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Gravity Reports First Quarter Of 2008 Results

Seoul, South Korea - Jul 7, 2008 (PRN): 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, 2008, prepared in accordance with generally accepted accounting principles in the United States.

Revenues for the first quarter ended March 31, 2008 was KRW 12,529 million (US$ 11,969 thousand), representing a 14.2% increase from KRW 10,967million (US$ 10,477 thousand) for the fourth quarter ended December 31, 2007 (“QoQ”) and a 19.2% increase from KRW 10,513 million (US$ 10,043 thousand) for the first quarter ended March 31, 2007 (“YoY”).

REVIEW OF FINANCIAL RESULTS

Revenues

Royalty and licensing fee revenues for the first quarter ended March 31, 2008 were KRW 6,897 million (US$ 6,589 thousand), representing a 11.6% increase QoQ from KRW 6,179 million (US$ 5,903 thousand) but a 5.3% decrease YoY from KRW 7,285 million (US$ 6,959 thousand). The increase QoQ was primarily driven by higher Japan revenues resulting from a Ragnarok Online™ in-game event in January 2008.

Subscription revenues for the first quarter of 2008 was KRW 2,860 million (US$ 2,732 thousand), representing a 0.9% decrease QoQ but a 38.7% increase YoY compared to KRW 2,887 million (US$ 2,758 thousand) and KRW 2,062 million (US$ 1,970 thousand), respectively. The increase YoY primarily attributed to implementation of the micro-transaction model for Ragnarok Online™ in the Korea market since April 2007, commercialization of Ragnarok Online™ in Russia in March 2007 and France and Belgium in June 2007 and commercialization of Requiem in Korea in October 2007.

Mobile game revenues was KRW 1,421 million (US$ 1,357 thousand) for the first quarter of 2008, representing a 32.1% increase QoQ from KRW 1,076 million (US$ 1,028 thousand) and an 80.6% increase YoY from KRW 787 million (US$ 752 thousand).

Character merchandising, animation and other revenue was KRW 1,351 million (US$ 1,291 thousand) for the first quarter of 2008, representing a 63.8% increase QoQ from KRW 825 million (US$ 788 thousand) and a 256.5% increase YoY from KRW 379 million (US$ 362 thousand). The increase is primarily due to the increased sale of mobile phone accessories by NEOCYON, a subsidiary of the Company, to LG Electronics in the first quarter of 2008.

Cost of Revenues and Operating Expenses

Cost of revenues were KRW 7,504 million (US$ 7,169 thousand) for the first quarter of 2008, representing a 12.0% increase QoQ from KRW 6,699 million (US$ 6,400 thousand) and an 89.3% increase YoY from KRW 3,964 million (US$ 3,787 thousand). Gravity’s increased cost of revenues QoQ was primarily due to higher salaries from the commercialization of new games and increased cost of revenues related to NEOCYON’s mobile phone accessories. The increase in YoY cost of revenues was attributed to the amortization of development-related costs from the commercialization of Emil Chronicle Online, Pucca Racing and Requiem in August, September and October of 2007, respectively and from higher salaries due to the establishment of L5 Games Inc., a game development studio in the U.S., which is a wholly-owned subsidiary of Gravity Interactive, Inc. in October 2007.

Operating expenses were KRW 6,711 million (US$ 6,411 thousand) for the first quarter of 2008, representing a 30.7% decrease QoQ from KRW 9,687 million (US$ 9,254 thousand) and an 11.8% decrease YoY from KRW 7,612 million (US$ 7,272 thousand). The decrease in operating expenses QoQ is due to decreased advertising expenses and commission paid. The YoY decrease in operating expenses is attributed to decreased R&D expenses because R&D expenses were converted into intangible assets (capitalized R&D cost) after open beta testing and into cost of revenues after commercialization.

Losses before income tax expenses and others was KRW 278 million (US$ 266 thousand) for the first quarter of 2008, which represents a 94.0% decrease QoQ compared with KRW 4,629 million (US$ 4,423 thousand) and a 826.7% increase YoY compared with KRW 30 million (US$ 30 thousand).

As a result of the foregoing factors, Gravity recorded a net loss of KRW 1,370 million (US$ 1,309 thousand) for the first quarter of 2008 compared with a net loss of KRW 6,237 million (US$ 5,960 thousand) for the fourth quarter of 2007 and a net loss of KRW 973 million (US$ 931 thousand) for the first quarter of 2007.

The balance of cash and cash equivalents and short-term financial instruments was KRW 56,416 million (US$ 53,894 thousand) as of March 31, 2008.
Note: For convenience purposes only, the KRW amounts have been expressed in U.S. dollars at the rate of KRW 1046.80 to US$ 1.00, the noon buying rate in effect on June 30, 2008 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 23 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.


For more information, contact:

Mr. Jonathan J. Lee
Chief Financial Officer / Investor Relations Officer
Gravity Co., Ltd.
Telephone: +822-2132-7800

Email: jlee@gravity.co.kr


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