Gala Incorporated : Consolidated Financial Results for the Three Months Ended December 31, 2022 (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.

February 10, 2023

Consolidated Financial Results

for the Nine Months Ended December 31, 2022

(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:	February 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 nine months ended December 31, 2022 (from April 1, 2022 to December 31, 2022)

(1) Consolidated operating results (cumulative)			(Percentages indicate year-on-year changes.)
	Net sales		Operating profit		Ordinary profit	Profit attributable to
			owners of parent
Nine months ended	Millions of yen	%	Millions of yen	%	Millions of yen	%	Millions of yen	%
December 31, 2022	2,525	604.7	353	―		293	―	183	―
December 31, 2021	358	△37.3	△362	―		△292	―	△266	―
Note: Comprehensive income For the nine months ended December 31, 2022:	¥281 million	[―%]
	For the nine months ended December 31, 2021:	△¥310 million	[―%]
	Basic earnings	Diluted earnings
	per share		per share
Nine months ended		Yen		Yen
December 31, 2022		7.75		7.00
December 31, 2021	△13.96		―
(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
December 31, 2022		2,872		2,004			57.9		66.40
March 31, 2022		1,047		438			△2.8		△1.53
Reference: Equity
As of December 31, 2022:	¥ 1,662 million
As of March 31, 2022:		△¥ 29 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	―	0.00	―
March 31, 2023
Fiscal year ending
March 31, 2023				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 March 31, 2023 (From April 1, 2022 to March 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 December 31, 2022	25,035,700 shares
As of March 31, 2022	19,060,800 shares

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

As of December 31, 2022	― shares
As of March 31, 2022	― shares

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

Nine months ended December 31, 2022	23,667,141 shares
Nine months ended December 31, 2021	19,060,800 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

(Cautionary Statement Regarding Forward-Looking Statements)

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 Nine-month Period)………………………………………………………………………	7
	Quarterly Consolidated Statement of Comprehensive Income
	(For the Nine-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)……………………………………… 9

(Segment Information) ………………………………………………………………………………… 9

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1. Qualitative Information on Quarterly Financial Results

(1) Explanation of Operating Results

As for the operating results of Gala Inc. (the "Company") and its consolidated subsidiaries (collectively, the "Group"), the Group's net sales for the nine-month period ended December 31, 2022 have significantly increased to 2,525,510 thousand yen (604.7% increase year-on-year).

The year-on-year sales increase was mainly due to the launch of "Flyff Universe", an HTML5 game. Cost of sales has increased due to increases in royalty fees paid in relation to the HTML5 game and channeling fees paid for the Online game business.

Selling, general and administrative expenses have increased year-on-year mainly due to increases in advertising expenses led by strengthened marketing activities for "Flyff Universe", value-added tax resulting from sales growth and software amortization expenses.

As a result, the Group achieved a positive operating profit, ordinary profit and a profit attributable to owners of parent, recording an operating profit of 353,609 thousand yen (operating loss of 362,885 thousand yen in the previous same period), an ordinary profit of 293,120 thousand yen (ordinary loss of 292,057 thousand yen in the previous same period), and a profit attributable to owners of parent of 183,481 thousand yen (loss attributable to owners of parent of 266,060 thousand yen in the previous same period).

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

1) Japan

In October 2021, the Japan segment started offering "Rappelz", a smartphone game app developed by Gala Lab Corp., a consolidated subsidiary of the Company, in the US and Canada. The segment is currently preparing for the renewal and global release of "Rappelz" as an NFT game/blockchain game (*1) by incorporating blockchain technology. In the NFT games/blockchain games, in-game items are "converted to NFT (*3)" by the blockchain (*2), a fundamental technology of crypto assets, and users can change the items obtained in the game to crypto assets that can be traded on an exchange or other markets. The segment will further enhance the appeal of games through these measures and focus on the monetization of the Smartphone app business. The start of the service is expected to be in the first quarter of the fiscal year ending March 2024 for re-release in Southeast Asia and the US, and the second quarter of the same fiscal year for release in the EU and Taiwan.

The Group has also launched the Treehouse resort business as a new business since Treeful Inc. has become a subsidiary of the Company in the previous fiscal year. The Treehouse resort business is a resort business in Nago City, Okinawa operated by Treeful Inc., a consolidated subsidiary of the Company. The business offers a combination of Treehouse and Aerohouse built on the ground as one set to the guests. Treeful Inc. is licensed for the business of operation of an inn according to the Hotel Business Act since July 2021 and 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 of the segment (including inter-segment transactions) increased year-on-year mainly due to sales from the aforementioned Treehouse resort business.

As for the expenses, selling, general and administrative expenses increased mainly due to increases in allowance for doubtful accounts and outsourcing expenses.

As a result, net sales of the Japan segment (including inter-segment transactions) increased by 4,240 thousand yen or 7.3% year-on-year to 62,003 thousand yen and the segment recorded a loss of 170,039 thousand yen (loss of 133,911 thousand yen in the previous same period).

2) Korea

The Korea segment started offering an HTML5 game "Flyff Universe" in Southeast Asia in May 2022 and in the global area in June 2022. HTML5 games are highly accessible games that enable users to play the games on various devices including PCs and smartphones without downloading. The cumulative number of registered users of the HTML5 game "Flyff Universe" has increased steadily since its service

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