Extending the Value Promise
ES-CON JAPAN Annual Report 2006
from January 1 to December 31, 2006

Profile
Since its establishment in 1995, ES-CON Japan has worked to supply quality condominiums at reasonable prices by concentrating its management resources on product planning activities using small teams of highly skilled experts. This businessmodel has resulted in the development of the “Neverland” brand, a popular series of condominiums that combine highquality with aesthetic design and affordable prices. Broad-based market support for the Neverland concept has allowed ESCON Japan to build a strong presence in Japan’s two largest markets: the Tokyo metropolitan area and the Osaka area.
The excellence of ES-CON Japan products stems from core competencies in three key areas: site procurement, productplanning and financial structuring. By focusing on approaches that allow it to fully leverage these capabilities, ES-CON
Japan will reinforce its core condominium business and the asset development business, while evolving new businesses
with potential to become mainstay income sources.
Wrapping up its first decade in business, in 2006 ES-CON Japan launched a medium-term plan meant to set the stage fora new decade of vigorous business development. Now entering its second year, “Neo-Promising 2008,” promotes further
growth under a new business structure evolved from its original and well-proven business model. ES-CON Japan aims tobecome a benchmark company in the real estate sector through the continuing adaptation of its business model to suit
the times and changing market needs.

16 Management Priorities

26 Financial Statements

44 Directory/Major Subsidiaries

01 Financial Highlights

20 Caring for the Environment

41 Independent Auditors Report

45 Corporate Information

02 An Interview with the President

21 Five-year Summary

42 Organization/Directors
and Auditors

08 Sustaining the Performance

22 Financial Review

43 Corporate History

Contents

Philosophy
How should we live each day and participate in society? How can we contribute to society, and how can we achieve thehappiness we seek as individual human beings through the benefits that our contribution brings to society? ES-CON Japan
Ltd. strives to answer these questions by continually providing meaningful opportunities to its employees to help andencourage each other in the achievement of their full potential as individuals while experiencing the joy of contribution tosociety through their work.

PolicyES-CON Japan seeks, in the creation of user-focused housing environments, to meet consistently market needs five years
in the future by means of in-depth market research and advanced product development capabilities.
ES-CON Japan constantly strives to remain ahead of the competition through aggressive management combined withstrong defensive strategies centering on in-depth control of cash flows and risk.
The use of small teams of highly skilled professionals is the key to ES-CON Japan’s ability to adapt quickly in today’s
rapidly changing social environment.
ES-CON Japan builds and maintains good cooperative relationships, both internally and externally, based on respect
for and gratitude to colleagues and those in other organizations.
ES-CON Japan gives priority to compliance and maintains an open organizational structure in which ideas can flow
freely from front-line staff to senior management.

Business Competence

Our Strength

Businessdevelopment
capabilities

Site procurement:

The ability to acquire quality sites

Product planning:

The ability to propose products and create living
spaces that take full advantage of site characteristics

Financing structure development:

Knowledge of financing through SPCs andnon-recourse loans

59,433

Business Segment
In February 2006, ES-CON Japan adopted a Group structure keyed to profit andadded value through the selection and concentration of business areas and management resources. ES-CON Japan is determined to fulfill its corporate social responsibilities and to evolve from a condominium developer into an “estate value developer.”It will use variety of methods to meet contemporary needs by developing the value ofreal estate. The aim of this transition is to build a future for ES-CON Japan as a highvalue-added enterprise.

OthersReal Estate-related
Subcontracting
Real Estate Planning
Condominiumand Housing

51,84251,015

OthersAsset Development
Real Estate-related
Subcontracting
Real Estate Planning

23,898

Condominiumand Housing

03/12

04/12

05/12

06/12

Net Sales by Segment (Component Ratio)

Condominium Business
ES-CON Japan’s housing business has traditionally consisted of sales of condominiums, with an emphasis on the independently developed Neverland brand, and separate sales of detached houses by consolidated subsidiary UNIDIO CORPORATION.
In February 2006, however, ES-CON Japan sold its shares in UNIDIO CORPORA-

51.7%

TION, separating the detached housing business from the Group. The purpose of
the separation was to further boost productivity and achieve a more agile, tightly
focused business organization, while restructuring group companies, strengthening
the financial structure, and seeking stable growth for the condominium business.

Asset Development BusinessIn the asset development business, ES-CON Japan will increase the diversity andsophistication of its consulting business and develop sites into residential properties,
commercial complexes, and large-scale facilities while establishing a unique businessmodel that will increase value added and realize high profitability and high asset efficiency. At the same time, the Company will contribute to the Group’s earnings

29.5%

growth by taking advantage of financing structure diversification, establishing special
purpose companies (SPCs) and private funds to secure both capital gains andincome gains.

Other Businesses
OthersIn this segment, ES-CON Japan aims to contribute to stable income for the Group
by further developing the condominium service and management business of consolidated subsidiary N S KANRI Ltd. and by actively entering the business of managing and operating the rental condominiums, parking lots, and large-scale commercial
facilities developed in the asset management business.

Real Estate
Planning

17.0%

1.3%
Real EstateRelated
Subcontracting

0.5%

Financial Highlights

Millions of yen except per share data

2005

2006

2006

¥59,433
5,878
4,268
2,406

¥51,842
7,104
5,175
2,910

$435,208
59,63843,444
24,429¥14,825.63
12,688.18
85,007.70¥ 16,641.30
14,514.81
102,270.86$139.70
121.85858.55¥14,693
84,95416.8%¥18,472
98,36018.8%$155,071
825,72218.8%

For the year:
Net sales
Operating income
Income before income taxes and minority interest
Net income
Per share data:
Earnings–Basic
Earnings–Diluted
Net assets

Thousands of U.S. dollars
except per share data

At year-end:
Total net assets
Total assets
Ratio of total net assets to total assets

Notes: 1. The U.S. dollar amounts are translated from yen, for convenience only, at the rate of ¥119.12=U.S.$1.00, the approximate closing rateof the Tokyo foreign exchange market as of December 31, 2006. (Note 1 in the Notes to Consolidated Financial Statements)
2. Per share data is calculated by using figures to the nearest yen.
3. Per share data for 2005 reflects the three-for-one stock split effective on April 1, 2006.

Net Sales andOperating Income

Net Income and
Net Income Per Share(basic)59,4332,910
51,84251,015

2,506

Total Assets andTotal Liabilities

18.8

84,9542,406

17.6 14,693
79,888

16,641.30
58,825

14,825.63

5,416

70,261

29,82623,89818,472

98,360

7,104
5,878

Total Net Assets
and Equity Ratio

16.8

1,259
37,8692,961
10,100.5

29,327

10,38014.0
13.3

48,445
5,040

698

4,102
32,8291,780
03/1

03/12 04/12 05/12 06/12

03/1

5,372.4 5,492.1

25,22603/12 04/12 05/12 06/12

03/1

03/12 04/12 05/12 06/12

03/1

03/12 04/12 05/12 06/12

Net Sales (¥ million)

Net Income (¥ million)

Total Assets (¥ million)

Total Net Assets (¥ million)

Operating Income (¥ million)

Net Income Per Share (¥)

Total Liabilities (¥ million)

Equity Ratio (%)* Net income per share data reflects thethree-for-one stock split effective on
February 20, 2004 and April 1, 2006.

01

An Interview with the President

Proving the Value of New Strategies
ES-CON Japan Ltd. maintained steady growth in its condominium businessin the year ended December 2006. With the establishment of its new Asset
Development business segment, ES-CON Japan also undertook a majortransition from condominium developer to a company dedicated to thecontinuing creation of new value in real estate.

Hirofumi Naoe
President and Representative Director

02

Q:

Would you begin with an overview of your business operations in the year ended
December 2006?

The year marked the launch of our “Neo-Promising 2008” plan. This medium-term plan aims to transform
ES-CON Japan from a condominium developer into a company capable of using a wide array of techniques
to develop new value in real estate and deliver that value to society.
Under this plan, we are energetically expanding our condominium business while also developing uniquebusiness structures and implementing strategies designed to reduce our reliance on the condominium business, including the development of new business activities and financing methods and the formation ofalliances with other companies. Prioritized implementation of these measures in the year under review resulted in the restructuring of our existing group businesses and the full-scale start-up of our new asset development business. We eagerly accepted the wide-ranging challenge of this high-income, high-growth business,
which we regard as the key to the future success of our new business model.

Q:

How would you describe this new business and the impact of other specificmeasures on your business performance?

Our first step toward the creation of a new group structure was to separate our detached housing subsidiaryfrom the ES-CON Japan Group as part of a restructuring process designed to improve profitability. Then, in
our remaining businesses, activities that were spread among real estate planning and sales, real estate-related subcontracting and other business were then integrated to form the new business. The result is a structure that allows us to concentrate our management resources into two core segments: condominium business and asset development business.
Our strategy for the condominium business under this new structure called for an increased emphasis on
high-return properties, especially large-scale properties and properties with enhanced added value. In theasset development business, we pursued aggressive strategies, including the development of large-scalecommercial facilities and the new “Leaf Comfort” series of urban rental condominiums.

Results for the Year Ended December 2006(¥ Million)

2006/12

2005/12

YoY increase(decrease)

Net sales

51,84259,433–12.77%50,500+2.66%

Operating income

7,104

5,877

+21.57%6,377+13.16%

Ordinary income

5,324

4,346

+23.45%5,220+2.78%Net income

2,910

2,405

+22.68%3,100–4.84%

Ratio of ordinary income to net sales

10.3%

7.3%

CONSOLIDATED

Initial publishedforecast

Ratio toforecast

10.3%

03

Taking into account the effects of the separation of the detached housing business, we initially predicted
net sales of ¥50,500 million in the year to December 2006. In fact, we exceeded this forecast, reaching¥51,842 million. Operating income was 20.9% higher at ¥7,104 million, while net income increased by
21.0% to ¥2,910 million. Both of these figures represent new records.
Although this was the first year for the asset development business, this segment accounted for 29% of
net sales and 38% of operating income. These results indicate that asset development is already making acontribution commensurate with its status as a core segment alongside the condominium business.

Q:

What specific steps have you taken to strengthen your financial structure?

We continued with several previous initiatives, including fundraising using a range of financing methods. In
2006, these included the issuance of new shares by third party allocation, and the establishment of a commitment line totaling ¥3,700 million with a syndicate of financial institutions. Bondholders continued to convert convertible bonds that mature in 2009. As of December 31, 2006, bonds worth ¥1,295 million had been
converted, out of a total issue of ¥5,000 million.
In February 2006, ES-CON Japan was selected by the JASDAQ Securities Exchange for inclusion in its
J-Stock Index. In December 2006, Japan Credit Rating Agency, Ltd. gave ES-CON Japan a long-term senior debt rating of “BBB-” (stable) and a short-term (CP program) rating of “J-2”. Market expectations toward
ES-CON Japan continue to rise, along with our reputation in the market. I sense that we are increasingly

04

seen as a company with medium-term and long-term growth potential.
Our basic policy is to raise shareholder value by applying internal reserves for reinvestment in our business activities. However, we are determined to provide appropriate returns to our shareholders, and we aregiving positive consideration to an increase in the dividend payout ratio. This position was reflected in ourdecision to increase the current year’s dividend per share from the planned level of ¥1,334 to ¥1,500, compared with an actual figure of ¥1,200 in the previous year.

Q:

How has business performance been affected by the expansionof the consolidation?

ES-CON Japan was an innovator in the use of development-type SPCs for real estate projects. In recent
years, however, SPCs have become the focus of concern and debate because of financial impropriety surrounding financial reporting by some of them. In September 2006, the Accounting Standards Board ofJapan issued practical guidelines concerning the application of standards for the control and influence ofinvestment associations. We responded by including important development-type SPCs in our consolidation,
starting in the year to December 2006.

All of the 17 SPCs added to the consolidation are the development entities for current development projects and have not yet started to generate income. For this reason, their inclusion in the consolidation has
pushed down our earnings because of the resulting increase in costs, including selling, general and administrative expenses and interest costs. As development of these projects advances, however, the SPCs themselves will start to earn income from sales, rents and other sources. The inclusion of these earnings in theirincome statements will contribute to our consolidated income. In the year ended December 2006, the inclusion of the SPCs in the consolidation had a negative impact on income. In the year to December 2007 there
will be a rapid improvement.
I believe that by building a sound, transparent business structure, we can move forward toward theimportant goal of an early listing on the first section of the Tokyo Stock Exchange. We are making steadyprogress, and we will continue to strengthen our financial position.

Q:

What is your vision for the future of ES-CON Japan?

In the condominium market, a falling birthrate, the growth of the aged population, and changes in family
structures are all causing significant change in the values that purchasers place on housing. Furthermore,with the economy in recovery mode, we cannot afford to be complacent about market changes resulting
from higher land prices and construction costs. However, ES-CON Japan has anticipated these changes,
and we will continue to use our product planning and land acquisition know-how, which are backed by yearsof experience, to supply competitive, high-added-value properties that reflect the diversified needs of ourcustomers. By continuing to emphasize profit margins rather than net sales or the number of units supplied,
we will achieve growth as a high-income business and build the foundations for the future development ofour business activities.
In our asset development segment, we will focus first on the development of multi-tenant facilities thatcombine rental condominiums with shops and offices, especially in Tokyo, the Osaka area and major
provincial cities. We will use the sophisticated product knowledge that we have accumulated through ourcondominium business to create innovative living spaces, and we will use our planning skills to extract thefull potential from land. This approach will allow us to supply high-quality residential properties with thepotential to generate reliable income in a rapidly changing market environment. At the same time, we willdevelop commercial facilities, including business hotels, wedding halls and shopping centers, and implement development projects with solid income potential. Another focus will be the revitalization of regional05

economies through comprehensive community development projects that combine large-scale, multi-tenantcommercial facilities and multi-purpose facilities that include housing for the elderly and medical facilities.
We will approach these asset development projects using our experience in the creation of financial structures to raise finance through special-purpose companies (SPCs). We will opt either for long-term ownershipof tenanted properties with income flows, or for flexible exit strategies, such as the sale of properties to private funds or J-REITs. This combination of capital gain and income gain will contribute to higher earnings for
the ES-CON Japan Group.

Q:

What are your targets and expectations for ES-CON Japan?

As I stated earlier, we aim to achieve sustainable growth, and to anticipate trends in a drastically changing
business environment. I have also described the steps that we have taken to move away from a structurethat relies solely on the condominium business. We cannot achieve these goals simply through businessexpansion and the improvement of our earning power. We are also determined to contribute to society by
applying our planning and development skills to structures that meet important social needs and offer excellent opportunities to complement our other projects. That is why we are moving beyond our role as a condominium developer. We plan to focus our research and development activities on fields that reflect importantsocial needs, including projects suitable for the new social topography created by Japan’s falling birthrateand expanding aged population. This work will lead to an involvement in projects with the potential to make06

an important contribution to society.
In preparation for these activities, we will further enhance our management soundness and transparency.
We will also raise our corporate value by further strengthening our internal structures. At the same time, wewill strengthen our financial structure and financial management. Human resource recruitment and development will remain an important priority, together with the development of our corporate culture. Another priority is compliance and the reinforcement of group-level governance. We will also work to fulfill our corporatesocial responsibilities (CSR).
Through these activities and initiatives, ES-CON Japan aims to achieve sustainable growth in its corporate value for its customers, shareholders, society and its employees. Our most important management goalas we move forward will be to build a business structure capable of matching the expectations of our shareholders, customers and suppliers, so that we can continue to earn their support by achieving further growthand progress through timely action in response to changing needs.

We look forward to your continuing support.

Hirofumi Naoe, President and Representative Director

Management Policies in the “Neo-Promising 2008” Medium-Term Plan

1

We will transform ES-CON Japan into an “estate value developer.”2

We will build a productivity-focused corporate structure.

3

We will shift to a corporate structure that is not solely reliant on the condominium business.

4

We will restructure our group companies to create a highly synergistic business group.

Activity Targets in the “Neo-Promising 2008” Medium-Term Plan

1

Pursuit of listing on the first section of the Tokyo Stock Exchange

2

Acquisition of a corporate rating (achieved)

3

Diversification of financing methods

4

Maintenance of high income growth (10% yearly growth in ordinary income, ordinary income of¥8,000 million in the year to December 2008)

5

Reliable supply of condominiums

6

Improvement of financial structure (achievement of appropriate levels of shareholders’ equity andinterest-bearing debt)

7

Stabilization of performance through expansion of the asset development business anddevelopment of a high-income structure through accumulation of portfolio assets

8

Establishment of reliable cash flows through start-up of private funds

9

Toward the realization of higher earning power: expansion into new business areas to diversify
income mix, achieve synergies and diversify risks07Sustaining the Performance

Raising our brand profile in theCondominium Business with high-value
added properties
ES-CON Japan’s sustained corporate growth has been driven by the steady
expansion of its core condominium business. We aim to achieve further
growth and success in a rapidly changing business environment by anticipating market needs five years in the future in our product development
activities, and by continually raising our brand profile.

Sales of Condominium Units(Accumulated tatal)

08

5,258
4,380

3,327

2,033
1,487
619

01/1

02/1 03/12 04/12 05/12 06/12

Neverland Otsu Granbay
This major project was launched to mark ES-CON Japan’s tenth anniversary andencapsulates all of ES-CON Japan’s planning and development know-how. With 228 units,
it is the largest condominium complex ever developed exclusively by ES-CON Japan.
Designed as a resort-style residential complex, Neverland Otsu Granbay offers its residentsa view of Lake Biwa.

Operating as a compact team of highly skilled professionals, ES-CON Japan has no sales force. We have adopted a strategy of building
strong brand appeal directly with customers through the quality of our products, while concentrating our management resources on site
selection and product planning. This unique business model has been the foundation for our condominium business.
We have built a series of condominiums under our own “Neverland” brand, not only in the Osaka area, which has been a key market
for ES-CON Japan since its establishment, but also in the Tokyo metropolitan area. These properties have earned us solid support froma wide spectrum of purchasers, thanks to their readily apparent quality, user-sensitive design and safety. Our reputation is reinforced by
the efficiency of our facility maintenance systems and other after-sales services.
From the outset, the excellence of our products has been backed by our ability to secure superior sites and plan superior products.
The site acquisition process begins with the collection of information through our extensive networks. Our negotiating skills and reputation for dependability facilitate rapid, responsible decision-making, allowing us to secure excellent sites on favorable terms. Once a site
has been acquired, our advanced planning skills come into play. We exploit the full potential of each individual site to create attractive
living spaces that offer superb added value.
In the year ended December 2006, we sold and delivered 878 newly completed units in 11 new projects, including Neverland
Kamogawa in Kyoto, Neverland Ibaraki-Shinchujo in Osaka, and Neverland Shin-Koiwa Brightce (Bright Space) in Tokyo. In the year to
December 2007, we expect the number of new units supplied to reach 1,000, including 228 units in the Neverland Otsu Granbay project.
The condominium business is a core segment for ES-CON Japan. Our activities in this area are guided by our awareness of change
in the market environment. Our strategy calls for further refinement of our ability to anticipate market needs five years in advance, andfor continuing improvement in our brand potential. We see the dynamic development of large, high-added-value properties as the key toa rising brand profile and sustained growth.

Neverland Kamogawa

Neverland Ibaraki-Shinchujo

Neverland Shin-Koiwa Brightce

This unique condominium brings together
Eastern and Western architecture. There areinteresting contrasts between movement andstillness, combined with contrasting shadows
created through interaction between the
structure and light.

This unique urban residential complex offers
both environmental excellence and convenience. Its elegantly simple exterior design
blends with the tree-lined tranquility of thesurrounding area.

In addition to easy access to central Tokyo,
this complex features a design that brings natural light into all units from three sides. Carewas taken to enhance privacy, and ensure
optimal comfort in bright, airy living spaces.

09

Developing assets—adding value in
new fields with new forms of financing
In 2005, ES-CON Japan established the asset development business as a
new business segment centered on high-value added real estate development beyond the condominium sector. In just over one year, this newactivity has grown into a second core segment alongside the condominium business, and it made a significant contribution to business performance in the year ended December 2006.

Business model of asset development business
Acquisition of sites

Development/planning

Construction

10

Leasing

Exit

Sales to outside buyers(capital gains)
J-REITs, funds,
end users

Ownershipin private funds, etc.
(income gains)

Sunadabashi Project—Higashi-ku, Nagoya City
ES-CON Japan developed this commercial facility in Nagoya City. It has a total floor areaof 33,000 square meters and is tenanted by a home center and a mass retailer of sporting
goods. This project was liquidated for over ¥ 7billion. It opened in April 2006.

ES-CON Japan created its Asset Development Department and began planning new projects in 2005. The aim of this move was tobuild a business structure that would not be totally reliant on the condominium business.
The asset development business is a diverse segment encompassing the application of various financing techniques, such as debt
finance and SPCs, to site acquisition and the planning and development of properties. Development categories include commercial
and multipurpose facilities as well as residential properties. It generates capital gains through sales to other companies or real estate
funds, and income gains, including dividends and other forms of income from ownership and management, especially in private funds
held by ES-CON Japan.
This business segment was created by taking our existing real estate regeneration business to a new level. Working closely withmajor financial institutions, we have used advanced financial know-how to create a high-added-value business model that we aim tobuild and develop into a new core income stream.
In the year ended December 2006, we developed a major commercial facility in Nagoya City, resulting in the liquidation of property
worth over ¥7 billion. We are currently developing large-scale commercial facilities, hotels and other properties in major cities, including
Tokyo and Osaka. In the residential project field, we are actively developing rental condominiums under our original “Leaf Comfort”
brand in Tokyo and other major urban areas, including Kanagawa prefecture.
We also plan to become involved in projects relating to commercial and multipurpose facilities with the potential to contribute toregional economic revitalization, as well as projects that reflect important social needs, such as facilities for the aged. We will use ourdevelopment, planning and asset management activities to acquire attractive sites and secure reliable income streams.

Leaf Comfort Kiyosumi-Shirakawa
Situated near central Tokyo, this rental
condominium complex for singles was
fully occupied immediately after completion. Its success reflects sophisticated design features and superb product characteristics.

Kawasaki Ekimae PJ (business hotel)
ES-CON Japan plans to build a businesshotel near Kawasaki Station with retail
outlets on its lower floors. Major companies have offices in this area. The
project is to provide reliable income
by leasing the building to a hotel management company.

11

Revaluing our group strategy in terms ofsynergy and continued high profitability
ES-CON Japan is restructuring its group business segments to create aplatform for new growth and further expansion of its corporate value.
Changes include the sell-off of our detached housing subsidiary fromthe ES-CON Japan Group, and the inclusion of special-purpose companies (SPCs) in the consolidation. These and other measures arereflected in steady progress toward the formation of a highly synergistic corporate group.

12

New Consolidated Subsidiaries
The consolidation now includes 17
development SPCs with total assets of¥30,360 million and total debts of¥20,438 million.
*All are linked to properties currently underdevelopment and have not yet started togenerate income.

New Osaka Head Office
In May, we relocated our Osaka Head Office to Midosuji Avenue in the heart of thebusiness district. It has not only the space we need to grow our business activities, but also
showcases our highly original facility planning capabilities. Each meeting room is unique andprovides attractive views of the landscaped exterior. The result is a rich environment for thedevelopment of unique business ideas.

In line with policies defined in its medium-term management plan, “Neo-Promising 2008”, ES-CON Japan is implementing a range ofmeasures designed to maximize group-level synergy benefits through a restructuring of group companies. The first of these measures
affected the detached housing company Unidio Corporation, which was split off from the ES-CON Japan Group and sold in February
2006. Many companies in the detached housing business are strengthening their business bases by concentrating on special regions.
Nationwide expansion was critical if Unido Corporation was to increase the scope of its activities while avoiding area risk resulting fromcompetition, and further development and growth in this segment would have required aggressive forward-looking capital investment.
We were concerned about the possible impact on group-level income ratios, and by the shift toward a business structure that would
conflict with our management strategy of building a profit-focused structure based on high-added-value activities driven by a small team.
On this basis, we saw the separation of Unidio Corporation as a progressive step that would result in improved group-level profitability.
The effect of this measure has been to create a structure that allows us to concentrate our management assets more efficiently into
our core condominium business, and into the asset development business, which has already grown into an independent segment. In
this way, we have achieved further progress in our evolution toward a highly profitable business model.
In the year ended December 2006, we included all 17 of our development-related SPCs in the consolidation. SPCs will play anincreasingly active role in our business operations in the future, and we embraced their inclusion in our consolidation as a way to ensurethat our intentions would be reflected in the management of these companies. These days, the general public around the world is calling for greater transparency from corporate managements. ES-CON Japan is responding positively to these requests by providing
transparent disclosure of corporate information, and by maintaining sound management systems.
We will accelerate the formation of new group companies through investment, development and other activities in new segments. In
parallel, we will develop new financial techniques, actively using M&A and other methods, and forge business partnerships with companies across traditional industry boundaries. Our aim is to improve our group-level profitability and build a corporate group with strong
synergy potential on various levels, including the use of private funds.

Development of profit-earning real estate using non-recourse loans to development SPCs

SPC

Site acquisition

Non-recourse
loans

Financial institutions

Investment inanonymous
association

ES-CON Japan

Nominal capitalIntermediary corporation

AssetsConstruction etc.

13

Strengthening our foundations withan eye toward sustained growth
One of the ways in which ES-CON Japan is strengthening its internal
structures in preparation for a new growth stage is through measures tostrengthen its financial structure and ensure effective financial management. By improving our shareholder value through sustained growth, we
aim to achieve listing on the first section of the Tokyo Stock Exchange.

14

Kasuga Forest City (Provisional Name)
This large-scale comprehensive development project is located on the outskirts ofFukuoka City, Kyushu. It will result in the creation of a next-generation community based on a
totally new concept. The development will include commercial facilities, housing, a general
recreational area, and medical facilities. This next-generation community is made possible by
ES-CON Japan’s solid financial foundations. ES-CON Japan’s continued success has been sustained by our ability to use various financing methods and access reliable sources of funds.

This is a time of rapid social and economic change. The real estate industry as a whole is affected by an over-supply situation, and yet
there is escalating competition for superior project sites. The situation is further complicated by other factors, including the growth ofdemand for housing suitable for an aging society, and increasing buyer selectivity toward products and suppliers. It was in this environment that ES-CON Japan achieved record income in the year ended December 2006. The dynamic development of our condominium andasset development businesses played a major role in this success, as did our initiatives to strengthen and stabilize our financial structure.
We raised funds using various financing methods, including a private placement of new shares, and the establishment of a commitment line with a syndicate of financial institutions. In December 2006 we obtained ratings from Japan Credit Rating Agency, Ltd. (JCR).
JCR gave ES-CON Japan a long-term senior debt rating of “BBB-” (stable) and a short-term (CP program) rating of “J-2.” Objective thirdparty assessments will further enhance our management transparency and financial soundness. They will also help us to diversify and stabilize our financing methods and build flexible financing structures to meet needs created by changes in the business environment.
The business environment in our industry is expected to become increasingly competitive in the years ahead. We see the development of a more robust financial structure as essential to the maintenance of our advantage and the achievement of continuing growthunder these conditions. ES-CON Japan is working to diversify its financing methods in various ways, including the active developmentof relationships with financial institutions, and the use of equity financing in ways that are compatible with the interests of existing
shareholders. These strategies will allow us to secure the flexible finance that we need for our projects while also strengthening ourfinancial management and building a sound, robust management structure as part of our preparations for listing on the first section of
the Tokyo Stock Exchange.

ES-CON Japan’s Ratings

Long-term rating (long-term senior debt)

BBB–

Short-term rating (commercial paper)

J-2•Grades of Ratings Provided by Japan Credit Rating Agency, Ltd.
Long-term
ratinghigh
Certainty of
performance ofobligations<AAA, AA, A>

Short-term
ratinghigh
Certainty of
performance ofobligations
J-1

low<BBB, BB, B>

J-2<CCC, CC, C>

J-3* The rating symbols (“+” and “–”) indicate the relative position within each grade.

Debt
default
D

low

Debt
default

NJ

D

15

Management Priorities

Strengthening the Corporate Governance Structure
There is growing public interest in corporate social responsibility, and one way that ES-CON
Japan meets this expectation is through sound, effective corporate governance.
Improvements in corporate governance enhance management soundness and transparency
and help to lift corporate value. Our management policies also include a fundamental commitment to compliance. We aim to ensure compliance with laws and regulations, and to maintainbusiness behavior that reflects our social responsibilities. We will continue to strengthen our
corporate governance and compliance systems so as to fulfill our role and responsibilities as acorporate citizen on all levels, including cooperation with local communities, and the disclosureof information.

Corporate Governance Measures(1) Our corporate governance structure
16

ES-CON Japan operates under the “statutory auditor” system, and the performance of its
operations is managed and supervised by the Board of Directors and Board of Auditors.

(2) Board of Directors and Executive Officers
In principle the Board of Directors meets at least once a month to deliberate on important
agenda items. ES-CON Japan has also introduced an executive officer system, the aim ofwhich is to speed up operational and executive functions and clarify chains of authority andaccountability.

(3) Board of Auditors
For enhanced management transparency, the three members of the Board of Auditors are alloutside auditors. They attend board meetings and other important management meetings toprovide appropriate supervision of management activities. They also hold regular exchanges ofviews with management and the accounting auditors.

(4) Compliance
ES-CON Japan is continually improving its employee education programs to ensure the full
implementation of basic compliance policies. We also review our internal regulations at appropriate intervals. Compliance officers have been appointed to strengthen internal management
and supervision of operations.

(5) Timely Information Disclosure
ES-CON Japan recognizes the importance of timely disclosure and is improving its internal
infrastructure to allow earlier distribution of interim financial reports and other information. We
are constantly improving our investor information services, including the active use of our website to speed up disclosure of information from corporate briefings.

(6) Internal Audit System
Internal audits are the responsibility of the Corporate Management Department, which systematically audits all organizational units and reports its findings directly to the President. Audit
results are fed back to the departments concerned and used to provide guidance, including
the identification of areas requiring improvement.

17

Measures to Strengthen Corporate Governance(1) Changes to Board of Directors
At the general meeting of shareholders held on March 23, 2007, two new directors were elected, bringing the total number to six.

(2) Introduction of the Executive Officer System
On July 1, 2005, we separated management decision-making and supervisory functions fromexecutive functions by introducing an executive officer system.

(3) Active IR Program
Timely disclosure is a fundamental priority for ES-CON Japan, and we are actively working toensure that all investor relations activities are conducted fairly and promptly. We hold corporate briefings to explain, interim and final results. Other activities include the production ofannual reports, and responses to individual information requests from securities analysts, fund18

managers and media organizations. To ensure that overseas investors have timely access to
information disclosed in Japan, we place English-language content on our website.

Caring for the Environment

Concern for the Environment
For many years ES-CON Japan has been aware that environmental soundness, energy efficiency and the protection of human health would emerge as important criteria for housing in
the future. We actively design our projects to reduce resource and energy consumption andcreate spaces enriched by natural features, including greenery, light and water. Each project isassessed for its contribution to environmental conservation. The results are reflected in subsequent projects as part of a continuing evolution toward housing that can exist in harmony with
the natural environment.

ISO 14001 Certification
In May 2001, ES-CON Japan became the first company in the real estate industry to achieve
ISO 14001 accreditation. Our efforts to create products that help to protect the environment
have been paralleled by initiatives under our environmental management system to reduce ourcorporate power and energy consumption and the amount of paper used.

19

Resource-Efficient Residences
ES-CON Japan has introduced a wide range of home systems designed to reduce resourceand energy consumption. Examples include all-electric homes, water-saving toilets, waterrecycling baths and composting garbage disposal units. Other environment-related innovations currently under consideration include systems to reuse rainwater or generate power
through solar cells.

Solar Power Generation
At its Neverland Fushimi-tanbabashi complex, ES-CON Japan installed a solar energy systemdeveloped through a government-affiliated joint research program in which it participated.
Electricity generated by the system is used as a shared energy resource in the condominium
complex. ES-CON Japan is also supporting government research and technology development activities by collecting and supplying power generation data from the system.

Living Spaces That Incorporate Greenery and Natural Light
ES-CON Japan is helping to alleviate the “heat island” effect by developing roof gardens andplanting larger areas with trees. We are also contributing to energy conservation by using
design features, such as sunrooms and skylights, to bring natural light into room interiors.

Environment-Friendly and People-Friendly Construction Material
ES-CON Japan is helping to eliminate the “sick house” syndrome by using low-irritation materials, such as low-formaldehyde flooring, and by increasing the use of natural materials, including bamboo, paulownia wood, kenaf, cork and Japanese cypress, as well as environmentfriendly wallpapers.

20

Senri Dear Hills—Multi-Generation Housing inHarmony with Nature
Located in Suita City, Osaka, this integrated development structure represents a new stage in ES-CON Japan’s evolution
from a condominium business into an integrated developer. The site is located in a wooded area on low hills about 15
kilometers from central Osaka and provides panoramic views of the city. The development theme calls for the maintenance of harmony with the environment and scenic values by creating an environment-friendly multi-generational community. Within the site we have preserved forestland amounting to the area of approximately three American football fields.
With 431 condominium units and 145 detached housing lots, the development also includes welfare facilities for theaged. It is the biggest integrated development
structure in the Hokusetsu area between
Osaka and Kyoto. When completed in August
2008, it will be a garden community in whichpeople of many generations can enjoy
enriched lifestyles.

Five-Year Summary
ES-CON JAPAN Ltd. and its Consolidated Subsidiaries
Year ended January 31, 2003 and subsequent years ended December 31,
due to the change of the accounting period.

Operating results
Net sales
Operating expenses
Operating income
Net income
Segment information (1)Net sales:
Condominium and housing
Real estate planning
Real estate-related subcontracting
Asset development
Other
Segment information (2)Operating income:Condominium and housing
Real estate planning
Real estate-related subcontracting
Asset development
Other
Elimination
Financial Position
Total assets
Interest-bearing liabilities
Total net assets
Cash flows
Cash flows from operating activities
Cash flows from investing activities
Cash flows from financing activities
Per share data (yen)Earnings (basic)
Earnings (diluted)
Cash dividends
Ratios (%)
Return on average equity (ROE)
Ratio of net income to average assets (ROA)
Equity ratio
Other data
Depreciation
Interest expense
Operating Data
Number of consolidated subsidiaries
Number of employees
Condominium–unit sales
Stand-alone housing–unit sales

Millions of Yen(except per share data, ratios, operating data)

2003/Jan.

2003/Dec.

¥29,826
4,511
2,961
1,259

2004/Dec.

2005/Dec.

2006/Dec.

¥23,898
3,640
1,780
699

¥51,015
6,710
5,416
2,506

¥59,433
7,046
5,878
2,406

¥51,842
4,643
7,104
2,910

¥26,754
516
1,893
—
662

¥19,392
1,568
1,664
—
1,273

¥44,378
3,951
657
—
2,029

¥41,667
13,133
530
2,711
1,392

26,8058,814
281
15,288654¥ 1,905
47
1,581
—
60
(632)

¥945
127
1,284
29
(605)

¥ 3,348
1,557
455
—
567
(511)

¥ 4,082
1,185
183
1,241
215
(1,028)¥ 3,145
1,439
258
2,985
(29)
(694)

¥29,328
21,364
4,102¥37,869
26,567
5,040¥58,826
37,496
10,380¥84,954
54,507
14,693¥98,360
66,054
18,472(¥ 2,651)(2,762)8,469(¥ 7,917)
1,487
7,669

(¥ 7,752)(5,116)
15,860(¥ 8,903)
507
19,334(¥25,721)(3,473)
26,328¥10,100.47—
3,000.00¥5,372.39
5,106.48
2,500.00¥5,492.11
4,833.65
1,500.00¥14,825.63
12,688.18
1,200.00¥16,641.30
14,514.81
1,500.00

36.5
5.4
14.0

15.8
2.1
13.3

33.7
5.2
17.6

19.8
3.3
16.8

17.8
3.2
18.8

67
747

58
822

61
1,154

70
1,553

58
1,808

4
92
868
9

7
98
589
49

8
163
1,294
157

9
228
1,053
294

20
134
868
10

(11 months)

Notes: 1. Per share data is calculated by using figures to the nearest yen.
2. Per share data for 2005 reflects the three-for-one stock split effective on February 20, 2004 and April 1, 2006.

21

Financial Review
Overview of Performance (January 1 to December 31, 2006)
Sales and Income
Strong, positive trends continued in the condominium sales industry. One of the factors contributing to this buoyant mood in the industry was asurge of demand triggered by the conjunction of the return to rising land prices and the announcement of higher interest rates. Another positive
factor was the higher demand for commercial properties resulting from a recovery in business earnings. The ES-CON Japan Group was well
positioned to benefit from these trends. There were also continuing reminders that participants in the market could not afford to be complacent.
Buyers are applying increasingly rigorous criteria when choosing products and companies, and there is escalating competition for the best building sites. Another factor that looms large in our industry is the continuing diversification of housing needs.
ES-CON Japan’s strategies in the current economic environment included changes to its group structure. Unidio Corporation Ltd., whichis involved in the detached housing business, was one of three group companies removed from consolidation through share sales. Despite thefact that these companies were no longer contributing, consolidated net sales surpassed the initial forecast and reached ¥51,842 million,
which is 12.8% below the previous year’s level. This pleasing result signals our success at creating a structure that will allow the ES-CON
Japan Group to concentrate its management resources on its core condominium business. Performance also benefited from excellent
progress toward the establishment of the asset development business under the “Neo-Promising 2008” medium-term plan. The cost of sales
declined 13.8% year on year to ¥40,095 million, while the cost ratio was 1.0 point lower at 77.3%. Selling, general and administrative expenses were 34.1% below the previous year’s level at ¥4,643 million, and the SG&A ratio declined by 2.9 points to 9.0%.
These trends were reflected in operating income, which rose by 20.9% year on year to ¥7,104 million. The operating income ratio was up
3.9 points at 13.7%. There was an overall improvement in income ratios. This resulted from the separation of the detached housing business,
which was less profitable than other businesses, and from increased sales in the highly profitable asset development business.
Other income and expenses were affected by higher interest payments, but this was offset by proceeds from sales of investment sharesand shares in group companies. As a result, net income before income taxes and minority interests was 21.3% higher year on year at ¥5,175
million. Net income after provision for taxes and minority interests in losses amounted to ¥2,910 million, a year-on-year increase of 21.0%.

22

Segment Information
Overview
There has been sustained growth in earnings from the asset development business, which was previously divided between the real estateplanning and real estate-related subcontracting business. Starting from the current year, this area will be shown in the accounts as a separate business, reflecting the increasing importance of its contribution to overall performance.

Net Sales

Operating Income

Net Income(¥ million)(¥ million)(¥ million)

59,43351,015

2,910

7,104
51,842

2,506

5,878

2,406

5,416

29,826
1,259

2,961

23,898

1,780

03/1

03/12

04/12

05/12

06/12

03/1

03/12

699

04/12

05/12

06/12

03/1

03/12

04/12

05/12

06/12

Condominium and Housing
Activities in this business proceeded generally according to plan. There were 11 new projects. Projects in the Osaka Area included Neverland
Kamogawa in and Sakyo-ku, Kyoto, Neverland Tachibana Ekimae in Amagasaki City, Hyogo Prefecture, and Neverland Nishinomiya in
Nishinomiya City, Hyogo Prefecture. Among the new projects in the Tokyo Metropolitan Area was Neverland Shin-Koiwa Brightce (BrightSpace) in Katsushika-ku. A total of 878 units were completed and sold. Net sales in this business were 35.7% below the previous year’slevel at ¥26,805 million, and operating income was 22.5% lower at ¥3,145 million.

Real Estate Planning
Results for this business were in line with the initial business plan. ES-CON Japan continued to sell planning services based on its knowledgeof the development business, especially in the Osaka Area and the Tokyo Metropolitan Area. Net sales in the real estate planning businessdeclined by 32.9% year on year to ¥8,814 million. However, operating income was 21.4% higher at ¥1,439 million.

Real Estate-related Subcontracting
In line with initial planning, sales in this business came mainly from small-scale consulting services. Continuing growth in the asset development area resulted in the creation of a new business, which includes portion of the activities formerly included in this business. As a result,net sales in the real estate-related subcontracting business were 47.0% below the previous year’s result at ¥281 million, but operating
income was 41.0%higher at ¥258 million.

Asset Development
ES-CON Japan created this new business in response to the expansion of its activities in this area. Activities proceeded largely according toplan, including the opening of a new commercial retail facility at Sunadabashi in Higashi-ku, Nagoya City, with a home center and a massretailer of sporting goods as anchor tenants. There were also sales of new income-generating properties. Activities that were previously
spread among three segments, real estate planning, real estate-related subcontracting and other activities, were integrated to form this new
business. Net sales amounted to ¥15,288 million, and operating income was ¥2,985 million.

Other Activities
Sources of income in this segment include the condominium management business, which provides opportunities for synergies with ES-CON
Japan’s condominium business. Rental revenues from the Osaka head office building also contribute to sales. Part of this segment was transferred to the newly created asset development segment, with the result that sales were 53.8% below the previous year’s level at ¥654 million.
There was an operating loss of ¥29 million, compared with operating income of ¥215 million in the previous consolidated accounting year.

Net Sales by Segment(¥ million)

51,015
2,029
657
3,951

1,392
2,711
530

59,433
51,842654

13,133
15,288
281

662
1,893
516

29,825

8,814
1,273
1,664
1,568

23,89844,37841,66726,754

Other
Asset Development
Real Estate-related Subcontracting
Real Estate Planning
Condominium and Housing

26,805
19,392

03/1

03/12

04/12

05/12

06/12

23

Financial Position
AssetsCurrent assets increased by ¥14,956 million, or 19.7%, during the year ended December 2006 to ¥90,736 million, mainly because ofincreases in inventory assets, notes receivable and trade accounts receivable. Fixed assets declined by ¥1,549 million, or 16.9%, to ¥7,624
million, reflecting lower figures for land, buildings and structures and other categories, as well as declines in investment securities, capital
investments and other assets. Total assets increased by ¥13,406 million, or 15.8%, to a year-end total of ¥98,360 million.

Liabilities and Net Assets
Despite a reduction in short-term loans, current liabilities increased by ¥10,044 million, or 21.3%, year on year to a year-end total of ¥57,228
million. This reflects higher figures for other items, including long-term loans repayable within one year, bonds redeemable within one year,
and advances received.
Total long-term liabilities declined by 1.8% to a year-end total of ¥22,660 million. Total liabilities increased by ¥7,459 million, or 13.7%, to¥79,888 million.
Interest-bearing liabilities increased by ¥11,547 million year on year to ¥66,054 million. The ratio of interest-bearing liabilities to total
assets was 3.0 points higher at 67.2%.
Net assets (shown as “shareholders’ equity” in previous years) increased by ¥3,779 million to a year-end total of ¥18,472 million. The
shareholders’ equity ratio was 18.8%.

Cash FlowsThe balance of cash and cash equivalents (hereinafter “cash”) at the end of the current consolidated accounting period declined by ¥1,813
million from the position at the start of the year to ¥18,867 million, compared with ¥20,680 million at the end of the previous year. The
decline occurred despite an increase in borrowing and was attributable to the acquisition of inventory assets needed for business expansion

24(including real estate for projects in progress), and expenditure on interest and income taxes.

Cash Flows Used for Operating Activities
Income before provision for taxes and minority interests amounted to ¥5,175 million. Expenditure items included the acquisition of inventory
assets needed for the expansion of asset-related business activities (including real estate for projects in progress), and payments of interest andincome taxes. As a result, net cash used in operating activities amounted to ¥25,721 million, compared with ¥8,904 million in the previous year.

Sales Composition
by Segment(¥ million)

1.3%

4.0%
0.9%

4.6%

1.3%

2.3%

7.7%
29.5%

22.1%

51.7%
87.0%

70.1%
0.5%

17.0%

2004

2005

2006

Net Sales: ¥51,015 million

Net Sales: ¥59,433 million

Net Sales: ¥51,842 million

Condominium and Housing
Real Estate Planning
Real Estate-related Subcontracting
Asset Development
Other

Cash Flows Used for Investment Activities
Net cash used for investment activities amounted to ¥3,473 million, compared with ¥507 million provided by investment activities in the previous
year. Expenditure items included the acquisition of shares in group companies as a result of changes to the scope of consolidation.

Cash Flows Used for Financing Activities
Net cash provided by financing activities was ¥26,328 million, compared with ¥19,334 million in the previous year. The higher figure reflects
increased borrowing, mostly to provide funding for projects.

Shares Issued and Per Share Data
During the year ended December 2006, ES-CON Japan implemented a three-for-one stock split in April 2006 and a private placement of
new shares in June 2006. New shares were also issued through the exercise of stock option rights on five occasions. As a result, the total
number of shares issued and outstanding as of December 31, 2006 was 180,273.47. As a result, basic net income and diluted net income
per share were ¥16,641.30 and ¥14,514.81, respectively.

Dividend Policy and Dividends
ES-CON Japan has a basic policy of providing reliable dividends after provision for the internal reserves required for future business development and the improvement of the financial structure. It was resolved at the general meeting of shareholders on April 23, 2007 that the total
dividend payout for the year ended December 31, 2006 would be ¥270 million, and the dividend per share would be increased by ¥300 overthe previous year’s level to ¥1,500. As a result, the dividend payout ratio increased by 4.2 points to 6.9%.

25

SPCs included in consolidation toprovide enhanced disclosure
In recent years, special-purpose companies (SPCs) have become the focus of concern and debate because of instances ofimpropriety in financial reporting, both in Japan and overseas. In September 2006, the Accounting Standards Board of Japanissued practical guidelines concerning investment associations. Starting in the year to December 2006, all SPCs over which
ES-CON Japan can exert significant control have been included in the consolidation. The 17 development-related SPCs added
to the consolidation had total assets of ¥30,360 million and total debts of ¥20,438 million as of December 31, 2006. All are
involved in current development projects and have not yet started to generate income. For this reason, the inclusion of the
SPCs in the consolidation has had a negative impact on income for the year ended December 2006, because only their costs,
including interest payments, are currently reflected in our income statement. As development of these projects unfolds, however, the SPCs themselves will start to earn income, and we anticipate sustained improvement in the coming year and beyond.

Consolidated Balance Sheets
ES-CON JAPAN Ltd. and its Consolidated Subsidiaries
As of December 31, 2005 and 2006
Millions of Yen

Thousands of
U.S. Dollars (Note 1)

2005

2006

2006

¥20,680¥18,867$158,387

595

115

965

Notes receivables and accounts receivables-trade (Note 8)

1,071

1,426

11,971Inventories

48,635

65,122546,692

Advances

1,269

528

4,433

Prepaid expenses

1,631

1,464

12,290ASSETS
Current assets:
Cash and cash equivalents
Time deposits with maturities more than three months

Deferred tax assets (Note 9)

641

1,169

9,814

1,264

2,047

17,184

(5)

(2)

(17)

75,78190,736

761,719

725

675

5,667

9

8

67

Land

505

505

4,239

Construction in progress

636

659

5,532

Other

126

106

890

2,001

1,953

16,395

Other
Less allowance for doubtful accounts
Total current assets

Property and equipment, at cost (Note 6):
Buildings and structures
Equipment

26

Less accumulated depreciation

(222)

(246)

(2,065)

1,779

1,707

14,330

78

56

470

Investment securities (Notes 3 & 6)

4,401

4,222

35,443

Capital investments

1,518

752

6,313

400

400

3,358

Total property and equipment, net

Intangible assets

Investments and other assets:Long-term loans receivable
Deferred tax assets (Note 9)

73

—

—

Other

1,137

527

4,424

Less allowance for doubtful accounts

(213)

(40)

(335)

Total investments and other assets
Total assets
The accompanying notes are an integral part of these financial statements.

7,316

5,861

49,203¥84,954¥98,360$825,722

Millions of Yen

Thousands of
U.S. Dollars (Note 1)

2005

2006

2006

¥21,779
16,403
990
1,654
1,363
2,135
1,774
—
1,086
47,184¥12,823
35,015
28
1,288
1,455
1,993
3,707
81
838
57,228$107,648
293,947
235
10,813
12,214
16,731
31,120680
7,035
480,423

21,330865
882
23,07770,261

21,926290
444
22,66079,888184,0672,434
3,727
190,228
670,651

LIABILITIES AND NET ASSETS
Current liabilities:
Short-term debt (Note 6)Long-term debt due within one year (Note 6)
Notes and accounts payable-trade
Accounts payable-other
Deposits received on security of sales contracts
Accrued income taxes
Advances received
Accrued bonuses to directors
Other
Total current liabilities
Long-term liabilities:
Long-term debt due after one year (Note 6)
Deferred income taxes (Note 9)
Other
Total long-term liabilities
Total liabilities
Commitment and contingencies (Notes 5 & 8)

27
Net assets
Shareholders’ equity (Note 10):
Common stock
Authorized:

81,000 shares at December 31, 2005 and
243,000 shares at December 31, 2006

Issued:55,755.23 shares at December 31, 2005 and180,273.47 shares at December 31, 2006

2,672

3,795

31,859

2,727

3,850

32,3207,570

10,27486,249(8)
12,961(12)
17,907(101)
150,327

1,292
—
1,292
440
14,693¥84,954

558
(37)
521
44
18,472¥98,360

4,684
(310)
4,374
370
155,071$825,722

Capital surplus:
Additional paid-in capital
Earnings surplus:
Retained earnings
Treasury stock: 22.23 shares at December 31, 2005 and81 shares at December 31, 2006
Total shareholders’ equity
Accumulated other comprehensive income:Unrealized holding gain on investment securities
Unrealized loss from cash flow hedges
Total accumulated other comprehensive income
Minority interests in consolidated subsidiaries
Total net assets
Total liabilities and net assets
The accompanying notes are an integral part of these financial statements.

Consolidated Statements of Income
ES-CON JAPAN Ltd. and its Consolidated Subsidiaries
For the years ended December 31, 2005 and 2006
Millions of Yen

Thousands of
U.S. Dollars (Note 1)

2005

2006

2006

Net sales¥59,433¥51,842$435,208

Cost of sales

46,50940,095336,593

Gross profit

12,924

11,747

98,615

Selling, general and administrative expenses (Note 11)

7,046

4,643

38,977

Operating income

5,878

7,104

59,638Interest and dividend income

63

75

630

Gain from cancellation of sales contracts

34

14

117

Gain on consumption tax exemption

—

168

1,410

Gain on sale of investment securities, net

2

131

1,100

Other income (expenses):

Loss on change of interests in subsidiaries

(9)

—

—

(1,553)(1,808)(15,178)

Loss on disposal of property and equipment, net

(12)

(382)

(3,207)

Bond issue costs

(45)

(7)

(59)
(277)

Interest expense

Loss on devaluation of investment securities due to permanent
declines in fair values

—

(33)

Provision for doubtful accounts

(50)

—

—

Other, net

(40)

(87)

(730)

(1,610)(1,929)(16,194)

4,268

5,175

43,444

2,157

2,913

24,454

Other expenses, net

28

Income before income taxes and minority interests in income of
consolidated subsidiaries
Income taxes:
Current
Deferred (Note 9)
Minority interests in income (loss) of consolidated subsidiaries
Net income

(376)

(629)

(5,280)

1,781

2,284

19,174

81

(19)

(159)

¥ 2,406¥ 2,910$ 24,429

Yen

U.S. Dollars (Note 1)¥ 16,641.30$139.70

Per share data
Earnings per share:Basic¥14,825.63

Diluted12,688.18

14,514.81

121.85

Net assets

85,007.70

102,270.86

858.55

Basic

159,576

174,901

Diluted

186,459

200,525

Shares used in per share calculation

Note: Per share data and share used in per share calculation for 2005 have been retroactively adjusted for the three-for-one stock split effective on April 1, 2006.
The accompanying notes are an integral part of these financial statements.

Consolidated Statements of Changes in Net Asset
ES-CON JAPAN Ltd. and its Consolidated Subsidiaries
For the years ended December 31, 2005 and 2006
Millions of Yen

Balance at December 31, 2004
Stock purchase right exercised
Stock allotment to a third party
Net income
Cash dividends paid
Bonuses to directors and statutory auditors
Balance at December 31, 2005
Three-for-one stock split
Stock purchase right exercised
Stock allotment to a third party
Net income
Cash dividends paid
Bonuses to directors and statutory auditors
Increase of subsidiaries
Decrease of subsidiaries
Treasury stock purchased
Balance at December 31, 2006

Shareholders’ equity

Number of
Shares ofCommon Stock
IssuedCommonStock

Additional
Paid-in
CapitalRetained
Earnings

Treasury
Stock

Total
Shareholders’Equity52,442.23
313
3,000
—
—
—
55,755.23
113,800.68
6,017.56
4,700
—
—
—
—
—
—
180,273.47¥2,167
6
499
—
—
—
2,672
—
653
470
—
—
—
—
—
—
¥3,795¥2,221
6
500
—
—
—
2,727
—
653
470
—
—
—
—
—
—
¥3,850¥ 5,283
—
—
2,406
(79)
(40)
7,570
—
—
—
2,910
(66)
(40)
(150)
50
—
¥10,274

¥ (8)
—
—
—
—
—
(8)
—
—
—
—
—
—
—
—
(4)
¥(12)

¥9,663
12
999
2,406
(79)
(40)
12,961
—
1,306
940
2,910
(66)
(40)
(150)
50
(4)
¥17,907
Millions of Yen

Accumulated other comprehensive income

Balance at December 31, 2004
Increase (decrease) during the period
Balance at December 31, 2005
Increase (decrease) during the period
Balance at December 31, 2006

Unrealized
holding gain
on investment
securities

Unrealized
loss from cash
flow hedge

Total
accumulated othercomprehensive
incomeMinority
interests

Total net
asset

¥ 422
870
1,292
(734)
¥ 558

¥ —
—
—
(37)
¥(37)

¥ 422
870
1,292
(771)
¥ 521

¥ 295
145
440
(396)
¥ 44

¥10,380
4,313
14,693
3,779¥18,472

Thousands of U.S. Dollars (Note 1)

Shareholders’ equity

Balance at December 31, 2005
Three-for-one stock split
Stock purchase right exercised
Stock allotment to a third party
Net income
Cash dividends paid
Bonuses to directors and statutory auditors
Increase of subsidiaries
Decrease of subsidiaries
Treasury stock purchased
Balance at December 31, 2006

CommonStock

Additional
Paid-in
CapitalRetained
Earnings

Treasury
Stock

Total
Shareholders’Equity$22,431
—
5,482
3,946
—
—
—
—
—
—
$31,859$22,892
—
5,482
3,946
—
—
—
—
—
—
$32,320$63,549———
24,429(554)(336)(1,259)420—$86,249$ (67)
—
—
—
—
—
—
—
—
(34)
$(101)$108,805—
10,964
7,892
24,429(554)(336)(1,259)420(34)$150,327

Thousands of U.S. Dollars (Note 1)

Accumulated other comprehensive income

Balance at December 31, 2005
Increase (decrease) during the period
Balance at December 31, 2006
The accompanying notes are an integral part of these financial statements.

Unrealized
holding gain
on investment
securities

Unrealized
loss from cash
flow hedge

Total
accumulated othercomprehensive
incomeMinority
interests

Total net
assets$10,846(6,162)$ 4,684$ —(310)$(310)$10,846(6,472)$ 4,374$ 3,694(3,324)$ 370$123,345
31,726$155,07129

Consolidated Statements of Cash Flows
ES-CON JAPAN Ltd. and its Consolidated Subsidiaries
For the years ended December 31, 2005 and 2006

Operating activities:
Income before income taxes and minority interests in income
Adjustments to reconcile income before income taxes andminority interests in income to net cash used in operating activities:
Depreciation and amortization
Bond issue costs
Gain on sale of investment securities, net
Gain on sale of investment in subsidiaries
Loss on devaluation of investment securities due to permanent declines in fair values
Loss on change of interests in subsidiaries
Loss on disposal /sales of property and equipment, net
Provision for doubtful accounts
Interest and dividend income
Interest expenses
Bonuses paid to directors
Provision for bonuses to directors
Changes in operating assets and liabilities:
Notes and accounts receivable - trade
Inventories
Prepaid expenses
Accounts payable-trade
Accounts payable-other
Advances received
Other, net
SubtotalInterest and dividends received
Interest paid
Income taxes paid
Net cash used in operating activities

30

Millions of Yen

Thousands of
U.S. Dollars (Note 1)

2005

2006

2006

¥ 4,268¥ 5,175$ 43,444

77
45
(2)
—
—
9
12
60
(63)
1,553
(40)
—

58
7
(131)
(168)
33
—
382
1
(75)
1,808
(40)
81

487
59
(1,100)(1,410)
277
—
3,207
8
(630)
15,178
(336)
680

(482)
(12,892)
(180)
192
1,132
677
366
(5,268)24(1,688)(1,971)(8,903)(911)(27,653)
150
2
(339)
550
(44)
(21,114)74(1,832)(2,849)(25,721)(7,648)(232,144)
1,259
17(2,846)
4,617(369)(177,250)
621(15,379)(23,917)(215,925)

(34)
1,117
(1,377)77——(3,990)
4,944
73
(663)
360
507

(119)
594
(2,476)662(1,158)(50)(1,277)
1,035
(77)
(607)
—
(3,473)

(999)
4,987
(20,786)
5,557(9,721)(420)(10,720)
8,689
(646)
(5,096)—(29,155)

38,895(24,904)
27,261(25,528)
(200)
1,363
1,754
(310)
25
1,000
57
—
(79)
19,334
10,938
9,742—¥ 20,680

29,763(23,983)
42,095(22,479)
—
91
292
(310)
—
929
—
(4)
(66)
26,328(2,866)
20,6801,053¥ 18,867

249,857(201,335)
353,383(188,709)
—
764
2,451
(2,602)
—
7,799
—
(34)
(554)
221,020(24,060)
173,607
8,840$158,387¥¥$

Investing activities:
Investment in time deposits in banks
Maturity of time deposits in banks
Purchase of investment securities
Proceeds from sales of investment securities
Sales of subsidiaries’ interest resulting in change of consolidation scope
Additional acquisition of subsidiaries’ interest
Purchase of property and equipment
Proceeds from sale of property and equipment
Deposits received
Loans receivableCollection of loans receivable
Net cash (used in) provided by investing activities
Financing activities:
Proceeds from short-term loans
Repayments of short-term loans
Proceeds from long-term loans
Repayment of long-term loans
Repayment of commercial paper borrowings
Deposits received on security of sales contracts
Proceeds from issuance of bonds
Payment for redemption of bonds
Proceeds from issuance of stock purchase rights
Proceeds from issuance of shares of common stock
Cash receipt from minority shareholders due to change of consolidation scope
Acquisition of treasury stock
Cash dividends paid
Net cash provided by financing activities
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of the period
Cash increased with acquisition of new subsidiaries
Cash and cash equivalents at end of the period
Supplemental disclosure of non-cash financing activities:
Common stock increased by exercising stock purchase rights
Additional paid-in capital increased by exercising stock purchase rights
The accompanying notes are an integral part of these financial statements.

—
—

647
647

5,431
5,431

Notes to Consolidated Financial Statements
1. BASIS OF PRESENTING CONSOLIDATED FINANCIAL STATEMENTS
The accompanying consolidated financial statements have been prepared in accordance with the provisions set forth in Japanese Securities andExchange Law and its related accounting regulations, and in conformity with accounting principles generally accepted in Japan (Japanese GAAP), which
are different in certain respects as to application and disclosure requirements of International Financial Reporting Standards or accounting standards generally accepted in the United States of America.
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.
The consolidated financial statements are stated in Japanese yen. The translations of the Japanese yen amounts into U.S. dollar amounts are included solely for the convenience of readers, using the prevailing exchange rate at December 31, 2006, which is ¥119.12 to U.S.$1.00. The conveniencetranslations should not be construed as representations that the Japanese yen amounts have been, could have been, or could in the future be converted
into U.S. dollars at this or any other rate of exchange.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The effective control approach is applied to determine the scope of consolidation. Under the effective control approach, all majority-owned companies
are consolidated and, additionally, companies in which the parent’s ownership share is less than or equals 50% may be required to be consolidated incase where such companies are effectively controlled by the parent company.
The difference between the total acquisition cost and underlying fair value of the net equity of investments in a subsidiary at acquisition is stated as“excess of cost over net assets acquired” or “excess of net assets acquired over cost” which is amortized on a straight-line basis over a period of five
years. When the difference is insignificant, it is charged to income as incurred. ¥24 million and ¥17 million ($143 thousand) of the excess of cost over net
assets acquired are included in intangible assets in the consolidated balance sheets at December 31, 2005 and 2006, respectively.
The accompanying consolidated financial statements include the accounts of the Company and its all subsidiaries (Collectively, the “Companies”). All
significant inter-company transactions and account balances and unrealized inter-company profits among the Companies, after adjustment for minority
interests, are eliminated upon consolidation.
A company, whose financial and operating decision-making is influenced to a material degree through investment, personnel, finance, technology orother relationships with another entity, is defined as an affiliate. Under this concept, all 20% to 50% owned companies, except for those being consolidated, are, in principle, required to be accounted for using the equity method. An investment of less than 20% of voting rights of an investee may berequired to be accounted for using the equity method in cases where the investor has the ability to exercise significant influence over the investee. The
Company had no affiliates at December 31, 2005 and 2006.

Scope of Consolidation
Number of subsidiaries at December 31, 2005 and 2006 is as follows:

Consolidated subsidiaries
Unconsolidated subsidiaries

2005

2006

9
0

20
0

The name and its interest percentage of major subsidiaries directly and indirectly owned by the Company at December 31, 2004 and 2005 are as follows:
Name

2005

2006

UNIDIO CORPORATION Ltd.
UNIDIO LIVES Ltd., a subsidiary of UNIDIO CORPORATION Ltd.
NSSF Ltd.
E-STATE Ltd.
N S KANRI Ltd.
CONSTELLATION ONE Ltd.
PRONET ES-CON EIGHT Ltd.
CONSTELLATION SEVEN Ltd.

60.1%
60.1
100.0
89.0
62.5
100.0
100.0
100.0

—%
—
—
94.5
62.5
100.0
100.0
100.0

Due to sale of all ownership interest of UNIDIO CORPORATION Ltd. in February 2006, UNIDIO CORPORATION Ltd. and its two subsidiaries including
UNIDIO LIVES Ltd. are not consolidated subsidiaries at December 31, 2006.
When the Company sold ownership interest of UNIDIO CORPORATION Ltd., assets and liabilities owned by three subsidiaries above are as follows:31

Current assets
Non-current assets
Current liabilities
Non-current liabilities
Total

Millions of Yen

Thousands of U.S.
Dollars (Note 1)¥25,614695(19,442)(5,900)¥967$215,027
5,834(163,213)(49,530)$8,118Due to liquidation of NSSF Ltd. in March 2006, NSSF Ltd. is not a consolidated subsidiary at December 31, 2006.
The Accounting Standards Boards of Japan issued “Practical Guideline for Application of Control Criteria and Influence Criteria to Invest Associations”(Practical Solution Report No. 20, September 8, 2006). The Company adopted the guideline and 17 special purpose companies are consolidated into theaccompanying consolidated financial statements for the year ended December 31, 2006.

Cash Equivalents
Cash equivalents on the statements of cash flows are defined as low-risk, highly liquid, short-term investments with an initial maturity of three months orless that are readily convertible to cash.

Inventory Valuation
Real estate held for sale: At cost determined by the specific identification method
Construction in process for the purpose of sale: At cost determined by the specific identification method
Cost accrued on construction contract: At cost determined by the specific identification method
Merchandise: At cost determined by the weighted-average method
Supplies: At last cost

Securities

32

Held-to-maturity securities are either amortized or accumulated to face value. Other securities with quoted market prices are carried at market value. The
difference between the acquisition costs and the carrying value of other securities for trading purposes, both realized and unrealized, is credited or
charged to income while, for other securities held for investment purposes, the difference, including unrealized gain and loss, net of the applicable income
taxes, is recognized as a component of shareholders’ equity and is reflected as “net unrealized holding gain or loss on investment securities.” Other securities without quoted market prices are stated at cost based on the moving-average method.
For the investment securities that suffer a permanent decline in fair value by more than 50% of its acquisition cost at the balance sheet date or suffer
a decline in market value by 30% to 50% of its acquisition cost over the most recent two years, the Companies reduce its acquisition cost to net realizablevalue by charging such losses to income for the year.
The cost of other securities sold is computed by the moving-average method.
Due to the application of the Article 2 in Section 2 of the Securities and Exchange Law amended by the Law in connection with “Partial Amendment to the
Securities and Exchange Law” (Law No. 97, 2004) on December 1, 2004 and the revision of “Practical Guideline for Financial Instruments” (JICPA
Accounting Committee Report No. 14) on February 15, 2005, capital investments in limited liability premierships and other similar partnerships engaging ininvestment business are classified as investment securities. The amount of such investment securities on December 31, 2005 was ¥864 million.

Depreciation and Amortization
For tangible assets: Buildings are depreciated by using the straight-line method and other tangible assets are depreciated by using the decliningbalance method.
For intangible assets: Intangible assets primarily consist of internal-use software, which is amortized using the straight-line method over five years.

Accrued bonuses for directors
Prior to May 1, 2006, the effective date of the Corporation Law promulgated on July 26, 2005, the Companies accounted for bonuses to directors to be
paid solely by resolution of shareholders and charged them directly to retained earnings when paid , which Japanese GAAP allowed.
Accounting Standards Board of Japan issued Statement of Financial Accounting Standards No. 4 (SFAS No. 4), “Accounting for bonuses to directors” on November 29, 2005. SFAS No. 4 is required to be adopted in May 1, 2006, the effective date of the Corporation Law. The Companies adopted
these standards for the year ending December 31, 2006. In accordance with the new accounting standards, the Companies changed an accounting
treatment for directors’ bonuses from a cash basis to an accrual basis by charging them to income as incurred.
As a result of an adoption of SFAS No. 4, sales, general and administrative expenses increased by ¥81 million and income before taxes decreased by
the same amount.

Allowance for Doubtful Accounts
The allowance for doubtful accounts is reported as an amount determined by adding the individually estimated uncollectible amounts to a general reserve
calculated by applying a rate based on past collection experience.

Derivatives and Hedging Accounting
The accounting standards for financial instruments:
Derivative financial instruments are stated at fair value and changes in fair value are recognized as gains or losses unless derivatives financial instruments areused for hedging purposes. If derivative financial instruments are used as hedges and meet certain hedging criteria, a company defers recognition of gains orlosses resulting from changes in fair value of derivative financial instruments until the related gains or losses on the hedged items are recognized.

Companies’ policy for derivative activities:
The Companies utilize derivative financial instruments such as interest rate swap and interest rate cap contracts for the purpose of reduction of therisks of fluctuations in future interest payments on loan transactions. The Companies do not enter into derivative transactions for trading or speculative purposes.

Risk management for derivative transactions:
The Companies enter into the derivative transactions only with major international financial institutions with favorable credit ratings, thereby reducing
credit risk exposure for non-performance. The Companies evaluate hedge effectiveness periodically by comparing the cumulative changes in cash
flows or the changes in fair value of hedged items and the corresponding changes in the hedging derivative instruments. The finance department isengaged in derivative transactions with approval of the Board of Directors. The derivative transactions are executed in accordance with the established policies and within the specified limits on the amounts of derivative transactions allowed.

Income Taxes
The Companies use the asset and liability method to account for income taxes. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases andoperating loss and tax credit carry-forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable incomein the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities from a change
in tax rates is recognized in income in the period the change is enacted. A valuation allowance is established to reduce deferred tax assets when it is more
likely than not that a tax benefit will not be realized.

LeasesUnder Japanese accounting standards for leases, financial leases that are deemed 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 thenotes to the lessee’s financial statements. In compliance with this standard, all lease transactions of the Companies are accounted for as operating leases.

Appropriations of Retained Earnings
Under the Corporation Law and the Articles of Incorporation of the Company, the plan for appropriation of retained earnings (primarily for cash dividend
payments and bonuses paid to directors) proposed by the Board of Directors should be approved by the shareholders’ meeting which must be held within three months after the end of each fiscal year. The appropriation of retained earnings reflected in the accompanying consolidated financial statements
represents the results of such appropriations which relate to the immediately preceding fiscal year but are approved by the shareholders’ meeting and disposed of during that year.

Earnings Per Share
Basic earnings per share is computed by dividing net income by the weighted average number of common share outstanding during the period. Diluted
earnings per share is computed similar to basic earnings per share except that it reflects the potential dilution that could occur if dilutive securities or otherobligations to issue common stock were exercised or converted into common stock. For the period when the Companies incur net losses, potential common stock is excluded from computation of diluted earnings per share since potential common stock would be considered antidilutive. Earnings per sharefor prior years is retroactively adjusted with stock splits.

Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles in Japan requires management to make certain estimates and assumptions which affect the accounts reported in the financial statements and accompanying notes. The actual results could differ fromthose estimates.

33

Reclassification
Certain reclassifications have been made to conform to the presentation of the year ended December 31, 2006. These reclassifications have no effect onpreviously reported net income and shareholders’ equity.

Additional information:
The Accounting Standards Board of Japan issued Statement of Financial Accounting Standards No. 5, “Accounting for presentation of the section of net
asset on the balance sheet” on December 9, 2005 and issued the implementation guidance for the accounting standard for presentation of the section of
net asset on the balance sheet, “the Financial Accounting Standard Implementation Guidance No. 8” on December 9, 2005. The new accounting standards is required to be adopted in periods beginning on or after April 1, 2005. The Companies adopted these standards for the year ending December
31, 2006 and the adoption did not result in changes to earnings or financial position of the Companies. The section of net asset for the year ended
December 31, 2005 restated in order to tally with the presentation of that for the year ended December 31, 2006.
The Business Accounting Deliberation Council issued the new accounting standard for impairment of fixed assets, “Opinion Concerning
Establishment of Accounting Standard for Impairment of Fixed Assets” on August 9, 2002 and the Accounting Standards Board of Japan issued theimplementation guidance for the accounting standard for impairment of fixed assets, “the Financial Accounting Standard Implementation Guidance No. 6”
on October 31, 2003. The new accounting standards is required to be adopted in periods beginning on or after April 1, 2005, but the standard does notprohibit earlier adoption. The Companies adopted these standards for the year ending December 31, 2006 and the adoption does not result in changes
to earnings or financial position of the Companies.

3. INVESTMENT SECURITIES(1) The following table summarizes acquisition cost, and fair value of investment securities with market value at December 31, 2005 and 2006:
2005

34

Millions of Yen

Securities with fair value in excess of acquisition cost
Equity securities
Debt securities
Other
Securities with fair value not in excess of acquisition cost
Equity securities
Debt securities
Other
Total

Acquisition cost

Fair value

Unrealized gain

¥131
—
—
131

¥2,306——2,306¥2,175
—
—
2,175

—
—
—
—
¥131

—
—
—
—
¥2,306————¥2,175Acquisition cost

Fair value

Unrealized gain

¥118
—
—
118

¥1,070
—
—
1,070

¥952
—
—
952

129
—
—
129
¥247

117
—
—
117
¥1,187

(12)
—
—
(12)
¥940

2006

Millions of Yen

Securities with fair value excess acquisition cost
Equity securities
Debt securities
Other
Securities with fair value not excess acquisition cost
Equity securities
Debt securities
Other
Total

2006

Thousands of U.S. Dollars (Note 1)

Securities with fair value in excess of acquisition cost
Equity securities
Debt securities
Other
Securities with fair value not in excess of acquisition cost
Equity securities
Debt securities
Other
Total

Acquisition cost

Fair value

Unrealized gain (loss)

$ 991
—
—
991

$8,983——
8,983$7,992
—
—
7,992

1,083
—
—
1,083
$2,074982——
982$9,965

(101)
—
—
(101)
$7,891(2) Non-marketable investment securities are stated at cost. The following table summarizes acquisition cost of non-marketable investment securities at
December 31, 2005 and 2006:
Millions of Yen

Equity securities
Debt securities
Other
Total

Thousands of U.S.
Dollars (Note 1)

2005

2006

2006

¥ 227
—
1,868
¥2,095

¥ 192
2,516
326
¥3,034$ 1,61221,121
2,737$25,470(3) The following table summarizes maturities of long-term investments in debt securities at December 31, 2005 and 2006:
Millions of Yen

Within one year
Over one year and within five years
Over five years and within ten years
Over ten years

Thousands of U.S.
Dollars (Note 1)

2005

2006

2006

¥ —
500
—
200

¥ —
1,000
1,000
200

$ —
8,395
8,395
1,679

4. DERIVATIVE TRANSACTIONS
The following summarizes hedging derivative financial instruments used by the Companies and items hedged:
Hedge instruments are interest swap contracts and interest rate cap contracts.
Hedge item is interest on loan contracts.
The Companies adopt hedge accounting for all derivative transactions the companies enter and, therefore, the Company omits disclosures for the fair value
information about derivative transaction outstanding at December 31, 2005 and 2006 in accordance with the accounting standards for financial instruments.

5. LEASES(1) Finance lease
The Companies lease certain equipment, software and vehicles under several finance lease contracts without ownership transfer to lessee. Assumed
amounts of acquisition cost, accumulated depreciation and net book value at December 31, 2005 and 2006 are as follows:

Acquisition cost
Machinery and equipment
Other
Total
Accumulated depreciation
Machinery and equipment
Other
Total
Net book value equivalentMillions of Yen

Thousands of U.S.
Dollars (Note 1)

2005

2006

2006

¥678
36
714

¥70
4
74

$587
34
621

283
10
293
¥421

23
1
24
¥50

193
8
202
$419

35

Depreciation expenses for these leased assets for the years ended December 31, 2005 and 2006 would have been ¥143 million and ¥81 million ($680
thousand), respectively, if they are computed in accordance with the straight-line method over the periods of these capital leases, assuming no remaining
value. Lease payments for the years ended December 31, 2005 and 2006 are ¥150 million and ¥84 million ($705 thousand), respectively.
Future lease payments are as follows:
Millions of Yen

Due within one year
Due after one year
Total

Thousands of U.S.
Dollars (Note 1)

2005

2006

2006

¥143
291
¥434

¥47
3
¥50

$395
25
$420

The total interest amount paid during a lease period represents the difference between the total lease payment and the acquisition cost of the leased
asset. The interest is expensed over the period of the lease contract based on the remaining outstanding balance of the lease obligation. Interest expense
related to capital leases for the years ended December 31, 2005 and 2006 are ¥9 million and ¥3 million ($25 thousand), respectively.

6. SHORT-TERM DEBT AND LONG-TERM DEBT
(1) Short-term debt
Short-term debt loaned from financial institutions at December 31, 2005 and 2006 is ¥21,779 million and ¥12,823 million ($107,648 thousand), respectively. A weighted average of period-end interest rate at December 31, 2005 and 2006 is 3.2% and 2.7% per annum, respectively.

(2) Long-term debt

36

Long-term debt consists of long-term loans due within and after one year and bonds due within and after one year. Both long-term loans due within one
year and bonds due within one year are presented as current liabilities.
On July 30, 2004, the Company issued the aggregate principal amount of ¥5,000 million of convertible bonds (zero coupon notes with stock purchase rights) with 1,000 notes in the denomination of ¥5,000 thousand each. The issue price is 100% of the principal amount and the issue price of thestock purchase rights are zero. The due date of the bonds is July 30, 2009. The conversion price per share is ¥175,277.10 ($1,471.43) at December 31,
2006 and exercisable period for the conversion is from August 6, 2004 through July 16, 2009. When a bondholder exercises the conversion, theCompany purchases a fractional portion of common stock at market value at the conversion date instead of not issuing the fractional portion. Upon exercise of stock purchase right attached on a bond, the bond deems to be redeemed.
UNIDIO LIVES Ltd. issued ¥100 million of unsecured bonds in March 2005 (Note a) and UNIDIO CORPORATION Ltd. issued ¥400 million of convertible bonds in September 2005 (Note b). As mentioned in Note 2, both companies are not consolidated subsidiaries at December 31, 2006 and, therefore,
the balances of bonds issued by those companies are not included in the balance of long-term debt at December 31, 2006.
Long-term debt outstanding at December 31, 2005 and 2006 consists of the following:
Millions of Yen

Long-term loans due within one year
Long-term loans due after one year
1.12% unsecured bonds, due July 25, 2008
1.33% unsecured bonds, due August 27, 2008
Zero coupon convertible bonds, due December 21, 2007
Zero coupon convertible bonds, due July 30, 2009
0.50% unsecured bonds, due September 21, 2007
2.15% unsecured bonds, due December 17, 2007
1.62% unsecured bonds issued March 15, 2005 (Note a)
0.52% unsecured bonds , due May 31, 2007
0.51% unsecured bonds, due February 20, 2007
0.51% unsecured bonds, ¥100 ($839) due in 2007
and the remainder due June 30, 2008
1.00% unsecured convertible bonds issued September 27, 2005 (Note b)
1.14% unsecured convertible bonds, $100 ($839) due in 2007
and the remainder due September 27, 2009
Less: Current portion of long-term debt
Total long-term debts excluding current portion

Thousands of U.S.
Dollars (Note 1)

2005

2006

2006

¥16,143
14,176
110
110
4
5,000
340
100
100
500
500

¥33,53117,801
110
110
4
3,705
180
100
—
500
500

$281,490
149,438923
923
34
31,103
1,511
840
—
4,197
4,197

250
400

150
—

1,259
—

—
37,733
16,403¥21,330250
56,94135,015¥21,926

2,099
478,014
293,947$184,067

Weighted average interest for current portion and non-current portion of long-term loans were 2.30% and 2.50% per annum at December 31, 2005,
respectively and 2.2% and 2.0% per annum at December 31, 2006, respectively.
The aggregate amounts of annual maturity of long-term loans with due after one year are as follows:Year ending December 31,
2008
2009
2010
2011
Thereafter
Total long-term loans excluding current portion

Millions of Yen

Thousands of U.S.
Dollars (Note 1)¥13,869
578
53
3,173
128
¥17,801$116,429
4,852
445
26,637
1,075$149,438(3) Assets pledged as collateral
The Companies pledge certain assets as collateral under some loan arrangements made with financial institutions. The financial institutions may obtain thecollateral in the event of financial default or delinquent payments as provided for in the loan agreements. The assets, at carrying value, pledged as collateral for short-term loans and long-term loans and the secured short-term and long-term loans at December 31, 2005 and 2006 are as follows:

Pledged assets

Inventories
Buildings and structures
Land
Total assets pledged as collateralMillions of Yen

2005

2006

2006

¥40,206506
390¥41,102¥57,863482
390¥58,735$485,754
4,046
3,274
$493,074

Millions of Yen

Thousands of U.S.
Dollars (Note 1)

Secured loans

Short-term loans
Current portion of long-term loans
Long-term loans, less current portion
Total secured loans

Thousands of U.S.
Dollars (Note 1)

2005

2006

2006

¥19,753
15,6499,381¥44,783¥ 8,243
30,305
17,226¥55,774$ 69,199
254,407
144,611$468,217

7. RETIREMENT BENEFITSThe Companies have no retirement benefit plans for their employees and their directors.

8. CONTINGENCIESThe Companies contingent liabilities from notes receivable delivered with endorsement to subsidiaries’ suppliers of ¥11 million at December 31, 2005. Thebalance at December 31, 2005 guaranteed by Companies for their customers who borrowed from banks as temporary housing loans was ¥946 million.
At December 31, 2006, the Companies do not have any contingent liabilities.

37

9. INCOME TAXESThe significant components of deferred tax assets and liabilities at December 31, 2005 and 2006 are as follows:

Deferred tax assets:
Net operating loss carry-forwards
Accrued local business taxes
Provision for doubtful accounts in excess of tax deductible amount
Loss on devaluation of inventories
Accrued interest not booked
Unrealized gain on inventories
Devaluation of capital investments
Other
Deferred tax liabilities
Revaluation gain on investment securities
Other
Net deferred tax assets (liabilities)

Millions of Yen

Thousands of U.S.
Dollars (Note 1)

2005

2006

2006

¥197
164
88
223
—
—
—
64
736

¥486
151
—
222
60
216
31
93
1,259

$4,080
1,268
—
1,864
504
1,813
260
781
10,570

(883)
(4)
(887)
¥(151)

(381)
—
(381)
¥878

(3,199)(3,199)$7,371

The aggregate statutory income tax rate used for calculation of deferred income tax assets and liabilities is 40.7% for the years ended December 31, 2005
and 2006.
Since the differences between the statutory corporate tax and the effective income tax rate for the years ended December 31, 2005 was less than
5% of the statutory corporate tax, the difference-reconciliation is omitted in accordance with the accounting standards for income taxes.
Reconciliation between effective tax rate and statutory tax rate for 2006 is as follows:

38

Statutory tax rate
(Reconciliation)
Gain on sale of investment securities adjusted for consolidation purposes
Other
Effective tax rate

40.7%
2.7%
0.7%
44.1%

With the implementation of the “Revision of the Local Tax Law” (Legislation No. 9, 2003) on March 31, 2003, the tax basis of enterprise taxes comprises“amount of income”, “amount of added value” and “amount of capital” from this fiscal year commenced April 1, 2004. Enterprise taxes based on “amount ofadded value” and “amount of capital” are included in “Selling, general and administrative expenses” from this fiscal year pursuant to “Practical Solutions on
Presentation for Size-Based Components of Corporate Enterprise Tax on Income Statement” (Accounting Standards Board, Practical Solution Report
No.12 issued on February 13, 2004). As a result of this change, the selling, general and administrative expenses increased by ¥48 million, and the operating income and the income before income taxes and minority interest decreased by the same amount for the year ended December 31, 2005.

10. SHAREHOLDERS’ EQUITY
Prior to May 1, 2006, the effective date of the Corporation Law promulgated on July 26, 2005, a corporation was complied with the Commercial Code,(the Code) which regulated commercial activities in general. On and after May 1, 2006, a corporation is complied with the Corporation Law (the Law),
which focuses on a corporation’s business activities.
Under the Law as well as the Code, an entire amount of the issue price of shares is required to be accounted for as capital, although a company may,by resolution of its Board of Directors, account not exceeding one-half of the issue prices of the new shares as additional paid-in capital, which is included incapital surplus. The Law requires that an amount equal to at least 10% of cash dividends and other cash appropriations shall be appropriated and set aside
as a legal earnings reserve until the total amount of legal earnings reserve and additional paid-in capital equals 25% of common stock. The total amount oflegal earnings reserve and additional paid-in capital has reached 25% of common stock at January 31, 2004 and, therefore, the Company is not required toprovide legal earnings reserve any more. The legal earnings reserve and additional paid-in capital may be used to eliminate or reduce a deficit by resolutionof the shareholders’ meeting or may be capitalized by resolution or the Board of Directors. On condition that the total amount of legal earnings reserve andadditional paid-in capital remains being equal to or exceeding 25% of common stock, they are available for distribution by the resolution of shareholders’meeting. Legal earnings reserve is included in retained earnings in the accompanying consolidated financial statements. The legal earnings reserve included
in retained earnings is ¥11 million and ¥11 million ($92 thousand) at December 31, 2005 and 2006, respectively.
Annual dividends are to be approved by the shareholders at a meeting held subsequent to the fiscal year to which the dividends are applicable. Semiannual interim dividends may also be paid upon resolution of the Board of Directors, subject to certain limitations imposed by the Law. The maximum amountthat the Company can distribute as dividends is calculated based on the non-consolidated financial statements of the Company in accordance with the Law.

11. BREAKDOWN OF SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses for the years ended December 31, 2005 and 2006 comprised the following:
Millions of Yen

Advertisement and marketing
Sales commission
Directors’ remuneration
Employees’ compensation
Taxes
Other
Total

Thousands of U.S.
Dollars (Note 1)

2005

2006

2006

¥2,494
1,329
224
1,121
320
1,558
¥7,046¥1,552
998
223
709
283
878
¥4,643$13,029
8,378
1,872
5,952
2,376
7,370
$38,977

12. CREDIT LINE
In 2006, the Companies entered into credit line agreements with five financial institutions for the purpose of efficient management for operation and project funds. The following is the summary of the credit line at December 31, 2006:
Total of credit line
Balance of borrowings
Unused credit line

Millions of Yen

Thousands of U.S.
Dollars (Note 1)¥3,700—¥3,700$31,061—$31,061

13. STOCK OPTION(1). General information
Number of persons granted
Number of stock option
Grant date
Qualification for grant of stock option
Vested period
Exercisable period

Stock option granted in 2001

Stock option granted in 2006

Directors of the Company: 1
Employees of the Company: 32
Common stock: 7,344 shares
April 26, 2001——
From: August 1, 2003 To: March 31, 2011

Directors of the Company: 4
Employees of the Company: 75
Common stock: 9,000 shares
April 28, 2006——
From: April 1, 2008 To: March 31, 2013

Stock option granted in 2001

Stock option granted in 2006

2,598 shares—
954 shares—
1,644 shares—
9,000 shares—
224 shares
8,776 shares(2). Movement of number of stock option
Outstanding at December 31, 2005
GrantedExercised
Forfeited
Outstanding at December 31, 2006

Number of common share has been recalculated in consideration of stock splits made after grant date.

(3). Price information

Yen

Stock option granted in 2001

Stock option granted in 2006

Exercise price per stock
Average stock price at exercise
Fair value per stock¥ 12,778
234,000—¥270,184——

Exercise price per stock
Average stock price at exercise
Fair value per stock at grant date

$ 107
1,964
—

U.S. Dollars (Note 1)$2,868——Exercise price per stock has been determined in consideration of stock splits made after grant date. Average stock price at exercise is determined on theassumption that stock splits were made at the beginning of the period.

39

14. SEGMENT INFORMATION(1) Business Segment
The Companies are primarily engaged in the real estate business. Their business segments are classified in terms of the nature of each operation or service. Their business segment consists of five segments: Condominium and Housing Sales business, Real Estate Planning Sales business, Real Estate
Related Subcontracting business, Asset development business and Other business. Asset development business is recognized as an independent business segment for the year ended December 31, 2006 due to its rapid growth during 2006. The segment information for the year ended December 31,
2005 was restated in order to tally with the presentation of that for the year ended December 31, 2006.
The business segment information of the Companies for the years ended December 31, 2005 and 2006 is summarized as follows:
2005

Millions of Yen

Condominium
andHousing Sales

Real Estate
Planning
Sales

Real Estaterelated
Subcontracting

Elimination
and/orCorporate

Asset
Development

Other

Total

Sales from external customers
Inter-segment or transfers
Total sales
Operating expense
Operating income¥41,667—
41,66737,585¥ 4,082¥13,133—
13,133
11,948¥ 1,185

¥530
17
547
364
¥183

¥ 2,711
50
2,761
1,520
¥ 1,241¥1,392
4,000
5,392
5,177
¥ 215

¥59,433
4,067
63,50056,594¥ 6,906¥—(4,067)(4,067)(3,039)¥ (1,028)¥59,433—
59,43353,555¥ 5,878

Total assets
Depreciation
Capital expenditure¥25,743¥32¥
48¥13,268
¥
10
¥
27

¥245
¥ 0
¥ 2

¥18,126¥
2¥
1¥2,097¥ 19¥ 122¥59,479¥63¥ 200¥25,475¥7¥
19¥84,954¥70¥ 219

Condominium
andHousing Sales

Real Estate
Planning
Sales

Real Estaterelated
Subcontracting

Asset
Development

Other

Total

Elimination
and/orCorporate

Sales from external customers
Inter-segment or transfers
Total sales
Operating expense
Operating income¥26,805—
26,80523,660¥ 3,145¥8,814
—
8,814
7,375
¥1,439

¥ 281
25
306
48
¥ 258

¥15,288—
15,28812,303¥ 2,985

¥ 654
—
654
683
¥ (29)¥51,84225
51,86744,069¥ 7,798

¥

—
(25)
(25)
669
¥ (694)¥51,842—
51,842
44,738¥ 7,104

Total assets
Depreciation
Capital expenditure¥26,303¥10¥ 125¥5,538¥4¥ 53¥1,222¥
1¥ 10¥53,423¥12¥ 137¥1,921¥ 22¥ 24¥88,407¥49¥ 349¥9,953¥9¥ 97¥98,360¥58¥ 446

Condominium
andHousing Sales

Real Estate
Planning
Sales

Real Estaterelated
Subcontracting

Asset
Development

Other

Total

Sales from external customer
Inter-segment or transfers
Total sales
Operating expense
Operating income$225,025—
225,025
198,623$ 26,402$73,993—
73,993
61,912$12,081$ 2,359
210
2,569
403
$ 2,166$128,341—
128,341
103,282$ 25,059$ 5,490
—
5,490
5,734
$ (244)$435,208
210
435,418
369,954$ 65,464

$

—
(210)
(210)
5,616
$(5,826)$435,208—
435,208
375,570$59,638

Total assets
Depreciation
Capital expenditure$220,811$
84$ 1,049$46,491$33$ 445$10,259$8$84$448,480$101$ 1,150$16,127
$ 185
$ 202

$742,168$411$ 2,930$83554$76$ 814$825,722$
487$ 3,7442006

40

Consolidation

Millions of Yen

2006

Consolidation

Thousands of U.S. Dollars (Note 1)

Elimination
and/orCorporate

Consolidation(2) Geographic Segment
The Companies operate their business only within Japan and, therefore, the Companies do not disclose geographical information and the information forrevenues from overseas.

15. SUBSEQUENT EVENTSAt the general meeting of the Company’s shareholders held on March 23, 2007, the shareholders approved the following:a) Payment of the year-end cash dividends per share of ¥1,500.00 ($12.59) or total of ¥270 million ($2,267 thousand).
b) Payment of bonuses to directors of ¥81 million ($680 thousand).

INDEPENDENT AUDITORS’ REPORTTo the Board of Directors of ES-CON JAPAN Ltd.
We have audited the accompanying consolidated balance sheets of ES-CON JAPAN Ltd. and its consolidated subsidiaries as ofDecember 31, 2005 and 2006, and the related consolidated statements of income, changes in net assets and cash flows for the years
then ended, expressed in Japanese yen. These consolidated financial statements are the responsibility of the Company’s management.
Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in Japan. Those standards require that we planand perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial
position of ES-CON JAPAN Ltd. and its consolidated subsidiaries as of December 31 ended 2005 and 2006, and the consolidated resultsof their operations and their cash flows for the years then ended in conformity with accounting principles generally accepted in Japan.
The U.S. dollar amounts in the accompanying consolidated financial statements with respect to the year ended December 31, 2006 arepresented solely for the convenience of readers outside Japan. Our audit also included the translation of yen amounts into the U.S. dollar
amounts and, in our opinion, such translation has been made on the basis set forth in Note 1 to the consolidated financial statements.
Additional information:
1. As mentioned in Note 2, the Company adopted the Practical Guideline for Application of Control Criteria and Influence Criteria to
Invest Associations (Practical Solution Report No. 20, September 8, 2006) issued by the Accounting Standards Board of Japan andprepared the accompanying consolidated financial statements for the year ended December 31, 2006.
2. As mentioned in Note 2, The Accounting Standards Board of Japan issued new accounting standards for accounting for bonuses todirectors. The Companies adopted these standards and prepared the accompanying consolidated financial statements for the year
ended December 31, 2006.
3. As mentioned in Note 2, the Business Accounting Deliberation Council issued new accounting standards for impairment of fixed
assets. The Companies adopted these standards and prepared the accompanying consolidated financial statements for the year
ended December 31, 2006.
4. As mentioned in Note 14, business segments are classified in terms of the nature of each operation or service. Due to a rapid growthof Asset development business during 2006, the business is recognized as a separate segment. Business segment for the year ended
December 31 consists of five segments: Condominium and Housing Sales business, Real Estate Planning Sales business, Real
Estate-related Subcontracting business, Asset development business and Other business for the year ended December 31, 2006. The
segment information for the year ended December 31, 2005 restated in order to tally with the presentation of that for the year ended
December 31, 2006.

BDO Sanyu & Co.
Osaka, Japan
March 24, 200741

Organization(As of April 9, 2007)

Business Coordination Group

Residential Development Division
Asset Development Division

President
Board of Directors

Business Development Office
Tokyo Residential Development Division

Management and Coordination Group

General Administration Department
Accounting and Finance Department
Corporate Management Department
Public Relations and Investor Relations OfficeDirectors and Auditors

Executive Officer(As of March 23, 2007)(As of April 1, 2007)

President and Representative Director

Executive Officer

HIROFUMI NAOE

(Asset Development Division andTokyo Residential Development Division)

42

TAKAHARU TERAUCHIManaging Director
TAKATOSHI ITO
Directors
MASATOSHI YAMASHITAHIROYUKI HASHIMOTOHIDEKI FUKUDOME
MASAMI SAKAI
Standing Auditor
MINORU NOGUCHI
Auditors
KAZUYOSHI YAMAMOTO
MASANAO IECHIKA

Corporate History

Apr. 1995

DESERT INN Ltd. established in Kita-ku, Osaka City.

Apr. 1996

Trade name changed to ES-CON JAPAN Ltd. Company prepares for operations to begin.
Building Lots and Building Transaction Business License certified by the Governor of Osaka Prefecture.
Commencement of real estate and subcontracting businesses.

Jun. 1996

Building Lots and Building Transaction Business License certified
by the Governor of Osaka Prefecture.
Commencement of real estate and subcontracting businesses.

Aug. 1996

Primary planning project commences. A location in Nara City is the site of our first project aimed at developers.

Dec. 1997

First condominium business project—Neverland Nishinomiya-Ekimae—started.

Jul. 1998

CONSULTING STAFF Ltd. established to develop new sectors and work on subcontracting issues(On Feb 1 st, 2003 the name was changed to UNIDIO CORPORATION Ltd., a consolidated subsidiary).

Jul. 1999

NS KANRI Ltd. established to manage property maintenance issues (now a consolidated subsidiary).

Jul. 2000

Building Lots and Buildings Transaction Business License certified by the Minister of Construction.
OCTTRUST Ltd. established to work on product. development of building materials and fittings(On May 1 st, 2003 the name was changed to UNIDIO ARTS Ltd., a consolidated subsidiary).

Nov. 2000

Registered as a First Class Builders Office.
Admitted to the Japan Association of High-Rise Housing.

Apr. 2001

Head Office moves to Chuo-ku, Osaka City.
Admitted to the Real Estate Companies Association of Japan.
Admitted to the Real Estate Fair Trade Council.

May 2001

Certification of ISO 14001.

Aug. 2001

Stock traded on the JASDAQ Exchange.

Sep. 2001

Tokyo Branch Office is renamed as the Tokyo Head Office.

May 2003

Principal registry moved from Osaka Head Office to Tokyo Head Office.

Dec. 2003

Accounting period changed from January 31 to December 31.

Apr. 2004

Corporate structure was re-organized.

Feb. 2006

Selected as a JASDAQ Securities Exchange J-Stock.

Feb. 2006

Consolidated subsidiary, UNIDO CORPORATION Ltd. separated from Group.

Sep. 2006

Permission to begin real estate syndication.

Dec. 2006

Acquisition of corporate credit rating from JCR, “BBB–” (long-term), “ J-2” (short-term).

43Directory(As of May 28, 2007)

ES-CON JAPAN Ltd.
Tokyo Head Office:Fukoku Seimei Bldg. 23F, 2-2-2 Uchisaiwai-cho, Chiyoda-ku, Tokyo 100-0011 Japan
Phone: +81-3-5512-7020

Osaka Head Office:Fax:+81-3-5512-7026

Meiji Yasuda Seimei Osaka Midosuji Bldg. 13F,
4-1-1 Fushimi-machi, Chuo-ku, Osaka 541-0044 Japan
Phone: +81-6-6223-8050

Fax: +81-6-6223-8051

N S KANRI Ltd.
Head Office:1-4-3 Tanimachi, Chuo-ku, Osaka 540-0012 Japan
Phone: +81-6-4794-1700

44

Fax:+81-6-4794-1701

Major Subsidiaries(As of March 23, 2007)

Capital orinvestment
Name

Location(¥ thousands)

N S KANRI Ltd.

Chuo-ku,

40,000Osaka
E-STATE Ltd.

Chuo-ku,
Osaka

Principal activities

Maintenance and management of condominiums
and other properties supplied by ES-CON Japan

910,000

Real estate trading and consulting

Corporate Information(As of March 23, 2007)

Company Name

: ES-CON JAPAN Ltd. (Registered name)Location of Head Office: TokyoTelephone Number: +81-3-5512-7020

Code: 8892Web Site: http://www.es-conjapan.co.jp/

Representative: Hirofumi Naoe, President and Representative Director

Contact for Inquiries: Hideki Fukudome, Director

Date of the Board of Directors’ Meeting
to Approve Accounts: February 23, 2007

US GAAP: Not applicable

Accounting Period: From January 1 to December 31

45

Tokyo Head Office
Fukoku Seimei Bldg. 23F, 2-2-2 Uchisaiwai-cho, Chiyoda-ku, Tokyo 100-0011 JAPAN
Phone: +81-3-5512-7020 Fax: +81-3-5512-7026
Osaka Head Office
Meiji Yasuda Seimei Osaka Midosuji Bldg. 13F,
4-1-1 Fushimi-machi, Chuo-ku, Osaka 541-0044 Japan
Phone: +81-6-6223-8050 Fax: +81-6-6223-8051
URL http://www.es-conjapan.co.jp/

This catalog is printed withenvironmentally friendly soy ink.

Printed on 100% recycled paper.

Printed in Japan