grvy-ex993

EX-99.3 4 grvy-ex993_9.htm EX-99.3 grvy-ex993_9.htm

Exhibit 99.3

2018 Annual Business Report

Table of Contents

Business Overview

(1)

Business Results and Financial Statements for the Past Three Fiscal Years (2016 – 2018)

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 2017

Separate Financial Statements as of and for the fiscal years ended December 31, 2018 and December 31, 2017

(1)

Financial Positions

(2)

Comprehensive Income

(3)

Statements of Appropriation of Retained earnings

(4)

Statements of Changes in Equity

(5)

Statements of Cash Flows

Consolidated Financial Statements as of and for the fiscal years ended December 31, 2018 and December 31, 2017

(1)

Consolidated Financial Positions

(2)

Consolidated Comprehensive Income

(3)

Consolidated Statements of Changes in Equity

(4)

Consolidated Statements of Cash Flows

1. Business Overview

(1)

Business Results and Financial Statements for the Past Three Fiscal Years (2016 – 2018)

				(In thousands of Korean Won)
Category	2018			2017			2016
Current assets		83,385,874			101,697,494			48,052,889
• Quick assets		83,385,874			101,697,494			48,052,889
Non-current assets		22,618,902			9,720,122			4,597,662
• Investment asset		9,464,638			1,783,228			1,783,228
• Tangible asset		882,089			476,027			320,560
• Intangible asset		1,572,714			988,855			160,873
• Other non-current asset		10,699,461			6,472,012			2,333,001
Total assets		106,004,776			111,417,616			52,650,551
Current liabilities		24,548,267			59,753,549			16,499,905
Non-current liabilities		3,668,390			6,630,636			3,726,148
Total liabilities		28,216,657			66,384,185			20,226,053
Share capital		3,474,450			3,474,450			3,474,450
Capital surplus		27,482,683			27,482,683			28,219,282
Retained earnings (Accumulated deficit)		47,101,922			14,424,777			705,690
Other components of equity		(270,936	)		(348,479	)		25,076
Total equity		77,788,119			45,033,431			32,424,498
Revenues		198,697,511			119,422,554			34,960,528
Operating profit (loss)		40,450,700			13,675,573			5,436,475
Profit (loss) before income tax		35,139,350			13,922,239			2,994,179
Net profit (loss)		32,677,145			12,982,487			(225,724	)

* The Company has adopted IFRS adopted by the Republic of Korea for the annual period beginning on January 1, 2017. In accordance with First-time adoption of IFRS, the Company’s transition date to IFRS is January 1, 2016.

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 81 markets worldwide, including Korea, Japan, Taiwan, Thailand, Southeast Asia, the United States and Europe as of December 31, 2018.

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, in order to strengthen its presence in the overseas markets, the Company has subsidiaries in the United States and Japan. The Company also has subsidiaries in Korea, such as NeoCyon, Inc. In November 2016, the company established a branch office in Taiwan and in April 2018, the company established a subsidiary in Taiwan.

(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, 2018)
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, 2018)

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, 2018)
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		—

* Refer to “(10) Material Transactions with Related Parties.”

(8)

Investment in Other Companies

(As of December 31, 2018)

Companies

Relationship with the Company

Name

Location

Common Stock

Main business

Shares owned

Relationship

Gravity Interactive, Inc.

California, US

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 2,964,000,000

Mobile game

development

585,300

98.73

Subsidiary

Gravity Communications Co.,Ltd

Taipei. Taiwan

NTD 155,100,000

Online and Mobile Game Service

15,510,000

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		—
Yoshinori Kitamura	Gravity Co., Ltd.	Executive Director	Chief Operating Officer
	Gravity Interactive, Inc.	CEO	Overall management
	Gravity Entertainment Corp.	CEO	Overall management
	NeoCyon, Inc.	CEO	Overall management
	Gravity Communications Co.,Ltd	CEO	Overall management

(10)

Material Transactions with Related Parties

Sales and purchases

						(In thousands of Korean Won)
		2018				2017
Nature	Related companies	Sales		Purchases		Sales		Purchase
Parent company	GungHo Online Entertainment, Inc.		9,538,157	-			9,488,821		35,912
Subsidiaries	Gravity Interactive, Inc.		15,068,304		2,937		918,141	-
	Gravity Entertainment Corp.	-			158,025	-		-
	NeoCyon, Inc.		74,931		5,392,633		462,360		4,901,306
	Gravity Games Corp.		255		2,635		985		218,600
	Gravity Communications Co.,Ltd		741,076		13,845	-		-
	Total		25,422,723		5,570,075		10,870,307		5,155,818

Receivables and Payables

						(In thousands of Korean Won)
		2018					2017
Nature	Related companies	Receivables		Payables			Receivables		Payables
Parent company	GungHo Online Entertainment, Inc.		831,478		2,981			629,728		2,792
	Gravity Interactive, Inc.		14,911,497		215,381			7,975,591		5
Subsidiaries	Gravity Entertainment Corp.	-			139,984		-		-
	NeoCyon. Inc.		851,615		660,630			1,691,503		220,279
	Gravity Games Corp.		-	-				3,873,051		4,396
	Gravity Communications Co.,Ltd.		590,891		13,396		-		-
	Total		17,185,481		1,032,372			14,169,873		227,472

(11)

Significant Creditors: The Company had no significant creditors as of December 31, 2018.

(12)

Employees

				(As of December 31, 2018)
Category	Directors & Officers	Developers	Marketing/Operating	Finance/Administration	Total
Employees	9	149	58	33	249

(13)

Directors and Auditors

(As of December 31, 2018)

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		—		—
Jong Gyu Hwang	Independent Director	Member of audit committee			—
Doo Hyun Ryu	Independent Director	Member of audit committee			—
Jung Yoo	Independent Director	Member of audit committee			—

(14)

Material Events after the end of fiscal year 2018:

Gravity established a subsidiary, Gravity Game Tech. Co., Ltd in Thailand on January 29, 2019 and a Joint Venture in Indonesia, named as Gravity Game Link Co., Ltd on February 7, 2019.

3. Separate Financial Statements as of and for the fiscal year ended December 31, 2018 and December 31, 2017

(1)

Statements of Financial Position

GRAVITY CO., LTD.

(In thousands of Korean Won)

	December 31, 2018				December 31, 2017
Assets
Current Assets			83,385,874				101,697,494
Cash and cash equivalents		46,598,874				34,990,206
Short-term financial instruments		9,500,000				22,500,000
Accounts receivable, net		24,659,595				38,890,644
Other receivable, net		469,710				704,664
Prepaid expenses		618,219				2,753,700
Other current assets		1,539,476				1,858,280
Non-current Assets			22,618,902				9,720,122
Investments in subsidiaries		9,464,638				1,783,228
Property and equipment, net		882,089				476,027
Intangible assets, net		1,572,714				988,855
Deferred tax assets		7,413,106				3,036,165
Other non-current financial assets		1,405,988				1,357,272
Other non-current assets		1,880,367				2,078,575
Total assets			106,004,776				111,417,616
Liabilities
Current liabilities			24,548,267				59,753,549
Accounts payables		14,440,762				42,150,983
Deferred income		6,751,978				14,141,070
Withholdings		1,240,957				1,348,968
Accrued expenses		564,621				343,690
Income tax payable		1,390,798				1,628,368
Other current liabilities		159,151				140,470
Non-current liabilities			3,668,390				6,630,636
Long-term deferred income		3,362,537				6,335,827
Other non-current liabilities		305,853				294,809
Total liabilities			28,216,657				66,384,185
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			(270,936	)			(348,479	)
Retained earnings			47,101,922				14,424,777
Total equity			77,788,119				45,033,431
Total liabilities and equity			106,004,776				111,417,616

(2)

Statements of Comprehensive Income


GRAVITY CO., LTD.	(In thousands of Korean Won)

	2018					2017
Revenues				198,697,511					119,422,554
Online games-subscription revenue		18,891,718					31,533,084
Online games-royalties and license fees		15,378,752					17,069,208
Mobile games		164,303,242					70,634,135
Other revenue		123,799					186,127
Cost of revenues				123,500,203					75,972,759
Gross profit				75,197,308					43,449,795
Selling, general and administrative expenses				34,746,608					29,774,222
Operating Profit				40,450,700					13,675,573
Non-operating income and expenses				(5,311,350	)				246,666
Finance income		1,075,820					556,997
Finance costs		(79,822	)				(186,723	)
Other non-operating income		5,803,645					1,601,880
Other non-operating expenses		(12,110,993	)				(1,725,488	)
Profit before income tax expense				35,139,350					13,922,239
Income tax expense				2,462,205					939,752
Profit for the year				32,677,145					12,982,487
Other comprehensive income				77,543					(373,554	)
Items that may be subsequently reclassified to income or loss				77,753					(373,554	)
Foreign currency translation adjustments		77,543					(373,554	)
Total comprehensive income for the year				32,754,688					12,608,933

(3)

Statements of Appropriation of Retained earnings


GRAVITY CO., LTD.	(In thousands of Korean Won)

	2018			2017
	Confirmed disposition date: March 29, 2019			Confirmed appropriation date: March 30, 2018
Retained earnings before appropriation			47,101,922			14,424,777
Unappropriated retained earnings carried over from prior year(*1)		14,424,777			1,442,290
Profit for the year		32,677,145			12,982,487
Appropriation of retained earnings			-			-
Disposition of accumulated deficit with share premium		-			-
Unappropriated retained earnings carried forwards to subsequent year			47,101,922			14,424,777

(*1) The above comparative statement of appropriation of retained earnings for the prior year reflects the conversion effect of adopting Korean IFRS. Accordingly, the statement of appropriation of retained earnings under the previous Korean Accounting Standards for Non-Public Entities in Korea disposed at March 30, 2017 have differences with the above comparative statement.

(4)

Statements of Changes in Equity


GRAVITY CO., LTD.	(In thousands of Korean Won)

	Share capital		Capital Surplus			Other components of equity			Retained Earnings		Total
Balance at January 1, 2017		3,474,450		28,219,282			25,075			705,691		32,424,498
Profit for the year		—		—			—			12,982,487		12,982,487
Disposition of deficit with capital surplus		—		(736,599	)		—			736,599		—
Foreign currency translation adjustments		—		—			(373,554	)				(373,554	)
Balance at December 31, 2017		3,474,450		27,482,683			(348,479	)		14,424,777		45,033,431
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

(5)

Statements of Cash Flows


GRAVITY CO., LTD.	(In thousands of Korean Won)

	2018					2017
Cash flows from operating activities
Profit for the year		32,677,145					12,982,487
Adjustments		6,558,769					2,392,360
Changes in operating assets and liabilities		(19,018,839	)				11,274,302
Interest received		1,161,390					539,635
Income tax paid		(7,133,795	)				(2,437,390	)
Net cash inflow from operating activities				14,244,670					24,751,394
Cash flows from investing activities
Decrease(Increase) in short-term financial instruments, net		13,000,000					(1,000,000	)
Decrease in other non-current financial assets		3,772,670					7,014
Decrease in other current assets		3,333					3,333
Disposal of property and equipment		68,285					1,656
Disposal of intangible assets		2,434					13,063
Increase in investments in subsidiaries		(18,261,560	)				—
Increase in other non-current financial assets		—					(660,667	)
Acquisition of property and equipment		(797,791	)				(383,267	)
Acquisition of intangible assets		(450,832	)				(1,141,276	)
Net cash outflows from investing activities				(2,663,461	)				(3,160,144	)
Cash Flows from financing activities
Effects of exchange rate changes on cash and cash equivalents				27,459					(596,309	)
Net increase in cash and cash equivalents				11,608,668					20,994,941
Cash and cash equivalents at the beginning of the financial year				34,990,206					13,995,265
Cash and cash equivalents at the end of the year in the statements of financial position				46,598,874					34,990,206

4. Consolidated Financial Statements as of and for the fiscal year ended December 31, 2018 and December 31, 2017

(1)

Consolidated Statements of Financial Position


GRAVITY CO., LTD.	(In thousands of Korean Won)

	December 31, 2018				December 31, 2017
Assets
Current Assets			160,166,955				108,870,868
Cash and cash equivalents		86,050,738				39,095,216
Short-term financial instruments		9,500,000				22,500,000
Accounts receivable, net		60,663,917				42,167,869
Other receivable, net		254,540				698,059
Prepaid expenses		2,515,511				3,026,966
Other current assets		1,182,249				1,382,758
Non-current Assets			13,006,874				7,012,270
Property and equipment, net		1,498,486				945,943
Intangible assets, net		1,163,001				1,036,049
Deferred tax assets		7,413,402				3,036,165
Other non-current financial assets		1,494,032				1,394,347
Other non-current assets		1,437,953				599,766
Total assets			173,173,829				115,883,138
Liabilities
Current liabilities			93,521,039				64,744,411
Account payables		71,928,274				44,409,786
Deferred revenue		16,476,351				16,100,168
Withholdings		2,018,894				1,438,723
Accrued expenses		1,030,598				1,037,440
Income tax payable		1,943,994				1,628,368
Other current liabilities		122,928				129,926
Non-current liabilities			4,101,005				7,140,276
Long-term deferred revenue		3,598,140				6,580,815
Other non-current liabilities		502,865				559,461
Total liabilities			97,622,044				71,884,687
Equity
Equity attributable to owners of the Parent Company			76,157,746				44,560,176
Share capital			3,474,450				3,474,450
Common shares		3,474,450				3,474,450
Capital surplus			27,140,255				27,163,600
Other components of equity			138,433				(39,679	)
Retained earnings			45,404,608				13,961,805
Non-controlling interest			(605,961	)			(561,725	)
Total equity			75,551,785				43,998,451
Total liabilities and equity			173,173,829				115,883,138

(2)

Consolidated Statements of Comprehensive Income


GRAVITY CO., LTD.	(In thousands of Korean Won)

	2018				2017
Revenues				286,770,425				141,623,481
Online games-subscription revenue		25,897,784				36,428,402
Online games-royalties and license fees		13,555,827				16,244,377
Mobile games		239,488,896				82,624,332
Other revenue		7,827,918				6,326,370
Cost of revenues				210,043,556				94,234,263
Gross profit				76,726,869				47,389,218
Selling and administrative expenses				42,837,372				33,250,837
Operating Profit				33,889,497				14,138,381
Non-operating income and expenses				550,001				319,733
Financial income		825,982				594,574
Financial costs		(92,202	)			(209,969	)
Other non-operating income		1,369,819				1,444,954
Other non-operating expenses		(1,553,598	)			(1,509,826	)
Profit before income tax				34,439,498				14,458,114
Income tax expense				3,053,167				1,144,177
Profit for the year				31,386,331				13,313,937
Profit attributable to:
Owners of the Parent Company		31,442,803				13,319,047
Non-controlling interests		(56,472	)			(5,110	)
Other comprehensive income (loss)				178,112				37,087
Items that may be subsequently reclassified to income or loss				178,112				37,087
Foreign currency translation adjustments		178,112				37,087
Total comprehensive income for the year				31,564,443				13,351,024
Owners of the Parent Company		31,620,915				13,356,134
Non-controlling interests		(56,472	)			(5,110	)
Earnings per share attributable to the equity holders of the Parent Company
Basic earnings per share				4,525				1,917
Diluted earnings per share				4,525				1,917

(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 (Accumulated deficit)			Total			Non- controlling interest			Total Equity
Balance at January 1, 2017		3,474,450		27,900,199			(76,766	)		(93,841	)		31,204,042			(556,615	)		30,647,427
Profit(loss) for the year		—		—			—			13,319,047			13,319,047			(5,110	)		13,313,937
Disposition of deficit with capital surplus		—		(736,599	)		—			736,599			—			—			—
Foreign currency translation adjustments		—		—			37,087			—			37,087			—			37,087
Balance at December 31, 201		3,474,450		27,163,600			(39,679	)		13,961,805			44,560,176			(561,725	)		43,998,451
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

(4)

Consolidated Statements of Cash Flows


GRAVITY CO., LTD.	(In thousands of Korean Won)

	2018					2017
Cash flows from operating activities
Profit for the year		31,386,331					13,313,937
Adjustments		4,480,905					1,997,679
Changes in operating assets and liabilities		6,703,895					12,877,744
Interest received		680,501					554,362
Income tax paid		(7,279,170	)				(2,607,286	)
Net cash inflow from operating activities				35,972,462					26,136,436
Cash flows from investing activities
Decrease in other non-current financial assets		—					7,014
Decrease in other current assets		3,333					3,333
Disposal of property and equipment		69,318					1,656
Decrease(Increase) in short-term financial instruments, net		13,000,000					(500,000	)
Increase in other non-current financial assets	-						(430,117	)
Acquisition of property and equipment		(1,141,440	)				(899,011	)
Acquisition of intangible assets		(1,108,876	)				(1,165,069	)
Net cash inflows(outflows) from investing activities				10,822,335					(2,982,194	)
Cash flows from financing activities
Net cash inflow (outflow) from financing activities				(197,159	)				—
Effects of exchange rate changes on cash and cash equivalents				357,884					(778,698	)
Net increase in cash and cash equivalents				46,955,522					22,375,544
Cash and cash equivalents at beginning of the year				39,095,216					16,719,672
Cash and cash equivalents at end of the year in the statements of financial position				86,050,738					39,095,216