INTEGRATED REPORT 2017

NCXX Group Inc.

01

INTEGRATED REPORT 2017
About NCXX Group

Sustainability

StrategyContents

About NCXX Group

Financial Section

Corporate Data

Editorial Policy

Note on Forward-Looking Statements

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

This report contains information that includes forward-looking statements. These statements are preparedbased on information available to management as of the preparation date of the report. Accordingly, actual
conditions may differ significantly from such statements or details implied therein based on risks and­uncertainties associated with changes in economic conditions and markets and other factors.

02 Corporate Philosophy / Management Vision
03 Overall Image of the NCXX Group04 Business Domains

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

05 Value Creation Process
Icons

07 Financial Highlights
08 Core Performance Indicators

Strategy

10 Top Message
14
15
16

 eature 1: Creating New Value with Blockchain Technology
FFeature 2: Making Cyber-Physical Systems a Reality
Introducing Our Businesses

Sustainability

23
26
28

Corporate GovernanceInterview with an Outside Director
CSR Activities

Financial Section

31
36
41

Analysis of Operating Results and Financial Position
Consolidated Financial Statements
Notes

79
80

Company Overview / History
Shareholder Information / Shareholder Memo

Corporate Data

· · · · · · Return to theprevious page

· · · · · · To Contents· · · · · · To the previous
page· · · · · · To the next
page

Index
About NCXX Group

Strategy

Sustainability

Click on the items on the contents page to movedirectly to that page.

02

INTEGRATED REPORT 2017
About NCXX Group

Strategy

Sustainability

Financial Section

Corporate Data

Corporate Philosophy
NCXX Group Inc.

Provide new value to people basedon telecommunications technology,
thereby contributing to thedevelopment of a more efficientand comfortable society

http://ncxxgroup.co.jp/en

NCXX Inc.
http://www.ncxx.co.jp/

NCXX Solutions Inc.
http://www.ncxx-sl.co.jp/

CAICA Inc.

Management Vision
Connecting, Creating, and Growing:
The Company will create new value andcontribute to society by integrating
the Group’s accumulated originaltechnologies and knowledge, as well as
its outstanding human resources

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

Care Dynamics Limited
http://www.care-dynamics.jp/

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

TITICACA, Co. Ltd.
http://www.titicaca.jp/english/

03

INTEGRATED REPORT 2017
About NCXX Group

Strategy

Sustainability

Financial Section

Corporate Data

IoT Solutions

Total Nursing Care Business Support Service

The Internet of Things (IoT) refers to a systemthat automates various controls by enabling“things” such as sensors and devices connected
through the Internet to exchange data with eachother. By equipping each of these devices witha wireless communication function, we propose
a variety of solutions that realize greater operational efficiency.

We will solve various problems faced by nursing
care providers, including by the provision ofCare Online, a business support system fornursing care providers, and by the proposal,
development and sales of nursing care robots
and nursing care ICT systems.

System Solutions

Robot BusinessWe provide integrated one-stop services in the
manufacturing, finance, distribution, and corporate and public sectors. Services cover all
aspects from commercialization using blockchain technology and consulting to systemdevelopment businesses, including design,­construction, operation, and maintenance, as
well as infrastructure construction such as­networks and databases.

Overall Image of
the NCXX GroupWe aim to provide new value in a variety of fields,
including nursing care, by combining robot andcommunication technologies and creating a newkind 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.

Internet Travel

Agricultural ICT BusinessFor customers who wish to take a one-of-a-kind
trip, not being satisfied with regular travel tours
and wanting to make trips that do not appear
in guidebooks, our travel consultants, known
as travel concierges, propose individually­customized trips.

We aim to realize an agricultural business inwhich anyone can succeed by selling safe, secureand delicious healthy vegetables grown throughdigitally managed soil chemistry, and by providing
cultivation technologies for producers.

04

INTEGRATED REPORT 2017
About NCXX Group

Sustainability

Strategy

Financial Section

Corporate Data

Business Domains
Device business

Internet travel business¥9,111 million¥1,623 million
Net sales¥12,231 million
Prof. Sankai, Universityof Tsukuba/CYBERDYNE Inc.

Prof. Sankai, Universityof Tsukuba/CYBERDYNE Inc.

Prof. Sankai, Universityof Tsukuba/CYBERDYNE Inc.

Brand retailplatform business¥1,495 million

05

INTEGRATED REPORT 2017
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· Transformation of existing financial
services through the developmentof artificial intelligence (AI)· Diffusion of new financial
services by FinTech· Utilization of blockchain
technology

Changing Society· Climate change risk
· Worsening environmental
conditions· Increasing awareness of theneed for food safety· An aging society with a fallingbirthrate· Declining regional vitality

Making use of informationand communication
technologies· Responding to risks
including data leaks,
tampering and loss

Management Strategy

Construction offinancial systems· Creating innovative financial­services that make full use ofresources in financial systems
construction expertise· Optimization of costs

Social Issues to be Addressed

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 care staff· Improvement of living­conditions of growers andworkers· Support for domestic regions
and developing countries

06

INTEGRATED REPORT 2017
About NCXX Group

Strategy

Sustainability

Financial Section

Corporate Data

Value Creation Process

SystemSolutions

IoT
SolutionsImprovementof security
Internet
TravelReduction offuel costs

Values to be CreatedTotal Nursing
Care BusinessSupport Service

Robot
Business

Prevention of
infrastructure
accidents

Realization ofa safe andsecure society

Business Activities

Agricultural ICT(NCXX FARM)

Provision of­innovative
financialservices

An aging
society with afalling birthrate
Resolution ofsocial issues

Lessening ofenvironmental
burdens

Revitalizationof regions

Reduction ofnursing careburdenRealization ofhigh-quality
services

07

INTEGRATED REPORT 2017
About NCXX Group

Sustainability

Strategy

Financial Section

Corporate Data

Financial Highlights
Net sales¥12,231 million¥–619 million(Millions of yen)

Loss attributable to owners of parent

Ordinary loss

Operating loss¥–1,068 million¥–770 million(Millions of yen)

(Millions of yen)

(Millions of yen)

15,000

200

250

300

12,000

0

0

0

9,000

–200

–250

–300

–45
–529
12,231

6,000
3,000
0

7,416

Year ended
Nov. 2015

Year ended
Nov. 2016

–600

–600

–750

–900

–800

Year ended
Nov. 2015

Year ended
Nov. 2016–1,000Year ended
Nov. 2015

Year ended
Nov. 2016–1,200Total assets

Net assets¥3,800 million(Millions of yen)

–770

–810
–500

Comprehensive income (loss)¥–930 million

–619

–400

Year ended
Nov. 2015

Year ended
Nov. 2016

Net loss per share¥13,459 million¥–71.77(Millions of yen)

(Millions of yen)

(Yen)

5,000

15,000

20.00

0

4,000

12,000

0.00

–250

3,000

9,000

–20.00250–1,068

33

–3.14

–930

–500
–750
–1,0002,000

14,303

4,726
3,800

1,000

Year ended
Nov. 2015

Year ended
Nov. 2016

0

6,000

13,4593,000

Year ended
Nov. 2015

Year ended
Nov. 2016

0–71.77–40.00–60.00Year ended
Nov. 2015

Year ended
Nov. 2016–80.00Year ended
Nov. 2015

Year ended
Nov. 2016

08

INTEGRATED REPORT 2017
About NCXX Group

Sustainability

Strategy

Financial Section

Corporate Data

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

28th term

29th term

30th term

31st term

32nd term

33rd term

Fiscal year-end

July 2012

November 2012

November 2013

November 2014

November 2015

November 2016

Net sales
Ordinary income (loss)
Profit (loss) attributable to owners of parent

3,809,346(341,634)(632,161)

1,864,422
93,53586,385

4,948,289
487,207430,325

6,375,427
692,055
630,311

7,416,907(810,412)(45,483)

12,231,134(770,026)(1,068,435)

Comprehensive income
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)(615,571)
1,130,214
2,590,372
113.88(162.25)–38.9(89.6)–
199,328(359,348)
353,583
267,54985(–)

92,782
1,222,996
2,156,521
123.84
9.77
–
50.8
8.2
19.4
211,835(231,821)
93,355
341,62269(–)

458,901
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(–)

654,4123,551,077
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(–)

33,876
4,726,400
14,303,095
308.98(3.14)
–
32.0
(1.1)
–
(1,090,008)(844,920)
829,467
2,905,141712(–)(930,013)
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)

Notes: 1.	Consumption taxes are not included in the net sales.
2.	In accordance with the provisions of Article 193-2, Paragraph 1 of the Financial Instruments and Exchange Act of Japan, the Company’s consolidated financial statements for the 28th term were audited by RSM Seiwa, and the Company’s­consolidated financial statements from the 29th term to the 33rd term were audited by Toko Audit Corporation.
3.	Although there were potentially dilutive shares for the 28th term, 32nd term, and 33rd term, the Company recorded a net loss per share. There were no potentially dilutive shares for the 29th term and 30th term. Accordingly, diluted net income pershare is not disclosed for these terms.
4.	The price-earnings ratio is not disclosed for the 28th term, 32nd term, and 33rd term, because the Company recorded a net loss per share for those terms.
5.	The 29th term comprises the 4 months from August 1, 2012 to November 30, 2012, due to a change in the accounting period.
6.	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 28th term.
7.	The Company has adopted the Revised Accounting Standard for Business Combinations (ASBJ Statement No. 21, September 13, 2013), and effective from the fiscal year ended November 30, 2016, the Company’s net income (loss) is treated as
profit (loss) attributable to owners of parent.
8.	The average number of temporary employees has not been disclosed as the number from the 28th term to the 32nd term is less than one-tenth of the number of employees.

09

INTEGRATED REPORT 2017
About NCXX Group

Strategy

Sustainability

Financial Section

Corporate Data

Strategy

10

INTEGRATED REPORT 2017
About NCXX Group

Strategy

Sustainability

Financial Section

Corporate Data

Top Message
Greeting
I am pleased to open this greeting to all our shareholders and otherstakeholders as we deliver NCXX Group’s integrated report.
According to the key points of the 2016 White Paper on Information
and Communications in Japan released by the Ministry of Internal
Affairs and Communications in July 2016, “Further ICT investment in IoT,
big data, AI, and other forms of ICT is expected to accelerate Japan’s
economic growth and boost the country’s real GDP by about ¥33.1­trillion by FY2020.” The Company is concentrating on the ICT domain,a market that is expected to continue to develop moving ahead. At thesame time, ­FinTech is swiftly expanding around the globe, coming into
practical use, and has great potential. Determined to make great strides
in this growth field, we made SJI Inc. (now CAICA Inc.), which possesses
blockchain, AI and other technology central to FinTech, a ­subsidiary inAugust 2016.
Further, in the same month, we also made TITICACA, Co. Ltd. a­subsidiary. This marked the launch of the brand retail platform businessfocused on the sale of apparel and accessories. In addition to such new
initiatives, we will keep proactively developing business in the growth areasof ­agri­cultural ICT, automotive telematics, robotics, and Internet travel.

Tsukasa
Akiyama
Representative Director
and President
NCXX Group Inc.

11

INTEGRATED REPORT 2017
Strategy

About NCXX Group

Sustainability

Financial Section

Corporate Data

Top Message

Results for Fiscal 2016

Outlook for the Year Ending November 30, 2017

In fiscal 2016 (December 1, 2015 to November 30, 2016), the Company’s consolidated
net sales grew a sharp 64.9% year on year to ¥12,231 million, reflecting SJI Inc. (nowCAICA Inc.) being made a subsidiary. However, orders for new projects did not growas we had anticipated due to the ­designation of SJI stock as securities on alert by the
Tokyo Stock Exchange remaining in effect, and some product orders trailed plans at
NCXX Inc. Consequently, we posted an operating loss of ¥619 million (¥529 million in
the previous fiscal year), an ordinary loss of ¥770 million (¥810 million in the previous
fiscal year), before income taxes and non-controlling interests of ¥863 million (incomeof ¥23 million in the previous fiscal year), and a loss attributable to owners of parent of¥1,068 million (¥45 million in the previous fiscal year).

Consolidated Business Performance(Millions of yen)

(Millions of yen)

Net sales (left axis)
Ordinary income (loss) (right axis)

12,000
9,000

692

800
600

487
12,231

6,000
3,000
0
−3,000

2,855

3,809

93
1,864

4,948

6,375

7,416

200
0
−200

−105

−6,000

−400

−341

−600

−9,000−12,000−15,000

400

11/7

12/7

12/11

13/11

14/11

−810

−770

15/11

16/11

−800
−1,000* Transitional accounting period of 16 months (April 1, 2009 to July 31, 2010) for the fiscal year ended July 31, 2010.
Transitional accounting period of four months (August 1, 2012 to November 30, 2012) for the fiscal year ended November 30, 2012.

NCXX Group Inc.
NCXX Group Inc. will continue to proactively enter key growth fields such as robot
development, agricultural ICT, automotive telematics data, and FinTech.
In the agricultural ICT business (NCXX FARM), we advanced integration of agricultural
production, manufacturing, and retailing—a so-called “senary” industry business. We
also promoted franchise business entailing sales of packaged services—chemical soil
management based on a patented farming method and digital management based on
ICT systems. In “senary” industry business, we launched yellow tomato keema currygift sets in boxes made of paulownia wood in September 2016, and additive-free
100% tomato juice chock-full of two varieties of yellow tomatoes with high sugar­content in October 2016. Iwate Ginga Plaza, a store in Tokyo’s Ginza district featuring
products from Iwate Prefecture, also started carrying some of our products.
In addition, we periodically hold seminars at the Company’s farm about the patented
farming method and agricultural ICT. This has spurred a rise in inquiries and visitorsfrom around Japan including local government bodies and educational corporations
utilizing the seminars as a part of training.
With regard to robot development, the Company has placed prototype nursing carerobots in facilities and is undertaking repeated trials and testing regarding their communication with elderly people. The Company aims to realize robots that are easy touse on the front lines and that have an easily accessible cost structure, and is proceeding with development towards early commercialization.

 evice BusinessD(NCXX Inc., NCXX Solutions Inc., CAICA Inc., and Care Dynamics Limited)
NCXX Inc. focused on providing solutions using GX4x0NC, the OBD II-type automotive
telematic data collecting unit launched in 2015. In collaboration with NCXX Solutions
Inc., NCXX developed Drive Care, an OBD II solution for nursing care transportation
service vehicles, and rolled it out in August 2016. While orders did not come into full12

INTEGRATED REPORT 2017
About NCXX Group

Strategy

Sustainability

Financial Section

Corporate Data

Top Message

swing in the fiscal year under review, we will strengthen sales activities so as to quickly
achieve that while continuing to follow up with customers. For NCXX, we are projecting
sales of ¥1,490 million in fiscal 2017, up from ¥1,248 million in fiscal 2016.
NCXX Solutions Inc. saw solid orders in the fiscal year under review as in the previous fiscal year, including for system rebuilding from a local bank and system development associated with energy liberalization from a major gas company. The Kanto
Office began full-fledged operations in the previous fiscal year, and is making solid
progress expanding business orders and securing engineers, with a focus on financial
systems. NCXX Solutions is also working to enhance the free investment information
service provided by its parent company FISCO Ltd. via the FISCO smartphone app
and the PC browser-based FISCO Web through functional additions and improvements. For NCXX Solutions, we are projecting sales of ¥2,770 million in fiscal 2017,
up from ¥2,504 million in fiscal 2016.
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 thelaunch of new services such as support for the introduction of nursing care robots andthe provision of nursing care ICT, Care Dynamics is evolving into a comprehensive
nursing care business support enterprise.
In regard to support for the introduction of nursing care robots, in May and June
2016, Care Dynamics held special events for companies considering deploying the
HAL® robot suit. At these events, the companies could actually try out and experience
what it is like to use HAL technology. These events were part of the “Special Project toSupport the Introduction of Robotic Devices for Nursing Care” (allocated by the 2017supplementary budget) by the Ministry of Health, Labour and Welfare. As a result, Care
Dynamics captured a large number of orders, encompassing HAL as well as otherproducts offered by the company, thereby making a significantly positive contribution
to net sales in the fiscal year under review.
In terms of new services, we are offering support services for nursing care businesses engaged in the distribution of a variety of nursing care robots. We also
launched Drive Care, the OBD II solution for nursing care transportation service

vehicles previously mentioned. Given the above, we are forecasting sales at Care
Dynamics will rise to ¥115 million in fiscal 2017 from ¥110 million in fiscal 2016.
While it became difficult for CAICA Inc. to acquire orders for some projects due toits ongoing designation under its former company name SJI Inc. as securities on alertby the Tokyo Stock Exchange since April 28, 2016, the designation was removed on
September 24, 2016. By steadily advancing an array of measures to bolster finances
while working to restore confidence, we made substantial improvements on the financial front. With a transition to a real growth stage in sight ahead, we renamed SJI Inc.
as CAICA Inc. on February 1, 2017 with the aim of strengthening brand power. CAICA
established a new five-year medium-term management plan commencing in the fiscal
year ended October 2017, “Setting the Stage for New Growth,” and intends toembrace M&A as part of efforts to achieve the plan. We have hit the ground runningespecially in the FinTech field, steadily amassing projects including commissioned
work to support verification testing at a major corporation and orders for blockchainrelated system development. To be a top blockchain technology player, we are­focusing on hiring and developing talent. We are also expanding from our current
development support business into operations and maintenance services. In the
future, we aim to shift to a recurring revenue business model, with an eye to sellingin-house developed software packages. For CAICA, we are projecting sales of ¥5,999
million in fiscal 2017, compared with ¥5,337 million in fiscal 2016.

Internet Travel Business(e-tabinet.com, Web travel Co., Ltd., and Gloria Tours Inc.)
In this segment, the Company’s consolidated subsidiary e-tabinet.com and its sub­sidiary Web travel Co., Ltd. provide travel services through the Internet. The segment’s
mainstay is “Travel Estimate Services,” which entail delivering travel itineraries that are
perfect fits for customers by enabling customers to request travel estimates onlinefrom travel agencies throughout Japan. Another offering is “Travel Concierge Services,”
where expert travel concierges propose customized travel itineraries free of charge.
Other services include providing specialized expertise and preparing optimal travel

13

INTEGRATED REPORT 2017
About NCXX Group

Strategy

Sustainability

Financial Section

Corporate Data

Top Message

itineraries for customers who wish to take world trips, as well as creating tailor-madetravel itineraries for Chinese customers. We will continue endeavoring to deliver highquality, personalized travel services replete with the spirit of hospitality by recommending Kodawari No Tabi (“Journeys for the Discerning Traveler”) travel packages.
We are also focusing on the disabled sports market ahead of the 2020 Tokyo­Olympics and Paralympics. In fiscal 2016, e-tabinet.com acquired all of the outstanding
shares in Gloria Tours Inc. on October 6, 2016. Gloria Tours provides travel arrangements for international disabled sports competitions and assistance with receiving
overseas VIPs as well as support for operating various events, among other things.
In April 2016, we newly established a ski website targeting overseas visitors toJapan to tap into that strong inbound demand. In October 2016, we managed toinclude the listing of 204 ski trails in Japan on the website with the help of Jitsugyo
no Nihon Sha, Ltd., a publisher established in 1897.
As a result of the above, we are forecasting segment sales will grow to ¥2,645­million in fiscal 2017 from ¥1,650 million in fiscal 2016.

Brand Retail Platform Business (TITICACA, Co. Ltd. and Versatile Inc.)
We made the importer and retailer of ethnic clothing and sundries TITICACA, Co. Ltd.
a subsidiary on August 1, 2016, and the companies Versatile Inc. and FISCO International Limited subsidiaries in December 2016. With this, we newly established thebrand retail platform business segment focused on the sale of accessories. Moving
forward, we will engage in the retailing of sundries, apparel, and so forth, as well as
the licensing of brand trademarks. TITICACA turned to profit for the single month of­October 2016, and we will continue working to stabilize earnings in the next fiscal year
including by closing unprofitable stores and revamping personnel frameworks. As aresult of the above, we are forecasting segment sales will rise to ¥5,221 million in fiscal
2017 from ¥1,495 million in fiscal 2016.

In addition, we aim to grow and stabilize this segment so that it becomes a new
earnings pillar. To that end, we will take steps to develop and popularize IoT-related
services for the fashion industry as well as engage in licensing of the trademark for
CoSTUME NATIONAL, an apparel and accessory retailer and importer and distributor. Further, we will look to develop not just apparel and accessories but wine andother retailing operations as a foothold for developing business in Asia.
IT is also being applied to the fashion industry, with store inventory management
utilizing devices and virtual fitting rooms using augmented reality (AR). As we move
forward developing and promoting IoT-related services for the fashion industry, we aim
to grow the brand retail platform business into one of the Group’s earnings bases.
Other subsidiaries will also continue to expand their sales and increase operational
efficiencies to contribute to the Group’s performance.
For fiscal 2017, we are projecting consolidated net sales of ¥18,495 million,­operating income of ¥91 million, an ordinary loss of ¥74 ­million, and a loss attributableto owners of parent of ¥209 million. EBITDA is ­forecast at ¥728 million.
We aim to be a highly profitable company by creating significant added value, andregard gross profit margin and operating profit margin as important management
benchmarks. In addition, we are working to achieve a better balance regarding M&A
and other investments by clarifying their significance in terms of Group strategies andconditions and timelines for recouping the investments, and ensuring effective­governance. Going forward, we will keep striving to grow profit by further expanding
sales, making the entire Group more efficient, endeavoring to strengthen our corecompetencies, and lowering costs.

Tsukasa Akiyama
Representative Director and President
NCXX Group Inc.

14

INTEGRATED REPORT 2017
About NCXX Group

Strategy

Sustainability

Financial Section

Corporate Data

Feature 1: Creating New Value with Blockchain Technology
Conducting Experiments in Sharing Real Estate Data
CAICA Inc. has started conducting experiments in sharing and utilizing real estatedata using blockchain technology in­collaboration with LIFULL Co., Ltd. (Listing:2120 TSE-1; Headquarters: Chiyoda-ku,
Tokyo; President: Takashi Inoue) and Tech
Bureau Corporation (Headquarters: Osaka
City, Osaka; President: Takao Asayama).
Specifically, CAICA is building and verifying the ­effectiveness of a mechanism forlinking scattered real estate information on a
blockchain using data such as that found on
LIFULL HOME’S, a real estate and housing
information website operated by LIFULL
that possesses a total of approximately 8
million data items. CAICA aims to become
Japan’s largest systems integrator for­cryptocurrencies, and is conducting a­variety of initiatives that utilize blockchain
technology.

Conceptual Illustration of the Experiments
Data provision and system installation and verification

LIFULLAd
tracking

Housing
evaluations

Technology support

Aim of Experiments and Use of Blockchain Technology
For these experiments, CAICA is providing
consulting services and technical support
for the installing of the blockchain on mijin®,
Tech Bureau’s versatile blockchain platform.
The distinctive features of blockchain
technology include tamper-proof data,
security based on user authentication andencryption, a pure peer-to-peer open ledger
network with zero downtime, data proof ofexistence and authentication with timestamps and electronic signatures, as well as
traceability. By leveraging these features, itwill be possible to integrate and unify realestate data related to certified copies ofregisters, contracts and public certifications.

Moreover, blockchain technology also has
the potential to substantially increase­business efficiency while reducing the cost
and time required to design, develop, andinstall these systems.
In the future, disperse sources of data
will be brought together and integrated,
including open data provided by national
and local governments, registry databases,
tax ledgers, and national ID information.
In addition to stimulating the real estatemarket, we believe this data integration will
help solve social problems, such as identifying owners of unoccupied homes.

CAICA
Connecting information

LIFULL HOME’S

Remodelinghistorymijin

Unoccupied
home
information

Maps andsurroundingarea

Environment setup®

Tech Bureau

Blockchain

Integrating data

BlockLog Attendance Management Service
In June 2017, CAICA released a beta version of its new BlockLog attendance management
service that uses blockchain technology. CAICA originally announced it began developmentof BlockLog, a combination of the words blockchain and log, in March 2017. BlockLog is aservice featuring an iOS app that uses the GeoFence feature of iPhones with blockchain
technology to automatically record when people come to and leave work. It enables managers to check the relevant statistics on when employees leave work.
The NCXX Group’s agricultural ICT business, known as NCXX FARM, already uses BlockLog.
The NCXX Group aims to provide higher-value-added services by combining it with IoT andleveraging its superiority in communications technologies and devices.

15

INTEGRATED REPORT 2017
About NCXX Group

Strategy

Sustainability

Feature 2: Making Cyber-Physical
Systems a Reality
Establishing a Presence in New Markets
The world is currently standing on thethreshold of the Fourth Industrial Revolution,
following the First Industrial Revolution
driven by steam, the Second Industrial­Revolution driven by electricity and theThird Industrial Revolution driven by IT. In
the Fourth Industrial Revolution, physicalthings of all kinds, including automobiles
and home electric appliances, will be connected to the Internet, making it possible toperform sophisticated analysis of the big
data that will be generated.
As a result of the development of AI andblockchain technologies, a society that is far
more efficient and less labor intensive thanwhat we have today is predicted to takeshape in the future. Experts believe that the
Physical Part of society will be managed
largely on an automated basis. This meansthat Cyber-Physical Systems will become areality. A Cyber-Physical System is a systemthat quantifies various states of the PhysicalPart of the real world that are subject tocontrol, and quantitatively analyzes this datain the Cyber Part in order to derive new
insights and knowledge, which are then fed
back and used to control the Physical Partof the real world.
In such a world, the ability to collect andretain big data from the Physical Part of thereal world through IoT technology and theability to manage and analyze this data
through AI and blockchain technologies in the
Cyber Part will become increasingly crucial.
Eyeing a future where unprecedented
markets like those described above will takeshape, the NCXX Group aims to establish apresence as a developer of IoT devices andsolutions that link various devices.

The NCXX Group’s Role in Cyber-Physical Systems
In a Cyber-Physical System, a blockchain is used to provide a reliable, secure distributed databasefor data that is sent from IoT equipment, and AI enables automatic action and transactions­triggered by sensors.

Overview of a Cyber-Physical System

Physical Part

Cyber Part
Interface
Network

Control target

the responsibilities, strategies and basic
policies of the national government, various
institutions and other bodies. However, thecosts of security measures borne by business enterprises have continued to increasesteadily, mainly to deal with the growing
threat of information leaks by insiders andTokyo; President: Takao Tsubuki; “Terilogy”),
which provides cutting edge network security solutions for large Japanese companies.
The aim of the alliance is to realize a society
where IoT equipment can be used securely
as a result of safeguarding devices, systems,
and crucial information from various threats
on a variety of networks. Under the agreement, the two companies will jointly develop
products that integrate the Group’s IoT
device technologies with Terilogy’s security
technologies.

Measurement/
experiment

Statisticalanalysis

Control

Big data

The Cyber-Physical Systems that will be
realized in the Fourth Industrial Revolution
will handle big data including large quantities of private information. Security will
therefore play an extremely important part.
The Basic Act on Cybersecurity was established in November 2014. This law clarifies

Corporate Datatargeted cyberattacks. The information
security market (applications and services)in Japan will remain on a sustained growth
track in the near term. For listed companies
in Japan, enhancing the quality of security
measures and reducing the cost burden of
those measures have become key priorities
for increasing corporate value.
In this environment, on January 1, 2017,
the Group concluded a capital and businessalliance with Terilogy Co., Ltd. (Listing:
JASDAQ 3356; Head Office: Chiyoda-ku,

IoT device

Efforts to Bolster Security

Financial Section

AI
Blockchain

Actual society

Computer/cloud system

16

INTEGRATED REPORT 2017
Strategy

About NCXX Group

Introducing
Our Businesses● 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 and related monitoring of malfunctions and other issues, remote surveillance and monitoring for faults and so forthof elevators and ATMs, remote readings ofwater, electricity and gas meters, and security measures.

Remote control
and inspection

Users

Water supply andgas meters

Remote monitoring
Security and monitoring
camerasIoT
moduleNetworkInventory sales
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 2017
Strategy

About NCXX Group

Sustainability

Financial Section

Corporate Data

Introducing Our Businesses

Corporate Information Provider Service
Original brand app● Device Business(NCXX Solutions Inc.)

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

NCXX Solutions constantly
updates information

Able to post stock promotions based on
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 a
Telematics 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 mediumsized securities companies, human resource
service companies, and so forth). We arealso developing ICT services for the agri­
culture and nursing care sectors.

Browse company information

Server(Cloud)[Compatible OSs: Android 4.0 and later,
iOS7.0 and later]
OEM (white label) usage

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

Initial customization cost andinformation 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” forproviding 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 theEvent Schedule Function that enables users to view a list of important recent event information andthe Favorites (Portfolio) Management Function that lets users register and manage their favorite
stocks easily.

18

INTEGRATED REPORT 2017
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

Existing financial markets● Device Business(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 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 2017
About NCXX Group

Strategy

Sustainability

Financial Section

Corporate Data

Introducing Our Businesses

Nursing Care Robot
Business● Device 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 December
2014, 120 nursing careservice providers haveintroduced the system atover 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 2017
Strategy

About NCXX Group

Sustainability

Financial Section

Corporate Data

Introducing Our Businesses

Features● Internet Travel Business(e-tabinet.com)

Internet Travel
The main business in the Internet travelbusiness is Customized Travel Services
provided 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 November 2017, the service hasover 361 unique and original travel
concierges registered.

21

INTEGRATED REPORT 2017
Strategy

About NCXX Group

Sustainability

Financial Section

Corporate Data

Introducing Our Businesses

HAPPY TRADE COLLECTION● Apparel 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 2017
About NCXX Group

Strategy

Sustainability

Financial Section

Corporate Data

Sustainability

23

INTEGRATED REPORT 2017
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 five 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 every month, in principle, 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.
Article 41 of the Company’s Articles of Incorporation stipulates that “the Company can conclude anagreement limiting liability for damages with the external auditor, pursuant to Article 423-1 of the­Companies Act, based on the provisions in Article 427-1 of the same. However, the upper limit of theliability amount under 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 the amount 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 2017
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 their important 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, 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 by exchanging 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 isalso striving to strengthen its legal risk management system by concluding an advisory contract with alaw 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 and Type of Compensation,
and Number of Eligible Officers
Position

Directors(excluding outside directors)
Audit & Supervisory Board members(excluding outside Audit &Supervisory Board members)
Outside officers

Total by type of compensation (Thousands of yen)
Total
compensation
Retirement
Basic
Stock
Bonuses(Thousands of yen) compensation
benefits
options

Number of
eligible
officers

8,868

4,868

4,000

–

–

6

900

900

–

–

–

2

2,700

2,700

–

–

–

6

Notes: 1. The 22nd Ordinary General Meeting of Shareholders, held on June 29, 2006, resolved that the total compensation for theCompany’s directors (excluding salary as an employee) shall be limited to within 300 million yen per year. Separately fromthe above, the 30th Ordinary General Meeting of Shareholders, held on February 26, 2014, resolved that the total­compensation in stock options shall be limited to within 100 million yen 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 yen per year.
3. There were three Audit & Supervisory Board members (of whom, two were outside Audit & Supervisory Board members)
who received no compensation in fiscal 2016 (from December 1, 2015 to November 30, 2016).

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

25

INTEGRATED REPORT 2017
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

2. View Concerning the Appointment Status of the Outside Director and Audit &Supervisory Board Members

No items to report

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.

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, and as noted under “2. Personnel, Capital, Business, and Other Vested­Interests between the Outside Director and Audit & Supervisory Board Members and the Company” inthis report, 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 general shareholders.
Furthermore, they are expected to supervise and audit the execution of duties by the Company’s­directors from an independent position posing no risk of a conflict of interest with general shareholders,since they are expected to apply an outsider’s perspective, drawing on their professional expertise andexperience and knowledge working for other companies, in offering impartial advice and opinions to
the Company.

3. Supervision and Audit by the Outside Director and Audit & Supervisory Board Members,
Their Mutual Cooperation in Internal, Audit & Supervisory Board, and Accounting 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 Auditing Certified Accountants and Their Staff]
Fiscal 2015
Classification

Compensation paid
for audit certification
activities(Thousands of yen)

Fiscal 2016

Compensation
paid for non-audit
activities

Compensation paid
for audit certification
activities

Compensation
paid for non-audit
activities

Reporting company

16,000–17,800–Consolidated subsidiaries

10,000–26,620–Total

26,000–44,420–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
Outside Director ������������������������������������������������� Sadatomo Matsudaira
Audit & Supervisory Board Member ������������������ Hiroshi Sasaki
Outside Audit & Supervisory Board Member ����� Mitsutoshi Urano
Outside Audit & Supervisory Board Member ����� Kazuhisa Nagabuchi

26

INTEGRATED REPORT 2017
About NCXX Group

Strategy

Sustainability

Financial Section

Interview with an Outside Director

We expect synergies across business lines.
Diversity at the NCXX Group froman Outsiders’ Perspective

Sadatomo
Matsudaira
Outside Director
NCXX Group Inc.
November 1944	Born
April

1969	Joined Japan Broadcasting
Corporation

April

2010	Appointed Professor, Kyoto­University of Art and Design(current)June2010	Appointed Guest Professor,
Kokugakuin University (current)

February

2016	Appointed Director of the­Company (current)

About two years have passed since I was
appointed an outside director of the NCXXGroup. The NCXX Group is well known for
its core system solutions business, but it
also has diverse operations in other areas
including Internet travel services and agricultural ICT. I believe the NCXX Group is
unique in that it creates synergies by harnessing the individual characteristics ofthese diverse businesses instead of operating them independently.
NCXX FARM, which operates in­Hanamaki City, Iwate Prefecture, applies
technologies developed in the device business to create ICT solutions for agriculture.
I feel this is one example of how synergies
across diverse businesses can be created,
generating the momentum to increase corporate value.

Role of Outside Directors
I believe the role of an outside director is to
stand between the corporation and shareholders, and work for the betterment ofshareholders. As a board member independent of management, I provide advice whilesiding with non-controlling interests in particular. This means that I will oppose moves
by management in some circumstances.
At Board of Directors meetings, I posequestions about matters that would be ofinterest to shareholders. When acquiring acompany, for example, I would ask whether
the purchase amount is appropriate andwhy the acquisition is being made at thatparticular time.
At many companies, I hear that discussions at meetings of the Board of Directors
can become fragmented due to differing
degrees of information being held by insidedirectors and outside directors. This is not
the case at the NCXX Group.

Most Important Point of Corporate
GovernanceI think companies should seek growth forthe benefit of society and shareholders. To
benefit both sides, it is important to haveopen and transparent management, which
requires transparency and openness in thedecision-making process. There is no
reason to obfuscate this process. If management hesitates on transparency, it raises
a red flag for outside directors to investigate,
in my opinion.

Corporate Data

27

INTEGRATED REPORT 2017
About NCXX Group

Strategy

Sustainability

Interview with an Outside Director

When management makes a decision,
the inside directors are keenly aware of how
it affects frontline employees, so they may
agonize over the decision. While taking into
account how decisions affect employees,
outside directors, however, primarily judge
management’s decisions based on whether
they are good or bad (beneficial or harmful)for shareholders, thereby clarifying the
judgment criteria. When management
makes a decision that favors internal considerations, I believe it is my duty to criticize
such a decision. In this sense, it is very
important for companies to have outside
directors in order to achieve growth. I
believe it is a sign of healthy corporate
management.

What Makes the NCXX Group
Attractive?
The NCXX Group has a diverse variety of
independently operating businesses, suchas IoT solutions, system solutions, ­Internet
travel services, comprehensive nursing care
support services, robots, and agricultural
ICT. However, they are all interconnected insome way, and operate well together whileleveraging their individual advantages.

I believe the NCXX Group is a uniquecorporate group, one of only a few in theworld that is involved in such a diverse
range of businesses spanning communi­
cations equipment, software, travel,apparel, agriculture and others. As a company, I believe the NCXX Group has significant business potential and possibilities,
and look forward to seeing how it grows in
the future.
IoT is an often-heard word these days,
and it refers to the concept of connecting
things over the Internet. This is exciting formany investors because IoT entails efforts
at researching and commercializing new
ideas that are being made possible by newtechnologies that network together manythings instead of connecting a single thing.
In this context as well, I believe the NCXXGroup is a promising company indeed.

Financial Section

Corporate Data

28

INTEGRATED REPORT 2017
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”

Exhibit at 1st Iwate Smart Agricultural 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.

Riding tandem

NCXX FARM set up an exhibit at the 1st Iwate
Smart Agricultural Festival sponsored by
Iwate Prefecture and held at the Iwate Industry
Culture Convention Center Apio from August
25 to 26, 2017. On the first day, its exhibit was
visited by many local high school and college
students. On the second day, many families
came out with their children. We put on display
a live video feed of fields being cultivated,demonstrated the remote operation of farmequipment via ICT, and showcased our­processed products.

Industry representatives and same-sector peers were more­interested in this exhibit than the general public

29

INTEGRATED REPORT 2017
About NCXX Group

Sustainability

Strategy

Financial Section

Corporate Data

CSR Activities

Reducing Risk in Delivering Nursing Care Services

Second Sale of Charity T-Shirts

OBD II-Type Automotive Telematics Data Collecting Unit “GX4x0NC”¥500 from Each Double Smile T-Shirt Is Donated to Developing Countries

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

TITICACA Co. Ltd. designs and sells apparel and accessories imbued with traditional culture fromaround the world, based on bridging the world’s happiness through Happy Trade. For the second year
in a row, a Double Smile T-Shirt was put on sale as a charity T-shirt that was produced by the actress
Alice Hirose. Reflecting her desire for both creators and buyers to be happy, TITICACA and Alice
Hirose collaborated together with the overarching aim of bridging the happiness of the customers who
buy the T-shirts, the people who make them and the people who benefit from the donations. For eachcharity T-shirt sold, ¥500 is donated to help people in the Philippines.

30

INTEGRATED REPORT 2017
About NCXX Group

Strategy

Sustainability

Financial Section

Financial Section

Corporate Data

31

INTEGRATED REPORT 2017
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, 2016, 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 on the yen’s appreciation and concerns about
the impact on the European economy of the U.K.’s decision to withdraw from the European Union.
In the information and communications market, the Company’s primary market, ICT offers heightened prospects for growth in the near future. According to the 2016 White Paper on Information and Communications inJapan published by the Ministry of Internal Affairs and Communications in July 2016, “Further ICT investment
in IoT, big data, AI, and other forms of ICT is expected to accelerate Japan’s economic growth and boost thecountry’s real GDP by about ¥33.1 trillion by FY2020.” Moreover, according to market predictions publishedby Nomura Research Institute, Ltd. in November 2016, the IoT market in Japan is expected to remain on a
growth trajectory, increasing from ¥520 billion in 2015 to ¥3.2 trillion in 2022. Markets driven by innovativetechnologies continue to offer prospects for further expansion. In addition, FinTech is experiencing rapid
growth around the world, and with a shift to an implementation phase in Japan, it is not a technology for the
distant future. As such, FinTech is expected to broaden the horizons of business even further.
In this business environment, the Company focused on providing server applications and IoT-related
services including other application services, as well as supplying hardware device products, through its
subsidiary NCXX Inc. (“NCXX”), which manufactures high-value-added communication equipment devices,
and its subsidiary NCXX Solutions Inc. (“NCXX Solutions”). The latter company undertakes the systems
development business, serving industries such as manufacturing, finance, logistics, social infrastructure,and the public sector and covering every stage from consultation through to design, construction,­operation and maintenance.
Moreover, SJI Inc. became a subsidiary of the Company in June 2015. (In February 2017, the company
name changed to CAICA Inc. (“CAICA”).) For more than 40 years, CAICA has conducted systems development primarily for the financial sector, as well as the manufacturing sector, public sector, distribution sector
and certain other areas. Currently, CAICA has positioned FinTech-related businesses as a strategic area of
focus, advancing various initiatives with a focus on blockchain technology as a particularly crucial priority.
In these and other ways, the Group will undertake a wide range of activities, from supplying IoT-related
device products and delivering related solutions to focusing on cutting-edge technologies such as blockchain
technology. By doing so, the Group aims to provide new collaborative solutions that link IoT, blockchain
technology and various industry sectors (automotive, robotics, agriculture and so on).
Furthermore, in August 2016, the Company converted TITICACA, Co. Ltd. (“TITICACA”) into a subsidiaryand commenced a new brand retail platform business* centered on the sale of fashion accessories. Recently,
several moves have been afoot to reshape the fashion industry through digitalization. Various initiatives arebeing drawn up, such as managing store inventories using digital devices, offering fitting services using augmented reality (AR), and recommending items according to customer preferences by converting sales data
into big data and integrating it with AI. Also, wearable devices could be operated and biometric data could betransmitted using highly conductive fabrics and sensors embedded directly in apparel. Going forward, theGroup will conduct measures to develop and popularize IoT-related services for the fashion industry, alongwith seeking to grow the brand retail platform business into one of the Group’s core earnings pillars.
* The brand retail platform business refers to the retail business including general merchandise and apparel and the licensing b­ usinessfor brand trademarks.

In regard to the agricultural ICT business (NCXX FARM) undertaken by the Company, the Groupannounced its plans to increase the size of its testing plot from 462.8 m2 (140 tsubo) to a total area of
5,421 m2 (1,640 tsubo) in December 2015. In the process, the Group will work to promote the commer­
cialization of “sixth-order industrialization” initiatives, which involve the growing, processing and sale of­agricultural products, and a franchise business, which involves packaged sales combining chemical soil
management based on a patented farming method and digital management based on ICT systems.
In terms of “sixth-order industrialization” initiatives, in September 2016, the Group launched the sale ofkeema curry with yellow tomato packaged in a paulownia wood box as a gift product. Moreover, in October
2016, the Group began selling additive-free 100% yellow tomato juice, which is made using generous­servings of two types of yellow tomatoes with high sugar content.
In addition, the Group has been strengthening product promotions through means including actively­participating in product fairs in various regions. Iwate Ginga Plaza, a shop selling regional specialties from
Iwate Prefecture in the Ginza district of Tokyo, has begun carrying some of the Group’s products.
In the franchise business, the Group has commenced packaged sales to companies and started operation of the system in November. In addition, the Group regularly conducts presentations on its patented
farming method and agricultural ICT. 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 theirtraining programs.
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 significantly as a result of the inclusion of
CAICA’s business results. However, due to the impact of the aforementioned decision to maintain the securitieson alert designation for the shares of CAICA on April 28, 2016, orders for new projects did not increase as
much as expected and ended up falling short of budget. In addition, orders received by NCXX for certain
products were lower than planned. Consequently, net sales underperformed the forecast.
Turning to operating profitability, the Group posted an operating loss for two main reasons. First, NCXX
recorded an increase of ¥329 million in costs of products manufactured because it reduced inventories in linewith a conservative review of products in process for an outsourced development project that had been
postponed with certain customers since the previous fiscal year. Second, CAICA was unable to generate
profits as planned due to lower net sales.

32

INTEGRATED REPORT 2017
About NCXX Group

Strategy

Sustainability

Financial Section

Corporate Data

Analysis of Operating Results and Financial Position

Moreover, CAICA conducted the transfer of shares of subsidiaries, recording a gain on sales of shares ofsubsidiaries of ¥182 million as an extraordinary gain. On the other hand, TITICACA recorded an impairment
loss totaling ¥320 million, including stores it has decided to close within the fiscal year under review, as arevaluation loss. This was done by identifying an additional 18 stores that are highly likely to become unprofitable, after strictly reassessing the sales outlook of the autumn-winter collection for 2016–2017 and the profitability of each store after TITICACA joined the Group.
As a result of these efforts, consolidated net sales were ¥12,231 million, up 64.9% year on year. The­ perating loss was ¥619 million, compared to an operating loss of ¥529 million in the previous fiscal year.
o
The ordinary loss was ¥770 million, compared to an ordinary loss of ¥810 million in the previous fiscal year.
The loss before income taxes was ¥863 million, compared with income before income taxes of ¥23 million in
the previous fiscal year. The loss attributable to owners of parent was ¥1,068 million, compared with a loss
attributable to owners of parent of ¥45 million in the previous fiscal year. EBITDA, a reference indicator reflecting the amortization of goodwill associated with the conversion of companies into subsidiaries, was ¥18 million.
EBITDA = operating income + depreciation + amortization of goodwill(selling, general and administrative expenses)
Business performance by segment in the fiscal year under review was as follows:(Device Business)
NCXX continued to post steady sales of its LTE-USB dongle for M2M and mobile computing, due to its
enhanced maintenance and support structure in Japan. In regard to new products, NCXX distributed over
4,000 samples of its OBD II-type automotive telematic data collecting unit GX4x0NC to approximately 20­companies, primarily corporations and trading companies providing fleet management solutions. However,a greater-than-expected amount of time was needed for trial operation periods eyeing introduction and­systems development by clients upon introducing the product. For this reason, NCXX has not yet capturedorders in earnest during the fiscal year under review. NCXX will work to strengthen sales and customer­support with the aim of winning orders in the next fiscal year.
CAICA has been working to put a framework in place for achieving full-fledged growth from the next fiscal
year onward. In parallel, CAICA has been steadily pushing ahead with operations, including cultivating newcustomers, by undertaking Group-wide sales activities in collaboration with the parent company group as wellas proactively conducting sales and proposal activities targeting existing customers. Moreover, in the
FinTech field, CAICA has made a solid start by steadily accumulating projects through such means as winning orders for ­bitcoin-related systems development and providing contract-based support for the field trialsof major corporations. However, the decision to maintain the securities on alert designation for the shares of
CAICA on April 28, 2016 made it difficult for CAICA to acquire certain orders for new projects. In addition,although CAICA had hoped that new orders would increase as credibility was restored soon after the cancellation of the securities on alert designation on September 24, 2016, many of its customers have fiscal years

that end in March. Therefore, new orders were anticipated to increase in earnest beginning in April 2017,
when the new fiscal year begins for most of CAICA’s customers. Consequently, CAICA’s performance fell shortof plans in the fiscal year under review.
NCXX Solutions and Care Dynamics performed largely as planned.
As a result, segment sales in the fiscal year ended November 30, 2016 were ¥9,111 million, up 58.8%
year on year. The segment loss was ¥423 million, compared with a segment loss of ¥392 million in theprevious fiscal year.

(Internet Travel Business)
Looking at segment sales, amid a gradual recovery from a string of terrorist attacks by the Islamic State since
the previous year and the lingering impacts of the Kumamoto Earthquakes in Japan, overseas travel businesssales were ¥1,471 million, centered on honeymoon packages to destinations believed to be safe, such as
Canada, the U.S., and Australia, and domestic travel business sales were ¥151 million. In addition, since thestart of October 2016, the number of requests for travel estimates from customers has increased 22% year
on year on the WEB TRAVEL website, and the number of requests for travel estimates, including the­e-tabinet.com website, has followed a recovery path. The cumulative number of orders received as of the
fourth quarter was 7% higher than in the previous fiscal year, and a gross profit margin of 16% has been
maintained. As with the trend in the third quarter, travelers who had postponed their itineraries due to concerns about the impact of terrorism have changed their travel destinations to the mainland U.S. and Alaska,
Australia and Hawaii, leading to a recovery trend. This trend is expected to continue in the near future. On afull-year basis, the number of orders received was 2,937, up 1% year on year, marking a gradual recovery
from lingering terror-related impacts in December 2015. Orders received since the third quarter onward havebeen trending firmly.
Meanwhile, with backup support from the Company, the Internet travel business has won a project toprovide consulting on promoting experience-based tourism as part of the “Grant for regional revitalization
acceleration.” The project was requested by Hanamaki City, Iwate Prefecture. Measures include initiatives torefer travelers to this area, such as by publishing information on various activities in Hanamaki City within the“e-tabi Catalogue” of the e-tabinet.com website.
Consequently, segment sales in the fiscal year ended November 30, 2016 were ¥1,623 million, down 3.3%
year on year. Segment income decreased 73.2% year on year to ¥10 million.

(Brand Retail Platform Business)
The Company established TITICACA as a new reportable segment called the brand retail platform business,following its conversion into a subsidiary in August 2016. Further, TITICACA changed its fiscal year-end fromMarch to October. Accordingly, its business results for the three months from August to October 2016 are
included in consolidated figures and year-on-year comparisons for the segment are not shown.
Segment sales in the fiscal year ended November 30, 2016 were ¥1,495 million. Segment loss was¥15 million.

33

INTEGRATED REPORT 2017
About NCXX Group

Strategy

Sustainability

Financial Section

Corporate Data

Analysis of Operating Results and Financial Position[Financial Position]
The Group’s financial position as of November 30, 2016 was as follows.

shares in subsidiaries of ¥554 million, both of which increased cash. The main use of cash was an increase in
short-term loans receivable of ¥420 million, which reduced cash.

(Assets)(Cash Flows from Financing Activities)

Total assets were ¥13,459 million as of November 30, 2016, a decrease of ¥843 million from a year earlier.
The main components of this change were decreases of ¥1,023 million in cash and deposits and ¥1,999
million in accounts receivable—other and increases of ¥884 million in merchandise, ¥337 million in buildings
and structures, and ¥553 million in the other component of investments and other assets.

Net cash used in financing activities was ¥2,047 million, compared with net cash provided by financing­activities of ¥829 million in the previous fiscal year. This was mainly due to the repayment of long-term loans
payable of ¥2,653 million, the main factor reducing cash. This cash outflow was partly offset by proceedsfrom long-term loans payable of ¥779 million, the main factor increasing cash.

(Liabilities)
Total liabilities were ¥9,659 million, an increase of ¥82 million from a year earlier. The main components ofthis change were decreases of ¥250 million in accounts payable—other and ¥1,092 million in interest-bearing
debt* and ¥335 million in asset retirement obligations, and ¥676 million in deferred tax liabilities.

(Net Assets)
Total net assets were ¥3,800 million, a decrease of ¥925 million from a year earlier. The main contributing
factor was a decrease of ¥1,068 million in retained earnings, which was partly offset by an increase of ¥67
million in capital surplus.
* Interest-bearing debt is the sum of short-term loans payable, current portion of long-term loans payable and long-term loans payable[Cash Flows]
Cash and cash equivalents (“cash”) at November 30, 2016 were ¥1,881 million, a decrease of ¥1,023 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 provided by operating activities was ¥341 million, compared with net cash used in operating­activities of ¥1,090 million in the previous fiscal year. The primary reason was decreases in notes andaccounts ­receivable—trade of ¥1,470 million and accounts receivable—other of ¥93 million, the main factors
increasing cash. This was partly offset by a loss before income taxes of ¥863 million and a decrease in notes
and accounts payable—trade of ¥547 million, the main factors reducing cash.

(Cash Flows from Investing Activities)
Net cash provided by investing activities was ¥686 million, compared with net cash used in investing activitiesof ¥844 million in the previous fiscal year. The main sources of cash were proceeds from purchase of investments in subsidiaries resulting in change in scope of consolidation of ¥512 million and proceeds from sales of[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
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.

34

INTEGRATED REPORT 2017
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 ofselling and providing product support and so forth for mobile communication devices and selling apparel andgeneral merchandise. To prevent the acquired personal information and so forth of customers from leaking
externally, the Group takes ample precautions such as limiting access to the personal information andstrengthening the internal control system by periodically conducting internal audits. However, should a leak inpersonal information occur, the Company may be in violation of laws and regulations as well as its confidentiality agreements with client companies. As a result, the Group may receive claims for damages from clientcompanies and other customers as well as experience a decline in its credibility with corporate clients andsociety, a deterioration in its corporate brand value, and so forth, which could have a material impact on theGroup’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.

35

INTEGRATED REPORT 2017
About NCXX Group

Strategy

Sustainability

Financial Section

Corporate Data

Analysis of Operating Results and Financial Position(8) Relationship with the Parent Company(11) Investments and LoansFISCO Ltd. (listed on the Tokyo Stock Exchange JASDAQ Growth Market) is the parent company of theCompany, holding 49.83% of the voting rights both directly and indirectly as of November 30, 2016. In addition, SEQUEDGE INVESTMENT INTERNATIONAL LIMITED is another affiliate of the Company. The Company
therefore belongs to a parent company group with FISCO at the center. 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.

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.

(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) Disasters, etc.
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.

36

INTEGRATED REPORT 2017
About NCXX Group

Sustainability

Strategy

Financial Section

Corporate Data

Consolidated Financial Statements[Consolidated Balance Sheets](Thousands of yen)(Thousands of yen)
Fiscal 2015 (As of
November 30, 2015)

AssetsCurrent assets
Cash and deposits
Notes and accounts receivable—trade
MerchandiseWork in process
Raw materials
Supplies
Accounts receivable—other
Advance payments—trade
Short-term loans receivable
Deferred tax assets
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
LandConstruction in progress
Total property, plant and equipment

Fiscal 2016 (As of
November 30, 2016)¥ 2,905,141
2,351,650–
661,180
10,763–
2,046,360
185,857
2,640,314
1,019
141,575(2,889,846)
8,054,017¥ 1,881,667
1,736,837
884,860
208,295
7,717
29
46,995
202,436
365,760
5,770
174,556(162,362)
5,352,563*1 518,244(233,966)
284,278
31,409(23,221)8,187
476,379(353,037)
123,341*1 298,994–
714,801*1 1,328,715(707,310)
621,404
46,700(33,013)
13,686
1,077,483(925,436)
152,046*1 298,354
135
1,085,626

Intangible assets
Software
Goodwill
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 2015 (As of
November 30, 2015)

Fiscal 2016 (As of
November 30, 2016)

89,845
4,889,085
8,620
4,987,552

135,289
4,371,717
22,916
4,529,923*3 89,955
2,643,331
1,306,363
294,020(3,786,947)
546,723
6,249,077¥14,303,095*3 153,872
1,551,743
1,739,624
847,021(1,800,467)
2,491,794
8,107,344¥13,459,907

37

INTEGRATED REPORT 2017
About NCXX Group

Sustainability

Strategy

Financial Section

Corporate Data

Consolidated Financial Statements(Thousands of yen)(Thousands of yen)
Fiscal 2015 (As of
November 30, 2015)

Liabilities
Current liabilities
Notes and accounts payable—trade
Short-term loans payable
Current portion of bonds
Current portion of long-term loans payable
Accounts payable—otherAccrued expenses
Income taxes payable
Accrued consumption taxes
Advances received
Asset retirement obligations
Provision for bonuses
Provision for product warranties
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 2016 (As of
November 30, 2016)¥   634,554
484,049
100,000*1 2,115,702
588,967
273,172
43,832
94,848
195,147–
153,253
93,000–227,003
5,003,532¥   586,979
249,334
300,000*1 1,844,650
338,608
283,738
51,05986,999258,231
63,815
186,659
92,00064,284
93,8444,500,206

1,165,000*1 3,306,196
3,511–
27,49670,9594,573,163
9,576,695

1,165,000*1 2,719,875
29,724335,224
703,564
205,774
5,159,163
9,659,369

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 44 for *1 and 3

Fiscal 2015 (As of
November 30, 2015)

Fiscal 2016 (As of
November 30, 2016)

1,819,748
1,708,701
1,101,539(150,840)
4,479,148

1,819,748
1,776,350
33,104(107,897)
3,521,304(320)
14
104,081
103,775
30,185113,290
4,726,400¥14,303,095

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

38

INTEGRATED REPORT 2017
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
Miscellaneous income
Other
Total non-operating income
Non-operating expenses
Interest expenses
Foreign exchange losses
Other
Total non-operating expenses
Ordinary loss
Extraordinary income
Gain on sales of shares of subsidiaries
Reversal of provision for bonuses
Settlement received
Gain on forgiveness of debt
Gain on investments in capitalGain 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
Other
Total extraordinary income

Fiscal 2015 (From
December 1, 2014 toNovember 30, 2015)

Fiscal 2016 (From
December 1, 2015 toNovember 30, 2016)¥7,416,907* 6,412,185
1,004,721*2, 3 1,534,201(529,480)¥12,231,134*1 9,848,278
2,382,855*2, 3 3,002,419(619,563)

41,270––20,22861,49939,834
14,432
14,031
1,124
69,423

128,482
180,025
33,922
342,431(810,412)

148,261
54,22817,396
219,886(770,026)

432,106–
271,745
137,743
36,356–––35,991
20,571–
934,515

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

1Extraordinary losses
Loss on retirement of property, plant and equipment
Loss on valuation of investment securities
Loss on sales of subsidiaries’ stocks
Impairment loss
Office transfer expenses
Settlement package
Provision for loss on store closing
Loss on sales of non-current assets
Provision of allowance for doubtful accounts
Other
Total extraordinary losses
Profit (loss) before income taxes
Income taxes
Income taxes—deferred
Total income taxes
Loss
Profit (loss) attributable to non-controlling interests
Loss attributable to owners of parent

Fiscal 2015 (From
December 1, 2014 toNovember 30, 2015)

Fiscal 2016 (From
December 1, 2015 toNovember 30, 2016)*6 6,904
986
14,938*7 2,117
18,82625,000––31,746
11
100,530
23,572
54,18816,16170,350(46,778)(1,294)¥  (45,483)*6 7,505867–*7 321,868––
12,850*5 4,152
66,0703,554
416,869(863,765)
35,136(304)
34,832(898,597)
169,837¥ (1,068,435)

Fiscal 2015 (From
December 1, 2014 toNovember 30, 2015)

Fiscal 2016 (From
December 1, 2015 toNovember 30, 2016)¥(46,778)¥  (898,597)

(320)
14
80,960*1 80,654¥ 33,876

15,015
1,116(47,548)*1 (31,415)¥  (930,013)¥ 35,170(1,294)¥(1,020,165)
90,151

Please refer to page 44 for *1 and 2
Please refer to page 45 for *3 to 7

[Consolidated Statements of Comprehensive Income](Thousands of yen)

Loss
Other comprehensive income (loss)
Valuation difference on available-for-sale securities
Deferred gains or losses on hedges
Foreign currency translation adjustments
Total other comprehensive income (loss)
Total comprehensive income (loss)
Comprehensive income (loss) attributable to:
Owners of parent
Non-controlling interests
Please refer to page 46 for *1

39

INTEGRATED REPORT 2017
About NCXX Group

Financial Section

Sustainability

Strategy

Corporate Data

Consolidated Financial Statements[Consolidated Statements of Changes in Net Assets]
Fiscal 2015 (From December 1, 2014 to November 30, 2015)(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
Net changes of items other thanshareholders’ equity
Total changes during the fiscal year
Balance at end of the fiscal year

Capital stock

Capital surplus

Retainedearnings¥1,212,248¥1,018,821¥1,147,022

607,500

689,880

Treasury
stock

Total
shareholders’equity¥     (35)

¥3,378,057(150,805)

1,297,380(45,483)(150,805)(150,805)¥(150,840)

1,101,091¥4,479,148(45,483)

607,500¥1,819,748

689,880¥1,708,701(45,483)¥1,101,539

Accumulated other comprehensive income
Valuationdifference on
available-forsale securities

Deferred gains
or losseson hedges

Foreigncurrencytranslation
adjustments

Total accumulated
othercomprehensive
incomeSubscription
rights tosharesNon-controllinginterests

Total
net assets

¥   –

¥ –

¥ 23,120¥ 23,120¥   858¥149,041¥3,551,077
1,297,380(45,483)(150,805)

(320)
(320)
¥(320)

14
14¥14

80,96180,961¥104,081

80,65580,655¥103,775

29,327
29,327¥30,185(35,750)(35,750)¥113,290

74,232
1,175,323¥4,726,400

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 stock
Net changes of items other thanshareholders’ 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

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

Treasurystock

67,648(1,068,435)(10,324)
53,267–¥1,819,748

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

Accumulated other comprehensive income

67,648(1,068,435)(10,324)
53,26742,942(957,843)¥(107,897) ¥ 3,521,304

67,648(1,068,435)(10,324)
53,26715,01515,015¥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

56,04356,043¥169,334

31,981(925,862)¥ 3,800,538

40

INTEGRATED REPORT 2017
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) before income taxes
Depreciation and amortization
Amortization of goodwill
Share-based compensation expenses
Decrease in allowance for doubtful accounts
Increase (decrease) in provision for bonuses
Increase (decrease) in provision for product warranties
Decrease in provision for loss on store closing
Increase (decrease) in net defined benefit liability
Gain on bargain purchases
Interest and dividend income
Interest expenses
Bond issuance cost
Foreign exchange losses
Loss on valuation of investment securities
Gain on sales of shares of subsidiaries
Loss on retirement of property, plant and equipment
Gain on sales of property, plant and equipment
Loss on sales of property, plant and equipment
Impairment loss
Gain on reversal of estimated damages on delays
Settlement package
Gain on reversal of subscription rights to shares
Decrease (increase) in notes and accounts receivable—trade
Decrease in accounts receivable—other
Decrease (increase) in inventories
Decrease in advance payments
Decrease in notes and accounts payable—trade
Decrease in accrued consumption taxes
Decrease in accounts payable—other
Decrease in accrued expenses
Increase (decrease) in advances received
Difference on execution of asset retirement obligations
Other, net
SubtotalInterest and dividends income received
Interest paid
Settlement package paid
Income taxes paid
Net cash provided by (used in) operating activities

Fiscal 2015 (From
December 1, 2014 toNovember 30, 2015)

Fiscal 2016 (From
December 1, 2015 toNovember 30, 2016)¥   23,572
55,538220,352–(226,107)
132,072
3,000–
103(20,571)(41,270)
128,482
7,518
587
986
(417,846)
6,904
–
–
2,117
–
75,572–(220,951)
1,103,049(114,508)
65,825(346,753)(104,453)(514,086)(536,801)(37,283)–(112,662)(867,612)
41,407(122,198)(75,572)(66,032)(1,090,008)¥  (863,765)
120,956
517,372
9,566(249,973)(47,504)(1,000)(41,172)(5,263)(36,745)(39,834)
148,261–
29,416867(182,271)
7,505
(933)
3,930
321,868(58,586)–(600)
1,470,894
93,405385,528
59,584(547,726)(86,487)(619,079)(39,716)
52,265
8,084
17,004425,851
87,058(110,995)–(60,334)
341,581(Thousands of yen)

Cash flows from investing activities
Purchase of investment securities
Payments for purchase 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
Payments for sales of investments in subsidiaries resulting
in change in scope of consolidation
Purchase of shares of subsidiaries
Proceeds from sales of shares of subsidiaries
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
Increase in short-term loans receivableCollection of short-term loans receivableCollection of long-term loans receivable
Payments for investments in capital
Proceeds from sales of investments in capital
Payments for guarantee deposits
Proceeds from collection of guarantee deposits
Other, net
Net cash provided by (used in) investing activities
Cash flows from financing activities
Proceeds from collection of deposits
Net decrease in short-term loans payable
Proceeds from long-term loans payable
Repayment of long-term loans payable
Payments for installment payables—property and equipment
Repayments of lease obligations
Redemption of bonds
Proceeds from issuance of bonds with subscription rights to shares
Proceeds from issuance of shares resulting fromexercise of subscription rights to shares
Purchase of treasury stock
Dividends paid to non-controlling interests
Cash dividends paid
Net cash provided by (used in) financing activities
Effect of exchange rate change on cash and cash equivalents
Net decrease 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 48 for *1 and 2
Please refer to page 49 for *3 and 4

Fiscal 2015 (From
December 1, 2014 toNovember 30, 2015)

Fiscal 2016 (From
December 1, 2015 toNovember 30, 2016)–(59,950)(206,281)*2, 3 (5,748)–*3 512,670–(89,275)
858,722(385,053)–(60,029)––(2,920,033)
28,432
1,990,838––(87,217)
5,947
19,029(844,920)*4 (4,518)–
554,359(112,885)
34,591(38,203)2(50,964)(420,000)
37,92914,960(10)
52,238(10,068)
180,629
1,833
686,866

1,045,000(1,905,640)
2,583,000(1,895,951)(10,008)–(100,000)
1,157,481–(434,714)
779,000(2,653,994)(7,266)(2,862)(100,000)
300,000–(43,175)–(1,238)829,467
80,118(1,025,343)
3,930,484¥*1 2,905,141

84,700(10,284)(1,554)(33)(2,047,010)(4,910)(1,023,474)
2,905,141¥*1 1,881,667

41

INTEGRATED REPORT 2017
About NCXX Group

Strategy

Sustainability

Financial Section

Corporate Data

Notes
(Notes to the Consolidated Financial Statements)
1. Scope of consolidation(1) Number of consolidated subsidiaries: 12(2) Names of consolidated subsidiaries: TITICACA, Co. Ltd., Gloria Tours Inc., CAICA Inc. (formerly SJI Inc.),
NCXX Inc., NCXX Solutions Inc., Care Dynamics Limited, 星際富通(福建)網絡科技有限公司, e-tabinet.com, Web travel Co., Ltd., SJ Asia
Pacific Limited, Hua Shen Trading (International) Limited, Rapid
Capital Holdings Limited
Among the abovementioned companies, TITICACA, Co. Ltd. wasincluded in the scope of consolidation from fiscal 2016, subsequent
to the Company acquiring its shares and converting it into a subsidiary. Gloria Tours Inc. was included in the scope of consolidation fromfiscal 2016, subsequent to the Company’s consolidated subsidiarye-tabinet.com acquiring its shares and converting it into a subsidiary.
SJI (Hong Kong) Limited (“SJI-HK”) and one of its consolidated
subsidiaries were removed from the scope of consolidation fromfiscal 2016, subsequent to SJI selling all of its shares in SJI-HK.
(3) Number of non-consolidated subsidiaries: 2(4) Names of non-consolidated subsidiaries: Webtravel Asia & Pacific Pty Limited
ENPIX Corporation(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: None(2) Names of non-consolidated subsidiaries not accounted for by the equity method:
Webtravel Asia & Pacific Pty Limited
ENPIX Corporation(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

Fiscal year-end

SJ Asia Pacific Limited
Hua Shen Trading (International) Limited
Rapid Capital Holdings Limited
CAICA Inc. (formerly SJI Inc.)TITICACA, Co. Ltd.

March 31*1
March 31*1
March 31*1
October 31*2
October 31*3

星際富通(福建)網絡科技有限公司

December 31*1

*1 Based on financial statements prepared using a provisional settlement of accounts in conformity with the regular settlement ofaccounts at the end of the Company’s fiscal year.
*2 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.
*3 The financial statements as of the fiscal year-end of the consolidated subsidiary are used. From fiscal 2016, the subsidiary’s fiscal
year-end has changed from March 31 to October 31, and differs from the end of the Company’s fiscal year. However, the accounts
have not been adjusted as there were no significant discrepancies upon the elimination of receivables, obligations and transactions
among the consolidated companies. If significant discrepancies arise due to a difference in the fiscal year-end from the end of theCompany’s fiscal year, the accounts are adjusted upon consolidation.

4. Accounting policies(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
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) Work in process
Specific identification method(ii) Raw materials
Moving average method

42

INTEGRATED REPORT 2017
About NCXX Group

Strategy

Sustainability

Financial Section

Corporate Data

Notes(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 10 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.

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) 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.

(3) Accounting for significant allowances
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 2016.
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.

(6) 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
Borrowings, scheduled transactions denominated in foreign currencies
Hedge targets:c. Hedging policy
Hedging is limited to the scope of target obligations in order to mitigate interest rate fluctuation risk, foreignexchange 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.

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

43

INTEGRATED REPORT 2017
About NCXX Group

Strategy

Financial Section

Sustainability

Corporate Data

Notes(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.
3. Treatment of stock issuance costs
Stock issuance costs are fully expensed when they arise.
4. Treatment of corporate bond issuance costs
Stock issuance costs are fully expensed when they arise.

(Changes in Accounting Policies)
Effective from fiscal 2016, the Company has adopted the Revised Accounting Standard for Business
Combinations (ASBJ Statement No. 21, September 13, 2013; hereinafter, the “Business Combinations
Standard”), the Revised Accounting Standard for Consolidated Financial Statements (ASBJ Statement No.
22, September 13, 2013; hereinafter, the “Consolidated Financial Statements Standard”) and the Revised
Accounting Standard for Business Divestitures (ASBJ Statement No. 7, September 13, 2013; hereinafter, the“Business Divestitures Standard”) and related standards. Accordingly, the Company has adopted the methodof recording the difference arising from a change in the Company’s shareholding in a subsidiary when additional shares of the subsidiary are acquired while retaining control as capital surplus, and expensing theacquisition-related costs in the fiscal year when the costs are incurred. In addition, the accounting for business combinations to be performed at or after the beginning of fiscal 2016 was changed to a method ofrecognizing an adjustment to the provisional amount arising from the finalization of the tentative accounting
treatment for the allocated acquisition cost in the consolidated financial statements for the fiscal year in which
the date of the business combination falls. Moreover, the Company has changed the presentation of net
income and related items, and the presentation of minority interests to non-controlling interests. The consolidated financial statements for fiscal 2015 have been reclassified to reflect this change in presentation.

The Company has adopted the Business Combinations Standard and other standards in accordance withthe transitional treatment stipulated in Paragraph 58-2 (4) of the Business Combination Standard, Paragraph44-5 (4) of the Consolidated Financial Statements Standard and Paragraph 57-4 (4) of the Business Divestitures
Standard. The Company has adopted these standards prospectively from the beginning of fiscal 2016.
These changes had a negligible impact on profit and loss.
Effective from fiscal 2016, the Company has adopted the “Practical Solution on a Change in Depreciation
Method due to Tax Reform 2016” (ASBJ Practical Issues Task Force (PITF) No. 32, June 17, 2016) in accordance with the revision of the Corporation Tax Act of Japan. Accordingly, the Company has changed thedepreciation method for facilities attached to buildings and for structures acquired on or after April 1, 2016
from the declining-balance method to the straight-line method.
This change had a negligible impact on profit and loss.

(New Accounting Standards Not Yet Applied)
Implementation Guidance on Recoverability of Deferred Tax Assets (ASBJ Guidance No. 26, March 28, 2016)(1) Outline
The accounting treatments for recoverability of deferred assets fundamentally adhere to the framework of
Auditing Guidance No. 66, Auditing Treatment for Judgment of Recoverability of Deferred Assets, issued by
the Japanese Institute of Certified Public Accountants (JICPA). The framework classifies entities into fivecategories and assesses deferred tax assets based on their respective categories. However, the following
necessary revisions were made to accounting treatments.
1. Accounting treatments of entities not satisfying any of the category criteria from Category 1 to Category 5
2. Category criteria of Category 2 and Category 3
3. Accounting treatments of unscheduled deductible temporary differences for entities in Category 2
4. Accounting treatments for reasonably estimated period for taxable income before temporary differences
for entities in Category 3
5. Accounting treatments for entities satisfying the category criteria of Category 4 and also falling in Category
2 or Category 3(2) Date of adoption
The Company is scheduled to adopt the revised accounting standards from the beginning of the fiscal year
ending November 30, 2017.

(3) Impact of the adoption of the revised accounting standards
The Company is evaluating the impact at the time of preparing the consolidated financial statements.

44

INTEGRATED REPORT 2017
About NCXX Group

Financial Section

Sustainability

Strategy

Corporate Data

Notes

(Consolidated Balance Sheets)*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, 2016 was as follows.

*1 Collateral assets and collateralized liabilities
Assets pledged as collateral are as follows.

(Thousands of yen)(Thousands of yen)

Buildings
Land
Total

Fiscal 2015 (As of
November 30, 2015)

Fiscal 2016 (As of
November 30, 2016)¥ 58,174
295,714¥353,889¥ 54,076
297,214¥351,291

Note: In addition to the above, assets pledged as collateral include shares of subsidiaries eliminated upon consolidation.

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

Fiscal 2015 (As of
November 30, 2015)

Fiscal 2016 (As of
November 30, 2016)¥520,523
238,674¥281,848¥300,000
140,000¥160,000(Consolidated Statements of Income)*1 Book value write down of inventory held for sale under normal conditions due to decline in profitability

Collateralized liabilities are as follows.

(Thousands of yen)(Thousands of yen)

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

Fiscal 2015 (As of
November 30, 2015)

Fiscal 2016 (As of
November 30, 2016)¥  160,204
1,182,942¥  160,204
1,022,738

Cost of sales¥258,034¥503,538(Thousands of yen)(Thousands of yen)
Fiscal 2015 (As of
November 30, 2015)

Fiscal 2016 (As of
November 30, 2016)¥43,000¥26,200*3 Stakes in and exposures to non-consolidated subsidiaries and affiliates are as follows.
(Thousands of yen)

Investment securities (stocks)

Fiscal 2016 (From
December 1, 2015 toNovember 30, 2016)*2 Major breakdown and amount of selling, general and administrative expenses are as follows.

*2 The Company is providing debt guarantees for the affiliate below for financial institution loans.

FISCO Ltd.

Fiscal 2015 (From
December 1, 2014 toNovember 30, 2015)

Fiscal 2015 (As of
November 30, 2015)

Fiscal 2016 (As of
November 30, 2016)¥15,739¥15,739

Director compensation
Salaries and allowances
Retirement benefit expenses
Commission fee
Depreciation
After-sales service expenses
Business consignment expenses
Amortization of goodwill

Fiscal 2015 (From
December 1, 2014 toNovember 30, 2015)

Fiscal 2016 (From
December 1, 2015 toNovember 30, 2016)¥ 93,927
389,816
13,574
175,358
28,0001,406
149,571
220,352¥147,570
758,012
16,944355,154
89,006
12,265
157,192
517,372

45

INTEGRATED REPORT 2017
About NCXX Group

Financial Section

Sustainability

Strategy

Corporate Data

Notes

*3 Total research and development expenses included in selling, general and administrative expenses(Thousands of yen)
Fiscal 2015 (From
December 1, 2014 toNovember 30, 2015)

Fiscal 2016 (From
December 1, 2015 toNovember 30, 2016)¥17,413¥25,587

Research and development expenses*7 Impairment loss
Fiscal 2015 (From December 1, 2014 to November 30, 2015)
The Group recorded impairment losses on the following assets.
Use

Business assets
Business assets*4 The components of gain on sales of non-current assets are as follows.

Type

Location

Buildings andaccompanying facilities
Tools, furniture and fixtures

Impairment loss
(Thousands of yen)

Hakata-ku, Fukuoka City

¥2,096

Hakata-ku, Fukuoka City

21

(Thousands of yen)
Fiscal 2015 (From
December 1, 2014 toNovember 30, 2015)

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

¥–

¥933

Fiscal 2015 (From
December 1, 2014 toNovember 30, 2015)

Fiscal 2016 (From
December 1, 2015 toNovember 30, 2016)¥–¥4,152Tools, furniture and fixtures*5 The components of loss on sales of non-current assets are as follows.

(Thousands of yen)

Memberships, etc.

*6 The components of loss on retirement of property, plant and equipment are as follows.
(Thousands of yen)

Buildings and structures
Machinery, equipment and vehicles
Tools, furniture and fixtures
SoftwareRestoration cost
Other

Fiscal 2015 (From
December 1, 2014 toNovember 30, 2015)

Fiscal 2016 (From
December 1, 2015 toNovember 30, 2016)¥    7
569
1,352
1,774
3,200
–

¥5,480
–
1,982
–
–
43

(Background to recognizing impairment losses)
In regard to the above buildings and accompanying facilities, and tools, furniture and fixtures, the Company
reduced the carrying amount of these assets, which are not expected to be used following a business officerelocation, to the recoverable amounts, and recognized the amounts of the reductions as impairment losses
in fiscal 2015.
(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)
The Company uses the value in use to calculate the recoverable amount of business assets. However, therecoverable amount has been assessed as zero because there are no prospects for future cash flows.
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

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.

46

INTEGRATED REPORT 2017
About NCXX Group

Sustainability

Strategy

Financial Section

Corporate Data

Notes

(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.

(Consolidated Statements of Comprehensive Income)*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 (losses) on hedges:
Amount incurred during the fiscal year
Reclassification adjustments
Before tax effect adjustment
Tax effect
Deferred gains (losses) on hedges
Foreign currency translation adjustments:
Amount incurred during the fiscal year
Reclassification adjustments
Before tax effect adjustment
Tax effectForeign currency translation adjustments
Total other comprehensive income

Fiscal 2015 (From
December 1, 2014 toNovember 30, 2015)

Fiscal 2016 (From
December 1, 2015 toNovember 30, 2016)¥  (320)
–
(320)
–
(320)

¥   15,015–
15,015–15,015

14
–
14
–
14

1,116
–
1,116
–
1,116

80,960–80,960–80,960¥80,654

215,164(262,712)(47,548)–(47,548)¥ (31,415)(Consolidated Statements of Changes in Net Assets)
Fiscal 2015 (From December 1, 2014 to November 30, 2015)
1 Type and number of shares issued and type and number of treasury stock(Number of shares)

Issued shares
Common shares(Note 1)
Total
Treasury stock(Note 2)
Common shares
Total

Balance atthe beginning of
the fiscal year

Increaseduring the
fiscal year

Decreaseduring the
fiscal year

Balance atthe end of
the fiscal year

12,317,000
12,317,000

2,713,195
2,713,195––

15,030,195
15,030,195

79
79

72,43772,437––72,516
72,516

Notes: 1.	The increase in common shares was due to the exercise of subscription rights to shares (2,588,187 shares) and a shareexchange with NCXX Solutions Inc. (125,008 shares)
2.	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.

47

INTEGRATED REPORT 2017
About NCXX Group

Financial Section

Sustainability

Strategy

Corporate Data

Notes

2 Subscription rights to shares

Category

Components of subscription
rights to shares

Type ofsharesunderlying
thesubscription
rights tosharesNumber of shares underlying
the subscription rights to shares
Balanceat thebeginningof thefiscal year

Increaseduring the
fiscal year

Decreaseduring the
fiscal year

Balanceat theend of the
fiscal year

Balanceat theend of the
fiscal year
(Thousandsof yen)Filing3rd Series of Unsecured Common
643,086–
643,086– ¥      –company Convertible Bonds with shares(Parent
Subscription Rights tocompany) Shares(Note 1)– 1,945,101––
4th Series of Unsecured Common 1,945,101
Convertible Bonds with shares
Subscription Rights toShares(Note 1)– 1,069,788– 1,069,788–
5th Series of Unsecured Common
Convertible Bonds with shares
Subscription Rights toShares(Note 2)
Subscription rights
  –
–
–
–
–
11,157to shares as stock
options (11th series)
Subscription rights
  –
–
–
–
–
–
Consoli­to shares for the 1st
dated
subsidiaries Series of Callable
Unsecured Convertible
Bonds with Subscription
Rights to Shares
5th Series of Subscription   –––––
19,028Rights to Shares––– ¥30,185
Total
  –
–
Notes: 1.	The decreases in the 3rd Series of Unsecured Convertible Bonds with Subscription Rights to Shares and the 4th Series ofUnsecured Convertible Bonds with Subscription Rights to Shares were due to the exercise of subscription rights.
2.	The increase during fiscal 2015 was due to the issuance of bonds. The lump-sum method was adopted for reporting purposes.

3 Dividends(1) Dividends paid
Not applicable(2) Dividends with a record date that belongs to the fiscal year under review, but an effective date that falls in
the following fiscal year
Not applicable
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(Note)
Common shares
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 Incorporation pursuant to Article 165, Paragraph 2 of the Companies Act.

48

INTEGRATED REPORT 2017
About NCXX Group

Financial Section

Sustainability

Strategy

Corporate Data

Notes

(Consolidated Statements of Cash Flows)

2 Subscription rights to shares

Category

Components of subscription
rights to shares

Type ofsharesunderlying
thesubscription
rights tosharesFiling company (Parent company)
5th Series of Unsecured Common
Convertible Bonds with shares
Subscription Rights toShares
6th Series of Unsecured Common
Convertible Bonds with shares
Subscription Rights toShares (Note 1)
Subscription rights to  –shares as stock options(11th series)  –
Subscription rights toshares as stock options(13th series) (Note 2)
Consolidated subsidiaries
5th Series of  –
Subscription Rights toSharesTotal  –

Number of shares underlying
the subscription rights to shares
Balanceat thebeginningof thefiscal year

Increaseduring the
fiscal year

Decreaseduring the
fiscal year

Balanceat theend of the
fiscal year

Balanceat the endof thefiscal year
(Thousandsof yen)1,069,788––

1,069,788¥     ––

466,562–

466,562

–

–

–

–

–

19,775*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 2015 (From
December 1, 2014 toNovember 30, 2015)

Fiscal 2016 (From
December 1, 2015 toNovember 30, 2016)¥2,905,141
2,905,141¥1,881,667
1,881,667

The main breakdown of assets and liabilities of subsidiaries that were consolidated by acquiring new sharesin fiscal 2016
*2 The breakdown of assets and liabilities of Gloria Tours Inc. at the point in time it was consolidated as a
subsidiary through the acquisition of new shares, and the relationship between the acquisition price ofGloria Tours Inc. shares and the net amount paid to acquire Gloria Tours Inc. are as follows.
(Thousands of yen)

–

–

–

–

348

–

–

–

–

17,416–––– ¥37,539

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.

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

Current assets
Non-current assets
Current liabilities
Non-current liabilities
Negative goodwill
Acquisition price of Gloria Tours Inc. shares
Cash and cash equivalents of Gloria Tours Inc.
Net: Amount paid to acquire Gloria Tours Inc.

¥ 325,258
27,521(216,401)(50,095)(32,282)
54,000(48,252)¥   5,747

49

INTEGRATED REPORT 2017
About NCXX Group

Strategy

Financial Section

Sustainability

Corporate Data

Notes

*3 The breakdown of assets and liabilities of TITICACA, Co. Ltd., 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
TITICACA, Co. Ltd. shares and the net amount paid to acquire TITICACA, Co. Ltd. are as follows.

*5 Important non-cash transactions
Amounts of assets and liabilities related to installment purchase transactions(Thousands of yen)(Thousands of yen)

Current assets
Non-current assets
Current liabilities
Non-current liabilities
Non-controlling interests
Negative goodwill
Acquisition price of TITICACA, Co. Ltd. shares
Cash and cash equivalents of TITICACA, Co. Ltd.
Net: Amount received to acquire TITICACA, Co. Ltd.
Amount paid to acquire TITICACA, Co. Ltd.

¥ 2,016,399
1,485,343(2,086,420)(1,490,458)(496)(4,462)(80,094)(432,574)¥  (512,670)
1*4 The main breakdown of assets and liabilities of companies that are no longer consolidated subsidiaries
due to disinvestment in fiscal 2016
恒星信息(香港)有限公司 and its subsidiaries(Thousands of yen)

Current assets
Non-current assets
Current liabilities
Non-current liabilities
Sale amount of equity stake
Cash and cash equivalents of 恒星信息(香港)有限公司 and its subsidiaries
Net: Payments for sales of investments in 恒星信息(香港)有限公司 and its subsidiaries¥   453,150
569,348(1,329,360)–
0(4,518)¥    (4,518)

Amounts of assets and liabilities related to installment
purchase transactions

Fiscal 2015 (From
December 1, 2014 toNovember 30, 2015)

Fiscal 2016 (From
December 1, 2015 toNovember 30, 2016)¥–¥63,126(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 derivatives 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.

50

INTEGRATED REPORT 2017
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 are exposed to the 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 loans 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 risk ofprices fluctuating. 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 accounts payable—trade, and accounts payable—other havepayment 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, (6) 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, 2013 and 2014 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 2015 (As of November 30, 2015)(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
Allowance for doubtful accounts*3(5) Long-term loans receivable
Allowance for doubtful accounts*4(6) Long-term accounts receivable—other
Allowance for doubtful accounts*5
Total(1) Notes and accounts payable—trade(2) Short-term loans payable(3) Current portion of bonds(4) Accounts payable—other(5) Convertible bonds with subscription
rights to shares(6) Long-term loans payable(including current portion)
Total
Derivative transactions

Carrying amount

Fair value

Difference¥2,905,141
2,351,650
443,349
1,908,301
2,046,360
1,136,877
909,4832,619,274
1,201,863
1,417,410
1,327,403
1,326,503
900
2,643,331
2,481,484
161,847¥7,303,084¥  634,554
484,049
100,000
588,967¥2,905,141––
1,908,301––
909,483––
1,417,410
–
–
900
–
–
161,847¥7,303,084¥  634,554
484,049
100,000
588,967¥      –
–
–
–
–
–
–
–
–
–
–

–
–
–
¥      –
¥      ––––

1,165,000

1,138,966(26,034)

5,421,898¥8,394,469¥(497)

5,536,191¥8,482,727¥(497)

114,293¥ 88,259¥      –

51

INTEGRATED REPORT 2017
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 short-term loans receivable.
*4	Excludes the allowance for doubtful accounts recorded for long-term loans receivable.
*5	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 (4) 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.
(5) Convertible bonds with subscription rights to shares
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.
(6) 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 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
325,000
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––
37,067–325,000––
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¥     –

52

INTEGRATED REPORT 2017
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.

2. Carrying amount of financial instruments whose fair values cannot be reliably determined(Thousands of yen)
Fiscal 2015 (As of
November 30, 2015)

Fiscal 2016 (As of
November 30, 2016)¥94,790¥153,872

Unlisted stocks (investment securities)

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.
3. Maturity analysis for financial assets and investment securities with contractual maturities after the fiscal year-end
Fiscal 2015 (As of November 30, 2015)(Thousands of yen)(1) Cash and deposits(2) Notes and accounts
receivable—trade*1(3) Accounts receivable—other*1(4) Short-term loans payable*1(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¥2,905,141

¥  –

¥–

¥–

1,908,301
909,483
1,417,410
–

–
–
–
900

–
–
–
–

–
–
–
–

161,847¥7,302,184

–
¥900

–
¥–

–
¥–

*1 The above table does not include accounts receivable with indefinite redemption schedules of ¥443,349 thousand (allowance for
doubtful accounts of ¥443,349 thousand), accounts receivable—other of ¥1,136,877 thousand (allowance for doubtful accounts of¥1,136,877 thousand), short-term loans receivable of ¥1,201,863 thousand (allowance for doubtful accounts of ¥1,201,863­thousand), long-term loans receivable of ¥1,326,503 thousand (allowance for doubtful accounts of ¥1,326,503 thousand) andlong-term accounts receivable—other of ¥2,481,484 thousand (allowance for doubtful accounts of ¥2,481,484 thousand).

53

INTEGRATED REPORT 2017
About NCXX Group

Financial Section

Sustainability

Strategy

Corporate Data

Notes

Fiscal 2016 (As of November 30, 2016)

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*1(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).
4. Scheduled repayments of loans, bonds, and other interest-bearing debt after the fiscal year-end
Fiscal 2015 (As of November 30, 2015)(Thousands of yen)

Current portion ofbonds
Convertible bonds
with subscription
rights to shares
Long-term loans
payableShort-term loans
payableTotal

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¥  100,000

¥–

¥–

¥–

¥–

¥–

–

–

1,165,000–––

2,115,702

1,304,780

684,144426,707

747,786

142,776

484,049¥2,699,751–¥1,304,780–¥1,849,144–¥426,707–¥747,786–¥142,776(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(Investment Securities)
1. Investment securities—otherFiscal 2015 (As of November 30, 2015)
Unlisted investment securities (carrying amount ¥79,051 thousand) are not disclosed because the fair valueof these securities cannot be reliably determined given that they do not have market prices.
Fiscal 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.

2. Loss on valuation of investment securities
Fiscal 2015 (As of November 30, 2015)
The Company recorded a ¥986 thousand loss on valuation of investment securities (¥1,853 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.

54

INTEGRATED REPORT 2017
About NCXX Group

Financial Section

Sustainability

Strategy

Corporate Data

Notes

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.

2. Derivative transactions to which hedge accounting is applied(1) Currency related
Fiscal 2015 (As of November 30, 2015)
Not applicable
Fiscal 2016 (As of November 30, 2016)(Thousands of yen)

(Derivative Transactions)
1. Derivative transactions to which hedge accounting is not applied

Hedge accounting method

Type of transaction

Main hedge
targetContract amountAmount of contract
exceeding one year

¥31,954¥–

Currency related
Fiscal 2015 (As of November 30, 2015)
Not applicable

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

Fiscal 2016 (As of November 30, 2016)

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

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

Valuation
gain or loss

Fair value(Note)¥(29,424)(Note)

Foreign currency
Accounts
forward contracts payable

Fair value(Note)¥143(2) Interest rate
Fiscal 2015 (As of November 30, 2015)¥(29,424)(Thousands of yen)
Hedge accounting
methodPrincipled
methodType of transaction

Interest 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¥  100,000¥–1,744,502

1,478,974

Fair value

Long-term loans
payable(Note)¥(497)

Long-term loans
payable(Note)

Note:	Calculation of fair value(1) The transactions to which the principled method is applied are calculated based on quoted prices obtained from financial institution counterparties.
(2) 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.

55

INTEGRATED REPORT 2017
About NCXX Group

Sustainability

Strategy

Financial Section

Corporate Data

Notes

2. Simplified-method defined benefit plan

Fiscal 2016 (As of November 30, 2016)(Thousands of yen)
Hedge accounting
methodPrincipled
methodType of transaction

Interest 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(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)

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.

(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 fundplan 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 their defined
contribution plans.
Certain consolidated subsidiaries have joined a multi-employer employee pension fund plan. These plans
have been accounted for in the same manner as defined contribution plans as it is not possible to reasonably
calculate the amount of pension assets corresponding to any one of these subsidiaries’ contributions.
Certain consolidated subsidiaries apply the simplified method for calculating the liability and expenses on
their lump-sum retirement benefit plans.

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

Fiscal 2015 (From
December 1, 2014 toNovember 30, 2015)

Fiscal 2016 (From
December 1, 2015 toNovember 30, 2016)¥3,407–103¥ 3,511
23,097
3,115¥3,511¥29,724(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 2015 (As of
November 30, 2015)

Fiscal 2016 (As of
November 30, 2016)¥3,511
3,511¥29,724
29,724

Fiscal 2015 (From
December 1, 2014 toNovember 30, 2015)

Fiscal 2016 (From
December 1, 2015 toNovember 30, 2016)¥103¥3,115(3) Retirement benefit expenses(Thousands of yen)

Retirement benefit expenses based on the simplified method

3. Defined contribution pension plan
The required contributions to the defined contribution pension plans of the Company and its consolidated
subsidiaries were ¥44,595 thousand in fiscal 2015 and ¥71,697 thousand in fiscal 2016.

4. Prepaid retirement benefit plan
Payments made to the prepaid retirement benefit plans of the Company and its consolidated subsidiaries
were ¥21,249 thousand in fiscal 2015 and ¥38,970 thousand in fiscal 2016.

56

INTEGRATED REPORT 2017
About NCXX Group

Sustainability

Strategy

Financial Section

Corporate Data

Notes

5. Multi-employer plans
The required contributions to the multi-employer employee pension fund plans, which are accounted for in
the same manner as defined contribution plans, were ¥53,680 thousand in fiscal 2015 and ¥39,950­thousand in fiscal 2016.
Matters concerning the multi-employer plans accounted for as retirement benefit expenses are as follows:(Stock Options)
1. Stock option expense item and amount(Thousands of yen)

Stock compensation expense under selling,
general and administrative expenses(1) Recent funding position of multi-employer plans

Fiscal 2015 (From
December 1, 2014 toNovember 30, 2015)

Fiscal 2016 (From
December 1, 2015 toNovember 30, 2016)¥9,536¥9,566(Thousands of yen)Amount of pension assets
Total amount of actuarial obligation and minimum actuarial
reserve based on pension fund finance calculations
Difference

Fiscal 2015 (As of
November 30, 2015)

Fiscal 2016 (As of
November 30, 2016)¥744,963,870¥737,151,599

737,816,144¥  7,147,726

715,710,918¥ 21,440,681(2) Group’s share of contributions to the multi-employer plan
Fiscal 2015   0.54% (From December 1, 2014 to November 30, 2015)
Fiscal 2016   0.47% (From December 1, 2015 to November 30, 2016)(3) Supplemental explanation
Certain consolidated subsidiaries have joined multi-employer employee pension fund plans. For some ofthese plans, the pension assets corresponding to any one of these subsidiaries’ contributions cannot bereasonably calculated. Therefore, these plans are accounted for in the same manner as defined contribution
pension plans.

2. Stock option details, scale and change(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

57

INTEGRATED REPORT 2017
About NCXX Group

Sustainability

Strategy

Financial Section

Corporate Data

Notes(2) Stock option scale and change

3. Method for estimating the fair value of stock options

Existing stock options as of fiscal 2016 (ended November 2016) are recorded herein on the basis of thenumber of eligible shares.
1. Number of stock options

The method for estimating the fair value of stock options granted in fiscal 2016 is as follows.
1. Valuation method used   Monte Carlo simulation
2. Main assumptions and estimates(Shares)

Before vesting
As of November 30, 2015
GrantedForfeited
VestedOutstanding
After vesting
As of November 30, 2015
VestedExercised
Forfeited
Exercisable

11th Series ofSubscription Rights
to Shares

13th Series ofSubscription Rights
to Shares

100,000–
4,000
96,000––100,000––
100,000–
96,000––96,000–––––11th Series ofSubscription
Rights to Shares

13th Series ofSubscription
Rights to Shares

¥738
–
206

¥458
–
42

2. Unit price information(Yen)

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

13th Series of Subscription
Rights to Shares

Closing price on October 5, 2016 for the Company’scommon stock on the Tokyo Stock Exchange(JASDAQ) (¥)
Exercise price (¥)
Volatility (%)
Exercise period
Estimated period to expiry
Risk-free interest rate (%)
Dividend yield (%)

¥436
¥458
76.13 %
October 6, 2018 to
October 5, 2021
3.5 years(0.259)%0%

4. Method for estimating the number of vested 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.

58

INTEGRATED REPORT 2017
About NCXX Group

Sustainability

Strategy

Financial Section

Corporate Data

Notes

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

2. Main items giving rise to material differences between the statutory income
tax rate and effective income tax rate
(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
OthersDeferred tax assets subtotal
Valuation allowance
Deferred tax assets total
Deferred tax liabilities
Goodwill adjustment
Fund balance difference
Deferred tax liabilities total
Net deferred tax liabilities

Fiscal 2015 (As of
November 30, 2015)

Fiscal 2016 (As of
November 30, 2016)¥     4,962
30,74561,380734,576
1,132
6,119
1,240
4,096
62,1233,075¥     5,350
28,391
70,992
1,275,037
9,173
5,935
1,553
620,483
111,065
3,209–
1,267,675
56,0202,233,149(2,231,994)
1,154

3,033,926
1,682,976
772,925
7,621,019(7,615,249)
5,770(26,139)(1,356)(27,496)¥   (26,341)(29,649)(673,914)(703,564)¥  (697,685)(%)

Statutory income tax rate
(Adjustments)
Entertainment and other non-deductible expenses
Amortization of goodwill
Dividends and other non-taxable income
Inhabitants taxes—per capita levy
Change in valuation allowance
Downward adjustment to the ending balance of deferred
tax assets due to changes in statutory income tax rate
Carryforwards of unused tax losses and other deductions
Others
Effective income tax rate

Fiscal 2015 (As of
November 30, 2015)

Fiscal 2016 (As of
November 30, 2016)35.64%

–%

36.8
22.7
0.0
35.7
(560.8)

–
–
–
–
–

894.6
(166.3)0.0
298.4%––––%

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. Restatement of deferred tax assets and deferred tax liabilities due tochanges in the corporate income tax rate, etc.
Following the promulgation of the “Act for Partial Revision of the Income Tax Act” (Act No. 15 2016) and the“Act for Partial Revision of the Local Tax Act” (Act No. 13, 2016) on March 29, 2016, the corporate tax rate
and other tax rates were reduced from fiscal years beginning on or after April 1, 2016. In line with thischange, the statutory income tax rate used to calculate deferred tax assets and deferred tax liabilities for the
fiscal year under review has been reduced from the previous 32.3% to 30.9% for temporary differences
expected to reverse in fiscal 2016 and 2017, and to 30.6% for temporary differences expected to reverse inor after fiscal 2018.
These tax rate changes do not impact income/losses.

59

INTEGRATED REPORT 2017
About NCXX Group

Financial Section

Sustainability

Strategy

Corporate Data

Notes

(Business Combination)
I Business Combination through Acquisition (TITICACA, Co. Ltd.)
1. Overview of business combination(1) Name and business of acquired company
Name of the acquired company:
Business:

TITICACA, Co. Ltd.
Import and sale of ethnic apparel and ethnic general merchandise(2) Main reason for the business combination
To deploy IoT in the fashion industry, in keeping with the Company’s goal to introduce IoT into new lines ofbusiness

2. Period of business results of the acquisition target includedin the consolidated financial statements
August 1, 2016 to October 31, 2016

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

Consideration for
acquisition

Cash and other payments
Revenue from transfer of receivables

Acquisition cost(3) Business combination date

4. Main acquisition-related expenses and amounts

August 1, 2016

Advisory and other fees   ¥6,728 thousand(4) Statutory basis of business combination

5. Amount of gain on bargain purchase and reason

Share acquisition(1) Amount of gain on bargain purchase¥   8,893(88,987)¥(80,094)¥4,462 thousand(5) Name of company after business combination
No change(2) Reason for gain on bargain purchase(6) Ratio of voting rights acquired

The gain on bargain purchase owes to total assets less total liabilities transferred from the acquired company
exceeding the acquisition cost.
(%)

Voting rights owned before the business combination
Voting rights acquired on the business combination dateVoting rights after the acquisition(7) Main rationale for deciding on the acquisition target
The Company acquired shares of TITICACA, Co. Ltd. for cash consideration.

–
90.00
90.00

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¥2,016,399
1,485,343¥3,501,743¥2,086,420
1,490,458¥3,576,879

60

INTEGRATED REPORT 2017
About NCXX Group

Strategy

Financial Section

Sustainability

Corporate Data

Notes

7. Estimated impact on NCXX Group Inc.’s consolidated statements of income
for fiscal 2016, and the estimation method, assuming the businesscombination was completed on December 1, 2015
(Thousands of yen)

Net sales
Operating loss
Ordinary loss
Loss before income taxes
Loss attributable to ownersof parent¥5,596,515
572,351
729,197
3,586,523
3,258,604(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

–
77.71
77.71

(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, 2015.
Notes on this business combination have not received accounting audit certification.

II Business Combination through Acquisition (Gloria Tours Inc.)
1. Overview of business combination(1) Name and business of acquired company
Name of the acquired company:
Gloria Tours Inc.
Business:	Travel business(2) Main reason for the business combination
The Company determined the business combination can fully contribute to the Group’s growth and businessvalue enhancement, including by combining the expertise of subsidiary e-tabinet.com with that of Gloria
Tours Inc. to enable the cultivation of new customer bases and provide a wide range of travel packages.

(7) Main rationale for deciding on the acquisition target
The Company’s consolidated subsidiary e-tabinet.com (77.71% of voting rights) acquired shares of Gloria
Tours Inc. for cash consideration.

2. Period of business results of the acquisition target includedin the consolidated financial statements
October 6, 2016 to November 30, 2016

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

Consideration for acquisition
Acquisition cost

4. Main acquisition-related expenses and amounts
Advisory and other fees

(3) Business combination date
October 6, 2016

Cash and other payments¥9,062 thousand¥54,000¥54,000

61

INTEGRATED REPORT 2017
About NCXX Group

Strategy

Sustainability

Financial Section

Corporate Data

Notes

5. Amount of gain on bargain purchase and reason(Estimation method)(1) Amount of gain on bargain purchase(2) Reason for gain on bargain purchase

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, 2015.
Notes on this business combination have not received accounting audit certification.

The gain on bargain purchase owes to total assets less total liabilities transferred from the acquired company
exceeding the acquisition cost.

(Asset retirement obligations)¥32,282 thousand

Asset retirement obligations recorded on consolidated balance sheets

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¥325,258
27,521¥352,779¥216,401
50,095¥266,496

7. Estimated impact on NCXX Group Inc.’s consolidated statements of income
for fiscal 2016, and the estimation method, assuming the businesscombination was completed on December 1, 2015
(Thousands of yen)

Net sales
Operating income
Ordinary income
Income before income taxes
Profit attributable to ownersof parent¥659,257
33,77033,88233,132
11,709(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.

(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 2015 (From
December 1, 2014 toNovember 30, 2015)

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

¥–
–
–
–
¥–

¥      –455,237
955(57,152)¥399,040(4) Asset retirement obligations not recorded on 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.

62

INTEGRATED REPORT 2017
About NCXX Group

Sustainability

Strategy

Financial Section

Corporate Data

Notes

(Real Estate Leasing)
Fiscal 2015 (From December 1, 2014 to November 30, 2015)
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 ¥4 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:

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(Thousands of yen)
Carrying amount

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

Balance at
December 1, 2014

Change during
fiscal 2015

Balance atNovember 30, 2015

Fair value at
fiscal year-end¥–¥  2,000¥  2,000¥  2,010–

317,443

317,443

317,443

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.

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.

63

INTEGRATED REPORT 2017
About NCXX Group

Sustainability

Strategy

Financial Section

Corporate Data

Notes

(Segment Information)[Segment Information]
1. Overview of reportable segments

3. Information on net sales, income and loss, assets and liabilities, and otheritems by reportable segment
Fiscal 2015 (From December 1, 2014 to November 30, 2015)

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 the fiscal year ended November 30, 2016, the apparel retailing business undertaken by
TITICACA, Co. Ltd. has been newly included in the brand retail platform business.
Reportable segment

Device business

Internet travel business

Brand retail platformbusiness

Description of business

Development and sale of communication devices applying various wireless systems
Provision of systems solutions and maintenance services incidental to the above
Systems development
Cloud services
ASP services for nursing care centers
Purchasing and sale of mobile communication-related products in China
Operation of e-marketplace for travel-related products
Travel agency services for companies and individuals
Travel estimate services
Travel concierge services
Retailing of general merchandise, apparel and other items
Brand license business

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.

(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 andamortization
Amortization of
goodwill
Increase in property,
plant and equipment
and intangible assets

Device business

Internet travelbusiness

Total

Adjustments

Consolidated¥5,739,194¥1,677,713¥7,416,907¥–¥ 7,416,907–
5,739,194(392,904)
8,221,674

815
1,678,528
40,581
464,863815
7,417,722(352,322)
8,686,538

(815)
(815)
(177,158)
5,616,557–
7,416,907(529,480)
14,303,095

35,728378

36,106

19,431

55,538186,831

33,520220,352–

220,352

26,761–

26,761

367,076

393,837

Notes: 1. Segment income 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.

64

INTEGRATED REPORT 2017
About NCXX Group

Financial Section

Sustainability

Strategy

Corporate Data

Notes

[Related Information]

Fiscal 2016 (From December 1, 2015 to November 30, 2016)(Thousands of yen)
Reportable segment

Device businessNet sales
Sales to third parties
Inter-segment sales
and transfers
Total
Segment income (loss)
Segment assets
Other items
Depreciation andamortization
Amortization of
goodwill
Increase in property,
plant and equipment
and intangible
assetsInternet travelbusiness

Brand retailplatform
business

Fiscal 2015 (From December 1, 2014 to November 30, 2015)

1. Information by product and service

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

Adjustments

Consolidated¥9,111,540 ¥1,623,855 ¥1,495,738 ¥12,231,134 ¥        – ¥12,231,134
1,266
9,112,807(423,651)
6,637,396–
1,623,855
10,894640,079–
1,495,738(15,223)
2,196,350

1,266
12,232,401(427,980)
9,473,826(1,266)(1,266)(191,582)
3,986,080–
12,231,134(619,563)
13,459,907

51,217539

22,33774,094

46,862120,956

486,523

30,848–517,372–

517,372

2. Information by region(1) Net sales
Disclosure is omitted as sales to external customers in Japan accounts for over 90% of net sales in the consolidated 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.

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

1. Information by product and service
59,428

1,266

14,62175,317

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.

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

2. Information by region(1) Net sales
Disclosure is omitted as sales to external customers in Japan accounts for over 90% of net sales in the consolidated 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.

65

INTEGRATED REPORT 2017
About NCXX Group

Sustainability

Strategy

Financial Section

Corporate Data

Notes

3. Information by major customer

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

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

(Thousands of yen)Amortized amountUnamortized balance[Information on Impairment Loss on Property, Plant and Equipment by
Reportable Segment]

Device business

Internet
travel business

Brand retailplatform businessCorporate andelimination

Total¥  486,523
4,172,839¥ 30,848
198,877

¥–
–

¥–
–

¥  517,372
4,371,717

Fiscal 2015 (From December 1, 2014 to November 30, 2015)(Thousands of yen)

Impairment loss

Device business

Internet
travel businessCorporate andelimination

Total¥2,117¥–¥–¥2,117

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

Impairment loss

Device business

Internet
travel business

Brand retailplatform businessCorporate andelimination

Total¥1,249¥–¥320,618¥–¥321,868[Information on Amortized Amount and Unamortized Balance of Goodwill by
Reportable Segment]
Fiscal 2015 (From December 1, 2014 to November 30, 2015)(Thousands of yen)Amortized amountUnamortized balance

Device business

Internet
travel businessCorporate andelimination

Total¥  186,831
4,659,359¥ 33,520
229,726¥––¥  220,352
4,889,085[Information on Gain on Bargain Purchase by Reportable Segment]
Fiscal 2015 (From December 1, 2014 to November 30, 2015)A ¥20,571 thousand gain on bargain purchase was recorded as extraordinary income subsequent to theacquisition of additional shares in a consolidated subsidiary in the device business.
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 theacquisition 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 theacquisition of additional shares in a consolidated subsidiary in the brand retail platform business.

66

INTEGRATED REPORT 2017
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 2015 (From December 1, 2014 to November 30, 2015)

Type

Parent company

Name of company
or other entity

FISCO Ltd.

Address

Minato-ku, Tokyo

Paid-in capitalor investment(Millions of yen)

¥1,210Description of businessor occupation

Percentage ofvoting rights held (%)

Relationshipwith related party

Information­services­business,consulting
business

Direct (34.58)
Indirect (19.95)

Concurrent
officers

Nature of transaction

Funds lent

Amount oftransaction(Thousands of yen)¥  100,000

Loans recovered
Interest received
Convertible bonds with
subscription rights toshares exercisedInterest on bonds

200,000
3,339
600,000

Debt guarantees received

1,256,343

901

Item

Ending balance(Thousands of yen)

Short-term loans
receivable
  –
  –
  –

¥50,000

Accounts
payable—other
  –

4,183

–
–
–

–

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

Type

Parent company

Name of company
or other entity

FISCO Ltd.

Address

Minato-ku, Tokyo

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

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.

Amount oftransaction(Thousands of yen)¥  350,000
4,887–
1,078,139

Item

Long-term loans
receivable  –
Accounts
payable—other  –Ending balance(Thousands of yen)

¥400,000
–
4,183
–

67

INTEGRATED REPORT 2017
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 2015 (From December 1, 2014 to November 30, 2015)

Type

Companies withthe same parent
company as thefiling company

Name of company
or other entity

Versatile Inc.

Chanty Co., Ltd.

FISCO IR Ltd.

Head office location

Paid-in capitalor investment(Millions of yen)

Minato-ku, Tokyo¥95

Minato-ku, Tokyo

Minato-ku, Tokyo

32

89

Description of businessor occupation

Consulting business

Advertising agency
business

Information services
business

Percentage ofvoting rights held (%)

Relationshipwith related party   –Concurrent
officers   –

Concurrent
officers   –

Concurrent
officers

Percentage ofvoting rights held (%)

Relationshipwith related party

Nature of transaction

Funds lent

Amount oftransaction(Thousands of yen)

¥900,000Interest received

10,767

Funds lent

260,000

Funds recovered
Interest received
Funds lentFunds recovered
Interest received

100,000
2,948
160,000
160,000
1,197

Nature of transaction

Amount oftransaction(Thousands of yen)

Item

Short-term loans
receivable
Accounts
receivable—other
Short-term loans
receivable
   –
   –
   –
   –
   –

Ending balance(Thousands of yen)

¥900,000
10,767160,000–––––

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

Type

Companies withthe same parent
company as thefiling company

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

Description of businessor occupation

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.

Funds lent

¥30,000

Interest received
Funds lent

18,606–

Interest received

3,208

Item

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

¥930,000–
160,000–

68

INTEGRATED REPORT 2017
About NCXX Group

Financial Section

Sustainability

Strategy

Corporate Data

Notes(c) Officers of filing company, major shareholders and other persons (individuals only)
Fiscal 2015 (From December 1, 2014 to November 30, 2015)
Name of company
or other entity

Type

Officer and his relatives

Tsukasa Akiyama

Description of businessor occupation

Percentage ofvoting rights held (%)

Officer   –

Relationshipwith related party

Nature of transaction

Representative Director
and President of
NCXX Group Inc.

Amount of transaction(Thousands of yen)

Item

Ending balance(Thousands of yen)

¥45,316     –¥–

Amount of transaction(Thousands of yen)

Item

Ending balance(Thousands of yen)

¥37,312     –¥–

Debt guarantee
received

Fiscal 2016 (From December 1, 2015 to November 30, 2016)
Name of company
or other entity

Type

Officer and his relatives

Tsukasa Akiyama

Description of businessor occupation

Percentage ofvoting rights held (%)

Officer   –

Relationshipwith related party

Nature of transaction

Representative Director
and President of
NCXX Group Inc.

Debt guarantee
received

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.

(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 2015 (From December 1, 2014 to November 30, 2015)

Type

Parent company

Name of company
or other entity

FISCO Ltd.

Head office location

Paid-in capitalor investment(Millions of yen)

Minato-ku, Tokyo¥1,210Description of businessor occupation

Percentage ofvoting rights held (%)

Relationshipwith related party

Information services
business, consulting
business(Ownership ratio)
Direct (34.58)
Indirect (19.95)

Concurrent
officers

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

Nature of transaction

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

3,999

Nature of transaction

Amount oftransaction(Thousands of yen)

Item

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

¥200,000–

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)

Minato-ku, Tokyo¥1,235

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.

Funds lent¥–Interest received

4,010

Item

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

¥200,000–

69

INTEGRATED REPORT 2017
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 2015 (From December 1, 2014 to November 30, 2015)
Not applicable
Fiscal 2016 (From December 1, 2015 to November 30, 2016)
Not applicable(c) Officers of the filing company, major shareholders and other persons (individuals only)
Fiscal 2015 (From December 1, 2014 to November 30, 2015)
Name of company
or other entity

Type

A company and its CN Japan Inc.
subsidiary in whicha majority of voting
rights is owned by
an officer of theparent company
and his relatives,
based on their own
calculation

Head office location

Paid-in capitalor investment(Millions of yen)

Minato-ku, Tokyo¥35

Description of businessor occupation

International trading,manufacture andsale of apparel andaccessories

Percentage ofvoting rights held (%)

Relationshipwith related party   –Real estateleasingHead office rent

Amount oftransaction(Thousands of yen)

Item

Ending balance(Thousands of yen)–¥–Amount of transaction(Thousands of yen)

Item

Ending balance(Thousands of yen)

¥–

    –

¥78,261Nature of transaction¥16,051   

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
Head office rent is based on a property subleasing agreement in which the parent company is the sub-lessor. The rent is the amount paid directly to the landlord under the original contract.

Fiscal 2016 (From December 1, 2015 to November 30, 2016)
Not applicable(d) Officers and major shareholders of the filing company’s consolidated subsidiaries (individuals only)
Fiscal 2015 (From December 1, 2014 to November 30, 2015)
Not applicable
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

70

INTEGRATED REPORT 2017
About NCXX Group

Financial Section

Sustainability

Strategy

Corporate Data

Notes

2. Notes on the parent company or significant related companies

Fiscal 2015
(From December 1, 2014
to November 30, 2015)

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

11th Series of Subscription
Rights to Shares (1,000­subscription rights for 100,000
underlying shares)

11th Series of Subscription Rights to Shares (960
subscription rights for 96,000 underlying shares)(1) Parent company information
FISCO Ltd. (Listed on the Tokyo Stock Exchange JASDAQ Growth Market)

Outline of dilutive shares excluded fromthe calculation of diluted net income
per share because of not having
a dilutive effect(2) Summary of financial information on significant related companies
Not applicable

Subscription rights to sharesattached to the NCXX Group Inc.
5th Series of Unsecured
Convertible Bonds with
Subscription Rights to Shares(1,165 subscription rights for
1,069,788 underlying shares)(Per Share Information)(Yen)

Net assets per share
Net loss per share
Diluted net income per share

Fiscal 2015
(From December 1, 2014
to November 30, 2015)

Fiscal 2016
(From December 1, 2015
to November 30, 2016)¥308.98(3.14)–¥241.60(71.77)–

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

Net loss per share
Loss attributable to owners of parent
Amounts not attributable to common shareholders
Loss attributable to owners of parent related tocommon shares
Average number of common shares during the period(Shares)
Diluted net income per share
Adjustments to profit attributable to owners of parent[Of which, interest expenses (after tax adjustment)]
Increase in number of common shares (Shares)[Of which, convertible bonds with ­subscription rights
to shares (Shares)]Fiscal 2015
(From December 1, 2014
to November 30, 2015)

Fiscal 2016
(From December 1, 2015
to November 30, 2016)¥(45,483)–¥(1,068,435)–(45,483)(1,068,435)

14,507,488

14,885,214

–
(–)
–

–
(–)
–

(–)

(–)

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

2.	Although there were potentially dilutive shares, diluted net income per share for the fiscal year under review is not disclosed asa net loss per share was recorded.

(Subsequent Events)
I Business Combination through Acquisition(Versatile Inc. and FISCO International Limited)
At a meeting of the Board of Directors held on December 14, 2016, NCXX Group Inc. passed a resolution toconvert Versatile Inc. (“Versatile”) and FISCO International Limited (“FIL”) into consolidated subsidiaries
through the acquisition of 93.68% of the issued shares of Versatile and 100% of the issued shares of FIL fromFISCO Ltd. (“FISCO”), the parent of NCXX Group Inc. On the same day, NCXX Group Inc. entered into ashare transfer agreement with FISCO, and acquired the shares of both companies on December 29, 2016.

(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 of fashion 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.

(3) Business combination date
December 29, 2016

71

INTEGRATED REPORT 2017
About NCXX Group

Strategy

Financial Section

Sustainability

Corporate Data

Notes

(FISCO International Limited)
1. Overview of business combination(4) Statutory basis of business combination
Share acquisition(1) Name and business of acquired company(5) Name of company after business combination

Name of the acquired company:
FISCO International Limited
Business:	Information services business, investment education business,and consulting businessNo change(6) Ratio of voting rights acquired(2) Main reason for the business combination

93.68%

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

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

(3) Business combination date

2. Acquisition cost of the acquisition target and breakdown by consideration(4) Statutory basis of business combination(Thousands of yen)

Consideration for acquisition
Acquisition cost

Cash and other payments¥400,000¥400,000

December 29, 2016

Share acquisition(5) Name of company after business combination
No change

3. Main acquisition-related expenses and amounts(6) Ratio of voting rights acquired

Stock valuation cost   ¥500 thousand

100.00%

4. Amount of goodwill, reason for goodwill, amortization method andamortization period(7) Main rationale for deciding on the acquisition target
The Company acquired the shares for cash consideration.

Currently unconfirmed.

5. Amount of assets and liabilities transferred on the business combination
date and the main components
Currently unconfirmed.

2. Acquisition cost of the acquisition target and breakdown by
consideration type
(Thousands of yen)

Consideration for acquisition
Acquisition cost

Cash and other payments

3. Main acquisition-related expenses and amounts
Stock valuation cost   ¥500 thousand¥86,000¥86,000

72

INTEGRATED REPORT 2017
About NCXX Group

Strategy

Sustainability

Financial Section

Corporate Data

Notes

4. Amount of goodwill, reason for goodwill, amortization method andamortization period
Currently unconfirmed.

5. Amount of assets and liabilities transferred on the business combination
date and the main components
Currently unconfirmed.

II Capital and Business Alliance with Terilogy Co., Ltd.
At a meeting of the Board of Directors held on January 17, 2017, the Company passed a resolution to enter
into a capital and business alliance with Terilogy Co., Ltd. (Listing: Tokyo Stock Exchange, JASDAQ
Standard; Securities Code: 3356; Head Office: Chiyoda-ku, Tokyo; President: Takao Tsubuki; “Terilogy”).
SEQUEDGE INVESTMENT (“SEQUEDGE”) will also acquire a certain amount of shares of Terilogy.
SEQUEDGE is a fellow subsidiary of SEQUEDGE INVESTMENT INTERNATIONAL LIMITED, which is­classified as another affiliated company of the Company.

1. Reasons for the capital and business alliance
Rapid market expansion is anticipated in the IoT market, a primary focus for the Company. In fact, the size ofthe market is estimated to expand from approximately ¥350.0 billion in 2014 to over ¥3,000.0 billion in 2022
(Source: IT Navigator 2017 Edition, Nomura Research Institute, Ltd.). Interest in the IoT market has remained
extremely strong. In this business environment, the Company has been focusing on providing server applications and IoT-related services including other application services, as well as supplying hardware device
products, through its subsidiary NCXX Inc., which manufactures high-value-added communication­equipment devices, and its subsidiary NCXX Solutions Inc. The latter company undertakes the systems
development business, serving industries such as manufacturing, finance, logistics, social infrastructure,and the public sector, and covering every stage from consultation through to design, construction,­operation and maintenance.
Moreover, SJI Inc. became a subsidiary of the Company in June 2015, changing its name to CAICA Inc.
(“CAICA”) in February 2017. For more than 40 years, CAICA has conducted systems development primarily
for the financial sector, as well as the manufacturing sector, public sector, distribution sector and certain otherareas. Currently, CAICA has positioned FinTech-related businesses as a strategic area of focus, advancing
various initiatives with a focus on blockchain technology as a particularly crucial priority.
In these and other ways, the Company will undertake a wide range of activities, from supplying IoT-related
device products and delivering related solutions to focusing on cutting-edge technologies such as blockchain
technology. By doing so, the Company will provide various services by supplying solutions, beginning with
communications services to various industry sectors.

Meanwhile, Terilogy provides cutting-edge solutions in the network security field to major corporations inJapan. Terilogy provides security management services encompassing all network stages ranging from­network gateways to endpoints, including the development and supply of Momentum, a high-performance
capturing software that enables high-speed packet capture and packet storage. Terilogy has also enteredinto a sales agent agreement with KELA Group of Israel to monitor information exchanged within the hacker
community over the DarkNet*, thereby providing a consulting service in which Terilogy detects and collects
information that could threaten companies and delivers an analysis of the results to corporate clients.
Moreover, the information security market (applications and services) in Japan has continued to grow on
the back of expanding demand for measures to address targeted cyberattacks. Furthermore, in the area of
IoT and security, the number of IoT devices connected to the Internet is expected to surpass 53.0 billion in2020 (2015 White Paper Information and Communications in Japan, Ministry of Internal Affairs andCommunications, Japan). The Ministry of Economy, Trade and Industry and the Ministry of Internal Affairs andCommunications hosted the IoT Acceleration Consortium and formulated the IoT Security Guidelines in July
2016. These and other developments have made it an urgent priority for business enterprises to examine
security measures in view of the widespread adoption of IoT systems and the unique characteristics of­services using those systems.
* The DarkNet refers to a parallel network set up to provide anonymity to users (anonymity does not exist on the open web).

Meanwhile, the world is currently standing on the threshold of the Fourth Industrial Revolution, following theFirst Industrial Revolution driven by steam, the Second Industrial Revolution driven by electricity and the Third
Industrial Revolution driven by IT. In the Fourth Industrial Revolution, physical things of all kinds, including
automobiles and home electric appliances, will be connected to the Internet, making it possible to perform
sophisticated analysis of the big data that will be generated. As a result of the development of AI and blockchain technologies, a society that is far more efficient and less labor intensive than what we have today is
predicted to take shape in the future. Experts believe that the Physical Part of society will be managed largely
on an automated basis. This means that Cyber-Physical Systems will become a reality. A Cyber-Physical
System is a system that quantifies various states of the Physical Part of the real world that are subject tocontrol, and quantitatively analyzes this data in the Cyber Part in order to derive new insights and knowledge,
which are then fed back and used to control the Physical Part of the real world.
In such a world, the ability to collect and retain big data from the Physical Part of the real world through IoTtechnology and the ability to manage and analyze this data through AI and blockchain technologies in the
Cyber Part will become increasingly crucial. Additionally, in Cyber-Physical Systems that process theexchange of big data, including large amounts of private information, security will be a critically important
technology throughout the system.

73

INTEGRATED REPORT 2017
About NCXX Group

Strategy

Sustainability

Financial Section

Corporate Data

Notes

In Japan, the Basic Act on Cybersecurity was established in November 2014. This law clarifies the responsibilities, strategies and basic policies of the national government, various institutions and other bodies.
However, the costs of security measures borne by business enterprises have continued to increase steadily,mainly to deal with the growing threat of information leaks by insiders and targeted cyberattacks. The information security market (applications and services) in Japan will remain on a sustained growth track in thenear term. For listed companies in Japan, enhancing the quality of security measures and reducing the costburden of those measures have become key priorities for increasing corporate value.
In this environment, the Group has decided to undertake the joint development of products that integrate
the Group’s IoT device development technology and Terilogy’s security technologies. This is in order to realize
a society where IoT devices can be used securely as a result of safeguarding devices, systems, and crucial
information from various threats on a variety of networks.
One example is connected cars—automobiles that will be able to connect to a cloud system and receive
various information services. However, hackers could potentially gain access to and remotely control thesevehicles and cause information leaks. To mitigate these threats, the Group seeks to develop onboard automotive devices based on NCXX’s OBD II-type automotive telematic data collecting unit GX4x0NC. The Groupwill also seek to develop products that will ensure security for communications between IoT devices, andsecurity for communications between IoT devices and cloud systems, for various IoT devices including surveillance cameras and ATM and M2M communication gateways. In parallel, the Group will also undertake
joint marketing of new products, with NCXX focusing on hardware and NCXX Solutions focusing on software,and undertake collaboration on promoting sales, leveraging the sales platforms of the Group and Terilogy.
The Group and Terilogy have decided to enter into a business alliance because they believe these initiatives
are aligned with the strategies pursued by both companies and will lead to an increase in corporate value.
The two companies have also decided to enter into a capital alliance in order to closely and steadily advancethe foregoing initiatives.
With regard to this matter, Terilogy had been conducting a wide search for potential business alliance andcollaboration partners in security-related products and services, its main business. In the process, SEQUEDGEINVESTMENT, which has a strong track record of investing in publicly listed companies, was identified as apotential candidate. Initially, inquiries were made to SEQUEDGE INVESTMENT in order to seek an investment
for a 20% voting interest in Terilogy. In response, SEQUEDGE INVESTMENT referred NCXX Group Inc. to
Terilogy, based on the potential for capturing strong synergies between the latter two companies.
Thereafter, the Company and Terilogy advanced discussions, as stronger synergies could be expected if
the two companies collaborated. In order to implement a solid business alliance, the two companies also
agreed to enter into a capital alliance. The Company judged that strong synergies could be expected througha collaboration with Terilogy, and that the investment was appealing from the perspective of the Company’s
management strategy. Therefore, the Company considered acquiring the shares of Terilogy.

Based on the findings of due diligence, the Group determined that receiving a transfer of the shares held
by Representative Director Takao Tsubuki and Director Akihiko Abe would be an appropriate means of capital
participation. Based on mutual consent that Terilogy would continue to manage its businesses under thecurrent management team, both companies concluded that a transfer of under 20% of the shares would beappropriate. In addition, taking into account the impact on the Company’s management, and based on­discussions with the seller, the Company concurrently decided to submit a proposal to SEQUEDGEINVESTMENT seeking its participation in the investment.
Moreover, on the same day, CAICA will also enter into a business alliance with Terilogy covering the use ofblockchain technology and security products. For details, please refer to the press release titled “NoticeRegarding Business Alliance with Terilogy Co., Ltd. on Joint Development of Products Applying Blockchain
Technology,” issued on January 17, 2017.

2. Details of the capital and business alliance(1) Details of the business alliance
1. Joint development of IoT products with NCXX
2. Collaboration on sales promotion leveraging the sales platforms of the Company, NCXX, and NCXX
Solutions and Terilogy
3. Joint marketing of new products between the Company, NCXX, and NCXX Solutions and Terilogy(2) Details of the capital alliance
The Company plans to purchase 2,291,700 shares (14.9% of voting rights) of the issued shares of Terilogy
for ¥630,217,500 and SEQUEDGE INVESTMENT plans to purchase 753,700 shares (4.9% of voting rights) of
the issued shares of Terilogy for ¥207,267,500 from Representative Director Takao Tsubuki and Director
Akihiko Abe.
In addition, the Company plans to dispatch two directors to Terilogy, subject to the approval of the 28th
Ordinary General Meeting of Shareholders of Terilogy.

74

INTEGRATED REPORT 2017
About NCXX Group

Financial Section

Sustainability

Strategy

Corporate Data

Notes

3. Overview of the counterparty to the capital and business alliance4. Schedule(1) Name(2) Location(3) Name and title of representative(4) Business

January 17, 2017	Date of resolution by the respective boards of directors of the Company,
NCXX, NCXX Solutions, and SEQUEDGE INVESTMENT
January 17, 2017	Date of signing of the capital and business alliance agreement by the Company
		Date of signing of the capital and business alliance agreement by NCXX and
NCXX Solutions
January 17, 2017	Date of commencement of business allianceFebruary 1, 2017	Payment date

Terilogy Co., Ltd.
1-13-5 Kudan-kita, Chiyoda-ku, Tokyo 102-0073, Japan
Takao Tsubuki, President
1. Import and sales of hardware and software products
2. Sales of networking products
3. System consulting, implementation and education for end users
4. Network implementation and deployment
5. Maintenance services for networking products
6. Customer application software development(5) Capital stock¥1,182,604 thousand
July 14, 1989
(6) Establishment (founding) date(7) Major shareholders and their
Takao Tsubuki
30.24%
shareholding ratio
Akihiko Abe	  9.76%(8) Relationships between
Capital relationships
Not applicable
the companies
Personnel relationships
Not applicable
Trading relationships
Not applicable
Classification as a related party
Not applicable(9) Business results and financial condition over the past three fiscal years(Millions of yen)

Net assets
Total assets
Net assets per share (Yen)Net sales
Operating profit
Ordinary profit
Profit before tax
Profit for the year
Profit per share (Yen)Dividends per share (Yen)Year ended
March 31, 2014

Year ended
March 31, 2015

Year ended
March 31, 2016¥  9332,656¥60.71¥2,560
(121)
(153)
(144)
(147)
¥ (9.58)–¥   7233,052¥ 47.03¥ 2,804
(212)
(207)
(207)
(211)
¥(13.76)–¥  6992,455¥45.47¥2,639
26
0
(17)
(19)
¥ (1.25)–

III Capital Increase through the Exercise of the 5th Series of Subscription
Rights to Shares at CAICA Inc. (formerly SJI Inc.)
The 5th Series of Subscription Rights to Shares issued by CAICA Inc. (formerly SJI Inc.) on June 30, 2015
was exercised from January 13, 2017 to January 18, 2017 as follows:(1) Overview of the exercised subscription rights to shares
1. Name of subscription rights to shares
5th Series of Subscription Rights to Shares (third-party allotment)
2. Exercise price¥35 per share
3. Number of exercised subscription rights to shares
7,000
4. Exercising party
SEQUEDGE INVESTMENT INTERNATIONAL LIMITED
5. Number of shares granted
7,000,000 shares
6. Total exercise price¥245,000,000(2) N umber of shares issued through the exercise of subscription rights to shares and capital
1. Increase in the number of issued shares
7,000,000 shares
2. Increase in the amount of capital¥124,831,000

75

INTEGRATED REPORT 2017
About NCXX Group

Strategy

Sustainability

Financial Section

Corporate Data

Notes

IV Transfer of a Portion of Shares of a Subsidiary (CAICA Inc.; formerly SJI Inc.)The Company transferred a portion of its shares of consolidated subsidiary CAICA Inc. (formerly SJI Inc.;
Listing: JASDAQ 2315; Headquarters: Meguro-ku, Tokyo; Representative Director and President: Tianquan
Liu; “CAICA”).
With the transfer, the Company’s percentage of voting rights in CAICA (including holdings of subsidiaries)changed from 52.55% to 47.38%, falling below 50%. However, CAICA’s status as a consolidated subsidiary of
the Company remains unchanged. The Company holds 51,428,000 subscription rights to shares of CAICA.

1. Purpose of the share transfer
The Company acquired the shares of CAICA approximately 1.5 years ago in June 2015 with the intention ofholding them over the medium to long term.
The Company has sufficient operating capital and liquidity for the next few months, and decided to transfer
a portion of shares of CAICA, considering its holdings of CAICA’s new share subscription rights, to provide
capital for new business and so forth.

2. Details of the share transfer
1. Stock:
Common shares of CAICA Inc.
2. Number of shares: 13,000,000
3. Method of sale:
Negotiated transaction
4. Sale price:¥1,050 million

V Issuance of Stock Compensation-Type Stock Options(subscription rights to shares)
On January 30, 2017, 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 23, 2017, delegating it the authority to decide the particulars for issuing and allotting subscription rights to shares, pursuant to the p­ rovisions 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 (the “granted number of 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).

76

INTEGRATED REPORT 2017
About NCXX Group

Financial Section

Sustainability

Strategy

Corporate Data

Notes

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(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 incapital stock from the maximum for increase in capital.

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.

(10) Handling of fractions(6) Conditions for exercising subscription rights to shares(11) Other

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).
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.”

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.

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.

[Consolidated Supplementary Schedules][Schedule of corporate bonds]

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
NCXX 3rd Series of Unsecured
Group ­Convertible Bonds with
­Subscription Rights to Shares
Inc.
Total
–

Issuance date

Starting balancein fiscal 2016
(Thousandsof yen)Ending balancein fiscal 2016
(Thousandsof yen)March
30, 2015¥1,165,000[–]¥1,165,000
[–]

0.5

None March
29, 2018

June
13, 2016–[–]

300,000[300,000]

0.7

None June
12, 2017

December11, 2014

100,000[100,000]

–
[–]

1.4

None December
10, 2015–¥1,265,000[100,000]¥1,465,000[300,000]–

Notes: 1. Amounts in parentheses are the current portion of bonds.

Interest(%)

Collateral–

Maturity date–

77

INTEGRATED REPORT 2017
About NCXX Group

Financial Section

Sustainability

Strategy

Corporate Data

Notes

[Schedule of borrowings]

2. Details on bonds with subscription rights to shares are as follows.

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

5th Series of Unsecured
Convertible Bonds with
Subscription Rights to Shares

6th Series of Unsecured
Convertible Bonds with
Subscription Rights to Shares

Common shares
Gratis¥1,089¥1,165,000–

Common shares
Gratis¥643¥300,000–

100%
From March 30, 2015
to March 29, 2018100%
From June 13, 2016
to June 12, 2017

Note: The information above assumes that the full payment due for exercising subscription rights to shares is paid in lieu of the full 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 shares are exercised.
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¥300,000¥1,165,000

¥–

¥–

¥–

(Thousands of yen)
Category

Starting balancein fiscal 2016

Ending balancein fiscal 2016

Average interest
rate (%)¥  484,049¥  249,334

1.6–

2,115,702
2,862

1,844,650
2,910

1.2
0.7

–
–

3,306,196

2,719,875

1.1

2017 to 2029

5,075

2,164

1.6

2017 to 2020

337,300

–

–

–

6,182

14,802

2.3

–

7,371
¥6,264,740

49,331¥4,883,068

2.4–

2017 to 2023–

Short-term loans payable
Current portion of long-termloans payable
Current portion of lease obligations
Long-term loans payable(excluding current portion)
Lease obligations(excluding current portion)
Other interest-bearing debt
Current portion of accounts payable—otherCurrent portion of accounts payable—installment purchaseLong-term accounts payable—installment purchase
Total

Repayment

Notes: 1. Average interest rate represents the weighted average interest rate for the balance at November 30, 2016.
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, 2016 are as follows.
(Thousands of yen)

Long-term loans payable
Long-term accounts payable—installment purchase
Lease obligations

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¥985,874¥633,871¥855,634¥133,606¥110,888

9,773
1,149

8,931
592

9,158
423

9,391
–

12,075–

78

INTEGRATED REPORT 2017
About NCXX Group

Sustainability

Strategy

Notes[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.

[Other]Quarterly and other information for fiscal 2016
(Thousands of yen)
(Cumulative period)

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

Second quarter

Third quarter

Fiscal year

¥2,579,399¥5,499,288¥8,093,304¥12,231,134(94,372)(326,648)(589,520)(863,765)(102,741)¥(6.93)(385,313)¥(25.87)(673,414)¥(45.23)(1,068,435)¥(71.77)

First quarter

Second quarter

Third quarter

Fiscal year¥(6.93)¥(18.97)¥(19.36)¥(26.55)(Yen)(Quarterly period)

Net loss per share

Financial Section

Corporate Data

79

INTEGRATED REPORT 2017
About NCXX Group

Strategy

Sustainability

Company Overview
Name

Date of establishment

Capital stock

Consolidated Group
employees

Business operations

Location

NCXX Group Inc.

April 21, 1984

¥1,819,748,000(as of November 30, 2017)873(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

Financial Section

History
Date

Event

Apr.1984

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

Aug.1985

Constructed Hanamaki Plant in Hanamaki City, Iwate Prefecture and started operations

Aug.1986

Participated in the establishment of Iwateken Koudo Gijutsu Shinkou Kikou(Iwate Prefecture Advanced Technology Promotion Organization)

Aug.1987

Relocated Head Office to Shibaura, Minato-ku, Tokyo

Sept.1998

HOKUBU Communication & Industrial Co., Ltd. and its group company become themajor shareholders

Oct.1999

Acquired ISO quality certification (ISO 9001, JQA-QM 3856)

Jan.2002

Launched world’s first 128 kbps data telecommunication cardJune2002

Established the Hanamaki R&D Center as a base for development of PHS data
telecommunication cards

Apr.2003

Established the Tokyo R&D Center and established bases for development of PLC
and wirelessSept.2003

Relocated Head Office to Kyobashi, Chuo-ku, Tokyo

Dec.2003

Acquired ISO environmental certification (ISO 14001, JQA-EM 3575)

June2004

Index Corporation acquired 2,416 shares, making the Company a subsidiary

Jan.2005

Received supreme prize for excellence in the modem category of the BCN Award

June2005

Sold the semiconductor manufacturing equipment business to SHIBAURA MECHATRONICSCORPORATION and specialized in the information and telecommunication business

Sept.2005

Changed company name from Honda Electron Co., Ltd. to Net Index Co., Ltd.

Sept.2005

Established Net Index ES Co., Ltd., and spun off the manufacturing and service divisions

Nov.2005

Introduced the W-SIM, which is the world’s smallest PHS module, and the first­SIM-STYLE voice handset

June2007

Listed on the JASDAQ securities exchange (securities code: 6634)

Nov.2010

Relocated the Head Office to Hanamaki City, Iwate Prefecture

July2012FISCO Ltd. acquired 47,401 shares of the Company, making it a subsidiary
Made e-tabinet.com into a subsidiary

Dec.2012

Changed company name from Net Index Co., Ltd. to NCXX Inc.

Dec.2013

Made NCXX Solutions Inc. and Care Online Limited into subsidiaries

Feb.2014

Transferred the domestic systems development business of SJI Inc. to subsidiary
NCXX Solutions Inc. through an absorption-type company split

Apr.2015

Changed the company name from NCXX Inc. to NCXX Group Inc.

Apr.2015

Established NCXX Inc. as a newly incorporated company. Transferred the device businessto NCXX Inc. through a corporate split

June2016

Made SJI Inc. a subsidiaryAug.2016

Made TITICACA, Co. Ltd. a subsidiary80

INTEGRATED REPORT 2017
About NCXX Group

Sustainability

Strategy

Shareholder Information
Overview of shares

Shareholder Memo

(As of November 30, 2016)

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

15,030,195

Number of shareholders:

5,788

Major shareholders
Number ofshares held
(shares)

Shareholding
percentage ofissued shares (%)

FISCO Ltd.

4,381,700

29.15

Diamond Agency, Inc.

3,000,000

19.95

Investment Business Limited Partnership
Digital Asset Fund

450,400

2.99

SEQUEDGE INVESTMENT INC.

269,600

1.79

Japan Trustee Services Bank, Ltd. (trust account)

181,300

1.20

CAICA Inc. (formerly SJI Inc.)

125,008

0.83

Heringu Handeru K.K.

101,000

0.67

Tomonori Morimoto

100,000

0.66

SEQUEDGE INVESTMENT INTERNATIONAL LIMITED(standing proxy: SEQUEDGE INVESTMENT INC.)

97,0000.64

Tachibana Securities Co., Ltd.

79,7000.53

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
http://www.ncxxgroup.co.jp/irinfo/notification/

Transfer agent

Mitsubishi UFJ Trust and Banking Corporation,
4-5, Marunouchi 1-Chome, Chiyoda-ku, Tokyo

Handling office of thetransfer agent(postal address)

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

Contact office of the sametransfer agent

Mitsubishi UFJ Trust and Banking Corporation
branches throughout Japan

Financial institutions(1.25%)

Individuals and others(40.25%)

Foreign companies, etc.
(3.00%)

Financial instruments
business operators(1.26%)

Shareholding
composition

Other companies(54.25%)