GRAVITY Co., Ltd. — Interim / Quarterly Report 2007

Jul 16, 2007

6-K 1 c70785e6vk.htm FORM 6-K Filed by Bowne Pure Compliance PAGEBREAK

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 6-K

REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO RULE 13a-16 OR 15d-16 UNDER THE SECURITIES EXCHANGE ACT OF 1934

July 16, 2007

GRAVITY Co., Ltd.

(Translation of registrant’s name into English)

14F Meritz Tower, 825-2 Yeoksam-Dong, Gangnam-Gu, Seoul, 135-934, Korea (Address of principal executive office)

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F: þ Form 20-F o Form 40-F

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): o

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): o

Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934: o Yes þ No

If “Yes” is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b): n/a

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GRAVITY REPORTS FIRST QUARTER OF 2007 RESULTS

Seoul, South Korea — July 16, 2007 — GRAVITY Co., Ltd. (NasdaqGM: 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™ 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).

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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™, 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 .

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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.

Contact:

Mr. Jonathan J. Lee Chief Financial Officer / Investor Relations Officer Gravity Co., Ltd. Email: jlee@gravity.co.kr Telephone: +822-2019-6021

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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$
Assets	(audited)	(unaudited)		(unaudited)		(unaudited)		(unaudited)		(unaudited)
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.

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GRAVITY Co., Ltd. Consolidated Statements of Operations

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

31-Dec-06				31-Mar-06				31-Mar-07
(KRW)		(US$)		(KRW)		(US$)		(KRW)		(US$)
(unaudited)		(unaudited)		(unaudited)		(unaudited)		(unaudited)		(unaudited)
Revenues
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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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

/s/ Jonathan J. Lee
Name:	Jonathan J. Lee
Title:	Chief Financial Officer and Investor Relations Officer

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Exhibit Index

Exhibit No.	Description
99.1	Gravity’s 2007 Q1 Earnings Release

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