Digital Garage, Inc.
FYE 2009 Financial ReportAugust 14, 200900
0

Contents

Mission & Business Model・・・・・・・

2

Group Financial Performance Review

・・・・・・・

5

FYE 2009 Segment Performance Review

・・・・・・・ 11

New Mid-Term Management Plan

・・・・・・・ 21

Copyright © 2009 Digital Garage, Inc. All Rights Reserved

Mission & Business Model

Copyright © 2009 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 Japan’s new lifestyles,
society and industries by linking:

Real &
Local &
Marketing &Present &
-3-

Cyber
International
Technology
FutureCopyright © 2009 Digital Garage, Inc. All Rights Reserved

DG’s Business Modelcontext company

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

IT★ Marketing Technology

MT

FT★ Financial Technology-4-

Copyright © 2009 Digital Garage, Inc. All Rights Reserved

Group Financial Performance Review

Copyright © 2009 Digital Garage, Inc. All Rights Reserved

Executive Summary
context company

Intensive and targeted resource allocation:
Business re-engineering aiming at mid- to long-term growth◆ Business re-organization
1. Sale of Kakaku.com stock (consolidated subsidiary) to CCC and business alliance with CCC
2. MBO sale of DG Communications (consolidated subsidiary)
3. Sale of DG Incubations (consolidated subsidiary) to IT Holdings(formation of new DG Incubation as wholly-owned subsidiary)◆ Aims and effects
1. Optimal allocation of business resources⇒ Re-organization of business portfolio⇒ Emphasis on media/incubation businesses
2. Financial re-structuring⇒ Effective utilization of capital raised through sale of Kakaku.com⇒ Significantly improved financial balance
Capital-to-asset ratio: 12% (FYE 2008) ⇒ 40% (FYE 2009)-6-

Copyright © 2009 Digital Garage, Inc. All Rights ReservedPerformance Summary for FYE 2009: Profit and Loss Statement (Consolidated)
context company

FYE 2008(Actual)FYE 2009(Actual)Year-on-Year(Amount)

Net sales

39,582

34,499-5,084

Operatingincome-172981+1,153

Ordinary
income

-375

537

+912

Net income-2,4305,450+7,880(¥ million)

Performance Review- Net sales down 13% year-on-year; operating income up 1,153 million yen(FYE 2009: 981 million yen vs. FYE 2008: -172 million yen)

- Net income record-high due to Kakaku.com stock sale of 15,854 million yen

Highlights of Year-on-Year Increases and Decreases
Sales- DG Communications (formerly Sogei) revenue decrease (approx. 7,300 million yen)

Profit- Positive impact from strong performance by Kakaku.com- DG&Ibex (formerly DGMM) posting full-year profit- CGM Marketing posting Q4 profit- Kakaku.com stock sale of 15,854 million yen- Business restructuring cost (extraordinary loss totaling 4,424 million yen)
-7-

Copyright © 2009 Digital Garage, Inc. All Rights Reserved

FYE 2009 Balance Sheet (Consolidated)
context company

FYE 2009(Actual)Year-on-Year(Amount)

29,85524,000-5,855

9,898

13,133+3,235

Fixed assets

10,202

6,274-3,928

Total assets

40,05730,275-9,782(¥ million)

Current assets
Incl. cash and deposits

FYE 2008(Actual)Current debt

27,635

17,360-10,275

Fixed debt

2,704

925

-1,780Incl. interest-bearing debt 10,656

5,833-4,823

Net assets

9,716

11,989+2,273

Total debt/net assets

40,05730,275-9,782Financial stability established◆ Current ratio
FYE 2008
108%

FYE 2009
138%◆ Percentage ofinterest-bearing debt
FYE 2008
27%

FYE 2009
19%◆ Capital-to-asset ratio
FYE 2008
12%

FYE 2009
40%* Kakaku.com and DG Communications are not included in FYE 2009 B/S (consolidated).
* Financial ratios for each year are calculated based on year-end figures.

-8-

Copyright © 2009 Digital Garage, Inc. All Rights Reserved

FYE 2009 Operating Income Analysis (Year-on-Year)
context company

Operating income by segment■Finance

FYE 2008 vs. FYE 2009 [Cumulative]+32 million yen (year-on-year)(¥ million)

4,000

2,000

526

■Portal/Weblog

494
1,505

0

Profit maintained despite e-context
merger expenses+1,925 million yen (year-on-year)

3,430

Positive impact from strong
performance of Kakaku.com group

566■Solutions-1,594-935-1,501 million yen (year-on-year)-883

Deterioration of real estate market;
loan losses incurred

期
FYE 2009
2009.6■Incubation-2,000期
2008.6FYE 2008+711 million yen (year-on-year)
Scheduled sale delayed

Operating income by segment
972 million yen → 2,131 million yen(up 1,159 million yen year-on-year)-9-

Copyright © 2009 Digital Garage, Inc. All Rights ReservedComparison of Consolidated Segment Sales and Operating Income
context company(¥ million)(¥ million)

Net sales

45,00040,00035,000Operating income

5,000■Incubation

385■Finance

3,210■Portal/Weblog■Solutions

6,706

4,000

526

180
3,000

3,424

30,000

494

2,000

9,400

25,0001,000
20,000

2,012
2,718

15,00010,000

5,000

0
1,293
2,084
4,469

2,449
2,167
2,885
4,972

4,847

0

0
226

1,098

494
316

605
286
124

29,279-1,00021,492-2,000

3,430
1,505

907
430

566
-935
-1,594■Incubation■Finance

7,761

284
503

-883

■Portal/Weblog■Solutions

0-3,000FYE 2005 FYE 2006 FYE 2007 FYE 2008 FYE 2009

FYE 2005 FYE 2006 FYE 2007 FYE 2008 FYE 2009-10-

Copyright © 2009 Digital Garage, Inc. All Rights Reserved

FYE 2009 Segment Performance Review

Copyright © 2009 Digital Garage, Inc. All Rights Reserved

Group Business Segments
context company

Ⅰ

Solutions segment

IT system design and development, design/plan/implement marketing activities

Ⅱ

Portal/Weblog segment

Portal business (e.g., Kakaku.com, CGM and weblog services)Ⅲ

Finance segment

Internet financial services for settlement, currency exchange and insurance, etc.

Ⅳ

Incubation segment

Investment promotion for Internet enterprises (business incubation)-12-

Copyright © 2009 Digital Garage, Inc. All Rights Reserved

Business Overview: Solutions Segment
context company

Ⅰ Solutions Segment - To B Solution Businesses
Offering
Offeringone-stop
one-stopsolutions
solutionsas
asaa“Hybrid“HybridSolution
SolutionPartner”
Partner”throughthroughbusinessbusinessintegration
integration◆◆Engaged
Engagedinincommissioned
commissionedbusinesses
businesses(To(ToB)B)such
suchasasITITandandMT
MTsolutions
solutionsasasstablestablerevenue
revenuebase
baseofofDG
DGGroup
Group
◆
◆Sold
SoldDG
DGCommunications
CommunicationsininMBO
MBOdealdeal◆◆Focused
Focusedon
ondevelopment
developmentofofmajor
majormedia
mediaincubation
incubationprojects
projectssimilar
similartotoMS
MSStoreStoreforforMicrosoft
Microsoft◆◆Proceeded
Proceededwith
withpreparation
preparationfor
forcommunity-stylecommunity-stylemedia
mediaincubation
incubationprojects
projectsusing
usingTwitter
Twitterasaspart
partofofcapital/businesscapital/businessalliance
with
CCC
alliance with CCC

Consolidated companies

Establishment/Subsidiary dates

Descriptions➤Digital Garage

95.8/➤DG＆Ibex Company

83.9/08.10 merged with DG

Next-generation solutions provider forsales-focused business➤Creative Garage Headquarters

03.2/08.10 merged with DG

Comprehensive media services (graphics, video, etc.)➤DG Media Marketing Headquarters

06.3/08.10 merged with DG

-

-13-

Group's media business operation andcomprehensive web advertising solicitation
Copyright © 2009 Digital Garage, Inc. All Rights Reserved

Highlights and Forecasts: Solutions Segment
context company(Digital Garage DG&Ibex Company)

Real media

FYE 2009 Highlights

Marketing area

- Achieved steady growth in total order amount from foreigncompanies (cosmetics/pharmaceuticals/digital content
providers/manufacturers)

Creative productionarea- Launched Microsoft® Store, online shopping platform forMicrosoft products, as group-wide collaborative project- Increased profit of digital media business throughconsulting services for major web-based projects andconducted preparatory work targeting businessexpansion in FYE 2010

SP area- Maintained stable level of orders for ongoing projects frommajor telecommunications carriers and expanded sales
in non-digital media areas

IT area- Posted first full-year profit for MM Headquarters (formerly
DG Media Marketing) with healthy growth incosmetics/financial areas

Web solution
area
Web media

Evolve into business entity that offers multidirectional client supports (July 2009 onward)- Expanded increasing return businesses such as "Point Mall
Service"Entering into full-fledged operational phase as Hybrid Solution Partner
MidMid- andand longlongterm
term strategy
strategy◆ Secure Hybrid Solution projects similar to Microsoft® Store throughsystematic improvements for facilitating partnerships with national clients◆ Diversify revenue base by developing original products and business models
with increasing return through effective use of Twitter, in addition tocommissioned businesses-14-

Copyright © 2009 Digital Garage, Inc. All Rights Reserved

Business Overview: Portal/Weblog Segment
context company

Ⅱ

Portal/Weblog Segment - To C Solution Businesses
PromotePromotemonetization
monetizationby
bypositioning
positioningTwitter
Twitteras
asnextnextkey
keygrowth
growthdriverdriverfollowing
followingKakaku.com
Kakaku.com◆◆ DG
DGMobile:
Mobile:proceed
proceedwith
withmonetization
monetizationprocessprocessinintalent/content
talent/contentareas
areasinincollaboration
collaborationwith
withTwitter
Twitter◆◆ Technorati:
Technorati:move
moveinto
intodifferent
differentbusinessbusinessareas
areasininsupport
supportofofTwitter-focused
Twitter-focusedefforts
efforts◆◆ Kakaku.com:
Kakaku.com:continuously
continuouslysupport
supportgrowth
growthasastop
topshareholder
shareholderandandaccelerate
acceleratealliancealliancewith
withnew
newstrategic
strategicbusinesses
businesses

Consolidated companies

Establishment/Subsidiary dates

Investment ratio

Descriptions➤CGM Marketing, Inc.

06.8/06.8

51%

Drive forward promotional businesses using blogs and Twitter➤DG Mobile, Inc.

04.2/04.2

100%

Mobile e-book distribution platforms and content➤Technorati Japan, Inc.

05.1/05.1

70%

97.12/02.6

20.3%

Blog search engine "Technorati Japan"

Equity-method affiliate FYE 2010 onward➤Kakaku.com, Inc.

-15-

Price comparison website "Kakaku.com"

Copyright © 2009 Digital Garage, Inc. All Rights Reserved

Highlights and Forecasts: Portal/Weblog Segment
context company

FYE 2009 Highlights

FYE 2009 Highlights

FYE 2009 Highlights- Achieved surplus in FYE 2009 Q4, setting up
growth base for next three years- Market expansion and steady growthin contents distribution business,ensuring DG's continuous
surplus- Completed framework for co-development ofmedia business/improved profitability
with contents holders

100

Number of e-book websites
launched by DG Mobile
Free websites
非公式サイト90
80

Client websites
制作支援他社サイト(development assisted by DG)

70

DG websites
自社サイト

6
7

60

- Transition from blog search to(mini-blog) underreview
Twitter-linked services for TRUS

7
7
6
7

50

2
9

40

9

30
20
10

9

25

79
54

65

33

11

0

06.12

- Started offering solutions for corporate use
as Japanese agent for

Position
MidMid- andand longlongterm
term strategy
strategy

07.6

07.12

- Mobile-compatible
services

08.6

08.12

09.6

under review

business as new focus in media incubation◆ Engage in business utilizing Twitter, the world's fastest growing web media
that is also attracting a great deal of attention in Japan, as new media
incubation focus after Kakaku.com◆ Establish new Twitter-based profitability model linked with existing businessassets while further expanding existing business-16-

Copyright © 2009 Digital Garage, Inc. All Rights Reserved

Business Overview: Finance Segment
context company

Ⅲ

Finance Segment
e-context
e-contextto
toconsolidate
consolidatebusinesses
businessesas
asHybrid
HybridSolution
Solutionininorderordertotorespond
respondto
tochanges
changesin
insettlement
settlementmarket
marketconditions
conditions◆◆Facilitate
Facilitatediversification
diversificationofofclient
clientusages
usagesandandsettlement
settlementmethods
methodsasaspart
partofofcapital/businesscapital/businessalliancealliancewith
withCCC
CCC◆◆EngageEngageininvarious
variouspreparations
preparationsfor
forTwitter-linked
Twitter-linkedsettlement
settlementmethods
methodsas
asnew
newsettlement
settlementfocus
focus◆◆Develop
Developnew
newCCtotoCCsettlement
settlementbusinesses
businessesininline
linewithwithrelaxation
relaxationofofsettlement-related
settlement-relatedregulations
regulations

Consolidated companies

Establishment/Subsidiary dates

Descriptions

00.5/08.10 merged with DG

Settlement/logistics platforms➤Digital Garage➤e-context Company-17-

Copyright © 2009 Digital Garage, Inc. All Rights Reserved

Highlights and Forecasts: Finance Segment
context company(Digital Garage e-context Company)

FYE 2009 Actual
Number of affiliated websites

Number of transactions

Total amount of transactions(yen)

25,91413.05 million

102.2 billion(year-on-year)

139.4%(year-on-year)

103.3%FYE 2009 Highlights

Â Number of affiliated websites
steadily increased as ecommerce market grew

- January 2009: Fully-compliant with PCI DSS, international information security
standards for payment card industry- April 2009: Started offering new settlement services using "Jibun Bank," mobilephone-based Internet bank
- June 2009: Provided fee settlement services for restaurants on tabelog.com, aword-of-mouth restaurant information website

Signed comprehensive contract
for Microsoft’s first online
download store for software
products to provide services
from site development toadministration (site opened in
November)Number of sales and downloads
steadily increasing

99.3%

Overview- September 2008: Provided collaborative services for ticket distribution andmembership administration to Yoshimoto Kogyo and PIA- November 2008: Given administration contract for Microsoft’s online store“Microsoft® Store” [Hybrid Solution project]

Microsoft® Store(year-on-year)

Jibun Ginko(settlement services)
Started offering settlement
services using "Jibun
Bank" launched by KDDI
Corp. and Bank of TokyoMitsubishi UFJ
Further expanded
corporate client base formobile sites(e.g., HMV Online)-18-

Â Meanwhile, total transaction
value dropped slightly due toincreasingly strong downward
pressure on game-related unit
pricesFuture focus areas
Â Development andimplementation of newservices for real-businessÂ Stronger collaboration withexternal partners such as
CCCÂ Development of Twitterlinked settlement services

Copyright © 2009 Digital Garage, Inc. All Rights Reserved

Business Overview: Incubation Segment
context company

Ⅳ

Incubation Segment
CreateCreateleading-edge
leading-edgeInternet
Internetbusiness,business,which
whichisisDG's
DG'scorporate
corporatephilosophy
philosophy◆◆Play
Playsupportive
supportiveroleroleforforfurther
furthergrowth
growthfor
foreacheachDG
DGsegment
segmentand
andachieve
achievesteadysteadyprofit
profitcontribution
contributiontotoGroup.
Group.
◆◆Strengthen
Strengthenincubation
incubationfocus
focusononinternational/leading-edge
international/leading-edgeInternet
Internetbusinesses
businesses⇒⇒Newly-formed
Newly-formedDG
DGIncubation
Incubationtotoprovide
providebusinessbusinesslocalization
localizationsupport
supportfor
foroverseas
overseasinvestment
investmentprojects
projects◆◆DG’s
DG’sequity
equityininDG
DG&&Partners
Partnersand
anddomestic
domesticinvestment
investmentfunds
fundsunder
underits
itsmanagement
managementsold
soldtotoITITHoldings
Holdings(ITH)(ITH)with
with
sale
of
former
DG
Incubation
sale of former DG Incubation

Consolidated companies

Establishment/Subsidiary dates

Investment ratio

Descriptions
Foreign investments and domestic
business developments➤ Newly-formed DG Incubation

09.6/09.6

100%➤ Former DG Incubation

05.7/05.7

0%

Sold to ITH➤ DG & Partners, Inc.

05.9/05.9

0%Equity in GP sold to ITH➤ DG New Context Fund05.10/05.10

0%Equity in LP sold to ITH-19-Copyright © 2009 Digital Garage, Inc. All Rights Reserved

Highlights and Forecasts: Incubation Segment
context company■FYE 2009 Highlights▼Revised and reorganized incubation strategies to reflect current
severe business environment▼ Twitter, in its second year of existence in Japanese, was widelyadopted by domestic users- Signed MOU between U.S. Twitter HQ and DG and launcheddevelopment of mobile-phone services for domestic users(scheduled to be officially available in Fall 2009)

CEO: Evan Williams- Used by various celebrities and politicians (e.g., Ryuichi Sakamoto,
IKKO, Kazuyo Katsuma and Kohmi Hirose), accelerating
popularity among general users(Note: U.S. Twitter HQ does not disclose total number ofTwitter users)- Use by major media companies, led by NHK, TBS, Asahi Shimbun,
Mainichi Shimbun, accelerated further in 2009

Strengthen localization support for existing invested businesses
MidMid- andand longlongterm
term strategy
strategy◆ Due to overall slowdown in exits from investments triggered by global financial
crisis, limit new investments and focus on localization support for existingoverseas invested businesses for time being◆ Maintain existing network with overseas market, while conduct ongoing reviews
on angel round investment for promising services-20-

Copyright © 2009 Digital Garage, Inc. All Rights ReservedNew Mid-Term Management Plan

Copyright © 2009 Digital Garage, Inc. All Rights ReservedOutline of New Mid-Term Plan for Next 3 Years
context company““Post-Kakaku.com”
Post-Kakaku.com” Strategy:
Strategy:Second
SecondStage
StageofofDG
DGGroup
GroupOperation
Operation
Continuously
Continuouslysupport
supportgrowth
growthofofKakaku.com,
Kakaku.com,as
astop
topshareholder
shareholderandandconsolidated
consolidated
company,
whilemaintaining
existing
operational/personnel
relationships
company, while maintaining existing operational/personnel relationships

I

Promote Group's Twitter-focused platform¾ Group-wide total support for full-scale expansion of Twitter use in JapanII

Development of strategic alliances with business partners¾ Capital/business alliance with CCC

III Solidifying of "Hybrid Solution" operational base and "DG" brand¾ Group of "e-Business professionals" that comprehensively covers every
aspect from upstream to downstream-22-

Copyright © 2009 Digital Garage, Inc. All Rights Reserved

Promote Group's Twitter-focused Platform

Comprehensive support for promoting Twitter in Japan

Advertising

Investment

Settlement

Contents

context company

Utilize TOL-linked area marketing

II

Facilitate expansion of business and promotional uses in Japan
Collaborate with other Group sites (e.g., tabebot)-23-

Copyright © 2009 Digital Garage, Inc. All Rights Reserved

IIII

Development of Strategic Alliances with Business Partners
context company

Capital/business alliance with CCC; Collaborate using e-context
settlement services; Build TSUTAYA member
community; Develop new profit-generating
business for TSUTAYA Online; Conduct joint R&D for nextgeneration Internet; Develop Twitter-based area
marketing
Top shareholder

Capital/businessalliance

20.3%

Top share holder

41 million users

1,372 outlets
32.02 million members

20.3%

14.83 million members

under review-24-

Copyright © 2009 Digital Garage, Inc. All Rights Reserved

III
III Solidifying of "Hybrid Solution" Operational Base and "DG" Brand
context company

Seamless solution provider for e-Business: settlement + system development + promotion

Japan's only “Hybrid Solution Partner”

Proposals

Systemdevelopment

Providingservices

Promotion

Settlement

CRM

Microsoft® Store・・・ NEXT-25-

Copyright © 2009 Digital Garage, Inc. All Rights Reserved

Segment Name Changes
context company

I

Hybrid Solution Segment¾ Former Solutions and Finance segments consolidated as Hybrid Solution

II

Media Incubation Segment¾ Former Portal/Weblog segment; focus on Twitter-centered media incubation

III

Venture Incubation Segment¾ Localization support provider for existing overseas VCs(services formerly provided to both domestic/overseas VCs)

-26-

Copyright © 2009 Digital Garage, Inc. All Rights Reserved

DG New Mid-Term Business Plancontext company

Plan
FYE 2008
Net sales

FYE 2009

FYE 2010

FYE 2011

FYE 2012

34,49911,00018,50022,000

87.2%

31.9%

168.2%

118.9%

981

300

1,600

3,200

2.8%

2.7%

8.6%

14.5%

537

800

2,300

4,200

149%

288%

183%

5,450

500

1,300

2,700

FYE 2009

FYE 2010

FYE 2011

FYE 2012

39,582(year-on-year)
Operating income-172(to sales)
Ordinary income-375(year-on-year)
Net income-2,430Net sales by segment
FYE 2008◆ Hybrid Solutions

32,08624,3489,500

13,50015,000◆ Media Incubation

7,110

9,969

1,500

5,000

5,700

◆ Venture Incubation

385

180

0

0

1,300

39,582

34,49811,00018,50022,000FYE 2009

FYE 2010

FYE 2011

FYE 2012

Total
Operating income by segment

FYE 2008◆ Hybrid Solutions

1,146

-526

1,350

1,800

2,250

◆ Media Incubation

1,422

3,542

300

1,200

1,400

◆ Venture Incubation-1,594

-883

-130

-150

850

973

2,131

1,520

2,850

4,500

Total

-27-

Copyright © 2009 Digital Garage, Inc. All Rights Reserved

DG New Mid-Term Business Plancontext company

3-year performance plan (consolidated)(¥ million)(¥ million)

Net sales

45,0005,000
Incubation

40,000385

Media Incubation

7,110

Satisfactory outcome ofbusiness incubation

Growth in new media
markets
Increasedpromotional demand

Solutions
35,000Operating income
850

4,000

Media monetization

180
3,000

30,0009,969

25,000Fewer consolidated
companies(Kakaku.com/DGC)

1,200
2,000

1,300

15,0000-526
13,500

5,000

1,800

2,250

0

1,500

10,000

1,350

1,146

5,000
24,348

3,542

1,000

5,700
32,086

1,422

300

0

20,0001,400

15,0009,500-1,000-1,594

-883

-130

-150

Incubation
Media Incubation
Solutions0-2,000FYE 2008

FYE 2009

FYE 2010

FYE 2011

FYE 2012

FYE 2008

Plan

FYE 2009

FYE 2010

FYE 2011

FYE 2012

Plan* Operating income: based on figures prior to Group tax deduction-28-

Copyright © 2009 Digital Garage, Inc. All Rights Reserved

Please note that the business forecasts and strategies covered in thispresentation are based on our current evaluation and future results mayvary significantly depending on unforeseeable events or circumstances.