GungHo Online Entertainment, Inc.

3765

JP3235900002

Internet Services

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GungHo Online Entertainment : Notice of Convocation of the 23rd Annual General Meeting of Shareholders

March 12, 2020 at 03:59 am EDT

Securities code: 3765

March 13, 2020

Dear shareholders

1-11-1, Marunouchi, Chiyoda-ku, Tokyo

GungHo Online Entertainment, Inc.

President & CEO Kazuki Morishita

Notice of Convocation of the 23rd Annual General Meeting

of Shareholders

It gives us great pleasure to invite you to the 23rd Annual General Meeting of Shareholders of GungHo Online Entertainment, Inc.

If you are unable to attend the meeting, you can exercise your voting rights in writing. Please review the "Reference Materials for the General Meeting of Shareholders" and indicate your approval or disapproval for each proposal on the enclosed Voting Rights Exercise Form. Please send it back to the Company so that it reaches the Company no later than 6:00 p.m. on Friday, March 27, 2020 (JST).

1.	Date and	March 30, 2020 (Monday) 10:00 a.m. (Doors open at 9:00 a.m.)
	time
2.	Venue	3-13-1 Takanawa, Minato-ku, Tokyo
		Grand Prince Hotel New Takanawa "International Convention Center Pamir"

3. Purpose

Matters to be 1. Report on the Business Report, the Consolidated Financial Statements,

reported and the Audit Results of the Consolidated Financial Statements by the Accounting Auditor and the Board of Corporate Auditors for the 23rd term (from January 1, 2019 to December 31, 2019)

2. Report on the Non-consolidated Financial Statements for the 23rd term (from January 1, 2019 to December 31, 2019)

Matters to be
resolved
Proposal	Election of Nine (9) Directors

〰〰〰〰〰〰〰〰〰〰〰〰〰〰〰〰〰〰〰〰〰〰〰〰〰〰〰〰〰〰〰〰〰〰〰〰〰

・Please be advised that non-shareholders such as proxies and persons accompanying shareholders are not permitted to attend the meeting.

・When attending the meeting, please submit the enclosed Voting Rights Exercise Form at the reception.

・If the Reference Materials for the General Meeting of Shareholders, the Business Report, the Non-consolidated Financial Statements, and the Consolidated Financial Statements are amended, the amendments will be announced on the Company's website (https://www.gungho.co.jp/english/).

―1―

Attachment

Business Report

From January 1, 2019 ) to December 31, 2019

1. Overview of the Company Group

Consolidated business performance for the fiscal year ended December 31, 2019

1) Business progress and results

In the Japanese game market, the mobile game market continued to gradually expand, and the home console game software market also remained firm. As a result, the domestic game market in 2018 increased by 6.1% year on year to 1.6704 trillion yen*1.

Meanwhile, the global game market has also seen continued growth, and, along with the proliferation and expansion of smartphones, the global game content market in 2018 increased by 20.9% year-on-year to 13.1774 trillion yen*1. Following this, further expansion is expected in the console game market and the PC online game market.

Amidst these conditions, our company continued to concentrate on game development with a focus on global distribution in aim of the "Creation of New Values," and in order to "Maximization of Existing Values", we have worked to maintain as well as expand MAU (Monthly Active Users: the number of users who log into the game at least once a month) and have made efforts to strengthen the brands of each of our games.

As for existing games, "Puzzle & Dragons" (referred to as "P&D" henceforth) has had continuous updates and events held, such as adding new dungeons, improving game contents, collaborating with famous characters from other companies, and holding e-sports events, all with the main objective of providing players with the ability to have continued long-term enjoyment of the game. Sales for "P&D" have been favorable due to the implementation of initiatives aimed at reinvigorating MAU as well as the continuous implementation of measures to capture new users, including the broadcast of a TV anime series. Additionally, "the latest entry in the 'P&D' series, 'Puzzle & Dragons GOLD' for the Nintendo Switch™, the Company has been developing in the fiscal year, went on sale on January 15, 2020.

As for new games, the MAU for "Ragnarok Masters," which began service in Japan on June 5, 2019, has remained firm due to the implementation of in-game events and TV commercials. "TEPPEN," a card game developed jointly with Capcom Co. Ltd. for smartphones, began service on July 4, 2019*2 in North America and Europe, and on August 8 in Asia and Japan. The total number of downloads of "TEPPEN" exceeded 4 million as of November 19, 2019, due to the active hosting of e-sports events both within and outside of Japan as well as due to the implementation of advertising campaigns, including TV commercials.

Regarding subsidiary-related business, sales of "Ragnarok M: Eternal Love" (distributed by GRAVITY Co., Ltd.) in regions where the game is currently being distributed have settled compared to its sales when first distributed, but ongoing updates and events have resulted in stable sales, and it continues to contribute to our group's consolidated results.

As a result, net sales for the fiscal year ended December 31, 2019 amounted to 101,392 million yen, (an increase of 10.1% year-on-year). Operating profit was 28,349 million yen, (an increase of 6.7% year-on-year), ordinary profit was 28,617 million yen, (an increase of 7.3% year-on-year), and profit attributable to owners of parent came to 18,146 million yen, an increase of 9.4% from a year earlier.

*1: Famitsu Game White Paper 2019

*2: Pacific Daylight Time

2) Capital expenditure

For the fiscal year ended December 31, 2019, capital expenditure totaled 3,814 million yen, consisting mainly of 2,827 million yen in game development expenditure.

3) Financing

No financing of importance was obtained by the Company in the consolidated fiscal year under review.

Acquisition and disposal of shares, equity interest or share subscription rights in other companies Not applicable

―2―

Assets and income
- Consolidated

				(Millions of yen)

	20th	21st	22nd	23rd
Item	From January 1,	From January 1,	From January 1,	From January 1,
2016 to December	2017 to December	2018 to December	2019 to December

	31, 2016	31, 2017	31, 2018	31, 2019
Net sales	112,457	92,306	92,101	101,392

Operating profit	46,081	34,384	26,577	28,349

Ordinary profit	46,081	34,351	26,659	28,617

Profit attributable to	27,911	22,397	16,585	18,146
owners of parent

Net profit per share	322.35 yen	314.92 yen	233.17 yen	258.04 yen

Total assets	55,032	78,070	96,032	105,008

Net assets	40,984	62,412	78,110	90,765

Net assets per share	546.41 yen	834.29 yen	1,035.90 yen	1,218.59 yen

(Note) Effective July 1, 2019, share consolidation was implemented at a ratio of 1 share per 10 shares of common stock. Net profit per share and net assets per share are calculated on the assumption that the share consolidation was conducted at the beginning of the 20th consolidated fiscal year.

Non-consolidated

				(Millions of yen)

	20th	21st	22nd	23rd
Item	From January 1,	From January 1,	From January 1,	From January 1,
	2016 to December	2017 to December	2018 to December	2019 to December
	31, 2016	31, 2017	31, 2018	31, 2019
Net sales	105,435	76,575	62,340	67,870

Operating profit	47,629	33,991	23,906	24,144

Ordinary profit	47,700	33,987	23,981	24,255

Net profit	30,123	19,672	15,351	16,391

Net profit per share	347.90 yen	276.61 yen	215.82 yen	233.09 yen

Total assets	53,736	68,513	81,865	92,432

Net assets	43,727	61,581	75,034	84,601

Net assets per share	608.84 yen	855.64 yen	1,042.17 yen	1,201.76 yen

Material parent company and subsidiaries

Relationship with parent company Not applicable

―3―

Material subsidiaries

Company name	Capital stock	The Company's	Principal business activities
voting right ratio

Game Arts Co., Ltd.	78 million yen	100.00%	Planning, development and sales of PC online
games and consumer games


	3,474 million		Planning, development, operation and online
GRAVITY Co.,Ltd.	59.31%	distribution of online PC games and smartphone
won
		games

Acquire Corp	100 million yen	50.07%	Planning, development, distribution and sales of
smartphone games and consumer games


GungHo Online			Planning, development, distribution and sales of
Entertainment	US$300,000	100.00%
smartphone games and consumer games
America,Inc.

SUPERTRICK	50 million yen	100.00%	Planning and development of consumer games
GAMES,Inc.


GungHo Online
Entertainment	US$55,491	100.00%	Holding company
Asia Pacific	thousand

Pte.Ltd.
GungHo Gamania	US$10,000	51.00%	Online distribution and operation of smartphone
Co.,Limited	thousand	games


mspo, Inc.	490 million yen	69.14%	Operation and advertisement distribution of mobile
game platform


Grasshopper	10 million yen	100.00%	Planning and development of consumer games
Manufacture Inc.

Notes: PlayPhone,Inc. was removed from the list of material subsidiaries because all shares of PlayPhone Inc. held by the Group company were disposed of during the fiscal year under review.

Specified wholly-owned subsidiaries as of the end of the fiscal year under review Not applicable

―4―

(4) Challenges to be addressed

In the global game market, smartphone games are leading the market expansion owing to the proliferation and growth of smartphones, and further expansion is expected. Globally, both the console game market and the PC online game market not only continue to grow, but also are expected to create new markets through continuing with a technological revolution. Further, various terminals connected to the internet in an improved communication environment have enabled users to enjoy cross-platform gaming in a way that goes beyond the boundaries of terminals. Looking at game markets of different regions, the European game market remains large in scale, and the Asian game market has seen rapid expansion.

In these circumstances, the GungHo Group has been continuing to quickly and correctly ascertain the ever- changing operating environment for the game industry, identify material challenges to be addressed and pursue a business strategy befitting the endeavors.

The following outlines our specific initiatives targeting material challenges.

① Maximization of existing values

One of our corporate policies is to diversify the use of content assets, which are already established as game brands: "Ragnarok Online" is now celebrating its 17th anniversary since the launch of the service, and "Puzzle & Dragons" for smartphones celebrated its 8th anniversary in February 2020.

Aiming for the long-term enhancement of the game brand "Puzzle & Dragons," we offer the brand's through a variety of channels including "PUZZLE & DRAGONS GOLD" for Nintendo Switch, expansion to animation, character-related goods, comic books, and e-sports events, in order to satisfy a wide range of preference and age groups. We believe these multiple approaches will contribute to gaining loyal customers and ensuring our long-term success.

②Venturing into creation of new values

A new game market may be created by rapid technological evolution now and in the future. Besides, the online game market is expected to receive more newcomers, or to consolidate further, the competitive environment is expected to be more severe in the future. GungHo Group will make maximum use of its developmental and operational knowhow and experience, as well as planning and developmental skills, which are highly evaluated in smartphone and console game fields. Our five development policies, "Instinctive," "Innovative," "Attractive," "Continuing," and "Dramatic," are the key values we promise to offer customers, targeting a wide range of platforms.

③Pursuing growth in the global market

The online game market in general, including smartphone games, is expected to grow further while the smartphone market grows on a worldwide scale and technologies including communication environment are progressing.

Our business reach is extending to overseas markets for PC online games, smartphone games, and consumer games. These games require continual support, using content in events and campaigns regardless of platforms. We will develop a customized operational system of PC online games, smartphone games, and consumer games for global expansion, offer quality games to loyal customers worldwide, and enhance profitability.

④Strengthening corporate governance

Identifying maximization of enterprise value as one of significant business challenges for the Company, we think it is important to build a good relationship with stakeholders and continue growing steadily on a long-term basis. To achieve this goal, we will run the organization in a flexible, transparent manner and enhance corporate governance.

⑤Securing consumer safety

The online game industry is required to provide an environment where every user, including young people, can play online games safely because a wide range of age groups of smartphone users can play online games due to improvement of the internet environment, spreads of smartphones and evolution of game devices.

―5―

As a member of Japan Online Game Association, the Company is fully committed to protecting consumers from any disadvantages and to resolving issues through information exchanged among industry players. We believe this should contribute to society's economic growth.

⑥Strengthening corporate structure including product development

The video game market has been experiencing rapid changes and technological innovations. To achieve sustainable growth, we are in the process of establishing a solid foundation for our business and a responsive operating system, while improving management efficiency. Game development capabilities, which are the source of the group's revenue, are provided with flexibility based on an amoeba development concept and appropriate personal allocation.

Principal business activities (as of December 31, 2019)
1. Planning, development, operation and online distribution of PC online computer games and smartphone games
2. Planning, development, operation, distribution and sales of consumer games
Principal offices (as of December 31, 2019)
1. The Company's business office

Chiyoda-ku, Tokyo, Japan

2) Principal subsidiaries' business offices

Game Arts Co., Ltd.	Chiyoda-ku, Tokyo, Japan

GRAVITY Co.,Ltd.	Seoul Special City, South Korea

ACQUIRE Corp.	Chiyoda-ku, Tokyo, Japan

GungHo Online Entertainment America,Inc.	California, United States of
America

SUPERTRICK GAMES,Inc.	Chiyoda-ku, Tokyo, Japan

GungHo Online Entertainment Asia Pacific	Singapore
Pte.Ltd.

	Hong Kong Special Administrative
GungHo Gamania Co.,Limited	Region of the People's Republic of
	China
mspo, Inc.	Chiyoda-ku, Tokyo, Japan

Grasshopper Manufacture Inc.	Chiyoda-ku, Tokyo, Japan

Employees (as of December 31, 2019) 1) Employees of the corporate group

Number of employees	Change from the end of the previous
consolidated fiscal year


1,252 [142]	Increase of 100

Note: Number of employees in the brackets denotes average number of temporary employees for the fiscal year

2) Employees of the Company

Number of	Change from the end		Average number of
of the previous fiscal	Average age
employees	service years
year

395 [86]	Increase of 1	39 years and	7 years and
8 months	7 months


Notes:	1. Number of employees in the brackets denotes average number of temporary employees for the fiscal year
	2. Number of employees excludes GungHo employees on loan to other companies and includes other companies'
	employees on loan to GungHo.

―6―

(8) Principal lenders (as of December 31, 2019)

Lender	Outstanding
borrowings

Resona Bank Limited	161 million yen

Other material matters related to the current state of the corporate group Not applicable

2. Matters relating to shares of the Company

(1) Shares (as of December 31, 2019)
1) Total number of authorized shares	321,200,000 shares

Note: Effective July 1, 2019, share consolidation was implemented at a ratio of 1 share per 10 shares of common stock. Total

number of authorized shares decreased by 2,890,800,000 shares compared with the end of previous fiscal year.

2) Total number of shares outstanding

95,210,316 shares

Note: Total number of shares outstanding includes the treasury shares (25,529,818 shares).

Note: Effective July 1, 2019, share consolidation was implemented at a ratio of 1 share per 10 shares of common stock. Total number of shares outstanding decreased by 856,892,844 shares compared with the end of previous fiscal year.

3) Number of shareholders	83,015
4) Major shareholders

Shareholder name		Number of shares held	Shareholding ratio

SON Financial Inc.		17,895,700 shares	25.68%

Taizo Son		3,385,000 shares	4.85%

Japan Trustee Services Bank, Ltd. (Trust	2,764,800 shares	3.96%
Account)

The Master Trust Bank of Japan, Ltd. (Trust	2,188,000 shares	3.14%
Account)

THE BANK OF NEW YORK 133972	1,422,790 shares	2.04%

Japan Trustee Services Bank, Ltd. (Trust	1,307,900 shares	1.87%
Account 9)

MSCO CUSTOMER SECURITIES		1,093,545 shares	1.56%

Kazuki Morishita		1,009,600 shares	1.44%

Japan Trustee Services Bank, Ltd. (Trust	958,100 shares	1.37%
Account 5)

UBS AG LONDON A/C IPB SEGREGATED	741,603 shares	1.06%
CLIENT ACCOUNT

Note: Shareholding ratio was calculated by excluding the treasury shares (25,529,818 shares).

―7―

Share subscription rights

Outline of share subscription rights held by the Company's Directors as of December 31, 2016

	2016 4th	2017 5th	2018 6th	2019 7th
	share subscription	share subscription	share subscription	share subscription
	rights	rights	rights	rights
Date of issue	August 18, 2016	May 15, 2017	April 10, 2018	April 9, 2019

Number of share	8,361 rights	7,245 rights	4,291 rights	2,967 rights
subscription rights

Number of holders
The Company's	5 persons	5 persons	5 persons	5 persons
Directors (excluding

outside Directors)
Type and number of
shares to which	Common shares	Common shares	Common shares	Common shares
share subscription	83,610 shares	72,450 shares	42,910 shares	29,670 shares
rights apply
Issue price of	2,293.9 yen per	2,507.8 yen per	3,404.7 yen per	3,444.5 yen per
subscription rights	share	share	share	Share
Value of capital to
be contributed at the
time of exercise of	1 yen per share	1 yen per share	1 yen per share	1 yen per share
share subscription
rights
Exercise period for	From August 18,	From May 15, 2018	From April 10,	From April 9,
share subscription	2017 to August 17,	2019 to April 9,	2020 to April 8,
to May 14, 2033
rights	2032	2034	2035

Main terms and
conditions of	(Note)	(Note)	(Note)	(Note)
exercise of share

subscription rights

Outline of share subscription rights granted to employees of the Company during the fiscal year under review

	2019 7th
	share subscription rights
Date of issue	April 9, 2019

Number of share subscription rights	1,115 rights

Number of grantees
The Company's Corporate Officers (excluding	5 persons
any Corporate Officer concurrently in service

as Director of it)
Type and number of shares to which share	Common shares
subscription rights apply	11,150 shares
Issue price of share subscription rights	3,444.5 yen per share

Value of capital to be contributed at the time	1 yen per share
of exercise of share subscription rights

Exercise period for share subscription rights	From April 9, 2020 to April 8, 2035

Main terms and conditions of share	(Note)
subscription rights

Notes: 1. Any exerciser of the share subscription rights is required to be in the position of a Director, Corporate Auditor or employee of GungHo or a related company of it (referring to any of its subsidiaries and other companies having a capital relationship with GungHo) when exercising the rights in question. This, however, does not apply to cases where the exerciser resigns from GungHo due to the expiration of his/her service term or old-age retirement or if there is any other legitimate reason for the intended exercise.

2. In the event of the death of a share subscription right holder, his/her inheritor is allowed to exercise the share subscription rights solely in one single bulk transaction.

―8―

No share subscription right less than one unit of the share subscription rights is allowed to be exercised.
In the event of a share subscription right holder relinquishing his/her share subscription rights, these rights are not allowed to be exercised.

* Since the Company implemented a share consolidation at a ratio of 1 share per 10 shares of common stock as of July 1, 2019, "Type and number of shares to which share subscription rights apply" and "Issue price of share subscription rights" in 1) and 2) above were adjusted accordingly.

3. Matters relating to Directors of the Company

(1) Director and Auditors (as of December 31, 2019)

Position	Name	Assignment, and Significant Concurrent Positions
President &		President & Representative Director of Game Arts Co., Ltd.
Representative	Kazuki Morishita
Executive Director of GRAVITY Co., Ltd.
Director

		Executive General Manager of Finance Accounting Division and CFO of the
		Company
		Director of Game Arts Co., Ltd.
Director	Kazuya Sakai	Executive Director of GRAVITY Co., Ltd.
		Director of Acquire Corp.
		Director of GungHo Online Entertainment Asia Pacific Pte. Ltd.
		Director of GungHo Gamania Co.,Limited

Director	Yoshinori Kitamura	Executive General Manager of GV business division of the company
		Executive Director of GRAVITY Co., Ltd.

Director	Masato Ochi	Executive General Manager of Customer Service Division of the company

		Executive General Manager of Business Administration Division and CCO of
Director	Koji Yoshida	the Company
Director of Acquire Corp.

		Director of GungHo Online Entertainment Asia Pacific Pte. Ltd.

Director	Taizo Son	Representative Director of Belleisle Japan Inc.
Representative Director of SON Financial Inc.


		General Manager of the Finance Planning Department of SoftBank Group
Director	Norikazu Oba	Corp.
Representative Director & Vice President, CFO of J.Score CO., LTD.

		Director of SoftBank Group Japan Corporation
Director	Hidetsugu Onishi	Co-CEO, Integrity Partners LLC
CEO, Avergence Incorporated


Director	Keiji Miyakawa	Senior Advisor of Japan of Lincoln International

Full-time Auditor	Yoichiro Ando	Auditor of Game Arts Co., Ltd.
Auditor of Acquire Corp.


Auditor	Hiroto Uehara	Representative of Uehara Hiroto Certified Public Accountant Firm

		Representative of Shiroyama-Tower Law Office
		Director of TOIN GAKUEN EDUCATIONAL ASSOCIATION
		Dean of TOIN LAW SCHOOL
Auditor	Kaba Toshiro	Outside Director of CAVE Interactive CO., LTD.
		Outside Auditor of T-Gaia Corporation
		Outside Auditor of J.Score CO., LTD
		Outside Auditor of PIALA Inc.

Notes: 1. Hidetsugu Onishi, Director; Keiji Miyakawa, Director fell under the category of outside directors stipulated in Article 2, Item 15 of the Companies Act, and the Tokyo Stock Exchange was notified that they are independent director.

Yoichiro Ando, Full-time Auditor; Hiroto Uehara, Auditor; and Toshiro Kaba, Auditor fell under the category of outside auditors stipulated in Article 2, Item 16 of the Companies Act, and the Tokyo Stock Exchange was notified that they are independent directors.
Being a Certified Public Accountant, Hiroto Uehara, Auditor is equipped with a reasonable level of knowledge in finance and accounting.

―9―

(2) Outline of liability limitation agreement

An agreement has been entered into by and between the Company and Directors, Taizo Son, Norikazu Oba, Hidetsugu Onishi and Keiji Miyakawa, and Auditors, Yoichiro Ando, Hiroto Uehara and Toshiro Kaba, Outside Auditor on limitation of damage compensation liability pursuant to Article 427, Paragraph 1 of the Companies Act. The upper limit of damage compensation liability under this agreement shall be the higher of 1 million yen and an amount equivalent to one stipulated as the minimum liability value in Article 425, Paragraph 1.

(3) Amounts of remunerations for Directors and Auditors

Category	Number of recipients	Amount of payment

Director	8	292 million yen

Auditor	3	29 million yen

Total	11	322 million yen

Notes:	1. The amounts paid for the fiscal year under review do not include employee salaries for	Directors concurrently in service as
	employees.
	Shown below are the employee salaries for Directors concurrently in service as employees.
	Directors concurrently in service as employees: 4 persons, 156 million yen

1. As of December 31, 2019, the number of Directors stood at 9 and that of Auditors at 3. The difference between the combined total of these numbers and the above-mentioned total number of recipients resulted from the fact that one non- remuneration Director existed.
2. Of the above-mentioned total remunerations, the amount of remunerations for Outside Directors totaled 12 million yen for two Directors and 29 million yen for three Auditors.
3. The above-mentioned amounts for remuneration include the expenses (115 million yen for 5 Directors) incurred and recorded during the fiscal year under review in connection with share subscription rights granted as stock options.
Matters relating to Outside Directors

① Relationship between the Company and significant organization concurrently served in by Director

Hidetsugu Onishi, Director concurrently serves as Co-CEO of Integrity Partners LLC, CEO of Avergence Incorporated, neither of which has any particular relationship with GungHo.

Keiji Miyakawa, Director concurrently serves as Senior Advisor of Japan of Lincoln International, neither of which has any particular relationship with GungHo.

Yoichiro Ando, Auditor concurrently serves as Outside Auditor of Game Arts Co., Ltd., and Acquire Corp. which is a subsidiary of GungHo.

IV. Hiroto Uehara, Auditor concurrently serves as Representative of Uehara Hiroto Certified Public Accountant Firm, which doesn't have any particular relationship with GungHo.

Toshiro Kaba, Auditor concurrently serves as Representative of Shiroyama-Tower Law Office, Director of TOIN GAKUEN EDUCATIONAL ASSOCIATION, Dean of TOIN LAW SCHOOL, Outside Director of CAVE Interactive CO., LTD., Outside Auditor of T-Gaia Corporation, Outside Auditor of J.Score CO., LTD and Outside Auditor of PIALA Inc., neither of which has any particular relationship with GungHo.

Relationship with specified business operators such as main business connections

Yoichiro Ando, Full-time Auditor, is also an auditor of Game Arts Co., Ltd. and Acquire Corp., subsidiaries of the Company.

―10―

Principal activities during the fiscal year under review

a. Attendance at Board of Directors meetings and Board of Corporate Auditors meetings

	Board of Directors meeting	Board of Corporate Auditors
	(held 13 times)	meeting (held 14 times)
	Number of	Attendance rate	Number of	Attendance rate
	attendances	attendances

Hidetsugu Onishi, Director	13 times	100%	- times	- %

Keiji Miyakawa, Director	12 times	92%	- times	- %

Yoichiro Ando, Auditor	13 times	100%	14 times	100%

Hiroto Uehara, Auditor	13 times	100%	14 times	100%

Toshiro Kaba, Auditor	13 times	100%	14 times	100%

b. Remarks at Board of Directors meetings

Hidetsugu Onishi, Director, has sufficient experience and extensive knowledge gained mainly as a corporate executive. Keiji Miyakawa, Director, has sufficient experience and expertise gained mainly as an executive of financial service business. Yoichiro Ando, Auditor, has knowledge, wide-ranging views and sufficient experience gained mainly through his banking business activities as a former banker. Hiroto Uehara, Auditor, has sufficient experience and extensive knowledge gained mainly as a certified public accountant. Toshiro Kaba, Auditor, has sufficient experience and advanced knowledge gained as an attorney-at-law. They have provided the Company with advice and proposals from their respective viewpoints so that the legitimacy and validity of decisions made by the Board of Directors can be ensured.

These three Auditors have also made necessary remarks at the Board of Corporate Auditors meetings.

4. Accounting Auditor

(1) Name	PricewaterhouseCoopers Aarata LLC
(2) Fee

		Amount of fee

Fee for the Accounting Auditor for the fiscal year under review	37 million yen

Total amount of money and other compensation reward obliged to
be paid to the Accounting Auditor by the Company and its	37 million yen
subsidiaries

Notes:	1. The audit contract between the Company and the Accounting Auditor neither distinguishes between the audit fee for an
	audit under the Companies Act and the audit fee for an audit under the Financial Instruments and Exchange Act, nor is able
	to do so practically. Therefore, the total fee is shown above.

2. Bearing in mind the "Practical Guidelines on Collaboration with Accounting Auditor" published by the Japan Audit & Supervisory Board Members Association, the Board of Corporate Auditors ascertained the results of audit hours by audit item and hierarchical level under the previous fiscal year audit plan as well as the audit fee trend and the state of execution of duties by the Accounting Auditor. It then examined the reasonableness of the audit plan and fee for the fiscal year under review. As a result, the Board of Corporate Auditors consented to the fee for the Accounting Auditor pursuant to Article 399, Paragraph 1 of the Companies Act.
Matters concerning audits of subsidiaries

GRAVITY Co., Ltd., a subsidiary of the Company, is subject to audit by an accounting auditor other than the Company's Accounting Auditor.

(4) Policy on decision to dismiss or not reappoint the Accounting Auditor

The Board of Corporate Auditors conducts overall an assessment of the Accounting Auditor's qualifications, independence, communication with Corporate Auditors, etc. in accordance with internal assessment procedures. If considered necessary (e.g. cases where it is difficult for the Accounting Auditor to perform his/her duties), the Board of Corporate Auditors determines an agenda to dismiss or not reappoint the Accounting Auditor, and has the Board of Directors submit it to the General Meeting of Shareholders.

―11―

If any of the items of Article 340, Paragraph 1 of the Companies Act is deemed to apply to the Accounting Auditor, the Board of Corporate Directors will dismiss the former after obtaining the consent of all Auditors. In such event, an Auditor selected by the Board of Corporate Auditors will report on the dismissal in question and the reason for it at the first General Meeting of Shareholders to be held after the dismissal.

―12―

5. System to secure the appropriateness of operations and an outline of the system operation

Pursuant to the Companies Act and the Companies Act Enforcement Regulations, the Company has in place a basic policy to develop a system to secure the appropriateness of its operations (the Basic Policy on Development of Internal Control System). The contents of it and an outline of its operation are as shown below.

System to secure the appropriateness of operations

System to ensure that the execution of duties of Directors and employees adheres to laws and ordinances and the Articles of incorporation
1. In addition to ensuring the sharing of the corporate philosophy of the GungHo Group, we have established the GungHo Online Entertainment Group Charter, a charter that stipulates matters relating to the enhancement of its corporate governance platform and compliance, as well as the GungHo Group Compliance Code for Directors and Employees as compliance-related behavior guidelines obliged to be adhered to by all Directors and employees, as well as other relevant regulations.
2. The Company elects a Chief Compliance Officer (CCO) as manager charged with promoting compliance.
3. The Company develops whistleblowing internal/external contact points (hotline) to which a compliance-related whistleblowing report can be submitted by Directors or employees and at which any of them can have the relevant consultation. Moreover, the Company ensures that no such whistleblowing or consulting members become subjected to disadvantageous treatment.
4. The Company's Internal Auditing Department performs an audit on the effectiveness of the organization's framework to comply with laws and ordinances and the Articles of Incorporation, and reports the audit results to the President & CEO. Moreover, the Internal Auditing Department reports the audit results to Auditors, thereby collaborating with the latter.
System for storage and management of information related to the execution of duties of the Company's Directors
1. In addition to putting in place standards required for storing and managing documents, the Company develops a system to appropriately store and manage documents and other material information that are related to Directors' execution of duties, including minutes of Board of Directors meetings and approval procedure documents, pursuant to the Document Storage Management Regulations, regulations aimed to ensure the efficient operation of duties to store and manage documents.
2. The Company elects the Chief Information Security Officer (CISO) as an officer to lead its information security activities pursuant to the Basic Information Security Regulations. Moreover, the Company puts in place the Information Security Committee chaired by CISO, thereby pursuing its information security activities.
Regulations on and other system for management of loss risk
1. The Company prescribes the Regulations on Risk Management System in order to avoid, mitigate and take necessary actions against various risks for its business operation. As for risk prevention, the Company establishes, pursuant to these regulations, the Risk Management Committee as a deliberation body to address risks. Further, individual business units, each responsible for handling different types of risks, perform risk management, striving to mitigate risks and prevent them from occurring.
2. In the event of an unforeseen incident or an emergency, the Company will immediately establish the countermeasure headquarters pursuant to the Regulations on Risk Management System. In turn, the Chief Crisis Management Officer (CCMO), the top crisis manager under the Chairman of the headquarters (President & CEO), will lead the efforts to put in place a system to deal with the situation in a well-supervised manner.
3. The Internal Auditing Department performs an audit on the state of the Company's risk management

before reporting the audit results to President & CEO and Auditors. ―13―

4) System to ensure that the duties of Directors are executed efficiently

The Company has established the Regulations on Segregation of Duties and the Regulations on Official Authority, in addition to the Regulations on Board of Directors. Thus, the Company strives to clarify the scope of procedure for entity-leveldecision-making and that of duties required for executing operations as well as authority and responsibilities, thereby developing a system for Directors to execute their duties efficiently.

System to secure the appropriateness of operations of the corporate group comprising the Company and its subsidiaries
1. The Company has established the Related Company Management Regulations to secure the appropriateness of its group companies' operations under the GungHo Online Entertainment Group Charter. Moreover, the Company develops a system to manage each of its subsidiaries in a manner befitting its size and importance.
2. Subsidiaries of the Company prescribe to various regulations obliged to be complied with by Directors and employees, and develop a system in which, for determining a significant matter for its business management, the subsidiary engages in prior consultation with the Company while keeping the former's operational autonomy and independence respected. Each of the subsidiaries also develops a system in which its operating results and financial position are periodically reported to the Company with any significant event experienced by its operations being reported to the latter when appropriate.
3. The Company guides each of its subsidiaries to develop a system equivalent to the former's risk management system according to the latter's size and importance in order to avoid, mitigate and take necessary steps against risks. Further, the Company develops a system in which each

subsidiary's risk management-related information is delivered to the former appropriately.

The Company installs compliance officers at each of its subsidiaries in light of its size and importance, thereby solidifying and bolstering the group's compliance platform. Moreover, the Company arranges for the subsidiary to develop its unique whistleblowing internal/external contact points (hotlines) to which a compliance-related whistleblowing report can be submitted by its Directors or employees and at which relevant consultation can be obtained by them. At the same time, the Company ensures that no such whistleblowing or consulting members become subjected to disadvantageous treatment.

1. The Company checks its subsidiaries with respect to the appropriateness of the financial reporting of the former and the latter, thus securing the appropriateness of the contents of the Company's Securities Report while developing its internal controls. If any internal control problem occurs, the organization will strive to develop its structure in an effort to improve the situation.
2. The Company's Internal Auditing Department performs an internal audit on each of its subsidiaries according to its past internal audit results and to its size and importance.
Matters on employees obliged to assist Auditors' duties and matters on the securing of such employees' independence from Directors as well as the effectiveness of instructions issued to the employees
1. The Company may install employees as assistants dedicated to assisting Auditors' duties or appoint employees in the Internal Auditing Division as such assistants with regard to individual audit items upon consulting with the Internal Auditing Division.
2. If the Company has installed dedicated assistants for Auditors' duties or appointed such assistants with regard to individual audit items, the Company has audit duties-related directions and orders issued by Auditors, thereby securing the appropriateness of the relevant instructions. Personnel change and employee evaluation for such assistants require the consent of Auditors.
System for reporting to Auditors and a system to ensure that no members reporting to them becomes subjected to disadvantageous treatment on account of having provided the report
1. The Company secures a system in which Directors and employees of it and its subsidiaries report the following matters to Auditors:

―14―

Material matter relating to the business management, finances and business execution of the Company and its subsidiaries;
Matter that is feared to cause serious damage to the Company;
Information on the state of development of internal control system;
Matter breaching laws or ordinances or the Articles of Incorporation;
Matter associated with compliance system and information on the state of reporting to the hotline;
Internal audit results;
Any matter deemed by any of Auditors necessary to be reported for the purpose of executing its duties.

The Company ensures that no member reporting to any Corporate Auditor as mentioned above becomes subjected to disadvantageous treatment on account of having provided the report.

System to ensure that Auditors' audits are carried out effectively
1. The Company provides an opportunity for the President & CEO and Auditors to exchange opinions with each other on a periodic basis, as well as an opportunity to hold hearing sessions with subsidiary Directors and employees if deemed necessary by any Auditor. Auditors have an opportunity to exchange information with the Accounting Auditor and Auditors of significant subsidiaries of the Company, thus collaborating with them.
2. Expenses deemed necessary for Auditors to execute their duties are borne by the Company through a prescribed procedure.
System for excluding anti-social forces

The GungHo Group Compliance Code for Directors and Employees declares the Company's intention to maintain a sound relationship with local communities and battle anti-social forces in a resolute manner. If the Company receives any unfair demand from an anti-social force entity, the former's relevant business unit responds to it sternly and resolutely rejects the demand by collaborating with the police and other external specialized agencies.

Outline of the operation of the system to secure the appropriateness of the Company's business operations
1. Execution of Directors' duties
  Pursuant to the Regulations on Board of Directors, the Company holds an Ordinary Meeting of Directors on a monthly basis and an Extraordinary Meeting of Directors as required. In this way, it makes decisions on matters stipulated in laws or ordinances or the Articles of Incorporation as well as matters for execution of significant duties while overseeing the execution of duties by Directors.
2. Compliance system

The Company periodically provides compliance training to Directors and employees to enhance their understanding and awareness about compliance. As for its whistleblowing system, the Company has in place contact points (hotlines) composed partly of outside lawyers while running the system with whistleblower protection stipulated in its relevant internal regulations.

3) Risk management

In addition to having in place the Regulations on Crisis Management System, the Company strives to reduce and prevent risks through the process of identifying risks, devising countermeasures and periodically revising them. Moreover, the Company implements a disaster scenario-based training program when appropriate.

4) Business management of subsidiaries

As for business management of the Company's subsidiaries, it arranges for its Director or employees to be appointed as a Director or Auditor of each subsidiary, thereby securing the appropriateness of the subsidiary. Under the Related Company Management Regulations, material business management information of subsidiaries is reported to the Company's Board of Directors in an appropriate manner.

―15―

5) Auditors

Auditors periodically exchange opinions with the President & CEO and collaborate with the Accounting Auditor and the Internal Auditing Department, thus securing the effectiveness of audits. The Auditors ascertain the state of development and operation of the Company's internal controls and provide advice for securing a sounder business management structure by attending Board of Directors meetings, having Full- time Corporate Auditors attend significant meetings and having hearing sessions with Directors and employees.

6. Policy for decision on dividends from retained earnings

Believing that returning profits to shareholders is a significant managerial challenge, the GungHo Group has in place a basic policy to enhance its enterprise value and maximize its competitiveness in future. This also relates to distributing profits in a manner commensurate with its operating results and with due regard for internal reserves, intended for bolstering its business structure. The Company intends to utilize the internal reserves effectively to strengthen its financial structure and business foundation and pursue operations aggressively towards future growth.

In accordance with the above-mentioned dividend policy, the company conducts 30 yen per share as an ordinary dividend of the fiscal year ended December 31, 2019.

The Company's Articles of Incorporation provide that it may pay dividends from retained earnings by the resolution of the Board of Directors, without a resolution of the General Meeting of Shareholders.

―16―

Consolidated Balance Sheets

(As of December 31, 2019)

			(Millions of yen)

Account Items	Amount	Account Items	Amount

Assets		Liabilities

Current assets	94,840	Current liabilities	13,327
Cash and deposits	86,225	Notes and accounts	3,303
payable-trade

Accounts receivable-trade	6,775	Current portion of	125
long-term loans payable

Short-term investment	282	Income taxes payable	4,086
securities

Merchandise	3	Provision for bonuses	8
Work in progress	43	Other	5,803
Other	1,525	Non-current liabilities	914
Allowance for doubtful	(16)	Long-term loans payable	148
accounts

Non-current assets	10,168	Other	766

Property, plant and equipment	746	Total liabilities	14,242

Intangible assets	3,678	Net assets

Software	265	Shareholders' equity	85,194
Software in progress	3,287	Capital stock	5,338
Other	124	Capital surplus	5,487
Investments and other assets	5,742	Retained earnings	159,046
Investment securities	72	Treasury shares	(84,678)
Deferred tax assets	2,669	Accumulated other	(282)
comprehensive income

Other	3,000	Foreign currency	(282)
translation adjustment

		Stock option	862
		Non-controlling interests	4,991

		Total net assets	90,765

Total assets	105,008	Total liabilities and net assets	105,008

(Note) Figures shown in millions of yen are rounded down to the nearest million.

―17―

Consolidated Statements of Income

From January 1, 2019
(to December 31, 2019 )
		(Millions of yen)

Account Items	Amount

Net sales		101,392
Cost of sales		48,168
Gross profit		53,223
Selling, general and administrative expenses		24,874

Operating profit		28,349
Non-operating profit
Interest income	157
Foreign exchange gains	106
Other	52	316
Non-operating expenses

Interest expenses	28
Treasury stock acquisition costs	13
Other	5	48

Ordinary profit		28,617
Extraordinary income
Gain on liquidation on Investment securities	89	89
Extraordinary losses

Impairment loss	1,029	1,029

Profit before income taxes and minority interests		27,677
Income taxes, residential taxes and enterprise taxes-current		8,363
Income taxes and others-deferred		(271)

Profit		19,586
Profit attributable to non-controlling interests		1,440

Profit attributable to owners of parent		18,146

(Note) Figures shown in millions of yen are rounded down to the nearest million.

―18―

Consolidated Changes in Net Assets

(	January 1, 2019 through	)
December 31, 2019
												(Millions of yen)

					Shareholders' equity

							Retained	Treasury	Total
		Capital stock Capital surplus	shareholders'
		earnings		shares
								equity

Balance at the beginning of	5,338		5,487			143,051			(80,027)		73,850
current period

Changes of items during the
period
Dividends paid						(2,134)					(2,134)

Profit attributable to owners of						18,146					18,146
parent

Subscription rights to			(15)							192		176
shares

Acquisition of treasury shares			(0)							(4,845)		(4,845)

Disposal of treasury shares			16							1		17

Transfer of disposal losses of						(16)					(16)
treasury shares

Net changes of items other
than shareholders' equity
Total changes of items during	-		-			15,995			(4,651)		11,344
the period

Balance at the end of current		5,338		5,487			159,046			(84,678)		85,194
period


		Accumulated other comprehensive
				income						Non-
									Stock		Total net
		Foreign currency	Accumulated other			controlling
			Option		assets
				interests
		translation	comprehensive

		adjustment	income

Balance at the beginning of	(148)			(148)	885	3,522	78,110
current period

Changes of items during the
period

Dividends paid

Profit attributable to owners of parent

Subscription rights to shares

(2,134)

18,146

176

Acquisition of treasury shares							(4,845)

Disposal of treasury shares							17

Transfer of disposal losses of							(16)
treasury shares

Net changes of items other	(134)	(134)		(22)	1,469	1,311
than shareholders' equity

Total changes of items during	(134)	(134)		(22)	1,469	12,655
the period

Balance at the end of current	(282)		(282)		862	4,991	90,765
period

(Note) Figures shown in millions of yen are rounded down to the nearest million.
		―19―

Notes on consolidated financial statements

1. Significant matters serving as bases for the preparation for consolidated financial statements

Matters concerning the coverage of consolidation

・Number of consolidated companies

・Major consolidated subsidiaries GAME ARTS Co., Ltd. GRAVITY Co.,Ltd. ACQUIRE Corp.

GungHo Online Entertainment America,Inc. SUPERTRICK GAMES,Inc.

GungHo Online Entertainment Asia Pacific Pte.Ltd. GungHo Gamania Co.,Limited

mspo, Inc.

Grasshopper Manufacture Inc.

Since all shares of PlayPhone,Inc. were sold during the fiscal year under review, the company was removed from the scope of consolidation as of June 30, 2019, the deemed date of the sale.

・There are no non-consolidated subsidiaries.

(2) Matters concerning equity method

・Number of equity method affiliated companies None

(3) Matters concerning consolidated subsidiaries' fiscal years, etc.

Consolidated subsidiaries have a fiscal year that ends on the same date as the consolidated financial statements.

Matters concerning accounting principles and standards

Appraisal standards and appraisal methods for principal assets

Marketable securities Other marketable securities

・Securities of market value Stated by using the market value method based on the market price, etc. as of the last day of the consolidated fiscal period, and valuation differences are reported as a component of shareholders' equity and costs of securities sold are calculated by the moving- average method

・Securities of no market value Stated at cost by using the moving-average method, except for securities held in some of subsidiaries overseas that are stated at cost by using the gross average method.

Inventory assets

・Merchandise	Stated at cost by using the specific cost method
	(the carrying amount on the balance sheet is
	reduced for decrease in profitability)
・Work in process	Stated at cost by using the specific cost method
	(the carrying amount on the balance sheet is
	reduced for decrease in profitability)
	Note that some overseas subsidiaries use the
	lower-of-cost-or-market method by the gross
	average method.
	―20―

Methods for depreciation of significant depreciable assets

a.	Tangible fixed assets	a. Assets acquired prior to or on March 31,
	except lease assets	2007: The former declining-balance method
		is used.
		b. Assets acquired on or after April 1, 2007:
		The declining-balance method is used.
		The straight-line method is used for some of the
		overseas subsidiaries.
		However, the straight-line method is used for
		building fixtures and structures acquired on or
		after April 1, 2016.
		. Shown below are principal useful lives:
		Buildings: 2 to 18 years
		Others: 3 to 15 years
b.	Intangible fixed	Stated by using primarily the straight-line
	assets except lease assets	method, and software for internal use is
		depreciated over the period from one to five
		years based on its availability period.
		However, intangible fixed assets related to
		portable device games are depreciated based on
		expected proceeds from sales.
c.	Lease assets	Lease assets are depreciated by using the
		straight-line method over the useful lives of the
		respective lease period with zero residual value.
		Note some overseas subsidiaries use the
		economic useful lives up to the lease period.

Accounting standards for significant allowances

a. Allowance for doubtful The Company records allowances for doubtful

accounts	accounts at an estimated uncollectable amount
	determined based on past credit loss
	experiences for general debts, and in
	consideration of their collectability of each.
b. Provision for bonuses	To provide employees with bonuses, the
	Company accrues reserves at an amount subject
	to fiscal year 2015 based on estimated future
	obligation.

④Standards for translation of principal assets and liabilities denominated in foreign-currencies into yen Monetary receivables and payables denominated in foreign currencies were translated into yen at a spot exchange rate on the consolidated fiscal year settlement date and resulting exchange gains and losses were charged to profit (loss).

⑤Accounting treatment of consumption taxes

The tax exclusion method is used for accounting treatment of consumption taxes and municipal consumption taxes.

2. Notes to changing the display method

We have applied "Partial revision to 'Accounting Standard for Tax Effect Accounting'" (ASBJ Statement No. 28 February 16, 2018), etc., from the beginning of the first quarter consolidated accounting period. Deferred tax assets are shown in the category of investments and other assets, and deferred tax liabilities are shown in the category of noncurrent liabilities.

―21―

3. Notes to consolidated balance sheets

Cumulative depreciation of property,

plant and equipment

2,478 million yen

4. Notes to consolidated changes in net assets

(1) Total number of shares outstanding Number of shares as of December

31, 2019 (shares)

95,210,316 shares

Dividends

Dividends from retained earnings paid out in the consolidated fiscal year under review

Date of

Resolution Share class Total dividends Dividend per Record date coming into share

effect

Board of	Directors	Common			December	March 6,
meeting	held on	2,134 million yen	3.00 yen
February 1, 2019	shares			31, 2018	2019

(Note) Effective July 1, 2019, share consolidation was implemented at a ratio of 1 share per 10 shares of common stock. Accordingly, dividend per share is shown in the amount before the share consolidation.

Dividends that would come into effect in the next fiscal year, among dividends whose record date fell in the consolidated fiscal year under review
The Board of Directors meeting held on February 13, 2020 adopted the following proposed resolution for the payment of dividends on common shares.

1.	Total dividends	2,090 million yen
2.	Dividend per share	30.00 yen
3.	Record date	December 31,	2019
4.	Date of coming into effect	March 16,	2020
5.	Source of dividends	Retained earnings

The type and number of shares issuable upon the exercise of share subscription rights at the end of the consolidated fiscal year under review (excluding these rights whose start date of the exercise period has not yet arrived)
Common stock: 253,490 shares

―22―

5. Notes on financial instruments

Matters pertaining to the state of financial instruments

Policy on handling financial instruments

Although essentially using internal reserves to fund operations, the GungHo Group obtains bank loans to fund some of them. It invests temporarily available excess cash mainly in financial instruments offering high stability.

2) Description of financial products, risks involved and risk management platform

Accounts receivable-trade representing operating receivables are exposed to credit risk associated with potential default by customers. With respect to this type of risk, the GungHo Group continues to monitor the state of its principal customers on a periodic basis, managing payment due dates and the balance of receivables on a customer-by-customer basis. Moreover, the Group strives to detect early and rein in any potential case of low recoverability due to deterioration of customer finances, among other factors. Foreign currency-denominated accounts receivable-trade are exposed to foreign exchange fluctuation risk.

Marketable securities and investment securities are exposed to price fluctuation risk. To manage this type of risk, the GungHo Group continuously monitors market values and issuer companies' financial positions. Accounts payable-trade representing operating payables are mostly due within 1 year.

Income taxes payable represent accrued taxes and are due within 1 year.

Loans payable are chiefly intended as financing to fund operations (short term) and capital expenditure (long term). Although exposed to liquidity risk and interest fluctuation risk, loans payable are managed by creating and renewing a cash flow management plan on a timely basis.

3) Supplementary information on market prices of financial instruments

Market values of financial instruments include, in addition to those based on market prices, reasonably computed values for cases where no market price is available. With certain assumptions employed to compute market values, using different assumptions may alter the values.

―23―

(2) Information on the market prices of financial instruments

The following shows the values of financial instruments recorded on the consolidated balance sheet as of December 31, 2019, their market values on the same date and the difference between the former and latter.

(Millions of yen)

		Value recorded on	Market value	Difference
		consolidated balance sheets


(1)	Cash and deposits	86,225	86,225	―
(2)	Accounts receivable-
6,775	6,775	―
	trade

Allowance for doubtful accounts*	(15)	(15)	―

		6,759	6,759	―

Marketable securities & investment securities

Other securities	282	282	―

	Total assets	93,267	93,267	―

(1)	Accounts payable-trade	3,303	3,303	―
(2)	Long-term loans payable
125	125	―
	within one year

(3)	Income taxes payable	4,086	4,086	―
(4)	Long-term loans payable	148	147	(1)

	Total liabilities	7,663	7,662	(1)

* Allowance for doubtful accounts that is recorded for accounts receivable-trade is deducted.

Note 1: Information on the method for computing the market value of financial instruments and on marketable securities

Assets

(1) Cash and deposits (2) accounts receivable-trade

Market value of these accounts is stated at balance sheet value since these accounts are settled in a short period of time, making the market value almost identical to the balance sheet value.

Marketable securities & investment securities
Market value of shares is stated at exchange price and that of bonds at a price quoted by counterparty

financial institution. Market value of negotiable certificates of deposit is stated at balance sheet value since they are settled in a short period of time, marking the market value almost identical to the balance sheet value.

Liabilities

Accounts payable-trade (2) long-term loans payable within 1 year (3) income taxes payable
Market value of these accounts is stated at balance sheet value since they are settled in a short period of time, marking the market value almost identical to the balance sheet value.

Long-termloans payable

Market value of long-term loans payable is stated at the present value determined by discounting the total amount of principal and interest at an interest rate expected to be applicable if the amount were newly borrowed in a comparable manner.

―24―

Note 2: Financial instruments whose market value is deemed to be very difficult to identify

(Millions of yen)

Category	Value recorded on consolidated balance sheets

Unlisted shares	72

No market price is available for unlisted shares whose market value is deemed to be very difficult to identify. Thus, they are not included in "(3) Marketable securities & investment securities."

Note 3: Values of monetary claims and securities with maturity expected to be redeemed after the consolidated closing date

(Millions of yen)

		Over 1 year and	Over 5 years
	Within 1 year	and within 10	Over 10 years
		within 5 years	years


Cash and deposits	86,225	―	―	―
Accounts receivable-trade	6,775	―	―	―
Marketable securities and
investment securities
Of other securities, those with	282	―	―	―
maturity


Total	93,282	―	―	―

Note 4: Value of expected repayments of long-term loans payable after consolidated balance sheet date

(Millions of yen)

				Over 1 year and	Over 2 years
			Within 1 year	and within 3	Over 3 years
				within 2 years	years

Long-term loans payable		125	104	44	―

6. Notes on per-share information
(1)	Net assets per share			1218.59 yen
(2)	Net income per share			258.04 yen

Effective July 1, 2019, share consolidation was implemented at a ratio of 1 share per 10 shares of common stock. Net assets and net income per share and diluted net income per share are calculated on the assumption

that the share consolidation was conducted at the fiscal year ended December 31, 2019.

7. Notes on significant subsequent events None

―25―

Balance Sheets

(As of December 31, 2019)

					(Millions of yen)

Account Items	Amount	Account Items	Amount

Assets		Liabilities

Current assets	78,687	Current liabilities	7,486
Cash and deposits	73,714	Notes and accounts	632
payable-trade

Accounts receivable-	3,770	Accounts payable-other	1,750
trade

Advance payments	864	Lease obligations	12
Other	338	Accrued expenses	362
Non-current assets	13,744	Income taxes payable	3,827
Property, plant and	80	Consumption taxes	642
equipment	payable

Buildings	0	Other	257
Equipment	80	Non-current liabilities	344
Intangible assets	2,782	Lease obligations	7
Software	97	Asset disposal	337
obligation

Software in progress	2,579	Total liabilities	7,831

Other	105	Net assets
Investments and other
10,881	Shareholders' equity	83,739
assets

Stock of affiliates	1,999	Capital stock	5,338
Long-term loans	5,229	Capital surplus	5,331
Long-term prepaid	70	Legal capital surplus	5,331
expenses

Deferred tax assets	5,733	Retained earnings	157,747
Deposit	2,461	Other retained	157,747
earnings

Allowance for doubtful	(4,613)	Retained earnings	157,747
accounts	brought forward

			Treasury shares	(84,678)
			Stock option	862

			Total net assets	84,601

Total assets		92,432	Total liabilities and net		92,432
	assets

(Note) Figures shown in millions of yen are rounded down to the nearest million.

―26―

Profit and Loss Statement

(	From January 1, 2019	)
to December 31, 2019
				(Millions of yen)

Account Items			Amount

Net sales				67,870
Cost of sales				24,981

Gross profit on sales				42,888
Total selling, general and administrative expenses			18,743

Operating profit				24,144
Non-operating profit
Interest income		162
Others		22	185
Non-operating expenses

Interest expenses		0
Foreign exchange losses		56
Treasury stock acquisition costs		13
Others		4	75

Ordinary profit				24,255
Extraordinary income
		80	80
Extraordinary loss

Provision of allowance for doubtful accounts	508
Impairment loss		542
Loss on valuation of stocks of affiliates		9	1,061

Income before income taxes				23,273
Income taxes-current				7,191
Income taxes-deferred				(309)
Net profit				16,391

(Note) Figures shown in millions of yen are rounded down to the nearest million.

―27―

Changes in Net Assets

January 1, 2019 through ) December 31, 2019

								(Units: Million yen)

						Shareholders' equity

			Capital surplus		Retained earnings

			Other capital		Other
				retained			Total
			surplus
	Capital	Legal	Total	earnings	Total	Treasury	share-

	stock	capital				capital		retained	shares	holders'
	Gains on	Retained
			equity
		surplus	sales of	surplus	earnings	earning
			treasury		brought
			shares		forward
Balance at the	5,338	5,331	-		5,331	143,506	143,506	(80,027)	74,149
beginning of current period

Changes of items during the period

Dividends paid							(2,134)	(2,134)		(2,134)

Net Income							16,391	16,391		16,391

Subscription rights toshares			(15)		(15)			192	176

Acquisition of treasury shares									(4,845)	(4,845)

Disposal of treasury shares			(0)		(0)			1	1

Transfer of disposal losses of			16		16	(16)	(16)		-
treasury shares

Net changes of items other
than shareholders' equity
Total changes of items during the	-	-	-		-	14,241	14,241	(4,651)	9,590
period

Balance at the end of current period	5,338	5,331	-		5,331	157,747	157,747	(84,678)	83,739

Stock option	Total net
assets

Balance at the

885 75,034

beginning of current period

Changes of items during the period

Dividends paid				(2,134)

Net Income					16,391

Subscription rights toshares			176

Acquisition of treasury shares			(4,845)

Disposal of treasury shares			1

Transfer of	disposal	losses	of		-
treasury shares

Net changes of items other		(22)	(22)
than shareholders' equity


Total changes	of items	during	the	(22)	9,567
period

Balance at the end of current period	862	84,601

(Note) Figures shown in millions of yen are rounded down to the nearest million.

―28―

Notes to non-consolidated financial statements

1. Notes on matters pertaining to significant accounting policies

Valuation standard and method for securities

Shares in subsidiaries	Stated at cost by using the moving-average
	method

(2) Methods for depreciation and amortization of non-current assets

1) Property, plant and equipmenta. Assets acquired prior to or on March 31,

other than lease assets2007: The former declining-balance method is used.

b. Assets acquired on or after April 1, 2007: The declining-balance method is used.

However, the straight-line method is used for building fixtures and structures acquired on or after April 1, 2016

Shown below are principal useful lives:

Buildings: 3 years

Tools and fixtures: 3 to 10 years

2) Intangible non-current assetsAmortized mainly by using the straight-line

other than lease assetsmethod. Software for in-house use is amortized based on available period (1 to 5 years); provided, however, that intangible non-current assets for portable device games are amortized based on expected sales.

3) Lease assets	Lease assets	are depreciated by using the
	straight-line method with the lease period as
	the useful life and with the residual value at
	zero.
(3) Accounting standards of allowances
Allowance for doubtful accounts	To prepare	for potential credit losses on
	receivables,	the	Company	records
	allowances for doubtful accounts at an
	estimated uncollectible amount	assigned
	based on	the	historical credit loss

experience for general receivables, and in consideration of individual collectability for specific receivables such as doubtful receivables.

Standard for translation of foreign currency-denominated assets and liabilities into yen
Foreign currency-denominated monetary claims and liabilities are translated into yen by using the spot foreign exchange rate prevailing on the closing date with any translation difference accounted for as a profit or loss.
Accounting treatment of consumption taxes
The tax exclusion method is used for accounting treatment of consumption taxes and municipal consumption taxes.

―29―

2. Notes to changes in display method

3. Notes on balance sheet

(1) Cumulative depreciation of property, 1,294 million yen plant and equipment

(2) Monetary claims and liabilities to related companies

Short-term monetary claims	176 million yen
Long-term monetary claims	5,229 million yen
Short-term monetary liabilities	596 million yen

Notes to profit and loss statement

Transactions with related companies
Operating transactions (income) Operating transactions (expenditure) Non-operating transactions (income)

Notes to changes in net assets

Number of treasury shares as of

December 31, 2019

6. Notes on tax effect accounting Breakdown of deferred tax assets by cause

Deferred tax assets Enterprise taxes payable

Depreciation & amortization excess value

Allowance of doubtful accounts

Loss on valuation of shares in related companies

Other Subtotal Valuation provision

Total deferred tax assets

27 million yen

5,797 million yen

169 million yen

25,529,818 shares

194 million yen

581 million yen

1,412 million yen

2,770 million yen

774 million yen

5,733 million yen

―

5,733 million yen

―30―

7. Notes on transactions with interested parties Subsidiaries and affiliates

		Voting rights			Transaction		Period-end
		Relationship with	Transaction	value		balance
Category	Company name holding ratio
interested party	description	(millions of	Account
	(%)		(millions of
			yen)		yen)


	GungHo		Concurrent service
	Online		Provision of		Long-term
Subsidiary	100.00	as director	317	4,399
Entertainment	loans	loan
		Provision of loans
	America, Inc.

Terms and conditions of transaction and policy on determining terms and conditions

Notes:

1. Consumption taxes are not included in transaction values and period-end balances.

2. Provision of loans is determined upon negotiations based on the terms and conditions (loan interest rate) proposed by the Company in consideration of market interest rates.

3. The Company recorded 3,883 million yen as an allowance for doubtful accounts related to long-term loans to GungHo Online Entertainment America, Inc.

8. Notes on per-share information

(1)	Net assets per share	1,201.76 yen
(2)	Net income per share	233.09 yen

Effective July 1, 2019, share consolidation was implemented at a ratio of 1 share per 10 shares of common stock. Net assets per share and net income per share are calculated on the assumption that the share consolidation was conducted at the beginning of this fiscal year.

Notes on companies to which regulation on consolidated dividend applies GungHo is a company to which regulation on consolidated dividend applies.
Notes on significant subsequent events

None

―31―

Accounting Auditor's report on consolidated financial statements

Independent Auditor's Report

February 28, 2020

To the Board of Directors of

GungHo Online Entertainment, Inc.

Designated and Engagement Partner

Yoshio Chiyoda (Seal)

Certified Public Accountant

Designated and Engagement Partner

Soichirou Hayashi (Seal)

Certified Public Accountant

Designated and Engagement Partner

We have audited, pursuant to Article 444, Paragraph 4 of the Companies Act of Japan, the consolidated financial statements of GungHo Online Entertainment, Inc. (hereinafter referred to as the "Company") for the consolidated fiscal year from January 1, 2019 to December 31, 2019, which consist of consolidated balance sheets, consolidated statements of income, consolidated statements of changes in net assets and notes to consolidated financial statements.

Management's Responsibility for Consolidated Financial Statements:

Management is responsible for the preparation and fair presentation of consolidated financial statements in accordance with accounting standards generally accepted in Japan. This responsibility includes development and operation of internal controls that are deemed necessary by management for preparing and fairly presenting consolidated financial statements that are free from material misstatements, whether due to fraud or error.

Auditors' Responsibility:

Our responsibility is to express, based on our audit, an opinion on these consolidated financial statements from an independent standpoint. We conducted our audit in accordance with auditing standards generally accepted in Japan. Those standards require that we formulate an audit plan and perform the audit according to the plan in order to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures are selected and applied at the auditors' judgment, based on an assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. Although the purpose of the audit is not to express an opinion on the effectiveness of the entity's internal controls, in making those risk assessments, the auditor considers internal controls relevant to the entity's preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate for the circumstances. An audit also includes evaluating accounting policies used by management, how they were applied and accounting estimates made by management, as well as examining the overall presentation of the consolidated financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Auditors' Opinion:

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position and the results of operations of the corporate group which consists of the Company and its consolidated subsidiaries for the period covered by the consolidated financial statements in conformity with accounting principles generally accepted in Japan.

Conflict of interest:

We have no interest in or relationship with the Company which is required to be disclosed pursuant to the provisions of the Certified Public Accountants Act of Japan.

―32―

Accounting Auditor's report on non-consolidated financial statements

Independent Auditor's Report

February 28, 2020

To the Board of Directors of

GungHo Online Entertainment, Inc.

Designated and Engagement Partner

Yoshio Chiyoda (Seal)

Certified Public Accountant

Designated and Engagement Partner

Soichirou Hayashi (Seal)

Certified Public Accountant

Designated and Engagement Partner

We have audited, pursuant to Article 436, Paragraph 2, Item 1 of the Companies Act of Japan, the non-consolidated financial statements of GungHo Online Entertainment, Inc. (hereinafter referred to as the "Company") for the 23rd fiscal year from January 1, 2019 to December 31, 2019, which consist of non-consolidated balance sheet, non-consolidated profit and loss statement, non-consolidated statement of changes in net assets, notes to non-consolidated financial statements and their supplementary schedules.

Management's Responsibility for Non-Consolidated Financial Statements:

Management is responsible for the preparation and fair presentation of non-consolidated financial statements in accordance with accounting standards generally accepted in Japan. This responsibility includes development and operation of internal controls that are deemed necessary by management for preparing and fairly presenting non-consolidated financial statements and their supplementary schedules that are free from material misstatements, whether due to fraud or error.

Auditors' Responsibility:

Our responsibility is to express, based on our audit, an opinion on these non-consolidated financial statements and their supplementary schedules from an independent standpoint. We conducted our audit in accordance with auditing standards generally accepted in Japan. Those standards require that we formulate an audit plan and perform the audit according to the plan in order to obtain reasonable assurance about whether the non-consolidated financial statements and their supplementary schedules are free of material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the non-consolidated financial statements and their supplementary schedules. The procedures are selected and applied at the auditors' judgment, based on an assessment of the risks of material misstatement of the non-consolidated financial statements and their supplementary schedules, whether due to fraud or error. Although the purpose of the audit is not to express an opinion on the effectiveness of the entity's internal controls, in making those risk assessments, the auditor considers internal controls relevant to the entity's preparation and fair presentation of the non-consolidated financial statements and their supplementary schedules in order to design audit procedures that are appropriate for the circumstances. An audit also includes evaluating accounting policies used by management, how they were applied and accounting estimates made by management, as well as examining the overall presentation of the non-consolidated financial statements and their supplementary schedules.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Auditors' Opinion:

In our opinion, the non-consolidated financial statements and their supplementary schedules referred to above present fairly, in all material respects, the financial position and the results of operations of the Company for the period covered by the non- consolidated financial statements and their supplementary schedules in conformity with accounting principles generally accepted in Japan.

Conflict of interest:

We have no interest in or relationship with the Company which is required to be disclosed pursuant to the provisions of the Certified Public Accountants Act of Japan.

―33―

Audit report by the Board of Corporate Auditors

Audit Report

Regarding the performance of duties by Directors for the 23rd fiscal year from January 1 to December 31, 2019, the Board of Corporate Auditors hereby submits its audit report, which has been prepared upon deliberations based on audit reports each prepared by Auditors.

1. Contents and Method of Audit by Auditors and the Board of Corporate Auditors

The Board of Corporate Auditors determined its auditing policy, an allocation of duties and other relevant matters, and received reports from Auditors on their audit and the results, and also received reports from Directors and the Accounting Auditors regarding the performance of their duties, and sought explanations, as required.
Auditors, in conformity to the auditing standards of Auditors established by the Board of Corporate Auditors, and obeying the auditing policy and allocation of duties, among other relevant matters, communicated with Directors and the Internal Auditing Division, other employees and any other relevant personnel, and made efforts to collect information and prepare the environment for audit, while conducting the audit by the method set forth below.

Auditors participated in Board of Directors meetings and other important meetings, received reports from Directors, employees and other relevant personnel on the performance of their duties, sought explanations as required, examined important authorization documents and associated information, and studied the operations and financial position at the head office and principal business offices. With respect to subsidiaries, Auditors communicated and exchanged information with Directors and Auditors of subsidiaries, and received business reports from the subsidiaries, as required.
Auditors examined the system to ensure that the performance of duties by Directors stated in the Business Report conforms to applicable laws and ordinances and the Articles of Incorporation. They also examined the system prepared based on the contents of the resolutions of the Board of Directors and on such resolutions on the development of the system stipulated in Article 100, Paragraphs 1 and 3 of the Companies Act Enforcement Regulations (internal control system), as measures required to secure the appropriateness of the operations of the corporate group comprising the Company and its consolidated subsidiaries. Auditors received regular reports from Directors, employees and other relevant personnel regarding the building and operation of the system, requested explanations as required and expressed opinions.
In addition to monitoring and verifying whether the Accounting Auditor maintained its independence and implemented appropriate audits, Auditors received reports from the Accounting Auditor on the performance of its duties and sought explanations as required. Moreover, we received a notice from the Accounting Auditor stating that the "system for ensuring that duties are performed properly" (matters set forth in the items of Article 131 of the Company Accounting Regulations) was developed in accordance with the "Audit Quality Control Standards" (Business Accounting Council, October 28, 2005), etc., and sought explanations, as required.

Based on the above method, we examined the Business Report, its supplementary schedules, non- consolidated financial statements (non-consolidated balance sheet, non-consolidated profit and loss statement, non-consolidated statement of changes in net assets and notes to non-consolidated financial statements) and their supplementary schedules for the fiscal year ended December 31, 2019, as well as consolidated financial statements (consolidated balance sheet, consolidated statements of income, consolidated statement of changes in net assets and notes to consolidated financial statements) for the same fiscal year.

―34―

2. Results of Audit

Results of Audit of Business Report and Other Relevant Documents
1. In our opinion, the Business Report and its supplementary schedules fairly represent the Company's situation in conformity to applicable laws and ordinances and the Articles of Incorporation.
2. Our audit did not discover any wrongful act or any material breach of applicable laws or ordinances or the Articles of Incorporation with respect to the performance of duties by Members of the Board of Directors.
3. In our opinion, the resolutions of the Board of Directors for the Company's internal control system are appropriate. We did not discover any matter required to be pointed out concerning the contents of the Business Report and the execution of duties by Members of the Board of Directors with respect to the internal control system.
4. Our audit did not discover any matter required to be pointed out with regard to any conscious effort made not to harm the Company's interests when engaging in such transactions with the parent and other relevant entity as are specified in the Business Report, and concerning judgment by the Board of Directors on whether any of such transactions would harm the Company's interests as well as the reason for the judgment.
Results of Audit of Non-Consolidated Financial Statements and Supplementary Schedules
In our opinion, the audit method employed by PricewaterhouseCoopers Aarata and the audit results are fair and reasonable.
Results of Audit of Consolidated Financial Statements
In our opinion, the audit method employed by PricewaterhouseCoopers Aarata and the audit results are fair and reasonable.
March 6, 2020
Yoichiro Ando Full-time Auditor Hiroto Uehara Auditor Toshiro Kaba Auditor
Board of Corporate Auditors GungHo Online Entertainment, Inc.
Note: Yoichiro Ando, Auditor, Hiroto Uehara, Auditor and Toshiro Kaba, Auditor are all external auditors stipulated in Article 2, Item 16 and Article 335, Paragraph 3 of the Companies Act of Japan.

―35―

Reference Materials for the General Meeting of Shareholders

Proposals and Reference Materials

Proposal : Election of Nine (9) Directors

The terms of office of all nine (9) Directors will expire at the close of this Annual General Meeting of Shareholders. Thus, it is proposed that nine (9) Directors.

The candidates for Directors are as follows:

	Name		Career Summary, Position, Assignment, and	Number of
No.		Company Shares
(Date of Birth)		Significant Concurrent Positions
		Held


		April 1994	Joined PALTEK CORPORATION
		July 1996	Joined SOFTCREATE CORP

		March 2000	Director of Dolphin Net Corporation
		December	Director of Kickers Network, Inc.
		2000
		May 2001	General Manager of E Service Department of ONSale Co., Ltd
			(currently, GungHo Online Entertainment, Inc.)
		August 2002	COO of GungHo Online Entertainment, Inc.	1,009,600
	Kazuki Morishita	January 2004	President & CEO of the Company (to present)
1	shares
(September 16, 1973)
	December	Director of Game Arts Co., Ltd.

		2005
		March 2008	President & Representative Director of Game Arts Co., Ltd. (to
			present)

(Significant Concurrent Positions)

President & Representative Director of Game Arts Co., Ltd.

Executive Director of GRAVITY Co., Ltd.

―36―

	Name		Career Summary, Position, Assignment, and	Number of
No.		Company Shares
(Date of Birth)		Significant Concurrent Positions
		Held


		April 1987	Joined The Kyushu Sogo Bank, Ltd. (currently, The Shinwa
			Bank, Ltd.)
		January 1993	Joined Expression Tools, Inc.
		April 1996	Director and General Manager of Administration Division of
			Expression Tools, Inc.
		April 2000	Vice President of Expression Tools, Inc.
		April 2002	Chief Executive Officer of Expression Tools, Inc.
		November	Representative Liquidator of Expression Tools, Inc.
		2003
		April 2004	Joined GungHo Online Entertainment, Inc. as General Manager
			of Management Division and CFO
		March 2005	Director of the Company (to present)
		January 2006	Executive General Manager of Management Division and CFO
			of the Company
		April 2008	General Manager of Financial Strategy Division and CFO of the
			Company
		April 2009	General Manager of Business Administration Division and CFO
			of the Company	100,000
	Kazuya Sakai	October 2009	Managing Executive Officer of the Company
2			shares
(January 28, 1965)	August 2010	Executive General Manager of Finance & Accounting Division

			and CFO of the Company
		January 2011	Managing Executive Officer and Executive General Manager of
			Finance & Accounting Division and Executive General Manager
			of Business Administration Division and CFO of the Company
		July 2011	Managing Executive Officer and Executive General Manager of
			Finance & Accounting Division and CFO and IRO of the
			Company
		March 2012	Executive General Manager of Finance Accounting Division and
			CFO and IRO of the Company
		April 2014	Executive General Manager of Finance Accounting Division and
			CFO of the Company (to present)
		March 2017	Director of Game Arts Co., Ltd. (to present)

(Significant Concurrent Positions)

Director of Game Arts Co., Ltd.

Director of Acquire Corp.

Executive Director of GRAVITY Co., Ltd.

Director of GungHo Online Entertainment Asia Pacific Pte. Ltd.

Director of GungHo Gamania Co.,Limited Director

―37―

Candid	Name		Career Summary, Position, Assignment, and	Number of
	Company Shares
ate No.	(Date of Birth)		Significant Concurrent Positions
	Held


		April 1992	Joined Gakusei Engokai Co., Ltd. (currently, PERSOL
			CAREER CO., LTD.)
		January 1995	Joined Rothmans Japan
		September	Joined ICC Co. Ltd.
		1999
		January 2002	Joined NC Japan K.K.
		February 2003	Joined GungHo Online Entertainment, Inc. as General Manager
			of Marketing Division
		January 2006	Executive General Manager of Marketing Division of the
			Company	40,000
	Yoshinori Kitamura	March 2006	Director of the Company (to present)
3	shares
(June 11, 1968)	July 2007	Executive General Manager of International Business Division of

			the Company
		October 2009	Managing Executive Officer and Executive General Manager of
			International Division of the Company
		March 2012	Executive General Manager of International Division of the
			Company (to present)
		October 2015	Executive General Manager of GV business Division of the
			Company (to present)

(Significant Concurrent Positions)

Executive Director of GRAVITY Co., Ltd.

		April 1987	Joined Ebisho Co. Ltd.
		January 1992	Joined Daiichi Takachiho Corporation
		October 1995	Joined SOFTCREATE CORP
		May 2000	Director of Dolphin Net Corporation as Director
		December	Joined Kickers Network, Inc.
	2000
		February 2002	JoinedALISS-NET Co., Ltd.
		February 2004	Joined GungHo Online Entertainment, Inc.
		February 2007	General Manager of Marketing Division No. 3 of the Company
		July 2007	Executive General Manager of Publishing Division of the
			Company
		April 2008	Senior Executive Officer and General Manager of Online
4	Masato Ochi	Division of the Company
(December 17, 1968) October 2009	Managing Executive Officer and General Manager of Game

			Division of the Company
		March 2010	Director of the Company (to present)
		July 2010	Managing Executive Officer and General Manager of Game
			Division and Executive General Manager of Business
			Administration Division of the Company
		January 2011	Managing Executive Officer and General Manager of Game
			Division of the Company
		January 2012	Managing Executive Officer and Senior General Manager of
			Online Division of the Company
		March 2012	Senior General Manager of Online Division of the Company
		May 2014	Executive General Manager of System/CustomerService
			Division of the Company
		April 2017	Executive General Manager of CustomerService Division of the
			Company (to present)

5,000 shares

―38―

Candidate	Name		Career Summary, Position, Assignment, and	Number of
	Company Shares
No.	(Date of Birth)		Significant Concurrent Positions
	Held


		April 1977	Joined ARABIAN OIL COMPANY, LTD.
		May 2000	Joined Nintendo Co., Ltd.

		January 2002	General Manager of General Affairs Division of Nintendo Co.,
			Ltd.
		October 2005	Executive General Manager of General Affairs Division of
			Nintendo Co., Ltd.
		June 2006	Director of Nintendo Co., Ltd.
5	Koji Yoshida	April 2011	Joined GungHo Online Entertainment, Inc. as Assistant to	11,500
(November 27, 1953)		Executive General Manager of Business Administration	shares
		Division

		July 2011	Executive General Manager of Business Administration
			Division and CCO of the Company (to present)
		March 2012	Director of the Company (to present)

(Significant Concurrent Positions)

Director of Acquire Corp.

Director of GungHo Online Entertainment Asia Pacific Pte. Ltd.

April 1989 Joined The Mitsubishi Bank, Ltd. (currently, The Bank of Tokyo-

Mitsubishi UFJ, Ltd.)

		December 2006	Group Manager of Finance Planning, Finance Department of
			SoftBank Corp. (currently, SoftBank Group Corp.)
		June 2008	Senior Executive Officer and Executive General Manager of
	Norikazu Oba		Financial Strategy Division of GungHo Online Entertainment,
6		Inc. (seconded from SoftBank Corp.)	―
(August 27, 1966)	March 2011	Director of the Company (to present)

(Significant Concurrent Positions)

General Manager of the Finance Planning Department of SoftBank Group Corp

Representative Director & Vice President and CFO of J.Score CO., LTD

Director of SoftBank Group Japan Corporation

―39―

Candidate	Name		Career Summary, Position, Assignment, and	Number of
	Company Shares
No.	(Date of Birth)		Significant Concurrent Positions
	Held


		April 1986	Joined Fuji Bank, Ltd. (currently Mizuho Bank)
		December	Investment officer, Fuji Capital Management Co., Ltd. (currently

		1999	Mizuho Capital Partners Co., Ltd.)
		February	Director and CFO, Link Theory Holdings Co., Ltd. (currently Link
		2002	Theory Japan Co., Ltd.)
		September	Executive Officer & CFO, FAST RETAILING CO., LTD.
		2009
7	Hidetsugu Onishi	November	Outside Director, Karita and Company, Inc. (to present)	1,000
2011
(March 7, 1964)		shares
	September	Outside Director, beauty experience Inc. (to present)

		2013
		March 2016 Director of the Company (to present)
		May 2019	Outside Auditor of Arcland Sakamoto CO., Ltd. (to present)

(Significant Concurrent Positions)

Co-CEO, Integrity Partners LLC

CEO, Avergence Incorporated

	April, 1982	Joined Japan External Trade Organization
	July, 1988	Joined Bankers Trust (currently Deutsche
		Securities Inc.)
	July, 1999	Head of M&A Group of Deutsche Securities Inc.
	November,	Vice Chairman, Global Banking Group of
	2006	Deutsche Securities Inc.
	September,	Chairman of Japan of Lincoln International
Keiji MIyakawa	2009
June, 2012	Outside Auditor of ASICS Corporation
8
(November 5, 1958)	June, 2013	Outside Director of ASICS Corporation
	March, 2016	Auditor of ASICS Corporation (to present)
	March, 2018	Director of the Company (to present)
	January, 2019	Senior Advisor of Japan of Lincoln International (to present)

500 shares

(Significant Concurrent Positions)

Senior Advisor of Japan of Lincoln International

		Aplil, 1976	Joined Nintendo Co., Ltd.
		July, 2012	Deputy General Manager, Licensing Division of Nintendo Co.,

	Susumu Tanaka		Ltd.
9	June 2013	Director and General Manager for Licensing Division of	―
(March 11, 1953)		Nintendo Co., Ltd.

	June 2016	Senior Executive Officer, General Manager for Licensing

			Division of Nintendo Co., Ltd.
		June 2018	Corporate Adviser of Nintendo Co., Ltd. of Nintendo Co., Ltd.
			(until June, 2019)

(Note)

The candidates proposed to serve as Directors do not have any special interests in the Company.
Mr. Hidetsugu Onishi, Mr. Keiji Miyakawa and Mr.Susumu Tanaka are outside director candidates.
The reason that the outside director candidate Mr. Hidetsugu Onishi, Mr. Keiji Miyakawa Mr.Susumu Tanaka elected as the outside director candidate are as follows.
1. It will be proposed that Mr. Onishi be elected as Outside Director because, given the wealth of experience and extensive knowledge he has in corporate business administration, the Company intends to obtain his advice on its overall business administration, thereby striving to further enhance its corporate governance platform, grow the organization continuously and improve its enterprise value further. Please note that the term of office for this individual as an Outside Director of the Company will be four years starting at the end of this Annual General Meeting of Shareholders.
2. It will be proposed that Mr. Keiji Miyakawa be elected as Outside Director because, given the wealth of experience and expertise he has as a financial services executive, the Company intends to obtain his advice on its overall business administration, thereby striving to further enhance its corporate governance platform, grow the organization continuously, and further improve its enterprise value. Please note that the term of office for this individual as an Outside Director of the Company will be two years starting at the end of this Annual General Meeting of Shareholders.

―40―

1. It will be proposed that Mr. Tanaka be elected as Outside Director because, given the long-standing wealth of experience and advanced knowledge he has in corporate business administration at Nintendo Co., Ltd., the Company intends to obtain his advice on its overall business administration, thereby striving to further enhance its corporate governance platform, grow the organization continuously and improve its enterprise value further. Please note that the term of office for this individual as an Outside Director of the Company will be three years starting at the end of this Annual General Meeting of Shareholders.
The Tokyo Stock Exchange (TSE) was notified that Mr. Hidetsugu Onishi and Keiji Miyakawa were independent directors stipulated by the TSE. Mr. Susumu Tanaka also satisfies the TSE's qualifications as an independent director, and the Company will notify the TSE that he is an independent director.
Outline of liability limitation agreement
A liability limitation agreement has been entered into by and between the Company and Directors, Mr. Taizo Son, Mr. Norikazu Oba, Mr. Hidetsugu Onishi and Mr. Keiji Miyakawa. If the elections of director candidates are approved, the Company will enter into a liability limitation agreement. Regarding outline of liability agreement, please refer to page10. If the election of Mr. Susumu Tanaka is approved, the Company will enter into the same agreement.

―41―

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Gungho Online Entertainment Inc. published this content on 12 March 2020 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 12 March 2020 07:58:02 UTC

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NetEase Games acquired Grasshopper Manufacture, Inc. from GungHo Online Entertainment, Inc..	21-10-21	CI
Tranche Update on GungHo Online Entertainment, Inc.'s Equity Buyback Plan announced on August 13, 2021.	21-09-22	CI
GungHo Online Entertainment, Inc.'s Equity Buyback announced on August 13, 2021, has expired with 2,272,700 shares, representing 3.35% for ¥4,999.92 million.	21-09-21	CI
GungHo Online Entertainment, Inc. announces an Equity Buyback for 3,100,000 shares, representing 4.57% for ¥5,000 million.	21-08-13	CI

Chart GungHo Online Entertainment, Inc.

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Company Profile

GungHo Online Entertainment Inc is a Japan-based company mainly engaged in the development of online games via the Internet. The Company is mainly engaged in the planning, development, operation and distribution of smartphone games. The main products in smartphone games are Puzzle & Dragons, Ragnarok M: Eternal Love, Puzzle Radar, Summons Board, Kerihime Sweets, Yokai Watch World, TEPPEN. The Company is also engaged in the planning, development, operation, distribution and sale of consumer game software for home-use game consoles and portable game consoles, the production of game software, as well as the sale of products to customers through wholesale trading companies, retail stores and content distributors.

Sector

Internet Services

Calendar

2024-05-08 - Q1 2024 Earnings Release

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Income Statement Evolution

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Ratings for GungHo Online Entertainment, Inc.

Trading Rating

Investor Rating

ESG Refinitiv

D+

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Analysts' Consensus

Sell

Buy

Mean consensus

HOLD

Number of Analysts

Last Close Price

2,266 JPY

Average target price

2,525 JPY

Spread / Average Target

+11.43%

Consensus

EPS Revisions

Estimates Revisions

Quarterly earnings - Rate of surprise

Company calendar

Sector Internet Gaming

	1st Jan change	Capi.
GUNGHO ONLINE ENTERTAINMENT, INC.	-4.30%	864M
NETEASE, INC.	-2.58%	57.65B
NEXON CO., LTD.	-6.54%	13.12B
KRAFTON, INC.	+27.58%	8.23B
KUNLUN TECH CO., LTD.	+12.78%	7.08B
37 INTERACTIVE ENTERTAINMENT NETWORK TECHNOLOGY GROUP CO., LTD.	-11.75%	5.07B
ZHEJIANG CENTURY HUATONG GROUP CO.,LTD	-12.60%	4.58B
SQUARE ENIX HOLDINGS CO., LTD.	+8.16%	4.23B
NETMARBLE CORPORATION	-4.30%	3.28B
PERFECT WORLD CO., LTD.	-15.71%	2.73B

Internet Gaming

GungHo Online Entertainment, Inc.

Equities

3765

JP3235900002

Internet Services

GungHo Online Entertainment : Notice of Convocation of the 23rd Annual General Meeting of Shareholders

EPS Revisions