Consolidated financial result

SIOS Corporation

Consolidated Financial Result(For the 9-month period ended September 30, 2020)
October 29, 2020
Company name:
Address:
Stock exchange listings:
Code number :URL:
Representative:
Contact:

SIOS Corporation
2-12-3 Minami Azabu, Minato-ku, Tokyo 106-0047 JapanTokyo Stock Exchange (TSE)3744
https://www.sios.com/
Nobuo Kita, Representative Director
Tokutaro Kobayashi, S.V.P. of Finance & Accounting
Phone: +81-3-6401-5111
Scheduled date for filing of quarterly financial report: November 13, 2020
(Note) All figures in the financial statements are rounded down to the nearest millionth.
‘-‘ indicates a loss or negative figure.

1. Consolidated results (January 1, 2020 through September 30, 2020)(1) Consolidated business results
Net sales
Million yen

Operating income%

Million yen

9-month period(2020/9)
10,5293.9
9-month period(2019/9)
10,135
7.1(Note)Comprehensive income
As of September.30, 2020: 93 million yen/ -%Ordinary income

%

-6
-74

Million yen-

Net income

%

-2
-34

Million yen

-

%

112
-74

-

As of September. 30, 2019: -93 million yen/ -%Net income per share- Basic

Net income per share- Diluted

Yen

Yen

12.97
-8.65

-

9-month period(2020/9)
9-month period(2019/9)(% of change from previous first quarter)(2) Consolidated financial position
Total assets

Net assets

Equity ratio

Million yen

Million yen

%

1,364
1,308

22.8
23.7

9-month period(2020/9)
5,763
FY2019
5,332(Reference) Equity
As of September. 30, 2020: 1,315 million yen

As of Dec. 31, 2019: 1,264 million yen

2. Cash dividends
Record Date

End of Q1

Interim

Dividend per share
End of Q3

Year-end

Annual

Yen

Yen

Yen

Yen

%

FY2019-0.00-

FY2020-0.00-

FY2020 (expected)

5.00

5.00

5.00

5.00

(Note) Revisions to recent dividend forecast: None

3. Forecast of consolidated results for FY2020 (January 1, 2020 through December 31, 2020)
Net sales
Million yen

Operating income%

Million yen

FY202014,2003.7(Note) Revisions to recent business forecast: Yes

40

Ordinary income(% of change from previous year)
Net income
Net income
per share%

Million yen%

Million yen

%

-27.2

45

-53.3

150

363.5

- 1 -

Yen

17.30

Consolidated financial result

SIOS Corporation

4. Others(1) Reclassification of significant subsidiaries during the period (Reclassification due to change in scope of consolidation): None
(2) Application of special accounting methods for the preparation of the consolidated quarterly financial statements: None
(3) Change in accounting policies, accounting estimates and restatement(i) Change in accounting policies associated with revision of accounting standards: None(ii) Change arising from other factors: None(iii) Change in accounting estimates:None(iv) Restatement:None(4) Number of outstanding shares (common shares)(i)

Number of outstanding shares(including treasury stock)(ii) Number of treasury stock(iii) Average number of outstanding shares(9-month period)

Third quarter of
FY2020Third quarter of
FY2020Third quarter of
FY20208,874,400 shares

FY20198,874,400 shares

205,838 shares

FY2019205,768 shares

8,668,607 shares

Third quarter of
FY20198,663,546 shares

Explanation about proper use of forecasts of consolidated financial results and other special notes
1.

Information Regarding the Audit Review Procedure: This report is outside the scope of the procedures for quarterly review offinancial statements as required under the financial instruments and Exchange Act of Japan. The aforementioned procedures havenot been completed as of the time of disclosure of this document.

2.

Net income per share was calculated by the number of outstanding shares (excluding treasury stocks) at the end of fiscal year.

3.

Forecasts announced by the company referred to above were prepared based on management’s assumption with information
available at this time and therefore involve known and unknown risks and uncertainties. Please note such risks and uncertainties
may cause the actual results to be materially different from the forecasts.

4.

This information to above is an UNOFFICIAL English-language translation of the original Japanese-language version. The format
and contents of this document are defined by the requirements of the Tokyo Stock Exchange’s 2nd Section.
To the extent that there are discrepancies between this translation and the original version, the original version shall be definitive.

- 2 -Consolidated financial result

SIOS Corporation○Table of Contents of the Attached Document

1. Qualitative Information on Quarterly Results ................................................................................. 4(1) Results of Operations ................................................................................................................. 4(2) Financial Position ...................................................................................................................... 5(3) Forward-looking Statements Including Consolidated Business Forecasts .......................................... 5
2. Quarterly Consolidated Financial Statements ................................................................................. 6(1) Quarterly Consolidated Balance Sheet ......................................................................................... 6(2) Quarterly Consolidated Statements of Income and Quarterly Consolidated Statements ofComprehensive Income ...................................................................................................................... 8
Quarterly Consolidated Statements of Income .............................................................................. 8
Quarterly Consolidated Statements of Comprehensive Income ....................................................... 9(3) Notes to Quarterly Consolidated Financial Statements ................................................................. 10
Notes to Going Concern Assumption ........................................................................................ 10(Notes on significant changes in the amount of shareholders' equity)............................................. 10
Segment Information............................................................................................................... 11(Significant subsequent events) ................................................................................................ 13- 3 -Consolidated financial result

SIOS Corporation

1. Qualitative Information on Quarterly Results(1) Results of Operations
Overview of Consolidated Business Performance for the Nine Months Ended September 30, 2020
Many corporations in Japan and the rest of the world have reported a substantial year-on-year decline in their earnings for the ninemonths ended September 30, 2020, amid the increasingly serious COVID-19 crisis. Consequently, companies are becoming cautious
about making new investments and are suspending or postponing large projects. In the IT arena in which the Group operates, however,companies have been investing at an accelerated pace in implementing digital transformation (DX)1 solutions, including switching toteleworking and transitioning to cloud environments as well as streamlining and automating business processes. In this businessenvironment, the Group offers value-added products and services to assist corporate clients in moving forward with DX.
To get through the significant changes in the current socioeconomic environment brought about by the COVID-19 crisis, we haveasked all our employees to switch to teleworking to protect their health and safety as well as to achieve greater work efficiency. In
addition, on October 1, 2020, we merged three of our key subsidiaries operating in Japan to consolidate their human,
intellectual-property, and financial resources in an effort to achieve even greater operational efficiency and productivity.
The Group achieved consolidated business results by segment for the period under review as follows:(i) Open System Infrastructure Business Segment
The Group achieved a solid increase in sales of our core LifeKeeper2, thanks to its robust perpetual licensing business in Japan, whichmore than offset its declining sales in the Americas and Europe, both affected by the pandemic. In addition, sales of Red Hat EnterpriseLinux3 and other software products sourced from Red Hat Inc.4 as well as revenues from OSS5-related products and support services
increased over the same period the previous fiscal year. As a result, net sales in this segment increased 6.4% year on year to 6,089
million yen.
The segment income was down 21.8% year on year to 42 million yen, due to additional R&D spending incurred to upgrade
LifeKeeper and increased expenses associated with establishing new businesses.
(ii) Application Business Segment
Revenues from software applications for MFPs6 declined. This was partly because an increasing number of corporate users switched
to a subscription model7 for these applications, the revenue from which was not recognized up front during the period under review, but
was to be spread evenly over the following quarters, and partly because sales of office MFPs, in which these applications were to beinstalled, were slow due to the pandemic. In contrast, revenues from the provision of support for system development andimplementation were strong, especially for educational institutions. Sales of both Gluegent series8 products and the management
support system for financial institutions were also strong. As a result, net sales in this segment increased 0.6% year on year to 4,439
million yen.
A year-on-year increase in revenues from the provision of support for system development and implementation to educational
institutions had a positive impact on the segment income. In addition, income from the provision of support for system development andimplementation to financial institutions was up due to the absence of unprofitable projects that had affected negatively the profitabilityof this segment the previous fiscal year. These favorable factors were more than offset by the declined revenues from software
applications for the MFPs mentioned earlier. As a result, this segment posted a loss of 48 million yen, compared with a loss of 128
million yen for the same period the previous fiscal year.
The Group's combined net sales of these two segments jumped 3.9% year on year to 10,529 million yen for the period under review,which marked record-high nine-month sales for the Group.
The Group posted an operating loss of 6 million yen, compared with an operating loss of 74 million yen the previous year, and an
ordinary loss of 2 million yen, compared with an ordinary loss of 34 million yen. The Group posted a profit of 112 million yen
attributable to owners of parent, compared with a loss of 74 million yen the previous fiscal year. This was primarily because the sale ofthe Web service business for broadcasters and the social and public outsourcing service business generated a transfer gain of 192 million
yen.
The Group’s key management metrics EBITDA (the sum of operating profit, depreciation, and amortization of goodwill) and ROIC
(ratio obtained by dividing operating profit after tax by the sum of shareholders’ equity and interest-bearing debts) are as follows for theperiod under review:
EBITDA: 62 million yen, compared with -7 million yen for the same period the previous year

- 4 -Consolidated financial result

SIOS Corporation

ROIC (annualized): -0.3%, compared with -3.2% for the same period the previous year
1

Digital transformation(DX)A process in which a company uses data and digital technology to transform its products, services, andbusiness models to more effectively respond to constantly changing business environments and deliver
greater value to customers and society as well as to transform its business processes and organizational
structure and culture to gain greater competitive advantage.

2

LifeKeeper

3

Red Hat Enterprise LinuxA failover software product that automatically switches a failed primary server to a backup server.
Linux OS developed by the open solution provider Red Hat, Inc.
4

Red Hat, Inc. Related Items

5

OSSLinux OS product developed by Red Hat, Inc., a provider of open source solutions.
Abbreviation for open source software, Software whose source code, which is the fundamental component of the program, ismade available for free and can be used, modified, and redistributed.
6

Software application for multifunction printers
A multifunction printer (MFP) is a piece of office equipment that incorporates print, scan, copy, and fax capabilities into one
unit. SIOS develops, markets, and updates Quick Scan and Speedoc, document management software applications runningon an MFP.

7

Subscription business model
A business model that charges customers a recurring monthly or annual fee to access a software product or service.

8

Gluegent series
A series of cloud-based enterprise services to achieve greater efficiency in business processes, including Gluegent Gate forcloud-based ID management, Gluegent Apps group scheduler, which adds team schedule management to Google Calendar,
and Gluegent Flow, a cloud-based workflow.

(2) Financial Position(i) Assets
Current assets amounted to 5,035 million yen as of September 30, 2020, up 12.4% from the end of the previous fiscal year,
reflecting an increase of 522 million yen in cash and deposits.
Non-current assets amounted to 727 million yen, down 14.6% from the previous fiscal year-end, reflecting a decrease of 184
million yen in software in progress and an increase of 77 million yen in software.
As a result, total assets amounted to 5,763 million yen, up 8.1% from the previous fiscal year-end.

(ii) Liabilities
Current liabilities amounted to 3,827 million yen, up 14.1% from the previous fiscal year-end, reflecting an increase of 324
million yen in advances received and an increase of 61 million yen in accounts payable trade.
Non-current liabilities amounted to 571 million yen, down 14.4% from the previous fiscal year-end, reflecting a decrease of 92
million yen in long-term loans payable.
As a result, total liabilities amounted to 4,399 million yen, up 9.3% from the previous fiscal year-end.

(iii) Net assets
Total net assets amounted to 1,364 million yen, up 4.3% from the previous fiscal year-end, reflecting an increase of 69 million
yen in retained earnings.

(3) Forward-looking Statements Including Consolidated Business Forecasts
We have updated the consolidated business forecasts for the fiscal year ending December 31, 2020, which were originally
announced on February 5, 2020.
For details, refer to "A Revision to Consolidated Business Forecasts," announced on October 29, 2020.

- 5 -Consolidated financial result

SIOS Corporation

2. Quarterly Consolidated Financial Statements(1) Quarterly Consolidated Balance Sheet(Unit: thousand yen)

FY 2019(as of December 31, 2019)

FY 2020 Q3(as of September 30,
2020)

2,266,069
1,754,762
47,536
181,936
229,853-200
4,479,958

2,789,049
1,807,462
37,808264,138
137,278-200
5,035,537

112,31274,480186,792

95,12164,863
159,984786
39,720184,413
1,916
226,835

142
116,784-

137,073
43,741
207,904
55,233-5,071
438,881852,5095,332,468

133,531
42,682
217,706
59,312-4,221
449,011727,738
5,763,275

AssetsCurrent assets
Cash and deposits
Notes and accounts receivable-trade
Work in progress
Advance payment
Other
Allowance for doubtful accounts
Total current assets
Fixed assets
Tangible fixed assets
Buildings (net)Other (net)Total tangible fixed assets
Intangible fixed assets
Goodwill
Software
Software in progress
Other
Total intangible fixed assets
Investment and other assets
Investment securities
Net defined retirement assets
Guarantee deposits
Other
Allowance for doubtful accounts
Total investment and other assets
Total fixed assets
Total assets

- 6 -

1,815

118,742

Consolidated financial result

SIOS Corporation(In thousands of yen)
December 31, 2019
Liabilities
Current liabilities
Accounts payable-trade
Short-term loans payable
Current portion of long-term loans payable
Lease obligations
Income taxes payable
Advances received
Provision for bonuses
Provision for loss on order received
Other
Total current liabilities
Non-current liabilities
Long-term loans payable
Net defined benefit liability
Lease obligations
Long-term deposits received
Other
Total non-current liabilities
Total liabilities
Net assets
Shareholders’ equity
Capital stock
Retained earnings
Treasury shares
Total shareholders’ equity
Accumulated other comprehensive income
Valuation difference on available-for-salesecurities
Foreign currency translation adjustment
Total accumulated other comprehensive income
Subscription rights to shares
Total net assets
Total liabilities and net assets- 7 -September 30, 2020

856,680
50,000132,303
7,156
19,6191,842,348
34,262326
413,077
3,355,774

918,198
50,000123,973
7,152
47,974
2,166,468
32,399520
480,726
3,827,412

413,620
230,539
11,362
11,632
750
667,905
4,023,679

321,280
227,465
10,672
11,632754
571,805
4,399,217

1,481,520
82,963-87,198
1,477,284

1,481,520
152,030-87,2541,546,296-3,961-6,355-208,398-212,360
43,863
1,308,788
5,332,468-224,586-230,942
48,703
1,364,057
5,763,275

Consolidated financial result

SIOS Corporation(2) Quarterly Consolidated Statements of Income and Quarterly Consolidated Statements of Comprehensive
IncomeQuarterly Consolidated Statements of Income
Nine months ended September 30

Net sales
Cost of sales
Gross profit
Selling, general and administrative expenses
Operating profit (loss)
Non-operating income
Interest income
Foreign exchange gains
Share of profit of entities accounted for using
equity method
Fiduciary obligation fee
Other
Total non-operating income
Non-operating expenses
Interest expenses
Loss on investments in partnership
Share of loss of entities accounted for using
equity method
Loss on valuation of derivatives
Other
Total non-operating expenses
Ordinary profit (loss)
Extraordinary income
Gain on sales of shares of subsidiaries andassociates
Gain on transfer from business divestitures
Gain on reversal of share acquisition rights
Total extraordinary income
Extraordinary losses
Loss on retirement of non-current assets
Loss on valuation of investment securities
Other
Total extraordinary losses
Profit before income taxes
Income taxes-current
Income taxes-deferred
Total income taxes
Profit (loss)
Profit (loss) attributable to owners of parent

Nine months ended
September 30, 201910,135,952
7,028,416
3,107,535
3,181,770-74,234(In thousands of yen)
Nine months ended
September 30, 2020
10,529,292
7,384,914
3,144,378
3,150,827-6,4499,606
25,135

5,082
19,770

1,778

-

2,050
10,96949,5398,339
33,192

2,928
12

2,369
1,269

-

13,797

6,082
435
9,459
-34,154

11,936
293
29,667-2,92450,999-450
51,450

192,881
192,881

17,29561,32030,90392,224-74,928-74,928

615
1,133
268
2,016
187,940
75,52975,52
112,410
112,410- 8 -Consolidated financial result

SIOS Corporation

Quarterly Consolidated Statements of Comprehensive Income
Nine months ended September 30

Profit (loss)
Other comprehensive income
Valuation difference on available-for-salesecurities
Foreign currency translation adjustment
Share of other comprehensive income ofentities accounted for using equity method
Total other comprehensive income
Quarterly comprehensive income(Comprehensive income attributable to)
Quarterly comprehensive income attributableto owners of the parent

Nine months ended
September 30, 2019
(From January 1, 2019
through September 30,
2019)-74,928(Unit: thousand yen)
Nine months ended
September 30, 2020
(From January 1, 2020
through September 30,
2020)
112,410-2,484-2,393-15,218-16,516-480

328-18,183-93,111-18,581
93,828-93,11193,828- 9 -Consolidated financial result

SIOS Corporation(3) Notes to Quarterly Consolidated Financial Statements
Notes to Going Concern Assumption
Not applicable(Notes on significant changes in the amount of shareholders' equity)
Nine months ended September 30, 2019
1. Dividend payments
Not applicable.
2. Dividends for which the record date fell during this period with an effective date falling after the last day of this period
Not applicable.
3. Significant changes in shareholders' equity
Nine months ended September 30, 2020
1. Dividend payments
The following resolution was adopted at the Board of Directors' meeting held on February 21, 2020:
Matters concerning dividends on common stocks(i) Total amount of dividends:

43,343,000 yen(ii) Source of dividends:

Retained earnings(iii) Dividend per share:

5.00 yen(iv) Record date:

December 31, 2019(v) Effective date:

March 30, 2020

2. Dividends for which the record date fell during this period with an effective date falling after the last day of this period
Not applicable.
3. Significant changes in shareholders' equity
Not applicable.

(Additional information)
When estimating the amount of impairment loss on non-current assets and the recoverability of deferred tax assets, we
assumed at this time that the impact of the COVID-19 pandemic on the Group's business performance would be limited and thatthe spread of the pandemic would trend down toward the end of the fiscal year under review and beyond.
However, as the extent of the impact of the pandemic on the Group's business performance is difficult to predict with certainty,
a change in assumptions mentioned above might affect the Group's financial position, results of operations, and cash flow
performance going forward.

- 10 -

Consolidated financial result

SIOS Corporation

Segment Information【Segment Information】
I. For the nine months ended September 30, 2019 (From January 1, 2019 through September 30, 2019)
1. Information on the amount of sales and income/loss by reportable segment(Unit: thousand yen)
Reportable segment
Adjustments

Amount recordedin quarterly
consolidated
statements ofincome(Note)

Open systeminfrastructurebusiness

Application
business

5,722,027

4,413,744

10,135,772

180

10,135,952

―

1,014

1,014

△1,014―

5,722,027

4,414,758

10,136,786-834

10,135,952

53,938-128,353-74,414180-74,234

Total

Net sales
Sales to external customers
Inter-segment sales and transfers
Total
Segment profit (loss)

Note: The total amount of segment income (loss) is equal to operating profit (loss) presented in the quarterly consolidated
statements of income.
Supplementary Information
Information by region
In addition to the disclosure required by “Accounting Standard for Quarterly Financial Statements,” information (Sales) by region isdisclosed in accordance with “Accounting Standard for the Disclosure of Segment Information” for the purpose of providing users offinancial statement with valuable information.
Net sales
Nine months ended September 30, 2019
(From January 1, 2019 through September 30, 2019)(Unit: thousand yen)Japan
9,517,751

Americas445,416Europe123,002

Other regions
49,781

Note: Sales are classified by country or region in which customers are located.
2. Information on impairment loss of fixed assets or goodwill by reportable segment
Not applicable- 11 -

Total
10,135,952

Consolidated financial result

SIOS Corporation

II. For the nine months ended September 30, 2020 (From January 1, 2020 through September 30, 2020)
1. Information on the amount of sales and income/loss by reportable segment(Unit: thousandyen)

Adjustments

Amount recordedin quarterly
consolidated
statements ofincome(Note)

10,529,112

180

10,529,292

1,971

2,807

-2,807―

6,090,257

4,441,662

10,531,920-2,627

10,529,292

42,155-48,784-6,629180-6,449

Reportable segment
Open systeminfrastructurebusiness

Application
business

6,089,421

4,439,691

836

Total

Net sales
Sales to external customers
Inter-segment sales and transfers
Total
Segment profit

Note: The total amount of segment income (loss) is equal to operating profit (loss) presented in the quarterly consolidated
statements of income.
Supplementary Information
Information by region
In addition to the disclosure required by “Accounting Standard for Quarterly Financial Statements,” information (Sales) by region isdisclosed in accordance with “Accounting Standard for the Disclosure of Segment Information” for the purpose of providing users offinancial statement with valuable information.
For the nine months ended September 30, 2020 (From January 1, 2020 through September 30, 2020)(Unit: thousand yen)Japan
10,069,683

Americas308,242Europe102,505

Other regions
48,861

Note: Sales are classified by country or region in which customers are located.
2. Information on impairment loss of fixed assets or goodwill by reportable segment
Not applicable.

- 12 -

Total
10,529,292

Consolidated financial result

SIOS Corporation(Significant subsequent events)(Absorption-type merger among consolidated subsidiaries)
The Board of Directors of the Company adopted on July 6, 2020, a resolution to resolve and merge Keyport Solutions, Inc. and
Gluegent, Inc., both consolidated subsidiaries of the Company, into SIOS Technology, Inc., another subsidiary of the Company.
1. Outline of transaction(1) Names and natures of business of the parties involved in business combination(i) Absorbing company
Name:
SIOS Technology, Inc.
Description of business Development of, infrastructure implementation for, and operation support for information systems(ii) Resolving companies
Name:
Keyport Solutions, Inc.
Description of business Consulting services for, and development of information systems
Name:
Gluegent, Inc.
Description of business Development and sales of cloud services; contracted development of information systems(2) Reason for business combination
To consolidate human, intellectual-property, and financial assets of these three key subsidiaries in Japan to achieve greater
operational efficiency and productivity(3) Effective date of business combination
October 1, 2020
(4) Legal form of business combination
Absorption-type merger in which Keyport Solutions, Inc. and Gluegent, Inc. were resolved and merged into SIOS Technology,
Inc., which is the surviving company(5) Company name after business combination
SIOS Technology, Inc.
(6) Other matters related to the outline of transaction
As this merger was among wholly owned subsidiaries of the Company, no share or other monetary consideration was allottedto the Company.
2. Outline of accounting processing completed
The Company processed this transaction as one under common control in accordance with the Accounting Standard for Business
Combinations (ASBJ Statement No. 21, published on January 16, 2019) and Guidance on Accounting Standard for Business
Combinations and Accounting Standard for Business Divestitures (ASBJ Guidance No. 10, published on January 16, 2019).

- 13 -