FY 2016 First Quarter Consolidated Financial Results(Under Japanese GAAP)
June 16, 2016
Company name: SIOS Technology
Shares listed on: Tokyo Stock Exchange
Code number: 3744
URL: http://www.sios.com
Representative: Nobuo Kita, Representative Director and President
Contact person: Tokutaro Kobayashi, Managing Executive Officer
Telephone: 03-6401-5111
Scheduled filing date of quarterly securities report: June 16, 2016
Scheduled commencement date of dividend payment: Supplementary materials prepared for quarterly financial results: No
Presentation of quarterly financial results: No

1. Consolidated Financial Results of FY 2016 Q1 (From January 1, 2016 through March 31, 2016)(Fractions less than one million yen are rounded off)

(1) Consolidated Results of Operations (cumulative)

Net sales

Operating income

Million yen

FY 2016 Q1
FY 2015 Q1
Note: Comprehensive income
886(Percentage of change from the same period of the previous year)%

Quarterly net income
attributable to ownersof the parent
company

Ordinary income%

Million yen%

Million yen

%

3,281
56.3
223
760.1
2,099
10.6
25
(71.2)FY 2016 Q1 86 million yen (-%)
FY 2015 Q1 (32) million yen (-%)
Quarterly net income
Quarterly net income
per shareper share(Basic)(Diluted)

207
31

562.7
(66.2)

129
(29)

―
―

FY 2016 Q1
FY 2015 Q1Million yen

Yen

Yen

15.09
(3.47)

15.08―(2) Consolidated Financial Position
Total assets

Net assets

Million yen

FY 2016 Q1
FY 2015
Note:
EquityMillion yen

%

1,474
1,414

26.2
24.4

5,552
5,642
1,452 million yen
1,376 million yen

FY 2016 Q1
FY 2015

Equity ratio

2. Cash Dividends
Annual dividend
End of Q1
Yen

End of Q2

End of Q3

Yen

FY 2015
0.00―
FY 2016―
FY 2016 (expected)
0.00
Note: Revision to the previously announced forecasts of dividend:Year-end

Annual

Yen

Yen

Yen

―

0.00

0.00

―

0.00

0.00

No

3. Consolidated Business Forecasts for FY 2016 (From January 1, 2016 through December 31, 2016)

Sales
Million yen

Operating income% Million yen% Million yen

FY 2016
10,50012.1
140―Note: Revision to the previously announced business forecasts: No* Notes(Percentage of change from previous fiscal year)
Profit attributable to
Net income per
Ordinary income owners of the parent
share
company
100% Million yen%

Million yen

―

―

5.81

50

(1) Material changes in subsidiaries during the three months ended March 31, 2016:

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

Excluded:

Notes relating to material changes in subsidiaries during the period(2) Adoption of special accounting treatments for the preparation of: No
quarterly consolidated financial statements
Notes relating to the adoption of special accounting treatments for the preparation of quarterly consolidated financial
statements(3) Changes in accounting policies and accounting estimates and retrospective restatement(i) Changes in accounting policies based on revisions of: No
accounting standard(ii) Changes in accounting policies other than the above (i): None(iii) Changes in accounting estimates: None(iv) Retrospective restatement: NoneNotes relating to changes in accounting policies(4) Number of issued and outstanding shares (common stock)(i) Number of issued and outstanding shares
FY 2016 Q1
at the end of the period (including treasury stock)
FY 2016 Q1(ii) Number of treasury stocks at the end of the period(iii) Average number of shares during the period
FY 2016 Q1(on a quarterly cumulative basis)
Notes relating to the number of issued and outstanding shares*

8,874,400 shares

FY 2015

8,874,400 shares

274,241 shares

FY 2015

274,241 shares

8,600,159 shares

FY 2015 Q1

8,593,923 shares

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

*

Proper use of business forecasts and other important matters
Forward-looking statements, such as business forecasts included in this document, are based on currently available information
or assumptions that the Company considers reasonable, and business results may differ significantly from forecasts due tovarious factors. For assumptions used as a basis for making business forecasts and notes on the use of business forecasts, referto “(3) Forward-looking Statements Including Consolidated Business Forecasts” on Page 3 of the attached document.

○Table of Contents of the Attached Document

1. Qualitative Information on Quarterly Results………………………………………………….…………………………… 2(1)Results of Operations………………………………………………….……………………………………………….. 2(2)Financial Position………………………………………………….…………………………………………………… 3(3)Forward-looking Statements Including Consolidated Business Forecasts……………………………………………... 4
2. Matters Concerning Summary Information (Notes) ………………………………………………………………………. 4(1)Material Changes in Subsidiaries during the Three Months Ended March 31, 2016…………………………………... 4(2)Adoption of Special Accounting Treatments for the Preparation of Quarterly Consolidated Financial Statements….... 4(3)Changes in Accounting Policies, Changes or Restatement of Accounting Estimates…………………………………... 4
3. Quarterly Consolidated Financial Statements……………………………………………………………………………… 5(1)Quarterly Consolidated Balance Sheet…………………………………………………………………………………. 5(2)Quarterly Consolidated Statements of Income and Quarterly Consolidated Statements of Comprehensive Income….. 7(3)Notes to Quarterly Consolidated Financial Statements………………………………………………………………… 9
Notes to Going Concern Assumption...…………………………………………………………………………………... 9
Notes to Significant Changes in Shareholders’ Equity...………………………………………………………………..... 9
Segment Information...…………………………………………………………………………………………………… 9
Significant Subsequent Events...…………………………………………………………………………………………. 11－1－1. Qualitative Information on Quarterly Results(1) Results of Operations
Overview of the consolidated business performance for the three months ended March 31, 2016
The SIOS Group continued to implement its growth initiatives, which are outlined in the Group's medium-term business strategy andfocused on investing in research and development, expanding into new business segments including FinTech(*1), and becoming morecompetitive in its core businesses, so as to become a leading player in the fast-changing IT industry.
In the three months ended March 31, 2016, the Group continued to invest in machine-learning technology(*2) as part of efforts toinvest in R&D, and released an upgraded version of SIOS iQ(*3), a software platform for IT operations analytics(*4).
As part of an initiative to expand into new business segments including FinTech, Profit Cube Inc. (PCI), which is the Company's
subsidiary, acquired a patent in March 2016 for its proprietary technology that enables greater flexibility and agility of a profit
management system for financial institutions. In April 2016, PCI also developed an automated loan-screening system for financial
institutions and filed a patent for the technology incorporated into the system.
In an effort to become more competitive in the Group's core businesses, the Group significantly upgraded LifeKeeper(*5), which isone of its core products, and a software application for multifunction printers(*6) to boost their sales.

With the implementation of these initiatives, business results by segment turned out as follows:
Open System Infrastructure Business Segment
The Group increased sales of LifeKeeper in Japan, the Americas, Europe, and Asia/Oceania. Red Hat Enterprise Linux(*7) and otherproducts offered by Red Hat, Inc. also enjoyed robust sales, buoyed by stepped up sales and marketing efforts. Support services foropen-source software(*8) (OSS) and OSS-related products also achieved solid sales growth. As a result, net sales in this segment
amounted to 1,721 million yen, up 21.4% year on year, with an operating income of 51 million yen, compared with an operating lossof 40 million yen in the same period of the previous fiscal year.

Application Business Segment
Sales in this segment increased substantially due to the addition of sales by Keyport Solutions Inc. (KPS) and PCI, both of which theCompany acquired in the previous fiscal year. The sharp increase in sales also resulted from the delivery of support services for system
implementation to a growing number of corporate customers. As a result, net sales in this segment jumped 128.9% year on year to1,559 million yen.
The operating income in this segment surged 159.8% year on year to 172 million yen, with an increased gross profit gained from asales increase more than offsetting an increase in personnel and property lease expenses resulting from the addition of two
consolidated subsidiaries mentioned earlier.
Combining these two segments, net sales increased substantially to 3,281 million yen, up 56.3% year on year in the three months
ended March 31, 2016, which was a record for the Group's quarterly net sales.
Consequently, the Group posted an operating income of 223 million yen, up 760.1% year on year, an ordinary income of 207 million
yen, up 562.7% year on year, and a quarterly net income of 129 million yen, compared with a quarterly net loss of 29 million yen in
the year before, attributable to owners of the parent company. The Group’s key management indicator EBITDA (operating income +depreciation + amortization of goodwill) stood at 265 million yen, up 587.8% year on year.
As stated in the “Notice of Receipt of Report Submitted by the Internal Investigative Committee,” dated June 9, 2016, the Company,
recognizing that Kanshin!, Inc. (formerly SIIIS Inc.), its consolidated subsidiary, had allegedly conducted inappropriate transactions
with respect to its subsidized projects during the period between October 2011 and March 2014, established an internal investigative
committee that comprised corporate auditors (including external corporate auditors) and external directors. The committee investigated
the allegation with the assistance of external experts including attorneys and certified public accountants, and submitted a report of its
findings to the Company's Board of Directors on June 9, 2016.
The committee found that SIIIS had conducted transactions inappropriately by outsourcing jobs to subcontractors through its
affiliates with a padded amount of outsourcing and other costs, then having the affiliates flow the surplus back to SIIIS, and also by
overcharging subsidized costs based on overstated SIIIS's in-house personnel expenses for the purpose of fraudulently obtaining more－2－

than its fair share of subsidies.
The committee's report states that a portion of the subsidies in question need not necessarily be considered a fraudulently received
amount based on padded expenses. If, however, SIIIS is found to have committed a fraudulent act with respect to said subsidies, thedecision to grant such subsidies to SIIIS may be reversed retroactively in whole or in part, and the grant of the whole subsidies
including said amount may be rescinded. Accordingly, the Company amended its consolidated financial statements, non-consolidated
financial statements, and quarterly consolidated financial statements posted in the previous fiscal years to the amount of 125,661
thousand yen, comprising the full amount of subsidies in question (93,661 thousand yen) received by SIIIS and a surcharge to be
imposed upon the subsidies (calculated based on an annual interest rate of 10.95%) in accordance with the regulations for granting
subsidies.
We appreciate your understanding and support as we endeavor to take actions as soon as possible to prevent the recurrence of such
misconducts so as to restore your confidence in the SIOS Group.
(*1) FinTech
An emerging technology for facilitating innovations in the financial sector.
(*2) Machine-learning technology
A technology for giving the computer the same learning ability as a human being and for extracting useful informationfrom a variety of data.
(*3) IT operations analytics
Analyzing data generated in IT operations and converting them into practical and easy-to-digest information.
(*4) SIOS iQ
A software platform that comprehensively monitors, analyzes, and optimizes operations of applications in virtual and cloudenvironments to improve performance and efficiency and ensure reliability in resolving complex issues.
(*5) LifeKeeper
A failover software product that automatically switches a failed primary server to a backup server.
(*6) Software application for multifunction printers
A multifunction printer (MFP) is a piece of office equipment that incorporates print, scan, copy, and fax capabilities into
one unit. SIOS develops, markets, and updates Quick Scan and Speedoc, document management software applications
running on an MFP.
(*7) Red Hat Enterprise LinuxLinux OS developed by the open solution provider Red Hat, Inc.
(*8) Open-source software
Software whose source code, which is the fundamental component of the program, is made available for free and can beused, modified, and redistributed.

(2) Financial Position
Current assets amounted to 3,856 million yen, down 1.1% from the end of the previous consolidated fiscal year, mainly due to adecrease of 397 million yen in cash and deposits and an increase of 282 million yen in accounts receivable-trade.
Fixed assets amounted to 1,695 million yen, down 2.7% from the end of the previous consolidated fiscal year, mainly due to adecrease of 25 million yen in investment securities and a decrease of 21 million yen in goodwill.
As a result, total assets amounted to 5,522 million yen (down 1.6% from the end of the previous fiscal year).
(ii) Liabilities
Current liabilities amounted to 2,784 million yen, down 3.1% from the end of the previous fiscal year, due to a decrease of 240
million yen in short-term loans payable.
Fixed liabilities amounted to 1,293 million yen, down 4.6% from the end of the previous fiscal year, due to a decrease of 63
million yen in long-term loans payable.
As a result, total liabilities amounted to 4,077 million yen, down 3.6% from the end of the previous fiscal year.
(iii) Net assets
Total net assets amounted to 1,474 million yen, up 4.3% from the end of the previous fiscal year, mainly due to a quarterly net－3－income of 129 million yen attributable to owners of the parent company posted in the three months ended March 31, 2016.

(3) Forward-looking Statements Including Consolidated Business Forecasts
There is no change to the full-year consolidated business forecasts for FY 2016 announced on February 2, 2016, as net sales andeach of the profit items below operating income, as stated above, remained essentially in line with those in the earlier forecasts.
In addition, as stated in the “Notice of Receipt of Report Submitted by the Internal Investigative Committee,” dated June 9, 2016, it
was found that Kanshin!, Inc. (formerly SIIIS Inc.), the Company's consolidated subsidiary, had conducted inappropriate transactions
with respect to its subsidized projects. Consequently, the Company intends to post in the six months ending June 30, 2016 expenses
incurred to investigate SIIIS's misconducts as well as expenses incurred to revise publicly released financial statements for previous
fiscal years. However, it is impossible to estimate, with reasonable accuracy, the amount of those expenses at this time and quantify its
impact on the Group's business performance and financial position for the year. Should any necessity arise of revising the Group's
consolidated business forecasts, we will promptly announce revised forecasts.

2. Matters Concerning Summary Information (Notes)(1) Material changes in subsidiaries during the three months ended March 31, 2016
Not applicable(2) Adoption of special accounting treatments for the preparation of quarterly consolidated financial statements
Not applicable(3) Changes in accounting policies, changes or restatement of accounting estimates
Not applicable－4－3. Quarterly Consolidated Financial Statements(1) Quarterly Consolidated Balance Sheet(Unit: thousand yen)
FY 2015(as of December 31, 2015)

FY 2016 Q1(as of March 31, 2016)

AssetsCurrent assets
Cash and deposits

2,206,352

1,808,945

Notes and accounts receivable-trade

1,346,277

1,629,137

Work in progress

114,680

124,163

Advance payment

106,473

171,197

Other

127,536

123,655

Allowance for doubtful accounts

(200)

(200)

3,901,120

3,856,899

Buildings (net)92,841

88,974

Other (net)71,96374,198

Total tangible fixed assets

164,805

163,173

838,787

817,444

Total current assets
Fixed assets
Tangible fixed assets

Intangible fixed assets
Goodwill
Other
Total intangible fixed assets

248,472

242,159

1,087,259

1,059,603

244,983

219,119

Investment and other assets
Investment securities
Net defined retirement assets

26,24925,941

Guarantee deposits

216,140

215,642

7,193

16,805

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

Total investment and other assets

489,494

472,437

1,741,559

1,695,213

5,642,680

5,552,113

Total fixed assets
Total assets－5－

(Unit: thousand yen)
FY 2015(as of December 31, 2015)

FY 2016 Q1(as of March 31, 2016)

Accounts payable-trade543,741

675,210

Short-term loans payable

240,000

Current portion of long-term loans payable

155,442－
134,999

Income taxes payable

28,45092,297

Advance received

1,339,886

1,434,982

Reserve for bonuses

26,67875,301

Liabilities
Current liabilities

Reserve

2,515

4,499

Other

535,653

367,115

2,872,367

2,784,406

Long-term loans payable

974,765

911,539

Deferred tax liabilities
Reserve for additional payment resulting fromrepayment of subsidies
Net defined benefit liabilities

68,814

67,83732,267

34,831

158,985

162,124

Total current liabilities
Fixed liabilities

Other

121,448

117,179

1,356,280

1,293,512

4,228,648

4,077,918

Capital stock

1,481,520

1,481,520

Capital surplus

474,415464,992

Retained earnings(321,538)(191,724)

Treasury stock(116,194)(116,194)

Total shareholders’ equity

1,518,201

1,638,593

Total fixed liabilities
Total liabilities
Net assets
Shareholders’ equity

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

1,420(9,065)

Foreign currency translation adjustment(143,423)(177,269)

Total accumulated other comprehensive income(142,002)(186,334)

22,281

21,936Equity warrants

15,551－

Total net assets

1,414,031

1,474,195

Total liabilities and net assets

5,642,680

5,552,113

Non-controlling interests－6－(2) Quarterly Consolidated Statements of Income and Quarterly Consolidated Statements of Comprehensive
IncomeQuarterly Consolidated Statements of Income
Three months ended March 31

Sales
Cost of sales(Unit: thousand yen)Three months ended March Three months ended March
31, 2015
31, 2016(From January 1, 2015
(From January 1, 2016
through March 31, 2015)
through March 31, 2016)
2,099,816
3,281,064
1,308,996
2,097,012

Gross margin

790,819

1,184,052

Selling, general and administrative expenses

764,826

960,492

Operating income

25,993

223,560

Non-operating revenues
Interest income

565

476

Exchange gain
Other

7,774
77

5,293
1,657

Total non-operating revenues

8,417

7,427

37

2,373

－
－

17,682
676

2,563

2,563

504

227

Non-operating expenses
Interest expenses
Investment loss on the equity method
Loss on investment of investment partnership
Provision for Reserve for additional payment resulting
from repayment of subsidies
Other
Total non-operating expenses

3,105

23,52431,305

207,464

Gain on reversal of equity warrants

1,231

1,166

Total extraordinary gain

1,231

1,166

Loss on retirement of fixed assets
Loss on withdrawal from employees’ pension fund341
13,738116

Total extraordinary loss

14,080116

Quarterly net income before income taxes

18,457

208,514

Income taxes-current

48,252

79,732

Ordinary income
Extraordinary income

Extraordinary loss－－

(1,950)Total income taxes

48,25277,781

Quarterly net income (loss)(29,794)

130,733－918(29,794)

129,814

Income taxes-deferred

Quarterly net income attributable to non-controlling interests
Quarterly net income (loss) attributable to owners of theparent－7－

Quarterly Consolidated Statements of Comprehensive Income
Three months ended March 31

Quarterly net income (loss)
Other comprehensive income

Three months ended March 31,
2015(From January 1, 2015
through March 31, 2015)(29,794)(Unit: thousand yen)Three months ended March 31,
2016(From January 1, 2016
through March 31, 2016)
130,733(2,638)(33,846)－(2,638)(10,485)(32,433)

86,400(32,433)

85,482－918

Foreign currency translation adjustment
Valuation difference on available-for-salesecurities
Total other comprehensive income
Quarterly comprehensive income(Comprehensive income attributable to)
Quarterly comprehensive income attributable toowners of the parent
Quarterly comprehensive income attributable tonon-controlling interests－8－(44,332)(3) Notes to Quarterly Consolidated Financial Statements
Notes to Going Concern Assumption
Not applicable
Notes to Significant Changes in Shareholders’ Equity
Not applicable
Segment Information【Segment Information】
I. For the three months ended March 31, 2015 (From January 1, 2015 through March 31, 2015)
1. Information on the amount of sales and income/loss by reportable segment(Unit: thousand yen)
Reportable segment
Adjustments

Amount recordedin quarterly
consolidated
statements ofincome(Note)

Open systeminfrastructurebusiness

Application
business

1,418,530

681,285

2,099,816―

2,099,816

279

―

279

(279)

―

1,418,809

681,285

2,100,095(279)

2,099,816(40,376)

66,36925,993―25,993Total

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

Note: The total amount of segment income (loss) is equal to operating income recorded in the quarterly consolidated statements ofincome.
Supplementary Information
Information by region
In addition to the disclosure required by “Accounting Standard for Quarterly Financial Statements,” information (Sales) by region isdisclosed in accordance with “Accounting Standard for the Disclosure of Segment Information” for the purpose of providing users offinancial statement with valuable information.
Net sales
Three months ended March 31, 2016
(From January 1, 2016 through March 31, 2016)(Unit: thousand yen)Japan
1,985,703

Americas72,329EuropeOther regions

23,31918,463

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

－9－

Total
2,099,816

II. For the three months ended March 31, 2016 (From January 1, 2016 through March 31, 2016)
1. Information on the amount of sales and income/loss by reportable segment(Unit: thousand yen)
Reportable segment
Adjustments

Amount recordedin quarterly
consolidated
statements ofincome(Note)

Open systeminfrastructurebusiness

Application
business

1,721,466

1,559,598

3,281,064

16

―

16

(16)

―

1,721,482

1,559,598

3,281,080(16)

3,281,064

51,154

172,405

223,560

Total

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

3,281,064

223,560

Note: The total amount of segment income is equal to operating income recorded in the quarterly consolidated statements ofincome.
Supplementary Information
Information by region
In addition to the disclosure required by “Accounting Standard for Quarterly Financial Statements,” information (Sales) by region isdisclosed in accordance with “Accounting Standard for the Disclosure of Segment Information” for the purpose of providing users offinancial statement with valuable information.
For the three months ended March 31, 2016 (From January 1, 2016 through March 31, 2016)(Unit: thousand yen)Japan
3,106,036

Americas

Europe114,11335,956

Other regions
24,958

Total
3,281,064

Note: Sales are classified by country or region in which customers are located.
2. Matters related to changes in reportable segments
The Group’s Web application business segment is shown as application business segment from the current fiscal year, consideringthat its business has expanded into fields beyond web applications. Accordingly, the segment formerly presented as the “Webapplication business” has changed to the “application business” from the three months ended March 31, 2016. Likewise, thesegment information pertaining to said segment for the three months ended March 31, 2015 is presented under the “application
business.”
This change in the segment name has no impact on the segment information.
3. Information on impairment loss of fixed assets or goodwill by reportable segment
Not applicable－10－Significant Subsequent Events
Revision to publicly released financial results for previous fiscal years
As stated in the “Notice of Receipt of Report Submitted by the Internal Investigative Committee,” dated June 9, 2016, it was
found that Kanshin!, Inc. (formerly SIIIS Inc.), the Company's consolidated subsidiary, had conducted inappropriate transactions
with respect to its subsidized projects. Consequently, the Company intends to post in the six months ending June 30, 2016
expenses incurred to investigate SIIIS's misconducts as well as expenses incurred to revise publicly released financial statementsfor previous fiscal years. However, it is impossible to estimate, with reasonable accuracy, the amount of those expenses at thistime and quantify its impact on the Group's business results and financial position for the year. Should any necessity arise ofrevising the Group's consolidated earnings forecasts, we will promptly announce revised forecasts.

－11－