Consolidated Financial Results for Fiscal Year Ended December 31, 2019
(Under Japanese GAAP)
February 5, 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.
Phone: +81-3-6401-5111
Scheduled date of annual shareholders’ meeting:March 27, 2020
Scheduled date of financial report FSA filing:
March 30, 2020
Scheduled date of dividend payment:
March 30, 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, 2019 through December 31, 2019)(1) Consolidated business results
Net sales

Operating income

Million yen%

Million yen

Net income per share- Basic

Net income per share- Diluted

Yen

Ordinary income%

FY201913,6866.9
54FY2018
12,7992.6
290(Note)Comprehensive income :FY2019: -70 million yen/ -%FY2019FY2018(Note) Equity in earnings:(% of change from previous year)

Million yen

Million yen

%

-81.1
96
-69.0
-9.4
310
-4.8
FY2018: 263 million yen/ -%

32
225

-85.7
-

Return on equity

Operating income
ratio

Yen

3.73
26.15
FY2019: -6 million yen(2) Consolidated financial position
Total assets

FY2018: 6 million yen

Net assets

Million yen

Net income%

Ratio of ordinary
income to total assets

%

%

%

2.5
19.1

1.8
6.1

0.4
2.3

Equity ratio

Net assets per share

Million yen%

Yen

FY2019
5,332
1,308
23.7
145.92FY2018
5,330
1,359
24.8
152.54(Reference) Equity:
As of Dec. 31, 2019: 1,264 million yen
As of Dec. 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 fiscal 2019, the year ended December 31, 2019. “Total assets” and “Equity ratio” for the previous consolidated
fiscal year are presented following retroactive application of this accounting standard.

(3) Consolidated cash flows
Cash flow fromoperating activities

Cash flow from investing
activities

Cash flow from financing
activities

Cash and cash equivalents- ending

Million yen

Million yen

Million yen

Million yen

363
78

-101
-184

-130
-127

2,136
2,008

FY2019FY2018

2. Cash dividends
Record Date

FY2018FY2019FY2020 (forecast)End of
Q1

End ofQ2

Dividend per share
End ofYear-end
Q3

AnnualTotal ofdividend(annual)Payout ratio(consolidated)

Net assets
dividend ratio(consolidated)

Yen

Yen

Yen

Yen

Yen

Million
yen

%

%

‐
‐
‐

0.00
0.00
0.00

‐
‐
‐

0.00
5.00
5.00

0.00
5.00
5.00

‐
43

‐
133.9
108.4

‐
3.4

3. Forecast of consolidated results for FY2020 (January 1, 2020 through December 31, 2020)
Net sales
FY2020Operating income(% of change from previous year)
Profit attributable to
Net income
owners of parent
per share

Ordinary income

Million yen%

Million yen%

Million yen%

Million yen%

Yen

14,300

4.5

80

45.6

100

3.9

40

23.6

4.61

-1-

4. Others(1) Reclassification of significant subsidiaries during the period (Reclassification due to change in scope of consolidation): None
(2) Change in accounting policies, accounting estimates and restatement(i) Change in accounting policies associated with revision of accounting standards: Yes(ii) Change arising from other factors: None(iii) Change in accounting estimates: None(iv) Restatement: None
(3) 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

FY20198,874,400 shares

FY20188,874,400 shares

FY2019205,768 shares

FY2018224,268 shares

FY20198,664,828 shares

FY20188,638,647 shares(Reference)
1. Non-consolidated results (January 1, 2019 through December 31, 2019)(1) Non-consolidated financial results
Net sales
FY2019FY2018FY2019FY2018Operating income

Ordinary income

Net income

Million yen%

Million yen%

Million yen%

Million yen

%

1,160
991

17.0
-85.6

343
119

186.9
-63.6

364
116

213.5
-63.8

318
104

205.4
-

Net income per share- Basic

Net income per share- Diluted

Yen

Yen

36.72
12.06

-

(2) Non-consolidated financial position
Total assets

Net assets

Million yen

FY2019FY2018(Note) Equity(% of change from previous year)

2,842
2,909
As of Dec. 31, 2019: 1,610 million yen

Equity ratio

Million yen

Net assets per share
%

1,610
56.6
1,375
47.2
As of Dec. 31, 2018: 1,374 million yen

Yen

185.73158.93

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 audit of financial
statements as required under the financial instruments and Exchange Act of Japan. The aforementioned procedures have not been
completed as of the time of disclosure of this document.

2.

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.

3.

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-

Table of Contents of the Attached Document
1. Business Results ......................................................................................................................................................................4(1) Summary of Business Results ............................................................................................................................................4(2) Summary of Financial Position ..........................................................................................................................................5(3) Summary of Cash Flows ....................................................................................................................................................5(4) Forward-looking Statements ..............................................................................................................................................6
2. Basic Policy on the Selection of Accounting Standards ..........................................................................................................6
3. Consolidated Financial Statements ..........................................................................................................................................7(1) Consolidated Balance Sheets ..............................................................................................................................................7(2) Consolidated Statements of Income and Consolidated Statements of Comprehensive Income..........................................9
Consolidated Statements of Income .....................................................................................................................................9
Consolidated Statements of Comprehensive Income ......................................................................................................... 10(3) Consolidated Statements of Changes in Equity ................................................................................................................ 11(4) Consolidated Statements of Cash Flows........................................................................................................................... 13(5) Notes on Consolidated Financial Statements.................................................................................................................... 14
Notes on Going Concern Assumption ................................................................................................................................ 14
Accounting Standards Issued but Not Yet Adopted ............................................................................................................ 14
Changes in Presentation ..................................................................................................................................................... 14
Segment Information .......................................................................................................................................................... 14
Significant Subsequent Events ........................................................................................................................................... 18-3-

1. Business Results(1) Summary of Business Results
Overview of Consolidated Business Results for the Fiscal Year Ended December 31, 2019The SIOS Group operates in the IT industry in which waves of technological innovation have been sweeping acrossthe market in quick succession, and one new business opportunity after another has been presenting itself. The Grouphas been implementing a series of strategic initiatives, including investing in R&D, in order to become an influential
player that will be well positioned to lead the IT industry.
As a result of all these efforts, the Group achieved consolidated business results by segment for the fiscal year
ended December 31, 2019 (FY 2019), as follows:(i) Open System Infrastructure Business Segment
The Group achieved a solid increase in sales of business-continuity solutions, fueled by strong demand for
LifeKeeer1 in Japan, which is one of our core products, and the addition of products offered by ThirdWare Inc., which
the Company acquired in December 2018. In addition, sales of Red Hat Enterprise Linux 2 and other software products
sourced from Red Hat Inc.3 increased from the previous year. As a result, annual net sales in this segment jumped
6.4% year on year to 7,695 million yen.
The segment income was down 49.0% year on year to 58 million yen, due primarily to increases in labor cost at aU.S. subsidiary as well as in development cost to upgrade LifeKeeper.
(ii) Application Business Segment
Revenues from the provision of support for system development and implementation to financial institutions
showed steady growth. Revenues from the Gluegent series 4 also maintained momentum of growth. By contrast,
revenues from software applications for MFPs5 declined. This was because a larger-than-expected number ofcorporate customers switched from a perpetual licensing model for these applications to a subscription model 6
launched in the fourth quarter of FY 2019, and the recognition of some of the subscription revenues was deferred to
FY 2020, bringing the FY 2019 revenues from these applications down. As a result, annual net sales in this segment
were up 7.6% year on year to reach 5,991 million yen.
The Group posted a loss of 4 million yen in this segment, compared with an income of 174 million yen the year
before. This was partly because the loss from unprofitable projects undertaken in the first half of the year to provide
support for system development and implementation to financial institutions was not fully offset in the second half,
partly because sales of the high-margin software applications for MFPs and management support system for financial
institutions were weak, and partly because R&D spending on the Gluegent series and other software products
increased.
With these two business segments combined, the Group’s consolidated net sales for FY 2019 were up 6.9% year on
year to achieve a record 13,686 million yen, maintaining annual growth for the ninth consecutive year.
The Group posted a consolidated operating profit of 54 million yen for FY 2019, down 81.1% from the previous
year due to declines in income in the Open System Infrastructure Business Segment and the Application Business
Segment. The Group posted an ordinary profit of 96 million yen, down 69.0% year on year, and a profit of 32 million
yen attributable to owners of parent, down 85.7%.
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 andinterest-bearing debts) are as follows for FY 2019:
EBITDA: 145 million yen, down 61.4% from the previous year
ROIC: 1.7%, compared with 8.7% the previous year

Notes: 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 Red Hat, Inc., a provider of open-source solutions.

-4-3. Red Hat, Inc. Related Items
Linux OS product developed by Red Hat, Inc., a provider of open source solutions.
4. Gluegent seriesService of subsidiary Gluegent. Services such as "Gluegent Gate" which manages ID in the cloud, "Gluegent Apps groupscheduler" which added team calendar schedule management function etc. to Google Calendar, etc. Supporting businessefficiency improvement. using enterprise cloud.
5. Software applications for multifunction printers
A multifunction printer (MFP) is a piece of office equipment that incorporates print, scan, copy, and fax capabilities into one
unit. The Group develops, markets, and updates document management software applications, such as Quick Scan andSpeedoc, that run on an MFP.
6. Subscription model
A business model that charges customers a recurring monthly or annual fee to access a software product or service.

(2) Summary of Financial Position
Assets, Liabilities, and Net Assets(i)

AssetsCurrent assets amounted to 4,479 million yen as of December 31, 2019, up 2.2% from the end of the previous fiscal year (the previous

year-end), reflecting an increase of 141 million yen in notes and accounts receivable trade and an increase of 127 million yen in cash anddeposits.
Non-current assets amounted to 852 million yen, down 9.9% from the previous year-end, reflecting a decrease of 172 million yen in
investment securities, an increase of 134 million yen in software in progress, and a decrease of 34 million yen in property, plant andequipment.
(ii)

Liabilities

Current liabilities amounted to 3,355 million yen as of December 31, 2019, up 6.4% from the previous year-end, reflecting an increaseof 280 million yen in accounts payable trade.
Non-current liabilities amounted to 667 million yen, down 18.2% from the previous year-end, reflecting a decrease of 132 million yen
in long-term loans payable.
As a result, total liabilities amounted to 4,023 million yen, up 1.3% from the previous year-end.
(iii) Net assets
Total net assets amounted to 1,308 million yen as of December 31, 2019, down 3.7% from the previous year-end, reflecting a decreaseof 94 million yen in valuation difference on available-for-sale securities and a profit of 32 million yen attributable to owners of parent.

(3) Summary of Cash Flows
The Group’s balance of cash and cash equivalents amounted to 2,136 million yen as of December 31, 2019, up by 127 million yen from theprevious year-end.

（In millions of yen）
FY 2018

FY 2019

ChangeCash flows from operating activities

78

363

285

Cash flows from investing activities

-184

-101

83

Cash flows from financing activities

-127

-130

-3

Net cash provided by operating activities increased to 363 million yen for FY 2019, reflecting an increase of 280 million yen in notes and accounts
payable trade and an increase of 117 million yen in advances received.
Net cash used in investing activities increased to 101 million yen, reflecting the purchase of intangible assets.
Net cash used in financing activities decreased to 130 million yen, reflecting the repayment of long-term loans payable.

-5-(4) Forward-looking Statements
As companies have been investing aggressively in implementing digital transformation (DX), the Group and other players in the IT
industry are expected to provide products and services that assist corporate customers in their DX efforts, including making a transition
to cloud environments and streamlining and automating business processes. Under these business environments, the Group intends tolay the groundwork for sustained growth under the medium-term business plan for FY 2020-2022 and will implement strategic
initiatives to achieve EBITDA of 560 million yen and ROIC of 14.7% in FY 2022.
The Group anticipates achieving consolidated net sales of 14.3 billion yen for the fiscal year ending December 31, 2020, up 4.5%
from the previous year, an operating profit of 80 million yen (up 45.6% year on year), an ordinary profit of 100 million yen (up 3.9%),
and a profit of 40 million yen attributable to owners of parent (up 23.6%).
As announced on February 5, 2019, the Company plans to pay a year-end dividend of 5.0 yen per share for FY 2019. The Company
anticipates paying a year-end dividend of 5.0 yen per share also for the fiscal year ending December 31, 2020, based on the business
forecasts just mentioned.

2. Basic Policy on the Selection of Accounting Standards
The Group will, for the time being, continue to prepare its consolidated financial statements under the Japanese GAAP inconsideration of comparability of period-to-period operating performance as well as comparability with other Japanese companies.
We will consider adopting IFRS in the preparation of consolidated financial statements if developments in Japan and abroad warrant
it.

-6-

3. Consolidated Financial Statements(1) Consolidated Balance Sheets(In thousands of yen)
December 31, 2018

December 31, 2019

AssetsCurrent assets
Cash and deposits
Notes and accounts receivable - trade2,138,821
1,613,603

2,266,069
1,754,762

Work in progress
Advance payments - trade132,680
155,332

47,536
181,936

Other
Allowance for doubtful accounts

343,735-200

229,853-200

4,383,972

4,479,958

Total current assets
Non-current assets
Property, plant and equipment
Buildings

225,432

224,331

Accumulated depreciation-89,657-112,019

Buildings, net

135,774

112,312287,218

294,838-221,844-239,549

65,37355,288Tools, furniture and fixtures
Accumulated depreciation
Tools, furniture and fixtures, net
Leased assets

30,411

33,592

Accumulated depreciation-10,179-16,685

Leased assets, net

20,231

16,906

Construction in progress

-

2,285

221,380

186,792

Goodwill
Software

1,644
35,791786
39,720Software in progress
Other

49,931
2,363

184,413
1,916

Total property, plant and equipment
Intangible assets

Total intangible assets

89,730226,835

Investment and other assets
Investment securities

309,148

137,073

Net defined benefit asset
Guarantee deposits

39,574
216,956

43,741
207,904

Deferred tax assets
Other

42,31532,571

21,65133,582

Allowance for doubtful accounts-5,071-5,071

Total investment and other assets

635,495

438,881

Total non-current assets
Total assets-7-946,606

852,5095,330,579

5,332,468

(In thousands of yen)
December 31, 2018

December 31, 2019

Liabilities
Current liabilities
Accounts payable-trade576,123856,680

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

50,000133,116

50,000132,303

Lease obligations
Income taxes payable

6,710
44,951

7,156
19,619Advance received
Provision for bonuses

1,730,552
39,141

1,842,348
34,26236,864537,125326
413,077

Total current liabilities

3,154,585

3,355,774

Non-current liabilities
Long-term loans payable

545,923

413,620

Deferred tax liabilities
Net defined benefit liability

27,172214,916

230,539

Lease obligations
Long-term deposits received

15,448
11,632

11,362
11,632

Other

1,294

750

Other

Total non-current liabilities

816,388667,905

3,970,973

4,023,679

Capital stock
Capital surplus

1,481,520
472,257

1,481,520-

Retained earnings
Treasury shares-429,287-95,038

82,963-87,198

Total shareholders’ equity

1,429,451

1,477,284

Valuation difference on available-for-sale securities
Foreign currency translation adjustment

90,497-200,465-3,961-208,398

Total accumulated other comprehensive income-109,967-212,360

Total liabilities
Net assets
Shareholders’ equity

Accumulated other comprehensive income

Subscription rights to shares
Total net assets
Total liabilities and net assets-8-40,121

43,863

1,359,605

1,308,788

5,330,579

5,332,468

(2) Consolidated Statements of Income and Consolidated Statements of Comprehensive Income
Consolidated Statements of Income(In thousands of yen)
Fiscal Year Ended
December 31, 2018

Fiscal Year Ended
December 31, 2019

Net sales
Cost of sales

12,799,750
8,589,645

13,686,915
9,341,312

Gross profit

4,210,105

4,345,602

Selling, general and administrative expenses

3,919,295

4,290,665

Operating profit

290,80954,937

Non-operating income
Interest income

12,298

12,624

Dividend income
Fiduciary obligation fee

622
2,400

545
2,755

Reversal of allowance for doubtful accounts
Foreign exchange gains

4,748
8,813

11,957

-

9,956

6,691

-

-

3,354

Gain on investments in investment partnerships
Share of profit of entities accounted for using equity
methodGain on valuation of derivatives
Other

6,647

11,081

Total non-operating income

42,221

52,274

4,298

3,821

-

6,691

7,079
11,173-7435

Non-operating expenses
Interest expenses
Share of loss of entities accounted for using equity
methodLoss on investments in partnership
Loss on valuation of derivatives
Other
Total non-operating expenses
Ordinary profit
Extraordinary income
Gain on sales of shares of subsidiaries and associates
Gain on sale of investment securities
Gain on liquidation of subsidiaries
Gain on reversal of subscription rights to shares
Total extraordinary income
Extraordinary losses
Loss on sales of investment securities
Loss on retirement of non-current assets
Other

22,55910,947

310,471

96,263-50,999

929
8,350

-

-

450

9,280

51,45031,57810,358

1,194
2,056

0
1,480

Total extraordinary loss

34,82911,838

Profit before income taxes

284,922

135,875

Income taxes-current

62,24269,004

Income taxes-deferred-3,212

34,510Total income taxes

59,030103,515

Profit225,892

32,360

Profit attributable to owners of parent

225,892

32,360-9-

Consolidated Statements of Comprehensive Income(In thousands of yen)
Fiscal Year Ended
December 31, 2018
ProfitOther comprehensive income
Valuation difference on available-for-sale securities
Foreign currency translation adjustment
Share of other comprehensive income of entities
accounted for using equity method
Total other comprehensive income
Comprehensive income

Fiscal Year Ended
December 31, 2019

225,892

32,36056,357-94,459-18,741-7,717--215

37,616-102,392

263,508-70,031

263,508-70,031

Comprehensive income attributable to:Comprehensive income attributable to owners of parent- 10 -

(3) Consolidated Statements of Changes in Equity
Fiscal Year Ended December 31, 2018
(In thousands of yen)
Shareholders’ equity
Capital stock
Balance at beginning ofcurrent period
Changes of items during
periodProfit attributable toowners of parent
Change of scope of
consolidation
Purchase of treasury
shares
Disposal of treasury
sharesTotal changes of items
during period
Balance at end of current
periodBalance at beginning ofcurrent period

1,481,520

Capital surplus

Retained earnings

Treasury shares

Total shareholders’equity468,241-654,232-104,458

1,191,070

1,401

225,892

225,892

-947

454

2,615

-29

-29

9,449

12,064-

4,016

224,945

9,419

238,381

1,481,520

472,257-429,287-95,038

1,429,451

Accumulated other comprehensive income
Valuation difference Foreign currency
on available-for-saletranslation
securities
adjustment
Balance at beginning ofcurrent period
Changes of items during
periodProfit attributable toowners of parent
Change of scope of
consolidation
Purchase of treasury
shares
Disposal of treasury
sharesTotal changes of items
during period
Balance at end of current
periodBalance at end of current
period34,140Total accumulated Subscription rights
otherto shares
comprehensive
income-181,724-147,584

33,321

Total net assets

1,076,808

225,892454-29
12,06456,357-18,741

37,6166,800

44,41656,357-18,741

37,616

6,800

282,797

90,497-200,465-109,967

40,121

1,359,605- 11 -

Fiscal Year Ended December 31, 2019
(In thousands of yen)
Shareholders’ equity
Capital stock
Balance at beginning ofcurrent period
Cumulative effects ofchanges in accounting
policies
Restated balance

1,481,520

Capital surplus

Retained earnings

Treasury shares

Total shareholders’equity472,257-429,287-95,038

1,429,451

5,464
1,481,520

5,464

472,257-423,823-95,038

1,434,916-480,279

480,279-

32,36032,360Changes of items during
periodDeficit disposition
Profit attributable toowners of parent
Disposal of treasury
sharesTransfer to capitalsurplus from retained
earnings
Net changes of items
other than shareholders'equityTotal changes of items
during period
Balance at end of current
period

2,168

7,839

10,0085,853-5,853---472,257

506,786

7,839

42,368

1,481,520-

82,963-87,198

1,477,284

Accumulated other comprehensive income
Valuation difference Foreign currency
on available-for-saletranslation
securities
adjustment
Balance at beginning ofcurrent period
Cumulative effects ofchanges in accounting
policies

90,497

Total accumulated Subscription rights
otherto shares
comprehensive
income-200,465-109,967

40,121

Total net assets

1,359,605
5,464

Restated balance

1,365,069

Changes of items during
periodDeficit disposition
Profit attributable toowners of parent
Disposal of treasury
sharesTransfer to capitalsurplus from retained
earnings
Net changes of items
other than shareholders'equityTotal changes of items
during period
Balance at end of current
period32,36010,008--94,459-7,932-102,392

3,741-98,650-94,459-7,932-102,392

3,741-56,281-3,961-208,398-212,360

43,863

1,308,788- 12 -

(4) Consolidated Statements of Cash Flows(In thousands of yen)
Fiscal Year Ended
December 31, 2018
Cash flows from operating activities
Profit before income taxes
Amortization of goodwill
Impairment loss
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

Fiscal Year Ended
December 31, 2019284,922

135,875

84,0181,067

89,385857△12,921
4,298△13,169
3,821

7,079

△9,956△6,691

6,691△224,964△142,341△107,605

86,332

28,727

280,557

2,396

15,622215,973

117,669△15,843
77,891

Increase (decrease) in consumption taxes payable
Other
Sub-total△26,604△108,176△109,604△10,523

230,172

424,611

Interest and dividend income received

12,921

13,169Interest expenses paid
Income taxes refund△4,298-△3,821
53,157△160,588△123,213

78,206363,904

Payment into time deposits
Proceeds from withdrawal of time deposits△260,000
260,000△260,000
260,000

Purchase of property, plant and equipment
Purchase of intangible assets△89,921△50,789△19,475△159,597

Payments for guarantee deposits
Proceeds from collection of guarantee deposits△11,668
6,823△4,2903,807

Purchase of investment securities
Proceeds from sales of investment securities△70,000
2,149△1,000--30,000-51,00030,217-

Income taxes paid
Net cash provided by (used in ) operating activities
Cash flows from investing activities

Proceeds from redemption of investment securities
Proceeds from sales of shares of subsidiaries andassociates
Proceeds from merger
Other△1,470△1,445

Net cash provided by (used in) investing activities△184,661△101,001△133,116
6,043△133,116
2,825

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△127,072△130,290△6,751△5,364△240,278△5,364

Cash and cash equivalents at beginning of year

2,249,099

2,008,821

Cash and cash equivalents at end of year

2,008,821

2,136,069

Cash flows from financing activities
Repayments of long-term loans payable
Other- 13 -

(5) Notes on Consolidated Financial Statements
Notes on Going Concern Assumption
Not applicable

Accounting Standards Issued but Not Yet Adopted
・“Accounting Standard for Revenue Recognition” (ASBJ Statement No. 29, issued on March 30, 2018) (Statement No. 29)
・“Implementation Guidance on Accounting Standard for Revenue Recognition” (ASBJ Guidance No. 30, issued on March 30, 2018) (Guidance No. 30)(1) Overview
The International Accounting Standards Board (IASB) and the U.S. Financial Accounting Standards Board (FASB) collaborated on a project todevelop a single, comprehensive revenue-recognition model and jointly issued new revenue-recognition standards “Revenue from Contracts with
Customers” (IFRS 15 published by IASB and Topic 606 published by FASB) in May 2014. IFRS 15 became effective for annual reporting periods
beginning on or after January 1, 2018, and Topic 606 became effective for annual reporting periods beginning after December 15, 2017. Under
these circumstances, the Accounting Standard Board of Japan (ASBJ) developed a new revenue-recognition standard and issued Statement No. 29
along with Guidance No. 30.
ASBJ’s basic policy regarding the development of a new revenue-recognition standard is to, first, incorporate the core principle of IFRS 15 into a
new standard so as to ensure the international comparability of financial statements and then to incorporate into the standard additional alternative
treatments to the extent that international comparability will not be significantly impaired where business practices commonly conducted in Japanneed to be taken into consideration.
(2) Effective date
Effective from the beginning of the fiscal year ending December 31, 2022
(3) Effects of the adoption of the standards
The Company is currently in the process of determining the effects of adopting Statement No. 29 and Guidance No. 30 on the consolidated financial
statements.

Changes in Presentation
Changes resulting from the adoption of the Partial Amendments to Accounting Standard for Tax Effect Accounting
The Company adopted the Partial Amendments to Accounting Standard for Tax Effect Accounting (ASBJ Statement No. 28, issued on February
16, 2018) from the beginning of FY 2019 and reclassified deferred tax assets into investment and other assets and deferred tax liabilities into noncurrent liabilities.
As a result, deferred tax assets decreased by 66,477,000 yen under the current assets, while deferred tax assets increased by 39,174,000 yen underother investments, and deferred tax liabilities decreased by 27,303,000 yen under non-current liabilities presented in Consolidated Balance Sheetfor the fiscal year ended December 31, 2018.
In addition, total assets decreased by 27,303,000 yen because deferred tax assets and deferred tax liabilities were offset to the extent that they wereconsidered to be taxed on the same entity.

Segment Information
Segment Information
1. Outline of reportable segments
The Group's reportable segments are components of the Group for which separate financial information is available and which are subject toperiodic reviews by the Company's Board of Directors to determine the allocations of resources and evaluate business performance.
The Company has established business units and subsidiaries, each of which serves specific markets and customers as well as specializes in specifictechnology fields: Some provide products and services in the open system infrastructure field, which includes operating systems and middleware,and some in the application field, which includes enterprise applications.
Therefore, the Group has two reportable segments: the open system infrastructure business segment, and the application business segment.
The description of each segment is as follows:
・Open System Infrastructure Business Segment
In this business segment, the Group markets LifeKeeper, which automatically switches a failed primary system to a backup system, andOSS-related software products, including those sourced from Red Hat, Inc., and provides OSS support services as well as consulting services
for a wide range of information systems.
・Application Business Segment
In this business segment, the Group markets software applications for MFPs, management support system for financial institutions, and the
Gluegent series, which is a SaaS product that works with cloud, develops enterprise information systems for corporate clients on a contract
basis, and provides consulting services for a wide range of information systems.

2. Basis for calculating net sales, profit or loss, assets, liabilities, and other items by reportable segment
Accounting methods used for the reported business segments are the same as those described in "Basis for the Preparation of
the Consolidated Financial Statements."
Profit of reportable segments is based on operating profit. Intersegment sales and transfers are calculated based on market prices.
Please note that the Company does not report assets or liabilities by segment.

- 14 -

3. Information on net sales, profit or loss, assets, liabilities, and other items by reportable segment
Fiscal year ended December 31, 2018
(In thousands of yen)
Reportable segment
Open systeminfrastructurebusinessAmount on
consolidated
financialstatements*

Adjustments

Application
business

Total

Net sales
Sales to external customers
Intersegment sales andtransfers
Total
Segment profit

7,231,026

5,568,514

12,799,540

210

12,799,750

10,663

4,505

15,169-15,169-

7,241,690

5,573,019

12,814,710-14,959

12,799,750

115,632

174,966

290,599210

290,809

24,59359,42584,018-84,018

71

995

1,067

-

1,067

Other items
Depreciation
Amortization of goodwill* The total amount of segment profit is the same as the amount of operating profit shown in the consolidated statements of income
for the year.
Fiscal year ended December 31, 2019
(In thousands of yen)
Reportable segment
Open systeminfrastructurebusinessAmount on
consolidated
financialstatements*

Adjustments

Application
business

Total

Net sales
Sales to external customers
Intersegment sales andtransfers
Total
Segment profit

7,695,447

5,991,227

13,686,675

240

13,686,915

-

1,575

1,575

△1,575-

7,695,447

5,992,803

13,688,250△1,335

13,686,915

58,918△4,221

54,697240

54,937

27,20362,181

89,385-89,385

857

-

857

-

857

Other items
Depreciation
Amortization of goodwill* The total amount of segment profit is the same as the amount of operating profit shown in the consolidated statements of income
for the year.

- 15 -

Related Information
Fiscal year ended December 31, 2018
1. Information by product and service
Information is omitted as similar information is disclosed in the Segment Information section.
2. Information by region(1) Net sales(In thousands of yen)Japan

Americas12,007,817

602,068

EuropeOther regions

108,548

Total

81,316

12,799,750

Note: Sales are classified by country or region in which customers are located.
(2) Property, plant and equipment(In thousands of yen)Japan

Americas161,718

59,661

Total
221,380

3. Information by major customer(In thousands of yen)
Name of customer

Net sales

Otsuka Corporation

Relevant segments
3,450,954

Open system infrastructure businessand application business

Fiscal year ended December 31, 2019
1. Information by product and service
Information is omitted as similar information is disclosed in the Segment Information section.
2. Information by region(1) Net sales(In thousands of yen)Japan

Americas12,917,269

554,494

EuropeOther regions

151,327

63,823

Total
13,686,915

Note: Sales are classified by country or region in which customers are located.
(2) Property, plant and equipment(In thousands of yen)Japan

Americas141,035

45,756

Total
186,792

3. Information by major customer(In thousands of yen)
Name of customer

Net sales

Otsuka Corporation

Relevant segments
3,455,569- 16 -

Open system infrastructure businessand application businessInformation Regarding Impairment Loss on Non-Current Assets by Reportable Segment
Fiscal year ended December 31, 2018
Information is omitted as similar information is disclosed in the Segment Information section.
Fiscal year ended December 31, 2019
Information is omitted as similar information is disclosed in the Segment Information section.
Information Regarding Amortization of Goodwill and Remaining Goodwill Balance by Reportable Segment
Fiscal year ended December 31, 2018
Reportable segment
Open systeminfrastructurebusiness

Application
business

Adjustment

Total

Total

Year-end
1,644
1,644
1,644
balance
Note: Information on amortization of goodwill is omitted as similar information is disclosed in the Segment Information section.
Fiscal year ended December 31, 2019
Reportable segment
Open systeminfrastructurebusiness

Application
business

Adjustment

Total

Total

Year-end
786
786
786
balance
Note: Information on amortization of goodwill is omitted as similar information is disclosed in the Segment Information section.
Information Regarding Gain on Negative Goodwill by Reportable Segment
Fiscal year ended December 31, 2018
Not applicable
Fiscal year ended December 31, 2019
Not applicable

Per-Share Information
Fiscal year ended
December 31, 2018

Fiscal year ended
December 31, 2019

Net assets per share

152.54 yen

145.92 yen

Profit per share

26.15 yen

3.73 yen

Notes: 1. Diluted profit per share is not presented because the Company has no outstanding dilutive shares.
2. The basis for calculating profit per share is as follows:
Fiscal year ended
December 31, 2018

Fiscal year ended
December 31, 2019

Profit per share
Profit attributable to owners of parent (thousand yen)

225,892

32,360

Amount not attributable to ordinary shareholders (thousand
yen)

-

-

Profit attributable to owners of parent relating to common
stock (thousand yen)

225,892

32,360

Average number of common stock outstanding during theperiod (shares)

8,638,647

8,664,828- 17 -

Descriptions of potentially dilutive common shares that were
not included in the calculation of diluted profit per share

Significant Subsequent Events
Not applicable- 18 -

Share options for
108,600 commonshares resolved by the
Board of Directors on
May 20, 2015-