F-1/A 1 a2214248zf-1a.htm F-1/A

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As filed with the Securities and Exchange Commission on May 10, 2013

Registration No. 333-184691

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

Amendment No. 5 to
FORM F-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

KABUSHIKI KAISHA UBIC
(Exact name of registrant as specified in its charter)

UBIC, INC.
(Translation of registrant's name into English)

Japan
(State or other jurisdiction of
Incorporation or organization)
  7374
(Primary Standard Industrial
Classification Code Number)
  Not Applicable
(IRS Employer
Identification Number)

Meisan Takahama Building
2-12-23, Kounan
Minato-ku, Tokyo 108-0075
Japan
+81 (0) 3-5463-6344

(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)

Naritomo Ikeue, President
UBIC North America, Inc.
3 Lagoon Drive, Suite 180
Redwood City, CA 94065
(650) 654-7664
(Name, address, including zip code, and telephone number, including
area code, of agent for service)

Copies to:

Michael S. Turner, Esq.
DLA Piper LLP (US)
33 Arch Street, 26th Floor
Boston, MA 02110
Tel: (617) 406-6014
Fax: (617) 406-6114
  Jack I. Kantrowitz, Esq.
DLA Piper LLP (US)
1251 Avenue of the Americas
New York, NY 10020
Tel: (212) 335-4845
Fax: (212) 884-8645
  Yvan-Claude J. Pierre, Esq.
William N. Haddad, Esq.
Reed Smith LLP
599 Lexington Avenue
New York, NY 10022
Tel: (212) 521-5400
Fax: (212) 521-5450

Approximate date of commencement of proposed sale to the public:
As soon as practicable after the Registration Statement has been declared effective.

         If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box: o

         If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

         If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

         If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o



         The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall hereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended or until the Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to Section 8(a), may determine.

   


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The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

Subject to Completion, Dated May 10, 2013

PROSPECTUS

GRAPHIC

UBIC, Inc.

1,100,000 American Depositary Shares
Representing 220,000 Shares of Common Stock

        This is the initial public offering of American Depositary Shares, or ADSs, representing our common stock. Each five ADSs represents one share of our common stock, deposited with The Bank of New York Mellon, as depositary. The ADSs may be evidenced by American Depositary Receipts, or ADRs.

        Prior to this offering, there has been no public market for the ADSs. We expect that the initial public offering price of the ADSs will be between $7.50 and $9.50 per ADS. We have applied for the listing of the ADSs on the Nasdaq Global Market under the symbol "UBIC."

        Our common stock currently is listed on the Mothers Marketplace of the Tokyo Stock Exchange under stock code number 2158. On May 2, 2013, the last reported sale price of our common stock on the Tokyo Stock Exchange was ¥4,460 per share (which was equivalent to $9.11 per ADS based on the exchange rate on such date).

        We are an "emerging growth company" as that term is used in the Jumpstart Our Business Startups Act of 2012 and, as such, have elected to comply with certain reduced public company reporting requirements for future filings.

        Investing in the ADSs involves risks. See the section entitled "Risk Factors" beginning on page 12 for a description of various risks you should consider in evaluating an investment in the ADSs.

 
  Per
ADS
  Total  

Initial public offering price

  $     $    

Underwriting discount(1)

  $     $    

Proceeds, before expenses, to us

  $     $    

(1)
The underwriters will receive compensation in addition to the underwriting discount. See "Underwriting" on page 123 of this prospectus for a description of the compensation payable to the underwriters.

        We have granted the underwriters an option to purchase up to an additional 165,000 ADSs at the initial public offering price, less the underwriting discount, within 45 days from the date of this prospectus to cover overallotments, if any.

        We have also agreed to issue to the underwriters warrants to purchase up to an aggregate of 4% of the ADSs sold in this offering. The warrants will have an exercise price equal to 120% of the public offering price of the ADSs sold in this offering.

Neither the United States Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful and complete. Any representation to the contrary is a criminal offense.

        The underwriters expect to deliver the ADSs to purchasers on or about                                    , 2013.


Maxim Group LLC   The Benchmark Company

   

The date of this prospectus is                        , 2013


TABLE OF CONTENTS

 
  Page  

Prospectus Summary

    1  

The Offering

   
8
 

Summary Consolidated Financial Information

   
10
 

Risk Factors

   
12
 

Forward-looking Statements

   
26
 

Market, Industry and Other Data

   
27
 

Use of Proceeds

   
28
 

Dividend Policy

   
29
 

Capitalization and Indebtedness

   
30
 

Dilution

   
31
 

Exchange Rate Information

   
33
 

Selected Consolidated Financial and Other Data

   
34
 

Management's Discussion and Analysis of Financial Condition and Results of Operations

   
37
 

Business

   
78
 

Management

   
93
 

Certain Relationships and Related Party Transactions

   
98
 

Principal Shareholders

   
99
 

Description of Share Capital

   
100
 

Description of American Depositary Shares

   
106
 

Shares Eligible for Future Sale

   
115
 

Taxation

   
117
 

Underwriting

   
123
 

Expenses Related to This Offering

   
127
 

Legal Matters

   
127
 

Experts

   
127
 

Service of Process and Enforcement of Judgments

   
127
 

Conventions Applicable to this Prospectus

   
128
 

Where You Can Find More Information

   
128
 

Index to Financial Statements

   
F-1
 



        You should rely only on the information contained in this prospectus. Neither we nor the underwriters have authorized anyone to provide you with information different from that contained in this prospectus. We and the underwriters are offering to sell ADSs and seeking offers to buy ADSs only in jurisdictions where such offers and sales are permitted. The information contained in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or of any sale of ADSs.

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PROSPECTUS SUMMARY

        The following summary highlights information contained in this prospectus and should be read in conjunction with the more detailed information contained in this prospectus and the consolidated financial statements and related notes appearing elsewhere in this prospectus. Before you decide to invest in the ADSs, you should read the entire prospectus carefully, including the sections entitled "Risk Factors" and "Management's Discussion and Analysis of Financial Position and Results of Operations" and our audited and unaudited financial statements and the related notes included elsewhere in this prospectus.

        For convenience, certain amounts in Japanese yen have been converted to United States dollars at the daily exchange rate announced by the Federal Reserve Bank of New York on December 31, 2012, which was $1.00 = ¥86.64. For other information, see "Conventions Applicable to This Prospectus."

        Unless the context requires otherwise or we specifically indicate otherwise, the information in this prospectus assumes that the underwriters do not exercise their over-allotment option. Unless otherwise indicated, all share and per share numbers in the prospectus have been retroactively adjusted to reflect a two-for-one stock split of our common stock effected on October 1, 2011 and a two-for-one stock split effected on April 1, 2012, as if both such stock splits had occurred on April 1, 2009.

Company Overview

        We are a leading provider of Asian-language eDiscovery solutions and services. We have extensive eDiscovery and forensic experience and expertise with information documented in Japanese, Korean, Chinese as well as English, and we apply this expertise in connection with litigations, administrative proceedings and investigations. Our clients include leading law firms, corporate legal departments and government agencies. We serve these clients from our offices in Japan, the United States, South Korea, Taiwan and Hong Kong.

        We assist clients involved in cross-border litigation, administrative proceedings and internal investigations, including those related to antitrust investigations, intellectual property (IP) litigation, the Foreign Corrupt Practices Act (FCPA) and product liability (PL) investigations. The particular matters in which we are engaged by clients typically involve Asian language information. A particular challenge of eDiscovery involving Asian-language information is the accurate electronic recognition of Japanese, Korean and Chinese characters and the organization of the collected information in a format that can be effectively and efficiently reviewed and identified as relevant to the particular investigation. For example, when most conventional eDiscovery technologies are applied to Asian language content, the result is garbled text or otherwise inaccurate outputs. However, we believe our proprietary Lit i View™ eDiscovery solution accurately handles Asian-language characters, encoding schemes and native file systems. Lit i View also streamlines and consolidates our and our clients' workflows. Our recently launched Legal Cloud™ hosting solution complements and integrates with Lit i View and helps to address the substantial complexity and cost associated with these international investigations and litigations. Because of the flexible, comprehensive and integrated nature of our solutions, we can address the entire electronic discovery reference model (EDRM) life-cycle in connection with these matters, which we believe enables us to optimize outcomes and provide significant cost savings to our clients.

        We have assisted clients in more than 250 administrative and legal proceedings in the United States, including Department of Justice (DOJ), International Trade Commission (ITC) and Securities and Exchange Commission (SEC) investigations, and more than 500 corporate investigations in Japan, South Korea, China and Singapore.

        We achieved strong and significantly improved financial results in the three years ended March 31, 2012, with total revenue increasing to ¥5,136.2 million (or $59.3 million) in the year ended March 31,

 

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2012, compared with ¥2,686.1 million (or $31.0 million) in the year ended March 31, 2011, and ¥1,098.2 million (or $12.7 million) in the year ended March 31, 2010. Over the same period, we also achieved increased profitability, with net income increasing to ¥1,370.6 million (or $15.8 million) in the year ended March 31, 2012, compared with ¥787.8 million (or $9.1 million) in the year ended March 31, 2011, and a loss of ¥418.3 million (or $4.8 million) in the year ended March 31, 2010.

        However, in the nine months ended December 31, 2012, our total revenue, operating income and net income declined significantly compared to the nine months ended December 31, 2011. In the nine months ended December 31, 2012, our total revenue was ¥3,542.3 million ($40.9 million) compared with ¥3,784.0 million in the nine months ended December 31, 2011, our operating income was ¥851.5 million ($9.8 million) compared with ¥1,894.5 million in the same period in the previous year and our net income was ¥540.6 million ($6.2 million) compared with ¥1,057.3 million in the same period in the previous year. Our revenue decline was due essentially to a decrease in revenue from the manual review services of our core eDiscovery business, partly offset by an increase in other services of our eDiscovery business, including data collection, process/analysis, production, data hosting, and forensic services. Revenue from the non-manual review services of our core eDiscovery business increased ¥887.4 million ($10.2 million), or 51.7%, to ¥2,604.1 million ($30.1 million) in the nine months ended December 31, 2012 from ¥1,716.7 million in the comparable period in the previous year, while revenue from our manual review services revenue declined by ¥1,190.8, or 62.7%, to ¥707.0 million ($8.2 million) in the nine months ended December 31, 2012 from ¥1,897.8 million in the same period in the previous year. We believe that the cause of this decrease in revenue from manual review services was the determination by certain of our Asian law firm clients to perform manual review (and to bring related revenue) "in-house," while continuing to utilize our other eDiscovery services. Our operating income decreased by 55.1% to ¥851.5 million ($9.8 million) in the nine months ended December 31, 2012 from ¥1,894.5 million in the nine months ended December 31, 2011, due mainly to this decrease in our total revenue, combined with a significant increase in depreciation and amortization expenses due to an increase in our capitalized technology investment and in selling, general and administrative expenses, as we aggressively invested to build our core infrastructure and manpower to support future growth. This increase in selling, general and administrative expenses is part of our efforts to expand our capabilities and infrastructure to match the rapid growth of our business, especially over the last three years. Our investment focused on advancing our technology, global operating capability and capacity, and overall infrastructure to be ready for further expansion of our business in each market we serve.

Industry Overview

        eDiscovery solutions enable organizations to identify, preserve, collect, process, review, analyze and produce data in order to meet compliance, records management and/or legal discovery requirements. Data is collected from numerous sources that include email, text-based files, images, databases, audio files, web sites, computer applications and other corporate repositories, as well as smartphones, tablets, thumb storage drives and personal computers. The growth of data among businesses has continued to rise at an extraordinary rate. According to an IDC Digital Universe Survey in 2011, the amount of digital information created, captured or replicated worldwide every year will grow from 1.8 trillion gigabytes in 2011 to 7.9 trillion gigabytes in 2015, a compound annual growth rate (CAGR) of 45%. While email remains the primary application driving eDiscovery growth, we believe there is also dramatic growth being driven by content from Microsoft SharePoint, social media services, instant messaging (IM) and SMS text messaging.

        eDiscovery is fundamentally different from paper-based evidence discovery primarily because of the much higher volume of electronic information produced and maintained by businesses and other organizations. For example, enterprise information stored in one personal computer is equivalent to an estimated four to six thousand boxes of printed material. Because of the sheer volume of information

 

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that must be analyzed in investigations or other legal matters, it is extremely challenging to investigate archives of electronic information manually. Accordingly, in order to achieve success in a lawsuit and avoid sanctions, we believe that attorneys must employ an automated process to analyze this trove of information, identifying and producing only information relevant to the matter. Providing only relevant documents is a very important consideration for organizations, which generally prefer to keep confidential those documents and other materials they are not legally required to produce.

        We believe, based upon research analysts' reports, that total eDiscovery revenue relating to U.S. lawsuits was $3.3 billion in 2009, and will grow to an estimated $5.7 billion in 2013, or a CAGR of approximately 14.6%. The Gartner, Inc. 2012 Magic Quadrant for E-Discovery Software report estimates that the world's enterprise eDiscovery software market (excluding value added services) was $1.0 billion in 2010, and will grow at a CAGR of approximately 16% through 2015. In addition to these software revenues, Gartner also estimates that by 2013, value added services represented by software-as-a-service (SaaS) and business process utilities will account for 75% of the total eDiscovery revenue derived from the processing, review, analysis and production of electronically stored information (ESI).

UBIC's Competitive Advantages

        We have designed our products and services to provide comprehensive solutions to meet the challenges of managing eDiscovery and electronic data forensic investigations. The principal ways in which our solutions address these challenges include:

    Accurate Processing of Asian-language Characters. Our proprietary text mining technology allows us to accurately handle Asian-language (as well as English) characters, encoding schemes and native file systems. Our solutions and services allow us to accurately assess and convert different Asian-language character sets into the traditional Unicode Transformation Format (UTF), and also convert, as necessary, into several other complex encoding schemes which are frequently utilized by Asian companies, thus maintaining the fidelity of the search methodology and preserving the integrity and nuance of the underlying information. Many competitive solutions first translate Asian-language information to English and ASCII format which can result in garbled text and/or lack of accuracy. Processing and analysis is then conducted on this translated information, which, in our experience, often is inaccurate and obscures or eliminates subtleties and nuances that are often critical to the legal assessment and applicability of the information.

    Speed, Efficiency and Cost Effectiveness. Our solutions and services enable a process that permits the automated identification of relevant text and documents in Asian languages, including Japanese, Chinese and Korean, thus reducing the number of steps in the review process and thereby providing significant savings in time and cost of document review; because our solutions more accurately identify Asian characters and documents responsive to the search, we reduce the number of documents that need to be manually handled and reviewed by persons, and we are less likely to fail to identify an important document. These benefits are further amplified by the comprehensive and integrated nature of our solutions.

    Technology Assisted Review. Technology assisted review (TAR) is the use of software tools, increasingly comprised of artificial intelligence-based predictive coding, to perform mechanical document review. TAR reduces the amount of manual review of data produced in the collection process, which is traditionally the most expensive phase of the eDiscovery process. We believe that our TAR is very effective in Asian-language document review and our product development efforts incorporate all of our experience and know-how with TAR into our main platform, Lit i View. Our TAR applies our proprietary algorithms that progressively predict and refine the automated work flow involved in TAR by accurately increasing the review weight of relevant

 

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      documents. These proprietary algorithms are designed to bring our "recall rate" (the accuracy rate of identifying information relevant to a particular TAR) to 90% or better, which results in noticeable improvements in the efficiency of our review work as a whole, and significant savings in time and expense for our clients.

    Seamless Interaction with Numerous Software Applications. Since our inception in 2003, our solutions and services have been continuously expanded, tested, improved and refined as a result of our extensive experience and technical knowledge and skills accumulated in analyzing electronic data of Asian companies. The design of our solutions enables us to work seamlessly with more than 20 software applications, including Microsoft Outlook and several unique email applications to produce documents without garbled text and also capture responsive documents that could be missed by many of our competitors. This is particularly important to existing and prospective Asian clients given the larger range of email and office software programs and protocols in general use in Asia than in the United States.

    Multiple Convenient Data Processing Sites. We believe we are the only eDiscovery provider with a data processing center in each of Japan, South Korea and Taiwan. Thus, we can conduct the entire process of eDiscovery in Asia and avoid sending non-responsive electronic data to law firms or other parties in the United States, thereby potentially making such confidential and proprietary data subject to the jurisdiction of U.S. courts. Additionally, we believe the proximity of our data processing sites to many of our clients enables us to secure and process information more quickly than our competitors.

    Flexible and Scalable Cloud Hosting Service. While we have been able to host data in a traditional Cloud environment, we have recently introduced our Legal Cloud solution that features a flexible and scalable Cloud data hosting capability, and employs a secure, Internet-enabled storage solution that enables authorized users across the globe to access data and collaborate in connection with an investigation or litigation. Our Cloud hosting technology helps to address the problem of rising complexity and cost from the growth and dispersion of electronic data volumes and the extended duration of many investigations and litigations. Our Cloud hosting service coupled with our experience in handling large volumes of data enables us to deliver our eDiscovery solutions in a flexible and cost-efficient manner.

    Expanded Electronic Data Forensic Investigations. We have adapted the technology that we developed in the area of electronic data forensic investigations, including the provision of solutions and services to government, police and military agencies, to create powerful eDiscovery solutions and services; in turn, the expertise we have developed in our eDiscovery business, such as how to construct electronic searches that yield the most accurate and complete results, have enabled us to further develop our consulting and audit services and to improve our electronic data forensic investigations, tools and training.

Our Growth Strategy

        Our objective is to enhance our position as a leading provider of eDiscovery and electronic data forensics solutions and services in Asia, as well as significantly increase our provision of these solutions and services in the United States, which we believe is the world's largest and most advanced market for these services. Key elements of our strategy include:

    Expand our presence and direct sales in the United States

        Our most important corporate priority is to continue to expand our business in the United States. We plan to continue to increase our sales, marketing and business development efforts in the United States in order to enhance awareness of our litigation and eDiscovery solutions, not only for our

 

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current target market of Asian companies operating in the United States, but also for U.S. companies with Asian subsidiaries and operations. To the extent these sales and marketing efforts are successful, we believe they may have a positive impact on our manual review-related revenues.

        In 2007, we opened our first office in the United States in Silicon Valley. In 2011 and 2012, respectively, we opened offices in Reston, Virginia to serve the Washington DC area, and New York City, which we view as two of the most important legal markets in the United States. From our United States offices, our most senior executives and sales personnel, including our Executive Vice-President, Chief Operating Officer and Director, Naritomo Ikeue, are executing on this important corporate priority of expanding our United States business.

    Broaden and develop strategic relationships

        We plan to continue to expand our existing relationships and develop new relationships with United States and international law firms, litigation consultants and other providers of eDiscovery and electronic data forensics solutions and services that would benefit from our leading technology solutions for Asian-language eDiscovery. We believe that these types of strategic relationships will allow us to expand our reach with global enterprises, especially those based in the United States, and improve our insight into emerging industry trends. We plan to materially increase our marketing efforts with and to these prospective strategic partners.

    Extend our technology leadership and solution management services

        While we believe that Lit i View is the leading solution for Asian-language eDiscovery, we plan to continue to enhance our solution. Traditionally, eDiscovery has been problematic and expensive because labor-intensive manual review of the large volume of materials gathered by electronic means has proven to be costly. Nevertheless, providers of eDiscovery solutions, including ourselves, had to rely on human labor, as there was no alternative. Our TAR technology combines the concepts and techniques of predictive coding with unique algorithms to provide an eDiscovery solution that significantly reduces review-cycle time and cost without sacrificing accurate results. With our TAR technology, we believe we are in a leading position regarding the use of technology in providing the right solutions for the eDiscovery market's needs. We plan to enhance our existing solutions and introduce and improve our solutions and services to address emerging trends and regulatory requirements, and target new market opportunities. We have made and will continue to make investments in technology to introduce new versions of our solutions that incorporate innovative features, improved functionality and address unique business requirements. We also plan to continue to create, refine and deliver innovative service offerings that provide faster deployment of our solutions and services, and more accurate and complete results, and thus add more value to our clients. We believe our Lit i View and Legal Cloud solutions are examples of our technology innovation.

    Expand to new geographies

        Given the success of our expansion beyond Japan to the United States, Hong Kong, South Korea and Taiwan, we plan to expand our sales and marketing efforts to other geographies, including the European Union and China. Global business expansion has increased the incidence of investigations and lawsuits related to such matters as antitrust, intellectual property infringement and other data intensive matters. We believe that, while most countries do not have the same eDiscovery mandates as the United States, enterprises in the European Union, China and other geographies operate in a way that can expose them to the reach of United States' lawsuits and the scrutiny of antitrust authorities of the United States and the European Union. In particular, the competition and antitrust departments of the European Union have become increasingly active and are demanding access to a broader range of documents as part of their investigations.

 

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    Pursue strategic acquisitions

        We may pursue acquisitions that we believe will provide solutions and/or technologies that are complementary to our current offerings or accelerate our international expansion. We continually seek to enhance and expand the functionality of our solutions and in the future we may pursue acquisitions that will enable us to offer more comprehensive functionality to clients. We currently have no plans, proposals or arrangements with respect to any acquisition.

Corporate History and Structure

        We were formed in 2003 and initially focused on importing and selling computer forensics tools within Japan, including to domestic clients such as the National Police Agency and Japan's Ministry of Defense. We entered the eDiscovery and electronic data forensic investigations markets in 2005 by leveraging the skills we had developed and refined through the application of our computer forensic tools. In 2007, we listed shares of UBIC, Inc. on the Mothers Marketplace of the Tokyo Stock Exchange (TSE), which is the primary market for high-growth and emerging technology companies on the TSE. In that year, we established UBIC North America, Inc. with offices in Silicon Valley. In 2009, we opened our office in Seoul, South Korea and opened an office in Hong Kong. In 2010, we established Payment Card Forensics, Inc., as our subsidiary in Japan, in which we have a 60% ownership interest. In 2011, we established UBIC Risk Consulting, Inc., as our subsidiary in Japan, in which we have an 80% ownership interest. In 2011, we opened our office in Reston, Virginia, and also established UBIC Korea, Inc. and UBIC Taiwan, Inc. with offices in Seoul, South Korea and Taipei City, Taiwan, respectively. In 2012, we established UBIC Patent Partners, Inc., as our subsidiary in Japan, in which we have a 100% ownership interest. In 2012, we opened our newest office in New York City.

 

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        The following chart shows our current corporate structure:

GRAPHIC

Corporate Information

        Our executive offices are located at Meisan Takahama Building, 2-12-23, Kounan, Minato-ku, Tokyo, Japan and our telephone number is: +81 (0) 3-5463-6344. Our corporate website is www.ubic.co.jp. Information contained on or accessed through our website is not intended to constitute and shall not be deemed to constitute part of this prospectus. Investor inquiries shall be directed to us at the address and telephone number of our principal office set forth above.

 

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THE OFFERING

ADSs we are offering

  1,100,000 ADSs

ADSs outstanding immediately after this offering

 

1,100,000 ADSs (or 1,265,000 ADSs if the over-allotment option is exercised in full)

Shares of common stock outstanding immediately after this offering

 

3,413,136 shares (or 3,446,136 shares if the over-allotment option is exercised in full)

The ADSs

 

Each five ADSs represents one share of our common stock. The ADSs may be evidenced by ADRs. The depositary will be the registered holder of the common stock underlying your ADSs. You will have the rights as provided in the deposit agreement. In the event that we declare dividends on our shares, the depositary will pay you the cash dividends and other distributions it receives on the deposited common stock, after converting the amounts it receives in yen into U.S. dollars and deducting its fees and expenses. We or the depositary may amend or terminate the deposit agreement without your consent. If you continue to hold your ADSs, you agree to be bound by the deposit agreement as amended.

 

To better understand the terms of the ADSs, you should carefully read the "Description of American Depositary Shares" section of this prospectus. You should also read the deposit agreement, which is filed as an exhibit to the registration statement that includes this prospectus.

Use of proceeds

 

We estimate that the net proceeds to us from this offering will be approximately $4.8 million, based on an assumed offering price of $8.50 per ADS, the mid-point of the expected range and after deducting the underwriting discounts and estimated offering expenses payable by us. Of the estimated offering expenses, we have already paid approximately $3.0 million, and therefore we will have approximately $3.0 million of additional net proceeds from this offering available to us. We intend to apply a significant portion of these net proceeds to us to various technology-related activities, including for continued development of our predictive coding-based tools for TAR. Any remaining net proceeds will be used for general corporate purposes. See "Use of Proceeds" on page 28.

Proposed Nasdaq Global Market symbol

 

We have applied to list the ADSs on the Nasdaq Global Market under the symbol "UBIC."

 

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Lock-up

 

We and our executive officers, directors and statutory auditors have agreed with the underwriters not to dispose of or hedge any ADSs or shares of our capital stock or securities convertible into or exchangeable for ADSs or shares of our capital stock during the period from the date of this prospectus continuing through the date 180 days after the date of this prospectus, in each case, except with the prior written consent of Maxim Group LLC and The Benchmark Company, LLC or in other limited circumstances. See "Underwriting" on page 123.

Depositary

 

The Bank of New York Mellon

Custodian

 

The Bank of Tokyo-Mitsubishi UFJ, Ltd.

Option to purchase additional ADSs

 

We have granted to the underwriters an option, which is exercisable within 45 days from the date of this prospectus, to purchase up to an additional 165,000 ADSs to cover over-allotments.

Timing and settlement for ADSs

 

The ADSs are expected to be delivered against payment on                    , 2013. The ADRs evidencing the ADSs may be deposited with a custodian for, and registered in the name of a nominee of, The Depository Trust company, or DTC, in New York, New York. In such case, DTC, and its direct and indirect participants, will maintain records that will show the beneficial interests in the ADSs and facilitate any transfer of the beneficial interests.

Risk factors

 

Investing in the ADSs involves a high degree of risk. Please see the section entitled "Risk Factors" starting on page 12 of this prospectus to read about risks that you should consider carefully before buying shares of the ADSs.

        Unless otherwise indicated, the number of shares of our common stock to be outstanding after this offering is based on 3,193,136 shares outstanding as of May 2, 2013 and excludes:

    116,000 shares issuable upon exercise of granted options with a weighted-average exercise price of ¥2,703.1 per share. Options to purchase 20,000 shares are exercisable beginning June 18, 2013, options to purchase 80,000 shares are exercisable beginning April 29, 2014, options to purchase 14,100 shares are exercisable beginning June 22, 2015, and options to purchase 1,900 shares are exercisable upon the termination date of the advisory agreement; and

    44,000 ADSs (including the underlying shares of our common stock) issuable upon exercise of warrants granted to the underwriters upon completion of this offering.

        Unless otherwise indicated, the share information and other financial data in this prospectus is as of December 31, 2012 and reflects or assumes:

    our two-for-one stock split that we effected on October 1, 2011;

    a second two-for-one stock split that we effected on April 1, 2012; and

    that the underwriters do not exercise their over-allotment option to purchase up to an additional 165,000 ADSs from us.

 

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SUMMARY CONSOLIDATED FINANCIAL INFORMATION

        The following tables present our summary consolidated financial information for the periods indicated and should be read in conjunction with the information contained in "Selected Consolidated Financial Information," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our audited and unaudited financial statements and related notes appearing elsewhere in this prospectus. Historical operating information may not be indicative of our future performance. The consolidated financial statements are reported in Japanese yen and have been prepared in accordance with United States generally accepted accounting principles ("U.S. GAAP"). The consolidated financial statements as of and for the years ended March 31, 2010, 2011, and 2012 have been audited by Ernst & Young ShinNihon LLC, an independent registered public accounting firm.

 
  For the year ended March 31,   For the nine months
ended December 31,
(unaudited)
 
 
  2010   2011   2012   2012   2011   2012   2012  
 
  (thousands of yen except per share data)




  (thousands of
dollars except
per share
data)

  (thousands of yen
except per share data)



  (thousands of
dollars except
per share
data)

 

Revenue

  ¥ 1,013,490   ¥ 2,635,430   ¥ 5,095,939   $ 58,817   ¥ 3,754,013   ¥ 3,516,633   $ 40,589  

Revenue from a related party

    80,072     40,764     27,862     322     22,002     14,783     171  

Operating revenue from reimbursed direct costs

    4,605     9,899     12,427     143     7,943     10,921     126  
                               

Total revenue

    1,098,167     2,686,093     5,136,228     59,282     3,783,958     3,542,337     40,886  
                               

Cost of revenue

    703,010     966,352     1,600,425     18,472     1,205,360     1,314,078     15,167  

Reimbursed direct costs

    4,605     9,899     12,427     143     7,943     10,921     126  

Selling, general and administrative expenses

    574,001     669,742     1,153,438     13,313     676,192     1,365,845     15,765  
                               

Total operating expense

    1,281,616     1,645,993     2,766,290     31,928     1,889,495     2,690,844     31,058  
                               

Operating income (loss)

    (183,449 )   1,040,100     2,369,938     27,354     1,894,463     851,493     9,828  

Interest income

   
3,441
   
3,410
   
2,052
   
24
   
1,638
   
990
   
11
 

Interest expense

    (13,247 )   (14,262 )   (13,360 )   (154 )   (8,264 )   (14,421 )   (166 )

Foreign currency exchange gains (losses)

    (14,384 )   (39,942 )   10,294     119     (35,590 )   78,971     911  

Impairment loss on security

    (108,540 )                        

Dividend income

            4,500     52         4,500     52  

Other—net

    94     1,296     655     8     5,211     (2,027 )   (23 )
                               

Income (loss) before income taxes

    (316,085 )   990,602     2,374,079     27,403     1,857,458     919,506     10,613  

Income taxes

   
102,213
   
202,827
   
1,003,441
   
11,582
   
800,115
   
378,929
   
4,374
 
                               

Net income (loss)

    (418,298 )   787,775     1,370,638     15,821     1,057,343     540,577     6,239  

Less: Net income (loss) attributable to noncontrolling interests

   
   
(933

)
 
2,951
   
34
   
2,613
   
4,578
   
53
 
                               

Net income (loss) attributable to UBIC, Inc. shareholders

  ¥ (418,298 ) ¥ 788,708   ¥ 1,367,687   $ 15,787   ¥ 1,054,730   ¥ 535,999   $ 6,186  
                               

Net income (loss) attributable to UBIC, Inc. shareholders per share(1)

                                           

Basic

  ¥ (182 ) ¥ 334   ¥ 515   $ 5.94   ¥ 401   ¥ 170   $ 1.97  

Diluted

  ¥ (182 ) ¥ 249   ¥ 422   $ 4.87   ¥ 327   ¥ 165   $ 1.90  

(1)
Share and per share data give effect to a 2-for-1 share split effected on October 1, 2011 and the 2-for-1 share split effected on April 1, 2012, as if such share splits had occurred on April 1, 2009.

 

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Other operating metrics:

 
  As of March 31,   As of December 31,  
 
  2010   2011   2012   2012   2011   2012   2012  
 
  (unaudited)
  (unaudited)
  (unaudited)
  (unaudited)
  (unaudited)
  (unaudited)
  (unaudited)
 

Cash dividends declared per common share

    ¥—     ¥—   ¥ 7.5   $ 0.09   ¥ 7.5   ¥ 50.0   $ 0.58  

 

 
  As of March 31,   As of December 31,  
 
  2010   2011   2012   2012   2012   2012  
 
  (thousands of yen)


  (thousands
of dollars)

  (thousands of
yen)

  (thousands of
dollars)

 
 
   
   
   
   
 
(unaudited)

 

Consolidated Balance Sheet Data:

                                     

Cash and cash equivalents

  ¥ 345,150   ¥ 675,212   ¥ 2,410,304   $ 27,820   ¥ 1,301,486   $ 15,022  

Total current assets

    510,013     1,675,941     3,643,020     42,049     2,696,317     31,122  

Total noncurrent assets

    339,243     697,655     1,336,656     15,426     2,058,418     23,759  

Total assets

    849,256     2,373,596     4,979,676     57,475     4,754,735     54,881  

Total current liabilities

    315,856     821,757     1,763,575     20,356     805,557     9,297  

Working capital

    194,157     854,184     1,879,445     21,693     1,890,760     21,825  

Long-term debt

    255,011     323,040     400,020     4,617     481,352     5,556  

Total noncurrent liabilities

    283,747     349,595     476,547     5,500     636,743     7,350  

Total liabilities

    599,603     1,171,352     2,240,122     25,856     1,442,300     16,647  

Total UBIC, Inc. shareholders' equity

    249,653     1,195,177     2,727,536     31,480     3,295,839     38,042  

Total equity

    249,653     1,202,244     2,739,554     31,619     3,312,435     38,234  

Financial Estimates

        The Company is currently finalizing its financial results for the fiscal year ended March 31, 2013. While complete financial information is not available, our management's current expectation is that we will achieve, under US GAAP, revenue of between ¥4,400 million ($ 50.8 million) and ¥4,600 million ($53.1 million), operating income of between ¥770 million ($8.9 million) and ¥1,000 million ($11.5 million), and net income of between ¥370 million ($4.3 million) and ¥570 million ($6.6 million), or exceed these levels. However, there can be no assurance that our final results will not differ from our expectations and such differences could be material. These estimates should not be viewed as a substitute for full financial statements prepared in accordance with US GAAP or as a measure of our actual operating results.

        Ernst & Young ShinNihon LLC, our independent registered public accounting firm, has not performed an examination or provided any other service related to the financial estimates described above. Accordingly, they have expressed no opinion or any other form of assurance thereon.

 

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RISK FACTORS

        An investment in the ADSs involves a high degree of risk. You should consider carefully the specific risk factors described below in addition to the other information contained in this prospectus, including our consolidated financial statements and related notes included elsewhere in the prospectus, before making a decision to invest in the ADSs. If any of these risks actually occurs, our business, financial condition, results of operations or prospects could be materially and adversely affected. This could cause the trading price of the ADSs to decline and a loss of all or part of your investment.

Risks Related to Our Business

We may not be able to achieve our expected revenues, operating income or net income in the future due to several factors involving our business operations, including a continuing decrease in our revenue from our eDiscovery business.

        Our expected levels of revenue, operating income or net income may not be achieved due to several other factors, including, but not limited to:

    a continuing decrease in our revenues from our core eDiscovery business if more law firms that use our services perform their own manual review of documents we have identified in the eDiscovery process;

    a decrease in revenue if we fail to successfully differentiate our technical skills from those of our competitors, if the average revenue per project decreases, if there is cancellation or scale-down of large accounts or if the prices we charge for our services fall dramatically;

    failure to control personnel and outsourcing costs, or if we fail to manage personnel elsewhere; or

    an increase in selling, general and administrative costs above expected levels, such as personnel expenses, advertising expenses and office rent-related expenses, in conjunction with our planned business expansion.

Our business may be adversely affected if our forensics or eDiscovery systems suffer interruptions, errors or delays.

        Interruptions, errors or delays with respect to our forensics or eDiscovery systems may be caused by human errors or natural factors, many of which are beyond our control, including, but not limited to, damage from fire, earthquakes or other natural disasters, power loss, sabotage, computer hackers, human error, computer viruses and other similar events. Much of our computer and networking equipment is concentrated in a few locations that are in earthquake-prone areas. Any disruption, outages, or delays or other difficulties experienced by any of our technological and information systems and networks could result in a decrease in new or existing accounts, loss or exposure of confidential information, reduction in revenues and profits, costly repairs or upgrades, reputational damage and decreased consumer and corporate customer confidence in our business, any or all of which could have a material adverse effect on our business, financial condition and results of operations.

We may not achieve our financial targets or maintain our current level of total revenue, operating income or net income if the economy in Japan or other Asian countries deteriorates or does not improve.

        Our business is principally conducted in Japan, other Asian countries and the United States and most of our revenues are from clients operating in Asia. If Asian economies deteriorate or do not improve, it may become difficult to maintain our current level of revenue and margins or achieve our expected revenues, operating income or net income.

        The powerfully destructive earthquake and tsunami that struck northeastern Japan on March 11, 2011, did not have a material adverse effect on our revenues or income for the fiscal years ended March 31, 2010, 2011 or 2012, or the nine months ended December 31, 2012. However, if a similar

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environmental catastrophe were to occur or should regions in which our data centers are located experience the disruption of social infrastructure or power shortages and other impacts due to similar causes, our backbone network and service facilities could fail and as a result, we may suffer direct and indirect damages, which may adversely affect our financial condition and results of operations.

If we fail to keep and manage our confidential customer information, or if our technical systems suffer interruption or damage, we could be subject to lawsuits, incur expenses associated with our security systems or suffer damage to our reputation.

        We keep and manage confidential information and/or privileged data obtained from our clients. We exercise care in protecting the confidentiality and integrity of such information and take steps to ensure its security. However, we can give no assurance that the steps taken by us in this regard will be adequate to protect our customer' confidential information or privileged data. A disaster could interrupt our services for an indeterminate length of time and severely damage our business, prospects, financial condition and results of operations. Our systems and operations are vulnerable to damage or interruption from fire, floods, network failure, hardware failure, software failure, power loss, telecommunication failures, computer viruses, denial of service attacks, penetration of our network by unauthorized computer users and "hackers" and other similar events, and other unanticipated problems. In addition, despite internal controls, misconduct by an employee could result in the improper use or disclosure of confidential information.

        Any of the disruptions or events listed above could cause material interruptions or delays in our business, resulting in the loss of data or rendering us unable to provide services to our consumers. In addition, if anyone can circumvent our security measures, he or she could destroy or misappropriate valuable information or disrupt our operations. Although we have taken measures that we consider to be prudent and adequate to protect against these events, we may not have developed or implemented adequate protections or safeguards to overcome the damage they may cause. We also may not have anticipated or addressed many of the potential events that could threaten or undermine our data systems. If any material leak of customer information were to occur, we could be subject to lawsuits for damages from our clients, incur expenses associated with repairing or upgrading our security systems and suffer damages to our reputation that could result in a material decline in new clients as well as an increase in service cancellations. The realization of these or similar risks may have a material adverse effect on our business, financial condition and result of operations.

If we fail to effectively manage our growth, our business, financial condition, results of operations and business prospects may be materially adversely affected.

        We have limited operational, administrative and financial resources, which may be inadequate to sustain our rapid growth and planned expansion. If our customer base continues to expand, we will need to increase our investments in our technology platform, facilities and other areas of operations, including customer service and sales and marketing. Our future success will depend on, among other things, our ability to effectively maintain our relationships with our key clients, to continue training, motivating and retaining our key employees and attract and integrate new employees, and to maintain adequate controls and procedures to ensure that our periodic public disclosure under applicable laws, including U.S. and Japanese securities laws, is complete and accurate.

        We have experienced a period of rapid growth and expansion that has placed, and continues to place, significant strain on our management personnel, systems and resources. To accommodate our current and planned growth we anticipate that we will need to implement a variety of new and upgraded operational and financial systems, procedures and controls, including the improvement of our accounting and other internal management systems, all of which require substantial commitment of financial and management resources. We also will need to continue to expand, train, manage and motivate our workforce, and manage our relationships with clients. These efforts require substantial management efforts and skills and may incur additional expenditures.

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If we fail to keep up with the rapid technological changes in our industry, our services may become obsolete and we may lose clients.

        Our markets are characterized by:

    frequent new product and service introductions;

    continually changing customer requirements; and

    evolving industry standards.

        Although we believe that the most recent version of Lit i View (version 6, released in January 2013), which features improvements in predictive coding and, therefore, the speed and accuracy of our primary eDiscovery software, is a significant stride forward, not only compared to the previous version of Lit i View but also compared with Asian language products of our competitors, if we fail to obtain access to new or important technologies or to develop and introduce new services and enhancements that are compatible with changing industry technologies and standards and customer requirements, we may lose clients.

        Our pursuit of necessary technological advances will require consistent commitment, substantial time and expense. Some of our competitors have greater financial and other resources than we do and, therefore, may be better able to meet the time and expense demands of achieving technological advances. This may allow our competitors to respond more quickly to new and emerging technologies and standards or invest more heavily in upgrading or replacing equipment to take advantage of new technologies and standards.

We face significant competition and may be unable to compete successfully against our competitors, which would have a material adverse effect on our business and results of operations.

        Our primary competitors are companies with long established eDiscovery operations, which have significant, and often multi-faceted, operations with law firms and companies operating internationally. Many of these competitors have significantly greater financial resources, longer operating histories and more experience in attracting and retaining clients and managing relationships with the law firms and companies that constitute our target clients than we do. They may compete with us for clients in a variety of ways, including, without limitation, with respect to price and their more extensive eDiscovery experience. If any of our competitors provide or develop comparable or superior computer forensic or eDiscovery services, the results would have a material adverse effect on our results of operations.

We depend on our key personnel for the success of our business, and losing their services would severely disrupt our business.

        Our future success is heavily dependent upon the continued service of our key executives, including Masahiro Morimoto, our founder, Chairman and Chief Executive Officer, and Naritomo Ikeue, our Executive Vice-President and Chief Operating Officer, among others. If we lose the services of senior members of our management or other key employees, we may not be able to locate suitable or qualified replacements, and may incur additional expenses to recruit and train new personnel, which could severely disrupt our business and growth. In addition, if any of these key executives or employees joins a competitor or forms a competing company, we could lose clients and incur additional expenses to recruit and train personnel. Each of our executive officers has entered into an employment agreement with us. We do not maintain key-man life insurance for any of our key executives. Competition for qualified individuals could cause us to offer higher compensation and other benefits to attract and retain them, which could materially and adversely affect our financial condition and results of operations. We previously awarded share-based compensation in the form of options to certain members of our senior management and key employees, all of which either have been exercised or are not yet exercisable. Such retention awards may cease to be effective to retain our current employees.

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We will require additional human resources and will incur increased costs and administrative workload as a result of being a U.S. public company.

        After the completion of this offering, as a public company in the United States we will be subject to a number of regulatory requirements, including the reporting requirements of the Securities Exchange Act of 1934, as amended, or the Exchange Act, the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, and the regulations promulgated thereunder, and the listing standards of the Nasdaq. We are first required to comply with Section 404 when filing our annual report on Form 20-F for the fiscal year ending March 31, 2014, although, as an emerging growth company, as defined in Section 2(a) of the Securities Act, we may decide to take advantage of the exemption provided by the Jumpstart Our Business Startups Act of 2012, or the JOBS Act, which, assuming we continue to be an emerging growth company, would allow us to delay complying with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002 until we are required to file our annual report on Form 20-F for the fiscal year following the fifth anniversary of our public offering. Even though, as a foreign private issuer, some of these requirements may be more relaxed than they would be if we were a U.S. corporation, we will incur significant legal, accounting and other expenses that we did not incur prior to becoming a public company in the United States. We expect that these rules and regulations will increase our legal, accounting and financial compliance costs and will make certain corporate activities more time-consuming and costly.

        The Exchange Act requires, among other things, that we file or furnish annual and current reports with respect to our business and financial condition and we will need to continue to produce financial statements on a consolidated basis in U.S. GAAP, in addition to our Japanese GAAP statutory financial statements, on a timely basis. Prior to this offering, we have not been required to comply with these regulatory obligations and we have not put in place accounting and disclosure staffing and systems that are designed to meet our obligations under the regulatory framework for U.S. reporting companies listed on the Nasdaq. Because we do not have sufficient U.S. GAAP expertise at the Company, we have employed external consultants on a temporary basis to assist us to prepare the consolidated U.S. GAAP financial statements included elsewhere in this prospectus.

        Once we are a public company listed on Nasdaq, we will need to acquire the internal resources or continue to utilize these outside consulting resources in order to meet both of these financial reporting requirements going forward, either of which would require significant expenditures. If we cannot employ sufficient personnel to ensure compliance with these rules and regulations, we may need to rely more on outside legal, accounting and financial experts, which may be costly. In addition, we will incur additional costs associated with our public company reporting requirements. We cannot predict or estimate additional costs that we may incur or the timing of such costs. If we fail to comply with these rules and requirements, or are perceived to have weaknesses with respect to our compliance, we could become the subject of a governmental enforcement action and investor confidence could be negatively impacted.

If we fail to maintain an effective system of disclosure controls and procedures and internal controls over financial reporting, we may not be able to accurately report our financial results or prevent fraud.

        Ensuring that we have adequate disclosure controls and procedures, including internal controls over financial reporting, in place so that we can produce accurate financial statements on a timely basis is costly, time-consuming and needs to be re-evaluated frequently. We are in the process of documenting, reviewing and, if appropriate, improving our internal controls and procedures in anticipation of being a public company and eventually being subject to the requirements of Section 404 of the Sarbanes-Oxley Act, which will require annual management assessments of the effectiveness of our internal controls over financial reporting and, when we cease to be an emerging growth company under the JOBS Act, a report by our independent auditors addressing these assessments. We will be required to comply with the internal controls evaluation and certification requirements of Section 404 of the Sarbanes-Oxley Act. Our management may conclude that our internal controls over financial

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reporting are not effective due to our failure to cure any identified material weakness or otherwise. Moreover, even if our management concludes that our internal controls over financial reporting are effective, our independent registered public accounting firm may not conclude that our internal controls over financial reporting are effective, it may not be satisfied with our internal controls over financial reporting or the level at which our controls are documented, designed, operated or reviewed, or it may interpret the relevant requirements differently from us. As a result, such firm may decline to attest to the effectiveness of our internal controls over financial reporting or may issue a qualified report. In addition, during the course of the evaluation, documentation and testing of our internal controls over financial reporting, we may identify deficiencies that we may not be able to remediate in time to meet the deadline imposed by the SEC for compliance with the requirements of Section 404. If we fail to achieve and maintain the adequacy of our internal controls over financial reporting, as these standards are modified, supplemented or amended from time to time, we may be unable to report our financial information on a timely basis, we may not be able to conclude on an ongoing basis that we have effective internal controls over financial reporting in accordance with the Sarbanes-Oxley Act and we may suffer adverse regulatory consequences or violations of Nasdaq listing standards. There could also be a negative reaction in the financial markets due to a loss of investor confidence in us a reliability of our financial statements.

In connection with the preparation of our U.S. GAAP financial statements, if we are unable to remediate a material weakness in our internal control over financial reporting identified by our management, we may be unable to comply with Nasdaq listing requirements.

        During the preparation of our U.S. GAAP financial statements in connection with filing the registration statement of which this prospectus forms a part, our management considered our internal controls and determined that our accounting and disclosure staffing and system for preparing financial statements under U.S. GAAP were deficient in the design and operating effectiveness of our internal controls. Our management has also observed that our practice of relying on external resources for preparing U.S. GAAP financial statements has left us with deficient internal policies and procedures upon which to rely in our preparation of such U.S. GAAP financial statements.

        Our management has been and will continue to be required to devote a substantial amount of time to review and implement remediation of this material weakness. Under auditing standards established by the U.S. Public Company Accounting Oversight Board, a material weakness is a deficiency or combination of deficiencies in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected and corrected on a timely basis.

        Since reaching that conclusion, we have taken a number of actions to remediate the material weakness and strengthen the capability of our finance organization, such as the hiring of additional employees for our internal management and accounting staff who possess U.S. GAAP accounting experience, including a new chief financial officer, a corporate financial planning and analysis executive, a sales division controller and a UBIC Korea financial controller. Two of these individuals have earned certified public accountant certification in the United States. In addition, we have assessed and implemented various measures to improve our financial policies and internal controls. During the course of each closing of the three quarters for which we have prepared U.S. GAAP financial statements, we reviewed our closing process, accounting practices, related internal controls and other issues to enhance each area. We also instituted internal training for our financial staff provided by an instructor who has over 30 years of public accounting experience for multinational companies and university-level teaching experience.

        Based upon the current remediation plan and the steps that we have taken to address the material weakness, in addition to the basic internal control structure and capability that we had as a Japanese public company since June 2007, our management believes that sufficient enhancements to our internal controls will be in place to remediate the material weakness as of our fiscal year end of March 31,

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2013. We cannot provide any assurance that the steps we have taken have materially remediated the material weakness identified by our management or there will not be other material weaknesses that we identify in the future. If we identify such issues or if we are unable to prepare accurate and timely U.S. GAAP financial statements, our stock price may be adversely affected and we may be unable to maintain compliance with listing requirements of Nasdaq.

Undetected programming errors could harm our reputation or decrease market acceptance of our computer forensics and eDiscovery services, which would materially and adversely affect our results of operations.

        Our software solutions are complex and may contain defects, errors or bugs when first introduced to the market or to a particular client, or as new versions are released. Because we cannot test for all possible scenarios, our solutions may contain errors which are not discovered until after they have been installed, and we may not be able to timely correct these problems. These defects, errors or bugs could interrupt or delay completion of projects or sales to our clients. In addition, our reputation may be damaged and we may fail to acquire new projects from existing clients or new clients. We generally have been able to resolve such flaws and errors. However, we cannot assure you that we will be able to detect and resolve all these programming flaws and errors in a timely manner. Undetected programming errors, defects and resulting unsatisfactory customer service to clients can disrupt our operations, adversely affect the client experience, harm our reputation, or cause our clients to reduce their use of our services, any of which could materially and adversely affect our results of operations.

Our failure to protect our intellectual property rights may undermine our competitive position, and subject us to costly litigation to protect our intellectual property rights.

        We regard a substantial portion of our software solutions and systems as proprietary and rely on statutory copyright, trademark, patent, trade secret laws, client license agreements, employee and third-party non-disclosure agreements and other methods to protect our proprietary rights. Nevertheless, these resources afford only limited protection and the actions we take to protect our intellectual property rights may not be adequate. We cannot assure you that we have secured, or will be able to secure, appropriate protections for all of our proprietary rights. In particular, third parties may infringe or misappropriate our proprietary technologies or other intellectual property rights, which could have a material adverse effect on our business, financial condition and results of operations. In addition, litigation may be necessary to enforce our intellectual property rights, protect our trade secrets or determine the validity and scope of the proprietary rights of others. The outcome of any such litigation may not be in our favor. Furthermore, any such litigation may be costly and may divert management attention as well as our other resources away from our business. An adverse determination in any such litigation will impair our intellectual property rights and may harm our business, prospects and reputation. The occurrence of any of the foregoing could have a material adverse effect on our business, financial condition and results of operations.

We may be subject to infringement, misappropriation and indemnity claims in the future, which may cause us to incur significant expenses, pay substantial damages and be prevented from providing our services or technologies.

        Our success depends, in part, on our ability to carry out our business without infringing the intellectual property rights of third parties. Patent and copyright law covering software-related technologies is evolving rapidly and is subject to a great deal of uncertainty. Some third party intellectual property rights may be extremely broad and it may not be possible for us to conduct our operations in such a way so as to avoid infringement of those intellectual property rights. Our proprietary or licensed technologies, processes or methods may be covered by third-party patents or copyrights, either now existing or to be issued in the future. Third parties may raise claims against us alleging infringement or violation of their intellectual property and any such litigation may cause us to incur significant expenses. Third-party claims, if successfully asserted against us may cause us to pay

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substantial damages, seek licenses from third parties, pay ongoing royalties, redesign our services or technologies, or prevent us from providing services or technologies subject to these claims. Even if we were to prevail, any litigation would likely be costly and time-consuming and divert the attention of our management and key personnel from our business operations.

If we are not able to successfully market our services to new and existing clients and to build our brand and achieve market acceptance for our solutions and services, we may not be able to maintain and expand our operations and our results may be adversely affected.

        For the year ended March 31, 2011, revenue from Panasonic Corporation, Aisin Seiki, Yazaki Corporation, and TMI Associates represented approximately 22.1 percent, 14.1 percent, 13.9 percent, and 11.6 percent, respectively, of our total revenue. For the year ended March 31, 2012, revenue from Yazaki Corporation, Panasonic Corporation, two clients represented by Quinn Emanuel Urquhart & Sullivan, LLP, and Sanyo Electric Co., Ltd. represented approximately 18.5 percent, 12.2 percent, 11.8 percent, and 11.6 percent, respectively, of our total revenue. While we derive a significant portion of our revenue from a small number of substantial clients, the specific clients change from year to year, and we expect this trend to continue. The vast majority of our revenue is derived from limited scope engagements that do not include long-term commitments.

        Our clients and potential clients use eDiscovery and forensic services, for the most part, on an "as needed basis," when a specific legal or administrative proceeding, investigation or other legal challenge requires them to rapidly analyze and produce large amounts of digital information. In the absence of such a demand, a company's demand for our services and solutions tends to be much less extensive. This means that contracts for our services tend to be time and subject specific. The fact that we have sold our solutions to a client in one fiscal year or quarter does not ensure on-going use by that client in any subsequent period, unless a new need for our services arises.

        In light of this situation, in order to expand our business, it is imperative for us to continuously market our services and solutions to existing and potential clients and to build market recognition of our capabilities and our brand so that, when companies have a need for eDiscovery and forensic services, we and our solutions are perceived as an attractive alternative. If our marketing and brand building efforts are not successful and we are not able to secure new mandates when existing contracts reach their conclusion, we may have difficulty maintaining and increasing the use of our services and our quarterly and annual results of operations could be materially adversely affected.

Our solutions incorporate and work in conjunction with third-party hardware and software products. If this hardware or software were not available to us at reasonable cost or at all, our results of operations could be adversely impacted.

        Although our solutions primarily rely on our own core technologies, some of our solutions incorporate third-party hardware and software products. In addition, our solutions are designed to work in conjunction with the third-party hardware and software in our clients' existing systems. If any third party were to discontinue making their products available to us or our clients on a timely basis, or were to increase materially the cost of their products, or if our solutions failed to properly function or interoperate with replacement hardware or software products, we may need to incur costs in finding replacement products and, if necessary, redesigning our solutions to function with or on replacement third-party products. Replacement products may not be available on terms acceptable to us or at all, and we may be unable to develop alternative solutions or redesign our solutions on a timely basis or at a reasonable cost. If any of these were to occur, our results of operations could be adversely impacted.

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Future government legislation or changes in court rules could adversely affect our ability to sell our eDiscovery systems.

        The delivery of our eDiscovery services is not directly regulated by the U.S. or Japanese governments. Our eDiscovery solutions and the clients we serve are, however, directly or indirectly affected by federal and state laws and regulations and court rules. For example, any amendments to the Federal Rules of Civil Procedure regarding discovery of "electronically stored information" could affect our clients, and indirectly, our ability to productively market and sell our eDiscovery solutions. Future federal or state legislation or court rules, or court interpretations of those laws and rules, could have an adverse impact on our revenues and results of operations.

Our ability to expand our operations and maintain or increase our revenue is dependent on the quality of our offerings of solutions and services, and our failure to perform at a high level and provide high quality service could have a material adverse effect on our results of operations.

        Our clients depend upon our customer service and support staff to meet their eDiscovery and forensic analysis needs. High-quality support services are critical for the successful and sale of our services and solutions. If we fail to provide high-quality support on an ongoing basis, our clients may react negatively and our reputation in the marketplace could be materially and adversely affected, which would negatively impact our ability to secure contracts from existing and potential clients. Our failure to maintain high-quality support services could have a material and adverse effect on our business, results of operations and financial condition.

Our principal shareholders, directors and executive officers own a large percentage of our shares and will, following the completion of this offering, have approximately 50% of our aggregate voting power, allowing them to exercise substantial influence over matters subject to shareholder approval.

        Following the completion of this offering, assuming no exercise of the underwriters' over-allotment option, our executive officers, directors and principal shareholders holding 5% or more of our outstanding shares and their respective affiliates will beneficially own 50% of our issued and outstanding voting shares. Accordingly, these executive officers, directors and principal shareholders will have substantial influence over the outcome of corporate actions requiring shareholder approval, including the election of directors, any merger, consolidation or sale of all or substantially all of our assets or any other significant corporate transaction, and their interests may not align with the interests of our other shareholders. These shareholders may also delay or prevent a change of control or otherwise discourage a potential acquirer from attempting to obtain control of us, even if such a change of control would benefit our other shareholders. This significant concentration of share ownership may adversely affect the trading price of the ADSs due to investors' perception that conflicts of interest may exist or arise.

If securities or industry analysts publish negative reports or cease to publish reports about our business, the price and trading volume of our securities could decline.

        The trading market for the ADSs will depend in part on the research and reports that industry or financial analysts publish about us or our business. If one or more of the analysts covering us downgrade their estimates or evaluation of our common stock, the price of the ADSs could decline. If one or more of these analysts cease coverage of our company or fail to publish reports on us regularly, we could lose visibility in the market for the ADSs, which in turn could cause the price of the ADSs or trading volume to decline or adversely affect the liquidity of the market for the ADSs.

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Certain judgments obtained against us by holders of the ADSs may not be enforceable.

        We are a company incorporated under the laws of Japan and our principal offices and assets are located in Tokyo. We conduct only a minority of our business in the United States and most of our assets are located in jurisdictions, including Japan, South Korea and Taiwan, outside the United States. In addition, with one exception, all of our directors and executive officers, and most of the experts named in this prospectus, reside in jurisdictions outside of the United States and substantially all of the assets of these persons are located in those non-U.S. jurisdictions. As a result, it may not be possible to effect service of process within the United States or elsewhere upon these directors, executive officers and experts, including with respect to matters arising under the U.S. federal securities laws or applicable state securities laws. For example, Japan does not have treaties with the United States and many other countries providing for the reciprocal recognition and enforcement of judgments of courts. As a result, it may be difficult or impossible for you to bring an original action against us or against these individuals in a Japanese court in the event that you believe that your rights have been infringed under the U.S. federal securities laws or otherwise.

        There is no statutory recognition in Japan of judgments obtained in the United States, although the courts of Japan will in certain circumstances recognize and enforce a civil, final judgment of a foreign court of competent jurisdiction without retrial on the merits. While there is no binding authority on this point, it may be difficult to enforce a civil judgment of a United States court imposing a monetary award based on the civil liability provisions of the U.S. federal securities laws.

Significant movements in foreign currency exchange rates or change in monetary policy may materially harm our financial results.

        Our reporting currency is the Japanese yen and our operations in other countries, including the United States, Korea, and Taiwan, use the applicable local currency. We are subject to the effects of exchange rate fluctuations with respect to any of these currencies which, among other factors, may be influenced by government policies and domestic and international economic and political developments.

        Any significant change in the value of the currencies of the countries in which we do business against the Japanese yen could have a material adverse effect on our financial condition and results of operations, expressed in Japanese yen.

        We recognize foreign currency transaction gains and losses arising from our operations in the period incurred. As a result, currency fluctuations between the Japanese yen and the other currencies in which we do business have caused and will continue to cause foreign currency transaction and translation gains and losses, which historically have sometimes been material and could be material in future periods. We cannot predict the effects of exchange rate fluctuations upon our future operating results because of the number of currencies involved, the variability of currency exposures and the potential volatility of currency exchange rates. We do not take actions to manage our foreign currency exposure, such as entering into hedging transactions.

Risks Associated with this Offering and the ADSs

There is no existing market for the ADSs and an active trading market for the ADSs that would provide you with adequate liquidity may not develop.

        Prior to this offering, there was no public market for the ADSs. There can be no guarantee that an active and liquid public market for the ADSs will develop or be sustained after this offering. In addition, although a public market on the TSE for our shares exists in Japan and all of the shares of our common stock outstanding on the date of this prospectus are freely tradable in that market after the completion of this offering, we cannot assure you that any of those shares will be deposited with the depositary in exchange for ADSs that would be freely tradable on Nasdaq. Therefore, the relatively

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small number of ADSs being sold in this offering may effectively limit their liquidity. If you purchase the ADSs in this offering, you will purchase them at a price that, although reflecting, in part, the price of our common stock on the TSE, was not established in a competitive market. Rather, the ADSs sold in this offering will be sold at a price that we negotiated with the representative of the underwriters and such price may not be indicative of the price at which the ADSs will trade in the market following this offering.

        For these reasons, the market price of the ADSs may be volatile and subject to wide fluctuations, and you may not be able to resell at or above the initial public offering price. The market price of the ADSs could be lower than the price you pay in response to a variety of factors, some of which are beyond our control and may not be related to our operating performance. The price of the ADSs may fluctuate as a result of:

    introduction of new products, services or technologies offered by us or our competitors;

    any failure to meet or exceed revenue and financial projections we provide to the public;

    actual or anticipated variations in our quarterly operating results or those of other companies in our industry;

    our failure to meet or exceed the estimates and projections of the investment community;

    general market conditions and overall fluctuations in United States or Japanese equity markets;

    announcements of significant acquisitions, strategic partnerships, joint ventures or capital commitments by us or our competitors;

    disputes or other developments relating to proprietary rights, including patents and our ability to obtain protection for our intellectual property;

    additions or departures of our key management personnel;

    issuances by us of debt or equity securities;

    Litigation involving our company, including: shareholder litigation; investigations or audits by regulators into the operations of our company; or proceedings initiated by our competitors or clients;

    changes in the market valuations of similar companies;

    significant sales of the ADSs or common stock by our shareholders in the future; and

    the trading volume of the ADS.

        In addition, the securities market has experienced significant price and volume fluctuations not related to the operating performance of particular companies. These market fluctuations may also materially adversely affect the market price of the ADSs. In the past, following periods of volatility in the market price of a company's securities, shareholders have often instituted securities class action litigation against that company. Any such class action suit or other securities litigation would divert the attention of our senior management, require us to incur significant expense and, whether or not adversely determined, could materially adversely affect our business, financial condition, results of operations and prospects.

The value of the ADSs may not perfectly track the price of our common stock.

        Our common stock currently trades on the TSE under stock code number 2158. Active trading volume and efficient pricing for our common stock on the TSE will usually, but not necessarily, indicate similar characteristics in respect of the ADSs. In addition, the terms and conditions of our agreement with our depositary may result in less liquidity or lower market value of the ADS than for our common

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stock. Since the holders of the ADSs may surrender the ADSs to take delivery of and trade our common stock (a characteristic that allows investors in ADSs to take advantage of price differentials between different markets), an illiquid market for our common stock may result in an illiquid market for the ADSs. Therefore, the trading price of our common stock may not be correlated with the price of the ADSs.

Since the initial public offering price is substantially higher than our net tangible book value per share, you will incur immediate and substantial dilution.

        If you purchase ADSs in this offering, you will pay more for your ADSs than the amount paid by certain of our existing shareholders for their shares of our common stock on a per ADS basis. As a result, you will experience immediate and substantial dilution of approximately $6.53 per ADS (assuming no exercise of outstanding options to acquire shares of our common stock), representing the difference between our pro forma net tangible book value per ADS as of December 31, 2012, after giving effect to this offering and the assumed initial public offering price of $8.50 per ADS, the midpoint of the estimated initial public offering price range shown on the front cover of this prospectus. In addition, you will experience further dilution to the extent that additional shares of our common stock are issued upon the exercise of outstanding options. All of the common stock issuable upon the exercise of currently outstanding share options will be issued at a purchase price on a per ADS basis that is less than the initial public offering price per ADS in this offering, and the conversion price of our convertible bonds, on a per ADS basis, is also less than the initial public offering price of the ADSs. See "Dilution" for a more complete description of how the value of your investment in the ADSs will be diluted upon the completion of this offering.

Your right as a holder of ADSs to participate in any future rights offerings may be limited, which may cause dilution to your holdings and you may not receive cash dividends if it is impractical to make them available to you.

        We may, from time to time, distribute rights to our shareholders, including rights to acquire our securities. However, we cannot make any such rights available to the ADS holders in the United States unless we register such rights and the securities to which such rights relate under the Securities Act or an exemption from the registration requirements is available. In addition, the deposit agreement provides that the depositary bank will not make rights available to you unless the distribution to ADS holders of both the rights and any related securities are either registered under the Securities Act or exempted from registration under the Securities Act. We are under no obligation to file a registration statement with respect to any such rights or securities or to endeavor to cause such a registration statement to be declared effective. Moreover, we may not be able to establish an exemption from registration under the Securities Act. Accordingly, you may be unable to participate in our rights offerings and may experience dilution in your holdings.

        The depositary has agreed to pay you the cash dividends or other distributions it or the custodian receives on our common stock or other deposited securities after deducting its fees and expenses. However, because of these deductions, you may receive less, on a per share basis with respect to your ADSs than you would if you owned the number of shares or other deposited securities directly. You will receive these distributions in proportion to the number of common stock your ADSs represent. In addition, the depositary may, at its discretion, decide that it is not lawful or practical to make a distribution available to any holders of ADSs. For example, the depositary may determine that it is not practicable to distribute certain property through the mail, or that the value of certain distributions may be less than the cost of mailing them. In these cases, the depositary may decide not to distribute such property and you will not receive such distribution.

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Sales of a substantial number of shares of our common stock or ADSs in the public markets by our existing shareholders could cause the price of the ADSs to fall.

        Sales of a substantial number of shares of our common stock or ADSs in the public market or the perception that these sales might occur, could depress the market price of the ADSs and could impair our ability to raise capital through the sale of additional equity securities. We are unable to predict the effect that any such sales may have on the prevailing market price of the ADSs.

        All of our executive officers, directors and statutory auditors prior to this offering are subject to lock-up agreements with the underwriters of this offering that restrict their ability to transfer shares of our common stock or ADSs for at least 180 days from the date of this prospectus. However, all of our other existing shareholders and holders of securities convertible into, or exercisable for, our common stock will be free to sell their shares, and shares receivable upon such exercise or conversion, on the TSE. Subject to certain limitations, a total of approximately 2,219,696 of our shares will be eligible for sale immediately and 973,440 additional shares will be eligible upon expiration of the lock-up period. Such sales of common stock could have a material adverse effect on the trading price of the ADSs.

Our management will have broad discretion in the use of the net proceeds from this offering and may not use them effectively.

        We have not allocated a significant portion of the net proceeds to be received by us from this offering to any particular purpose. Our management will have broad discretion in the application of the net proceeds, including for any of the purposes described in the section entitled "Use of Proceeds," and you will not have the opportunity as part of your investment decision to assess whether the net proceeds are being used appropriately. You will not be able to direct how we apply these net proceeds and must rely on our management's judgment regarding the application of those net proceeds. The net proceeds may be used for corporate purposes that do not improve our efforts to maintain or increase profitability or increase our share price. Because of the number and variability of factors that will determine our use of the net proceeds from this offering, their ultimate use may vary substantially from their currently intended use. The failure by our management to apply these funds effectively could harm our business. Pending their use, we may invest the net proceeds from this offering in short-term, investment-grade, interest-bearing securities. These investments may not yield a favorable return to our shareholders and/or may lose value. Furthermore, the price of the ADSs could decline if the market does not view our use of the net proceeds from this offering favorably.

Rights of shareholders under Japanese law may be different from those under the laws of the United States.

        Our articles of incorporation, the regulations of our Board of Directors and the Companies Act of Japan, or the Companies Act, govern our corporate affairs. Legal principles relating to such matters as the validity of corporate procedures, directors' and officers' fiduciary duties and shareholders rights are different from those that would apply if we were a company incorporated in the United States. Shareholders' rights under Japanese law are different in some significant respects from shareholders' rights under the laws of the United States. These differences include, but are not limited to, limitations on voting shares that comprise less than one full unit of our shares, the right to participate in a demand for the convocation of a general meeting of shareholders, and the right to join with other shareholders to propose an agenda item to be addressed at a general meeting of shareholders. You may have more difficulty in asserting your rights as a shareholder than you would as a shareholder of a corporation organized in the United States. For a detailed description of the rights of shareholders under our articles of incorporation and Japanese law, See "Description of Share Capital."

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You may not have the same voting rights as the holders of our common stock and must act through the depositary to exercise your rights.

        Except as described in this prospectus and in the deposit agreement, holders of the ADSs will not be able to directly exercise voting rights attaching to the shares evidenced by the ADSs. In accordance with the terms of the deposit agreement, holders of the ADSs will have the right to instruct the depositary how to vote the amount of common shares represented by their ADSs. However, you may not receive voting materials in time to instruct the depositary to vote, and it is possible that, persons who hold ADSs through brokers, dealers or other third parties, will not have the opportunity to exercise a right to vote. Upon our written request, the depositary will mail to you a shareholder meeting notice which contains, among other things, a statement as to the manner in which your voting instructions may be given, including an express indication that such instructions may be given or deemed given to the depositary to give a discretionary proxy to a person designated by us if no instructions are received by the depositary from you on or before the response date established by the depositary. However, no voting instruction shall be deemed given and no such discretionary proxy shall be given with respect to any matter as to which we inform the depositary that (i) we do not wish such proxy given, (ii) substantial opposition exists, or (iii) such matter materially and adversely affects the rights of shareholders. See "Description of American Depositary Shares." We will make all reasonable efforts to cause the depositary to extend voting rights to you in a timely manner, but you may not receive the voting materials in time to ensure that you can instruct the depositary to vote. Furthermore, the depositary and its agents will not be responsible for any failure to carry out any instructions to vote, for the manner in which any vote is cast or for the effect of any such vote. As a result, you may not be able to exercise your right to vote and you may lack recourse if your ADSs are not voted as you requested. In addition, in your capacity as an ADS holder, you will not be able to call a shareholders' meeting.

You may be subject to limitations on transfer of your ADSs.

        Your ADSs are transferable on the books of the depositary. However, the depositary may close its transfer books at any time or from time to time when it deems expedient in connection with the performance of its duties. In addition, the depositary may refuse to deliver, transfer or register transfers of ADSs generally when our books or the books of the depositary are closed, or at any time if we or the depositary deem it advisable to do so because of any requirement of law or of any government or governmental body, or under any provision of the deposit agreement, or for any other reason.

We are exempt from certain corporate governance requirements of Nasdaq. This may afford less protection to the holders of the ADSs.

        We are exempt from certain corporate governance requirements of Nasdaq by virtue of being a "foreign private issuer" as defined in Rule 405 under the Securities Act. As a foreign private issuer, we are permitted to, and plan to, follow the practice of Japan and of the TSE, on which our common stock is listed, in lieu of certain corporate governance requirements of Nasdaq.

        This means that we will be exempt from certain of Nasdaq's corporate governance rules, including those that require:

    a majority of our Board of Directors does not need to be comprised of "independent directors" as defined by Nasdaq rules; and

    our compensation committee and nominating committee do not need to be comprised solely of "independent directors."

        As a result, we cannot assure you that the compensation of our officers will be determined, or recommended to the Board of Directors for determination, by a majority of the independent directors

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or a compensation committee comprised solely of independent directors. There also can be no assurance that director nominees will be selected, or recommended for the Board of Directors' selection by a majority of the independent directors or a nominating committee comprised solely of independent directors.

        We intend to rely on all such exemptions provided by Nasdaq to a foreign private issuer, except that we expect to establish a compensation committee, and adopt and disclose a code of business conduct and ethics for directors, officers and employees.

        Unless we no longer qualify, or choose to no longer rely on these exemptions in the future, you will not have the same protections afforded to shareholders of companies that are subject to all of the Nasdaq corporate governance requirements.

        In the event we are no longer a "foreign private issuer", we will be required to have a majority of independent directors on our Board of Directors and to have our compensation and nominating committees comprised solely of independent directors within one year of the date that we no longer qualify as a foreign private issuer.

We are an "emerging growth company" and our election to delay adoption of new or revised accounting standards applicable to public companies may result in our financial statements not being comparable to those of other public companies. As a result of this and other reduced disclosure and governance requirements applicable to emerging growth companies, the ADSs may be less attractive to investors.

        We are a "foreign private issuer" and are not required to comply with certain periodic disclosure and current reporting requirements of the Exchange Act. In addition, we are an "emerging growth company," as defined in the JOBS Act, and we intend to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. In addition, Section 107 of the JOBS Act also provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act of 1933, or the Securities Act, for complying with new or revised accounting standards. In other words, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We are electing to delay such adoption of new or revised accounting standards, and as a result, we may not comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for non-emerging growth companies. As a result of such election, our financial statements may not be comparable to the financial statements of other public companies. We cannot predict if investors will find the ADSs less attractive because we will rely on these exemptions. If some investors find the ADSs less attractive as a result, there may be a less active trading market for the ADSs and the trading price of the ADSs may be more volatile. We may take advantage of these reporting exemptions until we are no longer an "emerging growth company." We will cease to be an "emerging growth company" upon the earliest of the following conditions to occur: (i) the last day of the fiscal year in which we have more than $1.0 billion in annual revenues; (ii) the date we qualify as a "large accelerated filer," with at least $700 million of equity securities; (iii) the issuance, in any three-year period, by our company of more than $1.0 billion in non-convertible debt securities held by non-affiliates; or (iv) the last day of the fiscal year ending after the fifth anniversary of our initial public offering. If any of the conditions previously listed occurs, we would cease to be an emerging growth company as of the following December 31.

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FORWARD-LOOKING STATEMENTS

        To the extent that any statements made in this prospectus contain information that is not historical, these statements are essentially forward-looking. Forward-looking statements may be identified by the use of words such as "expects," "plans," "may," "anticipates," "believes," "should," "intends," "estimates" and other words or phrases of similar meaning. Although we believe that the expectations reflected in these forward-looking statements are reasonable and achievable, these statements are subject to a number of risks and uncertainties discussed under the headings "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" and elsewhere in this prospectus. All forward-looking statements attributable to us are expressly qualified by these and other factors. We cannot assure you that actual results will be consistent with these forward-looking statements.

        Information regarding market and industry statistics contained in this prospectus is included based on information available to us that we believe is accurate. Forecasts and other forward-looking information obtained from this available information is subject to the same qualifications and the additional uncertainties accompanying any estimates of future market size, revenue and market acceptance of products and services. The forward-looking statements made in this prospectus relate only to events as of the date on which the statements are made. We do not undertake any obligation to publicly update any forward-looking statements. As a result, you should not place undue reliance on these forward-looking statements.

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MARKET, INDUSTRY AND OTHER DATA

        Unless otherwise indicated, information contained in this prospectus concerning our industry and the markets in which we operate, including our general expectations and market position, market opportunity and market size, is based on information from various sources, on assumptions that we have made that are based on those data and other similar sources and on our knowledge of the markets for our services. These data involve a number of assumptions and limitations. We have not independently verified the accuracy of any third party information. In addition, projections, assumptions and estimates of our future performance and the future performance of the industry in which we operate is necessarily subject to a high degree of uncertainty and risk due to a variety of factors, including those described in "Risk Factors" and elsewhere in this prospectus. These and other factors could cause results to differ materially from those expressed in the estimates made by the independent parties and by us.

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USE OF PROCEEDS

        We estimate that the net proceeds to us from this offering, after deducting underwriting discounts and estimated offering expenses payable by us, will be approximately $4.8 million, assuming an initial public offering price of $8.50 per ADS (the midpoint of the range set forth on the cover of this prospectus). Of the estimated offering expenses, we have already paid approximately $3.0 million, and therefore we will have approximately $3.0 million of additional net proceeds from this offering available to us. A $1.00 increase or decrease in the assumed initial public offering price would increase or decrease the net proceeds from this offering by $1.0 million, after deducting underwriting discounts and estimated offering expenses. The underwriters have an option to purchase an additional 165,000 ADSs from us to cover over-allotments, if any. Assuming the over-allotment option is exercised in full by the underwriters and satisfied in full by us, we will receive an additional estimated $1.3 million in net proceeds, after deducting underwriting discounts.

        We expect to apply a significant portion of the net proceeds to us from the offering for various technology-related activities in the year ended March 31, 2014, including for continued development of our predictive coding-based tools for TAR. We intend to use any remaining net proceeds from this offering for general corporate purposes, including working capital and possible acquisitions and investments, including the acquisition of complementary technology useful in our operations and with respect to our intention to expand our operations in the United States and Asia. Although we currently have no agreements or commitments with respect to any acquisitions or investments and we do not currently have any acquisitions or investments planned, one or more of these may involve companies or technologies in the areas of intellectual property analysis and machine-driven translation, which we believe are growth sectors of interest to us. Our management will have significant discretion in applying the remaining net proceeds from this offering. Pending specific application of our net proceeds, we plan to invest our net proceeds in government securities and other short-term, investment-grade, marketable securities.

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DIVIDEND POLICY

        The Companies Act permits companies to distribute dividends-in-kind (non-cash assets) to shareholders subject to a certain limitation and additional requirements. The Companies Act permits semiannual interim dividends to be paid once a year upon resolution by the board of directors if the paying company meets certain criteria and its articles of incorporation so stipulate. We meet these requirements. The Companies Act also provides certain limitations on the amounts available for dividends or the purchase of treasury stock. The limitation is defined as the amount available for distribution to the shareholders, but the amount of net assets after dividends must be maintained at no less than ¥3.0 million.

        The amount of retained earnings available for dividends under the Companies Act is based on the amount of retained earnings recorded in our general books of account prepared using accepted Japanese accounting practices. The adjustments included in the consolidated financial statements for U.S. GAAP purposes but not recorded in the general books of account have no effect on the determination of retained earnings available for dividends under the Companies Act. Retained earnings shown in our general books of account amounted to ¥1,800.4 million ($20.8 million) at December 31, 2012, ¥1,525.4 million ($17.6 million) at March 31, 2012 and ¥273.0 million at March 31, 2011.

        On June 24, 2011, our Board of Directors declared a cash dividend of ¥7.5 per share, payable to shareholders of record as of June 27, 2011, for a total of ¥19.7 million. On June 22, 2012, UBIC's shareholders approved the payment of a year-end cash dividend of ¥50 per share of common stock in the aggregate amount of ¥145.6 million ($1.7 million) to shareholders of record at March 31, 2012. In appropriate circumstances, our Board of Directors may determine in its discretion, within the limits of the Companies Act, to declare dividends in the future, but there can be no assurance that any such dividends will be declared or paid at any time.

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CAPITALIZATION AND INDEBTEDNESS

        The following table summarizes our cash and cash equivalents and short-term debt, and our consolidated capitalization as of December 31, 2012, on:

    an actual basis; and

    an as adjusted basis to give effect to our receipt of the estimated net proceeds from the issuance and sale of shares of our common stock in the form of ADSs from this offering and the application of such net proceeds, as described under "Use of Proceeds."

        You should read this table in conjunction with the sections of this prospectus entitled "Use of Proceeds," "Selected Consolidated Financial Information," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our consolidated financial statements and related notes included elsewhere in this prospectus.

 
  As of December 31, 2012  
 
  Actual
(unaudited)
  As Adjusted(1)
(unaudited)
 
 
  (thousands
of yen)

  (thousands
of dollars)

  (thousands
of yen)

  (thousands
of dollars)

 

Cash and cash equivalents

    ¥1,301,486   $ 15,022     ¥1,905,689   $ 21,995  
                   

Short-term debt

                 
                   

Current portion of long-term debt

    200,593     2,315     200,593     2,315  

Long-term debt

    481,352     5,556     481,352     5,556  

Equity

                         

Common stock: 7,200,000 shares authorized and 3,193,136 issued and outstanding, actual; 7,200,000 shares authorized and 3,413,136 issued and outstanding, pro forma as adjusted

    911,774     10,524     1,316,816     15,197  

Additional paid-in capital

    541,407     6,249     554,980     6,406  

Retained earnings

    1,719,080     19,842     1,719,080     19,842  

Accumulated other comprehensive income

    123,604     1,427     123,604     1,427  

Treasury stock at cost—56 shares

    (26 )   (0 )   (26 )   (0 )

Total UBIC, Inc. shareholders' equity

    3,295,839     38,042     3,714,454     42,872  

Noncontrolling interests

    16,596     192     16,596     192  
                   

Total Equity

    3,312,435     38,234     3,731,050     43,064  

Total Capitalization

    ¥3,994,380   $ 46,105     ¥4,412,995   $ 50,935  
                   

(1)
Reflects the results of the sale by us of 1,100,000 ADSs in this offering at an assumed public offering price of $8.50 per ADS (the midpoint of the range set forth on the cover of this prospectus) and our receipt of $4.8 million in estimated net proceeds of the offering, after deducting underwriting discounts and estimated offering expenses payable by us.

The table above excludes:

    116,000 shares of our common stock issuable upon the exercise of options outstanding with a weighted average exercise price of ¥2,703 per share;

    44,000 ADSs (including the underlying shares of our common stock) issuable upon exercise of warrants granted to the underwriters upon completion of this offering.

    165,000 ADSs issuable upon exercise of the underwriters' over-allotment option, if any.

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DILUTION

        If you invest in the ADSs, your interest will be diluted to the extent of the difference between the initial public offering price per ADS and our net tangible book value per ADS after this offering. Dilution results from the fact that the initial public offering price per common share is substantially in excess of the book value per common share attributable to the existing shareholders for our presently outstanding common shares.

        Our net tangible book value as of December 31, 2012 was approximately ¥2,307.5 million ($26.6 million), or ¥723 per common share as of that date, and $1.67 per ADS. Net tangible book value represents the amount of our total shareholders' equity, less the amount of our deferred costs from this offering, net capitalized computer software, other intangible assets, and deferred tax assets. Dilution is determined by subtracting pro forma net tangible book value per common share from the assumed initial public offering price per common share, which is the midpoint of the estimated initial public offering price range shown on the front cover of this prospectus, and after deducting the underwriting discounts and commissions and estimated offering expenses payable by us.

        Without taking into account any other changes in net tangible book value after December 31, 2012, other than to give effect to our sale of the ADSs offered in this offering at the assumed initial public offering price of $8.50 per ADS, the midpoint of the estimated initial public offering price range shown on the front cover of this prospectus, after deduction of the underwriting discounts and commissions and estimated offering expenses payable by us, our pro forma as adjusted net tangible book value as of December 31, 2012 would have been $9.85 per outstanding common share, including common shares underlying our outstanding ADSs, and $1.97 per ADS. This represents an immediate increase in net tangible book value of $1.51 per common share and $0.30 per ADS, to the existing shareholders and an immediate dilution in net tangible book value of $32.65 per common share and $6.53 per ADS, to investors purchasing ADSs in this offering.

        The following table illustrates this dilution:

 
  Per common share   Per ADS  

Assumed initial public offering price

  $ 42.50   $ 8.50  

Net tangible book value as of December 31, 2012

    8.34     1.67  

Increase in net tangible book value attributable to existing shareholders

    1.51     0.30  

Pro forma as adjusted net tangible book value after this offering

    9.85     1.97  

Dilution in net tangible book value to new investors in this offering

  $ 32.65   $ 6.53  

        A $1.00 increase or decrease in the assumed initial public offering price of $8.50 per ADS, the mid-point of the estimated initial public offering price range shown on the cover of this prospectus, would increase or decrease our adjusted net tangible book value after giving effect to this offering in each case by $1.0 million, or by $0.30 per common share or $0.06 per ADS, assuming no change to the number of ADSs offered by us as set forth on the cover page of this prospectus, and after deducting estimated underwriting discounts and commissions and other estimated expenses of this offering. The adjusted information discussed above is illustrative only. Our pro forma as adjusted net tangible book value following the completion of this offering is subject to adjustments based on the actual initial public offering price of the ADSs and other terms of this offering determined at pricing.

        The following table summarizes, on a pro forma as adjusted basis, the number of common shares purchased from us as of December 31, 2012, the total consideration paid to us and the average price per common share paid by our existing shareholders and by new investors purchasing common shares evidenced by ADSs in this offering at the assumed initial public offering price of $8.50 per ADS, the

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midpoint of the estimated range of the initial public offering price range per ADS shown on the cover of this prospectus, before deducting underwriting discounts and commissions and other estimated offering expenses payable by us.

 
  Common Shares
Purchased
   
   
   
   
 
 
  Total Consideration   Average
Price per
Common
Share
   
 
 
  Average
Price per
ADS
 
 
  Number   Percent   Amount   Percent  

Existing shareholders

    3,193,136     94 % ¥ 1,050,986,000 ($12,130,494 )   56 % $ 3.80   $ 0.76  

New investors

    220,000     6     810,084,000 (9,350,000 )   44   $ 42.50   $ 8.50  
                               

Total

    3,413,136     100 % ¥ 1,861,070,000 $21,480,494     100 % $ 6.29   $ 1.26  
                               

        A $1.00 increase or decrease in the assumed initial public offering price of $8.50 per ADS, the mid-point of the estimated initial public offering price range shown on the cover of this prospectus, would increase or decrease total consideration paid by new investors, total consideration paid by all shareholders and the average price per common share paid by all shareholders by $1.0 million, $1.0 million and $0.30 per common share, respectively, assuming no change in the number of ADSs sold by us as set forth on the cover page of this prospectus and after deducting underwriting discounts and commissions and other offering expenses payable by us.

        As of December 31, 2012, on a pro forma basis there were options outstanding to purchase common shares (upon exercise) of 20,000 shares, 80,000 shares and 16,000 shares, which will be exercisable on June 18, 2013, April 29, 2014 and June 22, 2015, respectively. To the extent that any of these outstanding options are exercised, there will be further dilution to new investors.

        The foregoing discussion assumes no exercise of the underwriters' over-allotment option and excludes 44,000 ADSs issuable upon exercise of warrants granted to the underwriters upon completion of this offering. To the extent that the underwriters' over-allotment option or these warrants are exercised, there will be further dilution to new investors.

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EXCHANGE RATE INFORMATION

        Our financial statements and other financial data included in this prospectus are presented in Japanese yen. Our business and operations are primarily conducted by us in Japan and through our U.S., Korean and Taiwanese subsidiaries. Our functional currency is Japanese yen and their revenues and expenses are denominated in that currency. For convenience, certain amounts in Japanese yen set forth herein have been converted to United States dollars. The conversion of Japanese yen into U.S. dollars in this prospectus is based on the noon buying rate in the City of New York for cable transfers of Japanese yen as certified for customs purposes by the Board of Governors of the Federal Reserve System on December 31, 2012, which was $1.00 = ¥86.64. We make no representation that any Japanese yen or U.S. dollar amounts referred to in this prospectus could have been or could be converted into U.S. dollars or Japanese yen, as the case may be, at any particular rate or at all.

        The following table sets forth, for each of the periods indicated, the average, high, low and period-end noon buying rates in New York City for cable transfers, in yen per $1.00, as certified for customs purposes by the Board of Governors of the Federal Reserve System. These rates are provided solely for your convenience and are not necessarily the exchange rates that we used in this prospectus or will use in the preparation of our periodic reports or any other information to be provided to you. No representation is made that the Japanese yen could have been, or could be, converted into U.S. dollars at the rates indicated below or at any other rate. For information on the effect of currency fluctuations on our results, see "Management's Discussion and Analysis of Results of Operations and Financial Condition".

 
  Japanese yen per U.S. Dollar Noon
Buying Rate
 
 
  Average(1)   High   Low   Period-End  

Fiscal Year Ended March 31, 2010

    92.49     98.76     86.12     93.40  

Fiscal Year Ended March 31, 2011

    85.00     94.24     80.48     82.76  

Fiscal Year Ended March 31, 2012

    78.86     82.41     76.34     82.41  

2012:

                         

April

    81.25     82.62     79.81     79.81  

May

    79.67     80.36     78.29     78.29  

June

    79.32     80.52     78.21     79.81  

July

    78.93     79.95     78.10     78.10  

August

    78.69     79.50     78.19     78.30  

September

    78.13     78.96     77.41     77.92  

October

    79.01     80.04     78.00     79.94  

November

    81.03     82.54     79.42     82.54  

December

    83.79     86.64     81.86     86.64  

2013

                         

January

    89.06     91.28     86.92     91.28  

February

    93.00     93.64     91.38     92.36  

March

    94.77     96.16     93.32     94.16  

April

    97.76     99.61     92.96     97.52  

May (through May 2, 2013)

    97.62     97.96     97.28     97.96  

(1)
Annual averages are calculated from month-end rates. Monthly and interim period averages are calculated using the average of the daily rates during the relevant period.

Source:    Board of Governors of the Federal Reserve System

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SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA

        The consolidated statements of operations data for the years ended March 31, 2010, 2011 and 2012 and the consolidated balance sheet data as of March 31, 2010, 2011 and 2012 have been derived from the audited consolidated financial statements of UBIC, Inc., included elsewhere in this prospectus. The condensed consolidated statements of income data for the nine months ended December 31, 2011 and 2012 and the condensed consolidated balance sheet data as of December 31, 2012 have been derived from UBIC, Inc.'s unaudited condensed consolidated financial statements included elsewhere in this prospectus. The unaudited interim condensed consolidated financial data has been prepared on the same basis as the audited consolidated financial statements and, in the opinion of management, includes all adjustments, consisting of normal recurring adjustments necessary for a fair presentation of our financial condition as of such dates and our results of operations for such periods. Our historical results are not necessarily indicative of the results that may be expected in the future, and our interim results are not necessarily indicative of the results to be expected for the full fiscal year. Our reporting currency is the Japanese yen. The consolidated financial statements included in this prospectus have been prepared in accordance with U.S. GAAP and the consolidated financial statements as of and for the years ended March 31, 2010, 2011 and 2012 have been audited by Ernst & Young ShinNihon LLC, an independent registered public accounting firm. You should read the selected consolidated financial data set forth below in conjunction with the "Management's Discussion and Analysis of Financial

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Condition and Results of Operations" section and with the consolidated financial statements and the related notes included elsewhere in this prospectus.

 
  For the
year ended March 31,
  For the nine months
ended December 31,
(unaudited)
 
 
  2010   2011   2012   2012   2011   2012   2012  
 
  (thousands of yen except per share data)




  (thousands of
dollars except
per share
data)




  (thousands of yen
except per share data)



  (thousands of
dollars except
per share
data)

 

Revenue

  ¥ 1,013,490   ¥ 2,635,430   ¥ 5,095,939   $ 58,817   ¥ 3,754,013   ¥ 3,516,633   $ 40,589  

Revenue from a related party

    80,072     40,764     27,862     322     22,002     14,783     171  

Operating revenue from reimbursed direct costs

    4,605     9,899     12,427     143     7,943     10,921     126  
                               

Total revenue

    1,098,167     2,686,093     5,136,228     59,282     3,783,958     3,542,337     40,886  
                               

Cost of revenue

    703,010     966,352     1,600,425     18,472     1,205,360     1,314,078     15,167  

Reimbursed direct costs

    4,605     9,899     12,427     143     7,943     10,921     126  

Selling, general and administrative expenses

    574,001     669,742     1,153,438     13,313     676,192     1,365,845     15,765  
                               

Total operating expense

    1,281,616     1,645,993     2,766,290     31,928     1,889,495     2,690,844     31,058  
                               

Operating income (loss)

    (183,449 )   1,040,100     2,369,938     27,354     1,894,463     851,493     9,828  

Interest income

    3,441     3,410     2,052     24     1,638     990     11  

Interest expense

    (13,247 )   (14,262 )   (13,360 )   (154 )   (8,264 )   (14,421 )   (166 )

Foreign currency exchange gains (losses)

    (14,384 )   (39,942 )   10,294     119     (35,590 )   78,971     911  

Impairment loss on security

    (108,540 )                        

Dividend income

            4,500     52         4,500     52  

Other—net

    94     1,296     655     8     5,211     (2,027 )   (23 )
                               

Income (loss) before income taxes

    (316,085 )   990,602     2,374,079     27,403     1,857,458     919,506     10,613  

Income taxes

    102,213     202,827     1,003,441     11,582     800,115     378,929     4,374  
                               

Net income (loss)

    (418,298 )   787,775     1,370,638     15,821     1,057,343     540,577     6,239  

Less: Net income (loss) attributable to noncontrolling interests

        (933 )   2,951     34     2,613     4,578     53  
                               

Net income (loss) attributable to UBIC, Inc. shareholders

  ¥ (418,298 ) ¥ 788,708   ¥ 1,367,687   $ 15,787   ¥ 1,054,730   ¥ 535,999   $ 6,186  
                               

Net income (loss) attributable to UBIC, Inc. shareholders per share(1)

                                           

Basic

  ¥ (182 ) ¥ 334   ¥ 515   $ 5.94   ¥ 401   ¥ 170   $ 1.97  

Diluted

  ¥ (182 ) ¥ 249   ¥ 422   $ 4.87   ¥ 327   ¥ 165   $ 1.90  

(1)
Share and per share data give effect to a 2-for-1 share split effected on October 1, 2011 and the 2-for-1 share split effected on April 1, 2012, as if such share splits had occurred on April 1, 2009.

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Other operating metrics:

 
  For the year ended March 31,   For the nine months ended December 31,  
 
  2010   2011   2012   2012   2011   2012   2012  
 
  (unaudited)
  (unaudited)
  (unaudited)
  (unaudited)
  (unaudited)
  (unaudited)
  (unaudited)
 

Cash dividends declared per common share

  ¥   ¥   ¥ 7.5   $ 0.09   ¥ 7.5   ¥ 50.0   $ 0.58  

 

 
  As of March 31,   As of December 31,  
 
  2010   2011   2012   2012   2012   2012  
 
  (thousands of yen)


  (thousands
of dollars)

  (thousands of
yen)

  (thousands of
dollars)

 
 
   
   
   
   
 
(unaudited)

 

Consolidated Balance Sheet Data:

                                     

Cash and cash equivalents

  ¥ 345,150   ¥ 675,212   ¥ 2,410,304   $ 27,820   ¥ 1,301,486   $ 15,022  

Total current assets

    510,013     1,675,941     3,643,020     42,049     2,696,317     31,122  

Total noncurrent assets

    339,243     697,655     1,336,656     15,426     2,058,418     23,759  

Total assets

    849,256     2,373,596     4,979,676     57,475     4,754,735     54,881  

Total current liabilities

    315,856     821,757     1,763,575     20,356     805,557     9,297  

Working capital

    194,157     854,184     1,879,445     21,693     1,890,760     21,825  

Long-term debt

    255,011     323,040     400,020     4,617     481,352     5,556  

Total noncurrent liabilities

    283,747     349,595     476,547     5,500     636,743     7,350  

Total liabilities

    599,603     1,171,352     2,240,122     25,856     1,442,300     16,647  

Total UBIC, Inc. shareholders' equity

    249,653     1,195,177     2,727,536     31,480     3,295,839     38,042  

Total net equity

    249,653     1,202,244     2,739,554     31,619     3,312,435     38,234  

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MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

        The following information should be read together with our selected consolidated financial and operating data and the consolidated financial statements and notes included elsewhere in this prospectus. The following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in these forward-looking statements. Factors that could cause or contribute to these differences include, but are not limited to, those discussed below and elsewhere in this prospectus particularly in "Risk Factors" and "Forward-looking Statements." We have prepared our consolidated financial statements in this prospectus in accordance with U.S. GAAP.

Introduction

        Management's discussion and analysis of financial condition and results of operations is intended to help provide an understanding of our financial condition, changes in financial condition and results of operations, and is organized as follows:

    Overview of our Business—This section provides a general description of our business and developments that have occurred since April 1, 2009 that we believe are important in understanding our results of operations and financial condition or to disclose anticipated future trends. We explain our main sources of revenue, costs and expenses and how these items are presented in our results of operations. We also identify and explain certain non-financial measures that we consider to be important to an understanding of our results of operations.

    Results of Operations—This section provides an analysis of our results of operations for each of the nine months ended December 31, 2011 and 2012 and each of the three years ended March 31, 2010, 2011 and 2012, or fiscal 2009, 2010 and 2011. In addition, a brief description is provided of significant transactions and events that impact the comparability of the results being analyzed.

    Liquidity and Capital Resources—This section provides an analysis of our cash flows for each of the nine months ended December 31, 2011 and 2012 and each of the three years ended March 31, 2010, 2011 and 2012. It includes a discussion of the financial capacity available to fund our future commitments and obligations, as well as a discussion of other financing arrangements.

    Critical Accounting Policies and Estimates—This section discusses our revenue and other accounting policies that we consider important to an understanding of our results of operations, and that require significant judgment and estimates on the part of management in application. Note 1 to the accompanying audited consolidated financial statements as of March 31, 2010, 2011 and 2012, and for the years ended March 31, 2010, 2011 and 2012, and Note 1 to the accompanying unaudited condensed consolidated financial statements as of December 31, 2011 and 2012, and for the nine months ended December 31, 2011 and 2012, summarizes our significant accounting policies.

        Although there have been signs of economic recovery in a number of Asian countries and the United States, many countries in the European Union continue to show weak or non-existent growth in recent years. In Japan, although the economy continues to show the effects of the 2011 earthquake and tsunami and the resulting nuclear incident at Fukushima, there are some signs of recovery, in part attributable to the economic stimulus provided by the policies of the newly-elected government as well as to the positive impact of a weaker yen on export-driven sectors of Japan's economy.

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        However an improving global economy and an increase in litigation, accompanied by increased levels of investigation activities by governments, especially in the United States, helped us exceed our targets for revenue, operating income and net income in the years ended March 31, 2011 and 2012.

        With Japanese and other Asian international corporations becoming increasingly involved in litigation concerning antitrust patent, intellectual property, product safety, price cartelization, corporate fraud and other matters, and with the expansion of multinational corporations' operations in Asia, the demand for eDiscovery services capable of dealing with electronic information in Asian languages has grown. eDiscovery has also become a significant part of litigation in Canada, Europe and other Asian countries, in addition to the United States. Our business in preventive legal strategies and eDiscovery support services, other than manual review services, are expanding in an enhanced regulatory environment, resulting in elaborate new processes, even as the demand by Asian law firms for the manual review services of our eDiscovery business has decreased.

        We provide legal support services for eDiscovery to respond to diverse client needs using our proprietary Lit i View and Legal Cloud solutions. During our year ended March 31, 2012, our one-stop-solution sales exceeded expectations as we acquired multiple new clients, securing mandates to supply services with respect to several large cases, administrative proceedings and investigations. We have also developed a Lit i View eDiscovery support system that helps enterprises reduce legal procedural costs, and thereby increase profits.

Annual and Quarterly Reports

        Under Japanese law, we are required to issue quarterly financial statements that are similar to the Form 10-Qs required of U.S. public companies. These financial statements are filed with the Local Finance Bureau, which is the local central office of the Ministry of Finance. In addition, we are required to file quarterly financial results with the TSE. Subsequent to this offering, we will file our annual report on Form 20-F within the period required by Exchange Act. In addition, we intend to furnish quarterly financial results as current reports under Form 6-K. These quarterly financial results will provide disclosure that is similar to the Form 10-Qs, but will otherwise comply with the requirements under Japanese law.

Overview

        The expansion of our business in response to the opportunity described above is reflected in our results of operations in the period since April 1, 2009. In the year ended March 31, 2012, we generated total revenue of ¥5,136.2 million ($59.3 million), operating income of ¥2,369.9 million ($27.4 million) and net income of ¥1,370.6 million ($15.8 million); compared with total revenue of ¥2,686.1 million, operating income of ¥1,040.1 million and net income of ¥787.8 million in the year ended March 31, 2011; compared with total revenue of ¥1,098.2 million, operating loss of ¥183.4 million and net loss of ¥418.3 million in the year ended March 31, 2010.

        For the nine months ended December 31, 2012, we generated total revenue of ¥3,542.3 million ($40.9 million), operating income of ¥851.5 million ($9.8 million) and net income of ¥540.6 million ($6.2 million); compared with total revenue of ¥3,784.0 million, operating income of ¥1,894.5 million and net income of ¥1,057.3 million in the nine months ended December 31, 2011.

        Although our total revenue in the year ended March 31, 2012 increased by ¥2,450.1 million (91.2%) compared with the year ended March 31, 2011, our total operating expense increased by only ¥1,120.3 million (68.1%) over the same period. As a result, our operating income increased by ¥1,329.8 million to ¥2,369.9 million ($27.4 million) in the year ended March 31, 2012 from ¥1,040.1 million in the year ended March 31, 2011, and our net income rose by ¥582.9 million to ¥

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1,370.6 million ($15.8 million) in the year ended March 31, 2012 from ¥787.8 million in the year ended March 31, 2011.

        Similarly, although our total revenue in the year ended March 31, 2011 increased by ¥1,587.9 million (144.6%) compared with the year ended March 31, 2010, our total operating expense increased by only ¥364.4 million, 28.4%, over the same period. As a result, our operating income increased by ¥1,223.5 million to ¥1,040.1 million in the year ended March 31, 2011 from a ¥183.4 million operating loss in the year ended March 31, 2010, and our net income rose by ¥1,206.1 million to ¥787.8 million in the year ended March 31, 2011 from an net loss of ¥418.3 million in the year ended March 31, 2010.

        For the nine months ended December 31, 2012, our total revenue decreased by ¥241.6 million, or 6.4%, to ¥3,542.3 million ($40.9 million) compared with ¥3,784.0 million for the nine months ended December 31, 2011, due mainly to the decrease in the manual review services of our revenues, offset in part by an increase in non-review services of our eDiscovery services business, including data collection, process/analysis, production, data hosting, and forensic services. Revenue from these non-review services increased ¥887.4 million, or 51.7%, to ¥2,604.1 million ($30.1 million) in the nine months ended December 31, 2012 from ¥1,716.7 million in the same period in the previous year, whereas our manual review services revenue declined by ¥1,190.8 million, or 62.7%, to ¥707.0 million ($8.2 million) in the nine months ended December 31, 2012 from ¥1,897.8 million in the same period in the previous year. Our operating income for the nine months ended December 31, 2012, decreased by 55.1% to ¥851.5 million ($9.8 million), compared with ¥1,894.5 million in the same period last year, due mainly to the resulting decrease in revenue as well as to a significant increase in the depreciation and amortization expenses due to an increase in our capitalized technology investment, and in selling, general and administrative expenses as we were aggressively investing to build our core infrastructure and manpower to support expected growth.

        This increase in selling, general and administrative expense was attributable to our efforts to expand our capabilities and infrastructure to match the rapid growth of our business, especially over the last three years. Our investment in our administrative and sales and marketing teams and activities is also a part of our efforts to improve and expand our technology, global operating capability and capacity, and overall infrastructure to be ready for further expansion of our business in each market we serve.

How We Generate Revenue

        We generate the great majority of our revenue from the sale of eDiscovery support services and a small minority of our revenue from computer forensic investigation services, the sale of forensic tools and training, and a variety of other services. In the year ended March 31, 2012, revenue from the sale of eDiscovery support services increased to ¥4,910.6 million ($56.7 million), or 95.6% of total revenue of ¥5,136.2 million ($59.3 million), while all revenue from sales of forensic services, forensic tools and training, and other services and products totaled ¥225.6 million ($2.6 million), or 4.4%. Similarly, in the year ended March 31, 2011, revenue from the sale of eDiscovery support services increased to ¥2,529.8 million, or 94.2% of total revenue of ¥2,686.1 million, while all revenue from sales of forensic services, forensic tools and training, and other services and products totaled ¥156.3 million, or 5.8%. During the nine months ended December 31, 2012, revenue from the sale of eDiscovery support services was ¥3,311 million ($38 million), or 93.5% of total revenue of ¥3,542 million ($40.9 million), while all revenue from sales of forensic services, forensic tools and training, and other services and products totaled ¥231.3 million ($2.7 million), or 6.5% of total revenue.

        For the year ended March 31, 2011, revenue from Panasonic Corporation, Aisin Seiki, Yazaki Corporation, and TMI Associates represented approximately 22.1 percent, 14.1 percent, 13.9 percent, and 11.6 percent, respectively, of our total revenue. For the year ended March 31, 2012, revenue from

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Yazaki Corporation, Panasonic Corporation, two clients represented by Quinn Emanuel Urquhart & Sullivan, LLP, and Sanyo Electric Co., Ltd. represented approximately 18.5 percent, 12.2 percent, 11.8 percent, and 11.6 percent, respectively, of our total revenue. During the nine months ended December 31, 2011, revenue from Yazaki Corporation, Sanyo Electric Co., Ltd and Panasonic Corporation represented approximately 21.0%, 15.5% and 15.0% respectively of our total revenue. For December 31, 2012, Samsung Electronics Co., Ltd. represented approximately 25.3% of our total revenue and there was no other customer that represented more than 10% of our total revenue. While we derive a significant portion of our revenue from a small number of substantial clients, the specific clients change from year to year, and we expect this trend to continue. The vast majority of our revenue is derived from limited scope engagements that do not include long-term commitments.

        Our clients use eDiscovery and forensic services, for the most part, on an "as needed basis," when a specific legal or administrative proceeding, investigation or other legal challenge requires them to rapidly analyze and produce large amounts of digitally-formatted information. In the absence of such a demand, a company's demand for our services and solutions tends to be much less extensive. This means that contracts for our services tend to be time and subject specific. The fact that we have sold our solutions to a client in one fiscal year or quarter does not ensure on-going use by that client in any subsequent period, unless a new need for our services arises.

        In light of this situation, in order to expand our business, it is imperative for us to continuously market our services and solutions to existing and potential clients and to build market recognition of our capabilities and our brand so that, when companies have a need for eDiscovery and forensic services, we and our solutions are perceived as an attractive alternative. In addition, to the extent that, as discussed above, we are able to expand our client base among non-Asian law firms, we believe that they will need our services to review the Asian-language materials we have collected and processed. This will, in our view, expand our revenue base.

        The overall market for eDiscovery and forensic services has benefited from a rapid increase in the number of lawsuits filed and investigations commenced in the United States which involve patents, intellectual property, product safety, price cartels, the U.S. Foreign Corrupt Practices Act and other issues, and our financial performance has also benefited from this trend, but more specifically from lawsuits filed and investigations commenced in the United States against Japanese and other Asian multinational corporations. We have also benefited more recently from engagements for large and midsize international government investigations. While these trends are helpful to evaluating our future business performance, as a result of our small market share and lower brand awareness in the United States, our financial performance is more likely to be driven by increasing lawsuits and investigations involving Asian companies or U.S. companies with Asian operations, and by our efforts to build out our sales and marketing presence and increase our brand awareness and capabilities in the United States.

        We believe the highest growth and most important segments of our eDiscovery services are those that rely on our propriety eDiscovery software and technologies (collection and processing, production, hosting and TAR).We have seen a decline in our lower-margin manual, review business in Asia. In the future, it is our intent to focus on our technology assisted-review solutions where we provide a more direct and differentiated value proposition to our customers. Further, we plan to focus our geographic growth efforts on the U.S. market. To a lesser extent, we also plan to focus on the non-Asian (particularly the U.S.) review business where we see significantly greater opportunity than within Asia.

        Our TAR solutions are designed to perform reviews of large volumes of data and is intended to identify relevant documents with 90% accuracy, providing meaningful time and cost savings by significantly reducing the need for manual review. We believe that, as our TAR-based solutions demonstrate their value in the market place, they will provide a basis for our expanded and durable growth of total revenues and improved operating income and net income in the future.

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Key Metrics

Currency fluctuations

        Our reporting currency is the Japanese yen. In the year ended March 31, 2012, 82.7% of our revenue was generated in Japanese yen, while 17.3% was generated in U.S. dollars. In the year ended March 31 2012, we incurred 73.7% of our costs in Japanese yen and 26.3% in U.S. dollars. For the year ended March 31, 2011, 74.4% of our revenue was generated in Japanese yen, while 25.6% was generated in U.S. dollars. In that same period, we incurred 63.6% of our costs in yen and 36.4% in U.S. dollars.

        In the nine months ended December 31, 2012, 70.0% of our revenue was generated in Japanese yen, while 30.0% was generated in U.S. dollars. In the nine months ended December 31, 2012, we incurred 76.9% of our costs in Japanese yen, 18.1% in U.S. dollars and a total of 5.0% in Korean won and Taiwan dollars. For the nine months ended December 31, 2011, 92.2% of our revenue was generated in Japanese yen, while 7.8% was generated in U.S. dollars. In that same period, we incurred 81.9% of our costs in yen and 18.1% in U.S. dollars.

        As a result, we have both transaction and translation currency exposure to the U.S. dollar and, to a lesser extent, to the Korean won and the Taiwan dollar. We have not entered into any agreements to hedge this exposure. See "Risk Factors—Risks Related to Our Business—Significant movements in foreign currency exchange rates or change in monetary policy may materially harm our financial results" in this prospectus.

Total Revenue

        Total revenue is comprised of revenue, which is, itself, composed of proceeds from the sale of eDiscovery support services and from computer forensic investigation services, the sale of forensic tools and training, and a variety of other services, including operating revenue from reimbursed direct costs. The latter category represented only 0.4% and 0.2% of total revenue, or ¥9.9 million and ¥12.4 million ($0.14 million), in the years ended March 31, 2011 and 2012, respectively, and only 0.2% and 0.3% of total revenue, or ¥7.9 million and ¥10.9 million ($0.1 million), in the nine months ended December 31, 2011 and 2012, respectively. In addition, operating revenue from reimbursed direct cost essentially represented a "pass through" of expenses incurred on behalf of clients and was completely offset by the related expense line.

Total Operating Expense

    Cost of revenue

        Cost of revenue consists primarily of costs related to personnel, client support, amortization of software, depreciation of equipment and outsourcing expenses. Personnel costs include salaries, bonuses, social and health insurance, other employee benefits and share-based compensation for personnel. Software costs are amortized, beginning in the period each module or component of the product is ready for its intended use, on a straight-line basis over the estimated useful life of the product, mainly five years, depreciation of equipment is as well. Outsourcing cost is mainly temporary staff cost to manually review eDiscovery materials identified by electronic means.

    Reimbursed Direct Costs

        As noted above, reimbursed direct costs constitute a component of total operating expense, but are completely offset by the reciprocal revenue line item.

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    Selling, general and administrative expenses

        We classify our selling, general and administrative expenses into three categories: sales and marketing, research and development, and general and administration. These categories correspond to different departments within our company.

        Our operating expenses primarily consist of personnel costs, marketing costs, professional service fees and depreciation and amortization costs. Personnel costs for each category of operating expenses include salaries, bonuses, social and health insurance, other employee benefits and share-based compensation for personnel in that category, as well as an allocation of our facilities costs. We allocate share-based compensation expense resulting from the amortization of the fair value of options granted. We allocate overhead, such as rent, computer and other technology costs, to each expense category based on worldwide headcount in that category.

    Sales and marketing

        Sales and marketing expense primarily consists of personnel costs for our sales, marketing, business development and client support employees and executives; and commissions earned by our sales personnel. In addition, during each period, we incurred expenses related to the expansion of our sales operations in the United States and, to a lesser extent, in South Korea and Taiwan.

    General and administration

        General and administration expense primarily consists of personnel costs for our executive, information technology, finance, legal, human resources, corporate development and administrative personnel, as well as legal, accounting and other professional service fees and other corporate expenses that are charged to the profit and loss account, and depreciation and amortization. We expect to increase general and administrative expense, as a percentage of revenue and on an absolute basis, reflecting investments in our public company infrastructure.

    Research and development

        Research and development costs that are included in selling, general and administrative expenses relate primarily to costs incurred in the research and development of new internal use software products and enhancements to our existing internal use software products that are used by us principally to provide our services and solutions to clients and do not meet the criteria for capitalization. These costs are expensed as incurred.

    Income taxes

        Income tax expense consists of the taxes we pay in several countries on our taxable income as well as deferred taxes that reflect the impact of temporary differences between assets and liabilities recognized for financial reporting purposes and such amounts recognized for tax purposes and tax loss carryforwards. For further information on the breakdown of our income tax components, see "Note 13" in each of our annual consolidated financial statements, and "Note 9" in our interim condensed consolidated financial statements, included in this prospectus beginning on page F-1 as well as additional information on recent developments in our tax position.

Results of Operations

        The following table summarizes our consolidated statements of operations for the periods indicated in thousands of yen and as a percentage of total revenues, which represented ¥1,098.2 million, ¥2,686.1 million and ¥5,136.2 million ($59.3 million) in the years ended March 31,

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2010, 2011 and 2012, respectively, and ¥3,784.0 million and ¥3,542.3 millon ($40.9 million) in the nine months ended December 31, 2011 and 2012, respectively.

 
  Year ended March 31,   Nine months ended December 31,  
Consolidated Statements of
Operations Data
  2010   2011   2012   2011   2012  
 
  (thousands of yen, except percentages)
  (unaudited, in thousands of yen except percentages)
 

Revenue

  ¥ 1,013,490     92.3 % ¥ 2,635,430     98.1 % ¥ 5,095,939     99.2 % ¥ 3,754,013     99.2 % ¥ 3,516,633     99.3 %

Revenue from a related party

    80,072     7.3     40,764     1.5     27,862     0.6     22,002     0.6     14,783     0.4  

Operating revenue from reimbursed direct costs

    4,605     0.4     9,899     0.4     12,427     0.2     7,943     0.2     10,921     0.3  
                                           

Total Revenue

    1,098,167     100.0     2,686,093     100.0     5,136,228     100.0     3,783,958     100.0     3,542,337     100.0  
                                           

Cost of revenue

    703,010     64.0     966,352     36.0     1,600,425     31.2     1,205,360     31.9     1,314,078     37.1  

Reimbursed direct costs

    4,605     0.4     9,899     0.4     12,427     0.2     7,943     0.2     10,921     0.3  

Selling, general and administrative expenses

    574,001     52.3     669,742     24.9     1,153,438     22.5     676,192     17.9     1,365,845     38.6  
                                           

Total operating expense

    1,281,616     116.7     1,645,993     61.3     2,766,290     53.9     1,889,495     49.9     2,690,844     76.0  
                                           

Operating income (loss)

    (183,449 )   (16.7 )   1,040,100     38.7     2,369,938     46.1     1,894,463     50.1     851,493     24.0  

Interest income

   
3,441
   
0.3
   
3,410
   
0.1
   
2,052
   
*
   
1,638
   
*
   
990
   
*
 

Interest expense

    (13,247 )   (1.2 )   (14,262 )   (0.5 )   (13,360 )   (0.3 )   (8,624 )   (0.2 )   (14,421 )   (0.4 )

Foreign currency exchange gains (losses)

    (14,384 )   (1.3 )   (39,942 )   (1.5 )   10,294     0.2     (35,590 )   (0.9 )   78,971     2.2  

Impairment losses on investments in securities

    (108,540 )   (9.9 )                                        

Dividend income

                        4,500     0.1               4,500     0.1  

Other—net

    94     *     1,296     *     655     *     5,211     0.1     (2,027 )   (0.1 )
                                           

Income (loss) before income taxes

    (316,085 )   (28.8 )   990,602     36.9     2,374,079     46.2     1,857,458     49.1     919,506     26.0  

Income taxes

   
102,213
   
9.3
   
202,827
   
7.6
   
1,003,441
   
19.5
   
800,115
   
21.1
   
378,929
   
10.7
 
                                           

Net income (loss)

    (418,298 )   (38.1 )   787,775     29.3     1,370,638     26.7     1,057,343     27.9     540,577     15.3  

Less: Net income (loss) attributable to noncontrolling interests

   
         
(933

)
 
*
   
2,951
   
0.1
   
2,613
   
*
   
4,578
   
*
 
                                           

Net income (loss) attributable to UBIC, Inc. shareholders

  ¥ (418,298 )   38.1 % ¥ 788,708     29.4 %   ¥1,367,687     26.6 % ¥ 1,054,730     27.9 % ¥ 535,999     15.1 %
                                           

*
Less than 0.1%.

Nine months ended December 31, 2011 and 2012

    Total Revenue

 
  Nine months ended December 31,   Change 2012 vs. 2011  
 
  2011   2012   2012   In yen   Percentage  
 
  (in thousands, except percentages)
 

Revenue

  ¥ 3,754,013   ¥ 3,516,633   $ 40,589   ¥ (237,380 )   (6.3 )%

Revenue from a related party

    22,022     14,783     171     (7,219 )   (32.8 )

Operating revenue from reimbursed direct costs

    7,943     10,921     126     2,978     37.5  
                       

Total revenue

  ¥ 3,783,958   ¥ 3,542,337   $ 40,886   ¥ (241,621 )   (6.4 )%

        Total revenue in the nine months ended December 31, 2012 decreased by ¥241.6 million, or 6.4%, to ¥3,542.3 million ($40.9 million) from ¥3,784.0 million in the nine months ended December 31, 2011. This decrease was driven mainly by a significant reduction in revenue from the manual review services

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of our eDiscovery business, offset in part by a combination of continued growth in our other eDiscovery services including data collection, process and analysis, production, and data hosting.

        As shown in the table below, revenue from manual review services declined by ¥1,190.8 million to ¥707.0 million ($8.2 million) in the nine months ended December 31, 2012 from ¥1,897.8 million in the nine months ended December 31, 2011, while revenue from other eDiscovery services increased by ¥887.4 million to ¥2,604.1 million ($30.1 million) in the nine months ended December 31, 2012 from ¥1,716.7 million in the nine months ended December 31, 2011.

 
  Thousands of Yen   Thousands of
U.S. Dollars
 
 
  2011   2012   2012  

eDiscovery

                   

Review

  ¥ 1,897,786   ¥ 706,995   $ 8,160  

Other

  ¥ 1,716,651   ¥ 2,604,061   $ 30,056  
               

Total

  ¥ 3,614,437   ¥ 3,311,056   $ 38,216  
               

        During the nine months ended December 31, 2012, the decline, compared with the nine months ended December 31, 2011, in eDiscovery revenue from manual review of almost ¥1.2 billion was only partially offset by an increase in other eDiscovery revenue of almost ¥900 million, resulting in an overall decrease in revenue from eDiscovery services of almost ¥300 million. As a result, during the nine months ended December 31, 2012, revenue from eDiscovery support services represented ¥3,311.1 million ($38.2 million), or 93.5% of our total revenue of ¥3,542.3 million ($40.9 million), while computer forensic investigation services, sales of forensic tools and training and other services totaled ¥231.3 million ($2.7 million), or 6.5% of total revenue. This compared with eDiscovery revenue from support services of ¥3,614.4 million, or 95.5% of our total revenue of ¥3,784.0 million, and revenue from computer forensic investigation services, sales of forensic tools and training and other services of ¥169.6 million, or 4.5% of our total revenue in the nine months ended December 31, 2011.

        The decrease in manual review services was largely due, as noted above, to the significantly increased tendency of Asian law firms using our eDiscovery services to bring the manual review services in-house during the nine-month period ended December 31, 2012. We expect that this trend to continue with respect to Asian law firms, offset to the extent that we are able to increase sales of our eDiscovery services to non-Asian law firms that, generally, lack sufficient language capability to bring the review component in-house. In addition, to the extent that predictive coding reduces the volume of information produced by TAR requiring human review to be less significant, we believe that, in general, the portion of eDiscovery revenue related to human review will be reduced.

        We believe that, if we are successful in expanding our operations and resulting revenue outside of Asia, we may be able to find new sources of manual review revenue by increasing services we provide to companies and law firms with relatively limited Asian language capabilities. We also believe that expanded revenue from other eDiscovery services, notably TAR, offer the primary growth areas for our business. Therefore, we expect that, as we continue to refine and expand our capabilities and marketing of these other eDiscovery services, these offerings will produce revenue growth and will reconfirm the trend established in the three years ended March 31, 2012, in which our eDiscovery services represented an expanding share of our business and revenue.

        Our revenue from a related party in the nine months ended December 31, 2012 decreased by ¥7.2 million, or 32.8%, to ¥14.8 million ($0.2 million) from ¥22.0 million in the nine months ended December 31, 2011. This decrease in our revenue from a related party is primarily attributable to a decrease in sales of forensic tools by the related party. Our operating revenue from reimbursed direct costs in the nine months ended December 31, 2012 increased by 37.5% to ¥10.9 million ($0.1 million) from ¥7.9 million in the nine months ended December 31, 2011. Operating revenue from reimbursed

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direct costs represents costs incurred on behalf of a client that are subsequently reimbursed and is completely offset by the equivalent component of operating expense.

    Total operating expense

 
  Nine months ended December 31,   Change 2012 vs. 2011  
 
  2011   2012   2012   In yen   Percentage  
 
   
  (unaudited, in thousands, except percentages)
 

Cost of revenue

  ¥ 1,205,360   ¥ 1,314,078   $ 15,167   ¥ 108,718     9.0 %

Reimbursed direct costs

    7,943     10,921     126     2,978     37.5  

Selling, general and administrative expenses

    676,192     1,365,845     15,765     689,653     102.0  
                       

Total operating expense

  ¥ 1,889,495   ¥ 2,690,844   $ 31,058   ¥ 801,349     42.4 %

Percentage of total revenue

    49.9 %   76.0 %                  

        Our cost of revenue in the nine months ended December 31, 2012 increased by ¥108.7 million, or 9.0%, to ¥1,314.1 million ($15.2 million) from ¥1,205.4 million in the nine months ended December 31, 2011, while our revenue declined by 6.4% during the same period. This cost of revenue increase is attributable to certain activities that resulted in increased fixed costs, including: continuing investment to expand our team of professional service and support engineers; an increase in amortization related to the capitalized cost of our proprietary software, including Lit i View; and the expansion of our operational infrastructure, such as establishing data centers in multiple locations. At the same time, cost of revenue was also impacted by a reduction in variable costs that decreased with the change in mix of services that we provided to our customers. The most significant component of such expenses is the cost of labor related to manual review services. This cost in the nine months ended December 31, 2012 decreased by ¥390.6 million, or 65.1% to ¥209.8 million ($2.4 million) from ¥600.4 million in the nine months ended December 31, 2011. This reduction in costs was more than offset by an increase in fixed costs, producing an increase in our overall cost of revenue in the nine months ended December 31, 2012, even as our total revenue declined. If the decrease in labor costs related to manual review services is excluded, the increase in total operating expense would be almost ¥1.2 billion (rather than the actual ¥801.3 million) in the nine months ended December 31, 2012 compared with the prior period.

        Our reimbursed direct costs in the nine months ended December 31, 2012 increased by 37.5% to ¥10.9 million ($0.1 million) from ¥7.9 million in the nine months ended December 31, 2011. Reimbursed direct costs represent costs incurred on behalf of a client that are subsequently reimbursed. Therefore, this increase in our reimbursed direct costs was completely offset by related revenue and remained largely insignificant to our overall results.

        Our selling, general and administrative expenses in the nine months ended December 31, 2012 increased by ¥689.7 million, or 102.0%, to ¥1,365.9 million ($15.8 million) from ¥676.2 million in the nine months ended December 31, 2011. This increase was primarily attributable to an increase in payroll and compensation costs, which increased by ¥222.7 million, or 73.2%, to ¥526.9 million ($6.08 million) from ¥304.2 million, while our headcount increased to 142 officers and employees at the end of December 31, 2012 from 75 at December 31, 2011. During the same period our other selling, general and administrative expenses such as, professional fees increased by ¥169.9 million, or 157.9%, to ¥277.5 million ($3.2 million) from ¥107.6 million, office rent increased by ¥42.0 million, or 227.0% to ¥60.5 million ($0.7 million) from ¥18.5 million, travel expense increased by ¥44.1 million, or 112.5% to ¥83.3 million ($0.96 million) from ¥39.3 million, recruiting and employee training expense increased by ¥29.3 million, or 73.8% to ¥69.0 million ($0.80 million) from ¥39.7 million and corporate public relations and communication expense increased by ¥33.3 million, or 206.8% to ¥49.4 million ($0.57 million) from ¥16.1 million.

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        This increase in sales and marketing expenses was primarily due to an increase in our business development activities in the United States where we expanded our sales and marketing efforts principally to law firms that provide international legal services requiring eDiscovery services for Asian clients. We also invested in and strengthened our sales and marketing capability in the emerging regions of Korea and Taiwan in addition to Japan, our main revenue source to date. The increase in general and administrative expenses was primarily due to the strengthening and improvement of our administrative capability and capacity to support business growth. The areas for such improvement include, compliance and internal control, streamlining business processes, information systems and IT, coping with global requirements of financial accounting, and supporting emerging regions. For this purpose, we have hired a significant number of qualified outside professionals in addition to our own employee hiring, with respect to which we increased general and administrative staff headcount from 18 as of December 31, 2011, to 33 as of December 31, 2012.

        This increase in selling, general and administrative expense is part of our efforts to expand our capabilities and infrastructure to match the rapid growth of our business, especially over the last three years. Our investment is also an attempt to address further advancement of technology, global operation capability and capacity, and overall infrastructure to be ready for further expansion of our business in each market we serve.

    Operating income

 
  Nine months ended December 31,   Change 2012 vs. 2011  
 
  2011   2012   2012   In yen   Percentage  
 
  (in thousands, except percentages)
 

Operating income

  ¥ 1,894,463   ¥ 851,493   $ 9,828   ¥ (1,042,970 )   (55.1 )%

Percentage of total revenue

    50.1 %   24.0 %                  

        As a result of the above factors, our operating income in the nine months ended December 31, 2012 decreased to ¥851.5 million ($9.8 million) from ¥1,894.5 million during the nine months ended December 31, 2011 and decreased as a percentage of total revenue to 24.0% from 50.1%. This represents a 26.1% decrease in the ratio of operating income to total revenue in the nine months ended December 31, 2012 compared with the earlier period.

        This decrease in operating income was principally due to two factors. As noted above, total revenue decreased by ¥241.6 million ($2.8 million) in the nine months ended December 31, 2012 compared with the nine months ended December 31, 2011. In addition, the increase of ¥689.7 million ($8.0 million) in selling, general and administrative expenses in the nine months ended December 31, 2012 compared with the nine months ended December 31, 2011 played a particularly important role in this decrease. As explained above under the caption "—Total operating expense," this increase was a part of our general expansion effort in this area, after a number of periods in which the growth of our internal infrastructure lagged behind the rapid expansion of our business, requiring us to make significant expenditures in this area.

        We believe that, although we expect to continue to make significant investments in expanding and improving our operations that will be reflected in increased operating expenses, these expenditures will lead to an expansion of our total revenues and will be in proportion to our increased resources. We expect, therefore, that the decrease in operating income as a percentage of total revenues should be reversed in future proceeds and have targeted a proportion of approximately 30% to 35%.

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    Total other expense—net

 
  Nine months ended December 31,   Change 2012 vs. 2011  
 
  2011   2012   2012   In yen   Percentage  
 
  (in thousands, except percentages)
 

Interest income

  ¥ 1,638   ¥ 990   $ 11   ¥ (648 )   (39.6 )%

Interest expense

    (8,264 )   (14,421 )   (166 )   (6,157 )   (74.5 )%

Foreign currency exchange gains (losses)

    (35,590 )   78,971     911     114,561     N.A.  

Dividend income

        4,500     52     4,500     N.A.  

Other—net

    5,211     (2,027 )   (23 )   (7,238 )   N.A.  
                       

Total other expense—net

  ¥ (37,005 ) ¥ 68,013   $ 785   ¥ 105,018     N.A.  

Percentage of total revenue

    (1.0 )%   1.9 %                  

        Our interest income in the nine months ended December 31, 2012 decreased by 39.6% to ¥1.0 million ($0.01 million) from ¥1.6 million in the nine months ended December 31, 2011. This decrease in our interest income was primarily attributable to a lower valuation difference on a swap transaction in the nine months ended December 31, 2012 compared with the nine months ended December 31, 2011.

        Our interest expense in the nine months ended December 31, 2012 increased by 74.5% to ¥14.4 million ($0.2 million) from ¥8.3 million in the nine months ended December 31, 2011. This increase in our interest expense was primarily attributable to our higher level of outstanding debt during a majority of the period in 2012 as compared with the period in 2011.

        We had a foreign exchange gain of ¥79.0 million ($0.9 million) in the nine months ended December 31, 2012, whereas we had a foreign exchange loss of ¥35.6 million in the same period in the previous year. This significant favorable net gain in foreign exchange was mainly attributable to the significantly weakened position of the Japanese yen against the U.S. dollar as the Japanese yen declined from 76.98 yen per dollar at the end of December 2011 to 86.64 yen per dollar at the end of December 2012 or 12.5% decline of yen value during the 12 month period.

    Income before income taxes

 
  Nine months ended December 31,   Change 2012 vs. 2011  
 
  2011   2012   2012   In yen   Percentage  
 
  (in thousands, except percentages)
 

Income before income taxes

  ¥ 1,857,458   ¥ 919,506   $ 10,613   ¥ (937,952 )   (50.5 )%

Percentage of total revenue

    49.1 %   26.0 %                  

        Our income before income taxes in the nine months ended December 31, 2012 decreased by 50.5% to ¥919.5 million ($10.6 million) from ¥1,857.5 million in the nine months ended December 31, 2011. This represents a 23.1% decrease in the ratio of income before income taxes to total revenue in the nine months ended December 31, 2012 compared with the earlier period.

    Income taxes

 
  Nine months ended December 31,   Change 2012 vs. 2011  
 
  2011   2012   2012   In yen   Percentage  
 
  (in thousands, except percentages)
 

Income taxes

  ¥ 800,115   ¥ 378,929   $ 4,374   ¥ (421,186 )   (52.6 )%

Percentage of total revenue

    21.1 %   10.7 %                  

Percentage of income before income taxes

    43.1 %   41.2 %                  

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        Our income taxes are comprised of current income taxes, partially (and in the periods considered, insignificantly) reduced by deferred income taxes. Income taxes in the nine months ended December 31, 2012 decreased to ¥378.9 million ($4.4 million) from ¥800.1 million from the comparable period in the previous fiscal year. This decrease was primarily attributable to the ¥938.0 million decrease in income before income taxes in the nine months ended December 31, 2012.

    Net income (loss)

 
  Nine months ended December 31,   Change 2012 vs. 2011  
 
  2011   2012   2012   In yen   Percentage  
 
  (in thousands, except percentages)
 

Net income

  ¥ 1,057,343   ¥ 540,577   $ 6,239   ¥ (516,766 )   (48.9 )%

Percentage of total revenue

    27.9 %   15.3 %                  

        Our net income in the nine months ended December 31, 2012 decreased by 48.9% to ¥540.6 million ($6.2 million) from ¥1,057.3 in the nine months ended December 31, 2011. This decrease in net income was primarily attributable to the ¥801.3 million increase in total operating expense in the nine months ended December 31, 2012.

    Operating segments

        Our operating segments are defined as components of an enterprise that engage in business activities from which it may earn revenues and incur expenses and for which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance. The Company provides a variety of eDiscovery and forensic services which are provided by UBIC and its domestic subsidiaries for domestic (Japanese) clients, by UBIC North America, Inc (UNA)., a U.S.-based, wholly-owned subsidiary of UBIC for clients represented by U.S.-based attorneys who contracted UNA, and by other foreign subsidiaries for foreign clients other than those who contracted UNA. The Company's operations in Japan, the U.S. and others have been identified as the three operating segments of the Company. Others include South Korea and Taiwan. The Company's chief executive officer, who is also the Company's chief operating decision maker, regularly reviews the performance of the three operating segments and makes decisions regarding allocation of resources. The Company's chief operating decision maker utilizes various measurements prepared based on accounting principles generally accepted in Japan (Japanese GAAP) which include revenues, operating income or loss and segment assets to assess segment performance and allocate resources to segments.

        During the year ended March 31, 2012, the Company established subsidiaries in countries other than Japan and the U.S. Management reevaluated the structure of its business and devised a new reportable segment structure. All periods presented have been revised to report segment results under the new reportable segment structure.

        The Company's reportable segments are the same as its operating segments.

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        Segment information for the nine months ended December 31, 2011 and 2012 or as of March 31 and December 31, 2012 is presented below:

    Revenue:

 
  Thousands of Yen   Thousands of
U.S. Dollars
 
 
  December 31, 2011   December 31, 2012   December 31, 2012  

Japan

                   

Outside customers

  ¥ 3,348,652   ¥ 2,500,124   $ 28,856  

Intersegment

    195,696     478,187     5,519  
               

Total

    3,544,348     2,978,311     34,375  

U.S.

                   

Outside customers

    289,885     902,050     10,411  

Intersegment

    29,453     23,671     273  
               

Total

    319,338     925,721     10,684  

Other

                   

Outside customers

        141,916     1,638  

Intersegment

             
               

Total

        141,916     1,638  

Elimination

    (225,149 )   (501,858 )   (5,792 )
               

Total revenue after eliminations

    3,638,537     3,544,090     40,905  

Adjustments*(1)

    145,421     (1,753 )   (19 )
               

Total consolidated revenue

  ¥ 3,783,958   ¥ 3,542,337   $ 40,886  
               

*(1)
These amounts primarily represent the net impact of adjustments arising from differences in timing of revenue recognition under U.S. GAAP and J GAAP.

    Segment Performance Measure:

 
  Thousands of Yen   Thousands of
U.S. Dollars
 
 
  December 31, 2011   December 31, 2012   December 31, 2012  

Segment profit (loss)

                   

Japan

  ¥ 1,853,804   ¥ 774,596   $ 8,940  

U.S. 

    (67,691 )   139,976     1,616  

Other

        (31,173 )   (360 )
               

Total segment profit after eliminations

    1,786,113     883,399     10,196  

Adjustments*(2)

    108,350     (31,906 )   (368 )
               

Total consolidated operating income

    1,894,463     851,493     9,828  

Unallocated amounts:

                   

Interest income

    1,638     990     11  

Interest expense

    (8,264 )   (14,421 )   (166 )

Foreign currency exchange gains (losses)

    (35,590 )   78,971     911  

Dividend income

        4,500     52  

Other—net

    5,211     (2,027 )   (23 )
               

Total consolidated income before income taxes

  ¥ 1,857,458   ¥ 919,506   $ 10,613  
               

*(2)
Adjustments primarily relate to differences between U.S. GAAP and J GAAP for revenue recognition, and depreciation and amortization.

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    Segment Assets:

 
  Thousands of Yen   Thousands of
U.S. Dollars
 
 
  March 31, 2012   December 31, 2012   December 31, 2012  

Segment assets

                   

Japan

  ¥ 4,830,227   ¥ 4,265,616   $ 49,234  

U.S. 

    895,284     1,081,038     12,477  

Other

    134,294     323,382     3,732  

Elimination

    (976,279 )   (1,141,390 )   (13,174 )
               

Total segment assets after eliminations

    4,883,526     4,528,646     52,269  

Adjustments*(3)

    96,150     226,089     2,612  
               

Total consolidated assets

  ¥ 4,979,676   ¥ 4,754,735   $ 54,881  
               

*(3)
Adjustments primarily relate to differences between U.S. GAAP and J GAAP for revenue recognition, depreciation and amortization, deferred tax assets and deferred IPO costs.

Entity-Wide Information:

        The information concerning revenue by service categories for the nine months ended December 31, 2011 and 2012 is presented below:

 
  Thousands of Yen   Thousands of
U.S. Dollars
 
 
  2011   2012   2012  

eDiscovery

                   

Review

  ¥ 1,897,786   ¥ 706,995   $ 8,160  

Other(1)

    1,716,651     2,604,061     30,056  
               

Total

    3,614,437     3,311,056     38,216  

Investigation

    114,785     176,716     2,040  

Sales of forensic tools

    28,646     18,692     216  

Forensic training

    24,990     31,552     364  

Other

    1,100     4,321     50  
               

Total revenue

  ¥ 3,783,958   ¥ 3,542,337   $ 40,886  
               

(1)
Other revenue includes collection, processing and analysis, hosting, and production services.

Years ended March 31, 2011 and 2012

    Total Revenue

 
  Year ended March 31,   Change 2012 vs. 2011  
 
  2011   2012   2012   In yen   Percentage  
 
  (in thousands, except percentages)
 

Revenue

  ¥ 2,635,430   ¥ 5,095,939   $ 58,817   ¥ 2,460,509     93.4 %

Revenue from a related party

    40,764     27,862     322     (12,902 )   (31.7 )%

Operating revenue from reimbursed direct costs

    9,899     12,427     143     2,528     25.5 %
                       

Total revenue

  ¥ 2,686,093   ¥ 5,136,228   $ 59,282   ¥ 2,450,135     91.2 %

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        Total revenue for the year ended March 31, 2012 increased by ¥2,450.1 million, or 91.2%, to ¥5,136.2 million ($59.3 million) from ¥2,686.1 million. Our revenue in the year ended March 31, 2012, most of which was attributable to our core eDiscovery services, increased by ¥2,460.5 million, or 93.4%, to ¥5,095.9 million ($58.8 million) from ¥2,635.4 million in the year ended March 31, 2011. This increase in our revenue and total revenue was primarily attributable to the expansion of our eDiscovery operations. Revenue in the year ended March 31, 2012 reflected the receipt of large and midsize orders associated with continuing growth in the number of international government investigations begun in the previous year and the expanding scope of these investigations. Our revenue from a related party in the year ended March 31, 2012 decreased by ¥12.9 million, or 31.7%, to ¥27.9 million ($0.3 million) from ¥40.8 million in the year ended March 31, 2011. This decrease in our revenue from a related party is primarily attributable to a decrease in sales of forensic tools by the related party. Our operating revenue from reimbursed direct costs in the year ended March 31, 2012 increased by 25.5% to ¥12.4 million ($0.1 million) from ¥9.9 million in the year ended March 31, 2011. Operating revenue from reimbursed direct costs represents costs incurred on behalf of a client that are subsequently reimbursed and is completely offset by the equivalent component of operating expense.

        As discussed in "Our Business—Our Growth Strategy," our goals in implementing our growth strategy include expansion of our global operations, notably in the United States. We believe that, if we are successful in implementing our growth strategy, the expansion of our total revenue will be sustainable in future periods. However, we cannot assure you that the pace of our revenue growth (the driver of our plans to increase total revenue) will be maintained, even if our strategy is successfully implemented.

    Total operating expense

 
  Year ended March 31,   Change 2012 vs. 2011  
 
  2011   2012   2012   In yen   Percentage  
 
  (in thousands, except percentages)
 

Cost of revenue

  ¥ 966,352   ¥ 1,600,425   $ 18,472   ¥ 634,073     65.6 %

Reimbursed direct costs

    9,899     12,427     143     2,528     25.5 %

Selling, general and administrative expenses

    669,742     1,153,438     13,313     483,696     72.2 %
                       

Total operating expense

  ¥ 1,645,993   ¥ 2,766,290   $ 31,928   ¥ 1,120,297     68.1 %

Percentage of total revenue

    61.3 %   53.9 %                  

        Our cost of revenue in the year ended March 31, 2012 increased by ¥634.0 million, or 65.6%, to ¥1,600.4 million ($18.5 million) from ¥966.4 million in the year ended March 31, 2011. This increase was primarily attributable to the growth in our operations, especially in the area of eDiscovery, reflected in the rapid growth of our revenue in the year ended March 31, 2012 compared with the year ended March 31, 2011.

        While we were successful in reducing our total operating expense as a percentage of total revenue to 53.9% in the year ended March 31, 2012 from 61.3% in the year ended March 31, 2011 and intend to continue these efforts going forward, it may be difficult to achieve the same level of percentage reductions in the future and we cannot assure you that this trend in cost reduction, both in absolute terms and as a percentage of total revenue, may not be attenuated or reversed. To the contrary, our spending for this line item may need to be increased if we are to maintain a high level of revenue growth in future periods. Our growth in revenue has not been matched by an equal expansion of our internal selling, managerial and financial capabilities, Though our total revenue increased from ¥1,098.2 million in the year ended March 31, 2010 to ¥5,136.2 million in the year ended March 31, 2012 (approximately 368%), our expenditures for selling, general and administrative expenses rose only from ¥574.0 million to ¥1,153.4 million (approximately 101%). In this context, we expect to increase our spending on internal infrastructure as we continue to make improvements in this area.

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        Our reimbursed direct costs in the year ended March 31, 2012 increased by 25.5% to ¥12.4 million ($0.1 million) from ¥9.9 million in the year ended March 31, 2011. Reimbursed direct costs represent costs incurred on behalf of a client that are subsequently reimbursed. Therefore, this increase in our reimbursed direct costs was completely offset by related revenue and remained largely insignificant to our overall results.

        Our selling, general and administrative expenses in the year ended March 31, 2012 increased by ¥483.7 million, or 72.2%, to ¥1,153.4 million ($13.3 million) from ¥669.7 million in the year ended March 31, 2011. This increase in general and administrative expenses in the year ended March 31, 2012 was primarily attributable to an increase in payroll and compensation costs, which increased by ¥185.1 million, or 55.0%, to ¥521.7 million ($6.0 million) from ¥336.6 million, professional fees increased by ¥103.6 million, or 101.8%, to ¥205.4 million ($2.4 million) from ¥101.8 million, recruiting and training expense increased by ¥29.2 million, or 117.7%, to ¥54.0 million ($0.6 million) from ¥24.8 million, supplies expense increased by ¥29.0, or 426.5%, to ¥35.8 million ($0.4 million) from ¥6.8 million, communication expense increased by ¥24.6 million, or 190.7%, to ¥37.5 million ($0.4 million) from ¥12.9 million, staffing fee increased by ¥20.3 million, or 580.0%, to ¥23.8 million ($0.3 million) from ¥3.5 million, overseas travel expenses increased by ¥18.2 million, or 222.0%, to ¥26.4 million ($0.3 million) from ¥8.2 million. These broad base increases in our general administrative expenses were driven by our strategy to build and enhance the basic capability to support our growing business. The increase in sales and marketing expenses from the year ended March 31, 2011 to the year ended March 31, 2012 was primarily due to business development activities of two new regions, South Korea and Taiwan, as well as the increased business development activities in Japan and United States. In addition to the United States headquarters in Redwood City, CA, we established two other branch locations for the United States in Washington, DC and New York, NY, in the year ended March 31, 2012. Strategic marketing activities in the year ended March 31, 2012 also included professional seminars held in U.S. branch locations to increase our brand recognition and demonstrate our eDiscovery and forensic investigation capabilities. The increase in general and administration expenses from the year ended March 31, 2011 to the year ended March 31, 2012 was primarily due to the improvements in administrative support levels within business process management, compliance and internal control, and increased supporting personnel in the new regions. In addition to the use of significant outside professional support, we also increased general and administrative staff headcount from 17 in the year ended March 31, 2011 to 25 in the year ended March 31, 2012.

        The considerable increase in our total operating expense in the year ended March 31, 2012 compared with the year ended March 31, 2011 in absolute terms of ¥1,120.3 million, or 68.1%, was moderate in comparison with the related increase in total revenue of ¥2,450.1 million, or 91.2%.

    Operating income

 
  Year ended March 31,   Change 2012 vs. 2011  
 
  2011   2012   2012   In yen   Percentage  
 
  (in thousands, except percentages)
 

Operating income

  ¥ 1,040,100   ¥ 2,369,938   $ 27,354   ¥ 1,329,838     127.9 %

Percentage of total revenue

    38.7 %   46.1 %                  

        As a result of the above factors, our operating income in the year ended March 31, 2012 more than doubled to ¥2,369.9 million ($27.4 million) from ¥1,040.1 million compared with the year ended March 31, 2011 and increased as a percentage of total revenue to 46.1% from 38.7%. This represents a 7.4% improvement in the ratio of operating income to total revenue in the year ended March 31, 2012 compared with the earlier period.

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    Total other expense—net

 
  Year ended March 31,   Change 2012 vs. 2011  
 
  2011   2012   2012   In yen   Percentage  
 
  (in thousands, except percentages)
 

Interest income

  ¥ 3,410   ¥ 2,052   $ 24   ¥ (1,358 )   (39.8 )%

Interest expense

    (14,262 )   (13,360 )   (154 )   902     6.3 %

Foreign currency exchange gains (losses)

    (39,942 )   10,294     119     50,236     N.A.  

Dividend income

        4,500     52     4,500     N.A.  

Other—net

    1,296     655     8     (641 )   (49.5 )%
                       

Total other expense—net

  ¥ (49,498 ) ¥ 4,141   $ 49   ¥ 53,639     N.A.  

Percentage of total revenue

    (1.8 )%   0.1%                    

        Our interest income in the year ended March 31, 2012 decreased by 39.8% to ¥2.1 million ($0.02 million) from ¥3.4 million in the year ended March 31, 2011. This decrease in our interest income was primarily attributable to a lower valuation difference on a swap transaction in the year ended March 31, 2012 compared with the year ended March 31, 2011.

        Our interest expense in the year ended March 31, 2012 decreased by 6.3% to ¥13.4 million ($0.2 million) from ¥14.3 million in the year ended March 31, 2011. This decrease in our interest expense was primarily attributable to our lower level of outstanding debt during a majority of the year ended March 31, 2012 as compared with the year ended March 31, 2011.

        We had foreign currency exchange gain of ¥10.3 million ($0.1 million) in the year ended March 31, 2012 as compared to the previous fiscal year loss of ¥39.9 million. This change in foreign exchange gains (losses) was primarily attributable to a combination of higher yen in the year ended March 31, 2011 and smaller fluctuation of exchange rates in the year ended March 31, 2012 than in the year ended March 31, 2011.

        Dividend income in the year ended March 31, 2012 was ¥4.5 million ($0.05 million) compared with the previous year where we had no dividend income. This was primarily attributable to dividend income related to investments in securities.

    Income before income taxes

 
  Year ended March 31,   Change 2012 vs. 2011  
 
  2011   2012   2012   In yen   Percentage  
 
  (in thousands, except percentages)
 

Income before income taxes

  ¥ 990,602   ¥ 2,374,079   $ 27,403   ¥ 1,383,477     139.7 %

Percentage of total revenue

    36.9 %   46.2 %                  

        Our income before income taxes in the year ended March 31, 2012 increased by 139.7% to ¥2,374.1 million ($27.4 million) from ¥990.6 million in the year ended March 31, 2011. This represents a 9.3% increase in the ratio of income before income taxes to total revenue in the year ended March 31, 2012 compared with the previous year.

Income taxes

 
  Year ended March 31,   Change 2012 vs. 2011  
 
  2011   2012   2012   In yen   Percentage  
 
  (in thousands, except percentages)
 

Income taxes

  ¥ 202,827   ¥ 1,003,441   $ 11,582   ¥ 800,614     394.7 %

Percentage of total revenue

    7.6 %   19.5 %                  

Percentage of income before income taxes

    20.5 %   42.3 %                  

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        Our income taxes are comprised of income tax-current, partially (and in the periods considered, insignificantly) reduced by income tax-deferred. Our income taxes in the year ended March 31, 2012 increased by ¥800.6 million or 394.7% to ¥1,003.4 million ($11.6 million) from ¥202.8 million in the year ended March 31, 2011. This increase was primarily attributable to the ¥1,383.5 million increase in income before income taxes in the year ended March 31, 2011 compared with the previous year offset.

    Net income

 
  Year ended March 31,   Change 2012 vs. 2011  
 
  2011   2012   2012   In yen   Percentage  
 
  (in thousands, except percentages)
 

Net income

  ¥ 787,775   ¥ 1,370,638   $ 15,821   ¥ 582,863     74.0 %

Percentage of total revenue

    29.3 %   26.7 %                  

        Our net income in the year ended March 31, 2012 increased by 74.0% to ¥1,370.6 million ($15.8 million) from ¥787.8 million in the year ended March 31, 2011. This increase in net income was primarily attributable to the rapid growth of our eDiscovery revenue, which was only partially offset by a much more moderate increase in related operating expense.

    Operating segments

        Our operating segments are defined as components of our company that engage in business activities from which we earn revenues and incur expense and for which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance. We provide a variety of eDiscovery and forensic services which are provided by UBIC and its domestic subsidiaries for domestic (Japanese) clients, by UNA for clients represented by U.S.-based attorneys who contracted UNA, and by other foreign subsidiaries for foreign clients other than those who contracted UNA Our operations are divided in to three operating segments: Japan; the U.S.; and Other (which includes South Korea and Taiwan). Our chief executive officer, who is also our chief operating decision maker, regularly reviews the performance of the three operating segments and makes decisions regarding allocation of resources. Our chief operating decision maker utilizes various measurements prepared based on Japanese GAAP which include revenues, operating income or loss and segment assets to assess segment performance and allocate resources to segments.

        During the year ended March 31, 2012, we established subsidiaries in countries other than Japan and U.S. Management re-evaluated the structure of its business and devised a new reportable segment structure. All periods presented have been revised to report segment results under the new reportable

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segment structure. Our reportable segments are the same as its operating segments. Segment information for the years ended March 31, 2011 and 2012 is as follows:

    Revenue

 
  2011   2012   2012  
 
  (thousands of yen)
  (thousands
of dollars)

 

Japan

                   

Outside clients

  ¥ 1,937,434   ¥ 4,245,265   $ 48,999  

Intersegment

    450,210     543,999     6,279  
               

Total

    2,387,644     4,789,264     55,278  

U.S.

                   

Outside clients

    804,494     882,389     10,185  

Intersegment

    49,668     30,005     346  
               

Total

    854,162     912,394     10,531  

Other

                   

Outside clients

        381     4  

Intersegment

        40,631     469  
               

Total

        41,012     473  
               

Elimination

    (499,878 )   (614,635 )   (7,094 )
               

Total revenue after eliminations

    2,741,928     5,128,035     59,188  

Adjustments(1)

    (55,835 )   8,193     94  
               

Total consolidated revenue

  ¥ 2,686,093   ¥ 5,136,228   $ 59,282  
               

(1)
These amounts primarily represent the net impact of adjustments arising from the differences in timing of the revenue recognition under U.S. GAAP and Japanese GAAP.

    Segment Performance Measure:

 
  2011   2012   2012  
 
  (thousands of yen)
  (thousands
of dollars)

 

Segment profit (loss)

                   

Japan

  ¥ 1,019,194   ¥ 2,312,670   $ 26,693  

U.S. 

    77,946     70,218     810  

Other

        (16,304 )   (188 )
               

Total segment profit after eliminations

    1,097,140     2,366,584     27,315  

Adjustments(1)

    (57,040 )   3,354     39  
               

Total consolidated operating income

    1,040,100     2,369,938     27,354  

Unallocated amounts:

                   

Interest income

    3,410     2,052     24  

Interest expense

    (14,262 )   (13,360 )   (154 )

Foreign currency exchange losses

    (39,942 )   10,294     119  

Impairment losses on investments in securities

        4,500     52  

Other—net

    1,296     655     8  
               

Total consolidated income before income taxes

  ¥ 990,602   ¥ 2,374,079   $ 27,403  
               

(1)
Adjustments primarily relate to the differences between U.S. GAAP and Japanese GAAP for revenue recognition, depreciation and amortization, and deferred initial public offering costs.

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    Segment Assets:

 
  2011   2012   2012  
 
  (thousands of yen)
  (thousands
of dollars)

 

Segment assets

                   

Japan

  ¥ 2,300,299   ¥ 4,830,227   $ 55,751  

U.S. 

    451,012     895,284     10,333  

Others

        134,294     1,550  

Elimination

    (434,500 )   (976,279 )   11,268  
               

Total segment assets after eliminations

    2,316,811     4,883,526     56,366  

Adjustments(1)

    56,785     96,150     1,109  
               

Total consolidated assets

  ¥ 2,373,596   ¥ 4,979,676   $ 57,475  
               

(1)
Adjustments primarily relate to the differences between U.S. GAAP and Japanese GAAP for revenue recognition, depreciation and amortization, deferred tax assets and deferred initial public offering costs.

    Capital expenditures on long-lived assets:

 
  2011   2012   2012  
 
  (thousands of yen)
  (thousands
of dollars)

 

Capital expenditures

                   

Japan

  ¥ 249,406   ¥ 589,247   $ 6,801  

U.S. 

    917     34,900     403  

Other

        22,605     261  
               

Adjustments

    (1,986 )   (25,230 )   291  
               

Total consolidated capital expenditures

  ¥ 248,337   ¥ 621,522   $ 7,174  
               

        Capital expenditures relate to property and equipment, capitalized computer software costs and other intangible assets on an accrual basis.

    Other Significant Items:

 
  2011   2012   2012  
 
  (thousands of yen)
  (thousands
of dollars)

 

Depreciation and amortization

                   

Japan

  ¥ 51,986   ¥ 130,139   $ 1,502  

U.S. 

    955     3,332     38  

Others

        2,336     27  
               

Total depreciation and amortization

    52,941     135,807     1,567  

Adjustments

    5,272     (6,443 )   (74 )
               

Total consolidated depreciation and amortization

  ¥ 58,213   ¥ 129,364   $ 1,493  
               

    Entity-Wide Information:

        For the year ended March 31, 2011, revenue from Panasonic Corporation, Aisin Seiki, Yazaki Corporation, and TMI Associates amounted to ¥594,130 thousand, ¥379,832 thousand, ¥372,064 thousand, and ¥311,325 thousand, respectively, representing approximately 22.1 percent, 14.1 percent, 13.9 percent, and 11.6 percent, respectively, of the total revenue. For the year ended

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March 31, 2012, revenue from Yazaki Corporation, Panasonic Corporation, two clients represented by Quinn Emanuel Urquhart & Sullivan, LLP, and Sanyo Electric Co., Ltd. amounted to ¥950,893 thousand ($10,975 thousand), ¥628,112 thousand ($7,250 thousand), ¥608,558 thousand ($7,024 thousand) and ¥595,998 thousand ($6,879 thousand), respectively, representing approximately 18.5 percent, 12.2 percent, 11.8 percent, and 11.6 percent, respectively, of the total revenue. These clients are attributable to Japan except ¥379,832 thousand for Aisin Seiki for the year ended March 31, 2011, and ¥608,558 thousand ($7,024 thousand) for Quinn Emanuel Urquhart & Sullivan, LLP for the year ended March 31, 2012, which are reported in the U.S.

        The information concerning revenue by service categories for the years ended March 31, 2011 and 2012 is presented below:

 
  2011   2012   2012  
 
  (thousands of yen)
  (thousands
of dollars)

 

eDiscovery

  ¥ 2,529,778   ¥ 4,910,584   $ 56,678  

Investigation

    44,061     144,072     1,663  

Sales of forensic tools

    49,208     38,082     440  

Forensic training

    38,252     30,882     356  

Other

    24,794     12,608     145  
               

Total revenue

  ¥ 2,686,093   ¥ 5,136,228   $ 59,282  
               

        Long-lived assets held in Japan and in the U.S. as of March 31, 2011 were ¥112,013 thousand and ¥2,193 thousand, respectively. Long-lived assets held in Japan, in the U.S., and in Other as of March 31, 2012 were ¥330,964 thousand ($3,820 thousand), ¥27,962 thousand ($323 thousand) and ¥17,837 thousand ($206 thousand), respectively. There were no long-lived assets in Other as of March 31, 2011. Long-lived assets include property and equipment.

Years ended March 31, 2010 and 2011

    Total Revenue

 
  Year ended March 31,   Change 2011 vs. 2010  
 
  2010   2011   In yen   Percentage  
 
  (in thousands, except percentages)
 

Revenue

  ¥ 1,013,490   ¥ 2,635,430   ¥ 1,621,940     160.0 %

Revenue from a related party

    80,072     40,764     (39,308 )   (49.1 )

Operating revenue from reimbursed direct costs

    4,605     9,899     5,294     115.0  
                   

Total revenue

  ¥ 1,098,167   ¥ 2,686,093   ¥ 1,587,926     144.6 %

        Our total revenue in the year ended March 31, 2011 increased by ¥1,587.9 million, or 144.6%, to ¥2,686.1 million from ¥1,098.2 million in the year ended March 31, 2010. Our revenue in the year ended March 31, 2011 increased by ¥1,621.9 million, or 160.0% to ¥2,635.4 million from ¥1,013.5 million in the year ended March 31, 2010. This increase in our revenue and total revenue was primarily attributable to expansion of our eDiscovery operations. The market for these services benefited from a rapid increase in the number of lawsuits filed and investigations commenced in the United States against Japanese multinational corporations which involved patents, intellectual property, product safety, price cartels, the U.S. Foreign Corrupt Practices Act and other issues. Our revenue from a related party in the year ended March 31, 2011 decreased by ¥39.3 million, or 49.1%, to ¥40.8 million from ¥80.1 million in the year ended March 31, 2010. This decrease in our revenue from a related party is primarily attributable to a decrease in sales of forensic tools by the related party. Our operating revenue from reimbursed direct costs in the year ended March 31, 2011 increased by ¥5.3 million, or 115.0%, to ¥9.9 million from ¥4.6 million in the year ended March 31, 2010 and represents costs incurred on behalf of a client that were subsequently reimbursed. This increase in our operating revenue from reimbursed direct costs was primarily attributable to expansion of our eDiscovery operations, but had no impact on our results of operations, since it was completely offset by the related line item in operating expense.

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    Total operating expense

 
  Year ended March 31,   Change 2011 vs. 2010  
 
  2010   2011   In yen   Percentage  
 
   
  (in thousands, except percentages)
 

Cost of revenue

  ¥ 703,010   ¥ 966,352   ¥ 263,342     37.5 %

Reimbursed direct costs

    4,605     9,899     5,294     115.0  

Selling, general and administrative expenses

    574,001     669,742     95,741     16.7  
                   

Total operating expense

  ¥ 1,281,616   ¥ 1,645,993   ¥ 364,377     28.4 %

Percentage of total revenue

    116.7 %   61.3 %            

        Our cost of revenue in the year ended March 31, 2011 increased by ¥263.3 million, or 37.5%, to ¥966.4 million from ¥703.0 million in the year ended March 31, 2010. This increase in our cost of revenue was primarily attributable to costs and expenses incurred in producing the very significant increase in our revenue in the year ended March 31, 2011. However, this increase in cost of revenue of 37.5% was far below the growth in revenue of 160.0% and reflected both increased efficiencies and the investments made in the year ended March 31, 2010 and previous years.

        Our reimbursed direct costs in the year ended March 31, 2011 increased by ¥5.3 million, or 115.0%, to ¥9.9 million from ¥4.6 million in the year ended March 31, 2010. Reimbursed direct costs represent costs incurred on behalf of a client that are subsequently reimbursed. This increase in our reimbursed direct costs was primarily attributable to increased activity but had no impact on our results of operations, since it was completely offset by the related revenue line item.

        Our selling, general and administrative expenses in the year ended March 31, 2011 increased by ¥95.7 million, or 16.7%, to ¥669.7 million from ¥574.0 million in the year ended March 31, 2010. This increase was primarily attributable to sales and marketing expenses and general and administration expenses incurred as a result of the very significant growth in revenue during the year ended March 31, 2011. Our general and administrative expenses in the year ended March 31, 2011 was primarily attributable to an increase in payroll and compensation costs, which increased by ¥47.2 million, or 16.3%, to ¥336.6 million from ¥289.4 million, professional fees increased by ¥20.0 million, or 24.4%, to ¥101.8 million from ¥81.9 million, sales commission increased by ¥15.7 million, or 68.8%, to ¥38.4 million from ¥22.8 million, business tax increased by ¥6.7 million, or 304.8%, to ¥8.9 million from ¥2.2 million, recruiting and training expense increased by ¥5.2 million, or 26.5%, to ¥24.8 million from ¥19.6 million, travel expense increased by ¥4.9 million, or 4.8%, to ¥33.2 million from ¥28.3 million. These broad base increases in our selling, general and administrative expenses were driven by our strategy to build and enhance the basic capability to support our growing business. We anticipate the higher levels of sales and marketing expenses and general and administration expenses that we have recently experienced to continue and accelerate as we expand our international and Japanese operations, increase of business development activities and hire additional administrative support and other staff.

        As a result of the factors described above, our total operating expense increased by ¥364.4 million, or 28.4%, in the year ended March 31, 2011 to ¥1,646.0 million from ¥1,281.6 million in the year ended March 31, 2010. Although our total operating expense grew as our volume of sales increased, our operating income and related margins increased significantly. We anticipate that it may be difficult for us to continue to increase our total revenue while curtailing costs at these rates in coming years and we believe that it may be difficult for us to maintain this tendency in future years.

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    Operating income (loss)

 
  Year ended March 31,   Change 2011 vs. 2010  
 
  2010   2011   In yen   Percentage  
 
  (in thousands, except percentages)
 

Operating income (loss)

  ¥ (183,449 ) ¥ 1,040,100   ¥ 1,223,549     N.A.  

Percentage of total revenue

    (16.7 )%   38.7 %            

        Our operating income in the year ended March 31, 2011 compared to the year ended March 31, 2010 increased by ¥1,223.5 million, to operating income of ¥1,040.1 million from an operating loss of ¥183.4 million. This increase was primarily attributable to the growth in our operations reflected in the rapid growth of our total revenue. This increase in operating income was far above the growth in total revenues of 160.0%. We anticipate that it may be difficult for us to continue to increase our operating income at this rate in coming years and we cannot assure you that the rate of growth in our operating income will be maintained in future years.

    Total other expense—net

 
  Year ended March 31,   Change 2011 vs. 2010  
 
  2010   2011   In yen   Percentage  
 
  (in thousands, except percentages)
 

Interest income

  ¥ 3,441   ¥ 3,410   ¥ (31 )   0.9 %

Interest expense

    (13,247 )   (14,262 )   (1,015 )   (7.7 )

Foreign currency exchange losses

    (14,384 )   (39,942 )   (25,558 )   (177.7 )

Impairment losses on investments in securities

    (108,540 )       108,540     100.0  

Other—net

    94     1,296     1,202     1,278.7  
                   

Total other expense—net

  ¥ (132,636 ) ¥ (49,498 ) ¥ 83,138     62.7 %

Percentage of total revenue

    (12.1 )%   (1.8 )%            

        Our interest income in the year ended March 31, 2011 remained virtually stable compared with in the year ended March 31, 2010 at ¥3.4 million.

        Our interest expense in the year ended March 31, 2011 increased by ¥1.0 million, or 7.7%, to ¥14.3 million from ¥13.2 million in the year ended March 31, 2010. This overall stability in our interest expense was primarily attributable to the fact that our overall debt remained substantially unchanged, at ¥466.2 million as of March 31, 2011, compared with ¥415.7 million as of March 31, 2010.

        Our foreign currency exchange losses in the year ended March 31, 2011 increased by ¥25.6 million, or 177.7%, to ¥39.9 million from ¥14.4 million in the year ended March 31, 2010. This increase in foreign currency exchange losses was primarily attributable to the larger range of fluctuation of exchange rates in the year ended March 31, 2011 compared with the year ended March 31, 2010.

        We recorded impairment losses on investments in securities in the year ended March 31, 2010 of ¥108.5 million. No impairment loss was incurred in the year ended March 31, 2011. Losses on impairment of investments in certain marketable equity securities were recognized to reflect the decline in value considered to be other-than-temporary, which were ¥108.5 million for the year ended March 31, 2010.

        As a result of the factors described above, our total other expense—net in the year ended March 31, 2011 decreased by ¥83.1 million, or 62.7%, to ¥49.5 million from ¥132.6 million in the year ended March 31, 2010.

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    Income (loss) before income taxes

 
  Year ended March 31,   Change 2011 vs. 2010  
 
  2010   2011   In yen   Percentage  
 
  (in thousands, except percentages)
 

Income (loss) before income taxes

  ¥ (316,085 ) ¥ 990,602   ¥ 1,306,687     N.A.  

Percentage of total revenue

    (28.8 )%   36.9 %            

        Our income (loss) before income taxes in the year ended March 31, 2011 increased by ¥1,306.7 million to income of ¥990.6 million from a loss of ¥316.1 million in the year ended March 31, 2010. This represented a very significant improvement in the relationship of income (loss) before income taxes to total revenue in the year ended March 31, 2011 compared with the previous year.

    Income taxes

 
  Year ended March 31,   Change 2011 vs. 2010  
 
  2010   2011   In yen   Percentage  
 
  (in thousands, except percentages)
 

Income taxes

  ¥ 102,213   ¥ 202,827   ¥ 100,614     98.4 %

Percentage of total revenue

    9.3 %   7.6 %            

Percentage of income (loss) before income taxes

    (32.3 )%   20.5 %            

        Our income taxes are comprised of income taxes-current, partially (and in the periods considered, insignificantly) reduced by income taxes-deferred. Our income taxes in the year ended March 31, 2011 increased by ¥100.6 million, or 98.4%, to ¥202.8 million from ¥102.2 million in the year ended March 31, 2010. This increase was attributable to the ¥1,306.7 million increase in income (loss) before income taxes in the year ended March 31, 2011 compared with the previous year offset.

    Net income (loss)

 
  Year ended March 31,   Change 2011 vs. 2010  
 
  2010   2011   In yen   Percentage  
 
  (in thousands, except percentages)
 

Net income (loss)

  ¥ (418,298 ) ¥ 787,775   ¥ 1,206,073     N.A.  

Percentage of total revenue

    (38.1 )%   29.3 %            

        Our net income (loss) in the year ended March 31, 2011 increased by ¥1,206.1 million to income of ¥ 787.8 million from a loss of ¥418.3 million in the year ended March 31, 2010. This increase was primarily attributable to the rapid growth of our revenue, reflecting the expansion of our business, particularly in the eDiscovery space, which was partially offset by increases in our costs and expenses, notably in selling, general and administrative expenses. However, these costs and expenses increased at a far lower pace in the year ended March 31, 2011 than the related revenues.

    Operating segments

        Our operating segments are defined as components of an enterprise that engage in business activities from which it may earn revenues and incur expenses and for which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance. The Company provides a variety of eDiscovery and forensic services which are provided by UBIC and its domestic subsidiaries for domestic (Japanese) clients, by UNA for clients represented by U.S.-based attorneys who contracted UNA, and by other foreign subsidiaries for foreign clients other than those who contracted UNA. Our operations in Japan and the U.S. have been identified as our two operating segments. Our Chief Executive Officer, who is also our chief operating decision maker, regularly reviews the performance of the two operating

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segments and makes decisions regarding allocation of resources. Our chief operating decision maker utilizes various measurements prepared based on Japanese GAAP, including revenue, operating income or loss and segment assets to assess segment performance and allocate resources to segments.

        Our reportable segments are the same as our operating segments. It should be noted that some of our clients located outside of the United States have chosen to pay amounts due to UNA, even if some or all of the work we produced was performed in Japan or in other Asian countries. Therefore, an unspecified portion of the revenue in the United States segment does not constitute work actually performed for U.S.-based clients.

        Segment information for the years ended March 31, 2010 and 2011 is as follows:

    Revenue

 
  2010   2011  
 
  (thousands of yen)
 

Japan

             

Outside clients

  ¥ 507,201   ¥ 1,937,434  

Intersegment

    258,355     450,210  
           

Total

    765,556     2,387,644  

U.S.

             

Outside clients

    438,253     804,494  

Intersegment

    25,605     49,668  
           

Total

    463,858     854,162  

Elimination

    (283,960 )   (499,878 )
           

Total revenue after eliminations

    945,454     2,741,928  

Adjustments(1)

    152,713     (55,835 )
           

Total consolidated revenue

  ¥ 1,098,167   ¥ 2,686,093  
           

(1)
These amounts primarily represent the net impact of adjustments arising from the differences in timing of the revenue recognition under U.S. GAAP and Japanese GAAP.

    Segment Performance Measure:

 
  2010   2011  
 
  (thousands of yen)
 

Segment profit (loss)

             

Japan

  ¥ (125,573 ) ¥ 1,019,194  

U.S. 

    (57,214 )   77,946  
           

Total segment profit (loss) after eliminations

    (182,787 )   1,097,140  

Adjustments(1)

    (662 )   (57,040 )
           

Total consolidated operating income (loss)

    (183,449 )   1,040,100  

Unallocated amounts:

             

Interest income

    3,441     3,410  

Interest expense

    (13,247 )   (14,262 )

Foreign currency exchange losses

    (14,384 )   (39,942 )

Impairment losses on investments in securities

    (108,540 )    

Other-net

    94     1,296  
           

Total consolidated income (loss) before income taxes

  ¥ (316,085 ) ¥ 990,602  
           

(1)
Adjustments primarily related to the differences between U.S. GAAP and Japanese GAAP with respect to revenue recognition, depreciation and amortization, and accrued compensated absences.

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    Segment Assets:

 
  2010   2011  
 
  (thousands of yen)
 

Segment assets

             

Japan

  ¥ 789,239   ¥ 2,300,299  

U.S. 

    145,399     451,012  

Elimination

    (131,465 )   (434,500 )
           

Total segment assets after eliminations

    803,173     2,316,811  

Adjustments(1)

    46,083     56,785  
           

Total consolidated assets

  ¥ 849,256   ¥ 2,373,596  
           

(1)
Adjustments primarily related to the differences between U.S. GAAP and Japanese GAAP with respect to revenue recognition, depreciation and amortization and deferred tax assets.

    Capital expenditures on long-lived assets:

 
  2010   2011  
 
  (thousands of yen)
 

Capital expenditures

             

Japan

  ¥ 100,795   ¥ 249,406  

U.S. 

    1,153     917  

Adjustments

    310     (1,986 )
           

Total consolidated capital expenditures

  ¥ 102,258   ¥ 248,337  
           

        Capital expenditures related to property and equipment, capitalized computer software costs and other intangible assets on an accrual basis.

    Other Significant Items:

 
  2010   2011  
 
  (thousands of yen)
 

Depreciation and amortization

             

Japan

  ¥ 74,298   ¥ 51,986  

U.S. 

    881     955  
           

Total depreciation and amortization

    75,179     52,941  

Adjustments

    138,605     5,272  
           

Total consolidated depreciation and amortization

  ¥ 213,784   ¥ 58,213  
           

    Entity-Wide Information:

        For the year ended March 31, 2010, revenue from Sanyo Electric Co., Ltd. amounted to ¥343.0 million, representing approximately 31.2 percent of our total revenue. For the year ended March 31, 2011, revenue from Panasonic Corporation, Aisin Seiki, Yazaki Corporation, and TMI Associates amounted to ¥594.1 million, ¥379.8 million, ¥372.1 million, and ¥311.3 million, respectively, representing approximately 22.1 percent, 14.1 percent, 13.9 percent, and 11.6 percent, respectively, of our total revenue. All of these clients and the related revenue amounts are attributable to the Japan segment, except Sanyo Electric Co., Ltd. and the ¥343.0 million of related revenue in the year ended March 31, 2010 and Aisin Seiki and the ¥379.8 million of related revenue in the year ended March 31, 2011, each of which was attributable to the United States segment.

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        The information concerning revenue by service categories for the years ended March 31, 2010 and 2011 is presented below:

 
  2010   2011  
 
  (thousands of yen)
 

eDiscovery

  ¥ 835,608   ¥ 2,529,778  

Investigation

    122,102     44,061  

Sales of forensic tools

    79,795     49,208  

Forensic training

    46,913     38,252  

Other

    13,749     24,794  
           

Total revenue

  ¥ 1,098,167   ¥ 2,686,093  
           

        Long-lived assets held in Japan and in the U.S. as of March 31, 2010 were ¥103.1 million and ¥2.2 million, respectively. Long-lived assets held in Japan and in the U.S. as of March 31, 2011 were ¥112.0 million and ¥2.2 million, respectively. Long-lived assets include net property and equipment.

Subsequent Event

        In March 2013, we entered into a settlement agreement with a former employee in order to resolve all claims related to such employee. Under the agreement, we are required to pay the former employee an amount equal to $750,000, of which $300,000 (¥25,974 thousands) was recorded in the quarter ended December 31, 2012 to reflect management's estimate of settlement costs at such time. The remainder of the settlement will be recorded in the quarter ending March 31, 2013.

Liquidity and Capital Resources

Capital Resources

        Our principal sources of liquidity are our cash and cash equivalents, cash flows from operating activities, and issuances of short-term and long-term bank borrowings, convertible notes and equity securities. As of March 31, 2010, 2011 and 2012, and December 31, 2012, we had cash and cash equivalents of ¥345.2 million, ¥675.2 million, ¥2,410.3 million ($27.8 million) and ¥1,301.5 million ($15.0 million), respectively.

        Short-term and long-term bank borrowing:    Short-term and long-term bank borrowings provide us with an important source of funds for maintaining an adequate level of working capital, acquisition of data servers and development of internal-use software.

        As of March 31, 2010 and 2012, our short-term bank borrowings amounted to ¥30.0 million and ¥62.5 million ($0.7 million) with a weighted average interest rate of 3.5%, and 0.7%, respectively. As of March 31, 2011 and December 31, 2012, we had no outstanding short-term bank borrowings.

        As of March 31, 2010, 2011 and 2012, and December 31, 2012, our long-term bank borrowings amounted to ¥411.0 million, ¥251.7 million, ¥430.0 million ($5.0 million) and ¥681.3 million ($7.9 million), with a weighted average interest rate of 2.5%, 2.5%, 1.8% and 2.1%, respectively. Their maturities are at various dates through 2016.

        Under a ¥700.0 million five-year syndicated loan arrangement entered into with a consortium of banks on September 27, 2011, we borrowed ¥350.0 million ($4.0 million) and ¥350.0 million ($4.0 million) during the year ended March 31, 2012 and the nine months ended December 31, 2012, respectively. The balances as of March 31, 2012 and December 31, 2012 were ¥320.0 million ($3.7 million) and ¥656.3 million ($7.6 million), respectively. There are restrictive covenants related to the five-year syndicated loan including requirements to maintain a minimum level of net assets and ordinary income in our stand-alone and consolidated financial statements, measured under accounting

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principles generally accepted in Japan. We are required to maintain net assets at a level which is at least 75% of (a) net assets as of March 31, 2011; ¥1,168.0 million on stand-alone basis and ¥1,173.1 million on consolidated basis under Japanese GAAP or (b) net assets at the end of previous year, whichever is higher. The ordinary income covenant also requires that we shall not record ordinary losses in any two consecutive fiscal years. We are in compliance with these restrictive covenants at December 31, 2012.

        On December 28, 2012, we entered into a short-term revolving credit facility agreement with a consortium of Japanese banks in an aggregate principal amount of ¥1,000 million ($11.5 million) that matures on December 27, 2013. The extension of the maturity date of the credit facility is subject to the consortium's approval. There were no outstanding borrowings under the short-term revolving credit facility as of December 31, 2012. There are restrictive covenants related to the revolving credit facility of ¥1,000.0 million ($11.5 million) as of December 31, 2012, including requirements to maintain a minimum level of net assets and ordinary income in our stand-alone and consolidated financial statements, measured under accounting principles generally accepted in Japan. We are required to maintain net assets at a level which is at least 75% of (a) net assets as of March 31, 2012; ¥2,607.3 million on stand-alone basis and ¥2,665.3 million on consolidated basis under Japanese GAAP or (b) net assets at the end of previous year, whichever is higher. The ordinary income covenant states that we shall not record ordinary losses in any two consecutive fiscal years. We are in compliance with these restrictive covenants at December 31, 2012.

        As of March 31, 2010, 2011 and 2012, and December 31, 2012, we pledged available-for-sale securities with carrying value of ¥107.6 million, ¥223.2 million, ¥273.6 million ($3.2 million) and ¥283.1 million ($3.3 million), respectively, as security for borrowings from banks of ¥350.0 million, ¥230.0 million, ¥247.1 million ($2.9 million) and ¥306.3 million ($3.5 million), respectively.

        Overdraft arrangement:    We entered into an overdraft arrangement with a Japanese bank for which the unutilized balance as of March 31, 2010, 2011 and 2012, and December 31, 2012, was ¥50.0 million ($0.6 million).

        Bank of Tokyo Mitsubishi UFJ has been our main financing bank since our founding. Bank of Tokyo Mitsubishi UFJ arranged our syndicated loan, short-term revolving credit facility and overdraft arrangement.

        Convertible notes:    In April 2010, we issued zero coupon convertible notes due in April 2015 in the aggregate face amount of ¥300.0 million for ¥285.0 million. As of March 31, 2011 and 2012, the outstanding carrying amount of our convertible notes, including amortized discount, amounted to ¥211.2 million and ¥106.7 million ($1.2 million), respectively. On March 14, 2011, and February 28 and May 15, 2012, convertible notes were converted into 204,472, 281,150 and 281,114 equity shares of the Company, respectively. The carrying amount of convertible notes, including any unamortized discount, was credited to the capital account (net of issuance costs) upon conversion, and no gain or loss was recognized. None of the convertible notes remain outstanding as of December 31, 2012.

        Cash flows from operating activities:    We used ¥0.9 million in operating activities for the year ended March 31, 2010 and generated ¥452.8 million and ¥2,043.5 million ($23.6 million) from operating activities for the years ended March 31, 2011 and 2012, respectively. We generated ¥1,796.5 million from operating activities for the nine months ended December 31, 2011 and used ¥209.9 million ($2.4 million) in operating activities for the nine months ended December 31, 2012. See Consolidated Statements of Cash Flows.

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Table of Contents

Cash Flows

        The following table sets out information on our cash flows for the periods indicated:

 
  Year ended March 31   Nine months ended December 31  
 
  2010   2011   2012   2012   2011   2012   2012  
 
  (thousands of yen)
  (thousands of dollars)
  (thousands of yen)
  (thousands of dollars)
 

Net cash provided by (used in) operating activities

  ¥ (933 ) ¥ 452,800   ¥ 2,043,549   $ 23,587   ¥ 1,796,487   ¥ (209,889 ) $ (2,424 )

Net cash used in investing activities

    (69,214 )   (227,712 )   (520,224 )   (6,004 )   (401,511 )   (778,815 )   (8,989 )

Net cash provided by (used in) financing activities

    80,273     113,896     213,210     2,461     356,926     (169,396 )   (1,954 )

Effect of exchange rates

    (12,633 )   (8,922 )   (1,443 )   (17 )   (4,250 )   49,282     569  
                               

Net increase (decrease) in cash and cash equivalents

    (2,507 )   330,062     1,735,092     20,027     1,747,652     (1,108,818 )   (12,798 )
                               

Cash and cash equivalents at the beginning of the year

    347,657     345,150     675,212     7,793  </