grvy-ex993

EX-99.3 4 grvy-ex993_6.htm EX-99.3 grvy-ex993_6.htm

Exhibit 99.3

2019 Annual Business Report

Table of Contents

Business Overview

(1)

Business Results and Financial Statements for the Past Three Fiscal Years (2017 – 2019)

Company Overview

(1)

Registered Purpose of the Company

(2)

Description of Primary Business

(3)

Problems Confronting the Company

(4)

Business Offices and Game Development Facilities

(5)

Stock

(6)

Debenture

(7)

Major Share holders

(8)

Investment in Other Companies

(9)

Directors Holding Concurrent Positions

(10)

Material Transactions with Related Parties

(11)

Significant Creditors

(12)

Employees

(13)

Directors and Auditors

(14)

Material Events after the End of Fiscal Year 2019

Consolidated Financial Statements as of and for the fiscal years ended December 31, 2019 and 2018

(1)

Consolidated Financial Positions

(2)

Consolidated Comprehensive Income

(3)

Consolidated Statements of Changes in Equity

(4)

Consolidated Statements of Cash Flows

Separate Financial Statements as of and for the fiscal years ended December 31, 2019 and 2018

(1)

Financial Positions

(2)

Comprehensive Income

(3)

Statements of Appropriation of Retained Earnings

(4)

Statements of Changes in Equity

(5)

Statements of Cash Flows

1. Business Overview

(1)

Business Results and Financial Statements for the Past Three Fiscal Years (2017 – 2019)

				(In thousands of Korean Won)
Category	2019			2018			2017
Current assets		100,881,643			83,385,874			101,697,494
• Quick assets		100,881,643			83,385,874			101,697,494
Non-current assets		26,687,368			22,618,902			9,720,122
• Investment asset		12,393,218			9,464,638			1,783,228
• Property and Equipment, net		2,855,143			882,089			476,027
• Intangible asset		2,025,543			1,572,714			988,855
• Other non-current asset		9,413,464			10,699,461			6,472,012
Total assets		127,569,011			106,004,776			111,417,616
Current liabilities		23,916,264			24,548,267			59,753,549
Non-current liabilities		2,151,426			3,668,390			6,630,636
Total liabilities		26,067,690			28,216,657			66,384,185
Share capital		3,474,450			3,474,450			3,474,450
Capital surplus		27,482,683			27,482,683			27,482,683
Other components of equity		(26,017	)		(270,936	)		(348,479	)
Retained earnings		70,570,205			47,101,922			14,424,777
Total equity		101,501,321			77,788,119			45,033,431
Revenues		133,151,813			198,697,511			119,422,554
Operating income		34,546,553			40,450,700			13,675,573
Income before income tax		35,304,130			35,139,350			13,922,239
Net income		23,468,283			32,677,145			12,982,487

2. Company Overview

(1)

Registered Purpose of the Company

Software consulting, development and supply

Development and sales of software and CD

Information-technology-related software development

Production, development, distribution, sales and consulting of digital contents, including game software, as well as corresponding licensing

Online network game services

Applied package-related software development

Production and sales of computer programs

Import and export of software

E-commerce

10)

Character development business

11)

Animation business

12)

Real estate leasing

13)

Service-area restaurant business

14)

Media-related business

15)

Printing and publication

16)

Record & video production and distribution

17)

Any other businesses incidental to the above businesses

(2)

Description of Primary Business

Gravity Co., Ltd. (the “Company”) is the developer of Ragnarok Online, an MMORPG, which was launched in August 2002 and is commercially offered in 93 markets worldwide, including Korea, Japan, Taiwan, Thailand, Southeast Asia, the United States and Europe as of December 31, 2019.

Having strong global network and success from Ragnarok Online, the Company is expanding its business areas from online game development and publishing to cultural contents business based on various platforms, such as development of games for smartphones, console and IPTV, and animation and game character merchandising.

In addition, the Company has subsidiaries, such as NeoCyon, Inc. in Korea, Gravity Interactive, Inc. in the United States, Gravity Communications Co., Ltd in Taiwan. In order to strengthen its presence in the overseas markets, the company was established subsidiaries in Bangkok, Thailand on January 29, in Jakarta, Indonesia on February 5, and in Tokyo, Japan on July 1, 2019.

(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.

The Company is in need of diversified revenue structure, continuous global market expansion and new business initiatives for sustainable revenue growth. The Company is doing its best diversely to expand new markets, to publish mobile games, to develop mobile games and to do IP licensing business.

(4)

Business Offices and Game Development Facilities

Classification

Location

Head Office

(Nuritkum Square R&D Tower) 15F, 396 World Cup buk-ro,

Mapo-gu, Seoul 121-795, Korea

Game Development Facilities

(Nuritkum Square R&D Tower) 15F, 396 World Cup buk-ro,

Mapo-gu, Seoul 121-795, Korea

(5)

Stock

Total number of shares

		(As of December 31, 2019)
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, 2019)

Type		Number of shares		Total par value		%
Registered common stock		6,948,900 shares		KRW 3,474,450,000		100%

(6)

Debenture: None.

(7)

Major Shareholders

			(As of December 31, 2019)
Shareholder	Shares owned		%		Transaction with the Company
GungHo Online Entertainment, Inc.		4,121,737		59.31		—
Others		2,827,163		40.69		—
Total		6,948,900		100.00		—

(8)

Investment in Other Companies

(As of December 31, 2019)

Companies

Relationship with the Company

Name

Location

Common Stock

Main business

Shares owned

Relationship

Gravity Interactive, Inc.

California, USA

USD 14,540,000

Gaming Service

290,000

100.00

Subsidiary

Gravity Entertainment Corp.

Tokyo, Japan

JPY 167,850,000

Animation

making/service

1,000

100.00

Subsidiary

NeoCyon, Inc.

Seoul, Korea

KRW 4,963,995,000

Mobile game

development

985,299

99.24

Subsidiary

Gravity Communications Co., Ltd.

Taipei, Taiwan

NTD 155,100,000

Online and Mobile Game Service

15,510,000

100.00

Subsidiary

PT Gravity Game Link

Jakarta, Indonesia

IDR 14,407,000,000

Online and Mobile Game Service

1,008,490

70.00

Subsidiary

Gravity Game Tech Co., Ltd.

Bangkok, Thailand

THB 88,049,940

Online and Mobile Game Service

8,804,994

100.00

Subsidiary

Gravity Game Arise Co., Ltd.

Tokyo, Japan

JPY 50,000,000

Online and Mobile Game Service

5,000

100.00

Subsidiary

(9)

Directors Holding Concurrent Positions

	Company
Name	Name	Position	Responsibility
Hyun Chul Park	Gravity Co., Ltd.	CEO	Overall management
	NeoCyon, Inc.	Executive Director	Chief Operating Officer
	Gravity Communications Co., Ltd.	Executive Director		—
	Gravity Interactive, Inc.	Executive Director		—
	Gravity Game Arise Co., Ltd.	Executive Director		—
Yoshinori Kitamura	Gravity Co., Ltd.	Executive Director	Chief Operating Officer
	Gravity Interactive, Inc.	CEO	Overall management
	NeoCyon, Inc.	CEO	Overall management
	Gravity Communications Co., Ltd.	CEO	Overall management
	PT Gravity Game Link	CEO	Overall management
	Gravity Game Tech Co., Ltd.	CEO	Overall management
	Gravity Game Arise Co., Ltd.	CEO	Overall management

(10)

Material Transactions with Related Parties

Sales and purchases

						(In thousands of Korean Won)
		2019				2018
Nature	Related companies	Sales		Purchases		Sales		Purchase
Parent company	GungHo Online Entertainment, Inc.		26,477,425		56,899		9,538,157	-
Subsidiaries	Gravity Interactive, Inc.		38,508,020		2,791		15,068,304		2,937
	Gravity Entertainment Corp.	-			251,102	-			158,025
	NeoCyon, Inc.		517,314		7,018,159		74,931		5,392,633
	Gravity Games Corp.	-		-			255		2,635
	Gravity Communications Co., Ltd.		5,570,889		2,245,589		741,076		13,845
	PT Gravity Game Link		156,995		34,853	-		-
	Gravity Game Tech Co., Ltd.	-			360	-		-
	Gravity Game Arise Co., Ltd.	-			797,955	-		-
	Total		71,230,643		10,407,708		25,422,723		5,570,075

Receivables and Payables

						(In thousands of Korean Won)
		2019					2018
Nature	Related companies	Receivables		Payables			Receivables		Payables
Parent company	GungHo Online Entertainment, Inc.		2,553,022		73,678			831,478		2,981
Subsidiaries	Gravity Interactive, Inc.		4,804,814		365			14,911,497		215,381
	Gravity Entertainment Corp.		8,325	-			-			139,984
	NeoCyon. Inc.		1,166,940		850,412			851,615		660,630
	Gravity Communications Co.,Ltd.		1,547,814		2,120,357			590,891		13,396
	PT Gravity Game Link		22,504		215,884		-		-
	Gravity Game Tech Co., Ltd.		451,879		360		-		-
	Gravity Game Arise Co., Ltd.		889,785		228,929		-		-
	Total		11,445,083		3,489,985			17,185,481		1,032,372

(11)

Significant Creditors: The Company had no significant creditors as of December 31, 2019.

(12)

Employees

				(As of December 31, 2019)
Category	Directors & Officers	Developers	Marketing/Operating	Finance/Administration	Total
Employees	10	140	54	35	239

(13)

Directors and Auditors

(As of December 31, 2019)

Name	Position	Main work		Transaction with the Company
Hyun Chul Park	CEO	Chief Executive Officer			—
Yoshinori Kitamura	Executive Director	Chief Operating Officer			—
Kazuki Morishita	Executive Director		—		—
Kazuya Sakai	Executive Director		—		—
Doo Hyun Ryu	Independent Director	Member of audit committee			—
Jung Yoo	Independent Director	Member of audit committee			—
Yong Seon Kwon	Independent Director	Member of audit committee			—

(14)

Material Events after the end of fiscal year 2019: Not applicable

3. Consolidated Financial Statements as of and for the fiscal year ended December 31, 2019 and December 31, 2018

(1)

Consolidated Statements of Financial Position

GRAVITY CO., LTD.	(In thousands of Korean Won)
		December 31, 2019			December 31, 2018
Assets
Current Assets				155,863,353			160,166,955
Cash and cash equivalents			79,427,979			86,050,738
Short-term financial instruments			39,500,000			9,500,000
Accounts receivable, net			32,253,496			60,663,917
Other receivable, net			56,177			254,540
Prepaid expenses			1,962,421			2,515,511
Other current assets			2,663,280			1,182,249
Non-current Assets				19,561,992			13,006,874
Property and equipment, net			6,663,444			1,498,486
Intangible assets, net			1,717,060			1,163,001
Other non-current assets			1,744,551			1,437,953
Other non-current financial assets			1,769,840			1,494,032
Deferred tax assets			7,667,097			7,413,402
Total assets				175,425,345			173,173,829
Liabilities
Current liabilities				55,787,148			93,521,039
Accounts payables			37,496,038			71,928,274
Deferred revenue			10,747,710			16,476,351
Withholdings			1,763,653			2,018,894
Accrued expenses			1,174,924			1,030,598
Income tax payable			2,618,245			1,943,994
Other current liabilities			1,986,578			122,928
Non-current liabilities				3,872,107			4,101,005
Long-term account payables			192,782			—
Long-term deferred revenue			98,226			3,598,140
Other non-current liabilities			3,576,384			502,865
Deferred tax liabilities			4,715			—
Total liabilities				59,659,255			97,622,044
Equity
Equity attributable to owners of the Parent Company				115,544,739			76,157,746
Share capital				3,474,450			3,474,450
Common shares			3,474,450			3,474,450
Capital surplus				27,127,684			27,140,255
Other components of equity				274,538			138,433
Retained earnings				84,668,067			45,404,608
Non-controlling interest				221,351			(605,961	)
Total equity				115,766,090			75,551,785
Total liabilities and equity				175,425,345			173,173,829

(2)

Consolidated Statements of Comprehensive Income


GRAVITY CO., LTD.	(In thousands of Korean Won)
		2019				2018
Revenues					360,967,098				286,770,425
Online games-subscription revenue			30,750,618				25,897,784
Online games-royalties and license fees			11,570,819				13,555,827
Mobile games			301,903,506				239,488,896
Other revenue			16,742,155				7,827,918
Cost of revenues					265,788,109				210,043,556
Gross profit					95,178,989				76,726,869
Selling, general and administrative expenses					46,375,930				42,837,372
Operating Profit					48,803,059				33,889,497
Non-operating income and expenses					2,453,444				550,001
Financial income			2,074,700				825,982
Financial costs			(408,513	)			(92,202	)
Other non-operating income			2,465,615				1,369,819
Other non-operating expenses			(1,678,358	)			(1,553,598	)
Profit before income tax					51,256,503				34,439,498
Income tax expense					11,526,299				3,053,167
Profit for the year					39,730,204				31,386,331
Owners of the Parent Company			39,875,981				31,442,803
Non-controlling interests			(145,777	)			(56,472	)
Other comprehensive income					136,105				178,112
Items that may be subsequently reclassified to income or loss			136,105				178,112
Foreign currency translation adjustments			136,105				178,112
Total comprehensive income for the year					39,866,309				31,564,443
Owners of the Parent Company			40,012,086				31,620,915
Non-controlling interests			(145,777	)			(56,472	)
Earnings per share attributable to the equity holders of the Parent Company
Basic earnings per share					5,738				4,525
Diluted earnings per share					5,738				4,525

(3)

Consolidated Statements of Changes in Equity


GRAVITY CO., LTD.							(In thousands of Korean Won)
	Share capital		Capital Surplus			Other components of equity			Retained Earnings			Total			Non- controlling interest			Total Equity
Balance at January 1, 2018		3,474,450		27,163,600			(39,679	)		13,961,805			44,560,176			(561,725	)		43,998,451
Profit(loss) for the year		—		—			—			31,442,803			31,442,803			(56,472	)		31,386,331
Equity transaction within consolidation scope		—		(23,345	)		—			—			(23,345	)		12,236			(11,109	)
Foreign currency translation adjustments		—		—			178,112			—			178,112			—			178,112
Balance at December 31, 2018		3,474,450		27,140,255			138,433			45,404,608			76,157,746			(605,961	)		75,551,785
Balance at January 1, 2019		3,474,450		27,140,255			138,433			45,404,608			76,157,746			(605,961	)		75,551,785
Profit(loss) for the year		—		—			—			39,875,981			39,875,981			(145,777	)		39,730,204
Equity transaction within consolidation scope		—		(12,571	)		—			—			(12,571	)		1,401			(11,170	)
Acquisition of subsidiaries, etc.		—		—			—			(612,522	)		(612,522	)		971,688			359,166
Foreign currency translation adjustments		—		—			136,105			—			136,105			—			136,105
Balance at December 31, 2019		3,474,450		27,127,684			274,538			84,668,067			115,544,739			221,351			115,766,090

(4)

Consolidated Statements of Cash Flows


GRAVITY CO., LTD.	(In thousands of Korean Won)
		2019					2018
Cash flows from operating activities
Profit for the year			39,730,204					31,386,331
Adjustments			14,703,135					4,480,905
Changes in operating assets and liabilities			(17,212,867	)				6,703,895
Interest received			1,605,200					680,501
Interest paid			(277,454	)				—
Income tax paid			(12,176,936	)				(7,279,170	)
Net cash inflow from operating activities					26,371,282					35,972,462
Cash flows from investing activities
Decrease(Increase) in short-term financial instruments, net			(30,000,000	)				13,000,000
Decrease in other current assets			—					3,333
Decrease in other non-current financial assets			42,768					—
Disposal of property and equipment			71,228					69,318
Disposal of other intangible assets			20,215					—
Acquisition of property and equipment			(982,899	)				(1,141,440	)
Acquisition of intangible assets			(1,359,971	)				(1,108,876	)
Increase in other non-current financial assets			(317,125	)				—
Net cash outflows from investing activities					(32,525,784	)				10,822,335
Cash Flows from financing activities
Repayment of lease liabilities			(2,034,071	)				(197,159	)
Paid in capital increase of subsidiary			359,166					—
Subsidiary’s cost of stock issuance			(11,170	)				—
Net cash outflows from financing activities					(1,686,075	)				(197,159	)
Effects of exchange rate changes on cash and cash equivalents					1,217,818					357,884
Net increase in cash and cash equivalents					(6,622,759	)				46,955,522
Cash and cash equivalents at the beginning of the financial year					86,050,738					39,095,216
Cash and cash equivalents at the end of the year in the statements of financial position					79,427,979					86,050,738

4. Separate Financial Statements as of and for the fiscal year ended December 31, 2019 and December 31, 2018

(1)

Statements of Financial Position


GRAVITY CO., LTD.	(In thousands of Korean Won)
		December 31, 2019				December 31, 2018
Assets
Current Assets				100,881,643				83,385,874
Cash and cash equivalents			40,088,250				46,598,874
Short-term financial instruments			39,500,000				9,500,000
Accounts receivable, net			17,977,026				24,659,595
Other receivable, net			1,162,439				469,710
Prepaid expenses			779,693				618,219
Other current assets			1,374,235				1,539,476
Non-current Assets				26,687,368				22,618,902
Investments in subsidiaries			12,393,218				9,464,638
Property and equipment, net			2,855,143				882,089
Intangible assets, net			2,025,543				1,572,714
Deferred tax assets			5,840,022				7,413,106
Other non-current financial assets			1,702,234				1,405,988
Other non-current assets			1,871,208				1,880,367
Total assets				127,569,011				106,004,776
Liabilities
Current liabilities				23,916,264				24,548,267
Account payables			16,040,563				14,440,762
Deferred income			4,199,370				6,751,978
Withholdings			865,570				1,240,957
Accrued expenses			566,094				564,621
Income tax payable			1,210,020				1,390,798
Other current liabilities			1,034,647				159,151
Non-current liabilities				2,151,426				3,668,390
Long-term account payables			129,150				—
Long-term deferred income			98,226				3,362,537
Other non-current liabilities			1,924,050				305,853
Total liabilities				26,067,690				28,216,657
Equity
Share capital				3,474,450				3,474,450
Common shares			3,474,450				3,474,450
Capital surplus				27,482,683				27,482,683
Other components of equity				(26,017	)			(270,936	)
Retained earnings				70,570,205				47,101,922
Total equity				101,501,321				77,788,119
Total liabilities and equity				127,569,011				106,004,776

(2)

Statements of Comprehensive Income


GRAVITY CO., LTD.	(In thousands of Korean Won)
	2019				2018
Revenues				133,151,813				198,697,511
Online games-subscription revenue		7,943,556				18,891,718
Online games-royalties and license fees		17,431,162				15,378,752
Mobile games		107,529,902				164,303,242
Other revenue		247,193				123,799
Cost of revenues				65,242,309				123,500,203
Gross profit				67,909,504				75,197,308
Selling and administrative expenses				33,362,951				34,746,608
Operating Profit				34,546,553				40,450,700
Non-operating income and expenses				757,577				(5,311,350	)
Financial income		1,525,335				1,075,820
Financial costs		(292,233	)			(79,822	)
Other non-operating income		4,994,020				5,803,645
Other non-operating expenses		(5,469,545	)			(12,110,993	)
Profit before income tax				35,304,130				35,139,350
Income tax expense				11,835,847				2,462,205
Profit for the year				23,468,283				32,677,145
Other comprehensive income (loss)				244,919				77,543
Items that may be subsequently reclassified to income or loss		244,919				77,543
Foreign currency translation adjustments		244,919				77,543
Total comprehensive income for the period				23,713,202				32,754,688

(3)

Statements of Appropriation of Retained Earnings

GRAVITY CO., LTD.	(In thousands of Korean Won)
	2019			2018
	Confirmed disposition date: March 31, 2020			Confirmed appropriation date: March 29, 2019
Retained earnings before appropriation			70,570,205			47,101,922
Unappropriated retained earnings carried over from prior year		47,101,922			14,424,777
Profit for the year		23,468,283			32,677,145
Appropriation of retained earnings			—			—
Disposition of accumulated deficit with share premium		—			—
Unappropriated retained earnings carried forwards to subsequent year			70,570,205			47,101,922

(4)

Statements of Changes in Equity


GRAVITY CO., LTD.				(In thousands of Korean Won)
	Share capital		Capital Surplus		Other components of equity			Retained Earnings (Accumulated deficit)		Total
Balance at January 1, 2018		3,474,450		27,482,683		(348,479	)		14,424,777		45,033,431
Profit for the year		—		—		—			32,677,145		32,677,145
Foreign currency translation adjustments		—		—		77,543			—		77,543
Balance at December 31, 2018		3,474,450		27,482,683		(270,936	)		47,101,922		77,788,119
Balance at January 1, 2019		3,474,450		27,482,683		(270,936	)		47,101,922		77,788,119
Profit for the year		—		—		—			23,468,283		23,468,283
Foreign currency translation adjustments		—		—		244,919			—		244,919
Balance at December 31, 2019		3,474,450		27,482,683		(26,017	)		70,570,205		101,501,321

(5)

Statements of Cash Flows


GRAVITY CO., LTD.	(In thousands of Korean Won)
		2019					2018
Cash flows from operating activities
Profit for the year			23,468,283					32,677,145
Adjustments			14,952,150					6,558,769
Changes in operating assets and liabilities			1,133,672					(19,018,839	)
Interest received			1,043,667					1,161,390
Dividend received			2,557,695					—
Interest paid			(173,763	)				—
Income tax paid			(10,435,781	)				(7,133,795	)
Net cash inflow from operating activities					32,545,923					14,244,670
Cash flows from investing activities
Decrease(Increase) in short-term financial instruments, net			(30,000,000	)				13,000,000
Decrease in other non-current financial assets			—					3,772,670
Decrease in other current assets			—					3,333
Disposal of property and equipment			3,216					68,285
Disposal of intangible assets			—					2,434
Acquisition of investments in subsidiaries			(6,777,526	)				(18,261,560	)
Increase in other non-current financial assets			(69,487	)				—
Acquisition of property and equipment			(153,753	)				(797,791	)
Acquisition of intangible assets			(839,132	)				(450,832	)
Net cash inflows(outflows) from investing activities					(37,836,682	)				(2,663,461	)
Cash flows from financing activities
Repayment of lease liabilities			(1,364,537	)				—
Net cash inflow (outflow) from financing activities					(1,364,537	)				—
Effects of exchange rate changes on cash and cash equivalents					144,672					27,459
Net increase in cash and cash equivalents					(6,510,624	)				11,608,668
Cash and cash equivalents at beginning of the year					46,598,874					34,990,206
Cash and cash equivalents at end of the year in the statements of financial position					40,088,250					46,598,874