Financial Results
for the Six Months Ended
June 30, 2016
July 29, 2016
SIOS Technology, Inc.
(Stock Code: 3744 on the Second Section of Tokyo Stock Exchange)© SIOS Technology, Inc. All rights Reserved.

1

Table of Contents
Ⅰ
Ⅱ
Ⅲ
Ⅳ
Ⅴ

Major Accomplishments in the Six Months Ended
June 30, 2016
Summary of Business Results for the Six Months
Ended June 30, 2016
Key Medium-Term Strategic Initiatives and Progress
Achieved in the April-June Quarter of 2016
Medium-Term Sales and Profit Plan and Financial
Forecast for FY 2016
Ensuring Regulatory Compliance across the SIOSGroup

© SIOS Technology, Inc. All rights Reserved.

2

Ⅰ

Major Accomplishmentsin the Six Months Ended
June 30, 2016

© SIOS Technology, Inc. All rights Reserved.

3

Revised Sales Forecast for FY 2016
on track to become a 10 billion yen company
In millions of yen

12,00010,00010,5009,362

11,500

Revised upward

8,000
6,000

Net sales
results forfirst half
6,238

4,000
2,000
0

FY 2015 Net Sales Results

Previous
Forecast
前回発表予想Announced June 16, 2016

Net sales
results forfirst half
6,238

Revised
Forecast
今回修正予想Net Sales Forecast for FY 2016

Net sales forecast for FY 2016 revised upward to 11.5 billion yen© SIOS Technology, Inc. All rights Reserved.

4

Major Accomplishments in the Six Months Ended June 30, 2016

1

Leveraged the acquisition of Keyport Solutions andProfit Cube in 2015 to enter the emerging FinTech*sector2

Released an upgraded version of the SIOS iQ*
software, born out of a stepped-up investment in
artificial intelligence technology

3

Achieved a solid financial foundation thanks tohealthy growth in existing businesses, including OSS*,
LifeKeeper*, and software applications for MFPs*

See the Glossary on Page 36 for descriptions of terms with an asterisk.
© SIOS Technology, Inc. All rights Reserved.

5

A New SIOS

Accelerating growth to the nextlevel, passing the 10 billion yen
mark in net sales

Leveraging proprietary FinTech
and AI technologies to becomea leading player in the IT
SIOS issolutions industry
entering a
new era ofgrowth andinnovation.

Maintaining a robust financial
foundation with OSS, LifeKeeper,and software applications for MFPs

Enforcing vigorous compliancepolicies and practices to retain thetrust of stakeholders© SIOS Technology, Inc. All rights Reserved.

6

Ⅱ

Summary of Business Results
for the Six Months Ended
June 30, 2016

© SIOS Technology, Inc. All rights Reserved.

7

Consolidated Financial Results
for the Six Months Ended June 30, 2016
In millions of yen

Results for six
months ended
June 30, 2015

Results for six
months ended
June 30, 2016

Change% Change+1,845+42.0%+688+43.6%

+386

－

+330

－

Net sales

4,392

Gross margin

1,580

Operatingincome△55

Ordinary income△38

Net income
attributable toowners of theparentcompany

6,238
2,268
330
292

△59

88

+148

－

EBITDA*

△21

417

+438

－

*EBIADA: Operating income + Depreciation + Amortization of goodwill© SIOS Technology, Inc. All rights Reserved.

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Consolidated Net Sales in First Halves of the Past 5 Years
In millions of yen

7,000

Net sales in the first half of FY 2016 soaredby 42% from the same period of FY 2015

6,238

6,000
5,000
4,000
3,000

2,980

3,225

3,626

4,392

2,000
1,000
0

2012/2Q
1H
FY 20122013/2Q
1H
FY 20132014/2Q
1H
FY 2014© SIOS Technology, Inc. All rights Reserved.

2015/2Q
1H
FY 2015

1H2016/2Q
FY 20169

Aggressive Acquisitions Completed in FY 2015
The SIOS Group achieved a substantial
increase in net sales in the first half of FY 2016as a result of having acquired these two fastgrowing companies in the previous year.

Keyport Solutions, Inc.
(KPS)

Profit Cube Inc.
(PCI)

© SIOS Technology, Inc. All rights Reserved.

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Consolidated Operating Income and R&D Spending in First
Halves of the Past 5 Years

In millions of yen

 Operating income in the first half of FY 2016 up by 385
million yen from the same period of the year before
 R&D spending has been following an upward trend.

400
Operating
営業利益
income

研究開発費
R&D spending

305

300

200

168

152

0

129

100

0

-100

1H
FY 20122012/2Q

1H
FY 20132013/2Q

221

330
282

43

1H
FY 20142014/2Q© SIOS Technology, Inc. All rights Reserved.

-55

1H
FY 2015
2015/2Q

1H
FY 20162016/2Q
11

Consolidated EBITDA in First Halves of the Past 5 Years
In millions of yen

450
400
350

EBITDA in the first half of FY 2016 up by
438 million yen from the same periodof the year before

417

300
250
200
150

146

161
76

100
50
0
-50

2012/2Q
1H
FY 20122013/2Q
1H
FY 20132014/2Q
1H
FY 2014© SIOS Technology, Inc. All rights Reserved.

-21

2015/2Q
1H FY 20152016/2Q
1H
FY 201612

Analysis of Operating Income
An increased gross margin resulting from the acquisitions of KPS and PCI andfrom robust sales in existing businesses more than offset an increase inpersonnel costs and amortization of goodwill, resulting in a substantial
increase in operating income for the six months ended June 30, 2016.

+235

In millions of yen

△250

+453

△51

330
△55
Operating income
for the 6 months
ended June 30, 2015

Increased grossmargin resultingfromacquisitions of
KPS and PCI

Increased grossmargin resulting
from robust sales
in existing
businesses

Increased
personnel
and other SG&A
expenses© SIOS Technology, Inc. All rights Reserved.

Increased
amortization of
goodwill

Operating income
for the 6 months
ended June 30, 201613

Consolidated Balance Sheet
In millions of yen

Current assets

3,901

Total liabilities

4,228

Tangible fixed assets 164

Intangible fixed
assets1,087

Investment and otherassetsCurrent assets

3,927

Total
liabilities

4,204

Tangible fixed assets 158

Total net assets

1,414

Intangible fixed
assets1,028

Investment and other489

assets

As of December 31, 2015

© SIOS Technology, Inc. All rights Reserved.

482

Total net
assets1,392

As of June 30, 201614

Analysis of Consolidated Cash Flow
In millions of yen

636
△55
△376

2,045

Balance of cash
and cashequivalents as ofDecember 31, 2015

Cash flowfromoperatingactivities

Cash flowfrominvestingactivities

Cash flowfromfinancing
activities

2,118
△131

Effect ofexchange-ratechanges oncash and cash
equivalents

Balance of
cash and cash
equivalents asof June 30,
2016As of June 30, 2016, the SIOS Group had a cash reserve of 2.1 billion yen,including cash and deposits, which is more than sufficient to finance theaccelerated implementation of the Group’s growth strategy.
© SIOS Technology, Inc. All rights Reserved.

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Open System Infrastructure Business
Sales and Profit for the 6 Months Ended June 30, 2016

Net sales

3,203 million yen, up 18.1% from the year before

Segment income
Net sales (in millions of yen)

2,712

81 million yen, as compared with an operating loss of
88 million yen the year before

3,203

Net salesJapan Achieved increased sales of LifeKeeper

Up 18.1%

 Achieved increased sales of products sourced from Red Hat, Inc.
 Achieved increased sales of OSS support services and related
products

Overseas Achieved increased sales in the Americas, Europe, andAsia/Oceania

Increase of
169 million
yen



△88

Operating loss/income (in millions of yen)

1H FY 2015

Segment income

81

1H FY 2016

Continued to invest in R&D for SIOS iQ, machine learning*based IT analytics software
Returned to profitability, buoyed by strong sales in existing
businesses© SIOS Technology, Inc. All rights Reserved.

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Application Business

Sales and Profit for the 6 Months Ended June 30, 2016

Net sales

3,034 million yen, up 80.7% from the year before

Segment income

249 million yen, up 658.7% from the year before

Up 80.7%

3,034

Net sales

Net sales(in millionsof yen) Acquisitions of KPS and PCI resulted in a substantial
increase in the Group’s consolidated net sales.
 Achieved increased sales of software applications

1,679

for MFPs*

Segment income•

Up 658.7%249

32Acquisitions of KPS and PCI resulted in increases inpersonnel costs and rent, which were more thanoffset by the growth of gross margin resulting froma surge in net sales.

Operating income (in millions of yen)

1H FY 2015

1H FY 2016
© SIOS Technology, Inc. All rights Reserved.

17

Ⅲ

Key Medium-Term Strategic
Initiatives and Progress Achievedin the April-June Quarter of 2016

© SIOS Technology, Inc. All rights Reserved.

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3 Key Medium-Term Strategic Initiatives
1

Expand into new business segments
including FinTech

2

Continue to invest in research anddevelopment3

Become more competitive in corebusinesses© SIOS Technology, Inc. All rights Reserved.

19

① Expand into new business segments including FinTech

Acquired a patent for technology that supports
a profit management system developed
for financial institutions
Developed an automated loan-screening system
for financial institutions, and filed a patent for thetechnology that supports the system© SIOS Technology, Inc. All rights Reserved.

20

① Expand into new business segments including FinTech
OK!

In March 2016, SIOS acquired apatent for technology that supports
a profit management systemdeveloped for financial institutions.
 The patent covers the system’s ability to help afinancial institution analyze the profitability of
doing business with its corporate and retailcustomers from a variety of aspects as a basis
for formulating a budget and tracking
performance against it.
 Filed two divisional patent applications in June
2016

In April 2016, SIOS developed an
automated loan-screening system
for financial institutions, and filed apatent for the technology that
supports the system.
 The patent covers the system’s ability toautomatically determine the creditworthinessof a loan applicant based on the applicant’stransaction records.
 This innovative system utilizes the large amountof data that a financial institution has about its
customers to maximize profit opportunities.

© SIOS Technology, Inc. All rights Reserved.

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② Continue to invest in research and development

Released an upgraded version
of SIOS iQ, machine learningbased IT analytics software© SIOS Technology, Inc. All rights Reserved.

22

② Continue to invest in research and development
In March 2016, SIOS released SIOS iQ v3.5, an upgradedversion of machine learning-based IT analytics software.
Added feature: the ability to understand a system’s pattern of utilizing its data-storage
capacity and predict how many days remain before the storage runs out of free space

Ability to forecast storage-capacity
utilization added

Redesigned analysis reports that
illuminate performance issues

SIOS iQ understands a system’s pattern ofutilizing its storage capacity andminimizes the need to provide
redundancy in storage capacity,
resulting in cost savings.

Provide greater usefulness andefficiency in referring to reports© SIOS Technology, Inc. All rights Reserved.

23

③ Become more competitive in core businessesi ）Released an upgraded version of LifeKeeperii ）Added more functions to software applicationsfor MFPs

iii ）Launched new OSS services for cloud*© SIOS Technology, Inc. All rights Reserved.

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③ Become more competitive in core businessesi ）Released LifeKeeper for Linux v9.1 in July 2016

External system

LifeKeeper

Quick Service Protection

LifeKeeper APIs Reduces labor-hours by eliminating the Allows the monitoring of LifeKeeper from anneed for scripting that requires

external system

experience and advanced skills
 Accelerates system implementation in a

 Enables the integrated monitoring of an
entire system, including LifeKeeper

cloud environment© SIOS Technology, Inc. All rights Reserved.

25

③ Become more competitive in core businessesii ）Released Quick Scan V4.1 in April 2016, which offers
enhancements to software applications for MFPs
Receipts
Bills❸ Store e-documents
in applications on the
Kintone platform
Templates forreceipts and bills
Convert documents
into digital files

Scanning❷ Add ability totimestamp edocuments

Approve e-documents
electronically
Discard paper
documents

Document
management
system❶ Options for handling e-documents

Quick Scan V4.1 allows a business user to access data stored
in a cloud via a mobile device and to use scanned data on
the Kintone platform for greater productivity.
© SIOS Technology, Inc. All rights Reserved.

Integrates functions provided
by Kintone, a platform fordeveloping businessapplications offered by
Cybozu, Inc.

26

③ Become more competitive in core businessesiii ）Launched “OSS on Cloud Integration Service” forenterprises on Microsoft Azure in May 2016
Launched an implementation service for Red Hat EnterpriseLinux on Azure The combination of cloud and OSS enables the

OSS

implementation of a variety of latest
technologies at low cost and within a shorttimeframe.
 OSS, with its great cost-efficiency and flexibility,

Low
cost

Latesttechnology

Flexibility

enhances the adoption of cloud-based
enterprise and business systems in a corporate
environment.
© SIOS Technology, Inc. All rights Reserved.

27

Ⅳ

Medium-Term Sales and Profit
Plan and Financial Forecast for FY
2016© SIOS Technology, Inc. All rights Reserved.

28

Medium-Term Sales and Profit Plan
Revised forecast for FY 2016 places net sales and EBITDA for the year
on a par with their respective targets for FY 2017 established in themedium-term plan.

Net sales(inbillions of
yen)

6.5
290

FY 2013
Results

7.3

10.5

9.3

11.5

540
115

FY 2014
Results

12.0

500

300
△45
FY 2015
Results

Previous forecast Revised forecast Target forfor FY 2016
for FY 2016
FY 2017© SIOS Technology, Inc. All rights Reserved.

14.0

700
EBITDA
(in millionsof yen)Target for
FY 2018
29

Financial Forecast for FY 2016 Ending December 31, 2016
Forecast for FY 2016
Results for six months
Ending December 31,
ended June 30, 2016
2016
(in millions of yen)(in millions of yen)

Percentage ofachievement

Net sales

6,238

11,50054.2%

Operatingincome

330

370

89.2%

Ordinary
income

292

310

94.2%

Net income
attributable toowners of the parent
company

88

100

88.0%

EBITDA

417

540

77.2%

© SIOS Technology, Inc. All rights Reserved.

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Ⅴ

Ensuring Regulatory Complianceacross the SIOS Group© SIOS Technology, Inc. All rights Reserved.

31

Inappropriate Accounting Practices Conducted by aConsolidated Subsidiary
Revised Consolidated Financial Results for Past Fiscal Years
FY 2013

FY 2012Previously
announced

RevisedPreviously
announced

RevisedNet sales

6,029

5,931

△98

6,624

6,565

Operatingincome

111

55

△55

246

Ordinary
income

106

43

△62

Net
income34△50

Net assets

1,514

Total
assets3,005

FY 2014Previously
announced

Revised

△59

7,367

7,349

227

△19

65

265

238

△27

△84

110

99

1,429

△84

1,751

2,974

△31

3,196

Diff.

(in millions of yen)
Fouryeartotal

FY 2015
Previously
announced

Revised

△18

9,362

9,362

ー

△175

55

△9

△111

△111

ー

△84

81

61

△19

△127

△137

△10

△119

△11

39

16

△22

△179

△186

△7

△125

1,656

△95

1,733

1,615

△118

1,539

1,414

△125

△125

3,194

△1

3,651

3,651

ー

5,642

5,642

ー

ー

Diff.

Diff.

Diff.

DifferenceNote: SIOS announced on June 16, 2016, revised consolidated financial results for the Group for the past four fiscal years
to reflect the impact of inappropriate accounting practices conducted by Kanshin!, Inc. (formerly SIIIS Inc.), one of ourconsolidated subsidiaries.
© SIOS Technology, Inc. All rights Reserved.

32

Why Misconduct Occurred and How We Can Prevent it in the Future
Why misconduct
occurred

How we can prevent
misconduct in the future

SIOS did not perform thoroughdue diligence prior toinvesting in SIIIS.

Perform thorough due
diligence when considering
acquiring other companies

SIIIS did not have an effective
corporate governancestructure.

Enhance the corporate
governance structure in every
company in the SIOS GroupAs a parent company, SIOS
did not exercise tight enoughcontrol over SIIIS.

Ensure that every company in
the SIOS Group has aheightened awareness ofregulatory compliance© SIOS Technology, Inc. All rights Reserved.

33

By implementing the three measures
outlined on the previous page, we
ensure that every company in the SIOS
Group vigorously enforces compliancepolicies and practices so as to regain
the trust of our stakeholders.

© SIOS Technology, Inc. All rights Reserved.

34

About SIOS

SIOS is Innovative Open Solutions
SIOS Technology, which is focused on commercializing open-source software such as Linux, isa leading provider of software products and services that support operating systems, servers,
web applications, cloud computing, and Big Data for enterprises. To broaden our offerings,
we recently introduced a machine learning-based analytics tool for IT operations to support
fast-evolving virtual IT infrastructures.
We are committed to pursuing innovative software solutions
and remaining in the global IT arena as an influential playerthat creates greater value and contributes to a better
society.
Headquarters
CapitalSIOS building, 2-12-3 Minami Azabu Minato-ku, Tokyo, Japan
1,481 million yen

EstablishedMay 23, 1997

No. ofemployees

458 on a consolidated basis (as of December 31, 2015)

Consolidat
edsubsidiaries

SIOS Technology Corp. (USA); SIOS (Beijing) Technology Inc.
(China); Gluegent, Inc. (Japan); Kanshin! Inc. (Japan); Glabio, Inc.
(USA); Keyport Solutions, Inc. (Japan); Profit Cube Inc. (Japan)© SIOS Technology, Inc. All rights Reserved.

35

Glossary
Page

Term

5

FinTechAn emerging technology for facilitating innovations in the financial
sector.

SIOS iQ

A software platform that comprehensively monitors, analyzes, andoptimizes operations of applications in virtual and cloud environments
to improve performance and efficiency and ensure reliability inresolving complex issues.

5Open-Source Software (OSS)

Software whose source code, which is the fundamental component of
the program, is made available for free and can be used, modified,and redistributed.

5

LifeKeeper

5

Description

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

5

Software applications for MFPs

16

Machine-learning technology

24

Cloud

A multifunction printer (MFP) is a piece of office equipment thatincorporates print, scan, copy, and fax capabilities into one unit. SIOS
develops, markets, and updates Quick Scan, a documentmanagement software application running on an MFP, and otherapplications
A technology for giving the computer the same learning ability as ahuman being and for extracting useful information from a variety ofdata.
A new form of computing that provides computing resources asservices over the Internet.

© SIOS Technology, Inc. All rights Reserved.

36

Cautionary Statement
Forward-looking statements about our future performance contained in this document are
based on management’s assumptions and judgment made in light of the information
currently available to us, and may include risks and uncertainties. We caution thatsignificant risks and uncertainties could cause actual performance to differ materially fromwhat is discussed in the forward-looking statements. Significant risks and uncertainties thatmight affect our performance include, but are not limited to, the economic environment
and market conditions in which we operate.

For inquiries about this document,
call the IR Section of SIOS Technology, Inc. on 03-64015111 (+81-3-6401-5111 from outside Japan)
or fill in and send an inquiry form available at:https://lp.sios.jp/MRK_Inquiry_SIOS_english.html© SIOS Technology, Inc. All rights Reserved.

37