Annual Securities Report
The 24th Fiscal Year

From April 1, 2018 to March 31, 2019

Digital Arts Inc.

―1―

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 24th Fiscal Year Annual Securities Report
Cover ............................................................................................................................................................................................... 1
Part I. Corporate Information ........................................................................................................................................................ 2
Section I. Corporate Summary ................................................................................................................................................... 2
1. Financial Highlights....................................................................................................................................................... 2
2. Corporate History .......................................................................................................................................................... 4
3. Business Summary......................................................................................................................................................... 5
4. Related Companies ........................................................................................................................................................ 8
5. Employment Data .......................................................................................................................................................... 8
Section II. Business Summary ................................................................................................................................................... 9
1. Management Policy, Economic Environment and Business Issues to be Considered ......................................................... 9
2. Business and Other Risks ............................................................................................................................................. 10
3. Analysis of financial conditions, operating results and cash flows by the management ................................................... 13
4. Material Contracts affecting Management of the Company, etc...................................................................................... 17
5. Research and Development .......................................................................................................................................... 17
Section III. Properties.............................................................................................................................................................. 18
1. Summary of Capital Investment, etc. ............................................................................................................................ 18
2. Major Facilities............................................................................................................................................................ 18
3. Plans for Capital Investment, Disposals of Properties etc. .............................................................................................. 19
Section IV. Information on the Company ................................................................................................................................. 20
1. Stock Information ........................................................................................................................................................ 20
2. Information on Acquisition, etc. of Treasury Shares ...................................................................................................... 35
3. Dividend Policy ........................................................................................................................................................... 35
4. Information on Corporate Governance, etc.................................................................................................................... 36
Section V. Financial Information.............................................................................................................................................. 47
1. Consolidated Financial Statements ............................................................................................................................... 48
2. Financial Statements of the Registrant .......................................................................................................................... 76
Section VI. Stock Information of the Registrant ....................................................................................................................... 86
Section VII Reference Information on the Company................................................................................................................. 87
1. Information on Parent entities of the Registrant............................................................................................................. 87
2. Other Reference Information ........................................................................................................................................ 87
Part II. Information Concerning Guarantors of the Registrant ....................................................................................................... 88
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]

Wednesday, June 26, 2019

[Fiscal Year]

24th fiscal year (from April 1, 2018 to March 31, 2019)[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]

Hidenobu Akazawa, Director, General Manager of the Administration Department[Contact Address]

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

Hidenobu Akazawa, Director, 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

20th fiscal year

21st fiscal year

22nd fiscal year 23rd fiscal year

24th fiscal year

Year end

March 2015

March 2016

March 2017

March 2018

March 2019

Net sales(Thousand yen)

3,402,691

4,000,620

5,058,685

5,116,969

5,841,287

Ordinary profit(Thousand yen)

910,268

994,311

1,811,279

1,909,377

2,630,963

Profit attributable to ownersof parent(Thousand yen)531,292545,983

1,125,043

1,281,924

1,961,276

Comprehensive income(Thousand yen)

541,796536,688

1,127,741

1,275,222

1,977,567

Net assets(Thousand yen)

4,297,919

4,642,033

5,270,339

6,247,602

7,802,894

Total assets(Thousand yen)

5,749,229

6,133,859

7,380,958

7,928,532

9,859,347

Net assets per share(Yen)

303.40329.03375.07446.43558.33

Profit per share, basic

(Yen)

38.27

39.26

80.92

92.46

141.11

Profit per share, diluted

(Yen)

38.19

39.14

80.68

92.13

140.80Capital ratio

(%)

73.3

74.7

70.2

78.2

78.7

Return on equity

(%)

13.3

12.4

23.0

22.5

28.1

Price earnings ratio(Times)

31.04

62.35

37.63

44.45

64.13

(Thousand yen)

1,355,392

1,027,287

2,012,282

1,663,158

3,091,862(Thousand yen)

-848,019-441,185-671,798-774,868-908,784(Thousand yen)

-119,893-187,807-503,262-293,407-429,712(Thousand yen)

2,074,381

2,443,875

3,298,836

3,826,443

5,569,172

179

192

194

207

207

Cash flows from operating
activities
Cash flows from investing
activities
Cash flows from financing
activities
Cash and cash equivalents
at end of period
Number of employees(Persons)(Average number of part(20)
(25)
(30)
(33)
(26)
time employees, etc.)(Notes) 1. Revenues do not include consumption tax, etc.
2. The figures in parentheses in the number of employees section indicate the annual average number of part-time
employees (temporary staff, etc.) and these figures are not included in the totals.

―5―(2) Financial Data of the Company
Fiscal Year

20th fiscal year

21st fiscal year

22nd fiscal year 23rd fiscal year

24th fiscal year

Year end

March 2015

March 2016

March 2017

March 2018

March 2019

Net sales(Thousand yen)

3,395,851

4,018,839

5,104,469

5,046,537

5,752,991

Ordinary profit(Thousand yen)

926,126

1,328,681

2,056,138

2,097,906

2,777,431

Profit(Thousand yen)

573,978

840,586

1,339,017

860,611

1,784,866

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)

4,415,447

5,063,459

5,882,583

6,451,473

7,804,423

Total assets(Thousand yen)

5,903,495

6,633,333

7,948,956

8,149,757

9,870,395

311.86359.28420.53462.20559.74

14

15

24

28

48

(5)

(7)

(10)

(14)

(18)

Number of issued shares

Net assets per share(Yen)

Dividend per share(Yen)(Interim dividends per share)
Profit per share, basic

(Yen)

41.34

60.45

96.31

62.07

128.42

Profit per share, diluted

(Yen)

41.26

60.25

96.02

61.85

128.14

Capital ratio

(%)

73.4

75.5

73.1

78.7

78.8

Return on equity

(%)

14.0

18.0

24.8

14.1

25.1

Price earnings ratio(Times)

28.74

40.50

31.62

66.21

70.47

Dividend payout ratio

(%)

33.9

24.8

24.9

45.1

37.4

179

186

186

194

201

(20)

(25)

(30)

(33)

(26)

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

Total shareholder return

(%)

127.1

261.8

327.5

443.0

970.3

(Benchmark index: TOPIX(Tokyo Stock Price Index))(%)(130.7)(116.5)(133.7)(154.9)(147.1)

Year high

(Yen)

1,342

2,514

3,450

5,060

9,560

Year low

(Yen)

734

1,168

2,120

2,701

3,980

(Notes) 1. Revenues do not include consumption tax, etc.
2. The figures in parentheses in the number of employees section indicate the annual average number of part-time
employees (temporary staff, etc.) and these figures are not included in the totals.
3. Dividends per share for the 20th fiscal year include the commemorative dividend for the 20th anniversary of theCompany’s foundation of 4.00 yen.
4. 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.
Digital Arts America, Inc.

Planning, development and sale of internet security software and appliance products
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
Digital Arts Consulting Inc.

Sale of FinalCode (a file encryption and tracking solution)
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 leakage from the“inside” of companies and organizations and solutions to combat attacks from the “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

Enterprise Sector

Public Sector

Consumer Sector

Main products- i-FILTER (web security)- m-FILTER (mail security)- D-SPA (DigitalArts Secure Proxy Appliance)(web security appliance)- FinalCode(file encryption and tracking solution)- i-FILTER (web security)- m-FILTER (mail security)- D-SPA (DigitalArts Secure Proxy Appliance)(web security appliance)- FinalCode(file encryption and tracking solution)- i-FILTER (Web filtering software)―8―

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

Features of Main Products
Main products

i-FILTER

m-FILTER

D-SPA

FinalCodei-FILTER (Consumer)

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.
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
information leaks such as mis-transmission, promoting internal control through the storage andmanagement of all emails and protecting against targeted attacks.
Mail filtering is a function that only allows users to receive safe emails, preventing them fromreceiving targeted emails by storing legitimate senders in a whitelist database and identifying fakeemail 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- Protection against business email compromise- Protection against spam emails- Prevention of e-mail mis-transmission- Email archiving
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
Main Applications- Protection against leakage of confidential information- File encryption- File tracking- Protection against internal fraud- Access control- Remote file deletion
Filtering software mainly for families, internet cafes, libraries, etc. Protects users of smartphones,
tablets and computers from dangers of the Internet by restricting access to harmful websites.
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 name

Address

Share capital
Percentage ofPrincipal business(thousand yen)voting rights (%)

Relationship(Consolidated Subsidiaries)
Digital Arts America, Inc.

3031 Tisch Way, Suite 115, San
Jose, CA 95128, USA

24,534

Security business

100.0

Interlocking directorates
Business outsourcing

Digital Arts Asia Pacific Pte. Ltd.

3 Temasek Avenue, #34-00
Centennial Tower, Singapore,
039190227,701

Security business

100.0

Interlocking directorates
Business outsourcing

Digital Arts Europe Limited

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

23,981

Security business

100.0

Interlocking directorates
Business outsourcing

Digital Arts Consulting Inc.

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

Security business

86.4

Interlocking directorates
Business outsourcing

5. Employment Data
(1) Consolidated Basis
As of March 31, 2019
Number of employees

Category
Security business

207 (26)
Total
207 (26)(Notes) 1. The figures in parentheses in the number of employees section above indicate the annual average number of part-time
employees (temporary staff, etc.) and these figures are not included in the totals.
2. Segment information is omitted because the Digital Arts Group operates in one segment only (the security business) andhas no other business segments.

(2) The Company
As of March 31, 2019
Average length of service
Average annual salary
Number of employees
Average age
in years(thousand JPY)
201 (26)
36.1
5.7
6,183
(Notes) 1. The figures in parentheses in the number of employees section above indicate the annual average number of part-time
employees (temporary staff, etc.) and these figures are not included in the totals.
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, Economic 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 “inside” 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 retailers, 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 sales partners both conduct sales activities and business activities with theaim of achieving growth in the contract amount, we attach importance to the contract amount growth rate as well as to other commonlyused 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. At the same time, use of IT is becoming more and morewidespread in areas such as virtual currencies, cloud computing, the IoT and AI, and the risks facing companies and organizations are
not only increasing but are also becoming more diverse and sophisticated.
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, and demand for the adoption of cloud computing is growing as part ofmoves to improve efficiency. There is also mounting concern that Japan will be threatened by targeted attacks in the runup to global
events such as the 2019 Rugby World Cup and the 2020 Tokyo Olympic and Paralympic Games and strengthening security has
become a matter of great urgency.
In this environment, the Group launched a solution that not only protects against the leakage of information from “inside” companies
and organizations, which has been its core business since its foundation in line with its mission as an internet security company, butthat also counters threats from “outside” such as targeted attacks, thus taking the first step toward transformation into a 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 “Made―12―

in Japan” quality, and we will contribute to the rapidly evolving Internet society in line with this mission.
(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 sales partners. We will continue to put our relationships with our users and sales partners
first and 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 and AI,
new threats associated with internet use are constantly emerging. In this environment, the Group will put effort into market researchand 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 social issues associated with them. Meanwhile,
many adults who give guidance to young people or are involved in their upbringing are bewildered by the rapidly changing times anddo not understand the dangers and problems that arise when children used smartphones. To raise awareness of such issues, the Groupwill provide seminars and lectures upon request in regions throughout Japan and provide information to educate people about
smartphones and other mobile devices, and we will also stress the importance of filtering.

2. Business and Other Risks
The Group’s operation is expected to be greatly influenced by the changes in global and domestic economic trends, market growth, andthe result of the Group’s business strategies. The Group’s performance, financial standing and stock prices may alter significantly frominitial forecasts. Risks that could substantially affect the Group’s performance, financial position and stock prices are as follows. Theserisk factors and forward-looking statements are being made at the determination of the Group as of the date of submission of thisAnnual Securities Report (June 26, 2019).
(a) Risks related to the Group’s reliance on distributors to sell flagship products and the change of financial health of these clients
The majority of the Group’s products are 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. The distributors also sell
products that are those of the Group’s competitors, and although the Group pursues to drive sales by reaching out effectively to its
distributors, there is a risk that the competitors’ products may be prioritized before the Group’s.
Moreover, any changes in the client management climate (such as M&A or bankruptcy) causing delayed or uncollectable payment
of debt could also significantly impact the Group’s 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
Due to the nature of its sales, the Group’s product sales to public schools and local municipalities may be significantly impacted
by fluctuations in the national budget and its distribution to local municipalities, along with budget consumption conditions ofthese municipalities.

―13―(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 business 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 designed to block problematic contents in the internet. 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 associated with the Group’s fourth quarter earnings accounting for a large proportion of overall net sales
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.
(f) Risks associated with the concentration of the Group’s issued and outstanding stocks to specific shareholder(s)While the total number of issued and outstanding stocks by Digital Arts Inc. is 14,133,000 shares (including treasury shares) as ofMarch 31, 2019, the number of shares owned by parties other than the members of the board is comparatively low at 11,625,019
shares. For this reason, if there was concentrated ownership of shares by institutional investors from home or abroad, the numberof shareholders would decrease due to stocks concentrated to a specific shareholder, and there is the risk of a conflict withdelisting standards. In the same way, if stocks are sold intensely and over a short period by institutional investors from home orabroad, the value of stocks may fluctuate greatly.
(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.
(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―14―

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, in the event that the Group requires along period of time to resolve such bug issues or if the issue could not be resolved, the Group’s performance and financial
standing may be significantly affected due to reduction of sales and goods being returned.
(k) Risks associated with inability to deliver services due to 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 and telecommunication carriers, and leakage of information due to hacking attacks andtheft of material data. The Group has acquired the Privacy Mark and continues to take necessary measures for information security
and preventing data loss, however, in the event the Group’s service is suspended regardless of its duration, 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 talented technical experts and key personnel
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. Moreover, the Group’s success and growth rely heavily on
talented technical experts and key personnel, and while the Group consistently works on securing and developing key talents,
failing to secure and develop technical experts and key personnel in the future may have a significant impact on the Group’s
growth, 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 2,496,316 shares (which account for approximately 17.7%, including shares held by the shareholders’association made up of directors) out of issued and outstanding stocks of 14,133,000 shares (including treasury shares) as ofMarch 31, 2019. As a public company, the possibilities of mergers and acquisitions cannot be denied, and the entire or part of theGroup or its business rights 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, biological viruses, 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, domestic terrorist activities, outbreak of war at home or abroad, andepidemic of biological viruses, such as malignant influenza. 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 businessactivities and services, and may, in turn, significantly impact its business performance and financial position.

―15―

(o) Risk of fluctuation in the Group’s quarterly financial results affecting the stock price
The trend of the Group’s quarterly financial results may not be consistent with the trend of its operating results over the medium
and long term.
The main causes of fluctuation in the Group’s quarterly financial results are as follows.
- Seasonal factors, acquisition of large projects over a number of years- Postponement of the time at which sales are recorded as a result of changes in the sales mix- Sales associated with temporary special demand as a result of changes in the law or government-led initiatives

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, 2018 – March 31, 2019), the Japanese economy saw a continued recovery
in employment and corporate income amid the turnaround in consumer spending and capital investment. Meanwhile, the outlook for
the world economy remains uncertain given concern about the intensifying trade war between the United States and China and about
political management of the U.S. administration and mounting geopolitical risks.
In the security industry where the Digital Arts Group (hereinafter “the Group”) operates, demand is expanding amid successive casesof diversifying cyberattacks including ransomware. Apart from demand from large-sized organizations as conventionally main
sources of demand, demand for the new introduction of security measures is growing from medium- and small-sized enterprises,
which are comparatively lagging in such measures. Amid the spread of IoT, AI and other technologies and the implementation of thework style reform, security personnel need to address increasingly diversifying and sophisticating risks. Accordingly, demand for
security services will continue to expand.
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. In addition, the Group launched a cloud service for i-FILTER and m-FILTER in May 2018 in light of a rapid
shift to cloud-based web services and email environment. The Group will open a prospect of viewing webpages without anxiety andreading email messages without hesitation in the cloud environment. FinalCode added support for a browser view feature highly
awaited by existing users and prospective customers. This feature enables outside users receiving encrypted files to view themwithout installing any client software. The Group will continue its efforts to enhance the features of the product for boosting its sales.
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.
Outside Japan, marketing operations have been limited to FinalCode. The Group carried out its reorganization in a bid to globallypromote the Digital Arts brand in the future as it does in the Japanese market as a general security solution provider.
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
AssetsTotal assets at the end of the consolidated fiscal year under review increased 1,930,814 thousand yen from the end of the previous
consolidated fiscal year, to 9,859,347 thousand yen. This chiefly reflected increases of 1,742,729 thousand yen in cash and deposits,
104,579 thousand yen in property, plant and equipment, and 125,658 thousand yen in intangible assets.
Liabilities
Total liabilities at the end of the consolidated fiscal year under review rose 375,522 thousand yen from the end of the previous―16―fiscal year, to 2,056,452 thousand yen. This was due chiefly to increases of 308,048 thousand yen in advances received, 25,281
thousand yen in income taxes payable, and 15,911 thousand yen in provision for bonuses.
Net assets
Net assets at the end of the consolidated fiscal year under review climbed 1,555,292 thousand yen from the end of the previous
consolidated fiscal year, to 7,802,894 thousand yen. This was due mainly to an increase of 1,526,325 thousand yen in retained
earnings.
b. Operating results
Consolidated net sales for the fiscal year under review stood at 5,841,287 thousand yen, up 14.2% year on year. In terms of profit,
while the Group incurred costs from reorganization and other initiatives after a revision of its overseas strategy in the first half, themore focused application of management resources began to produce the effect of improving profitability in the third quarter.
Operating profit rose 38.2% year on year to 2,629,092 thousand yen, ordinary profit climbed 37.8% to 2,630,963 thousand yen,and profit attributable to owners of parent surged 53.0% to 1,961,276 thousand yen.
The following describes business performance in separate markets.
Enterprise Sector Market
In this market, a mainstay product of m-FILTER attained healthy sales after steadily gaining renewals of contracts from thepreceding consolidated fiscal year. FinalCode introduced the highly demanded Browser View feature. That gave impetus to theacquisition of deals after a temporary stagnation, and the Group made one of the largest deals ever. With regard to i-FILTER Ver.
10 and m-FILTER Ver. 5 as high-end models for which marketing activities were geared up earlier in the consolidated fiscal year
under review, active promotion helped increase recognition of their product features and a certain quantity of new orders werereceived. More large-scale contracts, which have a greater contribution to sales, were won in the public sector market, but potential
contracts also exist in the enterprise sector market. In the next fiscal year, the Group will strive to expand sales of new products inearnest, taking advantage of its experience in the public sector market. Chiefly due to shortages in security personnel, the use ofcloud services is increasing to reduce the burden of security. Sales of cloud service products account for increasing percentages ofsales in the Company’s entire product lineup. Sales of licenses are posted when they are shipped, but sales of cloud service areposted monthly during the period when the service is provided. As a result, the balance of advances received expanded. Thebalance will be posted from the next consolidated fiscal year.
Net sales in this market reached 3,133,580 thousand yen, up 4.1% year on year.
Public Sector Market
In this market, the Company has earned high recognition and market share as a security provider with a focus on internal dataleakage. Highly regarded for its track record and reliability, it bolstered its presence as a general security solution provider in themarket earlier than in the enterprise sector market as i-FILTER Ver. 10 and m-FILTER Ver. 5, which provide advanced security
measures, including those against targeted attacks, sold well. Similar to the enterprise sector market, the use of cloud services
increased, and sales of cloud service products accounted for a larger percent. As a result, sales to be posted from the next
consolidated fiscal year expanded.
As a consequence, net sales in this market stood at 2,191,579 thousand yen, up 26.5% year on year.
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 direct sales of multi-year packages and i-FILTER
for Multiple Devices, which can be used on several terminals, contributed to sales growth.

―17―

Net sales in this market amounted to 516,127 thousand yen, up 37.4% year on year.
Net sales for the consolidated fiscal year under review (April 1, 2018 - March 31, 2019)
Enterprise Sector Market
Million yen

Public Sector Market
Million yen

Consumer Sector Market
Million yen

Total
Million yen

3,133

2,191

516

5,841

3,009

1,732

375

5,116

Fiscal Year Ended
March 31, 2019
Fiscal Year Ended
March 31, 2018

(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 1,742,729 thousand yen from the end of theprevious consolidated fiscal year to 5,569,172 thousand yen. Cash flows in each category are as follows:(Cash flows from operating activities)
Net cash provided by operating activities stood at 3,091,862 thousand yen (net cash provided of 1,663,158 thousand yen in theprevious consolidated fiscal year), chiefly reflecting a profit before income taxes of 2,563,232 thousand yen and depreciation of662,496 thousand yen.
(Cash flows from investing activities)
Net cash used in investing activities came to 908,784 thousand yen (net cash used of 774,868 thousand yen in the previous
consolidated fiscal year) mainly due to the purchase of intangible assets.
(Cash flows from financing activities)
Net cash used in financing activities was 429,712 thousand yen (net cash used of 293,407 thousand yen in the previous consolidated
fiscal year) primarily due to dividends paid.
(iii) Results for Production, Orders Received and Sales
a. Results of production

Enterprise Sector Market
Public Sector Market
Consumer Sector Market

Fiscal year under review(from April 1, 2018 to March 31, 2019)(thousand yen)
2,941,590
2,138,782
513,893

Change YoY (%)
103.1
124.6
136.5

Total
5,594,266(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).

113.1

b. Results of orders received
Not applicable as the Group does not build products to order.
c. Results of sales
Fiscal year under review(thousand yen)Enterprise Sector Market
Public Sector Market
Consumer Sector Market

3,133,580
2,191,579
516,127

Change YoY (%)
104.1
126.5
137.4

Total
5,841,287
114.2(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.

―18―

Customer
SB C&S Corp.

Previous consolidated fiscal year
Fiscal 2019
(April 1, 2017 – March 31, 2018) (from April 1, 2018 to March 31, 2019)
AmountRatio
AmountRatio(thousand yen)(%)(thousand yen)(%)
1,037,408
20.3
1,247,566
21.4

Daiwabo Information System Co., Ltd.

976,669

19.1

1,160,228

19.9(Note) SoftBank Commerce & Service Corp. changed its trade name to SB C&S Corp. on January 1, 2019.
(2) Details of analysis and examination concerning the state of operating results and the like from the perspective of the management
The details of understanding, analysis and examination concerning the state of operating results and the like 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 and the like for the fiscal year underreview
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 5,841,287 thousand yen, up 724,317 thousand yen compared to theprevious consolidated fiscal year (an increase of 14.2% year on year).
This was mainly due to sales of high-end models i-FILTER Ver.10 and m-FILTER Ver.5 to the public sector market and therevision of the Act on Development of an Environment that Provides Safe and Secure Internet Use for Young People and tougher
enforcement of the introduction of filtering for young people, which had been compulsory before the revision, in the consumer
sector market(Cost of sales, gross profit)
Cost of sales in the consolidated fiscal year under review was 1,059,444 thousand yen, down 15,992 thousand yen compared to theprevious consolidated fiscal year (a decrease of 1.5% year on year). Meanwhile, gross profit stood at 4,781,842 thousand yen, up
740,310 thousand yen compared to the previous consolidated fiscal year (an increase of 18.3% year on year).
The gross margin improved, reflecting a decrease in personnel expenses mainly due to a decrease in consultant personnel, despite
an increase in depreciation after the release of a new product.
(Selling, general and administrative expenses, operating profit)
Selling, general and administrative expenses were 2,152,750 thousand yen, up 14,135 thousand yen compared to the previous
consolidated fiscal year (an increase of 0.7% year on year).
In Japan, selling, general and administrative expenses were more or less unchanged from the year-ago level, reflecting the selection
and concentration of management resources following revision of the Group’s overseas strategy despite higher personnel expenses
mainly as a result of an increase in personnel.
As a result, operating profit was 2,629,092 thousand yen, up 726,175 thousand yen from the previous consolidated fiscal year (anincrease of 38.2% year on year).

―19―

Ordinary profit
In the consolidated fiscal year under review, ordinary profit amounted to 2,630,963 thousand yen (an increase of 37.8% year onyear), mainly due to the recording of non-operating income such as miscellaneous income of 1,759 thousand yen and gain on
forfeiture of unclaimed dividends of 1,168 thousand yen and non-operating expenses such as foreign exchange losses of 2,224
thousand yen.
Profit attributable to owners of parent
In the consolidated fiscal year under review, profit attributable to owners of parent was 1,961,276 thousand yen (an increase of
53.0% year on year) due to a fall in total income taxes to 598,869 thousand yen, mainly reflecting the curbing of tax expenses
through the liquidation of a subsidiary, despite the recording of extraordinary losses including loss on liquidation of subsidiaries of
56,135 thousand yen and loss on valuation of shares of subsidiaries of 7,156 thousand yen.
b. 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 5,569,172 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.
c. 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 13,176 thousand yen.

―20―

Section III. Properties
1. Summary of Capital Investment, etc.
In the consolidated fiscal year under review, the Group made capital investment totaling 171,188 thousand yen. This mainly consistedof purchases of servers and other information equipment used in various services and at each branch and the acquisition of arecreational facility for company employees.
Meanwhile, the Group made investments in intangible assets totaling 721,570 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 Company(As of March 31, 2019)
Book value
Branch name (location)

Description ofequipment

Headquarters(Chiyoda-ku, Tokyo)

Administration,
development
and sales facility

Recreational facility(Atami, Shizuoka
Prefecture)

Recreational
facility

Buildings
Area
(m2)

Amount(thousandyen)

Vehicles(thousandyen)

Furnitureand fixtures(thousand
yen)

Land
Amount(thousand
yen)

Area
(m2)

Total
(thousandyen)

Number of
employees

1,596.54(1,596.54)

17,098

7,703

116,469――

141,271

178
(26)

71.85

72,912――

10,017.49

26,254

99,167―(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 indicate the annual average number of part-time
employees (temporary staff, etc.) and these figures are not included in the totals.
4. Other branches are the Hokkaido Sales Office (one employee), the Tohoku Sales Office (two employees), the Chubu
Sales Office (five employees), the Kansai Sales Office (nine employees), the Chushikoku Sales Office (two employees),
and the Kyushu Sales Office (four employees).
5. The head office of the Company includes a building leased to Digital Arts Consulting Inc., which is a subsidiary of theCompany.
(2) Domestic Subsidiaries(As of March 31, 2019)

Name of company

Branch name (location)

Description of equipment

Headquarters (Chiyoda-ku, Administration and sales
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 Company.

Digital Arts Consulting Inc.

―21―

Book value
Furniture andTotal
fixtures(thousand(thousand
yen)
yen)
806

806

Number of
employees

5(3) Overseas Subsidiaries

Name of company

Branch name (location)

Description of equipment(As of March 31, 2019)
Book value
Furniture andNumber of
Total
fixturesemployees(thousand(thousand
yen)
yen)

Digital Arts America, Inc.

Headquarters (San Jose,
CA, USA)

Administration and sales
facility――1

Digital Arts Asia PacificPte. Ltd.

Headquarters (Singapore)

Administration and sales
facility

327

327

―

―

―

―

Headquarters (Berkshire,
Administration and salesUK)facility(Note) The amounts described above do not include consumption taxes, etc.

Digital Arts Europe Limited

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―22―Section IV. Information on the 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 stockTotal

45,036,000
45,036,000(ii) Issued SharesClassification

Number of shares issued Number of shares issued
as of the end of fiscal
as of the filing date
Stock exchange on which
the Company is listed
year (shares)(shares)(March 31, 2019)(June 26, 2019)

Common stock

14,133,000

14,133,000

Tokyo Stock ExchangeFirst Section

Description
Number of shares in
trading unit
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, 2019 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 Annual General Shareholders Meeting held on June 24, 2009
As of the end of the month
before the filing date
(May 31, 2019)
Three directors, 80 employees
81‒

As of the end of the fiscal year
(March 31, 2019)
Category and number of persons subject to grants
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 stock
Conditions for exercise of share acquisition rights
Matters regarding transfer of share acquisition rights
Matters regarding substitute payment‒‒

Common stock‒

8100 (Note 1)‒

593 yen per share (Note 1)
From May 26, 2012
To June 24, 2019
Issue price: 593 yen (Note 1)
Amount capitalized as common
stock: 297 yen (Note 1)‒(Note 2)
Any transfer of shareacquisition rights is subject
to approval by the Board of
Directors of the Company.
‒

‒

‒
‒

‒
‒

Matters regarding grant of share acquisition rights(Note 5)‒accompanying reorganization(Notes) 1. The Company conducted a 100-for-1 common stock split on April 1, 2013. The number of shares to be acquired upon
exercise of share acquisition rights, the amount to be paid in, the issue price and the amount capitalized as common stock
described in the above table have been adjusted accordingly.
2. Conditions for exercise of share acquisition rights(1) Holders of share acquisition rights are required to have the rank of an officer (includes a company auditor) or an
employee at the Company or a subsidiary or an associate of the Company at the time of exercising the shareacquisition rights.

―23―

(2) Holders of share acquisition rights must, at the time of exercising the rights, not be subject to salary reduction or
stricter disciplinary action provided for in the rules of employment of the Company or a subsidiary or an associateof the Company from the grant date of the share acquisition rights relating to such exercise.
(3) No share acquisition rights shall be exercised partially.
(4) If holders of share acquisition rights waive the share acquisition rights, the relevant share acquisition rights may
not be exercised thereafter.
(5) Other conditions are in accordance with the provisions of the Share Acquisition Right Allotment Agreement.
3. If the Company conducts a stock split or a stock consolidation of shares of common stock of the Company after the dateon which the share acquisition rights are to be issued (the “Issue Date”), the number of shares granted shall be adjusted inaccordance with the following formula (with any fraction of less than one share resulting from such adjustment roundeddown), and the total number of shares to be issued upon exercise of the share acquisition rights shall be the number
obtained by multiplying the number of shares granted after adjustment by the total number of share acquisition rights thathave not been exercised or cancelled as of such stock split or a stock consolidation.
Number of shares granted after adjustment = Number of shares granted before adjustment x Ratio of split orconsolidation
If the Company reduces its capital, performs a merger or company split or for other unavoidable reasons it is necessary toadjust the number of shares granted after the issue date, the Company shall, to a reasonable extent, adjust the number ofshares granted, taking into consideration the terms and conditions of the capital reduction, merger or company split, andother relevant factors, and the total number of shares to be issued upon exercise of the share acquisition rights shall be
the number obtained by multiplying the number of shares granted after adjustment by the total number of shareacquisition rights that have not been exercised or cancelled as of such capital reduction, merger or company split.
4. The amount to be paid upon exercise of each share acquisition right shall be the amount obtained by multiplying theamount to be paid in per share issued or transferred through the exercise of each share acquisition right (the “Paid-In
Amount”) by the number of shares granted.
The Paid-In Amount shall be the average closing price in ordinary trading of common stock of the Company on the
Hercules market of the Osaka Securities Exchange on each day (excluding the day on which no transaction was made) in
the month prior to the month in which the issue date falls, with any fraction of less than one yen rounded up. However, if
this price is less than the closing price on the issue date (if there is no transaction made on that day, then the closing priceof the latest date prior to the issue date on which a transaction was made), the paid-in amount shall be the closing priceon the issue date.
If any of the reasons shown below arise after the issue date, the paid-in amount shall be adjusted accordingly.
(1) If the Company conducts a stock split or a stock consolidation of shares of common stock of the Company, thepaid-in amount shall be adjusted in accordance with the following formula and any fraction of less than one yenarising from such adjustment shall be rounded up.
Amount to be paid inafter adjustment=

Paid-in amount
before adjustment

1×

Ratio of split orconsolidation(2) If the Company issues new shares or disposes of treasury shares (excluding any issuance through the exercise of
the share acquisition rights or subscription rights as stipulated in Article 280-19 of the Commercial Code before
revision issued on April 1, 2002) at a price below the market price, the Paid-In Amount shall be adjusted inaccordance with the formula set forth below and any fraction of less than one yen arising from such adjustment
shall be rounded up.
Number of shares
Amount to be paid per×
Number of shares
newly issued
share+outstanding
Paid-in amountMarket price
Paid-in amount
beforeafter adjustment =×
adjustment
Number of shares outstanding + Number of shares newly issued
For the formula set forth above, the “Number of shares outstanding” means the number of outstanding shares of
the Company minus the number of treasury shares held by the Company, and if the Company disposes of treasury
shares, the “Number of shares newly issued” shall be read as the “Number of treasury shares disposed.”(3) If the Company makes an allotment of a different class of shares without contribution to common shareholders or
distributes shares of another company to common shareholders or for other unavoidable reasons it is necessary toadjust the exercise price, the Company shall, to a reasonable extent, adjust the exercise price, taking into
consideration the terms and conditions of the allotment or distribution, etc. and other relevant factors.
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 remaining unexercised as of the effective date of the relevant Reorganization (the―24―“Remaining Share Acquisition Rights”). In this case, the Remaining Share Acquisition Rights shall be cancelled, and the
Reorganized Company shall newly issue share acquisition rights. Provided, however, that the foregoing shall be on thecondition that the allotment of such share acquisition rights by the Reorganized Company in accordance with each of thefollowing items is stipulated in an absorption-type merger agreement, a consolidation-type merger agreement, anabsorption-type company split agreement, an incorporation-type company split plan, a share exchange agreement or ashare transfer plan.
(1) Number of share acquisition rights of the Reorganized Company to be allotted
A number equal to the number of the share acquisition rights held by the holder of the Remaining Share
Acquisition Rights shall be allotted to such holder(2) Class of shares of the Reorganized Company to be issued upon exercise of share acquisition rights
Common stock 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 into consideration, among other matters, the terms and conditions of theReorganization.
If the Company conducts Reorganization with respect to common shares of the Company after the date on whichshare acquisition rights for subscription are allotted (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 amount to be paid after Reorganization, obtained through adjustment of theexercise price taking into consideration, among other matters, the terms and conditions of the Reorganization, by
the number of shares of the Reorganized Company to be issued upon exercise of each of such share acquisitionrights as determined in accordance 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 40, Paragraph 1 of the Company
Accounting Ordinance, and 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 Reorganized 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
or a decision is made by representative corporate officers in the case when a resolution made by the Company’s
general meeting of shareholders is not required), the Company may acquire share acquisition rights without
consideration on a date to be separately determined by the Board of Directors of the Company.

―25―ii) Resolution of the Board of Directors of November 12, 2015
As of the end of the month
before the filing date
(May 31, 2019)
Four directors, 151 employees

As of the end of the fiscal year
(March 31, 2019)
Category and number of persons subject to grants
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 stock
Conditions for exercise of share acquisition rights
Matters regarding transfer of share acquisition rights

2,504

2,504

‒

‒

Common stock

Same as on the left

250,400 shares

250,400 shares

2,034 yen per share
From July 01, 2017
To May 31, 2027
Issue price: 2,036 yen
Amount capitalized as common
stock: 1,018 yen(Note 2)
Any transfer of shareacquisition rights is subject
to approval by the Board of
Directors of the Company.
‒

Same as on the left
Same as on the left
Same as on the left
Same as on the left
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(Note) 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 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 ending March 31, 2017, the fiscal year ending March 31, 2018, or the fiscal year
ending March 31, 2019.
(a) If operating profit exceeds ¥1.5 billion, 20% of share acquisition rights can be exercised.
(b) If operating profit exceeds ¥2.0 billion, 50% of share acquisition rights can be exercised.
(c) If operating profit exceeds ¥2.5 billion, 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 the―26―adjustment 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.
Exercise price after
adjustment=

Exercise pricebefore adjustment

1×
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 newly
Amount to be paid per×
Number of sharesissuedshare+
outstanding
Paid-in amountPaid-in amountMarket price per share prior to the issuance
after
before=×
adjustment
adjustment
Number of shares outstanding + Number of shares newly issued
Exercise price
Exercise priceIn the above formula, the “number of shares outstanding” shall be the amount obtained by subtracting the number oftreasury shares pertaining to the common stock of the Company from the total number of shares outstanding pertaining
to the common stock of the Company. If the Company undertakes the disposal of treasury shares pertaining to its
common stock, the “number of shares to be newly issued” shall be read as the “number of treasury shares to bedisposed 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 stock 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―27―

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.
iii) Resolution of the Board of Directors of November 10, 2016
As of the end of the month
before the filing date
(May 31, 2019)
Three directors, 96 employees
7,754
7,729

As of the end of the fiscal year
(March 31, 2019)
Category and number of persons subject to grants
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‒‒

Common stock

Same as on the left

775,400 shares

772,900 shares

2,639 yen per share

Same as on the left

From July 1, 2018
To May 31, 2028

Same as on the left

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

Issue price: 2,663 yen
Amount capitalized as common
stock: 1,332 yen

Conditions for exercise of share acquisition rights(Note 2)
Any transfer of shareacquisition rights is subject
to approval by the Board of
Directors of the Company.
‒

Matters regarding transfer of share acquisition rights
Matters regarding substitute payment

Same as on the left
Same as on the left‒

Matters regarding grant of share acquisition rights(Note 5)Same as on the left
accompanying reorganization(Note) 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 ending March 31, 2018, the fiscal year ending March 31, 2019, or the fiscal year
ending March 31, 2020.
(a) If operating profit exceeds ¥2.0 billion, 20% of share acquisition rights can be exercised.
(b) If operating profit exceeds ¥2.5 billion, 50% of share acquisition rights can be exercised.
(c) If operating profit exceeds ¥2.8 billion, 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―28―

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 2,639 yen, which is equal to the closing price of the Company’s stock in regular trading on
the Tokyo Stock Exchange on November 09, 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.
Exercise price after
adjustment=

Exercise pricebefore adjustment

1×
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 newly
Amount to be paid per×
Number of sharesissuedshare+
outstanding
Paid-in amountPaid-in amountMarket price per share prior to the issuance
after
before=×
adjustment
adjustment
Number of shares outstanding + Number of shares newly issued
Exercise price
Exercise priceIn the above formula, the “number of shares outstanding” shall be the amount obtained by subtracting the numberof treasury shares pertaining to the common stock of the Company from the total number of shares outstanding
pertaining to the common stock of the Company. If the Company undertakes the disposal of treasury sharespertaining to its common stock, the “number of shares to be newly issued” shall be read as the “number of treasury
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 the―29―foregoing 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 stock 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.

―30―iv) Resolution of the Board of Directors of February 16, 2018
As of the end of the month
before the filing date
(May 31, 2019)
Three directors, 151 employees

As of the end of the fiscal year
(March 31, 2019)
Category and number of persons subject to grants
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 stock
Conditions for exercise of share acquisition rights
Matters regarding transfer of share acquisition rights

12,94012,827‒‒

Common stock

Same as on the left

1,294,000 shares

1,282,700 shares

3,400 yen per share
From July 01, 2021
To May 31, 2028
Issue price: 3,401 yen
Amount capitalized as common
stock: 1,701 yen(Note 2)
Any transfer of shareacquisition rights is subject
to approval by the Board of
Directors of the Company.
‒

Same as on the left
Same as on the left
Same as on the left
Same as on the left
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(Note) 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
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 the―31―following formula, and any fraction less than one yen resulting from the adjustment shall be rounded up.
Exercise price after
adjustment=

Exercise pricebefore adjustment

1×
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 newly
Amount to be paid per×
Number of sharesissuedshare+
outstanding
Paid-in amountPaid-in amountMarket price per share prior to the issuance
after
before=×
adjustment
adjustment
Number of shares outstanding + Number of shares newly issued
Exercise price
Exercise priceIn the above formula, the “number of shares outstanding” shall be the amount obtained by subtracting the numberof treasury shares pertaining to the common stock of the Company from the total number of shares outstanding
pertaining to the common stock of the Company. If the Company undertakes the disposal of treasury sharespertaining to its common stock, the “number of shares to be newly issued” shall be read as the “number of treasury
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 stock 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―32―

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.

―33―

(3) Information on Moving Strike Convertible Bonds, etc.
Not applicable.
(4) Changes in the Total Number of Issued Shares and the Amount of Common Stock and Other
Change in the Balance of the
Change inBalance of
Change inBalance of
total number of total number of common stock common stock capital reserve capital reserve
issued shares issued shares (thousand yen) (thousand yen) (thousand yen) (thousand yen)

Date

April 1, 2013
13,991,670
14,133,000―
713,590―
700,222(Note 1)
(Note) 1. The Company conducted a 100-for-1 common stock split on April 1, 2013 based on a resolution at the meeting of theBoard of Directors held on February 28, 2013. This stock split increased the number of shares outstanding to 14,133,000
shares, an increase of 13,991,670 shares.
(5) Shareholders Composition
As of March 31, 2019
Status of shares (one unit of stock: 100 shares)
Category

Government
andmunicipality

Financial
institution

Financial
instruments
business
operator

Foreign corporations, etc.
Other
institution

Nonindividuals

Individuals

Individuals
and others

Total

Number ofshares lessthan one unit
(shares)Number ofshare―
25
23
20
170
6
3,440
3,684
―
holders
Shareownership―
40,387
3,623
10,21342,54843
44,448141,262
6,800(units)Ownership
percentage
―
28.59
2.56
7.23
30.12
0.03
31.47
100.00―of shares(%)(Note) Of 232,320 treasury shares, 2,323 units are included in the “Individuals and others” column, while 20 shares are included in
the “Number of shares less than one unit” column.

―34―

(6) Major Shareholders

Name

Address

Toshio Dogu

Minato-ku, TokyoJapan Trustee Services Bank, Ltd.
(Trust Account)

1-8-11 Harumi, Chuo-ku, TokyoDAM Corporation
The Master Trust Bank of Japan,
Ltd. (Trust Account)

As of March 31, 2019
Ratio (%) of thenumber of owned
shares to the total
Share ownershipnumber of(shares)
outstanding
shares (excluding
treasury shares)
2,496,316
17.96
1,917,800

13.80

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

680,000

4.89

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

637,400

4.59

State Street London Care of State
Street Bank and Trust, Boston
SSBTC A/C UK London Branch
One Lincoln Street, Boston MA USA 02111
460,100
3.31
Clients - United Kingdom(3-11-1 Nihonbashi, Chuo-ku, Tokyo)(Standing proxy: HSBC Tokyo
Branch, Custody Service
Department)
Japan Trustee Services Bank, Ltd.
1-8-11 Harumi, Chuo-ku, Tokyo
405,800
2.92(Trust Account 9)Government of Norway (Standing
Bankplassen 2, 0107 Oslo 1 Oslo 0107 No
proxy: Citibank N.A., Tokyo
354,713
2.55(6-27-30 Shinjuku, Shinjuku-ku, Tokyo)
Branch)The Bank of New York Mellon
240 Greenwich Street, New York, NY 10286,
140044 (Standing proxy:
U.S.A.
232,700
1.67
Settlement & Clearing Services(2-15-1 Konan, Minato-ku, Tokyo)
Department of Mizuho Bank, Ltd.)Northern Trust Co. (AVFC) Re
Mondrian International Small Cap
50 Bank Street Canary Wharf London E14 5NT,
Equity Fund, L.P. (Standing proxy:UK
208,600
1.50
HSBC Tokyo Branch, Custody(3-11-1 Nihonbashi, Chuo-ku, Tokyo)
Service Department)
Japan Trustee Services Bank, Ltd.
1-8-11 Harumi, Chuo-ku, Tokyo
205,900
1.48(Trust Account 5)
Total―
7,599,329
54.67(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. The number of shares pertaining to the trust services of Japan Trustee Services Bank, Ltd. (Trust Account 9) is 405,800
shares.
5. The number of shares pertaining to the trust services of Japan Trustee Services Bank, Ltd. (Trust Account 5) is 205,900
shares.
6. In addition to the forgoing, the Company holds 232,320 treasury shares.

―35―

7. The content of reports on large shareholders whose shareholdings could not be confirmed as of March 31, 2019 (changereports) is as follows.
(1) A report on large shareholders (change report) naming Columbia Management Investment Advisers, LLC andThreadneedle Asset Management Ltd. as joint holders was submitted on December 20, 2018 by Attorney Moegi
Shirakawa, but this change is not taken into consideration in “Major Shareholders” above as the Company cannot
confirm the actual number of shares held as of March 31, 2019.
The content of this report on large shareholders is as shown below.
Number of
Ownership
shareratio of share
Name
Address
certificates, etc.
certificates (%)
held (shares)
Columbia Management
225 Franklin Street, Boston, MA 02110,
292,500
2.07
Investment Advisers, LLC
United States
Threadneedle Asset
Cannon Place, 78 Cannon Street, London,
255,737
1.81Management Ltd.
EC4N 6AG, United Kingdom
Total―
548,237
3.88(2) 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 December 20, 2018 by Sumitomo Mitsui Trust
Bank, Limited, but this change is not taken into consideration in “Major Shareholders” above as the Company cannot
confirm the actual number of shares held as of March 31, 2019.
The content of this report on large shareholders is as shown below.
Number of
Ownership
shareratio of share
Name
Address
certificates, etc.
certificates (%)
held (shares)
Sumitomo Mitsui Trust Asset
1-1-1 Shibakoen, Minato-ku, Tokyo
345,800
2.45
Management Co., Ltd.
Nikko Asset Management
9-7-1 Akasaka, Minato-ku, Tokyo
523,800
3.71
Co., Ltd.
Total―
869,600
6.15(3) A report on large shareholders (change report) naming Mondrian Investment Partners Limited was submitted on
February 27, 2019 by Nagashima Ohno & Tsunematsu, but this change is not taken into consideration in “Major
Shareholders” above as the Company cannot confirm the actual number of shares held as of March 31, 2019.
The content of this report on large shareholders is as shown below.
Number of
Ownership
shareratio of share
Name
Address
certificates, etc.
certificates (%)
held (shares)
Mondrian Investment
Partners Limited
Total

Fifth Floor, 10 Gresham Street, London,
EC2V 7JD, United Kingdom――36―

533,500

3.77

533,500

3.77

(7) Information on Voting Rights(i) Issued Shares
Category
Shares without voting right

As of March 31, 2019
Description―

Number of shares (shares)―

Number of voting rights―

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

―

―

―

Shares with restricted voting right(others)

―

―

―

―

―

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

Commonstock

232,300

Shares with full voting right(others)

Commonstock

13,893,900

Shares less than one unit

Common
stock

6,800

―

―

14,133,000――

Number of issued shares―

Total number of voting rights―

138,939―

138,939(ii) Treasury Shares, etc.

Name of shareholder

Digital Arts Inc.
Total

Address

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

Number ofshares held
under own
name

As of March 31, 2019
Ownership
Number ofpercentage to
Total sharesshares held
the total
under the name held (shares)
number ofof others
issued shares(%)

232,300―

232,300

1.6

232,300―

232,300

1.6―37―

2. Information on Acquisition, etc. of Treasury Shares
Acquisition of common stock under Article 155(vii) of the Companies Act

Class of shares(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
Not applicable.
(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

2

10,060Treasury shares acquired during the current
period――(4) Status of the disposition and holding of acquired treasury shares
Current business year
Number of shares
Total disposition(shares)amount (yen)Category
Acquired treasury shares which were
offered to subscribers
Acquired treasury shares which werecanceled
Acquired treasury shares which weretransferred due to merger, shareexchange or company split
Other (Note)

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

―

―

―

―

―

―

―

―

―

―

―

―

15,70020,741,623

8,100

10,701,659

Total number of treasury shares held
232,320―
224,220(Note) “Other” for the current business year and current period represents the exercise of share acquisition rights.

―

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, 2020 is 50 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 30, 2018
Resolution of the Annual General Shareholders
Meeting held on Monday, June 24, 2019―38―

Dividend per share (yen)250,203

18

417,02030

4. Corporate Governance(1) Corporate Governance(i) Corporate Governance Policy
Our 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 six Directors, of whom two (33%) 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)
Hidenobu Akezawa (Internal Director)
Takuya Matsumoto (Internal Director)
Shuji Wakai (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 to strengthen audits and supervision.
Shuji Wakai (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.

―39―

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
execution of the Company’s business. The Board of Directors, which is comprised of six 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 amonth 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 and views 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
by cooperating closely with the accounting auditor, persons in charge of internal audits, etc. We believe, therefore, that thisstructure 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 theGroup’s officers and employees execute their duties in compliance with laws and regulations and the Articles of Incorporationand healthy social 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.

―40―

(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
and employees comply with laws and regulations, the Articles of Incorporation, various regulations and stipulated businessprocesses 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
in charge 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
and verifies 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
the nature 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―41―

& 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 other expenses
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 suchas 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 mightarise 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―42―

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
shall not 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
of shareholders 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
resolution of 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, payinterim dividends with a record date of September 30 of each year, pursuant to Article 454, Paragraph 5 of the Companies Act. The
aim is to enable 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
the Companies Act. The maximum amount of liability for compensation of damages under these agreements is the amount set forthin laws 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.

―43―

(2) Officers(i) List of Officers
Men: 6 persons, Women: ‒ person (Women’s percentage to total number of officers: ‒%)
Title

Name

Date of birthBusiness experience
October 1997
October 2003
March 2005
November 2005
December 2006
April 2011
June 2012
May 2013
October 2013
October 2013

Representative Director,
President & CEO, General
Manager-Sales, General
Manager-Marketing

Toshio Dogu

February 17,
1968

April 2014
November 2014
April 2015

November 2015
April 2016
April 2016
September 2016
April 2017

April 2018―44―

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)
Director, President & CEO, Digital Arts
America, Inc. (incumbent)
Director, Digital Arts Investment, Inc.
(incumbent)
Representative Director, President & CEO,Polkast Japan LLC
Representative Director, President & CEO,DA Corporation (incumbent)
Representative Director, President & CEO,DM Corporation (incumbent)
Director, President & CEO, FinalCode, Inc.
Representative Director, President & CEO,
General Manager- Sales, Digital Arts Inc.
Representative Director, President & CEO,
General Manager- Sales, General ManagerFinalCode BusinessDirector, Digital Arts Asia Pacific Pte. Ltd.
(incumbent)
Representative Director, President & CEO,
General Manager- Sales, Digital Arts Inc.
Representative Director, Chairman, Digital
Arts Consulting Inc. (incumbent)
Director, Digital Arts Europe Limited(incumbent)
Representative Director, President & CEO,
General Manager-Sales, General ManagerMarketing, General Manager-Corporation
Planning, Digital Arts Inc.
Representative Director, President & CEO,
General Manager-Sales, General ManagerMarketing (incumbent)

Term ofofficeShareownership(shares)(Note 2)

2,496,316

TitleName

Date of birth
April 1999
December 2004
July 2014
June 2015
November 2015
April 2016

Director, General ManagerAdministration, General
Manager-Corporate
Planning

September 2016
Hidenobu
Akazawa

September 12,
1975

January 2017

April 2017
April 2017
April 2018

November 2018

Director, General ManagerDevelopment

TakuyaMatsumoto

November 4,
1976

April 1999
April 2003
April 2014
October 2016
June 2017
December 2017
April 2018
April 1959
December 1987

Director (Audit &Supervisory Board Member)June 1997
Shuji Wakai

April 8, 1936

Term ofofficeShareownership(shares)

Joined Nippon Life Insurance Company
Joined Shin Nihon & Co. (currently Ernst& Young ShinNihon LLC)
Joined Digital Arts Inc., General ManagerAdministration
Director, General Manager-Administration
Director, Digital Arts Asia Pacific Pte. Ltd.
(incumbent)
Director, Digital Arts Consulting Inc.
(incumbent)
Director, Digital Arts Europe Limited(incumbent)
Director, General Manager-Administration,
General Manager-Corporate Planning,
Digital Arts Inc.
Director, General Manager-Administration
Director and CFO, FinalCode, Inc.
Director, General Manager-Administration,
General Manager-Corporate Planning,
General Manager-Human Resources,
Digital Arts Inc.
Director, General Manager-Administration,
General Manager-Corporate Planning,
Digital Arts Inc. (incumbent)(Note 2)

77

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 Manager-New Development
Director, General Manager-Development(incumbent)(Note 2)

2,969

(Note 3)

2,115

Business experience

June 2000
March 2005
April 2016
June 2016―45―

Joined Tokyo Denki Kagaku Kogyo K.K.
(currently TDK Corporation)
Representative Director, President and CEO,TDK Core Co., Ltd. (currently Creative Core
Co., Ltd.)
Auditor, TDK Corporation
Standing Auditor, Digital Arts Inc.
Auditor, IQS’ Co., Ltd.
Auditor, Digital Arts Consulting Inc.
(incumbent)
Director (Audit & Supervisory Board
Member), Digital Arts Inc. (incumbent)TitleName

Date of birth
November 1976
July 1986

February 1989
Director (Audit &Supervisory Board Member)

Hidekazu
Kubokawa

February 20,
1953
March 2000
June 2005
June 2006
June 2016
April 1995
April 1999
September 2000
June 2003
December 2013

Director (Audit &Masataka Uesugi
Supervisory Board Member)

July 31, 1965

Term ofofficeShareownership(shares)

Joined Chuo Audit Corporation (currently
PricewaterhouseCoopers Aarata LLC)
Founded Kubokawa CPA Office (currently
Yotsuya Partners Accounting Firm),
Representative Partner (incumbent)
Outside Audit & Supervisory Board Member,
SoftBank Corp. Japan (currently SoftBank
Group Corp.) (incumbent)
Outside Auditor, Digital Arts Inc.
Outside Corporate Auditor, Kyoritsu Printing
Co., Ltd. (incumbent)
Outside Auditor, Pado Corporation
Outside Director (Audit & Supervisory Board
Member), Digital Arts Inc. (incumbent)

(Note
3)

3,250

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)
Outside Audit & Supervisory Board Member,
Aiming Inc. (incumbent)
Senior Partner, Sakurada Dori Partners(incumbent)
Director (Audit & Supervisory Committee
Member), Fullcast Holdings Co., Ltd.
(incumbent)
Outside Director (Audit & Supervisory Board
Member), Digital Arts Inc. (incumbent)

(Note
3)

3,250

Business experience

November 2014
March 2015
March 2016

June 2016
Total

2,507,981(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 24, 2019.
3. The term of office shall expire at the conclusion of the Annual General Meeting of Shareholders pertaining to the lastbusiness year ending within one (2) year after the conclusion of the Annual General Meeting of Shareholders held on
June 22, 2018.
4. The number of shares held includes shares of stock in Digital Arts Inc.’s officers’ shareholding association.
5. 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 thesubstitute for a Director who is an Audit & Supervisory Board Member is as follows.
Name

Komei Sasaki

Date of birthBusiness experience
August 1999

Partner Attorney, Tokyo Ginza Law
OfficeMay 2003

Partner of Amlec Law and Accounting
Firm

June 2004

Outside Auditor, TAKE AND GIVE
NEEDS Co., Ltd.

April 2005

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

March 2015

Senior Partner, Sakurada Dori Partners(incumbent)

June 2016

Outside Director, TAKE AND GIVE
NEEDS Co., Ltd. (incumbent)

March 15, 1966

―46―

Share ownership(shares)―(ii) Information about Outside Officers
The Company has two Outside Directors.
Outside Director Hidekazu Kubokawa holds 3,250 shares of the Company’s stock as of March 31, 2019, but there are no otherspecial 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.
Outside Director Masataka Uesugi holds 3,250 shares of the Company’s stock as of March 31, 2019, 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
for independence stipulated by the Tokyo Stock Exchange when electing Outside Directors. The Outside Directors have the functionof auditing the execution of duties by Directors from the perspectives of legality and appropriateness, based on their independence
and specialist 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.
(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
A. Name of audit corporation
BDO Sanyu & Co.
B. Certified public accountants who execute operations
Mr. Nobuhito Iwata
Mr. Koji Kumagai―47―

C. Composition of assistants with audit operations
Assistants with the Company’s accounting audit operations mainly comprise two certified public accountants, three persons who
have passed accountant examinations and one other person.
D. 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 ofshareholders. The Audit & Supervisory Board also examines each period whether reappointment of the accounting auditor isappropriate and whether the status of execution of duties, the audit systems, independence, etc. of the accounting auditor areappropriate. If as a result of its examination, no major problems are found, the Audit & Supervisory Board conducts an evaluationof the accounting auditor and judges that reappointment is appropriate.
E. 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.
Category
Filing Company
Consolidated
subsidiaries
Total

Previous fiscal year
Fees for audit services
Fees for non-audit(thousand yen)services (thousand yen)
19,500―Fiscal year under review
Fees for audit services
Fees for non-audit(thousand yen)services (thousand yen)
19,500
―

―

―

―

―

19,500―19,500―

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
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.
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 feesof 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 beappropriate.

―48―

(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
The Company does not have a policy for determining the amount and method of calculation of compensation to Directors andExecutive Officers, but it determines the amount of compensation for Directors and Directors who are Audit & Supervisory Board
Members separately within the limits of the total amounts of compensation approved for each respectively by the General Meeting of
Shareholders.
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 remuneration amount of each Director (excludes Directors who are Audit & Supervisory Board Members) is determined by the
Board of Directors within the scope of the remuneration limit approved at the Annual Shareholders’ Meeting, taking contribution tocorporate performance and the status of execution of duties into consideration. The remuneration amount of each Director who is an
Audit & Supervisory Board Member is fixed remuneration that takes duties and authority into consideration and is not linked tocorporate performance and it is determined by resolution of the Audit & Supervisory Board.
(ii) Total Amount of Remuneration, etc. for Each Executive Officer Category, Total Amount of Remuneration, etc. by Type andNumber of Executive Officers
Total amount of remuneration, etc. by type(thousand yen)

Total amount of
remuneration(thousand yen)

Category of officers
Directors (excludes Audit &Supervisory Board Members
and Outside Directors)
Directors who are Audit &Supervisory Board Members(excludes Outside Directors)
Outside Officers

Basic remuneration

Stock options

Number of eligible
officers

42,40042,400

‒

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 JPY100 million or more.
(iv) Employees Salary of Officers Who also Hold Employee Posts
Total amount(thousand yen)
31,983

Officers who also holdemployee posts (people)
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 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, 2018 to March 31, 2019) and the non-consolidated financial statements for the fiscal year (from April 1, 2018 to March 31,2019) 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 2018
(As of March 31, 2018)

Fiscal 2019
(As of March 31, 2019)

4,426,443
1,125,067‒
695
155,443

6,169,172
1,172,515
299,968290
87,863

5,707,649

7,729,809

130,140(96,596)
33,543205,990(104,980)
101,00917,519(4,718)12,800361,367(251,204)
110,163‒
156,508

17,519(9,816)
7,703
416,174(290,055)
126,119
26,254
261,087

971,257
314,637
1,285,895

1,044,163
367,390
1,411,553

403,347
73,884*1 32,788
268,459
778,479
2,220,882

103,00280,886*1 1,097
271,910456,896
2,129,537

7,928,532

9,859,347

AssetsCurrent assets
Cash and deposits
Notes and accounts receivable - trade
Securities
Finished goods
Other
Total current assets
Non-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
Total property, plant and equipment
Intangible assets
Software
Other
Total intangible assets
Investments and other assets
Investment securities
Deferred tax assets
Shares of subsidiaries and associates
Other
Total investments and other assets
Total non-current assets
Total assets―51―

(Thousand yen)
Fiscal 2018
(As of March 31, 2018)

Fiscal 2019
(As of March 31, 2019)22,106305,391
112,280
917,210
278,936
1,635,924

22,744
330,672
128,192
1,225,258
303,4942,010,363

44,360645
45,005
1,680,930

45,444645
46,0892,056,452

713,590825,560
4,991,931(327,671)

713,590827,730
6,518,256(306,939)

6,203,410

7,752,637(4,703)(4,703)

8,499
8,499

33,812
15,082
6,247,602
7,928,532

23,587
18,1697,802,894
9,859,347

Liabilities
Current liabilities
Accounts payable - trade
Income taxes payable
Provision for bonuses
Advances received
Other
Total current liabilities
Non-current liabilities
Asset retirement obligations
Other
Total non-current liabilities
Total liabilities
Net assets
Shareholders’ equity
Share capital
Capital surplus
Retained earnings
Treasury shares
Total shareholders’ equity
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―

(ii) Consolidated Statement of Income and Consolidated Statement of Comprehensive Income
Consolidated Statement of Income(Thousand yen)
Fiscal 2018(from April 1, 2017
to March 31, 2018)
Net sales
Cost of sales
Gross profit
Selling, general and administrative expenses
Operating profit
Non-operating income
Interest income
Foreign exchange gains
Commission income
Gain on forfeiture of unclaimed dividends
Miscellaneous income
Total non-operating income
Non-operating expenses
Foreign exchange losses
Miscellaneous loss
Total non-operating expenses
Ordinary profit
Extraordinary income
Gain on reversal of share acquisition rights
Gain on sales of non-current assets
Gain on liquidation of subsidiaries
Total extraordinary income
Extraordinary losses
Loss on retirement of non-current assets
Loss on valuation of golf club membership
Loss on liquidation of subsidiaries
Loss on valuation of shares of subsidiaries
Total extraordinary losses
Profit before income taxes
Income taxes - current
Income taxes - deferred

5,116,969
1,075,437
4,041,531

5,841,287
1,059,444
4,781,842*1,*2 2,138,614*1,*2 2,152,750

1,902,917

2,629,092

1,071
3,503
212
945
1,003
6,736

1,079
‒
198
1,168
1,759
4,204

‒
276
276
1,909,377

2,224
108
2,333
2,630,963

3,193
2,607
7,299

2,135
‒
‒
2,135

*4 10,204*4 4,374*3 1,498‒‒‒
10,204
1,906,472
577,834
44,881

Total income taxes

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

2,200*5 56,135

7,156
69,8662,563,232
605,870(7,001)

622,715

598,869

ProfitProfit attributable to non-controlling interests

1,283,756
1,832

1,964,363
3,087

Profit attributable to owners of parent

1,281,924

1,961,276―53―

Consolidated Statement of Comprehensive Income(Thousand yen)

ProfitOther comprehensive income
Foreign currency translation adjustment
Total other comprehensive income

Fiscal 2018(from April 1, 2017
to March 31, 2018)
1,283,756

Comprehensive income
Comprehensive income attributable toComprehensive income attributable to owners ofparentComprehensive income attributable to noncontrolling interests―54―

Fiscal 2019(from April 1, 2018
to March 31, 2019)
1,964,363(8,534)

13,203*1 -8,534*1 13,203

1,275,222

1,977,567

1,273,389

1,974,480

1,832

3,087

(iii) Consolidated Statement of Changes in Equity
Fiscal 2018 (from April 1, 2017 to March 31, 2018)(Thousand yen)
Accumulated othercomprehensive income
Share
NonTotal
Foreign
Total
accumulated acquisition controllingcurrencyinterests
rightsothershareholders’translation
comprehensive
equityadjustment
incomeShareholders’ equity

Balance at beginningof period
Changes in items
during period
Dividends ofsurplus
Change inownership interestof parent due totransactions with
non-controllinginterests
Profit attributableto owners of parent
Change in scope of
consolidation
Disposal oftreasury shares
Purchase oftreasury shares
Net changes in
items other thanshareholders'equityTotal changes in
items during period
Balance at end of
periodSharecapitalCapitalsurplusRetainedearnings

Treasuryshares713,590

778,435

4,098,920(410,665)(387,675)

5,180,280

3,830

3,830

81,152

5,075(387,675)(2,174)

Total net
assets5,270,339(387,675)(2,174)

8,174

6,000

1,281,924

1,281,924

1,281,924(1,238)(1,238)(1,238)83,552

132,852

132,852

(558)

(558)

(558)

49,299(8,534)(8,534)(47,340)

1,832(54,042)‒

47,125893,01082,994

1,023,130(8,534)(8,534)(47,340)

10,007977,262

713,590825,560

4,991,931(327,671)

6,203,410(4,703)(4,703)33,812

15,082

6,247,602

Fiscal 2019 (from April 1, 2018 to March 31, 2019)(Thousand yen)
Accumulated othercomprehensive income
Share
NonTotal
Foreign
Total
accumulated acquisition controllingcurrencyinterests
rightsothershareholders’translation
comprehensive
equityadjustment
incomeShareholders’ equity

Balance at beginningof period
Changes in items
during period
Dividends ofsurplus
Change inownership interestof parent due totransactions with
non-controllinginterests
Profit attributableto owners of parent
Change in scope of
consolidation
Disposal oftreasury shares
Purchase oftreasury shares
Net changes in
items other thanshareholders'equityTotal changes in
items during period
Balance at end of
periodSharecapitalCapitalsurplusRetainedearnings

Treasuryshares713,590825,560

4,991,931(327,671)(444,592)

6,203,410(4,703)(4,703)33,812

15,082

Total net
assets6,247,602(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)

2,170

13,203

13,203(10,225)

3,087

6,065

‒

2,170

1,526,325

20,731

1,549,227

13,203

13,203(10,225)

3,087

1,555,292

713,590827,730

6,518,256(306,939)

7,752,637

8,499

8,499

23,587

18,1697,802,894―55―

(iv) Consolidated Statement of Cash Flows(Thousand yen)
Fiscal 2018(from April 1, 2017
to March 31, 2018)
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)
Interest expenses
Gain on reversal of share acquisition rights
Loss on valuation of shares of subsidiaries
Loss on retirement of non-current assets
Loss (gain) on sales 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
Interest paid
Income taxes paid
Net cash provided by (used in) operating activities
Cash flows from investing activities
Purchase of property, plant and equipment
Proceeds from sale of property, plant and equipment
Purchase of intangible assets
Other
Net cash provided by (used in) investing activities
Cash flows from financing activities
Proceeds from disposal of treasury shares
Purchase of treasury shares
Proceeds from issuance of share acquisition rights
Proceeds from share issuance to non-controllingshareholders
Dividends paid
Other payments
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―56―

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

1,906,472
573,514‒(53,466)(1,071)(5,387)77(3,193)‒
10,204(1,498)80,820(166)
4,117(3,622)(13,078)(75,396)(23,051)
2,395,273

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
19,5983,669,697

1,389
(77)
(733,426)
1,663,158

1,390‒(579,225)
3,091,862(103,913)
7,660(671,817)(6,797)(774,868)(167,827)‒(741,907)
950(908,784)

98,291(558)
1,413

14,822
(10)
‒

0

‒

(387,554)(4,999)(293,407)(444,524)‒(429,712)(1,465)(2,267)593,417
3,298,836

1,751,098
3,826,443(65,811)(8,369)*1 3,826,443*1 5,569,172

Notes(Notes on the premise of a growing concern)
There are no applicable matters.
(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(Changes in scope of consolidation)
The liquidation of FinalCode, Inc. was completed in the consolidated fiscal year under review, and it has been excluded from thescope of consolidation.
Digital Arts America, Inc. has been included in the scope of consolidation in the consolidated fiscal year under review due to its
increased importance.
(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 non-consolidated
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.

―57―

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.)(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.
(Change in accounting policy)(Application of Practical Solution on Transactions Granting Employees and Others Stock Acquisition Rights, which Involve
Considerations, with Vesting Conditions)
Practical Solution on Transactions Granting Employees and Others Stock Acquisition Rights, which Involve Considerations, with
Vesting Conditions (PITF No. 36; January 12, 2018), etc. has been applied from April 1, 2018, and the accounting for transactions
granting employees and others stock acquisition rights which involve considerations with vesting conditions are subject to the
Accounting Standard for Share-based Payment (ASBJ Statement No. 8; December 27, 2005), etc.
The application of PITF No. 36 is subject to the transitional treatment provided for in Paragraph 10 (3) of PITF No. 36, and the―58―accounting before the application of PITF No. 36 is applied to transactions granting employees and others stock acquisition rights
which involve considerations with vesting conditions before the applied day of PITF No. 36.
(Issued but not yet Adopted Accounting Standards)
Accounting Standard for Revenue Recognition
Accounting Standard for Revenue Recognition (ASBJ Statement No. 29, March 30, 2018)
Implementation Guidance on Accounting Standard for Revenue Recognition (ASBJ Guidance No. 30, March 30, 2018)(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.
Changes in presentation methods(Changes as a result of application of Partial Amendments of Accounting Standard for Tax Effect Accounting)Partial Amendments of Accounting Standard for Tax Effect Accounting (ASBJ Statement No. 28, February 16, 2018) have been
applied from the beginning of the fiscal 2019. Accordingly, deferred tax assets were presented under investments and other assets,
and deferred tax liabilities were presented under non-current liabilities.
As a result, deferred tax assets of 58,408 thousand yen presented under current assets in the consolidated balance sheet for fiscal
2018 are included in deferred tax assets of 73,884 thousand yen under investments and other assets.

―59―

(Consolidated balance sheet)*1. The item related to non-consolidated subsidiaries is as follows.

Shares of subsidiaries and associates

Fiscal 2018
(As of March 31, 2018)
32,788(Thousand yen)
Fiscal 2019
(As of March 31, 2019)
1,097(Consolidated statement of income)*1. The major items of selling, general and administrative expenses and the amounts are as follows.
Fiscal 2018(from April 1, 2017
to March 31, 2018)
Advertising expenses
Salaries and allowances
Provision for bonuses
Commission expenses

287,617657,248
53,043111,194(Thousand yen)
Fiscal 2019(from April 1, 2018
to March 31, 2019)
290,527
626,386
70,766
108,709*2. Total amount of research and development expenses included in general and administrative expenses are as follows.
(Thousand yen)
Fiscal 2018 (from April 1, 2017 to March 31, 2018)
Fiscal 2019 (from April 1, 2018 to March 31, 2019)15,21013,176*3. The details of gain on sales of non-current assets are as follows.

VehiclesFiscal 2018(from April 1, 2017
to March 31, 2018)
1,498(Thousand yen)
Fiscal 2019(from April 1, 2018
to March 31, 2019)‒*4. The details of loss on retirement of non-current assets are as follows.

Buildings
Tools, furniture and fixtures
SoftwareFiscal 2018(from April 1, 2017
to March 31, 2018)
5,738
4,465
‒

(Thousand yen)
Fiscal 2019(from April 1, 2018
to March 31, 2019)
‒
3,163
1,211

*5. Details of the loss on liquidation of subsidiaries are as follows.
Fiscal 2018 (from April 1, 2017 to March 31, 2018)
There are no applicable matters.
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.

―60―

(Consolidated statements of comprehensive income)*1. Reclassification adjustment and tax effect related to other comprehensive income(Thousand yen)
Fiscal 2019(from April 1, 2018
to March 31, 2019)

Fiscal 2018(from April 1, 2017
to March 31, 2018)
Foreign currency translation
adjustment:
Amount that occurred in the fiscal
year under review
Reclassification adjustment(8,534)

2,214-

10,989Before tax effect adjustment
Tax effect(8,534)-

13,203-Foreign currency translation
adjustment(8,534)

13,203

Total other comprehensive income(8,534)

13,203(Consolidated statement of changes in equity)
Fiscal 2018 (from April 1, 2017 to March 31, 2018)
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 ofshares during
shares duringof consolidated fiscal
consolidated fiscal year consolidated fiscal year consolidated fiscal year
year under review
under review
under review
under review
Issued shares
Common shares
14,133,000‒‒
14,133,000
Total
14,133,000‒‒
14,133,000
Treasury shares
Common shares
311,175
143
63,300248,018(Note)
Total
311,175
143
63,300248,018(Note) An increase in the number of common shares in treasury shares, 143, is due to the purchase of treasury shares. A decrease in
the number of treasury shares, 63,300, is due to the exercise of stock options.
2. Matters related to share acquisition rights and treasury share acquisition rights
Number of shares underlying share acquisition rights Amount at
Class of shares
end of fiscal
underlying
Increase
Decreaseyear under
BeginningofEndoffiscalshare
during fiscal during fiscal
review
fiscal
year
year
under
acquisition
year under year under(thousandunderreview
reviewrightsreview
review
yen)

Classification

Breakdown of shareacquisition rights

Reportingcompany(parent
company)

Share acquisitionrights as stock options

―

―

―

―

―

33,812

Total

―

―

―

―

―

33,812

Total amount ofdividends(thousand yen)

Dividends per
share (yen)193,505
194,169

3. Matters related to dividends(1) Dividends paid
Resolution

Class ofsharesAnnual shareholders’meeting on June 23, 2017
Board of Directors meetingon October 30, 2017

CommonsharesCommonshares―61―

Record date

Effective date

14

March 31, 2017

June 26, 201714

September 30, 2017

December 4, 2017

(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 ofsharesTotal amountof dividends(thousand yen)

Annual shareholders’meeting on June 22, 2018

Commonshares194,389

Financialsource ofdividends
Retainedearnings

Dividend pershare (yen)14

Record date

Effective date

March 31, 2018

June 25, 2018

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 ofshares during
shares duringof consolidated fiscal
consolidated fiscal year consolidated fiscal year consolidated fiscal year
year under review
under review
under review
under review
Issued shares
Common shares
Total
Treasury shares‒‒

14,133,000
14,133,000‒‒

14,133,000
14,133,000

Common shares
248,0182
15,700232,320(Note)
Total
248,0182
15,700232,320(Note) An increase in the number of common shares in treasury shares, 2, is due to the purchase of treasury shares. A decrease in thenumber 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 underlying share acquisition rights Amount at
Class of shares
end of fiscal
underlying
Increase
Decreaseyear under
BeginningofEndoffiscalshare
during fiscal during fiscal
review
fiscal
year
year
under
acquisition
year under year under(thousandunder review
reviewrightsreview
review
yen)

Classification

Breakdown of shareacquisition rights

Reportingcompany(parent
company)

Share acquisitionrights as stock options

―

―

―

―

―

23,587

Total

―

―

―

―

―

23,5873. Matters related to dividends(1) Dividends paid

Resolution

Class ofsharesTotal amount ofdividends(thousand yen)

Dividend pershare (yen)Annual shareholders’meeting on June 22, 2018

Commonshares194,389

Board of Directors meetingon October 30, 2018

Commonshares250,203

Record date

Effective date

14

March 31, 2018

June 25, 201818

September 30, 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 ofsharesTotal amountof dividends(thousand yen)

Annual shareholders’meeting on June 24, 2019

Commonshares417,020

Financialsource ofdividends
Retainedearnings―62―

Dividend pershare (yen)30

Record date

Effective date

March 31, 2019

June 25, 2019

(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

Cash and deposit accountTime deposits whose deposit period
is more than three months
Securities

Fiscal 2018(from April 1, 2017
to March 31, 2018)
4,426,443 thousand yen

Cash and cash equivalents

Fiscal 2019(from April 1, 2018
to March 31, 2019)
6,169,172 thousand yen(600,000)(600,000)‒‒

3,826,443

5,569,172(Lease transactions)
There are no applicable matters.
(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.

―63―

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 2018 (As of March 31, 2018)(1) Cash and deposits(2) Notes and accounts receivable trade(3) Investment securities
Bonds held for maturity
Total assets(1) Income taxes payable
Total liabilities

Consolidated balance sheet
amount (thousand yen)
4,426,443

Market price(thousand yen)
4,426,443

1,125,067

1,125,067‒

403,347
5,954,858
305,391
305,391

404,9435,956,453
305,391
305,391

1,595
1,595
‒
‒

Difference (thousand yen)‒

Fiscal 2019 (As of March 31, 2019)
Consolidated balance sheet
amount (thousand yen)
(1) Cash and deposits(2) Notes and accounts receivable trade(3) Securities and investment securities
Bonds held for maturity
Total assets(1) Income taxes payable
Total liabilities

Market price(thousand yen)

Difference (thousand yen)

6,169,172

6,169,172‒

1,172,515

1,172,515‒

402,9717,744,658
330,672
330,672

404,079
7,745,766
330,672
330,672

1,107
1,107
‒
‒

(Note) 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
These are settled in the short term, and their market prices are close to their book values. Thus, their 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, the market
prices are similar to the book values, because their yields are similar to those of deposits and their investment results are distributedin 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.

―64―

(Note) 2. Monetary claims and securities with maturity periods to be redeemed after the consolidated closing dateFiscal 2018 (As of March 31, 2018)
More than aWithin a year year, within
five years(Thousand yen)More than
five years, More than 10
within 10
years
years
‒
‒
‒
‒

4,426,443
1,125,067

‒
‒

‒
‒

300,000‒‒
100,000‒‒

5,551,510

300,000

100,000‒

More than aWithin a year year, within
five years

More than
five years,
within 10
years

More than 10
years

6,169,172
1,172,515

‒
‒

‒
‒

‒
‒

300,000‒
7,641,687‒‒‒‒
100,000
100,000‒‒‒

Cash and deposits
Notes and accounts receivable - trade
Investment securities
Bonds held for maturity(1) Government bonds, local government bonds(2) Corporate bonds
Total
Fiscal 2019 (As of March 31, 2019)(Thousand yen)

Cash and deposits
Notes and accounts receivable - trade
Securities and investment securities
Bonds held for maturity(1) Government bonds, local government bonds(2) Corporate bonds
Total

―65―

(Securities)
Bonds held for maturity
Fiscal 2018 (As of March 31, 2018)(Thousand yen)Type

Market price exceeds
consolidated balance sheet
amount(1) Government bonds,
local government
bonds, etc.
(2) Corporate bonds(3) Other
SubtotalMarket price does notexceed consolidatedbalance sheet amount(1) Government bonds,
local government
bonds, etc.
(2) Corporate bonds(3) Other
Subtotal

Consolidated balance
sheet amount

Total

Market value

Difference

299,869

300,840970

103,477‒
403,347

104,103‒404,943

625
‒
1,595

‒

‒

‒

‒
‒
‒

‒
‒
‒

‒
‒
‒

403,347

404,943

1,595

Fiscal 2019 (As of March 31, 2019)(Thousand yen)Type

Market price exceeds
consolidated balance sheet
amountMarket price does notexceed consolidatedbalance sheet amount

Consolidated balance
sheet amount(1) Government bonds,
local government
bonds, etc.
(2) Corporate bonds(3) Other
Subtotal(1) Government bonds,
local government
bonds, etc.
(2) Corporate bonds(3) Other
Subtotal

Total

Market value

Difference

299,968

300,180211

103,002‒402,971

103,899‒
404,079

896
‒
1,107

‒

‒

‒

‒
‒
‒

‒
‒
‒

‒
‒
‒

402,971404,079

1,107(Derivatives transactions)
Previous consolidated fiscal year (from April 1, 2017 to March 31, 2018) and consolidated fiscal year under review (from April 1,2018 to March 31, 2019)
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 17,511
thousand yen in fiscal 2018 (from April 1, 2017 to March 31, 2018) and 19,928 thousand yen in fiscal 2019 (from April 1, 2018 toMarch 31, 2019).

―66―

(Stock options)
1. Amount posted as profit due to the forfeiture of unexercised stock options

Gain on reversal of share acquisition rights

Fiscal 2018
Fiscal 2019(from April 1, 2017 to March 31, 2018) (from April 1, 2018 to March 31, 2019)
3,193
2,135

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

Vesting conditions

Requisite service period

Exercise period

2009 stock options
Reporting company
Three directors
90 employees
One employee at a subsidiary
Common shares 99,700 shares
June 12, 2009

Common shares 99,300 shares
June 8, 2010

Being an officer (an officer includes acompany auditor) or an employee atthe reporting company or a subsidiaryor an associate of the reporting
company and not being subject tosalaryreductionorstricterdisciplinary action provided for in therules of employment of the reporting
company or a subsidiary or an
associate of the reporting company
from the grant date (June 12, 2009) tothe vesting date (May 30, 2011)
The vesting dates are as follows:(i) May 30, 2011 for a third of thestock options(ii May 30, 2012 for a third of thestock options(iii May 30, 2013 for a third of thestock options(i) May 30, 2009 to May 29, 2011
for a third of the stock options(ii) May 30, 2009 to May 29, 2012
for a third of the stock options(iii) May 30, 2009 to May 29, 2013
for a third of the stock options
These periods correspond to (i),(ii), and (iii) of the vesting
conditions.
From the vesting date to June 24,
2018.
The person needs to continue to be an
officer (an officer includes acompany auditor) or an employee of
the Company or a subsidiary or an
associate of the Company until theexercise of stock options.

Being an officer (an officer includes acompany auditor) or an employee atthe reporting company or a subsidiaryor an associate of the reporting
company and not being subject tosalaryreductionorstricterdisciplinary action provided for in therules of employment of the reporting
company or a subsidiary or an
associate of the reporting company
from the grant date (June 8, 2010) to
the vesting date (May 26, 2012)
The vesting dates are as follows:(i) May 26, 2012 for a third of thestock options(ii) May 26, 2013 for a third of thestock options(iii) May 26, 2014 for a third of thestock options(i) May 26, 2010 to May 25, 2012
for a third of the stock options(ii) May 26, 2010 to May 25, 2013
for a third of the stock options(iii) May 26, 2010 to May 25, 2014
for a third 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
officer (an officer includes acompany auditor) or an employee of
the Company or a subsidiary or an
associate of the Company until theexercise of stock options.

―67―

2010 stock options
Same as leftThree directors
80 employeesCompany
Classification and number of persons
subject to grants
Stock options by class of shares (Note)
Grant date

Vesting conditions

Requisite service period

Exercise period

2015 stock options

2016 stock options

Reporting company
Four directors
151 employees
Common shares 350,100 shares

Same as leftThree directors
96 employees
Common shares 848,000 shares

November 27, 2015

December 13, 2016

Being a director or an employee ofthe reporting company and not being
subject to salary reduction or stricter
disciplinary action provided for in therules of employment of the reporting
company from the grant date(November 27, 2015) to the vestingdate (July 1, 2017)
Share acquisition rights can be
exercised up to the percentage of theallocated share acquisition rights
specified in each item below by eachholder of share acquisition rights only
if operating profit reaches the levelspecified in each item below in thefiscal year ending March 31, 2017,
the fiscal year ending March 31,
2018, or the fiscal year ending March
31, 2019.
(i) If operating profit exceeds ¥1.5
billion, 20% of share acquisitionrights can be exercised(ii) If operating profit exceeds ¥2.0
billion,
50% of shareacquisition rights can be
exercised(iii) If operating profit exceeds ¥2.5
billion,
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 noconsolidated statements of income
are prepared) shall be referenced. If
the concept of items to be referenced
changes significantly due to theapplication of the International
Financial Reporting Standards, etc.
indicators to be referenced shall be
determined by the Board of Directors.
No requisite service periods are
determined.

Being a director or an employee ofthe reporting company and not being
subject to salary reduction or stricter
disciplinary action provided for in therules of employment of the reporting
company from the grant date
(December 13, 2016) to the vestingdate (July 1, 2018)
Share acquisition rights can be
exercised up to the percentage of theallocated share acquisition rights
specified in each item below by eachholder of share acquisition rights
only if operating profit reaches thelevel specified in each item below in
the fiscal year ending March 31,
2018, the fiscal year ending March
31, 2019, or the fiscal year ending
March 31, 2020.
(i) If operating profit exceeds ¥2.0
billion, 20% of share acquisitionrights can be exercised(ii) If operating profit exceeds ¥2.5
billion, 50% of share acquisitionrights can be exercised(iii) If operating profit exceeds ¥2.8
billion,
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 noconsolidated statements of income
are prepared) shall be referenced. If
the concept of items to be referenced
changes significantly due to theapplication of the International
Financial Reporting Standards, etc.
indicators to be referenced shall be
determined by the Board of
Directors.
No requisite service periods are
determined.

From the vesting date to May 31,
2027.
The person must continue to be adirector or an employee of theCompanytoexerciseshareacquisition rights.

From the vesting date to May 31,
2028.
The person must continue to be adirector or an employee of theCompanytoexerciseshareacquisition rights.

―68―2018 stock options
Company
Classification and number of persons
subject to grants
Stock options by class of shares (Note)
Grant date

Reporting company
Three directors
151 employees
Common shares 1,413,300 shares
March 5, 2018

Being a director or an employee ofthe reporting company and not being
subject to salary reduction or stricter
disciplinary action provided for in therules of employment of the reporting
company from the grant date (March
5, 2018) to the vesting date (July 1,
2021)
Each holder of share acquisitionrights can exercise the shareacquisition rights allocated to them
only if operating profit exceeds ¥4.0
billion in the fiscal year ending
March 31, 2021.
Vesting conditions
To determine whether the condition
above is met, the operating profit
stated in the consolidated statements
of income in the Company’s annual
securities report (or the statements ofincome 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 theInternational Financial ReportingStandards, etc. indicators to bereferenced shall be determined by the
Board of Directors.
No requisite service periods are
Requisite service period
determined.
From the vesting date to May 31,
2028.
The person must continue to be a
Exercise period
director or an employee of theCompanytoexerciseshareacquisition rights.
(Note) The Company conducted a 100-for-1 common stock 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.

―69―

(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, 2019). The number ofstock options has been converted to the number of shares.
(i) Number of stock options
2009 stock options 2010 stock options 2015 stock options 2016 stock options 2018 stock options
Before vesting (shares)
As of March 31, 2018‒‒

Granted

‒

‒

‒

‒

‒

Forfeited
Vested‒‒‒‒17,500‒44,800‒

119,300‒‒‒

218,000

775,400

1,294,000

15,200‒8,200‒

34,400‒‒‒‒‒13,700

‒

2,000

‒

‒

Yet to be vested
After vesting (shares)
As of March 31, 2018
VestedExercised

235,500

820,200

1,413,300

Forfeited
1,500
100
‒
‒
‒
Yet to be exercised‒
8,100
32,400‒‒(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 information
Exercise price (yen)Average stock price when
exercised (yen)2009 stock options 2010 stock options 2015 stock options 2016 stock options 2018 stock options
785
593
2,034
2,639
3,400
4,460

‒

5,676

‒

‒

(i) 572 yen(i) 375 yen(ii) 586 yen(ii) 386 yen
2241(iii) 599 yen(iii) 396 yen(Note) 1(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.

Fair unit value (grant date)(yen)

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.

―70―

(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.

―71―

(Tax effect accounting)
1. Breakdown of key factors contributing to deferred tax assets and deferred tax liabilities
Fiscal 2018
(As of March 31, 2018)(Thousand yen)
Fiscal 2019
(As of March 31, 2019)

16,52534,380
5,104
659
2,593
10,707
9,146
224,332
2,051
‒
2,397
307,899(224,332)
83,567

17,831
39,252
5,889
246
799
11,629‒37,706
1,362
2,191
1,683
118,592(37,706)
80,886

Deferred tax liabilities
Unrealized losses(9,682)‒

Total deferred tax liabilities
Net deferred tax assets(9,682)73,884‒80,886

Deferred tax assets
Enterprise taxes payable
Provision for bonuses
Accrued social insurance premiums
Non-deductible depreciation expenses
Share-based remuneration expenses
Asset retirement obligations
Unrealized gains on non-current assets
Loss carryforwards
Loss on valuation of golf club membership
Loss on valuation of shares of subsidiaries
Other
Total deferred tax assets
Valuation allowance (Note)
Total deferred tax assets(Note) The valuation allowance decreased by 186,626 thousand yen. This decrease was mainly a result of a decrease in thevaluation allowance related to tax loss carryforwards at consolidated subsidiaries.
2. Reconciliation of the statutory tax rate and the actual effective tax rate

Statutory effective tax rate
(Adjustment)
Inhabitant tax on a per capita basis
Items that are not permanently deductible,
such as entertainment expense
Changes in valuation allowance
Differences in tax rate from the parent
company’s statutory tax rate
Effect of de-consolidation of subsidiaries
Utilization of loss carryforwards
Effect of tax rate changes
Other

Fiscal 2018
(As of March 31, 2018)30.85 %

Percentage of income tax payment, etc. after theapplication of tax effect accounting―72―

Fiscal 2019
(As of March 31, 2019)30.62 %

0.47

0.35

0.33

0.25

(2.76)(7.28)(0.54)

0.35

2.09(1.94)
6.06(1.90)‒‒‒(0.93)

32.66

23.36

(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

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

(Thousand yen)
Fiscal 20108
Fiscal 2019(from April 1, 2017 to March 31, 2018) (from April 1, 2018 to March 31, 2019)
43,93744,360‒655

422
44,360428
45,444―73―

(Segment information, etc.)
Segment information
Previous consolidated fiscal year (from April 1, 2017 to March 31, 2018) and consolidated fiscal year under review (from April 1,2018 to March 31, 2019)
The Group has only one segment, which is the security business, and segment information is omitted.
Related information
Fiscal 2018 (from April 1, 2017 to March 31, 2018)
1. Information by product/service
The Group has only one product and service classification, 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
SoftBank Commerce & Service Corp.
Daiwabo Information System Co., Ltd.

Net sales
1,037,408
976,669

Fiscal 2019 (from April 1, 2018 to March 31, 2019)
1. Information by product/service
The Group has only one product and service classification, 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.

―74―

Information on impairment loss in non-current assets by reporting segment
There are no applicable matters.
Information on amortization of goodwill and unamortized balance by reporting segment
There are no applicable matters.
Information on gain on bargain purchase by reporting segment
There are no applicable matters.
(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 2018 (from April 1, 2017 to March 31, 2018)

Type

Company
name or name

Officer

Toshio Dogu

Transaction

Amount oftransaction(thousand
yen)

Item

Balance at
end offiscal year
(thousandyen)(Held) Direct Exercise of
Exercise ofstock options stock options
17.9

28,443‒‒

Address

Capital orinvestment(thousandyen)

Business or
occupation

Holding
Relationship(held) rate ofwith related
voting rights
party
(%)

‒

‒

Representative
Director of theCompany(Notes) 1. The exercise of share acquisition rights issued by resolution at the annual shareholders’ meeting held on June 21, 2007, inthe fiscal year under review is described above. The amount of transaction is the number of shares granted as a result of
the exercise of stock options in the fiscal year under review multiplied by the amount paid per share.
2. The holding (held) rate of voting rights is calculated based on the number of issued shares less the number of treasury
shares.
Fiscal 2019 (from April 1, 2018 to March 31, 2019)
There are no applicable matters.
(Special purpose companies subject to disclosure)
There are no applicable matters.

―75―

(Per share information)

Net assets per share

Fiscal 2018(from April 1, 2017 to March 31, 2018)446.43 yen

Fiscal 2019(from April 1, 2018 to March 31, 2019)558.33 yen

92.46 yen
92.13 yen141.11 yen
140.80 yen

Profit per share
Diluted profit per share(Note) Base for calculating profit per share and diluted profit per share
Fiscal 2018(from April 1, 2017
Item
to March 31, 2018)
Profit per share

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

Profit attributable to owners of parent(thousand yen)

1,281,924

1,961,276

Amount not attributable to commonshareholders (thousand yen)‒‒

Profit attributable to owners of parent related
to common shareholders (thousand yen)

1,281,924

1,961,276

Average number of common shares during theterm

13,864,531

13,898,934‒‒

49,61630,455(49,616)(30,455)

Diluted profit per share
Adjustment of profit attributable to owners ofparent (thousand yen)
Increase in the number of common shares(Of the increase, the number of shareacquisition rights) (shares)
Share acquisition rights

Share acquisition rights

Resolution on November 12, 2015 Resolution on November 12, 2015
Number of potential shares: 235,500 Number of potential shares: 218,000
Outline of potential shares that are not included in
the calculation of the diluted profit per sharebecause they do not have any diluting effects

Resolution on November 10, 2016
Resolution on November 10, 2016
Number of potential shares: 820,200 Number of potential shares: 775,400
Resolution on February 16, 2018
Number of potential shares:
1,413,300(Significant subsequent events)
There are no applicable matters.

―76―

Resolution on February 16, 2018
Number of potential shares:
1,294,000

(v) Consolidated Supplementary Schedules
Bonds Schedule:
There are no applicable matters.
Borrowings Schedule
There are no applicable matters.
Asset Retirement Obligations Schedule
The amount of asset retirement obligations at both the beginning and end of fiscal 2019 are less than 1% of the combined total of
liabilities and net assets at the beginning and end of fiscal 2019, and so have been omitted in accordance with Article 92-2 of theRegulations for Consolidated Financial Statements.

―77―

(2) Other
Quarterly information in the consolidated fiscal year under review, etc.
(Cumulative period)
Net sales
Profit before income
taxes
Profit attributable toowners of parent
Profit per share(Thousandyen)(Thousandyen)(Thousand
yen)
(Yen)

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

Second quarter

Third quarter

Fiscal year underreview

1,217,767

2,764,121

4,166,963

5,841,287

293,654

1,039,573

1,674,333

2,563,232

175,279

992,118

1,418,552

1,961,276

12.61

71.39

102.07141.11First quarter
12.61

Second quarter
58.77

Third quarter
30.68

Fourth quarter
39.04

―78―

2. Financial Statements of the Registrant(1) Financial Statements(i) Balance Sheet(Thousand yen)
Fiscal 2018
(As of March 31, 2018)
AssetsCurrent assets
Cash and deposits
Notes and accounts receivable - trade
Securities
Finished goods
Advance payments - trade
Prepaid expenses
Other
Total current assets

Fiscal 2019
(As of March 31, 2019)

4,191,007

5,982,081* 1,241,893* 1,143,621‒
695
24,71888,459* 89,948

299,968290
807
65,278* 20,523

5,636,722

7,512,572

Non-current assets
Property, plant and equipment
Buildings
VehiclesTools, furniture and fixtures
Land
Total property, plant and equipment
Intangible assets
Software
Software in progress
Telephone subscription right
Other
Total intangible assets
Investments and other assets
Investment securities
Shares of subsidiaries and associates
Investments in capital
Long-term prepaid expenses
Leasehold and guarantee deposits
Deferred tax assets
Other

33,54312,800106,265‒
152,609

101,009
7,703
124,985
26,254259,953

736,951
282,373
190
23,671
1,043,186

1,043,645
367,199190
15
1,411,051

403,347
291,08110
26,050181,212354,960
60,576103,002
168,585
1028,890182,990145,91357,426

Total investments and other assets
Total non-current assets
Total assets

1,317,238
2,513,034
8,149,757

686,818
2,357,823
9,870,395―79―

(Thousand yen)
Fiscal 2018 (As of March 31,
2018)

Fiscal 2019 (As of March 31,
2019)* 115,570* 19,236* 112,754* 151,964

55,736
290,757
37,402906,313
22,464112,280

52,604
329,70399,1251,215,782
23,273
128,192

1,653,279

2,019,882

44,360645
45,005
1,698,284

45,444645
46,0892,065,972

713,590

713,590

700,222
127,511827,734

700,222
129,682829,905

5,204,006
5,204,006(327,671)
6,417,660
33,812
6,451,473

6,544,279
6,544,279(306,939)
7,780,835
23,587
7,804,423

8,149,757

9,870,395

Liabilities
Current liabilities
Accounts payable - trade
Accounts payable - otherAccrued expenses
Income taxes payable
Accrued consumption taxes
Advances received
Deposits received
Provision for bonuses
Total current liabilities
Non-current liabilities
Asset retirement obligations
Other
Total non-current liabilities
Total liabilities
Net assets
Shareholders’ equity
Share capital
Capital surplus
Legal capital surplus
Other capital surplus
Total capital surplus
Retained earnings
Other retained earnings
Retained earnings brought forward
Total retained earnings
Treasury shares
Total shareholders’ equity
Share acquisition rights
Total net assets
Total liabilities and net assets―80―

(ii) Statement of Income(Thousand yen)
Fiscal 2018 (from April 1, 2017
to March 31, 2018)

Fiscal 2019 (from April 1, 2018
to March 31, 2019)*2 5,046,537*2 5,752,991

Net sales
Cost of sales
Beginning finished goods inventory
Cost of Internet service
Total
Transfer to other accountEnding finished goods inventory
Cost of finished goods sold
Gross profit
Selling, general and administrative expenses
Operating profit
Non-operating income
Interest income
Interest on securities
Commission income
Foreign exchange gains
Gain on forfeiture of unclaimed dividends
Miscellaneous income
Total non-operating income
Non-operating expenses
Foreign exchange losses
Total non-operating expenses
Ordinary profit
Extraordinary income
Gain on sales of non-current assets
Gain on reversal of share acquisition rights
Gain on liquidation of subsidiaries
Distribution from the liquidation of subsidiaries
Total extraordinary income

528

695

*2 1,060,531*2 1,028,520

1,061,060*1 35

1,029,215
*1 14

695
1,060,330
3,986,207

290
1,028,910
4,724,081*2, *3 1,898,597*3 1,949,449

2,087,609

2,774,631

176
894*2 2,612
5,345
945
322
10,297182896*2 2,598
‒
1,168
834
5,678

‒
‒
2,097,906

2,878
2,878
2,777,431

3,193
2,607
‒
7,299

‒
2,135
‒
37,25739,393*5 10,204*5 4,374‒
916,198

2,200
219,860

926,403
1,178,802
562,761(244,570)

226,434
2,590,390
596,476
209,047

318,190860,611805,523
1,784,866*4 1,498

Extraordinary losses
Loss on retirement of non-current assets
Loss on valuation of golf club membership
Loss on valuation of shares of subsidiaries
Total extraordinary losses
Profit before income taxes
Income taxes - current
Income taxes - deferred
Total income taxes
Profit―81―

Detailed Statement of Cost of Internet Service

Classification
I. Material cost
II. Labor costIII. Expenses
Total expenses
Transfer to other accountFiscal 2018
Fiscal 2019(from April 1, 2017 to March 31, 2018) (from April 1, 2018 to March 31, 2019)
Note
Composition
Composition
Amount (thousand yen)Amount (thousand yen)numberrate (%)
rate (%)
167,246
10.6
179,98610.6*1673,88942.7
668,15339.4*2738,16446.7
848,375
50.0
1,579,300
518,768*3

Cost of Internet service

100.0

1,696,515
667,995

1,060,531

100.0

1,028,520(Notes)Fiscal 2018 (from April 1, 2017 to March 31, 2018)*1 Major items in labor cost
Salaries and allowances
Legal welfare expenses
Bonuses
Provision for bonuses
Other salaries(Thousand yen)
436,416
83,74858,63543,08846,772*2 Major items in expenses
Outsourcing expenses
Depreciation
Rent expenses

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(Thousand yen)
113,130
381,528
98,510*3 Major items in transfer to other accountOutsourcing expenses
Depreciation
Rent expenses(Thousand yen)
100,459
484,645
93,946*3 Major items in transfer to other account(Thousand yen)

Selling, general andadministrative expenses
Non-current assets
Total(Thousand yen)
425,274
88,20857,37257,42533,372(Thousand yen)
Selling, general andadministrative expenses
Non-current assets
Total

40,049478,718
518,768

4. Costing method
The job order cost system based on actual costs is
employed for the Company’s costing.

4. Costing method
Same as left

―82―

34,115
633,880
667,995

(iii) Statement of Changes in Equity
Fiscal 2018 (from April 1, 2017 to March 31, 2018)(Thousand yen)
Shareholders’ equity
Capital surplus

Retained earnings
Otherretainedearnings

Total
retainedearnings

Treasuryshares

Share
Total
acquisition
shareholders
rights’ equity

Total net
assets4,731,069

4,731,069(410,665)

5,812,429

5,882,583

Dividends ofsurplus(387,675)(387,675)(387,675)(387,675)

Profit

860,611

860,611

860,611

860,61183,552

132,852

132,852

(558)

(558)

(558)

Balance at beginningof period

SharecapitalLegalcapitalsurplus713,590

700,222

Other
capitalsurplus

Total capitalsurplus78,212

778,435

Retainedearnings
brought
forward70,154

Changes in items
during period

Disposal oftreasury shares

49,29949,299Purchase oftreasury shares
Net changes in
items other thanshareholders'equityTotal changes in
items during period
Balance at end of
period(36,341)(36,341)‒‒

49,29949,299472,936472,936

82,994605,230(36,341)

568,889

713,590

700,222

127,511827,734

5,204,006

5,204,006(327,671)

6,417,660

33,812

6,451,473

Fiscal 2019 (from April 1, 2018 to March 31, 2019)(thousand yen)
Shareholders’ equity
Capital surplus

Retained earnings

Legal
capitalsurplus

Othercapitalsurplus

Total capitalsurplus713,590

700,222

127,511827,734

Share
Total
acquisition
shareholders
rights’ equity

Total net
assetsTotal
retainedearnings

Treasuryshares5,204,006

5,204,006(327,671)

Dividends ofsurplus(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)

Balance at beginningof period

SharecapitalOther
retainedearnings
Retainedearnings
brought
forward6,417,660

33,812

6,451,473

Changes in items
during period

Disposal oftreasury shares

2,170

2,170

Purchase oftreasury shares
Net changes in
items other thanshareholders'equityTotal changes in
items during period
Balance at end of
period(10,225)(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―83―

Notes(Notes on the premise of a growing concern)
There are no applicable matters.
(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
Intangible assets are amortized using the straight-line method.
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.

―84―

(Change in accounting policy)(Application of Practical Solution on Transactions Granting Employees and Others Stock Acquisition Rights, which Involve
Considerations, with Vesting Conditions)
Practical Solution on Transactions Granting Employees and Others Stock Acquisition Rights, which Involve Considerations, with
Vesting Conditions (PITF No. 36; January 12, 2018), etc. has been applied from April 1, 2018, and the accounting for transactions
granting employees and others stock acquisition rights which involve considerations with vesting conditions are subject to the
Accounting Standard for Share-based Payment (ASBJ Statement No. 8; December 27, 2005), etc.
The application of PITF No. 36 is subject to the transitional treatment provided for in Paragraph 10 (3) of PITF No. 36, and theaccounting before the application of PITF No. 36 is applied to transactions granting employees and others stock acquisition rights
which involve considerations with vesting conditions before the applied day of PITF No. 36.
(Changes in presentation methods)(Changes as a result of application of Partial Amendments of Accounting Standard for Tax Effect Accounting)Partial Amendments of Accounting Standard for Tax Effect Accounting (ASBJ Statement No. 28, February 16, 2018) have been
applied from the beginning of fiscal 2019. Accordingly, deferred tax assets were presented under investments and other assets, anddeferred tax liabilities were presented under non-current liabilities.
As a result, deferred tax assets of 58,408 thousand yen presented under current assets in the balance sheet for fiscal 2018 are
included in deferred tax assets of 354,960 thousand yen under investments and other assets.
(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)

Short-term monetary claims
Short-term monetary liabilities

Fiscal 2018
(As of March 31, 2018)
201,797
105,247―85―(Thousand yen)
Fiscal 2019
(As of March 31, 2019)10,66536,239(Matters related to income statement)*1. A breakdown of finished goods transfer to other account is as follows.
Fiscal 2018 (from April 1, 2017 toMarch 31, 2018)
Transfer to selling, general andadministrative expenses(Thousand yen)
Fiscal 2019 (from April 1, 2018 toMarch 31, 2019)35

14*2. Transactions in relation to subsidiaries and associates are included as follows.

Operating transactions
Net sales
Purchase of goods
Outsourcing
Transactions other than operatingtransactions

Fiscal 2018 (from April 1, 2017 toMarch 31, 2018)(Thousand yen)
Fiscal 2019 (from April 1, 2018 toMarch 31, 2019)

132,000
127,857
11,735

121,682
133,611
‒

2,400

2,400

*3. Selling expenses accounted for approximately 12.5% and 15.2% of total selling, general and administrative expenses in fiscal 2018
and fiscal 2019 respectively while the share of general and administrative expenses was 87.5% in fiscal 2018 and 84.8% in fiscal 2019.
The major items of selling, general and administrative expenses and the amounts are as follows.

Advertising expenses
Salaries and allowances
Provision for bonuses
Depreciation(Thousand yen)
Fiscal 2018
Fiscal 2019(from April 1, 2017 to March 31, 2018) (from April 1, 2018 to March 31, 2019)
215,665
272,571565,332
555,832
53,04370,766
41,16353,705*4. The details of gain on sales of non-current assets are as follows.

Vehicles(Thousand yen)
Fiscal 2018
Fiscal 2019(from April 1, 2017 to March 31, 2018) (from April 1, 2018 to March 31, 2019)
1,498‒*5. The details of loss on retirement of non-current assets are as follows.

Buildings
Tools, furniture and fixtures
Software(Thousand yen)
Fiscal 2018
Fiscal 2019(from April 1, 2017 to March 31, 2018) (from April 1, 2018 to March 31, 2019)
5,738
‒
4,465
3,163
‒
1,211

(Securities)
Information about shares of subsidiaries and associates (the carrying amount in fiscal 2019 was 168,585 thousand yen and the carrying
amount in fiscal 2018 was 291,081 thousand yen) is omitted as these shares do not have market value and it is considered extremely
difficult to calculate their fair market values.

―86―

(Tax effect accounting)
1. Breakdown of key factors contributing to deferred tax assets and deferred tax liabilities
Fiscal 2018
(As of March 31, 2018)
Deferred tax assets
Enterprise taxes payable
Provision for bonuses
Accrued social insurance premiums
Non-deductible depreciation expenses
Share-based remuneration expenses
Asset retirement obligations
Loss on valuation of golf club membership
Loss on valuation of shares of subsidiaries
Other
Net deferred tax assets

16,52534,380
5,104
659
2,593
10,707
2,051
280,540
2,397
354,960(Thousand yen)
Fiscal 2019
(As of March 31, 2019)17,831
39,252
5,889
246
799
11,6291,362
67,321
1,580
145,913

2. Reconciliation of the statutory tax rate and the actual effective tax rate

Statutory effective tax rate
(Adjustment)
Inhabitant tax on a per capita basis
Items that are not permanently deductible,
such as entertainment expense
Utilization of loss carryforwards
Other
Percentage of income tax payment, etc. after theapplication of tax effect accounting

Fiscal 2018
(As of March 31, 2018)30.85 %

(Thousand yen)
Fiscal 2019
(As of March 31, 2019)
‒%

0.74

‒

0.53

‒

(3.14)(1.99)

‒
‒

26.99

‒

(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.
(Significant subsequent events)
There are no applicable matters.

―87―

(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 ofcurrent period current period current periodof period
depreciation
periodClasses of assets
Property, plant andequipment
Buildings
VehiclesTools, furniture andfixturesLand
Total property, plant andequipment
Intangible assets
Software
Software in progress
Telephone subscription
right
Other
Total intangible assets

33,54312,80075,849
‒

‒
‒

8,383
5,097

101,009
7,703

104,9809,816

106,265

70,1552,088

49,346

124,985

286,117‒

26,254‒‒26,254‒

152,609172,259

2,088

62,827259,953

400,914736,951
282,373782,217710,411‒625,584

475,523‒

1,043,645
367,199

‒
‒

190

‒

‒

‒

190

‒

23,671
1,043,186‒
1,492,628‒
625,584

23,655499,179

15
1,411,051‒‒

Commercial software(DigitalArts@Cloud)212,288

Commercial software(FinalCode)

155,636

Commercial software(m-FILTER)

142,127

Commercial software(i-FILTER)

136,310

Commercial software(i-FILTER)

391,591

Commercial software(m-FILTER)

94,827

Commercial software(FinalCode)87,712

Commercial software(i-FILTER)

61,643(Notes) 1. Major increases during the current period are as follows:(Thousand yen)

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 AllowancesClassification
Provision for bonuses

Balance at
beginning of period
112,280

Net increase incurrent period
128,192

Net decrease incurrent period
112,280(Thousand yen)
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
There are no applicable matters.

―88―Section VI. Stock Information of the Registrant
Fiscal year
Annual general meeting ofshareholders
Record date

From April 1 to March 31
During June
March 31

Record date for distributionof surplus

September 30 and March 31

Number of sharesconstituting one unit

100 shares

Purchase and sale of sharesless than one unit
Handling officeTransfer agent
Forward office
Purchasing and sellingfee

Method of public notice

There are no applicable matters.

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
There are no applicable matters.
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.

―89―Section VII. Reference Information on the Company
1. Information on Parent entities of the Registrant
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
23rd fiscal year (from April 1, 2017 to March 31, 2018) Submitted to the Director-General of Kanto Local Finance Bureau on June25, 2018(2) Internal Control Report and accompanying documents
Submitted to the Director-General of Kanto Local Finance Bureau on June 25, 2018(3) Quarterly Report and Confirmation Letter
Quarterly accounting period
For the first quarter of the 24th fiscal year (April 1, 2018 to June 30, 2018) Submitted to the Director-General of Kanto Local
Finance Bureau on August 9, 2018
For the second quarter of the 24th fiscal year (July 1, 2018 to September 30, 2018) Submitted to the Director-General of Kanto
Local Finance Bureau on November 9, 2018
For the third quarter of the 24th fiscal year (October 1, 2018 to December 31, 2018) Submitted to the Director-General of Kanto
Local Finance Bureau on February 8, 2019(4) Extraordinary Report
Submitted to the Director-General of Kanto Local Finance Bureau on June 25, 2018
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.

―90―Part II. Information Concerning Guarantors of the Registrant
There are no applicable matters.

―91―

Independent Auditors’ Audit Report and Internal Control Audit Report
June 25, 2019
The Board of Directors
Digital Arts Inc.

BDO Sanyu & Co.

Designated andEngagement Partner

Certified Pubic AccountNobuhito Iwata

Seal

Designated andEngagement Partner

Certified Pubic AccountKoji Kumagai

Seal[Audit of Financial Statements]
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, 2018 to March 31,
2019 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.
Management’s Responsibilities 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.
Auditor’s Responsibilities
We are responsible for expressing an opinion on consolidated financial statements from an independent standpoint, based on the resultsof audits that we conduct. We have conducted the audit in accordance with audit standards that are generally considered fair andreasonable in Japan. Pursuant to such audit standards, we are required to prepare audit plans and conduct audits based on such plans, sothat we can obtain reasonable assurance as to whether or not consolidated financial statements are free of any material misstatements.
When conducting audit, we go through the procedures of obtaining audit evidence for figures and disclosures presented in consolidated
financial statements. Subject to our judgment, the audit procedures are selected and implemented, based on an assessment of the risk ofany serious misstatements in consolidated financial statements due to frauds or errors. 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 consolidated financial statements, thereby ensuring that an appropriate audit
procedure program is formulated depending on situations. Audits include efforts to examine what is presented comprehensively as
consolidated financial statements, including accounting policies adopted by management, the application method thereof, as well as
accounting estimates made by management.
We consider that audit evidence that we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Audit opinion
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, 2019, 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.

―92―

Internal Control Audit
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, 2019.
Management Responsibilities for Internal Control Reports
Management 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.
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
We are responsible for expressing an opinion on internal control reports from an independent standpoint, based on the results of auditsthat we conduct. We have conducted the internal control audit in accordance with internal control audit standards over internalreporting that are generally considered fair and reasonable in Japan. Pursuant to internal control audit standards pertaining to financial
reporting, we are required to prepare audit plans and conduct audits based on such plans, so that we can obtain reasonable assurance as
to whether or not internal control reports are free of any serious misstatements.
When conducting internal control audits, we go through the procedures of obtaining audit evidence on the evaluation results of internal
control over financial reporting in internal control reports. Subject to our judgment, such audit procedures for internal control audits
are selected and implemented, based on the materiality of impacts on the reliability of financial reports. Internal control audits include
efforts to examine what is presented comprehensively as internal control reports, including the scope of internal control over financial
reports and statements by management with regard to evaluation procedures and results thereof.
We consider that audit evidence that we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Audit opinion
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, 2019, 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.
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.

―93―Internal Control Audit Report by Independent Auditors
June 25, 2019
The Board of Directors
Digital Arts Inc.
BDO Sanyu & Co.
Designated andEngagement Partner

Certified Pubic AccountNobuhito Iwata

Seal

Designated andEngagement Partner

Certified Pubic AccountKoji Kumagai

Seal

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 24th fiscal year starting from April 1, 2018 to March 31, 2019
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.
Management’s Responsibilities 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.
Auditor’s Responsibilities
We are responsible for expressing an opinion on financial statements from an independent standpoint, based on the results of auditsthat we conduct. We have conducted the audit in accordance with audit standards that are generally considered fair and reasonable inJapan. Pursuant to such audit standards, we are required to prepare audit plans and conduct audits based on such plans, so that we canobtain reasonable assurance as to whether or not financial statements are free of any material misstatements.
When conducting audit, we go through the procedures of obtaining audit evidence for figures and disclosures presented in financial
statements. Subject to our judgment, the audit procedures are selected and implemented, based on an assessment of the risk of any
serious misstatements in financial statements due to frauds or errors. We do not audit financial statements to express an opinion on theeffectiveness 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 isformulated depending on situations. Audits include efforts to examine what is presented comprehensively as financial statements,
including accounting policies adopted by management, the application method thereof, as well as accounting estimates made bymanagement.
We consider that audit evidence that we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Audit opinion
We consider that the aforementioned financial statements properly reflect the financial position of Digital Arts Inc. as of March 31,
2019, 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.
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.

―94―

Printed by Takara Printing Co., Ltd.

―95―