SIOS : Financial Results (For the 9-months period ended September 30,2023

Consolidated financial resultSIOS Corporation

Consolidated Financial Result

(For the 9-month period ended September 30, 2023)

November 9, 2023

Company name:

SIOS Corporation

Address:

2-12-3 Minami Azabu, Minato-ku, Tokyo 106-0047 Japan

Stock exchange listings:

Tokyo Stock Exchange (TSE)

Code number :

3744

URL:

https://www.sios.com/

Representative:

Nobuo Kita, Representative Director

Contact:

Tokutaro Kobayashi, S.V.P. of Finance & Accounting

Phone: [phone]

Scheduled date for filing of quarterly financial report: November 13, 2023

(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, 2023 through September 30, 2023)

(% of change from previous third quarter)

(1) Consolidated business results

Net sales

Operating income

Ordinary income

Net income

Million yen

%

Million yen

%

Million yen

%

Million yen

%

9-month period(2023/9)

11,701

9.5

-194

-

-139

-

-186

-

9-month period(2022/9)

10,686

-8.7

-468

-

-419

-

-566

-

(Note)Comprehensive income

As of Sep. 30, 2023: -122 million yen/ -%

As of Sep. 30, 2022: -435 million yen/

-%

Net income per share

Net income per share

- Basic

- Diluted

Yen

Yen

9-month period(2023/9)

-21.49

-

9-month period(2022/9)

-65.31

-

1. Consolidated financial position

	Total assets	Net assets	Equity ratio
	Million yen	Million yen	%
9-month period(2023/9)	6,118	1,049	15.7
FY2022	6,022	1,243	19.4
(Reference) Equity
As of Sep. 30, 2023: 958 million yen	As of Dec. 31, 2022: 1,168 million yen

2. Cash dividends

				Dividend per share
Record Date	End of Q1		Interim	End of Q3	Year-end	Annual
	Yen		Yen	Yen	Yen	Yen
FY2022		-	0.00	-	10.00	10.00
FY2023		-	0.00	-
FY2023 (expected)					-	-

(Note) 1. The dividend forecast for the fiscal year ending December 31, 2023 is undecided.

2. Revisions to recent dividend forecast: None

3. Forecast of consolidated results for FY2023 (January 1, 2023 through December 31, 2023)

(% of change from previous year)

	Net sales		Operating income	Ordinary income	Net income		Net income
			per share
	Million yen	%	Million yen	%	Million yen	%	Million yen	%	Yen
FY2023	-	-	-	-	-	-	-	-	-

(Note)1. Regarding the consolidated earnings forecast for the fiscal year ending December 31, 2023, it is extremely difficult to reasonably calculate at this time. Since then, it is undecided. In the future, we will promptly announce it when it becomes possible to make a reasonable calculation.

2. Revisions to recent business forecast: None

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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 restatement

1. Change in accounting policies associated with revision of accounting standards: None
2. Change arising from other factors: None
3. Change in accounting estimates: None
4. Restatement: None

1. Number of outstanding shares (common shares)

1. Number of outstanding shares (including treasury stock)
2. Number of treasury stock
3. Average number of outstanding shares (9-month period)

Third quarter of	8,874,400 shares	FY2022	8,874,400 shares
FY2023
Third quarter of	205,838 shares	FY2022	205,838 shares
FY2023
Third quarter of	8,668,562 shares	Third quarter of	8,668,562 shares
FY2023	FY2022

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 of financial statements as required under the financial instruments and Exchange Act of Japan. The aforementioned procedures have not been completed as of the time of disclosure of this document.
2. 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 Standard.
   To the extent that there are discrepancies between this translation and the original version, the original version shall be definitive.

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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
	(Segment Information)	10
	(Significant subsequent events)	11

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Consolidated financial result

SIOS Corporation

1. Qualitative Information on Quarterly Results

(1) Results of Operations

During the nine months ended September 30, 2023, while the COVID-19 pandemic was settling down, the global economy continued to face lingering uncertainty due to soaring materials prices amid rising geopolitical risks, and volatile foreign-exchange markets caused by a global monetary-tightening trend.

In this business environment, the SIOS Group ("the Group") continued to restructure its business operations to make its revenue and profit base more robust, and expanded its offerings of cloud-based products and services, including SaaS¹, to better assist corporate clients in implementing DX² solutions.

The Group achieved consolidated business results by segment for the period under review as follows:

(i) Open System Infrastructure Business Segment

Sales of our products and services for on-premise application picked up, as chip shortages were resolved and the supply of hardware products started to clear a backlog of orders. As a result, sales of Red Hat Enterprise Linux³ and other software products sourced from Red Hat Inc.4, increased compared to the same period the previous year. We also enjoyed strong sales of LifeKeeper5, which is one of our core products, for both on-premise and cloud application. As a result, net sales in this segment increased 12.0% year on year to 7,165 million yen. The segment income was 62 million yen, compared with a loss of 20 million yen the year before.

(ii) Application Business Segment

Sales of the management support system to financial institutions were slow. In contrast, revenues from the provision of support for system development and implementation were up year on year, especially from the support provided for API6 projects and business management systems of stock brokerage firms. The Gluegent series7 also achieved a year-on-year increase in sales. As a result, net sales in this segment increased 5.7% to 4,526 million yen.

The Company posted a segment loss of 266 million yen, compared with a loss of 455 million yen the year before, due to rising personnel expenses and more aggressive investments in developing and marketing new products and services, mainly in the Med Tech8 business.

The Group's combined net sales in these two segments for the period under review were up 9.5% year on year, to 11,701 million yen. The Company posted a consolidated operating loss of 194 million yen, compared with a loss of 468 million yen the year before, and an ordinary loss of 139 million yen, which reflected a favorable impact of the share of profit of entities accounted for using the equity method, compared with an ordinary loss of 419 million yen a year earlier. As a result of posting an impairment loss and a loss on sales of businesses, the loss attributable to owners of parent amounted to 186 million yen, compared with a loss of 566 million yen the previous year.

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) for the period under review are as follows:

EBITDA: -147 million yen, compared with -383 million yen for the same period the previous year

ROIC (annualized): -14.0%, compared with -26.1% for the year before

1 SaaS

Software as a Service. A software licensing and distribution model that allows users to connect to and use cloud-based software applications over the internet.

2 Digital transformation(DX)

A process in which a company uses data and digital technology to transform its products, services, and business models to more effectively respond to constantly changing business environments and deliver greater value to customers and society as well as to transform its business processes and organizational structure and culture to gain greater competitive advantage.

3 Red Hat Enterprise Linux

Linux OS developed by the open solution provider Red Hat, Inc. 4 Red Hat, Inc. Related Items

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

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Consolidated financial result	SIOS Corporation
5	LifeKeeper
	A failover software product that automatically switches a failed primary server to a backup server.
6	API
	A mechanism for software and applications to exchange information with each other.
7	Gluegent series
	Service products designed to assist corporate clients in achieving greater operational efficiency using cloud solutions. The
	series includes the Gluegent Gate cloud-based management of user IDs, the Gluegent Flow cloud-based workflow system,
	and the Gluegent Apps Group Scheduler, which incorporated a function to manage schedules of team members into Google
	Calendar.
8	Med Tech
	Short for medical technology.
	It refers to technology that delivers medical services through software applications.

1. Financial Position

1. Assets

Current assets amounted to 5,215 million yen as of September 30, 2023, up 0.4% from the end of the previous fiscal year, reflecting primarily an increase of 220 million yen in cash and deposits.

Non-current assets amounted to 902 million yen, up 9.2%, reflecting primarily an increase of 35 million yen in investment securities.

As a result, total assets increased 1.6% to 6,118 million yen.

(ii) Liabilities

Current liabilities amounted to 4,672 million yen, up 7.7% from the previous fiscal year-end, reflecting primarily an increase of 223 million yen in contract liabilities.

Non-current liabilities amounted to 395 million yen, down 10.3%, reflecting primarily a decrease of 49 million yen in long-term borrowings.

As a result, total liabilities amounted to 5,068 million yen, up 6.1% from the previous fiscal year-end.

(iii) Net assets

Total net assets amounted to 1,049 million yen, down 15.6% from the previous fiscal year-end, reflecting primarily a decrease of 272 million yen in retained earnings.

1. Forward-lookingStatements Including Consolidated Business Forecasts

As stated in the Consolidated Financial Result for the fiscal year ended December 31, 2022, announced on February 2, 2023, the Group has been restructuring its business operations and bolstering its cloud-based business in order to make its revenue and profit base more robust.

During the nine months ended September 30, 2023, the Group reallocated internal human resources and chose to focus on businesses that offered a greater chance of growth and success. As we are still in the middle of restructuring and are unable to make reasonable assumptions or estimates of forecasts, we are not disclosing at this time the Group's business forecasts for the fiscal year ending December 31, 2023. As soon as we are able to make reasonable assumptions and estimates, we will announce updated forecasts.

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Consolidated financial resultSIOS Corporation

2. Quarterly Consolidated Financial Statements

(1) Quarterly Consolidated Balance Sheet

(Unit: thousand yen)

			FY 2022	FY 2023 Q3
			(as of September 30,
			(as of December 31, 2022)
			2023)
Assets
Current assets
	Cash and deposits		2,505,766	2,726,679
	Notes and accounts receivable - trade, and		2,028,395	1,929,861
	contract assets
	Merchandise		13,558	2,830
	Work in progress	13,267	3,512
	Advance payments to suppliers		272,047	362,429
	Other	362,291	190,601
	Allowance for doubtful accounts		-200	-200
	Total current assets		5,195,125	5,215,715
Fixed assets
	Tangible fixed assets
	Buildings (net)		50,131	42,267
	Other (net)	62,699	102,347
	Total tangible fixed assets		112,830	144,615
	Intangible fixed assets
	Software		48,496	38,700
	Software in progress	29,879	10,107
	Other		1,441	1,441
	Total intangible fixed assets		79,817	50,249
	Investment and other assets
	Investment securities	380,634	416,160
	Retirement benefit asset		50,635	56,072
	Guarantee deposits	127,063	122,324
	Other		76,225	113,491
	Total investment and other assets		634,558	708,049
	Total fixed assets		827,206	902,913
Total assets		6,022,332	6,118,629

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Consolidated financial result		SIOS Corporation
			(In thousands of yen)
		December 31, 2022	September 30, 2023
Liabilities
Current liabilities
	Accounts payable-trade	1,084,110	937,086
	Current portion of long-term borrowings	66,000	66,000
	Lease liabilities	29,700	67,526
	Income taxes payable	-	11,742
	Contract liabilities	2,760,665	2,983,981
	Other	396,729	606,594
	Total current liabilities	4,337,206	4,672,930
Non-current liabilities
	Long-term borrowings	115,500	66,000
	Retirement benefit liability	302,712	309,229
	Lease liabilities	11,746	7,888
	Long-term deposits received	11,632	11,632
	Other	-	1,159
	Total non-current liabilities	441,591	395,910
Total liabilities	4,778,798	5,068,840
Net assets
Shareholders' equity
	Share capital	1,481,520	1,481,520
	Legal retained earnings	-130,975	-403,909
	Treasury shares	-87,254	-87,254
	Total shareholders' equity	1,263,289	990,356
Accumulated other comprehensive income
	Valuation difference on available-for-sale	5,147	18,575
	securities
	Deferred gains or losses on hedges	-100,273	-50,052
	Total accumulated other comprehensive income	-95,125	-31,476
Subscription rights to shares	75,369	90,908
Total net assets	1,243,534	1,049,788
Total liabilities and net assets	6,022,332	6,118,629

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Consolidated financial result

SIOS Corporation

1. Quarterly Consolidated Statements of Income and Quarterly Consolidated Statements of Comprehensive Income
   Quarterly Consolidated Statements of Income
   Nine months ended September 30

		(In thousands of yen)
	Nine months ended September Nine months ended September
	30, 2022	30, 2023
Net sales	10,686,284	11,701,456
Cost of sales	7,285,377	7,788,206
Gross profit	3,400,907	3,913,250
Selling, general and administrative expenses	3,869,156	4,107,411
Operating profit (loss)	-468,249	-194,161

Non-operating income

Interest income

Gain on valuation of derivatives

Share of profit of entities accounted for using equity method

4,231	10,301
135,244	56,898
40,415	43,025

	Other	9,550	5,915
	Total non-operating income	189,441	116,141
Non-operating expenses
	Interest expenses	1,235	747
	Loss on investments in investment	4,450	5,601
	partnerships
	Foreign exchange losses	135,444	53,161
	Other	-	1,639
	Total non-operating expenses	141,130	61,149
Ordinary profit (loss)	-419,939	-139,170
Extraordinary income
	Gain on sale of non-current assets	-	90
	Total extraordinary income	-	90
Extraordinary losses
	Loss on valuation of shares of subsidiaries	-	10,435
	and associates
	Impairment losses	29,909	30,201
	Loss on retirement of non-current assets	2,409	123
	Loss on transfer of business	-	27,933
	Total extraordinary losses	32,319	68,693
Profit (loss) before income taxes	-452,258	-207,773
Income taxes - current	36,381	15,741
Income taxes - deferred	77,489	-37,266
Total income taxes	113,870	-21,525
Profit (loss)	-566,128	-186,247
Profit (loss) attributable to owners of parent	-566,128	-186,247

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	Consolidated	financial result		SIOS Corporation
	Quarterly Consolidated Statements of Comprehensive Income
	Nine months ended September 30
				(Unit: thousand yen)
			Nine months ended	Nine months ended
			September 30, 2022	September 30, 2023
			(From January 1, 2022	(From January 1, 2023
			through September 30,	through September 30,
			2022)	2023)
Profit (loss)		-566,128	-186,247
Other comprehensive income
	Valuation difference on available-for-sale	4,564	13,428
	securities

Deferred gains or losses on hedges

Foreign currency translation adjustment

Share of other comprehensive income of entities accounted for using equity method

52	-
125,147	48,498
510	1,722

	Total other comprehensive income	130,276	63,649
Quarterly comprehensive income	-435,852	-122,598
	(Comprehensive income attributable to)
	Quarterly comprehensive income attributable	-435,852	-122,598
	to owners of the parent

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Consolidated financial result

SIOS Corporation

1. Notes to Quarterly Consolidated Financial Statements (Notes to Going Concern Assumption)

Not applicable

(Notes on significant changes in the amount of shareholders' equity)

Not applicable

(Segment Information)

【Segment Information】

I. For the nine months ended September 30, 2022 (From January 1, 2022 through September 30, 2022) 1. Information on the amount of sales and income/loss by reportable segment

					(Unit: thousand yen)
		Reportable segment			Amount recorded
						in quarterly
	Open system				Adjustments	consolidated
	Application			statements of
	infrastructure		Total
	business			income
	business
					(Note)
Net sales
Sales to external customers	6,395,070	4,282,653		10,677,723	8,561	10,686,284
Inter-segment sales and transfers	-	5,342		5,342	-5,342	-
Total	6,395,070	4,287,995		10,683,065	3,219	10,686,284
Segment profit (loss)	-20,999	-455,811		-476,810	8,561	-468,249

Note: The total amount of segment losses is the same as the amount of operating loss presented on the Consolidated Statements of Income for the period under review.

(Supplementary Information)

Information by region

In addition to the disclosure required by "Accounting Standard for Quarterly Financial Statements," information (Sales) by region is disclosed in accordance with "Accounting Standard for the Disclosure of Segment Information" for the purpose of providing users of financial statement with valuable information.

Net sales

Nine months ended September 30, 2022

(From January 1, 2022 through September 30, 2022)

				(Unit: thousand yen)
Japan	Americas	Europe	Other regions	Total
10,112,955	380,692	125,305	67,331	10,686,284

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 (Significant impairment loss on non-current assets)

The Company posted an impairment loss of 29.909 million yen on non-current assets in the Application Business Segment.

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