership(shares)(Note 3)

3,357

(Note 3)

3,357

April 1995
April 1999
September 2000
June 2003
December 2013
Director (Audit &Supervisory Board
Member)Masataka
UesugiJuly 31, 1965

Joined Emori Kawamori Atsumi Law Office
Founded Uesugi Law OfficePartner of Amlec Law and Accounting Firm
Outside Auditor, Digital Arts Inc.
Outside Audit & Supervisory Board Member, Ceres Inc.
(incumbent)
November 2014 Outside Audit & Supervisory Board Member, Aiming Inc.
(incumbent)
March 2015
Senior Partner, Sakurada Dori Partners (incumbent)
March 2016
Director (Audit & Supervisory Committee Member),
Fullcast Holdings Co., Ltd. (incumbent)
June 2016
Outside Director (Audit & Supervisory Board Member),
Digital Arts Inc. (incumbent)

Term ofofficeTotal

2,512,829(Notes) 1. Audit & Supervisory Board Members Hidekazu Kubokawa and Masataka Uesugi are Outside Directors.
2. The term of office shall expire at the conclusion of the Annual General Meeting of Shareholders pertaining to the lastbusiness year ending within one (1) year after the conclusion of the Annual General Meeting of Shareholders held on June
19, 2020.
3. The term of office shall expire at the conclusion of the Annual General Meeting of Shareholders pertaining to the lastbusiness year ending within two (2) years after the conclusion of the Annual General Meeting of Shareholders held on June
19, 2020.
4. The number of shares held includes shares of stock in Digital Arts Inc.’s officers’ shareholding association.
5. Director Hidenobu Akazawa (General Manager-Administration, General Manager-Corporate Planning) retired from his
position due to resignation with effect September 30, 2019.
6. Director (Audit & Supervisory Board Member) Shuji Wakai retired from his position with effect June 19, 2020.
7. The Company has elected a substitute for a Director who is an Audit & Supervisory Board Member stipulated in Article
329, Paragraph 3 of the Companies Act in advance to prepare for cases where the number of Directors who are Audit &Supervisory Board Members falls below the number stipulated by laws and regulations. The career history of the substitutefor a Director who is an Audit & Supervisory Board Member is as follows.
Name

Komei Sasaki

Date of birth

March 15, 1966

Business experience
August 1999
May 2003
June 2004

Partner Attorney, Tokyo Ginza Law OfficePartner of Amlec Law and Accounting Firm
Outside Auditor, TAKE AND GIVE NEEDS Co., Ltd.

April 2005

Director, Junior College Accreditation Association(currently Japan Association for College
Accreditation) (incumbent)

March 2015
June 2016

Shareownership(shares)―

Senior Partner, Sakurada Dori Partners (incumbent)
Outside Director, TAKE AND GIVE NEEDS Co., Ltd.
(incumbent)(ii) Information about Outside Officers
The Company has two Outside Directors.
Outside Director Hidekazu Kubokawa holds 3,357 shares of the Company’s stock as of March 31, 2020, but there are no other special
interests between Mr. Kubokawa and the Company. Mr. Kubokawa is a Representative Partner of Yotsuya Partners Accounting Firm
but there are no special interests between Yotsuya Partners Accounting Firm and the Company.

―44―Outside Director Masataka Uesugi holds 3,357 shares of the Company’s stock as of March 31, 2020, but there are no other special
interests between Mr. Uesugi and the Company. Mr. Uesugi is a Partner of Sakurada Dori Partners but there are no special interests
between Sakurada Dori Partners and the Company.
The Company elects Outside Directors to ensure the objectivity and neutrality of supervisory functions of management. While theCompany has not established standards or a policy for judging the independence of Outside Directors, it refers to the requirements forindependence stipulated by the Tokyo Stock Exchange when electing Outside Directors. The Outside Directors have the function ofauditing the execution of duties by Directors from the perspectives of legality and appropriateness, based on their independence andspecialist knowledge.
(iii) Supervision, Audit, Internal Audit by Outside Directors and Outside Audit & Supervisory Board Members, Audit of Audit &Supervisory Board Members, Collaboration with Accounting Auditor and Relationship with Internal Control Divisions
Together with Directors who are Standing Audit & Supervisory Board Members, the Outside Directors receive detailed reports onimportant events and risk factors as part of the results of internal audits conducted on a regular basis by Internal Auditors.
In the case of the accounting auditor’s audit of quarterly and annual financial statements, Audit & Supervisory Board Members are
required to receive detailed reports on the status of audits from the certified public accountants who performed the operations andassistants involved in the audit operations. Internal Auditors report the status of internal controls, etc. to Outside Directors via theBoard of Directors where necessary. The Company has registered Messrs. Hidekazu Kubokawa and Masataka Uesugi with the Tokyo
Stock Exchange as independent officers as defined by the Tokyo Stock Exchange.
(3) Information about Audits(i) Information about Audits of Audit & Supervisory Board Members
The Company’s organization for audits of Audit & Supervisory Board Members is comprised of three Audit & Supervisory Board
Members.
Standing Audit & Supervisory Board Member Shuji Wakai has many years of experience of accounting and finance operations at TDK
Corporation and has considerable knowledge about finance and accounting.
Audit & Supervisory Board Member Hidekazu Kubokawa is a certified public accountant and tax accountant and Audit & Supervisory
Board Member Masataka Uesugi is an attorney.
During the fiscal year under review, the Company convened the Audit & Supervisory Board once a month and the attendance ofindividual Audit & Supervisory Board Members was as follows.
Name

Number of meetings
convened
12

Number of meetings
attended
12Standing Audit & Supervisory Board Member

Shuji Wakai

Outside Audit & Supervisory Board Member

Hidekazu Kubokawa

12

12Outside Audit & Supervisory Board Member

Masataka Uesugi

1212Important matters considered at meetings of the Audit & Supervisory Board included the formulation of audit plans, the preparation ofaudit reports, evaluation of re-appointment of the Accounting Auditor, and agreement on fees paid to the Accounting Auditor.
Important activities carried out by Audit & Supervisory Board Members included gathering information about the implementation
status of internal audits from those in charge, exchanging opinions with/ gathering information from the Accounting Auditor,
requesting reports from other relevant departments where necessary, and gathering information about the status of execution of theCompany’s business.
(ii) Information about Internal Audits
The Company’s organization for internal audits is comprised of one person in charge of internal audits.
When conducting internal audits, the person in charge of internal audits is required to formulate an annual plan and conduct audits
based upon collaboration and the exchange of opinions with the accounting auditor and Audit & Supervisory Board Members. The
person in charge of internal audits is required to prepare a report on the audit results, report the results to the Representative Director
and also report them to Audit & Supervisory Board Members.
(iii) Information about Accounting Audit―45―

A. Name of audit corporation
BDO Sanyu & Co.
B. Tenure
20 years
C. Certified public accountants who execute operations
Mr. Nobuhito Iwata
Mr. Koji Kumagai
D. Composition of assistants with audit operations
Assistants with the Company’s accounting audit operations mainly comprise three certified public accountants, two persons who
have passed accountant examinations and one other person.
E. Policy and reasons for selection of audit corporation
If the accounting auditor has committed a serious violation or breach of laws and regulations such as the Companies Act or the
Certified Public Accountants Act or if it is deemed difficult for the accounting auditor to conduct an audit properly, the Audit &Supervisory Board examines dismissing or not reappointing the accounting auditor. If, as a result of its examination, the Audit &Supervisory Board judges that it is appropriate to dismiss or not to reappoint the accounting auditor, the Audit & Supervisory Board
puts forward a proposal for the dismissal or non-reappointment of the accounting auditor to the general meeting of shareholders. The
Audit & Supervisory Board also examines each period whether reappointment of the accounting auditor is appropriate and whether
the status of execution of duties, the audit systems, independence, etc. of the accounting auditor are appropriate. If as a result of its
examination, no major problems are found, the Audit & Supervisory Board conducts an evaluation of the accounting auditor andjudges that reappointment is appropriate.
F. Evaluation of audit corporation by Audit & Supervisory Board
The Company’s Audit & Supervisory Board conducts an evaluation of the audit corporation by receiving reports from the audited
executive divisions, asking the audit corporation about results of inspections by the supervisory authorities and its internal quality
control systems and comprehensively examining whether the audit corporation maintains the quality of audits and conducts audits
properly through witnessing onsite audits.
(iv) Audit Fees
A. Fees paid to certified public accountants, etc.
Previous fiscal year
Category

Fiscal year under review

Fees for audit services(thousand yen)

Fees for non-audit
services (thousand yen)

Fees for audit services(thousand yen)

Fees for non-audit
services (thousand yen)

19,500―19,500

―

―

―

―

―

19,500―19,500―

Reporting company
Consolidated subsidiaries
Total

B. Fees paid to other accountants belonging to the same network as the certified public accountants, etc. (excluding A.)
Not applicable.
C. Details of other major fees for audit and attestation services
Not applicable.
D. Policy on determination of audit fees―46―Regarding the Company’s policy on determination of audit fees for certified public accountants, etc., the Company requests only
audit services, and audit fees are determined in an appropriate manner, taking into consideration factors such as the duration of theaudit, the Company’s business scale and the characteristics of its operations.

―47―

E. Reasons why the Audit & Supervisory Board consented to the fees, etc. of the accounting auditor
The Audit & Supervisory Board gave consent for the fees, etc. of the accounting auditor proposed by the Board of Directors under
Article 399, Paragraphs 1 and 3 of the Companies Act, because, having confirmed the status of execution of duties and actual fees of
the accounting auditor in the previous business year by obtaining necessary materials and asking for reports from the Board of
Directors, relevant internal divisions and the accounting auditor and having examined the content of the audit plan and theappropriateness of the basis for calculation of estimated fees for the current business year, it judged these fees, etc. to be appropriate.
(4) Compensation to Directors and Executive Officers(i) Matters Related to Policy for Determining the Amount and Method of Calculation of Compensation to Directors and Executive
Officers
Remuneration for officers is set within a limit for total remuneration approved by the General Meeting of Shareholders, striking abalance between general norms and the duties of Director, Director who is an Audit & Supervisory Board Member and Outside Officer
respectively. Remuneration for Directors (excluding any Director who is an Audit & Supervisory Board Member) is determined by
the Board of Directors within a remuneration limit approved by the General Meeting of Shareholders, taking into consideration factors
such as their contribution to business results, duties, status of execution and degree of contribution. The remuneration amount of a
Director who is an Audit & Supervisory Board Member is fixed remuneration that takes into consideration factors such as whether thepost is full-time or part-time, duties and authority. It is not linked to corporate performance and is determined by resolution of the
Audit & Supervisory Board.
The remuneration limit for Directors (excludes Directors who are Audit & Supervisory Board Members) is set at 300 million yen peryear based on a resolution of the Annual Shareholders’ Meeting held on June 24, 2016, and a proposal to set the maximum total
amount of monetary compensation claims to be delivered to Directors (excludes Directors who are Audit & Supervisory Board
Members) of the Company as remuneration related to restricted stock at 50 million yen per year was approved at the 24th Annual
Shareholders’ Meeting of the Company held on June 24, 2019 as a separate amount from this remuneration amount for Directors(excludes Directors who are Audit & Supervisory Board members). The remuneration limit for Directors who are Audit & Supervisory
Board Members is set at 100 million yen per year based on a resolution of the Annual Shareholders’ Meeting held on June 24, 2016.
The person with the authority to determine the amount of remuneration and the policy concerning determination of the calculation
method for Directors (excludes Directors who are Audit & Supervisory Board Members) is Toshio Dogu, President & Representative
Director, who was thus authorized based on a resolution of the Board of Directors. Meanwhile, the Audit & Supervisory Board has theauthority to determine the amount of remuneration and the policy concerning determination of the calculation method for Directors
who are Audit & Supervisory Board Members, and the nature of their authority and extent of discretion is limited by the framework forremuneration approved at the General Meeting of Shareholders. The amounts of remuneration for officers of the Company in the fiscal
year under review were resolved at meetings of the Board of Directors and the Audit & Supervisory Board held after the close of theAnnual General Meeting of Shareholders for the previous fiscal year.
(ii) Total Amount of Remuneration, etc. for Each Executive Officer Category, Total Amount of Remuneration, etc. by Type andNumber of Executive Officers
Category of officers
Directors (excludes Audit & Supervisory
Board Members and Outside Directors)
Directors who are Audit & Supervisory Board
Members (excludes Outside Directors)
Outside Officers

Total amount of
remuneration(thousand yen)

Total amount of remuneration, etc. by type(thousand yen)
Basic remuneration

Stock options

Number of eligible
officers

41,80041,800

―

3

8,400

8,400

―

1

7,200

7,200

―

2

(iii) Total Amount of Remuneration Paid by Group to Each Officer
Not stated because there are no persons whose total amount of consolidated remuneration, etc. is 100 million yen or more.

―48―

(iv) Employees Salary of Officers Who also Hold Employee Posts
Total amount(thousand yen)

Officers who also holdemployee posts (people)

25,351

2

Description
Salary as consideration for services rendered.

(5) Information on Shareholdings
Not applicable.

―49―Section V. Financial Information
1. Method of Preparation of Consolidated Financial Statements and Non-consolidated Financial Statements(1) The consolidated financial statements of the Company are prepared in compliance with the Ordinance on Terminology, Forms, andPreparation Methods of Consolidated Financial Statements (Ordinance of the Ministry of Finance No. 28 of 1976).
(2) The non-consolidated financial statements of the Company are prepared in compliance with the Ordinance on Terminology, Forms,
and Preparation Methods of Financial Statements (Ordinance of the Ministry of Finance No. 59 of 1963; hereinafter referred to as the“Ordinance on Non-Consolidated Financial Statements”).
Because the Company is classified as a company that prepares its financial statements pursuant to special provisions, the nonconsolidated financial statements are prepared as provided in Article 127 of the Ordinance on Non-Consolidated Financial Statements.
2. Audit Certification
The Company underwent an audit by BDO Sanyu & Co. of the consolidated financial statements for the consolidated fiscal year (from
April 1, 2019 to March 31, 2020) and the non-consolidated financial statements for the fiscal year (from April 1, 2019 to March 31,2020) in compliance with the provisions of Article 193-2, Paragraph 1 of the Financial Instruments and Exchange Act.
3. Specific Efforts to Secure the Appropriateness of the Consolidated Financial Statements, etc.
The Company has undertaken specific measures to secure the appropriateness of its consolidated financial statements, etc. The
Company is a member of the Financial Accounting Standards Foundation (FASF) and endeavors to gather information to properly
understand accounting standards and develop systems that enable it to ensure the appropriateness of consolidated financial statements.
The Company also actively participates in seminars held by the FASF.

―50―

1. Consolidated Financial Statements(1) Consolidated Financial Statements(i) Consolidated Balance Sheet(Thousand yen)
Fiscal 2019
(As of March 31, 2019)
AssetsCurrent assets
Cash and deposits
Notes and accounts receivable - trade
Securities
Finished goods
Supplies
Other
Total current assets

Fiscal 2020
(As of March 31, 2020)

6,169,172
1,172,515
299,968290‒
87,8637,651,645
994,793‒771
654
85,614

7,729,809

8,733,479

205,990(104,980)

215,806(115,189)

101,009

100,617

17,519(9,816)

17,519(12,881)

7,703

4,637

416,174(290,055)

443,078(325,965)

126,119

117,113

26,254

26,284Non-current assets
Property, plant and equipment
Buildings
Accumulated depreciation
Buildings, net
VehiclesAccumulated depreciation
Vehicles, net
Tools, furniture and fixtures
Accumulated depreciation
Tools, furniture and fixtures, net
Land

‒

822

261,087

249,474

SoftwareOther

1,044,163
367,390

1,331,410
79,251

Total intangible assets

1,411,553

1,410,661

103,00280,886
1,097

102,529
85,282
1,097

Construction in progress
Total property, plant and equipment
Intangible assets

Investments and other assets
Investment securities
Deferred tax assets
Shares of subsidiaries and associates

*1

*1

Other

271,910

269,709

Total investments and other assets

456,896458,619

Total non-current assets
Total assets―51―

2,129,537

2,118,755

9,859,347

10,852,234

(Thousand yen)
Fiscal 2019
(As of March 31, 2019)
Liabilities
Current liabilities
Accounts payable - trade
Income taxes payable
Provision for bonuses
Advances received
Other
Total current liabilities

Fiscal 2020
(As of March 31, 2020)

22,744
330,672
128,192
1,225,258
303,494

32,469469,079
119,788
1,229,998
274,151

2,010,363

2,125,487

45,444645

45,877645

Non-current liabilities
Asset retirement obligations
Other

46,08946,522

Total liabilities

Total non-current liabilities

2,056,452

2,172,010

Net assets
Shareholders’ equity
Share capital

713,590

713,590

Capital surplus
Retained earnings
Treasury shares

827,730
6,518,256(306,939)

972,058
7,340,668(380,126)

Total shareholders’ equity

7,752,637

8,646,190

8,499

6,120

Accumulated other comprehensive income
Foreign currency translation adjustment
Total accumulated other comprehensive income
Share acquisition rights
Non-controlling interests
Total net assets
Total liabilities and net assets

―52―

8,499

6,120

23,587
18,16918,0499,864

7,802,894

8,680,224

9,859,347

10,852,234

(ii) Consolidated Statement of Income and Consolidated Statement of Comprehensive Income
Consolidated Statement of Income

Net sales
Cost of sales

Fiscal 2019(from April 1, 2018
to March 31, 2019)
5,841,287
1,059,444

Gross profit(Thousand yen)
Fiscal 2020
(from April 1, 2019
to March 31, 2020)
5,641,805
1,361,682

4,781,842

Selling, general and administrative expenses*1, *2

Operating profit

2,152,750

4,280,123*1, *2

1,952,086

2,629,092

2,328,036

1,079
198

794
15

Gain on forfeiture of unclaimed dividends
Miscellaneous income

1,168
1,759

840
2,354

Total non-operating income

4,204

4,005

2,224
108

4,812
299

2,333

5,111

2,630,963

2,326,930

2,135

561

2,135

561

Non-operating income
Interest income
Commission income

Non-operating expenses
Foreign exchange losses
Miscellaneous loss
Total non-operating expenses
Ordinary profit
Extraordinary income
Gain on reversal of share acquisition rights
Total extraordinary income
Extraordinary losses
Loss on retirement of non-current assets
Loss on valuation of golf club membership

*3

4,374
2,200

*4

56,135
7,156‒‒

69,866

1,465

Profit before income taxes

2,563,232

2,326,026

Income taxes - current
Income taxes - deferred

605,870(7,001)

740,151(4,396)

Total income taxes

598,869

735,755

1,964,363

1,590,271

3,087

(513)

1,961,276

1,590,784

Loss on liquidation of subsidiaries
Loss on valuation of shares of subsidiaries
Total extraordinary losses

ProfitProfit (loss) attributable to non-controlling interests
Profit attributable to owners of parent

―53―

*3

65
1,400

Consolidated Statement of Comprehensive Income

ProfitOther comprehensive income
Foreign currency translation adjustment

Fiscal 2019(from April 1, 2018
to March 31, 2019)
1,964,363(Thousand yen)
Fiscal 2020
(from April 1, 2019
to March 31, 2020)
1,590,271

13,203

Total other comprehensive income*1

13,203(2,378)*1(2,378)Comprehensive income

1,977,567

1,587,892

Comprehensive income attributable toComprehensive income attributable to owners ofparentComprehensive income attributable to non-controllinginterests

1,974,480

1,588,405

3,087

(513)

―54―

(iii) Consolidated Statement of Changes in Equity
Fiscal 2019 (from April 1, 2018 to March 31, 2019)(Thousand yen)
Accumulated othercomprehensive income

Shareholders’ equity

Share capital Capital surplus

Balance at beginning of
period713,590825,560

Retained

Treasury

earnings

sharesForeign

Total
shareholders’equitycurrencytranslation
adjustment(4,703)

Total
accumulated
other

Share
Nonacquisition controllingrightsinterests

Total net
assetscomprehensive
income4,991,931(327671) 6,203,410(4,703)33,812

15,082

6,247,602(444,592)(444,592)(444,592)‒‒

1,961,276

1,961,276

1,961,276

9,641

9,641

9,641

20,741

22,912

22,912

(10)

(10)

(10)

Changes during period
Dividends of surplus
Change in ownershipinterest of parent due totransactions with noncontrolling interests
Profit attributable toowners of parent
Change in scope of
consolidation
Disposal of treasury
sharesPurchase of treasury
sharesNet changes in items
other than shareholders’equityTotal changes during
periodBalance at end of period

2,170

‒

2,170

1,526,325

713,590827,730

6,518,256

13,203

13,203(10,225)

3,087

6,065

1,549,227

13,203

13,203(10,225)

3,087

1,555,292(306,939) 7,752,637

8,499

8,499

23,587

18,1697,802,894

20,731

Fiscal 2020 (from April 1, 2019 to March 31, 2020)(Thousand yen)
Accumulated othercomprehensive income

Shareholders’ equity

Share capital Capital surplus

Balance at beginning of
period713,590827,730

Retained

Treasury

earnings

shares6,518,256(306,939)

Foreign

Total
shareholders’equitycurrencytranslation
adjustment

7,752,637

8,499

Total
accumulated
other

Share
acquisitionrights

Noncontrollinginterests

Total net
assets23,587

18,1697,802,894

comprehensive
income8,499

Changes during period
Dividends of surplus
Change in ownershipinterest of parent due totransactions with noncontrolling interests
Profit attributable toowners of parent
Change in scope of
consolidation
Disposal of treasury
sharesPurchase of treasury
sharesNet changes in items
other than shareholders’equityTotal changes during
periodBalance at end of period(768,372)(768,372)(768,372)

(123)

(123)

1,590,784

1,590,784‒‒

226,542

370,994

370,994(299,730)(299,730)(299,730)(123)

1,590,784

144,451(2,378)(2,378)(5,538)(8,305)(16,222)‒

144,327

822,412(73,187)

893,552(2,378)(2,378)(5,538)(8,305)877,329

713,590972,058

7,340,668(380,126)

8,646,190

6,120

6,120

18,0499,864

8,680,224―55―

(iv) Consolidated Statement of Cash Flows(Thousand yen)
Fiscal 2020
(from April 1, 2019
to March 31, 2020)

Fiscal 2019(from April 1, 2018
to March 31, 2019)
Cash flows from operating activities
Profit before income taxes
Depreciation
Loss on valuation of golf club membership
Increase (decrease) in provision for bonuses
Interest income
Foreign exchange losses (gains)
Gain on reversal of share acquisition rights
Loss on valuation of shares of subsidiaries
Loss on retirement of non-current assets
Decrease (increase) in trade receivables
Decrease (increase) in inventories
Increase (decrease) in trade payables
Increase (decrease) in accounts payable - other
Decrease (increase) in other current assets
Increase (decrease) in other current liabilities
Other
SubtotalInterest and dividends received

2,563,232
662,496
2,200
15,911(1,079)2,878(2,135)
7,156
4,374
298,266404
450(34,743)
85,10245,582
19,5982,326,026
805,723
1,400(8,404)
(794)
3,974
(561)
‒
65
181,825(1,135)
9,839(7,081)
5,860(31,077)
11,944

3,669,697

3,297,605

1,390

1,267

Income taxes paid

(579,225)(612,300)

Net cash provided by (used in) operating activities

3,091,862

2,686,572‒(167,827)(741,907)‒
950

600,000(45,178)(740,170)
300,000(3,638)Net cash provided by (used in) investing activities(908,784)

111,013

Cash flows from financing activities
Proceeds from disposal of treasury shares
Purchase of treasury shares
Purchase of shares from non-controlling shareholders
Dividends paid

14,822(10)‒(444,524)

366,017(300,029)(7,916)(767,286)(429,712)(709,214)(2,267)(5,897)

1,751,098

2,082,473

3,826,443

5,569,172(8,369)‒Cash flows from investing activities
Decrease (increase) in time deposits
Purchase of property, plant and equipment
Purchase of intangible assets
Proceeds from redemption of securities
Other

Net cash provided by (used in) financing activities
Effect of exchange rate change on cash and cash
equivalents
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of period
Increase (decrease) in cash and cash equivalents resulting
from change in scope of consolidation
Cash and cash equivalents at end of period

*1

―56―

5,569,172*1

7,651,645

Notes(Notes on the premise of a going concern)
Not applicable.
(Significant matters that serve as the basis for the preparation of consolidated financial statements)
1. Matters related to the scope of consolidation(1) Number of consolidated subsidiaries: 4Names of consolidated subsidiaries
Digital Arts Consulting Inc.
Digital Arts America, Inc.
Digital Arts Asia Pacific Pte. Ltd.
Digital Arts Europe Limited(2) Names, etc. of non-consolidated subsidiaries
Non-consolidated subsidiaries
Digital Arts Investment, Inc.
(Reason for exclusion from scope of consolidation)
The non-consolidated subsidiary is a small company. Its total assets, net sales, profit, retained earnings or other items do not haveany significant effect on the consolidated financial statements.
2. Matters related to the application of the equity method(1) Number of non-consolidated subsidiaries to which the equity method is applied: ―(2) Names, etc. of non-consolidated subsidiaries to which the equity method is not applied
Non-consolidated subsidiaries
Digital Arts Investment, Inc.
(Reason why the equity method is not applied)
The non-consolidated subsidiary’s effect on profit, retained earnings and other items is minor and insignificant. The nonconsolidated subsidiary as a whole is not significant.
3. Fiscal years of consolidated subsidiaries
The fiscal year end of all consolidated subsidiaries is the same as the end of the consolidated fiscal year.
4. Matters related to accounting policies(1) Valuation standards and valuation methods for significant assets
A. Securities(a) Bonds held for maturity
The amortized cost method (interest method) is applied.
(b) Shares of subsidiaries and associates
The moving average cost method is applied.
B. Inventories(a) Finished goods
The gross average cost method is applied. (The balance sheet amount is calculated by the book value write-down method based on
reduction in profitability.)―57―

(2) Depreciation/amortization method for significant depreciable/amortizable assets
A. Property, plant and equipment
The declining balance method is applied.
The useful life and the residual value are calculated based on the same standards as those set out in the Corporation Tax Act. The
straight-line method is applied for facilities attached to buildings and structures acquired from April 1, 2016.
B. Intangible assets
The straight-line method is applied.
The straight-line method based on the availability period in the company (five years) is used for software in the company. For
software for sale in the market, a method based on estimated sales quantities (or revenue) or the remaining lifetime (three years) is
used.
C. Long-term prepaid expenses
The straight-line method is applied.
The amortization period is calculated based on the same standards as those set out in the Corporation Tax Act.
(3) Standards for recognition of significant allowances
A. Provision for bonuses
For the payment of employees’ bonuses, of the estimated payment amount, the amount to be paid in the consolidated fiscal year
under review is posted.
(4) Standards for translating significant assets or liabilities that are in foreign currency into yen
Monetary claims and obligations in foreign currency are translated into yen using the spot exchange rate on the consolidated settlingday, and translation adjustments are treated as a profit or loss. Assets and liabilities at overseas subsidiaries, etc. are translated into
yen using the spot exchange rate on the consolidated settling day. Revenue and expense are translated into yen using the average rateduring the period, and translation adjustments are included in the foreign currency translation adjustment in net assets.
(5) Scope of funds in the consolidated statement of cash flows
Funds in the consolidated statement of cash flows (cash and cash equivalents) consist of cash on hand, deposits that can bewithdrawn as needed, and short-term investments that can be realized easily and only have insignificant value fluctuation risk andwhose redemption date arrives within three months of the acquisition date.
(6) Other significant matters that serve as a basis for the preparation of consolidated financial statements
A. Treatment of consumption tax
Consumption tax and local consumption tax are excluded from accounting. Non-recoverable consumption tax and local consumption
tax are treated as expenses in the consolidated fiscal year under review.

―58―

(Issued but not yet Adopted Accounting Standards)
Accounting Standard for Revenue Recognition- Accounting Standard for Revenue Recognition (ASBJ Statement No. 29, March 31, 2020)- Implementation Guidance on Accounting Standard for Revenue Recognition (ASBJ Guidance No. 30, March 31, 2020)(1) Overview
An entity is required to recognize revenue to depict the transfer of promised goods or services to the customer in an amount thatreflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To recognize revenue inaccordance with these basic principles, an entity applies the following five steps:(i) Identify the contract with the customer.
(ii) Identify the performance obligations in the contract.
(iii) Calculate the value of the transaction.
(iv) Allocate the transaction value to the performance obligations in the contract.
(v) Recognize the revenue when the corresponding performance obligation has been satisfied or is going to be satisfied.
(2) Scheduled date of application
The Company and its consolidated subsidiaries will apply the accounting standard from the beginning of the consolidated fiscal year
ending March 31, 2022.
(3) Impacts of the application of the relevant accounting standards
The impacts of adopting Accounting Standard for Revenue Recognition on the consolidated financial statements are being evaluated.
- Accounting Standard for Accounting Policy Disclosures, Accounting Changes and Error Corrections (ASBJ Statement No.24, March
31, 2020)(1) Overview
In response to suggestions that consideration should be given to enhancement of explanatory notes in relation to “Accounting
Principles and Procedures Adopted in Cases where Relevant Accounting Standards are Unclear,” the Accounting Standards Board ofJapan (ASBJ) made necessary revisions and published these as the “Accounting Standard for Accounting Policy Disclosures,
Accounting Changes and Error Corrections.”
The revised accounting standard states that Annotations on the Accounting Principles (Note 1-2) should continue to be applied asefforts to enhance explanatory notes in relation to “Accounting Principles and Procedures Adopted in Cases where Relevant
Accounting Standards are Unclear” do not affect the practical expedients which have been used to date in cases where relevant
accounting standards are clear.
(2) Scheduled date of application
The Company and its consolidated subsidiaries will apply the accounting standard from the end of the consolidated fiscal year
ending March 31, 2021.

―59―

(Consolidated balance sheet)*1. The item related to non-consolidated subsidiaries is as follows.
Fiscal 2019
(As of March 31, 2019)
Shares of subsidiaries and associates(Thousand yen)
Fiscal 2020
(As of March 31, 2020)

1,097

1,097

(Consolidated statement of income)*1. The major items of selling, general and administrative expenses and the amounts are as follows.
Fiscal 2019(from April 1, 2018
to March 31, 2019)(Thousand yen)
Fiscal 2020
(from April 1, 2019
to March 31, 2020)

Advertising expenses

290,527

207,266

Salaries and allowances

626,386

580,044

Provision for bonuses

70,76664,292

Commission expenses

108,709108,522*2. Total amount of research and development expenses included in general and administrative expenses are as follows.
(Thousand yen)
Fiscal 2019
Fiscal 2020
(from April 1, 2018(from April 1, 2019
to March 31, 2019)
to March 31, 2020)
13,176873*3. The details of loss on retirement of non-current assets are as follows.
Fiscal 2019(from April 1, 2018
to March 31, 2019)
Tools, furniture and fixtures
Software(Thousand yen)
Fiscal 2020
(from April 1, 2019
to March 31, 2020)

3,163
1,211

65
‒

*4. Details of the loss on liquidation of subsidiaries are as follows.
Fiscal 2019 (from April 1, 2018 to March 31, 2019)
The loss on liquidation of subsidiaries is a loss as a result of completion of the liquidation of FinalCode, Inc.
Fiscal 2020 (from April 1, 2019 to March 31, 2020)
Not applicable.
(Consolidated statements of comprehensive income)*1. Reclassification adjustment and tax effect related to other comprehensive income(Thousand yen)

Foreign currency translation adjustment
Amount that occurred in the fiscal year underreview
Reclassification adjustment
Before tax effect adjustment

Fiscal 2019(from April 1, 2018
to March 31, 2019)

Fiscal 2020
(from April 1, 2019
to March 31, 2020)

2,214(2,378)

10,989‒13,203(2,378)‒‒

13,203(2,378)

13,203(2,378)Tax effectForeign currency translation adjustment
Total other comprehensive income―60―

(Consolidated statement of changes in equity)
Fiscal 2019 (from April 1, 2018 to March 31, 2019)
1. Class and number of issued shares and class and number of treasury shares
Number of shares at
Increase in number of
Decrease in number of Number of shares at end
beginning of consolidated shares during consolidated shares during consolidated of consolidated fiscal year
fiscal year under review fiscal year under review fiscal year under review
under review
Issued shares
14,133,000‒‒

14,133,000

14,133,000‒‒

14,133,000

Common shares (Note)

248,0182

15,700232,320

Total

248,0182

15,700232,320

Common shares
Total
Treasury shares(Note) An increase in the number of common shares in treasury shares, 2, is due to the purchase of shares constituting less than one
full unit. A decrease in the number of treasury shares, 15,700, is due to the exercise of stock options.
2. Matters related to share acquisition rights and treasury share acquisition rights
Number of shares to be acquired upon exercise of share
Class of sharesacquisition rights
to be acquired
Amount at end
Breakdown of share upon exerciseof fiscal year
Decrease
Category
Beginning of Increase during
End of fiscal
under reviewof shareacquisition rights
during fiscal
fiscal year
year underfiscal year
(thousand yen)acquisition
year under
under review under review
reviewrightsreview
ReportingShare acquisition
company (parent rights as stock
―
―
―
―
―
23,587
options
company)
―

Total

―

―

―

―

23,5873. Matters related to dividends(1) Dividends paid
Resolution
Annual shareholders’meeting on June 22, 2018
Board of Directors meetingon October 30, 2018

Class of shares

Total amount ofdividends(thousand yen)

Dividend per share(yen)

Common shares

194,389

14

Common shares

250,20318 September 30, 2018

Record date

Effective date

March 31, 2018

June 25, 2018
December 4, 2018

(2) Of dividends whose record date is in the consolidated fiscal year under review, those whose effective date in the next consolidated
fiscal year
Resolution

Class ofsharesAnnual shareholders’meeting on June 24, 2019

CommonsharesTotal amount ofdividends(thousand yen)

Financial sourceof dividends

Dividend pershare (yen)417,020 Retained earnings

30

―61―

Record date

Effective date

March 31, 2019

June 25, 2019

Fiscal 2020 (from April 1, 2019 to March 31, 2020)
1. Class and number of issued shares and class and number of treasury shares
Number of shares at
Increase in number of
Decrease in number of Number of shares at end
beginning of consolidated shares during consolidated shares during consolidated of consolidated fiscal year
fiscal year under review fiscal year under review fiscal year under review
under review
Issued shares
14,133,000‒‒

14,133,000

14,133,000‒‒

14,133,000

Common shares (Note)

232,320

49,422

165,700

116,042

Total

232,320

49,422

165,700

116,042

Common shares
Total
Treasury shares(Note) An increase in the number of common shares in treasury shares, 49,422, is due to an increase of 49,400 due to the purchaseof treasury shares based on a resolution of the Board of Directors and an increase of 22 due to the purchase of sharesconstituting less than one full unit. A decrease in the number of treasury shares, 165,700, is due to the exercise of stock
options.
2. Matters related to share acquisition rights and treasury share acquisition rights
Number of shares to be acquired upon exercise of share
Class of sharesacquisition rights
to be acquired
Amount at end
Breakdown of share upon exerciseof fiscal year
Decrease
Category
Beginning of Increase during
End of fiscalof shareacquisition rights
under review
during fiscal
fiscal year
fiscal year
year underacquisition(thousand yen)year under
under review under review
reviewrightsreview
ReportingShare acquisition
―
―
―
―
―
18,049company (parent rights as stock
options
company)
―

Total

―

―

―

―

18,0493. Matters related to dividends(1) Dividends paid
Resolution
Annual shareholders’meeting on June 24, 2019
Board of Directors meetingon October 29, 2019

Class of shares

Total amount ofdividends(thousand yen)

Dividend per share(yen)

Common shares

417,020

30

Common shares

351,352

25 September 30, 2019

Record date

Effective date

March 31, 2019

June 25, 2019
December 3, 2019(2) Of dividends whose record date is in the consolidated fiscal year under review, those whose effective date in the next consolidated
fiscal year
Resolution

Class ofsharesAnnual shareholders’meeting on June 19, 2020

CommonsharesTotal amount ofdividends(thousand yen)

Financial sourceof dividends

Dividend pershare (yen)350,423 Retained earnings

25

Record date

Effective date

March 31, 2020

June 22, 2020

(Consolidated statement of cash flows)*1. Cash and cash equivalents at the end of the fiscal year and their relationships with items in the consolidated balance sheets(Thousand yen)
Fiscal 2019
Fiscal 2020
(from April 1, 2018(from April 1, 2019
to March 31, 2019)
to March 31, 2020)
Cash and deposit account6,169,172
7,651,645
Time deposits whose deposit period(600,000)‒
is more than three months
Cash and cash equivalents

5,569,172―62―

7,651,645

(Lease transactions)Not applicable.
(Financial instruments)
1. Matters related to the status of financial instruments(1) Policy on financial instruments
The Group’s fund management is centered on short-term deposits. The Group also invests in government bonds, which are very safeand highly rated corporate and other bonds.
(2) Description of financial instruments and their risks
Notes and accounts receivable-trade, operating receivables, are exposed to customers’ credit risk.
Securities and investment securities are short-term investments in investment trusts and public and corporate bonds and are exposedto the market price fluctuation risk.
(3) Risk management system related to financial instruments(i) Credit risk (risk related to business connections’ contract non-performance) management
The sales management section and administrative department of the Company regularly monitor the status of operating receivables at
the main trading partners under the Company’s credit management regulations and control the due dates and balances for individual
partners. In this way, the Company strives to identify concerns over collections caused by deterioration in partners’ financial situation
early and mitigate them. The Company conducts similar credit management at consolidated subsidiaries under its credit management
regulations.
As for short-term fund management, the Company only uses bank deposits and investments in highly rated funds to avoid as muchcredit risk as possible.
(ii) Market risk (interest-rate fluctuation risk, etc.) management
The Company determines its fund management portfolio while expecting its financing needs, and avoids market risk as much as
possible.
(iii) Management of liquidity risk in financing (risk of failure to pay on due dates)
The Company manages liquidity risk chiefly by having the administrative department create financial plans in a timely manner.
(4) Additional information on matters related to the market prices of financial instruments, etc.
The market prices of financial instruments are based on market prices and rationally calculated prices if no market prices areavailable. The calculated prices include variable factors, which may change if different assumptions are used.
2. Matters related to the market prices of financial instruments, etc.
Consolidated balance sheet amounts, market prices and differences between them are as follows:
Fiscal 2019 (As of March 31, 2019)
Consolidated balance sheet
Market price (thousand yen) Difference (thousand yen)amount (thousand yen)
(1) Cash and deposits

6,169,172

6,169,172‒(2) Notes and accounts receivable - trade

1,172,515

1,172,515‒

402,971404,079

1,107

7,744,658

7,745,766

1,107

330,672

330,672‒

330,672

330,672‒(3) Securities and investment securities
Bonds held for maturity
Total assets(1) Income taxes payable
Total liabilities―63―

Fiscal 2020 (As of March 31, 2020)
Consolidated balance sheet
Market price (thousand yen) Difference (thousand yen)amount (thousand yen)
(1) Cash and deposits(2) Notes and accounts receivable - trade

7,651,645

7,651,645‒

994,793994,793‒

102,529

101,805(724)

8,748,969

8,748,244(724)

469,079

469,079‒

469,079

469,079‒(3) Securities and investment securities
Bonds held for maturity
Total assets(1) Income taxes payable
Total liabilities(Notes) 1. Matters related to calculation methods for the market prices of financial instruments and securities
Assets(1) Cash and deposits, (2) Notes and accounts receivable - trade
They are settled in the short term, and their market prices are similar to their book values. Thus, the market prices are
deemed to be their book values.
(3) Securities and investment securities
The market prices of public and corporate bonds are presented by financial institutions, etc. As for investment trusts, themarket prices are similar to the book values, because their yields are similar to those of deposits and their investment
results are distributed in the short term. Thus, their market prices are close to their book values and are deemed to be
their book values.
For information on securities according to holding purposes, refer to the note on securities.
Liabilities(1) Income taxes payable
They are settled in the short term, and their market prices are similar to their book values. Thus, the market prices are
deemed to be their book values.
2. Monetary claims and securities with maturity periods to be redeemed after the consolidated closing dateFiscal 2019 (As of March 31, 2019)(Thousand yen)More than aWithin a year year, within
five years

More than
five years,
within 10
years

More than 10
years

Cash and deposits

6,169,172‒‒‒

Notes and accounts receivable - trade

1,172,515‒‒‒

300,000

‒

‒

‒

‒

‒

100,000‒

7,641,687‒

100,000‒

Securities and investment securities
Bonds held for maturity(1) Government bonds, local government bonds(2) Corporate bonds
Total

―64―

Fiscal 2020 (As of March 31, 2020)(Thousand yen)More than aWithin a year year, within
five years

More than
five years,
within 10
years

More than 10
years

7,651,645‒‒‒

994,793‒‒‒(1) Government bonds, local government bonds

‒

‒

‒

‒

(2) Corporate bonds‒‒

100,000‒

8,646,439‒

100,000‒

Cash and deposits
Notes and accounts receivable - trade
Securities and investment securities
Bonds held for maturity

Total(Securities)
Bonds held for maturity
Fiscal 2019 (As of March 31, 2019)(Thousand yen)Classification

Market price exceeds
consolidated balance
sheet amount

Consolidated balance
sheet amount

Difference(1) Government bonds, local
government bonds, etc.

299,968

300,180

211(2) Corporate bonds

103,002103,899

896

‒

‒

‒

402,971404,0791,107(1) Government bonds, local
government bonds, etc.

‒

‒

‒

(2) Corporate bonds

‒

‒

‒

(3) Other

‒

‒

‒

‒

‒

‒

402,971404,079

1,107(3) Other
SubtotalMarket price does notexceed consolidatedbalance sheet amountMarket price

Subtotal
Total

―65―

Fiscal 2020 (As of March 31, 2020)(Thousand yen)Classification

Consolidated balance
sheet amount(1) Government bonds, local
government bonds, etc.

‒‒

102,529

101,805

(724)

‒

‒

‒

102,529

101,805(724)(1) Government bonds, local
government bonds, etc.

‒

‒

‒

(2) Corporate bonds

‒

‒

‒

(3) Other

‒

‒

‒

‒

‒

‒

102,529

101,805(724)(3) Other
SubtotalMarket price does notexceed consolidatedbalance sheet amount

Difference‒(2) Corporate bonds

Market price exceeds
consolidated balance
sheet amountMarket price

Subtotal
Total(Derivatives transactions)

Previous consolidated fiscal year (from April 1, 2018 to March 31, 2019) and consolidated fiscal year under review (from April 1,
2019 to March 31, 2020)
The Group did not conduct any derivatives transactions.
(Retirement benefits)
1. Outline of the retirement benefits system
The Company and its consolidated subsidiaries have a defined contribution pension plan.
2. Defined contribution plan
The amount the Company and its consolidated subsidiaries are required to contribute to the defined contribution pension was 19,928
thousand yen in fiscal 2019 (from April 1, 2018 to March 31, 2019) and 22,285 thousand yen in fiscal 2020 (from April 1, 2019 toMarch 31, 2020).
(Stock options)
1. Amount posted as profit due to the forfeiture of unexercised stock options
Fiscal 2019(from April 1, 2018
to March 31, 2019)
Gain on reversal of share acquisition rights

Fiscal 2020
(from April 1, 2019
to March 31, 2020)
2,135

―66―

561

2. Description of stock options, their scale and changes(1) Description of stock options
Company nameCategory and number of persons subject
to grants
Stock options by class of shares (Note)
Grant date

Vesting conditions

Requisite service period

Exercise period

2010 stock options
Reporting company

2015 stock options
Same as on the leftThree directors, 80 employees

Four directors, 151 employees

Common shares 99,300 shares
June 8, 2010

Common shares 350,100 shares
November 27, 2015
Being a director or an employee of thereporting company and not being subject tosalary reduction or stricter disciplinary
action provided for in the rules of
employment of the reporting company fromthe grant date (November 27, 2015) to thevesting date (July 1, 2017)
Share acquisition rights can be exercised up
to the percentage of the allocated shareacquisition rights specified in each item
Being an officer (an officer includes a
below by each holder of share acquisition
company auditor) or an employee at therights only if operating profit reaches thereporting company or a subsidiary or anlevel specified in each item below in theassociate of the reporting company and notfiscal year ended March 31, 2017, the fiscal
being subject to salary reduction or stricter
year ended March 31, 2018, or the fiscal
disciplinary action provided for in the rules
year ended March 31, 2019.
of employment of the reporting company or(i) If operating profit exceeds 1.5 billion
a subsidiary or an associate of the reporting
yen, 20% of share acquisition rights
company from the grant date (June 8, 2010)
can be exercisedto the vesting date (May 26, 2012)(ii) If operating profit exceeds 2.0 billion
The vesting dates are as follows:yen, 50% of share acquisition rights(i) May 26, 2012 for a third of the stock
can be exercised
options(iii) If operating profit exceeds 2.5 billion(ii) May 26, 2013 for a third of the stockyen, 100% of share acquisition rights
options
can be exercised(iii) May 26, 2014 for a third of the stock
In the items above, the operating profit
optionsstated in the consolidated statements ofincome in the Company’s annual securities
report (or the statements of income if noconsolidated statements of income areprepared) shall be referenced. If the concept
of items to be referenced changes
significantly due to the application of theInternational Financial Reporting Standards,
etc. indicators to be referenced shall be
determined by the Board of Directors.
(i) May 26, 2010 to May 25, 2012 for athird of the stock options(ii) May 26, 2010 to May 25, 2013 for athird of the stock options
No requisite service periods are determined.
(iii) May 26, 2010 to May 25, 2014 for athird of the stock options
These periods correspond to (i), (ii),and (iii) of the vesting conditions.
From the vesting date to June 24, 2019.
The person needs to continue to be an From the vesting date to May 31, 2027.
officer (an officer includes a company The person must continue to be a director or
auditor) or an employee of the Company or an employee of the Company to exercise
a subsidiary or an associate of the Company share acquisition rights.
until the exercise of stock options.

―67―

Company nameCategory and number of persons subject
to grants
Stock options by class of shares (Note)
Grant date2016 stock options
Reporting company

2018 stock options
Same as on the leftThree directors, 96 employees

Three directors, 151 employees

Common shares 848,000 shares
Common shares 1,413,300 shares
December 13, 2016
March 5, 2018
Being a director or an employee of thereporting company and not being subject tosalary reduction or stricter disciplinary
action provided for in the rules of
employment of the reporting company fromthe grant date (December 13, 2016) to thevesting date (July 1, 2018)
Being a director or an employee of the
Share acquisition rights can be exercised upreporting company and not being subject toto the percentage of the allocated sharesalary reduction or stricter disciplinaryacquisition rights specified in each item
action provided for in the rules of
below by each holder of share acquisition
employment of the reporting company fromrights only if operating profit reaches thethe grant date (March 5, 2018) to the vestinglevel specified in each item below in thedate (July 1, 2021)
fiscal year ended March 31, 2018, the fiscal
Each holder of share acquisition rights canyear ended March 31, 2019, or the fiscal
exercise the share acquisition rights
year ended March 31, 2020.
allocated to them only if operating profit(i) If operating profit exceeds 2.0 billion
exceeds 4.0 billion yen in the fiscal year
yen, 20% of share acquisition rights
Vesting conditions
ending March 31, 2021.
can be exercised
In the items above, the operating profit(ii) If operating profit exceeds 2.5 billion
stated in the consolidated statements ofyen, 50% of share acquisition rights
income in the Company’s annual securities
can be exercised
report (or the statements of income if no(iii) If operating profit exceeds 2.8 billion
consolidated statements of income areyen, 100% of share acquisition rights
prepared) shall be referenced. If the concept
can be exercisedof items to be referenced changes
In the items above, the operating profit
significantly due to the application of thestated in the consolidated statements ofInternational Financial Reporting Standards,
income in the Company’s annual securities
etc. indicators to be referenced shall bereport (or the statements of income if nodetermined by the Board of Directors.
consolidated statements of income areprepared) shall be referenced. If the concept
of items to be referenced changes
significantly due to the application of theInternational Financial Reporting Standards,
etc. indicators to be referenced shall be
determined by the Board of Directors.
Requisite service period
No requisite service periods are determined. No requisite service periods are determined.
From the vesting date to May 31, 2028.
From the vesting date to May 31, 2028.
The person must continue to be a director or The person must continue to be a director or
Exercise period
an employee of the Company to exercise an employee of the Company to exercise
share acquisition rights.
share acquisition rights.
(Note) The Company conducted a 100-for-1 common shares split on April 1, 2013. In the description above, the number of shares
has been converted to the number of shares after the stock split.

―68―(2) Scale of stock options and related changes
The stock options below are those that existed in the fiscal year under review (fiscal year ended March 31, 2020). The number ofstock options has been converted to the number of shares.
(i) Number of stock options
2010 stock options 2015 stock options 2016 stock options 2018 stock options
Before vesting (shares)
As of March 31, 2019‒

218,000

775,400

1,294,000

Granted

‒

‒

‒

‒

Forfeited‒‒

18,500105,700

Vested‒218,000

384,600‒

Yet to be vested‒‒

372,300

1,188,300

8,100

32,400‒‒‒218,000

384,600‒

Exercised

8,100

90,40067,200‒Forfeited

‒

‒

500

‒

Yet to be exercised‒

160,000

316,900‒

After vesting (shares)
As of March 31, 2019
Vested(Note) The Company conducted a 100-for-1 stock split on April 1, 2013. The number of stock options is the number after the stock
split.
(ii) Unit price information2010 stock options 2015 stock options 2016 stock options 2018 stock options
Exercise price (yen)Average stock price when
exercised (yen)

593

2,034

2,639

3,400

9,570

10,607

10,340‒(i) 375
Fair unit value (grant date)(ii) 386
2
24
1
(yen)
(iii) 396
(Note) 1(Notes) 1. The vesting conditions and requisite service period for each fiscal year in (1) Description of stock options in the
Description of stock options, their scale and changes correspond to (i), (ii) and (iii) above.
2. The Company conducted a 100-for-1 stock split on April 1, 2013. The numbers in the unit price information are thoseafter the stock split.
3. Method for estimating the number of stock options vested
It is basically difficult to reasonably estimate the number of stock options to be forfeited, and only the actual number of stock options
forfeited is reflected.

―69―

(Additional information)
Transactions granting employees and others stock acquisition rights which involve considerations with vesting conditions before theapplied day of Practical Solution on Transactions Granting Employees and Others Stock Acquisition Rights, which Involve
Considerations, with Vesting Conditions (PITF No. 36; January 12, 2018) are still accounted for using the previously adopted
accounting treatment in accordance with Paragraph 10 (3) of PITF No. 36.
1. Overview of stock acquisition rights which involve considerations with vesting conditions
Notes are omitted because the same description is given in “2. Description of stock options, their scale and changes” above.
2. Outline of accounting treatment adopted
When share acquisition rights are issued, the amount paid in on the issuance of share acquisition rights will be recorded as shareacquisition rights in net assets. When share acquisition rights are exercised, and new shares are issued, the amount paid in on theissuance of share acquisition rights and the amount paid in on the exercise of share acquisition rights will be transferred to share capitaland legal capital surplus, respectively.
When share acquisition rights have lapsed, the amount that corresponds to the lapse will be recorded as profit within that accounting
period.
(Tax effect accounting)
1. Breakdown of key factors contributing to deferred tax assets and deferred tax liabilities
Fiscal 2019
(As of March 31, 2019)(Thousand yen)
Fiscal 2020
(As of March 31, 2020)

Deferred tax assets
Enterprise taxes payable

17,831

24,657

Provision for bonuses

39,252

36,679Accrued social insurance premiums

5,889

5,530

Non-deductible depreciation expenses

246

220

Share-based remuneration expenses

799‒

Asset retirement obligations

11,62912,550Loss carryforwards

37,70644,274

Loss on valuation of golf club membership

1,362

1,791

Loss on valuation of shares of subsidiaries

2,191

2,191

Other

1,683

1,661

Total deferred tax assets

118,592

129,557

Valuation allowance (Note)(37,706)(44,274)

Total deferred tax assets

80,88685,282(Note) The valuation allowance increased by 6,568 thousand yen. This increase was mainly a result of an increase in thevaluation allowance related to tax loss carryforwards at consolidated subsidiaries.
2. Reconciliation of the statutory tax rate and the actual effective tax rate
Fiscal 2019
(As of March 31, 2019)
Statutory effective tax rate

30.62 %

Fiscal 2020
(As of March 31, 2020)‒%(Adjustment)
Inhabitant tax on a per capita basis
0.35‒
Items that are not permanently deductible, such
0.25‒
as entertainment expense
Changes in valuation allowance(7.28)‒
Differences in tax rate from the parent
0.35‒
company’s statutory tax rate
Other
(0.93)‒
Percentage of income tax payment, etc. after the
23.36‒
application of tax effect accounting(Note) Notes are omitted because the difference between the statutory tax rate and the effective tax rate is 5% or less of thestatutory tax rate.

―70―

(Asset retirement obligations)
Asset retirement obligations posted in the consolidated balance sheets(1) Outline of the asset retirement obligations
Obligations of restoration related to lease agreements at the head office and other offices(2) Method for calculation of the asset retirement obligations
The period of use is estimated to be eight to 15 years from the acquisition. The discount rate is 0.12% to 1.73%. The amount of asset
retirement obligations is calculated based on those assumptions.
(3) Increase/decrease in the asset retirement obligations
Fiscal 2019(from April 1, 2018
to March 31, 2019)(Thousand yen)
Fiscal 2020
(from April 1, 2019
to March 31, 2020)

Balance at beginning of fiscal year
Increase due to purchase of property,
plant and equipment
Adjustment due to passage of time

44,36045,444

655

‒

428

433

Balance at end of fiscal year

45,44445,877(Segment information, etc.)
Segment information
Previous consolidated fiscal year (from April 1, 2018 to March 31, 2019) and consolidated fiscal year under review (from April 1,
2019 to March 31, 2020)
The Group has only one segment, which is the security business, and segment information is omitted.
Related information
Fiscal 2019 (from April 1, 2018 to March 31, 2019)
1. Information by product/service
The Group has only one product and service category, and information by product/service is omitted.
2. Information by region(1) Net sales
Sales to external customers in Japan are more than 90% of net sales in the consolidated statements of income, and information byregion is omitted.
(2) Property, plant and equipment
The amount of property, plant and equipment in Japan is more than 90% of the amount of property, plant and equipment in the
consolidated balance sheets, and information on property, plant and equipment is omitted.
3. Information by major customer
The Group engages in only one segment, the security business.
(Thousand yen)
Customer name

Net sales

SB C&S Corp.

1,247,566

Daiwabo Information System Co., Ltd.

1,160,228(Note) The name of SoftBank Commerce & Service Corp. changed to SB C&S Corp. on January 1, 2019.

―71―

Fiscal 2020 (from April 1, 2019 to March 31, 2020)
1. Information by product/service
The Group has only one product and service category, and information by product/service is omitted.
2. Information by region(1) Net sales
Sales to external customers in Japan are more than 90% of net sales in the consolidated statements of income, and information byregion is omitted.
(2) Property, plant and equipment
The amount of property, plant and equipment in Japan is more than 90% of the amount of property, plant and equipment in the
consolidated balance sheets, and information on property, plant and equipment is omitted.
3. Information by major customer
The Group engages in only one segment, the security business.
(Thousand yen)
Customer name

Net sales

SB C&S Corp.

1,166,937

Daiwabo Information System Co., Ltd.

1,109,164

Information on impairment loss in non-current assets by reporting segment
Not applicable.
Information on amortization of goodwill and unamortized balance by reporting segment
Not applicable.
Information on gain on bargain purchase by reporting segment
Not applicable.
(Related party information)
Transactions with related parties
Transactions between the company submitting consolidated financial statements and related parties
Officers and major individual shareholders of the company submitting consolidated financial statements
Fiscal 2019 (from April 1, 2018 to March 31, 2019)
Not applicable.
Fiscal 2020 (from April 1, 2019 to March 31, 2020)
Not applicable.
(Special purpose companies subject to disclosure)
Not applicable.

―72―

(Per share information)
Fiscal 2019(from April 1, 2018
to March 31, 2019)

Fiscal 2020
(from April 1, 2019
to March 31, 2020)

Net assets per share

558.33 yen

617.27 yen

Profit per share141.11 yen

113.69 yen

Diluted profit per share

140.80 yen

110.83 yen(Note) Base for calculating profit per share and diluted profit per share
Fiscal 2019(from April 1, 2018
Item
to March 31, 2019)

Fiscal 2020
(from April 1, 2019
to March 31, 2020)

Profit per share
Profit attributable to owners of parent(thousand yen)Amount not attributable to commonshareholders (thousand yen)
Profit attributable to owners of parent
related to common shares (thousand yen)
Average number of common shares
during the term

1,961,276

1,590,784‒‒

1,961,276

1,590,784

13,898,934

13,991,859‒‒

Increase in the number of common shares

30,455

361,483(Of the increase, the number of shareacquisition rights) (shares)(30,455)(361,483)

Diluted profit per share
Adjustment of profit attributable toowners of parent (thousand yen)

Share acquisition rights
Outline of potential shares that are notincluded in the calculation of the diluted
profit per share because they do not haveany diluting effects

Resolution on November 12, 2015
Number of potential shares: 218,000
Resolution on November 10, 2016
Number of potential shares: 775,400
Resolution on February 16, 2018
Number of potential shares: 1,294,000(Significant subsequent events)
Not applicable.

―73―

Share acquisition rights
Resolution on November 10, 2016
Number of potential shares: 372,300
Resolution on February 16, 2018
Number of potential shares: 1,188,300

(v) Consolidated Supplementary Schedules
Bonds Schedule
Not applicable.
Borrowings Schedule
Not applicable.
Asset Retirement Obligations Schedule
The amount of asset retirement obligations at both the beginning and end of fiscal 2020 are less than 1% of the combined total of
liabilities and net assets at the beginning and end of fiscal 2020, and so have been omitted in accordance with Article 92-2 of theRegulations for Consolidated Financial Statements.

―74―

(2) Other
Quarterly information in the consolidated fiscal year under review, etc.
(Cumulative period)First quarter

Second quarter

Third quarter

Fiscal year underreview(Thousandyen)

1,249,447

2,764,132

4,141,002

5,641,805

Profit before income (Thousand
yen)
taxes

412,014

1,092,446

1,649,358

2,326,026

Profit attributable to (Thousandyen)owners of parent

280,800

745,308

1,128,844

1,590,784

20.19

53.40

80.72

113.69Net sales

Profit per share(Yen)(Accounting period)
Profit per share(Yen)First quarter

Second quarter

20.19

33.16

―75―

Third quarter
27.32

Fourth quarter
32.96

2. Financial Statements of the Reporting Company(1) Financial Statements(i) Balance Sheet(Thousand yen)
Fiscal 2019
(As of March 31, 2019)
AssetsCurrent assets
Cash and deposits
Notes and accounts receivable - trade
Securities
Finished goods
Supplies
Advance payments - trade
Prepaid expenses
Other

*

*

Total current assets

5,982,081
1,143,621
299,968290‒
807
65,27820,523Fiscal 2020
(As of March 31, 2020)**

7,517,412
916,532‒
771
654‒
63,5353,395

7,512,572

8,502,301

Non-current assets
Property, plant and equipment
Buildings
Vehicles

101,009
7,703

100,617
4,637

Tools, furniture and fixtures
Land
Construction in progress

124,985
26,254‒112,947
26,284822

Total property, plant and equipment

259,953

245,308

Intangible assets
Software
Software in progress
Telephone subscription rightOther

1,043,645
367,199190
151,331,822
79,060190‒

Total intangible assets

1,411,051

1,411,073

Investments and other assets
Investment securities
Shares of subsidiaries and associates
Investments in capital

103,002
168,58510

102,529
153,635
10

Long-term prepaid expenses
Leasehold and guarantee deposits
Deferred tax assets
Other

28,890182,990145,91357,426

26,948186,271
154,887
56,139Total investments and other assets
Total non-current assets
Total assets―76―

686,818

680,4212,357,823

2,336,803

9,870,395

10,839,105

(Thousand yen)
Fiscal 2019
(As of March 31, 2019)
Liabilities
Current liabilities
Accounts payable - trade
Accounts payable - otherAccrued expenses
Income taxes payable
Accrued consumption taxes
Advances received
Deposits received
Provision for bonuses**

Fiscal 2020
(As of March 31, 2020)

19,236
151,964
52,604
329,70399,1251,215,782
23,273
128,192**

7,067
126,723
41,438469,079
77,337
1,223,090
13,122
119,788

Total current liabilities

2,019,882

2,077,649

Non-current liabilities
Asset retirement obligations

45,44445,877

Other

645

645

46,08946,522

2,065,972

2,124,171

713,590

713,590

Legal capital surplus
Other capital surplus

700,222
129,682

700,222274,134

Total capital surplus

829,905

974,357

6,544,279

7,389,064

6,544,279

7,389,064

Total non-current liabilities
Total liabilities
Net assets
Shareholders’ equity
Share capital
Capital surplus

Retained earnings
Other retained earnings
Retained earnings brought forward
Total retained earnings
Treasury shares(306,939)(380,126)

Total shareholders’ equity

7,780,835

8,696,884

Share acquisition rights
Total net assets
Total liabilities and net assets―77―

23,58718,0497,804,423

8,714,933

9,870,395

10,839,105

(ii) Statement of Income

Net sales
Cost of sales
Beginning finished goods inventory
Cost of Internet service

Fiscal 2019(from April 1, 2018
to March 31, 2019)*2
5,752,991(Thousand yen)
Fiscal 2020
(from April 1, 2019
to March 31, 2020)*2
5,336,838

695
1,028,520

290
1,098,585

*2

Total

1,029,215

Transfer to other account*1

Ending finished goods inventory
Cost of finished goods sold
Gross profit

14

1,098,875
*1

290

771

1,028,910

1,098,080

4,724,081

Selling, general and administrative expenses*3

Operating profit
Non-operating income
Interest income
Interest on securities
Commission income
Gain on forfeiture of unclaimed dividends
Miscellaneous income*2

Total non-operating income
Non-operating expenses
Foreign exchange losses
Commission for purchase of treasury shares
Total non-operating expenses
Ordinary profit
Extraordinary income
Gain on reversal of share acquisition rights
Distribution from the liquidation of subsidiaries
Total extraordinary income
Extraordinary losses
Loss on retirement of non-current assets
Loss on valuation of golf club membership*4

Loss on valuation of shares of subsidiaries

1,949,449

4,238,758*2, *3

1,881,313

2,774,631

2,357,444

182

193

896
2,598
1,168
834

*2

600
3,615
840
2,312

5,678

7,562

2,878
‒

5,555
299

2,878

5,854

2,777,431

2,359,152

2,135
37,257561‒

39,393

561

4,374
2,200
219,860

Total extraordinary losses

24

*4

10
1,400
14,949226,434

16,360

Profit before income taxes

2,590,390

2,343,353

Income taxes - current
Income taxes - deferred

596,476
209,047

739,171(8,974)

Total income taxes
Profit―78―805,523

730,196

1,784,866

1,613,156

Detailed Statement of Cost of Internet Service
Fiscal 2019(from April 1, 2018 to March 31, 2019)
CategoryI.

NotenumberFiscal 2020
(from April 1, 2019 to March 31, 2020)

Amount (thousand yen)

Composition
rate (%)

Amount (thousand yen)

Composition
rate (%)

179,986

10.6

32,483

1.8

Material cost

II. Labor cost

*1

668,15339.4

691,90937.1

III. Expenses*2848,37550.0

1,138,653

61.1

1,696,515

100.0

1,863,046

100.0

Total expenses
Transfer to other account*3

Cost of Internet service

667,995

764,461

1,028,520

1,098,585(Note)
Fiscal 2019 (from April 1, 2018 to March 31, 2019)*1 Major items in labor cost
Salaries and allowances
Legal welfare expenses
Bonuses
Provision for bonuses
Other salaries*2 Major items in expenses
Outsourcing expenses
Depreciation
Rent expenses

Fiscal 2020 (from April 1, 2019 to March 31, 2020)*1 Major items in labor cost(Thousand yen)
425,274
88,20857,37257,42533,372

Salaries and allowances
Legal welfare expenses
Bonuses
Provision for bonuses
Other salaries*2 Major items in expenses(Thousand yen)
100,459
484,645
93,946*3 Major items in transfer to other account(Thousand yen)
Selling, general and34,115administrative expenses
Non-current assets
633,880
Total
667,995
4. Costing method
The job order cost system based on actual costs is
employed for the Company’s costing.

Outsourcing expenses
Depreciation
Rent expenses(Thousand yen)
429,138
88,53871,74955,49535,028(Thousand yen)
92,616753,165
93,950*3 Major items in transfer to other account(Thousand yen)
Selling, general and
32,020administrative expenses
Non-current assets
732,441
Total
764,461
4. Costing method
Same as on the left

―79―

(iii) Statement of Changes in Equity
Fiscal 2019 (from April 1, 2018 to March 31, 2019)(Thousand yen)
Shareholders’ equity
Capital surplus

Balance at beginning of period

Retained earnings

SharecapitalLegalcapitalsurplus

OthercapitalsurplusTotal
capitalsurplus713,590

700,222

127,511827,734

Otherretainedearnings
Retainedearnings
brought
forward5,204,006

Total
retainedearnings

5,204,006

Share
Total
acquisition
Treasuryshareholders’rightssharesequityTotal net
assets(327671)

6,451,473

6,417,660

33,812

Changes during period
Dividends of surplus(444,592)(444,592)(444,592)(444,592)

Profit

1,784,866

1,784,866

1,784,866

1,784,866

20,741

22,912

22,912

(10)

(10)

(10)

Disposal of treasury shares

2,170

2,170

Purchase of treasury shares
Net changes in items otherthan shareholders’ equity(10,225)

‒

‒

2,170

2,170

1,340,273

1,340,273

20,731

1,363,175(10,225)

1,352,950

713,590

700,222

129,682829,905

6,544,279

6,544,279(306,939)

7,780,835

23,587

7,804,423

Total changes during period
Balance at end of period(10,225)

Fiscal 2020 (from April 1, 2019 to March 31, 2020)(Thousand yen)
Shareholders’ equity
Capital surplus

Balance at beginning of period

Retained earnings

SharecapitalLegalcapitalsurplus

OthercapitalsurplusTotal
capitalsurplus713,590

700,222

129,682829,905

Otherretainedearnings
Retainedearnings
brought
forward6,544,279

Total
retainedearnings

6,544,279

Share
Total
acquisition
Treasuryshareholders’rightssharesequityTotal net
assets(306,939)

7,804,423

7,780,835

23,587

Changes during period
Dividends of surplus(768,372)(768,372)(768,372)(768,372)

Profit

1,613,156

1,613,156

1,613,156

1,613,156

Disposal of treasury shares

144,451

144,451

Purchase of treasury shares

226,542

370,994

370,994(299,730)(299,730)(299,730)

Net changes in items otherthan shareholders’ equity
Total changes during period
Balance at end of period(5,538)(5,538)‒‒144,451

144,451

844,784

844,784(73,187)

916,048(5,538)910,510

713,590

700,222274,134

974,357

7,389,064

7,389,064(380,126)

8,696,884

18,0498,714,933―80―

Notes(Notes on the premise of a going concern)
Not applicable.
(Significant accounting policies)
1. Asset valuation standards and valuation method(1) Valuation standards and valuation methods for securities
Bonds held for maturity
The amortized cost method (interest method) is applied.
Shares of subsidiaries and associates
The moving average cost method is applied.
(2) Valuation standards and valuation method for inventories
Finished goods
The gross average cost method is applied. (The balance sheet amount is calculated by the book value write-down method based on
reduction in profitability.)
2. Depreciation method for non-current assets(1) Property, plant and equipment
The declining balance method is applied.
The useful life and the residual value are calculated based on the same standards as those set out in the Corporation Tax Act. The
straight-line method is applied for facilities attached to buildings and structures acquired from April 1, 2016.
(2) Intangible assets
The straight-line method is applied.
The straight-line method based on the availability period in the company (five years) is used for software in the company. For
software for sale in the market, a method based on estimated sales quantities (or revenue) or the remaining lifetime (three years) isused. Goodwill is evenly amortized over five years.
(3) Long-term prepaid expenses
The straight-line method is applied.
The amortization period is calculated based on the same standards as those set out in the Corporation Tax Act.
3. Standards for translating assets or liabilities that are in foreign currency into yen
Monetary claims and obligations in foreign currency are translated into yen using the spot exchange rate on the settling day, andtranslation adjustments are treated as a profit or loss.
4. Standards for reporting allowances
Provision for bonuses
For the payment of employees’ bonuses, of the estimated payment amount, the amount to be paid in the fiscal year under review isposted.
5. Other significant matters that serve as the basis for the preparation of financial statements
Treatment of consumption tax
Consumption tax and local consumption tax are excluded from accounting. Non-recoverable consumption tax and local consumption
tax are treated as expenses in the fiscal year under review.

―81―(Additional information)
Transactions granting employees and others stock acquisition rights which involve considerations with vesting conditions before theapplied day of Practical Solution on Transactions Granting Employees and Others Stock Acquisition Rights, which Involve
Considerations, with Vesting Conditions (PITF No. 36; January 12, 2018) are still accounted for using the previously adopted
accounting treatment in accordance with Paragraph 10 (3) of PITF No. 36.
1. Overview of stock acquisition rights which involve considerations with vesting conditions
Notes are omitted because the same information is given in Section V. Financial Information 1. Consolidated Financial Statements,
Notes (Stock options).
2. Outline of accounting treatment adopted
When share acquisition rights are issued, the amount paid in on the issuance of share acquisition rights will be recorded as shareacquisition rights in net assets. When share acquisition rights are exercised, and new shares are issued, the amount paid in on theissuance of share acquisition rights and the amount paid in on the exercise of share acquisition rights will be transferred to share capitaland legal capital surplus, respectively.
When share acquisition rights have lapsed, the amount that corresponds to the lapse will be recorded as profit within that accounting
period.
(Balance sheet)* Monetary claims and monetary liabilities in relation to subsidiaries and associates (excluding those presented on balance sheet)(Thousand yen)
Fiscal 2019
Fiscal 2020
(As of March 31, 2019)(As of March 31, 2020)
Short-term monetary claims
10,665
2,180
Short-term monetary liabilities
36,23913,950(Matters related to income statement)*1. A breakdown of finished goods transfer to other account is as follows.
(Thousand yen)
Fiscal 2019
Fiscal 2020
(from April 1, 2018 to March 31, 2019) (from April 1, 2019 to March 31, 2020)
Transfer to selling, general andadministrative expenses

14

24*2. Transactions in relation to subsidiaries and associates are included as follows.
(Thousand yen)
Fiscal 2019
Fiscal 2020
(from April 1, 2018 to March 31, 2019) (from April 1, 2019 to March 31, 2020)
Operating transactions
Net sales
Purchase of goods
Selling, general and administrative
expenses
Transactions other than operatingtransactions

121,682
133,611

8,788
‒

‒

21,511

2,400

3,600

―82―

*3. Selling expenses accounted for approximately 15.2% and 12.2% of total selling, general and administrative expenses in fiscal 2019and fiscal 2020 respectively while the share of general and administrative expenses was 84.8% in fiscal 2019 and 87.8% in fiscal 2020.
The major items of selling, general and administrative expenses and the amounts are as follows.
(Thousand yen)
Fiscal 2019
Fiscal 2020
(from April 1, 2018 to March 31, 2019) (from April 1, 2019 to March 31, 2020)
Advertising expenses

272,571

206,611

Salaries and allowances

555,832

570,267

Provision for bonuses

70,76664,292

Depreciation

53,70551,358*4. The details of loss on retirement of non-current assets are as follows.
(Thousand yen)
Fiscal 2019
Fiscal 2020
(from April 1, 2018 to March 31, 2019) (from April 1, 2019 to March 31, 2020)
Tools, furniture and fixtures

3,163

10

Software

1,211‒(Securities)
Information about shares of subsidiaries and associates (the carrying amount in fiscal 2020 was 153,635 thousand yen and the carrying
amount in fiscal 2019 was 168,585 thousand yen) is omitted as these shares do not have market value and it is considered extremely
difficult to calculate their fair market values.
(Tax effect accounting)
1. Breakdown of key factors contributing to deferred tax assets and deferred tax liabilities
Fiscal 2019
(As of March 31, 2019)(Thousand yen)
Fiscal 2020
(As of March 31, 2020)

Deferred tax assets
Enterprise taxes payable

17,831

24,657

Provision for bonuses

39,252

36,679Accrued social insurance premiums

5,889

5,530

Non-deductible depreciation expenses

246

220

Share-based remuneration expenses
Asset retirement obligations

799‒

11,62912,550Loss on valuation of golf club membership

1,362

1,791

Loss on valuation of shares of subsidiaries

67,321

71,898

Other

1,580

1,559

145,913

154,887

Net deferred tax assets

2. Reconciliation of the statutory tax rate and the actual effective tax rate
Notes are omitted because the difference between the statutory tax rate and the effective tax rate is 5% or less of the statutory tax rate.
(Significant subsequent events)
Not applicable.

―83―

(iv) Supplementary Schedules
Itemized Account of Property, Plant and Equipment, etc.
(Thousand yen)
Balance at
Net increase in Net decrease in Depreciation in Balance at end Accumulated
beginning ofdepreciation
current period current period current periodof period
periodClasses of assets
Property, plant andequipment
Buildings

101,009

9,815‒

10,208100,617

115,189

Vehicles

7,703

‒

‒

3,065

4,637

12,881Tools, furniture andfixtures124,985

38,303

10

50,330112,947

321,252

Land

26,25429‒‒

26,284‒

Construction in progress

‒

822

‒

‒

822

‒

Total property, plant andequipment

259,953

48,97010

63,605245,308449,323

1,043,645

1,029,094‒

740,9171,331,822‒

367,199

732,441

1,020,580‒

79,060‒

Telephone subscription
right

190

‒

‒

‒

190

‒

Other

15

‒

‒

15

‒

‒

1,411,051

1,761,536

1,020,580

740,933

1,411,073‒

Intangible assets
Software
Software in progress

Total intangible assets(Notes) 1. Major increases during the current period are as follows:(Thousand yen)
Commercial software(DigitalArts@Cloud)418,408

Commercial software(i-FILTER)

229,335

Commercial software(FinalCode)

162,494

Commercial software(m-FILTER)

102,709

Commercial software(i-FILTER)

236,501

Commercial software(DigitalArts@Cloud)196,416

Commercial software(m-FILTER)

123,840

Commercial software(FinalCode)74,782

Software

Software in progress

2. Major decreases during the current period are as follows:(Software in progress) Decrease indicates transfer to software account due to completion.
Itemized Account of Allowances(Thousand yen)
Category

Balance at
beginning of period

Provision for bonuses

128,192

Net increasein current period
119,788

Net decreasein current period

Balance at
end of period

128,192(2) Details of major assets and liabilities
The presentation of this information is omitted due to the ongoing preparation of consolidated financial statements.
(3) Other
Not applicable.

―84―

119,788

Section VI. Stock Information of the Reporting Company
Fiscal year

From April 1 to March 31

Annual general meeting ofshareholders

During June

Record date

March 31

Record date for distribution of
surplusNumber of shares constituting
one unit
Purchase and sale of sharesless than one unit

September 30 and March 31
100 shares
Not applicable.

Handling officeTransfer agent
Forward office
Purchasing and selling fee

Method of public notice

The Company posts notices in electronic format. However, in the event online announcement
becomes impossible due to unavoidable circumstances, announcements will be published in the
Nihon Keizai Shimbun.
Notices are posted on the Company’s website:
http://www.daj.jp/ir/stock/notification/

Special benefit for
Not applicable.
shareholders(Note) Holders of shares constituting less than one trading unit do not have any rights except the rights granted by the items listed in
Article 189, Paragraph 2 of the Companies Act, the right to make a request pursuant to Article 166, Paragraph 1 of theCompanies Act, and the right for allotment of shares for subscription or share acquisition rights for subscription in
proportion to the number of shares owned.

―85―Section VII. Reference Information on the Reporting Company
1. Information on Parent Entities of the Reporting Company
The Company does not have a Parent Company, etc. as specified in Article 24-7 (1) of the Financial Instruments and Exchange Act.

2. Other Reference Information
The Company submitted the following documents between the first day of the fiscal year under review and the day of submitting thesecurities report.
(1) Annual Securities Report and documents attached, and Confirmation Letter
24th fiscal year (from April 1, 2018 to March 31, 2019) Submitted to the Director-General of Kanto Local Finance Bureau on June
26, 2019(2) Internal Control Report and accompanying documents
Submitted to the Director-General of Kanto Local Finance Bureau on June 26, 2019(3) Quarterly Report and Confirmation Letter
Quarterly accounting period
For the first quarter of the 25th fiscal year (April 1, 2019 to June 30, 2019) Submitted to the Director-General of Kanto Local
Finance Bureau on August 9, 2019
For the second quarter of the 25th fiscal year (July 1, 2019 to September 30, 2019) Submitted to the Director-General of Kanto
Local Finance Bureau on November 8, 2019
For the third quarter of the 25th fiscal year (October 1, 2019 to December 31, 2019) Submitted to the Director-General of Kanto
Local Finance Bureau on February 7, 2020
(4) Extraordinary Report
Submitted to the Director-General of Kanto Local Finance Bureau on June 26, 2019
An extraordinary report pursuant to the provisions of Item (ix)-2 (result of exercising voting rights at the general meeting ofshareholders), Paragraph (2), Article 19 of the Cabinet Office Ordinance on the Disclosure of Corporate Affairs, etc.
(5) Share Buyback Report
Submitted to the Director-General of Kanto Local Finance Bureau on December 13, 2019―86―Part II. Information Concerning Guarantors of the Reporting Company
Not applicable.

―87―Independent Auditors’ Audit Report and Internal Control Audit Report
June 19, 2020
The Board of Directors
Digital Arts Inc.

BDO Sanyu & Co.
Tokyo Office

Designated andEngagement Partner

Certified Public Accountant Nobuhito Iwata

Seal

Designated andEngagement Partner

Certified Public Accountant Koji Kumagai

Seal[Audit of Financial Statements]
Audit Opinion
To conduct audit certification as prescribed in the first paragraph of Article 193-2 of the Financial Instruments and Exchange Act, wehave audited the consolidated financial statements of Digital Arts Inc. for the consolidated fiscal year from April 1, 2019 to March 31,
2020 included in the Financial Information, namely, the consolidated balance sheet, the consolidated statements of income, theconsolidated statement of comprehensive income, the consolidated statement of changes in equity, the consolidated statement of cash
flows, significant matters that serve as a basis for the preparation of consolidated financial statements, other notes and consolidated
supplementary schedules.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of
Digital Arts Inc. and its consolidated subsidiaries as of March 31, 2020, and the consolidated results of their operations and their cash
flows for the year then ended in conformity with accounting principles for consolidated financial statements generally accepted inJapan.
Basis for Opinion
We have conducted the audit in accordance with audit standards that are generally considered fair and reasonable in Japan. Our
responsibilities under those standards are further described in the “Auditor’s Responsibilities for the Audit of the Consolidated
Financial Statements” section of our report. We are independent of the Company and its consolidated subsidiaries in accordance withthe ethical requirements that are relevant to our audit of the consolidated financial statements in Japan, and we have fulfilled our otherethical responsibilities in accordance with these requirements. We consider that audit evidence that we have obtained is sufficient andappropriate to provide a basis for our audit opinion.
Responsibilities of Management and Audit & Supervisory Board for the Consolidated Financial Statements
Management is responsible for the preparation and appropriate presentation of consolidated financial statements in accordance with the
Generally Accepted Accounting Principles of Japan. Such responsibilities include the establishment and implementation of internal
control that management determines is necessary for the preparation and appropriate presentation of consolidated financial statementsthat are free of any material misstatements due to frauds or errors.
In preparing the consolidated financial statements, management is responsible for assessing the Group’s ability to continue as a going
concern, disclosing, as applicable, matters related to going concern in accordance with generally accepted accounting principles ofJapan.
The Audit & Supervisory Board is responsible for overseeing the directors’ performance of their duties including the design,
implementation and maintenance of the Group’s financial reporting process.

―88―

Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements
Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Misstatements can arise fromfraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence theeconomic decisions of users taken on the basis of these consolidated financial statements.
As part of our audit in accordance with auditing standards generally accepted in Japan, we exercise professional judgment andmaintain professional skepticism throughout the audit. We also:- Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error; Design
and perform audit procedures responsive to those risks. These audit procedures are selected and performed, depending on theauditor’s judgment. Obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion.
- Obtain an understanding of internal control relevant to the audit in order to assess the risk and design audit procedures that areappropriate in the circumstances, while the objective of the audit is not to express an opinion on the effectiveness of the Group’s
internal control.
- Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures
made by management.
- Conclude on the appropriateness of management’s use of the going concern basis of accounting and based on the audit evidence
obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability
to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’sreport to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion.
Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions
may cause the Group to cease to continue as a going concern.
- Evaluate whether the presentation and disclosures in the consolidated financial statements are in accordance with auditing standards
generally accepted in Japan, the overall presentation, structure and content of the consolidated financial statements, including thedisclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that
achieves fair presentation.
- Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Groupto express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of
the Group audit. We remain solely responsible for our audit opinion.
We communicate with the Audit & Supervisory Board regarding, among other matters, the planned scope and timing of the audit,
significant audit findings, including any significant deficiencies in internal control that we identify during our audit.
We also provide the Audit & Supervisory Board with a statement that we have complied with relevant ethical requirements regarding
independence, and communicate with them all relationships and other matters that may reasonably be thought to bear on our
independence, and where applicable, related safeguards.
[Internal Control Audit]
Audit Opinion
To conduct audit certification as prescribed in the second paragraph of Article 193-2 of the Financial Instruments and Exchange Act,
we have audited the internal control report of Digital Arts Inc. dated March 31, 2020.
We consider that the aforementioned internal control report, in which Digital Arts Inc. indicates that effective internal control ismaintained pertaining to financial reporting as of March 31, 2020, properly reflects the evaluation results of internal control overfinancial reporting in all important respects, in compliance with internal control evaluation standards over financial reporting that are
generally considered fair and reasonable in Japan.
Basis for Opinion
We have conducted the internal control audit in accordance with internal control audit standards over internal reporting that are
generally considered fair and reasonable in Japan. Our responsibilities under the auditing standards for internal control over financial
reporting are further described in the “Auditor’s Responsibilities for the Audit of Internal Control” section of our report. We are
independent of the Company and its consolidated subsidiaries in accordance with the ethical requirements that are relevant to our audit―89―

of the consolidated financial statements in Japan, and we have fulfilled our other ethical responsibilities in accordance with theserequirements. We consider that audit evidence that we have obtained is sufficient and appropriate to provide a basis for our audit
opinion.

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Responsibilities of Management and the Audit & Supervisory Board for the Internal Control ReportManagement is responsible for the establishment and implementation of internal control as it pertains to financial reporting, as well as
the preparation and appropriate presentation of internal control reports, in accordance with internal control evaluation standards overfinancial reporting that are considered generally fair and reasonable in Japan.
The Audit & Supervisory Board is responsible for overseeing and examining the design and operation of internal control over financial
reporting.
It may not be possible, however, to fully prevent or identify the presentation of misstatements due to internal control over financial
reporting.
Auditor’s Responsibilities for the Audit of Internal Control
Our objectives are to obtain reasonable assurance about whether the internal control report is free from material misstatement based on
our audit of internal control and to issue an auditor’s report that includes our opinion.
As part of our audit in accordance with auditing standards for internal control over financial reporting generally accepted in Japan, we
exercise professional judgment and maintain professional skepticism throughout the audit. We also:- Perform procedures to obtain audit evidence about the results of the assessments of internal control over financial reporting in theinternal control report. The procedures for the audit of the internal control report are selected and performed, depending on theauditor’s judgment, based on significance of effect on the reliability of financial reporting.
- Evaluate the overall presentation of the internal control report, including the appropriateness of the scope, procedures and result of
the assessments that management presents.
- Obtain sufficient appropriate audit evidence about the results of the assessments of internal control over financial reporting in theinternal control report. We are responsible for the direction, supervision and performance of the audit of the internal control report.
We remain solely responsible for our audit opinion.
We communicate with the Audit & Supervisory Board regarding, among other matters, the planned scope and timing of our audit ofinternal control, the results thereof, material weaknesses in internal control identified during our audit of internal control, and thosethat were remediated.
We also provide the Audit & Supervisory Board with a statement that we have complied with relevant ethical requirements regarding
independence, and communicate with them all relationships and other matters that may reasonably be thought to bear on our
independence, and where applicable, related safeguards.
Interest Related
There is not any conflict of interest between the Company and its consolidated subsidiaries and BDO Sanyu & Co. or its Engagement
Partners which should be disclosed under the provisions of the Certified Public Accountants Act.

(Notes) 1. The above is an electronic copy of what is described in the original audit report kept by the company that submits
securities reports, separately.
2. XBRL data are not within the scope of audits.

―91―Internal Control Audit Report by Independent Auditors
June 19, 2020
The Board of Directors
Digital Arts Inc.

BDO Sanyu & Co.
Tokyo Office

Designated andEngagement Partner

Certified Public Accountant Nobuhito Iwata

Seal

Designated andEngagement Partner

Certified Public Accountant Koji Kumagai

Seal

Audit Opinion
To conduct audit certification as prescribed in the first paragraph of Article 193-2 of the Financial Instruments and Exchange Act, wehave audited the financial statements of Digital Arts Inc. for the 25th fiscal year starting from April 1, 2019 to March 31, 2020
included in the Financial Information, namely, the balance sheet, the income statement, the statement of changes in equity, significant
accounting policies, the notes to specific items, and the annexed detailed statements thereto.
We consider that the aforementioned financial statements properly reflect the financial position of Digital Arts Inc. as of March 31,
2020, as well as its financial results in the fiscal year that ended on the same day, in all important respects, in compliance with the
Generally Accepted Accounting Principles of Japan.
Basis for Opinion
We have conducted the audit in accordance with audit standards that are generally considered fair and reasonable in Japan. Our
responsibilities under those standards are further described in the “Auditor’s Responsibilities for the Audit of the Financial Statements”
section of our report. We are independent of the Company in accordance with the ethical requirements that are relevant to our audit of
the financial statements in Japan, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We
consider that audit evidence that we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Responsibilities of Management and Audit & Supervisory Board for the Financial Statements
Management is responsible for the preparation and appropriate presentation of financial statements in accordance with the Generally
Accepted Accounting Principles of Japan. Such responsibilities include the establishment and implementation of internal control thatmanagement determines is necessary for the preparation and appropriate presentation of financial statements that are free of any
material misstatements due to frauds or errors.
In preparing the financial statements, management is responsible for assessing the Company’s ability to continue as a going concern,
disclosing, as applicable, matters related to going concern in accordance with generally accepted accounting principles of Japan.
The Audit & Supervisory Board is responsible for overseeing the directors’ performance of their duties including the design,
implementation and maintenance of the Group’s financial reporting process.
Auditor’s Responsibilities for the Audit of the Financial Statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Misstatements can arise fromfraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence theeconomic decisions of users taken on the basis of these financial statements.
As part of our audit in accordance with auditing standards generally accepted in Japan, we exercise professional judgment and―92―

maintain professional skepticism throughout the audit. We also:- Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error; Design
and perform audit procedures responsive to those risks. These audit procedures are selected and performed, depending on theauditor’s judgment. Obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion.
- We do not audit financial statements to express an opinion on the effectiveness of internal control. Nevertheless, to implement risk
assessments, we examine internal control as it pertains to the preparation and appropriate presentation of financial statements,
thereby ensuring that an appropriate audit procedure program is formulated depending on situations.
- Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures
made by management.
- Conclude on the appropriateness of management’s use of the going concern basis of accounting and based on the audit evidence
obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company’s
ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our
auditor’s report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our
conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may
cause the Group to cease to continue as a going concern.
- Evaluate whether the presentation and disclosures in the financial statements are in accordance with auditing standards generally
accepted in Japan, the overall presentation, structure and content of the financial statements, including the disclosures, and whether
the financial statements represent the underlying transactions and events in a manner that achieves fair presentation.
We communicate with the Audit & Supervisory Board regarding, among other matters, the planned scope and timing of the audit,
significant audit findings, including any significant deficiencies in internal control that we identify during our audit.
We also provide the Audit & Supervisory Board with a statement that we have complied with relevant ethical requirements regarding
independence, and communicate with them all relationships and other matters that may reasonably be thought to bear on our
independence, and where applicable, related safeguards.
Interest Related
There is not any conflict of interest between the company and BDO Sanyu & Co. or its Engagement Partners which should be
disclosed under the provisions of the Certified Public Accountants Act.

(Notes) 1. The above is an electronic copy of what is described in the original audit report kept by the company that submits
securities reports, separately.
2. XBRL data are not within the scope of audits.

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