Consolidated Financial Results for Fiscal Year Ended December 31, 2017
(Under Japanese GAAP)
February 5, 2018
Company name: SIOS Corporation
Stock listed on: Tokyo Stock Exchange
Stock code: 3744
URL: https://www.sios.com/
Representative: Nobuo Kita, Representative Director and President
Contact person: Tokutaro Kobayashi, Managing Executive Officer
Telephone: +81-3-6401-5111 (from outside Japan)
Scheduled date of ordinary meeting of shareholders: March 29, 2018
Scheduled commencement date of dividend payment: Scheduled filing date of securities report: March 30, 2018
Supplementary materials on financial results: Yes
Presentation of financial results: Yes (for institutional investors and analysts)(Fractions less than 1 million yen are rounded down)

1. Consolidated Financial Results for Fiscal Year Ended December 31, 2017 (FY 2017)(1) Consolidated Results of Operations(Percentages represent changes from the previous fiscal year)
Net sales
FY 2017
FY 2016
Note: Comprehensive
income (loss)

Operating profit

Million yen%

12,47012,080FY 2017

3.2
29.0

Profit (loss) attributable toowners of parent

Ordinary profit

Million yen%

Million yen

%

320
-32.4
474
(583) million yen (-%)

326
389
FY 2016-16.3-

Basic earnings (loss) Diluted earnings perper share
share
Yen

Return on equity

Yen

FY 2017(68.11)
FY 2016
29.56
Note: Equity in earnings FY 2017
(loss) of affiliates

Million yen

%

(587)
254
245 million yen (-%)-

Return on assets

%

29.52
- million yen(44.1)
17.0
FY 2016

Operating profit ratio
%

%

6.5
7.2
(65) million yen

2.6
3.9

(2) Consolidated Financial Position
Total assets

Net assets

Million yen

As of Dec. 31, 2017
As of Dec. 31, 2016
Note: Equity

Equity ratio

Million yen

Net assets per share
%

Yen

4,849
1,076
21.5
5,256
1,647
30.8
As of Dec. 31, 2017 1,043 million yen
As of Dec. 31, 2016 1,619 million yen

120.94188.00(3) Consolidated Cash Flows
Cash flows from operating Cash flows from investing Cash flows from financing Cash and cash equivalents
activities
activities
activities
at end of year
Million yen

Million yen

Million yen

Million yen

640
311

(26)
(123)

(109)
(414)

2,249
1,793

FY 2017
FY 2016

2. Cash Dividends
Dividends per share
End of Q1
Yen

End of Q2
Yen

End of Q3
Yen

-

0.00
0.00
0.00

-

FY 2016
FY 2017
FY 2018 (Forecast)Year-end

AnnualTotal amount Payout ratioof dividends (Consolidated)

Dividends onequity(Consolidated)

Yen

Yen

Million yen

%

%

0.00
0.00
0.00

0.00
0.00
0.00

-

-

-

3. Consolidated Business Forecasts for Fiscal Year Ending December 31, 2018 (FY 2018)

Net sales
Million yen

FY 2018

13,000(Percentages represent changes from the previous fiscal year)
Profit attributable toEarnings per share
Ordinary profit
owners of parent

Operating profit% Million yen% Million yen% Million yen

%

Yen

4.2

2.8

1.1

-

30.13

330

330

―1―

260

Notes:(1) Changes in significant subsidiaries during the period(Changes in specified subsidiaries resulting in a change in the scope of consolidation)
New: One company (SIOS Technology, Inc.):Yes

Excluded: -(2) Changes in accounting policies, changes in accounting estimates, and restatements(i) Changes in accounting policies based on revisions of: Noneaccounting standards(ii) Changes in accounting policies other than the above (i): None(iii) Changes in accounting estimates: None(iv) Restatements: None(3) Number of outstanding shares (common shares)(i) Number of outstanding shares at end of
the period (including treasury shares)(ii) Number of treasury shares at end of theperiod(iii) Average number of outstanding shares
during the period

FY 2017

8,874,400 shares

FY 2016

8,874,400 shares

FY 2017

246,541 shares

FY 2016

260,041 shares

FY 2017

8,621,643 shares

FY 2016

8,609,398 shares

Supplementary Information: Non-consolidated Financial Results
1. Non-consolidated Financial Results for Fiscal Year Ended December 31, 2017 (FY 2017)(1) Non-consolidated Results of Operations(Percentage represent changes from the previous fiscal year)
Net sales
FY 2017
FY 2016

Operating profit

Ordinary profit

Profit (loss)

Million yen%

Million yen%

Million yen%

Million yen

%

6,896
8,003

-13.8
14.4

328
288

14.0
-

321
288

11.5
-

(614)
(7)

-

Basic earnings (loss) per
Diluted earnings per share
share
FY 2017
FY 2016

Yen

Yen(71.26)(0.83)-(2) Non-consolidated Financial Position
Total assets
Million yen

As of Dec. 31, 2017
2,786
As of Dec. 31, 2016
4,629
Note: Equity
As of Dec. 31, 2017

Net assets
Million yen

Equity ratio

Net assets per share
%

1,207
43.3
1,789
38.6
1,206 million yen
As of Dec. 31, 2016
1,787 million yen

Yen

139.87207.51

Note: The Company became a holding company of the SIOS Group effective October 1, 2017, and transferred all its businesses
except group management business to the newly established SIOS Technology, Inc., the trade name of which was changed fromSIOS Technology Split Preparatory Company effective October 1, 2017. Therefore, the revenue that the Company recorded on andafter October 1, 2017, primarily comprised dividend income, management fee income, and fiduciary obligation fee income fromsubsidiaries of the Company.

**

This document is an unaudited financial report.
Explanations regarding the proper use of business forecasts and other important matters
Forward-looking statements, such as business forecasts included in this document, are based on currently available
information or assumptions that the Company considers reasonable, and business results may differ significantly from forecasts
due to various factors. For assumptions used as a basis for making business forecasts and notes on the use of business forecasts,
refer to “(4) Forward-looking Statements” under “1. Business Results” on Page 3 of the attached document.
The Company will hold a presentation on its financial results for institutional investors and analysts on Monday, February 5,
2018. Shortly thereafter, the Company will post on its website materials used in the presentation.

―2―

Table of Contents of the Attached Document

1. Business Results ........................................................................................................................................................................ 2(1) Summary of Business Results............................................................................................................................................... 2(2) Summary of Financial Position............................................................................................................................................. 3(3) Summary of Cash Flows ....................................................................................................................................................... 3(4) Forward-looking Statements ................................................................................................................................................. 3(5) Basic Policy on Distribution of Profit, and Cash Dividends for FY 2017 and FY 2018 ....................................................... 4
2. Basic Policy on the Selection of Accounting Standards ............................................................................................................ 4
3. Consolidated Financial Statements ............................................................................................................................................ 5(1) Consolidated Balance Sheets ................................................................................................................................................ 5(2) Consolidated Statements of Income and Consolidated Statements of Comprehensive Income ............................................ 7(3) Consolidated Statements of Changes in Equity .................................................................................................................... 9(4) Consolidated Statements of Cash Flows ............................................................................................................................. 11(5) Notes on Consolidated Financial Statements ...................................................................................................................... 13
Notes on Going Concern Assumption ................................................................................................................................... 13
Additional information .......................................................................................................................................................... 13
Notes on Consolidated Statements of Income ....................................................................................................................... 13
Notes on Business Combination ........................................................................................................................................... 13
Segment Information............................................................................................................................................................. 15
Per-Share Information ........................................................................................................................................................... 19
Significant Subsequent Events .............................................................................................................................................. 19―1―

1. Business Results(1) Summary of Business Results
Overview of Consolidated Business Results for Fiscal Year Ended December 31, 2017 (FY 2017)
The SIOS Group has been implementing its strategic initiatives, which are outlined in the Group's medium-term business strategy
and which are focused on expanding into new business segments including Fintech1, on continuing to invest in research anddevelopment, and on becoming more competitive in its core businesses, so as to remain at the forefront of the fast-evolving IT industry
and grow the Group’s businesses at an accelerated pace.
In FY 2017, as part of efforts to expand into new business segments including Fintech, Profit Cube Inc. (hereinafter referred to as
PCI), a consolidated subsidiary of the Company, obtained patents on its proprietary new technologies incorporated into the profitmanagement system developed in-house for financial institutions.
In addition, as part of our commitment to continue to invest in research and development, we rolled out SIOS Coati, a public-cloudbased service for automatic system failure detection and recovery.
Furthermore, as part of efforts to become more competitive in our core businesses, we added feature enhancements to our coreproducts LifeKeeper2 and software applications for multifunction printers (MFPs)3 and expanded service offerings for open-source
software (OSS)4 for cloud environments.
With the implementation of these initiatives and efforts, the Group’s consolidated business results by segment for FY 2017 are as
follows:
Open System Infrastructure Business Segment
The Group achieved a substantial increase in sales of LifeKeeper in the Americas and a steady increase in its sales in Japan and theAsia-Oceania region. Helped by bolstered sales and marketing efforts, Red Hat Enterprise Linux5 and other software products sourced
from Red Hat, Inc. enjoyed robust sales, and OSS-related products achieved steady growth of sales as well. As a result, net sales in thissegment increased by 8.5% year on year to 6,834 million yen, while the segment profit declined by 20.7% to 143 million yen due
primarily to a declining gross profit ratio of products sold and stepped-up advertising spending.
Application Business Segment
The Group achieved a steady increase in sales of software applications for MFPs as well as in revenues from providing support forsystem development and implementation. On the other hand, sales of software applications intended for financial institutions fell
sharply due to a delay in receiving orders from customers. As a result, net sales in this segment declined by 2.5% year on year to 5,636
million yen.
The segment profit declined by 39.6% to 177 million yen due partly to weak sales of high-margin software applications for financial
institutions and partly to a slimmer profit margin on large projects to support system implementation.
As a result, the Group’s consolidated net sales for FY 2017 were up 3.2% year on year to a record 12,470 million yen. However,with both business segments posting declined segment profit, the Group’s consolidated operating profit fell by 32.4% year on year to
320 million yen, and its ordinary profit was down 16.3% to 326 million yen for the year. The Group posted a loss of 587 million yen
attributable to owners of parent for the year, as compared with a profit of 254 million yen posted for the previous year. This was due
primarily to an impairment loss of 800 million yen on the goodwill and assets related to customers for PCI, which was recognized as
an extraordinary loss. The Group’s key management metrics EBITDA—which is the sum of operating profit, depreciation andamortization, and amortization of goodwill—stood at 497 million yen, down 23.9% from the year before.
The Company wrote off its stake in PCI and posted a loss of 812 million yen on valuation of shares of subsidiaries and associates as
an extraordinary loss in its non-consolidated financial results for the year, which was recorded as an impairment loss in the
consolidated financial results for the year.
Notes: 1. Fintech
An emerging technology for facilitating innovations in the financial sector.
2. LifeKeeper
A failover software product that automatically switches a failed primary server to a backup server.
3. Software applications for multifunction printers
A multifunction printer (MFP) is a piece of office equipment that incorporates print, scan, copy, and fax capabilities into―2―

one unit. The Group develops, markets, and updates document management software applications, such as Quick Scan andSpeedoc, that run on an MFP.
4. Open-source software
Software whose source code, which is the fundamental component of the program, is made available for free and can beused, modified, and redistributed.
5. Red Hat Enterprise LinuxLinux OS developed by Red Hat, Inc., a provider of open-source solutions.

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

AssetsCurrent assets were 4,141 million yen as of December 31, 2017, up 14.6% from the end of the previous fiscal year, reflecting

an increase of 455 million yen in cash and deposits and an increase of 31 million yen in accounts receivable-trade.
Non-current assets were down 56.9% year on year to 707 million yen, reflecting a decrease of 752 million yen in goodwill.
As a result, total assets decreased 7.7% year on year to 4,849 million yen as of December 31, 2017.
(ii)

Liabilities

Current liabilities amounted to 2,832 million yen, up 11.5% from a year earlier, due primarily to an increase of 112 million yen
in advance received and an increase of 51 million yen in accounts payable trade.
Non-current liabilities were down 11.9% year on year to 939 million yen, reflecting a decrease of 133 million yen in longterm loans payable.
As a result, total liabilities were up 4.5% year on year to 3,772 million yen as of December 31, 2017.
(iii)

Net assets

Total net assets were down 34.6% year on year to 1,076 million yen as of December 31, 2017, reflecting a loss of 587 million
yen attributable to owners of parent company for the year.

(3) Summary of Cash Flows
The Group’s balance of consolidated cash and cash equivalents as of December 31, 2017, totaled 2,249 million yen, an
increase of 455 million yen from the end of the previous fiscal year.
（In millions of yen）
FY 2016

FY 2017

ChangeCash flows from operating activities

311

640

+328

Cash flows from investing activities

-123

-26

+97

Cash flows from financing activities

-414

-109

+305

Net cash provided by operating activities increased to 640 million yen for FY 2017. The increase was due primarily to anincrease in advance received.
Net cash used in investing activities decreased to 26 million yen. The decrease was due primarily to the purchase of noncurrent assets.
Net cash used in financing activities decreased to 109 million yen. The decrease was due primarily to the repayment of longterm loans payable.

(4) Forward-looking Statements
The Group intends to continue to invest for the fiscal year ending December 31, 2018 (FY 2018), in achieving medium- and longterm growth of its business, with a focus on expanding into new business segments including Fintech, continuing to invest in researchand development, and becoming more competitive in its core businesses. The Group will continue to upgrade our core products suchas LifeKeeper and software applications for MFPs and will step up its efforts to develop new offerings and technologies for products
and services intended for financial institutions. To facilitate these efforts, our R&D spending for FY 2018 is projected at 720 million
yen, up 22.4% from FY 2017.
Consolidated net sales for FY 2018 are projected at 13 billion yen, up 4.2% from FY 2017, which will mark the eighth consecutive―3―

year of growth. The Group intends to drive greater efficiency in business operations to achieve an operating profit of 330 million yen(up 2.8% year on year), an ordinary profit of 330 million yen (up 1.1%), and a profit of 260 million yen attributable to owners ofparent for FY 2018, as compared with a loss of 587 million yen for FY 2017, even with a planned increase in R&D spending to ensure
the Group’s medium- and long-term business growth.

(5) Basic Policy on Distribution of Profit, and Cash Dividends for FY 2017 and FY 2018
The Company’s longstanding policy is to pay cash dividends to shareholders in proportion to its business performance while
maintaining a level of retained earnings as determined by its business results, financial position, and business outlook.
As announced on December 22, 2017, the Company will not pay any year-end dividends for FY 2017. The decision reflects the factthat the Company posted a loss for the year after having recognized an extraordinary loss.
Although the Company projects posting a profit attributable to owners of parent for FY 2018, the Company plans to pay no
dividends for FY 2018, considering an erosion of its capital base in its non-consolidated financial results.
The Company will strive to make our financial foundation more solid by achieving medium- and long-term profit growth to resume
dividend payment as soon as possible.

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.

―4―

3. Consolidated Financial Statements(1) Consolidated Balance Sheets(In thousands of yen)
December 31, 2016

December 31, 2017

AssetsCurrent assets
Cash and deposits

1,923,658

2,379,099

1,346,923
56,0081,377,939
27,873

Deferred tax assets
Advance payments - trade

45,866
128,189

55,558
139,488

Other
Allowance for doubtful accounts

114,951(200)

161,919(200)

3,615,398

4,141,679

178,424(69,305)

179,416(83,471)

Notes and accounts receivable - trade
Work in progress

Total current assets
Non-current assets
Property, plant and equipment
Buildings
Accumulated depreciation
Buildings, net
Tools, furniture and fixtures
Accumulated depreciation
Tools, furniture and fixtures, net
Leased assets
Accumulated depreciation
Leased assets, net
Total property, plant and equipment
Intangible assets
Goodwill

109,119

95,944279,267(203,044)

288,453(228,835)

76,222

59,6189,899

18,619(1,719)(4,686)

8,180

13,932

193,521

169,496

753,414995

Software in progress
Other

5,633
212,298

8,770
51,554

Total intangible assets

971,347

61,321

Investment and other assets
Investment securities

171,942

192,970

Net defined benefit asset
Guarantee deposits

27,674
229,51335,988220,663

Deferred tax assets
Other

17,421
39,316958
35,938

Allowance for doubtful accounts(9,966)(9,820)Total investment and other assets
Total non-current assets
Total assets―5―475,901

476,698

1,640,770

707,515

5,256,168

4,849,194

(In thousands of yen)
December 31, 2016

December 31, 2017

Liabilities
Current liabilities
Accounts payable-trade443,227494,376

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

30,000132,283

50,000133,116

Lease obligations
Income taxes payable

2,110
65,018

4,018
104,721

Advance received
Provision for bonuses

1,409,377
24,556

1,521,761
42,816

435,080

481,967

2,541,654

2,832,779

Long-term loans payable
Deferred tax liabilities

812,988
52,625

679,039
23,170Net defined benefit liability
Lease obligations

178,589
6,862

212,520
11,248Long-term deposits received
Other

9,767
6,086

11,632
1,996

Total non-current liabilities

1,066,920

939,6073,608,575

3,772,386

Shareholders’ equity
Capital stock

1,481,520

1,481,520

Capital surplus
Retained earnings

466,657(67,044)468,241(654,232)

Treasury shares(110,178)(104,458)

Total shareholders’ equity

1,770,954

1,191,070

Other
Total current liabilities
Non-current liabilities

Total liabilities
Net assets

Accumulated other comprehensive income
Valuationdifferenceonavailable-for-salesecurities
Foreign currency translation adjustment

14,00834,140(165,485)(181,724)

Total accumulated other comprehensive income(151,477)(147,584)

28,11633,321

1,647,593

1,076,808

5,256,168

4,849,194

Subscription rights to shares
Total net assets
Total liabilities and net assets―6―

(2) Consolidated Statements of Income and Consolidated Statements of Comprehensive Income
Consolidated Statements of Income(In thousands of yen)
Fiscal Year Ended
December 31, 2016

Fiscal Year Ended
December 31, 2017

Net sales

12,080,144

12,470,303

Cost of sales

7,712,419

8,083,444

Gross profit

4,367,725

4,386,858

Selling, general and administrative expenses

3,893,021

4,065,997

474,703

320,861

1,338

6,990

Dividend income
Fiduciary obligation fee

729
2,400

712
2,400

Settlement received
Gain on valuation of derivatives

5,684
-

6,287

Other

4,054

3,328

Total non-operating income

14,207

19,719

6,238

4,756

8,417
8,151

5,493
3,994

65,176

-

5,668
5,399

52

Operating profit
Non-operating income
Interest income

Non-operating expenses
Interest expenses
Foreign exchange loss
Loss on investments in partnership
Share of loss of entities accounted for using equity
methodProvision for interest on refund for subsidy repayment
Other
Total non-operating expenses

99,052

14,296

389,858

326,283

Gain on sale of investment securities
Gain on reversal of subscription rights to shares

627
1,289

1,477

Total extraordinary income

1,916

1,477

Loss on retirement of non-current assets
Loss on sale of non-current assets

6,598
260

-

Loss on valuation of golf club membership
Loss on valuation of investment securities

1,550
13,886

6,803

Impairment loss
Expense related to retrospective adjustment‐
139,212800,646-

Ordinary profit
Extraordinary income

Extraordinary losses

Other

4,703

-

Total extraordinary loss

166,211807,450

Profit (loss) before income taxes

225,563(479,689)

Income taxes-current
Income taxes-deferred

56,030(85,879)

141,633(34,135)

Total income taxes(29,849)

107,498

Profit (loss)

255,413(587,188)

Profit attributable to non-controlling interests

918-

Profit (loss) attributable to owners of parent

254,494(587,188)―7―

Consolidated Statements of Comprehensive Income(In thousands of yen)
Fiscal Year Ended
December 31, 2016
Profit (loss)

Fiscal Year Ended
December 31, 2017

255,413

Other comprehensive income
Valuation difference on available-for-sale securities(587,188)

12,587

20,131

Foreign currency translation adjustment(22,062)(16,238)

Total other comprehensive income (loss)(9,474)

3,893

Comprehensive income (loss)

245,938(583,295)

Comprehensive income (loss) attributable to:Comprehensive income (loss) attributable to ownersof parent
Comprehensive income attributable to non-controllinginterests

245,019(583,295)

918

-

―8―

(3) Consolidated Statements of Changes in Equity
Fiscal Year Ended December 31, 2016
(In thousands of yen)
Shareholders’ equity
Capital stock
Balance at beginning ofcurrent period
Changes of items during
periodProfit attributable toowners of parent
Disposal of treasury
sharesPurchase of shares of
consolidated
subsidiaries
Net changes of items
other than shareholders'equityTotal changes of items
during period
Balance at end of current
period

1,481,520

Capital surplus

Retained earnings

Treasury shares

Total shareholders’equity474,415(321,538)(116,194)1,518,201

254,494
1,664

254,494
6,016(9,422)

7,681(9,422)-(7,757)

254,494

6,016

252,753

1,481,520

466,657(67,044)(110,178)

1,770,954

Total accumulated Subscription rights
otherto shares
comprehensive
incomeNon-controllinginterests

Total net assets

15,551

1,414,031

Accumulated other comprehensive income
Valuation difference Foreign currencytranslation
on available-for-saleadjustment
securities
Balance at beginning ofcurrent period
Changes of items during
periodProfit attributable toowners of parent
Disposal of treasury
sharesPurchase of shares of
consolidated
subsidiaries
Net changes of items
other than shareholders'equityTotal changes of items
during period
Balance at end of current
period1,420(143,423)(142,002)

22,281-

254,494

-

7,681

-

(9,422)

12,587(22,062)(9,474)

5,835(15,551)(19,190)

12,587(22,062)(9,474)

5,835(15,551)

233,562

14,008(165,485)(151,477)

28,116-

1,647,593―9―

Fiscal Year Ended December 31, 2017
(In thousands of yen)
Shareholders’ equity
Capital stock
Balance at beginning ofcurrent period
Changes of items during
periodProfit (loss) attributableto owners of parent
Disposal of treasury
sharesNet changes of items
other than shareholders'equityTotal changes of items
during period
Balance at end of current
period

1,481,520

Capital surplus

Retained earnings

Treasury shares

Total shareholders’equity466,657(67,044)(110,178)

1,770,954(587,188)
1,584

1,481,520(587,188)
5,719

7,304

1,584

(587,188)

5,719(579,884)

468,241(654,232)(104,458)

1,191,070

Total accumulated Subscription rights
otherto shares
comprehensive
incomeNon-controllinginterests

Total net assets-

1,647,593

Accumulated other comprehensive income
Valuation difference Foreign currencytranslation
on available-for-saleadjustment
securities
Balance at beginning ofcurrent period
Changes of items during
periodProfit (loss) attributableto owners of parent
Disposal of treasury
sharesNet changes of items
other than shareholders'equityTotal changes of items
during period
Balance at end of current
period14,008(165,485)(151,477)

28,116-(587,188)

-

7,304

20,131(16,238)

3,893

5,205

20,131(16,238)

3,893

5,205

-

(570,785)

34,140(181,724)(147,584)

33,321-

1,076,808

―10―

9,098

(4) Consolidated Statements of Cash Flows(In thousands of yen)
Fiscal Year Ended
December 31, 2016

Fiscal Year Ended
December 31, 2017

Cash flows from operating activities
Profit (loss) before income taxes
Depreciation

225,563
93,643(479,689)
91,414

Provision for interest on refund for subsidy repayment
Amortization of goodwill(32,267)
85,37285,372

Impairment loss
Interest and dividend income‐(2,068)800,646(7,702)

Interest expenses
Loss (gain) on investments in partnership
Share of (profit) loss of entities accounted for using
equity method
Decrease (increase) in notes and accounts receivabletrade
Decrease (increase) in inventories
Increase (decrease) in notes and accounts payabletrade
Increase (decrease) in net defined benefit liabilities

6,238
8,151

4,756
3,994

65,176-(6,217)(35,531)

58,671

28,135(100,488)

51,754

19,60433,930

Increase (decrease) in advance received
Decrease (increase) in advance payment

81,396(21,734)

124,339(11,298)

Increase (decrease) in consumption taxes payable
Other(58,421)(117,788)

12,92936,388Sub-total

304,833

739,438

Interest and dividend income received
Interest expenses paid

2,068
(6,238)

7,702(4,756)

Income taxes refund
Income taxes paid

39,797(28,699)(101,737)

Net cash provided by (used in ) operating activities

311,761

640,646

Cash flows from investing activities
Payment into time deposits(261,400)(260,000)

Proceeds from withdrawal of time deposits
Purchase of property, plant and equipment

292,400(86,705)

260,000(12,100)

Purchase of intangible assets
Payments for guarantee deposits(14,485)(49,592)(14,175)-

Proceeds from collection of guarantee deposits
Payment of asset retirement obligations

45,405(18,800)-

Purchase of golf club memberships
Purchase of shares of subsidiaries and associates(27,276)(2,205)-Purchase of investment securities
Proceeds from sales of investment securities(7,955)
6,634

-

Other
Net cash provided by (used in) investing activities

―11―

386

30

(123,594)(26,246)

(In thousands of yen)
Fiscal Year Ended
December 31, 2016

Fiscal Year Ended
December 31, 2017

Cash flows from financing activities
Cash dividends paid
Net increase (decrease) in short-term loans payable(54)(213,040)(38)
20,000

Repayments of long-term loans payable
Payments from changes in ownership interests in
subsidiaries that do not result in change in scope of
consolidation
Other(181,896)(133,116)(25,888)

-

6,396

4,112

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(414,482)(109,041)(25,378)(49,917)(251,693)

455,441

Cash and cash equivalents at beginning of year

2,045,352

1,793,658

Cash and cash equivalents at end of year

1,793,658

2,249,099―12―

(5) Notes on Consolidated Financial Statements
Notes on Going Concern Assumption
Not applicable
Additional information
Effective January 1, 2017, the Group applied the Guidance on Recoverability of Deferred Tax Assets (ASBJ Guidance No. 26,
published on March 28, 2016).
Notes on Consolidated Statements of Income
Impairment loss
The Group recognized an impairment loss on the following two asset groups for FY 2017:
Impairment loss
(in thousands of yen)

Location

PurposeType of assets

Shinagawa-ku, Tokyo, Japan

Other

Goodwill

667,046

Shinagawa-ku, Tokyo, Japan

Business assets

Assets related to customers

133,600

Total

800,646

The reason for recognizing an impairment loss is as follows: Profit Cube Inc. (PCI), a consolidated subsidiary of theCompany, has been underperforming against its business plan formulated when the Company acquired it. Based on PCI’s
business performance in recent months, the Company determined that it would take a prolonged period of time to recoup all of
the investments that the Company had made in PCI, and—in accordance with the provisions in Article 32 of the Practical
Guidelines on Accounting Standards for Capital Consolidation Procedures in Preparing Consolidated Financial Statements (theAccounting Practice Committee Report No. 7, revised by the Japanese Institute of Certified Public Accountants on November
28, 2014)—wrote off its stake in PCI and recognized in the consolidated financial results an impairment loss on the goodwill
and assets related to customers that the Company had recorded at the time of acquisition of PCI.
Notes on Business Combination
Transactions under common control
Business combination resulting from a transition to a holding-company structure
The Group reorganized itself into a holding-company structure by company split effective October 1, 2017, when the
Company changed its trade name from SIOS Technology, Inc. to SIOS Corporation, and the successor company in theabsorption-type split changed its trade name from SIOS Technology Split Preparatory Company to SIOS Technology, Inc.
1. Summary of transaction(1) Description of business operations that were split
All business operations undertaken by the Company excluding management of group companies(2) Effective date of business combination
October 1, 2017(3) Legal form of business combination
An absorption-type split in which the Company served as the splitting company and SIOS Technology Split Preparatory
Company served as the successor company(4) Name of company after business combination
SIOS Technology, Inc.
(5) Purpose of transaction
The Group has been implementing its strategic initiatives, which are outlined in the Group’s medium-term businessstrategy and are focused on expanding into new business segments including Fintech, continuing to invest in research anddevelopment, and becoming more competitive in its core businesses, and has been pursuing innovative software solutions toremain in the global IT arena as an influential player that continues to create greater value and contribute to a better society.
The Group has reorganized itself into a holding-company structure to implement these strategic initiatives and grow its
businesses at an accelerates pace. The holding-company structure is expected to provide each group company with a greater―13―

opportunity to become more responsive to changing business environments and provide the Group with a greater opportunity
to maximize its corporate value.
2. Summary of accounting procedures implemented
The Group processed this transaction as one under common control in accordance with the Accounting Standard forBusiness Combination (ASBJ Accounting Standard No. 21, published on September 13, 2013) and the Guidance on
Accounting Standard for Business Combination and Accounting Standard for Business Divestitures (ASBJ Guidance No. 10,
published on September 13, 2013).
Absorption-type merger among consolidated subsidiaries of the Company
1. Summary of transaction(1) Names and businesses of companies involved in business combination
Surviving company
Company name: SIOS Technology Corp.
Primary business: Development and sales of software products
Absorbed company
Company name: Glabio, Inc.
Primary business: Contract-based development of information systems(2) Effective date of business combination
December 7, 2017(3) Legal form of business combination
An absorption-type merger in which SIOS Technology Corp. served as the surviving company and Glabio, Inc. served as
the absorbed company(4) Name of company after business combination
SIOS Technology Corp.
(5) Purpose of transaction
This merger was intended to achieve greater operational efficiency among the Group.
2. Summary of accounting procedures implemented
The Group processed this transaction as one under common control in accordance with the Accounting Standard forBusiness Combination (ASBJ Accounting Standard No. 21, published on September 13, 2013) and the Guidance on
Accounting Standard for Business Combination and Accounting Standard for Business Divestitures (ASBJ Guidance No. 10,
published on September 13, 2013).

―14―

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 andwhich are subject to periodic reviews by the Company's Board of Directors to determine the allocations of resources andevaluate business performance.
The Company has established business units and subsidiaries, each of which serves specific markets and customers as well
as specializes in specific technology 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, the Group markets LifeKeeper, failover software that automatically switches a failed primary system to a
backup system, and OSS-related products, including products 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, the Group markets software applications for MFPs, products and services for financial institutions, and
the Gluegent series, which is a SaaS product that works with Google Apps, provides consulting services for a wide range of
information systems, and develops enterprise information systems for corporate clients on a contract basis.
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.
Method of determining segment profit or loss
Under the holding-company structure, the Company has been serving as a holding company responsible for managing
group companies since October 1, 2017. The Company allocates expenses incurred by the Company to the two reportablesegments—the open system infrastructure business segment and the application business segment—using a reasonablebase. Such allocation of expenses has no material impact on segment information compared with when using the previous
method.

―15―

3. Information on net sales, profit or loss, assets, liabilities, and other items by reportable segment
Fiscal year ended December 31, 2016
(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

6,300,865

5,779,189

12,080,054

90

12,080,144

343

-

343

(343)

-

6,301,208

5,779,189

12,080,398(253)

12,080,144

180,781

293,831474,61390

474,703

19,09274,551

93,643-93,643-85,37285,372-85,372Other 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, 2017
(In thousands of yen)
Reportable segment
Open systeminfrastructurebusinessAmount on
consolidated
financialstatements*

Adjustments

Application
business

Total

Net sales
Sales to external customers

6,834,028

5,636,154

12,470,183

120

12,470,303

279

-

279

(279)

-

6,834,307

5,636,154

12,470,462(159)

12,470,303

143,339

177,401

320,741

120

320,861

20,75870,65591,414-

91,414

Amortization of goodwill-

85,37285,372-85,372

Impairment loss-

800,646

800,646-

800,646

Intersegment sales andtransfers
Total
Segment profit
Other items
Depreciation* 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.

―16―Related Information
Fiscal year ended December 31, 2016
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

Americas11,349,942

497,767

EuropeOther regions

121,322

Total

111,111

12,080,144

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

Americas185,759

Other regions

7,762

Total
-

193,521

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

Net sales

Otsuka Corporation

Relevant segments
Open system infrastructure businessand application business

3,041,764

Fiscal year ended December 31, 2017
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

Americas11,614,986

607,137

EuropeOther regions

123,771

124,408

Total
12,470,303

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

Americas164,519

Other regions

4,976

Total
-

169,496

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

Net sales

Otsuka Corporation

Relevant segments
3,111,301―17―

Open system infrastructure businessand application businessInformation Regarding Impairment Loss on Non-Current Assets by Reportable Segment
Fiscal year ended December 31, 2016
Not applicable
Fiscal year ended December 31, 2017
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, 2016
(In thousands of yen)
Reportable segment
Open systeminfrastructurebusiness

Application
business

Other

Adjustment

Total

Total

Year-end
753,414753,414753,414balance
Note: Information on amortization of goodwill is omitted as similar information is disclosed in the Segment Information section.
Fiscal year ended December 31, 2017
(In thousands of yen)
Reportable segment
Open systeminfrastructurebusiness

Application
business

Other

Adjustment

Total

Total

Year-end
995
995
995
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, 2016
Not applicable
Fiscal year ended December 31, 2017
Not applicable―18―Per-Share Information
Fiscal year ended
December 31, 2016

Fiscal year ended
December 31, 2017

Net assets per share

188.00 yen

120.94 yen

Basic earnings (loss) per share

29.56 yen

(68.11) yen

Diluted earnings per share

29.52 yen-

Notes:
1. As a loss was posted per share for FY 2017, the diluted earnings per share were not presented for the year, although, technically,
potential common stock with dilutive effects existed.
2. The basis for calculating basic earnings or loss per share and diluted earnings per share is as follows:
Fiscal year ended
December 31, 2016

Item

Fiscal year ended
December 31, 2017

Basic earnings or loss per share
Profit (loss) attributable to owners of parent (in thousands ofyen)

254,494(587,188)

Amounts not attributable to common stock (in thousands of
yen)

-

-

Profit (loss) attributable to owners of parent, related tocommon stock (in thousands of yen)

254,494(587,188)

Average number of common stock outstanding during theperiod (in shares)

8,609,398

8,621,643--

12,125-（12,125）---

Diluted earnings per share
Adjustments to profit attributable to owners of parent (inthousands of yen)
Increase in common stock (in shares)(Stock acquisition rights included above) (in shares)
Outline of potential common shares outstanding that were notused to calculate diluted earnings per share, because they had no
dilutive effects
Significant Subsequent Events
Not applicable―19―