And factory : Summary of Non-Consolidated Financial Results for the Nine Months Ended May 31,2022

Translation

Notice: This document is an excerpt translation of the original Japanese document and is only for reference purposes. In the event of any discrepancy between this translated document and the original Japanese document, the latter shall prevail.

Summary of Non-Consolidated Financial Results

for the Nine Months Ended May 31, 2022

(Based on Japanese GAAP)

		July 15, 2022
Company name:	and factory, inc
Stock exchange listing:	Tokyo
Stock code:	7035	URL https://andfactory.co.jp/
Representative:	Rinji Aoki, President and Representative Director
Contact:	Tomoki Hasumi, Director	Phone: [phone]
Scheduled date to file annual securities report:	July 15, 2022
Scheduled date to commence dividend payments:	－
Preparation of supplementary material on quarterly financial results:	Yes
Holding of annual financial results meeting:	No
		(Amounts less than one million yen are rounded down.)

1. Non-Consolidated financial results for the nine months ended May 31, 2022 (From September 1, 2021 to May 31, 2022)

(1) Non-consolidated operating results (cumulative)

Percentages indicate year-on-year changes.

Net sales

Operating income

Ordinary profit

Net income

Millions of yen

%

Millions of yen

%

Millions of yen

%

Millions of yen

%

Nine month ended May 31,2022

2,051

(8.7)

28

－

(131)

－

(131)

－

Nine month ended May 31,2021

2,247

1.4

(136)

－

(247)

－

(268)

－

Earnings per share

Diluted earnings per share

Yen

Yen

Nine month ended May 31,2022

(13.31)

－

Nine month ended May 31,2021

(27.34)

－

Notes:	Although dilutive shares exist, diluted earnings per share are not stated as earnings per share were negative.
(2) Non-consolidated financial position
		Total assets	Net assets	Equity ratio
		Millions of yen	Millions of yen	%
As of May 31,2022	4,914	761	15.5
As of August 31,2021	5,376	888	16.5

(Reference) Equity capital: May 31,2022: ¥760 million	August 31,2021: ¥887 million
2. Cash dividends
				Annual dividends per share
	1st			2nd		3rd	Fiscal year-end		Total
	quarter-end		quarter-end		quarter-end
		Yen		Yen		Yen	Yen		Total
Year ended August 31, 2021		－		0.00		－	0.00	0.00
Year ending August 31, 2022		－		0.00		－
Year ending August 31, 2022 (Forecast)							0.00	0.00
Notice concerning Revision of the Financial Forecasts	：	No

3. Forecast of non-consolidated financial results for the year ending August 31, 2022

(From September 1, 2021 to August 31, 2022)

Percentages indicate year-on-year changes.

Net sales

Operating income

Ordinary profit

Profit

Earnings per share

Millions of yen

%

Millions of yen

%

Millions of yen

%

Millions of yen

%

Yen

Full year

2,750

（9.7）

40

－

（178）

－

（178）

－

（18.07）

Notice concerning Revision of the Financial Forecasts

：

Yes

Regarding the revision to the forecast, please refer to the "Notice Concerning the Revision of the Forecast of Non-Consolidated Financial Results for the Year Ending August 31, 2022" announced today (July 15, 2022).

※Notes

(1) Application of special accounting treatment for quarterly financial reporting: Yes

Note: For details, please refer to "2. Quarterly Non-Consolidated Financial Statements and Notes (3) Notes to the Quarterly Non- Consolidated Financial Statements (Application of Special Accounting Treatment for Quarterly Financial Reporting)" on page 8 of the attachments to this summary.

1. Changes in accounting policies, changes in accounting estimates, and restatement of prior period financial statements Changes in accounting policies due to revisions to accounting standards and other regulations: Yes
   Changes in accounting policies due to other reasons: No
   Changes in accounting estimates: No
   Restatement of prior period financial statements: No
2. Number of issued shares (common stock)

Total number of issued shares at the end of the period (including treasury shares)

As of May 31, 2022	9,853,520 shares	As of August 31, 2021	9,827,120 shares
Number of treasury shares at the end of the period
As of May 31, 2022	257 shares	As of August 31, 2021	257 shares
Average number of shares during the period (cumulative from the beginning of the fiscal year)
Nine months ended	9,850,071 shares	Nine months ended	9,826,863 shares
May 31, 2022	May 31, 2021

Notes: This financial report is exempt from the review.

Explanation about appropriate usage of business forecasts and other special notes:

The forecasts above are based on the judgments made on the basis of currently available information. Forecasts therefore include risks and uncertainties.

Actual results may differ significantly from projections due to a variety of factors. For information regarding the assumptions underlying the Company's earnings forecast and cautionary notes concerning the use of the forecast, please refer to "(3) Operating Performance Forecast" on page 4 of the attachments to this summary.

Content of Attachments
1. Qualitative Information on Quarterly Financial Results	2
(1)	Analysis of Operating Performance	2
(2)	Analysis of Financial Conditions	4
(3)	Operating Performance Forecast	4
2. Quarterly Non-Consolidated Financial Statements and Notes	5
(1)	Quarterly Non-Consolidated Balance Sheets	5
(2)	Quarterly Non-Consolidated Statements of Income	7
(3)	Notes to the Quarterly Non-Consolidated Financial Statements	8
(Notes Related to the Going Concern Assumption)	8
(Notes in the Events of Significant Changes in Shareholders' Equity)	8
(Application of Special Accounting Treatment for Quarterly Financial Reporting)	8
(Changes in Accounting Policies)	8
(Additional Information)	8
(Segment Information, etc.)	9

1

1. Qualitative Information on Quarterly Financial Results

1. Analysis of Operating Performance

The e-book market (the Company's main business category) continued to grow, according to the eBook Marketing Report 2021 by Impress Research Institute. According to this report, the e-book market had a value of ¥482.1 billion in fiscal 2020, up 28.6% from the previous year's figure of ¥375 billion. Comics accounted for 83% of the total, or ¥400.2 billion. The same institute's report for the previous year, the eBook Marketing Report 2020, had forecast that the e-book market would reach a value of ¥444.2 billion in fiscal 2020. The actual figure exceeded this forecast. By fiscal 2025, the institute forecasts that the e-publishing market (including e-books) will grow by approximately 1.4 times larger of fiscal 2020, to ¥674.7 billion. The definition of the e-book market was revised in the eBook Marketing Report 2021. Previously, e-magazines and e-books were combined under the category of e-publishing. Under the new definition, e-magazines are included in e-books.

The Company's mission is to make people's lives more fulfilling by bringing a little "something extra" to their daily lives. In the core Apps business, the Company has focused mainly on expanding earnings from smartphone manga apps developed in collaboration with large publishers.

In the Apps business segment, advertising revenue in the Company's mainstay manga apps business was down, reflecting lower advertising ARPU stemming from deterioration in the advertising market. Although in the entertainment business fortune telling performed well, overall sales in the Apps business segment were down slightly from the same period of the previous fiscal year. On the other hand, operating income remained on a par year on year thanks to efficient spending on advertising in the manga apps

business.

In the RET business segment, profitability related to the operation of &AND HOSTEL facilities improved significantly as a result of business structure reforms. At the same time, the occupancy rates at these facilities were on the rise thanks to changes in targets and concepts associated with &AND HOSTEL.

In the Other businesses segment, sales decreased year on year because the Company transferred lodging and rental property services during the fiscal year ended August 31, 2021, as part of its efforts to adjust its business portfolio. However, operating income improved due to the Company's withdrawal from unprofitable businesses.

As a result of these activities, in the nine months ended May 31, 2022, the Company generated net sales of ¥2,051,474 thousand (down 8.7% year on year), an operating income of ¥28,168 thousand (operating loss of ¥136,238 thousand in the corresponding period of the previous fiscal year), an ordinary loss of ¥131,042 thousand (ordinary profit of ¥247,018 thousand in the corresponding period of the previous fiscal year), and a net loss of ¥131,090 thousand (net income of ¥268,660 thousand in the corresponding period of the previous fiscal year).

It should be noted that we recategorized our reportable segments effective from the three months ended November 30, 2021. Accordingly, comparisons and analysis for the nine months ended May 31, 2022 are based on the revised segmentation..

(1) Apps business

The Company has observed strong performance from existing manga apps, such as Manga UP!, Manga Park, and Manga Mee, since their launch. This strong performance continued during the nine months ended May 31, 2022, thanks to the extended availability of popular content and the addition of new titles.

Earnings contribution also came from the steady increases in monthly active users (MAUs*1) at Young Jump, a manga app jointly developed with SHUEISHA Inc. (released April 2020), and Mecha Comic's Mainichi Rensai, a manga app jointly developed with Amutus Corporation (released May 2020).

At the same time, the COVID-19 pandemic's impact on the overall advertising market took a turn for the worse, and advertising revenue declined amid a downward trend in ARPU*2 from in-app ads.

As a result, in the nine months ended May 31, 2022, sales in the Apps business were ¥1,934,126 thousand (down 4.6% year on year). Segment profit came to ¥344,972 thousand (down 2.8% year on year).

*1 The number of people who use an app at least once in a month *2 The average amount of revenue generated per person

2

Of the smartphone apps the Company operates in the Apps business, the following table outlines average MAUs by quarter for the manga apps.

			(Thousands of people)
Date	Average MAUs	Date	Average MAUs
May 31, 2017	310	February 29, 2020	7,200
August 31, 2017	650	May 31, 2020	9,060
November 30, 2017	1,080	August 31, 2020	9,940
February 28, 2018	1,500	November 30, 2020	10,260
May 31, 2018	2,040	February 28, 2021	10,540
August 31, 2018	2,380	May 31, 2021	10,560
November 30, 2018	2,790	August 31, 2021	11,010
February 28, 2019	3,620	November 30, 2021	10,460
May 31, 2019	4,300	February 28, 2022	10,440
August 31, 2019	5,320	May 31, 2022	11,210
November 30, 2019	6,410

Note: the average MAUs shown above are quarterly averages.

(2) RET business

In the nine months ended May 31, 2022, occupancy rates for the &AND HOSTEL smart hostels operated by the Company trended toward recovery after having been hard hit by COVID-19 in the fiscal year ended August 31, 2021. This reflects efforts by some locations to change targets and concepts to attract new customer bases. Nonetheless, the average spend per customer remained at a low level, although it is on a recovery trend, and operating revenue of each location was flat compared to the same period of the previous year. The Company also made adjustments to agreements associated with some &AND HOSTEL locations during the fiscal year ended August 31, 2021, which resulted in lower rents and other fixed costs at loss-generating locations. Accordingly, losses in the &AND HOSTEL business declined year on year.

Meanwhile, the Company posted real estate-related sales. We continued to generate rental revenue from properties, while deriving one-off earnings from property sales brokerage fees and consulting fees in the &RESIDENCE rental property consulting business.

Consequently, in the nine months ended May 31, 2022, sales in the RET business came to ¥111,712 thousand (up 0.3% year on year), with a segment loss of ¥36,477 thousand (loss of ¥129,848 thousand in the same period of previous year).

(3) Other businesses

Sales in the Other businesses segment declined year on year because the Company transferred service operations in the lodging and rental property fields, which were included under the IoT business segment until the fiscal year ended August 31, 2021, to other organizations. However, operating income increased as the Company withdrew from unprofitable businesses.

Meanwhile, the Company continued its ongoing review of plans within the field of entertainment that utilize new technologies not being applied in other business segments.

In the first nine months ended May 31, 2022, Other businesses reported sales of ¥5,635 thousand (down 94.8% year on year) and segment losses of ¥20,430 thousand (loss of ¥75,045 thousand in the previous year).

3