Kaga Electronics Co., Ltd. andSubsidiaries
Unaudited Consolidated Semi-Annual
Financial Statements for the Six Months
Ended September 30, 2006 and 2005

Kaga Electronics Co., Ltd. and Subsidiaries
Consolidated Balance Sheets
September 30, 2006 and 2005-unaudited

Millions of Yen2006
2005

ASSETS
CURRENT ASSETS:
Cash and cash equivalents
Marketable securities
Notes and accounts receivable:
Trade
Other
Allowance for doubtful receivables
Inventories
Deferred tax assets
Prepaid expenses and other current assets
Total current assets
PROPERTY, PLANT AND EQUIPMENT:Land
Buildings and structures
Machinery, equipment and vehicles
Molding dies and furniture
Total
Accumulated depreciation

Thousands ofU.S. Dollars(Note 2)2006

¥ 14,638
274¥ 19,681
220$

59,7803,111(187)
19,481491
1,009

60,604
3,477(963)
16,062494
648

506,610
26,364(1,585)
165,093
4,161
8,551

98,597100,223

835,567

LIABILITIES AND SHAREHOLDERS' EQUITYCURRENT LIABILITIES:
Short-term bank loans
Current portion of long-term bank loans
Trade notes and accounts payable
Income taxes payable
Accrued expenses and other current liabilities

124,051
2,322

1,921
3,459
2,752
1,715
9,847
(4,634)

2,273
3,551
2,214
1,617
9,655
(4,139)16,28029,31323,322
14,534
83,449(39,271)

5,213

5,516

44,178

Total current liabilities
LONG-TERM LIABILITIES:Long-term bank loans
Convertible bonds
Liability for employees' retirement benefits
Retirement benefits for directors and corporate
auditors
Deferred tax liabilities
Other long-term liabilities
Total long-term liabilities

Millions of Yen
2006
2005

¥ 2,215
2,500
48,2181,490
3,964

4,4202,500
49,052
2,294
4,449

$

18,771
21,186408,627
12,62733,59458,38762,715494,805

3,438

29,136

1,030

5,938
400
1,333

1,115
769
389

1,002
749
77

9,449
6,517
3,296

6,741

9,499

57,127MINORITY INTERESTS
Net property, plant and equipment¥

Thousands ofU.S. Dollars(Note 2)
2006

8,729

438

CONTINGENT LIABILITIES (Note 4)
INVESTMENTS AND OTHER ASSETS:
Investment securities
Guarantee deposits
Refundable insurance premium
Deferred tax assets
Other assets
Total investments and other assets

TOTAL6,504
2,473
863
68
2,028

5,494
4,193
675
50
1,842

55,11920,958
7,314
576
17,186

11,936

12,254

101,153¥ 115,746¥ 117,993

EQUITY
Common stock
Capital surplus
Retained earnings
Unrealized gain on available-for-sale securities
Deferred gain on derivatives under hedge accounting
Foreign currency translation adjustments
Treasury stock—at cost
Total
Minority interests
Total equity$ 980,898

TOTAL
See notes to unaudited semi-annual consolidated financial statements.

-2-12,134
13,912
23,038
870
2457
(77)
50,336282
50,618

11,93313,712
19,067730¥ 115,746¥ 117,993

102,831
117,898
195,237
7,373
17
3,873
(653)
426,576
2,390
428,966(34)(67)
45,34145,341$980,898

Kaga Electronics Co., Ltd. and Subsidiaries
Consolidated Statements of Income
Six Months Ended September 30 , 2006 and 2005-unaudited
Thousands ofU.S. Dollars(Note 2)
2006

Millions of Yen
2006
2005
NET SALES (Note 5 )¥ 126,184¥ 122,386$ 1,069,356

COST OF SALES (Note 5)

110,654

108,327

937,746

Gross profit

15,53014,059131,610SELLING, GENERAL AND ADMINISTRATIVEEXPENSES (Note 5)

12,704

9,378

107,661

Operating income

2,826

4,681

23,949115(100)
668076(101 )423
602

975(847)
559
678

161

1,000

1,365

INCOME BEFORE INCOME TAXES AND
MINORITY INTERESTS

2,987

5,681

25,314

INCOME TAXES
Current
Deferred

1,448(102)

2,327
13

12,271(864)

1,346

2,340

11,407

(5)

(0 )

(42)

OTHER INCOME:(EXPENSE)
Interest and dividend income
Interest expense
Gain on sales of marketable and investment securities
Other—net
Other income—net

Total income taxes
MINORITY INTERESTS IN NET LOSSNET INCOME¥1,646

¥

3,341

Yen

$

13,949U.S. Dollars

PER SHARE OF COMMON STOCK
Basic net income
Diluted net income
Cash dividends applicable to the period¥57.4320.00

See notes to unaudited semi-annual consolidated financial statements.
.

-3-¥ 118.46
116.57
20.00

$0.49
00.17

Kaga Electronics Co., Ltd. and Subsidiaries
Consolidated Statements of Changes in Equity
Six Months Ended September 30, 2006 -unaudited
Thousands

BALANCE, APRIL 1, 2006

Outstanding
Number ofShares ofCommon
StockCommon
Stock

CapitalSurplusRetainedEarnings

UnrealizedGain on
Available-for-sale
Securities

28,660¥ 12,134¥ 13,912¥ 22,430¥ 1,020

Reclassified balance as of April 1, 2006
Net income
Cash dividends, ¥30.00 per share
Bonuses to directors and corporate auditors
Repurchase of treasury stock
Net change in the period
BALANCE, SEPTEMBER 30, 2006

Millions of Yen
DeferredGain On
Derivatives
Under Hedge
Accounting

Foreign
Currency
Translation
Adjustments

TreasuryStock¥

¥

420

(76)

Total

Minority
Interests¥ 49,840

¥
¥

1,646
(860)
(178)
(1)

28,659(1)¥ 12,134¥ 13,912¥ 23,038¥(150)¥2870

¥

237
¥

457

¥

(77)

329

1,646(860)
(178)
(1)
(111)
¥ 50,336

Total
Equity329
1,646(860 )(178 )(1 )(158 )(47 )¥282

49,840¥50,618

Thousands of U.S. Dollars (Note 2)

BALANCE, APRIL 1, 2006

CommonStockCapitalSurplusRetainedEarnings

Unrealized
Gain onAvailable-for-sale
Securities$102,831$117,898$ 190,084$ 8,644

Reclassified balance as of April 1, 2006
Net income
Cash dividends, $0.2 per share
Bonuses to directors and corporate auditors
Repurchase of treasury stock
Net change in the period
BALANCE, SEPTEMBER 30, 2006

DeferredGain On
Derivatives
Under Hedge
Accounting

Foreign
Currency
Translation
Adjustments

TreasuryStock$ 3,559$

Total(644 )

Minority
Interests$ 422,372$$

13,949(7,288)(1,508)(9)$102,831$117,898$ 195,237(1,271)$17314$ 7,373$17$ 3,873

See notes to unaudited semi-annual consolidated financial statements.

- 4-$

(653)

13,949(7,288)(1,508)(9)(940)$ 426,576

TotalEquity

2,788

2,788
13,949(7,288)(1,508)(9)(1,338)(398)$2,390422,372$

428,966

Kaga Electronics Co., Ltd. and Subsidiaries
Consolidated Statements of Changes in Equity
Six Months Ended September 30, 2005 –unaudited
Thousands

BALANCE, APRIL 1, 2005

Outstanding
Number ofShares ofCommon
Stock

CommonStockCapitalSurplus27,418¥ 11,174¥ 12,953

RetainedEarnings

Unrealized
Gain onAvailable-for-sale
Securities

Foreign
Currency
Translation
Adjustments¥ 16,499¥¥504

TreasuryStock(408 ) ¥(61)

Minority
Interests

Total¥

40,661¥¥

Reclassified balance as of April 1, 2005Net income
Conversion of convertible bonds
Cash dividends, ¥20.00 per share
Bonuses to directors and corporate auditors
Net increase in unrealized gain on available-for-salesecurities
Net increase in foreign currency translation adjustment
Repurchase of treasury stock
Net change in the period
BALANCE, SEPTEMBER 30, 2005

3,341
987

759

759
(617)
(156)
226
374

(3)

(6)

Total
Equity

324

3,341
1,518
(617)
(156)
226

3,341
1,518
(617)
(156)
226

374
(6)

374
(6)
114

114
28,402¥ 11,933¥ 13,712¥ 19,067¥730- 5-¥(34 ) ¥(67)¥40,661324

45,341¥

438¥45,779

Kaga Electronics Co., Ltd. and Subsidiaries
Consolidated Statements of Cash FlowsSix Months Ended September 30, 2006 and 2005-unaudited

Millions of Yen2006
2005
OPERATING ACTIVITIES:
Income before income taxes and minority interests
Adjustments for:
Income taxes—paidDepreciation and amortization
Loss on disposals of property, plant and equipment
Provision for directors’ and corporate auditors’ bonuses
Gain on sales of marketable and investment securities
Loss on sales of marketable and investment securities
Unrealized gains on marketable securities
Devaluation losses on investment securities
Provision for employees’ retirement benefits
Provision for directors’ and corporate auditors’ retirement benefits
Increase (decrease) in allowance for doubtful accounts
Payment of directors and corporate auditors’ bonuses
Changes in assets and liabilities:
Decrease in notes and accounts receivable
Increase in inventories
Decrease in prepaid expenses and other current assets
Increase (decrease) in trade notes and accounts payable
Decrease (Increase) in accrued expenses and other current
liabilities
Other—netTotal adjustments
Net cash (used in) provided by operating activities
INVESTING ACTIVITIES:
Purchases of property, plant and equipment
Proceeds from sales of property and equipment
Purchases of investment securities
Cash increase due to acquisition of newly consolidated subsidiaries
Proceeds from sales of investment securities
Increase in short-term loans
Other-net
Net cash used in investing activities
FORWARD-6-

Thousands ofU.S. Dollars(Note 2)2006

¥ 2,987¥ 5,681$ 25,314(3,084)546
3955(66)
6(1,106)464
5(26,136)
4,627
331
466(559)
51

31
18
29
200(179)

(423)
2（28）
12
55
38(59)(157)

1,388(4,517)583
340

20,750(1,259)
810(11,853)

11,763(38,280)
4,941
2,881

(471)
116
(4,966)

208
217
7,676

（3,992 )982(42,085)(1,979)13,357（16,771 )(525)
64(559)(548)(4,449)542(4,737)

263
153
246
1,695
(1,517)

613
(25)
(130)

(435)
776
582
(5,202)
(430)

(562)

(5,257)(4,763)¥ (2,541)¥ 8,100$ (21,534 )

5,195
(212)
(1,102)

Kaga Electronics Co., Ltd. and Subsidiaries
Consolidated Statements of Cash FlowsSix Months Ended September 30 , 2006 and 2005-unaudited

Millions of Yen
2006
2005
FORWARD

Thousands ofU.S. Dollars(Note 2)2006

¥ (2,541 )¥ 8,100$(21,534)(907 )(7,686)(1,250 )(873 )(2)80(2,757)5,000(625)
(628)
(6)
4(10,594)(7,398)(17)678(2,952 )988(25,017)

(1 )

173

(8)

NET (DECREASE) INCREASE IN CASH AND CASH
EQUIVALENTS(5,494 )9,261(46,559)

CASH AND CASH EQUIVALENTS, BEGINNING OF THE PERIOD

20,132

10,420170,610¥ 14,638¥ 19,681$ 124,051

FINANCING ACTIVITIES:
Decrease in short-term bank loans
Proceeds from long-term bank loans
Repayments of long-term bank loans
Dividends paid
Purchases of treasury stock—net
Other-net
Net cash (used in) provided by financing
activities
FOREIGN CURRENCY TRANSLATION ADJUSTMENTS
ON CASH AND CASH EQUIVALENTS

CASH AND CASH EQUIVALENTS, END OF THE PERIOD

See notes to unaudited semi-annual consolidated financial statements.

-7-Kaga Electronics Co., Ltd. and Subsidiaries
Notes to Consolidated Semi-Annual Financial Statements
Six Months Ended September 30, 2006 and 2005 –unaudited

1.

PRINCIPLES OF CONSOLIDATION
The accompanying consolidated semi-annual financial statements include the accounts of Kaga Electronics
Co., Ltd (the “Company”) and its subsidiaries.
These notes disclosed herein do not cover the all notes which are generally required to disclose in theconsolidated financial statements prepared in accordance with the provisions set forth in the Japanese laws andregulations.

2.

TRANSLATIONThe consolidated semi-annual financial statements are stated in Japanese yen, the currency of the country inwhich the Company is incorporated and operates. The translation of Japanese yen amounts into U.S. dollar
amounts are included solely for the convenience of readers outside Japan and have been made at the rate of¥118 to $1, the approximate rate of exchange at September 30, 2006. Such translations should not beconstrued as representations that the Japanese yen amounts could be converted into U.S. dollars at that or any
other rate.

3.

SIGNIFICANT ACCOUNITING CHANGESa. Accounting for the statement of changes in equity
On December 9, 2005, the Accounting Standards Board of Japan (ASBJ) published a new accounting standard
for presentation of equity. Under this accounting standard certain items which were previously presented asliabilities are now presented as components of equity. Such items include stock acquisition rights, minority
interests, and any deferred gain or low on derivatives accounted for under hedge accounting. This standard iseffective for fiscal years ending on or after May 1, 2006.
b. Presentation of Equity
On December 27, 2005, the ASBJ published a new accounting standard
for the statement of changes in equity, which is effective for fiscal years ending on or after May 1, 2006.
The statement of shareholders’ equity, which was previously voluntarily prepared in line with the international
accounting practices, is now required under generally accepted accounting principles in Japan and has beenrenamed “ the statement of changes in equity” from the current fiscal year.

4.

CONTINGENT LIABILITIESContingent liabilities at September 30, 2006 for employees’ loans guaranteed, in the ordinary course ofbusiness, amounted to ￥68million ($576 thousand).

-8-5.

SEGMENT INFORMATIONa.

Operations in Different Industries
The Company and subsidiaries operate within one business segment, which is the electronic component trading business.

b.

Operations by Geographic Area
The following table shows segment information by geographic area for the six months ended September 30, 2006 and 2005.
Millions of Yen
2006
NorthAmerica

Japan

Sales to customers
Interarea transfer¥

Total sales
Operating expenses
Operating income¥

98,220
9,462

¥

859
328

EuropeEast Asia

Eliminations
or Corporate

¥

535
72

¥ 26,570
3,992¥ (13,854)

Consolidated¥ 126,184

107,682

1,187

607

30,562(13,854)

126,184

106,280

1,16860029,150(13,840)

123,358

1,402

¥

19¥

7¥

1,412

¥

(14)

¥2,826

Thousands of U.S. Dollars
2006NorthAmerica

Japan

Sales to customers
Interarea transfer$Total sales
Operating expenses
Operating income$832,373
80,186

$

7,280
2,780

East Asia

Eliminations
or Corporate

4,534
610

$ 225,169
33,831$(117,407 )Europe$Consolidated$ 1,069,356

912,559

10,0605,144

259,000(117,407 )

1,069,356

900,678

9,898

5,085

247,034(117,288 )

1,045,407

59$ 11,966

11,881

$

162

$

-9-$

(119)

$23,949

Millions of Yen2005
Japan

Sales to customers
Interarea transfer¥ 96,509
9,603

Total sales
Operating expenses
Operating income (loss)c.

¥NorthAmericaEurope

East Asia

Eliminations
or Corporate¥

¥

680
75

¥ 24,544
3,061¥ (12,867)

653
128

Consolidated¥

122,386

106,112781

755

27,605(12,867 )

122,386

102,873777

736

26,088(12,769 )117,70519¥ 1,517

3,239

¥

4¥

¥

(98 )

¥

Sales to Foreign Customers
Sales to foreign customers for the six months ended September 30, 2006 and 2005 amounted to ¥ 38,581 million ($326,957 thousand) and ¥ 38,656 million, respectively.

Sales to:
North AmericaEurope
East Asia- 10 -

Millions of Yen
2006
2005

Thousands ofU.S. Dollars
2006¥ 1,271
1,037
36,273$ 10,771
8,788
307,398¥750793
37,1134,681

- 11 --