mixi GROUP Annual Report 2019 Fiscal Year Ended March 31, 2019 mixi’s Corporate Philosophy

CONTENTS We aim to always respond sincerely to the feelings and mixi’s Corporate Philosophy ...... 1 To Our Stakeholders ...... 2 requests of the users of our services and to provide value Overview by Business Area ...... 6 Digital Entertainment ...... 6 that exceeds users’ imagination and expectations through Live Experiences ...... 7 Sports ...... 8 communication services. Media ...... 9 Wellness ...... 9 To make the world more vibrant through communication: ...... mixi Group’s Financial Strategy 10 This is mixi Group’s mission. Financial Highlights ...... 13 ESG / Corporate Governance ...... 14 Directors ...... 14 Audit and Supervisory Board Members ...... 16 Corporate Officer System ...... 17 Corporate Governance Structure ...... 18 Our Statement User surprise rst Risk Factors ...... 20 philosophy ESG / Relationship with the Environment and Society ...... 22 Business Models and Performance of Our Core Services ...... 24 History ...... 26 Summary of IR Activities ...... 26 Financial Information ...... 27 What we ...... Mission For communication Investor Information 69 should do

Disclaimer Regarding Future-Oriented Statements This report contains future-oriented statements concerning plans, predictions, projections, strategies, and operating results. These future-oriented statements reflect management assumptions based on information available to management as of the date of this report’s publication and are thus subject to risks and uncertainties that may cause actual results to differ significantly from such statements. These risks and Integrity uncertainties include, but are not limited to, the economic environment in which mixi Our action Be creative Group’s businesses operate, changes in the development status of products and Values services, and fluctuations in currency exchange rates. guidelines First mover

Note: The content of this report is based on mixi Group’s consolidated results for fiscal year Inclusiveness 2019, ended March 31, 2019. However, some information is from April 2019 or later.

1 To Our Stakeholders Management Strategy

In the fiscal year ending March 2020, we plan to invest so that managerial decisions are more mindful of compliance. management resources in the areas of Digital Entertainment To further boost transparency related to the nomination and and Sports in particular. Furthermore, we plan to continue compensation of directors, we established the Nomination actively pursuing M&A while strengthening our internal and Compensation Committee, composed of the Company’s structure and making use of outside partners. president and all outside directors.

Enhancing corporate governance We are enhancing our corporate governance structure with Priority topics in the fiscal year the aim of maintaining business operations long into the future. ending March 2020 After our subsidiary Hunza, Inc. was made the target of investigation, we made a big push to strengthen our corporate Revitalization of Monster Strike and governance structure during the fiscal year under review to business growth in the Sports area Koki Kimura ensure compliance. In the fiscal year ending March 2020, we will invest As part of this effort, the Board of Directors appointed management resources into the revitalization of Monster Strike President and Representative Director officers in charge of risk management and Group companies, and business growth in the Sports area. We will revitalize our Corporate Officer increasing the number of outside directors. We also flagship service Monster Strike and focus on diversifying established the Risk Management Committee and established revenue streams through highly sustainable sports businesses a system that takes greater consideration of reputational risks to prevent over-reliance on Monster Strike.

We are pursuing A look back on the fiscal year ended March 2019

growth in Business progress and investment Entertainment Business In the fiscal year ended March 2019, under our new communication management system, we redefined our business domain as Digital communication services and drove business forward in five Entertainment areas where we can utilize our strengths as a company: Digital services that only Entertainment, Live Experiences, Media, Sports, and Wellness. Live Experiences Sports At the beginning of the fiscal year under review, we planned to focus the investment of management resources in Digital we can achieve. Entertainment. However, due to factors such as our withdrawal from a new business and a delay in the release of a new game, etc. we could not invest as planned. Along with a decline in sales Communication ©CHIBA JETS FUNABASHI in our flagship service, Monster Strike, we recorded a services consolidated decrease in sales and profit compared to the previous fiscal year. Media Wellness With each area at a different stage of investment, we worked to examine the business feasibility of both the Sports and Wellness areas as new businesses. In the Wellness area, we released a service and are continuing to monitor the feasibility of business expansion. In the Sports area, having discovered tactics for success while progressing with feasibility tests, we accelerated investment while promoting M&A with companies Lifestyle Business that will form the core of our future business expansion.

2 mixi GROUP Annual Report 2019 To Our Stakeholders 3 To Our Stakeholders Management Strategy

Revitalization of Monster Strike other support to professional sports teams. Having discovered User surprise first Looking at the current trend of our core business Monster tactics for success in professional sports team management mixi Group has achieved strong growth by creating easy-to- Strike, new stages are designed mainly for core users. Monster and government-controlled competitive sports, we share services that inspire users to invite their family, friends, Strike is maintaining a top-class user base in Japan’s mobile established internal business structures while pursuing M&A. and acquaintances. Our social network mixi and smartphone game industry, but due to the focus on core users, casual users’ By leveraging our unique assets, we intend to create synergies app Monster Strike have achieved exponential growth through desire to spend remains low and the game itself requires large with the companies in which we invest that are growing word of mouth and viral communication. changes. Along with replacing the person in charge and substantially on their own in a growth market. Our goal is to Currently, mixi Group is taking on a variety of challenges in reorganizing the business structure, we plan to create content foster dramatic growth in these businesses. new business areas, starting with Sports, to create key that people other than core users can also enjoy. This will lead businesses to follow the success of Monster Strike. Moving to a revitalized user base overall and facilitate a greater desire forward, we will continue to provide services that deliver new to spend. Message to stakeholders surprises and joy in line with our corporate philosophy of “user surprise first” and pursue growth that only we can achieve. Business growth in the Sports area Creating communication services I would like to thank all of our stakeholders for their The Japanese government is aiming to approximately triple The key goal for all our businesses is to create rich continued support. the sports market by 2025. mixi Group is also looking to communication experiences that bring those close to you venture into sports-related businesses. even closer. As society grows more accustomed to the Internet In the fiscal year under review, we built relationships with age, rich face-to-face communication between friends and July 2019 various stakeholders and worked to establish a business vision family becomes less common. Considering these social and conduct feasibility tests while providing marketing and changes, we believe that everyone's lives can be enriched by revitalizing truly personal communication. President and Representative Director Corporate Officer Both the driving forces of our growth, the social network mixi and the smartphone app Monster Strike, have grown tremendously as communication services that offer close companions a place to have fun together. With our dedication to creative expression and creation, we have refined our skills in both technology and the arts through the development of various services including social networks and games. Our expertise in combining IT with presentation and gameplay design gives us an edge over other companies. Moving forward, we hope to continue providing new services in fields requiring communication.

Welcome performance at XFLAG PARK 2019

4 mixi GROUP Annual Report 2019 To Our Stakeholders 5 Overview by Business Area Entertainment Business: Entertainment Business: Digital Entertainment Live Experiences

Revitalize Monster Strike by returning to core values Create spaces where people can meet and have fun together such as new stores and events Business Activities Decline in sales of Monster Strike including new and casual users. Opening up the game to new Aiming to improve Monster Strike-related January 2019 to determine the best junior striker team in high In the fiscal year ended March 2019, we moved forward with and casual users will improve MAU, revitalizing the entire user business earnings school and below. Both events were successful. various initiatives in line with our business policies of moving base and increasing ARPU. We launched Live Experiences as a way to increase eSports garnered a large amount of attention by being to national content for Monster Strike and creating new touchpoints with Monster Strike users. featured as a demonstration sport at the Asian Games in intellectual property (IP). Along with Monster Strike’s large Bolstering new game development under the new In the fiscal year ended March 2019, we opened two XFLAG August 2018, as well as through Japan’s 2019 National eSports fifth-anniversary campaign, we released anime and movies, business structure STOREs that sell merchandise of characters from Monster Strike Championship, which was hosted from April to October as a and as of April 2019 Monster Strike exceeded 50 million users A shortage of resources—directors and project managers— and others, and held various events such as XFLAG PARK 2018 cultural program in the 2019 National Sports Festival of Japan. worldwide. was a large factor in the postponement and discontinuation of and eSports tournaments to create spaces where people can Going forward, mixi Group will pursue the planning and It has been six years since the game was released and the games planned for release. To ensure that future releases do meet and have fun together. Going forward, we will set about expansion of various live events such as those described number of monthly active users (MAU) has been on a not face similar obstacles, we began improving our personnel improving profitability. above. downward trend, but the game has maintained a top-class structure. We also changed from a conventional structure in user base in Japan’s mobile game market. However, we failed which a single person manages the development of both Opening casual stores to stimulate users’ desire to spend and average revenue per Monster Strike and new games. We will pursue developing The two newly launched XFLAG STOREs have different user (ARPU) fell, causing net sales to undershoot our target. several titles, including new games that make use of the concepts. XFLAG STORE SHINSAIBASHI was opened in June We developed new games and communication services as Monster Strike I P. 2018 as our flagship store in the Kansai region, following the part of creating new IP, but postponed and discontinued some Shibuya store’s lead. XFLAG STORE + (PLUS) HANEDA was of these projects. opened in Terminal 1 of Haneda Airport in January 2019 as our first casual store where customers can relax and enjoy the Revitalizing Monster Strike with a change unique XFLAG STORE atmosphere. in leadership To encourage users to keep playing Monster Strike, we judged Promoting eSports tournaments that large changes were necessary for the game itself and As a new initiative, we held Japan’s largest eSports event from appointed the marketing officer in charge of the third October to December 2018, MONSTER STRIKE PROFESSIONALS anniversary’s dramatic revitalization as the new head of 2018 TOURNAMENT TOUR, with ¥60 million in prize money to operations for Monster Strike. Under this new structure, we decide who the best professional Monster Strike player was. We intend to incorporate more effective policies. also held the MONSTER STRIKE JUNIOR GRANDPRIX 2019 in It is important to first bring Monster Strike back to its core MONSTER STRIKE GRANDPRIX 2019 ASIA CHAMPIONSHIP values of entertainment that brings people together and to revitalize it as a game that can be enjoyed by all users,

Prize money totaling ¥300 million! Monst Max Luck Roulette

Monster Strike’s fifth-anniversary gratitude campaign Fifth-anniversary Colossal Appreciation Multiplayer Gacha XFLAG STORE + (PLUS) HANEDA MONSTER STRIKE PROFESSIONALS 2018

6 mixi GROUP Annual Report 2019 Overview by Business Area 7 Overview by Business Area Entertainment Business: Lifestyle Business: Sports Media Wellness

Accelerate business growth by leveraging our distinctive expertise in both profes- Enhance monetization and further busi- Communication: The key to a longer sional sports team management and government-controlled competitive sports ness growth by expanding functionality and healthier life expectancy Business Activities Moving from the feasibility phase to the aggressive cultivated through Monster Strike and marketing partnerships Focusing on communication businesses Pursuing real communication investment phase for sponsored sports teams, as well as photography In the fiscal year ended March 2019, we focused on the growth While our business domain is communication services, mixi In the fiscal year ended March 2019, our main objectives were technology using artificial intelligence (AI). of existing businesses and development of new businesses. As Group seeks to provide services in the wellness domain with relationship-building with the sports industry and accelerating a result, the number of users increased steadily for services the belief that communication is necessary for addressing the growth of the clubs under our support. We entered into Participating in management of a popular such as the private family photo and video sharing app social issue of extending healthy life expectancies. As people sponsorship agreements and marketing partnerships with professional basketball team FamilyAlbum and the salon artist booking app minimo. Also, become less connected to society due to retirement and other professional sports teams and examined their feasibility for In April 2019, we entered into a strategic capital and business our business selection and concentration strategy was carried factors, their mental functions may decline even if their bodies expanding our sports businesses. alliance as well as a stock purchase agreement with Chiba Jets out through the transfer of all shares of Diverse, Inc. and are healthy. Active communication supports sound mental As part of this effort, mixi Group held a series of events Funabashi, Inc., the management company of Chiba Jets. nohana, Inc. health and a longer and healthier life expectancy. including matches for FC Tokyo and the professional Chiba Jets compete in B.LEAGUE, Japan’s top basketball basketball team Chiba Jets to attract more spectators, league. They represent B.LEAGUE both in name and reality, Steadily expanding user bases of existing services Entering the physical conditioning market contributing to a higher number of attendees. having won the Emperor’s Cup for two years running and FamilyAlbum has been used by many families since its launch, In January 2019 we opened Cococise, a conditioning studio Through these activities, we built relationships with various leading the league with the highest number of spectators for and it surpassed five million users as of June 2019. Due to its made especially for women. The studio utilizes AI to analyze industries and verified their business feasibility in a variety of three years in a row. While B.LEAGUE’s market size is expanding role as a family-only social networking service and how easy it customers’ physical conditions and offers tailor-made exercises ways. As a result, we judged that government-controlled rapidly at an annual rate of 30%, Chiba Jets have surpassed this is to upload photos and videos, it is gaining popularity not from a menu of more than 100. Using AI technology, we have competitive sports and professional sports team management figure with growth of 56%. Leveraging our O2O* know-how only in Japan but also in North America and other countries achieved equivalent results to approaches personal trainers have substantial business potential. In the fiscal year ending cultivated in the entertainment area, we will invigorate half- with its English version. Instead of booking appointments at a have taken for pro athletes at a reasonable price. As many March 2020, we will aggressively invest management time shows, collaborate with the team to expand revenue in salon, minimo allows customers to choose and book salon staff customers aim to pursue a longer and healthier life resources in this domain to achieve further expansion. the sports business, and look toward building a 10,000-seat directly based on images they post and so on. Highly expectancy and the market is projected to expand greatly in arena. appreciated by both salon staff and customers, the app the future, we believe this business offers much growth Entering the government-controlled competitive surpassed three million downloads as of June 2018. potential. * O2O (Online to Offline): Measures to attract consumers from an online space sporting events business such as a website and app to an offline space including brick-and-mortar stores In February 2019, we acquired all shares of Chariloto Co., Ltd., Bolstering monetization: The future challenge Evaluating a business model after feasibility testing which provides the online betting service platform chariloto. Both FamilyAlbum and minimo have already secured large user For the time being, we will focus on accumulating know-how com for Keirin bicycle races. While the online Keirin market bases, and we will enhance their monetization going forward. while verifying the feasibility of an existing studio. Once a continues to grow at an average rate of 11% per year, As part of this effort, in April 2019 we started offering certain amount of expertise is accumulated, we will establish Chariloto’s sales have grown significantly at 41% per year. FamilyAlbum Premium with even more convenient features for our business policy, including expansion methods. Keirin’s online penetration rate is still low compared to other ¥480 per month. We also plan to review minimo’s fee structure government-controlled competitive sports, and so we believe starting from October 2019. it has much room to expand. We intend to attract a new customer base including young people and change Keirin into a state-of-the-art entertainment experience for everyone. mixi Group will work to achieve this goal by leveraging its distinctive know-how, including expertise in event production

Ao-Aka Park held at FC Tokyo’s home games

Entering a marketing partnership with FC Tokyo ©F.C.TOKYO XFLAG Day, a Chiba Jets match sponsored by XFLAG Cococise, a conditioning studio made especially for women

8 mixi GROUP Annual Report 2019 Overview by Business Area 9 mixi Group’s Financial Strategy

Prioritizing investment in and Entertainment Business user numbers of the FamilyAlbum app for sharing photos and Net sales in the Entertainment Business in fiscal year 2019 videos with family members and the minimo salon artist were ¥138.6 billion (down 21.2% year on year) and segment booking app. We terminated the TicketCamp ticket development of profit- profit (earnings before interest, taxes, depreciation and marketplace service as of May 2018. We also furthered amortization, or EBITDA) was ¥51.5 billion (down 34.3%). concentration on our core competence by transferring the generating new businesses Although Monster Strike’s monthly active users (MAU) shares of Diverse, Inc. in July 2018 and those of nohana, Inc. in continued the previous fiscal year’s downward trend, the March 2019. aiming for a higher ROE game’s MAU is still at a top-class level in Japan. Nonetheless, a In the Wellness area, a new business field for mixi, we drop in average revenue per user (ARPU) in the fourth quarter opened the first Cococise, a conditioning studio made caused net sales to undershoot our target. especially for women, resulting in an investment of ¥400 We had planned to undertake business investments* of million, against an initial investment plan of ¥500 million. mixi Group’s Financial Strategy ¥11.0 billion in the Digital Entertainment area, but the amount invested was about ¥5.0 billion due to postponement of the Summary of FY2019 results by segment YoY Hiroyuki Ohsawa release and discontinuation of the development of Monster (Millions of yen) FY2017 FY2018 FY2019 change Strike spin-off games and new games. In the Live Experiences Director Segment net sales Corporate Officer area, we invested ¥1.2 billion, against an initial investment plan Entertainment Business 192,703 175,948 138,607 -21.2% CFO of ¥1.0 billion, to open permanent stores to sell merchandise: Lifestyle Business 14,457 13,146 5,427 -58.7% the Shinsaibashi store in Osaka in June 2018 and the Haneda Segment profit (loss)* store in Tokyo in January 2019. In the Sports area, we entered Entertainment Business 94,267 78,438 51,561 -34.3% into sponsorship agreements with various professional sports Segment profit ratio 48.9% 44.6% 37.2% — teams, resulting in an investment of ¥1.0 billion, against an Lifestyle Business 1,806 1,638 (1,690) — Breakdown of SG&A expenses for FY2019 initial investment plan of ¥1.2 billion. Segment profit ratio 12.5% 12.5% —% — Overview of FY2019 consolidated YoY financial results (Millions of yen) FY2017 FY2018 FY2019 change Also in the Sports area, in February 2019 we acquired the Adjustment (7,064) (7,717) (8,838) — SG&A expenses 94,004 93,683 82,774 -11.6% shares of Chariloto Co., Ltd., which operates chariloto.com, an *EBITDA is used for segment profit. In fiscal year 2019, ended March, 2019, both net sales and Personnel 5,223 5,363 6,067 +13.1% Internet-based betting ticket sales service for government- profit fell year on year. Net sales were ¥144.0 billion (down Advertising 20,864 23,593 24,419 +3.5% controlled competitive sports. We also entered into a strategic 23.8% year on year), operating income was ¥41.0 billion (down Outsourcing 1,999 4,077 4,946 +21.3% business and capital alliance as well as a stock purchase Overview of financial position and 43.3%), ordinary income was ¥41.1 billion (down 43.5%), and Rents on properties 1,126 1,320 1,508 +14.2% agreement with Chiba Jets Funabashi Co., Ltd., the cash flows profit attributable to owners of parent was ¥26.5 billion (down Settlement fees 59,273 53,634 40,842 -23.8% management company for the Chiba Jets, a top-class 36.5%). Amortization of goodwill 1,679 1,085 — —% basketball team in the B.LEAGUE. We expect the contract On our balance sheet, current assets at the end of fiscal year The main factors behind the decrease in net sales were the Taxes and public charge 1,352 1,256 837 -33.3% procedures for the stock purchase to be completed around 2019 were ¥160.8 billion, a decrease of ¥10.6 billion year on discontinuance of the TicketCamp service in the Lifestyle Others 2,485 3,351 4,152 +23.9% September 2019. year, due mainly to a decrease in cash and deposits. Non- Business, the transfer of the shares of Diverse, Inc., and the current assets were ¥31.2 billion, up ¥10.5 billion year on year. * Business investment refers to investment in the broad sense, including struggles faced by the smartphone app Monster Strike, our flagship service in the Entertainment Business. amounts recorded as accounting costs, but it does not include amounts for This was mainly attributable to an increase in goodwill The main factors behind the drop in profit were business things such as M&A and equity investment. resulting from the acquisition of shares in Chariloto Co., Ltd. as investment to expand existing businesses and create new well as a rise in construction in progress associated with the Summary of FY2019 financial results YoY businesses, in addition to the decline in sales. With respect to Lifestyle Business relocation of our head office, which is planned for the end of (Millions of yen) FY2017 FY2018 FY2019 change selling, general, and administrative (SG&A) expenses, (formerly the Media Platform Business) 2019. Net sales 207,161 189,094 144,032 -23.8% settlement fees, which are a variable cost of sales, declined Net sales in the Lifestyle Business in fiscal year 2019 were ¥5.4 On our statements of cash flows, net cash provided by Gross profit 183,013 166,043 123,808 -25.4% whereas most other items increased, mainly due to business billion (down 58.7% year on year) and the segment loss operating activities decreased year on year reflecting a drop in Gross profit ratio 88.3% 87.8% 86.0% — investment. (EBITDA) was ¥1.6 billion (compared with the previous year’s income before income taxes. Net cash used in investing SG&A expenses 94,004 93,683 82,774 -11.6% An overview of the activities and results of each business segment profit of ¥1.6 billion). activities increased year on year due to the acquisition of SG&A ratio 45.4% 49.5% 57.5% — segment appears below. Note that as of fiscal year 2019, Media In the Media area, we invested ¥1.3 billion against an initial shares of a subsidiary and investment securities as well as the Operating income 89,008 72,359 41,033 -43.3% Platform Business was changed to Lifestyle Business. investment plan of ¥1.5 billion, as a result of efforts to increase acquisition of tangible fixed assets for the relocation of our Operating income ratio 43.0% 38.3% 28.5% — Ordinary income 88,472 72,717 41,120 -43.5% Profit attributable to owners of parent 59,867 41,788 26,521 -36.5%

10 mixi GROUP Annual Report 2019 mixi Group’s Financial Strategy 11 mixi Group’s Financial Strategy Financial Highlights

head office. Net cash used in financing activities decreased, Summary of FY2020 earnings forecasts Net sales (millions of yen) Operating income (millions of yen) / Pro t attributable to owners of parent*1 Operating income ratio (%) (millions of yen) despite the payment of a dividend and purchase of treasury FY2019 FY2020 YoY (Millions of yen) (Actual) (Forecast) change 208,799 207,161 95,033 61,022 59,867 shares. As a result, free cash flow—the sum of net cash 89,008 189,094 46.7 provided by operating activities and net cash used in investing Net sales 144,032 100,000 -30.6% 72,359 Entertainment Business 138,607 96,000 -30.7% 45.5 activities—decreased from ¥44.3 billion in fiscal year 2018 to 144,032 43.0 41,788 Lifestyle Business ¥7.3 billion in fiscal year 2019. Cash and cash equivalents at the 5,427 4,000 -26.3% 38.3 112,918 52,686 28.5 32,966 end of the period declined by ¥11.7 billion year on year to Operating income 41,033 5,000 -87.8% 41,033 26,521 ¥144.4 billion. Operating income ratio 28.5% 5.0% — Ordinary income 41,120 5,000 -87.8% Summary of balance sheets and statement of cash flows Profit attributable to owners of parent 26,521 3,000 -88.7% (Millions of yen) FY2018 FY2019

Basic earnings per share (yen) 350.26 39.81 -88.6% mixi Group’s Financial Strategy Assets FY2015 FY2016 FY2017 FY2018 FY2019 FY2015 FY2016 FY2017 FY2018 FY2019 FY2015 FY2016 FY2017 FY2018 FY2019 Current assets 171,447 160,824 Operating income Operating income ratio Non-current assets 20,675 31,243 Total assets 192,123 192,068 Policy on returns to shareholders Liabilities and net assets and “creation of earning power” ROE (%) / ROA (%) Total assets (millions of yen) / Free cash ow (millions of yen) Current liabilities 21,641 12,448 Net assets (millions of yen) / Equity ratio (%) 86.8 Non-current liabilities 47 628 mixi Group makes the necessary investments for business 192,123 192,068 67,536 growth to continually enhance corporate value while ensuring 176,974 178,990 Net assets 170,434 178,990 170,434 69.7 165,039 stable and sustainable returns to shareholders. We pay 84.9 92.9 (Millions of yen) FY2018 FY2019 73.6 88.4 dividends targeting a payout ratio of 20% or a dividend on 150,529 44,374 50.5 Net cash provided by operating activities 49,975 18,113 equity (DOE) ratio of 5%. 39,353 45.3 44.1 104,178 121,490 37,126 Net cash used in investing activities (5,601) (10,811) In fiscal year 2019, we refrained from purchasing treasury 51.4 Net cash used in financing activities (22,447) (19,079) shares, as we judged that we had made investments, including 26.1 35.0 Cash and cash equivalents at end of period 156,190 144,417 the M&A of Chariloto Co., Ltd., that would contribute to future 15.2 53,570 Free cash flow 44,374 7,302 enhancement of our share value in addition to investment in 22.6 7,302 13.8 our businesses. From the perspective of “creation of earning power,” we will FY2015 FY2016 FY2017 FY2018 FY2019 FY2015 FY2016 FY2017 FY2018 FY2019 FY2015 FY2016 FY2017 FY2018 FY2019

aim to enhance ROE over the medium to long term while ROE ROA Total assets Net assets Equity ratio Overview of FY2020 earnings prioritizing investment in and development of new business. forecasts We will pursue contributions to earnings not only through new businesses but also in existing businesses, with Basic earnings per share (yen) / Dividend per share (yen) / Number of employees*2 For fiscal year 2020, we forecast net sales of ¥100.0 billion and investments such as M&A in cases where earnings growth and Net assets per share (yen) Dividend payout ratio (%) operating income of ¥5.0 billion, reflecting such factors as a high levels of synergy are anticipated. 2,368.05 147.00 147.00 884 2,176.88 decline in revenue from Monster Strike, investment in each Going forward, we will seek to provide fair and timely 775 1,889.16 121.00 120.00 business area, and one-time expenses associated with the information, maintain communication with shareholders and 646 head office relocation. investors, and strive to provide an appropriate return to the 1,441.66 558 82.00 The breakdown of the ¥36.0 billion decrease in operating shareholders who have supported our growth over the long 437 income is ¥28.0 billion attributable to the decline in revenue term. 34.3 22.7 20.1 from Monster Strike, a ¥4.0 billion increase in one-time 664.39 734.59 730.85 20.0 20.0 533.48 expenses due to the head office relocation, and a ¥4.0 billion 409.62 350.26 increase in upfront investments for each business area (mainly for new game development in the Digital Entertainment area July 2019 FY2015 FY2016 FY2017 FY2018 FY2019 FY2015 FY2016 FY2017 FY2018 FY2019 FY2015 FY2016 FY2017 FY2018 FY2019 and business development expenses in the Sports area). Sales Hiroyuki Ohsawa of new games, which are included in upfront investments, are Director Basic earnings per share Net assets per share Dividend per share Dividend payout ratio not included in the earnings forecast due to their high degree Corporate Officer of uncertainty. CFO *1 From fiscal year 2016 onward, “net income (loss)” was changed to “profit (loss) attributable to owners of parent.” *2 The number of employees is the total of full-time employees.

12 mixi GROUP Annual Report 2019 mixi Group’s Financial Strategy | Financial Highlights 13 ESG / Corporate Governance Directors (As of June 26, 2019)

January 2018 Managing Director of XFLAG Naoko Shimura, Outside Director Development Operations (currently April 1999 Registered as a lawyer Development Operations) of the April 1999 Joined Nishimura & Partners (currently Company Nishimura & Asahi) April 2018 Corporate Officer of the Company September 2004 Worked at Debevoise & Plimpton LLP (current) April 2005 Registered as a lawyer in New York June 2019 Director of the Company (current) October 2005 Returned to Nishimura & Partners (currently Nishimura & Asahi) Kenji Kasahara, Chairman and Corporate January 2008 Partner of Nishimura & Asahi (current) Officer May 2016 Outside Audit and Supervisory Board June 1999 Established eMercury, Inc. (currently Member of Tabikobo Co. Ltd. (current) the Company) Director of eMercury, June 2018 Director of the Company (current) Inc. June 2019 Outside Audit and Supervisory Board October 2000 Changed organizational structure of Member of NIPPON SIGNAL Co., Ltd. eMercury, Inc. (currently the Company) (current) from yugen gaisha (limited company) to kabushiki gaisha (joint-stock company) Tatsuya Matsunaga, Outside Director February 2006 Company name changed to mixi, Inc. October 1986 Joined Unicharm Corporation President and Representative Director January 1996 Joined Pricewaterhouse Consultants of the Company Co., Ltd. May 2008 Chairperson at mixi Shanghai, Inc. October 2002 Permanent transfer to IBM Business October 2008 Representative Director of NexPas, Inc. Consulting Services KK (currently IBM (currently Torchlight, Inc.) Japan, Ltd.) April 2011 Representative Director of mixi January 2005 Director (in charge of personnel recruitment, Inc. affairs) of IBM Japan, Ltd. July 2011 Corporate Officer of the Company April 2005 Executive Officer (in charge of June 2013 Chairman of the Board of Directors of personnel affairs) of IBM Japan, Ltd. the Company (current) September 2006 Executive Officer (in charge of Global April 2016 Managing Director of Vantage Studio of Business Services Business, the Company (current) Manufacturing Sector) of IBM Japan, April 2018 Corporate Officer of the Company Ltd. ESG / Corporate Governance (current) April 2010 Executive Officer (in charge of Third Financial Business Department) of IBM Satoshi Shima, Outside Director Japan, Ltd. April 1986 Graduated from The Matsushita January 2011 Managing Executive Officer (in charge Institute of Government and of Third Financial Business Management (MIGM) Department) of IBM Japan, Ltd. Director, Corporate Officer Outside Director Director, Corporate Officer, CFO Outside Director April 1994 Representative of Tokyo Institute of April 2015 Managing Executive Officer (in charge Masahiko Okuda Satoshi Shima Hiroyuki Ohsawa Tatsuya Matsunaga Government and Management, MIGM of growth strategies) of IBM Japan, Ltd. October 1996 Elected as a member of the House of January 2019 Representative Director and President Director, Corporate Officer, CTO Director, Corporate Officer President and Representative Chairman, Corporate Officer Outside Director Representatives, Japan; elected as such of TMA Consulting Co., Ltd. (current) Tatsuma Murase Kosuke Taru Director, Corporate Officer Kenji Kasahara Naoko Shimura for the following three consecutive June 2019 Director of the Company (current) Koki Kimura terms November 2005 General Manager of CEO Office, SoftBank Corp. (currently SoftBank Koki Kimura, President, Representative Kosuke Taru, Director and Corporate Hiroyuki Ohsawa, Director and Corporate January 2015 Managing Director of MS Group Corp.) Director, and Corporate Officer Officer Officer, CFO Operations of the Company April 2014 Advisor of SoftBank Corp. (currently February 2003 Joined Mobileproduction Co., Ltd. August 2008 Joined livedoor Co., Ltd. October 2006 Joined KBMJ, Inc. (currently Appirits April 2016 Managing Director of Orange SoftBank Group Corp.) March 2005 Joined Index Corporation January 2012 Joined NHN Japan Co., Ltd. Inc.) Studio Operations of the Company April 2014 Special Advisor of SoftBank Mobile June 2008 Joined the Company (currently LINE Corporation) June 2007 Joined the Company January 2017 Representative Director of Marshal Corp. (currently SoftBank Corp.) August 2012 Product owner of Product February 2014 Joined the Company November 2011 Executive Director of Accounting and Co., Ltd. (current) April 2015 Visiting Professor of Tama University Development Division of the February 2014 Manager of Planning Group of Finance Division of Corporate Promotion April 2018 Corporate Officer of the Company (current) Company Monster Strike Studio of the Operations of the Company (current) April 2017 Outside Director of Minrevi Co., Ltd. November 2013 Producer of Monster Strike Studio Company April 2014 Senior Director of Management April 2018 Managing Director of General (currently Yoriso Co., Ltd.) (current) of the Company January 2015 Executive Director of Planning and Promotion Division of Corporate Administration Headquarters of June 2017 Director of the Company (current) April 2014 Executive Director of Monster Operation Division, Monster Strike Promotion Operations of the Company the Company (current) June 2017 Outside Director of Vortex. Co., Ltd. Strike Studio of the Company Studio of the Company June 2017 Managing Director of Corporate June 2018 Director of the Company (current) (current) November 2014 Corporate Officer of the Company August 2015 Executive Director of Planning and Promotion Operations of the Company December 2017 External Director of Aucfan Co., Ltd. January 2015 Managing Director of Monster Operation Division, XFLAG Studio April 2018 Corporate Officer of the Company Tatsuma Murase, Director and Corporate (current) Strike Studio of the Company Operations of the Company (current) Officer, CTO October 2018 Outside Director of i-mobile Co., Ltd. June 2015 Director of the Company July 2016 Executive Director of XFLAG June 2018 Director of the Company (current) January 2005 Joined eMercury, Inc. (currently the (current) August 2015 Managing Director of XFLAG GAMES, XFLAG Studio Operations April 2019 Managing Director of Corporate Company) December 2018 Outside Director of NEO CAREER Co., Studio of the Company of the Company Support Operations (current) December 2009 Director of KH2O, Inc. Ltd. (current) April 2017 Managing Director of XFLAG April 2017 Managing Director of Monster January 2012 Joined Q-Games Ltd. Business Operations of the Strike Business Operations of the Masahiko Okuda, Director and Corporate February 2013 Joined the Company Company Company Officer May 2014 Manager of Group 2 of the System April 2018 Corporate Officer of the Company June 2017 Director of the Company (current) February 2004 Joined Yahoo Japan Corporation Coordination Division of Cross (current) April 2018 Corporate Officer of the Company September 2008 Joined Pitcrew Co., Ltd. Function Operations of the June 2018 President and Representative (current) February 2011 Vice President and Director of Pitcrew Company Director of the Company (current) April 2018 Managing Director of Digital Co., Ltd. July 2016 Exective Director of the Game Entertainment Business Operations April 2013 Joined the Company Development Division of XFLAG of the Company Studio Operations of the Company 14 mixi GROUP Annual Report 2019 ESG / Corporate Governance 15 ESG / Corporate Governance Audit and Supervisory Board Members Corporate Officer System (As of June 26, 2019)

The Company's Board of Directors’ responsibilities include establishing management policy and structure, approving business plans and budgets, and conducting risk assessments. The Company appoints corporate officers to carry out business executions entrusted to them by the Board of Directors. To streamline business executions, we have appointed 13 corporate officers to be responsible for different business areas according to their business backgrounds and areas of expertise. As of April 2019, we increased the number of corporate officers by one to further strengthen our compliance.

Corporate officer and area of responsibility (as of April 1, 2019)

Name Assigned business area as a corporate officer

Koki Kimura Sports (reappointed)

Kosuke Taru Digital Entertainment (reappointed)

Masaya Tamura Live Experiences (reappointed) ESG / Corporate Governance Outside Audit and Outside Audit and Outside Audit and Outside Audit and Supervisory Board Member Supervisory Board Member Supervisory Board Member Supervisory Board Member Kenji Kasahara Media (reappointed) Hiroyuki Wakamatsu (Full-time) (Full-time) Nozomi Ueda Takako Kato Yuichiro Nishimura Yasuhiro Ogino Wellness (reappointed) Takako Kato, Outside Audit and Member of Pioneer Corporation Nozomi Ueda, Outside Audit and Supervisory Board Member (Full-time) (current) Supervisory Board Member Hiroaki Kato Design / Animation & Movie (changed business area) April 1970 Joined Japan Radio Co., Ltd. June 2015 Non-Member Auditor of Pal-System April 1999 Registered as a lawyer June 2000 Director of Naval Research Co., Ltd. Tokyo Cooperative Society (current) April 1999 Joined Tokyo Themis (currently March 2004 Joined Eto Building Management August 2017 Outside Auditor of RENOVA, Inc. Kioizaka Themis) (current) Yuko Nemoto Marketing / Digital Entertainment (changed business area) Co., Ltd. (current) June 2019 Audit and Supervisory Board August 2004 Audit and Supervisory Board July 2018 Representative Director of Generys Co., Member of the Company (current) Member (full-time) of eMercury, Inc. Ltd. (current) (currently the Company) (current) Tatsuma Murase Technology (reappointed) Yuichiro Nishimura, Outside Audit and Hiroyuki Wakamatsu, Outside Audit and Supervisory Board Member (Full-time) Supervisory Board Member April 1982 Joined Nissan Motor Co., Ltd. Koji Ishii Assistant to the President (reappointed) April 1995 Joined Tohmatsu & Co. (currently June 1985 Seconded to Nissan Cherry Shizuoka Deloitte Touche Tohmatsu LLC) Sales Co., Ltd. (currently Nissan Prince April 1998 Registered as a certified public Shizuoka Sales Co., Ltd.) Shuhei Yanamoto Personnel Affairs (reappointed) accountant June 1987 Returned to Nissan Motor Co., Ltd. October 2008 Representative of Wakamatsu CPA April 1998 Seconded to Nissan Koei Co., Ltd. Office (current) (currently Nissan Creative Services Co., Hiroyuki Ohsawa Finance / Group Management (reappointed) April 2010 Instructor of Faculty of Business Ltd.) Deputy General Manager of the Administration, BBT University General Affairs Department of Nissan June 2010 Outside Auditor of Withus Corp. Koei Co., Ltd. Kanji Kobayashi Compliance (newly appointed) (current) January 2000 Returned to Nissan Motor Co., Ltd. August 2010 Registered as a licensed tax April 2005 Seconded to Yorozu Corporation Group accountant Chief of the Administration Department Masahiko Okuda User Support (changed business area) June 2011 Outside Auditor of Eastern Co., Ltd. October 2005 Permanent transfer to Yorozu June 2012 Audit and Supervisory Board Corporation Member of the Company (current) June 2008 Chief of CSR Promotion Office of Yorozu September 2014 Instructor of Graduate School of Corporation Finance, Accounting and Law, April 2014 General Manager of the General Affairs Waseda University Department of Yorozu Corporation March 2015 Outside Auditor of Castalia Co. Ltd. June 2019 Audit and Supervisory Board Member of (current) the Company (current) June 2015 Outside Audit & Supervisory Board

16 mixi GROUP Annual Report 2019 ESG / Corporate Governance 17 ESG / Corporate Governance Corporate Governance Structure (As of June 26, 2019)

and Supervisory Board, which offers appropriate advice to the Strengthening our corporate governance structure directors. Overall audits of the Company are conducted in Yuichiro Nishimura, Outside Audit and Supervisory Board Member Information displayed on the TicketCamp website operated by Hunza, Inc., a former subsidiary of mixi, Inc., underwent a series of coordination with internal audits and the accounting auditors. New Outside Independent He possesses knowledge and experience in human resources and investigations by authorities on suspicion that it had violated the Trademark Act and Unfair Competition Prevention Act. In the general affairs, and we expect him to use his specialized and broad fiscal year ended March 2019, we overhauled our management structure and introduced a corporate officer system as part of Nomination and Compensation knowledge to strengthen monitoring functions. efforts to revise systems throughout the Group while strengthening our corporate governance. Committee Nozomi Ueda, Outside Audit and Supervisory Board Member We have established a Nomination and Compensation Committee New Outside Independent consisting of all outside directors and the president. The objectives She is an attorney, and we expect her to use her specialized and ■ Initiatives in the fiscal year ended March 2019 broad knowledge to strengthen monitoring functions. ◦ Changed the management team (appointed two new officers to administrative positions) of the committee are to strengthen transparency and objectivity and ◦ Introduced a corporate officer system to enhance our corporate governance by obtaining the opinions ◦ Prepared to establish a Nomination and Compensation Committee (established on April 1, 2019) and advice of outside directors before the Board of Directors Appointment policy and ■ Changes made at the 20th ordinary general meeting of shareholders on June 26, 2019 deliberates matters related to individual nomination proposals and ◦ Directors: Increased by one (from eight to nine) to respond appropriately to business challenges, since the compensation of directors (excluding outside directors). nomination procedure for directors importance of technology in mixi Group’s business challenges is increasing The following is our policy regarding the appointment of director ◦ Audit and Supervisory Board Members: Increased by one (from three to four) to further strengthen our candidates (except outside directors). auditing system Appointment of outside directors and outside ◦ Accounting auditor: Changed from Deloitte Touche Tohmatsu LLC, which had been our accounting auditor Audit and Supervisory Board Members Proposals for the position of director (except outside directors) for many years, from April 2004 to March 2019, to PricewaterhouseCoopers Aarata LLC Three of the nine members of the Board of Directors and all are given considering both the diversity and appropriate size of four members of the Audit and Supervisory Board are outside the Board of Directors, with directors possessing a good overall members. Outside directors are expected to provide advice and balance of the knowledge, experience, and abilities to efficiently Basic approach to corporate governance supervision from an independent perspective, while outside Audit fulfill their roles and responsibilities. We recognize corporate governance as a means for maximizing corporate value. As such, we engage in organizational overhauls as and Supervisory Board Members are expected to provide objective auditing of job performance without being influenced by directors. appropriate to accommodate the expansion of our business ventures, to manage profits and losses of each of our businesses, and to Proposals for the position of directors (except outside directors) Outside directors and outside Audit and Supervisory Board Members who are to be in charge of business execution are given for the further clarify authority and responsibilities. We also focus on further enhancing the capabilities of the Board of Directors (which serves thus ensure the effectiveness of management monitoring systems. persons who can make forward-looking, accurate, appropriate, as the Company’s decision-making body) and of Audit and Supervisory Board Members and the Audit and Supervisory Board to monitor and swift business decisions and execution to help the Company

achieve continual growth and higher corporate value over the ESG / Corporate Governance Outside Independent directors’ performance of their duties, as well as on improving the ability of our systems for internal control to prevent improprieties in Satoshi Shima, Outside Director medium to long term. the execution of business activities. In addition, to continually increase management transparency and fairness, we intend to Board meeting attendance: 94.1% (16/17 meetings) In addition to experience as a member of the House of appropriately present statutory disclosure documents and to actively conduct IR activities using our website and other means. Representatives, he possesses from his past career an abundance Candidate directors (except outside directors) are selected in accordance with this policy, and final decisions are made by We post our Corporate Governance Reports on our website (https://mixi.co.jp/ir/governance/) in Japanese. of insights and achievements related to corporate activities. We expect him to monitor decisions related to management matters a resolution of the Board of Directors after deliberation by the in addition to performance of duties, based on this knowledge and General Meeting of Shareholders Nomination and Compensation Committee. experience. Election/dismissal Election/dismissal Election/dismissal Naoko Shimura, Outside Director Outside Policy and procedure for deciding Report Board meeting attendance: 100% (13/13 meetings) Board of Directors Accounting auditors She possesses specialist knowledge and abundant experience in officers’ compensation relation to the law and compliance matters that she cultivated as The following is our policy regarding the compensation for Submission/ Election/ Report Report Election/ a lawyer, and it is anticipated that these qualities will enable her to directors (except outside directors). report dismissal dismissal contribute to further strengthening the function of supervision of Supervision Nomination and Audit and Corporate the Company’s Board of Directors. Compensation Committee Supervisory Board Auditing Division Audits Our basic approach to compensation for directors (except New Outside Independent Recommen- Tatsuya Matsunaga, Outside Director outside directors) is to establish an appropriate ratio between Consultation Report/ Audits Coordi- Report dation direction nation He possesses specialized and broad knowledge related to the cash compensation and mixi stock compensation so as to IT services industry, and it is anticipated that these qualities will function as a sound incentive for continual growth. Management Council President and Internal Auditing Division enable him to contribute to further strengthening the supervisory Representative Director functions of the Company’s Board of Directors. Submission/report Report/direction Based on this policy, compensation for directors (except outside Audits/control directors) consists of two components: monthly cash compensation and Corporate O cers/Each division Takako Kato, Outside Audit and Supervisory Board Member stock options as compensation tied to medium- to long-term corporate Outside Independent value. Cash compensation consists of base compensation commensurate Board meeting attendance: 100% (17/17 meetings) with responsibilities and performance-based compensation determined Board of Directors Management Council Auditor meeting attendance: 100% (17/17 meetings) in consideration of performance during the previous term. Stock options She has accumulated many years of accounting experience and as compensation are determined in light of the ratio between cash The Board of Directors has nine members, three of whom are The Management Council conducts key discussions and decision- has considerable expertise in finance and accounting. We believe compensation and corresponding responsibilities. outside. In principle, Board of Directors’ meetings are held once making related to business operations. In principle, Management this knowledge and experience will enable her to give appropriate monthly, constituting a system that allows speedy and efficient Council meetings are held once a week but may be held at any advice and recommendations during deliberation of agenda items Compensation for outside directors consists of cash compensation decision-making. To clarify the managerial responsibilities of time when necessary. and on other occasions. only, from the standpoint of independence. directors and create a management system that is able to respond Hiroyuki Wakamatsu, Outside Audit and Supervisory Board Member Compensation for outside Audit and Supervisory Board Members swiftly to changes in the management environment, the term of Audit and Supervisory Board Outside Independent consists of cash compensation only, in light of their role of mainly being service for directors is prescribed as one year. We are a company with Audit and Supervisory Board Members Board meeting attendance: 100% (17/17 meetings) responsible for compliance audits. as stipulated in Japan’s Companies Act. Our Audit and Auditor meeting attendance: 100% (17/17 meetings) The compensation system and level of compensation for directors He is a certified public accountant and a licensed tax accountant, Supervisory Board has four outside members, two of whom (except outside directors) are decided by a resolution of the Board of and we believe that he will give appropriate advice and Directors in light of deliberation by the Nomination and Compensation are full-time, and in principle meets periodically once monthly. recommendations during deliberation of agenda items and on Audits are conducted based on a yearly plan. The results of other occasions from his specialist viewpoint. Committee, from the perspective of ensuring objectivity and audits are reported and deliberated in meetings of the Audit transparency of the decision-making process. 18 mixi GROUP Annual Report 2019 ESG / Corporate Governance 19 ESG / Corporate Governance Risk Factors

mixi Group recognizes that the following risks could have a great effect on investors’ decisions. It should be noted that future (2) Internal management systems 6. Intellectual property rights- concerns are based on the Company’s judgment as of the 20th ordinary general shareholders’ meeting (held on June 26, 2019) and If the development of adequate internal management systems related risk may differ from actual results due to inherent uncertainty. fails to keep pace with rapid business expansion, etc., the Accompanying the possibility that intellectual property rights appropriate operation of business and the development of which mixi Group has not recognized could already be management systems may become difficult. established or that new intellectual property rights could be 1. Business environment-related risk (2) Dependence on external enterprises for user established, it is possible that mixi Group could be subject to (3) Information management system (1) Mobile market acquisition claims for compensation for damages or injunctions due to It is possible that leaks, tampering, improper use, etc., of the As the services provided via smart devices are highly vulnerable Services in the Entertainment Business are provided via platform infringement of the intellectual property rights of third parties personal information and other information held by mixi Group to the impact of the mobile-related market, the introduction of providers such as Apple Inc. and Google Inc., but maintaining or that there could be claims against mixi Group for royalties for may occur. Moreover, the insurance into which mixi Group is new legal regulations, technical innovation, and changes in agreements with either platform provider may become difficult, the intellectual property rights. It is also possible that the usage enrolled may not be able to completely compensate for all such trends at communications carriers may cause rapid and or changes to their operational policies, fees, etc., may arise. of intellectual properties in open-source software mixi Group losses. If a situation like this were to arise, the burden of significant changes in the core businesses. Furthermore, we contract operations to external enterprises for uses in system development may be restricted for considerable costs for an appropriate response, claims for the development and provision of services, and if relationships unforeseeable reasons. compensation for damages, and a decline in confidence in mixi (2) Competition with those external enterprises were to deteriorate, it may pose Group, etc., may occur. If time spent on competing services by users of the services a problem for the maintenance of services and new 7. Investment and lending-related risk provided by mixi Group increases, demand for the services development. Regarding investment to expand our business portfolio, it is provided by mixi Group may decrease. 4. System-related risk possible that business synergies between individual investee (3) Global expansion (1) Continuous equipment and systems investment companies and mixi Group or contributions to profits by (3) Technical innovation If mixi Group is unable to address potential risks that include accompanying business expansion investee companies may not be obtained as anticipated. It is Technical innovation and changes in customer needs are rapid differences in laws and regulations, political and social mixi Group plans continuous capital expenditure in systems also possible that investment returns could be rendered

in the Internet industry, and new services are being introduced circumstances, culture, religion, user preferences, commercial infrastructure, etc., to prepare for future increases in users and impossible and that an impairment may be recorded ESG / Corporate Governance one after another. If mixi Group is unable to respond to change practices in different countries, and exchange rate fluctuations, access volume. However, if there is a sharp increase in the depending on the performance of investee companies. In appropriately and in a timely manner, competitiveness within expected outcomes may not be achieved. When releasing number of users and access volume exceeding mixi Group’s addition, it is possible that investment capital cannot be the industry may decline despite securing outstanding native smartphone games to overseas markets, mixi Group and forecasts, it is possible that the Group could be forced to change recovered if a company into which an investment partnership engineers and adopting cutting-edge technology in research its services may not be as accepted as they are in Japan and the timing, content, and scale of capital expenditure, and the (fund) invests suffers a decline in performance. and systems. could be exposed to user criticism in some cases. burden of expenses related to this may increase. 8. Operational alliance and M&A- 2. Business-related risk (4) Trust and social confidence in mixi Group and mixi (2) Systems failure and natural disasters related risk Group’s products, services, and businesses Computer systems may fail due to various factors that mixi (1) Response to changes in user tastes, interests, Regarding the implementation of operational and capital Unsubstantiated rumors among users may damage the Group cannot predict, including temporary overloads, and concerns alliances and M&A with companies that are highly compatible reputation and trust of mixi Group and the services the Group interruptions to the power supply, software bugs, failures of As the main users of the services mixi Group provides are with mixi Group’s services, if integration with an acquired provides. Inappropriate or illegal behavior on the part of some external linked systems, computer viruses and external ordinary mobile users, including young people, user acquisition company or the development and strengthening of relations malicious users may cause the safety and reliability of services to intrusions into computers by illegal means, natural disasters, and retention, frequency of use, and the amount of money with an alliance partner do not progress as planned, or if the drop. In addition, if an external enterprise to which operations and accidents. spent are highly affected by changes in the users’ tastes. If mixi business synergies, etc., initially anticipated due to the are contracted leaks personal information or commits some Group is unable to accurately identify user needs and provide integration or alliance cannot be obtained, or if the operational other illegal or inappropriate act, the reputation of mixi Group content that satisfies them appropriately and in a timely 5. Legal regulation-related risk alliance in question is dissolved for any reason, it is possible that or its services may decline. mixi Group’s brand value may also Regarding the various laws and regulations relating to business manner, the appeal of these services to users may decline. profit commensurate with investment, time, and other expenses decline if mixi Group is unable to make the investments needed and regulation based on the guidelines, etc., of regulatory The sales of paid content in the Entertainment Business may not be returned. account for the majority of Group revenue, and there is a to maintain and enhance its brand value or if a competitor agencies, it is possible that business could be subject to new significant dependence on a specific title (Monster Strike). establishes a more competitive brand. restrictions or that existing regulations could be strengthened 9. New business-related risk Therefore, a decline in the competitiveness of that title could as a result of the establishment or revision of relevant laws and If additional expenditure aimed at creating and developing new cause a decrease in the number of users, a decrease in the regulations, the cancellation of approvals or imposition of 3. Business promotion system- services and new businesses arises, it is possible that profitability percentage of users of who make in-app purchases, and a penalties by regulatory agencies, or the establishment or related risk may decline, or that mixi Group may not be able to operate decrease in the use of paid content, etc. Moreover, if the revision of new guidelines or voluntary regulations. (1) Securing and developing human resources smoothly due to its lack of experience. If the development of popularity of newly developed titles and the number of paying If the securing of outstanding human resources does not new services and businesses does not proceed as planned, or if users does not progress as anticipated, it may have an impact proceed as planned, mixi Group’s competitiveness may decline plans are canceled, or if the new businesses are not able to on the Group’s business, performance, and financial position. and business expansion may be restricted. achieve their anticipated profitability, etc., it may affect mixi Group’s business, performance, and financial position.

20 mixi GROUP Annual Report 2019 ESG / Corporate Governance 21 ESG / Relationship with the Environment and Society

Our relationship with the Our relationship with society Contributing to the local community Contributing through technology As a company that has had its offices in Shibuya since its As a communication-creating company, we are participating environment establishment, mixi Group aims to contribute to community in a joint research project alongside four companies associated Toward sustainability of the global environment Company visits and educational activities support in Shibuya, a place known for its technology, with the Alter 3, an android/artificial lifeform developed to We are committed to environmental conservation, as stated in Based on our desire to interest middle and high school entertainment, sports, culture, and diversity. explore the possibilities of communication with people. Using our code of ethics: “mixi Group’s officers and employees must students in the work of the IT industry and to encourage them In 2018, we got together with three other IT companies technology cultivated in our business operations, we do their best to sustain the global environment while to consider a career in this area, we accept visits to the based in Shibuya and launched the SHIBUYA BIT VALLEY developed Alter 3 Simulator, software designed to test recognizing their responsibilities as members of society and Company as an initiative to help develop the next generation. project with the purpose of turning Shibuya into a global movement in a virtual environment. This enabled movement promoting harmony and prosperity in society.” From April 2018 to March 2019, 275 students from 44 schools technology hub in the IT field. In 2019, the second year of the tests, production checks, and collision detection to be One concrete example is the support we gave through our visited our offices. project, the event was updated to BIT VALLEY 2019 and we performed virtually, without the physical Alter 3. Going entertainment brand, XFLAG, to Operation No Trash: plan to hold a conference in September. As a member of the forward, we will continue our efforts to contribute to society Halloween Cleanup, an initiative to keep the streets of Shibuya project, mixi Group will work continuously over the medium through technology. clean after Halloween. As part of this initiative, mixi’s officers to long term to strengthen the community of IT companies in and employees help pick up trash in Shibuya after Halloween Shibuya and promote business interaction among them. We events are over. We intend to keep engaging in activities that will also engage in active discussions to strengthen ties with enable people to continue enjoying Shibuya with greater Shibuya Ward. safety and security. ESG / Relationship with the Environment and Society

Company visit by middle and high school students ©BIT VALLEY Additionally, mixi Group has been providing special Creating employment opportunities for persons Efforts to improve online safety for users sponsorships to bring excitement to Shibuya together with with disabilities As technology advances, the Internet has taken root as a other members of the local community. Starting in 2017, this In July 2018, mixi empowerment, Inc., established for the component of infrastructure that is indispensable to industry sponsorship has supported “One Day Children’s Park! purpose of expanding opportunities for persons with and to our daily lives. However, it is a fact that the risk of presented by mixi Group,” an event held in May during Golden disabilities, was recognized as a special subsidiary, as defined normal users becoming involved in difficulties or dangers Week at Shibuya’s Yoyogi Park for parents and children, by the Act on Employment Promotion etc. of Persons with Operation No Trash: Halloween Cleanup caused by those who misuse Internet services still remains. promoting the idea that children’s smiles are everyone’s smiles. Disabilities. Under mixi empowerment’s corporate philosophy mixi Group promotes monitoring activities and the further Since 2016, the sponsorship has also supported “Shibuya of “creating a fair company and society that are proudly strengthening of systems that enable the safe use of its Summer Festival in Yoyogi Park powered by mixi Group,” an diverse,” we will strive to continue creating more employment services in order to prevent illicit use and harm to users. event held in August that is promoted as a summertime event opportunities for persons with disabilities through the In addition, to reduce Internet crime and the incidence of in Shibuya. It can be enjoyed by three generations, regardless provision of fair workplaces where they can feel at ease and harm, we cooperate with investigatory agencies and exchange of age. demonstrate their full potential. information, leading to the identification and reporting of abusers. In this way, and based on a correct understanding of situations, we continue with various activities intended to improve safety for users.

22 mixi GROUP Annual Report 2019 ESG / Relationship with the Environment and Society 23 Business Models and Performance of Our Core Services

FamilyAlbum, private family photo and video sharing app Cumulative number of users of FamilyAlbum (Millions of people) 5 Viewing of/ Monster Strike, hunting action role-playing game (RPG) Monster Strike-related businesses Upload of FamilyAlbum commenting children’s on children’s 4 Surpassed photos/ photos/videos videos 3 5 million User User • Movies (grandparents, (parents) 2 Payment of (via distributor) Monthly Monthly relatives, fees/ Free Provision automatic Free to use automatic Monster Strike Platform providers • Events others) Provision download of services/ generation of (some paid generation of 1 of app of app • Merchandising merchandise photobook services) photobook suggestions suggestions User User • App Store 2015 2016 2017 2018 2019 Collection of • Google Play Pay for items Revenue Payment App is free to transaction and other providers purchased generated play (contains fees through sales of This app helps parents share photos and videos of their children in real time while keeping it all in the family. It in-app tickets and is well received for being free to use, oering unlimited storage, and facilitating fun communication among purchases) merchandise family members. The service was launched in April 2015 in Japan, with English support starting in July 2017. Used by a large number of families in English-speaking countries, the number of users surpassed ve million in June 2019. Improving pro tability Cumulative number of users of Monster Strike worldwide Surpassed In April 2019, we started oering FamilyAlbum Premium, a premium service that makes the app more conve- (Millions of users) nient and fun to use for a monthly fee of ¥480. In June 2019, we made SFIDANTE Inc., a company whose 50 million business includes printing photos from smartphones, into our subsidiary. By combining both our assets— 50 Japan Overseas (Taiwan, Hong Kong, Macau, China) SFIDANTE’s high-quality service and the large amount of photo data uploaded to FamilyAlbum—we will Launch in China provide higher added value to users.

40

Launch in Hong Kong and Macau 30

minimo, salon artist booking app Cumulative number of downloads of minimo (Millions of downloads) 20 InformationBasic Launch in Taiwan 4 minimo Search/ Ad appointment placement 3 Surpassed 10 Listing is free 3 million Revenue is User 2 User results-based Payment of (salon commission (commissions) professional) 1

2013 2014 2015 2016 2017 2018 2019 Treatment/service

Visit to salon and payment for treatment/service 2014 2015 2016 2017 2018 2019 Monster Strike is an exhilarating multiplayer action RPG that anybody can easily enjoy, with its key feature enabling simultaneous cooperative (multi) play for up to four friends in the same area. Monster Strike was rst This app, launched in January 2014, allows customers to book appointments directly with individual salon sta released on October 10, 2013 in Japan. It is currently available in Taiwan, Hong Kong, Macau, and mainland such as hairstylists, nail artists, and eye makeup artists 24 hours a day. Ignoring the convention of booking China. Not just a game, Monster Strike consists of merchandising, live events, videos, anime, physical appointments for a salon, minimo allows customers to choose and book salon sta directly and consult with a storefronts, and more. An expansive media mix is being used to fuel the growth of Monster Strike. The app sta member in advance about their desired service to prevent mismatches. Highly appreciated by both salon surpassed 50 million downloads as of April 2019. sta and customers, the app surpassed three million downloads as of June 2018.

24 mixi GROUP Annual Report 2019 Business Models and Performance of Our Core Services 25 History Summary of IR Activities Financial Information

June 1999 Establishes eMercury, Inc. to run the Find Investor relations activities Consolidated Financial Statements ...... 28 Job! job search website In order to engage shareholders and investors in active Consolidated Balance Sheets ...... 28 October 2000 Changes organizational structure of dialogue, we hold an earnings result briefing session for Consolidated Statements of Income ...... 30 eMercury, Inc. from yugen gaisha (limited securities analysts and institutional investors after each Consolidated Statements of Comprehensive Income ...... 31 company) to kabushiki gaisha (joint-stock quarterly financial results announcement. Committed to Consolidated Statements of Changes in company) making disclosures that are fair to all investors, we quickly post Shareholders’ Equity ...... 32 February 2004 Launches the social networking service meeting materials and videos to our website. For overseas Consolidated Statements of Cash Flows ...... 33 mixi investors, we hold both meetings and conference calls each Notes to Consolidated Financial Statements ...... 34 February 2006 Changes business name to mixi, Inc. quarter and offer investors opportunities to consult with Financial Statements ...... 58 September 2006 Lists on the Mothers section of the Tokyo management directly several times a year. Balance Sheets ...... 58 Stock Exchange In terms of tools for information disclosure, financial results ...... April 2011 Spins off the Find Job! business as mixi reports and other timely disclosures, as well as quarterly Statements of Income 60 recruitment, Inc. securities reports (published in Japanese only), presentation Cost of Sales Statements ...... 61 March 2012 Establishes mixi America, Inc. in the United materials, and videos of financial results presentations are Statements of Changes in Shareholders’ Equity ...... 62 States posted to our corporate website. Notes to Financial Statements ...... 63 October 2013 Launches the Monster Strike smartphone Going forward, we will continue to conduct IR activities game app from a medium- to long-term perspective, strengthening March 2015 Acquires all shares of Hunza, Inc., making it engagement and valuing dialogue with shareholders and a subsidiary (operations of Hunza, Inc. were investors with the aim of achieving sustainable growth in discontinued as of May 2018) corporate value. February 2019 Acquires all shares of Chariloto Co., Ltd., which provides an Internet-based betting Principal IR activities in fiscal year 2019 ticket sales service for Keirin races, making it a subsidiary Annual Details frequency Financial results briefing sessions for securities 4 analysts and institutional investors Meetings and conference calls with domestic investors 64 Meetings and conference calls with overseas investors 129

Note: “Domestic investors” are investors with an office in Japan. All other investors are regarded as “overseas investors.”

Investor relations web page https://mixi.co.jp/en/ir/ Financial Information

26 mixi GROUP Annual Report 2019 History | Summary of IR Activities | Financial Information 27 Consolidated Financial Statements

Consolidated Balance Sheets mixi, Inc. and Consolidated Subsidiaries (Millions of yen) (Millions of yen)

FY2018 FY2019 FY2018 FY2019 (As of March 31, 2018) (As of March 31, 2019) (As of March 31, 2018) (As of March 31, 2019)

Assets: Liabilities: Current assets Current liabilities Cash and deposits 156,190 144,417 Accounts payable — other 7,068 8,298 Accounts receivable — trade 11,732 9,402 Income taxes payable 9,909 504 Merchandise 441 297 Accrued consumption taxes 95 — Raw materials 211 — Consumption taxes receivable — 1,417 Provision for bonuses 950 837 Other 2,887 5,315 Other 3,616 2,808 Allowance for doubtful accounts (16) (27) Total current liabilities 21,641 12,448 Total current assets 171,447 160,824 Non-current liabilities Non-current assets Other 47 628 Property, plant and equipment Total non-current liabilities 47 628 Buildings 1,005 1,057 Total liabilities 21,688 13,077 Accumulated depreciation (397) (680) Buildings, net 608 376 Tools, furniture and fixtures 2,615 3,495 Net assets: Accumulated depreciation (1,349) (2,007) Shareholders’ equity Tools, furniture and fixtures, net 1,266 1,487 Capital stock 9,698 9,698 Construction in progress 13 2,244 Capital surplus 9,668 9,668 Total property, plant and equipment 1,888 4,109 Retained earnings 151,669 169,069 Intangible assets Treasury shares (1,450) (10,905) Goodwill — 5,121 Other 391 766 Total shareholders’ equity 169,587 177,531 Total intangible assets 391 5,887 Accumulated other comprehensive income Investments and other assets Valuation difference on available-for-sale securities — 665 Investment securities 3,351 6,688 Foreign currency translation adjustment 212 234 Deferred tax assets 10,486 9,426 Total accumulated other comprehensive income 212 900 Other 4,559 5,132 Subscription rights to shares 630 555 Allowance for doubtful accounts (1) (1) Non-controlling interests 4 3 Total investments and other assets 18,395 21,246 Total net assets 170,434 178,990

Total non-current assets 20,675 31,243 Financial Information Total assets 192,123 192,068 Total liabilities and net assets 192,123 192,068

28 mixi GROUP Annual Report 2019 Consolidated Financial Statements 29 Consolidated Financial Statements

Consolidated Statements of Income Consolidated Statements of Comprehensive Income mixi, Inc. and Consolidated Subsidiaries (Millions of yen) mixi, Inc. and Consolidated Subsidiaries (Millions of yen)

FY2018 FY2019 FY2018 FY2019 (April 1, 2017 to March 31, 2018) (April 1, 2018 to March 31, 2019) (April 1, 2017 to March 31, 2018) (April 1, 2018 to March 31, 2019) Net sales 189,094 144,032 Profit 41,788 26,520 Cost of sales 23,050 20,224 Other comprehensive income Gross profit 166,043 123,808 Valuation difference on available-for-sale securities — 665 Selling, general and administrative expenses (Note 4 (*1)(*2)) 93,683 82,774 Foreign currency translation adjustment (29) 21 Operating income 72,359 41,033 Total other comprehensive income (Note 5 (*1)) (29) 687 Non-operating income Comprehensive income 41,758 27,208 Interest income 3 4 Comprehensive income attributable to: Gain on investments in partnership 493 17 Owners of parent 41,759 27,208 Foreign exchange gains 12 36 Non-controlling interests (0) (0) Gain on sales of goods — 36 Other 50 126 Total non-operating income 559 219 Non-operating expenses Interest expenses 0 0 Commission fee 196 111 Other 5 20 Total non-operating expenses 202 132 Ordinary income 72,717 41,120 Extraordinary income Gain on sales of non-current assets (Note 4 (*3)) 2 1 Gain on sales of investment securities (Note 4 (*4)) 346 212 Gain on sales of shares of subsidiaries and associates (Note 4 (*5)) — 642 Total extraordinary income 348 856 Extraordinary losses Loss on withdrawal from business (Note 4 (*6)) — 2,018 Loss on sales and retirement of non-current assets (Note 4 (*7)) 24 19 Impairment loss (Note 4 (*8)) 131 349 Loss on valuation of investment securities (Note 4 (*9)) 391 524 Amortization of goodwill 7,597 — Total extraordinary losses 8,145 2,912 Income before income taxes 64,920 39,063 Income taxes — current 23,810 11,777 Income taxes — deferred (677) 765 Total income taxes 23,132 12,542 Financial Information Profit 41,788 26,520 Loss attributable to non-controlling interests (0) (0) Profit attributable to owners of parent 41,788 26,521

30 mixi GROUP Annual Report 2019 Consolidated Financial Statements 31 Consolidated Financial Statements

Consolidated Statements of Changes in Shareholders’ Equity Consolidated Statements of Cash Flows mixi, Inc. and Consolidated Subsidiaries mixi, Inc. and Consolidated Subsidiaries (Millions of yen) Fiscal year ended March 31, 2018 (April 1, 2017 to March 31, 2018) (Millions of yen) FY2018 FY2019 Shareholders’ equity (April 1, 2017 to March 31, 2018) (April 1, 2018 to March 31, 2019) Total shareholders’ Capital stock Capital surplus Retained earnings Treasury shares equity Cash flows from operating activities Balance at beginning of period 9,698 10,941 139,914 (10,525) 150,029 Income before income taxes 64,920 39,063 Changes of items during period Depreciation 783 1,058 Dividends of surplus (12,230) (12,230) Impairment loss 131 349 Profit attributable to owners of parent 41,788 41,788 Purchase of treasury shares (9,999) (9,999) Loss on withdrawal from business — 310 Disposal of treasury shares — Amortization of goodwill 8,683 — Retirement of treasury shares (19,075) 19,075 — Increase (decrease) in allowance for doubtful accounts 9 10 Transfer to capital surplus from retained earnings 17,802 (17,802) — Increase (decrease) in provision for bonuses (610) (76) Net changes of items other than shareholders’ equity Total changes of items during period — (1,272) 11,755 9,075 19,557 Interest income (3) (4) Balance at end of period 9,698 9,668 151,669 (1,450) 169,587 Interest expenses 0 0 Foreign exchange losses (gains) 11 (9) (Millions of yen) Commission fee 196 197 Accumulated other comprehensive income Non- Subscription Loss (gain) on investments in partnership (493) (17) controlling Total net assets Valuation difference on Foreign currency Total accumulated other rights to shares Loss (gain) on sales of shares of subsidiaries and associates — (642) available-for-sale securities translation adjustment comprehensive income interests Balance at beginning of period — 242 242 253 4 150,529 Loss (gain) on valuation of investment securities 391 524 Changes of items during period Loss (gain) on sales of investment securities (346) (212) Dividends of surplus (12,230) Loss (gain) on sales and retirement of non-current assets 22 18 Profit attributable to owners of parent 41,788 Decrease (increase) in notes and accounts receivable — trade 4,482 2,389 Purchase of treasury shares (9,999) Decrease (increase) in inventories (362) 355 Disposal of treasury shares — Retirement of treasury shares — Increase (decrease) in accounts payable — other 958 373 Transfer to capital surplus from retained earnings — Increase (decrease) in accrued consumption taxes (769) (101) Net changes of items other than shareholders’ equity — (29) (29) 376 (0) 346 Other, net (3,117) (4,614) Total changes of items during period — (29) (29) 376 (0) 19,904 Subtotal 74,888 38,975 Balance at end of period — 212 212 630 4 170,434 Interest income received 1 2 Interest expenses paid (0) (0) Fiscal year ended March 31, 2019 (April 1, 2018 to March 31, 2019) Income taxes paid (24,915) (20,863) (Millions of yen) Net cash provided by (used in) operating activities 49,975 18,113 Shareholders’ equity Cash flows from investing activities Total shareholders’ Purchase of property, plant and equipment (1,329) (3,512) Capital stock Capital surplus Retained earnings Treasury shares equity Purchase of intangible assets (331) (253) Balance at beginning of period 9,698 9,668 151,669 (1,450) 169,587 Purchase of investment securities (1,644) (3,238) Changes of items during period Proceeds from sales of investment securities 445 285 Dividends of surplus (8,967) (8,967) Profit attributable to owners of parent 26,521 26,521 Proceeds from share of profits on investment securities 750 282 Purchase of treasury shares (9,999) (9,999) Proceeds from withdrawal of investment securities 75 — Disposal of treasury shares (154) 544 389 Collection of loans receivable — 307 Retirement of treasury shares — Payments for guarantee deposits (3,573) (158) Transfer to capital surplus from retained earnings 154 (154) — Net changes of items other than shareholders’ equity Payment for acquisition of the subsidiary resulting in change in scope of consolidation (Note 7 (*2)) — (4,553) Total changes of items during period — — 17,399 (9,455) 7,944 Payments for sales of shares of subsidiaries resulting in change in scope of consolidation (Note 7 (*3)) — (24) Balance at end of period 9,698 9,668 169,069 (10,905) 177,531 Proceeds from sales of shares of subsidiaries resulting in change in scope of consolidation (Note 7 (*3)) — 49

(Millions of yen) Other, net 7 3 Net cash provided by (used in) investing activities (5,601) (10,811) Accumulated other comprehensive income Non- Subscription Cash flows from financing activities controlling Total net assets Valuation difference on Foreign currency Total accumulated other rights to shares available-for-sale securities translation adjustment comprehensive income interests Repayments of long-term loans payable (10) — Financial Information Balance at beginning of period — 212 212 630 4 170,434 Proceeds from disposal of treasury shares — 0 Changes of items during period Purchase of treasury shares (10,195) (10,111) Dividends of surplus (8,967) Cash dividends paid (12,239) (8,965) Profit attributable to owners of parent 26,521 Purchase of treasury shares (9,999) Other, net (1) (1) Disposal of treasury shares 389 Net cash provided by (used in) financing activities (22,447) (19,079) Retirement of treasury shares — Effect of exchange rate change on cash and cash equivalents (14) 3 Transfer to capital surplus from retained earnings — Net increase (decrease) in cash and cash equivalents 21,912 (11,773) Net changes of items other than shareholders’ equity 665 21 687 (74) (0) 612 Cash and cash equivalents at beginning of period 134,278 156,190 Total changes of items during period 665 21 687 (74) (0) 8,556 Balance at end of period 665 234 900 555 3 178,990 Cash and cash equivalents at end of period (Note 7 (*1)) 156,190 144,417

32 mixi GROUP Annual Report 2019 Consolidated Financial Statements 33 Notes to Consolidated Financial Statements

1. Important matters that form the basis of preparing consolidated financial statements on its useful life within mixi (5 years). translation adjustments are recorded as gains or losses. Assets, 3) Leased assets liabilities, income, and expenses of overseas consolidated Leased assets pertaining to finance leases other than those in subsidiaries are translated into Japanese yen using the spot 1. Matters related to the scope of consolidation 3. Matters related to the fiscal year of which the title of the leased property transfers to the lessee exchange rate on the consolidated balance sheet date, and (1) Number of consolidated subsidiaries: 19 consolidated subsidiaries The straight line method, substituting the lease term for the translation adjustments are included in foreign currency Names of the major consolidated subsidiaries: Among consolidated subsidiaries, the balance sheet date of useful life, assuming no residual value. translation adjustment and non-controlling interests under mixi recruitment, Inc. Scrum Ventures Fund I, L.P. and five other companies is “Net assets.” December 31, and the balance sheet date of Hunza, Inc. is (3) Accounting standards for significant allowances UNLIM, Inc. and one other company are newly established February 28 or 29, and their financial statements as at their and provisions (5) Amortization method and amortization period of companies, and Chariloto Co., Ltd. and one other company are respective balance sheet dates are used. However, necessary 1) Allowance for doubtful accounts goodwill newly acquired companies, all of which have been included in adjustments are made to reflect important transactions that In order to provide for losses due to bad debt, including on Amortized over a period of eight years using the straight line the scope of consolidation from the fiscal year ended March occurred during their balance sheet dates to the consolidated notes and accounts receivable – trade, for general receivables, method. However, in the case where the amount is immaterial, 31, 2019. balance sheet date. an estimated uncollectible amount is recorded according to the entire amount is amortized at the time of occurrence. On the other hand, Diverse, Inc. and nohana, Inc., which the historical bad debt ratio. For specific receivables at risk of were consolidated subsidiaries in the previous fiscal year, have 4. Matters related to accounting policies becoming bad debt, an estimated uncollectible amount is (6) Scope of cash and cash equivalents in the been excluded from the scope of consolidation, as a result of (1) Valuation standards and valuation methods of recorded by assessing the collectability of each receivable consolidated statements of cash flows the transfer of their shares in entirety in the fiscal year ended significant assets individually. Cash and cash equivalents consist of cash on hand, deposits March 31, 2019. 1) Securities 2) Accrued employees' bonuses that can be withdrawn at any time and short-term investments Available-for-sale securities with market value In order to provide for payment of bonuses to employees, the with a maturity of three months or less from the date of (2) Names of major non-consolidated subsidiaries Stated at market value as of the final balance sheet date using amount of bonuses estimated to be incurred in the acquisition that are readily convertible into cash and subject and others the market value method (valuation differences are directly consolidated fiscal year under review is recorded. to minimum risk of price fluctuations. eMercury, Inc. and three other companies included in net assets, while cost of products sold is calculated by the moving-average method). (4) Translation of significant assets and liabilities (7) Other important matters that form the basis for (Reason for exclusion from the scope of consolidation) Available-for-sale securities without market value denominated in foreign currencies into Japanese yen preparing consolidated financial statements eMercury, Inc. and three other companies have been excluded Stated at cost using the moving-average method. Investments Monetary receivables and payables denominated in foreign Accounting method for consumption taxes from the scope of consolidation as they are small-scale in investment partnerships and others are based on the currencies have been translated into Japanese yen at the spot Accounted for by the tax-exclusion method. companies and their combined total assets, net sales, profit or financial statements for the most recent balance sheet date exchange rate on the consolidated balance sheet date, and loss (amount corresponding to equity interest) and retained using the net amount proportionate to mixi’s ownership earnings (amount corresponding to equity interest) and others interests. have no significant impact on the consolidated financial 2) Inventories 2. Accounting standards, etc. not applied statements. Merchandise Stated at cost determined by the first-in, first-out (FIFO) 2. Matters related to the application of equity method (the book value in the balance sheet is written down • “Accounting Standard for Revenue Recognition” (Accounting Standards Board of Japan (ASBJ) Statement No. 29, March 30, 2018) method based on the decline in profitability). • “Implementation Guidance on Accounting Standard for Revenue Recognition” (ASBJ Guidance No. 30, March 30, 2018) (1) Number of equity-method associates Raw materials There is no relevant information. Stated at cost determined by the first-in, first-out (FIFO) (1) Overview (2) Scheduled date of application method (the book value in the balance sheet is written down This is a comprehensive accounting standard regarding The scheduled date of application is at the start of the fiscal (2) Number of non-consolidated subsidiaries to based on the decline in profitability). revenue recognition. Revenue is recognized by applying the year ending March 31, 2022. which the equity method is not applicable: 4 following five steps. Names of the major companies and others: (2) Depreciation and amortization methods of Step 1: Identify the contract with the customer. (3) Impact of application of the said accounting eMercury, Inc. and three other companies significant depreciation assets Step 2: Identify the performance obligations in the contract. standards, etc. 1) Property, plant and equipment (excluding leased assets) Step 3: Calculate the transaction price. At the time of preparation of these consolidated financial (Reason for not applying the equity method) The declining balance method is primarily applied. Step 4: Allocate the transaction price among the performance statements, the financial impact was in the process of eMercury, Inc. and three other non-consolidated companies However, the straight line method is applied for buildings obligations in the contract. evaluation. are excluded from the scope of application of the equity (excluding facilities attached to buildings) acquired on or after Step 5: Recognize revenue when a performance obligation is Financial Information method since their exclusion has an insignificant impact on April 1, 1998 and facilities attached to buildings acquired on or fulfilled, or in line with the fulfillment. the consolidated financial statements in terms of profit or loss after April 1, 2016. (amount corresponding to equity interest) and retained The principle useful lives are as follows: earnings (amount corresponding to equity interest) and Buildings: 2 to 27 years others. Tools, furniture and fixtures: 2 to 20 years 2) Intangible assets (excluding leased assets) The straight line method is applied. The amortization period for software for internal use is based

34 mixi GROUP Annual Report 2019 Notes to Consolidated Financial Statements 35 Notes to Consolidated Financial Statements

3. Changes in presentation method *6. Loss on withdrawal from business For the consolidated fiscal year ended March 31, 2018 (April 1, 2017 to March 31, 2018) There is no relevant information. (Changes associated with the application of the “Partial in a change whereby deferred tax assets are presented under For the consolidated fiscal year ended March 31, 2019 (April 1, 2018 to March 31, 2019) Amendments to Accounting Standard for Tax Effect investments and other assets, and deferred tax liabilities are mixi recorded a loss resulting from the withdrawal from telecommunications-related business, including mainly ¥1,913 million for Accounting”) presented under non-current liabilities. disposal of inventories and retirement of non-current assets as well as ¥104 million for expenses from termination of contracts. The Company applied the “Partial Amendments to Accounting As a result, “Deferred tax assets” of ¥808 million under “Current Standard for Tax Effect Accounting” (The Accounting Standards assets” are included in “Deferred tax assets” of ¥10,486 million *7. The breakdown of loss on sales and retirement of non-current assets is as follows: Board of Japan (ASBJ) Statement No. 28; February 16, 2018) from under “Investments and other assets” in the consolidated balance (Millions of yen) the beginning of the fiscal year ended March 31, 2019, resulting sheet for the previous fiscal year ended March 31, 2018. FY2018 FY2019 (April 1, 2017 to March 31, 2018) (April 1, 2018 to March 31, 2019)

Buildings — 0 4. Consolidated statements of income Tools, furniture and fixtures 24 7 Other 0 11 *1. The major components and amounts of selling, general and administrative expenses are as follows: (Millions of yen) Total 24 19

FY2018 FY2019 (April 1, 2017 to March 31, 2018) (April 1, 2018 to March 31, 2019) *8. Impairment loss Advertising expenses 23,593 24,419 For the consolidated fiscal year ended March 31, 2018 (April 1, 2017 to March 31, 2018) mixi Group posted impairment loss on the following assets in the consolidated fiscal year ended March 31, 2018. Settlement fees 53,634 40,845 Business Application Place Classification Amount (Millions of yen) Tools, furniture and fixtures 0 *2. The amount of research and development expenses, included in selling, general and administrative expenses, is as follows: Lifestyle Business Business assets — (Millions of yen) Other intangible assets 131

FY2018 FY2019 Assets are grouped mainly based on business segmentation. Idle assets and assets to be disposed of are grouped by relevant asset. (April 1, 2017 to March 31, 2018) (April 1, 2018 to March 31, 2019) Impairment loss in the Lifestyle Business was recognized due to the fact that the revenue initially expected can no longer be 635 1 expected in line with the decision to stop operations of Ticket Camp, operated by Hunza, Inc., and to shut down the service. Recoverable value of these assets is calculated by estimating the collectible amount, which amounts to zero due to the fact that no future cash flow can be anticipated. *3. The breakdown of gain on sales of non-current assets are as follows: (Millions of yen) For the consolidated fiscal year ended March 31, 2019 (April 1, 2018 to March 31, 2019) FY2018 FY2019 mixi Group posted impairment loss on the following assets in the consolidated fiscal year ended March 31, 2019. (April 1, 2017 to March 31, 2018) (April 1, 2018 to March 31, 2019) Business Application Place Classification Amount (Millions of yen) Tools, furniture and fixtures 2 1 Buildings 158 Entertainment Shibuya Ward, Store Tools, furniture and fixtures 83 Business Tokyo *4. Gain on sales of investment securities Other intangible assets 91 For the consolidated fiscal year ended March 31, 2018 (April 1, 2017 to March 31, 2018) mixi recorded a gain on sales of investment securities owned by i-mercury Capital, Inc. Assets are grouped based on management accounting segmentation on which revenues and expenditures are taken in on an ongoing basis. Idle assets and assets to be disposed of are grouped by relevant asset. For the consolidated fiscal year ended March 31, 2019 (April 1, 2018 to March 31, 2019) Impairment loss in the Entertainment Business was recorded due to the fact that the revenue initially expected for a store mixi recorded a gain on sales of investment securities owned by mixi, Inc. and i-mercury Capital, Inc. operated by mixi can no longer be expected. Recoverable value of these assets is calculated by estimating the collectible amount, which amounts to zero due to the fact that

*5. Gain on sales of shares of subsidiaries and associates no future cash flow can be anticipated. Financial Information For the consolidated fiscal year ended March 31, 2018 (April 1, 2017 to March 31, 2018) There is no relevant information. *9. Loss on valuation of investment securities For the consolidated fiscal year ended March 31, 2019 (April 1, 2018 to March 31, 2019) For the consolidated fiscal year ended March 31, 2018 (April 1, 2017 to March 31, 2018) mixi recorded a gain on sale of shares in Diverse, Inc. and nohana, Inc mixi recorded a loss on valuation of investment securities owned by i-mercury Capital, Inc. For the consolidated fiscal year ended March 31, 2019 (April 1, 2018 to March 31, 2019) mixi recorded a loss on valuation of investment securities owned by mixi, Inc. and i-mercury Capital, Inc.

36 mixi GROUP Annual Report 2019 Notes to Consolidated Financial Statements 37 Notes to Consolidated Financial Statements

5. Consolidated statements of comprehensive income 3. Matters related to subscription rights to shares

Class of shares Number of shares subject to subscription rights Balance as of *1. Reclassification adjustments and tax effect associated with other comprehensive income Company name Details subject to sub- As of April 1, As of March March 31, 2018 Increase Decrease (Millions of yen) scription rights 2017 31, 2018 (Millions of yen) FY2018 FY2019 Subscription rights (April 1, 2017 to March 31, 2018) (April 1, 2018 to March 31, 2019) mixi, Inc. to shares as stock — 630 option Valuation difference on available-for-sale securities: Total — 630 Gains (losses) arising during the period — 959 Reclassification adjustments — — 4. Matters related to dividends of surplus Amount before income tax effect — 959 (1) Cash dividends paid Income tax effect — (293) Total amount of Dividends per share Valuation difference on available-for-sale securities — 665 Resolution Class of shares dividends Record date Effective date (Yen) Foreign currency translation adjustment: (Millions of yen) Board of Directors Gains (losses) arising during the period (29) 21 March 31, June 7, Meeting on Common shares 7,238 91 Reclassification adjustments — — 2017 2017 May 10, 2017 Amount before income tax effect (29) 21 Board of Directors September 30, December 11, Income tax effect — — Meeting on Common shares 4,992 64 2017 2017 November 8, 2017 Foreign currency translation adjustment (29) 21 Total other comprehensive income (29) 687 (2) Dividends with record dates within the consolidated fiscal year ended March 31, 2018, but with effective dates belonging to the following consolidated fiscal year

Total amount of 6. Consolidated statements of changes in shareholders’ equity Funds for Dividends per Resolution Class of shares dividends Record date Effective date dividends share (Yen) (Millions of yen) For the consolidated fiscal year ended March 31, 2018 (April 1, 2017 to March 31, 2018) Board of Directors Retained Meeting on Common shares 4,446 57 March 31, 2018 June 6, 2018 earnings 1. Matters related to class and total number of issued shares May 10, 2018

Class of shares As of April 1, 2017 Increase Decrease As of March 31, 2018 Common shares For the consolidated fiscal year ended March 31, 2019 (April 1, 2018 to March 31, 2019) 81,879,450 — 3,648,600 78,230,850 (Shares) 1. Matters related to class and total number of issued shares Class of shares As of April 1, 2018 Increase Decrease As of March 31, 2019 (Summary of causes of changes) Common shares Decrease due to retirement of treasury shares: 3,648,600 shares 78,230,850 — — 78,230,850 (Shares)

2. Matters related to class and total number of treasury shares 2. Matters related to class and total number of treasury shares Class of shares As of April 1, 2017 Increase Decrease As of March 31, 2018 Common shares Class of shares As of April 1, 2018 Increase Decrease As of March 31, 2019 2,335,200 1,542,700 3,648,600 229,300

(Shares) Common shares Financial Information 229,300 2,795,800 143,800 2,881,300 (Shares) (Summary of causes of changes) Increase due to purchase of treasury shares: 1,542,700 shares (Summary of causes of changes) Decrease due to retirement of treasury shares: 3,648,600 shares Increase due to purchase of treasury shares: 2,795,800 shares Decrease due to disposal of shares upon exercise of subscription rights to shares: 143,800 shares

38 mixi GROUP Annual Report 2019 Notes to Consolidated Financial Statements 39 Notes to Consolidated Financial Statements

3. Matters related to subscription rights to shares For the consolidated fiscal year ended March 31, 2019 (April 1, 2018 to March 31, 2019) The breakdown of assets and liabilities at the date when Chariloto Co., Ltd. was included within the scope of consolidation due to Number of shares subject to subscription rights Class of shares Balance as of the acquisition of shares, as well as the relationship between the acquisition cost of the shares and payments (net) for the Company name Details subject to sub- As of April 1, As of March March 31, 2019 Increase Decrease acquisition are as follows: scription rights 2018 31, 2019 (Millions of yen) (Millions of yen) Subscription Current assets 1,004 mixi, Inc. rights to shares — 555 as stock option Non-current assets 636 Total — 555 Deferred assets 0 Goodwill 5,121 4. Matters related to dividends of surplus Current liabilities (1,146) (1) Cash dividends paid Non-current liabilities (616) Total amount of Purchase price of shares 5,000 Dividends per share Resolution Class of shares dividends Record date Effective date (Yen) Cash and cash equivalents resulting from inclusion of subsidiaries in consolidation (446) (Millions of yen) Balance: Payment for acquisition of shares of subsidiary resulting in change in scope of consolidation 4,553 Board of Directors March 31, June 6, Meeting on Common shares 4,446 57 2018 2018 May 10, 2018 *3. Principal assets and liabilities of companies that have been excluded from the scope of consolidation due to the sales of shares Board of Directors September 30, December 10, Meeting on Common shares 4,520 60 For the consolidated fiscal year ended March 31, 2018 (April 1, 2017 to March 31, 2018) 2018 2018 November 8, 2018 There is no relevant information. For the consolidated fiscal year ended March 31, 2019 (April 1, 2018 to March 31, 2019) (2) Dividends with record dates within the consolidated fiscal year ended March 31, 2019, but with effective dates The breakdown of assets and liabilities at the date of sales of shares in Diverse, Inc., which has been excluded from the scope of belonging to the following consolidated fiscal year consolidation due to the sales of shares, as well as the relationship between the sales price of the shares and payments (net) for the sales are as follows: Total amount of Funds for Dividends per (Millions of yen) Resolution Class of shares dividends Record date Effective date dividends share (Yen) (Millions of yen) Current assets 738 Board of Directors Non-current assets 69 Retained March 31, June 11, Meeting on Common shares 4,520 60 earnings 2019 2019 Current liabilities (742) May 10, 2019 Gain on sales of shares 356 Sales price of shares 421 7. Consolidated statements of cash flows Cash and cash equivalents (371) Balance: Proceeds from sales of shares of subsidiaries resulting in change in scope of consolidation 49

*1. The ending balance of cash and cash equivalents and its relationship to the amounts of items listed in the consolidated balance The breakdown of assets and liabilities at the date of sales of shares in nohana, Inc., which has been excluded from the scope of sheets are as follows: consolidation due to the sales of shares, as well as the relationship between the sales price of the shares and payments (net) for the (Millions of yen) sales are as follows: (Millions of yen) FY2018 FY2019 (April 1, 2017 to March 31, 2018) (April 1, 2018 to March 31, 2019) Current assets 204 Cash and deposits account 156,190 144,417 Non-current assets 11 Cash and cash equivalents 156,190 144,417

Current liabilities (402) Financial Information Gain on sales of shares 285 *2. Principal assets and liabilities of companies that have become consolidated subsidiaries due to the acquisition of shares Sales price of shares 100 For the consolidated fiscal year ended March 31, 2018 (April 1, 2017 to March 31, 2018) Cash and cash equivalents (124) There is no relevant information. Balance: Payments for sales of shares of subsidiaries resulting in change in scope of consolidation (24)

40 mixi GROUP Annual Report 2019 Notes to Consolidated Financial Statements 41 Notes to Consolidated Financial Statements

8. Lease transactions For the consolidated fiscal year ended March 31, 2018 (as of March 31, 2018) (Millions of yen) Amount recorded on Operating lease transactions consolidated balance Fair value* Difference Accrued lease payments related to non-cancellable operating lease transactions sheets* (Millions of yen) (1) Cash and deposits 156,190 156,190 — FY2018 FY2019 (2) Accounts receivable — trade 11,732 (April 1, 2017 to March 31, 2018) (April 1, 2018 to March 31, 2019) Allowance for doubtful accounts (16) Less than 1 year 1,124 1,174 11,716 11,716 — More than 1 year 553 232 (3) Accounts payable — other (7,068) (7,068) — Total 1,678 1,406 (4) Income taxes payable (9,909) (9,909) — (5) Accrued consumption taxes (95) (95) —

* Items recorded as liabilities are denoted by ( ). 9. Financial instruments For the consolidated fiscal year ended March 31, 2019 (as of March 31, 2019) (Millions of yen) 1. Matters related to status of financial situation. Investment securities are composed mainly of shares instruments in companies with which the Group has business relationships Amount recorded on * (1) Policy on financial instruments and investments in investment partnerships and are exposed consolidated balance Fair value Difference sheets* In regard to fund management, the mixi Group only invests its to credit risk but the Group monitors the financial situation of funds in highly safe short-term financial assets. The Group’s issuers and investment partnerships on a regular basis. (1) Cash and deposits 144,417 144,417 — policy on financing for consolidated subsidiaries is to use Financial liabilities consist mainly of accounts payable — other, (2) Accounts receivable — trade 9,402 internal funds and loans from banks and other financial and income taxes payable. Accounts payable — other are Allowance for doubtful accounts (27) institutions. mainly due within one month. In regard to liquidity risk 9,375 9,375 — whereby financing is no longer possible, mixi has abundant (3) Investment securities — other 1,417 1,417 — (2) Details of financial instruments, related risks, and cash reserves and has secured liquidity. For consolidated risk management system subsidiaries, the department responsible manages the (4) Consumption taxes receivable The main financial assets are cash and deposits, accounts liquidity risk by preparing and updating the cash management Available-for-sale securities 989 989 — receivable-trade, and investment securities. Deposits are plan in a timely manner. (5) Accounts payable — other (8,298) (8,298) — mainly composed of ordinary deposits, and are exposed to the credit risk of parties holding the deposits but these parties are 2. Matters related to fair value and others of (6) Income taxes payable (504) (504) — banks with high creditworthiness. Accounts receivable-trade financial instruments * Items recorded as liabilities are denoted by ( ). are exposed to the credit risk of customers but in addition to The amounts recorded in the consolidated balance sheets, fair regular management of the due dates and balance of each value and the difference between the two as of the balance (Notes) customer by credit management personnel in accordance sheet date are as follows. Items for which it is extremely 1. Matters related to the calculation method of fair value of financial instruments with credit management policies, the Group also strives for the difficult to determine the fair value are not included in the (1) Cash and deposits, (2) Accounts receivable — trade and (3) Consumption taxes receivable: early detection and mitigation of concerns for recovery due to following table. (See (Note 2)). As these are based on short-term settlements, their fair values approximate their book values, and therefore their book values are reasons such as the deterioration of a customer’s financial used. (3) Investment securities: Regarding these fair values, the shares are based on the price on the stock exchange. (4) Accounts payable — other and (5) Income taxes payable: As these are based on short-term settlements, their fair values approximate their book values, and therefore their book values are used. Financial Information

42 mixi GROUP Annual Report 2019 Notes to Consolidated Financial Statements 43 Notes to Consolidated Financial Statements

2. Consolidated balance sheet amounts of financial instruments whose market values are deemed to be extremely difficult 11. Retirement benefits to determine (Millions of yen) 1. Outline of retirement benefit plans 2. Defined contribution plan Classification As of March 31, 2018 As of March 31, 2019 mixi and one of its consolidated subsidiaries in Japan have The amount contributed by mixi and its consolidated adopted a defined contribution plan and an advance payment subsidiaries in Japan to the defined contribution plan was Unlisted shares and others 906 1,636 plan with optional plans. ¥41 million for the previous consolidated fiscal year and Contribution to investment partnerships 2,444 4,061 ¥59 million for the current consolidated fiscal year.

The above financial instruments are not included in the above table as their market prices are not available, future cash flows 12. Stock options cannot be estimated, and market values are deemed extremely difficult to determine.

3. Scheduled redemption amount of monetary receivables after the consolidated balance sheet date 1. Amount recorded as expenses and item in which such expenses are recorded For the consolidated fiscal year ended March 31, 2018 (as of March 31, 2018) (Millions of yen)

More than 1 year and less More than 5 years and Less than 1 year More than 10 years FY2018 FY2019 than 5 years less than 10 years (Millions of yen) (Millions of yen) (Millions of yen) (Millions of yen) Selling, general and administrative expenses 376 314 Cash and deposits 156,190 — — — Accounts receivable — trade 11,732 — — — 2. Details and volume of stock options and changes thereto Total 167,923 — — — (1) Details of stock options

2016 2017 For the consolidated fiscal year ended March 31, 2019 (as of March 31, 2019) Stock Option Stock Option More than 1 year and less More than 5 years and mixi’s executive officers: mixi’s executive officers: Less than 1 year More than 10 years Classification and number of persons granted stock options than 5 years less than 10 years 3 persons 4 persons (Millions of yen) (Millions of yen) (Millions of yen) (Millions of yen) Common shares: Common shares: Number of stock options (Note) Cash and deposits 144,417 — — — 133,800 shares 95,500 shares Grant date August 29, 2016 August 29, 2017 Accounts receivable — trade 9,402 — — — Vesting conditions No conditions Same as on the left Total 153,820 — — — No requirement for period Period of service eligible Same as on the left of service From August 30, 2016 to From August 30, 2017 to Exercise period 10. Securities August 29, 2046 August 29, 2047

2018 2018 Available-for-sale securities Stock Option 1 Stock Option 2 For the consolidated fiscal year ended March 31, 2018 (as of March 31, 2018) mixi’s executive officers: mixi’s corporate officers: Classification and number of persons granted stock options There is no relevant information. 4 persons 7 persons Common shares: Common shares: Number of stock options (Note) For the consolidated fiscal year ended March 31, 2019 (as of March 31, 2019) 205,500 shares 57,400 shares (Millions of yen) Grant date August 29, 2018 November 26, 2018 Amount recorded on Acquisition cost Difference Classification consolidated balance Vesting conditions No conditions Same as on the left (Millions of yen) (Millions of yen) sheets (Millions of yen) No requirement for period Period of service eligible Same as on the left Financial Information Amount recorded on consolidated balance sheets of service From August 30, 2018 to From November 27, 2019 to that exceeds acquisition cost Exercise period Shares 989 30 959 August 29, 2048 November 26, 2024 Total 989 30 959 (Note) The number of stock options is presented by converting into the number of shares.

44 mixi GROUP Annual Report 2019 Notes to Consolidated Financial Statements 45 Notes to Consolidated Financial Statements

(2) Volume of stock options and changes thereto 2018 2018 The following table shows information related to the stock options that existed during the current consolidated fiscal year (fiscal Stock Option 1 Stock Option 2 year ended March 31, 2019). The number of stock options is presented by converting into the number of shares. Exercise price (Yen) 1 1 1) Number of stock options Average stock price at exercise (Yen) — — A: 2,319 2016 2017 Fairly evaluated unit price (as of grant date) (Yen) 1,380 B: 2,207 Stock Option Stock Option C: 2,101 Before vesting of stock options (Shares) (Note) As conditions for exercise in phases have been established for 2018 Stock Option 2, three kinds of fairly evaluated unit prices are stated in As of March 31, 2018 — — accordance with different expected remaining periods. Granted — — 3. Method of estimation of fairly evaluated unit price of stock options granted during the current Expired — — consolidated fiscal year Vested — — (1) Method used for evaluation: Black-Scholes model Not vested — — (2) Major basic figures used and method of estimation

After vesting of stock options (Shares) 2018 As of March 31, 2018 133,800 95,500 Stock Option 1 Vested — — Stock price volatility (Note 1) 68.16% Exercised 86,800 57,000 Expected remaining period (Note 2) 15.00 years Expired — — Expected dividends (Note 3) ¥121 per share Not vested 47,000 38,500 Risk-free interest rate (Note 4) 0.36%

(Notes) 1. Calculated based on the actual stock prices during the period from September 11, 2006 to August 29, 2018 2018 2018 2. Estimated based on the assumption that the rights are exercised in the middle of the exercise period as Stock Option 1 Stock Option 2 reasonable estimation is difficult due to insufficient historical data 3. Based on the actual dividends paid for the fiscal year ended March 31, 2018 Before vesting of stock options (Shares) 4. Interest rate of government bonds corresponding to the expected remaining period As of March 31, 2018 — — Granted 205,500 57,400 Expired — — Vested 205,500 57,400 Not vested — — After vesting of stock options (Shares) As of March 31, 2018 — — Vested 205,500 57,400 Exercised — — Expired — — Not vested 205,500 57,400

2) Unit price information Financial Information

2016 2017 Stock Option Stock Option Exercise price (Yen) 1 1 Average stock price at exercise (Yen) 2,753 2,757 Fairly evaluated unit price (as of grant date) (Yen) 1,897 3,944

46 mixi GROUP Annual Report 2019 Notes to Consolidated Financial Statements 47 Notes to Consolidated Financial Statements

2018 13. Tax effect accounting Stock Option 2 A: 28.00% 1. Breakdown by main causes of deferred tax assets and deferred tax liabilities Stock price volatility (Note 1) B: 28.12% (Millions of yen) C: 34.46% A: 1 year FY2018 FY2019 Expected remaining period (Note 2) B: 2 years (As of March 31, 2018) (As of March 31, 2019) C: 3 years Deferred tax assets: Expected dividends (Note 3) ¥120 per share Buildings 47 121 A: (0.16)% Tax losses carried forward 281 262 Risk-free interest rate (Note 4) B: (0.14)% C: (0.12)% Software 9,536 8,865 (Notes) 1. Stock price volatility is calculated based on the actual stock prices during the following three periods that Investment securities 395 669 correspond to the expected remaining periods. Enterprise tax payable 471 43 A: November 25, 2017 to November 26, 2018 B: November 24, 2016 to November 26, 2018 Provision for bonuses 275 255 C: November 25, 2015 to November 26, 2018 Subscription rights to shares 193 170 2. As reasonable estimation is difficult due to insufficient historical data, the expected remaining periods are assumed to be the three periods from the date of calculation to the time when the applicable Advances received 112 162 subscription rights to shares can be exercised in each phase, and their fairly evaluated unit prices are calculated accordingly. Other 160 419 A: November 26, 2018 to November 27, 2019 Subtotal of deferred tax assets 11,476 10,969 B: November 26, 2018 to November 27, 2020 C: November 26, 2018 to November 27, 2021 Valuation allowance (990) (1,249) 3. Based on the dividends forecast to be paid for the fiscal year ended March 31, 2019 Total deferred tax assets 10,486 9,720 4. Interest rate of government bonds corresponding to the expected remaining period A: Redemption date — November 15, 2019 B: Redemption date — December 20, 2020 Deferred tax liabilities: C: Redemption date — December 20, 2021 Valuation difference on available-for-sale securities — (293) 4. Method of estimation of the number of stock options vested Total deferred tax liabilities — (293) As it is difficult to reasonably estimate the number of stock options that will expire in the future, only the number of stock options which actually expired is reflected. Net deferred tax assets 10,486 9,426

2. Breakdown of main items that cause difference when an important difference arises between statutory tax rate and effective tax rate of income taxes and others after application of tax effect accounting

(%)

FY2018 FY2019 (As of March 31, 2018) (As of March 31, 2019)

Statutory tax rate 30.9 — (Adjustment) Amortization of goodwill 4.1 — Valuation allowance 0.6 — Financial Information Tax deductions (0.6) — Other 0.6 — Effective tax rate of income taxes and others after application of tax 35.6 — effect accounting (Note) In the consolidated fiscal year under review, as the difference between the statutory tax rate and the effective tax rate of income taxes and others after the application of tax effect accounting was less than 5% of the statutory tax rate, information regarding the difference is omitted.

48 mixi GROUP Annual Report 2019 Notes to Consolidated Financial Statements 49 Notes to Consolidated Financial Statements

14. Business combinations (4) Details and amounts of major acquisition-related expenses Advisory fees and research cost: ¥36 million

For the consolidated fiscal year ended March 31, 2018 (April 1, 2017 to March 31, 2018) (5) Amount of goodwill arising from business combination, reason for recognizing goodwill, method and There is no relevant information. period of amortization 1) Amount of goodwill arising from business combination For the consolidated fiscal year ended March 31, 2019 (April 1, 2018 to March 31, 2019) ¥5,121 million Business combination through the acquisition The amount of goodwill is calculated tentatively because the identification of specific identifiable assets and liabilities and (1) Summary of business combination the estimation of their fair values at the date of the business combination is incomplete and the allocation of acquisition 1) Name of the acquired entity and description of its business cost has not been completed. Name: Chariloto Co., Ltd. 2) Reason for recognizing goodwill Description of its business: Sales of keirin (Japanese track cycling) race betting ticket at ticket offices and via the Internet, Goodwill was generated due to the difference between the value of equity interest held by the acquiring company in the as well as management of such operation acquired company and the acquisition cost. 2) Reason for the business combination 3) Method and period of amortization mixi is currently investing in new fields in order to create another pillar of business following the success of Monster Strike. Goodwill is amortized using the straight line method across the period where effects arise. The amortization period will be One point of heavy focus for investment is the field of sports, an area in which they continue to develop new businesses determined based on the results of acquisition cost allocation. and consider M&A opportunities. Chariloto is a company that operates “chariloto.com,” which provides an online voting service for keirin and auto races. (6) Amount of assets accepted and liabilities assumed on the date of the business combination and major By combining the business foundation of Chariloto with the knowledge and technologies of mixi, Chariloto is expected to breakdown thereof further grow into a pillar of business in the field of sports. Therefore, mixi acquired its shares. Please refer to the notes of the Consolidated Statements of Cash Flows. 3) Date of the business combination February 28, 2019 (7) Approximate amount of impact on the consolidated statements of income for the fiscal year ended March 4) Legal form of the business combination 31, 2019, and the calculation method thereof, assuming that the business combination was completed on Acquisition of shares the commencement date of the fiscal year 5) Name of the entity after the business combination The approximate amount of such impact is omitted as it is immaterial. Chariloto Co., Ltd. 6) Ratio of voting rights acquired 100% 15. Segment information 7) Primary ground for determining the acquiring company Due to the acquisition by mixi of all shares of Chariloto Co., Ltd. and its conversion to a consolidated subsidiary. 1. Overview of reportable segments (2) Period of business performance of the acquired company which is included in the consolidated financial mixi Group’s reportable segments are components for which separate financial information is available and whose operating results statements are regularly reviewed by the Board of Directors to decide on the allocation of management resources and assess business The business performance of the acquired company is not included in the consolidated financial statements for the performance. consolidated fiscal year ended March 31, 2019 for the reasons that the acquisition was deemed to be implemented on The Group has two reportable segments, namely “Entertainment Business” and “Lifestyle Business,” the former engages in the December 31, 2018 (balance sheet date of Chariloto Co., Ltd.) and the consolidated balance sheets are compiled based on business operations providing native smartphone games, including mainstay Monster Strike along with organizing related events, the financial statements as of the same date. producing and selling various goods, and sales of keirin race betting tickets, etc. while the latter providing services including family photo & video sharing application FamilyAlbum (Mitene), beauty salon staff direct appointment application minimo, as well as (3) Acquisition cost of the acquired company and its breakdown by type of consideration running a personalized physical conditioning gym Cococise. (Millions of yen) Consideration for acquisition Cash 5,000 2. Calculation method of amounts of net sales, profit or loss, assets, liabilities and other items by reportable segment Acquisition cost 5,000 The accounting methods for business segments reported are substantially the same as those described in “Important matters that form the basis for preparing consolidated financial statements.” Profit of reportable segments is the amount based on operating income (EBITDA), excluding depreciation and amortization of goodwill. Segment assets and liabilities are omitted as they are not subject to review for decision on the allocation of operating resources Financial Information and assessment of business performance.

50 mixi GROUP Annual Report 2019 Notes to Consolidated Financial Statements 51 Notes to Consolidated Financial Statements

3. Information on net sales, profit or loss and other items by reportable segment [Related information] For the consolidated fiscal year ended March 31, 2018 (April 1, 2017 to March 31, 2018) For the consolidated fiscal year ended March 31, 2018 For the consolidated fiscal year ended March 31, 2019 (Millions of yen) (April 1, 2017 to March 31, 2018) (April 1, 2018 to March 31, 2019) Reportable segment Amount recorded in 1. Information by product or service 1. Information by product or service Adjustment Consolidated This information is omitted because the same information is This information is omitted because the same information is Entertainment Media Platform Total (Note 1) Financial Statements disclosed in the segment information. disclosed in the segment information. Business Business (Note 2) Net sales 2. Information by region 2. Information by region (1) Net sales (1) Net sales Net sales to external customers 175,948 13,146 189,094 — 189,094 This information is omitted because the amount of net sales to This information is omitted because the amount of net sales to Inter-segment net sales or — — — — — external customers in Japan exceeds 90% of the amount of external customers in Japan exceeds 90% of the amount of transfers net sales recorded in the consolidated statements of income. net sales recorded in the consolidated statements of income. Total 175,948 13,146 189,094 — 189,094 Segment profit 78,438 1,638 80,077 (7,717) 72,359 (2) Property, plant and equipment (2) Property, plant and equipment This information is omitted because the amount of property, This information is omitted because the amount of property, Other plant and equipment located in Japan exceeds 90% of the plant and equipment located in Japan exceeds 90% of the Depreciation 323 46 370 412 783 amount of property, plant and equipment recorded in the amount of property, plant and equipment recorded in the Amortization of goodwill — 1,085 1,085 — 1,085 consolidated balance sheets. consolidated balance sheets. Amortization of goodwill — 7,597 7,597 — 7,597 (Extraordinary loss) 3. Information by major customer 3. Information by major customer This information is omitted because the amount of property, This information is omitted because among the sales to (Notes) 1. The segment profit adjustment of ¥(7,717) million includes depreciation and amortization of goodwill of reportable segments of ¥(370) million and ¥(1,085) million, respectively, and company-wide expenses of ¥(6,261) million not allocated to each reportable segment. Compa- plant and equipment located in Japan exceeds 90% of the external customers there are no counterparties to whom the ny-wide expenses comprise mainly costs relating to mixi’s administrative departments not belonging to any reportable segment. amount of property, plant and equipment recorded in the sales account for 10% or more of net sales recorded in the 2. Segment profit is adjusted with operating income in the consolidated statements of income. consolidated balance sheets. consolidated statements of income.

For the consolidated fiscal year ended March 31, 2019 (April 1, 2018 to March 31, 2019) (Millions of yen) [Information on impairment loss on non-current assets by reportable segment] Reportable segment Amount recorded in For the consolidated fiscal year ended March 31, 2018 (April 1, 2017 to March 31, 2018) Adjustment Consolidated (Millions of yen) Entertainment Media Platform Total (Note 1) Financial Statements Reportable segment Business Business (Note 2) Corporate / Entertainment Total Lifestyle Business Total Elimination Net sales Business Net sales to external customers 138,605 5,427 144,032 — 144,032 Impairment loss — 131 131 — 131 Inter-segment net sales or 2 — 2 (2) — (Note) In the “Lifestyle Business” segment, in line with the decision to stop operations of TicketCamp, operated by Hunza, Inc., and to shut down the transfers service in the consolidated fiscal year ended March 31, 2018, an impairment loss was recorded. Total 138,607 5,427 144,035 (2) 144,032 Segment profit 51,561 (1,690) 49,871 (8,838) 41,033 For the consolidated fiscal year ended March 31, 2019 (April 1, 2018 to March 31, 2019) (Millions of yen) Other Reportable segment Corporate / Depreciation 444 22 466 592 1,058 Entertainment Total Lifestyle Business Total Elimination Amortization of goodwill — — — — — Business Amortization of goodwill Impairment loss 333 15 349 — 349 — — — — — (Extraordinary loss) (Note) In the “Entertainment Business” segment, in line with the fact that the revenue initially expected for a store operated by mixi can no longer be (Notes) 1. The segment profit adjustment of ¥(8,838) million includes depreciation of ¥(466) million and company-wide expenses of ¥(8,371) million not expected, impairment loss was recorded in the consolidated fiscal year ended March 31, 2019. Financial Information allocated to each reportable segment. Company-wide expenses comprise mainly costs relating to mixi’s administrative departments not belonging to any reportable segment. 2. Segment profit is adjusted with operating income in the consolidated statements of income.

52 mixi GROUP Annual Report 2019 Notes to Consolidated Financial Statements 53 Notes to Consolidated Financial Statements

[Information regarding amortization of goodwill and unamortized balance of goodwill by reportable segment] For the consolidated fiscal year ended March 31, 2019 (April 1, 2018 to March 31, 2019) For the consolidated fiscal year ended March 31, 2018 (April 1, 2017 to March 31, 2018) (Millions of yen) Capital stock Descrpition Ownership Relation Transaction Name of or Reportable segment of business ratio of ships with Detail of amount Year-end Corporate / Type company or Location investments Item Entertainment Total or voting rights related transactions (Millions of balance Lifestyle Business Total Elimination individual (Millions of Business occupation (%) parties yen) yen) Amortization for the year — 8,683 8,683 — 8,683 Director and (Ownership) Purchase Balance at end of the year — — — — — Executive Kenji — — Chairperson Direct — of treasury 4,997 — — officer Kasahara (Notes) 1. In the “Lifestyle Business” segment, in line with the decision to stop operations of TicketCamp, operated by Hunza, Inc., and to shut down the of mixi 46.6 shares service in the consolidated fiscal year ended March 31, 2018, the goodwill was fully amortized. (Notes) 1. The ownership ratio of voting rights is the ratio before the purchase of treasury shares. 2. Amortization for the fiscal year includes “amortization of goodwill” posted as an extraordinary loss, ¥7,597 million. 2. Based on the resolution at the Board of Directors meeting held on May 10, 2018, treasury shares were purchased through Off-Auction Own Share Repurchase Trading (ToSTNeT-3), and the transaction amount was the final price on May 14, 2018. For the consolidated fiscal year ended March 31, 2019 (April 1, 2018 to March 31, 2019) (Millions of yen) Reportable segment 16. Per share information Corporate / Entertainment Total Lifestyle Business Total Elimination Business (Yen) Amortization for the year — — — — — FY2018 FY2019 Balance at end of the year 5,121 — 5,121 — 5,121 (April 1, 2017 to March 31, 2018) (April 1, 2018 to March 31, 2019)

(Note) As stated in “Business combinations,” the amount of goodwill arising in line with the acquisition of shares of Chariloto Co., Ltd. is an amount Net assets per share 2,176.88 2,368.05 calculated tentatively because the allocation of acquisition cost has not been completed. Basic earnings per share 533.48 350.26 [Information regarding negative goodwill by reportable segment] Diluted earnings per share 532.19 349.10

For the consolidated fiscal year ended March 31, 2018 (April 1, 2017 to March 31, 2018) (Note) Basis for calculation of basic earnings per share and diluted earnings per share are as follows: There is no relevant information.

For the consolidated fiscal year ended March 31, 2019 (April 1, 2018 to March 31, 2019) Item FY2018 FY2019 There is no relevant information. (April 1, 2017 to March 31, 2018) (April 1, 2018 to March 31, 2019) Basic earnings per share (Yen) [Information regarding related parties] Profit attributable to owners of parent (Millions of yen) 41,788 26,521 Transactions with related parties Transactions between the company submitting the consolidated financial statements and its related parties Amount not attributable to common shareholders (Millions of yen) — — Executive officers and major shareholders (limited to individuals) of the company submitting the consolidated financial statements Profit attributable to owners of parent relating to common shares 41,788 26,521 (Millions of yen) Average number of common shares for the period under review For the consolidated fiscal year ended March 31, 2018 (April 1, 2017 to March 31, 2018) 78,331,422 75,718,679 There is no relevant information. (Shares)

Diluted earnings per share (Yen) Amount of adjustment to profit attributable to owners of parent — — (Millions of yen) Number of increased common shares (Shares) 190,018 251,756 [Subscription rights to shares] (Shares) [190,018] [251,756] Summary of potential shares not included in diluted earnings per Financial Information — — share due to their lack of dilutive effect

54 mixi GROUP Annual Report 2019 Notes to Consolidated Financial Statements 55 Notes to Consolidated Financial Statements

17. Significant subsequent events Other

There is no relevant information. Quarterly financial information and others for the current consolidated fiscal year

(Cumulative period) 1Q of FY2019 2Q of FY2019 3Q of FY2019 FY2019 Consolidated Supplementary Schedules Net sales (Millions of yen) 34,561 71,044 105,983 144,032 Income before income taxes 10,966 19,062 25,231 39,063 (Millions of yen) Profit attributable to owners of [Schedule of bonds] 7,294 12,924 17,101 26,521 There is no relevant information. parent (Millions of yen) Basic earnings per share (Yen) 94.94 169.87 225.50 350.26 [Schedule of borrowings and others]

As of April 1, 2018 As of March 31, 2019 Average interest rate Deadline for (Accounting period) 1Q of FY2019 2Q of FY2019 3Q of FY2019 4Q of FY2019 Classification (Millions of yen) (Millions of yen) (%) repayment Basic earnings per share (Yen) 94.94 74.72 55.44 125.02 Short-term loans payable — 66 0.7 — Current portion of lease 2 2 — — obligations Long-term loans payable — 616 0.8 March 31, 2023 (excluding current portion) Lease obligations (excluding From April 30, 2020 to 7 4 — current portion) December 31, 2022 Total 9 690 — —

(Notes) 1. Average interest rate of lease obligations is omitted because lease obligations were recorded in the consolidated balance sheets at the amount before deducting the portion equivalent to interest. 2. Due to quantitative insignificance, short-term loans payable and current portion of lease obligations are included in “other” under “current liabilities” in the consolidated balance sheets, and lease obligations (excluding current portion) are included in “other” under “non-current liabilities” in the consolidated balance sheets. 3. Scheduled repayment amounts of long-term loans payable (excluding current portion) and lease obligations (excluding current portion) after the consolidated balance sheet date are as follows: More than 1 year and less More than 2 years and More than 3 years and More than 4 years and More than 5 years Classification than 2 years less than 3 years less than 4 years less than 5 years (Millions of yen) (Millions of yen) (Millions of yen) (Millions of yen) (Millions of yen) Long-term loans 66 66 483 — — payable Lease obligations 2 1 0 — —

[Schedule of asset retirement obligations] There is no relevant information. Financial Information

56 mixi GROUP Annual Report 2019 Notes to Consolidated Financial Statements 57 Financial Statements

Balance Sheets mixi, Inc. (Millions of yen) (Millions of yen)

FY2018 FY2019 FY2018 FY2019 (As of March 31, 2018) (As of March 31, 2019) (As of March 31, 2018) (As of March 31, 2019)

Assets: Liabilities: Current assets Current liabilities Cash and deposits 141,300 137,623 Accounts payable — other 6,613 7,905 Accounts receivable — trade 11,446 8,896 Accrued expenses 25 8 Merchandise 427 292 Income taxes payable 9,306 431 Raw materials 211 — Advance payments — trade 905 1,553 Advances received 1,646 1,604 Prepaid expenses 577 1,491 Deposits received 694 632 Other 1,782 5,607 Lease obligations 2 2 Allowance for doubtful accounts (16) (816) Provision for bonuses 894 827 Total current assets 156,636 154,648 Other — 0 Non-current assets Total current liabilities 19,181 11,413 Property, plant and equipment Buildings 965 964 Non-current liabilities Accumulated Depreciation (397) (676) Lease obligations 7 4 Buildings, net 568 288 Other 39 7 Tools, furniture and fixtures 2,600 3,326 Total non-current liabilities 46 12 Accumulated Depreciation (1,348) (1,949) Total liabilities 19,228 11,425 Tools, furniture and fixtures, net 1,251 1,376 Net assets: Construction in progress 13 2,235 Shareholders’ equity Total property, plant and equipment 1,833 3,900 Intangible assets Capital stock 9,698 9,698 Software 306 224 Capital surplus Other 85 20 Legal capital surplus 9,668 9,668 Total intangible assets 391 245 Total capital surplus 9,668 9,668 Investments and other assets Retained earnings Investment securities 2,334 5,288 Other retained earnings Shares of subsidiaries and associates 6,130 9,516 Retained earnings brought forward 151,906 169,104 Investments in capital of subsidiaries and associates 18 18 Long-term loans receivable from subsidiaries and associates 7,889 3,523 Total retained earnings 151,906 169,104 Claims provable in bankruptcy, claims provable in rehabilitation and other — 0 Treasury shares (1,450) (10,905) Long-term prepaid expenses — 546 Total shareholders’ equity 169,823 177,566 Deferred tax assets 10,436 9,656 Valuation and translation adjustments Financial Information Lease and guarantee deposits 4,529 4,535 Valuation difference on available-for-sale securities — 665 Other 45 45 Total valuation and translation adjustments — 665 Allowance for doubtful accounts (562) (1,711) Subscription rights to shares 630 555 Total investments and other assets 30,821 31,420 Total non-current assets 33,046 35,565 Total net assets 170,454 178,788 Total assets 189,683 190,213 Total liabilities and net assets 189,683 190,213

58 mixi GROUP Annual Report 2019 Financial Statements 59 Financial Statements

Statements of Income Cost of Sales Statements mixi, Inc. (Millions of yen) mixi, Inc.

FY2018 FY2019 FY2018 FY2019 (April 1, 2017 to March 31, 2018) (April 1, 2018 to March 31, 2019) (April 1, 2017 to March 31, 2018) (April 1, 2018 to March 31, 2019) Net sales 178,813 141,427 Amount Composition ratio Amount Composition ratio Classification Cost of sales 21,405 18,933 (Millions of yen) (%) (Millions of yen) (%) Gross profit 157,408 122,494 (I) Labor cost 2,124 10.2 2,296 12.7 Selling, general and administrative expenses (Note 3 (*1)) 85,990 79,713 (II) Costs*1 18,637 89.8 15,842 87.3 Operating income 71,418 42,781 Total manufacturing costs 20,761 100.0 18,139 100.0 Non-operating income Beginning goods 291 427 Interest income 45 121 Cost of purchased goods 780 658 Dividend income (Note 3 (*2)) — 213 Total 21,833 19,225 Gain on investments in partnership 541 21 Ending goods 427 292 Foreign exchange gains 16 36 Cost of sales 21,405 18,933 Gain on sales of goods — 36 Other 50 121 Total non-operating income 654 550 *1. Major breakdown of costs is as follows: (Millions of yen) Non-operating expenses Interest expenses — 0 FY2018 FY2019 (April 1, 2017 to March 31, 2018) (April 1, 2018 to March 31, 2019) Commission fee 196 111 Other 3 0 Subcontract expenses 16,961 13,921 Total non-operating expenses 199 111 Rent expenses 1,149 1,338 Ordinary income 71,873 43,219 Content expenses 104 67 Extraordinary income Depreciation 164 241 Gain on sales of non-current assets (Note 3 (*3)) 2 1 Gain on sales of investment securities — 67 Gain on sales of shares of subsidiaries and associates — 100 Reversal of allowance for doubtful accounts (Note 3 (*4)) 46 153 Gain on liquidation of subsidiaries and associates (Note 3 (*5)) 11 — Total extraordinary income 60 321 Extraordinary losses Loss on withdrawal from business (Note 3 (*6)) — 1,620 Loss on sales and retirement of non-current assets (Note 3 (*7)) 24 19 Impairment loss — 333 Loss on valuation of investment securities — 24 Loss on valuation of shares of subsidiaries and associates (Note 3 (*8)) 8,374 569 Provision of allowance for doubtful accounts (Note 3 (*9)) 164 2,091 Loss on liquidation of business of subsidiaries and associates — 346

Other — 18 Financial Information Total extraordinary losses 8,563 5,025 Income before income taxes 63,370 38,515 Income taxes — current 22,718 11,709 Income taxes — deferred (711) 486 Total income taxes 22,006 12,195 Profit 41,363 26,319

60 mixi GROUP Annual Report 2019 Financial Statements 61 Notes to Financial Statements

Statements of Changes in Shareholders’ Equity 1. Matters related to significant accounting policies Fiscal year ended March 31, 2018 (April 1, 2017 to March 31, 2018) (Millions of yen) Valuation and translation 1. Valuation standards and valuation methods (2) Intangible assets (excluding leased assets) Shareholders’ equity adjustments of securities The straight-line method is applied. Capital surplus Retained earnings (1) Shares of subsidiaries and associates However, the amortization period for software for internal Valuation Other Subscription difference Total net Stated at cost using the moving-average method. use is based on its useful life within mixi (5 years). retained Total Total valuation rights to Capital Treasury on assets Legal Other Total earnings Total shareholders’ and translation shares stock capital capital capital retained shares available- Retained equity adjustments (2) Available-for-sale securities (3) Leased assets surplus surplus surplus earnings for-sale earnings securities Available-for-sale securities with market value Leased assets pertaining to finance leases other than those in brought forward Stated at market value as of the final balance sheet date using which the title of the leased property transfers to the lessee Balance at beginning of the market value method (valuation differences are directly The straight line method, substituting the lease term for the period 9,698 9,668 1,272 10,941 140,575 140,575 (10,525) 150,690 — — 253 150,944 Change of items during included in net assets, while cost of products sold is calculated useful life, assuming no residual value. period by the moving-average method). Dividends of surplus (12,230) (12,230) (12,230) (12,230) Available-for-sale securities without market value 4. Translation of significant assets and Profit 41,363 41,363 41,363 41,363 Stated at cost using the moving-average method. liabilities denominated in foreign currencies Purchase of treasury shares (9,999) (9,999) (9,999) Investments in investment partnerships and others are into Japanese yen Disposal of treasury based on the financial statements for the most recent balance Monetary receivables and payables denominated in foreign shares — — sheet date using the net amount proportionate to mixi’s currencies have been translated into Japanese yen at the spot Retirement of treasury shares (19,075) (19,075) 19,075 — — ownership interests. exchange rate at the balance sheet date, and translation Transfer to capital surplus adjustments are recorded as gains or losses. from retained earnings 17,802 17,802 (17,802) (17,802) — — 2. Valuation standards and valuation methods Net changes of items other than shareholders’ of inventories 5. Accounting standards for allowances and equity — — 376 376 Merchandise provisions Total changes of items during period — — (1,272) (1,272) 11,330 11,330 9,075 19,133 — — 376 19,509 Stated at cost determined by the first-in, first-out (FIFO) (1) Allowances for doubtful accounts Balance at end of period 9,698 9,668 — 9,668 151,906 151,906 (1,450) 169,823 — — 630 170,454 method (the book value in the balance sheet is written down In order to provide for losses due to bad debt, including on based on the decline in profitability). notes and accounts receivable - trade, for general receivables, Raw materials an estimated uncollectible amount is recorded according to Fiscal year ended March 31, 2019 (April 1, 2018 to March 31, 2019) Stated at cost determined by the first-in, first-out (FIFO) the historical bad debt ratio. For specific receivables at risk of (Millions of yen) method (the book value in the balance sheet is written down becoming bad debt, an estimated uncollectible amount is Valuation and translation Shareholders’ equity adjustments based on the decline in profitability). recorded by assessing the collectability of each receivable Capital surplus Retained earnings individually. Valuation 3. Depreciation and amortization methods of Other Subscription difference Total net retained Total Total valuation rights to non-current assets (2) Provision for bonuses Capital Treasury on assets Legal Other Total earnings Total shareholders’ and translation shares stock capital capital capital retained shares available- (1) Property, plant and equipment (excluding leased In order to provide for payment of bonuses to employees, the Retained equity adjustments surplus surplus surplus earnings for-sale assets) amount of bonuses estimated to be incurred in the fiscal year earnings securities brought The declining balance method is applied. under review is recorded. forward However, the straight-line method is applied for buildings Balance at beginning of period 9,698 9,668 — 9,668 151,906 151,906 (1,450) 169,823 — — 630 170,454 (excluding facilities attached to buildings) acquired on or after 6. Other important matters that form the basis Change of items during April 1, 1998 and facilities attached to buildings acquired on or for preparing financial statements period after April 1, 2016. Accounting method for consumption taxes Dividends of surplus (8,967) (8,967) (8,967) (8,967) Profit 26,319 26,319 26,319 26,319 The principal useful lives are as follows: Accounted for by the tax-exclusion method. Purchase of treasury Buildings: 2 to 27 years shares (9,999) (9,999) (9,999) Tools, furniture and fixtures: 2 to 20 years Disposal of treasury

shares (154) (154) 544 389 389 Financial Information Retirement of treasury shares — — 2. Changes in presentation method Transfer to capital surplus from retained earnings 154 154 (154) (154) — — Net changes of items other than shareholders’ (Balance sheets) from the beginning of the fiscal year ended March 31, 2019, equity 665 665 (74) 591 The Company applied the “Partial Amendments to Accounting resulting in a change whereby deferred tax assets are Total changes of items during period — — — — 17,198 17,198 (9,455) 7,742 665 665 (74) 8,333 Standard for Tax Effect Accounting” (The Accounting Standards presented under investments and other assets, and deferred Balance at end of period 9,698 9,668 — 9,668 169,104 169,104 (10,905) 177,566 665 665 555 178,788 Board of Japan (ASBJ) Statement No. 28; February 16, 2018) tax liabilities are presented under non-current liabilities.

62 mixi GROUP Annual Report 2019 Financial Statements | Notes to Financial Statements 63 Notes to Financial Statements

As a result, “Deferred tax assets” of ¥803 million under million under “Investments and other assets” in the balance *7. The breakdown of loss on sales and retirement of non-current assets is as follows: “Current assets” are included in “Deferred tax assets” of ¥10,436 sheet for the previous fiscal year ended March 31, 2018. (Millions of yen) FY2018 FY2019 (April 1, 2017 to March 31, 2018) (April 1, 2018 to March 31, 2019) 3. Statements of income Buildings — 0 Tools, furniture and fixtures 24 7 *1. Approximate ratio of selling expenses to selling, general and administrative expenses was 84.8% and 80.1% for the previous Software 0 11 fiscal year and the current fiscal year, respectively. Approximate ratio of general and administrative expenses to selling, general and administrative expenses was 15.2% and 19.9% for the previous fiscal year and the current fiscal year, respectively. Total 24 19

Major components and amounts of selling, general and administrative expenses are as follows: (Millions of yen) *8. Loss on valuation of shares of subsidiaries and associates For the fiscal year ended March 31, 2018 (April 1, 2017 to March 31, 2018) FY2018 FY2019 These items arose due to the decision to stop operations of TicketCamp, operated by Hunza, Inc., and to shut down the service. (April 1, 2017 to March 31, 2018) (April 1, 2018 to March 31, 2019) For the fiscal year ended March 31, 2019 (April 1, 2018 to March 31, 2019) Advertising expenses 20,937 23,170 These items are related to investments in, and loans to, Ratel, Inc., Kuto, Inc., HECATE, Inc. and Compath Me Inc., whose financial Settlement fees 51,866 40,538 status deteriorated.

*2. Amount attributable to subsidiaries and associates included in each item is as follows: *9. Provision of allowance for doubtful accounts (Millions of yen) For the fiscal year ended March 31, 2018 (April 1, 2017 to March 31, 2018) These items are related to investments in, and loans to, i-mercury Capital, Inc. and nohana, Inc., whose financial status deteriorated. FY2018 FY2019 (April 1, 2017 to March 31, 2018) (April 1, 2018 to March 31, 2019) For the fiscal year ended March 31, 2019 (April 1, 2018 to March 31, 2019) These items are related to investments in, and loans to, Ratel, Inc., Kuto, Inc., i-mercury Capital, Inc. and HECATE, Inc., whose financial Dividend income — 213 status deteriorated.

*3. The breakdown of gain on sales of non-current assets is as follows: (Millions of yen) 4. Securities FY2018 FY2019 (April 1, 2017 to March 31, 2018) (April 1, 2018 to March 31, 2019) Fair value of shares of subsidiaries and associates is not Balance sheet amounts of shares of subsidiaries and Tools, furniture and fixtures 2 1 presented as market value is not available and fair value is associates whose fair values are deemed extremely difficult to deemed extremely difficult to determine. determine are as follows: *4. Reversal of allowance for doubtful accounts (Millions of yen) For the fiscal year ended March 31, 2018 (April 1, 2017 to March 31, 2018) These items are related to investments in, and loans to, nohana, Inc. whose amount of excess liabilities decreased. FY2018 FY2019 (As of March 31, 2018) (As of March 31, 2019) For the fiscal year ended March 31, 2019 (April 1, 2018 to March 31, 2019) These items are due to repayments of investments in, and loans to, nohana, Inc Shares of subsidiaries 6,130 9,516 Total 6,130 9,516 *5. Gain on liquidation of subsidiaries and associates For the fiscal year ended March 31, 2018 (April 1, 2017 to March 31, 2018) Refers to gain associated with the liquidation of Confianza, Inc. For the fiscal year ended March 31, 2019 (April 1, 2018 to March 31, 2019)

There is no relevant information. Financial Information

*6. Loss on withdrawal from business For the fiscal year ended March 31, 2018 (April 1, 2017 to March 31, 2018) There is no relevant information. For the fiscal year ended March 31, 2019 (April 1, 2018 to March 31, 2019) This is a loss resulting from the withdrawal from telecommunications-related business, including mainly ¥1,620 million for disposal of inventories and retirement of non-current assets.

64 mixi GROUP Annual Report 2019 Notes to Financial Statements 65 Notes to Financial Statements

5. Tax effect accounting 6. Business combinations

1. Breakdown by main causes of deferred tax assets and deferred tax liabilities For the consolidated fiscal year ended March 31, 2018 (April 1, 2017 to March 31, 2018) (Millions of yen) There is no relevant information. FY2018 FY2019 For the consolidated fiscal year ended March 31, 2019 (April 1, 2018 to March 31, 2019) (As of March 31, 2018) (As of March 31, 2019) Business combination through the acquisition Deferred tax assets: As this contains the same information stated under “Notes to Consolidated Financial Statements (Business combinations),” the note is omitted. Buildings 47 121 Software 9,492 8,811 Lump sum depreciable assets 35 33 Investment securities 267 274 7. Significant subsequent events Shares of subsidiaries and associates 2,631 2,775 Allowance for doubtful accounts 177 774 There is no relevant information. Enterprise tax payable 471 43 Provision for bonuses 273 253 Supplementary Schedules Asset retirement obligations 50 91 Subscription rights to shares 193 170 Advances received 112 162 (Schedule of property, plant and equipment and others) (Millions of yen) Other 69 265 Amount of Subtotal of deferred tax assets 13,822 13,775 Balance at Increase Decrease Balance at accumulated Difference at Amount of Valuation allowance (3,386) (3,824) Type of assets beginning of during the during the end of depreciation end of depreciation period period period period as of March period Total deferred tax assets 10,436 9,950 31, 2019 Property, plant and equipment Deferred tax liabilities: 159 Buildings 965 159 964 676 273 288 Valuation difference on available-for-sale securities — (293) (158) 281 Tools, furniture and fixtures 2,600 1,007 3,326 1,949 668 1,376 Total deferred tax liabilities — (293) (83) Net deferred tax assets 10,436 9,656 8 Construction in progress 13 2,230 2,235 — — 2,235 (—) Total property, plant 450 3,579 3,397 6,526 2,626 942 3,900 2. Breakdown of main items that cause significant difference between statutory tax rate and and equipment (242) effective tax rate of income taxes and others after application of tax effect accounting (%) Intangible assets 110 Software 420 108 418 193 90 224 FY2018 FY2019 (91) (As of March 31, 2018) (As of March 31, 2019) 139 Other 85 76 21 1 1 20 Statutory tax rate 30.9 — (—) 250 (Adjustment) Total intangible assets 506 184 440 194 91 245 (91)

Valuation allowance 4.3 — Financial Information (Notes) 1. Major components of the increase during the period are as follows: Tax deductions (0.6) — Tools, furniture and fixtures: Purchase of computers, servers, and others (¥539 million) Tools, furniture and fixtures: Purchase of utensils and fixtures (¥174 million) Other 0.1 — 2. Major components of the decrease during the period are as follows: Effective tax rate of income taxes and others after application of tax effect accounting 34.7 — Tools, furniture and fixtures: Retirement of servers and others (¥111 million) 3. Figures in the parentheses in decrease during the period represent the amount of impairment loss recorded. (Note) As the difference between the statutory tax rate and the effective tax rate of income taxes and others after the application of tax effect account- ing was less than 5% of the statutory tax rate for the fiscal year under review, information regarding the difference is omitted.

66 mixi GROUP Annual Report 2019 Notes to Financial Statements 67 Investor Information (As of March 31, 2019)

(Schedule of allowances) (Millions of yen) Decrease during Balance at Increase during the period Decrease during Balance at end of Classification beginning of the period (use for intended the period (other) period Corporate information Principal shareholders period purpose) Company name mixi, Inc. Number of shares Percentage Allowance for doubtful accounts 579 2,527 23 555 2,527 Representative Koki Kimura, President and Name held of total Provision for bonuses 894 827 894 — 827 Representative Director, Corporate Officer Kenji Kasahara 34,101,900 45.26 Establishment June 3, 1999 JP MORGAN CHASE BANK 380634 (Note) Decrease during the period (other) of allowance for doubtful accounts includes reversed amount of ¥555 million. 2,003,900 2.65 Paid-in capital ¥9,698 million (standing proxy: Mizuho Bank, Ltd.) Head office Sumitomo Shibuya First Tower 7F, THE BANK OF NEW YORK 133972 1,437,400 1.90 Details of Major Assets and Liabilities 2-20, Higashi 1-chome, Shibuya-ku, (standing proxy: Mizuho Bank, Ltd.) Tokyo 150-0011, Japan CDSIL AS DEPOSITARY FOR OLD Number of employees 884 (full-time only) MUTUAL GLOBAL INVESTORS SERIES 1,133,900 1.50 Due to the availability of consolidated financial statements, information regarding major assets and liabilities is omitted. Group companies mixi recruitment, Inc. (standing proxy: Citibank, N.A.) mixi America, Inc. Japan Trustee Services Bank, Ltd. 995,600 1.32 i-mercury Capital, Inc. (trust account) Other SmartHealth, Inc. Note: The Company has 2,881,300 treasury shares. Chariloto Co., Ltd. As these shares carry no voting rights, they are omitted from the Corporate website http://mixi.co.jp/en principal shareholders above and subtracted from calculations for There is no relevant information. the percentage of the total. Stock exchange listing Mothers section, Tokyo Stock Exchange Securities code 2121 Fiscal year end March 31 Breakdown of shareholders by type Annual ordinary general meeting of shareholders June Financial institutions and nancial instruments brokers Other corporations Independent public accountants Deloitte Touche Tohmatsu LLC (until 8.42% 0.69% 6,584,488 shares 543,414 shares the 20th ordinary general shareholders’ meeting) Individuals and others Foreign corporations PricewaterhouseCoopers Aarata 57.23% 33.66% LLC (from the 20th ordinary general 44,773,511 shares 26,329,437 shares shareholders’ meeting) Note: A total of 2,881,300 treasury shares (28,813 units) are included in Common stock Authorized: 264,000,000 shares “Individuals and others.” Issued: 78,230,850 shares Number of shareholders 15,264 Stock transfer agent Sumitomo Mitsui Trust Bank, Limited

Share price (as of June 30, 2019)

(Yen) 8,000

6,000

4,000 mixi, Inc.

2,000 TOPIX

0 2014 2015 2016 2017 2018 2019 (Year) 4 6 8 10 12 2 4 6 8 10 12 2 4 6 8 10 12 2 4 6 8 10 12 2 4 6 8 10 12 2 4 6(Month)

68 mixi GROUP Annual Report 2019 Notes to Financial Statements | Investor Information 69