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GRAVITY Reports Third Quarter of 2013 Results and Business Updates

SEOUL, South Korea, Nov. 20, 2013 (GLOBE NEWSWIRE) -- GRAVITY Co., Ltd. (Nasdaq:GRVY) ("Gravity" or the "Company"), an online game developer and publisher based in South Korea, today announced its unaudited financial results for the third quarter ended September 30, 2013, prepared in accordance with generally accepted accounting principles in the United States, and business updates.

FINANCIAL RESULTS FOR THE THIRD QUARTER OF 2013

Revenues for the third quarter ended September 30, 2013 were KRW 12,807 million (US$12,072 thousand), representing a 0.1% increase from KRW 12,788 million for the second quarter ended June 30, 2013 ("QoQ") but a 8.6% decrease from KRW 14,012 million for the third quarter ended September 30, 2012 ("YoY"). While the decrease YoY was mostly attributable to the decrease in revenues from online game business, the decrease was substantially offset by the increase in revenues from mobile game business.

Review of financial results

Revenues

Royalties and license fee revenues for the third quarter of 2013 were KRW 4,708 million (US$4,438 thousand), representing a 15.1% decrease QoQ from KRW 5,543 million and a 42.8% decrease YoY from KRW 8,225 million. The decreases in royalty and licensing fee revenues QoQ and YoY were due mostly to decreased revenues from Ragnarok Online in Japan and strengthening of the Korean Won against the Japanese Yen.

Subscription revenues for the third quarter of 2013 were KRW 2,511 million (US$2,367 thousand), representing a 11.5% decrease QoQ from KRW 2,836 million but a 33.3% increase YoY from KRW 1,884 million. The increase YoY primarily resulted from revenues from Ragnarok Online II in the United States, Canada and 28 European countries and markets where the game was launched in May 2013 but the revenues from Ragnarok Online II in these countries and markets decreased in the third quarter of 2013, which resulted in the decrease QoQ in subscription revenues for the quarter.

Mobile game revenues were KRW 5,401 million (US$5,091 thousand) for the third quarter of 2013, representing a 35.2% increase QoQ from KRW 3,996 million and a 65.4% increase YoY from KRW 3,266 million. The increase QoQ was mainly driven by revenues from our services for third parties and the increase YoY was mostly attributable to revenues from NeoCyon's mobile game operation service for a third party.

Character merchandising and other revenues were KRW 187 million (US$176 thousand) for the third quarter of 2013, representing a 54.7% decrease QoQ from KRW 413 million and a 70.6% decrease YoY from KRW 637 million. The decreases QoQ and YoY mostly resulted from decrease in revenues from Ragnarok Odyssey, a PS Vita game, and from game character merchandising.

Cost of Revenues and Operating Expenses

Cost of revenues was KRW 9,118 million (US$8,595 thousand) for the third quarter of 2013, representing a 8.0% increase QoQ from KRW 8,439 million and a 0.6% increase YoY from KRW 9,061 million. The increase QoQ and YoY were primarily attributable to increase in commission paid. The increase QoQ was also due to outsourcing fees mostly related to our services for third parties.

Operating expenses were KRW 5,006 million (US$4,718 thousand) for the third quarter of 2013, representing a 15.6% decrease QoQ from KRW 5,930 million and a 32.8% decrease YoY from KRW 7,451 million. The decrease QoQ mainly resulted from decrease in research and development expenses mostly related to Ragnarok Odyssey Ace, a PS Vita game released in August 2013, but such decrease was substantially offset by gain on disposal of investments related to liquidation of Online Game Revolution Fund No. 1 in the second quarter of 2013, which did not occur in the third quarter of 2013. The decrease YoY was mostly due to impairment loss on intangible assets for Dragonica in the third quarter of 2012, which did not occur in the third quarter of 2013.

Loss before income tax expenses and others was KRW 1,427 million (US$1,345 thousand) for the third quarter of 2013, compared with loss before income tax expenses and others of KRW 1,020 million for the second quarter of 2013 and loss before income tax expenses and others of KRW 2,259 million for the third quarter of 2012.

As a result of the foregoing factors, Gravity recorded a net loss attributable to parent company of KRW 1,804 million (US$1,700 thousand) for the third quarter of 2013 compared with a net loss attributable to parent company of KRW 1,617 million for the second quarter of 2013 and a net loss of attributable to parent company of KRW 1,393 million for the third quarter of 2012.

The balance of cash and cash equivalents and short-term financial instruments was KRW 49,709 million (US$46,855 thousand) as of September 30, 2013.

Note: For convenience purposes only, the KRW amounts have been expressed in the U.S. dollars at the exchange rate of KRW 1,060.91 to US$ 1.00, the noon buying rate in effect on November 1, 2013, as quoted by the Federal Reserve Bank of New York.

BUSINESS UPDATES

  • Termination of the license and distribution agreement for Ragnarok Online II in China

The Company and Shanghai The9 Information Technology Co., Ltd. ("The9"), a Chinese online game developer and operator, have entered into an agreement to terminate a license and distribution agreement dated January 8, 2007 between the two parties, under which the Company had granted The9 an exclusive right to distribute Ragnarok Online II in China.

While the Company disclosed in its latest annual report that the total value of the license and distribution agreements for Ragnarok Online II in nine countries, including Thailand, Japan, the Philippines, Singapore, Malaysia, Vietnam, China, Indonesia and Brazil was US$43,390 thousand as of December 31, 2012, the total value of the currently valid license and distribution agreements for Ragnarok Online II for the other eight countries is US$23,390 thousand after the termination of the agreement with The9. Among the US$23,390 thousand, the Company has been paid US$6,840 thousand as license fees and guaranteed minimum payments as of the date of filing of this Form 6-K.

The Company is in discussions with some potential partners to distribute Ragnarok Online II in China.

  • Suspension of the Ragnarok Online II game service in Korea

The Company has decided to suspend the Korean service of Ragnarok Online II from December 23, 2013 due to the game's performance being below expectations in Korea. Korean users may play the English version of the game on Steam, a digital game distribution platform. Gravity will be focused on the game service in the overseas markets and examine the resumption of the Korean service after releasing the game in more markets.

  • Tower of Ascension for iOS to be launched globally in December 2013

The English version of Tower of Ascension, a mobile multiplayer online role playing game developed by the Company, will be released on the Apple's App Store in December 2013. The game will be available globally except for Japan. The Korean version of the game was released on the App Store in Korea in August 2013.

About GRAVITY Co., Ltd.

Based in Korea, Gravity is a developer and publisher of online games. Gravity's principal product, Ragnarok Online™, is a popular online game in many markets, including Japan, Taiwan and Thailand, and is currently commercially offered in 60 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.

GRAVITY Co., Ltd.
Consolidated Balance Sheet
(In millions of KRW and in thousands of US$)
As of
31-Dec-12 30-Sep-13
KRW US$ KRW US$
Assets (audited) (unaudited) (unaudited) (unaudited)
Current assets:
Cash and cash equivalents 36,455 34,362 22,209 20,934
Short-term financial instruments 17,500 16,495 27,500 25,921
Accounts receivable, net 7,116 6,707 6,691 6,307
Other current assets 6,858 6,465 6,672 6,289
Total current assets 67,929 64,029 63,072 59,451
Property and equipment, net 3,524 3,322 2,814 2,652
Leasehold and other deposits 5,767 5,436 5,573 5,253
Intangible assets 24,270 22,877 20,786 19,593
Equity method investments 647 610 -- --
Other non-current assets 8,418 7,934 8,484 7,997
Total assets 110,555 104,208 100,729 94,946
Liabilities and Equity
Current liabilities:
Accounts payable 5,115 4,821 3,335 3,144
Deferred revenue 3,006 2,833 4,112 3,876
Other current liabilities 2,254 2,125 1,174 1,106
Total current liabilities 10,375 9,779 8,621 8,126
Long-term deferred revenue 9,172 8,645 8,495 8,007
Accrued severance benefits 683 644 275 259
Other non-current liabilities 247 233 266 251
Total liabilities 20,477 19,301 17,657 16,643
Common shares 3,474 3,275 3,474 3,275
Additional paid-in capital 75,395 71,066 75,030 70,722
Retained earnings 7,699 7,257 2,649 2,497
Accumulated other comprehensive income 3,001 2,829 1,673 1,577
Total parent company shareholders' equity 89,569 84,427 82,826 78,071
Non-controlling interest 509 480 246 232
Total equity 90,078 84,907 83,072 78,303
Total liabilities and equity 110,555 104,208 100,729 94,946
* For convenience purposes only, the KRW amounts are expressed in U.S. dollars at the rate of KRW 1,060.91 to US$ 1.00, the noon buying rate in effect on November 1, 2013 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$, except for share and ADS data)
Three months ended Nine months ended
30-Jun-13 30-Sep-12 30-Sep-13 30-Sep-12 30-Sep-13
(KRW) (KRW) (KRW) (US$) (KRW) (KRW) (US$)
(unaudited) (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) (unaudited)
Revenues:
Online games-subscription revenue 2,836 1,884 2,511 2,367 8,276 7,295 6,876
Online games-royalties and license fees 5,543 8,225 4,708 4,438 25,044 16,905 15,934
Mobile games 3,996 3,266 5,401 5,091 7,549 12,150 11,452
Character merchandising and other revenue 413 637 187 176 3,584 1,041 982
Total net revenue 12,788 14,012 12,807 12,072 44,453 37,391 35,244
Cost of revenue 8,439 9,061 9,118 8,595 25,579 24,954 23,521
Gross profit 4,349 4,951 3,689 3,477 18,874 12,437 11,723
Operating expenses:
Selling, general and administrative 4,512 3,718 3,868 3,646 15,231 12,787 12,053
Research and development 2,061 1,572 1,138 1,072 4,359 4,591 4,327
Impairment loss on intangible assets 582 2,161 -- -- 2,161 734 692
Gain on disposal of investments (1,225) -- -- -- -- (1,225) (1,155)
Total operating expenses 5,930 7,451 5,006 4,718 21,751 16,887 15,917
Operating loss (1,581) (2,500) (1,317) (1,241) (2,877) (4,450) (4,194)
Other income (expenses)
Interest income 345 436 320 301 1,370 1,035 976
Interest expense (14) (14) (12) (11) (39) (37) (35)
Foreign currency gain (loss), net 230 (181) (418) (394) (171) (128) (121)
Others, net -- -- -- -- 66 -- --
Loss before income tax expenses and equity loss on investments (1,020) (2,259) (1,427) (1,345) (1,651) (3,580) (3,374)
Income tax expenses 720 279 479 451 1,628 2,074 1,955
Loss before equity loss on investments (1,740) (2,538) (1,906) (1,796) (3,279) (5,654) (5,329)
Equity loss on investments, net -- (193) -- (232) (23) (22)
Net loss (1,740) (2,731) (1,906) (1,796) (3,511) (5,677) (5,351)
Net loss attributable to:
Non-controlling interest (123) (1,338) (102) (96) (2,120) (627) (591)
Parent company (1,617) (1,393) (1,804) (1,700) (1,391) (5,050) (4,760)
Loss per share
- Basic and diluted (233) (200) (260) (0.25) (200) (727) (0.69)
Weighted average number of shares outstanding
- Basic and diluted 6,948,900 6,948,900 6,948,900 6,948,900 6,948,900 6,948,900 6,948,900
Loss per ADS(1)
- Basic and diluted (58) (50) (65) (0.06) (50) (182) (0.17)
* For convenience purposes only, the KRW amounts are expressed in U.S. dollars at the rate of KRW 1,060.91 to US$ 1.00, the noon buying rate in effect on November 1, 2013 as quoted by the Federal Reserve Bank of New York.
(1) Each ADS represents one-fourth of a common share.

CONTACT: Mr. Heung Gon Kim Chief Financial Officer Gravity Co., Ltd. Email: kheung@gravity.co.kr Ms. Yoon Joo Lee IR Manager Gravity Co., Ltd. Email: yoonjoo.lee@gravity.co.kr Telephone: +82-2-2132-7800Source:GRAVITY Co., Ltd.