Consolidated Financial Results for the Six Months Ended June,30 2018

(Under Japanese GAAP)
July 31, 2018
Company name: SIOS Corporation
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 OfficerTelephone: 03-6401-5111
Scheduled filing date of quarterly securities report: August 10, 2018
Scheduled commencement date of dividend payment: Supplementary materials prepared for quarterly financial results: Yes
Presentation of quarterly financial results: Yes(for institutional investors and analysts)

1. Consolidated Financial Results of FY 2018 Q2 (From January 1, 2018 through June 30, 2018)(Fractions less than one million yen are rounded off)

(1) Consolidated Results of Operations (cumulative)

Net sales

Operating income

Million yen

FY 2018 Q2
FY 2017 Q2
Note: Comprehensive income
886(Percentage of change from the same period of the previous year)%

Quarterly net income
attributable to ownersof the parentcompany

Ordinary income%

Million yen%

Million yen%

6,270
0.7127
△26.5
6,226
173
△0.2
△47.5
FY 2018 Q2 58 million yen (△9.5%)
FY 2017 Q2 65 million yen (-%)
Quarterly net income
Quarterly net income
per shareper share(Basic)(Diluted)

131184

△28.5
△37.0

7989

△12.0
1.1

FY 2018 Q2
FY 2017 Q2Million yen

YenYen

9.17
10.43

9.11
10.39

(2) Consolidated Financial Position
Total assets

Net assets

Million yen

FY 2018 Q2
FY 2017Note:
EquityMillion yen%

1,147
1,076

22.0
21.5

5,049
4,849
1,110 million yen
1,043 million yen

FY 2018 Q2
FY 2017Equity ratio

2. Cash Dividends
Annual dividend
End of Q1Yen

End of Q2

End of Q3

Yen

FY 2017
0.00―
FY 2018
0.00―
FY 2018 (expected)
0.00
Note: Revision to the previously announced forecasts of dividend:Year-end

Annual

Yen

Yen

Yen

―

0.00

0.00

―

0.00

0.00

No

3. Consolidated Business Forecasts for FY 2018 (From January 1, 2018 through December 31, 2018)

Sales
Million yen

Operating income% Million yen(Percentage of change from previous fiscal year)
Profit attributable toNet income per
Ordinary income owners of the parent
sharecompany% Million yen

FY 2018
13,0004.23302.8
Note: Revision to the previously announced business forecasts: No330% Million yen%

Million yen

1.1―30.13260

* Notes(1) Material changes in subsidiaries during the Six months ended June 30, 2018:

No(Changes in specified subsidiaries resulting in the change of scope of consolidation)
Newly
included:–company―(Company name)―–company (Company name)

Excluded:

Notes relating to material changes in subsidiaries during the period(2) Adoption of special accounting treatments for the preparation of: Nonequarterly consolidated financial statements
Notes relating to the adoption of special accounting treatments for the preparation of quarterly consolidated financialstatements(3) Changes in accounting policies and accounting estimates and retrospective restatement(i) Changes in accounting policies based on revisions of: Noneaccounting standard(ii) Changes in accounting policies other than the above (i): None(iii) Changes in accounting estimates: None(iv) Retrospective restatement: NoneNotes relating to changes in accounting policies(4) Number of issued and outstanding shares (common stock)(i) Number of issued and outstanding shares
FY 2018 Q2at the end of the period (including treasury stock)
FY 2018 Q2(ii) Number of treasury stocks at the end of the period(iii) Average number of shares during the period
FY 2018 Q2(on a quarterly cumulative basis)
Notes relating to the number of issued and outstanding shares*8,874,400 shares

FY 2017 Q2

8,874,400 shares

232,868 shares

FY 2017 Q2

246,541 shares

8,630,042 shares

FY 2017 Q2

8,624,159 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 informationor 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 3 of the attached document.

○Table of Contents of the Attached Document

1. Qualitative Information on Quarterly Results………………………………………………….…………………………… 2(1)Results of Operations………………………………………………….……………………………………………….. 2(2)Financial Position………………………………………………….…………………………………………………… 3(3)Forward-looking Statements Including Consolidated Business Forecasts……………………………………………... 3
2. Matters Concerning Summary Information (Notes) ………………………………………………………………………. 3(1)Material Changes in Subsidiaries during the Six Months Ended June 30, 2018…………………………………...

3(2)Adoption of Special Accounting Treatments for the Preparation of Quarterly Consolidated Financial Statements….... 3(3)Changes in Accounting Policies, Changes or Restatement of Accounting Estimates…………………………………... 3
3. Quarterly Consolidated Financial Statements……………………………………………………………………………… 4(1)Quarterly Consolidated Balance Sheet…………………………………………………………………………………. 4(2)Quarterly Consolidated Statements of Income and Quarterly Consolidated Statements of Comprehensive Income….. 6(3)Quarterly Consolidated Statements of Cash Flows…………………………………………………………………

8(4)Notes to Quarterly Consolidated Financial Statements………………………………………………………………… 9Notes to Going Concern Assumption...…………………………………………………………………………………... 9Notes to Significant Changes in Shareholders’ Equity...………………………………………………………………..... 9Segment Information...…………………………………………………………………………………………………… 9－1－1. Qualitative Information on Quarterly Results(1) Results of Operations
Overview of the consolidated business performance for the Six months ended June 30, 2018
The SIOS 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(*1), investing in research and development, and becoming morecompetitive in its core businesses, so as to become a leading player in the fast-changing IT industry.
During the six months ended June 30, 2018, as part of our efforts to expand into new business segments including Fintech, weformed a capital and business alliance with Rhelixa, Inc., a venture firm originating in a laboratory at the University of Tokyo, andembarked—in a first for us—on a foray into the bioscience field with a joint project to develop and build a cloud2-based platform foranalyzing epigenomes3.
In addition, as part of our commitment to continue to invest in research and development, SIOS Technology Corp, a California-based
consolidated subsidiary of the Company, opened an R&D center at the University of South Carolina to step up its efforts to develop
advanced AI technologies and hire skilled talent from the campus.
Furthermore, as part of our efforts to become more competitive in our core businesses, we started to use the latest architecture toreconfigure SIOS Coati, our cloud-based service for automatic system failure detection and recovery, and released new software
applications for MFPs4.
With the implementation of these initiatives and efforts, the Group’s consolidated business results by segment for the six months
ended June 30, 2018, are as follows:

Open System Infrastructure Business Segment
While the Group achieved steady growth of sales of Red Hat Enterprise Linux5 and other software products sourced from Red Hat, Inc.
as well as of OSS6 support services and OSS-related products, the gross profit ratio of products sold declined, which was a trend
continued from the previous fiscal year. Sales and profit of LifeKeeper7 declined from the previous year due to a fall in high-volumedeals.
As a result, net sales in this segment amounted to 3,543 million yen, up 3.5% from the same period a year earlier, with a segment profitof 20 million yen, down 81.2% year on year.

Application Business Segment
While the Group achieved a substantial year-on-year increase in sales of business support systems to regional banks and otherfinancial institutions, revenue from providing financial institutions with support for system development and implementation declined.
Sales of software applications for MFPs declined, due to a decrease in high-volume deals compared with the previous year.
As a result, net sales in this segment declined 2.7% year on year to 2,727 million yen. Segment profit jumped 63.1% to 107 million
yen, due to an absence of 50 million yen in amortization of goodwill and assets related to customers that the Company recognized theprevious fiscal year for Profit Cube Inc., a consolidated subsidiary of the Company, which more than offset a reduced gross profit
resulting from a decline in sales of some products explained above as well as an increase in expenses related to new businesses.
(*1) Fintech
An emerging technology for facilitating innovations in the financial sector.
(*2) Cloud
A new form of computing that provides computing resources as services over internet.
(*3) Epigenome
While a genome is the complete genetic information of an organism inherited at birth, an epigenome is a set of time- andenvironment-dependent acquired changes at the molecular level to an organism’s genome that modify gene expression.
(*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－2－unit. SIOS develops, markets, and updates Quick Scan and Speedoc, document management software applications runningonan MFP.

(*5) Red Hat Enterprise LinuxLinux OS developed by the open solution provider Red Hat, Inc.
(*6) Open-source software
Software whose source code, which is the fundamental component of the program, is made available for free and can be used,modified, and redistributed.
(*7) LifeKeeper
A failover software product that automatically switches a failed primary server to a backup server.

(2) Financial Position
Current assets amounted to 4,275 million yen, up 3.2% from the end of the previous consolidated fiscal year, mainly due to anincrease of 66 million yen in work in progress and an increase of 62 million yen in accounts cash and deposits.
Fixed assets amounted to 774 million yen, up 9.4% from the end of the previous consolidated fiscal year, mainly due to anincrease of 28 million yen in buildings.
As a result, total assets amounted to 5,049 million yen (up 4.1% from the end of the previous fiscal year).
(ii)

Liabilities

Current liabilities amounted to 3,026 million yen, up 6.9% from the end of the previous fiscal year, due to an increase of 288
million yen in advance received and an increase of account payable-trade.
Fixed liabilities amounted to 875 million yen, down 6.9% from the end of the previous fiscal year, due to a decrease of 66
million yen in long-term loans payable.
As a result, total liabilities amounted to 3,902 million yen, up 3.4% from the end of the previous fiscal year.
(iii) Net assets
Total net assets amounted to 1,147 million yen, up 6.5% from the end of the previous fiscal year, mainly due to a quarterly net
income of 79 million yen attributable to owners of the parent company posted in the six months ended June 30, 2018.

(3) Forward-looking Statements Including Consolidated Business Forecasts
The consolidated business forecasts for the fiscal year ending December 31, 2018, which were announced on February 5, 2018, stillstand.

2. Matters Concerning Summary Information (Notes)(1) Material changes in subsidiaries during the Six months ended June 30, 2018
Not applicable(2) Adoption of special accounting treatments for the preparation of quarterly consolidated financial statements
Not applicable(3) Changes in accounting policies, changes or restatement of accounting estimates
Not applicable－3－2. Quarterly Consolidated Financial Statements(1) Quarterly Consolidated Balance Sheet(Unit: thousand yen)
FY 2017(as of December 31, 2017)

FY 2018 Q2(as of June 30, 2018)

AssetsCurrent assets
Cash and deposits

2,379,099

2,441,852

Notes and accounts receivable-trade

1,377,939

1,376,993

Work in progress

27,873

94,717

Advance payment

139,488

162,255

Other217,477

199,491

△200

△200

4,141,6794,275,111

Buildings (net)95,944

124,502

Other (net)73,551

95,023

Total tangible fixed assets

169,496

219,525

995

-

Other

60,32570,517

Total intangible fixed assets

61,321

70,517

192,970

196,716

Allowance for doubtful accounts
Total current assets
Fixed assets
Tangible fixed assets

Intangible fixed assets
Goodwill

Investment and other assets
Investment securities
Net defined retirement assets

35,98837,200

Guarantee deposits

220,663

220,976

Other

36,89634,194

Allowance for doubtful accounts△9,820△5,071

Total investment and other assets476,698

484,015

Total fixed assets
Total assets－4－707,515

774,058

4,849,194

5,049,169

(In thousands of yen)
December 31, 2017

June 30, 2018

Liabilities
Current liabilities
Accounts payable-trade494,376

591,093

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

50,000133,116

133,116

Lease obligations
Income taxes payable

4,018
104,721

6,676
27,992

Advances received
Provision for bonuses

1,521,761
42,816

1,809,986
24,859‐481,967

1,485
431,778

2,832,779

3,026,986

679,039

612,481

212,520
11,248204,082
18,742

Other

11,632
25,166

11,632
28,198

Total non-current liabilities

939,607875,136

3,772,386

3,902,123

Capital stock
Capital surplus

1,481,520
468,241

1,481,520
471,249

Retained earnings
Treasury shares△654,232△104,458△576,019△98,683

Total shareholders’ equity

1,191,070

1,278,066

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

Total liabilities
Net assets
Shareholders’ equity

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

34,14036,285

Foreign currency translation adjustment△181,724△204,068

Total accumulated other comprehensive income△147,584△167,783

33,321

36,762

1,076,808

1,147,046

4,849,194

5,049,169

Subscription rights to shares
Total net assets
Total liabilities and net assets－5－(2) Quarterly Consolidated Statements of Income and Quarterly Consolidated Statements of Comprehensive
IncomeQuarterly Consolidated Statements of Income
Six months ended June 30(In thousands of yen)Six months ended June 30, 2017 Six months ended June 30, 2018
Net sales

6,226,673

6,270,760

Cost of sales

4,063,956

4,214,511

Gross profit

2,162,717

2,056,249

Selling, general and administrative expenses

1,989,202

1,928,630

173,514

127,618

Interest income
Foreign exchange gains

2,498
-

5,973
9,365

Gain on valuation of derivatives
Reversal of allowance for doubtful accounts

9,905
-

4,748

Fiduciary obligation fee
Other

1,200
4,024

1,200
6,983

Total non-operating income

17,62828,2702,408

2,185

Loss on investments in partnership
Loss on valuation of derivatives

2,407-

4,733
17,095

Other

1,969

0

Total non-operating expenses

6,785

24,014

184,357

131,874-

8,350

Operating profit
Non-operating income

Non-operating expenses
Interest expenses

Ordinary profit
Extraordinary income
Gain on liquidation of subsidiaries
Gain on reversal of subscription rights to shares

1,448-

Total extraordinary income

1,448

8,350

Loss on retirement of non-current assets
Loss on valuation of investment securities-22
12,954

Total extraordinary losses-12,976

Profit before income taxes

185,806

127,248

Income taxes-current

88,701

28,787

Income taxes-deferred

7,131

19,301

Total income taxes

95,83248,089Profit89,973

79,159Profit attributable to owners of parent

89,97379,159Extraordinary losses－6－Quarterly Consolidated Statements of Comprehensive Income
Six months ended June 30

Quarterly net income (loss)
Other comprehensive income
Valuationdifference on available-for-salesecurities
Foreign currency translation adjustment

Six months ended June 30,2017(From January 1, 2017
through June 30, 2017)
89,973(Unit: thousand yen)Six months ended June 30,2018(From January 1, 2018
through June 30, 2018)79,159△3,4682,145△21,351△22,344△24,819△20,198

65,15358,96065,15358,960Total other comprehensive income
Quarterly comprehensive income(Comprehensive income attributable to)
Quarterly comprehensive income attributable toowners of the parent－7－

(3) Consolidated Statements of Cash Flows(In thousands of yen)
Six Months Ended
June 30, 2017
Cash flows from operating activities
Profit (loss) before income taxes

Six Months EndedJune 30, 2018

185,806

127,248

Depreciation
Amortization of goodwill

44,56042,686

37,669995

Interest and dividend income
Interest expenses△2,9002,408△6,334
2,185

2,407

4,733-△708△47,598△959

26,746△66,843

43,627

96,716

19,235
260,894△8,438296,996

Decrease (increase) in advance payment
Increase (decrease) in consumption taxes payable△15,104△6,659△22,767△41,622

Other△34,251△64,403

Sub-total

521,859
2,900

354,468
6,334

Income taxes paid

△2,408△52,627△2,185△103,171

Net cash provided by (used in ) operating activities

469,722

255,446

Payment into time deposits
Proceeds from withdrawal of time deposits△130,000
130,000△130,000
130,000

Purchase of property, plant and equipment
Purchase of intangible assets△5,433△6,180435△35,496△21,905△328△15,000
9△11,506△70,991

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
Increase (decrease) in advance received

Interest and dividend income received
Interest expenses paid

Cash flows from investing activities

Payments for guarantee deposits
Proceeds from collection of guarantee deposits
Purchase of investment securities
Other
Net cash provided by (used in) investing activities
Cash flows from financing activities
Cash dividends paid

△3,7105,112△30-△30,000△67,391
4,264△50,000△66,558
4,694

Net cash provided by (used in) financing activities
Effect of exchange rate changes on cash and cashequivalents
Net increase (decrease) in cash and cash equivalents△93,156△111,863△44,126△9,838

320,932

62,753

Cash and cash equivalents at beginning of year

1,793,658

2,249,099

Cash and cash equivalents at end of quarter

2,114,590

2,311,852

Net increase (decrease) in short-term loans payable
Repayments of long-term loans payable
Other－8－(4) Notes to Quarterly Consolidated Financial Statements
Notes to Going Concern Assumption
Not applicable
Notes to Significant Changes in Shareholders’ Equity
Not applicable
Segment Information【Segment Information】
I. For the Six months ended June 30, 2017 (From January 1, 2017 through June 30, 2017)
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

3,424,696

2,801,917

6,226,613

60

6,226,673

32―

32

△32―

3,424,728

2,801,917

6,226,645

27

6,226,673

107,643

65,811

173,45460

173,514Total

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
Six months ended June 30, 2018
(From January 1, 2017 through June 30, 2017)(Unit: thousand yen)Japan
5,859,516

Americas246,952

EuropeOther regions

57,004

63,200Note: 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－9－Total
6,226,673

II. For the six months ended June 30, 2018 (From January 1, 2018 through June 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

3,543,670

2,727,000

6,270,670

90

6,270,760

8,753

2,246

11,000△11,000―

3,552,423

2,729,247

6,281,671△10,910

6,270,760

20,193

107,335

127,52890

127,618

Total

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

Note: The total amount of segment profit is equal to operating income recorded 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 six months ended June 30, 2018 (From January 1, 2018 through June 30, 2018)(Unit: thousand yen)Japan
5,886,587

Americas282,531

Europe59,285

Other regions
42,356

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－10－Total
6,270,760