Financials

Falcom’s 2017 End of Year Financial Report – Large Increase in Year End Earnings, and More Sen no Kiseki Releases for 2018

Kirsten Miller December 16, 2017 No Comments

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On Nov 9th, Falcom has unveiled the 2017 EOY financial report, along with the forecast and explanation of the said forecast for the 2018 fiscal year. (ed note: Oct 1, 2017 ~ Sept 30, 2018 is the 2018 fiscal year.)

Falcom has credited this year’s numbers to a variety of releases. The Japanese releases for 2017 are as follows:

  • Ys VIII -Lacrimosa of Dana- released to the PlayStation 4 in May 2017.
  • The Legend of Heroes Sen no Kiseki III released to the PlayStation 4 in Sept 2017.

Additionally, Falcom saw several older titles have English language download-only releases, as well as collaborations with other major game developers. Along with those, the following games were also released internationally:

  • Ys VIII on the PlayStation Vita saw releases in Korean, English, and French.
  • Ys VIII on the PlayStation 4 saw releases in Chinese, Korean, English, and French.
  • Ys Origin saw both Japanese and multilingual releases to PlayStation Vita and PlayStation 4 consoles.
  • Tokyo Xanadu for PlayStation Vita saw releases in Chinese, Korean, English, and French.
  • Tokyo Xanadu eX+ for PlayStation 4 saw Chinese and Korean releases.

The numbers are listed in the table below:

In one million yen increments.

  Total Sales Operating Profit Operating Income EOY Net Income
FY 2017 2,065 40.4% 970 66.1% 968 65.7% 642 66.1%
FY 2016 1,464 ? 7.0% 584 ? 15.7% 584 ? 15.3% 386 ? 15.2%

Falcom’s forecast for 2018 comes from four major points:

  • The Sen no Kiseki series- which has been given many awards, including recognition from the Japan Game Awards, the PlayStation Awards, and Famitsu Awards- will see a new title released for the PlayStation 4.
  • Sen no Kiseki I and II, which have broken a combined 1,000,000 units worldwide in sales, will be released for the PlayStation 4.
  • The company will be engaging in continued sales promotions for the widely well accepted Ys VIII -Lacrimosa of Dana- through the year.
  • Falcom will maintain a proactive stance in seeing that their original contents are integrated in collaborative works, as well as new titles released for a variety of platforms and smartphones throughout Japan, Asia, North America, and Europe.

The numbers for the forecast can be found below:

In one million yen increments.

Period EOY 2017 Results EOY 2018 Forecast Rate of Change
Total Sales 2,056 1,800 ? 12.5%
Operating Profit 970 750 ? 22.7%
Operating Income 968 750 ? 22.6%
Net Income 642 500 ? 22.2%

For details of the financial report, please check out the cut below.

Date: 11/9/2017
Listed Company Name: Nihon Falcom
Company Code Number: 37231)Code used on the Tokyo Stock Exchange.
URL: http://www.falcom.co.jp
TEL: 042-527-0555
Delegate: Board Selected President Toshihiro Kondo
Contact Representative: Board Member Takashi Nakano
Scheduled Shareholder Meeting Date: 12/20/2017
Scheduled Dividend Payout Date: 12/21/2017
Scheduled Securities and Bonds Reporting Date: 12/21/2017
Do Supplemental Documents Exist? No
Is A Meeting to Explain Documents Planned? No.

Table of Contents

  1. Operational Results and Analysis of Financial Condition
  2. State of the Enterprise
  3. Operational Policies
  4. Fundamentals on the Selection of Accounting Standards
  5. Tables for Financial Affairs

1. Operational Results and Analysis of Financial Condition

( 1 ) Analysis Concerning Operational Results

1. Financial Results

In the game industry, mobile gaming continues its growth. For console gaming in both domestic and foreign markets2)as a note, this is from a Japanese standpoint- ‘domestic’ is for Japan the PlayStation 4 has become more popular and commonplace. Additionally, the Nintendo Switch that was released in March 2017 has seen favorable sales as well. The competition with these two systems has fostered a market of excellent titles.

This company continued to create game software to draw in for many more users to enjoy, and production continues onward.

As such, this year both Ys VIII -Lacrimosa of Dana, and the Legend of Heroes Sen no Kiseki III were released for the PlayStation 4.

Additionally, many contents by this company were used one after another for various smartphone apps and online games. There was an increase in miscellaneous DLC and collaborative contents, live concerts, and all kinds of events were promoted.

Due to these, total sales for this company were at 2,065 million yen3)approx. $18,340,000, as of 12/15/2017 (an increase of 40.4% from last year), an operating income of 968 million yen4)approx. $8,600,000 as of 12/15/2017 (an increase of 65.7% from last year), and a net income of 642 million yen5)approx. $5,700,000 as of 12/15/2017, (an increase of 66.1% from last year).

Manufactured Goods Division

This fiscal year saw the release of Ys VIII -Lacrimosa of Dana for the PlayStation 4 in May 2017. This is a new title in the Ys action RPG series, which has become loved by many fans since its first title in 1987 through postive reviews and word of mouth.

Additionally, the Sen no Kiseki series6)Trails of Cold Steel in English, which has seen over 1 million copies sold worldwide through its first two titles had its third game, The Legend of Heroes Sen no Kiseki III, released in September 2017. This title has gained quick popularity and was awarded the Japan Game Award for Future titles at Tokyo Game Show 2017.

As a result, the manufactured goods division brought in a total of 1,143 million yen7)approx. $10,150,000 as of 12/15/2017, an increase of 39.9% from last year.

Licensing Division

Contents from this company being released on multiple platforms and regions, as well as permissions being granted for other companies to license and use characters created by this company affect this division’s numbers. In this situation, Ys VIII -Lacrimosa of Dana- was released in Korean, English, and French for the PlayStation Vita. Ys Origin also saw a PlayStation Vita and PlayStation 4 release in Japan and a variety of other languages.

Additionally, Tokyo Xanadu was released for PlayStation Vita in Chinese, Korean, and English with Tokyo Xanadu eX+ being released for PlayStation 4 in Chinese and Korean. The Nintendo 3DS also saw the release of Gurumin 3D in both English and Japanese.

In May 2017, Chinese and Korean language versions of Ys VIII -Lacrimosa of Dana- were released to the PlayStation 4 simultaneously with the Japanese release, and an English language version of the title was released in Sept 2017.

Other events were the releases of multiple older PC titles through English language game download services, the online story RPG Akatsuki no Kiseki, and collaborative contents added to Hortensia Saga, Seven Nights, Lapis Chronicle, and other titles. Through these efforts, the company has drawn in more users.

As a result, the licensing division brought in a total of 913 million yen8)approx. $8,100,000 as of 12/15/2017, an increase of 41.1% from last year.

2. Forecast for Next Term

The next term will see the continuation of the Sen no Kiseki series with the new title being released to PlayStation 4. There are plans for Sen no Kiseki and Sen no Kiseki II to also see PlayStation 4 releases, as well.

The Kiseki series is one of this company’s masterpiece works, having a large number of fans and having received many awards, including the Japan Game Award of Excellence, the Japan Game Award for Future Titles, the Famitsu Award, PlayStation User’s Choice Award, and others. Other games in the series include Sora no Kiseki FC, Sora no Kiseki SC, Sora no Kiseki the 3rd, Zero no Kiseki, and Ao no Kiseki. This particular series, Sen no Kiseki, has had two other titles sell over 1 million copies world wide, and just saw the release of its third title, Sen no Kiseki III in this past year.

In regards to the highly praised Ys VIII -Lacrimosa of Dana- this company plans to make an effort to ensure the title has continued sales promotions throughout the year.

For the licensing division, contents from this company will be released to multiple platforms and in smartphone apps throughout Japan, Asia, North America, and Europe. Additionally, collaborative efforts for various apps will continue as well.

For the term ending in 9/2018, this company is forecasting a total sales of 1,800 million yen9)approx. $15,980,000 as of 12/15/2017, an operating income of 750 million yen10)approx. $6,660,000 as of 12/15/2017, and a net income of 500 million yen11)approx $4,440,000 as of 12/15/2017.

Furthermore, a distinctive trait of the financial results is due to the general months of release. As most of the financial numbers come about from the second half of the year, the results are heavily weighted towards the last two quarters of the year.

( 2 ) Analysis Concerning Financial Condition

1. Property, Liabilities, and Net Worth

When compared to last year, this company’s assets have increased 867 million yen to 5,023 million yen12)approx. $44,600,000 as of 12/15/2017. The primary causes for this were an increase of cash on hand to 34 million yen and an increase to accounts receivable to 824 million yen.

In terms of liabilities, this fiscal year saw a 297 million yen increase to 612 million yen13)approx. $5,430,000 as of 12/15/2017. The primary causes for this would be from accounts payable increasing to 122 million yen14)approx. $1,080,000 as of 12/15/2017, and unpaid corporate taxes increasing to 149 million yen15)approx. $1,320,000 as of 12/15/2017.

This company’s net worth has increased 570 million yen to 4,410 million yen16)approx. $39,160,800 as of 12/15/2017, caused by surplus shares increasing to 71 million yen17)approx. $630,000 as of 12/15/2017. This ends up with a current net income of 642 million yen18)approx. $5,700,000 as of 12/15/2017.

2. Situation with Cash Flow

Cash and cash equivalent goods (futhermore known as ‘capital.’) increased this year by 34 million yen, to 3,847 million yen19)approx $34,160,000 as of 12/15/2017.

Information regarding this fiscal year’s cash flow follows.

(Cash flow from business activities.)

Due to this year’s business activities, the company’s capital has increased to 113 million yen. The cause for this is from paying 187 million yen in corporate taxes, and a total credit increase to 824 million yen. This year’s net income is 968 million yen20)approx. $8,600,000 as of 12/15/2017 before taxes.

(Cash flow from investment activities.)

There was a decrease of 6 million yen through investment activities. This is based on the value of tangible fixed assets.

(Cash flow from financial activities.)

There was a 71 million yen reduction in capital from financial activities. This is caused by divident expenses being at 71 million yen.

(Reference) Transition of Related Cash Flow Indices

  2013 Term 2014 Term 2015 Term 2016 Term 2017 Term
Capital-to-Asset Ratio 78.2 75.4 91.4 92.4 87.8
Capital-to-Asset Ratio of
Market Value Base		 382.5 367.5 265.7 154.6 206.9
Ratio of Interest Bearing Debt
Against Cash Flow		 — — — — —
Interest Coverage Ratio — — — — —

(Annotation) Capital-to-Asset Ratio: Net Worth / Total Assets

Capital-to-Asset Ratio of a Market Value Base : Stock Market Cap / Total Assets
Ratio of Interest Bearing Liabilities against Cash Flow : Interest Bearing Liabilities / Operational Cash Flow
Interest Coverage Ratio : Operational Cash Flow / Interest Payment

1. Stock Market Cap is calculated by (Stock Closing Price at End of Term) x (End of Term Issued Stock Count)
2. Ratio of Interest Bearing Debt Against Cash Flow and Interest Coverage Ratio were not recorded for the terms listed above.

( 3 ) Policies Regarding Profit Distribution and Analysis of Current and Upcoming Terms

Management takes the shareholder concerns of profit returns as an important subject. When considering profit distribution, we have to take into account future enterprise developments, as well as the required internal reserves to ensure long-term business reinforcement.

In line with these requirements, we have opted dividend payouts to be 8 yen per share.

( 4 ) Risks to the Company

The section below details the potential risks that can befall the company and its development activities. While these things may not necessarily be actively impacting the company, these are things that investors must be made aware of, so that they can be proactive in their decision making. Additionally, it’s in the company’s best interests to be aware of these potential risks so that it can either avoid them entirely, or react appropriately should they happen. Please take these issues into account when making decisions regarding the company’s stocks.

1. Risks Within the Company

a. Lengthening Development Times

Currently for this company, game software development can be as short as half a year to taking 2 or 3 years. There can be differences between what is the planned development time and what is considered as practical development times. Furthermore, development times can also increase from the recent speed of technological advancements as well as increasing demand for manufactured goods. This company works to counteract this by continuously gathering as much information as possible regarding technology advancements in this industry.

b. Trends Changing the Sales of Manufactured Goods

The fiscal quarters for this company rely heavily on the release and positive sales of its manufactured goods and the need to continuously bring out new items for sale. As such, it’s fully possible for financial results to change based entirely on the quarterly sales.

c. Issues Involving Intellectual Property

As this company relies on the intellectual property that is developed within it, a lot of care is taken to ensure that these products are not used without obtaining the proper rights for them. Should the case of another company utilizing the know-how, technology, or patented rights of this company, it could have an affect on this company’s financial results.

Furthermore, all manufactured products for this company are handled by third parties. Should an issue involving the company’s intellectual property arise, lawsuits or claims will be necessary to handle it, and this can impact the period’s results.

d. Securing and Training Personnel

One of the most important factors for the company is recruiting and securing personnel and in particular individuals who are both skilled in the current technologies, as well as those that can be easily trained are essential in being hired to bolster the current staff on hand. Moreover, reward programs to recognize achievements are necessary to implement in order to minimize the numbers that would leave the company outside of retirement and career changes. Additionally, because of the use of personnel recruiting services, the objective is to retain as many employees as possible. However, it is impossible to guarantee the ability to continously secure new personnel. As such, missed opportunities in this area have the ability to impact the financial results of this company.

2. Risks Based on External Influences

a. Concerns Regarding Regulation

This company currently does not create products that are rated as ‘R18’ (based on film moral standards determined by the regulations from an official management commitee and are deemed inappropriate for consumers below the age of 18). However, the possibility of strengthened regulations from the government on such topics have the potential to impact the company.

b. Piracy of Game Software

Piracy and non-consentual copies of game software is currently a major problem that is being seen by the video game industry. Currently, as the company has no special actions for dealing with piracy, an overwhelming number of illegal copies can damage potential sales and cause a negative effect on the company’s end of period results.

c. Handling of Personal Information

Part of this company’s services include mail order sales and as a result, we possess personal information on direct customers. Additionally, as more people sign up for the email service offered on the website, this company maintains an in-house database to store the personal information for this use. We have a high awareness of information management, and access restrictions in place so that we can ensure that this personal information is not disclosed.

However, in the situation that personal information is leaked through internal situation or outside hacking, public confidence on this company would be lost, and the resulting damages would have the ability to impact the firm’s financial results.

2. State of the Enterprise

As there are no affiliate corporations connected to this company, there is no relevant information for this.

3. Operational Policies

( 1 ) Standard Policies of the Company’s Operations

This company holds individual creativity in high-regard and encourages affective teamwork so that game contents and services filled with originality can be created. This company strives to continuously boost appealing contents over multiple platforms for the enjoyment of customers worldwide.

( 2 ) Benchmarks and Operational Indices

Because of the efficiency of its management policies, this company maintains a high profit ratio, which gives it the opportunity to focus on strengthening its sales for contents and services.

( 3 ) Mid-to-Long Term Corporate Strategies

Since the formation of this company, the management has always followed a balanced ‘offensive and defensive’ strategy to cultivate a foundation of both know-how and branding. ‘Offensive’ in taking on new challenges to focus on innovative technological developments for console, social, and network gaming. Additionally, the ‘defensive’ aspect is to maintain a healthy speed, and always show improvements in quality while being prepared to deal with issues involving internal themes and personnel. Because of these methods, the company can continue its growth while maintaining a stable foundation underneath its feet.

( 4 ) All Issues Affecting the Enterprise

1. Development of Human Resources

To remain competitive alongside other content makers, this company commits to recruiting and training skilled personnel. This company has a great tradition of long-standing veterans in the game industry with a great deal of know-how, skills, and values, training of the new personnel is a very important issue that the deals with.

2. Speedy Operation and Implementation

This company has a business cycle of planning, development, public relations, and sales. The company realizes that these cycles must be handled quickly, as the pace to supply games and services increases.

3. Brand Evolution

This firm develops an extensive list of game contents and licensing for a variety of platforms, including PC, home consoles, smartphones and online games. With in-house developments and licensed goods performing well both domestically and internationally, this firm can strengthen brand recognition in order to maximize profits.

4. Advertising and Public Relations

To expand the knowledge of this company’s games and services and to ascertain cost-effectiveness for the company, advertising and public relations will need to be reinforced. As the public becomes more aware of the company, more license agreements can be made, more corporate tie-ins, and more job-seekers will apply which will allow the company to push towards more lucrative developments

( 5 ) Miscellaneous and Other Important Matters

There is no relevant information.

4. Fundamentals on the Selection of Accounting Standards

As this firm does not prepare consolidated financial statements, there has been consideration on using international standards for drawing up said statements, but they were instead prepared using Japanese standards.

5. Tables for Financial Affairs

( 1 ) Balance Sheet

  Prev. Year (2016) Current Year (2017)
Property Division
Current Assets
Cash on Hand 3,812,687 3,847,502
Accounts Receivable 137,653 961,969
Manufactured Goods 1,301 3,053
Raw Materials 1,994 3,311
Prepaid Expenses 4,399 6,468
Deferred Tax Assets 36,598 26,154
Misc. 1,281 911
Current Assets Sum 3,995,916 4,849,371
Fixed Assets
Tangible Property
Facilities Related Installations 16,281 16,281
Total Depreciation Amount ? 13,895 ? 14,698
Facilities Related Installations
(Net Amount)		 2,386 1,582
Tools, Equipment, and Furnishings 27,977 33,949
Total Depreciation Amount ? 25,798 ? 28,492
Tools, Equipment, and Furnishings
(Net Amount)		 2,178 5,457
Fixed Assets Sum 4,564 7,040
Intangible Fixed Assets
Software 2,453 776
Telephone Procurement 757 757
Intangible Fixed Assets Sum 3,210 1,533
Assets from Additional Investments
Security Investments 116,578 116,578
Deferred Tax Assets 4,927 18,797
Securities and Deposits 30,680 30,347
Sum of Assets from Additional Investments 152,185 165,723
Sum of Fixed Assets 159,961 174,297
Total Assets 4,155,977 5,023,668
Debt Division
Current Liabilities
Accounts Payable 22,952 145,055
Arrears 60,235 58,923
Accrued Expenses 14,332 17,277
Unpaid Corporate Taxes 150,838 300,483
Unpaid Consumption Taxes 41,108 61,197
Advances Received 2 —
Deposits 5,870 5,802
Reward Provisions 20,250 24,000
Sum of Current Liabilities 315,590 612,739
Total Debts 315,590 612,739
Net Worth Division
Shareholder Equity
Capital Stock 164,130 164,130
Capital Surplus
Capital Reserve Fund 319,363 319,363
Sum of Capital Surplus 319,363 319,363
Profit Surplus
Miscellaneous Profit Surplus
Contingent Reserve 710,000 710,000
Transferred Profit Surplus 2,646,910 3,217,553
Sum of Profit Surplus 3,356,910 3,927,553
Treasury Stock ? 117 ? 117
Sum of Shareholder Equity 3,840,286 4,410,929
Total Net Worth 4,115,887 5,023,668

( 2 ) Profit and Loss Calculation Sheet

Prev. Year (2016) Current Year (2017)
Sales
Sales of Manufactured Goods 817,068 1,143,324
Royalty Income 647,113 913,059
Total Sales 1,464,182 2,056,383
Cost of Sales
Cost of Sales for Manufactured Goods ?1 260,976 ?1 317,249
Cost of Sales for Royalty Income 1,500 3,000
Total Cost of Sales 262,476 320,249
Total of All Sales 1,201,706 1,736,134
Sales and Administrative Costs
Shipping and Freight Costs 10,603 10,431
Advertising Expenses 91,014 53,921
Promotional Costs 15,643 29,338
Executive Salary 50,822 50,000
Employee Salary and Wages 24,251 25,766
Bonuses 2,900 2,870
Sums Transferred into Bonus Reserves 2,295 2,624
Legal Costs 12,315 12,255
Hiring Costs 12,643 11,721
Utility Costs 878 936
Payment Handling 33,323 35,599
Supply Expenses 1,415 1,381
Travel Expenses 1,628 1,575
Communication Expenses (Postage) 585 559
Depreciation Costs 1,508 1,596
Research and Development ?2 343,007 ?2 500,790
Miscellaneous 12,536 24,182
Sum of Sales and Administrative Costs 617,374 765,552
Operating Profit 584,331 970,581
Earnings from Outside the Business
Interest Receipts 349 36
Dividend Receipts 572 1,155
Excluded Profits from Unpaid Dividends 702 1,046
Sum of Earnings from Outside the Business 1,623 2,238
Costs from Outside the Business
Losses from Foreign Exchange 1,576 4,373
Sum of Costs from Outside the Business 1,576 4,373
Current Profits 584,378 968,446
Special Costs
Costs from Eliminating Fixed Assets — 0
Sum of Special Costs — 0
Current Income Before Taxes 584,378 968,446
Corporation, Municipal, and Enterprise Taxes 194,777 329,270
Sum of Adjustments from Corporation Tax 2,693 ? 3,426
Sum of Taxes 197,471 325,844
Current Net Income 386,907 642,601
Detailed Statement on the Total Sale of Manufactured Goods

Detailed Statement on the Total Sale of Manufactured Goods

Operation Section Previous Year (2016) Current Year (2017)
Section Amount Ratio (%) Amount Ratio (%)
I. Material Cost 225,991 87.0 287,368 90.1
II. Outsourcing Cost 33,737 13.0 31,633 9.9
SUBTOTAL 259,789 100.0 319,001 100.0
III. Inventory Count of Goods
at Beginning of Term		 2,487 1,301
SUM TOTAL 262,277 320,303
IV. Inventory Count of Goods
at End of Term		 1,301 3,053
Difference in Costs
of Goods		 260,976 317,249

( 3 ) Fluctuation Chart for Shareholder Equity

Previous Term: From Oct 1, 2015 ~ Sept 30, 2016
In thousand yen increments.

Shareholder Equity Sum of
Net Worth
Capital
Stock 		Capital Surplus Profit Surplus Treasury
Stock 		Sum of
Capital
Stock
Capital Reserve Misc. Profit Surplus
Special Reserve Transferred Profit Surplus
Current Term Balance 164,130 319,363 710,000 2,331,962 ? 117 3,525,338 3,525,338
Change of Sums in Current Term
Surplus Shares ? 71,959 ? 71,959 ? 71,959
Current Net
Income		 386,907 386,907 386,907
Sum of Fluctuations
For the Current
Period		 — — — 314,948 914,948 314,948
Balance at
the end of this
Period		 164,130 319,363 710,000 2,646,910 ? 117 3,840,286 3,840,286

Current Term: From Oct 1, 2016 ~ Sept 30, 2017
In thousand yen increments.

Shareholder Equity Sum of
Net Worth
Capital
Stock 		Capital Surplus Profit Surplus Treasury
Stock 		Sum of
Capital
Stock
Capital Reserve Misc. Profit Surplus
Special Reserve Transferred Profit Surplus
Current Term Balance 164,130 319,363 710,000 2,646,910 ? 117 3,840,286 3,840,286
Change of Sums in Current Term
Surplus Shares ? 71,959 ? 71,959 ? 71,959
Current Net
Income		 642,601 642,601 642,601
Sum of Fluctuations
For the Current
Period		 — — — 570,642 570,642 570,642
Balance at
the end of this
Period		 164,130 319,363 710,000 3,217,553 ? 117 4,410,929 4,410,929

( 4 ) Cash Flow Calculation Sheet

Prev. Year (2016) Current Year (2017)
Cash Flow from Business Activities
Current Net Income Before Taxes 584,378 968,446
Depreciation Costs 5,375 6,064
Reduction of Fluctuations of Reward Reserves
(? is decrease)		 — 3,750
Interest and Dividend Receipts ? 921 ? 1,191
Loss from Elimination of Fixed Assets — 0
Reduction of Fluctuations in Sales Credit
(? is increase)		 448,993 ? 824,317
Reduction of Fluctuations in Inventory Assets
(? is increase)		 2,999 ? 3,069
Fluctuation Amounts of Other Assets
(? is increase)		 479 ? 1,367
Reduction of Fluctuations in Purchased Debts
(? is decrease)		 ? 84,378 112,102
Reduction of Fluctuations of Arrears
(? is decrease)		 ? 10,102 ? 847
Fluctuation Amounts of Unpaid Taxes
(? is decrease)		 11,605 20,089
Fluctuation Amounts of Other Debts
(? is decrease)		 1,618 10,141
Subtotal 960,048 299,800
Amounts Received via Interests and Dividends 921 1,191
Amount Paid for Corporation Tax ? 129,418 ? 187,936
Cash Flow from Business Activities 831,552 113,055
Cash Flow from Investment Activities
Expenses from the Value of Tangible Assets — ? 6,862
Expenses from the Value of Intangible Assets ? 387 —
Other 63 —
Cash Flow from Investment Activities ? 324 ? 6,862
Increased Reduction in Cash and Cash Value Articles
(? is decrease)		 759,738 34,815
Balance of Cash and Cash Value Articles at Start of Term 3,052,949 3,812,687
Balance of Cash and Cash Value Articles at End of Term 3,812,687 3,847,502

( 5 ) Annotations Related to Financial Statements

(Annotations Concerning Business Condition Continued)

No applicable information.

(Important Accounting Policies)

1. Appraisal Standards and Evaluation Policies for Marketable Securities

Other Marketable Securities
There are no market value items.
Moving average is calculated via cost price.

2. Appraisal Standards and Evaluation Policies for Inventory Assets

Manufactured goods and raw services.
Utilizing previously mentioned cost price ( calculations based on the declining book value of profitability) principles.

3. Depreciation Estimates Process for Fixed Assets

( 1 ) Tangible fixed assets
Using a fixed rate. (based on building installation value laws instated on 4/1/2016)

Below is the average service life.

Building Installations: 10 ? 15 years
Tools, Devices, and Furnishings: 4 ~ 8 years

( 2 ) Intangible fixed assets
Based on the in-house availability (5 years) of software used in the corporation.

4. Appropriation Standards for Reserves
( 1 ) Irrecoverable debt reserves
Prepared to have ready for losses caused by irrecoverable debt from credits. There is a considered ratio for irrecoverable debt to go along with the general credit, as such this is a sum of money to maintain for the times when it’s impossible to claim a debt.

( 2 ) Bonus reserves
Provisioned expenditures set aside to give to employees as a reward.

5. Scope Regarding Funds in the Cash Flow Statement

Cash on hand is made up of money that can be quickly withdrawn, and items that can be easily liquidated, moreover the company takes responsibility for small risks from value fluctuations that can be paid off anywhere between three days to three months.

6. Important Notes Involving the Standards for Drawing up Other Financial Statements

Accounting of consumption tax: based on formulas that include tax amounts.

( Changes to Account Objectives )

No applicable information.

( Additional Information )

(Concerning the application of potentially reclaimed DTA.)

This fiscal year’s process of “applying potentially reclaimed DTA” (Based on standard corporate indices from 3/28/2014)

( Concerning the Profit and Loss Statement )

? 1 Inventory that fell below the targeted sales goals.

  Prev. Term
10/1/2015~9/30/2016		 Current Term
10/1/2016~9/30/2017
Cost of Sales 3,422 thousand yen 1,500 thousand yen

???Sum of Research and Development Costs

  Prev. Term
10/1/2015~9/30/2016		 Current Term
10/1/2016~9/30/2017
Distribution and
Administrative Costs		 343,007 thousand yen 500,790 thousand yen
( Concerning the Chart Showing Fluctuations to Shareholder Equity )

Prev. Fiscal Year (10/1/2015 ~ 9/30/2016)

1. Concerning the counts of both general and treasure stocks.

  Stock at Beginning of this Year Stock Increase for this Year Stock Decrease for this Year Max Stock for this Year
Issued Stock        
General Stock 10,280,000 — — 10,280,000
Treasury Stock        
General Stock 102 — — 102

2. Information Related to Dividends

( 1 ) Dividend Payouts

Decision Stock Category Dividend Total (1000 yen increments) Dividend Amount per Share Reference Date Effective Date
12/16/2015
Regular Shareholder Meeting		 General Stock 71,959 7 9/30/2015 12/17/2015

( 2 ) Stocks for the current term belonging under the reference date, and the effective date of stock for the next term.

Decision Stock Category Dividend Total (1000 yen increments) Dividend Amount per Share Dividend Capital Reference Date Effective Date
12/20/2016
Regular Shareholder Meeting		 General Stock 71,959 7 Profit Surplus 9/30/2016 12/21/2016

This Fiscal Year (10/1/2016 ~ 9/30/2017)

1. Concerning the counts of both general and treasure stocks.

  Stock at Beginning of this Year Stock Increase for this Year Stock Decrease for this Year Max Stock for this Year
Issued Stock        
General Stock 10,280,000 — — 10,280,000
Treasury Stock        
General Stock 102 — — 102

2. Information Related to Dividends

( 1 ) Dividend Payouts

Decision Stock Category Dividend Total (1000 yen increments) Dividend Amount per Share Reference Date Effective Date
12/20/2016
Regular Shareholder Meeting		 General Stock 71,959 7 9/30/2016 12/21/2016

( 2 ) Stocks for the current term belonging under the reference date, and the effective date of stock for the next term.

Decision Stock Category Dividend Total (1000 yen increments) Dividend Amount per Share Dividend Capital Reference Date Effective Date
12/20/2017
Regular Shareholder Meeting		 General Stock 82,239 8 Profit Surplus 9/30/2017 12/21/2017
( Concerning the Cash Flow Statement )

Concerning end of term balance of cash and cash equivalent goods, as well as topics documented on the balance sheet.

(In thousand yen increments)

  Prev. Year
(10/1/2015 ~ 9/30/2016)		 This Year
(10/2/2016 ~ 9/20/2017)
Cash on Hand 3,812,687 3,847,502
Cash and Cash Equivalent Items 3,812,687 3,847,502
( Concerning Financial Products )

As the document regarding the summary of accounts does not have a high monetary requirement, it is not displayed here.

( Concerning Tax Accounts )

1. Itemization of the main source of DTA generation

In Thousand Yen Increments

  Prev. Year (9/30/2016) This Year (9/30/2017)
(Deferred Tax Assets / DTA)
1. Current Assets    
Unfactored loss from unpaid corporate taxes 8,890 13,088
Unfactored loss from bonus reserves 6,249 7,406
Unfactored loss from inventory value 1,463 1,650
Miscellaneous 15,829 1,611
Total 36,598 26,154
2. Fixed Assets    
Depreciation Surplus 2,386 14,693
Miscellaneous 2,541 4,104
Total 4,927 18,797
Sum of DTA 41,526 44,952
Net Amount of DTA 41,526 44,952

2. Comparison of the taxation applied on primary items, to the tax rates as mandated by law21)thanks to Sniff the Raven for assisting me with this to try to make this financial jargon word salad sound less like a word salad..

  Prev. Year (9/30/2016) This Year (9/30/2017)
Legal Tax Rate —% 30.9%
(Adjustments)
Charged Taxes on Reserve Cash of Affiliated Corporations —% 5.2%
Tax Credits of Trial Expenses —% 2.3%
Miscellaneous —% ? 0.2%
Corporation’s Share of Taxes after Applied Tax Results —% ? 33.6%
( Other Segment Information )

[Segment Information]
This company is only involved in game development and sales. Any other segments have been omitted.

[Relevant Information]
Prev. Fiscal Year (10/1/2015 ~ 9/30/2016)

1. Information on Manufactured Goods and Other Services

In thousand yen increments

  Manufactured Goods Div. Licensed Goods Div. Total
Total Sales of External Clients 817,068 647,113 1,464,182

2. Regional Information.

( 1 ) Total Sales

In thousand yen increments

Japan Asia North America / Europe Total
1,187,247 37,322 239,613 1,464,182

Note: The information is based on client sales, sorted by region.

( 2 ) Tangible Fixed Assets
As there are no tangible fixed assets outside of the region, there is no relevant information.

3. Major Client Information

In thousand yen increments

Major Client Name Total Sales Related Segment Name
Konami Digital Entertainment 694,711 Game Development / Sales
Sony Interactive Entertainment 282,677 Game Development / Sales
Marvelous USA, INC. 156,151 Game Development / Sales

This fiscal year. (10/1/2016 ~ 9/30/2017)

1. Information on Manufactured Goods and Other Services

In thousand yen increments

  Manufactured Goods Div. Licensed Goods Div. Total
Total Sales of External Clients 1,143,324 913,059 2,056,383

2. Regional Information.

( 1 ) Total Sales

In thousand yen increments

Japan Asia North America / Europe Total
1,725,257 24,231 306,894 2,056,383

Note: The information is based on client sales, sorted by region.

( 2 ) Tangible Fixed Assets
As there are no tangible fixed assets outside of the region, there is no relevant information.

3. Major Client Information

In thousand yen increments

Major Client Name Total Sales Related Segment Name
Konami Digital Entertainment 1,055,089 Game Development / Sales
Sony Interactive Entertainment 490,547 Game Development / Sales

[Information based on losses from fixed assets in reported segments.]
No relevant information.

[Information on payments and unpaid balances for reported segments.]
No relevant information.

[Information on incidental gains for reported segments.]
No relevant information.

( Profit and Loss Regarding Corporate Equity Principles )

As there are no companies associated to this business, there is no relevant information.

( Information on Related Parties )

Transactions with Related Parties

Corporated filed financial statements and transactions with related parties.

Prev. Fiscal Year (10/1/2015 ~ 9/30/2016)

Category Company Name Location Stock or Capital
(1000 yen)		 Operational Industry Voting Access Percentage (%) Connection of Related Party Transaction Details Transaction Amount (1000 yen) Subject End of Term Balance (1000 yen)
Corporation with Large Stock Numbers and/or Voting Rights KSK Saitama 10,000 Manufacturing None Executive Post Consigned goods for game development (Note #2) 17,450 Arrears 864

Notes:
1. The above transaction amounts include tax, and end-of-term balance also includes tax.
2. In this case, individual items are estimations based on quotes from other companies that were determined through negotiations.

This Fiscal Year (10/1/2016 ~ 9/30/2017)

Category Company Name Location Stock or Capital
(1000 yen)		 Operational Industry Voting Access Percentage (%) Connection of Related Party Transaction Details Transaction Amount (1000 yen) Subject End of Term Balance (1000 yen)
Corporation with Large Stock Numbers and/or Voting Rights KSK Saitama 10,000 Manufacturing None Executive Post Consigned goods for game development (Note #2) 23,400 Arrears 1,512

Notes:
1. The above transaction amounts include tax, and end-of-term balance also includes tax.
2. In this case, individual items are estimations based on quotes from other companies that were determined through negotiations.

( Information on 1 Share Amounts )
Prev. Year (10/1/2015 ~ 9/30/2016) This Year (10/1/2016 ~ 9/30/2017)
Net Worth per Share : 373.57 yen Net Worth per Share : 429.08 yen
Net Income per Share : 37.64 yen Net Income per Share : 62.51 yen

Notes:
1. Potential stock adjustment is based on the cost of shares based on net income, however as there is no potential stock, there is no relevant information.
2. The basic calculations for net income per share can be found below.

Item Prev. Year (10/1/2015 ~ 9/30/2016) This Year (10/1/2016 ~ 9/30/2017)
Net Income per Share    
Net Income (1000 yen) 386,907 642,601
Money Returned to General Shareholders (1000 yen) —
Term’s Net Profit Affected by General Stock (1000 yen) 386,907 642,601
Average Stock Count During Term 10,279,898 10,279,898
( Essential Late-Starting Events )

No relevant information.

( 6 ) Miscellaneous

State of Production, Orders, and Sales

a. Production Results
The primary work of this company is in research and development. There are no production facilities in this company’s possession.

b. Order Results
As this company does not do made-to-order production there is no relevant information.

c. Sales Results
Details on this company’s sales results can be found below.

Business Division Prev. Year (10/1/2015 ~ 9/30/2016) This Year (10/1/2016 ~ 9/30/2017) Comparative Fluctuations
Cash Amount (1000 yen) Cash Amount (1000 yen) Cash Amount (1000 yen) Change (%)
Manufactured Goods 817,068 1,143,324 326,255 39.9
Licensing 647,113 913,059 265,945 41.1
Total 1,464,182 2,056,383 592,201 40.4

Notes:
1?The above-mentioned cash amounts do not include taxes.
2. The sales amounts and corresponding results related to the previous two fiscal years can be seen below.

Partner Prev. Year (10/1/2015 ~ 9/30/2016) This Year (10/1/2016 ~ 9/30/2017)
Cash Amount (1000 yen) Ratio (%) Cash Amount (1000 yen) Ratio (%)
Konami Digital Entertainment 694,711 47.4 1,055,089 51.3
Sony Interactive Entertainment 282,677 19.3 490,547 23.9

[ Falcom EOY 2017 Financial Report (PDF) ]
[ EOY Report Summary ]

Footnotes

Footnotes
↑1 Code used on the Tokyo Stock Exchange.
↑2 as a note, this is from a Japanese standpoint- ‘domestic’ is for Japan
↑3 approx. $18,340,000, as of 12/15/2017
↑4, ↑20 approx. $8,600,000 as of 12/15/2017
↑5, ↑18 approx. $5,700,000 as of 12/15/2017
↑6 Trails of Cold Steel in English
↑7 approx. $10,150,000 as of 12/15/2017
↑8 approx. $8,100,000 as of 12/15/2017
↑9 approx. $15,980,000 as of 12/15/2017
↑10 approx. $6,660,000 as of 12/15/2017
↑11 approx $4,440,000 as of 12/15/2017
↑12 approx. $44,600,000 as of 12/15/2017
↑13 approx. $5,430,000 as of 12/15/2017
↑14 approx. $1,080,000 as of 12/15/2017
↑15 approx. $1,320,000 as of 12/15/2017
↑16 approx. $39,160,800 as of 12/15/2017
↑17 approx. $630,000 as of 12/15/2017
↑19 approx $34,160,000 as of 12/15/2017
↑21 thanks to Sniff the Raven for assisting me with this to try to make this financial jargon word salad sound less like a word salad.

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