This document is a partial translation of the original “Kessan Tanshin” in Japanese. Digital Arts Inc. provides this translation for your reference and convenience onlyand without any warranty as to its accuracy or otherwise. In the event of any discrepancy, the original “Kessan Tanshin” in Japanese shall prevail.

FY03/17 Consolidated Financial Results
For Second Quarter Ended September 30, 2016 (Japan GAAP)
October 27, 2016
Company name: Digital Arts Inc.
<Tokyo Stock Exchange- First Section>
Code no.:2326 URL http://www.daj.jp
Representative:Toshio Dogu, President and Chief Executive OfficerContact Person:
Hidenobu Akazawa, Director, Administration Department Tel. (03) 5220-6045
Scheduled date of filing Shihanki-Hokokusho:
November 11, 2016
Scheduled date of payment of cash dividends:
December 6, 2016
Additional materials of the Financial Results for the Second Quarter: Yes
Briefing session of the Financial Results for the Second Quarter:
Yes (for institutional investors and analysts)(Amounts less than one million yen are rounded)

1. Consolidated Financial Results for the Second Quarter Ended September 30, 2016 (April 1, 2016 through September 30, 2016)<1> Consolidated operating results (cumulative)(Percent indications show percentage of changes from corresponding figures for the previous period)

Net sales

Operating income

Net income attributable toowners of parent

Ordinary income

Millions of yen%

Millions of yen%

Millions of yen%

Millions of yen%

2,420
1,935

25.0
20.2

789
497

58.9
46.8

767
499

53.6
39.0

454
314

44.5
49.1

FY03/2017 2nd Quarter
FY03/2016 2nd Quarter(Note): Comprehensive income: 423 million yen for FY03/2017 2nd Quarter (34.6%); 315 million yen for FY03/2016 2nd Quarter (47.1%)

Net income
per share-basic
FY03/2017 2nd Quarter
FY03/2016 2nd Quarter

Net income
per share-diluted
Yen

Yen

32.62
22.64

32.53
22.57

<2> Consolidated financial position
Total assets

Net assets

Equity ratio

Net asset per share

Millions of yen

Millions of yen%

Yen

6,624
6,133

4,970
4,642

74.2
74.7

352.48329.03

FY03/2017 2nd Quarter
FY03/2016(Reference): Total equity: 4,912 million yen as of September 30, 2016; 4,583 million yen as of March 31, 2016

2. Dividends
Annual cash dividends per share

FY03/2016
FY03/2017FY03/2017 (forecast)Total

at 1st Quarter end

at 2nd Quarter end

at 3rd Quarter end

at fiscal year end

yenyenyenyenyen

―
―

7.00
10.00

―

8.00

15.00

―

10.00

20.00

(Note): Changes in dividends forecast for FY03/2017 from the latest disclosure: No

3. Forecast of Consolidated Operating Results for Fiscal Year Ending March 2017 (April 1, 2016 through March 31, 2017)(Percent indications show percentage of changes from corresponding figures for the previous period)

Net sales

FY03/2017

Operating income

Net income
attributable to ownersof parent

Ordinary incomeMillions of yen%

Millions of yen%

Millions of yen%

Millions of yen%

4,600

15.0

1,400

39.1

1,400

40.8

870

59.5(Note): Changes in forecast of consolidating operating results for FY03/2017 from the latest disclosure: No－1 －Net income pershareyen

62.49

※Notes<1> Significant changes in scope of consolidation: None
In : － (Company Name:)

Out : － (Company Name:)<2> Adoption of specific accounting policies for quarterly consolidated financial statements: Applicable<3> Changes in accounting policies, accounting estimation change and restatement<2>-1 Changes in accounting policies due to the revision of the accounting standards: Yes<2>-2 Changes in accounting policies except for those in <2>-1:
None<2>-3 Changes due to accounting estimation change:None<2>-4 Restatement:
None<3> Number of shares issued<3>-1 Number of shares issued at the end of the period (including treasury shares)<3>-2 Number of treasury shares at the end of the period<3>-3 Average number of shares issued during the 2nd quarter ended Sep 30, 2016

(shares)

FY03/17 2Q

14,133,000

FY03/16

FY03/17 2Q

196,400

FY03/16

FY03/17 2Q

13,934,131

FY03/16 2Q

14,133,000
201,800
13,890,986※Implementation status of quarterly review
This Financial Result report for the second quarter is exempt from quarterly review which is based on Financial Instruments and Exchange Law ofJapan. As of the second quarter disclosing, quarterly review procedures for the quarterly financial statements is on-going.
※Explanation of Appropriate Use of Performance Projections and Other Special Items(Forward Looking Statements)
Business forecasts contained in this report are based on information available to the Company and on a certain assumption the Company considers
reasonable on the date of this report’s announcement, and it does not constitute the Company’s intention to promise the accomplishment of theforecasts. Due to unforeseen circumstances, actual results may differ significantly from such forecasts due to various risks and uncertainties which
include, but are not limited to, global economic environment, intensified sales competition, fluctuations in exchange rate and interest rate.
Refer to “Qualitative Information on Consolidated Financial Results for the First Quarter Ended June 30, 2016 (3) Earning Forecasts for Fiscal YearEnding March 31, 2017”of the attached material for more information on performance projection.
(Obtaining Supplemental Material for the Financial Results for the First Quarter)
Materials are available on our official website.

－2 －Digital Arts Inc. (2326)
Financial Results for the Second Quarter Ended September 30, 2016

1. Qualitative Information on Consolidated Financial Results for the Second Quarter Ended September 30, 2016
(1) Operation Results
In the current consolidated second quarter (April 1, 2016 through September 30, 2016), the Japanese economy
continued to show moderate recovery with continuing upturn in employment as the government carried out aggressive
economic policies and corporate performance holding firm. On the other hand, prospects of the world economy
remained unclear with heightened uncertainty in the global economy, notably in emerging countries, and the rapid
appreciation of the yen as a result of Britain’s decision to leave the EU.
In the security industry where the Digital Arts Group (the “Group”) engages its primary business, growing concerns
over security incidents, such as large-scale leakage of personal data as a result of targeted attacks aimed at specificcorporations and organizations, led not only security admins, but also corporate managers to become more aware of
the importance of improving information security. Additionally, local governments actively improves their security
under the guideline of fundamental strengthening of local government data security issued by the Ministry of Internal
Affair and Communications.
In such circumstances, the Group strengthened domestic marketing activities for large corporations andorganizations that need relatively advanced security. Specifically, it created a department specializing in large domestic
companies and organizations. The Group also created a consulting business subsidiary to assist with security
implementation and to provide high value added proposals for clients looking to implement security on a large scale
and use its products as global tools.
In the public sector, the Group dramatically increased sales by developing and offering solutions that satisfy thelevel of security demanded in the Ministry of internal Affairs and Communications’ guidelines on strengthening local
government security.
Overseas, US subsidiary FinalCode, Inc. and Asia-Pacific subsidiary FinalCode Asia Pacific Pte. Ltd. began toacquire contracts as a result of progress in partnerships with local sales partners and driving concrete measures to drive
sales. In Europe, FinalCode Europe Limited focused on hiring employees and developing partnerships with local sales
partners.
For FY03/17 second quarter cumulative results, consolidated net sales were JPY 2,420,047 thousand (+25.0% YoY).
Despite increased expenses from hiring employees in Japan and exchange loss due to the rapid appreciation of the yen,
the following contributed to the overall increase in earnings: operating income was JPY 789,980 thousand (+58.9%YoY), ordinary income was JPY 767,285 thousand (+53.6% YoY) and net income attributable to parent company
shareholders was JPY 454,595 thousand (+44.5% YoY).
Business performance by segment is as follows.
Enterprise Sector
Net sales to the enterprise sector were JPY 1,149,613 thousand (+13.8% YoY).
Sales were favorable for the company’s main products in the enterprise sector, i-FILTER and FinalCode. Corporate
managers became more aware of the importance of improving information security as targeted attacks on specificcompanies are causing increasingly more damage. In such environment, the Company saw continued implementationof its i-Filter and i-FILTER Browser & Cloud products, which can deal with a variety of complex security risks. In anenvironment where leaks of large volumes of customer data occur often, FinalCode Ver. 5, released in FY03/16,
provided company-wide advanced file security, meeting the needs of corporations that handle large volumes ofcustomer data and firmly increasing sales of FinalCode.
Public Sector
Net sales to the public sector were JPY 1,096,059 thousand (+45.2% YoY).
Sales in the public sector dramatically increased for the company’s core products, i-FILTER, m-FILTER, andFinalCode. In accordance to a guideline issued by the Ministry of Internal Affairs and Communications on
fundamental strengthening of local government data security, prefectures are consolidating their internet connections－3 －Digital Arts Inc. (2326)
Financial Results for the Second Quarter Ended September 30, 2016

and strengthening surveillance (using cloud solutions for local government data security), while cities, wards, towns
and villages are actively improving security (using the model for improving local government data systems). The
company offered solutions such as “centralizing web access with i-FILTER (or D-SPA)” and “neutralizing web email
messages with m-FILTER”, which captured the needs of clients seeking to respond to the above guidelines, andpushed up sales. As for FinalCode, deployment of FinalCode Limited Edition for Local Government, an edition that
responds to needs specific to prefectural, city and local municipality governments, has been favorable and contributed
to the overall increase in sales.
Consumer Sector
Net sales in the consumer sector were JPY 174,375 thousand (+2.4% YoY).
In the consumer segment, the Company continued to enter tie-ups with mobile operators and other business partners
in effort to expand sales and increase collaboration for the mobile device version of i-FILTER (Consumer) forSmartphones.
Sales were firm for the PC version of the i-FILTER (Consumer) due to OEM-driven sales, robust shipment of multiyear packaged products, and other positive factors, despite a decline in the number of domestic consumer PCshipments. Sales also expanded thanks to robust direct sales of i-FILTER (Consumer) Multi-Device, which can be usedon three operating systems (Windows, iOS, and Android) with a single serial ID.
(2) Financial Position(Assets)
Current assets increased JPY 490,829 thousand to JPY 6,624,689 thousand compared to March 31, 2016. This was
mainly attributable to increase in cash and deposits due to an increase in operating cash flow.
(Liabilities)
Current liabilities increased JPY 162,766 thousand to JPY 1,654,592 thousand compared to March 31, 2016. Thiswas mainly due to increase in advance received for unearned maintenance sales.
(Net Assets)
Net assets increased JPY 328,063 thousand to JPY 4,970,097 thousand compared to March 31, 2016. This was
mainly due to net income for the second quarter recorded as net income attributable to owners of parent.
(3) Earning Forecasts for Fiscal Year Ending March 31, 2017
The Company announces that its consolidated financial results for the second quarter ended September 30, 2016
differ from the consolidated financial forecasts for the relevant period (released on May 11, 2016). For more
information, please refer to Notice of Difference between FY03/17 Consolidated Financial Forecast and Results For
Second Quarter Ended September 30, 2016 (Japan GAAP) released today.
The Company expects favorable environment to continue mainly in the public-sector market. Consolidated forecast
for FY03/17 (April 1, 2016 through March 31, 2017) is currently under review and will be released and announced
accordingly.

－4 －Digital Arts Inc. (2326)
Financial Results for the Second Quarter Ended September 30, 2016

2. Quarterly Consolidated Financial Statements(1) Quarterly Consolidated Balance Sheet(thousands of yen)Preceding Fiscal Year(As of March 31, 2016)Assets
Current assets
Cash and deposits
Accounts receivable – trade
Securities
Finished goods
Deferred tax assets
Other
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
Liabilities
Current liabilities
Accounts payable – trade
Income taxes payable
Provision for bonuses
Advances received
Asset retirement obligations
Other
Total current liabilities
Non-current liabilities
Asset retirement obligations
Other
Total non-current liabilities
Total liabilities
Net assets
Shareholders’ equity
Capital stock
Capital surplus
Retained earnings
Treasury stock
Total shareholders’ equity
Accumulated other comprehensive income
Foreign currency translation adjustments
Total accumulated other comprehensive income
Subscription rights to shares
Non Controlling Interest
Total net assets
Total liabilities and net assets－5 －Current Second Quarter(As of September 30, 2016)

2,942,965
1,081,626
100,909413
73,81362,8844,262,613

3,258,941
1,323,931－775
73,98674,0384,731,673

127,257118,468

821,395
174,131995,526
748,462
1,871,246
6,133,859

783,289
266,901
1,050,191
724,355
1,893,015
6,624,689

5,844
283,949
109,975
721,033－
327,288
1,448,091

7,187
318,812
123,843854,264925
306,737
1,611,771

43,089645
43,734
1,491,826

42,175645
42,8201,654,592

713,590766,234
3,220,233(117,511)
4,582,547

713,590774,341
3,567,832(114,367)
4,941,396

1,208
1,208
58,278－4,642,033
6,133,859(29,044)(29,044)
53,1984,546
4,970,097
6,624,689

Digital Arts Inc. (2326)
Financial Results for the Second Quarter Ended September 30, 2016

(2) Quarterly Consolidated Statement of Income and Quarterly Consolidated Statement of Comprehensive Income
Quarterly Consolidated Statements of Income(thousands of yen)Preceding Cumulative
Second Quarter

Current Cumulative
Second Quarter(From April 1, 2015
to September 30, 2015)(From April 1, 2016
to September 30, 2016)

Net sales
Cost of sales
Gross profit
Selling, general and administrative expenses
Operating income
Non-operating income
Interest income
Commission fees
Foreign exchange gainsMiscellaneous income
Total non-operating income
Non-operating expenses
Foreign exchange losses
Miscellaneous expenses
Total non-operating expenses
Ordinary income
Extraordinary income
Loss on sales of noncurrent assets
Gain on sales of fixed assets
Total extraordinary income
Extraordinary loss
Loss on sales of fixed assets
Total extraordinary loss
Income before income taxes
Income taxes
Net income
Loss attributable to non-controlling interests
Net income attributable to owners of parent－6 －1,935,354
439,043
1,496,311
999,159
497,151

2,420,047
497,303
1,922,743
1,132,763
789,980

652
85
965
612
2,316

671
96
599
46
1,414

43－
43
499,424

23,436672
24,109767,285

3,538
2,638
6,177

283
－
283

－
－
505,602
191,004
314,597－
314,597

155
155
767,413313,271454,142(453)
454,595

Digital Arts Inc. (2326)
Financial Results for the Second Quarter Ended September 30, 2016

Quarterly Consolidated Statements of Comprehensive Income (Cumulative)(thousands of yen)Preceding Cumulative
Second Quarter

Current Cumulative
Second Quarter(From April 1, 2015
to September 30, 2015)(From April 1, 2016
to September 30, 2016)

Quarterly net income
Other comprehensive income
Foreign currency translation adjustments
Total other comprehensive income
Comprehensive income(Breakdown)Comprehensive income attributable to owners of parent
Comprehensive loss attributable to non-controlling interests－

7 －314,597454,142435
435
315,033(30,252)(30,252)
423,889

315,033－

424,342(453)

Digital Arts Inc. (2326)
Financial Results for the Second Quarter Ended September 30, 2016(3) Quarterly Consolidated Statements of Cash Flows
Quarterly Consolidated Statements of Income (Cumulative)(thousands of yen)Preceding Cumulative
Second Quarter

Current Cumulative
Second Quarter(From April 1, 2015
to September 30, 2015)(From April 1, 2016
to September 30, 2016)

Cash flows from operating activities
Profit before income taxes
Depreciation
Increase (decrease) in provision for bonuses
Interests and dividend income
Gain (loss) on non-current assets
Loss on retirement of non-current assets
Foreign exchange losses (gains)
Gain on reversal of subscription rights to shares
Increase (decrease) in accounts receivable
Increase (decrease) in inventoriesIncrease in accounts payable
Increase (decrease) in accounts payable- otherDecrease (increase) in other current assets
Increase (decrease) in other current liabilities
OthersSubtotalInterest and dividends received
Income taxes paid
Income taxes refund
Net cash provided by operating activities
Cash flows from investment activities
Payments for acquisition of tangible fixed assets
Payments for acquisition of intangible fixed assets
Payments for purchases of investment securities
Payments of security deposit and guarantee deposit
OthersNet cash used by investment activities
Cash flows from financial activities
Proceeds from treasury shares disposal
Proceeds from stock issuance from non-controlling interests
Cash dividends paid
Net cash used by financial activities
Effect of exchange rate changes on cash and cash equivalents
Increase (decrease) in cash and cash equivalents
Cash and cash equivalents at the beginning of the fiscal period
Increase (decrease) in cash and cash equivalents as a result ofchange of scope of consolidation
Cash and cash equivalents at the end of second quarter

505,602247,641
25,430(652)(2,638)－85(3,538)73,620(938)(324)(48,412)
10,610(39,301)
6,005
773,189305(259,589)
27,328541,234

767,413254,146
13,867(671)－
155
19,343(283)(110,181)
865
1,343(31,445)(13,252)
20,831
11,706
933,838856(278,630)－
656,065(40,185)(246,580)(104,796)(3,205)(10,800)(405,567)(13,545)(292,594)－(11,524)－(317,664)

7,709－(124,417)(116,707)(3,826)15,1312,074,381

6,454
5,000
(110,978)(99,523)(51,294)
187,582
2,443,875－

27,4822,089,512

2,658,941(4) Note on FY03/17 Consolidated Financial Results for Second Quarter Ended September 30, 2016
(Note regarding going concern assumptions)
None(Material changes in shareholders’ equity)None－

8 －