annual report 20077 noevir annual report 2007 noevir co., ltd. — where beauty is science...

Annual Report 2007Year ended September 20, 2007

C o s m e t i c s

H e a l t h F o o d

P h a r m a c e u t i c a l s

Fiscal 2007 was a time of innovation

and positive change for the Noevir

Group. Sales remained steady and

net income increased significantly.

We look forward to continued growth

and the realization of our

management goals.

Millions of yen

2007 2006

FOR THE YEAR:Net sales ¥ 59,352 ¥ 59,345Operating income 3,869 3,858Net income 2,018 1,507

AT YEAR-END:Total assets 99,787 101,508Total equity 44,223 43,341

Yen

PER SHARE:Basic EPS ¥ 56.33 ¥ 42.08Total equity 1,232.78 1,209.41Cash dividends applicable to the year 36.00 30.00

C O N T E N T SMessage to the Shareholders 1

Noevir Group Business Activities 4

Product Strategy 6

Sales Strategy 10

Research and Development 14

Manufacturing Systems 17

Corporate Governance and CSR 18

Financial Section 20

Principal Consolidated Subsidiaries 42

Board of Directors/Investor Information 43

Above: Noevir 99 provides a synergistic blend of botanicals from the East and West.

F I N A N C I A L H I G H L I G H T SNoevir Co., Ltd, and SubsidiariesYears ended September 20, 2007 and 2006

1

Noevir Annual Report 2007

Hiroshi Okura, President and CEO

M E S S A G E T O T H E S H A R E H O L D E R S

Q1● As president and CEO, what is your

vision for the Noevir Group?

CEO: Moving forward, one of the biggest

developments for Noevir is the introduction of a

hybrid business model that complements our

traditional direct sales method with innovative

marketing channel expansion. The first step in

our strategy was the launch of the Noevir Style

and Noevir Support programs, which provide

customers and sales representatives, respectively,

with direct order fulfillment, online resources, and

marketing support. In addition, we are opening

product showrooms to provide potential customers

with the opportunity to sample our products.

While building on the hybrid business model thus

created in the domestic market, we are continuing

to extend the international reach of our brand and

have opened our first retail outlet in China. We

look forward to continued growth and hope to

achieve an EPS of ¥100 and ROE of 7.4% in fiscal

2010.

Q2● Please tell us about Noevir’s listing on

the Tokyo Stock Exchange.

CEO: I am very pleased to announce that Noevir

was listed on the Second Section of the Tokyo

Stock Exchange in October, in addition to its

previous listing on the JASDAQ Securities

Exchange. I believe that our ability to meet the

stringent standards for listing highlights Noevir’s

strong performance and commitment to corporate

governance. The listing will provide new avenues

for growth to both Noevir and our shareholders.

Q3● Could you give us your thoughts

on Noevir’s performance during the 2007

fiscal year?

CEO: Noevir has faced challenging market

conditions during the past fiscal year. The

cosmetics market in Japan is mature and

competition is intense. Sales of over-the-counter

(OTC) pharmaceuticals and nutritional products

have declined over the last few years. Despite

these challenges, Noevir has achieved steady

sales and improved profitability through a focus

on our core cosmetics business. During the next

year, we will also focus on bringing the health

food segment back to profitability through better

product education and by focusing on such

growth areas as energy drinks.

2

Message to the Shareholders

Q4● What do you consider to be important

developments in your R&D activities?

CEO: Right now, customers are demanding

highly functional, effective cosmetics. Anti-aging

is a current concern, and we have focused our

R&D activities in this area. We have developed

proprietary botanical extracts, including a

duabanga plant extract that helps firm the skin

and is included in Noevir Revitalizer No-tox.

We also pursue cooperative research with Keio

University, and this collaboration has led to the

development of Noevir Gomore, a product that

stimulates hair growth in both men and women.

Moreover, we are addressing aging through

nutritional supplements and are exploring new

natural ingredients in that area.

Q5● Our next question is for the COO.

Can you tell us more about the integration of

technology into Noevir’s business?

COO: Starting in fiscal 2007, Noevir began

overhauling and upgrading our existing IT

infrastructure. We will be creating a new

architecture that is based on Internet technology.

The new architecture will link all parts of our

operations, allowing us to more effectively share

information across the enterprise while upgrading

the system that links our sales representatives to

corporate headquarters. The new architecture will

improve efficiency and communication

throughout our organization.

Q6● Could you tell us more about

the implementation of Noevir Style

and Noevir Support?

COO: It has been two years since the

introduction of Noevir Style and one year since

the introduction of Noevir Support. Noevir Style

has greatly increased the convenience of the

shopping experience for our customers, and we

have received highly positive feedback. Noevir

Support already has an adoption rate of 80%, far

exceeding our expectations. It has strengthened

the relationship between Noevir and our sales

representatives. Every day we gather more data

from these systems, and we are already better

able to segment our customer base and

implement database marketing.

Above: Noevir 505 combines herbal extracts to provide luxurious anti-aging skincare.Right: Tokiwa Nanten Nodo Ame Cool herbal cough drops soothe sore throats with cooling menthol.

3


Takashi Okura, Vice President and COO

Q7● What are your thoughts on the

interaction between the Noevir and

Tokiwa brands?

COO: I believe that the Noevir and Tokiwa

brands complement each other, allowing for

better coverage of the market from teens to

mature customers. In addition, crossover R&D

activities create opportunities to leverage

innovation. The lines between cosmetics and

pharmaceuticals as well as those between inner

and outer beauty are blurring. A strong

foundation in both areas will create the

base for future growth.

Q8● J-SOX and corporate governance have

been gaining a great deal of attention

recently. How is Noevir addressing these

issues?

COO: Noevir has always been strongly

committed to corporate governance and

transparency. We are currently reviewing our

existing internal controls and actively addressing

areas that require improvement. Our new IT

infrastructure will, of course, support these

improvements. We are also focusing on improving

internal controls by improving processes and

educating our employees.

Q9● Finally, may we have a few words from

the CEO for Noevir’s stakeholders?

CEO: Noevir is at an exciting juncture in our

development. The introduction of the hybrid

business model, the new IT infrastructure and

our TSE listing all offer avenues for growth. We

look forward to maximizing corporate value for

our stakeholders as we steadily realize the vision

set out in our medium-term management plan.

Hiroshi Okura, President and CEO

Takashi Okura, Vice President and COO

4

N O E V I R G R O U P B U S I N E S S A C T I V I T I E S

Noevir Apparel and

Intimate ApparelNoevir Cosmetics Noevir Health Food

Sana Cosmetics

Nov Cosmetics Tokiwa Pharmaceuticals

5


Main Products Channels

DirectSales

MailOrder

VarietyStores

Super-markets

Drug-stores

Conve-nienceStores

ContractManufac-

turing

Segment Activities

Cosmetics

Pharmaceuticals

Health Food

Other

Noevir BrandA wide range of products fromhigh-performance functionalskincare to makeup, hair care andtoiletries.

Other Brands(Nov/Sana/Bonanza)

A versatile collection of highlyvalued brands, includingdermatologist recommended Novskincare for sensitive skin; Sana’spopular skincare, body care andmakeup products; and Bonanza’scontract manufacturing ofcosmetics.

Tokiwa BrandAn abundant lineup of over-the-counter pharmaceuticals,including cold remedies, coughdrops and medicinal drinks.

Noevir BrandIn addition to nutritionalsupplements made from high-quality, natural ingredients,Noevir offers health foodproducts such as sea salt and teas.

Tokiwa BrandSupplements, energy drinks andproducts for health and beauty.

Noevir BrandNoevir markets apparel for bothwomen and men. A NorthAmerican subsidiary sells andleases aircraft.

Noevir 99 Skincare Line

Noevir 505 Skincare Line

Noevir Speciale Line

Noevir Revitalizer No-tox

Noevir No-AGX

Noevir Whiteness Concentrate KJ

Sana Nameraka Honpo Line

Sana Maikohan Makeup

Sana Excel Makeup

Sana Esteny Body Care

Nov III Skincare Line

Nov Oligomarine Line

Nov Water Line

Medicine Kits

Nanten Nodo Ame Herbal

Cough Drops

Gan Gan Eye Drops

Noevir Cordyceps

Noevir Agaricus Hyper

Noevir Outox

Noevir Diet Road 15

Min Min Da Ha Energy Drink

Vitac Z Nutritional Drink

Air Talk

Air Talk Homme

MLLE

MLLE Suite Model

Dramatic Rose

6

P R O D U C T S T R A T E G Y

7


Noevir Co., Ltd. — Where Beauty is Science

Noevir’s products are based on the guiding principle, “Noevir, where

beauty is science.” This philosophy extends from inner to outer beauty,

across a full range of nutritional supplements, skincare, color cosmetics

and toiletries. Noevir focuses on developing proprietary ingredients from

herbal and botanical sources to create unique products that stand out in a

competitive market. Noevir’s current research and development activities

are centered on anti-aging products and functional skincare products that

provide customers with visible results.

Produc t S t r a t egy

Strong customer relationships are the overwhelming

advantage of Noevir’s direct sales system. In this

context, Noevir’s product portfolio is built around

basic skincare lines, such as Noevir 99 and Noevir 505,

that generate repeat orders and support long-term

sales relationships. Combined with basic skincare,

special treatment products provide customized

skincare regimens. Color cosmetics spark seasonal

interest and incorporate fashion trends into the

product lineup. Collectively, these initiatives form

the bedrock of Noevir’s value-added business model.

Noevir also extends this strategy to include toiletries,

nutritional supplements, lingerie and apparel,

creating a lifestyle brand.

During the fiscal year under review, Noevir

focused on adding more options to its range of special

treatments and color cosmetics. Three new special

treatments were added to the skincare lineup to

provide greater customization. Trend-conscious

makeup, including Eyemote CT liquid eye color and

Color Puff CT cheek color, added new interest to the

Noevir 5 makeup line.

In nutritional supplements, Noevir widened its

focus from herbal supplements to include “quality of

life” products, such as Diet Road 15, which supports

healthy weight loss. This new direction provides an

opportunity for growth in the changing nutritional

supplement market.

Noevir maintains R&D centers in both Japan and

North America that develop new effective

ingredients from natural sources, including botanicals

and seaweeds, for incorporation into creative

products. To address diversifying customer needs and

increase product competitiveness, we are further

strengthening our R&D capabilities by leveraging

synergies with Tokiwa’s pharmaceutical and health

food expertise.

Left: Noevir 5 Eyemote CT liquid eye color provides continuous hydration and beautiful, pearly color.Center: Noevir 5 Color Puff CT’s unique packaging allows the simple application of a shimmering highlight powder.Right: Noevir No-AGX utilizes a proprietary hibiscus extract to provide anti-aging benefits.

8

Product Strategy

New P roduc t s i n F i s ca l 2007

Noevir launched Noevir No-AGX special treatment,

which helps to firm and smooth the skin, and

Noevir Whiteness Concentrate KJ special treatment,

which addresses hyperpigmentation. In color

cosmetics, Noevir 5 Eyemote CT eye color and Noevir 5

Color Puff CT cheek color combine fashionable colors

with unique applicators. The Company has also

introduced an anti-aging hair product, Noevir Gomore,

which promotes hair regrowth in both men and

women. This product was the result of joint research

with Keio University’s School of Medicine.

Noevir Revitalizer No-tox is askincare special treatment thathelps reduce the appearance offine lines and wrinkles. It containsa proprietary extract of Duabangagrandiflora, a subtropical plant.This extract stimulates theaccelerated production of collagen,thus improving the skin’s elasticityand appearance.

Noevir Gomore is a hair tonic thathelps stimulate the growth of newhair in both men and women. Thisrevolutionary formula helpsactivate Wnt 5a, a naturallyoccurring bioactive factor, which,in turn, encourages the growth ofhair. This product was developedin cooperation with KeioUniversity.

Noevir New Products for the Year

Tokiwa New Products for the Year

Tokiwa Gan Gan Eye Drops are anextension of the Min Min Da Haenergy drink brand and providethe same instant boost of energyto tired eyes. Six activeingredients soothe and refresh theeyes while reducing redness anditching. The unique formulationprovides a long-lasting relief.

Sana Maikohan Liquid Foundationis the newest product in thegeisha-inspired Sana Maikohanmakeup line. Bringing to mind ageisha’s flawless skin, this satinfinish formula covers pores andimperfections for smooth, naturalfinish. Silk extract helps maintainthe skin’s moisture balance.

9


Tokiwa Pharmaceutical Co., Ltd. —

Leveraging Market Trends

Manufacturing over-the-counter (OTC) pharmaceuticals for over 60 years,

Tokiwa holds a top position in deposit system sales. Its products, ranging from

cold remedies and antacids to nutritional supplements, are delivered directly

to customers’ homes. Also, Tokiwa boasts a strong retail presence with a diverse

product portfolio that includes cosmetics, nutritional supplements, health food

and OTC pharmaceuticals. Tokiwa is able to leverage synergies between the

health and beauty markets, putting it in a unique position for growth.

Produc t S t r a t egy

With the OTC pharmaceutical market and nutritional

supplement market trending downward in recent

years, Tokiwa has been able to shift its focus to areas

with strong growth potential, such as mass-market

cosmetics and functional drinks.

In mass-market cosmetics, the soy-based Sana

Nameraka Honpo skincare line has long driven growth.

A cumulative total of more than 15 million units has

been sold in the Sana Nameraka Honpo line, and a

strong advertising campaign continues to boost sales.

Sana makeup products have also contributed to

growth. The Sana Maikohan geisha-inspired line and

the Keana Putty Shokunin concealer line have gained

considerable followings in the market and spurred

growth.

In pharmaceuticals, Nanten Nodo Ame herbal cough

drops continue to be a key product line. The

introduction of Nanten Nodo Ame Cool menthol

flavored cough drops and new package sizes have

attracted new customers to this flagship brand.

In health food, the Min Min Da Ha brand of energy

drinks made significant gains in market share. The

introduction of new flavors, combined with aggressive

advertising and promotions, generated robust growth.

In pharmaceuticals, beauty and health food, we

supply products to meet the needs of a market that is

becoming increasingly diversified and segmented.

New P roduc t s i n F i s ca l 2007

Tokiwa added an extra-strength version, Kyo Kyo Da

Ha, to its popular Min Min Da Ha energy drink line.

In addition, the company further extended the Min

Min Da Ha brand with Gan Gan Eye Drops to refresh

and cool tired eyes. In cosmetics, the Sana brand

added a beauty treatment, Sana Nameraka Honpo

Treatment Masque, to the best-selling Nameraka Honpo

skincare line. Sana also introduced Keana Putty

Shokunin Powder and Keana Putty Shokunin Concealer to

complement the successful Keana Putty Shokunin

makeup base. In addition, the Nov brand

hypoallergenic skincare line saw the launch of a new

beauty treatment, Nov Barrier Concentrate III, the first

update to the Nov III line in ten years.

Above: With over 15 million units sold, the Sana Nameraka Honpo Soy Isoflavone line is Tokiwa’s best seller.

10

S A L E S S T R A T E G Y

11


Noevir Direct Sales — A Hybrid Business Model

Since its founding, Noevir has been a direct sales company focusing

on prestige cosmetics. We believe that direct sales are the best way

to showcase our unique products and enable sales representatives to

develop close customer relationships. Although we have been extremely

successful with the direct sales model, we recognize the need to adapt to

constantly changing market conditions. Recently, we introduced a hybrid

business model that maintains our direct sales roots while adding the

complementary elements of mail order and retail sales.

Sa l e s S t r a t egy

Noevir’s network of more than 180,000 independent

sales representatives in Japan remains the cornerstone

of its sales strategy. The hybrid business model has

introduced additional sales channels through

e-commerce and a direct order system. The new

business model leverages Internet technology

to bring a 21st century twist to direct sales. Both

customers and sales representatives have rapidly

adopted the new programs, and we believe that

these initiatives will support future growth.

Left: Independent sales representatives establish strong relationships with customers.Center: Noevir’s call center provides superior support to both sales representatives and customers.Center: The portal site for sales representatives provides the foundation for database marketing.Right: The Noevir Style Showroom in Kanazawa provides customers with the opportunity to experience Noevir products.

Right: The Noevir 99 skincare line now offers regular and moisture type formulas.Left: The ultimate indulgence in skincare, Speciale Line uses advanced nanotechnology for the delivery of effective ingredients.

12

S a l e s S t r a t e g y

I n i t i a t i v e s

In fiscal 2006, Noevir introduced the Noevir Style

initiative, which added online, telephone and fax

options for direct ordering and shipment. This

provided customers with the convenience of 24-hour

shopping. Noevir Style also gave sales representatives

an online presence with business blogs and marketing

support. The response from customers and sales

representatives has been overwhelmingly positive.

Supplementing these initiatives is Noevir Support,

a program introduced in the fiscal year under review.

Noevir Support provides support to sales

representatives, including the direct shipment of bulk

orders and better access to new product information.

Both initiatives are backed up by the Customer

Relationship Management (CRM) Department at

corporate headquarters.

One of the primary goals of these initiatives is

to improve service to both customers and sales

representatives. Additionally, these programs

provide Noevir with key customer information,

which facilitates the introduction of database

marketing. Database marketing will allow Noevir

to better segment its existing market and target

new customers, greatly improving the efficiency

of product development, marketing and sales.

Noevir Style and Noevir Support also increase

the points of contact with customers, strengthening

the relationships developed through direct sales.

The Min Min Da Ha brand’s innovative advertising, such asthese taxi banners, has resulted in wide brand recognition.

Noevir Hybrid Business Model

HybridBusiness Model

Noevir Support & Noevir Style

Direct Sales Mail OrderOne-on-one communication Relationship with sales rep Customer loyalty

ConvenienceRelationship with companyDatabase marketing

13


Sa l e s S t r a t egy

Tokiwa is focusing on the development of a

strong portfolio of brands that command wide

recognition in the mass-market retail sector. In OTC

pharmaceuticals, health food and cosmetics, Tokiwa

is actively raising brand recognition through an

aggressive combination of advertising, promotions,

publicity and sampling. The Brand Strategy

Department, established in 2005, has played a

key role in creating such flagship brands as

Sana Nameraka Honpo skincare, Nanten Nodo Ame

cough drops and Min Min Da Ha energy drinks.

I n i t i a t i v e s

We continue to expand advertising and promotional

activities for the Min Min Da Ha brand to reach new

customers. Advertisements in taxis and subways are

introducing the brand to a wider audience. Tokiwa is

also taking an innovative approach to promotion. For

example, it sponsored a product development project

for junior high school students. This program allowed

students to explore careers in marketing and resulted

in a limited edition version Min Min Da Ha gummy

candy. This project generated a great deal of interest

in the media.

In cosmetics, Sana is focusing on brand growth

through targeted advertising and promotional

activities. To supplement an advertising campaign

commemorating reaching the 10 million units sold

mark, Sana offered a gift with purchase to buyers of

its Nameraka Honpo skincare line. In the

hypoallergenic skincare market, the Nov brand

continues to emphasize strengthening relationships

with dermatologists and other health care providers.

In this niche market, dermatologist recommendations

heavily influence consumer behavior.

Tokiwa Pharmaceutical Sales —

Building Strong Fundamentals

Tokiwa is a market leader in deposit sales of pharmaceuticals, a system of

home delivery for OTC products with a long history in Japan. In addition,

Tokiwa is a growing presence in the retail market. It offers a wide range

of products, including cosmetics and health food that are distributed

through convenience stores, drugstores, variety stores, supermarkets,

department stores and other channels. Tokiwa’s operations also include

contract manufacturing. Through these various channels, Tokiwa strives

to find multiple contact points with its customers.

Above: Nov Barrier Concentrate IIIboosts the skin’s own defenses with natural ceramides.

14

R E S E A R C H A N D D E V E L O P M E N T

Left: Noevir Revitalizer No-tox helps boost the skin’s firmness with a proprietary extract of the duabanga plant.Right: Noevir Whiteness Concentrate KJ helps reduce the appearance of hyperpigmentation, for smooth, glowing skin.

15


R&D Ph i l o sophy

Noevir’s R&D activities center upon the

development of new effective ingredients from

natural sources. Since its establishment, this

philosophy has been summed up in the phrase,

“Noevir, where beauty is science.” Combined

with Noevir’s attention to safety and quality,

these proprietary ingredients give Noevir

its competitive advantage.

Since the merger with Tokiwa Pharmaceutical Co.,

Ltd., the Noevir Group has expanded its R&D

activities to include both health and beauty. The

inclusion of pharmaceuticals mirrors the current

market trend of cosmeceuticals, products that blur

the line between cosmetics and pharmaceuticals.

Tokiwa also brought significant experience in

health food development to the Group.

Resea rch Ne twork

Noevir has established a robust network for

collaborative research that links 11 Japanese research

centers, including a pilot farm, with the New Jersey

R&D Center in the United States. The Shiga

Research Center, which focuses on formulating

cosmetics, and the Kobe Research Center, which

specializes in developing new effective ingredients

for cosmetics and nutritional supplements, form the

core of Noevir’s R&D activities. Pharmaceutical

research is conducted at the Tokiwa R&D Center.

Noevir also conducts cooperative research

activities. In 2006, Noevir opened the Kitami

Okhotsk North Botanical Research Center to develop

new effective ingredients from subarctic plants,

including seaweed. With the cooperation of the

Kitami Institute of Technology, Noevir’s Kitami

center is conducting research into the traditional

herbal medicine of the indigenous Ainu people. In

addition, Noevir is conducting joint research with

Tokyo University of Agriculture Graduate School

into the coastal plants native to the Okhotsk area.

Noevir has also established a research laboratory

with Keio University to pursue treatments for

neurological conditions, including Alzheimer’s

disease and amyotrophic lateral sclerosis (ALS or Lou

Gehrig’s disease). Moreover, Noevir has established

an endowment to provide funding for these efforts.

F rom Re sea rch t o Marke t

Noevir has developed a flexible R&D platform that

is capable of maintaining a strong pipeline of viable

products and launching new products in a timely

manner. There is a strong emphasis on creating

products that will make significant contributions to

sales while upholding the Company’s reputation for

unique, effective products. The strength of this

approach was recognized by the Japan Patent Office,

which ranked the Noevir Group fourth in the

household product category in April 2007. The

rankings track the percentage of patent applications

approved and international applications. Placing the

Noevir Group among major multinational

corporations, the results are an endorsement of

the Noevir Group’s excellent management

of its intellectual property.

Resea rch Re su l t s

The R&D budget of the Noevir Group in the fiscal

year ended September 20, 2007 was ¥1,636 million.

An outline of major activities in each product sector is

presented on the following page.

Left: Joint research and other projects are conducted at the Hokkaido Shokanbetsu Mountain Pilot Farm.

Right: Pharmaceutical research is conducted at the Tokiwa R&D Center.

16

Research and Development

Developing New Ingredients

Original Noevir research has revealed that an extract of the leaves of the Hibiscus

makinoi plant stimulates the action of aromatase, an enzyme that triggers the

creation of estrogen, a female hormone. Production of this hormone decreases as

women age, and the hibiscus extract helps skin regain a more youthful appearance

by aiding the skin in retaining moisture as well as in maintaining its natural elasticity.

The results of this research were announced at the Pharmaceutical Society of Japan’s

conference in March 2007. The discovery of this extract led to the development of Noevir

No-AGX special treatment, which provides anti-aging benefits to the skin.

In cooperation with Kyushu University in Japan and Chiang Mai University in Thailand,

Noevir has shown that an extract of the leaves of Duabanga grandiflora accelerates the

production of type IIIcollagen, which plays an important role in the elasticity of the skin.

Because the amount of type IIIcollagen in the skin decreases with age, the results indicated

the extract’s potential as an anti-aging treatment. The results were presented at the

Japanese Society of Pharmacognosy conference in September 2006. Duabanga extract has

been incorporated into Noevir Revitalizer No-tox.

One of Noevir’s primary research goals is the development of new ingredients that

can be used in cosmetics.

Researching the Science of Beauty

Noevir also does basic research into beauty-related topics. In October 2006, at the

International Federation of Societies of Cosmetic Chemists conference, Noevir reported the

results of its research on expressing attributes of the skin, such as translucence and

glossiness, on a numerical scale. The research used a camera with a strobe lens to

photograph the skin through a variety of polarizing filters. The results were then subjected

to computer analysis. Using these filters, Noevir was able to demonstrate a clear relationship

between certain types of reflection and the translucence or glossiness of the skin. Applying

this data, it is now possible to provide a concrete, numerical assessment of the appearance of

the skin. This provides Noevir with the ability to clearly evaluate the efficacy of skincare

products and was used to evaluate the benefits of Noevir No-AGX.

Noriko Nakashima led theresearch on Hibiscus makinoi.

Noevir No-AGX’s anti-agingeffects were proven through thisanalysis.

Research on the duabanga plantresulted in Noevir Revitalizer No-tox.

17


Noevir’s commitment to safety and quality is clearly

evident in its state-of-the art manufacturing system.

The system accommodates a wide range of products,

including cosmetics, pharmaceuticals, nutritional

supplements and health food, while meeting

stringent standards.

Noevir has two main manufacturing facilities.

The first, the Shiga Factory, handles the majority of

skincare product manufacturing. The Shiga Factory

is a government-approved, quasi-drug manufacturing

facility that meets international ISO standards. It is

ISO 9001 certified for quality assurance and ISO

14001 certified for environmental management. All

processes, from the procurement of raw materials

through manufacturing and shipment, are monitored

by a Computer Integrated Manufacturing (CIM)

system. This system is linked on a real-time basis to

computer systems used for sales, ensuring quality

assurance and efficient supply chain management.

The Mie Factory handles most of Tokiwa’s

manufacturing, and produces pharmaceuticals,

nutritional supplements, cosmetics and health food.

The Mie facility was renovated in 2006 and meets the

Good Manufacturing Practice (GMP) standards set by

the Japanese Ministry of Health, Labour and Welfare.

The Noevir Group continues to invest in

manufacturing and places great value on maintaining

best practices. We view quality is a key component of

our brand value, and we look forward to further

advances in manufacturing.

Noevir ’s Shiga Factory

Tokiwa’s Mie Factory

M A N U F A C T U R I N G S Y S T E M S

18

Organ i za t i ona l S t ruc tu re

Noevir’s board of directors consists of 11 members.

Meetings are held on a monthly basis, with

extraordinary meetings convened as necessary. The

board addresses matters, as required by law, while

supervising the management and operation of the

company. Noevir has adopted a corporate auditor

system and maintains a board of corporate auditors

comprising one standing corporate auditor and two

outside auditors.

The corporate auditors work closely with the

Internal Audit Department. This department

conducts audits in various business areas on a regular

basis and reports directly to the CEO.

In the context of the Company’s internal

management structure, Noevir has established

a system of effective internal controls in the

manufacturing, research and development, sales

and marketing, and administrative departments.

Noevir places value on maintaining direct lines of

communication with shareholders. A key component

of these efforts is the General Meeting of

Shareholders held every December. In addition, we

provide financial data on a quarterly basis and

disclose details of important decisions on a timely

basis with the aim of ensuring the transparency of

our business operations.

S t r eng then ing t he Sy s t em o f

Comp l i ance and T ran spa rency

Noevir is committed to improving compliance and

transparency. We have recently added detailed

information on compliance and corporate social

responsibility (CSR) to our website in order to clarify

our policies to all stakeholders. Additionally, Noevir is

currently introducing new measures and improving

internal processes with the goal of strengthening

compliance.

The directors and employees of the Noevir Group

are required to conform to the Noevir Code of

Conduct. These standards of behavior prohibit

unethical or inappropriate behavior. The Company

is working to increase the level of awareness and

compliance. In addition, Noevir acquired “Privacy

Mark” certification in June 2006 and maintains a

comprehensive system to protect confidential

personal information.

Corporate Governance

While striving to maximize corporate value, Noevir places great emphasis

on maintaining the trust of our stakeholders. We have made effective

corporate governance a top management priority and have established

stringent internal and audit controls. Through internal controls and risk

management, Noevir works to ensure strict adherence to legal

requirements and the highest level of ethical corporate behavior.

C O R P O R A T E G O V E R N A N C E A N D

C O R P O R A T E S O C I A L R E S P O N S I B I L I T Y

19


Corporate Social Responsibility

Bas i c Ph i l o sophy and Ac t i v i t i e s

In addition to supporting our customers’ health and

lifestyles through our products, Noevir recognizes

CSR as an important management goal.

As a leader in natural cosmetics, the Noevir Group

has continuously carried out activities that contribute

to environmental protection. These initiatives range

from proactively reducing energy use at our facilities

to contributing to the natural environment by

undertaking such activities as reforestation and the

restocking of local rivers with native fish species.

Noevir also participates in joint academic research.

We established a research laboratory with Keio

University to pursue better treatments for

Alzheimer’s disease and amyotrophic lateral sclerosis

(ALS or Lou Gehrig’s disease). Noevir established an

endowment fund to help support these efforts.

Corporate Governance Organizational Structure

General Meeting of Shareholders

Board of Corporate Auditors:

Standing Corporate Auditor, Outside Auditors

Board of Directors: Directors

President & CEO

Internal Audit

All Departments

Inde

pend

entA

udit

or

Leg

alC

ouns

el

Supervise

Decide/ Approve

Appoint/Dismiss Appoint/Dismiss

Appoint/Dismiss

Acc

ount

ing

Aud

it

OversightOversight

Report

ReportConfirmAudit

Supervise

Internal AuditDecide/Approve

Supervise

Report

C

20

M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S

Overv i ew

Fiscal 2007, ended September 20, 2007, brought

stable sales and bottom line improvements for the

Noevir Group. Net sales rose slightly to ¥59,352

million, an increase of ¥7 million, or 0.0%. Cosmetics

sales showed growth, particularly in the Sana

Nameraka Honpo skincare line and the Noevir 99

skincare line. However, skincare growth was offset by

sales declines in the pharmaceutical and health food

segments.

Changes to the product mix reflecting growth in

the cosmetics segment resulted in the cost of sales

shrinking ¥244 million to ¥20,742 million, representing

a 0.5% improvement in the cost of sales ratio to 34.9%.

Despite this improvement, the ratio of selling, general

and administrative (SG&A) expenses to net sales

increased slightly to 58.5%. SG&A expenses for fiscal

2007 totaled ¥34,741 million, up ¥240 million, or 0.7%.

The rise was largely due to an increase in advertising

expenditures for Tokiwa brands.

Because the improvement in the cost of sales

was partially countered by the increase in SG&A

expenses, operating income rose only slightly.

Operating income for fiscal 2007 was ¥3,869 million,

an increase of ¥11 million, or 0.3%, from the previous

fiscal year. In contrast to the modest gains in

operating and ordinary income, net income grew a

significant ¥511 million, or 33.9%, to ¥2,018 million.

This increase was due to lower asset impairment

charges and the resulting decrease in taxes.

As se t s , L i ab i l i t i e s and Equ i t y

Total assets at the fiscal year-end were down

¥1,721 million to ¥99,787 million. This was largely

due to decreases in fixed assets, particularly real

estate holdings, as well as the continued amortization

of goodwill. The decrease in fixed assets is a result of

Noevir’s strategy of divesting underperforming assets.

Total current assets rose ¥3,311 million to ¥62,424

million, while non-current assets decreased ¥5,032

million to ¥37,363 million.

Total liabilities at the fiscal year-end of were

¥55,564 million, a decrease of ¥2,603 million. Current

liabilities rose ¥6,666 million to ¥21,835 million,

mainly due to an increase in the current portion of

long-term debt. This was offset by a ¥9,269 million

reduction in total long-term liabilities, which

amounted to ¥33,729 million at the end of the period.

Total equity at the end of fiscal 2007 was ¥44,223

million, up ¥882 million from the previous fiscal

year-end.

0

10,000

20,000

40,000

60,000

0

10

20

30,000

50,000

Net Sales/ Operating Income/ Operating Margin

(¥ million)

Net sales

Operating income

Operating margin

(%)

50,754

5,840

11.5

59,129

5,592

9.5

56,503

3,171

5.6

59,345

3,858

6.5

59,352

3,869

6.5

2003 2004 2005 2006 2007

0

1,000

4,000

0

50

100

2,000

3,000

Net Income/ Earnings Per Share

(¥ million)

Net income

Earnings per share

(¥)

2,605

74.58

3,373

96.28

1,336

37.57

1,507

42.08

2,018

56.33

2003 2004 2005 2006 2007

21


Cash F l ows

In the fiscal year under review, net cash provided by

operating activities and investing activities exceeded

net cash used in financing activities, resulting in a

¥5,571 million increase in cash and cash equivalents.

At the end of the fiscal year, cash and cash

equivalents totaled ¥35,658 million.

Net cash provided by operating activities over the

period under review was ¥6,805 million, an increase of

¥1,859 million from the previous fiscal year. This was

largely due to net income before taxes increasing to

¥3,914 million.

Net cash provided by investing activities was

¥1,455 million, an increase of ¥205 million from the

previous year. This was largely due to proceeds from

the sale of property, plant and equipment, which

contributed ¥3,273 million.

Net cash used in financing activities over this

period was ¥2,733 million, a decrease of ¥43 million

from the previous year. This result was mainly due

to ¥1,700 million used to repay long-term debt.

Years ended September 20 Millions of yen

2002 2003 2004 2005 2006 2007

Net sales ¥ 41,788 ¥ 50,754 ¥ 59,129 ¥ 56,503 ¥ 59,345 ¥ 59,352

Operating income 4,993 5,840 5,592 3,171 3,858 3,869

Net income 2,521 2,605 3,373 1,336 1,507 2,018

Total assets 76,174 106,781 106,732 104,463 101,508 99,787

Shareholders’ equity / total equity* 36,807 38,942 41,949 43,186 43,341 44,223

Capital expenditures 1,344 2,317 2,075 2,807 1,467 2,094

Depreciation 1,554 1,558 1,899 1,739 1,678 1,493

R&D costs 1,320 1,268 1,229 1,229 1,334 1,640

Cash dividends per share (yen) 25.00 30.00 30.00 30.00 30.00 36.00

Earnings per share, basic (yen) 72.16 74.58 96.28 37.57 42.08 56.33

Shareholders’ equity / equity* per share (yen) 1,053.60 1,114.71 1,184.10 1,205.53 1,209.41 1,232.78

ROE (%) 7.0 6.9 8.3 3.1 3.5 4.6

ROA (%) 3.4 2.8 3.2 1.3 1.5 2.0

Equity ratio (%) 48.3 36.5 39.3 41.3 42.7 44.3

Number of employees (consolidated) 1,443 2,410 2,445 2,544 2,461 2,370

* Due to changes in accounting standards, shareholders’ equity is now presented as equity, and certain items which were previouslypresented as liabilities are now components of equity. Please see Note 2. i. for details.

*

*

S i x -Yea r Summary

22

Management’s Discussion and Analysis

Segmen t I n fo rma t i on

1 ) Co sme t i c s

Working to meet the increasingly diverse needs of

customers, Noevir introduced an ultra-rich moisturizing

formula in the core Noevir 99 skincare line. The three

products in the Noevir 99 Moisture Type range made

significant contributions to sales. In addition, Noevir

has expanded its lineup of special treatment products

to address growing demand for anti-aging skincare.

New products include Noevir Revitalizer No-tox, which

contains duabanga plant extract to help firm the skin,

Noevir No-AGX, which takes a revolutionary approach

to anti-aging, and Noevir Whiteness Concentrate KJ, which

contains skin-brightening kojic acid. These products are

proving popular with a wide range of customers. Noevir

Gomore, a hair growth tonic that was developed with the

cooperation of Keio University, has also gained

consumer attention.

In luxury color cosmetic lines, the Company has

introduced new items in the Noevir Excellent and Noevir

5 product lines. The new products have been well

received, but overall sales of existing products have

declined.

Contributing strongly to sales during fiscal 2007, were

new and improved hypoallergenic makeup products

introduced under the Nov brand and the Nov II

hypoallergenic skincare line.

The Sana brand’s soy-based Nameraka Honpo

skincare line is seeing increased its brand recognition

among consumers, boosting its brand equity. These

gains have led to significant contributions to sales. Sana

also focused on rounding out its lineup of fashionable

Millions of yen

2005 2006 2007

Cosmetics

Net sales ¥ 34,875 ¥ 37,000 ¥ 37,982

Operating income 5,380 6,054 6,282

Operating margin (%) 15.4 16.4 16.5

Pharmaceuticals

Net sales 8,441 7,762 7,624

Operating income (loss) (200) (203) (496)

Operating margin (%) (2.4) (2.6) (6.5)

Health Food

Net sales 9,737 9,651 9,227

Operating income (loss) (92) (424) (315)

Operating margin (%) (0.9) (4.4) (3.4)

Other

Net sales 3,450 4,932 4,519

Operating income 16 121 137

Operating margin (%) 0.5 2.5 3.0

Total¥59,352 million

Cosmetics

64%¥37,982 million

Pharmaceuticals

13%¥7,624 million

Health Food

16%¥9,227 million

Other

7%¥4,519 million

Sales By Segment

0

10,000

20,000

30,000

40,000

0

5

10

15

20

0

2,000

4,000

6,000

8,000

C o s m e t i c s(¥ million) (¥ million) (%)

Net sales Operating income

Operating margin

2005 2006 2007 2005 2006 2007

0

2,500

5,000

7,500

10,000

-500

-300

-400

-200

-100

0

-10

-6

-2

-8

-4

0

P h a r m a c e u t i c a l s(¥ million) (¥ million) (%)


Operating margin

2005 2006 2007 2005 2006 2007

23


makeup items. Popular new products included Keana

Shokunin Concealer, Keana Shokunin Face Powder, Naginata

Eyebrow and Moroha Eyeliner.

As a result, cosmetic segment sales were ¥37,982

million, an increase of 2.7% from the previous year.

Operating income was ¥6,282 million, up 3.8% from the

previous year.

2 ) Pha rmaceu t i ca l s

Tokiwa extended its flagship brand, Nanten Nodo Ame,

with the introduction of Nanten Nodo Ame Cool herbal

cough drops, which have a cooling menthol flavor. This

flavor continues to attract new customers to the brand

and contribute to sales.

Additionally, Tokiwa recently launched Iki Nodo Ame

sugarless cough drops to appeal to women, who tend to

be more conscious of dental health, and Gan Gan Eye

Drops, which are formulated for an extra refreshing feel.

These new products are both proving popular with

customers.

This segment was affected by the continued

contraction of the OTC market, and sales of existing

products struggled, resulting in a decline in segment

sales.

As a result, pharmaceutical sales were ¥7,624 million,

a decrease of 1.8% from the previous year. The operating

loss was ¥496 million, in comparison with an operating

loss of ¥203 million in the previous year.

3 ) Hea l t h Food

Noevir focuses on meeting customer needs through the

development of safe, unique and highly effective

products. New products during the fiscal year under

review included Noevir Outox, a supplement that

supports internal balance, Noevir Diet Road 15, which

promotes a beautiful, healthy body, and Noevir Tibet

Royal Jelly, which is made with an emphasis on the strict

sourcing of effective raw ingredients.

Tokiwa’s core Min Min Da Ha brand energy drink

holds a substantial share of the market, and the

introduction of an extra-strength version, Kyo Kyo Da

Ha, has contributed to further market growth. Also

under the Min Min Da Ha brand, Tokiwa released a

limited-edition gummy candy, Kimazui-jyan, which has

generated significant publicity.

In the carbonated drink market, Vitac Z and Sukkiri

Ume were positively affected by the hot summer

weather and showed sales growth.

Overall, this segment was affected by a downturn in

the health food market, and sales remained sluggish.

As a result, health food segment sales were ¥9,227

million, a decrease of 4.4% from the previous year.

This resulted in an operating loss of ¥315 million, an

improvement from the loss of ¥424 million recorded

in the previous year.

4 ) Othe r

Sales of apparel and lingerie showed little progress. As a

result, sales in the other segment were ¥4,519 million, a

decrease of 8.4% from the previous year. Operating

income was ¥137 million, an increase of 13.2% from the

previous year.

0

2,000

4,000

6,000

8,000

10,000

12,000

-5

-2

-4

-1

-3

0

-500

-200

-100

0

-300

-400

H e a l t h F o o d(¥ million) (¥ million) (%)


Operating margin

2005 2006 2007 2005 2006 2007

0

1,000

2,000

3,000

4,000

5,000

0

4

2

1

3

5

0

90

120

150

60

30

O t h e r(¥ million) (¥ million) (%)


Operating margin

2005 2006 2007 2005 2006 2007

24

Thousands ofU.S. Dollars

Millions of Yen (Note 1)

ASSETS 2007 2006 2007

CURRENT ASSETS:

Cash and cash equivalents ¥ 35,658 ¥ 30,087 $ 307,397

Receivables:

Trade notes 5,140 5,794 44,310

Trade accounts 7,779 8,361 67,060

Other 2,371 2,236 20,440

Allowance for doubtful receivables (208) (102) (1,793)

Inventories (Note 4) 10,275 11,296 88,578

Deferred tax assets (Note 9) 957 971 8,250

Prepaid expenses and other current assets 452 470 3,896

Total current assets 62,424 59,113 538,138

PROPERTY, PLANT AND EQUIPMENT (Note 5):

Land 15,830 18,596 136,466

Buildings and structures 21,631 22,973 186,474

Machinery and equipment 4,747 4,757 40,922

Furniture and fixtures 6,820 6,746 58,793

Construction in progress 3 75 26

Total 49,031 53,147 422,681

Accumulated depreciation (23,290) (23,334) (200,776)

Net property, plant and equipment 25,741 29,813 221,905

INVESTMENTS AND OTHER ASSETS:

Investment securities (Note 3) 1,058 1,528 9,121

Goodwill 623 1,752 5,371

Rental deposits 1,235 1,211 10,647

Deferred tax assets (Note 9) 3,648 4,068 31,448

Other assets (Note 6) 5,058 4,023 43,603

Total investments and other assets 11,622 12,582 100,190

TOTAL ¥ 99,787 ¥101,508 $ 860,233

C O N S O L I D A T E D B A L A N C E S H E E T S

Noevir Co., Ltd. and Subsidiaries20th September, 2007 and 2006

25




LIABILITIES AND EQUITY 2007 2006 2007

CURRENT LIABILITIES:

Current portion of long-term debt (Note 6) ¥ 9,350 ¥ 1,700 $ 80,603

Payables:

Trade notes 500 384 4,310

Trade accounts 4,954 5,068 42,707

Other 3,902 3,830 33,638

Income taxes payable 138 1,045 1,190

Liability for product returns 1,733 1,868 14,940

Accrued expenses 548 511 4,724

Other current liabilities 710 763 6,121

Total current liabilities 21,835 15,169 188,233

LONG-TERM LIABILITIES:

Long-term debt (Note 6) 8,773 18,123 75,629

Liability for retirement benefits (Note 7) 5,047 4,999 43,509

Long-term guarantee deposits received 19,852 19,852 171,138

Other long-term liabilities 57 24 491

Total long-term liabilities 33,729 42,998 290,767

COMMITMENTS AND CONTINGENT LIABILITIES (Notes 11, 12 and 13)

EQUITY (Notes 6, 8 and 15):

Common stock, authorised, 145,000 thousand shares; issued,

35,837 thousand shares in 2007 and 2006 4,284 4,284 36,931

Capital surplus—Additional paid-in capital 3,774 3,774 32,534

Retained earnings 35,917 34,973 309,629

Unrealised gain on available-for-sale securities 226 418 1,948

Foreign currency translation adjustments (18) (103) (154)

Treasury stock—at cost: 14,587 shares in 2007

and 14,489 shares in 2006 (21) (21) (181)

Total 44,162 43,325 380,707

Minority interests 61 16 526

Total equity 44,223 43,341 381,233

TOTAL ¥99,787 ¥101,508 $860,233

See notes to consolidated financial statements.

26



2007 2006 2007

NET SALES ¥59,352 ¥59,345 $511,655

COST OF SALES (Note 10) 20,742 20,986 178,810

Gross profit 38,610 38,359 332,845

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

(Note 10) 34,741 34,501 299,491

Operating income 3,869 3,858 33,354

OTHER INCOME (EXPENSES):

Interest and dividend income 122 78 1,052

Interest expense (180) (210) (1,552)

Gain (loss) on sales of property, plant and equipment (140) 101 (1,207)

Loss on disposal of property, plant and equipment (79) (35) (681)

Gain on sales of marketable and investment securities 66 947 569

Impairment loss on fixed assets(Note 5) (16) (1,010) (138)

Other—net 272 807 2,345

Other income—net 45 678 388

INCOME BEFORE INCOME TAXES AND

MINORITY INTERESTS 3,914 4,536 33,742

INCOME TAXES (Note 9):

Current 1,257 2,082 10,836

Deferred 636 944 5,483

Total income taxes 1,893 3,026 16,319

MINORITY INTERESTS IN NET INCOME 3 3 26

NET INCOME ¥ 2,018 ¥ 1,507 $ 17,397

Yen U.S. Dollars

PER SHARE OF COMMON STOCK (Notes 2.r and 14):

Basic net income ¥ 56.33 ¥ 42.08 $ 0.49

Diluted net income 47.83 35.74 0.41

Cash dividends applicable to the year 36.00 30.00 0.31


C O N S O L I D A T E D S T A T E M E N T S O F I N C O M E

Noevir Co., Ltd. and SubsidiariesYears Ended 20th September, 2007 and 2006

27


Thousands Millions of Yen

Outstanding Capital UnrealisedNumber of Surplus Gain on ForeignShares of Additional Available CurrencyCommon Common Paid-in Retained -for-sale Translation Treasury Minority Total

Stock Stock Capital Earnings Securities Adjustments Stock Total Interests Equity

BALANCE, 21ST SEPTEMBER, 2005 35,823 ¥4,284 ¥3,774 ¥34,540 ¥ 751 ¥(142) ¥(21) ¥43,186 ¥43,186

Reclassified balance as of

21st September, 2005 (Note 2.i) ¥13 13

Net income 1,507 1,507 1,507

Cash dividends, ¥30.00 per share (1,074) (1,074) (1,074)

Repurchase of treasury stock (0) (0) (0) (0)

Net change in the year (333) 39 (294) 3 (291)

BALANCE, 20TH SEPTEMBER, 2006 35,823 4,284 3,774 34,973 418 (103) (21) 43,325 16 43,341

Net income 2,018 2,018 2,018

Cash dividends, ¥30.00 per share (1,074) (1,074) (1,074)

Repurchase of treasury stock (0) (0) (0) (0)

Net change in the year (192) 85 (107) 45 (62)

BALANCE, 20TH SEPTEMBER, 2007 35,823 ¥4,284 ¥3,774 ¥35,917 ¥ 226 ¥ (18) ¥(21) ¥44,162 ¥61 ¥44,223

Thousands of U.S. Dollars (Note 1)

Capital UnrealisedSurplus Gain on Foreign

Additional Available CurrencyCommon Paid-in Retained -for-sale Translation Treasury Minority Total

Stock Capital Earnings Securities Adjustments Stock Total Interests Equity

BALANCE, 20TH SEPTEMBER, 2006 $36,931 $32,534 $301,491 $ 3,603 $(887) $(181) $373,491 $138 $373,629

Net income 17,397 17,397 17,397

Cash dividends, $0.26 per share (9,259) (9,259) (9,259)

Repurchase of treasury stock (0) (0) (0)

Net change in the year (1,655) 733 (922) 388 (534)

BALANCE, 20TH SEPTEMBER, 2007 $36,931 $32,534 $309,629 $ 1,948 $(154) $(181) $380,707 $526 $381,233


C O N S O L I D A T E D S T A T E M E N T S O F C H A N G E S I N E Q U I T Y


28



2007 2006 2007

OPERATING ACTIVITIES:

Income before income taxes and minority interests ¥ 3,914 ¥ 4,536 $ 33,742

Adjustments for:

Income taxes—paid (2,207) (1,569) (19,026)

Depreciation 1,493 1,678 12,871

Amortisation of goodwill 1,144 1,115 9,862

Provision for (reversal of) doubtful receivables 55 (15) 474

Loss (gain) on sales of property, plant and equipment 140 (101) 1,207

Loss on disposal of property, plant and equipment 79 35 681

Gain on sales of marketable and investment securities (66) (947) (569)

Provision for (reversal of) retirement benefits 48 (127) 414

Impairment loss on fixed assets (Note 5) 16 1,010 138

Changes in assets and liabilities:

Decrease in trade receivables 1,316 630 11,345

Decrease in inventories 1,065 317 9,181

Decrease in trade payable (24) (1,377) (207)

Decrease in long-term guarantee deposits received (1) (297) (9)

Other—net (167) 58 (1,440)

Total adjustments 2,891 410 24,922

Net cash provided by operating activities 6,805 4,946 58,664

INVESTING ACTIVITIES:

Proceeds from sales of property, plant and equipment 3,273 910 28,216

Purchases of property, plant and equipment (893) (1,664) (7,698)

Proceeds from sales of marketable and investment securities 155 1,942 1,336

Purchases of marketable and investment securities (16) (18) (138)

(Increase) decrease in other assets (1,064) 80 (9,172)

Net cash provided by investing activities 1,455 1,250 12,544

FINANCING ACTIVITIES:

Repayments of long-term debt (1,700) (1,702) (14,655)

Repurchase of treasury stock (0) (0) (0)

Proceeds from investments in minority interests 41 — 353

Dividends paid (1,074) (1,074) (9,259)

Net cash used in financing activities (2,733) (2,776) (23,561)

EFFECT OF EXCHANGE RATE CHANGES ON CASH

AND CASH EQUIVALENTS 44 22 379

NET INCREASE IN CASH AND CASH EQUIVALENTS 5,571 3,442 48,026

CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 30,087 26,645 259,371

CASH AND CASH EQUIVALENTS, END OF YEAR ¥35,658 ¥30,087 $307,397


C O N S O L I D A T E D S T A T E M E N T S O F C A S H F L O W S


29


The accompanying consolidated financial statements have been prepared in accordance with the provisions set forth in theJapanese Securities and Exchange Law and its related accounting regulations, and in conformity with accounting principlesgenerally accepted in Japan (“Japanese GAAP”), which are different in certain respects as to application and disclosurerequirements of International Financial Reporting Standards.

On 27th December, 2005, the Accounting Standards Board of Japan (ASBJ) published a new accounting standard for thestatement of changes in equity, which is effective for fiscal year ending on or after 1st May, 2006.The consolidated statement of shareholders’ equity, which was previously voluntarily prepared in line with the internationalaccounting practices, is now required under Japanese GAAP and has been renamed “the consolidated statement of changes inequity” from the previous fiscal year.

In preparing these consolidated financial statements, certain reclassifications and rearrangements have been made to theconsolidated financial statements issued domestically in order to present them in a form which is more familiar to readersoutside Japan. In addition, certain reclassifications have been made in the 2006 financial statements to conform to theclassifications used in 2007.

The consolidated financial statements are stated in Japanese yen, the currency of the country in which Noevir Co., Ltd.(the “Company”) is incorporated and operates. The translation of Japanese yen amounts into U.S. dollar amounts is includedsolely for the convenience of readers outside Japan and has been made at the rate of ¥116 to $1, the approximate rate ofexchange at 20th September, 2007. Such translation should not be construed as representation that the Japanese yen amountscould be converted into U.S. dollars at that or any other rate.

1. BASIS OF PRESENTING CONSOLIDATED FINANCIAL STATEMENTS

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

a. Consolidation – The accompanying consolidated financial statements include the accounts of the Company and its 14 (15in 2006) subsidiaries (together, the “Group”).

Under the control or influence concept, those companies in which the Company, directly or indirectly, is able to exercisecontrol over operations are fully consolidated, and those companies over which the Group has the ability to exercisesignificant influence are accounted for by the equity method.

The excess of the purchase price over the fair value of the net assets of the acquired subsidiaries (“goodwill”) is amortisedusing the straight-line method over 5 years.

All significant intercompany balances and transactions have been eliminated in consolidation. All material unrealized profitincluded in assets resulting from transactions within the Group is eliminated.

b. Cash Equivalents – Cash equivalents are short-term investments that are readily convertible into cash and that are exposedto insignificant risk of changes in value. Cash equivalents include time deposits and certificate of deposits, which mature orbecome due within three months of the date of acquisition.

c. Inventories – Inventories of the Company and its domestic subsidiaries are stated at cost, determined by the average costmethod, while inventories of foreign subsidiaries are stated at lower of cost, determined principally by the first-in, first-outmethod, or market.

d. Marketable and Investment Securities – All of the Group’s marketable securities are classified as available-for-salesecurities and are reported at fair value, with unrealised gains and losses, net of applicable taxes, reported as a separatecomponent of equity. The cost of securities sold is determined based on the moving-average cost method.

Non-marketable available-for-sale securities are stated at cost determined by the moving-average method.

For other than temporary declines in fair value, individual available-for-sale securities are reduced to net realisable value bya charge to income.

N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S


30

e. Property, Plant and Equipment – Property, plant and equipment are stated at cost. Depreciation of property, plant andequipment of the Company and its domestic subsidiaries is computed substantially by the declining-balance method at ratesbased on the estimated useful lives of the assets, while the straight-line method is applied to all property, plant andequipment of foreign subsidiaries. The range of useful lives is principally from 6 to 50 years for buildings and structures, from2 to 9 years for machinery and equipment, and from 2 to 20 years for furniture and fixtures.

f. Long-Lived assets – In August 2002, the Business Accounting Council (BAC) issued a Statement of Opinion, Accounting forImpairment of Fixed Assets, and in October 2003 the ASBJ issued ASBJ Guidance No.6, Guidance for Accounting Standard forImpairment of Fixed Assets. These new pronouncements were effective for fiscal year beginning on or after 1st April, 2005 withearly adoption permitted for fiscal years ending on or after 31st March, 2004.The Group adopted the new accounting standards for impairment of fixed assets as of 21st September, 2005.

The Group reviews its long-lived assets for impairment whenever events or changes in circumstance indicate the carryingamount of an asset or asset group may not be recoverable. An impairment loss would be recognised if the carrying amount ofan asset or asset group exceeds the sum of the undiscounted future cash flows expected to result from the continued use andeventual disposition of the asset or asset group. The impairment loss would be measured as the amount by which the carryingamount of the asset exceeds its recoverable amount, which is the higher of the discounted cash flows from the continued useand eventual disposition of the asset or the net selling price at disposition.

g. Liability for Product Returns – The liability for product returns is stated at an amount considered to be appropriate basedon the Group’s past loss experience from product returns.

h. Retirement Benefits – The Company and domestic subsidiaries have non-contributory funded pension plans and unfundedretirement benefit plans for employees which cover approximately 20% and 80%, respectively, of their benefits.

Retirement benefits to directors and corporate auditors are provided at the amount which would be required if all such personsretired at the balance sheet date.

i. Presentation of Equity – On 9th December, 2005, the ASBJ published a new accounting standard for presentation of equity.Under this accounting standard, certain items which were previously presented as liabilities are now presented as componentsof equity. Such items include stock acquisition rights, minority interests, and any deferred gain or loss on derivatives accountedfor under hedge accounting. This standard is effective for fiscal years ending on or after 1st May, 2006.

j. Revenue Recognition – The Group recognises revenue upon shipment of products. Revenue of certain cosmetic products isrecognised when they have been delivered from sales agents to customers, including sales representatives.

k. Research and Development Costs – Research and development costs are charged to income as incurred.

l. Leases – All leases are accounted for as operating leases. Under Japanese accounting standards for leases, finance leases thatare deemed to transfer ownership of the leased property to the lessee are to be capitalised, while other finance leases arepermitted to be accounted for as operating lease transactions if certain “as if capitalised” information is disclosed in the notesto the lessee’s financial statements.

m. Income Taxes – The provision for income taxes is computed based on the pretax income included in the consolidatedstatements of income. The asset and liability approach is used to recognise deferred tax assets and liabilities for the expectedfuture tax consequences of temporary differences between the carrying amounts and the tax bases of assets and liabilities.Deferred taxes are measured by applying currently enacted tax laws to the temporary differences.

n. Appropriations of Retained Earnings – Appropriations of retained earnings are reflected in the financial statements for thefollowing year upon shareholders’ approval.

o. Foreign Currency Transactions – All assets and liabilities denominated in foreign currencies are translated into Japaneseyen at the current exchange rates at the balance sheet date. Revenue and expense items denominated in foreign currenciesare translated at the historical exchange rates. The foreign exchange gains and losses from translation are recognised in theincome statement to the extent that they are not hedged by forward exchange contracts.

Notes to Consol idated Financial Statements

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p. Foreign Currency Financial Statements – The balance sheet accounts of the foreign subsidiaries are translated intoJapanese yen at the current exchange rates as of the balance sheet dates except for equity, which is translated at the historicalexchange rates. Differences arising from such translation are shown as “Foreign currency translation adjustments” as aseparate component of equity. Revenue and expense accounts of the foreign subsidiaries are translated into Japanese yen atthe annual average exchange rates.

q. Derivatives and Hedging Activities – The Group uses derivative financial instruments to manage its exposures tofluctuations in foreign exchange and interest rates. Foreign exchange forward contract and interest rate swaps are utilised bythe Group to reduce foreign currency exchange and interest rate risks. The Group does not enter into derivatives for tradingor speculative purposes.

Japanese accounting standards for derivative financial instruments require that: a) all derivatives be recognised as either assetsor liabilities and measured at fair value, and gains or losses on derivative transactions be recognised in the income statementand b) for derivatives used for hedging purposes, if such derivatives qualify for hedge accounting because of high correlationand effectiveness between the hedging instruments and the hedged items, gains or losses on those derivatives are deferreduntil maturity of the hedged transactions.

The interest rate swaps which qualify for hedge accounting and meet specific matching criteria are not remeasured at market valuebut the differential paid or received under the swap agreements are recognised and included in interest expenses or income.

r. Per Share Information – Basic net income per share is computed by dividing net income available to common shareholdersby the weighted-average number of common shares outstanding for the period, retroactively adjusted for stock splits.

Diluted net income per share reflects the potential dilution that could occur if securities were exercised or converted intocommon stock. Diluted net income per share of common stock assumes full conversion of the outstanding convertible bondsat the beginning of the year (or at the time of issuance) with an applicable adjustment for related interest expense, net of tax.

Cash dividends per share presented in the accompanying consolidated statements of income are dividends applicable to therespective years including dividends to be paid after the end of the year.

s. New Accounting PronouncementsMeasurement of InventoriesUnder Japanese GAAP, inventories are currently measured either by the cost method, or at the lower of cost or market. On5th July, 2006, the ASBJ issued ASBJ Statement No.9, “Accounting Standard for Measurement of Inventories”, which iseffective for fiscal years beginning on or after 1st April, 2008 with early adoption permitted. This standard requires thatinventories held for sale in the ordinary course of business be measured at the lower of cost or net selling value, which isdefined as the selling price less additional estimated manufacturing costs and estimated direst selling expenses. Thereplacement cost may be used in place of the net selling value, if appropriate. The standard also requires that inventoriesheld for trading purpose be measured at the market price.

Lease AccountingOn 30th March, 2007, the ASBJ issued ASBJ Statement No.13, “Accounting Standard for Lease Transactions”, which revisedthe existing accounting standard for lease transactions issued on 17th June, 1993.

Under the existing accounting standard, finance leases that deem to transfer ownership of the leased property to the lessee areto be capitalised, however, other finance leases are permitted to be accounted for as operating lease transactions if certain “asif capitalised ” information is disclosed in the note to the lessee’s financial statements.

The revised accounting standard requires that all finance lease transactions should be capitalised. The revised accountingstandard for lease transactions is effective for fiscal years beginning on or after 1st April, 2008 with early adoption permittedfor fiscal years beginning on or after 1st April, 2007.

Unification of Accounting Policies Applied to Foreign Subsidiaries for the Consolidated Financial StatementsUnder Japanese GAAP, a company currently can use the financial statements of foreign subsidiaries which are prepared inaccordance with generally accepted accounting principles in their respective jurisdictions for its consolidation process unless

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3. MARKETABLE AND INVESTMENT SECURITIES

Marketable and investment securities as of 20th September, 2007 and 2006 consisted of the following:Thousands of

Millions of Yen U.S. Dollars

2007 2006 2007Non-current:

Marketable equity securities ¥ 990 ¥1,468 $8,535Trust fund investments and other 60 47 517Investments in affiliated companies 8 13 69Total ¥1,058 ¥1,528 $9,121

The carrying amounts and aggregate fair values of marketable and investment securities as of 20th September, 2007 and 2006were as follows:

Millions of Yen

2007Unrealised Unrealised Fair

Cost Gains Losses Value

Securities classified as:Available-for-sale—Equity securities ¥ 673 ¥ 319 ¥ (2) ¥ 990

Millions of Yen



Securities classified as:Available-for-sale—Equity securities ¥ 758 ¥ 712 ¥ (2) ¥ 1,468

Thousands of U.S. Dollars



Securities classified as:Available-for-sale—Equity securities $ 5,802 $2,750 $(17) $ 8,535

they are clearly unreasonable. On 17th May, 2006, the ASBJ issued ASBJ Practical Issues Task Force (PITF) No.18,“Practical Solution on Unification of Accounting Policies Applied to Foreign Subsidiaries for the Consolidated FinancialStatements”. The new task force prescribes :1) the accounting policies and procedures applied to a parent company and itssubsidiaries for similar transactions and events under similar circumstances should in principle be unified for the preparationof the consolidated financial statements, 2) financial statements prepared by foreign subsidiaries in accordance with eitherInternational Financial Reporting Standards or the generally accepted principles in the United States tentatively may be usedfor the consolidation process, 3) however, the following items should be adjusted in the consolidation process so that netincome is accounted for in accordance with Japanese GAAP unless they are not material;

(1) Amortisation of goodwill(2) Actuarial gains and losses of defined benefit plans recognised outside profit or loss(3) Capitalisation of intangible assets arising from development phases(4) Fair value measurement of investment properties, and the revaluation model for property, plant and equipment, and

intangible assets(5) Retrospective application when accounting policies are changed(6) Accounting for net income attributable to a minority interest

The new task force is effective for fiscal years beginning on or after 1st April, 2008 with early adoption permitted.


33


Available-for-sale securities whose fair value is not readily determinable as of 20th September, 2007 and 2006 were as follows:

Carrying Amount

Thousands ofMillions of Yen U.S. Dollars

2007 2006 2007Available-for-sale:

Equity securities ¥ 22 ¥ 22 $190Investment in limited partnerships and pursue partnerships 38 25 327

Proceeds from sales of available-for-sale securities for the years ended 20th September, 2007 and 2006 were ¥155 million($1,336 thousand) and ¥1,942 million, respectively. Gross realised gains on these sales, computed on the moving average costbasis, were ¥66 million ($569 thousand) and ¥947 million, respectively, for the years ended 20th September, 2007 and 2006.

4. INVENTORIES

Inventories at 20th September, 2007 and 2006 consisted of the following:Thousands of


2007 2006 2007Merchandise ¥ 4,401 ¥ 4,688 $37,940Finished products 3,772 4,520 32,517Semi-finished products 44 55 379Work in process 302 312 2,604Raw materials and supplies 1,756 1,721 15,138Total ¥10,275 ¥11,296 $88,578

5. LONG-LIVED ASSETS

The Group reviewed its long-lived assets for impairment as of the years ended 20th September, 2007 and 2006.As a result, for the year ended 20th September, 2007, the Group recognised an impairment loss of ¥16 million ($138 thousand)as other expenses for certain business properties in Hokkaido Prefecture and Osaka Prefecture due to continuous operatinglosses of those units and the carrying amounts of those assets were written down to the recoverable amount for the year ended20th September, 2007. The recoverable amounts of those assets were measured by their net selling price at disposition,principally calculated by the appraisal value.

For the year ended 20th September, 2006, the Group recognised an impairment loss of ¥1,010 million as other expenses forcertain business properties in Hokkaido Prefecture due to a continuous operating loss of that unit, certain idle assets in MiePrefecture due to substantial declines in the fair market value and the carrying amount of those assets was written down to therecoverable amount for the year ended 20th September, 2006. The recoverable amount of business properties were measuredat its value in use and the discount rate used for computation of present value of future cash flows was 5%. The recoverableamount of the idle assets were measured by their net selling price at disposition, principally calculated by the appraisal value.


2007 2006 2007Land ¥16 ¥ 965 $138Buildings and structures — 45 —Total ¥16 ¥1,010 $138

34

7. RETIREMENT AND PENSION PLANS

The Company and its certain domestic subsidiaries have severance payment plans for employees, directors and corporate auditors.

Under most circumstances, employees terminating their employment are entitled to retirement benefits determined based onthe rate of pay at the time of termination, years of service and certain other factors. Such retirement benefits are made in theform of a lump-sum severance payment from the Group and annuity payments from a trustee. Employees are entitled tolarger payments if the termination is involuntary, by retirement at the mandatory retirement age, by death, or by voluntaryretirement at certain specific ages prior to the mandatory retirement age.

The liability for retirement benefits at 20th September, 2007 and 2006 includes retirement benefits for directors andcorporate auditors of ¥372 million ($3,207 thousand) and ¥343 million, respectively. The retirement benefits for directors andcorporate auditors are paid subject to the approval of the shareholders.

6. LONG-TERM DEBT

Long-term debt at 20th September, 2007 and 2006 consisted of the following:Thousands of


2007 2006 2007Unsecured zero coupon yen convertible bonds, due 2009 ¥ 8,760 ¥ 8,760 $ 75,517Loans from bank and other financial institutions, due serially to 2009 with interest rates ranging from 0.0% to 1.5%:

Collateralised 13 13 112Unsecured 9,350 11,050 80,603

Total 18,123 19,823 156,232Less current portion (9,350) (1,700) (80,603)Long-term debt, less current portion ¥ 8,773 ¥18,123 $ 75,629

Annual maturities of long-term debt at 20th September, 2007 were as follows:Thousands of

Year Ending 20th September Millions of Yen U.S. Dollars

2008 ¥ 9,350 $ 80,6032009 8,773 75,629Total ¥18,123 $156,232

The carrying amounts of assets pledged as collateral for the above collateralised long-term debt at 20th September, 2007 wereas follows:


Investments and other assets—Other assets ¥ 13 $ 112

The conversion price of the zero coupon yen convertible bonds was ¥1,374 per share at 20th September, 2007. Under certainconditions, the yen convertible bonds may be redeemed prior to maturity in whole at prices ranging from 104% to 100% of theprincipal amount.

At 20th September, 2007, such bonds were convertible into 902 thousand shares of the Company’s common stock. Theconversion prices of the convertible bonds are subject to adjustments to reflect stock splits and certain other events.

Since the price of new common stocks, which were issued on 24th October, 2007 was below the market price, the conversionprice of the zero coupon yen convertible bonds was adjusted to ¥1,340.60 per share on and after 24th October, 2007 based onthe corporate resolution.


35


Tokiwa Pharmaceutical Co., Ltd., a subsidiary of the Company, participated in a contributory multiemployer pension plancovering substantially all of its employees until 31st March, 2007. After that, it was substituted for a severance payment planfor employees, directors and corporate auditors. Tokiwa Pharmaceutical Co., Ltd. recorded other expenses in the amount of¥256 million ($ 2,207 thousand) to withdraw from the pension plan.

The liability for employees’ retirement benefits at 20th September, 2007 and 2006 consisted of the following:Thousands of


2007 2006 2007Projected benefit obligation ¥ 9,803 ¥ 9,459 $ 84,509Fair value of plan assets (4,874) (4,483) (42,017)Unrecognised actuarial loss (254) (320) (2,190)

Net liability ¥ 4,675 ¥ 4,656 $ 40,302

The components of net periodic benefit costs for the years ended 20th September, 2007 and 2006 are as follows:Thousands of


2007 2006 2007Service cost ¥ 607 ¥ 512 $ 5,233Interest cost 189 187 1,629Expected return on plan assets (166) (85) (1,431)Recognised actuarial loss 119 175 1,026

Subtotal 749 789 6,457Contribution for the multiemployer pension plan 84 117 724

Net periodic benefit costs ¥ 833 ¥ 906 $ 7,181

Assumptions used for the years ended 20th September, 2007 and 2006 are set forth as follows:2007 2006

Discount rate 2.0% 2.0%Expected rate of return on plan assets 3.7% 2.2%Recognition period of actuarial gain/loss 5 years—10 years 5 years—10 years

8. EQUITY

On and after 1st May, 2006, Japanese companies are subject to a new corporate law of Japan (the “Corporate Law”), whichreformed and replaced the Commercial Code of Japan (the “Code”) with various revisions that are, for the most part,applicable to events or transactions which occur on or after 1st May, 2006 and fiscal years ending on or after 1st May, 2006.The significant changes in the Corporate Law that affect financial and accounting matters are summarised below:

(a) DividendsUnder the Corporate Law, companies can pay dividends at any time during the fiscal year in addition to the year-enddividend upon resolution at the shareholders meeting. For companies that meet certain criteria such as; (1) having the Boardof Directors, (2) having independent auditors, (3) having the Board of Corporate Auditors, and (4) the term of service of thedirectors is prescribed as one year rather than two years of normal term by its articles of incorporation, the Board of Directorsmay declare dividends (except for dividends in kind) at any time during the fiscal year if the company has prescribed so in itsarticles of incorporation. The company meets all the above criteria.The Corporate Law permits companies to distribute dividends-is-kind (non-cash-assets) to shareholders subject to a certainlimitation and additional requirements.Semiannual interim dividends may also be paid once a year upon resolution by the Board of Directors if the articles ofincorporation of the company so stipulate. The Corporate Law provides certain limitations on the amounts available fordividends or the purchase of treasury stock. The limitation is defined as the amount available for distribution to theshareholders, but the amount of net assets after dividends must be maintained at no less than ¥3 million.

36


(b) Increases / decreases and transfer of common stock, reserve and surplusThe Corporate Law requires that an amount equal to 10% of dividends must be appropriated as a legal reserve (a component ofretained earnings) or as additional paid-in capital (a component of capital surplus) depending on the equity account charged uponthe payment of such dividends until the total of aggregate amount of legal reserve and additional paid-in capital equals 25% ofthe common stock. Under the Corporate Law, the total amount of additional paid-in capital and legal reserve may be reversedwithout limitation. The Corporate Law also provides that common stock, legal reserve, additional paid-in capital, other capitalsurplus and retained earnings can be transferred among the accounts under certain conditions upon resolution of the shareholders.

(c) Treasury stock and treasury stock acquisition rightsThe Corporate Law also provides for companies to purchase treasury stock and dispose of such treasury stock by resolution ofthe Board of Directors. The amount of treasury stock purchased cannot exceed the amount available for distribution to theshareholders which is determined by specific formula.Under the Corporate Law, stock acquisition right, which were previously presented as a liability, are now presented as aseparate component of equity.The Corporate Law also provides that companies can purchase both treasury stock acquisition right and treasury stock. Suchtreasury stock acquisition rights are presented as a separate component of equity or deducted directly from stock acquisition rights.

9. INCOME TAXES

The Company and its domestic subsidiaries are subject to Japanese national and local income taxes which, in the aggregate,resulted in a normal effective statutory tax rate of approximately 40.6 % for the years ended 20th September, 2007 and 2006.

The tax effects of significant temporary differences and tax loss carryforwards which resulted in deferred tax assets andliabilities at 20th September, 2007 and 2006 are as follows:


2007 2006 2007Deferred tax assets:

Inventories ¥ 285 ¥ 219 $ 2,457Investment securities 134 172 1,155Property, plant and equipment 1,216 1,424 10,483Employees’ retirement benefits 2,047 2,015 17,647Tax loss carryforwards 1,054 1,355 9,086Other 1,061 1,198 9,146Less valuation allowance (826) (787) (7,121)

Total ¥4,971 ¥5,596 $42,853Deferred tax liabilities:

Property, plant and equipment ¥ 235 ¥ 226 $ 2,026Unrealised gain on available-for-sale securities 89 288 767Other 42 43 362

Total ¥ 366 ¥ 557 $ 3,155Net deferred tax assets ¥4,605 ¥5,039 $39,698

A reconciliation between the normal effective statutory tax rates and the actual effective tax rates reflected in theaccompanying consolidated statements of income for the years ended 20th September, 2007 and 2006 is as follows:

2007 2006Normal effective statutory tax rates 40.6% 40.6%Expenses not deductible for income tax purposes 4.9 6.0Amortisation of goodwill 11.6 10.0Taxation of accumulated earnings 0.1 3.7Valuation allowance (9.2) 6.9Per capita levy 2.5 2.5Other—net (2.1) (3.0)Actual effective tax rates 48.4% 66.7%

37


At 20th September, 2007, certain subsidiaries have tax loss carryforwards aggregating approximately ¥1,761 million ($15,181thousand) which are available to be offset against taxable income of such subsidiaries in future years. These tax losscarryforwards, if not utilised, will expire as follows:

Thousands ofYear Ending 20th September Millions of Yen U.S. Dollars

2008 ¥ 14 $ 1212009 557 4,8022010 390 3,3622011 — —2012 and thereafter 800 6,896

Total ¥1,761 $15,181

Research and development costs charged to income were ¥1,640 million ($14,138 thousand) and ¥1,334 million for the yearsended 20th September, 2007 and 2006, respectively.

The Group leases certain machinery, computer equipment, office space and other assets.

Total lease payments under finance leases not deemed to transfer ownership of the leased property to the lessee for the yearsended 20th September, 2007 and 2006 were ¥122 million ($1,052 thousand) and ¥261 million, respectively.

Pro forma information of leased property such as acquisition cost, accumulated depreciation, obligation under finance leases,depreciation expense, interest expense of finance leases that do not transfer ownership of the leased property to the lessee onan “as if capitalised” basis for the years ended 20th September, 2007 and 2006 was as follows:

Millions of Yen

2007 2006Machinery Furniture Machinery Furniture

and and and andEquipment Fixtures Software Total Equipment Fixtures Software Total

Acquisition cost ¥527 ¥103 ¥8 ¥638 ¥558 ¥220 ¥11 ¥789Accumulated depreciation 308 47 7 362 260 195 9 464Net leased property ¥219 ¥ 56 ¥1 ¥276 ¥298 ¥ 25 ¥ 2 ¥325


2007Machinery Furniture

and andEquipment Fixtures Software Total

Acquisition cost $4,543 $888 $69 $5,500Accumulated depreciation 2,655 405 60 3,120Net leased property $1,888 $483 $ 9 $2,380

Obligations under finance leases:Thousands of


2007 2006 2007Due within one year ¥ 97 ¥110 $ 836Due after one year 208 256 1,793Total ¥305 ¥366 $2,629

10. RESEARCH AND DEVELOPMENT COSTS

11. LEASES

38


12. DERIVATIVES

The Group enters into foreign currency forward contracts to hedge foreign exchange risk associated with certain assets andliabilities denominated in foreign currencies. The Group also enters into interest rate swap contracts to manage its interestrate exposures on certain liabilities.

All derivative transactions are entered into to hedge interest and foreign currency exposures incorporated within Groupbusiness. Accordingly, market risk in these derivatives is basically offset by opposite movements in the value of hedged assetsor liabilities. The Group does not hold or issue derivatives for trading purposes.

Because the counterparties to these derivatives are limited to major international financial institutions, the Group does notanticipate any losses arising from credit risk.

Derivative transactions entered into by the Group have been made in accordance with internal policies which regulate theauthorisation and credit limit amount.

The Group had the following derivatives contracts outstanding at 20th September, 2007 and 2006:Millions of Yen

2007 2006Contract Fair Unrealised Contract Fair UnrealisedAmount Value Loss Amount Value Loss

Interest rate swaps (fixed rate payment, floating rate receipt) ¥ — ¥ — ¥ — ¥300 ¥(3) ¥(3)


2007Contract Fair UnrealisedAmount Value Loss

Interest rate swaps (fixed rate payment, floating rate receipt) $ — $ — $ —

Foreign currency forward contracts which qualify for hedge accounting for the year ended 20th September, 2006 wereexcluded from the disclosure of market value information.

The contract or notional amounts of derivatives which are shown in the above table do not represent the amounts exchangedby the parties and do not measure the Group’s exposure to credit or market risk.

Depreciation expense and interest expense under finance leases:Thousands of


2007 2006 2007Depreciation expense ¥103 ¥218 $ 888Interest expense 13 19 112Total ¥116 ¥237 $1,000

Depreciation expense and interest expense, which are not reflected in the accompanying statements of income, are computedby the straight-line method and the interest method, respectively.

13. CONTINGENT LIABILITIES

At 20th September, 2007, the Group had the following contingent liabilities:Thousands of


Guarantees of bank loans of certain affiliates and customers ¥206 $1,776

39


14. NET INCOME PER SHARE

Reconciliation of the differences between basic and diluted net income per share (“EPS”) for the years ended 20th September,2007 and 2006 is as follows:

Millions of Yen Thousands of Shares Yen Dollars

WeightedNet Income Average Shares EPS

For the year ended 20th September, 2007:Basic EPS:

Net income available to common shareholders ¥2,018 35,823 ¥ 56.33 $0.49Effect of dilutive securities:

Convertible bonds 1 6,376Diluted EPS:

Net income for computation ¥2,019 42,199 ¥ 47.83 $0.41

FFoorr tthhee yyeeaarr eennddeedd 2200tthh SSeepptteemmbbeerr,, 22000066::Basic EPS:

Net income available to common shareholders ¥1,507 35,823 ¥ 42.08Effect of dilutive securities:

Convertible bonds 1 6,376Diluted EPS:

Net income for computation ¥1,508 42,199 ¥ 35.74

15. SUBSEQUENT EVENTS

a. Issuance of New SharesOn 2nd October, 2007, the Company decided to offer 5,500,000 new shares of common stock in public offering. Issue price ofcommon stock was ¥1,103.95 ($9.52) per share and total issue amount of common stock was ¥6,072 million ($52,345 thousand).As a result of the issuance of new shares, common stock of the Company increased to ¥7,319 million ($63,095 thousand) andcapital surplus of the Company increased to ¥6,809 million ($58,698 thousand) as of 24th October, 2007. The Companyintends to use the proceeds from the offering primarily for developing new computer systems.

b. Appropriations of Retained EarningsThe following appropriation of retained earnings at 20th September, 2007 was approved at the Company’s shareholdersmeeting held on 7th December, 2007:


Year-end cash dividends, ¥36 ($0.31) per share ¥1,290 $11,121

16. SEGMENT INFORMATION

(1) Industry SegmentsInformation about industry segments for the years ended 20th September, 2007 and 2006 is as follows:

a. Sales and Operating IncomeMillions of Yen

2007Health Eliminations/

Cosmetics Pharmaceuticals Foods Other Corporate Consolidated

Sales to customers ¥37,982 ¥7,624 ¥9,227 ¥4,519 ¥ — ¥59,352Intersegment sales — — — 138 (138) —

Total sales 37,982 7,624 9,227 4,657 (138) 59,352Operating expenses 31,700 8,120 9,542 4,520 1,601 55,483Operating income (loss) ¥ 6,282 ¥ (496) ¥ (315) ¥ 137 ¥(1,739) ¥ 3,869

40


b. Total Assets, Depreciation, Impairment Loss on Fixed Assets, and Capital ExpendituresMillions of Yen



Total assets ¥53,276 ¥13,359 ¥14,022 ¥2,454 ¥16,676 ¥99,787Depreciation 808 182 198 27 278 1,493Impairment loss on fixed assets 3 8 5 0 — 16Capital expenditures 1,530 200 261 43 60 2,094

a. Sales and Operating IncomeThousands of U.S. Dollars



Sales to customers $327,431 $65,724 $79,543 $38,957 $ — $511,655Intersegment sales — — — 1,190 (1,190) —

Total sales 327,431 65,724 79,543 40,147 (1,190) 511,655Operating expenses 273,276 70,000 82,258 38,965 13,802 478,301Operating income (loss) $ 54,155 $ (4,276) $ (2,715) $ 1,182 $(14,992) $ 33,354

b. Total Assets, Depreciation, Impairment Loss on Fixed Assets, and Capital ExpendituresThousands of U.S. Dollars



Total assets $459,276 $115,164 $120,879 $21,155 $143,759 $860,233Depreciation 6,965 1,569 1,707 233 2,397 12,871Impairment loss on fixed assets 26 69 43 0 — 138Capital expenditures 13,190 1,724 2,250 371 517 18,052

a. Sales and Operating IncomeMillions of Yen



Sales to customers ¥37,000 ¥7,762 ¥ 9,651 ¥4,932 ¥ — ¥59,345Intersegment sales — — — 135 (135) —

Total sales 37,000 7,762 9,651 5,067 (135) 59,345Operating expenses 30,946 7,965 10,075 4,946 1,555 55,487Operating income (loss) ¥ 6,054 ¥ (203) ¥ (424) ¥ 121 ¥(1,690) ¥ 3,858

b. Total Assets, Depreciation, Impairment Loss on Fixed Assets, and Capital ExpendituresMillions of Yen



Total assets ¥57,663 ¥13,335 ¥16,388 ¥2,381 ¥11,741 ¥101,508Depreciation 892 197 242 23 324 1,678Impairment loss on fixed assets 506 189 314 1 — 1,010Capital expenditures 673 45 79 14 656 1,467

(2) Geographical SegmentsUnder Japanese accounting regulations, the Group is not required to disclose geographical segment information because salesand total assets in Japan represented more than 90% of those of the Group for the periods presented herein.

(3) Sales to Foreign CustomersUnder Japanese accounting regulations, the Group is not required to disclose sales to foreign customers information becausesales to foreign customers represented less than 10% of those of the Group for the periods presented herein.

41


42

Issued Share Direct or IndirectCapital (millions Ownership by theof yen, except as Company

Name Location otherwise stated) (percent) Principal Business

Tokiwa Pharmaceutical 3-5-12 Azuchi-machi ¥4,301 100.00% Manufacture and sale of

Co., Ltd. Chuo-ku, Osaka 541-0052 pharmaceuticals, cosmetics

Japan and health food products

Bonanza Co., Ltd. 6-13-1 Minatojima-nakamachi ¥10 100.00 Contract manufacturing

Chuo-ku, Kobe 650-8521 and sales

Japan

Noevir Tourist Co., Ltd. 3-5-12 Azuchi-machi ¥100 100.00 General travel services

Chuo-ku, Osaka 541-0052

Japan

Noevir Aviation Co., Ltd. 2-12 Yao Airport ¥35 100.00 Air transportation business

Yao, Osaka 581-0043

Japan

Noevir Holding 1095 Southeast Main Street US$7,250 100.00 North American operations

of America, Inc. Irvine, California 92614 thousand

U.S.A.

Noevir U.S.A., Inc. 1095 Southeast Main Street US$5,900 100.00 Sale of cosmetics and

Irvine, California 92614 thousand nutritional supplements

U.S.A.

Noevir Canada, Inc. 7360 River Road C$1,132 100.00 Sale of cosmetics and

Richmond, British Columbia thousand nutritional supplements

V6X 1X6

Canada

Noevir Aviation, Inc. 200 West Grand Avenue US$1,350 100.00 Sale and lease of aircraft

Montvale, New Jersey 07645 thousand

U.S.A.

Noevir Taiwan, Inc. 8th Fl.-2 NT$31,000 90.32 Sale of cosmetics and

No.111 Songjiang Road thousand nutritional supplements

Jhongshan District

Taipei City 10486

Taiwan

Shanghai Noevir Co., Ltd. Room 2206, Feidiao 5,000 50.00 Sale of cosmetics

International Plaza thousand

No. 1065A Zhaojiabang Road Chinese yuan

Shanghai 200030

China

Noevir Shanghai, Inc. Room 802, No. 6 Jilong Road 3,311 100.00 Sale of promotional products

Waigaoqiao Free Trade Zone thousand

Shanghai 200131 Chinese yuan

China

Noevir Europe s.r.l. Via Tre Settembre, 99 (5º-#183) 26,000 100.00 Market research in Europe

47891 Dogana euro

Repubblica di San Marino

P R I N C I PA L C O N S O L I D A T E D S U B S I D I A R I E S

(As of September 20, 2007)

43


President & CEO(Representative Director)Hiroshi Okura

Vice President & COO(Representative Director)Takashi Okura

Vice PresidentHisashi Okura

Managing DirectorMasashi Akagawa

DirectorsYasuo Takizawa

Yasuo Kaiden

Takashi Oyama

Noboru Saito

Minoru Ito

Takashi Takehara

Hiroshi Anami

Ikkou Yoshida

Yoshihiro Kawaguchi

Standing Corporate AuditorYoshiharu Hayashi

Outside Corporate AuditorsShigeo Kojima

Masakazu Ueda

Date of Establishment:April 1964

Paid-in Capital:¥7,319 million (As of October 24, 2007)

Headquarters:• Ginza

7-6-15 Ginza, Chuo-ku

Tokyo 104-8208

Japan

• Roppongi

Izumi Garden Tower, 31st Floor,

1-6-1 Roppongi, Minato-ku

Tokyo 106-6031

Japan

Phone: +81-3-5561-6033

Fax: +81-3-5561-8616

Web site: http://www.noevir.co.jp

• Kobe

6-13-1 Minatojima-nakamachi

Chuo-ku, Kobe 650-8521, Japan

Securities Traded:Tokyo Stock Exchange 2nd Section

JASDAQ Securities Exchange

Forward-Looking Statements

Statements in this annual report with respect to Noevir’s plans, strategies, projected financial results, and beliefs as well as other statements that

are not historical facts, are forward-looking statements based on information currently available, and such statements involve risks and uncertainties

that could cause actual results to differ substantially from expectations.

Transfer Agent for Common Stock:The Chuo Mitsui Trust and Banking Co., Ltd.

3-33-1 Shiba, Minato-ku, Tokyo 105-8574, Japan

Postal Matter Address/Telephone Reference:The Chuo Mitsui Trust and Banking Co., Ltd. Stock Transfer Agency

Stock Transfer Agency Center

2-8-4 Izumi, Suginami-ku, Tokyo 168-0063, Japan

Phone: +81-3-3323-7111

Major ShareholdersNumber of Percentage of

Shares Held Total Shares IssuedName (thousands) (percent)

NII Co., Ltd.* 6,972 19.45%

Hiroshi Okura 4,739 13.22

Okura Kohsan, Ltd.* 4,491 12.53

Takashi Okura 3,699 10.32

Hisashi Okura 3,699 10.32

Mizuho Bank, Ltd. 1,076 3.00

Noevir Employees Shareholding Scheme 1,047 2.92

Sumitomo Mitsui Banking Corporation 900 2.51

Sumitomo Life Insurance Company 300 0.83

The Bank of Tokyo-Mitsubishi UFJ, Ltd. 300 0.83

Nihon Kolmar Co., Ltd. 300 0.83

Total 27,523 76.80

* Wholly owned by the Okura family.

B O A R D O F D I R E C T O R S

(As of December 7, 2007)

I N V E S T O R I N F O R M A T I O N

(As of September 20, 2007)

NOEVIR CO., LTD.IZUMI GARDEN TOWER, 31ST FLOOR

1-6-1 ROPPONGI, MINATO-KU

TOKYO 106-6031

JAPAN

PHONE: +81-3-5561-6033 FAX: +81-3-5561-8616

HTTP://WWW.NOEVIR.CO.JP

Printed in Japan on recycled paper.

annual report 20077 noevir annual report 2007 noevir co., ltd. — where beauty is science...

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