Consolidated Financial Results for the Nine Months Ended September 30, 2016
(Under Japanese GAAP)
October 31, 2016
Company name: SIOS Technology, Inc.
Shares listed on: Tokyo Stock Exchange
Code number: 3744
URL: http://www.sios.com
Representative: Nobuo Kita, Representative Director and President
Contact person: Tokutaro Kobayashi, Managing Executive Officer
Telephone: 03-6401-5111
Scheduled filing date of quarterly securities report: November 14, 2016
Scheduled commencement date of dividend payment: Supplementary materials prepared for quarterly financial results: No
Presentation of quarterly financial results: No

1. Consolidated Financial Results for the Nine Months Ended September 30, 2016
(Fractions less than one million yen are rounded off)

(1) Results of operations (nine-month total)(Percentages represent changes from the same period of theprevious fiscal year)
Net income (loss)
attributable to owners
Operating income (loss) Ordinary income (loss)of the parent
company

Net sales

Nine months ended
September 30, 2016

Million yen%

Million yen%

Million yen%

Million yen

%

9,181

33.5

426

―

367

―

160

―

(139)

―

Nine months ended
6,877
27.5
(101)
(106)
―
―
September 30, 2015
Note: Comprehensive income (loss) Nine months ended September 30, 2016: 60 million yen (-%)
Nine months ended September 30, 2015: (136) million yen (-%)
Net income (loss) per
Net income per share
share(Diluted)(Basic)Yen

YenNine months ended
September 30, 2016

18.65

18.62

Nine months ended
September 30, 2015(16.28)―(2) Financial position
Total assets

Net assets

Million yen

Equity ratio

Million yen

%

1,457
1,414

27.5
24.4

As of September 30, 2016
5,210
As of December 31, 2015
5,642
Note:
Equity As of September 30, 2016: 1,434 million yen
As of December 31, 2015: 1,376 million yen

2. Dividends
Annual dividend
End of Q1
Fiscal year ended
December 31, 2015

End of Q2

End of Q3

Year-end

Annual

Yen

Yen

Yen

Yen

Yen

―

0.00

―

0.00

0.00

0.00

0.00

Fiscal year ending―
0.00
December 31, 2016
Fiscal year ending
December 31, 2016
(Forecast)
Note: Revision to the previously announced forecast of dividend: None―

3. Consolidated Business Forecasts for Fiscal Year Ending December 31, 2016
(Percentages represent changes from the previous fiscal year)
Net income
attributable to
Net income per
Operating income Ordinary income
owners of the parent
share
company

Net sales
Million yen% Million yen% Million yen

Fiscal year ending
11,50022.8
370―
December 31, 2016
Note: Revision to the previously announced business forecasts: No

310% Million yen

%

Yen

―

―

11.62

100

Notes:(1) Material changes in subsidiaries during the nine months ended September 30, 2016: None
(Changes in specified subsidiaries resulting in a change in the scope of consolidation)
Newly included: ―Excluded: ―(2) Adoption of special accounting treatments for the preparation ofquarterly consolidated financial statements: None(3) 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(iv) Restatements: NoneNote: For details, refer to "2. Matters Concerning Summary Information (Notes): (3) Changes in Accounting
Policies, Changes in Accounting Estimates, and Restatements" on Page 3 of the attached document.
(4) Number of issued and outstanding shares (common stock)
As of
As of
(i) Number of issued and outstanding shares
September 30, 8,874,400 shares December 31, 8,874,400 sharesat the end of the period (including treasury stock)
2016
2015
(ii) Number of treasury stocks at the end of the period(iii) Average number of shares during the period(cumulative from the beginning of the fiscal year)*

As of
September 30,
260,041 shares
2016
For the ninemonths ended
8,608,538 shares
September 30,
2016

As of
December 31,
2015
For the ninemonths ended
September 30,
2015274,241 shares

8,598,103 shares

Presentation of the status of progress in carrying out quarterly review proceduresThis summary of quarterly consolidated financial results is not subject to a quarterly review to be conducted in accordance with
the Financial Instruments and Exchange Law of Japan. At the time of the release of this summary of quarterly consolidated
financial results, the quarterly review procedures in accordance with the Financial Instruments and Exchange Law of Japan
have not been completed.

*

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 tovarious factors. For assumptions used as a basis for making business forecasts and notes on the use of business forecasts, referto “(3) Forward-looking Statements Including Consolidated Business Forecasts” on Page 2 of the attached document.

○Table of Contents of the Attached Document

1. Qualitative Information on Consolidated Results……………………………………………….…………………………… 1(1) Results of Operations………………………………………………….………………………………………………..

1(2) Financial Position………………………………………………….…………………………………………………… 2(3) Forward-looking Statements Including Consolidated Business Forecasts……………………………………………... 2
2. Matters Concerning Summary Information (Notes) ……………………………………………………………………….

3(1) Material Changes in Subsidiaries during the Nine Months Ended September 30, 2016………………………………... 3(2) Adoption of Special Accounting Treatments for the Preparation of Quarterly Consolidated Financial Statements….... 3(3) Changes in Accounting Policies, Changes in Accounting Estimates, and Restatements...................…………………... 3
3. Consolidated Financial Statements……………………………………………………………………..................………… 4(1) Consolidated Balance Sheet………………………………………………………………………..................…………. 4(2) Consolidated Statements of Income and Comprehensive Income…................................................................................. 6(3) Notes to Consolidated Financial Statements……………………………………………………................….………..… 8
Notes to Going Concern Assumption...…………………………………………………………………………………..... 8
Notes to Significant Changes in Shareholders’ Equity...………………………………………………………………....... 8
Segment Information...…………………………………………………………………………………….……………..… 9

1. Qualitative Information on Consolidated Results(1) Results of Operations
Overview of the consolidated business performance for the nine months ended September 30, 2016
In the nine months ended September 30, 2016, the SIOS Group's net sales soared by 33.5% year on year to 9,181 million yen,bolstered in part by a 13.8% year-on-year increase in net sales of the Company and in part by the addition of sales by Keyport
Solutions, Inc. (KPS) and Profit Cube Inc. (PCI), both of which the Company had acquired in the previous fiscal year.
In addition to an increased gross margin resulting from the addition of sales by KPS and PCI, the Group enjoyed a year-on-yearincrease in operating income from existing businesses, which comprise sales of LifeKeeper(*1) and software applications for
multifunction printers(*2) as well as support services for system implementation, as we delivered these products and services to a
growing number of corporate customers. As a result, the Group posted an operating income of 426 million yen for the nine months
ended September 2016, compared with an operating loss of 101 million yen in the same period of the previous fiscal year, and an
ordinary income of 367 million yen, compared with an ordinary loss of 106 million yen in the same period of the previous year. The
Group also posted a net income of 160 million yen attributable to owners of the parent company, despite incurring expenses related toa retrospective adjustment of 139 million yen recognized as extraordinary loss in the second quarter of the current fiscal year,
compared with a net loss of 139 million yen in the same period of the previous fiscal year. The Group’s key management indicator
EBITDA, which is the sum of operating income, depreciation, and amortization of goodwill, stood at 559 million yen, compared with anegative of 51 million yen in the same period of the previous fiscal year.
The Group continued to implement its growth initiatives, which are outlined in the Group's medium-term business strategy andfocused on expanding into new business segments including FinTech(*3), investing in research and development, and becoming morecompetitive in its core businesses.
As part of an initiative to expand into new business segments including FinTech, PCI, which is the Company's subsidiary, acquiredin March 2016 a patent for its proprietary technology that enables greater flexibility and agility of a profit management system forfinancial institutions. PCI also developed an automated loan-screening system for financial institutions and filed in April 2016 a patent
for the technology incorporated into the system.
As part of efforts to invest in research and development, the Group continued to invest in machine-learning technology(*4) and released
an upgraded version of SIOS iQ(*6), a software platform for IT operations analytics(*5), to provide greater versatility.
In an effort to become more competitive in the Group's core businesses, the Group significantly upgraded LifeKeeper, which isone of its core products, and software applications for multifunction printers, and expanded services for open-source software(*7)(OSS) for cloud(*8).

With the implementation of these initiatives, business results by segment turned out as follows:
Open System Infrastructure Business Segment
The Group increased sales of LifeKeeper in Japan, the Americas, Europe, and Asia/Oceania. Red Hat Enterprise Linux(*9) and otherproducts sourced from Red Hat, Inc. also enjoyed robust sales, buoyed by stepped up sales and marketing efforts. Support services for
OSS and OSS-related products achieved solid sales growth as well. As a result, net sales in this segment amounted to 4,746 million
yen in the nine months ended September 2016, up 13.6% year on year, with a segment income of 145 million yen, compared with asegment loss of 118 million yen in the same period of the previous fiscal year.

Application Business Segment
Net sales in this segment increased substantially due to the addition of sales by KPS and PCI, both of which the Company had
acquired in the previous fiscal year. The increase in sales also resulted from the provision of software applications for multifunction
printers and support services for system implementation to a growing number of corporate customers. As a result, net sales in thissegment soared 64.2% year on year to 4,435 million yen.
The income in this segment surged to 280 million yen compared with an income of 17 million a year earlier, as an increased grossprofit gained from an increase in net sales more than offset an increase in personnel costs and rents resulting from the acquisitions of
the two consolidated subsidiaries mentioned earlier.

－1－(*1) LifeKeeper
A failover software product that automatically switches a failed primary server to a backup server.
(*2) 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. SIOS develops, markets, and updates Quick Scan and Speedoc, document-management software applications
running on an MFP.
(*3) FinTech
An emerging technology for facilitating innovations in the financial sector.
(*4) Machine-learning technology
A technology for giving the computer the same learning ability as a human being and for extracting useful informationfrom a variety of data.
(*5) IT operations analytics
Analyzing data generated in IT operations and converting them into practical and easy-to-digest information.
(*6) SIOS iQ
A software platform that comprehensively monitors, analyzes, and optimizes operations of applications in virtual and cloudenvironments to improve performance and efficiency and ensure reliability in resolving complex issues.
(*7) 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.
(*8) Cloud
A new form of computing that provides computing resources as services over the Internet.
(*9) Red Hat Enterprise LinuxLinux OS developed by the open-solution provider Red Hat, Inc.

(2) Financial Position(i)

AssetsCurrent assets amounted to 3,524 million yen as of September 30, 2016, down 9.7% from the end of the previous fiscal year,
mainly due to a decrease of 429 million yen in cash and deposits, an increase of 65 million yen in notes and accounts receivabletrade, and an increase of 39 million yen in advance payments.
Fixed assets amounted to 1,685 million yen, down 3.2% from the end of the previous fiscal year, mainly due to a decrease of 82
million yen in investment securities.
As a result, total assets amounted to 5,210 million yen, down 7.7% from the end of the previous fiscal year.
(ii) Liabilities
Current liabilities amounted to 2,644 million yen as of September 30, 2016, down 7.9% from the end of the previous fiscal year,
mainly due to a decrease of 210 million yen in short-term loans payable, an increase of 134 million yen in advance received, and adecrease of 63 million yen in accounts payable.
Fixed liabilities amounted to 1,109 million yen, down 18.2% from the end of the previous fiscal year, mainly due to a decreaseof 129 million yen in long-term loans payable and a decrease of 100 million yen in long-term deposits received.
As a result, total liabilities amounted to 3,753 million yen, down 11.2% from the end of the previous fiscal year.
(iii) Net assets
Total net assets amounted to 1,457 million yen as of September 30, 2016, up 3.0% from the end of the previous fiscal year,
mainly due to a net income of 160 million yen attributable to owners of the parent company posted for the nine months ended
September 30, 2016, and a decrease of 92 million yen in foreign currency translation adjustment.

(3) Forward-looking Statements Including Consolidated Business Forecasts
The Group achieved business performance in the nine months ended September 2016 on track to meet the full-year consolidated
business forecasts for fiscal year ending December 31, 2016, which were updated and announced on July 29, 2016. Those forecasts for
FY 2016 still stand despite uncertainties for the remainder of the year.

－2－2. Matters Concerning Summary Information (Notes)(1) Material changes in subsidiaries during the nine months ended September 30, 2016
Not applicable(2) Adoption of special accounting treatments for the preparation of quarterly consolidated financial statements
Not applicable(3) Changes in accounting policies, changes in accounting estimates, and restatements
Nine months ended September 30, 2016
(From January 1, 2016 through September 30, 2016)•

Application of Accounting Standard for Business Combinations
Effective at the beginning of the first quarter of the current fiscal year, the Company adopted the “Revised Accounting Standard forBusiness Combinations” (ASBJ Statement No. 21, issued on September 13, 2013), the “Revised Accounting Standard for Consolidated
Financial Statements” (ASBJ Statement No. 22, issued on September 13, 2013), and the “Revised Accounting Standard for Business
Divestitures” (ASBJ Statement No. 7, issued on September 13, 2013). Under these revised accounting standards, the Company
recognizes as capital surplus any difference arising from changes in the Company's ownership interests in its subsidiaries over which
the Company retains control, and recognizes the acquisition-related costs as expenses in the fiscal year in which they are incurred. In
addition, regarding a business combination conducted at or after the beginning of the first quarter of the current fiscal year, theCompany, when it finalizes its provisional accounting treatments, revises acquisition cost allocation in the quarterly consolidated
financial statements to which the date of the business combination belongs. Furthermore, the Company changed the way its quarterly
net income is presented, and records minority interests as non-controlling interests. To reflect these changes in presentation, theconsolidated financial statements for the nine months ended September 30, 2015, and for the previous fiscal year were reclassified.
With respect to the application of the Accounting Standard for Business Combinations and other accounting standards, the Company
has been following the transitional arrangement set forth in Article 58-2 (4) of the Accounting Standard for Business Combinations,
Article 44-5 (4) of the Accounting Standard for Consolidated Financial Statements, and Article 57-4 (4) of the Accounting Standard forBusiness Divestitures since the beginning of the first quarter of the current fiscal year.
As a result, capital surplus decreased by 9 million yen at the end of the third quarter of the current fiscal year.
•

Change in Depreciation Method
In accordance with the revision of the Corporation Tax Act of Japan, the Company adopted the “Practical Solution on a Change inDepreciation Method due to Tax Reform 2016” (ASBJ Practical Issues Task Force (PITF) No. 32, issued on June 17, 2016) in the six
months ended June 30, 2016, and changed the depreciation method for facilities attached to buildings and for structures acquired on orafter April 1, 2016, from the declining-balance method to the straight-line method.
This change has no material impact on the consolidated financial statements for the nine months ended September 30, 2016.

－3－

3. Consolidated Financial Statements(1) Consolidated Balance Sheet(In thousands of yen)
As of December 31, 2015

As of September 30, 2016

Cash and deposits

2,206,352

1,776,549

Notes and accounts receivable-trade

1,346,277

1,412,128

Work in progress

114,680

78,314

Advance payment

106,473

146,109

Other

127,536

111,582

AssetsCurrent assets

Allowance for doubtful accounts

(200)

(200)

3,901,120

3,524,484

Buildings (net)92,841

112,709

Other (net)71,96390,716

Total tangible fixed assets

164,805

203,426

838,787774,758

Total current assets
Fixed assets
Tangible fixed assets

Intangible fixed assets
Goodwill
Other
Total intangible fixed assets

248,472

226,305

1,087,259

1,001,063

244,983

162,388

Investment and other assets
Investment securities
Net defined benefit assets

26,24926,594

Guarantee deposits

216,140

275,810

7,193

21,703

Other
Allowance for doubtful accounts(5,071)(5,071)

Total investment and other assets

489,494

481,425

1,741,559

1,685,915

5,642,680

5,210,400

Total fixed assets
Total assets－4－

(In thousands of yen)
As of December 31, 2015

As of September 30, 2016

Accounts payable-trade543,741

480,244

Short-term loans payable

240,000

30,000Current portion of long-term loans payable

155,442

133,167

1,244

2,099

Liabilities
Current liabilities

Lease obligations
Income taxes payable

28,45069,823

Advance received

1,339,886

1,474,564

Reserve for bonuses

26,67866,624

Reserve for loss on orders received

2,515

9,456

534,409378,366

2,872,367

2,644,345

Long-term loans payable

974,765

845,434

Deferred tax liabilities
Provision for surcharge resulting from repaymentof subsidies
Net defined benefit liabilities

68,81465,65732,267－

158,985

174,461

5,132

7,462

109,955

9,767

Other
Total current liabilities
Fixed liabilities

Lease obligations
Long-term deposits received
Other

6,359

6,251

1,356,280

1,109,034

4,228,648

3,753,380

Capital stock

1,481,520

1,481,520

Capital surplus

474,415466,657

Retained earnings(321,538)(161,009)

Total fixed liabilities
Total liabilities
Net assets
Shareholders’ equity

Treasury stock(116,194)(110,178)

Total shareholders’ equity

1,518,201

1,676,989

Accumulated other comprehensive income
Valuation difference on available-for-sale securities

1,420(6,817)

Foreign currency translation adjustment(143,423)(236,127)

Total accumulated other comprehensive income(142,002)(242,945)

22,281

22,975

15,551Equity warrants
Total net assets

1,414,031－
1,457,020

Total liabilities and net assets

5,642,680

5,210,400

Non-controlling interests－5－(2) Consolidated Statements of Income and Comprehensive Income
Consolidated Statements of Income
for nine months ended September 30(In thousands of yen)
Nine months ended
September 30, 2015

Nine months ended
September 30, 2016

Net Sales
Cost of sales

6,877,377
4,472,595

9,181,781
5,862,409

Gross margin

2,404,782

3,319,371

Selling, general and administrative expenses

2,506,092

2,892,686

Operating income (loss)(101,309)

426,684

Non-operating income
Interest income

1,368

642

20,005
10,000

10,221

Foreign exchange gain
Compensation received
Other

1,770

－
9,711

Total non-operating income

33,145

20,575Interest expenses
Loss on investment of investment partnership

107
1,967

4,888
4,254

Equity in losses of affiliates
Provision for surcharge resulting from repayment ofsubsidiesOther27,327

63,254

7,691

5,668

798

2,187

Total non-operating expenses

37,89280,252(106,056)

367,006

Extraordinary income
Gain on sale of investment securities

8,169

67

Gain on negative goodwill
Gain on reversal of equity warrants

11,386
1,231

－
1,289

Total extraordinary income

20,787

1,356

2,358

1,550

12,968－139,212

Non-operating expenses

Ordinary income (loss)

Extraordinary loss
Loss on valuation of golf club membership
Loss on withdrawal from employees’ pension fundExpense related to retrospective adjustment－
341

Loss on retirement of fixed assets
Other

－

6,598
4,107

Total extraordinary loss

15,668151,467

Net income (loss) before income taxes(100,937)

216,895

Income taxes-current

35,75660,172

Income taxes-deferred－(4,724)

Total income taxes

35,75655,448Net income (loss)(136,693)

161,447

3,255

918

(139,948)

160,529

Net income attributable to non-controlling interests
Net income (loss) attributable to owners of the parent
company－6－

Consolidated Statements of Comprehensive Income
for nine months ended September 30(In thousands of yen)
Nine months ended September
30, 2015

Nine months ended September
30, 2016(136,693)

161,447

1,820(8,238)Net income (loss)
Other comprehensive income (loss)
Valuation difference on available-for-salesecurities
Foreign currency translation adjustment
Total other comprehensive income (loss)
Comprehensive income (loss)(2,075)(92,704)(254)(100,942)(136,948)

60,505(140,188)
3,239

59,586918

Comprehensive income (loss) attributable to:
Owners of the parent company
Non-controlling interests－7－(3) Notes to Consolidated Financial Statements
Notes to Going Concern Assumption
Not applicable
Notes to Significant Changes in Shareholders’ Equity
Not applicable－8－Segment Information【Segment Information】
I. Nine months ended September 30, 2015
1. Information regarding the amount of sales and income/loss by reportable segment(In thousands of yen)
Reportable segment
Adjustments

Amount recordedin quarterly
consolidated
statements ofincome(Note)

Open systeminfrastructurebusiness

Application
business

4,176,477

2,700,900

6,877,377―

6,877,377

279

175

454

(454)

―

4,176,756

2,701,075

6,877,831(454)

6,877,377(118,324)

17,015(101,309)―(101,309)

Total

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

Note: The total amount of segment income (loss) is equal to operating income (loss) recorded in the quarterly consolidated
statements of income.
Supplementary Information
Information by region
In addition to the disclosure required by the “Accounting Standard for Quarterly Financial Statements,” information (net sales) byregion is disclosed in accordance with the “Accounting Standard for the Disclosure of Segment Information” for the purpose ofproviding users of financial statements with valuable information.
Net sales
For the nine months ended September 30, 2015
(In thousands of yen)Japan
6,411,867

Americas306,426

EuropeOther regions

83,17875,905

Total
6,877,377

Note: Sales are classified by country or region in which customers are located.
2. Information regarding loss on impairment of fixed assets or goodwill by reportable segment
Not applicable－9－II. Nine months ended September 30, 2016
1. Information regarding the amount of sales and income/loss by reportable segment(In thousands of yen)
Reportable segment
Adjustments

Amount recordedin quarterly
consolidated
statements ofincome(Note)

Open systeminfrastructurebusiness

Application
business

4,746,027

4,435,753

9,181,781―

9,181,781

327

―

327

(327)

―

4,746,354

4,453,753

9,182,108(327)

9,181,781

145,971

280,713426,684―

426,684

Total

Net sales
Sales to external customers
Inter-segment sales and transfers
Total
Segment income

Note: The total amount of segment income is equal to operating income recorded in the quarterly consolidated statements ofincome.
Supplementary Information
Information by region
In addition to the disclosure required by the “Accounting Standard for Quarterly Financial Statements,” information (net sales) byregion is disclosed in accordance with the “Accounting Standard for the Disclosure of Segment Information” for the purpose ofproviding users of financial statements with valuable information.
Net sales
For the nine months ended September 30, 2016
(In thousands of yen)Japan
8,629,504

Americas

Europe376,733

95,125

Other regions
80,417

Total
9,181,781

Note: Sales are classified by country or region in which customers are located.
2. Matters related to changes in reportable segments
The Group’s Web application business segment is shown as the application business segment effective from the current fiscal year,
considering that the business has expanded into fields beyond Web applications. Accordingly, the segment formerly presented as the“Web application business” was reclassified as the “application business” effective from the three-month period ended March 31,
2016. Likewise, the segment information pertaining to the said segment for the nine months ended September 30, 2015, is presented
under the “application business.”
This change in the segment name has no impact on the segment information.
3. Information regarding loss on impairment of fixed assets or goodwill by reportable segment
Not applicable－10－