Annual Securities Report
The 26th Fiscal Year

From April 1, 2020 to March 31, 2021

Digital Arts Inc.

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

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ContentsPage
The 26th Fiscal Year Annual Securities Report
Cover ......................................................................................................................................................................................................... 4
Part I. Corporate Information ................................................................................................................................................................. 5
Section I. Corporate Summary ........................................................................................................................................................... 5
1. Financial Highlights ............................................................................................................................................................... 5
2. Corporate History................................................................................................................................................................... 7
3. Business Summary ................................................................................................................................................................. 8
4. Related Companies .............................................................................................................................................................. 12
5. Employment Data ................................................................................................................................................................ 12
Section II. Business Summary ......................................................................................................................................................... 13
1. Management Policy, Operating Environment and Business Issues to Be Considered.......................................................... 13
2. Business and Other Risks..................................................................................................................................................... 14
3. Analysis of Financial Conditions, Operating Results and Cash Flows by the Management ................................................ 17
4. Material Contracts Affecting Management of the Company, etc.......................................................................................... 22
5. Research and Development .................................................................................................................................................. 22
Section III. Properties ...................................................................................................................................................................... 23
1. Summary of Capital Investment, etc. ................................................................................................................................... 23
2. Major Facilities .................................................................................................................................................................... 23
3. Plans for Capital Investment, Disposals of Properties etc. ................................................................................................... 24
Section IV. Information on the Reporting Company ........................................................................................................................ 25
1. Stock Information ................................................................................................................................................................ 25
2. Information on Acquisition, etc. of Treasury Shares ............................................................................................................ 37
3. Dividend Policy ................................................................................................................................................................... 38
4. Corporate Governance ......................................................................................................................................................... 39
Section V. Financial Information ..................................................................................................................................................... 50
1. Consolidated Financial Statements ...................................................................................................................................... 51
2. Financial Statements of the Reporting Company ................................................................................................................. 76
Section VI. Stock Information of the Reporting Company .............................................................................................................. 85
Section VII Reference Information on the Reporting Company ...................................................................................................... 86
1. Information on Parent Entities of the Reporting Company .................................................................................................. 86
2. Other Reference Information ............................................................................................................................................... 86
Part II. Information Concerning Guarantors of the Reporting Company ............................................................................................. 87
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]

June 23, 2021

[Fiscal Year]

26th fiscal year (from April 1, 2020 to March 31, 2021)[Company Name]

Digital Arts Inc.

[Title and Name of Representative]

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

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

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

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

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

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

22nd fiscal year 23rd fiscal year

Year end

24th fiscal year

25th fiscal year

26th fiscal year

March 2017

March 2018

March 2019

March 2020

March 2021

Net sales(Million yen)

5,058

5,116

5,841

5,641

6,825

Ordinary profit(Million yen)

1,811

1,909

2,630

2,326

2,991

Profit attributable toowners of parent(Million yen)

1,125

1,281

1,961

1,590

2,059

Comprehensive income(Million yen)

1,127

1,275

1,977

1,587

2,063

Net assets(Million yen)

5,270

6,247

7,802

8,680

10,062

Total assets(Million yen)

7,380

7,928

9,859

10,852

14,856

Net assets per share(Yen)

375.07446.43558.33617.27715.79Basic profit per share

(Yen)

80.92

92.46

141.11113.69146.90

Diluted profit per share

(Yen)

80.68

92.13

140.80110.83143.45

Capital ratio

(%)

70.2

78.2

78.7

79.7

67.6

Return on equity

(%)

23.0

22.5

28.1

19.4

22.0

Price earnings ratio(Times)

37.63

44.45

64.13

41.08

65.96

(Million yen)

2,012

1,663

3,091

2,686

5,221

(Million yen)

(671)

(774)

(908)

111

(830)

(Million yen)

(503)

(293)

(429)

(709)

(671)

(Million yen)

3,298

3,826

5,569

7,651

11,382

194

207

207

236

295

Cash flows fromoperating activities
Cash flows from investing
activities
Cash flows fromfinancing activities
Cash and cash equivalents
at end of period
Number of employees(Persons)[Average number of part[30]
[33]
[26]
[22]
[19]
time employees, etc.](Notes) 1. Net sales do not include consumption tax, etc.
2. The figures in parentheses in the number of employees section (which are not included in the totals) indicate the annual
average number of part-time employees (temporary staff, etc.).

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(2) Financial Data of the Reporting Company
Fiscal Year

22nd fiscal year 23rd fiscal year

Year end

24th fiscal year

25th fiscal year

26th fiscal year

March 2017

March 2018

March 2019

March 2020

March 2021

Net sales(Million yen)

5,104

5,046

5,752

5,336

6,074

Ordinary profit(Million yen)

2,056

2,097

2,777

2,359

2,964

Profit(Million yen)

1,339

860

1,784

1,613

2,044

Share capital(Million yen)

713

713

713

713

713

14,133,000

14,133,000

14,133,000

14,133,000

14,133,000

Number of issued shares(Shares)

Net assets(Million yen)

5,882

6,451

7,804

8,714

10,078

Total assets(Million yen)

7,948

8,149

9,870

10,83914,751(Yen)

420.53462.20559.74620.45717.78

24

28

48

50

55

[10]

[14]

[18]

[25]

[25]

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

(Yen)

96.31

62.07

128.42115.29145.81

Diluted profit per share

(Yen)

96.02

61.85

128.14112.39142.38

Capital ratio

(%)

73.1

78.7

78.8

80.2

68.3

Return on equity

(%)

24.8

14.1

25.1

19.6

21.8

Price earnings ratio(Times)

31.62

66.21

70.47

40.51

66.46

Dividend payout ratio

(%)

24.9

45.1

37.4

43.4

37.7

186

194

201

214

236

[30]

[33]

[26]

[21]

[19]

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

Total shareholder return

(%)

125.4

170.0

373.8

196.9

404.2

[Benchmark index: TOPIX(Tokyo Stock Price Index)](%)[114.7][132.9][126.2][114.2][162.3]

Year high

(Yen)

3,450

5,060

9,560

11,24010,990Year low

(Yen)

2,120

2,701

3,980

3,625

4,345

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

―6―2. Corporate History
Month/Year

Description

June 1995

January 2000

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

January 2000

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

March 2000

Digital Arts Inc. increases capital to 491 million yen

May 2000

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

August 1998

September 2002

March 2005

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

October 2005

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

August 2006

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

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

February 2008

Digital Arts Inc. is certified as a Privacy Mark enterprise

January 2009

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

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

November 2011

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

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

May 2013

Digital Arts Inc. establishes Polkast Japan, Inc. as a subsidiary
Digital Arts Inc. forms the business alliance with Polkast LLC (US)

April 2014

FinalCode, Inc. is established in the US as a local subsidiary

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
March 2020
November 2020

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.
Digital Arts Inc. acquires certification for the ISO/IEC 27001:2013 (JIS Q 27001:2014) international
standard for information security management systems (ISMS).
Digital Arts Inc. acquires certification for the ISO/IEC 27017:2015 (JIS Q 27017:2016) international
standard that specializes in cloud security.

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

Company namePrincipal business

Digital Arts Inc.

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

Digital Arts America, Inc.

Sale of FinalCode (a file encryption and tracking solution)

Digital Arts Asia Pacific Pte. Ltd.

Sale of FinalCode (a file encryption and tracking solution)

Digital Arts Europe Limited

Sale of FinalCode (a file encryption and tracking solution)

Digital Arts Consulting Inc.

Consulting services

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, methods of controlling information posted on the Internet and providing protection from malicious websites
have yet to be established and Internet users run a very high risk of unintentionally encountering problematic websites. Meanwhile,email, though an essential business tool, also poses many security challenges, such as data leakage due to transmission errors, spam andspoofed messages, and risks of virus infection resulting from receiving malicious files. Additionally, personal information, data fromoutsourcing parties and other electronic data, which are now part of important management assets, are also exposed to growing risks ofdata leaks due to insiders' unauthorized taking-out of information, theft or loss of devices, email transmission errors and other operational
errors.
While many companies and other organizations are facing the challenges and risks outlined above, the Digital Arts Group proposes
White Operation, which means protecting customers from unknown threats and attacks with a comprehensive database of domesticallysearchable URLs and information of email messages from senders that are deemed safe. We are thus striving to expand sales with a focus
on i-FILTER Ver. 10, m-FILTER Ver. 5 and FinalCode. The first two products are equipped not only with measures against the leakage
of insider data but also with original measures against external attacks, whereas FinalCode supports the encryption and traceability ofelectronic data. Amid the rapid shift of online services and email environments to the cloud following the spread of teleworking among
businesses, the Digital Arts Group is working to expand sales of i-FILTER@Cloud, m-FILTER@Cloud and FinalCode@Cloud foroffering the secure use of websites and email in the cloud environment and for accelerating the development of products supporting more
extensive security measures.
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.

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Main Products
User category

Enterprise Sector

Public Sector

Consumer Sector

Main productsCompany name

- i-FILTER (web security)- m-FILTER (mail security)- D-SPA (DigitalArts Secure Proxy Appliance)(web security appliance)- FinalCode(file encryption and tracking solution)- DigitalArts@Cloud(Comprehensive cloud security covering web browsing,email, files and communication)- i-FILTER (web security)- m-FILTER (mail security)- D-SPA (DigitalArts Secure Proxy Appliance)(web security appliance)- FinalCode(file encryption and tracking solution)- DigitalArts@Cloud(Comprehensive cloud security covering web browsing,email, files and communication)- i-FILTER (Web filtering software)

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.

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Features of Main Products
Main products

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

i-FILTER

m-FILTER

Main Applications- Protection against targeted attacks- Protection against watering hole attacks- Protection against phishing- Internet access control- Access log monitoring
m-FILTER possesses email filtering, email archiving and antispam capabilities, protecting against
targeted attacks and information leaks such as mis-transmission, promoting internal control through thestorage and management of all emails, and improving business efficiency through protection against
spam emails.
Email filtering is a function that only allows users to receive safe emails, preventing them from receiving
targeted emails by storing safe senders in a whitelist database and determining the safety of senders andalso identifying fake email attachments and emails. It also stops intentional and accidental information
leaks by forwarding messages to a sender’s manager for approval or delaying transmission for a certain
period.
Main Applications- Protection against targeted emails- Prevention of e-mail mis-transmission- Email archiving- Protection against spam emails
Password-less encryption service for tracking and remotely controlling files
Enables designation of file recipients, configuration of permissions, access log monitoring by file owner,permission changes after file distribution and remote file deletion

FinalCode

D-SPA

DigitalArts@Cloud

Main Applications- Protection against leakage of confidential information- Protection against internal fraud- Protection against supply chain attacks- File encryption and access control- File tracking- Remote file deletion
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
Comprehensive cloud security covering web browsing, email, files and communication
A solution covering both measures against external attacks and measures against internal leaks andproviding automatic encryption of internal business files, control over files offered to outsiders and acommunication tool for enhanced operational efficiency in the form of cloud services.
An integrated report screen provides a one-stop comprehensive display about the possibilities of external
attacks from web browsing, email and files and internal data leaks.
Main Applications- Web Security- Mail Security- File Security- Voice, Chat and Online Conferencing System
Filtering software mainly for families, libraries, internet cafes, etc. Protects users of smartphones, tabletsand computers from dangers of the Internet by restricting access to harmful websites.

i-FILTER (Consumer)

Main Applications- Web filtering- Web usage reporting- Restriction of time spent online―10―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―11―

4. Related Companies
Company name

Address

Share capital(Million yen)

Principal business

Percentage ofvoting rights (%)

Relationship(Consolidated Subsidiaries)
Digital Arts America, Inc.

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

24

Security business

100.0

Sale of the Company’s products
Business outsourcing
Interlocking directorates

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

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

Security business

100.0

Sale of the Company’s products
Business outsourcing
Interlocking directorates

Digital Arts Europe Limited

Centrum House, 36 Station Road,
Egham, Surrey TW20 9LF
United Kingdom

23

Security business

100.0

Sale of the Company’s products
Business outsourcing
Interlocking directorates

Digital Arts Consulting Inc.
(Note) 1

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

73

Security business

92.1

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

5. Employment Data
(1) Consolidated Basis
As of March 31, 2021
Category

Number of employees

Security business

295 (19)Total

295 (19)(Notes) 1. The figures in parentheses in the number of employees section (which are not included in the totals) indicate the annual
average number of part-time employees (temporary staff, etc.).
2. The number of employees increased by 59 from March 31, 2020. The increase is mainly attributable to the hiring ofadditional employees during the fiscal year for increasing the number of staff serving as consultants at Digital Arts
Consulting Inc.
3. Segment information is omitted because the Digital Arts Group operates in one segment only (the security business) andhas no other business segments.
(2) The Reporting Company
Number of employees
236

(19)

As of March 31, 2021
Average annual salary(thousand yen)

Average length ofservice in years

Average age
34.6

6.0

5,568

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

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

―13―

(i) Stable and continuous growth of existing business
The Group has maintained long-standing relationships and achieved stable and continuous growth by sincerely addressing and meeting
the requirements of its users and distributors. We will continue to put our relationships with our users and distributors 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, AI and
5G, 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 long term.
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 also a priority forus that existing employees increase their productivity and acquire knowledge and experience and we will seek to develop humanresources by supporting employees to gain qualifications and by providing internal training.
(iv) Awareness-raising activities
Smartphones are rapidly becoming more popular and there has been a sharp rise in problems and social issues associated with theInternet and SNS. Meanwhile, many adults who give guidance to young people or are involved in their upbringing do not fully
understand the potential dangers and problems that young people face when using smartphones. To tackle this situation, the Group will
provide seminars and lectures upon request in regions throughout Japan and provide information to users of smartphones and othermobile devices to help increase their digital literacy, and we will also stress the importance of filtering.
(v) Response to the COVID-19 pandemic
If the COVID-19 pandemic drags on, the business activities of the Group and its distributors may be affected. We will, therefore, give
top priority to the health of all our business associates and employees and encourage them to conduct seminars and negotiations online,
thus promoting efficient digital sales activities, with the aim of achieving stable and continuous business growth.

2. Business and Other Risks
Material risks recognized by management as risks that could materially affect the financial condition, operating results and cash flows
of consolidated companies included in the Business Summary, Financial Information and other sections of this Annual Securities Report
are as follows. These forward-looking statements are being made at the determination of the Group as of the date of submission of thisAnnual Securities Report (June 23, 2021).
(a) Risks related to changes in the sales situation and operating environment of major distributors affecting the GroupThe Group’s products are mostly sold to users through its distributors. Client sales conditions and changes in management climate(such as M&A or bankruptcy) could lead to a significant fluctuation in the Group’s net sales. Major distributors also handle theproducts of the Group's competitors. The Group, therefore, endeavors to expand net sales by reaching out effectively to distributors.
However, there is a risk that competitors’ products may be given preference over the Group’s products. Furthermore, any changes
in the sales situation or operating environment (such as M&A or bankruptcy) of major distributors that cause delayed or uncollectablepayment of debt could also significantly impact the Group’s performance and financial standing.
(b) Risks associated with changes in the national budget and local government policies affecting the Group’s product sales to schools
and local municipalities
The Group’s product sales to public schools and local municipalities may be significantly impacted by fluctuations in the national―14―

budget and its distribution to local municipalities, as well as the budget expenditures of these municipalities.
(c) Risks related to internet regulations, free services provided by NPOs and other organizations, and services mounted on future OSs
at no cost
In the event internet regulations move forward to allow government or NPOs to offer initiatives similar to the Group’s web filtering
software at low or no cost, the Group may have no choice but to amend the Group’s business model and earning model.
It is also possible that, in the future, services similar to the Group’s web filtering software may be mounted on computer OSs at avery low or no cost, and although the quality of such “service” may be inferior to the web filtering solutions offered by the Group,
users may actively choose to use these “services.” Such instances may significantly impact the Group’s performance and financial
standing.
(d) Risks of specializing in the security business
The Group is dedicated to the security business, which involves developing and selling web filtering software and email filtering
software. Future declines in security market demands due to deteriorating economic climate and other factors may significantly
impact the Group’s performance and financial standing.
(e) Risks related to fluctuation in the Group’s quarterly net sales results
There is an inclination that the Group’s fourth quarter earnings are higher compared to other quarters in terms of net sales for thefull fiscal year. This is mainly attributable to the common practice by private enterprises and public sectors to place orders for IT
products in March, at the end of their fiscal year. The Group takes this seasonal factor into account when making its full year plans
and is continuing to pursue to maintain and expand the current sales level. However, the Group’s performance and financial standing
may see a significant impact if the Group fails to acquire orders as planned for the relevant period for any reason, or experiences
delays in receiving orders due to matters related to the client and distributors. If products for which most of the contract price issubject to deferred revenue recognition account for a higher percentage of total sales than products for which the majority of thecontract price is recognized at contract inception or if temporary special demand arises as a result of change in the law or government
initiatives, there is a risk that the Group's quarterly financial results will fluctuate.
(f) Risks associated with laws and regulations
The Group operates on a global scale and conducts business activities appropriately, in compliance with national and regional laws
and regulations. However, changes in laws and regulations related to aspects such as imports and exports, product liability, andtransfer pricing arrangements as well as legal interpretations by the regulatory authorities may lead to an unforeseeable situation. If
the Group spends a significant amount of time and money on complying with such changes, this could impact on the Group’s
performance and financial standing.
(g) Risks associated with the future decline of internet use in business, schools and homes
The internet is a technology that developed rapidly on a global scale, and today, is considered an indispensable form of information
infrastructure. Currently, the Group’s net sales is mainly composed of products and services related to the internet, therefore, if theexistence 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 from analyzing
and researching the Group’s proprietary technologies and providing similar products to the market. While the Group pays utmost
attention to avoid infringing intellectual property rights and copyrights when offering new products and services, there may be arisk at some future point where other parties may deem that the Group is infringing on their intellectual property rights and copyrights.

―15―

(i) Risks associated with the Group’s technology obsolescence and deterioration of technological innovation
The Group conducts development activities to upgrade technology and enhance quality for current/future products and services.
However, if the products and services provided by the Group became obsolete or the Group’s technological innovation deteriorated,
the Group may lose its competitive edge against other products and services on the market. This may have a significant impact on
the Group’s future performance and financial standing.
(j) Risks associated with bugs and defects on products offered by the GroupThe Group develops and markets various products around the framework of “web filtering software.” Countless quality controls are
performed in course of developing and marketing software in order to take all possible means to ensure that the program operates
properly. However, software bugs (defects) unexpected at the time of launch may be confirmed post-launch, and in suchcircumstances, the Group promptly releases update patches to correct the issue. However, if such bug issues prevent the Group fromproviding services, if the Group requires a long period of time to resolve the issue, or if the issue could not be resolved, this could
lead to a reduction of sales, goods being returned and to a decline in the Group’s credibility, which may significantly impact theGroup’s business performance and financial standing.
(k) Risks associated with issues in the mainstay system (server) owned by the GroupThe Group’s services essentially take the form of providing URL and other information from servers administered by the Group.
The Group positions these servers as the most critical mainstay system and makes every effort to provide consistent service bytaking necessary safeguards, such as server duplication and backups. However, servers are hardware and problems such as
unexpected shutdown, malfunction, and loss of material information (such as URL database, client data and technologicalinformation that are at the core of the Group’s service) may result in service suspension.
The Group’s service may also be interrupted due to suspension of business at the facility where the Group’s server is located,problems with internet service providers, telecommunication carriers and other cloud services, and information security incidents
such as the leakage of information due to hacking attacks and theft of material data. The Group has acquired the Privacy Mark anddeveloped a system in compliance with Information Security Management System (ISMS) requirements. However, in the event theGroup’s service is suspended due to such issues, this suspension could lead to a decline in the Group’s credibility, which may
significantly impact the Group’s business performance and financial standing.
(l) Reliance on key management, and securing/developing talent
The Group’s operation is heavily dependent on key management personnel, such as CEO Toshio Dogu. In the event thesemanagement personnel takes an extended leave due to illness or injury, leaves the Group or dies, such factors may have a significant
impact on the Group’s performance and financial standing. The Group works on securing and developing talent, but failing to secureand develop sufficient talent in the future may adversely affect the Group's competitiveness and efficiency and have a significant
impact on the Group’s business performance and financial standing.
(m) Risks pertaining to merger and acquisitions, and assignment/acquisition of business rights
Digital Arts Inc. is a public company listed on the First Section of Tokyo Stock Exchange, where CEO Toshio Dogu is the largest
shareholder with 2,403,063 shares (which account for approximately 17.1%, including shares held by the shareholders’ association
made up of directors) out of 14,133,000 issued and outstanding shares (including treasury shares) as of March 31, 2021. As a publiccompany, the possibilities of mergers and acquisitions cannot be denied, and the entire or part of the Group or its business rights
may be acquired, merged or assigned at some point in the future. Such factors may significantly impact the Group’s performanceand financial standing.
Similar impact would be seen if the Group performs mergers and acquisitions, or acquires business rights.
(n) Risks associated with natural disaster, disaster, terrorist activities, war, the spread of infections and power outage
The Group’s business performance and business activities may be significantly affected due to unforeseen situations, such as
disasters, including earthquakes and other acts of God, terrorist activities or the outbreak of war at home or abroad, and the spreadof infections such as influenza and COVID-19. In addition, insufficient power supply due to nationwide/regional power outage or―16―

problems in the buildings where the Group performs its business may cause the Group to suspend its business activities and services,and may, in turn, significantly impact its business performance and financial position.
(o) Risks associated with COVID-19
If the COVID-19 impact prolongs further, the business activities of the Group may be affected. If the Group is forced to suspend
business activities due to the emergence of cases of COVID-19 within the Group, this may affect the Group's business performanceand financial standing. To address this risk, the Group is working to continue business activities by urging employees to work fromhome to promote teleworking and by conducting seminars, negotiations and other sales activities online.

3. Analysis of Financial Conditions, Operating Results and Cash Flows by the Management(1) Overview of operating results, etc.
An overview of the financial condition, operating results and cash flows (hereinafter operating results, etc.) of the Digital Arts Group(Digital Arts Inc. and its consolidated subsidiaries) during the consolidated fiscal year under review is as follows.
(i) Financial condition and operating results
During the consolidated fiscal year under review (April 1, 2020 through March 31, 2021), the circumstances encountered by theJapanese economy were adverse. Economic activity stagnated and contracted due to the COVID-19 pandemic, and as a result consumer
spending and corporate earnings continued to decline sharply. Since then, the economy has begun to rally, reflecting the increase insocial and economic activities and the government economic package. However, the outlook is very uncertain as a state of emergency
was declared for the second time following a resurgence of the pandemic.
In the security industry, in which the Digital Arts Group (the “Group”) operates, demand for security products expanded following aseries of damaging incidents caused by diversifying cyberattacks, including ransomware and Emotet. Apart from demand from largesized organizations, new demand for security measures is growing from medium and small-sized enterprises, which werecomparatively lagging in these measures.
In the public sector market, the GIGA School Concept envisions the integrated development of an environment with one learningterminal for each school-aged child and with a high-speed, high-capacity communication network. Progress was made in the provisionof a terminal to every school-aged child.
Amid these circumstances, for the enterprise sector market, the Group implemented activities for increasing recognition and sales
promotion of DigitalArts@Cloud in view of the rapid introduction of cloud technologies to online services and e-mail environments
amid the spread of teleworking. The Group worked towards allowing more users to solely view secure websites and receive secure email messages in the cloud environment. The Group also developed the Desk@Cloud communication tool equipped not only with
online conferencing and chat features but also with security functions. Thus, it began to offer solutions that achieve not only security
but also improved work efficiency. In the public sector market, the Company provided a special version of i-FILTER that caters toneeds arising from the GIGA School Concept. At the same time, it ran campaigns, including the provision of free services that conformto the Guidelines on Education Information Security Policy, in its efforts to expand sales from schools.
Demand in the enterprise and public sector markets has rapidly soared for cloud service products, following the spread of COVID-19.
A large part of the amount of the contract for traditional mainstay license sales products is recorded as sales in a lump at the time of
shipment. For cloud service products, recorded sales are apportioned on a monthly basis throughout the service provision period.
Therefore, the proportion of contracts for cloud service products to the total contract amounts grew rapidly in the fiscal year underreview, which led to a rise in sales to be deferred to the next fiscal year and onwards. This resulted in the generation of a wider gap
between contract amounts and sales.
As a result of the above, the financial condition and operating results for the consolidated fiscal year under review are as follows.
a. Financial condition(Assets)
Total assets at the end of the consolidated fiscal year under review increased 4,003 million yen from the end of the previous―17―consolidated fiscal year, to 14,856 million yen. This was due mainly to an increase of 3,730 million yen in cash and deposits.
(Liabilities)
Total liabilities at the end of the consolidated fiscal year under review rose 2,621 million yen from the end of the previous fiscal year,
to 4,793 million yen. This was due mainly to an increase of 2,140 million yen in advances received, attributable to an increase in theamount of contracts for which orders were received.
(Net assets)
Net assets at the end of the consolidated fiscal year under review climbed 1,382 million yen from the end of the previous consolidated
fiscal year, to 10,062 million yen. This was chiefly due to the posting of a profit attributable to owners of parent.
b. Operating results
Consolidated net sales for the fiscal year under review stood at 6,825 million yen, up 21.0% year on year, operating profit increased
27.9% year on year, to 2,977 million yen, ordinary profit grew 28.6% year on year, to 2,991 million yen, and profit attributable toowners of parent increased 29.5% year on year, to 2,059 million yen.
Overview of Consolidated Business Results(Million yen)

Net sales
Operating profit
Ordinary profit
Profit attributable to owners of parent

Fiscal Year Ended
March 31, 2020
5,641
2,328
2,326
1,590

Fiscal Year Ended
March 31, 2021
6,825
2,977
2,991
2,059

Change+1,183
+649
+664
+469

% Change
+21.0
+27.9
+28.6
+29.5

The following describes business performance in separate markets.
Enterprise Sector Market
In the enterprise sector market, i-FILTER and m-FILTER cloud services have increasingly been used to reduce costs and operations
management burdens in response to the spread of COVID-19. In addition, Digital Arts Consulting Inc., a subsidiary offering security
consulting services, enjoyed mounting demand and achieved an increase in sales.
Net sales in this market reached 3,984 million yen, up 21.3% year on year.
Public Sector Market
In the public sector market, the Group has traditionally enjoyed excellent recognition and a large market share as a provider of Japanmade security solutions. Under the GIGA School Concept, its track record and reliability have earned high marks, having resulted
in significant growth in orders for the i-FILTER series.
As a consequence, net sales in this market stood at 2,408 million yen, up 26.0% year on year.
Consumer Sector Market
In the consumer sector market, the Group focused on collaborating with mobile network carriers and MVNOs and on sales of iFILTER for Multiple Devices, which can be used on multiple operating systems using a single serial ID. As a result, it attained anincrease of users. Meanwhile, net sales tumbled due to revisions to the prices for sales to mobile network carriers.
Net sales in this market amounted to 432 million yen, down 3.0% year on year.

―18―

Net sales for the consolidated fiscal year under review (April 1, 2020 - March 31, 2021)
Enterprise Sector Market

Public Sector Market

Consumer Sector Market

Million yen

Million yen

Million yen

Million yen

3,984

2,408

432

6,825

3,284

1,911

445

5,641

Fiscal Year Ended
March 31, 2021
Fiscal Year Ended
March 31, 2020

Total

(Figures shown are rounded down to the nearest million yen.)(ii) State of cash flows
In the consolidated fiscal year under review, cash and cash equivalents increased 3,730 million yen from the end of the previous
consolidated fiscal year to 11,382 million yen. Cash flows in each category are as follows:(Cash flows from operating activities)
Net cash provided by operating activities stood at 5,221 million yen (net cash provided of 2,686 million yen in the previous consolidated
fiscal year), chiefly reflecting profit before income taxes of 3,001 million yen and depreciation of 859 million yen.
(Cash flows from investing activities)
Net cash used in investing activities came to 830 million yen (net cash provided of 111 million 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 671 million yen (net cash used of 709 million yen in the previous consolidated fiscal year),primarily due to dividends paid, although there were proceeds from disposal of treasury shares.
(iii) Results for production, orders received and sales
a. Results of production
Fiscal year under review(from April 1, 2020 to March 31, 2021)(million yen)

Change YoY (%)

Enterprise Sector Market

3,849

120.8

Public Sector Market

2,387

126.8

434

96.9

6,671

120.9

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

―19―

b. Results of orders received
Not applicable as the Group does not build products to order.
c. Results of sales
Fiscal year under review(from April 1, 2020 to March 31, 2021)(million yen)

Change YoY (%)

Enterprise Sector Market

3,984

121.3

Public Sector Market

2,408

126.0

432

97.0

6,825

121.0

Consumer Sector Market
Total(Notes) 1. The above amounts do not include consumption tax, etc.
2. There are no export sales.
3. Segment information is omitted because the Group operates in one segment only (the security business).
4. The results of sales by major customer and the ratio of sales by major customer to total sales in the fiscal year are as
follows.
Previous fiscal year
Fiscal year under review(from April 1, 2019 to March 31, 2020) (from April 1, 2020 to March 31, 2021)
CustomerAmountAmountRatio (%)
Ratio (%)
(million yen)(million yen)
Daiwabo Information System
1,109
20.8
1,409
23.2
Co., Ltd.
SB C&S Corp.

1,166

21.9

1,287

21.2

(2) Details of analysis and examination concerning the state of operating results, etc. from the perspective of the management
The details of understanding, analysis and examination concerning the state of operating results , etc. for the Group from the perspectiveof the management are as follows.
Matters concerning the future stated below are based on assessments as of the end of the fiscal year under review.
(i) Significant accounting policies and accounting estimates
The Group’s consolidated financial statements were prepared in accordance with Generally Accepted Accounting Principles in Japan(JGAAP). In preparing these consolidated financial statements, the Group was required to make estimates and forecasts that might
affect its financial condition, operating results and cash flows at the end of the consolidated fiscal year under review. The Company
always bases its estimates and forecasts on assumptions that it believes to be reasonable based on past results and conditions. Due tothe uncertain nature of estimates, in some cases actual results may vary from these estimates.
(ii) Details of understanding, analysis and examination concerning the state of operating results, etc. for the fiscal year under review
The Group’s operating results, etc. in the consolidated fiscal year under review are as follows.
a. State of operating results, etc.
(Net sales)
Consolidated net sales for the fiscal year under review stood at 6,825 million yen, up 1,183 million yen compared to the previous
consolidated fiscal year (an increase of 21.0% year on year).
This increase is largely attributable to growth in orders for the i-FILTER series bolstered by the spread of teleworking in theEnterprise Sector Market, expansion of orders for the i-FILTER series associated with the GIGA School Concept in the Public Sector
Market and growth in sales from new customers at Digital Arts Consulting Inc.
(Cost of sales, gross profit)
Cost of sales during the consolidated fiscal year under review stood at 1,946 million yen, up 584 million yen compared to the previous
consolidated fiscal year (an increase of 42.9% year on year). Meanwhile, gross profit stood at 4,878 million yen, up 598 million yen―20―compared to the previous consolidated fiscal year (an increase of 14.0% year on year).
Gross profit surged thanks to a rise in net sales despite an increase in depreciation after the release of a new product and higher
personnel expenses mainly due to an increase in consultant personnel for the consolidated fiscal year under review.
(Selling, general and administrative expenses, operating profit)
Selling, general and administrative expenses were 1,900 million yen, down 51 million yen compared to the previous consolidated
fiscal year (a fall of 2.6% year on year). Meanwhile, operating profit stood at 2,977 million yen, up 649 million yen compared to theprevious consolidated fiscal year (a rise of 27.9% year on year).
For the consolidated fiscal year under review, events outside the offices were cancelled and the practice of working from home wasstrictly implemented. That led to a decrease in selling, general and administrative expenses and, accordingly, to profitability
improvement, resulting in a hike in operating profit.
(Ordinary profit)
In the consolidated fiscal year under review, ordinary profit amounted to 2,991 million yen (an increase of 28.6% year on year),mainly due to the recording of non-operating income such as foreign exchange gains of 7 million yen.
(Profit attributable to owners of parent)
Profit attributable to owners of parent increased 29.5% year on year, to 2,059 million yen.
b. Analysis of objective indicators for judging status of achievement of management goals
The gap between the contract amount growth rate and the net sales growth rate largely reflects a sharp rise in demand for cloudservice products in the Enterprise Sector Market and in the Public Sector Market during the consolidated fiscal year under review,
attributable to the COVID-19 pandemic.
A large part of the amount of the contract for traditional mainstay license sales products is recorded as sales in a lump at the time of
shipment. For cloud service products, recorded sales are apportioned on a monthly basis throughout the service provision period.
For the consolidated fiscal year under review, the contribution of cloud service products to the total contract amounts increased
sharply and the portion of net sales deferred to the following consolidated fiscal year and later grew. That has resulted in a large gap
between the contract amount and net sales. The contract amount growth rate is substantially higher than the net sales growth rate.

Previous fiscal year
(from April 1, 2019 to March 31, 2020)

Fiscal year under review(from April 1, 2020 to March 31, 2021)

Contract amount growth rate (%)

(8.6)

103.1

Net sales growth rate (%)

(3.4)

21.0

Operating margin (%)

41.3

43.6

Return on equity (ROE) (%)

19.4

22.0

c. Analysis of capital resources and liquidity
The Group’s basic capital policy is to aim for sustainable improvement in corporate value by comprehensively considering securing
enough internal reserves to enable prompt investment in growing areas and returning profits to shareholders.
At the end of the consolidated fiscal year under review, the Group had no outstanding interest-bearing debt whilst cash and cash
equivalents stood at 11,382 million 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 to securing
and developing human resources, and we will maintain the stable and continuous growth of existing business while also actively
striving to identify new needs.

―21―

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

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

5. Research and Development
The Group’s research and development activities are conducted by the Company’s Development Department, which conducts
investigations, comparisons and analysis to improve the usability of the Company’s products and examines ways to improve existingproducts. The Company’s Development Department also investigates, researches and develops technologies for products and services
for coming fiscal years and conducts activities for bringing new products and services to market.
In the consolidated fiscal year under review total research and development expenses were 1 million yen.

―22―

Section III. Properties
1. Summary of Capital Investment, etc.
In the consolidated fiscal year under review, the Group made capital investment totaling 49 million yen. This mainly consisted of officeequipment work and purchases of computers, servers, and other information equipment.
Meanwhile, the Group made investments in intangible assets totaling 786 million yen, mainly for software development.

2. Major Facilities
Major facilities of the Company are as follows. (The major facilities of the Company are shown because this report omits segment
information.)(1) The Reporting Company(As of March 31, 2021)

Branch name (location)

Description ofequipment

Administration,
Headquarters
development and(Chiyoda-ku, Tokyo)
sales facility
Recreational facility
Recreational(Atami, Shizuoka
facility
Prefecture)

Buildings
Area
(m2)

Amount(millionyen)

Vehicles(millionyen)Book value
Furnitureandfixtures(millionyen)

Land
Amount(million
yen)

Area
(m2)

Total
(thousandyen)

Number of
employees

1,626.42(1,626.42)

12

14

86

―

―

114

206 (19)

71.85

71

―

1

10,017.49

26

98

―

(Notes) 1. The amounts described above do not include consumption taxes, etc.
2. The figure in parentheses in the Buildings section is included in the total and is the area that is leased.
3. The figures in parentheses in the number of employees section (which are not included in the totals) indicate the annual
average number of part-time employees (temporary staff, etc.).
4. Other branches are the Hokkaido Sales Office (zero employees), the Tohoku Sales Office (two employees), the Chubu
Sales Office (eight employees), the Kansai Sales Office (eleven employees), the Chushikoku Sales Office (three
employees), and the Kyushu Sales Office (six employees).
5. The head office of the reporting company includes a building leased to Digital Arts Consulting Inc., which is a subsidiaryof the reporting company.
(2) Domestic Subsidiaries

Company nameBranch name (location)(As of March 31, 2021)
Book value
Number of
Furniture and
Description of equipment
Total
employees
fixtures(million yen)(million yen)

Headquarters
Administration and sales(Chiyoda-ku, Tokyo)
facility(Notes) 1. The amounts described above do not include consumption taxes, etc.
2. Digital Arts Consulting Inc. leases the whole building from the reporting company.

Digital Arts Consulting Inc.

7

7

59

(3) Overseas Subsidiaries

Company nameBranch name (location)(As of March 31, 2021)
Book value
Number of
Furniture and
Description of equipment
Total
employees
fixtures(million yen)(million yen)

Administration and sales
facility
Digital Arts Asia Pacific Pte. Headquarters
Administration and sales
Ltd.
(Singapore)
facility
Administration and sales
Digital Arts Europe Limited Headquarters (UK)facility(Note) The amounts described above do not include consumption taxes, etc.
Digital Arts America, Inc.

Headquarters (USA)

―23―

―

―

―

0

0

―

―

―

―

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

Total number of shares authorized to be issued (shares)

Common share

45,036,000

Total

45,036,000(ii) Issued SharesClassification

Common share

Number of shares
Number of sharesissued as of the end of issued as of the filing
Listed stock exchange
Description
fiscal year (shares)
date (shares)(March 31, 2021)(June 23, 2021)
Tokyo Stock Exchange Number of shares in trading unit
14,133,000
14,133,000First Section
100

Total

14,133,000―

14,133,000―(Note) The figures in the “Number of shares issued as of the filing date” column do not include the number of shares issued upon theexercise of share acquisition rights between June 1, 2021 and the filing date of this Annual Securities Report.
(2) Information on the Share Acquisition Rights, etc.
(i) Details of Stock Option Plans
Share acquisition rights issued in accordance with the Companies Act are as follows.
i) Resolution of the Board of Directors Meeting held on November 12, 2015
As of the end of the fiscal year
(March 31, 2021)
Category and number of persons subject to grants

Four directors, 151 employees

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

As of the end of the month
before the filing date
(May 31, 2021)

1,568

1,559

‒

‒

Common share

Same as on the left

156,800 shares

155,900 shares

2,034 yen per share

Same as on the left

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

Same as on the left
Same as on the left

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

Matters regarding transfer of share acquisition rights

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

Same as on the left‒‒

Matters regarding substitute payment

Matters regarding grant of share acquisition rights(Note 5)Same as on the left
accompanying reorganization(Notes) 1. The share acquisition rights were issued with a charge of 200 yen per share acquisition right.
2. Conditions for exercise of share acquisition rights(1) Share acquisition rights can be exercised up to the percentage of the allocated share acquisition rights specified in―25―each item below by each holder of share acquisition rights only if operating profit reaches the level specified in each
item below in the fiscal year ended March 31, 2017, the fiscal year ended March 31, 2018, or the fiscal year ended
March 31, 2019.
(a) If operating profit exceeds 1.5 billion yen, 20% of share acquisition rights can be exercised.
(b) If operating profit exceeds 2.0 billion yen, 50% of share acquisition rights can be exercised.
(c) If operating profit exceeds 2.5 billion yen, 100% of share acquisition rights can be exercised.
In the items above, the operating profit stated in the consolidated statements of income in the Company’s annual
securities report (or the statements of income if no consolidated statements of income are prepared) shall bereferenced. If the concept of items to be referenced changes significantly due to the application of the International
Financial Reporting Standards, etc. indicators to be referenced shall be determined by the Board of Directors. Any
fraction of less than one share acquisition right arising in the number of the share acquisition rights that can be
exercised by each holder of share acquisition rights when calculating the percentage that can be exercised shall be
rounded down.
(2) The holder of the share acquisition rights must continue to be a director or an employee of the Company to exercise
share acquisition rights. Provided, however, this provision shall not apply to holders who have retired due toexpiration of their terms of office, or holders who have retired upon reaching the mandatory retirement age or forother 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 the Company
outstanding after exercise of such rights to exceed the number of shares authorized at the time of the exercise.
(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 be madeonly with respect to the number of shares to be issued upon exercise of the share acquisition rights that have not yet been
exercised at the time of adjustment, and any fraction less than one share arising from the adjustment shall be rounded down.
Number of shares granted after adjustment = Number of shares granted before adjustment x Ratio of split (or consolidation)
If the Company performs a merger or company split, or reduces its share capital, or any other similar matter where theadjustment of the number of shares granted becomes necessary, after the allotment date of the share acquisition rights, thenumber 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 theTokyo Stock Exchange on November 11, 2015, which is the day before the date of the resolution of the Board of Directors
concerning the issuance of the share acquisition rights.
(1) If the Company conducts a stock split or stock consolidation, the Exercise Price shall be adjusted according to thefollowing formula, and any fraction less than one yen resulting from the adjustment shall be rounded up.
1
Exercise price after
Exercise price=×
adjustment
before adjustment
Ratio of split (or consolidation)(2) If the Company issues new common shares or disposes of its treasury shares at a price below the market price of its
common shares (excluding the case of the issuance of new shares and the disposal of treasury shares upon exerciseof share acquisition rights and the transfer of treasury shares through the exchange of shares), the Exercise Priceshall be adjusted according to the following formula, and any fraction less than one yen resulting from the adjustment
shall be rounded up.
Number of shares
Amount to be paid
×
newly issued
per share
Number of shares+
outstanding
Market price per share prior to the issuance
Exercise price
Exercise price=×
after adjustment
before adjustment
Number of shares outstanding + Number of shares newly issued
In the above formula, the “number of shares outstanding” shall be the amount obtained by subtracting the numberof treasury shares pertaining to the common shares of the Company from the total number of shares outstanding
pertaining to the common shares of the Company. If the Company undertakes the disposal of treasury sharespertaining to its common shares, the “number of shares to be newly issued” shall be read as the “number 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 absorptiontype 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 those listed in “a”―26―through “e” of Article 236, Paragraph 1, Item 8 of the Companies Act (the “Reorganized Company”) to the holders of theshare acquisition rights as of the effective date of the relevant Reorganization. Provided, however, that the foregoing shallbe on the condition that the allotment of such share acquisition rights by the Reorganized Company in accordance witheach of the following items is stipulated in an absorption-type merger agreement, a consolidation-type merger agreement,
an absorption-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
The same number as the number of share acquisition rights held by the holder of the share acquisition rights shall beallotted in each case.
(2) Class of shares of the Reorganized Company to be issued upon exercise of share acquisition rights
Common shares of the Reorganized Company(3) Number of shares of the Reorganized Company to be issued upon exercise of share acquisition rights
To be determined as follows, taking the terms and conditions of the Reorganization into consideration.
If the Company conducts Reorganization with respect to common shares of the Company after the allotment date,
the number of shares granted shall be adjusted according to the following formula and any fraction of less than one
share resulting from the adjustment shall be rounded down.
Number of shares granted after adjustment = Number of shares granted before adjustment x Ratio of split (orconsolidation)(4) Value of assets to be contributed upon exercise of each share acquisition right
The value of assets to be contributed upon exercise of each share acquisition right to be allotted shall be the amountobtained 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 exercise ofshare 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 of shareacquisition rights shall be one-half (1/2) of the upper limit of the increase in the amounts of stated share capitaland 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 of shareacquisition rights shall be the upper limit of the increase in the amounts of stated share capital and other items
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 Board of
Directors of the Company.

―27―ii) Resolution of the Board of Directors Meeting held on November 10, 2016
As of the end of the fiscal year
(March 31, 2021)
Category and number of persons subject to grants

Three directors, 96 employees

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

As of the end of the month
before the filing date
(May 31, 2021)

3,069

3,037

‒

‒

Common share

Same as on the left

306,900 shares

303,700 shares

2,639 yen per share

Same as on the left

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

Same as on the left
Same as on the left

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

Matters regarding transfer of share acquisition rights

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

Same as on the left‒‒

Matters regarding substitute payment

Matters regarding grant of share acquisition rights(Note 5)Same as on the left
accompanying reorganization(Notes) 1. The share acquisition rights were issued with a charge of 2,400 yen per share acquisition right.
2. Conditions for exercise of share acquisition rights(1) Share acquisition rights can be exercised up to the percentage of the allocated share acquisition rights specified ineach item below by each holder of share acquisition rights only if operating profit reaches the level specified in each
item below in the fiscal year ended March 31, 2018, the fiscal year ended March 31, 2019, or the fiscal year ended
March 31, 2020.
(a) If operating profit exceeds 2.0 billion yen, 20% of share acquisition rights can be exercised.
(b) If operating profit exceeds 2.5 billion yen, 50% of share acquisition rights can be exercised.
(c) If operating profit exceeds 2.8 billion yen, 100% of share acquisition rights can be exercised.
In the items above, the operating profit stated in the consolidated statements of income in the Company’s annual
securities report (or the statements of income if no consolidated statements of income are prepared) shall bereferenced. If the concept of items to be referenced changes significantly due to the application of the International
Financial Reporting Standards, etc. indicators to be referenced shall be determined by the Board of Directors. Any
fraction of less than one share acquisition right arising in the number of the share acquisition rights that can be
exercised by each holder of share acquisition rights when calculating the percentage that can be exercised shall be
rounded down.
(2) The holder of the share acquisition rights must continue to be a director or an employee of the Company to exercise
share acquisition rights. Provided, however, this provision shall not apply to holders who have retired due toexpiration of their terms of office, or holders who have retired upon reaching the mandatory retirement age or forother 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 the Company
outstanding after exercise of such rights to exceed the number of shares authorized at the time of the exercise.
(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 be madeonly with respect to the number of shares to be issued upon exercise of the share acquisition rights that have not yet been
exercised at the time of adjustment, and any fraction less than one share arising from the adjustment shall be rounded down.
Number of shares granted after adjustment = Number of shares granted before adjustment x Ratio of split (or consolidation)
If the Company performs a merger or company split, or reduces its share capital, or any other similar matter where theadjustment of the number of shares granted becomes necessary, after the allotment date of the share acquisition rights, the―28―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 theTokyo Stock Exchange on November 9, 2016, which is the day before the date of the resolution of the Board of Directors
concerning the issuance of the share acquisition rights.
(1) If the Company conducts a stock split or stock consolidation, the Exercise Price shall be adjusted according to thefollowing formula, and any fraction less than one yen resulting from the adjustment shall be rounded up.
1
Exercise price after
Exercise price=×
adjustment
before adjustment
Ratio of split (or consolidation)(2) If the Company issues new common shares or disposes of its treasury shares at a price below the market price of its
common shares (excluding the case of the issuance of new shares and the disposal of treasury shares upon exerciseof share acquisition rights and the transfer of treasury shares through the exchange of shares), the Exercise Priceshall be adjusted according to the following formula, and any fraction less than one yen resulting from the adjustment
shall be rounded up.
Number of shares
Amount to be paid
×
newly issued
per share
Number of shares+
outstanding
Market price per share prior to the issuance
Exercise price
Exercise price=×
after adjustment
before adjustment
Number of shares outstanding + Number of shares newly issued
In the above formula, the “number of shares outstanding” shall be the amount obtained by subtracting the numberof treasury shares pertaining to the common shares of the Company from the total number of shares outstanding
pertaining to the common shares of the Company. If the Company undertakes the disposal of treasury sharespertaining to its common shares, the “number of shares to be newly issued” shall be read as the “number 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 absorptiontype 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 those listed in “a”
through “e” of Article 236, Paragraph 1, Item 8 of the Companies Act (the “Reorganized Company”) to the holders of theshare acquisition rights as of the effective date of the relevant Reorganization. Provided, however, that the foregoing shallbe on the condition that the allotment of such share acquisition rights by the Reorganized Company in accordance witheach of the following items is stipulated in an absorption-type merger agreement, a consolidation-type merger agreement,
an absorption-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
The same number as the number of share acquisition rights held by the holder of the share acquisition rights shall beallotted in each case.
(2) Class of shares of the Reorganized Company to be issued upon exercise of share acquisition rights
Common shares of the Reorganized Company(3) Number of shares of the Reorganized Company to be issued upon exercise of share acquisition rights
To be determined as follows, taking the terms and conditions of the Reorganization into consideration.
If the Company conducts Reorganization with respect to common shares of the Company after the allotment date,
the number of shares granted shall be adjusted according to the following formula and any fraction of less than one
share resulting from the adjustment shall be rounded down.
Number of shares granted after adjustment = Number of shares granted before adjustment x Ratio of split (orconsolidation)(4) Value of assets to be contributed upon exercise of each share acquisition right
The value of assets to be contributed upon exercise of each share acquisition right to be allotted shall be the amountobtained 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 exercise of―29―

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 of shareacquisition rights shall be one-half (1/2) of the upper limit of the increase in the amounts of stated share capitaland 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 of shareacquisition rights shall be the upper limit of the increase in the amounts of stated share capital and other items
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 Board of
Directors of the Company.

―30―iii) Resolution of the Board of Directors Meeting held on February 16, 2018
As of the end of the fiscal year
(March 31, 2021)
Category and number of persons subject to grants

Three directors, 151 employees

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

As of the end of the month
before the filing date
(May 31, 2021)

11,309‒‒‒Common share

Same as on the left

1,130,900 shares‒

3,400 yen per share

Same as on the left

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

Same as on the left
Same as on the left

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

Matters regarding transfer of share acquisition rights

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

Same as on the left‒‒

Matters regarding substitute payment

Matters regarding grant of share acquisition rights(Note 5)Same as on the left
accompanying reorganization(Notes) 1. The share acquisition rights were issued with a charge of 100 yen per share acquisition right.
2. Conditions for exercise of share acquisition rights(1) Holders of share acquisition rights can exercise the share acquisition rights allocated to each of them only if theoperating profit of the Company exceeds 4 billion yen in the fiscal year ended 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 to exercise
share acquisition rights. Provided, however, this provision shall not apply to holders who have retired due toexpiration of their terms of office, or holders who have retired upon reaching the mandatory retirement age or forother 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 the Company
outstanding after exercise of such rights to exceed the number of shares authorized at the time of the exercise.
(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 be madeonly with respect to the number of shares to be issued upon exercise of the share acquisition rights that have not yet been
exercised at the time of adjustment, and any fraction less than one share arising from the adjustment shall be rounded down.
Number of shares granted after adjustment = Number of shares granted before adjustment x Ratio of split (or consolidation)
If the Company performs a merger or company split, or reduces its share capital, or any other similar matter where theadjustment of the number of shares granted becomes necessary, after the allotment date of the share acquisition rights, thenumber 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 theTokyo 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 thefollowing formula, and any fraction less than one yen resulting from the adjustment shall be rounded up.

―31―

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 the adjustment
shall be rounded up.
Number of shares
Amount to be paid
×
newly issued
per share
Number of shares+
outstanding
Market price per share prior to the issuance
Exercise price
Exercise price=×
after adjustment
before adjustment
Number of shares outstanding + Number of shares newly issued
Exercise price after
adjustment=

Exercise pricebefore adjustment

×

In the above formula, the “number of shares outstanding” shall be the amount obtained by subtracting the numberof treasury shares pertaining to the common shares of the Company from the total number of shares outstanding
pertaining to the common shares of the Company. If the Company undertakes the disposal of treasury sharespertaining to its common shares, the “number of shares to be newly issued” shall be read as the “number 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 absorptiontype 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 those listed in “a”
through “e” of Article 236, Paragraph 1, Item 8 of the Companies Act (the “Reorganized Company”) to the holders of theshare acquisition rights as of the effective date of the relevant Reorganization. Provided, however, that the foregoing shallbe on the condition that the allotment of such share acquisition rights by the Reorganized Company in accordance witheach of the following items is stipulated in an absorption-type merger agreement, a consolidation-type merger agreement,
an absorption-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
The same number as the number of share acquisition rights held by the holder of the share acquisition rights shall beallotted in each case.
(2) Class of shares of the Reorganized Company to be issued upon exercise of share acquisition rights
Common shares of the Reorganized Company(3) Number of shares of the Reorganized Company to be issued upon exercise of share acquisition rights
To be determined as follows, taking the terms and conditions of the Reorganization into consideration.
If the Company conducts Reorganization with respect to common shares of the Company after the allotment date,
the number of shares granted shall be adjusted according to the following formula and any fraction of less than one
share resulting from the adjustment shall be rounded down.
Number of shares granted after adjustment = Number of shares granted before adjustment x Ratio of split (orconsolidation)(4) Value of assets to be contributed upon exercise of each share acquisition right
The value of assets to be contributed upon exercise of each share acquisition right to be allotted shall be the amountobtained 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 exercise ofshare 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 of shareacquisition rights shall be one-half (1/2) of the upper limit of the increase in the amounts of stated share capitaland 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 of shareacquisition rights shall be the upper limit of the increase in the amounts of stated share capital and other items―32―

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 Board of
Directors of the Company.
6. The share acquisition rights are now invalid since non-fulfillment of the vesting conditions was confirmed on May 28,2021.
(ii) Information on Shareholder Rights Plans
Not applicable.
(iii) Status of Share Acquisition Rights and Other Plans
Not applicable.
(3) Information on Moving Strike Convertible Bonds, etc.
Not applicable.
(4) Changes in the Total Number of Issued Shares and the Amount of Share Capital and Other
Date

Change in the total Balance of the total
Balance of share
Change in common
number of issued number of issued
capital (million
stock (million yen)sharessharesyen)

Change in legal
capital surplus(million yen)

Balance of legal
capital surplus(million yen)

April 1, 2013
13,991,670
14,133,000
―
713
―
700
(Note)(Note) The Company conducted a 100-for-1 common shares split on April 1, 2013 based on a resolution at the meeting of the Board of
Directors held on February 28, 2013. This stock split increased the number of shares outstanding to 14,133,000 shares, an increaseof 13,991,670 shares.
(5) Shareholders Composition
As of March 31, 2021
Status of shares (one unit of stock: 100 shares)
Category

Government
andmunicipality

Financial
institution

Financial
instruments
business
operator

Other
institution

Foreign corporations, etc.
Nonindividuals

Individuals

Individuals
and others

Total

Number ofshares lessthan one unit
(shares)Number of
―
25
35
28
190
6
4,039
4,323
―
share-holders
Share ownership―
35,124
2,113
9,952
51,265
12
42,767141,233
9,700(units)Ownership
percentage of
―
24.87
1.49
7.05
36.30
0.01
30.28
100.00―shares (%)(Note) Of 104,462 treasury shares, 1,044 units are included in the “Individuals and others” column, while 62 shares are included in the“Number of shares less than one unit” column.

―33―

(6) Major Shareholders

Name

Address

As of March 31, 2021
Ratio (%) of the numberof owned shares to theSharetotal number ofownership
outstanding shares(shares)(excluding treasury
shares)Toshio Dogu

Minato-ku, Tokyo

2,403,063

17.13

Custody Bank of Japan, Ltd. (Trust
Account)

1-8-12 Harumi, Chuo-ku, Tokyo

1,431,200

10.20

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

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

959,500

6.84

DAM Corporation

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

710,000

5.06

BNYMSANV RE BNYMSANVDUBRE BNYMGO UCITS ETF
SOLUTIONS PLC (Standing proxy:
MUFG Bank, Ltd.)

33 SIR JOHN ROGERSON'S QUAY DUBLIN 2
IRELAND(2-7-1 Marunouchi, Chiyoda-ku, Tokyo)

646,902

4.61

THE BANK OF NEW YORK, NONTREATY JASDEC ACCOUNT(Standing proxy: MUFG Bank, Ltd.)

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

420,000

2.99

BNYM AS AGT/CLTS 10 PERCENT(Standing proxy: MUFG Bank, Ltd.)240 GREENWICH STREET, NEW YORK, NEW
YORK 10286, U.S.A.
(2-7-1 Marunouchi, Chiyoda-ku, Tokyo)

262,243

1.87

THE BANK OF NEW YORKMELLON 140044 (Standing proxy:
Settlement & Clearing Services
Department, Mizuho Bank, Ltd.)240 GREENWICH STREET, NEW YORK, NY
10286, U.S.A.
(2-15-1 Konan, Minato-ku, Tokyo)

258,800

1.84

NORTHERN TRUST CO.(AVFC) RE
MONDRIAN INTERNATIONALSMALL CAP EQUITY FUND,
L.P.(Standing proxy: HSBC Tokyo
Branch, Custody Service Department)

50 Bank Street Canary Wharf London E14 5NT,UK
(3-11-1 Nihonbashi, Chuo-ku, Tokyo)

248,400

1.77

JPMBL RE NOMURAINTERNATIONAL PLC 1 COLL
EQUITY (Standing proxy: MUFG
Bank, Ltd.)

1 ANGEL LANE LOMDON - NORTH OF THE
THAMES UNITED KINGDOM EC4R 3AB(2-7-1 Marunouchi, Chiyoda-ku, Tokyo)

229,378

1.64

7,569,486

53.96

Total

―

(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 Custody Bank of Japan, Ltd. (Trust Account) could not be confirmedby the Company and is, therefore, omitted.
3. The number of shares pertaining to the trust services of Master Trust Bank of Japan, Ltd. (Trust Account) could not be
confirmed by the Company and is, therefore, omitted.
4. In addition to the forgoing, the Company holds 104,462 treasury shares.

―34―

5. The content of reports on large shareholders whose shareholdings could not be confirmed as of March 31, 2021 (changereports) is as follows.
(1) A report on large shareholders (change report) naming SBI Securities Co., Ltd. as joint holder was submitted on August
7, 2020 by Rheos Capital Works Inc., 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, 2021.
The content of this report on large shareholders is as shown below.
Number of
Ownership ratio
share
Name
Addressof sharecertificates, etc.
certificates (%)
held (shares)
Rheos Capital Works Inc.

1-11-1 Marunouchi, Chiyoda-ku, Tokyo

828,700

5.86

SBI SECURITIES Co., Ltd.

1-6-1 Roppongi, Minato-ku, Tokyo

37,6400.27

866,340

6.13

Total

―

(2) A report on large shareholders (change report) naming Nomura International plc and Nomura Asset Management Co.,
Ltd. as joint holders was submitted on January 7, 2021 by Nomura Securities Co., Ltd., but this change is not taken
into consideration in “Major Shareholders” above as the Company cannot confirm the actual number of shares held asof March 31, 2021.
The content of this report on large shareholders is as shown below.
Number of
Ownership ratio
share
Name
Addressof sharecertificates, etc.
certificates (%)
held (shares)
Nomura Securities Co., Ltd.

3-11-1 Nihonbashi, Chuo-ku, Tokyo, Japan(800)(0.01)NOMURA
INTERNATIONAL PLC

1 Angel Lane, London EC4R 3AB, United
Kingdom

307,786

2.18

Nomura Asset Management
Co., Ltd.

2-2-1 Toyosu, Koto-ku, Tokyo, Japan

348,200

2.46

655,186

4.64

Total

―

(3) A report on large shareholders (change report) naming Sumitomo Mitsui Trust Asset Management Co., Ltd. and Nikko
Asset Management Co., Ltd. as joint holders was submitted on February 4, 2021 by Sumitomo Mitsui Trust AssetManagement Co., Ltd., 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, 2021.
The content of this report on large shareholders is as shown below.
Number of
Ownership ratio
share
Name
Addressof sharecertificates, etc.
certificates (%)
held (shares)
Sumitomo Mitsui Trust Asset
1-1-1 Shibakoen, Minato-ku, Tokyo, Japan
549,900
3.89
Management Co., Ltd.
Nikko Asset Management
Co., Ltd.
Total

9-7-1 Akasaka, Minato-ku, Tokyo, Japan
――35―

287,200

2.03

837,100

5.92

(7) Information on Voting Rights(i) Issued Shares
As of March 31, 2021
Category

Number of shares (shares)

Number of voting rights

Description

Shares without voting right

―

―

―

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

―

―

―

Shares with restricted voting right (others)

―

―

―

―

―

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

CommonsharesCommonsharesCommonshares104,400

Number of issued shares

9,700

―

―

14,133,000

―

―

―

Total number of voting rights―

140,189

14,018,900―

140,189(ii) Treasury Shares, etc.

Name of shareholder

Digital Arts Inc.
Total

Address

As of March 31, 2021
Ownership
Number of shares Number of shares
Total shares held percentage to theheld under own held under the(shares)
total number ofnamename of others
issued shares (%)

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

104,400―

104,400

0.7―

104,400―

104,400

0.7―36―

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

Acquisition of common share under Article 155(vii) of the Companies Act(1) Acquisition of treasury shares resolved at the general meeting of shareholders
Not applicable.
(2) Acquisition of treasury shares resolved at the Board of Directors meetings
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 year20

207,400

Treasury shares acquired during the current period

34

332,860(Note) Treasury shares acquired during the current period do not include the number of shares acquired through purchases of sharesconstituting less than one full unit between June 1, 2021 and June 23, 2021.
(4) Status of the disposition and holding of acquired treasury shares
Current business year
Category

Current period

Number of shares(shares)

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

Total disposition
amount (yen)

―

―

―

―

―

―

―

―

―

―

―

―

Other (Note)

11,60037,998,937

4,100

13,436,228

Total number of treasury shares held

104,462―

100,396―

Acquired treasury shares which were
offered to subscribers
Acquired treasury shares which werecanceled
Acquired treasury shares which weretransferred due to merger, share exchange,
share issuance or company split(Notes) 1. “Other” for the current business year and current period represents the exercise of share acquisition rights.
2. Total number of treasury shares held in the current period does not include the number of shares held through the exerciseof share acquisition rights or purchases of shares constituting less than one full unit between June 1, 2021 and June 23,
2021.

―37―

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 to financecapital 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, 2022 is 65 yen per share (which includes an interim
dividend of 30 yen).
Dividends of surplus for the current business year are as shown below.

Resolution date

Total amount of dividends(million yen)

Resolution of the Board of Directors Meeting
held on October 29, 2020
Resolution of the Annual General Shareholders
Meeting held on June 22, 2021

―38―

Dividend per share (yen)
350

25

420

30

4. Corporate Governance(1) Corporate Governance(i) Corporate Governance Policy
The Company’s corporate governance policy consists of “engaging in speedy decision-making and clarifying the roles andresponsibilities incidental to this,” “maintaining objective checking systems both internally and externally” and “ensuring timely andfair disclosure” and we will endeavor to continue maintaining and strengthening this approach in the future.
(ii) Overview of the corporate governance structure and reasons for its adoption
A. Overview of the corporate governance structure
We transitioned to a company with an Audit & Supervisory Board based on a resolution of the 21st Annual General Meeting of
Shareholders held on June 24, 2016. We have set up the Audit & Supervisory Board composed of a major of Outside Directors.
Directors who are Audit & Supervisory Board Members including Outside Directors have expertise in fields such as finance, law andbusiness management to 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 three (50%) are Outside Directors. As businessexecution body, it holds meetings once a month in principle to make decisions on important matters that are fundamental tomanagement.
Toshio Dogu (Chairman, Representative Director, President & CEO, Internal Director)
Takuya Matsumoto (Internal Director)
Kiyoto Inomata (Standing Audit & Supervisory Board Member, Internal Director)
Hidekazu Kubokawa (Audit & Supervisory Board Member, Outside Director)
Masataka Uesugi (Audit & Supervisory Board Member, Outside Director)
Chise Kuwayama (Audit & Supervisory Board Member, Outside Director)(2) Audit & Supervisory Board
The Audit & Supervisory Board is comprised of the following four Directors (one of whom is a Standing Audit & Supervisory Board
Member), three of whom are Outside Directors. It holds meetings once a month in principle to deliberate important matters specified
in the Audit & Supervisory Board Rules in accordance with the Standards for Audits and Supervision by the Audit & Supervisory
Board and endeavors to strengthen audits and supervision.
Kiyoto Inomata (Chairman, Standing Audit & Supervisory Board Member, Internal Director)
Hidekazu Kubokawa (Audit & Supervisory Board Member, Outside Director)
Masataka Uesugi (Audit & Supervisory Board Member, Outside Director)
Chise Kuwayama (Audit & Supervisory Board Member, Outside Director)(3) Other
The Company holds meetings of the Executive Committee once a month. Serving as a body preceded by the Board of Directors, itconsists of the Representative Director, Directors (excluding Directors who are Audit & Supervisory Board Members) and General
Managers of individual Departments. It determines individual management strategies based on the prior deliberations and decisionmaking of the Board of Directors and reviews the status of business execution. In addition, it holds meetings of the Management
Reporting and Liaison Committee once a week in principle. Composed of General Managers of separate Departments and Sections
and higher-ranking members, it reports on the state of progress of operations in each division and builds consensus. These meetingbodies clarify their respective roles and responsibilities and seek to enrich discussions at the Board of Directors and give shape to its
decisions. We have also established functional 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.

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

―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 andemployees comply with laws and regulations, the Articles of Incorporation, various regulations and stipulated business processes
and it also works to strengthen risk management system and seeks to enhance internal control systems.
(3) The Company establishes the Internal Audit Department and builds a system of internal control through internal audits. The Internal
Audit Department regularly conducts internal audits of the Group’s business management and all its business activities, evaluatesand verifies the state of compliance with laws and regulations, the Articles of Incorporation, various rules and stipulated businessprocesses and reports to the Company’s Board of Directors and to the Audit & Supervisory Board in a timely manner.
(4) For the purpose of strengthening independence, objectivity and accountability of the Board of Directors' functions related to
Directors' nomination, remuneration and others, the Company sets up a voluntary Nomination and Remuneration Advisory
Committee consisting of independent Outside Directors and other committee members as an advisory body subordinate to theBoard of Directors. In response to consultation from the Board of Directors, the Nomination and Remuneration Advisory
Committee discusses matters related to determination of candidates for Directors, selection of the Representative Directors andDirectors with portfolio and remuneration of Directors and others and submits a report on the results to the Board of Directors.
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 periodof important documents (including electronic media) relating to the execution of duties by Directors and stores and manages themin 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 establishes the Internal Audit Department. It regularly examines the appropriateness of the audit items and audit
methods used in the Group’s business audits and revises audit items and audit methods if necessary.
d. Systems to ensure the effective and efficient execution of duties by the Group’s Directors(1) To ensure the effective and efficient execution of duties by Directors, the Group formulates a business plan every fiscal year andverifies progress through monthly performance assessments.
(2) Regarding the execution of routine duties by Directors, the Board of Directors delegates authority for the execution of duties to
employees in accordance with the Rules on Administrative Authority and Rules on the Segregation of Duties and these employees
assume responsibility for efficient execution of the delegated duties.
e. Systems for reporting to the Company matters related to the execution of duties by the Group’s Directors(1) The Company conducts internal audits of its individual divisions and subsidiaries performed by the Internal Audit Department inaccordance with the Internal Audit Rules, establishes internal control systems within the Group, and reports on the nature andfrequency of risks within individual divisions and subsidiaries and their impact on the Company and others to the Board of Directors
and the 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―41―

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 transfersand 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 &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 such as
issues to be addressed by the Company, the status of development of the environment for audits by Audit & Supervisory Board
Members and important audit-related issues.
(2) The Audit & Supervisory Board, the Internal Audit Department and the Accounting Auditor seek to improve the quality of audits
by strengthening their cooperation through the mutual exchange of information and opinions where necessary.
l. Systems for eliminating antisocial forces
The Group maintains a firm stance to respond, as an organization, to any unjustified demands by antisocial forces and develops
internal systems so that it does not have any business relationship or any other relationship whatsoever with antisocial forces.
B. Status of improvement of risk management system
The Company establishes Risk Management Rules and exercises integrated management in relation to business risks that might arise
as a result of its business activities to prevent risks and deal with any risks that arise.
As a body preceded by the Board of Directors, the Executive Committee quickly grasps and discusses business risks, including thepossibility of risks emerging, and makes reports to the Board of Directors where necessary.
The Audit & Supervisory Board conducts audits to assess whether the Board of Directors makes policy decisions and conducts
monitoring and supervision in relation to business risks in an appropriate manner.
C. Status of development of systems for ensuring the appropriateness of operations of subsidiaries
The Company and Group companies have formulated a Corporate Code of Conduct based on the Group’s management philosophy andmake 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 audits also monitor Group companies and the AffiliatedCompany Management Rules stipulate systems through which Group companies seek approval from and report to the Company.
D. Quorum of Directors
The Articles of Incorporation of the Company stipulate that the Company shall have not more than six Directors (excluding Audit &―42―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 ofvoting 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 beby cumulative voting.
F. Decision-making body for acquisition of treasury shares
To facilitate a flexible capital policy, the Articles of Incorporation of the Company stipulate that the Company may, by the resolutionof the Board of Directors, acquire its own shares pursuant to Article 165, Paragraph 2 of the Companies Act.
G. Interim dividends
The Articles of Incorporation of the Company stipulate that the Company may, by a resolution of the Board of Directors, pay interim
dividends with a record date of September 30 of each year, pursuant to Article 454, Paragraph 5 of the Companies Act. The aim is toenable flexibility in regard to return of profit to shareholders.
H. Content and outline of agreements for limitation of liability
In accordance with the provisions of Article 427, Paragraph 1 of the Companies Act, the Company concludes agreements with Directors
who are Audit & Supervisory Board Members to limit the liability for damages pursuant to Article 423, Paragraph 1 of the Companies
Act. The maximum amount of liability for compensation of damages under these agreements is the amount set forth in laws andregulations. Limitation of liability is allowed only if a Director who is an Audit & Supervisory Board Member was performing theduties 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 to voteare present. The purpose is to relax the quorum for special resolutions at general meetings of shareholders to ensure the meetingsproceed smoothly.

―43―

(2) Officers(i) List of Officers
Men: 5 persons, Women: 1 person (Women’s percentage to total number of officers: 17%)
Title

Name

April 2011
June 2012
May 2013
October 2013
October 2013
April 2014
November 2014
February 17, 1968
April 2015
November 2015
April 2016
April 2016
September 2016
April 2017

April 2018
October 2019

February 2020

Director, General
ManagerDevelopment

TakuyaMatsumoto

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

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.
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 ManagerSales, Digital Arts Inc.
(Note 2)
Representative Director, President & CEO, General ManagerSales, General Manager-FinalCode BusinessDirector, Digital Arts Asia Pacific Pte. Ltd. (incumbent)
Representative Director, President & CEO, General ManagerSales, Digital Arts Inc.
Representative Director, Chairman, Digital Arts Consulting
Inc. (incumbent)
Director, Digital Arts Europe Limited (incumbent)
Representative Director, President & CEO, General ManagerSales, General Manager-Marketing, General ManagerCorporation Planning, Digital Arts Inc.
Representative Director, President & CEO, General ManagerSales, General Manager-Marketing
Representative Director, President & CEO, General ManagerSales, General Manager-Marketing, General ManagerCorporation Planning, General Manager- Administration
Representative Director, President and CEO (incumbent)

2,403,063

April 2018
October 2019

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

April 1995

Joined Tokyo Gas Co., Ltd.

January 2003

Personnel Dept. (Dispatched to Digital Arts Inc. formanagement training)
Seconded to Energy Advance Co., Ltd. (currently Tokyo Gas
Engineering Solutions Corporation)
Joined Digital Arts Inc., Corporate Planning
Deputy General Manager- Development(Note 3)General Manager-Corporate Planning
Director, IQS' Co., Ltd.
General Manager-Internal Audit, Digital Arts Inc.
Associate General Manager-Development, General ManagerQuality Assurance
Director (Audit & Supervisory Board Member), Digital Arts
Inc. (incumbent)
Auditor, Digital Arts Consulting Inc. (incumbent)

July 2004

Director (Audit &Supervisory Board Kiyoto Inomata
Member)Shareownership(shares)

Business experience
October 1997
October 2003
March 2005
November 2005
December 2006

Representative
Director, President Toshio Dogu
and CEO

Term ofofficeDate of birth

July 7, 1967

November 2005
April 2006
June 2007
June 2008
April 2011
April 2015
June 2020
June 2020―44―(Note 2)

3,042

108

TitleName

July 1986

Hidekazu
Kubokawa

February 1989
February 20, 1953
March 2000
June 2005
June 2006
June 2016

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

November 2014
March 2015
March 2016
June 2016
April 1995
November 2004

Director (Audit &Supervisory Board
Member)Shareownership(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.)
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)

3,433

Joined Emori Kawamori Atsumi Law Office
Founded Uesugi Law OfficePartner of Amlec Law and Accounting Firm
Outside Auditor, Digital Arts Inc.
Outside Auditor, Commerce One Holdings Inc. (incumbent)
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)

3,433

Joined Dai-ichi Mutual Life Insurance Company (currently,
The Dai-ichi Life Insurance Co., Ltd.)
Joined Tohmatsu & Co. (currently, Deloitte Touche
Tohmatsu LLC)
Registered as a certified public accountant
Outside Standing Audit and Supervisory Board Member,
Ceres Inc.
Outside Director (Full-time Audit and Supervisory Board
Member), Ceres Inc. (incumbent)
Outside Director (Audit & Supervisory Board Member),
Digital Arts Inc. (incumbent)(Note 4)‒

Business experience
November 1976

Director (Audit &Supervisory Board
Member)Term ofofficeDate of birth

Chise
Kuwayama

May 2, 1971

August 2008
March 2015
March 2021
June 2021

Total

2,413,079(Notes) 1. Audit & Supervisory Board Members Hidekazu Kubokawa, Masataka Uesugi and Chise Kuwayama are Outside Directors.
2. The term of office shall expire at the conclusion of the Annual General Meeting of Shareholders pertaining to the last businessyear ending within one (1) year after the conclusion of the Annual General Meeting of Shareholders held on June 22, 2021.
3. The term of office shall expire at the conclusion of the Annual General Meeting of Shareholders pertaining to the last businessyear ending within two (2) years after the conclusion of the Annual General Meeting of Shareholders held on June 19, 2020.
4. The term of office shall expire at the conclusion of the Annual General Meeting of Shareholders pertaining to the last businessyear ending within one (1) year after the conclusion of the Annual General Meeting of Shareholders held on June 22, 2021.
5. The number of shares held includes shares of stock in Digital Arts Inc.’s officers’ shareholding association.
6. The Company has elected a substitute for a Director who is an Audit & Supervisory Board Member stipulated in Article 329,
Paragraph 3 of the Companies Act in advance to prepare for cases where the number of Directors who are Audit & Supervisory
Board Members falls below the number stipulated by laws and regulations. The career history of the substitute for a Director
who is an Audit & Supervisory Board Member is as follows.
Name

Komei Sasaki

Date of birth

March 15, 1966

Business experience
August 1999
May 2003
June 2004

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

April 2005

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

March 2015
June 2016

Senior Partner, Sakurada Dori Partners (incumbent)
Outside Director, TAKE AND GIVE NEEDS Co., Ltd. (incumbent)―45―

Share ownership(shares)―(ii) Information about Outside Officers
The Company has two Outside Directors.
Outside Director Hidekazu Kubokawa holds 3,433 shares of the Company’s stock as of March 31, 2021, but there are no other special
interests between Mr. Kubokawa and the Company. Mr. Kubokawa is a Representative Partner of Yotsuya Partners Accounting Firm but
there are no special interests between Yotsuya Partners Accounting Firm and the Company.
Outside Director Masataka Uesugi holds 3,433 shares of the Company’s stock as of March 31, 2021, 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.
Outside Director Chise Kuwayama holds no shares of the Company's stock as of March 31, 2021 and has no special interests in the
Company.
The Company elects Outside Directors to ensure the objectivity and neutrality of supervisory functions of management. While theCompany has not established standards or a policy for judging the independence of Outside Directors, it refers to the requirements forindependence stipulated by the Tokyo Stock Exchange when electing Outside Directors. The Outside Directors have the function ofauditing the execution of duties by Directors from the perspectives of legality and appropriateness, based on their independence andspecialist knowledge.
(iii) Mutual Collaboration between Audits or Supervision by Outside Officers, Audits by the Audits & Supervisory Board and Account
Audits and Relationship with Internal Control Department
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 the Boardof Directors where necessary. The Company has registered Messrs. Hidekazu Kubokawa, Masataka Uesugi and Chise Kuwayama 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 four Audit & Supervisory Board
Members.
Standing Audit & Supervisory Board Member Kiyoto Inomata has long been working for corporate departments and the Internal Audit
Department. He is familiar with overall matters of the Group's businesses and has extensive knowledge of business management.
Audit & Supervisory Board Member Hidekazu Kubokawa is a certified public accountant and tax accountant, Audit & Supervisory
Board Member Masataka Uesugi is an attorney, and Chise Kuwayama is a certified public accountant.
In the fiscal year under review, the Company held meetings of the Audit & Supervisory Board once a month, in principle. Attendance ofindividual Audit & Supervisory Board Members was as follows.
Name

Number of meetings
convened
8

Number of meetings
attended
8Standing Audit & Supervisory Board Member

Kiyoto Inomata

Outside Audit & Supervisory Board Member

Hidekazu Kubokawa

13

13

Outside Audit & Supervisory Board Member

Masataka Uesugi

13

13

Important matters considered at meetings of the Audit & Supervisory Board included the formulation of audit plans, the preparation ofaudit reports, evaluation of re-appointment of the Accounting Auditor, and agreement on fees paid to the Accounting Auditor.
Important activities carried out by Audit & Supervisory Board Members included gathering information about the implementation status
of internal audits from those in charge, exchanging opinions with/ gathering information from the Accounting Auditor, requesting reports
from other relevant departments where necessary, and gathering information about the status of execution of the Company’s business.
(ii) Information about Internal Audits
The Company's Internal Audit Department consists of one person in charge of internal audits.

―46―

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

Fiscal year under review

Fees for audit services(million yen)

Fees for non-audit
services (million yen)

Fees for audit services(million yen)

Fees for non-audit
services (million yen)

Reporting company

19

―

19

―

Consolidated subsidiaries

―

―

―

―

Total

19

―

19

―

―47―

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 the audit, theCompany’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 fees of
the accounting auditor in the previous business year by obtaining necessary materials and asking for reports from the Board of Directors,
relevant internal divisions and the accounting auditor and having examined the content of the audit plan and the appropriateness of thebasis for calculation of estimated fees for the current business year, it judged these fees, etc. to be appropriate.
(4) Compensation to Directors and Executive Officers(i) Matters Related to Policy for Determining the Amount and Method of Calculation of Compensation to Directors and Executive
Officers
According to the Company’s basic policy on remuneration for its Directors (excluding those who are Audit & Supervisory Board
Members), a remuneration system must function as an incentive to continuously increase the corporate value as a whole and remunerationfor each Director is to be determined at an appropriate level in consideration of their duties. Specifically, the base remuneration for theCompany's Directors is fixed on a monthly basis. The Company pays remuneration in overall consideration of the Company's businessresults, status of management, social circumstances, degree of contribution according to their duties, number of years of service and thelevels of remuneration at other companies. The Company's non-monetary remuneration for Directors include (1) the provision of shareacquisition rights for the Company's common shares, and (2) the allotment of shares subject to transfer restrictions for a predetermined
period and the Company's rules on events for acquisition without contribution (hereinafter referred to as "Shares with Restrictions on
Transfer"). In consultation with the Board of Directors, the Nomination and Remuneration Advisory Committee discusses the policy on
determination and builds a consensus in the committee. The Board of Directors then makes a decision. The remuneration amount of a
Director who is an Audit & Supervisory Board Member is fixed remuneration that takes into consideration factors such as whether thepost is full-time or part-time, duties and authority. It is not linked to corporate performance and is determined by resolution of the Audit& Supervisory Board.
Details about the amount of remuneration for individual Directors (excluding Directors who are Audit & Supervisory Board Members)
are determined by the President and Representative Director in accordance with a resolution adopted by the Board of Directors to delegate
this authority to the President and Representative Director. To ensure the fairness and transparency of the examination process, theNomination and Remuneration Advisory Committee discusses the proposal on remuneration created by the President and Representative
Director within the remuneration limit approved by the General Meeting of Shareholders at the request of the Board of Directors. On thebasis of the views coordinated by the committee, the President and Representative Director makes a decision.
The remuneration limit for Directors (excluding Directors who are Audit & Supervisory Board Members) is set at 300 million yen peryear, excluding the portion of the employee salary for Directors serving as employees, according to a resolution adopted by the 21st
Annual Shareholders’ Meeting on June 24, 2016. As of the close of this Annual Shareholders' Meeting, the Company had two Directors,
excluding Directors who are Audit & Supervisory Board Members.
Apart from the remuneration mentioned above, a resolution has been adopted according to which the total monetary remuneration claims
to Directors (excluding Directors who are Audit & Supervisory Board Members) as remuneration concerned with the Shares with
Restrictions on Transfer are capped at 50 million yen per year in overall consideration of the degree of contribution and other factors.
With a commission of authority, the Board of Directors makes decisions on the actual allotment of Shares with Restrictions on Transfer―48―

in overall consideration of the degree of contribution to the Company and other factors of individual Directors concerned.
The Company's 21st Annual Shareholders' Meeting on June 24, 2016 adopted a resolution to set the limit of remuneration for Directors
who are Audit & Supervisory Board Members at 100 million yen per year. As of the close of this Annual Shareholders' Meeting, theCompany had three Directors who were Audit & Supervisory Members, including two Outside Directors.
(ii) Total Amount of Remuneration, etc. for Each Executive Officer Category, Total Amount of Remuneration, etc. by Type and Number
of Executive Officers

Category of officers

Total amount of
remuneration(million yen)

Directors (excludes Audit & Supervisory
Board Members and Outside Directors)
Directors who are Audit & Supervisory Board
Members (excludes Outside Directors)

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

Stock options

Number of eligible
officers

56

56

―

2

12

12

―

2

7

7

―

2

Outside Directors(iii) Total Amount of Remuneration Paid by Group to Each Officer
Not stated because there are no persons whose total amount of consolidated remuneration, etc. is 100 million yen or more.
(iv) Employees Salary of Officers Who also Hold Employee Posts
Total amount(million yen)

Officers who also holdemployee posts (people)
14

1

Description
Salary as consideration for services rendered.

(5) Information on Shareholdings
Not applicable.

―49―Section V. Financial Information
1. Method of Preparation of Consolidated Financial Statements and Non-consolidated Financial Statements(1) The consolidated financial statements of the Company are prepared in compliance with the Ordinance on Terminology, Forms, andPreparation Methods of Consolidated Financial Statements (Ordinance of the Ministry of Finance No. 28 of 1976).
(2) The non-consolidated financial statements of the Company are prepared in compliance with the Ordinance on Terminology, Forms,
and Preparation Methods of Financial Statements (Ordinance of the Ministry of Finance No. 59 of 1963; hereinafter referred to as the“Ordinance on Non-Consolidated Financial Statements”).
Because the Company is classified as a company that prepares its financial statements pursuant to special provisions, the nonconsolidated financial statements are prepared as provided in Article 127 of the Ordinance on Non-Consolidated Financial Statements.
(3) The figures in the Company's consolidated financial statements, individual items and other figures have been traditionally expressedin thousands of yen. From the consolidated fiscal year under view onwards, the figures are expressed in millions of yen.
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, 2020 to March 31, 2021) and the non-consolidated financial statements for the fiscal year (from April 1, 2020 to March 31,2021) 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 understandaccounting 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(Million yen)
Fiscal 2020
(As of March 31, 2020)

Fiscal 2021
(As of March 31, 2021)

AssetsCurrent assets
Cash and deposits
Notes and accounts receivable - tradeFinished goods
Supplies
Other
Total current assets

7,651
994

11,382
1,268

0
0

0
3

85

70

8,733

12,725

215
(115)

220
(127)

100

92

17
(12)

18
(4)

Non-current assets
Property, plant and equipment
Buildings
Accumulated depreciation
Buildings, net
VehiclesAccumulated depreciation
Vehicles, net

4

14

443
(325)

469
(369)

117

99

Land

26

26

Construction in progress

0

0

249

233

Software
Other

1,331
79

1,274
128

Total intangible assets

1,410

1,403

Investments and other assets
Investment securities

102

102

85
1

123
‒

Other

269

268

Total investments and other assets

458

493

Tools, furniture and fixtures
Accumulated depreciation
Tools, furniture and fixtures, net

Total property, plant and equipment
Intangible assets

Deferred tax assets
Shares of subsidiaries and associates*1

Total non-current assets
Total assets

―51―

2,118

2,130

10,852

14,856

(Million yen)
Fiscal 2020
(As of March 31, 2020)

Fiscal 2021
(As of March 31, 2021)

Liabilities
Current liabilities
Accounts payable - trade
Income taxes payable

32
469

32
688

Provision for bonuses
Advances received

119
1,229

194
3,370

Other

274

456

Total current liabilities

2,125

4,743

Non-current liabilities
Asset retirement obligations

45

48

0

1

Other
Total non-current liabilities

46

50

2,172

4,793

Share capital
Capital surplus

713
972

713
963

Retained earnings
Treasury shares

7,340
(380)

8,699
(342)

Total shareholders’ equity

8,646

10,034

6

7

Total liabilities
Net assets
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―

6

7

18
9

8
12

8,680

10,062

10,852

14,856

(ii) Consolidated Statement of Income and Consolidated Statement of Comprehensive Income
Consolidated Statement of Income
Fiscal 2020
(from April 1, 2019
to March 31, 2020)
Net sales
Cost of sales

5,641
1,361

Gross profit(Million yen)
Fiscal 2021
(from April 1, 2020
to March 31, 2021)
6,825
1,946

4,280

Selling, general and administrative expenses*1, *2

Operating profit
Non-operating income
Interest income

1,952

4,878
*1, *2

1,900

2,328

2,977

0

0

Foreign exchange gains
Commission income

‒
0

7
‒

Gain on forfeiture of unclaimed dividends
Subsidy income

0
0

1
3

Miscellaneous income

1

1

Total non-operating income

4

14

4
0

‒
0

Non-operating expenses
Foreign exchange losses
Miscellaneous loss
Total non-operating expenses
Ordinary profit

5

0

2,326

2,991

Extraordinary income
Gain on reversal of share acquisition rights

0Gain on sales of non-current assets‒

Total extraordinary income

0

Extraordinary losses
Loss on retirement of non-current assets

*4

0

9
*3

3
12

*4

0

*5

‒
2

Loss on valuation of golf club membership
Loss on liquidation of subsidiaries

1‒

Total extraordinary losses

1

2

2,326

3,001

740

977

Profit before income taxes
Income taxes - current
Income taxes - deferred

(4)

(37)

Total income taxes

735

939

1,590

2,062

(0)

2

1,590

2,059

ProfitProfit (loss) attributable to non-controlling interests
Profit attributable to owners of parent―53―

Consolidated Statement of Comprehensive Income
Fiscal 2020
(from April 1, 2019
to March 31, 2020)
ProfitOther comprehensive income

1,590

Foreign currency translation adjustment(Million yen)
Fiscal 2021
(from April 1, 2020
to March 31, 2021)
2,062

(2)

Total other comprehensive income

*1

(2)

1
*1

1

Comprehensive income

1,587

2,063

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

1,588

2,061

(0)

2

―54―

(iii) Consolidated Statement of Changes in Equity
Fiscal 2020 (from April 1, 2019 to March 31, 2020)(Million yen)
Accumulated othercomprehensive income

Shareholders’ equity

Share capital Capital surplus

Balance at beginning of
period713

Retained

Treasury

earnings

shares827

6,518

shareholders’equity

(306)

Total

ForeignTotal

currencytranslation
adjustment

7,752

accumulated
other

NonShareacquisition controllinginterests
rightsTotal net
assetscomprehensive
income

8

8

23

18

7,802

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

(768)

(768)

(768)

(0)

(0)

1,590

1,590

226

370

370

(299)

(299)

(299)

(0)

1,590
144

(2)

(2)

(5)

(8)

(16)

‒

144

822

(73)

893

(2)

(2)

(5)

(8)

877

713

972

7,340

(380)

8,646

6

6

18

9

8,680

Fiscal 2021 (from April 1, 2020 to March 31, 2021)(Million yen)
Accumulated othercomprehensive income

Shareholders’ equity

Share capital Capital surplus

Balance at beginning of
period713

972

Retained

Treasury

earnings

shares

7,340

shareholders’

(380)

Total

ForeignTotal
equitycurrencytranslation
adjustment

8,646

6

accumulated
other

NonShareacquisition controllinginterests
rightsTotal net
assetscomprehensive
income

6

18

9

8,680

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

(700)

(700)

(700)

‒

‒

2,059

2,059

37

29

29

(0)

(0)

(0)

2,059
(8)

1

1

(9)

2

(5)

‒

(8)

1,358

37

1,387

1

1

(9)

2

1,382

713

963

8,699

(342)

10,034

7

7

8

12

10,062―55―

(iv) Consolidated Statement of Cash Flows(Million yen)
Fiscal 2021
(from April 1, 2020
to March 31, 2021)

Fiscal 2020
(from April 1, 2019
to March 31, 2020)
Cash flows from operating activities
Profit before income taxes

2,326

3,001

Depreciation
Loss on valuation of golf club membership

805
1

859
‒

Increase (decrease) in provision for bonuses
Interest income

(8)
(0)

74
(0)

Foreign exchange losses (gains)
Gain on reversal of share acquisition rights

3
(0)

(9)
(9)

Loss on retirement of non-current assets
Loss (gain) on sales of non-current assets

0
‒

0
(3)

Loss (gain) on liquidation of subsidiaries
Decrease (increase) in trade receivables

‒
181

2
1,867

Decrease (increase) in inventories
Increase (decrease) in trade payables

(1)
9

(2)
0

Increase (decrease) in accounts payable - other
Decrease (increase) in other current assets

(7)
5

15
9

Increase (decrease) in other current liabilities
Other, net

(31)
11

165
6

3,297

5,977

1

0

SubtotalInterest and dividends received
Income taxes paid

(612)

(757)

Net cash provided by (used in) operating activities

2,686

5,221

Decrease (increase) in time deposits
Purchase of property, plant and equipment

600
(45)

‒
(48)

Proceeds from sale of property, plant and equipment
Purchase of intangible assets

‒
(740)

6
(787)

Proceeds from redemption of securities
Liquidation of subsidiaries

300
‒

‒
(1)

Cash flows from investing activities

Other, net(3)‒

Net cash provided by (used in) investing activities

111

(830)

Proceeds from disposal of treasury shares
Purchase of treasury shares

366
(300)

28
(0)

Purchase of shares from non-controlling shareholders
Dividends paid

(7)
(767)

‒
(699)

(709)

(671)

(5)

10

2,082

3,730

Cash flows from financing activities

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

5,569

Cash and cash equivalents at end of period

*1

―56―

7,651

7,651
*1

11,382

Notes(Notes on the premise of a going concern)
Not applicable.
(Significant matters that serve as the basis for the preparation of consolidated financial statements)
1. Matters related to the scope of consolidation(1) Number of consolidated subsidiaries: 4Names of consolidated subsidiaries
Digital Arts Consulting Inc.
Digital Arts America, Inc.
Digital Arts Asia Pacific Pte. Ltd.
Digital Arts Europe Limited(2) Names, etc. of non-consolidated subsidiaries
Not applicable.
Liquidation of Digital Arts Investment, Inc., which was a non-consolidated subsidiary in the previous consolidated fiscal year, wascompleted in the consolidated fiscal year under review.
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
Not applicable.
Liquidation of Digital Arts Investment, Inc., which was a non-consolidated subsidiary in the previous consolidated fiscal year, wascompleted in the consolidated fiscal year under review.
3. Fiscal years of consolidated subsidiaries
The fiscal year end of all consolidated subsidiaries is the same as the end of the consolidated fiscal year.
4. Matters related to accounting policies(1) Valuation standards and valuation methods for significant assets
A. Securities(a) Bonds held for maturity
The amortized cost method (interest method) is applied.
(b) Shares of subsidiaries and associates
The moving average cost method is applied.
B. Inventories(a) Finished goods
The gross average cost method is applied. (The balance sheet amount is calculated by the book value write-down method based on
reduction in profitability.)―57―

(2) Depreciation/amortization method for significant depreciable/amortizable assets
A. Property, plant and equipment
The declining balance method is applied.
The useful life and the residual value are calculated based on the same standards as those set out in the Corporation Tax Act. The
straight-line method is applied for facilities attached to buildings acquired on April 1, 2016 or later.
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 rate during
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 be withdrawn
as needed, and short-term investments that can be realized easily and only have insignificant value fluctuation risk and whose
redemption date arrives within three months of the acquisition date.
(6) Other significant matters that serve as a basis for the preparation of consolidated financial statements
A. Treatment of consumption tax
Consumption tax and local consumption tax are excluded from accounting. Non-recoverable consumption tax and local consumption
tax are treated as expenses in the consolidated fiscal year under review.

―58―

(Issued but not yet adopted accounting standards)
Accounting Standard for Revenue Recognition- Accounting Standard for Revenue Recognition (ASBJ Statement No. 29, March 31, 2020)- Implementation Guidance on Accounting Standard for Revenue Recognition (ASBJ Guidance No. 30, March 26, 2021)(1) Overview
An entity is required to recognize revenue to depict the transfer of promised goods or services to the customer in an amount that reflects
the consideration to which the entity expects to be entitled in exchange for those goods or services. To recognize revenue in accordancewith 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
Application of the Accounting Standard for Revenue Recognition and others has minor impacts on the consolidated financial
statements at the moment.
(Changes in presentation methods)(Consolidated statement of income)Subsidy income, which was included in miscellaneous income under non-operating income in the previous consolidated fiscal year,
began to be presented independently in the consolidated fiscal year under review because it became more important than before.
Consolidated financial statements for the previous consolidated fiscal year were reclassified to reflect this change in presentation
methods.
As a result, the 2 million yen, which was presented as miscellaneous income under non-operating income in the consolidated statementof income for the previous consolidated fiscal year, has been reclassified into 0 million yen as subsidy income and 1 million yen as
miscellaneous income.
(A change in unit used for presentation)
In the consolidated fiscal year under review, amounts of money began to be presented in millions of yen instead of the previous
thousands of yen.

―59―

(Consolidated balance sheet)*1. The item related to non-consolidated subsidiaries is as follows.
Fiscal 2020
(As of March 31, 2020)
Shares of subsidiaries and associates(Million yen)
Fiscal 2021
(As of March 31, 2021)‒

1(Consolidated statement of income)*1. The major items of selling, general and administrative expenses and the amounts are as follows.
Fiscal 2020
(from April 1, 2019
to March 31, 2020)(Million yen)
Fiscal 2021
(from April 1, 2020
to March 31, 2021)

Advertising expenses

207

168

Salaries and allowances

580

631

Provision for bonuses

64

110

(Changes in presentation methods)
Commission expenses were presented as a principal item for the previous consolidated fiscal year. They are not presented as such forthe consolidated fiscal year under review. This reflects deterioration of their significance in terms of amount. For information, 108
million yen was recorded as commission expenses for the previous consolidated fiscal year.
*2. Total amount of research and development expenses included in general and administrative expenses are as follows.
(Million yen)
Fiscal 2021
Fiscal 2020
(from April 1, 2020
(from April 1, 2019
to March 31, 2020)
to March 31, 2021)
01*3. The details of gain on sales of non-current assets are as follows.
Fiscal 2020
(from April 1, 2019
to March 31, 2020)‒

Vehicles(Million yen)
Fiscal 2021
(from April 1, 2020
to March 31, 2021)
3*4. The details of loss on retirement of non-current assets are as follows.
Fiscal 2020
(from April 1, 2019
to March 31, 2020)
Tools, furniture and fixtures

0(Million yen)
Fiscal 2021
(from April 1, 2020
to March 31, 2021)
0*5. Details of the loss on liquidation of subsidiaries are as follows.
Fiscal 2020 (from April 1, 2019 to March 31, 2020)
Not applicable.
Fiscal 2021 (from April 1, 2020 to March 31, 2021)
The loss on liquidation of subsidiaries resulted from the completion of the liquidation of Digital Arts Investment, Inc.

―60―

(Consolidated statements of comprehensive income)*1. Reclassification adjustment and tax effect related to other comprehensive income(Million yen)
Fiscal 2020
(from April 1, 2019
to March 31, 2020)
Foreign currency translation adjustment
Amount that occurred in the fiscal year underreview
Reclassification adjustment

Fiscal 2021
(from April 1, 2020
to March 31, 2021)

(2)

1

‒

‒

Before tax effect adjustment(2)

1

Tax effect‒‒Foreign currency translation adjustment

(2)

1

(2)

1

Total other comprehensive income(Consolidated statement of changes in equity)
Fiscal 2020 (from April 1, 2019 to March 31, 2020)

1. Class and number of issued shares and class and number of treasury shares
Number of shares at
Increase in number of
Decrease in number of Number of shares at end
beginning of consolidated shares during consolidated shares during consolidated of consolidated fiscal year
fiscal year under review fiscal year under review fiscal year under review
under review
Issued shares
14,133,000‒‒

14,133,000

14,133,000‒‒

14,133,000

Common shares (Note)

232,320

49,422

165,700

116,042

Total

232,320

49,422

165,700

116,042

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

―

―

―

―

―

18

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

Class of shares

Total amount ofdividends(million yen)

Dividend per share(yen)

Common shares

417

Common shares

351

―61―

Record date

Effective date

30

March 31, 2019

June 25, 201925

September 30, 2019

December 3, 2019

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

Class ofsharesAnnual shareholders’meeting on June 19, 2020

CommonsharesTotal amount ofdividends(million yen)

Financial sourceof dividends

Dividend pershare (yen)350 Retained earnings

25

Record date

Effective date

March 31, 2020

June 22, 2020

Fiscal 2021 (from April 1, 2020 to March 31, 2021)
1. Class and number of issued shares and class and number of treasury shares
Number of shares at
Increase in number of
Decrease in number of Number of shares at end
beginning of consolidated shares during consolidated shares during consolidated of consolidated fiscal year
fiscal year under review fiscal year under review fiscal year under review
under review
Issued shares
14,133,000‒‒

14,133,000

14,133,000‒‒

14,133,000

Common shares (Note)

116,04220

11,600104,462

Total

116,04220

11,600104,462

Common shares
Total
Treasury shares(Note) An increase in the number of common shares in treasury shares, 20, is due to the purchase of shares constituting less than one
full unit. A decrease in the number of treasury shares, 11,600, is due to the exercise of stock options.
2. Matters related to share acquisition rights and treasury share acquisition rights
Number of shares to be acquired upon exercise of share
Class of sharesacquisition rights
to be acquired
Amount at end
Breakdown of share upon exerciseof fiscal year
Decrease
Category
Beginning of Increase during
End of fiscal
acquisition rights
of shareunder review
during fiscal
fiscal year
year underfiscal year
acquisition(million yen)year under
under review under review
reviewrightsreview
ReportingShare acquisition
company (parent rights as stock
―
―
―
―
―
8
company)
options
―

Total

―

―

―

―

8

3. Matters related to dividends(1) Dividends paid
Resolution
Annual shareholders’meeting on June 19, 2020
Board of Directors meetingon October 29, 2020

Class of shares

Total amount ofdividends(million yen)

Dividend per share(yen)

Common shares

350

Common shares

350

Record date

Effective date25

March 31, 2020

June 22, 202025

September 30, 2020

December 2, 2020

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

Class ofsharesAnnual shareholders’meeting on June 22, 2021

CommonsharesTotal amount ofdividends(million yen)

Financial sourceof dividends

Dividend pershare (yen)420 Retained earnings

30

―62―

Record date

Effective date

March 31, 2021

June 23, 2021

(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(Million yen)
Fiscal 2020
Fiscal 2021
(from April 1, 2019(from April 1, 2020
to March 31, 2020)
to March 31, 2021)
Cash and deposit account
7,651
11,382
Cash and cash equivalents

7,651

11,382(Lease transactions)Not applicable.
(Financial instruments)
1. Matters related to the status of financial instruments(1) Policy on financial instruments
The Group’s fund management is centered on short-term deposits. The Group also invests in government bonds, which are very safeand highly rated corporate and other bonds.
(2) Description of financial instruments and their risks
Notes and accounts receivable-trade, operating receivables, are exposed to customers’ credit risk.
Securities and investment securities are public and corporate bonds and are exposed to risks of fluctuations in market price.
(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 are available.
The calculated prices include variable factors, which may change if different assumptions are used.
2. Matters related to the market prices of financial instruments, etc.
Consolidated balance sheet amounts, market prices and differences between them are as follows:―63―

Fiscal 2020 (As of March 31, 2020)
Consolidated balance sheet
Market price (million yen)amount (million yen)

Difference (million yen)

7,651

7,651

‒

994

994

‒

102

101

(0)

8,748

8,748

(0)

469

469

‒

469

469

‒

Consolidated balance sheet
Market price (million yen)amount (million yen)

Difference (million 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
Fiscal 2021 (As of March 31, 2021)(1) Cash and deposits

11,382

11,382‒(2) Notes and accounts receivable - trade

1,268

1,268

‒

102

102

(0)

12,752

12,752

(0)

688

688

‒

688

688

‒

(3) Securities and investment securities
Bonds held for maturity
Total assets(1) Income taxes payable
Total liabilities(Notes) 1. Matters related to calculation methods for the market prices of financial instruments
Assets(1) Cash and deposits, (2) Notes and accounts receivable - trade
They are settled in the short term, and their market prices are similar to their book values. Thus, the market prices are
deemed to be their book values.
(3) Securities and investment securities
The market prices of public and corporate bonds are presented by financial institutions, etc.
For information on securities according to holding purposes, refer to the note on securities.
Liabilities(1) Income taxes payable
They are settled in the short term, and their market prices are similar to their book values. Thus, the market prices are
deemed to be their book values.
2. Monetary claims and securities with maturity periods to be redeemed after the consolidated closing dateFiscal 2020 (As of March 31, 2020)(Million yen)More thanMore than afive years, More than 10
Within a year year, within
within 10
years
five years
years
7,651

‒

‒

‒

994

‒

‒

‒

(1) Government bonds, local government bonds

‒

‒

‒

‒

(2) Corporate bonds

‒

‒

100

‒

8,646

‒

100

‒

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

Total

―64―

Fiscal 2021 (As of March 31, 2021)(Million yen)More than aWithin a year year, within
five years

More than
five years,
within 10
years

More than 10
years

Cash and deposits

11,382‒‒‒

Notes and accounts receivable - trade

1,268

‒

‒

‒

(1) Government bonds, local government bonds

‒

‒

‒

‒

(2) Corporate bonds

‒

100

‒

‒

12,650100‒‒

Securities and investment securities
Bonds held for maturity

Total(Securities)
Bonds held for maturity
Fiscal 2020 (As of March 31, 2020)(Million yen)Classification

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

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

‒

‒

‒

(2) Corporate bonds

‒

‒

‒

(3) Other‒‒‒

Subtotal‒‒‒(1) Government bonds, local
government bonds, etc.

‒

‒

‒

102

101

(0)

‒

‒

‒

102

101

(0)

102

101

(0)

(2) Corporate bonds(3) Other
Subtotal
Total

―65―

Fiscal 2021 (As of March 31, 2021)(Million yen)Classification

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

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

‒

‒

‒

(2) Corporate bonds

‒

‒

‒

(3) Other‒‒‒

Subtotal‒‒‒(1) Government bonds, local
government bonds, etc.

‒

‒

‒

102

102

(0)

‒

‒

‒

102

102

(0)

102

102

(0)

(2) Corporate bonds(3) Other
Subtotal
Total(Derivatives transactions)
Previous consolidated fiscal year (from April 1, 2019 to March 31, 2020) and consolidated fiscal year under review (from April 1, 2020
to March 31, 2021)
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. Retirement benefit expenses
Fiscal 2020 (from April 1, 2019 to March 31, 2020)
The amount that was required for contribution to the defined contribution pension plan was 22 million yen.
Fiscal 2021 (from April 1, 2020 to March 31, 2021)
The amount that was required for contribution to the defined contribution pension plan was 27 million yen.
(Stock options)
1. Amount posted as profit due to the forfeiture of unexercised stock options
Fiscal 2020
(from April 1, 2019
to March 31, 2020)
Gain on reversal of share acquisition rights

Fiscal 2021
(from April 1, 2020
to March 31, 2021)
0

―66―

9

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

Vesting conditions

Requisite service period
Exercise period

2015 stock options
Reporting company

2016 stock options
Same as on the left

Four directors, 151 employees

Three directors, 96 employees

Common shares 350,100 shares
Common shares 848,000 shares
November 27, 2015
December 13, 2016
Being a director or an employee of the Being a director or an employee of thereporting company and not being subject to reporting company and not being subject tosalary reduction or stricter disciplinary salary reduction or stricter disciplinary
action provided for in the rules of action provided for in the rules of
employment of the reporting company from employment of the reporting company fromthe grant date (November 27, 2015) to the the grant date (December 13, 2016) to thevesting date (July 1, 2017)
vesting date (July 1, 2018)
Share acquisition rights can be exercised up Share acquisition rights can be exercised up
to the percentage of the allocated share to the percentage of the allocated shareacquisition rights specified in each item acquisition rights specified in each item
below by each holder of share acquisition below by each holder of share acquisitionrights only if operating profit reaches the rights only if operating profit reaches thelevel specified in each item below in the level specified in each item below in thefiscal year ended March 31, 2017, the fiscal fiscal year ended March 31, 2018, the fiscal
year ended March 31, 2018, or the fiscal year year ended March 31, 2019, or the fiscal year
ended March 31, 2019.
ended March 31, 2020.
(i) If operating profit exceeds 1.5 billion (i) If operating profit exceeds 2.0 billion
yen, 20% of share acquisition rights canyen, 20% of share acquisition rights canbe exercised
be exercised(ii) If operating profit exceeds 2.0 billion (ii) If operating profit exceeds 2.5 billion
yen, 50% of share acquisition rights canyen, 50% of share acquisition rights canbe exercised
be exercised(iii) If operating profit exceeds 2.5 billion (iii) If operating profit exceeds 2.8 billion
yen, 100% of share acquisition rights
yen, 100% of share acquisition rights
can be exercised
can be exercised
In the items above, the operating profit stated In the items above, the operating profit statedin the consolidated statements of income in in the consolidated statements of income in
the Company’s annual securities report (or the Company’s annual securities report (orthe statements of income if no consolidated the statements of income if no consolidated
statements of income are prepared) shall be statements of income are prepared) shall bereferenced. If the concept of items to be referenced. If the concept of items to bereferenced changes significantly due to the referenced changes significantly due to theapplication of the International Financial application of the International Financial
Reporting Standards, etc. indicators to be Reporting Standards, etc. indicators to bereferenced shall be determined by the Board referenced shall be determined by the Boardof Directors.
of Directors.
No requisite service periods are determined. No requisite service periods are determined.
From the vesting date to May 31, 2027.
From the vesting date to May 31, 2028.
The person must continue to be a director or The person must continue to be a director oran employee of the Company to exercise an employee of the Company to exercise
share acquisition rights.
share acquisition rights.

―67―

Company nameCategory and number of persons subject
to grants
Stock options by class of shares (Note)
Grant date

Vesting conditions

Requisite service period
Exercise period

2018 stock options
Reporting company
Three directors, 151 employees
Common shares 1,413,300 shares
March 5, 2018
Being a director or an employee of thereporting company and not being subject tosalary reduction or stricter disciplinary
action provided for in the rules of
employment of the reporting company fromthe grant date (March 5, 2018) to the vestingdate (July 1, 2021)
Each holder of share acquisition rights can
exercise the share acquisition rights allocatedto them only if operating profit exceeds 4.0
billion yen in the fiscal year ended March 31,
2021.
In the items above, the operating profit statedin the consolidated statements of income in
the Company’s annual securities report (orthe statements of income if no consolidated
statements of income are prepared) shall bereferenced. If the concept of items to bereferenced changes significantly due to theapplication of the International Financial
Reporting Standards, etc. indicators to bereferenced shall be determined by the Boardof Directors.
No requisite service periods are determined.
From the vesting date to May 31, 2028.
The person must continue to be a director oran employee of the Company to exercise
share acquisition rights.

―68―(2) Scale of stock options and related changes
The stock options below are those that existed in the fiscal year under review (fiscal year ended March 31, 2021). The number of stock
options has been converted to the number of shares.
(i) Number of stock options
2015 stock options 2016 stock options 2018 stock options
Before vesting (shares)
As of March 31, 2020‒

372,300

1,188,300

Granted‒‒‒Forfeited‒

372,300

57,400

Vested‒‒‒Yet to be vested‒‒

1,130,900

160,000

316,900

‒

‒

‒

‒

Exercised

2,800

8,800

‒

Forfeited

400

1,200

‒

156,800

306,900‒

After vesting (shares)
As of March 31, 2020
VestedYet to be exercised(ii) Unit price information
2015 stock options 2016 stock options 2018 stock options
Exercise price (yen)Average stock price when
exercised (yen)Fair unit value (grant date)
(yen)

2,034

2,639

3,400

8,819

8,500

‒

2

24

1

3. Method for estimating the number of stock options vested
It is basically difficult to reasonably estimate the number of stock options to be forfeited, and only the actual number of stock options
forfeited is reflected.

―69―

(Additional information)
Transactions granting employees and others stock acquisition rights which involve considerations with vesting conditions before theapplied day of Practical Solution on Transactions Granting Employees and Others Stock Acquisition Rights, which Involve
Considerations, with Vesting Conditions (PITF No. 36; January 12, 2018) are still accounted for using the previously adopted accounting
treatment in accordance with Paragraph 10 (3) of PITF No. 36.
1. Overview of stock acquisition rights which involve considerations with vesting conditions
Notes are omitted because the same description is given in “2. Description of stock options, their scale and changes” above.
2. Outline of accounting treatment adopted
When share acquisition rights are issued, the amount paid in on the issuance of share acquisition rights will be recorded as shareacquisition rights in net assets. When share acquisition rights are exercised, and new shares are issued, the amount paid in on the issuanceof share acquisition rights and the amount paid in on the exercise of share acquisition rights will be transferred to share capital and legal
capital surplus, respectively.
When share acquisition rights have lapsed, the amount that corresponds to the lapse will be recorded as profit within that accounting
period.
(Tax effect accounting)
1. Breakdown of key factors contributing to deferred tax assets and deferred tax liabilities
Fiscal 2020
(As of March 31, 2020)(Million yen)
Fiscal 2021
(As of March 31, 2021)

Deferred tax assets
Enterprise taxes payable

24

37

Provision for bonuses

3659

Accrued social insurance premiums

5

8

Non-deductible depreciation expenses

00

Asset retirement obligations

12

14

Loss carryforwards

44

48

Loss on valuation of golf club membership

1

1

Loss on valuation of shares of subsidiaries

2

‒

1

1

Total deferred tax assets

Other

129

171

Valuation allowance (Note)

(44)

(48)

Total deferred tax assets

85

123

(Note) The valuation allowance increased by 4 million yen. This increase was a result of an increase in the valuation allowance
related to tax loss carryforwards at consolidated subsidiaries.
2. Reconciliation of the statutory tax rate and the actual effective tax rate
Notes are omitted because the difference between the statutory tax rate and the effective tax rate is 5% or less of the statutory tax rate
for the consolidated fiscal year under review and for the previous consolidated fiscal year.

―70―

(Asset retirement obligations)
Asset retirement obligations posted in the consolidated balance sheets(1) Outline of the asset retirement obligations
Obligations of restoration related to lease agreements at the head office and other offices(2) Method for calculation of the asset retirement obligations
The period of use is estimated to be one to 15 years from the acquisition. The discount rate is 0.15% to 1.73%. The amount of asset
retirement obligations is calculated based on those assumptions.
(3) Increase/decrease in the asset retirement obligations(Million yen)
Fiscal 2020
(from April 1, 2019
to March 31, 2020)

Fiscal 2021
(from April 1, 2020
to March 31, 2021)

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

45

45

‒

2

0

0

Balance at end of fiscal year

45

48

(Segment information, etc.)
Segment information
Previous consolidated fiscal year (from April 1, 2019 to March 31, 2020) and consolidated fiscal year under review (from April 1, 2020
to March 31, 2021)
The Group has only one segment, which is the security business, and segment information is omitted.
Related information
Fiscal 2020 (from April 1, 2019 to March 31, 2020)
1. Information by product/service
The Group has only one product and service category, and information by product/service is omitted.
2. Information by region(1) Net sales
Sales to external customers in Japan are more than 90% of net sales in the consolidated statements of income, and information byregion is omitted.
(2) Property, plant and equipment
The amount of property, plant and equipment in Japan is more than 90% of the amount of property, plant and equipment in the
consolidated balance sheets, and information on property, plant and equipment is omitted.
3. Information by major customer
The Group engages in only one segment, the security business.
(Million yen)
Customer name

Net sales

SB C&S Corp.

1,166

Daiwabo Information System Co., Ltd.

1,109

―71―

Fiscal 2021 (from April 1, 2020 to March 31, 2021)
1. Information by product/service
The Group has only one product and service category, and information by product/service is omitted.
2. Information by region(1) Net sales
Sales to external customers in Japan are more than 90% of net sales in the consolidated statements of income, and information byregion is omitted.
(2) Property, plant and equipment
The amount of property, plant and equipment in Japan is more than 90% of the amount of property, plant and equipment in the
consolidated balance sheets, and information on property, plant and equipment is omitted.
3. Information by major customer
The Group engages in only one segment, the security business.
(Million yen)
Customer name

Net sales

Daiwabo Information System Co., Ltd.

1,409

SB C&S Corp.

1,287

Information on impairment loss in non-current assets by reporting segment
Not applicable.
Information on amortization of goodwill and unamortized balance by reporting segment
Not applicable.
Information on gain on bargain purchase by reporting segment
Not applicable.
(Related party information)
Transactions with related parties
Transactions between the company submitting consolidated financial statements and related parties
Officers and major individual shareholders of the company submitting consolidated financial statements
Fiscal 2020 (from April 1, 2019 to March 31, 2020)
Not applicable.
Fiscal 2021 (from April 1, 2020 to March 31, 2021)
Not applicable.
(Special purpose companies subject to disclosure)
Not applicable.

―72―

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

Fiscal 2021
(from April 1, 2020
to March 31, 2021)

Net assets per share

617.27 yen

715.79 yen

Profit per share

113.69 yen

146.90 yen

Diluted profit per share

110.83 yen

143.45 yen(Note) Base for calculating profit per share and diluted profit per share
Fiscal 2020
(from April 1, 2019
to March 31, 2020)

Fiscal 2021
(from April 1, 2020
to March 31, 2021)

1,590

2,059

‒

‒

1,590

2,059

13,991,859

14,022,503‒‒

Increase in the number of common shares

361,483

337,562(Of the increase, the number of shareacquisition rights) (shares)(361,483)(337,562)

Item
Profit per share
Profit attributable to owners of parent(million yen)Amount not attributable to commonshareholders (million yen)
Profit attributable to owners of parent
related to common shares (million yen)
Average number of common shares
during the term
Diluted profit per share
Adjustment of profit attributable toowners of parent (million yen)

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

Resolution on November 10, 2016
Number of potential shares: 372,300
Resolution on February 16, 2018
Number of potential shares: 1,188,300(Significant subsequent events)
Not applicable.

―73―

Share acquisition rights
Resolution on February 16, 2018
Number of potential shares: 1,130,900

(v) Consolidated Supplementary Schedules
Bonds Schedule
Not applicable.
Borrowings Schedule
Not applicable.
Asset Retirement Obligations Schedule
The amount of asset retirement obligations at both the beginning and end of fiscal 2021 are less than 1% of the combined total of
liabilities and net assets at the beginning and end of fiscal 2021, and so have been omitted in accordance with Article 92-2 of theRegulations for Consolidated Financial Statements.

―74―

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

Second quarter

Third quarter

Fiscal year underreview

Net sales(Million
yen)

1,413

3,101

4,750

6,825

Profit before income
taxes(Million
yen)

498

1,325

1,992

3,001

Profit attributable toowners of parent(Million
yen)

334

908

1,363

2,059

Profit per share

(Yen)

23.86

64.84

97.22

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

Second quarter

23.86

40.98

―75―

Third quarter
32.38

Fourth quarter
49.67

2. Financial Statements of the Reporting Company(1) Financial Statements(i) Balance Sheet(Million yen)
Fiscal 2020
(As of March 31, 2020)

Fiscal 2021
(As of March 31, 2021)

AssetsCurrent assets
Cash and deposits
Notes and accounts receivable - trade*1

Finished goods
Supplies

7,517
916

*1

0
0

Prepaid expenses
Other

*1

Total current assets

63
3

11,191
1,150
0
3

*1

62
6

8,502

12,415

Property, plant and equipment
Buildings

100

92

VehiclesTools, furniture and fixtures

4
112

14
92

Land
Construction in progress

26
0

26
0

Total property, plant and equipment

245

226

1,331

1,273

79
0

128
0

Total intangible assets

1,411

1,402

Investments and other assets
Investment securities

Non-current assets

Intangible assets
Software
Software in progress
Telephone subscription right

102

102

Shares of subsidiaries and associates
Investments in capital

153
0

139
0

Long-term prepaid expenses
Leasehold and guarantee deposits

26
186

25
186

Deferred tax assets
Other

154
56

197
56

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

―76―

680

706

2,336

2,335

10,83914,751

(Million yen)
Fiscal 2020
(As of March 31, 2020)

Fiscal 2021
(As of March 31, 2021)

Liabilities
Current liabilities
Accounts payable - trade
Accounts payable - other*1*1

Accrued expenses
Income taxes payable

7
126

*1
*1

14
131

41
469

53
670

77
1,223

175
3,366

Deposits received
Provision for bonuses

13
119

15
194

Total current liabilities

2,077

4,623

Asset retirement obligations
Other

45
0

48
1

Total non-current liabilities

46

50

2,124

4,673

Accrued consumption taxes
Advances received

Non-current liabilities

Total liabilities
Net assets
Shareholders’ equity
Share capital

713

713

Capital surplus
Legal capital surplus

700

700

Other capital surplus

274

265

Total capital surplus

974

965

Other retained earnings
Retained earnings brought forward

7,389

8,732

Total retained earnings

7,389

8,732

Retained earnings

Treasury shares

(380)

(342)

Total shareholders’ equity

8,696

10,069

Share acquisition rights
Total net assets
Total liabilities and net assets

―77―

18

8

8,714

10,078

10,83914,751

(ii) Statement of Income
Fiscal 2020
(from April 1, 2019
to March 31, 2020)
Net sales
Cost of sales

*1

5,336

(Million yen)
Fiscal 2021
(from April 1, 2020
to March 31, 2021)
*1
6,074

Beginning finished goods inventory
Cost of Internet service

0
1,098

Total

1,098

1,274

0

0

Transfer to other accountEnding finished goods inventory
Cost of finished goods sold
Gross profit

*1

0

0

1,098

1,273

4,238

Selling, general and administrative expenses*1, *2

Operating profit

0
1,274

1,881

4,801
*1, *2

2,357

1,854
2,947

Non-operating income
Interest income
Interest on securities
Commission income
Foreign exchange gains

*1

0
0

*1

0
0

3
‒

*1

4
6

Gain on forfeiture of unclaimed dividends
Subsidy income

0
0

1
2

Miscellaneous income

1

1

Total non-operating income

717Foreign exchange losses
Commission for purchase of treasury shares

5
0

‒
‒

Total non-operating expenses

5

‒

2,359

2,964

Non-operating expenses

Ordinary profit
Extraordinary income
Gain on sales of non-current assets
Gain on reversal of share acquisition rights‒
0

Total extraordinary income

0

Extraordinary losses
Loss on liquidation of subsidiaries

*3

12

‒

Loss on retirement of non-current assets
Loss on valuation of golf club membership*4

Loss on valuation of shares of subsidiaries

0
1
14

Total extraordinary losses

3
9

2
*4

0
‒
13

16

15

Profit before income taxes

2,343

2,961

Income taxes - current
Income taxes - deferred

739
(8)

958
(42)

Total income taxes
Profit

―78―

730

916

1,613

2,044

Detailed Statement of Cost of Internet Service
Fiscal 2020
(from April 1, 2019 to March 31, 2020)
CategoryI.

NotenumberComposition
rate (%)

Amount (million yen)

Material cost

Fiscal 2021
(from April 1, 2020 to March 31, 2021)
Amount (million yen)

Composition
rate (%)

32

1.8

46

2.3

II. Labor cost

*1

691

37.1

716

34.4

III. Expenses

*2

1,138

61.1

1,318

63.3

1,863

100.0

2,082

100.0

Total expenses
Transfer to other account*3

Cost of Internet service

764

808

1,098

1,274

(Note)
Fiscal 2020 (from April 1, 2019 to March 31, 2020)*1 Major items in labor cost
Salaries and allowances
Legal welfare expenses
Bonuses
Provision for bonuses
Other salaries*1 Major items in labor cost
(Million yen)
429
88
71
55
35

*2 Major items in expenses
Outsourcing expenses
Depreciation
Rent expenses

Fiscal 2021 (from April 1, 2020 to March 31, 2021)

Salaries and allowances
Legal welfare expenses
Bonuses
Provision for bonuses
Other salaries*2 Major items in expenses(Million yen)
92
753
93

*3 Major items in transfer to other accountOutsourcing expenses
Depreciation
Rent expenses

Total(Million yen)
95
807
93

*3 Major items in transfer to other account(Million yen)

Selling, general andadministrative expenses
Non-current assets(Million yen)
463
89
32
83
38

(Million yen)
Selling, general andadministrative expenses
Non-current assets

32
732
764

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

Total

771
80

4. Costing method
Same as on the left

―79―

36

(iii) Statement of Changes in Equity
Fiscal 2020 (from April 1, 2019 to March 31, 2020)(Million yen)
Shareholders’ equity
Capital surplus

Balance at beginning of period

Retained earnings

SharecapitalLegalcapitalsurplus

OthercapitalsurplusTotal
capitalsurplus

713

700

129

829

Other
retainedearnings
Retainedearnings
brought
forward
6,544

Total
retainedearnings

6,544

Share
Total
acquisition
Treasuryshareholders’rightssharesequity

(306)

7,780

23

Total net
assets7,804

Changes during period
Dividends of surplus

(768)

(768)

(768)

(768)

Profit

1,613

1,613

1,613

1,613

Disposal of treasury shares

144

144

Purchase of treasury shares

226

370

370

(299)

(299)

(299)

Net changes in items otherthan shareholders’ equity

(5)

(5)

Total changes during period

‒

‒

144

144

844

844

(73)

916

(5)

910

Balance at end of period

713

700

274

974

7,389

7,389

(380)

8,696

18

8,714

Fiscal 2021 (from April 1, 2020 to March 31, 2021)(Million yen)
Shareholders’ equity
Capital surplus

Balance at beginning of period

Retained earnings

SharecapitalLegalcapitalsurplus

OthercapitalsurplusTotal
capitalsurplus

713

700

274

974

Other
retainedearnings
Retainedearnings
brought
forward
7,389

Total
retainedearnings

7,389

Share
Total
acquisition
Treasuryshareholders’rightssharesequity

(380)

8,696

18

Total net
assets8,714

Changes during period
Dividends of surplus

(700)

(700)

(700)

(700)

Profit

2,044

2,044

2,044

2,044

37

29

29

(0)

(0)

(0)

Disposal of treasury shares

(8)

(8)

Purchase of treasury shares
Net changes in items otherthan shareholders’ equity

(9)

(9)

Total changes during period

‒

‒

(8)

(8)

1,343

1,343

37

1,372

(9)

1,363

Balance at end of period

713

700

265

965

8,732

8,732

(342)

10,0698

10,078―80―

Notes(Notes on the premise of a going concern)
Not applicable.
(Significant accounting policies)
1. Asset valuation standards and valuation method(1) Valuation standards and valuation methods for securities
Bonds held for maturity
The amortized cost method (interest method) is applied.
Shares of subsidiaries and associates
The moving average cost method is applied.
(2) Valuation standards and valuation method for inventories
Finished goods
The gross average cost method is applied. (The balance sheet amount is calculated by the book value write-down method based on
reduction in profitability.)
2. Depreciation method for non-current assets(1) Property, plant and equipment
The declining balance method is applied.
The useful life and the residual value are calculated based on the same standards as those set out in the Corporation Tax Act. The
straight-line method is applied for facilities attached to buildings acquired on April 1, 2016 or later.
(2) Intangible assets
The straight-line method is applied.
The straight-line method based on the availability period in the company (five years) is used for software in the company. For software
for sale in the market, a method based on estimated sales quantities (or revenue) or the remaining lifetime (three years) is used.
(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 is posted.
5. Other significant matters that serve as the basis for the preparation of financial statements
Treatment of consumption tax
Consumption tax and local consumption tax are excluded from accounting. Non-recoverable consumption tax and local consumption tax
are treated as expenses in the fiscal year under review.

―81―

(Changes in presentation methods)(Statement of income)For the previous fiscal year, proceeds from miscellaneous income were included in non-operating income. From the fiscal year underreview onwards, they are presented independently because of their growing importance. To reflect this change in presentation methods,
the non-consolidated financial statements for the previous fiscal year have been modified.
As a result, the non-consolidated statement of income for the previous fiscal year used to present 2 million yen as proceeds frommiscellaneous income as part of non-operating income. Now, subsidy income stands at 0 million yen and proceeds from miscellaneous
income at 1 million yen.
(A change in unit used for presentation)
From the fiscal year under review onwards, amounts are presented no longer in thousands of yen but in millions of yen.
(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 the issuanceof share acquisition rights and the amount paid in on the exercise of share acquisition rights will be transferred to share capital and 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)*1. 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 2020
(As of March 31, 2020)
2
13(Million yen)
Fiscal 2021
(As of March 31, 2021)
59(Matters related to income statement)*1. Transactions in relation to subsidiaries and associates are included as follows.
(Million yen)
Fiscal 2020
Fiscal 2021
(from April 1, 2019 to March 31, 2020) (from April 1, 2020 to March 31, 2021)
Operating transactions
Net sales
Purchase of goods
Selling, general and administrative
expenses
Transactions other than operatingtransactions

―82―

8
‒

5
2

21

81

3

5

*2. Selling expenses accounted for approximately 12.2% and 10.3% of total selling, general and administrative expenses in fiscal 2020and fiscal 2021 respectively while the share of general and administrative expenses was 87.8% in fiscal 2020 and 89.7% in fiscal 2021.
The major items of selling, general and administrative expenses and the amounts are as follows.
(Million yen)
Fiscal 2020
Fiscal 2021
(from April 1, 2019 to March 31, 2020) (from April 1, 2020 to March 31, 2021)
Advertising expenses
Salaries and allowances
Provision for bonuses
Depreciation

206
570
64
51

167
619
110
48

*3. The details of gain on sales of non-current assets are as follows.
(Million yen)
Fiscal 2020
Fiscal 2021
(from April 1, 2019 to March 31, 2020) (from April 1, 2020 to March 31, 2021)‒

Vehicles3*4. The details of loss on retirement of non-current assets are as follows.
(Million yen)
Fiscal 2020
Fiscal 2021
(from April 1, 2019 to March 31, 2020) (from April 1, 2020 to March 31, 2021)
Tools, furniture and fixtures

00(Securities)
Information about shares of subsidiaries and associates (the carrying amount in fiscal 2021 was 139 million yen and the carrying amountin fiscal 2020 was 153 million yen) is omitted as these shares do not have market value and it is considered extremely difficult to calculate
their fair market values.
(Tax effect accounting)
1. Breakdown of key factors contributing to deferred tax assets and deferred tax liabilities(Million yen)
Fiscal 2020
(As of March 31, 2020)

Fiscal 2021
(As of March 31, 2021)

Deferred tax assets
Enterprise taxes payable

24

37

Provision for bonuses

3659

Accrued social insurance premiums

5

8

Non-deductible depreciation expenses

00

Asset retirement obligations

12

14

Loss on valuation of golf club membership

1

1

Loss on valuation of shares of subsidiaries

71

73

Other
Net deferred tax assets

1

1

154

197

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

―83―

(iv) Supplementary Schedules
Itemized Account of Property, Plant and Equipment, etc.
(Million yen)
Balance at
beginning of
periodClasses of assets

Net increase in Net decrease in Depreciation in Balance at end Accumulated
current period current period current periodof period
depreciation

Property, plant andequipment
Buildings

100

4

‒

12

92

127

Vehicles

4

18

3

4

14

4

Tools, furniture andfixtures

112

22

0

43

92

361

Land

26

‒

‒

‒

26

‒

Construction in progress

0

‒

0

‒

0

‒

Total property, plant andequipment

245

45

3

60

226

492

1,331

736

‒

795

1,273

‒

Software in progress

79

771

721

‒

128

‒

Telephone subscription
right

0

‒

‒

‒

0

‒

Total intangible assets

1,411

1,508

721

795

1,402

‒

Intangible assets
Software(Notes) 1. Major increases during the current period are as follows:(Million yen)
212

Commercial software(DigitalArts@Cloud)210

Commercial software(m-FILTER)

146

Commercial software(i-FILTER)

76

Commercial software(DigitalArts@Cloud)308

Commercial software(i-FILTER)

222

Commercial software(m-FILTER)

103

Commercial software(i-FILTER)

61

Commercial software(i-FILTER)
Software

Software in progress

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

Balance at
beginning of period

Provision for bonuses

Net increasein current period

119

194

Net decreasein current period

Balance at
end of period

119(2) Details of major assets and liabilities
The presentation of this information is omitted due to the ongoing preparation of consolidated financial statements.
(3) Other
Not applicable.

―84―

194

Section VI. Stock Information of the Reporting Company
Fiscal year

From April 1 to March 31

Annual general meeting ofshareholders

During June

Record date

March 31

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

September 30 and March 31
100 shares
Not applicable.

Handling officeTransfer agent
Forward office
Purchasing and selling fee

Method of public notice

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

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

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

2. Other Reference Information
The Company submitted the following documents between the first day of the fiscal year under review and the day of submitting thesecurities report.
(1) Annual Securities Report and documents attached, and Confirmation Letter
25th fiscal year (from April 1, 2019 to March 31, 2020) Submitted to the Director-General of Kanto Local Finance Bureau on June 22,
2020(2) Internal Control Report and accompanying documents
Submitted to the Director-General of Kanto Local Finance Bureau on June 22, 2020
(3) Quarterly Report and Confirmation Letter
Quarterly accounting period
For the first quarter of the 26th fiscal year (April 1, 2020 to June 30, 2020) Submitted to the Director-General of Kanto Local Finance
Bureau on August 7, 2020
For the second quarter of the 26th fiscal year (July 1, 2020 to September 30, 2020) Submitted to the Director-General of Kanto Local
Finance Bureau on November 9, 2020
For the third quarter of the 26th fiscal year (October 1, 2020 to December 31, 2020) Submitted to the Director-General of Kanto
Local Finance Bureau on February 10, 2021

―86―

Part II. Information Concerning Guarantors of the Reporting Company
Not applicable.

―87―Independent Auditors’ Audit Report and Internal Control Audit Report
June 22, 2021
The Board of Directors
Digital Arts Inc.

BDO Sanyu & Co.
Tokyo Office

Designated andEngagement Partner

Certified Public Accountant So Nomura

Seal

Designated andEngagement Partner

Certified Public Accountant Koji Kumagai

Seal[Audit of Financial Statements]
Audit Opinion
To conduct audit certification as prescribed in the first paragraph of Article 193-2 of the Financial Instruments and Exchange Act, wehave audited the consolidated financial statements of Digital Arts Inc. for the consolidated fiscal year from April 1, 2020 to March 31,
2021 included in the Financial Information, namely, the consolidated balance sheet, the consolidated statements of income, theconsolidated statement of comprehensive income, the consolidated statement of changes in equity, the consolidated statement of cash
flows, significant matters that serve as a basis for the preparation of consolidated financial statements, other notes and consolidated
supplementary schedules.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of
Digital Arts Inc. and its consolidated subsidiaries as of March 31, 2021, 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 in Japan.
Basis for Opinion
We have conducted the audit in accordance with audit standards that are generally considered fair and reasonable in Japan. Our
responsibilities under those standards are further described in the “Auditor’s Responsibilities for the Audit of the Consolidated Financial
Statements” section of our report. We are independent of the Company and its consolidated subsidiaries in accordance with the ethicalrequirements that are relevant to our audit of the consolidated financial statements in Japan, and we have fulfilled our other ethicalresponsibilities in accordance with these requirements. We consider that audit evidence that we have obtained is sufficient and appropriate
to provide a basis for our audit opinion.
Key Issues of the Audit
Key issues of the audit mean issues that we deem particularly important from a professional perspective in auditing consolidated financial
statements for the consolidated fiscal year under review. The key issues of the audit are what were addressed in the process of
implementing an audit of all consolidated financial statements and forming audit comments. They do not mean that we state our own
view on them.

―88―Assessment of commercial software of Digital Arts Inc.
Details of key issues of the audit and reasons for decision
How our audit addressed the issues
The corporate group headed by Digital Arts Inc. (hereinafter We mainly carried out the following audit procedures to discussreferred to as "the Company") engages mainly in planning, the assessment of commercial software.
development and sales of Web security, email security, file - We evaluated internal control related to the assessment ofencryption and tracking solutions as well as data security
commercial software and software in progress.
consulting. Commercial software is the principal products of all - We examined the reasonableness of sales forecasts by product,these businesses. They are recorded in the software account inwhich is included in the Company's sales plan approved by thethe software in progress account included in others as part ofBoard of Directors, which serves as a basis of the future
intangible assets on the consolidated balance sheet. As of the end
projected sales revenue, after interviewing members of theof the consolidated fiscal year under review, the Company's
management about the preconditions for it.
software stood at 1,273 million yen, the software in progress at - We compared the Company's sales plans for past years and
128 million yen, a large proportion of which is made up by
results to study the level of achievement.
commercial software.
- We discussed the evaluation of uncertainty attributable to theGiven that the assessment of commercial software is based on
management, including whether or not alternative assumptions
the future prospect of earning revenue, it is influenced by thefor future projected sales revenue should be adopted.
projected sales revenue for the following and subsequent fiscal
years.
The projected sales revenue is considered to involve subjective
judgments of management and to be highly uncertain. Sales of
products for which a large part of the contract amounts carriedforward have been on the rise in recent years in comparison withthose of the conventional type of products for which most of thecontract amount is recorded as sales in accounting. It is hence
possible that the forecast of sales revenue may be inaccurate andthat projected sales revenue may vary significantly if the
COVID-19 pandemic expands and lasts long to affect businessactivities of the Group and sales agents.
For these reasons, we have selected it as a key issue of the audit.
Responsibilities of Management and Audit & Supervisory Board for the Consolidated Financial Statements
Management is responsible for the preparation and appropriate presentation of consolidated financial statements in accordance with the
Generally Accepted Accounting Principles of Japan. Such responsibilities include the establishment and implementation of internal
control that management determines is necessary for the preparation and appropriate presentation of consolidated financial statementsthat are free of any material misstatements due to frauds or errors.
In preparing the consolidated financial statements, management is responsible for assessing the Group’s ability to continue as a going
concern, disclosing, as applicable, matters related to going concern in accordance with generally accepted accounting principles of Japan.
The Audit & Supervisory Board is responsible for overseeing the directors’ performance of their duties including the design,
implementation and maintenance of the Group’s financial reporting process.
Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements
Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Misstatements can arise from fraud
or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic
decisions of users taken on the basis of these consolidated financial statements.
As part of our audit in accordance with auditing standards generally accepted in Japan, we exercise professional judgment and maintainprofessional skepticism throughout the audit. We also:- Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error; Design
and perform audit procedures responsive to those risks. These audit procedures are selected and performed, depending on the auditor’s
judgment. Obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion.
- Obtain an understanding of internal control relevant to the audit in order to assess the risk and design audit procedures that areappropriate in the circumstances, while the objective of the audit is not to express an opinion on the effectiveness of the Group’s
internal control.
- Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures madeby management.
- Conclude on the appropriateness of management’s use of the going concern basis of accounting and based on the audit evidence
obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to―89―continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s reportto the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our
conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may
cause the Group to cease to continue as a going concern.
- Evaluate whether the presentation and disclosures in the consolidated financial statements are in accordance with auditing standards
generally accepted in Japan, the overall presentation, structure and content of the consolidated financial statements, including thedisclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that
achieves fair presentation.
- Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Groupto express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of
the Group audit. We remain solely responsible for our audit opinion.
We communicate with the Audit & Supervisory Board regarding, among other matters, the planned scope and timing of the audit,
significant audit findings, including any significant deficiencies in internal control that we identify during our audit.
We also provide the Audit & Supervisory Board with a statement that we have complied with relevant ethical requirements regarding
independence, and communicate with them all relationships and other matters that may reasonably be thought to bear on our
independence, and where applicable, related safeguards.
We define those matters discussed with the Audit & Supervisory Board which are deemed particularly important in the audit of theconsolidated financial statements for the consolidated fiscal year under review as key issues of the audit and state them in the audit report.
However, we do not state matters in the case where publication of these matters is prohibited by laws, ordinances or suchlike or in thevery rare case that we judge that they should not be reported on the grounds of reasonably expected disadvantages from the reporting in
the audit report that would exceed the public interest.
[Internal Control Audit]
Audit Opinion
To conduct audit certification as prescribed in the second paragraph of Article 193-2 of the Financial Instruments and Exchange Act, wehave audited the internal control report of Digital Arts Inc. dated March 31, 2021.
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, 2021, properly reflects the evaluation results of internal control over financial
reporting in all important respects, in compliance with internal control evaluation standards over financial reporting that are generally
considered fair and reasonable in Japan.
Basis for Opinion
We have conducted the internal control audit in accordance with internal control audit standards over internal reporting that are generally
considered fair and reasonable in Japan. Our responsibilities under the auditing standards for internal control over financial reporting arefurther described in the "Auditor’s Responsibilities for the Audit of Internal Control" section of our report. We are independent of theCompany and its consolidated subsidiaries in accordance with the ethical requirements that are relevant to our audit of the consolidated
financial statements in Japan, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We consider
that audit evidence that we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

―90―

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

(Notes) 1. The above is an electronic copy of what is described in the original audit report that is separately stored by theCompany.
2. XBRL data are not within the scope of audits.

―91―Internal Control Audit Report by Independent Auditors
June 22, 2021
The Board of Directors
Digital Arts Inc.

BDO Sanyu & Co.
Tokyo Office

Designated andEngagement Partner

Certified Public Accountant So Nomura

Seal

Designated andEngagement Partner

Certified Public Accountant Koji Kumagai

Seal

Audit Opinion
To conduct audit certification as prescribed in the first paragraph of Article 193-2 of the Financial Instruments and Exchange Act, wehave audited the financial statements of Digital Arts Inc. for the 26th fiscal year starting from April 1, 2020 to March 31, 2021 includedin the Financial Information, namely, the balance sheet, the income statement, the statement of changes in equity, significant accounting
policies, the notes to specific items, and the annexed detailed statements thereto.
We consider that the aforementioned financial statements properly reflect the financial position of Digital Arts Inc. as of March 31, 2021,
as well as its financial results in the fiscal year that ended on the same day, in all important respects, in compliance with the Generally
Accepted Accounting Principles of Japan.
Basis for Opinion
We have conducted the audit in accordance with audit standards that are generally considered fair and reasonable in Japan. Our
responsibilities under those standards are further described in the “Auditor’s Responsibilities for the Audit of the Financial Statements”
section of our report. We are independent of the Company in accordance with the ethical requirements that are relevant to our audit of
the financial statements in Japan, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We
consider that audit evidence that we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Key Issues of the Audit
Key issues of the audit mean issues that the auditor deems particularly important from the perspective of a professional specialist in
auditing financial statements for the fiscal year under review. The key issues of the audit are what were addressed in the process of
implementing an audit of all financial statements and forming audit comments. They do not mean that the we state our own view on
them.
Assessment of Commercial Software
The statement of the details about the key issues of the audit, reasons for the decision and how our audit addressed the issues is omitted,
given that it is identical with that on the key issues of the audit in the audit report on the consolidated financial statements (i.e. assessmentof commercial software of Digital Arts Inc.).
Responsibilities of Management and Audit & Supervisory Board for the Financial Statements
Management is responsible for the preparation and appropriate presentation of financial statements in accordance with the Generally
Accepted Accounting Principles of Japan. Such responsibilities include the establishment and implementation of internal control thatmanagement determines is necessary for the preparation and appropriate presentation of financial statements that are free of any material
misstatements due to frauds or errors.
In preparing the financial statements, management is responsible for assessing the Company’s ability to continue as a going concern,―92―

disclosing, as applicable, matters related to going concern in accordance with generally accepted accounting principles of Japan.
The Audit & Supervisory Board is responsible for overseeing the directors’ performance of their duties including the design,
implementation and maintenance of the Group’s financial reporting process.
Auditor’s Responsibilities for the Audit of the Financial Statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement,
whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Misstatements can arise from fraud or error andare considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions ofusers taken on the basis of these financial statements.
As part of our audit in accordance with auditing standards generally accepted in Japan, we exercise professional judgment and maintainprofessional skepticism throughout the audit. We also:- Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error; Design
and perform audit procedures responsive to those risks. These audit procedures are selected and performed, depending on the auditor’s
judgment. Obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion.
- We do not audit financial statements to express an opinion on the effectiveness of internal control. Nevertheless, to implement risk
assessments, we examine internal control as it pertains to the preparation and appropriate presentation of financial statements, thereby
ensuring that an appropriate audit procedure program is formulated depending on situations.
- Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures madeby management.
- Conclude on the appropriateness of management’s use of the going concern basis of accounting and based on the audit evidence
obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company's ability
to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’sreport to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions
are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause theGroup to cease to continue as a going concern.
- Evaluate whether the presentation and disclosures in the financial statements are in accordance with auditing standards generally
accepted in Japan, the overall presentation, structure and content of the financial statements, including the disclosures, and whether
the financial statements represent the underlying transactions and events in a manner that achieves fair presentation.
We communicate with the Audit & Supervisory Board regarding, among other matters, the planned scope and timing of the audit,
significant audit findings, including any significant deficiencies in internal control that we identify during our audit.
We also provide the Audit & Supervisory Board with a statement that we have complied with relevant ethical requirements regarding
independence, and communicate with them all relationships and other matters that may reasonably be thought to bear on our
independence, and where applicable, related safeguards.
We define those matters discussed with the Audit & Supervisory Board which are deemed particularly important in the audit of thefinancial statements for the fiscal year under review as key issues of the audit and state them in the audit report. However, we do notstate the matters in the case where publication of these matters is prohibited by laws, ordinances or suchlike or in the very rare case that
we judge that they should not be reported on the grounds of reasonably expected disadvantages from the reporting in the audit reportthat would exceed the public interest.
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 that is separately stored by theCompany.
2. XBRL data are not within the scope of audits.

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