デジタルハーツホールディングス（3676） – Summary of Business Results for the Fiscal Year Ended March 31, 2022

Notice: This document was prepared by machine translation, and no manual modification has been made to the translated contents. This documents is to be used only as a reference, and in cases any differences occur between English version and the original Japanese version, the Japanese version shall prevail. The consolidated financial statements in this document are unaudited. Summary of Business Results for the Fiscal Year Ended March 31, 2022 [Japan GAAP] (Consolidated) 3676 Toshiya Tsukushi, Executive Vice president and CFO Company name: DIGITAL HEARTS HOLDINGS Co., Ltd. Stock code: Representative: Yasumasa Ninomiya, President and CEO Contact: Scheduled date of the ordinary general shareholder meeting Scheduled commencement of dividend payment Scheduled date of submission of financial reports Preparation of supplementary material for fiscal year financial results : Yes Holding of financial results meeting : June 28, 2022 : June 10, 2022 : June 29, 2022 May 12, 2022 Listed on the TSE URL: https://www.digitalhearts-hd.com/ TEL: +81-3-3373-0081 : Yes (for institutional investors and analysts) 1. Fiscal year ended March 2022 consolidated results (April 1, 2021 – March 31, 2022) (1) Consolidated business results (Percentages are changes from the same period of the previous year.) (Figures are rounded down to the nearest million yen.) Net sales Operating income Ordinary income Profit attributable to owners of parent Fiscal year ended March 31, 2022 March 31, 2021 (Reference) Comprehensive income: (Millions of yen) 29,178 22,669 (%) 28.7 7.2 (Millions of yen) 2,701 1,908 (%) 41.5 36.9 (Millions of yen) 2,778 1,975 (%) 40.7 43.9 (Millions of yen) 1,780 974 (%) 82.7 23.0 Fiscal year ended March 31, 2022: 2,260 million yen (129.8%) Fiscal year ended March 31, 2021: 984 million yen (23.2%) Net income per share Diluted net income per share Return on equity Ordinary income to total assets Operating margin Fiscal year ended March 31, 2022 March 31, 2021 (Reference) Equity in earnings of affiliates: (Yen) 82.35 45.15 (2) Consolidated financial position (Yen) ― ― Fiscal year ended March 31, 2022: Fiscal year ended March 31, 2021: (%) 28.1 18.4 -5 million yen -1 million yen (%) 17.4 15.8 (%) 9.3 8.4 Total assets Net assets Net assets per share (Millions of yen) 17,565 14,338 (Millions of yen) 7,576 6,314 Shareholders’ equity ratio (%) 39.9 39.7 7,004 million yen (As of March 31, 2022) 5,691 million yen (As of March 31, 2021) (Yen) 323.81 263.32 Cash flows from operating activities Cash flows from investing activities Cash flows from financing activities Cash and cash equivalents at year end Fiscal year ended March 31, 2022 March 31, 2021 (Millions of yen) 3,077 1,416 (Millions of yen) -2,537 -1,813 (Millions of yen) -546 1,730 (Millions of yen) 5,173 5,041 As of March 31, 2022 As of March 31, 2021 (Reference) Shareholders’ equity: (3) Consolidated cash flows 2. Dividends Fiscal year ended March 31, 2021 March 31, 2022 Fiscal year ending March 31, 2023 (Forecasts) Annual dividends Q1 Q2 Q3 Q4 Total dividends paid (annual) Payout ratio (consolidated) Dividends to net assets (consolidated) Full fiscal year (Yen) ― ― (Yen) 7.00 7.50 (Yen) ― ― (Yen) 7.00 7.50 (Yen) 14.00 15.00 (Millions of yen) 302 324 ― 10.50 ― 10.50 21.00 (%) 31.0 18.2 20.2 (%) 5.7 5.1 3. Consolidated earnings forecasts for the fiscal year ending March 2023 (April 1, 2022 – March 31, 2023) (Percentages are changes from the same period of the previous year.) Net sales Operating income Ordinary income Profit attributable to owners of parent Net income per share Full fiscal year (Millions of yen) ) 35,500 (%) ) 21.7 (Millions of yen) ) 3,290 (%) ) 21.8 (Millions of yen) ) 3,290 (%) ) 18.4 (Millions of yen) ) 2,250 (%) ) 26.4 (Yen) ) 104.02 * Notes (1) Changes in significant subsidiaries during the period (changes in specified subsidiaries accompanying changes in the scope of consolidation): Yes Excluded: – Newly included: 1 (Company name) identity Inc. (2) Changes in accounting policies and accounting estimates and restatement (a) Changes in accounting policies associated with revision of accounting standards :Yes :None (b) Changes in accounting policies other than (a) above :None (c) Changes in accounting estimates :None (d) Restatement (3) Shares outstanding (common stock) (a) Number of issued shares (including treasury stock) As of March 31, 2022 23,890,800 shares As of March 31, 2021 23,890,800 shares (b) Number of treasury stock As of March 31, 2022 2,260,031 shares As of March 31, 2021 2,277,431 shares (c) Average number of shares during the period Fiscal year ended March 31, 2022 21,624,407 shares Fiscal year ended March 31, 2021 21,583,000 shares * The certified public accountant or the audit procedures are not applicable to this financial results report. * Explanation of the proper use of earnings forecasts and other special notes ・This document contains forward-looking statements with respect to future results, performance and achievements that are subject to risk and uncertainties and reflect management’s views and assumptions formed using information available at the time. Accordingly, forecasts may differ from actual results due to a variety of factors. ・A financial results meeting for institutional investors and analysts is scheduled to be held on May 13, 2022. Materials for this meeting will be posted on TD net and the Company’s website. ○ Contents of Attached Materials 1. Overview of Business Results etc. ………………………………………………………………………………………………………………………….. 2 (1) Overview of Company Business Results ……………………………………………………………………………………………………………. (2) Overview of financial standing in this period ……………………………………………………………………………………………………… (3) Overview of cash flow during the period ……………………………………………………………………………………………………………. (4) Future outlook ………………………………………………………………………………………………………………………………………………… 2. Basic concept on choice of accounting standards ……………………………………………………………………………………………………… 3. Consolidated Financial Statements and Important Notes …………………………………………………………………………………………… (1) Consolidated Balance Sheet ……………………………………………………………………………………………………………………………… 2 6 6 7 7 8 8 (2) Consolidated Income Statement and Consolidated Statement of Comprehensive Income ………………………………………… 10 Consolidated Income Statement ………………………………………………………………………………………………………………….. 10 Consolidated Statement of Comprehensive Income ……………………………………………………………………………………….. 11 (3) Consolidated Statement of Changes to Shareholders’ Equity ………………………………………………………………………………… 12 (4) Consolidated Statement of Cash Flows ………………………………………………………………………………………………………………. 15 (5) Notes to the Consolidated Financial Statements ………………………………………………………………………………………………….. 17 (Notes Concerning the Going-Concern Assumption) ……………………………………………………………………………………… 17 (Changes to Accounting Policies) ………………………………………………………………………………………………………………….. 17 (Segment information etc.) …………………………………………………………………………………………………………………………… 18 (Per-share Information) ………………………………………………………………………………………………………………………………… 20 (Important developments arising after the end of the fiscal year) ……………………………………………………………………. 20 – 1 – 1. Overview of Business Results etc. (1) Overview of Company Business Results Sales Operating income Ordinary income Net income attributable to owners of the parent FY2020 (JPY in thousand) FY2021 (JPY in thousand) Change (%) 22,669,577 29,178,789 1,908,694 1,975,394 974,492 2,701,031 2,778,908 1,780,699 28.7 41.5 40.7 82.7 Against a backdrop of exponentially increasing use of Internet of Things (IoT) technologies and accelerating digital transformation (DX), the digital markets in which the Group does business are undergoing diversification of content and services at an extremely rapid pace. At the same time, as individual companies are facing chronic shortages in the IT human resources needed to support their development and operation activities, the Group expects continued growth in revenue opportunities from providing services to support clients in areas such as software development, testing, maintenance and operation, and security. Under these conditions, in the Enterprise Business, which it considered an important business field, the Group will aim toward continued rapid growth through strengthening the human resources, technologies, and customer base that it has built. During this consolidated fiscal year, thanks to the favorable market conditions, we endeavored to realize potential outsourcing needs for system testing and security services through proactive use of solutions-based sales activities to improve software quality. Thanks to these efforts, we realized new customer development and growth in the scale of transactions with existing customers, and both net sales and operating income grew massively. We also endeavored to enhance competitiveness through expanding the poll of engineering human resources and improving specialization in ERP domains through proactive M&A activities. Furthermore, in order to further accelerate growth in the Enterprise Business, we also resolved on April 1, 2022 to spin out the Enterprise Business Division, which is as one department of a major subsidiary, to form AGEST Inc. (“AGEST”) and to implement Group organizational restructuring through consolidating some domestic companies in the Enterprise Business into AGEST on the same day. To this end, beginning in the second half of this consolidated fiscal year we began preparations for the development of an attractive environment for engineers, through means including formulating strategies for establishing new branding practices that differ from those of “Game / Entertainment,” as well as pursuing cutting-edge technologies related to quality, in preparation for this organizational restructuring. At the same time, in our core Entertainment Business the Group secured transactions for several large-scale titles for console games in the domestic debugging service, and improvements in efficiency at test centers, etc. resulted in large-scale growth in both net sales and profit. In global services, which are considered pillars of growth in the Entertainment Business, we also sought to enhance Group-wide coordination to swiftly realize synergies with DIGITAL HEARTS CROSS Marketing and Solutions Limited (formerly Metaps Entertainment Limited, “DIGITAL HEARTS CROSS”), which became a subsidiary through acquisition in March 2021. As a result, both Enterprise Business and Entertainment Business reached high growth and recorded record-high levels of net sales and operating income, to net sales JPY29,178,789 thousand (up 28.7% from the previous period), operating income JPY2,701,031 thousand (up 41.5% from the previous period), ordinary income JPY2,778,908 thousand (up 40.7% from the previous period), and net income attributable to owners of the parent JPY1,780,699 thousand (up 82.7% from the previous period). – 2 – 28.7 63.7 13.0 41.5 244.8 19.2 – 38.3 90.1 63.7 Operating income Enterprise Business Entertainment Business Adjustment amount (Enterprise Business) Business results by segment are reviewed below. FY2020 (JPY in thousand) FY2021 (JPY in thousand) Change (%) Sales 22,669,577 29,178,789 Enterprise Business 7,021,610 11,491,525 Entertainment Business 15,647,967 17,687,264 1,908,694 2,701,031 188,452 649,872 3,077,109 3,668,034 -1,356,867 -1,616,875 Net sales of each segment includes internal sales or transfers between segments, and segment information. Net income is based on operating income. This segment provides System Testing Services for detecting defects in enterprise computer systems, system development support services, maintenance and operation services, and security services such as security inspection and monitoring services. Sales by service in the Enterprise Business are reviewed below. The service categories used in reporting were modified during the first quarter, and comparison and analysis for this consolidated fiscal year is based on the categories after this revision. FY2020 (JPY in thousand) FY2021 (JPY in thousand) Change (%) System Testing IT Service and Security 3,581,870 3,439,739 4,954,022 6,537,502 Enterprise Business Total 7,021,610 11,491,525 (i) System Testing System Testing services mainly provide services in detecting defects in enterprise systems. In this consolidated fiscal year, in addition to the conventional strengths of manual testing and vulnerability diagnostics, we also proactively propose total solutions for quality improvement, combining high-value-added services such as test automation. As a result, we were able to develop new customers and increase the scale of transactions with existing customers. In addition, besides continuous investment in increasing the number of engineers, the Group endeavored to enhance its structures for receiving orders through means including coordination within the Group, including the use of engineers and freelance engineers at its Vietnam facility, as well as striving to enhance service recognition and brand-ing, centered on specialist human resources newly hired in sales, marketing, and other areas. Furthermore, U.S. subsidiary LOGIGEAR CORPORATION endeavored to expand the test business in the CRM and ERP domains, through means including expanding transactions with companies that have introduced Oracle products, through means including the acquisition of U.K. subsidiary DEVELOPING WORLD SYSTEMS LIMITED in January 2022. As a result, net sales of System Testing services in this consolidated fiscal year grew considerably to JPY4,954,022 thousand (up 38.3% from the previous period). – 3 – (ii) IT Service and Security In the IT Service and Security, we provide services such as system development support services and maintenance and operation support services as well as security inspection and monitoring services. In this consolidated fiscal year, we achieved improvements in earnings across all services, including contracted development services, maintenance and operation, and security services. In particular, in contracted development services, thanks to factors including the contributions of identity Inc., which was made a subsidiary in June 2021, we recorded large-scale growth of more than 2.5 times from the previous period. Furthermore, in March 2022 we made CEGB Co., Ltd., a subsidiary that provides SAP introduction and operation consulting services, a subsidiary, with the aim of developing structures for providing wide-ranging services to SAP-related markets, for which demand is rapidly growing, and we also made progress on efforts toward business growth in the next period and beyond. As a result, in this consolidated fiscal year net sales grew massively from the previous year to JPY6,537,502 thousand (up 90.1% from the previous period), thanks in part to the effects of M&A activities. As a result of the above factors, in this consolidated fiscal year net sales continued their growth from the previous period, to JPY11,491,525 thousand (up 63.7% from the previous period), while segment income grew massively, to JPY649,872 thousand (up 244.8% from the previous period). (Entertainment Business) This segment mainly consists of domestic debugging services for console games, mobile games, pachinko pachislo software, and similar software, global services such as game localization and LQA* services, 2D/3D graphics production, marketing support, and other services. * Linguistic quality assurance, through checking the quality of translated text and structures. Net sales of individual services in the Entertainment Business are reviewed below. FY2020 (JPY in thousand) FY2021 (JPY in thousand) Change (%) Domestic Debugging Global and others 11,536,375 12,123,492 4,111,592 5,563,771 Entertainment business total 15,647,967 17,687,264 5.1 35.3 13.0 (i) Domestic Debugging Domestic Debugging services mainly involve detection of software defects in domestic console games, mobile games, pachinko pachislo software, and similar software and reporting them to clients. During this consolidated fiscal year, development of new titles by client companies was active, centered on the console-game market. Under these market conditions, the Group secured transactions for numerous major new titles through providing high-quality services responsive to flexible development schedules. We also endeavored to improve profitability through means including improving the operation of test centers, and promoting unique efficiency improvements in debugging processes. As a result, net sales of Domestic Debugging services in this consolidated fiscal year totaled JPY12,123,492 thousand (up 5.1% from the previous period). – 4 – (ii) Global and others Global and other services mainly include global services, such as the localization, LQA, and marketing support that is essential to introducing game titles in overseas markets as well as Creative Services including system development support services for game and 2D/3D graphics production, along with Media Services that include operation of the 4Gamer.net game information site. During this consolidated fiscal year, we realized double-digit growth in sales in all sectors of Global, Creative, and Media services. In global services in particular, thanks to the active global deployment of content, progress on securing localization transactions centered on translation and LQA services from overseas game makers, including those in China, resulted in favorable sales. We also endeavored to secure new transactions through enhancing collaboration with DIGITAL HEARTS CROSS, which became a subsidiary in March 2021, and building a structure for providing one-stop services from translation and LQA to marketing support. As a result, net sales of global and other services in this consolidated fiscal year totaled JPY5,563,771 thousand (up 35.3% from the previous period), thanks in part to the effects of M&A activities. This resulted in considerable growth in both net sales and segment income in the Entertainment Business, as its net sales totaled JPY17,687,264 thousand (up 13.0% from the previous period) and its segment income was JPY3,668,034 thousand (up 19.2% from the previous period). – 5 – (2) Overview of financial standing in this period (Assets) The balance of current assets was JPY10,392,881 thousand, up JPY647,883 thousand from the level of JPY9,744,997 thousand at the end of the previous consolidated fiscal year (up 6.6% from the previous period). This was due mainly to factors such as increases of JPY132,349 thousand in cash and deposits, JPY313,736 thousand in notes and accounts receivable-trade and contract assets, JPY117,032 thousand in accounts receivable-other, and JPY44,633 thousand in income taxes receivable. The balance of non-current assets was JPY7,172,479 thousand, up JPY2,578,685 thousand from the level of JPY4,593,794 thousand at the end of the previous consolidated fiscal year (up 56.1% from the previous period). This was due mainly to factors such as an increase of JPY2,295,533 thousand in goodwill. (Liabilities) The balance of current liabilities was JPY9,679,346 thousand, up JPY1,774,843 thousand from the level of JPY7,904,503 thousand at the end of the previous consolidated fiscal year (up 22.5% from the previous period). This was due mainly to factors such as increases of JPY692,360 thousand in short-term loans payable, JPY312,846 thousand in accounts payable-other, and JPY233,585 thousand in accrued expenses. The balance of noncurrent liabilities was JPY309,674 thousand, up JPY190,138 thousand from the balance of JPY119,536 thousand in noncurrent liabilities at the end of the previous consolidated fiscal year (up 159.1% from the previous period). This was due mainly to factors such as an increase of JPY105,780 thousand in long-term loans payable. (Net assets) The balance of net assets was JPY7,576,339 thousand, up JPY1,261,586 thousand from the level of JPY6,314,752 thousand in net assets at the end of the previous consolidated fiscal year (up 20.0% from the previous period). This was due mainly to factors such as recording net income attributable to owners of the parent, despite factors such as decreases in capital surplus and dividends resulting from the acquisition of additional shares in consolidated subsidiary LOGIGEAR CORPORATION. (3) Overview of cash flow during the period Cash and deposits (“funds” hereinafter) stood at JPY5,173,746 thousand at the end of this consolidated fiscal year, up JPY132,349 thousand from the figure of JPY5,041,396 thousand at the end of the previous consolidated fiscal year. Cash flow as of this consolidated fiscal year, and major contributing factors, are summarized below. (Cash flow from operating activities) Funds from operating activities totaled revenues of JPY3,077,118 thousand (vs. revenues of JPY1,416,917 thousand in the previous consolidated fiscal year). This was due mainly to the positive contributor of JPY2,749,310 thousand in net income before income taxes and minority interests exceeding negative contributors such as an increase of JPY295,968 thousand in accounts payable-other and an increase of JPY104,956 thousand in accrued expenses. (Cash flow from investing activities) Funds expended in investing activities totaled JPY2,537,418 thousand (vs. expenditures of JPY1,813,519 thousand in the previous consolidated fiscal year). This was due mainly to decreases in funds from causes such as expenditures of JPY1,813,502 thousand on purchase of investments in subsidiaries resulting in changes in the scope of consolidation. (Cash flow from financing activities) Funds expended in financing activities totaled JPY546,569 thousand (vs. revenues of JPY1,730,291 thousand in the previous consolidated fiscal year). This was due mainly to decreases in funds from causes such as expenditures of JPY664,456 thousand on purchase of investments in subsidiaries not involving changes in the scope of consolidation. – 6 – (4) Future outlook We aim to achieve net sales of JPY50 billion in the fiscal year ending March 2024, through rapid growth in the Enterprise Business, which is considered a growth driver, underpinned by the Entertainment Business, our primary business. In the Enterprise Business, centered on AGEST Inc., which was newly formed, we will aim to evolve into a company capable of providing optimum QA solutions to diversifying customer needs at a high level through enhancing human resources, technologies, and processes. Specifically, we will strive to improve our engineering skills and processes to global standards through means including providing engineering training programs in accordance with the ISTQB Syllabus, which is an international qualification for software testing, and building test processes in accordance with the ISO/IEC/IEEE 29119 international standard for software testing, based on strong relationships with authorities in software testing in Japan and overseas. In addition, the Group will aim to develop solutions suited to the rapidly changing IT industry, through means including research on new test methods using cutting-edge technologies in collaboration with industry and academia, at the newly established AGEST Testing Lab. Furthermore, in addition to continuing growth investment in areas such as enhancing recruitment of engineers, enhancing resources through coordination among Group companies, and building foundations for business and branding, we will accelerate the pace of enhancement of human resources, technologies, and processes, through means including proactive use of new M&A activities. At the same time, in the Entertainment Business the Group will aim to be a global quality partner that provides [Genuine Quality] in a situation where major changes are taking place in the game industry, such as new entry into the game industry from other industries, including large IT companies, the expansion of cloud gaming, and the fusion of games and businesses such as NFT and Metabars. In our core domestic debugging services, we will continue to strive to maximize cash-generating capacity through improving profitability through maintaining and expanding overwhelming market share and reviewing operations. In global and other services, as well as through enhancing one-stop services from translation and LQA to marketing, including expanding services through enhancing coordination among Group companies in Japan and overseas, amid the active overseas deployment of game titles, the Group will reliably meet and secure growing demand. Based on the above efforts, we project the following figures for full-year business results in the next period. ■Consolidated business performance forecasts This period FY2021 (JPY in million) Next period FY2022 (forecasts) (JPY in million) Change (%) Sales Operating income Ordinary income Net income attributable to owners of the parent 29,178 2,701 2,778 1,780 35,500 3,290 3,290 2,250 21.7 21.8 18.4 26.4 2. Basic concept on choice of accounting standards While the Company prepares consolidated financial statements based on Japanese GAAP, based on the criterion of accurately disclosing the Group’s business results and financial standing to shareholders and investors, in choice of accounting standards in the future it has adopted a policy of considering use of accounting standards to contribute to appropriate disclosure of information by the Group, in light of the need for international comparability among accounting figures in response to factors such as trends in the composition of Company shareholders and trends among other companies in Japan. – 7 – 3. Consolidated Financial Statements and Important Notes (1) Consolidated Balance Sheet (Unit: JPY thousand) Previous consolidated fiscal year (March 31, 2021) This consolidated fiscal year (March 31, 2022) Assets Current assets Cash and deposits Notes and accounts receivable-trade Notes and accounts receivable-trade and contract assets Short-term investment securities Inventories Income taxes receivable Other Allowance for doubtful accounts Total current assets Noncurrent assets Property, plant and equipment Buildings Accumulated depreciation Buildings, net Vehicles Accumulated depreciation Vehicles, net Tools, furniture and fixtures Accumulated depreciation Tools, furniture and fixtures, net Land Lease assets Accumulated depreciation Lease assets, net Total property, plant and equipment Intangible fixed assets Goodwill Other Total intangible fixed assets Investments and other assets Investment securities Long-term loans receivable Deferred tax assets Lease and guarantee deposits Other Allowance for doubtful accounts Total investments and other assets Total noncurrent assets Total assets 5,076,396 4,097,817 – 155,250 44,143 2,478 430,074 -61,162 9,744,997 605,431 -238,942 366,488 6,005 -4,718 1,287 728,571 -520,078 208,492 17,568 45,359 -40,590 4,769 598,606 2,467,888 202,830 2,670,718 191,529 30,000 326,200 694,359 92,027 -9,648 1,324,469 4,593,794 14,338,792 5,208,746 – 4,411,554 34,506 17,367 47,112 741,693 -68,099 10,392,881 722,403 -281,667 440,736 5,227 -870 4,357 869,126 -639,321 229,805 17,568 31,976 -31,090 886 693,353 4,763,421 331,292 5,094,713 236,595 40,000 305,068 736,487 74,441 -8,181 1,384,412 7,172,479 17,565,361 – 8 – (Unit: JPY thousand) Previous consolidated fiscal year (March 31, 2021) This consolidated fiscal year (March 31, 2022) Liabilities current liabilities Short-term loans payable Lease obligations Accounts payable-other Accrued expenses Income taxes payable Accrued consumption taxes Provision for bonuses Provision for directors’ bonuses Other Total current liabilities Noncurrent liabilities Long-term loans payable Deferred tax liabilities Net defined benefit liability Asset retirement obligations Other Total noncurrent liabilities Total liabilities Net assets Shareholders’ equity Capital stock Capital surplus Retained earnings Treasury stock Total shareholders’ equity Accumulated other comprehensive income Valuation difference on available-for-sale securities Foreign currency translation adjustment Total accumulated other comprehensive income stock acquisition rights Non-controlling interests Total net assets Total liabilities and net assets 4,728,935 4,930 1,048,155 950,828 453,655 396,647 53,893 – 267,457 7,904,503 63,893 – 41,923 13,719 – 119,536 8,024,039 300,686 331,509 7,575,673 -2,565,164 5,642,705 581 47,983 48,564 13,363 610,119 6,314,752 14,338,792 5,421,296 – 1,361,001 1,184,413 511,871 405,580 100,190 39,184 655,808 9,679,346 169,674 456 45,891 90,256 3,396 309,674 9,989,021 300,686 – 9,021,248 -2,545,696 6,776,238 8,921 219,101 228,022 – 572,078 7,576,339 17,565,361 – 9 – (2) Consolidated Income Statement and Consolidated Statement of Comprehensive Income (Consolidated Income Statement) (Unit: JPY thousand) Previous consolidated fiscal year (From April 1, 2020) From March 31, 2021) This consolidated fiscal year (From April 1, 2021) From March 31, 2022) Sales Cost of sales Gross profit Selling, general, and administrative expenses Operating income Non-operating income Interest income Foreign exchange gains Gain on investments in partnership Subsidy income Other Total non-operating income Non-operating expenses Interest expenses Equity in losses of affiliates Foreign exchange losses Commission fee Other Total non-operating expenses Ordinary income Extraordinary income Gain on sales of noncurrent assets Gain on sales of shares of subsidiaries and associates Gain on forgiveness of debts Gain on reversal of subscription rights to shares Subsidy income Other Total extraordinary income Extraordinary loss Loss on retirement of noncurrent assets Loss on sales of investment securities Impairment loss Head office transfer cost Office transfer expenses Loss on business withdrawal Organizational restructuring expenses Expenses related to infectious diseases Total extraordinary loss Net income before taxes Income taxes-current Income taxes-deferred Total income taxes Current net income Net income (loss) attributable to minority interests Net income attributable to owners of the parent 22,669,577 16,235,984 6,433,592 4,524,898 1,908,694 2,598 – – 62,296 15,769 80,664 6,212 1,425 2,741 252 3,332 13,964 1,975,394 – – – – 55,196 500 55,696 18,298 2,689 395,511 – 44,187 10,509 – 55,509 526,705 1,504,385 600,575 -70,544 530,030 974,355 -136 974,492 29,178,789 20,787,432 8,391,357 5,690,326 2,701,031 2,520 12,239 13,212 70,107 14,535 112,615 11,927 5,395 – 10,288 7,127 34,739 2,778,908 1,233 707 67,782 13,363 – – 83,086 32,270 – 12,156 2,454 12,059 – 53,742 – 112,684 2,749,310 729,951 12,435 742,386 2,006,923 226,224 1,780,699 – 10 – (Consolidated Statement of Comprehensive Income) (Unit: JPY thousand) Previous consolidated fiscal year (From April 1, 2020) From March 31, 2021) This consolidated fiscal year (From April 1, 2021) From March 31, 2022) Current net income Other comprehensive income Valuation difference on available-for-sale securities Foreign currency translation adjustment Total other comprehensive income Comprehensive income (Breakdown) Comprehensive income attributable to owners of parent Comprehensive income attributable to non-controlling interests 974,355 413 9,300 9,713 984,068 976,794 7,274 2,006,923 8,339 245,655 253,995 2,260,919 1,987,844 273,074 – 11 – (3) Consolidated Statement of Changes to Shareholders’ Equity Previous consolidated fiscal year (from April 1, 2020 to March 31, 2021) (Unit: JPY thousand) Shareholders’ equity Capital stock Capital surplus Retained earnings Treasury stock Total shareholders’ equity Starting balance 300,686 355,735 6,904,318 -2,662,635 4,898,105 Changes of items during the period Dividends of surplus Net income attributable to owners of the parent Purchase of treasury stock Sale of treasury stock Sales of shares of consolidated subsidiaries Items other than shareholders’ equity Changes of items during the period (Net) Total changes of items during the period Changes of items during the period Dividends of surplus Net income attributable to owners of the parent Purchase of treasury stock Sale of treasury stock Sales of shares of consolidated subsidiaries Items other than shareholders’ equity Changes of items during the period (Net) Total changes of items during the period Current year-end balance Current year-end balance 300,686 7,575,673 -2,565,164 5,642,705 671,355 97,470 744,599 Accumulated other comprehensive income Available-for-sale securities Valuation difference Foreign currency translation adjustment Other comprehensive income Total cumulative amount stock acquisition rights Non-controlling interests Total net assets Starting balance 168 24,033 24,202 13,363 502,797 5,438,469 -302,026 974,492 -154 73,399 -1,110 -302,026 974,492 -154 73,399 -1,110 -302,026 974,492 -1,110 -154 97,625 – – – -24,225 -24,225 331,509 – 12 – 413 23,949 24,362 107,321 131,684 413 581 23,949 47,983 24,362 107,321 876,283 48,564 13,363 610,119 6,314,752 This consolidated fiscal year (from April 1, 2021 to March 31, 2022) (Unit: JPY thousand) Capital stock Capital surplus Retained earnings Treasury stock Total shareholders’ equity Shareholders’ equity Starting balance 300,686 331,509 7,575,673 -2,565,164 5,642,705 -313,525 1,780,699 2,368 23,968 -23,968 6,680 -362,158 -246 19,715 -313,525 1,780,699 -246 26,396 – -362,158 2,368 Changes of items during the period Dividends of surplus Net income attributable to owners of the parent Purchase of treasury stock Sale of treasury stock Transfer to capital surplus from retained earnings Changes to interests in parent arising from transactions with non-controlling interests Other Items other than shareholders’ equity Changes of items during the period (Net) Total changes of items during the period Current year-end balance 300,686 – 9,021,248 -2,545,696 6,776,238 – -331,509 1,445,574 19,468 1,133,533 – 13 – Changes of items during the period Dividends of surplus Net income attributable to owners of the parent Purchase of treasury stock Sale of treasury stock Transfer to capital surplus from retained earnings Changes to interests in parent arising from transactions with non-controlling interests Other Items other than shareholders’ equity Changes of items during the period (Net) Total changes of items during the period Current year-end balance Accumulated other comprehensive income Available-for-sale securities Valuation difference Foreign currency translation adjustment Other comprehensive income Total cumulative amount stock acquisition rights Non-controlling interests Total net assets Starting balance 581 47,983 48,564 13,363 610,119 6,314,752 -313,525 1,780,699 -246 26,396 – -362,158 2,368 8,339 171,118 179,457 -13,363 -38,040 128,053 8,339 8,921 171,118 219,101 179,457 -13,363 -38,040 1,261,586 228,022 – 572,078 7,576,339 – 14 – (Unit: JPY thousand) Previous consolidated fiscal year (From April 1, 2020) From March 31, 2021) This consolidated fiscal year (From April 1, 2021) From March 31, 2022) (4) Consolidated Statement of Cash Flows Net cash provided by (used in) operating activities Net income before taxes Depreciation and amortization Impairment loss Amortization of goodwill Increase (decrease) in allowance for doubtful accounts Increase (decrease) in provision for bonuses Increase (decrease) in provision for directors’ bonuses Interest and dividends income Interest expenses Foreign exchange losses (gains) Equity in losses (earnings) from investment in affiliates Loss (gain) on investments in partnership Loss (gain) on sales of investment securities Gain on forgiveness of debts Share-based compensation expenses Loss on business withdrawal Head office transfer expenses Office transfer expenses Decrease (increase) in notes and accounts receivable-trade Decrease (increase) in inventories Subsidy income Expenses related to infectious diseases Organizational restructuring expenses Gain on sales of noncurrent assets Loss on retirement of noncurrent assets Loss (gain) on sales of shares of subsidiaries and associates Gain on reversal of subscription rights to shares Increase (decrease) in accounts payable-other Increase (decrease) in accrued expenses Increase (decrease) in accrued consumption taxes Decrease (increase) in other current assets Increase (decrease) in other current liabilities Other Subtotal Interest and dividends income received Interest expenses paid Income taxes paid Income taxes refund Payment of head office transfer expenses Payment of office transfer expenses Subsidies received Payment of expenses related to infectious diseases Net cash provided by (used in) operating activities – 15 – 1,504,385 198,365 395,511 215,794 15,292 5,777 – -2,612 6,212 2,741 1,425 – 2,694 – 90,014 10,509 – 44,187 -701,207 -1,137 -55,196 55,509 – – 18,298 – – 173,476 28,756 -52,972 -69,989 -9,128 -7,221 1,869,486 26 -5,672 -649,797 214,140 – -10,952 55,196 -55,509 1,416,917 2,749,310 257,104 12,156 470,928 1,861 29,343 39,184 -2,534 11,927 -12,239 5,395 -13,212 – -67,782 38,146 – 2,454 12,059 393,148 27,752 -70,107 – 53,742 -1,233 32,270 -707 -13,363 -295,968 -104,956 -32,756 -52,545 280,451 -8,880 3,740,949 1,917 -8,272 -704,194 2,478 -2,454 – 46,695 – 3,077,118 (Unit: JPY thousand) Previous consolidated fiscal year (From April 1, 2020) From March 31, 2021) This consolidated fiscal year (From April 1, 2021) From March 31, 2022) Net cash provided by (used in) investing activities Purchase of property, plant and equipment Proceeds from sales of property, plant and equipment Purchase of intangible assets Purchase of investment securities Proceeds from sales of investment securities Proceeds from distribution of investment in partnerships Proceeds from transfer of business Payments for transfer of business Payments for lease and guarantee deposits Proceeds from collection of lease and guarantee deposits Decrease (increase) in short-term loans receivable Payments of long-term loans receivable Purchase of investments in subsidiaries resulting in change in scope of consolidation Payment on conditional acquisition of shares of subsidiaries Expenditures on performance of asset retirement obligations Other Net cash provided by (used in) investing activities Net cash provided by (used in) financing activities Increase (decrease) in short-term loans payable Proceeds from long-term loans payable Repayment of long-term loans payable Purchase of treasury stock Cash dividends paid Payment of dividends to non-controlling interests Expenditure on purchase of investments in subsidiaries not resulting in change in scope of consolidation Repayments of lease obligations Net cash provided by (used in) financing activities Effect of exchange rate change on cash and cash equivalents Increase (decrease) in cash and cash equivalents Starting balance of cash and cash equivalents Decrease in cash and cash equivalents resulting from exclusion of subsidiaries from consolidation Balance of cash and cash equivalents at end of period -99,495 – -220,988 – 2,749 – 500 -65,868 -44,920 30,890 -2,042 -30,000 -1,309,417 -18,666 -55,015 -1,245 -1,813,519 2,026,750 66,510 -49,001 -154 -302,026 -10,017 – -1,768 1,730,291 7,378 1,341,068 3,704,104 -3,776 5,041,396 -186,762 2,270 -192,709 -83,060 54,962 13,212 – -148,883 -129,330 9,849 2,728 -10,000 -1,813,502 -56,193 – – -2,537,418 620,989 – -168,393 -246 -314,428 -20,034 -664,456 – -546,569 139,218 132,349 5,041,396 – 5,173,746 – 16 – (5) Notes to the Consolidated Financial Statements (Notes Concerning the Going-Concern Assumption) Not applicable (Changes to Accounting Policies) (Application of the Accounting Standard for Revenue Recognition, etc.) The Accounting Standard for Revenue Recognition (ASBJ Statement No. 29 , March 31, 2020; “Revenue Recognition Accounting Standard” hereinafter) and other standards have been be applied since the beginning of this consolidated fiscal year. As a result, revenue is recognized in the amount expected to be received in exchange for the good or service at the point in time when control of a promised good or service is transferred to the customer. As a result, although previously revenues were recognized at the point in time at which contracted work was completed for contracts received for which the obligation of performance covers a certain period, following the application of this standard revenues are recognized in accordance with fulfillment of performance obligations, except in the cases of contracts received for which the subject periods are very short. In applying the Accounting Standard for Revenue Recognition and related standards, the Company is employing the provisional handling described in the proviso to Paragraph 84 of the Accounting Standard for Revenue Recognition, by adjusting the amount of the cumulative effects of retroactively applying the new accounting standard prior to the start of this consolidated fiscal year by retained earnings at the start of this consolidated fiscal year and applying the new accounting standard beginning with the resulting balance at the start of the period. However, the new accounting standard is not applied retroactively to contracts for which nearly the entire amount of revenues has been recognized in accordance with the previous handling prior to the start of this consolidated fiscal year, through application of the method described in Paragraph 86 of the Accounting Standard for Revenue Recognition. In addition, for contractual amendments conducted prior to the start of this consolidated fiscal year to which the method described in Proviso (1) of Paragraph 86 of the Accounting Standard for Revenue Recognition applies, account processing is conducted based on contractual conditions after reflection of all contractual amendments, and the cumulative amount of these effects is adjusted by retained earnings at the start of this consolidated fiscal year. The resulting impacts on profit, loss, retained earnings, and starting balances in this consolidated fiscal year were minor. Due to the application of the Accounting Standard for Revenue Recognition and related standards, [Notes and accounts receivable-trade], which had been indicated under [Current assets] on the Consolidated Balance Sheet for the previous consolidated fiscal year, has been indicated as [Notes and accounts receivable-trade and contract assets] starting with this consolidated fiscal year. Pursuant to the provisional handling described in Paragraph 89-2 of the Accounting Standard for Revenue Recognition, figures for the previous consolidated fiscal year have not been converted to the new method of indication. (Application of the Accounting Standard for Fair Value Measurement etc.) The Accounting Standard for Fair Value Measurement (ASBJ Statement No. 30, July 4, 2019). The Accounting Standard for Fair Value Measurement and related standards have been applied since the start of this consolidated fiscal year. Pursuant to the provisional handling described in Paragraph 19 of the Accounting Standard for Fair Value Measurement and Paragraph 44-2 of the Accounting Standard for Financial Instruments (ASBJ Statement No. 10, July 4, 2019), the new accounting policies provided for in the Accounting Standard for Fair Value Measurement and related standards have been applied to future accounts. This change has had no effect on the consolidated financial statements. – 17 – (Segment Information etc.) [Segment information] 1. Summary of reporting segments The Group’s reporting segments are constituent units of the Group for which separate financial information can be obtained. They are subject to review at regular intervals by the Board of Directors to make decisions on allocation of corporate resources and to assess business performance. The Group aggregates business segments with consideration for their details and economic properties, and employs the two reporting segments of the Enterprise Business and the Entertainment Business. The Enterprise Business segment mainly provides IT support, security, and other services for enterprise systems, including System Testing, contracted development services for IT software, and helpdesk services. The Entertainment Business segment provides services such as debugging, contracted development services for game, and promotional support, mainly for console games, mobile games, and pachinko pachislo software. 2. Methods of calculating amounts of net sales, profit or loss, assets, liabilities, and other items by reporting segment The account processing methods of reporting segments largely are the same as those described under “Important Matters Serving as Bases for Preparation of the Consolidated Financial Statements.” Figures for segment profit or loss are based on operating income or operating losses. Internal sales or transfers between segments are based on actual market prices and other considerations. 3. Information on net sales, profit or loss, assets, liabilities, and other items by reporting segment Previous consolidated fiscal year (from April 1, 2020 to March 31, 2021) (Unit: JPY thousand) Reporting segment Enterprise Business Entertainment Business Total Total Adjustment amount (Note 1) Amounts on consolidated financial statements (Note 2) Sales Net sales to external customers Internal sales or transfers between segments – – – – 7,021,610 15,647,967 22,669,577 22,669,577 22,669,577 – – – – Total 7,021,610 15,647,967 22,669,577 22,669,577 22,669,577 Segment profit 188,452 3,077,109 3,265,562 3,265,562 -1,356,867 1,908,694 (Note 1) The adjustment amount to segment profit of JPY-1,356,867 thousand consists mainly of Companywide costs such as general administrative expenses not attributable to specific reporting segments. (Note 2) Segment profits were adjusted against operating income on the Consolidated Income Statement. – 18 – This consolidated fiscal year (from April 1, 2021 to March 31, 2022) (Unit: JPY thousand) Reporting segment Enterprise Business Entertainment Business Total Total Adjustment amount (Note 1) Amounts on consolidated financial statements (Note 2) Sales Net sales to external customers Internal sales or transfers between segments – – – – 11,491,525 17,687,264 29,178,789 29,178,789 29,178,789 – – – – Total 11,491,525 17,687,264 29,178,789 29,178,789 29,178,789 Segment profit 649,872 3,668,034 4,317,906 4,317,906 -1,616,875 2,701,031 (Note 1) The adjustment amount to segment profit of JPY-1,616,875 thousand consists mainly of Companywide costs such as general administrative expenses not attributable to specific reporting segments. (Note 2) Segment profits were adjusted against operating income on the Consolidated Income Statement. – 19 – (Per-share Information) Net assets per share Net income per share (Note 1) Diluted net income per share is not indicated because there are no potential shares with dilutive effects. (Note 2) The bases of calculation of net income per share are shown below. Previous consolidated fiscal year (From April 1, 2020) From March 31, 2021) This consolidated fiscal year (From April 1, 2021) From March 31, 2022) 263.32 yen 45.15 yen 323.81 yen 82.35 yen Previous consolidated fiscal year (From April 1, 2020) From March 31, 2021) This consolidated fiscal year (From April 1, 2021) From March 31, 2022) net income per share in thousand) thousand) Net income attributable to owners of the parent (JPY Amount not attributable to common stock (JPY in Net income attributable to owners of the parent on common stock (JPY in thousand) Average shares of common stock during the period (shares) 974,492 1,780,699 974,492 21,583,000 1,780,699 21,624,407 – – Overview of potential shares not included in calculation resolution of diluted net income per share because they have no Number of stock acquisition rights dilutive effects – Stock acquisition rights IV based on May 16, 2018 board of directors resolution Number of stock acquisition rights 20,000 stock acquisition rights (on 2,000,000 shares of common stock) Stock acquisition rights V based on May 16, 2018 board of directors 14,000 stock acquisition rights (on 1,400,000 shares of common stock) Stock acquisition rights VI based on May 16, 2018 board of directors resolution Number of stock acquisition rights 6,800 stock acquisition rights (on 680,000 shares of common stock) (Important developments arising after the end of the fiscal year) Not applicable – 20 –