English translation

March 8, 2013

Annual Report(January 1, 2012 through December 31, 2012)
1. Particulars regarding the status of SymBio Pharmaceuticals Limited(1) Course of operations and operating results
During the fiscal year under review, the Japanese economy was on a weak note due to theimpact of the prolonged appreciation of the yen, the slowdown in overseas economies triggeredby the European sovereign debt issue, and the worsened Japan-China relationship, although thereconstruction demand from the Great East Japan Earthquake and other factors continued tobolster the economy. More recently, signs of brightness started to emerge as the change ofgovernmental administration that took place in December 2012 spurred the depreciation of the
yen and caused stock prices to pick up. Nevertheless, the outlook remains opaque.
The pharmaceutical industry continued to face a severe business environment, especiallyfor manufacturers of new drugs, because of the NHI (National Health Insurance) drug pricerevision (implemented in April 2012) and the political measures to reduce medical expenses
including promotion of use of generic drugs.
Under these circumstances, the Company made the following progress in its business
operations.
1) Domestic[SyB L-0501 (the generic name: bendamustine hydrochloride, the trade name:TREAKISYM®)]
Since December 2010, the Company has been selling an anticancer drug SyB L-0501 in
Japan through the business partner Eisai Co., Ltd. (Eisai) for the indications ofrefractory/relapsed indolent non-Hodgkin’s lymphoma (NHL) and mantle cell lymphoma(MCL).
The Company has been engaged in development for four indications with TREAKISYM®.
For the Phase II clinical trials (collaborative trial in Japan and South Korea) of
refractory/relapsed aggressive non-Hodgkin’s lymphoma, the Company completed analysis andevaluation of the clinical trial data. However, based on the results of a pre-application meetingwith the Pharmaceuticals and Medical Devices Agency, we decided to suspend the application
for approval of the product we had planned to make in the fiscal year under review.
- 1 -The Phase II clinical trials were conducted at 25 facilities in total in Japan and South Korea
for the indication of pre-treated refractory/relapsed aggressive non-Hodgkin’s lymphoma, withthe aim of confirming the efficacy and safety of SyB L-0501 when co-administered withrituximab. Sixty-three patients were enrolled for the trials, and 59 cases were subject to analysis.
The trials showed high efficacy, resulting in a response rate of 62.7%, of which the complete
remission rate was high at 37.3%. Moreover, the median value of the progression free survival(PFS) period reached 200 days, indicating the possibility of improved prognosis for patients
suffering from refractory/relapsed non-Hodgkin’s lymphoma. The side effects were clinicallymanageable, and the drug proved to be applicable for the elderly.
Furthermore, detailed results of the trials were presented at the American Society of ClinicalOncology (ASCO), held in Chicago in June 2012, by Dr. Michinori Ogura of Japanese Red
Cross Nagoya Daini Hospital.
In addition, an outline of the results of the trials was presented by Dr. Kensei Tobinai of
National Cancer Center Hospital at the 74th Annual Meeting of the Japanese Society of
Hematology held in Kyoto in October 2012.
The Company will decide on the future development policy of the drug against thisindication through discussions with Eisai, our business partner.
For the Phase II clinical trials for the indications of untreated indolent non-Hodgkin’s
lymphoma and mantle cell lymphoma, we continued the enrollment of patients with the numberof enrolled patients reaching one patient remaining to the targeted number 67 as of the end of
December 2012.
As for the Phase II clinical trials for the indication of refractory/relapsed multiple myeloma,
the number of enrolled patients increased to 17, with the target number of patients being 44.
Moreover, we made preparations during the fiscal year for domestic Phase II clinical trials
for the indication of chronic lymphocytic leukemia, and our notification of the clinical trial plan
was accepted by the authority in December 2012. Furthermore, TREAKISYM® was
designated as an orphan drug (pharmaceutical for rare disease treatment) for the indication ofchronic lymphocytic leukemia in June 2012.
[SyB L-1101 (the intravenous form)/SyB C-1101 (the oral form) (the generic name:rigosertib)]
With regard to SyB L-1101, an anticancer drug, our notification of clinical trial plan fordomestic Phase I clinical trials for the indication of refractory/relapsed myelodysplastic
syndrome (MDS), a type of blood tumor, was accepted in March 2012. Subsequently, we
conducted the first patient enrollment in June 2012 and started the domestic Phase I clinical
trials.
As for SyB C-1101, the oral form, our notification of clinical trial plan for domestic Phase I- 2 -clinical trials for the indication of untreated myelodysplastic syndrome (MDS) was accepted in
December 2012.
Furthermore, Onconova Therapeutics, Inc. (United States), the licenser of the drugs,
announced a business tie-up with Baxter International Inc. (United States) for the European
market in September 2012.
The conclusion of this business tie-up should accelerate development and commercializationof rigosertib for the Western market, and allows expectations for a heightened possibility ofreceiving approval as early as possible in Japan and South Korea, where we have thedevelopment and commercialization rights, through the utilization of their clinical trial dataobtained abroad.
[SyB D-0701]
In October 2012, we completed the enrollment of patients for Phase II clinical trial of SyB
D-0701 (a transdermal antiemetic patch) for the indication of radiotherapy-induced nausea andvomiting.
2) Overseas
Sales of SyB L-0501 started in Taiwan in February 2012 through InnoPharmax Inc. (Taiwan),our business partner. The drug also sold largely as planned in Singapore and South Korea,
where we sell the product through Eisai, as we do in Japan.
3) Business results
As a result of the aforementioned developments, net sales totaled 1,955,178 thousand yen (ayear-on-year increase of 3.9%) for the fiscal year ended December 31, 2012, reflecting the salesof SyB L-0501 in Japan and Asian countries.
Selling, general and administrative expenses totaled 2,293,253 thousand yen (a year-on-year
decrease of 15.8%), including research and development (“R&D”) expenses of 1,438,125
thousand yen (a year-on-year decrease of 26.1%) for the accrual of expenses associated withthe clinical trials for multiple indications for SyB L-0501, clinical trials for SyB D-0701 andclinical trials for SyB L-1101, among other things, as well as other selling, general andadministrative expenses of 855,128 thousand yen (a year-on-year increase of 9.6%).
As a result, we posted operating loss of 1,700,273 thousand yen for the fiscal year ended (incontrast to operating loss of 2,066,846 thousand yen for the previous fiscal year). In addition,
recording of totaling 36,516 thousand yen as non-operating expenses, primarily comprisingforeign exchange losses and bond-issue expenses, and other factors led to ordinary loss of
1,729,480 thousand yen (ordinary loss of 2,095,382 thousand yen for the previous fiscal year)
and net loss of 1,733,320 thousand yen (net loss of 2,104,513 thousand yen for the previous- 3 -fiscal year).
Furthermore, segment information is omitted since the Company operates a single segmentof pharmaceutical business including research and development of pharmaceutical drugs aswell as manufacturing, marketing and other related activities.
(2) Status of fund procurement, etc.
1) Fund procurement
The Company made a resolution on December 27, 2012 to issue the 1st unsecured
convertible bond with stock acquisition rights (total issue price: 1 billion yen) with Whiz
Healthcare PE Series 1 Investment Limited Liability Partnership as the allottee and the 29th
warrant (total issue price: 5.1 million yen, total issue price of stocks when issued throughexercising the stock acquisition rights: 500 million yen), with the aim of accelerating
development of new drug candidates and further reinforce the pipeline. Accordingly, Whiz
Healthcare PE Series 1 Investment Limited Liability Partnership completed payment of
1,005,100 thousand yen to the Company on January 15, 2013.
Furthermore, the conversion of the 1st unsecured convertible bond with stock acquisitionrights (450,000 thousand yen) and the exercise of the 29th warrant (200,000 thousand yen),both conducted by January 31, 2013, brought the Company’s capital stock to 6,350,629
thousand yen, capital surplus to 6,320,629 thousand yen and the number of shares outstanding
to 21,151,465.
2) Capital expenditures
Capital expenditures for the fiscal year under review primarily consisted of installation
expenses of IT equipment and electric facilities associated with the establishment of a new antidisaster office, totaling 3,048 thousand yen. The capital expenditures were funded mainly bycash on hand.

- 4 -(3) Status of assets and profit and loss in the current fiscal year and the three preceding fiscal
years(Unit: Thousand yen, except for per-share figures)
Fiscal year

FY 2009
The 5th Term

FY 2010The 6th Term

FY 2011
The 7th Term

FY 2012The 8th Term(current)

Net sales

1,191,127

1,449,972

1,882,521

1,955,178

Operating loss

(208,027)(612,793)(2,066,846)(1,700,273)

Ordinary loss

(214,072)(638,375)(2,095,382)(1,729,480)

Net loss(217,872)(642,307)(2,104,513)(1,733,320)

Net loss per share (yen)(3,252.84)(5,933.47)(143.60)(90.60)Total assets

4,260,689

4,262,783

7,256,094

5,502,190

Net assets

4,053,758

4,083,064

6,605,564

4,899,957

Net assets per share (yen)40,275.39

36,541.74

345.28254.71

Classification

The Company conducted a 100-for-1 stock split effective on June 2, 2011.
(4) Issues to be solved
The Company will solve the following important issues:
1) Further expansion of pipeline
In order to enhance the enterprise value as a specialty pharmaceutical company, we need to
expand the pipeline through continual in-licensing of new candidate drugs for development.
Currently, we have four (4) products (SyB L-0501, SyB D-0701, SyB L-1101 and SyB C1101) in the pipeline. Going forward, we will continue our efforts to proactively in-license newdeveloped drugs for further expansion of the pipeline. Moreover, we have further evaluatedmultiple new drug candidates.
2) Pursuit of life cycle management of TREAKISYM® (SyB L-0501) and rigosertib (SyB L1101/C-1101)
In order to enhance the enterprise value, it is critical to maximize returns from eachdeveloped drug by adding new indications for respective developed drugs after their initialintroduction in pursuit of life cycle management.
TREAKISYM® has received the approval for manufacture and marketing with the approved
indications of refractory/relapsed indolent non-Hodgkin’s lymphoma and refractory/relapsed
mantle cell lymphoma. For additional indications, currently four clinical trials are underway.
Phase II clinical trials were completed for refractory/relapsed aggressive non-Hodgkin's- 5 -lymphoma and, as we were requested by the Pharmaceuticals and Medical Devices Agency at
the pre-application meeting to conduct additional trials, we continue discussion with the
Agency. Patient enrollment is under way for Phase II clinical trials for untreated indolent nonHodgkin's lymphoma, untreated mantle cell lymphoma and refractory/relapsed multiple
myeloma. Moreover, our notification of the clinical trial plan for Phase II clinical trials for theindication of chronic lymphocytic leukemia has been accepted, and we will work to enroll
patients for the trials.
With regard to rigosertib, development for the indication of refractory/relapsed
myelodysplastic syndrome (MDS) is under way, both for the intravenous form and the oral
form. Refractory/relapsed myelodysplastic syndrome (MDS) is one of the treatment areas thatcommand extremely strong healthcare needs due to lack of excellent drugs. Moreover, with
Phase II clinical trials for the indication of pancreatic cancer under way in the United States
conducted by Onconova Therapeutics, we plan to make a judgment as to the implementation of
the clinical trials in Japan by referring to the results of these trials.
We will add new indications in pursuit of life cycle management to maximize the businessvalue of TREAKISYM® and rigosertib.
3) Expansion to other Asian regions
SymBio positions China, South Korea, Taiwan, and Singapore as our important strategic
geographic domains in addition to Japan. In these areas, high growth in economy and medical
needs is expected and we consider that these areas will assume increasing importance in our
corporate strategy.
Among our pipelines, we plan to develop and market SyB L-0501 and SyB D-0701 in China,
South Korea, Taiwan, and Singapore as well as Japan. We also plan to develop and market SyB
L-1101/C-1101 in South Korea other than Japan and are currently making investigations as tothe application for approval in South Korea. We will aggressively launch clinical trials andapply for marketing approvals for these drugs in these Asian countries.
4) Securing people
SymBio places the highest priority on people as the company management resource. We
cannot make superior achievements in exploring and developing new drugs without talent. We
are continually engaged in recruiting talented people, and have hired excellent human resources
since listing in order to further reinforce the management organization in particular. We plan tofurther strengthen our human resources by providing development programs such as OJT andother trainings.

- 6 -5) Financial issue
The Company is required to raise funds to meet the needs of business activities such as R&D
expenditures externally as the pipeline development progresses and the number of drugcandidates increases.
Therefore, we make every effort to strengthen the financial base by continually diversifying
the method for fund procurement and reducing costs through tight budget control.

(5) Main contents of business (As of December 31, 2012)
The Company regards underserved therapeutic areas that lack the development of
new drugs despite extremely significant medical needs as business opportunities. We

engage in the development of new drugs focusing on the areas of oncology,
hematology, and autoimmune diseases, from search, development and manufacture tosales as the main contents of our business.
(6) Main offices and employees(i) Main offices (As of December 31, 2012)
Name

Location

Main office

Minato-ku, Tokyo(ii) Employees (As of December 31, 2012)
Classification

Number of
employees

Male

51

Female25

Total or average

76

Increase or(decrease) fromprevious fiscal
year end
5 increase

Average age(years)Average years ofservice

48.6

3.6

-

39.5

2.7

5 increase

45.6

3.3

(Notes) 1. Number of employees represents number of individuals in work.
2. Twelve temporary employees are not included in the above number of employees.

(7) Situation of parent company and significant subsidiaries
Not applicable.
(8) Situation of main lenders (As of December 31, 2012)
Not applicable.

- 7 -2. Matters related to stocks (As of December 31, 2012)(1) Total number of authorized shares
Common stock(2) Total number of shares outstanding

Common stock

56,000,000 shares
19,130,825 shares(Excluding 75 shares oftreasury stock)
4,533(3) Number of shareholders(4) Major shareholders (10 largest ones)
Name of shareholders

Number of shares held

Shareholding ratio

Fuminori Yoshida

3,030,000

15.8％

Cephalon, Inc.

2,589,000

13.5％

JAFCO V2 Investment LP

2,308,800

12.1％

Eisai Co., Ltd.

833,400

4.4％

T & S Co., Ltd.

729,100

3.8％

Waseda No.1 Investment LP

684,000

3.6％

Waseda Global No.1 Investment LP

500,000

2.6％

TNP On the Road No1. Investment LP

254,000

1.3％

DAIICHI SANKYO Co., Ltd.

200,000

1.0％

WERU Technology Venture Investment LP

196,800

1.0％(Note) The calculation of percent of issued shares excludes treasury stock from number ofshares outstanding.
3. Matters related to stock acquisition rights(1) Stock acquisition rights possessed by the Company’s Directors that were distributed ascompensation for services(i) Stock acquisition rights granted by the resolution of the Extraordinary General Meeting of
Shareholders held on June 20, 2005 (The 1st series of stock acquisition rights)(As of December 31, 2012)- Number of stock acquisition rights
3,510- Number of shares to be issued upon exercise 351,000of stock acquisition rights- Amount paid for stock acquisition rights
Free of charge- Price of assets invested in the exercise of
500 yenstock acquisition rights

- 8 -

-

Period during which stock acquisition rights
may be exercised
Status of possession by the Company’s
Directors and Audit & Supervisory Board
Members
Number of stockacquisition rights

From June 21, 2007
To June 20, 2015

Number of shares

Number of holders

Directors (excluding
Outside Directors)

900

90,0001

Outside Directors

500

50,0002

Audit & Supervisory
Board Members

-

-

-

(ii) Stock acquisition rights granted by the resolution of the Ordinary General Meeting of
Shareholders held on March 30, 2010 (The 20th series of stock acquisition rights)(As of December 31, 2012)- Number of stock acquisition rights
3,610- Number of shares to be issued upon exercise 361,000of stock acquisition rights- Amount paid for stock acquisition rights
Free of charge- Price of assets invested in the exercise of
600 yenstock acquisition rights- Period during which stock acquisition rights From April 1, 2012
may be exercised
To March 31, 2020
- Status of possession by the Company’s
Directors and Audit & Supervisory Board
Members- 9 -Number of stockacquisition rights

Number of subject
sharesNumber of holders

Directors (excluding
Outside Directors)

2,130

213,000

2

Outside Directors

600

60,0002

Audit & Supervisory
Board Members

-

-

-

(iii) Stock acquisition rights granted by the resolution of the Ordinary General Meeting of
Shareholders held on March 30, 2010 (The 22nd series of stock acquisition rights)(As of December 31, 2012)- Number of stock acquisition rights
1,530- Number of shares to be issued upon exercise 153,000of stock acquisition rights- Amount paid for stock acquisition rights
Free of charge- Price of assets invested in the exercise of
600 yenstock acquisition rights- Period during which stock acquisition rights From April 1, 2012
may be exercised
To
March 31, 2020
- Status of possession by the Company’s Directors and Audit & Supervisory Board
Members

Directors (excluding
Outside Directors)

Number of stockacquisition rights

Number of subject
sharesNumber of holders

-

-

-

Outside Directors
Audit & Supervisory
Board Members

200-

20,000-- 10 -

1-

(iv) Stock acquisition rights granted by the resolution of the Ordinary General Meetingof Shareholders held on March 30, 2011 (The 24th series of stock acquisitionrights)(As of December 31, 2012)-

Number of stock acquisition rights
Number of shares to be issued upon exerciseof stock acquisition rights
Amount paid for stock acquisition rights
Price of assets invested in the exercise ofstock acquisition rights
Period during which stock acquisition rights
may be exercised
Status of possession by the Company’s
Directors and Audit & Supervisory Board
Members
Number of stockacquisition rights

1,920
192,000
Free of charge
700 yenFrom March 31, 2013
To March 30, 2021

Number of subject
sharesNumber of holders

Directors (excluding
Outside Directors)

1,420

142,000

2

Outside Directors

300

30,0002

Audit & Supervisory
Board Members

-

-

-

(v) Stock acquisition rights granted by the resolution of the Ordinary General Meeting of
Shareholders held on March 29, 2012 (The 26th series of stock acquisition rights)(As of December 31, 2012)-

Number of stock acquisition rights
Number of shares to be issued upon exerciseof stock acquisition rights
Amount paid for stock acquisition rights
Price of assets invested in the exercise ofstock acquisition rights
Period during which stock acquisition rights
may be exercised- 11 -

3,625
362,500
Free of charge
570 yenFrom April 18, 2014
To April 17, 2022

Status of possession by the Company’s Directors and Audit & Supervisory Board Members
Number of stockacquisition rights

Number of subject
sharesNumber of holders

Directors (excluding
Outside Directors)

3,000

300,000

2

Outside Directors

625

62,5002

Audit & Supervisory
Board Members

-

-

-

(2) Stock acquisition rights distributed to the Company’s employees as compensation forservices during the current fiscal year(i) Stock acquisition rights granted by the resolution of the Ordinary General Meeting of
Shareholders held on March 29, 2012 (The 27th series of stock acquisition rights)-Number of stock acquisition rights

4,307-Number of shares to be issued upon exerciseof stock acquisition rights

430,700-Amount paid for stock acquisition rights

Free of charge-Price of assets invested in the exercise ofstock acquisition rights

570 yen-Period during which stock acquisition rights
may be exercised

From
To

-Conditions for the exerciseof stock acquisition rights

April 18, 2014
April 17, 2022

(i) Fraction less than one unit of a stock acquisitionright shall be un-exercisable.
(ii) Those who were granted the right may exercise allor part of the rights in accordance with thefollowing classifications:a) Those who were granted the stock acquisitionrights may exercise the rights within the limit of
one-fourth (1/4) from April 18, 2014 to April 17,2015.
b) Those who were granted the stock acquisitionrights may exercise the rights within the limit of
one-half (1/2) from April 18, 2015 to April 17,2016.

- 12 -

c)Those who were granted the stock acquisitionrights may exercise the rights within the limit ofthree-fourths (3/4) from April 18, 2016 to April
17, 2017.
d)Those who were granted the stock acquisitionrights may exercise all the rights from April 18,
2017 to April 17, 2022.
(iii) Those who received the allotment of the stockacquisition rights (hereinafter the “Person
Granted”) must be in a status of the Director,
Audit & Supervisory Board Member or
employee of the Company or its affiliates at thetime of exercise. However, this is not necessarily
the cases where;a)The Person Granted is the Director or Audit &Supervisory Board Member of the Company or
its affiliates and retires due to the expiry ofher/his term.
b)The Person Granted is the employee of theCompany or its affiliates and retires due to thecompulsory retirement.
c)The Person Granted is the Director, Audit &Supervisory Board Member or employee of theCompany or its affiliates and the Board of
Directors resolves that he/she resigns or retires
with honorable recognition.
(iv)The Person Granted shall exercise the rights
starting from the date of resolution by the belowmentioned Shareholders’ meeting or the Board of
Directors’ meeting until one day before theeffective date of the Organizational Restructuring
as followed, regardless the conditions of exercise
period originally stipulated, when the
Organizational Restructuring are approved by the
resolution of the Company’s Shareholders’meeting (including the case where resolution of a

- 13 -

Shareholders’ meeting is deemed to exist pursuant
to the provision of Article 319 of the CompaniesAct) or the Board of Directors’ meeting (limited tothe case where no Shareholders’ meeting isrequired for the said Organizational Restructuring)
before the exercise period (hereinafter the“Exercise Period”) of the stock acquisition rights
comes into effect: an absorption-type merger or an
incorporation-type merger where the Company
becomes a dissolving company and an absorptiontype split or an incorporation-type company split
where the Company becomes a split company or ashare exchange or a share transfer where theCompany becomes a wholly-owned subsidiary(collectively, “Organizational Restructuring” asmentioned above).
(v) In the event where;a)The Person Granted died before the Exercise
Period comes into effect, the inheritor shall
exercise the rights of up to one-half (1/2), orb)The Person Granted died during the Exercise
Period, the inheritor shall exercise all the rights
within six months from the commencement ofinheritance.
However, in the event that the inheritor died, therights shall be discarded and shall not be
exercised by his/her inheritor.
(vi)The stock acquisition rights shall not be offered forpledge or disposed of in any other way.
-Status of allotment to the Company’s employees
Number of stockacquisition rights
Employees of theCompany

4,307 (Note)

Number of subject
sharesnumber of employees
allotted

430,700 (Note)

70(Note) 1. Of the stock acquisition rights mentioned above, 293 units (29,300 shares) had been forfeited due tothe retirement of employees.

- 14 -

(ii) Stock acquisition rights granted by the resolution of the Ordinary General Meeting of
Shareholders held on March 29, 2012 (The 28th series of stock acquisition rights)-Number of stock acquisition rights

165-Number of shares to be issued upon exerciseof stock acquisition rights

16,500-Amount paid for stock acquisition rights

Free of charge-Price of assets invested in the exercise ofstock acquisition rights

570 yen-Period during which stock acquisition rights
may be exercised

From
To

-Conditions for the exerciseof stock acquisition rights

September 14, 2014
September 13, 2022

(i) Fraction less than one unit of a stock acquisitionright shall be un-exercisable.
(ii) Those who were granted the right may exercise allor part of the rights in accordance with thefollowing classifications:a) Those who were granted the stock acquisitionrights may exercise the rights within the limitof one-fourth (1/4) from September 14, 2014 toSeptember 13, 2015.
b) Those who were granted the stock acquisitionrights may exercise the rights within the limitof one-half (1/2) from September 14, 2015 to
September 13, 2016.
c) Those who were granted the stock acquisitionrights may exercise the rights within the limitof three-fourths (3/4) from September 14, 2016
to September 13, 2017.
d) Those who were granted the stock acquisitionrights may exercise all the rights from
September 14, 2017 to September 13, 2022.
(iii) Those who received the allotment of the stockacquisition rights (hereinafter the “Person
Granted”) must be in a status of the Director, Audit& Supervisory Board Member or employee of the- 15 -

Company or its affiliates at the time of exercise.
However, this is not necessarily the cases where;a) The Person Granted is the Director or Audit &Supervisory Board Member of the Company or
its affiliates and retires due to the expiry ofher/his term.
b) The Person Granted is the employee of theCompany or its affiliates and retires due to thecompulsory retirement.
c) The Person Granted is the Director, Audit &Supervisory Board Member or employee of theCompany or its affiliates and the Board of
Directors resolves that he/she resigns or retires
with honorable recognition.
(iv) The Person Granted shall exercise the rights
starting from the date of resolution by the belowmentioned Shareholders’ meeting or the Board of
Directors’ meeting until one day before theeffective date of the Organizational Restructuring
as followed, regardless the conditions of Exercise
Period originally stipulated, when the
Organizational Restructuring are approved by the
resolution of the Company’s Shareholders’meeting (including the case where resolution of a
Shareholders’ meeting is deemed to exist pursuant
to the provision of Article 319 of the CompaniesAct) or the Board of Directors’ meeting (limited tothe case where no Shareholders’ meeting isrequired for the said Organizational Restructuring)
before the exercise period (hereinafter the“Exercise Period”) of the stock acquisition rights
comes into effect: an absorption-type merger or an
incorporation-type merger where the Company
becomes a dissolving company and an absorptiontype split or an incorporation-type company split
where the Company becomes a split company or ashare exchange or a share transfer where the- 16 -

Company becomes a wholly-owned subsidiary(collectively “Organizational Restructuring” asmentioned above).
(v) In the event where;a)The Person Granted died before the Exercise
Period comes into effect, the inheritor shall
exercise the rights of up to one-half (1/2), orb)The Person Granted died during the Exercise
Period, the inheritor shall exercise all the rights
within six months from the commencement ofinheritance.
However, in the event that the inheritor died, therights shall be discarded and shall not be exercisedby his/her inheritor.
(vi)The stock acquisition rights shall not be offered forpledge or disposed of in any other way.
-Status of allotment to the Company’s
employees
Number of stockacquisition rights
Employees of theCompany

165

Number of subject
sharesnumber of employees
allotted

16,5005(3) Other important matters concerning stock acquisition rights
No stock acquisition rights were allotted to external collaborators during the current
fiscal year.

- 17 -

4. The Company’s Executives (As of December 31, 2012)(1) Name and primary matters of Directors and Audit & Supervisory Board Members
Status in the Company

Responsibility and significant concurrent
position

Name

Representative
Fuminori Yoshida
Director and President

Chief Executive Officer

Director

Hiroki Maekawa

Senior Corporate Officer
Chief Financial Officer

Director

Takako Ebata

Director

Lowell Sears

Sears Capital Management Inc.
Chief Executive Officer

Director

George Morstyn

G & R Morstyn Pty Ltd.
Chief Executive Officer

Full-time Audit &Supervisory Board
MemberAudit & Supervisory
Board Member
Audit & Supervisory
Board Member

Koshi Ohizumi
Saneaki Ichijyo
Chikara Shimazaki

Attorney (Partner, Anderson, Mori &Tomotsune)
Certified Public Accountant(Representative, Shimazaki accounting
office)(Note) 1. Of the Directors, Takako Ebata, Lowell Sears and George Morstyn are Outside Directors.
2. Koshi Ohizumi, Saneaki Ichijyo and Chikara Shimazaki are outside members of Audit & Supervisory
Board.
3. Chikara Shimazaki, an outside member of Audit & Supervisory Board, is the independent officer who
does not have the potential to cause conflict of interests against general shareholders, the position that
Osaka Securities Exchange requires us to appoint.
4. Full-time Audit & Supervisory Board Member Koshi Ohizumi experienced accounting work for years
and has high insight on finance and accounting.
5. Audit & Supervisory Board Member Saneaki Ichijyo is an attorney and has high insight on corporate
legal affairs.
6. Audit & Supervisory Board Member Chikara Shimazaki is a Certified Public Accountant and has highinsight on finance and accounting.
7. Changes in Directors and Audit & Supervisory Board Members during the current fiscal year are as
follows:- Audit & Supervisory Board Member Masahiko Goto resigned at the closing of the 7th Ordinary
General Meeting of Shareholders held on March 29, 2012.
- Takako Ebata was newly appointed and took office as a Director at the 7th Ordinary General Meetingof Shareholders held on March 29, 2012.
-Director Osamu Ogawa resigned on July 31, 2012. His position at the Company was Senior Corporate
Officer, Head of Research & Development Division.
8. The Company adopts the corporate officer system. The Corporate Officers who do not holdconcurrent position as Director are as follows:
Corporate Officer
Masataka Ohta
Corporate Officer
Qin Albert- 18 -

(2) Total amount of compensation to Directors and Audit & Supervisory Board Members
Status in the
Company

Number of persons paid

Amount paid (Thousand yen)

Directors

6(Outside) 3

85,829(Outside) 14,413

Audit &
Supervisory Board
Members

4(Outside) 4

20,279(Outside) 20,279

Total

10
(Outside) 7

106,108(Outside) 34,692(Note) 1. Salary for employee in the event of a Director doubling as employee is not included in the above
amount paid to Directors.
2. The maximum amount of Directors’ compensation has been resolved as the annual amount of
130,000,000 yen at the Extraordinary General Meeting of Shareholders held on August 3, 2005.
Besides, in addition to aforementioned compensation, it was resolved that stock acquisition rights
would be granted within the maximum amount of 130,000,000 yen (of which, 21,000,000 yen to
Outside Directors) as compensations stipulated in Article 361, Section 1 of Companies Act at the 7th
Ordinary General Meeting of Shareholders held on March 29, 2012.
3. The maximum amount of compensation for Audit & Supervisory Board Members has been resolved
as the annual amount of 30,000,000 yen at the Extraordinary General Meeting of Shareholders heldon June 30, 2011.
4. The number of persons paid stated above includes one Director who resigned on July 31, 2012 andone Audit and Supervisory Board Member who resigned at the closing of the 7th Ordinary General
Meeting of Shareholders held on March 29, 2012.
5. The total compensation amount paid includes expenses (four (4) Directors 14,559 thousand yen) in
connection with stock acquisition rights as stock options for the current fiscal year.

(3) Matters concerning Outside Directors(i) Director: Takako Ebata
a. Status of concurrent positions of executives at other companies and relationshipbetween such companies and the Company
Not applicable.
b. Status of concurrent positions of Outside Director at other companies and relationshipbetween such company and the Company
Not applicable.
c. Relationship with particular related companies, such as main customers
Not applicable.
d. Situation of main activities during the fiscal year reported
The rate of attendance at the Board of Directors meetings was 86.7%
e. Summary of contents of liability limitation agreement
An agreement has been executed setting forth with respect to the responsibility in- 19 -

Companies Act Article 423 (1) that in the event that it is with good intentions andthere is no gross negligence in such Outside Director's performance of his duties,
higher of the amount of 1,000,000 yen or above legally set forth in advance or theamount set forth in laws and ordinances at the maximum shall be borne.
f. Amount of compensation received from the parent of the Company or its subsidiaries
Not applicable.
(ii) Director: Lowell Sears
a. Status of concurrent positions of executives at other companies and relationshipbetween such companies and the Company
He holds a concurrent position of Chief Executive Officer at Sears CapitalManagement Inc.
There is no business transaction between the above company and the Company.
b. Status of concurrent positions of Outside Director at other companies and relationshipbetween such companies and the Company
He holds a concurrent position of outside auditor at Cellerant Therapeutics, Inc.
There is no business transaction between the above company and the Company.
c. Relationship with particular related companies, such as main customers
Not applicable.
d. Situation of main activities during the current fiscal year
The rate of attendance at Board of Directors’ meetings was 100.0%
e. Summary of contents of liability limitation agreement
An agreement has been executed setting forth with respect to the responsibility in
Companies Act Article 423 (1) that in the event that it is with good intentions andthere is no gross negligence in such Outside Director's performance of his duties,
higher of the amount of 1,000,000 yen or above legally set forth in advance or theamount set forth in laws and ordinances at the maximum shall be borne.
f. Amount of compensation received from the parent of the Company or its subsidiaries
Not applicable.
(iii) Director: George Morstyn
a. Status of concurrent positions of executives at other companies and relationshipbetween such companies and the Company
He holds a concurrent position of Chief Executive Officer at G & R Morstyn Pty
Ltd.
There is no business transaction between the above company and the Company.
b. Status of concurrent positions of Outside Director at other companies and relationship- 20 -

between such companies and the Company
He holds concurrent positions of Outside Director at GBS Ventures Partners Pty
Ltd., Proacta, Cooperative Research Centre for Cancer Therapeutics andTherapeutics Innovation. He also holds concurrent positions at The VictorianComprehensive Cancer Centre (Deputy Chairman of Board). There is no business
transaction between the above companies and the Company.
c. Relationship with particular related companies, such as main customers
Not applicable.
d. Situation of main activities during the current fiscal year
The rate of attendance at Board of Directors meetings was 78.9%
e. Summary of contents of liability limitation agreement
An agreement has been executed setting forth with respect to the responsibility in
Companies Act Article 423 (1) that in the event that it is with good intentions andthere is no gross negligence in such Outside Director's performance of his duties,
higher of the amount of 1,000,000 yen or above legally set forth in advance or theamount set forth in laws and ordinances at the maximum shall be borne.
f. Amount of compensation received from the parent of the Company or its subsidiaries
Not applicable.
(iv) Full-time Audit & Supervisory Board Member: Koshi Ohizumi
a. Status of concurrent positions of executives at other companies and relationshipbetween such companies and the Company
Not applicable.
b. Status of concurrent positions of Outside Director at other companies and relationshipbetween such companies and the Company
Not applicable.
c. Relationship with particular related companies, such as main customers
Not applicable.
d. Situation of main activities during the current fiscal year
(1) Situation of attendance at the Board of Directors meetings
The rate of attendance at the Board of Directors meetings was 100.0%(2) Situation of attendance at the Audit & Supervisory Board meetings
The rate of attendance at the Audit & Supervisory Board meetings was 100.0%.
e. Summary of contents of liability limitation agreement
An agreement has been executed setting forth with respect to the responsibility in
Companies Act Article 423 (1) that in the event that it is with good intentions andthere is no gross negligence in such outside auditor’s performance of his duties,- 21 -

higher of the amount of 1,000,000 yen or above legally set forth in advance or theamount set forth in laws and ordinances at the maximum shall be borne.
f. Amount of compensation received from the parent of the Company or its subsidiaries
Not applicable.
(v) Audit & Supervisory Board Member: Saneaki Ichijyoa. Status of concurrent positions of executives at other companies and relationshipbetween such companies and the Company
Not applicable.
b. Status of concurrent positions of Outside Director at other companies and relationshipbetween such companies and the Company
He holds concurrent positions of Supervisory Director at Nomura Real Estate
Office Fund, Inc.
There is no business transaction between the above company and the Company.
c. Relationship with particular related companies, such as main customers
Not applicable.
d. Situation of main activities during the current fiscal year
(1) Situation of attendance at the Board of Directors meetings
The rate of attendance at the Board of Directors meetings was 94.7%(2) Situation of attendance at the Audit & Supervisory Board meetings
The rate of attendance at the Audit & Supervisory Board meetings was 100.0%.
e. Summary of contents of liability limitation agreement
An agreement has been executed setting forth with respect to the responsibility in
Companies Act Article 423 (1) that in the event that it is with good intentions andthere is no gross negligence in such outside auditor’s performance of his duties,
higher of the amount of 1,000,000 yen or above legally set forth in advance or theamount set forth in laws and ordinances at the maximum shall be borne.
f. Amount of compensation received from the parent of the Company or its subsidiaries
Not applicable.
(vi) Audit & Supervisory Board Member: Chikara Shimazaki
a. Status of concurrent positions of executives at other companies and relationshipbetween such companies and the Company
Not applicable.
b. Status of concurrent positions of Outside Director at other companies and relationshipbetween such companies and the Company
Not applicable.
- 22 -

c. Relationship with particular related companies, such as main customers
Not applicable.
d. Situation of main activities during the current fiscal year
(1) Situation of attendance at the Board of Directors meetings
The rate of attendance at the Board of Directors meetings was 100.0%(2) Situation of attendance at the Audit & Supervisory Board meetings
The rate of attendance at the Audit & Supervisory Board meetings was 100.0%.
e. Summary of contents of liability limitation agreement
An agreement has been executed setting forth with respect to the responsibility in
Companies Act Article 423 (1) that in the event that it is with good intentions andthere is no gross negligence in such outside auditor’s performance of his duties,
higher of the amount of 1,000,000 yen or above legally set forth in advance or theamount set forth in laws and ordinances at the maximum shall be borne.
f. Amount of compensation received from the parent of the Company or its subsidiaries
Not applicable.
Each Outside Director appropriately advised and raised questions regarding resolutions
and reports by Board of Directors based on high personal insight of businessadministration, and from a standpoint that was independent from business operations.
Each member of Audit & Supervisory Board appropriately raised questions to fulfill thefunction of management monitor for resolutions and reports by Board of Directors basedon high personal insight of business administration from an independent and neutral
standpoint, and aggressively raised questions and expressed opinions regarding resolutions
and reports by Audit & Supervisory Board in order to execute highly effective audits.
5. Situation of accounting auditor(1) Name of accounting auditor

Ernst & Young ShinNihon LLC(2) Summary of contents of liability limitation agreement
Not applicable.
(3) Amount of compensation
Amount paid
Amount of compensation to accounting auditor concerning thecurrent fiscal year
Amount of compensation pertaining to services set forth in Certified- 23 -

13,000,000 yen

Public Accountants Act Article 2 (1)The total amount of cash and property benefit to be paid by theCompany to the accounting auditor

13,000,000 yen(Note) 1. The amounts of compensations for the audits conducted in accordance with
Companies Act and the audits conducted in accordance with Financial Instruments andExchange Act are not distinguished in the contract agreement between the Company andthe accounting auditor. It is practically impossible to distinguish the compensations forthese two types of audits; therefore the total amount thereof is stated.
2. The Company does not engage the accounting auditor to perform duties other than
auditing stipulated by Certified Public Accountants Act Article 2 (1).
(4) Policies for dismissal or non-reappointment of accounting auditor
The Company shall propose an agenda regarding the dismissal or the non-reappointmentof the accounting auditor to Shareholders’ Meeting, by an agreement of or a request by
Audit & Supervisory Board, in general, if it is deemed to be difficult for the accounting
auditor to execute its duties adequately as well as the dismissal of the accounting auditor
by Audit & Supervisory Board in accordance with Companies Act Article 340.
6. Summary of contents of resolutions concerning the establishment of system to ensure
appropriate operations(1) Corporate system to ensure that Directors, other officers and employees comply withlaws and ordinances as well as the Articles of Incorporation in the process of
performing their duties(i) The Company has its Representative Director and President to make thoroughly known
to all of its Directors, Audit & Supervisory Board members, and employees(including contract employees, temporary employees and subcontract employees) its
policy that any and all corporate activities should be based on the spirit of compliancewith laws and maintenance of ethics (hereinafter the "Compliance") by repeatedly
urging them to abide by the spirit of the Corporate Action Charter.
(ii) The Company promotes the activities for Compliance with a compliance committee
composed of the senior manager in charge of corporate division as the chairman
thereof and the head or senior managers of relevant departments as members thereof
to act as the center of such activities.
(iii) The Company makes efforts to find and cure any and all unfair acts and practices as
early as possible through a compliance hot-line permanently installed outside the- 24 -

Company. The Company also receives consultation from its employees with regard toCompliance-related problems through its liaison window permanently installed
within the Company for the purpose of receiving such consultation.
(iv) The Company has its own internal audit office to act under the direct control of
President, which not only verifies the condition of maintenance and operation ofinternal control from the viewpoint of effectiveness and efficiency of business,reliability of various financial reports and Compliance for the purpose ofguaranteeing the quality of corporate management, but also makes evaluation andgives necessary advice and suggestion for improvement with regard to theappropriateness and effectiveness of corporate risk management.
(v) The Company actively engages in community service activities and any other activities
deemed to be beneficial to society as a good corporate citizen. The Company also
resolutely opposes antisocial forces and organizations that threaten the order or safetyof society as a whole.
(2) Corporate system for maintenance and control of information as to the performance byDirectors of their duties
The Company has the head of general affairs as the person responsible for generalmanagement of corporate documents to appropriately maintain and otherwise control
all important documents containing information as to the performance by Directors of
their duties in addition to legally required records of proceedings of Shareholders'Meetings and Board of Directors’ meetings, as provided in laws and ordinances, aswell as in its own " Rules for the Management of Documents".
(3) Corporate system for control of risk of loss, including in-house rules for such control
The Company performs the business of risk control under its basic policy and related
rules for such risk control. Usually the Company's permanent risk-management
committee, which is chaired by Representative Director and President, keeps anorganizationally traversing watch on the condition of risk control, and takes
appropriate measures on a whole-company basis, if necessary. In case of emergency,
the Company will temporarily set up its headquarters for such case with its
Representative Director and President to act as the chairman thereof, and takenecessary measures in accordance with decisions made by such headquarters.
(4) Corporate system to ensure the efficient performance by Directors of their duties(i) Directors, other officers and employees perform their duties as provided in theprocedural rules for appropriate decision-making under the "Rules for the Board of- 25 -

Directors" and "Rules for the Internal Approvals" and other similar regulations.
(ii) The Company regularly holds the executive management committee as provided in the“Rules for the Executive Management Committee” for the purpose to assist the soundand appropriate decision by the Representative Director and President.
(iii) The Company develops its long-term business plan, and operates and expands its
business in accordance with such long-term plan. The Company also predetermines
numerical targets for each business year for inclusion in such long-term plan, andconducts the evaluation of business results and the control of budgets in comparison
with such numerical targets. The Company reports to Board of Directors every monthon the state of achievement of such numerical targets.
(5) Corporate system for the control of the assistant of Audit & Supervisory Board Members
appointed at the request of such Members(i) The Company at present has no employee to act as an assistant of Audit & Supervisory
Board Member. The Audit & Supervisory Board Member, however, may require theRepresentative Director and President to appoint such assistant, and if and when so
required, the Representative Director and President shall appoint such assistant as far
as deemed necessary.
(ii) Any employee shall, if and when he/she is ordered by the Audit & Supervisory Board
Member to perform audit-related tasks, not receive any instruction or direction fromthe Director in charge, the internal audit section or any other similar section withregard to such order as is received from the Audit & Supervisory Board Member.
(iii)-1 Audit & Supervisory Board gives any and all job-executing Directors andemployees with significant responsibilities an opportunity of hearing individuallyfrom such Directors and employees with regard to jobs in their charge respectively.
(iii)-2 Any Director or other executive officer shall, if and when he/she finds any factwhich threatens to cause any remarkable damage or adverse influence to theCompany, promptly inform the Audit & Supervisory Board Member thereof.
(iii)-3 Audit & Supervisory Board Members may attend the Board of Directors’ meetings,
the executive management committee and other important meetings for the purposeof grasping the process of important decision-making and the condition of businessexecution.
(iv) Audit & Supervisory Board holds meetings for mutual exchange of views andopinions with the Representative Director and President and independent auditors
respectively.

- 26 -

Balance Sheet(As of December 31, 2012)(Unit: Thousand yen)

Item
(Assets)
Current assets
Cash and deposits
Accounts receivable-tradeMarketable securities
Merchandise and finished
goods
Storage
Prepaid expenses
Advances paid
Consumption taxes
receivable
Forward exchange contract
Other

AmountItem

Amount5,420,623
4,540,022
148,081300,000(Liabilities)
Current liabilities
Accounts payable-trade
Lease obligations
Accounts payable-other598,527
329,768
673
195,833

164,571

Income taxes payable

15,588320
98,192
99,036

Other

56,66239,495

Noncurrent liabilities

21,385

Lease obligations
Provision for retirement
benefits

9,517

Total liabilities
Noncurrent assets
Property, plant and equipment
Buildings
Tools, furniture and fixtures(Accumulated depreciation)
Intangible assets
SoftwareLease assets

81,567
13,721
7,705
33,921(27,905)
10,8648,324
2,540

Investments and other assets

56,980Long-term prepaid expenses
Lease and guarantee
deposits

27,64629,334(Net assets)
Shareholders’ equity
Capital stock
Capital surplus
Legal capital surplus
Retained earnings
Other retained earnings
Retained earnings
brought forward
Treasury stock
Subscription rights to shares
Total net assets

Total assets
5,502,190
Total liabilities and net assets(Note) Fractions less than one thousand yen have been omitted.

- 27 -

3,705
2,017
1,688
602,232

4,872,790
6,024,610
5,994,610
5,994,610(7,146,411)(7,146,411)(7,146,411)(17)
27,167
4,899,957
5,502,190

Income Statement
January 1, 2012
( toFrom
December 31, 2012 )(Unit: Thousand yen)

Item

AmountI. Net sales
II. Cost of sales

1,955,178
1,362,199

Gross profit
III. Selling, general and administrative
expenses592,979
2,293,253

Operating loss
IV. Non-operating income
Interest income
Interest on securities
Dividends income of insurance
Other

1,700,273
1,585
3,353
1,122
1,247

V. Non-operating expense
Interest expenses
Commission fee

137
10,829Bond-issue expenses
Foreign exchange losses
Other

9,473
15,755320

Ordinary loss
VI. Extraordinary loss
Loss on retirement of noncurrent
assets7,309

36,516
1,729,480

39

Loss before income tax

39
1,729,520

Income taxes – current

3,800

Net loss

3,800
1,733,320(Note) Fractions less than one thousand yen have been omitted.

- 28 -

Statement of Changes in Net Assets
January 1, 2012
( From)to December 31, 2012
(Unit: Thousand yen)
Shareholders’ equity
Capital surplus Retained earnings
Other retained

Capital stock Legal capitalearnings
surplusRetained earnings
brought forward
Balance as of January 1, 2012

6,024,610

5,994,610(5,413,091)

Total
Treasurystock shareholders’equity(17)

6,606,110

Amount of change during the fiscal
year
Net loss
Changes in items other thanshareholders’ equity during the
fiscal year (net amount)
Total amount of changes during the
fiscal year
Balance as of December 31, 2012

(1,733,320)(1,733,320)--(1,733,320)-(1,733,320)

6,024,610

5,994,610(7,146,411)(17)

4,872,790

Valuation and translation adjustments
Valuation difference
on available-for-salesecurities
Balance as of January 1, 2012

(546)

Subscription
Total net assets
rights to shares

Total
(546)

-

6,605,564

Amount of change during the fiscal
year
Net loss
Changes in items other thanshareholders’ equity during the
fiscal year (net amount)
Total amount of changes during the
fiscal year
Balance as of December 31, 2012

(1,733,320)
546

546

27,167

27,713546

546

27,167(1,705,606)--

27,167

4,899,957(Note) Fractions less than one thousand yen have been omitted.

- 29 -

Notes on Financial Statements(Significant accounting policies)(1) Valuation basis and method for assets
Marketable securities
Available-for-sale securities
Available-for-sale
Available-for-sale securities with a determinable market value
securities withare stated at fair value with any changes in unrealized holding
determinable market
gain or loss, net of applicable income taxes, included directly invalue
shareholders’ equity. Cost of securities sold is calculated by themoving average method.
Available-for-salesecurities without
determinable market
value
Derivative transactions
Inventories

Available-for-sale securities without determinable market
value are stated at cost determined by the moving averagemethod.
Derivative financial instruments are stated at fair value.
Inventories held for the purpose of ordinary sale are measured
at lower of cost determined by the weighted-average method or
net selling value.

(2) Depreciation of noncurrent assets
Property, plant and
By straight-line method
equipment
The useful lives of major assets are as follows:(excluding lease assets)
Building
2 to 18 years
Tools, furniture and fixtures
4 to 10 years
Intangible assets
By straight-line method(excluding lease assets)
Capitalized software costs are being amortized over the periodof the internal use of 5 years.
Lease assets
Depreciation is calculated on the straight-line method over thelease term with no residual value.
(3) Accounting for deferred assets
Bond-issue expenses are accounted for as expenses when incurred.

- 30 -

(4) Foreign currency translation
Monetary assets and liabilities denominated in foreign currencies are translated into yen at
the spot exchange rate prevailing at the balance sheet date, and resulting gains or losses
are credited or charged to income.
(5) Basis for reserves and provisions
Allowance for doubtful
The allowance for doubtful accounts is provided at an amountaccounts
determined based on the historical experience of bad debt withrespect to ordinary receivables and an estimate of uncollectible
amounts determined by reference to specific doubtfulreceivables from customers which are experiencing financial
difficulties.
As of December 31, 2012, no allowance for doubtful accounts
is provided due to no historical experience of bad debt and noreceivable balances that are deemed uncollectible.
Provision for retirement
The provision for retirement benefits is provided at an amountbenefits
to be required as of the balance sheet date.
(6) Accounting for consumption tax
Transactions are recorded at amounts exclusive of consumption tax.
(Change in presentation)(Income statement)
Dividends income of insurance that was previously included in other under non-operating
income is shown separately from the current fiscal year, considering the significant monetaryimpact to the financial statements.
(Additional information)(Adoption of Accounting Standards for Accounting Changes and Error Corrections)
Effective January 1, 2012, the Company applied the "Accounting Standard for Accounting
Changes and Error Corrections" (Accounting Standards Board of Japan (ASBJ) Statement
No. 24 issued on December 4, 2009) and the "Guidance on Accounting Standard for
Accounting Changes and Error Corrections" (ASBJ Guidance No. 24 issued on December 4,2009).
(Notes on balance sheet)
Not applicable.
- 31 -

(Notes on income statement)
R&D expenses included in general and administrative expenses

1,438,125 thousand yen(Notes on statement of changes in net assets)(1) Shares issued and outstanding / Treasury stock(Unit: Number of shares)

Commonstock

At the beginning of
the fiscal year

Increase

DecreaseAt the end of the
fiscal year

Shares issued

19,130,900--

19,130,900

Treasury stock

75

-

-

75

(2) Number of shares to be issued upon exercise of stock acquisition rights issued at the endof the current fiscal year
Common stock
1,423,000 shares(Note) Excludes stock acquisition rights of which the commencement date of exercise
period has not yet arrived.
(Notes on deferred tax accounting)Significant components of deferred tax assets and liabilities
Deferred tax assets:
Excess depreciation for lump-sum depreciable assets
Excess depreciation for depreciable assets
Excess amortization for deferred assets
Research and development expenses
Accounts payables-trade
Account payable-other
Provision for retirement benefits
Enterprise tax payable
Asset retirement obligation
Loss carried forward
Subtotal
Valuation allowance
Total deferred tax assets
Deferred tax liabilities(Thousand yen)
1,094
621
212,730
836,309
14,89919,905
601
5,203
3,143
1,454,943
2,549,452(2,549,452)－－－

Total deferred tax liabilities
Net deferred tax assets- 32 -

(Notes on properties under lease arrangements)
Not applicable.

(Notes on financial instruments)(1) Financial instruments(i) Policies for financial instruments
The Company procures the funds necessary in light of the pipeline development plan
(primarily by third-party allotment and offering by new stock issuance). Temporary
surplus fund is invested in financial instruments which are highly safe and liquid.
As a principle, the Company does not enter into derivative transactions for speculative
trading purpose but uses them within the scope prescribed in the internal rules.
(ii)Types of financial instruments and related risks
Operating receivables such as accounts receivable-trade and advances paid in connection
with joint development are exposed to credit risk of customers and joint development
partners. Operating receivables denominated in foreign currencies are exposed to foreignexchange fluctuation risk.
The Company intends to invest in marketable and investment securities which haverelatively low risk of falling below initial investments. However, it might carry a finite
risk.
Operating payables such as accounts payable-trade and accounts payable-other are
mostly due within two months. Operating payables denominated in foreign currencies
are exposed to foreign exchange fluctuation risk.
The Company uses derivative transactions to avoid foreign exchange fluctuation risks
and enters into forward exchange contracts within the scope prescribed in the internal
rules based on balances of receivables and payables denominated in foreign currencies aswell as actual volume of exports and imports transactions denominated in foreign
currencies.
Lease and guarantee deposits are mostly security deposits related to rented officepremises and their refunds are subject to the credit risk of the lessor.
Lease obligations are associated with the finance lease transactions that intend tofinance capital expenditures and the longest maturity of lease term is 4 years after
December 31, 2012.

- 33 -

(iii)Risk management for financial instruments
1. Monitoring of credit risks (the risk that customers or counterparties may default)
In accordance with the internal credit policies for managing credit risk arising fromoperating receivables, the Company’s marketing department periodically monitors thecredit worthiness of major customers and monitors due dates and outstanding balancesby individual customer. In addition, the Company is making efforts to promptly
identify and mitigate risks of bad debts from customers who are having financial
difficulties.
The Company enters into derivative transactions only with financial institutions
which have a sound credit profile in order to mitigate the counterparty risk.
2. Monitoring of market risk (the risk arising from fluctuations in foreign exchange rates,interest rates and others)
The Company deposits cash primarily with financial institutions with high credit
ratings.
For marketable and investment securities, the Company intends to avoid risks offalling below initial investments by investing in securities with the satisfactory credit
rating and investment period in accordance with the internal investment policies.
The Company enters into forward exchange contracts in order to avoid foreignexchange fluctuation risks in connection with receivables and payables denominatedin foreign currencies.
Followed by appropriate authorization procedures prescribed in the internal rules,
Finance and accounting department executes and monitors derivative transactions.
Monthly transaction performances are reported to the executive management
committee.
3. Monitoring of liquidity risks (the risk that the Company may not be able to meet its
obligations on scheduled due date)
Based on the report from each department, the responsible department of theCompany prepares and updates its cash flow plans on a timely basis and ensures tomaintain liquidity on hand to manage liquidity risk.
(iv)Supplementary explanation of the estimated fair value of financial instruments
The fair value of financial instruments is based on their quoted market price, if
available. When there is no quoted market price available, fair value is reasonably- 34 -

estimated. Since various assumptions and factors are reflected in estimating the fairvalue, different assumptions and factors could result in different fair value.
(v)Concentration of credit risk
As of December 31, 2012, all operating receivables are from one particular major
customer.
(2) Fair value of financial instruments
Carrying value on the balance sheet, fair value and their difference as of December 31,
2012 are as follows.

(1) Cash and deposits(2) Accounts receivable-trade(3) Marketable securities(4) Advances paid(5) Consumption taxes receivable
Assets, total(1) Accounts payable-trade(2) Lease obligations (current)(3) Accounts payable-other(4) Income taxes payable(5) Lease obligations (non-current)
Liabilities, total

Carrying value
4,540,022
148,081300,000
99,03639,495
5,126,635
329,768
673
195,833
15,5882,017
543,882(Unit: Thousand yen)
Fair value
Difference
4,540,022－
148,081－300,000－
99,036－39,495－
5,126,635－
329,768－678
4
195,833－
15,588－2,023
5543,892
10

Derivative transactions, total (*1)
21,385
21,385－(*1) The value of assets and liabilities arising from derivative transactions is shown at net value.
(Note) 1. Fair value measurement of financial instruments and other matters related tosecurities and derivative transactions
Assets(1) Cash and deposits, (2) Accounts receivable-trade, (4) Advances paid and (5)Consumption taxes receivable
The carrying value is deemed as the fair value since these are scheduled to besettled in a short period of time.
(3) Marketable securities- 35 -

The fair value of debt securities is based on the quoted price obtained fromfinancial institutions.
Liabilities(1) Accounts payable-trade, (3) Accounts payable-other and (4) Income taxes payable
The carrying value is deemed as the fair value since these are scheduled to besettled in a short period of time.
(2) Lease obligations (current) and (5) Lease obligations (non-current)
The fair value of lease obligations is determined at present value calculated bydiscounting total amounts of principle and interests at a presumable rate used forsimilar new lease transactions.
Derivative transactions
Forward exchange contract
The fair value of forward exchange contract is measured based on market quotes
obtained from financial institutions.
(Note) 2. Financial instruments whose fair value is extremely difficult to determine
Lease and guarantee deposits (carrying value of 29,334 thousand yen) are notincluded in above tables since no market quote is available and their fair value isextremely difficult to determine.
(Note) 3. The redemption schedule for monetary assets and securities with maturities

4,539,915
148,081Due after
one yearthrough five
years
－
－

300,000
99,036
5,087,032－－－

Due in one
year or less
Deposits
Accounts receivable-tradeMarketable securities
Available-for-securities
with maturities(1) Debt securities
Advances paid
Total

- 36 -(Unit: Thousand yen)
Due after
five years
Due after
through ten
ten years
years
－
－
－
－

－
－
－

－
－
－

(Note) 4. Maturities of lease obligations after the fiscal year end(Unit: Thousand yen)
Due after Due after Due after Due after
Due in one one year two years three years four years Due after
year or less throughthroughthroughthrough five years
two years three years four years five years
Lease obligations(current)
Lease obligations(non-current)
Total

673

－

－

－

－

－

－

682

692

642

－

－

673

682

692

642

－

－

(Notes on investment and rental properties)
Not applicable.
(Notes on equity in earnings)
Not applicable.
(Notes on transactions with related parties)
Not applicable.
(Notes on per-share information)(1) Net assets per share(2) Net loss per share
Average number of shares outstanding during the year

254.71 yen
90.60 yen
19,130,825 shares(Other notes)
The Company has overdraft and commitment line contracts with three banks in a business
relationship to efficiently procure working capital. The status of the bank overdraft and loan
commitments based on these contracts at the end of fiscal year is as follows:

Total amount of bank overdraft limit and loan
commitment line
Balance of borrowing outstanding
Unused balance(Unit: Thousand yen)
1,350,000
1,350,000- 37 -

(Significant subsequent events)
1. Issuance of the 1st unsecured convertible bond with stock acquisition rights and the29th series warrant
Based upon the resolution at the Company’s Board of Directors’ meeting held on
December 27, 2012, the Company has issued the 1st unsecured convertible bond withstock acquisition rights and the 29th series warrant on January 15, 2013 and received
the proceeds in the amount of 1,005,100 thousand yen on the same date. The
following summarizes the details.
(1) Purpose of the issuance
The issuance was made to procure funds for technology development of the existing
pipeline and implementation of new alternative technology, which help achieve
steady growth in the value of the Company’s business.
(2) Outline of the issuance(i) The 1st unsecured convertible bond with stock acquisition rights(1)The date of payment(2)Total number of stockacquisition rights(3)The issue price of
convertible bond andstock acquisition rights

January 15, 201340
Issue price per convertible bond:
25 million yen (100 yen per par value of 100 yen)
No cash payment required for stock acquisitionrights associated with the convertible bond(4)Number of potential
dilutive shares

3,311,258 shares(5)Amount of proceeds

1,000,000,000 yen(6)Conversion price

302 yen(7)Subscription or allotment(Allotted party)

The convertible bond with stock acquisition rights isallotted to the following party by third-party
allotment:
Wiz Healthcare PE Series 1 Investment Limited
Liability Partnership
1,000,000,000 yen- 38 -

(8)Coupon

The bond does not bear interest.

(9)Other

The preceding terms of subscription are conditional
upon notification of such terms coming into force inaccordance with the Financial Instruments andExchange Act.

(ii) The 29th series warrant (stock acquisition rights)(1)The date of allotment

January 15, 2013(2)Total number of stockacquisition rights

50(3)The issue priceTotal 5,100,000 yen (102,000 yen per each stockacquisition right)(4)Number of potential
dilutive shares

1,326,250 shares(5)Amount of proceeds

505,100,000 yen(detail)Issuance of stock acquisition rights
5,100,000 yen
Exercise of stock acquisition rights
500,000,000 yen(6)Exercise price

377 yen(7)Subscription or allotment(Allotted party)

The warrant is allotted to the following party by
third-party allotment:
Wiz Healthcare PE Series 1 Investment Limited
Liability Partnership
50 units(8)Other

The preceding terms of subscription are conditional
upon notification of such terms coming into force
in accordance with the Financial Instruments andExchange Act.

- 39 -

2. Issuance of new shares upon exercise of the 1st unsecured convertible bond withstock acquisition rights and the 29th series warrant
The stock acquisition rights of the 1st unsecured convertible bond, in the par amountof 450,000 thousand yen, were exercised by January 31, 2013 and 1,490,065 sharesof common stock were newly issued.
In addition, 20 units of stock acquisition rights as the 29th warrant (26,525 sharesequivalent per unit) were exercised by the end of January 2013 and 530,500 shares ofcommon stock were newly issued.
As a result, capital stock and legal capital surplus amounted to 6,350,629
thousand yen and 6,320,629 thousand yen, respectively, with total number of shares
outstanding of 21,151,465 shares as of January 31, 2013.

*The “Annual Report” and “Business Report” published on March 7, 2014 are the same
document.

- 40 -