Quarterly Consolidated Financial Results for First Half of Fiscal YearEnding March 31, 2020 (Japanese Accounting Standards)
Name of listedcompany:
Securities code:

Digital Arts Inc.

October 30, 2019
Tokyo Stock Exchange
1st Section

Listed on:2326

URL https://www.daj.jp

Representative Director,(Name) Toshio Dogu
President and CEO
Administration
Contact:(Title)(Name) Isao Konishi(TEL) 03-5220-6045
Department
Scheduled date for submission
Scheduled date to start dividends
November 8, 2019
December 3, 2019of quarterly report
distribution:
Preparation of supplementary explanatory : Yes
documents for quarterly results
Holding of quarterly results briefing: Yes (for institutional investors and financial analysts)
Representative:(Title)(Figures shown are rounded down to the nearest million yen.)

1. Consolidated financial results for the first half of the fiscal year ending March 31, 2020
(from April 1, 2019 to September 30, 2019)(1) Consolidated operating results (cumulative totals)
Net sales

Operating profit

Million yen

First half of year ending
2,764
March 31, 2020
First half of year ended
2,764
March 31, 2019
(Note) Comprehensive First half of year ending
March 31, 2020
income:(Percentage figures represent changes from same period of previous year.)

Profit attributable toowners of parent

Ordinary profit%

Million yen%

Million yen%

Million yen

%

0.0

1,096

5.9

1,092

5.0

745

(24.9)

12.0

1,036

12.4

1,040

11.5

992

60.4

742 million yen (-25.3%)

Profit per share (basic)
First half of year ending
March 31, 2020
First half of year ended
March 31, 2019

First half of year ended
March 31, 2019

993 million yen (60.0%)

Profit per share (diluted)
Yen

Yen

53.40

51.80

71.39

71.23

(2) Consolidated financial position
Total assets

Net assets

Million yen

As of September 30, 201910,534As of March 31, 2019
9,859
(Reference:) Equity capital: As of September 30, 2019

Equity ratio

Million yen

Net Assets per share
%

Yen

8,464
80.0
7,802
78.7
8,428 million yen As of March 31, 2019599.71558.337,761 million yen

2. Dividends
Annual dividends
1Q-end2Q-endYen

3Q-endYear-end

Annual

Yen

Yen

Yen

Yen

Year ended March 31, 2019—18.00
Year ending March 31, 2020—
25.00
Year ending March 31, 2020 (forecast)(Note) Revisions to most recently announced dividend forecast

—

30.00

48.00

—

25.00

50.00

―1―

: No

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

Net sales%

Million yen%

Million yen%

Yen

Full year
6,800
16.4
3,300
25.5
(Note) Revisions to most recently announced results forecasts

Million yen%

Million yen

3,300

25.4
: No

2,277

16.1

163.83* Notes(1) Changes in important subsidiaries during the first half of fiscal year
ending March 31, 2020

: None(Changes in specified subsidiaries resulting in changes in scope of consolidation)
New―(Company name), Excluding―(2) Application of special accounting methods to the preparation of
consolidated quarterly financial statements.

(Company name): Yes(Note) For details, please refer to “2. Quarterly Consolidated Financial Statements and Primary Notes (4) Notes to quarterly
consolidated financial statements (Application of special accounting methods to the preparation of quarterly consolidated financial
statements)” on page 10 of the attached materials.
(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 (cumulative total)**

As of September 30, 201914,133,000

As of March 31, 201914,133,000

As of September 30, 201978,920

As of March 31, 2019

232,320First half of year ending
March 31, 2020

13,957,694

First half of year ended
March 31, 201913,897,287

Quarterly financial statements are not subject to quarterly audits 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 the world
economy, the state of competition, and fluctuations in foreign exchange rates and interest rates.
For matters concerning results forecasts, please refer to “1. Qualitative Information on Financial Results for the First Half of
Fiscal Year Ending March 31, 2020 (3) Explanation about information on future forecasts such as consolidated results forecasts”
on page 5 of the attached materials.
(How to obtain supplementary materials for quarterly results)
The materials are posted on the Company’s website.

―2―

○Table of Contents for the Attached Document

1. Qualitative Information on Financial Results for the First Half of Fiscal Year Ending March 31, 2020 ........................................ ２(1) Explanation about business results ........................................................................................................................ ２(2) Explanation about financial position ..................................................................................................................... ３(3) Explanation about information on future forecasts such as consolidated results forecasts .................................... ３
2. Quarterly Consolidated Financial Statements and Primary Notes............................................................................... ４(1) Quarterly consolidated balance sheet .................................................................................................................... ４(2) Quarterly consolidated statement of income and quarterly consolidated statement of comprehensive income ..... ５
Quarterly consolidated statement of income
Consolidated first half ................................................................................................................................. ５
Consolidated statements of comprehensive income
Consolidated first half ................................................................................................................................. ６(3) Consolidated statement of cash flows.................................................................................................................... ７(4) Notes to quarterly consolidated financial statements ............................................................................................. ８(Notes on the premise of a going concern) .......................................................................................................... ８(Notes on significant changes in the amount of shareholders’ equity) ................................................................ ８(Application of special accounting methods to the preparation of quarterly consolidated financial statements) ８―3―

1. Qualitative Information on Financial Results for the First Half of Fiscal Year Ending March 31, 2020
(1) Explanation about business results
During the first half of the consolidated fiscal year under review (April 1 through September 30, 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 other hand, theoutlook of the global economy remained uncertain, mainly due to concerns over an economic slowdown attributable to intensifying
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 are required torectify 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 and satellite 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 of DigitalArts@Cloud,it creates the world of a virus-free room as well, where users are not conscious of security in the cloud environment.
In the consumer sector market, efforts need to be stepped up to popularize filtering functions among young people as the amountof 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 with mobile
network carriers, among other parties, and contributed to popularizing the i-FILTER for smartphones.
As a result, consolidated net sales for the first half of the consolidated fiscal year under review stood at 2,764,132 thousand yen,(100.0% year-on-year). On the profit side, there were improvements in profitability thanks to the impact of the more focused
application of management resources as a result of group reorganization based on the review of overseas strategies undertaken in
the previous consolidated fiscal year. Consequently, operating profit rose 5.9% year on year, to 1,096,974 thousand yen, ordinary
profit climbed 5.0% year on year, to 1,092,042 thousand yen. Profit attributable to owners of parent came to 745,308 thousand yen(75.1% 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 the previous consolidated fiscal year.
The following describes business performance in separate markets.
Enterprise Sector Market
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. In addition,
sales of FinalCode Ver. 6, which was released in the first quarter of the consolidated fiscal year under review, steadily increased aswell. Meanwhile, progress was made in winning new orders to some extent for i-FILTER Ver. 10 and m-FILTER Ver. 5, which―4―support countermeasures against sophisticated targeted cyberattacks.
Net sales in this market reached 1,538,887 thousand yen, up 8.4% year on year.

Public Sector Market
In this market, progress was also made in winning projects, mainly for those that had remained outstanding in the previous
consolidated fiscal year, resulting in steady sales of i-FILTER and m-FILTER, the mainstay products. Nevertheless, overall sales
for the public sector market were lower than the level in the same period of the previous fiscal year due to the absence of orders for
projects with a high monetary value that contributed to sales in the previous fiscal year. Meanwhile, due to the progress of ICT,
changes are taking place in the field of education, and efforts are underway 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 thecapability to implement sophisticated security measures for tablets as well as the addition of a service of providing information thatcreates the optimal environment for learning. In the third quarter and onward, the Group will move forward with efforts to expand
sales of mainstay products, including i-FILTER Ver. 10 and m-FILTER Ver. 5, not to mention i-FILTER Browser and Cloud, salesof which are expected to continue to increase.
As a consequence, net sales in this market stood at 970,463 thousand yen, down 12.5% year on year.
Consumer Sector Market
In this market, sales grew, mainly reflecting the progress in the introduction of filtering, as the number of young people who use
smartphones continued to increase, and strong sales of multi-year package products and i-FILTER for Multiple Devices that can beused on more than one terminal device.
Net sales in this market amounted to 254,781 thousand yen, up 8.0% year on year.

(2) Explanation about financial position(Assets)
Total assets at the end of the second quarter of the consolidated fiscal year under review increased 674,709 thousand yen from theend of the previous consolidated fiscal year, to 10,534,056 thousand yen, mainly due to an increase in cash and deposits.
(Liabilities)
Total liabilities at the end of the second quarter of the consolidated fiscal year under review rose 13,075 thousand yen from theend of the previous consolidated fiscal year, to 2,069,528 million yen. This was due chiefly to a rise in advances received.
(Net assets)
Net assets at the end of the second quarter of the consolidated fiscal year under review increased 661,633 thousand yen from theend of the previous consolidated fiscal year, to 8,464,528 thousand yen. This was mainly due to an increase in retained earnings
associated with the posting of profit attributable to owners of parent.

(3) Explanation about information on future forecasts such as consolidated results forecasts
In the six-month period under review, differences have appeared between the results forecasts which were announced on May 9, 2019
in Consolidated Financial Results for the Fiscal Year Ended March 31, 2019 (Japanese GAAP) and actual results. For details of thedifference, please refer to “Notice of Difference between Consolidated Financial Forecast and Actual Results for the First Half of the
Fiscal Year ending March 31, 2020” announced today.

―5―2. Quarterly Consolidated Financial Statements and Primary Notes(1) Quarterly consolidated balance sheet(Thousand yen)
Fiscal 2019
(As of March 31, 2019)

First half of fiscal 2020
(As of September 30, 2019)

AssetsCurrent assets
Cash and deposits
Notes and accounts receivable - trade6,169,172
1,172,515

7,363,180
963,773

Securities
Finished goods

299,968
290

—
171

Other

87,86380,887

7,729,809

8,408,012

261,087249,679

1,044,163

1,357,505

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

65,382

1,411,553

1,422,888

456,896

453,475

2,129,537

2,126,043

9,859,347

10,534,056

Liabilities
Current liabilities
Accounts payable - trade

22,744

18,311

Income taxes payable
Provision for bonuses

330,672
128,192

371,121132,053

Advances received
Other

1,225,258
303,494

1,289,175
212,560

Total current liabilities

2,010,363

2,023,222

Non-current liabilities
Asset retirement obligations

45,44445,660

645

645

Other
Total non-current liabilities

46,08946,3052,056,452

2,069,528

Share capital
Capital surplus

713,590827,730

713,590
966,497

Retained earnings
Treasury shares

6,518,256(306,939)

6,846,544(104,268)

Total shareholders' equity

7,752,637

8,422,363

Foreign currency translation adjustment

8,499

6,018

Total accumulated other comprehensive income

8,499

6,018

Share acquisition rights

23,587

18,389Non-controlling interests

18,16917,756

Total liabilities
Net assets
Shareholders' equity

Accumulated other comprehensive income

Total net assets
Total liabilities and net assets―6―7,802,894

8,464,528

9,859,347

10,534,056

(2) Quarterly consolidated statement of income and quarterly consolidated statement of comprehensive income
Quarterly consolidated statement of income
Consolidated first half

Net sales
Cost of sales

First half of fiscal 2019(from April 1, 2018
to September 30, 2018)
2,764,121
526,639(Thousand yen)First half of fiscal 2020
(from April 1, 2019
to September 30, 2019)
2,764,132
630,407

Gross profit

2,237,481

2,133,724

Selling, general and administrative expenses

1,201,223

1,036,750

Operating profit

1,036,257

1,096,974

538

448

108
622

15
350

Foreign exchange gains
Miscellaneous income

1,973
702

—
474

Total non-operating income

3,945

1,288

Non-operating expenses
Foreign exchange losses

—

6,220

Miscellaneous loss

108—

Total non-operating expenses

108

6,220

1,040,094

1,092,042

1,679

404

1,679

404

0
2,200

0
—

Non-operating income
Interest income
Commission income
Gain on forfeiture of unclaimed dividends

Ordinary profit
Extraordinary income
Gain on reversal of share acquisition rights
Total extraordinary income
Extraordinary losses
Loss on retirement of non-current assets
Loss on valuation of golf club membership
Total extraordinary losses

2,200

0

1,039,573

1,092,446

Income taxes

45,960347,551

Profit993,613744,895

Profit before income taxes

Profit (loss) attributable to non-controlling interests
Profit attributable to owners of parent

―7―

1,494

(413)

992,118

745,308

Consolidated statements of comprehensive income
Consolidated first halfFirst half of fiscal 2019(from April 1, 2018
to September 30, 2018)
993,613(Thousand yen)First half of fiscal 2020
(from April 1, 2019
to September 30, 2019)744,895

Foreign currency translation adjustment(228)(2,480)Total other comprehensive income(228)(2,480)Comprehensive income

993,385

742,414Comprehensive income attributable toComprehensive income attributable to owners ofparentComprehensive income attributable to non-controllinginterests

991,890742,828

1,494

(413)

ProfitOther comprehensive income―8―(3) Consolidated statement of cash flows(Thousand yen)First half of fiscal 2020
(from April 1, 2019
to September 30, 2019)

First half of fiscal 2019(from April 1, 2018
to September 30, 2018)
Cash flows from operating activities
Profit before income taxes
Depreciation
Increase (decrease) in provision for bonuses
Interest income
Loss on retirement of non-current assets

1,039,573

1,092,446

327,802
20,663382,093
3,861

(538)
0

(448)
0

(466)
(1,679)2,200
207,182

Foreign exchange losses (gains)
Gain on reversal of share acquisition rights
Loss on valuation of golf club membership
Decrease (increase) in trade receivables(464(6,407)
5,411
27,073

Decrease (increase) in inventories
Increase (decrease) in trade payables
Increase (decrease) in accounts payable - other
Decrease (increase) in other current assets
Increase (decrease) in other current liabilities
Other

41,998(5,648)Subtotal

1,656,700

Interest and dividends received
Income taxes paid
Net cash provided by (used in) operating activities
Purchase of property, plant and equipment
Purchase of intangible assets
Proceeds from redemption of securities
Other
Net cash provided by (used in) investing activities
Cash flows from financing activities
Proceeds from disposal of treasury shares

118(4,235)(23,525)
7,928(67,865)
4,790

1,672,746

698

628(309,063)(32,559)(373,425)—
950(18,502)(363,540)
300,000—(405,034)(82,042)(10)(194,376—

13,805Purchase of treasury shares
Dividends paid

(404)—
271,666(280,143)
1,377,254

Cash flows from investing activities

6,321

1,364,312

336,643(416,245)

Net cash provided by (used in) financing activities
Effect of exchange rate change on cash and cash
equivalents
Net increase (decrease) in cash and cash equivalents(180,581)

Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period

4,624,034

6,763,180

―9―

5,952

(79,602)797,591

1,194,008

3,826,443

5,569,172(8,659)(3) Notes to quarterly consolidated financial statements(Notes on the premise of a growing concern)
There are no applicable matters.
(Notes on significant changes in the amount of shareholders’ equity)
There are no applicable matters.
(Application of special accounting methods to the preparation of quarterly consolidated financial statements)
Calculation of tax expenses
With respect to the calculation of tax expenses, reasonable estimations are performed on an effective tax rate established after
applying tax accounting to profit before income taxes for the consolidated fiscal year, which includes the first half of theconsolidated fiscal year under review, and such tax expenses are calculated by multiplying this estimated effective tax rate byprofit before income taxes.

―10―