English translation

March 7, 2014

Annual Report(January 1, 2013 through December 31, 2013)
1. Business Performance of SymBio Pharmaceuticals Limited(1) Business conditions and operating results
During the fiscal year ended December 31, 2013, the Japanese economy continued torecover mildly due to the impact of economic and financial policies leading to depreciationof the yen, rise in stock prices, and improvement in corporate revenues and employment.
Overseas, while as a whole, the general tendency is that of recovery, there are causes forconcern such as the prolonged sovereign debt crisis in Europe and slowdown in growth of
the Chinese economy.
The pharmaceutical industry continued to face a severe business environment, especiallyfor manufacturers of new drugs, even though there was no drug price revision this fiscal year,
because of the political measures to reduce medical expenses including promotion of use ofgeneric drugs and review of the medical system.
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®)]
Since December 2010, the Company has marketed the anticancer drug SyB L-0501 in
Japan through its business partner Eisai Co., Ltd. (hereinafter “Eisai”), for the indicationsof refractory/relapsed indolent non-Hodgkin’s lymphoma and mantle cell lymphoma.
The Company has also carried out three clinical trials on TREAKISYM® foradditional indications.
With respect to the Phase II clinical trial for the indications of previously untreatedindolent non-Hodgkin’s lymphoma and mantle cell lymphoma, the last enrollment wascompleted in October 2013, and the study data are currently being analyzed andevaluated in preparation for submission. The application for approval in the EU has
already been submitted by Astellas Pharma Europe, and is currently being reviewed by
the European Medicines Agency (hereinafter “EMA”).
The Phase II clinical trial for the indication of chronic lymphocytic leukemia wasinitiated in May 2013, and favorable progress has been made with enrollment of patients.
- 1 -In this connection, TREAKISYM® was designated an orphan drug (pharmaceutical fortreatment of rare diseases) for the indication of chronic lymphocytic leukemia during
June 2012.
Discussion about future approaches to development for refractory/relapsed aggressive
non-Hodgkin’s lymphoma is currently being continued with the Pharmaceuticals andMedical Devices Agency (“PMDA”).
On the other hand, in the Phase II clinical trial on refractory/relapsed multiple myeloma,
which was carried out as part of the expansion of indications, although a dose of
90 mg/m2 TREAKISYM® was confirmed to be safe for Japanese patients on the basis ofinterim results, no patients were found to respond to this treatment, and it was judged that
it would be very difficult to achieve the target response rate with TREAKISYM®
monotherapy, even with inclusion of more patients in the study, so the study was
discontinued.
[SyB L-1101 (intravenous formulation) and SyB C-1101 (oral formulation), the generic name:rigosertib]
The Japanese Phase I clinical trial of the anticancer drug SyB L-1101(intravenous
formulation) for the indication of refractory/relapsed myelodysplastic syndrome (MDS),a type of blood tumor, has been continued.
With respect to SyB C-1101(oral formulation), the Japanese Phase I clinical trial for theintended indication of previously untreated MDS was initiated in March 2013.
[SyB D-0701]
The Phase II clinical trial of SyB D-0701, a transdermal antiemetic patch, for theindication of radiotherapy-induced nausea and vomiting was completed during January
2013. However, the expected results with respect to efficacy were not achieved.
(ii) Overseas
SyB L-0501 sold largely as planned in South Korea, Taiwan and Singapore. In
Singapore and South Korea, we sell the product through Eisai, as we do in Japan, and thesales figures have been going up steadily.
(iii) Business results
As a result of the above, net sales totaled 1,532,054 thousand yen for the fiscal year
ended December 31, 2013, primarily reflecting sales of SyB L-0501 in Japan and theother Asia Pacific territories. The net sales amount was decreased by 21.6% compared tothe previous year by following review of the current market inventory level of- 2 -TREAKISYM®.
Selling, general and administrative expenses totaled 1,998,522 thousand yen (a yearon-year decrease of 12.9%), including research and development (“R&D”) expenses of
1,052,790 thousand yen (a year-on-year decrease of 26.8%) due to the accrual of
expenses associated with the clinical trials for multiple indications for SyB L-0501,
clinical trials for SyB L-1101 and SyB C-1101, as well as other selling, general andadministrative expenses of 945,731 thousand yen (a year-on-year increase of 10.6 %).
As a result, operating loss of 1,680,528 thousand yen was recognized for the fiscal year
ended December 31, 2013 (operating loss of 1,700,273 thousand yen for the previous
fiscal year). In addition, recording of amount totaling 35,363 thousand yen as nonoperating expenses, primarily comprising commissions and stock-issuance expenses, andamount totaling 114,467 thousand yen as non-operating income, primarily comprisingforeign exchange gains, led to ordinary loss of 1,601,424 thousand yen (ordinary loss of
1,729,480 thousand yen for the previous fiscal year) and net loss of 1,605,224 thousandyen (net loss of 1,733,320 thousand yen for the previous fiscal year).
Segment information is omitted since the Company operates a single segment ofpharmaceutical business including research and development of pharmaceutical drugs aswell as manufacturing, marketing and other related activities.
(2) Status of fund procurement, etc.
(i) Fund procurement
The Company made a resolution on December 27, 2012 to issue the first 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 the29th warrant (total issue price: 5.1 million yen, total issue price of stocks when issued
through exercising the stock acquisition rights: 500 million yen). 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. Additionally, the stockacquisition rights of the 29th warrant were partially exercised and the paid-in amount of
199,998 thousand yen had been received by the end of January 2013.
The Company made a resolution on November 19, 2013 regarding the issuance of newshares and secondary offering of shares through a public offering and through a third
party allotment. Accordingly, the payments of 2,503,744 thousand yen and 321,118
thousand yen had been completed on December 4, 2013 and December 25, 2013,
respectively.
(ii) Capital investment- 3 -Not applicable.
Status of assets and profit and loss in the current fiscal year and the three preceding
fiscal years(Unit: thousands of yen, except for per-share figures)
Fiscal year

FY 2010The 6th Term

FY 2011
The 7th Term

FY 2012The 8th Term

FY 2013
The 9th Term(current)

Net sales

1,449,972

1,882,521

1,955,178

1,532,054

Operating loss

(612,793)(2,066,846)(1,700,273)(1,680,528)

Ordinary loss

(638,375)(2,095,382)(1,729,480)(1,601,424)

Net loss(642,307)(2,104,513)(1,733,320)(1,605,224)

Net loss per share (yen)(5,933.47)(143.60)(90.60)(69.29)Total assets

4,262,783

7,256,094

5,502,190

7,686,947

Net assets

4,083,064

6,605,564

4,899,957

7,432,996

Net assets per share (yen)36,541.74

345.28254.71

239.48Classification

The Company conducted a 100-for-1 stock split effective on June 2, 2011.

(3) Issues to be solved
The Company will solve the following important issues:(i) Further expansion of pipeline
In order to enhance the enterprise value as a specialty pharmaceutical company, weneed to expand the pipeline through continually in-licensing of new candidate drugs fordevelopment.
Clinical trials are underway for our products: SyB L-0501 (anti-cancer drug), SyB L1101 (the intravenous formulation)/C-1101 (the oral formulation). We continue withongoing efforts to in-license new products in order to expand our pipeline. In addition,
progress is currently being made with evaluation and licensing negotiation of several new
candidate products.
(ii) Pursuit of life cycle management of TREAKISYM® (SyB L-0501) and rigosertib (SyB
L-1101/ SyB C-1101)
In order to enhance the enterprise value, it is critical to maximize returns from eachdrug under development by adding new indications for developed drugs after their initialintroduction in pursuit of life cycle management.
- 4 -TREAKISYM® has received the approval for manufacture and marketing with theapproved indications of refractory/relapsed indolent non-Hodgkin’s lymphoma andrefractory/relapsed mantle cell lymphoma. For additional indications, Phase II clinical
trials were completed for refractory/relapsed aggressive non-Hodgkin's lymphoma, andPhase II clinical trials are underway for untreated indolent non-Hodgkin's lymphoma,
untreated mantle cell lymphoma and untreated chronic lymphocytic leukemia. Progress isbeing made with development of intravenous and oral rigosertib formulations for theindication of myelodysplastic syndrome. No useful therapeutic agents are currently
available for this indication, so it is an area with very high unmet medical needs.
The Company will determine the domestic development strategy for SyB L-1011(intravenous formulation), taking into account results of Phase III clinical trial for
relapsed or refractory high risk MDS announced in February of this year by Onconova
Therapeutics, Inc. (U.S.A., “Onconova”), and anticipated discussions between Onconova
and U.S. Food and Drug Administration (“FDA”). We intend to continue the Phase I
clinical trial that are currently in progress in Japan.
The aim for the future is to maximize the value of TREAKISYM® and rigisertib byfurther expansion of indications and by following through with life-cycle management.
(iii) Expansion to other Asian regions
The Company positions China, South Korea, Taiwan, and Singapore as our important
strategic geographic domains in addition to Japan. In these areas, high growth ineconomy 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 in China, South
Korea, Taiwan, and Singapore as well as Japan. We believe that significant medical needs
exist for SyB L-0501 in these countries. We also plan to develop and market SyB L-1101/
SyB C-1101 in South Korea other than Japan. We will aggressively launch clinical trials
on these drugs and apply for marketing approvals in these Asian countries.
(iv) 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 organizationin particular. We plan to further strengthen our human resources by providing
development programs such as OJT and other trainings.

- 5 -(v) 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 ofdrug candidates 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.
(4) Major business activities (As of December 31, 2013)
The Company regards underserved therapeutic areas that lack the development of new
drugs despite extremely significant medical needs as business opportunities. We engage inthe development of new drugs focusing on the areas of oncology, hematology, andautoimmune diseases, from search, development and manufacture to sales as the maincontents of our business.
(5) Main offices and employees(i) Main offices (As of December 31, 2013)
Name

Location

Main office

Minato-ku, Tokyo(ii) Employees (As of December 31, 2013)

Male

48

Increase or(decrease) fromprevious fiscal
year end
3 decrease

Female24

Total or average

72

Classification

Number of
employees

Average age(years)Average years ofservice

50.2

4.3

1 decrease

41.1

3.2

4 decrease

47.2

4.0

(Notes) 1. Number of employees represents number of individuals in work.
2. Eight temporary employees are not included in the above number of employees.
(6) Status of parent company and significant subsidiaries
Not applicable.
(7) Status of main lenders (As of December 31, 2013)
Not applicable.

- 6 -2. Matters related to stocks (As of December 31, 2013)(1) Total number of authorized shares

Common stock

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

Common stock

30,634,182 shares(Excluding 75 shares oftreasury stock)
13,057(3) Number of shareholders(4) Major shareholders (10 largest ones)
Name of shareholders

Number of shares held

Shareholding ratio

Fuminori Yoshida

3,030,000

9.9％

Cephalon, Inc.

2,589,000

8.5％

JAFCO V2 Investment LP

1,843,900

6.0％

Eisai Co., Ltd.

833,400

2.7％

Waseda No.1 Investment LP

684,000

2.2％

SBI SECURITIES Co., Ltd.

549,400

1.8%

Waseda Global No.1 Investment LP

500,000

1.6％

GMO CLICK Securities, Inc.

473,800

1.5%

Japan Securities Finance Co., Ltd.

295,800

1.0%

TNP On the Road No1. Investment LP

254,000

0.8％(Note) The calculation of percent of issued shares excludes treasury stock from number of shares
outstanding.

- 7 -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 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, 2013)- Number of stock acquisition rights
2,920-

Number of shares to be issued upon exercise of stockacquisition rights

292,000-

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
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, 2013)-

Number of stock acquisition rights

3,445

-

Number of shares to be issued upon 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- 8 -From April 1, 2012To
March 31, 2020

Number of stockacquisition rights

Number of shares

Number 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, 2013)- Number of stock acquisition rights
1,530-

Number of shares to be issued upon 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, 2012To
March 31, 2020

200-

20,000-1-(iv) Stock acquisition rights granted by the resolution of the Ordinary General Meeting of
Shareholders held on March 30, 2011 (The 24th series of stock acquisition rights)(As of December 31, 2013)- Number of stock acquisition rights
1,920-

Number of shares to be issued upon 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- 9 --Period during which stock acquisition rights may be
exercised

From March 31, 2013To
March 30, 2021

Status of possession by the Company’s Directors andAudit & Supervisory Board Members
Number of stock
Number of sharesacquisition rights
Directors (excluding
1,420
142,000
Outside Directors)-

Outside Directors
Audit & Supervisory
Board Members

300-

Number of holders
2

30,000-2-(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, 2013)- Number of stock acquisition rights
3,625-

Number of shares to be issued upon 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, 2014To
April 17, 2022

Number of shares

Number of holders

Directors (excluding
Outside Directors)

3,000

300,000

2

Outside Directors

625

62,5002

Audit & Supervisory
Board Members

-

-

-

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

Number of shares to be issued upon exercise of stock- 10 -

116,000

acquisition rights-

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)

855

85,5002

Outside Directors

305

30,5003

Audit & Supervisory
Board Members

-

-

-

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

(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 28, 2013 (The 31st series of stock acquisition rights)-

Number of stock acquisition rights

1,240

-

Number of shares to be issued upon exercise of stockacquisition rights

124,000-

Amount paid for stock acquisition rights

None

-

Amount of asset to be invested at the exercise of eachstock acquisition right (Note) 1

799 yen-

Period during which stock acquisition rights may be
exercised- 11 -

From May 15, 2015
To
May 14, 2023

-Conditions for the exercise of stock acquisition rights
1. Fraction less than one unit of a stock acquisition right shall be unexercisable.
2. Those who were granted the right may exercise all or part of therights in accordance with the following classifications:a) Those who were granted the stock acquisition rights may exercise
the rights within the limit of one-fourth (1/4) from May 15, 2015
to May 14, 2016.
b) Those who were granted the stock acquisition rights may exercise
the rights within the limit of one-half (1/2) from May 15, 2016 to
May 14, 2017.
c)Those who were granted the stock acquisition rights may exercise
the rights within the limit of three-fourths (3/4) from May 15,2017 to May 14, 2018.
d) Those who were granted the stock acquisition rights may exercise
all the rights from May 15, 2018 to May 14, 2023.
3. Those who received the allotment of the stock acquisition rights(hereinafter the “Holder”) must be in a status of the Director,
Audit & Supervisory Board Member or employee of the Company
or its affiliates at the time of exercise. However, this is notnecessarily the cases where;a)The Holder is the Director or Audit & Supervisory Board Memberof the Company or its affiliates and retires due to the expiry ofher/his term.
b)The Holder is the employee of the Company or its affiliates andretires due to the compulsory retirement.
c)The Holder is the Director, Audit & Supervisory Board Member
or employee of the Company or its affiliates and the Board of
Directors resolves that he/she resigns or retires with honorable
recognition.
4. The Holder shall exercise the rights starting from the date ofresolution by the below-mentioned Shareholders’ meeting or the
Board of Directors’ meeting until one day before the effective dateof the Organizational Restructuring as followed, regardless theconditions of exercise period originally stipulated, when the
Organizational Restructuring are approved by the resolution of theCompany’s Shareholders’ meeting (including the case where- 12 -

resolution of a Shareholders’ meeting is deemed to exist pursuant to
the provision of Article 319 of the Companies Act) or the Board of
Directors’ meeting (limited to the case where no Shareholders’meeting is required for the said Organizational Restructuring) before
the exercise period (hereinafter the “Exercise Period”) of the stockacquisition rights comes into effect: an absorption-type merger or an
incorporation-type merger where the Company becomes adissolving company and an absorption-type split or an
incorporation-type company split where the Company becomes a
split company or a share exchange or a share transfer where theCompany becomes a wholly-owned subsidiary (collectively,“Organizational Restructuring” as mentioned above).
5. In the event where;a)The Holder died before the Exercise Period comes into effect, theinheritor shall exercise the rights of up to one-half (1/2), orb)The Holder died during the Exercise Period, the inheritor shall
exercise all the rights within six months from the commencementof inheritance.
However, in the event that the inheritor died, the rights shall bediscarded and shall not be exercised by his/her inheritor.
6. The stock acquisition rights shall not be offered for pledge or
disposed of in any other way.
-Status of allotment to the Company’s employees
Number of stockacquisition rights
Employees of theCompany

1,240 (Note) 2.

Number of shares

Number of hoders

124,000 (Note) 2.

68(Note) 1. The new shares were issued though the public offering on December 4, 2013 and the third
party allotment on December 25, 2013, at the paid-in amount less than value of peoperty to becontributed upon the exercise of each stock acquisition right. Therefore, the stated value ofpeoperty to be contributed upon the exercise of each stock acquisition right is adjusted inaccordance with the adjustment provision.
2. Of the stock acquisition rights mentioned above, 84 units (8,400 shares) had been forfeited dueto the retirement of employees.

(3) Other important matters concerning stock acquisition rights
None to be reported.

- 13 -

4. The Company’s Executives (As of December 31, 2013)(1) Name and primary matters of Directors and Audit & Supervisory Board Members
Status in the Company

Name

Responsibility and significant
concurrent position

Representative Director
and President

Fuminori Yoshida

Chief Executive Officer

Director

Takashi Shimomura

Executive Vice President andChief Financial Officer andHead of Corporate Division

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

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

Koshi Ohizumi
Saneaki Ichijo
Chikara Shimazaki(Note) 1. Of the Directors, Takako Ebata, Lowell Sears, George Morstyn and Milton Grannatt are Outside
Directors.
2. Koshi Ohizumi, Saneaki Ichijo 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, theposition that Tokyo Securities Exchange requires us to appoint.
4. Full-time Audit & Supervisory Board Member Koshi Ohizumi experienced accounting work foryears and has high insight on finance and accounting.
5. Audit & Supervisory Board Member Saneaki Ichijo is an attorney (Partner at Anderson, Mori &Tomotsune) and has high insight on corporate legal affairs.
6. Audit & Supervisory Board Member Chikara Shimazaki is a Certified Public Accountant(Representative of Shimazaki accounting office) and has high insight on finance and accounting.
7. Changes in Directors and Audit & Supervisory Board Members during the current fiscal year are as
follows:- Director Hiroki Maekawa resigned due to expiration of his term of office at the closing of the 8th
Ordinary General Meeting of Shareholders held on March 28, 2013.
- Each of Takashi Shimomura and Milton Grannatt was newly appointed and took office as a
Director at the 8th Ordinary General Meeting of Shareholders held on March 28, 2013.
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- 14 -

(2) Total amount of compensation to Directors and Audit & Supervisory Board
Members
Status in the Company
Number of persons paid
Amount paid (thousands of yen)
Directors
Audit & Supervisory
Board Members
Total

7(Outside: 4)3(Outside: 3)
10(Outside: 7)

105,639(Outside: 27,444)
18,428(Outside: 18,428)
124,067(Outside: 45,873)(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 thousand yen at the Extraordinary General Meeting of Shareholders held on August 3,
2005. Besides, in addition to aforementioned compensation, it was resolved that stock acquisitionrights would be granted within the maximum amount of 80,000 thousand yen (of which, 22,000
thousand yen to Outside Directors) as compensations stipulated in Article 361, Section 1 ofCompanies Act at the 8th Ordinary General Meeting of Shareholders held on March 28, 2013.
3. The maximum amount of compensation for Audit & Supervisory Board Members has been
resolved as the annual amount of 30,000 thousand yen at the Extraordinary General Meeting of
Shareholders held on June 30, 2011.
4. The number of persons paid stated above includes one Director who resigned at the closing of the
8th Ordinary General Meeting of Shareholders held on March 28, 2013.
5. The total compensation amount paid includes expenses (six (6) Directors 36,805 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. Status of main activities during the fiscal year reported
Takako Ebata attended 16 out of 18 meetings (attendance rate: 88.9%) of the Board of
Directors held during the fiscal year and spoke as needed.
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 the- 15 -

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.
(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. andVital 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 16 out of 18 meetings (attendance rate: 88.9%) of the Board of
Directors held during the fiscal year and spoke as needed.
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 relationshipbetween such companies and the Company- 16 -

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 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. Status of main activities during the current fiscal year
George Morstyn attended all of 18 meetings (attendance rate: 100.0%) of the Board of
Directors held during the fiscal year and spoke as needed.
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
Not applicable.
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 13 out of 14 meetings (attendance rate: 92.9%) of the Boardof Directors held after his appointment on March 2013 and spoke as needed.
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.
- 17 -

f. Amount of compensation received from the parent of the Company or its subsidiaries
Not applicable.
(v) 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. Status of main activities during the current fiscal year
(1) Status of attendance at the Board of Directors meetings
Koshi Ohizumi attended all 18 meetings (attendance rate: 100.0%) of the Board of
Directors held during the fiscal year and spoke as needed.
(2) Status of attendance at the Audit & Supervisory Board meetings
Koshi Ohizumi attended all 13 meetings (attendance rate: 100.0%) of the Audit &Supervisory Board held during the fiscal year and spoke as needed.
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.
(vi) Audit & Supervisory Board Member: 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 concurrent positions of Supervisory Director at Nomura Real Estate Office
Fund, Inc.
There is no business transaction between the above company and the Company.
- 18 -

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 17 out of 18 meetings (attendance rate: 94.4%) of theBoard of Directors held during the fiscal year and spoke as needed.
(2) Status of attendance at the Audit & Supervisory Board meetings
Saneaki Ichijo attended all 13 meetings (attendance rate: 100.0%) of the Audit &Supervisory Board held during the fiscal year and spoke as needed.
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) 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.
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 18 meetings (attendance rate: 100.0%) of the Boardof Directors held during the fiscal year and spoke as needed.
(2) Status of attendance at the Audit & Supervisory Board meetings
Chikara Shimazaki attended all 13 meetings (attendance rate: 100.0%) of the Audit& Supervisory Board held during the fiscal year and spoke as needed.
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 and- 19 -

there 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.
Each Outside Director appropriately advised and raised questions regarding resolutions
and reports by Board of Directors based on high personal insight of business administration,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 based onhigh 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.

- 20 -

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
Amount of compensation pertaining to services set forth in Certified
Public Accountants Act Article 2 (1)18,500,000 yen

The total amount of cash and property benefit to be paid by theCompany to the accounting auditor

26,550,000 yen(Note) 1. The amounts of compensations for the audits conducted in accordance with Companies Act andthe audits conducted in accordance with Financial Instruments and Exchange Act are notdistinguished in the contract agreement between the Company and the accounting auditor. It is
practically impossible to distinguish the compensations for these two types of audits; therefore
the total amount thereof is stated.
2. The Company commits to the accounting auditor with compensation, certain services(non-auditing services) regarding advice on Generally Accepted Accounting Principles in the U.S.,
other than services stipulated in Article 2 (1) of the Certified Public Accountants Act.

(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.

- 21 -

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 theCompany. 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 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 as to the performance byDirectors of their duties
The Company has the head of legal and general affairs as the person responsible forgeneral management of corporate documents to appropriately maintain and otherwise
control all important documents containing information as to the performance by- 22 -

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 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
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 ofcontributing to the sound and appropriate decision by the Representative Director andPresident.
(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 the Representative Director and President to appoint such assistant, and if andwhen so required, the Representative Director and President shall appoint suchassistant as far as deemed necessary.
(ii) Any employee shall, if and when he/she is ordered by the Audit & Supervisory Board- 23 -

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.
(6) Corporate system for Directors and employees to report to corporate auditors; corporate
system for other reports to corporate auditors and corporate system to ensure efficientperformance of audits by corporate auditors(i) Any Director or other executive officer shall, if and when he/she finds any fact which
threatens to cause any remarkable damage or adverse influence to the Company,
promptly inform the Audit & Supervisory Board Member thereof.
(ii) 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.
(iii) Audit & Supervisory Board gives any and all job-executing Directors and employeeswith significant responsibilities an opportunity of hearing individually from such
Directors and employees with regard to jobs in their charge respectively.
(iv) Audit & Supervisory Board holds meetings for mutual exchange of views andopinions with the Representative Director and President and independent auditors
respectively.

- 24 -

Balance Sheet(As of December 31, 2013)
Item(Assets)
Current assets
Cash and deposits
Marketable 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
SoftwareLease assets

Amount
7,633,962
6,163,231
1,100,270
125,056173
64,30687,86232,552
52,438(Liabilities)
Current liabilities
Lease obligations
Accounts payable-other
Income taxes payable
Other
Noncurrent liabilities
Lease obligations
Provision for retirement benefits

8,072

Total liabilities

52,985
8,632
7,705
33,921(32,994)
7,789
5,898

(Net assets)
Shareholders’ equity
Capital stock
Capital surplus
Legal capital surplus
Retained earnings (defisits)
Other retained earnings

1,891

Retained earnings (defisits)
brought forward

Investments and other assets

36,562Long-term prepaid expenses

9,427

Lease and guarantee
deposits

27,135

Total assets(Unit: thousands of yen)AmountItem

7,686,947

250,941682
207,134
22,554
20,569
3,009
1,334
1,675
253,950

7,336,067
8,058,860
8,028,860
8,028,860(8,751,636)(8,751,636)(8,751,636)

Treasury stock
Valuation and translation
adjustment
Valuation difference on
available-for-sale securities
Stock acquisition rights
Total net assets

96,761
7,432,996

Total liabilities and net assets

7,686,947(Note) Fractions less than one thousand yen have been omitted.

- 25 -

(17)
167
167

Statement of Operations
January 1, 2013
( toFrom
December 31, 2013 )(Unit: thousands of yen)
Item

AmountI. Net sales
II. Cost of sales

1,532,054
1,214,061

Gross profit
III.Selling, general and administrative expenses

317,993
1,998,522

Operating loss

(1,680,528)

IV. Non-operating income
Interest income
Interest on securities
Foreign exchange gain
Dividends income of insurance
Other

7,030
3,003
97,593
1,104
5,733

V. Non-operating expense
Interest expenses
Commission fee
Stock issuance cost
Bond-issue expenses
Other

31
10,734
23,383100
1,113

Ordinary loss

114,467

35,363(1,601,424)

Loss before income tax
Income taxes – current

3,800

Net loss(1,601,424)
3,800(1,605,224)(Note) Fractions less than one thousand yen have been omitted.

- 26 -

Statement of Changes in Net Assets
January 1, 2013
( Fromto December 31, 2013 )(Unit: thousands of yen)
Shareholders’ equity
Retained earnings
Capital surplus(defisits)
Capital stock

Balance at the beginning of the year

Total
Treasuryshareholders’stock
Legal capital
equityRetained earnings
surplus(defisits) brought
forward
Other retained
earnings

6,024,610

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

4,872,790

2,034,250

2,034,250－－

4,068,501

Net loss－－(1,605,224)－(1,605,224)

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

－

－

－

－

－

2,034,250

2,034,250(1,605,224)－

2,463,276

8,058,860

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

7,336,067

Changes of items during the year
Issuance of new shares

Balance at the end of the year

Valuation and translation adjustments
Valuation difference
on available-for-salesecurities

Total

Stock
acquisitionrightsTotal net assets－－

27,167

4,899,957

Issuance of new shares

－

－

－

4,068,501

Net loss－－－(1,605,224)

167

167

69,594

69,761

167

167

69,5942,533,038

167

167

96,761

7,432,996

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

Net changes of items other thanshareholders' equity
Total changes of items during theyear
Balance at the end of the year

(Note) Fractions less than one thousand yen have been omitted.

- 27 -

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 a 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
without determinablevalue are stated at cost determined by the moving
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 weightedaverage method or net selling value.

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

By 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 accounted for as expenses when incurred.
Bond-issue expenses are accounted for as expenses when incurred.

- 28 -

(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
which are experiencing financial difficulties.
As of December 31, 2013, no allowance for doubtful
accounts is provided due to no historical experience ofbad debt and no receivable balances that are deemed
uncollectible.

Provision for retirement
benefits

The provision for retirement benefits is provided at an
amount to be required as of the balance sheet date.

(6) Accounting for consumption tax
Transactions are recorded at amounts exclusive of consumption tax.
(Notes on balance sheet)
Not applicable.
(Notes on income statement)
R&D expenses included in general and administrative expenses

1,052,790 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 year

Increase

DecreaseAt the end of theyear

Shares issued

19,130,900

11,503,357-

30,634,257

Treasury stock

75

-

-

75

(2) Number of shares to be issued upon exercise of stock acquisition rights issued at the end of
the current fiscal year
- 29 -

Common stock

2,465,750 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
Account 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
Deferred tax liabilities
Valuation difference on available-for-sale securities
Total deferred tax liabilities
Net deferred tax liabilities(thousands of yen)
1,920
501
145,726
607,327
14,536
596
7,850
3,736
16,8292,012,894
2,811,921(2,811,921)
－
102
102
102

(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.

- 30 -

(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 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 three years after the
fiscal year end.
(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 outstandingbalances by individual customer. In addition, the Company is making efforts topromptly 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.
- 31 -

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 & Accounting, Corporate Planning Group executes and monitors derivativetransactions. 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
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, 2013, all operating receivables are from one particular major
customer.

- 32 -

(2) Fair value of financial instruments
Carrying value on the balance sheet, fair value and their difference as of December 31,
2013 are as follows.
(Unit: thousands of yen)
Fair value
Difference
6,163,231－
1,100,270－
87,862－32,552－(1) Cash and deposits(2) Marketable securities(3) Advances paid
(4) Consumption taxes receivable

Carrying value
6,163,231
1,100,270
87,86232,552

Assets, total(1) Lease obligations (current)(2) Accounts payable-other(3) Income taxes payable(4) Lease obligations (non-current)

7,383,915
682
207,134
22,554
1,334

7,383,915
683
207,134
22,554
1,334

－
0
－
－
0

231,706

231,7070

Liabilities, total

Derivative transactions, total (*)
52,43852,438－(*) 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, (3) Advances paid and (4) Consumption taxes receivable
The carrying value is deemed as the fair value since these are scheduled to
be settled in a short period of time.
(2) Marketable securities
The fair value of debt securities is based on the quoted price obtained fromfinancial institutions.
Liabilities(2) Accounts payable-other and (3) Income taxes payable
The carrying value is deemed as the fair value since these are scheduled to
be settled in a short period of time.
(1) Lease obligations (current) and (4) Lease obligations (non-current)
The fair value of lease obligations is determined at present value calculatedby discounting total amounts of principle and interests at a presumable rateused for similar new lease transactions.
Derivative transactions- 33 -

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 27,135 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

6,163,194

Due after
one yearthrough fiveyears－

499,940
600,330
87,862
7,351,326－－－－

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

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

－
－
－
－

－
－
－
－

(Note) 4. Maturities of lease obligations after the 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
throughthroughthrough five years
year or less throughtwo years three years four years five years
Lease obligations(current)
Lease obligations(non-current)
Total

682

－

－

－

－

－

－

692

642

－

－

－

682

692

642

－

－

－

- 34 -

(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

239.48 yen(69.29) yen
23,167,804 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.

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

- 35 -