Digital Garage, Inc.
- 2Q of FYE June 30, 2012 Financial ReportFebruary 10, 2012

Contents

Mission and Business Model・・・・・・・

3

Group Financial Performance Review

・・・・・・・

6

Second Quarter FYE 2012 Segment Performance Review

・・・・・・・ 16

Copyright © 2012 Digital Garage, Inc. All Rights Reserved

Mission & Business Model

Copyright © 2012 Digital Garage, Inc. All Rights Reserved

DG’s Mission
context company

Context Company
Digital Garage creates innovative
business “context” for the new internet
age and provides unique businesssolutions for new lifestyles, society andindustries by linking:

Real &
Local &
Marketing &Present &
-4-

Cyber
International
Technology
FutureCopyright © 2012 Digital Garage, Inc. All Rights Reserved

DG’s Business Modelcontext company

Produce and incubate Internet businesses
with optimal use of our three core strengths: IT, MT and FT★ Information Technology

IT★ Marketing Technology

MT

FT★ Financial Technology-5-

Copyright © 2012 Digital Garage, Inc. All Rights Reserved

Group Financial
Performance Review

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Investment Highlights
context company

Initiation of Global Incubation Strategy
Formation of U.S. Strategic Base and Creation of Agile Development Network

I

Group performance on par with expectations- Steady growth posted in Hybrid Solutions- Q1-Q2 cumulative forecast achieved despite scheduled stock sale in Q2 being delayed
to Q3 or laterII

Formation of U.S. strategic base and creation of agile development network- New Context, Inc. founded in San Francisco, U.S. as DG's incubation strategy base(fully funded by DGUS; in operation under local management)- Acquisition of two Agile Development companies in U.S./Singapore

III

Launch of incubation center in San Francisco, U.S.
- Global incubation base opened in central San Francisco area
- Global incubation network connecting MIT (Boston), Singapore and Tokyo established-7-

Copyright © 2012 Digital Garage, Inc. All Rights ReservedCumulative Period Performance Summary for Second Quarter FYE 2012 (Consolidated)
context company

Actual vs.
Forecast(Amount)

Year-on-Year(Amount)(¥ million)

Cumulative
Q2 FY 2011
ActualNet sales

4,983

6,000

6,297

+297

+1,314

Operatingincome

-181

300

302

+2

+483

Ordinary
income

213

700

665

-35

+452

Net income

158

550

610

+60

+452

Cumulative Q2 FY 2012
Initial Forecast
ActualCumulative Q2 FYE 2012 Performance
Net profit for Q2 exceeded initial forecast■ Net sales up 26.4% year-on-year; operating income profit turnaround up 483 million yen
year-on-year■ Ordinary income included equity in earnings of affiliates (Kakaku.com and others)of 451 million yen as non-operating income, loss on foreign exchange of 39 million yen,and stock issuance cost of 45 million yen, posting 665 million yen(up 310% year-to-year; increase of 452 million yen)
■ Q2 net income 610 million yen (up 452 million yen year-on-year; exceeding initial forecast
by 60 million yen) due in part to introduction of consolidated taxation system■ Year-end dividend payment of 1,000 yen/share expected-8-

Copyright © 2012 Digital Garage, Inc. All Rights Reserved

Semiannual Comparisons of Consolidated Net Sales and Operating Income
context company

Comparisons of Consolidated Performance
Net sales(¥ million)

Operating income(¥ million)

400

7,000

6,084

6,297

316

302

January –June

July –
December

300

6,000
200

4,983
5,000

4,000

100

4,493

0

3,854

-100
3,000

-200

-181

-300

2,000

-400
1,000

-500

-443
-517

-600

0
July –
DecemberJanuary –June

FY2010July –
DecemberJanuary –June

FY2011

July –
DecemberJuly –
December

FY2012January –June

FY2010July –
December

FY2011FY2012- Upward trend maintained due to steady growth posted in Hybrid Solutions- Significant year-on-year improvement in operating income despite scheduled stock salein Venture Incubation being partially delayed-9-

Copyright © 2012 Digital Garage, Inc. All Rights Reserved

Segment Data for Second Quarter FYE 2012 (Consolidated)
context company

FYE 2011
Cumulative Q2

FYE 2012
Cumulative Q2

Year-on-Year(Amount)

Net sales

4,389

5,077

+687

Operatingincome

298

528

+230

Net sales

353

650

+297

Operatingincome

-120

- 42

+78

Net sales

240

570

+330

Operatingincome

146

328

+182

(¥ million)

Hybrid Solutions

Media Incubation

Venture Incubation- Operating income per segment is based on figures prior to elimination or Group deduction- Changes in business segments are not reflected (refer to Pages 10-11 in Q2 FY 2012 financial results briefing)-10-

Copyright © 2012 Digital Garage, Inc. All Rights Reserved

Semiannual Comparisons of Consolidated Segment Net Sales and Operating Income
context company

Hybrid Solutions(¥ million)

Net sales

Operating income
600

6,000

4,863

5,000

528

5,077
500

4,389
4,023
4,000

400

3,504

336
298

3,000

300

2,000

200

1,000

100

84

67

0

0
July –
DecemberJanuary –June

FY2010July –
DecemberJanuary –June

FY2011

July –
DecemberJuly –
December

FY2012January –June

July –
December

FY2010January –June

FY2011

July –
December

FY2012

Segment Performance Highlights: DG&Ibex Company/e-context Company- Growth driven by Web marketing businesses (Internet advertising); social media-based promotions expanded- Increase in settlement transactions in gaming/travel sectors-11-

Copyright © 2012 Digital Garage, Inc. All Rights Reserved

Semiannual Comparisons of Consolidated Segment Net Sales and Operating Income
context company

Media Incubation
Operating income

Net sales(¥ million)

700

0

650

-20

600

468

500

-33

-40

-42
400

-60

353

344

281

300

-80

200

-100

100

-120

-75
-98
-120

-140

0
July –
DecemberJanuary –June

FY2010July –
DecemberJanuary –June

FY2011

July –
DecemberJuly –
December

FY2012January –June

July –
December

FY2010January –June

FY2011

July –
December

FY2012

Segment Performance Highlights: Media Incubation Headquarters/CGM Marketing, Inc.
- Steady growth in official Twitter advertising and point mall services- Earnings loss reduced despite staff expansion for cultivating new localized media-12-

Copyright © 2012 Digital Garage, Inc. All Rights Reserved

Semiannual Comparisons of Consolidated Segment Net Sales and Operating Income
context company

Venture Incubation
Operating income

Net sales(¥ million)

1,000

600

940

900

542

500

800
400

700

328
570

600

300

500
200

400
300

240

146

100

200
0
100

7

0

0

-100
July –
DecemberJanuary –June

FY2010July –
DecemberJanuary –June

FY2011

July –
December

FY2012-54
July –
December-90

January –June

July –
December

FY2010January –June

FY2011

July –
December

FY2012

Segment Performance Highlights: DG Incubation, Inc./Open Network Lab (Onlab)- Investments in overseas ventures actively pursued; global incubation accelerated(promotion of overseas business launch by Onlab graduates)- Annual forecast remains unchanged despite scheduled stock sale in Q2 being delayed to Q3 or later
Copyright © 2012 Digital Garage, Inc. All Rights Reserved-13-

Financial Summary for Second Quarter FYE 2012: Balance Sheet (Consolidated)
context company

FYE 2011
ActualQ2 FYE 2012
ActualYear-on-Year(Amount)

Current assets

14,345

23,133+8,788Incl. cash anddeposits

4,784

10,662+5,878Incl. receivables

4,351

5,196

+845

Incl. money held in
trust

2,501

3,689

+1,188

6,075
20,421

6,585
29,719+510+9,298

9,933

10,515+582

Incl. deposits

6,168

8,632

+2,464

Incl. interest-bearing
debt

2,519

725

-1,794

592

435

-157

351

233

-118

9,895
20,421

18,767
29,719+8,872

Capital-to-asset ratio
Q2 FYE 2012
FYE 2011+9,29848.1%(¥ million)

Fixed assets
Total assets
Current debt

Fixed debt
Incl. interest-bearing
debt

Net assets
Debt/net asset total-14-

Receivables:
Payments owed by convenience
stores/credit card companies(average payment period:
approx. two weeks)

Money held in trust:Payments protected by trust

Deposits:
Payments temporarily held until
paid to e-commerce clients

Short-term loan repayment

Capital increase through public
offering (July 2011) and Q2
cumulative net income posted

62.8%

Copyright © 2012 Digital Garage, Inc. All Rights ReservedPerformance Forecast for FYE 2012
context company(¥ million)

FYE 2011
ActualFYE 2012
Plan

Year-on-Year(Amount)

11,067

13,800+2,733Operating income

135

1,350

+1,215

Ordinary income

972

2,500

+1,528Net income

901

2,100

+1,199Hybrid Solutions

9,252

9,600

+348

Media Incubation

634

2,000

+1,366

Venture Incubation

1,180

2,200

+1,020Hybrid Solutions

634

650

+16

Media Incubation

-218

260

+478

Venture Incubation

688

1,500

+812

Net sales

Net sales by segment

Operating income by segment

No adjustment made to FYE 2012 initial forecast announced in August 2011-15-

Copyright © 2012 Digital Garage, Inc. All Rights Reserved

Second Quarter FYE 2012
Segment Performance Review

Copyright © 2012 Digital Garage, Inc. All Rights Reserved

DG's Unique Incubation Model with Enabling Platform
context company

DG continues to incubate and offer original internet services
using unique enabling platform since earliest days of Internet

Formation of
Agile
Development
network
Twitter

1995-2000

2000-2008

Advertising/promotion

Advertising and promotion/
solutions

Settlement infrastructure

e-commerce/social media commerceSocial media marketing

Annual transactions: 116.3 billion yen
Number of affiliated websites: 41,617

Over 700 national clients(FYE 2011)

2008-(FYE 2011)

Enabling Platform/Two Profit Bases-17-

Copyright © 2012 Digital Garage, Inc. All Rights Reserved

Formation of U.S. Strategic Base and Agile Development Network
context company

New strategic base in U.S. and global software development network
formed to counter bottleneck in global incubation

EuropeAsia

San
San Francisco:Francisco:

U.S.

Strategic
Strategic base
base forfor global
global incubation
incubation New
New Context
Context

Ohio/Edinburgh:
Ohio/Edinburgh: Agile
Agile Development
Development with
with advanced
advanced multi-language
multi-language support
supportSingapore:
Singapore:

DG's
DG's acquisitionacquisition ofof Asia
Asia operation
operation base
base ofof world's
world's leading
leading agile
agile development
development
company
company New
New Context
Context Singapore
Singapore-18-

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U.S. Office: Organization
context company

Acquisition of property for San Francisco Incubation Center
Global incubation in coordination with Agile Development network launched

Digital Garage, Inc.
U.S. holding company

Digital Garage US, Inc.
U.S. strategic
business company

U.S. asset
management company

Digital Garage
Development, LLC

New Context, Inc.

Agile Development company

EdgeCase, LLC

San Francisco
Incubation Center

New Context
Singapore-19-

Copyright © 2012 Digital Garage, Inc. All Rights Reserved

DG's New Global Incubation Ecosystemcontext company

Development of global incubation ecosystemthat continuously drives acceleration①Investment②Business Support④Return③Monetize-20-

Copyright © 2012 Digital Garage, Inc. All Rights Reserved

DG Group Business Segments
context company

I

Venture Incubation¾ Silicon Valley-type hands-on incubation; supportof Japanese startups targeting overseas market;
promotion of domestic investment

IIMedia Incubation¾ Incubation of media and app businesses primarily
for social media platforms such as Twitter/Twinavi

III

VentureIncubation

Media
Incubation

Hybrid Solutions

Hybrid Solutions¾ Hybrid integration of settlement
services and media solutions-21-

Copyright © 2012 Digital Garage, Inc. All Rights Reserved

Business Overview: Venture Incubation Segment Performancecontext company

I

Venture Incubation
Net sales

Operating income

First Half FYE 2011 Actual

240 million yen

146 million yen

First Half FYE 2012 Actual

570 million yen

328 million yen

Full-Year FYE 2012 Forecast

2,200 million yen

1,500 million yen➤ DG Incubation, Inc.
Venture business incubation through investment and development➤ Open Network Lab, Inc.
Internet-based business accelerator program for entrepreneurial engineers-22-

Copyright © 2012 Digital Garage, Inc. All Rights Reserved

Venture Incubation: Business Strategy
context company

Active investment in overseas ventures based primarily in Silicon Valley andIncubation of high-quality Japanese ventures
Incubation activities in coordination with global development network/San Francisco Incubation Center
Establishment of investment and incubation models for venture import/export and globalization

Import model

Export model

Investment/incubation of prospective overseas
ventures Japanese market localization andoverseas-based globalization support

Investment/incubation of prospective
domestic ventures and Japan-based
globalization support

IPO
Overseas ventures
Stage-specific investment

M&A

Use of Agile
Development network
Coordinated activities
with new Incubation
Center

Acceleration of global

Incubation of prospective
domestic venturesat seed stage

incubation

http://onlab.jp/

Middle/
Seed
stage

Early
stage

later stage-23-

Copyright © 2012 Digital Garage, Inc. All Rights Reserved

Highlights and Forecasts
context company

Completion of dream team of Silicon Valley angel investors
Investments made in two prominent Silicon Valley angel funds
Active investments pursued for ventures related to recent trends such as Online to Offline social media
and big data

SV Angel

500 Startups

 Technology-oriented fund
 Investments tend to focus on startups with existingproducts and sales
 Active investments in Silicon Valley-areabusinesses Design-oriented fund
 Most startups participate upon completion of
product design
 Extended network in Asia and South America⇒ Capacity to offer investment and incubation with global perspective to both technology/design-oriented
ventures beyond Silicon Valley

Direct Investment

 Online development/retail service provider for
educational contents

 CRM system provider for Web and app services

 Turkish company with headquarters in San Francisco

 Irish company with headquarters in San Francisco-24-

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Developments in Venture Incubation
context company

Open Network Lab
Seed acceleration program for engineers and entrepreneurs who create global businesses originatingfrom Japan, offering support for worldwide expansion in collaboration with global development network
and San Francisco Incubation Center

Functions of Open Network Lab
Existing functions

Additional functions

1.

Seed accelerator (startup support program)

4.

2.

Startups event organizer

Global development supporter in collaboration
with New Context, Inc.

3.

Investor

5.

Provider of U.S. operation base at incubation
center.

＋＋Number of applicants for startup support program

Summer 2010 Winter 2011 Summer 2011 Winter 2012

Prospective startups in Silicon Valley launched by program graduates-25-

Copyright © 2012 Digital Garage, Inc. All Rights Reserved

Business Overview: Media Incubation Segment Performancecontext company

II

Media Incubation
Net sales

Operating income

First Half FYE 2011 Actual

353 million yen-120 million yen

First Half FYE 2012 Actual

650 million yen-42 million yen

Full-Year FYE 2012 Forecast

2,000 million yen

260 million yen➤ Media Incubation Division
Localization of overseas media and promotion of DG's original
media development➤ CGM Marketing, Inc.
Twitter- and CGM-based ad product development, twinavi operation
and Twitter business support-26-

Copyright © 2012 Digital Garage, Inc. All Rights Reserved

Media Incubation: Business Strategy
context company

New media development in tandem with DG global incubation strategy;
Acceleration of media incubation using global development network

Multidirectional media incubation
I

Ongoing
Ongoing cultivation
cultivation ofof next-generation
next-generation
seed
seed media
media inin coordination
coordination with
with venture
ventureincubation
incubationII

Acceleration
Acceleration ofof media
media ventures
ventures using
using
lean
lean startup
startup approach
approach andand agile
agile
development
development network
network

Point

Mall

etc.

II

III

Global media
media acceleration
acceleration inin tandem
tandemIII Global
withwith global
global incubation
incubation strategy
strategy
Media

Contents

SolutionsI
VentureVenture Incubation
Incubation-27-

Copyright © 2012 Digital Garage, Inc. All Rights Reserved

Highlights and Forecasts: Media Incubation Headquarters
context company

Media Incubation Division◆ Development resources gained through acquisition of two leading agile development companies overseas- Acceleration of media incubation achieved with addition of software development capability that counters bottleneck
in localization process◆ Release of social app development platform Twinavi Apps
- Fee-based businesses expanded with social/real-time apps
linked with Twitter◆ Steady growth of point mall services(i.e., development/operation of affiliate malls linked with point programs)- Mall media network with over 90 million members establishedthrough partnerships with businesses with customer information databases
such as credit card companies

Amount of mall transactions/
number of affiliate websites
215
215 %
%

- Amount of mall transactions increased by 220% year-on-year(Year-on-Year)(Year-on-Year)

Further promotion of media export in addition to imported media development
MidMid- andand longlongterm
term strategy
strategy◆ Marketing/operational support for imported media venturesthat follow success of Twitter

FY2010FY2011FY2012◆ Implementation and global application of DG's original media and Onlab businesses-28-

Copyright © 2012 Digital Garage, Inc. All Rights Reserved

Highlights and Forecasts: CGM Marketing, Inc.
context company

CGM Marketing, Inc.
◆ Official PC/mobile advertising businesses for Twitter maintained steady growth- Record-high growth in sales posted despite decrease in
sell-through due to inventory adjustments for UI renewal
in DecemberNo.
No. 11 socialsocial media
media status
status maintained
maintainedFirst Half FYE 2012 PC-access visitors- Cross-sell with new ad products under development with
Twitter

Dentsu Group

facebook◆ Further expansion ofwith utility companies

mixi- System wide implementation by utility providers
such as Tokyo Electric Power Co.; stable profitability alsoachieved due to increase of long-term contracts
Source: Nielsen/NetRatings NetView◆ Renewal of Twinavi

as social website- Functionality renewed upon launch of social app businesses, evolving from navigation website to social website

Development of new media services together with continuous expansion of Twitter monetization
MidMid- andand longlongterm
term strategy
strategy- Diversify Twitter -related ad products/profit-earning opportunities- Develop next-generation ad products that match consumers' multi-social media use-29-

Copyright © 2012 Digital Garage, Inc. All Rights Reserved

Business Overview: Hybrid Solutions Segment Performancecontext company

III

Hybrid Solutions
Net sales

Operating income

First Half FYE 2011 Actual

4,389 million yen

298 million yen

First Half FYE 2012 Actual

5,077 million yen

528 million yen

Full-Year FYE 2012 Forecast

9,600 million yen

650 million yen➤ DG&Ibex Company
Marketing promotion support, media development and web solutions➤ e-context Company
E-commerce settlement platforms-30-

Copyright © 2012 Digital Garage, Inc. All Rights ReservedHybrid Solutions: Business Strategy
context company

Further acceleration of Hybrid Solution areas (advertising/settlement)
based on three growth drivers
1. Efficient adaptation to latest web trends via DG's new media products/global
development network
2. Swift realization of new opportunities created by smartphone market
3. Expansion of new businesses using capital increase; Development of new settlement
services for smartphones where
market expansion is expected

Three medium/longterm growth drivers
Settlement

2.2.Realizing
Realizingsmartphone
smartphonemarketopportunities
market opportunities

1.1. Adaptation
Adaptationto
tolatest
latestweb
trendsweb trends; Development ofsettlement/solution services
that are linked to DG's new
media products and global
agile development network

Hybrid Solutions
Segment
Solutions; Business promotion designed
for new contact points with
consumers such as smartphones; Expansion into newsettlement areas using
capital increase
3.3.Expanding
Expandingnew
newbusinesses
businesses
using
capitalusing capitalincrease
increase-31-

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DG&Ibex Company Highlights
context company

First Half FYE 2012 Actual

Total sales

Profit per client

Number of clients

3.54 billion yen

14.9 billion yen

238

121% (year-on-year)

114% (year-on-year)

106% (year-on-year)

Upward trend in previous year maintained; record-high sales posted
Growth factors

Sales

Healthy performance in industry-specific solution
development based on DG's expertise in social media

142
142％
％

 Web marketing area
¾ Success in market specialization strategy(e.g., cosmetics, financing) resulted in 42% growthyear-on-year

Year-on-Year
Year-on-Year General promotion area
¾ Efforts focused on securing new clients successful¾ Unit profit and margin per client improved due to higher
recognition of DG's digital planning capability
 Development and promotion of new strategic products¾ Development of industry-specific products that integrate
cyber and real media (O2O) pursued(partnership with Tabelog
launched)¾ Business planning for new opportunities created bysmartphone market-32-

FY2010FY2011FY2012

Copyright © 2012 Digital Garage, Inc. All Rights Reservede-context Company Highlights
context company

First Half FYE 2012 Actual
Number of affiliated websites

Number of transactions

Total amount of transactions

45,155

10,71 million

71.4 billion yen

117% (year-on-year)

142% (year-on-year)

129% (year-on-year)

Number and amount of transactions both set new record highGrowth factors

Number of transactions

Steady growth in both ongoing focus areas andnew businesses

262％
262％
Year-onYear-onYearYear Success in specialization for focused areas resulted in
improved performance in existing businesses¾ Credit card settlement posted 260% growth(year-on-year)¾ Upward trends in main areas (gaming/travel) maintained

117％
117％
Year-onYear-onYearYear Joint businesses with Kakaku.com remain successful¾ Settlement business with escrow services Anshin
Shiharaifurther expanded by securing
two companies with highest transactions
 New business opportunities explored through launchof new business¾ Enhanced settlement capabilities offered with BtoC
money transfer services
expandedbusiness opportunities-33-

FY2010FY2011FY2012

Copyright © 2012 Digital Garage, Inc. All Rights Reserved

Please note that the business forecasts and strategies covered in this material are based on our current evaluationand future results may vary significantly depending on unforeseeable events or circumstances.