English translation

March 6, 2015

Annual Report(January 1, 2014 through December 31, 2014)
1. Business Performance of SymBio Pharmaceuticals Limited(1) Business conditions and operating results
While experiencing the last-minute rise in demand before the consumption tax increase
and its reactionary effect, Japan’s domestic economy has continued to recover moderately as
the government’s financial measures and the BOJ’s monetary easing policies haveeffectively led to the continuous trend of a weakening yen with higher stock prices andcorporate profits, improving the employment and income environment.
Overseas
economies also continue to experience a moderate recovery with the steady performance of
the U.S. economy, although some weakness remains in China and certain emerging markets
and the outlook in European countries remains unclear.
As National Health Insurance drug prices were reduced by an average of 2.65% across theindustry in April, the business environment of the Japanese pharmaceutical industry remains
severe, especially for innovator drug developers due to government policies to reduce
medical expenditures, including generic drug promotion and changes in healthcare systems.
However, in November, 2014, the Pharmaceutical Affairs Act of Japan was revised and thename changed to the “Ministerial Ordinance on Standards for Manufacturing Control andQuality Control for Medical Devices and In-Vitro Diagnostics (“PMD Act”),” which newly
defined “regenerative medicine products.” Thus, steady progress has been made toward
reorganization of the regulatory system relating to the pharmaceutical industry.
Under these circumstances, the Company made the following progress in its business
operations.
(i) Domestic[SyB L-0501 (the generic name: bendamustine hydrochloride, the trade name:TREAKISYM®)]
The Company markets the anticancer agent TREAKISYM® in Japan through its
business partner, Eisai Co., Ltd. (“Eisai”), for the indications of refractory/relapsed lowgrade non-Hodgkin’s lymphoma and mantle cell lymphoma. Net sales through Eisai
increased as expected, with an increase of 102% year-on-year (NHI price basis).
Aiming to maximize the product value of TREAKISYM®, the Company continues to-1 -pursue three additional indications.
Firstly, regarding the indications of frontline low-grade non-Hodgkin’s lymphoma andmantle cell lymphoma, the Company completed the Phase II clinical trial in February,
2014, and is currently preparing the application for approval. In the EU, Astellas Pharma
Europe Ltd. has completed the application process for regulatory approval. Considering
this approval progress in Europe, the Company plans to file the sNDA in Japan;
Secondly, regarding the indication of chronic lymphocytic leukemia, patient enrollment
for the Phase II clinical trial was completed in October, 2014. TREAKISYM® was
designated as an orphan drug (pharmaceutical for treatment of rare diseases) for theindication of chronic lymphocytic leukemia in June, 2012.
Lastly, regarding the additional indication of refractory/relapsed intermediate/highgrade non-Hodgkin’s lymphoma, the Company’s development approach is being
considered.
[SyB L-1101 (intravenous formulation) and SyB C-1101 (oral formulation); generic name:rigosertib]
The domestic Phase I clinical trial of anticancer agent SyB L-1101 (intravenous
formulation) for the indication of refractory/relapsed higher risk myelodysplastic
syndrome (MDS), which is a hematological malignancy, is underway.
In February, 2014, Onconova Therapeutics, Inc. (“Onconova”), the U.S. Licensor,
announced results from its Phase 3 ONTIME trial of IV rigosertib conducted at clinical
trial sites in Europe and the U.S. Although treatment with IV rigosertib plus best
supportive care (BSC) did not demonstrate a statistically significant improvement inmedian overall survival when compared to BSC only, post-hoc analysis demonstrated astatistically significant increase in median overall survival in the subset of patients who
had progressed on or failed previous treatment with hypomethylating agents (HMAs) (i.e.,
had not responded to HMAs), thus demonstrating potential activity of rigosertib in these
MDS patients Onconova continues discussions with the U.S. and European regulatory
agencies regarding the possibility of approval based on top-line results of the Phase III
ONTIME trial. These discussions have consequently led Onconova to focus its
development efforts on the unmet medical need of patients who do not respond totreatment with the current standard of care, hypomethylating agents (“Primary HMA
Failure”). Onconova announced its future development plan for Primary HMA Failures.
The Company will continue with its development of IV rigosertib in Japan based on
Onconova’s development plan in the US and Europe.
Patient enrollment for the Phase I clinical trial of SyB C-1101 (oral formulation, or“Oral rigosertib”) in higher risk MDS was completed in August, 2014.

-2 -

(ii) Overseas
In June, 2014, SyB L-0501 was approved by the Ministry of Food and Drug Safety(MFDS) in South Korea for the indication of refractory/relapsed low-grade nonHodgkin’s lymphoma in addition to the earlier approval of chronic lymphocytic leukemia
and multiple myeloma. Eisai Korea Inc. (“Eisai Korea”), a Korean subsidiary of Eisai,
promotes the product for these three indications. The Company’s overseas sales continue
to grow steadily as planned and have increased by 2.2 times compared to budget, inparticular, because the Company received a purchase order from Eisai Korea inconnection with their change of packaging facility in FY 2014, and recognized the related
sales revenue originally expected in FY 2015.
(iii) Business results
As a result of the above, net sales totaled 1,955,027 thousand yen for the fiscal year
ended December 31, 2014, primarily reflecting product sales of SyB L-0501 in Japan andoverseas markets. Net domestic sales of TREAKISYM® showed a year-on-year increaseof 12.9%. While net overseas sales increased by 3.6 times compared to the previous fiscal
year mainly due to the recognition of sales from the fulfillment of early purchase orders
in South Korea, milestone revenue showed a year-on-year decrease of 85.0%. In total, net
sales increased by 27.6% compared to the previous fiscal year.
Selling, general and administrative expenses totaled 1,829,918 thousand yen (a yearon-year decrease of 8.4%), including research and development (“R&D”) expenses of774,103 thousand yen (a year-on-year decrease of 26.5%) primarily due to expenses
associated with clinical trials for SyB L-0501, SyB L-1101 and SyB C-1101, and otherselling, general and administrative expenses of 1,055,815 thousand yen (a year-on-yearincrease of 11.6 %).
As a result, an operating loss of 1,303,279 thousand yen was recognized for the fiscal
year ended December 31, 2014 (operating loss of 1,680,528 thousand yen for theprevious fiscal year). In addition, the Company recorded non-operating expenses totaling
22,288 thousand yen primarily comprising commission fees and stock issuance costs, andnon-operating income totaling 215,251 thousand yen primarily due to foreign exchange
gains. This resulted in an ordinary loss of 1,110,316 thousand yen (ordinary loss of
1,601,424 thousand yen for the previous fiscal year) and net loss of 1,115,877 thousandyen (net loss of 1,605,224 thousand yen for the previous fiscal year).
Segment information is omitted since the Company operates within a single segment of
the pharmaceutical industry, including ther development and commercialization of drugs,
manufacturing, marketing and other related activities.

-3 -(2) Status of fund procurement, etc.
(i) Fund procurement
The Company passed a resolution on November 14, 2014, regarding the subscription
for the 2nd unsecured bonds with convertible bond type stock acquisition rights and the34th warrant by third-party allotment. Proceeds of 510,363 thousand yen had been paidon December 1, 2014.
With regard to the 2nd unsecured bond with convertible bond type stock acquisitionrights, all stock acquisition rights have been exercised and all bonds converted to theCompany’s common stock in December, 2014.
(ii) Capital investment
The total amount of capital expenditures during the current fiscal year was 114,627
thousand yen, mainly consisting of furniture and fixtures, as well as the purchase ofsoftware for business use.

-4 -(3) Status of assets, profit and loss in the current fiscal year and the three preceding fiscal
years(Unit: thousands of yen, except for per-share figures)
FY 2011
The 7th Term

FY 2012The 8th Term

FY 2013
The 9th Term

FY 2014The 10th Term(current)

Net sales

1,882,521

1,955,178

1,532,054

1,955,027

Operating loss

(2,066,846)(1,700,273)(1,680,528)(1,303,279)

Ordinary loss

(2,095,382)(1,729,480)(1,601,424)(1,110,316)

Net loss(2,104,513)(1,733,320)(1,605,224)(1,115,877)

Net loss per share (yen)(143.60)(90.60)(69.29)(36.26)

Total assets

7,256,094

5,502,190

7,686,947

7,453,799

Net assets

6,605,564

4,899,957

7,432,996

6,963,576

Net assets per share (yen)345.28254.71

239.48208.80Fiscal year
Classification(4) Issues to be addressed by the Company
The Company has a commitment to improve the following issues as a priority challenge formanagement.
(i) Further expansion of pipeline
In order to enhance the enterprise value as a specialty pharmaceutical company, weneed to expand the pipeline by continually in-licensing new drug candidates fordevelopment.
Clinical trials are underway for our drug candidates: SyB L-0501 (anti-cancer drug)
and SyB L-1101 (intravenous formulation)/C-1101 (oral formulation). We continue
with ongoing efforts to in-license new drug candidates in order to expand our pipeline. In
addition, progress is currently being made regarding our evaluation of several new drugcandidates and negotiation of license agreements.
(ii) Pursuit of life cycle management for TREAKISYM® (SyB L-0501) and rigosertib (SyB
L-1101/ SyB C-1101)
In order to enhance enterprise value, it is critical to maximize returns from each drug
under development by adding new indications for development after their initialintroduction in the Company’s pursuit of life cycle management.
TREAKISYM® has received approval for manufacturing and marketing with the-5 -approved indications of refractory/relapsed low-grade non-Hodgkin’s lymphoma andrefractory/relapsed mantle cell lymphoma. For additional indications, Phase II clinical
trials were completed for refractory/relapsed intermediate/high-grade non-Hodgkin's
lymphoma, frontline low-grade non-Hodgkin’s lymphoma, and mantle cell lymphoma. A
Phase II clinical trial is underway for chronic lymphocytic leukemia.
Regarding frontline low-grade non-Hodgkin’s lymphoma and mantle cell lymphoma,
taking into account the possibility of approval of this indication in Europe, the Company
will continue with preparations for the filing of marketing approval in Japan.
Regarding chronic lymphocytic leukemia, the Company has completed patient
enrollment in its Phase II clinical trial and will prepare for the filing of marketing
approval in Japan upon completion of the trial.
Progress is being made with development of intravenous and oral rigosertib
formulations for the indication of myelodysplastic syndrome (MDS). No usefultherapeutic agents are currently available for MDS, so it is an area with very high unmet
medical needs.
The Company will continue with Phase I clinical trials in Japan and reassess thedomestic development plan by contemplating Onconova’s future development plan in the
U.S. and Europe. Regarding the oral formulation, the Company will continue with its
domestic Phase I clinical trial for the target indication of higher risk MDS. Aftercompleting this Phase I clinical trial in higher risk MDS patients, the Company plans tocarry out development for the indications of higher risk MDS (in combination withazacitidine) and transfusion-dependent lower risk MDS. The Company will consider its
participation in global clinical trials for such development.
The Company’s future aim is to maximize the value of TREAKISYM® and rigosertib
through the further expansion of indications and life-cycle management.
(iii) Expansion to other Asian regions
The Company positions China (Hong Kong), South Korea, Taiwan, and Singapore asimportant strategic geographic domains in addition to Japan. In these areas, higheconomic growth and medical need is expected, and these areas will assume increasing
importance in SymBio’s corporate strategy.
Among the drug candidates in its pipeline, the Company plans to develop and market
SyB L-0501 in China (Hong Kong), South Korea, Taiwan, and Singapore as well as inJapan. The Company believes that significant unmet medical needs exist for SyB L-0501
in these countries. The Company is also planning to develop and market SyB L-1101/
SyB C-1101 in South Korea in addition to Japan. The Company will aggressively launchclinical trials for these drugs and apply for marketing approvals in these Asian countries.

-6 -(iv) Securing people
We place the highest priority on people as the Company’s management resource. We
cannot make superior achievements in exploring and developing new drugs without talent.
We have been continually recruiting talented people, especially after the Company’s
public listing; we have recruited the best and brightest people in order to strengthen the
management organization. Going forward, we plan to further strengthen our humanresources by providing development programs such as OJT and other training.
(v) Financial issue
It is necessary for the Company to raise funds required for business activities such as
R&D expenditures as pipeline development progresses and the number of drugcandidates increases. Therefore, we will make every effort to strengthen the Company’s
financial base by continually diversifying the method for fund procurement and reducing
costs thorough budget control.
(5) Major business activities (As of December 31, 2014)
The Company regards underserved therapeutic areas that lack the development of new
drugs, despite significant unmet medical needs, as business opportunities. We engage in thedevelopment of new drugs with main focus in the areas of oncology, hematology, andautoimmune diseases; search and evaluation, development and manufacturing to sales are
the main activities of our business.

-7 -(6) Main office and employees(i) Main office (as of December 31, 2014)
Name

Location

Main office

Minato-ku, Tokyo(ii) Employees (as of December 31, 2014)
Classification

Number of
employees1

Male

45

Female24

Total or average

69(Notes)Increase or
decrease fromprevious fiscal
year end
3 (decrease)

Average age(years)Average # of yearsof service

50.6

4.7

－

42.9

3.8

3 (decrease)

47.9

4.4

1. Number of employees refers to full time employees(8 temporary employees not included)(7) Status of parent company and significant subsidiaries
Not applicable.
(8) Status of main lenders (as of December 31, 2014)
Not applicable.

-8 -2. Matters related to stock (as of December 31, 2014)(1) Total number of authorized shares

Common stock

56,000,000 shares(2) Total number of shares outstanding

Common stock

32,390,848 shares(excluding 75 shares oftreasury stock)
12,102(3) Number of shareholders(4) Major shareholders (10 largest)
Name of shareholder

Number of shares held

Shareholding ratio

Fuminori Yoshida

3,120,000

9.6%

Cephalon, Inc.

2,589,000

8.0%

JAFCO V2 Investment LP

1,843,900

5.7%

Oak Capital Corporation

1,637,366

5.1%

Eisai Co., Ltd.

833,400

2.6%

Waseda No.1 Investment LP

684,000

2.1%

Waseda Global No.1 Investment LP
BNYM SA/NV FOR BNYM CLIENT
ACCOUNT MPCS JAPANJapan Securities Finance Co., Ltd.

500,000

1.5%

423,557

1.3%

401,800

1.2%

Rakuten Securities, Inc.

272,200

0.8%(Note) Calculation of issued shares (%) excludes treasury stock from number of shares outstanding.

-9 -3. Matters related to stock acquisition rights(1) Stock acquisition rights held by the Company’s Directors that were issued ascompensation for services(i) Stock acquisition rights granted by resolution of the Extraordinary General Meeting of
Shareholders held on June 20, 2005 (1st series of stock acquisition rights)(as of December 31, 2014)- Number of stock acquisition rights
2,020-

Number of shares to be issued upon the exercise of stockacquisition rights

202,000-

Amount paid for stock acquisition rights

None

-

Value of property to be contributed upon the exercise ofeach stock acquisition right (Note)

487 yen-

Period during which stock acquisition rights may be
exercised-

Status of possession by the Company’s Directors andAudit & Supervisory Board Members

Directors (excluding
Outside Directors)

Number of stockacquisition rights

Number of shares

Number of holders

-

-

-

Outside Directors
Audit & Supervisory
Board Members

From: June 21, 2007
To: June 20, 2015

700-

70,000-- 10 -

3-

(ii) Stock acquisition rights granted by resolution of the Ordinary General Meeting of
Shareholders held on March 31, 2006 (7th series of stock acquisition rights)(as of December 31, 2014)- Number of stock acquisition rights
610-

Number of shares to be issued upon the exercise of stockacquisition rights

61,000-

Amount paid for stock acquisition rights

None

-

Value of property to be contributed upon the exercise ofeach stock acquisition right (Note)-

Period during which stock acquisition rights may be
exercised-

Status of possession by the Company’s Directors andAudit & Supervisory Board Members

Directors (excluding
Outside Directors)

From: July 2, 2008
To: March 30, 2016

Number of stockacquisition rights

Number of shares

Number of holders

-

-

-

Outside Directors
Audit & Supervisory
Board Members

1,461 yen100-

10,000-- 11 -

1-

(iii) Stock acquisition rights granted by resolution of the Extraordinary General Meeting of
Shareholders held on December 1, 2006 (12th series of stock acquisition rights)(as of December 31, 2014)- Number of stock acquisition rights
230-

Number of shares to be issued upon the exercise of stockacquisition rights

23,000-

Amount paid for stock acquisition rights

None

-

Value of property to be contributed upon the exercise ofeach stock acquisition right (Note)-

Period during which stock acquisition rights may be
exercised-

Status of possession by the Company’s Directors andAudit & Supervisory Board Members

Directors (excluding
Outside Directors)

From: August 29, 2009
To: August 28, 2017

Number of stockacquisition rights

Number of shares

Number of holders

-

-

-

Outside Directors
Audit & Supervisory
Board Members

1,461 yen

90
-

9,000
-

- 12 -

1-

(iv) Stock acquisition rights granted by resolution of the Extraordinary General Meeting of
Shareholders held on September 30, 2008 (16th series of stock acquisition rights)(as of December 31, 2014)- Number of stock acquisition rights
700-

Number of shares to be issued upon the exercise of stockacquisition rights

70,000-

Amount paid for stock acquisition rights

None

-

Value of property to be contributed upon the exercise ofeach stock acquisition right (Note)-

Period during which stock acquisition rights may be
exercised-

Status of possession by the Company’s Directors andAudit & Supervisory Board Members

Directors (excluding
Outside Directors)

From: October 1, 2010
To: September 30, 2018

Number of stockacquisition rights

Number of shares

Number of holders

-

-

-

Outside Directors
Audit & Supervisory
Board Members

1,169 yen

60
-

6,000
-

- 13 -

1-

(v) Stock acquisition rights granted by resolution of the Ordinary General Meeting of
Shareholders held on March 30, 2010 (20th series of stock acquisition rights)(as of December 31, 2014)- Number of stock acquisition rights
3,445-

Number of shares to be issued upon the exercise of stockacquisition rights

344,500-

Amount paid for stock acquisition rights

None

-

Value of property to be contributed upon the exercise ofeach stock acquisition right (Note)

585 yen-

Period during which stock acquisition rights may be
exercised-

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

From: April 1, 2012
To: March 31, 2020

Number of shares

Number of holders

Directors (excluding
Outside Directors)

1,800

180,000

1

Outside Directors

600

60,0002

Audit & Supervisory
Board Members--- 14 --

(vi) Stock acquisition rights granted by resolution of the Ordinary General Meeting of
Shareholders held on March 30, 2010 (22nd series of stock acquisition rights)(as of December 31, 2014)- Number of stock acquisition rights
1,530-

Number of shares to be issued upon the exercise of stockacquisition rights

153,000-

Amount paid for stock acquisition rights

None

-

Value of property to be contributed upon the exercise ofeach stock acquisition right (Note)

585 yen-

Period during which stock acquisition rights may be
exercised-

Status of possession by the Company’s Directors andAudit & Supervisory Board Members

Directors (excluding
Outside Directors)

Number of stockacquisition rights

Number of shares

Number of holders

-

-

-

Outside Directors
Audit & Supervisory
Board Members

From: April 1, 2012
To: March 31, 2020

200-

20,000-- 15 -

1-

(vii) Stock acquisition rights granted by resolution of the Ordinary General Meeting of
Shareholders held on March 30, 2011 (24th series of stock acquisition rights)(as of December 31, 2014)- Number of stock acquisition rights
1,920-

Number of shares to be issued upon the exercise of stockacquisition rights

192,000-

Amount paid for stock acquisition rights

None

-

Value of property to be contributed upon the exercise ofeach stock acquisition right (Note)

682 yen-

Period during which stock acquisition rights may be
exercised

From: March 31, 2013
To: March 30, 2021-

Status of possession by the Company’s Directors andAudit & Supervisory Board Members
Number of stock
Number of sharesacquisition rights
Directors (excluding
1,200
120,000
Outside Directors)
Outside Directors
Audit & Supervisory
Board Members

300
-

1

30,000-- 16 -

Number of holders

2-

(viii) Stock acquisition rights granted by resolution of the Ordinary General Meeting of
Shareholders held on March 29, 2012 (26th series of stock acquisition rights)(as of December 31, 2014)- Number of stock acquisition rights
3,625-

Number of shares to be issued upon the exercise of stockacquisition rights

362,500-

Amount paid for stock acquisition rights

None

-

Value of property to be contributed upon the exercise ofeach stock acquisition right (Note)

555 yen-

Period during which stock acquisition rights may be
exercised-

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

From: April 18, 2014
To: April 17, 2022

Number of shares

Number of holders

Directors (excluding
Outside Directors)

2,600

260,000

1

Outside Directors

625

62,5002

Audit & Supervisory
Board Members--- 17 --

(ix) Stock acquisition rights granted by resolution of the Ordinary General Meeting of
Shareholders held on March 28, 2013 (30th series of stock acquisition rights)(as of December 31, 2014)- Number of stock acquisition rights
1,160-

Number of shares to be issued upon the exercise of stockacquisition rights

116,000-

Amount paid for stock acquisition rights

None

-

Value of property to be contributed upon the exercise ofeach stock acquisition right (Note)

799 yen-

Period during which stock acquisition rights may be
exercised-

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

From: May 15, 2015
To:
May 14, 2023

Number of shares

Number of holders

Directors (excluding
Outside Directors)

645

64,5001

Outside Directors

305

30,5003

Audit & Supervisory
Board Members--- 18 --

(x) Stock acquisition rights granted by resolution of the Ordinary General Meeting of
Shareholders held on March 27, 2014 (32nd series of stock acquisition rights)(as of December 31, 2014)- Number of stock acquisition rights
2,520-

Number of shares to be issued upon the exercise of stockacquisition rights

252,000-

Amount paid for stock acquisition rights*The person who receives the allotment of stockacquisition rights shall set off his/her claims forcompensation against the Company in lieu of payment ofmonies for the stock acquisition rights allotted.

22,900-

Value of property to be contributed upon the exercise ofeach stock acquisition right

1 yen

-

Period during which stock acquisition rights may be
exercised-

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

From: April 16, 2017To:
April 15, 2024

Number of shares

Number of holders

Directors (excluding
Outside Directors)

1,830

183,000

1

Outside Directors

690

69,0004

Audit & Supervisory
Board Members

-

-

-

(Note) New shares were issued through the public offering on December 4, 2013, and third-party
allotment on December 25, 2013, at the paid-in amount less than the value of property to becontributed upon the exercise of each stock acquisition right. Therefore, the stated value of
property to be contributed upon the exercise of each stock acquisition right is adjusted inaccordance with the adjustment provision.

- 19 -

(2) Stock acquisition rights distributed to the Company’s employees as compensation forservices during the current fiscal year
Stock acquisition rights granted by resolution of the Ordinary General Meeting of
Shareholders held on March 27, 2014 (33rd series of stock acquisition rights)-

Number of stock acquisition rights

3,300

-

Number of shares to be issued upon the exercise of stockacquisition rights

330,000-

Amount paid for stock acquisition rights*The person who receives the allotment of stockacquisition rights shall set off his/her claims forcompensation against the Company in lieu of payment ofmonies for the stock acquisition rights allotted.

22,900-

Value of property to be contributed upon the exercise ofeach stock acquisition right

1 yen

-

Period during which stock acquisition rights may be
exercised-

Status of allotment to the Company’s employees
Number of stockacquisition rights

Company employees(Note)

3,300 (Note)

From: April 16, 2017To:
April 15, 2024

Number of shares

Number of holders

330,000 (Note)68

Of the stock acquisition rights mentioned above, 559 units (55,900 shares) have been forfeited
due to the retirement of employees.

- 20 -

(3) Other important matters concerning stock acquisition rights(i) Details of stock acquisition rights attached to the 2nd unsecured bonds with convertible
bond type stock acquisition rights issued on November 14, 2014, are as follows:-

Amount of convertible bond type stock acquisitionrights-Number of stock acquisition rights-

Type and number of shares to be issued upon theexercise of stock acquisition rights-

Issue price of each stock acquisition right-

Value of property to be contributed upon the exercise ofeach stock acquisition right-

Period during which stock acquisition rights may be
exercised

500,000,000 yen
25
Common shares 1,666,666
None
300 yen per right
From: December 1, 2014To:
November 29, 2017(ii) Details of stock acquisition rights (34th series of stock acquisition rights) issued on
November 14, 2014, are as follows:-

Number of stock acquisition rights

30,304-

Type and number of shares to be issued upon theexercise of stock acquisition rights

Common shares 3,030,400-

Amount paid for each stock acquisition right

342 yen per right-

Value of property to be contributed upon the exercise ofeach stock acquisition right

330 yen per share-

Period during which stock acquisition rights may be
exercised- 21 -

From: December 1, 2014To:
November 30, 2017

4. The Company’s Executives (as of December 31, 2014)(1) Names of Directors and Audit & Supervisory Board Members
Company Position

Name

Responsibility / Significant
Concurrent Position

Representative Director
and President

Fuminori Yoshida

Director

Takako Ebata

Director

Lowell Sears

Sears Capital Management Inc.
Chief Executive Officer

Director

George Morstyn

G & R Morstyn Pty Ltd.
Chief Executive Officer

Director

Milton Grannatt

Director

George Vandeman

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

Chief Executive Officer

Vandeman & Company
Principal

Koshi Ohizumi
Saneaki Ichijo
Chikara Shimazaki(Notes)1. Of the Directors, Takako Ebata, Lowell Sears, George Morstyn, Milton Grannatt and George
Vandeman are Outside Directors.
2. Koshi Ohizumi, Saneaki Ichijo and Chikara Shimazaki are outside members of the Audit &Supervisory Board.
3. Chikara Shimazaki, an outside member of the Audit & Supervisory Board, is an independent
officer who does not have the potential to cause a conflict of interest against general shareholders,a position that theTokyo Securities Exchange requires the Company to appoint.
4. Full-time Audit & Supervisory Board Member Koshi Ohizumi has worked in accounting for anumber of years, and possesses deep insight in finance and accounting.
5. Audit & Supervisory Board Member Saneaki Ichijo is an attorney (Partner at Anderson, Mori &Tomotsune), with expertise in corporate legal affairs.
6. Audit & Supervisory Board Member Chikara Shimazaki is a certified public accountant(Representative of the Shimazaki accounting office) with expertise in finance and accounting.
7. Changes in Directors and Audit & Supervisory Board Members during the current fiscal year are as
follows:- Director Takashi Shimomura resigned upon expiration of his term of office at the closing of the
9th Ordinary General Meeting of Shareholders held on March 27, 2014.
- George Vandeman was newly appointed as Director at the 9th Ordinary General Meeting of
Shareholders held on March 27, 2014.
8. The Company has adopted the Corporate Officer System. Corporate Officers who do not hold aconcurrent position as Director are as follows:
Corporate Officer
Masataka Ohta
Corporate Officer
Albert Qin- 22 -

(2) Compensation of Board of Directors and Board of Auditors
Number ofAmount of Compensation
Company Board
Directors/Board(thousands of yen)
Members Paid
7
124,116
Board of Directors(Outside: 5)(Outside: 40,692)
3
18,570Board of Auditors(Outside: 3)(Outside: 18,570)
10
142,686
Total(Outside: 8)(Outside: 59,262)(Notes) 1. Salary in the event of a Director doubling as an employee is not included in the above
compensation for Directors.
2. The maximum amount of compensation for Directors was resolved as an annual amount of 130,000
thousand yen at the Extraordinary General Meeting of Shareholders held on August 3, 2005. In
addition to the aforementioned compensation, it was resolved that stock acquisition rights would be
granted to a maximum amount of 80,000 thousand yen (of which, 22,000 thousand yen is granted
to Outside Directors) as compensation stipulated in Article 361, Section 1 of the Companies Act at
the 9th Ordinary General Meeting of Shareholders held on March 27, 2014.
3. The maximum amount of compensation for Auditors was resolved as an annual amount of 30,000
thousand yen at the Extraordinary General Meeting of Shareholders held on June 30, 2011.
4. The number of Directors/Board Members paid as stated above includes one person who resigned at
the closing of the 9th Ordinary General Meeting of Shareholders held on March 27, 2014.
5. The total compensation paid includes expenses (seven (7) Directors 60,397 thousand yen) in
connection with stock acquisition rights as stock options for the current fiscal year.

(3) Matters Concerning Outside Directors(i) Director: Ms. Takako Ebata
a. Status of concurrent position(s) of an executive at other companies, and relationshipbetween such companies and the Company
Not applicable.
b. Status of concurrent position(s) of an Outside Director at other companies, andrelationship between such company and the Company
Not applicable.
c. Relationship with certain related companies, such as the Company’s main customers
Not applicable.
d. Status of main activities during the fiscal year reported
Ms. Takako Ebata attended all 19 meetings of the Board of Directors held during the
fiscal year (attendance rate: 100.0%).
e. Summary of contents of liability limitation agreement
An agreement has been executed setting forth, with respect to Company liability in the
Companies Act Article 423 (1), that in the event it is with good intentions and no- 23 -

gross negligence that an Outside Director performs his or her duties, the higher of theamount of 1,000,000 yen or the amount legally set forth in advance, or the maximum
amount set forth in laws and ordinances, shall apply.
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 the 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 the concurrent position of Outside Auditor at Cellerant Therapeutics, Inc.
and Vital Therapies, Inc.
There is no business transaction between either of the above companies and theCompany.
c. Relationship with particular related companies, such as main customers
Not applicable.
d. Status of main activities during the current fiscal year
Lowell Sears attended 18 out of 19 meetings of the Board of Directors held during the
fiscal year (attendance rate: 94.7%).
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 the concurrent position of Chief Executive Officer at G & R Morstyn Pty Ltd.
There is no business transaction between the above company and the Company.

- 24 -

b. Status of concurrent positions of Outside Director at other companies and relationshipbetween such companies and the Company
He holds concurrent positions of Outside Director at GBS Venture Partners Pty Ltd.,
Proacta, Cooperative Research Centre for Cancer Therapeutics and Therapeutics
Innovation. He also holds concurrent positions at The Victorian Comprehensive
Cancer Centre (Deputy Chairman of the Board). There is no business transaction
between the above companies/cancer centre and the Company.
c. Relationship with particular related companies, such as main customers
Not applicable.
d. Status of main activities during the current fiscal year
George Morstyn attended 18 out of 19 meetings of the Board of Directors held during
the fiscal year (attendance rate: 94.7%).
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) Director: Milton Grannatta. 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 the concurrent position of Advisory Board Member at VOX Telehealth andBiohealthonomics.
There is no business transaction between either of the above companies and theCompany.
c. Relationship with particular related companies, such as main customers
Not applicable.
d. Status of main activities during the current fiscal year
Milton Grannatt attended all 19 meetings of the Board of Directors held during the
fiscal year (attendance rate: 100.0%).

- 25 -

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.
(v) Director: George Vandemana. Status of concurrent positions of executives at other companies and relationshipbetween such companies and the Company
He holds the concurrent position of Principal at Vandeman & Company.
b. Status of concurrent positions of Outside Director at other companies and relationshipbetween such companies and the Company
He holds the concurrent position of Vice Chairman of Board at Genelux Corporationand Managing Member at Restaurants Hawaii, LLC.
There is no business transaction between either of the above companies and theCompany.
c. Relationship with particular related companies, such as main customers
Not applicable.
d. Status of main activities during the current fiscal year
George Vandeman attended all 15 meetings of the Board of Directors held during the
fiscal year (attendance rate: 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.

(vi) Full-time Auditor Koshi Ohizumi
a. Status of concurrent positions of executives at other companies and relationshipbetween such companies and the Company- 26 -

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. Status of main activities during the current fiscal year
(1) Status of attendance at the Board of Directors meetings
Koshi Ohizumi attended all 19 meetings of the Board of Directors held during the
fiscal year (attendance rate: 100.0%).
(2) Status of attendance as Auditor
Koshi Ohizumi attended all 14 meetings of the Audit & Supervisory Board held
during the fiscal year (attendance rate: 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, higherof the amount of 1,000,000 yen or above legally set forth in advance or the amount 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.
(vii) Auditor : Saneaki Ichijoa. 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 the concurrent position 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. Status of main activities during the current fiscal year
(1) Status of attendance at the Board of Directors meetings
Saneaki Ichijo attended all 19 meetings of the Board of Directors held during the
fiscal year (attendance rate: 100.0%).

- 27 -

(2) Status of attendance at the Audit & Supervisory Board meetings
Saneaki Ichijo attended all 14 meetings of the Audit & Supervisory Board held
during the fiscal year (attendance rate: 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, higherof the amount of 1,000,000 yen or above legally set forth in advance or the amount 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.
(viii) Auditor : 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.
c. Relationship with particular related companies, such as main customers
Not applicable.
d. Status of main activities during the current fiscal year
(1) Status of attendance at the Board of Directors meetings
Chikara Shimazaki attended all 19 meetings of the Board of Directors held during
the fiscal year (attendance rate: 100.0%).
(2) Status of attendance at the Audit & Supervisory Board meetings
Chikara Shimazaki attended all 14 meetings of the Audit & Supervisory Board held
during the fiscal year (attendance rate: 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, higherof the amount of 1,000,000 yen or above legally set forth in advance or the amount 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.

- 28 -

Each Outside Director appropriately advised and raised questions regarding resolutions
and reports discussed at Board of Directors meetings based on his or her deep personal
insight of business administration, and from a point of view that was independent of business
operations.
Each member of the Audit & Supervisory Board appropriately advised and raisedquestions during meetings in fulfilling his role as management monitor for resolutions andreports introduced and discussed by the Board of Directors based on his deep personal
insight of business administration from an independent and neutral standpoint; Each member
also aggressively raised questions and expressed opinions regarding resolutions and reports
introduced by the Audit & Supervisory Board in order to execute highly effective audits.

- 29 -

5. Status 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

15,500 thousand yen

Total amount of monetary and other property benefits to be paidby the Company

15,500 thousand yen(Note)

The amounts of compensation for audits paid in accordance with Companies Act, and the audits
conducted in accordance with Financial Instruments and Exchange Act, are not distinguished in
the contract agreement between the Company and the accounting auditor. It is not possible todistinguish between compensation paid for these two types of audits; therefore the total amountthereof is stated.

(4) Policies for dismissal or non-reappointment of accounting auditor
The Company shall propose a resolution regarding the dismissal or the nonreappointment of an accounting auditor at the Shareholders’ Meeting, by agreement orrequest of the Audit & Supervisory Board, in general, if it is deemed to be difficult for an
accounting auditor to execute his or her duties adequately, as well as the dismissal of an
accounting auditor by the Audit & Supervisory Board in accordance with Article 340 of
the Companies Act.

- 30 -

6. Summary of content of resolutions concerning the establishment of a system to ensure
the appropriateness of 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 instill in all Directors,
Audit & Supervisory Board members, and employees (including contract employees,
temporary employees and subcontract employees) the Company’s policy that any andall corporate activities should be based on the spirit of compliance of laws and themaintenance of ethics (hereinafter "Compliance") by repeatedly urging them to abideby the spirit of the Corporate Action Charter.
(ii) The Company promotes activities for Compliance with a compliance committee
comprised of the senior manager in charge of the corporate division as Chairman, andthe head or senior managers of relevant departments as members thereof to act as thecenter of such activities.
(iii) The Company makes an effort to find and cure any and all unfair acts and practices as
early as possible via a compliance hot-line permanently installed outside of theCompany. Employees can contact a designated compliance liaison within the
Company if he/she becomes aware of any compliance-related problems for the
purpose of addressing such matters.
(iv) The Company has its own internal audit office which acts under the direct control of
the President. The audit office not only verifies the condition of maintenance andoperation of internal control from the viewpoint of effectiveness and efficiency ofbusiness, reliability of various financial reports and compliance for the purpose ofguaranteeing the quality of corporate management, but also does evaluations andgives necessary advice and suggestions for improvement with regard to theappropriateness and effectiveness of corporate risk management.
(v) The Company actively engages in community service activities and any otheractivities deemed to be beneficial to society as a good corporate citizen. The
Company also resolutely opposes antisocial forces and organizations that threaten theorder or safety of society as a whole.
(2) Corporate system for maintenance and control of information regarding the performanceof duties by Directors
The head of Legal and General Affairs of the Company is the person responsible forgeneral management of corporate documents to appropriately maintain and otherwise
control all important documents containing information as to the performance by- 31 -

Directors of their duties in addition to legally required records of proceedings ofShareholders' Meetings and Board of Directors’ meetings, as provided in laws andordinances as well as in the Company’s own " Rules for the Management ofDocuments".
(3) Corporate system for control of risk of loss, including in-house rules for such control
The Company practices risk control under its basic policy and related rules for suchrisk control. Usually the Company's permanent risk-management committee, which ischaired by Representative Director and President, monitors the conditions of risk
control, and will take appropriate measures on a company-wide basis if necessary. In
the case of an emergency, the Company will temporarily set up a headquarters with
its Representative Director and President acting as chairman thereof, and takenecessary measures in accordance with decisions made at this temporary
headquarters.
(4) Corporate system to ensure the efficient performance of duties by Directors(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
Directors" and "Rules for the Internal Approvals" and other similar regulations.
(ii) The Company regularly holds Executive Management Committee meetings asprovided in the “Rules for the Executive Management Committee” for the purpose ofcontributing to sound and appropriate decision-making by the Representative
Director and President.
(iii) The Company develops long-term business plans, and operates and expands its
business in accordance with such long-term plans. The Company also predetermines
numerical targets for each business year for inclusion in such long-term plans, andconducts the evaluation of business results and the control of budgets in relation tosuch numerical targets. The Company reports to the Board of Directors every monthon the status of achieving such numerical targets.
(5) Corporate system for an assistant to Audit & Supervisory Board Members to beappointed at the request of such Members(i) At present, the Company has no employee to act as an assistant to Audit &Supervisory Board Members. Audit & Supervisory Board Member, however, may
request that the Representative Director and President appoint such an assistant, andif deemed to be necessary, the Representative Director and President shall appointsuch an assistant.

- 32 -

(ii) Any employee shall, if and when he/she is ordered by an Audit & Supervisory Board
Member in the performance of audit-related tasks, not receive any instruction or
direction from the Director in charge, the internal audit section or any other similar
section; further instruction or direction is to be received from the Audit &Supervisory Board Member.
(6) Corporate system for Directors and employees to report to corporate auditors; corporate
system for other reports to corporate auditors to ensure the efficient performance ofaudits by corporate auditors(i) Any Director or other executive officer shall, if and when he/she becomes aware of
any fact which threatens to cause any significant damage or coud adversely influence
the Company, promptly inform the Audit & Supervisory Board Member thereof.
(ii) Audit & Supervisory Board Members may attend Board of Directors’ meetings,
Executive Management Committee meetings, and any other important meetings forthe purpose of gaining a better understanding of the decision-making process andconditions of business execution.
(iii) The Audit & Supervisory Board provides an opportunity for all Directors andemployees having significant work responsibilities to discuss on an individual basis.
(iv) The Audit & Supervisory Board holds meetings for the mutual exchange of views
and opinions with the Representative Director and President, and independent
auditors.

- 33 -

Balance Sheet(As of December 31, 2014)
Item(Assets)
Current assets
Cash and deposits
Accounts receivable-tradeMarketable securities
Merchandise and finished goods

Supplies
Prepaid expenses
Advances paid
Consumption taxes receivable

Forward exchange contracts
Other
Noncurrent assets
Property, plant and equipment

Buildings
Tools, furniture and fixtures(Accumulated depreciation)
Intangible assets

Amount7,290,088
5,692,075
272,656
899,256
244,588379
36,69059,84019,97433,23531,392
163,710
48,996
21,87447,032(19,911)66,073

Software
Software in progress

62,2732,556

Lease assets

1,243

Investments and other assets

48,641Long-term prepaid expenses

1,351

Lease and guarantee
deposits

47,289Total assets

7,453,799(Unit: thousands of yen)Amount(Liabilities)
Current liabilities
487,946
Accounts payable-trade305,996
Lease obligations
692
Accounts payable-other142,884
Income taxes payable
21,254Other
17,119Item

Noncurrent liabilities
Lease obligations
Provision for retirement benefits

Total liabilities(Net assets)
Shareholders’ equity
Common stock
Capital surplus
Legal capital surplus
Retained earnings(Accumulated deficit)
Other retained earnings
Retained earnings(Accumulated deficit)
brought forward

Treasury stock
Valuation and translation
adjustments
Unrealized holding
gain(loss) on securities
Stock acquisition rights
Total net assets
Total liabilities and net assets(Note) Amounts less than one thousand yen have been omitted.

- 34 -

2,276
642
1,634
490,223
6,764,019
8,330,775
8,300,775
8,300,775(9,867,514)(9,867,514)(9,867,514)
(17)
(744)
(744)
200,300
6,963,576
7,453,799

Statement of Operations
January 1, 2014
( toFrom
December 31, 2014 )(Unit: thousands of yen)
Item

AmountI. Net sales
II. Cost of goods sold1,955,027
1,428,388

Gross profit
III.Selling, general and administrative expenses

526,639
1,829,918

Operating loss
IV. Non-operating income
Interest income
Interest on securities
Foreign exchange gains
Dividend income from insurance
Other(1,303,279)
16,372
8,475
188,922
1,116
364

V. Non-operating expenses
Interest expenses
Commission fees
Stock issuance costs
Bond-issue expenses
Other

67
9,596
10,18490
2,438

Ordinary loss
VI. Extraordinary income
Gains on reversal of stockacquisition rights

215,251

22,288(1,110,316)

VII. Extraordinary loss
Loss on retirement of noncurrent
assetsLoss before income taxes
Income taxes – current
Net loss

1,555

1,555

3,317

3,317

3,800

(1,112,077)
3,800(1,115,877)(Note) Amounts less than one thousand yen have been omitted.

- 35 -

Statement of Changes in Net Assets
January 1, 2014
( Fromto December 31, 2014 )(Unit: thousands of yen)
Shareholders’ equity
Retained earnings
Capital surplus (Accumulated
deficit)Commonstock

Balance at beginning of the year

Total
Treasuryshareholders’stockequityLegal capital Retained earnings
surplus(Accumulated
deficit) brought
forward
Other retained
earnings

8,058,860

8,028,860(8,751,636)(17)

7,336,067

271,915

271,915－－543,830

Net loss－－(1,115,877)－(1,115,877)

Net changes of items other thanshareholders' equity
Total changes of items during the
year

－

－

－

－

－

271,915

271,915(1,115,877)－(572,047)

8,330,775

8,300,775(9,867,514)(17)

6,764,019

Changes of items during the year
Issuance of new shares

Year-end balance

Valuation and translation adjustments

StockacquisitionrightsTotal net assets

167

96,761

7,432,996－－－

543,830－－－(1,115,877)

(911)

(911)

103,539

102,627

(911)

(911)

103,539(469,419)

(744)

(744)

200,300

6,963,576

Unrealized holding
gain (loss) on
securities

Total valuationand translation
adjustments

167

Issuance of new shares
Net loss

Balance at beginning of the year
Changes of items during the year

Net changes of items other thanshareholders' equity
Total changes of items during theyear
Year-end balance(Note) Amounts less than one thousand yen have been omitted.

- 36 -

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

Derivative financial instruments are stated at fair value.

Inventories

Inventories held for the purpose of ordinary sale aremeasured at lower of cost determined by the weighted
average method or net selling value.

(2) Depreciation of noncurrent assets
Property, plant and equipment Straight-line method(excluding lease assets)
The useful lives of major assets are as follows:
Building
3 to 18 years
Tools, furniture and fixtures
5 to 10 years
Intangible assets(excluding lease assets)

Straight-line method
Capitalized software costs are being amortized over theperiod of the internal use of 5 years.

Lease assets

Depreciation is calculated on the straight-line method
over the lease term with no residual value.

(3) Accounting for deferred assets
Stock issuance costs are expensed when incurred.

- 37 -

(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
accounts

The allowance for doubtful accounts is provided at an
amount determined based on the historical experience ofbad debt with respect to ordinary receivables and an
estimate of uncollectible amounts determined byreference to specific doubtful receivables from customers
experiencing financial difficulties.
As of December 31, 2014, no allowance for doubtful
accounts provided due to no historical experience of bad
debt and no receivable balances deemed to beuncollectible.

Provision for retirement
benefits

The provision for retirement benefits is provided at theamount of retirement benefit obligations required as of
the balance sheet date.
For calculation of the provision for retirement benefits
and retirement benefit expenses, the Company adopts thesimplified method, where retirement benefit obligations
are estimated at the amount of retirement benefit
payments required for voluntary terminations as of thebalance sheet date.

(6) Accounting for consumption taxes
Transactions are recorded at amounts exclusive of consumption tax.
(Change of presentation)“Bond-issue expenses,” which were separately presented under “non-operating expenses” forthe previous fiscal year, have been included as “other” in the current fiscal year since such
expenses are deemed to be insignificant in terms of amount.
(Notes on balance sheet)
Not applicable.
(Notes on income statement)
R&D expenses included in general and administrative expenses- 38 -

774,103 thousand yen

(Notes on statement of changes in net assets)(1) Shares issued and outstanding / Treasury stock(Unit: number of shares)

Commonstock

At beginning of theyear

Increase

Decrease

Shares issued

30,634,257

1,756,666-

32,390,923

Treasury stock

75

-

-

75

At year-end(2) Number of shares to be issued upon the exercise of stock acquisition rights issued at the endof the current fiscal year
Common stock
5,613,425 shares(Note) Excludes stock acquisition rights if the commencement date of the exercise period has not yet
arrived.

(Notes on deferred tax accounting)Significant components of deferred tax assets
Deferred tax assets:
Excess depreciation for lump-sum depreciable assets
Excess amortization for deferred assets
Research and development expenses
Accounts payable-other
Provision for retirement benefits
Enterprise tax payable
Asset retirement obligation
Share-based compensation expense
Loss carried forward
Subtotal
Valuation allowance
Total deferred tax assets(Notes on properties under lease arrangements)
Not applicable.

- 39 -(thousands of yen)
2,339
76,203
835,059
8,342
582
6,897
786
36,584
1,739,209
2,706,006(2,706,006)－

(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 issuance of new stock). Temporary surplus fundis invested in financial instruments which are highly safe and liquid.
As a principle, the Company does not enter into derivative transactions for speculative
trading purposes, but uses them within the scope prescribed in internal rules.
(ii) Types of financial instruments and related risks
Operating receivables such as accounts receivable-trade and advances paid inconnection with joint development are exposed to credit risk of customers and joint
development partners. Operating receivables denominated in foreign currencies are
exposed to foreign exchange fluctuation risk.
The Company intends to invest in marketable and investment securities which have arelatively low risk of falling below initial investments. However, such securities may
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 internal rules
based on balances of receivables and payables denominated in foreign currencies, as wellas actual volume of export and import transactions denominated in foreign currencies.
Lease and guarantee deposits are mostly security deposits related to rented officespace, and such refunds are subject to credit risk of the lessor.
Lease obligations are associated with finance lease transactions that intend to financecapital expenditures, and the longest maturity date of such lease terms is two years after
the fiscal year-end.
(iii) Risk management for financial instruments
1. Monitoring of credit risk (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- 40 -

balances on a customer-by-customer basis. In addition, the Company is making
efforts to promptly identify and mitigate the risk of bad debt from customers who arehaving 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 the risk offalling below initial investments by investing in securities having a satisfactory credit
rating and investment period in accordance with internal investment policies.
The Company enters into forward exchange contracts in order to avoid foreignexchange fluctuation risk in connection with receivables and payables denominated inforeign currencies.
Following appropriate authorization procedures prescribed in internal rules, theFinance & Accounting Department execute and monitor derivative transactions.
Monthly transaction performance is reported to the Executive Management
Committee.
3. Monitoring of liquidity risk (the risk that the Company may not be able to meet its
obligations on scheduled due dates)
Based on the report from each department, the responsible department of theCompany prepares and updates its cash flow plans on a timely basis to ensureliquidity is maintained in managing liquidity risk.
(iv) Supplementary explanation of the estimated fair value of financial instruments
The fair value of financial instruments is based on the quoted market price whenavailable. When no quoted market price is available, fair value is reasonably estimated.
Given that various assumptions and factors are reflected in the estimation of fair value,
different assumptions and factors could result in a different fair value estimate.
(v) Concentration of credit risk
As of December 31, 2014, all operating receivables are from one major customer.

- 41 -

(2) Fair value of financial instruments
Carrying value on the balance sheet, fair value and the difference as of December 31,
2014 are as follows.
(Unit: thousands of yen)
Carrying value(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

Fair value

Difference

5,692,075
272,656
899,256
59,84019,974

5,692,075
272,656
899,256
59,84019,974－－－－－

6,943,803

6,943,803－

305,996692
142,884
21,254642

305,996693
142,884
21,254
642

－
1
－
－
0

471,470

471,472

1

Derivative transactions, total (*)
33,23533,235－(*) 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 to be fair value since scheduled to be settled
in a short period of time.
(3) Marketable securities
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
payableThe carrying value is deemed to be the fair value since scheduled to besettled in a short period of time.
(2) Lease obligations (current) and (5) Lease obligations (non-current)- 42 -

The fair value of lease obligations is determined at present value calculatedby discounting the total amounts of principle and interests at a presumable rateused for similar 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 for which fair value is extremelydifficult to determine
Lease and guarantee deposits (carrying value of 47,289 thousand yen) are notincluded in the above tables since no market quote is available and their fairvalue is extremely difficult to determine.
(Note) 3. The redemption schedule for monetary assets and securities with maturities

5,692,064
272,656

Due after
one yearthrough five
years
－
－

500,000
400,000
59,8406,924,561－－－－

Due in one
year or less
Deposits
Accounts receivable-tradeMarketable securities
Available-for-salesecurities with maturities
Debt securities
Corporate bonds
Other
Advances paid
Total

- 43 -(Unit: thousands of yen)
Due after
five years
Due after
through ten
ten years
years
－
－
－
－

－
－
－
－

－
－
－
－

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

692

－

－

－

－

－

－

642

－

－

－

－

692

642

－

－

－

－

(Notes on investment and rental properties)
Not applicable.
(Notes on equity in earnings)
Not applicable.
(Notes on transactions with related parties)
Transactions with related parties
Officers and major shareholders (limited to individuals) etc. of the Company
Category

Officer(Note)Name ofcorporation orindividualBusiness
description
or duties

Representative
Director,
Fuminori Yoshida President andCEO of theCompany

Percentage
of votingrightsownedContent oftransactions

Transaction
amount(thousands of
yen)

Item

Remainingbalance(thousandsof yen)

9.63%
owned

Exercise ofstock options

43,830(90,000 shares)－－

The above pertains to stock acquisition rights granted by resolution of theCompany’s Extraordinary General Meeting of Shareholders held on June 20,
2005, and exercised during the current fiscal year.

- 44 -

(Notes on per-share information)(1) Net assets per share(2) Net loss per share
Average number of shares outstanding during the year

208.80 yen(36.26) yen
30,776,721 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: thousands of yen)
1,350,000
1,350,000(Significant subsequent events)
Not applicable.

- 45 -

Independent Auditor’s ReportFebruary 24, 2015
The Board of Directors
Symbio Pharmaceuticals Limited
Ernst & Young ShinNihon LLC

Eishi Yoshida
Certified Public Accountant
Designated and Engagement Partner

Tomoaki Minamiyama
Certified Public Accountant
Designated and Engagement Partner

Kazuto Shiratori
Certified Public Accountant
Designated and Engagement Partner

Pursuant to Article 436, Section 2, Paragraph 1 of the Companies Act, we have audited theaccompanying financial statements, which comprise the balance sheet, the statement of income,the statement of changes in net assets, the notes to the financial statements and the related
supplementary schedules of Symbio Pharmaceuticals Limited (the “Company”) applicable tothe 10th fiscal year from January 1, 2014 through December 31, 2014.
Management’s Responsibility for the Financial Statements and the Related Supplementary
Schedules
Management is responsible for the preparation and fair presentation of these financial
statements and the related supplementary schedules in accordance with accounting principles
generally accepted in Japan, and for designing and operating such internal control as
management determines is necessary to enable the preparation and fair presentation of the- 46 -

financial statements and the related supplementary schedules that are free from material
misstatement, whether due to fraud or error.
Auditor’s Responsibility
Our responsibility is to express an opinion on these financial statements and the related
supplementary schedules based on our audit. We conducted our audit in accordance withauditing standards generally accepted in Japan. Those standards require that we plan andperform the audit to obtain reasonable assurance about whether the financial statements and therelated supplementary schedules are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts anddisclosures in the financial statements and the related supplementary schedules. The procedures
selected depend on the auditor’s judgment, including the assessment of the risks of material
misstatement of the financial statements and the related supplementary schedules, whether due
to fraud or error. The purpose of an audit of the financial statements is not to express an opinion
on the effectiveness of the entity’s internal control, but in making these risk assessments theauditor considers internal controls relevant to the entity’s preparation and fair presentation of
the financial statements and the related supplementary schedules in order to design audit
procedures that are appropriate in the circumstances. An audit also includes evaluating theappropriateness of accounting policies used and the reasonableness of accounting estimates
made by management, as well as evaluating the overall presentation of the financial statements
and the related supplementary schedules.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide abasis for our audit opinion.
OpinionIn our opinion, the financial statements and the related supplementary schedules referred toabove present fairly, in all material respects, the financial position and results of operations ofSymbio Pharmaceuticals Limited applicable to the 10th fiscal year ended December 31, 2014 inconformity with accounting principles generally accepted in Japan.
Conflicts of Interest
We have no interest in the Company which should be disclosed in compliance with theCertified Public Accountants Act.

- 47 -

Report of Audit & Supervisory Board
We, Audit and Supervisory Board Members, prepare this report of audit with regard to the
execution of Directors’ duties during the 10th Term from January 1, 2014 to December 31,
2014, as the uniformed opinion of all Audit and Supervisory Board Members after careful
discussion based on the audit reports prepared by respective Audit and Supervisory Board
Members, and report as follows.
1. Method and Contents of Audit by the Audit & Supervisory Board Member and the Audit &Supervisory Board
The Audit & Supervisory Board formulated the audit policy and plan for the Term reported,
and received the reporting from respective auditors with regard to the state of implementation
and results of audits as well as received the reporting from directors and the accounting auditor
with regard to the state of execution of their duties requesting additional explanations as
deemed necessary.
Respective auditors, in conformity with the standards for audits by Audit & Supervisory
Board Members that the Audit & Supervisory Board set forth and in accordance with the audit
policy and plan for the Term, strove to collect information and improve audit environments bycommunicating with directors, the internal audit section, and other employees. We also
attended Board of Directors’ meetings and other important meetings, received the reportingfrom directors and employees with regard to the state of execution of their duties requesting
additional explanations as deemed necessary, reviewed documents for important settlements,
and researched the situation of operations and assets. Moreover, we monitored and inspected
the states of the system to ensure that the execution of Directors’ duties described in thebusiness report were compliant with laws and ordinances and the Company’s Article of
Incorporation and other systems required to secure the appropriateness of operations as a stockcompany maintained based on the contents of resolution by the Board of Directors with regard
to the maintenance of systems stipulated by Ordinance for Enforcement of the Companies Act
Article 100 (1) and (3) (hereinafter the “Internal Control System”). Based on the method
described above, we reviewed the business report and supplementary documents with regard to
the Term reported.
In addition, we monitored and inspected independent position of accounting auditor and theexecution of appropriate audits by the accounting auditor, as well as received the reportingfrom the accounting auditor with regard to the state of execution of its duties requesting
additional explanation as deemed necessary. Besides, we received the notification from theaccounting auditor that “the system to ensure that its duties are executed as appropriate (the- 48 -

items listed by respective paragraphs of Ordinance on Accounting of Companies Article 131)”and maintained in accordance with “the standards for quality control of audits (BusinessAccounting Council, October 28, 2005)” requesting additional explanation as deemednecessary. Based on the method described above, we reviewed the financial report (includingbalance sheet, profit and loss statement, statement of changes in net assets, and notes on nonconsolidated financial statements) and supplementary statements for the Term reported.
2. Results of audit(1) Results of audit of business reporta. We admit that the business report and supplementary statements fairly present theCompany’s situation in accordance with laws and ordinances and the Company’s
Articles of Incorporation.
b. Any misconduct in the execution of Directors’ duties or any material facts inviolation of laws and ordinances and the Company’s Articles of Incorporation are
not noticed.
c. We admit that the contents of resolution by the Board of Directors with regard to
the Internal Control System are appropriate. Also, there is no matter to be noted as
for the descriptions in the business report regarding such Internal Control Systemand the execution of Directors’ duties.
(2) Results of audit of financial statements and the related supplementary statements
We admit that the method for and result of audits conducted by Ernst & Young
ShinNihon LLC, the accounting auditor, are appropriate.

February 27, 2015

- 49 -

Audit & Supervisory Board,
SymBio Pharmaceuticals Limited

Koshi Ohizumi, (seal)
Full-time Audit & Supervisory Board
Member (Outside)

Saneaki Ichijo, (seal)
Audit & Supervisory Board Member(Outside)

Chikara Shimazaki, (seal)
Audit & Supervisory Board Member(Outside)

End of Report- 50 -