Consolidated Financial Results for the Six Months Ended June 30, 2017
(Under Japanese GAAP)
July 31, 2017
Company name: SIOS Technology, Inc.
Stock listed on: Tokyo Stock Exchange
Stock code: 3744
URL: http://www.sios.com
Representative: Nobuo Kita, Representative Director and President
Contact person: Tokutaro Kobayashi, Managing Executive Officer
Telephone: +81-3-6401-5111 (from outside Japan)
Scheduled filing date of quarterly securities report: August 10, 2017
Scheduled commencement date of dividend payment: Supplementary materials prepared for quarterly financial results: Yes
Presentation of quarterly financial results: Yes (for institutional investors and analysts)(Fractions less than 1 million yen are rounded off)

1. Consolidated Financial Results for 6 Months Ended June 30, 2017
(1) Consolidated Results of Operations (cumulative)(Percentages represent changes from the same period of the previous year)

Net sales

6 months ended June 30, 2017
6 months ended June 30, 2016

Operating income

Profit attributable toowners of parent

Ordinary income

Million yen%

Million yen%

Million yen%

Million yen

%

6,226
6,238

-0.2
42.0

173
330

-47.5
-

184
292

-37.0
-

89
88

1.1
-

Note: Comprehensive income : 6 months ended June 30, 2017
6 months ended June 30, 2016
Earnings per share (Basic)

6 months ended June 30, 2017
6 months ended June 30, 2016

65 million yen (-%)
(2) million yen (-%)

Earnings per share(Diluted)

Yen

Yen

10.43
10.34

10.39
10.32

(2) Consolidated Financial Position
Total assets

Equity ratio

Million yen

%

5,537
5,256

1,719
1,647

30.5
30.8

As of June 30, 2017
As of December 31, 2016

Note:

Net assets

Million yen

Equity: As of June 30, 2017: 1,689 million yen

As of December 31, 2016: 1,619 million yen

2. Dividends
Dividends per share
End of Q1
Fiscal year ended
December 31, 2016
Fiscal year ending
December 31, 2017
Fiscal year ending December
31, 2017 (Forecast)End of Q2

End of Q3

Year-end

Total

Yen

Yen

Yen

Yen

Yen

-

0.00

-

0.00

0.00

-

0.00
-

5.00

5.00

Note: Revision to the previously announced forecasts of dividend: None-1-

3. Consolidated Business Forecasts for Fiscal Year Ending December 31, 2017
(Percentages represent changes from the previous fiscal year)
Net sales
Fiscal year ending
December 31, 2017

Operating income

Million yen%

Million yen%

12,600

4.3

500

5.4

Ordinary income
Million yen

Profit attributable toowners of parent

Earnings per share%

Million yen%

Yen

480 23.1

320

25.7

37.11

Note: Revision to the previously announced business forecasts: None

Notes:(1) Material changes in subsidiaries during the 6 months ended
June 30, 2017

: None(2) Adoption of special accounting treatments for the preparation of: Nonequarterly consolidated financial statements(3) Changes in accounting policies, changes in accounting estimates, and restatements(i) Changes in accounting policies based on revisions of: Noneaccounting standards(ii)

Changes in accounting policies other than the above (i)(iii) Changes in accounting estimates: None(iv) Restatements: None(4) Number of issued and outstanding shares (common stock)(i) Number of issued and outstanding shares at
As of June 30,
2017
the end of the period (including treasury stock)(ii) Number of treasury stocks at end of the
As of June 30,
2017period(iii) Average number of shares during the period(cumulative from the beginning of the fiscal year)**: NoneFor 6 months
ended June 30,
20178,874,400 shares

As of December
31, 2016

8,874,400 shares

250,241 shares

As of December
31, 2016

260,041 shares

8,624,159 shares

For 6 months
ended June 30,
20168,605,613 sharesThis summary of quarterly consolidated financial results is not subject to a quarterly review.
Proper use of business forecasts and other important matters
Forward-looking statements, such as business forecasts included in this document, are based on currently available information orassumptions that the Company considers reasonable, and business results may differ significantly from forecasts due to various
factors. For assumptions used as a basis for making business forecasts and notes on the use of business forecasts, refer to "(3)Forward-looking Statements Including Consolidated Business Forecasts" on Page 5 of the attached document.

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Table of Contents of the Attached Document

1. Qualitative Information on Consolidated Results ........................................................................................................ 4(1) Results of Operations ........................................................................................................................................ 4(2) Financial Position............................................................................................................................................. 5(3) Forward-looking Statements Including Consolidated Business Forecasts ................................................................... 5
2. Matters Concerning Summary Information (Notes) ..................................................................................................... 6(1) Material changes in subsidiaries during the three months ended June 30, 2017 ........................................................... 6(2) Adoption of special accounting treatments for the preparation of quarterly consolidated financial statements ................... 6(3) Changes in accounting policies, changes in accounting estimates, and restatements ..................................................... 6(4) Additional information ...................................................................................................................................... 6
3. Consolidated Financial Statements ........................................................................................................................... 7(1) Consolidated Balance Sheet ............................................................................................................................... 7(2) Consolidated Statements of Income and Comprehensive Income .............................................................................. 9(3) Consolidated Statements of Cash Flows ............................................................................................................. 11(4) Notes on Consolidated Financial Statements ....................................................................................................... 12
Notes on Going Concern Assumption ................................................................................................................. 12
Notes on Material Changes in Shareholders’ Equity .............................................................................................. 12
Segment Information ....................................................................................................................................... 12
Significant Subsequent Events........................................................................................................................... 13-3-

1. Qualitative Information on Consolidated Results(1) Results of Operations
Overview of the consolidated business performance for the 6 months ended June 30, 2017
The SIOS Group has long been at the forefront of the fast-evolving IT industry and been implementing its strategic initiatives,
which are outlined in the Group's medium-term business strategy, by focusing its efforts on continuing to invest in research anddevelopment, expanding into new business segments including Fintech1, and becoming more competitive in its core businesses.
In the six months ended June 30, 2017, the Group expanded service offerings for open-source software2 (OSS) for cloud, including
the launch of operational support for Ansible3, an IT automation framework. We redoubled our sales efforts for LifeKeeper4 andsoftware applications for multifunction printers (MFPs)5. In addition, we launched SIOS Coati, which provides automatic disasterrecovery in public cloud environments.
With the implementation of these initiatives and efforts, the Group's consolidated business results by segment for the six months
ended June 30, 2017 turned out as follows:
Open System Infrastructure Business Segment
The Group achieved a substantial increase in sales of LifeKeeper in the Americas and a steady increase in their sales in Japan and
the Asia-Oceania region. Buoyed by stepped-up sales and marketing efforts, Red Hat Enterprise Linux6 and other software products
sourced from Red Hat, Inc. enjoyed robust sales, and OSS-related products achieved steady sales growth as well.
As a result, net sales in this segment amounted to 3,424 million yen, up 6.9% from the same period a year earlier, with a segment
income of 107 million yen, up 32.7% year on year.
Application Business Segment
The Group achieved a steady increase in sales of software applications for MFPs as well as in revenues from providing systemdevelopment and implementation support. However, sales of software applications to regional banks declined sharply in this period
from the previous year. This was primarily because their sales for this fiscal year are projected to shift toward the second half of theyear, while the majority of their annual sales had been posted in the first half of the year previously.
As a result, net sales in this segment amounted to 2,801 million yen, down 7.7% from the same period a year earlier, with a segment
income of 65 million yen, down 73.6% year on year.
With an increase in net sales and segment income in the open system infrastructure business segment more than offset by a decline
in net sales and segment income in the application business segment, the Group's combined net sales for these two segments were
down 0.2% year on year to 6,226 million yen, with an operating income of 173 million yen, down 47.5% year on year. With smaller
non-operating expenses recorded in this period compared with the same period the previous year, when a share of loss of entities
accounted for using equity method had been recorded, the Group posted an ordinary income of 184 million yen, down 37.0% year on
year. The Group's profit attributable to owners of parent amounted to 89 million yen, up 1.1% from the same period the previous year,
when expenses related to a retrospective adjustment of 139 million yen had been recognized as extraordinary losses. The Group’s
key management metrics EBITDA, which is the sum of operating income, depreciation, and amortization of goodwill, stood at 260
million yen, down 37.5% year on year.
1. Fintech
An emerging technology for facilitating innovations in the financial sector.
2. Open-source software
Software whose source code, which is the fundamental component of the program, is made available for free and can be used,
modified, and redistributed.
3. Ansible
An open-source IT automation framework capable of controlling multiple servers and cloud infrastructures in a unified manner.
4. LifeKeeper
A failover software product that automatically switches a failed primary server to a backup server.

-4-5. Software applications for multifunction printers
A multifunction printer (MFP) is a piece of office equipment that incorporates print, scan, copy, and fax capabilities into one unit.
SIOS develops, markets, and updates Quick Scan and Speedoc, document management software applications running on an MFP.
6. Red Hat Enterprise LinuxLinux OS developed by Red Hat, Inc., a provider of open-source solutions.

(2) Financial Position
Total assets were 5,537 million yen as of June 30, 2017, up 5.3% from the end of the previous fiscal year; this was primarily due
to an increase of 320 million yen in cash and cash deposits. Total liabilities were up 5.8% to 3,817 million yen, primarily due to anincrease of 244 million yen in advances received. Total net assets were up 4.4% to 1,719 million yen, reflecting a profit of 89 million
yen attributable to owners of parent posted in this period.
Cash FlowsThe balance of cash and cash equivalents amounted to 2,114 million yen as of June 30, 2017, an increase of 320 million yen fromthe end of the previous fiscal year.
(In millions of yen)
6 months ended June30, 2016

6 months ended June30, 2017

Cash flows from operating activities

636

469

(166)

Cash flows from investing activities

(55)

(11)

43

Cash flows from financing activities

(376)

(93)

283

ChangeNet cash provided by operating activities amounted to 469 million yen for the six months ended June 30, 2017. This reflectedprimarily a profit of 185 million yen before income taxes and an increase of 260 million yen in advances received.
Net cash used for investing activities amounted to 11 million yen. This reflected primarily payment for purchasing of intangible
assets.
Net cash used for financing activities amounted to 93 million yen. This reflected primarily the repayment of loans payable.

(3) Forward-looking Statements Including Consolidated Business Forecasts
The Group achieved business performance in the six months ended June 30, 2017 on track to meet the full-year consolidated
business forecasts for the fiscal year ending December 31, 2017, which were announced on February 2, 2017. Those forecasts for FY
2017 stand for the remainder of the year.

-5-2. Matters Concerning Summary Information (Notes)(1) Material changes in subsidiaries during the three months ended June 30, 2017
Not applicable(2) Adoption of special accounting treatments for the preparation of quarterly consolidated financial statements
Not applicable(3) Changes in accounting policies, changes in accounting estimates, and restatements
Not applicable(4) Additional information
Consolidated business performance for the six months ended June 30, 2017
(From January 1, 2017 through June 30, 2017)
Effective as of the beginning of the first quarter of the current fiscal year, the Company adopted the “Revised
Implementation Guidance on Recoverability of Deferred Tax Assets” (ASBJ Implementation Guidance No. 26, issued on
March 28, 2016).

-6-

3. Consolidated Financial Statements(1) Consolidated Balance Sheet(In thousands of yen)
December 31, 2016

June 30, 2017

AssetsCurrent assets
Cash and deposits

1,923,658

2,244,590

1,346,923
56,008

1,388,910
29,262

128,189
160,818

143,294
171,199

(200)

(200)

3,615,398

3,977,057

Buildings, net
Other, net

109,119
84,402

102,552
80,269Total property, plant and equipment

193,521

182,822

Notes and accounts receivable-trade
Work in process
Advance payments- trade
Other
Allowance for doubtful accounts
Total current assets
Non-current assets
Property, plant and equipment

Intangible assets
Goodwill

753,414710,728

Other

217,932

205,302

Total intangible assets

971,347

916,031

Investment securities
Net defined benefit asset

171,942
27,674

168,100
28,751

Guarantee deposits
Other

229,51356,738224,891
49,629Allowance for doubtful accounts(9,966)(9,966)

Investments and other assets

Total investments and other assets
Total non-current assets
Total assets-7-475,901

461,404

1,640,770

1,560,258

5,256,168

5,537,316

(In thousands of yen)
December 31, 2016

June 30, 2017

Liabilities
Current liabilities
Accounts payable-trade443,227

486,264

30,000132,283

133,116

Income taxes payable
Advances received

65,0181,409,377

105,861
1,654,284

Provision for bonuses
Other

24,556437,191

26,658395,004

Total current liabilities

2,541,654

2,801,189

Long-term loans payable
Net defined benefit liability

812,988
178,589744,764
197,825

Other

75,342

74,165

1,066,920

1,016,754

3,608,575

3,817,944

Capital stock
Capital surplus

1,481,520
466,657

1,481,520
467,807

Retained earnings
Treasury shares(67,044)(110,178)

22,929(106,025)

Total shareholders’ equity

1,770,954

1,866,231

Short-term loans payable
Current portion of long-term loans payableNon-current liabilities

Total non-current liabilities
Total liabilities
Net assets
Shareholders’ equity

Accumulated other comprehensive income
Valuation difference on available-for-salesecurities
Foreign currency translation adjustment

14,008

10,539(165,485)(186,837)

Total accumulated other comprehensive income(151,477)(176,297)

28,11629,438

1,647,593

1,719,372

5,256,168

5,537,316

Subscription rights to shares
Total net assets
Total liabilities and net assets-8-(2) Consolidated Statements of Income and Comprehensive Income
Consolidated Statements of Income
For 6 months ended June 30(In thousands of yen)
6 months ended June 30, 2016

6 months ended June 30, 2017

Net sales

6,238,401

6,226,613

Cost of sales

3,969,671

4,063,956

Gross profit

2,268,729

2,162,657

Selling, general and administrative expenses

1,938,404

1,989,202

330,325

173,454

Interest income
Foreign exchange gains

718
10,4882,498-

Fiduciary obligation fee
Gain on valuation of derivatives

1,200
-

1,260
9,905

Operating income
Non-operating income

Other

3,092

4,024

Total non-operating income

15,49917,688Interest expenses
Loss on investments in partnership

3,686
4,254

2,408
2,407

Provision for interest on refund for subsidy repayment
Share of loss of entities accounted for using equity
method
Other

5,127

-

38,081

-

2,057

1,969

Non-operating expenses

Total non-operating expenses
Ordinary income
Extraordinary income
Gain on reversal of subscription rights to shares
Total extraordinary income

53,207

6,785

292,617

184,357

1,166

1,448

1,166

1,448

Extraordinary losses
Loss on valuation of golf club membership

1,350

-

Loss on retirement of non-current assets
Loss on valuation of investment securities

379
799

-

Expense related to retrospective adjustment

139,212-

Total extraordinary losses

141,741-

Profit before income taxes

152,043

185,806

Income taxes-current
Income taxes-deferred

65,926(3,792)

88,701
7,131

Total income taxes

62,134

95,832

Profit89,90989,973918-

88,99089,973

Profit attributable to non-controlling interests
Profit attributable to owners of parent-9-Consolidated Statements of Comprehensive Income
For 6 months ended June 30(In thousands of yen)
6 months ended June 30, 2016

6 months ended June 30, 2017

Profit89,90989,973

Other comprehensive income
Valuation difference on available-for-sale securities(11,266)(3,468)Foreign currency translation adjustment(80,989)(21,351)

Total other comprehensive income(92,255)(24,819)

Comprehensive income(2,346)

65,153Comprehensive income attributable to:Comprehensive income attributable to owners ofparentComprehensive income attributable to non-controllinginterests(3,264)

65,153

918

-

-10-

(3) Consolidated Statements of Cash Flows(In thousands of yen)
6 months ended June 30, 2016

6 months ended June 30, 2017

Profit before income taxes
Depreciation

152,043
44,077

185,806
44,560

Provision for interest on refund for subsidy repayment
Amortization of goodwill

5,127
42,686

42,686

Interest and dividend income
Interest expenses(1,172)
3,686(2,900)2,408

Loss (gain) on investments in partnership
Share of (profit) loss of entities accounted for using
equity method
Decrease (increase) in notes and accounts receivabletrade
Decrease (increase) in inventories

4,254

2,407

38,081-

24,104(47,598)

Cash flows from operating activities

20,426

26,746

Increase (decrease) in notes and accounts payable-trade
Increase (decrease) in net defined benefit liability(51,656)
10,91943,627
19,235

Increase (decrease) in advances received
Decrease (increase) in advance payments

356,801(66,772)

260,894(15,104)

Increase (decrease) in accrued consumption taxes
Other, net(74,184)
106,321(6,659)(34,251)

Subtotal

614,743

521,859

Interest and dividend income received
Interest expenses paid

1,172
(3,686)2,900(2,408)

Income taxes refund
Income taxes paid

38,155(13,827)(52,627)

Net cash provided by (used in)operating activities

636,557

469,722

Cash flows from investing activities
Payments into time deposits(131,200)(130,000)

Proceeds from withdrawal of time deposits
Purchase of property, plant and equipment

160,000(16,228)130,000(5,433)Purchase of intangible assets
Payments of guarantee deposits(7,649)(49,592)(6,180)-

Proceeds from collection of guarantee deposits
Purchase of golf club memberships

166(8,776)435-

Purchase of shares of subsidiaries and affiliates
Other, net(2,205)163(328)

Net cash provided by (used in) investing activities(55,321)(11,506)

Cash dividends paid
Net increase (decrease) in short-term loans payable(28)(240,000)(30)(30,000)

Repayment of long-term loans payable
Payments from changes in ownership interests in
subsidiaries that do not result in change in scope of
consolidation
Other, net(117,725)(67,391)(25,888)

-

7,181

4,264

Net cash provided by (used in) financing activities
Effect of exchange rate change on cash and cash
equivalents
Net increase (decrease) in cash and cash equivalents(376,460)(93,156)(131,861)(44,126)

72,913320,932

Cash and cash equivalents at beginning of period

2,045,352

1,793,658

Cash and cash equivalents at end of period

2,118,266

2,114,590

Cash flows from financing activities-11-(4) Notes on Consolidated Financial Statements
Notes on Going Concern Assumption
Not applicable
Notes on Material Changes in Shareholders’ Equity
Not applicable
Segment Information【Segment Information】
I 6 months ended June 30, 2016
1. Information regarding the amount of net sales and income by reportable segment(In thousands of yen)Amount recordedin quarterly
consolidated
statements ofincome*Reportable segment
Open systeminfrastructurebusiness

Adjustments

Application
business

Total

Net sales
Sales to external customers
Intersegment
transfers

sales

and

Total
Segment income

3,203,462

3,034,939

6,238,401-

6,238,401

311

-

311

(311)

-

3,203,773

3,034,939

6,238,712(311)

6,238,401

81,104249,221330,325-

330,325

Note: The total amount of segment income is equal to operating income recorded in the quarterly consolidated statements of income.
Supplementary Information
Information by region
In addition to the disclosure required by the “Accounting Standard for Quarterly Financial Statements,” information (net sales)by region is disclosed in accordance with the “Accounting Standard for the Disclosure of Segment Information” for the purpose ofproviding users of financial statements with valuable information.
Net sales
For 6 months ended June 30, 2016
(In thousands of yen)Japan
5,883,577

Americas229,644

EuropeOther regions

68,11557,063

Total
6,238,401

Note: Sales are classified by country or region in which customers are located.
2. Information regarding loss on impairment of non-current assets or goodwill by reportable segment
Not applicable

-12-

II

6 months ended June 30, 2017

1. Information regarding the amount of net sales and income by reportable segment(In thousands of yen)Amount recordedin quarterly
consolidated
statements ofincome*Reportable segment
Open systeminfrastructurebusiness

Adjustments

Application
business

Total

Net sales
Sales to external customers
Intersegment
transfers

sales

and

Total
Segment income

3,424,696

2,801,917

6,226,613-

6,226,613

32

-

32

(32)

-

3,424,728

2,801,917

6,226,645(32)

6,226,613

107,643

65,811

173,454-

173,454

Note: The total amount of segment income is equal to operating income recorded in the quarterly consolidated statements of income.
Supplementary Information
Information by region
In addition to the disclosure required by the “Accounting Standard for Quarterly Financial Statements,” information (net sales)by region is disclosed in accordance with the “Accounting Standard for the Disclosure of Segment Information” for the purpose ofproviding users of financial statements with valuable information.
Net sales
For 6 months ended June 30, 2017
(In thousands of yen)Japan
5,859,456

Americas246,952

EuropeOther regions

57,004

63,200Total
6,226,613

Note: Sales are classified by country or region in which customers are located.
2. Information regarding loss on impairment of non-current assets or goodwill by reportable segment
Not applicable
Significant Subsequent Events
Not applicable-13-