GungHo Online Entertainment : Financial Results for the 2nd Quarter of Fiscal Year Ending December 31, 2015

Name of listed company: GungHo Online Entertainment, Inc.

Stock exchange listing: Tokyo Stock Exchange

Code number: 3765
URL: http://www.gungho.co.jp/
Representative: Kazuki Morishita, Representative Director & President, CEO
July 29, 2015
Contact: Kazuya Sakai, Director & CFO, Executive General Manager of Finance Accounting Division
TEL: 03-6895-1650
Quarterly securities report issuing date: August 7, 2015
Dividend payment date: -
Supplemental information for quarterly financial statements: Yes
Quarterly financial results briefing session: Yes (For institutional investors and analysts)
(Amounts are rounded off to the nearest million yen)
1. Consolidated financial results for the first half of fiscal year ending December 31, 2015 (January 1, 2015 through
June 30, 2015)
(1) Consolidated operating results (accumulated) (Percentages indicate the changes from previous year)

(Note) Comprehensive income
Six months ended
June 30, 2015
26,006 million yen
(15.3%)
Six months ended
June 30, 2014
30,714 million yen
(7.8%)

(Note) Diluted net quarterly profit per share is not indicated since no diluted shares exist for the six months ended on
June 30, 2014. .
(2) Consolidated financial position

(Note) Shareholders'
equity
Six months ended
June 30, 2015
71,815 million yen Fiscal year ended
December 31, 2014
128,906million yen

2. Dividends

(Note) Revision of forecasts for dividends most recently announced : No
*Dividend for the fiscal year ending December 31, 2015 has yet to be determined.
3. Consolidated Earnings Forecast for the Fiscal Year Ending December 31, 2015 (From January 1, 2015 to December
31, 2015)
The GungHo Group engages in the content business that is highly innovative in nature and is subject to facing sudden, short-term changes during the operation. Since this makes it difficult to calculate proper and rational earnings forecasts, the Company adopts the policy of providing timely disclosure of financial results and summary of operations on a quarterly basis while refraining from disclosing its full-year consolidated earnings forecast.
*Notes
(1) Changes in significant subsidiaries during the period : No
(2) Adoption of any particular accounting methods for the preparation of quarterly consolidated financial statements : No
(3) Changes in accounting policies, changes in accounting estimates and restatements

(4) Number of shares of common stock issued
1) Number of shares of common stock outstanding at the end of the period (including treasury shares)
2) Number of treasury shares at the end of the period
3) Average number of shares during the first quarter
* Presentation regarding the execution of the quarterly review process

・This quarterly Summary of Consolidated Financial Results (Quarterly "Tanshin") is outside the scope of the external auditor's quarterly review procedure required by the Financial Instruments and Exchange Act. Therefore, the quarterly review process required by the Financial Instruments and Exchange Act has not been completed at the time of this summary's disclosure.

* Appropriate use of earnings forecast and other matters to note

・This document contains forward-looking statements including forecasts in relation to the results of operations and

they are based on information available to the Company at the time of preparing the document along with assumptions that are deemed to be rational. Actual results may differ materially from those expressed or implied by this statement due to various factors. For the assumptions underlying the earnings forecast presented and other
information regarding the use of such forecasts, please refer to "Information Related to the Consolidated Earnings
Forecast and Other Future Projections" on page 2 of the Appendix.
• The Company plans on holding a financial results briefing session for investors as follows. All documents, videos,
etc. distributed at the session will be posted on the Company's website after the session is held.
• Financial results briefing session for institutional investors and analysts: Wednesday, July 29, 2015

○Table of Contents for Appendix

1. Qualitative Information Concerning Consolidated Financial Results
for the Quarter under Review ....................................................................................................................2 (1) Description of Operating Results.............................................................................................................2 (2) Description of Financial Position .............................................................................................................2 (3) Information Related to the Consolidated Earnings Forecast and Other Future Projections....................3
2. Summary Information (Notes) ......................................................................................................................4 (1) Changes in significant subsidiaries during the quarter under review.......................................................4 (2) Adoption of any particular accounting methods for the preparation of quarterly consolidated
financial statements.................................................................................................................................4 (3) Changes in accounting policies, changes in accounting estimates
and restatements.....................................................................................................................................4
3．Quarterly Consolidated Financial Statements.............................................................................................5 (1) Quarterly Consolidated Balance Sheets..................................................................................................5
(2) Quarterly Consolidated Statements of Income and Quarterly Consolidated Statements of
Comprehensive Income...........................................................................................................................7 (3) Notes to the Quarterly Consolidated Financial Statements......................................................................9 (Notes on the Going-concern Assumption)............................................................................................9 (Notes on Any Significant Changes to the Amount of Shareholders' Equity) ........................................9 (Segment Information)...........................................................................................................................9 (Significant Subsequent Events)............................................................................................................9

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1. Qualitative Information Concerning Consolidated Financial Results for the Quarter under Review

(1) Description of Operating Results
Regarding the GungHo group's surroundings, the user base is expected to grow even further worldwide, as the number of smartphone owned in Japan has been growing steadily which as of the end of March, 2015, exceeded
68.5 million (according to MM Souken); and the number of smartphone contracts outside of Japan is expected to be
3.746 billion by the end of year 2016 (according to Seed Planning).
Seeing these phenomena, the Company has focused on MAU (Monthly Active user (*1) as an important operational indicator, and worked on expanding the user base while operating and managing sustainable games.
The flagship title, Puzzle & Dragons (P&D) on smartphone has continued to grow its MAU while improving the users' satisfaction even further with continuous updates, including new dungeons. However, as the game is into the
4th year since its release, the users have matured considerably. Due to this factor, despite of constant updates such
as additional new features and monsters, the speed of consumption is fast, which resulted in lower payment rate temporarily. On the other hand, "GungHo Festival 2015", a yearly fan event, was again held in May this year. Every year at this event, a championship is hosted by the Company to decide the best P&D player in Japan. The qualifying matches were held in 9 areas around the nation since this March. As a result, the event was very successful as the number of people who came out to the qualifiers and "GungHo Festival 2015" combined recorded
100,075.
As for P&D outside of Japan, the user base has been growing steadily as it can be seen with the number of downloads in North American which has exceeded 7 million as of May 6.
Furthermore, aside from the smartphone platform, P&D has collaborated with Nintendo's popular characters, Super
Mario Brothers, resulted in the release of "PUZZLE & DRAGONS SUPER MARIO BROS. EDITION" on Nintendo
3DS on April 29 in Japan. Also, the releases in North America, Korea and Europe followed in May. Such high degree of exposure is expected to help promote the flagship title further even outside of Japan.
Aside from "P&D", the Company has been broadening the user base overall as seen with "Summons Board" (released in February 2015) of which the number of downloads exceeded 3 million; and we also launched the first TV commercial. Moreover, "Divine Gate" (released in September 2013) saw over 4 million downloads and the production of a TV anime series using the IP has been greenlit. Furthermore, "Princess Punt Sweets" exceeded 10 million downloads in Japan as of June 20. Even outside of Japan, the number of users has been growing really well. The game has just been released in April in Hong Kong, Taiwan and Macao, and already resulted in over 1 million downloads in just 2 months.
As a result, first half of the fiscal year 2015 ended with the net sales of 82,340 million yen (12.7％ down from last year), the operating income of 41,161 million yen (22.9％ down from last year), the ordinary profit 41,533 million yen
(21.3％ down from last year), and the net earnings of 26,301 million yen (18.0％ down from last year). Description of segment information is omitted as the Company engages in a single segment.
*1. MAU (Monthly Active User) refers to users who log in to the game at least once a month. (2) Description of Financial Position
Total assets for the period under review resulted in ¥97,243 million, a decrease of ¥63,837 million from the end of the previous fiscal year. This was mainly due to the decrease in cash and deposit by 60,437 million yen when the
Company acquired the treasury shares from SoftBank Corporation by tender offer. The name of SoftBank
Corporation has changed into SoftBank Group Corporation as of July 1, 2015.
Total liabilities amounted to ¥23,452 million, a decrease of ¥6,424 million from the end of the previous fiscal year. This was primarily attributable to a decrease in income taxes payable by ¥4,192 million due to the payment of income taxes payable.
Net assets were ¥73,790 million, a decrease of ¥57,412 million from the end of the previous fiscal year. This was

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mainly due to an increase in retained earnings of ¥26,301 million as a result of steady movement of sales from smartphone games. Also, because the Company acquired the treasury shares, net assets have decreased by
79,999 million yen.
(3) Information Related to the Consolidated Earnings Forecast and Other Future Projections
The GungHo Group engages in the content business that is highly innovative in nature and is subject to facing sudden, short-term changes in the operating environment. Since this makes it difficult to calculate proper and rational earnings forecasts, the Company adopts the policy of providing timely disclosure of financial results and summary of operations on a quarterly basis while refraining from disclosing its full-year consolidated earnings forecast.

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2. Summary Information (Notes)

(1) Changes in significant subsidiaries during the quarter under review
N/A
(2) Adoption of any particular accounting methods for the preparation of quarterly consolidated financial statements
N/A
(3) Changes in accounting policies, changes in accounting estimates and restatements
Changes in accounting policies
(Application of the Accounting Standard for Business Combinations and other standards)
As the "Accounting Standard for Business Combinations" (ASBJ Statement No. 21, September 13, 2013; the "Business Combinations Accounting Standard"), "Accounting Standard for Consolidated Financial Statements" (ASBJ Statement No. 22, September 13, 2013; the "Consolidated Accounting Standard"), "Accounting Standard for Business Divestitures" (ASBJ Statement No. 7, September 13, 2013; the "Business Divestitures Accounting Standards"), and other standards became applicable from the beginning of the consolidated fiscal years commencing on or after April 1, 2014, the Company has applied these accounting standards (excluding the provisions stated in Clause 39 of the Consolidated Accounting Standard) from the first quarter of fiscal year ending December 31, 2015, changing the accounting method to record the difference caused by the changes in equity in subsidiaries remaining under the Company's control as capital surplus and to record acquisition related costs as expenses for the fiscal year in which such costs are incurred. With regard to business combinations carried out on or after the first quarter of fiscal year ending December 31, 2015, the Company changed the accounting method to reflect the adjustments to the acquisition cost allocation due to the finalization of provisional accounting treatment in the quarterly consolidated financial statements for the quarter containing the date of such business combinations. The Business Combinations Accounting Standard and other standards are being applied transitionally as specified in Clause 58-2 (4) of the Business Combinations Accounting Standard, Clause 44-5 (4) of the Consolidated Accounting Standard, and Clause 57-4 (4) of the Business Divestitures Accounting Standard. While these standards have been applied since the beginning of the first quarter of the fiscal year 2015, the changes are slight on the quarterly consolidated financial statement for the period under review and consolidated statement of income
for the first half of the fiscal year 2015.

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3. Quarterly Consolidated Financial Statements

(1) Quarterly Consolidated Balance Sheets

(Millions of yen)

Previous Fiscal Year
(As of December 31, 2014)
2nd quarter of this Fiscal Year
(As of June 30, 2015)
Assets

Current assets
Cash and deposits 132,099 71,661

Accounts receivable-trade 16,094 12,116
Short-term investment securities 543 1,035

Merchandise 33 22
Work in process 63 118

Deferred tax assets 1,295 1,110
Other 836 782

Allowance for doubtful accounts △60 △51
Total current assets 150,905 86,796

Fixed assets
Property, plant and equipment 405 322

Intangible assets
Goodwill 1,493 1,369

Software 1,778 1,357
Software in progress 1,158 2,015

Other 53 75
Total intangible assets 4,484 4,818

Investments and other assets
Investment securities 2,629 2,701

Deferred tax assets 652 575
Other 2,135 2,159

Allowance for doubtful accounts △131 △131
Total investments and other assets 5,285 5,305

Total non-current assets 10,175 10,446
Total assets 161,081 97,243

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(Millions of yen)

Previous Fiscal Year
(As of December 31, 2014)
2nd quarter of this Fiscal Year
(As of June 30, 2015)
Liabilities

Current liabilities
Notes and accounts payable-trade 579 494

Short-term loans payable 243 191
Payable within this year against long- term loans
232 943

Corporate income taxes payable 19,612 15,419
Provision for bonuses 11 13

Other 7,785 5,688
Total current liabilities 28,466 22,751

Fixed liabilities
Long-term loans payable 1,009 257

Liabilities for retirement benefits 11 14
Other 389 429

Total fixed liabilities 1,411 701
Total liabilities 29,877 23,452

Net assets
Shareholders' equity

Capital stock 5,338 5,338
Capital surplus 5,471 5,471
Retained earnings 120,414 102,805

Treasury shares △2,780 △42,314

Total shareholders' equity 128,443 71,301
Accumulated other comprehensive income
Valuation difference on available-for-sale

securities 71 126
Foreign currency translation adjustment 391 388
Total accumulated other comprehensive

income 462 514
Stock Options ― 25

Minority interests 2,297 1,950
Total net assets 131,203 73,790

Total liabilities and net assets 161,081 97,243

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(2) Quarterly Consolidated Statements of Income and Quarterly Consolidated Statements of

Comprehensive Income Quarterly Statements of Income Six-months Period

(Millions of yen)

First half of the Fiscal Year
First half of the Fiscal Year
2014 (From January 1, 2014 to 2015 (From January 1, 2015 to
June 30, 2014)
June 30, 2015)
Net sales 94,333 82,340

Cost of sales 30,247 27,188
Gross profit 64,086 55,152

Selling, general and administrative expenses 10,313 13,687
Operating profit 53,772 41,464

Non-operating profit
Interest income 65 91

Foreign exchange gains ― 49
Other 10 28

Total non-operating profit 75 168
Non-operating expenses

Interest expenses 13 25
Equity in losses of affiliates 1,021 ―

Treasury stock acquisition costs 0 58
Foreign exchange losses 17 ―

Other 1 15
Total non-operating expenses 1,053 98

Ordinary profit 52,794 41,533
Extraordinary loss
Impairment loss 39 23
Total extraordinary loss 39 23
Profit before income taxes and minority

interests 52,755 41,510
Corporate income tax, residential taxes and enterprise tax
19,376 15,299

Corporate income taxes-deferred 1,456 261
Total corporate income taxes Profit before minority
20,832 15,561
Profit before minority interests 31,923 25,949

Minority interests in loss △169 △351
Net profit 32,092 26,301

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Quarterly Statements of Comprehensive Income
Six-months Period

(Millions of yen)

First half of the Fiscal Year
First half of the Fiscal Year
2014 (From January 1, 2014 to 2015 (From January 1, 2015 to
June 30, 2014)
June 30, 2015)
Quarterly profit before minority interests 31,923 25,949

Other comprehensive income
Valuation difference on available-for-sale securities
― 54

Foreign currency translation adjustment △14 1
Share of other comprehensive income of
entities accounted for using equity method △1,194 ―

Total other comprehensive income △1,209 56
Quarterly comprehensive income 30,714 26,006
(Breakdown)
Quarterly comprehensive income attributable to owners of the parent

Quarterly comprehensive income
30,886 26,352
attributable to minority interests △172 △346

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(3) Notes to the Quarterly Consolidated Financial Statements

(Notes on the Going-concern Assumption) N/A
(Notes on Any Significant Changes to the Amount of Shareholders' Equity)
First half of the fiscal year 2014 (from January 1, 2014 to June 30, 2014)
1. Dividend payments

(Note) The Company conducted a 100-for-1 stock split of its common shares effective January 1, 2014.
The dividend per share is indicated the dividend after the stock split.
2. Note regarding treasury shares
The Company purchased 4,300,000 treasury shares based on a resolution at the Board of Directors meeting held on February 3, 2014, resulting in ¥27.80 million increases in treasury shares during the first half of the fiscal year ending December 31, 2015. As a result, treasury shares at the end of the second quarter of the fiscal year 2015 amounted to ¥27.80 million.
First half of the fiscal year 2015 (from January 1, 2015 to June 30, 2015)
1. Dividend payments

2. Note regarding treasury shares
The Company has acquired 188,235,300 treasury shares from SoftBank Corporation via making a tender offer, based on the Board of Directors resolution on April 28, 2015. Also, based on the resolution from the Board meeting held on June 24, 2015, 94,117,600 of the treasury shares have been cancelled. As a result, the treasury shares increased by 39,533 million yen during the first half of the fiscal year 2015 and marked as 42,314 million yen at the end of the second quarter of the fiscal year 2015.
Also, the name of SoftBank Corporation has changed into SoftBank Group Corporation as of July 1, 2015.
(Segment Information) Segment Information
I. First half of the fiscal year 2014 (from January 1, 2014 to June 30, 2014)
Segment information has been omitted as the GungHo Group is comprised of a single segment.
II. First half of the fiscal year 2015 (from January 1, 2015 to June 30, 2015)
Segment information has been omitted as the GungHo Group is comprised of a single segment.
(Significant Subsequent Events) N/A

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