Financial · May 1, 2014

Summary of First Quarter Financial Results for the December 2014 Fiscal Term (Consolidated)

Published by KLab

Summary

KLab Inc. reported a significant financial turnaround in its consolidated results for the first quarter of the fiscal term ending December 2014. Following a net loss in the same period the previous year, the company achieved profitability with a net income of 51.1 million yen. Revenue grew to 4.4 billion yen, representing a 24.8% increase year-over-year. This growth was primarily driven by the sustained performance of the mobile title Love Live! School Idol Festival, successful New Year in-game events, and the contribution of the newly released Celestial Craft Fleet. The transition to profitability was supported by aggressive cost-reduction measures and structural reforms. The company reduced its workforce by 141 positions to a total of 825 employees and successfully lowered outsourcing expenses by 59.3% from their 2013 peak. Operational efficiency was further enhanced by liquidating unprofitable projects, consolidating domestic subsidiaries to streamline indirect costs, and closing several overseas and regional offices. While total assets decreased slightly to 8.3 billion yen, net assets rose to 4.8 billion yen, aided by a capital increase resulting from the exercise of stock subscription rights by Deutsche Bank’s London Bureau. The report focuses on the Japanese mobile gaming market for the period of January 1 to March 31, 2014. Looking forward, management maintained a cautious but positive outlook, forecasting first-half revenue of 8.9 billion yen and an operating income of 216 million yen. However, the company noted that the volatile nature of the mobile gaming industry, which is highly dependent on hit products, makes full-year forecasting difficult. Segment data confirms that the game business remains the primary revenue driver, accounting for nearly the entirety of the company's 4.4 billion yen in quarterly sales.

From the report

Summary of First Quarter Financial Results for the December 2014 Fiscal Term (Consolidated) (English translation from the original Japanese-language document) May 15, 2014 Name of Listed company KLab Inc. TSE 1st Section Tokyo Code Number 3656 URL http://www.klab.com/jp/ Representative Title President & CEO Name Tetsuya Sanada Contact Person Title Executive Vice President Name Kazuyoshi Takata(TEL) +81-3 -4500-9077 Investor Relation Office Scheduled filing date for May 15, 2014 Scheduled date for － securities report dividends payment Supplementary information for quarterly results : Yes Information meeting for quarterly financial report : Yes *Institutional investors and analysts only 1. Consolidated Business Performance Overview for Q1 (January 1, 2014 – March 31, 2014) Amounts of less than one million yen rounded off (1) Consolidated Operating Results (year-to-date) %: rate of increase or decrease over previous year Revenue Operating income Ordinary income Net income Million yen % Million yen % Million yen % Million yen % Q1 Mar,2014 4,425 24.8 96 ― 106 ― 51 ― Q1 Mar,2013 3,546 ― △212 ― △154 ― △159 ― Note: Comprehensive income Q1 Mar/2014 48 Million yen Q1 Mar/2013 △169 Million yen (― %) (― %) Quarterly net Quarterly net income per share income per share, fully diluted Yen Yen Q1 Mar/2014 1.56 1.50 Q1 Mar/2013 △6.39 ― Note: 1. KLab Inc. (“the Company”) came up with the quarterly consolidated financial statements from Q1/2013, year-on-year % of changes for Q1/2013 are not stated in the columns. 2. Net income per share, fully diluted for Q1/2013 is not stated because the Company Group accounted a net loss. (2) Consolidated Financial Status

pany”) came up with the quarterly consolidated financial statements from Q1/2013, year-on-year % of changes for Q1/2013 are not stated in the columns. 2. Net income per share, fully diluted for Q1/2013 is not stated because the Company Group accounted a net loss. (2) Consolidated Financial Status Total assets Net assets Equity ratio Million yen Million yen % Mar 31, 2014 8,301 4,846 57.7 Dec 31, 2013 8,697 4,007 45.5 Reference: Shareholders’ equity Mar 31, 2014 4,793 Million yen Dec 31, 2013 3,953 Million yen 2. Dividends Annual Dividends 1st Quarter 2nd Quarter 3rd Quarter Term End Annual Yen Yen Yen Yen Yen Dec/13 Fiscal Term ― 0.00 ― 0.00 0.00 Dec/14 Fiscal Term ― Dec/14 (Forecast) 0.00 ― 0.00 0.00 Note: Revisions to the most recently announced dividend forecast : None

3. Consolidated Business Performance Forecasts December 2014 Fiscal Term (January 1, 2014 – December 31, 2014) (% represents rate of increase or decrease over previous term) Revenue Operating income Ordinary income Net income Net income per share Mid term Million yen ％ Million yen ％ Million yen ％ Million yen ％ Yen 8,925 25.4 216 ― 216 ― 141 ― 4.15 Note: Revisions to the most recently disclosed sales and earnings forecast : None ※Explanatory Notes (1) Changes to major subsidiary companies during term : None (Changes to specified subsidiary companies accompanying changes in scope of consolidation) Subsidiaries ― (Company name) ― Number of removed ― (Company name) ― subsidiaries (2) Changes to accounting principles or treatment : Yes Note: Refer to “(1) Adoption of Special Accounting Treatment in the section 2. Summary Information (Notes)” on page 4 of Supporting Information. (3) Changes to accounting policies, estimates, and restatements ① Changes accounting revision of accounting standards : None ② Changes other than ① : None ③ Changes accounting estimates : None ④ Restatements : None (4) Number of outstanding shares (common stock) ① Term end # of outstanding shares Mar 31, 34,216,100 Shares Dec 31, 33,058,600 Shares (including treasury stock) 2014 2013 ② Term end # of treasury stock Mar 31, 1,185,500 Shares Dec 31, 1,189,600 Shares 2014 2013 ③ Average # of outstanding shares Mar 31, 32,786,652 Shares Mar 31, 24,982,531 Shares during Q1/2014 and Q1/2013 2014 2013 ※ Current Status of Quarterly Review Procedures

including treasury stock) 2014 2013 ② Term end # of treasury stock Mar 31, 1,185,500 Shares Dec 31, 1,189,600 Shares 2014 2013 ③ Average # of outstanding shares Mar 31, 32,786,652 Shares Mar 31, 24,982,531 Shares during Q1/2014 and Q1/2013 2014 2013 ※ Current Status of Quarterly Review Procedures Although this “Consolidated Quarterly Financial Results” are not subject to quarterly review procedures in accordance with the Financial Instruments and Exchange Act of Japan, the quarterly review procedures have been completed at the time of disclosure of the “Consolidated Quarterly Financial Results.” ※ Explanation Note Regarding to the Appropriate Usage of the Forecasts and Other Special Instructions The forecasts in this report are based on the current data available to the Company and certain reasonable assumptions and may vary according to various factors in the future. For forecasts, refer to “(3) Forecasts and various factors in the future” at INDEX on page 2.

INDEX 1. Qualitative Information on Management Performance ……...……………………………………….… 2 (1) Business Operation……………………………………………...…………………….…… . .2 (2) Analysis of Financial Status …………………………………………………………………2 (3) Forecasts and various factors in the future……………………........................................3 2. Summary Information (Notes) …………………………………………………..............................…..…3 (1) Adoption of Special Accounting Treatment…………………………………………………3 3. Consolidated Financial Statements…………………………………………… ………….… ………….....4 (1) Consolidated balance sheets…………………………………………………...…………... 4 (2) Consolidated statements of income………………………………………………………...5 (3) Notes regarding to quarterly consolidated financial statements…………………..……..7 (Notes regarding to going concern assumptions)……………………………...…………7 (Notes in case significant change in shareholders’ equity……. ……………………..….7 (Segment Information)……………………………………………………………………………..7

Qualitative Information of Management Performance (1) Business Operation ■ For the first quarter of the fiscal year, consolidated revenue were 4,425,544 thousand yen, an increase of 7.2% from the previous quarter (*). ■ Increase in revenue: ・Favorable sales recorded in January 2014 due to the new-year’s events. ・”Love Live! School Idol Festival” remained to be robust. ・”Celestial Craft Fleet”, released during the current quarter, contributed to sales. ■ Decrease in revenue: ・Decrease in revenue in accompanying with elimination of unprofitable/low-margin projects. ■ Pertaining to expenditures, the Company Group reviewed all the costs according to the plan that we announced at the beginning of the term. ・The number of employees, we reduced the number to 825 persons, a decline of 141 persons compared to the end of December 2013. ・We liquidated/consolidated our subsidiaries domestic. By integrating accounting and human resource departments, decreased indirect costs. ・We liquidated/closed our bureau overseas and regional outlet domestic. Its cost saving effect will begin following consolidated second quarter 2014. ・Pertaining to outsourcing expenses, successfully decreased a 59. 3% compared to the peak time (3rd quarter of fiscal 2013). ■ As a result, consolidated revenue for the quarter were 4,425,544 thousand yen, operating income was 96,097 thousand yen, ordinary income was 106,486 thousand yen, and net income was 51,100 thousand yen.

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Type: Financial

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