Gala Incorporated : Consolidated Financial Results for the Three Months Ended June 30, 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.

August 10, 2023

Consolidated Financial Results

for the Three Months Ended June 30, 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 to file quarterly securities report:	August 10, 2023
Scheduled date to commence dividend payments:	―
Preparation of supplementary material on quarterly financial results: Yes
Holding of quarterly financial results briefing:	None

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

1. Consolidated financial results for the three months ended June 30, 2023 (from April 1, 2023 to June 30, 2023)

(1) Consolidated operating results (cumulative)

(Percentages indicate year-on-year changes.)

Net sales

Operating profit

Ordinary profit

Profit attributable to

owners of parent

Three months ended

Millions of yen

%

Millions of yen

%

Millions of yen

%

Millions of yen

%

June 30, 2023

545

△22.2

△10

―

9

△89.8

1

△98.8

June 30, 2022

701

548.1

136

―

88

―

99

―

Note: Comprehensive income

For the three months ended June 30, 2023:

¥33 million

[△56.0%]

For the three months ended June 30, 2022:

¥75 million

[―%]

Basic earnings

Diluted earnings

per share

per share

Three months ended

Yen

Yen

June 30, 2023

0.05

0.05

June 30, 2022

4.78

4.12

(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

June 30, 2023

3,085

2,268

59.7

73.53

March 31, 2023

3,023

2,234

60.1

72.63

Reference: Equity

As of June 30, 2023:

¥1,840 million

As of March 31, 2023:

¥1,818 million

2. Cash dividends

		Annual dividends per share
	First quarter-end	Second quarter-end		Third quarter-end		Fiscal year-end	Total
	Yen	Yen		Yen		Yen	Yen
Fiscal year ended	―	0.00		―		0.00	0.00
March 31, 2022
Fiscal year ending	―
December 31, 2023
Fiscal year ending
December 31, 2023		0.00		―		0.00	0.00
(Forecast)

Note: Revisions to the forecast of cash dividends most recently announced: None

3．Forecast of Consolidated Financial Results for the Fiscal Year Ending December 31, 2023 (From April 1, 2023 to December 31, 2023)

Consolidated earnings forecast for the current fiscal year is not stated due to the difficulty of calculating a reasonable earnings forecast. For details, please refer to "1. Qualitative Information on Quarterly Financial Results (3) Explanation of Consolidated Financial Results Forecast and Other Forward-looking Information" of the Additional Information.

• Notes

1. Changes in significant subsidiaries during the period (changes in specified subsidiaries resulting in the change in scope of consolidation): None
   Newly included: ― companies (Company name)
   Excluded: ― companies (Company name)
2. Adoption of accounting treatment specific to the preparation of quarterly consolidated financial statements: None
3. Changes in accounting policies, changes in accounting estimates, and restatement
4. 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
5. Number of issued shares (common shares)
6. 1. Total number of issued shares at the end of the period (including treasury shares)

	As of June 30, 2023	25,035,700 shares
	As of March 31, 2023	25,035,700 shares
(ii) Number of treasury shares at the end of the period

As of June 30, 2023

As of March 31, 2023

• shares
• shares

1. Average number of shares outstanding during the period (cumulative from the beginning of the fiscal year)

Three months ended June 30, 2023

Three months ended June 30, 2022

25,035,700 shares

20,916,425 shares

• Quarterly financial results reports are exempt from a quarterly review 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 contained 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 information on quarterly financial results)
  Supplementary materials for quarterly financial results will be posted on the Company's website after the announcement of financial results.

○Additional Information

1. Qualitative Information on Quarterly Financial Results……………………………………………………………………	2
(1)	Explanation of Operating Results………………………………………………………………………………………	2
(2)	Explanation of Financial Position………………………………………………………………………………………	4
(3)	Explanation of Consolidated Financial Results Forecast and Other Forward-looking Information……………………	4
2. Quarterly Consolidated Financial Statements and Principal Notes………………………………………………………	5
(1)	Quarterly Consolidated Balance Sheets…………………………………………………………………………………	5
(2)	Quarterly Consolidated Statement of Income and Consolidated Statement of Comprehensive Income………………	7
	Quarterly Consolidated Statement of Income
	(For the Three-month Period)………………………………………………………………………………………	7
	Quarterly Consolidated Statement of Comprehensive Income
	(For the Three-month Period)………………………………………………………………………………………	8
(3)	Notes to the Quarterly Consolidated Financial Statements…………………………………………………………	9
	(Notes on Going Concern Assumptions)………………………………………………………………………………	9
	(Notes in Case of Significant Changes in Shareholders' Equity)………………………………………………………	10
	(Segment Information) …………………………………………………………………………………………………	10

１．Qualitative Information on Quarterly Financial Results

(1) Explanation of Operating Results

The Company and its consolidated subsidiaries (hereinafter referred to as the "Group") reported a decline in consolidated net sales during the three-month period ended June 30, 2023, with consolidated net sales of 545,611 thousand yen (down 22.2% from the same period of the previous fiscal year).

This was mainly due to a decrease in sales of "Flyff Universe," an HTML5 game released in the first quarter of the previous fiscal year, compared to the same quarter of the previous fiscal year.

In addition, cost of sales decreased due to a decrease in channeling fees paid for the HTML5 game business.

Selling, general and administrative expenses increased mainly due to an increase in expenses for marketing activities related to "Flyff Universe."

As a result, the Company reported an operating loss of 10,777 thousand yen (operating profit of 136,267 thousand yen for the same period last year), ordinary profit of 9,053 thousand yen (ordinary profit of 88,886 thousand yen for the same period last year), and profit attributable to owners of parent of 1,233 thousand yen (profit attributable to owners of parent of 99,988 thousand yen for the same period last year).

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

1) Japan

In the Japan segment, the Company launched the smartphone game application "Rappelz" developed by 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. In NFT games/blockchain games, in-game items and other items are "NFT

(*3)ized" using blockchain (*2), a crypto asset infrastructure technology, and users can convert items and other items obtained in the game into crypto assets and trade them on exchanges and other venues. This will further enhance the appeal of the game and will be the focus of our efforts to monetize the Smartphone app business. The service is scheduled to be re-released in Southeast Asia and the U.S. in the second quarter of the fiscal year ending December 31, 2023(*), and in the EU and Taiwan in the third quarter of the fiscal year ending December 31, 2023(*).

In addition, the Treehouse resort business conducted by consolidated subsidiary Treeful Inc. in Nago City, Okinawa Prefecture is a new resort business that provides guests with a tree house and an aero-house, a building on the ground, as a single set. Treeful Inc. was approved in July 2021 for an "application for a Ryokan business license based on the Ryokan Business Law" and opened the Treehouse Resort in August 2021 as the first tree house resort in Japan that allows guests to stay overnight for a fee.

The concept of the Treehouse Resort is a "sustainable resort" that does not use fossil fuels, but instead uses electricity, and aims to build a sustainable society by generating more solar power than it uses. The Group is committed to finding a growth strategy for the Treehouse resort business to enhance the corporate value of the Group.

In the three-month period ended June 30, 2023, net sales (including internal transactions) decreased compared to the same period of the previous fiscal year due to the impact of changes in the form of contracts in the Cloud-related business made in the previous fiscal year, despite the above-mentioned Treehouse resort business recording net sales.

On the expense side, selling, general and administrative expenses decreased mainly due to a decrease in provision of allowance for doubtful accounts.

As a result, net sales in the Japan segment decreased by 8,255 thousand yen (37.1%) year on year to 13,984 thousand yen (including internal transactions), and segment loss amounted to 68,881 thousand yen (60,146 thousand yen segment loss in the same period last year)

2) Korea

In the Korea segment, sales of "Flyff Universe," an HTML5 game launched in May 2022, remained

strong, but sales (including internal transactions) decreased compared to the same quarter of the previous year due to the large sales after the launch of the service in the same quarter of the previous year. HTML5 games are highly accessible games that can be played on a variety of devices, including PCs and

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