During the period under review, Tsugami Corporation (the “Company”) and its affiliates (the “Group”) continued to face a particularly challenging economy, as the downturn persisted from the second half of the previous fiscal year. Capital spending also remained weak.

In the machine tool industry, orders were sluggish in Japan, the United States, and Europe, although there were signs of a recovery in China and Southeast Asia. Overall, orders remained far below the level of a year ago.

In this environment, the Group developed operations with a focus on hard disk drive related products and on the Chinese market, which both benefited from greater demand. Nevertheless, consolidated net sales for the period declined 69.3% year on year, to 4,692 million yen, because of delays in deliveries and cancellations of some orders.

The Group posted a consolidated operating loss of 787 million yen, a consolidated ordinary loss of 1,010 million yen, and a consolidated net loss of 1,094 million yen, reflecting negative factors including declines in net sales and capacity utilization, and yen appreciation, despite our efforts to improve production efficiency and cut costs.

Owing to a loss that was larger than our initial projection, we were regrettably unable to pay any interim dividends.

We expect performance to improve in the second half, reflecting signs of a recovery in demand in China and Southeast Asia, and the impact of an increase in the operating rate of a subsidiary in China. However, since uncertainty over the outlook for the entire economy remains high, a year-end dividend is yet to be determined.

The Group remains committed to offering new products that fully meet customer requirements, while enriching the services it provides. Aiming to enhance customer satisfaction, we will devote all of our efforts to management, so that we can provide reliable products that our customers need. Meanwhile, we continue to aim for a business recovery by expanding sales, improving production efficiency, and cutting costs.

We respectfully ask for the continued support and encouragement of our shareholders.

December 2009
Takao Nishijima Chairman and CEO