GRAVITY Reports First Quarter of 2007 Results


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.


            

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