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 First Quarter Ended June 30, 2016 (Japan GAAP)
July 28, 2016
Company name: Digital Arts Inc.
Code no.:2326
Representative:
Toshio Dogu, President and Chief Executive Officer
Contact Person:
Hidenobu Akazawa, Director, Administration DepartmentScheduled date of filing Shihanki-Hokokusho:
August 10, 2016
Scheduled date of payment of cash dividends:－Additional materials of the Financial Results for the First Quarter: Yes
Briefing session of the Financial Results for the First Quarer:
No<Tokyo Stock Exchange, First Section>
URL http://www.daj.jp
Tel. (03) 5220-6045(Amounts less than one million yen are rounded)

1. Consolidated Financial Results for the First Quarter Ended June 30, 2016 (April 1, 2016 through June 30, 2016)<1> Consolidated operating results(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%916803

14.1
19.4

9981

21.7
127.1

78
85

-8.1
139.5

1357

-76.4
259.2

FY03/2017 1st Quarter
FY03/2016 1st Quarter(Note): Comprehensive income: -10 million yen for FY03/2017 1st Quarter (--%);Net income
per share-basic
FY03/2017 1st Quarter
FY03/2016 1st Quarter

65 million yen for FY03/2016 1st Quarter (305.6%)

Net income
per share-dilutedYen

Yen

0.98
4.14

0.97
4.13

<2> Consolidated financial position
Total assets

Net assets

Equity ratio

Millions of yen

Millions of yen%

5,992
6,133

4,527
4,642

74.5
74.7

FY03/2017 1st Quarter
FY03/2016(Reference): Total equity: 4,466 million yen as of June 30, 2016;

4,583 million yen as of March 31, 2016

2. Dividends
Annual cash dividends per share

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

at 1st Quarter end

at 2nd Quarter end

at 3rd Quarter end

at fiscal year endyenyenyenyenyen――7.00

―

8.00

15.00

10.00

―

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

2nd Quarter (cumulative)
FY03/2017

Operating income

Net income
attributable to ownersof parent

Ordinary income

Net income pershare

Millions of yen%

Millions of yen%

Millions of yen%

Millions of yen%

yen

2,222
4,600

14.815.0608
1,400

22.5
39.1

608
1,400

21.9
40.8363
870

15.5
59.5

26.08
62.49

(Note): Changes in forecast of consolidating operating results for FY03/2017 from the latest disclosure: No－1 －※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 stocks)<3>-2 Number of treasury shares at the end of the period<3>-3 Average number of shares issued during the first quarter ended June 30, 2016

(shares)

FY03/17 1Q

14,133,000

FY03/16

FY03/17 1Q

199,800

FY03/16

FY03/17 1Q

13,932,606FY03/16 1Q

14,133,000
201,800
13,890,986※Implementation status of quarterly review
This Financial Result report for the first quarter is exempt from quarterly review which is based on Financial Instruments and Exchange Law ofJapan. As of the first 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 First Quarter Ended June 30, 2016

Qualitative Information on Consolidated Financial Results for the First Quarter Ended June 30, 2016
(1) Operation Results
In the current consolidated first quarter (April 1, 2016 through June 30, 2016), the Japanese economy continued toshow moderate recovery with continuing upturn in employment as the government carried out aggressive economicpolicies 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 theyen 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 improvws 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 domesticcompanies 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 promoted sales while looking to work with other companies in order to provide
solutions that satisfy the level of security demanded in the Ministry of internal Affairs and Communications’ guidelines
on strengthening local government security.
Overseas, US subsidiary FinalCode, Inc. created partnerships with other companies and used more specificmarketing strategies in order for its concentration on branding activities in FY03/16 to produce concrete sales results.
In the Asia-Pacific region, FinalCode Asia Pacific Pte. Ltd. gained more contracts and created a marketing network thesame way FinalCode, Inc. did. In Europe, FinalCode Europe Limited focused on hiring employees and worked on its
infrastructure to carry out more specific measures from Q2 onwards.
In Q1 FY03/17, consolidated sales were a record high JPY916,915 thousand (+14.1% YoY). Operating income was
JPY99,340 thousand (+21.7% YoY) thanks to the boost of sales, despite increased expenses from hiring employees inJapan and from an increase in overseas locations. However, ordinary income was JPY78,953 thousand (-8.1% YoY)
and net income attributable to parent company shareholders was JPY13,601 thousand (-76.4% YoY) due to forex
losses (JPY20,061 thousand) from the rapid appreciation of the yen and an increased tax burden primarily caused byinvestments in overseas subsidiaries.
Business performance by segment is as follows.
Enterprise Sector
Net sales to the enterprise sector were JPY530,169 thousand (+15.9% YoY).
Sales were favorable for the company’s main products in the enterprise sector, i-FILTER and FinalCode. Corporatemanagers 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 an
environment 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 JPY296,908 thousand (+15.8% YoY).
Sales in the public sector were firm for company’s core products, i-FILTER, m-FILTER, and FinalCode. The
company acquired large i-FILTER contracts primarily with large organizations looking to strengthen security the same
way corporations are. Sales of FinalCode grew thanks to robust implementation of the limited edition local－3 －Digital Arts Inc. (2326)Financial Results for the First Quarter Ended June 30, 2016

government version of FinalCode, which simply provides the functions that public organizations want. Additionally,contracts soared as local governments allocated money for improving cybersecurity under the Ministry of Internal
Affairs and Communications’ guidelines on fundamental strengthening of local government data security. Cities, wards,towns and villages are actively improving their security (using the model for improving local government datasystems), and prefectures are consolidating their internet connections and strengthening surveillance (using cloud
solutions for local government data security).
In response to the above guidelines, the company proposed centralizing web access using i-FILTER (or D-SPA),
providing email security with m-FILTER and combating individual data leak using FinalCode. In Q1, sales increased
for m-FILTER. From Q1 onwards, the company plans to further increase its market share by steadily acquiringprospective contracts.
Consumer Sector
Net sales in the consumer segment were JPY89,837 thousand (+0.2% YoY).
In the consumer segment, the Company entered tie-ups with mobile operators and their business partners in an effrt
to expand sales and increase collaboration for the mobile device version of i-FILTER for smartphones.
Sales were firm for the PC version of the company’s products due to OEM-driven sales, robust shipment of multiyear packaged products, and other positive factors, despite a decline in the number of domestic consumer PC
shipments. Sales also expanded thanks to robust direct sales of i-FILTER Multi-Device, which can be used on threeoperating systems (Windows, iOS, and Android) with a single serial ID.
(2) Financial Position(Assets)
Current assets declined JPY141,131 thousand to JPY5,992,728 thousand compared to March 31, 2016. This was
mainly attributable to decrease in accounts receivable due to collecting proceeds from the end of the preceding fiscalyear.
(Liabilities)
Current liabilities declined JPY26,947 thousand to JPY1,464,878 thousand compared to March 31, 2016. This was
mainly due to decrease in accrued income tax by making appropriate tax payment.
(Net Assets)
Net assets declined JPY114,184 thousand to JPY4,527,849 thousand compared to March 31, 2016. This was
mainly due to dividend payment, although net income for the first quarter was recorded as net income attributable toowners of parent.
(3) Earning Forecasts for Fiscal Year Ending March 31, 2017
As consolidated first quarter showed robust performance, the Group’s forecast remains unchanged for the full year aspresented on May 11, 2016. Earnings forecast was based upon information currently available to the Group’smanagement, however various factors could cause actual results to differ from those expressed in the forecast.
Important updates, if applicable, will be appropriately disclosed.

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

Quarterly Consolidated Financial Statements(1) Quarterly Consolidated Balance Sheet(thousands of yen)Preceding Fiscal Year(As of March 31, 2016)
AssetsCurrent 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 – tradeIncome 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 First Quarter(As of June 30, 2016)

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

2,954,724
884,814100,909
1,119
73,94482,396
4,097,908

127,257

122,942821,395
174,131995,526
748,462
1,871,246
6,133,859

766,723
249,949
1,016,672
755,204
1,894,819
5,992,728

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

11,24062,62858,933840,823
1,127
447,4091, 422, 162

43,089645
43,734
1,491,826

42, 071645
42, 716
1, 464, 878

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

713,590
769,807
3,122,385(116,347)
4,489,435

1,208
1,208
58,278－4,642,033
6,133,859(22,471)(22,471)
56,2404,645
4,527,849
5,992,728

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

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

Current First Quarter(From April 1, 2015
to June 30, 2015)(From April 1, 2016
to June 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 gains
Miscellaneous income
Total non-operating income
Non-operating expenses
Foreign exchange losses
Miscellaneous expenses
Total non-operating expenses
Ordinary income
Extraordinary income
Gain on reversal of subscription rights to shares
Gain on sales of noncurrent assets
Total extraordinary income
Income before income taxes
Income taxes
Net income
Loss attributable to non-controlling interests
Net income attributable to owners of parent－

6 －803,529
211,388592,141
510,482
81,658916,915
240,819
676,096576,755
99,340

299
44
3,815
199
4,287

268
43－
34
346

－
－
－
85,946

20,061
672
20,733
78,953

3,538
2,638
6,177
92,12334,55357,570－57,57010－
1078,96465,717
13,246(354)
13,601

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

Quarterly Consolidated Statements of Comprehensive Income(thousands of yen)Preceding First Quarter(From April 1, 2015
to June 30, 2015)
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－

57,57013,246

7,741
7,741
65,311(23,679)(23,679)(10,433)

65,311－

7 －Current First Quarter(From April 1, 2016
to June 30, 2016)(10,078)(354)