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 Third Quarter Ended December 31, 2016 (Japan GAAP)
January 30, 2017
Company name: Digital Arts Inc.
Code no.:2326 URL http://www.daj.jp
Representative:
Toshio Dogu, President and Chief Executive Officer
Contact Person:
Hidenobu Akazawa, Director, Administration Department Tel. (03) 5220-6045
Scheduled date of filing Shihanki-Hokokusho:
February 10, 2017
Scheduled date of payment of cash dividends:-Additional materials of the Financial Results for the Second Quarter: Yes
Briefing session of the Financial Results for the Second Quarter:
No<Tokyo Stock Exchange- First Section>(Amounts less than one million yen are rounded)

1. Consolidated Financial Results for the Third Quarter Ended December 31, 2016 (April 1, 2016 through December 31, 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%

3,518
2,747

28.1
18.1

1,145
604

89.3
29.6

1,134
610

85.8
18.2

693
360

92.7
18.9

FY03/2017 3rd Quarter
FY03/2016 3rd Quarter(Note): Comprehensive income: 709 million yen for FY03/2017 3rd Quarter (95.7%); 362 million yen for FY03/2016 3rd Quarter (17.2%)

Net income
per share-basic
FY03/2017 3rd Quarter
FY03/2016 3rd Quarter

Net income
per share-diluted
Yen

Yen

49.81
25.91

49.66
25.82

<2> Consolidated financial position
Total assets

Net assets

Equity ratio

Net asset per share

Millions of yen

Millions of yen%

Yen

6,397
6,133

4,848
4,642

74.4
74.7

344.48329.03

FY03/2017 3rd Quarter
FY03/2016(Reference): Total equity: 4,760 million yen as of December 31, 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 endat 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 income

Millions of yen%

Millions of yen%

Millions of yen%

Millions of yen%

4,600

15.0

1,40039.1

1,40040.8

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<3>-1 Changes in accounting policies due to the revision of the accounting standards: Yes<3>-2 Changes in accounting policies except for those in <2>-1:
None<3>-3 Changes due to accounting estimation change:None<3>-4 Restatement:
None<4> Number of shares issued<4>-1 Number of shares issued at the end of the period (including treasury shares)<4>-2 Number of treasury shares at the end of the period<4>-3 Average number of shares issued during the 3rd Quarter ended Dec 31, 2016

(shares)

FY03/17 3Q

14,133,000

FY03/16

FY03/17 3Q

313,500

FY03/16

FY03/17 3Q

13,930,476

FY03/16 3Q

14,133,000
201,800
13,899,074※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 Third Quarter Ended December 31, 2016 (3) Earnings Forecast for Fiscal
Year Ending March 31, 2017”of the attached material for more information on performance projection.
(Obtaining Supplemental Material for the Financial Results for the Third Quarter)
Materials are available on our official website.

－2 －Digital Arts Inc. (2326)
Financial Results for the Third Quarter Ended December 31, 2016

1. Qualitative Information on Consolidated Financial Results for the Third Quarter Ended December 31, 2016
(1) Operation Results
In the current consolidated third quarter (April 1, 2016 through December 31, 2016), the Japanese economy
continued to show moderate recovery with continuing upturn in employment as a result of the government’s aggressive
economic policies and corporate performance holding firm. On the other hand, prospects of the world economy
remained unclear with concerns of economic downturn, mainly due to decelerating economy in emerging countries,
Brexit, and the uncertainties of the new Trump administration policies.
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 strengthening 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, Digital Arts Consulting Inc., toassist 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 implementing concrete measuresto drive sales. In Europe, FinalCode Europe Limited focused on hiring employees and developing partnerships withlocal sales partners.
For FY03/17 third quarter cumulative results, consolidated net sales were JPY 3,518,161 thousand (+28.1% YoY).
Despite increased expenses from hiring employees in Japan, the following contributed to the overall increase inearnings: operating income was JPY 1,145,071 thousand (+89.3% YoY), ordinary income was JPY 1,134,473 thousand(+85.8% YoY) and net income attributable to parent company shareholders was JPY 693,815 thousand (+92.7% YoY).
Business performance by segment is as follows.
Enterprise Sector
Net sales to the enterprise sector were JPY 1,740,544 thousand (+17.3% 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.
FinalCode Ver. 5, released in FY03/16, providing company-wide advanced file security, met the needs of corporations
that handle large volumes of customer data and firmly increased sales of FinalCode. With increased awareness on data
security measures, orders received by Digital Arts Consulting were also favorable, contributing to the Group’s overallsales growth.
Public Sector
Net sales to the public sector were JPY 1,523,134 thousand (+50.1% YoY).
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 andstrengthening surveillance (using cloud solutions for local government data security), while cities, wards, towns and－3 －Digital Arts Inc. (2326)
Financial Results for the Third Quarter Ended December 31, 2016

villages are actively improving security (using the model for improving local government data systems). The
Company’s solutions that incorporates “i-FILTER (or D-SPA) to centralize web access” and “m-FILTER to neutralize
web email messages” captured the needs of clients seeking to respond to the above guidelines, and pushed up sales.
Deployment of FinalCode Limited Edition for Local Government, an edition that responds to needs specific toprefectural, 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 254,483 thousand (+2.3% 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) for
Smartphones.
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 the continuous decline in the number of domestic consumer
PC shipments. Sales also expanded thanks to robust direct sales of i-FILTER (Consumer) Multi-Device, which can beused on three operating systems (Windows, iOS, and Android) with a single serial ID.
(2) Financial Position(Assets)
Current assets increased JPY 263,624 thousand to JPY 6,397,484 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 57,288 thousand to JPY 1,549,114 thousand compared to March 31, 2016. Thiswas mainly due to increase in advance received for unearned maintenance sales.
(Net Assets)
Net assets increased JPY 206,336 thousand to JPY 4,848,370 thousand compared to March 31, 2016. This was
mainly due to increase in retained earnings by accounting third quarter net income attributable to owners of parent.
(3) Earnings Forecast for Fiscal Year Ending March 31, 2017
The Company maintains its full-year forecast, however given the favorable environment that is projected tocontinue, the consolidated forecast for FY03/17 (April 1, 2016 through March 31, 2017) is currently under review
and will make timely disclosures as necessary.

－4 －Digital Arts Inc. (2326)
Financial Results for the Third Quarter Ended December 31, 2016

2. 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
OtherTotal 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
OtherTotal current liabilities
Non-current liabilitiesAsset 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 Third Quarter(As of December 31, 2016)

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

3,164,679
1,137,002－884
74,15675,6894,452,413

127,257

123,310

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

826,473
275,490
1,101,964
719,796
1,945,071
6,397,484

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

24,373
213,523
58,532
852,192
356,015
1,504,636

43,089645
43,734
1,491,826

43,833645
44,4781,549,114

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

713,590776,393
3,667,692(413,602)
4,744,073

1,208
1,208
58,278－4,642,033
6,133,859

16,504
16,504
83,412
4,380
4,848,370
6,397,484

Digital Arts Inc. (2326)
Financial Results for the Third Quarter Ended December 31, 2016

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

Current Cumulative
Third Quarter(From April 1, 2015
to December 31, 2015)(From April 1, 2016
to December 31, 2016)

Net sales
Cost of sales
Gross profit
Selling, general and administrative expenses
Operating income
Non-operating income
Interest incomeCommission fees
Foreign exchange gains
Gain on forfeiture of unclaimed dividends
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
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 －2,747,276
661,254
2,086,021
1,481,206
604,815

3,518,161
741,862
2,776,299
1,631,228
1,145,071

983
126
523
3,367
656
5,657

927
150
－
1,178
114
2,371

－
－－
610,473

11,546
1,422
12,9691,134,473

3,613
2,638
6,252

283
－
283

347
347
616,377
256,308
360,068－
360,068

1,466
1,466
1,133,290
440,094
693,195(619)
693,815

Digital Arts Inc. (2326)
Financial Results for the Third Quarter Ended December 31, 2016

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

Current Cumulative
Third Quarter(From April 1, 2015
to December 31, 2015)(From April 1, 2016
to December 31, 2016)

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

360,068

693,195

2,368
2,368
362,437

15,296
15,296
708,491

362,437－709,111(619)(3) Note on FY03/17 Consolidated Financial Results for Third Quarter Ended December 31, 2016
(Note regarding going concern assumptions)
None(Material changes in shareholders’ equity)None－

7 －