Gala Plans to Implement Capital Policy to Support Its Mobile Gaming Subsidiary

Background: Founded in 1993, Gala Group is a developer and operator of mobile and online games, as well as an ASP service provider. It has three companies in Japan and one subsidiary each in South Korea and Japan. The group had previously focused on the European online gaming market, but with the company’s performance continuing to decline this year, its losses have increased significantly.The company’s business focus has gradually shifted from online games to mobile game development. The Gala mentioned in this report
Lab previously developed a game called *Dungeons & Golf*, which is one of the company's key projects.

　　Gala (4777) announced on March 14 that, in order to address issues at its South Korean subsidiary, Gala Lab
Due to Corp.'s excessive debt and financial difficulties, a series of capital policies will be implemented starting in March 2014.

　　Gala Lab
It is a wholly owned subsidiary of Gala that primarily develops online games, smartphone applications, and other related businesses. On March 13, Gala announced that it would raise funds through measures such as attracting third-party investment and issuing pre-emptive rights for new shares. Efforts are being made to resolve Gala’s
Lab's excessive debt led to the strengthening of its financial system, allowing it to focus fully on developing its smartphone app business.

　　According to the schedule, as of the end of March 2014, the parent company’s investment in Gala Lab
Corp.'s shareholding has decreased to 10.00%, while the remaining 90.00% is held by the company's directors, so there will be no changes to the subsidiaries. From Gala
According to Lab's financial statements, in March 2014, with the infusion of 47 million yen in capital, the company's net assets will increase to 750 million yen.

　　The summary of the capital policy is as follows.

　　1. The parent company converted a loan to Gala Lab Corp into equity (March 2014)

　　Convert a loan from Gala Lab Corp. totaling approximately 436 million yen into capital for a subsidiary (i.e., carry out a capital transaction through a debt-to-equity swap).

　　2. The parent company waived the interest on the outstanding loan (March 2014)

　　Gala has waived interest on a loan of up to 49 million yen owed by Gala Lab.

　　3. Capital Reduction and Stock Consolidation (March 2014)

　　Gala Lab Corp.
The company carried out a capital reduction without compensation, reclassifying its capital and capital surplus—totaling approximately 654 million yen—as retained earnings. At the same time, all shares issued by the company were consolidated into a single class of stock.

　　4. Third-Party Capital Injection (March 2014)

　　Gala Lab Corp. raised approximately 47 million yen through a share issuance to the company and members of its board of directors. The allocation ratios and amounts are shown in the figure below.

　　The allocation and resulting ownership percentages are as follows.

　　5. Schedule for March 2015

　　(1) Third-Party Capital Increase (March 2015)

　　Gala Lab expects to raise approximately 50 million yen by reallocating shares to Gala Inc. The allocation ratio and amounts are shown in the figure below.

　　The allocation and resulting ownership percentages are as follows.