Consolidated Financial Results for the 1st Quarter of the Fiscal
Year Ending March 2007
August 11, 2006
Faith, Inc(URL: http://www.faith.co.jp/)(Stock code 4295, Listed on TSE 1st section)

Representative; Hajime Hirasawa, CEO/President
Contacts; Koji Saeki, CFO

Tel: +81-75-213-3933

1.

Basis for preparation of quarterly financial results(1)

Adoption of simplified accounting practices; Yes* In accordance with standards for preparation of interim consolidated financial
statements, simplified accounting procedures have been partially applied to where theamount influenced is minor.
(2)(3)

Changes in accounting practices from the previous fiscal year.
; NoneChanges in the scope of consolidation and the equity method of ; Noneaccounting

2.

Financial results for the 1st quarter of the year ending March 2007
(April 1, 2006 through June 30, 2006)(1)

Consolidated Results of operations(Unit; Millions of Yen, round down)
Net sales

Q1 of the year ending
March 2007
Q1 of the year ended March
2006(Ref): Year ended March2006

Operating income

Ordinary income

Net income

Million yen(%)

Million yen(%)

Million yen(%)

Million yen

(%)

8,636

(23.3)

350(△67.8)254(△77.8)

△102

(–)

7,007

(32.7)

1,086

(0.9)

1,145

(5.0)

513

(△17.6)30,040

3,391

3,455

Earnings per share

Diluted Earnings per
share

Yen

Yen

1,438

Q1 of the year ending–△86.23
March 2007
Q1 of the year ended
2,149.28
2,148.55
March 2006
(Ref): Year ended March
1,174.67
1,174.53
2006(Notes)(1)
Presentation of percentages in sales, operating income are year-on-year changes.
(2)
A 5-for-1 share split was implemented on December 20, 2005.
(3)
Although there are latent shares, the diluted earnings per share is not given since there was a net loss.

[Qualitative information on consolidated operating results]
During the 1st quarter, the digital content industry in Japan experienced continued market
growth driven by several factors, including easy-to-use music distribution sites, online gameswith high entertainment value, and convenient information services accessible from handsets,

1

at the same time that the use of broadband spread and the shift in the cell phone market tothird-generation communication systems.
Leading these trends in the Japanese market, the Group has aggressively worked to “create
new mechanisms to distribute content.” In particular, in the field of electronic money, which
there is growing demand for, there has been dramatic growth in the volume of payments madeusing WebMoney, which has a large share of the settlement market in the fields of online
games and music distribution.
Overseas, as the CDMA communication standard, which is supported by U.S.-based
Qualcomm Incorporated, spread throughout the world, there has been steady growth in the
demand for the Group’s sound source technology. At the same time, in cooperation with
global record labels, the Group has expanded its content distribution services, particularly formusic, to countries throughout the world, and steadily expanded the business.
Therefore, during the 1st quarter, consolidated sales increased 23.3% year on year, to 8,636
million yen, as a result of continued strong growth in the electronic payment business, stable
expansion of the service business, and business growth through acquisitions. As for income,
operating income decreased 67.8% year on year, to 350 million yen, because of futureoriented investments to create new markets and upfront expenses to launch the MVNO
business. Ordinary income decreased 77.8% year on year, to 254 million yen, and the Group
recorded a net loss of 102 million yen, compared to the 513 million yen for the same period of
the previous fiscal year.
The status of each business segment is as follows:<Content-distribution Services>
Service business
In Japan, the Group purchased the business rights to the GigaNetworks Company, which isengaged in the distribution of mobile content. By adding the 4 million users of this service,
the Group has expanded the reach of its content distribution service to 12 million people, oneof largest within Japan. The Group will create active alliances with its partner companies, anddevelop the next generation of high-value-added services, which are attractive to users.
Furthermore, in cooperation with TAITO Corp. and Square Enix Co., Ltd., the Group founded
Brave, Co., Ltd., which is engaged in the creation of audio and visual software and the
distribution of digital content. Making the most of the technology, ideas, know-how, andcontents both of the Group and its partner companies, the Group is creating and providing
new ways to enjoy music and visual content that is appropriate for the new generation.
Overseas, the Group has aggressively expanded its content distribution services in the U.S,
South America, China, and Europe.
Therefore, for the service business, net sales increased 9.4% year on year, to 2,988 million
yen, as a result of firm growth overseas and the expansion of business through the acquisitionof Giga Network Company.

2

License BusinessIn addition to healthy growth in sales within Japan, overseas, there has been firm demand for
the Group’s sound source technology, particularly in the U.S., China, India, and SouthAmerica, as the CDMA communication standard, which is promoted by U.S.-based
Qualcomm, spread throughout the world.
The Group was awarded the 14th Technology Development Prize from the Acoustical Societyof Japan for its considerable contributions to the development of industry technology in thefield of audio engineering on account of the development of the distribution technology forring tone distribution to mobile phones.
For the license business, sales decreased 5.0% year on year, to 517 million yen, mainly due totemporary changes in the timing of shipments from licensing companies.
Therefore, for the overall content-distribution services, sales grew 7.0% year on year, to 3,506
million yen. Operating income decreased 40.4%, to 650 million yen, since the burden of
upfront investments to create new markets and strengthen the business foundation could not
be covered by the expansion in business.
<Electronic Payment business>
At the end of March 2006, there were more than 23 million broadband subscribers in Japansurpassed (Source; Information and Communications Statistics Database, Ministry of Internal
Affairs and Communications), and demand for various items, including online games, music
distribution and visual distribution, continued to grow. At the same time, there was firm
growth in the number of uses of WebMoney, which is both safe and convenient way of
paying money.
Therefore, in the electronic payment business, sales increased 27.6% year on year, to 4,747
million yen. In addition, the Group recorded operating income of 109 million yen, compared
to an operating loss of 11 million yen for the previous fiscal year, making the businessprofitable.
<MVNO (Mobile Virtual Network Operation) business>
The U.S.-based subsidiary Faith Communications, Inc. launched the mobile phone service
Voce, which provides various services for high-income customers, such as a fixed-rate
domestic call service, sophisticated customer services, concierge service including the use of
exclusive lounge. Since the end of the fiscal year for Faith Communications is in December
and sales for the MVNO business will only start to be generated in the 2nd quarter of fiscal
year ending in March 2007, only expenses have been recorded for the 1st quarter of thepresent fiscal year.
Therefore, for the MVNO business, the Group recorded an operating loss of 361 million yen.

3

(2)

Financial conditions on a consolidated balance sheet
Total assets

Shareholders’ equity
ratio

Shareholders’ equity

Million yen
Million yen
Q1 of year ending March
42,684
18,8692007
Q1 of year ended March
22,80015,402
2006(Ref.): Year ended
31,595
19,625
March 2006
(note) A 5-for-1 share split was implemented on December 20, 2005.

%

Shareholders’ equity per
share
Yen

43.4

15,570.94

67.6

64,692.28

62.1

16,453.84[Quantitative information on changes in the consolidated balance sheet]
Total assets at the end of this 1st quarter period increased 11,088 million yen compared to theend of the previous fiscal year, to 42,684 million yen, mainly due to the acquisition of theGiga Networks Company, and net assets decreased 756 million yen, to 18,869 million yen. In
addition, the capital ratio decreased 18.7 percentage points compared to the end of theprevious fiscal year, to 43.4%, as a result of various factors including the fact that the
majority of funds for the acquisition of Giga Networks Company were obtained from loans.
(3) Forecast of consolidated financial results for the year ending March 2007 (April 1, 2006
through March 31, 2007)
Net sales
Ordinary income
Million yen
Million yen
Half year
18,911961
Full year
45,443
2,227(note) Projection for earnings per share (for the full fiscal year) is ¥225.26

Net income
Million yen
98
268[Quantitative information regarding forecast of financial results]
Net sales and earnings are generally progressing as initially projected, and there are no
revisions to the forecast of financial results.
The above forecast has been prepared based on the information available as of the date when
this statement was issued. Actual business results may differ from the forecast depending on
various forthcoming factors.
(Reference 1)
Quarterly individual financial results
Net sales
Q1 of year ending March2007
Q1 of year ended March2006(Ref.): Year ended March2006

Operating income

Ordinary income

Net income

Million yen(%)

Million yen(%)

Million yen(%)

Million yen

(%)

1,953

(△15.6)615(△40.0)564(△48.0)293(△55.0)2,315(△0.8)

1,026(△1.3)

1,086

(3.2)

651

(4.8)

10,293

Earnings per share

4,177

Diluted earnings per
share
Yen

Yen
Q1 of year ending March
246.40–2007
Q1 of year ended March
2,727.59
2,726.65
2006(Ref.): Year ended March
2,199.49
2,199.25
2006(note) Diluted earnings per share is not given since there are no latent shares.

4

4,338

2,659

(Ref. 2)
Quarterly financial condition on an individual balance sheet
Million yen

Million yen

Shareholders’ equity
ratio%

25,345

20,861

82.3

17,524.39

17,887

16,44892.0

69,085.41

24,81021,56086.9

18,079.04

Total assets
Q1 of year ending
March 2007
Q1 of year ended
March 2006
(Ref.): Year ended
March 2006

Shareholders’ equity

Shareholders’ equity
per share
Yen(Ref. 3)
Forecast of individual financial results for the year ending March 2007 (April 1, 2006 throughMarch 31, 2007)
Sales
Ordinary income
Million yen
Million yen
Half year
4,835
1,787
Full year
12,186
3,804(note) Forecast of earnings per share (full year): 1,885.49 yen

Net income
Million yen
1,054
2,244

Supporting materials:
Quarterly consolidated balance sheets, Quarterly consolidated income statements, Quarterly
consolidated statements of surplus, Quarterly consolidated statement of changes inshareholders’ equity, and Segment information

5

Consolidated Financial Statements for the 1st Quarter(1)

Consolidated Balance Sheet for the 1st Quarter(Unit: thousands of yen)Account name

(Assets)
I. Current assets
1. Cash and deposits
2. Accounts and notes
receivable
3. Marketable securities
4. Inventories
5. Deferred tax assets
6. Others
Allowance for doubtful
accounts
Total current assets
II. Fixed assets
1. Tangible fixed assets
2. Intangible fixed assets(1) Goodwill(2) Consolidated adjustment
account(3) Others
Total intangible fixed assets
3. Investments and otherassets(1) Investment securities(2) Deposits with landlords(3) Others
Allowancefordoubtfulreceivable
Total investments and otherassetsTotal fixed assets
Total assets

1st quarter of the previous fiscal
year(As of June 30, 2005)
Component
Amountpercentage%

1st quarter of this fiscal year
(As of June 30, 2006)
AmountComponent
percentage%

Condensed consolidated balance
sheet for the previous fiscal year
(As of March 31, 2006)
Component
Amountpercentage%

6,236,905
3,888,328

7,054,714
5,214,598

7,534,815
4,768,010

911,493
4,618
753,637
488,860△65,682

914,201
42,518807,558
1,240,070△88,128

364,619
39,905808,951
571,683△82,229

12,218,161

53.6

15,185,532

35.6

14,005,756

1,106,414

1,196,323

1,228,080−
3,201,599

14,605,203−−
3,656,824

462,947
3,664,546

1,109,038
15,714,242

940,720
4,597,545

2,840,853
1,105,657
2,065,756△200,764

8,081,816
1,231,641
1,394,766△119,936

9,560,144
1,144,546
1,179,662△119,956

5,811,502

10,588,287

11,764,397

10,582,463
22,800,624

46.4
100.0

27,498,854
42,684,387

6

64.4
100.0

17,590,023
31,595,780

44.3

55.7
100.0

Account name

1st quarter of the previous
fiscal year
(As of June 30, 2005)
Amount(Liabilities)
I. Current liabilities
1. Accounts payable
2. Short-term loans
3. Income taxes payable
4. Allowance for costs of carduse
5. Allowance for points
6. Allowance for bonus
payments
7. Others
Total current liabilities
II. Fixed liabilities
1. Long-term liabilities
2. Deferred tax liabilities
3. Allowance for retirement
benefits
4. Allowance for directors
and statutory auditors
retirement bonus
5. Others
Total fixed liabilities
Total liabilities(Minority interests)
Minority interests(Shareholders’ equity)
I. Capital stock
II. Additional paid-in capital
III. Accumulated income
IV. Unrealized gain on
available-for-sale securities
V. Foreign currency translation
adjustments
VI. Treasury stock
Total shareholders’ equity
Total
liabilities,
minority
interests and shareholders’equity

1st quarter of this fiscal year
(As of June 30, 2006)

Component
percentage%

Component
percentage%

AmountCondensed consolidatedbalance sheet for the previous
fiscal year
(As of March 31, 2006)
Component
Amountpercentage%

2,574,804−
648,1932,753,242

3,585,081
5,295,671
341,8292,246,447

3,349,235
86,969826,587
2,323,140−
55,573640,194
57,927

697,582
77,316

1,210,410
7,242,223

1,836,841
14,003,993

31.8

32.8

1,844,745
9,205,576−−
20,2338,000,000
1,613,014
27,569−2,235,777
27,252102,957

127,048

121,134

29.1

23,190146,381
7,388,604

0.6
32.4

42,9779,810,610
23,814,603

23.0
55.8

37,532
2,421,697
11,627,274

7.7
36.8

9,823

0.0

−

–

342,525

1.1

3,218,000
3,708,355
8,543,072
249,414

14.1
16.3
37.5
1.1

−
−
−
−

–
–
–
–

3,218,000
3,708,355
9,408,748
3,401,193

10.2
11.7
29.8
10.7

37,6240.2−–

243,9520.8△354,269
15,402,197
22,800,624

△1.6
67.6
100.0

−
−
−

–
–
–

△354,269
19,625,979
31,595,780

△1.1
62.1
100.0

7

Account name

(Net assets)
I. Shareholders equity
1. Capital stock
2. Additional paid-in capital
3. Accumulated income
4. Treasury stock
Total shareholders’ equity
II. Unrealized gain andtranslation
1. Unrealized
gainonavailable-for-sale securities
2. Foreign
currencytranslation
adjustment
account
Total unrealized gains andtranslations
III. Stock options
IV. Minority interest
Net assets
Total liabilities and net assets

1st quarter of the previous fiscal
year(As of June 30, 2005)
Component
Amountpercentage

1st quarter of this fiscal year
(As of June 30, 2006)
AmountComponent
percentage

Condensed consolidated balance
sheet for the previous fiscal year
(As of March 31, 2006)
Component
Amountpercentage

−
−
−
−
−

−
−
−
−
−

3,218,000
3,708,355
9,207,576△354,269
15,779,661

7.5
8.7
21.6
△0.8
37.0

−
−
−
−
−

−
−
−
−
−

−

−

2,506,574

5.9

−

−

−

−

249,726

0.5

−

−

−

−

2,756,300

6.4

−

−

−
−
−
−

−
−
−
−

487
333,334
18,869,784
42,684,387

0.0
0.8
44.2
100.0

−
−
−
−

−
−
−
−

8

(2)

Consolidated Income Statement for the 1st Quarter(Thousands of yen)Account name

1st quarter of the previous fiscal
year(April 1, 2005 through June 30,
2005)

7,007,142
4,594,082
2,413,060
1,326,294

Component
percentage
100.0
65.6
34.4
18.9

1,086,766
68,608
10,132
1,145,242

15.5
1.0
0.2
16.3

AmountI Net sales
II Cost of Sales
Gross profit
III. Selling, general andadministrative expenses
Operating income
IV. Other income
V. Operating expenses
Ordinary profit
VI. Extraordinary profit
1. Gain on disposal ofinvestment securities
2. Gain on liquidation ofallowance for cost of carduse
3. Revisions to profit forprevious fiscal year
4. Others
Total extraordinary profit
VII. Extraordinary loss
1. Loss on disposal of fixed
assets
2. Loss on bad debts
3. Others
Total extraordinary loss
Income before income taxes
and minority interests
Income taxes and other taxes
Minority interests
Net income (minus is loss)

1st quarter of this fiscal year
(April 1, 2006 through June 30,
2006)

8,636,562
6,023,313
2,613,248
2,263,210

Component
percentage
100.0
69.7
30.3
26.2

350,038
22,813
118,335
254,515

4.1
0.2
1.4
2.9

AmountCondensed consolidated income
statement for the previous fiscal
year(April 1, 2005 through March
31, 2006)
Component
Amountpercentage
30,040,166
100.0
20,308,957
67.6
9,731,209
32.4
6,339,781
21.1
3,391,428
221,436
157,805
3,455,058

82,926−220,271

−

8,360

−

−

1,411

−

−
82,926

−
9,772

1.2

0.1

14,332
234,603

11.3
0.7
0.5
11.5

0.8

65,598−

108,555−
32,11897,716
1,130,452

1.4
16.1

−
−
−
264,288−
3.0

63,268
8,095
179,9193,509,742

0.6
11.7

656,291
38,935513,096

9.4
0.6
7.3

374,355
7,416△102,651

4.3
0.1
△1.2

2,166,080
94,631
1,438,293

7.2
0.3
4.8

9

(3)

Statements of Surplus for the 1st Quarter
1st quarter of the previous fiscal
year(April 1, 2005 through June 30,
2005)
Amount(Additional paid-in capital)
I. Beginning balance
II. Ending balance(Accumulated income)I Beginning balance
II. Increase of accumulated
income1. Net income
III. Decrease of accumulated
income1. Dividends
2. Bonuses to directors andstatutory auditors
IV Ending balance

1st quarter of this fiscal year
(April 1, 2005 through June 30,
2005)
AmountCondensed consolidated balance
sheet for the previous fiscal year
(April 1, 2005 through March
31, 2006)
Amount3,708,355
3,708,355−−

3,708,355
3,708,355

8,128,670−

8,128,670

513,096

513,096−−

1,438,293

1,438,293

59,69439,00098,694−−−

119,215
39,000158,215−

8,543,072

10

9,408,748

(4)Consolidated Statement of Changes in Shareholders’ Equity
1st quarter of this fiscal year (April 1, 2006 through June 30, 2006)(Unit: thousands of yen)
Shareholders’ equity

Balance as of March 31, 2006

Capital stock

Additional paidin capital

Accumulated
incomeTreasury stock

Total
shareholders’equity3,218,000

3,708,355

9,408,748△354,269

15,980,834

Changes during Q1
Dividend paid from retained
earnings
Net income (minus indicates
loss)
Bonuses for directors andstatutory auditors
Changes in other items thanshareholders’ equity△59,521△102,651△102,651△39,000△39,000–––△201,172–△201,172

3,218,000

3,708,355

9,207,576△354,269

15,779,661

Minority
interest

Stock
options

Net assets

342,525

487

Total changes during Q1
Balance as of June 30, 2006

△59,521

Unrealized gains and translations

Balance as of March 31, 2006

Unrealized
gains onavailable-forsale securities

Foreigncurrencytranslation
adjustment
account

Total
unrealized
gains andtranslations

3,401,193

243,952

3,645,145

19,968,505

Changes during Q1
Dividendfromretainedearnings
Net income for Q1 (minus
indicates loss)
Bonuses for directors
Changes in other items thanshareholders’ equity–△59,521–△102,651–△39,000△894,619

5,774△888,845△9,191–△897,549

Total changes during Q1△894,619

5,774△888,845△9,191–△1,098,721

Balance as of June 30, 2006

2,506,574

249,726

2,756,300

333,334487

18,869,784

11

(5)

Segment Information(1)
Industry segments
1st quarter of the previous fiscal year (April 1, 2005 through June 30, 2005)(Unit: thousands of yen)Contents
distribution
services
Net sales(1) Sales to customers(2) Intersegment sales
Total
Operating expenses
Operating income

Electronic
payment
solution

3,278,059
94
3,278,153
2,185,571
1,092,582

Others3,721,035
1,732
3,722,767
3,734,279△11,511

Total

8,047
–
8,047
2,351
5,695

Eliminations/
Corporate

Consolidated–△1,826△1,826△1,826–

7,007,142–
7,007,142
5,920,376
1,086,766

7,007,142
1,826
7,008,969
5,922,202
1,086,766

1st quarter of this fiscal year (April 1, 2006 through June 30, 2006)(Unit: thousands of yen)Contents
distribution
services
Net sales(1) Sales tocustomers(2) Intersegment
sales
Total
Operatingexpenses
Operating income

Electronic
payment
solution

MVNO

OthersTotal

Eliminations/
Corporate

Consolidated

3,506,635

4,747,037–

382,889

8,636,562–

8,636,562

28,200

3,166

–

–

31,366△31,366–

3,534,836
2,883,910

4,750,203
4,640,604–
361,429

382,889
431,946

8,667,928
8,317,890△31,366△31,366

8,636,562
8,286,524

650,926

109,598△361,429△49,057

350,038–

350,038

Previous consolidated fiscal year (April 1, 2005 through March 31, 2006)(Unit: thousands of yen)

Net sales(1) Sales tocustomers(2) Intersegment
sales
Total
Operatingexpenses
Operating income

Contents
distribution
services

Electronic
payment
solution

14,040,205

15,106,111–

893,849

71,677

2,758–

14,111,882
10,082,376

15,108,870
14,989,161

4,029,506

119,708

Eliminations/
Corporate

Consolidated

30,040,166–

30,040,166–

74,436△74,436––
706,645893,849
944,991

30,114,603
26,723,174△74,436△74,436

30,040,166
26,648,738△706,645△51,141

3,391,428–

3,391,428

MVNO

Others12

Total

(2) Geographical segments
1st quarter of the previous year (April 1, 2005 through June 30, 2005)(Unit: thousands of yen)Japan
Net sales(1) Sales to customers(2) Intersegment sales
Total
Operating expenses
Operating income

6,036,543–
6,036,543
5,022,037
1,014,505

Americas762,273
169,048931,322808,657
122,664EuropeTotal

208,325
29,798238,123
288,527△50,403

7,007,142
198,846
7,205,988
6,199,222
1,086,766

Eliminations/
Corporate–△198,846△198,846△198,846–

Consolidated
7,007,142–
7,007,142
5,920,376
1,086,766

1st quarter of this fiscal year (April 1, 2006 through June 30, 2006)(Unit: thousands of yen)
Net sales(1) Sales to customers(2) Intersegment sales
Total
Operating expenses
Operating income

Japan

Americas

EuropeTotal

7,518,623–
7,518,623
6,774,219
744,403875,508
143,6141,019,122
1,359,057△339,934

242,430
30,822
273,252
327,683△54,430

8,636,562
174,436
8,810,998
8,460,960
350,038

Eliminations/
Corporate–△174,436△174,436△174,436–

Consolidated
8,636,562–
8,636,562
8,286,524
350,038

Previous consolidated fiscal year (April 1, 2005 through March 31, 2006)(Unit: thousands of yen)
Net sales(1) Sales to customers(2) Intersegment sales
Total
Operating expenses
Operating income

Japan

Americas

EuropeTotal

26,053,353–
26,053,353
21,840,689
4,212,663

3,309,159
748,074
4,057,234
4,574,368△517,134

677,654
105,695
783,349
1,087,450△304,100

30,040,166
853,770
30,893,936
27,502,508
3,391,428

13

Eliminations/
Corporate–△853,770△853,770△853,770–

Consolidated
30,040,166–
30,040,166
26,648,738
3,391,428

(3) Sales to foreign customers
1st quarter of the previous fiscal year (April 1, 2005 through June 30, 2005)(Unit: thousands of yen)
I. Net sales to foreign customers
II. Consolidated sales
III. Ratio of foreign sales to consolidated
sales (%)

North America
839,668

Others462,551

–

–

12.0

6.6

Total
1,302,219
7,007,142
18.6

1st quarter of this fiscal year (April 1, 2006 through June 30, 2006)(Unit: thousands of yen)
I. Net sales to foreign customers
II. Consolidated sales
III. Ratio of foreign sales to consolidated
sales

North America
746,051

Others410,737

–

–

8.6

4.8

Total
1,156,789
8,636,562
13.4

Previous consolidated fiscal year (April 1, 2005 through March 31, 2006)(Unit: thousand of yen)
I. Net sales to foreign customers
II. Consolidated sales
III. Ratio of foreign sales to consolidated
sales

North America
3,388,962

14

Others2,100,222

–

–

11.3

7.0

Total
5,489,184
30,040,166
18.3