DAIICHI JITSUGYO CO., LTD.

Transcription

1 ANNUAL REPORT 2007

2 PROFILE OF OUR COMPANY A technology trading company featuring integrated sales and technical services,, (DJK) markets production plants, machinery, and automation systems to a wide array of industrial sectors. Among its broad range of sales rights, the Company includes the products of many leading domestic and overseas machinery manufacturers in its marketing lineup. CONTENTS Consolidated Financial Highlights 1 To Our Stakeholders 2 Message from the President 4 Financial Review 6 Consolidated Five-Year Summary 7 Consolidated Financial Statements 8 Independent Auditors Report 29 Non-Consolidated Financial Statements 30 Independent Auditors Report 44 Review of Operations (Non-Consolidated Basis) 45 Commitment to the Environment 53 The DJK Network 54 Board of Directors, Corporate Data 57 The DJK Group comprises DJK, 20 subsidiaries and 4 affiliates globally. The Group works together to achieve the most efficient networks possible for the procurement and sales of manufactured goods. The Group's subsidiaries manufacture some of the products marketed by the Group. Key consolidated subsidiaries within the DJK Group network are DAIICHI MECHA-TECH CORPORATION, providing after sale technical services and parts and developing new equipment and systems; DAIICHI JITSUGYO (AMERICA), INC., a strategic global partner with eight bases in North, Central and South America; SHANGHAI YISHI TRADING CO., LTD., a sales company with principal operations in the region around China; DJTECH CO., LTD.*, which develops, designs, and manufactures solder print inspection equipment; and DAIICHI JITSUG- YO VISWILL CO., LTD., which develops, designs, and manufactures visual inspection systems for pharmaceuticals and chip condensers. In the fiscal year under reviews, several companies have been newly included in the scope of consolidation. They are DAIICHI JITSUGYO ASIA PTE. LTD., the regional manager for Southeast Asia; DAIICHI JITSUGYO (THAI- LAND) CO., LTD., a Thailand sales subsidiary; DAI-ICHI JITSUGYO (MALAYSIA) SDN. BHD., a Malaysia sales subsidiary; and DAIICHI JITSUGYO (PHILIPPINES), INC., a sales subsidiary in the Philippines. Through 59 years of professional experience in worldwide sales and services for machinery and equipment, the DJK Group is globally recognized as a technical solutions provider for industry based on leading-edge products and technologies. * DAIICHI JITSUGYO TECHNOLOGY CO., LTD., changed its name to DJTECH CO., LTD., effective April 1, 2007.

3 CONSOLIDATED FINANCIAL HIGHLIGHTS AND CONSOLIDATED SUBSIDIARIES Years ended March 31, 2007 and 2006 (*) For the year: Net sales 123, ,861 $1,044,778 Operating income 4,648 4,000 39,373 Net income 2,687 2,355 22,764 At the year-end: Total assets 74,267 66,875 $629,115 Total equity 24,151 21, ,584 Per share of common stock (in yen and U.S. dollars): Net income $0.40 Cash dividends applicable to the year (*) U.S. dollar figures have been converted from Japanese yen, for convenience only, at the rate of to U.S.$1. Net Sales (Billions of yen) Operating Income () 5,000 4,000 3,000 2, , Net Income and Total Assets and Net Income per Share Total Equity () (Yen) (Billions of yen) 3, ,500 2, , , Net income, left scale Net income per share, right scale Total assets Total equity

4 TO OUR STAKEHOLDERS 2 In the fiscal year ended March 2007, supported by steady economic expansion worldwide, Japan s economy continued its mild recovery driven by private sector capital investment and an improvement in the labor environment. The sharp hike in the prices of crude oil and other raw materials, rising interest rates, and heightened regional political risk, however, have been cause for concern, resulting in continued uncertainty about the direction of Japan s economy. Under these circumstances, the directors and employees of the DJK Group focused their energies on sales activities. As a result, consolidated orders climbed 24.4%, to billion, while net sales rose 9.3%, to billion. Profitability also improved, with ordinary income increasing 0.65 billion, to 4.8 billion and consolidated net income rising to 2.69 billion, increasing 0.33 billion from the previous fiscal year. Despite the expected continuation of its mild economic recovery, the price hikes in crude oil and raw materials, rising interest rates, and heightened regional political risk are a concern for Japan s economy. Moreover, the uncertainty of the direction of the U.S. economy and intensifying competition between countries and companies make the future difficult to predict. In response to these business conditions, the DJK Group has launched GET 2009, a new mid-term management plan, to insure its survival amid the increasingly severe global competition. The plan covers the three-year period from April 2007 to March Guided by the corporate vision and basic strategies of GET 2009, we are steadily implementing the following specific plans. To respond to customer needs, promote the necessary localization of subsidiaries based on our regional head office companies in Southeast Asia, China, North, Central and South America, and Europe and strengthen the ties between our domestic and overseas networks to expand our business. Further encourage the partnerships among Group companies and aim for improvement in performance through collaboration and greater synergies. Record additional improvements in Group profitability through active investment of business resources to develop new businesses and obtain new sales agency rights. Achieve greater liquidity of assets, hedge collection risks on overseas receivables, and make effective use of the Group s capital on a global level to further strengthen DJK Group s financial structure. Among our other globalization efforts, we ensure that our directors and employees comply with laws and regulations as well as social standards by requiring them to follow our DJK Business Practices Regulations in their business activities. We are also committed to fulfilling our responsibility as a corporate citizen by contributing to society as a whole. Kunihiro Yano President & CEO

5 3 President & CEO Kunihiro Yano

6 MESSAGE FROM THE PRESIDENT 4 In the fiscal year ended March 2007, various factors contributed to record operating income and net income. Manufacturing subsidiaries added to the Group through acquisitions, effective sales conducted with service subsidiaries that offer everything from maintenance to proposing equipment layout, and our promotion of solution sales produced the following performance result. Net sales billion (up 9.3%) Operating income 4.6 billion (up 16.2%) Net income 2.7 billion (up 14.1%) Organizationally, we further strengthened our overseas strategy, establishing a 4-axis worldwide network. Enabling us to respond to the needs of Japanese corporations in overseas markets, this overseas network was one of the factors of profit growth. Old Three-Year Mid-Term Management Plan The fiscal year ended March 31, 2007 was the final year of the mid-term management plan WIN Our performance record regarding the goals of the plan was as follows. Billions of yen Target Actual Success FY2007/3 FY2007/3 Rate Net sales % Operating income % Net income % Shareholders equity % Return on equity 12.1% 11.7% Debt equity ratio 0.80times 0.19times Unfortunately we did not reach our sales target because major orders received by the Energy, Engineering, and other businesses were lower than expected. However, thanks to an increase in the relatively profitable small and medium-sized orders, we did clear our profitability targets. Our performance on our long-term targets was supported by our M&A record, the construction of the 4-axis global network, and our revisions of the business portfolio. Our new mid-term management plan has been designed based on the results of WIN 2006, and will guide our efforts to achieve further development and growth. New Three-Year Mid-Term Management Plan Our corporate slogan for the new mid-term management plan is GET 2009, the short form of Global Expansion for the Top It stands for decision to aim for the top of our industry in expanding globally, and for our commitment to work together as a Group in achieving goals and improving performance. Our performance goals for the final year of the three-year plan have been set as follows. Reference FY2007/3 Billions of yen Target FY2010/3 Net sales Operating income Net income Shareholders equity Return on equity 11.7% 13.3% Debt equity ratio 0.19times 0.41times The new mid-term management plan, GET 2009, was built upon the sales proposal capabilities and strengthened corporate structure developed under the previous plan WIN The fundamental concept and underlying strategies are as follows.

7 1. Strengthening Business Earning Power Accelerate overseas business development and reinforce consolidated business base. Nurture and strengthen core business. Appropriately allocate business resources. 2. Increasing Consolidated Corporate Value Effectively use Group business resources and strengthen financial structure. Create and efficiently use a global network. Develop and effectively use human resources globally. 3. Establishing and Reinforcing a Good Management Structure Build greater transparency in management and a feeling of Group unity. Take corporate society responsibility (CSR) into consideration in managing business. Of these three themes, we will be giving top priority to strengthening business earning power. Strengthening Business Earning Power Accelerate overseas business development and reinforce consolidated business base. Quickly establish a BRICs business base using our 4- axis global network. Maximize synergies by aggressive implementation of Group strategies. Nurture and strengthen core business Early development of businesses that are to be core businesses of Group. Strengthen earning power through aggressive business development, including M&A. The key to achieving our performance goals is clearly moving rapidly to develop overseas markets. For that purpose, we believe it is important to quickly build a business base in BRICs markets based on our 4-axis global network. We are utilizing our 4-axis network to set up our BRICs business bases as follows. To start with, in Brazil we already have a local subsidiary in Sao Paulo. DAIICHI JITSUGYO (AMERICA), INC., will be our base for our development of this market, which we have expanded to include Mexico. For Russia, we plan to set up an office in Poland under the control of our European Business Operations Division. From that base, we will aim to enter the Russian market. In India, we already have set up a Delhi office under the control of DAIICHI JITSUGYO ASIA PTE. LTD., our regional head office subsidiary in Singapore. DAIICHI JIT- SUGYO ASIA PTE. LTD., will also serve as a base to assist with the development of the Indian market. Finally, for China, we converted our Hong Kong branch into a local subsidiary. In future, a local subsidiary in Hong Kong or Shanghai will be made the regional head office company and be responsible for dealing with all of China. Basic Concepts Behind Numerical Targets Trends in Japan and Worldwide Stable growth by the automotive industry Continued economic growth in Japan Continued economic expansion in global economy Increased resource development because of high oil prices Major Points of Emphasis in Businesses Business Categories: Oil, chemicals, engineering; pulp & paper; electronics, information, visual consumer electronics and automobile-related Regions Asia: China, Korea, India, Vietnam Europe: Hungary, Poland Americas: Brazil, Mexico Products: Oil & gas exploration and refining plants and chemical plants; paper and pulp-related plants (paper and pulp making); injection molding machines, peripheral equipment (automobiles, consumer electronics, mobile phones); surface mounting equipment and inspection equipment (LCD-related consumer electronics, mobile phones, personal computers) In the planning of the three-year mid-term management plan, among the forecasts of trends for the automotive industry in Japan and the world, we considered that cars would adapt to alternate fuel sources, the introduction of a variety of control systems to increase safety, and the greater use of electronics in automobiles. Our view of the global economy is for continued growth in short to medium term despite some emerging limitations to growth in the U.S. economy, with the euro-zone driving the world economy. In Japan, we feel that capital investment in pulp and paper-related plants and in petrochemical and chemical plants will continue. There will be increased use of bioethanol and other alternate energy sources, but we expect oil prices to remain high, and go even higher in some areas. Consequently, natural resource exploration and development should continue. Based on the above analysis, we will aim to reach our performance targets by focusing on the previously mentioned business categories, regions, and products. Kunihiro Yano President & CEO 5

8 FINANCIAL REVIEW 6 Overview During the fiscal year ended March 31, 2007, supported by steady economic expansion worldwide, Japan s economy continued its mild recovery driven by private sector capital investment and an improvement in the labor environment. Although there has been economic improvement, the hikes in the prices of crude oil and other raw materials and greater regional political risk have had a significance influence on the world economy, leaving continued uncertainty about the direction of Japan s economy. Under these circumstances, consolidated net sales climbed 10,475 million, or 9.3%, to 123,336 million. Looking at profitability, operating income rose 648 million, or 16.2%, to 4,648 million, while ordinary income increased 652 million, or 15.7%, to 4,798 million. Net income advanced 333 million, to 2,687 million. Performance by Business Segment Machinery-Related Business Sales for energy development, oil and gas refining, and chemicals fields were low because of the lack of large orders for natural gas development exploration drilling services and related equipment and for plants and related equipment. On the other hand, sales of semiconductor testing equipment grew because of the strong automobileequipment-related demand in Japan and overseas. Sales of plastics-related equipment were favorable because of the strong demand for compact plastic injection molding machines and film and sheet processing equipment for use in manufacturing automotive parts. Sales of pulp and paper-related and pharmaceutical-related both rose on the strength of firm sales of expanded pulp production facilities and paper-making machinery-related equipment and pharmaceutical filling and tablet/capsule inspection equipment. In total, net sales increased 10,608 million, or 10.0%, to 117,033 million. Operating income advanced 648 million, or 17.2%, to 4,411 million. Material-Related Business Net sales declined 232 million, or 4.0%, to 5,602 million. Operating income climbed 8 million, or 11.9%, 75 million. Other Net sales increased 99 million, or 16.5%, to 701 million, net operating income fell 8 million, or 4.5%, 162 million. Financial Position At March 31, 2007, total assets amounted to 74,267 million, increasing 7,392 million year on year. The increase can be attributed to higher levels of cash and deposits, increases in notes and accounts receivables because of sales growth, and increases in pre-payments for plants made by customers upon signing contracts. Total liabilities amounted to 50,116 million, rising 5,156 million from the previous fiscal year. The main factors were a decrease in loans because of repayment, an increase in notes and accounts payable similar to that of receivables, and increases in notes payable and pre-payments for plants made by customers upon signing contracts because of the last day of the fiscal year being a business holiday. Total equity amounted to 24,151 million. Looking at a breakdown, retained earning totaled 12,752 million ( 10,489 million on a non-consolidated basis) and shareholders capital was 21,511 million ( 19,247 million on a non-consolidated basis). The equity ratio was 32.2%. Despite continued repayments of loans, the substantial increase in net cash provided by operating activities pushed up cash and cash equivalents by 1,731 million. In addition, the inclusion in consolidation of DAIICHI JIT- SUGYO ASIA PTE. LTD. and three other subsidiaries from ASEAN countries resulted in cash and cash equivalents increasing 485 million. Cash and cash equivalents, end of year for the period under review amounted to 7,759 million, increasing 2,217 million year on year. Consolidated cash flows by activity for the fiscal year ended March 2007 were as follows: Net cash provided by operating activities Net cash provided by operating activities totaled 6,493 million, principally because such expenses as income taxes paid and increases advanced payments to suppliers were offset by revenues from income before income taxes and minority interests and an increase in advances from customers. Net cash used in investing activities Net cash used in investing activities totaled 656 million, mainly because of expenditures for investment in fixed bank deposits with terms of three months or greater and for the acquisition of property, plant and equipment. Net cash used in financing activities Net cash used in financing activities totaled 4,235 million, primarily because of expenses for decrease in shirt-term bank loans and for the payment of dividends.

9 CONSOLIDATED FIVE-YEAR SUMMARY AND CONSOLIDATED SUBSIDIARIES Years ended March 31 (Note 1) For the year: Net sales: 123, , , ,462 92,979 $1,044,778 Machinery 117, , ,955 97,342 82, ,384 Materials 5,602 5,834 7,411 7,318 8,816 47,457 Other ,325 5,937 Gross profit 17,054 14,838 13,070 11,137 9, ,462 Operating income: 4,648 4,000 3,445 2,672 1,901 39,373 Machinery 4,411 3,764 3,197 2,516 1,729 37,367 Materials Other ,369 Net income 2,687 2,355 1,920 1, ,764 Overseas sales: 43,592 39,819 41,764 36,033 23, ,270 Asia 34,048 31,430 31,962 30,057 18, ,418 Europe 3,157 3,036 2,069 1, ,742 North and Central America 5,124 4,572 6,167 4,068 3,590 43,407 Other 1, , ,703 Depreciation and amortization ,003 3,103 Capital expenditures ,860 At the year-end: Total assets 74,267 66,875 69,520 63,566 63,843 $ 629,115 Working capital 15,002 12,276 10,443 9,151 7, ,083 Interest-bearing debt 4,550 8,235 15,903 13,837 10,622 38,547 Total equity 24,151 21,911 18,556 16,708 14, ,584 Per share of common stock (in yen and U.S. dollars): Net income $ 0.40 Cash dividends Equity Other statistics: Outstanding number of shares of common stock (thousand) 56,857 56,846 56,390 55,048 54,097 Number of employees Key ratio (%): Gross profit margin Operating income margin Return on sales Return on assets Return on equity Assets turnover (times) Current ratio Equity ratio Debt to equity ratio (times) Notes: 1. U.S. dollar figures have been converted from Japanese yen, for convenience only, at the rate of to U.S.$1. 2. Minority interests in equity have been excluded from equity when key ratio is calculated.

10 CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED SUBSIDIARIES March 31, 2007 and (Note 1) ASSETS CURRENT ASSETS: Cash and cash equivalents 7,759 5,543 $ 65,730 Time deposits 267 2,259 Receivables: Notes receivable 6,760 6,295 57,265 Accounts receivable 35,940 34, ,447 Unconsolidated subsidiaries and associated companies Other ,903 Allowance for doubtful receivables (24) (29) (206) Inventories (Note 4) 2,635 3,178 22,323 Deferred tax assets (Note 10) ,484 Accounts prepaid 7,530 2,794 63,787 Other current assets ,228 Total current assets 62,751 54, ,560 PROPERTY, PLANT AND EQUIPMENT: Land (Note 5) ,445 Buildings and structures 1,326 1,282 11,235 Machinery and equipment ,029 Furniture and fixtures ,055 Leased assets (Note 13) 2,260 2,533 19,146 Construction in progress 20 Total 5,183 5,082 43,910 Accumulated depreciation (3,108) (3,009) (26,330) Net property, plant and equipment 2,075 2,073 17,580 INVESTMENT AND OTHER ASSETS: Investment securities (Note 3) 7,783 8,597 65,929 Investment in and advances to unconsolidated subsidiaries and associated companies ,345 Goodwill ,677 Deferred tax assets (Note 10) Other assets 1,100 1,089 9,319 Allowance for doubtful accounts (238) (224) (2,016) Total investment securities and other assets 9,441 10,397 79,975 TOTAL 74,267 66,875 $629,115 See notes to consolidated financial statements.

11 (Note 1) LIABILITIES AND EQUITY CURRENT LIABILITIES: Short-term bank loans (Note 6) 3,644 7,180 $ 30,871 Current portion of long-term debt (Note 6) ,268 Payables: Notes payable 7,560 7,284 64,044 Accounts payable 25,230 22, ,723 Unconsolidated subsidiaries and associated companies ,939 Other Income taxes payable 1,014 1,072 8,588 Accrued expenses 1, ,059 Advance received 8,518 2,450 72,159 Other current liabilities ,637 Total current liabilities 47,749 42, ,477 9 LONG-TERM LIABILITIES: Long-term debt (Note 6) ,408 Liability for retirement benefits (Note 7) ,337 Deferred tax liabilities (Note 10) 1,215 1,573 10,294 Other long-term liabilities Total long-term liabilities 2,367 2,831 20,054 MINORITY INTERESTS 4 COMMITMENTS AND CONTINGENT LIABILITIES (Notes 13 and 15) EQUITY (Notes 8 and 16) Common stock, authorized, 160,000,000 shares; issued, 57,432,000 shares in 2007 and ,105 5,105 43,244 Capital surplus 3,792 3,792 32,125 Retained earnings 12,752 10, ,026 Unrealized gain on available-for-sale securities 2,335 2,822 19,782 Deferred gain on derivatives under hedge accounting Foreign currency translation adjustments 20 (68) 169 Treasury stock-at cost, 575,271 shares in 2007 and 586,201 shares in 2006 (139) (124) (1,179) Total 23,880 21, ,289 Minority interests 271 2,295 Total equity 24,151 21, ,584 TOTAL 74,267 66,875 $629,115

12 CONSOLIDATED STATEMENTS OF INCOME AND CONSOLIDATED SUBSIDIARIES Years ended March 31, 2007 and 2006 (Note 1) NET SALES 123, ,861 $1,044,778 COST OF SALES 106,282 98, ,316 Gross profit 17,054 14, ,462 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES (Note 11) 12,406 10, ,089 Operating income 4,648 4,000 39, OTHER INCOME (EXPENSES): Interest and dividend income ,327 Interest expense (105) (163) (893) Purchase discount ,879 Gain on sales of investment securities Impairment loss (Note 5) (290) Other net (192) (63) (1,619) Other income net INCOME BEFORE INCOME TAXES AND MINORITY INTERESTS 4,749 4,030 40,225 INCOME TAXES (Note 10): Current 2,054 1,852 17,402 Deferred (46) (181) (392) Total income taxes 2,008 1,671 17,010 MINORITY INTERESTS IN NET INCOME NET INCOME 2,687 2,355 $ 22,764 Yen (Note 1) PER SHARE OF COMMON STOCK (Notes 2.q and 16) Basic net income $0.40 Diluted net income Cash dividends applicable to the year See notes to consolidated financial statements.

13 CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY AND CONSOLIDATED SUBSIDIARIES Years ended March 31, 2007 and 2006 Thousands Outstanding number of shares of common stock Common stock Capital surplus Retained earnings BALANCE, APRIL 1, ,390 5,105 3,790 8,731 1,263 (149) (184) 18,556 18,556 Net income 2,355 2,355 2,355 Cash dividends, 9.00 per share (508) (508) (508) Bonuses to directors (49) (49) (49) Adjustment of retained earning for newly consolidated subsidiaries (145) (145) (145) Purchase of treasury stock (54) (27) (27) (27) Disposal of treasury stock Net increase in unrealized gain on available-for-sale securities 1,559 1,559 1,559 Net change in foreign currency translation adjustments BALANCE, MARCH 31, ,846 5,105 3,792 10,384 2,822 (68) (124) 21,911 21,911 Reclassified balance as of March 31,2006 (Note 2.h) 4 4 Adjustment of retained earning for newly consolidated subsidiaries Adjustment of retained earning due to exclusion of a subsidiary from consolidation Net income 2,687 2,687 2,687 Cash dividends, per share (625) (625) (625) Bonuses to directors (63) (63) (63) Purchase of treasury stock (41) (24) (24) (24) Disposal of treasury stock Net change in the year (487) (384) 267 (117) BALANCE, MARCH 31, ,857 5,105 3,792 12,752 2, (139) 23, ,151 Unrealized gain on availablefor-sale securities Deferred gain on derivatives under hedge accounting Foreign currency translation adjustments Treasury stock Total Minority interests Total equity 11 (Note 1) BALANCE, MARCH 31, 2006 $43,244 $32,120 $ 87,963 $23,902 $(577) $(1,045) $185,607 $185,607 Reclassified balance as of March 31,2006 (Note 2.h) $ Adjustment of retained earning for newly consolidated subsidiaries Adjustment of retained earning due to exclusion of a subsidiary from consolidation 3,088 3,088 3, Net income 22,764 22,764 22,764 Cash dividends, $0.09 per share (5,297) (5,297) (5,297) Bonuses to directors (534) (534) (534) Purchase of treasury stock (202) (202) (202) Disposal of treasury stock Net change in the year (4,120) $ (3,252) 2,259 (993) BALANCE, MARCH 31, 2007 $43,244 $32,125 $108,026 $19,782 $122 $169 $(1,179) $202,289 $2,295 $204,584 See notes to consolidated financial statements. Common stock Capital surplus Retained earnings Unrealized gain on availablefor-sale securities Deferred gain on derivatives under hedge accounting Foreign currency translation adjustments Treasury stock Total Minority interests Total equity

14 CONSOLIDATED STATEMENTS OF CASH FLOWS AND CONSOLIDATED SUBSIDIARIES Years ended March 31, 2007 and (Note 1) OPERATING ACTIVITIES: Income before income taxes and minority interests 4,749 4,030 $40,225 Adjustments for: Income taxes-paid (2,170) (1,751) (18,384) Depreciation and amortization ,103 Impairment loss 290 Amortization of goodwill Changes in operating assets and liabilities: (Decrease) increase in notes and accounts receivable-trade (1,566) 2,233 (13,265) Increase in advance payments to suppliers (4,660) (1,229) (39,476) Decrease (increase) in inventories 674 (124) 5,707 Increase (decrease) in notes, acceptance and accounts payable-trade 2,725 (56) 23,086 Increase in advances from customers 6, ,131 Decrease in interest and dividends receivable (3) (32) (26) Decrease in interest payable (10) (15) (82) Other net 247 (1,282) 2,091 Total adjustments 1,744 (1,060) 14,777 Net cash provided by operating activities 6,493 2,970 55,002 INVESTING ACTIVITIES: Acquisition of property, plant and equipment (385) (97) (3,262) Proceeds from sales of property, plant and equipment Acquisition of marketable and investment securities (85) (306) (723) Payment for purchase of consolidated subsidiaries, net of cash acquired (13) (1,043) (106) Proceeds from sales of marketable and investment securities Increase in loans receivable (40) (93) (340) Collection of loans receivable Other net (175) (2) (1,482) Net cash used in investing activities (656) (1,128) (5,553) FINANCING ACTIVITIES: Decrease in short-term bank loans-net (3,445) (7,614) (29,180) Repayment of long-term debt (149) (149) (1,264) Purchase of treasury stock (25) (27) (212) Disposal of treasury stock Dividends paid (625) (507) (5,293) Net cash used in financing activities (4,235) (8,207) (35,876) FOREIGN CURRENCY TRANSLATIONS ADJUSTMENT ON CASH AND CASH EQUIVALENTS ,094 NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1,731 (6,252) 14,667 CASH AND CASH EQUIVALENTS OF NEWLY CONSOLIDATED SUBSIDIARIES, BEGINNING OF YEAR ,110 CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 5,543 11,468 46,953 CASH AND CASH EQUIVALENTS, END OF YEAR 7,759 5,543 $65,730 See notes to consolidated financial statements.

15 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AND CONSOLIDATED SUBSIDIARIES Years ended March 31, 2007 and BASIS OF PRESENTING CONSOLIDATED FINANCIAL STATEMENTS The accompanying consolidated financial statements have been prepared in accordance with the provisions set forth in the Japanese Securities and Exchange Law and its related accounting regulations, and in conformity with accounting principles generally accepted in Japan, which are different in certain respects as to application and disclosure requirements of International Financial Reporting Standards. On December 27, 2005, the Accounting Standards Board of Japan (the ASBJ ) published a new accounting standard for the statement of changes in equity, which is effective for fiscal years ending on or after May 1, The consolidated statement of shareholders equity, which was previously voluntarily prepared in line with the international accounting practices, is now required under generally accepted accounting principles in Japan and has been renamed the consolidated statement of changes in equity in the current fiscal year. In preparing these consolidated financial statements, certain reclassifications and rearrangements have been made to the consolidated financial statements issued domestically in order to present them in a form which is more familiar to readers outside Japan. In addition, certain reclassifications have been made in the 2006 financial statements to conform to the classifications used in The consolidated financial statements are stated in Japanese yen, the currency of the country in which (the Company ) is incorporated and operates. The translation of Japanese yen amounts into U.S. dollar amounts is included solely for the convenience of readers outside Japan and has been made at the rate of to $1, the approximate rate of exchange at March 31, Such translation should not be construed as representation that the Japanese yen amounts could be converted into U.S. dollars at that or any other rate. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES a. Consolidation The consolidated financial statements as of March 31, 2007 include the account of the Company and its 9 significant (6 in 2006) subsidiaries (together, the Group ). Consolidation of the remaining unconsolidated subsidiaries would not have a material effect on the accompanying consolidated financial statements. Under the control or influence concept, those companies in which the Company, directly or indirectly, is able to exercise control over operations are fully consolidated. Investments in the remaining unconsolidated subsidiaries and associated companies are stated at cost. If the equity method of accounting had been applied to the investments in these companies, the effect on the accompanying consolidated financial statements would not be material. The excess of cost of the Company s investments in consolidated subsidiaries over its equity in the fair value of the net assets at the respective dates of acquisition ( Goodwill ), is being amortized on a straight-line basis over 5 years. All significant intercompany balances and transactions have been eliminated in consolidation. All material unrealized profit included in assets resulting from transactions within the Group is eliminated. 13 b. Cash Equivalents Cash equivalents are short-term investments that are readily convertible into cash and that are exposed to insignificant risk of changes in value. Cash equivalents include time deposits, certificate of deposits, commercial paper and bond funds, all of which mature or become due within three months of the date of acquisition. c. Inventories Inventories are principally stated at cost, as determined by the first-in, first-out method. d. Investment Securities Investment securities are classified and accounted for, depending on management s intent, as follows: i) held-to-maturity debt securities, which are expected to be held to maturity with the positive intent and ability to hold to maturity are reported at amortized cost and ii) available-for-sale securities, which are not classified as either of aforementioned securities, are reported at the fair value, with unrealized gains and losses, net of applicable taxes, reported in a separate component of equity. Non-marketable available-for-sale securities are stated at cost determined by the moving-average method. For other than temporary declines in fair value, investment securities are reduced to net realizable value by a charge to income.

16 e. Property, Plant and Equipment Property, plant and equipment, except for those acquired with a government subsidy, are stated at cost. Under certain conditions, such as acquisition of property, plant and equipment with a government subsidy, Japanese tax laws permit companies to defer the profit from such government subsidy by reducing the cost of assets acquired or by providing a special reserve in equity. The carrying amount of property, plant and equipment acquired with a government subsidy which has been reduced by a government subsidy as of March 31, 2007 was 64 million ($546 thousand). Depreciation of property, plant and equipment of the Company and consolidated domestic subsidiaries is computed substantially by the declining-balance method, while the straight-line method is principally applied to the property, plant and equipment of consolidated foreign subsidiaries. Depreciation of leased assets is computed by the straight-line method based on the lease term of the respective assets. The range of useful lives is principally from 2 to 50 years for buildings, and from 2 to 17 years for machinery, equipment and vehicles. 14 f. Long-lived Assets The group reviews its long-lived assets for impairment whenever events or changes in circumstance indicate the carrying amount of an asset or asset group may not be recoverable. An impairment loss would be recognized if the carrying amount of an asset or asset group exceeds the sum of the undiscounted future cash flows expected to result from the continued use and eventual disposition of the asset or asset group. The impairment loss would be measured as the amount by which the carrying amount of the asset exceeds its recoverable amount, which is the higher of the discounted cash flows from the continued use and eventual disposition of the asset or the net selling price at disposition. g. Retirement and Pension Plans The Company and certain domestic consolidated subsidiaries have non-contributory and contributory funded defined benefit pension plans for employees which cover their benefits. Other consolidated subsidiaries have unfunded retirement benefit plans. The Group accounted for the liability for retirement benefits based on the projected benefit obligations and plan assets at the balance sheet date. Retirement benefits to directors and corporate auditors of the Company and certain domestic consolidated subsidiary are provided at the amount which would be required if all directors and corporate auditors retired at the balance sheet date. h. Presentation of Equity On December 9, 2005, the ASBJ published a new accounting standard for presentation of equity. Under this accounting standard, certain items which were previously presented as liabilities are now presented as components of equity. Such items include stock acquisition rights, minority interests, and any deferred gain or loss on derivatives accounted for under hedge accounting. This standard is effective for fiscal years ending on or after May 1, The consolidated balance sheet as of March 31, 2007 is presented in line with this new accounting standard. i. Research and Development Costs Research and development costs are charged to income as incurred. j. Leases All leases are accounted for as operating leases. Under Japanese accounting standards for leases, finance leases that deem to transfer ownership of the leased property to the lessee are to be capitalized, while other finance leases are permitted to be accounted for as operating lease transactions if certain as if capitalized information is disclosed in the notes to the lessee s financial statements.

17 k. Bonuses to Directors and Corporate Auditors Prior to the fiscal year ended March 31, 2005, bonuses to directors and corporate auditors were accounted for as a reduction of retained earnings in the fiscal year following approval at the general shareholders meeting. The ASBJ issued ASBJ Practical Issues Task Force (PITF) No.13, Accounting Treatment for Bonuses to Directors and Corporate Auditors, which encouraged companies to record bonuses to directors and corporate auditors on the accrual basis with a related charge to income, but still permitted the direct reduction of such bonuses from retained earnings after approval of the appropriation of retained earnings. The ASBJ replaced the above accounting pronouncement by issuing a new accounting standard for bonuses to directors and corporate auditors on November 29, Under the new accounting standard, bonuses to directors and corporate auditors must be expensed and are no longer allowed to be directly charged to retained earnings. This accounting standard is effective for fiscal years ending on or after May 1, The companies must accrue bonuses to directors and corporate auditors at the year end to which such bonuses are attributable. The Company adopted the new accounting standard for bonuses to directors from the year ended March 31, The effect of adoption of this accounting standard was to decrease income before income taxes and minority interests for the year ended March 31, 2007 by 81 million ($687 thousand). l. Income Taxes The provision for income taxes is computed based on the pretax income included in the consolidated statements of income. The asset and liability approach is used to recognize deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax bases of assets and liabilities. Deferred taxes are measured by applying currently enacted tax laws to the temporary differences. m. Appropriations of Retained Earnings Appropriations of retained earnings are reflected in the financial statements for the following year upon shareholders approval. n. Foreign Currency Transactions All short-term and long-term monetary receivables and payables denominated in foreign currencies are translated into Japanese yen at the exchange rate at the balance sheet date. The foreign exchange gains and losses from translation are recognized in the income statement to the extent that they are not hedged by forward exchange contracts. 15 o. Foreign Currency Financial Statements The balance sheet accounts of the consolidated foreign subsidiaries are translated into Japanese yen at the current exchange rate as of the balance sheet date except for equity, which is translated at the historical rate. Differences arising from such translation were shown as Foreign currency translation adjustments in a separate component of equity. Revenue and expense accounts of consolidated foreign subsidiaries are translated into yen at the average exchange rate.

18 p. Derivatives and Hedging Activities The Group uses derivative financial instruments to manage its exposures to fluctuations in foreign exchange and interest rates. Foreign exchange forward contracts and interest rate swaps are utilized by the Group to reduce foreign currency exchange and interest risks. The Group does not enter into derivatives for trading or speculative purposes. Derivative financial instruments and foreign currency transactions are classified and accounted for as follows : a) all derivatives be recognized as either assets or liabilities and measured at fair value, and gains or losses on derivative transactions are recognized in the income statement and b) for derivatives used for hedging purpose, if derivatives qualify for hedge accounting because of high correlation and effectiveness between the hedging instruments and the hedged items, gains or losses on derivatives are deferred until maturity of the hedged transactions. The foreign currency forward contracts employed to hedge foreign exchange exposures for export sales and import purchases are measured at the fair value and the unrealized gains/losses are recognized in income. Forward contracts applied for forecasted (or committed) transactions are also measured at the fair value but the unrealized gains/losses are deferred until the underlying transactions are completed. The interest rate swaps which qualify for hedge accounting and meet specific matching criteria are not measured at market value but the differential paid or received under the swap agreements are recognized and included in interest expenses or income. 16 q. Per Share Information Basic net income per share is computed by dividing net income available to common shareholders by the weighted-average number of common shares outstanding for the period, retroactively adjusted for stock splits. Diluted net income per share reflects the potential dilution that could occur if securities were exercised or converted into common stock. Diluted net income per share of common stock assumes full exercise of outstanding warrants. Cash dividends per share presented in the accompanying consolidated statements of income are dividends applicable to the respective years including dividends to be paid after the end of year. r. New Accounting Pronouncements Measurement of Inventories Under generally accepted accounting principles in Japan ( Japanese GAAP ), inventories are currently measured either by the cost method, or at the lower of cost or market. On July 5, 2006, the ASBJ issued ASBJ Statement No.9, Accounting Standard for Measurement of Inventories, which is effective for fiscal years beginning on or after April 1, 2008 with early adoption permitted. This standard requires that inventories held for sale in the ordinary course of business be measured at the lower of cost or net selling value, which is defined as the selling price less additional estimated manufacturing costs and estimated direct selling expenses. The replacement cost may be used in place of the net selling value, if appropriate. The standard also requires that inventories held for trading purposes be measured at the market price. Lease Accounting On March 31, 2007, the ASBJ issued ASBJ Statement No.13, Accounting Standard for Lease Transactions, which revised the existing accounting standard for lease transactions issued on June 17, Under the existing accounting standard, finance leases that deem to transfer ownership of the leased property to the lessee are to be capitalized, however, other finance leases are permitted to be accounted for as operating lease transactions if certain as if capitalized information is disclosed in the note to the lessee s financial statements. The revised accounting standard requires that all finance lease transactions should be capitalized. The revised accounting standard for lease transactions is effective for fiscal years beginning on or after April 1, 2008 with early adoption permitted for fiscal years beginning on or after April 1, 2007.

19 Unification of Accounting Policies Applied to Foreign Subsidiaries for the Consolidated Financial Statements Under Japanese GAAP, a company currently can use the financial statements of foreign subsidiaries which are prepared in accordance with generally accepted accounting principles in their respective jurisdictions for its consolidation process unless they are clearly unreasonable. On May 17, 2006, the ASBJ issued ASBJ Practical Issues Task Force (PITF) No.18, Practical Solution on Unification of Accounting Policies Applied to Foreign Subsidiaries for the Consolidated Financial Statements. The new task force prescribes: 1) the accounting policies and procedures applied to a parent company and its subsidiaries for similar transactions and events under similar circumstances should in principle be unified for the preparation of the consolidated financial statements, 2) financial statements prepared by foreign subsidiaries in accordance with either International Financial Reporting Standards or the generally accepted accounting principles in the United States tentatively may be used for the consolidation process, 3) however, the following items should be adjusted in the consolidation process so that net income is accounted for in accordance with Japanese GAAP unless they are not material; (1) Amortization of goodwill (2) Actuarial gains and losses of defined benefit plans recognized outside profit or loss (3) Capitalization of intangible assets arising from development phases (4) Fair value measurement of investment properties, and the revaluation model for property, plant and equipment, and intangible assets (5) Retrospective application when accounting policies are changed (6) Accounting for net income attributable to a minority interest The new task force is effective for fiscal years beginning on or after April 1, 2008 with early adoption permitted. 3. INVESTMENT SECURITIES Investment securities as of March 31, 2007 and 2006 consisted of the following: Non-current Marketable equity securities 6,833 7,656 $57,884 Government and corporate bonds Other ,929 Total 7,783 8,597 $65,929 Government and corporate bonds are a mortgage for guarantee of dealings. 17

20 The carrying amounts and aggregate fair values of investment securities at March 31, 2007 and 2006 were as follows: Unrealized Unrealized Fair March 31, 2007 Cost Gains Losses Value Securities classified as: Available-for-sale: Equity securities 2,904 4, ,833 Held-to-Maturity March 31, 2006 Securities classified as: Available-for-sale: Equity securities 2,903 4,753 7,656 Held-to-Maturity Unrealized Unrealized Fair March 31, 2007 Cost Gains Losses Value Securities classified as: Available-for-sale: Equity securities $24,604 $34,526 $1,246 $57,884 Held-to-Maturity Available-for-sales securities whose fair value is not readily determinable as of March 31, 2007 and 2006 were as follows: Carrying amount Available-for-sale: Equity securities $7,929 Total $7,929 Proceeds from sales of available-for-sale securities for the years ended March 31, 2007 and 2006 were 0 million ($3 thousand) and 327 million, respectively. Gross realized gain on these sales, computed on the moving average cost basis, was 0 million ($1 thousand) for the year ended March 31,2007, and gross realized gain were 144 million for the year ended March 31, The carrying values of debt securities by contractual maturities for securities classified as held-to-maturity at March 31, 2007 are as follows: Held-to-maturity: Due after five years through ten years $127 Total $127

21 4. INVENTORIES Inventories at March 31, 2007 and 2006 consisted of the following: Merchandise 1,465 2,079 $12,411 Finished products Work in process 1,089 1,023 9,221 Raw materials and supplies Total 2,635 3,178 $22, LONG-LIVED ASSETS The Group reviewed its long-lived assets for impairment as of the year ended March 31, 2006 and, as a result, recognized an impairment loss of 290 million as impairment loss for the idle land which the Group has in Tokyo due to a remarkable fall of the fair value and the carrying amount of that land was written down to the recoverable amount for the year ended March 31, The recoverable amount of that land was measured at its net clearance price by appraisal of real estate evaluation. No impairment loss was recognized in the year ended March 31, SHORT-TERM BANK LOANS AND LONG-TERM DEBT Short-term bank loans at March 31, 2007 and 2006 consisted of notes to bank and bank overdrafts. The annual interest rates applicable to the short-term bank loans ranged from 1.18% to 6.51% and 0.59% to 6.10% at March 31, 2007 and 2006, respectively. Long-term debt at March 31, 2007 and 2006 consisted of the following: Loans from banks and other financial institutions, due serially to 2013 with interest rates ranging from 1.53% to 1.75% (2007) and from 1.53% to 1.75% (2006): Unsecured 906 1,055 $7,676 Less current portion (150) (149) (1,268) Long-term debt, less current portion $6, Annual maturities of long-term debt as of March 31, 2007 were as follows: Year ending March 31: $1, , , , , ,290 Total 906 $7,676 In order to procure operating fund efficiently and stably, loan commitment has been signed on July 25, 2005 with 5 banks. Unused credit balance as of March 31, 2007 is as follows: Maximum amount of the loan commitment 13,000 $110,123 Amount loaned 3,000 25,413 Unused credit balance 10,000 $ 84,710

22 20 7. RETIREMENT AND PENSION PLANS The Company and certain domestic consolidated subsidiaries have severance payment plans for employees, directors and corporate auditors. Under most circumstances, employees terminating their employment are entitled to retirement benefits determined based on the rate of pay at the time of termination, years of service and certain other factors. Such retirement benefits are made in the form of a lump-sum severance payment from the Company or from certain consolidated subsidiaries and annuity payments from a trustee. The Company might pay the premium severance on termination of employment. The Company and certain domestic consolidated subsidiaries have non-contributory and contributory funded defined benefit pension plans for employees which cover their benefits. Other consolidated subsidiaries have unfunded retirement benefit plans. The contributory funded defined benefit pension plan, which is established under the Japanese Welfare Pension Insurance Law, covers a substitutional portion of the governmental pension program managed by the Company on behalf of the government and a corporate portion established at the discretion of the Company. The liability for retirement benefits for directors and corporate auditors are 234 million ($1,986 thousand) and 193 million at March 31, 2007 and 2006, respectively. The retirement benefits for directors and corporate auditors are paid subject to the approval of the shareholders. The liability for employees retirement benefits at March 31, 2007 and 2006 consisted of the following: Projected benefit obligation (2,230) (2,223) $(18,890) Fair value of plan assets 1,771 1,713 14,998 Unrecognized actuarial gain ,541 Net liability (160) (158) $ (1,351) The components of net periodic benefit costs for the years ended March 2007 and 2006 are as follows: Service cost $1,422 Interest cost Expected return on plan assets (43) (34) (363) Recognized actuarial loss Premium severance pay Total $2,011 Assumptions used for the years ended March 31, 2007 and 2006 are set forth as follows: Discount rate 2.0% 2.0% Expected rate of return on plan assets 2.5% 2.5% Recognition period of actuarial gain/loss 14 years 14 years 8. EQUITY On and after May 1, 2006, Japanese companies are subject to a new corporate law of Japan (the Corporate Law ), which reformed and replaced the Commercial Code of Japan (the Code ) with various revisions that are, for the most part, applicable to events or transactions which occur on or after May 1, 2006 and for the fiscal years ending on or after May 1, The significant changes in the Corporate Law that affect financial and accounting matters are summarized below:

23 a. Dividends Under the Corporate Law, companies can pay dividends at any time during the fiscal year in addition to the year-end dividend upon resolution at the shareholders meeting. For companies that meet certain criteria such as; (1) having the Board of Directors, (2) having independent auditors, (3) having the Board of Corporate Auditors, and (4) the term of service of the directors is prescribed as one year rather than two years of normal term by its articles of incorporation, the Board of Directors may declare dividends (except for dividends in kind) at any time during the fiscal year if the company has prescribed so in its articles of incorporation. The Corporate Law permits companies to distribute dividends-in-kind (non-cash assets) to shareholders subject to a certain limitation and additional requirements. Semiannual interim dividends may also be paid once a year upon resolution by the Board of Directors if the articles of incorporation of the company so stipulate. The Corporate Law provides certain limitations on the amounts available for dividends or the purchase of treasury stock. The limitation is defined as the amount available for distribution to the shareholders, but the amount of net assets after dividends must be maintained at no less than 3 million. b. Increases/Decreases and Transfer of Common Stock, Reserve and Surplus The Corporate Law requires that an amount equal to 10% of dividends must be appropriated as a legal reserve (a component of retained earnings) or as additional paid-in capital (a component of capital surplus) depending on the equity account charged upon the payment of such dividends until the total of aggregate amount of legal reserve and additional paid-in capital equals 25% of the common stock. Under the Corporate Law, the total amount of additional paid-in capital and legal reserve may be reversed without limitation. The Corporate Law also provides that common stock, legal reserve, additional paid-in capital, other capital surplus and retained earnings can be transferred among the accounts under certain conditions upon resolution of the shareholders. c. Treasury Stock and Treasury Stock Acquisition Rights The Corporate Law also provides for companies to purchase treasury stock and dispose of such treasury stock by resolution of the Board of Directors. The amount of treasury stock purchased cannot exceed the amount available for distribution to the shareholders which is determined by specific formula. Under the Corporate Law, stock acquisition rights, which were previously presented as a liability, are now presented as a separate component of equity. The Corporate Law also provides that companies can purchase both treasury stock acquisition rights and treasury stock. Such treasury stock acquisition rights are presented as a separate component of equity or deducted directly from stock acquisition rights. 21

24 9. STOCK OPTIONS The stock option outstanding as of March 31, 2007 is as follows: Stock Persons Number of Date of Exercise Exercise Option Granted Options Granted Grant Price Period 2002 Stock 236 1,660, From July Option Persons Shares ($1.30) To June Stock Option (Shares) For the year ended March 31, 2006 Non-vested March 31, 2005-Outstanding Granted Canceled Vested March 31, 2006-Outstanding Vested March 31, 2005-Outstanding 664,000 Vested Exercised 361,000 Canceled March 31, 2006-Outstanding 303,000 For the year ended March 31, 2007 Non-vested March 31, 2006-Outstanding Granted Canceled Vested March 31, 2007-Outstanding Vested March 31, 2006-Outstanding 303,000 Vested Exercised 50,000 Canceled March 31, 2007-Outstanding 253,000 Exercise price 153 ($1.30) Average stock price at exercise 611 ($5.18)

25 10. INCOME TAXES The Company and its domestic subsidiaries are subject to Japanese national and local income taxes which, in the aggregate, resulted in a normal effective statutory tax rate of approximately 40.7% for the years ended March 31, 2007 and Foreign consolidated subsidiaries are subject to income taxes of the countries in which they operate. The tax effects of significant temporary differences and loss carryforwards which resulted in deferred tax assets and liabilities at March 31, 2007 and 2006 are as follows: Deferred tax assets: Allowance for doubtful receivables $ 704 Allowance for bonus payable ,214 Pension and severance costs ,447 Goodwill Impairment loss Tax loss carry forwards Other ,800 Less valuation allowance (134) (167) (1,134) Total 1, $ 8,771 Deferred tax liabilities: Deferred gain on sales of property (27) (29) $ (233) Unrealized gain on availablefor-sale securities (1,601) (1,934) (13,560) Other (8) (67) Total (1,636) (1,963) $(13,860) Net deferred tax liabilities (601) (979) $ (5,089) A reconciliation between the normal effective statutory tax rates and the actual effective tax rates reflected in the accompanying consolidated statements of income for the years ended March 31, 2007 and 2006 is as follows: Normal effective statutory tax rate 40.7% 40.7% Expenses not deductible for income tax purposes Exclusion from charges against revenue (1.3) (0.7) Lower income tax rates applicable to income in certain foreign countries (1.4) (1.1) Overseas income deductible for enterprise tax (0.6) (1.1) Less valuation allowance (1.3) (2.3) Other-net Actual effective tax rate 42.3% 41.5% 23

26 11. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES Selling, general and administrative expenses for the fiscal years ended March 31, 2007 and 2006 principally consisted of the following: Salaries and fee 4,516 4,079 $38,253 Retirement benefit cost ,969 Depreciation and amortization Amortization of Goodwill Research and development costs ,036 Rental expense 1, , RESEARCH AND DEVELOPMENT COSTS Research and development costs charged to income were 122 million ($1,036 thousand) for the year ended March 31, LEASES (1) As Lessee The Group rents computer equipment and other assets by lease. Total lease payments under finance for the years ended March 31, 2007 and 2006 were 76 million ($643 thousand) and 65 million, respectively. Pro forma information of leased property such as acquisition cost, accumulated depreciation, obligations under finance lease, depreciation expense, interest expense and other information of finance leases that do not transfer ownership of the leased property to the lessee on an as if capitalized basis for the years ended March 31, 2007 and 2006 was as follows: Furniture Furniture and and Fixtures Others Total Fixtures Others Total Acquisition cost Accumulated depreciation Net leased property Furniture and Fixtures Others Total Acquisition cost $1,603 $1,277 $2,880 Accumulated depreciation ,403 Net leased property $ 733 $ 744 $1,477 Obligations under finance leases: Due within one year $ 627 Due after one year Total $1,498

27 Depreciation expense, interest expense and other information under finance leases: Depreciation expense $643 Interest expense Total $652 Depreciation expense and interest expense, which are not reflected in the accompanying statements of income, are computed by the straight-line method and the interest method, respectively. (2) As Lessor The Group leases machinery, equipment and other assets. Total lease receipts under finance for the years ended March 31, 2007 and 2006 were 285 million ($2,414 thousand) and 388 million, respectively. Information of leased property such as acquisition cost and accumulated depreciation for the years ended March 31, 2007 and 2006 were as follows: Machinery Machinery and and Equipment Others Total Equipment Others Total Acquisition cost 1, ,079 2, ,266 Accumulated depreciation 1, ,757 1, ,777 Net leased property Machinery and Equipment Others Total Acquisition cost $16,716 $895 $17,611 Accumulated depreciation 14, ,887 Net leased property $ 2,408 $316 $ 2, Obligations under finance leases: Due within one year $1,464 Due after one year ,772 Total $3,236 Depreciation expense, interest received under finance leases: Depreciation expense $1,570 Interest received Lease received $2,414 Depreciation expense is computed by the straight-line method. Interest received is computed by the interest method, and total interest during the lease period is amount in which acquisition cost is deducted from total lease receipts.

28 14. DERIVATIVES The Group enters into derivative contracts, including foreign exchange forward contracts, and interest swap contracts to hedge foreign exchange risk and interest rate exposures. The Group does not hold or issue derivatives for trading purposes. Derivatives are subject to market risk and credit risk. Market risk is the exposures created by potential fluctuations in market conditions, including in changes in interest or foreign exchange rates. Credit risk is the possibility that a loss may result from a counterparty s failure to perform according to the terms and conditions of the contract. Because the counterparties to those derivative contracts are limited to major international financial institutions, the Group does not anticipate any losses arising from credit risk. Derivative transactions entered into by the Group have been made in accordance with internal policies which regulate the authorization and credit limit amount. All derivatives are qualified for hedge accounting and the market value information is omitted. 15. CONTINGENT LIABILITIES At March 31, 2007, the Group had the following contingent liabilities: 26 Trade notes discounted 34 $288 Guarantees and similar items of bank loans NET INCOME PER SHARE Reconciliation of the differences between basic and diluted net income per share ( EPS ) for the years ended March 31, 2007 and 2006 is as follows: Yen in Thousands millions of shares Yen Dollars Weighted average For the year ended March 31,2007 Net income shares EPS Basic EPS Net income available to common shareholders 2,687 56, $0.40 Effect of Dilutive Securities Warrants 209 Diluted EPS Net income for computation 2,687 57, $0.40 For the year ended March 31,2006 Basic EPS Net income available to common shareholders 2,291 56, Effect of Dilutive Securities Warrants 323 Diluted EPS Net income for computation 2,291 57, SUBSEQUENT EVENTS The following appropriations of retained earnings at March 31, 2007 were approved at the shareholders meeting of the Company and certain domestic consolidated subsidiary held on June 2007: Year-end cash dividends, 13 ($0.11) per share 739 $6,261

29 18. SEGMENT INFORMATION The Company operates in the following industries: Machinery: Various machinery, equipment and parts; their repair and maintenance; and overhauling. Materials: Various pipe materials, metallic materials and plastic materials; and chemical products. Other: Various machinery and real estate leasing; real estate agency; insurance agency; and others. Information about industry segments, geographical segments and sales to foreign customers of the Company and subsidiaries for the years ended March 31, 2007 and 2006, is as follows: (1) Industry Segments a. Sales and Operating Income 2007 Eliminations/ Machinery Materials Other Corporate Consolidated Sales to customers 117,033 5, ,336 Inter-segment sales Total sales 117,033 5, ,336 Operating expenses 112,622 5, ,688 Operating income 4, ,648 b. Total Assets, Depreciation and Capital Expenditures 2007 Eliminations/ Machinery Materials Other Corporate Consolidated Total assets 60,758 2, ,142 74,267 Depreciation Capital expenditures a. Sales and Operating Income 2007 Eliminations/ Machinery Materials Other Corporate Consolidated Sales to customers $991,384 $47,457 $5,937 $1,044,778 Inter-segment sales Total sales 991,384 47,457 5,937 1,044,778 Operating expenses 954,017 46,820 4,568 1,005,405 Operating income $ 37,367 $ 637 $1,369 $ 39, b. Total Assets, Depreciation and Capital Expenditures 2007 Eliminations/ Machinery Materials Other Corporate Consolidated Total assets $514,683 $22,395 $6,122 $85,915 $629,115 Depreciation , ,103 Capital expenditures 1, , ,860

30 a. Sales and Operating Income 2006 Eliminations/ Machinery Materials Other Corporate Consolidated Sales to customers 106,425 5, ,861 Inter-segment sales Total sales 106,425 5, ,861 Operating expenses 102,661 5, ,861 Operating income 3, , b. Total Assets, Depreciation, Impairment Loss and Capital Expenditures 2006 Eliminations/ Machinery Materials Other Corporate Consolidated Total assets 54,625 2, ,401 66,875 Depreciation Impairment loss Capital expenditures (2) Geographical Segments The geographical segments of the Company and its subsidiaries for the year ended March 31, 2007 is summarized as follows: 2007 Eliminations/ Japan Asia Other Corporate Consolidated Sales to customers 106,835 10,461 6, ,336 Interarea transfer 5,196 1,038 1,063 (7,297) Total sales 112,031 11,499 7,103 (7,297) 123,336 Operating expenses 108,143 10,924 6,799 (7,178) 118,688 Operating income 3, (119) 4,648 Total assets 57,446 4,564 2,115 10,142 74, Eliminations/ Japan Asia Other Corporate Consolidated Sales to customers $905,002 $88,615 $51,161 $1,044,778 Interarea transfer 44,012 8,798 9,006 $(61,816) Total sales 949,014 97,413 60,167 (61,816) 1,044,778 Operating expenses 916,075 92,541 57,594 (60,805) 1,005,405 Operating income $ 32,939 $ 4,872 $ 2,573 (1,011) $ 39,373 Total assets $486,627 $38,659 $17,914 $ 85,915 $ 629,115 Information about geographical segments is omitted because composition proportions of Japan both in the total sales of all segments and in the total assets of those exceed 90% at March 31, (3) Sales to Foreign Customers Sales to foreign customers for the years ended March 31, 2007 and 2006 amounted to 43,592 million ($369,270 thousand) and 39,819 million, respectively.

31 29

32 NON-CONSOLIDATED BALANCE SHEETS March 31, 2007 and (Note 1) ASSETS CURRENT ASSETS: Cash and cash equivalents 5,729 4,236 $ 48,528 Receivables: Notes receivable 6,471 6,037 54,812 Accounts receivable 32,460 32, ,969 Subsidiaries and associated companies 2, ,323 Other ,302 Allowance for doubtful receivable (2) (10) (20) Inventories (Note 4) 855 1,667 7,240 Deferred tax assets (Note 9) ,360 Accounts prepaid 7,557 2,808 64,014 Other current assets ,747 Total current assets 56,815 49, ,275 PROPERTY, PLANT AND EQUIPMENT: Land (Note 5) ,445 Buildings and structures 1,167 1,179 9,888 Machinery and equipment ,800 Furniture and fixtures ,464 Leased assets (Note 11) 2,285 2,592 19,357 Total 4,599 4,808 38,954 Accumulated depreciation (2,773) (2,885) (23,488) Net property, plant and equipment 1,826 1,923 15,466 INVESTMENT AND OTHER ASSETS: Investment securities (Note 3) 7,779 8,593 65,894 Investment in and advances to subsidiaries and associated companies 2,721 2,637 23,046 Long-term loans ,970 Other assets ,893 Allowance for doubtful accounts (202) (188) (1,713) Total investment and other assets 11,461 12,378 97,090 TOTAL 70,102 64,249 $593,831 See notes to non-consolidated financial statements.

33 (Note 1) LIABILITIES AND EQUITY CURRENT LIABILITIES: Short-term bank loans (Note 6) 3,420 6,420 $ 28,971 Current portion of long-term debt (Note 6) ,268 Payables: Notes payable 7,179 6,767 60,815 Accounts payable 23,891 21, ,379 Subsidiaries and associated companies 1,545 1,685 13,087 Other Income taxes payable ,690 Accrued expenses ,761 Advance received 8,272 2,264 70,076 Other current liabilities ,399 Total current liabilities 46,229 40, ,606 LONG-TERM LIABILITIES: Long-term debt (Note 6) ,408 Liability for retirement benefits (Note 7) ,603 Deferred tax liabilities (Note 9) 1,213 1,571 10,278 Other long-term liabilities Total long-term liabilities 2,279 2,764 19, COMMITMENTS AND CONTINGENT LIABILITIES (Notes 11 and 12) EQUITY (Notes 8 and 13) Common stock, authorized, 160,000,000 shares; issued, 57,432,000 shares in 2007 and ,105 5,105 43,244 Capital surplus Additional paid-in capital 3,786 3,786 32,073 Other capital surplus Retained earnings Legal reserve ,225 Unappropriated 9,518 8,096 80,623 Unrealized gain on available-for-sale securities 2,332 2,819 19,761 Deferred gain on derivatives under hedge accounting Treasury stock- at cost, 575,271 shares in 2007 and 586,201 shares in 2006 (139) (124) (1,179) Total equity 21,594 20, ,921 TOTAL 70,102 64,249 $593,831

34 NON-CONSOLIDATED STATEMENTS OF INCOME Years ended March 31, 2007 and 2006 (Note 1) NET SALES 114, ,082 $965,992 COST OF SALES 102,872 97, ,433 Gross profit 11,163 10,870 94,559 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES (Note 10) 7,775 7,766 65,858 Operating income 3,388 3,104 28, OTHER INCOME (EXPENSES): Interest and dividend income ,869 Interest expense (90) (124) (758) Purchase discount ,855 Gain on sales of investment securities Impairment loss (Note 5) (290) Other net (59) (42) (499) Other income net ,468 INCOME BEFORE INCOME TAXES 3,679 3,236 31,169 INCOME TAXES (Note 9): Current 1,609 1,565 13,630 Deferred (32) (141) (265) Total income taxes 1,577 1,424 13,365 NET INCOME 2,102 1,812 $ 17,804 Yen (Note 1) PER SHARE OF COMMON STOCK (Notes 2.o and 13) Basic net income $0.31 Diluted net income Cash dividends applicable to the year See notes to non-consolidated financial statements.

35 NON-CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY Years ended March 31, 2007 and 2006 Thousands Capital Surplus Retained Earnings BALANCE, APRIL 1, ,390 5,105 3, ,832 1,263 (184) 17,777 Net income 1,812 1,812 Cash dividends, 9.00 per share (508) (508) Bonuses to directors (40) (40) Purchase of treasury stock (54) (27) (27) Disposal of treasury stock Net increase in unrealized Outstanding number of shares of common stock Common stock Additional paid-in capital gain on available-for-sale securities 1,556 1,556 BALANCE, MARCH 31, ,846 5,105 3, ,096 2,819 (124) 20,659 Reclassified balance as of March 31, 2006 (Note2.h) Net income 2,102 2,102 Cash dividends, per share (625) (625) Bonuses to directors (55) (55) Purchase of treasury stock (41) (24) (24) Disposal of treasury stock Net change in the year (487) 15 (472) BALANCE, MARCH 31, ,857 5,105 3, ,518 2, (139) 21,594 Other capital surplus Legal reserve Unappropriated Unrealized gain on available-forsale securities Deferred gain on derivatives under hedge accounting Treasury stock Total equity 33 Common stock Additional paid-in capital (Note 1) Capital Surplus Retained Earnings Unrealized gain on available-forsale securities BALANCE, MARCH 31, 2006 $43,244 $32,073 $47 $8,225 $68,582 $23,876 $(1,045) $175,002 Reclassified balance as of March 31, 2006 (Note2.h) Net income 17,804 17,804 Cash dividends, $0.09 per share (5,297) (5,297) Bonuses to directors (466) (466) Purchase of treasury stock (202) (202) Disposal of treasury stock Net change in the year (4,115) $122 (3,993) BALANCE, MARCH 31, 2007 $43,244 $32,073 $52 $8,225 $80,623 $19,761 $122 $(1,179)$182,921 Other capital surplus Legal reserve Unappropriated Deferred gain on derivatives under hedge accounting Treasury stock Total equity See notes to non-consolidated financial statements

36 NOTES TO NON-CONSOLIDATED FINANCIAL STATEMENTS Years ended March 31, 2007 and BASIS OF PRESENTING NON-CONSOLIDATED FINANCIAL STATEMENTS The accompanying non-consolidated financial statements have been prepared from the accounts maintained by (the Company ) in accordance with the provisions set forth in the Corporate Law of Japan or the Commercial Code of Japan and in conformity with accounting principles generally accepted in Japan, which are different in certain respects as to application and disclosure requirements of International Financial Reporting Standards. On December 27, 2005, the Accounting Standards Board of Japan ( ASBJ ) published a new accounting standard for the statement of changes in equity, which is effective for fiscal years ending on or after May 1, The statement of shareholders equity, which was previously voluntarily prepared in line with the international accounting practices, is now required under generally accepted accounting principles in Japan and has been renamed the statement of changes in equity in the current fiscal year. As consolidated statements of cash flows and certain disclosures are presented in the consolidated financial statements of the Company, non-consolidated statements of cash flows and certain disclosures are not presented herein in accordance with accounting principles generally accepted in Japan. In preparing these non-consolidated financial statements, certain reclassifications and rearrangements have been made to the Company s financial statements issued domestically in order to present them in a form which is more familiar to readers outside Japan. In addition, certain reclassifications have been made in the 2006 financial statements to conform to the classifications used in The non-consolidated financial statements are stated in Japanese yen, the currency of the country in which the Company is incorporated and operates. The translation of Japanese yen amounts into U.S. dollar amounts is included solely for the convenience of readers outside Japan and has been made at the rate of to $1, the approximate rate of exchange at March 31, Such translation should not be construed as representation that the Japanese yen amounts could be converted into U.S. dollars at that or any other rate. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES a. Non-Consolidation The non-consolidated financial statements do not include the accounts of subsidiaries. Investments in subsidiaries and associated companies are stated at cost. b. Cash Equivalents Cash equivalents are short-term investments that are readily convertible into cash and that are exposed to insignificant risk of changes in value. Cash equivalents include time deposits, certificate of deposits, commercial paper and bond funds, all of which mature or become due within three months of the date of acquisition. c. Inventories Inventories are stated at cost, as determined by the first-in, first-out method. d. Investment Securities Investment securities are classified and accounted for, depending on management s intent, as follows: i) held-to-maturity debt securities, which are expected to be held to maturity with the positive intent and ability to hold to maturity are reported at amortized cost, ii) investment securities in subsidiaries and associated companies, are reported at cost, and iii) available-for-sale securities, which are not classified as either of the aforementioned securities, are reported at the fair value, with unrealized gains and losses, net of applicable taxes, reported in a separate component of equity. Non-marketable available-for-sale securities are stated at cost determined by the moving-average method. For other than temporary declines in fair value, investment securities are reduced to net realizable value by a charge to income.

37 e. Property, Plant and Equipment Property, plant and equipment, except for those acquired with a government subsidy, are stated at cost. Under certain conditions, such as acquisition of property, plant and equipment with a government subsidy, Japanese tax laws permit companies to defer the profit from such government subsidy by reducing the cost of assets acquired or by providing a special reserve in equity. The carrying amount of property, plant and equipment acquired with a government subsidy which has been reduced by a government subsidy as of March 31, 2007 was 64 million ($546 thousand). Depreciation is computed by the declining-balance method at rates based on the estimated useful lives of the assets. Depreciation of leased assets is computed by the straight-line method based on the lease term of the respective assets. The range of useful lives is principally from 3 to 50 years for buildings, and from 6 to 15 years for machinery, equipment and vehicles. f. Long-lived Assets The Company reviews its long-lived assets for impairment whenever events or changes in circumstance indicate the carrying amount of an asset or asset group may not be recoverable. An impairment loss would be recognized if the carrying amount of an asset or asset group exceeds the sum of the undiscounted future cash flows expected to result from the continued use and eventual disposition of the asset or asset group. The impairment loss would be measured as the amount by which the carrying amount of the asset exceeds its recoverable amount, which is the higher of the discounted cash flows from the continued use and eventual disposition of the asset or the net selling price at disposition. 35 g. Retirement and Pension Plans The Company has non-contributory and contributory funded defined benefit pension plans for employees which cover their benefits. The Company accounted for the liability for retirement benefits based on the projected benefit obligations and plan assets at the balance sheet date. Retirement benefits to directors and corporate auditors of the Company are provided at the amount which would be required if all directors and corporate auditors retired at the balance sheet date. h. Presentation of Equity On December 9, 2005, the ASBJ published a new accounting standard for presentation of equity. Under this accounting standard, certain items which were previously presented as liabilities are now presented as components of equity. Such items include stock acquisition rights and any deferred gain or loss on derivatives accounted for under hedge accounting. This standard is effective for fiscal years ending on or after May 1, The non-consolidated balance sheet as of March 31, 2007 is presented in line with this new accounting standard. i. Leases All leases are accounted for as operating leases. Under Japanese accounting standards for leases, finance leases that deem to transfer ownership of the leased property to the lessee are to be capitalized, while other finance leases are permitted to be accounted for as operating lease transactions if certain as if capitalized information is disclosed in the notes to the lessee s financial statements.

38 j. Bonuses to Directors and Corporate Auditors Prior to the fiscal year ended March 31, 2005, bonuses to directors and corporate auditors were accounted for as a reduction of retained earnings in the fiscal year following approval at the general shareholders meeting. The ASBJ issued ASBJ Practical Issues Task Force (PITF) No.13, Accounting Treatment for Bonuses to Directors and Corporate Auditors, which encouraged companies to record bonuses to directors and corporate auditors on the accrual basis with a related charge to income, but still permitted the direct reduction of such bonuses from retained earnings after approval of the appropriation of retained earnings. The ASBJ replaced the above accounting pronouncement by issuing a new accounting standard for bonuses to directors and corporate auditors on November 29, Under the new accounting standard, bonuses to directors and corporate auditors must be expensed and are no longer allowed to be directly charged to retained earnings. This accounting standard is effective for fiscal years ending on or after May 1, The companies must accrue bonuses to directors and corporate auditors at the year end to which such bonuses are attributable. The Company adopted the new accounting standard for bonuses to directors and corporate auditors in the year ended March 31, The effect of adoption of this accounting standard was to decrease income before income taxes for the year ended March 31, 2007 by 70 million ($593 thousand). 36 k. Income Taxes The provision for income taxes is computed based on the pretax income included in the statements of income. The asset and liability approach is used to recognize deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax bases of assets and liabilities. Deferred taxes are measured by applying currently enacted tax laws to the temporary differences. l. Appropriation of Retained Earnings Appropriations of retained earnings are reflected in the financial statements for the following year upon shareholders approval. m. Foreign Currency Transactions All short-term and long-term monetary receivables and payables denominated in foreign currencies are translated into Japanese yen at the exchange rate at the balance sheet date. The foreign exchange gains and losses from translation are recognized in the income statement to the extent that they are not hedged by forward exchange contracts. n. Derivatives and Hedging Activities The Company uses derivative financial instruments to manage its exposures to fluctuations in foreign exchange and interest rates. Foreign exchange forward contracts and interest rate swaps are utilized by the Company to reduce foreign currency exchange and interest risks. The Company does not enter into derivatives for trading or speculative purposes. Derivative financial instruments and foreign currency transactions are classified and accounted for as follows : a) all derivatives be recognized as either assets or liabilities and measured at fair value, and gains or losses on derivative transactions are recognized in the income statement and b) for derivatives used for hedging purpose, if derivatives qualify for hedge accounting because of high correlation and effectiveness between the hedging instruments and the hedged items, gains or losses on derivatives are deferred until maturity of the hedged transactions. The foreign currency forward contracts employed to hedge foreign exchange exposures for export sales and import purchases are measured at the fair value and the unrealized gains/losses are recognized in income. Forward contracts applied for forecasted (or committed) transactions are also measured at the fair value but the unrealized gains/losses are deferred until the underlying transactions are completed. The interest rate swaps which qualify for hedge accounting and meet specific matching criteria are not remeasured at market value but the differential paid or received under the swap agreements are recognized and included in interest expenses or income.

39 o. Per Share Information Basic net income per share is computed by dividing net income available to common shareholders by the weighted-average number of common shares outstanding for the period, retroactively adjusted for stock splits. Diluted net income per share reflects the potential dilution that could occur if securities were exercised or converted into common stock. Diluted net income per share of common stock assumes full exercise of outstanding warrants. Cash dividends per share presented in the accompanying statements of income are dividends applicable to the respective years including dividends to be paid after the end of year. p. New Accounting Pronouncements Measurement of Inventories Under generally accepted accounting principles in Japan, inventories are currently measured either by the cost method, or at the lower of cost or market. On July 5, 2006, the ASBJ issued ASBJ Statement No.9, Accounting Standard for Measurement of Inventories, which is effective for fiscal years beginning on or after April 1, 2008 with early adoption permitted. This standard requires that inventories held for sale in the ordinary course of business be measured at the lower of cost or net selling value, which is defined as the selling price less additional estimated manufacturing costs and estimated direct selling expenses. The replacement cost may be used in place of the net selling value, if appropriate. The standard also requires that inventories held for trading purposes be measured at the market price. Lease Accounting On March 31, 2007, the ASBJ issued ASBJ Statement No.13, Accounting Standard for Lease Transactions, which revised the existing accounting standard for lease transactions issued on June 17, Under the existing accounting standard, finance leases that deem to transfer ownership of the leased property to the lessee are to be capitalized, however, other finance leases are permitted to be accounted for as operating lease transactions if certain as if capitalized information is disclosed in the note to the lessee s financial statements. The revised accounting standard requires that all finance lease transactions should be capitalized. The revised accounting standard for lease transactions is effective for fiscal years beginning on or after April 1, 2008 with early adoption permitted for fiscal years beginning on or after April 1, INVESTMENT SECURITIES Investment securities as of March 31, 2007 and 2006 consisted of the following: Non-current Marketable equity securities 6,832 7,655 $57,875 Government and corporate bonds Other ,903 Total 7,779 8,593 $65,894 Government and corporate bonds are a mortgage for guarantee of dealings. 4. INVENTORIES Inventories at March 31, 2007 and 2006 consisted of merchandise.

40 38 5. LONG-LIVED ASSETS The Company reviewed its long-lived assets for impairment as of the year ended March 31, 2006 and, as a result, recognized an impairment loss of 290 million as impairment loss for the idle land which the Company has in Tokyo due to a remarkable fall of the fair value and the carrying amount of that land was written down to the recoverable amount for the year ended March 31, The recoverable amount of that land was measured at its net clearance price by appraisal of real estate evaluation. No impairment loss was recognized in the year ended March 31, SHORT-TERM BANK LOANS AND LONG-TERM DEBT Short-term bank loans at March 31, 2007 and 2006 consisted of notes to bank and bank overdrafts. The annual interest rates applicable to the short-term bank loans ranged from 1.18% to 1.375% and 0.59% to 1.375% at March 31, 2007 and 2006, respectively. Long-term debt at March 31, 2007 and 2006 consisted of the following: Loans from banks and other financial institutions, due serially to 2013 with interest rates ranging from 1.53% to 1.75% (2007) and from 1.53% to 1.75% (2006): Unsecured 906 1,055 $7,676 Less current portion (150) (149) (1,268) Long-term debt, less current portion $6,408 Annual maturities of long-term debt as of March 31, 2007 were as follows: Year ending March 31: $1, , , , , ,290 Total 906 $7,676 In order to procure operating fund efficiently and stably, loan commitment has been signed on July 25, 2005 with 5 banks. Unused credit balance as of March 31, 2007 is as follows: Maximum amount of the loan commitment 13,000 $110,123 Amount loaned 3,000 25,413 Unused credit balance 10,000 $ 84, RETIREMENT AND PENSION PLANS The Company has severance payment plans for employees, directors and corporate auditors. Under most circumstances, employees terminating their employment are entitled to retirement benefits determined based on the rate of pay at the time of termination, years of service and certain other factors. Such retirement benefits are made in the form of annuity payments from a trustee. The Company might pay the premium severance on termination of employment. The Company has contributory funded defined benefit pension plans for employees which cover their benefits.

41 8. EQUITY The contributory funded defined benefit pension plan, which is established under the Japanese Welfare Pension Insurance Law, covers a substitutional portion of the governmental pension program managed by the Company on behalf of the government and a corporate portion established at the discretion of the Company. The liability for retirement benefits for directors and corporate auditors are 222 million ($1,880 thousand) and 184 million at March 31, 2007 and 2006, respectively. The retirement benefits for directors and corporate auditors are paid subject to the approval of the shareholders. On and after May 1, 2006, Japanese companies are subject to a new corporate law of Japan (the Corporate Law ), which reformed and replaced the Commercial Code of Japan (the Code ) with various revisions that are, for the most part, applicable to events or transactions which occur on or after May 1, 2006 and for the fiscal years ending on or after May 1, The significant changes in the Corporate Law that affect financial and accounting matters are summarized below: a. Dividends Under the Corporate Law, companies can pay dividends at any time during the fiscal year in addition to the year-end dividend upon resolution at the shareholders meeting. For companies that meet certain criteria such as; (1) having the Board of Directors, (2) having independent auditors, (3) having the Board of Corporate Auditors, and (4) the term of service of the directors is prescribed as one year rather than two years of normal term by its articles of incorporation, the Board of Directors may declare dividends (except for dividends in kind) if the company has prescribed so in its articles of incorporation. The Corporate Law permits companies to distribute dividends-in-kind (non-cash assets) to shareholders subject to a certain limitation and additional requirements. Semiannual interim dividends may also be paid once a year upon resolution by the Board of Directors if the articles of incorporation of the company so stipulate. The Corporate Law provides certain limitations on the amounts available for dividends or the purchase of treasury stock. The limitation is defined as the amount available for distribution to the shareholders, but the amount of net assets after dividends must be maintained at no less than 3 million. 39 b. Increases/Decreases and Transfer of Common Stock, Reserve and Surplus The Corporate Law requires that an amount equal to 10% of dividends must be appropriated as a legal reserve (a component of retained earnings) or as additional paid-in capital (a component of capital surplus) depending on the equity account charged upon the payment of such dividends until the total of aggregate amount of legal reserve and additional paid-in capital equals 25% of the common stock. Under the Corporate Law, the total amount of additional paid-in capital and legal reserve may be reversed without limitation. The Corporate Law also provides that common stock, legal reserve, additional paid-in capital, other capital surplus and retained earnings can be transferred among the accounts under certain conditions upon resolution of the shareholders. c. Treasury Stock and Treasury Stock Acquisition Rights The Corporate Law also provides for companies to purchase treasury stock and dispose of such treasury stock by resolution of the Board of Directors. The amount of treasury stock purchased cannot exceed the amount available for distribution to the shareholders which is determined by specific formula.

42 40 9. INCOME TAXES Under the Corporate Law, stock acquisition rights, which were previously presented as a liability, are now presented as a separate component of equity. The Corporate Law also provides that companies can purchase both treasury stock acquisition rights and treasury stock. Such treasury stock acquisition rights are presented as a separate component of equity or deducted directly from stock acquisition rights. The Company is subject to Japanese national and local income taxes which, in the aggregate, resulted in a normal effective statutory tax rate of approximately 40.7% for the years ended March 31, 2007 and The tax effects of significant temporary differences and loss carryforwards which resulted in deferred tax assets and liabilities at March 31, 2007 and 2006 are as follows: Deferred tax assets: Allowance for doubtful receivables $ 632 Allowance for bonus payable ,648 Pension and severance costs ,059 Impairment loss Other ,733 Less valuation allowance (132) (149) (1,116) Total $ 5,955 Deferred tax liabilities: Deferred gain on sales of property (27) (29) $ (233) Unrealized gain on availablefor-sale securities (1,600) (1,933) (13,558) Other (10) (82) Total (1,637) (1,962) $ (13,873) Net deferred tax liabilities (934) (1,289) $ (7,918) A reconciliation between the normal effective statutory tax rates and the actual effective tax rates reflected in the accompanying statements of income for the years ended March 31, 2007 and 2006 is as follows: Normal effective statutory tax rate 40.7% 40.7% Expenses not deductible for income tax purposes Exclusion from charges against revenue (1.2) (0.9) Per capita basis corporate inhabitant tax Overseas income deductible for enterprise tax (0.8) (1.3) Less valuation allowance 0.2 Other-net Actual effective tax rate 42.9% 44.0% 10. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES Selling, general and administrative expenses for the fiscal years ended March 31, 2007 and 2006 principally consisted of the following: Salaries and fee 2,768 2,881 $23,448 Retirement benefit cost ,439 Depreciation and amortization Rental expense ,869

43 11. LEASES (1) As Lessee The Company rents computer equipment and other assets by lease. Total lease payments under finance for the years ended March 31, 2007 and 2006 were 63 million ($534 thousand) and 56 million, respectively. Pro forma information of leased property such as acquisition cost, accumulated depreciation, obligations under finance lease, depreciation expense, interest expense and other information of finance leases that do not transfer ownership of the leased property to the lessee on an as if capitalized basis for the years ended March 31, 2007 and 2006 was as follows: Furniture Furniture and and Fixtures Others Total Fixtures Others Total Acquisition cost Accumulated depreciation Net leased property Furniture and Fixtures Others Total Acquisition cost $1,270 $1,110 $2,380 Accumulated depreciation ,151 Net leased property $ 540 $ 689 $1,229 Obligations under finance leases: Due within one year $ 533 Due after one year Total $1, Depreciation expense, interest expense and other information under finance leases: Depreciation expense $528 Interest expense Total $534 Lease payments $534 Depreciation expense and interest expense, which are not reflected in the accompanying statements of income, are computed by the straight-line method and the interest method, respectively.

44 (2) As Lessor The Company leases machinery, equipment and other assets. Total lease receipts under finance for the years ended March 31, 2007 and 2006 were 285 million ($2,414 thousand) and 388 million, respectively. Information of leased property such as acquisition cost and accumulated depreciation for the years ended March 31, 2006 and 2005 were as follows: Machinery Machinery and and Equipment Others Total Equipment Others Total Acquisition cost 1, ,104 2, ,207 Accumulated depreciation 1, ,781 1, ,798 Net leased property Machinery and Equipment Others Total Acquisition cost $16,928 $ 894 $17,822 Accumulated depreciation 14, ,082 Net leased property $ 2,424 $ 316 $ 2,740 Obligations under finance leases: Due within one year $1,464 Due after one year ,772 Total $3,236 Depreciation expense, interest received under finance leases: Depreciation expense $1,592 Interest received Lease received $2,414 Depreciation expense is computed by the straight-line method. Interest received is computed by the interest method, and total interest during the lease period is amount in which acquisition cost is deducted from total lease receipts.

45 12. CONTINGENT LIABILITIES At March 31, 2007, the Company had the following contingent liabilities: Trade notes discounted 34 $ 288 Guarantees and similar items of bank loans, including those relating to subsidiaries and associated companies in the amount of 276 million ($2,339 thousand) 276 2, NET INCOME PER SHARE Reconciliation of the differences between basic and diluted net income per share ( EPS ) for the years ended March 31, 2007 and 2006 is as follows: Yen in Thousands millions of shares Yen Dollars Weighted average For the year ended March 31,2007 Net income shares EPS Basic EPS Net income available to common shareholders 2,102 56, $0.31 Effect of Dilutive Securities Warrants 209 Diluted EPS Net income for computation 2,102 57, $0.31 For the year ended March 31,2006 Basic EPS Net income available to common shareholders 1,756 56, Effect of Dilutive Securities Warrants 323 Diluted EPS Net income for computation 1,756 57, SUBSEQUENT EVENTS The following appropriations of retained earnings at March 31, 2007 were approved at the shareholders meeting held on June 27, 2007: Year-end cash dividends, 13 ($0.11) per share 739 $6,261

46 44

47 REVIEW OF OPERATIONS (NON-CONSOLIDATED BASIS) Overview In the fiscal year under review, Japan s economy again achieved a mild recovery underpinned by increased exports and growth in personal consumption and private sector capital investment, the principal drivers of domestic demand. Japan s economic recovery was bolstered by steady global economic expansion, particularly in the United States and China. Although there has been economic improvement, the hikes in the prices of crude oil and other raw materials and greater regional political risk have had a significance influence on the world economy, leaving continued uncertainty about the direction of Japan s economy. Looking at DJK s performance by major business sector, energy-related orders increased 67.9%, to 22.1 billion, supported by large orders for an oil refinery plant and related equipment by a major petrochemical company, while sales declined 20.2%, to 11.3 billion because of a lack of major orders for drilling services and related equipment for natural gas exploration. Engineering-related orders jumped 32.3%, to 13.8 billion, but sales decreased 20.6%, to 11.1 billion because of low recording of sales related to current orders for a plant and equipment from a major engineering company. Electronicsrelated orders edged up 2.6%, to 39.4 billion, supported by strong domestic and overseas demand for on-board components for vehicles, while sales rose 5.9%, to 38.5 billion. Plastics-related orders advanced 18.8%, to 20.1 billion, and sales also rose 10.3%, to 18.3 billion. Automobile-related orders gained 5.6%, to 14.7 billion based on favorable orders from the automobile-related industry, while sales jumped 31.7%, to 15.0 billion. Looking at import and export, although exports to China were weak during the fiscal year, exports to Korea and Singapore of IT- and digital-related equipment and injection molding machine-related equipment grew. However, the large drop in imports of natural gas exploration drilling services and related equipment resulted in total imports and exports declining to 42.1 billion, contributing 36.9% of net sales. This performance represents a 3.1 billion fall from the 45.2 billion recorded in the previous fiscal year, and a 4.9 percentage point decrease in the imports and exports to net sales ratio. Sales Breakdown by Type of Transaction ( billions) 120 Export Sales by Geographical Region (%) Import and export Domestic Other Europe Americas Asia Sales Breakdown by Type of Transaction Import and export 42,216 45,167 42,083 Domestic 64,156 62,915 71,952 Total 106, , ,035 Export Sales by Geographical Region Percentage of total Asia 86.2% 82.6% 80.1% Europe Americas Other Total 100.0% 100.0% 100.0%

48 Energy Machinery and Equipment for the Energy, Petroleum, and Petrochemical Industries Orders Received 10,447 13,154 22,084 Net Sales 7,857 14,140 11,282 % of total sales 7.4% 13.1% 9.9% Power plant for Independent Power Producer 46 Operating environment and results DJK is known in the energy industry as a highly reputable, specialist supplier of machinery. Against the backdrop of its rich experience and solid technology accumulated over the years, the Company has actively addressed new themes in its business and achieved results in the energy conservation, alternative energy, new energy, and environmental protection fields. Its business departments provide detailed services for customers in the fields of engineering, construction, and maintenance as well as consulting services for soil remediation in the way only DJK can. For example, the energy development department can provide environmental assessments for development projects, physical exploration equipment and analysis software for exploration on land or at sea, and marine drilling rigs and mine drilling equipment. On the other hand, the production and refining department can supply petroleum, gas, and geothermal production field systems, wind and solar electric power generation systems, petroleum refining plants, and petrochemical plants. During the fiscal year under review, large orders for exploration drilling services and related equipment and for a plant for a major petrochemical company supported a 67.9% increase in orders to 22.1 billion. Sales decreased 20.2%, to 11.3 billion. Outlook We anticipate that the oil and gas exploration industry will continue to increase their capital investment, and are placing special emphasis on winning orders from a major natural gas development project. Among other fields of emphasis, we are focusing on environmental-related areas, such soil remediation equipment for factories using chemical and other soil contaminant products, deodorizers and waste effluent processing equipment, air pollution prevention equipment, and ESCO (Energy Service Company) business. Offshore rig (Japan Drilling Co., Ltd.) Petrochemical plant Ethylene center compressor station ESCO business

49 Engineering Machinery and Equipment for the Plant Engineering and Construction Industries Orders Received 15,816 10,455 13,835 Net Sales 13,229 13,922 11,055 % of total sales 12.4% 12.9% 9.7% Refinery plant Operating environment and results Integration, combination, and systematization of basic engineering processes are the foundations of today s advanced technologies. Our mission as a technology-oriented trading firm in the engineering industry is to be a leader in supplying our customers with the latest and most advanced machinery and technology. As our source of business is large orders received via engineering companies for equipment to be used in domestic and overseas petroleum refining and chemical plants in Japan and overseas, performance fluctuates widely in response to regional economic conditions. In the fiscal year in review, because of a major order for an overseas plant that came through a domestic engineering company, engineering orders surged 32.3%, to 13.8 billion because of the lack of large orders for overseas plant and equipment made through major engineering companies. However, sales dropped 20.6%, to 11.1 billion because of low sales for plant and equipment booked on an existing contract for a major engineering company. Outlook Valued as a clean energy source, global demand for natural gas is high around the world. As a result, capital investment in natural gas processing facilities is robust, particularly in the Middle East, and we expect orders for equipment to be firm. Our main areas of emphasis in recent years have been co-generation equipment in the energy field and large compressor process pumps in the gas and petrochemical fields. 47 Plant control system Petroleum refinery plant

50 Electronics Machinery and Equipment for the Industries of Electronics, IT, Electric Machinery, Precision Machinery, Optical and Audio Equipment, and Musical Instruments Orders Received 35,860 38,465 39,449 Net Sales 38,603 36,323 38,460 % of total sales 36.3% 33.6% 33.7% Modular Chip Mounter 48 Operating environment and results The infrastructure of our society is made up of a range of basic industrial technologies, among which electronics play an essential role. To support the increasing use of electronics in those technologies, we market a wide range of electronic machinery and equipment, including factory automation systems and computers and peripheral equipment. To support progress in leading-edge industrial electronics, we also provide the industry with semiconductor manufacturingrelated equipment, including PCB (printed circuit board), SMT (surface mounting technology), COB (chip on board), and IC packaging equipment. In the fiscal year under review, demand was weak for IT and digital devices from China, but domestic and overseas demand for onboard components for vehicles was firm. As a result, electronics orders increased 2.6%, to 39.4 billion, while sales also rose, gaining 5.9%, to 38.5 billion. Outlook Overseas, we expect growth in large-scale capital investment in line with the continued shifting of production bases for LCD TVs and mobile phones and other IT and telecommunications equipment to the People s Republic of China. SMT Line Modular Placement Machine/BM123 Die bonder

51 Plastics Machinery and Equipment for the Plastic, Rubber, Ceramics, Glass, and Fiber Industries Orders Received 19,540 16,898 20,078 Net Sales 18,886 16,583 18,283 % of total sales 17.8% 15.3% 16.0% Thermo forming machine Operating environment and results Development of an exciting range of new materials, such as fine ceramics and high-grade and fiber-reinforced plastics, is continuing at an accelerated rate, driven by high demand from global markets. Since these materials have special, unique properties, they are being utilized in a growing range of manufactured products, from sports goods to integrated circuits, due to their exceptional features. Compared with the materials, however, there is significant room for improvement of the structural processing of these materials by machines. DJK is doing its part to support the development of new technologies and processing methods through the provision of information. The Company expects that these efforts will lead to substantial market development. During the fiscal year under review, demand was favorable for compact plastic injection molding machines for manu- facturing automotive components and peripheral equipment and film and sheet processing equipment for manufacturing lightweight containers for food products. Therefore, plastics orders increased 18.8%, to 20.1 billion, and sales also expanded, rising10.3%, to 18.3 billion. Outlook We expect that in the domestic market, there will be a continued recovery in capital investment by the IT-related industries, particularly in the ceramic, glass, and other information and communication network-related industries. In recent years, we have been concentrating especially on the expanding market of China. Our fields of emphasis are automobile-related industries in northern china around Dalian and Tianjin, where we are seeking to expand our sales coverage. 49 Injection molding machine Electric injection molding machine Laser/Tampon Printing Combination Flat glass stress analyzer

52 Pulp & Paper Machinery and Equipment for the Pulp and Paper and Related Industries Orders Received 4,790 4,438 13,471 Net Sales 2,977 4,313 5,020 % of total sales 2.8% 4.0% 4.4% Evaporator 50 Operating environment and results In our pulp and paper operations, we carry a wide range of equipment for wood and pulp processing, chemical recovery, paper manufacturing, coating, and finishing processes. In addition, we provide customized automated systems that utilize the latest computer technology to coordinate various types of machinery involved in the paper production process. Among printing equipment, we offer a range of machinery used in high-quality printing processes, such as screen, anastatic, and gravure printing. During the fiscal year under review, there were orders from a major pulp and paper company for expanded pulp production facilities and paper-making machinery-related equipment that contributed to a 203.6% leap in orders, to 13.5 billion. Sales also rose, climbing 16.4%, to 5.0 billion. Outlook Paper recycling pulp manufacturing equipment, energy conservation equipment, and environmental systems are the areas with the best potential for growth. Pulp and paper manufacturers continue to meet their current needs in the market by improving quality and processing capabilities. We will continue to concentrate on expanding sales of non-chlorine-processing plants for bleaching paper and of equipment for improving the efficiency of chemical pulp plants, such as pumps, agitators, and others. MC pump Pulp plant Paper Machine

53 Automobile Machinery and Equipment for the Automobile, Steel, Metal, Shipbuilding, and Heavy Machinery Industries Orders Received 10,122 13,891 14,664 Net Sales 12,845 11,409 15,027 % of total sales 12.1% 10.6% 13.2% Die-casting machine Operating environment and results Japanese and other leading auto manufacturers around the world are starting to shift toward fuel-efficient hybrid cars. This condition is expected to persist in the near future. As an end result, all automobile manufacturers are trying to achieve an early introduction of hybrid cars, and are working intensively on its development and production. Automobile manufacturers also continue to develop lighter cars in a bid to improve fuel efficiency. This policy has product a rapid shift to plastic components in the automobile industry. Manufacturing processes for metal components are also being revised to reduce costs. During the fiscal year under review, orders climbed 5.6%, to 14.7 billion based on favorable orders from the automobile-related industry, while sales rose 31.7%, to 15.0 billion. Outlook In automobile-related industries, there is hope that the introduction of new models by automobile manufacturers will stimulate capital investment to retool production lines as well as factory restructuring programs. Our fields of emphasis in the automobile industry in recently years have been automobile assembly and component processing, where we are targeting sales of rationalization equipment. We also are focusing on environment-related equipment, promoting sales of recycling equipment from parts from end-of-life cars, such as waste plastic pulverizers. In addition, we are establishing an overseas sales network around such bases as the United States, eastern Europe, India, and Tianjin in China. 51 Water jet pump Electric injection molding machine

54 Pharmaceuticals Machinery and Equipment for the Pharmaceutical, Food, Cosmetics, and Oils & Fats 52 Operating environment and results There has been a recent wave of mergers and acquisitions (M&A) in the global pharmaceuticals industry that has also directly affected the Japanese market. This is a natural trend given the high costs of new drug development and rising competition. Japanese pharmaceutical companies are steadily investing in new facilities to meet Good Manufacturing Practice (GMP) standards that are equivalent to those in Europe and the United States. As part of this process, pharmaceutical tablet/capsule inspection equipment handled by DJK is in high demand. In the fiscal year under review, pharmaceutical orders fell 27.9%, to 4.7 billion because of a drop off in orders for pharmaceutical filling systems. Sales, however, surged 75.7%, to 6.9 billion because of the booking of sales of pharmaceutical filling and tablet/capsule inspection systems from existing orders. Others Orders Received 3,189 6,466 4,663 Net Sales 3,546 3,939 6,921 % of total sales 3.3% 3.6% 6.1% Machinery and Equipment for Other industries Orders Received 8,588 7,511 7,429 Net Sales 8,429 7,453 7,989 % of total sales 7.9% 6.9% 7.0% Operating environment and results The majority of business in the others categories comes from national and local governing agencies, centered on the Ministry of Construction and the construction bureaus of regional government entities. The main types of merchandise being sold in these transactions are carbon fiber sheet used as reinforcing material to increase earthquake resistance, health promenades, and Ground Support Equipment (G.S.E.) for airports. As a general supplier of G.S.E. and airport facilityrelated equipment, DJK provides support for the air transport industry, handling a full range of equipment and boasting a strong delivery record with airlines and domestic and overseas airports. DJK is a supplier of a wide-range of equipment in this field, deicers, towing Deicer Tablets video inspecting system Automatic Blister Packing Machine Outlook In recent years, our fields of emphasis have been the pharmaceutical, food product, and cosmetic industries. We are concentrating on marketing a variety of pharmaceutical inspection systems, filling and packaging systems, and distribution systems. One of our specialty products is a screening machine for life science industry that we are marketing to major pharmaceutical companies and research institutes. Powder filling system tractors, air stand units, sweeper cars for snow removal, various types of aerial support materials, and water hydrant materials. DJK has established its own service group for this industry and is providing enhanced after sales care using staff with specialized technical capabilities. During the fiscal year under review, orders in the others category decreased 1.1%, to 7.4 billion, while sales rose 7.2%, to 8.0 billion. Outlook Under this category, we import a deicer for airplanes manufactured by Denmark s G. Vestergaard A/S, and have supplied a total of more than 100 units to almost all of Japan s scheduled airlines. The deicer is highly regarded by airlines around the world as well as those in Japan as contributing to safe operations.

55 C OMMITMENT TO THE E NVIRONMENT Recognizing that conducting environmentally conscious business activities is one of its social obligations, DJK has established the following environmental policy, which is being pursued by all employees and directors companywide. DJK acquired ISO certification on January 24, and revised it on January 23, 2007 Environmental Policy As a company conducting international trade as well as sales in Japan of energy-, semiconductor-, plasticinjection molding-, and pulp-and-paper-related machinery and equipment, Medical equipment and engineering materials and aerospace-related devices, we will carry out environmental management of our business based on the following policies. 1. We will be constantly aware of the environmental issues regarding our merchandise and service activities, and will take steps to prevent environmental pollution. In addition, we will pursue constant improvement in our environmental management activities. 2. To comply with environmentally related laws, regulations, and accords regarding our merchandise and service activities, we will establish and follow our own voluntary standards. 3. Among the environmental issues regarding our merchandise and service activities, we will make the following issues special priority themes. (1)Reducing amounts of energy and resources used through greater operating efficiency (2)Handling and promotion of environmentally friendly merchandise (3)Promoting understanding of the importance of environmental issues inside and outside the Company To achieve these environmental policies, we will establish environmental targets and goals. Working together, all employees and directors in all sections of the company will pursue environmental management. April 1,

56 THE DJK NETWORK OVERSEAS NETWORKS London Branch Seoul Office 54 DAIICHI JITSUGYO ASIA PTE. LTD. Headquarters Sales Office Ho Chi Minh Office DAI-ICHI JITSUGYO (MALAYSIA) SDN. BHD. OVERSEAS OFFICES London Branch Elsinore House, 77 Fulham Palace Road, London W6 8JA, United Kingdom Phone: Fax: Frankfurt Office Mergenthalerallee D Eschborn, Germany Phone: Fax: Praha Office Office Park Nove Butovice, Bucharova 2/1281, Praha 5, Czech Republic Phone: Fax: Budapest Office East-West Business Center, Rákóczi út Budapest, Hungary Phone: Fax: Seoul Office 8F, Textile Center, , Daechi 3 dong, Kangnam-ku, Seoul, Korea Phone: Fax: OVERSEAS SUBSIDIARIES DAIICHI JITSUGYO ASIA PTE. LTD. Consolidated subsidiary Headquarters (Singapore) No. 31 Kaki Bukit Road 3 #02-02 Techlink Singapore Phone: Fax: Jakarta Office Skyline Building 16th Floor Jalan. M. H. Thamrin No.9, Jakarta 10340, Indonesia Phone: Fax: Ho Chi Minh Office Unit 808 8th floor ZEN PLAZA, Nguyen Trai Street, District 1, Ho Chi Minh City, Vietnam Phone: Fax: Hanoi Office Unit 410-A 4th floor V-Tower 649 Kim Ma Street, Ba Dinh District, Hanoi, Vietnam Phone: Fax: Delhi Office Level 15, Eros Corporate Towers, Nehru Place, New Delhi , India Phone: Fax: DAI-ICHI JITSUGYO (MALAYSIA) SDN. BHD. Consolidated subsidiary Suite 21B, Box No.80, 21st Floor, UBN Tower, No.10 Jalan P. Ramlee 50250, Kuala Lumpur, Malaysia Phone: Fax: DAIICHI JITSUGYO (THAILAND) CO., LTD. Consolidated subsidiary 252/124 Unit E-G, 26th Floor, Muang Thai Phatra Office Tower II Rachadaphisek Road, Huaykwang, Bangkok 10320, Thailand Phone: Fax: DAIICHI JITSUGYO (PHILIPPINES), INC. Consolidated subsidiary Unit , Philippine AXA Life Centre, Sen. Gil Puyat Avenue, Makati City, 1200, Philippines Phone: Fax: SHANGHAI YISHI TRADING CO., LTD. Consolidated subsidiary Headquarters (Shanghai) Room 13F02-06 Aetna Tower No.107, Zunyi Road, Shanghai, , P.R.China Phone: Fax:

57 DAIICHI JITSUGYO (AMERICA), INC. DAIICHI JITSUGYO DO BRASIL COMERCIO DE MAQUINAS LTDA. 55 DAIICHI JITSUGYO (THAI- LAND) CO., LTD. DAIICHI JITSUGYO (PHILIPPINES), INC. SHANGHAI YISHI TRADING CO., LTD. DAIICHI JITSUGYO (HONG KONG) LIMITED DJK (TAIWAN) CORP. Tianjin Office Room , Tianxin Building, 125 Weidi Road, Hexi District, Tianjin, P.R. China Phone: Fax: Dalian Office Kerren International Building, office 1406, Development Zone, Dalian, P.R. China Phone: Fax: DAIICHI JITSUGYO (HONG KONG) LIMITED Units , Shui On Centre 6-8 Harbour Road, Wanchai, Hong Kong, P.R.China Phone: Fax: Shenzhen Office 25A, 25/F., Times Plaza, No.1 Taizi Road, Shekou, Shenzhen, P.R.China Phone: Fax: DAIICHI JITSUGYO (GUANGZHOU) TRADING CO., LTD. Unit 6803A, CITIC Plaza, 233 Tianhe North Road, Guangzhou, P.R.China Phone: Fax: DJK (TAIWAN) Corp. 11th Floor-3,23, Sec 1, Chang-An East Road Taipei, Taiwan Phone: Fax: DAIICHI JITSUGYO (AMERICA), INC. Consolidated subsidiary Headquarters (Chicago) 245 Spring Lake Drive, Itasca, Illinois 60143, U.S.A. Phone: Fax: Houston Office Suite 790, 2900 North Loop West, Houston, Texas 77092, U.S.A. Phone: Fax: San Diego Office 2320 Paseo de las Americas, Suite #114, San Diego, California 92154, U.S.A. Phone: Fax: Knoxville Office 1708 Triangle Park Drive Maryville Tennessee 37801, U.S.A. Phone: Fax: Phoenix Office 2447 W. 12th Street, Suite 6 Tempe, Arizona 85281, U.S.A. Phone: Fax: DAIICHI JITSUGYO PUERTO RICO, INC. 106 Gautier Benitez Avenue, Caguas, Puerto Rico Phone: Fax: DJK GLOBAL MEXICO, S.A. DE C.V. Blvd. Bellas Artes Fracc. Garita de Otay C.P , Tijuana, B.C. Mexico Phone: Fax: DAIICHI JITSUGYO DO BRASIL COMERCIO DE MAQUINAS LTDA. Avenida Paulista, 37-4 andar, Sao Paulo, SP , Brazil Phone: Fax:

58 THE DJK NETWORK DOMESTIC NETWORK HEADQUARTERS Kowa Nibancho Bldg Nibancho, Chiyoda-ku, Tokyo , Japan Phone: (03) (information desk) Fax: (03) Headquarters Sales Office Headquarters DOMESTIC SIGNIFICANT SUBSIDIARIES DAIICHI MECHA-TECH CORPORATION Consolidated subsidiary Headquarters: 8-6 Ryoke 5-chome, Kawaguchi Saitama , Japan Phone: (048) Fax: (048) Technical development and services related to equipment handled by DJK DJTECH CO., LTD. Consolidated subsidiary Headquarters: Asahidai 15 Moroyama Town, Iruma-gun, Saitama , Japan Phone: (049) Fax: (049) Development, designing, manufacturing, and sales of PCBmounting inspection device, handlers for semiconductor postprocess, and image-processing application systems. DAIICHI JITSUGYO VISWILL CO., LTD. Consolidated subsidiary Honamicho, Suita, Osaka , Japan Phone: (06) Fax: (06) Development, designing, manufacturing, sales and maintenance of Visual Inspection Systems for pharmaceuticals and chip condensers. AFFILIATES SULZER DAIICHI K.K. A joint venture with Sulzer Pumps (Switzerland) TSI Hakozaki Bldg, 20-5, Nihonbashi Hakozaki-cho Chuo-ku, Tokyo , Japan Phone: (03) Fax: (03) Sales and services of pumps for paper, pulp plants and other equipment NATCO JAPAN CO., LTD. A joint venture with National Tank Company of the U.S.A. and MODEC, INC Kowa Nibancho Bldg Nibancho, Chiyoda-ku, Tokyo , Japan Phone: (03) Fax: (03) Design, manufacture and sales of equipment for petroleum manufacturing plants (As of April 1, 2007) Osaka Nagoya