Note: This document is a translation from the original in the Japanese language and is for reference purposes only. In the event of any discrepancy
between this translated document and the Japanese original, the original shall prevail. The Company assumes no liability for the following:This translation or for direct, indirect or any other forms of damages arising from the translation

Annual Securities Report
The 28th Fiscal Year

From April 1, 2022 to March 31, 2023

Digital Arts Inc.

―1―

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

―2―

ContentsPage
The 28th 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 .................................................................................................................................... 14
1. Management Policy, Operating Environment and Business Issues to Be Considered ..................................... 14
2. Approach to Sustainability and Sustainability Initiatives ................................................................................... 16
3. Business and Other Risks ................................................................................................................................. 20
4. Analysis of Financial Conditions, Operating Results and Cash Flows by the Management .............................. 23
5. Material Contracts Affecting Management of the Company, etc. ....................................................................... 28
6. Research and Development .............................................................................................................................. 28
Section III. Properties ................................................................................................................................................... 29
1. Summary of Capital Investment, etc. ................................................................................................................ 29
2. Major Facilities .................................................................................................................................................. 29
3. Plans for Capital Investment, Disposals of Properties etc. ................................................................................ 29
Section IV. Information on the Reporting Company...................................................................................................... 30
1. Stock Information .............................................................................................................................................. 30
2. Information on Acquisition, etc. of Treasury Shares .......................................................................................... 47
3. Dividend Policy ................................................................................................................................................. 48
4. Corporate Governance...................................................................................................................................... 48
Section V. Financial Information ................................................................................................................................... 63
1. Consolidated Financial Statements ................................................................................................................... 64
2. Financial Statements of the Reporting Company .............................................................................................. 90
Section VI. Stock Information of the Reporting Company ............................................................................................ 99
Section VII Reference Information on the Reporting Company .................................................................................. 100
1. Information on Parent Entities of the Reporting Company .............................................................................. 100
2. Other Reference Information ........................................................................................................................... 100
Part II. Information Concerning Guarantors of the Reporting Company ........................................................................ 101
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 26, 2023

[Fiscal Year]

28th fiscal year (from April 1, 2022 to March 31, 2023)[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.]+81-(0)3-5220-1160[Contact Person]

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

1-5-1 Otemachi, Chiyoda-ku, Tokyo, Japan[Phone No.]+81-(0)3-5220-1670[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

24th fiscal year 25th fiscal year 26th fiscal year 27th fiscal year 28th fiscal year

Year end

March 2019

March 2020

March 2021

March 2022

March 2023

Net sales(Million yen)

5,841

5,641

6,825

9,051

10,436

Ordinary profit(Million yen)

2,630

2,326

2,991

4,135

4,429

to (Million yen)

1,961

1,590

2,059

2,900

3,062

Comprehensive income(Million yen)

1,977

1,587

2,063

2,910

3,067

Net assets(Million yen)

7,802

8,680

10,062

12,15914,173

Total assets(Million yen)

9,859

10,852

14,856

19,341

21,149Net assets per share(Yen)

558.33617.27715.79863.96

1,007.27

Basic profit per share(Yen)

141.11113.69146.90206.71

218.12

Diluted profit per share(Yen)

140.80110.83143.45202.03213.92

Capital ratio

(%)

78.7

79.7

67.6

62.7

66.9

Return on equity

(%)

28.1

19.4

22.0

26.2

23.3

(Times)

64.13

41.08

65.96

35.90

23.38

Profitattributableowners of parent

Price earnings ratio

Cash flows from operating (Million yen)
3,091
2,686
5,221
6,169
3,147
activities
Cash flows from investing (Million yen)
(908)
111
(830)
(978)
(867)
activities
Cash flows from financing (Million yen)
(429)
(709)
(671)
(810)
(1,051)
activities
Cash
and
cash
equivalents at end of (Million yen)
5,569
7,651
11,382
15,77317,018
periodNumber of employees
207
236
295
324
353
[Average number of part- (Persons)
[26]
[22]
[19]
[22]
[31]
time employees, etc.](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 Company has applied the Accounting Standard for Revenue Recognition (ASBJ Statement No. 29, March
31, 2020), etc. since the beginning of the 27th fiscal year and the accounting standard, etc. are applied to major
management indicators, etc. from the 27th fiscal year.

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

24th fiscal year 25th fiscal year 26th fiscal year 27th fiscal year 28th fiscal year

Year end

March 2019

March 2020

March 2021

March 2022

March 2023

Net sales(Million
yen)

5,752

5,336

6,074

8,003

8,984

Ordinary profit(Million
yen)

2,777

2,359

2,964

4,052

4,407

Profit(Million
yen)

1,784

1,613

2,044

2,832

3,048

Share capital(Million
yen)

713

713

713

713

713

Number of issued shares(Shares)

14,133,000

14,133,000

14,133,000

14,133,000

14,133,000

Net assets(Million
yen)

7,804

8,714

10,07812,097

14,091

Total assets(Million
yen)

9,870

10,83914,751

19,13820,780Net assets per share(Yen)

559.74620.45717.78860.82

1,002.92

Dividend per share[Interim dividend per share]

(Yen)

48
[18]

50
[25]

55
[25]

70
[30]

75
[35]

Basic profit per share(Yen)

128.42115.29145.81201.83217.15

Diluted profit per share(Yen)

128.14112.39142.38197.26212.97

Capital ratio

(%)

78.8

80.2

68.3

63.1

67.8

Return on equity

(%)

25.1

19.6

21.8

25.6

23.3

Price earnings ratio(Times)

70.47

40.51

66.46

36.76

23.49

Dividend payout ratio

(%)

37.4

43.4

37.7

34.7

34.5

201

214

236

254

246

[26]

[21]

[19]

[22]

[31]

(%)

221.4

116.0

239.5

186.0

131.3

(%)

[95.0][85.9][122.1][124.6][131.8]Year high

(Yen)

9,560

11,24010,99010,6808,140Year low

(Yen)

3,980

3,625

4,345

5,660

4,940

Number of employees[Average number of parttime employees, etc.]
Total shareholder return[Benchmark index: TOPIX(Tokyo Stock Price Index)](Persons)(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. Year high and year low indicate stock prices on the First Section of the Tokyo Stock Exchange on or before April
3, 2022 and on the Prime Market of the Tokyo Stock Exchange on or after April 4, 2022.
3. The Company has applied the Accounting Standard for Revenue Recognition (ASBJ Statement No. 29, March
31, 2020), etc. since the beginning of the 27th fiscal year and the accounting standard, etc. are applied to major
management indicators, etc. from the 27th fiscal year.

―6―2. Corporate History
Month/Year

Description

June 1995

Digital Arts Inc. is incorporated (capital: 10 million yen) in Minato-ku, Tokyo and commences
operations to develop and market software for the internet

August 1998
January 2000

Digital Arts Inc. develops the first web filtering software in Japan and launches initiatives toaccumulate 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

September 2002 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
September 2004 Digital Arts Inc. transfers NET iScope (internet monitoring service) business to shift corporate focus
to filtering software
October 2004

Digital Arts Inc. begins operations at Kyushu Branch Office (currently Kyushu Sales Office)February 2005
October 2005

Digital Arts Inc. acquires patent in 22 countries and regions for internet access control involving
filtering technology
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)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 Digital Arts Inc. begins operations at Tohoku Sales Office
April 2011

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

March 2013

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

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

Digital Arts Consulting Inc. is established
Digital Arts Inc. begins operations at Chushikoku Sales Office

December 2018 UK subsidiary changes trade name to Digital Arts Europe Limited
Singapore subsidiary changes trade name to Digital Arts Asia Pacific Pte. Ltd.
March 2020

Digital Arts Inc. acquires certification for the ISO/IEC 27001:2013 (JIS Q 27001:2014) international
standard for information security management systems (ISMS).

November 2020 Digital Arts Inc. acquires certification for the ISO/IEC 27017:2015 (JIS Q 27017:2016) international
standard that specializes in cloud security.
December 2021 Digital Arts Inc.’s DigitalArts@Cloud is registered in the “Information system Security Management
and Assessment Program” (ISMAP).
April 2022
Moves from the Tokyo Stock Exchange’s First Section to the Prime Market as a result of the revisionof market segments of the Tokyo Stock Exchange.

―7―3. Business Summary
The Digital Arts Group is comprised of Digital Arts Inc. and its four consolidated subsidiaries and is principally engaged ininternet security, email security, the planning, development, sale, etc. of file encryption and tracking solutions, andinformation 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 andappliance 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 madeit much easier to gather information, methods of controlling information posted on the Internet and providing protection frommalicious 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 asdata leakage due to transmission errors, spam and spoofed messages, and risks of virus infection resulting from receiving
malicious files. Additionally, personal information, data from outsourcing parties and other electronic data, which are now
part of important management assets, are also exposed to growing risks of data leaks due to insiders’ unauthorized takingout 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 domestically searchable URLs and information of email messages from senders that are deemed safe. We arethus striving to expand sales with a focus on i-FILTER Ver. 10, m-FILTER Ver. 5 and FinalCode. The first two products areequipped 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 of electronic data. Amid the rapid shift of online services andemail 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 for offering the secure use of websites andemail 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.

―8―

Main Products
User category

Enterprise
SectorPublic Sector

Consumer
SectorMain 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 and files)-Desk (Chat/online conference tool), etc.
- 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 and files)-Desk (Chat/online conference tool), etc.
-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.

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 registeredin 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 thepolicy 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 the storage and management of all emails, and improving businessefficiency through protection against spam emails.
Email filtering is a function that only allows users to receive safe emails, preventing themfrom receiving targeted emails by storing safe senders in a whitelist database anddetermining the safety of senders and also identifying fake email attachments and emails.
It also stops intentional and accidental information leaks by forwarding messages to asender’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―9―Main products

Features
Password-less encryption service for tracking and remotely controlling files
Enables designation of file recipients, configuration of permissions, access log monitoringby 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 internalleaks and providing automatic encryption of internal business files and control over files
offered to outsiders in the form of cloud services.
An integrated report screen provides a one-stop comprehensive display about thepossibilities of external attacks from web browsing, email and files and internal data leaks.
Main Applications- Web Security- Mail Security- File Security

Desk

A chat/online conference/webinar system that allows communication only within acompany/organization or with users invited by the user
The “comfort/convenience” of being able to communicate wherever there is an Internet
environment, and the implementation of communication in a closed environment within theorganization eliminates the risk of information leaks due to communication with uninvitedusers outside the organization.
Main Applications- Call- Text chat
- Online meetings- Webinar
Filtering software mainly for families, libraries, internet cafes, etc. Protects users ofsmartphones, tablets and computers from dangers of the Internet by restricting access toharmful 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―11―

4. Related Companies
Company nameShare capital(Million yen)

Address

Percentage ofvoting rights(%)

Principal
business

Relationship(Consolidated Subsidiaries)
Digital Arts America, Inc.

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

24

Securitybusiness

100.0

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

8 Temasek Boulevard #35-02A Suntec
Tower Three Singapore 038988

242

Securitybusiness

100.0

Digital Arts Europe Limited

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

23

Securitybusiness

100.0

Digital Arts Consulting Inc.
(Note) 1,2

1-5-1 Otemachi,
Japan

73

Securitybusiness

91.9

Chiyoda-ku, Tokyo,

Sale of the Company’s
products
Business outsourcing
Interlocking
directorates
Sale of the Company’s
products
Business outsourcing
Interlocking
directorates
Sale of the Company’s
products
Business outsourcing
Interlocking
directorates
Sale of the Company’s
products
Provision of services
Business outsourcing
Interlocking
directorates(Notes) 1. Digital Arts Asia Pacific Pte. Ltd. and Digital Arts Consulting Inc. fall under the category of a specified subsidiary.
2. Digital Arts Consulting Inc.’s net sales account for over 10% of consolidated net sales (excluding inter-company
net sales between consolidated companies).
Key information on profit and loss and other items of Digital Arts Consulting Inc.
Net sales

Ordinary profit

ProfitNet assets

Total assets(Million yen)

(Million yen)

(Million yen)

(Million yen)

(Million yen)

1,663

33

26

254

534

5. Employment Data
(1) Consolidated Basis
As of March 31, 2023
Category

Number of employees

Security business

353 (31)Total

353 (31)(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 Digital Arts Group operates in one segment only (the security
business) and has no other business segments.
(2) The Reporting Company
Number of employees
246

(31)

As of March 31, 2023
Average annual salary(thousand yen)

Average length ofservice in years

Average age
34.7

6.5

5,686

(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 no other 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―

(4) Percentage of female employees in management positions, percentage of eligible male employees taking childcare
leave, and wage gap between male and female employees
Reporting company
Percentage of female employees inmanagement positions (%)(Note 1)

Fiscal year under review
Percentage of eligible male
Wage gap between male and female
employees taking childcare leave (%)
regular employees (%)(Note 2)
(Note 1)

8.6

0

80.1

(Notes) 1. Calculated based on the provisions of the Act on the Promotion of Female Participation and Career
Advancement in the Workplace (Act No. 64 of 2015)
2. Percentage of eligible male employees taking childcare leave under Article 71-4 (i) of the Ordinance for
Enforcement of the Act on Childcare Leave, Caregiver Leave, and Other Measures for the Welfare of Workers
Caring for Children or Other Family Members (Ordinance of the Ministry of Labor, No. 25 of 1991) based on theprovisions of the Act on Childcare Leave, Caregiver Leave, and Other Measures for the Welfare of Workers
Caring for Children or Other Family Members (Act No. 76 of 1991).

―13―

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 underreview.
(1) Management Policy
With “For Internet convenience, safety and security” as its corporate philosophy, the Digital Arts Group aims to provide
peace of mind, safety and comfort as a software maker, to realize an Internet society in which all kinds of people, thingsand experiences are connected via the Internet, enabling creative and innovative advances that enrich people’s lives.
(2) Management Strategies, etc.
In accordance with the corporate philosophy described above, the Group aims to grow into a comprehensive security
provider in the medium term and launched a medium-term management plan covering the three years from April 2022
to March 2025. The Group will focus on three initiatives for growth, to meet increasingly diverse and sophisticatedsecurity needs and to realize the provision of total security and further brand penetration.
Initiatives for growth- Steady organic growth- Expansion of security products and services- Drawing attention to high expertise (Digital Arts Consulting)(3) Objective Indicators for Judging Status of Achievement of Management Goals
The Group has formulated a medium-term management plan which terminates in the fiscal year ending March 31, 2025,
aiming to grow into a comprehensive security provider in the medium term, and has adopted the contract amount growthrate, the net sales growth rate, the operating margin, and return on equity (ROE) as objective indicators for judging thestatus of achievement of these management goals. Since our core products have a contract period of one year or longer,
the Group and its distributors conduct sales activities with the objective of achieving growth in the contract amount.
Accordingly, we attach importance to the contract amount growth rate as well as to other commonly used management
indicators.
As for the management indicators under the medium-term management plan, we will work to be able to achieve thefollowing targets.
(Million yen)
Fiscal Year Ended
March 31, 2023
(Results)

Fiscal Year Ended
March 31, 2024
(Forecast)Fiscal Year Ended
March 31, 2025
(Forecast)

10,436

11,50013,000

4,413

5,150

5,700

42%

45%

44%

Consolidated net
sales
Consolidated
operating profit
Consolidated
operating margin(4) Operating Environment and Business and Financial Issues to Be Addressed
In the security industry, in which the Digital Arts Group (the “Group”) operates, the scope of the Internet continues toexpand as society becomes increasingly digitalized through more widespread teleworking and home learning and theutilization of various cloud services. The importance of security solutions is growing in response to the risk of information
leaks and ever more sophisticated and devious cyber attacks, including targeted attacks against specific enterprises,
government agencies and other organizations.

―14―

The Group recognizes the following as issues to be addressed for achievement of the medium-term management plan.
(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 ofachieving stable and continuous growth.
(ii) Identification of new needs
Due to advances in technology such as cloud services, the IoT, AI and ICT, and the expansion of the Internet businessdomain, security threats are increasing. In this environment, the Group will predict potential future needs throughsales and development activities and market research and identify new needs by expanding its product lineup andservices through the research and development of new solutions.
(iii) Securing and developing human resources
The Group recognizes that securing and developing talented human resources is important for its growth in themedium and long term. The Group therefore continuously reviews its personnel programs to ensure that it offers
attractive levels of pay, a fair evaluation program and a full lineup of employee training programs and we also strive
to attract and retain talented human resources by actively engaging in both new graduate and mid-career recruitment.
It is also a priority for us that existing employees increase their productivity and acquire knowledge and skills, andwe seek to develop human resources by supporting employees to gain qualifications and by providing internal
position-based training and training delivered by outside specialists.
(iv) Sustainability initiatives
Based on its corporate philosophy, the Group has established a “Sustainability Committee” for the purpose ofpreserving the global environment and realizing a sustainable society. It identifies important issues (materiality) andexamines efforts to address them based on the Sustainability Policy, and also discloses them on its website. In
addition to the mitigation of environmental impacts and the improvement of efficiency in our business activities, wewill implement initiatives to address environmental issues such as climate change and pollution through awarenessand action on the part of each employee. Further, through our business activities, we will reduce as far as possible
economic losses to companies and public bodies resulting from information leakages and also engage in various
social contribution activities to realize safe and secure internet usage for children and a satisfying online learning
environment.
(v) Promotional and awareness-raising activities
To promote the Group’s products and services, we believe it is important to foster an accurate understanding of
security threats associated with the Internet and the importance of security measures to combat them. Accordingly,
we offer the “D-Alert Cyber-risk Information Service” free of charge. Using our product functions to detect threats, DAlert informs Internet users who are suspected to have been infected with malware or shown maliciously falsified
web pages. We also disseminate information about the latest security trends based on research and analysis
conducted by specialist team in our development division, on the “Digital Arts Security Reports” section of our website,
to promote awareness about security threats. In addition, at the request of local governments and schools throughout
Japan, the Group holds seminars and lectures and provides information to users of smartphones and other mobile
devices to help increase their digital literacy, and also stresses the importance of filtering.

―15―

2. Approach to Sustainability and Sustainability Initiatives
Since its establishment, the Group has advocated solutions to social issues and has pursued numerous initiatives as adomestic security software manufacturer to preserve the global environment and realize a sustainable society based on thecorporate philosophy of “For Internet convenience, safety and security.”
Further, through our business activities, we reduce as far as possible economic losses to companies and public bodies
resulting from information leakages, while addressing global environmental issues such as climate change andenvironmental pollution and engaging in various social contribution activities to realize safe and secure internet usage forchildren and a satisfying online learning environment.
(1) Materiality
Under its corporate philosophy, the Group has identified materiality (important issues) of SDGs and ESG consisting offour groups and 14 items in order to promote sustainability management. Based on the identified materiality, we willconduct company-wide activities to achieve the management plan centered on the information security business.
Moreover, through dialogue with our stakeholders, we will improve our company-wide activities and contribute to therealization of a sustainable society.
(2) Governance
The Group established the Sustainability Committee in April 2022 to strengthen its efforts to realize a sustainable society.
The Committee is chaired by the President and Representative Director and convenes the heads of major divisions todeliberate and decide on overall sustainability policies, targets and plans, as well as to review and discuss the promotionof these plans. The Board of Directors receives reports from the Committee and monitors and oversees the efforts toaddress issues and the goals set.
■ Sustainability promotion structure(3) Environment Initiatives
Recognizing climate change as one of the most important issues in its sustainability management, the Group is working
to appropriately address climate change-related risks and seize growth opportunities through dialogue and collaboration
with diverse stakeholders in order to contribute to a decarbonized society as outlined in the long-term goals of SDGs
and the Paris Agreement.
(i) Strategy
The Group performed a scenario analysis based on risks and opportunities to be created by climate change, which
are illustrated by examples in the TCFD recommendations. The Group selected two scenarios for the analysis
because it is necessary to select and set scenarios for multiple temperature ranges, including a 2°C or lower scenario.
One is the 1.5 °C scenario, in which the impact of the transition is realized. The other is the 4°C scenario, in which
the physical impact of climate change is realized.

―16―

■ Impact of the introduction of carbon taxes
A possible financial impact of climate change risks will be the introduction of carbon taxes, a result of governments
tightening their environmental regulations. Therefore, the Company calculated the effect of the introduction of carbon
taxes in 2030 and 2050 in the 4°C scenario and 1.5°C or lower scenario by assuming that GHG emissions areequivalent to the fiscal 2021 level. In addition, the Company estimated values using one scenario from theInternational Energy Agency (IEA), one from the International Renewable Energy Agency (IRENA), and the carbon
price as of April 2022 (carbon cap-and-trade system, carbon tax, and energy taxation). In addition, it is expected thatthe impact will be alleviated at the time the carbon taxes are introduced because the Company plans to reduce its
GHG emissions by introducing renewable energy and through other initiatives.

―17―

(ii) Risk management
Under its risk management system, the Group exercises integrated management in relation to business risks thatmight arise as a result of its business activities to prevent risks and deal with any risks that arise, based on the Risk
Management Regulations established by the Board of Directors. In addition, the Sustainability Committee formulates
basic policies on environmental issues and manages risks associated with climate change, identifies issues for theGroup, discusses the necessary measures, and periodically monitors the progress of these measures. For climatechange-related risks, we have analyzed scenarios and identified climate change risks and opportunities in order tounderstand and assess the impact of climate change. The identified risks and opportunities will be discussed anddeliberated under the promotion system led by the Sustainability Committee, and reports and recommendations will
be made to the Board of Directors regarding the status of risk management and the determination of significant risks.
(iii) Indicators and targets
In fiscal 2021, GHG emissions of the Group were 258 tons (indirect emissions from electricity consumption). In
addition, we have calculated Scope 1 (direct emissions from operations) to be zero and set a target for GHG
emissions in Scope 2 (indirect emissions from electricity consumption) in fiscal 2025 to be effectively zero. The Group
strives to reduce GHG emissions by conserving energy including electricity internally, introducing renewable energythat does not involve the use of fossil fuels, and proactively utilizing the J-Credit Scheme, which is a government
certification scheme, with the goal of establishing a carbon-free society.

―18―(4) Initiatives for Society
The Group aims to develop leaders who drive innovation and human resources who demonstrate diverse abilities tosolve social issues through its business, and its basic policy is to promote the ability and growth of each and every
employee of the Group. In addition, we have set “respect for humanity” as one of our important values, and aim to be acompany where diverse human resources with different ways of thinking can fully demonstrate their individuality andabilities, regardless of nationality, religion, marital status, gender, sexual orientation or gender identity, disability, etc.
(i) Strategy
Aiming to build a comprehensive training environment, we are working to launch and enhance in-house training foreach job level, training for each skill, and support systems for acquiring qualifications. We strive to create anenvironment in which employees can steadily improve their skills by implementing an internal training cycle that
includes the development and execution of educational plans and individual training and following up on practicalimplementation in the workplace after training is conducted.
In addition, to further accelerate the growth of our employees, we are working to “develop human resources who arecommitted to self-growth.” Specifically, we have created a system and culture that encourages proactive careerdevelopment and skill acquisition by starting career design training and introducing company-wide examples of
personal development activities and awards.
(ii) Indicators and targets
Going forward, we will use the newly developed job-specific skill requirements to provide more practical in-housetraining for each job level and education for each skill, using total training hours and training hours per employee as
indicators.
(5) Governance Initiatives
Based on its corporate governance, the Group believes that it is important to “engage in speedy decision-making andclarify the roles and responsibilities incidental to this,” “maintain objective checking systems both internally and externally”
and “ensure timely and fair disclosure” in order to gain the support of all stakeholders and realize the sustainableenhancement of corporate value based on its corporate philosophy. The Group will work to ensure sound management
under an organizational structure that can flexibly respond to changes in the business environment, ensure thoroughcompliance, and continuously enhance corporate governance (refer to “Section IV. Information on the Reporting
Company - 4. Corporate Governance”).

―19―

3. Business and Other Risks
Material risks recognized by management as risks that could materially affect the financial condition, operating results andcash flows of consolidated companies included in the Business Summary, Financial Information and other sections of thisAnnual Securities Report are as follows. These forward-looking statements are being made at the determination of the Groupas of the date of submission of this Annual Securities Report (June 26, 2023).
(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 inmanagement climate (such as M&A or bankruptcy) could lead to a significant fluctuation in the Group’s net sales. Major
distributors also handle the products 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 uncollectable payment of debt could also significantly impact
the Group’s performance and financial standing.
(b) Risks associated with changes in the national budget and local government policies affecting the Group’s product sales
to schools and local municipalities
The Group’s product sales to public schools and local municipalities may be significantly impacted by fluctuations in thenational 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 andearning 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 a very 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 theGroup’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 the full 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 accountwhen making its full year plans and is continuing to pursue to maintain and expand the current sales level. However, theGroup’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 anddistributors. If products for which most of the contract price is subject to deferred revenue recognition account for ahigher percentage of total sales than products for which the majority of the contract price is recognized at contract
inception or if temporary special demand arises as a result of change in the law or government initiatives, there is a riskthat the Group’s quarterly financial results will fluctuate.

―20―

(f) Risks associated with laws and regulations
Although the Group is subject to various laws and regulations governing its corporate activities, we believe that there
are no specific legal regulations that have a significant impact on our business continuity as of the date of submissionof this document. However, if business development is restricted by amendments to existing laws and regulations or theapplication of new legal regulations governing our business in the future or if it becomes necessary to takecountermeasures, it may have an impact on our business and performance.
(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 theinternet, therefore, if the existence of the internet fades or the use of internet declines in the Group’s target markets of“Business/Enterprise,” “School,” “Government,” and “Home,” this may have a significant impact on the Group’s
performance and financial standing.
(h) Limitation in protecting intellectual property rights (including patents)
The Group takes appropriate measures both domestically and overseas to protect any and all independently developed
technology and know-how, however, there are certain areas in the world where the Group’s intellectual property rights
may have no or limited protection due to legal restrictions. For this reason, the Group may not be able to completely
prevent its competitors 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 andcopyrights when offering new products and services, there may be a risk at some future point where other parties may
deem that the Group is infringing on their intellectual property rights and copyrights.
(i) Risks associated with the Group’s technology obsolescence and deterioration of technological innovation
The Group conducts development activities to upgrade technology and enhance quality for current/future products andservices. However, if the products and services provided by the Group became obsolete or the Group’s technologicalinnovation 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 ensurethat the program operates properly. However, software bugs (defects) unexpected at the time of launch may be
confirmed post-launch, and in such circumstances, the Group promptly releases update patches to correct the issue.
However, if such bug issues prevent the Group from providing services, if the Group requires a long period of time toresolve the issue, or if the issue could not be resolved, this could lead to a reduction of sales, goods being returned andto a decline in the Group’s credibility, which may significantly impact the Group’s business performance and financial
standing.

―21―

(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 theGroup. The Group positions these servers as the most critical mainstay system and makes every effort to provide
consistent service by taking 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 technological information 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 islocated, 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 and developed a system in compliance with Information Security Management System (ISMS)
requirements. However, in the event the Group’s service is suspended due to such issues, this suspension could leadto 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 eventthese management 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 anddeveloping talent, but failing to secure and 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 Prime Section of Tokyo Stock Exchange, where CEO Toshio Dogu is
the largest shareholder with 2,253,226 shares (which account for approximately 16.1%, including shares held by theshareholders’ association made up of directors) out of 14,133,000 issued and outstanding shares (including treasury
shares) as of March 31, 2023. As a public company, the possibilities of mergers and acquisitions cannot be denied, andthe 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 performance and financial standing.
Similar impact would be seen if the Group performs mergers and acquisitions, or acquires business rights.
(n) Risks associated with natural disaster, disaster, terrorist activities, war, the spread of infections and power outage
The Group’s business performance and business activities may be significantly affected due to unforeseen situations,such as disasters, including earthquakes and other acts of God, terrorist activities or the outbreak of war at home orabroad, and the spread of infections such as influenza and COVID-19. In addition, insufficient power supply due tonationwide/regional power outage or problems in the buildings where the Group performs its business may cause theGroup to suspend its business activities and services, and may, in turn, significantly impact its business performanceand financial position.

―22―

4. 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 asfollows.
(i) Financial condition and operating results
During the consolidated fiscal year under review (April 1, 2022 through March 31, 2023), the Japanese economy saw
a mild rally in economic activities following the gradual easing of the activity restrictions that had been applied during
the COVID-19 pandemic. However, the outlook for the economy remains uncertain, chiefly reflecting the persistentconflict in Ukraine and rising prices of goods attributable to the sharp weakening of the yen against the U.S. dollar.
In the security industry, in which the Digital Arts Group (the “Group”) operates, cyber attacks diversified and intensified,including ransomware, Emotet and Agent Tesla, which is remote control malware that steals confidential informationfrom keyboard operations. That expanded demand for security products. Not only among large companies but also at
small and medium enterprises that lag behind in security measures, demand for newly introducing security products is
expanding.
In this situation, the Company enhanced the linkage and features of its mainstay products of i-FILTER, m-FILTER and
FinalCode and added a broad array of security solutions to them in response to mounting needs for comprehensive
security. It also worked hard to promote its original next-generation Secure Web Gateway (SWG).
In addition to the White Operation that the Company has long been proposing, it released Anti-Virus & Sandbox tosteadily achieve an increase in orders. This is a new option for secure file downloads and reception from secure
websites and email messages to improve the level of security. It also performs real-time judgment of malware and paves
the way for centralized control logs for greater convenience. To minimize the damage from cyberattacks, the Security
Operation Center (SOC), the Endpoint Detection and Response (EDR) and other solutions for detecting and responding
to incidents are of increasing significance. In light of that, the Company released the D Alert Reporting Service as a new
low-cost option for the swift detection of incidents for customers facing difficulties in hiring personnel or security costissues. The Company has thus entered the market of incident detection and response solutions.
Moreover, damage caused by phishing, which sends email or uses other means to direct users to fake websites, is on
the increase, as well as that arising from unknown threats and malicious files. Phishing websites look so similar to
websites of financial institutions and online shopping websites that it can be very difficult to tell them apart. To protectfrom the threats of these phishing websites, the i-FILTER@Cloud was newly equipped with a credential protection
function to provide customers with a higher security level. This function uses the Company's original technology thatallows credential information to be sent to URLs, only those confirmed to be secure, while blocking transmission to any
website that is not confirmed to be secure. As a result of these measures, the number of licenses for use of the WhiteOperation that the Company independently promotes increased by 1.66 million during the consolidated fiscal year underreview to 11.68 million.

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 1,807 million yen from the end of
the previous consolidated fiscal year, to 21,149 million yen. This was due mainly to an increase of 1,245 million
yen in cash and deposits.

―23―

(Liabilities)
Total liabilities in the consolidated fiscal year under review declined 205 million yen from the end of the previous
consolidated fiscal year to 6,975 million yen. This was due mainly to a decrease of 496 million yen in advances
received.
(Net assets)
Net assets in the consolidated fiscal year under review climbed 2,013 million yen from the end of the previous
consolidated fiscal year, to 14,173 million yen. This was mainly due to an increase in retained earnings due to therecording of profit attributable to owners of parent, which outweighed a decrease in dividends paid.
b. Operating results
Consolidated net sales for the fiscal year under review stood at 10,436 million yen, up 15.3% year on year, operating
profit increased 7.0% year on year, to 4,413 million yen, ordinary profit grew 7.1% year on year, to 4,429 million yen,and profit attributable to owners of parent increased 5.6% year on year, to 3,062 million yen.
Overview of Consolidated Business Result(Million yen)
Fiscal Year
Ended March 31,
2022

Fiscal Year
Ended March 31,
2023

Net sales

9,051

10,436＋1,384＋15.3

Operating profit

4,126

4,413

＋286

＋7.0

Ordinary profit

4,135

4,429

＋293

＋7.1

Profit attributable toowners of parent

2,900

3,062

＋161

＋5.6

Change% Change

The following describes business performance in separate markets.
Enterprise Sector Market
In the enterprise sector market, to meet demand for total security, the Group gained new projects by adding antivirus
functions and sandbox functions as new options to i-FILTER and m-FILTER. Sales of m-FILTER increased steadily asa result of the high marks it has earned for its functions of tackling the PPAP (sending a Zip file protected by a passwordby e-mail and sending the password by a separate e-mail) and dealing with targeted attacks, including attacks using
Emotet. In addition, net sales for Digital Arts Consulting Inc., a subsidiary offering security consulting services, increased
with a progress achieved in new customer acquisition in line with greater corporate demand for cybersecurity and digitaltransformation (DX) consulting.
As a consequence, net sales in this market reached 5,316 million yen, up 16.6% year on year.
Public Sector Market
In the public sector market, the Group recorded sales from projects related to the GIGA School Concept, which ran
from before the previous fiscal year and which focused on proposing solutions to support local government efforts tostrengthen security measures that were ramped up from the fiscal year under review. As a result, sales of the i-FILTER
and m-FILTER series grew as brisk orders were won from local governments.
As a consequence, net sales in this market stood at 4,686 million yen, up15.8% year on year.
Consumer Sector Market
In the consumer sector market, the Group focused on collaborating with mobile network carriers and MVNOs and onsales of i-FILTER for Multiple Devices, which can be used on multiple operating systems using a single serial ID.
As a consequence, net sales in this market amounted to 433 million yen, down 2.6% year on year.

―24―Net sales for the consolidated fiscal year under review (April 1, 2022 - March 31, 2023)
Enterprise Sector
Consumer Sector
Public Sector Market
Total
MarketMarketMillion yen
Million yen
Million yen
Million yen
Fiscal Year Ended
5,316
4,686
433
10,436
March 31, 2023
Fiscal Year Ended
4,559
4,046
444
9,051
March 31, 2022
(Figures shown are rounded down to the nearest million yen.)(ii) State of cash flows
In the consolidated fiscal year under review, cash and cash equivalents increased 1,245 million yen from the end of
the previous consolidated fiscal year to 17,018 million yen. Cash flows in each category are as follows:(Cash flows from operating activities)
Net cash provided by operating activities stood at 3,147 million yen (net cash provided of 6,169 million yen in theprevious consolidated fiscal year), chiefly reflecting profit before income taxes of 4,430 million yen, depreciation of
884 million yen.
(Cash flows from investing activities)
Net cash used in investing activities came to 867 million yen (978 million yen in the previous fiscal year), mainly due
to the purchase of intangible assets.
(Cash flows from financing activities)
Net cash used in financing activities was 1,051 million yen (810 million yen in the previous fiscal year), primarily due
to dividends paid.
(iii) Results for production, orders received and sales
a. Results of production
Fiscal year under review(from April 1, 2022 to March 31, 2023)(million yen)

Change YoY (%)

Enterprise Sector Market

5,002

113.7

Public Sector Market

4,654

116.1

432

97.4

10,089114.0

Consumer Sector Market
Total(Notes)1. Production amounts are based on selling prices

2. Segment information is omitted because the Group operates in one segment only (the security business).
b. Results of orders received
Not applicable as the Group does not build products to order.

―25―

c. Results of sales
Fiscal year under review(from April 1, 2022 to March 31, 2023)(million yen)

Change YoY (%)

Enterprise Sector Market

5,316

116.6

Public Sector Market

4,686

115.8

433

97.4

10,436

115.3

Consumer Sector Market
Total(Notes) 1. There are no export sales.
2. Segment information is omitted because the Group operates in one segment only (the security business).
3. 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.

CustomerPrevious fiscal year
(from April 1, 2021 to March 31,
2022)
AmountRatio (%)
(million yen)

Fiscal year under review(from April 1, 2022 to March 31,
2023)
AmountRatio (%)
(million yen)

Daiwabo Information
System Co., Ltd.

2,045

22.6

2,683

25.7

SB C&S Corp.

1,541

17.0

1,747

16.7

(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 perspective of the management are as follows.
Matters concerning the future stated below are based on assessments as of the end of the fiscal year under review.
(i) Significant accounting policies and accounting estimates
The Group’s consolidated financial statements were prepared in accordance with Generally Accepted Accounting
Principles in Japan (JGAAP). In preparing these consolidated financial statements, the Group was required tomake estimates and forecasts that might affect its financial condition, operating results and cash flows at the endof 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 to the uncertain natureof 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 10,436 million yen, up 1,384 million yen comparedto the previous consolidated fiscal year (an increase of 15.3% year on year).
This increase is largely attributable to growth in orders for the i-FILTER series bolstered by the spread of teleworking
in the Enterprise 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.

―26―

(Cost of sales, gross profit)
Cost of sales during the consolidated fiscal year under review stood at 3,666 million yen, up 990 million yen
compared to the previous consolidated fiscal year (an increase of 37.0% year on year). Meanwhile, gross profit
stood at 6,769 million yen, up 394 million yen compared to the previous consolidated fiscal year (an increase of
6.2% year on year).
In the consolidated fiscal year under review, gross profit surged thanks to a rise in net sales despite an increase incloud service expenses associated with sales expansion of cloud service products and higher personnel expenses
attributable to a rise in the number of consultant personnel at Digital Arts Consulting.
(Selling, general and administrative expenses, operating profit)
Selling, general and administrative expenses were 2,356 million yen, up 108 million yen compared to the previous
consolidated fiscal year (an increase of 4.8% year on year). Meanwhile, operating profit stood at 4,413 million yen,
up 286 million yen compared to the previous consolidated fiscal year (a rise of 7.0% year on year).
In the consolidated fiscal year under review, operating profit surged thanks to a rise in net sales despite an increasein hiring expenses associated with a rise in the number of consultant personnel at Digital Arts Consulting.
(Ordinary profit)
In the consolidated fiscal year under review, ordinary profit amounted to 4,429 million yen (an increase of 7.1%
year on year), mainly due to the recording of non-operating income such as foreign exchange gains of 12 million
yen.
(Profit attributable to owners of parent)
Profit attributable to owners of parent increased 5.6% year on year, to 3,062 million yen.
b. Analysis of objective indicators for judging status of achievement of management goals
Objective indicators used in the consolidated fiscal year under review are as shown below.
The main reason for the discrepancy between the contract amount growth rate and the net sales growth rate is thata large part of the amount of the contract for traditional mainstay license sales products is recorded as sales in alump at the time of shipment, while sales are recorded on a monthly pro-rata basis throughout the service period
for cloud service products.
Previous fiscal year
(from April 1, 2021 toMarch 31, 2022)

Fiscal year under review(from April 1, 2022 toMarch 31, 2023)

Contract amount growth rate (%)(19.7)

10.6

Net sales growth rate (%)

32.6

15.3

Operating margin (%)

45.6

42.3

Return on equity (ROE) (%)

26.2

23.3

―27―

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 17,018 million yen.
A major component of the Group’s demand for working capital is personnel expenses to secure and develop thetalented human resources necessary to provide high added value solutions. When allocating internal reserves, theGroup 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.
d. Factors that have a significant impact on operating results
As stated in “Section II. Business Summary 3. Business and Other Risks”

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

6. 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 existing products. 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 24 million yen.

―28―

Section III. Properties
1. Summary of Capital Investment, etc.
In the consolidated fiscal year under review, the Group made capital investment totaling 58 million yen. This mainly consistedof office equipment work and purchases of computers, servers, and other information equipment.
Meanwhile, the Group made investments in intangible assets totaling 811 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, 2023)
Book value
Branch name(location)

Description ofequipment

Buildings
Area
(m2)

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

Amount(millionyen)

Vehicles(millionyen)

Furnitureandfixtures(millionyen)

Numberof
Total
employee(thousand
s
yen)

Land
Amount(million
yen)

Area
(m2)

1,626.42[1,626.42]

9

5

79

-

-

94

221[31]

71.85

67

-

0 10,017.49

26

94

-

(Notes) 1. The figure in parentheses in the Buildings section is included in the total and is the area that is leased.
2. The figures in parentheses in the number of employees section (which are not included in the totals) indicate theannual average number of part-time employees (temporary staff, etc.)
3. Other branches are the Hokkaido Sales Office (Two employees), the Tohoku Sales Office (one employees), theChubu Sales Office (six employees), the Kansai Sales Office (eleven employees), the Chushikoku Sales Office(two employees), and the Kyushu Sales Office (three employees).
4. The head office of the reporting company includes a building leased to Digital Arts Consulting Inc., which is a
subsidiary of the reporting company.
(2) Domestic Subsidiaries(As of March 31, 2023)
Book value
Company nameBranch name (location) Description of equipment

Number of
Furniture
employees
Totaland fixtures(million yen)(million yen)

Digital Arts Consulting
Headquarters
Administration and
10Inc.
(Chiyoda-ku, Tokyo)
sales facility
Digital Arts Consulting Sales office
Sales office0
Inc.
(Fukuoka-shi, Fukuoka)(Notes) 1. Digital Arts Consulting Inc. leases the whole building from the reporting company.

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

―29―

10

100

0

6

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 theissued as of theend of fiscal year
filing date (shares)(shares) (March 31,(June 26, 2023)
2023)
14,133,000

14,133,000

Listed stock exchange

Description

Tokyo Stock Exchange
Prime Market

Number ofshares in
trading unit 100

Total
14,133,000
14,133,000――(Note) The figures in the “Number of shares issued as of the filing date” column do not include the number of sharesissued upon the exercise of share acquisition rights between June 1, 2023 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, 2023)
Category and number of persons subject to grants

As of the end of the month
before the filing date
(May 31, 2023)

Four directors, 151 employees

Number of share acquisition rights

1,520

1,520

Number of share acquisition rights that are own shareoptions‒‒

Class of shares to be acquired upon exercise of shareacquisition rights

Common share

Same as on the left

Number of shares to be acquired upon exercise of shareacquisition rights

152,000 shares

152,000 shares

Amount to be paid upon exercise of share acquisitionrights2,034 yen per share

Same as on the left

Exercise period of share acquisition rights

From July 1, 2017
to May 31, 2027

Same as on the left

Issue price: 2,036 yen
Amount capitalized ascommon shares: 1,018 yen

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 shareacquisition rights is subject toapproval by the Board of
Directors of the Company.

Same as on the left‒‒

Issue price for shares that will be issued through theexercise of share acquisition rights and the amountcapitalized as common shares

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.

―30―

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 each item below by each holder of share acquisition rights only if operating profit reaches thelevel 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 areprepared) shall be referenced. If the concept of items to be referenced changes significantly due to theapplication of the International Financial Reporting Standards, etc. indicators to be referenced shall be
determined by the Board of Directors. Any fraction of less than one share acquisition right arising in thenumber 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 haveretired due to expiration of their terms of office, or holders who have retired upon reaching the mandatory
retirement age or for other legitimate reasons that the Board of Directors may deem appropriate.
(3) Exercise of the share acquisition rights by heirs of holders of the share acquisition rights shall not be
permitted.
(4) Share acquisition rights may not be exercised when doing so would cause the total number of shares of
the Company outstanding after exercise of such rights to exceed the number of shares authorized at thetime 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 astock split (includes allotment of the common shares of the Company without consideration; hereinafter thesame) or a stock consolidation after the allotment date of the share acquisition rights. Provided, however, thatsuch adjustment shall be made only with respect to the number of shares to be issued upon exercise of theshare acquisition rights that have not yet been exercised at the time of adjustment, and any fraction less than
one share arising from the adjustment shall be rounded down.
Number of shares granted after adjustment = Number of shares granted before adjustment x Ratio of split (orconsolidation)
If the Company performs a merger or company split, or reduces its share capital, or any other similar matter
where the adjustment of the number of shares granted becomes necessary, after the allotment date of the shareacquisition rights, the number of shares granted shall, to a reasonable extent, be adjusted as appropriate.
4. The value of assets to be contributed upon exercise of the share acquisition rights shall be an amount obtainedby multiplying the amount to be paid in per share (the “Exercise Price”) by the number of shares granted.
The Exercise Price shall be 2,034 yen, which is equal to the closing price of the Company’s stock in regular
trading on the Tokyo Stock Exchange on November 11, 2015, which is the day before the date of the resolutionof the Board of Directors concerning the issuance of the share acquisition rights.
(1) If the Company conducts a stock split or stock consolidation, the Exercise Price shall be adjusted
according to the following formula, and any fraction less than one yen resulting from the adjustment shallbe rounded up.
Exercise price1
Exercise price after=
before×
adjustment
Ratio of split (or consolidation)
adjustment(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 exercise of share acquisition rights and the transfer of treasury shares through the exchangeof shares), the Exercise Price shall be adjusted according to the following formula, and any fraction lessthan 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
Exercise price
Exercise priceMarket price per share prior to the issuance
after=
before×
adjustment
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 thenumber of treasury shares pertaining to the common shares of the Company from the total number ofshares outstanding pertaining to the common shares of the Company. If the Company undertakes the―31―disposal of treasury shares pertaining 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
the adjustment of the Exercise Price becomes necessary, after the allotment date of the share acquisitionrights, the Company may, to a reasonable extent, adjust the Exercise Price as appropriate.
5. If the Company conducts a merger (limited to the case where the Company is dissolved due to the merger),an absorption-type or incorporation-type company split, or a share exchange or transfer (collectively, the“Reorganization”), the Company shall, in each of the above cases, allot share acquisition rights of therelevant company from among those listed in “a” through “e” of Article 236, Paragraph 1, Item 8 of theCompanies Act (the “Reorganized Company”) to the holders of the share acquisition rights as of theeffective date of the relevant Reorganization. Provided, however, that the foregoing shall be on thecondition that the allotment of such share acquisition rights by the Reorganized Company in accordancewith each of the following items is stipulated in an absorption-type merger agreement, a consolidationtype merger agreement, an absorption-type company split agreement, an incorporation-type company
split plan, a share exchange agreement or a share transfer plan.
(1) Number of share acquisition rights of the Reorganized Company to be allotted
The same number as the number of share acquisition rights held by the holder of the share acquisitionrights shall be allotted in each case.
(2) Class of shares of the Reorganized Company to be issued upon exercise of share acquisition rights
Common shares of the Reorganized Company(3) Number of shares of the Reorganized Company to be issued upon exercise of share acquisition rights
To be determined as follows, taking the terms and conditions of the Reorganization into consideration.
If the Company conducts Reorganization with respect to common shares of the Company after the
allotment date, the number of shares granted shall be adjusted according to the following formula and any
fraction of less than one share resulting from the adjustment shall be rounded down.
Number of shares granted after adjustment = Number of shares granted before adjustment x Ratio of split(or consolidation)(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 amount obtained by multiplying the exercise price after Reorganization, obtained through adjustment
taking into consideration, among other matters, the terms and conditions of the Reorganization, by the
number of shares of the Reorganized Company to be issued upon exercise of each of such shareacquisition rights as determined in accordance with (3) above.
(5) Exercise period of share acquisition rights
From and including the later of the commencement date of the period during which the share acquisitionrights may be exercised as provided for separately or the effective date of the Reorganization, to andincluding the expiration date of the period during which the share acquisition rights may be exercised asprovided for separately.
(6) Matters concerning share capital and legal capital surplus to be increased due to issuance of shares upon
exercise of share acquisition rights
To be determined as follows.
(i) The amount by which the stated share capital increases through the issuance of shares upon theexercise of share acquisition rights shall be one-half (1/2) of the upper limit of the increase in theamounts of stated share capital and other items calculated pursuant to the provisions of Article 17,
Paragraph 1 of the Company Accounting Ordinance. Any fraction of less than one yen arising from thecalculation shall be rounded up.
(ii) The amount by which the legal capital surplus increases through the issuance of shares upon theexercise of share acquisition rights shall be the upper limit of the increase in the amounts of statedshare capital and other items described in (i) above, less the increase in the amount of stated sharecapital 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 theBoard 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, acompany 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 by resolution 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 ofshareholders 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.

―32―ii) Resolution of the Board of Directors Meeting held on November 10, 2016
As of the end of the fiscal
year(March 31, 2023)
Category and number of persons subject to grants

As of the end of the month
before the filing date
(May 31, 2023)

Three directors, 96 employees

Number of share acquisition rights

3,009

3,009

Number of share acquisition rights that are own shareoptions‒‒

Class of shares to be acquired upon exercise of shareacquisition rights

Common share

Same as on the left

Number of shares to be acquired upon exercise of shareacquisition rights

300,900 shares

300,900 shares

Amount to be paid upon exercise of share acquisitionrights2,639 yen per share

Same as on the left

Exercise period of share acquisition rights

From July 1, 2018
to May 31, 2028

Same as on the left

Issue price for shares that will be issued through theexercise of share acquisition rights and the amountcapitalized as common shares

Issue price: 2,663 yen
Amount capitalized ascommon shares: 1,332 yen

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 shareacquisition rights is subject toapproval by the Board of
Directors of the Company.

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 in each item below by each holder of share acquisition rights only if operating profit reaches thelevel 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 areprepared) shall be referenced. If the concept of items to be referenced changes significantly due to theapplication of the International Financial Reporting Standards, etc. indicators to be referenced shall be
determined by the Board of Directors. Any fraction of less than one share acquisition right arising in thenumber 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 haveretired due to expiration of their terms of office, or holders who have retired upon reaching the mandatory
retirement age or for other legitimate reasons that the Board of Directors may deem appropriate.
(3) Exercise of the share acquisition rights by heirs of holders of the share acquisition rights shall not be
permitted.
(4) Share acquisition rights may not be exercised when doing so would cause the total number of shares of
the Company outstanding after exercise of such rights to exceed the number of shares authorized at thetime of the exercise.
(5) Share acquisition rights may not be exercised in less than one unit.

―33―

3.

The number of shares granted shall be adjusted according to the following formula if the Company conducts astock split (includes allotment of the common shares of the Company without consideration; hereinafter thesame) or a stock consolidation after the allotment date of the share acquisition rights. Provided, however, thatsuch adjustment shall be made only with respect to the number of shares to be issued upon exercise of theshare acquisition rights that have not yet been exercised at the time of adjustment, and any fraction less than
one share arising from the adjustment shall be rounded down.
Number of shares granted after adjustment = Number of shares granted before adjustment x Ratio of split (orconsolidation)
If the Company performs a merger or company split, or reduces its share capital, or any other similar matter
where the adjustment of the number of shares granted becomes necessary, after the allotment date of the shareacquisition rights, the number of shares granted shall, to a reasonable extent, be adjusted as appropriate.
4. The value of assets to be contributed upon exercise of the share acquisition rights shall be an amount obtainedby multiplying the amount to be paid in per share (the “Exercise Price”) by the number of shares granted.
The Exercise Price shall be 2,639 yen, which is equal to the closing price of the Company’s stock in regular
trading on the Tokyo Stock Exchange on November 9, 2016, which is the day before the date of the resolutionof the Board of Directors concerning the issuance of the share acquisition rights.
(1) If the Company conducts a stock split or stock consolidation, the Exercise Price shall be adjusted
according to the following formula, and any fraction less than one yen resulting from the adjustment shallbe rounded up.
1
Exercise price
Exercise price=×
after 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 exercise of share acquisition rights and the transfer of treasury shares through the exchangeof shares), the Exercise Price shall be adjusted according to the following formula, and any fraction lessthan 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
Exercise price
Exercise priceMarket price per share prior to the issuance
after=
before×
adjustment
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 thenumber of treasury shares pertaining to the common shares of the Company from the total number ofshares outstanding pertaining to the common shares of the Company. If the Company undertakes thedisposal of treasury shares pertaining 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
the adjustment of the Exercise Price becomes necessary, after the allotment date of the share acquisitionrights, the Company may, to a reasonable extent, adjust the Exercise Price as appropriate.
5. If the Company conducts a merger (limited to the case where the Company is dissolved due to the merger), an
absorption-type or incorporation-type company split, or a share exchange or transfer (collectively, the“Reorganization”), the Company shall, in each of the above cases, allot share acquisition rights of the relevant
company from among those listed in “a” through “e” of Article 236, Paragraph 1, Item 8 of the Companies Act(the “Reorganized Company”) to the holders of the share acquisition rights as of the effective date of the relevant
Reorganization. Provided, however, that the foregoing shall be on the condition that the allotment of such shareacquisition rights by the Reorganized Company in accordance with each 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 a share transfer
plan.
(1) Number of share acquisition rights of the Reorganized Company to be allotted
The same number as the number of share acquisition rights held by the holder of the share acquisitionrights shall be allotted in each case.
(2) Class of shares of the Reorganized Company to be issued upon exercise of share acquisition rights
Common shares of the Reorganized Company―34―

(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(or consolidation)(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 amount obtained by multiplying the exercise price after Reorganization, obtained through adjustment
taking into consideration, among other matters, the terms and conditions of the Reorganization, by the
number of shares of the Reorganized Company to be issued upon exercise of each of such shareacquisition rights as determined in accordance with (3) above.
(5) Exercise period of share acquisition rights
From and including the later of the commencement date of the period during which the share acquisitionrights may be exercised as provided for separately or the effective date of the Reorganization, to andincluding the expiration date of the period during which the share acquisition rights may be exercised asprovided for separately.
(6) Matters concerning share capital and legal capital surplus to be increased due to issuance of shares upon
exercise of share acquisition rights
To be determined as follows.
(i) The amount by which the stated share capital increases through the issuance of shares upon theexercise of share acquisition rights shall be one-half (1/2) of the upper limit of the increase in theamounts of stated share capital and other items calculated pursuant to the provisions of Article 17,
Paragraph 1 of the Company Accounting Ordinance. Any fraction of less than one yen arising from thecalculation shall be rounded up.
(ii) The amount by which the legal capital surplus increases through the issuance of shares upon theexercise of share acquisition rights shall be the upper limit of the increase in the amounts of statedshare capital and other items described in (i) above, less the increase in the amount of stated sharecapital 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 theBoard 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, acompany 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 by resolution 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 ofshareholders 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.

―35―iii) Resolution of the Board of Directors Meeting held on August 30, 2021 (11th series of share acquisition rights)
As of the end of the fiscal
year(March 31, 2023)
Category and number of persons subject to grants

As of the end of the month
before the filing date
(May 31, 2023)

16 employees

Number of share acquisition rights

590

590

Number of share acquisition rights that are own shareoptions‒‒

Class of shares to be acquired upon exercise of shareacquisition rights

Common share

Same as on the left

Number of shares to be acquired upon exercise of shareacquisition rights

59,000 shares

59,000 shares

Amount to be paid upon exercise of share acquisitionrights

8,310 yen per share

Same as on the left

Exercise period of share acquisition rights

From July 1, 2036
to June 30, 2038

Same as on the left

Issue price for shares that will be issued through theexercise of share acquisition rights and the amountcapitalized as common shares

Issue price: 15,071 yen
Amount capitalized ascommon shares: 7,536 yen

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 shareacquisition rights is subject toapproval by the Board of
Directors of the Company.

Same as on the left‒‒

(Note 5)Same as on the left

Matters regarding substitute payment
Matters regarding grant of share acquisition rights
accompanying reorganization(Notes) 1. The share acquisition rights were issued with a charge of 2,000 yen per share acquisition right.
2. Conditions for exercise of share acquisition rights(1) Persons who have received an allotment of stock acquisition rights (“Stock Acquisition Rights Holders”)
may exercise their stock acquisition rights in the period from July 1, 2036 to June 30, 2038 only, if theCompany’s operating profit for any of the fiscal years from the fiscal year ending March 31, 2022 to thefiscal year ending March 31, 2036 exceeds 14,736 million yen. Moreover, operating profit shall be defined
as operating profit as stated in the non-consolidated statement of income in the Company’s Annual
Securities Report, and in the event of a material change in the concept of operating profit to be referred
to due to the application of International Financial Reporting Standards, etc., the Board of Directors shallseparately determine the index to be referred to.
(2) Stock Acquisition Rights Holders must be directors, corporate auditors, or employees of the Company or
its subsidiaries at the time they exercise their stock acquisition rights. Provided, however, this provision
shall not apply to Stock Acquisition Rights Holders who have retired due to the expiration of their terms ofoffice, or stock acquisition right holders who have retired upon reaching the mandatory retirement age orfor other legitimate reasons that its Board of Directors may deem appropriate.
(3) In the event of the death of a Stock Acquisition Rights Holder, the exercise of these rights by his/her heirs
shall not be permitted.
(4) Other conditions shall be as set forth in the stock acquisition right allotment agreement to be concluded
between the Company and the Stock Acquisition Rights Holders.

―36―

3. The class of shares to be issued upon the exercise of the stock acquisition rights shall be the common stock of
the Company, and the number of shares to be issued upon exercise of the stock acquisition rights (the “Numberof Shares Granted”) shall be 100 shares per stock acquisition right.
After the date of the allotment of the Stock Acquisition Rights (the “Allotment Date”), if the Company conducts
a stock split (including the gratis allotment of the Company’s common stock; hereinafter the same shall apply
for any description of a stock split) or a reverse stock split of its common stock, the Number of Shares Granted
shall be adjusted for the Stock Acquisition Rights that have not been exercised at the time of the stock split orreverse stock split by the following calculation formula.
Number of shares granted after adjustment = Number of shares granted before adjustment × Ratio of stock split
or reverse stock split
In addition to the above, if unavoidable circumstances arise that require the adjustment of the Number of Shares
Granted, the Company may adjust the Number of Shares Granted as deemed necessary by the Board of
Directors of the Company.
Any fractions less than one (1) share resulting from the above adjustment shall be rounded down.
4. The amount to be paid upon exercise of this stock acquisition right shall be the amount obtained by multiplying
the amount to be paid in per share issued or transferred through the exercise of the stock acquisition right (the“Issue Amount”) by the Number of Shares Granted.
The Exercise Price shall be 8,310 yen. The Exercise Price is equal to the closing price of the Company’scommon stock on the Tokyo Stock Exchange on August 27, 2021.
If any of the reasons shown below arise after the Allotment Date, the Exercise Price shall be adjusted
accordingly.
(1) If the Company conducts a stock split or a reverse stock split of its common stock, the Exercise Price shallbe adjusted according to the following formula, and any fraction of less than one (1) yen arising from theadjustment shall be rounded up to the nearest one (1) yen.
Exercise price=after adjustment

Exercise pricebeforeadjustment

1×
Ratio of split or reverse split(2) In the event that the Company issues new shares of common stock of the Company or disposes oftreasury stock at a price lower than the market price (excluding sale of treasury stock pursuant to theprovisions of Article 194 of the Companies Act (request for sale of shares constituting less than one unitby shareholders constituting less than one unit), or the case of conversion of securities convertible into or
can be converted into shares of common stock of the Company or the case of the exercise of stockacquisition rights to claim delivery of shares of common stock of the Company (including those attached
to bonds with stock acquisition rights)), the Exercise Price shall be adjusted according to the following
formula, and any fraction less than one (1) yen arising from the adjustment shall be rounded up to thenearest one (1) yen.

Exercise price=after adjustment

Exercise pricebeforeadjustment

Number ofsharesoutstanding×+

Number of shares
newly issued

×

Amount to be paid
per share

Fair market value per share

Number of shares outstanding + Number of shares newly issued

The “number of shares already issued” in the above formula shall be the number obtained by subtracting
the number of treasury shares held by the Company from the total number of issued shares of theCompany, and in the case of disposal of treasury shares, the “number of shares newly issued” shall be
replaced with the “number of shares to be disposed of” and the “amount to be paid per share” with the“amount to be disposed of per share.”(3) In the event of a merger of the Company, a corporate split, or in any other cases where the adjustment of
the exercise price is necessary in accordance with these cases, the exercise price shall be adjusted tothe extent necessary and reasonable.

―37―5. If the Company engages in a merger (only if the Company ceases to exist after the merger), absorption-typecompany split or incorporation-type company split (in each case only if the Company is the split company), ora stock exchange or stock transfer (in each case only if the Company becomes a wholly-owned subsidiary)(hereinafter collectively referred to as “Reorganization Actions”), the Company shall deliver to Stock Acquisition
Right Holders who hold any stock acquisition rights remaining (hereinafter referred to as the “Remaining Stock
Acquisition Rights”) directly before the effective date of the Reorganization Actions (effective date of absorptiontype merger in case of absorption type merger, date of incorporation of joint stock company established byconsolidation-type merger in case of consolidation-type merger; effective date of absorption-type split in caseof absorption-type split; date of incorporation of company established by incorporation-type split in case ofincorporation-type split; effective date of stock exchange in case of stock exchange; or date of incorporation ofparent company established by stock transfer in case of stock transfer; the same applies hereinafter) the stockacquisition rights of the relevant stock companies listed in Article 236, paragraph 1, No.8 -(a) through (e) of theCompanies Act (hereinafter referred to as the “Reorganized Company”). Provided, however, that the foregoingshall be on the condition that the allotment of such stock acquisition rights by the Reorganized Company inaccordance with each of the following items is stipulated in an absorption-type merger agreement, aconsolidation-type merger agreement, an absorption-type company split agreement, an incorporation-typecompany split plan, a share exchange agreement or a share transfer plan.
(1) Number of share acquisition rights of the Reorganized Company to be allotted
The Number of Stock Acquisition Rights shall be the same as the number of remaining stock acquisitionrights held by the Stock Acquisition Rights Holders(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
It shall be determined in accordance with the following, taking into consideration the terms and conditionsof the Reorganization Actions.
The class of shares to be issued upon the exercise of the stock acquisition rights shall be the common
stock of the Company, and the number of shares to be issued upon exercise of the stock acquisition rights(the “Number of Shares Granted”) shall be 100 shares per stock acquisition right. After the date of theallotment of the Stock Acquisition Rights (the “Allotment Date”), if the Company conducts a stock split(including the gratis allotment of the Company’s common stock; hereinafter the same shall apply for any
description of a stock split) or a reverse stock split of its common stock, the Number of Shares Granted
shall be adjusted for the Stock Acquisition Rights that have not been exercised at the time of the stock
split or reverse stock split by the following calculation formula.
Number of shares granted after adjustment = Number of shares granted before adjustment × Ratio ofstock split or reverse stock split
In addition to the above, if unavoidable circumstances arise that require the adjustment of the Number of
Shares Granted, the Company may adjust the Number of Shares Granted as deemed necessary by the
Board of Directors of the Company.
Any fractions less than one (1) share resulting from the above adjustment shall be rounded down.
(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 stock acquisition right to be delivered shallbe the amount obtained by multiplying the exercise price after reorganization, obtained throughadjustment of the Exercise Price provided for in 6. above taking into consideration factors such as theterms and conditions of the Reorganization Actions, by the number of shares of the Reorganized Company
to be issued upon exercise of each of such stock acquisition right as determined in accordance with (3)above.
(5) Exercise period of share acquisition rights
The period shall be from July 1, 2036 to June 30, 2038.

―38―

(6) Matters concerning share capital and legal capital surplus to be increased due to issuance of shares upon
exercise of share acquisition rights(i) The amount of share capital to be increased due to the issuance of shares upon the exercise of theStock Acquisition Rights shall be half of the maximum amount of increase in share capital, etc., that is
calculated pursuant to Article 17, Paragraph 1 of the Corporate Accounting Rules, and any fraction ofless than one (1) yen resulting from the calculation shall be rounded up to the nearest one (1) yen.
(ii) The amount by which the legal capital surplus increases through the issuance of shares upon theexercise of share acquisition rights shall be the upper limit of the increase in the amounts of statedshare capital and other items described in (i) above, less the increase in the amount of stated sharecapital 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 theBoard of Directors of the Reorganized Company.
(8) Clause on the acquisition of share acquisition rights(i) In the event that the Stock Acquisition Rights Holder is unable to exercise the stock acquisition rights
due to the provisions of 2 above or the stock acquisition right allotment agreement before exercising
the rights, the Company may acquire such stock acquisition rights without consideration on a dateseparately determined by the Board of Directors of the Company.
(ii) If any of the following proposals, a, b, c, d or e, are approved at a general meeting of shareholders of
the Company (or approved by the Board of Directors of the Company if a resolution of a general
meeting of shareholders is not required), the Company may acquire the stock acquisition rights without
consideration on a date separately determined by its Board of Directors of the Company.
a. Proposal for the approval of a merger agreement under which the Company is to be dissolved
b. Proposal for the approval of a company split agreement or company split plan under which theCompany is to be split
c. Proposal for the approval of a stock exchange agreement or stock transfer plan under which theCompany is to become a wholly owned subsidiaryd. Proposal for the approval of a change to the Company’s Articles of Incorporation to establish
provisions concerning the requirement for the Company’s approval regarding the acquisition of all
outstanding shares of stock through a transfer
e. Proposal for the approval of a change to the Company’s Articles of Incorporation to establish
provisions concerning a requirement for the Company’s approval regarding the acquisition througha transfer of shares issued upon the exercise of these stock options or concerning the acquisitionby the Company of all shares issued upon the exercise of stock options by resolution of theCompany’s General Meeting of Shareholders.

―39―iv) Resolution of the Board of Directors Meeting held on August 30, 2021 (12th series of share acquisition rights)
As of the end of the fiscal
year(March 31, 2023)
Category and number of persons subject to grants

As of the end of the month
before the filing date
(May 31, 2023)

55 employees

Number of share acquisition rights

1,000

1,000

Number of share acquisition rights that are own shareoptions‒‒

Class of shares to be acquired upon exercise of shareacquisition rights

Common share

Same as on the left

Number of shares to be acquired upon exercise of shareacquisition rights

100,000 shares

100,000 shares

Amount to be paid upon exercise of share acquisitionrights

8,310 yen per share

Same as on the left

Exercise period of share acquisition rights

From July 1, 2041
to Jun 30, 2043

Same as on the left

Issue price for shares that will be issued through theexercise of share acquisition rights and the amountcapitalized as common shares

Issue price: 15,792 yen
Amount capitalized ascommon shares: 7,896 yen

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 shareacquisition rights is subject toapproval by the Board of
Directors of the Company.

Same as on the left‒‒

(Note 5)Same as on the left

Matters regarding substitute payment
Matters regarding grant of share acquisition rights
accompanying reorganization(Notes) 1. The share acquisition rights were issued with a charge of 2,700 yen per share acquisition right.
2. Conditions for exercise of share acquisition rights(1) Persons who have received an allotment of stock acquisition rights (“Stock Acquisition Rights Holders”)
may exercise their stock acquisition rights in the period from July 1, 2041 to June 30, 2043 only, if theCompany’s operating profit for any of the fiscal years from the fiscal year ending March 31, 2022 to thefiscal year ending March 31, 2041 exceeds 20,630 million yen. Moreover, operating profit shall be defined
as operating profit as stated in the non-consolidated statement of income in the Company’s Annual
Securities Report, and in the event of a material change in the concept of operating profit to be referred
to due to the application of International Financial Reporting Standards, etc., the Board of Directors shallseparately determine the index to be referred to.
(2) Stock Acquisition Rights Holders must be directors, corporate auditors, or employees of the Company or
its subsidiaries at the time they exercise their stock acquisition rights. Provided, however, this provision
shall not apply to Stock Acquisition Rights Holders who have retired due to the expiration of their terms ofoffice, or stock acquisition right holders who have retired upon reaching the mandatory retirement age orfor other legitimate reasons that its Board of Directors may deem appropriate.
(3) In the event of the death of a Stock Acquisition Rights Holder, the exercise of these rights by his/her heirs
shall not be permitted.
(4) Other conditions shall be as set forth in the stock acquisition right allotment agreement to be concluded
between the Company and the Stock Acquisition Rights Holders.

―40―

3.

The class of shares to be issued upon the exercise of the stock acquisition rights shall be the common stock of
the Company, and the number of shares to be issued upon exercise of the stock acquisition rights (the “Numberof Shares Granted”) shall be 100 shares per stock acquisition right.
After the date of the allotment of the Stock Acquisition Rights (the “Allotment Date”), if the Company conducts
a stock split (including the gratis allotment of the Company’s common stock; hereinafter the same shall apply
for any description of a stock split) or a reverse stock split of its common stock, the Number of Shares Granted
shall be adjusted for the Stock Acquisition Rights that have not been exercised at the time of the stock split orreverse stock split by the following calculation formula.
Number of shares granted after adjustment = Number of shares granted before adjustment × Ratio of stock split
or reverse stock split
In addition to the above, if unavoidable circumstances arise that require the adjustment of the Number of Shares
Granted, the Company may adjust the Number of Shares Granted as deemed necessary by the Board of
Directors of the Company.
Any fractions less than one (1) share resulting from the above adjustment shall be rounded down.
4. The amount to be paid upon exercise of this stock acquisition right shall be the amount obtained by multiplying
the amount to be paid in per share issued or transferred through the exercise of the stock acquisition right (the“Issue Amount”) by the Number of Shares Granted.
The Exercise Price shall be 8,310 yen. The Exercise Price is equal to the closing price of the Company’scommon stock on the Tokyo Stock Exchange on August 27, 2021.
If any of the reasons shown below arise after the Allotment Date, the Exercise Price shall be adjusted
accordingly.
(1) If the Company conducts a stock split or a reverse stock split of its common stock, the Exercise Price shallbe adjusted according to the following formula, and any fraction of less than one (1) yen arising from theadjustment shall be rounded up to the nearest one (1) yen.
Exercise price after
adjustment=

Exercise pricebeforeadjustment

1×
Ratio of split or reverse split(2) In the event that the Company issues new shares of common stock of the Company or disposes oftreasury stock at a price lower than the market price (excluding sale of treasury stock pursuant to theprovisions of Article 194 of the Companies Act (request for sale of shares constituting less than one unitby shareholders constituting less than one unit), or the case of conversion of securities convertible into or
can be converted into shares of common stock of the Company or the case of the exercise of stockacquisition rights to claim delivery of shares of common stock of the Company (including those attached
to bonds with stock acquisition rights)), the Exercise Price shall be adjusted according to the following
formula, and any fraction less than one (1) yen arising from the adjustment shall be rounded up to thenearest one (1) yen.

Exercise price
Exercise priceafter=
before×
adjustment
adjustment

Number of shares+
outstanding

Number of shares
newly issued

×

Amount to be paid per
share

Fair market value per share

Number of shares outstanding + Number of shares newly issued

The “number of shares already issued” in the above formula shall be the number obtained by subtracting
the number of treasury shares held by the Company from the total number of issued shares of theCompany, and in the case of disposal of treasury shares, the “number of shares newly issued” shall be
replaced with the “number of shares to be disposed of” and the “amount to be paid per share” with the“amount to be disposed of per share.”(3) In the event of a merger of the Company, a corporate split, or in any other cases where the adjustment of
the exercise price is necessary in accordance with these cases, the exercise price shall be adjusted tothe extent necessary and reasonable.

―41―5. If the Company engages in a merger (only if the Company ceases to exist after the merger), absorption-typecompany split or incorporation-type company split (in each case only if the Company is the split company), ora stock exchange or stock transfer (in each case only if the Company becomes a wholly-owned subsidiary)(hereinafter collectively referred to as “Reorganization Actions”), the Company shall deliver to Stock Acquisition
Right Holders who hold any stock acquisition rights remaining (hereinafter referred to as the “Remaining Stock
Acquisition Rights”) directly before the effective date of the Reorganization Actions (effective date of absorptiontype merger in case of absorption type merger, date of incorporation of joint stock company established byconsolidation-type merger in case of consolidation-type merger; effective date of absorption-type split in caseof absorption-type split; date of incorporation of company established by incorporation-type split in case ofincorporation-type split; effective date of stock exchange in case of stock exchange; or date of incorporation ofparent company established by stock transfer in case of stock transfer; the same applies hereinafter) the stockacquisition rights of the relevant stock companies listed in Article 236, paragraph 1, No.8 -(a) through (e) of theCompanies Act (hereinafter referred to as the “Reorganized Company”). Provided, however, that the foregoingshall be on the condition that the allotment of such stock acquisition rights by the Reorganized Company inaccordance with each of the following items is stipulated in an absorption-type merger agreement, aconsolidation-type merger agreement, an absorption-type company split agreement, an incorporation-typecompany split plan, a share exchange agreement or a share transfer plan.
(1) Number of share acquisition rights of the Reorganized Company to be allotted
The Number of Stock Acquisition Rights shall be the same as the number of remaining stock acquisitionrights held by the Stock Acquisition Rights Holders(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
It shall be determined in accordance with the following, taking into consideration the terms and conditionsof the Reorganization Actions.
The class of shares to be issued upon the exercise of the stock acquisition rights shall be the common
stock of the Company, and the number of shares to be issued upon exercise of the stock acquisition rights(the “Number of Shares Granted”) shall be 100 shares per stock acquisition right. After the date of theallotment of the Stock Acquisition Rights (the “Allotment Date”), if the Company conducts a stock split(including the gratis allotment of the Company’s common stock; hereinafter the same shall apply for any
description of a stock split) or a reverse stock split of its common stock, the Number of Shares Granted
shall be adjusted for the Stock Acquisition Rights that have not been exercised at the time of the stock
split or reverse stock split by the following calculation formula.
Number of shares granted after adjustment = Number of shares granted before adjustment × Ratio ofstock split or reverse stock split
In addition to the above, if unavoidable circumstances arise that require the adjustment of the Number of
Shares Granted, the Company may adjust the Number of Shares Granted as deemed necessary by the
Board of Directors of the Company.
Any fractions less than one (1) share resulting from the above adjustment shall be rounded down.
(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 stock acquisition right to be delivered shallbe the amount obtained by multiplying the exercise price after reorganization, obtained throughadjustment of the Exercise Price provided for in 6. above taking into consideration factors such as theterms and conditions of the Reorganization Actions, by the number of shares of the Reorganized Company
to be issued upon exercise of each of such stock acquisition right as determined in accordance with (3)above.
(5) Exercise period of share acquisition rights
The period shall be from July 1, 2041 to June 30, 2043.

―42―

(6) Matters concerning share capital and legal capital surplus to be increased due to issuance of shares upon
exercise of share acquisition rights(i) The amount of share capital to be increased due to the issuance of shares upon the exercise of theStock Acquisition Rights shall be half of the maximum amount of increase in share capital, etc., that is
calculated pursuant to Article 17, Paragraph 1 of the Corporate Accounting Rules, and any fraction ofless than one (1) yen resulting from the calculation shall be rounded up to the nearest one (1) yen.
(ii) The amount by which the legal capital surplus increases through the issuance of shares upon theexercise of share acquisition rights shall be the upper limit of the increase in the amounts of statedshare capital and other items described in (i) above, less the increase in the amount of stated sharecapital 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 theBoard of Directors of the Reorganized Company.
(8) Clause on the acquisition of share acquisition rights(i) In the event that the Stock Acquisition Rights Holder is unable to exercise the stock acquisition rights
due to the provisions of 2 above or the stock acquisition right allotment agreement before exercising
the rights, the Company may acquire such stock acquisition rights without consideration on a dateseparately determined by the Board of Directors of the Company.
(ii) If any of the following proposals, a, b, c, d or e, are approved at a general meeting of shareholders of
the Company (or approved by the Board of Directors of the Company if a resolution of a general
meeting of shareholders is not required), the Company may acquire the stock acquisition rights without
consideration on a date separately determined by its Board of Directors of the Company.
a. Proposal for the approval of a merger agreement under which the Company is to be dissolved
b. Proposal for the approval of a company split agreement or company split plan under which theCompany is to be split
c. Proposal for the approval of a stock exchange agreement or stock transfer plan under which theCompany is to become a wholly owned subsidiaryd. Proposal for the approval of a change to the Company’s Articles of Incorporation to establish
provisions concerning the requirement for the Company’s approval regarding the acquisition of all
outstanding shares of stock through a transfer
e. Proposal for the approval of a change to the Company’s Articles of Incorporation to establish
provisions concerning a requirement for the Company’s approval regarding the acquisition througha transfer of shares issued upon the exercise of these stock options or concerning the acquisitionby the Company of all shares issued upon the exercise of stock options by resolution of theCompany’s General Meeting of Shareholders.

―43―

(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 inBalance of
Change in the Balance of the Change inBalance oflegal capital legal capital
total number of total number of common stock share capitalsurplus (million surplus (million
issued shares issued shares (million yen) (million yen)
yen)
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 increase of 13,991,670 shares.
(5) Shareholders Composition
As of March 31, 2023
Status of shares (one unit of stock: 100 shares)
Category

Financial
Governmen
Financial instruments
Other
t and
institution
business
institution
municipality
operator

Foreign corporations,etc.
Individuals
Individuals and others
Nonindividuals

Total

Number ofshares lessthan oneunit(shares)Number ofshareholde
―
15
38
47
184
15
5,549
5,848
―
rs
Share
ownership―
30,111
2,722
10,16552,50068
45,631 141,197
13,300(units)Ownership
percentage
―
21.32
1.93
7.20
37.18
0.05
32.32
100.00―of shares(%)(Note) Of 93,833 treasury shares, 938 units are included in the “Individuals and others” column, while 33 shares are includedin the “Number of shares less than one unit” column.

―44―(6) Major Shareholders

Name

Address

As of March 31, 2023
Ratio (%) of thenumber of owned
shares to the total
Share ownershipnumber of(shares)
outstanding shares(excluding treasury
shares)Toshio Dogu

Minato-ku, Tokyo

2,253,226

16.05

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

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

1,649,400

11.75

Custody Bank of Japan, Ltd.
(Trust Account)

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

1,099,300

7.83

DAM Corporation

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

710,000

5.06

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

666,9024.75

240 GREENWICH STREET, NEW YORK, NY
10286, U.S.A.
(2-15-1 Konan, Minato-ku, Tokyo)

544,000

3.87

BANKPLASSEN 2, 0107 OSLO 1 OSLO 0107
NO
(2-7-1 Marunouchi, Chiyoda-ku, Tokyo)

450,600

3.21

1 FREEDOM VALLEY DR OAKSPENNSYLVANIA 19456 U.S.A(2-7-1 Marunouchi, Chiyoda-ku, Tokyo)

397,629

2.83

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

333,300

2.37

BOULEVARD ANSPACH 1, 1000
BRUXELLES, BELGIUM(2-7-1 Marunouchi, Chiyoda-ku, Tokyo)

274,100

1.95

8,378,457

59.68

BNYMSANV RE
BNYMSANVDUB RELEGAL (AND) GENERAL UCITSETF
PLC (Standing proxy: MUFG
Bank, Ltd.)THE BANK OF NEW YORKMELLON 140044(Standing proxy:
Settlement & Clearing Services
Department, Mizuho Bank, Ltd.)
GOVERNMENT OF NORWAY(Standing proxy: Citibank N.A.,
Tokyo Branch)
BBH FOR GLOBAL XCYBERSECURITY ETF(Standing proxy: MUFG Bank,Ltd.)NORTHERN TRUST CO.(AVFC)
RE MONDRIANINTERNATIONAL SMALL CAPEQUITY FUND, L.P. (Standing
proxy: HSBC Tokyo Branch,
Custody Service Department)
THE BANK OF NEW YORKMELLON SA/NV 10 (Standing
proxy: MUFG Bank, Ltd.)
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 Master Trust Bank of Japan, Ltd. (Trust Account) could
not be confirmed by the Company and is, therefore, omitted.
3. The number of shares pertaining to the trust services of Custody 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 93,833 treasury shares.

―45―

5. The content of reports on large shareholders whose shareholdings could not be confirmed as of March 31,
2023 (change reports) is as follows.
The large shareholding report (change report) made available for public inspection on July 27, 2022 reportsthat Mondrian Investment Partners Limited held the following shares as of July 21, 2022. However, theCompany has confirmed no beneficial ownership of the number of shares held in the name of this party as ofMarch 31, 2023, and therefore, the following is not taken into consideration in the above status of major
shareholders.
The content of the large shareholding report (change report) concerned is given below.

Name

Address

Mondrian Investment
Partners Limited

Sixty London Wall 10th Floor, London,
EC2M 5TQ, UK

Total

―

Number ofsharecertificates,etc. held(shares)

Ownership
ratio of sharecertificates(%)

1,079,000

7.63

1,079,000

7.63(7) Information on Voting Rights(i) Issued Shares
As of March 31, 2023
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

CommonsharesCommonsharesCommonsharesNumber of issued shares

93,80014,025,900

140,259

13,30014,133,000

Total number of voting rights

―

―

―

―

―
140,259――(ii) Treasury Shares, etc.

Number of shares held
under own name

Digital Arts Inc.
Total

As of March 31, 2023
Ownership
Number of percentage toshares held
the total
under own
number of
nameissued shares(%)

Number of shares held
under the name of others

Total shares
held (shares)

Number ofshares held
under thename ofothers1-5-1 Otemachi, Chiyodaku, Tokyo, Japan

93,800―93,8000.7―

93,800―93,8000.7―46―

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

Class of shares(1) Acquisition of treasury shares resolved at the general meeting of shareholders
Not applicable.
(2) Acquisition of treasury shares resolved at the Board of Directors meetings
Category

Number of shares (shares)

Status of resolution at meeting of Board of Directors(May 9, 2023)(Acquisition period: May 10, 2023 to July 7, 2023)

Total amount (yen)120,000

500,000,000

Treasury shares acquired before this fiscal year――

Treasury shares acquired during this fiscal year――

Total number and total value of treasury shares still tobe acquired based on resolution――

Ratio of treasury shares yet to be acquired as of March
31, 2023 (%)――

Treasury shares acquired during the current period

37,100207,192,000

Ratio of treasury shares yet to be acquired as of June
26, 2023 (%)

69.1

58.6

(3)Details of acquisition of treasury shares not based on the resolutions of the general meeting of shareholders or the Boardof Directors meetings.
Category

Number of shares (shares)

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

102735,050

Treasury shares acquired during the current period――(Note) Treasury shares acquired during the current period do not include the number of shares acquired throughpurchases of shares constituting less than one full unit between June 1, 2023 and June 26, 2023.
(4) Status of the disposition and holding of acquired treasury shares
Current business year
Category
Acquired treasury shares whichwere offered to subscribers
Acquired treasury shares whichwere canceled
Acquired treasury shares whichwere transferred due to merger,
share exchange, share issuance orcompany split
Other (Note)

Current period

Number of shares(shares)

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

Total disposition
amount (yen)

―

―

―

―

―

―

―

―

―

―

―

―

―

―

―

―

Total number of treasury shares
93,833―130,933―
held(Notes) Total number of treasury shares held in the current period does not include the number of shares held through theexercise of share acquisition rights or purchases of shares constituting less than one full unit between June 1, 2023
and June 26, 2023.

―47―

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 ouroperating 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 ofat 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 finance capital expenditures and R&D spending.
Our Articles of Incorporation state that we may, by resolution of the Board of Directors, pay interim dividends with a record
date of September 30 each year, and our dividend forecast for the year ending March 31, 2024 is 75 yen per share (which
includes an interim dividend of 35 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 28, 2022
Resolution of the Annual General
Shareholders Meeting held on
June 23, 2023

Dividend per share (yen)
491

35

561

40

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 theroles and responsibilities incidental to this,” “maintaining objective checking systems both internally and externally”
and “ensuring timely and fair disclosure” and we will endeavor to continue maintaining and strengthening thisapproach 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 amajor of Outside Directors. Directors who are Audit & Supervisory Board Members including Outside Directors haveexpertise in fields such as finance, law and business 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 business execution body, it holds meetings once a month in principle to make decisions on importantmatters that are fundamental to management.
Toshio Dogu (Chairman, Representative Director, President & CEO, Internal Director)
Takuya Matsumoto (Internal Director)
Kiyoto Inomata (Standing Audit & Supervisory Board Member, Internal Director)
Hidekazu Kubokawa (Audit & Supervisory Board Member, Outside Director)
Masataka Uesugi (Audit & Supervisory Board Member, Outside Director)
Chise Kuwayama (Audit & Supervisory Board Member, Outside Director)―48―

The Company held a total of 13 meetings of the Board of Directors during the fiscal year under review, andthe attendance of individual Directors is as follows:
Number of meetings
Name
convened

Number of meetings
attendedToshio Dogu

13

13

Takuya Matsumoto

13

13

Kiyoto Inomata

13

13

Hidekazu Kubokawa

13

12

Masataka Uesugi

13

13

Chise Kuwayama

13

13

Major matters considered at meetings of the Board of Directors included basic policies concerning themanagement of the Company, important business execution matters, matters authorized by resolutions of theGeneral Meeting of Shareholders, and matters stipulated by laws, regulations and the Articles of Incorporationof the Company. Sustainability-related matters discussed by the Sustainability Committee that are disclosed
on the Company’s website, as well as the contents of the Skill Matrix, Annual Securities Report, Corporate
Governance Report, Quarterly Reports, and other disclosure information are reported to the Board of Directors
for discussion prior to disclosure, and discussions are also held regarding the executive remuneration systemand the results of the questionnaire on the effectiveness evaluation of the Board of Directors.
In addition to the above, regular monthly meetings of the Board of Directors are held to report on financial
results, product development, and the progress of internal controls.
(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 inprinciple 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) Nomination and Remuneration Advisory Committee
The Nomination and Remuneration Advisory Committee is comprised of the following four Directors, of whomthree are Outside Directors. The Committee holds at least one meeting a year, in principle, and deliberates
and reports on matters regarding the nomination of and remuneration for Directors, among other matters.
Toshio Dogu (Chairperson, Representative Director, President & CEO, 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)―49―

The Company held one meeting of the Nomination and Remuneration Advisory Committee during the fiscal
year under review, and the attendance of individual members is as follows:
Number of meetings
Number of meetings
Name
convened
attendedToshio Dogu

1

1

Hidekazu Kubokawa

11Masataka Uesugi

11Chise Kuwayama

11Major matters considered at meetings of the Nomination and Remuneration Advisory Committee included
matters concerning the selection of candidates for Directors at the General Meeting of Shareholders and the
remuneration system for the Company’s Executive Directors, etc. The results of the discussions held by the
Nomination and Remuneration Advisory Committee are reported to the Board of Directors.
(3) Other
The Company holds meetings of the Executive Committee once a month. Serving as a body preceded by
the Board of Directors, it consists 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 decision-making 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 ineach division and builds consensus. These meeting bodies clarify their respective roles and responsibilities
and seek to enrich discussions at the Board of Directors and give shape to its decisions. We have alsoestablished functional departments responsible for clarifying the segregation of duties and ensuring checks
and balances to maintain corporate governance.
An overview of the Group’s management organization and systems for maintaining corporate governance are as shownin the following figure.

―50―

(Note) The Executive Committee includes the Management Reporting and Liaison Committee.
B. Reasons for adoption of the corporate governance structure
The Board of Directors and the Executive Committee are responsible for most of the important decision-making
related to execution of the Company’s business. The Board of Directors, which consists of six Directors, three ofwhom are Outside Directors, holds meetings in principle once a month and also meets on an ad hoc basis whenevernecessary. To complement managerial judgments on other 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 make decisions
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 themfor explanations where necessary and views important resolution documentation in accordance with the audit policy
and audit plan, etc. specified by the Audit & Supervisory Board. They work closely with the Accounting Auditor, theInternal Audit Department and others to maintain and improve the efficiency 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 decision-making and execution of duties by Directors and ensuring effective audits and supervision.

―51―

(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 andregulations and the Articles of Incorporation(1) The Group considers compliance to be its highest priority and establishes rules relating to compliance toensure that the Group’s officers and employees execute their duties in compliance with laws andregulations and the Articles of Incorporation and healthy social norms, implements initiatives such asproviding training and a whistleblowing system, and develops systems under which any problems thatarise are reported to the Company’s Board of Directors and Audit & Supervisory Board.
(2) The Company is required to convene a meeting of the Board of Directors once a month, in principle, andon 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 ofduties by Directors. The Company also seeks to ensure that Directors and employees comply with laws
and regulations, the Articles of Incorporation, various regulations and stipulated business processes andit 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 throughinternal audits. The Internal Audit Department regularly conducts internal audits of the Group’s business
management and all its business activities, evaluates and verifies the state of compliance with laws andregulations, the Articles of Incorporation, various rules and stipulated business processes 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 othercommittee members as an advisory body subordinate to the Board 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 and Directors 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 period of important documents (including electronic media) relating to the executionof duties by Directors and stores and manages them in accordance with these rules.
c. Rules and other systems relating to management of loss risks of the Group(1) To establish systems relating to management of loss risks of the Group, the Company establishes rules
relating to the Group’s risk management and raises awareness of these rules among Directors andemployees.
(2) The Company establishes the Internal Audit Department. It regularly examines the appropriateness of theaudit items and audit methods used in the Group’s business audits and revises audit items and audit
methods if necessary.

―52―

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 businessplan every fiscal year and verifies progress through monthly performance assessments.
(2) Regarding the execution of routine duties by Directors, the Board of Directors delegates authority for the
execution of duties to employees in accordance with the Rules on Administrative Authority and Rules on
the Segregation of Duties and these employees assume responsibility for efficient execution of thedelegated 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 in accordance with the Internal Audit Rules, establishes internal control systems within
the Group, and reports on the nature and frequency of risks within individual divisions and subsidiaries
and their impact on the Company and others to the Board of Directors and the Audit & Supervisory Boardof 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 theduties 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 the effectiveness of instructions to Directors and employees required toassist the duties of the Audit & Supervisory Board(1) Employees required to assist the duties of the Audit & Supervisory Board are only under the command of
the Audit & Supervisory Board with respect to the work they are instructed to do by the Audit & Supervisory
Board.
(2) The Company will listen to the opinions of the Audit & Supervisory Board before determining matters suchas personnel transfers and personnel evaluations of employees required to assist the duties of the Audit& Supervisory Board.
h. Systems for reporting to the Audit & Supervisory Board(1) The Company’s Directors report the status of execution of their duties at meetings of the Board of Directors
attended by Audit & 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 and regulations 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 of whistleblowing 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 treated disadvantageously 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 ofduties 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 3992, Paragraph 4 of the Companies 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.

―53―

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 theenvironment 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 andopinions 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 otherrelationship 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 businessrisks 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 businessrisks, including the possibility of risks emerging, and makes reports to the Board of Directors where necessary.
The Audit & Supervisory Board conducts audits to assess whether the Board of Directors makes policy decisions
and conducts monitoring and supervision in relation to business risks in an appropriate manner.
C. Status of development of systems for ensuring the appropriateness of operations of subsidiaries
The Company and Group companies have formulated a Corporate Code of Conduct based on the Group’s
management philosophy and make group-wide efforts to increase the corporate value of the entire group.
Regarding the business management of Group companies, Directors of the parent company serve concurrently
as Directors of subsidiaries and are involved in important decision-making and gain an understanding of important
information relating to their business. The Audit & Supervisory Board and persons in charge of internal audits also
monitor Group companies and the Affiliated Company 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 & 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 bemade by a majority of voting rights of the shareholders in attendance who hold one-third (1/3) or more of the total
voting rights of the shareholders who can exercise such rights. The Articles of Incorporation of the Company
stipulate that resolutions for the election of Directors shall not be by cumulative voting.
F. Decision-making body for acquisition of treasury shares
To facilitate a flexible capital policy, the Articles of Incorporation of the Company stipulate that the Company may,by the resolution of the Board of Directors, acquire its own shares pursuant to Article 165, Paragraph 2 of theCompanies Act.

―54―

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 to enable flexibility in regard to return of profit to shareholders.
H. Content and outline of agreements for limitation of liability
In accordance with the provisions of Article 427, Paragraph 1 of the Companies Act, the Company concludes
agreements with Directors who are Audit & Supervisory Board Members to limit the liability for damages pursuant
to Article 423, Paragraph 1 of the Companies Act. The maximum amount of liability for compensation of damages
under these agreements is the amount set forth in laws and regulations. Limitation of liability is allowed only if a
Director who is an Audit & Supervisory Board Member was performing the duties said to be the cause of damages,
in good faith and without gross negligence.
I. Exemption of Directors from liability
The Articles of Incorporation of the Company stipulate that the Company may, by resolution of the Board of
Directors, exempt any Director prescribed in Article 423, Paragraph 1 of the Companies Act (including former
directors) from liabilities to the extent provided in laws and regulations, for the reasonable limitation of Directors’
liability.
J. Requirement for special resolutions of general shareholders meetings
The Articles of Incorporation of the Company stipulate that a special resolution of general meetings ofshareholders 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 the meeting, at which shareholders representing at least one-third (1/3)
of the total voting rights of all shareholders who are entitled to vote are present. The purpose is to relax thequorum for special resolutions at general meetings of shareholders to ensure the meetings proceed smoothly.

―55―

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

Name

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

Representative
Director,
President, CEO
February 17,
and General
Toshio Dogu
1968
ManagerCorporation
Planning

April 2014
November
2014
April 2015
November
2015
April 2016
April 2016
September
2016
April 2017

Term ofofficeShareownership(shares)(Note 2)

2,253,226(Note 2)

3,115

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.
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.
April 2018
Representative Director, President & CEO, General ManagerSales, General Manager-Marketing
October 2019 Representative Director, President & CEO, General ManagerSales, General Manager-Marketing, General ManagerCorporation Planning, General Manager- Administration
February 2020 Representative Director, President and CEO
August 2022 Representative Director, President & CEO, General ManagerCorporation Planning, (incumbent)
April 1999
April 2003
April 2014
October 2016
Director, General
TakuyaNovember 4,ManagerJune 2017
Matsumoto
1976
Development
December
2017
April 2018
October 2019

Joined COMAS Co., Ltd.
Joined Digital Arts Inc., Development
Associate General Manager-Development
General Manager-Development
Director, General Manager-Development
Director, General Manager-Development, General Manager-New
Development
Director, General Manager-Development (incumbent)
Director, Digital Arts Consulting Inc. (incumbent)―56―

April 1995
January 2003
July 2004

Director (Audit &Supervisory Board
Member)KiyotoInomata

July 7, 1967

November
2005
April 2006
June 2007
June 2008
April 2011
April 2015
June 2020
June 2020

Joined Tokyo Gas Co., Ltd.
Personnel Dept. (Dispatched to Digital Arts Inc. for management
training)
Seconded to Energy Advance Co., Ltd. (currently Tokyo Gas
Engineering Solutions Corporation)
Joined Digital Arts Inc., Corporate Planning
Deputy General Manager- Development
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)

Joined Chuo Audit Corporation(currently PricewaterhouseCoopers Aarata LLC)
Founded Kubokawa CPA Office (currently Yotsuya Partners
Accounting Firm), Representative Partner (incumbent)
February 1989 Outside Audit & Supervisory Board Member, SoftBank Corp.
Director (Audit &Japan (currently SoftBank Group Corp.)
Hidekazu February 20,
Supervisory Board
Kubokawa
1953
March 2000 Outside Auditor, Digital Arts Inc.
Member)June 2005
Outside Corporate Auditor, Kyoritsu Printing Co., Ltd.
(incumbent)
June 2006
Outside Auditor, Pado Corporation
June 2016
Outside Director (Audit & Supervisory Board Member), Digital
Arts Inc. (incumbent)(Note 3)

144

(Note 3)3,617

(Note 3)3,617

(Note 4)

159

November
1976
July 1986

Director (Audit &Masataka
Supervisory Board
July 31, 1965
UesugiMember)April 1995
April 1999
September
2000
June 2003
June 2003

Joined Emori Kawamori Atsumi Law Office
Founded Uesugi Law OfficePartner of Amlec Law and Accounting Firm

December
2013
November
2014
March 2015
March 2016

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)
Joined Emori Kawamori Atsumi Law Office
Founded Uesugi Law Office

June 2016
April 1995
April 1999
April 1995

Director (Audit &ChiseSupervisory Board
May 2, 1971
Kuwayama
Member)November
2004
August 2008
March 2015
March 2021
June 2022

Outside Auditor, Digital Arts Inc.
Outside Auditor, Commerce One Holdings Inc. (incumbent)

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.
Outside Standing Audit & Supervisory Board Member, Sony
Network Communications Smart Platform, Inc. (currently, MEEQ
Inc.) (incumbent)
Total

2,263,878―57―

(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 thelast business year ending within one (1) year after the conclusion of the Annual General Meeting of Shareholders
held on June 23, 2023.
3. The term of office shall expire at the conclusion of the Annual General Meeting of Shareholders pertaining to thelast business year ending within two (2) years after the conclusion of the Annual General Meeting of Shareholders
held on June 21, 2022.
4. The term of office shall expire at the conclusion of the Annual General Meeting of Shareholders pertaining to thelast business year ending within two (2) years after the conclusion of the Annual General Meeting of Shareholders
held on June 23, 2023.
5. The number of shares held includes shares of stock in Digital Arts Inc.’s officers’ shareholding association.
(ii) Information about Outside Officers
The Company has three Outside Directors.
Outside Director Hidekazu Kubokawa holds 3,617 shares of the Company’s stock as of March 31, 2023, 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 3,617 shares of the Company’s stock as of March 31, 2023, 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 159 shares of the Company’s stock as of March 31, 2023, but there areno other special interests between Ms. Kuwayama and the Company.
The Company elects Outside Directors to ensure the objectivity and neutrality of supervisory functions ofmanagement.
While the Company has not established standards or a policy for judging the independence of Outside Directors,
it refers to the requirements for independence stipulated by the Tokyo Stock Exchange when electing Outside
Directors. The Outside Directors have the function of auditing the execution of duties by Directors from theperspectives of legality and appropriateness, based on their independence and specialist knowledge.
(iii) Mutual Collaboration between Audits or Supervision by Outside Officers, Audits by the Audits & Supervisory Board andAccount Audits and Relationship with Internal Control Department
Together with Directors who are Standing Audit & Supervisory Board Members, the Outside Directors receive
detailed reports on important events and risk factors as part of the results of internal audits conducted on a regularbasis 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 and assistants involved in the audit operations. Internal Auditors report the status ofinternal controls, etc. to Outside Directors via the Board of 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 andthe 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 &―58―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, inprinciple. Attendance of individual Audit & Supervisory Board Members was as follows.
Number of meetings
Number of meetings
Name
convened
attendedStanding Audit &Supervisory Board
Kiyoto Inomata
1212MemberOutside Audit &Supervisory Board
Hidekazu Kubokawa
12
11
MemberOutside Audit &Supervisory Board
Masataka Uesugi
1212MemberOutside Audit &Supervisory Board
Chise Kuwayama
1212
MemberImportant matters considered at meetings of the Audit & Supervisory Board included the formulation of audit plans,
the preparation of audit 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 theimplementation status of internal audits from those in charge, exchanging opinions with/ gathering information fromthe 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.
When conducting internal audits, the person in charge of internal audits is required to formulate an annual plan andconduct 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, who reports directly to the President,
systematically conducts internal audits and investigations of all departments of the Company, reports the results to
the President and the Audit & Supervisory Board, makes requests for improvements to the audited departments, andconducts follow-ups. In addition, the Internal Audit Department meets with the Internal Control Department as
appropriate and makes recommendations for the maintenance and strengthening of controls based on the audit
results. With regard to internal control audits based on the Financial Instruments and Exchange Act, the Internal Audit
Department conducts detailed audits of Internal Control Department, in cooperation with the Accounting Auditor, toensure the appropriateness and efficiency of internal control over financial reporting.
(iii) Information about Accounting Audit
A. Name of audit corporation
BDO Sanyu & Co.
B. Tenure
23 years
C. Certified public accountants who execute operations
Mr. So Nomura
Mr. Hiroaki Nakanishi
D. Composition of assistants with audit operations
Assistants with the Company’s accounting audit operations mainly comprise two certified public accountants, two
persons who have passed accountant examinations and one other person.

―59―

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 theCompanies Act or the Certified Public Accountants Act or if it is deemed difficult for the accounting auditor to
conduct an audit properly, the Audit & Supervisory Board examines dismissing or not reappointing the accounting
auditor. If, as a result of its examination, the Audit & Supervisory Board judges that it is appropriate to dismiss or
not to reappoint the accounting auditor, the Audit & Supervisory Board puts forward a proposal for the dismissal
or non-reappointment of the accounting auditor to the general meeting of shareholders. The Audit & Supervisory
Board also examines each period whether reappointment of the accounting auditor is appropriate and whether
the status of execution of duties, the audit systems, independence, etc. of the accounting auditor are appropriate.
If as a result of its examination, no major problems are found, the Audit & Supervisory Board conducts anevaluation of the accounting auditor and judges that reappointment is appropriate
F. Evaluation of audit corporation by Audit & Supervisory Board
The Company’s Audit & Supervisory Board conducts an evaluation of the audit corporation by receiving reports
from the audited executive divisions, asking the audit corporation about results of inspections by the supervisory
authorities and its internal quality control systems and comprehensively examining whether the audit corporation
maintains the quality of audits and conducts audits properly through witnessing onsite audits.
(iv) Audit Fees
A. Fees paid to certified public accountants, etc.
Previous fiscal year
Category

Fiscal year under review

Fees for audit services Fees for non-audit Fees for audit services Fees for non-audit(million yen)services (million yen)(million yen)services (million yen)

Reporting company

19

―

20

―

Consolidated
subsidiaries

―

―

―

―

Total

19

―

20

―

B. Fees paid to other accountants belonging to the same network as the certified public accountants, etc. (excludingA.)
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, the Company’s business scale and the characteristics of its operations.
E. Reasons why the Audit & Supervisory Board consented to the fees, etc. of the accounting auditor
The Audit & Supervisory Board gave consent for the fees, etc. of the accounting auditor proposed by the Boardof Directors under Article 399, Paragraphs 1 and 3 of the Companies Act, because, having confirmed the statusof 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 theaccounting auditor and having examined the content of the audit plan and the appropriateness of the basis forcalculation of estimated fees for the current business year, it judged these fees, etc. to be appropriate.

―60―

(4) Compensation to Directors and Executive Officers(i) Matters Related to Policy for Determining the Amount and Method of Calculation of Compensation to Directors andExecutive 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 thecorporate value as a whole and remuneration for each Director is to be determined at an appropriate level inconsideration of their duties. Specifically, the base remuneration for the Company’s Directors is fixed on a monthly
basis. The Company pays remuneration in overall consideration of the Company’s business results, status ofmanagement, social circumstances, degree of contribution according to their duties, number of years of service
and the levels of remuneration at other companies. The Company’s non-monetary remuneration for Directors
include (1) the provision of share acquisition rights for the Company’s common shares, and (2) the allotment ofshares 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 theBoard 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 amountof a Director who is an Audit & Supervisory Board Member is fixed remuneration that takes into consideration
factors such as whether the post 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, the Nomination 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
the basis 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 per year, 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 four 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 in overall considerationof 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 closeof this Annual Shareholders’ Meeting, the Company had three Directors who were Audit & Supervisory Members,
including two Outside Directors.

―61―

(ii)Total Amount of Remuneration, etc. for Each Executive Officer Category, Total Amount of Remuneration, etc. by Typeand Number of Executive Officers

Category of officers

Total amount of remuneration, etc. bytype (million yen)

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)
Outside Directors

Basic remuneration

Stock options

Number of eligible
officers

83

83

―

2

12

12

―

1

10

10

―

3

(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
Officers who also holdemployeeposts(people)Total amount(million yen)
14

１

Description
Salary as consideration for services rendered.

(5) Information on Shareholdings
Not applicable.

―62―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, and Preparation Methods of Consolidated Financial Statements (Ordinance of the Ministry of Finance No. 28 of1976).
(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 non-consolidated financial statements are prepared as provided in Article 127 of the Ordinance on Non-Consolidated
Financial Statements.
2. Audit Certification
The Company underwent an audit by BDO Sanyu & Co. of the consolidated financial statements for the consolidated fiscal
year (from April 1, 2022 to March 31, 2023) and the non-consolidated financial statements for the fiscal year (from April 1,
2022 to March 31, 2023) in compliance with the provisions of Article 193-2, Paragraph 1 of the Financial Instruments andExchange Act.
3. Specific Efforts to Secure the Appropriateness of the Consolidated Financial Statements, etc.
The Company has undertaken specific measures to secure the appropriateness of its consolidated financial statements, etc.
The Company is a member of the Financial Accounting Standards Foundation (FASF) and endeavors to gather information
to properly understand accounting standards and develop systems that enable it to ensure the appropriateness of
consolidated financial statements.
The Company also actively participates in seminars held by the FASF.

―63―

1. Consolidated Financial Statements(1) Consolidated Financial Statements(i) Consolidated Balance Sheet(Million yen)
Fiscal 2022
(As of March 31, 2022)

Fiscal 2023
(As of March 31, 2023)

AssetsCurrent assets
Cash and deposits
Notes receivable - trade

15,77374

17,018148

Accounts receivable - tradeFinished goods

1,142
0

1,426
19

3
111

3
309

17,10518,925

Supplies
Other
Total current assets
Non-current assets
Property, plant and equipment
Buildings

220

220

(132)

(136)

88

83

18

18

Accumulated depreciation

(9)

(13)

Vehicles, net

85

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

493

506

(409)

(412)

83

93

Land

26

26

Total property, plant and equipment

206

209

Software
Other

1,317
209

1,264
243

Total intangible assets

1,526

1,508

Investments and other assets
Investment securities

101

101

96
304

116
288

Intangible assets

Deferred tax assets
Other
Total investments and other assets
Total non-current assets
Total assets

―64―

503

506

2,236

2,223

19,341

21,149(Million yen)
Fiscal 2022
(As of March 31, 2022)

Fiscal 2023
(As of March 31, 2023)

Liabilities
Current liabilities
Accounts payable - trade
Income taxes payable
Provision for bonuses
Advances received
Other
Total current liabilities
Non-current liabilities
Asset retirement obligations
Other
Total non-current liabilities

44
760

238
839

95
5,684

156
5,187

546

502

7,130

6,924

48

48

1

1

50

50

7,181

6,975

713
953

713
953

Retained earnings
Treasury shares

10,758(307)

12,768(308)

Total shareholders' equity

12,11814,127

11

14

11

14

12
17

11
20

12,15914,173

19,341

21,149Total liabilities
Net assets
Shareholders' equity
Share capital
Capital surplus

Accumulated other comprehensive income
Foreign currency translation adjustment
Total accumulated other comprehensive
incomeShare acquisition rights
Non-controlling interests
Total net assets
Total liabilities and net assets―65―

(2) Consolidated statement of income and consolidated statement of comprehensive income
Consolidated statement of income

Net sales
Cost of sales

Fiscal 2022
(from April 1, 2021
to March 31, 2022)
9,051
2,676

Gross profit(Million yen)
Fiscal 2023
(from April 1, 2022
to March 31, 2023)
10,436
3,666

6,374

Selling, general and administrative expenses*1 *2Operating profit

2,248
4,126

Non-operating income
Interest income

6,769
*1 *2

2,356
4,413

0

0

Foreign exchange gains
Gain on forfeiture of unclaimed dividends

6
1

12
1

Miscellaneous income

01

Total non-operating income

8

15

4,135

4,429

Ordinary profit
Extraordinary income
Gain on reversal of share acquisition rights
Gain on sales of non-current assets*3

Total extraordinary income

1

1

0

－

1

1

Extraordinary losses
Loss on retirement of non-current assets*4

Total extraordinary losses

0

*4

0

0

0

Profit before income taxes

4,136

4,430

Income taxes – current
Income taxes – deferred

1,203
26

1,385
(19)

Total income taxes

1,229

1,365

Profit

2,906

3,064

Profit attributable to non-controlling interests
Profit attributable to owners of parent

―66―

5

2

2,900

3,062

Consolidated statement of comprehensive income

ProfitOther comprehensive income

Fiscal 2022
(from April 1, 2021
to March 31, 2022)
2,906

Foreign currency translation adjustment(Million yen)
Fiscal 2023
(from April 1, 2022
to March 31, 2023)
3,064

3

Total other comprehensive income

*1

3

2
*1

2

Comprehensive income

2,910

3,067

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

2,904

3,065

5

2

―67―

(3) Consolidated statement of changes in equity
Fiscal 2022 (from April 1, 2021 to March 31, 2022)(Million yen)
Shareholders' equity

Balance at beginning of
periodSharecapitalCapitalsurplusSharecapitalCapitalsurplusSharecapital

713

963

8,699

(342)

10,034

Accumulated othercomprehensive
incomeCapitalShare
surpluscapital7

7

Share
NonTotal net
acquisition controlling
assetsrightsinterests
8

12

10,062

Changes during period
Dividends of surplus
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

(841)

(841)

(841)

2,900

2,900

2,900

35

25

25

(0)

(0)

(0)

(9)

3

3

3

5

13

－

(9)

2,059

34

2,084

3

3

3

5

2,097

713

953

10,758(307)

12,118

11

11

12

17

12,159Fiscal 2023 (from April 1, 2022 to March 31, 2023)(Million yen)
Shareholders' equity

Balance at beginning of
periodSharecapitalCapitalsurplusSharecapitalCapitalsurplusSharecapital

713

953

10,758(307)

12,118

Accumulated othercomprehensive
incomeCapitalShare
surpluscapital
11

11

Share
NonTotal net
acquisition controlling
assetsrightsinterests
12

17

12,159Changes during period
Dividends of surplus
Profit attributable toowners of parent
Purchase of treasury
sharesChanges in parent
company's interest intransactions with
noncontrollingshareholders
Net changes in items
other than shareholders'equityTotal changes during
periodBalance at end of period(1,052)(1,052)(1,052)

3,062

3,062

3,062

(0)

(0)

0

0

(0)

0

2

2

(0)

2

4

－

0

2,009

(0)

2,008

2

2

(0)

2

2,013

713

953

12,768(308)

14,127

14

14

11

20

14,173―68―

(4) Consolidated statement of cash flows(Million yen)
Fiscal 2023
(from April 1, 2022
to March 31, 2023)

Fiscal 2022
(from April 1, 2021
to March 31, 2022)
Cash flows from operating activities
Profit before income taxes

4,136

4,430

Depreciation
Increase (decrease) in provision for bonuses

890
(98)

884
60

Interest income
Foreign exchange losses (gains)

(0)
(6)

(0)
(12)

Gain on reversal of share acquisition rights
Loss on retirement of non-current assets

(1)
0

(1)
0

Loss (gain) on sales of non-current assets
Decrease (increase) in trade receivables

(0)
2,364

－
(856)

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

0
10

(18)
194

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

43
(40)

35
(186)

Increase (decrease) in other current liabilities
Other

38
(27)

(81)
16

7,309

4,464

SubtotalInterest and dividends received

00Income taxes paid

(1,140)(1,318)Net cash provided by (used in) operating activities

6,169

3,147

(17)

(56)

0

－

Cash flows from investing activities
Purchase of property, plant and equipment
Proceeds from sale of property, plant andequipment
Purchase of intangible assets

(961)

(811)

Net cash provided by (used in) investing activities

(978)

(867)

25
(0)

－
(0)

5

－

－

1

(840)

(1,052)(810)(1,051)

10

17

4,391

1,245

Cash flows from financing activities
Proceeds from disposal of treasury shares
Purchase of treasury shares
Proceeds from issuance of share acquisitionrightsProceeds from stock issuance to non-controllinginterests
Dividends paid
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

11,382

Cash and cash equivalents at end of period

*1

―69―

15,773

15,773*1

17,018

Notes to consolidated financial statements(Notes on the premise of a going concern)
There are no applicable matters.
(Significant matters that serve as the basis for the preparation of consolidated financial statements)
1. Matters related to the scope of consolidation(1) Number of consolidated subsidiaries: 4Names of consolidated subsidiaries
Digital Arts Consulting Inc.
Digital Arts America, Inc.
Digital Arts Asia Pacific Pte. Ltd.
Digital Arts Europe Limited(2) Names, etc. of non-consolidated subsidiaries
There are no applicable matters.
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
There are no applicable matters.
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. Inventories(a) Finished goods
The gross average cost method is applied. (The balance sheet amount is calculated by the book value writedown method based on reduction in profitability.)(2) Depreciation/amortization method for significant depreciable/amortizable assets
A. Property, plant and equipment
The declining balance method is applied.
The useful life and the residual value are calculated based on the same standards as those set out in the
Corporation Tax Act. The straight-line method is applied for facilities attached to buildings acquired on April 1, 2016or 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 thecompany. For software for sale in the market, a method based on estimated sales quantities (or revenue) or theremaining 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.

―70―

(4) Accounting standards for significant income and expenses
the Company recognizes revenue in the amount expected to be received in exchange for promised goods or services
at the point where control over such goods or services moves to customers.
Major performance obligations in major businesses and the normal time to recognize revenue are as described in(Matters concerning revenue recognition).
(5) 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 settling day, 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 andexpense 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.
(6) 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 thatcan 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.
(Consolidated statement of income)*1. The major items of selling, general and administrative expenses and the amounts are as follows.
Fiscal 2022
(from April 1, 2021
to March 31, 2022)

Fiscal 2023
(from April 1, 2022
to March 31, 2023)

Advertising expenses

239million yen

297million yen

Salaries and allowances

708

698

Provision for bonuses

54

86*2. Total amount of research and development expenses included in general and administrative expenses are as follows.
Fiscal 2022
(from April 1, 2021
to March 31, 2022)
1million yen

Fiscal 2023
(from April 1, 2022
to March 31, 2023)
24million yen*3. Gain on sales of non-current assets are as follows.
Fiscal 2022
(from April 1, 2021
to March 31, 2022)
Vehicles0million yen

Fiscal 2023
(from April 1, 2022
to March 31, 2023)－million yen*4. The details of loss on retirement of non-current assets are as follows.
Fiscal 2022
(from April 1, 2021
to March 31, 2022)

Fiscal 2023
(from April 1, 2022
to March 31, 2023)

Tools, furniture and fixtures
Software－million yen
00million yen
－

Total

0

0

―71―

(Consolidated statement of comprehensive income)*1. Reclassification adjustment and tax effect related to other comprehensive income
Fiscal 2022
(from April 1, 2021
to March 31, 2022)

Fiscal 2023
(from April 1, 2022
to March 31, 2023)

Foreign currency translation
adjustment:
Amount that occurred in the fiscal
year under review
Reclassification adjustment

3million yen

2million yen－－

Before tax effect adjustment

32

Tax effectForeign currency translation
adjustment
Total other comprehensive income

－

－

3

2

3

2

(Consolidated statement of changes in equity)
Fiscal 2022 (from April 1, 2021 to March 31, 2022)
1. Class and number of issued shares and class and number of treasury shares
Number of shares at
beginning of
consolidated fiscal
year under review

Increase in number of Decrease in number of Number of shares atshares during
shares during
end of consolidated
consolidated fiscal
consolidated fiscal
fiscal year underyear under review
year under review
review

Issued shares
Common shares

14,133,000－－

14,133,000

Total

14,133,000－－

14,133,000

104,46269

10,80093,731

104,46269

10,80093,731

Treasury shares
Common(Note)

shares

Total(Note) An increase in the number of common shares in treasury shares, 69, is due to the purchase of treasury shares.
A decrease in the number of treasury shares, 10,800, is due to the exercise of stock options.

2. Matters related to share acquisition rights and treasury share acquisition rights

ClassificationBreakdown of shareacquisition rights

Reportingcompany(parent
company)

Shareacquisitionrights as stock options
Total

Class ofsharesunderlying
shareacquisitionrights―Number of shares to be acquired upon exercise ofshare acquisition rights
Amount atend of fiscal
Beginning of Increase
Decrease
End of fiscal year underfiscal year during fiscal during fiscal
review
year under
underyear under year under(million yen)review
review
review
review
―

―

―

―

12

―

―

―

―

12

―72―

3. Matters related to dividends(1) Dividends paid
Total amount of
Dividend per share
Class of shares dividends (million
(yen)
yen)

Resolution

Annualshareholders’Common shares
meeting on June22, 2021
Board of Directors
meeting on
Common shares
October 28, 2021

Record date

Effective date

March 31, 2021

June 23, 2021

420

30

421

30 September 30, 2021 December 2, 2021

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

Resolution

Class ofsharesTotal amountof dividends(million yen)

Financialsource ofdividends

Dividend pershare (yen)Annualshareholders’meeting on June21, 2022

Commonshares561

Retainedearnings

40

Record date

Effective date

March 31, 2022

June 22, 2022

Fiscal 2023 (from April 1, 2022 to March 31, 2023)
1. Class and number of issued shares and class and number of treasury shares
Number of shares at
beginning of
consolidated fiscal
year under review

Increase in number of Decrease in number of Number of shares atshares during
shares during
end of consolidated
consolidated fiscal
consolidated fiscal
fiscal year underyear under review
year under review
review

Issued shares
Common shares

14,133,000－－

14,133,000

Total

14,133,000－－

14,133,000

93,731

102－

93,83393,731

102－

93,833

Treasury shares
Common(Note)

shares

Total(Note) An increase in the number of common shares in treasury shares, 102, is due to the purchase of treasury shares.
2. Matters related to share acquisition rights and treasury share acquisition rights
Number of shares to be acquired upon exercise ofAmount atshare acquisition rights
end of fiscal
Beginning of Increase
Decrease
End of fiscal year underfiscal year during fiscal during fiscal
review
year under
underyear under year under(million yen)review
review
review
review

ClassificationBreakdown of shareacquisition rights

Class ofsharesunderlying
shareacquisitionrightsReportingcompany(parent
company)

Shareacquisitionrights as stock options

―

―

―

―

―

11

―

―

―

―

―

11

Total

―73―

3. Matters related to dividends(1) Dividends paid

Resolution

Total amount of
Dividend per share
Class of shares dividends (million
(yen)
yen)

Annualshareholders’Common shares
meeting on June21, 2022
Board of Directors
meeting on
Common shares
October 28, 2022

Record date

Effective date

561

40

March 31, 2022

June 22, 2022

491

35

September 30,
2022

December 2, 2022

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

Resolution

Class ofsharesTotal amountof dividends(million yen)

Financialsource ofdividends

Dividend pershare (yen)Annualshareholders’meeting on June23, 2023

Commonshares561

Retainedearnings

40

Record date

Effective date

March 31, 2023

June 26, 2023

(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
sheetsFiscal 2022
(from April 1, 2021
to March 31, 2022)

Fiscal 2023
(from April 1, 2022
to March 31, 2023)

Cash and deposit account

15,773million yen

17,018million yen

Cash and cash equivalents

15,77317,018(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 safe and 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.
Investment securities are public and corporate bonds and are exposed to risks of fluctuations in market price.

―74―

(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 ofoperating 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 overcollections 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 much credit 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.
Since calculations of the market prices of financial instruments take variable factors into consideration, calculated market
prices 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: Cash is omitted.
Deposits are also omitted because deposits are settled in a short period of time and their market prices are similar to theirbook values.
Fiscal 2022 (As of March 31, 2022)
Consolidated balance
sheet amount(million yen)
(1) Notes receivable - trade(2) Accounts receivable

Market price (million yen) Difference (million yen)

74

74

－

1,142

1,142

－

101

101

(0)

1,318

1,317

(0)

760

760

－

760

760

－

(3) Investment securities
Bonds held to maturity
Total assets(1) Income taxes payable
Total liabilities―75―

Fiscal 2023 (As of March 31, 2023)
Consolidated balance
sheet amount(million yen)
(1) Notes receivable - trade(2) Accounts receivable

Market price (million yen) Difference (million yen)

148

148

－

1,426

1,426

－

101

100

(0)

1,675

1,675

(0)

839

839

－

839

839

－

(3) Investment securities
Bonds held to maturity
Total assets(1) Income taxes payable
Total liabilities(Note) Monetary claims and securities with maturity periods to be redeemed after the consolidated closing dateFiscal 2022 (As of March 31, 2022)
More than aWithin a year year, within(million yen) five years(million yen)
Cash and deposits
Notes receivable - trade
Accounts receivable - trade

More than
five years, More than 10
within 10
years
years
(million yen)(million yen)

15,773

－

－

－

74

－

－

－

1,142

－

－

－

－

100

－

－

16,989100－－

Investment securities
Bonds held to maturity
Corporate bonds
Total
Fiscal 2023 (As of March 31, 2023)
More than aWithin a year year, within(million yen) five years(million yen)
Cash and deposits
Notes receivable - trade
Accounts receivable - trade

More than
five years, More than 10
within 10
years
years
(million yen)(million yen)

17,018

－

－

－

148

－

－

－

1,426

－

－

－

－

100

－

－

18,593

100－－

Investment securities
Bonds held to maturity
Corporate bonds
Total

―76―

3. Breakdown of financial instruments in different appropriate classifications
The fair values of financial instruments are classified into the following three levels according to the observability andimportance of inputs used in the calculation of fair values.
Level 1 fair value: fair value calculated using market prices, on an active market, of assets or liabilities whose fair value
is calculated of the observable inputs related to the calculation of fair value
Level 2 fair value: fair value calculated using inputs other than the inputs used for Level 1 of the observable inputs
related to the calculation of fair value
Level 3 fair value: fair value calculated using inputs that are not observable related to the calculation of fair value
If more than one input that has a significant effect on the calculation of fair value is used, the fair value is classified to thelevel of inputs whose priority is lowest in the calculation of fair value.
Financial assets and financial liabilities whose consolidated balance sheet amounts are not market prices.
Fiscal 2022 (As of March 31, 2022)(Million yen)Classification

Market price
Level 1

Level 2

Level 3

Total

Notes receivable - trade

－

74

－

74

Accounts receivable – trade

－

1,142

－

1,142

Bonds payable

－

101

－

101

Total assets

－

1,317

－

1,317

Income taxes payable

－

760

－

760

Total liabilities

－

760

－

760

Investment securities
Bonds held to maturity―77―

Fiscal 2023 (As of March 31, 2023)(Million yen)Classification

Market price
Level 1

Level 2

Level 3

Total

Notes receivable - trade

－

148

－

148

Accounts receivable – trade

－

1,426

－

1,426

Bonds payable

－

100

－

100

Total assets

－

1,675

－

1,675

Income taxes payable

－

839

－

839

Total liabilities

－

839

－

839

Investment securities
Bonds held to maturity(Note) Explanations about assessment techniques used in the calculation of fair value and inputs related to thecalculation of fair value
Notes and accounts receivable - trade
The fair value of each classified receivable is calculated periodically by the discounted cash flow method
based on a rate that takes the amount receivable, the period until the due date and credit risk into accountand their fair value is classified as level 2 fair value.
Investment securities
Corporate bonds are valued using quoted market prices. Corporate bonds valued by the Company are bonds
for which quoted market prices are not readily available because they are not traded frequently and their fairvalue is therefore classified as level 2 fair value.
Income taxes payable
The fair value of income taxes payable is calculated by the discounted cash flow method based on a rate
which takes future cash flows and the term to the due date into consideration and is classified as level 2 fairvalue.

―78―

(Securities)
Bonds held to maturity
Fiscal 2022 (As of March 31, 2022)

Classification

Market priceconsolidated
sheet amountexceeds
balance

Market price does notexceedconsolidatedbalance sheet amount

Consolidatedbalance sheet
amount(million yen)

Market price(million yen)

Difference(million yen)

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

－

－

－

(2) Corporate bonds

－

－

－

(3) Other－－－

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

－

－

－

(2) Corporate bonds

101

101

(0)

(3) Other

－

－

－

101

101

(0)

101

101

(0)

Subtotal
Total

Fiscal 2023 (As of March 31, 2023)

Classification

Market priceconsolidated
sheet amountexceeds
balance

Market price does notexceedconsolidatedbalance sheet amount

Consolidatedbalance sheet
amount(million yen)

Market price(million yen)

Difference(million yen)

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

－

－

－

(2) Corporate bonds

－

－

－

(3) Other－－－

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

－

－

－

(2) Corporate bonds

101

100

(0)

(3) Other

－

－

－

101

100

(0)

101

100

(0)

Subtotal
Total(Derivatives transactions)
Previous consolidated fiscal year (from April 1, 2021 to March 31, 2022) and consolidated fiscal year under review (from
April 1, 2022 to March 31, 2023)
The Group did not conduct any derivatives transactions.

―79―

(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 2022 (from April 1, 2021 to March 31, 2022)
The amount that was required for contribution to the defined contribution pension plan was 38 million yen.
Fiscal 2023 (from April 1, 2022 to March 31, 2023)
The amount that was required for contribution to the defined contribution pension plan was 52 million yen.
(Stock options)
1. Expenses related to stock options and their account titles
Fiscal 2022
(from April 1, 2021
to March 31, 2022)
Selling, general and administrative expenses

0 million yen

Fiscal 2023
(from April 1, 2022
to March 31, 2023)
0 million yen

2. Amount posted as profit due to the forfeiture of unexercised stock options
Fiscal 2022
(from April 1, 2021
to March 31, 2022)
Gain on reversal of share acquisition rights

1 million yen―80―

Fiscal 2023
(from April 1, 2022
to March 31, 2023)
1 million yen

3. Description of stock options, their scale and changes(1) Description of stock options

Company
Category and number of persons subject
to grants
Stock options by class of shares
Grant date

Vesting conditions

Requisite service period

Exercise period

8th Stock options

9th Stock options

Reporting company

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 ofthe reporting company and not
being subject to salary reduction
or stricter disciplinary action
provided for in the rules of
employment of the reporting
company from the grant date(November 27, 2015) to thevesting date (July 1, 2017)
Share acquisition rights can be
exercised up to the percentage ofthe allocated share acquisitionrights specified in each item below
by each holder of share acquisitionrights 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.
(i) If operating profit exceeds 1.5
billion yen, 20% of shareacquisition rights can be
exercised(ii) If operating profit exceeds 2.0
billion yen, 50% of shareacquisition rights can be
exercised(iii) If operating profit exceeds 2.5
billion yen, 100% of shareacquisition rights can be
exercised
In the items above, the operating
profit stated in the consolidated
statement of income in the
Company’s annual securities report(or the statements of income if noconsolidated statements of income
are prepared) shall be referenced.
If the concept of items to bereferenced changes significantly
due to the application of theInternational Financial ReportingStandards, etc. indicators to bereferenced shall be determined by
the Board of Directors.
No requisite service periods are
determined.

Being a director or an employee ofthe reporting company and not
being subject to salary reduction
or stricter disciplinary action
provided for in the rules of
employment of the reporting
company from the grant date
(December 13, 2016) to thevesting date (July 1, 2018).
Share acquisition rights can be
exercised up to the percentage ofthe allocated share acquisitionrights specified in each item below
by each holder of share acquisitionrights 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.
(i) If operating profit exceeds 2.0
billion yen, 20% of shareacquisition rights can be
exercised(ii) If operating profit exceeds 2.5
billion yen, 50% of shareacquisition rights can be
exercised(iii) If operating profit exceeds 2.8
billion yen, 100% of shareacquisition rights can be
exercised
In the items above, the operating
profit stated in the consolidated
statement of income in the
Company’s annual securities report(or the statements of income if noconsolidated statement of income
are prepared) shall be referenced.
If the concept of items to bereferenced changes significantly
due to the application of theInternational Financial ReportingStandards, etc. indicators to bereferenced shall be determined by
the Board of Directors.
No requisite service periods are
determined.

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

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

―81―

11th Stock options

12th Stock options

Reporting company

Same as on the left

16 employees

55 employees

Common shares 69,000 shares

Common shares 137,500 shares

September 24, 2021

September 24, 2021

Vesting conditions

Being a director, an auditor, or an
employee of the reporting company
or its subsidiaries and not being
subject to salary reduction or
stricter disciplinary action provided
for in the rules of employment of thereportingcompanyorits
subsidiaries from the grant date
(September 24, 2021) to thevesting date (June 30, 2036)
The share acquisition rights can be
exercised only over the period from
July 1, 2036 to June 30, 2038, if
operating profit exceeds 14,736
million yen in any fiscal year fromthe fiscal year ended March 31,
2022 to the fiscal year ending
March 31, 2036.
Whether the operating profit above
is exceeded or not shall be
determined in reference to theoperating profit stated in the nonconsolidated statement of incomein the Company’s Annual Securities
Report, and in the event of amaterial change in the concept of
the item to be referred to due to theapplicationofInternational
Financial Reporting Standards,
etc., the Board of Directors shallseparately determine the index tobe referred to.

Being a director, an auditor, or an
employee of the reporting company
or its subsidiaries and not being
subject to salary reduction or
stricter disciplinary action provided
for in the rules of employment of thereportingcompanyorits
subsidiaries from the grant date
(September 24, 2021) to thevesting date (June 30, 2041)
The share acquisition rights can be
exercised only over the period from
July 1, 2041 to June 30, 2043, if
operating profit exceeds 20,630
million yen in any fiscal year fromthe fiscal year ended March 31,
2022 to the fiscal year ending
March 31, 2041.
Whether the operating profit above
is exceeded or not shall be
determined in reference to theoperating profit stated in the nonconsolidated statement of incomein the Company’s Annual Securities
Report, and in the event of amaterial change in the concept of
the item to be referred to due to theapplicationofInternational
Financial Reporting Standards,
etc., the Board of Directors shallseparately determine the index tobe referred to.

Requisite service period

No requisite service periods are
determined.

No requisite service periods are
determined.

Exercise period

From July 1, 2036 to June 30,
2038.
The person must continue to be adirector, an auditor, or an employeeof the Company or its subsidiaries
to exercise share acquisition rights.

From July 1, 2041 to June 30,2043.
The person must continue to be adirector, an auditor, or an employeeof the Company or its subsidiaries
to exercise share acquisition rights.

Company
Category and number of persons subject
to grants
Stock options by class of shares
Grant date―82―

(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, 2023). The
number of stock options has been converted to the number of shares.
(i) Number of stock options

8th Stock options 9th Stock options

11th Stock
options

12th Stock
options

Before vesting (shares)
As of March 31, 2022

―

―

―

―

Granted――69,000130,000

Forfeited――

10,00030,000

Vested――――Yet to be vested――

59,000100,000

After vesting (shares)

―

―

―

―

152,000

300,900――

Vested――――Exercised

―

―

―

―

Forfeited

―

―

―

―

152,000

300,900――

As of March 31, 2022

Yet to be exercised(ii) Unit price information

8th Stock options 9th Stock options
Exercise price (yen)Average stock price when
exercised (yen)Fair unit value (grantdate) (yen)11th Stock
options

12th Stock
options

2,034

2,639

8,310

8,310

―

―

―

―

2

24

6,741

7,482

4. 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. For paid-in stock options with performance conditions, the number of forfeitures of non-vested
stock options is estimated taking vesting conditions into consideration.
(Additional information)
Transactions granting employees and others stock acquisition rights which involve considerations with vesting conditions
before the applied 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.

―83―

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 asshare acquisition rights in net assets. When share acquisition rights are exercised, and new shares are issued, the amount
paid in on the issuance of share acquisition rights and the amount paid in on the exercise of share acquisition rights will betransferred 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 2022
(As of March 31, 2022)

Fiscal 2023
(As of March 31, 2023)

Deferred tax assets
Enterprise taxes payable

39Million yen

40Million yen

Provision for bonuses

29

47

Accrued social insurance premiums

4

7

Non-deductible depreciation expenses

0－

Asset retirement obligations

14

14

53

55

1

1

7

4

Total deferred tax assets

150

172

Valuation allowance

(53)

(55)

Total deferred tax assets

96

116

Loss carryforwards
Loss on valuation
membership
Other

of

golf

club

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 thestatutory tax rate for the consolidated fiscal year under review and for the previous consolidated fiscal year.
(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
Fiscal 2022
(from April 1, 2021
to March 31, 2022)

Fiscal 2023
(from April 1, 2022
to March 31, 2023)

Balance at beginning of fiscal year

48Million yen

48Million yen

Adjustment due to passage of time

00Balance at end of fiscal year

48

48

―84―

(Matters concerning revenue recognition)
1. Information on the breakdown of revenue from contracts with customers
Fiscal 2022 (from April 1, 2021 to March 31, 2022)
Below is a breakdown of revenue from contracts with customers.
(Million yen)Enterprise
Sector Market

Public Sector
MarketConsumer
Sector Market

Revenue from contracts with
4,559
4,046
customers(Note) Internal transactions between Group companies are deducted.

Total

444

9,051

Fiscal 2023 (from April 1, 2022 to March 31, 2023)
Below is a breakdown of revenue from contracts with customers.
(Million yen)Enterprise
Sector Market

Public Sector
MarketConsumer
Sector Market

Revenue from contracts with
5,316
4,686
customers(Note) Internal transactions between Group companies are deducted.

Total

433

10,436

2. Basic information for understanding revenue from contracts with customers
The Digital Arts Group is principally engaged in internet security, email security, the planning, development, sale, etc.
of file encryption and tracking solutions, and information security consulting.
In sales of security software, software is classified into two types: license products and associated maintenance services,and cloud service products.
Revenue from a license product is recognized when the software product is provided to the customer, at which time theperformance obligation is deemed fulfilled. The performance obligation for maintenance services is fulfilled over acertain period, and revenue is recognized over the term of the contract as the performance obligation is being satisfied.
As for the cloud service product, the service performance obligation is satisfied over time, and the transaction priceunder the contract with the customer is distributed evenly throughout the term of the contract and recognized as revenue.
Revenue is recorded mostly in accordance with the contract with the customer. If the Company pays a rebate according
to a transaction amount for a certain period, among other factors, the rebate is deducted from the revenue.
The promised consideration does not include any significant financing component.
3. Information to understand revenue in the fiscal year under review and the next fiscal year and thereafter(1)Below is the opening and ending balance of contract liabilities arising from contracts with customers.
(Million yen)Contract liabilities

Fiscal 2022

Fiscal 2023

(from April 1, 2021
to March 31, 2022)(from April 1, 2022
to March 31, 2023)

Balance at beginning of fiscal
year

3,370

5,684

Balance at end of fiscal year

5,684

5,187

Advances received in the consolidated balance sheet are all contract liabilities arising from contracts with customers,
and advance payments are posted if the related performance obligations are not fulfilled at the end of the fiscal year.
The amount of revenue recognized in the fiscal year under review included in the balance of contract liabilities at the
beginning of the fiscal year is 2,319 million yen. (1,316 million yen in the previous fiscal year)―85―

(2) Transaction prices allocated to outstanding performance obligations
The total amount of transaction prices allocated to outstanding performance obligations and the periods over whichrevenue is expected to be recognized are as follows.
(Million yen)
Fiscal 2022
(from April 1, 2021
to March 31, 2022)

Fiscal 2023
(from April 1, 2022
to March 31, 2023)

Within 1 year

2,916

3,213

Over 1 year, within 2 years

1,342

1,480

Over 2 years, within 3 years

1,219

1,169

Over 3 years

1,093

455

6,572

6,318

Total
(Segment information, etc.)
Segment information

Previous consolidated fiscal year (from April 1, 2021 to March 31, 2022) and consolidated fiscal year under review (from
April 1, 2022 to March 31, 2023)
The Group has only one segment, which is the security business, and segment information is omitted.
Related information
Fiscal 2022 (from April 1, 2021 to March 31, 2022)
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 statement of income, andinformation by region 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 equipmentin 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.

2,045

SB C&S Corp.

1,541

―86―

Fiscal 2023 (from April 1, 2022 to March 31, 2023)
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 statement of income, andinformation by region 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 equipmentin 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.

2,683

SB C&S Corp.

1,747

Information on impairment loss in non-current assets by reporting segment
There are no applicable matters.
Information on amortization of goodwill and unamortized balance by reporting segment
There are no applicable matters.
Information on gain on bargain purchase by reporting segment
There are no applicable matters.
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 2022 (from April 1, 2021 to March 31, 2022)
There are no applicable matters.
Fiscal 2023 (from April 1, 2022 to March 31, 2023)
There are no applicable matters.
(Special purpose companies subject to disclosure)
There are no applicable matters.

―87―

(Per share information)
Fiscal 2022
(from April 1, 2021
to March 31, 2022)

Fiscal 2023
(from April 1, 2022
to March 31, 2023)

Net assets per share

863.96yen

1,007.27yen

Profit per share

206.71yen

218.12yen

Diluted profit per share
Profit202.03yen

213.92yen(Note) Base for calculating profit per share and diluted profit per share
Item

Fiscal 2022
(from April 1, 2021
to March 31, 2022)

Fiscal 2023
(from April 1, 2022
to March 31, 2023)

Profit per share
Profit attributable to owners of parent (million yen)

2,900

3,062

－

－

2,900

3,062

14,034,190

14,039,205－－

Increase in the number of common shares

325,272

275,549[Of the increase, the number of share acquisition rights](shares)[325,272][275,549]

Outline of potential shares that are not included in thecalculation of the diluted profit per share because they
do not have any diluting effects

Share acquisition rights
Resolution on August 30,
2021
Number of potential shares:
199,000

Share acquisition rights
Resolution on August 30,
2021
Number of potential shares:
159,000

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

(Significant subsequent events)
There are no applicable matters.

―88―

(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 2023 are less than 1% of the combined
total of liabilities and net assets at the beginning and end of fiscal 2023, and so have been omitted in accordance with Article
92-2 of the Regulations for Consolidated Financial Statements.
(2) Other
Quarterly information in the consolidated fiscal year under review, etc.
(Cumulative period)First quarter

Second quarter

Third quarter

Fiscal year underreview(Million
yen)

2,386

5,084

7,658

10,436

Profit before income (Million
yen)
taxes

1,019

2,263

3,242

4,430

Profit attributable to (Millionyen)owners of parent

702

1,558

2,235

3,062

50.00

111.03

159.25218.12

Net sales

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

Second quarter

50.00

61.03

―89―

Third quarter
48.22

Fourth quarter
58.87

2. Financial Statements of the Reporting Company(1) Financial Statements(i) Balance Sheet(Million yen)
Fiscal 2022
(As of March 31, 2022)

Fiscal 2023
(As of March 31, 2023)

AssetsCurrent assets
Cash and deposits
Notes receivable - trade

15,53474

Accounts receivable - tradeFinished goods

※1

995
0

Supplies
Prepaid expenses

3
94

Other

※1

Total current assets

4

16,832
148
※1

1,089
19
3
268
※1

4

16,70818,366

Buildings
Vehicles

88
8

83
5

Tools, furniture and fixtures
Land

75
26

83
26

Total property, plant and equipment

199

198

1,317

1,263

208
0

243
0

Total intangible assets

1,526

1,507

Investments and other assets
Investment securities

Non-current assets
Property, plant and equipment

Intangible assets
Software
Software in progress
Telephone subscription right

101

101

Shares of subsidiaries and associates
Investments in capital

115
0

115
0

Long-term prepaid expenses
Leasehold and guarantee deposits

60
188

43
188

Deferred tax assets
Other

182
56

202
56

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

―90―

704

707

2,429

2,413

19,13820,780(Million yen)
Fiscal 2022
(As of March 31, 2021)

Fiscal 2023
(As of March 31, 2022)

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

Accrued expenses
Income taxes payable

24
181

※1
※1

45
216

54
730

56
839

215
5,669

130
5,172

Deposits received
Provision for bonuses

17
95

19
156

Total current liabilities

6,990

6,637

Asset retirement obligations
Other

48
1

48
1

Total non-current liabilities

50

50

7,040

6,688

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

255

255

Total capital surplus

955

955

Other retained earnings
Retained earnings brought forward

10,723

12,719Total retained earnings

10,723

12,719Retained earnings

Treasury shares
Share acquisition rights
Share acquisition rights
Total net assets
Total liabilities and net assets

―91―

(307)

(308)

12,085

14,08012

11

12,097

14,091

19,13820,780(ii) Statement of Income

Net sales
Cost of sales

Fiscal 2022
(from April 1, 2021
to March 31, 2022)※１ 8,003

Beginning finished goods inventory
Cost of Internet service

※１

Total

0
1,821

2,446
2

0

19

1,821

2,425

6,182

Selling, general and administrative expenses※１，※２

Operating profit

0
2,446

0

Ending finished goods inventory
Gross profit

※１

1,822

Transfer to other account
Cost of finished goods sold(Million yen)
Fiscal 2023
(from April 1, 2022
to March 31, 2023)※１ 8,984

2,141

6,559
※１，※２

2,163

4,040

4,395

0
0

0
0

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

※１

4
4

※１

4
4

Gain on forfeiture of unclaimed dividends
Miscellaneous income

1
0

1
1

Total non-operating income

11

11

4,052

4,407

0
1

－
1

1

1

Ordinary profit
Extraordinary income
Gain on sales of non-current assets
Gain on reversal of share acquisition rights※３

Total extraordinary income
Extraordinary losses
Loss on retirement of non-current assets

※４

0

※４

0

Loss on valuation of shares of subsidiaries

38－

Total extraordinary losses

380Profit before income taxes

4,015

4,408

Income taxes - current
Income taxes - deferred

1,167
14

1,380
(19)

Total income taxes

1,182

1,360

Profit

2,832

3,048

―92―

Detailed Statement of Cost of Internet Service
Fiscal 2022
(from April 1, 2021
to March 31, 2022)
Category

Note
numb
er

Fiscal 2023
(from April 1, 2022
to March 31, 2023)

Amount (million yen)

Composition
rate (%)

Composition
rate (%)

66

2.4

152

4.6

Category

I.

Material cost

II.

Labor cost

※1

869

30.9

844

25.5

III.

Expenses

※2

1,879

66.7

2,315

69.9

2,816

100.0

3,311

100.0

Total expenses
Transfer to other account※3

Cost of Internet service

994

865

1,821

2,446

(Note)
Fiscal 2022
(from April 1, 2021
to March 31, 2022)

Fiscal 2023
(from April 1, 2022
to March 31, 2023)*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)
502
106
164
40
45

Salaries and allowances
Legal welfare expenses
Bonuses
Provision for bonuses
Other salaries*2 Major items in expenses(Million yen)
507
100
63
69
91

*2 Major items in expenses(Million yen)
133
841
92

Outsourcing expenses
Depreciation
Rent expenses*3 Major items in transfer to other account(Million yen)
Selling,
generaland32
administrative expenses
Non-current assets
961

Total
994
4. Costing method
The job order cost system based on actual costs
is employed for the Company’s costing.

(Million yen)
Outsourcing expenses
116
Depreciation
833
Rent expenses
91*3 Major items in transfer to other account(Million yen)
Selling,
generaland58
administrative expenses
Non-current assets
807
Total
4. Costing method
Same as on the left

―93―

865

(iii) Statement of Changes in Equity
Fiscal 2022 (from April 1, 2021 to March 31, 2022)(Million yen)
Shareholders’ equity
Capital surplus

Retained earnings

SharecapitalLegalcapitalsurplus

OthercapitalsurplusTotal
capitalsurplusOtherretainedearnings
Retainedearnings
brought
forward

713

700

265

965

8,732

8,732

Dividends of surplus

(841)

(841)

(841)

(841)

Profit

2,832

2,832

2,832

2,832

35

25

25

(0)

(0)

(0)

Balance at beginning of
periodTotal
retainedearnings

Share
ShareholdTotalacquisition
Treasury
ers’ equity
shareholde rights
sharesrs’ equity(342)

10,0698

10,078Changes during period

Disposal of treasury
sharesPurchase of treasury
sharesNet changes in items
other
than
shareholders’ equity
Total changes during
periodBalance at end of period

(9)

(9)

3

3

－

－

(9)

(9)

1,990

1,990

34

2,015

3

2,019

713

700

255

955

10,723

10,723(307)

12,085

12

12,097

Fiscal 2023 (from April 1, 2022 to March 31, 2023)(Million yen)
Shareholders’ equity
Capital surplus

Retained earnings

SharecapitalLegalcapitalsurplus

OthercapitalsurplusTotal
capitalsurplusOtherretainedearnings
Retainedearnings
brought
forward

713

700

255

955

10,723

10,723

Dividends of surplus(1,052)(1,052)(1,052)(1,052)

Profit

3,048

3,048

3,048

3,048

(0)

(0)

Balance at beginning of
periodTotal
retainedearnings

Share
Total net
Total
acquisition
Treasury
assetsshareholde rights
sharesrs’ equity(307)

12,085

12

12,097

Changes during period

Purchase of treasury
sharesNet changes in items
other than shareholders’equityTotal changes during
periodBalance at end of period

(0)

(0)

(0)

－

－

－

－

1,995

1,995

(0)

1,994

(0)

1,994

713

700

255

955

12,71912,719(308)

14,08011

14,091―94―

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,and translation 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 underreview is posted.
5. Accounting standards for significant income and expenses
The Company recognizes revenue in the amount expected to be received in exchange for promised goods or services atthe point where control over such goods or services moves to customers.
Major performance obligations in major businesses and the normal time to recognize revenue are as described in (Mattersconcerning revenue recognition).

―95―

(Additional information)
Transactions granting employees and others stock acquisition rights which involve considerations with vesting conditions
before the applied 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 asshare acquisition rights in net assets. When share acquisition rights are exercised, and new shares are issued, the amount
paid in on the issuance of share acquisition rights and the amount paid in on the exercise of share acquisition rights will betransferred 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 onbalance sheet)(Million yen)
Fiscal 2022
Fiscal 2023
(As of March 31, 2022)(As of March 31, 2023)
Short-term monetary claims
4
4
Short-term monetary liabilities
55(Matters related to income statement)*1. Transactions in relation to subsidiaries and associates are included as follows.
(Million yen)
Fiscal 2022
(from April 1, 2021 to March 31,
2022)
Operating transactions
Net sales
Purchase of goods
Selling,
generalandadministrative expenses
Transactions other than operatingtransactions

Fiscal 2023
(from April 1, 2022 to March 31,
2023)

8
4

23
5

45

47

4

4

*2. Selling expenses accounted for approximately 12.2% and 14.5% of total selling, general and administrative expenses infiscal 2022 and fiscal 2023 respectively while the share of general and administrative expenses was 87.8% in fiscal 2022
and 85.5% in fiscal 2023.
The major items of selling, general and administrative expenses and the amounts are as follows.
(Million yen)
Fiscal 2022
(from April 1, 2021 to March 31,
2022)

Fiscal 2023
(from April 1, 2022 to March 31,
2023)

Advertising expenses

239

292

Salaries and allowances

679

669

Provision for bonuses

54

86

Depreciation

44

44

bonuses

215

84

―96―

*3. The details of gain on sales of non-current assets are as follows.
(Million yen)
Fiscal 2022
(from April 1, 2021 to March 31,
2022)
VehiclesFiscal 2023
(from April 1, 2022 to March 31,
2023)

0

－

*4. The details of loss on retirement of non-current assets are as follows.
(Million yen)
Fiscal 2022
(from April 1, 2021 to March 31,
2022)

Fiscal 2023
(from April 1, 2022 to March 31,
2023)

Tools, furniture and fixtures－0

Software

0

－

Total

0

0

(Securities)
The fair values of shares of subsidiaries and associates (amounts recorded on balance sheets for the fiscal year underreview and the previous fiscal year are 115 million yen and 115 million yen respectively) are not stated as their market
value is not readily available.
(Tax effect accounting)
1. Breakdown of key factors contributing to deferred tax assets and deferred tax liabilities(Million yen)
Fiscal 2022
(As of March 31, 2022)

Fiscal 2023
(As of March 31, 2022)

Deferred tax assets
Enterprise taxes payable

39

40

Provision for bonuses

29

47

Accrued social insurance premiums

4

7

Non-deductible depreciation expenses

0－

Asset retirement obligations

14

14

Loss on valuation of golf club membership

1

1

Loss on valuation of shares of subsidiaries

85

85

Other
Net deferred tax assets

6

4

182

202

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 thestatutory tax rate.
(Matters concerning revenue recognition)
1. Basic information for understanding revenue from contracts with customers
Notes are omitted because the same information is given in the Consolidated Financial Statements, Notes (Mattersconcerning revenue recognition).
(Significant subsequent events)
Not applicable.

―97―

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

88

－

－

4

83

136

Vehicles

8

－

－

3

5

13

Tools, furniture andfixtures

75

49

0

42

83

396

Land

26

－

－

－

26

－

Total property, plant andequipment

199

49

0

50

198

546

1,317

774

－

828

1,263

－

Software in progress

208

807

772

－

243

－

Telephone subscription
right

0

－

－

－

0

－

1,526

1,582

772

828

1,507

－

Intangible assets
SoftwareTotal intangible assets(Notes) 1. Major increases during the current period are as follows:
Software702 million yen (i-FILTER, DigitalArts@Cloud, etc.)

Software in progress 807 million yen (DigitalArts@Cloud, i-FILTER, etc.)
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)
Balance at
beginning of period

Category
Provisionbonusesfor

Net increasein current period

95

156

Net decreasein current period
95

Balance at
end of period
156(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.

―98―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 distributionof surplus
Number of sharesconstituting one unit
Purchase and sale ofshares less than one unit

September 30 and March 31
100 shares
Not applicable.

Handling officeTransfer agent
Forward office
Purchasing and sellingfee

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 theitems listed in Article 189, Paragraph 2 of the Companies Act, the right to make a request pursuant to Article 166,
Paragraph 1 of the Companies Act, and the right for allotment of shares for subscription or share acquisition rights
for subscription in proportion to the number of shares owned.

―99―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 andExchange Act.

2. Other Reference Information
The Company submitted the following documents between the first day of the fiscal year under review and the day ofsubmitting the securities report.
(1) Annual Securities Report and documents attached, and Confirmation Letter
27th fiscal year (from April 1, 2021 to March 31, 2022) Submitted to the Director-General of Kanto Local Finance Bureau
on June 22, 2022
(2) Internal Control Report and accompanying documents
Submitted to the Director-General of Kanto Local Finance Bureau on June 22, 2022
(3) Quarterly Report and Confirmation Letter
Quarterly accounting period
For the first quarter of the 28th fiscal year (April 1, 2022 to June 30, 2022) Submitted to the Director-General of Kanto
Local Finance Bureau on August 5, 2022
For the second quarter of the 28th fiscal year (July 1, 2022 to September 30, 2022) Submitted to the Director-Generalof Kanto Local Finance Bureau on November 4, 2022
For the third quarter of the 28th fiscal year (October 1, 2022 to December 31, 2022) Submitted to the Director-Generalof Kanto Local Finance Bureau on February 3, 2023
(4) Share Buyback Report
Submitted to the Director-General of Kanto Local Finance Bureau on June 6, 2023

―100―

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

―101―Independent Auditors’ Audit Report and Internal Control Audit Report
June 23, 2023
The Board of Directors
Digital Arts Inc.

BDO Sanyu & Co.
Tokyo Office

DesignatedEngagement
PartnerandDesignatedEngagement
PartnerandCertified Public
So NomuraAccountant

Seal

Certified Public
Hiroaki Nakanishi
Accountant

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 ExchangeAct, we have audited the consolidated financial statements of Digital Arts Inc. for the consolidated fiscal year from April 1,
2022 to March 31, 2023 included in the Financial Information, namely, the consolidated balance sheet, the consolidated
statements of income, the consolidated statement of comprehensive income, the consolidated statement of changes inequity, 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, 2023, and the consolidated results of theiroperations 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 theConsolidated Financial Statements” section of our report. We are independent of the Company and its consolidated
subsidiaries in accordance with the ethical requirements that are relevant to our audit 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.
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 wereaddressed 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.

―102―

Appropriateness of period attribution of net sales of Digital Arts Inc.
Details of key issues of the audit

How our audit addressed the issues

and reasons for decision

Digital Arts Inc. mainly sells security software, and its net

In verifying the appropriateness of period attribution of net

sales of 8,984 million yen account for 86.0% ofsales of Digital Arts Inc., we principally performed theconsolidated net sales of 10,436 million yen.

following auditing procedures:[Notes] As described in “Matters concerning revenue(1) Evaluation of internal control

recognition, 2. Basic information for understanding

We assessed the design and operation of internal

revenue from contracts with customers,” sales of security

control over the process of recording net sales. In

software are mainly divided into license sales products

conducting the assessment, we focused in particular on

and their maintenance services, and cloud service

the following:products, and the timing of satisfaction of performance- Controls whereby the sales department manager

obligations differs for each of these categories. In
addition, since orders for IT products are often received in
March, the last month of the fiscal year, by private

reconciles order information entered into the sales
management system with the order documents.
- Controls whereby the sales department manager

companies and public organizations, net sales tend toincrease in March, the month in which the fiscal year

reconciles the license key transmission history withends. Therefore, there is a potential risk of making asales data.
(2) Examination of the appropriateness of the period

mistake in attributing net sales to a period.
Based on the foregoing, we judged that the

attribution of net sales

appropriateness of period attribution of net sales of Digital

To examine the appropriateness of the period attribution

Arts Inc. is especially important in the audit of theof net sales, we performed empirical procedures that

consolidated financial statements for the fiscal year underincluded the following:

review and falls under “Key issues of the audit.”- For transactions extracted from sales data for theaccounting month based on certain criteria, wereconcile order documents and the license key
transmission history with the amount of sales posted inline with the date of sales posting and product type.
- Procedures for confirming the balance of accounts
receivable - trade from customers.
- Verification of the existence and content of sales returnprocessing after the end of the term.

Other information
Other information is information included in the annual securities report which is not covered by the consolidated financial
statements and non-consolidated financial statements as well as their audit reports. Management's responsibility is to createand disclose the other information. The Audit & Supervisory Board is responsible for overseeing the directors’ performanceof duties in terms of developing and implementing a process for reporting such other information.
The subject of the audit opinion on the consolidated financial statements does not include other information, and we do not
express an opinion on the other information.
Our responsibilities in auditing the consolidated financial statements are to read through the other information to consider
whether there is any major differences between the other information and the consolidated financial statements or theknowledge that we acquire in the process of the audit, and to pay attention to any signs of material errors in information―103―

other than those major differences.
We are required to report the facts when we determine that there is a material error in other information based on theprocedure that was conducted.
There are no matters to be reported regarding other information.
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 inaccordance 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 statements that 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 freefrom 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 maintain professional skepticism throughout the audit. We also:- Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or
error; Design and perform audit procedures responsive to those risks. These audit procedures are selected and performed,
depending on 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 proceduresthat are appropriate in the circumstances, while the objective of the audit is not to express an opinion on the effectivenessof the Group’s internal control.
- Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related
disclosures made by management.
- Conclude on the appropriateness of management’s use of the going concern basis of accounting and based on the audit
evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on
the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to
draw attention in our auditor’s report to the related disclosures in the consolidated financial statements or, if suchdisclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to thedate 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 the disclosures, 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 Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervisionand 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―104―

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 tobear 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 auditof the consolidated financial statements for the consolidated fiscal year under review as key issues of the audit and statethem in the audit report. However, we do not state matters in the case where publication of these matters is prohibited bylaws, ordinances or suchlike or in the very rare case that we judge that they should not be reported on the grounds ofreasonably 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 andExchange Act, we have audited the internal control report of Digital Arts Inc. dated March 31, 2023.
We consider that the aforementioned internal control report, in which Digital Arts Inc. indicates that effective internal control
is maintained pertaining to financial reporting as of March 31, 2023, 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 thatare generally considered fair and reasonable in Japan. Our responsibilities under the auditing standards for internal control
over financial reporting are further described in the "Auditor’s Responsibilities for the Audit of Internal Control" section of ourreport. We are independent of the Company and its consolidated subsidiaries in accordance with the ethical requirementsthat 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 sufficientand appropriate to provide a basis for our audit opinion.
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 over financial 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 overfinancial reporting.
It may not be possible, however, to fully prevent or identify the presentation of misstatements due to internal control overfinancial 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 inJapan, 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 reportingin the internal 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 andresult of the assessments that management presents.
- Obtain sufficient appropriate audit evidence about the results of the assessments of internal control over financial reportingin the internal control report. We are responsible for the direction, supervision and performance of the audit of the internal―105―

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 ouraudit of internal control, the results thereof, material weaknesses in internal control identified during our audit of internal
control, and those that were remediated.
We also provide the Audit & Supervisory Board with a statement that we have complied with relevant ethical requirements
regarding independence, and communicate with them all relationships and other matters that may reasonably be thought tobear 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
the Company.
2. XBRL data are not within the scope of audits.

―106―Internal Control Audit Report by Independent Auditors
June 23, 2023
The Board of Directors
Digital Arts Inc.
BDO Sanyu & Co.
Tokyo Office
DesignatedEngagement
PartnerandDesignatedEngagement
PartnerandCertified Public
So NomuraAccountant

Seal

Certified Public
Hiroaki Nakanishi
Accountant

Seal

Audit Opinion
To conduct audit certification as prescribed in the first paragraph of Article 193-2 of the Financial Instruments and ExchangeAct, we have audited the financial statements of Digital Arts Inc. for the 28th fiscal year starting from April 1, 2022 to March
31, 2023 included in the Financial Information, namely, the balance sheet, the income statement, the statement of changes
in equity, significant accounting policies, the notes to specific items, and the annexed detailed statements thereto.
We consider that the aforementioned financial statements properly reflect the financial position of Digital Arts Inc. as ofMarch 31, 2023, as well as its financial results in the fiscal year that ended on the same day, in all important respects, incompliance 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 requirementsthat are relevant to our audit of the financial statements in Japan, and we have fulfilled our other ethical responsibilities inaccordance with these requirements. We consider that audit evidence that we have obtained is sufficient and appropriate toprovide 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 wereaddressed in the process of implementing an audit of all financial statements and forming audit comments. They do notmean that the we state our own view on them.
Appropriateness of period attribution of net sales
The statement of the details about the key issues of the audit, reasons for the decision and how our audit addressed theissues 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 (appropriateness of period attribution of net sales).
Other information
Other information is information included in the annual securities report which is not covered by the consolidated financial
statements and non-consolidated financial statements as well as their audit reports. Management's responsibility is to createand disclose the other information. The Audit & Supervisory Board is responsible for overseeing the directors’ performanceof duties in terms of developing and implementing a process for reporting such other information.

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The subject of the audit opinion on the financial statements does not include other information, and we do not express an
opinion on the other information
Our responsibilities in auditing the financial statements are to read through the other information to consider whether there
is any major differences between the other information and the financial statements or the knowledge that we acquire in theprocess of the audit, and to pay attention to any signs of material errors in information other than those major differences.
We are required to report the facts when we determine that there is a material error in other information based on theprocedure that was conducted.
There are no matters to be reported regarding other information.
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 ofinternal control that management determines is necessary for the preparation and appropriate presentation of financial
statements that are free of any material misstatements due to frauds or errors.
In preparing the financial statements, management is responsible for assessing the Company’s ability to continue as a going
concern, disclosing, as applicable, matters related to going concern in accordance with generally accepted accounting
principles of Japan.
The Audit & Supervisory Board is responsible for overseeing the directors’ performance of their duties including the design,
implementation and maintenance of the Group’s financial reporting process.
Auditor’s Responsibilities for the Audit of the Financial Statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Misstatements canarise 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 financial statements.
As part of our audit in accordance with auditing standards generally accepted in Japan, we exercise professional judgment
and maintain professional skepticism throughout the audit. We also:- Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or
error; Design and perform audit procedures responsive to those risks. These audit procedures are selected and performed,
depending on 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, toimplement risk assessments, we examine internal control as it pertains to the preparation and appropriate presentation offinancial statements, thereby ensuring that an appropriate audit procedure program is formulated depending on situations.
- Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related
disclosures made by management.
- Conclude on the appropriateness of management’s use of the going concern basis of accounting and based on the audit
evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on
the Company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to
draw attention in our auditor’s report to the related disclosures in the financial statements or, if such disclosures are
inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’sreport. However, future events or conditions may cause the Group to cease to continue as a going concern.
- Evaluate whether the presentation and disclosures in the financial statements are in accordance with auditing standards
generally accepted in Japan, the overall presentation, structure and content of the financial statements, including thedisclosures, 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 theaudit, 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―108―

regarding independence, and communicate with them all relationships and other matters that may reasonably be thought tobear 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 auditof the financial statements for the fiscal year under review as key issues of the audit and state them in the audit report.
However, we do not state the matters in the case where publication of these matters is prohibited by laws, ordinances orsuchlike or in the very rare case that we judge that they should not be reported on the grounds of reasonably expecteddisadvantages from the reporting in the audit report that 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
the Company.
2. XBRL data are not within the scope of audits.

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