SEOUL, South Korea, July 16, 2007 (PRIME NEWSWIRE) -- GRAVITY Co., Ltd. (Nasdaq:GRVY), an online game developer and publisher based in South Korea, today announced its unaudited financial results for the first quarter ended March 31, 2007, prepared in accordance with generally accepted accounting principles in the United States.
Revenues for the first quarter ended March 31, 2007 was KRW 10,513 million (US$11,395 thousand), representing an 8.6% increase from KRW 9,683 million (US$10,495 thousand) for the fourth quarter ended December 31, 2006 ("QoQ") and a 3.7% increase from KRW 10,140 million (US$10,990 thousand) for the first quarter ended March 31, 2006 ("YoY").
Mr. Il Young Ryu, Chairman and Chief Executive Officer of GRAVITY, commented, "We are currently conducting the open beta testing of Ragnarok Online(tm) and Emil Chronicle Online and the closed beta testing of Requiem Online and our casual game line-up, which includes Pucca Racing, W Baseball and Bodycheck Online. We anticipate increased revenues upon commercialization of these games beginning in the third quarter of 2007."
REVIEW OF FINANCIAL RESULTS
Revenues
Royalty and licensing fee revenues for the first quarter ended March 31, 2007 were KRW 7,285 million (US$7,896 thousand), representing a 21.2% increase QoQ from KRW 6,010 million (US$6,514 thousand) and a 7.0% increase YoY from KRW 6,811 million (US$7,382 thousand). The increase was primarily driven by: (1) higher Japan revenues resulting from the micro-transaction model which had been implemented in the Japan market since December 2006; and (2) the introduction of micro-transactions in China and Taiwan beginning in January and February of 2007, respectively.
Subscription revenues for the first quarter of 2007 was KRW 2,062 million (US$2,235 thousand), representing a 2.3% decrease QoQ and a 10.3% decrease YoY compared to KRW 2,111 million (US$2,288 thousand) and KRW 2,300 million (US$2,493 thousand), respectively. The decline resulted mainly from decreased Ragnarok Online(tm) revenues which has faced increased competition in Korea.
Mobile game revenues was KRW 787 million (US$853 thousand) for the first quarter of 2007, representing a 31.7% decrease QoQ from KRW 1,153 million (US$1,250 thousand) but a 26.1% increase YoY from KRW 624 million (US$676 thousand).
Character merchandising, animation and other revenue was KRW 379 million (US$411 thousand) for the first quarter of 2007, representing a 7.3% decrease QoQ from KRW 409 million (US$443 thousand) and a 6.4% decrease YoY from KRW 405 million (US$439 thousand).
Cost of Revenues and Operating Expenses
Cost of revenues were KRW 3,964 million (US$4,297 thousand) for the first quarter of 2007, representing a 4.5% decrease QoQ from KRW 4,150 million (US$4,498 thousand) and a 4.8% decrease YoY from KRW 4,162 million (US$4,511 thousand). GRAVITY's cost of revenues decreased QoQ primarily as a result of decreased outsourcing expenses related to the mobile game business and the amortization of intangible assets due to the impairment of certain intangible assets in 2006.
Operating expenses were KRW 7,612 million (US$8,250 thousand) for the first quarter of 2007, representing a 56.3% decrease QoQ from KRW 17,408 million (US$18,868 thousand) and a 7.5% increase YoY from KRW 7,080 million (US$7,674 thousand). The decrease in operating expenses QoQ is attributed to decreased commissions paid in the first quarter of 2007, impairment losses on intangible assets in the fourth quarter of 2006 and a litigation charge in the fourth quarter of 2006 for the upcoming settlement of an outstanding securities class action lawsuit. The increase in operating expenses YoY resulted primarily from increased research and development expenses for developing Ragnarok Online II(tm).
Losses before income tax expenses and others was KRW 30 million (US$33 thousand) for the first quarter of 2007, which represents a 99.7% decrease QoQ compared with KRW 11,480 million (US$12,443 thousand) and a 94.4% decrease YoY compared with KRW 538 million (US$583 thousand). The income tax expenses for the fourth quarter of 2006 which totaled KRW 12,485 million (US$13,532 thousand) was unusually high because GRAVITY's management determined it more likely than not that GRAVITY and certain of its subsidiaries would not realize the benefits of the deferred income tax assets of KRW 16,337 million (US$17,708 thousand) and thereby recognized the full allowance.
As a result of the foregoing factors, GRAVITY recorded a net loss of KRW 973 million (US$1,055 thousand) for the first quarter of 2007 compared with a net loss of KRW 24,096 million (US$26,117 thousand) for the fourth quarter of 2006 and a net loss of KRW 440 million (US$477 thousand) for the first quarter of 2006.
The balance of cash and cash equivalents and short-term financial instruments was KRW 75,588 million (US$81,929 thousand) as of March 31, 2007.
Note: For convenience purposes only, the KRW amounts have been expressed in U.S. dollars at the rate of KRW 922.60 to US$1.00, the noon buying rate in effect on June 30, 2007 as quoted by the Federal Reserve Bank of New York.
About GRAVITY Co., Ltd.
Based in Korea, GRAVITY is a developer and publisher of online games. Gravity's principal product, Ragnarok Online(tm), is a popular online game in many markets, including Japan, Taiwan and Thailand, and is currently commercially offered in 22 markets. For more information about Gravity, please visit http://www.gravity.co.kr.
Forward-Looking Statements:
Certain statements in this press release may include, in addition to historical information, "forward-looking statements" within the meaning of the "safe-harbor" provisions of the U.S. Private Securities Litigation Reform Act 1995. Forward-looking statements can generally be identified by the use of forward-looking terminology, such as "may," "will," "expect," "intend," "estimate," "anticipate," "believe," "project," or "continue" or the negative thereof or other similar words, although not all forward-looking statements contain these words. Investors should consider the information contained in our submissions and filings with the United States Securities and Exchange Commission (the "SEC"), including our registration statement on Form F-1, as amended, and our annual reports on Form 20-F, together with such other documents and we may submit to or file with the SEC from time to time, on Form 6-K. The forward-looking statements speak only as of this press release and we assume no duty to update them to reflect new, changing or unanticipated events or circumstances.
This release can also be viewed at http://www.pressreleasenetwork.com/newsroom
GRAVITY Co., Ltd. Consolidated Balance Sheet (In millions of KRW and in thousands of US$) As of ----------------------------------------------------- 31-Dec-06 31-Mar-06 31-Mar-07 ------------------ --------------- --------------- KRW US$ KRW US$ KRW US$ (audited)(unaudited) (unaudited) (unaudited) Assets Current assets Cash and cash equivalents 35,314 38,277 26,346 28,556 10,674 11,569 Short-term financial instruments 45,835 49,680 54,998 59,612 64,914 70,360 Accounts receivable, net 2,163 2,344 4,567 4,950 5,045 5,468 Assets held for sale -- -- 8,099 8,778 -- -- Other current assets 4,891 5,301 6,167 6,684 4,391 4,759 -------- -------- -------- -------- -------- -------- Total current assets 88,203 95,602 100,177 108,580 85,024 92,156 -------- -------- -------- -------- -------- -------- Property and equipment, net 8,472 9,183 11,295 12,243 7,544 8,177 Leasehold and other deposits 2,719 2,947 3,388 3,672 2,704 2,931 Intangible assets 10,393 11,265 12,467 13,513 9,886 10,715 Goodwill 1,451 1,573 1,451 1,573 1,451 1,573 Investment 9,776 10,596 889 964 9,605 10,411 Other non-current assets 1,547 1,676 6,745 7,311 1,042 1,129 -------- -------- -------- -------- -------- -------- Total assets 122,561 132,842 136,412 147,856 117,256 127,092 ======== ======== ======== ======== ======== ======== Liabilities and shareholders' equity Current liabilities Accounts payable 4,552 4,934 5,672 6,148 1,824 1,977 Accrued litigation 4,648 5,038 -- -- 4,648 5,038 Deferred income 6,046 6,553 4,754 5,153 3,103 3,363 Other current liabilities 946 1,025 1,766 1,914 557 604 -------- -------- -------- -------- -------- -------- Total current liabilities 16,192 17,550 12,192 13,215 10,132 10,982 -------- -------- -------- -------- -------- -------- Long-term deferred income 5,863 6,355 2,538 2,751 7,472 8,099 Accrued severance benefits 649 704 564 611 682 739 Deferred income tax liabilities 1,077 1,167 -- -- 934 1,012 Other non-current liabilities 638 694 700 759 680 737 -------- -------- -------- -------- -------- -------- Total liabilities 24,419 26,469 15,994 17,336 19,900 21,569 -------- -------- -------- -------- -------- -------- Minority interest 29 31 20 22 35 38 Common stock 3,474 3,765 3,474 3,765 3,474 3,765 Additional paid-in capital 74,694 80,960 75,001 81,293 74,818 81,095 Retained earnings 20,322 22,027 42,146 45,682 19,349 20,972 Accumulated other comprehensive income (loss) (377) (409) (223) (242) (320) (347) -------- -------- -------- -------- -------- -------- Total shareholders' equity 98,113 106,343 120,398 130,498 97,321 105,485 -------- -------- -------- -------- -------- -------- Total liabilities and shareholders' equity 122,561 132,842 136,412 147,856 117,256 127,092 ======== ======== ======== ======== ======== ======== * For convenience, the KRW amounts are expressed in U.S. dollars at the rate of KRW922.60 to US$1.00, the noon buying rate in effect on June 30, 2007 as quoted by the Federal Reserve Bank of New York. GRAVITY Co., Ltd. Consolidated Statements of Operations (In millions of KRW and in thousands of US$) Three months ended ---------------------------------------------------- 31-Dec-06 31-Mar-06 31-Mar-07 ------------------ --------------- -------------- KRW US$ KRW US$ KRW US$ (audited)(unaudited) (unaudited) (unaudited) Online games- subscription revenue 2,111 2,288 2,300 2,493 2,062 2,235 Online games- royalties and license fees 6,010 6,514 6,811 7,382 7,285 7,896 Mobile games 1,153 1,250 624 676 787 853 Character merchandising, animation and other revenue 409 443 405 439 379 411 ------- ------- ------- ------- ------- ------- Total net revenues 9,683 10,495 10,140 10,990 10,513 11,395 Cost of revenues 4,150 4,498 4,162 4,511 3,964 4,297 ------- ------- ------- ------- ------- ------- Gross profit 5,533 5,997 5,978 6,479 6,549 7,098 Operating expenses Selling, general and administrative 10,262 11,123 5,307 5,752 5,032 5,454 Litigation Charges 4,648 5,038 -- -- -- -- Research and development 2,498 2,707 1,773 1,922 2,580 2,796 ------- ------- ------- ------- ------- ------- Operating income (loss) (11,875) (12,871) (1,102) (1,195) (1,063) (1,152) Other income (expenses) Interest income 720 780 799 866 754 817 Interest expense (42) (45) (38) (41) (9) (10) Foreign currency gains (losses), net (331) (359) (155) (168) 288 312 Foreign currency forward transaction, net 15 16 (28) (30) -- -- Others, net 33 36 (14) (15) -- -- ------- ------- ------- ------- ------- ------- Income (loss) before income tax expense, minority interest and equity in losses of related joint venture (11,480) (12,443) (538) (583) (30) (33) Income tax expenses (benefit) 12,485 13,532 (215) (233) 766 830 ------- ------- ------- ------- ------- ------- Income (loss) before minority interest and equity in loss of related joint venture (23,965) (25,975) (323) (350) (796) (863) ------- ------- ------- ------- ------- ------- Minority interest 7 8 (1) (1) 6 7 Cumulative effect of change in accounting principle 849 920 -- -- -- -- Equity in loss of related joint venture 973 1,054 118 128 171 185 ------- ------- ------- ------- ------- ------- Net income (loss) (24,096) (26,117) (440) (477) (973) (1,055) ======= ======= ======= ======= ======= ======= * For convenience, the KRW amounts are expressed in U.S. dollars at the rate of KRW922.60 to US$1.00, the noon buying rate in effect on June 30, 2007 as quoted by the Federal Reserve Bank of New York.