Gala Incorporated : Consolidated Financial Results for the Fiscal Year Ended March 31, 2023 (Under Japanese GAAP)

Note: This document has been translated from the Japanese original for reference purposes only. In the event of any discrepancy between this translated document and the Japanese original, the original shall prevail.

May 12, 2023

	Consolidated Financial Results
	for the Fiscal Year Ended March 31, 2023
	(Under Japanese GAAP)
Company name:	Gala Inc.
Listing:	Tokyo Stock Exchange
Securities code:	4777
URL:	http://www.gala.jp
Representative:	Satoru Kikugawa, Representative Director and Group CEO
Inquiries:	Yuki Okamoto, Director and CFO
Telephone:	[phone]

Scheduled date of annual general meeting of shareholders:	June 24, 2023
Scheduled date to commence dividend payments:	―
Scheduled date to file annual securities report:	June 26, 2023
Preparation of supplementary material on financial results:	Yes
Holding of financial results briefing:	None

(Yen amounts are rounded down to millions, unless otherwise noted.)

1. Consolidated financial results for the fiscal year ended March 31, 2023 (from April 1, 2022 to March 31, 2023)

(1) Consolidated operating results				(Percentages indicate year-on-year changes.)
	Net sales		Operating profit		Ordinary profit	Profit attributable to
			owners of parent
Fiscal year ended	Millions of yen		%	Millions of yen		%	Millions of yen	%	Millions of yen	%
March 31, 2023	3,207		433.8	437	―		400	―	320	―
March 31, 2022	600		△39.0	△297	―		△220	―	△186	―

Note: Comprehensive income	For the fiscal year ended March 31, 2023:			¥511 million	[―%]
		For the fiscal year ended March 31, 2022:		△¥260 million	[―%]
	Basic earnings	Diluted earnings	Return on equity	Ratio of ordinary	Ratio of operating
	per share	per share	profit to total assets	profit to net sales
Fiscal year ended		Yen	Yen			%		%	%
March 31, 2023		13.35	12.14		35.8		19.7		13.7
March 31, 2022		△9.77	―		△235.3		△20.7		△49.6

Reference:	Share of profit (loss) of entities accounted for using equity method
	For the fiscal year ended March 31, 2023:	¥― million
	For the fiscal year ended March 31, 2022:	¥― million
(2) Consolidated financial position
		Total assets			Net assets		Equity-to-asset ratio	Net assets per share
As of		Millions of yen		Millions of yen		%	Yen
March 31, 2023		3,023		2,234		60.1	72.63
March 31, 2022		1,047		438		△2.8	△1.53
Reference:	Equity
	As of March 31, 2023:		¥1,818million
	As of March 31, 2022:		△¥29 million

(3) Consolidated cash flows

	Cash flows from	Cash flows from	Cash flows from	Cash and cash
	equivalents at end of
	operating activities	investing activities	financing activities
	period
Fiscal year ended	Millions of yen	Millions of yen	Millions of yen	Millions of yen
March 31, 2023	546	△271	1,280	1,839
March 31, 2022	△595	62	―	288

2. Cash dividends

		Annual dividends per share		Total cash		Ratio of
						Payout ratio	dividends to
	First	Second	Third	Fiscal		dividends
	Total	(Consolidated)	net assets
	quarter-end	quarter-end	quarter-end	year-end	(Total)
			(Consolidated)
	Yen	Yen	Yen	Yen	Yen	Millions of yen	%	%
Fiscal year ended	―	0.00	―	0.00	0.00	―	―	―
March 31, 2022
Fiscal year ended	―	0.00	―	0.00	0.00	―	―	―
March 31, 2023
Fiscal year ending		0.00		0.00	0.00
March 31, 2024	―	―		―
(Forecast)

3. Forecast of consolidated financial results for the fiscal year ending March 31, 2024 (April 1, 2023 -

March 31, 2024)

In the Smartphone App business, there is a possibility that the development and download distribution of apps will not proceed as planned. Therefore, it is extremely difficult to predict billing revenues from apps after download distribution has started. In the Online Game business, it is extremely difficult to forecast earnings from upgrades to existing titles. There is also a possibility that the development of the HTML5 Game business will not proceed as planned and it is extremely difficult to predict billing revenues for the business. In addition, for the Group's new businesses, the Cloud-related business, the Treehouse Resort business and Meta Campus business, it is extremely difficult to forecast earnings appropriately as their profit or loss is highly contingent on changes in the environment surrounding the business and other factors. Therefore, we have refrained from announcing earnings forecasts for these businesses.

* Notes

1. Changes in significant subsidiaries during the period (changes in specified subsidiaries resulting in the change in scope of consolidation): No
   Newly included: ―
   Excluded: ―
2. Changes in accounting policies, changes in accounting estimates, and restatement
3. 1. Changes in accounting policies due to revisions to accounting standards and other regulations: None
   2. Changes in accounting policies due to other reasons: None
   3. Changes in accounting estimates: None
   4. Restatement: None
4. Number of issued shares (common shares)
5. 1. Total number of issued shares at the end of the period (including treasury shares)

As of March 31, 2023

As of March 31, 2022

25,035,700 shares

19,060,800 shares

(ii) Number of treasury shares at the end of the period

As of March 31, 2023

As of March 31, 2022

• shares
• shares

(iii) Average number of shares outstanding during the period

Fiscal year ended March 31, 2023

Fiscal year ended March 31, 2022

24,004,594 shares

19,060,800 shares

• Financial results reports are exempt from audits conducted by certified public accountants or an audit corporation.
• Proper use of earnings forecasts, and other special matters: (Disclaimer on forward-looking statements, etc.)
  The forward-looking statements in this document are based on information currently available to the Company and certain assumptions that the Company deems reasonable. Actual results may differ significantly due to various factors.
  (How to obtain supplementary documents on financial results)
  Supplementary materials on financial results will be posted on the Company's website after the announcement of financial results.

○Additional Information

1. Summary of Operating Results……………………………………………………………………………………………	2
(1)	Summary of Current Period Operating Results…………………………………………………………………………	2
(2)	Summary of Current Period Financial Positions………………………………………………………………………	4
(3)	Summary of Current Period Cash Flows…………………………….…………………………………………………	5
2. Basic Approach to Selection of Accounting Standards……………………………………………………………………	5
3. Consolidated Financial Statements and Principal Notes……………………………………………………………………	6
(1)	Consolidated Balance Sheet ……………………………………………………………………………………………	6
(2)	Consolidated Statement of Income and Consolidated Statement of Comprehensive Income…………………………	8
	Consolidated Statement of Income……………………………………………………………………………………	8
	Consolidated Statement of Comprehensive Income…………………………………………………………………	9
(3)	Consolidated Statement of Changes in Equity…………………………………………………………………………	10
(4)	Consolidated Statement of Cash Flows …………………………………………………………………………………	12
(5)	Notes to the Consolidated Financial Statements………………………………………………………………………	13
	(Notes on Going Concern Assumptions)……………………………………………………………………………	13
	(Segment Information) ………………………………………………………………………………………………	13
	(Per Share Information) ………………………………………………………………………………………………	16
	(Significant Subsequent Events) ……………………………………………………………………………………	17

1． Summary of Operating Results

(1) Summary of Current Period Operating Results

During the consolidated fiscal year under review, the Japanese economy showed a recovery trend in personal consumption due to the easing of restrictions that had been imposed in relation to COVID-19. On the other hand, the future of the Japanese economy remained uncertain due to the prolonged situation in Ukraine and soaring prices. In these circumstances, Gala Inc. (the "Company") and its consolidated subsidiaries (collectively, the "Group") have been promoting new businesses such as the HTML5 Game business and the Meta Campus business in addition to the Online Game business and the Smartphone App business with the aim of becoming the world's No.1 global online community company.

The Group's operating results for the current fiscal year are summarized as follows:

In the current fiscal year, consolidated net sales increased significantly to 3,207,780 thousand yen (up 433.8% from the previous year). This was mainly due to the release of the HTML5 game "Flyff Universe," which led to an increase in sales compared to the previous fiscal year.

The cost of sales increased due to an increase in royalties paid for HTML5 games and channeling fees paid for the Online Game business.

Selling, general and administrative expenses increased compared to the previous fiscal year mainly due to an increase in advertising expenses resulting from an increase in marketing expenses for "Flyff Universe," an increase in value-added tax due to higher sales, and an increase in software amortization.

In addition, a loss on sales of crypto assets of 6,916 thousand yen and a loss on valuation of crypto assets of 58,141 thousand yen were recorded as non-operating expenses. An impairment loss of 138,666 thousand yen was recorded as an extraordinary loss for software that is not expected to be profitable.

As a result, operating profit was 437,919 thousand yen (operating loss of 297,865 thousand yen in the previous fiscal year) and ordinary profit was 400,787 thousand yen (ordinary loss of 220,339 thousand yen in the previous fiscal year), profit attributable to owners of parent was 320,400 thousand yen (loss attributable to owners of parent of 186,142 thousand yen in the previous fiscal year).

The Group's operating results by each segment are summarized as follows:

(i) Japan

In the Japan segment, the Company launched the smartphone game application "Rappelz" developed by a consolidated subsidiary Gala Lab Corp. in the U.S. and Canada in October 2021, but the service was temporarily terminated in November 2022. Currently, "Rappelz" is being renewed as an NFT game/blockchain game (*1) by combining blockchain technology with "Rappelz" and is being prepared for release in the global area. The NFT game/blockchain game is a game in which items in the game are converted to NFT (*3) using blockchain (*2), a crypto asset infrastructure technology, and users can buy and sell items obtained in the game on exchanges and other venues by converting them into crypto assets. The segment will further enhance the appeal of games through these measures and focus on the monetization of the Smartphone App business. The services are scheduled to be launched in the second quarter of the fiscal year ending March 31, 2024 for re-release in Southeast Asia and the United States, and in the third quarter of the fiscal year ending March 31, 2024 for the EU and Taiwan.

In addition, Treeful Inc. became a subsidiary of the Company in the previous fiscal year, and the Company started the Treehouse Resort business as a new business. The Treehouse Resort business is a resort business that provides guests with a set of treehouses and aero-houses, which are buildings on the ground, operated by consolidated subsidiary Treeful Inc. in Nago City, Okinawa Prefecture. Following the approval of the "Application for Ryokan Business License under the Ryokan Business Law" in July 2021, Treeful Inc. opened the Treehouse Resort in August 2021 as the first paid treehouse accommodation provider in Japan.

With the concept of a "Sustainable Resort", the Treehouse Resort aims the establishment of a sustainable society by using electricity instead of fossil fuel and generating solar power larger than actual usage. The Group has found a growth strategy for the Treehouse Resort business and aims to increase its enterprise value.

Net sales (including intersegment transactions) increased from the previous fiscal year, mainly due to the above-mentioned Treehouse Resort business.

On the expense side, selling, general and administrative expenses increased mainly due to an increase in outsourcing expenses related to game operations.

As a result, net sales in the Japan segment increased 944 thousand yen (1.2%) year on year to 77,692 thousand yen (including intersegment transactions), and the segment loss amounted to 229,113 thousand yen (185,479 thousand yen loss in the previous fiscal year).

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