Annual Report 2016

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Contents
Corporate Philosophy

2Business Fields

What Is Cybernics?

Robot Suit HAL®

“Cybernics” (adjective: Cybernic) is a new academic

Robot Suit HAL® is the world’s first cyborg-type robot.

field that is centered around cybernetics, mechatronics

HAL® was designed and developed to support and4and informatics fused/combined with various otherexpand the physical capabilities of its human users.

®

6

fields including brain/neuroscience, robotics, biology,

The name HAL® is short for Hybrid Assistive Limb®.

Business Model8behavioral science, psychology, law, ethics, andThe word “hybrid” refers both to the fact that HAL®

business administration. Cybernics is championed by

is a type of hybrid formed from a human being andPotential Markets

10

Dr. Yoshiyuki Sankai, a professor at the University ofa robot, and also to the fact that HAL® provides aBusiness Highlights

12

Tsukuba in Japan. Cybernic technology means the

mixture of voluntary control and autonomous control.

To Our Stakeholders

14

practical application of Cybernics to technology.

The word “assistive” refers to the fact that HAL®

Analyst Interview

18

Cybernic technology was developed as human-

any or all of our arms and legs. The foregoing explains

Corporate Governance28

assistive technology and is expected to be used in

the derivation of the name HAL® in the product Robot

MD&A

33

a wide range of fields covering medicine, welfare,

Suit HAL®, and furthermore, the name HAL® is also

disaster rescue and entertainment. Equipped withused for any related Cybernic devices that employ the

Risk Factors

35

the research and development foundation to develop

same principle as Robot Suit HAL®.

Share Information

42

technology applied to humans, Cybernics spans the

Financial Statements

48

Corporate & Investor Information

71

Robot Suit HAL

helps human beings, and the word “limb” refers to

gap between the various academic fields and social
regulations, known as “the valley of death,” that has
prevented the implementation of technology into
society, and allows for the smooth realization of total
systems that encompass humans, machines, andinformation systems from the basic research phases
to social implementation.

FORWARD-LOOKING STATEMENTS
Many of the statements included in this annual report contain forwardlooking statements and information such as forecasts, plans andtargets identified by the use of terminology such as “anticipate”,“believe”, “estimate”, “expect”, “intend”, “may”, “might”, “plan”, “project”,“will” or similar phrases. CYBERDYNE, INC. (the “Company”) bases
these statements on beliefs as well as assumptions made using
information currently available to the Company. As these statements
reflect the Company’s current views concerning future events, thesestatements involve risks, uncertainties and assumptions. The actual
future performance of the Company, its consolidated subsidiaries and its
affiliates accounted for by the equity method (the “Group”) could differ
materially from these forward-looking statements.
In addition, information relating to companies other than the
Company and the Group that is included in this annual report has been
derived from public sources. As a result, the Company has not verified
this information from the standpoints of accuracy and appropriateness.
Moreover, the Company in no manner guarantees this information.
Accordingly, please refrain from making investment decisions thatare overly reliant on the forward-looking statements contained in thisannual report. The Company cautions prospective investors not to place
undue reliance on these forward-looking statements when making
investment decisions. All written and oral forward-looking statements
attributable to the Company or persons acting on the Company’s behalf
are qualified in their entirety by these cautionary statements.

Research on Cybernics started in 1987 when Professor
Sankai of Tsukuba University, Japan started to plan thebasic concepts, and on 1991 he started to develop theprinciple behind the iBF theory, which was to become
the foundation of the technology that combines thehuman body with technology. In 1995, construction of
actual prototypes to validate this theory began and led
to the prototype of Robot Suit HAL® Lower Limb Type,and in 1999, a stand-alone experimental prototype of
HAL was developed. With this model, basic testing on
healthy subjects and a select group of subjects withdisabilities were conducted, and the development team
was able to acquire strong evidence to suggest thevalidity of their theory. The team’s challenge toward
complete evaluation and verification of the technology’s
effectiveness and the implementation of its application
in society has now begun.

Functional improvement /Regeneration treatment
Functional improvement/regeneration treatment is a
new treatment method of paraplegic patients using
Robot Suit HAL®. The device’s motorized assistance,
controlled in real-time by voluntary bio-electricalsignals and robotic autonomous control, allows
for Intrinsic Neuromuscular Feedback Treatment.
The treatment helps to reestablish the interactive
biofeedback loop between the brain’s command tomove and the various sensory signals received fromthe resulting movement, and promotes the functional
improvement of the physical and neuromuscularsystems.

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Corporate Philosophy— Technology exists for humans and society

Challenges for the Future!

C YBERDYNE

A n n u a l R e p o r t 2016

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Business Fields

C YBERDYNE

A n n u a l R e p o r t 2016

The Group researches and develops Cybernic technology as a technology that can support human beings in a fully

The Group works to drive forward Cybernic technology, and to develop businesses in the core fields of medicine,comprehensive manner, especially covering fields ranging from medicine and living support to labor support. The

living support, and labor support. HAL® is a representative result of the Group’s research and development—anGroup is engaged in creating a total system for the optimal combination of humans, robotics and information systems

advanced technology that supports humans, created by an optimal combination of humans, robotics and information

through activities stretching from basic research to the promotion of Cybernic technology as an integral part of oursystems. The Group is building various proprietary business domains centered around HAL®.

communities.

C y be rni c t e chn o lo gy

MEDICINE
In this business field, the Company administers robotic
medical devices (medical robots), such as HAL® for Medical
Use (Lower Limb Type), that provide functional improvement/
regeneration treatment services for patients with disorders
related to the brain, nerves, or muscular system. The Group
provides these devices to specialist users (or the institutions

MEDICINE

that use them), and also conducts related businesses.

LIVING SUPPORTIn this business field, the Group provides a variety of robots. HAL® for Living
Support (Lower Limb Type) and HAL® for Living Support (Single Joint Type) are
devices that support the independent movement of elderly people and people

LABOR SUPPORTwith disabilities.

In this business field, the Group provides HAL® for Labor

HAL® for Care Support (Lumbar Type) mitigates the risk of back injuries for
caregivers by reducing the load on their lumbar during assistance activities,
such as transferring care aid, for elderly or disabled people.
Also, the Group is developing a vital sensing system forpreventive purposes.

LIVINGSUPPORTLABOR
SUPPORT

Support (Lumbar Type) which supports the heavy-labor
operations of factory and construction workers.
The Group also provides Cleaning Robots and Transport
Robots with built-in artificial intelligence (”AI”).

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Robot Suit HAL ®

C YBERDYNE

The World’s First Cyborg-Type Robot, HAL®

A n n u a l R e p o r t 2016

What HAL® changes is the brain map
Major causes of lower limb disabilities are disorders of the neuromuscular system. In those cases, the brain cannot

HAL® is the world’s first cyborg-type robot, by which a wearer’s bodily functions can be improved, supported

use ordinary neural pathways and cannot order the legs to move.
HAL® for Medical Use (Lower Limb Type) is the only robotic treatment device that can teach the brain how toand enhanced.
Wearing HAL® leads to a fusion of “man”, “machine” and “information”. HAL® assists a physically challenged

move the legs.

person’s movements and enables him or her to exert greater motor energy than usual. HAL is also considered to be®

a system that accelerates the motor learning of cerebral nerves. Application of HAL® to various fields, such as motion
assistance in the nursing care field, assistance with heavy labor in factories and assistance with activities on disastersites, is prospected.

HAL® moves as you intend
When a person moves their body, various signals are sent from the brain to the muscles through nerves. Thosesignals leak onto the skin surface as bio-electric signals (“BES”). HAL® for Medical Use (Lower Limb Type) reads
the wearer’s BES, compensates muscle power of the lower limbs accordingly, and assists the wearer with walking,standing up and sitting down using his or her own legs.

HAL®’s Motion Principle

1 THINK

2 SEND

3 READ

4 MOVE

5 FEEDBACK

When a person moves their body, he or

In a healthy body, each muscle is able toshe first thinks about the motions in theirreceive signals from the brain and move as

Signals sent to muscles by the brain leak

HAL®, in accordance with the recognized

The mechanism to move the human

onto the skin surface as very faint signals

signals, controls its power units*1. This

brain. By thinking “I want to walk,” the brainstrongly and as fast as intended.

body does not end with the movement

known as BES. HAL® is able to read BES

function enables HAL® to assist the wearer’sof the muscles.

transmits necessary signals for movement toby attaching originally developed detectors

motions as he or she intends by exerting

The brain confirms how the bodythe muscles through nerves.

on the surface of the wearer’s skin. By

greater power than he or she ordinarily can.

moved in response to the type of signals

First, think “I want to walk!”

MORE INFOThe speed of signals that are conveyed fromthe brain to each muscle is approximately
between 150 km/h and 400 km/h, which
is far beyond the speed of a Shinkansenbullet train. The technology to recognize andunderstand those high-speed signals at a
glance is indispensable for HAL®.

Once the signals are received,
the muscles move.

MORE INFO
In order to produce complex bodily motions
for walking, the brain controls a numberof muscles based on various types of
information from the whole body. The device
that was developed as an application of thisprinciple was HAL®.

HAL® reads signals.

consolidating various types of information,
HAL® recognizes what type of motion thewearer intends to make.
MORE INFO
BES that leaks onto the skin surface is very
feeble. Its voltage ranges from 1/1000th
to 1/100,000th of the voltage exerted bydry batteries. Since HAL® is able to detectsuch weak signals, it does not overlook thewearer’s extremely subtle indicators that failto cause flexion in the leg.

HAL® moves as the wearer intends.

*1 H AL® preforms assistance for the wearer’s
motions through a combination of the Cybernic
Voluntary Control (“CVC”) system, with which
HAL® moves in line with the wearer’s intent bydetecting BES, and the Cybernic Autonomous
Control (“CAC”) system, with which HAL®
replicates human motions based on fundamental
motion patterns in the absence of BES. Thisis the advanced technology on which HAL® isfounded.

MORE INFO
Human thoughts in the brain that control muscles
and move joints are extremely rapid. HAL®, like man,is able to process all kinds of information instantly toapply its power unit. When the body starts moving,
HAL® moves simultaneously, and is thereby able toassist the wearer’s motions.

The brain learns motions.

it sent. When HAL® has appropriately
assisted the motions of walking, thefeeling “I could walk!” is fed back to thebrain. In this way, the brain is graduallyable to learn the proper way to emit thenecessary signals for walking.
This feedback loop leads to “theimportant first step” in walking without
the assistance of HAL® for a physicallychallenged person. The only robot thatcan provide the brain the appropriate
solutions for movement is HAL®.

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Business ModelC YBERDYNE

A n n u a l R e p o r t 2016

Treatment with HAL ® for Medical Use (Lower Limb Type)(Utilizing public insurance in Japan and Germany)

When considering entry into any market, the Group
must formulate revenue mechanisms in the relevant
country based on its legal systems and businesspractices.
The principal form of the billing mechanism available

Treatment fee
is covered byinsurance

in most countries occurs when a patient with a disability
goes to a hospital where HAL® is provided by theGroup and is made available for medical treatments.
The hospital receives payments for treatment using
HAL® from the patient (or if the treatment is covered byinsurance, the hospital receives compensation from aninsurer) and pays part of it to the Group. For instance, inGermany where commercialization of HAL® as a medical
device is progressing, the Group receives a treatment

Treatment
service

Service providers(Hospitals, etc.)

Treatmentfee

fee for each treatment session using HAL® at no cost to

Payment
pertreatment

Insurance /social welfare
providersthe patient, since these treatments are wholly coveredby public workers’ compensation insurance.
In Japan, public health insurance coverage oftreatment with HAL® has also started, and the Company
will structure a revenue scheme similar to Germany.

Lease of
HAL®

Treatment
fee

Headquarters

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Potential Markets

C YBERDYNE

Target areas

A n n u a l R e p o r t 2016

Number of potential patients in Europe*2, the U.S., and Japan

Although a wide range of market segments could be targeted by the Company, there is no existing product that
could substitute HAL® or other products utilizing Cybernic technology, and it is therefore difficult to assess the sizeof the market accurately. However, the Company believes that recovery of patients using HAL® can reduce medical

Strokeexpenses to a certain extent. Medical expenses are growing globally and the Group, through the use of HAL®,

Spinal Cord Injury

9.9

proposes to control such growth in our society. Medical expenses are generally higher in developed countries andEurope*1, the U.S. and Japan account for approximately 72.0% of the world total. The Group intends to expand its
business in those areas.

0.6

million people

Multiple Sclerosis

EuropeUS$

1,765Europe, the United States and Japanaccount for approximately

US$

72.0%

2,011
billionof the world total

Parkinson’s Disease

0.8

billionThe rest of the world

million people

1.9

million people

million people

Japan

US$

601

Target diseases

8.5 mil.

billion■ Parkinson’s Disease■ Multiple Sclerosis

1,000
400
273

3.2 mil.

United States

US$

2,809
billion

Medical Expense Growth Rate (%)• Europe*1• United States• Japan• The rest of the world

7%
6%
7%
15 %
(From 2002 to 2012)*1 Europe includes the EU member states plus Switzerland.
Source: National Health Accounts 2002-2012, Global Health Expenditure Database

6,800

712
417
227

■ Stroke

1.6 mil.
141

1,820

Europe*2■ Spinal Cord Injury

United States

8 125*3
1,239

Japan

*2 Europe includes Germany, France, the United Kingdom, Italy and Sweden.
*3 Average of the estimated range from 100 thousand to 150 thousand.
Source:  New Energy and Industrial Technology Development Organization (2013), Ministry of Health, Labour and Welfare of Japan (2011),
Translational Research Informatics Center (2014), American Heart Association (2010), National Spinal Cord Injury Statistical Center(2013), The Patient Education Institute, Inc. (2010), Parkinson’s Disease Foundation (2010)

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Business Highlights

C YBERDYNE

Results of operation

HAL® FOR MEDICAL USE (LOWER LIMB TYPE)(units)×1.2

150

In the consolidated financial result of this fiscal year ended March 31, 2016, the Company recorded net sales of JPY
1,264,902 thousand (100.4% increase year on year), mainly due to a substantial increase in the operating numbers of
the new products such as HAL® for Care/Labor Support (Lumbar Type).

HAL® FOR LIVING SUPPORT (LOWER LIMB TYPE)(units)

140

111

489

500

×1.2

450

100

78

350

1,265

0

355

300

As of the endof Mar., 2014

1,200

384

400

50

Net Sales (JPY million)

A n n u a l R e p o r t 2016

As of the endof Mar., 2015

As of the endof Mar., 2016

As of the endof Mar., 2014

HAL® FOR CARE SUPPORT (LUMBAR TYPE)(units)

As of the endof Mar., 2015

As of the endof Mar., 2016

HAL® FOR LABOR SUPPORT (LUMBAR TYPE)(units)

282

300

1,000

250

216
200

200

×6

800

×4

150

100
100

45
600

0

631

0
As of the endof Mar., 20140

As of the endof Mar., 2015

As of the endof Mar., 2016

456

(units)

200

20

154

200

286

×4

100

50

0

0

2013 / 32014 / 32015 / 32016 / 30

As of the endof Mar., 2015

×4

5

0
As of the endof Mar., 2016

As of the endof Mar., 2016

14

15

10

33
As of the endof Mar., 2014

As of the endof Mar., 2015

CLEANING/TRANSPORT ROBOT(units)1500
As of the endof Mar., 2014

HAL® FOR LIVING SUPPORT (SINGLE JOINT TYPE)
400

44

50

3
0
As of the endof Mar., 2014

As of the endof Mar., 2015

As of the endof Mar., 2016

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To Our Stakeholders

To O u r S t a ke h o l d e r s| C Y B E R DY N E A n n u a l R e p o r t 2016

ProfileYoshiyuki Sankai earned a Ph.D. in Engineering from the University of Tsukuba inJapan in 1987. He has progressed from being a research fellow at the Japan Society
for the Promotion of Science (“JSPS”) to assistant professor, associate professor,
and then professor at the Graduate School of Systems and Information Engineering,
University of Tsukuba. Dr. Sankai is also a visiting professor at Baylor College ofMedicine in Houston, Texas in the United States. Currently, he is a professor andDirector at the Center for Cybernics Research, University of Tsukuba; the President
and CEO of CYBERDYNE, INC.; and a Program Manager of the Impulsing Paradigm
Change through Disruptive Technologies (“ImPACT”) program, which was initiatedby the Council for Science, Technology and Innovation (“CSTI”) of the Cabinet
Office in Japan.
He is a fellow of the Robotics Society of Japan (“RSJ”) (2012) and the Societyof Instrument and Control Engineers (“SICE”) (2014). He also served as Chairman(2005) and an Executive Board Member (2004-2005) of Advanced Robotics, as wellas an Executive Board Member (2000-2012), Congress Head (2003), and President(2003) of the Japan Society of Embolus Detection and Treatment. He was a Council
Member on the Global Agenda Councils of the World Economic Forum (2012-2014).
He has pioneered innovative cyborg-type robot technology in a new academic
field, “Cybernics: the fusion and combination of humans, machines and information
systems,” and established a social problem-solving venture company. He led theintellectual property strategy and international standard setting by ISO as an expert
member of the committee on the medical robotics field and personal-care robotics
field. His robot suit HAL® acquired the medical device CE marking (CE 0197) in

CYBERDYNE, INC. President and CEO

August 2013 and its use for medical treatment is being covered by public workers’

Yoshiyuki Sankai, Ph.D.

compensation insurance in Germany. This feat was followed by an approval from the[Engineering]

Ministry of Health, Labour and Welfare in Japan to manufacture and distribute thisnew medical device in November 2015, and public insurance coverage was approved
for medical treatment with HAL® to slow the progression of rare neuromusculardiseases in January 2016.
Awards (except for other domestic awards): 2005 World Technology Award (World
Technology Network), 2012 Capek Award (INNOROBO), 2014 Technology Pioneer(World Economic Forum), Gold Prize in the 2014 Edison Awards, IPO of the Year in the2013 DealWatch Awards (Thomson Reuters), and Innovative Equity Deal of the Year in
the 2014 DealWatch Awards (Thomson Reuters).

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To Our Stakeholders

CYBERDYNE’s Philosophy and Business Vision“Technology should exist for humans and their society.”
When I established CYBERDYNE, INC., my intention was to thoroughly incorporate this principle
and create an enterprise that implements people-friendly technology for the benefit of society.
Many companies are currently based on a business model that consists of generating profitsby manufacturing and selling as many products as possible and getting people to continuously
consume. Because their technology is employed with the premise of consumption, it can resultin a negative impact on resources and the environment, as well as people’s health and happiness.
My thinking, on the other hand, aims to create value by providing solutions to the issues faced bypeople and their society through the application of technical innovations that do not focus on mere
consumption.
The vision I am delineating through my business is the creation of a new industrial model that
promotes an industrial and social transformation from our current consumption-based economy to
one based on innovative solutions to critical social issues. We can accomplish this by continuing tocreate innovative technologies to solve these social problems, generating a new market centeredaround industries that employ the methods that provide these solutions at its core, and cultivating
the next generation of pioneers. A positive cycle driven by these three simultaneous endeavors is
our vision for the future, and CYBERDYNE is the enterprise that will lead the way.

Message to Our Stakeholders
CYBERDYNE primarily pursues public interest within a capital economy, while seeking to createand develop new industries. Basically, there are no existing markets for CYBERDYNE’s businesses.
As we have always said, our role at CYBERDYNE is to grapple with uncertainty and seek innovation,
replacing each of the five no’s in “no market, no user, no industry, no professionals, and no social
rules” with the adjective new.
We ask our stakeholders to join us in focusing on the many critical issues faced by people andsociety today, and transforming industries to create a new society for the future.

To O u r S t a ke h o l d e r s| C Y B E R DY N E A n n u a l R e p o r t 2016

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Analyst Interview

Analyst Interview“CYBERDYNE’s Challenges
to Shape the Future”| C Y B E R DY N E A n n u a l R e p o r t 2016

Overcoming the most difficult obstacle of demonstrating medical effects of
HAL for rare neuromuscular diseases — Toward expanding target diseases
Yamaguchi : You started with the acquisition of medical device approval for rare neuromuscular diseases. What is thestrategy behind this? What is your strategy for expanding HAL’s target diseases?
Sankai : HAL is a new medical device that has been tested for the treatment of 8 diseases grouped together as
slowly progressive rare neuromuscular diseases in clinical trials. Until now, no treatment was available in modern
medicine for these diseases, and while suppressing the advancement of these diseases would already be a valuable
result, HAL was shown to go further and improve their diminishing functions. In Japan, randomized controlled clinical– We have invited Hidemaru Yamaguchi, an eminent analyst in the field of medicine and healthcare,
for an interview with Yoshiyuki Sankai, President and CEO of CYBERDYNE, INC. (the “Company”)
to discuss the Company’s challenges to shape the future.

trials are the standard for obtaining medical device approval, so we conducted an investigator-initiated crossover
trial led by Dr. Takashi Nakajima of the National Niigata Hospital at 10 different facilities. This trial was conducted incompliance with Good Clinical Practice (“GCP”), an internationally recognized standard for clinical study procedurethat is considered especially important in the U.S. This GCP was crucial because it was important that these results forthe treatment of notoriously difficult diseases be recognized internationally, and that each regulatory authority could
acknowledge the immense potential that HAL possesses. These results led to the HAL’s medical device approval andhealth insurance coverage, and with its increased use in many hospitals, the road to expanding HAL’s target diseases

Acceleration of CYBERDYNE’s business since its listing

to stroke and spinal cord injuries should be easier. In other words, as an approved medical device that is covered byhealth insurance, the hurdle for physicians to test this device on other target diseases under a clinical study should be

Yamaguchi : Two years and four months have passed since CYBERDYNE was listed in the Tokyo Stock Exchange.

much lower. In fact, preparations for the next clinical studies and clinical trials have already begun.

Could you briefly summarize what happened in these years and the Company’s current status?
Sankai : We have been accelerating our business eversince our listing. Firstly, after the listing, our financial
status was strengthened and we became able toconcentrate on obtaining medical device approvalfor HAL for Medical Use (Lower Limb Type) in Japan.
Following our acquisition of this medical device approvalin November, 2015, we importantly were able to receivea reimbursement price for coverage by public healthinsurance for our device. In addition, we were able toexpand our product lineup with HAL for Living Support(Single Joint Type), HAL for Care/Labour Support (LumbarType) and others, as well as make good progress withthe development of new products such as the Vital
Sensor toward their release in the market. The listingalso provided us with many opportunities to collaborate
with other companies, helped us acquire talented
personnel and allowed us to organize the structure of theCompany’s internal systems.

Inter viewer :Hidemaru Yamaguchi
Managing Director,
Pharmaceutical & Healthcare, Citi Research
Hidemaru Yamaguchi joined Salomon Smith Barney(currently Citigroup Global Markets Japan Inc.) in April
1998 after working at Nomura Research Institute andNomura Securities as an analyst since April 1988.
He graduated from Tokyo University with a major in
agriculture and received his MBA from UCLA in June
1997, where his major was finance and entrepreneurial
studies. He is also a chartered member of the Security
Analysts Association of Japan (CMA).

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Analyst Interview

No limit to the number of treatment sessions covered by insurance forpatients with slowly progressive rare neuromuscular diseases
Yamaguchi : The insurance reimbursement price was determined in April, 2016. How do you see this insurance priceevaluation? Also, your business model in Germany, where your company shared the insurance payments with the
medical institutions, attracted a lot of attention, but will the business model be the same in Japan?

Analyst Interview| C Y B E R DY N E A n n u a l R e p o r t 2016

completes a new connection between the human and the robot, and accelerates the establishment of a functional
improvement and regeneration loop of the brain, nerve, and muscle systems. In addition to the medical device
approval and insurance coverage I mentioned earlier, we also possess the international patent for this foundational
principle, so HAL remains the only practically-implemented cutting-edge technology of its kind. Regenerative medicine
can increase the number of nerve cells, and HAL can accelerate the functional regeneration and improvement bystrengthening synaptic connections, so by combining HAL and regenerative medicine, we can expect an even greater
treatment effect.

Sankai : Although the insurance reimbursement price in Japan is a little lower than that of Germany, it is roughly
at the same level. While the insurance in Germany will cover a treatment package of up to 60 treatment sessions,Japan’s Ministry of Health, Labour and Welfare took the nature of the progressive rare neuromuscular disease into
consideration and decided to continuously cover the treatment with insurance as long as an effect can be seen. The
determination of this price involved the input of an organization of experts in this medical field, so I think it will remain

The world’s first public health insurance coverage— HAL’s unique motion principle

at this level for a while. As for the business model in Japan, the basics are similar to what we have set up in Germany,

Yamaguchi : There are many devices with a similar appearance being developed and implemented around the world,

but we have added a few improvements.

especially in the U.S. How do you differentiate HAL from these other devices?
Sankai : What makes HAL unique is the fact that HAL is the only device in the world covered by public health

Vast number of potential patients— Possibility of new combinations with private insurance
Yamaguchi : While the utilization of public health insurance provides stabilization for your business model, there isa vast number of potential patients who could benefit from HAL, and when patients increase from the expansion oftarget diseases in the future, I suspect there will be discussions on how far public health insurance can continue toprovide coverage. Do you have plans for perhaps collecting payments from private insurance companies or out of

insurance, meaning HAL successfully provided enough medical evidence worthy of coverage. HAL has a uniquemotion principle, that utilizes bio-electrical signals that are related to commands from the user’s brain in orderto successfully fuse the functions of the human and the robot. This cyborg-type robot establishes an interactive
biofeedback loop based on the signals that reflect the user’s intent, and induces functional regeneration andimprovement. This unique feature requires the proper detection of the user’s voluntary signals and the establishmentof this interactive biofeedback loop to be effective. The other devices are not designed to work in this way, and that is
why HAL is a one-of-a-kind device.

pocket payments?
Sankai : Of course, I anticipated such a situation long ago, and have been in discussion with a number of notable
Japanese and foreign insurance companies. In the future I think it will be very important to combine the scheme of
public and private insurance, and I have been steadily moving this plan forward.

Fusing HAL with regenerative medicine— Research on functional improvement/regeneration of the brain,
nerve and muscle systems
Yamaguchi : In Japan, research on regenerative medicine, especially around iPS cells, is very advanced. How do you
see the prospects of synergy with HAL and regenerative medicine?

High barrier for entry into the field— HAL’s technology leads the world
in both its motion principle and intellectual property
Yamaguchi : What is your take on the risk of other companies making devices that are similar to HAL? It is myunderstanding that HAL is a front-runner in its field but is it possible for others to catch up?
Sankai : In order to make a device with similar features, there are obstacles in terms of the basic and related patents,and several core technologies would be required, so catching up would be difficult. In recent years I have been
seeing more robots that appear visually similar, but none of these devices have the features that embody HAL’s coretechnology and none of them are covered by public health insurance. As for the patents, generally speaking, a patentnormally describes how things like mechanisms or electrical circuits were tweaked, but for HAL, the patent describes

Sankai : HAL’s intended purpose is to regenerate or improve the functions of the brain and nervous system that are

the principle of using brain and nerve derived signals to control a wearable robot as if it were a part of the wearer’s

innate to the human body. Humans are able to move because a feedback loop maintains the proper transmission ofbody, leading to appropriate synaptic connections of the nervous system. The patent is for this principle and does

nerve-related bio-electrical signals between the brain and nervous system and the musculoskeletal system (motor

not include the specifics of how we make this principle work, so it would be very difficult to enter HAL’s territory.

nerve signals from the brain to the peripheral muscles, and sensory nerve signals from the periphery to the brain).

Of course we also have a patent for the principle of control that combines this method of voluntary control with a

However, once the patient’s disease interferes with proper signal transmission and interrupts this feedback loop,

preprogrammed method of autonomous control. We jointly possess over 100 published patents with the University

the patient’s ability to move becomes compromised. HAL non-invasively detects bio-electrical signals in real-time,

21

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Analyst Interview

of Tsukuba that are in line with our business, and CYBERDYNE has the exclusive license to use them. Our patent
structure is very strong.

Discussions with the FDA to clearly differentiate HAL from other devices
Yamaguchi : HAL has obtained medical device approval in the EU as well as in Japan, but what is the current statusof FDA approval in the U.S. Also why are you setting up your U.S. subsidiary in Seattle?
Sankai : Because a category for “powered exoskeletons” already existed within the FDA, we were instructed toproceed with our application in that category. While FDA’s medical device approval is independent from discussions for
insurance coverage, for our future business development in the U.S. market, it is important that HAL is recognized asa different device than the other “powered exoskeletons” in the market. We are therefore discussing ways in which
we can establish this differentiation with the FDA.
We decided to set up our U.S. subsidiary in Seattle because there is a highly esteemed medical network with ateam of leading experts in the field of neurology that is working with HAL on the West Coast. This team is also wellconnected with the medical team in Germany, forming a global platform for research on HAL in the two countries thatlead the world in medicine.

Analyst Interview| C Y B E R DY N E A n n u a l R e p o r t 2016

A new cornerstone for early detection
and prevention — Daily measurements ofarteriosclerosis and cardiac function with theVital Sensor
Yamaguchi : Can you explain the specifics of the business plan for the
Vital Sensor?
Sankai : We are developing and planning to produce several types of
Vital Sensors. The first one that will go through the approval process,productization, and business modeling is a palm-sized device that can
detect measurements of arteriosclerosis and heart function equippedwith communication systems that are compatible with IoT. It is a device
whose data has been compared to that of the much larger devices
currently used in hospitals, and a strong correlation has been confirmed.
Until now, measurements of arteriosclerosis and heart function could
only be done in hospitals, but this device allows users to make daily measurements at home or in the workplace.
The easily portable size of the device and its communication systems to manage data are extremely important

HAL (Lumbar Type) moves as intended— Scientifically shown to reduce strain in the lower backYamaguchi : Lets talk about HAL (Lumbar Type). There are many other similar devices in this field as well. Whatmakes HAL (Lumbar Type) different?

features from the perspective of early detection and prevention, making it possible to formulate a good business plan.
Currently, we have completed the product model, and have started discussions with the PMDA (Pharmaceuticals andMedical Devices Agency). In other words, we have started preparations to distribute the Vital Sensor as a medical
device. Furthermore, all of CYBERDYNE’s devices are equipped with communication systems that are IoT compatible,
so CYBERDYNE will be able to manage all of the data collected from this Vital Sensor, all of the different types of HAL(Medical Use, Living Support, Single Joint Type, Lumbar Type), and the cleaning and transport robots.

Sankai : HAL (Lumbar Type) also uses the basic principle of HAL, andis controlled by a healthy wearer’s bio-electrical signals related to thecommands from the brain and nervous system, so its support is not
triggered by any buttons or joysticks. When a wearer tries to lift an
object, the weight of the object affects the amount of signals produced

Creating future airports with Cybernic technology— Integrated application of big databy the wearer, and since HAL uses these signals to control the amount

Yamaguchi : I have noticed that you started an operation targeting airports using devices like the transport robot.

of support to provide, HAL’s support is automatically adjusted to fit

Right now, the focus seems to be on Haneda Airport, but how are you planning to develop this business?

the needs of the wearer. Furthermore, another important fact is that
HAL is the first product in the world to be medically and scientificallyanalyzed, designed and developed to reduce the stress applied to thelower back. HAL (Lumbar Type) creates an appropriate, safe working
environment in physically demanding professions by reducing strain
on the lower back, preventing lower back pain and allowing workers tocontinue working longer in their careers.

Sankai : This is a project to create the future of airports. There are tasks conducted at the airport such astransportation, cleaning, and loading and unloading luggage that we want to support with our robots. Most of theworkers involved in these tasks often must bend at the waist, causing a lot of strain on the lower back. From a safe
working environment perspective, this enterprise between CYBERDYNE and Haneda Airport is meaningful andsignificant. This is also a sign that the products we have been rapidly developing since our listing are now reachinga stage where they can be implemented in new business fields. It is also important to note that all of these robots
and devices have communication systems that are IoT compatible, so the collected data can be made available to the
airport’s data management, providing valuable and useful information. Last year we began with the domestic terminal,
and this year, after some improvements were made, we have expanded operations to the international terminal.

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Because airports are typically designed with the same format, once this system is all compiled, we can work together

invested in a company that is independently developing supercomputers to handle the information of the new age.

with other airport management organizations to expand our technology across the globe.

This partnership may also have a large influence on our future business.

The next-generation multipurpose robotized production facility
that surpasses Industry 4.0— Combining the skill of experienced engineers with robots and AI

CYBERDYNE’s market scale spans solutions
to social problems itself, not just robots

Yamaguchi : Your Company is coming out with new products one after another, but how is your production capacity?
Sankai : The first stage of construction on our facility in Fukushima is now complete, and a ceremony will beheld on August 22. This base will be made into a next-generation multipurpose robotized production facility. An
organization that is serious about its cutting-edge technology cannot be satisfied with simple robotization. Typicallywith robotization, the intent is to reduce manufacturing costs by automating simple routine processes for mass
production. However, in state-of-the-art manufacturing enterprises, experienced engineers and skilled workers who
add ingenuity are the ones who are thriving. CYBERDYNE’s next-generation multipurpose robotized production
facility will be a robotized system that learns and evolves alongside these experienced engineers and skilled workers.
Upon completion, this next-generation production base will combine Cybernic technology that collects and amasses
information from humans with artificial intelligence and robots, and will surpass standards set by Industry 4.0. On theother hand, processes that can be conducted via routine will be efficiently handled through collaboration with three
cooperative companies. One of these companies is world-renowned and typically does not participate in assembly ofother companies’ products, but they have agreed to make and exception for CYBERDYNE and we are very grateful. It

Yamaguchi : I am often asked by investors about your company’s market capitalization. At about 400–500 billion yen,your company’s market capitalization is staggeringly large compared to other robotics companies in the world. The highevaluation reflects the high level of appraisal your technology has received, as well as an anticipation for the creation ofa large new market. However, among some investors, there are opinions that perhaps the market capitalization is toolarge compared to the current size of the company. As the CEO, how do you interpret this criticism?
Sankai : If you compare us to other robotics companies, it may appear that way, but for CYBERDYNE, the field of
robotics is only a part of its business field. CYBERDYNE is a company that solves social problems using innovative
Cybernic* systems, and establishes new markets through advancements of innovation. At its core, the company
is built around Cybernic systems, a new field involving the fusion of human, robot, and information systems.
CYBERDYNE’s business development will lead to a social and industrial transformation, where we believe that our
cutting edge devices developed with Cybernic technology will lead the way in bringing about drastic changes in thelifestyles of people in society and the way industries are structured. I am thoroughly excited for what lies ahead, andwill continue to work hard and bring happiness to our many investors.
* For the definition of Cybernics, please refer to its definition stated on page 1.

is our intent to contribute toward a win-win relationship with these collaborative companies.

Significance of both innovation and steady monetization
Creating the next enterprise using big data on physiology and environment
Yamaguchi : Earlier when we were talking about IoT, you mentioned big data or the collection of various data, but
how are you planning to use this information?
Sankai : While I could talk about what is being prepared, the timing is not yet appropriate for such a discussion, so
please stay tuned for future announcements. However, if you can just imagine what things you can do with suchinformation, I think it is clear that there are many possibilities. We will be collecting information from humans, andinformation from robots while they do tasks like cleaning. I think I will leave it at that.
Another thing I can talk about in terms of using and analyzing the data we collect is “learning.” A key point for
robots is learning. By using HAL, the user’s physical functions and nervous system change, and for HAL to fit to each
person’s unique characteristics, it must be equipped with an adaptive learning function. Back in the late 80s, I was
involved in the research and development efforts in Japan on the learning mechanism of the neural network thatformed the core of deep learning. At the time, I had come up with an algorithm that was seemingly good, but due tolack of processing power, I had to give up on its development. The processing power available now is on a different
dimension compared to back then, and I am excited that a very interesting era has finally arrived.
Furthermore, if I may add another point, if you want to proceed with how we can use big data, what else would
we need other than “data” and “learning”? The answer of course is computers. Thus, we have partnered with andYamaguchi : This is another point I am often asked about, but your company has only posted deficits so far,though not by a large amount. It seems like the company is approaching the stage where the business is steadilystrengthening, sales are rising, and profits are expected, but there are several investors who are worried that you may
still struggle to become profitable. How do you feel about your setup in terms of increasing revenue?
Sankai : In Japan, we were able to establish a steady economic cycle with the coverage of the treatment with HAL
by public health insurance. We will further strengthen this steady economic cycle by expanding HAL’s target diseases.
If we were to compete in an existing market, we would have to focus on competitive pricing or improved
functionality. However, since becoming listed, CYBERDYNE’s business has been the social problem of super aging
societies in developed nations itself. This unexplored field has “No Market, No User, No Industry, No Professional, No
Social Rule,” and we are looking to replace these 5 “No’s” with “New.” For this reason, it is necessary to establish a
steady economic cycle where profits are made within the cash flow, as well as the foresight to strategically lay thefoundation for the next step of business development.
One of the steady economic cycles I mentioned involves health insurance, which is embedded in the social
system. This health insurance system is built to allow for companies to establish a reliable economic cycle, but thehurdle to enter this system is very high, even for large companies. Entering this system is a step-by-step process,making sure to obtain approval from the regulatory agencies and receive a clear declaration from insurance systems

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Analyst Interview| C Y B E R DY N E A n n u a l R e p o r t 2016

to cover treatment with the device. CYBERDYNE’s HAL has cleared these hurdles in the health insurance systems

issue is the super-aging society. Whether we can solve this issue will directly affect the way society continues toin a way that is beneficial for the company, the patients and the medical industry. As a result, we were able to obtain

exist, and we therefore believe that there will be demand for this business.

insurance coverage for treatment with the device, and have set up a steady economic cycle. We have entered into

As for our thoughts on military use, we wanted to make it very clear to all of the shareholders which direction thisagreements and are making final arrangements with hospitals that are set to be the central bases for HAL treatmentcompany is moving toward, and how resolved it is to stay on course, and so we used the key words “Peaceful use of

in each region, and with their cooperation, we will collect post-market surveillance information, advance our efforts totechnology” as a statement of intent in the prospectus at the time of the company’s listing. Furthermore, we wereexpand target diseases, and develop the business more efficiently.

able to be listed using class shares with different voting rights to ensure this intent.

As for laying the foundation for the next step in business development, I have mentioned our plans on big data,

For example, take a situation where rescue workers have to enter a disaster zone where many unknown particles

plans to develop future social infrastructure such as our work at Haneda Airport, and most recently our work inare drifting through the air. The worker must wear protective gear and various sensors, and must also carry heavy

combining HAL with regenerative medicine to develop innovative composite medical technology. Expectations in thisgear like a gamma camera. Once the protective gear is worn, the heat inside will reach dangerous levels, so a coolingfield are extremely high. The field of regenerative medicine is nearing the end of a very long tunnel. In other words, it

device must also be carried. The worker must conduct dangerous rescue work under all of these conditions, exposing

will soon take the next step into the world of applied treatment. Several clinical trials have already begun. The doctors

himself to many risks. A device like the full-body HAL can provide a solution to these issues by protecting the wearer

in the medical industry who want to maximize the effects of treatment believe that our HAL will serve an extremely

from radiation, chemicals, and even biological threats, and can help carry the weight of the cooling device and a 15 kg

important role in achieving functional regeneration of the nervous system and physical functions.

gamma camera. But this is just about as far as the line goes in terms of the technology that the Company is willing todevelop in the gray area between industry and military use. It is important to maintain a firm philosophical foundation

Advancing the business with carefully selected,
highly talented personnel
Yamaguchi : My impression is that you have hired many engineers and scientists with Ph.D.’s, but what is yourcurrent situation?
Sankai : Since our listing, 6 new R&D members have been hired. Typically, increases in R&D members lead toconcerns over an increase in R&D costs, but we are conducting things very efficiently. The R&D members that I havepersonally instructed toward their Ph.D.’s and a few very talented R&D hires act as project leaders, forming teams ofother employees and R&D support members. In a short amount of time, these teams have increased the number of
products in our lineup fivefold. Most of the project leaders hold a Ph.D., and since they were carefully selected, eachhas the ability of 3 to 5 normal hires.
Yamaguchi : As you expand to other markets abroad, I assume you will need someone responsible for the businessoverseas, as well as marketing efforts, correct?
Sankai : Yes. Such staff is necessary in both the headquarters and at each domestic and foreign subsidiary. Excellent
personnel including foreign natives are gathering to work for us.

Peaceful use of technology— a statement of intent regarding CYBERDYNE’s role as a company
Yamaguchi : Finally, the U.S. has one of the strongest military industries in the world, which cannot be separated
from its robot industry, and I want to once again ask and confirm the meaning behind why you keep the two
fields separate?
Sankai : CYBERDYNE’s role is to develop technologies and a business that focus on solving social problems. Theenergy and environmental issue is a good example of a social problem that we humans must face, but another crucial

in the company, and every employee must keep this in mind from the start of technology development through its
social implementation.
Yamaguchi : Thank you for your time today.

27

Corporate GovernanceCorporate Governance

1. Our basic approach to corporate governance
The Company recognizes the importance of efforts to improve
corporate governance by enhancing transparency and ensuring
compliance throughout operations in order to increase corporate
value over the long term.
We believe it is vital to build constructive relationships withall of our stakeholders as a part of corporate governance.
Corporate governance is important not only from thestandpoint of making sure the decisions we make and actions
we take do not violate laws, regulations or market rules, butalso of ensuring that we have not ignored the demands ofsociety and that we are indeed contributing to society. We also
believe that high levels of transparency are essential for theproper functioning of corporate governance.
To this end, the Company takes a proactive stance on
disclosing information to shareholders, investors, employees
and customers that goes beyond the legally required level.

2. Corporate organization
The Company has a Board of Directors that meets at least oncea month to rapidly make decisions and supervise the directors as
they execute their duties. The Board of Directors is comprised ofseven directors, three of whom are outside directors, forming a
structure that is able to efficiently reach decisions and makebusiness judgments.
The Company is also a company with an Audit andSupervisory Board. The Audit and Supervisory Board has threeoutside Audit and Supervisory Board Members who proactively
voice their opinions at meetings of the Board of Directors toenhance supervision. The Audit and Supervisory Board
Members perform audits from an objective standpoint withregard to business execution and important decision-making bymembers of the Board of Directors.
Director compensation is debated by the Compensation

Committee, which consists of at least three members
appointed by the representative director. The Compensation
Committee then submits its opinions about director
compensation to the Board of Directors. With the objective ofpreventing conflicts of interest in the Company’s relationshipwith the University of Tsukuba, the Company ensures there is atleast the same or a higher number of independent outside
directors with no affiliations with the University of Tsukuba than
the number of directors (e.g., internal directors), excluding
individuals with potential conflicts of interest with the university.
As a result, outside directors have the ability to veto ordinary
resolutions as necessary during meetings of the Board of
Directors when there are conflicts of interest with the
University of Tsukuba, thereby establishing an effective system
to prevent conflicts of interest.
For the purpose of protecting the interests of noncontrollinginterests, the Company has put in place a system for obtaining
resolutions at the Board of Directors based on preapprovals
from a committee comprising the outside directors and outside
Audit and Supervisory Board Members when decisions must be
made concerning transactions between the Company and Dr.
Sankai, who is a controlling shareholder of the Company, theSankai Health Foundation and the Sankai Science andTechnology Promotion Foundation (the “Foundations”), both ofwhich are represented and managed by Dr. Sankai, as well aswith the trustees, directors or controllers of the Foundations.
The Company has also established the Peace and Ethics
Committee to prevent the use of its advanced technologies toharm people or to create military weapons. All outside directors
and outside Audit and Supervisory Board Members, in addition
to the President and CEO, are members of the Peace and Ethics
Committee. Before entering a business field outside the areasof medicine, living support, and labor support, which are definedin the Company Code of Conduct, the Peace and Ethics
Committee investigates, deliberates and reaches a decision on

General Meeting of Shareholders

ReportingBoard of Directors
ReportingElection,
Dismissal

Reporting

Guidance

Representative Director
Reporting
Reporting

Guidance

Business divisions

Internal audits

Accounting audits
Business oversight

Collaboration

Election,
Dismissal

Audit andSupervisory Board

Collaboration

Collaboration

Accounting audits
Guidance and advice

Independentaccounting auditor

Advising attorney

Election, Dismissal

Election,
Dismissal

Internal Audit OfficeBusiness
reportingCompensation
Committee

Reporting

Peace and Ethics Committee

28

whether the Company’s advanced technologies could be used
to harm people or to create military weapons as a consequenceof entering the business field. The committee then submits its
findings to the Board of Directors.

3. System to ensure the appropriateness ofbusinesses and actual operation of the systemi. S ystem to ensure the appropriateness of businesses
The resolution passed at the Board of Directors with regard to thesystem to ensure that the directors’ implementation of business isconducted in compliance with laws, regulations and the Articles ofIncorporation, as well as the structure to ensure that the businessis conducted in an appropriate manner is stated as below.
(a)	System to ensure that the directors and employees of theCompany and the subsidiaries (the “Group”) perform theirduties in accordance with laws, regulations and the Articles
of Incorporation•	A code of conduct that embodies the Company Code of Conductand other compliance-related rules shall be established for
directors and employees to ensure adherence to laws,
regulations, the Articles of Incorporation and internal regulations.
The designated director of the Company shall have crossorganizational control over compliance initiatives and be
responsible for building, maintaining and updating compliancesystems. The director shall disseminate the spirit ofcompliance to directors and employees of the Group to
identify and solve problems through seminars, audits, and risk
management processes.
•	The Company shall also establish the Affiliated Company
Management Policy and in its respect, assign directors (ifnecessary, an Audit and Supervisory Member) of the notablesubsidiaries. Also by making it necessary for the subsidiaries
to obtain approval from the Company with regard to importantmatters and the Company corporate sector to conduct certain
parts of the management work, the Affiliated Company
Management Policy shall ensure the appropriateness of theirwork.
•	The Company shall establish the Internal Audit Office who will
work directly under the Company CEO. The Internal Audit
Office shall conduct internal audits in accordance with theInternal Audit Policy and Affiliated Company Management
Policy to check the compliance status with laws, the Articles ofIncorporation, internal regulations and risk management.
Results of the internal audits shall be reported to the Company
CEO, the Audit and Supervisory Board, and Board of Directors.
•	The Hotline System Policy shall be established and operated asa means for employees to directly provide information about
legally suspicious behavior. The method of providing information
by means of oral communication, email, chat and opinion boxes
shall be the subject of the compliance hotline protocol.
(b)	System to store and manage information related to the
execution of duties by the Company directors•	The Company shall establish the Document Management Policy
which states the method of storing and managing information
related to the execution of duties. Pursuant to the law and thisprotocol, the information related to the execution of duties shallbe recorded and stored in paper or electronic format.

| C Y B E R DY N E A n n u a l R e p o r t 2016

•	This information shall always be accessible by the directors andAudit and Supervisory Board Members.
(c)	Rules and other systems of the Group to manage the risk oflosses•	In order to strengthen the risk management structure of theGroup, a designated director shall put a relevant operating unit
in charge for each risk category and each operating unit incharge is to create risk scopes, risk profiles, self evaluation
policies and guidelines. The director in charge of finance shallmonitor risks across the organization and address companywide risks.
•	When a new risk arises, the Company CEO shall quickly
appoint a director or head of operating unit in charge ofhandling such risks.
(d)	System of the Group to ensure the efficient execution ofduties by directors.
•	As a system to ensure the efficient execution of duties bydirectors, The Board of Directors shall meet once a month andprovisional meetings of Board of Directors shall be conducted
whenever necessary.
•	Regarding the execution status of matters resolved by themeeting of Board of Directors, the designated director or headof operating unit shall report on a regular basis and the Audit
and Supervisory Board shall perform audits.
•	Medium-term business plans and annual business plans shallbe established with targets for the entire Company.
•	The Company shall also establish the Affiliated Company
Management Policy in order to manage the subsidiaries under
the related sector of the Company so that the directors of thesubsidiaries can execute their duties efficiently.
(e)	System to ensure reporting on the subsidiary directors’
performance of duties to the Company
The Company shall establish the Affiliated Company
Management Policy and the subsidiaries must report to theCompany’s sector in charge of managing subsidiaries whenevernecessary with regard to the status of their duties.
(f)	Matters regarding employees who assist the Audit andSupervisory Board with the fulfillment of its duties.
•	When the Audit and Supervisory Board requests assignment ofstaff to assist with its duties, the Board of Directors may
designate the appropriate employees who shall serve as assistant
employees or as employees who also hold a post as an assistantupon consulting with the Audit and Supervisory Board.
•	During the assistance period, the authority over the designatedemployees shall be delegated to the Audit and Supervisory
Board, and the employees shall not be subject to the chain ofcommand of the directors. Any performance evaluation andchanges in the relevant personnel providing assistance shallrequire the consent of the Audit and Supervisory Board.
(g)	System for directors and employees of the Company toreport to the Audit and Supervisory Board, and a system fordirectors and employees of the subsidiaries, or theCompany’s personnel who received reports from directors
and employees of the subsidiaries, to report to the Audit andSupervisory Board of the Company•	The directors and employees of the Company as well as the
directors and employees of the subsidiaries shall report any
significant matters which are against the law or the Articles ofIncorporation, matters that are considered dishonest acts, and

29

30

Corporate Governancematters that may have a significant impact on the company, to
the Audit and Supervisory Board Member immediately. In
addition, if the Audit and Supervisory Board Member asks for areport from the directors or employees pursuant to the law,
Auditing Standards or Auditor’s Meeting Rules established by
the Audit and Supervisory Board, the directors or employees inconcern shall report promptly.
In order to improve comprehensiveness of the report
regarding any significant matters which are against the law or
the Articles of Incorporation, matters that are considereddishonest acts, and matters that may have a significant impact
on the company, the directors and employees of the Company
as well as the directors and employees of the subsidiaries shallconduct a hearing and gather information from the reports
stated in this item, items stated in internal audits, hotlines andaccounting auditors.
•	Pursuant to the Hotline System Policy, if matters that may
violate the law or corporate compliance in the Group are found,they shall be reported to the Board of Directors by the director
in charge of compliance. Furthermore, the contents reported
and the results shall be reported to the full-time Audit andSupervisory Board Member.
•	The Internal Audit Office of the Company shall report the statusof the internal audit to the Audit and Supervisory Board
Members. Furthermore, the director in charge of complianceshall report the status regarding compliance to the Audit andSupervisory Board when necessary.
(h)	System to ensure that the person who made reports to the
Audit and Supervisory Board Member will not be put in a
disadvantageous position
The Company shall not conduct any treatment that puts a person
in a disadvantageous position because of their reports made to
the Audit and Supervisory Board Member.
(i)	Matters regarding the Company policy of processing
auditing fees
If the Audit and Supervisory Board Member requests a payment
required in accordance with the execution of their duty in advanceor to be reimbursed, with the exception of cases where such apayment is recognized to be completely unnecessary for the
execution of their duty, it shall be paid promptly upon request.
(j)	Other systems to ensure the effective execution of audits by
the Company Audit and Supervisory Board•	The directors and employees of the Company and thesubsidiaries shall comply with hearing or visiting audits and othermethods of investigation by the Audit and Supervisory Board
Member in order to secure the effectiveness of the audits.
•	The Company shall provide enough opportunities for the Audit
and Supervisory Board Member to exchange opinion withdirectors, accounting auditors and any other personnel required
to appropriately execute the duty as an auditor.
• The Company shall also provide enough opportunities for the
Audit and Supervisory Board Member to coordinate with other
Audit and Supervisory Board Members and to gather
information from employees of the subsidiaries.

ii. The status of operation of the system to ensure
appropriate execution of duties.
The Group shall work to maintain the aforementioned system
and its operation. Notable actions conducted within this fiscal

Corporate Governanceyear which are thought to be important with regard to internal
control are stated below.
(a)	Corporate Compliance System
All members of the Group shall work to comply with the law inaccordance with the policies regarding the compliance system,
such as the Company Code of Conduct. Furthermore, in order todetect or avoid violation of compliance at the earliest opportunity,
the Hotline System Policy and its method of utilization shall be
notified to related personnel in a thorough fashion.
(b)	Risk Management System
For the Group, the director in charge of risk management shalldetermine the operating unit in charge of each risk category,monitor the risk status and respond accordingly. Furthermore, thestatus of this risk management is subject to internal audits andaudits conducted by the Audit and Supervisory Board Member.

Supervisory Board Members based on their extensive
experience as managers, as well as their advanced knowledgeof research, finance, accounting and legal affairs, for the
purpose of building an effective corporate governance systemfrom an external standpoint.
The Company expects its outside directors and outside Audit
and Supervisory Board Members to supervise the businessexecution of its directors.
There are no special human relationships, capital
relationships, business affiliations or other conflicts of interest
between the Company and its outside directors and outside
Audit and Supervisory Board Members.
The Company’s outside directors oversee the Company’sbusiness activities by supervising the fulfillment of duties by| C Y B E R DY N E A n n u a l R e p o r t 2016

As stated in (4) above, the outside Audit and Supervisory
Board Members periodically report to the Board of Directors on
the status of auditing activities based on their collaboration
with the independent accounting auditor and the Internal
Audit Office.
Accordingly, the outside Audit and Supervisory Board Members
assist the Board of Directors in their duty to supervise thebusiness execution by the directors and other individuals.

7. Implementation status of risk management structure
The Company continues to enhance its risk management system
within the context of the Company Code of Conduct, risk
management rules and rules governing the operation of thecompliance hotline, among other rules and regulations. Sincesound management practices and a stable earnings foundation
through risk control are key priorities for the Company, it has anadvisory contract with TMI Associates to receive advice andguidance about all legal matters when needed.

(c)	Effectiveness of the execution of duty by the directors
For the Group, the Board of Directors shall meet once a monthwith provisional Board of Directors meetings conducted
whenever necessary, in order to check the reports of businessexecution (including reports from subsidiaries), progress ofbusiness plans for the fiscal year (including plans for
subsidiaries), and so on.

the directors responsible for business execution and otherindividuals. The outside Audit and Supervisory Board
Members audit the fulfillment of duties by the directors andsupervise the independent accounting auditor.

4. Status of internal audits and audits by Audit andSupervisory Board Members

i. Total remuneration of directors and Audit and Supervisory Board Members by classification, total remuneration by type,and number of directors and corporate auditors receiving remuneration.

The Company has established an internal control system
necessary to perform operational audits of its Internal Audit
Office (a concurrent position of one internal auditor) based on
the Internal Audit Policy. Audits by the Audit and Supervisory
Board involves operational audits, such as audits of the businessexecution by directors, based on Auditing Standards. Outside
Audit and Supervisory Board Members include an experienced
business person (SVP of a large bank), a CPA and an attorney
selected for their expert knowledge of accounting, legal affairs
and risk management. Therefore, the Company has put in placea system with effective management oversight functions.

5. Status of accounting audits
The Company has entered into an audit engagement contract
with Deloitte Touche Tohmatsu LLC, and receives accounting
audits performed by this accounting auditor. Mr. Kunikazu
Awashima and Mr. Shintaro Sugihara are the engagement
partners. Deloitte Touche Tohmatsu LLC forms auditing teams of
twelve people, comprising three CPAs and nine otherprofessionals, to perform the audits.

6. Relationships with outside directors and outside
Audit and Supervisory Board Members
The Company has three outside directors and three outside
Audit and Supervisory Board Members.
The Company has not set any standards or specific policies
regarding the independence of its outside directors andoutside Audit and Supervisory Board Members. Instead, theCompany appoints outside directors and outside Audit and8. Compensation for directors and Audit and Supervisory Board Members

Officer type

Breakdown of compensation (Thousands of yen)
Total
compensation
Stock
Retirement
Bonus(Thousands of yen) Base salary
options
benefits

Number ofapplicable officers(people)Directors (Excluding outside directors)

32,60032,600———4

Audit and Supervisory Board Members(Excluding outside Audit and Supervisory
Board Members)

—

—

—

—

—

—

13,00013,000———6

Outside directors and Audit &Supervisory Board Membersii. Total consolidated remuneration of the Board Members
and Audit and Supervisory Board Members
Since there are no Board Members and Audit and Supervisory Board
Members who have received a total consolidated remuneration of
more than 100,000 thousands of yen, nothing is reported.

iii. Amount of remuneration for the Board Members andAudit and Supervisory Board Members and the policy todetermine the calculation method
The Company will establish a Compensation Committee to discuss
the remuneration of the Board Members and Audit and Supervisory
Board Members, and this Compensation Committee will determine
the amount of remuneration within the limits approved by theOrdinary General Meeting of Shareholders.
The upper limit of remuneration for the Board Members, set by adecision made at the 2nd Ordinary General Meeting of Shareholders
that took place on May 31, 2006, is JPY 100,000 thousand per year.
The upper limit of remuneration for the Audit and Supervisory Board
Members, set by a decision made at the 3rd Ordinary General
Meeting of Shareholders that took place on June 28, 2007, is JPY
50,000 thousand per year.

9. Share buyback decision mechanism
In accordance with Article 165-2 of the Companies Act, theCompany’s Articles of Incorporation state that share buybacks
may be implemented by resolution of the Board of Directors withthe objective of flexibly returning profits to shareholders.

10. Interim dividends
The Company’s Articles of Incorporation allow an interim
dividend to be paid to shareholders, class shareholders andregistered beneficiaries listed in the shareholders’ register as of
the close of September 30 every year, by resolution of theBoard of Directors, for the purpose of flexibly returning profits toshareholders.

11. Outline of limitation of liability contracts
In accordance with Article 427-1 of the Companies Act, theCompany’s Articles of Incorporation permit the Company toenter into contracts that limit the liability for damages of
directors (excluding executive directors) and Audit andSupervisory Board Members as defined by Article 423-1 of the

31

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Corporate Governance

Companies Act. The amount of the limit in liability for damages
in these contracts is the same amount defined by law.

MD&Aof Class Shareholders by relaxing the requirements for a quorumon special resolutions put to a vote at the General Meeting of
Shareholders and the General Meeting of Class Shareholders.

12. Outline of exemption from liability
In accordance with Article 426-1 of the Companies Act, theCompany’s Articles of Incorporation state that the Board of
Directors can pass a resolution to exempt the Company’s
directors (including former directors) and Audit and Supervisory
Board Members from liability to the fullest extent allowable bylaw for damages defined by Article 423-1 of the Companies Act in
the pursuit of their duties, in order to ensure that they are able tofully apply their abilities in the fulfillment of their expected roles.

13. Number of directors
The Articles of Incorporation state that the Company shall haveno more than eight directors.

14. Election requirements for directors
The Company’s Articles of Incorporation state that resolutions forthe election of directors may only be passed with a majority voteof the shareholders in attendance, which must represent at least
one third of the voting rights of all shareholders able to exercise
their voting rights. The Articles of Incorporation state thatcumulative voting is not allowed for resolutions to elect directors.

15. Matters subject to resolution by the General
Meeting of Shareholders that can be decided byresolution of the Board of Directors
The Company’s Articles of Incorporation state that the Board of
Directors may pass a resolution to determine dividends on
surplus, as prescribed by Article 454-5 of the Companies Act toshareholders, class shareholders and registered beneficiaries onrecord as of the close of September 30 each year.

16. Requirements for special resolutions on importantmatters at General Meetings of Shareholders andGeneral Meetings of Class Shareholders
The Company’s Articles of Incorporation state that resolutions
on important matters at the General Meeting of Shareholders,
as defined by Article 309-2 of the Companies Act, require
two-thirds of the votes of shareholders in attendance, whichmust represent at least one-third of the voting rights of allshareholders able to exercise their voting rights.
The Articles of Incorporation also state that resolutions onimportant matters at the General Meeting of Class
Shareholders, as defined by Article 324-2 of the Companies Act,require two-thirds of the votes of shareholders in attendance,
which must represent at least one-third of the voting rights of allshareholders able to exercise their voting rights.
These rules are intended to facilitate the smooth operation of
the General Meeting of Shareholders and the General Meeting

17. C lass B Shares
The Company’s Articles of Incorporation state that 10 Class B
Shares constitute one share unit and 100 Common Sharesconstitute one share unit. As voting rights are granted for eachshare unit, a shareholder of Class B Shares has 10 times as
many voting rights compared to a shareholder of Common
Shares with an equal number of shares. This dual class structurereflects the concentration of voting rights with Dr. Yoshiyuki
Sankai and the Foundations, to ensure that the Company’s
advanced technologies are used for peaceful purposes only, andto prevent the misuse of these technologies in order to harm
humans or to create military weapons.
The Group’s vision for the future is to create a humanassistive industry—a new industrial field that will support
people by solving issues directly faced by aging societies withfewer children. To realize this vision, the Company must
coordinate business management with R&D in Cybernic
technologies. Dr. Sankai created the Company’s Cybernic
technologies, and continues to be a central figure in Cybernic
research. He is also a business leader who seeks to make thisinnovative technology widely available for the benefit of society.
For the Group to increase corporate value (i.e., share profits
with shareholders), Dr. Sankai must be a stable leadershipfigure in the management of the Company in the future. This
scheme has been adopted to ensure he remains so.
At this juncture, Dr. Sankai plans to transfer a portion of theClass B Shares he owns to the Foundations withoutcompensation in order to ensure the continuity of this scheme.
The Foundations intend to hold these Class B Shares in perpetuity.
As holders of Class B Shares, the Foundations have createdthe following guidelines concerning the exercise of voting rights
with the objective of ensuring that the Group’s advanced
technologies are used for peaceful purposes only and preventing
damage to the corporate value of the Company.
As the owner of Class B Shares issued by the Company, theFoundations shall vote against resolutions that contain language
defined in a and b below, through the exercise of its voting rights
at the General Meeting of Shareholders and the General Meetingof Class Shareholders. Any changes to the Foundations’ guidelines
for the exercise of their voting rights shall require approval byresolution of their boards of trustees, and these changes shall bemade public by a method chosen by the Foundations.
a.	Resolutions concerning the election and dismissal of directors,
where the director(s) to be elected or dismissed would likely
manage the Group in a way that is detrimental to its corporate
value or hinder the peaceful use of its advanced technologies.
b.	Other resolutions that, if passed, would likely damage thecorporate value of the Group or hinder the peaceful use of its
advanced technologies.

Performance
On January 22, 2016, the Abe Cabinet announced their “5thScience and Technology Basic Plan” to preemptively address thevarious issues that are taking shape across the globe byadvancing science, technology and innovation (“STI”), further
reinforcing research and development, leading the rest of theworld toward strengthening the processes to achieve a “supersmart society” that produces new values and services, andembodying such a structure of society, “Society 5.0.”
On the same date, Prime Minister Abe in the 190th Diet
administration policy speech once again spoke his will toachieve “zero turnover for nursing care” and to turn Japan into
“the most suited country for innovation” as part of his“Promoting Dynamic Engagement of All Citizens” Plan. He
referenced HAL®, the “Robot Suit of dreams,” which was jointly
created by the Company and Tsukuba University, as an exampleof dynamic innovation with open coordination of research
institutions, universities and corporations in Japan and othercountries.
By fully utilizing the innovative Cybernic technologies within
this open environment, CYBERDYNE, INC. and its groupcompanies (the “Group”) aims to realize a “zero intensive caresociety,” create a new “human support industry” that focuseson the fields of medicine, living support, and labor support, andadvance its research and development and businessdevelopment.

HAL® for Medical Use
During this fiscal year ended March 31, 2016, HAL® for Medical
Use (Lower Limb Type) (“HAL® for Medical Use” or “HAL®”)acquired manufacturing and distribution approval in Japan from
the Ministry of Health Labour and Welfare (“MHLW”), as a new
medical device for neuromuscular diseases on November 25,
2015. Further, on April 25, 2016, the MHLW announced thetechnology fee for the treatment using HAL® for Medical Use,making it the world’s first designation of an insurance
reimbursement price for treatment with robots. With thisinsurance coverage, a patient will be able to claim between
JPY 49,600–JPY 85,100 per treatment indefinitely as long as theeffect of treatment can be confirmed. The Company willcontinue to advance its clinical studies in order to expand theinsurance coverage of the treatment with HAL® for patientswith diseases other than neuromuscular diseases.
In Europe, the Company acquired medical device certification,
providing medical treatment services with HAL® in Germany. In
Germany, public workers’ compensation is applied to thetreatment with HAL® for Medical Use. In order to expand thenumber of patients covered by insurance for the treatment with
HAL®, the Company applied to the Institute for the Hospital
Remuneration System (“InEK”) on October 27 of 2015 for publichealth insurance coverage of all paraplegic patients in the acute

C YBERDYNE

A n n u a l R e p o r t 2016

to recovery phases. The Company also applied to the Federal
Joint Committee (“G-BA”) for public health insurance coverageof the treatment with HAL® for all paraplegic patients after acuteand recovery phases.
In the U.S., the Company is in the midst of its application for
medical device approval of HAL® for Medical Use to the U.S.
Food and Drug Administration (“FDA”), aiming to receive theapproval as quickly as possible, noting various insurance coverageas an important milestone for its future business in the U.S.
Aiming for expansion of target diseases of HAL® for Medical
Use (Lower Limb Type), clinical tests in Japan and othercountries will be accelerated, and as of the end of March,
2016, a total of 140 units were in operation in Japan and othercountries. Also HAL® for Living Support (Single Joint Type)began being introduced mainly to hospitals within Japan for the
purpose of clinical studies, and as of the end of March, 2016,154 units were in operation.

Other types of HAL®
In the field of nursing care, HAL® for Living Support (Lower
Limb Type) has been used in care facilities and hospitals within
Japan for the purpose of motion assistance, and as of the endof March, 2016, 489 units were in operation. For HAL® for Care
Support (Lumbar Type), a device used to improve the work
environment in care facilities that suffer from high turnoverrates, 282 units were in operation as of the end of March 2016.
This number is forecasted to increase substantially due to thesubsidy project of the MHLW for assisting welfare facilities withinstallation of robotic devices.
In the field of labor support, the number of units of HAL® forLabor Support (Lumbar Type) introduced to improve the work
environment in order to maintain the labor force of distribution
warehouses, construction sites and factories of various types
suffering from an aging population and declining birthrate, isincreasing steadily, and as of the end of March, 2016, 216 units
were in operation. For the Cleaning Robot and Transport Robot,
14 units were in operation as of the end of March 2016.

Cybernic city
Furthermore, the Company has entered into a provisional
contract for land owned by the Ibaraki prefecture. Stepping
towards the realization of “Cybernic city,” a city living together
with future Cybernic technology, the Company will continue toresearch and develop cutting-edge living assistance robots andimplement them into society.
As the result of the aforementioned, in the consolidated
financial result of this fiscal year ended March 31, 2016, theCompany recorded net sales of JPY 1,264,902 thousand(100.4% increase year on year), mainly due to a substantial
increase in the operating numbers of the new products such as
HAL® for Care/Labor Support (Lumbar Type), while keeping sales

33

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MD&A

cost at JPY 401,121 thousand (11.5% increase year on year),
attributable to cost reduction due to mass production andimprovement of cost of service in the Company’s subsidiaries.
As a result, the gross profit increased significantly to JPY
863,780 thousand (218.2% increase year on year) and the grossprofit margin was ameliorated to 68.3% (25.3% increase year
on year).
Research and development expenses were recorded at JPY
1,001,547 thousand (1.9% increase year on year) due to new
product developments and clinical tests, and other selling,
general and administrative expenses increased to JPY
1,154,365 thousand (9.5% increase year on year) mainly due tothe increase of taxes and dues, labor costs and direct-selling
expenses. As a result, operating loss improved drastically to
JPY 1,292,132 thousand (26.8% decrease year on year).
Non-operating income was recorded at JPY 705,727 thousand(33.7% decrease year on year), mainly due to a decrease of
subsidy income, and non-operating expense was recorded at
JPY 123,674 thousand (40.1% decrease year on year) due to theabsence of stock issuance expenses of JPY 99,409 thousand
recorded in the previous fiscal year. As a result, loss before
income tax improved to JPY 710,079 thousand (21.4% decrease
year on year). Furthermore, because total income taxes
recorded at JPY 11,173 thousand and net loss attributable tononcontrolling interests recorded at JPY 3,195 thousand, net
loss for the fiscal year ended March 31, 2016 improved to JPY
718,057 thousand (21.6% decrease year on year).

Explanation of financial position
Status of assets, liabilities and net assets
Assets:For the fiscal year ended March 31, 2016, total assets decreased
JPY 754,582 thousand to JPY 47,534,470 thousand incomparison to the end of the previous fiscal year. This was
mainly due to a decrease of JPY 15,263,391 thousand in cash
and deposits, partly offset by increases of JPY 13,000,717
thousand in securities, JPY 662,771 thousand in construction inprogress and JPY 599,980 thousand in investment securities.
Liabilities:
For the fiscal year ended March 31, 2016, total liabilities
decreased JPY 41,218 thousand to JPY 20,470,536 thousand incomparison to the end of the previous fiscal year. This was mainly
due to a decrease of JPY 44,074 thousand in accounts payable.

Risk Factors

Net assets:
For the fiscal year ended March 31, 2016, net assets decreased
JPY 713,363 thousand to JPY 27,063,934 thousand incomparison to the end of the previous fiscal year. This was
mainly due to a posting of JPY 721,253 thousand in net loss.

Cash flows
For the fiscal year ended March 31, 2016, cash and cash
equivalents decreased JPY 762,887 thousand to JPY 18,458,970
thousand. The status of each cash flow in the fiscal year ended
March 31, 2016 and its main influencing factors are stated below.
Cash Flows from Operating Activities
For the fiscal year ended March 31, 2016, net cash used inoperating activities was JPY 258,282 thousand (JPY 779,286
thousand in the previous fiscal year). The loss before provision
for income taxes (JPY 710,079 thousand) and the increase ininventories JPY (110,417 thousand) were offset in part bydepreciation (JPY 280,299 thousand) and a decrease inaccounts receivable-other (JPY 200,633 thousand).
Cash Flows from Investing Activities
For the fiscal year ended March 31, 2016, net cash used ininvesting activities was JPY 482,675 thousand (JPY 26,780,601
thousand in the previous fiscal year). The outflow due topurchases of securities (JPY 20,000,213 thousand), of property,
plant and equipment (JPY 1,354,938 thousand) and ofinvestment securities (JPY 599,980 thousand) was mostly
offset by inflows the withdrawals of restricted deposit (JPY
1,500,000 thousand net).
Cash Flows from Financing Activities
For the fiscal year ended March 31, 2016, net cash used infinancing activities was JPY 21,185 thousand, mainly due tothe repayment of installment obligations, compared to an
inflow of JPY 42,441,003 thousand in the previous fiscal year.
The difference was mainly due to proceeds in the previous
fiscal year (of JPY 20,394,935 thousand and JPY 22,066,287
thousand) not repeated in the current fiscal year.

Risks associated with business operations
Set out below are some of the major risks associated with the business
operations of the Group as well as other potential risks that the Groupmay face. Listed items include risks that may not apply directly, but havebeen included in order to disclose information fairly and accurately as they
are thought to be important for investors upon making sound investing
decisions. While the Company recognizes the possibilities of the listed
risks occurring and will take necessary measures either to avoid theiroccurrence or to react appropriately to reduce damages, investors shouldcarefully consider both the stated risks and other risks unstated, prior to
making an investment.
Furthermore, please keep in mind that the items set out below do notcover all of the potential risks. The stated risks are based on assumptions
and beliefs derived from information currently available to the Group andthey may be altered due to change of circumstances in the future.

1. Business in a novel business category
The Group’s main product is HAL®, the world’s first wearable robot*1
that utilizes human BES, developed by Dr. Yoshiyuki Sankai, President
and CEO. The Group is currently developing HAL® for Medical Use(Lower Limb Type) in Germany and Japan. Also in Japan, the Company isdeveloping business around HAL® for Living Support (Lower Limb Type),
HAL® for Living Support (Single Joint Type), HAL® for Care Support (LumbarType), HAL® for Labor Support (Lumbar Type), and others. The Group’s
technologies are thought to be applicable to various fields, including
medicine, living support, labor support and entertainment. However,since the Group is working in a novel business category, uncertainty isvery high, and there is no guarantee that the market will grow steadily.
Moreover, if penetration of the Group’s products does not progress asplanned, or if the Group is unable to achieve profitability, its businessperformance, financial condition, and future business development may
be affected.

2. Competition
The Group is planning to go into the fields of medicine, living support andlabor support mainly centered on HAL®.
Currently, wearable robots with autonomous control systems arebeing developed by companies in Japan and elsewhere in the world but
the voluntary control technology that utilizes BES originating from thebrain is the Group’s original technology*2. Due to this differentiation oftechnologies, the Group can maintain its competitive edge. The patents
for intellectual property related to HAL® are jointly held by the Groupand the University of Tsukuba. The Group has exclusive rights to use allof the patent rights, giving it a competitive advantage in the wearable
robot market. However, various enterprises in Japan and overseas areproceeding with research and commercialization of wearable robots. If
the competitive environment surrounding the Group were to change, forexample with the new entry of a large number of companies, including
major technology companies, into the commercial robotics field, there
is a possibility that some of the Group’s potential competitors have or
may have substantially greater capital, human and other resources, more
efficient cost structures, higher brand recognition and more diversified
product lines than the Group.

C YBERDYNE

A n n u a l R e p o r t 2016

With regard to advanced products such as HAL®, while the researchand development and commercialization processes, which include
verification tests, safety standards certification, medical device approvaland insurance coverage, are extensive, both in terms of the length
in time and costs involved, they are not always certain of success.
In a business environment such as the above, if another company
succeeds in developing newer technologies or more effective products
than the Group’s products, the Group will not be able to maintain thecompetitiveness of its products and the Group’s business performance,
financial condition, and future business development may be affected.
*1, 2 C VC, which integrates a human’s intention to move with machine motion, is theworld’s first technology that improves, supports, and enhances the wearer’s
body functions. Its basic patents (Japan) are listed below.
Application number/
Registration number(Date of application)

Name of invention/Inventor
Type of invention

2004-068790/4200492(2004/03/11)

Wearing type motion assisting apparatus
Inventor: Dr. Yoshiyuki Sankai

2004-040168/4178185(2004/02/17)

Wearable action supporting apparatus,
controlling methods of drive source in wearable
action supporting apparatus, and program
Inventor: Dr. Yoshiyuki Sankai

2004-045354/4178186(2004/02/20)

Wearing type motion assisting apparatus,
controlling method and program of wearing
type motion assisting apparatus
Inventor: Dr. Yoshiyuki Sankai

2005-018295/4178187(2005/01/26)

Wearing type motion assisting apparatus andcontrol program
Inventor: Dr. Yoshiyuki Sankai

3. Risks associated with internal organizational structure
The Company was established on June 24, 2004 and has the following
issues which are specific to a venture business.
i)	The Company depends heavily on Dr. Sankai, the founder andPresident and CEO, in terms of management and development of newtechnology. If he is unable to perform his duties in the Company forsome reason, the Group’s business performance and future businessdevelopment might be affected.
ii)	The Group has secured a sufficient number of excellent research anddevelopment staff. If vital staff members were to resign, the Group’s
speed of product development might be affected.
iii)	As business expands, the Company intends to incrementally increasestaff in sales, production and controlling units, and to further reinforce
the internal control system. However, if the Company is not successful
at keeping competent personnel and reinforcing internal controls, theGroup’s business performance and future business development might
be affected.

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Risk Factors

4. Risks associated with dependence on limited rangeof products
The main product of the Group is HAL®, whose net sales comprised
the majority of net sales as of the end of March 2016. It is estimatedthat HAL® will continue to be the main source of the Group’s profit
going forward. If there is a delay in getting approval for HAL® as a new
medical device by the FDA, or a delay in adjusting and/or meeting therequirements of the laws and regulations, healthcare policy, or insurance
systems such as health insurance in targeted countries, the Group’sbusiness and profitability may be affected.
In addition to these factors, if any other factors were to preclude
the market expansion potential of HAL®, such as lawsuits or other legal
action arising from or related to the use of HAL®, the emergence of
new technologies or technological innovation that replace HAL®, theintroduction of more competitive products in the same genre, changes
in relevant laws and regulations, and changes in the relationship with the
University of Tsukuba regarding the grant of exclusive rights to the use of
intellectual property related to HAL®, the Group’s business performance,
financial condition, and future business development might be affected.

5. Approval of medical devices
In order to sell HAL® and other Group products as medical devices, theproducts need to obtain approval from the authorities in each country andregion after undergoing certain tests and examinations based on local
laws and regulations. The Group has obtained approval for HAL® as a
medical device in the EU and Japan; however, there is no guarantee that
the Group will succeed in obtaining approval for HAL® and other Group
products as medical devices in other countries and regions, and even if
approval can be obtained, the timing of the approval may differ between
these countries and regions. Furthermore, if laws and regulations in
respective countries and regions were to be revised after approval is
obtained, the obtained approval might be canceled or not renewed. Insuch cases, the Group’s business performance, financial condition andfuture business development might be affected.

6. Insurance coverage
The spread and penetration of treatment using HAL® and other Group
products is reliant to a certain extent on such treatment being coveredby public and private health insurers in many countries and regions,with insurance payments for such treatment being available from public
insurance institutions and private health insurance companies, and soforth. The Group recognizes this as a major issue.
However, insurance systems may vary between countries and regions,and aspects such as the scope of coverage and payment levels are
determined separately by the respective public insurance institutions
and private insurance companies in each country and region. The statusof these determinations may affect the Group’s business performance,
financial condition, and future business development.

Risk Factors| C Y B E R DY N E A n n u a l R e p o r t 2016

7. Alliances and acquisitions

9. Risks associated with overseas businesses in general

12. Legal risks

The Group recognizes that acquiring patents and other intellectual
properties from third parties, acquiring businesses, and forming joint
ventures and strategic alliances domestically or overseas are major steps
to be taken for accelerating its business development and it will continue
to examine such steps proactively going forward.
However, when undertaking an acquisition or entering an alliance andso forth, it is difficult to predict the effect of the acquisition or alliancecompletely beforehand. Moreover, there is no guarantee that theacquisition or alliance and so forth will proceed smoothly. When acquiring
intellectual property or a business, or entering a joint venture or strategic
business alliance, there is no guarantee that an anticipated effect will beobtained within an initially projected time frame, and the Group may beunable to utilize the effects from an acquisition or alliance and so forthappropriately. In such a situation, the Group’s business performance,
financial condition, and future business development might be affected.

The Group intends to expand its business abroad. However, the Group
recognizes the following risks associated with overseas operations. Theserisks might affect the Group’s business performance, financial condition,and future business development.

8. Risks associated with business implementation in the EU

The Group continuously strives to improve the quality of its products
based on ISO 13485 (international standards for quality control
management systems for medical equipment). There is no guarantee,
however, that its products will be free of deficiency or that productliability claims or recalls will not occur in the future. If damages were tooccur due to a product defect, product liability claims would be covered
entirely or in part by product liability insurance; however, a decline in
the Group’s and the products’ social credibility might affect its businessperformance, financial condition, and future business development.

The Group’s business is subject to restrictions due to the application of
the respective laws and regulations of each country and region, including
the items listed below. For example, in various business activities inwhich the Group is involved domestically or internationally, the Group is
subject to laws and regulations concerning intellectual property rights
and product liabilities related to technologies, products, services and soon, as well as regulations related to pharmaceutical affairs, commercial
transactions, and import and export restrictions; tax obligations, including
tariffs; laws and regulations concerning anti-bribery and corruption,
antitrust, labor, consumers, personal information, the environment,
foreign exchange; and various other laws and regulations. Moreover,the Group may encounter unexpected issues relating to these laws andregulations or business customs. In particular, since some of the Group’s
products are medical devices designated under the Pharmaceuticals andMedical Devices Act of Japan, the Group had to obtain the manufactureand distribution approval from the MHLW. Similarly, in other countries
and regions, local regulatory authorities’ approvals may be required, alongwith supervision from supervisory authorities.
Approval inspections are conducted to validate the effectiveness andsafety of the products. It is possible that an application could be denied
or approval delayed as a result of the inspection. Even if sales of themerchandise are started after approval, it is possible that approval could
be canceled due to the occurrence of problems in product effectivenessand safety. In addition to the above, if the Group were to violate anylaws or regulations applicable to its business, it could be subjected tocivil, administrative, or criminal sanctions, which might affect the Group’ssocial credibility. In such a case, the Group’s business performance or
financial condition may be materially affected.

i)	The Group’s HAL® product has acquired CE Marking as a medical
device, a world first for a robotic medical device. It was accredited by
the world-class independent accreditation organization TÜV Rheinland
AG in June 2013 as a Class IIa device, under the Medical Devices
Directives (“MDD”) for certifying compliance with EU laws andregulations, which are required for exporting medical devices to EU
markets. This accreditation is vital for conducting business activities for
HAL® in the EU.
	  However, if it were confirmed that HAL® did not meet the requirementsof the MDD or ISO 13485 (international standards for quality control
management systems for medical equipment), the CE Marking may
be canceled and so forth. If such an event were to hinder the Group’sbusiness development in the EU market, the Group’s businessperformance and future business development might be affected.
ii)	The Group started its business in Germany in August 2013. Since theDeutsche Gesetzliche Unfallversicherung (German Statutory Accident
Insurance) has admitted the application of labor insurance, the entire fee
for usage is paid for those covered by public labor insurance through the
Berufsgenossenschaft Rohstoffe und chemische Industrie (Professional
Association of Raw Materials and Chemical Industry; “BG RCI”).
Currently, the Group provides therapeutic services mainly to people
covered by public labor insurance with BG RCI as its business partner.
	  The Group plans to develop its business in Germany further, mainly
through hospitals affiliated with BG RCI, and then develop its businessthroughout the entirety of the EU. Nevertheless, if for example theGroup were obliged to change its plan to develop business at BG RCIaffiliated hospitals due to a change in BG RCI’s policy, the Group’sbusiness development in Germany and future business developmentin the EU might be affected. In such a case, the Group’s businessperformance and future business development might be affected.

• Geopolitical risks associated with political and economic situations,and so forth• Risk of changes in legal and tax systems• Risk of differences in commercial and trade customs• Risk of general strikes or other disruptions in working conditions• Risk of difficulties in managing local personnel and business operations
due to cultural differences and other factors• Risk of difficulties in repatriation of funds to Japan• Risk associated with fluctuations in foreign exchange rates

10. Loss of clients due to product malfunctions

11. Intellectual propertyi)	The Group’s HAL® product employs unique technology that utilizes awearer’s BES. The patent rights for such technologies used in HAL®
are held by the University of Tsukuba and the Group has concluded
a contract concerning an exclusive license for use of these patented
technologies. This contract is a significant prerequisite for the Group to
conduct business activities and will be valid until the expiry date of thelicensed intellectual property rights. However, if it becomes difficult tocontinue the contract for any reason, such as a breach of the contract,a petition for bankruptcy, a merger, an acquisition of significant assets,or an assignment of the Company’s key business line, the Group’sbusiness performance, financial condition, and future businessdevelopment might be affected.
ii)	To date, the Group has neither received any claims from, nor been
involved in a lawsuit with any third party concerning intellectual
property such as patent rights related to the Group’s business.
Moreover, the Group considers it unlikely that its business operations
would be materially hindered due to a problem arising in relation to
infringement on intellectual property such as other parties’ patentrights during its business operations. The Group takes measures
to avoid problems concerning intellectual property infringement byconducting continuous technical investigations.
	  However, for research and development-orientated enterprises suchas the Group, it is very difficult to entirely avoid the occurrence ofproblems concerning intellectual property infringement. In the future, if
the Group is involved in litigation with third parties, the Group’s policy
is to consider concrete countermeasures individually depending on thedetails of each case in consultation with lawyers and patent attorneys.
It will, however, be time consuming and costly to reach a settlement,
regardless of the validity of the counterparty’s claim. Furthermore,
although the Group manages its technologies with the utmost care, if
a third party infringes upon the Group’s technologies, settlement of theissue will be time consuming and costly. In such cases, the Group’sbusiness strategies, business performance, financial condition, andfuture business development might be affected.

13. Risks associated with personal information
The Group obtains the personal information of HAL® users. The numberof staff within the Group who are able to access this personal information
is limited, and the Group has concluded nondisclosure agreementswith all executives and employees. Moreover, the Group has taken
adequate measures for the protection of personal information, including
the establishment of Regulations for Protection of Personal Informationand the appointment of a Person in Charge of Protection Managementof Personal Information, and no problem, such as leakage of personal
information, has occurred to date. However, if a problem, such as leakageof customer information, were to occur, claims for damages and a decline
in the Group’s social credibility might affect its business, financial status,and business performance.

14. Peace and Ethics Committee
The Group has also established the Peace and Ethics Committee toprevent the use of its advanced technologies to harm people or to create
military weapons. All outside directors and outside Audit and Supervisory
Board Members, in addition to the President and CEO, are membersof the Peace and Ethics Committee. Committee resolutions require amajority vote of two-thirds or more of those attending. Before entering
fields outside the areas of medicine, living support and disaster recovery,
which are defined in the Company Code of Conduct, the Peace and Ethics
Committee investigates, deliberates and reaches a decision on whether
the Group’s advanced technologies could be used to harm people or tocreate military weapons as a consequence of entering this business field.
The committee then submits its findings to the Board of Directors.
The result of the Committee’s examination and verification might notnecessarily contribute to improving the Group’s short-term businessperformance.

37

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Risk Factors

Risks associated with the President’s
engagement as a University professor
1. Risks associated with the President’s engagement as
a professor at the University of Tsukuba
Dr. Yoshiyuki Sankai, President and CEO of the Company, holds concurrent
positions as a professor of the University of Tsukuba and as the program
manager for the Impulsing Paradigm Change through Disruptive
Technologies (“ImPACT”) program of the Cabinet Office of Japan. Details ofi) measures to avoid conflicts of interest between the Group, the Universityof Tsukuba, and the Japan Science and Technology Agency (“JST”), which
is implementing the ImPACT program, arising from concurrent positions as
the President and CEO, a professor at the University of Tsukuba, and theprogram manager of ImPACT and ii) impediments to performance of duties
as the President and CEO are as follows:i. Measures to avoid conflicts of interest
All decisions related to conflicts of interest, including transactions andconclusions of joint research agreements with the University of Tsukuba
or JST are made by the Board of Directors. A structure to prevent conflictsof interest has been established, under which the decisions concerning
the University of Tsukuba are made by the five directors (of whom three
are outside directors) excluding Dr. Sankai and other member affiliatedwith the University of Tsukuba, and the decisions concerning the JST aremade by the six directors (of whom three are outside directors) excluding
Dr. Sankai. In addition, a structure is in place under which matterspertaining to conflicts of interest are being monitored monthly through an
audit by the Audit and Supervisory Board and reported to the CEO, theInternal Audit Office and a responsible member of the Board of Directors.
ii. Impediments to performance of duties as President and CEO
Although duties related to Cybernic research by the Group, and at the
University of Tsukuba, and in the Cabinet Office’s ImPACT Program are
integral and inseparable, the impact of pure functions as a staff memberof the University of Tsukuba in Japan (classes, attendance at intramural
meetings as a university professor, etc.) and as a Program Manager of
ImPACT on duties specific to the President and CEO of the Company(attendance at the Board of Directors meetings, approval of requests,
responses to investors, etc.) is limited and performance of duties as
President and CEO is perfectly possible. However, should Dr. Sankai
prioritize his duties as a university professor or program manager of
ImPACT over his position as a President and CEO of the Company, theGroup’s financial condition and business performance might be affected.

Risk Factors

Matters associated with advanced device
businesses in general

Risks related to the dual class sharestructure

1. Risks associated with development businesses in general

1. Outline of the Scheme

In the field of cutting-edge robot development, companies aroundthe world vie with each other for quality and speed of technologicalinnovation. Also, they must invest large amounts of funds over thelong term in the processes from basic research, development andmanufacturing of advanced robots to their sales, since they must proceedin accordance with the various regulations in each country. Against thisbackdrop, research and development entails many uncertainties andsuch risks are inherent in the products the Group is now developing
and will develop in the future. Under its business plan, the Group isalso developing its business towards achieving insurance coverage ineach country by expanding business domains (various diseases, nursing
care, etc.). However, there is no guarantee that the Group will expand
its business domains as planned, and a risk exists that the applied
insurance systems will be reviewed or changed in the future with respect
to the scope of coverage and payment amounts. If such risks wereto materialize, the Group’s business, financial condition, and businessperformance might be affected.

Under the Company philosophy that “Technology exists for humans
and society” the Group employs the advanced technologies centeredaround HAL® for peaceful purposes. The peaceful application of Cybernic
technologies to improve, support, enhance, and regenerate users’ bodilyfunctions matches the needs of the approaching hyper aging society, andleads to the rise of the Group’s long-term corporate value. However, thistechnology could be put to use in non-peaceful purposes such as in lethal
weaponry in the military industry. In order to raise funds from the market
while ensuring that the Company’s innovative technologies are usedsolely for peaceful purposes, Class B Shares are issued separately fromthe listed Common Shares. (The scheme involving the Company’s ClassB Shares is hereafter referred as “Scheme”)
The Group’s vision for the future is to create a human-assistive
industry—a new industrial field that will support people by solving
issues directly faced by aging societies with fewer children. To realize
this vision, the Company must coordinate business managementwith R&D in Cybernic technologies. Dr. Sankai created the Company’s
Cybernic technologies, and continues to be a central figure in Cybernic
research. He is also a business leader who seeks to make this innovativetechnology widely available for the benefit of society. For the Group to
increase corporate value (i.e., share profits with shareholders), Dr. Sankai
must be a stable leadership figure in the management of the Company inthe future. This Scheme has been adopted to ensure he remains so.
To explain in detail, while Class B Shares are ranked the same as
Common Shares and paid the same amount as Common Shares withregard to dividends and distribution of residual assets, Class B Sharesdiffer in traded units, as Common Shares are traded in units of 100
shares, and Class B Shares are traded in units of 10 shares. This grants
a holder of Class B Shares 10 times as many voting rights as a holderof Common Shares when they have equal numbers of shares. Current
holders of Class B Shares are Dr. Sankai, the founder and President andCEO of the Company, and the Foundations of which Dr. Sankai serves
as Representative Director. As of March 31, 2016, Dr. Sankai holds
42,000 Common Shares and 77,696,000 Class B Shares. Together, thisrepresented approximately 86% of the total number of voting rights for
the Company.

2. Risks associated with creation of newly developed products
The Group explores and creates newly developed products throughjoint research with research institutions, centering on the University ofTsukuba, and one of its important business strategies is the release ofmultiple newly developed products in addition to HAL® for Medical Use(Lower Limb Type), HAL® for Living Support (Lower Limb Type), HAL® for
Living Support (Single Joint Type), HAL® for Labor Support (Lumbar Type),and HAL® for Care Support (Lumbar Type), which have already beencommercialized.
However, there is no guarantee that such new products will be
successfully explored and created. Accordingly, if exploration and creation
activities of new products were to be hindered for some reason, theGroup’s financial condition and business performance might be affected.

3. Risks associated with progress delays inherent toresearch and development
The Group is efficiently advancing research and development as acorporate research and development group by establishing cooperative
relationships with external partners, centered on joint research with the
University of Tsukuba. However, since there is no guarantee that researchand development activities will advance as planned, in some cases,
the initially planned results of research and development may not be
obtained, the start or completion of various experiments may be delayed,
and acquisition of approval for manufacturing and marketing as medical
devices may be delayed or limited. To avoid such situations as muchas possible, the Group manages and evaluates the progress of eachproduct under development in a timely manner and takes such measures
as prioritizing products under development and changing the levels ofmanagement resources invested in products or deciding to suspend
development temporarily. Thus, the Group reduces the risk of a sharp
increase in research and development expenses. However, if researchand development does not proceed as planned, the Group’s, business,financial condition, and business performance might be affected.

| C Y B E R DY N E A n n u a l R e p o r t 2016

Set out below is certain information concerning this Scheme, Common
Shares and Class B Shares.
i. Outline of the shares
Common SharesClass B Shares

Dividends of surplus anddistribution of residual assets

The same amount and priority level

The number of sharesconstituting one unit

100 Shares(1 voting rights
per 100 shares)

10 Shares(1 voting rights
per 10 shares)

Restriction on share transfer

Not restricted

Must obtain theapproval of theBoard of Directors

Provisions of the articles ofincorporation to the effectthat a resolution of the Class
Shareholders’ Meeting
consisting of Common
Shareholders is not required.

Yes

None

Shares with put option

None

Yes
(1 Class B Share for
1 Common Share)

Shares subject to call

None

Yes
(1 Class B Share for
1 Common Share)

Share split or consolidation
Listing

Executed at the same timing
and the same ratio
ListedUnlistedii. Difference between the share units of the two share types
While shareholders of both Common Shares and Class B Shares receive
the same amount of dividends and distribution of residual assets at thesame priority level, they differ in the number of shares that constituteone share unit. One hundred (100) Common Shares constitute one
share unit whereas ten (10) Class B Shares constitute one share unit.
As such, a shareholder of Class B Shares has 10 times as many voting
rights as a shareholder of Common Shares when they have the equal
number of shares.
As of the consolidated financial year ended March 31, 2016, thenumber of shares of each class issued is 125,576,000 Common Sharesand 77,770,000 Class B Shares. Dr. Sankai, the President and CEO of theCompany, holds 42,000 Common Shares and 77,696,000 Class B Shares,
which represents approximately 38% of all issued and outstanding sharesof the Company. Also, Dr. Sankai holds 86% of the total number ofvoting rights related to the Company, making him capable of determining
matters for resolution in the General Meeting of Shareholders such as theselection of directors or reorganization by acting on his own.

39

40

Risk Factors

iii. Scheme to prevent changes of shareholders of Class B SharesClass B Shares are issued for the purpose of preventing the Group’s
technology from being used to harm people or to create military
weapons. In order to prevent Class B Shares from being transferred topeople or entities other than the shareholders of Class B Shares as of thesubmission date of the Company’s Annual Securities Report released onJune 27, 2016 or other internal personnel of the Company, the Articles ofIncorporation of the Company states thata)	The approval of the Board of Directors is necessary upon the transferof the Class B Shares to any person other than the shareholders of theClass B Shares.
Andb)	When a shareholder of the Class B Shares has died and 90 days
have passed without succession, or within 90 days, a transfer to any
other shareholders of the Class B Shares has not occurred, and theCompany is requested* to approve the acquisition of the Class B
Shares by any person other than the shareholders of Class B Shares,
all of the Class B Shares held by the departed shareholder shall be
exchanged for one Common Share per Class B Share upon acquisition.
* A request for approval as set down in Art. 136 and 137 of the Companies Act.

The shareholders of Class B Shares as of the submission date of theCompany’s Annual Securities Report, June 27, 2016 are Dr. Sankai and
the Foundations, and the number of Class B Shares held is 77,696,000
shares and 4,000 shares respectively. In order to preserve the continuityof this Scheme, Dr. Sankai plans on transferring part of the Class B
Shares he holds as of this submission date to the Foundations at no cost.
Furthermore, there are no plans for the Foundations to release the ClassB Shares in their possession.
As a shareholder of Class B Shares, the Foundations establishedguidelines on the execution of their voting rights, to prevent the Group’s
technology from being used to harm people or to create military
weapons, damaging the Group’s corporate value.
The Foundations will exercise their voting rights related to the ClassB Shares they hold against resolutions in the General Meeting of
Shareholders and General Meeting of Class Shareholders in the cases
stated below. Furthermore, a resolution of the board meeting of theFoundations will be required to alter these guidelines, and the change will
be announced by a method determined by the Foundations.
a)	If in resolutions for the dismissal or appointment of directors, it isdetermined that such a dismissal or appointment will lead to themisuse of the Group’s innovative technology or damage to the Group’s
corporate value.
b)	For all other resolutions, if the passing of the resolution leads to theprevention of peaceful utilization of the Group’s innovative technologies
or damage to the Group’s corporate value.
iv. Breakthrough rule
In order to dissolve this Scheme upon a situation where a shareholder
with only a small portion of the issued shares controls the Company,
if the shares held by one acquirer is over three quarters of the total
number of issued shares (excluding the treasury stock) as a result of atakeover bid, all Class B Shares will be converted to Common Shares inaccordance with the Breakthrough rule (see note) stated in the Articles ofIncorporation.
(note) The Breakthrough rule refers to the rule that allows the dissolution of the
Scheme upon the appearance of an acquirer with more than a certain ratio ofholding shares.

Risk Factors

v. Sunset provision
As stated in iii) above, Dr. Sankai plans to transfer portions of ClassB Shares he holds to the Foundations at no cost in order to preserve
the continuity of this Scheme. This Scheme is planned to be continued
after the resignation from the post of director by Dr. Sankai, who is thedeveloper of the Group’s innovative robotic technologies, or his death.
However, since there is the possibility that the decision made by
the Foundations after Dr. Sankai’s resignation from the post of director(excluding cases where he holds multiple posts or is reappointed tothe post immediately after resignation) does not match the will of theCompany shareholders (including holders of the Common Shares), an
intention verification procedure of shareholders will be conducted by theconclusion of the last General Meeting of the Shareholders held in thefiscal year ending within one year of the date of Dr. Sankai’s resignation
or within 3 months after the end of the last fiscal year that ends within
5 years’ time since the most recent intention verification procedure ofshareholders. More specifically, the Sunset provision (see note) in the
Articles of Incorporation states that if the shareholders of Common
Shares and Class B Shares who hold one third of the total voting rights(calculated using 100 Class B Shares for each share unit) participate in
the intention verification procedure and two thirds (2/3) of those who
participated agree, all Class B Shares will be converted to Common
Shares of the Company.
(note) The Sunset provision refers to the provision that enables the dissolution of the
Scheme under circumstances where the purpose of introducing class shares
has ended or where the Scheme is clearly against the will of the majorityof shareholders, according to the relevant intention verification procedure
explained above.

vi. E limination of the Meeting of Class Shareholders comprised ofshareholders of Common Shares
The Company’s Articles of Incorporation states that, the execution ofactions stated in each item of Article 322-1 of the Companies Act, unlessstated otherwise by law or by the Articles of Incorporation, does not
require the resolution of the Meeting of Class Shareholders comprised ofshareholders of Common Shares.
However, to ensure that the elimination of the Meeting of Class
Shareholders does not negatively impact the shareholders of Common
Shares, out of the actions stated in each item of Article 322-1 of theCompanies Act,(a)	reverse share splits, share splits, free allocation of shares, freeallocation of stock acquisition rights, allocation of shares as well as
stock acquisition rights to shareholders, share transfers (excluding
cases where the share transfer is conducted together with othercompanies) and changes to the calculation of share units shall be
executed at the same timing and same ratio as stated by the Articles
of Incorporation, and(b)	in the case that a merger agreement where the Company will beabsorbed, or a share exchange agreement or share transfer plan(limited to cases where the share transfer is conducted together
with other companies) where the Company will become a wholly
owned subsidiary, is approved by a Meeting of Shareholders (if anapproval by the Meeting of Shareholders is not required, resolution by
the Board of Directors) of all relevant companies, all Class B Sharesshall be converted to Common Shares as stated by the Articles ofIncorporation.

2. Risks of this Scheme
Class B Shares have been issued for the purpose of preventing theGroup’s technology from being used to harm people or to create military
weapons. However, this Scheme also presents potential risks statedbelow. If such risks were to materialize, rights and interests of theshareholders of the Company’s Common Shares may be affected.
(a)	Risk associated with the strong influence of the shareholders of ClassB Shares from their voting rights.
	As of the fiscal year ended on March 31, 2016, Dr. Sankai holds 42,000
Common Shares and 77,696,000 Class B Shares which accounts for
38% of the total number of issued shares. This equates to 86% of
the total number of voting rights of the Company, giving him strong
influence over business matters. This will limit the influence of theshareholders of Common Shares on corporate matters. As a result, if
the voting rights by the shareholders of Class B Shares are exercised
to ensure the peaceful use of the Group’s innovative technology, theCompany may take actions that the shareholders of Common Shares
do not generally view as beneficial.
(b)	Risk associated with the prevention of acquiring shares of the Company
	The Company’s Articles of Incorporation provide that 10 Class B
Shares constitute one share unit and 100 Common Shares constituteone share unit. As voting rights are granted for each share unit, ashareholder of Class B Shares has 10 times as many voting rights asa shareholder of Common Shares with an equal number of shares.
While the Breakthrough rule and the Sunset provision are stated in
the Articles of Incorporation, the conditions in which all of the Class B
Shares are converted to Common Shares are limited to circumstanceswhere the acquirer as a result of a take over bid holds three quarters(3/4) of the total numbers of issued Common Shares and Class B
Shares, and where two thirds (2/3) of all shareholders who took partin the intention verification procedures agree to the conversion of theClass B Shares to Common Shares, respectively. Therefore, there is
the possibility that this Scheme may prevent acquisitions that may
benefit the shareholders of Common Shares.
(c)	Risk associated with the elimination of the Meeting of Class
Shareholders comprised of shareholders of Common Shares	The execution of actions stated in each item of Article 322-1 of theCompanies Act, unless stated otherwise by law or by the Articles
of Incorporation, does not require the resolution of the Meeting ofClass Shareholders comprised of shareholders of Common Shares,
so the decisions made by the Company may not reflect the will of theshareholders of Common Shares.
(d)	Risk associated with the conversion of the Class B Shares	Because Class B Shares include the right to request acquisitions
under acquisition terms, there is the possibility that a future
conversion of Class B Shares to Common Shares will increase thetotal number of authorized Common Shares issued on the market,
and the market price of the Common Shares may be affected.

| C Y B E R DY N E A n n u a l R e p o r t 2016

Other risks
1. Dividend policy
The Company has not been able to pay dividends to shareholders since
its establishment, and as of the publication of this report, is still not
in a position where it is allowed to pay dividends in accordance with
the Companies Act. At this time, the Company’s policy is to prioritizeachieving profitability quickly by improving its financial strength throughretaining earnings and reinvesting in research and development activities.
On the other hand, the Company considers returns to shareholders to
be an important management issue and will consider possible payment
of dividends in the future taking into account its financial condition andbusiness results. However, if the Company’s earnings plan does notproceed as envisaged, and it continues to be unable to achieve steadyearnings, it may not be able to return profits to shareholders in the formof dividends.

2. Risks associated with financing and fund procurement
The Group records large amounts of upfront research and development
expenses in association with the progress of its research anddevelopment activities, resulting in continued recording of operating
losses. The Group’s funding needs are expected to increase as
its business proceeds, including operating capital, research anddevelopment investment, and capital expenditures. The Group plans tocontinue strengthening its financial base making use of funds such as
governmental subsidies. However, depending on how successful theGroup is at securing profits and raising capital, its financial condition andbusiness performance might be affected.

3. Recording negative retained earnings brought forward
The Group has been focusing on research and development activities,
and has therefore recorded a large amount of upfront research anddevelopment expenses, as well as negative retained earnings brought
forward. The Group aims to achieve profitability quickly and to establish
a strong financial base by posting stable profits. However, there is a riskthat the Group’s business might not proceed as planned, and that theGroup may be unable to eliminate the recording of negative retained
earnings brought forward, which might affect its business, financial
condition, and business performance.

4. Loss brought forward for tax purposes
Since the Group has been making upfront investments in development asa corporate research and development group, it has a significant amountof retained losses carried forward for Japanese corporate tax purposes.
Should there be any changes to the Japanese tax systems in the futuresuch that restrictions are tightened on deduction of losses brought
forward, the Group might lose the opportunity to recover part of thecapital that it has invested in research and development or suffer othereffects that might affect its business, financial condition, and businessperformance.

5. Fluctuations in foreign exchange rates
Since the financial results of overseas Group companies are translated
from local currency into Japanese yen when reflected in the Group’s
consolidated financial statements during consolidated accountsettlement, the Group is exposed to risk from the effects of fluctuations
in foreign exchange rates. Therefore, if foreign exchange rates wereto fluctuate sharply in the future, the Group’s financial condition andbusiness performance might be affected.

41

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Share Information

Description of Common Shares,
Class B Shares and Certain
Regulations
GeneralSet out below is certain information concerning Common Shares andClass B Shares, including brief summaries of certain provisions of theCompany’s Articles of Incorporation and Share Handling Regulations andof the Companies Act relating to joint stock corporations, and certain
related legislation, all as currently in effect.
The Company’s authorized share capital as of March 31, 2016 is696,000,000 shares, and the number of shares of each class authorized
to be issued is 618,300,000 Common Shares and 77,700,000 ClassB Shares. As of March 31, 2016, 125,576,000 Common Shares and77,700,000 Class B Shares are in issue and outstanding. All issued
Common Shares and Class B Shares are fully paid and nonassessable,
and are in registered form. Detailed terms of Common Shares and ClassB Shares are set out in the Company’s Articles of Incorporation.
Under the Company’s Articles of Incorporation, holders of both
Common Shares and Class B Shares may receive the same amount of
distributions of surplus per share in the same rank. However, a holderof the Class B Shares has 10 times as many voting rights as a holder of
the Common Shares when they have the equal number of shares. See“Common Shares and Class B Shares” below for more information.

Common Shares and Class B SharesBook-Entry Act
On January 5, 2009, a new central clearing system for shares of Japaneselisted companies was established pursuant to the Book-Entry Act, and theshares of all Japanese companies listed on any Japanese stock exchange,
became subject to this new system. On the same day, all existing sharecertificates for such shares became null and void. Common Shares arealso subject to the new system (but Class B Shares are not). At present,
JASDEC is the only institution that is designated by the relevant authorities
as a clearing house, which is permitted to engage in the clearing
operations of shares of Japanese listed companies under the Book-Entry
Act. Under the new clearing system, in order for any person to hold, sellor otherwise dispose of shares of Japanese listed companies, they musthave an account at an account managing institution unless such person
has an account at JASDEC. Account managing institutions are financial
instrument traders (securities firms), banks, trust companies and certain
other financial institutions which meet the requirements prescribed by
the Book-Entry Act, and only those financial institutions that meet further
stringent requirements of the Book-Entry Act can open accounts directly
at JASDEC. For the purpose of the description under this section, theCompany assumes that the relevant person has no account at JASDEC.
Under the Book-Entry Act, any transfer of shares is effected throughbook entry, and the title to the shares passes to the transferee atthe time when the transferred number of shares is recorded in thetransferee’s account at an account managing institution. The holder of an
account at an account managing institution is presumed to be the legal
owner of the shares held in such account.

Share Information

Under the Companies Act, in order to assert shareholders’ rights
against the Company, a transferee must have his or her name andaddress registered in the Company’s register of shareholders, except inlimited circumstances. Under the new clearing system, such registrationis generally made upon an all-shareholders notice from JASDEC. For thispurpose, shareholders are required to file their names and addresses
with the Company’s transfer agent through the account managing
institution and JASDEC. See “Record Date” below for more information.
Non-resident shareholders are required to appoint a standing proxyin Japan or provide a mailing address in Japan. Each such shareholder
must give notice of his or her standing proxy or a mailing address to therelevant account managing institution. Such notice will be forwarded to
the Company’s transfer agent through JASDEC. Japanese securities firms
and commercial banks customarily act as standing proxy and provide
related services for standard fees.
The transfer agent of the Company is Sumitomo Mitsui Trust Bank,
Limited located at 4-1, Marunouchi 1-chome, Chiyoda-ku, Tokyo, Japan.

Distributions of Surplus

Distributions of surplus may be made in cash or (except for
distributions as an interim dividend and cases where shareholders are
granted the right to require the Company to make such distributions
in cash instead of in kind, upon approval of a General Meeting of
Shareholders) in kind in proportion to the number of shares held by eachshareholder. A resolution of the Board of Directors or a General Meetingof Shareholders authorizing a distribution of surplus must specify the kindand aggregate book value of the assets to be distributed, the manner of
allocation of such assets to shareholders, and the effective date of the
distribution. If a distribution of surplus is to be made in kind, the Company
may, pursuant to a resolution of the Board of Directors, grant the rightto its shareholders to require the Company to make such distribution in
cash instead of in kind. If no such right is granted to shareholders, therelevant distribution of surplus must be approved by a special resolutionof a General Meeting of Shareholders.
In Japan, the ex-dividend date and the record date for dividends
precede the date of determination of the amount of the dividends to be
paid. The price of the shares goes ex-dividend generally on the second
business day prior to the record date.

GeneralRestriction on Distributions of Surplus

Under the Companies Act, distributions of cash or other assets by
joint stock corporations to their shareholders, so-called “dividends,”
are referred to as “distributions of surplus.” The Company may make
distributions of surplus to its shareholders any number of times per
fiscal year, subject to certain limitations described in “Restriction on
Distributions of Surplus.”
Under the Company’s Articles of Incorporation, holders of both
Common Shares and Class B Shares may receive the same amount of
distributions of surplus per share in the same rank.
The Companies Act requires a distribution of surplus to be authorized
in principle by a resolution of a General Meeting of Shareholders.
However, a distribution of surplus may also be made pursuant to a
resolution of the Board of Directors but only if all the requirements
described in (a) to (d) below are met:

When the Company makes a distribution of surplus, it must, until thesum of its additional paid-in capital and legal reserve reaches one-quarterof its stated capital, set aside in its additional paid-in capital and/or legal
reserve the smaller of (i) an amount equal to one-tenth of the amount of
surplus so distributed or (ii) an amount equal to one-quarter of its statedcapital less the sum of its additional paid-in capital and legal reserve asat the date of such distribution in accordance with an ordinance of the
Ministry of Justice.
The amount of surplus at any given time must be calculated inaccordance with the following formula:(a) the Company’s Articles of Incorporation provide that the Board of
Directors has the authority to decide to make distributions of surplus;(b) the normal term of office of each director of the Company terminates
on or prior to the date of conclusion of the Ordinary General Meetingof Shareholders relating to the last fiscal year ending within the periodof one year from the election of such director;(c) the Company’s non-consolidated annual financial statements andcertain documents for the latest fiscal year present fairly its assets andprofit or loss, as required by ordinances of the Ministry of Justice; and(d) if the distributions of surplus are made in kind, shareholders are
granted the right to require the Company to make such distributions incash instead of in kind, upon approval of a resolution of the Board of
Directors.
At present, the requirements described in (a) and (b) above are notmet. Nevertheless, the Company may make distributions of surplus incash as an interim dividend to its shareholders by a resolution of theBoard of Directors once per fiscal year under the Company’s Articles ofIncorporation and the Companies Act.
Under the Company’s Articles of Incorporation, a year-end dividend
may be distributed to shareholders of record as at March 31 of eachyear and pursuant to a resolution of the Board of Directors, an interim
dividend may be distributed to shareholders of record as at September
30 of each year. The Company is not obliged to pay any dividends in cash
unclaimed for a period of three years after the date on which they firstbecame payable.

A + B + C + D – (E + F + G)
In the above formula:“A”=	the total amount of other capital surplus and other retained
earnings, as each such amount appears on the Company’s nonconsolidated balance sheet as at the end of the last fiscal year;“B”=	(if the Company has disposed of its treasury stock after the endof the last fiscal year) the amount of the consideration for suchtreasury stock received by the Company less the book value
thereof;“C”=	(if the Company has reduced its stated capital after the end of
the last fiscal year) the amount of such reduction less the portion
thereof that has been transferred to additional paid-in capital or
legal reserve (if any);“D”=	(if the Company has reduced its additional paid-in capital or legal
reserve after the end of the last fiscal year) the amount of such
reduction less the portion thereof that has been transferred tostated capital (if any);“E”=	(if the Company has canceled its treasury stock after the end of thelast fiscal year) the book value of such treasury stock;“F”=	(if the Company has distributed surplus to its shareholders after
the end of the last fiscal year) the total book value of the surplus sodistributed; and| C Y B E R DY N E A n n u a l R e p o r t 2016

“G”=	certain other amounts set forth in ordinances of the Ministryof Justice, including (if the Company has reduced surplus andincreased its stated capital, additional paid-in capital or legal
reserve after the end of the last fiscal year) the amount of such
reduction and (if the Company has distributed surplus to its
shareholders after the end of the last fiscal year) the amount set
aside in its additional paid-in capital or legal reserve (if any) as
required by ordinances of the Ministry of Justice.
The aggregate book value of surplus distributed by the Company
may not exceed a prescribed distributable amount (the “Distributable
Amount”), as calculated on the effective date of such distribution. The
Distributable Amount shall, at any given time, be equal to the amount of
surplus less the aggregate of the following:(a) the book value of the Company’s treasury stock, as at the effective
date of distributions;(b) the amount of consideration for the Company’s treasury stock
disposed of by it after the end of the last fiscal year; and(c) certain other amounts set forth in ordinances of the Ministry ofJustice, including (if the sum of one half of goodwill and the deferredassets exceeds the total of stated capital, additional paid-in capitaland legal reserve, each such amount being that appearing on the nonconsolidated balance sheet of the Company as at the end of the last
fiscal year) all or a certain part of such exceeding amount as calculated
in accordance with the ordinances of the Ministry of Justice.
If the Company has, at its option, become a company with respect
to which its consolidated balance sheet should also be taken into
consideration in the calculation of the Distributable Amount, it will
be required to further deduct from the amount of surplus the excess
amount, if any, of (x) the total amount of shareholders’ equity appearing
on its non-consolidated balance sheet as at the end of the last fiscal year
and certain other amounts set forth by an ordinance of the Ministry ofJustice over (y) the total amount of shareholders’ equity and certain otheramounts set forth by an ordinance of the Ministry of Justice appearing on
its consolidated balance sheet as at the end of the last fiscal year.
If the Company has prepared temporary financial statements as
described below, and if such temporary financial statements have been
approved by the Board of Directors or (if so required by the CompaniesAct) by a General Meeting of Shareholders, then the Distributable
Amount must be adjusted to take into account the amount of profit orloss, and the amount of consideration for the Company’s treasury stock
disposed of by it, during the period in respect of which such temporary
financial statements have been prepared. The Company may prepare
non-consolidated temporary financial statements consisting of a balance
sheet as at any date subsequent to the end of the last fiscal year and an
income statement for the period from the first day of the current fiscal
year to the date of such balance sheet. Temporary financial statements
prepared by the Company must be reviewed by its Audit & Supervisory
Board Members and independent accounting auditor, and approvedby the Board of Directors and a General Meeting of Shareholders, as
required by the Companies Act and ordinances of the Ministry of Justice.

Capital and Reserves
When the Company issues new shares, the entire amount of moneyor other assets paid or contributed by subscribers for such shares isrequired to be accounted for as stated capital, although the Company
may account for an amount not exceeding one-half of the amount ofsuch subscription money or other assets as additional paid-in capital by aresolution of the Board of Directors.

43

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Share Information

The Company may reduce its additional paid-in capital or legal reserve
generally by a resolution of a General Meeting of Shareholders and, if so
decided by the same resolution, may account for the whole or any partof the amount of such reduction as stated capital. On the other hand, theCompany may reduce its stated capital generally by a special resolutionof a General Meeting of Shareholders and, if so decided by the same
resolution, may account for the whole or any part of the amount of such
reduction as additional paid-in capital. In addition, the Company may
reduce its surplus and increase either (i) its stated capital or (ii) additional
paid-in capital and/or legal reserve by the same amount, in either case, by
a resolution of a General Meeting of Shareholders.

Stock Splits
The Company may at any time split the issued Common Shares intoa greater number of Common Shares by a resolution of its Board of
Directors. Under the Company’s Articles of Incorporation, when the
Company splits the issued Common Shares into a greater number ofCommon Shares, the Company shall split Class B Shares into the same
number of Class B Shares simultaneously.
When a stock split is to be made, so long as the Company issues only
one class of shares, it may increase the number of authorized shares to theextent that the ratio of such increase in authorized shares does not exceed
the ratio of such stock split by amending its Articles of Incorporation, whichamendment may be made without approval by shareholders. Nevertheless,
the Company issues both Common Shares and Class B Shares, therefore
a special resolution of a General Meeting of Shareholders is required
to amend its Articles of Incorporation in order to increase its authorizedshare capital. A special resolution of a General Meeting of Shareholders
is also required to amend its Articles of Incorporation in order to increase
its number of shares of each class authorized to be issued. Increase inauthorized share capital and number of shares of each class authorized
to be issued would require a special resolution of respective General
Meetings of Class Shareholders if such increase will or is likely to cause
detriment to shareholders of each class of shares.
Before a stock split, the Company must give public notice of the stock
split, specifying the record date, the effective date, and the ratio of suchstock split, not less than two weeks prior to such record date. Underthe rules relating to the new clearing system, the Company must also
inform JASDEC of certain matters regarding a stock split promptly after
a resolution of its Board of Directors determining such stock split. On
the effective date of the stock split, the numbers of Common Shares
recorded in all accounts held by holders of Common Shares at accountmanaging institutions or JASDEC will be increased in accordance withthe applicable ratio.

Reverse Stock Splits
The Company may at any time consolidate its Common Shares intoa smaller number of Common Shares by a special resolution of theGeneral Meeting of Shareholders. Under the Company’s Articles ofIncorporation, when the Company consolidate its Common Shares intoa smaller number of Common Shares, the Company shall consolidate
Class B Shares into the same number of Class B Shares simultaneously.
The Company must disclose the reason for the reverse stock split at theGeneral Meeting of Shareholders. The Company must give public noticeof the reverse stock split, at least two weeks prior to the effective date of
the reverse stock split.

Share Information

General Meetings of Shareholders
The Ordinary General Meeting of Shareholders of the Company is held
within 3 months of the end of each fiscal year as provided in its Articles
of Incorporation. In addition, the Company may hold an Extraordinary
General Meeting of Shareholders whenever necessary. Notice of aGeneral Meeting of Shareholders stating, among others, the place, timeand purpose thereof must be given to each shareholder having voting
rights (or, in the case of a non-resident shareholder, to its standing proxyor mailing address in Japan) at least two weeks prior to the date set
for the meeting. The record date for an Ordinary General Meeting of
Shareholders is March 31 of each year.
Any shareholder holding at least 300 voting rights or 1% of the total
number of voting rights for six months or longer may propose a matterto be considered at a General Meeting of Shareholders by submittinga request to a representative director at least eight weeks prior to thedate of such meeting. If the Company’s Articles of Incorporation so
provide, any of the minimum percentages, time periods and number ofvoting rights necessary for exercising the non controlling interests rights
described above may be decreased or shortened.

Voting Rights
Any holder of Common Shares constituting one or more units is, inprinciple, entitled to one voting right for each unit of Common Shares.
However, in general, neither the Company nor any corporate or certain
other entity, in which one-quarter or more of the total voting rights are
directly or indirectly held by the Company, has voting rights in respect ofCommon Shares held by the Company or such entity.
The Company’s Articles of Incorporation provide that 10 sharesconstitute one unit of Class B Shares and 100 shares constitute one unitof Common Shares. Accordingly, a holder of Class B Shares has 10 times
as many voting rights as a holder of Common Shares when they have an
equal number of shares.
Except as otherwise provided by law or in the Company’s Articles
of Incorporation, an ordinary resolution can be adopted at a General
Meeting of Shareholders by the holder of a majority of the total numberof voting rights represented at the meeting. The Company’s Articles ofIncorporation provide that the quorum for election of its directors andcorporate auditors is one-third of the total number of voting rights. The
Company’s shareholders are not entitled to cumulative voting in theelection of its directors. The shareholders may exercise their voting rights
in writing or through proxies, provided that the proxies are, in general,also shareholders who have voting rights.
The Companies Act provides that certain important matters shall beapproved by a “special resolution” of a General Meeting of Shareholders.
Under the Company’s Articles of Incorporation, the quorum for a special
resolution is one-third of the total number of voting rights and theapproval of at least two-thirds of the voting rights represented at themeeting is required for adopting a special resolution. Such importantmatters include:(i)	purchase of shares by the Company from a specific shareholder
other than the Company’s subsidiaries;(ii)	reverse stock split;(iii)	issuance or transfer of new shares or existing shares held by theCompany as treasury stock to persons other than the shareholders
at a “specially favorable” price;(iv)	issuance of stock acquisition rights (including those incorporated
in bonds with stock acquisition rights) to persons other than theshareholders under “specially favorable” conditions;(v)	removal of any of the Audit & Supervisory Board Members of theCompany;(vi)	exemption from a portion of liability of the directors, Audit &Supervisory Board Members or independent accounting auditor of
the Company;(vii)	distribution of surplus in kind with respect to which shareholders are
not granted the right to require the Company to make distributions
in cash instead of in kind;(viii)	reduction of stated capital;(ix)	amendment to the Company’s Articles of Incorporation;(x)	transfer of the whole or a substantial part of the Company’sbusiness;(xi)	taking over of the whole of the business of another company;(xii)	merger;(xiii)	corporate split;(xiv)	establishment of a parent and wholly-owned subsidiary relationshipby way of a share exchange;(xv)	establishment of a parent and wholly-owned subsidiary relationshipby way of a share transfer;(xvi)	consolidation; and(xvii)	dissolution.
However, under the Companies Act, no shareholder approval, whether
by an ordinary resolution or a special resolution at a General Meeting of
Shareholders, is required for any matter described in (viii) to (xiv) above,and such matter may be decided by the Board of Directors, if it satisfies
certain criteria prescribed by the Companies Act.

General Meeting of Class Shareholders
Under the Companies Act, in cases where a company with classshares carries out certain significant corporate transactions or amends
certain provisions of its Articles of Incorporation, such transactions oramendments shall not become effective unless they are resolved at
the respective General Meetings of Class Shareholders except when acompany with class shares may provide in the Articles of Incorporationthat a resolution of the General Meeting of Class Shareholders shallnot be required for certain transactions as a feature of a certain classof shares. Such significant corporate transactions and amendments
includes, among other things, the following acts that will or are likely tocause detriment to class shareholders.
(i)	any amendment to the Articles of Incorporation with respect to thefollowing matters;(a) a creation of a new class of shares;(b) a change to a new class of shares;(c) an increase of the number of authorized share capital or thenumber of shares of each class authorized to be issued;(ii)	a reverse stock split or stock split;(iii)	a gratuitous allocation of shares;(iv)	an allotment of shares to the shareholders;(v)	an allotment of stock acquisitions rights to the shareholders;(vi)	a gratuitous allocation of stock acquisitions rights;(vii)	a merger;(viii)	an absorption-type corporate split;(ix)	a succession by absorption-type corporate split to some or all of therights and obligations held by another company with respect to suchcompany’s business;(x)	an incorporation-type corporate split;(xi)	a share exchange;(xii)	an acquisition of all issued shares of another stock company byshare exchange; or(xiii)	a share transfer.
The Company’s Articles of Incorporation provide that a resolution of theGeneral Meeting of Class Shareholders for Common Shares shall not be| C Y B E R DY N E A n n u a l R e p o r t 2016

required for the acts listed above as a feature of Common Shares unlessotherwise provided by law or in the Company’s Articles of Incorporation.
The Companies Act provides that, in case the Articles of Incorporation
provide so, a resolution of the General Meeting of Class Shareholders
shall be required for amendment to the Articles of Incorporation
described in (i) above that will or are likely to cause detriment to classshareholders, except for such amendment with respect to the numberof shares that constitute a unit.
Except as otherwise provided by law or in the Company’s Articles ofIncorporation, a resolution can be adopted at a General Meeting of Class
Shareholders by the holder of a majority of the total number of voting
rights represented at the meeting.
The Companies Act provides that certain important matters, including
the acts listed in (i) through (xiii) above that will or are likely to cause
detriment to class shareholders, shall be approved by a “special
resolution” of a General Meeting of Class Shareholders. Under theCompany’s Articles of Incorporation, the quorum for a special resolution is
one-third of the total number of voting rights and the approval of at least
two-thirds of the voting rights represented at the meeting is required for
adopting a special resolution.

Unit Share System
The Company’s Articles of Incorporation provide that 100 sharesconstitute one unit of Common Shares and 10 shares constitute one
unit of Class B Shares. Its Board of Directors is permitted to reduce thenumber of shares that will constitute a unit of Common Shares or abolishthe unit share system entirely by amending its Articles of Incorporation
without approval by shareholders, while a special resolution of a General
Meeting of Shareholders is required to increase the number of sharesthat will constitute a unit of Common Shares. The number of sharesconstituting a unit may not exceed the lesser of 1,000 or 0.5% of thetotal number of issued shares. The Company’s Articles of Incorporation
provide that, when the Company amends its Articles of Incorporation
with respect to the number of shares that constitute a unit of Common
Shares, the respective number for Class B Shares has to be changedin equal proportion simultaneously. The Securities Listing Regulationsof the Tokyo Stock Exchange provide that the number of listed sharesconstituting a unit may not be changed from 100.
Under the unit share system, a shareholder has one vote for each unitof Common Shares held, except as stated in “—Voting Rights”. Common
Shares constituting less than one unit will carry no voting rights and be
excluded for the purposes of calculating the quorum for voting purposes.
Moreover, holders of Common Shares constituting less than one unit
will have no other shareholder rights under the Company’s Articles ofIncorporation, except that such holders may not be deprived of certain
rights specified in the Companies Act or an ordinance of the Ministry ofJustice, including the right to receive distributions of surplus.
Holders of Common Shares constituting less than one unit may at
any time request the Company to purchase Common Shares held bythem. Such purchase of Common Shares will be effected at the last
trading price of the Common Shares on the relevant stock exchange on
the day such request is made (or, if there is no trading in the Common
Shares on the stock exchange or if the stock exchange is not open on
such day, the price at which the Common Shares are first traded onsuch stock exchange thereafter). The request for such purchase may not
be withdrawn without the Company’s consent. Under the Company’s
Articles of Incorporation, holders of Common Shares constituting lessthan one unit also have the right to require the Company to sell to suchholders Common Shares constituting less than one unit which, when
added to the Common Shares constituting less than one unit currently
owned by such holders, shall constitute a full unit.

45

46

Share Information

Liquidation Rights
In the event of the liquidation of the Company, any assets remaining
after payment of all debts, liquidation expenses and taxes will be
distributed among holders of Common Shares and Class B Shares inproportion to the respective number of Common Shares and Class B
Shares that they hold.

Subscription Rights
Holders of Common Shares have no preemptive rights. Authorized but
unissued Common Shares may be issued at such times and upon suchterms as the Board of Directors determines, subject to the limitations as
to the issuance of new Common Shares at a “specially favorable” pricementioned in “Voting Rights”. The Board of Directors may, however,determine that holders of Common Shares be given subscription rights
to new Common Shares, in which case they must be given on uniform
terms to all holders of Common Shares as at a record date of which
not less than two weeks’ prior public notice must be given. Each of
the shareholders to whom such rights are given must also be given atleast two weeks’ prior notice of the date on which such rights expire.
Under the Company’s Articles of Incorporation, when the Company
determines that holders of Common Shares be given subscription
rights to new Common Shares, holders of Class B Shares must also
be given subscription rights to new Class B Shares in equal proportion
simultaneously.

Stock Acquisition Rights
The Company may issue stock acquisition rights. Holders of stockacquisition rights are entitled to acquire shares from the Company, upon
payment of the applicable exercise price, and subject to other terms
and conditions thereof. The Company may also issue bonds with stockacquisition rights. The issuance of stock acquisition rights and bonds
with stock acquisition rights may be authorized by the Board of Directors
unless it is made under “specially favorable” conditions, as described in“Voting Rights”.

Reports to Shareholders
The Company furnishes to its shareholders notices of General
Meetings of Shareholders and General Meetings of Class Shareholders;annual business reports, including financial statements; and noticesof resolutions adopted at the General Meetings of Shareholders or
General Meetings of Class Shareholders, all of which are in Japanese.
The Company may, if it so chooses, send such notices and reports byan electronic method, such as e-mail, to those shareholders who haveapproved such method.
Pursuant to the Company’s Articles of Incorporation, public noticegiven by the Company shall be published by an electronic method;
provided, however, that such notice shall be given by publication in the
Nihon Keizai Shimbun if the method of electronically publishing notices
is not available due to any technical problems or other unavoidable
circumstances.

Record Date
As mentioned above, March 31 is the record date for the payment ofyear-end dividends and the determination of shareholders entitled to voteat the Ordinary General Meeting of Shareholders, and September 30 is
the record date for the payment of interim dividends.

Share Information

In addition, by a resolution of the Board of Directors and after giving atleast two weeks’ prior public notice, the Company may at any time set
a record date for determining the shareholders entitled to certain rights
pertaining to Common Shares.
Under the rules relating to the new clearing system, the Company isrequired to give notice of each record date to JASDEC promptly after the
resolution of the Board of Directors of the Company determining suchrecord date. JASDEC is required to promptly give the Company notice ofthe names and addresses of holders of Common Shares, the numbers ofCommon Shares held by them and other relevant information as at suchrecord date.

Acquisition of Shares by the Company
The Company may acquire Common Shares (i) from a specificshareholder other than any of the Company’s subsidiaries (pursuant toa special resolution of a General Meeting of Shareholders); (ii) from anyof the Company’s subsidiaries (pursuant to a resolution of the Board of
Directors) or (iii) by way of purchase on any Japanese stock exchange on
which Common Shares are listed or by way of tender offer (in either casepursuant to an ordinary resolution of a General Meeting of Shareholders
or a resolution of the Board of Directors). In the case of (i) above, anyother shareholder may make a request to the Company that such othershareholder be included as a seller in the proposed purchase, provided
that no such right will be available if the purchase price or any otherconsideration to be received by the relevant specific shareholder will
not exceed the higher of (x) the last trading price of Common Shares on
the relevant stock exchange on the day immediately preceding the dateon which the resolution mentioned in (i) above was adopted (or, if there
is no trading in Common Shares on the stock exchange or if the stock
exchange is not open on such day, the price at which Common Shares are
first traded on such stock exchange thereafter) or (y) if Common Shares
are subject to a tender offer on the day immediately preceding the dateon which the resolution mentioned in (i) above was adopted, the price ofCommon Shares under the agreement with respect to such tender offer
on such day.
The total amount of the purchase price of Common Shares may
not exceed the Distributable Amount, as described in “Restriction on
Distributions of Surplus” in “Distributions of Surplus.”
The Company may hold Common Shares acquired in compliance withthe provisions of the Companies Act, and may generally dispose of orcancel such Common Shares by a resolution of the Board of Directors.

Disposal of Common Shares Held by Shareholders Whose
Location is Unknown by the Company
The Company is not required to send notices to a shareholder if delivery
of notices to such shareholder fails continuously for five years or more at
his or her address registered in the Company’s register of shareholders
or otherwise notified to the Company.
In the above case, if the relevant shareholder to whom delivery
of notices has failed also fails to receive distributions of surplus on
Common Shares continuously for five years or more at his or her address
registered in the Company’s register of shareholders or otherwise
notified to the Company, then the Company may in general dispose ofsuch Common Shares at their then market price and hold or deposit theproceeds of such disposition on behalf of the relevant shareholder.

Reporting of Substantial Shareholders
The Financial Instruments and Exchange Act and its related regulations
require any person who has become, beneficially and solely or jointly,
a holder of more than 5% of the total issued shares of capital stockof a company listed on any Japanese stock exchange to file a reportconcerning such shareholdings with the director of the relevant Local
Finance Bureau of the Ministry of Finance of Japan within five businessdays. With certain exceptions, a similar report must also be filed in
respect to any subsequent change of 1% or more in holding or to any
change in material matters set out in reports previously filed. For thispurpose, shares issuable to such person upon his or her exchange of
exchangeable securities, conversion of convertible securities or exerciseof warrants or stock acquisition rights (including those incorporated inbonds with stock acquisition rights) are taken into account in determining
both the number of shares held by such holder and the issuer’s total
issued share capital. Any report so filed will be made available for public
inspection. Copies of each report must also be furnished to the issuerof the shares. Reports are required to be filed through the Electronic
Disclosure for Investors’ Network, known as the EDINET system.

Restriction of Transfer of Class B Shares
The Company’s Articles of Incorporation require the approval of the Boardof Directors for the transfer of Class B Shares to any person other thanthe holders of Class B Shares.

Conversion of Class B Shares into Common Shares
Conversion of Common Shares at the Option of the
Shareholders
Pursuant to the Company’s Articles of Incorporation, holders of Class B
Shares may request that the Company acquire Class B Shares held bysuch shareholders, in whole or in part, at any time. In exchange for theacquisition of one Class B Share, one Common Share shall be delivered
to such shareholders.

Compulsory Conversion
Pursuant to the Company’s Articles of Incorporation, Class B Shares set
forth below shall be acquired from the holders of such Class B Shares inexchange for one Common Share per Class B Share, if:(i)	the Company is requested to approve the acquisition of Class B
Shares by any person other than the holders of Class B Shares, ClassB Shares with respect to which approval for the acquisition was
requested; and(ii)	a holder of the Class B Shares died and 90 days have passed without
succession or transfer to any other holder of the Class B Shares, allClass B Shares held by such departed shareholder.
Pursuant to the Company’s Articles of Incorporation, upon theoccurrence of any event described below, all outstanding Class B Sharesshall be acquired. In exchange for the acquisition of one Class B Share,
one Common Share is delivered to the holders of such Class B Shares, if:(a)	a resolution at the General Meeting of Shareholders (or the Board of
Directors of the Company if a resolution at the General Meeting of
Shareholders is not required) for (i) a merger of the Company into any
other corporation, (ii) share exchange by which the Company becomesa wholly-owned subsidiary of another corporation or (iii) share transfer
that is effected jointly with any other corporation is passed, and the
day before the effective date of such merger, share exchange or sharetransfer has occurred;| C Y B E R DY N E A n n u a l R e p o r t 2016(b)	as a consequence of a tender offer, the offeror holds three-quarters ormore of the total number of the Company’s outstanding shares and 90
days have passed after the tender offer report regarding such tender
offer was filed; and(c)	consent (a “Shareholders’ Consent”) is obtained for the acquisition by
the Company of all of the Company’s outstanding Class B Shares inexchange for the same number of Common Shares in a confirmation
process (the “Shareholders’ Confirmation Process”), and 90 days havepassed since then. Under the Company’s Articles of Incorporation, theShareholders’ Confirmation Process must be implemented (i) before
the conclusion of the annual shareholders meeting for the last fiscal
year which ends within one year from the time of retirement of Dr.
Yoshiyuki Sankai, the President and CEO of the Company, from amember of the Board of Directors and (ii) before the conclusion of
the annual shareholders’ meeting for the last fiscal year which ends
within five years from the time of the last Shareholders’ Confirmation
Process. Under the Company’s Articles of Incorporation, the quorum
for a Shareholders’ Consent is one-third of the total number of voting
rights of the shareholders who are entitled to exercise their voting
rights (100 shares constitutes one unit of Common Shares and 10
shares constitutes one unit of Class B Shares for the calculation) andthe consent of at least two-thirds of the voting rights represented
in the Shareholders’ Confirmation Process is required for a
Shareholders’ Consent.

47

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Financial Statements

Financial Statements| C Y B E R DY N E A n n u a l R e p o r t 2016

Consolidated Balance SheetCYBERDYNE, Inc. and Consolidated Subsidiaries
March 31, 2016
Thousands of
U.S. Dollars(Note 1)Thousands of Yen
2016

2015

Thousands of Yen

2016

ASSETS

Thousands of
U.S. Dollars(Note 1)

2016

2015

¥    92,195

2016

LIABILITIES AND EQUITYCURRENT ASSETS:

CURRENT LIABILITIES:Cash and bank balances (Notes 3, 7 and 14)¥14,458,798¥29,722,189$128,317

Payables—trade accounts (Note 14)¥    48,120

Marketable securities (Notes 4 and 14)

25,500,386

12,499,668

226,308

Current portion of convertible bond-type bonds with subscription
rights to shares (Notes 7 and 14)

19,927,483

Trade accounts (Note 14)

217,347

207,622

1,928

Income taxes payable (Note 14)

63,80469,899566

Other (Note 14)349,259

549,893

3,099

Other current liabilities

283,151

295,071

2,512

20,322,560

457,167

180,356

Receivables:(758)(1,350)(6)Inventories (Note 5)

Allowance for doubtful receivables

449,626

339,209

3,990

Prepaid expenses and other current assets

76,02191,013674

41,050,680

43,408,245

364,312

Total current assets

PROPERTY, PLANT AND EQUIPMENT (Note 6):Land3,214,303

3,143,151

28,525

Buildings and structures

1,430,082

1,424,485

12,691

Assets for rent

743,047

398,768

6,594

Construction in progress

699,992

37,2216,212

1,050,808

1,026,348

9,325

Other assets
Total
Accumulated depreciation
Property, plant and equipment—net

7,138,234

6,029,974

63,349(1,806,022)(1,702,042)(16,027)

5,332,211

4,327,931

47,321

Total current liabilities

Convertible bond-type bonds with subscription rights to shares(Notes 7 and 14)
71,61370,171

Deferred tax liabilities (Note 11)

11,027

13,33597

Other65,335

87,107579

147,975

20,054,587

1,313

16,511,767

16,511,767

146,536

16,447,767

16,447,767

145,968

536,847

530,529

4,764(6,433,015)(5,714,957)(57,091)

Total long-term liabilities

Capital stock
Common Share—authorized, 618,300,000 shares;
issued, 125,576,000 shares in 2016 and 2015
Class B Share—authorized, 77,700,000 shares;
issued, 77,700,000 shares in 2016 and 2015

Deficit

Intangible assets

65,65858,211

582

Treasury stock—at cost, 138 shares in 2016

914,830

314,850

8,118

Investments in unconsolidated subsidiaries and associated companies(Notes 4 and 14)

Accumulated other comprehensive income—foreign currency translation adjustments

14,512

12,259128

TOTAL

156,576

167,555

1,389

1,151,578

552,875

10,219¥47,534,470¥48,289,052$421,853

635

EQUITY (Note 9):Investment securities (Notes 4 and 14)

Total investments and other assets

19,883,974

Asset retirement obligations (Note 8)

Capital surplus

Others

176,850

LONG-TERM LIABILITIES:Stock acquisition rights
INVESTMENTS AND OTHER ASSETS:$    427

Total

(204)
772

(442)

6

27,063,934

27,774,664

240,184

27,063,934

27,777,298

240,184¥47,534,470¥48,289,052$421,853

Noncontrolling interests
Total equity
TOTAL
See notes to consolidated financial statements.

(1)

2,634

49

50

Financial Statements

Financial Statements| C Y B E R DY N E A n n u a l R e p o r t 2016

Consolidated Statement of Operations

Consolidated Statement of Comprehensive Income

CYBERDYNE, Inc. and Consolidated Subsidiaries
Year Ended March 31, 2016

CYBERDYNE, Inc. and Consolidated Subsidiaries
Year Ended March 31, 2016
Thousands of
U.S. Dollars(Note 1)Thousands of Yen
2016

2015

2016

¥ 1,264,902¥   631,278$ 11,225

401,121359,798

3,559

Gross profit

863,780

271,479

7,665

NET SALES

Thousands of Yen

2016

COST OF SALES

NET LOSS

Total other comprehensive income (loss)

Research and development costs

1,001,547

983,278

8,888

Other selling, general and administrative expenses

1,154,365

1,054,320

10,244

Total selling, general and administrative expenses

2,155,912

2,037,598

19,133Operating loss

(1,292,132)(1,766,118)(11,467)

COMPREHENSIVE LOSS

Interest income

Owners of the parent
See notes to consolidated financial statements.

2,830

32,846291

Subsidy income

399,574

891,972

3,546

Income from consigned research

235,330

133,5202,088Interest expense(46,142)(18,839)(409)

Stock issuance costs
Loss on write-down of carrying value of fixed assets for tax purposes(99,409)(82,463)(72,517)

Gain on change in interest in investee
Other—net

(643)

4,959
32,96030,651

292

Other income—net

582,052

863,223

5,165

LOSS BEFORE INCOME TAXES(710,079)(902,895)(6,301)

Current

13,481

14,616

119

Deferred(2,307)(2,968)(20)

11,173

11,64899(721,253)(914,543)(6,400)(3,195)

1,349

(28)

¥  (718,057)¥  (915,893)$ (6,372)

INCOME TAXES (Note 11):

Total income taxes
NET LOSS
NET LOSS ATTRIBUTABLE TO NONCONTROLLING INTERESTS
NET LOSS ATTRIBUTABLE TO OWNERS OF THE PARENT

U.S. Dollars(Note 1)

Yen
2016

2015

2016

PER SHARE OF COMMON SHARE (Notes 2.t and 16)—
Basic net loss
See notes to consolidated financial statements.

¥(3.53)¥(4.74)$(0.03)¥(914,543)

2016$(6,400)

1,776(1,497)15

1,776(1,497)15¥(719,476)¥(916,040)$(6,385)¥(716,723)¥(917,112)$(6,360)(2,753)

1,072

(24)

TOTAL COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO:
Noncontrolling interests

OTHER INCOME (EXPENSES):¥(721,253)

2015

OTHER COMPREHENSIVE INCOME (LOSS) (Note 15)—
Foreign currency translation adjustments

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES (Note 12):

Thousands of
U.S. Dollars(Note 1)51

52

Financial Statements

Financial Statements

Consolidated Statement of Changes in Equity

Consolidated Statement of Cash FlowsCYBERDYNE, Inc. and Consolidated Subsidiaries
Year Ended March 31, 2016

CYBERDYNE, Inc. and Consolidated Subsidiaries
Year Ended March 31, 2016
Thousands of Shares
Number of
Shares ofClass B Share
Outstanding

108,534

77,700CapitalStock

CapitalSurplus¥ 5,428,919¥ 5,364,919

Thousands of Yen

Stock
Acquisition
RightsDeficit¥(4,799,064)(915,893)

17,042
125,576

11,082,848
77,70011,082,848

16,511,767

16,447,767¥530,529
530,529(5,714,957)(718,057)

77,700¥16,511,767¥16,447,767

6,318¥536,847¥(6,433,015)2015¥   (710,079)¥   (902,895)$  (6,301)
2,487

Loss before income taxes
Adjustments for:280,299

202,295

Loss on write-down of carrying value of fixed assets
for tax purposes

Depreciation and amortization

72,51782,463643

Interest income(32,846)(2,830)(291)

Interest expense

46,142

18,839409

Treasury
Stock

Foreign
Currency
Translation
Adjustments

Total¥ 1,055

BALANCE, APRIL 1, 2014
Net loss attributable toowners of the parent
Issuance of new stock
Net change in the year
BALANCE, MARCH 31, 2015
Net loss attributable toowners of the parent
Purchase of treasury stock
Net change in the year
BALANCE, MARCH 31, 2016

¥ 5,995,828(1,497)(442)¥(204)¥(204)

1,214¥   772

Noncontrolling
Interests(915,893)
22,165,696
529,032
27,774,664(718,057)
(204)
7,532
¥27,063,934

Total
Equity¥ 5,995,828¥ 2,634
2,634(2,634)(915,893)
22,165,696
531,665
27,777,298$146,536 $145,968

Stock
Acquisition
Rights$4,708

Deficit

Treasury
Stock$(50,718)(718,057)
(204)
4,898
¥27,063,934$(1)$146,536 $145,968

See notes to consolidated financial statements.

$(57,091)$(1)(141,496)(86)(9,959)

1,780

(592)

987

(5)

Increase in inventories(110,417)(139,552)(979)

Increase (decrease) in accounts payable—trade(391)(44,074)

65,985

Other—net

32,644(28,925)

289

Subtotal(275,497)(755,680)(2,444)297

Interest received

33,553

1,763

Interest paid

(2,632)(4,335)(23)

Income taxes—paid(13,706)(21,034)(121)(258,282)(779,286)(2,292)(20,000,000)

Decrease (increase) in restricted deposit

20,000,000

Purchases of securities(20,000,213)

Payments into time deposits(1,500,000)

Proceeds from withdrawals of time deposits

3,000,000

Purchases of property, plant and equipment(1,354,938)

177,493(177,495)(3,000,000)(13,312)(3,440,817)(12,024)

26,624Purchases of intangible assets(25,228)(29,875)(223)

Purchases of investment securities(599,980)(314,850)(5,324)

Other—net
Net cash used in investing activities(2,314)

4,941

(20)

(482,675)(26,780,601)(4,283)

FINANCING ACTIVITIES:
Total$ (3) $246,491(6,372)56$4,764Foreign
Currency
Translation
Adjustments(9,724)200,633

INVESTING ACTIVITIES:

Accumulated
Other
Comprehensive
IncomeCapitalSurplus

Increase in accounts receivable—trade

Net cash used in operating activities

Thousands of U.S. Dollars (Note 1)

CapitalStock99,409Changes in assets and liabilities:

Increase (decrease) in allowance for doubtful receivables

Accumulated
Other
Comprehensive
Income2016

OPERATING ACTIVITIES:

Decrease (increase) in accounts receivable—otherThousands of Yen

BALANCE, MARCH 31, 2015
Net loss attributable toowners of the parent
Purchase of treasury stock
Net change in the year
BALANCE, MARCH 31, 20162016

Stock issuance costs
125,576

Thousands of
U.S. Dollars(Note 1)Thousands of Yen

Number of
Shares ofCommon Share
Outstanding

BALANCE, APRIL 1, 2014
Net loss attributable toowners of the parent
Issuance of new stock
Net change in the year
BALANCE, MARCH 31, 2015
Net loss attributable toowners of the parent
Purchase of treasury stock
Net change in the year
BALANCE, MARCH 31, 2016

| C Y B E R DY N E A n n u a l R e p o r t 2016

(6,372)(1)
1066$ 6 $240,184

Noncontrolling
Interests

Total
Equity$ 23 $246,514(6,372)(1)(23)
43$240,184

Proceeds from issuance of convertible bond-type bonds with
subscription rights to shares

20,394,935

Proceeds from issuance of new stock
Other—net
Net cash provided by (used in) financing activities
FOREIGN CURRENCY TRANSLATION ADJUSTMENT ON CASH AND
CASH EQUIVALENTS
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

22,066,287(21,185)(20,219)(188)(21,185)

42,441,003

(188)

(743)

(521)

(6)

(762,887)

14,880,593(6,770)CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR

19,221,857

4,341,264

170,588

CASH AND CASH EQUIVALENTS, END OF YEAR (Note 3)¥ 18,458,970¥ 19,221,857$ 163,817

See notes to consolidated financial statements.

53

54

Financial Statements

Financial Statements

Notes to Consolidated Financial Statements(loss) is accounted for in accordance with Japanese GAAP, unless they are not material: (a) amortization of goodwill; (b) scheduled amortization of actuarial gain or loss of pensions that has been recorded in equity through other comprehensive income; (c)expensing capitalized development costs of R&D; and (d) cancellation of the fair value model of accounting for property, plantand equipment and investment properties and incorporation of the cost model of accounting.

CYBERDYNE, Inc. and Consolidated Subsidiaries
Year Ended March 31, 2016

1. BASIS OF PRESENTATION OF CONSOLIDATED FINANCIAL STATEMENTS
The accompanying consolidated financial statements have been prepared in accordance with the provisions set forth in the Japanese
Financial Instruments and Exchange Act and its related accounting regulations and in accordance with accounting principles generally
accepted in Japan (”Japanese GAAP”), which are different in certain respects as to the application and disclosure requirements ofInternational Financial Reporting Standards.
In preparing these consolidated financial statements, certain reclassifications and rearrangements have been made to the consolidated financial statements issued domestically in order to present them in a form which is more familiar to readers outside Japan.
In addition, certain reclassifications have been made in the 2015 consolidated financial statements to conform to the classifications
used in 2016.
The consolidated financial statements are stated in Japanese yen, the currency of the country in which CYBERDYNE, Inc. (the“Company”) is incorporated and operates. The translations of Japanese yen amounts into U.S. dollar amounts are included solely forthe convenience of readers outside Japan and have been made at the rate of ¥112.68 to $1, the approximate rate of exchange at
March 31, 2016. Such translations should not be construed as representations that the Japanese yen amounts could be converted
into U.S. dollars at that or any other rate.
Amounts presented in the accompanying consolidated financial statements are rounded down to the nearest thousand yen andthousand dollar.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIESa.

Consolidation—

The consolidated financial statements as of March 31, 2016, include the accounts of the Company and its four (four in 2015)
significant subsidiaries (together, the “Group”).
Under the control and influence concepts, those companies in which the Company, directly or indirectly, is able to exercise
control over operations are fully consolidated.
(Names of Consolidated Subsidiaries)
Suzuka Robo Care Center Co., Ltd.
Shonan Robo Care Center Co., Ltd.
Oita Robo Care Center Co., Ltd.
Cyberdyne Care Robotics GmbH
Investments in the remaining five (five in 2015) unconsolidated subsidiaries are stated at cost. If the equity method of accounting
had been applied to the investments in these companies, the effect on the accompanying consolidated financial statements
would not be material.
(Names of Unconsolidated Subsidiaries)
Niigata Robo Care Center Co., Ltd.
Cyberdyne EU B.V.
CYBERDYNE DENMARK ApS
Cyberdyne Sweden AB
CYBERDYNE (Europe) GmbHAll significant intercompany balances and transactions have been eliminated in consolidation. All material unrealized profit included
in assets resulting from transactions within the Group is also eliminated.
The closing date of Cyberdyne Care Robotics GmbH, one of the consolidated subsidiaries, is December 31. To prepare theconsolidated financial statements, the Company used financial statements based on a provisional statement of accounts as atconsolidated closing date. The closing dates of all other consolidated subsidiaries are the same as the parent company.
b.

Unification of Accounting Policies Applied to Foreign Subsidiaries for the Consolidated Financial Statements—

In May 2006, the Accounting Standards Board of Japan (the “ASBJ”) issued ASBJ Practical Issues Task Force (”PITF”) No. 18,“Practical Solution on Unification of Accounting Policies Applied to Foreign Subsidiaries for the Consolidated Financial Statements” which was subsequently revised in February 2010 and March 2015 to reflect revisions of the relevant Japanese GAAP or
accounting standards in other jurisdictions. PITF No. 18 prescribes that the accounting policies and procedures applied to aparent company and its subsidiaries for similar transactions and events under similar circumstances should in principle be unified
for the preparation of the consolidated financial statements. However, financial statements prepared by foreign subsidiaries inaccordance with either International Financial Reporting Standards or generally accepted accounting principles in the UnitedStates of America (Financial Accounting Standards Board Accounting Standards Codification) tentatively may be used for the
consolidation process, except for the following items that should be adjusted in the consolidation process so that net income| C Y B E R DY N E A n n u a l R e p o r t 2016c.

Business Combinations—

In October 2003, the Business Accounting Council issued a Statement of Opinion, “Accounting for Business Combinations,” andin December 2005, the ASBJ issued ASBJ Statement No. 7, “Accounting Standard for Business Divestitures” and ASBJ Guidance No. 10, “Guidance for Accounting Standard for Business Combinations and Business Divestitures.”
In December 2008, the ASBJ issued a revised accounting standard for business combinations, ASBJ Statement No. 21,“Accounting Standard for Business Combinations.” Major accounting changes under the revised accounting standard are as
follows: (1) The revised standard requires accounting for business combinations only by the purchase method. As a result, thepooling of interests method of accounting is no longer allowed. (2) The previous accounting standard required research anddevelopment costs to be charged to income as incurred. Under the revised standard, in process research and development
costs (IPR&D) acquired in the business combination are capitalized as an intangible asset. (3) The previous accounting standard
provided for a bargain purchase gain (negative goodwill) to be systematically amortized over a period not exceeding 20 years.
Under the revised standard, the acquirer recognizes the bargain purchase gain in profit or loss immediately on the acquisition
date after reassessing and confirming that all of the assets acquired and all of the liabilities assumed have been identified after areview of the procedures used in the purchase price allocation. The revised standard was applicable to business combinations
undertaken on or after April 1, 2010.
In September 2013, the ASBJ issued revised ASBJ Statement No. 21, “Accounting Standard for Business Combinations,” revised
ASBJ Guidance No. 10, “Guidance on Accounting Standards for Business Combinations and Business Divestitures,” and revised
ASBJ Statement No. 22, “Accounting Standard for Consolidated Financial Statements.” Major accounting changes are as follows:(a) ‌Transactions with noncontrolling interests—A parent’s ownership interest in a subsidiary might change if the parent purchases
or sells ownership interests in its subsidiary. The carrying amount of noncontrolling interests is adjusted to reflect the change
in the parent’s ownership interest in its subsidiary while the parent retains its controlling interest in its subsidiary. Under theprevious accounting standard, any difference between the fair value of the consideration received or paid and the amount bywhich the noncontrolling interests is adjusted is accounted for as an adjustment of goodwill or as profit or loss in the consolidated statement of income. Under the revised accounting standard, such difference is accounted for as capital surplus as longas the parent retains control over its subsidiary.
(b) Presentation‌of the consolidated balance sheet—In the consolidated balance sheet, “minority interest” under the previous
accounting standard is changed to “noncontrolling interests” under the revised accounting standard.
(c) Presentation‌of the consolidated statement of income—In the consolidated statement of income, “net income before minority interest” under the previous accounting standard is changed to “net income” under the revised accounting standard, and“net income” under the previous accounting standard is changed to “net income attributable to owners of the parent” under
the revised accounting standard.
(d) Provisional‌accounting treatments for a business combination—If the initial accounting for a business combination is incomplete by the end of the reporting period in which the business combination occurs, an acquirer shall report in its financial
statements provisional amounts for the items for which the accounting is incomplete. Under the previous accounting standard guidance, the impact of adjustments to provisional amounts recorded in a business combination on profit or loss isrecognized as profit or loss in the year in which the measurement is completed. Under the revised accounting standard guidance, during the measurement period, which shall not exceed one year from the acquisition, the acquirer shall retrospectively
adjust the provisional amounts recognized at the acquisition date to reflect new information obtained about facts and circumstances that existed as of the acquisition date and that would have affected the measurement of the amounts recognized asof that date. Such adjustments shall be recognized as if the accounting for the business combination had been completed at
the acquisition date.
(e) ‌Acquisition related costs—Acquisition related costs are costs, such as advisory fees or professional fees, which an acquirer
incurs to effect a business combination. Under the previous accounting standard, the acquirer accounts for acquisition related
costs by including them in the acquisition costs of the investment. Under the revised accounting standard, acquisition related
costs shall be accounted for as expenses in the periods in which the costs are incurred.
The above accounting standards and guidance for (a) transactions with noncontrolling interests, (b) presentation of the consolidated balance sheet, (c) presentation of the consolidated statement of income, and (e) acquisition related costs are effective forthe beginning of annual periods beginning on or after April 1, 2015. Earlier application is permitted from the beginning of annual
periods beginning on or after April 1, 2014, except for (b) presentation of the consolidated balance sheet and (c) presentation of
the consolidated statement of income. In the case of earlier application, all accounting standards and guidance above, except for(b) presentation of the consolidated balance sheet and (c) presentation of the consolidated statement of income, should beapplied simultaneously.

55

56

Financial Statements

Financial Statements

Either retrospective or prospective application of the revised accounting standards and guidance for (a) transactions with
noncontrolling interests and (e) acquisition related costs is permitted. In retrospective application of the revised standards andguidance, the accumulated effects of retrospective adjustments for all (a) transactions with noncontrolling interests and (e)acquisition related costs which occurred in the past shall be reflected as adjustments to the beginning balance of capital surplus
and retained earnings for the year of the first time application. In prospective application, the new standards and guidance shallbe applied prospectively from the beginning of the year of the first time application.
The revised accounting standards and guidance for (b) presentation of the consolidated balance sheet and (c) presentation of
the consolidated statement of income shall be applied to all periods presented in financial statements containing the first time
application of the revised standards and guidance.
The revised standards and guidance for (d) provisional accounting treatments for a business combination are effective for abusiness combination which occurs on or after the beginning of annual periods beginning on or after April 1, 2015. Earlier application is permitted for a business combination which occurs on or after the beginning of annual periods beginning on or after April
1, 2014.
The Company applied the revised accounting standards and guidance for (a) transactions with noncontrolling interests,(b) presentation of the consolidated balance sheet, (c) presentation of the consolidated statement of income, and (e) acquisition
related costs above, effective April 1, 2015, and (d) provisional accounting treatments for a business combination above for abusiness combination which occurred on or after April 1, 2015. The revised accounting standards and guidance for (a) transactions with noncontrolling interests and (e) acquisition related costs were applied prospectively.
With respect to (b) presentation of the consolidated balance sheet and (c) presentation of the consolidated statement ofincome, the applicable line items in the 2015 consolidated financial statements have been accordingly reclassified and presented
in line with those in 2016.
d.

i.

j.

k.

Inventories are stated at the lower of cost determined by the following methods, or net selling value:g.

Specific identification method
Moving average cost method
Last purchase method

Marketable and Investment Securities—

m. Research and Development Costs—

Research and development costs are charged to income as incurred.
n.

Allowance for Doubtful Receivables—

Property, Plant and Equipment—

Property, plant and equipment are stated at cost. Depreciation of property, plant and equipment of the Company and its consolidated domestic subsidiaries is computed by the declining balance method based on the estimated useful lives of the assets,
while the straight line method is applied to buildings (excluding structures), assets for rent and certain furniture and fixtures.
The range of useful lives is principally as follows:
Buildings and structures:
Assets for rent:
Machinery and equipment:
Vehicles:Furniture and fixtures:

3 to 20 years
5 years
7 years
2 to 6 years
2 to 20 years

Under certain conditions such as when companies receive government subsidies and purchase property, plant and equipmentusing government subsidies, Japanese tax laws permit companies to defer the profit arising from such subsidies by reducing thecost of the assets acquired.

Leases—In March 2007, the ASBJ issued ASBJ Statement No. 13, “Accounting Standard for Lease Transactions,” which revised the previous accounting standard for lease transactions.
Under the previous accounting standard, finance leases that were deemed to transfer ownership of the leased property to
the lessee were capitalized. However, other finance leases were permitted to be accounted for as operating lease transactions if
certain “as if capitalized” information was disclosed in the notes to the lessee’s financial statements. The revised accounting
standard requires that all finance lease transactions be capitalized by recognizing lease assets and lease obligations in the balance sheet.
The Company applied the revised accounting standard effective April 1, 2008.
All other leases are accounted for as operating leases.

The allowance for doubtful receivables is stated in amounts considered to be appropriate based on the Company’s past credit
loss experience and an evaluation of potential losses in the receivables outstanding.
h.

Stock Options—

In December 2005, the ASBJ issued ASBJ Statement No. 8, “Accounting Standard for Stock Options” and related guidance. The
new standard and guidance are applicable to stock options newly granted on and after May 1, 2006. This standard requires companies to measure the cost of employee stock options based on the fair value at the date of grant and recognize compensation
expense over the vesting period as consideration for receiving goods or services. The standard also requires companies toaccount for stock options granted to non employees based on the fair value of either the stock options or the goods or services
received. In the balance sheet, stock options are presented as stock acquisition rights as a separate component of equity until
exercised. The standard covers equity settled, share based payment transactions, but does not cover cash settled, share based
payment transactions. In addition, the standard allows unlisted companies to measure options at their intrinsic value if theycannot reliably estimate fair value.

Inventories—

Marketable and investment securities are classified and accounted for, depending on management’s intent, as follows: (1) trading securities, which are held for the purpose of earning capital gains in the near term are reported at fair value, and the related
unrealized gains and losses are included in earnings; (2) held-to-maturity debt securities, for which there is the positive intent
and ability to hold to maturity are reported at amortized cost; and (3) available-for-sale securities, which are not classified aseither of the aforementioned securities, are reported at fair value, with unrealized gains and losses, net of applicable taxes,
reported in a separate component of equity.
Nonmarketable available-for-sale securities are stated at cost determined by the moving average method. For other than
temporary declines in fair value, investment securities are reduced to net realizable value by a charge to income.

Asset Retirement Obligations—

In March 2008, the ASBJ issued ASBJ Statement No. 18, “Accounting Standard for Asset Retirement Obligations” and ASBJ
Guidance No. 21, “Guidance on Accounting Standard for Asset Retirement Obligations.” Under this accounting standard, an
asset retirement obligation is defined as a legal obligation imposed either by law or contract that results from the acquisition,
construction, development and normal operation of a tangible fixed asset and is associated with the retirement of said tangible
fixed asset. The asset retirement obligation is recognized as the sum of the discounted cash flows required for the future asset
retirement and is recorded in the period in which the obligation is incurred if a reasonable estimate can be made. If a reasonableestimate of the asset retirement obligation cannot be made in the period the asset retirement obligation is incurred, the liability
should be recognized when a reasonable estimate of the asset retirement obligation can be made. Upon initial recognition of aliability for an asset retirement obligation, an asset retirement cost is capitalized by increasing the carrying amount of the related
fixed asset by the amount of the liability. The asset retirement cost is subsequently allocated to expense through depreciation
over the remaining useful life of the asset. Over time, the liability is accreted to its present value each period. Any subsequent
revisions to the timing or the amount of the original estimate of undiscounted cash flows are reflected as an adjustment to thecarrying amount of the liability and the capitalized amount of the related asset retirement cost.
l.

f.

Intangible Assets—

Intangible assets are carried at cost less accumulated amortization, which is calculated by the straight line method over 3 to 5
years for software and 8 years for patent rights.

Cash Equivalents—(1) Finished products, work in process:(2) Raw materials, merchandise:(3) Supplies:

Long Lived Assets—

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

Cash equivalents are short term investments that are readily convertible into cash and that are exposed to insignificant risk ofchanges in value.
Cash equivalents include time deposits and marketable securities, all of which mature or become due within three monthsof the date of acquisition.
e.

| C Y B E R DY N E A n n u a l R e p o r t 2016o.

Revenue Recognition—

The Group’s revenue mainly consists of rentals and sales of products. The Company recognizes rental revenue each month over
the rental period based on the rental agreement. For sales of products, the Company recognizes revenue upon the completionof acceptance inspection by the customer.
p.

Other Income—

The Group receives subsidies from government agencies. Also, the Company conducts research consigned by government
agencies. Subsidies and consigned research income are recognized by the percentage of completion method as the outcome ofthe projects can be estimated reliably.

57

58

Financial Statements

q.

Financial Statements

Income Taxes—

The provision for income taxes is computed based on the pretax income included in the consolidated statement of operations.
The asset and liability approach is used to recognize deferred tax assets and liabilities for the expected future tax consequencesof temporary differences between the carrying amounts and the tax bases of assets and liabilities. Deferred taxes are measured
by applying currently enacted income tax rates to the temporary differences.

| C Y B E R DY N E A n n u a l R e p o r t 2016

4. MARKETABLE AND INVESTMENT SECURITIESMarketable and investment securities as of March 31, 2016 and 2015, consisted of the following:Thousands of
U.S. Dollars(Note 1)Thousands of Yenr.

Foreign Currency Transactions—

All short term and long term monetary receivables and payables denominated in foreign currencies are translated into Japanese
yen at the exchange rates at the balance sheet date. The foreign exchange gains and losses from translation are recognized in
the consolidated statement of operations.
s.

Foreign Currency Financial Statements—

The balance sheet accounts of the consolidated foreign subsidiaries are translated into Japanese yen at the current exchange
rate as of the balance sheet date except for equity, which is translated at the historical rate. Differences arising from such translation are shown as “Foreign currency translation adjustments” under accumulated other comprehensive income in a separate
component of equity. Revenue and expense accounts of consolidated foreign subsidiaries are translated into yen at the averageexchange rate.
t.

Per Share Information—

Basic net income or loss per share is computed by dividing net income or loss attributable to common shareholders by theweighted average number of common shares outstanding for the period.
The Company effected a five for one stock split on August 1, 2014, by way of a free share distribution based on the resolution of the Board of Directors’ meeting held on May 22, 2014.
Also, the Company effected a two for one stock split on August 1, 2015, by way of a free share distribution based on the
resolution of the Board of Directors’ meeting held on May 25, 2015. All prior and current year share and per share figures havebeen restated to reflect the impact of these stock splits, and to provide data on a comparable basis.
Net loss per share is calculated assuming these stock splits were conducted at the beginning of the fiscal years ended
March 31, 2016 and 2015, respectively.
u.

Accounting Changes and Error Corrections—

In December 2009, the ASBJ issued ASBJ Statement No. 24, “Accounting Standard for Accounting Changes and Error Corrections” and ASBJ Guidance No. 24, “Guidance on Accounting Standard for Accounting Changes and Error Corrections.” Accounting treatments under this standard and guidance are as follows: (1) Changes in Accounting Policies—When a new accounting
policy is applied following revision of an accounting standard, the new policy is applied retrospectively unless the revised
accounting standard includes specific transitional provisions, in which case the entity shall comply with the specific transitional
provisions. (2) Changes in Presentation—When the presentation of financial statements is changed, prior period financial statements are reclassified in accordance with the new presentation. (3) Changes in Accounting Estimates—A change in an accounting estimate is accounted for in the period of the change if the change affects that period only, and is accounted for prospectively
if the change affects both the period of the change and future periods. (4) Corrections of Prior Period Errors—When an error inprior period financial statements is discovered, those statements are restated.
v.

Changes in Presentation
Consolidated Balance Sheet—”Construction in progress” of ¥37,221 thousand for the year ended March 31, 2015, which was

included in “Other assets” in property, plant and equipment, has been separately presented to conform to the current year’s
presentation.

Reconciliation between cash and bank balances in the consolidated balance sheets as of March 31, 2016 and 2015, and cash andcash equivalents in the consolidated statements of cash flows for the years ended March 31, 2016 and 2015, was as follows:

2016

2015

Cash and bank balances¥ 14,458,798¥ 29,722,189$ 128,317

Marketable securities

25,500,386

12,499,668

226,308

Restricted deposit
Bonds and other debt obligations due in three months or later
Cash and cash equivalents(3,000,000)¥ 1,499,963¥ 2,499,668

2016$ 13,311

24,000,422

10,000,000

212,996

Total¥25,500,386¥12,499,668$226,308

Non-current—Securities classified as available-for-sale—unlisted stocks¥   914,830¥   314,850$  8,118

The costs and aggregate fair values of marketable and investment securities as of March 31, 2016 and 2015, are not disclosed since thecarrying value of commercial paper, negotiable certificates of deposit and jointly managed money trust approximate fair value becauseof their short maturities, and since unlisted stocks do not have a quoted market price and their fair value cannot be reliably determined.
Investments in unconsolidated subsidiaries and associated companies as of March 31, 2016 and 2015, consisted of the following:Thousands of
U.S. Dollars(Note 1)Thousands of Yen
2016

2015

¥11,555¥ 9,302

2,957

2,957

26

¥14,512¥12,259

$128

2016

Investments in unconsolidated subsidiaries and associated companies:
Investment securities (shares)
Investment securities (investments in capital)
Total

$102

5. INVENTORIESInventories at March 31, 2016 and 2015, consisted of the following:Thousands of
U.S. Dollars(Note 1)Thousands of Yen
2015

2016

Merchandise and finished products

2016¥149,939¥ 52,779

Work in process

13,51921,956119

Raw materials and supplies

286,167

264,473

2,539

Total

¥449,626¥339,209$3,990$1,330

By receiving state subsidies for fixed assets, the Company has reduced the acquisition cost of related fixed assets for tax purposes.
The reduction entries deduced from the acquisition cost of fixed assets for tax purposes as of years ended March 31, 2016 and2015, were as follows:(13,312)(177,495)¥ 19,221,857$ 163,817

Thousands of
U.S. Dollars(Note 1)Thousands of Yen

2016(20,000,000)(20,000,213)¥ 18,458,970

Held-to-maturity—commercial paper
Available-for-sale—negotiable certificates of deposit andjointly-managed money trustThousands of
U.S. Dollars(Note 1)Thousands of Yen(1,500,000)

2015

6. REDUCTION ENTRY

3. RECONCILIATION BETWEEN CASH AND BANK BALANCES AND CASH EQUIVALENTS

Time deposits which mature or become due over three months fromthe date of acquisition

2016

Current—Securities classified as:

2016

2015

2016

Machinery and equipment¥144,555¥144,555$1,282

Furniture and fixtures

174,904

105,229

1,552

Software

14,174

11,332

125

59

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Financial Statements

7.

Financial Statements

LONG TERM DEBT

| C Y B E R DY N E A n n u a l R e p o r t 2016

9. EQUITYLong term debt at March 31, 2016 and 2015, consisted of the following:Thousands of
U.S. Dollars(Note 1)Thousands of Yen
2016

2015

Long-term bonds—Euro-yen zero coupon convertible bond-type bonds
with subscription rights to shares, due 2017

¥ 19,927,483¥19,883,974

Less current portion(19,927,483)

Long-term bonds, less current portion

Japanese companies are subject to the Companies Act of Japan (the “Companies Act”). The significant provisions in the Companies
Act that affect financial and accounting matters are summarized below:a.

$ 176,850(176,850)¥19,883,974

Outline of Euro-yen zero coupon convertible bond-type bonds with subscription rights to shares (also often referred to as “convertible bonds”):(1) Type of shares to be converted
Common Share of the Company(2) Issue price of the stock acquisition rights
Zero(3) Conversion price¥1,699 ($15)(4) Aggregate principal of the bond
¥20,000,000 thousand ($177,493 thousand)(5) Exercise period
From December 26, 2014 to November 28, 2017(6) Substitute payment	‌In the exercise of each stock acquisition right, it is assumed that each bond will be
invested, and the value of the bond will be equivalent to the total face value.
As of March 31, 2015, in accordance with the escrow agreement entered into with DB Trustees (Hong Kong) Limited, which serves
as the trustee for the convertible bonds, and Deutsche Bank AG, Tokyo Branch, which serves as the escrow agent, the aggregate
principal amount of the convertible bonds of ¥20,000,000 thousand was placed in the Company’s escrow account, which was
opened at the escrow agent, upon receipt of payment. The Company may withdraw funds from the escrow account only upon satisfaction of one of the conditions stated below.
Specifically, the Company may withdraw the funds if (i) it receives approval of its mainstay product HAL® as a medical device
from the U.S. Food and Drug Administration (FDA), or if (ii) it receives approval to manufacture and distribute HAL® as a medical
device in Japan from the Minister of Health, Labour and Welfare in Japan under the Pharmaceutical Affairs Act of Japan. In the eventthat the convertible bonds are converted into shares, the Company may withdraw an amount equivalent to the principal amount of
the relevant convertible bonds that were converted even if the aforementioned conditions are not satisfied.
As of March 31, 2016, the Company did not enter into such escrow agreements.
Annual maturities of long term debt (principal amount) at March 31, 2016, were as follows:Year Ending March 31

Thousands of Yen

2017¥20,000,000

Thousands of
U.S. Dollars(Note 1)

$177,493

2018

Dividends

Under the Companies Act, companies can pay dividends at any time during the fiscal year in addition to the year end dividend
upon resolution at the shareholders’ meeting. Additionally, for companies that meet certain criteria including (1) having a Boardof Directors, (2) having independent auditors, (3) having an Audit & Supervisory Board, and (4) the term of service of the directors being prescribed as one year rather than the normal two year term by its articles of incorporation, the Board of Directors
may declare dividends (except for dividends in kind) at any time during the fiscal year if the company has prescribed so in its
articles of incorporation.
Semiannual interim dividends may also be paid once a year upon resolution by the Board of Directors if the articles of incorporation of the company so stipulate. The Companies Act provides certain limitations on the amounts available for dividends or
the purchase of treasury stock. The limitation is defined as the amount available for distribution to the shareholders, but theamount of net assets after dividends must be maintained at no less than ¥3,000 thousand.
The Company is not allowed to pay dividends due to the deficit as of March 31, 2016 and 2015.

2016

b.

Increases/Decreases and Transfer of Common Share, Reserve and Surplus

The Companies Act requires that an amount equal to 10% of dividends must be appropriated as a legal reserve (a component ofretained earnings) or as additional paid in capital (a component of capital surplus), depending on the equity account charged
upon the payment of such dividends, until the aggregate amount of legal reserve and additional paid in capital equals 25% of thecommon shares. Under the Companies Act, the total amount of additional paid in capital and legal reserve may be reversed
without limitation. The Companies Act also provides that common shares, legal reserve, additional paid in capital, other capitalsurplus and retained earnings can be transferred among the accounts within equity under certain conditions upon resolution of
the shareholders.
The changes in shares are summarized below:
SharesCommon SharesClass B Shares

Total

Issued shares:
Balance, April 1, 2014

10,853,400

7,770,000

18,623,400

51,934,600

31,080,000

83,014,600

Balance, March 31, 2015

62,788,000

38,850,000

101,638,000

Balance, March 31, 2015
(as restated to reflect the stock split on August 1, 2015)

125,576,000

77,700,000

203,276,000

125,576,000

77,700,000

203,276,000

Increase
Decrease

Increase
Decrease

2019

Balance, March 31, 20162020
2021 and thereafter

Treasury stock:

The Company has concluded overdraft agreements with a maximum limit of ¥900,000 thousand ($7,987 thousand) and ¥900,000
thousand with two banks as of March 31, 2016 and 2015, respectively, in order to efficiently fund ongoing operations.

Balance, April 1, 2014
Increase
Decrease
Balance, March 31, 2015
Increase

8. ASSET RETIREMENT OBLIGATIONS
The changes in asset retirement obligations for the years ended March 31, 2016 and 2015, were as follows:

Balance at beginning of year
Reconciliation associated with passage of time
Balance at end of year

Balance, March 31, 2016
Thousands of
U.S. Dollars(Note 1)Thousands of Yen

138

138

138

138

Decrease

2016

2015

¥70,171¥68,762

1,442

1,409

12

¥71,613¥70,171

$635

2016

$622

Asset retirement obligations are obligations to restore sites to their original condition attendant upon the real estate lease contractsof the head office building and exhibition facilities, etc. The amounts of the asset retirement obligations are calculated at discountrates of 1.98% to 2.07% by estimating the expected use periods to be 18 to 20 years from acquisition.

61

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Financial Statements| C Y B E R DY N E A n n u a l R e p o r t 2016

Financial Statements

For the year ended March 31, 2015, reasons for the changes in the number of issued shares of each class of shares are as follows:

10. STOCK OPTIONSMarch 31, 2015

Expenses related to stock options for the years ended March 31, 2016 and 2015, were as follows:

SharesCommon Shares—Increase:
Third-party allocation of shares related to secondary offering through over-allotment

304,200

Issuance of new shares through the international offering

7,000,000

Stock split on August 1, 2014

44,630,400

Total

51,934,600

Class B Share—Increase—stock split on August 1, 2014

31,080,000

The stock option outstanding as of March 31, 2016, are as follows:

Common Share—Increase—purchase of shares in fractional lots

Shares138

Treasury Stock and Treasury Stock Acquisition Rights

The Companies Act also provides for companies to purchase treasury stock and dispose of such treasury stock by resolution of
the Board of Directors. The amount of treasury stock purchased cannot exceed the amount available for distribution to the shareholders which is determined by a specific formula. Under the Companies Act, stock acquisition rights are presented as a separate component of equity. The Companies Act also provides that companies can purchase both treasury stock acquisition rights
and treasury stock. Such treasury stock acquisition rights are presented as a separate component of equity or deducted directlyfrom stock acquisition rights.
The Company recorded stock acquisition rights, related to Euro-yen zero coupon convertible bond type bonds and the 2015
stock option, of ¥530,529 thousand ($4,708 thousand) and ¥6,318 thousand ($56 thousand) during the year ended March 31, 2016.
The Company recorded stock acquisition rights, related to Euro-yen zero coupon convertible bond type bonds, of ¥530,529
thousand during the year ended March 31, 2015.
The change in shares to be converted is as follows:
Thousandsof Shares

Common Shares:
5,277

Decrease
Balance, March 31, 2015
Balance, March 31, 2015 (as restated to reflect the stock split on August 1, 2015)
Increase

5,277
10,554
1,217

Decrease
Balance, March 31, 20162016

¥6,318$56

Date of resolution

July 28, 2015

Persons granted

1 outside collaborator of the Company

Number of options granted

Common Share 7,800 shares

Date of grantAugust 12, 2015

Exercise period

From July 29, 2017 to July 28, 2025

The stock option activity is as follows:
SharesYear Ended March 31, 20162015 Stock Option

Non-vested
March 31, 2015—Outstanding
Granted

7,800

Canceled
Vested(7,800)March 31, 2016—Outstanding
VestedBalance, April 1, 2014
Increase

2015

2015 Stock Option

For the year ended March 31, 2016, reasons for the changes in the number of treasury stock are as follows:

c.

2016

Selling, general and administration—
Share-based compensation expenses

March 31, 2016

Thousands of
U.S. Dollars(Note 1)Thousands of Yen

11,771For the year ended March 31, 2016, the increase of 1,217 thousand shares was due to adjustments of the conversion price.
The first day of the exercise period has not arrived for the stock acquisition rights issued as the 2015 stock option.
For the year ended March 31, 2015, the increase of 5,277 thousand shares was due to the issuance of Euro-yen zero coupon
convertible bond type bonds.
The Company effected a five for one stock split on August 1, 2014, by way of a free share distribution based on resolution of
the Board of Directors’ meeting held on May 22, 2014.
Also, the Company effected a two for one stock split on August 1, 2015, by way of a free share distribution based on resolution of the Board of Directors’ meeting held on May 25, 2015.

March 31, 2015—Outstanding
Vested7,800

Exercised
Canceled
March 31, 2016—Outstanding

7,800

Exercise price¥1,806($   16)

Average stock price at exercise
Fair value price at grant date¥  810($     7)

Assumptions Used to Measure the Fair Value2015 Stock Option

Estimate method

Black-Scholes option pricing model

Volatility of stock price

66.4%

Estimated remaining outstanding period

5.8 years

Estimated dividend¥— ($—) per share

Risk free interest rate

0.1%

63

64

Financial Statements

Financial Statements

11. INCOME TAXES

12. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

The Company and its domestic subsidiaries are subject to Japanese national and local income taxes which, in the aggregate, resulted in normal effective statutory tax rates of approximately 32.8% and 35.4% for the years ended March 31, 2016 and 2015,
respectively.
The tax effects of significant temporary differences and tax loss carryforwards which resulted in deferred tax assets and liabilities at March 31, 2016 and 2015, are as follows:

Selling, general and administrative expenses mainly include the following:Thousands of
U.S. Dollars(Note 1)Thousands of Yen
2016

2015

¥     64,761¥    50,752$    574

Write-off of inventories

7,618

6,390

67

Lump-sum depreciable assets

3,062

3,734

27

Accrued enterprise tax

18,103

11,112160

Impairment loss

2,250

2,871

19

90,627

93,237804

Asset retirement obligations

21,81922,507

193

Loss on valuation of shares of unconsolidated subsidiaries andassociated companies
Tax loss carryforwards
Other
Less valuation allowance

7,073

7,445

62

1,595,422

1,489,075

14,15817,99814,824159(1,828,737)(1,701,952)(16,229)

Salaries¥187,411¥151,135$1,663450,892

444,4114,001

Rental expenses

118,227

104,646

1,049

2,514

Other selling, general and administrative expenses:
Salaries

283,281284,945

Depreciation

102,077

72,841

905

Rental expenses

133,458

164,787

1,184

13. LEASES
Obligations and future minimum payments under noncancelable operating leases as of the years ended March 31, 2016 and 2015,
were as follows:(10,211)(12,016)(815)(1,318)

(7)

Total

(11,027)(13,335)(97)¥   (11,027)¥   (13,335)$    (97)

Net deferred tax liabilities

A reconciliation between the normal effective statutory tax rates and the actual effective tax rates reflected in the accompanying
consolidated statements of operations for the years ended March 31, 2016 and 2015, is as follows:
2016

32.8 %

35.4 %

Expenses not deductible for income tax purposes

(0.1)

(0.1)

Impact of change in tax rate

(13.4)(18.6)

Inhabitants tax, flat rate

(0.9)

Expiration of tax loss carryforwards¥159,748

Due after one year

170,216

76,702

1,510¥438,361¥236,450$3,890Total

a.

(17.9)

0.0

(2.1)

(2.0)

Actual effective tax rate(1.6)%(1.3)%New tax reform laws enacted in 2016 in Japan changed the normal effective statutory tax rate for the fiscal year beginning on orafter April 1, 2016, to approximately 30.7% and for the fiscal year beginning on or after April 1, 2018, to approximately 30.5%. The
effect of these changes was immaterial.

Company Policy for Financial Instruments

The Group obtains financing by borrowings from banks or other financial institutions such as through the issuance of bonds
based on its capital financing plan. Cash surpluses, if any, are invested only in low risk financial assets. The Company does notintend to engage in derivative transactions.
b.

Nature and Extent of Risks Arising from Financial Instruments

Receivables, such as trade accounts and other, are exposed to customer credit risk.
Payment terms of payables, such as trade accounts, are less than a month.
Marketable and investment securities, which mainly consist of stocks, held-to-maturity bonds and money trust, are exposedto credit risk of the issuers.

(0.7)

Other—net$2,37914. FINANCIAL INSTRUMENTS AND RELATED DISCLOSURES(15.2)

Valuation allowance

2016¥268,145

2015

Normal effective statutory tax rate2015

Due within one year
(90)

Other

Thousands of
U.S. Dollars(Note 1)Thousands of Yen
2016

Deferred tax liabilities:

2016

Material costs

Total

Retirement expenses for asset retirement obligations

2015

2016

Research and development costs:

2016

Depreciation

Thousands of
U.S. Dollars(Note 1)Thousands of Yen

Deferred tax assets:
Research and development expenses| C Y B E R DY N E A n n u a l R e p o r t 2016c.

Risk Management for Financial Instruments

Credit risk management
Credit risk is the risk of economic loss arising from a counterparty’s failure to repay or service debt according to the contractual
terms. The Group manages its credit risk from receivables on the basis of internal guidelines, which include monitoring of payment terms and balances of major customers by each business administration department to identify the default risk of customers at an early stage.
With regard to marketable securities and investment securities, the Group regularly monitors the financial conditions andother parameters of the issuers of these securities.
Liquidity risk management
Liquidity risk comprises the risk that the Group cannot meet its contractual obligations in full on their maturity dates. The corporate department prepares and updates the cash management plan periodically based on the reports from each department andcalculates the necessary amount on hand. The Company manages liquidity risk by maintaining the amount calculated by the
corporate department.

65

66

Financial Statementsd.

Financial Statements(2) Carrying amount of financial instruments whose fair value cannot be reliably determined

Fair Values of Financial Instruments

Fair values of financial instruments are based on quoted prices in active markets. If a quoted price is not available, another rational valuation technique is used instead.

March 31, 2016

Carrying
AmountFair Value

Thousands of
U.S. Dollars(Note 1)Thousands of Yen(1) Fair values of financial instruments
Financial instruments whose fair values cannot be reliably determined are excluded from the table below.
Thousands of Yen| C Y B E R DY N E A n n u a l R e p o r t 2016

2015

2016

Investment securities—Unlisted stock¥914,830

2016¥314,850$8,118

Thousands of U.S. Dollars (Note 1)
Unrealized
Gain/Loss

Carrying
AmountFair Value

Investments in unconsolidated subsidiaries andassociated companies:

Unrealized
Gain/Loss

Cash and bank balances¥14,458,798 ¥14,458,798$128,317$128,317

Investment securities (shares)

11,5559,302

102

Marketable securities

25,500,386

25,500,386

226,308

226,308

Investment securities (investments in capital)

2,957

2,957

26

217,347

217,347

1,928

1,928

349,259

349,259

3,099

3,099

¥40,525,790 ¥40,525,790$359,653$359,653

Due after 5 Years
through 10 Years

Due after 10 Years

Receivables—trade accounts
Receivables—other
Total
Payables—trade accounts
Current portion of convertible bondtype bonds with subscription rights
to shares
Income taxes payable
Total¥    48,120 ¥    48,120$    427$    427

19,927,483

19,927,483

176,850

63,80463,804566

176,850566¥20,039,408 ¥20,039,408$177,843$177,843e.

Maturity Analysis for Financial Assets and Securities with Contractual Maturities
Thousands of Yen
March 31, 2016

Cash and bank balances
Marketable securities
Receivables—trade accounts
Receivables—other
Total

Due in 1 Year or Less

¥14,458,798
25,500,386
217,347
349,259¥40,525,790
Thousands of U.S. Dollars (Note 1)

Thousands of Yen
March 31, 2015

Carrying
AmountFair Value

Cash and bank balances¥29,722,189 ¥29,722,189

Marketable securities

12,499,668

12,499,668

Receivables—trade accounts

207,622

207,622

Receivables—other549,893549,893

Total¥42,979,373 ¥42,979,373

Payables—trade accounts¥    92,195 ¥    92,195

Income taxes payable

Due after 1 Yearthrough 5 Years

Unrealized
Gain/Loss

March 31, 2016

Cash and bank balances
Marketable securities
Receivables—trade accounts
Receivables—other
Total

Due in 1 Year or Less

Due after 1 Yearthrough 5 Years

Due after 5 Years
through 10 Years

Due after 10 Years$128,317
226,308
1,928
3,099$359,653

15. COMPREHENSIVE INCOME (LOSS)

69,89969,899Convertible bond-type bonds with
subscription rights to shares

19,883,974

19,875,755¥(8,219)

Total¥20,046,069 ¥20,037,849¥(8,219)

The components of other comprehensive income (loss) for the years ended March 31, 2016 and 2015, were as follows:

Thousands of Yen
2016

Cash and Bank Balances
The carrying values of cash and bank balances approximate fair value because of their short maturities.
Marketable Securities‌The carrying values of commercial paper, negotiable certificates of deposits and jointly managed money trust approximate
fair value because of their short maturities.
Receivables and Payables
The carrying values of receivables and payables approximate fair value because of their short maturities.
Current Portion of Convertible Bond Type Bonds with Subscription Rights to Shares‌The carrying values of current portion of convertible bond type bonds with subscription rights to shares approximate
fair value because of their short maturities.

Thousands of
U.S. Dollars(Note 1)
2015

2016

Foreign currency translation adjustments:
Adjustments arising during the year

¥1,776

Reclassification adjustments to profit or loss
Amount before income tax effect¥(1,289)

$15

(208)
1,776

(1,497)15¥1,776¥(1,497)$15

Income tax effectTotal other comprehensive income (loss)

67

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Financial Statements

Financial Statements

16. NET LOSS PER SHARE

18. SUBSEQUENT EVENTSThe calculation base for net loss per share (”EPS”) for the years ended March 31, 2016 and 2015, is as follows:a.

Year Ended March 31, 2016

Thousands of Yen

Thousands of Shares

Net Loss Attributable to
Owners of the Parent

Weighted-Average
Shares¥(718,057)

203,275

Basic EPS—Net loss available to common shareholders

Year Ended March 31, 2015

Yen
EPS

Thousands of Yen

Thousands of Shares

Yen

Net Loss Attributable to
Owners of the Parent

Weighted-Average
Shares

EPS¥(915,893)

193,311

Basic EPS—Net loss available to common shareholders$(0.03)¥(4.74)

Although there were dilutive shares, diluted net income per share is not disclosed because the Company posted a net loss per share.
The Company effected a five for one stock split on August 1, 2014, by way of a free share distribution based on resolution of theBoard of Directors’ meeting held on May 22, 2014.
In addition, the Company effected a two for one stock split on August 1, 2015, by way of a free share distribution based on resolution of the Board of Directors’ meeting held on May 25, 2015.
EPS is calculated assuming these stock splits were conducted at the beginning of the fiscal year ended March 31, 2015.

Early Redemption of Convertible Bonds Due 2017

The Company decided to exercise its option to redeem early the entire outstanding amount of Euro-yen zero coupon convertible
bond type bonds with subscription rights to shares due 2017 (the “Bonds”) at 100% of their principal amount, according to the
120% call option articles contained in the Terms and Conditions of the Bonds, which was satisfied on April 22, 2016.
The conversion into common share of the Bonds of ¥19,927,483 thousand ($176,850 thousand) as of March 31, 2016, wascompleted in full by June 6, 2016.

U.S. Dollars (Note 1)¥(3.53)| C Y B E R DY N E A n n u a l R e p o r t 2016b.

(1) Bonds to be redeemed

CYBERDYNE, Inc. Euro-yen zero coupon convertible bond type bonds
with subscription rights to shares due 2017

(2) Amount for redemption

All of the outstanding Bonds(3) Early redemption dateJune 6, 2016(4) Early redemption amount¥100 per par value of ¥100

Exercise of Stock Acquisition Rights Attached to the Convertible Bonds Due 2017

All stock acquisition rights attached to the Bonds were exercised no later than June 1, 2016, following the fiscal year ended
March 31, 2016.
(1) Increase in the amount of capital stock¥10,232,113 thousand ($90,806 thousand)

17. SEGMENT INFORMATION(2) Increase in the amount of capital surplus¥10,232,113 thousand ($90,806 thousand)Under ASBJ Statement No. 17, “Accounting Standard for Segment Information Disclosures” and ASBJ Guidance No. 20, “Guidanceon Accounting Standard for Segment Information Disclosures,” an entity is required to report financial and descriptive information
about its reportable segments. Reportable segments are operating segments or aggregations of operating segments that meet
specified criteria. Operating segments are components of an entity about which separate financial information is available and suchinformation is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance. Generally, segment information is required to be reported on the same basis as is used internally for evaluating operating
segment performance and deciding how to allocate resources to operating segments.
Since the Group operates under a single segment, the HAL® segment in Japan, and more than 90% of net sales are from thissegment, segment information is omitted.

(3) Increase in the number of shares

Common Share—11,771,609 shares(Related Information)a.

Information about Products and Services

Since net sales of the single classification of products and services to outside clients exceed 90% of net sales in the consolidated statement of operations, segment information by product and service is omitted.
b.

Information about Geographical Areas(1) Net sales
Thousands of Yen
March 31, 2016

Japan

Net sales¥1,181,838

March 31, 2015

Japan

EMEA

¥83,063

Thousands of U.S. Dollars (Note 1)
Total¥1,264,902

Japan

EMEA

$10,488

Total

$737

$11,225

Thousands of Yen

Net sales¥567,514

EMEA¥63,763Total¥631,278(2) Property, plant and equipment‌Since the amount of property, plant and equipment in Japan exceeds 90% of the amount of property, plant and equipmentin the consolidated balance sheet, property, plant and equipment information by geographical area is omitted.
c.

Information about Major Customers
March 31, 2016

Sales to—Kanagawa Prefecture
March 31, 2015

Sales to—DAIWA HOUSE INDUSTRY CO., LTD.

Thousands of Yen

Thousands of
U.S. Dollars (Note 1)¥172,227$1,528

Thousands of Yen¥69,72869

70

Financial Statements

Corporate & Investor Information

C YBERDYNE

A n n u a l R e p o r t 2016

Corporate Information
Name:
Headquarters:
Founded:Capital stock:

CYBERDYNE, INC.
2-2-1, Gakuen-Minami, Tsukuba, Ibaraki, 305-0818, Japan
June 24, 2004
¥16.5 billion (as of March 31, 2016)

Board of Directors:

Representative Director, President and CEO
Director
Director and CFO
Director
Outside Director
Outside Director
Outside Director

Yoshiyuki Sankai
Fumiyuki Ichihashi
Shinji Uga
Hiroaki Kawamoto
Kinichi Nakata
Kazumasa Yoshida
Hikari Imai

Audit & Supervisory Board Members:

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

Yutaka Fujitani
Cees Vellekoop
Kenichiro Okamura

Business facilities: Fukushima Office		Okayama Office		1-12, Machiikedai, Koriyama, Fukushima, 963-0215, Japan
In the Fukushima Technology Centre
5303, Haga, Kita-ku, Okayama, Okayama, 701-1221, Japan
In the Okayama Research Park Incubation Center

Group companies:

Issued sharecapitalPercentage ofvoting rights

Cyberdyne Care Robotics GmbH€25,000

75.1%

Suzuka Robo Care Center Co., Ltd.

¥3 million

100.0%

Shonan Robo Care Center Co., Ltd.

¥3 million

100.0%

Oita Robo Care Center Co., Ltd.

¥3 million

100.0%

Principal business

Functional improvement theatment
services using HAL®
Training with HAL®, nursing careinsurance services

Stock Information (as of March 31, 2016)
Stock listing:Stock code:
Listed:Fiscal year:

Mothers Section of TSE
7779
March 26, 2014
April 1 to March 31

Fiscal year-end:
Share unit:

March 31
100 shares (Common Share)
10 shares (Class B Share)

Number of shares:

Total number of authorized shares:

696,000,000

Common share 618,300,000( Class
B share
77,700,000
Common share 125,576,000( Class B share 77,700,000				Total number of issued shares:

203,276,000				

ADR Information (as of March 31, 2016)
Type of ADR program: Sponsored Level 1 ADR

Trading effective date: October 13, 2015 (U.S. Eastern Standard Time)

Trading market:

OTC (Over The Counter)

CUSIP number:

23249A100

ADR ratio:

1 ADR: 1 Ordinary share

Depositary Bank:

Deutsche Bank Trust Company Americas

Ticker Symbol:

CYBQY

Local Custodian:Mizuho Bank, Ltd.

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