[Funding] Dragonfly's 'Make-or-Break' for New Game Development and Digital Therapeutics Development

Raised 34.9 Billion KRW by Issuing 29 Million New Shares via Priority Shareholder Offering
Developing New Games in Collaboration with Affiliates
Operating Losses Continue... Urgent Need for Profitability Improvement

[Asia Economy Reporter Hyungsoo Park] Dragonfly is launching a large-scale capital increase to raise funds for the development of a new game. The company plans to complete the fundraising as quickly as possible through a rights offering to existing shareholders.

According to the Financial Supervisory Service's electronic disclosure system on the 22nd, Dragonfly is promoting a paid-in capital increase through a rights offering, allocating 0.70 new shares for every one existing share. It will issue 29 million new shares to raise 34.9 billion KRW. The planned issue price per share is 1,205 KRW. Shareholders eligible to receive the new shares will be confirmed on the 4th of next month, and the issue price will be finalized on the 28th.

The company plans to swiftly complete the process from the board resolution to fundraising and focus on developing new games and digital therapeutics. The raised funds will be used as follows: 16 billion KRW for developing new games, 5 billion KRW for digital therapeutics development, and the remaining 12.6 billion KRW will be allocated to purchasing office buildings.

Dragonfly is pushing forward with 'Project K' by signing an outsourcing development contract with its wholly owned subsidiary, DFLab. DFLab is a development organization with experience in creating numerous games, including the popular game 'Special Force.' Utilizing the funds raised through the capital increase, the company plans to hire additional personnel through a capital injection and strengthen efforts to develop new games.

Dragonfly is also expanding its domain with games incorporating blockchain technology. In August, it acquired a 60% stake in the game development company Mongs and plans to make additional investments. Approximately 6.4 billion KRW from the public offering funds will be invested in Mongs' 'Project T.' Mongs has extensive experience not only in game development but also in issuing non-fungible tokens (NFTs). Dragonfly expects synergy effects from Mongs' NFT issuance technology know-how and experience to support its NFT business.

Dragonfly is nurturing next-generation medical devices and healthcare businesses as new growth engines. It aims to develop digital therapeutics and obtain approval from the Korean Ministry of Food and Drug Safety. Starting with digital therapeutics targeting pediatric attention deficit hyperactivity disorder (ADHD), the company plans to develop digital therapeutics for adolescent and adult ADHD as well. To promote the digital therapeutics business, it has signed memorandums of understanding (MOUs) related to digital therapeutics development with BBB, the Artificial Intelligence Convergence Research Center at Pusan National University, and Yangsan Pusan National University Hospital.

On a consolidated basis, Dragonfly recorded operating losses for three consecutive years from 2019. Amid continued poor performance in the game business division, the company raised funds through various methods such as issuing convertible preferred shares, convertible bonds, and paid-in capital increases. Based on the raised funds, it steadily expanded its business areas through mergers and acquisitions (M&A) and equity investments. Last year, it acquired Linotec and is now engaged in functional film and automotive soundproofing material businesses. In the first half of this year, it invested 2 billion KRW and 5.8 billion KRW respectively to acquire stakes in Etel and BBB. The investment in Etel is for collaboration in NFT-related businesses, and the investment in BBB is to strengthen cooperation in the digital therapeutics business.

As of the first half of this year, the scale of Dragonfly's long-term investment assets amounts to 20.3 billion KRW, accounting for 34.4% of total consolidated assets. Since most of these investments are in unlisted companies, the possibility of not recovering the investment and recognizing impairment losses cannot be excluded.