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Gravity Reports Third Quarter of 2016 Results

Seoul, Korea, Oct. 28, 2016 (GLOBE NEWSWIRE) --

GRAVITY REPORTS THIRD QUARTER OF 2016 RESULTS

Seoul, South Korea – October 28, 2016 – GRAVITY Co., Ltd. (NasdaqCM: GRVY) (“Gravity” or “Company”), a developer and publisher of online and mobile games based in South Korea, today announced its unaudited financial results for the third quarter ended September 30, 2016, prepared in accordance with generally accepted accounting principles in the United States.

FINAICIAL RESULTS FOR THE THIRD QUARTER OF 2016

Revenues

Revenues for the third quarter ended September 30, 2016 was KRW 15,746 million (US$ 13,143 thousand), representing a 73.9% increase from KRW 9,057 million for the second quarter ended June 30, 2016 (“QoQ”) and a 81.6% increase from KRW 8,671 million for the third quarter ended September 30, 2015 (“YoY”).

Subscription revenues for the third quarter of 2016 were KRW 8,497 million (US$ 7,093 thousand), representing a 265.8% increase QoQ from KRW 2,323 million and a 332.4% increase YoY from KRW 1,965 million. The increase QoQ and YoY was mainly attributable to increased revenues from Ragnarok Online and Xianjing RO Chuanshuo WEB in Taiwan. The Company commenced its direct game service of Ragnarok Online on June 15, 2016 and launched Xianjing RO Chuanshuo WEB on July 13, 2016 in such area.

Royalty and license fee revenues for the third quarter of 2016 were KRW 3,736 million (US$ 3,119 thousand), representing a 36.4% increase QoQ from KRW 2,738 million and a 35.1% increase YoY from KRW 2,765 million. The increase QoQ was primarily due to increased revenue from Ragnarok Online in Thailand, which was partially offset by decreased revenue from Ragnarok Online in Japan. The increase YoY was resulted mainly from increased revenues from Ragnarok Online in Thailand and Japan. Ragnarok Online was relaunched in Thailand by a local licensee on July 13, 2016.

Mobile game and application revenues were KRW 2,170 million (US$ 1,811 thousand) for the third quarter of 2016, representing a 13.0% decrease QoQ from KRW 2,495 million and a 31.3% decrease YoY from KRW 3,160 million. The decrease QoQ was primarily from decreased revenue from Ragnarok: Path of Heroes and the decrease YoY was resulted primarily from decreased revenues from Ragnarok: Path of Heroes and Battle Ship.

Character merchandising and other revenues were KRW 1,343 million (US$ 1,120 thousand) for the third quarter of 2016, representing a 10.5% decrease QoQ from KRW 1,501 million and a 72.0% increase YoY from KRW 781 million. The decrease QoQ was primarily due to decreased revenues from web site development and operation service provided for third parties and the increase YoY was mainly due to recognition of deferred revenues occurred from a game development and publishing agreement with a third party, which was executed on March 25, 2016.

Cost of Revenue

Cost of revenue was KRW 6,734 million (US$ 5,621 thousand) for the third quarter of 2016, representing a 1.6% decrease QoQ from KRW 6,846 million and a 6.3% decrease YoY from KRW 7,185 million. The decrease QoQ was mostly attributable to the decreased salaries, which was partially offset by increased commission paid for game service in Taiwan. The decrease YoY was mostly from decreased amortization of capitalized research and development cost of Ragnarok Online II, which had been amortized and fully impaired in December 2015. The decrease YoY, however, was partially offset by increased commission paid for game service in Taiwan.

Operating Expenses

Operating expenses were KRW 5,466 million (US$ 4,562 thousand) for the third quarter of 2016, representing a 47.1% increase QoQ from KRW 3,717 million and a 32.2% increase YoY from KRW 4,135 million. The increase QoQ and YoY was mainly due to an increase in commission paid and advertising expenses in Taiwan. The increase YoY, however, was partially offset by decreased research and development expenses.

Income before income tax expenses and others

Income before income tax expenses and others was KRW 3,524 million (US$ 2,942 thousand) for the third quarter of 2016 compared with loss before income tax expenses and others of KRW 1,212 million for the second quarter of 2016 and loss before income tax expenses and others of KRW 2,148 million for the third quarter of 2015.

Net Income

As a result of the foregoing factors, Gravity recorded a net income attributable to parent company of KRW 3,087 million (US$ 2,577 thousand) for the third quarter of 2016 compared with a net loss attributable to parent company of KRW 1,605 million for the second quarter of 2016 and a net loss attributable to parent company of KRW 2,460 million for the third quarter of 2015.

Liquidity

The balance of cash and cash equivalents and short-term financial instruments was KRW 35,792 million (US$ 29,877 thousand) as of September 30, 2016.

Note: For convenience purposes only, the KRW amounts are expressed in U.S. dollars at the rate of KRW 1,197.98 to US$ 1.00, the noon buying rate in effect on September 30, 2016 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 and mobile games. Gravity's principal product, Ragnarok Online, is a popular online game in many markets, including Japan and Taiwan, and is currently commercially offered in 80 markets and countries. 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 annual report for the fiscal year ended December 31, 2015 on Form 20-F, together with such other documents that 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.

Contact:

Mr. Heung Gon Kim
Chief Financial Officer
Gravity Co., Ltd.
Email: kheung@gravity.co.kr

Ms. Ji Hee Kim
IR Manager
Gravity Co., Ltd.
Email: ircommunication@gravity.co.kr
Telephone: +82-2-2132-7800

# # #

GRAVITY Co., Ltd.
Consolidated Balance Sheet

(In millions of KRW and in thousands of US$)

As of
31-Dec-15 30-Sep-16
KRW US$ KRW US$
Assets(audited) (unaudited) (unaudited) (unaudited)
Current assets:
Cash and cash equivalents 24,909 20,793 9,292 7,756
Short-term financial instruments 11,500 9,599 26,500 22,121
Accounts receivable, net 5,289 4,415 11,846 9,888
Other current assets 1,978 1,651 2,642 2,205
Total current assets 43,676 36,458 50,280 41,970
Property and equipment, net 882 736 587 490
Leasehold and other deposits 954 796 954 796
Intangible assets 132 110 101 84
Other non-current assets 85 71 338 284
Total assets 45,729 38,171 52,260 43,624
Liabilities and Equity
Current liabilities:
Accounts payable 2,971 2,480 8,468 7,069
Deferred revenue 4,997 4,171 8,884 7,415
Other current liabilities 836 698 631 527
Total current liabilities 8,804 7,349 17,983 15,011
Long-term deferred revenue 6,600 5,509 3,914 3,267
Accrued severance benefits 123 103 111 93
Other non-current liabilities 210 175 210 175
Total liabilities 15,737 13,136 22,218 18,546
Common shares 3,474 2,900 3,474 2,900
Additional paid-in capital 75,076 62,669 75,076 62,669
Accumulated deficit (48,761) (40,703) (48,980) (40,885)
Accumulated other comprehensive income 694 579 1,027 857
Total parent company shareholders' equity 30,483 25,445 30,597 25,541
Non-controlling interest (491) (410) (555) (463)
Total equity 29,992 25,035 30,042 25,078
Total liabilities and equity 45,729 38,171 52,260 43,624

* For convenience purposes only, the KRW amounts are expressed in U.S. dollars at the rate of KRW 1,197.98 to US$ 1.00, the noon buying rate in effect on September 30, 2016 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-16 30-Sep-15 30-Sep-16 30-Sep-15 30-Sep-16
(KRW) (KRW) (KRW) (US$) (KRW) (KRW) (US$)
(unaudited) (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) (unaudited)
Revenues:
Online games-subscription revenue 2,323 1,965 8,497 7,093 5,585 12,957 10,816
Online games-royalties and license fees 2,738 2,765 3,736 3,119 8,054 9,842 8,215
Mobile games and applications 2,495 3,160 2,170 1,811 11,066 7,281 6,078
Character merchandising and other revenue 1,501 781 1,343 1,120 2,252 3,817 3,185
Total net revenue 9,057 8,671 15,746 13,143 26,957 33,897 28,294
Cost of revenue 6,846 7,185 6,734 5,621 22,262 20,199 16,861
Gross profit 2,211 1,486 9,012 7,522 4,695 13,698 11,433
Operating expenses:
Selling, general and administrative 3,205 2,898 4,982 4,158 8,406 10,875 9,077
Research and development 512 1,237 484 404 4,160 1,339 1,118
Impairment loss on intangible assets 2 5 4
Total operating expenses 3,717 4,135 5,466 4,562 12,568 12,219 10,199
Operating income(loss) (1,506) (2,649) 3,546 2,960 (7,873) 1,479 1,234
Other income (expenses)
Interest income 131 154 128 107 537 391 326
Interest expense (3)
Foreign currency income (loss), net 163 347 (153) (128) 402 (848) (707)
Others, net 3 3 3 3
Income(loss) before income tax expenses
and equity income(loss) on investments (1,212) (2,148) 3,524 2,942 (6,937) 1,025 856
Income tax expenses 410 338 465 388 976 1,308 1,092
Net income(loss) (1,622) (2,486) 3,059 2,554 (7,913) (283) (236)
Net income(loss) attributable to:
Non-controlling interest (17) (26) (28) (23) (62) (64) (54)
Parent company (1,605) (2,460) 3,087 2,577 (7,851) (219) (182)
Income(loss) per share
- Basic and diluted (231) (354) 444 0.37 (1,130) (32) (0.03)
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
Income(loss) per ADS(1)
- Basic and diluted (462) (708) 888 0.74 (2,260) (64) (0.06)

* For convenience purposes only, the KRW amounts are expressed in U.S. dollars at the rate of KRW 1,197.98 to US$ 1.00, the noon buying rate in effect on September 30, 2016 as quoted by the Federal Reserve Bank of New York.

(1) Each ADS represents two common shares.

Source:GRAVITY Co., Ltd.