July 29, 2015
GungHo Online Entertainment, Inc.

Consolidated Financial Results for the 2nd Quarter of FY Ending December 31, 2015

Supplementary Materials

MAU remains as our main focus as KPI

１．Summary of Financial Results for the 2nd Quarter of FY Ending December 31, 2015 (Trends of

Quarterly Performance)

2014 2015

■ "Puzzl e & Dra gons" s aw de cre as e i n profit due to the de c rea s e in pa yme nt ra te, but i t

aims to continue expanding its user base focusing on MAU.

■Net Sales

The Company has continued to operate its business, focusing mainly on "Puzzle & Dragons" (P&D), a puzzle RPG for smartphone, during the 2nd quarter of the fiscal year ending December 31, 2015. The game is now into the 4th year since the release and in order to have many more users to play and enjoy it for a long time, the Company manages and updates the game focusing on MAU (*1). In order to cater various play styles and ages to expand the range of the users, the One Source Multi Use (OSMU) strategic model is applied; having smartphone users play the traditional "P&D" while having small children without smartphone play a packaged version. The Company continues to maximize the lifetime value of the game brand.

During the period under review, the Company continued to create the game that would keep the players engaged by constantly updating and adding new features including new dungeons, for "P&D" on smartphone. Also, "GungHo Festival 2015" (Gunfes), the Company's yearly fan festival, was held in May 31. At Gunfes, "P&D Japan Cup National Championship" was held for the 3rd time. Along with the qualifying matches held in 9 locations nationwide, the championship at Tokyo Makuhari Messe to determine the best player in Japan, met with great enthusiasm from the fans, and recorded 110,075 visitors (cumulative).
On the other hand, as "P&D" is into the 4th year since the release and the users have matured considerably, the consumption rate is faster than ever, lessening the new elements in the game temporarily. Due to this phenomenon, the payment rate and the ARPPU(*2) decreased and resulted in lower sales.
The Company continues to maximize MAU, adding new updates including new dungeons and characters to keep the existing players engaged. Moreover, targeting the users on break from "P&D", the Company will
re-broadcast some of the TV commercials which were highly popular to remind them of their past game experience and to encourage them to play the game again.
Regarding other games, "Summons Board", a new generation board game for smartphone, accumulated 2 million downloads steadily and its first TV commercial was launched on May 31. This resulted in the further increase in downloads which exceeded 3 million on June 19. Moreover, for "Divine Gate", a panel RPG for smartphone, the One Source Multi Use (OSMU) strategic model is used the same as for "P&D" as is demonstrated by the fact that the production of anime using its IP is now greenlit. Also, "Princess Punt Sweet" which now has over 10 million downloads within Japan started its service in Taiwan, Hong Kong and Macao in April which amounted to over one million downloads already on June 19.
As a combined result of the above, the sales during the period under review amounted to 37,722 million yen , a decrease by 15.5%, compared to the previous quarter period.

*1. MAU (Monthly Active User) refers to users who log in to the game at least once a month.

*2. ARPPU (Average Revenue Per Paid User) means the average amount of payment made per month by paying customers.

■ Sales and Administrative Expenses
(Salary and Allowances)

As for the period under review, the staff members of GungHo alone increased slightly (355 total as opposed to 350 last year as 5 people have been added) and staff members for the GungHo Group as a whole also grew slightly (1,004 total as opposed to 988 last year as 16 people have been added). However, the salary payment amounted to 838 million yen, decreased by 0.8% compared to the previous quarter period.

(Advertisement expenses)

As for the period under review, the Company held "GungHo Festival 2015" in Tokyo Makuhari Messe on May 31,

2015 as well as qualifying matches in 9 local areas nationwide. Furthermore, on May 31, 2015, the first TV

commercial was launched for "Summons Board", a new generation's board game on smartphone, released in Feb

2014. As a combined result of these efforts, the advertisement expense was 4,492 million yen which is increased by

13.9% compared to the previous quarter period.

■Operating Profit

As the result of all of the above, the operating profit was 17,783 million yen, decreased by 24.9% compared to the previous quarter period.

■Monthly Active Users (MAU) stable even in the 4th year

PUZZLE & DRAGONS MAU and payment rate chart

P&D (Japan) MAU

Payment rate

Start of TV commercial

Word-of-mouth

P&D was released for iPhone in February 2012. Initially, we carried out promotional activities mainly based on a word-of-mouth approach. Subsequently, when the Android version was released in September 2012, we launched a TV commercial in the following month. With the rapid penetration of smartphones, the number of DLs grew.

The number of DLs continued to increase steadily thereafter and exceeded 37 million as of July, 2015. This is more than 50% of the number of smartphone contracts of about 68,500,000 (as of March 31, 2015; source: MM Research Institute, Ltd.). Additionally, the number already accounts for over 70% of Japan's gaming population of
48,550,000 (source: FAMITSU GAME HAKUSHO 2015), reflecting a wide reach of P&D in the current market
with one of the highest popularity in the nation.

■GungHo non-consolidated monthly sales

Net Sales of P&D Z Monthly net sales

Non-consolidated sales for July

11 billion yen (forecast)

Creating high profits on a long term basis backed by outstanding MAU

Regarding the non-consolidated monthly sales of GungHo, as a result of implementing monthly in-game events, etc. the Company has been posting high profits for a long time backed by a stable, outstanding level of MAU despite some fluctuations of sales in results from month to month. In the market for mobile phone games, the projected life cycle of a game tended to be short. However, since smartphone games have stronger features as online games, the Company is able to offer games that can continue to attract users on a long term basis by developing/updating games continuously and implementing events effectively based on a proper analysis of user reactions.
As to summarize the situation of July 2015, the Company has continued to collaborate with popular anime characters; updated the dungeon lineup that can be purchased using in-game currency, and implemented some monsters' ultimate evolution for "P&D", contributing to the download number of over 37million cumulative within Japan. Also, the performance is growing steadily for "Summons Board" and "Divine Gate" as well while the Company continues to update and add various events.
Given the current state, the Company forecasts monthly net sales in July to be 11 billion yen (year-on-year decline of 24.1%) on a non-consolidated basis.

*1 The above figures represent forecasts without audit review by the auditing firm.

*2 Figures for future performance contain various uncertain elements and do not guarantee that the aforementioned business resul ts would continue.

■Consolidated Balance Sheet (Unit: Million yen)

2012

2013

2014

2015

1Q

2Q

3Q

4Q

1Q

2Q

3Q

4Q

1Q

2Q

3Q

4Q

1Q

2Q

3Q

4Q

Current assets

9,155

9,608

11,054

19,722

37,561

66,723

90,349

87,396

67,006

92,930

130,810

150,905

149,447

86,796

-

-

Cash and deposits

6,571

6,684

7,671

11,243

23,280

47,036

73,902

64,844

48,078

73,145

115,737

132,099

128,688

71,661

-

-

Accounts receivable-trade

1,426

1,865

2,291

7,142

12,601

17,046

13,111

18,574

16,951

17,017

12,810

16,094

18,199

12,116

-

-

Short-term investment securities

354

337

374

406

423

428

455

497

486

500

520

543

760

1,035

-

-

Work in process

2

21

45

99

37

73

96

109

56

35

53

63

103

118

-

-

Deferred tax assets

-

-

-

435

851

1,682

2,320

2,928

805

1,511

812

1,295

564

1,110

-

-

Others

800

699

671

395

367

455

464

441

627

720

876

809

1,131

753

-

-

Fixed assets

6,073

5,845

5,535

5,362

6,737

6,130

7,083

37,994

36,497

36,114

6,625

10,175

10,243

10,446

-

-

Property,plant and equipment

434

588

550

509

504

497

454

420

372

389

368

405

349

322

-

-

Intangible assets

4,167

3,845

3,619

3,077

3,557

3,585

3,382

2,635

2,618

2,666

2,449

4,484

4,715

4,818

-

-

Goodwill

516

460

424

331

706

636

577

347

297

248

14

1,493

1,419

1,369

-

-

Software

2,512

2,260

2,072

2,121

2,047

1,847

1,931

1,728

1,597

1,619

1,646

1,778

1,511

1,357

-

-

Software in progress

1,108

1,095

1,091

592

767

1,065

833

516

671

750

737

1,158

1,724

2,015

-

-

Others

30

29

30

32

35

37

39

44

52

48

50

53

59

75

-

-

Investments and other assets

1,472

1,411

1,365

1,775

2,675

2,047

3,246

34,939

33,506

33,058

3,806

5,285

5,178

5,305

-

-

Investment securities

82

0

9

0

0

0

0

31,562

30,109

29,346

0

2,629

2,647

2,701

-

-

Deferred tax assets

631

601

596

974

1,801

1,232

1,330

1,300

1,334

1,324

1,393

652

531

575

-

-

Others

758

810

759

800

874

815

1,916

2,076

2,062

2,387

2,413

2,003

2,000

2,027

-

-

Total assets

15,229

15,454

16,589

25,085

44,299

72,853

97,433

125,390

103,503

129,045

137,436

161,081

159,691

97,243

-

-

Current liabilities

2,870

2,740

2,248

4,939

10,927

23,550

33,398

46,731

14,504

25,362

17,218

28,466

16,224

22,751

-

-

Notes and accounts payable-trade

273

237

195

354

336

417

352

528

562

344

426

579

455

494

-

-

Current portion payable out of long-term loans

131

138

136

128

122

111

95

99

106

96

87

476

931

943

-

-

Corporate income taxes payable

540

535

536

2,276

7,724

18,824

27,392

37,135

9,048

19,452

10,431

19,612

8,008

15,419

-

-

Others

1,925

1,828

1,379

2,180

2,744

4,197

5,557

8,968

4,787

5,468

6,273

7,797

6,828

5,893

-

-

Non-current liabilities

792

819

775

754

1,381

1,380

1,361

1,231

1,207

1,202

1,193

1,411

811

701

-

-

Long term loans payable

195

193

178

153

826

803

782

788

825

803

782

1,009

277

257

-

-

Others

597

625

597

600

555

576

578

442

382

398

410

401

533

444

-

-

Fixed liabilities

3,663

3,559

3,024

5,693

12,308

24,931

34,759

47,962

15,712

26,564

18,412

29,877

17,035

23,452

-

-

Shareholder's equity

9,328

10,181

11,919

17,312

29,644

45,502

59,942

72,065

83,467

98,497

116,120

128,443

140,128

71,301

-

-

Capital stock

5,331

5,331

5,331

5,332

5,337

5,337

5,338

5,338

5,338

5,338

5,338

5,338

5,338

5,338

-

-

Capital surplus

5,492

5,492

5,492

5,493

5,498

5,498

5,499

5,471

5,471

5,471

5,471

5,471

5,471

5,471

-

-

Retained earnings

-1,495

-642

1,094

6,486

18,808

34,665

49,103

61,255

75,438

90,468

108,091

120,414

132,099

102,805

-

-

Treasury shares

0

0

0

0

0

0

0

0

-2,780

-2,780

-2,780

-2,780

-2,780

-42,314

-

-

Accumulated other comprehensive income

Foreign currency translation adjustment

-1,314

-1,538

-1,498

-880

-628

-575

-346

2,460

1,606

1,253

188

414

213

388

-

-

Others

0

0

0

0

0

0

0

0

0

0

0

48

167

126

-

-

Total Accumulated other comprehensive income

-1,314

-1,538

-1,497

-879

-628

-575

-346

2,460

1,606

1,253

188

462

380

514

-

-

Minority interests

3,551

3,251

3,143

2,958

2,974

2,995

3,077

2,902

2,715

2,730

2,715

2,297

2,146

1,950

-

-

Total non-current assets

11,565

11,894

13,564

19,391

31,990

47,922

62,673

77,428

87,790

102,481

119,023

131,203

142,656

73,790

-

-

Total assets

15,229

15,454

16,589

25,085

44,299

72,853

97,433

125,390

103,503

129,045

137,436

161,081

159,691

97,243

-

-

■Consolidated Profit and Loss Sheet (Unit: Million yen)

2012

2013

2014

2015

1Q

2Q

3Q

4Q

Total

1Q

2Q

3Q

4Q

Total

1Q

2Q

3Q

4Q

Total

1Q

2Q

3Q

4Q

Total

Net sales

3,291

3,846

4,561

14,121

25,821

30,904

43,717

41,639

46,799

163,060

49,909

44,424

38,494

40,241

173,069

44,618

37,722

-

-

-

Cost of sales

1,501

1,556

1,748

4,592

9,399

9,617

13,367

13,182

16,951

53,119

16,048

14,198

12,544

13,198

55,989

14,392

12,796

-

-

-

Cost of sales ratio

45.63%

40.47%

38.34%

32.52%

36.40%

31.12%

30.58%

31.66%

36.22%

32.58%

32.16%

31.96%

32.59%

32.80%

32.35%

32.26%

33.92%

-

-

-

Gross profit

1,789

2,289

2,813

9,529

16,421

21,286

30,350

28,456

29,847

109,941

33,860

30,225

25,950

27,043

117,080

30,226

24,925

-

-

-

Total selling, general and administrative expenses

1,540

1,519

1,420

2,643

7,123

2,670

3,811

5,095

7,135

18,713

5,071

5,242

6,281

6,201

22,797

6,545

7,142

-

-

-

Salaries, wages and bonuses etc.

444

471

479

740

2,136

567

601

618

1,075

2,863

619

649

653

1,031

2,953

845

838

-

-

-

Advertising & marketing

369

217

188

927

1,702

814

1,897

3,223

4,498

10,433

2,963

3,086

4,164

3,268

13,483

3,946

4,492

-

-

-

Others

726

829

752

974

3,284

1,289

1,311

1,254

1,561

5,416

1,488

1,506

1,463

1,902

6,360

1,754

1,811

-

-

-

Operating profit

248

770

1,392

6,886

9,298

18,616

26,538

23,360

22,712

91,228

28,789

24,982

19,669

20,841

94,283

23,680

17,783

-

-

-

Operating profit ratio

7.56%

20.03%

30.53%

48.77%

36.01%

60.24%

60.71%

56.10%

48.53%

55.95%

57.68%

56.24%

51.10%

51.79%

54.48%

53.07%

47.14%

-

-

-

Non-operating profit

39

72

71

45

228

54

123

5

13

196

39

35

35

182

293

117

51

-

-

-

Interest income

33

32

30

30

127

31

30

36

29

127

33

32

32

68

166

48

42

-

-

-

Foreign exchange gains

0

0

0

0

0

4

69

-41

-14

18

0

0

0

88

88

56

-7

-

-

-

Others

5

39

41

14

101

17

23

10

-1

50

6

3

3

25

39

12

16

-

-

-

Non-operating expenses

33

5

80

51

171

7

11

8

1,292

1,319

734

318

-4

3

1,052

22

76

-

-

-

Interest expenses

4

4

4

3

16

5

7

7

6

28

6

6

6

6

26

12

12

-

-

-

Treasury stock acquisition costs

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

58

-

-

-

Equity in losses of affiliates

4

-3

57

6

65

0

0

0

1,284

1,284

725

295

0

0

1,021

0

0

-

-

-

Foreign exchange losses

21

-12

12

40

62

0

0

0

0

0

1

15

-11

-6

0

0

0

-

-

-

Others

2

17

6

0

26

1

3

0

1

6

0

0

0

3

4

9

6

-

-

-

Ordinary profit

254

836

1,383

6,879

9,355

18,662

26,650

23,358

21,433

90,104

28,095

24,699

19,709

21,020

93,524

23,775

17,757

-

-

-

Extraordinary profit

0

46

382

1

429

0

82

1

2

87

0

0

7,591

0

7,591

0

0

-

-

-

Gain on sales

0

0

0

0

0

0

0

0

0

0

0

0

7,591

0

7,591

0

0

-

-

-

Others

0

46

382

1

429

0

82

1

2

87

0

0

0

0

0

0

0

-

-

-

Extraordinary loss

18

107

149

850

1,125

14

123

59

593

791

0

39

184

1

225

0

23

-

-

-

Impariment loss

18

107

149

850

1,125

14

123

59

593

791

0

39

184

1

225

0

23

-

-

-

Others

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

-

-

-

Profit before income taxes and minority interests

236

775

1,616

6,030

8,659

18,648

26,609

23,300

20,842

89,400

28,095

24,660

27,116

21,018

100,890

23,775

17,734

-

-

-

Net profit

227

852

1,737

5,392

8,209

12,321

15,857

14,437

12,151

54,768

17,063

15,029

17,622

12,323

62,038

15,128

11,172

-

-

-

The number of downloads for smartphone applications

Puzzle & Dragons (Japan)
Puzzle & Dragons (Hong Kong, Taiwan)

Reached

Dated

Downloads

(Unit: ten thousand)

2014/1/23

Launch

2014/3/11

100

2014/12/17

200

Princess Punt Sweets

Reached

Dated

Downloads

(Unit: ten thousand)

2012/11/19

Launch

2013/1/15

100

2013/2/13

200

2013/5/5

300

2013/8/17

400

2013/9/15

500

2013/10/23

600

2014/1/10

700

2014/4/12

800

2014/9/14

900

2015/6/20

1,000

Princess Punt Sweets (Taiwan, Hong Kong, Macao)

Reached

Dated

Downloads

(Unit: ten thousand)

2015/4/13

Launch

2015/6/19

100

Divine Gate

Reached

Dated

Downloads

(Unit: ten thousand)

2013/9/30

Launch

2013/10/26

100

2014/1/23

200

2014/9/20

300

2015/4/14

400

Puzzle & Dragons (North America)
SUMMONS BOARD
PICOTTO KINGDOM

Reached

Dated

Downloads

(Unit: ten thousand)

2014/6/30

Launch

2014/8/11

100

Puzzle & Dragons (South Korea)
CRAZY TOWER

Reached

Dated

Downloads

(Unit: ten thousand)

2013/1/21

Launch

2013/7/1

100

2014/3/15

200

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