SEOUL, South Korea, Nov. 27, 2007 (PRIME 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, 2007, prepared in accordance with generally accepted accounting principles in the United States.
Revenues for the third quarter ended September 30, 2007 was KRW 9,341 million (US$ 10,014 thousand), representing a 0.7% decrease from KRW 9,408 million for the second quarter ended June 30, 2007 ("QoQ") and a 5.1% decrease from KRW 9,846 million for the third quarter ended September 30, 2006 ("YoY"). In spite of decreased revenues QoQ and YoY, the Company has been successful in reducing the overall rate of revenue decline through the use of micro-transaction sales.
REVIEW OF FINANCIAL RESULTS
Revenues
Royalty and licensing fee revenues for the third quarter ended September 30, 2007 were KRW 5,607 million (US$ 6,011 thousand), representing a 0.4% decrease QoQ from KRW 5,627 million and a 11.5% decrease YoY from KRW 6,336 million. The decline was primarily due to increased competition in the global online gaming market.
Subscription revenues for the third quarter of 2007 was KRW 2,610 million (US$ 2,798 thousand), representing a 41.4% increase QoQ and a 25.8% increase YoY compared to KRW 1,846 million and KRW 2,074 million, respectively. The increase resulted mainly from increased Ragnarok Online revenues derived from micro-transaction sales and Emil Chronicle Online, which was commercialized in Korea in August 2007.
Mobile game revenues was KRW 805 million (US$ 863 thousand) for the third quarter of 2007, representing a 42.3% decrease QoQ from KRW 1,396 million and a 2.5% increase YoY from KRW 785 million. The decrease QoQ is due to lowered individual purchase limits, which have declined from KRW 300 thousand to KRW 100 thousand per person.
Character merchandising, animation and other revenue was KRW 319 million (US$ 342 thousand) for the third quarter of 2007, representing a 40.8% decrease QoQ from KRW 539 million and a 51.0% decrease YoY from KRW 651 million. The decrease QoQ is mainly due to the temporary revenue from Ragnarok Online II(tm) Concert held in June 2007 which did not exist in the third quarter of 2007. The decrease YoY is because there were considerably higher revenues from royalties attributed to the Ragnarok Online(tm) merchandising business in Japan in the third quarter of 2006 than those in the third quarter of 2007.
Cost of Revenues and Operating Expenses
Cost of revenues were KRW 4,533 million (US$ 4,860 thousand) for the third quarter of 2007, representing a 5.8% increase QoQ from KRW 4,283 million and a 1.9% decrease YoY from KRW 4,620 million. Gravity's cost of revenues increased primarily as a result of the increased amortization on development cost for Emil Chronicle Online and Pucca Racing, which were commercialized in August 2007 and September 2007, respectively.
Operating expenses were KRW 18,135 million (US$ 19,441 thousand) for the third quarter of 2007, representing a 127.3% increase QoQ from KRW 7,977 million and a 108.8% increase YoY from KRW 8,684 million. The increase in operating expenses is primarily attributed to the KRW 8,619 million impairment of Perpetual Entertainment, Inc., in which the Company invested in May 2006, and which went into liquidation in October 2007. Operating expenses in the third quarter of 2007 also increased as a result of the increased advertising expenses related to (i) KRW 1,496 million in expenses related to the Gravity Festival held in Seoul in July 2007; (ii) open beta testing of Ragnarok Online II(tm) and Requiem starting in May 2007 and July 2007, respectively and (iii) commercialization of Emil Chronicle Online and Pucca Racing in August 2007 and September 2007, respectively.
Loss before income tax expenses and others was KRW 11,995 million (US$ 12,859 thousand) for the third quarter of 2007, which represents a 367.5% increase QoQ compared with KRW 2,566 million and a 324.8% increase YoY compared with KRW 2,824 million.
As a result of the foregoing factors, Gravity recorded a net loss of KRW 12,576 million (US$ 13,482 thousand) for the third quarter of 2007 compared with a net loss of KRW 3,415 million for the second quarter of 2007 and a net loss of KRW 2,198 million for the third quarter of 2006.
The balance of cash and cash equivalents and short-term financial instruments was KRW 66,337 million (US$ 71,116 thousand) as of September 30, 2007.
Conference call
Gravity will hold a conference call to discuss the Company's financial results for the third quarter ended September 30, 2007 on Tuesday, November 27, 2007 at 7:00 P.M. U.S. Eastern Standard Time (Wednesday, November 28, 2007 at 9:00 A.M. Seoul time).
To participate in the conference call, please dial one of the following numbers 10 minutes prior to the call with a verbal pass code VL60201.
U.S. Toll Free Number: 877-627-3548 Canadian Toll Free Number: 877-669-6757 International Access Number: +1-302-607-2018
Note: For convenience purposes only, the KRW amounts have been expressed in U.S. dollars at the rate of KRW 932.80 to US$ 1.00, the noon buying rate in effect on November 21, 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, 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.
GRAVITY Co., Ltd.
Consolidated Balance Sheet
(In millions of KRW and in thousands of US$)
As of
--------------------------------------
31-Dec-06 30-Sep-07
----------------- -------------------
KRW US$ KRW US$
Assets (audited)(unaudited) (unaudited)
Current assets
Cash and cash equivalents 35,314 37,858 57,640 61,792
Short-term financial
instruments 45,835 49,137 8,697 9,324
Accounts receivable, net 2,163 2,319 3,905 4,186
Other current assets 4,891 5,243 4,689 5,027
------ ------ ------ ------
Total current assets 88,203 94,557 74,931 80,329
------ ------ ------ ------
Property and
equipment, net 8,472 9,082 7,553 8,097
Leasehold and other
deposits 2,719 2,915 2,285 2,450
Intangible assets 4,212 4,516 2,554 2,738
Development cost 6,181 6,626 9,225 9,890
Goodwill 1,451 1,556 1,451 1,556
Investments 9,776 10,480 810 868
Other non-current assets 1,547 1,658 1,090 1,168
------- ------- ------- -------
Total assets 122,561 131,390 99,899 107,096
======= ======= ======= =======
Liabilities and shareholders' equity
Current liabilities
Accounts payable 4,552 4,880 2,736 2,933
Accrued litigation 4,648 4,983 -- --
Deferred income 6,046 6,482 3,267 3,502
Other current
liabilities 946 1,013 596 639
------ ------ ------ ------
Total current
liabilities 16,192 17,358 6,599 7,074
------ ------ ------ ------
Long-term deferred
income 5,863 6,285 10,429 11,180
Accrued severance
benefits 649 696 659 706
Deferred income tax
liabilities 1,077 1,155 621 666
Other non-current
liabilities 638 684 58 63
------ ------ ------ ------
Total liabilities 24,419 26,178 18,366 19,689
------ ------ ------ ------
Minority interest 29 31 60 64
Common stock 3,474 3,724 3,474 3,724
Additional paid-in
capital 74,694 80,075 74,975 80,376
Retained earnings 20,322 21,786 3,358 3,600
Accumulated other
comprehensive
income (loss) (377) (404) (334) (357)
------ ------ ------ ------
Total shareholders'
equity 98,113 105,181 81,473 87,343
------ ------ ------ ------
Total liabilities and
shareholders' equity 122,561 131,390 99,899 107,096
======= ======= ======= =======
* For convenience purposes only, the KRW amounts are expressed in
U.S. dollars at the rate of KRW932.80 to US$1.00, the noon buying
rate in effect on November 21, 2007 as quoted by the Federal
Reserve Bank of New York.
GRAVITY Co., Ltd.
Consolidated Statements of Operations
(In millions of KRW and in thousands of US$)
Three months ended
-----------------------------------------
30-Sep-06 30-Jun-07 30-Sep-07
--------- --------- -------------------
(KRW) (KRW) (US$)
(unaudited) (unaudited)
Revenues
Online games-subscription
revenue 2,074 1,846 2,610 2,798
Online games-royalties and
license fees 6,336 5,627 5,607 6,011
Mobile games 785 1,396 805 863
Character merchandising,
animation and other revenue 651 539 319 342
--------- --------- --------- ---------
Total net revenues 9,846 9,408 9,341 10,014
Cost of revenues 4,620 4,283 4,533 4,860
--------- --------- --------- ---------
Gross profit 5,226 5,125 4,808 5,154
Operating expenses
Selling, general and
administrative 6,395 5,745 17,402 18,655
Research and development 2,289 2,232 733 786
Proceeds from the former
chairman due to fraud -- -- -- --
Gain on disposal of assets
held for sale -- -- -- --
Operating income (loss) (3,458) (2,852) (13,327) (14,287)
Other income (expenses)
Interest income 769 790 764 819
Interest expense -- (6) (1) (1)
Foreign currency gains
(losses), net (307) (694) 568 609
Gain (loss) on foreign
currency forward transaction,
net 204 -- -- --
Others, net (32) 196 1 1
--------- --------- --------- ---------
Income (loss) before
income tax expense,
minority interest and
equity in loss of
related joint venture (2,824) (2,566) (11,995) (12,859)
Income tax expenses (benefit) (626) 674 554 594
--------- --------- --------- ---------
Income (loss) before
minority interest and
equity in loss of
related joint venture (2,198) (3,240) (12,549) (13,453)
--------- --------- --------- ---------
Minority interest 1 12 14 15
Equity in gain (loss) of
related joint venture 1 (163) (13) (14)
Net income (loss) (2,198) (3,415) (12,576) (13,482)
========= ========= ========= =========
Nine months ended
-----------------------------
30-Sep-06 30-Sep-07
---------- ------------------
(KRW) (KRW) (US$)
(unaudited) (unaudited)
Revenues
Online games-subscription revenue 6,309 6,518 6,988
Online games-royalties and license
fees 20,113 18,519 19,853
Mobile games 2,687 2,988 3,203
Character merchandising, animation and
other revenue 2,171 1,238 1,327
---------- -------- --------
Total net revenues 31,280 29,263 31,371
Cost of revenues 13,596 12,780 13,701
---------- -------- --------
Gross profit 17,684 16,483 17,670
Operating expenses
Selling, general and administrative 17,293 28,179 30,209
Research and development 6,741 5,545 5,944
Proceeds from the former chairman due
to fraud (4,947) -- --
Gain on disposal of assets held for
sale (1,081) -- --
Operating income (loss) (322) (17,241) (18,483)
Other income (expenses)
Interest income 2,253 2,308 2,474
Interest expense (53) (17) (18)
Foreign currency gains (losses), net (397) 162 174
Gain (loss) on foreign currency
forward transaction, net 137 -- --
Others, net (70) 198 212
---------- -------- --------
Income (loss) before income tax
expense, minority interest and
equity in loss of related joint
venture 1,548 (14,590) (15,641)
Income tax expenses (benefit) (416) 1,995 2,139
---------- -------- --------
Income (loss) before minority
interest and equity in loss of
related joint venture 1,964 (16,585) (17,780)
---------- -------- --------
Minority interest -- 31 33
Equity in gain (loss) of related
joint venture (133) (347) (372)
Net income (loss) 1,831 (16,963) (18,185)
========== ======== ========
* For convenience purposes only, the KRW amounts are expressed in
U.S. dollars at the rate of KRW932.80 to US$1.00, the noon buying
rate in effect on November 21, 2007 as quoted by the Federal
Reserve Bank of New York.