And factory : Summary of Non-Consolidated Financial Results for the Three Months Ended November 30,2021

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 Three Months Ended November 30, 2021 (Based on Japanese GAAP)

		January 14, 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:	January 14, 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 three months ended November 30, 2021 (From September 1, 2021 to November 30, 2021)

(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

%

Three months ended November 30, 2021

667

(7.2)

25

－

(25)

－

(23)

－

Three months ended November 30, 2020

718

(10.4)

(130)

－

(155)

－

(156)

－

Earnings per share

Diluted earnings per share

Yen

Yen

Three months ended November 30, 2021

(2.36)

－

Three months ended November 30, 2020

(15.96)

－

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 November 30, 2021

5,175

869

16.8

As of August 31, 2021

5,376

888

16.5

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

－

Year ending August 31, 2022 (Forecast)

0.00

－

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

3,050

0.2

170

－

(47)

－

(40)

－

(4.06)

Notice concerning Revision of the Financial Forecasts

：

No

4. 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 November 30, 2021	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 November 30, 2021	257 shares	As of August 31, 2021	257 shares
Average number of shares during the period (cumulative from the beginning of the fiscal year)
Three months ended	9,843,689 shares	Three months ended	9,826,863 shares
November 30, 2021	November 30, 2020

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	3
(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.

In this business environment, the Company pursues a mission to make people's lives more fulfilling by bringing a little "something extra" to their daily lives. In the 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, price per advertisement in the Company's mainstay manga apps business trended upward, and the Company's acquisition of new users slowed down as it cut back on promotional investment. Consequently, sales remained on par with those generated during the three months ended November 30, 2020. Meanwhile, operating income was significantly higher year on year due to the efficiency of the Company's promotional investment.

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 three months ended November 30, 2021, the Company generated net sales of ¥667,348 thousand (down 7.2% year on year), an operating income of ¥25,042(operating loss of ¥130,700 thousand in the corresponding period of the previous fiscal year), an ordinary loss of ¥25,375 thousand (ordinary profit of ¥155,939 thousand in the corresponding period of the previous fiscal year), and a net loss of ¥23,247 thousand (net income of ¥156,882 thousand in the corresponding period of the previous fiscal year).

It should be noted that we recategorized our reportable segments during the quarter under review. Accordingly, comparisons and analysis for the three months ended November 30, 2021, 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 three months ended November 30, 2021, 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 three months ended November 30, 2021, sales in the Apps business were ¥627,860 thousand (down 0.9% year on year). Segment profit came to ¥138,502 thousand (up 207.8% 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

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

2

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

Note: the average MAUs shown above are quarterly averages.

(2) RET business

In the three months ended November 30, 2021, occupancy rates trended toward recovery for &AND HOSTEL, the Company's mainstay brand of smart hostels (lodging facilities offering experiences made possible through IoT).These positive results compared with the fiscal year ended August 31, 2020, when performance was substantially affected by the COVID-19 pandemic, were a result of changing targets and concepts at some stores and promoting the acquisition of new customer bases, the occupancy rate has been on a recovery trend. However, although the average spend per customer is on a recovery trend, it is still at a low level, and the operating revenue of each store remained flat compared to the same period of the previous year.

The Company made adjustments to agreements associated with a portion of the &AND HOSTEL locations during the fiscal year ended August 31, 2021, and these adjustments resulted in a decrease in rents and other fixed costs stemming from loss- generating locations. Accordingly, losses in the &AND HOSTEL business declined year on year.

Meanwhile, the Company generated real estate-related sales, reporting cases of revenue generated through brokerage fees associated with property sales and an ongoing stream of rental revenue from properties.

Consequently, in the three months ended November 30, 2021, sales in the RET business came to ¥37,526 thousand (up 5.5% year on year), with segment losses of ¥15,068 thousand (loss of ¥52,245 thousand in the 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 three months ended November 30, 2021, Other businesses reported sales of ¥1,961 thousand (down 96.1% year on year) and segment losses of ¥10,514 thousand (loss of ¥17,949 thousand in the previous year).

(2) Analysis of Financial Conditions

(Assets)

As of November 30, 2021, total assets amounted to ¥5,175,553 thousand, down ¥200,996 thousand from August 31, 2021. This decline in total assets was primarily due to decreases of ¥98,131 thousand in accounts receivable-trade and ¥13,915 thousand in advances paid, as well as a downturn of ¥64,999 thousand in investment securities stemming from sale of unlisted 3