Consolidated Financial Results for Fiscal Year Ended December 31, 2018
(Under Japanese GAAP)
February 5, 2019
Company name: SIOS Corporation
Stock listed on: Tokyo Stock Exchange
Stock code: 3744
URL: http://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 28, 2019
Scheduled commencement date of dividend payment: Scheduled filing date of securities report: March 29, 2019
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 results (January 1, 2018 through December 31, 2018)(1) Consolidated Results of Operations(Percentages represent changes from the previous fiscal year)
Net sales

Operating income

Million yen

FY2018FY2017
Note: Comprehensive
income (loss)%

12,79912,470FY 2018

Million yen

2.6
290
3.2
320
263 million yen (-%)%

Million yen

-9.4
-32.4

310
326

Diluted earnings
per share

Yen

Yen

%

26.15
-68.11

6 million yen

19.1
-44.1
FY 2017

FY 2018%

FY 2017

Basic earnings (loss)
per share
FY2018FY2017
Note: Equity in earnings(loss) of affiliates

Profit (loss) attributableto owners of parent

Ordinary income

Return on equity

Million yen

%

-4.8
225
-16.3
-587
(583)million yen (-%)-

Return on assets

Operating profit ratio

%

%

6.1
6.5
- million yen

2.3
2.6

(2) Consolidated Financial Position
Total assets

Net assets

Million yen

Equity ratio

Net assets per share

Million yen

As of Dec. 31, 2018
5,357
As of Dec. 31, 2017
4,849
Note: Equity
As of Dec. 31, 2018: 1,319 million yen

1,359
1,076

%

Yen

24.6
21.5
As of Dec. 31, 2017: 1,043million yen

152.54120.94(3) Consolidated Cash Flows
Cash flows fromoperating activities

Cash flows frominvesting activities

Cash flows fromfinancing activities

Cash and cash equivalents
at end of year

Million yen

Million yen

Million yen

Million yen

78
640

-184
-26

-127
-109

2,008
2,249

FY2018FY2017

2. Cash Dividends
Dividend per share

FY2017FY2018FY2019 (expected)

End of Q1

End of Q2

End of Q3

Year-end

Yen

Yen

Yen

Yen

Annual
Yen

‐
‐
‐

0.00
0.00
0.00

‐
‐
‐

0.00
0.00
5.00

0.00
0.00
5.00

Total
amount ofdividends
Million

Payout ratio(Consolidated)

Dividends onequity(Consolidated)

yen

%

%

‐
‐

‐
‐
30.9

‐
‐

3. Consolidated Business Forecasts for Fiscal Year Ending December 31, 2019 (FY2019)(Percentages represent changes from the previous fiscal year)
Profit attributable toEarnings
Operating profit
Ordinary profit
owners of parent
per share

Net sales
FY2019Million yen%

Million yen%

Million yen%

Million yen%

Yen

13,200

3.1

200

-31.2

210

-32.4

140

-38.0

16.18

-1-

Notes:(1) Changes in significant subsidiaries during the period(Changes in specified subsidiaries resulting in a change in the scope of consolidation)(2) Changes in accounting policies, changes in accounting estimates, and restatements(i) Changes in accounting policies based on revisions of: Yesaccounting standards(ii) Changes in accounting policies other than the above (i): None(iii) Changes in accounting estimates

:

None

: None(iv) Restatements: NoneNote: For details, please refer to "4. Notes on Consolidated Financial Statements and Major Notes (5) Consolidated
Financial Statements" on page 12 of the attached document.
(3) Number of outstanding shares (common shares)(i)
Number of outstanding shares at end of
the period (including treasury shares)(ii) (ii) Number of treasury shares at end of theperiod(iii) Average number of outstanding shares
during the period

FY20188,874,400 shares

FY2017

8,874,400 shares

FY2018224,268 shares

FY2017

246,541 shares

FY20188,638,647 shares

FY2017

8,621,643 shares

Supplementary Information: Non-consolidated Financial Results(Reference)
1. Non-consolidated Financial Results for Fiscal Year Ended December 31, 2018 (FY2018)(1) Non-consolidated Results of Operations(Percentage represent changes from the previous fiscal year)
Net sales
FY2018FY2017

Operating profit

Ordinary profit

Profit (loss)

Million yen%

Million yen%

Million yen%

Million yen

%

991
6,896

-85.6
-13.8

120
328

-63.3
14.0

116
321

-63.8
11.5

104
-614

-

Basic earnings (loss) per
share
FY2018FY2017

Diluted earnings per share

Yen

Yen

12.06
-71.26-(2) Non-consolidated Financial Position
Total assets

Net assets

Million yen

As of Dec. 31, 2018
2,923
As of Dec. 31, 2017
2,786
(Note) Equity
As of Dec. 31, 2018: 1,374 million yen**

Equity ratio

Million yen

Net assets per share
%

1,375
47.0
1,207
43.3
As of Dec. 31, 2017: 1,206 million yen

Yen

158.93139.87

Financial report is not subject to audits by certified public accountants or auditing corporations.
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 4 of the attached document.
The Company will hold a presentation on its financial results for institutional investors and analysts on Monday, February 6,
2019. 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 ......................................................................................................................................................................4(1) Summary of Business Results ............................................................................................................................................4(2) Summary of Financial Position ..........................................................................................................................................5(3) Summary of Cash Flows ....................................................................................................................................................5(4) Forward-looking Statements ..............................................................................................................................................5
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(3) Consolidated Statements of Changes in Equity ................................................................................................................ 11(4) Consolidated Statements of Cash Flows........................................................................................................................... 13(5) Notes on Consolidated Financial Statements.................................................................................................................... 15
Changes in accounting policy............................................................................................................................................. 15
Segment Information .......................................................................................................................................................... 15
Related Information............................................................................................................................................................ 17
Per-Share Information ........................................................................................................................................................ 19
Significant Subsequent Events ........................................................................................................................................... 19-3-

1. Business Results(1) Summary of Business Results
Overview of Consolidated Business Results for Fiscal Year Ended December 31, 2018 (FY 2018)
The SIOS Group has been implementing its strategic initiatives, which are outlined in the Group's medium-term business strategy andwhich are focused on expanding into new business segments including Fintech1, on continuing to invest in research and development, andon becoming more competitive in its core businesses, so as to remain at the forefront of the fast-evolving IT industry and grow the Group’sbusinesses at an accelerated pace.
During the consolidated fiscal year ended December 31, 2018, as part of our efforts to become more competitive in our core businesses,
we acquired ThirdWare Inc. and expanded the lineup of business-continuity solutions. In addition, we worked closely with our distribution
partners to bolster sales of our core products, the sales of which fell in the first six months of FY 2018, and achieved a year-on-yearincrease in their sales in the second half.
With the implementation of these initiatives and efforts, the Group’s consolidated business results by segment for FY 2018 are as
follows:
Open System Infrastructure Business Segment
Although sales of LifeKeeper2 declined in the first half of FY 2018 from the same period the previous year, we worked closely with
our distribution partners and achieved a year-on-year increase in its sales in the second half. In addition, Red Hat Enterprise Linux4 andother software products sourced from Red Hat, Inc.5 enjoyed robust sales, and OSS3 support services achieved steady growth in revenue
as well. As a result, net sales in this segment increased by 5.8% year on year to 7,231 million yen.
The segment profit fell by 19.3% to 115 million yen partly due to the declining gross profit ratio of products sold, which was a trend
continuing from the previous fiscal year, and partly due to an increase in expenses associated with releasing an upgraded version of SIOS
Coati6.
Application Business Segment
Although sales of software applications for multifunction printers (MFPs)7 were slow in the second quarter of FY 2018, we worked
closely with our distribution partners and achieved a year-on-year increase in their sales in the second half of the year. In addition,
Gluegent8 series cloud services achieved a significant increase in revenue. In contrast, revenues from providing support for systemdevelopment and implementation fell from the previous year. As a result, net sales in this segment were down 1.2% to 5,568 million yen.
The segment income declined by 1.4% year on year to 174 million yen partly due to an increase in expenses associated with new
businesses and partly due to a delay in an on-going project to provide support for system development and implementation to a financial
institution, both of which more than offset the absence of an impairment loss of 100 million yen, which had been recognized in the previous
fiscal year on goodwill and assets related to customers for Profit Cube Inc., a consolidated subsidiary of the Company.
As a result, the Group’s consolidated net sales for FY 2018 were up 2.6% year on year to a record 12,799 million yen, marking
uninterrupted growth for the eighth consecutive fiscal year. The Group’s consolidated operating profit was down 9.4% year on year to 290
million yen, and ordinary profit was down 4.8% to 310 million yen. The Group posted a profit of 225 million yen attributable to ownersof parent for the year, which was an increase of 813 million yen from the previous year. The Group’s key management metrics EBITDA—
which is the sum of operating profit, depreciation and amortization, and amortization of goodwill—stood at 375 million yen, down 24.5%
from the year before.
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. OSS
Abbreviation for open source software, Software whose source code, which is the fundamental component of the program, ismade available for free and can be used, modified, and redistributed.
4. Red Hat Enterprise LinuxLinux OS developed by Red Hat, Inc., a provider of open-source solutions.
5. Red Hat, Inc. Related Items
Linux OS product developed by Red Hat, Inc., a provider of open source solutions.

-4-6. SIOS Coati
Software that automatically restores system failures in the cloud.
7. 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.
8. 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.

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

AssetsCurrent assets were 4,450 million yen as of December 31, 2018, up 7.5% from the end of the previous fiscal year, reflecting an increaseof 240 million yen in cash and deposits and an increase of 235 million yen in accounts receivable-trade.
Non-current assets were up 28.3% year on year to 907 million yen, reflecting an increase of 116 million yen in Investment securities.
As a result, total assets were up 10.5% year on year to 5,357 million yen as of December 31, 2018.
(ii)

Liabilities

Current liabilities amounted to 3,154 million yen, up 11.4% from a year earlier, due primarily to an increase of 208 million yen in advancereceived and an increase of 81 million yen in accounts payable trade.
Non-current liabilities were down 10.2% year on year to 843 million yen, reflecting a decrease of 133 million yen in long-term loans
payable.
As a result, total liabilities were up 6.0% year on year to 3,998 million yen as of December 31, 2018.
(iii) Net assets
Total net assets were up 26.3% year on year to 1,359 million yen as of December 31, 2018, reflecting a profit of 225 million yen attributableto 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, 2018, totaled 2,008 million yen, reflecting a decrease of 240
million yen from the end of the previous fiscal year.

（In millions of yen）
FY 2017

FY 2018

ChangeCash flows from operating activities

640

78

-562

Cash flows from investing activities

-26

-184

-158

Cash flows from financing activities

-109

-127

-18

Net cash provided by operating activities increased to 78 million yen for FY 2018. The increase was due profit before income taxes in advancereceived.
Net cash used in investing activities decreased to 184 million yen. The decrease was due primarily to the purchase of non-current assets.
Net cash used in financing activities decreased to 127 million yen. The decrease was due primarily to the repayment of long-term loans payable.

(4) Forward-looking Statements
Under the mission of making the impossible possible for the people of the world, the Group works toward achieving its primarymanagement objective of pursuing innovative solutions to resolve issues affecting people and to contribute to a better society.
In addition to EBITDA, the Group has established ROIC9 as another key management metric to continue to generate positive cash
flow. Positive cash flow enables the Group to invest in the three driving forces for its growth—people, research and development, anda corporate culture that fosters innovation—and to return profit to our shareholders and stakeholders. Through these efforts, the Group
works toward achieving its primary management objective.
Consolidated net sales for FY 2019 are projected at 13.2 billion yen, up 3.1% from FY 2018, which will mark the ninth consecutive
year of growth. The Group intends to increase its R&D spending in FY 2019 and expects to achieve an operating profit of 200 million-5-yen (down 31.2% year on year), an ordinary profit of 210 million yen (down 32.4%), and a profit of 140 million yen (down 38.0%)
attributable to owners of parent for FY 2019.
As announced on February 5, 2018, the Company will not pay any year-end dividends for FY 2018. Based on the most current
business forecast for FY 2019, the Company plans to pay a year-end dividend of 5.00 yen per share for FY 2019.
9. Return on invested capital. ROIC = Operating income × (1 – Effective tax rate) / (Interest-bearing debts + Shareholders’ equity)

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, 2017

December 31, 2018

AssetsCurrent assets
Cash and deposits
Notes and accounts receivable - trade

2,379,099
1,377,939

2,138,821
1,613,603

Work in progress
Deferred tax assets

27,87355,558132,680
66,477

Advance payments - trade
Other

139,488
161,919

155,332
343,735

(200)

(200)

4,141,679

4,450,450

179,416(83,471)

225,432(89,657)

95,944

135,774

288,453(228,835)

287,218(221,844)

59,61865,373

18,619(4,686)30,411(10,179)

Allowance for doubtful accounts
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

13,932

20,231

169,496

221,380

Goodwill
Software in progress

995
8,770

1,644
49,931

Other

51,554

38,154

Total intangible assets

61,32189,730Investment and other assets
Investment securities

192,970309,148

Net defined benefit asset
Guarantee deposits

35,988220,663

39,574
216,956

Deferred tax assets
Other

958
35,9383,141
32,571

Allowance for doubtful accounts(9,820)(5,071)

Total investment and other assets

476,698

596,321707,515

907,432

4,849,194

5,357,883

Total property, plant and equipment
Intangible assets

Total non-current assets
Total assets-7-

(In thousands of yen)
December 31, 2017

December 31, 2018

Liabilities
Current liabilities
Accounts payable-trade494,376

576,123

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

50,000133,116

50,000133,116

Lease obligations
Income taxes payable

4,018
104,7216,710
44,951

Advance received
Provision for bonuses

1,521,761
42,816

1,730,552
39,141

481,967

36,864537,125

Total current liabilities

2,832,779

3,154,585

Non-current liabilities
Long-term loans payable

679,039545,923

Deferred tax liabilities
Net defined benefit liability

23,170212,520

54,476214,916

Lease obligations
Long-term deposits received

11,248
11,632

15,448
11,632

Other

1,996

1,294

Other

Total non-current liabilities

939,607843,691

3,772,386

3,998,277

Capital stock
Capital surplus

1,481,520
468,241

1,481,520
472,257

Retained earnings
Treasury shares(654,232)(104,458)(429,287)(95,038)

Total shareholders’ equity

1,191,070

1,429,451

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

34,140(181,724)

90,497(200,465)

Total accumulated other comprehensive income(147,584)(109,967)

Total liabilities
Net assets
Shareholders’ equity

Accumulated other comprehensive income

Subscription rights to shares
Total net assets
Total liabilities and net assets-8-

33,321

40,121

1,076,808

1,359,605

4,849,194

5,357,883

(2) Consolidated Statements of Income and Consolidated Statements of Comprehensive Income
Consolidated Statements of Income(In thousands of yen)
Fiscal Year Ended
December 31, 2017

Fiscal Year Ended
December 31, 2017

Net sales
Cost of sales

12,470,303
8,083,444

12,799,750
8,589,645

Gross profit

4,386,858

4,210,105

Selling, general and administrative expenses

4,065,997

3,919,295

320,861

290,809

6,990

12,298

712
2,400

622
2,400

-

4,748
8,813

Operating profit
Non-operating income
Interest income
Dividend income
Fiduciary obligation fee
Reversal of allowance for doubtful accounts
Foreign exchange gains
Share of profit of entities accounted for using equity
methodGain on valuation of derivatives
Other

-

6,691

6,287
3,328

6,647

Total non-operating income

19,71942,221

Interest expenses
Foreign exchange loss

4,756
5,493

4,298
-

Loss on investments in partnership
Loss on valuation of derivatives

3,994
-

7,079
11,17352

7

Non-operating expenses

Other
Total non-operating expenses
Ordinary profit
Extraordinary income
Gain on sale of investment securities

14,29622,559326,283

310,471-929

Gain on liquidation of subsidiaries
Gain on reversal of subscription rights to shares

1,477

8,350
-

Total extraordinary income

1,477

9,280

6,803

31,578-800,646
-

1,194

-

2,056

Extraordinary losses
Loss on sales of investment securities
Impairment loss
Loss on retirement of non-current assets
Other
Total extraordinary loss

807,450

34,829Profit (loss) before income taxes(479,689)

284,922

Income taxes-current
Income taxes-deferred

141,633(34,135)

62,242(3,212)

Total income taxes

107,498

59,030

Profit (loss)(587,188)

225,892

Profit (loss) attributable to owners of parent(587,188)

225,892-9-

Consolidated Statements of Comprehensive Income(In thousands of yen)
Fiscal Year Ended
December 31, 2017
Profit (loss)
Other comprehensive income
Valuation difference on available-for-sale securities
Foreign currency translation adjustment
Total other comprehensive income (loss)
Comprehensive income (loss)
Comprehensive income (loss) attributable to:Comprehensive income (loss) attributable to owners ofparent- 10 -

Fiscal Year Ended
December 31, 2018

(587,188)

225,892

20,131

56,357(16,238)

18,741

3,893

37,616(583,295)

263,508(583,295)

263,508

(3) Consolidated Statements of Changes in Equity
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
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’equity466,657(67,044)(110,178)

1,770,954(587,188)
1,584(587,188)
5,719

7,304

1,584

(587,188)

5,719(579,884)

1,481,520

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

1,191,070

1,481,520

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

1,770,954

Total accumulated Subscription rights
otherto shares
comprehensive
incomeNon-controllinginterests

Total net assets-

1,647,593

Accumulated other comprehensive income
Valuation difference Foreign currency
on available-for-saletranslation
securities
adjustment
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
periodBalance 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

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

28,116-

1,647,593- 11 -

9,098

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
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’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
sharesNet changes of items
other than shareholders'equityTotal changes of items
during period
Balance 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- 12 -

(4) Consolidated Statements of Cash Flows(In thousands of yen)
Fiscal Year Ended
December 31, 2017
Cash flows from operating activities
Profit (loss) before income taxes

Fiscal Year Ended
December 31, 2018

(479,689)

284,922

Depreciation
Amortization of goodwill

91,41485,37284,0181,067

Impairment loss
Interest and dividend income

800,646(7,702)(12,921)

4,756
3,994

4,298
7,079

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-(6,691)(35,531)(224,964)

28,135(107,605)

51,75428,72733,9302,396

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

124,339(11,298)

215,973(12,843)

Increase (decrease) in consumption taxes payable
Other

12,92936,38877,891(108,176)

Sub-total

739,438

230,172

Interest and dividend income received
Interest expenses paid

7,702
(4,756)

12,921(4,298)

Income taxes paid

(101,737)(160,588)

Net cash provided by (used in ) operating activities

640,646

78,206

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(12,100)(14,175)(89,921)(50,789)

Payments for guarantee deposits
Proceeds from collection of guarantee deposits-(11,668)
6,823

Purchase of investment securities
Proceeds from sales of investment securities-(70,000)
2,149

30

30,217(1,470)(26,246)(184,661)

Cash flows from investing activities

Proceeds from merger
Other
Net cash provided by (used in) investing activities- 13 -

(In thousands of yen)
Fiscal Year Ended
December 31, 2017

Fiscal Year Ended
December 31, 2018

Cash flows from financing activities
Cash dividends paid
Net increase (decrease) in short-term loans payable(38)
20,000-(133,116)
4,112(133,116)
6,043

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(109,041)(127,072)(49,917)(6,751)

455,441(240,278)

Cash and cash equivalents at beginning of year

1,793,658

2,249,099

Cash and cash equivalents at end of year

2,249,099

2,008,821

Repayments of long-term loans payable
Other- 14 -

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

Change in Accounting Policy
Effective April 1, 2018, the Company adopted the Practical Solution on Transactions Granting Employees and Others Stock Acquisition Rights,
Which Involve Considerations, with Vesting Conditions (PITF No. 36 issued by the ASBJ on January 12, 2018; hereinafter referred to as “PITF
No. 36”), under which the Company applies the Accounting Standards for Share-based Payment (ASBJ Statement No. 8 issued on December 27,2005) to transactions that grant employees stock acquisition rights, which involve considerations, with vesting conditions.
However, in accordance with the stipulation on a transitional treatment provided in Paragraph 10, Item 3 of PITF No. 36, the Company continues
to apply the previously adopted accounting treatment to the transactions that granted employees on or before March 31, 2018, stock acquisitionrights, which involve considerations, with vesting conditions.

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, the Group markets LifeKeeper, Software "SIOS Coati" that automatically restores system failures in the cloud,failover softwarethat 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.

- 15 -

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

Application
businessAmount on
consolidated
financialstatements*

Adjustments
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.

- 16 -

Related Information
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

Total

124,408

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

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

Open system infrastructure businessand application business

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

81,316

Total
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

Relevant segments

Otsuka Corporation

3,450,954

Networld Corporation

1,221,476- 17 -

Open system infrastructure businessand application businessOpen system infrastructure businessand application businessInformation Regarding Impairment Loss on Non-Current Assets by Reportable Segment
Fiscal year ended December 31, 2017
Information is omitted as similar information is disclosed in the Segment Information section.
Fiscal year ended December 31, 2018
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, 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.
Fiscal year ended December 31, 2018
(In thousands of yen)
Reportable segment
Open systeminfrastructurebusiness

Application
business

Other

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.
Information Regarding Gain on Negative Goodwill by Reportable Segment
Fiscal year ended December 31, 2017
Not applicable
Fiscal year ended December 31, 2018
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. Diluted net income per share for the year ended December 31, 2018 is not stated because there are no potential shares withdilutive effect.
3. 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 to common
stock (in thousands of yen)

254,494(587,188)

Average number of common stock outstanding during the period(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 not used
to calculate diluted earnings per share, because they had no dilutive
effects-

Significant Subsequent Events
Not applicable- 19 -(Subscription rights toshares)20th May 2015
Resolution of the Board of
Directors
108,600 shares of common
stock.-