Quarterly Consolidated Financial Results for First Three Quarters of the Fiscal
Year Ending March 31, 2020 [Japan GAAP]
Name of listedcompany:
Securities code:

Digital Arts Inc.
2326

Representative:(Title)Contact:(Title)January 31, 2020
Tokyo Stock Exchange
1st Section

Listed on:

URL https://www.daj.jp
Representative Director,(Name) Toshio Dogu
President and CEO
Administration(Name) Isao Konishi
Department

Scheduled date forfiling the quarterly financial
February 7, 2020
report:Supplementary quarterly materials prepared:
Quarterly results information meeting held:(TEL) 03-5220-6045

Scheduled date to start dividends―distribution:
Yes
No(Figures shown are rounded down to the nearest million yen.)

1. Consolidated financial results for the first three quarters ended December 31, 2019(from April 1, 2019 to December 31, 2019)(1) Consolidated operating results (cumulative totals)
Net sales(Percentage figures represent changes from same period of previous year.)

Operating profit

Million yen%

Million yen

First three quarters ended
4,141
(0.6)
December 31, 2019
First three quarters ended
4,166
17.3
December 31, 2018
(Note) Comprehensive First three quarters ended 1,126 million
incomeDecember 31, 2019:yen

Profit attributable toowners of parent

Ordinary profit%

Million yen%

Million yen%

1,648(1.6)

1,648(1.5)

1,128(20.4)

1,674

43.7

1,674

42.2

1,418

82.4

(-20.9%)First three quarters ended
December 31, 2018:

1,422 million(83.1%)
yenProfit per share (basic) Profit per share (diluted)
First three quarters ended
December 31, 2019
First three quarters ended
December 31, 2018

Yen

Yen

80.72

78.54

102.07101.85(2) Consolidated financial position
Total assets

Net assets

Million yen

As of December 31, 2019
As of March 31, 2019
(ReferenEquity
As of December 31, 2019:ce)
capital:Equity ratio

Million yen

10,0869,859
8,181Million
yen

8,209
7,802
As of March 31,2019

Net assets per share%

Yen

81.1
78.7
7,761Million
yen

583.85558.33

2. Dividends
Annual dividends
1Q-end2Q-endYen

3Q-endYear-end

Annual

Yen

Yen

Yen

Yen

Year ended March 31, 201918.00－
Year ending March 31, 2020
25.00
－Year ending March 31, 2020 (forecast)(Note) Revisions to most recently announced dividend forecast: No－－

30.00

48.00

25.00

50.00

2. Forecast of consolidated financial results for the year ending March 31, 2020
(April 1, 2019 – March 31, 2020)(Percentage figures represent changes from same period of previous year.)
Profit attributable toOperating profit
Ordinary profit
Profit per shareowners of parent

Net sales
Million yen%

Million yen%

Yen

Full year
5,500 (5.8)
2,050 (22.0)
2,050 (22.1)(Note) Revisions to most recently announced financial results forecast:Yes%

Million yen%

Million yen

1,430(27.1)

102.26

* Notes(1) Significant changes in subsidiaries during the term (Changes inspecified subsidiaries resulting in changes in scope of consolidation):
New ― (Company name)None, Excluding ― (Company name)(2) Application of specific accounting for preparing the quarterly
consolidated financial statements:

Yes(Note) For details, refer to (Application of specific accounting for preparing the quarterly consolidated financial statements) in (3)Notes to quarterly consolidated financial statements in 2. Quarterly consolidated financial statements and major notes on page 7of the Attached Document.

(3) Changes in accounting policies, changes of accounting estimates and restatement
1) Changes in accounting policies due to revisions of accounting standards, etc.:

None2) Changes in accounting policies due to reasons other than those stated in 1):

None3) Changes in accounting estimates:

None4) Restatement:

None(4) Number of shares outstanding (common stock)1) Number of shares issued and outstanding(including treasury shares)
2) Number of treasury shares
3) Average number of shares issued andoutstanding in each period (quarterly
consolidated cumulative period)**

As of December 31,
2019:
As of December 31,
2019:

14,133,000
119,920First three quarters
ended December 31,
2019

As of March 31,
2019
As of March 31,
201914,133,000
232,320First three quarters
13,983,960

ended December

13,898,365

31, 2018

Quarterly financial results are outside the scope of the quarterly review by certified public accountants or audit
corporations.
Explanation concerning the appropriate use of financial result forecasts and other special notes(Forward looking statements)
Business forecasts and other forward-looking statements in this material contain predictions based on future assumptions,outlooks and plans as of the date of publication of this material. The Company does not warrant the accomplishment of theforecasts. Actual results may different significantly from the forecasts due to risks and uncertain factors associated with theworld economy, the state of competition, and fluctuations in foreign exchange rates and interest rates.
For matters relevant to business forecasts, refer to (3) Information on the future outlook, including consolidated financial results
forecasts in 1. Qualitative information on quarterly financial results on page 3 of the Attached Document.
(Obtaining the Supplementary Material for the Financial Results)
The material is available at Digital Arts Inc. corporate website.

○Table of Contents for the Attached Document

1. Qualitative Information on quarterly financial results................................................................................................. ２(1) Details of business results ......................................................................................................................................... ２(2) Details of financial position....................................................................................................................................... ３(3) Information on the future outlook, including consolidated financial results forecasts............................................... ３
2. Quarterly consolidated financial statements and major notes ..................................................................................... ４(1) Quarterly consolidated balance sheet ........................................................................................................................ ４(2) Quarterly consolidated statement of income and comprehensive income ................................................................. ５
Quarterly consolidated statement of income
Consolidated financial results for first three quarters ...................................................................................... ５Quarterly consolidated statements of comprehensive income
Consolidated financial results for first three quarters ...................................................................................... ６(3) Notes to quarterly consolidated financial statements ................................................................................................. ７(Notes on the premise of a going concern) .............................................................................................................. ７(Notes on significant fluctuation in the amount of shareholders’ equity) ................................................................ ７(Application of specific accounting for preparing the quarterly consolidated financial statements) ....................... ７

1. Qualitative Information on quarterly financial results(1) Details of business results
During the first three quarters of the consolidated fiscal year under review (April 1 through December 31, 2019), the Japanese
economy continued to show a moderate recovery, chiefly because the employment conditions and income environment continued
to improve, and corporate earnings remained steady against the backdrop of the government-led economic measures. On the otherhand, the outlook of the global economy remained uncertain, mainly due to concerns over an economic slowdown attributable tointensifying US - China trade tensions that are likely to persist longer than expected, as well as mounting geopolitical risks.
In the security industry, in which the Digital Arts Group (the “Group”) operates, there is a growing number of challenges facedby companies and other organizations such as a shortage of security-related personnel, in addition to the diversification andsophistication in threats of targeted cyberattacks with a focus on specific companies, organizations and national institutions, notonly in Japan but also on a global scale. There is also a sharp increase in the number of users who rely on cloud services for theoutsourcing of security operations that they find difficult to deal with and reductions in the burden of security operations. In
addition, with the gradual enforcement of the workstyle reform law from April 1, 2019, companies and other organizations arerequired to rectify long working hours and establish an environment in which operations can be performed more flexibly. Against
this backdrop, the way workstyle reforms should be implemented while simultaneously maintaining security has surfaced as a
new challenge because security needs to be improved urgently in out-of-office environments such as work from home andsatellite offices.
Given these circumstances, with a view to offering solutions for a secure internet environment, regardless of the size of thebusinesses operated by the respective customers, the Group continued to improve i-FILTER Ver. 10 and m-FILTER Ver. 5 byenhancing performance and adding functions, and endeavored to increase sales of the products while also aiming to establish ahigher level of security in conjunction with businesses for the enterprise sector and public sector markets. In addition, it began tosupply FinalCode Ver. 6 in June 2019. Ver. 6 incorporates an automatic file encryption function, for which there is strong demand
from existing users and potential customers. Regardless of security literacy, Ver. 6 actualizes an environment in which files areautomatically encrypted instantly. In addition, by introducing a free browsing function for internal users and volume discounts
according to the number of licenses purchased, it offers more users an opportunity to utilize FinalCode more securely in more
operation-friendly environments. Moreover, by including FinalCode@Cloud and Chat@Cloud in the lineup ofDigitalArts@Cloud, it creates the world of a virus-free room as well, where users are not conscious of security in the cloudenvironment. Moreover, the Group revised sales prices and established new plans: “i-FILTER@Cloud Harmful Sites Blocker
Edition” and “m-FILTER@Cloud Misdirected E-mail Prevention Edition.” Accordingly, a system was put in place to provide
products meeting the needs of all types of users.
In the consumer sector market, efforts need to be stepped up to popularize filtering functions among young people as theamount of internet-linked damage is increasing due to the use of smartphones against the backdrop of the rising number of young
people who use smartphones. Given these circumstances, the Group continued to engage in educational activities and work withmobile network carriers, among other parties, and contributed to popularizing the i-FILTER for smartphones.
Consolidated net sales for the first three quarters of the fiscal year under review stood at 4,141,002 thousand yen, 99.4% of theprevious year, reflecting substantially increased replacement demand for PCs with the Window7 support period coming to an end
in January 2020, the fact that sales agents’ initiative of focusing on PC sales has lasted longer than initially expected, and due to areactionary drop in large orders in monetary terms, which was a driving force of net sales a year ago. In terms of profit, operating
profit was 1,648,190 thousand yen, 98.4% of the previous year’s level, and ordinary profit came to 1,648,945 thousand yen,
98.5% of the previous year’s level. Profit attributable to owners of parent came to 1,128,844 thousand yen (79.6% year-on-year)
due to the decline as a reaction to control effect of tax expenses associated with the liquidation of the U.S. subsidiary in theprevious consolidated fiscal year.
The following describes business performance in separate markets.
Enterprise Sector Market

1

In this market, in particular, sales of i-FILTER Browser & Cloud, which enables administrators to control access to websites
irrespective of the location or situation, expanded, reflecting a rise in the number of people who take out company-provided
tablets, notebooks or other devices and work on their assignments on the go against the backdrop of diversifying workstyles. Inaddition, sales of FinalCode Ver. 6, which was released in the first quarter of the consolidated fiscal year under review, steadily
increased as well. Moreover, progress was made in winning new orders to some extent for i-FILTER Ver. 10 and m-FILTER Ver.
5, which support countermeasures against sophisticated targeted cyberattacks.
Net sales in this market reached 2,309,786 thousand yen, up 8.2% year on year.

2

Public Sector Market
In this market, with respect to the mainstay products i-FILTER and m-FILTER, in addition to ongoing projects from theprevious consolidated fiscal year, the acquisition of new projects progressed to a certain degree. However, sales in this entire
market declined from a year earlier due to a reactionary drop in large orders in monetary terms, which was a driving force of net
sales a year ago. Meanwhile, due to the progress of ICT, changes are taking place in the field of education, and efforts areunderway to establish an environment in which one or a small number of students can use one tablet. Reflecting this, sales
expanded for i-FILTER Browser and Cloud, which features the capability to implement sophisticated security measures for tablets
as well as the addition of a service of providing information that creates the optimal environment for learning.
As a consequence, net sales in this market stood at 1,486,191 thousand yen, down 10.2% year on year.
Consumer Sector Market
In this market, filtering installation for the ever-increasing use of smartphones by youth progressed. Sales decreased, however,mainly reflecting a reduction in the offer price to carriers resulting from carriers’ free-of-charge service to end users, and sluggish
sales of multiple-year products and i-FILTER® for Multi-device that can be made available on multiple terminals.
Net sales in this market amounted to 345,024 thousand yen, down 8.5% year on year.

(2) Details of financial position(Assets)
Total assets at the end of the third quarter of the consolidated fiscal year under review increased 227,107 thousand yen fromthe end of the previous consolidated fiscal year, to 10,086,454 thousand yen, mainly due to an increase in cash and deposits.
(Liabilities)
Total liabilities at the end of the third quarter of the consolidated fiscal year under review decreased 179,148 thousand yen
from the end of the previous consolidated fiscal year, to 1,877,304 thousand yen.
(Net assets)
Net assets at the end of the third quarter of the consolidated fiscal year under review increased 406,255 thousand yen from theend of the previous consolidated fiscal year, to 8,209,150 thousand yen. This was mainly due to an increase in retained earnings
associated with the posting of profit attributable to owners of parent.

(3) Information on the future outlook, including consolidated financial results forecasts
The Group has revised the forecast for the full-year financial forecast announced on May 9, 2019. Please refer to “Notice ofRevisions to the Full-Year Financial Forecast” announced today for matters related to the revisions to the projected figures.

32. Quarterly consolidated financial statements and major notes(1) Quarterly consolidated balance sheet(Thousand yen)First three quarters of fiscal year
ending March 31, 2020
(As of December 31, 2019)

Fiscal 2019
(As of March 31, 2019)
AssetsCurrent assets
Cash and deposits
Notes and accounts receivable - trade6,169,172
1,172,515

6,874,203
1,018,142

Securities
Finished goods

299,968
290－624

Other87,863

80,036

7,729,809

7,973,006

261,087

246,8421,044,163

1,299,128

Total current assets
Non-current assets
Property, plant and equipment
Intangible assets
Software
Other
Total intangible assets
Investments and other assets
Total non-current assets
Total assets

367,390

115,426

1,411,553

1,414,555

456,896452,049

2,129,537

2,113,447

9,859,347

10,086,454

Liabilities
Current liabilities
Accounts payable - trade

22,744

26,460

Income taxes payable
Provision for bonuses

330,672
128,192

228,21282,053

Advances received
Other

1,225,258
303,494

1,188,800
305,362

Total current liabilities

2,010,363

1,830,889

Non-current liabilities
Asset retirement obligations

45,44445,769

645

645

Other
Total non-current liabilities

46,08946,414

2,056,452

1,877,304

Share capital
Capital surplus

713,590827,730

713,590975,073

Retained earnings
Treasury shares

6,518,256(306,939)

6,878,728(392,775)

Total shareholders’ equity

7,752,637

8,174,617

Foreign currency translation adjustments

8,499

6,986

Total accumulated other comprehensive income

8,499

6,986

Share acquisition rights

23,587

18,214Non-controlling interests

18,169

9,331

Total liabilities
Net assets
Shareholders’ equity

Accumulated other comprehensive income

Total net assets
Total liabilities and net assets

47,802,894

8,209,150

9,859,347

10,086,454

(2) Quarterly consolidated statement of income and comprehensive income
Quarterly consolidated statement of income(Consolidated financial results for the first three quarters)

Net sales
Cost of sales(Thousand yen)First three quarters of fiscal year First three quarters of fiscal year
ended March 31, 2019
ending March 31, 2020
(from April 1, 2018 to December (from April 1, 2019 to December
31, 2018)
31, 2019)
4,166,963
4,141,002
809,382
984,044

Gross profit

3,357,581

3,156,958

Selling, general and administrative expenses

1,683,270

1,508,767

Operating profit

1,674,310

1,648,190

796

603

Commission income
Gain on forfeiture of unclaimed dividends

154
1,168

15840

Miscellaneous income

1,021

574

Total non-operating income

3,141

2,034

2,870
109

979
299

Non-operating income
Interest income

Non-operating expenses
Foreign exchange losses
Miscellaneous loss
Total non-operating expenses

2,980

1,278

1,674,471

1,648,945

Gain on reversal of share acquisition rights

2,062

468

Total extraordinary income

2,062

468055

Loss on valuation of golf club membership

2,200－

Total extraordinary losses

2,200

55

1,674,333

1,649,358

253,558

521,559

1,420,774

1,127,799

2,221(1,045)

1,418,552

1,128,844

Ordinary profit
Extraordinary income

Extraordinary losses
Loss on retirement of non-current assets

Profit before income taxes
Income taxes
ProfitProfit (loss) attributable to non-controlling interests
Profit attributable to owners of parent5Quarterly consolidated statements of comprehensive income(Consolidated financial results for the first three quarters)

ProfitOther comprehensive income(Thousand yen)First three quarters of fiscal year First three quarters of fiscal year
ended March 31, 2019
ending March 31, 2020
(from April 1, 2018 to December (from April 1, 2019 to December31, 2018)31, 2019)
1,420,774
1,127,799

Foreign currency translation adjustments

2,224(1,512)

Total other comprehensive income

2,224(1,512)Comprehensive income

1,422,999

1,126,286

Comprehensive income attributable toComprehensive income attributable to owners ofparent
Comprehensive income attributable to non-controllinginterests

1,420,777

1,127,332

2,221(1,045)

6

(3) Notes to quarterly consolidated financial statements(Notes on the premise of a going concern)
There are no applicable matters.

(Notes on significant fluctuation in the amount of shareholders’ equity)
There are no applicable matters.

(Application of special accounting for preparing the quarterly consolidated financial statements)
Calculation of tax expenses
Tax expenses have been calculated by multiplying profit before income taxes for the consolidated fiscal year including thefirst three quarters concerned by the reasonably estimated effective tax rate after application of tax effect accounting to the said
profit before income taxes.

7