インターアクション（7725） – Consolidated Financial Results for the Third Quarter of the Fiscal Year Ending May 31, 2022

Member of the Financial Accounting Standards Foundation Disclaimer: This is a Japanese-English translation of the summary of financial statements of the Company produced for your convenience. Since no auditor audited this report, officially only the Japanese version is assumed to be the summary of financial statements of the Company. This summary does not constitute any guarantee and the Company will not compensate any losses and/or damage stemming from actions taken based on these statements. Should there be any discrepancy between the Japanese and English versions, the Japanese version is assumed to be correct. April 11, 2022 Consolidated Financial Results for the Third Quarter of the Fiscal Year Ending May 31, 2022 INTER ACTION Corporation 7725 https://www.inter-action.co.jp/en/ Nobuo Kiji, CEO & President Kaori Kawaguchi, Chief, Business Planning Team Listed company: Listed stock exchange: Tokyo Securities code: URL: Representative: Contact: Telephone number: +81-45-263-9220 Submission of quarterly report: April 12, 2022 Dividend payment commencement date: – Preparation of explanatory materials for quarterly financial results: None Holding of a briefing on quarterly financial results: Yes 1. Consolidated Financial Results for the Cumulative Third Quarter of the Fiscal Year Ending May 31, (Amounts of less than one million yen are truncated) 2022 (June 1, 2021 to February 29, 2022) (1) Consolidated operating results (Cumulative) (% figures show year-on-year change) Net sales Operating income Ordinary income Profit attributable to owners of parent Millions of yen % Millions of yen % Millions of yen % Millions of yen % 4,131 Nine months ended February 28, 2022 Nine months ended February 28, 2021 (Note) Comprehensive income: Nine months ended February 28, 2022: ¥481 million / -49.1% Nine months ended February 28, 2021: ¥946 million / 57.2% (46.7) (19.1) 1,391 5,108 1,408 45.6 741 768 3.2 (45.4) 482 (48.3) 47.4 932 50.8 Profit per share Profit per share–diluted Nine months ended February 28, 2022 Nine months ended February 28, 2021 (2) Consolidated financial position Yen 43.99 85.03 Yen ― ― Total assets Net assets Shareholders’ equity ratio Millions of yen Millions of yen As of February 28, 2022 As of May 31, 2021 10,860 11,564 9,043 9,038 (Reference) Shareholders’ equity: As of February 28, 2022: ¥9,043 million As of May 31, 2021: ¥9,038 million % 83.3 78.2 2. Dividends Fiscal year ended May 31, 2021 Fiscal year ending May 31, 2022 Fiscal year ending May 31, 2022 (Forecast) First quarter-end Second quarter-end Third quarter-end Fiscal year-end Total Annual dividends Yen − − Yen 0.00 0.00 Yen − − Yen 20.00 Yen 20.00 20.00 20.00 (Note) Amendment to forecasts of dividends recently announced: None 3. Forecast of Consolidated Financial Results for the Fiscal Year Ending May 31, 2022 (June 1, 2021 to May 31, 2022) Net sales Operating income Ordinary income Profit attributable to owners of parent Profit per share (% figures show year-on-year change for the full year and quarter) Full year Millions of yen % Millions of yen % Millions of yen % Millions of yen % 5,903 (10.9) 1,123 (35.9) 1,153 (34.0) 685 (40.9) Yen 62.63 (Note) 1. Amendment to forecasts of dividends recently announced: Yes 2. The Company has implemented an ESOP and Directors’ stock compensation plan both in the form of stock benefit trusts. Accordingly, profit per share is calculated based on the average number of shares during the fiscal year, excluding the number of treasury shares, which includes Inter Action stock held by the stock benefit ESOP trust accounts and Directors’ compensation stock benefit trust accounts. * Notes (1) Change in significant subsidiaries during nine months ended February 28, 2022 (changes in specified subsidiaries affecting the scope of consolidation): None New: – (Company name: ) Excluded: – (Company name: ) (2) Application of special accounting for preparing quarterly consolidated financial statements: None (3) Changes in accounting policies and estimates, and retrospective restatements (i) Changes in accounting policies in accordance with revision of accounting standards: Yes (ii) Changes in accounting policies other than item (i) above: None (iii) Changes in accounting estimates: None (iv) Retrospective restatements: None (Note) For details, refer to “(3) Note regarding the quarterly consolidated financial statements (Changes in accounting policies)” under “2. Quarterly Consolidated Financial Statements and Notes” (page 10) of the Attached Materials. (4) Number of shares issued (common stock) (i) Number of shares outstanding at end of period (including treasury shares) 11,510,200 shares 11,510,200 shares 647,164 shares 514,513 shares 10,964,962 shares 10,970,172 shares As of February 28, 2022 As of May 31, 2021 (ii) Number of treasury shares at end of period (iii) Average number of shares during period As of February 28, 2022 As of May 31, 2021 For the nine months ended February 28, 2022 For the nine months ended February 28, 2021 (Note) The Company has implemented an ESOP and Directors’ stock compensation plan both in the form of stock benefit trusts. Accordingly, treasury shares, as stated, include Inter Action stock held by the stock benefit ESOP trust accounts and Directors’ compensation stock benefit trust accounts. * Quarterly financial results are not subject to auditing by a certified public accountant or an audit firm. * Proper use of earnings forecasts, and other special matters The above forecasts of consolidated financial results are based on certain assumptions on economic situation, market trends, etc. deemed to be reasonable when the forecasts were made. Consequently, actual results may differ from the forecasts due to a variety of future factors. Consequently, actual results may differ from the forecasts due to a variety of future factors. For details of the above forecasts, refer to“(3) Explanation of forward-looking information including consolidated earnings forecasts” under “1. Qualitative Information on Quarterly Results” (page 5) of the Attached Materials. [Attached Materials] Index 1. Qualitative Information on Quarterly Results ……………………………………………………………………………… (1) Explanation of operating results ………………………………………………………………………………………… (2) Explanation of financial position ………………………………………………………………………………………… (3) Explanation of forward-looking information including consolidated earnings forecasts………………………………… 2. Quarterly Consolidated Financial Statements and Notes …………………………………………………………………… (1) Quarterly consolidated balance sheets …………………………………………………………………………………… (2) Quarterly consolidated statements of income and consolidated statements of comprehensive income ………………… (Quarterly consolidated statements of income) June 1, 2021 – February 28, 2022 ……………………………………………………………………………… (Quarterly consolidated statements of comprehensive income) June 1, 2021 – February 28, 2022 ……………………………………………………………………………… (3) Note regarding the quarterly consolidated financial statements ………………………………………………………… 10 (Notes on premise of going concern) …………………………………………………………………………………… 10 (Notes on significant changes in the amount of shareholders’ equity) ………………………………………………… (Changes in accounting policies) ……………………………………………………………………………………… (Additional information) ……………………………………………………………………………………………… (Segment information)………………………………………………………………………………………………… (Revenue recognition-related information)……………………………………………………………………………… 13 3. Supplementary Explanation of Consolidated Financial Results for the Third Quarter of the Fiscal Year Ending May 31, 2022 …………………………………………………………… (1) Status of orders …………………………………………………………………………………………………………… 14 2 2 5 5 6 6 8 8 9 10 10 11 12 14 1 1. Qualitative Information on Quarterly Result (1) Explanation of operating results The Inter Action Group conducts business in three segments: Internet of things related works; environmental energy related works; and promotion business of Industry 4.0. The business environment in each segment is as described below. In the Internet of things related works segment, we manufacture inspection illuminators and pupil lens modules used for quality inspections in the image sensor production process and sell them to image sensor manufacturers. Currently, in the image sensor market, there are a dozen or so manufacturers of image sensors, of which Japanese and Korean companies account for over 60% of the market share. Aside from these existing makers, there have recently been moves by Chinese manufacturers to enter the business. Judging from the trends of image sensor manufacturers, we anticipate that the image sensor market will continue to expand. The market for image sensors tends to hinge on the manufacturing and selling situation of smartphones, as such devices currently account for about 60–70% of image sensor applications. Demand for smartphones remains firm compared with the previous fiscal year, driven in particular by increased time spent at home amid the COVID-19 pandemic and the spread of 5G-compatible devices. However, a shortage of semiconductors and other components continues to affect the production and shipment of smartphones, in volume terms, calling for close monitoring of the market trend in the period ahead. The increasing number of image sensors (cameras) installed per smartphone and the growing popularity of smartphones equipped with multiple image sensors (cameras) in recent years means that image sensor manufacturers will probably need to continue increasing production capacity. In the short-term, demand for image sensors remains focused on conventional imaging devices that capture visible light in order to take photos and videos. In the medium to long term, we anticipate the demand trend to shift from imaging to sensing needs, driving up demand for image sensors that can capture three-dimensional information needed for self-driving vehicles, industrial applications (machine-vision, surveillance cameras, etc.), and IoT devices equipped with image sensors as deployment of 5G mobile communication expands. Specific devices envisaged are ToF (time-of-flight) sensors and LiDAR (light detection and ranging) sensors, which aim to capture three-dimensional information such as the distance between objects. Use of these sensors in smartphones is gaining momentum and a further increase in demand is anticipated with the development of various applications. In the environmental energy related works segment, we manufacture and sell drying deodorizers used together with rotary presses (commercial printing presses) for large-volume printing and exhaust gas treatment systems for factories. In the printing machinery industry, although new capital investment is diminishing due to the growing prevalence of information technologies, a certain number of rotary presses are replaced every year due to age-related degradation, and there is also demand for periodic maintenance. As there is minimal competition, the Inter Action Group is able to stably accommodate this demand at present. At present, customers’ appetite for capital investment in new and large-scale projects is gradually beginning to recover in anticipation of a post-COVID-19 future. In the promotion business of Industry 4.0 segment, we mainly manufacture precision vibration isolation systems for removing vibrations that are a hindrance in the production process for displays and sell the systems to display manufacturers. We also manufacture testing systems for investigating whether gears are of the shape designed and sell them to gear manufacturers. In addition, as new businesses for the Group, we are actively working on businesses related to FA (factory automation) image processing and laser processing equipment. Currently, in the flat panel and OLED display industries, although appetite for capital investment is showing signs of gradual recovery particularly among overseas customers, uncertainties persist including the impact of the COVID-19 pandemic. Moreover, the gear testing systems market has essentially conformed to conditions of the machine tools market and is susceptible to economic fluctuations. While the COVID-19 pandemic led to a plunge in market conditions that at one point went deeper than that observed during the global financial crisis, a recovery trend is emerging notably among the robotics and automobile industries and in overseas (emerging country) industries. 2 In our new business related to FA image processing, we have developed and commercialized a gear inspection device that can automatically detect defective products based on images taken of small scratches that occur during the process of manufacturing metal gears. We began selling it through our subsidiary Tokyo Technical Instruments in November 2020, and have received high praise and numerous inquiries from customers. In the future, with the intention of completely automating gear inspections, we will introduce robots that pick up gears through to inspection systems, and continue to expand product sales while investigating use in applications outside the gear field. As for the laser processing machines-related business, which is also a new business, in the field of micromachining using lasers, we have proposed short-pulse laser ablation technology (processing that reduces thermal damage to materials by irradiating light for short periods of time) to businesses involved in ceramic processing, and have received inquiries from multiple companies. While continuing to approach companies that handle ceramics and other hard-to-process materials, we launched a joint study with Nagasaki University in August 2021, as part of our program to conduct tests with a view to applying semiconductor manufacturing to a range of processing applications. In recent years, attention has been drawn to next-generation power semiconductors using such materials as SiC (silicon carbide) that can reduce power losses and control at high speed. In the joint research, the focus is to conduct research on efficient methods of processing SiCs and other highly brittle materials with the objective of developing new processing equipment. The research period is scheduled to run until March 31, 2024. The laser processing machines-related business is promoted by Lastech. Co., Ltd., an unconsolidated subsidiary not accounted for by the equity method. As a result, consolidated net sales in the first nine months of the fiscal year under review decreased by 19.1% year on year to 4,131 million yen (compared with 5,108 million yen in the previous fiscal year), and gross profit declined by 29.7% year on year to 1,893 million yen (compared with 2,692 million yen in the previous fiscal year) due to the fall in sales and other factors. Operating income declined 46.7% year on year to 741 million yen (compared with 1,391 million yen in the previous fiscal year), ordinary income fell 45.4% year on year to 768 million yen (compared with 1,408 million yen in the previous fiscal year), and profit attributable to owners of parent excluding income taxes decreased 48.3% year on-year to 482 million yen (compared with 932 million yen in the previous fiscal year). The overall performance of each business segment was as follows. (Internet of things related works) The segment recorded year-on-year decreases in both net sales and profits. This is attributable to a year-on-year decline in sales of products for overseas customers, although sales of products for domestic customers remained firm. However, orders and the backlog of orders grew significantly, with the highest backlog of orders yet recorded. The shortage of parts and other materials causing problems in the manufacturing industry gave rise to adjustments such as delays in delivery due to various elements of confusion in supply chains, although it did not lead to any delivery delays for our products thanks to advance procurement and similar measures. Sales of inspection illuminators to domestic customers increased year on year. However, sales for the three months ended February 28, 2022 were subdued. We believe that this is mainly attributable to the postponement of capital investment by customers amid confusion in supply chains due to the shortage of parts and other materials. Meanwhile, sales of pupil lens modules were robust, maintaining the levels recorded in the same period of the previous fiscal year. Looking ahead, we anticipate demand for inspection illuminators and pupil lens modules to grow due to the continued implementation of large-scale capital investment in the inspection process at customers’ new factories. Regarding the status of sales of inspection illuminators to overseas customers, net sales recorded a year-on-year decrease. We believe that this is a result primarily of large-scale capital investment that customers had carried out in the same period of the previous fiscal year, and customers’ prioritization of products apart from image sensors in line with increased demand for these products in the three months ended February 28, 2022. At the same time, we understand from the year-on-year increase in orders from overseas customers that they will be implementing large-scale capital investment in the inspection process, and we expect sales of inspection illuminators to overseas customers to grow, mainly during the next fiscal year. Concerning the full-scale introduction of pupil lens modules at major overseas customers, verification by customers continues. At this stage, these customers are already submitting detailed requests regarding delivery and specifications, and we are progressing steadily toward mass production. 3 We are continuing to engage in active business discussions regarding our products with both domestic and overseas customers for the next fiscal year. Despite the risk of postponed delivery due to the shortage of parts and other materials, we see no change in the plan among customers to continue strengthening their production capacity given the high level of both orders and the backlog of orders, and therefore believe that customers’ capital investment appetite will remain robust. We also intend to implement measures, possibly including measures to strengthen production capacity and shorten delivery times, to respond to this trend. During the nine months ended February 28, 2022, net sales to this segment’s external customers fell by 25.4% year on year to 2,609 million yen (in comparison with 3,500 million yen in the previous fiscal year), and segment income fell by 35.6% year on year to 1,259 million yen (in comparison with 1,956 million yen in the previous fiscal year). (Environmental energy related works) Both segment net sales and profits decreased year on year, with revenue recognition postponed as a result of delays in several high-profit maintenance projects, mainly due to the impact of the shortage of parts and other materials. Meanwhile, orders and order backlog both showed year-on-year increases due to a gradual recovery in customers’ new capital investment in equipment such as printing press-related drying deodorizers and exhaust gas treatment systems in anticipation of a post-COVID-19 future. However, the timing of this investment by customers remains uncertain, with delivery times for equipment lengthening due to the impact of the shortage of parts and other materials. Concerning our initiatives in new fields, we are continuing to make steady progress in the development of a new failure prediction system that uses acoustic emission sensors (sensors that detect sound and vibration waves). We have also changed the organizational structure from April 2022, establishing a section focused on developing new products. We will proceed to consider various possibilities for further new product development in the future. During the nine months ended February 28, 2022, net sales to this segment’s external customers fell by 26.7% year on year to 501 million yen (in comparison with 683 million yen in the previous fiscal year), and segment income fell by 90.7% year on year to 3 million yen (in comparison with 34 million yen in the previous fiscal year). (Promotion business of Industry 4.0) In precision vibration isolation systems, net sales were sluggish and both sales and profits decreased year on year. Inquiries are increasing overseas, however, due to our efforts to rebuild the sales structure of overseas subsidiaries. The development of new products is progressing as planned, and is currently in the trial production, evaluation, and improvement stage of the mass-production model. We plan to release some of our new products next fiscal year, and we will continue to step up our efforts in developing new products and strengthening our sales activities, while paying attention to the parts and materials procurement situation and overseas customers’ capital investment trend. In gear testing systems, market conditions for the gear manufacturing industry showed signs of recovery, supported by persistently strong demand for machine tools in emerging countries, primarily China, and the buoyant robotics industry in Japan and overseas. This led to the continuation of robust capital investment appetite of both domestic and overseas customers, and resulted in year-on-year increases in net sales, orders, and order backlog. Regarding the new FA image processing system business, we continued to receive inquiries from automakers and several other companies. We also engaged in testing and trial production based on the samples received from each customer. We will continue to focus efforts on developing new products, expanding sales of FA image processing systems, and enhancing our overall product competitiveness. During the nine months ended February 28, 2022, net sales to this segment’s external customers rose by 10.4% year on year to 1,020 million yen (in comparison with 924 million yen in the previous fiscal year), and the segment recorded a loss of 26 million yen (in comparison with loss of 78 million yen in the previous fiscal year). 4 (2) Explanation of financial position As of the end of the first nine month of the consolidated fiscal year under review, net assets amounted to 10,860 million yen, a decrease of 703 million yen compared with the end of the previous consolidated fiscal year. Current assets amounted to 9,591 million yen, a fall of 554 million yen compared with the end of the previous consolidated fiscal year. This is mainly due to an 869 million yen decline in cash and deposits and a 302 million yen decline in electronically recorded monetary claims – operating, despite a 186 million yen rise in notes and accounts receivable – trade and a 224 million yen rise in work in process. Non-current assets amounted to 1,269 million yen, a decrease of 148 million yen compared with the end of the previous consolidated fiscal year. As of the end of the first nine months of the consolidated fiscal year under review, liabilities amounted to 1,816 million yen, a decrease of 709 million yen compared with the end of the previous consolidated fiscal year. This is mainly attributable to a decrease of 458 million yen in income taxes payable and a 196 million yen decrease in bonds and loans payable including the current portions thereof. As of the end of the first nine months of the consolidated fiscal year under review, net assets amounted to 9,043 million yen, an increase of 5 million yen compared with the end of the previous consolidated fiscal year. This is mainly due to booking of 482 million yen in profit attributable to owners of parent, despite 225 million yen of year-end dividends in the previous fiscal year and a 250 million yen increase in treasury shares. (3) Explanation of forward-looking information including consolidated earnings forecasts In light of the recent business performance trends, we have revised our consolidated earnings forecast for the fiscal year ending May 31, 2022 which was announced on January 12, 2022. For details, please refer to “Notice regarding revision to full-year consolidated earnings forecast and publication of full-year non-consolidated earnings forecast for the fiscal year ending May 31, 2022” announced today (April 11, 2022). Note that the full-year earnings forecast published at this time may fluctuate in the future to reflect changes in the social situation, domestic and overseas market trends and other factors, and a variety of factors may cause actual results to differ from those projected. 5 2. Quarterly Consolidated Financial Statements and Notes (1) Quarterly consolidated balance sheets (Unit: Thousands of yen) As of May 31, 2021 As of February 28, 2022 Assets Current assets Cash and deposits Notes and accounts receivable – trade Electronically recorded monetary claims – operating Operational investment securities Merchandise and finished goods Work in process Raw materials and supplies Other Allowance for doubtful accounts Total current assets Non-current assets Property, plant and equipment Buildings and structures, net Land Other, net Total property, plant and equipment Intangible assets Goodwill Other Total intangible assets Investments and other assets Investment securities Other Allowance for doubtful accounts Total investments and other assets Total non-current assets Total assets 7,224,091 675,519 754,129 38,077 148,305 797,317 466,966 69,290 (27,308) 10,146,389 283,370 165,149 220,138 668,658 234,725 37,392 272,117 130,423 427,901 (80,967) 477,356 1,418,133 11,564,522 6,354,279 862,018 451,289 36,549 205,080 1,021,479 529,168 157,380 (25,708) 9,591,537 267,644 165,149 194,602 627,396 198,093 29,207 227,300 130,410 365,810 (81,621) 414,600 1,269,298 10,860,835 6 (Unit: Thousands of yen) As of May 31, 2021 As of February 28, 2022 Liabilities Current liabilities Notes and accounts payable – trade Short-term borrowings Current portion of bonds payable Current portion of long-term borrowings Income taxes payable Provision for bonuses Provision for product warranties Provision for share awards for directors (and other officers) Other Total current liabilities Non-current liabilities Bonds payable Long-term borrowings Provision for share awards Retirement benefit liability Asset retirement obligations Other Total non-current liabilities Total liabilities Net assets Shareholders’ equity Share capital Capital surplus Retained earnings Treasury shares Total shareholders’ equity Accumulated other comprehensive income Foreign currency translation adjustment Total accumulated other comprehensive income Total net assets Total liabilities and net assets 360,701 210,000 60,000 144,815 476,487 － 23,887 194,300 304,022 1,774,214 30,000 593,856 3,842 97,941 10,150 16,515 752,305 2,526,520 1,760,299 3,352,855 4,826,850 (892,028) 9,047,977 (9,976) (9,976) 9,038,001 11,564,522 372,623 190,000 30,000 84,761 18,251 36,658 18,193 85,400 311,737 1,147,625 － 537,868 8,686 93,862 10,150 18,749 669,317 1,816,943 1,760,299 3,352,855 5,083,973 (1,142,596) 9,054,532 (10,640) (10,640) 9,043,891 10,860,835 7 (2) Quarterly consolidated statements of income and consolidated statements of comprehensive income (Quarterly consolidated statements of income) (June 1, 2021 – February 28, 2022) (Unit: Thousands of yen) Nine months ended February 28, 2021 Nine months ended February 28, 2022 Selling, general and administrative expenses Net sales Cost of sales Gross profit Operating income Non-operating income Interest income Dividend income Income from assets for rent Foreign exchange gains Subsidy income Other Total non-operating income Non-operating expenses Interest expenses Expenses of assets for rent Other Total non-operating expenses Ordinary income Extraordinary income Gain on sale of non-current assets Total extraordinary income Extraordinary loss Loss on retirement of non-current assets Total extraordinary losses Profit before income taxes Income taxes – current Income taxes – deferred Total income taxes Profit Profit attributable to owners of parent Share of loss of entities accounted for using equity method 5,108,444 2,416,202 2,692,241 1,300,292 1,391,949 462 50 9,784 708 8,672 12,698 32,376 6,358 7,611 646 1,542 16,159 1,408,166 － － 7,775 7,775 1,400,390 468,850 (1,253) 467,596 932,793 932,793 4,131,205 2,237,775 1,893,430 1,151,925 741,504 285 50 7,073 19,986 5,755 11,123 44,274 6,514 7,072 528 3,131 17,245 768,533 276 276 6,829 6,829 761,980 217,526 62,126 279,653 482,327 482,327 8 (Quarterly consolidated statements of comprehensive income) (June 1, 2021 – February 28, 2022) (Unit: Thousands of yen) Nine months ended February 28, 2021 Nine months ended February 28, 2022 Profit Other comprehensive income Foreign currency translation adjustment Share of other comprehensive income of entities accounted for using equity method Total other comprehensive income Comprehensive income Comprehensive income attributable to Comprehensive income attributable to owners of parent Comprehensive income attributable to non-controlling interests 932,793 13,892 (174) 13,717 946,511 946,511 － 482,327 (509) (155) (664) 481,662 481,662 － 9 (3) Note regarding the quarterly consolidated financial statements (Notes on premise of going concern) No items to report. (Notes on significant changes in the amount of shareholders’ equity) A major change in the cumulative third quarter of the consolidated fiscal year under review is acquisition of treasury shares through repurchase of 58,200 shares (134,986,000 yen) in accordance with the resolution of the Board of Directors passed at its meeting held on July 12, 2021. Further, from the directors’ compensation stock benefit trust, 27,000 shares of the Company’s stock (77,900,000 yen) were sold for cash distribution to the eligible directors and a distribution of 36,900 shares (106,464,000 yen) was made to the eligible directors. As a result, treasury shares increased by 250,567,000 yen to 1,142,596,000 yen as of the end of the third quarter of the consolidated fiscal year under review. (Changes in accounting policies) (Application of accounting standard for revenue recognition and related guidance) The Group has applied the “Accounting Standard for Revenue Recognition” (ASBJ Statement No. 29, March 31, 2020; hereinafter, “Accounting Standard for Revenue Recognition”) from the beginning of the first quarter of the consolidated fiscal year under review. Accordingly, revenue is recognized at a point in time when control of promised goods or services is transferred to customers, at the amount that is expected to be received in exchange for the goods or services. There is no change in accounting treatment associated with the foregoing. Therefore, the adoption of the Accounting Standard for Revenue Recognition and related guidance has no impact on the quarterly consolidated financial statements. Furthermore, as permitted by the transitional treatment set forth in Paragraph 28-15 of the Accounting Standard for Quarterly Financial Reporting (ASBJ Statement No. 12, March 31, 2020), disaggregated information on revenue from contracts with customers during the third quarter of the previous consolidated fiscal year has not been disclosed. (Application of accounting standard for fair value measurement and related guidance) The Group has applied the “Accounting Standard for Fair Value Measurement” (ASBJ Statement No. 30, July 4, 2019; hereinafter, “Accounting Standard for Fair Value Measurement”) and related guidance from the beginning of the first quarter of the consolidated fiscal year under review. In accordance with the transitional treatment set forth in Paragraph 19 of the Accounting Standard for Fair Value Measurement and Paragraph 44-2 of the “Accounting Standard for Financial Instruments” (ASBJ Statement No. 10, July 4, 2019), the new accounting policy prescribed by the Accounting Standard for Fair Value Measurement and related guidance will be applied into the future. This will have no impact on the quarterly consolidated financial statements. 10 (Additional information) (Stock benefit trust system that delivers company shares to employees through the trust) 1. Overview of transactions The Company has adopted an incentive plan “Employee Stock Ownership Plan (J-ESOP)” (hereinafter, “the System”) for employees that offers them a stake in the Company’s shares. We hope this will help to enhance employee motivation and morale, and thereby the Company’s stock price and performance, by increasing the correlation between our stock price, business performance, and the treatment of employees, and sharing the economic effects with our shareholders. The system is a mechanism for distributing the Company’s shares to employees that meet certain criteria in accordance with the stock benefit regulations established in advance by the Company. The Company will award employees points according to their personal contribution, etc. and distribute shares equivalent to the points awarded when the entitlement is gained under certain conditions. 2. Shares of the company remaining in trust Company shares remaining in trust are to be recorded at book value as “treasury shares” (excluding the amount of incidental costs) under net assets. At the end of the previous fiscal year and at the end of the third quarter of the consolidated fiscal year under review, the treasury shares in question had a book value of 13,736,000 yen (27,400 shares). (A performance-linked stock compensation system that distributes the company’s shares via a trust to the directors) 1. Overview of transactions We have adopted a “Board Benefit Trust” (hereinafter, “BBT”) that awards the Company’s shares to directors. The purpose of the BBT is to further clarify the correlation between the remuneration of directors and the Company’s performance and stock value. We hope this will not only contribute to boosting the stock price, but also contribute to increasing awareness of the importance of improving earnings and expanding corporate value over the longer term by sharing the risk of stock price downside with shareholders. In the BBT system, the Company’s stock is acquired through a trust using funds contributed by the Company. The BBT is a performance-based stock compensation plan in which the Company’s stock is paid annually through a trust based on points granted to directors in accordance with their position and performance based on the director stock benefit regulations established by the Board of Directors. 2. Shares of the company remaining in trust Company shares remaining in trust are to be recorded at book value as “treasury shares” (excluding the amount of incidental costs) under net assets. At the end of the previous fiscal year, the treasury shares in question had a book value of 684,166,000 yen (237,128 shares). And at the end of the third quarter of the consolidated fiscal year under review, the treasury shares in question had a book value of 499,801,000 yen (173,228 shares). (Implications of COVID-19 for accounting estimates) We have made no significant change in our assumptions regarding when the COVID-19 pandemic might subside from those announced in “Implications of COVID-19 for accounting estimates” in the “Additional information” section of our full-year financial results for the fiscal year ended May 31, 2021. 11 (Segment information) I. For the cumulative third quarter of the fiscal year ended May 31, 2021 (June 1, 2020 to February 28, 2021) 1. Information on net sales and the amount of profits (losses) by reportable segment Total Intra-segment internal sales and transfer amount Segment income (loss) Internet of things related works Environmental energy related works Promotion business of Industry 4.0 Total (Unit: Thousands of yen) － － － － 3,500,467 1,956,580 683,747 34,156 924,229 5,108,444 (78,080) 1,912,656 Sales to external customers 3,500,467 683,747 924,229 5,108,444 2. Difference between total amount of income or loss of reportable segments and the corresponding amount reported in the quarterly consolidated statements of income, and the key components of such difference (reconciliation) Income Amount (Unit: Thousands of yen) Net sales Total of reportable segments Company-wide expenses(Note) Inter-segment eliminations Adjustment of inventories 1,912,656 (502,012) 526 (19,221) 1,391,949 Operating income in the quarterly consolidated statements of income (Note) Company-wide expenses mainly consist of expenses incurred by the Company’s head office administrative operations that are 3. Information on impairment loss for non-current assets or goodwill of each reportable segment not attributable to the reportable segments. No items to report. 12 II. For the cumulative third quarter of the fiscal year ending May 31, 2022 (June 1, 2021 to February 28, 2022) 1. Information on net sales and the amount of profits (losses) by reportable segment Sales to external customers 2,609,868 501,174 1,020,163 4,131,205 Intra-segment internal sales and transfer amount Internet of things related works Environmental energy related works Promotion business of Industry 4.0 Total (Unit: Thousands of yen) － 2,609,868 1,259,857 － － － 501,174 1,020,163 4,131,205 3,159 (26,985) 1,236,031 Total Net sales Segment income (loss) 2. Difference between total amount of income or loss of reportable segments and the corresponding amount reported in the quarterly consolidated statements of income, and the key components of such difference (reconciliation) Income Amount (Unit: Thousands of yen) Total of reportable segments Company-wide expenses(Note) Inter-segment eliminations Adjustment of inventories 1,236,031 (479,396) 309 (15,440) 741,504 Operating income in the quarterly consolidated statements of income (Note) Company-wide expenses mainly consist of expenses incurred by the Company’s head office administrative operations that are not attributable to the reportable segments. No items to report. 3. Information on impairment loss for non-current assets or goodwill of each reportable segment (Revenue recognition-related information) Disaggregated information on revenue from contracts with customers For the cumulative third quarter of the fiscal year ending May 31, 2022 (June 1, 2021 to February 28, 2022) (Unit: Thousands of yen) Internet of things related works Environmental energy related works Promotion business of Industry 4.0 Total 2,609,868 － 2,609,868 － 2,609,868 498,702 － 498,702 2,471 501,174 1,020,163 － 1,020,163 － 1,020,163 4,128,733 － 4,128,733 2,471 4,131,205 (Note) Other revenue is that recognized in “Accounting Standard for Financial Instruments” (Accounting Standards Board of Japan Goods transferred at a point in time Goods transferred over time Revenue from contracts with customers Other revenue(Note) Sales to external customers (ASBJ) Statement No. 10). 13 3. Supplementary Explanation of Consolidated Financial Results for the Third Quarter of the Fiscal Year Ending May 31, 2022 (1) Status of orders In the first three quarters of the consolidated fiscal year under review, although net sales of the Group as a whole declined compared to the same period of the previous year, significant increases were recorded in both the amount of orders received and backlog of orders notably in the internet of things related works, with backlog of orders marking a record high. While there is risk that shortage of parts and materials could cause postponement of delivery dates, given the high levels of the amount of orders received and backlog of orders, we see no change in the stance of both domestic and overseas customers to continue strengthening their production capacity, and therefore believe that their capital investment appetite will remain robust. Orders received Segment 3Q of the previous consolidated fiscal year (June 1, 2020 to February 28, 2021) 3Q of the current consolidated fiscal year (June 1, 2021 to February 28, 2022) Change Amount of orders received (Thousands of Yen) Backlog of orders (Thousands of Yen) Amount of orders received (Thousands of Yen) Backlog of orders (Thousands of Yen) Amount of orders received (Thousands of Yen) Backlog of orders (Thousands of Yen) Internet of things related works 3,055,171 928,065 4,280,348 3,386,212 1,225,176 2,458,147 Environmental energy related works 445,345 158,192 638,051 427,078 192,705 268,886 Promotion business of Industry 4.0 817,650 176,550 1,035,804 340,082 218,154 163,532 Total 4,318,167 1,262,808 5,954,204 4,153,374 1,636,036 2,890,566 (Note) The above amounts do not include results of the operations which engage in make-to-stock production. 14