Review of Operations (Consolidated)

The BB Net Group is engaged in the provision of a comprehensive support scheme for small and medium-sized enterprises (SMEs) under its “Shop Support” sheme. To extend this support, the Group focuses on upgrading two categories of services: “Front Services,” which involve the establishment of B2B portal sites and recruit customers; and “Back Services,” which involve meeting the common needs of these customers.

In the system sales business, the Group aggressively developed alliance companies that operate the “Hanjo Nets” in market sectors where BB Net Group does not directly operate, or provide “Hanjo Net” customers with extended “Back Services” As these Hanjo Nets” or sites to provide services were sold to these alliance companies, this business continued to grow, producing a 66.7% year-on-year increase in sales for the nine-month period ended April 30, 2004 to ¥1,171 million.

In the food wholesale business, an order entry system linked to the deposit (food ingredient warehouses) of Universal Food Co., Ltd. was constructed during the quarter. However, as there is a temporary switching period at this time, net sales for the nine-month period decreased 42.7% to ¥223 million. This order entry system was mostly completed in May 2004, enabling an expansion in the selection of products and lower distribution costs. As a result, the company expects sales in this business to recover.

In the restaurant services business, BB Restaurant Service Corp. aggressively expanded its “Ah Lee Shan” Taiwanese restaurant chain, opening restaurants located in the central Osaka area. The result was net sales of ¥634 million.

In the shop design and renovation business, Cube Planning Corporation, which specializes in planning, design, and construction management for confectionary and bakery shops, conducted operations through its unique construction management method “Fair Construction Management”. The result was net sales of ¥410 million.

In December 2003, Yuhaimu Confect Co., Ltd., which produces and sells Western-style confectionary, became a subsidiary. The operations of this company had sales of ¥320 million.

Of the above businesses, there are no year-on-year comparisons for the shop design and renovation business and the confectionary production and sales business because both Cube Planning and Yuhaimu Confect became subsidiaries after May 2003. As for the restaurant services business, since the sales of ¥65 million for the nine-month period of the previous fiscal year were classified as other businesses, there is no year-on-year comparison either. The actual year-on-year growth rate in the restaurant services business is 875.4%.

Due to the above factors, consolidated net sales for the nine-month period ended April 30, 2004 increased 135.7% to ¥2,795 million.

Regarding operating expenses, selling, general and administrative expenses rose 157.0% to ¥1,308 million, mainly a reflection of higher personnel expenses because of growth in the workforce to support expansion in business operations and of employees added through acquisitions. Since the growth in gross profit associated with the higher sales exceeded the growth in selling, general and administrative expenses, there was a 93.3% increase in operating income to ¥265 million and a 132.2% increase in current profit to ¥152 million.

Financial Condition (Consolidated)

At the end of the third quarter, shareholders' equity totaled ¥2,581 million, an increase of ¥1,164 million, or 82.2%, compared with the end of the previous fiscal year. This increase was mainly attributable to the conversion of convertible bonds with stock acquisition rights issued in August and December 2003, which resulted in increase in the common stock and capital surplus. As a result, the shareholders' equity ratio rose from 43.8% at the end of the previous fiscal year to 46.7%.

Total assets were ¥5,522 million, an increase of ¥2,287 million, or 70.7%, compared with the end of the previous fiscal year. This growth is mainly a reflection of investments made in alliance partners in the many industries and service sectors covered by the “Shop Support” model and of growth in trade receivables resulting from the growing scale of business operations. Turning to liabilities, there was a combined increase of ¥720 million in long-term and short-term borrowings from financial institutions to meet requirements for funds to support business expansion.

[Cash flows]

At the end of the third quarter, cash and cash equivalents totaled ¥931 million, ¥326 million more than at the end of the previous fiscal year.

Net cash used in operating activities was ¥297 million. While income before income taxes and minority interests increased cash of ¥278 million, there were cash decrese factors such as an increase of ¥365 million in trade receivables derived from business expansion and income tax payments of ¥94 million.

Net cash used in investing activities was ¥1,252 million. Cash was used mainly for investments in alliance partners that assist the Company's “Shop Support”, a comprehensive support cheme for SMEs. These alliance partners, on their own, participate in the operation of “Hanjo Nets,” B2B portal sites that serves businesses in many industries, or provide services to these SMEs.

Forecast for Operating Results

Based on the current status of business operations and earnings, there are no revisions to the current forecasts due to the absence of any significant factors that could cause a change.