GRAVITY Reports Third Quarter of 2008 Results

• Press Release
• Source: GRAVITY Co., Ltd.
• On Monday November 17, 2008, 12:30 pm EST

SEOUL, South Korea, Nov. 17, 2008 (GLOBE NEWSWIRE) -- GRAVITY Co., Ltd. (NasdaqGM:GRVY - News) (``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, 2008, prepared in accordance with generally accepted accounting principles in the United States.

Related Quotes

Symbol	Price	Change
GRVY	1.50	+0.04

{"s" : "grvy","k" : "c10,l10,p20,t10","o" : "","j" : ""}

Revenues for the third quarter ended September 30, 2008 was KRW 12,782 million (US$10,128 thousand), representing a similar amount of revenue of KRW 12,662 million for the second quarter ended June 30, 2008 (``QoQ'') and a 36.8% increase from KRW 9,341 million for the third quarter ended September 30, 2007 (``YoY''). The Company turned profitable with its net income of KRW 932 million (US$737 thousand) for the third quarter ended September 30, 2008, which was a result of the Company's broad range of restructuring efforts led by the new management team appointed in June, 2008.

REVIEW OF FINANCIAL RESULTS

Revenues

Royalty and licensing fee revenues for the third quarter ended September 30, 2008 were KRW 7,226 million (US$5,726 thousand), representing a 7.2% increase QoQ from KRW 6,742 million and a 28.9% increase YoY from KRW 5,607 million. The increase YoY was mainly resulted from the increase in Japan revenues. The weakening of the Korean Won by approximately 28.7% against the Japanese Yen from 2007 to 2008 also contributed to the increase YoY royalty revenues from Japan.

Subscription revenue for the third quarter of 2008 was KRW 3,539 million (US$2,804 thousand), representing a 14.8% increase QoQ and a 35.6% increase YoY compared to KRW 3,082 million and KRW 2,610 million, respectively. The increases QoQ and YoY are primarily driven by the increase in Korea revenues due to the increased revenues from the micro-transaction model resulted from opening free-to-play servers in May 2008. The increase QoQ and YoY are also partly due to the commercialization of Requiem in the United States, Canada and Russia in June 2008.

Mobile game revenues were KRW 1,614 million (US$1,279 thousand) for the third quarter of 2008, representing a 22.3% decrease QoQ from KRW 2,076 million and a 100.5% increase YoY from KRW 805 million. The increase YoY is principally due to the revenues from the newly released mobile games of NEOCYON, a subsidiary of the Company, in 2008.

Character merchandising, animation and other revenue was KRW 403 million (US$319 thousand) for the third quarter of 2008, representing a 47.1% decrease QoQ from KRW 762 million and a 26.3% increase YoY from KRW 319 million. The decrease QoQ is due to decrease in the animation related revenue. The increase YoY is mainly due to the increase of product sales of NEOCYON.

Cost of Revenues and Operating Expenses

Cost of revenues was KRW 6,726 million (US$5,329 thousand) for the third quarter of 2008, representing a 10.4% decrease QoQ from KRW 7,505 million and a 48.4% increase YoY from KRW 4,533 million. The increase YoY is primarily attributed to higher salaries of head quarters from the commercialization of new games and of L5 games Inc., which was established in October 2007. The increase YoY is also due to the increased amortization on development cost for Emil Chronicle Online, Pucca Racing and Requiem, which were commercialized in August, September and October of 2007, respectively.

Operating expenses were KRW 5,815 million (US$4,609 thousand) for the third quarter of 2008, representing a 1.1% decrease QoQ from KRW 5,881 million and a 67.9% decrease YoY from KRW 18,135 million. The decrease YoY is primarily attributed to the recognition of KRW 8,619 million impairment loss of Perpetual Entertainment, Inc. in the third quarter of 2007, which went into liquidation in October 2007. The decrease YoY is also attributed to the overall decrease of marketing and advertising expense as a part of restructuring efforts, amounted to KRW 3,556 million (US$2,818 thousand), compared to the third quarter of 2007.

Income before income tax expenses and others was KRW 1,879 million (US$1,487 thousand) for the third quarter of 2008, which represents a 754.1% increase QoQ compared with KRW 220 million, and a turnaround from the loss before income tax expenses and others of KRW 11,995 million for the third quarter of 2007.

As a result of the foregoing factors, Gravity recorded a net income of KRW 932 million (US$737 thousand) for the third quarter of 2008 compared with a net loss of KRW 665 million for the second quarter of 2008 and a net loss of KRW 12,576 million for the third quarter of 2007.

The balance of cash and cash equivalents and short-term financial instruments was KRW 55,688 million (US$44,126 thousand) as of September 30, 2008.

Note: For convenience purposes only, the KRW amounts have been expressed in U.S. dollars at the rate of KRW 1,262.00 to US$1.00, the noon buying rate in effect on November 3, 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(tm), 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-07             30-Sep-08
                            ------------------    -------------------
                             KRW         US$       KRW         US$
 Assets                   (audited) (unaudited)(unaudited) (unaudited)
 Current assets
   Cash and cash
    equivalents              53,588     42,463     52,583     41,666
   Short-term financial
    instruments               8,715      6,906      3,105      2,460
   Accounts receivable, net   4,820      3,819      5,579      4,421
   Other current assets       5,544      4,393      5,359      4,247
                            -------    -------    -------    -------
     Total current assets    72,667     57,581     66,626     52,794
                            -------    -------    -------    -------

 Property and equipment, net  7,195      5,701      6,139      4,865
 Leasehold and other
  deposits                    2,412      1,911      2,206      1,748
 Intangible assets           11,686      9,260     11,207      8,881
 Goodwill                     1,451      1,150      1,451      1,150
 Investments                     20         16      6,910      5,475
 Other non-current assets     1,496      1,185      1,512      1,197
                            -------    -------    -------    -------
     Total assets            96,927     76,804     96,051     76,110
                            =======    =======    =======    =======

 Liabilities and
  shareholders' equity
 Current liabilities
   Accounts payable           4,573      3,624      2,799      2,218
   Deferred income            3,639      2,884      3,445      2,730
   Current portion of
    deferred tax liabilities    583        462        134        106
   Other current liabilities  1,317      1,043      1,539      1,219
                            -------    -------    -------    -------
     Total current
      liabilities            10,112      8,013      7,917      6,273
                            -------    -------    -------    -------
 Long-term deferred income   10,245      8,118     10,012      7,933
 Accrued severance benefits     715        567        570        452
 Deferred income tax
  liabilities                    49         39         61         48
 Other non-current
  liabilities                   262        207        258        205
                            -------    -------    -------    -------
     Total liabilities       21,383     16,944     18,818     14,911
                            -------    -------    -------    -------
 Minority interest               68         54        130        103
 Common stock                 3,474      2,753      3,474      2,753
 Additional paid-in capital  75,126     59,529     75,185     59,576
 Retained earnings           (2,879)    (2,281)    (3,982)    (3,155)
 Accumulated other
  comprehensive income
  (loss)                       (245)      (195)     2,426      1,922
                            -------    -------    -------    -------
     Total shareholders'
      equity                 75,476     59,806     77,103     61,096
                            -------    -------    -------    -------
     Total liabilities
      and shareholders'
      equity                 96,927     76,804     96,051     76,110
                            =======    =======    =======    =======

 * For convenience purposes only, the KRW amounts are expressed in
   U.S. dollars at the rate of KRW1,262.00 to US$1.00, the noon
   buying rate in effect on November 3, 2008 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-Jun-08  30-Sep-07        30-Sep-08
                             (KRW)      (KRW)      (KRW)      (US$)
                          (unaudited)(unaudited)(unaudited)(unaudited)
 Revenues
   Online games-
    subscription revenue      3,082      2,610      3,539      2,804
   Online games-royalties
    and license fees          6,742      5,607      7,226      5,726
   Mobile games               2,076        805      1,614      1,279
   Character merchandising,
    animation and other
    revenue                     762        319        403        319
                            -------    -------    -------    -------
     Total net revenues      12,662      9,341     12,782     10,128

 Cost of revenues             7,505      4,533      6,726      5,329
                            -------    -------    -------    -------

 Gross profit                 5,157      4,808      6,056      4,799

 Operating expenses
   Selling, general and
    administrative            5,272     17,402      5,401      4,280
   Research and development     609        733        414        329
                            -------    -------    -------    -------
     Operating income (loss)   (724)   (13,327)       241        190

 Other income (expenses)
   Interest income              702        764        661        524
   Interest expense              (6)        (1)        (7)        (6)
   Foreign currency gains
    (losses), net               248        568      1,000        792
   Others, net                   --          1        (16)       (13)
                            -------    -------    -------    -------

     Income (loss) before
      income tax expense,
      minority interest and
      equity in loss of
      related joint venture     220    (11,995)     1,879      1,487

 Income tax expenses
  (benefit)                     808        554        865        686
                            -------    -------    -------    -------

     Income (loss) before
      minority interest and
      equity in loss of
      related joint venture    (588)   (12,549)     1,014        801
                            -------    -------    -------    -------

 Minority interest               18         14         22         17
 Equity in loss of related
  joint venture                  59         13         60         47

     Net income (loss)         (665)   (12,576)       932        737
                            =======    =======    =======    =======

                                             Nine months ended
                                     ---------------------------------
                                      30-Sep-07       30-Sep-08
                                        (KRW)      (KRW)      (US$)
                                     (unaudited)(unaudited)(unaudited)
 Revenues
   Online games-subscription revenue     6,518      9,481      7,513
   Online games-royalties and license
    fees                                18,519     20,865     16,533
   Mobile games                          2,988      5,111      4,050
   Character merchandising, animation
    and other revenue                    1,238      2,515      1,993
                                       -------    -------    -------
     Total net revenues                 29,263     37,972     30,089

 Cost of revenues                       12,780     21,735     17,223
                                       -------    -------    -------

 Gross profit                           16,483     16,237     12,866

 Operating expenses
   Selling, general and administrative  28,179     16,601     13,155
   Research and development              5,545      1,806      1,430
                                       -------    -------    -------
     Operating income (loss)           (17,241)    (2,170)    (1,719)

 Other income (expenses)
   Interest income                       2,308      2,065      1,636
   Interest expense                        (17)       (18)       (14)
   Foreign currency gains (losses), net    162      1,962      1,555
   Others, net                             198        (19)       (16)
                                       -------    -------    -------

     Income (loss) before income tax
      expense, minority interest and
      equity in loss of related joint
      venture                          (14,590)     1,820      1,442

 Income tax expenses (benefit)           1,995      2,521      1,997
                                       -------    -------    -------

     Income (loss) before minority
      interest and equity in loss of
      related joint venture            (16,585)      (701)      (555)
                                       -------    -------    -------

 Minority interest                          31         61         48
 Equity in loss of related joint
  venture                                  347        341        271

     Net income (loss)                 (16,963)    (1,103)      (874)
                                       =======    =======    =======

 * For convenience purposes only, the KRW amounts are expressed in
   U.S. dollars at the rate of KRW1,262.00 to US$1.00, the noon
   buying rate in effect on November 3, 2008 as quoted by the Federal
   Reserve Bank of New York.

          GRAVITY Co., Ltd.
          Mr. Heung Gon Kim, Chief Financial Officer
            kheung@gravity.co.kr 
          Mr. Andy Eom, IR Manager
            +822-2132-7801
            andyeom@gravity.co.kr