Consolidated financial result

SIOS Corporation

Consolidated Financial Result(For the 6-month period ended June 30, 2019)
July 31, 2019
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: August 9, 2019
(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, 2019 through June 30, 2019)(1) Consolidated business results
Net sales
Million yen(% of change from the previous corresponding term)

Operating income%%

Million yen

38
127

-70.0
-26.5

70
131

6-month period(2019/6)
6,914
10.3
6-month period(2018/6)
6,270
0.7
(Note)Comprehensive income
As of June 30, 2019: -36 million yen/ -%Net income%

Million yen

-46.5
-28.5

%

-20
79

-12.0

As of June 30, 2018: 58 million yen/ -9.5%

Net income per share- Basic

Net income per share- Diluted

Yen

Yen

-2.32
9.17

9.11

6-month period(2019/6)
6-month period(2018/6)

Ordinary income

Million yen(2) Consolidated financial position
Total assets

Net assets

Equity ratio

Million yen

Million yen%

6-month period(2019/6)
5,386
1,333
24.0
FY2018
5,330
1,359
24.8
(Reference) Equity
As of June 30, 2019: 1,292 million yen
As of December 31, 2018: 1,319 million yen(Note) “Partial Amendments to Accounting Standard for Tax Effect Accounting” (ASBJ Statement No. 28, February 16, 2018) has been
applied from the start of the first quarter of fiscal 2019, the year ending December 31, 2019. “Total assets” and “Equity ratio” for theprevious consolidated fiscal year are presented following retroactive application of this accounting standard.

2. Cash dividends
Record Date

End of Q1

End of Q2

Dividend per share
End of Q3

Year-end

Annual

Yen

Yen

Yen

Yen

%

FY2018-0.00

FY2019-0.00

FY2019 (expected)

-

0.00

0.00

-

5.00

5.00

(Note) Revisions to recent dividend forecast: None

3. Forecast of consolidated results for FY2019 (January 1, 2019 through December 31, 2019)
Net sales
Million yen

Operating income%

Million yen

FY201913,2003.1(Note) Revisions to recent business forecast: None

200%

Ordinary income
Million yen

-31.2

-1-

210

%

-32.4

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

140

%

-38.0

Yen

16.18

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 restatements(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) Restatements:None(4) Number of outstanding shares (common shares)(i)

Number of outstanding shares(including treasury stocks)(ii) Number of treasury stocks(iii) Average number of outstanding shares(6-month period)

Second quarter of
FY2019Second quarter of
FY2019Second quarter of
FY20198,874,400 shares

FY20188,874,400 shares

205,768 shares

FY2018224,268 shares

8,668,632 shares

Second quarter of
FY20188,630,042 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 of Comprehensive Income 8(3) Quarterly Consolidated Statements of Cash Flows ........................................................................................ 10(4) Notes to Quarterly Consolidated Financial Statements .................................................................................. 11
Notes to Going Concern Assumption .......................................................................................................... 11(Notes on significant changes in the amount of shareholders' equity) ............................................................. 11(Additional information) ............................................................................................................................ 11
Segment Information .................................................................................................................. 11-3-

Consolidated financial result

SIOS Corporation

1. Qualitative Information on Quarterly Results(1) Results of Operations
Overview of consolidated business performance for the six months ended June 30, 2019
In the IT industry in which the SIOS Group operates, waves of technological innovation have been sweeping across the market inquick succession, and one new business opportunity after another has been presenting itself. Under the medium-term business plan for
FY 2019-2021, the Group has been striving to make its business foundation more solid and has been implementing strategic initiatives,
including investing in R&D, in order to become an influential player that is well-positioned to lead the IT industry.
As a result of all these efforts, the Group achieved consolidated business results by segment for the first six months ended June 30,
2019 (H1 2019), as follows:(i) Open System Infrastructure Business Segment
The Group achieved a solid increase in sales of LifeKeeper1, which is one of its core products. In addition, sales of Red Hat
Enterprise Linux2 and other software products sourced from Red Hat Inc.3 maintained their momentum of growth. As a result, net sales
in this segment jumped 9.9% year on year to 3,893 million yen.
The segment income for H1 2019 soared by 128.2% year-on-year to 46 million yen, thanks primarily to the strong sales ofbusiness-continuity solutions bolstered by the addition of products offered by ThirdWare Inc., which the Company acquired in
December 2018.
(ii) Application Business Segment
The Group achieved a solid increase in revenues from the provision of support for system development and implementation tofinancial institutions. Our sales of software applications for multifunction printers (MFPs)4 as well as revenues from the Gluegent
series5 also achieved steady growth from the previous year. In contrast, sales of management support systems to financial institutions
declined year-on-year; most of their sales are projected to materialize in the second half of FY 2019. As a result, net sales in thissegment were down 10.8% year-on-year to 3,021 million yen.
The Group posted a loss of 7 million yen in this segment for H1 2019, compared with an income of 107 million yen the year before.
This was because of weaker sales of high-margin management support systems to financial institutions and several unprofitable projects
undertaken to provide support for system development and implementation to financial institutions.
After years of R&D work, we released in June 2019 a beta version of SIOS bilink, which serves as a platform that supports a wide
range of subscription business models6, and we plan to release in September 2019 an AI-enabled service solution that recognizes
confidentiality designations placed on documents, using image-analysis technology originally developed for our software applicationsfor MFPs.
With these two business segments combined, the Group’s consolidated net sales for H1 2019 were up 10.3% year-on-year to a record
6,914 million yen.
The Group’s consolidated operating profit for H1 2019 was down 70.0% year-on-year to 38 million yen due to a decrease in segment
income of the application business explained earlier, which more than offset an increase in segment income of the open systeminfrastructure business. The Group posted an ordinary profit of 70 million yen, which was down 46.5% from the previous year, and aloss of 20 million yen attributable to owners of parent—compared with a profit of 79 million yen for the year before—after deducting
income taxes of 91 million yen from a profit of 71 million yen before income taxes, resulting primarily from the reversal of deferred tax
assets of consolidated subsidiaries.
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 H1
2019:
EBITDA: 82 million yen, down 50.3% year-on-year
ROIC (annualized): 2.4%, compared with 8.1% the previous year
1

LifeKeeper
A failover software product that automatically switches a failed primary server to a backup server.

2

Red Hat Enterprise LinuxLinux OS developed by the open solution provider Red Hat, Inc.

3

Red Hat, Inc. Related Items
Linux OS product developed by Red Hat, Inc., a provider of open source solutions.

-4-Consolidated financial result
4

SIOS Corporation

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.

5

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.

6

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

(2) Financial Position(i) Assets
Current assets amounted to 4,451 million yen as of June 30, 2019, up 1.5% from the end of the previous fiscal
year, reflecting an increase of 333 million yen in cash and deposits, a decrease of 80 million yen in notes andaccounts receivable trade, and a decrease of 75 million yen in work in progress.
Non-current assets amounted to 935 million yen, down 1.2% from the end of the previous fiscal year,
reflecting an increase of 16 million yen in software in progress, an increase of 10 million yen in software, anda decrease of 18 million yen in property, plant and equipment.
As a result, total assets were 5,386 million yen, up 1.0% from the end of the previous fiscal year.
(ii) Liabilities
Current liabilities amounted to 3,291 million yen as of June 30, 2019, up 4.3% from the end of the previous
fiscal year, reflecting an increase of 202 million yen in advances received.
Non-current liabilities amounted to 762 million yen, down 6.6% from the end of the previous fiscal year,
reflecting a decrease of 66 million yen in long-term loans payable.
As a result, total liabilities were 4,053 million yen, down 2.1% from the end of the previous fiscal year.
(iii) Net assets
Total net assets were 1,333 million yen as of June 30, 2019, down 2.0% from the end of the previous fiscal
year, reflecting a loss of 20 million yen for the quarter attributable to owners of parent.
(3) Forward-looking Statements Including Consolidated Business Forecasts
The consolidated business forecasts for the fiscal year ending December 31, 2019, remain unchanged from as
announced on February 5, 2019.
The reduced profit for H1 2019 resulting from several unprofitable projects undertaken to provide support forsystem development and implementation to financial institutions is expected to be offset by a pickup in
business in the second half of the fiscal year; a decrease in revenues and profit for H1 2019 from the sales ofmanagement support systems to financial institutions is projected to be offset by an increase in revenues andprofit in the second half.

-5-Consolidated financial result

SIOS Corporation

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

FY 2018(as of December 31, 2018)

FY 2019 Q2(as of June 30, 2019)

2,138,821
1,613,603
132,680
155,332
343,735-200
4,383,972

2,472,535
1,533,178
56,834
212,588
176,343-200
4,451,280

135,774
85,605
221,380

122,489
80,518203,007

1,644
35,79149,931
2,363
89,7301,215
46,074
66,407
2,139
115,836

309,148
39,574
216,956
74,887-5,071
635,495
946,606
5,330,579

314,429
40,989209,639
56,364-5,071
616,350
935,195
5,386,475

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-

Consolidated financial result

SIOS Corporation(In thousands of yen)
December 31, 2018
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
Capital surplus
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-

June 30, 2019576,123
50,000133,116
6,710
44,951
1,730,552
39,14136,864537,125
3,154,585

661,975
50,000133,116
7,408
55,822
1,932,829
21,887680
427,461
3,291,179

545,923
214,916
15,448
11,632
28,467816,388
3,970,973

479,365
217,277
14,752
11,632
39,204
762,231
4,053,411

1,481,520
472,257-429,287-95,038
1,429,451

1,481,520
25,009-87,198
1,419,330

90,49790,287-200,465-109,967
40,121
1,359,605
5,330,579-216,957-126,670
40,404
1,333,064
5,386,475

Consolidated financial result

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

Net sales
Cost of sales
Gross profit
Selling, general and administrative expenses
Operating profit
Non-operating income
Interest income
Foreign exchange gains
Reversal of allowance for doubtful accounts
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
Loss on valuation of derivatives
Other
Total non-operating expenses
Ordinary profit
Extraordinary income
Gain on liquidation of subsidiaries
Gain on reversal of subscription rights tosharesTotal extraordinary income
Extraordinary losses
Loss on retirement of non-current assets
Loss on valuation of investment securities
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

Six months ended June 30,
2018
6,270,760
4,214,511
2,056,249
1,928,630
127,618(In thousands of yen)Six months ended June 30,
20196,914,723
4,789,986
2,124,736
2,086,416
38,319

5,973
9,365
4,748

6,382
27,166
-

708

5,785

1,200
6,274
28,2701,200
2,403
42,9392,185
4,733
17,095024,014
131,874

1,981
12
8,272
435
10,701
70,557

8,350

-

-

450

8,350

450

22
12,954
12,976
127,248
28,787
19,301
48,08979,15979,15971,00861,501
29,637
91,138-20,130-20,130-8-

Consolidated financial result

SIOS Corporation

Quarterly Consolidated Statements of Comprehensive Income
Six months ended June 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(Unit: thousand yen)Six months ended
June 30, 2018
Six months ended June 30,(From January 1,
2019
2018
(From January 1, 2019
through June 30,
through June 30, 2019)2018)
79,159-20,130

-9-

2,145

-209

-22,344-16,168--324-20,198
58,960-16,702-36,832

58,960-36,832

Consolidated financial result

SIOS Corporation(3) Quarterly Consolidated Statements of Cash Flows(In thousands of yen)
Six Months Ended
June 30, 2018
Cash flows from operating activities
Profit (loss) before income taxes
Depreciation
Amortization of goodwill
Interest and dividend income
Interest expenses
Loss (gain) on investments in partnership
Share of (profit) loss of entities accounted forusing equity method
Decrease (increase) in notes and accounts
receivable-trade
Decrease (increase) in inventories
Increase (decrease) in notes and accounts
payable-trade
Increase (decrease) in net defined benefit
liabilities
Increase (decrease) in advance received
Decrease (increase) in advance payment
Increase (decrease) in consumption taxes
payableOther
Sub-totalInterest and dividend income received
Interest expenses paid
Income taxes refund
Income taxes paid
Net cash provided by (used in ) operating
activities
Cash flows from investing activities
Payment into time deposits
Proceeds from withdrawal of time deposits
Purchase of property, plant and equipment
Purchase of intangible assets
Payments for guarantee deposits
Proceeds from collection of guarantee deposits
Purchase of investment securities
Other
Net cash provided by (used in) investing
activities
Cash flows from financing activities
Net increase (decrease) in short-term loans
payableRepayments of long-term loans payable
Other
Net cash provided by (used in) financing
activities
Effect of exchange rate changes on cash and cash
equivalents
Net increase (decrease) in cash and cash
equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of quarter- 10 -Six Months Ended
June 30, 2019

127,248
37,669995-6,3342,185
4,733

71,00843,823428-6,676
1,981
12

-708

-5,785-959

76,166-66,843

77,20596,71685,851-8,4382,360

296,996-22,767

216,415-57,256-41,622-99,752-64,403354,468
6,334-2,185-103,17180,019485,802
6,676-1,981
53,157-93,641

255,446

450,014-130,000
130,000-35,496-21,905-3,7105,112-15,000
9-130,000
130,000-7,846-40,537
-594
2,647
1,087

-70,991-45,243-50,000--66,558
4,694-66,558
6,466-111,863-60,091-9,838-10,965

62,753

333,7132,249,099
2,311,852

2,008,821
2,342,535

Consolidated financial result

SIOS Corporation(4) Notes to Quarterly Consolidated Financial Statements
Notes to Going Concern Assumption
Not applicable(Notes on significant changes in the amount of shareholders' equity)
By resolution of the 22nd general meeting of shareholders held on March 28, 2019, and pursuant to Article 452 of theCompanies Act of Japan, the Company, on the same date, reduced other capital surplus by 480,279,000 yen and transferred it toretained earnings brought forward to dispose deficit.
There was no significant change in the total amount of shareholders’ equity.
(Additional information)
The Company adopted the Partial Amendments to Accounting Standard for Tax Effect Accounting (ASBJ Statement No. 28,
dated February 16, 2018) at the beginning of Q1 2019 and reclassified deferred tax assets into investment and other assets anddeferred tax liabilities into non-current liabilities.

Segment Information【Segment Information】
I. For the Six months ended June 30, 2018 (From January 1, 2018 through June 30, 2018)
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

3,543,670

2,727,000

6,270,670

90

6,270,760

8,753

2,246

11,000-11,000―

3,552,423

2,729,247

6,281,671-10,910

6,270,760

20,193

107,335

127,52890

127,618

Total

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

Note: The total amount of segment profit (loss) is equal to operating income recorded in the quarterly consolidated statements ofincome.
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
Six months ended June 30, 2019
(From January 1, 2018 through June 30, 2018)(Unit: thousand yen)Japan
5,886,587

Americas282,531

EuropeOther regions

59,28542,356

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
6,270,760

Consolidated financial result

SIOS Corporation

II. For the six months ended June 30, 2019 (From January 1, 2019 through June 30, 2019)
1. Information on the amount of sales and income/loss by reportable segment(Unit: thousand
yen)
Reportable segment
Open systeminfrastructurebusiness

Application
business

Adjustments
Total

Amount recordedin quarterly
consolidated
statements ofincome(Note)

3,893,255

3,021,347

6,914,603

120

6,914,723

―

475

475

-475

―

Inter-segment sales and transfers

3,893,255

3,021,823

6,915,078-355

6,914,723

Total

46,087-7,88738,199120

38,3193,893,255

3,021,347

6,914,603

120

6,914,723

Net sales
Sales to external customers

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 six months ended June 30, 2019 (From January 1, 2019 through June 30, 2019)(Unit: thousand yen)Japan
6,472,353

Americas317,015

EuropeOther regions

91,33734,016

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
6,914,723