Analyst meeting materials Fiscal year 2011, 1st quarter. Gala Inc. August 13, 2010

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1 Analyst meeting materials Fiscal year 2011, 1st quarter Gala Inc. August 13, 2010

2 I. GALA Group II.Online games business III.Quarterly financial statement IV.Future efforts 1

I. GALA Group Vision and Corporate philosophy Vision The Gala Group aims to position itself as the world's premier global online community company.

3 I. GALA Group Vision and Corporate philosophy Vision The Gala Group aims to position itself as the world's premier global online community company. Corporate philosophy Gala contributes to the empowerment of society by facilitating interaction on a global basis. The online communities built upon our services help foster understanding and mutual respect between people around the world, ultimately contributing to international goodwill and world peace. 2

4 I. GALA Group - History 1996 Launched Campus Net, Japan s first studentsonly online community. The site was plagued with trolls and undesirable posts 2000~ CyberCOPS forum filtering service e-mining risk monitoring service New possibilities of online communities 2006~ Launched online games services, starting in the U.S. 3

5 I. GALA Group - Expansion into global markets Japan U.S. Korea Europe Online games business launched Japan Korea U.S. Community solutions and data mining (domestic) Europe 4

6 I. GALA Group - Group companies Country % of shares held by Gala Inc. Business domain Gala Inc. Japan - Holding company Gala Web Inc. Japan 100% Community solutions Gala Buzz Inc. Japan 100% Data mining Gala Japan Inc. Japan 100% Publishing of online games in Japan Gala-Net Inc. U.S. 100% Publishing of online games in the U.S. and other English-language markets Gala Networks Europe Ltd. Ireland Gala-Net, Inc. 100% Publishing of online games in European markets Gala-Net Brazil Ltd. Brazil Gala-Net Inc. 99.9% Gala Inc. 0.1% Publishing of online games in Brazil and other Portuguese-language markets Gala Lab Corp. Korea 100% Development and publishing of online games in Korea Aeonsoft Inc. and nflavor Corp. will undergo a merger on June 30,

II. Online games (development) - Gala s flagship titles Flyff Currently being provided in 13 languages around the world, Flyff is especially notable for being the first major MMORPG with freeform

7 II. Online games (development) - Gala s flagship titles Flyff Currently being provided in 13 languages around the world, Flyff is especially notable for being the first major MMORPG with freeform flight. Rappelz Currently being provided in 13 languages around the world, Rappelz features exceptional graphics and and in-depth pet system. il:soulbringer The newest of Gala-developed titles, il: Soulbringer features Pios, special pets that can be brought up to have a unique skill set. The detailed game mechanics and rich content earned the game much praise during beta testing. 6

8 II. Online games (development) - Business model Royalties 20-30% Item sales 100% Initial licensing fee License Online games services Developer Licensee Users 7

9 II. Online games (development) - Regions serviced Publisher Europe Asia S. America Middle eastern countries Portuguese speaking countries (Brazil etc.) Spanish language countries (Chile etc.) India Hong Kong Taiwan China Indonesia Malaysia and Singapore Vietnam Thailand Philippines Korea Japan Russia Italy Poland Turkey France Germany England U.S., Oceanina, other Englishspeaking countries Gala-Net Brazil Gala-Net Zapak Digital Entertainment Macrowell Net Ease PT. KingSlaim Soft VDC-Net2E INI3 Level up Astrum Online Entertainment Gala Networks Europe Gala Networks Europe Flyff Online Gala Lab Gala Japan Gala-Net Game Power7 Gala-Net Brazil GameCyber Technology Ningbo Success Multi-media Eaglegame(M) Sdn. Bhd. Asiasoft Funbox Eaglegame International FUN FACTORY Gala Networks Europe Rappelz Gamania Digital Shanda Games Gala Lab Gala Networks Europe Gala-Net il: Soul bringer Gala Japan Bejing 17game Network Street Gears Published by a Gala Group company To be launched (pre or currently in beta testing) Launched Changes since last quarter 8

II. Online games (development) - Number of licensees Licensing agreements Areas Gala publishes in Other areas Gala s games are serviced Other areas Gala s games are to be serviced Rappelz Flyff

10 II. Online games (development) - Number of licensees Licensing agreements Areas Gala publishes in Other areas Gala s games are serviced Other areas Gala s games are to be serviced Rappelz Flyff il:soulbringer April Licensing agreements in Malaysia, Singapore, and the Philippines May Taiwan service terminated June Full commercial service launched in China April Launch of full commercial service (Japan, Chile) July Licensing agreement in Indonesia June Licensing agreement in China July Full commercial service launched in Korea 9

II. Online games (development) - Membership, licensees Hong Kong (R) Thailand[R] Middle east[r] Russia[R] Taiwan[R] Russia (F) Vietnam (F) Hong Kong (F) China (F) Chile (F) Taiwan (F) Philippines(F)

11 II. Online games (development) - Membership, licensees Hong Kong (R) Thailand[R] Middle east[r] Russia[R] Taiwan[R] Russia (F) Vietnam (F) Hong Kong (F) China (F) Chile (F) Taiwan (F) Philippines(F) Thailand (F) Japan (F) Flyff s distributors in Taiwan, Thailand, Chile, Vietnam, and Russia provide the game as one of the many games provided through their portal websites, and do not keep tabs on the membership of each individual game. For the purposes of this chart, membership of said portals has been used instead. Distribution of Flyff in Chile and Japan were taken over by Gala Group companies in the FY2010 4Q. 10

12 II. Online games (portals) -Business model Sales Step 1 Register at the gpotato online games portal Step 2 Download games Step 3 Play games Step 4 Purchase virtual currency Step 5 Exchange virtual currency for ingame items 11

II. Online games (portals) - Premium items Stamina Saver

Sikurt Free Pass Premium areas Provides access to an

Normal appearance Random item Limited-time only random box

Fashion items Inside is a random item chosen from a number of

for weapons are among the many visual enhancements that can

13 II. Online games (portals) - Premium items Stamina Saver Double Exp. Levelling is faster when this item is used. Sikurt Free Pass Premium areas Provides access to an exclusive area with special benefits. Normal appearance Random item Limited-time only random box Mantle of the Mask of the Dragon s Blue Butterfly Nest Fashion items Inside is a random item chosen from a number of limited time only items Special armor and headwear and auras for weapons are among the many visual enhancements that can be had. While the game is playable for free, users may also purchase premium items for an enhanced experience 12

14 II. Online games portals - Titles Games developed by Gala Licensed games Flyff Online Rappelz Street Gears il: Soul bringer Tales Runner Luna Online Castle of Dragonica Heroes* Aika Online Allods Online Canaan Kung Fu Hero Iris Online Project 9 gpotato.jp Japanese Fall gpotato.com English Winter Fall- Winter es.gpotato. com Spanish gpotato. com.br Portuguese Fall- Winter German French English Fall- Winter gpotato.eu Turkish Polish Italian gpotato.kr Korean Changes since last quarter 13

15 II. Online games (portals) - Serviced games Number of titles on each portal Games developed by Gala Licensed games 14

16 II. Online games (portals) - Membership of gpotato portals (users) July 3 gpotato.com 8 million August 8 gpotato.eu 5 million 15

II. Online games (portals) -New endeavors Launched channeling

of other companies Famous game portal In Japan GungHo Games from

72 million users as of March 31, 2010) Browser Game Time from

17 II. Online games (portals) -New endeavors Launched channeling services through major online games portals run by other companies. Channeling : To provide existing games through the portal sites of other companies Famous game portal In Japan GungHo Games from April 27 (3.72 million users as of March 31, 2010) Browser Game Time from June 1 (243 thousand users as of March 31, 2010) Famous game portal in Korea Netmarble from June 15 (28 million users as of January 2009) Item Bay from July 29 (6 million users) 16

18 III. Finances, FY2011 1Q - Profit and loss statement (JPY thousands) FY2011 1Q FY2010 1Q Growth Growth (%) Sales 1,150,426 1,005, , % Cost of sales 251, , , % Gross margin 899, ,106 24, % SGA costs 925, , , % Operating profit -26, , ,720 Ordinary profit -22, , ,999 - Net profit -191,621 94, ,246 - (JPY thousands) FY2011 1Q Average exchange rate (FY2011 1Q) FY2011 1Q Average exchange rate (FY2010 1Q) Difference due to exchange rate Sales 1,150,426 1,208,993-58,567 Operating profit -26,190-17,172-9,018 Ordinary profit -22,878-13,860-9,018 Net profit -191, ,571-9,050 Average exchange rate, FY2010 1Q USD:JPY=1:92.90 EUR:JPY=1: KRW:JPY=1:0.077 Average exchange rate, FY2011 1Q USD:JPY=1:92.01 EUR:JPY=1: KRW:JPY=1:

III. Finances, FY2011 1Q - Impact of exchange rate fluctuations FY2011 1Q FY2011 1Q FY2010 1Q Growth (%) 1Q, Calculated with 1Q, FY2010 平均レート (JPY thousands) Based on FY2010 exchange rate Sales

19 III. Finances, FY2011 1Q - Impact of exchange rate fluctuations FY2011 1Q FY2011 1Q FY2010 1Q Growth (%) 1Q, Calculated with 1Q, FY2010 平均レート (JPY thousands) Based on FY2010 exchange rate Sales 1,150,426 1,208,993 1,005, % Online games sales 1,023,354 1,081, , % Average exchange rate, FY2010 1Q USD:JPY=1:92.90 EUR:JPY=1: KRW:JPY=1:0.077 Average exchange rate, FY2011 1Q USD:JPY=1:92.01 EUR:JPY=1: KRW:JPY=1:0.079 (JPY thousands) Sales Online games sales FY2010 1Q FY2011 1Q FY2010 1Q FY2011 1Q 18

20 III. Finances, FY2011 1Q - P/L (sales, gross margin, operating profit, net profit) Sales Per quarter record Gross margin (JPY thousands) Advertising costs JPY 1.56 million Extraordinary losses JPY 2.24 million Operating profit Net profit 19

21 III. Finances, FY2011 1Q Advertising costs (JPY thousands) About JPY 38.9 million New titles 4 月 Flyff full launch in Japan and Spain, Aika full launch in U.S. 5 月 KungFu Hero full launch in Korea gpotato.kr portal launched Iris full launch in Japan il:soulbringer beta test in Korea 6 月 Castle of Heroes beta test in Korea The large number of new titles, plus the launch of a new portal site caused a temporary increase in advertising costs 20

III. Finances, FY2011 1Q Extraordinary losses Cancelled the development of a 2D shooter that had been in development since 2006.

22 III. Finances, FY2011 1Q Extraordinary losses Cancelled the development of a 2D shooter that had been in development since Extraordinary loss of JPY 226 million Redistributed human resources allotted to the cancelled project Increased resources available to other in-development titles 21

23 III. Finances, FY2011 1Q Cash flow Operating cash flow Financing cash flow (JPY thousands) Investing cash flow Cash and cash equivalents 22

III. Finances, FY2011 1Q SGA costs, number of personnel (JPY thousands) FY2011 FY2010 1Q 1Q Growth Growth (%) Personnel costs 415,889 321,312 94,577 29.

24 III. Finances, FY2011 1Q SGA costs, number of personnel (JPY thousands) FY2011 FY2010 1Q 1Q Growth Growth (%) Personnel costs 415, ,312 94, % Other costs 509, , , % Total SGA costs 925, , , % (JPY thousands) Personnel costs Other costs Directors Permanent employees Temporary employees 23

2% Community Solutions 56,840 32,573 24,267 74.5% Total 1,150,425 1,005,158 145,267 14.

25 III. Finances, FY2011 1Q Per segment sales FY2011 1Q FY2010 1Q (JPY thousands) Growth Growth (%) Online Games 1,023, , , % Data Mining 70,231 73,324-3, % Community Solutions 56,840 32,573 24, % Total 1,150,425 1,005, , % (JPY thousands) Community Solutions Online Games Data Mining Community Solutions Breakdown of sales Data Mining Online Games 24

III. Finances, FY2011 1Q - Per segment sales(online games) (JPY thousands) Sales from services Sales from licenses and royalties Total sales Portal sales (Japan) Portal sales (Korea)

496,155-835,375 FY2011 1Q 125,521 261,584 45,034 523,425-955,564 FY2010 1Q - - 293,413 - -229,527 63,886 FY2011 1Q - - 243,124 - -175,334 67,790 FY2010 1Q 94,862 234,829 302,942

26 III. Finances, FY2011 1Q - Per segment sales(online games) (JPY thousands) Sales from services Sales from licenses and royalties Total sales Portal sales (Japan) Portal sales (Korea) Development sales (Licenses, royalties) (Korea) Japan Americas Korea Europe Consolidated adjustment # of personnel, online games (JPY thousands) FY2010 1Q 94, ,829 9, , ,375 FY2011 1Q 125, ,584 45, , ,564 FY2010 1Q , ,527 63,886 FY2011 1Q , ,334 67,790 FY2010 1Q 94, , , , , ,261 FY2011 1Q 125, , , , ,334 1,023,354 Portal sales (Americas) Portal sales (Europe) Consolidated adjustment factored in Total Japan U.S. Korea Europe Brazil 25

III. Finances, FY2011 1Q - Per segment sales(online games) (JPY thousands) Comparison In the French and German versions of Flyff, there was an abnormal influx of in-game currency due to hacking, and

27 III. Finances, FY2011 1Q - Per segment sales(online games) (JPY thousands) Comparison In the French and German versions of Flyff, there was an abnormal influx of in-game currency due to hacking, and this caused a decrease in membership. This resulted in a JPY 100 million sales decrease. The two Korean subsidiaries of Gala Inc. were merged, leading to improved security. Japan Americas Korea Europe Korea Portals Development Sales from the new Korean portal and other new regions made up for the decrease in Europe. 前年四半期比 13.8% 増 Countermeasures were implemented, and membership has been recovering since the second quarter. 26

28 III. Finances, FY2011 1Q - Per segment sales (other) Data Mining Community Solutions Risk monitoring services Other Operating profit Sales Operating profit (JPY thousands) Operating margin 26% Operating margin 22% 27

IV. Future efforts - Growth trends of the online games market The global online games market was worth about JPY 922 billion in 2008, and is expected to double to 2.067 trillion by 2014.

29 IV. Future efforts - Growth trends of the online games market The global online games market was worth about JPY 922 billion in 2008, and is expected to double to trillion by (USD:JPY=1:93, Source: Online Game Market Forecasts 2009) Japan s share of the online games market is about 5% (Source: Online Game Market Forecasts 2009, and Japan had 271 online games published by 126 companies in (Source: JOGA Online games market report 2009) USD millions World online games (PC) market size, Projection Gala focuses on the global market, which is twenty times the size of the Japanese one U.S. Europe Japan Other Asian countries 28

IV. Future efforts - Building on the Gala Group s strengths Over 45 million

publishing Experience in building and maintaining online communities since

30 IV. Future efforts - Building on the Gala Group s strengths Over 45 million users (15 million on Gala Group portals, 30 million elsewhere) enjoy games published by the Gala Group. Global network Experience in online communities Both development and publishing Experience in building and maintaining online communities since the earliest ones Gala has publishing companies in the Americas, Europe, Japan, and Korea, and a development studio in Korea. 29

IV. Future efforts Building gpotato into the world s premier online games

20 million Publish major download games and browser games from other

Expand online communities Increase membership to 30 million Channeling of

31 IV. Future efforts Building gpotato into the world s premier online games portal Build gpotato membership up to 10 million Increase membership to 20 million Publish major download games and browser games from other companies. Expand online communities Increase membership to 30 million Channeling of major titles from other publishers Acquire the world s major games portals Building gpotato into the world s premier online games portal 30

32 IV. Future efforts - Achieve sales of JPY 10 billion and operating profit of JPY 2 billion Sales Operating profit (JPY millions) - Achieve sales of JPY 10 billion and operating profit of JPY 2 billion 31