OREANDA-NEWS. 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 second quarter ended June 30, 2016, prepared in accordance with generally accepted accounting principles in the United States.

FINAICIAL RESULTS FOR THE SECOND QUARTER OF 2016

Revenues for the second quarter ended June 30, 2016 was KRW 9,057 million (US$ 7,848 thousand), representing a 0.4% decrease from KRW 9,094 million for the first quarter ended March 31, 2016 (“QoQ”) and a 1.7% decrease from KRW 9,217 million for the second quarter ended June 30, 2015 (“YoY”).

Review of Financial Results

Revenues

Royalty and license fee revenues for the second quarter of 2016 were KRW 2,738 million (US$ 2,372 thousand), representing a 18.7% decrease QoQ from KRW 3,368 million and a 1.4% decrease YoY from KRW 2,777 million. The decrease QoQ was primarily due to i) decreased revenue from Ragnarok Online in Taiwan resulting from a service suspension on May 31, 2016, as the Company terminated a distribution agreement with a local licensee for its direct service of Ragnarok Online in such market and ii) decreased revenue from Ragnarok Online in Japan. The decrease YoY was resulted mainly from decreased revenue from Ragnarok Online II in Thailand, which was partially offset by increased revenues from Ragnarok Online in Japan and the strengthening of the Japanese Yen against the Korean Won.

Mobile game and application revenues were KRW 2,495 million (US$ 2,162 thousand) for the second quarter of 2016, representing a 4.6% decrease QoQ from KRW 2,616 million and a 32.6% decrease YoY from KRW 3,703 million. The decrease QoQ and YoY was resulted primarily from decreased revenues from mobile applications for a 3rd party and Ragnarok: Path of Heroes.

Subscription revenues for the second quarter of 2016 were KRW 2,323 million (US$ 2,013 thousand), representing a 8.7% increase QoQ from KRW 2,137 million and a 20.9% increase YoY from KRW 1,922 million. The increase QoQ and YoY was mainly attributable to revenues from Ragnarok Online in Taiwan. The Company has commenced its direct service for Ragnarok Online in such market since June 15, 2016.

Character merchandising and other revenues were KRW 1,501 million (US$ 1,301 thousand) for the second quarter of 2016, representing a 54.3% increase QoQ from KRW 973 million and a 84.2% increase YoY from KRW 815 million. The increase QoQ and 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 and Operating Expenses

Cost of revenue was KRW 6,846 million (US$ 5,932 thousand) for the second quarter of 2016, representing a 3.4% increase QoQ from KRW 6,619 million but a 7.5% decrease YoY from KRW 7,401 million. The increase QoQ was mostly from an increase in commission paid. 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.

Operating expenses were KRW 3,717 million (US$ 3,221 thousand) for the second quarter of 2016, representing a 22.4% increase QoQ from KRW 3,036 million but a 17.0% decrease YoY from KRW 4,481 million. The increase QoQ was mainly due to an increase in advertising expenses in Taiwan and commission paid. The decrease YoY was mostly resulted from a decrease in research and development expenses.

Loss before income tax expenses and others was KRW 1,212 million (US$ 1,050 thousand) for the second quarter of 2016 compared with loss before income tax expenses and others of KRW 1,287 million for the first quarter of 2016 and loss before income tax expenses and others of KRW 2,434 million for the second quarter of 2015.

As a result of the foregoing factors, Gravity recorded a net loss attributable to parent company of KRW 1,605 million (US$ 1,390 thousand) for the second quarter of 2016 compared with a net loss attributable to parent company of KRW 1,701 million for the first quarter of 2016 and a net loss attributable to parent company of KRW 2,763 million for the second quarter of 2015.

The balance of cash and cash equivalents and short-term financial instruments was KRW 37,445 million (US$ 32,443 thousand) as of June 30, 2016.

Note: For convenience purposes only, the KRW amounts have been expressed in U.S. dollars at the exchange rate of KRW 1,154.15 to US$ 1.00, the noon buying rate in effect on June 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

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GRAVITY CO., LTD.
Consolidated Balance Sheet

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

      As of
      31-Dec-15   30-Jun-16
      KRW   US$   KRW   US$
Assets (audited)   (unaudited)   (unaudited)   (unaudited)
Current assets:              
  Cash and cash equivalents   24,909       21,582       13,945       12,082  
  Short-term financial instruments   11,500       9,964       23,500       20,361  
  Accounts receivable, net   5,289       4,583       4,631       4,012  
  Other current assets   1,978       1,714       2,706       2,345  
    Total current assets   43,676       37,843       44,782       38,800  
                   
Property and equipment, net   882       764       673       583  
Leasehold and other deposits   954       827       953       826  
Intangible assets   132       114       112       97  
Other non-current assets   85       74       366       317  
    Total assets   45,729       39,622       46,886       40,623  
                   
Liabilities and Equity              
Current liabilities:              
  Accounts payable   2,971       2,574       7,072       6,127  
  Deferred revenue   4,997       4,330       7,493       6,492  
  Other current liabilities   836       724       590       511  
    Total current liabilities   8,804       7,628       15,155       13,130  
Long-term deferred revenue   6,600       5,718       4,654       4,032  
Accrued severance benefits   123       107       130       113  
Other non-current liabilities   210       182       209       181  
    Total liabilities   15,737       13,635       20,148       17,456  
Common shares   3,474       3,010       3,474       3,010  
Additional paid-in capital   75,076       65,049       75,076       65,049  
Accumulated deficit   (48,761 )     (42,248 )     (52,067 )     (45,113 )
Accumulated other comprehensive income   694       601       782       678  
    Total parent company shareholders’ equity   30,483       26,412       27,265       23,624  
Non-controlling interest   (491 )     (425 )     (527 )     (457 )
    Total equity   29,992       25,987       26,738       23,167  
    Total liabilities and equity   45,729       39,622       46,886       40,623  

* For convenience, the KRW amounts are expressed in U.S. dollars at the rate of KRW 1,154.15 to US$1.00, the noon buying rate in effect on June 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 shares and ADS data)

      Three months ended   Six months ended
      31-Mar-16   30-Jun-15   30-Jun-16   30-Jun-15   30-Jun-16
      (KRW)   (KRW)   (KRW)   (US$)   (KRW)   (KRW)   (US$)
      (unaudited)   (unaudited)   (unaudited)   (unaudited)   (unaudited)   (unaudited)   (unaudited)
Revenues:                          
  Online games-subscription revenue   2,137       1,922       2,323       2,013       3,620       4,460       3,864  
  Online games-royalties and license fees   3,368       2,777       2,738       2,372       5,289       6,106       5,290  
  Mobile games and applications   2,616       3,703       2,495       2,162       7,906       5,111       4,428  
  Character merchandising and other revenue   973       815       1,501       1,301       1,471       2,474       2,144  
    Total net revenue   9,094       9,217       9,057       7,848       18,286       18,151       15,726  
                               
Cost of revenue   6,619       7,401       6,846       5,932       15,077       13,465       11,667  
                               
Gross profit   2,475       1,816       2,211       1,916       3,209       4,686       4,059  
                           
Operating expenses:                          
  Selling, general and administrative   2,688       3,014       3,205       2,777       5,508       5,893       5,106  
  Research and development   343       1,465       512       444       2,923       855       741  
  Impairment losses on intangible assets   5       2     ?   ?     2       5       4  
    Total operating expenses   3,036       4,481       3,717       3,221       8,433       6,753       5,851  
                           
Operating loss   (561 )     (2,665 )     (1,506 )     (1,305 )     (5,224 )     (2,067 )     (1,792 )
                           
Other income (expenses):                          
  Interest income   132       181       131       114       383       263       228  
  Interest expense ?     (1 )   ?   ?     (3 )   ?   ?
  Foreign currency income (loss), net   (858 )     51       163       141       55       (695 )     (602 )
  Others, net ?   ?   ?   ?   ?   ?   ?
                               
Loss before income tax expenses and equity loss on investments   (1,287 )     (2,434 )     (1,212 )     (1,050 )     (4,789 )     (2,499 )     (2,166 )
                               
Income tax expenses   433       351       410       355       638       843       730  
                               
    Net loss   (1,720 )     (2,785 )     (1,622 )     (1,405 )     (5,427 )     (3,342 )     (2,896 )
Net income (loss) attributable to:                          
  Non-controlling interest   (19 )     (22 )     (17 )     (15 )     (36 )     (36 )     (31 )
  Parent company   (1,701 )     (2,763 )     (1,605 )     (1,390 )     (5,391 )     (3,306 )     (2,865 )
Loss per share                          
    - Basic and diluted   (245 )     (398 )     (231 )     (0.20 )     (776 )     (476 )     (0.41 )
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  
Loss per ADS(1)                          
    - Basic and diluted   (490 )     (795 )     (462 )     (0.40 )     (1,552 )     (952 )     (0.82 )

* For convenience, the KRW amounts are expressed in U.S. dollars at the rate of KRW 1,154.15 to US$1.00, the noon buying rate in effect on June 30, 2016 as quoted by the Federal Reserve Bank of New York.

(1) Each ADS represents two common shares.