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 27th Fiscal Year

From April 1, 2021 to March 31, 2022

Digital Arts Inc.

―1―

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

―2―

ContentsPage
The 27th Fiscal Year Annual Securities Report
Cover ..................................................................................................................................................................................................... 4
Part I. Corporate Information ............................................................................................................................................................... 5
Section I. Corporate Summary ......................................................................................................................................................... 5
1. Financial Highlights ............................................................................................................................................................. 5
2. Corporate History................................................................................................................................................................. 7
3. Business Summary ............................................................................................................................................................... 8
4. Related Companies ............................................................................................................................................................ 11
5. Employment Data .............................................................................................................................................................. 11
Section II. Business Summary ....................................................................................................................................................... 12
1. Management Policy, Operating Environment and Business Issues to Be Considered ........................................................ 12
2. Business and Other Risks..................................................................................................................................................... 14
3. Analysis of Financial Conditions, Operating Results and Cash Flows by the Management ................................................ 16
4. Material Contracts Affecting Management of the Company, etc.......................................................................................... 21
5. Research and Development .................................................................................................................................................. 21
Section III. Properties ...................................................................................................................................................................... 22
1. Summary of Capital Investment, etc. ................................................................................................................................... 22
2. Major Facilities .................................................................................................................................................................... 22
3. Plans for Capital Investment, Disposals of Properties etc. ................................................................................................... 22
Section IV. Information on the Reporting Company ........................................................................................................................ 23
1. Stock Information ................................................................................................................................................................ 23
2. Information on Acquisition, etc. of Treasury Shares ............................................................................................................ 40
3. Dividend Policy ................................................................................................................................................................... 41
4. Corporate Governance ......................................................................................................................................................... 42
Section V. Financial Information ..................................................................................................................................................... 54
1. Consolidated Financial Statements ...................................................................................................................................... 55
2. Financial Statements of the Reporting Company ................................................................................................................. 84
Section VI. Stock Information of the Reporting Company .............................................................................................................. 94
Section VII Reference Information on the Reporting Company ...................................................................................................... 95
1. Information on Parent Entities of the Reporting Company .................................................................................................. 95
2. Other Reference Information ............................................................................................................................................... 95
Part II. Information Concerning Guarantors of the Reporting Company ............................................................................................. 96
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 ofJapan[Filed with]

Director, Kanto Local Finance Bureau[Filing Date]

June 22, 2022

[Fiscal Year]

27th fiscal year (from April 1, 2021 to March 31, 2022)[Company Name]

Digital Arts Inc.

[Title and Name of Representative]

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

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

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

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

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

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

23rd fiscal year

24th fiscal year

25th fiscal year

26th fiscal year

27th fiscal year

Year end

March 2018

March 2019

March 2020

March 2021

March 2022

Net sales(Million yen)

5,116

5,841

5,641

6,825

9,051

Ordinary profit(Million yen)

1,909

2,630

2,326

2,991

4,135

Profit attributable to owners (Million yen)of parent

1,281

1,961

1,590

2,059

2,900

Comprehensive income(Million yen)

1,275

1,977

1,587

2,063

2,910

Net assets(Million yen)

6,247

7,802

8,680

10,062

12,159Total assets(Million yen)

7,928

9,859

10,852

14,856

19,341

Net assets per share(Yen)

446.43558.33617.27715.79863.96

Basic profit per share

(Yen)

92.46

141.11113.69146.90206.71

Diluted profit per share

(Yen)

92.13

140.80110.83143.45202.03

Capital ratio

(%)

78.2

78.7

79.7

67.6

62.7

Return on equity

(%)

22.5

28.1

19.4

22.0

26.2

Price earnings ratio(Times)

44.45

64.13

41.08

65.96

35.90

Cash flows from operating (Million yen)
1,663
3,091
2,686
5,221
6,169
activities
Cash flows from investing (Million yen)
(774)
(908)
111
(830)
(978)
activities
Cash flows from financing (Million yen)
(293)
(429)
(709)
(671)
(810)
activities
Cash and cash equivalents at (Million yen)
3,826
5,569
7,651
11,382
15,773end of period
Number of employees
207
207
236
295
324
[Average number of part-time (Persons)
[33]
[26]
[22]
[19]
[22]
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. for the 27th fiscal year.

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

23rd fiscal year

24th fiscal year

25th fiscal year

26th fiscal year

27th fiscal year

Year end

March 2018

March 2019

March 2020

March 2021

March 2022

Net sales(Million yen)

5,046

5,752

5,336

6,074

8,003

Ordinary profit(Million yen)

2,097

2,777

2,359

2,964

4,052

Profit(Million yen)

860

1,784

1,613

2,044

2,832

Share capital(Million yen)

713

713

713

713

713

14,133,000

14,133,000

14,133,000

14,133,000

14,133,000

Number of issued shares(Shares)

Net assets(Million yen)

6,451

7,804

8,714

10,07812,097

Total assets(Million yen)

8,149

9,870

10,83914,751

19,138

Net assets per share(Yen)

462.20559.74620.45717.78860.82

Dividend per share[Interim dividend per share]

(Yen)

28
[14]

48
[18]

50
[25]

55
[25]

70
[30]

Basic profit per share

(Yen)

62.07

128.42115.29145.81201.83

Diluted profit per share

(Yen)

61.85

128.14112.39142.38197.26

Capital ratio

(%)

78.7

78.8

80.2

68.3

63.1

Return on equity

(%)

14.1

25.1

19.6

21.8

25.6

Price earnings ratio(Times)

66.21

70.47

40.51

66.46

36.76

Dividend payout ratio

(%)

45.1

37.4

43.4

37.7

34.7

194

201

214

236

254

[33]

[26]

[21]

[19]

[22]

(%)

135.9

299.7

157.5

324.2

251.9

(%)

[115.9][110.0][99.6][141.5][144.3]

Year high

(Yen)

5,060

9,560

11,24010,99010,680Year low

(Yen)

2,701

3,980

3,625

4,345

5,660

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 price on the Tokyo Stock Exchange (first section).
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. for 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
Digital Arts Inc. develops the first web filtering software in Japan and launches initiatives to accumulate informationon harmful websites
Digital Arts Inc. increases capital to 40 million yen
Digital Arts Inc. relocates head office to Kita-Aoyama, Minato-ku, Tokyo
Digital Arts Inc. increases capital to 491 million yen
Digital Arts Inc. launches NET iScope, an internet monitoring service
Digital Arts Inc. is listed on Nasdaq Japan of the Osaka Securities Exchange (currently JASDAQ Standard)
Digital Arts Inc. increases capital to 552.2 million yen
Digital Arts Inc. transfers NET iScope (internet monitoring service) business to shift corporate focus to filtering
software
Digital Arts Inc. begins operations at Kyushu Branch Office (currently Kyushu Sales Office)Digital Arts Inc. acquires patent in 22 countries and regions for internet access control involving filtering technology
Digital Arts Inc. relocates head office to Nagatacho, Chiyoda-ku, Tokyo
Digital Arts Inc. begins operations at Osaka Sales Office (currently Kansai Sales Office)Digital Arts Inc. begins operations at Nagoya Sales Office (currently Chubu Sales Office)Digital Arts Inc. is certified as a Privacy Mark enterprise
Digital Arts Inc. begins operations at Sapporo Sales Office (currently Hokkaido Sales Office)Digital Arts Inc. begins operations at Tohoku Sales Office
Digital Arts America, Inc. is established as a US subsidiary
Digital Arts Europe Ltd. is established as a UK subsidiary
Digital Arts Inc. relocates head office to Otemachi, Chiyoda-ku, Tokyo
Digital Arts Inc. is listed on the Second Section of the Tokyo Stock Exchange
Digital Arts Inc. is listed on the First Section of the Tokyo Stock Exchange
Digital Arts Asia Pacific Pte. Ltd. is established as a Singapore subsidiary
UK subsidiary changes trade name to FinalCode Europe Ltd.
Singapore subsidiary changes trade name to FinalCode Asia Pacific Pte. Ltd.
Digital Arts Consulting Inc. is established
Digital Arts Inc. begins operations at Chushikoku Sales Office
UK subsidiary changes trade name to Digital Arts Europe Limited
Singapore subsidiary changes trade name to Digital Arts Asia Pacific Pte. Ltd.
Digital Arts Inc. acquires certification for the ISO/IEC 27001:2013 (JIS Q 27001:2014) international standard for
information security management systems (ISMS).
Digital Arts Inc. acquires certification for the ISO/IEC 27017:2015 (JIS Q 27017:2016) international standard thatspecializes in cloud security.
Digital Arts Inc.’s DigitalArts@Cloud is registered in the “Information system Security Management andAssessment Program” (ISMAP).

August 1998
January 2000
January 2000
March 2000
May 2000
September 2002
September 2004
October 2004
February 2005
October 2005
August 2006
November 2007
February 2008
January 2009
December 2009
April 2011
November 2011
February 2012
March 2013
November 2015
February 2016
April 2016
October 2016
December 2018
March 2020
November 2020
December 2021

(Note) Transferred from the First Section to the Prime Market of the Tokyo Stock Exchange on April 4, 2022, following a review of themarket classification 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 in internet
security, email security, the planning, development, sale, etc. of file encryption and tracking solutions, and information security
consulting.
Business positioning of Digital Arts Inc. and its consolidated subsidiaries
Company namePrincipal business

Digital Arts Inc.

Planning, development and sale of internet security software 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 made it mucheasier to gather information, methods of controlling information posted on the Internet and providing protection from malicious websites
have yet to be established and Internet users run a very high risk of unintentionally encountering problematic websites. Meanwhile,email, though an essential business tool, also poses many security challenges, such as data leakage due to transmission errors, spam andspoofed messages, and risks of virus infection resulting from receiving malicious files. Additionally, personal information, data fromoutsourcing parties and other electronic data, which are now part of important management assets, are also exposed to growing risks ofdata leaks due to insiders’ unauthorized taking-out of information, theft or loss of devices, email transmission errors and other operational
errors.
While many companies and other organizations are facing the challenges and risks outlined above, the Digital Arts Group proposes
White Operation, which means protecting customers from unknown threats and attacks with a comprehensive database of domesticallysearchable URLs and information of email messages from senders that are deemed safe. We are thus striving to expand sales with a focus
on i-FILTER Ver. 10, m-FILTER Ver. 5 and FinalCode. The first two products are equipped not only with measures against the leakage
of insider data but also with original measures against external attacks, whereas FinalCode supports the encryption and traceability ofelectronic data. Amid the rapid shift of online services and email environments to the cloud following the spread of teleworking among
businesses, the Digital Arts Group is working to expand sales of i-FILTER@Cloud, m-FILTER@Cloud and FinalCode@Cloud foroffering the secure use of websites and email in the cloud environment and for accelerating the development of products supporting more
extensive security measures.
The Digital Arts Group has no business segments that need to be reported on separately and therefore has only one reportable segment:
the Security Business.

―8―

Main Products
User category

Main productsCompany nameEnterprise
Sector

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

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

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

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

Consumer
Sector

- i-FILTER (Web filtering software)

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 registered in the
database. It categorizes adult websites and other websites with inappropriate content for working andlearning environments and stops users from viewing them in line with the policy of the organizationin 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 throughthe storage and management of all emails, and improving business efficiency through protection
against spam emails.
Email filtering is a function that only allows users to receive safe emails, preventing them fromreceiving targeted emails by storing safe senders in a whitelist database and determining the safetyof senders and also identifying fake email attachments and emails. It also stops intentional andaccidental information leaks by forwarding messages to a sender’s manager for approval or delaying
transmission for a certain period.
Main Applications- Protection against targeted emails- Prevention of e-mail mis-transmission- Email archiving- Protection against spam emails
Password-less encryption service for tracking and remotely controlling files
Enables designation of file recipients, configuration of permissions, access log monitoring by fileowner, permission changes after file distribution and remote file deletion

FinalCodeMain Applications- Protection against leakage of confidential information- Protection against internal fraud- Protection against supply chain attacks- File encryption and access control- File tracking- Remote file deletion―9―Main products

Features
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 needto select and purchase hardware, operating systems and applications separately

D-SPA

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

i-FILTER (Consumer)

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

The Group’s business organization chart is as follows.

End users

Agents, Distributors, etc.

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

Digital Arts Inc.

Sales and provision of services―10―

4. Related Companies
Company name

Percentage ofShare capital
Principal business voting rights(Million yen)(%)

Address

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, Chiyoda-ku, Tokyo, Japan

73

Securitybusiness

92.1

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)

1,106

108

73

227

365

5. Employment Data
(1) Consolidated Basis
As of March 31, 2022
Category

Number of employees

Security business

324 (22)Total

324 (22)(Notes) 1. The figures in parentheses in the number of employees section (which are not included in the totals) indicate the annual
average number of part-time employees (temporary staff, etc.).
2. Segment information is omitted because the Digital Arts Group operates in one segment only (the security business) andhas no other business segments.
(2) The Reporting Company
Number of employees
254

(22)

As of March 31, 2022
Average annual salary(thousand yen)

Average length ofservice in years

Average age
34.3

6.1

6,954

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

―11―Section II. Business Summary
1. Management Policy, Operating Environment and Business Issues to Be Considered
Matters concerning the future stated below are based on the Group’s assessments as of the end of the fiscal year under review.
(1) Management Policy
With “For Internet convenience, safety and security” as its corporate philosophy, the Digital Arts Group aims to provide peace ofmind, safety and comfort as a software maker, to realize an Internet society in which all kinds of people, things and 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 inthe 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 sophisticated security needs and to realize theprovision 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 growth rate, the net sales
growth rate, the operating margin, and return on equity (ROE) as objective indicators for judging the status of achievement ofthese 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 thecontract 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 the following
targets.
(Million yen)
Fiscal Year Ended
March 31, 2023
(Forecast)Fiscal Year Ended
March 31, 2024
(Forecast)Fiscal Year Ended
March 31, 2025
(Forecast)

Consolidated net sales

10,50011,80013,000Consolidated operating profit

4,700

5,180

5,700

Consolidated operating margin

45%

44%

44%

(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 to expand associety becomes increasingly digitalized through more widespread teleworking and home learning and the utilization of various
cloud services. The importance of security solutions is growing in response to the risk of information leaks and ever moresophisticated and devious cyber attacks, including targeted attacks against specific enterprises, government agencies and otherorganizations.

―12―

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 andmeeting the requirements of its users and distributors. We will continue to put our relationships with our users and distributors
first and strive to strengthen our products and improve our services with the aim of achieving stable and continuous growth.
(ii) Identification of new needs
Due to advances in technology such as cloud services, the IoT, AI and ICT, and the expansion of the Internet business domain,
security threats are increasing. In this environment, the Group will identify new needs by predicting potential future needs
through market research and enhancing its product lineup and services 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 the medium andlong term. The Group therefore continuously reviews its personnel programs to ensure that it offers attractive levels of pay, afair evaluation program and a full lineup of employee training programs and we also strive to attract and retain talented humanresources 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, and we seek todevelop human resources by supporting employees to gain qualifications and by providing internal position-based training andtraining delivered by outside specialists.
(iv) Sustainability initiatives
The Group established the Sustainability Committee in April 2022, to protect the environment and realize a sustainable societyin accordance with its corporate philosophy. In addition to the mitigation of environmental impacts and the improvement ofefficiency in our business activities, we will implement initiatives to address environmental issues such as climate change andpollution through awareness and 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 Cyberrisk Information Service” free of charge. Using our product functions to detect threats, D-Alert informs Internet users who aresuspected 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 ofsmartphones and other mobile devices to help increase their digital literacy, and also stresses the importance of filtering.

―13―

2. Business and Other Risks
Material risks recognized by management as risks that could materially affect the financial condition, operating results and cash flows
of consolidated companies included in the Business Summary, Financial Information and other sections of this Annual Securities Report
are as follows. These forward-looking statements are being made at the determination of the Group as of the date of submission of thisAnnual Securities Report (June 22, 2022).
(a) Risks related to changes in the sales situation and operating environment of major distributors affecting the GroupThe Group’s products are mostly sold to users through its distributors. Client sales conditions and changes in management climate(such as M&A or bankruptcy) could lead to a significant fluctuation in the Group’s net sales. Major distributors also handle theproducts of the Group’s competitors. The Group, therefore, endeavors to expand net sales by reaching out effectively to distributors.
However, there is a risk that competitors’ products may be given preference over the Group’s products. Furthermore, any changes
in the sales situation or operating environment (such as M&A or bankruptcy) of major distributors that cause delayed or
uncollectable payment of debt could also significantly impact the Group’s performance and financial standing.
(b) Risks associated with changes in the national budget and local government policies affecting the Group’s product sales to schools
and local municipalities
The Group’s product sales to public schools and local municipalities may be significantly impacted by fluctuations in the national
budget and its distribution to local municipalities, as well as the budget expenditures of these municipalities.
(c) Risks related to internet regulations, free services provided by NPOs and other organizations, and services mounted on future OSs
at no cost
In the event internet regulations move forward to allow government or NPOs to offer initiatives similar to the Group’s web filtering
software at low or no cost, the Group may have no choice but to amend the Group’s business model and earning model.
It is also possible that, in the future, services similar to the Group’s web filtering software may be mounted on computer OSs at avery low or no cost, and although the quality of such “service” may be inferior to the web filtering solutions offered by the Group,
users may actively choose to use these “services.” Such instances may significantly impact the Group’s performance and financial
standing.
(d) Risks of specializing in the security business
The Group is dedicated to the security business, which involves developing and selling web filtering software and email filtering
software. Future declines in security market demands due to deteriorating economic climate and other factors may significantly
impact the Group’s performance and financial standing.
(e) Risks related to fluctuation in the Group’s quarterly net sales results
There is an inclination that the Group’s fourth quarter earnings are higher compared to other quarters in terms of net sales for thefull fiscal year. This is mainly attributable to the common practice by private enterprises and public sectors to place orders for IT
products in March, at the end of their fiscal year. The Group takes this seasonal factor into account when making its full year plans
and is continuing to pursue to maintain and expand the current sales level. However, the Group’s performance and financial standing
may see a significant impact if the Group fails to acquire orders as planned for the relevant period for any reason, or experiences
delays in receiving orders due to matters related to the client and distributors. If products for which most of the contract price issubject to deferred revenue recognition account for a higher percentage of total sales than products for which the majority of thecontract price is recognized at contract inception or if temporary special demand arises as a result of change in the law or government
initiatives, there is a risk that the Group’s quarterly financial results will fluctuate.

―14―

(f) Risks associated with laws and regulations
The Group operates on a global scale and conducts business activities appropriately, in compliance with national and regional laws
and regulations. However, changes in laws and regulations related to aspects such as imports and exports, product liability, andtransfer pricing arrangements as well as legal interpretations by the regulatory authorities may lead to an unforeseeable situation. If
the Group spends a significant amount of time and money on complying with such changes, this could impact on the Group’s
performance and financial standing.
(g) Risks associated with the future decline of internet use in business, schools and homes
The internet is a technology that developed rapidly on a global scale, and today, is considered an indispensable form of information
infrastructure. Currently, the Group’s net sales is mainly composed of products and services related to the internet, therefore, if theexistence of the internet fades or the use of internet declines in the Group’s target markets of “Business/Enterprise,” “School,”“Government,” and “Home,” this may have a significant impact on the Group’s performance and financial standing.
(h) Limitation in protecting intellectual property rights (including patents)
The Group takes appropriate measures both domestically and overseas to protect any and all independently developed technology
and know-how, however, there are certain areas in the world where the Group’s intellectual property rights may have no or limited
protection due to legal restrictions. For this reason, the Group may not be able to completely prevent its competitors from analyzing
and researching the Group’s proprietary technologies and providing similar products to the market. While the Group pays utmost
attention to avoid infringing intellectual property rights and copyrights when offering new products and services, there may be arisk at some future point where other parties may deem that the Group is infringing on their intellectual property rights and copyrights.
(i) Risks associated with the Group’s technology obsolescence and deterioration of technological innovation
The Group conducts development activities to upgrade technology and enhance quality for current/future products and services.
However, if the products and services provided by the Group became obsolete or the Group’s technological innovation deteriorated,
the Group may lose its competitive edge against other products and services on the market. This may have a significant impact on
the Group’s future performance and financial standing.
(j) Risks associated with bugs and defects on products offered by the GroupThe Group develops and markets various products around the framework of “web filtering software.” Countless quality controls are
performed in course of developing and marketing software in order to take all possible means to ensure that the program operates
properly. However, software bugs (defects) unexpected at the time of launch may be confirmed post-launch, and in suchcircumstances, the Group promptly releases update patches to correct the issue. However, if such bug issues prevent the Group fromproviding services, if the Group requires a long period of time to resolve the issue, or if the issue could not be resolved, this could
lead to a reduction of sales, goods being returned and to a decline in the Group’s credibility, which may significantly impact theGroup’s business performance and financial standing.
(k) Risks associated with issues in the mainstay system (server) owned by the GroupThe Group’s services essentially take the form of providing URL and other information from servers administered by the Group.
The Group positions these servers as the most critical mainstay system and makes every effort to provide consistent service bytaking necessary safeguards, such as server duplication and backups. However, servers are hardware and problems such as
unexpected shutdown, malfunction, and loss of material information (such as URL database, client data and technologicalinformation that are at the core of the Group’s service) may result in service suspension.
The Group’s service may also be interrupted due to suspension of business at the facility where the Group’s server is located,problems with internet service providers, telecommunication carriers and other cloud services, and information security incidents
such as the leakage of information due to hacking attacks and theft of material data. The Group has acquired the Privacy Mark anddeveloped a system in compliance with Information Security Management System (ISMS) requirements. However, in the event theGroup’s service is suspended due to such issues, this suspension could lead to a decline in the Group’s credibility, which may
significantly impact the Group’s business performance and financial standing.

―15―

(l) Reliance on key management, and securing/developing talent
The Group’s operation is heavily dependent on key management personnel, such as CEO Toshio Dogu. In the event thesemanagement personnel takes an extended leave due to illness or injury, leaves the Group or dies, such factors may have a significant
impact on the Group’s performance and financial standing. The Group works on securing and developing talent, but failing to secureand develop sufficient talent in the future may adversely affect the Group’s competitiveness and efficiency and have a significant
impact on the Group’s business performance and financial standing.

(m) Risks pertaining to merger and acquisitions, and assignment/acquisition of business rights
Digital Arts Inc. is a public company listed on the Prime Section of Tokyo Stock Exchange, where CEO Toshio Dogu is the largest
shareholder with 2,403,125 shares (which account for approximately 17.1%, including shares held by the shareholders’ association
made up of directors) out of 14,133,000 issued and outstanding shares (including treasury shares) as of March 31, 2022. As a publiccompany, the possibilities of mergers and acquisitions cannot be denied, and the entire or part of the Group or its business rights
may be acquired, merged or assigned at some point in the future. Such factors may significantly impact the Group’s performanceand financial standing.
Similar impact would be seen if the Group performs mergers and acquisitions, or acquires business rights.
(n) Risks associated with natural disaster, disaster, terrorist activities, war, the spread of infections and power outage
The Group’s business performance and business activities may be significantly affected due to unforeseen situations, such as
disasters, including earthquakes and other acts of God, terrorist activities or the outbreak of war at home or abroad, and the spreadof infections such as influenza and COVID-19. In addition, insufficient power supply due to nationwide/regional power outage or
problems in the buildings where the Group performs its business may cause the Group to suspend its business activities and services,and may, in turn, significantly impact its business performance and financial position.
(o) Risks associated with COVID-19
If the COVID-19 impact prolongs further, the business activities of the Group may be affected. If the Group is forced to suspend
business activities due to the emergence of cases of COVID-19 within the Group, this may affect the Group’s business performanceand financial standing. To address this risk, the Group is working to continue business activities by urging employees to work fromhome to promote teleworking and by conducting seminars, negotiations and other sales activities online.

3. Analysis of Financial Conditions, Operating Results and Cash Flows by the Management(1) Overview of operating results, etc.
An overview of the financial condition, operating results and cash flows (hereinafter operating results, etc.) of the Digital Arts Group(Digital Arts Inc. and its consolidated subsidiaries) during the consolidated fiscal year under review is as follows.
(i) Financial condition and operating results
During the consolidated fiscal year under review (April 1, 2021 through March 31, 2022), the Japanese economy continued torecover, although weakness was still evident in certain industries. The economic recovery was driven by increasing exports primarily
to the United States and China, reflecting a recovery in the world economy due to widespread COVID-19 vaccinations and economic
stimulous packages in many countries. However, the economic outlook remain uncertain, chiefly reflecting continued adverse
effects of the spread of COVID-19 on the domestic economy and rising raw materials prices due to the worsening situation in
Ukraine.
In the security industry, in which the Digital Arts Group (the “Group”) operates, the scope of the Internet continued to expand associal lifestyles were going digital with the use of cloud services and teleworking. The importance of security solutions grew inresponse to the risk of information leaks and increasingly sophisticated and diverse cyber attacks, including targeted attacks against
specific enterprises, government agencies and other organizations. Further, in the enterprise sector market, demand for software
products to prepare for working in the home and performing business processes securely and efficiently increased under the
prolonged effects of the pandemic. Meanwhile, progress was also made in the public sector market, with the strengthening of―16―

security measures by local governments, in addition to the GIGA School Concept, which envisions the development of anenvironment with one learning terminal for each school-aged child to make at-home learning possible.
Under these conditions, in the enterprise sector market, the Group took advantage of the fact that more and more people are working
from home and web services and e-mail environments are shifting to the cloud and expanded sales of its i-FILTER@Cloud and mFILTER@Cloud cloud service products, creating a world in which the Internet and emails can be used without hesitation in thecloud environment. In the public sector market, the Company provided a special version of i-FILTER that caters to needs arisingfrom the GIGA School Concept. At the same time, it continued to run campaigns, including the provision of free services that
conform to the Guidelines on Education Information Security Policy, in its ongoing efforts to expand sales from schools. In addition,
the Company focused on proposing solutions to support local government efforts to strengthen security measures, which will beramped up from the next fiscal year.
Demand in the enterprise and public sector markets has soared for cloud service products due to the effects of the COVID-19
pandemic. A large part of the amount of the contract for traditional mainstay license sales products is recorded as sales in a lump at
the time of shipment. For cloud service products, recorded sales are apportioned on a monthly basis throughout the service provisionperiod. For that reason, the Company continued to receive strong orders for cloud service products as in the previous fiscal year. Net
sales deferred to the next and subsequent fiscal years increased from the end of the previous fiscal year.
As a result of the above, the financial condition and operating results for the consolidated fiscal year under review are as follows.
a. Financial condition(Assets)
Total assets at the end of the consolidated fiscal year under review increased 4,485 million yen from the end of the previous
consolidated fiscal year, to 19,341 million yen. This was due mainly to an increase of 4,391 million yen in cash and deposits.
(Liabilities)
Total liabilities at the end of the consolidated fiscal year under review rose 2,387 million yen from the end of the previous
fiscal year, to 7,181 million yen. This was due mainly to an increase of 2,313 million yen in advances received, attributable
to an increase in the amount of contracts for which orders were received.
(Net assets)
Net assets at the end of the consolidated fiscal year under review climbed 2,097 million yen from the end of the previous
consolidated fiscal year, to 12,159 million yen. This was mainly due to an increase in retained earnings due to the recordingof 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 9,051 million yen, up 32.6% year on year, operating profit
increased 38.6% year on year, to 4,126 million yen, ordinary profit grew 38.2% year on year, to 4,135 million yen, and profit
attributable to owners of parent increased 40.8% year on year, to 2,900 million yen.
Overview of Consolidated Business Result(Million yen)
Fiscal Year Ended
March 31, 2021

Fiscal Year Ended
March 31, 2022

Net sales

6,825

9,051

+2,226+32.6

Operating profit

2,977

4,126

+1,148+38.6

Ordinary profit

2,991

4,135

+1,143+38.2

Profit attributable toowners of parent

2,059

2,900

+841

+40.8

―17―

Change% Change

The following describes business performance in separate markets.
Enterprise Sector Market
In the enterprise sector market, orders increased for i-FILTER and m-FILTER cloud service products, which are used to reduce costs
and operations management burdens at companies. Sales of m-FILTER increased steadily as a result of the use of the PPAP method(sending the Zip file protected by a password by e-mail and sending the password by a separate e-mail) and the addition offunctionality to deal with targeted attacks, including attacks using Emotet. In addition, net sales for Digital Arts Consulting Inc., asubsidiary offering security consulting services, increased with a progress achieved in new customer acquisition in line with greater
corporate demand for cybersecurity and digital transformation (DX) consulting.
Net sales in this market reached 4,559 million yen, up 14.5% year on year.
Public Sector Market
In the public sector market, the Group has traditionally enjoyed excellent recognition and a large market share as a provider of Japanmade security solutions. In addition, under the GIGA School Concept, the Group’s i-FILTER cloud service products were adopted
by many schools during the previous fiscal year in recognition of its reliability and functionality in supporting a safe learning
environment at home. That led to a sales hike. Sales of the i-FILTER and m-FILTER series grew as brisk orders were won frompublic agencies and local governments.
As a consequence, net sales in this market stood at 4,046 million yen, up 68.0% year on year.
Consumer Sector Market
In the consumer sector market, the Group focused on collaborating with mobile network carriers and MVNOs and on sales of iFILTER for Multiple Devices, which can be used on multiple operating systems using a single serial ID. As a result, it attained anincrease of users.
Net sales in this market amounted to 444 million yen, up 2.8% year on year.
Net sales for the consolidated fiscal year under review (April 1, 2021 - March 31, 2022)
Enterprise Sector
MarketPublic Sector Market

Consumer Sector
MarketTotal

Million yen

Million yen

Million yen

Million yen

4,559

4,046

444

9,051

3,984

2,408

432

6,825

Fiscal Year Ended
March 31, 2022
Fiscal Year Ended
March 31, 2021

(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 4,391 million yen from the end of the previous
consolidated fiscal year to 15,773 million yen. Cash flows in each category are as follows:(Cash flows from operating activities)
Net cash provided by operating activities stood at 6,169 million yen (net cash provided of 5,221 million yen in the previous
consolidated fiscal year), chiefly reflecting profit before income taxes of 4,136 million yen and depreciation of 890 million yen.
(Cash flows from investing activities)
Net cash used in investing activities came to 978 million yen (net cash used in 830 million yen in the previous consolidated fiscal
year), mainly due to the purchase of intangible assets.
(Cash flows from financing activities)
Net cash used in financing activities was 810 million yen (net cash used of 671 million yen in the previous consolidated fiscal
year), primarily due to dividends paid, although there were proceeds from disposal of treasury shares.

―18―

(iii) Results for production, orders received and sales
a. Results of production
Fiscal year under review(from April 1, 2021 to March 31, 2022)(million yen)

Change YoY (%)

Enterprise Sector Market

4,398

114.3

Public Sector Market

4,007

167.8

444

102.3

8,849

132.7

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.
c. Results of sales
Fiscal year under review(from April 1, 2021 to March 31, 2022)(million yen)

Change YoY (%)

Enterprise Sector Market

4,559

114.5

Public Sector Market

4,046

168.0

444

102.8

9,051

132.6

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
Fiscal year under review(from April 1, 2020 to March 31, 2021) (from April 1, 2021 to March 31, 2022)
Amount(million yen)

Ratio (%)

Amount(million yen)

Ratio (%)

Daiwabo Information System
Co., Ltd.

1,409

23.2

2,045

22.6

SB C&S Corp.

1,287

21.2

1,541

17.0

―19―

(2) Details of analysis and examination concerning the state of operating results, etc. from the perspective of the management
The details of understanding, analysis and examination concerning the state of operating results , etc. for the Group from theperspective of the management are as follows.
Matters concerning the future stated below are based on assessments as of the end of the fiscal year under review.
(i) Significant accounting policies and accounting estimates
The Group’s consolidated financial statements were prepared in accordance with Generally Accepted Accounting Principles
in Japan (JGAAP). In preparing these consolidated financial statements, the Group was required to make estimates andforecasts that might affect its financial condition, operating results and cash flows at the end of the consolidated fiscal year
under review. The Company always bases its estimates and forecasts on assumptions that it believes to be reasonable basedon past results and conditions. Due to the uncertain nature of estimates, in some cases actual results may vary from theseestimates.
(ii) Details of understanding, analysis and examination concerning the state of operating results, etc. for the fiscal year underreview
The Group’s operating results, etc. in the consolidated fiscal year under review are as follows.
a. State of operating results, etc.
(Net sales)
Consolidated net sales for the fiscal year under review stood at 9,051 million yen, up 2,226 million yen compared to theprevious consolidated fiscal year (an increase of 32.6% year on year).
This increase is largely attributable to growth in orders for the i-FILTER series bolstered by the spread of teleworking in theEnterprise Sector Market, expansion of orders for the i-FILTER series associated with the GIGA School Concept in the Public
Sector Market and growth in sales from new customers at Digital Arts Consulting Inc.
(Cost of sales, gross profit)
Cost of sales during the consolidated fiscal year under review stood at 2,676 million yen, up 729 million yen compared to theprevious consolidated fiscal year (an increase of 37.5% year on year). Meanwhile, gross profit stood at 6,374 million yen, up
1,496 million yen compared to the previous consolidated fiscal year (an increase of 30.7% year on year).
In the consolidated fiscal year under review, gross profit surged thanks to a rise in net sales despite an increase in cloud service
expenses associated with sales expansion of cloud service products and higher personnel expenses attributable to a rise in thenumber of consultant personnel at Digital Arts Consulting.
(Selling, general and administrative expenses, operating profit)
Selling, general and administrative expenses were 2,248 million yen, up 347 million yen compared to the previous consolidated
fiscal year (an increase of 18.3% year on year). Meanwhile, operating profit stood at 4,126 million yen, up 1,148 million yen
compared to the previous consolidated fiscal year (a rise of 38.6% year on year).
During the consolidated fiscal year under review, operating profit increased thanks to higher net sales, despite the costs
associated with higher sales such as increased personnel expenses attributable to increased first-half bonus payments toemployees.
(Ordinary profit)
In the consolidated fiscal year under review, ordinary profit amounted to 4,135 million yen (an increase of 38.2% year on year),mainly due to the recording of non-operating income such as foreign exchange gains of 6 million yen.
(Profit attributable to owners of parent)
Profit attributable to owners of parent increased 40.8% year on year, to 2,900 million yen.

―20―

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 gap between the contract amount growth rate and the net sales growth rate largely reflects a sharp rise in demand for cloudservice products in the Enterprise Sector Market and in the Public Sector Market during the consolidated fiscal year underreview, attributable to the COVID-19 pandemic.
A large part of the amount of the contract for traditional mainstay license sales products is recorded as sales in a lump at thetime of shipment. For cloud service products, recorded sales are apportioned on a monthly basis throughout the service
provision period.
In the consolidated fiscal year under review, the contract amount growth rate turned negative following a sharp increase in thecontribution of cloud service products to the total contract amount due to GIGA School Concept projects the previous
consolidated fiscal year. However, the net sales growth rate climbed higher, partly due to the effect of an increase in net sales
deferred from the previous fiscal year.
Previous fiscal year
(from April 1, 2020 to March
31, 2021)

Fiscal year under review(from April 1, 2021 toMarch 31, 2022)

Contract amount growth rate (%)

103.1

△19.7

Net sales growth rate (%)

21.0

32.6

Operating margin (%)

43.6

45.6

Return on equity (ROE) (%)

22.0

26.2

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 andcash equivalents stood at 15,773 million yen.
A major component of the Group’s demand for working capital is personnel expenses to secure and develop the talented humanresources necessary to provide high added value solutions. When allocating internal reserves, the Group will give priority tosecuring and developing human resources, and we will maintain the stable and continuous growth of existing business while
also actively striving to identify new needs.
d. Factors that have a significant impact on operating results
As stated in “Section II. Business Summary 2. Business and Other Risks”

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

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

―21―

Section III. Properties
1. Summary of Capital Investment, etc.
In the consolidated fiscal year under review, the Group made capital investment totaling 25 million yen. This mainly consisted of officeequipment work and purchases of computers, servers, and other information equipment.
Meanwhile, the Group made investments in intangible assets totaling 961 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, 2022)
Book value
Branch name (location)

Description ofequipment

Buildings
Area
(m2)

Headquarters(Chiyoda-ku, Tokyo)

Administration,
development
and sales facility

Recreational facility(Atami, Shizuoka
Prefecture)

Recreational
facility

Amount(millionyen)

Vehicles(millionyen)

Furnitureandfixtures(million
yen)

Land

Total
(thousandyen)

Amount(million
yen)

Area
(m2)

Number of
employees

1,626.42(1,626.42)

11

8

71

-

-

91

226(19)

71.85

69

-

0

10,017.49

26

96

-

(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 the annual
average number of part-time employees (temporary staff, etc.)
3. Other branches are the Hokkaido Sales Office (one employees), the Tohoku Sales Office (one employees), the Chubu Sales
Office (seven employees), the Kansai Sales Office (nine employees), the Chushikoku Sales Office (three employees), andthe Kyushu Sales Office (seven 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, 2022)
Book value
Company nameBranch name (location)

Number of
Description of equipment Furniture andemployees
Total
fixtures(million yen)(million yen)

Digital Arts Consulting Headquarters
Administration and sales
7
Inc.
(Chiyoda-ku, Tokyo)
facility(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

―22―

7

70

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

Number of shares
Number of sharesissued as of the end of issued as of the filingfiscal year (shares)
date (shares)(March 31, 2022)(June 22, 2022)

Listed stock exchange

Description

Common share

14,133,000

Tokyo Stock Exchange
Number of shares
14,133,000 First Section (As of the end of the fiscal year)
in trading unit 100
Prime Market (As of the date of submission)

Total

14,133,000

14,133,000――(Note) The figures in the “Number of shares issued as of the filing date” column do not include the number of shares issued upon theexercise of share acquisition rights between June 1, 2022 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, 2022)
Category and number of persons subject to grants

Four directors, 151 employees

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

As of the end of the month
before the filing date
(May 31, 2022)

1,520

1,520

‒

‒

Common share

Same as on the left

152,000 shares

152,000 shares

2,034 yen per share

Same as on the left

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

Same as on the left
Same as on the left

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

Matters regarding transfer of share acquisition rights

Any transfer of 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―23―

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

―24―

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

―25―ii) Resolution of the Board of Directors Meeting held on November 10, 2016
As of the end of the fiscal year
(March 31, 2022)
Category and number of persons subject to grants

Three directors, 96 employees

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

As of the end of the month
before the filing date
(May 31, 2022)

3,009

3,009

‒

‒

Common share

Same as on the left

300,900 shares

300,900 shares

2,639 yen per share

Same as on the left

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

Same as on the left
Same as on the left

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

Matters regarding transfer of share acquisition rights

Any transfer of 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 ineach item below by each holder of share acquisition rights only if operating profit reaches the level specified in each
item below in the fiscal year ended March 31, 2018, the fiscal year ended March 31, 2019, or the fiscal year ended
March 31, 2020.
(a) If operating profit exceeds 2.0 billion yen, 20% of share acquisition rights can be exercised.
(b) If operating profit exceeds 2.5 billion yen, 50% of share acquisition rights can be exercised.
(c) If operating profit exceeds 2.8 billion yen, 100% of share acquisition rights can be exercised.
In the items above, the operating profit stated in the consolidated statements of income in the Company’s annual
securities report (or the statements of income if no consolidated statements of income are prepared) shall bereferenced. If the concept of items to be referenced changes significantly due to the application of the International
Financial Reporting Standards, etc. indicators to be referenced shall be determined by the Board of Directors. Any
fraction of less than one share acquisition right arising in the number of the share acquisition rights that can be
exercised by each holder of share acquisition rights when calculating the percentage that can be exercised shall be
rounded down.
(2) The holder of the share acquisition rights must continue to be a director or an employee of the Company to exercise
share acquisition rights. Provided, however, this provision shall not apply to holders who have retired due toexpiration of their terms of office, or holders who have retired upon reaching the mandatory retirement age or forother legitimate reasons that the Board of Directors may deem appropriate.
(3) Exercise of the share acquisition rights by heirs of holders of the share acquisition rights shall not be permitted.
(4) Share acquisition rights may not be exercised when doing so would cause the total number of shares of the Company
outstanding after exercise of such rights to exceed the number of shares authorized at the time of the exercise.
(5) Share acquisition rights may not be exercised in less than one unit.

―26―

3.

The number of shares granted shall be adjusted according to the following formula if the Company conducts a stock split(includes allotment of the common shares of the Company without consideration; hereinafter the same) or a stock
consolidation after the allotment date of the share acquisition rights. Provided, however, that such adjustment shall be madeonly with respect to the number of shares to be issued upon exercise of the share acquisition rights that have not yet been
exercised at the time of adjustment, and any fraction less than one share arising from the adjustment shall be rounded down.
Number of shares granted after adjustment = Number of shares granted before adjustment x Ratio of split (or consolidation)
If the Company performs a merger or company split, or reduces its share capital, or any other similar matter where theadjustment of the number of shares granted becomes necessary, after the allotment date of the share acquisition rights, thenumber of shares granted shall, to a reasonable extent, be adjusted as appropriate.
4. The value of assets to be contributed upon exercise of the share acquisition rights shall be an amount obtained bymultiplying the amount to be paid in per share (the “Exercise Price”) by the number of shares granted.
The Exercise Price shall be 2,639 yen, which is equal to the closing price of the Company’s stock in regular trading on theTokyo Stock Exchange on November 9, 2016, which is the day before the date of the resolution of the Board of Directors
concerning the issuance of the share acquisition rights.
(1) If the Company conducts a stock split or stock consolidation, the Exercise Price shall be adjusted according to thefollowing formula, and any fraction less than one yen resulting from the adjustment shall be rounded up.
1
Exercise price
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 exerciseof share acquisition rights and the transfer of treasury shares through the exchange of shares), the Exercise Priceshall be adjusted according to the following formula, and any fraction less than one yen resulting from the adjustment
shall be rounded up.
Number of shares
Amount to be paid
×
newly issued
per share
Number of shares+
outstanding
Market price per share prior to the issuance
Exercise price
Exercise price=×
after adjustment
before adjustment
Number of shares outstanding + Number of shares newly issued
In the above formula, the “number of shares outstanding” shall be the amount obtained by subtracting the numberof treasury shares pertaining to the common shares of the Company from the total number of shares outstanding
pertaining to the common shares of the Company. If the Company undertakes the disposal of treasury sharespertaining to its common shares, the “number of shares to be newly issued” shall be read as the “number of treasury
shares to be disposed of.”(3) If the Company performs a merger with another company, company split, or any other similar matter where theadjustment of the Exercise Price becomes necessary, after the allotment date of the share acquisition rights, theCompany may, to a reasonable extent, adjust the Exercise Price as appropriate.
5. If the Company conducts a merger (limited to the case where the Company is dissolved due to the merger), an absorptiontype or incorporation-type company split, or a share exchange or transfer (collectively, the “Reorganization”), the Company
shall, in each of the above cases, allot share acquisition rights of the relevant company from among those listed in “a”
through “e” of Article 236, Paragraph 1, Item 8 of the Companies Act (the “Reorganized Company”) to the holders of theshare acquisition rights as of the effective date of the relevant Reorganization. Provided, however, that the foregoing shallbe on the condition that the allotment of such share acquisition rights by the Reorganized Company in accordance witheach of the following items is stipulated in an absorption-type merger agreement, a consolidation-type merger agreement,
an absorption-type company split agreement, an incorporation-type company split plan, a share exchange agreement or ashare transfer plan.
(1) Number of share acquisition rights of the Reorganized Company to be allotted
The same number as the number of share acquisition rights held by the holder of the share acquisition rights shall beallotted in each case.
(2) Class of shares of the Reorganized Company to be issued upon exercise of share acquisition rights
Common shares of the Reorganized Company(3) Number of shares of the Reorganized Company to be issued upon exercise of share acquisition rights
To be determined as follows, taking the terms and conditions of the Reorganization into consideration.
If the Company conducts Reorganization with respect to common shares of the Company after the allotment date,
the number of shares granted shall be adjusted according to the following formula and any fraction of less than one
share resulting from the adjustment shall be rounded down.
Number of shares granted after adjustment = Number of shares granted before adjustment x Ratio of split (orconsolidation)―27―

(4) Value of assets to be contributed upon exercise of each share acquisition right
The value of assets to be contributed upon exercise of each share acquisition right to be allotted shall be the amountobtained by multiplying the exercise price after Reorganization, obtained through adjustment taking into
consideration, among other matters, the terms and conditions of the Reorganization, by the number of shares of theReorganized Company to be issued upon exercise of each of such share acquisition rights as determined inaccordance with (3) above.
(5) Exercise period of share acquisition rights
From and including the later of the commencement date of the period during which the share acquisition rights may
be exercised as provided for separately or the effective date of the Reorganization, to and including the expiration
date of the period during which the share acquisition rights may be exercised as provided for separately.
(6) Matters concerning share capital and legal capital surplus to be increased due to issuance of shares upon exercise ofshare acquisition rights
To be determined as follows.
(i) The amount by which the stated share capital increases through the issuance of shares upon the exercise of shareacquisition rights shall be one-half (1/2) of the upper limit of the increase in the amounts of stated share capitaland other items calculated pursuant to the provisions of Article 17, Paragraph 1 of the Company Accounting
Ordinance. Any fraction of less than one yen arising from the calculation shall be rounded up.
(ii) The amount by which the legal capital surplus increases through the issuance of shares upon the exercise of shareacquisition rights shall be the upper limit of the increase in the amounts of stated share capital and other items
described in (i) above, less the increase in the amount of stated share capital set out in (i) above.
(7) Restriction on acquisition of share acquisition rights by transfer
Any acquisition of share acquisition rights by transfer shall be subject to approval by resolution of the Board of
Directors of the Company.
(8) Clause on the acquisition of share acquisition rights
If a proposal for a merger agreement under which the Company is to be the dissolving company, a company split
agreement or a company split plan under which the Company is to be the splitting company, or a share exchange
agreement or share transfer plan under which the Company is to be a wholly-owned subsidiary is approved byresolution of the general meeting of shareholders (or if a resolution is made by the Company’s Board of Directors in
the case when the approval of the Company’s general meeting of shareholders is not required), the Company may
acquire all share acquisition rights without consideration on a date to be separately determined by the Board of
Directors of the Company.

―28―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 month
As of the end of the fiscal year
before the filing date(March 31, 2022)(May 31, 2022)
Category and number of persons subject to grants

16 employees

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

690

640

‒

‒

Common share

Same as on the left

69,000 shares

64,000 shares

8,310 yen per share

Same as on the left

From July 1, 2036
to Jun 30, 2038
Issue price: 15,071 yen
Amount capitalized as commonshares: 7,536 yen

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

Same as on the left
Same as on the left

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

Matters regarding transfer of share acquisition rights

Any transfer of 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 the Company’s
operating profit for any of the fiscal years from the fiscal year ending March 31, 2022 to the fiscal 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 materialchange in the concept of operating profit to be referred to due to the application of International Financial ReportingStandards, etc., the Board of Directors shall separately 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 of office, or stockacquisition right holders who have retired upon reaching the mandatory retirement age or for other legitimate reasonsthat 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.

―29―

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 “Number of Shares Granted”) shallbe 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 descriptionof 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 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 amountto 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’s common 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 shall be adjusted
according to the following formula, and any fraction of less than one (1) yen arising from the adjustment shall be
rounded up to the nearest one (1) yen.
Exercise priceafter adjustment=

Exercise price×
before adjustment

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 of treasury stock at
a price lower than the market price (excluding sale of treasury stock pursuant to the provisions of Article 194 of theCompanies Act (request for sale of shares constituting less than one unit by shareholders constituting less than oneunit), or the case of conversion of securities convertible into or can be converted into shares of common stock of theCompany or the case of the exercise of stock acquisition rights to claim delivery of shares of common stock of theCompany (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 the nearest one (1) yen.
Number of shares+
outstanding
Exercise priceafter adjustment=

Exercise price×
before adjustment

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 numberof treasury shares held by the Company from the total number of issued shares of the Company, and in the case of
disposal of treasury shares, the “number of shares newly issued” shall be replaced with the “number of shares to bedisposed 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 to the extent necessary andreasonable.

―30―

5.

If the Company engages in a merger (only if the Company ceases to exist after the merger), absorption-type company split orincorporation-type company split (in each case only if the Company is the split company), or a stock exchange or stocktransfer (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 acquisitionrights remaining (hereinafter referred to as the “Remaining Stock Acquisition Rights”) directly before the effective date of
the Reorganization Actions (effective date of absorption-type merger in case of absorption type merger, date ofincorporation of joint stock company established by consolidation-type merger in case of consolidation-type merger;
effective date of absorption-type split in case of absorption-type split; date of incorporation of company established byincorporation-type split in case of incorporation-type split; effective date of stock exchange in case of stock exchange; ordate of incorporation of parent company established by stock transfer in case of stock transfer; the same applies hereinafter)
the stock acquisition 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 foregoing shall be on
the condition that the allotment of such stock acquisition 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, anabsorption-type company split agreement, an incorporation-type company split plan, a share exchange agreement or a sharetransfer 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 acquisition rights heldby 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 conditions of theReorganization Actions.
The class of shares to be issued upon the exercise of the stock acquisition rights shall be the common stock of theCompany, 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 the allotment of the Stock Acquisition
Rights (the “Allotment Date”), if the Company conducts a stock split (including the gratis allotment of theCompany’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 havenot 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 of stock split orreverse 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 shall be the amountobtained by multiplying the exercise price after reorganization, obtained through adjustment of the Exercise Priceprovided for in 6. above taking into consideration factors such as the terms and conditions of the Reorganization
Actions, by the number of shares of the Reorganized Company to be issued upon exercise of each of such stockacquisition 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.

―31―

(6) Matters concerning share capital and legal capital surplus to be increased due to issuance of shares upon exercise ofshare acquisition rights(i) The amount of share capital to be increased due to the issuance of shares upon the exercise of the Stock
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 of less 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 the exercise of shareacquisition rights shall be the upper limit of the increase in the amounts of stated share capital and other items
described in (i) above, less the increase in the amount of stated share capital set out in (i) above.
(7) Restriction on acquisition of share acquisition rights by transfer
Any acquisition of share acquisition rights by transfer shall be subject to approval by resolution of the Board of
Directors of the 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 theprovisions 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 date separately 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 the Company is tobe splitc. Proposal for the approval of a stock exchange agreement or stock transfer plan under which the Company 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 ofstock 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 through a transfer of sharesissued upon the exercise of these stock options or concerning the acquisition by the Company of all sharesissued upon the exercise of stock options by resolution of the Company’s General Meeting of Shareholders.

―32―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 month
As of the end of the fiscal year
before the filing date(March 31, 2022)(May 31, 2022)
Category and number of persons subject to grants

55 employees

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

1,300

1,275

‒

‒

Common share

Same as on the left

130,000 shares

127,500 shares

8,310 yen per share

Same as on the left

From July 1, 2041
to Jun 30, 2043
Issue price: 15,792 yen
Amount capitalized as commonshares: 7,896 yen

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

Same as on the left
Same as on the left

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

Matters regarding transfer of share acquisition rights

Any transfer of 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 the Company’s
operating profit for any of the fiscal years from the fiscal year ending March 31, 2022 to the fiscal 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 materialchange in the concept of operating profit to be referred to due to the application of International Financial ReportingStandards, etc., the Board of Directors shall separately 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 of office, or stockacquisition right holders who have retired upon reaching the mandatory retirement age or for other legitimate reasonsthat 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.
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 “Number of Shares Granted”) shallbe 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 descriptionof 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.

―33―

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 amountto 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’s common 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 shall be adjusted
according to the following formula, and any fraction of less than one (1) yen arising from the adjustment shall be
rounded up to the nearest one (1) yen.
Exercise price after
adjustment=

Exercise pricebefore adjustment

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 of treasury stock at
a price lower than the market price (excluding sale of treasury stock pursuant to the provisions of Article 194 of theCompanies Act (request for sale of shares constituting less than one unit by shareholders constituting less than oneunit), or the case of conversion of securities convertible into or can be converted into shares of common stock of theCompany or the case of the exercise of stock acquisition rights to claim delivery of shares of common stock of theCompany (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 the nearest one (1) yen.

Exercise price
Exercise priceafter=
before×
adjustment
adjustment

Number of shares
outstanding+

Number of shares newly×
issuedAmount 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 numberof treasury shares held by the Company from the total number of issued shares of the Company, and in the case of
disposal of treasury shares, the “number of shares newly issued” shall be replaced with the “number of shares to bedisposed 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 to the extent necessary andreasonable.
5. If the Company engages in a merger (only if the Company ceases to exist after the merger), absorption-type company split
or incorporation-type company split (in each case only if the Company is the split company), or a stock exchange or stocktransfer (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 acquisitionrights remaining (hereinafter referred to as the “Remaining Stock Acquisition Rights”) directly before the effective date of
the Reorganization Actions (effective date of absorption-type merger in case of absorption type merger, date ofincorporation of joint stock company established by consolidation-type merger in case of consolidation-type merger;
effective date of absorption-type split in case of absorption-type split; date of incorporation of company established byincorporation-type split in case of incorporation-type split; effective date of stock exchange in case of stock exchange; ordate of incorporation of parent company established by stock transfer in case of stock transfer; the same applies hereinafter)
the stock acquisition 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 foregoing shall be on―34―

the condition that the allotment of such stock acquisition 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, anabsorption-type company split agreement, an incorporation-type company split plan, a share exchange agreement or a sharetransfer 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 acquisition rights heldby 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 conditions of theReorganization Actions.
The class of shares to be issued upon the exercise of the stock acquisition rights shall be the common stock of theCompany, 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 the allotment of the Stock Acquisition
Rights (the “Allotment Date”), if the Company conducts a stock split (including the gratis allotment of theCompany’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 havenot 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 of stock split orreverse 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 shall be the amountobtained by multiplying the exercise price after reorganization, obtained through adjustment of the Exercise Priceprovided for in 6. above taking into consideration factors such as the terms and conditions of the Reorganization
Actions, by the number of shares of the Reorganized Company to be issued upon exercise of each of such stockacquisition 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.
(6) Matters concerning share capital and legal capital surplus to be increased due to issuance of shares upon exercise ofshare acquisition rights(i) The amount of share capital to be increased due to the issuance of shares upon the exercise of the Stock
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 of less 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 the exercise of shareacquisition rights shall be the upper limit of the increase in the amounts of stated share capital and other items
described in (i) above, less the increase in the amount of stated share capital set out in (i) above.
(7) Restriction on acquisition of share acquisition rights by transfer
Any acquisition of share acquisition rights by transfer shall be subject to approval by resolution of the Board of
Directors of the Reorganized Company.

―35―

(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 theprovisions 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 date separately 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 the Company is tobe splitc. Proposal for the approval of a stock exchange agreement or stock transfer plan under which the Company 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 ofstock 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 through a transfer of sharesissued upon the exercise of these stock options or concerning the acquisition by the Company of all sharesissued upon the exercise of stock options by resolution of the Company’s General Meeting of Shareholders.
(ii) Information on Shareholder Rights Plans
Not applicable.
(iii) Status of Share Acquisition Rights and Other Plans
Not applicable.
(3) Information on Moving Strike Convertible Bonds, etc.
Not applicable.
(4) Changes in the Total Number of Issued Shares and the Amount of Share Capital and Other

Date

Change in the total Balance of thenumber of issued total number ofsharesissued shares

Change incommon stock(million yen)

Balance of sharecapital(million yen)

Change in legal
capital surplus(million yen)

Balance of legal
capital surplus(million yen)

April 1, 2013
13,991,670
14,133,000
―
713
―
700
(Note)(Note) The Company conducted a 100-for-1 common shares split on April 1, 2013 based on a resolution at the meeting of the Board of
Directors held on February 28, 2013. This stock split increased the number of shares outstanding to 14,133,000 shares, an increaseof 13,991,670 shares.

―36―

(5) Shareholders Composition
As of March 31, 2022
Status of shares (one unit of stock: 100 shares)
Category

Government
andmunicipality

Financial
institution

Financial
instruments
business
operator

Other
institution

Foreign corporations, etc.
Nonindividuals

Individuals

Individuals
and others

Total

Number ofshares lessthan one
unit (shares)

Number of
―
19
34
41
193
13
4,828
5,128
―
shareholders
Shareownership―
27,962
2,769
9,998
56,00628
44,462
141,225
10,500(units)Ownership
percentage
―
19.80
1.96
7.08
39.66
0.02
31.48
100.00―of shares (%)(Note) Of 93,731 treasury shares, 937 units are included in the “Individuals and others” column, while 31 shares are included in the“Number of shares less than one unit” column.

―37―

(6) Major Shareholders

Name

Address

As of March 31, 2022
Ratio (%) of thenumber of owned
shares to the total
Share ownershipnumber of(shares)
outstanding
shares (excluding
treasury shares)

Toshio Dogu

Minato-ku, Tokyo

2,403,125

17.12

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

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

1,459,600

10.40

Custody Bank of Japan, Ltd. (Trust
Account)

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

1,023,100

7.29

BNYMSANV RE
BNYMSANVDUB RE BNYMGOUCITS ETF SOLUTIONS PLC(Standing proxy: MUFG Bank,Ltd.)）

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

726,802

5.18

DAM Corporation

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

710,000

5.06

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

541,900

3.86

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

458,800

3.27

RUE MONTOYEARSTRAAT 46, 1000
BRUSSELS, BELGIUM(2-7-1 Marunouchi, Chiyoda-ku, Tokyo)

400,000

2.85

BNYM TREATY DTT 15(Standing
proxy: MUFG Bank, Ltd.)240 GREENWICH STREET, NEW YORK, NEW
YORK 10286, U.S.A.
(2-7-1 Marunouchi, Chiyoda-ku, Tokyo)

261,281

1.86

GOVERNMENT OF NORWAY(Standing proxy: Citibank N.A.,
Tokyo Branch)

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

247,800

1.77

8,232,408

58.64

THE BANK OF NEW YORKMELLON 140044(Standing proxy:
Settlement & Clearing Services
Department, Mizuho 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 confirmedby the Company and is, therefore, omitted.
4. In addition to the forgoing, the Company holds 93,731 treasury shares.

―38―

5.

The content of reports on large shareholders whose shareholdings could not be confirmed as of March 31, 2022
(change reports) is as follows.

(1) The large shareholding report (change report) made available for public inspection on May 21, 2021 reports that Rheos
Capital Works Inc. and the joint holders held the following shares as of May 14, 2021. However, the Company has
confirmed no beneficial ownership of the number of shares held in the name of these parties as of March 31, 2022, andtherefore, the following are not included in the above status of major shareholders.
The content of the large shareholding report (change report) concerned is given below.

Name

Address

Number of
Ownership ratio
shareof sharecertificates, etc.
certificates (%)
held (shares)

Rheos Capital Works Inc.

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

694,700

4.92

SBI SECURITIES Co., Ltd.

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

22,3890.16

717,089

5.07

Total

―

(2) The large shareholding report (change report) made available for public inspection on February 7, 2022 reports that
Mondrian Investment Partners Limited held the following shares as of February 2, 2022. However, the Company has
confirmed no beneficial ownership of the number of shares held in the name of this party as of March 31, 2022, andtherefore, 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
Mondrian Investment Partners
Limited
Total

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

Number of
Ownership ratio
shareof sharecertificates, etc.
certificates (%)
held (shares)
1,282,200

9.07

1,282,200

9.07(3) The large shareholding report (change report) made available for public inspection on March 1, 2022 reports that Legal& General Investment Management Limited held the following shares as of December 30, 2021. However, the Company
has confirmed no beneficial ownership of the number of shares held in the name of this party as of March 31, 2022, andtherefore, 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.
Number of
Ownership ratio
shareof sharecertificates, etc.
certificates (%)
held (shares)

Name

Address

Legal & General Investment
Management Limited

1 Coleman Street London, EC2R 5AA United
Kingdom

709,402

5.02

Total

―

709,402

5.02

―39―

(7) Information on Voting Rights(i) Issued Shares
As of March 31, 2022
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

CommonsharesCommonsharesCommonshares93,70014,028,800

140,288

10,500

Number of issued shares

14,133,000

Total number of voting rights

―

―

―

―

―
140,288――(ii) Treasury Shares, etc.
As of March 31, 2022
Number of shares held under
own name

Number of shares held under
the name of others

Total shares
held (shares)

Ownership
percentage tothe total
number ofissued shares(%)

Digital Arts Inc.

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

93,700‒93,7000.7―

93,700‒93,7000.7

Total

Number ofshares held
under own
nameNumber ofshares held
under the nameof others

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

Class of shares(1) Acquisition of treasury shares resolved at the general meeting of shareholders
Not applicable.

(2) Acquisition of treasury shares resolved at the Board of Directors meetings
Not applicable.
(3) Details of acquisition of treasury shares not based on the resolutions of the general meeting of shareholders or the Board of
Directors meetings.
Category

Number of shares (shares)

Total amount (yen)Treasury shares acquired during this fiscal year69

638,760

Treasury shares acquired during the current period――(Note) Treasury shares acquired during the current period do not include the number of shares acquired through purchases of sharesconstituting less than one full unit between June 1, 2022 and June 22, 2022.

―40―

(4) Status of the disposition and holding of acquired treasury shares
Current business year
Category

Current period

Number of shares(shares)

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

Total disposition
amount (yen)

―

―

―

―

―

―

―

―

―

―

―

―

Other (Note)

10,80035,418,906――

Total number of treasury shares held

93,731―93,731―

Acquired treasury shares which were
offered to subscribers
Acquired treasury shares which werecanceled
Acquired treasury shares which weretransferred due to merger, shareexchange, share issuance or company
split(Notes) 1. “Other” for the current business year and current period represents the exercise of share acquisition rights.
2. Total number of treasury shares held in the current period does not include the number of shares held through the exerciseof share acquisition rights or purchases of shares constituting less than one full unit between June 1, 2022 and June 22,2022.

3. Dividend Policy
We aim to continuously increase our corporate value and also consider the return of profits to shareholders to be an importantmanagement goal. From this perspective, we have decided to make decisions on dividends of surplus, etc. based on our operating
environment and the following policy.
Our basic policy is to continuously provide a stable dividend, and we aim to achieve a consolidated dividend payout ratio of at least 30%,
comprehensively taking into consideration such factors as the results of our operations and financial condition each fiscal year and our
future prospects.
We will use our internal reserves to strengthen our financial condition, invest in business areas with future growth potential and to financecapital expenditures and R&D spending.
Our Articles of Incorporation state that we may, by resolution of the Board of Directors, pay interim dividends with a record date of
September 30 each year, and our dividend forecast for the year ending March 31, 2023 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, 2021
Resolution of the Annual General
Shareholders Meeting held on June21, 2022―41―

Dividend per share (yen)
421

30

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 the roles andresponsibilities 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 this approach in the future.
(ii) Overview of the corporate governance structure and reasons for its adoption
A. Overview of the corporate governance structure
We transitioned to a company with an Audit & Supervisory Board based on a resolution of the 21st Annual General Meetingof Shareholders held on June 24, 2016. We have set up the Audit & Supervisory Board composed of a major of Outside
Directors. Directors who are Audit & Supervisory Board Members including Outside Directors have expertise in fields suchas 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 important matters 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)(2) Audit & Supervisory Board
The Audit & Supervisory Board is comprised of the following four Directors (one of whom is a Standing Audit &Supervisory Board Member), three of whom are Outside Directors. It holds meetings once a month in principle todeliberate important matters specified in the Audit & Supervisory Board Rules in accordance with the Standards for
Audits and Supervision by the Audit & Supervisory Board and endeavors to strengthen audits and supervision.
Kiyoto Inomata (Chairman, Standing Audit & Supervisory Board Member, Internal Director)
Hidekazu Kubokawa (Audit & Supervisory Board Member, Outside Director)
Masataka Uesugi (Audit & Supervisory Board Member, Outside Director)
Chise Kuwayama (Audit & Supervisory Board Member, Outside Director)(3) Other
The Company holds meetings of the Executive Committee once a month. Serving as a body preceded by the Board of
Directors, 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. Composedof General Managers of separate Departments and Sections and higher-ranking members, it reports on the state ofprogress of operations in each division and builds consensus. These meeting bodies clarify their respective roles andresponsibilities 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 andbalances to maintain corporate governance.

―42―

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

eneral meetin o s are ol ers

omination an
Remuneration
A isory
Committee

Election
Dismissal
Consultation

oar oirectors

Au it

S uper isory Committee

Reportecuti e irectors
nternal irectors

Supervision

Sustainability

Election
Dismissal

AuditsSupervisionon e ecuti e irectors
nternal irectors utsi e irectors

ReportElection
Dismissal

Committee
Appointment/
Dismissal

P reliminary deliberation

Representati e
irectorecuti e Committee
Reporting

Cooperation

Cooperation

Instructions
AuditsReporting
Building of consensus

nternal Au it
epartment

Cooperation

Auditsac

Accountin Au itor

Instructions

epartment subsi iary an associate

Accounting audit(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 of whom are Outside
Directors, holds meetings in principle once a month and also meets on an ad hoc basis whenever necessary. To complement
managerial judgments 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 businessexecution.
Directors who are Audit & Supervisory Board Members receive reports on the status of execution of duties from Directors(excludes Directors who are Audit & Supervisory Board Members) and from employees, etc., asks them for explanations where
necessary and views important resolution documentation in accordance with the audit policy and audit plan, etc. specified by
the Audit & Supervisory Board. They work closely with the Accounting Auditor, the Internal Audit Department and others tomaintain 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.

―43―

(iii) Other matters related to corporate governance
A. Status of development of internal control system
a. Systems to ensure that the Group’s Directors and employees execute duties in compliance with laws and regulations andthe Articles of Incorporation(1) The Group considers compliance to be its highest priority and establishes rules relating to compliance to ensure that
the Group’s officers and employees execute their duties in compliance with laws and regulations and the Articles ofIncorporation and healthy social norms, implements initiatives such as providing training and a whistleblowing
system, and develops systems under which any problems that arise are reported to the Company’s Board of Directors
and Audit & Supervisory Board.
(2) The Company is required to convene a meeting of the Board of Directors once a month, in principle, and on an ad
hoc basis whenever necessary. At meetings of the Board of Directors, the Company makes decisions about theexecution of the Group’s important business and also supervises the execution of duties by Directors. The Company
also seeks to ensure that Directors and employees comply with laws and regulations, the Articles of Incorporation,
various regulations and stipulated business processes and it also works to strengthen risk management system andseeks to enhance internal control systems.
(3) The Company establishes the Internal Audit Department and builds a system of internal control through internal
audits. The Internal Audit Department regularly conducts internal audits of the Group’s business management andall its business activities, evaluates and verifies the state of compliance with laws and regulations, the Articles ofIncorporation, various rules and stipulated business processes and reports to the Company’s Board of Directors andto 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 andRemuneration Advisory Committee consisting of independent Outside Directors and other committee members as
an advisory body subordinate to the Board of Directors. In response to consultation from the Board of Directors, theNomination 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 andothers 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 meetingsof 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 andstorage period of important documents (including electronic media) relating to the execution of 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 theGroup’s risk management and raises awareness of these rules among Directors and employees.
(2) The Company establishes the Internal Audit Department. It regularly examines the appropriateness of the audit items
and audit methods used in the Group’s business audits and revises audit items and audit methods if necessary.
d. Systems to ensure the effective and efficient execution of duties by the Group’s Directors(1) To ensure the effective and efficient execution of duties by Directors, the Group formulates a business plan every
fiscal year and verifies progress through monthly performance assessments.
(2) Regarding the execution of routine duties by Directors, the Board of Directors delegates authority for the executionof duties to employees in accordance with the Rules on Administrative Authority and Rules on the Segregation of
Duties and these employees assume responsibility for efficient execution of the delegated duties.

―44―

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, andreports 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 Board of the Company in a timely manner.
(2) The Company makes it mandatory for each Group company to regularly report to the Company on its operating
results, financial condition and certain other important matters related to management.
f. Matters related to Directors and employees to assist the duties of the Audit & Supervisory Board
Upon a request from the Audit & Supervisory Board for the assignment of employees required to assist the duties of the
Audit & Supervisory Board, the Company promptly assigns the appropriate personnel.
g. Matters related to the independence of Directors and employees required to assist the duties of the Audit & Supervisory
Board from Directors (excludes said Directors and Directors who are Audit & Supervisory Board Members) and mattersfor ensuring the effectiveness of instructions to Directors and employees required to assist the duties of the Audit &Supervisory Board(1) Employees required to assist the duties of the Audit & Supervisory Board are only under the command of the Audit& Supervisory Board with respect to the work they are instructed to do by the Audit & Supervisory Board.
(2) The Company will listen to the opinions of the Audit & Supervisory Board before determining matters such as
personnel transfers and personnel evaluations of employees required to assist the duties of the Audit & Supervisory
Board.
h. Systems for reporting to the Audit & Supervisory Board(1) The Company’s Directors report the status of execution of their duties at meetings of the Board of Directors attended
by Audit & 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 oflaws 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 thestatus 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 of duties by
Audit & Supervisory Board Members (only expenses related to the execution of duties of the Audit & Supervisory Board)or other expenses or debts arising from said execution of duties
If the Company receives a request for advance payment, etc., of expenses under the provisions of Article 399-2, Paragraph
4 of the Companies Act in relation to the performance of duties by a Member of the Audit & Supervisory Board, theCompany, after discussions at the division in charge, immediately settles said expenses or debts, except where it isdetermined that said costs or debts were not necessary for the performance of duties by a Member of the Audit &Supervisory Board.
k. Other systems used to ensure that the Audit & Supervisory Board can conduct audits effectively(1) The Representative Director regularly holds meetings with the Audit & Supervisory Board to exchange views on
matters such as issues to be addressed by the Company, the status of development of the environment for audits by
Audit & Supervisory Board Members and important audit-related issues.
(2) The Audit & Supervisory Board, the Internal Audit Department and the Accounting Auditor seek to improve thequality of audits by strengthening their cooperation through the mutual exchange of information and opinions where
necessary.

―45―

l. Systems for eliminating antisocial forces
The Group maintains a firm stance to respond, as an organization, to any unjustified demands by antisocial forces anddevelops internal systems so that it does not have any business relationship or any other relationship whatsoever with
antisocial forces.
B. Status of improvement of risk management system
The Company establishes Risk Management Rules and exercises integrated management in relation to business risks thatmight arise as a result of its business activities to prevent risks and deal with any risks that arise.
As a body preceded by the Board of Directors, the Executive Committee quickly grasps and discusses business risks,
including 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 andconducts 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 Directorsof 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 andreport 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 be made by amajority of voting rights of the shareholders in attendance who hold one-third (1/3) or more of the total voting rights of theshareholders who can exercise such rights. The Articles of Incorporation of the Company stipulate that resolutions for theelection 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 the Companies Act.
G. Interim dividends
The Articles of Incorporation of the Company stipulate that the Company may, by a resolution of the Board of Directors, payinterim dividends with a record date of September 30 of each year, pursuant to Article 454, Paragraph 5 of the Companies
Act. The aim is to enable flexibility in regard to return of profit to shareholders.

―46―

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 agreementswith 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 grossnegligence.
I. Exemption of Directors from liability
The Articles of Incorporation of the Company stipulate that the Company may, by resolution of the Board of Directors,
exempt any Director prescribed in Article 423, Paragraph 1 of the Companies Act (including former directors) from liabilities
to the extent provided in laws and regulations, for the reasonable limitation of Directors’ liability.
J. Requirement for special resolutions of general shareholders meetings
The Articles of Incorporation of the Company stipulate that a special resolution of general meetings of shareholders as
stipulated in Article 309, Paragraph 2 of the Companies Act shall be adopted by a two-thirds (2/3) majority vote ofshareholders present at the meeting, at which shareholders representing at least one-third (1/3) of the total voting rights ofall shareholders who are entitled to vote are present. The purpose is to relax the quorum for special resolutions at general
meetings of shareholders to ensure the meetings proceed smoothly.

―47―

(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

Shareownership(shares)(Note 2)

2,403,125(Note 2)

3,070

(Note 3)122

October 1997
October 2003
March 2005
November 2005
December 2006

Representative
Director, President Toshio Dogu
and CEO

Director, General
ManagerDevelopment

TakuyaMatsumoto

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

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

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

April 1995

Joined Tokyo Gas Co., Ltd.

January 2003

Director (Audit &Supervisory Board Kiyoto Inomata
Member)July 7, 1967

Personnel Dept. (Dispatched to Digital Arts Inc. formanagement training)
July 2004
Seconded to Energy Advance Co., Ltd. (currently Tokyo
Gas Engineering Solutions Corporation)
November 2005 Joined Digital Arts Inc., Corporate Planning
April 2006
Deputy General Manager- Development
June 2007
General Manager-Corporate Planning
June 2008
Director, IQS’ Co., Ltd.
April 2011
General Manager-Internal Audit, Digital Arts Inc.
April 2015
Associate General Manager-Development, General
Manager-Quality Assurance
June 2020
Director (Audit & Supervisory Board Member), Digital Arts
Inc. (incumbent)
June 2020
Auditor, Digital Arts Consulting Inc. (incumbent)―48―

TitleName

July 1986

Hidekazu
Kubokawa

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

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

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

Director (Audit &Supervisory Board
Member)

Chise
Kuwayama

Shareownership(shares)(Note 3)

3,505

Joined Emori Kawamori Atsumi Law Office
Founded Uesugi Law OfficePartner of Amlec Law and Accounting Firm
Outside Auditor, Digital Arts Inc.
Outside Auditor, Commerce One Holdings Inc. (incumbent)
Outside Audit & Supervisory Board Member, Ceres Inc.
(incumbent)(Note 3)
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)

3,505

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, (Note 4)
Ceres Inc.
Outside Director (Full-time Audit and Supervisory Board
Member), Ceres Inc. (incumbent)
Outside Director (Audit & Supervisory Board Member),
Digital Arts Inc. (incumbent)

51

Business experience
November 1976

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

May 2, 1971

August 2008
March 2015
March 2021
June 2021

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

Total

2,413,378(Notes) 1. Audit & Supervisory Board Members Hidekazu Kubokawa, Masataka Uesugi and Chise Kuwayama are Outside Directors.
2. The term of office shall expire at the conclusion of the Annual General Meeting of Shareholders pertaining to the last businessyear ending within one (1) year after the conclusion of the Annual General Meeting of Shareholders held on June 21, 2022.
3. The term of office shall expire at the conclusion of the Annual General Meeting of Shareholders pertaining to the last businessyear ending within two (2) years after the conclusion of the Annual General Meeting of Shareholders held on June 21, 2022.
4. The term of office shall expire at the conclusion of the Annual General Meeting of Shareholders pertaining to the last businessyear ending within two (2) year after the conclusion of the Annual General Meeting of Shareholders held on June 22, 2021.
5. The number of shares held includes shares of stock in Digital Arts Inc.’s officers’ shareholding association.
6. The Company has elected a substitute for a Director who is an Audit & Supervisory Board Member stipulated in Article 329,
Paragraph 3 of the Companies Act in advance to prepare for cases where the number of Directors who are Audit & Supervisory
Board Members falls below the number stipulated by laws and regulations. The career history of the substitute for a Director
who is an Audit & Supervisory Board Member is as follows.
Name

Komei Sasaki

Date of birth

March 15, 1966

Business experience
August 1999
May 2003
June 2004

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

April 2005

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

March 2015
June 2016

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

―49―

Share
ownership(shares)―(ii) Information about Outside Officers
The Company has three Outside Directors.
Outside Director Hidekazu Kubokawa holds 3,505 shares of the Company’s stock as of March 31, 2022, but there are noother 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 3,505 shares of the Company’s stock as of March 31, 2022, but there are no otherspecial 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 51 shares of the Company’s stock as of March 31, 2022, but there are no otherspecial interests between Ms. Kuwayama and the Company.
The Company elects Outside Directors to ensure the objectivity and neutrality of supervisory functions of management.
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 the perspectives of legality andappropriateness, based on their independence and specialist knowledge.
(iii) Mutual Collaboration between Audits or Supervision by Outside Officers, Audits by the Audits & Supervisory Board and Account
Audits and Relationship with Internal Control Department
Together with Directors who are Standing Audit & Supervisory Board Members, the Outside Directors receive detailed reports
on important events and risk factors as part of the results of internal audits conducted on a regular basis by Internal Auditors.
In the case of the accounting auditor’s audit of quarterly and annual financial statements, Audit & Supervisory Board Members
are required to receive detailed reports on the status of audits from the certified public accountants who performed theoperations and assistants involved in the audit operations. Internal Auditors report the status of internal 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 and the Internal
Audit Department. He is familiar with overall matters of the Group’s businesses and has extensive knowledge of business
management.
Audit & Supervisory Board Member Hidekazu Kubokawa is a certified public accountant and tax accountant, Audit &Supervisory Board Member Masataka Uesugi is an attorney, and Chise Kuwayama is a certified public accountant.
In the fiscal year under review, the Company held meetings of the Audit & Supervisory Board once a month, in principle.
Attendance of individual Audit & Supervisory Board Members was as follows.
Name

Number of meetings convened

Number of meetings attended

Standing Audit & Supervisory
Kiyoto Inomata
12
12
Board Member
Outside Audit & Supervisory
Hidekazu Kubokawa
12
12
Board Member
Outside Audit & Supervisory
Masataka Uesugi
12
12
Board Member
Outside Audit & Supervisory
Chise Kuwayama
10
10
Board Member
Important matters considered at meetings of the Audit & Supervisory Board included the formulation of audit plans, thepreparation of audit reports, evaluation of re-appointment of the Accounting Auditor, and agreement on fees paid to the
Accounting Auditor.

―50―

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 from the
Accounting Auditor, requesting reports from other relevant departments where necessary, and gathering information about thestatus 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 and conduct
audits based upon collaboration and the exchange of opinions with the accounting auditor and Audit & Supervisory Board
Members. The person in charge of internal audits is required to prepare a report on the audit results, report the results to theRepresentative Director and also report them to Audit & Supervisory Board Members.
(iii) Information about Accounting Audit
A. Name of audit corporation
BDO Sanyu & Co.
B. Tenure
22 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 one certified public accountants, three persons
who have passed accountant examinations and one other person.
E. Policy and reasons for selection of audit corporation
If the accounting auditor has committed a serious violation or breach of laws and regulations such as the Companies Act or
the Certified Public Accountants Act or if it is deemed difficult for the accounting auditor to conduct an audit properly, theAudit & Supervisory Board examines dismissing or not reappointing the accounting auditor. If, as a result of its examination,
the Audit & Supervisory Board judges that it is appropriate to dismiss or not to reappoint the accounting auditor, the Audit& Supervisory Board puts forward a proposal for the dismissal or non-reappointment of the accounting auditor to the general
meeting of shareholders. The Audit & Supervisory Board also examines each period whether reappointment of the accounting
auditor is appropriate and whether the status of execution of duties, the audit systems, independence, etc. of the accounting
auditor are appropriate. If as a result of its examination, no major problems are found, the Audit & Supervisory Board
conducts an evaluation of the accounting auditor 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 theaudited 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.

―51―

(iv) Audit Fees
A. Fees paid to certified public accountants, etc.
Category

Previous fiscal year

Fiscal year under review

Fees for audit services(million yen)

Fees for non-audit
services (million yen)

Fees for audit services(million yen)

Fees for non-audit
services (million yen)

Reporting company

19

―

19

―

Consolidated subsidiaries

―

―

―

―

Total

19

―

19

―

B. Fees paid to other accountants belonging to the same network as the certified public accountants, etc. (excluding A.)
Not applicable.
C. Details of other major fees for audit and attestation services
Not applicable.
D. Policy on determination of audit fees
Regarding the Company’s policy on determination of audit fees for certified public accountants, etc., the Company requests
only audit services, and audit fees are determined in an appropriate manner, taking into consideration factors such as theduration 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 Board of Directors
under Article 399, Paragraphs 1 and 3 of the Companies Act, because, having confirmed the status of execution of duties andactual fees of the accounting auditor in the previous business year by obtaining necessary materials and asking for reports
from the Board of Directors, relevant internal divisions and the accounting auditor and having examined the content of theaudit plan and the appropriateness of the basis for calculation of estimated fees for the current business year, it judged thesefees, etc. to be appropriate.

(4) Compensation to Directors and Executive Officers(i) Matters Related to Policy for Determining the Amount and Method of Calculation of Compensation to Directors and Executive
Officers
According to the Company’s basic policy on remuneration for its Directors (excluding those who are Audit & Supervisory
Board Members), a remuneration system must function as an incentive to continuously increase the corporate value as a whole
and remuneration for each Director is to be determined at an appropriate level in consideration of their duties. Specifically, thebase 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 of management, 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 of shares subject to transfer restrictions for a predetermined period and the Company’s rules on events for acquisition
without contribution (hereinafter referred to as "Shares with Restrictions on Transfer"). In consultation with the Board of
Directors, the Nomination and Remuneration Advisory Committee discusses the policy on determination and builds a
consensus in the committee. The Board of Directors then makes a decision. The remuneration amount of a Director who is an
Audit & Supervisory Board Member is fixed remuneration that takes into consideration factors such as whether the post is fulltime 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―52―

Members) are determined by the President and Representative Director in accordance with a resolution adopted by the Boardof Directors to delegate this authority to the President and Representative Director. To ensure the fairness and transparency ofthe 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 two Directors, excluding Directors who are Audit & Supervisory Board Members.
Apart from the remuneration mentioned above, a resolution has been adopted according to which the total monetary
remuneration claims to Directors (excluding Directors who are Audit & Supervisory Board Members) as remuneration
concerned with the Shares with Restrictions on Transfer are capped at 50 million yen per year in overall consideration of thedegree 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 consideration of the degree of contribution to the Company andother factors of individual Directors concerned.
The Company’s 21st Annual Shareholders’ Meeting on June 24, 2016 adopted a resolution to set the limit of remuneration for
Directors who are Audit & Supervisory Board Members at 100 million yen per year. As of the close of this Annual Shareholders’Meeting, the Company had three Directors who were Audit & Supervisory Members, including two Outside Directors.
(ii)Total Amount of Remuneration, etc. for Each Executive Officer Category, Total Amount of Remuneration, etc. by Type andNumber of Executive Officers
Category of officers

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

Total amount of
remuneration (million
yen)

Basic remuneration

63

63

‒

2

12

12

‒

1

9

9

‒

3

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

Stock options

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

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

Officers who also holdemployee posts (people)
18

1

Description
Salary as consideration for services rendered.

(5) Information on Shareholdings
Not applicable.

―53―Section V. Financial Information
1. Method of Preparation of Consolidated Financial Statements and Non-consolidated Financial Statements(1) The consolidated financial statements of the Company are prepared in compliance with the Ordinance on Terminology, Forms, andPreparation Methods of Consolidated Financial Statements (Ordinance of the Ministry of Finance No. 28 of 1976).
(2) The non-consolidated financial statements of the Company are prepared in compliance with the Ordinance on Terminology, Forms,
and Preparation Methods of Financial Statements (Ordinance of the Ministry of Finance No. 59 of 1963; hereinafter referred to as
the “Ordinance on Non-Consolidated Financial Statements”).
Because the Company is classified as a company that prepares its financial statements pursuant to special provisions, the nonconsolidated financial statements are prepared as provided in Article 127 of the Ordinance on Non-Consolidated Financial Statements.
2. Audit Certification
The Company underwent an audit by BDO Sanyu & Co. of the consolidated financial statements for the consolidated fiscal year (from
April 1, 2021 to March 31, 2022) and the non-consolidated financial statements for the fiscal year (from April 1, 2021 to March 31,2022) in compliance with the provisions of Article 193-2, Paragraph 1 of the Financial Instruments and Exchange Act.
3. Specific Efforts to Secure the Appropriateness of the Consolidated Financial Statements, etc.
The Company has undertaken specific measures to secure the appropriateness of its consolidated financial statements, etc. The Company
is a member of the Financial Accounting Standards Foundation (FASF) and endeavors to gather information to properly understandaccounting standards and develop systems that enable it to ensure the appropriateness of consolidated financial statements.
The Company also actively participates in seminars held by the FASF.

―54―

1. Consolidated Financial Statements(1) Consolidated Financial Statements(i) Consolidated Balance Sheet(Million yen)
Fiscal 2021
(As of March 31, 2021)

Fiscal 2022
(As of March 31, 2022)

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

11,382
1,268

15,773
‒

‒
‒

74
1,142

0
3

0
3

70

111

12,725

17,105

220
(127)

220
(132)

92

88

18
(4)

18
(9)

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

14

8

469
(369)

493
(409)

99

83

Land

26

26

Construction in progress

0

－

233

206

Software
Other

1,274
128

1,317
209

Total intangible assets

1,403

1,526

Investments and other assets
Investment securities

102

101

Deferred tax assets
Other

123
268

96
304

Total investments and other assets

493

503

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

Total property, plant and equipment
Intangible assets

Total non-current assets
Total assets

―55―

2,130

2,236

14,856

19,341

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

Fiscal 2022
(As of March 31, 2022)

Liabilities
Current liabilities
Accounts payable - trade
Income taxes payable

32
688

44
760

Provision for bonuses
Advances received

194
3,370

95
5,684

Other

456

546

Total current liabilities

4,743

7,130

Non-current liabilities
Asset retirement obligations

48

48

1

1

Other
Total non-current liabilities

50

50

4,793

7,181

Share capital
Capital surplus

713
963

713
953

Retained earnings
Treasury shares

8,699
(342)

10,758(307)

Total shareholders’ equity

10,034

12,118

7

11

Total liabilities
Net assets
Shareholders’ equity

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

―56―

7

11

8
12

12
17

10,062

12,15914,856

19,341

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

Net sales
Cost of sales

Fiscal 2021
(from April 1, 2020
to March 31, 2021)
6,825
1,946

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

4,878

Selling, general and administrative expenses※１,※２

Operating profit

1,900

6,374
※１,※２

2,248

2,977

4,126

0

0

7
1

6
1

Miscellaneous income

40

Total non-operating income

14

8

0

‒

Non-operating income
Interest income
Foreign exchange gains
Gain on forfeiture of unclaimed dividends

Non-operating expenses
Miscellaneous loss
Total non-operating expenses
Ordinary profit

0

‒

2,991

4,135

Extraordinary income
Gain on reversal of share acquisition rights

9Gain on sales of non-current assets

3※３

Total extraordinary income

1
※３

12

Extraordinary losses
Loss on retirement of non-current assets※４0Loss on liquidation of subsidiaries※５2

Total extraordinary losses

0
1

※４

0
‒

2

0

Profit before income taxes

3,001

4,136

Income taxes – current
Income taxes – deferred

977
(37)

1,203
26

939

1,229

2,062

2,906

Total income taxes
ProfitProfit attributable to non-controlling interests
Profit attributable to owners of parent

―57―

2

5

2,059

2,900

Consolidated statement of comprehensive income

ProfitOther comprehensive income

Fiscal 2021
(from April 1, 2020
to March 31, 2021)
2,062

Foreign currency translation adjustment(Million yen)
Fiscal 2022
(from April 1, 2021
to March 31, 2022)
2,906

1

Total other comprehensive income

※１

1

3
※１

3

Comprehensive income

2,063

2,910

Comprehensive income attributable toComprehensive income attributable to owners of parent
Comprehensive income attributable to non-controllinginterests

2,061

2,904

2

5

―58―

(3) Consolidated statement of changes in equity
Fiscal 2021 (from April 1, 2020 to March 31, 2021)(Million yen)
Accumulated other
Shareholders’ equity
comprehensive income
Share
NonTotal
Foreign
Total
accumulate acquisition controlling
CapitalRetained Treasury
currency
rightsinterests
shareholderd other
surplusearnings
sharestranslations’ equity
comprehens
adjustment
ive income

SharecapitalBalance at beginning of
period

713

972

7,340

(380)

8,646

6

6

18

9

Total net
assets8,680

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

(700)

(700)

(700)

2,059

2,059

2,059

37

29

29

(0)

(0)

(0)

(8)

1

1

(9)

2

(5)

‒

(8)

1,358

37

1,387

1

1

(9)

2

1,382

713

963

8,699

(342)

10,034

7

7

8

12

10,062

Fiscal 2022 (from April 1, 2021 to March 31, 2022)(Million yen)
Accumulated other
Shareholders’ equity
comprehensive income
Share
NonTotal
Foreign
Total
accumulate acquisition controlling
CapitalRetained Treasury
currency
rightsinterests
shareholderd other
surplusearnings
sharestranslations’ equity
comprehens
adjustment
ive income

SharecapitalBalance at beginning of
period

713

963

8,699

(342)

10,034

7

7

8

12

Total net
assets

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

12,159―59―

(4) Consolidated statement of cash flows(Million yen)
Fiscal 2022
(from April 1, 2021
to March 31, 2022)

Fiscal 2021
(from April 1, 2020
to March 31, 2021)
Cash flows from operating activities
Profit before income taxes

3,001

4,136

Depreciation
Increase (decrease) in provision for bonuses

859
74

890
(98)

Interest income
Foreign exchange losses (gains)

(0)
(9)

(0)
(6)

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

(9)
0

(1)
0

Loss (gain) on sales of non-current assets
Loss (gain) on liquidation of subsidiaries

(3)
2

(0)
‒

Decrease (increase) in trade receivables
Decrease (increase) in inventories

1,867
(2)

2,364
0

Increase (decrease) in trade payables
Increase (decrease) in accounts payable - other

0
15

10
43

Decrease (increase) in other current assets
Increase (decrease) in other current liabilities

9
165

(40)
38

6

(27)

Subtotal

5,977

7,309

Interest and dividends received
Income taxes paid

0
(757)

0
(1,140)Net cash provided by (used in) operating activities

5,221

6,169

(48)

(17)

6
(787)

0
(961)

(1)

‒

(830)

(978)

28
(0)

25
(0)

Proceeds from issuance of share acquisition rights
Dividends paid

‒
(699)

5
(840)

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

(671)

(810)

10

10

3,730

4,391

Cash and cash equivalents at beginning of period

7,651

11,382Other

Cash flows from investing activities
Purchase of property, plant and equipment
Proceeds from sale of property, plant and equipment
Purchase of intangible assets
Liquidation of subsidiaries
Net cash provided by (used in) investing activities
Cash flows from financing activities
Proceeds from disposal of treasury shares
Purchase of treasury shares

Cash and cash equivalents at end of period

※１

―60―

11,382※１

15,773

(5) 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 write-down method
based on reduction in profitability.)(2) Depreciation/amortization method for significant depreciable/amortizable assets
A. Property, plant and equipment
The declining balance method is applied.
The useful life and the residual value are calculated based on the same standards as those set out in the Corporation Tax Act.
The straight-line method is applied for facilities attached to buildings acquired on April 1, 2016 or later.
B. Intangible assets
The straight-line method is applied.
The straight-line method based on the availability period in the company (five years) is used for software in the company. For
software for sale in the market, a method based on estimated sales quantities (or revenue) or the remaining lifetime (three years)
is used.
C. Long-term prepaid expenses
The straight-line method is applied.
The amortization period is calculated based on the same standards as those set out in the Corporation Tax Act.
(3) Standards for recognition of significant allowances
A. Provision for bonuses
For the payment of employees’ bonuses, of the estimated payment amount, the amount to be paid in the consolidated fiscal year
under review is posted.
(4) Accounting standards for significant income and expenses
The Company has begun applying the Accounting Standard for Revenue Recognition (ASBJ Statement No.29 issued on March 31,2020) and the Implementation Guidance on Accounting Standard for Revenue Recognition (ASBJ Guidance No. 30 issued on
March 26, 2026). Accordingly, 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.

―61―

Major performance obligations in major businesses and the normal time to recognize revenue are as described in (Mattersconcerning 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 settlingday, and translation adjustments are treated as a profit or loss. Assets and liabilities at overseas subsidiaries, etc. are translated into
yen using the spot exchange rate on the consolidated settling day. Revenue and expense are translated into yen using the averagerate 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 that can bewithdrawn as needed, and short-term investments that can be realized easily and only have insignificant value fluctuation risk andwhose redemption date arrives within three months of the acquisition date.
(Change in accounting policy)(Application of Accounting Standard for Revenue Recognition, etc.)
The Company began applying the Accounting Standard for Revenue Recognition (ASBJ Statement No.29 issued on March 31,
2020; hereinafter, “Accounting Standard for Revenue Recognition”) and the like from the beginning of the current fiscal year.
Accordingly, 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.
As a result, sales rebates, which were previously recorded as selling, general and administrative expenses, are now deducted fromsales. The application of the Accounting Standard for Revenue Recognition, etc. is subject to the transitional treatment provided forin the proviso of Paragraph 84 of the Accounting Standard for Revenue Recognition. The cumulative effect of the retrospective
application, assuming the new accounting policy had been applied to periods prior to the beginning of the consolidated fiscal year
under review was added to or subtracted from the beginning balance of retained earnings of the consolidated fiscal year underreview. However, this did not have any impact on such beginning balance.
From the fiscal year under review, current assets included in notes and accounts receivable - trade in the consolidated balance sheet
in the previous fiscal year are included in notes receivable - trade and accounts receivable - trade.
As a result, net sales and selling, general and administrative expenses for the consolidated fiscal year under review decreased,
respectively, causing gross profit to fall. However, their declines produced insignificant effects, leaving operating profit, ordinary
profit and profit before income taxes unaffected.
According to the transitional measures prescribed in paragraph 89-3 of the Accounting Standard for Revenue Recognition, there
are no notes on "Matters concerning revenue recognition" pertaining to the results of the previous consolidated fiscal year.
(Changes in presentation methods)(Application of the Accounting Standard for Fair Value Measurement)
The Company is applying the Accounting Standard for Fair Value Measurement (ASBJ Statement No. 30, July 4, 2019; "Fair Value
Measurement Accounting Standard") from the beginning of the current fiscal year and has decided to apply new accounting policies
under the Fair Value Measurement Accounting Standard, etc., following the transitional procedures set forth in Paragraph 19 of the
Fair Value Measurement Accounting Standard and Paragraph 44-2 of the Accounting Standard for Financial Instruments (ASBJ
Statement No. 10, July 4, 2019). The Company has decided also to add a note on a breakdown of financial instruments in different
market price levels in (Financial instruments). In the note on a breakdown of financial instruments, a breakdown of financial
instruments in the previous fiscal year is not included in accordance with the transitional procedures set out in Paragraph 7-4 of the
Implementation Guidance on Disclosures about Fair Value of Financial Instruments (ASBJ Guidance No. 19, July 4, 2019).

―62―

(Consolidated statement of income)“Subsidy income,” which was presented separately in the previous fiscal year, is included in “Other” in non-operating income in
the fiscal year under review because of a decrease in significance in financial terms. To reflect this change in presentation, accounts
in the consolidated financial statements for the previous fiscal year have been reclassified.
As a result, the subsidy income of 3 million yen and the miscellaneous income of 1 million yen, which was presented under nonoperating income in the consolidated statement of income for the previous consolidated fiscal year, has been reclassified into
miscellaneous income of 4 million yen.
(Consolidated statement of income)*1. The major items of selling, general and administrative expenses and the amounts are as follows.
Fiscal 2021
(from April 1, 2020
to March 31, 2021)

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

Advertising expenses

168million yen

239million yen

Salaries and allowances

631

708

Provision for bonuses

110

54

*2. Total amount of research and development expenses included in general and administrative expenses are as follows.
Fiscal 2021
(from April 1, 2020
to March 31, 2021)
1million yen

Fiscal 2022
(from April 1, 2021
to March 31, 2022)
1million yen*3. Gain on sales of non-current assets are as follows.
Fiscal 2021
(from April 1, 2020
to March 31, 2021)
Vehicles3million yen

Fiscal 2022
(from April 1, 2021
to March 31, 2022)
0million yen*4. The details of loss on retirement of non-current assets are as follows.
Fiscal 2021
(from April 1, 2020
to March 31, 2021)

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

Tools, furniture and fixtures
Software0million yen‒‒million yen
0

Total

0

0

*5. Details of the loss on liquidation of subsidiaries are as follows.
Fiscal 2021 (from April 1, 2020 to March 31, 2021)
The loss on liquidation of subsidiaries resulted from the completion of the liquidation of Digital Arts Investment, Inc.
Fiscal 2022 (from April 1, 2021 to March 31, 2022)
There are no applicable matters.

―63―

(Consolidated statement of comprehensive income)*1. Reclassification adjustment and tax effect related to other comprehensive income
Fiscal 2021
(from April 1, 2020
to March 31, 2021)
Foreign currency translation
adjustment:
Amount that occurred in the fiscal
year under review
Reclassification adjustment

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

1million yen

3million yen‒‒

Before tax effect adjustment

1

3

Tax effectForeign currency translation
adjustment
Total other comprehensive income

-

-

1

3

1

3

(Consolidated statement of changes in equity)
Fiscal 2021 (from April 1, 2020 to March 31, 2021)
1. Class and number of issued shares and class and number of treasury shares
Number of shares at
Increase in number of Decrease in number of
Number of shares at end
beginning ofshares during
shares duringof consolidated fiscal
consolidated fiscal year consolidated fiscal year consolidated fiscal year
year under review
under review
under review
under review
Issued shares
Common shares

14,133,000‒‒

14,133,000

Total

14,133,000‒‒

14,133,000

116,04220

11,600104,462

116,04220

11,600104,462

Treasury shares
Common(Note)

shares

Total(Note) An increase in the number of common shares in treasury shares, 20, is due to the purchase of treasury shares. A decrease in
the number of treasury shares, 11,600, is due to the exercise of stock options.
2. Matters related to share acquisition rights and treasury share acquisition rights

Classification

Breakdown of shareacquisition rights

Class of shares Number of shares to be acquired upon exercise of share
Amount at
acquisition rights
underlying
end of fiscal
share
Increase
Decrease
Beginning ofEnd of fiscal year underacquisition
during fiscal during fiscal
review
fiscal year
year underrightsyear under year under(million yen)under review
review
review
review

ReportingShare acquisition
company (parent
rights as stock options
company)

―

―

―

―

―

8

Total

―

―

―

―

―

8

―64―

3. Matters related to dividends(1) Dividends paid

Resolution

Class of shares

Annualshareholders’meeting on June 19,
2020
Board of Directors
meeting on October
29, 2020

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

Record date

Effective dateCommon shares

350

25

March 31, 2020

June 22, 2020

Common shares

350

25

September 30, 2020

December 2, 2020

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

Resolution

Class ofsharesAnnualshareholders’meeting on June 22,2021

CommonsharesTotal amountFinancial sourceof dividendsof dividends(million yen)
420

Dividend pershare (yen)Retainedearnings

30

Record date

Effective date

March 31, 2021

June 23, 2021

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
Increase in number of Decrease in number of
Number of shares at end
beginning ofshares during
shares duringof consolidated fiscal
consolidated fiscal year consolidated fiscal year consolidated fiscal year
year under review
under review
under review
under review
Issued shares
Common shares

14,133,000‒‒

14,133,000

Total

14,133,000‒‒

14,133,000

Common shares(Note)

104,46269

10,80093,731

Total

104,46269

10,80093,731

Treasury shares(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

Classification

Breakdown of shareacquisition rights

Number of shares to be acquired upon exercise of share
Class of shares
Amount at
acquisition rights
underlying
end of fiscal
Increase
Decrease
share
Beginning ofEnd of fiscal year under
during fiscal during fiscal
acquisition
review
fiscal year
year underyear under year underrights(million yen)under review
review
review
review

ReportingShare acquisition
company (parent
rights as stock options
company)

―

―

―

―

―

12

Total

―

―

―

―

―

12

―65―

3. Matters related to dividends(1) Dividends paid

Resolution
Annualshareholders’meeting on June 22,
2021
Board of Directors
meeting on October28, 2021

Class of shares

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

Record date

Effective dateCommon shares

420

30

March 31, 2021

June 23, 2021

Common shares

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 ofsharesAnnualshareholders’meeting on June 21,
2022

CommonsharesTotal amountFinancial sourceof dividendsof dividends(million yen)
561

Dividend pershare (yen)Retainedearnings

40

Record date

Effective date

March 31, 2022

June 22, 2022

(Consolidated statement of cash flows)*1. Cash and cash equivalents at the end of the fiscal year and their relationships with items in the consolidated balance sheets
Fiscal 2021
(from April 1, 2020
to March 31, 2021)

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

Cash and deposit account

11,382million yen

15,773million yen

Cash and cash equivalents

11,382

15,773(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 verysafe 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.
(3) Risk management system related to financial instruments(i) Credit risk (risk related to business connections’ contract non-performance) management
The sales management section and administrative department of the Company regularly monitor the status of operatingreceivables at the main trading partners under the Company’s credit management regulations and control the due dates andbalances for individual partners. In this way, the Company strives to identify concerns over collections caused by deteriorationin 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 asmuch credit risk as possible.

―66―

(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 maychange 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 their book values.
Fiscal 2021 (As of March 31, 2021)
Consolidated balance sheet
amountMarket price (million yen)(million yen)
(1) Notes and accounts receivable trade

Difference (million yen)

1,268

1,268

‒

102

102

(0)

1,370

1,370

(0)

688

688

‒

688

688

‒

Consolidated balance sheet
amountMarket price (million yen)(million yen)

Difference (million yen)(2) Investment securities
Bonds held to maturity
Total assets(1) Income taxes payable
Total liabilities

Fiscal 2022 (As of March 31, 2022)(1) Notes receivable - trade(2) Accounts receivable

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―67―

(Note) Monetary claims and securities with maturity periods to be redeemed after the consolidated closing dateFiscal 2021 (As of March 31, 2021)
More than aWithin a year year, within(million yen) five years(million yen)More than
five years, More than 10
within 10
years
years
(million yen)(million yen)

Cash and deposits

11,382‒‒‒

Notes and accounts receivable - trade

1,268

‒

‒

‒

‒

100

‒

‒

12,650100‒‒

Investment securities
Bonds held to maturity(1) Corporate bonds
Total

Fiscal 2022 (As of March 31, 2022)
More than aWithin a year year, within(million yen) five years(million yen)
Cash and deposits

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

15,773

‒

‒

‒

74

‒

‒

‒

1,142

‒

‒

‒

(1) Government bonds, local government bonds

‒

‒

‒

‒

(2) Corporate bonds

‒

100

‒

‒

16,989100‒‒

Notes receivable - trade
Accounts receivable - trade
Investment securities
Bonds held to maturity

Total
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 and importance 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 iscalculated 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 thecalculation 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 the level of
inputs whose priority is lowest in the calculation of fair value.

―68―

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

‒

101

‒

101

Total assets

‒

1,317

‒

1,317

Income taxes payable

‒

760

‒

760

Total liabilities

‒

760

‒

760

Investment securities
Bonds held to maturity
Bonds payable(Note) Explanations about assessment techniques used in the calculation of fair value and inputs related to the calculation offair 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 ratethat takes the amount receivable, the period until the due date and credit risk into account and 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 whichquoted market prices are not readily available because they are not traded frequently and their fair value 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 fair value.

―69―

(Securities)
Bonds held to maturity
Fiscal 2021 (As of March 31, 2021)

Classification

Market price exceeds
consolidated balance sheet
amountConsolidated balance
sheet amount(million yen)

Difference(million yen)

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

‒

‒

‒

(2) Corporate bonds

‒

‒

‒

(3) Other

‒

‒

‒

‒

‒

‒

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

‒

‒

‒

(2) Corporate bonds

102

102

(0)

‒

‒

‒

102

102

(0)

102

102

(0)

SubtotalMarket price does notexceed consolidatedbalance sheet amountMarket price(million yen)

(3) Other
Subtotal
Total

Fiscal 2022 (As of March 31, 2022)

Classification

Market price exceeds
consolidated balance sheet
amountConsolidated balance
sheet amount(million yen)

Difference(million yen)

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

‒

‒

‒

(2) Corporate bonds

‒

‒

‒

(3) Other

‒

‒

‒

‒

‒

‒

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

‒

‒

‒

(2) Corporate bonds

101

101

(0)

‒

‒

‒

101

101

(0)

101

101

(0)

SubtotalMarket price does notexceed consolidatedbalance sheet amountMarket price(million yen)

(3) Other
Subtotal
Total(Derivatives transactions)
Previous consolidated fiscal year (from April 1, 2020 to March 31, 2021) and consolidated fiscal year under review (from April 1, 2021
to March 31, 2022)
The Group did not conduct any derivatives transactions.

―70―

(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 2021 (from April 1, 2020 to March 31, 2021)
The amount that was required for contribution to the defined contribution pension plan was 27 million yen.
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.
(Stock options)
1. Expenses related to stock options and their account titles
Fiscal 2021
(from April 1, 2020
to March 31, 2021)
Selling, general and administrative expenses‒ million yen

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

2. Amount posted as profit due to the forfeiture of unexercised stock options
Fiscal 2021
(from April 1, 2020
to March 31, 2021)
Gain on reversal of share acquisition rights

9 million yen―71―

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

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

Vesting conditions

Being a director or an employee of thereporting company and not being
subject to salary reduction or stricter
disciplinary action provided for in therules of employment of the reporting
company from the grant date(November 27, 2015) to the vestingdate (July 1, 2017)
Share acquisition rights can be
exercised up to the percentage of theallocated share acquisition rights
specified in each item below by eachholder of share acquisition rights only
if operating profit reaches the levelspecified in each item below in thefiscal year ended March 31, 2017, thefiscal year ended March 31, 2018, orthe 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 ofincome in the Company’s annual
securities report (or the statements ofincome if no consolidated statements
of income are prepared) shall bereferenced. If the concept of items to
be referenced changes significantly
due to the application of theInternational Financial ReportingStandards, etc. indicators to bereferenced shall be determined by the
Board of Directors.

Being a director or an employee of thereporting company and not being
subject to salary reduction or stricter
disciplinary action provided for in therules of employment of the reporting
company from the grant date
(December 13, 2016) to the vestingdate (July 1, 2018).
Share acquisition rights can be
exercised up to the percentage of theallocated share acquisition rights
specified in each item below by eachholder of share acquisition rights only
if operating profit reaches the levelspecified in each item below in thefiscal year ended March 31, 2018, thefiscal year ended March 31, 2019, orthe 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 ofincome in the Company’s annual
securities report (or the statements ofincome if no consolidated statement ofincome are prepared) shall bereferenced. If the concept of items to
be referenced changes significantly
due to the application of theInternational Financial ReportingStandards, etc. indicators to bereferenced shall be determined by the
Board of Directors.

Requisite service period

No requisite service periods are
determined.

No requisite service periods are
determined.

Exercise period

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

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

Company
Category and number of persons subject tograntsStock options by class of shares
Grant date―72―

10th Stock options

11th Stock options

Reporting company

Same as on the leftThree directors
151 employees

16 employees

Common shares 1,413,300 shares

Common shares 69,000 shares

March 5, 2018

September 24, 2021

Vesting conditions

Being a director or an employee of thereporting company and not being
subject to salary reduction or stricter
disciplinary action provided for in therules of employment of the reporting
company from the grant date (March
5, 2018) to the vesting date (July 1,2021).
Each holder of share acquisition rights
can exercise the share acquisitionrights allocated to them only if
operating profit exceeds 4.0 billion
yen in the fiscal year ended March 31,
2021.
In the items above, the operating
profit stated in the consolidated
statement of income in the Company’s
annual securities report (or thestatements of income if noconsolidated statement of income areprepared) shall be referenced. If theconcept 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.

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 therules of employment of the reporting
company or its 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 from thefiscal 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 inreference to the operating profit statedin the non-consolidated statement ofincome in the Company’s Annual
Securities Report, and in the event ofa material change in the concept of theitem to be referred to due to theapplication of International Financial
Reporting Standards, etc., the Boardof Directors shall separately
determine the index to be referred to.

Requisite service period

No requisite service periods are
determined.

No requisite service periods are
determined.

Exercise period

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

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

Company
Category and number of persons subject tograntsStock options by class of shares
Grant date―73―

12th Stock options
Company
Category and number of persons subject tograntsStock options by class of shares
Grant date

Reporting company
55 employees
Common shares 137,500 shares
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 therules of employment of the reporting
company or its 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 from thefiscal 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 inreference to the operating profit statedin the non-consolidated statement ofincome in the Company’s Annual
Securities Report, and in the event ofa material change in the concept of theitem to be referred to due to theapplication of International Financial
Reporting Standards, etc., the Boardof Directors shall separately
determine the index to be referred to.

Requisite service period

No requisite service periods are
determined.

Exercise period

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

―74―

(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, 2022). The number ofstock options has been converted to the number of shares.
(i) Number of stock options

8th Stock options

9th Stock options 10th Stock options 11th Stock options 12th Stock options

Before vesting (shares)
As of March 31, 2021‒‒

1,130,900‒‒

Granted‒‒‒69,000137,500

Forfeited‒‒

1,130,900

‒

7,500

Vested

‒

‒

‒

‒

‒

Yet to be vested

‒

‒

‒

69,000130,000

156,800

306,900

‒

‒

‒

‒

‒

‒

‒

‒

Exercised

4,800

6,000

‒

‒

‒

Forfeited

‒

‒

‒

‒

‒

152,000

300,900‒‒‒

After vesting (shares)
As of March 31, 2021
VestedYet to be exercised(ii) Unit price information

8th Stock options
Exercise price (yen)Average stock price when
exercised (yen)Fair unit value (grant date)(yen)

9th Stock options 10th Stock options 11th Stock options 12th Stock options

2,034

2,639

3,400

8,310

8,310

7,515

7,952

‒

‒

‒

2 yen

24 yen1 yen

6,741 yen

7,482 yen

4. Method for estimating the fair unit value of stock options granted in the fiscal year under review
11th Stock options(1) Valuation technique used Black-Scholes Model(2) Key inputs and method for determining them
Stock volatility (Note) 1

61.255%

Expected time remaining (Note) 2

15.77 years

Expected dividend (Note 3)

55 yen/share

Risk-free interest rate (Note) 4

0.277%(Notes) 1. Calculated based on actual stock prices from December 18, 2005 to September 24, 2021
2. Estimated based on the assumption of exercise midway through the exercise period, since a reasonable estimate isdifficult to make due to the lack of data
3. Based on actual dividends for the fiscal year ended March 31, 2021
4. Average compound yield of interest-bearing long-term government bonds maturing in three months or less from theend date of the estimated time remaining―75―

12th Stock options(1) Valuation technique used Black-Scholes Model(2) Key inputs and method for determining them
Stock volatility (Note) 1

69.894%

Expected time remaining (Note) 2

20.77 years

Expected dividend (Note 3)

55 yen/share

Risk-free interest rate (Note) 4

0.448%(Notes) 1. Calculated based on actual stock prices from September 19, 2002 to September 24, 2021
2. Estimated based on the assumption of exercise midway through the exercise period, since a reasonable estimate isdifficult to make due to the lack of data
3. Based on actual dividends for the fiscal year ended March 31, 2021
4. Average compound yield of interest-bearing long-term government bonds maturing in three months or less from theend date of the estimated time remaining
5. 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 isestimated taking vesting conditions into consideration.
(Additional information)
Transactions granting employees and others stock acquisition rights which involve considerations with vesting conditions before theapplied day of Practical Solution on Transactions Granting Employees and Others Stock Acquisition Rights, which Involve
Considerations, with Vesting Conditions (PITF No. 36; January 12, 2018) are still accounted for using the previously adopted accounting
treatment in accordance with Paragraph 10 (3) of PITF No. 36.
1. Overview of stock acquisition rights which involve considerations with vesting conditions
Notes are omitted because the same description is given in “2. Description of stock options, their scale and changes” above.
2. Outline of accounting treatment adopted
When share acquisition rights are issued, the amount paid in on the issuance of share acquisition rights will be recorded as shareacquisition rights in net assets. When share acquisition rights are exercised, and new shares are issued, the amount paid in on the issuanceof share acquisition rights and the amount paid in on the exercise of share acquisition rights will be transferred to share capital and legal
capital surplus, respectively.
When share acquisition rights have lapsed, the amount that corresponds to the lapse will be recorded as profit within that accounting
period.

―76―

(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 2021
(As of March 31, 2021)
Deferred tax assets
Enterprise taxes payable

37

39

Provision for bonuses

59

29

Accrued social insurance premiums

8

4

Non-deductible depreciation expenses

00

Asset retirement obligations

14

14

Loss carryforwards

48

53

Loss on valuation of golf club membership

1

1

Other

1

7

Total deferred tax assets

171

150

Valuation allowance

△48

△53

Total deferred tax assets

123

96

2. Reconciliation of the statutory tax rate and the actual effective tax rate
Notes are omitted because the difference between the statutory tax rate and the effective tax rate is 5% or less of the statutory tax rate
for the consolidated fiscal year under review and for the previous consolidated fiscal year.
(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 ofasset retirement obligations is calculated based on those assumptions.
(3) Increase/decrease in the asset retirement obligations
Fiscal 2021
(from April 1, 2020
to March 31, 2021)

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

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

45million yen

48million yen

2

－

0

0

Balance at end of fiscal year

48

48

(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
MarketPublic Sector
MarketRevenue from contracts with
4,559
customers(Note) Internal transactions between Group companies are deducted.

―77―

4,046

Consumer Sector
Market
444

Total
9,051

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 cloudservice products.
Revenue from a license product is recognized when the software product is provided to the customer, at which time the performanceobligation is deemed fulfilled. The performance obligation for maintenance services is fulfilled over a certain 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 price under thecontract 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 atransaction 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

Balance at beginning of fiscal year

3,370

Balance at end of fiscal year

5,684

Advances received in the consolidated balance sheet are all contract liabilities arising from contracts with customers, and advancepayments 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 1,316 million yen.
(2) Transaction prices allocated to outstanding performance obligations
The total amount of transaction prices allocated to outstanding performance obligations and the periods over which revenue is
expected to be recognized are as follows.
(Million yen)
Fiscal year under review
Within 1 year

2,916Over 1 year, within 2 years

1,342Over 2 years, within 3 years

1,219Over 3 years

1,093
Total

6,572

―78―

(Segment information, etc.)
Segment information
Previous consolidated fiscal year (from April 1, 2020 to March 31, 2021) and consolidated fiscal year under review (from April 1,
2021 to March 31, 2022)
The Group has only one segment, which is the security business, and segment information is omitted.
Related information
Fiscal 2021 (from April 1, 2020 to March 31, 2021)
1. Information by product/service
The Group has only one product and service category, and information by product/service is omitted.
2. Information by region(1) Net sales
Sales to external customers in Japan are more than 90% of net sales in the consolidated statement of income, and information byregion is omitted.
(2) Property, plant and equipment
The amount of property, plant and equipment in Japan is more than 90% of the amount of property, plant and equipment in the
consolidated balance sheets, and information on property, plant and equipment is omitted.
3. Information by major customer
The Group engages in only one segment, the security business.
(Million yen)
Customer name

Net sales

Daiwabo Information System Co., Ltd.

1,409

SB C&S Corp.

1,287

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, and information byregion is omitted.
(2) Property, plant and equipment
The amount of property, plant and equipment in Japan is more than 90% of the amount of property, plant and equipment in the
consolidated balance sheets, and information on property, plant and equipment is omitted.
3. Information by major customer
The Group engages in only one segment, the security business.
(Million yen)
Customer name

Net sales

Daiwabo Information System Co., Ltd.

2,045

SB C&S Corp.

1,541

―79―

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 2021 (from April 1, 2020 to March 31, 2021)
There are no applicable matters.
Fiscal 2022 (from April 1, 2021 to March 31, 2022)
There are no applicable matters.
(Special purpose companies subject to disclosure)
There are no applicable matters.

―80―

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

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

Net assets per share

715.79 yen

863.96 yen

Profit per share

146.90 yen

206.71 yen

Diluted profit per share
Profit143.45 yen

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

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

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

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

2,059

2,900

－

－

2,059

2,900

14,022,503

14,034,190‒‒

Increase in the number of common shares

337,562

325,272(Of the increase, the number of share acquisition rights)(shares)

337,562

325,272

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

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 February 16,
2018
Number of potential shares:
1,130,900(Significant subsequent events)
There are no applicable matters.

―81―

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

(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 2022 are less than 1% of the combined total of
liabilities and net assets at the beginning and end of fiscal 2022, and so have been omitted in accordance with Article 92-2 of theRegulations for Consolidated Financial Statements.

―82―

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

Second quarter

Third quarter

Fiscal year underreview

Net sales(Million yen)

1,919

4,552

6,686

9,051

Profit before income
taxes(Million yen)

734

2,081

3,029

4,136

Profit attributable toowners of parent(Million yen)

506

1,433

2,081

2,900

(Yen)

36.13

102.16148.34206.71

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

Second quarter

36.13

―83―

66.03

Third quarter
46.18

Fourth quarter
58.37

2. Financial Statements of the Reporting Company(1) Financial Statements(i) Balance Sheet(Million yen)
Fiscal 2021
(As of March 31, 2021)

Fiscal 2022
(As of March 31, 2022)

AssetsCurrent assets
Cash and deposits
Notes and accounts receivable - trade

11,191※1 1,150

15,534‒

Notes receivable - trade
Accounts receivable - trade‒‒※1 995

Finished goods
Supplies0303Prepaid expenses
Other

74

62

94

※1 6

※1 4

12,415

16,708Property, plant and equipment
Buildings

92

88

VehiclesTools, furniture and fixtures

14
92

8
75

Land
Construction in progress

26
0

26
‒

Total property, plant and equipment

226

199

1,273

1,317

128
0

208
0

Total intangible assets

1,402

1,526

Investments and other assets
Investment securities

Total current assets
Non-current assets

Intangible assets
Software
Software in progress
Telephone subscription right

102

101

Shares of subsidiaries and associates
Investments in capital

139
0

115
0

Long-term prepaid expenses
Leasehold and guarantee deposits

25
186

60
188

Deferred tax assets
Other

197
56

182
56

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

―84―

706

704

2,335

2,429

14,751

19,138(Million yen)
Fiscal 2021
(As of March 31, 2021)

Fiscal 2022
(As of March 31, 2022)

Liabilities
Current liabilities
Accounts payable - trade
Accounts payable - other

※1 14

※1 24

※1 131※1 181

53
670

54
730

175
3,366

215
5,669

Deposits received
Provision for bonuses

15
194

17
95

Total current liabilities

4,623

6,990

Asset retirement obligations
Other

48
1

48
1

Total non-current liabilities

50

50

4,673

7,040

Accrued expenses
Income taxes payable
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

265

255

Total capital surplus

965

955

Other retained earnings
Retained earnings brought forward

8,732

10,723

Total retained earnings

8,732

10,723Retained earnings

Treasury shares

(342)

(307)

Share acquisition rights

10,06912,085

Share acquisition rights
Total net assets
Total liabilities and net assets

―85―

8

12

10,07812,097

14,751

19,138(ii) Statement of Income
Fiscal 2021
(from April 1, 2020
to March 31, 2021)
Net sales
Cost of sales
Beginning finished goods inventory
Cost of Internet service

※１

6,074

※１

0
1,274

Total

1,822
0

0

0

1,273

1,821

4,801

Selling, general and administrative expenses※１，※２

Operating profit

0
1,821

0

Ending finished goods inventory
Gross profit

※１

1,274

Transfer to other account
Cost of finished goods sold(Million yen)
Fiscal 2022
(from April 1, 2021
to March 31, 2022)※１ 8,003

1,854

6,182
※１，※２

2,141

2,947

4,040
0
0

Non-operating income
Interest income
Interest on securities

※１

0
0

Commission income
Foreign exchange gains

※１

4
6

※１

4
4

Gain on forfeiture of unclaimed dividends
Miscellaneous income

1
3

1
0

Total non-operating income

17

11

2,964

4,052

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

3
9

※３

Total extraordinary income※３12Extraordinary losses
Loss on liquidation of subsidiaries

2

Loss on retirement of non-current assets
Loss on valuation of shares of subsidiaries

0
13

※４

Total extraordinary losses
Profit before income taxes

0
1
1

－
0
38

※４

15

38

2,961

4,015

Income taxes - current

958

1,167

Income taxes - deferred

(42)

14

Total income taxes

916

1,182

2,044

2,832

Profit―86―

Detailed Statement of Cost of Internet Service
Fiscal 2021
(from April 1, 2020 to March 31, 2021)
Category
I.

Note
numb
er

Amount (million yen)

Material cost

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

Composition
rate (%)

Category

Note number

46

2.3

66

2.4

II. Labor cost

※1

716

34.4

869

30.9

III. Expenses

※2

1,318

63.3

1,879

66.7

2,082

100.0

2,816

100.0

Total expenses
Transfer to other account※3

Cost of Internet service

808

994

1,274

1,821

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

Fiscal 2022
(from April 1, 2021 to March 31, 2022)*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)
463
89
32
83
38

Salaries and allowances
Legal welfare expenses
Bonuses
Provision for bonuses
Other salaries*2 Major items in expenses
Outsourcing expenses
Depreciation
Rent expenses*3 Major items in transfer to other accountSelling, general andadministrative expenses
Non-current assets(Million yen)
502
106
164
40
45

*2 Major items in expenses(Million yen)
95
807
93

Outsourcing expenses
Depreciation
Rent expenses(Million yen)
133
841
92

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

Selling, general andadministrative expenses
Non-current assets

36
771

Total
808
4. Costing method
The job order cost system based on actual costs is
employed for the Company’s costing.

Total
4. Costing method―87―(Million yen)
32
961
994

Same as on the left

(iii) Statement of Changes in Equity
Fiscal 2021 (from April 1, 2020 to March 31, 2021)(Million yen)
Shareholders’ equity
Capital surplus

Balance at beginning of
periodSharecapitalLegalcapitalsurplus

Othercapitalsurplus

713

700

274

Retained earnings

Otherretainedearnings
Total capital
Retained
surplusearnings
brought
forward974

Total
retainedearnings

Share
Total
acquisition
Treasuryshareholder
rightssharess’ equity

(380)

8,696

18

Total net
assets

7,389

7,389

8,714

Dividends of surplus

(700)

(700)

(700)

(700)

Profit

2,044

2,044

2,044

2,044

37

29

29

(0)

(0)

(0)

Changes during period

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

(8)

(8)

(9)

(9)

‒

‒

(8)

(8)

1,343

1,343

37

1,372

(9)

1,363

713

700

265

965

8,732

8,732

(342)

10,0698

10,078

Fiscal 2022 (from April 1, 2021 to March 31, 2022)(Million yen)
Shareholders’ equity
Capital surplus

Balance at beginning of
periodSharecapitalLegalcapitalsurplus

Othercapitalsurplus

713

700

265

Retained earnings

Otherretainedearnings
Total capital
Retained
surplusearnings
brought
forward965

Total
retainedearnings

Share
Total
acquisition
Treasuryshareholder
rightssharess’ equity(342)

10,0698

Total net
assets

8,732

8,732

10,078Dividends of surplus

(841)

(841)

(841)

(841)

Profit

2,832

2,832

2,832

2,832

35

25

25

(0)

(0)

(0)

Changes during period

Disposal of treasury
sharesPurchase of treasury
sharesNet changes in items
other than shareholders’equityTotal 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―88―

Notes(Notes on the premise of a going concern)
Not applicable.
(Significant accounting policies)
1. Asset valuation standards and valuation method(1) Valuation standards and valuation methods for securities
Bonds held for maturity
The amortized cost method (interest method) is applied.
Shares of subsidiaries and associates
The moving average cost method is applied.
(2) Valuation standards and valuation method for inventories
Finished goods
The gross average cost method is applied. (The balance sheet amount is calculated by the book value write-down method based on
reduction in profitability.)
2. Depreciation method for non-current assets(1) Property, plant and equipment
The declining balance method is applied.
The useful life and the residual value are calculated based on the same standards as those set out in the Corporation Tax Act. The
straight-line method is applied for facilities attached to buildings acquired on April 1, 2016 or later.
(2) Intangible assets
The straight-line method is applied.
The straight-line method based on the availability period in the company (five years) is used for software in the company. For software
for sale in the market, a method based on estimated sales quantities (or revenue) or the remaining lifetime (three years) is used.
(3) Long-term prepaid expenses
The straight-line method is applied.
The amortization period is calculated based on the same standards as those set out in the Corporation Tax Act.
3. Standards for translating assets or liabilities that are in foreign currency into yen
Monetary claims and obligations in foreign currency are translated into yen using the spot exchange rate on the settling day, andtranslation adjustments are treated as a profit or loss.
4. Standards for reporting allowances
Provision for bonuses
For the payment of employees’ bonuses, of the estimated payment amount, the amount to be paid in the fiscal year under review is posted.
5. Accounting standards for significant income and expenses
The Company has begun applying the Accounting Standard for Revenue Recognition (ASBJ Statement No.29 issued on March 31, 2020)
and the Implementation Guidance on Accounting Standard for Revenue Recognition (ASBJ Guidance No. 30 issued on March 31, 2020).
Accordingly, 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).

―89―

(Change in accounting policy)(Application of Accounting Standard for Revenue Recognition, etc.)
The Company began applying the Accounting Standard for Revenue Recognition (ASBJ Statement No.29 issued on March 31,
2020; hereinafter, “Accounting Standard for Revenue Recognition”) and the like from the beginning of the current fiscal year.
Accordingly, 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.
As a result, sales rebates, which were previously recorded as selling, general and administrative expenses, are now deducted fromsales. The application of the Accounting Standard for Revenue Recognition, etc. is subject to the transitional treatment provided forin the proviso of Paragraph 84 of the Accounting Standard for Revenue Recognition. The cumulative effect of the retrospective
application, assuming the new accounting policy had been applied to periods prior to the beginning of the consolidated fiscal year
under review was added to or subtracted from the beginning balance of retained earnings of the consolidated fiscal year underreview. However, this did not have any impact on such beginning balance.
From the fiscal year under review, current assets included in notes and accounts receivable - trade in the consolidated balance sheet
in the previous fiscal year are included in notes receivable - trade and accounts receivable - trade.
As a result, net sales and selling, general and administrative expenses for the consolidated fiscal year under review decreased,
respectively, causing gross profit to fall. However, their declines produced insignificant effects, leaving operating profit, ordinary
profit and profit before income taxes unaffected.
According to the transitional measures prescribed in paragraph 89-3 of the Accounting Standard for Revenue Recognition, there
are no notes on "Matters concerning revenue recognition" pertaining to the results of the previous consolidated fiscal year.
(A change in unit used for presentation)(Statement of income)“Subsidy income” which was presented separately in the previous fiscal year, is included in “Other” in non-operating income in thefiscal year under review because of a decrease in significance in financial terms. The financial statements for the previous fiscal
year were restated to reflect this change in method of presentation.
As a result, the subsidy income of 2 million yen and the miscellaneous income of 1 million yen, which was presented under nonoperating income in the non-consolidated statement of income for the previous consolidated fiscal year, has been reclassified as
miscellaneous income of 3 million yen.
(Additional information)
Transactions granting employees and others stock acquisition rights which involve considerations with vesting conditions before theapplied day of Practical Solution on Transactions Granting Employees and Others Stock Acquisition Rights, which Involve
Considerations, with Vesting Conditions (PITF No. 36; January 12, 2018) are still accounted for using the previously adopted accounting
treatment in accordance with Paragraph 10 (3) of PITF No. 36.
1. Overview of stock acquisition rights which involve considerations with vesting conditions
Notes are omitted because the same information is given in Section V. Financial Information 1. Consolidated Financial Statements, Notes(Stock options).
2. Outline of accounting treatment adopted
When share acquisition rights are issued, the amount paid in on the issuance of share acquisition rights will be recorded as shareacquisition rights in net assets. When share acquisition rights are exercised, and new shares are issued, the amount paid in on the issuanceof share acquisition rights and the amount paid in on the exercise of share acquisition rights will be transferred to share capital and legal
capital surplus, respectively.
When share acquisition rights have lapsed, the amount that corresponds to the lapse will be recorded as profit within that accounting
period.

―90―

(Balance sheet)*1. Monetary claims and monetary liabilities in relation to subsidiaries and associates (excluding those presented on balance sheet)

Short-term monetary claims
Short-term monetary liabilities

Fiscal 2021
(As of March 31, 2021)
5
9(Million yen)
Fiscal 2022
(As of March 31, 2022)
4
5(Matters related to income statement)*1. Transactions in relation to subsidiaries and associates are included as follows.
(Million yen)
Fiscal 2021
Fiscal 2022
(from April 1, 2020 to March 31, 2021) (from April 1, 2021 to March 31, 2022)
Operating transactions
Net sales
Purchase of goods
Selling, general and administrative
expenses
Transactions other than operatingtransactions

5
2

8
4

81

45

5

4

*2. Selling expenses accounted for approximately 10.3% and 12.2% of total selling, general and administrative expenses in fiscal 2021
and fiscal 2022 respectively while the share of general and administrative expenses was 89.7% in fiscal 2021 and 87.8% in fiscal 2022.
The major items of selling, general and administrative expenses and the amounts are as follows.

Advertising expenses(Million yen)
Fiscal 2021
Fiscal 2022
(from April 1, 2020 to March 31, 2021) (from April 1, 2021 to March 31, 2022)
167
239

Salaries and allowances

619

679

Provision for bonuses

110

54

Depreciation48

44

bonuses

47

215(Changes in presentation methods)
In the fiscal year under review, “Bonuses” are presented as a major item of “Selling, general and administrative expenses” becauseof their growing importance. To reflect this change in the method of presentation, the details for the previous fiscal year also present“Bonuses” as a major item.
*3. The details of gain on sales of non-current assets are as follows.

Vehicles(Million yen)
Fiscal 2021
Fiscal 2022
(from April 1, 2020 to March 31, 2021) (from April 1, 2021 to March 31, 2022)
30*4. The details of loss on retirement of non-current assets are as follows.

Tools, furniture and fixtures(Million yen)
Fiscal 2021
Fiscal 2022
(from April 1, 2020 to March 31, 2021) (from April 1, 2021 to March 31, 2022)
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 under review andthe previous fiscal year are 115 million yen and 139 million yen respectively) are not stated as their market value is not readily
available.

―91―

(Tax effect accounting)
1. Breakdown of key factors contributing to deferred tax assets and deferred tax liabilities(Million yen)
Fiscal 2021
(As of March 31, 2021)

Fiscal 2022
(As of March 31, 2022)

Deferred tax assets
Enterprise taxes payable

37

39

Provision for bonuses

59

29

Accrued social insurance premiums

8

4

Non-deductible depreciation expenses

00

Asset retirement obligations

14

14

Loss on valuation of golf club membership

1

1

Loss on valuation of shares of subsidiaries

73

85

Other

1

6

197

182

Net deferred tax assets
2. Reconciliation of the statutory tax rate and the actual effective tax rate

Notes are omitted because the difference between the statutory tax rate and the effective tax rate is 5% or less of the statutory tax rate.
(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 (Matters concerning
revenue recognition).
(Significant subsequent events)
Not applicable.

―92―

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

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

Property, plant andequipment
Buildings

92

‒

‒

4

88

132

Vehicles

14

‒

0

5

8

9

Tools, furniture andfixtures

92

21

0

38

75

399

Land

26

‒

‒

‒

26

‒

Construction in progress

0

‒

0

‒

‒

‒

Total property, plant andequipment

226

21

0

48

199

541

1,273

881

0

837

1,317

‒

128

961

881

‒

208

‒

0

‒

‒

‒

0

‒

1,402

1,843

881

837

1,526

‒

Intangible assets
Software
Software in progress
Telephonerightsubscription

Total intangible assets(Notes) 1. Major increases during the current period are as follows:
Software

836 million yen (i-FILTER, DigitalArts@Cloud, etc.)

Software in progress

961 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)
Category

Balance at
beginning of period

Provision for bonuses

Net increasein current period

194

Net decreasein current period
95

Balance at
end of period

194(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.

―93―

95

Section VI. Stock Information of the Reporting Company
Fiscal year

From April 1 to March 31

Annual general meeting ofshareholders

During June

Record date

March 31

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

September 30 and March 31
100 shares
Not applicable.

Handling officeTransfer agent
Forward office
Purchasing and selling fee

Method of public notice

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

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

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

2. Other Reference Information
The Company submitted the following documents between the first day of the fiscal year under review and the day of submitting thesecurities report.
(1) Annual Securities Report and documents attached, and Confirmation Letter
26th fiscal year (from April 1, 2020 to March 31, 2021) Submitted to the Director-General of Kanto Local Finance Bureau on June 23,
2021(2) Internal Control Report and accompanying documents
Submitted to the Director-General of Kanto Local Finance Bureau on June 23, 2021
(3) Quarterly Report and Confirmation Letter
Quarterly accounting period
For the first quarter of the 27th fiscal year (April 1, 2021 to June 30, 2021) Submitted to the Director-General of Kanto Local Finance
Bureau on August 6, 2021
For the second quarter of the 27th fiscal year (July 1, 2021 to September 30, 2021) Submitted to the Director-General of Kanto Local
Finance Bureau on November 5, 2021
For the third quarter of the 27th fiscal year (October 1, 2021 to December 31, 2021) Submitted to the Director-General of Kanto
Local Finance Bureau on February 4, 2022
(4) Extraordinary Report
An extraordinary report pursuant to the provisions of Item (ix)-2 (result of exercising voting rights at the general meeting ofshareholders), Paragraph (2), Article 19 of the Cabinet Office Ordinance on the Disclosure of Corporate Affairs, etc.
Submitted to the Director-General of Kanto Local Finance Bureau on June 23, 2021
An extraordinary report pursuant to the provisions of Paragraph (4), Article 24-5 of the Financial Instruments and Exchange Act andItem (ii)-2 (Issuance of share acquisition rights), Paragraph (2), Article 19 of the Cabinet Office Ordinance on the Disclosure of
Corporate Affairs, etc.
Submitted to the Director-General of Kanto Local Finance Bureau on August 31, 2021
(5) Amended Extraordinary Report
Amended report (report amending above extraordinary report submitted on August 31, 2021)
Submitted to the Director-General of Kanto Local Finance Bureau on September 24, 2021

―95―

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

―96―Independent Auditors’ Audit Report and Internal Control Audit Report
June 21, 2022
The Board of Directors
Digital Arts Inc.

BDO Sanyu & Co.
Tokyo Office

Designated andEngagement Partner

Certified Public Accountant So Nomura

Designated andEngagement Partner

Certified Public Accountant Hiroaki Nakanishi Seal

Seal

[Audit of Financial Statements]
Audit Opinion
To conduct audit certification as prescribed in the first paragraph of Article 193-2 of the Financial Instruments and Exchange Act, wehave audited the consolidated financial statements of Digital Arts Inc. for the consolidated fiscal year from April 1, 2021 to March 31,
2022 included in the Financial Information, namely, the consolidated balance sheet, the consolidated statements of income, theconsolidated statement of comprehensive income, the consolidated statement of changes in equity, the consolidated statement of cash
flows, significant matters that serve as a basis for the preparation of consolidated financial statements, other notes and consolidated
supplementary schedules.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of
Digital Arts Inc. and its consolidated subsidiaries as of March 31, 2022, and the consolidated results of their operations and their cash
flows for the year then ended in conformity with accounting principles for consolidated financial statements generally accepted in Japan.
Basis for Opinion
We have conducted the audit in accordance with audit standards that are generally considered fair and reasonable in Japan. Our
responsibilities under those standards are further described in the “Auditor’s Responsibilities for the Audit of the Consolidated Financial
Statements” section of our report. We are independent of the Company and its consolidated subsidiaries in accordance with the ethicalrequirements that are relevant to our audit of the consolidated financial statements in Japan, and we have fulfilled our other ethicalresponsibilities in accordance with these requirements. We consider that audit evidence that we have obtained is sufficient and appropriate
to provide a basis for our audit opinion.
Key Issues of the Audit
Key issues of the audit mean issues that we deem particularly important from a professional perspective in auditing consolidated financial
statements for the consolidated fiscal year under review. The key issues of the audit are what were addressed in the process of
implementing an audit of all consolidated financial statements and forming audit comments. They do not mean that we state our own
view on them.

―97―

Appropriateness of application of the Accounting Standard for Revenue Recognition, etc.
Details of key issues of the audit and reasons for decision
How our audit addressed the issues
As stated in [Notes] (Change in accounting policy), the- When verifying the appropriateness of the Company's

Company and its consolidated subsidiaries began applying theapplication of the Accounting Standard for Revenue

Accounting Standard for Revenue Recognition (ASBJ

Recognition, etc., we mainly carried out the following audit

Statement No.29 issued on March 31, 2020, hereinafter theprocedures.

“Revenue Recognition Accounting Standard”) and related
measures at the beginning of the consolidated fiscal year underreview. Accordingly, the Company recognizes amounts- We obtained materials for considering the different contract
types and confirmed that the differences between the newstandards and the old standards had been comprehensively

expected to be received in exchange for promised goods orconsidered.

services as revenue at the point where control over the goods- We obtained materials for considering the different contractand services is transferred to the customer.
On application of the Accounting Standard for Revenue

types and viewed materials such as contracts and terms andRecognition, etc. the effects could have a significant impact onconditions, which we used as a basis for questioning thosethe consolidated financial statements depending on the results

responsible for departments and those responsible forof consideration, for example, in the case of performanceaccounting and forming judgments, and we consideredobligations for license sale-type products, revenue recognition

whether accounting was in compliance with the Accounting

timing and amounts will be different from those under theStandard for Revenue Recognition, etc.

previous standards depending on whether performance- We gained an understanding of the accounting policies

obligations are deemed to be satisfied at a point in time or overadopted by the Company by questioning those responsible fortime.

accounting and viewing relevant documents and evaluated

Based on the foregoing, we judged that the appropriateness ofthe development and implementation of internal controls in

the application of the Accounting Standard for Revenue

relation to application of the Accounting Standard for

Recognition, etc. is especially important in the audit of the

Revenue Recognition, etc.

consolidated financial statements for the fiscal year under- We considered the appropriateness of the presentation of thereview and falls under “Key issues of the audit.”consolidated financial statements and disclosure in relation toapplication of the Accounting Standard for Revenue
Recognition, etc.

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 create and disclose the otherinformation. The Audit & Supervisory Board is responsible for overseeing the directors’ performance of 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 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 the procedure 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 in accordance with the
Generally Accepted Accounting Principles of Japan. Such responsibilities include the establishment and implementation of internal
control that management determines is necessary for the preparation and appropriate presentation of consolidated financial statementsthat are free of any material misstatements due to frauds or errors.

―98―In preparing the consolidated financial statements, management is responsible for assessing the Group’s ability to continue as a going
concern, disclosing, as applicable, matters related to going concern in accordance with generally accepted accounting principles of Japan.
The Audit & Supervisory Board is responsible for overseeing the directors’ performance of their duties including the design,
implementation and maintenance of the Group’s financial reporting process.
Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements
Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Misstatements can arise from fraud
or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic
decisions of users taken on the basis of these consolidated financial statements.
As part of our audit in accordance with auditing standards generally accepted in Japan, we exercise professional judgment and maintainprofessional skepticism throughout the audit. We also:- Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error; Design
and perform audit procedures responsive to those risks. These audit procedures are selected and performed, depending on the auditor’s
judgment. Obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion.
- Obtain an understanding of internal control relevant to the audit in order to assess the risk and design audit procedures that areappropriate in the circumstances, while the objective of the audit is not to express an opinion on the effectiveness of the Group’s
internal control.
- Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures madeby management.
- Conclude on the appropriateness of management’s use of the going concern basis of accounting and based on the audit evidence
obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability tocontinue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s reportto the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our
conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may
cause the Group to cease to continue as a going concern.
- Evaluate whether the presentation and disclosures in the consolidated financial statements are in accordance with auditing standards
generally accepted in Japan, the overall presentation, structure and content of the consolidated financial statements, including thedisclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that
achieves fair presentation.
- Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Groupto express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of
the Group audit. We remain solely responsible for our audit opinion.
We communicate with the Audit & Supervisory Board regarding, among other matters, the planned scope and timing of the audit,
significant audit findings, including any significant deficiencies in internal control that we identify during our audit.
We also provide the Audit & Supervisory Board with a statement that we have complied with relevant ethical requirements regarding
independence, and communicate with them all relationships and other matters that may reasonably be thought to bear on our
independence, and where applicable, related safeguards.
We define those matters discussed with the Audit & Supervisory Board which are deemed particularly important in the audit of theconsolidated financial statements for the consolidated fiscal year under review as key issues of the audit and state them in the audit report.
However, we do not state matters in the case where publication of these matters is prohibited by laws, ordinances or suchlike or in thevery rare case that we judge that they should not be reported on the grounds of reasonably expected disadvantages from the reporting in
the audit report that would exceed the public interest.
[Internal Control Audit]
Audit Opinion
To conduct audit certification as prescribed in the second paragraph of Article 193-2 of the Financial Instruments and Exchange Act, wehave audited the internal control report of Digital Arts Inc. dated March 31, 2022.

―99―

We consider that the aforementioned internal control report, in which Digital Arts Inc. indicates that effective internal control ismaintained pertaining to financial reporting as of March 31, 2022, properly reflects the evaluation results of internal control over financial
reporting in all important respects, in compliance with internal control evaluation standards over financial reporting that are generally
considered fair and reasonable in Japan.
Basis for Opinion
We have conducted the internal control audit in accordance with internal control audit standards over internal reporting that are generally
considered fair and reasonable in Japan. Our responsibilities under the auditing standards for internal control over financial reporting arefurther described in the "Auditor’s Responsibilities for the Audit of Internal Control" section of our report. We are independent of theCompany and its consolidated subsidiaries in accordance with the ethical requirements that are relevant to our audit of the consolidated
financial statements in Japan, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We consider
that audit evidence that we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Responsibilities of Management and the Audit & Supervisory Board for the Internal Control ReportManagement is responsible for the establishment and implementation of internal control as it pertains to financial reporting, as well as
the preparation and appropriate presentation of internal control reports, in accordance with internal control evaluation standards overfinancial reporting that are considered generally fair and reasonable in Japan.
The Audit & Supervisory Board is responsible for overseeing and examining the design and operation of internal control over financial
reporting.
It may not be possible, however, to fully prevent or identify the presentation of misstatements due to internal control over financial
reporting.
Auditor’s Responsibilities for the Audit of Internal Control
Our objectives are to obtain reasonable assurance about whether the internal control report is free from material misstatement based on
our audit of internal control and to issue an auditor’s report that includes our opinion.
As part of our audit in accordance with auditing standards for internal control over financial reporting generally accepted in Japan, we
exercise professional judgment and maintain professional skepticism throughout the audit. We also:- Perform procedures to obtain audit evidence about the results of the assessments of internal control over financial reporting in theinternal control report. The procedures for the audit of the internal control report are selected and performed, depending on the auditor’s
judgment, based on significance of effect on the reliability of financial reporting.
- Evaluate the overall presentation of the internal control report, including the appropriateness of the scope, procedures and result of theassessments that management presents.
- Obtain sufficient appropriate audit evidence about the results of the assessments of internal control over financial reporting in theinternal control report. We are responsible for the direction, supervision and performance of the audit of the internal control report. We
remain solely responsible for our audit opinion.
We communicate with the Audit & Supervisory Board regarding, among other matters, the planned scope and timing of our audit ofinternal control, the results thereof, material weaknesses in internal control identified during our audit of internal control, and those thatwere remediated.
We also provide the Audit & Supervisory Board with a statement that we have complied with relevant ethical requirements regarding
independence, and communicate with them all relationships and other matters that may reasonably be thought to bear on our
independence, and where applicable, related safeguards.
Interest Related
There is not any conflict of interest between the Company and its consolidated subsidiaries and BDO Sanyu & Co. or its Engagement
Partners which should be disclosed under the provisions of the Certified Public Accountants Act.

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

―100―Internal Control Audit Report by Independent Auditors
June 21, 2022
The Board of Directors
Digital Arts Inc.

BDO Sanyu & Co.
Tokyo Office

Designated andEngagement Partner

Certified Public Accountant So Nomura

Designated andEngagement Partner

Certified Public Accountant Hiroaki Nakanishi Seal

Seal

Audit Opinion
To conduct audit certification as prescribed in the first paragraph of Article 193-2 of the Financial Instruments and Exchange Act, wehave audited the financial statements of Digital Arts Inc. for the 27th fiscal year starting from April 1, 2021 to March 31, 2022 includedin the Financial Information, namely, the balance sheet, the income statement, the statement of changes in equity, significant accounting
policies, the notes to specific items, and the annexed detailed statements thereto.
We consider that the aforementioned financial statements properly reflect the financial position of Digital Arts Inc. as of March 31, 2022,
as well as its financial results in the fiscal year that ended on the same day, in all important respects, in compliance with the Generally
Accepted Accounting Principles of Japan.
Basis for Opinion
We have conducted the audit in accordance with audit standards that are generally considered fair and reasonable in Japan. Our
responsibilities under those standards are further described in the “Auditor’s Responsibilities for the Audit of the Financial Statements”
section of our report. We are independent of the Company in accordance with the ethical requirements that are relevant to our audit of
the financial statements in Japan, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We
consider that audit evidence that we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Key Issues of the Audit
Key issues of the audit mean issues that the auditor deems particularly important from the perspective of a professional specialist in
auditing financial statements for the fiscal year under review. The key issues of the audit are what were addressed in the process of
implementing an audit of all financial statements and forming audit comments. They do not mean that the we state our own view on
them.
Appropriateness of application of the Accounting Standard for Revenue Recognition, etc.
The statement of the details about the key issues of the audit, reasons for the decision and how our audit addressed the issues is omitted,
given that it is identical with that on the key issues of the audit in the audit report on the consolidated financial statements (appropriatenessof the application of the Accounting Standard for Revenue Recognition, etc.).
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 create and disclose the otherinformation. The Audit & Supervisory Board is responsible for overseeing the directors’ performance of 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 theother information
Our responsibilities in auditing the financial statements are to read through the other information to consider whether there is any majordifferences between the other information and the financial statements or the knowledge that we acquire in the process of the audit, andto 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 the procedure 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 of internal control thatmanagement determines is necessary for the preparation and appropriate presentation of financial statements that are free of any material
misstatements due to frauds or errors.
In preparing the financial statements, management is responsible for assessing the Company’s ability to continue as a going concern,
disclosing, as applicable, matters related to going concern in accordance with generally accepted accounting principles of Japan.
The Audit & Supervisory Board is responsible for overseeing the directors’ performance of their duties including the design,
implementation and maintenance of the Group’s financial reporting process.
Auditor’s Responsibilities for the Audit of the Financial Statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement,
whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Misstatements can arise from fraud or error andare considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions ofusers taken on the basis of these financial statements.
As part of our audit in accordance with auditing standards generally accepted in Japan, we exercise professional judgment and maintainprofessional skepticism throughout the audit. We also:- Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error; Design
and perform audit procedures responsive to those risks. These audit procedures are selected and performed, depending on the auditor’s
judgment. Obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion.
- We do not audit financial statements to express an opinion on the effectiveness of internal control. Nevertheless, to implement risk
assessments, we examine internal control as it pertains to the preparation and appropriate presentation of financial statements, thereby
ensuring that an appropriate audit procedure program is formulated depending on situations.
- Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures madeby management.
- Conclude on the appropriateness of management’s use of the going concern basis of accounting and based on the audit evidence
obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company’s ability
to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’sreport to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions
are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause theGroup to cease to continue as a going concern.
- Evaluate whether the presentation and disclosures in the financial statements are in accordance with auditing standards generally
accepted in Japan, the overall presentation, structure and content of the financial statements, including the disclosures, and whether
the financial statements represent the underlying transactions and events in a manner that achieves fair presentation.
We communicate with the Audit & Supervisory Board regarding, among other matters, the planned scope and timing of the audit,
significant audit findings, including any significant deficiencies in internal control that we identify during our audit.
We also provide the Audit & Supervisory Board with a statement that we have complied with relevant ethical requirements regarding
independence, and communicate with them all relationships and other matters that may reasonably be thought to bear on our
independence, and where applicable, related safeguards.
We define those matters discussed with the Audit & Supervisory Board which are deemed particularly important in the audit of the―102―

financial statements for the fiscal year under review as key issues of the audit and state them in the audit report. However, we do notstate the matters in the case where publication of these matters is prohibited by laws, ordinances or suchlike or in the very rare case that
we judge that they should not be reported on the grounds of reasonably expected disadvantages from the reporting in the audit reportthat would exceed the public interest.
Interest Related
There is not any conflict of interest between the company and BDO Sanyu & Co. or its Engagement Partners which should be disclosed
under the provisions of the Certified Public Accountants Act.

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

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