INTEGR ATED R EP ORT 2018

NCXX Group Inc.

01

INTEGRATED REPORT 2018
About NCXX Group

Sustainability

Strategy

Financial Section

Corporate Data

User Guide
This PDF offers various functions to make it easier to use
and to find information.

CONTENTS
About NCXX Group

Sustainability

02 Corporate Philosophy /Management Vision

23 Corporate Governance

03 Overall Image of the NCXX Group

28 CSR Activities

Return to theprevious page

To Contents

To theprevious page

To thenext pageIcons

26 Interview with an Outside Director

04 Business Domains
05 Value Creation Process
07 Financial Highlights
08 Core Performance Indicators

Strategy

10 Top Message
14 Feature 1: Launch of Cryptocurrency
Mining Business in
Hanamaki, Iwate
15 Feature 2: Business Alliances withe frontier and Fisco­Cryptocurrency Exchange
16 Introducing Our Businesses

Financial Section

31 Analysis of Operating Resultsand Financial Position
38 Consolidated Financial Statements
43 Notes
81 Consolidated Supplementary
Schedules

Note on Forward-Looking
Statements
This report contains information that
includes forward-looking statements.
These statements are prepared based on
information available to management asof the preparation date of the report.
Accordingly, actual conditions may differ
significantly from such statements ordetails implied therein based on risksand ­uncertainties associated withchanges in economic conditions andmarkets and other factors.

Index
About NCXX Group

Strategy

Corporate Data
Editorial Policy

83 Company Overview / History
84 Shareholder Information /Shareholder Memo

This integrated report has been issued
to help stake­holders develop a deeper
understanding of the NCXX Group’s
activities to achieve sustainable growth.

Click on the items on the contents
page to move directly to that page.

02

INTEGRATED REPORT 2018
About NCXX Group

Strategy

Sustainability

Financial Section

Corporate
Philosophy

Provide new value to people based on telecommunications
technology, thereby contributing to the development ofa more efficient and comfortable societyManagement
VisionConnecting, Creating, and Growing:
The Company will create new value
and contribute to society by integrating
the Group’s accumulated originaltechnologies and knowledge, as wellas its outstanding human resources

NCXX Group Inc.

https://ncxxgroup.co.jp/en

NCXX Inc.

https://www.ncxx.co.jp/

NCXX Solutions Inc.

http://www.ncxx-sl.co.jp/

CAICA Inc.

https://www.caica.jp/e-toppage/

Care Dynamics Limited

http://www.care-dynamics.jp/

e-tabinet.com

https://www.e-tabinet.com/

TITICACA, Co. Ltd.

http://www.titicaca.jp/english/

Corporate Data

03

INTEGRATED REPORT 2018
About NCXX Group

Strategy

Sustainability

IoT Solutions
The Internet of Things (IoT) refers to a system that
automates various controls by enabling “things”
such as sensors and devices connected throughthe Internet to exchange data with each other. By
equipping each of these devices with a wirelesscommunication function, we propose a variety ofsolutions that realize greater operational efficiency.

System Solutions
We provide integrated one-stop services in the
manufacturing, finance, distribution, and corporate
and public sectors. Services cover all aspects fromcommercialization using blockchain technology
and consulting to system development businesses,
including design, ­construction, operation, andmaintenance, as well as infrastructure construction
such as ­networks and databases.

Internet Travel
For customers who wish to take a one-of-a-kind
trip, not being satisfied with regular travel tours andwanting to make trips that do not appear in guidebooks, our travel consultants, known as travel
concierges, propose individually ­customized trips.

Financial Section

Corporate Data

Brand Retail Platform BusinessOverall Image of
the NCXX GroupThe brand retail platform business handles brand licenses(trademark rights) and retail businesses that sell miscellaneous goods and apparel. This business provides aservice that can recommend items tailored to consumers’
tastes as well as being used in product development by
converting information such as sales and web data into
big data, and combining it with AI.

 otal Nursing Care BusinessT
Support Service
We will solve various problems faced by nursing careproviders, including by the provision of Care Online, abusiness support system for nursing care providers, andby the proposal, development and sales of nursing carerobots and nursing care ICT systems.

Robot BusinessWe aim to provide new value in a variety of fields, including
nursing care, by combining robot and communication
technologies and creating a new kind of robot, in the
broad sense of the word, that is connected to a network,
rather than the narrow sense of “robot” meaning an independent device (equipment) operated autonomously.

Agricultural ICT BusinessWe aim to realize an agricultural business in which anyone
can succeed by selling safe, secure and delicious healthy
vegetables grown through digitally managed soil chemistry,and by providing cultivation technologies for producers.

04

INTEGRATED REPORT 2018
About NCXX Group

Sustainability

Strategy

Business Domains

Financial Section

Corporate Data

Other

ICT, IoT, Device Business¥53 million¥893 million

Information Service
Consulting Business¥71 million
Brand Retail Platform Business¥5,926 million

Net sales¥12,198
millionFinTech System
Development Business¥3,070 million
Internet Travel Business¥2,183 million

05

INTEGRATED REPORT 2018
About NCXX Group

Strategy

Sustainability

Financial Section

Corporate Data

Value Creation Process· Dramatic development of­communication infrastructure· Increasing capacity of hardware· Explosive popularization of mobile
terminals

Making use of infor­
mation and communi­
cation technologies· Transformation of existing financial
services through the developmentof AI· Diffusion of new financial services
by FinTech· Utilization of blockchain
technology

Changing
Society
社会の変化· Climate change risk
· Worsening environmental
conditions· Increasing awareness of the needfor food safety· An aging society with a fallingbirthrate· Declining regional vitality· Responding to risks including data leaks, tamperingand loss· Recommends items tailoredto consumer tastes and isused in productdevelopment

Management
経営戦略
Strategy

Construction of­financial systems· Creating innovative financial ­services that make fulluse of resources in financial
systems construction
expertise· Optimization of costs

SocialIssues to be Addressed
取り組むべき社会課題

Conservation of the­environment and food· Effective use of land
· Creating attractive businessmodels in agriculture· Creation of “Safe, Secure,
Ecological” crops andtechnologies

Diversity & Inclusion· Shortage of nursing carestaff
· Improvement of living­conditions of growers andworkers· Support for domestic
regions and developing
countries

06

INTEGRATED REPORT 2018
About NCXX Group

Sustainability

Strategy

Financial Section

Corporate Data

Value Creation Process

SystemSolutionsImprovementof security

IoT
Solutions

Provision of­innovative
financialservices

Prevention of
infrastructure
accidents

Internet
TravelRealization ofa safe andsecure society

Business
Activities
事業活動
Agricultural
ICT Business(NCXX FARM)

Valuesto be Created
創出する価値
Brand Retail
PlatformBusiness

Robot
Business

Total Nursing
Care BusinessSupport Service

Reduction offuel costs

Resolution of
low birthrate,
aging society
issuesLessening ofenvironmental
burdens

Revitalizationof regions

Reduction ofnursing careburdenRealization ofhigh-quality
services

07

INTEGRATED REPORT 2018
About NCXX Group

Sustainability

Strategy

Financial Section

Corporate Data

Financial Highlights
Net sales¥12,198 million¥–914 million(Millions of yen)

Profit (loss) attributable to owners of parent

Ordinary loss

Operating loss

¥902 million¥–940 million(Millions of yen)

(Millions of yen)

15,000250

250

12,000

0

0

9,000

–250

(Millions of yen)
1,200
900

6,000

12,231

12,198

3,000

600

–914

–500
–750

902

300

–250

–619

0

–770

–940

–500

–300
–600

–750

–1,068–900
0Year ended
Nov. 2016

Year ended
Nov. 2017–1,000Comprehensive income¥1,022 million

Year ended
Nov. 2016

Year ended
Nov. 2017–1,000Year ended
Nov. 2016

Year ended
Nov. 2017

Total assets

Net assets¥4,526 million–1,200¥11,532 million¥60.68(Millions of yen)

(Millions of yen)

(Yen)

1,500

5,000

15,000

80.00

1,000

4,000

12,000

3,000

9,000

1,022

0
–500
–1,000Year ended
Nov. 2016

4,526
3,800

1,000

Year ended
Nov. 2017

40.00

60.68

2,000

–930

Year ended
Nov. 2017

Net income (loss) per share(Millions of yen)

500

Year ended
Nov. 2016

0

6,000

13,4590.00

11,532–40.003,000

Year ended
Nov. 2016

Year ended
Nov. 20170Year ended
Nov. 2016

Year ended
Nov. 2017–80.00–71.77

Year ended
Nov. 2016

Year ended
Nov. 2017

08

INTEGRATED REPORT 2018
About NCXX Group

Strategy

Sustainability

Financial Section

Corporate Data

Core Performance Indicators
NCXX Group Inc. and consolidated subsidiaries(Thousands of yen)

Net sales
Ordinary income (loss)
Profit (loss) attributable to owners of parent
Comprehensive income (loss)
Net assets
Total assets
Net assets per share (Yen)
Net income (loss) per share (Yen)
Diluted net income per share (Yen)
Equity ratio (%)
Return on equity (%)
Price-earnings ratio (%)
Cash flows from operating activities
Cash flows from investing activities
Cash flows from financing activities
Cash and cash equivalents
Number of employees(Average number of temporary employees)

Terms

30th term

31st term

32nd term

33rd term

34th term

Fiscal year-end

November 2013

November 2014

November 2015

November 2016

November 2017

4,948,289
487,2076,375,427
692,055

7,416,907(810,412)

12,231,134(770,026)

12,198,921(940,251)430,325

630,311(45,483)(1,068,435)

902,592

458,901

654,41233,876(930,013)

1,022,017

2,665,168
4,077,632
212.57
39.79
–
60.6
24.1
17.9
(409,985)
75,496
1,241,206
1,253,266
66(–)

3,551,077
6,979,008
276.14
54.07
51.60
48.7
21.5
9.3
1,448,650(851,134)
2,072,665
3,930,484
235(–)

4,726,400
14,303,095
308.98(3.14)
–
32.0
(1.1)
–
(1,090,008)(844,920)
829,467
2,905,141712(–)

3,800,538
13,459,907
241.60(71.77)–26.7(26.1)–
341,581
686,866(2,047,010)
1,881,667
873
(423)

4,526,047
11,532,367
259.74
60.68
–
33.5
24.2
6.5
(1,388,039)
3,929,054(1,851,972)
2,529,595
272
(286)

Notes: 1.	Consumption taxes are not included in net sales.
2.	Although there were potentially dilutive shares for the 32nd term and 33rd term, the Company recorded a net loss per share. There were no potentially dilutive shares for the 30th term and 34th term. Accordingly, diluted net income per share is notdisclosed for these terms.
3.	The price-earnings ratio is not disclosed for the 32nd term and 33rd term, because the Company recorded a net loss per share for those terms.
4.	The Company conducted a 100-for-1 stock split of common shares on June 1, 2013. Net assets per share and net income (loss) per share are calculated as if the stock split had been conducted at the beginning of the 30th term.
5.	Because the Company has adopted the Revised Accounting Standard for Business Combinations (ASBJ Statement No. 21, September 13, 2013), the Company’s net income (loss) from the 30th term until the 32nd term is disclosed as profit (loss)
attributable to owners of parent.
6.	The average number of temporary employees has not been disclosed as the number from the 30th term to the 32nd term is less than one-tenth of the number of employees.

09

INTEGRATED REPORT 2018
About NCXX Group

Strategy

Sustainability

Financial Section

Corporate Data

St rat egy

10

INTEGRATED REPORT 2018
About NCXX Group

Strategy

Sustainability

Financial Section

Top Message
Greeting
I am pleased to extend this greeting to all our shareholders and other stakeholders as we deliver
the NCXX Group’s integrated report.
The Japanese government has incorporated the concept of the Fourth Industrial Revolution
into its growth strategy. In the Fourth Industrial Revolution, physical things of all kinds, including
automobiles and home electric appliances, will be connected to the Internet, and the ability tocollect and retain big data through IoT technology and the ability to manage and analyze thisdata through AI and blockchain technologies will become increasingly crucial. The size of the
Cyber-Physical System (CPS) / IoT market* is expected to grow to ¥404.4 trillion worldwide and¥19.7 trillion in Japan by 2030.
Based on this vision for the future, NCXX Group Inc. has been strengthening businesses
related to IoT and AI. Notably, we entered into a capital and business tie-up with Terilogy Co.,
Ltd. (Listing: 3356 TSE JASDAQ; Headquarters: Chiyoda-ku, Tokyo; President: Akihiko Abe),
which provides cutting-edge network security solutions to major Japanese corporations. In­parallel, we will focus on initiatives to deliver new services that will help to realize Cyber-Physical
Systems for the Fourth Industrial Revolution. To this end, we will push ahead with priorities suchas joint development that combines the blockchain and AI technologies of Group company
CAICA Inc. and the IoT technologies of subsidiary NCXX Inc.
* Source: A survey published by the Japan Electronics and Information Technology Industries Association

Tsukasa Akiyama
Representative Director and President
NCXX Group Inc.

Corporate Data

11

INTEGRATED REPORT 2018
Strategy

About NCXX Group

Sustainability

Financial Section

Corporate Data

Top Message

Results for Fiscal 2017
In fiscal 2017 (December 1, 2016 to November 30, 2017), the Company’s consolidated net
sales decreased slightly by 0.3% year on year to ¥12,198 million. This decrease reflected
the fact that CAICA and NCXX Solutions became equity-method affiliates in February andAugust 2017, respectively. Another factor behind the decline involved LTE data telecommunications terminals, one of the core products of NCXX. Certain customers refrained frompurchasing the currently available model based on expectations for the planned launch of a
new successor model in 2018. These factors were partly offset by the inclusion in the scopeof consolidation of the full-year business results of TITICACA, Co. Ltd. and Gloria Tours
Inc., both of which joined the Group in the previous fiscal year.

Consolidated Business Performance
Net sales (left axis)
Ordinary income (loss) (right axis)(Millions of yen)

(Millions of yen)

15,0001,000

12,000

800

692
487

9,000

600

12,231

6,000
3,000
0

3,809

93

1,864

4,948

6,375

12,198

7,416

200
0

−3,000−6,000

ICT, IoT, Device Business (NCXX Inc.)
In collaboration with NCXX Solutions, in August 2016 NCXX rolled out the safe driving
assistance service Drive Care (http://www.care-dynamics.jp/obd2/), an OBD II solution forbusinesses that operate shuttle vehicles to provide various transportation services for nursing care facilities and other customers. The system can monitor any dangerous driving
behaviors (sudden starts, sudden stops, sharp turns) that may arise when multiple fleet
vehicles are operated simultaneously, enabling managers and supervisors to better monitor
the driving behavior of drivers and provide appropriate instructions tailored to each driver.
In fiscal 2018, the Group will continue to provide automotive telematic solutions, as well as
various other types of solutions.
e frontier became a subsidiary in July 2017. e frontier sells internally developed software,such as AI-driven programs such as AI Go, AI Shogi and AI Mahjong. The company has
strengthened download-based sales of licenses to its approximately 500,000 e-mail newsletter subscribers. It also intends to strengthen its hand in creative fields through the sale ofpolygon data collections that can be easily used by creators of games, video and othercontent, and the production of digital books together with CG artists.
Segment sales in fiscal 2017 were ¥893 million, down 29.9% year on year. Segment loss
was ¥438 million, compared with segment loss of ¥365 million in the previous fiscal year.

−200
−400

−341

−9,000−600−770−12,000−15,000400

In addition, partly due to proactive advertising activities undertaken in the agricultural ICT
business, we posted an operating loss of ¥914 million (¥619 million in the previous fiscal year)
and an ordinary loss of ¥940 million (¥770 million in the previous fiscal year). However, werecorded extraordinary income on the transfer of shares. Consequently, profit before income
taxes was ¥1,024 million (loss of ¥863 million in the previous fiscal year) and profit attributableto owners of parent was ¥902 million (loss of ¥1,068 million in the previous fiscal year).

−800

−810
12/7

12/11*

13/11

14/11

15/11

16/11

−940
17/11

−1,000* Transitional accounting period of four months (August 1, 2012 to November 30, 2012) for the fiscal year ended November
30, 2012.

 inTech System Development Business
F(Care Dynamics Limited, NCXX Solutions Inc., and CAICA Inc.)
In addition to a continuous and consistent order intake from existing customers, NCXX
Solutions steadily received orders in fiscal 2017, following on from fiscal 2016. These orders
included a system reconstruction project for a regional bank, and systems development inconnection with the liberalization of the energy sector from a major gas company. In addition, NCXX Solutions has been strengthening collaboration with Group companies. Notably,

12

INTEGRATED REPORT 2018
About NCXX Group

Strategy

Sustainability

Financial Section

Corporate Data

Top Message
NCXX Solutions released upgraded versions of the free smartphone app “FISCO app” andthe PC browser version “FISCO Web” featuring additional functions. FISCO app and FISCO
Web are supplied to NCXX Solutions’ parent company FISCO Ltd. In other areas, NCXX
Solutions has developed and now provides “Bus Rides” as a smartphone app for businesses.
This app displays the current location of shuttle buses for driving schools, preschools, andother organizations and any delays, and “Hazard Maps” as a service for displaying maps ofhazardous areas (i.e., where drivers brake hard, ­accelerate fast, or turn suddenly) with agreater likelihood of accidents based on data acquired from IoT.
Furthermore, in the agricultural ICT business (NCXX FARM), NCXX Solutions is under­
taking version upgrades in step with expansion in the Company’s franchise business,
including providing functions to perform automatic recovery in the event of an error in­communications systems. Also, NCXX Solutions has become a member of the Council ofIndustry-Academia-Government Collaboration of the Ministry of Agriculture, Forestry and
Fisheries, with plans to conduct a demonstration trial for developing a model for increasing
the production volume of tomatoes.
CAICA steadily pushed ahead with various measures to improve its financial health, suchas reducing interest-bearing debt and thoroughly cutting expenses. As a result, the shareholders’ equity ratio improved sharply to 72.0% at the end of fiscal 2017 from 21.7% at theend of fiscal 2016. In November 2017, CAICA raised ¥2,330 million through the issuance of
new shares via a third-party allotment. In fiscal 2018 onward, CAICA plans to continue toproactively conduct M&As and capital and business alliances.
Going forward, CAICA will strengthen coordination among its subsidiaries, Tokyo Tech
Corporation and NCXX Solutions, by providing integration services for the construction of
IoT settlement platforms using cryptocurrency and tokens, and conducting systems development leveraging IoT and blockchain technologies. This will be accomplished by sharing
knowledge of FinTech-related businesses among the three companies. In addition, CAICA
aims to expand business with end-user companies, along with expanding business with the
major system integrators that make up its existing customer base.
Care Dynamics Limited is a provider of ASP systems to nursing care businesses. It has
already deployed ASP systems at more than 400 nursing care facilities. With the launch ofadditional services such as support for the introduction of nursing care robots and the provision of nursing care ICT, Care Dynamics is targeting further growth as a comprehensive
nursing care business support enterprise.

As a result of the foregoing activities, segment sales in fiscal 2017 were ¥3,070 million,
down 60.8% year on year. Segment loss was ¥36 million, compared with segment loss of¥61 million in the previous fiscal year.

Internet Travel Businesse-tabinet.com provides travel products that fulfill the increasingly diverse and sophisticatedneeds of customers. The company enjoys a strong reputation among customers as Japan’s
only Internet-based travel agency offering customized services. In addition, Web travel Co.,
Ltd., a wholly owned subsidiary of e-tabinet.com, is notable for its highly experienced­registered “travel concierges” (travel consultants). The travel support services provided bythese travel consultants have proven highly popular among customers.
Meanwhile, the number of inbound foreign tourists visiting Japan rose by 19.3% year on
year to 28.69 million in 2017. One key priority for e-tabinet.com has been to enhance thecontent of tourism information available to inbound tourists. For this, e-tabinet.com has set
up a new dedicated skiing website in English to address the strong demand for this information among such tourists. e-tabinet.com is striving to enhance the content of this website with the help of Jitsugyo no Nihon Sha, Ltd., a long-standing publisher and Group
company. Moreover, e-tabinet.com converted Gloria Tours Inc. into a subsidiary in October
2016. Gloria Tours specializes in sending Paralympic athletes to various events and organizing international para-sports tournaments. It is focused on expanding the market forpara-sports ahead of the Tokyo Olympic and Paralympic Games to be held in 2020.
Segment sales in fiscal 2017 rose 34.4% year on year to ¥2,183 million, comprisingoverseas travel business sales of ¥1,973 million and domestic travel business sales of ¥209
million. Segment loss was ¥1 million, compared with segment income of ¥10 million in theprevious fiscal year.

Brand Retail Platform Business
The brand retail platform business was launched in 2016. To expand this business, in
December 2016, Versatile Inc. and FISCO International Limited (“FIL”) became consolidated
subsidiaries of the NCXX Group after their shares were acquired from FISCO, the parent
company. Together with these subsidiaries, the Company commenced the trademark
licensing business of CoSTUME NATIONAL, which is engaged in import and sales operations.
The Company has begun exploring business expansion initiatives with CoSTUME13

INTEGRATED REPORT 2018
About NCXX Group

Strategy

Sustainability

Financial Section

Corporate Data

Top Message
NATIONAL in Asia using fashion accessories, as well as wine and other retail business, as afoothold in the region. Additionally, in April 2017, the Company entered into a capital andbusiness partnership agreement with CSMEN Co., Ltd. (Listing: 3083 TSE JASDAQ;­Headquarters: Chuo-ku, Tokyo; President: Masao Aoki), acquiring 19.01% of its shares.
CSMEN is a retail company focused on apparel sales, operating 50 stores in Japan (as ofNovember 30, 2017) under brands including the METHOD and RyugiAssaku casual wear
brands. Moreover, in May 2017, Versatile acquired a 51% stake in FACETASM, which isdeveloping the FACETASM brand of casual fashion, turning it into a subsidiary.
TITICACA has been pushing ahead with structural reforms, such as the closure of
unprofitable stores and revisions to its personnel system. As a result, it restored operating
profitability in the fiscal year ended October 31, 2017. As a coordinated Group measure thisfiscal year, TITICACA participated in a camping event sponsored by GARVY, a popular outdoor and family camping magazine published by Jitsugyo no Nihon Sha, Ltd., in August
2017, in a bid to raise recognition of its brand in this particular customer category.
As a result of the foregoing activities, segment sales in fiscal 2017 were ¥5,926 million,
up 296.3% year on year. Segment loss was ¥30 million, compared with segment loss of¥15 million in the previous fiscal year.
In fiscal 2017, the Group recorded a larger operating loss on lower net sales. In fiscal
2018, net sales are forecast to continue decreasing due to the impact of the exclusion of
CAICA and NCXX Solutions from the scope of consolidation. However, we expect to restore
profitability at the operating income level by improving earnings in each segment.
Going forward, we will accelerate the Company’s pace of growth by stepping up efforts
to create business opportunities that capitalize on trends in the Fourth Industrial Revolution
driven by the integration of IoT and AI.

Outlook for Fiscal 2018
In the Fourth Industrial Revolution, physical things of all kinds, including automobiles andhome electric appliances, will be connected to the Internet, making it possible to perform
sophisticated analysis of the big data that will be generated. In addition, as a result of thedevelopment of AI and blockchain technologies, a society that is far more efficient and lesslabor intensive than what we have today is predicted to take shape in the future. Based on
this vision for the future, we have positioned FinTech-related businesses as a strategic areaof focus, and plan to strengthen various initiatives with a focus on blockchain technology as
a particularly crucial priority.
Specifically, we plan to establish the Cryptocurrency and Blockchain Business as a new
operating segment, with a view to capturing even greater Group-wide synergies. The­Cryptocurrency and Blockchain Business segment will seek to provide cryptocurrency
services and other services related to the cryptocurrencies and various tokens issued byGroup companies, such as NCXX Coin. The new segment will strengthen collaboration with
CAICA and NCXX Solutions, both of which have become equity-method affiliates, with theaim of providing services as early as possible. Moreover, as a new initiative, we will promote
the development of an AI-based cryptocurrency trading system at subsidiary e frontier, Inc.,as well as investment in cryptocurrencies and various tokens using the system.
We will continue to enter growth fields that are attracting interest, such as the development of nursing care robots that offer optimal user friendliness at nursing care sites and the
expansion of efficient agribusinesses through the introduction of ICT, in conjunction with
upgrading and enhancing IoT-related services beginning with automotive telematic solutions.
In fiscal 2018, we expect to restore profitability at the operating income level by improving
earnings in each segment.

Tsukasa Akiyama
Representative Director and President
NCXX Group Inc.

14

INTEGRATED REPORT 2018
Strategy

About NCXX GroupFeature 1

Sustainability

Financial Section

Corporate Data

Launch of Cryptocurrency Mining Businessin Hanamaki City, Iwate Prefecture

Contributing to Further Synergy among Our Businesses
The NCXX Group, along with its parent company FISCO Ltd. and an equity-method affiliate,
CAICA Inc., have been focusing on promoting the cryptocurrency business as a growth­strategy for some time. As a new initiative, the Group will launch a cryptocurrency mining
business in early November 2018 at the company headquarters in Hanamaki City, Iwate­Prefecture. The business is expected to start off as a small-scale trial operation before­gradually expanding in scope.
Cryptocurrency mining is a verification process that ensures the consistency of chunksof transaction data (“blocks”) that exist on a network. Calculations of vast amounts of databy high-performance computers are essential to the mining process, with the quickest
verification yielding payment of cryptocurrency as a reward. The NCXX Group’s mining
business uses an application-specific integrated circuit (ASIC) and conducts mining­activities for crypto­currency supported by the Equihash algorithm (Bitcoin Gold, Zcash,
ZenCash, Hush, etc).

① Iwate Prefecture’s Hanamaki has low temperatures
throughout the year
In the mining business, there are tremendous electrical costs associated with cooling fans andair conditioner installations that suppress heat emitted from the mining equipment. Curbing
these costs is integral to the success or failure of the business. That being said, Hanamaki
experiences relatively low temperatures throughout the year—it drops below freezing in thewinter, and in the summer only averages around 23.8°C (74.8°F) (Source: Japan Meteorological
Agency). Therefore, we can anticipate high cooling efficiency through natural ventilation, which
in turn greatly reduces electricity costs.
In addition, Iwate Prefecture is ranked second in Japan in terms of renewable energy
potential, with exceptional potential for wind-powered or geothermal generation of electricity.
The Group is working from the perspective of procuring low-cost electricity generation by
utilizing these abundant renewable energies in the near future.

Hanamaki Mining Business Concept
Conditions conducive to the mining center

Feedback into other businesses· Iwate’s cold weather is suited to mining· Utilization of idle assets· Great potential for renewable energy(wind / geothermal) (future application
under consideration)· Using discharged heat reduces traditional
heating costs· A self-rotating agricultural business modelthat uses mined coins in the near future

Use the heat discharged
from the mining center toheat greenhouses

Use mined coins to purchase seeds and fertilizer② Utilizing discharged heat in the agricultural business
The NCXX Group has been focusing efforts on its agricultural ICT business NCXX FARM, avinyl greenhouse in Hanamaki that grows miniature tomatoes throughout the year. Due to­Hanamaki’s cold climate, it is necessary to maintain stable greenhouse temperatures in thewinter, with heaters running 24 hours a day. The NCXX Group seeks to create a mechanismthat utilizes heat discharged from mining machines, which also run 24 hours a day, in order tosignificantly reduce traditional heating costs for the agricultural business. In the near future,
the Group also plans not only to utilize discharged heat from the mining business, but also
set up a self-rotating agriculture system that uses mined coins to replenish stocks such as
seeds, fertilizer, and chemicals.
With the mining business, the NCXX Group will proceed with creation of a mechanism that
contributes to the efficiency of its other businesses, and strive to maximize profits by creating
an original synergy effect unlike any other company.

15

INTEGRATED REPORT 2018
About NCXX GroupFeature 2

Strategy

Sustainability

Financial Section

Corporate Data

Business Alliances with e frontier andFisco Cryptocurrency Exchange

Launch of R&D into AI Trading Systems
for Cryptocurrency
Cryptocurrency has been gaining social interest with financial value under the amended­Payment Services Act that came into effect in April 2017, and other cryptocurrencies in­addition to Bitcoin are gradually being defined as payment methods. Thus it is expected thatcryptocurrency exchanges will see an increase in activity going forward.
As the Group sets its sights on the future, we are jointly participating in the developmentof AI trading systems for cryptocurrency through the conclusion of business tie-up agreements with Fisco Cryptocurrency Exchange Inc. (hereafter “FCCE”) as well as our subsidiary,e frontier, Inc.
e frontier develops and sells a series of software products for strategy games, namely AI
Shogi, AI Go, and AI Mahjong, which house AI programs with learning routines that recommend next moves by confirming the status of the game, automatically making decisions, andthen learning from those decisions. AI Shogi took first place at the World Computer Shogi
Championships, a computer-versus-computer shogi tournament, while AI Go took first placein the go division of a tournament hosted by the International ­Computer Games Association.
As a new initiative that utilizes its high technological capabilities, e frontier has been undertaking development of a cryptocurrency trading system that addresses derivative trading for
virtual currencies, including Fisco Coins, NCXX Coins, and CAICA Coins.*1 e frontier seeks toacquire past trade data accumulated in cryptocurrency exchanges in Japan and overseas(enormous amounts of data such as price, board information, price by volume, etc.), andutilize its knowledge of data analysis to develop AI functions that can conduct appropriate
investment decisions.
Meanwhile, with the business alliance agreement with FCCE, the Group will strive for asystem with even stronger usability. The Group will receive guidance from FCCE as a user ofderivative systems and high-frequency trading systems*2, in addition to receiving enormous
amounts of past trade data from the cryptocurrency exchange that FCCE operates while theGroup conducts verification testing for the new system. Furthermore, the NCXX Group has
successfully introduced derivative and high-frequency trading systems for cryptocurrencies
at FISCO Digital Asset Group Co., Ltd., FCCE’s parent company, and partnering to develop
systems with CAICA Inc., which is also in a business alliance with the Group.

The NCXX Group implements system development consulting for e frontier that includes
planning and proposals for system designs, etc., as well as overall project management. The
Company also plays a role in providing necessary investment.
These business tie-ups with e frontier and FCCE help strengthen our development framework, to which we strive for early implementation of both regular and corporate license salesof the AI trading systems for cryptocurrency.
However, we will not stop at business tie-ups; going forward, the NCXX Group will continue
to integrate IoT and blockchain technology, bolstering our cryptocurrency services and services
related to cryptocurrency tokens issued by Group companies, in addition to NCXX Coins.

AI Trading Systems for Cryptocurrency Concept Diagram
Through the evolution of AI, it has become possible to make favorable investment decisions
much earlier on using vast amounts of big data that could not feasibly be processed by humans.
Big data• Research reports• Web / accessloads• News articles• Financial results/
meeting records• Analyst reports

Operating model thatenters analyses using AI

Datagathering

R&D

Investment
decisions

Processing /analysis*1 Fisco Coins, NCXX Coins, and CAICA Coins are corporate tokens issued respectively by FISCO, the NCXX Group,and CAICA. As “virtual currency” stipulated by the amended Payment Services Act that came into effect from April
2017, these tokens have been approved by Japan’s Financial Services Agency as cryptocurrency that can be handled
by cryptocurrency exchange operators, and are used in trades on the Zaif cryptocurrency exchange, as well as
FCCE’s Fisco Cryptocurrency Exchange.
*2 Derivative systems and high-frequency trading systems seek to acquire profits while automatically curtailing risks bychecking and analyzing trends through coverage of many cryptocurrency exchanges in Japan and overseas.

16

INTEGRATED REPORT 2018
Strategy

About NCXX Group

Introducing
Our Businesses
ICT · IoT ·Device Business(NCXX Inc.)

Sustainability

Main Target Fields for IoT
Transport anddispatch management
Buses, trucks, and taxis

Financial Section

Corporate Data

NCXX works to incorporate wireless telecommunication functions
into various equipment to provide
IoT solutions that realize­operational efficiency gains.

IoT Solutions
IoT refers to a system that automates various controls by enabling “things” such as
sensors and devices connected through theInternet to exchange data with each other.
One key advantage of M2M is that it
enables data communication between
devices without any human intervention.
For this reason, M2M has been introduced
not just to PCs and servers, but to a diverse
array of fields, including management ofdriving conditions through integration withvehicle driving management systems, inventory management for vending machines andrelated monitoring of malfunctions and otherissues, remote surveillance and monitoring
for faults and so forth of elevators andATMs, remote readings of water, electricity
and gas meters, and security measures.

Remote control
and inspection

Users

Water supply, electricity
and gas meters

Remote monitoring
Security and monitoring
camerasIoT
moduleNetworkInventory management
Vending machines
and others

Operational
supportSettlements and signage

IoT module product examples
Real-time
information retrieval
Car navigation systems
and PCs

GX4x0NC

UX312NC

UX102NC

17

INTEGRATED REPORT 2018
Strategy

About NCXX Group

Sustainability

Financial Section

Corporate Data

Introducing Our Businesses

Corporate Information Provider Service
FinTech System
Development
Business

Original brand app(NCXX
Solutions Inc.)

Provide customers with up-to-date
information through original app

NCXX Solutions constantly
updates information

Able to post stock promotions basedon personalized customer marketing

System Solutions
We provide integrated one-stop services inmanufacturing, finance, distribution, andcorporate and public sectors. ­Services
cover all aspects from consulting to systemdevelopment businesses, including design,
construction, operation, and maintenance,
as well as infrastructure construction suchas networks and databases. Specifically,
we offer various services, such as atelematics service and app for realizing
lower fuel consumption and accident­prevention through eco-driving and safe
driving guidance. This service is provided
as a cloud (ASP/SaaS) service, and enables
a timely grasp of the driving status of avehicle from a remote location, including
its speed, travel time, travel distance, andsudden starts and stops. Furthermore,with future business development, we willdevelop various services, such as a­corporate information provider service that­provides apps as OEM (white label) solutions
to companies (small- and medium-sized
securities companies, human resource­service companies, and so forth). We arealso developing ICT services for the­agri­culture and nursing care sectors.

Browse company information

Server(Cloud)[Compatible OSs: Android 4.0 and later,
iOS 7 and later]
OEM (white label) usage

Customize client apps as an OEM (white label) service,provided for use by their customers

Initial customization cost,
information fees, etc.

Fees can be arranged flexibly based on initial cost + revenue share.

Implementation Example
Together with FISCO, NCXX Solutions developed and operates the smartphone app “FISCO app”
for providing investment information on listed companies. The app includes a company information function that enables users to check all listed companies by stock code order, and a market
flash report function that delivers the latest investment news from analysts. Other functions
include the event schedule function that enables users to view a list of important recent event
information and the favorites (portfolio) management function that lets users register and manage
their favorite stocks easily.

18

INTEGRATED REPORT 2018
Strategy

About NCXX Group

Sustainability

Financial Section

Corporate Data

Introducing Our Businesses

The NCXX Group’s Existing Fields and New Service Domains in the FinTech Field
FinTech System
Development
Business

Existing financial markets(CAICA Inc.)

System Solutions
CAICA is involved in the existing device
business, but also has strategic focus ondevelopment in the FinTech-related business, particularly in AI and blockchain­technologies. In AI, CAICA is working on
development of a stock price prediction
system using AI together with its parent
company FISCO. In blockchain (“­distributed
ledger”) technology, CAICA is taking on
new challenges, such as issuing CAICA
Coin corporate tokens. There are highexpectations that FinTech can deliver
cheaper systems to replace financial services traditionally provided by large financial institutions and so forth. Demand in the
FinTech field represents a huge opportunity
for CAICA, which has acquired a deep
knowledge of system infrastructure throughdeveloping systems for many financial
institutions.

1 E xisting financial
technology
 inancial engineeringFDerivative transactions
High-speed tradingScoring

2 E
 xisting IT

3 Innovative IT

AI

Blockchain

Commenced joint development of“FISCO AI,” a stock price prediction
system using AI, together withFISCO Ltd.

System development business
utilizing the mijin® platform for
private blockchain construction

 loudCSmartphone
API

Redirect technologies and knowledge

New financial market (cryptocurrency market)
Technology flow between new and existing financial markets has begun and will accelerate going forward.
The NCXX Group has a wide range of potential domains for providing services.

19

INTEGRATED REPORT 2018
Strategy

About NCXX Group

Sustainability

Financial Section

Corporate Data

Introducing Our Businesses

FinTech System
Development
Business

Nursing Care Robot
Business(Care
Dynamics
Limited)Total Nursing Care
­Business Support Services
Care Dynamics develops and sells Care
Online, an ASP service for nursing careservice providers offering a system for centrally managing operations and information
related to the nursing care business, suchas care plan creation, nursing care service
provision, and invoicing national healthinsurance organizations. Looking ahead,the company will combine M2M technologies that utilize synergies with the NCXXGroup to transition into a “total nursing carebusiness support company.” To this end,
the company is expanding its conventional
software service with the addition of
NCXX’s hardware and services in the telecommunication field to provide the highest
level of service and total solutions to people
involved in nursing care. It is also participating in the planning and development of
a nursing care robot business.

Care Dynamics aims to realize the highest level of nursing care service quality
through the harmonization of people androbots. The company supports sales andintroduction and operation of robots at
nursing care facilities. Care Dynamics will
provide introduction consulting based ondiverse trial data obtained through use ofnursing care robots in actual frontline
nursing care situations, and is now creating a manual for optimal introduction andoperation of nursing care robots.

Nursing Care ICT BusinessProf. Sankai, University ofTsukuba/CYBERDYNE Inc.

ASP Services for Nursing Care
Service Providers
Care Dynamics provides Care Online, an operation support
system for nursing care service providers. The system isprovided as cloud services corresponding to a suite ofoperations including care plan creation, nursing care service provision, and invoicing national health insurance organizations. With simple operation that anyone can use andfeatures that can be customized to suit the characteristics
of each facility, the systemcaters to a full range ofadministrative processes infacilities. As of late
­December 2017, 120 nursing care service providers
have introduced thesystem at over 400 facilities.

The telecommunication and communication technologies
cultivated in the nursing care robot business will be used
to supplement human workers on the front lines of nursing
care, which tend to be in short supply. This offers a way
for nursing care workers to provide higher-quality services.
Care Dynamics will draw
on the basis of its accumulated experience in thenursing care solutions
business to provide­solutions that nursing
care service ­providers
truly need.

< Features of Care Online >Handy
terminal

Touch panel
Input

Input
Call

Improvement
Analysis

ISO 27001
certificationacquiredCall

Various
documents

Robust data
centerCreateVariousanalyses

Apply

Nursing careinsurance, etc.

Externalorganization

20

INTEGRATED REPORT 2018
Strategy

About NCXX Group

Sustainability

Financial Section

Corporate Data

Introducing Our Businesses

FeaturesInternet Travel
Business(e-tabinet.
com)Internet Travel
The main business in the Internet travelbusiness is customized travel services­provided by e-tabinet.com’s wholly owned
subsidiary, Web travel Co., Ltd. Specialist“travel concierges” create ­multiple itineraries based on the requirements of applicants, and propose travel plans via email.
From these, applicants select the travel
concierge and plan that appeals to them.
The service is therefore different from ordinary package tours, combining high-quality
product proposals brimming with hospitality
and the unrivalled convenience of the Internet to provide service with a difference.

 roposal of high-quality products brimming with hospitality that differ from major travelPcompany package tours
Unrivalled convenience of the Internet
Relatively unaffected by low price trends caused by price competition with major tour companies

Service Flow
After hearing from customers about
their goals, image, approximate budget,and other aspects of their trip, expert“travel concierges” provide a proposal
and an estimate free of charge on a
travel plan designed according to thecustomer’s wishes. Since most of theservice is conducted through e-mail andtelephone, customers who are busy
during work hours can have a plancreated at a time that suits them. The
service also includes taking care oftiresome details, reservations, andother tasks.

STEP 1

STEP 2

Travelconcierges

Send a travel estimate request
using a special form

Travel concierges reply withan estimate by e-mail

STEP 3Conclusion

Customers enjoy a unique,custom-made tour

Travel Concierges
Travel concierges are travel consultants who specialize in creating travel plans to meet individual
clients’ wishes. They each have their own specialty
fields, enabling them to respond flexibly to increasingly diverse customer needs. However, the Internet is a medium that does not provide face-to-faceinteraction. Therefore, we post profiles of the travel
concierges online, emphasizing their experienceand personality, so that customers can feel peaceof mind when they consult us.

As of September 2017, the service hasover 450 unique and original travel­concierges registered.

21

INTEGRATED REPORT 2018
Strategy

About NCXX Group

Sustainability

Financial Section

Corporate Data

Introducing Our Businesses

HAPPY TRADE COLLECTION
Brand Retail
Platform Business(TITICACA,
Co. Ltd.)

Retail and Wholesale Salesof Clothing and Accessories
TITICACA deals directly with producers incountries around the world, such as Central
and South America, with integrated­in-house operations spanning planning,
manufacture, and sale of original ethnic
apparel and accessories. The company
creates original products with a handcrafted style designed to match market
demand. TITICACA also strives to “bridge
the world’s happiness” by undertaking
various activities. For example, the company supports the transfer of traditional
technologies and improving the skills ofyoung people by allocating 5% of sales
from the HAPPY TRADE COLLECTION,
designed to protect the welfare of producers
and connect cultures. TITICACA also promotes fair trade, which aims to improve thestandard of living for producers and workers in developing countries and help them
to be autonomous through the purchase of
their materials and products at fair prices.

Promoting culturesof the world

Products that makeuse of traditional
technologies

HA PP YHA PPYSupport fellow humanbeings throughout theworld through shopping

CustomerContinue and­support traditional
technologies

Return 5% ofsales of the
HAPPY TRADE
COLLECTION

TITICACA

Producer

What Is Fairtrade?
Fairtrade is a system of trade that aims to improve the standard of livingfor producers and workers in developing countries through the purchaseof their materials and products at fair prices. Producing products that aredesignated as “fairtrade” and allowing customers to purchase them leads
to mutual prosperity for supplier countries.

Cottonproducer

Cloth
producer

Sewn ­products
manufacturer

Stable living
through fair prices
for cotton

Weaves fairtradecotton into cloth

Sews the resulting
cloth into products

The International Fairtrade Certification MarkThe International Fairtrade Certification Mark assures customers that international Fairtrade Standards set out by Fairtrade
Labeling Organizations International are met at every stage inthe value chain of a product, from production of its raw materials through to import and export, processing, manufacturing,and completion as a Fairtrade Certified Product.

Customer

TITICACA

Enjoyment of products
leads to improvementof conditions for
producers in­developing countries!

Forms closer­relationships between­customers and­producers throughproducts

22

INTEGRATED REPORT 2018
About NCXX Group

Strategy

Sustainability

Financial Section

Corporate Data

S ust ain abilit y23

INTEGRATED REPORT 2018
About NCXX Group

Sustainability

Strategy

Financial Section

Corporate Data

Corporate Governance2. Number of Directors

I Corporate Governance System

The Company’s Articles of Incorporation stipulate that the Board of Directors comprises a maximum of
10 directors.

1. Outline of Corporate Governance System
The Company has a corporate governance system comprising a Board of Directors, Audit &­Supervisory Board members, an Audit & Supervisory Board, and an external auditor.
The Company’s Board of Directors has six directors, one of whom is an outside director. As the
body making management decisions, the Board of Directors resolves important business decisionsin accordance with the Board of Directors Regulations. The board meets once a month and as theneed arises to supervise the execution of duties by directors based on monthly financial statements
and other reports. It also invites the outside director to participate in board meetings in order toobtain the outside director’s views on management from an objective perspective based on his
extensive experience.
The Company’s Audit & Supervisory Board has three members (including two outside members),
comprising one full-time Audit & Supervisory Board member and two part-time Audit & Supervisory
Board members. The Audit & Supervisory Board meets as necessary to share information between the
Audit & Supervisory Board members and facilitate efficient audits.
In addition, the Company strives to promptly grasp information on business management by h­ olding
a Management Conference once a week, with mainly the directors and general managers in attendance.
A schematic diagram of the Company’s corporate governance system is presented below.

General Meeting of Shareholders
Appoint and dismiss
Cooperate

External Auditor

Audit &
Supervisory Board

Audit

Appoint and dismiss

Instruct andreportAudit

President and CEO
Discuss and reportManagement
Conference
Cooperate

Advising Corporate
Attorney

Board of Directors

Discuss and report

Division Director &General Manager

AdviseInternal Audit Office

Audit

Instruct and report

Divisions

3. Approval Criteria for the Appointment and Dismissal of Directors
The Company’s Articles of Incorporation stipulate that the appointment of directors shall be approvedby a majority of voting rights exercised at a meeting attended by shareholders holding at least onethird of all voting rights. The Articles of Incorporation also stipulate that the appointment of directors
shall not be approved on the basis of cumulative voting.
The Articles of Incorporation also stipulate that the dismissal of a director shall be approved by
two-thirds majority of voting rights exercised at a meeting attended by shareholders holding a majorityof all voting rights.

4. Limited Liability Agreement
The Company has concluded an agreement limiting liability for damages with each director (excluding
directors with executive responsibilities and similar posts) and each Audit & Supervisory Board member,pursuant to Article 423, Paragraph 1 of the Companies Act, based on the provisions in Article 427,
Paragraph 1 of the same.
The liability for damages based on this agreement is limited to either an amount no larger than ¥1
million specified by the Company in advance, or the minimum liability amount as set forth by the law,­whichever is higher.
The Company’s Articles of Incorporation stipulate that “the Company can conclude an agreement
limiting liability for damages with the external auditor, pursuant to Article 423-1 of the C­ ompanies Act,
based on the provisions in Article 427-1 of the same. However, the upper limit of the liability amountunder the contract shall be the amount provided in the law.” As such, the Company’s external audit
contract with Toko Audit Corporation makes provisions for an article limiting liability. The limit on theamount of liability for damages in this contract is twice the amount of total remuneration for Toko Audit
Corporation’s auditing services.

5. Exemption of Directors and Audit & Supervisory Board Members from Liability
Pursuant to the provisions on liability set forth in Article 423-1 of the Companies Act, the Company’s
Articles of Incorporation stipulate that the Board of Directors may resolve to exempt a director(­including past directors) or Audit & Supervisory Board member (including past Audit & Supervisory
Board members) from their liability within the limit set forth by the law, provided that that person had
acted in good faith and was not grossly negligent.
The aim of this provision is to enable the directors and Audit & Supervisory Board members to fulfill
their roles to the fullest extent, and to enable the Company to appoint experienced and knowledgeable
personnel to the Board of Directors and Audit & Supervisory Board.

6. Body Making Decisions to Pay Dividends and Other Distributions from Surplus
In order to flexibly return profits to shareholders, the Company’s Articles of Incorporation stipulate thatthe Board of Directors may resolve to pay an interim dividend to the shareholders and registered­pledgees of the Company’s shares, listed or recorded in the final register of shareholders as of May 31
each year.

24

INTEGRATED REPORT 2018
About NCXX Group

Strategy

Sustainability

Financial Section

Corporate Data

Corporate Governance

II Establishment of an Internal Control System
The Company has developed Company-wide internal rules governing all business operations, andexecutes business with proper separation of management based on these rules. At the same time, theCompany has built an approval system based on rules governing the authorization of duties and thecircular approval of decisions. In order to evaluate the effectiveness and sustainability of the Company’s
internal control system, the Internal Audit Office audits each business division to ensure that their­important business duties are being executed both efficiently and accurately.

III Status of Internal Audits, Audit & Supervisory
Board Audits and Accounting Audits
Each Audit & Supervisory Board member attends the Board of Directors meetings to audit the executionof duties by directors. The members also exchange information as required with the president and directors of the Company to share an understanding of the management priorities and issues. In addition toauditing the Company’s minutes, circular approval documents, contracts, and business transaction
records, the full-time Audit & Supervisory Board member is mainly responsible for interviewing relevant
personnel, observing accounting audits, and conducting on-site surveys, as well as attending otherimportant meetings apart from the Board of Directors.
The Company’s Internal Audit Office, comprising one person in charge, cooperates with the Audit &Supervisory Board members throughout the year to conduct the required internal audits based on aninternal audit plan. Results of the internal audits are reported in writing to the president and confirm thestatus of specific advice and recommendations given to the divisions receiving audits as well as the
improvements they have made.
The Company has also concluded an external auditor contract with Toko Audit Corporation, underwhich it periodically receives accounting audits.
The Internal Audit Office, Audit & Supervisory Board members, and external auditor cooperate with
one another to conduct audits effectively and efficiently. To this end, they strive to conduct proper
audits and confirm the status of improvements in response to the findings and issues they raise byexchanging information and opinions and sharing what they find.

IV Development Status of the Risk Management System
The Company’s risk management system has rules that were developed based on the International
Organization for Standardization (ISO) from the standpoint of preventing risks. When there is information thought to represent a market, credit, business, or management risk, the Management Conference
confirms the status of compliance with laws and regulations of the Company and Group companies.
At the same time, executives in charge of each division strive to raise risk awareness by rigorously
disseminating information considered to represent a risk within their respective divisions. The Company
is also striving to strengthen its legal risk management system by concluding an advisory contract
with a law firm so that it can receive timely advice and instruction on legal risks of high importance,­particularly the protection of personal information, statutory regulations, and so forth.

Internal audits are conducted periodically to verify that there are no problems with the Company’srisk management system and compliance with laws and regulations.

V 
Status of Development of a System for Ensuring the ­Appropriateness of the Operations of Subsidiaries of the Company
The subsidiaries of the Company have adopted the basic policy of maintaining their independence bymaking management decisions autonomously in light of the characteristics of each company, such as
the scale of operations, business characteristics and design of governing bodies, in tandem with maintaining cooperation and information sharing with the Company. Meanwhile, with regard to importantmatters concerning management at the Company’s subsidiaries, the subsidiaries are requested to seek
the approval of these matters from the Company or report them to the Company, based on internal
rules. In parallel, subsidiaries regularly report on the status of business execution, financial conditionand other matters to the Company. Moreover, the Internal Audit Office audits transactions between the
Company and its subsidiaries.

VI Compensation of Corporate Officers
1. Total Compensation by Corporate Officer Position, Type of Compensation,
and Number of Eligible Officers
Position

Total
compensation(Thousands of yen)

Total by type of compensation (Thousands of yen)
Basiccompensation

Stock
options

Bonuses

Retirement
benefits

Number of
eligible
officers

Directors(excluding outside directors)

4,904

3,860

1,044

–

–

4

Audit & Supervisory Board members(excluding outside Audit &Supervisory Board members)

1,200

1,200

–

–

–

2

Outside officers

3,000

3,000

–

–

–

3

Notes: 1. The Extraordinary General Meeting of Shareholders, held on October 25, 2017, resolved that the total compensation for
the Company’s directors (excluding salary as an employee) shall be limited to within ¥100 million per year. Separatelyfrom the above, the 33rd Ordinary General Meeting of Shareholders, held on February 23, 2017, resolved that the totalcompensation in stock options shall be limited to within ¥100 million per year.
2. The 22nd Ordinary General Meeting of Shareholders, held on June 29, 2006, resolved that the total compensation for theCompany’s Audit & Supervisory Board members shall be limited to within ¥50 million per year.
3. There was one director who received no compensation in fiscal 2017 (from December 1, 2016 to November 30, 2017).

2. Breakdown of Compensation by Corporate Officer
Omitted from record in this report as there were no corporate officers receiving ¥100 million or more in
total compensation.

25

INTEGRATED REPORT 2018
About NCXX Group

Strategy

Sustainability

Financial Section

Corporate Data

Corporate Governance

3. Material Information on Salary as an Employee for Corporate Officers Serving
Concurrently as Employees
No items to report

4. Policy on Determining the Amount and Calculation Method of Corporate Officer
Compensation
The Company has not established policies on the amount or calculation method of compensation forcorporate officers.

VII Outside Director and Outside Audit &Supervisory Board Members
1. Functions and Roles Relating to Corporate Governance
The Company has appointed one outside director and two outside Audit & Supervisory Board members.
Outside Director Sadatomo Matsudaira has extensive knowledge developed through his career as a
newscaster over many years. Mr. Matsudaira was appointed because his knowledge is expected tohelp strengthen the Company’s management team. There are no conflicts of interest between thisindividual and the Company.
Outside Audit & Supervisory Board member Mitsutoshi Urano possesses the extensive experienceand knowledge needed to perform audit operations based on his past and current positions as certified
tax accountant, representative director, and Audit & Supervisory Board member. Mr. Urano was
appointed because his experience and knowledge are expected to help strengthen the Company’s
audit team. There are no conflicts of interest between this individual and the Company.
Outside Audit & Supervisory Board member Kazuhisa Nagabuchi currently serves as chairman of anon-profit organization, and has ample knowledge needed to audit and supervise corporate management. Mr. Nagabuchi was appointed because his knowledge is expected to help strengthen the­Company’s audit team. There are no conflicts of interest between this individual and the Company.
Based on the above, the outside director and outside Audit & Supervisory Board members have no
noteworthy vested interests in the Company from the standpoint of conflict of interest with generalshareholders. Furthermore, they are expected to supervise and audit the execution of duties by theCompany’s ­directors from an independent position posing no risk of a conflict of interest with generalshareholders, since they are expected to apply an outsider’s perspective, drawing on their professional
expertise and experience and knowledge working for other companies, in offering impartial advice andopinions to the Company.

2. View Concerning the Appointment Status of the Outside Director and Audit &Supervisory Board Members
The Company has no standards or policies regarding independence from the Company for theappointment of outside directors and outside Audit & Supervisory Board members. However, as noted
above, the Company recognizes that the outside director and outside Audit & Supervisory Board­members are fulfilling their functions and roles as expected and judges that there is no problem with
their appointment status.

3. Supervision and Audit by the Outside Director and Audit & Supervisory Board Members
and Internal Audit, Their Mutual Cooperation in Audit & Supervisory Board Audits andAccounting Audits, and Relationship with the Internal Control Division
The Company’s outside director voices timely opinions at Board of Directors meetings based on­high-level knowledge and ample experience, and fulfills the functions of supervising and checking
management from an independent position from the Company’s management team.
The outside Audit & Supervisory Board members provide opinions and advice based on professional expertise and ample experience at the Company’s Board of Directors and Audit & Supervisory
Board meetings. They also maintain and strengthen the compliance of Company divisions with laws
and regulations by deliberating and exchanging information with the Internal Audit Office and an­external auditor, as well as by receiving reports from them.

[Details of Compensation for the External Auditor and Their Staff](Thousands of yen)
Fiscal 2016
Classification

Compensation paid
for audit certification
activities

Fiscal 2017

Compensation
paid for non-audit
activities

Compensation paid
for audit certification
activities

Compensation
paid for non-audit
activities

Reporting company

17,800–12,000–Consolidated subsidiaries

26,620–31,215–

Total

44,420–43,215–

Board ofDirectors
and Audit &Supervisory
Board
Members

Representative Director and President �������������� Tsukasa Akiyama
Representative Director and Vice President ������ Naoki Ishihara
Director �������������������������������������������������������������� Osamu Fukami
Director �������������������������������������������������������������� Yosuke Saito
Director �������������������������������������������������������������� Wei Zhang
Director �������������������������������������������������������������� Sadatomo Matsudaira
Full-Time Audit & Supervisory Board Member ��� Hiroshi Sasaki
Audit & Supervisory Board Member ������������������ Mitsutoshi Urano
Audit & Supervisory Board Member ������������������ Kazuhisa Nagabuchi

26

INTEGRATED REPORT 2018
About NCXX Group

Strategy

Sustainability

Financial Section

Corporate Data

Interview with an Outside Director

I am looking forward to businessdevelopment that builds
a new social infrastructure
An Exciting Business that Connects Industries
It has been three years since I became an outside director, and the NCXX Group has­continued to challenge itself in a number of ways during my term. The Group has been
responding to topics that are relevant to today’s society with cutting-edge technologies,
such as undertaking various forms of verification testing that utilize blockchain technology
and developing solutions for caretaking transportation that employ telematic technology.
One area in which I have great expectations is the NCXX Group’s development of businesses from an overlook of its own capacities, while also working from the perspectives ofall sorts of industries without preconceived notions. By utilizing the technology that it has
cultivated over many years in transmission devices and systems development, the Grouphas been creating businesses with many facets to support people’s lives, such as throughagricultural ICT, robotics, caretaking support and Internet travel, in addition to its standard
business of system solutions for the finance and distribution fields.
The NCXX Group’s strong point is how it stands out in various fields in which it excels,
while working with integrated horizontal connectivity. It is a company that I feel increasingly
excited about regarding its business development going forward.

Sadatomo
Matsudaira
Outside Director
NCXX Group Inc.

Quick and Careful Judgements in a Changing Era
With innovation accelerating at an unprecedented speed in the present, equally swift­decision-making is required in management so as not to miss opportunities for business.
On the other hand, the business environment itself is experiencing drastic changes, and ourexisting business frameworks will not necessarily last forever. Therefore, management mustalso act with careful insight that focuses on what lies ahead.
Under these circumstances, I believe it is essential for today’s businesses to find compatibility between the contradictive notions of both speed and caution in decision-making.
I want to offer my services on that front from the neutral standpoint of an outside director.

November 1944	Born
April

1969	Joined Japan Broadcasting Corporation

April

2010	Appointed Professor, Kyoto ­Universityof Art and Design (current)June2010	Appointed Guest Professor,
Kokugakuin University (current)

February

2016	Appointed Director of the ­Company (current)

27

INTEGRATED REPORT 2018
About NCXX Group

Strategy

Sustainability

Financial Section

Corporate Data

Interview with an Outside Director

For instance, when businesses are accelerated to a new stage such as entry into a new
field or M&A activities and there is a point that cannot be agreed upon with that same senseof speed, I temporarily put on the breaks without hesitation to confirm whether the situationis truly all right or until those involved are satisfied.

Creating Substantiality for Corporate Governance
Maintaining transparency of corporate management and prompt disclosure of information
to stakeholders, such as shareholders and investors, are par for the course for a listedcompany. However, asymmetry between shareholders and managers, as well as ­outside
directors and managers eventually occurs. Company shareholders are faced with thetremendously difficult aspect of deciding whether new investment is appropriate or whether
a contract is reasonable based on the information they have.
As an outside director, I carefully confirm from a third-party perspective whether aninvestment or contract is consistent with the medium- to long-term interests of stakeholders,such as a small group of shareholders, and then make reasonable judgements and evaluations. In addition, I think leadership is very important in keeping an ­overall balance in thediversification of management at the NCXX Group, which is involved in many industries.
The Group must unify all of its businesses while determining the growth ­prospects of each,and strengthen management functions in a sustainable manner. To that end, I want to work
towards increasing the NCXX Group’s corporate value while ensuring impartiality.

Advancing Social Infrastructure and Contributing to
QOL Improvements
The Fourth Industrial Revolution, which originates from a policy in Germany entitled“­Industry 4.0,” is already entrenched as a societal concept in which reality and cyberspace
are seamlessly interconnected. As IoT technology is at the core of the phenomenon, it canbe said that the NCXX Group’s businesses are on the verge of playing an integral role inadvancing the Fourth Industrial Revolution.
The NCXX Group is proposing a new social infrastructure by seamlessly linking various
industrial technologies. Since 2012, the NCXX FARM agricultural ICT business has been
striving to realize a decrease in agricultural chemicals, reduction in cultivation time periods,
and improvements to produce quality through digitization and data analysis of cultivation
conditions. The business also seeks to stabilize production so that the plants will not be
influenced by climate. In another business, the NCXX Group is developing mechanisms to
respond to needs on the ground while collecting data in real-time by linking caretaking
robots to a network.
The quality of life will improve for each person if a new social infrastructure can be put inplace; I have high hopes for the NCXX Group in further challenging itself to move towards
realization of a society that is easier to live in.

28

INTEGRATED REPORT 2018
About NCXX Group

Strategy

Sustainability

Financial Section

Corporate Data

CSR Activities
The NCXX Group’s underlying desire as a manufacturer is to find ways to help people with disabilities orelderly people achieve things that they want to do but cannot, and to take on various individual wishes
and realize them. Through our activities with various people in and outside the Company, we encountermany ways of thinking, widen our field of view, and create new values and ideas. We believe this helps toinvigorate our organization.

Based on this stance, we are engaged in the volunteer activities introduced below and also volunteer
to support events held at nursing care facilities and the lives of elderly residents in depopulated villages.
In addition, we are also working to serve communities through our businesses and to develop productsthat contribute to society.

Initiatives through BusinessSuzuka 8 Hours Endurance Motorcycle Night Cruising Event

Publicizing the Agricultural ICT Business

Volunteer Cosponsor of Motorcycle Sidecar Parade “Feel the Wind”

NCXX Group Food Stands at the 2018 Hanamaki Festival

The NCXX Group encourages its employees to volunteer as an opportunity to interact directly with theircommunities. As a part of these efforts, we cosponsored the “Feel the Wind” event for people withdisabilities, where participants ride in pairs on motorcycles around the race circuit at night. The mainsponsor of the event is the volunteer group Association of Following the Wind. The NCXX Group cosponsored this event which helps people with disabilities and the elderly experience something thatthey would not be able to experience on their own. In other words, the aim is to turn the dreams andambitions of people into reality, which relates to the NCXX Group’s mission of manufacturing goods.
Our employees can grow as individuals by volunteering, and such events both vitalize companies andsociety and also bring them closer together. We intend to provide many of our employees with opportunities to actively participate in their communities as volunteers.

The Hanamaki Festival was held in the city ofHanamaki in Iwate Prefecture for three days
from September 7 to 9, 2018. The festival
features a parade of over 100 portable shrines,
lion dances, traditional kagura dances, andother Hanamaki folk dances. At the festival,
the NCXX Group set up food stands that soldkeema curry, hot sandwiches and curried
potatoes as new festival food items, in addition
to IT tomatoes, juice, and beer.
Food stands lining the street at the 2018 Hanamaki Festival

Riding tandem

29

INTEGRATED REPORT 2018
About NCXX Group

Sustainability

Strategy

Financial Section

Corporate Data

CSR Activities

Third Sale of Charity T-Shirts

Reducing Risk in Delivering Nursing Care Services

OBD II-Type Automotive Telematics Data Collecting Unit GX4x0NC
NCXX offers the GX4x0NC, an OBD II-type automotive telematics data collecting unit that is compatible
with more than 1,200 car models in Japan. It can be installed in a variety of welfare vehicle models as
well. The unit can collect 10 types of basic vehicle data, including instantaneous mileage, vehicle
speed, acceleration and GPS-based location. Driving data on vehicles with this device installed is sent
over 3G networks to servers, where the data can be quantified and visualized to detect hazardous
driving. With this system, fleet managers and supervisors can track driving conditions for multiple
welfare vehicles at the same time, and be quickly notified of any hazardous driving while vehicles aresent out to pick people up.

OBD II Solution for Nursing Care Service Vehicles

It can prevent hazardous driving and reduce the risk of traffic accidents.
The system can detect hazardous driving (i.e., fast acceleration, hard braking, sharp turns) when vehicles are sentout to pick people up, allowing managers to accurately supervise drivers. It promotes safer transportation services
by reducing the risk of traffic accidents by preventing hazardous driving.
Detection of
hazardous driving

3G

Detailed data on
hazardous driving
is displayed on
managers’ screens

Notifications of hazardous
driving can be sent via
email to fellow passengers’
mobile phones¥500 Is Donated to Developing Countries for Each Double Smiles
Charity T-Shirt and Tote Bag Sold
The NCXX Group collaborated with Japanese actress Alice Hirose to sell Double Smiles charity t-shirts
and tote bags in May 2018 for World Fair Trade Day and Fair Trade Month. Alice Hirose’s Double Smiles
products express her wish for both “producers and shoppers to be happy,” and the collaborative­campaign was held at TITICACA stores for the purpose of spreading happiness to both manufacturinglaborers in aid countries and to consumers by way of charity products. This collaborative campaign
entered its third year in 2018, and helps create sustainable employment for manufacturing l­aborers
every year.

30

INTEGRATED REPORT 2018
About NCXX Group

Strategy

Sustainability

Financial Section

Financial Section

Corporate Data

31

INTEGRATED REPORT 2018
About NCXX Group

Strategy

Sustainability

Financial Section

Corporate Data

Analysis of Operating Results and Financial Position[Review of Operations]
In the fiscal year ended November 30, 2017, the Japanese economy saw corporate earnings follow a recovery
trend, supported by the Japanese government’s economic policies together with monetary policies. On theother hand, the economic outlook still remains uncertain, based partly on unstable political trends overseas
and concerns about the impact of geopolitical risk.
The Japanese government has incorporated the concept of the Fourth Industrial Revolution into its growthstrategy. In the Fourth Industrial Revolution, physical things of all kinds, including automobiles and homeelectric appliances, will be connected to the Internet, making Cyber-Physical Systems a reality. A CyberPhysical System is a system that quantifies various states of the Physical Part of the real world that are subject to control, and quantitatively analyzes this data in the Cyber Part to derive new insights and knowledge,
which are then fed back and used to control the Physical Part of the real world. The general belief is that theability to collect and retain big data from the Physical Part of the real world through IoT technology and theability to manage and analyze this data through AI and blockchain technologies in the Cyber Part will be
crucial to success.
In this operating environment, in January 2017, NCXX Group Inc. (“the Company”) entered into a capitaland business tie-up with Terilogy Co., Ltd. (Listing: 3356 TSE JASDAQ; Headquarters: Chiyoda-ku, Tokyo;
President: Akihiko Abe) to jointly develop products that combine the NCXX Group’s IoT device development
technologies with Terilogy’s security technologies. Terilogy provides cutting-edge solutions in network security
for major Japanese corporations to create a society where IoT devices can be used safely, protecting key
equipment, systems and information from various online threats.
In February 2017, CAICA Inc. (“CAICA”) (Listing: 2315 TSE JASDAQ; Headquarters: Meguro-ku, Tokyo;
President: Niu Yu) became an equity-method affiliate, instead of a consolidated subsidiary, in light of voting
rights being below 50%. This decision was made because an adequate relationship of cooperation has been
established based on a capital and business partnership, including the proactive exchange of personnel on a
project basis, the introduction of a Bitcoin payment system for the TITICACA Online Shop operated by sub­sidiary TITICACA, Co. Ltd. (“TITICACA”) and the development of an attendance management system using
blockchain technology for subsidiary NCXX Inc. Further information can be found in the “Notice regarding
capital and business alliance with SJI Inc., and conversion to a subsidiary by private placement of new shares
and acceptance of share subscription rights, and loan” (Japanese only) issued on June 1, 2015. (SJI changed
its trade name to CAICA in February 2017.) Since the capital and business partnership will remain in force
without modification in the future, CAICA does not have to be a consolidated subsidiary of the Company, andas a Group company, CAICA will be able to continue working on new services for Cyber-Physical Systems for
the Fourth Industrial Revolution envisioned by the Group, including participating in joint development projects
that combine its blockchain and AI technologies with the IoT technologies of subsidiary NCXX Inc.
In August 2017, the Company transferred 51% of the shares outstanding in consolidated subsidiary NCXX
Solutions Inc. (“NCXX Solutions”) and 49% of the shares outstanding in NCXX Inc. to CAICA. As a result,
NCXX Solutions changed from a consolidated subsidiary to an equity-method affiliate. The aim of thistransaction is to spur growth at both companies by combining CAICA’s latest AI and blockchain technologies
with NCXX Solutions’ know-how in IoT-related services through device products that are highly relevant to
NCXX Inc. Moreover, this move is in line with our plan to create a business structure able to rapidly introduce
products that address latent needs in the marketplace. We aim to accelerate the development of device
products that link IoT and blockchain technology, such as IoT payment platform services that utilize cryptocurrencies and tokens, through collaboration with Fisco Cryptocurrency Exchange Inc., a group member of
FISCO Ltd. (“FISCO”) (Listing: 3807 TSE JASDAQ; Headquarters: Minato-ku, Tokyo; President: Hitoshi Kano),
the parent company, leveraging its cryptocurrency platform while providing information about cryptocurrency
markets including Bitcoin. For example, this initiative entails providing smart locks*1 and settlement systems
for condominiums and rental offices in the sharing economy, as well as providing smart keys*2 for rental carsand car sharing services, in addition to ride hailing services.
*1, *2: Smart locks and smart keys are devices that allow people who have paid and registered to then access a designated property
or automobile, locking and unlocking access using their smartphones or other electronic devices.

Meanwhile, the brand retail platform business*3 was launched in 2016. To expand this business, in
December 2016, Versatile Inc. (“Versatile”) and FISCO International Limited became consolidated subsidiariesof the Company after their shares were acquired from FISCO, the parent company. Together with these subsidiaries, the Company commenced the trademark licensing business of CoSTUME NATIONAL, which isengaged in import and sales operations. The Company has begun exploring business expansion initiatives
with CoSTUME NATIONAL in Asia using fashion accessories, as well as wine and other retail business, as afoothold in the region.
Additionally, in April 2017, the Company entered into a capital and business partnership agreement withCSMEN Co., Ltd. (“CSMEN”) (Listing: 3083 TSE JASDAQ; Headquarters: Chuo-ku, Tokyo; President: Masao
Aoki), acquiring 19.01% of its shares. CSMEN is a retail company focused on apparel sales, operating 50
stores in Japan (as of November 30, 2017) under brands including the METHOD and RyugiAssaku casual
wear brands. Moreover, in May 2017, Versatile acquired a 51% stake in FACETASM, which operates 50 storesin Japan (as of April 30, 2017) under its FACETASM brand of casual fashion, turning it into a subsidiary.
*3 The brand retail platform business refers to the retail business including general merchandise and apparel and the licensing­business for brand trademarks.

In regard to the agricultural ICT business (NCXX FARM) undertaken by the Company, the Group will work topromote the commercialization of sixth-order industrialization initiatives, which involve the growing, processing
and sale of agricultural products, and a franchise business, which involves packaged sales combining chemicalsoil management based on a patented farming method and digital management based on ICT systems.
In terms of sixth-order industrialization initiatives, in July 2017, the Group’s Keema Curry with Yellow
Tomatoes, a pouched curry made from cherry tomatoes, won an award at the 2017 Iwate Unmei-mon!!
Gran Prix (2017 Furusato Food Competition in Iwate Prefecture), a local food contest in Iwate Prefecture.

32

INTEGRATED REPORT 2018
About NCXX Group

Strategy

Sustainability

Financial Section

Corporate Data

Analysis of Operating Results and Financial Position

In the franchise business, the Group regularly conducts presentations on the franchise business at its
proprietary testing plot. It has seen an increase in tours and inquiries from across Japan, including the use of
these presentations by local municipalities and educational institutions as part of their training programs.
Looking at its track record of introducing systems for the fiscal year ended November 30, 2017, the Groupdelivered systems to companies in Iwate Prefecture. As a new development initiative, the Group developed
and began trial operation of a prototype data recording and management app that can be used by farmers toeasily monitor harvest and management data. Development has continued with a view to linking the app withweather and market information and to the Group’s ICT and accounting systems in the future. In the area of
ICT systems, the Group commenced the development of an environmental management prediction system,
as a new function designed to automatically perform environmental management by comprehensively integrating factors essential to the growth of vegetables and health management. In addition, the current system
has achieved a solid track record to date and the addition of new functions will significantly enhance its user
friendliness. Considering those factors, the Group has proactively conducted advertising activities such as
running magazine and video advertisements, as well as holding events to dramatically expand the franchisebusiness from the next fiscal year onward.
The Group will continue working to establish a business model for harvesting safe food materials in a stableand efficient manner by upgrading ICT systems and accumulating expertise at its proprietary testing plot.

[Operating Results]
Looking at consolidated business results, net sales increased on account of additions to the scope of­consolidation, namely TITICACA in August 2016 and Gloria Tours Inc. (“Gloria Tours”) in October 2016.
Meanwhile, net sales declined because CAICA and NCXX Solutions became equity-method affiliates, fromFebruary and August 2017, respectively. In addition, NCXX Inc. has been developing a successor model to its
LTE data telecommunications terminal, one of its core products, and plans to introduce the new model to themarket in 2018. In the run-up to the introduction of this new successor model, certain customers have refrained
from purchasing the current model. As a result, sales proceeds fell short of target. In addition, e-tabinet.com
had maintained a gradual recovery following a string of terrorist incidents by the Islamic State since the previous
year. However, in April 2017, the bankruptcy of Tellmeclub Inc. became a social issue, leading to the outflow ofcustomers to larger travel agencies. This resulted in a decline in the number of requests for travel estimatesfrom customers at e-tabinet.com. Consequently, sales proceeds of e-tabinet.com fell short of target.
Turning to operating income, profits decreased in line with the aforementioned decrease in net sales.
Operating income also declined because the Group proactively conducted advertising activities, such as
running magazine and video advertisements, as well as holding agriculture-related events. These activities
were undertaken to dramatically expand apps and systems in the agricultural ICT business, as well as the
franchise business from fiscal 2018 onward.
As a result of these efforts, consolidated net sales were ¥12,198 million, down 0.3% year on year.
Operating loss was ¥914 million, compared to an operating loss of ¥619 million in the previous fiscal year.

The ordinary loss was ¥940 million, compared to an ordinary loss of ¥770 million in the previous fiscal year.
Profit before income taxes was ¥1,024 million, compared with a loss before income taxes of ¥863 million in
the previous fiscal year. Profit attributable to owners of parent was ¥902 million, compared with a loss
­attributable to owners of parent of ¥1,068 million in the previous fiscal year.
Business performance by segment in the fiscal year under review was as follows:(ICT, IoT, Device Business)
NCXX Inc. focused on providing solutions using GX410NC and GX420NC, OBD II-type automotive telematic
data collecting units launched in 2015. In collaboration with NCXX Solutions, NCXX Inc. developed the safe
driving assistance service Drive Care (http://www.care-dynamics.jp/obd2/), an OBD II solution for nursing
care transportation service vehicles, and rolled it out in August 2016.
This system enables the managers or supervisors of businesses that provide various transportation services for nursing care facilities and other customers to confirm the status of multiple fleet vehicles operating
simultaneously. The system can monitor any dangerous driving behaviors (sudden starts, sudden stops,
sharp turns) that may arise while each vehicle is being operated. By displaying these incidents in formats thatare easy for managers and supervisors to understand, such as lists and graphs, they will be able to better
monitor the driving behavior of drivers and provide appropriate instructions tailored to each driver. In addition,
managers and supervisors will be able to ascertain the extent of improvement of each driver and follow up on
drivers appropriately by continuously checking driving performance data.
Also, the system can be used to reduce the maintenance and management costs of welfare service­vehicles by making effective use of the various types of data that can be obtained. For example, managers
and supervisors will be able to improve average fuel economy by instructing drivers on environmentallyfriendly driving practices, curtail wear of tires and other parts of vehicles, and issue vehicle inspection alerts
to prevent vehicle malfunctions.
In the fiscal year ending November 30, 2018, the Group will continue to provide automotive telematic
solutions that integrate high-valued-added communication devices and software, as well as various othertypes of solutions.
e frontier, Inc. (“e frontier”), which conducts software development and sales, became a subsidiary in July
2017. ­e frontier sells internally developed software, such as AI-driven programs for the games of go, shogi
and ­mahjong. The company has strengthened download-based sales of licenses to its approximately
500,000 e-mail newsletter subscribers. It will also bolster content sales in creative fields, such as software forcomputer graphics (CG) production. In terms of specific measures, e frontier is preparing to sell polygon datacollections that can be used easily by creators of games, video and other content. It is also making preparations to produce digital books together with CG artists.
As a result, segment sales in the fiscal year ended November 30, 2017 were ¥893 million, down 29.9%
year on year. Segment loss was ¥438 million, compared with segment loss of ¥365 million in the ­previous
fiscal year.

33

INTEGRATED REPORT 2018
About NCXX Group

Strategy

Financial Section

Sustainability

Corporate Data

Analysis of Operating Results and Financial Position(FinTech System Development Business)
In addition to a continuous and consistent order intake from existing customers, NCXX Solutions steadily
received orders from new customers in the current fiscal year, following on from the previous fiscal year.
These orders included a system reconstruction project for a regional bank, and systems development inconnection with the liberalization of the energy sector from a major gas company. NCXX Solutions has seen
steady hiring of engineers and business order intake centered on financial systems at the Kanto Division, as
well as at its offices in Chubu, Kansai and Kyushu.
In terms of collaboration with Group companies, NCXX Solutions is working to enhance services withrespect to the free smartphone app “FISCO app” and the PC browser version “FISCO Web,” which it supplies to its parent company FISCO. We have been continuing our measures to enhance services, including
the release of upgraded versions from time to time featuring faster search ­capabilities and additional functions
such as coordination with favorites and alerts, as well as a job-hunting app aimed at graduating students
who are looking for jobs.
In addition, NCXX Inc. has been pursuing initiatives in the area of IoT services. As one such initiative, NCXX
Inc. has concentrated on the development of solutions utilizing the aforementioned GX410NC/GX420NC,
OBD II-compliant automotive telematic data collecting units. We have developed and now provide “BusRides” as a smartphone app that displays the current location of shuttle buses for driving schools, preschools
and other organizations and any delays, and “Hazard Maps” as a service for displaying maps of hazardous
areas (i.e., where drivers brake hard, accelerate fast, or turn suddenly) with a greater likelihood of accidents
based on data acquired from IoT.
Furthermore, in the field of agricultural ICT, NCXX Solutions is undertaking version upgrades in step withexpansion in the Company’s franchise business, including providing functions to perform automatic recovery
in the event of an error in communications systems. Also, NCXX Solutions has become a member of theCouncil of Industry-Academia-Government Collaboration of the Ministry of Agriculture, Forestry and
Fisheries, with plans to conduct a demonstration trial for developing a model for increasing the production
volume of tomatoes.
As noted earlier, in August 2017, the status of NCXX Solutions was changed from a consolidated subsidiaryof the Company to an equity-method affiliate.
CAICA has steadily pushed ahead with various measures to improve its financial health, such as reducing
interest-bearing debt and thoroughly cutting expenses. The shareholders’ equity ratio improved sharply to
72.0% from 21.7% at the end of the previous fiscal year, thanks to the steady repayment of interest-bearing
debt, the execution of share acquisition rights, and the accumulation of profits. In November 2017, CAICA
raised ¥2,330 million through the issuance of new shares via a third-party allotment to fund M&As and capitaland business alliances.
In addition, as disclosed in the medium-term management plan “A Stage of Proactively Advancing to New
Growth,” CAICA has adopted a policy of proactively conducting M&As and capital and business alliances toexpand the scale of its business. Based on this policy, in the fiscal year ended November 30, 2017, CAICA
implemented the M&As and capital and business alliances shown in the following table.

February 2017

Made Tokyo Tech Corporation, which handles systems development, into a subsidiary

August 2017

Made NCXX Solutions Inc. a subsidiary
Converted NCXX Inc. into an equity-method affiliate

August 2017

Accepted capital increase by allotment of new shares to third parties
for Fisco Cryptocurrency Exchange Inc.

August 2017

Formed a capital and business alliance with FISCO Ltd.

September 2017 Formed a capital and business alliance with Oceans inc.
CAICA has acquired systems development engineers and customers by conducting M&As and businessalliances with peer companies in the same industry and companies that offer prospects for capturing synergies in FinTech-related businesses. CAICA conducts business primarily in Tokyo, whereas NCXX Solutions
has bases in western Japan, specifically Nagoya, Osaka, and Fukuoka. By making NCXX Solutions a sub­sidiary, CAICA is now able to provide systems development services throughout Japan. CAICA aims to win
orders for FinTech-related projects that could not previously be undertaken by each individual subsidiary. To
this end, CAICA will share knowledge of FinTech-related businesses that it has amassed to date with thesubsidiaries it has acquired to facilitate coordination on systems development among CAICA and its sub­sidiaries, Tokyo Tech Corporation and NCXX Solutions. For example, CAICA will provide integration services
for the construction of IoT settlement platforms using cryptocurrency and tokens, as well as utilize IoT andblockchain technologies. With the capital and business alliance with Oceans inc. (“Oceans”), CAICA has
begun implementing measures to undertake the initial development of the KIZUNA Platform system, as wellas the development of various systems that will be needed in connection with upgrading and expanding
services. Going forward, CAICA aims to expand business with end-user companies such as Oceans, alongwith expanding business with the major system integrators that make up its existing customer base.
As noted earlier, in February 2017, the status of CAICA was changed from a consolidated subsidiary of theCompany to an equity-method affiliate.
Care Dynamics Limited (“Care Dynamics”) is a provider of ASP systems to nursing care businesses. It has
already deployed ASP systems at more than 400 nursing care facilities. With the launch of services such assupport for the introduction of nursing care robots and the provision of nursing care ICT, Care Dynamics has
evolved into a comprehensive nursing care business support enterprise.
As a service for assisting caregivers, Care Dynamics offers nursing care robots as a sales agency, distribution of instructive leaflets of corporations using manga illustrations, and services for creating advertisements.
Care Dynamics continues to provide tours of nursing care facilities that have adopted the “Drive Care” OBD II
solution for nursing care transportation services, and offers free trials of the solution.
Moreover, Care Dynamics provides a replacement support service and reassesses electricity providers to
help nursing care facilities cut their electricity bills. Care Dynamics also offers a service that introduces­systems for saving water.

34

INTEGRATED REPORT 2018
About NCXX Group

Strategy

Sustainability

Financial Section

Corporate Data

Analysis of Operating Results and Financial Position

As a result, segment sales in the fiscal year ended November 30, 2017 were ¥3,070 million, down 60.8%
year on year. Segment loss was ¥36 million, compared with segment loss of ¥61 million in the previous
fiscal year.

(Internet Travel Business)
In the Internet travel business, e-tabinet.com and its subsidiaries have received a large number of positive
comments from many highly satisfied customers for their ability to fulfill increasingly diverse and sophisticated needs, amid a proliferation of travel products and services. The crucial factor behind this success isthat e-tabinet.com has been able to build a solid structure as Japan’s only Internet-based travel agency
offering customized services with a carefully chosen staff of highly experienced registered “travel concierges”(travel consultants).
In 2015, e-tabinet.com launched a specialized site for inbound tourists visiting Japan from abroad, andimplemented search engine optimization with a focus on Asia. The number of tourists visiting Japan is projected to increase by 19.3% to 28.69 million by the end of the fiscal year ended November 30, 2018, a pace
far greater than what had been initially anticipated. This is expected to lead to shortages in the tourism facilities needed to support the large number of tourists visiting Japan. Against this backdrop, e-tabinet.com set
up a new dedicated skiing website in English to address the strong demand for this information among
inbound tourists visiting Japan. In October 2016, e-tabinet.com published information on 204 ski courses atresorts in Japan in cooperation with Jitsugyo no Nihon Sha, Ltd., a long-standing publisher founded in 1897.
Jitsugyo no Nihon Sha publishes business and trade journals as well as literary works and other materials.
Additionally, e-tabinet.com will also focus on the market for para-sports ahead of the Tokyo Olympic andParalympic Games to be held in two years. In October 2016, it made Gloria Tours, a company specializing insending Paralympic athletes to various events and organizing numerous international para-sports tournaments, a subsidiary. Along with the concierge business of Web travel Co., Ltd., e-tabinet.com seeks to build
a niche market base that most general travel agencies would find difficult to serve.
Meanwhile, the number of travel concierges has been growing steadily, increasing sharply from 380 at theprevious fiscal year-end to 450 as of September 30, 2017. In addition, e-tabinet.com has been advancing thecrowdsourcing business as a platform for concierges to make the most of their unique talents in areas otherthan travel. By fostering a stronger sense of community and belonging among concierges, e-tabinet.com will
work to recruit and retain talented personnel.
The travel concierges take the lead in planning Kodawari no Tabi (“Journeys for the Discerning Traveler”)
travel itineraries, an initiative that has continued for the past few years, coming up with a new travel itinerary
every month. In September 2017, they released “Travel Canada by Rail,” a trip featuring luxury, fine dining
and stunning natural scenery. In October, their special travel package was “Feeling the Pulse of the Earth in
New Zealand,” a journey to the geothermally active regions and fjords steeped in Maori culture. In November,they released a travel package called “An Enjoyable Asian Cruise for First-Time Passengers,” a trip to rediscover various well-trodden sites in Asia. Looking ahead, the travel concierges will continue to ­propose­interesting Kodawari no Tabi.

Amid a gradual recovery from a string of terrorist attacks by the Islamic State since the previous year,
overseas travel business sales were ¥1,973 million, centered on best-selling packages to Europe and honeymoon packages to Australia, and domestic travel business sales were ¥209 million. Business performance
had remained on a gradual recovery path following the impact of the terrorist attacks. However, in April 2017,
the bankruptcy of Tellmeclub Inc. became a social issue, leading to the outflow of customers to larger travel
agencies. This had an impact on the number of requests for travel estimates. For the Web travel website, thenumber of requests for travel estimates decreased by 10% year on year. For the e-tabinet.com website, thenumber of requests for travel estimates also decreased by 10% year on year. However, as a result of measures to enhance order rates, the number of orders received increased by 11% year on year, and the grossprofit margin was maintained at 16%, mostly the same as in the previous fiscal year.
As a result, segment sales in the fiscal year ended November 30, 2017 were ¥2,183 million, up 34.4%
year on year. Segment loss was ¥1 million, compared with segment income of ¥10 million in the ­previous
fiscal year.

(Brand Retail Platform Business)
TITICACA has closed 18 stores in a twelve-month period, reducing the number of stores from 111 as of
October 31, 2016 to 93 as of the end of October 2017. TITICACA has been pushing ahead with structuralreforms, such as the closure of unprofitable stores and revisions to its personnel system. As a result, it
restored operating profitability in the fiscal year ended October 31, 2017.
As a coordinated Group measure in fiscal 2017, TITICACA participated in a camping event sponsored by
GARVY, a popular outdoor and family camping magazine published by Jitsugyo no Nihon Sha in August
2017, in a bid to raise recognition of its brand in this particular customer category.
As a result, segment sales in the fiscal year ended November 30, 2017 were ¥5,926 million, up 296.3%
year on year. Segment loss was ¥63 million, compared with segment loss of ¥15 million in the previous
fiscal year.

(Information Service Consulting Business)
The information service consulting business provides consulting services on business strategy, recruiting
assistance and other business matters, as well as advisory services for retail stores. Versatile, which becamea subsidiary in December 2016, sells wine imported from overseas subsidiary MEC S.R.L. SOCIETA’AGRICOLA, operates a food business, and has a global licensing business for CoSTUME NATIONAL.
Versatile aims to grow this business by acquiring trademarks in Europe and the United States to complement
its existing trademark licensing business across Asia. In the fiscal year ended November 30, 2017, there werebarely any sales. An operating loss was posted that represents SG&A expenses.
As a result, segment sales in the fiscal year ended November 30, 2017 were ¥71 million. Segment loss
was ¥57 million.

35

INTEGRATED REPORT 2018
About NCXX Group

Strategy

Sustainability

Financial Section

Corporate Data

Analysis of Operating Results and Financial Position[Financial Position](Cash Flows from Financing Activities)(Assets)

Net cash used in financing activities was ¥1,851 million, compared with net cash used in financing activitiesof ¥2,047 million in the previous fiscal year. This was mainly due to repayment of long-term loans payable of¥2,059 million and payments for redemption of bonds with subscription rights to shares of ¥300 million, themain factors reducing cash. These cash outflows were partly offset by proceeds from long-term loans payable of ¥342 million and proceeds from issuance of shares resulting from exercise of subscription rights toshares of ¥244 million, the main factors increasing cash.

Total assets were ¥11,532 million as of November 30, 2017, a decrease of ¥1,927 million from a year earlier.
The main components of this change were increases of ¥647 million in cash and deposits, ¥768 million inadvance payments—trade, and ¥3,377 million in investment securities, and decreases of ¥1,137 million innotes and accounts receivable—trade, ¥350 million in short-term loans receivable, ¥3,974 million in goodwill,and ¥1,343 million in long-term loans receivable.

(Liabilities)
Total liabilities were ¥7,006 million, a decrease of ¥2,653 million from a year earlier. The main components ofthis change were decreases of ¥300 million in unsecured convertible bonds with subscription rights toshares, ¥2,148 million in interest-bearing debt*, and ¥118 million in provision for bonuses.

(Net Assets)
Total net assets were ¥4,526 million, an increase of ¥725 million from a year earlier. The main contributing
factors were increases of ¥994 million in capital surplus, ¥902 million in retained earnings, ¥125 million in
valuation difference on available-for-sale securities, and ¥468 million in non-controlling interests, which werepartly offset by a decrease of ¥1,809 million in capital stock.
* Interest-bearing debt is the sum of short-term loans payable, current portion of long-term loans payable and long-term loans payable.

[Risk Information]
The Group presents the main factors that could pose a risk to its business development and related activities.
From the standpoint of actively disclosing information to investors, the Group discloses matters that could
have a material impact on investor judgment, even external factors beyond the control of the Company andmatters that may not necessarily be considered as business risks.
The items outlined below do not represent an exhaustive listing of all risks affecting investment in the
Company’s stock.
The items in the following section that concern the future were assessed by the Group based on­information available as of November 30, 2016. They are subject to uncertainties and may differ from
actual results.

(1) Business Characteristics[Cash Flows]
Cash and cash equivalents (“cash”) at November 30, 2017 were ¥2,529 million, an increase of ¥647 million
from the previous fiscal year-end.
Cash flows during the fiscal year under review and analysis of the main components are as follows:(Cash Flows from Operating Activities)
Net cash used in operating activities was ¥1,388 million, compared with net cash provided by operating activities of ¥341 million in the previous fiscal year. The primary reasons were a gain on sales of investment securities of ¥2,973 million, a gain on sales of shares of subsidiaries of ¥887 million and an increase in advancepayments of ¥470 million, the main factors reducing cash. These factors were partly offset by profit before
income taxes of ¥1,024 million and impairment loss of ¥1,830 million, the main factors increasing cash.

(Cash Flows from Investing Activities)
Net cash provided by investing activities was ¥3,929 million, compared with net cash provided by investing
activities of ¥686 million in the previous fiscal year. The positive factors were ¥6,491 million in proceeds fromsales of investment securities and ¥611 million from collection of long-term loans receivable. Negative factors
were ¥2,797 million in payments for the purchase of investment securities and ¥490 million in ­payments forsales of investments in subsidiaries resulting in change in scope of consolidation.

1. Group Driven by Research and Development
The Group primarily comprises companies driven by research and development (R&D), and its source ofcompetitiveness is the constant internal accumulation of new technology. If the Group has difficulty securing
and nurturing competent technicians, or suffers an outflow of competent human resources, this could have amaterial impact on the Group’s business and operating results.
As a policy, the Group adapts to technological and other advancements through its R&D activities.
However, the Group may not be able to adapt promptly to changes in the business environment if they werebrought about by new unforeseen technologies. Adapting to changes in the business environment may also
involve large sums of R&D expenses and other expenses. Such events could have a material impact on theGroup’s business and operating results.
2. Fabless Manufacturing
The Group outsources the manufacturing of mobile telecommunications devices and other products to alarge extent. As a result, business conditions at the outsourcing contractors, as well as the Group’s cultivation
and retention of outsourcing contractors and the Group’s in-house manufacturing capabilities, could have amaterial impact on the Group’s business and operating results.

36

INTEGRATED REPORT 2018
About NCXX Group

Strategy

Sustainability

Financial Section

Corporate Data

Analysis of Operating Results and Financial Position

3. Relationship with Telecommunications Service Providers
The Group’s core products are data telecommunications terminals and other mobile devices developed andmanufactured based on the specifications of telecommunications service providers. Furthermore, in thesetransactions the telecommunications service providers purchase all of the contracted output. As a result,changes in the content of the contracts, sales prices, and transaction terms with the telecommunications
service providers, as well as the success or failure of renewing the contracts, could have a material impact on
the Company’s business and operating results.
4. Changes in Demand for Mobile Devices
Data telecommunications terminals and other mobile devices developed and manufactured by the Groupare subject to severe product competition. As such, the trend in their demand has a tendency to change
dramatically depending on such factors as technological advancement and the status of the product com­
petition. The business is also characterized by the short turnaround in launching new products. As a policy,
the Group seeks to adapt to changes in demand with fabless manufacturing. However, the Group is currently
dependent on specific products because it develops and manufactures a limited variety of products.
Consequently, drastic changes in demand and falls in the sale price of mobile devices brought about byfactors such as business strategies of competitors and changing customer needs could have a material
impact on the Group’s business and operating results.

(2) Dependence on a Specific Business Partner
Dependence on a Specific Outsourcing Contractor
In the year ended November 30, 2016, the Group outsourced the manufacturing of mobile devices to
TRICHEER TELECOMMUNICATION LTD. Consequently, changes in the business transaction policy andmanufacturing framework between the Group and this contractor could have a material impact on theGroup’s business and operating results.

(3) Risks Related to Protection of Intellectual Property Rights
The Group is driven by R&D and is the rightful owner of numerous intellectual properties that have been
submitted and registered for patent and registered with design rights and trademarks. The Group also strives
to make sure that the products it develops and manufactures do not infringe on the intellectual property
rights of third parties, and understands that there are no infringements at present. However, the possibility of
infringing on the intellectual property rights of a third party in the future cannot be eliminated. Should theGroup infringe on the intellectual property rights of a third party, it may experience legal action seeking damages, a decline in credibility, a deterioration in its corporate brand, and so forth, which could have a material
impact on the Group’s business and operating results. Conversely, should the intellectual property rights of
the Group suffer infringement by a third party, the Group would be obliged to divert management resources
toward taking the party to court and other defensive measures, which could have a material impact on theGroup’s business and operating results.

(4) Quality Control
The Group must recall and repair the mobile devices it develops and manufactures in the event of a productmalfunction. Moreover, should an accident caused by defective products occur, the Company may be­subject to claims for damages under the Product Liability Act.
In order to prevent such product defects and accidents from occurring, the Group has developed a quality
control system that also encompasses the management of outsourcing contractors and suppliers to improve
product safety and promote compliance with laws and regulations. In addition, the Group also subscribes to
product liability insurance as a contingency in the event of product accidents. However, should a serious
product defect or incident violating the Product Liability Act occur, the Group may have to bear product recall
and repair expenses and payment of damages, as well as experience a decline in its credibility with corporateclients and society, a deterioration in its corporate brand value, and so forth, which could have a material
impact on the Group’s business and operating results.

(5) Statutory Regulations on Telecommunications
The Group mainly develops products regulated by the Radio Act of Japan. As a result, trends regarding theRadio Act and other statutory regulations on telecommunications could have a material impact on theGroup’s business and operating results.

(6) Protection of Personal Information
The Group holds the personal information and so forth of its customers in the conduct of its business of sellingand providing product support and so forth for mobile communication devices and selling apparel and generalmerchandise. To prevent the acquired personal information and so forth of customers from leaking externally, theGroup takes ample precautions such as limiting access to the personal information and strengthening the internal
control system by periodically conducting internal audits. However, should a leak in personal information occur,
the Company may be in violation of laws and regulations as well as its confidentiality agreements with clientcompanies. As a result, the Group may receive claims for damages from client companies and other customers
as well as experience a decline in its credibility with corporate clients and society, a deterioration in its corporate
brand value, and so forth, which could have a material impact on the Group’s business and operating results.

(7) Corporate Organization
In order to continue growing while strengthening the internal control system further at the same time, theGroup sees a need to bolster competent human resources, as well as further enhance the organization of its
administrative divisions, at each stage of business development. Consequently, should the Group be unable
to bolster human resources as required at each stage of business development, or suffer an outflow of competent human resources, this could have a material impact on the Group’s business and operating results.

(8) Relationship with the Parent Company
FISCO is the parent company of the Company, holding 49.83% of the voting rights both directly and indirectly
as of November 30, 2016. In addition, SEQUEDGE INVESTMENT INTERNATIONAL LIMITED is another

37

INTEGRATED REPORT 2018
About NCXX Group

Strategy

Sustainability

Financial Section

Corporate Data

Analysis of Operating Results and Financial Position

affiliate of the Company. The Company therefore belongs to a parent company group with FISCO at thecenter. As a result, changes in the parent company group’s management policy and other circumstances
could have a material impact on the Company’s business and operating results.

(9) Fluctuations in the Foreign Exchange Market
The Company subcontracts the manufacturing of some of its products to overseas manufacturers and soforth to enhance price competitiveness and profitability. As a result, business transactions denominated inforeign currencies may be affected by fluctuations in the foreign exchange market. To reduce this impact, theCompany strives to make use of instruments such as foreign exchange forward contracts, and to reconfigure
its product portfolio. However, trading conditions and foreign exchange market trends in the future could
have a material impact on the Group’s business and operating results.
Also, fluctuations in the foreign exchange markets could impact the Group’s operating results and financial
position since the Group has assets overseas. Further, in the event that changes in legislation or government
policies in Japan or overseas hinder smooth remittances, the Group’s business operations and accounting
processes may be affected, which could in turn impact the Group’s operating results and financial position.

(10) Profitability of System Development Projects
When undertaking system development, the Group estimates in advance the total number of work hours(labor hours) needed to meet customer requirements and determines the costs necessary to create thesystem as part of its activities to win orders. However, if problems arise during system development andwork hours exceed the budgeted time, the Group could end up bearing that cost.
Additionally, the Group may be called on to bear the cost of an increase in labor hours even if it relates tospecification changes made during development.
Further, the Group may incur the cost of fixing defects that arise after the developed system has beendelivered to the customer and the customer has finished inspecting it and determined it to be free of issues.
The Group therefore strives to increase the accuracy of estimates at the time of the contract by creating
detailed estimates for each development process (phase), and taking other steps to keep the actual numberof labor hours in line with the budgeted number. While the Group gives sufficient consideration to project
profitability, profitability could deteriorate due to factors such as development projects becoming large inscale and escalating competition to win orders.

(12) Merchandise Purchases
The Group company TITICACA mostly sells imported products. Therefore, events in relevant countries suchas unanticipated changes in legislation, political uncertainty, major natural disasters, social unrest, and sharp
fluctuations in foreign exchange rates could affect TITICACA’s merchandise supply framework and theGroup’s operating results and financial position.

(13) Impairment of Property, Plant and Equipment
Group company TITICACA recognizes impairment losses on the portion of the assets of stores that are­persistently unprofitable or that it has decided to relocate or close for which the book value of property, plantand equipment is determined to be unrecoverable. In the event of an increase in such unprofitable storesgoing forward, the posting of significant impairment losses would be expected, which could affect theGroup’s business performance and financial position.

(14) Losses from Store Relocations and Closings
The Group company TITICACA may relocate or close stores due to tenancy agreements expiring. In thatevent, costs will arise for the removal of property, plant and equipment to restore the leased space to its
original condition, new investments in relocation sites, and so forth. If store relocations and closings increasein the future, the posting of a large amount of losses associated with the removal of property, plant andequipment, as well as selling, general and administrative expenses would be expected, which could affect theGroup’s business performance and financial position.

(15) Investment in Cryptocurrency
The Group faces risks associated with investment in cryptocurrency, including price movements in crypto­
currency, the risk of losses stemming from the inability to trade in the cryptocurrency markets or being forced
to trade on terms that are less advantageous than normal due to factors such as turmoil in the cryptocurrency
markets. Other risk factors include disruptions in derivative trading systems for cryptocurrency, system disruptions and business failure of cryptocurrency exchanges, and theft due to unauthorized access to servers.
The Group makes every effort to rigorously implement risk management. However, if the aforementioned risksmaterialize, the Group could incur higher costs to deal with the issue or suffer a decline in its credibility, which
could have a material impact on the Group’s business results and financial condition.

(11) Investments and Loans(16) Disasters, etc.

To expand business going forward, the Group may undertake M&As or business investments targeting­alliances, or engage in joint venture business development, subsidiary establishment, or capital expendituresin Japan or overseas.
The Group’s policy in making investments and loans is to thoroughly evaluate the recoverability and risks ofthose prospective investments and loans in advance. However, it is sometimes difficult to accurately project
the impact on the Group from business conditions at investees and should investments or loans become
unrecoverable, the Group’s operating results and financial position could be affected.

In the event that a major natural disaster or accident in the vicinity of stores, warehouses, and so forthcauses physical damage to such facilities; disrupts sales, distribution, purchasing, or other business activities;
or causes personal injury, the Group’s business performance and financial position could be affected.

38

INTEGRATED REPORT 2018
About NCXX Group

Sustainability

Strategy

Financial Section

Corporate Data

Consolidated Financial Statements[Consolidated Balance Sheets](Thousands of yen)(Thousands of yen)
Fiscal 2016 (As of
November 30, 2016)

AssetsCurrent assets
Cash and deposits
Notes and accounts receivable—trade
MerchandiseWork in process
Raw materials
Accounts receivable—other
Advance payments—trade
Short-term loans receivable
Deferred tax assets
Cryptocurrency
Other
Allowance for doubtful accounts
Total current assets
Non-current assets
Property, plant and equipment
Buildings and structures
Accumulated depreciation
Buildings and structures, net
Machinery, equipment and vehicles
Accumulated depreciation
Machinery, equipment and vehicles, net
Tools, furniture and fixtures
Accumulated depreciation
Tools, furniture and fixtures, net

Fiscal 2017 (As of
November 30, 2017)¥ 1,881,667
1,736,837
884,860
208,295
7,746
46,995
202,436
365,760
5,770–
174,556(162,362)
5,352,563¥ 2,529,595
599,269
1,070,793
245,736
3,632
114,228
970,582
15,000416
15,899314,951(53,097)
5,827,009*1 1,328,715(707,310)
621,404
46,700(33,013)
13,686
1,077,483(925,436)
152,046*1 1,523,941(1,174,291)
349,650
89,553(65,410)
24,142
1,119,713(950,393)
169,320Land
Construction in progress
Total property, plant and equipment
Intangible assets
Software
Goodwill
Trademark rights
Other
Total intangible assets
Investments and other assets
Investment securities
Long-term accounts receivable—other
Long-term loans receivable
Other
Allowance for doubtful accounts
Total investments and other assets
Total non-current assets
Total assets

Fiscal 2016 (As of
November 30, 2016)

Fiscal 2017 (As of
November 30, 2017)*1 298,354
135
1,085,626*1 192,132–
735,245

135,289
4,371,717
436
22,4804,529,923

62,710397,006
6,300
3,964
469,982*3 153,872
1,551,743
1,739,624
847,021(1,800,467)
2,491,794
8,107,344¥13,459,907*1, 3 3,531,593
163,181396,140
628,537(219,321)
4,500,130
5,705,358¥11,532,367

39

INTEGRATED REPORT 2018
About NCXX Group

Sustainability

Strategy

Financial Section

Corporate Data

Consolidated Financial Statements(Thousands of yen)(Thousands of yen)
Fiscal 2016 (As of
November 30, 2016)

Liabilities
Current liabilities
Notes and accounts payable—trade
Short-term loans payable
Current portion of convertible bond-type bonds
with share acquisition rights
Current portion of long-term loans payable
Accounts payable—otherAccrued expenses
Income taxes payable
Accrued consumption taxes
Advances received
Asset retirement obligations
Deferred tax assets
Provision for bonuses
Provision for product warranties
Provision for sales returns
Provision for loss on store closing
Other
Total current liabilities
Non-current liabilities
Convertible bonds with subscription rights to shares
Long-term loans payable
Net defined benefit liability
Asset retirement obligations
Deferred tax liabilities
Other
Total non-current liabilities
Total liabilities

Fiscal 2017 (As of
November 30, 2017)¥   586,979*4 249,334¥   600,601*4 191,660

300,000*1 1,844,650
338,608
283,738
51,05986,999258,231
63,815–
186,659
92,000–64,284
93,8444,500,206

1,165,000*1 836,382
259,459
350,077
24,50916,601
268,271
28,7802,076
67,796
106,000
13,376
16,592
48,2503,995,438

1,165,000*1 2,719,875
29,724335,224
703,564
205,774
5,159,163
9,659,369–*1 1,637,685
29,708360,907
767,129
215,450
3,010,881
7,006,319

Net assets
Shareholders’ equity
Capital stock
Capital surplus
Retained earnings
Treasury stock
Total shareholders’ equity
Accumulated other comprehensive income
Valuation difference on available-for-sale securities
Deferred gains or losses on hedges
Foreign currency translation adjustments
Total accumulated other comprehensive income
Subscription rights to shares
Non-controlling interests
Total net assets
Total liabilities and net assets
Please refer to page 46 for *1 and 3
Please refer to page 47 for *4

Fiscal 2016 (As of
November 30, 2016)

Fiscal 2017 (As of
November 30, 2017)

1,819,748
1,776,350
33,104(107,897)
3,521,304

10,0002,770,501
935,697(86,159)
3,630,038

14,695
1,131
56,53372,35937,539169,334
3,800,538¥13,459,907

139,894(57)
95,981
235,818
22,211
637,979
4,526,047¥11,532,367

40

INTEGRATED REPORT 2018
About NCXX Group

Sustainability

Strategy

Financial Section

Corporate Data

Consolidated Financial Statements[Consolidated Statements of Income and Consolidated Statements ofComprehensive Income][Consolidated Statements of Income](Thousands of yen)(Thousands of yen)

Net sales
Cost of sales
Gross profit
Selling, general and administrative expenses
Operating loss
Non-operating income
Interest income
House rent income
Foreign exchange gains
Share of profit of entities accounted for using equity method
Miscellaneous income
Other
Total non-operating income
Non-operating expenses
Interest expenses
Foreign exchange losses
Commission fees
Other
Total non-operating expenses
Ordinary loss
Extraordinary income
Gain on sales of shares of subsidiaries
Reversal of provision for bonuses
Gain on sales of non-current assets
Gain on reversal of subscription rights to shares
Gain on reversal of estimated damages on delays
Reversal of allowance for doubtful accounts
Gain on bargain purchase
Gain on change in equity
Gain on sales of investment securities
Other
Total extraordinary income

Fiscal 2016 (From
December 1, 2015 toNovember 30, 2016)

Fiscal 2017 (From
December 1, 2016 toNovember 30, 2017)¥12,231,134*1 9,848,278
2,382,855*2, 3 3,002,419(619,563)¥12,198,921*1 7,604,901
4,594,019*2, 3 5,508,575(914,555)

39,834
14,432––
14,031
1,124
69,423

12,881
4,293
43,082
43,691–
28,428132,377

148,261
54,228–17,396
219,886(770,026)

71,540–49,19637,336
158,072(940,251)

182,271
14,936*4 933600
58,586
28,66536,745––
390
323,130

888,152–*4 553––
2,968–
25,6052,973,909
503
3,891,693

Extraordinary losses
Loss on retirement of property, plant and equipment
Loss on valuation of investment securities
Loss on sales of subsidiaries’ stocks
Impairment loss
Provision for loss on store closing
Loss on sales of non-current assets
Provision of allowance for doubtful accounts
Loss on liquidation of subsidiaries
Other
Total extraordinary losses
Profit (loss) before income taxes
Income taxes
Income taxes—deferred
Total income taxes
Profit (loss)
Profit (loss) attributable to non-controlling interests
Profit (loss) attributable to owners of parent

Fiscal 2016 (From
December 1, 2015 toNovember 30, 2016)

Fiscal 2017 (From
December 1, 2016 toNovember 30, 2017)*6 7,505867–*7 321,868
12,850*5 4,152
66,070–3,554
416,869(863,765)
35,136(304)
34,832(898,597)
169,837¥ (1,068,435)*6 6,912–
450*7 1,830,642–*5 81,790
–
4,145
2,708
1,926,649
1,024,792
157,377
8,856
166,233
858,559(44,033)¥   902,592

Fiscal 2016 (From
December 1, 2015 toNovember 30, 2016)

Fiscal 2017 (From
December 1, 2016 toNovember 30, 2017)¥  (898,597)¥  858,559

15,015
1,116(47,548)

125,199(1,188)39,020–*1 (31,415)¥  (930,013)

427*1 163,458¥1,022,017¥(1,020,165)
90,151¥1,065,710(43,692)

Please refer to page 47 for *1 to 6
Please refer to page 48 for *7[Consolidated Statements of Comprehensive Income]

Loss
Other comprehensive income (loss)
Valuation difference on available-for-sale securities
Deferred gains or losses on hedges
Foreign currency translation adjustments
Share of other comprehensive income of entities accounted
for using equity method
Total other comprehensive income (loss)
Total comprehensive income (loss)
Comprehensive income (loss) attributable to:
Owners of parent
Non-controlling interests
Please refer to page 49 for *1(Thousands of yen)41

INTEGRATED REPORT 2018
About NCXX Group

Financial Section

Sustainability

Strategy

Corporate Data

Consolidated Financial Statements[Consolidated Statements of Changes in Net Assets]
Fiscal 2016 (From December 1, 2015 to November 30, 2016)(Thousands of yen)
Shareholders’ equity

Balance at beginning of the fiscal year
Changes during the fiscal year
Issuance of new shares
Loss attributable to owners of parent
Purchase of treasury stock
Transfer of treasury shares
Net changes of items other than shareholders’ equity
Total changes during the fiscal year
Balance at end of the fiscal year

Capital stock

Capital surplus

Retainedearnings¥1,819,748¥1,708,701¥ 1,101,539

67,648(1,068,435)–¥1,819,748

67,648¥1,776,350(1,068,435)¥     33,104

Accumulated other comprehensive income

Total
shareholders’equityValuationdifference on
available-forsale securities

Deferred gains
or losseson hedges

Foreigncurrencytranslation
adjustments

Total accumulated
othercomprehensive
incomeSubscription
rights tosharesNon-controllinginterests

Total
net assets¥(150,840) ¥ 4,479,148¥   (320)¥    14¥104,081¥103,775¥30,185¥113,290¥ 4,726,400

56,04356,043¥169,334

67,648(1,068,435)(10,324)
53,26731,981(925,862)¥ 3,800,538

Treasurystock

67,648(1,068,435)(10,324)(10,324)
53,26753,267–42,942(957,843)¥(107,897) ¥ 3,521,304

15,01515,015¥14,695

1,116
1,116
¥1,131(47,548)(47,548)¥ 56,533(31,415)(31,415)¥ 72,359

7,353
7,353
¥37,539

Fiscal 2017 (From December 1, 2016 to November 30, 2017)(Thousands of yen)
Shareholders’ equity

Capital stock

Capital surplus

Retainedearnings

Balance at beginning of the fiscal year
¥ 1,819,748
Changes during the fiscal year
Issuance of new shares
Transfer to legal capital surplus or other capitalsurplus from capital stock due to capital reduction (1,809,748)
Profit attributable to owners of parent
Purchase of treasury stock
Change in ownership interest of parent due totransactions with non-controlling interests
Change of scope of consolidation
Net changes of items other than shareholders’ equity
Total changes during the fiscal year
(1,809,748)
Balance at end of the fiscal year¥     10,000¥1,776,350¥ 33,104

Treasury
stock

Total
shareholders’equityValuationdifference on
available-forsale securities

Deferred gains
or losseson hedges

Foreigncurrencytranslation
adjustments

Total accumulated
othercomprehensive
incomeSubscription
rights tosharesNon-controllinginterests

Total
net assets¥(107,897)¥3,521,304¥ 14,695¥ 1,131¥56,533¥ 72,359¥ 37,539¥169,334¥3,800,538

124,831
1,809,748
902,592(12,982)(183,930)(756,498)
994,150¥2,770,501

34,720902,592¥935,697

Accumulated other comprehensive income

21,738¥ (86,159)

124,831

124,831–
902,592(12,982)–
902,592(12,982)(183,930)(721,778)–
108,733¥3,630,038(183,930)(721,778)
616,776
725,509¥4,526,047

125,199
125,199¥139,894(1,188)(1,188)¥   (57)

39,44839,448¥95,981

163,458
163,458¥235,818(15,327)(15,327)¥ 22,211

468,644468,644¥637,979

42

INTEGRATED REPORT 2018
About NCXX Group

Sustainability

Strategy

Financial Section

Corporate Data

Consolidated Financial Statements[Consolidated Statements of Cash Flows](Thousands of yen)

Cash flows from operating activities
Profit (loss) profit before income taxes
Depreciation and amortization
Impairment loss
Amortization of goodwill
Gain on bargain purchases(Decrease) increase in allowance for doubtful accounts
Decrease in provision for bonuses(Decrease) increase in provision for product warranties
Decrease in provision for loss on store closing
Decrease in net defined benefit liability
Increase in other provision
Share-based compensation expenses
Interest and dividend income
Interest expenses
Foreign exchange losses (gains)Share of profit of entities accounted for using equity method
Loss on valuation of investment securities
Gain on sales of investment securities
Gain on sales of shares of subsidiaries
Loss on retirement of property, plant and equipment
Loss on sales of property, plant and equipment
Difference on execution of asset retirement obligations
Gain on reversal of estimated damages on delays
Gain on reversal of subscription rights to shares
Gain on change in equity
Decrease in notes and accounts receivable—trade
Decrease (increase) in inventories
Decrease (increase) in advance payments
Decrease (increase) in accounts receivable—other(Decrease) increase in notes and accounts payable—trade
Decrease in accounts payable—other
Decrease in accrued consumption taxes(Decrease) increase in accrued expenses
Increase in advances received
Other, net
SubtotalInterest and dividends income received
Interest paid
Income taxes paid
Net cash provided by (used in) operating activities

Fiscal 2016 (From
December 1, 2015 toNovember 30, 2016)

Fiscal 2017 (From
December 1, 2016 toNovember 30, 2017)¥  (863,765)
120,956
321,868
517,372(36,745)(249,973)(47,504)(1,000)(41,172)(5,263)–9,566(39,834)
148,261
29,416–867–(182,271)
7,505
2,996
8,084
(58,586)(600)–
1,470,894
385,528
59,584
93,405(547,726)(619,079)(86,487)(39,716)
52,26517,004425,851
87,058(110,995)(60,334)
341,581¥ 1,024,792
212,551
1,830,642
254,073–
134,212(56,052)
14,000(47,691)
(276)
143
2,088
(12,883)
71,540(2,970)(43,691)–(2,973,909)(887,702)
6,912
81,236(3,967)––(25,605)
86,678(214,177)(470,126)(209,323)
149,635(155,899)(3,659)142,874
11,658(171,237)(1,256,135)
6,496(80,004)(58,396)(1,388,039)(Thousands of yen)

Cash flows from investing activities
Purchase of property, plant and equipment
Proceeds from sales of property, plant and equipment
Purchase of intangible assets
Proceeds from sales of intangible assets
Payments for asset retirement obligations
Purchase of investment securities
Proceeds from sales of investment securities
Proceeds from sales of shares of subsidiaries
Payments for investments in capital
Proceeds from sales of investments in capital
Payments for sales of investments in subsidiaries
resulting in change in scope of consolidation
Proceeds from purchase of investments in subsidiaries
resulting in change in scope of consolidation
Proceeds from sales of investments in subsidiaries
resulting in change in scope of consolidation
Payments for sales of investments in subsidiaries
resulting in change in scope of consolidation
Increase in short-term loans receivableCollection of short-term loans receivable
Increase in long-term loans receivableCollection of long-term loans receivable
Payments for guarantee deposits
Proceeds from collection of guarantee deposits
Payments for distribution of dividends
Other, net
Net cash provided by investing activities
Cash flows from financing activities
Net decrease in short-term loans payable
Proceeds from long-term loans payable
Repayment of long-term loans payable
Redemption of bonds
Proceeds from issuance of bonds with subscription rights to shares
Payments for redemption of bonds with subscription
rights to shares
Repayments of lease obligations
Payments for installment payables—property and equipment
Proceeds from issuance of shares resulting from exercise ofsubscription rights to shares
Purchase of treasury stock
Cash dividends paid
Dividends paid to non-controlling interests
Proceeds from changes in ownership interests in subsidiaries
that do not result in change in scope of consolidation
Net cash used in financing activities
Effect of exchange rate change on cash and cash equivalents
Net (decrease) increase in cash and cash equivalents
Cash and cash equivalents at beginning of the fiscal year
Cash and cash equivalents at end of the fiscal year
Please refer to page 51 for *1 and 2
Please refer to page 52 for *3 to 5

Fiscal 2016 (From
December 1, 2015 toNovember 30, 2016)

Fiscal 2017 (From
December 1, 2016 toNovember 30, 2017)(112,885)
34,591(38,203)2(50,964)(59,950)–554,359(10)
52,238(133,698)
9,456(97,002)8,273(27,228)(2,797,907)
6,491,645–(9,547)–(5,748)*2 (490,371)

512,670*3 281,601–*4 577,075(4,518)(420,000)
37,929–14,960(10,068)
180,629–
1,833
686,866*5 (60,964)(20,000)
330,000(344,918)
611,709(136,080)
260,893(524,300)
417
3,929,054(434,714)
779,000(2,653,994)(100,000)
300,000(295,340)
342,804(2,059,670)–––(2,862)(7,266)(300,000)(1,104)–84,700(10,284)(33)(1,554)244,999(12,982)–––(2,047,010)(4,910)(1,023,474)
2,905,141¥*1 1,881,667

229,320(1,851,972)(41,113)647,928
1,881,667¥*1 2,529,595

43

INTEGRATED REPORT 2018
About NCXX Group

Strategy

Financial Section

Sustainability

Corporate Data

Notes
(Notes to the Consolidated Financial Statements)
1. Scope of consolidation(1) Number of consolidated subsidiaries: 14(2) Names of consolidated subsidiaries:
TITICACA, Co. Ltd., Gloria Tours Inc., NCXX Inc., Care Dynamics Limited, e-tabinet.com, Web travel Co.,
Ltd., e frontier, Inc., Versatile Inc., Versatile Milano S.R.L., MEC S.R.L. SOCIETA’ AGRICOLA, FISCO
International Limited, FISCO International (Cayman) Limited, FISCO International (Cayman) L.P., FACETASM
Among the abovementioned companies, Versatile Inc. and its subsidiaries were included in the scope of
consolidation from fiscal 2017, subsequent to the Company acquiring Versatile Inc. shares and converting
it into a subsidiary in fiscal 2017. FACETASM was included in the scope of consolidation from fiscal 2017,
subsequent to Versatile Inc. acquiring its shares and converting it into a subsidiary.
e frontier, Inc. was included in the scope of consolidation from fiscal 2017, subsequent to the Company
acquiring its shares and converting it into a subsidiary in fiscal 2017.
With regard to FISCO International Limited and its subsidiaries, FISCO International Limited wasincluded in the scope of consolidation from fiscal 2017, subsequent to the Company acquiring its sharesand converting it into a subsidiary in fiscal 2017.
CAICA Inc., a former consolidated subsidiary, and its subsidiaries were reclassified from consolidated
subsidiaries to affiliates accounted for by the equity method from fiscal 2017, subsequent to the Company
selling shares held in CAICA Inc.
NCXX Solutions Inc., a former consolidated subsidiary, was reclassified from a consolidated subsidiaryto an affiliate accounted for by the equity method from fiscal 2017, subsequent to the Company sellingshares held in NCXX Solutions Inc.
星際富通(福建)網絡科技有限公司, a former consolidated subsidiary, and its subsidiaries were removed
from the scope of consolidation from fiscal 2017, subsequent to liquidation proceedings.
(3) Number of non-consolidated subsidiaries: 2(4) Names of non-consolidated subsidiaries:
Webtravel Asia & Pacific Pty Limited
IOTA Inc.
(Reasons for exclusion from the scope of consolidation)
Because total assets, net sales, net income (loss) (proportional to equity interest), retained earnings(­proportional to equity interest) and other metrics do not have a material impact on the consolidated­financial statements.

2. Application of the equity method(1) Number of non-consolidated subsidiaries and affiliates accounted for by the equity method: 4(2) Names of non-consolidated subsidiaries and affiliates accounted for by the equity method:
CAICA Inc., NCXX Solutions Inc., SJ Asia Pacific Limited, Tokyo Tech Corporation
Among the abovementioned companies, Tokyo Tech Corporation became an affiliate accounted for by
the equity method from fiscal 2017, subsequent to CAICA Inc. acquiring Tokyo Tech Corporation andconverting it into a subsidiary.
CAICA Inc. and its subsidiaries were included in the scope of application of the equity method fromfiscal 2017, subsequent to the Company selling shares held in CAICA Inc.
NCXX Solutions Inc. was included in the scope of application of the equity method from fiscal 2017,
subsequent to the Company selling shares held in NCXX Solutions Inc.
(3) Name of non-consolidated subsidiary and affiliate not accounted for by the equity method:
Webtravel Asia & Pacific Pty Limited, TICA HK Co. Limited, IOTA Inc.
(Reasons for not applying the equity method)
Because total assets, net sales, net income (loss) (proportional to equity interest), retained earnings(­proportional to equity interest) and other metrics do not have a material impact on the consolidated­financial statements.

3. Fiscal year of consolidated subsidiaries
The companies with fiscal years that end on different dates than the end of the Company’s fiscal year are
as follows:
Name

TITICACA, Co. Ltd.
e frontier, Inc.
FACETASM

Fiscal year-end

October 31*1
October 31*1
October 31*1

*1 The financial statements as of the fiscal year-end of the consolidated subsidiary are used. The fiscal year-end differs from the endof the Company’s fiscal year. However, the accounts have not been adjusted as there were no significant discrepancies upon theelimination of receivables, obligations and transactions among the consolidated companies. If significant discrepancies arise due toa difference in the fiscal year-end from the end of the Company’s fiscal year, the accounts are adjusted upon consolidation.

44

INTEGRATED REPORT 2018
About NCXX Group

Strategy

Sustainability

Financial Section

Corporate Data

Notes

4. Accounting policies(3) Accounting for significant allowances(1) Valuation standards and accounting treatment for important assets
1. Investment securities
Subsidiaries’ stocks and affiliates’ stocks
Stated at cost determined by the moving average method.
Investment securities—other
With market quotations Stated at fair value based primarily on market prices as of the fiscal year-end (with all valuation­differences, net of taxes, reported in a separate component of net assets, with the cost of securities soldcalculated by the moving average method).
Without market quotations
Stated at cost determined by the moving average method.
2. Inventories
Valued at cost (book value is written down when profitability declines).
(i) Merchandise and finished goods
Retail method(ii) Work in process
Specific identification method(iii) Raw materials and supplies
Moving average method(iv) Cryptocurrency held for trading purposesStated at fair value (Cost of sales is calculated by the moving average method).

1. Provision for product warranties
A provision for product warranties is provided to cover product warranty costs that may be incurred after
products are sold. The provision for product warranties is determined on the basis of the estimated product warranty cost.
2. Provision for bonuses
A provision for bonuses is provided to cover the costs of bonuses paid to employees of domestic consolidated subsidiaries. The provision for bonuses is determined on the basis of the amount projected to be
paid in fiscal 2017.
3. Provision for loss on store closing
Domestic consolidated subsidiaries record the estimated penalties for breach of contract as a provision forloss on store closing to prepare for the cost of cancelling contracts for stores scheduled to close in thenext fiscal year.
4. Allowance for doubtful accounts
In order to prepare for losses due to uncollectible receivables, the Company has recorded the estimateduncollectible amounts as an allowance for doubtful accounts. For general receivables, an amount isrecorded based on the historical default rate. For specific receivables for which there are concerns aboutcollectability, an estimated amount deemed uncollectible is recorded based on consideration of the collectability of each individual account.
5. Provision for sales returns
Domestic consolidated subsidiaries record estimated sales returns as a provision for sales returns in orderto prepare for any returns of products after they are sold.

(2) Method for depreciating and amortizing important depreciable assets(4) Accounting method for retirement benefits

1. Property, plant and equipment
Property, plant and equipment are mainly depreciated using the declining-balance method. However, thestraight-line method of depreciation is used for buildings, excluding facilities attached to buildings, acquiredon or after April 1, 1998, and facilities attached to buildings and structures acquired on or after April 1, 2016.
The main estimated useful lives are as follows:   Buildings and structures:
5 to 39 years   Machinery, equipment and vehicles: 2 to 10 years   Tools, furniture and fixtures:
2 to 15 years
2. Intangible assets
In-house software is amortized by the straight-line method based on the estimated in-house useful life of 3
or 5 years.
In addition, software intended for commercial sale is amortized by the straight-line method based on theremaining estimated effective sales period of 3 years.
Trademarks are amortized by the straight-line method based on an amortization period of 10 years.

Liabilities related to retirement benefits are recorded to cover the costs of the retirement benefits of employees,
based on the projected retirement benefit obligations at the fiscal year-end. Retirement benefit obligations arecalculated using the simplified method.
In addition, a new, elective defined contribution pension plan was introduced in November 2003.
Employees who elected to join the new plan have been transferred out of the existing lump-sum retirement
benefit payment plan into the defined contribution pension plan.

(5) Method of calculating important revenues and expenses
Basis for calculating sales and cost of sales on contracted development
Completed contract basis

45

INTEGRATED REPORT 2018
About NCXX Group

Strategy

Sustainability

Financial Section

Corporate Data

Notes(6) Standards for translating important foreign currency denominated assets and liabilities
into Japanese yen
Foreign currency denominated receivables and obligations are translated into Japanese yen using the spot
exchange rate at the consolidated fiscal year-end, and translation gains and losses are charged to income.
The assets and liabilities, as well as the revenues and expenses, of foreign subsidiaries and other such­entities are translated into Japanese yen using the spot exchange rate at the fiscal year-end, and translation
gains and losses are recorded as foreign currency translation adjustments under net assets.

(7) Accounting methods for significant hedging
a. Hedge accounting methods
The Company has primarily adopted the deferred hedge accounting method. The allocation method isapplied to foreign currency forward contracts that meet the requirements for allocation. Special treatment
is applied to interest rate swaps that meet the requirements for special treatment.
b. Hedge instrument and hedge targets
Hedge instruments: Interest rate swaps, foreign currency forward contracts
Hedge targets:
Borrowings, scheduled transactions denominated in foreign currencies
c. Hedging policy
Hedging is limited to the scope of target obligations in order to mitigate interest rate fluctuation risk andforeign exchange fluctuation risk and improve the financial balance.
d. Method of evaluating hedging effectiveness
The Company compares cumulative market fluctuations in the hedge target and the hedge instrument
over the period from the start of hedging to the hedging effectiveness evaluation date, and arrives at anevaluation based on the amount of changes and other factors with respect to both the hedge target andhedge instrument.
The evaluation of hedging effectiveness is omitted for interest rate swaps and other instruments that
qualify for special treatment.

(8) Method and period of amortization of goodwill
The Company reasonably estimates the period over which investment benefits will materialize, and amortizes
goodwill over this period applying the straight-line method.

(9) Scope of cash and cash equivalents in the consolidated statements of cash flows
Cash and cash equivalents in the consolidated statements of cash flows consist of cash on hand, demand
deposits, and short-term investments that are readily convertible to known amounts of cash and subject toinsignificant risk of change in value and due within three months from the date of acquisition.

(10) Other notes to the consolidated financial statements
1. Accounting method for consumption taxes
National and local consumption taxes are accounted for by the net tax method.
2. Consolidated taxation
The Company has adopted consolidated taxation.

(Additional Information)(1) Adoption of Implementation Guidance on Recoverability of Deferred Tax Assets
Effective from fiscal 2017, the Company has adopted Implementation Guidance on Recoverability of Deferred
Tax Assets (ASBJ Guidance No. 26, March 28, 2016).

(2) Gains and losses related to cryptocurrency transactions
Gains and losses related to transactions of cryptocurrency held for trading purposes are presented in net
sales on a net basis.

(3) Matters concerning the status of cryptocurrency
1. Policy regarding cryptocurrency
Giving first priority to preserving the safety of principal, the Company invests in cryptocurrency, taking into
consideration liquidity, profitability and risk diversification.
2. Content and risks of cryptocurrency
Cryptocurrency is exposed to the risk of fluctuations in market prices.
3. Risk management system for cryptocurrency(i)	Market risk
Market risk is managed by monitoring market prices in a timely manner.
(ii)	Credit risk
Credit risk is managed by monitoring the balances of each borrower.

46

INTEGRATED REPORT 2018
About NCXX Group

Financial Section

Sustainability

Strategy

Corporate Data

Notes(4) Matters concerning the fair value of cryptocurrency(Consolidated Balance Sheets)

The carrying amounts in the consolidated balance sheets, fair values and their differences are as follows. The
table below does not include cryptocurrencies whose fair values cannot be reliably determined because they
do not have active markets.

*1 Collateral assets and collateralized liabilities
Assets pledged as collateral are as follows.
(Thousands of yen)(Thousands of yen)

Cryptocurrency

Carrying amount

Fair value

Difference

15,89915,899–Note: Measurement of fair value of cryptocurrency
Fair value is stated as the average of the closing prices on the settlement dates of multiple exchanges that the Company uses
frequently.

(Change in Presentation)(Consolidated Balance Sheets)
Trademarks, which were previously included in other under intangible assets in fiscal 2016, have been presented separately from fiscal 2017 due to their increased qualitative importance. The consolidated financial
statements in fiscal 2016 have been restated to reflect this change in presentation method.
As a result, the ¥22,916 thousand presented as other under intangible assets in the consolidated financial
statements in fiscal 2016 has been restated as trademarks of ¥436 thousand and other of ¥22,480 thousand.

Buildings
Land
Investment securities
Total

Fiscal 2016 (As of
November 30, 2016)

Fiscal 2017 (As of
November 30, 2017)¥ 54,076
297,214–¥351,291¥ 12,926
151,097506,781¥670,806

Note: In addition to the above, in fiscal 2016, assets pledged as collateral included shares of subsidiaries eliminated upon consolidation.

Collateralized liabilities are as follows.
(Thousands of yen)

Current portion of long-term loans payable
Long-term loans payable

Fiscal 2016 (As of
November 30, 2016)

Fiscal 2017 (As of
November 30, 2017)¥  160,204
1,022,738¥148,012
726,270*2 The Company is providing debt guarantees for the affiliates below for financial institution loans.
(Thousands of yen)

FISCO Ltd.
NCXX Solution Inc.

Fiscal 2016 (As of
November 30, 2016)

Fiscal 2017 (As of
November 30, 2017)¥26,200–¥  9,400
148,456*3 Stakes in and exposures to non-consolidated subsidiaries and affiliates are as follows.
(Thousands of yen)

Investment securities (stocks)

Fiscal 2016 (As of
November 30, 2016)

Fiscal 2017 (As of
November 30, 2017)¥15,739¥2,331,955

47

INTEGRATED REPORT 2018
About NCXX Group

Sustainability

Strategy

Financial Section

Corporate Data

Notes

*4 Certain consolidated subsidiaries have entered into overdraft facility agreements with their banks in orderto ensure the efficient procurement of working capital.
The balance of unused loans based on these agreements as of November 30, 2017 was as follows.

*3 Total research and development expenses included in selling, general and administrative expenses(Thousands of yen)(Thousands of yen)

Total amount of overdraft facilities and loan commitments
Outstanding loan balance
Difference

Fiscal 2016 (As of
November 30, 2016)

Fiscal 2017 (As of
November 30, 2017)¥300,000
140,000¥160,000¥200,000
91,660¥108,340

Fiscal 2017 (From
December 1, 2016 toNovember 30, 2017)¥25,587¥98,623

Fiscal 2016 (From
December 1, 2015 toNovember 30, 2016)

Fiscal 2017 (From
December 1, 2016 toNovember 30, 2017)

¥933

¥553

Fiscal 2016 (From
December 1, 2015 toNovember 30, 2016)

Fiscal 2017 (From
December 1, 2016 toNovember 30, 2017)¥4,152–¥     –
81,790Research and development expenses*4 The components of gain on sales of non-current assets are as follows.

(Thousands of yen)(Consolidated Statements of Income)*1 Book value write down of inventory held for sale under normal conditions due to decline in profitability

Fiscal 2016 (From
December 1, 2015 toNovember 30, 2016)

Tools, furniture and fixtures(Thousands of yen)

Cost of sales

Fiscal 2016 (From
December 1, 2015 toNovember 30, 2016)

Fiscal 2017 (From
December 1, 2016 toNovember 30, 2017)¥503,538¥206,989*2 Major breakdown and amount of selling, general and administrative expenses are as follows.
(Thousands of yen)

Salaries and allowances
Retirement benefit expenses
Office rent
Provision of allowance for doubtful accounts
Amortization of goodwill

Fiscal 2016 (From
December 1, 2015 toNovember 30, 2016)

Fiscal 2017 (From
December 1, 2016 toNovember 30, 2017)¥758,012
16,944240,006–
517,372¥1,425,532
9,619
660,586
8,442
254,073*5 The components of loss on sales of non-current assets are as follows.
(Thousands of yen)

Memberships, etc.
Buildings and structures, machinery

In fiscal 2017, losses arising from purchases and sales of non-current assets among consolidated­subsidiaries were recorded as loss on sales of non-current assets, without eliminating unrealized losses.
*6 The components of loss on retirement of property, plant and equipment are as follows.
(Thousands of yen)

Buildings and structures
Tools, furniture and fixtures
Software
Other

Fiscal 2016 (From
December 1, 2015 toNovember 30, 2016)

Fiscal 2017 (From
December 1, 2016 toNovember 30, 2017)¥5,4801,982–43¥    –
11
6,901
–

48

INTEGRATED REPORT 2018
About NCXX Group

Financial Section

Sustainability

Strategy

Corporate Data

Notes

*7 Impairment loss
Fiscal 2016 (From December 1, 2015 to November 30, 2016)
The Group recorded impairment losses on the following assets.
Use

Business assets

Type

Telephone subscription rights
Buildings and structures
Tools, furniture and fixtures
Store equipment
Software
Other

Fiscal 2017 (From December 1, 2016 to November 30, 2017)
The Group recorded impairment losses on the following assets.

Location

Meguro-ku, Tokyo
Koshigaya City, Saitama Prefecture
Hamamatsu City, Shizuoka Prefecture
Kisarazu City, Chiba Prefecture
and other

Impairment loss
(Thousands of yen)¥   1,249
251,478
50,008634
18,497(Background to recognizing impairment losses)
Regarding telephone subscription rights, the Company reduced the carrying amounts to the recoverable
amounts and recognized the amounts of the reductions as impairment losses in fiscal 2016, as their market
value has declined over a long period of time and is not expected to recover.
Regarding store equipment, the Group recognized as impairment losses under property, plant and equipment the portion of carrying value determined to be unrecoverable for stores that TITICACA has decided toclose or expects to continue to generate losses from operations, having revised its management policy inlight of factors including impact from the external environment. This applies to 22 stores.
(Asset grouping method)
The Group conducts asset grouping based on the minimum unit generating cash flows in a manner generally
independent of the cash flows of other assets and asset groups.
(Method of calculating the recoverable amount)
In principle, the Company uses the value in use to calculate the recoverable amount of business assets.
However, the Company uses the estimated value of disposal to calculate the recoverable amount of­telephone subscription rights.
In addition, the recoverable amount of the carrying value for store equipment has been reduced to zero
because future cash flows are highly unlikely.

Use

Type

Goodwill
Trademarks
Business assets
Other
Store equipment Buildings and structures

Location–

Minato-ku, Tokyo and otherShibuya-ku, Tokyo and other

Impairment loss
(Thousands of yen)

¥1,064,036
734,899
7,008
24,698(Background to recognizing impairment losses)
Regarding store equipment, the Group recognized as impairment losses under property, plant and equipment
the portion of carrying value determined to be unrecoverable for stores that the Group has decided to close
or expects to continue to generate losses from operations, having revised its management policy in light offactors including impact from the external environment. This applies to 21 stores.
(Asset grouping method)
The Group conducts asset grouping based on the minimum unit generating cash flows in a manner generally
independent of the cash flows of other assets and asset groups.
(Method of calculating the recoverable amount)
In principle, the Company uses the value in use to calculate the recoverable amount of business assets.
In addition, the recoverable amount of the carrying value for store equipment has been reduced to zero
because future cash flows are highly unlikely.

49

INTEGRATED REPORT 2018
About NCXX Group

Financial Section

Sustainability

Strategy

Corporate Data

Notes

(Consolidated Statements of Comprehensive Income)(Consolidated Statements of Changes in Net Assets)*1 Reclassification adjustments and tax effects for other comprehensive income(Thousands of yen)

Valuation difference on available-for-sale securities:
Amount incurred during the fiscal year
Reclassification adjustments
Before tax effect adjustment
Tax effect
Valuation difference on available-for-sale securities
Deferred gains or losses on hedges:
Amount incurred during the fiscal year
Reclassification adjustments
Before tax effect adjustment
Tax effect
Deferred gains or losses on hedges
Foreign currency translation adjustments:
Amount incurred during the fiscal year
Reclassification adjustments
Before tax effect adjustment
Tax effectForeign currency translation adjustments
Share of other comprehensive income of entities
accounted for using equity method:Amount incurred during the fiscal year
Reclassification adjustments
Before tax effect adjustment
Tax effect
Share of other comprehensive income of entities
accounted for using equity method
Total other comprehensive income

Fiscal 2016 (From
December 1, 2015 toNovember 30, 2016)

Fiscal 2017 (From
December 1, 2016 toNovember 30, 2017)¥   15,015–
15,015–15,015¥202,142(14,695)
187,447(62,247)
125,199

1,116
–
1,116
–
1,116

(1,188)–(1,188)–(1,188)215,164(262,712)(47,548)–(47,548)

61,843(22,822)39,020–39,020

–
–
–
–

427
–
427
–

–
¥ (31,415)

427¥163,458

Fiscal 2016 (From December 1, 2015 to November 30, 2016)
1 Type and number of shares issued and type and number of treasury stock(Number of shares)

Issued shares
Common shares
Total
Treasury stock
Common shares(Note)
Total

Balance atthe beginning of
the fiscal year

Increaseduring the
fiscal year

Decreaseduring the
fiscal year

Balance atthe end of
the fiscal year

15,030,195
15,030,195

–
–

–
–

15,030,195
15,030,195

72,516
72,51683,542
83,542––

156,058
156,058

Note:	The increase in treasury stock was mainly due to a share repurchase under the provisions of the Articles of Incorporation­pursuant to Article 165, Paragraph 2 of the Companies Act.

2 Subscription rights to shares

Category

Components of subscription
rights to shares

Filing company (parent company)
5th Series of Unsecured
Convertible Bonds with
Subscription Rights to Shares
6th Series of Unsecured
Convertible Bonds with
Subscription Rights toShares (Note 1)
Subscription rights to sharesas stock options (11th series)
Subscription rights to sharesas stock options(13th series) (Note 2)
Consolidated subsidiaries
5th Series of Subscription
Rights to Shares
Total

Number of shares underlying the subscription rights to shares
Balance atthe beginning of
the fiscal year

Increase during
the fiscal year

Decrease during
the fiscal year

Balance atthe end of
the fiscal year

Balance atthe end of
the fiscal year
(Thousandsof yen)Commonshares1,069,788––

1,069,788¥      –

Commonshares–466,562–

466,562

–

   –

–

–

–

–

19,775

   –

–

–

–

–

348

   –

–

–

–

–

17,416

   –

–

–

–

–

¥37,539

Type of shares
underlying
the subscription
rights to shares

Notes: 1.	The increase during fiscal 2016 was due to the issuance of bonds. The lump-sum method was adopted for reporting purposes.
2. The exercise period has not commenced for the 13th series of subscription rights to shares as stock options.

50

INTEGRATED REPORT 2018
About NCXX Group

Financial Section

Sustainability

Strategy

Corporate Data

Notes

3 Dividends(1) Dividends paid
Not applicable

2 Subscription rights to shares(2) Dividends with a record date that falls in the fiscal year under review, but an effective date that falls in thefollowing fiscal year
Not applicable

Fiscal 2017 (From December 1, 2016 to November 30, 2017)
1 Type and number of shares issued and type and number of treasury stock(Number of shares)

Issued shares
Common shares
Total
Treasury stock
Common shares(Note)
Total

Balance atthe beginning of
the fiscal year

Increaseduring the
fiscal year

Decreaseduring the
fiscal year

Balance atthe end of
the fiscal year

15,030,195
15,030,195

–
–

–
–

15,030,195
15,030,195

156,058
156,058

32,90032,90042,48542,485

146,473
146,473

Notes: 1.	The increase in treasury stock was mainly due to a share repurchase under the provisions of the Articles of Incorporation
pursuant to Article 165, Paragraph 2 of the Companies Act.
2.	The decrease in treasury stock was due to the decrease in the Company’s equity interest in CAICA Inc., which owns a
portion of the Company’s shares.

Category

Components of subscription
rights to shares

Filing company (parent company)
5th Series of Unsecured
Convertible Bonds with
Subscription Rights to Shares
6th Series of Unsecured
Convertible Bonds with
Subscription Rights toShares (Note 1)
Subscription rights to sharesas stock options (11th series)
Subscription rights to sharesas stock options(13th series) (Note 2)
Total

Number of shares underlying the subscription rights to shares
Decrease during
the fiscal year

Balance atthe end of
the fiscal year

Balance atthe end of
the fiscal year
(Thousandsof yen)––1,069,788¥     –

466,562–

466,562

–

–

   –

–

–

–

–

19,775

   –

–

–

–

–

2,436

   –

–

–

–

–

¥22,211

Type of shares
underlying
the subscription
rights to shares

Balance atthe beginning of
the fiscal year

Increase during
the fiscal year

Commonshares1,069,788

Commonshares

Notes: 1.	The increase during fiscal 2017 was due to the issuance of bonds. The lump-sum method was adopted for reporting purposes.
2. The exercise period has not commenced for the 13th series of subscription rights to shares as stock options.

3 Dividends(1) Dividends paid
Not applicable(2) Dividends with a record date that falls in the fiscal year under review, but an effective date that falls in thefollowing fiscal year
Not applicable

51

INTEGRATED REPORT 2018
About NCXX Group

Sustainability

Strategy

Financial Section

Corporate Data

Notes

(Consolidated Statements of Cash Flows)*1 Cash and deposits in the consolidated balance sheets and cash and cash equivalents in the consolidated
statements of cash flows at the end of the fiscal year
(Thousands of yen)

Cash and deposits
Cash and cash equivalents

Fiscal 2016 (From
December 1, 2015 toNovember 30, 2016)

Fiscal 2017 (From
December 1, 2016 toNovember 30, 2017)¥1,881,667
1,881,667¥2,529,595
2,529,595*2 The main breakdown of assets and liabilities of subsidiaries that were consolidated by acquiring newshares in fiscal 2017
The breakdown of assets and liabilities of Versatile Inc. at the point in time it was consolidated as a sub­sidiarythrough the acquisition of new shares, and the relationship between the acquisition price of Versatile Inc.
shares and the net amount paid to acquire Versatile Inc. are as follows.
(Thousands of yen)

Current assets
Non-current assets
Goodwill
Current liabilities
Non-current liabilities
Non-controlling interests
Acquisition price of Versatile Inc. shares
Cash and cash equivalents of Versatile Inc.
Net: Amount paid to acquire Versatile Inc.

¥   332,695
874,226
779,516(1,562,576)(20,260)(3,602)400,000(14,828)¥   385,171

The breakdown of assets and liabilities of FISCO International Limited at the point in time it was consolidated as a subsidiary through the acquisition of new shares, and the relationship between the acquisition
price of FISCO International Limited shares and the net amount paid to acquire FISCO International Limited
are as follows.
(Thousands of yen)

Current assets
Non-current assets
Goodwill
Current liabilities
Non-controlling interests
Acquisition price of FISCO International Limited shares
Cash and cash equivalents of FISCO International Limited
Net: Amount paid to acquire FISCO International Limited¥   21,741
736,777
20,445(37,007)(655,957)
86,000(8,135)¥   77,864

The breakdown of assets and liabilities of FACETASM at the point in time it was consolidated as a subsidiarythrough the acquisition of new shares, and the relationship between the acquisition price of FACETASM
shares and the net amount paid to acquire FACETASM are as follows.
(Thousands of yen)

Current assets
Non-current assets
Goodwill
Current liabilities
Non-current liabilities
Acquisition price of FACETASM shares
Cash and cash equivalents of FACETASM
Net: Amount paid to acquire FACETASM¥ 139,758
52,229214,616(206,076)(158,708)
41,820(14,484)¥   27,335

52

INTEGRATED REPORT 2018
About NCXX Group

Strategy

Financial Section

Sustainability

Corporate Data

Notes

The breakdown of assets and liabilities of e frontier, Inc. at the point in time it was consolidated as as­ ubsidiary through the acquisition of new shares, and the relationship between the acquisition price ofe ­frontier, Inc. shares and the net amount paid to acquire e frontier, Inc. are as follows.
(Thousands of yen)

Current assets
Non-current assets
Goodwill
Current liabilities
Non-current liabilities
Acquisition price of e frontier, Inc. shares
Cash and cash equivalents of e frontier, Inc.
Net: Amount received to acquire e frontier, Inc.

¥ 308,519
334
204,866(14,486)(479,229)
20,002(301,604)¥(281,601)*3 The main breakdown of assets and liabilities of subsidiaries that were no longer consolidated by selling
their shares in fiscal 2017
The breakdown of assets and liabilities of CAICA Inc. and its subsidiaries at the time of sale, and the relationship between the sales amount and the net proceeds from the sale of shares of CAICA Inc. and its
subsidiaries are as follows.
(Thousands of yen)

Current assets
Non-current assets
Current liabilities
Non-current liabilities
Treasury stock
Subscription rights to shares
Foreign currency translation adjustments
Non-controlling interests
Investment account after the sale of shares
Gain on sales of shares in affiliated companies
Proceeds from sales of shares
Cash and cash equivalents of CAICA Inc. and its subsidiaries
Net: Amount received on sales of investments in CAICA Inc. and its subsidiaries¥ 1,532,429
4,049,988(1,245,918)(49,589)
4,913(47,004)
64,693(225,778)(3,681,207)
866,573
1,269,099(692,024)¥   577,075

The breakdown of assets and liabilities of NCXX Solutions Inc. at the time of sale, and the relationshipbetween the sales amount and the net proceeds from the sale of shares of NCXX Solutions Inc. are as follows.
(Thousands of yen)

Current assets
Non-current assets
Current liabilities
Non-current liabilities
Investment account after the sale of shares
Proceeds from sales of shares
Cash and cash equivalents of NCXX Solutions Inc.
Net: Amount paid for sales of investments in NCXX Solutions Inc.

¥ 657,327
590,539(248,101)(439,669)(274,390)
285,704(346,669)¥ (60,964)(Lease Transactions)(As a lessee)
Lease transactions were omitted from record in these financial statements in conformity with Article 15-3 of
the Ordinance on Consolidated Financial Statements, due to the small amount per contract and immaterialityof the content.

(Financial Instruments)
1. Conditions of financial instruments(1) Policy regarding financial instruments
As a policy, the Group receives loans from banks and other FISCO Group companies primarily to procure
operating funds, in tandem with managing surplus funds in the form of short-term deposits, and investment
and loans to other FISCO Group companies. This is done in conformity with parent company FISCO Ltd.’sGroup financial policy of optimizing funding efficiency by adjusting the surplus and shortage of funds among
FISCO Group companies. Moreover, the policy of the Group is to use derivative transactions for hedging
against the risk of interest rates and exchange rates on loans payable fluctuating, and to refrain from using
them for speculative purposes.

53

INTEGRATED REPORT 2018
About NCXX Group

Strategy

Sustainability

Financial Section

Corporate Data

Notes(2) Content, risk, and risk management of financial instruments

2. Fair value of financial instruments

Notes and accounts receivable—trade and short-term/long-term accounts receivable—other are exposed tothe credit risk of customers (risk of default by customers or counterparties). To mitigate this risk, relevant
departments within each of the Group’s business divisions strive to promptly detect and reduce the risk of
trade receivables defaulting by keeping track of the due date and amount of notes and accounts receivable
by customer or counterparty.
The short-term and long-term loans receivable the Company makes are for managing funds in conformity
with the aforementioned FISCO Group financial policy.
The Company’s investment securities are primarily unlisted stocks, and are therefore exposed to the credit
risk of investees. To mitigate this risk, the Company periodically screens the assessed value and financial
position of the issuer of these financial instruments.
As a rule of thumb, trade payables, namely notes and accounts payable—trade, and accounts payable—
other have payment dates that are due in one month or less. Furthermore, the loans the Company receives
are primarily for the purpose of procuring operating funds.
Trade payables and loans payable are exposed to the liquidity risk involved in fund procurement (risk ofdefaulting on the payment date). To mitigate and manage this liquidity risk, the Company’s financial division
formulates a timely funding operation plan based on the reports it receives from the Group’s business divisions.
Certain variable interest rate loans the Company has received are exposed to the risk of interest rates
fluctuating. To mitigate this risk, the Company uses interest rate swaps to hedge against the risk of interest
payable on these loans fluctuating. For information regarding hedge accounting methods, hedge instruments
and hedge targets, hedging policy, and method of evaluating hedging effectiveness, please refer to “Notes to
the Consolidated Statements, 4. Accounting policies, (7) Accounting methods for significant hedging.”
Certain accounts payable are procurement liabilities denominated in foreign currency in conjunction with
manufacturing consigned to an overseas ODM manufacturer. For this reason, the Company uses foreign
currency forward contracts and other arrangements to mitigate the risk of foreign exchange fluctuations
associated with those foreign currency-denominated procurement liabilities.
Derivative transactions are managed in accordance with internal rules that set forth transaction procedures
and transaction authority. The Company’s management division monitors information on transaction balances,
exchange rate movements, and gains or losses on derivative transactions on a daily or a monthly basis.

The carrying amounts in the consolidated balance sheets, fair values, and their differences as of November
30, 2016 and 2017 are as follows. In addition, financial instruments, whose fair values cannot be reliably
determined, are not included. (Please see “Note 2. Carrying amount of financial instruments whose fair values
cannot be reliably determined.”)Fiscal 2016 (As of November 30, 2016)(Thousands of yen)

(1) Cash and deposits(2) Notes and accounts receivable—trade
Allowance for doubtful accounts*1(3) Accounts receivable—other
Allowance for doubtful accounts*2(4) Short-term loans receivable(5) Long-term loans receivable
Allowance for doubtful accounts*3(6) Long-term accounts receivable—other
Allowance for doubtful accounts*4
Total(1) Notes and accounts payable—trade(2) Short-term loans payable(3) Accounts payable—other(4) Convertible bonds with subscription
rights to shares (including current portion)(5) Long-term loans payable(including current portion)
Total
Derivative transactions

Carrying amount

Fair value

Difference¥ 1,881,667
1,736,837(111,674)
1,625,162
46,995(9,927)37,067325,000
1,780,384(289,484)
1,490,900
1,551,743(1,551,743)–¥ 5,359,797¥   586,979
249,334
338,608¥1,881,667––
1,625,162––
37,067325,000––
1,490,900–––¥5,359,797¥  586,979
249,334
338,608¥      –
–
–
–
–
–
–
–
–
–
–
–
–
–
¥      –
¥      –––

1,465,000

1,455,619(9,380)4,564,526¥ 7,204,448¥          –4,592,474¥7,223,016¥         –27,948¥18,568¥      –

54

INTEGRATED REPORT 2018
About NCXX Group

Strategy

Sustainability

Financial Section

Corporate Data

Notes

*1	Excludes the allowance for doubtful accounts recorded for notes and accounts receivable—trade.
*2	Excludes the allowance for doubtful accounts recorded for accounts receivable—other.
*3	Excludes the allowance for doubtful accounts recorded for long-term loans receivable.
*4	Excludes the allowance for doubtful accounts recorded for long-term accounts receivable—other.
Notes: 1. Measurement of fair value of financial instruments, as well as investment securities and derivative transactions
Assets(1) Cash and deposits, (3) Accounts receivable—other and (4) Short-term loans receivable
Fair value is stated as the carrying amount because the fair value approximates the carrying amount given the short settlement periodof these instruments.
(2) Notes and accounts receivable—trade and (6) Long-term accounts receivable—other
Fair value is measured as the present value of the amount of receivables grouped together for a certain period, discounted using aninterest rate adjusted for the period until maturity and the credit risk of the receivables.
(5) Long-term loans receivable
The fair value of long-term loans receivable is measured as the present value of loans receivable classified into certain periods for eachcredit risk group used for credit management purposes, using the future cash flows as an appropriate indicator, discounted by aninterest rate to which the credit spread has been added. The current portion of long-term loans receivable expected to be collected
within one year and included in short-term loans receivable on the consolidated balance sheets is included and shown in this item.
Liabilities(1) Notes and accounts payable—trade, (2) Short-term loans payable and (3) Accounts payable—other
Fair value is stated as the carrying amount because the fair value approximates the carrying amount given the short settlement periodof these instruments.
(4) Convertible bonds with subscription rights to shares (including current portion)
Fair value is measured as the present value of the total amount of bond principal and interest, discounted using an interest rateadjusted for the remaining maturity and the credit risk of the bonds.
(5) Long-term loans payable (including current portion)
Fair value is measured as the present value of the total amount of loan principal and interest, discounted using an interest rate thatwould apply to a similar new loan. However, certain long-term loans payable with variable interest rates are subject to special treatment
for interest rate swaps. (Please see “Derivative transactions” below.) The fair value of these loans is measured by discounting the total
amount of the loan principal and interest, which are accounted for together with the respective interest rate swaps, using a reasonably
estimated interest rate that would apply to a similar new loan.
Derivative transactions
Interest rate swaps subject to special treatment are accounted for together with the long-term loans payable that are the hedge
targets. Therefore, the fair value of the interest rate swaps is included in the fair value of the respective long-term loans payable.

Fiscal 2017 (As of November 30, 2017)(Thousands of yen)

(1) Cash and deposits(2) Notes and accounts receivable—trade(3) Accounts receivable—other
Allowance for doubtful accounts*1(4) Short-term loans receivable(5) Long-term loans receivable
Allowance for doubtful accounts*2(6) Long-term accounts receivable—other
Allowance for doubtful accounts*3(7) Investment securities*4
Total(1) Notes and accounts payable—trade(2) Short-term loans payable(3) Accounts payable—other(4) Convertible bonds with subscription
rights to shares (including current portion)(5) Long-term loans payable(including current portion)
Total
Derivative transactions

Carrying amount

Fair value

Difference¥2,529,595
599,269
114,228(53,097)
61,131
15,000396,140(56,140)
339,999
163,181(163,181)–
3,225,630¥6,770,626¥  600,601
191,660
259,459¥2,529,595
599,269––
61,131
15,000––339,999–––
5,146,815¥8,691,811¥  600,601
191,660
259,459¥        –
–
–
–
–
–
–
–
–
–
–
–
1,921,184¥1,921,184¥        ––
–1,165,000

1,165,000–

2,474,068¥4,690,789¥        –2,479,824¥4,695,113¥        –5,756¥    4,323¥        –*1 Excludes the allowance for doubtful accounts recorded for accounts receivable—other.
*2 Excludes the allowance for doubtful accounts recorded for long-term loans receivable.
*3 Excludes the allowance for doubtful accounts recorded for long-term accounts receivable—other.
*4 Investment securities include listed equity-method affiliates, and the difference is based on a fair market valuation of the shares.

55

INTEGRATED REPORT 2018
About NCXX Group

Sustainability

Strategy

Financial Section

Corporate Data

Notes

Note: 1. Measurement of fair value of financial instruments, as well as investment securities and derivative transactions
Assets(1) Cash and deposits, (2) Notes and accounts receivable—trade, (3) Accounts receivable—other and (4) Short-term loans receivable
Fair value is stated as the carrying amount because the fair value approximates the carrying amount given the short settlement periodof these instruments.
(5) Long-term loans receivable
The fair value of long-term loans receivable is measured as the present value of loans receivable classified into certain periods for eachcredit risk group used for credit management purposes, using the future cash flows as an appropriate indicator, discounted by aninterest rate to which the credit spread has been added. The current portion of long-term loans receivable expected to be collected
within one year and included in short-term loans receivable on the consolidated balance sheets is included and shown in this item.
(6) Long-term accounts receivable—other
Fair value is measured as the present value of the amount of receivables grouped together for a certain period, discounted using aninterest rate adjusted for the period until maturity and the credit risk of the receivables.
(7) Investment securities
Fair value for investment securities is measured using stock exchange prices.
Liabilities(1) Notes and accounts payable—trade, (2) Short-term loans payable, (3) Accounts payable—other and (4) Convertible bonds with
subscription rights to shares
Fair value is stated as the carrying amount because the fair value approximates the carrying amount given the short settlement periodof these instruments.
(5) Long-term loans receivable
Fair value is measured as the present value of the total amount of loan principal and interest, discounted using an interest rate thatwould apply to a similar new loan. However, certain long-term loans payable with variable interest rates are subject to special treatment
for interest rate swaps. (Please see “Derivative transactions” below.) The fair value of these loans is measured by discounting the total
amount of the loan principal and interest, which are accounted for together with the respective interest rate swaps, using a reasonably
estimated interest rate that would apply to a similar new loan.
Derivative transactions
Interest rate swaps subject to special treatment are accounted for together with the long-term loans payable that are the hedge
targets. Therefore, the fair value of the interest rate swaps is included in the fair value of the respective long-term loans payable.
Note: 2. Carrying amount of financial instruments whose fair values cannot be reliably determined(Thousands of yen)

Unlisted stocks (investment securities)

Fiscal 2016 (As of
November 30, 2016)

Fiscal 2017 (As of
November 30, 2017)¥153,872¥305,962

Fair value is not disclosed because the fair value of these stocks cannot be reliably determined given that they do not have market
prices and their future cash flows cannot be estimated.

Note: 3. Maturity analysis for financial assets and investment securities with contractual maturities after the fiscal year-end
Fiscal 2016 (As of November 30, 2016)(Thousands of yen)(1) Cash and deposits(2) Notes and accounts
receivable—trade*1(3) Accounts receivable—other*1(4) Short-term loans payable(5) Long-term loans receivable*1(6) Long-term accounts
receivable—other*1
Total

Due in one
year or lessDue after one year
through five years

Due after five years
through ten years

Due after
ten years¥1,881,667¥         –¥–

¥–1,625,162
37,067325,000––––
1,490,900

–
–
–
–

–
–
–
–

–
¥3,868,896–¥1,490,900

–
¥–

–
¥–

*1 The above table does not include accounts receivable with indefinite redemption schedules of ¥111,674 thousand (allowance for
doubtful accounts of ¥111,674 thousand), accounts receivable—other of ¥9,927 thousand (allowance for doubtful accounts of¥9,927 thousand), long-term loans receivable of ¥289,484 thousand (allowance for doubtful accounts of ¥289,484 thousand) andlong-term accounts receivable—other of ¥1,551,743 thousand (allowance for doubtful accounts of ¥1,551,743 thousand).
Fiscal 2017 (As of November 30, 2017)(Thousands of yen)(1) Cash and deposits(2) Notes and accounts
receivable—trade(3) Accounts receivable—other*1(4) Short-term loans payable(5) Long-term loans receivable*1(6) Long-term accounts
receivable—other*1
Total

Due in one
year or lessDue after one year
through five years

Due after five years
through ten years

Due after
ten years¥2,529,595¥      –¥–¥–

599,269
61,131
15,000––––339,999

–
–
–
–

–
–
–
–

–
¥3,204,996–¥339,999

–
¥–

–
¥–

*1 The above table does not include accounts receivable with indefinite redemption schedules of ¥53,097 thousand (allowance for
doubtful accounts of ¥53,097 thousand), long-term loans receivable of ¥56,140 thousand (allowance for doubtful accounts of¥56,140 thousand) and long-term accounts receivable—other of ¥163,181 thousand (allowance for doubtful accounts of ¥163,181
thousand).

56

INTEGRATED REPORT 2018
About NCXX Group

Financial Section

Sustainability

Strategy

Corporate Data

Notes

Fiscal 2017 (As of November 30, 2017)

Note: 4. Scheduled repayments of loans, bonds, and other interest-bearing debt after the fiscal year-end
Fiscal 2016 (As of November 30, 2016)(Thousands of yen)(Thousands of yen)

Convertible bonds
with subscription
rights to shares
Long-term loans
payableShort-term loans
payableAccounts payable—installment
purchaseTotal

Due in one
year or lessDue after one
year throughtwo years

Due after two
years throughthree years

Due after three
years throughfour years

Due after four
years throughfive years

Due after
five years¥  300,000¥1,165,000¥       –

¥       –

¥       –

¥       –1,844,650

985,874

633,871855,634

133,606

110,888249,334

–

–

–

–

–

14,802¥2,408,786

9,773¥2,160,647

8,931¥642,802

9,158¥864,792

9,191¥142,797

12,075¥122,963

Due in one
year or lessDue after one
year throughtwo years

Due after two
years throughthree years

Due after three
years throughfour years

Due after four
years throughfive years

Due after
five years¥1,165,000

¥–

¥–

¥–

¥–

¥–

836,382

618,057

856,628

144,81218,186–

141,660¥2,143,043–¥618,057–¥856,628–¥144,812–¥18,186–¥–

Fiscal 2017 (As of November 30, 2017)(Thousands of yen)

Convertible bonds
with subscription
rights to shares
Long-term loans
payableShort-term loans
payableTotal(Investment Securities)
1. Investment securities—otherFiscal 2016 (As of November 30, 2016)
Unlisted investment securities (carrying amount ¥153,872 thousand) are not disclosed because the fair valueof these securities cannot be reliably determined given that they do not have market prices.

Type

Securities whose carrying amounts
exceed the acquisition cost
Securities whose carrying amounts
do not exceed the acquisition cost

Carrying amount

Acquisition cost

Difference

Share¥1,199,637¥  997,927¥201,710

Share
Total

2,025,992¥3,225,630

2,089,879¥3,087,806(63,886)¥137,823

Unlisted investment securities (carrying amount ¥305,962 thousand) are not disclosed because the fair valueof these securities cannot be reliably determined given that they do not have market prices.

2. Loss on valuation of investment securities
Fiscal 2016 (As of November 30, 2016)
The Company recorded a ¥867 thousand loss on valuation of investment securities (¥867 thousand on
investment securities—other).
Loss on valuation is recorded in full if the fair value at fiscal year-end falls more than 50% in relation to theacquisition price of investment securities. If the fall in fair value is around 30 to 50%, a loss on valuation
deemed appropriate is recorded in view of factors such as the likelihood of prices recovering.
Fiscal 2017 (As of November 30, 2017)
The Company did not record a loss on valuation of investment securities.
Loss on valuation is recorded in full if the fair value at fiscal year-end falls more than 50% in relation to theacquisition price of investment securities. If the fall in fair value is around 30 to 50%, a loss on valuation
deemed appropriate is recorded in view of factors such as the likelihood of prices recovering.

57

INTEGRATED REPORT 2018
About NCXX Group

Financial Section

Sustainability

Strategy

Corporate Data

Notes

(Derivative Transactions)
1. Derivative transactions to which hedge accounting is not applied(2) Interest rate
Fiscal 2016 (As of November 30, 2016)

Currency related
Fiscal 2016 (As of November 30, 2016)(Thousands of yen)(Thousands of yen)
Category

Off-market
transaction

Type of transaction

Foreign currency
forward contract
Purchased US dollars

Contract amountAmount of contract
exceeding one year

¥300,604¥–

Valuation
gain or loss

Fair value(Note)¥(29,424)(Note)¥(29,424)

Note:	Calculation of fair value
Calculated based on quoted prices obtained from financial institution counterparties.

Fiscal 2017 (As of November 30, 2017)
Not applicable(1) Currency related
Fiscal 2016 (As of November 30, 2016)(Thousands of yen)

Allocation method (furiate
shori) for foreign currency
forward contracts, etc.

Type of transaction

Main hedge
targetForeign currency
Accounts
forward contracts payable

Contract
amountAmount of contract
exceeding one year

¥31,954¥–

Fair value(Note)¥31,811

Note:	Calculation of fair value
Calculated based on quoted prices obtained from financial institution counterparties.

Fiscal 2017 (As of November 30, 2017)(Thousands of yen)
Hedge accounting method

Allocation method (furiate
shori) for foreign currency
forward contracts, etc.

Type of transaction

Main hedge
targetForeign currency
Accounts
forward contracts payable

Contract
amountAmount of contract
exceeding one year

¥3,808¥–

Note:	Calculation of fair value
Calculated based on quoted prices obtained from financial institution counterparties.

Type of transaction

Principled
methodInterest rate swap
transaction
Variable interest—
received
Fixed interest—paid
Special treatment Interest rate swapof interest ratetransaction
swaps
Variable interest—
received
Fixed interest—paid

Main hedge target

Contract amountAmount of contract
exceeding one year

Fair value

Long-term loans
payable¥  100,000¥

–2,483,000

1,368,456(Note)¥(497)

Long-term loans
payable(Note)

Note:	Calculation of fair value(1) Interest rate swaps to which the special treatment is applied are accounted for together with the long-term loans payable targeted
for hedging. Therefore, their fair value is included in the fair value of long-term loans payable.
(2) The method of calculating fair value is based on the forward exchange rate.

2. Derivative transactions to which hedge accounting is applied

Hedge accounting method

Hedge accounting
methodFiscal 2017 (As of November 30, 2017)(Thousands of yen)
Hedge accounting
methodType of transaction

Special treatment Interest rate swapof interest ratetransaction
swaps
Variable interest—
received
Fixed interest—paid

Main hedge target

Contract amountAmount of contract
exceeding one year

¥1,255,000¥920,000Fair value

Long-term loans
payable(Note)

Note:	Calculation of fair value(1) Interest rate swaps to which the special treatment is applied are accounted for together with the long-term loans payable targeted
for hedging. Therefore, their fair value is included in the fair value of long-term loans payable.
(2) The method of calculating fair value is based on the forward exchange rate.

Fair value(Note)¥3,728(Retirement Benefits)
1. Overview of retirement benefit plan
The Company has adopted an elective system in which employees can choose between a defined contribution pension plan and a prepaid retirement benefit plan as part of its defined contribution plan.
In addition, certain consolidated subsidiaries have adopted a lump-sum payment plan and an employee
pension fund plan as part of their defined retirement benefit plans, and an elective system in which employees
can choose between a defined contribution pension plan and a prepaid retirement benefit plan as part of theirdefined contribution plans.

58

INTEGRATED REPORT 2018
About NCXX Group

Sustainability

Strategy

Financial Section

Corporate Data

Notes

Certain consolidated subsidiaries apply the simplified method for calculating the liability and expenses on
their lump-sum retirement benefit plans.

2. Simplified-method defined benefit plan(1) Reconciliation of balance of simplified-method liability for retirement benefit at the
beginning and at the end of the fiscal year
(Thousands of yen)

Balance of liability for retirement benefit
at the beginning of the fiscal year
Increase from new consolidation
Retirement benefit expenses
Retirement benefits paid
Balance of liability for retirement benefit
at the end of the fiscal year

Fiscal 2016 (From
December 1, 2015 toNovember 30, 2016)

Fiscal 2017 (From
December 1, 2016 toNovember 30, 2017)¥ 3,511
23,097
3,115–¥29,724260
6,047(6,323)¥29,724¥29,708

3. Defined contribution pension plan
The required contributions to the defined contribution pension plans of the Company and its consolidated
subsidiaries were ¥71,697 thousand in fiscal 2016 and ¥4,260 thousand in fiscal 2017.

4. Prepaid retirement benefit plan
Payments made to the prepaid retirement benefit plans of the Company and its consolidated subsidiaries
were ¥38,970 thousand in fiscal 2016 and ¥499 thousand in fiscal 2017.

(Stock Options)
1. Stock option expense item and amount(Thousands of yen)

Stock compensation expense under selling,
general and administrative expenses

Fiscal 2016 (From
December 1, 2015 toNovember 30, 2016)

Fiscal 2017 (From
December 1, 2016 toNovember 30, 2017)¥9,566¥2,088

2. Stock option details, scale and change(2) Reconciliation of balance of retirement benefit obligations and liability for retirement
benefit on the consolidated balance sheets at the end of the fiscal year
(Thousands of yen)

Retirement benefit obligations for non-funded plans
Net liability on the consolidated balance sheets

Fiscal 2016 (As of
November 30, 2016)

Fiscal 2017 (As of
November 30, 2017)¥29,724
29,724¥29,708
29,708

Fiscal 2016 (From
December 1, 2015 toNovember 30, 2016)

Fiscal 2017 (From
December 1, 2016 toNovember 30, 2017)¥3,115¥6,047(3) Retirement benefit expenses(Thousands of yen)

Retirement benefit expenses based on the simplified method(1) Stock option details
11th Series of Subscription Rights
to Shares

Status and number of
option holders

13th Series of Subscription Rights
to Shares

NCXX Group Inc. directors: 5
NCXX Group Inc. directors: 3
NCXX Group Inc. employees: 3
NCXX Group Inc. subsidiary directors: 8
NCXX Group Inc. subsidiary director: 1 NCXX Group Inc. subsidiary employees: 3
Common shares: 100,000 shares
Type of share and number Common shares: 100,000 sharesof stock options(Note)
Grant date
October 30, 2014
October 5, 2016
Vesting condition
An option holder must remain in
Not applicablecontinued service from the grant date
(October 30, 2014) to the vesting date
(October 30, 2016)
Required service period
October 30, 2014 to October 30, 2016 Not applicable
Exercise period
October 31, 2016 to October 30, 2020 October 6, 2018 to October 5, 2021
Note: Recorded based on the number of eligible shares

59

INTEGRATED REPORT 2018
About NCXX Group

Sustainability

Strategy

Financial Section

Corporate Data

Notes(2) Stock option scale and change

3. Method for estimating the number of vested stock options

Existing stock options as of fiscal 2017 (ended November 2017) are recorded herein on the basis of thenumber of eligible shares.
1. Number of stock options

A method reflecting the actual number of forfeited stock options was adopted due to the fundamental­difficulty of reasonably estimating the actual number of stock options that will be forfeited in the future.

(Shares)
11th Series ofSubscription Rights
to Shares

Before vesting
As of November 30, 2016
GrantedForfeited
VestedOutstanding
After vesting
As of November 30, 2016
VestedExercised
Forfeited
Exercisable

13th Series ofSubscription Rights
to Shares

–
–
–
–
–

100,000–––
100,000

96,000–––96,000–––––2. Unit price information(Yen)

Exercise price
Average stock price at exercise
Fair value on the grant date

11th Series ofSubscription
Rights to Shares

13th Series ofSubscription
Rights to Shares

¥738
–
206

¥458
–
42

(Tax-Effect Accounting)
1. Main factors giving rise to deferred tax assets and liabilities(Thousands of yen)

Deferred tax assets
Accrued enterprise taxes
Provision for product warranties
Provision for bonuses
Allowance for doubtful accounts
Liability for retirement benefit
Excess depreciation and amortization
Loss on valuation of telephone subscription rights
Loss on valuation of inventories
Loss on valuation of subsidiaries’ stocks
Loss on valuation of investment securities
Loss on valuation of investments in capital of subsidiaries
and affiliates
Carryforwards of unused tax losses
Impairment loss
OthersDeferred tax assets subtotal
Valuation allowance
Deferred tax assets total
Deferred tax liabilities
Goodwill adjustment
Valuation difference on available-for-sale securities
Fund balance difference
OthersDeferred tax liabilities total
Net deferred tax liabilities

Fiscal 2016 (As of
November 30, 2016)

Fiscal 2017 (As of
November 30, 2017)¥      5,350
28,391
70,992
1,275,037
9,173
5,935
1,553
620,483
111,0653,209¥     3,637
32,711
20,922457,011
9,168
247,644862
62,383
489,409–

3,033,926
1,682,976
347,616425,308
7,621,019(7,615,249)
5,770–
1,966,716
226,633
99,8133,616,915(3,616,456)
458(29,649)–(673,914)–(703,564)¥  (697,793)–(62,247)(662,408)(44,592)(769,248)¥  (768,789)

60

INTEGRATED REPORT 2018
About NCXX Group

Financial Section

Sustainability

Strategy

Corporate Data

Notes

2. Main items giving rise to material differences between the statutory income
tax rate and effective income tax rate(%)
Fiscal 2016 (As of
November 30, 2016)

Statutory income tax rate
(Adjustments)
Entertainment and other non-deductible expenses
Inhabitants taxes—per capita levy
Share of profit of entities accounted for using equity method
Amortization of goodwill
Change in valuation allowance
Carryforwards of unused tax losses and other deductions
Income taxes recognized for difference on capital surplus
Others
Effective income tax rate

Fiscal 2017 (As of
November 30, 2017)–%30.86%

–
–
–
–
–
–
–
–
–%

0.42
1.38
(1.32)
7.65
15.85(49.06)
11.98(1.54)
16.22%(Business Combination)
I Business Combination through Acquisition (Versatile Inc.)
1. Overview of business combination(1) Name and business of acquired company
Name of the acquired company:
Versatile Inc.
Business:	Consulting business, import and sales of alcoholic beverages, sales offashion accessories, and restaurant business(2) Main reason for the business combination
To develop the brand retail platform business, which is a focus for the Group going forward.

December 29, 2016

Share acquisition(5) Name of company after business combination
No change(6) Ratio of voting rights acquired

Note:	Disclosure on the difference in the statutory income tax rate and the effective income tax rate in fiscal 2016 is omitted as loss
before income taxes was recorded.

(3) Business combination date(4) Statutory basis of business combination(%)

Voting rights owned before the business combination
Voting rights acquired on the business combination dateVoting rights after the acquisition

–
93.68
93.68

(7) Main rationale for deciding on the acquisition target
The Company had acquired 93.68% of the voting rights of Versatile Inc. by offsetting the purchase of
Versatile Inc. shares with a loan claim against FISCO Ltd.

2. Period of business results of the acquisition target includedin the consolidated financial statements
January 1, 2017 to November 30, 2017

3. Acquisition cost of acquisition target and breakdown by consideration type
(Thousands of yen)

Consideration for acquisition
Acquisition cost

Cash and other payments

4. Main acquisition-related expenses and amounts
Advisory and other fees:   ¥500 thousand¥400,000¥400,000

61

INTEGRATED REPORT 2018
About NCXX Group

Strategy

Financial Section

Sustainability

Corporate Data

Notes

5. Amount of goodwill, reason for goodwill, amortization method andamortization period(1) Amount of goodwill¥350,030 thousand(2) Reason for goodwill(Estimation method)
The estimated impact is calculated by subtracting information on sales and profits in the consolidated statements of income of the Company from the information on sales and profits calculated on the assumption thatthe business combination was completed on December 1, 2016.
Notes on this business combination have not received accounting audit certification.

Goodwill consists mainly of the premium expected from streamlining back-office operations in regions where
NCXX Group Inc. conducts the brand retail business.

II Business Combination through Acquisition (FISCO International Limited)
1. Overview of business combination(3) Amortization method and amortization period

Name of the acquired company:
FISCO International Limited
Business:	Information services business, investment education business, andconsulting business

Straight-line method over 10 years

6. Amount of assets and liabilities transferred on the business combination
date and the main components(Thousands of yen)

Current assets
Non-current assets
Total assets
Current liabilities
Non-current liabilities
Total liabilities¥  332,695
1,653,743¥1,986,438¥1,562,576
20,260¥1,582,836(1) Name and business of acquired company(2) Main reason for the business combination
To develop the brand retail platform business, which is a focus for the Group going forward.

(3) Business combination date
December 29, 2016(4) Statutory basis of business combination
Share acquisition(5) Name of company after business combination

7. Estimated impact on NCXX Group Inc.’s consolidated statements of income
for fiscal 2017, and the estimation method, assuming the businesscombination was completed on December 1, 2016
(Thousands of yen)

Net sales
Operating loss
Ordinary loss
Loss before income taxes
Loss attributable to ownersof parent¥      –
(60,831)(63,167)(63,167)(63,433)

No change(6) Ratio of voting rights acquired(%)

Voting rights owned before the business combination
Voting rights acquired on the business combination dateVoting rights after the acquisition–
100.00100.0062

INTEGRATED REPORT 2018
About NCXX Group

Strategy

Sustainability

Financial Section

Corporate Data

Notes

6. Amount of assets and liabilities transferred on the business combination
date and the main components(7) Main rationale for deciding on the acquisition target
The Company acquired the shares for cash consideration.

(Thousands of yen)

2. Period of business results of the acquisition target includedin the consolidated financial statements
January 1, 2017 to November 30, 2017

3. Acquisition cost of acquisition target and breakdown by consideration type
(Thousands of yen)

Consideration for acquisition
Acquisition cost

Cash and other payments¥86,000¥86,000

4. Main acquisition-related expenses and amounts
Advisory and other fees:¥500 thousand

5. Amount of goodwill, reason for goodwill, amortization method andamortization period(1) Amount of goodwill¥20,445 thousand(2) Reason for goodwill
Goodwill consists mainly of the premium expected from streamlining back-office operations in regions where
NCXX Group Inc. conducts the brand retail business.

(3) Amortization method and amortization period
Immediate amortization

Current assets
Non-current assets
Total assets
Current liabilities
Non-current liabilities
Total liabilities¥ 21,741
757,223¥778,964¥ 37,007–¥ 37,007

7. Estimated impact on NCXX Group Inc.’s consolidated statements of income
for fiscal 2017, and the estimation method, assuming the businesscombination was completed on December 1, 2016
(Thousands of yen)

Net sales
Operating loss
Ordinary loss
Loss before income taxes
Loss attributable to ownersof parent¥   223,950(621,550)(1,448,748)(1,448,748)(1,450,209)(Estimation method)
The estimated impact is calculated by subtracting information on sales and profits in the consolidated statements of income of the Company from the information on sales and profits calculated on the assumption thatthe business combination was completed on December 1, 2016.
Notes on this business combination have not received accounting audit certification.

III Business Combination through Acquisition (FACETASM)
1. Overview of business combination(1) Name and business of acquired company
Name of the acquired company:
FACETASM
Business:	Retail business primarily offering casual wear

63

INTEGRATED REPORT 2018
About NCXX Group

Financial Section

Sustainability

Strategy

Corporate Data

Notes(2) Main reason for the business combination

4. Main acquisition-related expenses and amounts

To develop the brand retail platform business, which is a focus for the Group going forward.

Advisory and other fees:(3) Business combination date

5. Amount of goodwill, reason for goodwill, amortization method andamortization period

May 24, 2017

¥9,062 thousand(1) Amount of goodwill(4) Statutory basis of business combination¥214,616 thousand

Share acquisition(2) Reason for goodwill(5) Name of company after business combination

Goodwill consists mainly of the premium expected from streamlining back-office operations in regions where
NCXX Group Inc. conducts the brand retail business.

No change(6) Ratio of voting rights acquired(3) Amortization method and amortization period
Straight-line method over 10 years(%)

Voting rights owned before the business combination
Voting rights acquired on the business combination dateVoting rights after the acquisition

–
51.00
51.00

6. Amount of assets and liabilities transferred on the business combination
date and the main components(Thousands of yen)(7) Main rationale for deciding on the acquisition target
The Company’s consolidated subsidiary (voting interest of 51.00%) acquired the shares for cash consideration.

2. Period of business results of the acquisition target includedin the consolidated financial statements
June 1, 2017 to October 31, 2017

3. Acquisition cost of acquisition target and breakdown by consideration type
(Thousands of yen)

Consideration for acquisition
Acquisition cost

Cash and other payments¥41,820¥41,820

Current assets
Non-current assets
Total assets
Current liabilities
Non-current liabilities
Total liabilities¥139,758
266,846¥406,605¥206,076
158,708¥364,785

64

INTEGRATED REPORT 2018
About NCXX Group

Strategy

Financial Section

Sustainability

Corporate Data

Notes

7. Estimated impact on NCXX Group Inc.’s consolidated statements of income
for fiscal 2017, and the estimation method, assuming the businesscombination was completed on December 1, 2016
(Thousands of yen)

Net sales
Operating loss
Ordinary loss
Loss before income taxes
Loss attributable to ownersof parent¥ 310,092(174,972)(175,366)(53,310)(53,376)(4) Statutory basis of business combination
Share acquisition(5) Name of company after business combination
No change(6) Ratio of voting rights acquired(%)

Voting rights owned before the business combination
Voting rights acquired on the business combination dateVoting rights after the acquisition

–
99.9
99.9

(Estimation method)
The estimated impact is calculated by subtracting information on sales and profits in the consolidated statements of income of the Company from the information on sales and profits calculated on the assumption thatthe business combination was completed on December 1, 2016.
Notes on this business combination have not received accounting audit certification.

(7) Main rationale for deciding on the acquisition target

IV Business Combination through Acquisition (e frontier, Inc.)
1. Overview of business combination

September 1, 2017 to November 30, 2017

(1) Name and business of acquired company
Name of the acquired company:e frontier, Inc.
Business:	Development and sales of PC software, sales of 3D computer graphics
software and provision of services(2) Main reason for the business combination
The purpose of the business combination is to develop new services using the software development andsales capabilities of e frontier, Inc. and to utilize its customer network, thereby making a significant contribution
to growth in the NCXX Group’s customer network (particularly in the B2C sector) in its existing businesses.
In addition, e frontier, Inc. expects to derive benefits such as the development of a new customer base,increased sales through new product development and cost cutting through the flexible use of humanresources. Accordingly, the Group purchased the shares of e frontier, Inc. and turned it into a subsidiary.

(3) Business combination dateJuly 7, 2017

The Company acquired the shares for cash consideration.

2. Period of business results of the acquisition target includedin the consolidated financial statements
3. Acquisition cost of acquisition target and breakdown by consideration type
(Thousands of yen)

Consideration for acquisition
Acquisition cost

Cash and other payments

4. Amount of goodwill, reason for goodwill, amortization method andamortization period(1) Amount of goodwill¥204,866 thousand¥20,002¥20,002

65

INTEGRATED REPORT 2018
About NCXX Group

Strategy

Financial Section

Sustainability

Corporate Data

Notes(2) Reason for goodwill
Goodwill consists mainly of the premium expected from future business expansion at e frontier, Inc. in the areasof PC software development and sales, sales of 3D computer graphics software and provision of services.

(3) Amortization method and amortization period

V Business Divestiture (CAICA Inc.)On January 25, 2017, the Company transferred a portion of its shares in CAICA Inc. (13,000,000 shares) via
the stock market, thereby reducing its voting rights in CAICA to below 50%. At a meeting of the Board of
Directors held on April 14, 2017, the Company passed a resolution to reclassify CAICA Inc. from a consolidated subsidiary to an equity-method affiliate.

The full amount is recorded as an impairment loss.

5. Amount of assets and liabilities transferred on the business combination
date and the main components(Thousands of yen)

Current assets
Non-current assets
Total assets
Current liabilities
Non-current liabilities
Total liabilities¥308,519
205,200¥513,719¥ 14,486
479,229¥493,716

1. Overview of share transfer(1) Name and business of transferred subsidiary
Name of the transferred subsidiary: CAICA Inc.
Business:	Information services business(2) Main reason for the share transfer
The Company decided to transfer a portion of its shares in CAICA Inc. to secure adequate working capitaland cash in hand for the next several months, along with preparing for new business funding requirements
and other priorities.

(3) Share transfer date
January 25, 2017

6. Estimated impact on NCXX Group Inc.’s consolidated statements of income
for fiscal 2017, and the estimation method, assuming the businesscombination was completed on December 1, 2016
(Thousands of yen)

Net sales
Operating loss
Ordinary loss
Loss before income taxes
Loss attributable to ownersof parent¥ 69,639(3,555)(28,009)(43,969)(44,332)(Estimation method)
The estimated impact is calculated by subtracting information on sales and profits in the consolidated statements of income of the Company from the information on sales and profits calculated on the assumption thatthe business combination was completed on December 1, 2016.
Notes on this business combination have not received accounting audit certification.

2. Overview of accounting treatment(1) Amount of gain or loss on transfer
Gain on sales of shares of subsidiaries:¥866,573 thousand(2) Appropriate carrying amounts of assets and liabilities related to the transferred­subsidiary and the main components(Thousands of yen)

Current assets
Non-current assets
Total assets
Current liabilities
Non-current liabilities
Total liabilities¥1,532,429
4,049,988¥5,582,417¥1,245,918
49,589¥1,295,507

66

INTEGRATED REPORT 2018
About NCXX Group

Strategy

Financial Section

Sustainability

Corporate Data

Notes

(3) Accounting treatment(3) Main reason for the share transfer

The difference between the consolidated carrying amounts of CAICA Inc. and the sales amount was recorded
as gain on sales of shares of subsidiaries under extraordinary income.

When considering the future growth prospects of NCXX Solutions, the Company believes that putting NCXX
Solutions under the CAICA Group, which conducts software development like NCXX Solutions, will be moreadvantageous than keeping it in the NCXX Group, which originated from a manufacturer of telecommunications device hardware. NCXX Solutions has a strong affinity with the CAICA Group in terms of underlying
technologies and employed personnel, and the potential for gaining knowledge of new technologies andother benefits will lead to growth at NCXX Solutions and to stronger collaboration on joint development with
the NCXX Group. Moreover, even if NCXX Solutions becomes an equity-method affiliate, the Company
believes that it could derive higher profits from NCXX Solutions than it does now based on the future growththat NCXX Solutions could achieve as a member of the CAICA Group.

3. Name of the reportable segment to which the transferred subsidiary was included
FinTech system development business

4. Estimated amount of income or loss related to the transferred subsidiaryrecorded on the consolidated statements of income for fiscal 2017
(Thousands of yen)

Net sales
Operating income¥1,174,094
32,067(4) Share transfer date
October 10, 2017

VI Business Divestiture (NCXX Solutions Inc.)

2. Overview of accounting treatment

At a meeting of the Board of Directors held on August 10, 2017, the Company passed a resolution to transfer
51% of the shares outstanding in NCXX Solutions Inc. (“NCXX Solutions”), a consolidated subsidiary of theCompany, to CAICA Inc. (“CAICA”) and reclassify NCXX Solutions from a consolidated subsidiary of theCompany to an equity-method affiliate.

(1) Amount of gain or loss on transfer

1. Overview of share transfer(1) Name of the counterparty
CAICA(2) Name and business of transferred subsidiary
Name of the transferred subsidiary: NCXX Solutions
Business:	Design, development, sale and maintenance of computer software andsystems, as well as management and consulting services

Gain on sales of shares of subsidiaries:¥— thousand(2) Appropriate carrying amounts of assets and liabilities related to the transferred­subsidiary and the main components(Thousands of yen)

Current assets
Non-current assets
Total assets
Current liabilities
Non-current liabilities
Total liabilities¥  657,327
590,539¥1,247,866¥  248,101
439,669¥  687,770(3) Accounting treatment
The shares were sold at the consolidated carrying amount of NCXX Solutions.

3. Name of the reportable segment to which the transferred subsidiary was included
FinTech system development business67

INTEGRATED REPORT 2018
About NCXX Group

Sustainability

Strategy

Financial Section

Corporate Data

Notes

4. Estimated amount of income or loss related to the transferred subsidiaryrecorded on the consolidated statements of income for fiscal 2017
(Thousands of yen)

Net sales
Operating income¥1,807,987(10,194)(Asset Retirement Obligations)
Asset retirement obligations recorded on the consolidated balance sheets(1) Overview of recorded asset retirement obligations
The recorded asset retirement obligations are obligations under real estate lease contracts to restore business offices and stores where the Company is operating to their original condition when vacating them.

(Real Estate Leasing)
Fiscal 2016 (From December 1, 2015 to November 30, 2016)
Certain consolidated subsidiaries hold idle real estate in Shizuoka Prefecture. Certain other consolidated
subsidiaries hold idle real estate in Tochigi Prefecture, and these consolidated subsidiaries have also acquired
new properties in Fukuoka Prefecture and other regions and are using them as offices and for other purposes.
However, since some of these properties are rented, real estate is treated as including the portion used asreal estate for rent. Rental income (loss) related to real estate including the portion used as real estate for rent
during the fiscal year under review was ¥5 million (Rental income is recorded under non-operating income,while main rental expenses are recorded under non-operating expenses). The carrying amount of idle realestate and real estate including the portion used as real estate for rent, as well as the main changes, fairvalue at the fiscal year-end, and the method of calculating fair value are shown as follows:(Thousands of yen)
Carrying amount(2) Calculation method for amounts of asset retirement obligations to be recorded
The period of use is estimated at 18 years from the acquisition of the lease asset, and a discount rate
between 1.0% and 1.9% is used to calculate the asset retirement obligation amounts.

(3) Change in total amount of recorded asset retirement obligations(Thousands of yen)

Balance at the beginning of the fiscal year
Increase from consolidated subsidiary acquisition
Adjustment reflecting the passage of time
Decrease from execution of obligations
Balance at the end of the fiscal year

Fiscal 2016 (From
December 1, 2015 toNovember 30, 2016)

Fiscal 2017 (From
December 1, 2016 toNovember 30, 2017)¥       –455,237
955(57,152)¥399,040¥399,040
49,866
4,349(63,567)¥389,687(4) Asset retirement obligations not recorded on the consolidated balance sheets
Under its real estate lease contract, the Company and its consolidated subsidiaries have obligations to
restore their Head Office to its original condition when vacating it. However, this asset retirement obligation
cannot be estimated reasonably, given that the period of use of the relevant lease assets remains unclear,and the Group has no plan for relocating. Consequently, this asset retirement obligation was not recorded inthis report.

Idle real estate
Real estate including the portion
used as real estate for rent

Balance at
December 1, 2015

Change during
fiscal 2016

Balance atNovember 30, 2016

Fair value at
fiscal year-end¥   2,000¥       –

¥   2,000¥   2,010

317,443(11,341)

306,102306,102

Notes: 1. The carrying amount represents the acquisition cost less cumulative depreciation.
2.	Method of calculating fair value
For certain idle real estate, there have been no material changes in the indicators believed to appropriately reflect market
prices from the time of the most recent appraisal, and the changes have been negligible. As a result, fair value has been
determined by recent principled calculations.
For other idle real estate and real estate including the portion used as real estate for rent, the carrying amount is stated as
the fair value because the real estate was newly purchased during the fiscal year under review, and any changes in fair value
are thus deemed to be negligible.

68

INTEGRATED REPORT 2018
About NCXX Group

Financial Section

Sustainability

Strategy

Corporate Data

Notes

Fiscal 2017 (From December 1, 2016 to November 30, 2017)
Certain consolidated subsidiaries had previously held idle real estate in Shizuoka Prefecture and Tochigi
Prefecture. In addition, certain subsidiaries have acquired new properties in Fukuoka Prefecture and otherregions and are using them as offices and for other purposes. Since some of these properties are rented, realestate had been treated as including the portion used as real estate for rent.
However, these consolidated subsidiaries were excluded from the scope of consolidation during fiscal
2017 due to the sale of their shares. As a result, no balances are shown on the consolidated balance sheets
as of November 30, 2017.
(Thousands of yen)
Carrying amount

Idle real estate
Real estate including the portion
used as real estate for rent

Balance at
December 1, 2016

Change during
fiscal 2017

Balance atNovember 30, 2017

Fair value at
fiscal year-end¥  2,000¥  (2,000)¥–¥–

306,102(306,102)––

Note: The carrying amount represents the acquisition cost less cumulative depreciation.

(Segment Information)[Segment Information]
1. Overview of reportable segments
The Company’s reportable segments are components of the Company for which separate financial information is available. They are periodically examined by the Board of Directors for the purpose of deciding on
resource allocation and assessing business results.
The Group formulates comprehensive strategies at the Company’s Head Office and is expanding businessactivities related to the products and services it handles. The Group’s businesses are made up of segments
classified based on products and services, as follows.
Effective from fiscal 2017, due to an increase in consolidated subsidiaries, the number of segments has
been increased from three to five segments. The Company’s five new segments are the ICT, IoT, Device
Business, FinTech System Development Business, Internet Travel Business, Brand Retail Platform Businessand Information Service Consulting Business. Previously, the Company had three segments: the Device
Business, the Internet Travel Business, and the Brand Retail Platform Business.
Segment information for fiscal 2016 has been prepared and disclosed based on the reportable segments
adopted after the corporate reorganization.

Segment

Description of business

ICT, IoT, Device
Business

Management of Group businesses and research and development (R&D) activities in
the agricultural ICT business and robotics business
Development and sale of communication devices applying various wireless systems
Provision of systems solutions and maintenance services incidental to the above
systems development
Purchasing and sale of mobile communication-related products in China
FinTech System
Systems development­Development
Cloud services
Business
ASP services for nursing care centers
Internet Travel
Operation of e-marketplace for travel-related products
Business
Travel agency services for companies and individuals
Travel estimate services
Travel concierge services
Brand Retail Platform Retailing of general merchandise, apparel and other items
Business
Brand license businessRestaurant businessInformation Service
Various consulting services, including investor relations (IR) support services, ­financial
Consulting Business strategies, business strategies, and recruitment support services
Fund arrangement and administration services
Other
Grape farming
Winemaking and sales

2. Calculation method for amounts of net sales, income and loss, assets andliabilities, and other items by reportable segment
The accounting policies and methods for reportable segments are the same as those shown in the notes tothe consolidated financial statements.
Segment income for reportable segments is based on operating income.
Inter-segment sales and transfers are based on prevailing market prices.

69

INTEGRATED REPORT 2018
About NCXX Group

Financial Section

Sustainability

Strategy

Corporate Data

Notes

3. Information on net sales, income or loss, assets and liabilities, and other items by reportable segment
Fiscal 2016 (From December 1, 2015 to November 30, 2016)(Thousands of yen)
Reportable segment

Net sales
Sales to third parties
Inter-segment sales and transfers
Total
Segment income (loss)
Segment assets
Other items
Depreciation and amortization
Amortization of goodwill
Increase in property, plant andequipment and intangible assets

ICT, IoT,
Device Business

FinTech System
Development Business

Internet Travel
Business

Brand Retail
Platform BusinessInformation Service
Consulting Business

Other

Total

Adjustments

Consolidated¥1,274,595
623
1,275,218(365,311)
982,318¥7,836,945
2,216
7,839,162(61,244)5,655,077¥1,623,855–
1,623,855
10,894640,079¥1,495,738–
1,495,738(15,223)
2,196,350

¥–
–
–
–
–

¥–
–
–
–
–

¥12,231,134
2,840
12,233,975(430,886)
9,473,826¥         –(2,840)(2,840)(188,677)
3,986,080¥12,231,134–
12,231,134(619,563)
13,459,907

1,381
–

49,835486,523539
30,84822,337–––––74,094517,372

46,862–120,956
517,372

1,763

57,665

1,266

14,621––75,317

153,074

228,391

Notes: 1. Segment income (loss) is adjusted to operating income in the consolidated statements of income. Adjustments for segment income mainly represent general and administration expenses that are not allocated to reportable segments.
2. Adjustments for segment assets represent corporate assets that are not allocated to reportable segments.
3. Adjustments for depreciation and amortization represent depreciation and amortization related to corporate assets.
4. Increase in property, plant and equipment and intangible assets mainly represent the increase in ­corporate assets.
5. Prices for transactions and transfers between reportable segments are determined based on arm’s length transactions between independent third parties.

70

INTEGRATED REPORT 2018
About NCXX Group

Financial Section

Sustainability

Strategy

Corporate Data

Notes

Fiscal 2017 (From December 1, 2016 to November 30, 2017)(Thousands of yen)
Reportable segment

Net sales
Sales to third parties
Inter-segment sales and transfers
Total
Segment income (loss)
Segment assets
Other items
Depreciation and amortization
Amortization of goodwill
Increase in property, plant andequipment and intangible assets

ICT, IoT,
Device Business

FinTech System
Development Business

Internet Travel
Business

Brand Retail
Platform BusinessInformation Service
Consulting Business

Other

Total

Adjustments

Consolidated¥ 893,294
43,011
936,305(438,154)
704,657¥3,070,723
88
3,070,811(36,276)
9,114¥2,183,047
7,601
2,190,648(1,154)
371,007¥5,926,905
54,8055,981,711(30,434)
3,519,940¥ 71,419
2,176
73,595(57,779)
115,650¥ 53,531–
53,531(9,910)222,997¥12,198,921
107,683
12,306,604(573,709)
4,943,368¥        –(107,683)(107,683)(340,846)
6,588,998¥12,198,921–
12,198,921(914,555)
11,532,367

20,761–

44,227137,037539
30,848130,927
32,277

8,221
20,445–33,463

204,676
254,073

7,875–

212,551
254,073

29,292

6,453

1,250

107,074––

144,071

82,505

226,576

Notes: 1. Segment income (loss) is adjusted to operating income in the consolidated statements of income. Adjustments for segment income mainly represent general and administration expenses that are not allocated to reportable segments.
2. Adjustments for segment assets include corporate assets that are not allocated to reportable segments and offsetting consolidated subsidiary obligations.
3. Adjustments for depreciation and amortization represent depreciation and amortization related to corporate assets.
4. Prices for transactions and transfers between reportable segments are determined based on arm’s length transactions between independent third parties.

71

INTEGRATED REPORT 2018
About NCXX Group

Financial Section

Sustainability

Strategy

Corporate Data

Notes

[Related Information]

Fiscal 2017 (From December 1, 2016 to November 30, 2017)

1. Information by product and service

Fiscal 2016 (From December 1, 2015 to November 30, 2016)

1. Information by product and service

Disclosure is omitted as the same information is shown in segment information.

Disclosure is omitted as the same information is shown in segment information.

2. Information by region(1) Net sales

2. Information by region

Disclosure is omitted as sales to external customers in Japan account for over 90% of net sales in the­consolidated statements of income.

(1) Net sales
Disclosure is omitted as sales to external customers in Japan account for over 90% of net sales in the­consolidated statements of income.

(2) Property, plant and equipment
Disclosure is omitted as the amount of property, plant and equipment in Japan accounts for over 90% of
property, plant and equipment in the consolidated balance sheets.

(2) Property, plant and equipment
Disclosure is omitted as the amount of property, plant and equipment in Japan accounts for over 90% of
property, plant and equipment in the consolidated balance sheets.

3. Information by major customer

3. Information by major customer

Disclosure of information by major customer is omitted as sales to major customers account for less than
10% of consolidated net sales.

Disclosure of information by major customer is omitted as sales to major customers account for less than
10% of consolidated net sales.

[Information on Impairment Loss on Property, Plant and Equipment by Reportable Segment]
Fiscal 2016 (From December 1, 2015 to November 30, 2016)(Thousands of yen)

Impairment loss

ICT, IoT,
Device Business

FinTech System
Development Business

Internet Travel
Business

Brand Retail
Platform BusinessInformation Service
Consulting Business

Other

Corporate andelimination¥1,249¥–¥–¥320,618

¥–

Total

¥–

¥–

¥321,868

ICT, IoT,
Device Business

FinTech System
Development Business

Internet Travel
Business

Brand Retail
Platform BusinessInformation Service
Consulting Business

Other

Corporate andelimination¥204,866¥107,773¥–¥1,086,293

Total

¥–

¥431,709¥–¥1,830,642

Fiscal 2017 (From December 1, 2016 to November 30, 2017)(Thousands of yen)

Impairment loss

72

INTEGRATED REPORT 2018
About NCXX Group

Financial Section

Sustainability

Strategy

Corporate Data

Notes

[Information on Amortized Amount and Unamortized Balance of Goodwill by Reportable Segment]
Fiscal 2016 (From December 1, 2015 to November 30, 2016)(Thousands of yen)Amortized amountUnamortized balance

ICT, IoT,
Device Business

FinTech System
Development Business

Internet Travel
Business

Brand Retail
Platform BusinessInformation Service
Consulting Business

Other

Corporate andelimination¥––¥  486,523
4,172,839¥ 30,848
198,877

¥–
–

¥–
–

Total

¥–
–

¥–
–

¥  517,372
4,371,717

ICT, IoT,
Device Business

FinTech System
Development Business

Internet Travel
Business

Brand Retail
Platform BusinessInformation Service
Consulting Business

Other

Corporate andelimination¥––¥137,037
23,303¥ 30,848
168,028¥ 32,277
205,674

Total¥20,445–¥33,463–¥––¥254,073
397,006

Fiscal 2017 (From December 1, 2016 to November 30, 2017)(Thousands of yen)Amortized amountUnamortized balance[Information on Gain on Bargain Purchase by Reportable Segment]
Fiscal 2016 (From December 1, 2015 to November 30, 2016)A ¥32,282 thousand gain on bargain purchase was recorded as extraordinary income subsequent to the acquisition of additional shares in a consolidated subsidiary in the Internet travel business.
A ¥4,462 thousand gain on bargain purchase was recorded as extraordinary income subsequent to the acquisition of additional shares in a consolidated subsidiary in the brand retail platform business.
Fiscal 2017 (From December 1, 2016 to November 30, 2017)
Not applicable

73

INTEGRATED REPORT 2018
About NCXX Group

Sustainability

Strategy

Financial Section

Corporate Data

Notes

[Information on Related Parties]
1. Transactions with related parties(1) Transactions between the filing company and related parties(a) Parent company of the filing company and major shareholders (only companies and other such entities)
Fiscal 2016 (From December 1, 2015 to November 30, 2016)

Type

Parent company

Name of company
or other entity

FISCO Ltd.

Address

Kishiwada, Osaka

Paid-in capitalor investment(Millions of yen)

¥1,235

Description of businessor occupation

Percentage ofvoting rights held (%)

Relationshipwith related party

Information­services­business,consulting
business

Direct (29.58)
Indirect (20.25)

Concurrent
officers

Nature of transaction

Funds lentInterest received
Interest on bonds
Debt guarantees received

Amount oftransaction(Thousands of yen)

¥350,000
4,887
–
–

Item

Long-term loans
receivable   –Accounts
payable—other   –Ending balance(Thousands of yen)¥  400,000–
4,183
1,078,139

Fiscal 2017 (From December 1, 2016 to November 30, 2017)

Type

Parent company

Name of company
or other entity

FISCO Ltd.

Address

Kishiwada, Osaka

Paid-in capitalor investment(Millions of yen)

¥1,266

Description of businessor occupation

Percentage ofvoting rights held (%)

Relationshipwith related party

Information­services­business,consulting
business

Direct (28.38)
Indirect (20.13)

Concurrent
officers

Notes: 1. Consumption taxes are not included in the amounts of transactions and the ending balances.
2. Transaction terms and policy on deciding transaction terms and conditions
		 (1) The interest rate on funds lent is determined reasonably based on prevailing market interest rates. The funds lent are unsecured.
		 (2) The debt guarantees received are debt guarantees for bank loans. A guarantee fee is not paid.

Nature of transaction

Funds lentInterest received
Debt guarantees received

Amount oftransaction(Thousands of yen)

¥340,000
3,777
–

Item

Long-term loans
receivable
   –
   –

Ending balance(Thousands of yen)

¥340,000–
899,935

74

INTEGRATED REPORT 2018
About NCXX Group

Financial Section

Sustainability

Strategy

Corporate Data

Notes(b) Companies and other entities with the same parent company as the filing company and subsidiaries of other related companies of the filing company
Fiscal 2016 (From December 1, 2015 to November 30, 2016)
Head office location

Paid-in capitalor investment(Millions of yen)

Versatile Inc.

Minato-ku, Tokyo¥95

Consulting business    –Concurrent
officers

Chanty Co., Ltd.

Minato-ku, Tokyo

32

Advertising agency
business    –Concurrent
officers

Name of company
or other entity

Type

Companies withthe same parent
company as thefiling company

Description of businessor occupation

Percentage ofvoting rights held (%)

Relationshipwith related party

Nature of transaction

Amount oftransaction(Thousands of yen)Funds lent

¥30,000

Interest received
Funds lent

18,606–

Interest received

3,208

Nature of transaction

Amount oftransaction(Thousands of yen)Funds recovered¥160,000Interest received

1,574

Item

Long-term loans
receivable    –Long-term loans
receivable    –Ending balance(Thousands of yen)

¥930,000–
160,000–

Fiscal 2017 (From December 1, 2016 to November 30, 2017)
Name of company
or other entity

Type

Companies withthe same parent
company as thefiling company

Chanty Co., Ltd.

Head office location

Paid-in capitalor investment(Millions of yen)

Minato-ku, Tokyo¥32

Description of businessor occupation

Advertising agency
business

Percentage ofvoting rights held (%)

Relationshipwith related party    –Concurrent
officers

Item

Long-term loans
receivable    –Ending balance(Thousands of yen)¥––

Notes: 1. Consumption taxes are not included in the amounts of transactions and the ending balances.
2.	Transaction terms and policy on deciding transaction terms and conditions
The interest rate on funds lent is determined reasonably based on prevailing market interest rates. The funds lent are unsecured.

(c) Officers of filing company, major shareholders and other persons (individuals only)
Fiscal 2016 (From December 1, 2015 to November 30, 2016)
Type

Officer and his relatives

Name of company
or other entity

Tsukasa Akiyama

Description of businessor occupation

Officer

Percentage ofvoting rights held (%)    –Relationshipwith related party

Representative Director
and President of
NCXX Group Inc.

Nature of transaction

Debt guarantee
received

Amount of transaction(Thousands of yen)

Item

Ending balance(Thousands of yen)¥–     –¥37,312Amount of transaction(Thousands of yen)

Item

Ending balance(Thousands of yen)¥–     –¥29,308

Fiscal 2017 (From December 1, 2016 to November 30, 2017)
Type

Officer and his relatives

Name of company
or other entity

Tsukasa Akiyama

Description of businessor occupation

Officer

Notes: 1. Consumption taxes are not included in the amounts of transactions and the ending balances.
2.	Transaction terms and policy on deciding transaction terms and conditions
The debt guarantees received are debt guarantees for bank loans. A guarantee fee is not paid.

Percentage ofvoting rights held (%)    –Relationshipwith related party

Representative Director
and President of
NCXX Group Inc.

Nature of transaction

Debt guarantee
received

75

INTEGRATED REPORT 2018
About NCXX Group

Financial Section

Sustainability

Strategy

Corporate Data

Notes

(2) Transactions between the filing company and its consolidated subsidiaries and related parties(a) Parent company of the filing company and major shareholders (only companies and other such entities)
Fiscal 2016 (From December 1, 2015 to November 30, 2016)

Type

Parent company

Name of company
or other entity

FISCO Ltd.

Head office location

Paid-in capitalor investment(Millions of yen)

Kishiwada, Osaka¥1,235

Description of businessor occupation

Percentage ofvoting rights held (%)

Relationshipwith related party

Information services
business, consulting
business(Ownership ratio)
Direct (29.58)
Indirect (20.25)

Concurrent
officers

Description of businessor occupation

Percentage ofvoting rights held (%)

Relationshipwith related party

Information services
business, consulting
business(Ownership ratio)
Direct (28.38)
Indirect (20.13)

Concurrent
officers

Nature of transaction

Amount oftransaction(Thousands of yen)Funds lent¥–Interest received

4,010

Nature of transaction

Amount oftransaction(Thousands of yen)Funds recovered
Interest received¥200,000
1,994

Item

Short-term loans
receivable    –Ending balance(Thousands of yen)

¥200,000–

Fiscal 2017 (From December 1, 2016 to November 30, 2017)

Type

Parent company

Name of company
or other entity

FISCO Ltd.

Head office location

Paid-in capitalor investment(Millions of yen)

Kishiwada, Osaka¥1,266

Item

    –
    –

Ending balance(Thousands of yen)¥––

Notes: 1. Consumption taxes are not included in the amounts of transactions and the ending balances.
2.	Transaction terms and policy on deciding transaction terms and conditions
The interest rate on funds lent is determined reasonably based on prevailing market interest rates. The funds lent are unsecured.

(b) Companies and other entities with the same parent company as the filing company and subsidiaries of other related companies of the filing company
Fiscal 2016 (From December 1, 2015 to November 30, 2016)
Not applicable
Fiscal 2017 (From December 1, 2016 to November 30, 2017)

Type

Subsidiary of theparent company

Name of company
or other entity

Head office location

Fisco Cryptocurrency Kishiwada, Osaka
Exchange Inc.

Paid-in capitalor investment(Millions of yen)¥387

Description of businessor occupation

Management ofcryptocurrency
exchange

Percentage ofvoting rights held (%)

Relationshipwith related party(Ownership ratio)
Indirect (4.02)

Cryptocurrency trading

Nature of transaction

Deposits madeAmount oftransaction(Thousands of yen)

¥193,000

Item

DepositEnding balance(Thousands of yen)¥160,984

76

INTEGRATED REPORT 2018
About NCXX Group

Financial Section

Sustainability

Strategy

Corporate Data

Notes(c) Officers of the filing company, major shareholders and other persons (individuals only)
Fiscal 2016 (From December 1, 2015 to November 30, 2016)
Not applicable
Fiscal 2017 (From December 1, 2016 to November 30, 2017)
Not applicable(d) Officers and major shareholders of the filing company’s consolidated subsidiaries (individuals only)
Fiscal 2016 (From December 1, 2015 to November 30, 2016)
Type

Officer of a significant
subsidiary

Name of company
or other entity

Takao Hayashi

Description of businessor occupation

Officer

Percentage ofvoting rights held (%)    –Relationshipwith related party

Debt guarantee
received

Nature of transaction

Debt guarantee
received

Amount of transaction(Thousands of yen)

Item

Ending balance(Thousands of yen)¥–     –¥78,261

Amount of transaction(Thousands of yen)

Item

Ending balance(Thousands of yen)¥–     –¥39,686

Fiscal 2017 (From December 1, 2016 to November 30, 2017)
Type

Officer of a significant
subsidiary

Name of company
or other entity

Takao Hayashi

Description of businessor occupation

Officer

Percentage ofvoting rights held (%)    –2. Notes on the parent company or significant related companies(1) Parent company information
FISCO Ltd. (Listed on the Tokyo Stock Exchange JASDAQ Growth Market)(2) Summary of financial information on significant related companies
Not applicable

Relationshipwith related party

Debt guarantee
received

Nature of transaction

Debt guarantee
received

77

INTEGRATED REPORT 2018
About NCXX Group

Financial Section

Sustainability

Strategy

Corporate Data

Notes

(Per Share Information)

Fiscal 2016
(From December 1, 2015
to November 30, 2016)(Yen)

Net assets per share
Amounts for net income (loss) per share
Diluted net income per share

Fiscal 2016
(From December 1, 2015
to November 30, 2016)

Fiscal 2017
(From December 1, 2016
to November 30, 2017)¥241.60(71.77)–¥259.74
60.68–

Notes: 1.	The basis for calculating the amounts for net income (loss) per share and diluted net income per share is
as follows:(Thousands of yen)

Net income (loss) per share
Gain (loss) attributable to owners of parent
Amounts not attributable to common shareholders
Gain (loss) attributable to owners of parent related
to common shares
Average number of common shares during the period(Shares)
Diluted net income per share
Adjustments to profit attributable to owners of parent
Increase in number of common shares (Shares)

Fiscal 2016
(From December 1, 2015
to November 30, 2016)

Fiscal 2017
(From December 1, 2016
to November 30, 2017)¥ (1,068,435)–¥   902,592–(1,068,435)

902,592

14,885,214

14,875,370

–
–

–
–

Outline of dilutive shares
excluded from the calculation of diluted net income
per share because of nothaving a dilutive effectFiscal 2017
(From December 1, 2016
to November 30, 2017)

Subscription rights to shares attached to NCXXGroup Inc.’s 11th Series of Subscription Rights
to Shares (960 subscription rights for 96,000­underlying shares)

Subscription rights to shares attached to
NCXX Group Inc.’s 11th Series of Subscription
Rights to Shares (960 subscription rights for
96,000 underlying shares)

Subscription rights to shares attached to NCXXGroup Inc.’s 5th Series of Unsecured Convertible
Bonds with Subscription Rights to Shares (1,165
subscription rights for 1,069,788 underlying shares)

Subscription rights to shares attached to
NCXX Group Inc.’s 5th Series of Unsecured
Convertible Bonds with Subscription Rights toShares (1,165 subscription rights for 1,069,788­underlying shares)

Subscription rights to shares attached to NCXXGroup Inc.’s 6th Series of Unsecured Convertible
Bonds with Subscription Rights to Shares (30subscription rights for 466,562 underlying shares)
Subscription rights to shares attached to NCXXGroup Inc.’s 13th Series of Subscription Rights toShares (1,000 subscription rights for 100,000
underlying shares)

Subscription rights to shares attached to
NCXX Group Inc.’s 13th Series of Subscription
Rights to Shares (1,000 subscription rights for
100,000 underlying shares)

2.	Although there were potentially dilutive shares, diluted net income per share for fiscal 2016 is not disclosed as a net loss per
share was recorded.
3.	Diluted net income per share for fiscal 2017 is not disclosed as there were no shares with a potentially dilutive effect.

78

INTEGRATED REPORT 2018
About NCXX Group

Sustainability

Strategy

Financial Section

Corporate Data

Notes

(Subsequent Events)
I Signing of Syndicated Loan Agreement by Consolidated Subsidiary
TITICACA, Co. Ltd. (“TITICACA”), a consolidated subsidiary of the Company, has signed a syndicated loan
agreement with The Bank of Yokohama, Ltd., the arranger, based on a resolution passed by TITICACA’s
Board of Directors at a meeting held on November 30, 2017, and executed the syndicated loan agreement
on December 15, 2017.

1. Purpose of signing the syndicated loan agreement
The purpose of the syndicated loan agreement is to ensure flexible and stable fund procurement by securing
a commitment line through the syndication method, stabilize fundraising by refinancing existing long-term
debt according to cash flows, and systematically reduce interest-bearing debt, in order to strengthen thefinancial position in addition to executing growth strategies.

2. Outline of the syndicated loan agreement

Agreement amount
Agreement date
Execution date
Agreement period
Use of funds
Repayment method

Guarantor
Collateral
Arranger and agent
Participating financial
institutions

Commitment line¥250 million
December 13, 2017
December 15, 2017
1 yearWorking capitalLump-sum repayment onmaturity date

TITICACA, Co. Ltd., a consolidated subsidiary of the Company, commenced investment in cryptocurrency on
January 11, 2018, based on a resolution passed by the Board of Directors at a meeting held on January 10,
2018, as follows:

1. Purpose of investment
TITICACA is considering undertaking new cryptocurrency-related businesses. By harnessing experience anddata obtained through this investment in cryptocurrency, TITICACA will work to generate new earnings
streams through the integration of existing businesses and cryptocurrency-related businesses.

2. Description of cryptocurrency investment
1. Name of main cryptocurrency: Bitcoin
2. Amount of investment (acquisition cost): 600 BTC (approximately ¥1,000 million)

3. Significant impact on business activities

Syndicated loan agreement
Agreement format

II Other Important Investments

Term loan¥300 million

5 years
Refinancing funds
From the end of January 2018, repayment of 5.0%of the total amount every three months (a total of
14 payments) and repayment of 30.0% of the total
amount on the maturity date (a total of 1 payment)
The Company (TITICACA’s parent)
Unsecured
The Bank of Yokohama, Ltd.
THE SHIGA BANK, LTD.   THE HOKURIKU BANK, LTD.

TITICACA has determined that this investment will help to improve business performance over the medium
and long terms.

4. Fund procurement method
Financing from Group companies and internal funds

III Transfer of Affiliate Accounted for by the Equity Method (Share Exchange)
NCXX Solutions Inc. (“NCXX Solutions”), the Company’s affiliate accounted for by the equity method, hasdecided to conduct a share exchange with CAICA Inc. (“CAICA”) to convert NCXX Solutions into a wholly
owned subsidiary of CAICA based on a resolution in writing by the Board of Directors on January 29, 2018.
NCXX Solutions entered into a share exchange agreement with CAICA on the same day.

1. Reason for the transfer
As announced in the “Notice of Transfer of Subsidiary (Share Exchange) and Extraordinary Loss on the Transfer
of a Portion of the Shares of a Consolidated Subsidiary,” the Company has transferred 51% of the shares
outstanding in NCXX Solutions and 49% of the shares outstanding in NCXX Inc. (“NCXX”) to CAICA. As aresult, NCXX Solutions changed from a consolidated subsidiary of the Company to an equity-method affiliate.

79

INTEGRATED REPORT 2018
About NCXX Group

Strategy

Financial Section

Sustainability

Corporate Data

Notes

The share exchange is expected to spur growth at both companies by combining CAICA’s latest AI andblockchain technologies with NCXX Solutions’ know-how in IoT-related services through device products thatare highly relevant to NCXX. In addition, through the accelerated development of device products that link IoT
and blockchain technology and IoT payment platform services that utilize cryptocurrencies and tokens, theCompany and NCXX will create a business structure capable of rapidly introducing products that address
latent needs in the marketplace.
CAICA had approached the Company with a proposal to further increase operational efficiency and synergies, as well as bolster consolidated profitability and enhance Group-wide corporate value, by converting
NCXX Solutions into a wholly owned subsidiary.
The Company and NCXX Solutions accepted this proposal, after determining that further growth of CAICA
and NCXX Solutions in the future will also contribute positively to the future growth of the Company. This
determination is based on the fact that the Company and NCXX Solutions have continued to undertake
IoT-related joint development even after the transfer of the aforementioned subsidiary and have maintained acooperative relationship with CAICA based on a pre-existing business alliance agreement, as indicated in thepress release issued on January 12, 2018 titled “Signing of a Business Alliance Agreement with Fisco
Cryptocurrency Exchange Inc. and the Start of R&D Focused on an AI Trading System for Cryptocurrency
by a Subsidiary of the Company.”
In addition, in the course of acquiring the shares, CAICA had requested that it would like to acquire theshares through a share exchange, given that it plans to continue to proactively conduct M&As and capitaland business alliances in the future and that it would like to retain the cash it currently holds for M&As andcapital and business alliance deals that will be restricted to acquisitions through cash. Accordingly, theCompany agreed to this request.

2. Overview of the affiliate accounted for by the equity method to be transferred(1) Name(2) Name and title ofrepresentative(3) Location(4) Establishment(5) Main business(6) Capital stock(7) Major shareholders andtheir shareholding ratio

NCXX Solutions Inc.
Naoki Ishihara, Representative Director
5-4-30 Minamiaoyama, Minato-ku, Tokyo, Japan
September 16, 2010
Design, development, sale and maintenance of computer software andsystems, as well as management and consulting services¥300 million
CAICA Inc. 51.0%   NCXX Group Inc. 49.0%

3. Share exchange counterparty(1) Name(2) Name and title ofrepresentative(3) Location(4) Main business(5) Relationships with
the Company

CAICA Inc.
Niu Yu, President and COO
1-5-1 Ohashi, Meguro-ku, Tokyo, Japan
Information services business centered on the systems development business
Capital relationships
The Company owns 18.31% of the shares of
CAICA Inc.
Personnel relationships
One director of the Company concurrently
serves as a director of CAICA Inc.
Trading relationships
None
Classification as a related party
CAICA Inc. is classified as a related party, as it isan equity-method affiliate of NCXX Group Inc.

4. Number of shares held after the share exchange(1) Number of shares held before the transfer(2) Number of shares held after the transfer

5,889 shares (Shareholding ratio: 49.0%)
0 shares5. Conditions for the share exchange(1) Share exchange ratio
CAICA Inc. will allocate and exchange 705.63 shares of common stock for every share of common stock of
NCXX Solutions Inc.
(2) Number of shares to be allocated to the Company
4,155,455 shares of common stock of CAICA Inc.

6. Schedule
Effective date of the share exchange: March 1, 2018

7. Outlook
The share exchange will have a negligible impact on the consolidated business results of the Company.

80

INTEGRATED REPORT 2018
About NCXX Group

Strategy

Sustainability

Financial Section

Corporate Data

Notes

IV Issuance of Stock Compensation-Type Stock Options
On January 29, 2018, the Board of Directors of the Company decided to submit a resolution for approval by
the 33rd Ordinary General Meeting of Shareholders to be held on February 22, 2018, delegating it the authority to decide the particulars for issuing and allotting subscription rights to shares, pursuant to the provisions ofArticle 236, Article 238 and Article 239 of the Companies Act. The Board of Directors plans to allot the subscription rights to shares to directors and employees of the Company and its subsidiaries as stock options
granted at particularly advantageous terms. The goal will be to raise the motivation and morale of the directors and employees by providing them with an incentive to enhance the Group’s earnings performance andcorporate value.
Details regarding the subscription rights to shares are as follows.

(1) Total number of subscription rights to shares
The maximum number of subscription rights to shares shall be 1,000. Of this, a maximum of 500 rights shallbe allotted to the directors of the Company (with a proportionate 100 of those rights allotted to the outside
directors of the Company).

(2) Class and number of underlying shares
The class of underlying shares shall be common stock of the Company, and the maximum number that canbe issued shall be 100,000 shares. Of these, 50,000 shares shall be the maximum number that can be allotted to directors of the Company when they exercise their subscription rights to shares, including a portion of
10,000 shares for outside directors.
The number of underlying shares for each subscription right to shares shall be 100 shares of common
stock of the Company.
The number of shares of common stock underlying the subscription rights to shares shall be adjusted
according to the following formula in the event the Company conducts a stock split or consolidation following
the resolution date of the General Meeting of Shareholders.
Number of underlying shares after adjustment = Number of underlying shares before adjustment
× Stock split or consolidation ratio
In addition to the foregoing, in the event of other unavoidable reasons requiring adjustment of the underlying shares, the Company shall be able to adjust the number of underlying shares within reasonable bounds
as deemed necessary.
Moreover, the adjustment shall apply only to the number of shares underlying the subscription rights toshares that have yet to be exercised as of the stock split or consolidation, and any fraction under one (1)share resulting from such adjustment shall be rounded down.

(3) Payment in exchange for the subscription rights to sharesNo monetary payment shall be required in exchange for the subscription rights to shares.

(4) Value of assets to be invested upon exercise of subscription rights to shares
The value of assets to be invested upon exercise of a subscription right to shares shall be the amount payable for each share received upon exercise of the subscription right to shares (hereinafter, “exercise price”)
multiplied by the number of shares to be granted per subscription right to shares.
The exercise price of a subscription right to shares shall be the higher of the closing price of the underlying
common stock on the Tokyo Stock Exchange on the allotment date of the right specified by the Board of
Directors (the “allotment date”) (the most recent previous closing price in the event that the stock fails to tradeon that date) and the average closing price on the exchange (excluding days when the stock fails to trade) for
the days of the month prior to the month of the allotment date, multiplied by 1.05 (with the fraction less thanone (1) yen of the resulting amount rounded up).
In the event that a split or consolidation of the Company’s common stock takes place after the allotment
date, the exercise price shall be adjusted according to the following formula, with the fraction less than one(1) yen resulting from the adjustment rounded up.
1
Exercise price after adjustment = Exercise price before adjustment ×

Stock split orconsolidation ratio

In addition to the foregoing, if the exercise price must be adjusted following the allotment date due to theCompany conducting a merger with another company, a corporate split, or reduction in capital stock, orsome accordingly unavoidable reason, the Company shall be able to adjust the exercise price within reasonable bounds as deemed necessary.

(5) Exercise period of subscription rights to shares
The starting date of the exercise period shall be two years from the day following the Board of Directors
resolution date for deciding the issuance terms of subscription rights to shares, and the expiration date shallbe five years from the day following this resolution date.

(6) Conditions for exercising subscription rights to shares
Holders of the subscription rights to shares must remain in their position as a director or employee of theCompany or its subsidiary in order to exercise the rights, apart from when the Board of Directors makes a
special exception.

(7) Provisions for the Company to buy back the subscription rights to shares
1. The Company may buy back the subscription rights to shares from the holders free of charge, on a datespecified separately by the Board of Directors, in the event that a resolution for a merger agreement underwhich the Company will become the dissolving company, or a resolution for a stock exchange agreement
or stock transfer plan under which the Company will become a wholly owned subsidiary, is approved by
the General Meeting of Shareholders (or by the Board of Directors if approval by the General Meeting of
Shareholders is not required).

81

INTEGRATED REPORT 2018
About NCXX Group

Strategy

Financial Section

Sustainability

Corporate Data

Notes

Consolidated Supplementary Schedules

2. Following the allotment date of particular subscription rights to shares, the Company shall be able toacquire the particular subscription rights to shares from the holders free of charge if the closing price ofordinary transactions of the Company’s common stock traded on the Tokyo Stock Exchange on any
business day falls to 50% or lower than the exercise price of the particular subscription rights to shares(with fractions less than one (1) yen rounded down).
3. The Company may buy back any and all subscription rights to shares of a particular holder free of charge,
on a date specified separately by the Board of Directors, in the event that the particular holder no longer
satisfies the provisions set forth above in “(6) Conditions for exercising subscription rights to shares.”[Schedule of Corporate Bonds](8) Restrictions on the assignment of subscription rights to shares
Approval of the Company’s Board of Directors shall be required for the acquisition of subscription rights toshares via assignment.

(9) Matters relating to increases of capital stock and capital reserve as a result of sharesissued by the exercise of subscription rights to shares
In the event shares are issued by the exercise of subscription rights to shares, the amount of capital stock
shall be increased by half of the maximum for increase in capital, as calculated in accordance with the provisions of Article 17, Paragraph 1 of the Rules of Account Settlement of Corporations of Japan. Any fraction
less than one (1) yen resulting from the calculation shall be rounded up to the nearest one yen.
The amount of increase in capital reserve shall be the amount calculated by subtracting the aforementioned increase in capital stock from the maximum for increase in capital.

(10) Handling of fractions
Where fractions of less than one (1) share occur in the number of shares issued to holders of subscription
rights to shares upon exercising the rights, such fractions shall be rounded down.

(11) Other
Other terms for the allotment of subscription rights to shares shall be set forth by a separate resolution of theBoard of Directors of the Company.

IssuerSeriesNCXX 5th Series of Unsecured
Group ­Convertible Bonds withInc.
­Subscription Rights to Shares
NCXX 6th Series of Unsecured
Group ­Convertible Bonds withInc.
­Subscription Rights to Shares
Total–

Issuance date

Starting balancein fiscal 2017
(Thousandsof yen)Ending balancein fiscal 2017
(Thousandsof yen)March
30, 2015¥1,165,000[–]¥1,165,000[1,165,000]

0.5None March
29, 2018

June
13, 2016

300,000[300,000]

–
[–]

0.7

None June
12, 2017–¥1,465,000[300,000]¥1,165,000[1,165,000]–

Interest(%)

Collateral–

Maturity date–Notes: 1. Amounts in parentheses are the current portion of bonds.
2. Details on bonds with subscription rights to shares are as follows.
5th Series of Unsecured
Convertible Bonds with
Subscription Rights to Shares

SeriesType of shares to be issued
Issue price of subscription rights (Yen)
Issue price of shares (Yen)
Total face amount (Thousands of yen)
Total amount of shares to be issued upon exercise ofsubscription rights to shares (Millions of yen)
Percentage of shares granted per subscription right (%)
Exercise period of the subscription rights

Common shares
Gratis¥1,089¥1,165,000¥–
100%
From March 30, 2015
to March 29, 2018

Note: The information above assumes that the full payment due for exercising subscription rights to shares is paid in lieu of thefull redemption of the convertible bonds associated with those rights when requested by rights holders seeking to exercise
their subscription rights to shares. It is further assumed that such a request is made when the subscription rights to sharesare exercised.
Note: 3. Scheduled redemptions due within five years subsequent to November 30, 2016 are as follows.
(Thousands of yen)Due in one year
or less

Due after one year
through two years

Due after two years
through three years

Due after three years
through four years

Due after four years
through five years¥1,165,000

¥–

¥–

¥–

¥–

82

INTEGRATED REPORT 2018
About NCXX Group

Financial Section

Sustainability

Strategy

Corporate Data

Consolidated Supplementary Schedules[Schedule of Borrowings][Other](Thousands of yen)

Category

Starting balancein fiscal 2017

Ending balancein fiscal 2017

Average interest
rate (%)¥  249,334¥  191,660

0.9–

1,844,650

836,382

1.2–

2,719,875¥4,883,068

1,637,685¥2,868,475

1.2–

2018 to 2029–

Short-term loans payable
Current portion of long-termloans payable
Long-term loans payable(excluding current portion)
Total

Quarterly and other information for fiscal 2017
(Thousands of yen)

Repayment(Cumulative period)

Net sales
Profit before income taxes andnon-controlling interests
Profit attributable to ownersof parent
Net income per share (Yen)First quarter

Second quarter

Third quarter

Fiscal year

¥4,074,676¥6,563,785¥9,745,344¥12,198,921

769,189

1,934,940

1,750,497

1,024,792

622,794¥41.84

1,754,547¥117.95

1,403,675¥94.34

902,592¥60.68First quarter

Second quarter

Third quarter

Fiscal year

¥41.84¥76.11¥(23.57)¥(33.66)

Notes: 1. Average interest rate represents the weighted-average interest rate for the balance at November 30, 2017.
2. Scheduled repayments of long-term loans payable (excluding current portion) and other interest-bearing debt (excluding
current portion) due within five years subsequent to November 30, 2017 are as follows.

(Yen)(Thousands of yen)

Long-term loans payable

Due after one
year throughtwo years

Due after two
years throughthree years

Due after three
years throughfour years

Due after four
years throughfive years

Due after
five years¥618,057¥856,628¥144,812¥18,186¥–[Schedule of Asset Retirement Obligations]
The schedule of asset retirement obligations is omitted from record in these financial statements as the­matters that must be recorded in this statement are disclosed as a note in conformity with Article 15-3 of theOrdinance on Consolidated Financial Statements.

(Quarterly period)

Net income (loss) per share

83

INTEGRATED REPORT 2018
About NCXX Group

Strategy

Sustainability

Company Overview
Name

NCXX Group Inc.

Financial Section

History
Date
Apr.1984
Aug.1985

Date of establishment

April 21, 1984

Aug.1986
Aug.1987
Sept.1998

Capital stock¥1,000,000,000(as of November 30, 2017)

Oct.1999
Jan.2002
June2002
Apr.2003

Consolidated Group
employees

Business operations

Location272(as of November 30, 2017) anagement strategy formulation andMmanagement of Group companies
Planning, development, and sale ofnursing care and rehabilitation robots, etc.
Planning, development, and sale ofagricultural ICT
Businesses associated with or related
to the above
Hanamaki Head Office:2-32-1 Kunuginome, Hanamaki City,
Iwate Prefecture, Japan
TEL : +81-198-27-2851
FAX: +81-198-27-2850
Tokyo Head Office:2F CoSTUME NATIONAL Aoyama Complex,
5-4-30 Minamiaoyama, Minato-ku, Tokyo, Japan
TEL : +81-3-5766-9870
FAX: +81-3-5766-9871

Corporate Data

Sept.2003
Dec.2003
June2004
Jan.2005
June2005
Sept.2005
Sept.2005
Nov.2005
June2007
Nov.2010
July2012
Dec.2012
Dec.2013
Feb.2014
Apr.2015
Apr.2015
June2016
Aug.2016
Oct.2016
Dec.2016May2017
July2017

Event
Established as Honda Electron Co., Ltd. with capital stock of ¥10 million invested by
Honda Tsushin Kogyo Co., Ltd. Head Office was located in Himonya, Meguro-ku, Tokyo.
Started design and manufacture of telecommunication line equipment
Constructed Hanamaki Plant in Hanamaki City, Iwate Prefecture and started operations
Participated in the establishment of Iwateken Koudo Gijutsu Shinkou Kikou(Iwate Prefecture Advanced Technology Promotion Organization)
Relocated Head Office to Shibaura, Minato-ku, Tokyo
HOKUBU Communication & Industrial Co., Ltd. and its group company become themajor shareholders
Acquired ISO quality certification (ISO 9001, JQA-QM 3856)
Launched world’s first 128 kbps data telecommunication card
Established the Hanamaki R&D Center as a base for development of PHS data
telecommunication cards
Established the Tokyo R&D Center and established bases for development of PLC
and wireless
Relocated Head Office to Kyobashi, Chuo-ku, Tokyo
Acquired ISO environmental certification (ISO 14001, JQA-EM 3575)
Index Corporation acquired 2,416 shares, making the Company a subsidiary
Received supreme prize for excellence in the modem category of the BCN Awards
Sold the semiconductor manufacturing equipment business to SHIBAURA MECHATRONICSCORPORATION and specialized in the information and telecommunication businessChanged company name from Honda Electron Co., Ltd. to Net Index Co., Ltd.
Established Net Index ES Co., Ltd., and spun off the manufacturing and service divisions
Introduced the W-SIM, which is the world’s smallest PHS module, and the first­SIM-STYLE voice handset
Listed on the JASDAQ securities exchange (securities code: 6634)
Relocated the Head Office to Hanamaki City, Iwate Prefecture
FISCO Ltd. acquired 47,401 shares of the Company, making it a subsidiary
Made e-tabinet.com into a subsidiary
Changed company name from Net Index Co., Ltd. to NCXX Inc.
Made NCXX Solutions Inc. and Care Online Limited (now Care Dynamics Limited)
into subsidiaries
Transferred the domestic systems development business of SJI Inc. (now CAICA Inc.)
to subsidiary NCXX Solutions Inc. through an absorption-type company split
Changed the company name from NCXX Inc. to NCXX Group Inc.
Established NCXX Inc. as a newly incorporated company. Transferred the device
business to NCXX Inc. through a corporate split
Made SJI Inc. (now CAICA Inc.) a subsidiary
Made TITICACA, Co. Ltd. a subsidiary
Consolidated subsidiary e-tabinet.com made Gloria Tours Inc. a subsidiary
Made Versatile Inc. and FISCO International Limited into subsidiaries
Versatile Inc. made FACETASM a subsidiary
Made e frontier, Inc. a subsidiary84

INTEGRATED REPORT 2018
About NCXX Group

Sustainability

Strategy

Shareholder Information
Overview of shares

Shareholder Memo

(As of November 30, 2017)

Total number of issuable shares: 30,000,000
Total number of shares issued:
Number of shareholders:

15,030,195
5,343

Major shareholders
Number ofshares held
(shares)

Shareholding
percentage ofissued shares (%)

FISCO Ltd.

4,229,700

28.14

FISCO DIAMOND AGENCY, Inc.

3,000,000

19.96

Sequedge Japan Holdings Inc.

512,400

3.41

Shareholder name

Corporate Data

Financial Section

Listed exchanges

Tokyo Stock Exchange, JASDAQ

Listing dateJune 22, 2007

Securities code

6634

Business year

December 1 to November 30

Ordinary General Meetingof Shareholders

Within three months of the final closing date of each year

Shareholder record dateNovember 30

Record dates for dividends
from retained earnings

November 30, May 31

Number of shares in one
trading unit

100 shares

Method of posting notices

The Company provides notification by electronic notices.
However, when the Company cannot provide notices by theelectronic method due to accidents or other unavoidable reasons,it will post the notices in the Nikkei newspaper. Notices areprovided on the Company’s website at the following address
https://ncxxgroup.co.jp/irinfo/notification/

Transfer agent

Mitsubishi UFJ Trust and Banking Corporation,
4-5, Marunouchi 1-Chome, Chiyoda-ku, Tokyo
Mitsubishi UFJ Trust and Banking Corporation,
Securities Agency Division,
4-5, Marunouchi 1-Chome, Chiyoda-ku, Tokyo
Mitsubishi UFJ Trust and Banking Corporation
branches throughout Japan

Investment Business Limited Partnership Digital Asset Fund

450,400

3.00

Hideaki Oka

390,400

2.60

Handling office of thetransfer agent(postal address)

Heringu Handeru K.K.

202,000

1.34

Contact office of the sametransfer agent

CAICA Inc.

125,008

0.83

SEQUEDGE INVESTMENT INTERNATIONAL LIMITED

97,0000.65

CA INDOSUEZ (SWITZERLAND) SA SINGAPORE BRANCH

90,0000.60

Tachibana Securities Co., Ltd.

81,1000.54

Financial institutions(0.24%)

Individuals and others(39.82%)Foreign companies, etc.
(2.72%)

Financial instruments
business operators(1.57%)

Shareholding
composition

Other companies(55.64%)