Consolidated financial result

SIOS Corporation

Consolidated Financial Result(For the 9-month period ended September 30, 2019)
October 31, 2019
Company name:
Address:
Stock exchange listings:
Code number :URL:
Representative:
Contact:

SIOS Corporation
2-12-3 Minami Azabu, Minato-ku, Tokyo 106-0047 JapanTokyo Stock Exchange (TSE)3744
https://www.sios.com/
Nobuo Kita, Representative Director
Tokutaro Kobayashi, S.V.P. of Finance & Accounting
Phone: +81-3-6401-5111
Scheduled date for filing of quarterly financial report: November 13, 2019
(Note) All figures in the financial statements are rounded down to the nearest millionth.
‘-‘ indicates a loss or negative figure.

1. Consolidated results (January 1, 2019 through September 30, 2019) (% of change from the previous corresponding term)(1) Consolidated business results
Net sales
Million yen

Operating income%%

Million yen

-74
107

-41.9

-34
118

9-month period(2019/9)
10,1357.1
9-month period(2018/9)
9,462
1.9
(Note)Comprehensive income
9-month period (2019/9): -93 million yen/ -%Net income%

Million yen

-39.1

%

-74
47

-39.7

9-month period (2018/9): 41 million yen/ -27.3%

Net income per share- Basic

Net income per share- Diluted

Yen

Yen

-8.65
5.52

5.51

9-month period(2019/9)
9-month period(2018/9)

Ordinary income

Million yen(2) Consolidated financial position
Total assets

Net assets

Equity ratio

Million yen

Million yen%

9-month period(2019/9)
5,137
1,278
24.1
FY2018
5,330
1,359
24.8
(Reference) Equity
As of September 30, 2019: 1,236 million yen
As of December 31, 2018: 1,319 million yen(Note) “Partial Amendments to Accounting Standard for Tax Effect Accounting” (ASBJ Statement No. 28, February 16, 2018) has been
applied from the start of the first quarter of fiscal 2019, the year ending December 31, 2019. “Total assets” and “Equity ratio” for theprevious consolidated fiscal year are presented following retroactive application of this accounting standard.

2. Cash dividends
Record Date

End of Q1

End of Q2

Dividend per share
End of Q3

Year-end

Annual

Yen

Yen

Yen

Yen

%

FY2018-0.00

FY2019-0.00

FY2019 (forecast)

-

0.00

0.00

-

5.00

5.00

(Note) Revisions to recent dividend forecast: None

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

Operating income%

Million yen

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

200

%

-31.2

- 1 -

Ordinary income
Million yen

210

%

-32.4

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

140

%

-38.0

Yen

16.16

Consolidated financial result

SIOS Corporation

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

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

Third quarter of
FY2019
Third quarter of
FY2019
Third quarter of
FY20198,874,400 shares

FY20188,874,400 shares

205,768 shares

FY2018224,268 shares

8,663,546 shares

Third quarter of
FY20188,635,429 shares

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

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

2.

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

3.

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

4.

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

- 2 -Consolidated financial result

SIOS Corporation○Table of Contents of the Attached Document

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

SIOS Corporation

1. Qualitative Information on Quarterly Results(1) Results of Operations
Overview of consolidated business performance for the nine months ended September 30, 2019
In the IT industry in which the SIOS Group operates, waves of technological innovation have been sweeping across the market inquick succession, and one new business opportunity after another has been presenting itself. Under the medium-term business plan for
FY 2019-2021, the Group has been striving to make its business foundation more solid and has been implementing strategic initiatives,
including investing in R&D, in order to become an influential player that 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 nine months ended September 30,
2019, as follows:(i) Open System Infrastructure Business Segment
The Group achieved a solid increase in sales of business-continuity solutions, bolstered by the strong sales of LifeKeeer1, which isone 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 Linux2 and other software products sourced from Red Hat Inc.3 maintained their momentum ofgrowth. As a result, net sales in this segment jumped 5.9% year on year to 5,722 million yen.
The segment income was up 2.4% year on year to 53 million yen, thanks primarily to the strong sales of business-continuity solutions.
(ii) Application Business Segment
The Group achieved a solid increase in revenues from the provision of support for system development and implementation tofinancial institutions. Our sales of software applications for multifunction printers (MFPs)4 as well as revenues from Gluegent series5
also achieved steady growth from the previous year. In contrast, sales of management support systems to financial institutions declined
year on year, as most of their sales are projected to materialize in the fourth quarter of FY 2019. As a result, net sales in this segment
were up 8.7% year on year to 4,413 million yen.
The Group posted a loss of 128 million yen in this segment for this period, compared with an income of 54 million yen the year before.
This was partly because of a declined profit from the provision of support for system development and implementation to financial
institutions with the profit gained in the third quarter partially offset by a loss from unprofitable projects undertaken in the first six
months of the fiscal year, and partly because of weaker sales of high-margin management support systems to financial institutions aswell as an increase in R&D spending on the Gluegent series and software applications for MFPs.
After years of R&D work, we released in June 2019 a beta version of SIOS bilink, which serves as a platform that supports a wide
range of subscription business models6, and released in September an AI-enabled service solution that recognizes confidentiality
designations placed on documents, using image-analysis technology originally developed for our software applications for MFPs. We
also released Quick Scan V5 in September and Speedoc V4 for RICOH in October, both of which are software applications for MFPs
that provide an upgraded user interface, better usability, and greater cost-saving opportunities than their predecessors.
With these two business segments combined, the Group’s consolidated net sales for the nine months ended September 30, 2019, wereup 7.1% year on year to a record 10,135 million yen.
The Group posted a consolidated operating loss of 74 million yen for the period, compared with an operating profit of 107 million yen
for the year before, due to a loss in the Application Business Segment that more than offset an income gained in the Open System
Infrastructure Business Segment. The Group posted an ordinary loss of 34 million yen, compared with an ordinary profit of 118 million
yen the previous year, and a loss of 74 million yen attributable to owners of parent, compared with a profit of 47 million yen for the year
before.
The Group’s key management metrics EBITDA (the sum of operating profit, depreciation, and amortization of goodwill) and ROIC
(ratio obtained by dividing operating profit after tax by the sum of shareholders’ equity and interest-bearing debts) are as follows for thenine months ended September 30, 2019:
EBITDA: -7 million yen, compared with +167 million yen the previous year
ROIC (annualized): -3.2%, compared with 4.6% the previous year
1

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

2

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

- 4 -Consolidated financial result
3

SIOS Corporation

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

4

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

5

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

6

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

(2) Financial Position(i) Assets
Current assets amounted to 4,163 million yen as of September 30, 2019, down 5.0% from the end of the previous fiscal year
(hereafter “the previous year-end”), reflecting a decrease of 239 million yen in notes and accounts receivable trade and an increaseof 199 million yen in cash and deposits.
Non-current assets amounted to 974 million yen, up 2.9% from the previous year-end, reflecting an increase of 74 million yen insoftware in progress and a decrease of 24 million yen in property, plant and equipment.

As a result, total assets were 5,137 million yen, down 3.6% from the previous year-end.
(ii) Liabilities
Current liabilities amounted to 3,128 million yen as of September 30, 2019, down 0,8% from the previous year-end, reflecting adecrease of 36 million yen in provision for loss on orders received.
Non-current liabilities amounted to 730 million yen, down 10.6% from the previous year-end, reflecting a decrease of 100
million yen in long-term loans payable.
As a result, total liabilities were 3,859 million yen, down 2.8% from the previous year-end.

(iii) Net assets
Total net assets were 1,278 million yen as of September 30, 2019, down 5.9% from the previous year-end, reflecting a loss of 74
million yen for the quarter attributable to owners of parent.

(3) Forward-looking Statements Including Consolidated Business Forecasts
The consolidated business forecasts for the fiscal year ending December 31, 2019, remain unchanged from as announced on
February 5, 2019. The operating loss, ordinary loss, and loss attributable to owners of parent posted for the nine months ended
September 30, 2019, are projected to be more than offset by a pickup in sales anticipated in the Application Business for the
October-December quarter.

- 5 -Consolidated financial result

SIOS Corporation

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

FY 2018(as of December 31, 2018)

FY 2019 Q3(as of September 30,
2019)2,138,821
1,613,603
132,680
155,332
343,735-200
4,383,972

2,338,152
1,373,647
45,167
203,919
203,249△200
4,163,936

135,774
85,605
221,380

116,844
79,646
196,491

1,644
35,79149,931
2,363
89,7301,000
40,370124,668
2,027
168,067

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

308,960
42,543
207,656
55,400△5,071
609,489
974,048
5,137,984

AssetsCurrent assets
Cash and deposits
Notes and accounts receivable-trade
Work in progress
Advance payment
Other
Allowance for doubtful accounts
Total current assets
Fixed assets
Tangible fixed assets
Buildings (net)Other (net)Total tangible fixed assets
Intangible fixed assets
Goodwill
Software
Software in progress
Other
Total intangible fixed assets
Investment and other assets
Investment securities
Net defined retirement assets
Guarantee deposits
Other
Allowance for doubtful accounts
Total investment and other assets
Total fixed assets
Total assets- 6 -Consolidated financial result

SIOS Corporation(In thousands of yen)
December 31, 2018
Liabilities
Current liabilities
Accounts payable-trade
Short-term loans payable
Current portion of long-term loans payable
Lease obligations
Income taxes payable
Advances received
Provision for bonuses
Provision for loss on order received
Other
Total current liabilities
Non-current liabilities
Long-term loans payable
Net defined benefit liability
Lease obligations
Long-term deposits received
Other
Total non-current liabilities
Total liabilities
Net assets
Shareholders’ equity
Capital stock
Capital surplus
Retained earnings
Treasury shares
Total shareholders’ equity
Accumulated other comprehensive income
Valuation difference on available-for-salesecurities
Foreign currency translation adjustment
Total accumulated other comprehensive income
Subscription rights to shares
Total net assets
Total liabilities and net assets- 7 -September 30, 2019576,123
50,000133,116
6,710
44,951
1,730,552
39,14136,864537,125
3,154,585

681,330
50,000133,116
7,429
28,515
1,864,747
28,620335,214
3,128,973

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

445,253
220,835
12,914
11,632
39,615730,251
3,859,225

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

1,481,520△29,788△87,198
1,364,532

90,49788,012-200,465-109,967
40,121
1,359,605
5,330,579△216,164△128,151
42,3781,278,759
5,137,984

Consolidated financial result

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

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

Nine months ended
September 30, 2018
9,462,803
6,445,222
3,017,580
2,910,535
107,045(In thousands of yen)
Nine months ended
September 30, 201910,135,952
7,028,416
3,107,535
3,181,770△74,234

9,167
4,748

9,606
25,135
-

4,830

1,778

1,800
7,028
27,5742,050
10,96949,539

3,223
4,733
2,731
5,204
2
15,896
118,723

2,928
12
6,082
435
9,459
△34,154-

50,999

8,350
896
9,246

450
51,45022
13,71813,740114,22939,08627,44066,52747,70147,701

-

- 8 -

-

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

Consolidated financial result

SIOS Corporation

Quarterly Consolidated Statements of Comprehensive Income
Nine months ended September 30

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

Nine months ended
September 30, 2018
(From January 1, 2018
through September 30,
2018)
47,701(Unit: thousand yen)
Nine months ended
September 30, 2019
(From January 1, 2019
through September 30,
2019)△74,928254△2,484△6,365△15,218-△480△6,11041,590△18,183△93,11141,590△93,111- 9 -Consolidated financial result

SIOS Corporation(3) Notes to Quarterly Consolidated Financial Statements
Notes to Going Concern Assumption
Not applicable(Notes on significant changes in the amount of shareholders' equity)
By resolution of the 22nd general meeting of shareholders held on March 28, 2019, and pursuant to Article 452 of theCompanies Act of Japan, the Company, on the same date, reduced other capital surplus by 480,279,000 yen and transferred it toretained earnings brought forward to dispose deficit.
There was no significant change in the total amount of shareholders’ equity.
(Additional information)
The Company adopted the Partial Amendments to Accounting Standard for Tax Effect Accounting (ASBJ Statement No. 28,
dated February 16, 2018) at the beginning of Q1 2019 and reclassified deferred tax assets into investment and other assets anddeferred tax liabilities into non-current liabilities.

- 10 -

Consolidated financial result

SIOS Corporation

Segment Information【Segment Information】
I. For the nine months ended September 30, 2018 (From January 1, 2018 through September 30, 2018)
1. Information on the amount of sales and income/loss by reportable segment(Unit: thousand yen)
Reportable segment
Adjustments

Amount recordedin quarterly
consolidated
statements ofincome(Note)

Open systeminfrastructurebusiness

Application
business

5,402,043

4,060,609

9,462,653

150

9,462,803

10,663

3,290

13,954△13,954―

5,412,706

4,063,900

9,476,607△13,804

9,462,803

52,69554,199106,895

150

107,045

Total

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

Note: The total amount of segment profit (loss) is equal to operating income recorded in the quarterly consolidated statements ofincome.
Supplementary Information
Information by region
In addition to the disclosure required by “Accounting Standard for Quarterly Financial Statements,” information (Sales) by region isdisclosed in accordance with “Accounting Standard for the Disclosure of Segment Information” for the purpose of providing users offinancial statement with valuable information.
Net sales
Nine months ended September 30, 2019
(From January 1, 2018 through September 30, 2018)(Unit: thousand yen)Japan
8,882,756

Americas439,000

Europe84,198Other regions
56,848

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

Total
9,462,803

Consolidated financial result

SIOS Corporation

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

Application
business

Adjustments
Total

Amount recordedin quarterly
consolidated
statements ofincome(Note)Net sales
Sales to external customers

5,722,027

4,413,744

10,135,772

180

10,135,952

―

1,014

1,014

△1,014―

5,722,027

4,414,758

10,136,786△834

10,135,952

53,938△128,353△74,414180△74,234

Inter-segment sales and transfers
Total
Segment profit

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

Americas445,416Europe123,002

Other regions
49,781

Note: Sales are classified by country or region in which customers are located.
2. Information on impairment loss of fixed assets or goodwill by reportable segment
Not applicable- 12 -

Total
10,135,952