Consolidated Financial Summary for the Fiscal Year
Ended March 2006
May 19, 2006
Faith, Inc. (Stock code 4295, Listed on TSE 1st section)(URL http://www.faith.co.jp/)
Place of headquarters; Kyoto Pref.
Representative; Hajime Hirasawa, CEO/President
Contacts; Koji Saeki, CFO Tel: +81-75-213-3933
Directors’ meeting for approval of accounts; May 19, 2006
U.S.A. Accounting standard; Not applied
1.

Consolidated Financial Results for the year ended March 2006 (From April 1, 2005 to
March 31, 2006)(1) Consolidated results of operations

Year ended March 2006
Year ended March 2005

Net sales
Million yen
30,04023,628Net income

Earnings per
share(Note: Unit in Millions of Yen, round down)
Operating income
Ordinary income
Million yen% Million yen
%
3,391
-15.6
3,455
-14.6
4,017
-21.5
4,047
-19.3

%
27.1
61.0

Ordinary
income tototal assets
%
%
8.3
12.8

Diluted earnings Net profit on
per share
EquityOrdinary
income tosales

Million yen
%
Yen
Yen
%
Year
ended
1,438 355.1
1,174.67
1,174.53
11.5
March 2006
Year
ended
316 -88.3
1,159.78
1,159.24
2.1
19.1
17.1
March 2005
Notes: 1) Equity in earnings of affiliates: Year ended March 2006 (-)¥140 million; Year ended March 2005 ¥4
million2) Average number of outstanding shares (consolidated): Year ended March 2006 1,191,227 shares;
Year ended March 2005 238,852 shares
3) Change in accounting policy: None
4) Presentation of percentages for sales, operating income, ordinary income and net income are thechange from the corresponding period of the preceding year.
5) A 5-for-1 share split was implemented on December 20, 2005.

(2) Consolidated financial condition
Total assets

Shareholders’equityMillion yen
19,625(Note: Unit in Millions of Yen, round down)
Shareholders’Shareholders’ equity per
equity ratio
share
%
yen
62.1
16,453.84

Million yen
Year
ended
31,595
March 2006
Year
ended
22,582
15,231
67.4
63,628.38
March 2005
Note: Number of outstanding shares at the end of the year (consolidated): Year ended March 2006 1,190,420
shares; Year ended March 2005 238,776 shares1(3) Consolidated cash flows

Year ended
March 2006
Year ended
March 2005

CF from operating
activities

CF from investing
activities

Million yen
2,970

Million yen-2,041

3,074-4,297(Note: Unit in Millions of Yen, round down)
Cash and cash
CF from financing
equivalents at end ofactivities
the year
Million yen
Million yen
-236
7,679
-275

6,770

(4) Scope of consolidation and equity method
Number of consolidated subsidiaries: 11
Number of non-consolidated subsidiaries consolidated under the equity method: Number of affiliated companies consolidated under the equity method: 4(5) Change in scope of consolidation and equity method
Newly consolidated: 4
Excluded from consolidation: Newly consolidated under the equity method: 3
Excluded from consolidation under the equity method: 2.

Forecasts on consolidated operating results for the year ending March 2007
(From April 1, 2006 to March 31, 2007)

Net sales
Ordinary income
Net income
Million yen
Million yen
Million yen
Half year
18,911961
98
Full year
45,4432,227
268(For reference) Forecast of earnings per share (full year): ¥225.26
Note: The aforementioned forecasts are based on currently available information and contain many
uncertainties. Changes in various business conditions may cause actual results to differ from the above
forecasts.

2

1.

Overview of Faith GroupThe Faith Group consists of Faith, Inc. (Company), 15 subsidiaries and 5 affiliated companies,
and is operating mainly in “content distribution business”, “electronic payment business” and“mobile virtual network operation (MVNO) business”. The Faith Group’s businesses andrelationship between the Company and other group companies in business operations are as
follows:(1) Businesses of affiliate companies
Category of business
Content distribution businessElectronic payment business
MVNO business
Other businesses

Main businesses
Contents distribution service
network, and development of
distribution
platform
technology
Issuance of electronic money
Mobilecommunications
service business
Sales
promotion
point
service, and lease of realestate3Company concerned
Faith, Inc., Moderati Inc.,
Digiplug
S.A.S.,
Faith
Technologies S.A.S., andother 9 affiliate companies
Web Money Corporation
Faith Communications, Inc.
Faith, Inc., and GoodyPointCorp.

(2) Organization chart of business operations
The Faith Group’s business operations described in the above is shown in the following
chart.
Provision of content
distribution services

*1
*2
*3
*3

*1

eMbience Inc.

AnyMusic Limited

Provision ofcontent
distribution
services

Moderati Inc.
Takenet LLC
BELLROCK MEDIA INC.

Invest Virtua S.A.
Curupira S.A.
Take Net Telecomunicacionesy
Sistemas Ltda
Development of
distribution platform
technology

Provision ofcontent
distribution
services
Provision ofcontent
distribution
services

Development of distribution
platform technology
Note:
Company without any mark:consolidated subsidiaries
Company with *1 mark:unconsolidated subsidiary notconsolidated under the equity
methodCompany with *2 mark:affiliated company consolidated
under the equity method
Company with *3 mark:affiliatedcompany
unconsolidated under the equity
methodIn addition to companies in theabove, Sedona Fund Investment
Limited Partnership is anaffiliated company consolidated
under the equity method.
Mobile Alliance Co., Ltd.
changed its company’s name to
GIGA Networks Co., Ltd. in
April 14, 2006

Issuance of electronic money
Web Money
Corp.

Faith Communications, Inc.

Mobile communications
service business

Provision of sales promotion
point service
GoodyPoint Corp.

4

Electronic payment

Development of distribution
platform technology

Licensing

Digiplug S.A.S
Faith Technologies S.A.S

MVNO

Faith, Inc.

*2

Provision ofcontent
distribution
services

Others*2

Provision ofcontent
distribution
services

Customers*1

Mobile Alliance Co., Ltd.,
Uscita Inc
Medical Communication Co., Ltd.
E-DB, Inc.
Japan Rights Clearance Inc.
Rightsscale Inc.
AsianEntertainment
andCommunications Co., Ltd.

Services*12.

Management Policies(1) Faith Group’s basic management policy
The basic policy of Faith Group is to create schemes to distribute digital contents to theusers. Faith Group accurately grasps changes in society and people’s life styles, andcontinues to create various kinds of services in harmony with the users’ usage
environment in easier-to-use methods. The Company and its group companies will strive
to develop methods, technologies and know-how to realize our management goals, andaims to be a higher value added company through business tie-up with other companies
in addition to supplying services on our own.
The Company and its group companies invented the “ringtone” system for mobile
phones and put it to practical use for the first time in the world. The Company is now
deploying mobile phone-related businesses not only in the domestic market but also in
21 countries including the North America, Europe, Asia and Pacific region, and theSouth America. In addition, the Company has been creating the “digital contents
distribution” schemes in various environments for usage, such as PCs, car-navigation
systems, and consumer video game machines. Faith Group is also supplying electronicmoney to be used for payment in online games, music distribution, and e-commerce. In
the U.S. market, our group launched into the mobile virtual network operator (MVNO)
business, using mobile phone communications infrastructures owned by thebusiness-partners.
(2) Basic policy on appropriation of profit
The Company will continue to make it an important policy to give a priority on securing
enough funds necessary for strengthening business structure and aggressive investments
in new businesses, but also considers return of profit to shareholders to be an importantmanagement issue. The Company will investigate the implementation of dividend payout,
taking account of operating results, and financial positions.
(3) Policy on the lowering of the stock trade unit
The Company split its stock “2-for-1” as of June 30, 2004, and “5-for-1” as of October
31, 2005 to increase liquidity of the Company’s shares. The Company will continue toinvestigate the lowering of the stock trade unit, taking carefully into considerationcollectively the trend of operating results and market conditions.
(4) The medium-term and long-term business strategy
The Company will continue to generate new markets by creating a variety of services
demanded from users. The Company will make efforts to actualize mobile contents
distribution services including music distribution, online games, video distribution ande-commerce, charge transfer service, and various types of corporate counseling services,using mobile devices, based on proposals of our original business solutions and throughbusiness-tie up with influential companies in many business fields.

5(5) Issues requiring responses from the Company
The domestic mobile contents distribution market has entered into the stage ofmaturation because its diffusion has gone around. In response to such changes in market
conditions, Faith Group will implement the following measures.
1)

Services business
Under circumstances requiring creation of new content distribution services, FaithGroup will promote the strategy to reinforce its strategic presence through alliancewith influential companies in various fields based on proposals of our uniquesolutions.
In the growing overseas markets, the Company considers the development ofmarket aiming at new users to be one of our missions. In such environments, theCompany and its group companies will promote the alliance with local companies
and securing potent human resources and will develop aggressively services in linewith local situations based on business-tied up mobile communications carriers andindividual local standards for communications.

2)

Licensing businessWith technical innovation, environments for usage of digital contents have changed,
and it is required to construct a new digital content distribution scheme now. Under
these circumstances, the Company will strive to establish necessary and mostsuitable measures from the viewpoint of “generating businesses to distribute digitalcontents using varieties of mobile terminal devices” which is our motto since thefoundation of the Company.

3)

MVNO business
Since needs for mobile services to specific customer groups have been sharply
increasing, the Company Group will newly deploy mobile services to specificcustomer groups, by minimizing the initial investment through rental ofcommunications infrastructures from existing mobile phone carriers. In addition,
the Company will provide consultation services and solutions to mobile virtual
network operators, taking advantages of Faith Group’s know-how and technologies.

(6) Parent Company: Not applicable
3.

Brief Summary of Consolidated Operating Results and Financial Position for the year ended March 2006

(1) Operating results
In the domestic information communication industry during the current consolidated
fiscal year, music distribution services, online game services and highly convenient
information services have helped expand the market while the broadbandization of theInternet has spread and the mobile phone market has been transferring into the third
generation of the transmission method.
Ahead of these movements, Faith Group has been actively involved in the “creation of
new mechanisms to distribute digital contents”. In the music distribution field, the6Company constructed a next-generation framework for music distribution so as tostrengthen friendly relations with rights holders, taking advantage of the capital tie-up
with the musical copyright administration company. In online game field, the Company
launched operations of role-playing games which enable a more than ten thousand
participants to play simultaneously, and has accumulated know-how enabling theCompany the development of new solutions. In addition, the Company established a newcompany in the medical and health information service field using mobile phones to start
new market exploration. In the electronic money field where needs have been increasing,
the Company saw a sharp rise in the amount of payment by WebMoney, assisted by theadvantage of high shares in amounts of payment in the online game field.
As for sound generator chips for mobile phone that the Company owns patents and has
granted technical licenses, demand expanded during the current fiscal year, mainly inoverseas market including the U.S.A. and China. Consequently, the Company could
deploy mobile contents distribution services mainly for music all over the world, throughalliance with the globally famous major labels in the world. In addition, the Company
made Faith Communications, Inc., a mobile phone carrier in the U.S.A., its subsidiaryand entered into the mobile phone service business targeting the higher income group.
Furthermore, in order to improve further the compliance system in management as alisted company and to enhance the decision-making process of the business strategies,
the Company introduced the “Advisory Board” consisting of external experts in January
2006. With the establishment of the advisory board, the Company will make efforts tofurther strengthen the corporate governance, which we believe will win the trust of
stakeholders.
As a result, consolidated net sales for fiscal year ended March 2006 were ¥30,040
million, up by 27.1% compared with the same period of the preceding year, andconsolidated operating profit accounted for ¥3,391 million, down by 15.6% from thesame period of the preceding year. Consolidated recurring profit was ¥3,455 million, adecrease by 14.6% against the same period a year earlier, and net profit stood at ¥1,438
million, an increase by 355.1% on a year-on-year basis.
Consolidated operating results for fiscal year ended March 2006 by business segment are
as follows:< Content Distribution Business>[Service Business]
In the domestic market, user reach for the Company’s content distribution services
consisting mainly of ring tones hovers around 8 million people. The Company also
ventured into 1) music distribution, 2) online games, 3) video distribution service and 4)
medical and health information service to create and generate new markets. With respectto 1) music distribution, the Company invested in a major musical copyrightadministration company, Japan Rights Clearance Inc. Concerning 2) online games, theCompany launched operation of R.O.S.E Online, a full-scale massively multiplayer
online role playing game (MMORPG). In 3) video distribution service, the Company
established joint venture with the Yoshimoto Kogyo Group and a U.S. company, Intel
Corp.. As for 4) medical and health information service, the Company newly set up
Medical Communication Co., Ltd. that promptly provides, through a mobile phone,
medical and health information in emergencies.
In addition, the Company agreed to acquire the business right from GIGA Networks, is a7mobile contents distributor, in April 2006. By including the 4 million members of GIGA
Networks’ services, Faith Group’s user reach expands to around 12 million members, theone of largest in Japan. The Company will actively cooperate with each of ourpartner-company to develop attractive and high value-added next generation services.
With respect to overseas businesses activities, a French subsidiary Digiplug S.A.S.
started to provide official contents and distribution service systems in ten European
countries as the mobile contents producer and distribution provider of Warner MusicInternational, one of four major labels in the world.
In the South American markets, the ringtone distribution service by Curupira Corp. (alias,
TakeNET), which is the Company’s consolidated subsidiary and the number one service
provider in the South America, is steadily growing.
As a result, consolidated net sales for fiscal year ended March 2006 stood at ¥10,832
million, an increase by 18.2% compared with the same period of the preceding year.
[Licensing Business]
In the transitional phase to the third-generation mobile communication systems, demandfor Faith Group’s sound generator technology expanded, since our technology is adopted
in most of the mobile phone units via number of semiconductor manufacturers in thedomestic market.
In overseas, licensing of the Company’s technologies continued to increase primarily in
the U.S.A. and China, in parallel with the global deployment of the CDMAcommunication system promoted by the U.S. company Qualcomm Inc.
In Europe, the French subsidy Faith Technologies S.A.S. started providing technicalconsulting services concerning distribution of entertainment contents for mobile phone
carriers and mobile terminal manufacturers, and at the same time cultivated demand formobile phone unit test services.
As a result, consolidated net sales for fiscal year ended March 2006 in the licensing
business were ¥3,207 million, a rise by 34.5% from the same period of the precedingyear.
The overall consolidated net sales for fiscal year ended March 2006 in the digitalcontents distribution business were ¥14,040 million, up by 21.6% against the same
period last yearn, and consolidated operating income accounted for ¥4,029 million, downby 3.0% on a year-on-year basis.
<Electronic Payment Business>
According to the Information and Communications Statistics Data Base of the Ministryof the Internal Affairs and Communications, broadband subscriptions exceeded 22
million as of the end of December 2005. Demand for online games, music distribution
and video distribution continued to increase during the current fiscal year. Under thesecircumstances, payment by WebMoney steadily increased, since WebMoney enables the“safe” and “convenient” payment within the Internet.
In addition, the Company started providing “KetaiWallet” as electronic money formobile phones that enables contents settlement without inputting an ID or password.
As a result, consolidated net sales for fiscal year ended March 2006 in this business were¥15,106 million, an increase by 28.8% compared with the same period of the previous
year, and consolidated operating profit recorded at ¥119 million (loss of ¥136 million in
the preceding year).
8

<MVNO Business>
The U.S. subsidiary Faith Communications, Inc. launched the mobile phone carrier
service “Voce” from May 2006. Voce is a service to offer flat-rate pricing for telephoneservices within U.S.A., sophisticated customer services, and exclusive usage of a private
lounge to higher income-earners group and business executives in the U.S.A. However,sales from the business will be accounted from fiscal year ending March 2007, and in thecurrent consolidated fiscal year, only the expenses were recorded.
As a result, consolidated operating account for fiscal year ended March 2006 was a loss
at ¥706 million.
<Other Business>
Consolidated net sales for fiscal year ended March 2006 in the other business increased
by 152.8% compared with the same period a year earlier to ¥893 million, since
GoodyPoint Corp. was newly consolidated due mainly to acquisition by the Company, in
addition to stable rental revenues from real estate for rent. Consolidated operating
account was a loss of ¥51 million (operating income of ¥2 million in fiscal year ended
March 2005).
Geographical segment information is as follows:<Domestic market>
In Japanese markets, the Company made inroads into following businesses as a part ofthe creation of new markets: 1) music distribution, 2) online games, 3) video distribution
service and 4) medical and health information service, based on our mainstay mobile
content distribution business. In addition, in the process of transition to the third
generation of mobile phones, Faith Group’s sound generator technology was adopted byalmost all of the mobile phone unit manufacturers through licensing of the technology tosemiconductor manufacturers.
Furthermore, in the process of progressing broadbandization of the Internet in thedomestic market, demand for music distribution, online games, and video distribution
service continued to grow. With increasing demand for such services, payments by
WebMoney enabling “safe” and “convenient” usage as electronic money on the Internet
sharply increased.
As a result, consolidated net sales for fiscal year ended March 2006 in the domestic
market were ¥26,053 million, up by 21.0% against the same period last year, andconsolidated operating profit increased by 9.0% on a year-on-year basis to ¥4,212
million.
<Americas>
In the U.S. market, Moderati Inc., our consolidated subsidiary in the U.S.A., is operating
ringtone distribution service “Modtones” and song-tone distribution service “Modtones
DJ”. Both services have been fairing well. The Company also made Faith
Communications, Inc. its subsidiary and started mobile services for higher
income-earners and corporate executives from May 2006.
In addition, in the South American markets, the ringtone distribution service by Curupira
9Corp. is steadily growing, primarily in Brazil.
As a result, consolidated sales for fiscal year ended March 2006 in the American market
were ¥3,309 million, a rise by 149.3% compared with the same period of the preceding
year, and operating account was a loss at ¥517 million (operating income at ¥552 million
in fiscal year ended March 2005).
<Europe>In the European market, a French subsidiary Digiplug S.A.S. started to provide official
contents and distribution service systems in ten European countries as the mobile
contents producer and distribution provider of Warner Music International, one of four
major labels in the world.
In order to respond to expansion of technology-related business needs in the mobile
market, Digiplug offered consulting services related to multi-media on mobile phones,
and at the same time, developed mobile phone unit test service.
As a result, consolidated net sales for fiscal year ended March 2006 in the European
market was ¥677 million, a decrease by 12.7% against the same period a year earlier, andoperating account was a loss at ¥304 million, increased by 23.6% from the same period
last year.
(2) Financial Condition
Consolidated cash flows for FY2005
Cash and cash equivalent (“fund” hereinafter) at the end of fiscal year ended March 2006
increased by ¥909 million compared with the end of the preceding year to ¥7,679 million,
which are attributable mainly to earning before interest, taxes, depreciation andamortization of ¥3,509 million (up by 51.5% from the same period a year earlier) andproceeds from reimbursement of time deposits and sale of investment securities, despite
payment of income taxes and expenditures for acquisition of investment securities.
Net cash from operating activities was ¥2,970 million (a decrease by 3.4% comparedwith the same period last year), which are attributable to earning before interest, taxes,
depreciation and amortization of ¥3,509 million and consolidation adjustment account inamortization of ¥715 million, despite payment of income taxes of ¥2,283 million.
Cash flow from investing activities was an outflow of ¥2,041 million (a contraction by
52.5% against the same period last year), due primarily to expenditures for acquisition of
investment securities of ¥2,344 million and acquisition of tangible fixed assets of ¥427
million, despite reimbursement of time deposits of ¥400 million and proceeds from bothsale of investment securities and redemption of securities at ¥1,014 million.
Cash flow from financing activities ended with minus ¥236 million (a contraction by
14.2% from fiscal year ended March 2005), due to expenditure for acquisition oftreasury stocks of ¥204 million and payment of dividends of ¥119 million.

10Trends of indicators on Faith Group’s cash flow are as follows:Year ended
March 2005
67.4
269.6
–
68,149.5

Year ended
March 2006
62.1
161.1
0.03
345.8

Shareholders’ equity ratio (%)
Shareholders’ equity ratio, market value basis (%)
Years required for repayment of debt (Year)
Interest coverage ratio (Times)
Calculation formulas:
Shareholders’ equity ratio: Shareholders’ equity/Total assets
Shareholders’ equity ratio, market value basis: Market capitalization/Total assets
Years required for repayment of debt: Interest-bearing debt/CF from operating activities
Interest coverage ratio: CF from operating activities/Interest expenses
Notes:
1.
All figures in the table above are based on data recorded in the
consolidated financial statements.
2.
Interest-bearing debt covers all debts the Company is paying interest
expenses among all debt recorded in the consolidated financial statements.
3.
CF from operating activities and interest expenses are based on datelisted in the calculation of the consolidated statement of cash flows.
(3) Risk factors relating to Faith Group’s business

Major risk factors relating to our business which may affect investors’ decision of
investment are shown below. However, the Company perceived the possibility of theserisks at the time of the end of the consolidated fiscal year ended March 2006, and inconsequence, these items do not necessarily cover all risk factors related to investment in
the Company’s shares.
i)

Effects from Acquisitions(a) Acquisition of WebMoney Corp in the fiscal year ended March 2004
The Company acquired shares of Web Money Corp., which is engaged in
issuance of electronic money of prepaid type on the Internet, in July 2003 andMarch 2004, and made it its subsidiary. This enabled Faith Group to enter
into the electronic payment business. The Company considered that
establishment of infrastructures for electronic payment was indispensable to
the Company’s development of various mobile contents distribution services
corresponding to evolving network environments in the future, and that suchinfrastructures should be easy-to-use, and Web Money Corp. could satisfy
such requirements.
The expenditure for acquisition of Web Money Corp. was ¥911 million.
Whether this acquisition will generate results the Company initially expected
is not certain. Web Money Corp.’s performances may make it difficult for theCompany to collect invested money, and may affects on Faith Group’s
operating results, financial positions and business planning.
(b) Acquisition of Invest Virtua S.A. in the fiscal year ended March 2005
The Company acquired the whole shares of Invest Virtua S.A. located in
Brazil and made it its subsidiary in March 2005 in order to construct a basefor deploying businesses in the South American markets.
Expenditure for making the company our subsidiary was ¥2,818 million for11acquisition of shares, and ¥940 million as the guaranty money deposited,which is required under the escrow provision of the stock purchase agreement.
Whether this acquisition will generate results the Company initially expected
is not certain. Invest Virtua’s performances may make it difficult for theCompany to collect invested money, and may affect Faith Group’s operating
results, financial positions and business planning.
(c) Acquisition of Faith Communications, Inc. in the U.S.A. in the fiscal year
ended March 2006
The Company acquired shares of Faith Communications, Inc., which isengaged in mobile phone carrier business in the U.S.A., and made it its
subsidiary in September 2005.
Expenditure for acquisition of Faith Communications was ¥2,036 million.
Whether this Acquisition will generate results the Company initially expected
is not certain. Faith Communications’ performances may make it difficult for
the Company to collect invested money, and may affects on Faith Group’s
operating results, financial positions and business planning.
ii)

Risk factors relating to each business field
1) Content distribution business(a) Service business
Faith Group is developing new markets through creation of services
demanded by users and deploying content services and various corporate
consultation services through alliance with influential companies in various
fields including content providers, based on proposals of our original
solutions. In the content service market where Faith Group’s alliancecompanies are developing their businesses, there are many competitors,
and numbers of new entrants are anticipated in the future. Even if thenumber of companies having business tie-up with Faith Group increases,
consolidated sales may not expand in the event where each unit price ofcontents drops due to price competitions, or content services by thebusiness tied-up content providers are unable to satisfy users’ needs andnumber of users increases or falls. In particular, the Company is highly
dependent on Xing Inc. in sales of ringtone distribution service. Of
consolidated net sales for the fiscal year ended March 2006, 20.7% of the
net sales are for Xing Inc.
In addition, Faith Group if needed offers service concerning construction
and operation of servers, according to our clients content providers’ needs.
Faith Group is making efforts to prevent outbreak of accidents with acarefully planned system for operation and maintenance of servers, and has
established the system that enables quick restoration through a remotecontrol. However, if any trouble, which makes restorations or repairsdifficult, such as natural disasters, occurs and providing services issuspended for long hours, such trouble may affect Faith Group’s
performances.
(b) Licensing business
Faith Group grants licensing of Faith Group’s technologies to information
terminal device manufacturers or manufacturers of semiconductors
comprising information terminal devices and is receiving loyalties fromlicensees based on shipment of products. Since the market requires
12information terminal devices to be cheaper and more powerful, unit pricesof our licensing may fall. Faith Group is carrying out business operations
widely without focusing on specific markets or specific devices in this field
to avoid risk factors for decline of prices. However, sales in this field may
not increase in parallel with increases in shipment due to decline of unit
prices.
(c) Quality control
Faith Group is carrying out quality control in technical development withan extensive quality assurance system. However, if any bug, fault or defectis found in our technologies even after customers’ receiving inspection, or
any damage is caused to users from using product or service embeddedwith our technologies, Faith Group may be liable for damages, which may
affect the current or future performances of the Group.
(d) Legal regulations
Since damage from illicit obtainment or alteration of data on the Internet,
or leakage of personal data via the Internet is increasing, establishment oflegal regulations has been promoted in Japan. Faith Group is engaged in
distribution business of contents via the Internet. If any legal regulations or
voluntary regulations are set up or applied in this business field, businessdeployment of Faith Group may be restricted or the Group may be obliged
to incur additional costs required for taking necessary countermeasures.
2) Electronic payment business
Faith Group is developing a business to provide consumers or users, viaconvenience stores, with WebMoney cards available for electronic payment.
Faith Group is striving to expand number of base stores to sell and accept
WebMoney cards and to increase number of member shopping sites using
WebMoney for electronic payment. However, recently various electronic
payment methods have been developed. If use of WebMoney by consumers orusers is expected bleak, or number of users of WebMoney drops, Faith Group’s
operating results may be affected.
iii)Intellectual property rights
Faith Group is aggressively promoting application for a patent and registration of a
trademark concerning the Group’s technologies, and will continue to do so in the
future.
Faith Group has not received any allegation or petition of appeal including
compensation for damages and a ban on using concerned intellectual property
rights related to our business activities up so far. However, it is very difficult toforecast how a third party’s patents, trademark rights or copyrights (“patent”
hereinafter) are applied to Faith Group’s businesses. If any third party is granted
the patent related to our businesses, or any patent which Faith Group does notnotice is established, there are possibilities that Faith Group may be claimed fordamages for the reason of violation of the third party’s rights, or the whole or apart of the Group’s businesses may be suspended, which may affects the Group’s
performances.

13

(4) Forecast for the fiscal year ending March 2007
Faith Group will continue to be actively involved in activities “to create new mobile
content distribution schemes”.
Faith Group will increase profit-earning opportunities by cultivating new demand in themarkets for music distribution, video distribution and online games where large growthis expected. In addition, the Group will promote issuance of electronic money which has
a large share in electronic payment on the Internet.
The Company will also actively develop demand in the overseas markets in collaboration
with overseas subsidiaries, mobile phone carriers, handset manufacturers and rights
holders.
As a result, the Company expects the consolidated operating results for FY2006 to be¥45,443 million (an increase by 51.3% compared with the same period of the previousyear) for net sales, ¥2,227 million (a decrease by 35.5% from the same period of theprevious year) for recurring profit, and ¥268 million (a decline by 81.4% on a
year-on-year basis) for net profit.
In addition, with respect to GIGA Networks Co., Ltd. of which shares the Company
plans to acquire at the end of May 2006, the Company expects net sales of ¥4.7 billion
and operating profit at approximately ¥600 million. As for goodwill, the Company plans
to amortize it under the straight-line method in five years.

14Consolidated Financial Statements(1)

Consolidated Balance Sheet(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(1) Buildings and structures(2) Machinery, equipment
and vehicles(3) Tools(4) Land
Total 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

FY2004(As of March 31, 2005)
Component
Amountpercentage%

FY 2005(As of March 31, 2006)
Component
Amountpercentage%

6,520,207
4,316,131

7,534,815
4,768,010

864,838
1,351
760,152
701,123△66,788364,619
39,905808,951
571,683△82,229

13,097,017

58.0

14,005,756

964,065
181,048

1,228,080
212,041

21,303527,203
216,510946,065

20,083
1,131,299
216,5101,228,080

4.2

3.9

−
3,656,824

2,000
3,354,988
453,650
3,810,639

44.3

940,720
4,597,545

16.9

2,643,563
1,105,072
1,181,104△200,764

14.6

9,560,144
1,144,546
1,179,662△119,956

4,728,977

20.9

11,764,397

37.2

9,485,682
22,582,699

42.0
100.0

17,590,023
31,595,780

55.7
100.0

15

Account name(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 incomeIV.
Unrealized
gainonavailable-for-sale securities
V. Foreign currency translation
adjustments
VI. Treasury stock
Total shareholders’ equity
Total
liabilities,
minority
interests and shareholders’equityFY2004(As of March 31, 2005)
Component
Amountpercentage%

FY 2005(As of March 31, 2006)
Component
Amountpercentage%

2,501,185−
973,698
2,404,001

3,349,235
86,969826,587
2,323,140−
89,172

697,582
77,316

1,137,794
7,105,852

1,844,745
9,205,576

31.5

−
−
19,781−2,235,777
27,252

117,566

121,134

29.1

61,467
198,8147,304,667

0.9
32.4

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

7.7
36.8

46,1020.2

342,525

1.1

3,218,000
3,708,355
8,128,670
297,178

14.3
16.4
36.0
1.3

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

10.2
11.7
29.8
10.7

29,9390.1

243,9520.8△150,213
15,231,929
22,582,699

△0.7
67.4
100.0

△354,269
19,625,979
31,595,780

△1.1
62.1
100.0

16

(2)

Consolidated Income Statement(Thousands of yen)Account nameI Net sales
II Cost of Sales
Gross profit
III. Selling, general andadministrative expenses
Operating income
IV. Other income
1. Dividend income
2. Interest income
3. Foreign exchange gain
4. Investment profit on equity
method5. Miscellaneous income
V. Operating expenses
1. Interest expense
2. Investment
lossinanonymous association
3. Loss from valuation ofcommercial products
4. Investment loss on equity
method5. Miscellaneous expense
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 from investment
securities valuation
3. Transfer to allowance forbad debt
4. Amortizationoftheconsolidated
adjustment
account
5. Loss on bad debts
6. Others
Total extraordinary loss
Income before income taxes
and minority interests
Income taxes and other taxes
Minority interests
Net income (minus is loss)

FY2004 (From April 1, 2004 to
March 31, 2005)
Component
Amountpercentage
23,628,766
100.0
15,352,310
65.0
8,276,455
35.0
4,258,474
18.0
4,017,981
52,674
7,118
21,58914,016
4,726
5,223
23,145−9,554

FY2005 (From April 1, 2005 to
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

17.0
0.2

3,391,428
221,436
38,292
43,736116,908−
22,498157,805
9,146
−

0.1

7,799

−

−

140,794

5,791
4,047,509

7,865
3,455,058

17.1

406,694

220,271

24,900−10,000−−441,594

14,332
234,603

1.9

11.3
0.7

0.5

11.5

0.8

13,248

108,555

51,391−

125,314−

1,935,566−−
41,4102,166,931
2,322,173

9.2
9.8

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

0.6
11.7

2,040,932
34,774
316,015

8.6
0.1
1.3

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

7.2
0.3
4.8

17

(3)

Statements of Surplus(Thousands of yen)
FY2004 (From April 1, 2004 to
March 31, 2005)
Amount

FY2005 (From April 1, 2005 to
March 31, 2006)
Amount3,708,355
3,708,355

3,708,355
3,708,355

7,973,083

8,128,670(Additional paid-in capital)
I. Beginning balance
II. Ending balance(Accumulated income)I Beginning balance
II. Increase of accumulated
income1. Net income
2. Increase from addition ofequity method affiliates
III. Decrease of accumulated
income1. Dividends
2. Bonuses to directors andstatutory auditors
3. Disposal loss of treasury
stock
IV Ending balance

316,015
1,846

1,438,293−

317,862

59,69439,0003,783

1,438,293

119,215
39,000−162,275
8,128,670

18

158,215
9,408,748

(4)Consolidated Statements of Cash Flows

Item
I. Cash flow from operating activities
Income before income taxes and minority
interests
Depreciation and amortization
Amortization of consolidation difference
Loss (profit) from investment in equity method
Increase in allowance for doubtful accounts
Increase (decrease) in reserve for bonus
Increase (decrease) in allowance for cost ofcard use
Decrease in allowance for unexercised sales
promotion points
Increase (decrease) in allowance for retirement
benefits
Increase in allowance for directors andstatutory auditors’ retirement bonus
Valuation loss on merchandizes
Valuation loss on investment securities
Loss (gain) from anonymous association
Interest and dividends income
Interest on securities
Interest expenses
Foreign exchange gains
Gains on sale of investment securities
Losses from disposal of fixed assets
Decrease (increase) in accounts and notes
receivable-trade
Decrease (increase) in inventories
Increase in accounts and notes payable-trade
Decrease (increase) in consumption taxes
receivable
Payment of directors and statutory auditors’
bonus
OthersSub-totalInterest and dividends received
Interest expenses paid
Income taxes paid
Net cash provided by operating activities

FY2004 (From April 1,
2004 to March 31, 2005)
Note
Amount, ¥thousand

FY2005 (From April 1,2005 to March 31, 2006)
Amount, ¥thousand

2,322,173
372,528
2,257,136-4,726
63,127
8,431

3,509,742
520,755
715,371
140,974
71,641-20,821903,916-80,861--114,426-19,416

7,470

12,685
7,799
51,391
9,554-7,318-21,58945-3,226-406,694
13,2483,568-771-40,478-43,736
9,146-132,560-220,271
108,555-773,419
139
791,154

4,922-12,555
717,771-39,653

27,702-39,000-340,889
5,157,397
28,387-45-2,110,765
3,074,974-39,000
73,9685,205,927
56,541-8,591-2,283,218
2,970,659

19

FY2004 (From April 1,
2004 to March 31, 2005)
Note
Amount, ¥thousand

FY2005 (From April 1,2005 to March 31, 2006)
Amount, ¥thousand

1,602,933-200,000
400,000-672,286
3,186-133,019-427,664
12,206-322,909-1,548-44,037-3,088,206
1,839,068
163,600-2,344,843
758,255
256,140-2,741,789-58,896-940,607-58,888
67,430-377,646-4,297,774-3,563
9,944-76,349-2,041,748-

86,969-2,500--162,589
8,262-118,753-275,250-204,056-119,105-236,192-6,155

216,450-1,504,205

909,168

8,274,472
6,770,266

6,770,266
7,679,435

Item
II. Cash flow from investing activities
Expenditure for deposit of time deposits
Proceeds from withdrawal of time deposits
Expenditures for acquisition of tangible
fixed assets
Proceeds from sale of tangible fixed assets
Expenditure for acquisition of software
Expenditure for acquisition of otherintangible fixed assets
Expenditure for acquisition of investment
securities
Proceeds from sale of investment securities
Proceeds from redemption of securities
Expenditures for acquisition of subsidiary’s
shares causing a change in scope of
consolidation*2
Expenditure for depositing long-term
guaranty deposit
Expenditure for loans receivable
Proceeds from collection of loans receivable
OthersNet cash used in investing activities
III. Cash flow from financing activities
Net increase in short-term loans
Expenditure for redemption of corporate
bonds
Expenditure for acquisition of treasury
stocksProceeds from sale of treasury stocks
Payment of dividends
Net cash flow used in financing activities
IV. Effect of exchange rate on cash and cash
equivalents
V. Net increase (decrease) in cash and cash
equivalents
VI. Cash and cash equivalents at beginning ofyear
VII. Cash and cash equivalents at end of year
*120

Important Items of the Basis for Preparation of the Consolidated Financial Statements
Item
1. Scope of the consolidation

FY2004 (From April 1, 2004 to March FY2005 (From April 1, 2005 to March
31, 2005)
31, 2006)(1) Numberofconsolidated (1) Numberofconsolidated
subsidiaries: 7
subsidiaries: 11
Name
of
major
consolidates Nameof
major
consolidates
subsidiaries:
subsidiaries:
Moderati Inc.
Moderati Inc.
Digiplug S.A.S.
Faith Communications Inc.
Faith Technologies S.A.S.
Digiplug S.A.S.
Invest Virtua S.A.
Faith Technologies S.A.S.
WebMoney Corp.
Invest Virtua S.A.
WebMoney Corp.
GoodyPoint Corp.
Mobile Alliance Co., Ltd.
Faith Technologies S.A.S. was Faith Communications Inc. andincluded in the consolidation, since it GoodyPoint Corp. have been included
was established through a corporate in the consolidation from the current
split-up from Digiplug S.A.S. in the consolidated fiscal year, due tocurrent term. Invest Virtua S.A. was acquisition of their shares by thealso included in the consolidation Company. In addition, Mobile
from the end of the current fiscal year Alliance Co., Ltd. has been included in
due to acquisition of its shares by the the consolidation from the end of thecurrent fiscal year owing to acquisition
Companyof its shares by the Company.
Note: Since the Company acquired Note: The date of acquisition ofshares of Invest Virtua S.A. on
GoodyPoint
Corp.
was
March 31, 2005, the Company
considered the start of the 2nd
consolidated balance sheets ofhalf of the current fiscal year,
Invest Virutua S.A. and its
and the Company consolidated
group companies in the current
itsbalancesheets,theconsolidated fiscal year.
statements of income and otherfinancial statements from the
2nd half of fiscal 2005. And, as
for Mobile Alliance Co., Ltd.,
only its balance sheet wasconsolidated.
(2) Name of major non-consolidated (2) Name of major non-consolidated
subsidiaries
subsidiaries
AnyMusic Limited
AnyMusic Limited
Uscita Inc.
Reasonof
exclusionfrom Reasonof
exclusionfromconsolidation: The non-consolidated consolidation: same as on the left
subsidiary is small-sized companies,
and in terms of total assets, net sales,
net profit and loss (amounts toequivalent to equity owned) andretainedearnings(amounts
toequivalent to equity owned), thenon-consolidated subsidiary’s impact
on consolidated financial statements is
not material.

21

FY2004 (From April 1, 2004 to March FY2005 (From April 1, 2005 to March
31, 2005)
31, 2006)
2. Application of the equity (1) Number of affiliated companies (1) Number of affiliated companies
methodconsolidated under equity method: 1
consolidated under equity method: 4
Name
of
the
companies
Name
of
major
affiliatedconsolidated under equity method:companies consolidated undereMbience Inc.
equity method
eMbience Inc. was included in the
Bellrock Media Inc.
consolidation under the equity
Japan Rights Clearance Inc.
methodfrom
thecurrent
Sedona Fund Investment Limited
consolidated fiscal year due to its
Partnershipincreased materiality.
Bellrock Media Inc. and Japan
Rights Clearance Inc. have been
included in the consolidation
under equity method from thecurrent fiscal year, due toacquisition of their shares by theCompany. In addition, Sedona
Fund
Investment
LimitedPartnership has been included in
the consolidation under equity
method from the current fiscal
year based on standards forcontrolling share and materiality.
(2) Non-consolidated subsidiaries and (2) Non-consolidated subsidiaries andaffiliated companies not underaffiliated companies not underequity method
equity method
Name of major non-consolidated
Name of major non-consolidated
subsidiaries
andaffiliatedsubsidiaries
andaffiliatedcompanies
companies
AnyMusic Limited
AnyMusic Limited
AsianEntertainment
andUscita Inc.
Communications Co., Ltd.
Reasons of non-inclusion in equity Reasons of non-inclusion in equity
method: in terms of equity in net method: same as on the left
income, and loss and retained
earnings,
thenon-consolidated
subsidiary and affiliated company’s
impact on consolidated financial
statements
lacksmateriality.
Consequently it has been excluded
from consolidation in equity method.
(3) Since the affiliated company (3) As for each affiliated company
consolidated under equity method
consolidated under equity method“eMbience Inc.” closes its
which closes its accounts on the dateaccounts on the date other than theother than the consolidated settlement
consolidated settlement date ofdate of accounts, the Company uses
accounts, the Company uses
each financial statements closed as ofeMbience’s financial statements as
the settlement date of accounts of each
its settlement date in preparation
consolidated affiliated company. Inof the consolidated financial
addition, concerning Sedona Fundstatements.
Investment Limited Partnership, theCompany uses net financial dateequivalent to the Company’s equity inthe financial statements of thepartnership available on eachreporting date of the partnershipstipulated in the contract ofpartnership.
Item

22

FY2004 (From April 1, 2004 to March
31, 2005)
3. Fiscal
yearsof Of consolidated subsidiaries, Moderati
consolidated subsidiaries
Inc.,
Digiplug
S.A.S.,
Faith
Technologies S.A.S., Invest Virtua
S.A. and two other overseas
consolidated subsidiaries close theiraccounts on December 31 ever year.
In preparation of the consolidated
financial statements, the Company
uses the financial statements as of thesettlement date of accounts of eachconsolidated subsidiary. However, as
for important transactions between the
Company
andconsolidated
subsidiaries during the period fromeach settlement date to the Company’s
closing date, the Company makes
adjustment required for consolidation.
Item

FY2005 (From April 1, 2005 to March
31, 2006)
Of consolidated subsidiaries, ModeratiInc., Faith Communications Inc.,
Digiplug S.A.S., Faith Technologies
S.A.S., Invest Virtua S.A. and otherthreeoverseas
consolidated
subsidiaries close their accounts on
December 31 ever year, andGoodyPoint Corp. closes its accounts
on the end of February ever year.
In preparation of the consolidated
financial statements, the Company
uses the financial statements as of thesettlement date of accounts of eachconsolidated subsidiary. However, as
for important transactions between the
Company
andconsolidated
subsidiaries during the period fromeach settlement date to the Company’s
closing date, the Company makes
adjustment required for consolidation.

4. Accounting standards(1) Standard and method 1. Securities
1. Securities
ofvaluationfora) Held-to-maturity
securities:a) Held-to-maturity
securities:
important assets
same as on the left
valued
at
cost
after
b) Other securities
amortization(straight-line
Marketable securities: same as
method)on the leftb) Other securities
Marketable securities: valued
Unquoted securities: values atbased on the market value as
cost, using moving average
the fiscal year end. The entire
method. In addition, as for
positive or negative difference
investment equity in anwith the book value is bookedbusiness
investment
directlyasshareholders’partnership or anonymous
equity, and the cost ofpartnership, in the preparation
securities sold is calculatedofconsolidated
financialusing the moving averagestatements, the Company uses
method.
net financial date equivalent toUnquoted securities: values at
the Company’s equity in thecost, using moving average
financial statements of themethod.
partnership available on eachreporting
date
of
the
partnership stipulated in thecontract of partnership.
2. Inventories: valued at cost, using 2. Inventories: same as on the left
mainly gross average method.

23

FY2004 (From April 1, 2004 to March
31, 2005)(2) Major
depreciable 1. Tangible fixed assets: The
assets and methods ofCompany and its domestic
depreciation
consolidated subsidiaries use thedeclining balance method, and its
overseas consolidated subsidiaries
use the straight-line method.
However, the Company uses thestraight-line method for buildings
acquired on and after April 1,
1998 (not including attachedstructures and equipment). In
addition, major year of useful life
are as follows:
Buildings and structures: 8-39
years
Machinery and equipment andvehicles: 6 years
Tools, furniture and fixtures: 2-15
years
2. Intangible
fixed
assets:straight-line method
Software used in-house operation
is depreciated based on thestraight-line method within 3-5
years which are useful life inyears to the Company.
3. Long-term prepaid expenses:
straight-line method(3) Standards for important 1. Allowance for doubtful accounts
allowances
To provide for potential losses, theCompany and its domestic
consolidated
subsidiaries
recognize provision for potential
doubtful accounts based on thespecific credit loss ratio forgeneral receivables. As for the
specific receivables including thepotential uncollectible receivables,
the Company and its domestic
consolidated subsidiaries posts
estimated loss for unrecoverable
receivesbyassessingthepossibility of collection ofindividual receivables. Overseas
consolidated subsidiaries record
estimated loss for the specificreceivables.
2. Allowance for cost of card use
Allowance for cost of card use isposted based on the estimatedunused amount of cards alreadyissued which is calculated basedon the actual rate of card use byusers to prepare for payment tomember shopping sites on theInternet in the future.
Item

24

FY2005 (From April 1, 2005 to March
31, 2006)
1. Tangible fixed assets: The
Company and its domestic
consolidated subsidiary use thedeclining balance method, and its
overseas consolidated subsidiaries
use the straight-line method.
However, the Company uses thestraight-line method for buildings
not including attached structuresand equipment acquired on andafter April 1, 1998. In addition,
major year of useful life are as
follows:
Buildings and structures: 3-39
years
Machinery and equipment andvehicles: 6-12 years
Tools, furniture and fixtures: 2-20
years
2. Intangible
fixed
assets:straight-line method
Software used in-house operation
is depreciated based on thestraight-line method in 5 years
which are useful life in years to
the Company.
3. Long-term prepaid expenses:
same as on the left
1. Allowance for doubtful accounts:
same as on the left

2.

Allowance for cost of card use:same as on the left

Item

FY2004 (From April 1, 2004 to March
31, 2005)
3. -FY2005 (From April 1, 2005 to March
31, 2006)
3. Allowance for unexercised sales
promotion points
Allowance for unexercised sales
promotion points is posted basedon estimated amount equivalent tooutstanding points of sales
promotion which is calculated
based on the actual rates ofexecution of the points.
4. Reserve for bonus
4. Reserve for bonus: same as on the
The Company and some of its
left
consolidated subsidiaries post
reserve for bonus to be based on
the estimated amount of bonus to
be incurred in the current
consolidated fiscal year to prepare
for payment of bonus toemployees.
5. Allowance for retirement benefits 5. Allowance for retirement benefits:
same as on the left
The Company posts allowance forretirement benefits based on theestimated amount of retirement
allowance as of the end of the
fiscal year to provide for paymentof retirement allowance toemployees. In addition, theCompany adopts the conventional
method for the calculation of
estimated amount of retirement
benefits above based on the“Guideline for accounting of
retirement
benefits(interim
report)” (JICPA Report No.13
issued on September 14, 1999),
since the Company is a“small-sized company” with lessthan 300 employees.
6. Allowance for directors and 6. Allowance for directors andstatutory auditors’ retirement
statutory auditors’ retirement
bonus: same as on the left
bonus
The Company posts allowance fordirectors and statutory auditors’
retirement bonus based on theestimated amount of directors andstatutory auditors’ retirement
bonus to be paid as of the end of
the fiscal year to provide forpayment of directors and statutory
auditors’
retirement
bonus
accordingtotheinternal
regulations.

25

FY2004 (From April 1, 2004 to March FY2005 (From April 1, 2005 to March
31, 2005)
31, 2006)(4) Standards for
Receivables
andpayables Same as on the lefttranslation of important denominated in a foreign currency arereceivables andtranslated into Japanese yen based on
payables denominatedthe prevailing spot rate of foreignin a foreign currency
exchangemarketasoftheinto Japanese yen
consolidated settlement date ofaccounts, and difference is directly
posted in profit or loss.
In addition, overseas consolidated
subsidiaries’ assets and liabilities, andprofits or loss are translated into
Japanese yen based on the prevailingspot rate of foreign exchange market
as of the settlement date of accounts ofeach overseas consolidated subsidiary.
(5) Accounting for
Finance lease, which excludes leased
significant leaseassets for which the ownership istransactions
recognized as being transferred toleasees, are treated as ordinary rental
transactions.
(6) Other important
1. Accounting of the consumption
1. Accounting of the consumption
accounting standards
tax
tax
for preparation of
Accounting for the consumption
Same as on the left
consolidated financial
tax and the local consumption tax
statements
is based on the “before tax”
method.
5. Valuation for consolidated Valuation
for
consolidated Same as on the left
subsidiaries’ assets and subsidiaries’ assets and liabilities isliabilities
based entirely on the market value
method.
6. Amortizationof Consolidation difference is amortized Consolidation difference is amortized
consolidation difference
on the straight-line method in five (5) on the straight-line method in five (5)or ten (10) years. However, if anor ten (10) years.
In addition, as for consolidation amount of consolidation difference
difference between Digiplug S.A.S., lacks materiality, the difference is
the Company amortized the total amortized in one-time amortization in
outstanding amount of consolidation the fiscal year when the difference wasdifference in one-time amortization in recognized.
the current fiscal year, since theCompany recognized valuation loss onshares of Digiplug S.A.S. in the
non-consolidated financial statementsof the Company in the current fiscal
year.
7. Accounting for the
The statement of the retained earnings Same as on the leftstatement of retained
is prepared based on the disposal of
earnings
earnings
determinedintheconsolidated fiscal year.
8. Scope of cash and cash
Cash and cash equivalents in the Same as on the left
equivalents in the
consolidated statements of cash flows
consolidated statement ofare composed of cash in hand,cash flows
deposits withdrawable on demand, andshort-term investments which are easy
to change to cash and have minimum
risks for volatility of principal andmaturity within three (3) months after
their acquisition.
Item

26

Changes in important accounting standards for preparation of the consolidated financial
statements
FY2004 (From April 1, 2004 to March 31, 2005)–

FY2005 (From April 1, 2005 to March 31, 2006)(Accounting Standards for Impairment of Fixed
Assets)The Company has adopted the accounting standards
for impairment of fixes assets (“Opinion Concerning
the Establishment of Accounting Standards for
Impairment of Fixes Assets” issued by the BusinessAccounting Deliberation Council on August 9, 2002)
and the “Implementation Guideline on the AccountingStandards for Impairment of Fixes Assets” (BusinessAccounting Standard Implementation Guideline No.6,
issued by the Accounting Standards Board on October
31, 2003), from the current consolidated fiscal year. In
addition, this change had no effect on income for fiscal
2005.

Changes in indication methods
FY2004 (From April 1, 2004 to March 31, 2005)–

FY2005 (From April 1, 2005 to March 31, 2006)(Consolidated Balance Sheet)“Deferred tax liabilities” which had been included in“Other” in the fixed liabilities until the preceding
consolidated fiscal year was separately presented in thecurrent year, since its amount exceeded 1% of the total
amount of the total liabilities, minority interest andtotal shareholders’ equity in the current fiscal year.
In addition, “deferred tax liabilities” accounted for¥50,421 thousand in the preceding consolidated fiscal
year.
(Consolidated Income Statements)“Interest expenses” which had been included in“Miscellaneous expenses” of non-operating expenses
till the previous consolidated fiscal year was separately
presented due to its increased materiality.
In addition, “interest expenses” stood at ¥45 thousandin the previous consolidated fiscal year.

27

Additional information
FY2004 (From April 1, 2004 to March 31, 2005)(Method of presentation of pro forma standard taxationof corporate enterprise tax in the consolidated income
statement)
With the publication of the “Practical Presentation
Method of Pro Forma Standard Taxation of Corporate
Enterprise Tax in the Consolidated Statements ofIncome” issued by Accounting Standards Board ofJapan on February 13, 2004, the Company has posted
the amounts of tax portion on the value-added basis
and per capita portion of the corporate enterprise tax in“Selling, general and administrative expenses” fromthe current consolidated fiscal year.
As a result, the selling, general and administrative
expenses increased by ¥43,791 thousand in the current
consolidated fiscal year, and operating income,ordinary income and net income before taxes
decreased by the same amount respectively.
(Change in accounting of a consolidated subsidiary)
The consolidated subsidiary “Moderati Inc.” had madeit an accounting rule to post net sales when a sales
report arrives at the headquarters and at the same time
to recognize cost of sales that responds to such sales in
the past. However, it has changed the accounting
standard and recorded sales and cost of sales based onan accrual basis from the current consolidated fiscal
year, due to its increased materiality in consolidation.
As a result, compared with accounting on theconventional method, sales decreased by ¥299,577
thousand, and operating income, ordinary income andincome before income taxes and minority interests
dropped by ¥249,892 thousand respectively, in thecurrent fiscal year.

28

FY2005 (From April 1, 2005 to March 31, 2006)–

Notes to the Consolidated Financial Statements(Consolidated Balance Sheet)
FY2004 (March 31, 2005)
FY2005 (March 31, 2006)*1. Amount related with non-consolidated subsidiaries *1. Amount related with non-consolidated subsidiaries
and affiliated companies
and affiliated companies
Investment securities (stocks) ¥517,997 thousand
Investment securities¥1,078,092 thousand(stocks)
Investment securities¥108,868 thousand(equity investment)
Total¥1,186,961 thousand*2 Number of outstanding shares of the Company: *2 Number of outstanding shares of the Company:
239,200 common shares.
1,196,000 common shares*3 Number of treasury stocks held by the Company: *3 Number of treasury stocks held by the Company:
424 common shares
5,580 common shares(Consolidated Income Statement)
FY2004 (From April 1, 2004 to March 31, 2005)
FY2005 (From April 1, 2005 to March 31, 2006)*1 Major items of Selling, General and Administrative *1 Major items of Selling, General and Administrative
Expenses
Expenses
Directors’ remuneration¥356,156 thousand
Directors’ remuneration¥225,045 thousand
Salaries and allowances¥1,209,745 thousand
Salaries and allowances¥703,273 thousand
Allowance for bonus¥52,272 thousand
Allowance for bonus¥ 52,252 thousand
Retirement benefit expenses¥18,519 thousand
Retirement benefit expenses¥11,437 thousand
Allowance for directors andAllowance for directors
statutory
auditors’and statutory auditors’¥23,945 thousand¥23,072 thousand
retirement bonus
retirement bonus
Commission paid
¥1,542,889 thousand
Commission paid
¥1,438,670 thousand
Advertising and general
Advertising and generalpublicity expenses¥1,024,062 thousand
publicity expenses¥550,265 thousand
Allowance for doubtful
Allowance for doubtful
accounts¥ 71,641 thousandaccounts¥1,281 thousand
Amortization ofAmortization of
consolidation difference¥715,371 thousand
consolidation difference¥321,569 thousand*2 R&D expenses included in selling, general and *2 R&D expenses included in selling, general andadministrative expenses and cost of sales:
administrative expenses and cost of sales:¥190,485 thousand¥74,728 thousand*3 Breakdown of loss from disposal of fixed assets*3 Breakdown of loss from disposal of fixed assets
Tool, furniture and fixtures¥1,999 thousand
Machinery andSoftware¥106,556 thousand
equipment, and Vehicles¥512 thousand
Tool, furniture and fixtures¥569 thousand
Total¥108,555 thousand
Software¥12,166 thousand
Total¥13,248 thousand

29

(Consolidated Statement of Cash Flows)
FY2004 (From April 1, 2004 to March 31, 2005)
FY2005 (From April 1, 2005 to March 31, 2006)*1 Relationship between cash and cash equivalents at *1 Relationship between cash and cash equivalents at
the end of the fiscal year and amounts of items
the end of the fiscal year and amounts of items
described in the consolidated balance sheet
described in the consolidated balance sheet(As of March 31, 2006)(As of March 31, 2005)
Cash and deposits¥7,534,815 thousand
Cash and deposits¥6,520,207 thousand
Securities¥364,619 thousand
Securities¥864,838 thousand
Total¥7,899,435 thousand
Total¥7,385,046 thousand
Over three-month time
Over three-month time
deposits-¥400,000 thousand
deposits-¥200,000 thousand
Securities not including
Securities not including
MMF
MMF-¥214,780 thousand-¥20,000 thousand
Cash
and
cash
Cash
and
cash
equivalents¥6,770,266 thousand
equivalents¥7,679,435 thousand*2 Major breakdown of assets and liabilities of a new *2 Major breakdown of assets and liabilities of new
consolidated subsidiary which was included in the
consolidated subsidiaries which were included inconsolidation due to acquisition of shares by thethe consolidation due to acquisition of shares byCompany
the Company
Breakdown of assets and liabilities of Invest Virtua
Breakdown of assets and liabilities of Faith
S.A. which was newly included in theCommunications Inc. which was newly included inconsolidation due to acquisition of shares by thethe consolidation due to acquisition of shares byCompany as of the start of the current fiscal year,
the Company as of the start of the current
and relationship between acquisition cost of Invest
consolidated fiscal year, and relationship between
Virtua S.A. and net expenses required for
acquisition cost of Faith Communications Inc. andacquisition of Invest Virtua S.A.
net expenses required for acquisition of Faith
Current assets¥265,684 thousand
Communications Inc.
Fixed assets¥156,102 thousand
Current assets¥1,719,740 thousand
Consolidation difference ¥2,657,486 thousand
Fixed assets¥130,604 thousand
Current liabilities-¥260,050 thousand
Consolidation difference¥631,931 thousand
Long-term liabilities-¥235 thousand
Current liabilities-¥64,419 thousand
Minority Interests-¥381,830 thousand
Acquisition cost of
Invest Virtua S.A.
Acquisition cost of Faith¥2,818,987 thousand
Communications Inc.
¥2,036,026 thousand
Cash and cash equivalentsof Invest Virtua S.A.
-¥77,197 thousand
Cash and cash
equivalents of Faith
Total expenses required
Communications Inc.
-¥1,710,600 thousand
for acquisition of Invest
Virtua S.A.
Total (Expenses required¥2,741,789 thousand
for acquisition of Faith
Communications Inc.
¥325,426 thousand
Breakdown of assets and liabilities of GoodyPoint
Corp. which was newly included in the
consolidation due to acquisition of shares by theCompany as of the start of the current consolidated
fiscal year, and relationship between acquisition
cost of GoodyPoint Corp. and net expenses
required for acquisition of GoodyPoint Corp.
Current assets¥507,595 thousand
Fixed assets¥107,212 thousand
Consolidation difference¥385,171 thousand
Current liabilities-¥954,290 thousand
Acquisition cost of
GoodyPoint Corp.
¥45,688 thousand
Cash and cash equivalentsof GoodyPoint Corp.
-¥311,766 thousand
Total expenses required
for acquisition of Faith
Communications Inc.
¥266,078 thousand30

1. Lease transactions
FY2004 (From April 1, 2004 to March 31, 2005)
FY2005 (From April 1, 2005 to March 31, 2006)
Not applicable. Faith Group does not execute any lease 1. Finance lease transactions other than those intransaction.
which the ownership of leases assets is transferredto the leasees (Company: a leasee)(1) Amounts equivalent to acquisition costs ofleased assets, accumulated depreciation andoutstanding amount at the end of the fiscal year

Tools, furnitureand fixtures
SoftwareTotal

Amountequivalent toacquisition
costs,¥thousandAmountequivalent toaccumulated
depreciation,¥thousandAmountequivalent tooutstanding
amount,¥thousand

364,446

174,831

189,615

139,200
503,646

58,554
233,385

80,645
270,260(2) Amount equivalent to the accrued lease
payment at he end of the fiscal year
Within one (1) year
¥103,063 thousand
Over one (1) year
¥174,238 thousand
Total¥277,301 thousand(3) Lease payment, reversal of impairment loss oflease assets, amount equivalent to thedepreciation, and amount equivalent to interest
expenses
Lease payment¥56,095 thousand
Amount equivalent todepreciation¥52,462 thousand
Amount equivalent tointerest expenses¥4,359 thousand(4) Calculation of amount equivalent todepreciation
The Company calculates the amount equivalent
to depreciation based on the assumptions thatthe lease period is the years of useful life andthe residual value is zero.
(Impairment loss)
There is no impairment loss allocated to the leases
assets.

31

2. Securities
Fiscal 2004 (March 31, 2005)
1. Marketable held-to-maturity securities
FY2004 (March 31, 2005)
Item

Amount recorded on
consolidated balance
sheet, ¥thousand

Securities of which market
value exceeds amountrecorded on consolidatedbalance sheet
1. Government
bonds
and local governmentbonds
2. Corporate bonds
3. Others
Sub-total
Securitiesofwhichmarket value does notexceed amount recordedon consolidated balance
sheet
1. Government
bonds
and local governmentbonds
2. Corporate bonds
3. Others
Sub-total
Total

Market value, ¥thousand

Difference, ¥thousand

99,620214,780–
314,400

102,943
215,071–
318,015

3,323
291
–
3,615

–
–
–
–
314,400––––
318,015

–
–
–
–
3,615

2. Marketable other securities
Item
Securities of which amountrecordedontheconsolidated balance sheet
exceeds acquisition costs
1. Stocks
2. Bonds
3. Others
Sub-total
Securitiesofwhichamount recorded on the
consolidatedbalancesheet does not exceed
acquisition costs
1. Stocks
2. Bonds
3. Others
Sub-total
Total

FY2004 (March 31, 2005)
Amount recorded on
consolidated balance
sheet, ¥thousand

Acquisition cost,¥thousandDifference, ¥thousand

453,038–
101,576554,615944,311–
112,936
1,057,248

491,273–
11,359502,632––––
554,615––––
1,057,248––––
502,632

32

3. Other securities sold during the current consolidated fiscal year (From April 1, 2004 to March
31, 2005)
Amount sold, ¥thousand
1,839,068

Total gain on sale, ¥thousand
406,694

Total loss on sale, ¥thousand–

4. Major unquoted securities
FY2004 (March 31, 2005)
Amount recorded on consolidated balance sheet,¥thousand

Item

Other securities
1. Unlisted stocks not including over-the-counter
stocks926,463
2. Unlisted bonds
40,0003. MMF and etc.
650,058
Note: The Company revalued investment securities in the current term, and posted valuation loss at ¥51,391
thousand.

5. Schedule of redemption of securities having maturities among other securities andheld-to-maturity bonds
Item

Within one year,¥thousand

Bonds
1. Government bonds
and local
government bonds
2. Corporate bonds
3. Others
Total

Within 5 years after
one year, ¥thousand

Within 10 years after 5
years, ¥thousand–
20,000–20,00099,62020,000–
119,620–
214,780–
214,780

After 10 years,¥thousand––––Fiscal 2005 (March 31, 2006)
1. Marketable held-to-maturity securities
FY2005 (March 31, 2006)
Item
Securities of which market
value exceeds amountrecorded on consolidatedbalance sheet
1. Government bonds andlocal government bonds
2. Corporate bonds
3. Others
Sub-total
Securities of which market
value does not exceed
amountrecordedon
consolidated balance sheet
1. Government bonds andlocal government bonds
2. Corporate bonds
3. Others
Sub-total
Total

Amount recorded on
consolidated balance
sheet, ¥thousand

Market value, ¥thousand

Difference, ¥thousand

–
–
–
–

–
–
–
–

–
–
–
–

99,678––99,67899,67899,365––99,36599,365

312
–
–
312
312

33

2. Marketable other securities
Item

FY2005 (March 31, 2006)
Amount recorded on
consolidated balance
sheet, ¥thousand

Acquisition cost,¥thousandSecurities of which amountrecordedontheconsolidated balance sheet
exceeds acquisition costs
1. Stocks
2. Bonds
3. Others
Sub-total
Securities of which amountrecorded on the consolidatedbalance sheet does notexceed acquisition costs
1. Stocks
2. Bonds
3. Others
Sub-total
Total

Difference, ¥thousand

395,274––
395,274

6,116,398––
6,116,398

5,721,123––
5,721,123––––
395,274––––
6,116,398––––
5,721,123

3. Other securities sold during the current consolidated fiscal year (From April 1, 2005 to
March 31, 2006)
Amount sold, ¥thousand
758,255

Total gain on sale¥thousand
220,271–

4. Major unquoted securities
FY2005 (March 31, 2006)
Amount recorded on consolidated balance sheet,¥thousand

Item
Held-to-maturity securities
Unlisted bonds
Other securities
1. Unlisted stocks
2. Unlisted bonds
3. MMF and etc.
4. Investment in business fund partnership

10,000619,924
20,000344,619
1,527,183

5. Schedule of redemption of securities having maturities among other securities andheld-to-maturity bonds
Item
Bonds
1. Government bonds andlocal government bonds
2. Corporate bonds
3. Others
Total

Within one year,¥thousandWithin 5 years
after one year,¥thousandWithin 10 years
after 5 years,¥thousand–
20,000–20,000–10,000–10,00099,678––99,67834

After 10 years,¥thousand––––3. Derivative transactions
Fiscal 2004 (from April 1, 2004 to March 31, 2005) and Fiscal 2005 (from April 1, 2005 to
March 31, 2006)
Not applicable. Faith Group does not execute any derivative transactions.
4. Retirement benefit
FY2004 (from April 1, 2004 to March 31, 2005)
1. Outline of retirement benefit program adopted
The Company has adopted a retirement gratuity
program, and the accounting method to recognize
retirement benefits liabilities based on the estimatedamount of retirement benefits to be paid to all
employees at the end of the fiscal year on theassumption of their voluntary retirement. In
addition, the domestic consolidated subsidiary has
adopted the employee pension fund plan. Since theemployee pension plan is an integrated type, it is
impossible to calculate the reasonable amounts ofplan assets corresponding to the consolidated
subsidiary’s’ contributions. In consequence, amountof necessary contributions to the pension plan isprocessed as allowance for retirement benefits. Of
the balance of the plan assets as of March 31, 2005
corresponding to the consolidated subsidiary’s ratio
based on the number of members amount to¥58,670 thousand. In addition, the Company has
adopted the conventional method in the calculationof estimated amount of retirement benefits above
based on the “Guideline for accounting of
retirement benefits (interim report)” (JICPA Report
No.13 issued on September 14, 1999), since theCompany is a “small-sized company” with less than
300 employees.
2. Amount of retirement benefit liabilities¥19,781 thousand
Amount of allowance for retirement benefits¥19,781 thousand
3. Amount of retirement benefit expenses¥15,152 thousand
Note: The amount of retirement benefit expenses
includes amount of contributions to the pension fundplan of the domestic consolidated subsidiaries in theabove.

FY2005 (from April 1, 2005 to March 31, 2006)
1. Outline of retirement benefit program adopted
The Company has adopted a retirement gratuity
program, and the accounting method to recognize
retirement benefits liabilities based on the estimatedamount of retirement benefits to be paid to all
employees at the end of the fiscal year on theassumption of their voluntary retirement. In
addition, some of the domestic consolidated
subsidiaries have adopted the employee pension
fund plan. Since the employee pension plan is an
integrated type, it is impossible to calculate thereasonable amounts of plan assets corresponding to
the consolidated subsidiaries’ contributions. In
consequence, amount of necessary contributions to
the pension plan is processed as allowance forretirement benefits. Of the balance of the plan assets
as of March 31, 2006 corresponding to theconsolidated subsidiaries’ ratio based on the numberof members amount to ¥62,707 thousand. In
addition, the Company has adopted the conventional
method in the calculation of estimated amount of
retirement benefits above based on the “Guideline
for accounting of retirement benefits (interim
report)” (JICPA Report No.13 on September 14,1999), since the Company is a “small-sizedcompany” with less than 300 employees.
2. Amount of retirement benefit liabilities¥27,252 thousand
Amount of allowance for retirement benefits¥27,252 thousand
3. Amount of retirement benefit expenses¥22,237 thousand
Note: The amount of retirement benefit expenses
includes amount of contributions to the pension fundplan of the domestic consolidated subsidiaries in theabove.

35

5. Tax Effect Accounting
FY2004 (March 31, 2005)
FY2005 (March 31, 2006)
1. Breakdown of the deferred tax assets and deferred 1. Breakdown of the deferred tad assets and deferred
tax liabilities by major reason
tax liabilities by major reason(Deferred tax assets)(Deferred tax assets)
Sales adjusted by tax audit¥666,718 thousand
Sales adjusted by tax audit¥696,066 thousand
Reserve for bonus¥25,830 thousand
Reserve for bonus¥31,329 thousand
Accrued enterprise tax¥55,066 thousand
Accrued enterprise tax¥65,920 thousand
Allowance for retirement
Allowance for unexercised¥7,962 thousand¥53,929 thousand
benefits
sales promotion points
Allowance for directors
Allowance for retirement
and statutory auditors’
benefits¥11,059 thousand
retirement bonus¥47,708 thousand
Allowance for directors
Allowance for doubtful
and statutory auditors’
accounts¥67,597 thousand
retirement bonus¥49,156 thousand
Valuation
loss
onAllowance for doubtful
investment securities¥144,916 thousandaccounts¥14,286 thousand
Excess over the limit ofValuation
loss
on¥71,362 thousand¥31,470 thousand
depreciation
investment securities
Deficit carried forwarded
Excess over the limit of
in tax system¥2,008,123 thousand
depreciation¥45,441 thousand
Others¥33,875 thousand
Deficit carried forwarded
in tax system¥3,076,128 thousand
Sub-total of deferred tax
Others¥34,898 thousand
assets¥3,129,161 thousand
Sub-total of deferred tax
Valuation reserve-¥2,195,055 thousand
assets¥4,109,685 thousand
Total deferred tax assets¥934,105 thousand
Valuation reserve-¥3,184,835 thousand(Deferred tax liabilities)
Total deferred tax assets¥924,849 thousand
Valuation loss on other¥203,990 thousand
investment securities(Deferred tax liabilities)
Others¥20,384 thousand
Valuation loss on otherinvestment securities¥2,321,949 thousand
Total deferred tax liabilities¥224,374 thousand
Others¥29,726 thousand
Net deferred tax assets
Total deferred tax liabilities¥2,351,676 thousand(liabilities)¥709,734 thousand
Net deferred tax assets(liabilities)-¥1,426,826 thousand
Net deferred tax assets are included in the following
items of the consolidated balance sheet.
Net deferred tax assets (liabilities) are included in the
Current
assets-deferredfollowing items of the consolidated balance sheet.
¥760,152 thousandtax assets
Current
assets-deferred
Fixed liabilities-Others¥50,421 thousandtax assets¥808,951 thousand
Fixed liabilities-deferred¥2,235,777 thousand
tax liabilities
2. Breakdown of major difference between the 2. Breakdown of major difference between theeffective legal tax rate and income taxes rate owed
effective legal tax rate and income taxes rate owed
application of tax effect accounting
application of tax effect accounting(%)(%)
Effective legal tax rate:
40.58
Effective legal tax rate:
40.58(Adjustment)(Adjustment)
Non-deductible
expenses
includingNon-deductible
expenses
includingentertainment expenses:
1.45
entertainment expenses:
0.96
Amortization of consolidation difference:
39.44
Amortization of consolidation difference:
8.27
Taxation on earnings on unrecognizedEarnings on equity method:
0.99
income of subsidiaries in deficits:
5.40
Taxation on earnings on unrecognized
Difference in tax rates amongincome of subsidiaries in deficits:
9.92
0.23
consolidated subsidiaries:
Difference in tax rates among
Per capita rate of corporate inhabitant tax:
0.27
consolidated subsidiaries:
1.36
Penalty income tax:
0.80
Per capita rate of corporate inhabitant tax:
0.19
Special income tax deduction:-1.00
Corporate tax for retroactive year:
0.86
Others:0.72
Special corporate tax deduction:-0.62
Others:-0.79
Rate of income taxes after application oftax effect accounting:
87.89
Rate of income taxes after application oftax effect accounting:
61.72

36

6. Consolidated Segment Information
a. Business segment information
Business segment information for the latest two consolidated fiscal years is as follows:
FYl 2004 (From April 1, 2004 to March 31, 2005)
Content
distribution
serviceusing
networks,¥thousandElectronic
settlement
solution
servicebusiness,¥thousandOtherbusinesses,¥thousandTotal,¥thousandElimination, Consolidated,¥thousand¥thousand

I. Net sales andoperating profit
Net sales(1) Sales to outside
customers
11,550,697 11,724,517
353,551 23,628,766–
23,628,766(2) Inter-group sales
and transfers
999
100
–
1,099
-1,099–Total
11,551,697 11,724,617
353,551 23,629,866-1,09923,628,766
Operating expenses
7,399,312 11,861,170
351,401 19,611,885-1,09919,610,785
Operating income
4,152,384-136,553
2,150
4,017,981–
4,017,981
II. Assets, depreciationand capital
expenditures
Assets13,788,794
5,048,469
361,300 19,198,564
3,384,135
22,582,699
Depreciation
328,023
35,079852
363,955–
363,955
Capital expenditures
401,694
34,985362,152
798,832–
798,832
Notes: 1 Method of businesses segmentation: The Company and its group companies’ businesses areclassified into three segments based on the similarities of services and nature of businesses.
2. Details of business segments
Business segment
Major business operations
Content distribution service using networks, andContent distribution service using networks
development of distribution platform technologies
Electronic payment service business
Provision of electronic payment services
Sales of tools for contents development, andOther businesses
development of software
3. Of assets, amount included in “elimination” is ¥4,297,151 thousand, and it consists mainly of theamount of fund management by the Company, including cash and deposits, marketable securities andinvestment securities.
4. As mentioned in the “additional information” in the above, the Company changed accounting
standards of Moderati Inc. As a result, compared with accounting on the conventional method, salesof the contents distribution service using networks decreased by ¥299,577 thousand, and its
operating expenses and operating income dropped by ¥49,685 thousand and ¥249,892 thousand
respectively in the current fiscal year.

37

FY 2005 (From April 1, 2005 to March 31, 2006)
Content
distribution
services,¥thousandElectronic
payment
business,¥thousand

MVNO
business,¥thousandOtherbusinesses,¥thousandTotal,¥thousandElimination,¥thousandConsolidated,¥thousand

I. Net sales andoperating profit
Net sales(1) Salestooutsidecustomers
14,040,205 15,106,111–
893,849 30,040,166– 30,040,166(2) Inter-group
sales
and
transfers
71,6772,758––
74,436-74,436–
Total
14,111,882 15,108,870–
893,849 30,114,603-74,436 30,040,166
Operating expenses 10,082,376 14,989,161
706,645944,991 26,723,174-74,436 26,648,738
Operating income
4,029,506
119,708-706,645-51,141 3,391,428–
3,391,428
II. Assets,
depreciation andcapitalexpenditures
Assets23,146,890 5,389,802 2,097,224 1,276,951 31,910,869-315,089 31,595,780
Depreciation
424,270
33,446
21,26835,796
514,781–514,781
Capitalexpenditures
683,045
35,594
488,541
8,157 1,215,338–
1,215,338
Notes: 1. Method of businesses segmentation: The Company and its group companies’ businesses areclassified into four segments based on the similarities of services and nature of businesses.
2. Details of business segments
Business segment
Major business operations
Content distribution service using networks, andContent distribution service
development of distribution platform technologies
Electronic payment business
Issuance of electronic money
MVNO business
Mobile network operation
Other businesses
Provision of sales promotion point services
3. Of assets, amount included in “elimination” is ¥2,702,894 thousand, and it consists mainly of theamount of fund management by the Company, including cash and deposits, marketable securities andinvestment securities.
4. The Company has changed names of business segments “content distribution service using
networks” and “electronic settlement solution service business” in the past to “content distribution
services” and “electronic payment business” respectively from the current consolidated fiscal year.
5. Since the Company made Faith communications, Inc. its consolidated subsidiary in the current
consolidated fiscal year, the business segment “MVNO business” has been newly introduced fromthe current consolidated fiscal year.

38

b. Geographical segment information
Geographical segment information for the latest two consolidated fiscal years are as
follows:
Fiscal 2004 (From April 1, 2004 to March 31, 2005)
Japan,¥thousandAmericas,¥thousandEurope,¥thousandTotal,¥thousandElimination, Consolidated,¥thousand¥thousand

I. Net sales andoperating profit
Net sales(1) Sales to outside
customers
21,525,397
1,327,230
776,138 23,628,766–
23,628,766(2) Inter-group sales
and transfers–
393,293
146,492
539,785-539,785–
Total
21,525,397
1,720,524
922,630 24,168,552-539,785
23,628,766
Operating expenses
17,661,835
1,168,112
1,320,623 20,150,571-539,785
19,610,785
Operating income
3,863,561
552,412-397,992
4,017,981–
4,017,981
II. Assets
19,383,608
4,493,596
903,210 24,780,415-2,197,716
22,582,699
Notes: 1. Countries and regions are segmented based on the geographical proximity.
2. Each segment other than Japan principally includes following countries or regions.
(1) Americas: the U.S.A. and Brazil(2) Europe: France
3. Of assets, amount included in “elimination” is ¥4,297,151 thousand, and it consists mainly of theamount of fund management by the Company, including cash and deposits, marketable securities andinvestment securities.
4. With the new inclusion of Invest Virtua S.A. located in Brazil into consolidated subsidiaries due toacquisition of its shares by the Company, the geographical segment “North America” has beenchanged to “Americas” from the current consolidated fiscal year.
5. As mentioned in the “additional information” in the above, the Company changed accounting
standards of Moderati Inc. As a result, compared with accounting on the conventional method, salesin “Americas” decreased by ¥299,577 thousand, and operating expenses and operating income
dropped by ¥49,685 thousand and ¥249,892 thousand respectively in the current fiscal year.

Fiscal 2005 (From April 1, 2005 to March 31, 2006)
Japan,¥thousandAmericas,¥thousandEurope,¥thousandTotal,¥thousandElimination, Consolidated,¥thousand¥thousand

I. Net sales andoperating profit
Net sales(1) Sales to outside
customers
26,053,353
3,309,159
677,654 30,040,166–
30,040,166(2) Inter-group sales
and transfers–
748,074
105,695
853,770-853,770–
Total
26,053,353
4,057,234
783,349 30,893,936-853,770
30,040,166
Operating expenses
21,840,689
4,574,368
1,087,450 27,502,508-853,770
26,648,738
Operating income
4,212,663-517,134-304,100
3,391,428–
3,391,428
II. Assets
29,986,598
6,591,337
837,836 37,415,772-5,819,992
31,595,780
Notes: 1. Countries and regions are segmented based on the geographical proximity.
2. Each segment other than Japan principally includes following countries or regions.
(1) Americas: the U.S.A. and Brazil(2) Europe: France
3. Of assets, amount included in “elimination” is ¥2,702,894 thousand, and it consists mainly of theamount of fund management by the Company, including cash and deposits, marketable securities andinvestment securities.

39

c. Overseas sales
Overseas sales for the latest two consolidated fiscal years are as follows:
FY 2004 (From April 1, 2004 to March 31, 2005)
North America
OthersTotal
I. Sales to foreign
customers, ¥thousand
2,123,305
754,089
2,877,394
II. Consolidated net
sales, ¥thousand––
23,628,766
III. Percentage of sales toforeign customers toconsolidated net
sales, %
9.0
3.2
12.2
Notes: 1. Countries and regions are segmented based on the geographical proximity.
2. Each segment other than Japan principally includes following countries or regions.
(1) North America: the U.S.A. and Canada(2) Others: France, Netherlands, and Taiwan
3. Sales to foreign customers refer to sales of the Company and its consolidated subsidiaries incountries and regions other than Japan.

FY 2005 (From April 1, 2005 to March 31, 2006)
North America
OthersTotal
I. Overseas sales,¥thousand
3,388,962
2,100,222
5,489,184
II. Consolidated net
sales, ¥thousand––
30,040,166
III. Percentage ofoverseas sales toconsolidated net
sales, %
11.3
7.0
18.3
Notes: 1. Countries and regions are segmented based on the geographical proximity.
2. Each segment other than Japan principally includes following countries or regions.
(1) North America: the U.S.A. and Canada(2) Others: Brazil, France, Netherlands, and Taiwan
3. Overseas sales mean sales of the Company and its consolidated subsidiaries in countries and regions
other than Japan.

7. Transactions with related parties
Fiscal 2004 (From April 1, 2004 to March 31, 2005) and Fiscal 2005 (From April 1, 2005 to March 31, 2006)
Not applicable40(Per Share Information)
FY2004 (From April 1, 2004 to March 31, 2005)
Shareholders’ equity per share:¥63,628.38
Earnings per share:¥1,159.78
Diluted earnings per share:¥1,159.24

FY2005 (From April 1, 2005 to March 31, 2006)
Shareholders’ equity per share:¥16,453.84
Earnings per share:¥1,174.67
Diluted earnings per share:¥1,174.53

The Company split its stock “2-for-1” as of August 20,
2004.
In addition, per share information for the preceding
consolidated fiscal year on the assumption that thestock split was executed at the start of the preceding
consolidated fiscal year is as follows:

The Company split its stock “5-for-1” as of December
20, 2005.
In addition, per share information for the preceding
consolidated fiscal year on the assumption that thestock split was executed at the start of the preceding
consolidated fiscal year is as follows:

Shareholders’ equity per share:¥12,725.68
Shareholders’ equity per share:¥62,238.85
Earnings per share:¥231.96
Earnings per share:¥11,128.69
Diluted earnings per share:¥231.85
Diluted earnings per share:¥11,120.23
Note: Background data for calculation of earnings per share and diluted earnings per share are as follows:
FY2004 (From April 1, 2004 to
March 31, 2005)

FY2005 (From April 1, 2005 to
March 31, 2006)

316,015

1,438,293

39,00039,000(39,000)(39,000)

277,015

1,399,293

238,852

1,191,227

Earnings per share
Net income, ¥thousand
Amounts not attributable to shareholdersof common shares, ¥thousand(Of which, officers’ bonus based on
appropriation of earnings, ¥thousand)Net income related with commonshares, ¥thousand
Average number of common stocks
issued during the term

Diluted earnings per share
Amount of adjustment for net income,¥thousand––Number of increase in common shares
112
134(Of which, increase due to exercise ofstock option under equity warrant)
(112)
(134)
Outline of potential common shares which
Equity warrants, one type Equity warrants, one typewere not included in the calculation of(number of equity warrants: (number of equity warrants:
diluted earnings per share due to lack of
350)
350)
dilution effect41

(Important Subsequent Events)
FY2004 (From April 1, 2004 to March 31, 2005)–

FY2005 (From April 1, 2005 to March 31, 2006)
1. Important financing
Mobile Alliance Co., Ltd. resolved to the debt financeas described in the below at the board of directors’
meeting held on April 3, 2006.
(1) Use of borrowing: Fund required for acquisition ofbusiness rights(2) Outline of loan agreement
Bank loan:¥10.0 billion
Period:Five (5) years
Lending banks: The Bank of Tokyo-Mitsubishi
UFJ, Ltd., and Sumitomo Mitsui
Banking Corp.
Guarantor:
Faith, Inc.
In addition, the Company made loan agreements for¥1.5 billion with The Bank of Tokyo-Mitsubishi UFJ,
Ltd., and Sumitomo Mitsui Banking Corp. respectively(date of repayment: March 30, 2007; interest rate:
TIBOR + 0.3% per annum) on May 1, 2006.
The whole amount of the bank loans was used forcapital increase of the subsidiary on May 2, 2006.
2. Purchase of important businesses
The Company’s subsidiary “Mobile Alliance Co., Ltd.”
decided, at its board of directors meeting held on April
3, 2006, to purchase business rights of Giga Networks
Company operating mobile content distribution
business as a part of San-ai Co., Ltd. from San-ai Co.,
Ltd. on May 31, 2006, and entered into the businessrights purchasing agreement on April 3, 2006.
The outline of the business rights purchasing
agreement is as follows:(1) Purposes of purchasing business rights
With increasing competition among mobile content
service companies due to maturity of the mobile
contents market, it is one of the Company’s
important management issues to develop attractive
contents service, as well as to construct more
efficient operation system of contents distribution.
Giga Networks Company, which is an in-housecompany of San-ai Co., Ltd., is providing ringtone
service to mobile phones with 4 million members.
The Company aims to create active alliances with
its partner companies including the mobile contents
provider and to develop the next generation ofhigh-value-added contents distribution services thatare attractive to users through acquisition of Giga
Networks’ business rights.
(2) Businesses to be purchased: business of contents
distribution service to mobile phones(3) Purchasing price
The purchasing price is ¥12.0 billion, and assets
and liabilities to be purchased are amounts as ofthe date of purchasing of business rights (May 31,2006). Furthermore, Mobile Alliance Company
changed its trade name to Giga Networks Co., Ltd.
on April 14, 2006.

42