Quarterly Consolidated Financial Results for First Three Months of Fiscal
Year Ending March 31, 2020 (Japanese Accounting Standards)
Name of listedcompany:
Securities code:

Digital Arts Inc.

July 31, 2019
Tokyo Stock Exchange
1st Section

Listed on:2326

URL https://www.daj.jp/

Representative Director,(Name) Toshio Dogu
President and CEO
Director and General
Manager of theContact:(Title)(Name) Hidenobu Akazawa (TEL) 03-5220-6045
Administration
Department
Scheduled date for submission of
Scheduled date to start dividends
August 9, 2019―
quarterly report
distribution:
Preparation of supplementary explanatory : Yes
documents for quarterly results
Holding of quarterly results briefing: No
Representative:(Title)(Figures shown are rounded down to the nearest million yen.)

1. Consolidated financial results for the first three months of the fiscal year ending March 31, 2020 (April 1, 2019 –June 30, 2019)(1) Consolidated operating results (cumulative totals)
Net sales
Million yen

First three months of year
1,249
ending March 31, 2020
First three months of year
1,217
ended March 31, 2019
(Note) Comprehensi First three months ofve income:year ending March 31,
2020(Percentage figures represent changes from same period of previous
year.)
Profit attributable toOperating profit
Ordinary profit
owners of parent%

Million yen%

Million yen%

Million yen

%

2.6

413

40.0

411

39.8

280

60.2

5.2

295

(17.1)

294(18.2)

175(32.1)First three months of year
ended March 31, 2019180millionyen(-30.3%)277million
yen(53.7%)

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

Profit per share (diluted)
Yen

Yen

20.19

20.15

12.61

12.59

(2) Consolidated financial position
Total assets

Net assets

Million yen

Equity ratio

Million yen

Net Assets per share%

Yen

As of June 30, 2019
9,730
7,667
78.4
As of March 31, 2019
9,859
7,802
78.7
(Reference:) Equity capital: As of June 30, 2019
7,630Million yen
As of March 31, 2019548.59558.337,761Million 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—
Year ending March 31, 2020
25.00
(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 (April 1, 2019 – March 31, 2020)(Percentage figures represent changes from previous year for full year figures and from same period of previous year for interim
period figures.)
Profit attributable to
Net sales
Operating profit
Ordinary profit
Profit per shareowners of parent%

Million yen%

Million yen%

Yen

First six months
3,100
12.2
1,340
29.3
Full year
6,800
16.4
3,300
25.5
(Note) Revisions to most recently announced results forecasts

Million yen%

Million yen

1,340
3,300

28.8
25.4
: No

924
2,277

(6.8)
16.1

66.52
163.83* Notes(1) Changes in important subsidiaries during the first three months offiscal 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 (3) Notes to quarterly
consolidated financial statements (Application of special accounting methods to the preparation of quarterly consolidated financial
statements)” on page 9 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.
2) Changes in accounting policies due to reasons other than thosestated in 1)
3) Changes in accounting estimates: None4) Restatement: None: None: 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 June 30, 201914,133,000

As of March 31, 201914,133,000

As of June 30, 2019

224,220

As of March 31, 2019

232,320First three months ofyear ending March 31,
2020

First three months of
13,906,554

year ended March 31,

13,894,802

2019

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 Three
Months 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.

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○Table of Contents for the Attached Document

1. Qualitative Information on Financial Results for the First Three Months of Fiscal Year Ending March 31, 2020......................... ４(1) Explanation about business results ........................................................................................................................ ４(2) Explanation about financial position ..................................................................................................................... ５(3) Explanation about information on future forecasts such as consolidated results forecasts” .................................. ５
2. Quarterly Consolidated Financial Statements and Primary Notes ............................................................................... ６(1) Quarterly consolidated balance sheet .................................................................................................................... ６(2) Quarterly consolidated statement of income and quarterly consolidated statement of comprehensive income ..... ７
Quarterly consolidated statement of income
Consolidated first three months ................................................................................................................... ７
Consolidated statements of comprehensive income
Consolidated first three months ................................................................................................................... ８(3) Notes to quarterly consolidated financial statements ............................................................................................. ９(Notes on the premise of a going concern) .......................................................................................................... ９(Notes on significant changes in the amount of shareholders’ equity) ................................................................ ９(Application of special accounting methods to the preparation of quarterly consolidated financial statements) ９―3―

1. Qualitative Information on Financial Results for the First Three Months of Fiscal Year Ending March 31, 2020
(1) Explanation about business results
During the first three months of the consolidated fiscal year under review (April 1 through June 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, and creates a world in which there is no raw data. In addition, by introducing a freebrowsing 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 a including
FinalCode@Cloud and Chat@Cloud in the lineup of DigitalArts@Cloud, it creates the world of a virus-free room as well, whereusers 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 three months of the consolidated fiscal year under review stood at 1,249,477
thousand yen, up 2.6% 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 40.0% year on year, to 413,768 thousand
yen, ordinary profit climbed 39.8% year on year, to 411,939 thousand yen, and profit attributable to owners of parent surged 60.2%,
to 280,800 thousand yen.
The following describes business performance in separate markets.
Enterprise Sector Market
In this market, i-FILTER and FinalCode, the mainstay products, recorded steady sales because the Group continued to win
projects mainly for renewals of contracts that had remained outstanding in the previous consolidated fiscal year. In particular, salesof 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 workon their assignments on the go against the backdrop of diversifying workstyles. Meanwhile, with respect to FinalCode Ver. 6 thatwas released in the first quarter under review and i-FILTER Ver. 10 and m-FILTER Ver. 5 that support countermeasures against
sophisticated targeted cyberattacks, the Group did not succeed in winning large-scale projects whose contribution to sales issignificant, although progress was made in winning new orders to some extent. It will strive to expand sales in the second quarter―4―

and beyond in earnest.
Net sales in this market reached 725,704 thousand yen, up 5.4% 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 FinalCode, the mainstay products. Nevertheless, overall sales
for the public sector market were lower than the level in the same period of the previous year due to the absence of orders for
projects with a high monetary value that contributed to sales in the previous 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 ofstudents 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. With orders received mainly in the second quarter in the public sector market, 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, sales of which are expected to continue to increase.
As a consequence, net sales in this market stood at 383,198 thousand yen, down 6.3% 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 direct sales of multi-year package products and i-FILTER for Multiple Devices thatcan be used on more than one terminal device.
Net sales in this market amounted to 140,544 thousand yen, up 16.4% year on year.

(2) Explanation about financial position(Assets)
Total assets at the end of the first quarter of the consolidated fiscal year under review decreased 128,919 thousand yen from theend of the previous consolidated fiscal year, to 9,730,427 thousand yen, mainly due to a decline in securities.
(Liabilities)
Total liabilities at the end of the first quarter of the consolidated fiscal year under review rose 6,050 thousand yen from the end of
the previous consolidated fiscal year, to 2,062.503 million yen. This was due chiefly to a rise in advances received, despite adecline in income taxes payable.
(Net assets)
Net assets at the end of the first quarter of the consolidated fiscal year under review fell 134,969 thousand yen from the end of theprevious consolidated fiscal year, to 7,667,924 thousand yen. This was mainly due to payments of dividends, which more thanoffset the posting of profit attributable to owners of parent.

(3) Explanation about information on future forecasts such as consolidated results forecasts”
Operating results for the first three months of the consolidated fiscal year under review remained steady overall, and there wastherefore no change in the forecast of consolidated financial results for the year ending March 31, 2020 announced on May 9, 2019.
The Company has determined the results forecasts based on information available on the day of these financial results for the first
three months of the year ending March 31, 2020.
Actual results may be different from the forecasts due to a variety of factors. If there are any significant changes, the Company
will disclose them appropriately.

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

First quarter of fiscal 2020
(As of June 30, 2019)

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

6,430,648
998,213

Securities
Finished goods

299,968
290

—
215

Other

87,863

153,156

7,729,809

7,582,234

261,087

257,535

1,044,163

1,370,759

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

66,023

1,411,553

1,436,782

456,896453,875

2,129,537

2,148,193

9,859,347

9,730,427

Liabilities
Current liabilities
Accounts payable - trade

22,744

10,513

Income taxes payable
Provision for bonuses

330,672
128,192

145,979
79,740

Advances received
Other

1,225,258
303,494

1,312,420
467,532

Total current liabilities

2,010,363

2,016,185

Non-current liabilities
Asset retirement obligations

45,44445,552

645

765

Other
Total non-current liabilities

46,08946,3172,056,452

2,062,503

Share capital
Capital surplus

713,590827,730

713,590825,015

Retained earnings
Treasury shares

6,518,256(306,939)

6,382,036(296,237)

Total shareholders' equity

7,752,637

7,624,404

Foreign currency translation adjustment

8,499

5,825

Total accumulated other comprehensive income

8,499

5,825

Share acquisition rights

23,587

20,329Non-controlling interests

18,16917,3657,802,894

7,667,924

9,859,347

9,730,427

Total liabilities
Net assets
Shareholders' equity

Accumulated other comprehensive income

Total net assets
Total liabilities and net assets―6―

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

Net sales
Cost of sales(Thousand yen)First three months of fiscal
First three months of fiscal 20202019 (from April 1, 2018(from April 1, 2019
to June 30, 2018)
to June 30, 2019)
1,217,767
1,249,447
289,993286,767

Gross profit

927,774

962,680

Selling, general and administrative expenses

632,314548,911

Operating profit

295,460

413,768

254

253

53
622

15
—

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

482

115

1,413

384

2,047
107

2,214
—

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

2,155

2,214

294,718

411,939

Gain on reversal of share acquisition rights

1,135

75

Total extraordinary income

1,135

75

—

0

Loss on valuation of golf club membership

2,200

—

Total extraordinary losses

2,200

0

Profit before income taxes

293,654

412,014

Income taxes

117,647

132,017

Profit176,006

279,996

727

(804)

175,279

280,800

Ordinary profit
Extraordinary income

Extraordinary losses
Loss on retirement of non-current assets

Profit (loss) attributable to non-controlling interests
Profit attributable to owners of parent―7―

Consolidated statements of comprehensive income
Consolidated first three months

ProfitOther comprehensive income(Thousand yen)First three months of fiscal
First three months of fiscal 20202019 (from April 1, 2018(from April 1, 2019
to June 30, 2018)
to June 30, 2019)
176,006
279,996

Foreign currency translation adjustment

4,463(2,674)

Total other comprehensive income

4,463(2,674)Comprehensive income

180,470

277,322

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

179,742

278,126

727

△804

―8―

(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 quarter of theconsolidated fiscal year under review, and such tax expenses are calculated by multiplying this estimated effective tax rate byprofit before income taxes.

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