FY 2015 Financial Results〔Japanese Standards〕(Consolidated)
February 2, 2016
Name of listed company SIOS Technology, Inc.
Code number

Listing exchange

3744Tokyo Stock Exchange

URL http://www.sios.com/

Representative (Title) Representative Director and President (Name) Nobuo Kita
Contact(Title) Managing Executive Officer(Name) Tokutato Kobayashi (TEL) 03-6401-5111
Scheduled date of annual shareholders meeting:March 29, 2016 Scheduled date of commencing dividend payment: －Scheduled date of submission of securities reports: March 30, 2016
Supplemental materials prepared for account settlement : Yes
Account settlement briefing

: Yes

(

For institutional investors and analysts)(Any fraction less than one million yen is rounded off)

1. Consolidated results (From January 1, 2015 through December 31, 2015)(1) Consolidated financial results
Net sales

Operating income

Million yen%

Million yen

9,362
7,367

27.1
11.2

(111
65

FY 2015
FY 2014

Net income pershare-Basic(Reference)Equity in earnings

Million yen

―
(73.4

Net income pershare-Diluted

Yen

FY 2015
FY 2014

Ordinary income
%

Yen

―
3.37

FY 2015-46million yen

―
(69.3

FY 2014

Million yen(179
39
115million yen(

%

―
(64.5

-50.0%)

Ratio of ordinary
Operating income ratio
income to total assets

Return on equity(20.82
4.48

Net income
%

(127
81

-173million yen( ―%)(Note) Comprehensive income FY 2015(% of change from previous year)

%

%

%

(11.1
2.3

(2.7
2.4

(1.2
0.9

―million yen

FY 2014(2) Consolidated financial position
Total assets

Equity ratio

Net assets per share

Million yen

%

Yen

5,642
3,651

1,539
1,733

26.6
47.1

174.66200.26

FY 2015
FY 2014(Reference)Equity

Net assets

Million yen

FY 2015

1,502million yen

FY 20141,720million yen(3) Consolidated cash flows
Cash flow from operating Cash flow from investing Cash flow from financing
activities
activities
activities
Million yen

Million yen

Million yen

Million yen

168
401

(996
(223

988
(145

2,045
1,882

FY 2015
FY 20142.

Cash dividends

Total ofdividend(annual)Annual dividend
End of Q1

End of Q2

Yen

FY 2014
FY 2015
FY 2016 (expected)

3.

Cash and cash equivalents ending―――

Year-end

End of Q3

Yen

Yen

―
―
―

0.00
0.00
0.00

AnnualNet assets
Payout ratio
dividend ratio(consolidated)(consolidated)

Yen

Yen

Million yen

%

%

5.00
0.00
0.00

5.00
0.00
0.00

42
―

111.6
―
―

2.5
―

Forecast of consolidated results for FY 2016 (From January 1, 2016 through December 31, 2016)
Operating income

Sales
Million yen

FY 2016

10,500% Million yen

12.1

140

Ordinary income% Million yen

―

100

―1―

(% of change from previous year)
Profit attributable to
Net income per shareowners of parent% Million yen

―

50

%

―

Yen

5.82

* Notes(1) Material changes in subsidiaries during the period (Changes in specified subsidiaries resulting in the: Yes
scope of consolidation)
New 2companies

Keyport Solutions, Inc.,(Company name)Profit Cube Inc.

Elimination ―company(Company name)(Note) For more details, please see “(5) Notes to consolidated financial statements (Significant matters related to the basis for
preparation of the consolidated financial statements)” at the page 18 of the attached documents.

(2) Changes in accounting policies and accounting estimates and retrospective restatement(i) Changes in accounting policies based on revisions of accounting standards : No(ii) Changes in accounting policies other than the above (i): None(iii) Changes in accounting estimates: None(iv) Retrospective restatement: None(3) Number of issued and outstanding shares (common stock)(i) Number of issued and outstanding shares at the FY 2015end of the period (including treasury stock)
FY 2015(ii) Number of treasury stock at the end of the period(iii) Average number of shares during the period

FY 2015

8,874,400shares

FY 20148,874,400shares

274,241shares

FY 2014281,641shares

8,598,621shares

FY 2014

8,773,147shares(Reference) Summary of unconsolidated results
1. Unconsolidated results for FY 2015 (From January 1, 2015 through December 31, 2015)(% of change from previous year)(1) Unconsolidated financial results
Sales

Operating income

Million yen%

Million yen

6,990
6,256

11.7
15.0

(63
156

FY 2015
FY 2014

Net income per share Basic―(0.3

Million yen

Net income
%

―
14.8

(52
298

Million yen

%

―
―

(102
150

Net income per share Diluted

Yen

Yen

―
17.08

(11.9617.10

FY 2015
FY 2014

Ordinary income%(2) Unconsolidated financial position
Total assets*

Equity ratio

Net assets per share

Million yen

Million yen

%

Yen

4,756
3,553

1,901
2,045

39.9
57.4

220.68237.53

FY 2015
FY 2014(Reference) Equity

Net assets

FY 2015

1,897million yen

FY 20142,041million yen

Audit procedures
・The financial results are not subject to the audit procedures based on the Financial Instruments and Exchange Law. As of therelease of the financial results, the audit procedures have not been completed for financial statements according to the
Financial Instruments and Exchange Law*

Proper use of earnings forecasts and other important matters
・Forward-looking statements, such as earnings forecasts included in this document, are based on currently available
information or certain assumptions that we thinks reasonable, and actual results may significantly differ due to various
factors. For assumptions used as the basis for earnings forecast and notes to use of earnings forecasts, please see “(1) Analysis
of Business Results” at the page 2 of the attached document
・We will hold the account settlement briefing for institutional investors and analysts on February 3, 2016. Materials for theaccount settlement briefing to be used on the day will be posted on our homepage immediately.

―2―

○Table of Contents of the Attached Document
1. Analysis of Business Results and Financial Positions ………………………………………………………………………….2(1) Analysis of Business Results ……………………………………………………………………………………………….2(2) Analysis of Financial Positions……………………………………………………………………………………………...4(3) Basic Policy for Profit Allocation and Dividends for the Current and Following Periods …………………………………5(4) Operational Risk, etc. ……………………………………………………………………………………………………….5
2. Corporate Group ………………………………………………………………………………………………………………..83. Management Policy …………………………………………………………………………………………………………….9(1) Basic Policy of Corporate Management ……………………………………………………………………………………9(2) Target Management Indices ………………………………………………………………………………………………...9(3) Mid- and Long-term Corporate Management Strategy ……………………………………………………………………..9(4) Corporate Issues to Be Dealt ………………………………………………………………………………………………..94. Basic View on Selection of Accounting Standards ……………………………………………………………………………..95. Consolidated Financial Statements ……………………………………………………………………………………………10(1) Consolidated Balance Sheet ……………………………………………………………………………………………….10(2) Consolidated Statements of Income and Consolidated Statements of Comprehensive Income …………………………..12(3) Consolidated Statements of Changes in Shareholders’ Equity ……………………………………………………………14(4) Consolidated Statements of Cash Flows …………………………………………………………………………………..16(5) Notes to Consolidated Financial Statements ………………………………………………………………………………18(Notes to going concern assumption) ………………………………………………………………………………………18(Significant matters related to the basis for preparation of the consolidated financial statements) ………………………..18(Notes to consolidated balance sheet) ……………………………………………………………………………………...20(Notes to consolidated statements of income) ……………………………………………………………………………...21(Notes to consolidated statements of comprehensive income) ……………………………………………………………..22(Notes to consolidated statements of changes in shareholders’ equity) ……………………………………………………22(Notes to consolidated statements of cash flow) …………………………………………………………………………...24(Notes to business combination) ……………………………………………………………………………………………24(Segment Information, etc.) ………………………………………………………………………………………………...29(Per-share information) ……………………………………………………………………………………………………..33(Significant subsequent events) …………………………………………………………………………………………….33
6. Unconsolidated Financial Statements …………………………………………………………………………………………34(1) Balance Sheet ……………………………………………………………………………………………………………...34(2) Statements of Income ……………………………………………………………………………………………………...36(3) Statements of Changes in Net Assets ……………………………………………………………………………………...37(4) Notes to Unconsolidated Financial Statements ……………………………………………………………………………39(Notes to going concern assumption) ………………………………………………………………………………………39
7. Other …………………………………………………………………………………………………………………………..40(1) Changes in Directors ………………………………………………………………………………………………………40―3―

1. Analysis of Business Results and Financial Positions(1) Analysis of Business Results＜Overview of the current consolidated fiscal year＞
Our group is engaged in continuing R&D investment, new business creation (including M&A), and strengthening competitiveness ofcore businesses to lead rapid changes in the market environment of the IT industry to achieve additional growth as indicated in themedium-term management strategy.
In the current consolidated fiscal year, the Group focused on development of machine learning technology(*1) as continuing R&D
investment.
As the first fruit of the development, IT operations analysis(*2) software SIOS iQ (*3) was launched in the United States and Japan in
July 2015.
With regard to new business creation (including M&A), we made Keyport Solutions, Inc. (hereinafter “KPS”), a developer ofapplications mainly for financial institutions, a subsidiary April 2015. We also made Profit Cube Inc. (hereinafter “PCI”), whichdevelops, sells, and maintains the ALM system(*4) for financial institutions, a subsidiary in October 2015. These helped us to build thesystem for launching new products and services in the potential high growth area Fintech.(*5)
With regard to strengthening competitiveness of core businesses, we focused on the support of the cloud(*7) through a major upgradeof LifeKeeper(*6)and feature expansion of software(*8) products for MFP.
Business results for segments are as follows:(Open system infra segment)
As a result of sales promotions, LifeKeeper, one of our core products, sales grew in all the areas of Japan, United States, Europe, andAsia/Oceania, and the Red Hat, Inc., products, including Red Hat Enterprise Linux (*9), also recorded a steady increase in sales due toexpansion of sales and marketing activities. Open source software(*10) (hereinafter “OSS”) support service and OSS-related products
achieved solid sales growth. As a result, sales amounted to 5,541 million yen (up 10.7% yoy).
In terms of profit and loss, the segment recorded a loss of 165 million yen (a loss of 37 million yen for the previous fiscal year) due toactive R&D investment with the aim of future contributions to revenues, including development of the IT operations analysis software
SIOS iQ.
(Web application segment)
The segment sharply increased sales due to the addition of KPS to the Web application segment in April 2015. A steady increase insales from software products for MFP sharply increased sales to 3,820 million yen (up 61.9% yoy). The SaaS (*11) Gluegent series(*12)linked to Google Apps showed a steady sales increase.
In terms of profit and loss, the sales growth pushed up the profit margin, but active R&D investment in functional enhancement ofsoftware products for MFP and the Gluegent series increased selling, general and administrative expenses. As a result, the segment
recorded income of 53 million yen (down 48.4% yoy).
As a result of the above, net sales sharply increased to 9,362 million yen, up 27.1% yoy for the current consolidated fiscal year.
Selling, general, and administrative expenses amounted to 3,463 million yen (up 23.1% yoy) as R&D expenses were 648 million yen(up 29.1%) due to active investment in R&D. Consequently, we recorded an operating loss of 111 million yen (operating income of 65
million yen for the previous consolidated fiscal year), ordinary loss of 127 million yen (ordinary income of 81 million yen), and net
loss of 179 million yen (net income of 39 million yen). The group’s key management indicator EBITDA (operating income +depreciation + amortization of goodwill) stood at -45 million yen (125 million yen).
(*1) Machine learning technology
The technology to give the computer the same learning ability as a human being and to explore beneficial information from avariety of data.
(*2) IT operations analysis
IT operations analysis to analyze the data from IT operations and convert the data into practical and clear information.
(*3) SIOS iQ
The product to comprehensively supervise, analyze, and optimize operations of applications in the virtual and cloudenvironments and seek to improve performance and efficiency and secure credibility for resolving complex issues.

―4―(*4) ALM system
The system to manage the risks of assets and liabilities of financial institutions.
(*5) Fintech
The new technology developed by mixing finance with technology.
(*6) LifeKeeper
The software to play a role of reserving another backup server in the same environment as a server in operation andautomatically making the backup server take over services in the event of an unusual failure.
(*7) Cloud
The service to provide data and software, which users had conventionally used on the computer available, online.
(*8) Software for MFP
MFP (abbreviation for multi-function peripheral) represents the equipment with multiple functions of a printer, scanner,copier, and facsimile. We develop, sell, and maintain Quick Scan and Speedoc, the document management software running on
MFP.
(*9) Red Hat Enterprise LinuxLinux OS developed by the open solution provider Red Hat, Inc.
(*10) Open source software
Software where the source code, the design of the software, is freely available and can be used, updated, and redistributed.
(*11) SaaS
The service to provide software online and enable users to use what they need as needed.
(*12) Gluegent series
The service to support companies’ optimization of businesses with the cloud using Gluegent Flow, which enables thecompanies to execute internal workflows in the cloud, and Gluegent Apps Group Scheduler, a Google Calendar app with thefunction to manage the schedule of team members.
＜Outlook for the Following Period＞
Also for the following period (FY 2016), our group will be continuously engaged in continuing R&D investment and strengthening
the competitiveness of core businesses. It will also aim at new business creation in new areas including Fintech, using KPS and PCI,
which were made a subsidiary in the current period (FY 2015). Following the current fiscal year, it will be actively engaged in M&A.
For R&D, we will continue to actively invest in machine learning technology with the aim of expanding the functions of SIOS iQ
released July 2015 and starting to offer new products and services in new areas including Fintech. We will also continuously invest in
strengthening the functions of our core product LifeKeeper, a software product for the MFP Gluegent series, and PCI’s software
products for financial institutions.
For the following period, the planned R&D expenses are 880 million yen in total (up 35.8% from the current consolidated fiscal year)
Given the above, for consolidated business results for the following period, we expected sales of 10,500 million yen (up 12.1% fromthe current consolidated fiscal year), sales growth for sixth consecutive period.
For items stated after operating profit or loss, because of the promotion of rationalization resulting from the tighter cooperation within
the group and an increase in the composition ratio of higher-margin in-house products despite continuously estimated increase in R&D
expenses, we expect to turn into the black with operating income of 140 million yen (operating loss of 111 million yen for the current
consolidated fiscal year), ordinary income of 100 million yen (ordinary loss of 127 million yen) and net income attributable to theowners of the parent of 50 million yen (net loss of 179 million yen). EBITDA is estimated to be 300 million yen (-45 million yen).

―5―(2) Analysis of Financial Positions＜Assets, liabilities and net assets＞(i) Assets
Current assets amounted to 3,901 million yen (up 20.0% from the end of the previous consolidated fiscal year) due to anincrease in cash and deposits, notes and accounts receivable-trade, work in progress, and advance payment of 224 million yen,
418 million yen, and 92 million yen, respectively, and a decrease in the advance payment of 54 million yen.
Fixed assets amounted to 1,741 million yen (up 334.4%) due to an increase in goodwill and investment securities of 831 million
yen and 190 million yen respectively.
As a result of the above, total assets amounted to 5,642 million yen (up 54.5%).
(ii) Liabilities
Current liabilities amounted to 2,872 million yen (up 61.0% from the end of the previous consolidated fiscal year) due to anincrease in accounts payable-trade, short-term loans payable, the current portion of long-term loans payable and advance receivedof 193 million yen, 240 million yen, 152 million yen and 271 million yen, respectively.
Fixed liabilities amounted to 1,230 million yen (up 815.0%) due to an increase in long-term loans payable and deferred tax
liabilities of 971 million yen and 68 million yen, respectively.
As a result of the above, total liabilities amounted to 4,102 million yen (up 113.9%).
(iii) Net assets
Total net assets amounted to 1,539 million yen (down 11.2% from the end of the previous consolidated fiscal year) due todividends paid of 42 million yen and net loss of 179 million yen.
＜Cash flow＞
For the current consolidated fiscal year, the balance of cash and cash equivalents (hereinafter “cash”) increased to 2,045 million
yen, up 163 million yen from the end of the previous consolidated fiscal year.
For the current consolidated fiscal year, by section, cash flow is as follows:(Cash flow from operating activities)
Net cash provided by operating activities amounted to 168 million yen (gain of 401 million yen for the previous period) due to net
loss before income taxes of 145 million yen, depreciation of 59 million yen, loss on equity method investment of 46 million yen,
an increase in notes and accounts payable-trade and advances received of 99 million yen and 77 million yen, respectively, a decline
in advance payment of 54 million yen, an increase in accounts payable-other of 43 million yen and income taxes paid of 154
million yen.
(Cash flow from investing activities)
Net cash used in investing activities amounted to 996 million yen (use of 223 million yen for the previous period) due to proceedsfrom the withdrawal of time deposits of 100 million yen, purchase of shares of a subsidiary resulting in changes in the scope of
consolidation, and the acquisition of investment securities of 924 million yen and 670 million yen, respectively and revenues fromthe sale of investment securities of 573 million yen.
(Cash flow from financing activities)
Cash provided by financing activities amounted to 988 million yen (use of 145 million yen for the previous period) due to cash
dividends paid of 42 million yen, proceeds from long-term loans payable of 1,060 million yen, and expenditures for payment oflong-term loans payable of 33 million yen.
(Reference) Trends of cash flow-related indices
FY 2011

FY 2012FY 2013

FY 2014

FY 2015

Equity ratio (%)

51.1

50.2

54.7

47.1

26.6

Equity ratio on a market value basis (%)

50.4

86.2

196.3

120.3

79.7

Ratio of interest-bearing debts to cash flow (%)

0.1

0.1

0.1

0.0

8.1

150.8

742.2

188.6

1,652.8

100.6Interest coverage ratio (multiple)

Equity ratio: Equity capital/total assets
Equity ratio on a market value basis: Market capitalization/total assets
Ratio of interest-bearing debts to cash flow: Interest-bearing debts/cash flow
Interest coverage ratio: Cash flow/interest payments(Note 1) All indices are based on consolidated financial figures.
(Note 2) Market capitalization is based on the number of outstanding shares issued excluding treasury shares.
(Note 3) Interest-bearing debts include all debts with their interests being paid among those recorded on the consolidated balance sheet.

―6―(3) Basic Policy for Profit Allocation and Dividends for the Current and Following Periods
The Company has the basic policy for maintaining payments of dividends according to business results with ensuing required internal
reserves in light of business results, financial positions, and future business deployment.
For the current period (FY 2015), as announced on February 2, 2015, we made no dividends and prioritized R&D activities to seek
achievement of the medium-term management plan. For the following period (FY 2016), we will record net income attributable toowners of the parent, but we intend to make no dividends but prioritize investment in R&D toward further growth in future.

(4) Operational Risks
The following describes the main matters we think have a significant effect on decisions of investors in respect of the risk of businessdeployment of our group. Also for matters not applicable to such risk factors, those we think significant in investment decisions andthe understanding of our group’s business activities are described from the viewpoint of aggressive information disclosure to investors.
Our group will strive to avoid these risks and deal with these risks if occurring after recognizing the potential occurrence of theserisks. We think it necessary to make decisions on investment in our shares after carefully examining the matters stated in this item andmatters other than this item stated herein. Please note that those stated below do not comprehensively cover all risks related toinvestment in shares of the Company.
(i) Intellectual property of software
Some companies insist that the free software open for public consumption and OSS violate intellectual property, including
copyrights and patents.
Our group closely watches the activities of the companies conducting these litigation acts. If these arguments were accepted,
our group would be forced to review its OSS-related business. This could affect the business results of our group. The group has
not yet experienced a claim for damages or an injunction involving property rights including copyrights, but it is difficult tocompletely understand the current state of intellectual property rights in our group’s business areas, and so there is the possibility
that other companies have patents beyond our group’s knowledge. It is possible that a third party’s patents will be newly
established in the business areas of our group and a claim for loss or an injunction on use is filed against the group. This could
affect the business results of our group.
(ii)

Competition
The IT industry is experiencing severe competition as large- and small-sized system integrators, computer manufacturers, andsoftware vendors(*13) operate business in their specialized business areas and technology areas and in their experienced and provenindustries.
Our group will strive to further strengthen the systems for development and sales, but competition with existing competitors andentry of new competitive companies weaken our advantage and could affect the business results of our group.
(*13) Software vendors
It means companies providing application software with no special relationship to specific hardware manufacturers or OS(operating system) developers.

(iii) New businesses
Our group operates business in the global IT industry where new technologies are developed every day. To maintain businesses
under such an environment, the group needs to create businesses corresponding to the new needs of the market, establish
subsidiaries and affiliates, and actively develop new products and services. In a case where changes in the internal and externalbusiness environment prevent an advance as planned, the group may review the plan (including changes in development andmarketing plans). They may be suspended when we determine them unprofitable in light of business plans.
To create new businesses and develop new products and services, our group may make a prior investment. If funds were notraised for the prior investment, they could not be conducted as planned. This could have an effect on the financial positions andbusiness results of our group.

―7―

(iv) Fluctuations in exchange rates
Our group sells and purchases some products in the US dollar and converts revenues and assets of overseas subsidiaries into theyen on the consolidated financial statements. Fluctuations in exchange rates may have an effect on the profit and loss and thefinancial positions of our group. We take effective measures to avoid such risks, but larger-than-expected fluctuations in
exchange rates could have an effect on the business results of our group when we cannot avoid such risks.
(v) Business system of our group
1) Securing human resources
For further growth in the future, our group needs to develop new technologies toward the next generation in an open
system infra business and application business and consider securing and developing superior human resources as asignificant task. Our group had given top priority to securing human resources and strived to keep an optimal personnel
composition.
If our group failed to hire and develop human resources as planned, our business system would be weakened. This could
have a negative effect on the business strategy and the business results of our group.
2) Dependency on specific persons
The businesses of our group are driven by the Representative Director and President Nobuo Kita. He plays a significant
role in determining management policy and general management strategy of our group, and then it is considered that thegroup significantly depends on him.
Our group promotes delegation of authority within the management system, increases members of the management
system to strengthen the management organization following the expansion of business scale while it strives to increaseorganizational strength by recruiting experts and experienced persons in various areas according to the expansion ofbusiness areas. In respect of the execution of daily operations, the “executive board” and the “management council”, which
consist of executive officers, were established. The group establishes the system not excessively depending on theindividual competence of the President Kita by granting the deliberation function for daily operations to these systems.
Those with rich experience in the IT sector were externally brought on to the Board of Directors to get sound advice.
We will continue to secure superior human resources to build a management system not excessively depending on thepresident and focus on an improvement in the quality of officers and employees. If it was difficult for the president to beengaged in the management of our group for any reason before achieving construction of the system and improvement in
human resources as planned, the business strategy and the business results of our group could be negatively affected.
(vi) Subsidiaries
Our group makes capital subscription and acquires corporations to lead changes in the market environment of the IT sector. The
Company will continue to seek further growth in business results by developing new products and services through a
combination of management resources of investees and subsidiaries, including technology, sales capacity, and management
know-how. Weak business results of investees and subsidiaries may have an effect on the business results of our group. Ifchanges in the business environment and competition surrounding investees and subsidiaries bring about obstacles to implementbusiness plans as planned, impairment loss will arise in goodwill. This may have an effect on the business results of our group.
(vii) Corporate buyout and strategic alliance
Our group, in the course of business expansion, may invest in other companies through corporate buyouts or strategic alliances.
In making such decisions, the group does detailed due diligence on business activities, contracts, and financial composition ofpotential acquisitions and examines them in order to avoid risks, but the occurrence of contingent/unrecognized liabilities,
unexpected weak business results, and disappointing results of measures after corporate buyouts or strategic alliances could havean effect on the financial positions and business results of our group.
(viii) Stock options
To improve officers’ and employees’ willingness to contribute to our businesses and their awareness of participating inbusiness management, the Company adopts the stock option plan using equity warrants. Specifically, there is the stock option
plan in the company based on a resolution approved by the Board of Directors as of May 13、2014 and May 20, 2015.
The exercise of stock options would dilute the value of shares of our group per share. The balance of supply and demand may
fluctuate for the short term depending on the equity price of our group, and this has an effect on stock prices.
Our group may grant stock options as an incentive plan in future to motivate officers and employees and secure superior
human resources. Additional grants of stock options could dilute the value of shares.

―8―

(ix) Relationship to Otsuka Corporation
Otsuka Corporation (hereinafter “Otsuka”) is the largest shareholder with 18.53% of voting rights of the Company as ofDecember 31, 2015, and falls into the category of Other Affiliate. The Company has a tight business relationship with Otsuka,
but there is no restriction on fundraising and business management. Decisions are made under the responsibility of our groupensuring the independence of management. The Company will seek to increase transactions with Otsuka, but if there was any
problem in cooperation with Otsuka for any reason or if Otsuka changed its cooperative system with the Company due tochanges in its management policy, this could have an effect on the business results of our group.
(x) Managerially significant contracts
Our group considers the following contract in its businesses a managerially significant contract. If the contract were notrenewed, this would have significant effect on the business results of the group.
Name of contracting company: SIOS Technology, Inc.
Name of counterparty: Red Hat K.K. (subsidiary of Red Hat, Inc.)
Term of contract: One year from July 1, 2010 (after then, automatically renewed every year)
Details of contract: Contract to sell products of Red Hat K.K. (“Distribution contract”)―9―2. Corporate Group
Clientcompanies

The Company
Sales/Provision

Purchase
LifeKeeper
Open system infra business

Red Hat, Inc.-related
products

Consolidated subsidiary
Sales/Provision
SIOS Technology Corp.

Sales/Provision

Consolidated subsidiary
Sales/Provision
SIOS (Beijing) Technology Inc.

SIOS OSS Yorozu
Soudanshitsu
Sales/Provision
Information System
Consulting Service andothersSales/Provision

Distribution partner

Other affiliate

Sales/Provision

Sales/Provision

Otsuka Corporation

Sales/Provision
Purchase/Contract

Purchase
Development
commission

Consolidated subsidiary

Sales/Provision

Gluegent, Inc.
Japan
Development
commission
Consolidated subsidiary

Americas
Sales/Provision

EuropeAsia

Kanshin! Inc.

Other

Web application business

Software products for
MFP

Consolidated subsidiary
Glabio, Inc.

Gluegent series

Development
commission
Equity method affiliate

Development and provisionof products and services
for financial institutions

Sales/Provision

BayPOS, Inc.
Information system
consulting and otherservices

Consolidated subsidiary

Sales/Provision

Keyport Solutions, Inc.

Consolidated subsidiary

Sales/Provision

Profit Cube Inc.

Sales/Provision

Distribution partner

Sales/Provision―10―

Sales/Provision

3. Management Policy(1) Basic Policy of Corporate Management
Our group seeks further growth by setting the following items as the basic policy of the medium-term management strategy.
(i) Continuing R&D investment(ii) Strengthening competitiveness of core businesses(iii) New business creation in new areas including Fintech(2) Target Management Indices
Our group aims at achieving mid- and long-term development to grow into an entity reliable to society under a daily changing
business environment. The group seeks further growth and strengthening of the business base by setting the two indices (i) salesand (ii) EBITDA as its significant management index.

(3) Mid- and Long-term Corporate Management Strategy
Our group will continue to make investment for achieving mid- and long-term growth based on the basic policy for corporate
management. Specifically, the group will do R&D in new areas, including machine learning technology and Fintech, while it will
promote continuing R&D investment in core businesses of OSS-related products, LifeKeeper, software products for MFP, Google
Apps linked- SaaS Gluegent series, software products of PCI, and strengthening of marketing and sales capabilities.
The group sets the target to achieve sales of 10.5 billion yen, 12.0 billion yen and 14.0 billion yen and EBITDA of 0.3 billion yen,
0.5 billion yen and 0.7 billion yen for FY 2016, FY 2017 and FY 2018, respectively, because of these measures.

(4) Corporate Issues to Be Dealt
Our group thinks as main issues (i) globally securing human resources, (ii) strengthening group management, (iii) promotion of
global business expansion, and (iv) strengthening compliance management. Specifically, the group will deal with the following
items.
(i) Globally securing human resources
Our group globally operates businesses in Japan, as well as the Americas, Europe, and the Asia/Oceania region. To achieve
further growth in each area, it is essential to secure superior human resources. Therefore, the group will secure diverse
human resources without regional restrictions.
(ii) Strengthening group management
Our group provides optimal products and services according to the issues and needs of business and operations of clientcompanies and seeks to maximize synergy on a group-wide basis by sharing and using advanced know-how and expertise of
the group companies. The group also strives to reduce cost increases by standardizing and consolidating common operations
and systems scattered within the group. It will continuously seek to maximize its value including costs.
(iii) Promotion of global business expansion
Our group will increase global competitiveness by expanding the sales channel in the United States, Europe, and Asia andstrengthen R&D in the United States.
(iv) Strengthening compliance management
In addition to the strong promotion of the above-mentioned items (i)-(iii), our group will strive to promote fair andtransparent business management by further strengthening compliance management.

4. Basic View on Selection of Accounting Standards
Our group will prepare consolidated financial statements based on Japanese accounting standards at the moment, taking accountthe comparability of consolidated financial statements over periods and companies. The group will appropriately implement
application of IFRS given situations on the application in Japan and overseas.

―11―

5. Consolidated Financial Statements(1) Consolidated Balance Sheet(Unit: thousand yen)
FY 2014(as of December 31, 2014)

FY 2015(as of December 31, 2015)

AssetsCurrent assets
Cash and deposits

1,982,108*3 2,206,352

Notes and accounts receivable-trade
Merchandise

927,9788,786

1,346,277-

Work in progress
Advance payment

22,221
161,063*1 114,680

Other
Allowance for doubtful accounts

149,064

127,536

(200)

(200)

Total current liabilities

3,251,022

Fixed assets
Tangible fixed assets
Buildings
Accumulated depreciation

106,473

3,901,120

95,075

168,445(32,726)(75,604)(169,421)(308,406)

Accumulated depreciation-

Lease assets (net)

-

(247)

Buildings (net)62,349Tool, furniture and fixtures

209,952

Accumulated depreciation
Tool, furniture and fixtures (net)40,530

Lease assets-

92,841

374,528

66,121
6,089
5,842

Construction in progress

2,505

Total tangible fixed assets

105,386

164,805-

Goodwill
Software in progress

6,970
47,423

838,787
11,425

Other

19,276

237,046

Total intangible fixed assets

73,6691,087,259

Investment securities
Net defined retirement assets

54,773-*2 244,983

Guarantee deposits
Other

166,657449

216,140
7,193

Intangible fixed assets

Investment and other assets

Allowance for doubtful accounts-

Investment and other assets
Total fixed assets
Total assets―12―

26,249(5,071)

221,880

489,494

400,936

1,741,559

3,651,958

5,642,680

(Unit: thousand yen)
FY 2014(as of December 31, 2014)

FY 2015(as of December 31, 2015)

Liabilities
Current liabilities
Accounts payable-trade350,106

543,741

3,108*3 240,000

Lease obligations
Income taxes payable

107,227

1,244
28,450

Advance received
Reserve for bonuses

1,068,860-

1,339,886
26,6782,763
251,687*1 2,515

534,409

1,783,753

2,872,367

3,040
204

974,765
68,814

115,400-

158,985
5,132

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

Reserve for loss on orders received
Other
Total current liabilities

155,442

Fixed liabilities
Long-term loans payable
Deferred tax liabilities
Net defined benefit liabilities
Lease obligations
Other

15,81422,653

Total fixed liabilities

134,459

1,230,351

1,918,213

4,102,719

1,481,520
476,233

1,481,520
474,415

26,358(119,329)(195,609)(116,194)

368

1,420

(144,398)(143,423)-

15,551

Total liabilities
Net assets
Shareholders’ equity
Capital stock
Capital surplus
Retained earnings
Treasury stock
Total shareholders’ equity

1,864,782

Accumulated other comprehensive income
Valuation difference on available-for-sale securities
Foreign currency translation adjustment(144,029)

Total accumulated other comprehensive income
Equity warrants

12,992

Minority interests
Total net assets
Total liabilities and net assets―13―

1,644,131(142,002)
22,281

1,733,745

1,539,961

3,651,958

5,642,680

(2) Consolidated Statements of Income and Consolidated Statements of Comprehensive Income
Consolidated Statements of Income

Sales
Cost of sales

FY 2014(From January 1, 2014
through December 31, 2014)
7,367,860*1 4,489,276

Gross margin(Unit: thousand yen)
FY 2015(From January 1, 2015
through December 31, 2015)
9,362,562*1 6,011,232

2,878,583

3,351,330*2,*3 2,813,204*2,*3 3,463,132

Operating income (loss)

65,379Non-operating revenues
Interest income

1,964(111,802)

Dividends income
Exchange gain

155
12,911

120
21,838Compensation received
Other

2,759

10,0003,624

Total non-operating revenues

17,791

37,416

240

1,680

1,368
-

3,864
46,461

111

824

Selling, general and administrative expenses

Non-operating expenses
Interest expenses
Loss on investment of investment partnership
Investment loss on the equity method
Other
Total non-operating expenses

1,833

1,720

52,831

Ordinary income (loss)

81,450Extraordinary income
Gain on sale of investment securities

88,776(127,217)

Gain from negative goodwill
Gain on reversal of equity warrants

100

14,372
1,330

-

3,000
10

88,877

26,882

432-

Gain on changes in equity
Gain on sale of fixed assets
Total extraordinary gain
Extraordinary loss
Loss on sale of shares of subsidiaries and affiliates
Loss on sale of fixed assets
Loss on retirement of fixed assets

8,169*4 180-*5 13*5 678Loss on valuation of golf club membership
Loss on withdrawal from employees’ pension fund-

*6 12,968

Settlement money-*7 29,108

Total extraordinary loss

2,358

625

45,113

Net income (loss) before income taxes

169,702

Income taxes-current
Income taxes-deferred

104,785
26,356(145,448)

Total income taxes

131,141

30,559Net income (loss) before minority interests

38,560Minority interests in income (loss)(743)(176,007)

Net income (loss)

39,304―14―

30,559―2,996(179,003)

Consolidated Statements of Comprehensive Income
FY 2014(From January 1, 2014
through December 31, 2014)
38,560Net income (loss) before minority interests
Other comprehensive income
Valuation difference on available-for-sale securities

368

Foreign currency translation adjustment(Unit: thousand yen)
FY 2015(From January 1, 2015
through December 31, 2015)(176,007)
1,051

76,404975* 76,772* 2,027

Comprehensive income

115,333(Comprehensive income attributable to)Comprehensive income attributable to owners of the parent

116,076(173,980)

Total other comprehensive income

Comprehensive income attributable to minority shareholders

―15―

(743)

(176,950)
2,969

(3) Consolidated Statements of Changes in Shareholders’ Equity
FY 2014 (From January 1, 2014 through December 31, 2014)(Unit: thousand yen)
Shareholder’s equity
Capital stock
Balance at beginning of period

Capital surplus

1,481,520

Retained earnings

476,557

Treasury stock(20,582)

30,997

Changes during period

Net income (loss)(43,943)

39,30439,304(99,995)

Purchase of treasury stock(323)

Disposal of treasury stock
Changes in items other than shareholders
equity during period (net)

Balance at end of period

1,481,520(4,639)476,233(98,747)

Foreign currencytranslation adjustment

Total accumulated othercomprehensive income-(220,802)(220,802)

Dividend from surplus-

Net income (loss)-

Purchase of treasury stock-

Disposal of treasury stock-

Changes in items other thanshareholders equity during period (net)(103,710)(119,329)

26,358Valuation difference on
available-for-sale securities

Changes during period

925
-

(323)

-

(99,995)

1,248

Accumulated other comprehensive income

Balance at beginning of period

1,968,492(43,943)

Dividend of surplus

Total changes during period

Total shareholders’equity1,864,782

Equity Minority Total net
warrants interests
assets
2,502

1,755

(43,943)

39,304(99,995)

925

368

76,404

76,772

10,490Total changes during period

368

76,404

76,772

10,490(1,755)

Balance at end of period

368(144,398)(144,029)

12,992-―16―

1,751,948(1,755)85,507(18,202)

1,733,745

FY 2015 (From January 1, 2015 through December 31, 2015)(Unit: thousand yen)
Shareholder’s equity
Capital stock
Balance at beginning of period

Capital surplus

1,481,520

Retained earnings

476,233

Treasury stock(119,329)

26,358Changes during period(42,963)(179,003)

Net income (loss)
Purchase of treasury stock(179,003)-(1,818)

Disposal of treasury stock
Changes in items other than shareholders
equity during period (net)

Balance at end of period

1,481,520

3,135(1,818)(221,967)(220,651)

3,135(195,609)

474,415(116,194)

Valuation difference on
available-for-sale securities

Foreign currencytranslation adjustment

Total accumulated othercomprehensive income

368(144,398)(144,029)

Changes during period

1,316
-

Accumulated other comprehensive income

Balance at beginning of period

1,864,782(42,963)

Dividend from surplus

Total changes during period

Total shareholders’equity1,644,131

Equity Minority Total net
warrants interest
assets12,992-

1,733,745(42,963)

Dividend of surplus-

Net income (loss)-

Purchase of treasury stock-(179,003)

Disposal of treasury stock

-

1,316

Changes in items other thanshareholders equity during period (net)

-

1,051

975

2,027

9,288

15,551

26,866

Total changes during period

1,051

975

2,027

9,288

15,551

Balance at end of period

1,420(143,423)(142,002)

22,281

15,551(193,784)―17―

1,539,961

(4) Consolidated Statements of Cash Flows(Unit: thousand yen)
FY 2015(From January 1, 2015
through December 31, 2015)

FY 2014(From January 1, 2014
through December 31, 2014)
Net cash provided by (used in) operating activities
Income (loss) before income taxes

169,702

Depreciation and amortization
Amortization of premiums

56,942
222

Amortization of goodwill
Increase (decrease) in allowance for doubtful accounts

2,861
(290)
(4,137)

Increase (decrease) in reserve for loss on orders received
Interest and dividends income(2,119)240

Compensation received
Interest expenses(1,795)
1,368

Exchange loss (gain)
Loss (gain) on investment of investment partnership
Investment loss (gain) on the equity method
Gain from negative goodwill

-

(100)
-

Gain on reversal of equity warrants
Loss (gain) on changes in equity
Loss (gain) on sale of shares of subsidiaries and affiliates
Loss (gain) on sale of investment securities

432(88,776)
13
180

Loss on retirement of fixed assets
Loss (gain) on sale of fixed assets
Loss on valuation of golf club membership
Settlement money
Decrease (increase) in notes and accounts receivable-trade
Decrease (increase) in inventories
Increase (decrease) in notes and accounts payable-trade
Increase (decrease) in net defined benefit liabilities
Increase (decrease) in advance received
Decrease (increase) in advance payment
Increase (decrease) in notes and accounts payable-other
Decrease (increase) in notes and accounts receivable-other

Sub-total

6,192(6,863)(1,953)(10,000)
1,680(1,792)
3,864
46,461(14,372)(1,330)(3,000)(8,169)
678

-

(10)
2,358
29,108(77,939)(40,372)

152,522

77,30854,583(7,451)
118,573
2,869(39,609)16,85015,467(11,206)
49,659

Increase (decrease) in consumption taxes payable
Other(145,448)
59,687
118

354,481(4,954)99,561
20,52243,045(405)
79,72958,647
344,875

Interest and dividends income

2,122

1,955

Interest expenses paid
Compensation money paid

(242)
-

(1,680)7,000

Settlement money paid
Income taxes refund

47,115(2,244)

Income taxes paid
Net cash provided (used in) operating activities

401,231―18―(29,108)-(154,090)
168,952

(Unit: thousand yen)
FY 2014(From January 1, 2014
through December 31, 2014)

FY 2015(From January 1, 2015
through December 31, 2015)(100,000)-

100,000

Net cash provided by (used in) investing activities
Payment into time deposits
Proceeds from withdrawal of time deposits
Purchase of tangible fixed assets(21,910)(14,773)

3,585(3,958)-(45,061)(368)
170

Purchase of intangible fixed assets
Placement of guarantee deposits pledged
Proceeds from collection of guarantee deposits pledged
Purchase of golf club membership
Proceeds from business transfers
Sale of shares of subsidiaries resulting in changes in the scope of consolidation
Purchase of shares of subsidiaries resulting in changes in the scope of consolidation(6,084)-Purchase of shares of subsidiaries and affiliates(55,690)
1,856

Purchase of investment securities
Proceeds from sales of investment securities
Other(223,504)

Net cash used in investing activities
Net cash provided by (used in) financing activities(43,175)(99,995)-

Cash dividends paid
Purchase of treasury stock
Payment from minority shareholders
Proceeds from long-term loans payable
Repayment of long-term loans payable
Repayment of lease obligations
Proceeds from exercise of stock option
Proceeds from issuance of equity warrants
Net cash provided by (used in) financing activities

Increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of period
Increase in cash and cash equivalents resulting from mergers
Cash and cash equivalents at end of period

―19―

-

(924,270)(27,552)(670,255)
573,940394(996,543)(42,846)-

3,000
1,060,000(5,308)
(954)
204
3,890

(33,888)-(145,339)

988,444

149,097

162,531

1,733,011

1,882,108

116,709

Effect of exchange change rate on cash and cash equivalents(29,784)(3,200)
2,916

1,258
921
1,678

-

712

*1 1,882,108*1,*2 2,045,352

(5) Notes to Consolidated Financial Statements(Notes to going concern assumption)
Not applicable1(Significant matters related to the basis for preparation of the consolidated financial statements)
Matters related to the scope of consolidation(1) Number of consolidated subsidiaries: 8 companies
SIOS Technology Corp.
Gluegent, Inc.
SIOS (Beijing) Technology Inc.
Kanshin!, Inc.
Glabio, Inc.
Keyport Solutions, Inc.
Agrion Creative Office Co., Ltd.
Profit Cube Inc.
For the current consolidated fiscal year, Keyport Solutions, Inc., and its subsidiary Agrion Creative Office Co., Ltd., were
included in the scope of consolidation as a result of the purchase of shares of Keyport Solutions.
In addition, ARS Holding Co., Ltd. (hereinafter “ARSHD”) and its subsidiary Profit Cube Inc. (hereinafter “PCI”) were added
to the scope of consolidation due to the purchase of shares of ARSHD. ARSHD was excluded from the scope of consolidation
because the company was dissolved due to the absorption-type merger with the Company being a surviving company on
December 31, 2015.
For PCI, only consolidated balance sheets were consolidated for the current period because the company sets the deemed dateof acquisition as the end of the current consolidated fiscal year.
(2)

Names of unconsolidated subsidiaries
Not applicable

2

Maters related with application of equity method(1) Unconsolidated subsidiaries applying equity method
Not applicable(2) Number of affiliates applying equity method: 2 companies
BayPOS, Inc.
K-ZONE Corp.
For the current consolidated fiscal year, BayPOS, Inc., was included into the scope of application of the equity method as aresult of a joint venture established with Plenus Company Limited in the United States. K-ZONE Corp., the affiliate of Keyport
Solutions, Inc., was included into the scope of application of the equity method as a result of the acquisition of Keyport Solutions.
K-ZONE Corp. was remained from Fanet Corp. on October 1, 2015.
(3) Unconsolidated subsidiaries and affiliates not applying equity method
Not applicable

3

Matters related to accounting period of consolidated subsidiaries
The settlement date of consolidated subsidiaries is the same as the consolidated settlement date.

4

Matters related to accounting standards(1) Basis and method of valuation for significant assets(i) Securitiesa.
Shares of subsidiaries and affiliates
Stated at cost based on the moving average method

―20―

b.

(ii)

(2)

Other securitiesThose without market value
Stated at cost based on the moving average method
Investment in limited partnerships for investment and similar partnerships (those deemed as securities
according to the Article 2, Paragraph 2 of the Financial Instruments and Exchange Act) is valued by the methodof calculating an amount equal to the equity on net based on the latest financial statements available according
to the settlement report date as stipulated in the partnership contracts.

Inventories
Inventories held for saleStated at cost (The balance sheet amount is adjusted by writing down the book value where the profitability
declines)a.
Merchandise
Mainly stated at cost based on the moving average method, but stated at cost based on the specificidentification method for some consolidated subsidiaries.
b.
Work in progressStated at cost based on the specific identification method.

Depreciation method for significant depreciable assets(i) Tangible fixed assets (excluding lease assets)
The Company and its domestic consolidated subsidiaries apply the declining balance method while overseas
consolidated subsidiaries apply the straight-line method based on the provisions of the local accounting standards.
The major useful lives are as follows:
Building
3-18 years
Tool furniture and fixtures
3-15 years
The assets acquired on or before March 31, 2007 are equally depreciated over five years from the year following thecompletion of depreciation to the allowed depreciation limit.
(ii)

Intangible fixed assets (excluding lease assets)a.
Software for sale
The method is applied of comparing the depreciation amount based on sales volume estimated for theestimated selling period (three years or less) with the amount equally allocated based on the residual period
available for sale to record the greater amount.
b.
Software for own use
The straight-line method is applied over internally usable period (5 years or less)(iii) Lease assets
Lease assets in finance leases that do not transfer ownership to the lease
Lease assets are depreciated using the straight-line method over the corresponding lease term as useful lives with
their residential values to be zero.
(iv) Long-term prepaid expenses
The straight-line method is applied.
(3)

Accounting for significant allowance and reserves(i) Allowance for doubtful accounts
To prepare for loss on bad debts, the allowance for general accounts is provided using the rate of past bad debt
experience and the allowance for specific accounts, such as doubtful accounts receivable, is provided for an
estimated amount considered uncollectable after reviewing the individual collectability of the accounts.
(ii) Reserve for bonuses
For payment of bonuses to employees, the reserve for bonus is provided for an amount payable for the current fiscal
year, based on estimated amount of payment.
(iii) Reserve for loss on orders received
To prepare for future loss on orders received, the reserve for loss on orders received is provided for the estimatedloss for contracts in a case that future loss is expected at the end of the current consolidated fiscal year and such loss
can be reasonably estimated.

―21―

(4)

Accounting methods of retirement benefits
For calculation of net defined benefit liabilities and retirement benefit expenses, the Company and some consolidated
subsidiaries apply the simplified method that retirement benefits to voluntary retirees required to be paid at the end of year
are deemed as retirement benefit obligations. Some domestic consolidated subsidiaries apply to corporate pension plan thesimplified method that actuarial obligations in the latest pension financing calculation are deemed as retirement benefit
obligations.
(Additional information)
The Company and some consolidated subsidiaries decided to transfer the amount funded to the existing defined benefit
corporate pension plan after October 1, 2015, to the defined contribution pension plan in the current consolidated fiscal year.
Loss on the transfer of 12,968,000 yen was recorded in extraordinary loss.
(5)

Recognition standards for significant revenues and expenses(i) Recognition methods for sales and cost of sales of software developed on a contract basisa.
Contracts that the outcome is considered sure for the portion completed by the end of the current consolidated
fiscal year.
Percentage of completion method (The progression rate is estimated based on the cost proportion method.)b.
Other contracts
Completed contract method(6)

Significant hedge accounting methods(i) Hedge accounting methods
When the requirements for the designated hedge accounting are satisfied, the designated hedge accounting isapplied to the hedge against currency risk. Exchange contracts for hedging transactions corresponding to plannedtransactions at the end of the current consolidated fiscal year are accounted for using the designated hedge
accounting.
(ii) Hedging instruments and hedged items
The following shows the hedging instruments and hedged items accounted for by hedge accounting for the current
consolidated fiscal year.
Hedging instrument: Forward exchange contract
Hedged items: Notes and accounts payable in foreign currencies arising from import of merchandise and raw
materials(iii) Hedging policy
Hedge is used to avoid the risk exposure to fluctuations in foreign currency exchange rates for foreign currency
denominated liabilities and improve net financial revenue.
(iv) Method for assessment of hedge effectivenessHedge effectiveness is determined by comparing accumulated fluctuations in hedging instruments with those inhedged items.

(7)

Method and term of amortization of goodwill
Goodwill is equally amortized over the estimated period that it becomes effective.

(8)

Scope of cash in the consolidated statements of cash flow
Cash includes cash on hand, deposits withdrawable at any time, and short-term investment with only limited risk
exposure to changes in value and due within three months from the acquisition date.

(9)

Other significant matters for preparation of the consolidated financial statements
Consumption taxes are accounted for based on the tax-exclusion method.

(Notes to consolidated balance sheet)*1. For contracts received with estimated losses, inventories and reserve for loss on orders received are not offset but stated on agross basis.
Amount of the inventories corresponding to the reserve for loss on orders received
FY 2014
FY 2015(as of December 31, 2014)(as of December 31, 2015)
Work in progress―thousand yen―22―

6,278 thousand yen

*2.

Investment securities of unconsolidated subsidiaries and affiliates are:
FY 2014(as of December 31, 2014)―thousand yen

Investment securities (stock)*3.

FY 2015(as of December 31, 2015)
119,991 thousand yen

Secure assets and secured debts
The assets pledged as collateral are:
FY 2014(as of December 31, 2014)

FY 2015(as of December 31, 2015)

Time deposits―thousand yen

160,000 thousand yen

Total―thousand yen

160,000 thousand yen

The debts corresponding to the above are:
FY 2014(as of December 31, 2014)
Short-term loans payable―thousand yen

40,000 thousand yen

Total―thousand yen

40,000 thousand yen(Notes to consolidated statements of income)*1. Provision of the reserve for loss on orders received included in cost of sales
FY 2014(From January 1, 2014
through December 31, 2014)

is:2,763thousand yen*2.

Major items of selling, general and administrative expenses and their amounts are:
FY 2014(From January 1, 2014
through December 31, 2014)

FY 2015(From January 1, 2015
through December 31, 2015)
1,100,302 thousand yen

Sales support expense

149,731 thousand yen

125,753 thousand yen

Amortization of goodwill

2,861 thousand yen

6,192 thousand yen

Rent

73,340 thousand yen

106,411 thousand yen

Bonuses

159,195 thousand yen

191,297 thousand yen― thousand yen

9,090 thousand yen

31,289 thousand yen

22,447 thousand yen

Total amount of R&D expenses included in general and administrative expenses is:
FY 2014(From January 1, 2014
through December 31, 2014)
502,066 thousand yen

FY 2015(From January 1, 2015
through December 31, 2015)
648,160 thousand yen

Details of loss on sales of fixed assets are:
FY 2014(From January 1, 2014
through December 31, 2014)

FY 2015(From January 1, 2015
through December 31, 2015)

180 thousand yen―thousand yen

FY 2014(From January 1, 2014
through December 31, 2014)

FY 2015(From January 1, 2015
through December 31, 2015)

Tool, furniture and fixtures*5.

(6,863thousand yen)

965,827 thousand yen

Retirement benefit expenses*4.

FY 2015(From January 1, 2015
through December 31, 2015)

Salaries and allowances

Provision of the reserve for bonuses*3.

FY 2015(as of December 31, 2015)

Details of loss on retirement of fixed assets are:Tool, furniture and fixtures

13 thousand yen―23―

678 thousand yen

*

*6.

Details of loss on withdrawal from the employees’ pension fund are:Loss on withdrawal from the employees’ pension fund represents a loss arising from withdrawal from the Kanto IT Software
Pension Fund.

*7.

Details of settlement money are:With regard to the objection on investment contract, which was entered into before the Company’s investment, against ourconsolidated subsidiary Keyport Solutions, Inc., (hereinafter “KPS”) made by the contracting party shareholders of KPS, thereconciliation was reached. Following this, the settlement money was paid to shareholders of KPS.

(Notes to consolidated statements of comprehensive income)
Adjustments of reclassification and tax effect related with other comprehensive income
FY 2014(From January 1, 2014
through December 31, 2014)

FY 2015(From January 1, 2015
through December 31, 2015)

Valuation difference on available-for-sale securities
Current amount
Adjustments to reclassification
before tax effect

572 thousand yen

1,675 thousand yen―thousand yen―thousand yen―thousand yen―thousand yen(204 thousand yen)Tax effect
Valuation difference on available for sale securities(623 thousand yen)

368 thousand yen

1,051 thousand yen

Foreign currency translation adjustment
Amount occurred during period
Total other comprehensive income

76,404 thousand yen

975 thousand yen

76,772 thousand yen

2,027 thousand yen(Notes to consolidated statements of changes in shareholders’ equity)
FY 2014 (From January 1, 2014 through December 31, 2014)
1
Class and number of issued shares and treasury stock
Number of shares at
Increase in shares during Decrease in shares during Number of shares at end
beginning of thethe consolidated fiscal the consolidated fiscalof consolidated fiscal
consolidated fiscal year
year (shares)
year (shares)
year (shares)(shares)Issued shares
Common stock

8,874,400――

8,874,400

Total

8,874,400――

8,874,400

Common stock

85,700201,141

5,200

281,641

Total

85,700201,141

5,200

281,641

Treasury stock(Note) 1.201,141 increase in treasury common stock was due to an acquisition of 201,100 treasury shares upon the resolution of theBoard of Directors and a purchase of 41 shares less than the share unit number.
2. 5,200 decrease in treasury common stock was due to exercise of stock option.

2

Equity warrants and treasury equity warrants
Class of
Balance at end of
Number of shares subject to equity warrants (share)
the consolidate
shares subject
End of the
fiscal year
to equity Beginning at the Increase during Decrease duringconsolidate fiscal the consolidate
the consolidate consolidate fiscal(thousand yen)warrants
year
fiscal year
fiscal year
year

Division

Details of equity warrants

Submitting
company

Equity warrant granted as
stock option

―

─

─

─

─

4,028

Consolidated
subsidiaries

―

―

─

─

─

─

8,964

―

─

─

─

─

12,992

Total

―24―

3
(1)

Cash dividends
Cash dividends paid
Resolution

Class of shares

March 28, 2014
Annual shareholders meeting

Common stock(2)

Total cash
dividends(million yen)

Cash dividend
per share (yen)

43

5.00

Record date

Effective date

December 31, 2013

March 31, 2014

Among the dividends whose record date is within the current consolidated fiscal year, those having effective in the following
consolidated fiscal year
As stated below, the resolution will be adopted at the annual shareholders meeting held on March 25, 2015.
Resolution

Class of shares

Dividend
resource

March 25, 2015
Annual shareholders meeting

Commonstock

Retainedearnings

Total cash
dividends(million yen)

Cash dividend
per share (yen)

42

5.00

Record date

Effective date

December 31, 2014

March 26, 2015

FY 2015 (From January 1, 2015 through December 31, 2015)
1
Class and number of issued shares and treasury stock
Number of shares at
Increase in shares during Decrease in shares during Number of shares at end
beginning of
the consolidated fiscal the consolidated fiscalof consolidated fiscal
consolidated fiscal year
year (shares)
year (shares)
year (shares)(shares)Issued shares
Common stock

8,874,400――

8,874,400

Total

8,874,400――

8,874,400

Common stock

281,641―

7,400

274,241

Total

281,641―

7,400

274,241

Treasury stock(Note) The 7,400 decrease in treasury common shares is attributable to exercise of stock options.

2

Equity warrants and treasury equity warrants
Division

Number of shares subject to equity warrants (share)
Class of shares
Details of equity warrants subject to equity Beginning at the Increase during Decrease during
End at theconsolidate
the consolidate the consolidate
consolidate
warrants
fiscal year

fiscal year

―

─

─

─

─

3,559

―

─

─

─

─

18,721

Total

―

─

─

─

─

22,281

Cash dividends
Cash dividends paid
Resolution

Class of shares

March 25, 2015
Annual shareholders meeting

Common stock(2)

fiscal year

Submitting Equity warrants granted
company
as stock option
Consolidated―
subsidiaries

3(1)

fiscal year

Balance at end of
the consolidate
fiscal year
(thousand yen)

Total cash
dividends(million yen)
42

Cash dividend pershare (yen)
5.00

Record date

Effective date

December 31, 2014

March 26, 2015

Among the dividends whose record date is within the current consolidated fiscal year, those having effective in the following
consolidated fiscal year
Not applicable―25―

(Notes to consolidated statements of cash flow)*1. Relationship between cash and cash equivalents at end of period and amounts of the accounts stated on the consolidatedbalance sheet
FY 2014
FY 2015(From January 1, 2014
(From January 1, 2015
through December 31, 2014)
through December 31, 2015)
Cash and deposits
Time deposits with their term exceeding
three months
Cash and cash equivalents*2.

1,982,108 thousand yen(100,000 thousand yen)

1,882,108 thousand yen

2,206,352 thousand yen(161,000 thousand yen)

2,045,352 thousand yen

Major items of assets and liabilities of the comparing becoming a consolidated subsidiary due to acquisition of shares
FY 2014 (From January 1, 2014 through December 31, 2014)
Not applicable

FY 2015 (From January 1, 2015 through December 31, 2015)
The following shows details of assets and liabilities at the start of the consolidation associated with consolidation of Keyport
Solutions, Inc., and Agrion Creative Office Co., Ltd., due to acquisition of shares and relationship between acquisition value ofthe shares and acquisition cost (net).
Current assets
Fixed assets
Goodwill
Current liabilities
Minority interests
Gain from negative goodwill
Acquisition value of shares
Cash and cash equivalents
Deduction: Purchase of shares of subsidiaries resulting
in the change in the scope of consolidation

527,396 thousand yen
59,344 thousand yen
4,200 thousand yen(134,113 thousand yen)
(43,119 thousand yen)
(11,386 thousand yen
402,322 thousand yen(294,907 thousand yen)

107,414 thousand yen

The following shows details of assets and liabilities at the start of the consolidation associated with consolidation of Profit
Cube Inc. due to acquisition of shares and relationship between acquisition value of the shares and acquisition cost (net).
Current assets
Fixed assets
Goodwill
Current liabilities
Fixed liabilities
Acquisition value of shares
Cash and cash equivalents
Deduction: Purchase of shares of subsidiaries resulting inchange in the scope of consolidation

651,735 thousand yen
327,946 thousand yen
833,808 thousand yen(579,264 thousand yen)
(170,574 thousand yen)
1,063,651 thousand yen(246,794 thousand yen)
816,856 thousand yen(Notes to business combination)
Business combination through acquisition
1.
Acquisition of shares of Keyport Solutions, Inc.
(1) Summary of business combination(i)Name and businesses activities of the acquired company
Name of acquired company
Businesses activities(ii)

Keyport Solutions, Inc. (hereinafter “KPS”) and its subsidiary Agrion Creative Office Co., Ltd.
System consulting and development of Internet and object-oriented technology in particular

Main reasons for business combination
Mainly in the financial industry, including the securities industry, KPS develops system applications based on object
technology with the advantage in multi-processing and scalability and offers consistent IT services from design,development, and operation through maintenance to healthcare and real estate industries. Our group made the judgementthat the combination of its fostering development capability in open source software and cloud computing-related leadingedge technology and KPS’s development capability and past results of application software in the financial industry would
strengthen development and consulting services for new and existing products and lead to the expansion of services toclients of both companies and the acquisition of new clients.

―26―

(iii)
(iv)
(v)
(vi)
(vii)

(2)

Date of business combination
April 17, 2015
Legal form of business combination
Acquisition of shares for cash
Name of company after the business combination
Company name remains unchanged after business combination
Ratio of voting rights acquired
90.52%
Main reason for determining acquisition of the acquired company
This is because the Company acquired shares of KPS for cash.
Period of business results of the acquired company included in the consolidated financial statements
From April 1, 2015 to December 31, 2015

(3) Acquisition cost of the acquired company and its details
Compensation for acquisition
Cash
Expenses directly necessary for the acquisition

Advisory fee paid, etc.

Acquisition cost
(4)400,000 thousand yen
322 thousand yen
400,322 thousand yen

Gain from negative goodwill and cause of the occurrence(i) Gain from negative goodwill
11,386 thousand yen(ii) Cause of the occurrence
The fair value of net assets as of business combination exceeds acquisition cost, and the difference is recorded as again from negative goodwill.

(5) Assets received and liabilities assumed on the date of business combination and their main details
Current assets
527,396 thousand yen
Fixed assets

59,344 thousand yen

Total assets

586,740 thousand yen

Current liabilities

134,113 thousand yen

Total liabilities

134,113 thousand yen(6)

Approximated amounts of the effect of the business combination on the consolidated statements of income for the current
consolidated fiscal year in the assumption that the business combination was completed on the start date of theconsolidated fiscal year.
Sales
364,127 thousand yen
Operating income

13,574 thousand yen

Ordinary income

14,345 thousand yen

Net income before income taxes

6,614 thousand yen

Net income

4,625 thousand yen(Calculation method for approximated amounts)
A difference is deemed as an approximated amount of the effect between sales and profit and loss information calculated in
the assumption that the business combination was completed on the start date of the consolidated fiscal year and sales andprofit and loss information on the consolidated statements of income of the acquiring company. The notes are not subject toaudit certification.

―27―

2.

Acquisition of shares of ARS Holding Co., Ltd.
(1) Summary of business combination(i) Name and business activities of acquired company
Name of acquired company

ARS Holding Co., Ltd. (hereinafter “ARSHD”)

Business

Holding and investment of securities

activities(ii)

Main reasons for business combination
ARSHD is a holding company of Profit Cube Inc. (hereinafter “PCI”), which is mainly engaged in the development, sale,and maintenance of the ALM system implementing risk management of assets and liabilities for financial institutions. PCI
is a substantial target of the acquisition of shares. But the Company set the direct target of acquiring shares of ARSHD due
to capital composition where PCI is the wholly owned subsidiary of ARSHD. As a result, two companies ARSHD and PCI
become a consolidated subsidiary.
Since the first release of the ALM system in Japan, PCI sophisticated the system as the leading ALM solution vendor inJapan by recently forming an aggregate of solutions covering risk and earnings management and marketing based on the
ALM3.0® concept beyond the conventional framework. It also adopted the advanced design concept early, backed byfinancial engineering and big data processing technology developed for a long period, has the technology to meet requests
from financial institutions that are largely changing, and demands high quality and reaches a level possible to support thecloud. In addition to the provision of the only solution, engineers engaged in the upstream process of the system andconsultants to support operations to financial institutions implement advanced operation support and consulting. Our groupmade the judgement that the participation of PCI into the Company group would strengthen advanced technology andexpertise for financial institutions and lead to business expansion in the finance IT sector and would further accelerate
R&D in the Fintech sector to generate the core service of the Company group as a new earnings source.
(iii) Date of business combination
October 19, 2015 (deemed date of acquisition: December 31, 2015)(iv) Legal form of business combination
Acquisition of shares for cash(v) Name of company after the business combination
Name of the company remains unchanged after business combination. The absorption-type merger was done on
December 31, 2015 with the Company being a surviving company and ARSHD being a dissolving company.
(vi) Ratio of voting rights acquired
100.00%(vii) Main reason for determining acquisition of the acquired company
This is because the Company acquired shares of ARSHD for cash.

(2)

Period of business results of the acquired company included in the consolidated financial statements
Business results of the acquired company are not reflected in the consolidated financial statements because the closing
date of the current consolidated fiscal year is set as the deemed date of acquisition.

(3) Acquisition cost of the acquired company and its details
Compensation for acquisition
Cash
Expenses directly necessary for the acquisition

Advisory fee paid, etc.

Acquisition cost

922,000 thousand yen
2,098 thousand yen
924,098 thousand yen

(4)
(i)

Gain from occurrence of goodwill, cause of the occurrence, and amortization method and period
Goodwill
833,808 yen(ii) Cause of the occurrence
The goodwill occurs due to future excess earning power expected from future business deployment(iii) Amortization method and period
Equally apostatized over 10 years―28―(5) Assets received and liabilities assumed on the date of business combination and their main details
Current assets
651,735 thousand yen
Fixed assets

327,946 thousand yen

Total assets

979,681 thousand yen

Current liabilities

579,264 thousand yen

Fixed liabilities

170,574 thousand yen

Total liabilities

749,838 thousand yen(6)

Detail and amount and amortization period of assets allocated to intangible fixed assets other than goodwill
Type
AmountAmortization period
Client-related assets
167,000 thousand yen
10 years(7)

Approximated amounts of the effect of the business combination on the consolidated statements of income for the current
consolidated fiscal year in the assumption that the business combination was completed on the start date of theconsolidated fiscal year.
Net sales
1,223,983 thousand yen
Operating income

425 thousand yen

Ordinary loss

6,289 thousand yen

Net loss before income taxes

4,139 thousand yen

Net loss

14,924 thousand yen(Calculation method for approximated amounts)
The difference is deemed an approximated amount of the effect between sales and profit and loss information calculated on
the assumption that the business combination was completed on the start date of the consolidated fiscal year and sales andprofit and loss information presented in the consolidated statements of income of the acquiring company. In calculating theamount of the effect, the amortization of goodwill is included from the start date of the current consolidated fiscal year.
The notes are not subject to audit certification.
Transactions under joint control
1. Additional acquisition of shares of subsidiaries(1) Summary of transactions(i)Name and businesses of the combined company

(ii)
(iii)
(iv)
(v)

(2)

Name of combined company

Keyport Solutions, Inc. (hereinafter “KPS”)

Business activities

System consulting and development of Internet and object-oriented technology in particularDate of business combination
December 31, 2015
Legal form of business combination
Acquisition of shares from minority shareholders
Name of the company after business combination
The company name remains unchanged after business combination.
Other summary of the transaction
For additionally acquired shares, the ratio of voting rights is 6.23%. This transaction increased the ownership ratio of KPS
held by the Company to 96.75%. The additional acquisition is proposed to further stabilize management of the Company
group and make agile and flexible decision making possible and seek to further strengthen the cooperation.
Summary of accounting treatments
Transactions under joint control are accounted for as a transaction with a minority shareholder, based on the “AccountingStandard on Business Combination” (ASBJ Statement No. 21 published on December 26, 2008) and “Guidance on the
Accounting Standard for Business Combination and Accounting Standard for Business Divestitures” (ASBJ Guidance No.
10 published on December 26, 2008).

―29―

(3)
(i)

Purchase of shares of subsidiary
Acquisition cost and its details
Compensation for acquisitionCash27,552 thousand yen

Acquisition cost

27,552 thousand yen(ii)
Amount of gain from negative goodwill and the cause for occurrencea. Amount of gain from negative goodwill
2,985 thousand yen
b. Cause of the occurrenceThis is because the consolidated acquisition cost of additionally purchased shares of the subsidiary is below the amount of adecline in minority interests resulting from the additional acquisition.
2.

Absorption-type merger of consolidated subsidiary(1) Summary of the transaction(i)Name and businesses activities of the merged company
Name of the merged company: ARS Holding Co., Ltd. (hereinafter “ARSHD”)
Business activities: Holding and investment of securities(ii)
Date of business combination
December 31, 2015(iii) Legal form of business combination
Absorption-type merger with the Company being a surviving company and ARSHD being dissolved(iv) Name of combined company
SIOS Technology, Inc.
(v)
Other summary of the transaction
ARSHD is a holding company of Profit Cube Inc. (hereinafter “PCI”), which is mainly engaged in the development, sale,and maintenance of the ALM system implementing risk management of assets and liabilities for financial institutions. The
Company decided to absorb and merge ARSHD to directly own PCI for the purpose of efficient execution of Company
group management.
(2)

Summary of accounting treatment
The transaction is accounted for as a transaction under joint control, based on the “Accounting Standard on Business
Combination” (ASBJ Statement No. 21 published on December 26, 2008) and “Guidance on the Accounting Standard forBusiness Combination and Accounting Standard for Business Divestitures” (ASBJ Guidance No. 10 published on
December 26, 2008).

―30―

1

(Segment Information, etc.)(Segment information)
Summary of reportable segments
Reportable segments of our group are those which financial information is available for the components of the Company andwhich are periodically examined by the Board of Directors to determine the allocation of management resources and evaluatebusiness results. The Company establishes departments and subsidiaries according to markets/clients and technology areas andprovides a variety of products and services in open system infra area including OS and middleware and web applications area
including business applications. Therefore, our group set the open system infra business and the web application business as areportable segment.
Business activities of the segments are as follows:Open system infra business
The business offers the business continuity solution using LifeKeeper, the software possible to avoid system downtime inthe event of the failure of the IT system, OSS-related products including Red Hat, Inc., products, OSS-related solutions,
including SIOS OSS Yorozu Soudanshitsu, in response to various inquiries related with OSS and consulting services forvarious information systems.

Web application business
The business develops software products for MFP, cloud solutions including the Google Apps-linked SaaS Gluegent
series, big data solutions for analyzing huge volume data in a short period and corporate information system on a contract
basis and offers consulting services for a variety of information systems.

* The existing Web application business will be renamed to Application business on January 1, 2016,
The change is related to the name of the segment and has no effect on segment information.
2

Methods for calculating sales, income or loss, assets, liabilities and other items of the reportable segments
The accounting methods for reportable business segments are the same as provided in the significant matters related to the basis
for preparation of the consolidated financial statements. In reportable segments, income is on an operating income and loss basis.
Internal sales and transfers among segments are based on the current market price.
The Company allocates no assets to reportable segments.

―31―

3

Information on sales, income or loss, assets, liabilities and other items for each reputable segment
FY 2014 (From January 1, 2014 through December 31, 2014)(Unit: thousand yen)
Reportable segment
Web
Open systemapplication
infra businessbusiness

Adjustments
Total

Amount on the
consolidated
financial statements(Note)Net sales
Net sales to external customers
Internal sales or transfer among segments
Total
Segment income (loss)
Other items
Depreciation
Amortization of goodwill

5,007,555

2,360,304

7,367,860―

7,367,860

279

708

987

―

5,007,834

2,361,013

7,368,848(987)

7,367,860(37,880)

103,259

65,379(987)―

65,37936,771

20,39357,165―57,165

475

2,386

2,861

―

2,861

(Note) Segment income (loss) is equal to operating income stated on the consolidated statements of income.
FY 2015 (From January 1, 2015 through December 31, 2015)(Unit: thousand yen)
Reportable segment
Web
Open systemapplication
infra businessbusiness

Adjustments
Total

Amount on the
consolidated
financial statements(Note)Net sales
Net sales to external customers
Internal sales or transfer among segments
Total
Segment income (loss)
Other items
Depreciation
Amortization of goodwill

5,541,881

3,820,681

9,362,562―

9,362,562

569

175

744

―

5,542,450

3,820,856

9,363,307(744)(165,055)

53,253(111,802)

25,90833,897

―

6,192

(744)

9,362,562―(111,802)

59,806―59,806

6,192

―

6,192

(Note) Segment income (loss) is equal to operating loss stated on the consolidated statements of income.

―32―

【Related information】
FY 2014 (From January 1, 2014 through December 31, 2014)
1
Information by product and service
The information is omitted because the same information is disclosed in the segment information.
2(1)

Information by region
Net sales(Unit: thousand yen)Japan

Americas6,916,905

252,205

EuropeOther regions

103,970

Total

94,7787,367,860(Note) Sales are classified by state or region, based on the location of customers.
(2)

Tangible fixed assets(Unit: thousand yen)Japan

Americas100,980
3

Other regions

4,068

Total

337

105,386

Information by key customer(Unit: thousand yen)Company or individual name ofcustomers

Net sales

Name of related segment

Otsuka CORPORATION

2,311,833

Networld Corporation

794,752

Open system infra and web
application businesses
Open system infra and web
application businesses

FY 2015 (From January 1, 2015 through December 31, 2015)
1
Information by product and service
The information is omitted because the same information is disclosed in the segment information.
2(1)

Information by region
Net sales(Unit: thousand yen)Japan
8,709,759

Americas425,667

EuropeOther regions

118,176108,959(Note) Sales are classified by state or region, based on the location of customers.
(2)

Tangible fixed assets(Unit: thousand yen)Japan
156,388

Americas8,416

Other regions

Total
―

―33―

164,805

Total
9,362,562

3

Information by key customer(Unit: thousand yen)Company or individual name ofcustomers

Net sales

Otsuka CORPORATIONName of related segment
Open system infra and web
application businesses

2,604,182【Information on impairment loss of fixed assets by reportable segment】
Not applicable【Information on amortization and unamortized balance of goodwill by reporting segment】
FY 2014 (From January 1, 2014 through December 31, 2014)(Unit: thousand yen)
Reportable segment
Open system
Web
infra
application
businessbusiness
Balance at end of period

―

6,970

Whole company
or elimination

Other
Total
―

6,970

―

Total

6,970

(Note) Amortization of goodwill is omitted because the same information is disclosed in the segment information.
FY 2015 (From January 1, 2015 through December 31, 2015)(Unit: thousand yen)
Reportable segment
Open system
Web
infra
application
businessbusiness
Balance at end of period―

838,787

Whole company
or elimination

Other
Total
838,787

―

―

Total

838,787(Note) Amortization of goodwill is omitted because the same information is disclosed in the segment information.
【Information on gain from negative goodwill by reportable segment】
FY 2014 (From January 1, 2014 through December 31, 2014)
Not applicable
FY 2015 (From January 1, 2015 through December 31, 2015)
Gain from negative goodwill of 14,372,000 yen was recorded in the Web application business segment because the shares of
Keyport Solutions, Inc., were acquired to make the company a subsidiary.

―34―

(Per-share information)
FY 2014(From January 1, 2014
through December 31, 2014)

FY 2015(From January 1, 2015
through December 31, 2015)

200.26 yen

174.66 yen

Net income (loss) per share

4.48 yen

Net income per share-Diluted

3.37 yen(20.82 yen)

Net assets per share―(Note) 1. Net income per share-diluted is not described for the current consolidated fiscal year because we recorded net loss despite
dilutive shares.
2. The following shows the basis for the calculation of net income (loss) per share and net income per shares-Diluted
Items

FY 2014(From January 1, 2014
through December 31, 2014)

FY 2015(From January 1, 2015
through December 31, 2015)

39,304(179,003)

Net income (loss) per share
Net income (loss) (thousand yen)Amount not attributable to common shareholders (thousand yen)―

Net income (loss) available to common stock (thousand yen)

39,304

Average number of common stock during the period (shares)

8,773,147―(179,003)

8,598,621

Net income per share-Diluted―(Among this, loss on changes in equity) (thousand yen)

(9,665)(10,973)―

Increase in common stock (shares)

10,629―(among this, equity warrants) (shares)(10,629)―――

Adjustments to net income (thousand yen)

Summary of dilutive shares not included in calculating net income
per share-diluted due to no dilutive effect(Significant subsequent events)
Not applicable―35―

6. Unconsolidated Financial Statements(1) Balance Sheet(Unit: thousand yen)
FY 2014(as of December 31, 2014)

FY 2015(as of December 31, 2015)

AssetsCurrent assets
Cash and deposits

951,556

457,033

Accounts receivable-trade
Merchandise

845,538
8,786

881,506-

Work in progress
Advance payment

19,863205,992

16,892259,601

Prepaid expenses
Accounts receivable-other

38,35786,01538,781
3,297

Refunded income taxes receivable
Other

549

38,155
5,745

Allowance for doubtful accounts-(5,854)

Total current liabilities

2,156,658

1,695,159

Fixed assets
Tangible fixed assets
Buildings

59,34052,680Tool, furniture and fixtures
Construction in progress

37,2992,505

27,694-

Total tangible fixed assets

99,14680,375TrademarkSoftware

3,228
10,0202,399
52,480Software in progress
Other

47,423
1,028

11,425
1,028

Total intangible fixed assets

61,70067,333

Intangible fixed assets

Investment and other assets
Investment securities
Shares of subsidiaries and affiliates
Long-term loans receivable to affiliates
Long-term prepaid expenses
Guarantee deposits
Other
Allowance for doubtful accounts

54,773242,946

1,014,741
63,0002,506,267
63,000151
162,200

158,867

208

1,600

(59,541)

Investment and other assets
Total fixed assets
Total assets―36―(59,541)

1,235,533

2,913,140

1,396,380

3,060,848

3,553,038

4,756,008

(Unit: thousand yen)
FY 2014(as of December 31, 2014)

FY 2015(as of December 31, 2015)

366,862

429,351-

118,119
123,120

Accounts payable-trade
Accrued expenses

83,90844,177

122,598
51,870

Income taxes payable
Consumption taxes payable

97,127
14,135

265
118,462

Advance received
Deposits payable

731,229
26,880786,276
30,738

2,763
1,243

1,376

1,368,329

1,782,180

204

906,100
827

Reserve for retirement benefits
Reserve for loss on business of affiliates

115,400
8,232

135,922
13,275Long-term deposits payable

15,814

16,294

Liabilities
Current liabilities
Accounts payable-trade
Short-term loans payable from affiliates
Current portion of long-term loans payable

Reserve for loss on orders received
Other
Total current liabilities
Fixed liabilities
Long-term loans payable
Deferred tax liabilities

Total fixed liabilities

139,651

1,072,420

1,507,980

2,854,600

1,481,520

1,481,520

Capital reserve
Other capital surplus

361,305
114,928

474,415

Total capital surplus

476,233

474,415202,236

56,434202,236

56,434

Total liabilities
Net assets
Shareholders’ equity
Capital stock
Capital surplus

Retained earnings
Other retained earnings
Retained earnings carried forward
Total retained earnings(119,329)

Treasury stock
Total shareholders’ equity(116,194)2,040,660

1,896,174

Valuation difference on available-for-sale securities

368

1,672

Total Valuation and translation adjustments

368

1,672

Valuation and translation adjustments

Equity warrants

4,028

3,559

Total net assets

2,045,057

1,901,407

3,553,038

4,756,008

Total liabilities and net assets―37―

(2) Statements of Income(Unit: thousand yen)

Sales
Cost of sales

FY 2014(From January 1, 2014
through December 31, 2014)

FY 2015(From January 1, 2015
through December 31, 2015)

6,256,061
4,340,725

6,990,010
5,051,903

Gross margin

1,915,336

1,938,107

Selling, general and administrative expenses

1,759,242

2,001,442

156,093(63,334)

Operating income (loss)
Non-operating revenues
Interest income

775

Dividends income
Exchange gain
Outsourcing fee
Compensation received
Other
Total non-operating revenues

943

134,900
897

46

-

5,993
10,0007,315

250

143,889

17,234

10
1,368

2,125
3,864

Non-operating expenses
Interest expenses
Loss on investment of investment partnership
Other

99

310

1,479

6,300

Ordinary income (loss)

298,504

Extraordinary gain
Gain on sale of investment securities

88,776(52,401)

Gain on reversal of equity warrants

100

1,330

88,877

9,499

13

678

Loss on sale of shares of subsidiaries and affiliates
Loss on valuation of shares of subsidiaries and affiliates

6,216
53,66330,000

Provision of the reserve for loss on businesses of subsidiaries and affiliates
Provision of the allowance for doubtful accounts of subsidiaries and affiliates

8,232
59,541

5,042--

11,566
2,358

127,667

49,646

Net income (loss) before income taxes

259,714

Income taxes-current

101,639(92,547)

Total non-operating expenses

Total extraordinary income
Extraordinary gain
Loss on retirement of fixed assets

Loss on withdrawal from employees’ pension fund
Loss on valuation of golf club membership
Total extraordinary loss

Income taxes-deferred

8,013

8,169

10,290-Total income taxes

109,652

10,290Net income (loss)

150,061(102,838)―38―

(3) Statements of Changes in Net Assets
FY 2014 (From January 1, 2014 through December 31, 2014)(Unit: thousand yen)
Shareholder’s equity
Capital surplus

Retained earnings

Capital reserve

Other capitalsurplus

Total capitalsurplus

Other retained
earnings
Retained earnings
carried forward

361,305

115,252

476,557

96,118

96,118Dividends from surplus-

Net income (loss)-(43,943)(43,943)

Purchase of treasury stock

-

-

(323)

(323)

-

(323)

(323)

Capital stock

Balance at beginning of period

1,481,520

Total retained
earnings

Changes during period

Disposal of treasury stock
Transfer from reserve to surplus

150,061

150,061--

Changes in items other thanshareholders equity during period (net)Total changes during period
Balance at end of period--

1,481,520

361,305

Shareholder’s equity

114,928476,233

Changes during period(20,582)

106,117202,236

202,236

Equity warrants

Total net assets

158

2,033,771

Valuation and translation adjustments

Total
Valuation difference Total valuation andTreasuryshareholders’ on available-for-saletranslation
stock
equitysecurities
adjustments
Balance at beginning of period

106,117

2,033,613--(43,943)
150,061(43,943)(99,995)
925(99,995)

Transfer from reserve to surplus--

Changes in items other thanshareholders equity during period (net)

-

368

368

3,869

4,238

7,046

368

368

3,869

11,2852,040,660

368

368

4,028

2,045,057

Dividends from surplus
Net income (loss)
Purchase of treasury stock
Disposal of treasury stock

Total changes during period
Balance at end of period(99,995)
1,248(98,747)(119,329)

150,061925―39―

FY 2015 (From January 1, 2015 through December 31, 2015)(Unit: thousand yen)
Shareholder’s equity
Capital surplus

Balance at beginning of period

Capitalstock

Capital reserve

Other capitalsurplus1,481,520

361,305

114,928

Retained earnings
Other retained
earnings
Retained earnings
carried forward

Total capitalsurplus

Total retained
earnings

476,233

202,236

202,236

Dividends from surplus-

Net income (loss)-(42,963)(42,963)

Purchase of treasury stock-

Changes during period(361,305)(1,818)361,305(1,818)(361,305)

359,486(1,818)

Disposal of treasury stock
Transfer from reserve to surplus
Changes in items other thanshareholders equity during period (net)Total changes during period
Balance at end of period

1,481,520-

Shareholder’s equity

474,415

Changes during period(119,329)--

474,415-(145,802)
56,434(145,802)

Equity warrants

Total net assets

4,028

2,045,057

56,434

Valuation and translation adjustment

2,040,660

368

368

(42,963)

Dividends from surplus(102,838)-

Total
Valuation difference Total valuation andTreasuryshareholders’ on available-for-saletranslation
stock
equitysecurities
adjustments
Balance at beginning of period(102,838)(42,963)(102,838)-(102,838)

1,316

1,316

Transfer from reserve to surplus--

Changes in items other thanshareholders equity during period (net)

-

1,304

1,304

(144,485)

1,304

1,304

(468)

1,672

1,672

3,559

Net income (loss)
Purchase of treasury stock
Disposal of treasury stock

Total changes during period
Balance at end of period

3,135

3,135
(116,194)-1,896,174

―40―

(468)

835
(143,649)

1,901,407

(4) Notes to Unconsolidated Financial Statements(Notes to going concern assumption)
Not applicable―41―

7. Other(1) Changes in Directors
They will be disclosed at the time when details of disclosure are determined.

―42―