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GRAVITY Reports Second Quarter Of 2012 Results And Business Updates

Character merchandising and other revenues were KRW 1,578 million (US$ 1,396 thousand) for the second quarter of 2012, representing a 15.3% increase QoQ from KRW 1,369 million and a 886.3% increase YoY from KRW 160 million. The increases QoQ and YoY were mostly driven by sales of goods related to mobile phones. The increase YoY was also due to revenues from Ragnarok Odyssey, an action game on PS Vita platform, based on Ragnarok Online, which was commercially released in Japan in February 2012.

Cost of Revenue and Operating Expenses

Cost of revenue was KRW 9,691 million (US$ 8,570 thousand) for the second quarter of 2012, representing a 42.0% increase QoQ from KRW 6,827 million and a 55.5% increase YoY from KRW 6,234 million. The increases QoQ and YoY were mostly from increases in i) amortization on intangible assets primarily from development costs of Ragnarok Online II; ii) cost of goods sold by NeoCyon resulting from its increase in sales of goods related to mobile phones; and iii) salaries primarily attributable to the commercial launch of Ragnarok Online II in March 2012.

Operating expenses were KRW 6,121 million (US$ 5,413 thousand) for the second quarter of 2012, representing a 25.2% decrease QoQ from KRW 8,179 million and a 4.3% decrease YoY from KRW 6,398 million. The decreases QoQ was mainly due to advertising expenses, mainly consisting of marketing expenses for open beta testing and commercialization of Finding Neverland Online and Ragnarok Online II in the previous quarter, which deceased significantly in the second quarter of 2012 and gain on disposition of our 25% of equity interest in Ingamba LLC, a joint venture company established in April 2010 for online game service in Russia, in June 2012. The decrease YoY resulted from gain on disposition of our equity interest in Ingamba LLC, and decreased professional service fees and commission paid as well as decreased salaries for the headquarters.

Loss before income tax expenses and others was KRW 1,048 million (US$ 927 thousand) for the second quarter of 2012 compared with income before income tax expenses and others of KRW 1,656 million for the first quarter of 2012 and income before income tax expenses and others of KRW 2,384 million for the second quarter of 2011.

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