EX-99.3 4 c98441exv99w3.htm EXHIBIT 99.3 Exhibit 99.3
[Exhibit 99.3]
2009 Annual Business Report
Table of Contents
         
1. Business Overview
    2  
 
       
(1) Business Results and Financial Statements for the Past Three Fiscal Years (FY2007 – FY2009)
    2  
 
       
2. Company Overview
    2  
 
       
(1) Registered Purpose of the Company
    2  
 
       
(2) Description of Primary Business
    3  
 
       
(3) Problems Confronting the Company
    3  
 
       
(4) Business Offices and Game Development Facilities
    3  
 
       
(5) Stock
    3  
 
       
(6) Debenture
    3  
 
       
(7) Major Shareholders
    4  
 
       
(8) Investment in other Companies
    4  
 
       
(9) Directors Holding Concurrent Positions
    4  
 
       
(10) Material Transactions with Related Parties
    5  
 
       
(11) Significant Creditors
    5  
 
       
(12) Employees
    5  
 
       
(13) Directors and Auditors
    5  
 
       
(14) Material Events after the end of FY 2009
    5  
 
       
3. Financial Statements as of and for the fiscal years ended December 31, 2009 and 2008
    6  
 
       
(1) Balance Sheet
    6  
 
       
(2) Income Statement
    7  
 
       
(3) Statements of Appropriation of Retained Earnings
    9  

 

 


 

1. Business Overview
  (1)  
Business Results and Financial Statements for the Past Three Fiscal Years (FY2007 – FY2009)
[Unit: KRW]
                         
Category   FY 2009     FY 2008     FY 2007  
Current Assets
    74,522,234,178       62,479,848,031       61,201,545,490  
Quick Assets
    74,480,138,801       62,437,752,654       61,156,844,543  
Inventories
    42,095,377       42,095,377       44,700,947  
Non-current Assets
    26,444,523,461       33,986,383,899       34,147,146,665  
Investment Asset
    10,948,571,804       16,516,682,786       14,444,810,113  
Tangible Asset
    1,453,967,737       2,778,126,664       4,246,307,112  
Intangible Asset
    11,831,295,901       12,510,309,681       12,310,767,578  
Other Non-current Asset
    2,210,688,019       2,181,264,768       3,145,261,862  
Total Assets
    100,966,757,639       96,466,231,930       95,348,692,155  
Current Liabilities
    8,337,706,064       6,366,734,225       8,083,683,838  
Non-current Liabilities
    9,842,151,958       10,050,040,467       10,471,639,071  
Total Liabilities
    18,179,858,022       16,416,774,692       18,555,322,909  
Common Stock
    3,474,450,000       3,474,450,000       3,474,450,000  
Additional paid-in capital
    74,935,002,691       74,453,396,848       73,851,580,153  
Retained earnings (Accumulated Deficit)
    1,926,762,342       (1,155,734,413 )     (2,076,674,908 )
Capital Adjustment
    445,206,322       893,302,099       1,597,604,250  
Accumulated other comprehensive income and expense
    2,005,478,262       2,384,042,704       (53,590,249 )
Total Shareholders’ Equity
    82,786,899,617       80,049,457,238       76,793,369,246  
Revenues
    43,945,590,171       41,982,911,692       33,685,656,151  
Operating Income (Loss)
    11,770,320,038       7,391,182,939       (10,020,381,637 )
Income (Loss) before income tax
    7,069,619,206       4,394,260,231       (24,703,747,165 )
Net Income (Loss)
    3,082,496,755       920,940,495       (27,558,972,885 )
2. Company Overview
  (1)  
Registered Purpose of the Company
  1)  
Software Consulting, development and publishing
 
  2)  
Software, CD development and sales
 
  3)  
Development of telecommunication related software
 
  4)  
Making, development, publishing, sales and consulting of digital contents including game software
 
  5)  
Online network gaming service
 
  6)  
Software development regarding applicator package
 
  7)  
Computer program development and sales
 
  8)  
Software Export-Import
 
  9)  
E-commerce
 
  10)  
Character business
 
  11)  
Animation business
 
  12)  
Leasing business
 
  13)  
Restaurant business
 
  14)  
Media related business
 
  15)  
Printing & publishing business
 
  16)  
Record & video making and distribution
 
  17)  
All business related to above items 1) – 16)

 

2


 

  (2)  
Description of Primary Business
Gravity Co., Ltd. (the “Company”) is the developer of an MMORPG, Ragnarok OnlineTM, which is commercially offered in 57 markets worldwide, including Korea, Japan, China, Taiwan, Southeast Asia, the United States and Europe since its launch in August 2002.
The Company commercially launched Emil Chronicle Online in August 2007 and it is currently offered in Korea, Thailand, Hong Kong, Taiwan, Indonesia, Singapore and Malaysia. Requiem, which was commercially launched in October 2007, is currently serviced in 18 markets including Korea, the United States and Russia.
Having strong global network and success from Ragnarok OnlineTM, the Company is expanding its business areas from online game development and publishing to cultural contents industry based on various platforms, such as animation, game character merchandising, development of console games and IPTV games.
In addition, in order to strength its presence in the overseas markets, the Company has subsidiaries in the United States, Japan, France and Russia, and NeoCyon, Inc., a subsidiary for its mobile business in Korea.
  (3)  
Problems Confronting the Company
Since the Company operates in a highly competitive industry, the Company is making every effort to enhance its development capacity and to maintain and increase its market share in overseas markets to preserve its competitive advantage.
Due to its high dependence on Ragnarok OnlineTM , the Company is in need of diversified revenue structure, global market expansion and new business initiatives for sustainable revenue growth. The Company is doing its best to build its next game line-up in various genres through in-house development or publishing, as well as diversifying its business portfolio with multi-platform businesses.
  (4)  
Business Offices and Game Development Facilities
     
Classification   Location
Head Office
  Nuritkum Square Business Tower 15F, 1605 Sangam-Dong, Mapo-Gu, Seoul 121-795, Korea
Game Development Facilities
  Nuritkum Square R&D Tower 15F, 1605 Sangam-Dong, Mapo-Gu, Seoul 121-795, Korea
  (5)  
Stock
    
Total number of shares
[As of December 31, 2009]
         
Total number of shares authorized   Total number of shares issued   Total number of shares unissued
40,000,000 shares   6,948,900 shares   33,051,100 shares
   
Type of Stock issued
 
[Par value per share: KRW 500]   [As of December 31, 2009]
                                 
Type   No. of shares   Total face value   %     Remarks  
Registered common stock
  6,948,900 shares   KRW 3,474,450,000     100 %        
  (6)  
Debenture
[As of December 31, 2009]
                                                 
Type   Date of issuance     Issuing Amount     Interest Rate     Balance from issuance     Redemption date     Remarks  
                                   
     
*  
Company currently has no debentures and has no plan to have debentures in the future.

 

3


 

  (7)  
Major Shareholders
[As of December 31, 2009]
                                 
                    Transaction with        
Shareholder   Shares owned     %     the Company     Remarks  
GungHo Online Entertainment, Inc.
    4,121,739       59.31       *        
Moon Capital Management LP
    397,314       5.72              
Others
    2,429,847       34.97              
Total
    6,948,900       100.00              
*  
Refer to “(10) Material Transactions with Related Parties.”
  (8)  
Investment in Other Companies
[As of December 31, 2009]
                                                 
Subsidiaries   Relationship with Company  
                                          Transaction  
Name   Location   Common Stock   Main business   Shares owned     %     relationship  
Gravity Interactive, Inc.
  California, US   USD 5,040,000   Gaming Service     100,000       100.00 %   Subsidiary
Gravity Entertainment Corp.
  Tokyo, Japan   JPY 167,850,000   Animation making/service     1,000       100.00 %   Subsidiary
Gravity EU SASU
  Paris, France   EUR 1,800,000   Gaming Service     18,000       100.00 %   Subsidiary
Gravity Middle East & Africa FZ-LLC*
  Dubai, U.A.E.   AED 7,800,000   Gaming Service     7,800       100.00 %   Subsidiary
Gravity RUS Co., Ltd.
  Moscow, Russia   RUB 63,809,220   Gaming Service     N/A       99.99 %   Subsidiary
NeoCyon, Inc.
  Seoul, Korea   KRW 964,005,000   Mobile game development     185,301       96.11 %   Subsidiary
     
*  
The liquidation of Gravity Middle East & Africa FZ-LLC was in progress as of December 31, 2009.
  (9)  
Directors Holding Concurrent Positions
[As of December 31, 2009]
                                 
Director   Company
Name   Position   Name   Position   Responsibility
Toshiro Ohno
  President & CEO   Gravity Co., Ltd.   President & CEO   Overall management
 
          Gravity Interactive, Inc.   Executive Director        
Yoon Seok Kang
  CEO   Gravity Co., Ltd.   CEO   Overall management
 
          NeoCyon, Inc.   Executive Director        
 
          Gravity Interactive, Inc.   Executive Director        
 
          Gravity Entertainment Corp.   Executive Director        
 
          L5 Games Inc.*   Executive Director        
Yoshinori Kitamura
  Executive Director   Gravity Co., Ltd.   Executive Director   COO
 
          NeoCyon, Inc.   CEO   Overall management
 
          Gravity Interactive, Inc.   CEO   Overall management
 
          Gravity Entertainment Corp.   CEO   Overall management
 
          L5 Games Inc.*   Executive Director        
     
*  
A subsidiary of Gravity Interactive, Inc.

 

4


 

  (10)  
Material Transactions with Related Parties
[Unit: 1,000 KRW]
                                                                 
    Revenue     Purchase Amount     Credit     Liabilities  
Related persons, companies   FY2009     FY2008     FY2009     FY2008     FY2009     FY2008     FY2009     FY2008  
GungHo Online Entertainment, Inc.
    29,035,925       19,103,039       671,134       410,902       2,234,275       3,083,310       6,316,258       5,424,670  
Gravity Interactive, Inc.
    1,201,390       761,878                   246,953       108,914       96,862       170,942  
Gravity Entertainment Corp.
          29,751                   26,597       29,358       618,828       666,475  
Gravity CIS Co, Ltd.
    409,549       563,667                   1,159,861       904,887       47,237       105,642  
Gravity EU SASU
    286,828       191,333                   1,045,994       519,448       9,478       32,226  
Gravity Middle East & Africa FZ-LLC
          20,012                               1,820,301        
Gravity RUS Co., Ltd.
                                               
NeoCyon, Inc.
    1,709,722       1,450,784       914,000       1,352,885       1,295,605       847,760       108,881       211,957  
Total
    32,643,414       22,120,464       1,585,134       1,763,787       6,009,285       5,493,677       9,017,845       6,611,912  
  (11)  
Significant Creditors
 
     
The Company had no significant creditors as of December 31, 2009.
  (12)  
Employees
[As of December 31, 2009]
                                         
Category   Directors & Officers     Developers     Marketing/Operating     Finance/Administration     Total  
Employees
    12       240       56       56       364  
  (13)  
Directors and Auditors
                                         
                            Transaction        
Permanent/Non                           with the        
permanent   Name   Position   Main work   Company   Remarks  
Permanent
  Toshiro Ohno   President & CEO   President & CEO            
Permanent
  Yoon Seok Kang   CEO   CEO            
Permanent
  Yoshinori Kitamura   Executive Director   COO            
Permanent
  Kazuki Morishita   Executive Director                  
Permanent
  Kazuya Sakai   Executive Director                  
Permanent
  Luke Kang   Independent Director   Member of audit committee            
Permanent
  Phillip Young Ho Kim   Independent Director   Member of audit committee            
Permanent
  Jong Gyu Hwang   Independent Director   Member of audit committee            
  (14)  
Material Events after the end of FY 2009
 
     
N/A

 

5


 

3. Financial statements as of and for the fiscal year ended December 31, 2009 and 2008
(1) Balance Sheets
FY 2009: as of December 31, 2009
FY 2008: as of December 31, 2008
[Unit: KRW]
                                 
    FY 2009     FY 2008  
Items   Amount     Amount  
Assets
                               
Current Assets
            74,522,234,178               62,479,848,031  
Quick assets
            74,480,138,801               62,437,752,654  
Cash and cash equivalents
    47,667,920,811               47,877,965,989          
Short-term financial instruments
    11,500,000,000               4,000,000,000          
Short-term available-for-sale securities
    4,973,185,000                        
Accounts receivable
    6,760,175,357               6,390,543,944          
Allowance for doubtful accounts
    (432,692,689 )             (242,176,285 )        
Short-term loans
    955,515,449               47,777,540          
Allowance for doubtful accounts
    (334,856,000 )                      
Other accounts receivable
    166,795,761               513,759,755          
Allowance for doubtful accounts
    (4,437,427 )             (26,465,808 )        
Accrued income
    388,074,931               244,989,737          
Allowance for doubtful accounts
    (26,170,653 )                      
Advance payments
    1,034,495,525               1,587,956,457          
Prepaid expenses
    316,944,808               387,996,259          
Prepaid income taxes
    1,227,228,339               1,296,107,573          
Refund of income taxes receivable
    287,959,589               359,297,493          
Inventories
            42,095,377               42,095,377  
Inventory-resale
    42,095,377               42,095,377          
Non-current Assets
            26,444,523,461               33,986,383,899  
Investment assets
            10,948,571,804               16,516,682,786  
Equity method investments
    9,409,490,036               9,454,345,670          
Long-term available-for-sale securities
    1,518,526,382               6,074,336,096          
Long-term loans
    336,408,308               988,001,020          
Allowance for doubtful accounts
    (315,852,922 )                      
Tangible assets
            1,453,967,737               2,778,126,664  
Computer and equipment
    10,599,873,171               10,848,947,282          
Accumulated depreciation
    (9,596,357,602 )             (8,861,092,732 )        
Vehicles
    28,110,738               28,110,738          
Accumulated depreciation
    (28,110,738 )             (28,110,738 )        
Furniture and fixtures
    857,711,856               891,535,865          
Accumulated depreciation
    (801,415,170 )             (664,090,228 )        
Leasehold improvements
    745,967,319               729,517,319          
Accumulated depreciation
    (351,811,837 )             (166,690,842 )        
Intangible assets
            11,831,295,901               12,510,309,681  
Capitalized R&D cost, net
    11,006,644,166               10,894,358,850          
Software
    586,052,431               1,356,668,210          
Other intangible assets, net
    238,599,304               259,282,621          
Other non-current assets
            2,210,688,019               2,181,264,768  
Leasehold deposits
    1,183,983,000               1,176,550,000          
Long-term prepaid expenses
    100,581,829               78,591,578          
Other non-current assets
    926,123,190               926,123,190          
Total assets
            100,966,757,639               96,466,231,930  
Liabilities
                               
Current liabilities
            8,337,706,064               6,366,734,225  
Accounts payable
    2,972,889,542               3,064,181,711          
Advances received
    1,885,836,888               68,746,780          
Withholdings
    153,307,918               136,755,567          
Deferred income
    3,037,020,561               2,724,061,172          
Income tax payable
    288,651,155               362,988,995          
Deposits received
                  10,000,000          
Non-current liabilities
            9,842,151,958               10,050,040,467  
Long-term deferred income
    9,679,061,958               9,900,522,467          
Asset retirement obligation
    99,000,000               99,000,000          
Leasehold deposit received
    64,090,000               50,518,000          
Total liabilities
            18,179,858,022               16,416,774,692  

 

6


 

                                 
    FY 2009     FY 2008  
Items   Amount     Amount  
Shareholders’ equity
                               
Common stock
            3,474,450,000               3,474,450,000  
Common stock
    3,474,450,000               3,474,450,000          
Capital surplus
            74,935,002,691               74,453,396,848  
Additional paid-in capital
    73,255,072,627               73,255,072,627          
Other capital surplus
    1,679,930,064               1,198,324,221          
Capital adjustments
            445,206,322               893,302,099  
Stock options
    445,206,322               893,302,099          
Accumulated other comprehensive income and expense
            2,005,478,262               2,384,042,704  
Unrealized loss on available-for-sale securities
    (1,119,704 )             (1,119,704 )        
Net accumulated comprehensive income of equity method investees
    2,052,967,661               2,385,162,408          
Net accumulated comprehensive expense of equity method investees
    (46,369,695 )                      
Retained earnings (accumulated deficit)
            1,926,762,342               (1,155,734,413 )
Unappropriated retained earnings (undisposed accumulated deficit)
    1,926,762,342               (1,155,734,413 )        
Total shareholders’ equity
            82,786,899,617               80,049,457,238  
Total liabilities and shareholders’ equity
            100,966,757,639               96,466,231,930  
(2) Income Statements
FY 2009: for the year ended December 31, 2009
FY 2008: for the year ended December 31, 2008
[Unit: KRW]
                                 
    FY 2009     FY 2008  
Items   Amount     Amount  
Revenues
            43,945,590,171               41,982,911,692  
Online games-subscription revenue
    4,774,859,839               7,483,723,302          
Online games-royalties and license fees
    35,878,263,413               31,586,974,516          
Mobile games
    1,665,848,278               1,453,283,697          
Character merchandising, animation and other revenue
    1,626,618,641               1,458,930,177          
Cost of revenues
            13,775,721,404               15,943,743,841  
Cost of revenues-games
    13,628,960,604               15,942,346,972          
Cost of revenues-other
    146,760,800               1,396,869          
Gross profit
            30,169,868,767               26,039,167,851  
Selling and administrative expenses
            18,399,548,729               18,647,984,912  
Salaries
    6,165,967,337               6,326,567,667          
Severance benefits
    408,170,090               553,506,480          
Employee benefits
    1,155,476,756               1,474,826,991          
Transportation
    588,052,694               399,332,093          
Entertainment
    64,179,570               86,607,475          
Communication
    69,423,714               96,029,385          
Taxes and dues
    299,444,860               349,137,320          
Depreciation
    732,966,378               801,950,816          
Rent
    1,007,730,710               1,645,140,809          
Insurance premium
    223,839,119               235,503,274          
Vehicles maintenance
    7,362,250               7,828,249          
Freight expenses
    5,492,632               6,278,119          
Repairs expenses
    6,449,210               7,209,455          
Training expenses
    5,033,246               4,225,270          
Books & subscription
    41,487,297               30,211,458          
Office supplies
    68,763,624               71,687,435          
Commission paid
    3,749,041,358               3,538,424,447          
Advertising
    1,022,867,621               871,673,348          
Research and development
    1,781,797,670               1,407,974,548          

 

7


 

                                 
    FY 2009     FY 2008  
Items   Amount     Amount  
Bad debt
    359,149,891               110,305,138          
Amortization on intangible assets
    621,967,986               623,565,135          
Compensation expenses associated
                               
with stock option
    14,884,716                        
Operating income
            11,770,320,038               7,391,182,939  
Non-operating income
            5,927,326,029               8,362,503,789  
Interest income
    2,272,865,689               2,641,999,091          
Gain on foreign currency translation
    82,328,259               453,240,861          
Gain on foreign exchange transactions
    1,786,136,646               3,929,580,828          
Gain on valuation of equity-method investments
    1,635,795,318               1,168,260,788          
Reversal of allowance for doubtful accounts
    62,875,000                        
Gain on disposition of property and equipment
    3,662,749               13,252,100          
Reversal of stock based compensation expense
                  97,830,502          
Other income
    83,662,368               58,339,619          
Non-operating expenses
            10,628,026,861               11,359,426,497  
Loss on foreign currency translation
    660,693,918               473,368,659          
Loss on foreign exchange transactions
    1,455,376,096               417,353,922          
Unrealized loss on available-for-sale securities (ELS)
    26,815,000                          
Loss on valuation of equity-method investments
    1,978,966,085               7,944,123,978          
Loss on impairment of long-term available-for-sale securities
    4,784,890,314               657,364,432          
Loss on disposal of property and equipment
    5,363,445               47,956,973          
Loss on retirement of property and equipment
    1,360,666               7,894,606          
Loss on impairment of intangible assets
    39,013,338               1,807,483,500          
Litigation charges
    1,648,615,200                        
Other losses
    26,932,799               3,880,427          
Income before income tax
            7,069,619,206               4,394,260,231  
Income tax expense
            3,987,122,451               3,473,319,736  
Net income
            3,082,496,755               920,940,495  
Earnings per share*
                               
Basic and diluted
            444               133  
     
*  
Each ADS represents one-fourth of one share of our common stock. Therefore, earnings per ADS is one-fourth of earnings per share.

 

8


 

(3) Statements of Appropriation of Retained Earnings for fiscal years ended December 31, 2009 and 2008
             
    From January 1, 2009       From January 1, 2008
FY 2009   Until December 31, 2009   FY 2008   Until December 31, 2008
Confirmed appropriation date
  March 26, 2010   Confirmed appropriation date   March 31, 2009
[Unit: KRW]
                                 
    FY 2009     FY 2008  
Category   Amount     Amount  
Retained earnings before appreciation (Accumulated deficit before disposition)
            1,926,762,342               (1,155,734,413 )
Unappropriated retained earnings (Undisposed accumulated deficit) carried over from prior year
    (1,155,734,413 )             (2,076,674,908 )        
Net income
    3,082,496,755               920,940,495          
Appropriation
                           
Unappropriated retained earnings (Undisposed accumulated deficit) carried forwards to subsequent year
            1,926,762,342               (1,155,734,413 )

 

9