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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_________________________________________________________________________
Form 20-F
(Mark One)

☐ | REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934

or

☑ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2023
or

☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

or

☐ | SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number: 000-51138
GRAVITY CO., LTD.
(Exact name of registrant as specified in its charter)

N/A | Republic of Korea
(Translation of registrant’s name into English) | (Jurisdiction of incorporation or organization)

_________________________________________________________________________
15F, 396 World Cup buk‑ro, Mapo‑gu,
Seoul 03925, Republic of Korea
(Address of principal executive offices)
_________________________________________________________________________
Heung Gon Kim
Chief Financial Officer
15F, 396 World Cup buk‑ro, Mapo‑gu,
Seoul 03925, Republic of Korea
Telephone: 82‑2‑2132‑7000
Fax: 82‑2‑2132‑7070
(Name, Telephone, E‑mail and/or Facsimile number and Address of Company Contact Person)
_________________________________________________________________________
Securities registered or to be registered pursuant to Section 12(b) of the Act:

Title of Each Class |  | Trading Symbol(s) |  | Name of Each Exchange on Which Registered
Common stock, par value Won 500 per share* |  | GRVY |  | The NASDAQ Global Market
American depositary shares, each representing one share of common stock |  |  |  |

________________________________
*Not for trading, but only in connection with the listing of American depositary shares on the NASDAQ Global Market pursuant to the requirements of the Securities and Exchange Commission.
Securities registered or to be registered pursuant to Section 12(g) of the Act: None
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report: Shares, par value Won 500: 6,948,900 as of December 31, 2023.
Indicate by check mark if the registrant is a well‑known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☑
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. Yes ☐ No ☑
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S‑T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and such files). Yes ☑ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer | ☐ | Accelerated filer | ☑
Non-accelerated filer | ☐ | Emerging growth company | ☐

If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act. ☐
† The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☑
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive- based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
U.S. GAAP ☐ International Financial Reporting Standards as issued by the International Accounting Standards Board ☑ Other ☐
If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow. Item 17 ☐ Item 18 ☐
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b‑2 of the Exchange Act). Yes ☐ No ☑

Table of Contents
TABLE OF CONTENTS

CERTAIN DEFINED TERMS | 4
FORWARD-LOOKING STATEMENTS | 5
PART I | 6
ITEM 1. | IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS | 6
ITEM 2. | OFFER STATISTICS AND EXPECTED TIMETABLE | 6
ITEM 3. | KEY INFORMATION | 6
ITEM 3.A. | Reserved | 6
ITEM 3.B. | Capitalization and Indebtedness | 6
ITEM 3.C. | Reasons for the Offer and Use of Proceeds | 6
ITEM 3.D. | Risk Factors | 6
ITEM 4. | INFORMATION ON THE COMPANY | 30
ITEM 4.A. | History and Development of the Company | 30
ITEM 4.B. | Business Overview | 30
ITEM 4.C. | Organizational Structure | 65
ITEM 4.D. | Property, Plants and Equipment | 65
ITEM 4A. | Unresolved Staff Comments | 66
ITEM 5. | OPERATING AND FINANCIAL REVIEW AND PROSPECTS | 66
ITEM 5.A. | Operating Results | 66
ITEM 5.B. | Liquidity and Capital Resources | 79
ITEM 5.C. | Research and Development, Patents and Licenses, Etc. | 81
ITEM 5.D. | Trend Information | 82
ITEM 5.E. | Critical Accounting Estimates | 82
ITEM 6. | DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES | 82
ITEM 6.A. | Directors and Senior Management | 82
ITEM 6.B. | Compensation | 85
ITEM 6.C. | Board Practices | 85
ITEM 6.D. | Employees | 88
ITEM 6.E. | Share Ownership | 89
ITEM 6.F. | Disclosure of a registrant’s action to recover erroneously awarded compensation | 90
ITEM 7. | MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS | 90
ITEM 7.A. | Major Shareholders | 90
ITEM 7.B. | Related Party Transactions | 91
ITEM 7.C. | Interests of Experts and Counsel | 91
ITEM 8. | FINANCIAL INFORMATION | 91
ITEM 8.A. | Consolidated Statements and Other Financial Information | 92
ITEM 8.B. | Significant Changes | 92
ITEM 9. | THE OFFER AND LISTING | 92
ITEM 9.A. | Offer and Listing Details | 92
ITEM 9.B. | Plan of Distribution | 93
ITEM 9.C. | Markets | 93
ITEM 9.D. | Selling Shareholders | 93
ITEM 9.E. | Dilution | 93
ITEM 9.F. | Expenses of the Issue | 93
ITEM 10. | ADDITIONAL INFORMATION | 93
ITEM 10.A. | Share Capital | 93

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ITEM 10.B. | Memorandum and Articles of Incorporation | 93
ITEM 10.C. | Material Contracts | 99
ITEM 10.D. | Exchange Controls | 99
ITEM 10.E. | Taxation | 101
ITEM 10.F. | Dividends and Paying Agents | 111
ITEM 10.G. | Statement by Experts | 111
ITEM 10.H. | Documents on Display | 111
ITEM 10.I. | Subsidiary Information | 111
ITEM 10.J. | Annual Report to Security Holders | 111
ITEM 11. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK | 111
ITEM 12. | DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES | 112
ITEM 12.A. | Debt Securities | 112
ITEM 12.B. | Warrants and Rights | 113
ITEM 12.C. | Other Securities | 113
ITEM 12.D. | American Depositary Shares | 113
PART II | 114
ITEM 13. | DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES | 114
ITEM 14. | MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS | 114
ITEM 15. | CONTROLS AND PROCEDURES | 114
ITEM 16. | RESERVED | 115
ITEM 16.A. | Audit Committee Financial Expert | 115
ITEM 16.B. | Code of Ethics | 115
ITEM 16.C. | Principal Accountant Fees and Services | 115
ITEM 16.D. | Exemptions from the Listing Standards for Audit Committees | 116
ITEM 16.E. | Purchases of Equity Securities by the Issuer and Affiliated Purchasers | 116
ITEM 16.F. | Changes in Registrant’s Certifying Accountant | 116
ITEM 16.G. | Corporate Governance | 116
ITEM 16.H. | Mine Safety Disclosure | 116
ITEM 16.I. | Disclosure Regarding Foreign Jurisdictions that Prevent Inspections | 116
ITEM 16.J. | I nsider Trading Policies | 116
ITEM 16.K. | Cybersecurity | 116
PART III | 118
ITEM 17. | FINANCIAL STATEMENTS | 118
ITEM 18. | FINANCIAL STATEMENTS | 118
ITEM 19. | EXHIBITS | 118

3

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CERTAIN DEFINED TERMS
Unless the context otherwise requires, references in this annual report on Form 20‑F (this “Annual Report”) to:
•“ADRs” are to the American depositary receipts that evidence our ADSs;
•“ADSs” are to our American depositary shares, each of which represents one share of our common stock;
•“China” or the “PRC” are to the People’s Republic of China (excluding, for the purposes of this Annual Report, Taiwan, Hong Kong, and Macau, unless specifically indicated otherwise);
•“Chinese Yuan” are to the currency of China;
•“EUR” or “Euro” are to the currency of the Eurozone consisting of Austria, Belgium, Cyprus, Estonia, Finland, France, Germany, Greece, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, the Netherlands, Portugal, Slovakia, Slovenia, and Spain;
•“Gravity,” “the Company,” “we,” “us,” “our,” or “our company” are to Gravity Co., Ltd. and our subsidiaries, except as otherwise indicated or required by context;
•“Hong Kong” are to the Hong Kong Special Administrative Region of the PRC;
•“Indonesian Rupiah” are to the currency of the Republic of Indonesia;
•“Japanese Yen” or “JPY” are to the currency of Japan;
•“Korea” are to the Republic of Korea;
•“Macau” are to the Macau Special Administrative Region of the PRC;
•“NT dollar” or “NT$” are to the currency of Taiwan;
•“Philippine Peso” are to the currency of the Republic of the Philippines;
•“SGD” or “S$” are to the currency of Singapore;
•“Taiwan” are to Taiwan, the Republic of China;
•“Thai Baht” or “THB฿” are to the currency of the Kingdom of Thailand;
•“US$,” “U.S. dollar,” or “Dollar” are to the currency of the United States of America; and
•“Won,” “Korean Won,” or “W” are to the currency of Korea.
For your convenience, and unless otherwise stated, this Annual Report contains translations of certain Won amounts into U.S. dollars at the noon buying rate in New York City for cable transfers in Korean Won as certified by the Federal Reserve Bank of New York for customs purposes in effect on December 29, 2023, which was Won 1,290.97 to US$ 1.00. No assurance is given that any Won or Dollar amounts could have been or may now be converted into Dollars or Won, as the case may be, at such rate, or any other rate, or at all.
Discrepancies in tables between totals and sums of the amounts listed are due to rounding.
4

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FORWARD‑LOOKING STATEMENTS
This Annual Report for the year ended December 31, 2023 contains “forward‑looking statements,” as defined in Section 27A of the U.S. Securities Act of 1933, as amended, or the “Securities Act,” and Section 21E of the U.S. Securities Exchange Act of 1934, as amended, or the “Exchange Act.” The forward‑looking statements are based on our current expectations, assumptions, estimates, and projections about us and our industry, and are subject to various risks and uncertainties. Generally, these forward‑looking statements can be identified by the use of forward‑looking terminology such as “anticipate,” “believe,” “considering,” “depends,” “estimate,” “expect,” “intend,” “plan,” “planning,” “planned,” “predict,” “project,” “continue,” and variations of these words, similar expressions, or that certain events, actions or results “will,” “may,” “might,” “should,” “would,” or “could” occur, be taken or be achieved.
Forward‑looking statements include, but are not limited to, the following:
•future prices of and demand for our products;
•future earnings and cash flow;
•estimated development and commercial launch schedule of our games in development;
•our ability to attract new customers and retain existing customers;
•the expected growth of the Korean and worldwide online and mobile gaming industries;
•the effect that economic, political, or social conditions in Korea have on the revenue generated from our online or mobile game products and our results of operations;
•the effect that any global financial crisis or global economic recession will or may have on our business prospects, financial condition, and results of operations; and
•our future business development and prospects, results of operations, and financial condition.
We caution you not to place undue reliance on any forward‑looking statement, each of which involves risks and uncertainties. Although we believe that the assumptions on which our forward‑looking statements are based are reasonable, any of those assumptions could prove to be inaccurate, and as a result, the forward‑looking statements based on those assumptions could be incorrect. All forward‑looking statements are based on our management’s current expectations, assumptions, estimates, and projections of future events and are subject to a number of factors that could cause actual results to differ materially from those described in the forward‑looking statements. Risks and uncertainties associated with our business include, but are not limited to, risks related to changes in the regulatory environment; technology changes; potential litigation and governmental actions; changes in the competitive environment; changes in customer preference and popular culture, and trends, including mobile or online gaming culture; political changes; global economic events including, but not limited to, the global social, political, and economic impact of the spread of coronavirus, a significant downturn in the global economic and financial markets, and a tightening of the global credit markets; changes in business and economic conditions; fluctuations in foreign exchange rates; fluctuations in the prices of our products; decreasing consumer confidence and slowing of economic growth generally; and other risks and uncertainties that are more fully described under the heading “Risk Factors” in this Annual Report, and elsewhere in this Annual Report. In light of these and other uncertainties, you should not conclude that we will necessarily achieve any plans and objectives or projected financial results referred to in any of the forward‑looking statements. Except as required by law, we undertake no obligation to update or revise any forward‑looking statements, whether as a result of new information, future events or otherwise. All subsequent forward‑looking statements attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section.
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PART I
ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
Not applicable.
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE
Not applicable.
ITEM 3. KEY INFORMATION
ITEM 3.A. RESERVED
ITEM 3.B. CAPITALIZATION AND INDEBTEDNESS
Not applicable.
ITEM 3.C. REASONS FOR THE OFFER AND USE OF PROCEEDS
Not applicable.
ITEM 3.D. RISK FACTORS
You should carefully consider the risks described in this section, together with all of the other information included in this Form 20-F, in evaluating us and our shares. The following risk factors could adversely affect our business, financial condition, results of operations, and the price of our shares.
Risk Factor Summary
The following is a summary of the principal risks discussed in greater detail in the following pages, that could materially and adversely affect our business, results of operations, cash flows, and financial condition.
Risks Relating to our Business
•We currently depend on our main game, Ragnarok Online, and games developed from Ragnarok Online, for a significant portion of our revenues.
•If we are unable to consistently and timely develop, acquire, license, launch, market or operate commercially successful online and mobile games, our business, financial condition, and results of operations may be materially and adversely affected.
•We may not be successful in making our mobile games profitable, and our profit margins from mobile games may be relatively lower than the profits we have enjoyed historically for online games.
•We depend on our overseas licensees for a portion of our revenues and rely on them to distribute, market, and operate our games and comply with applicable laws and government regulations.
•We operate in a highly competitive industry and compete against many large companies.
•To continue to be successful, we must leverage the global connectivity and distribution of mobile platforms, and our relationships with mobile platform providers, which in many cases have the unilateral ability to amend their policies and terms and conditions for applications and developers.
•We publish games developed by third parties, which exposes us to a number of potential operational, legal, and reputational risks.
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•Unexpected network interruptions, security breaches, or computer virus attacks could harm our business and reputation.
•Unauthorized use of our intellectual property rights by third parties and the expenses incurred in protecting our intellectual property rights may adversely affect our business.
•We may be subject to claims with respect to the infringement of intellectual property rights of others, which could result in substantial costs and diversion of our financial and management resources.
•Our products and services, including those relating to P2E and NFT, may subject us to additional regulatory requirements in the future, which may be costly and difficult to comply with or adversely affect our business, and other potential risks to our business.
Risks Relating to our Company Structure
•GungHo, the licensee of our games in Japan, is our majority shareholder, which gives them control of our board of directors.
•We are a “controlled company” within the meaning of the NASDAQ Stock Market Rules and may rely on exemptions from certain corporate governance requirements.
Risks relating to our Regulatory Environment
•Our online and mobile operations and businesses are subject to laws, rules, and regulations in the countries in which our games are distributed, such as Korea, Taiwan, Thailand, the Philippines, Japan, and the United States, changes to which are difficult to predict, and uncertainties in interpretation and enforcement of the laws, rules, and regulations in such countries may limit the protections available to us.
•Our online and mobile games may be subject to governmental restrictions or ratings systems, which could delay or prohibit the release of new games or reduce the existing and potential scope of our user base.
•Restrictions and controls on currency exchange in Korea and in certain countries in which our games are distributed may limit our ability to effectively utilize revenues generated in Won to fund our business activities outside Korea or expenditures denominated in foreign currencies, and may limit our ability to receive and remit revenues effectively.
•Adverse changes in the withholding tax rates in the countries from which we receive license fees and royalties and adverse changes in our ability to realize deferred tax assets could adversely affect our net profit.
•Changes in tax laws, regulations, or interpretations thereof, including changes to tax rates, may adversely affect our financial statements and tax position.
Risks relating to our Market Environment
•Our businesses and partnerships may be affected by geopolitical tensions between China and the United States.
•Our businesses may be adversely affected by developments affecting the economies of the countries in which our games are distributed.
•Fluctuations in exchange rates could result in foreign currency exchange losses.
Risks relating to our American Depositary Shares
•If we fail to achieve and maintain an effective system of internal controls over financial reporting, we may be unable to accurately report our financial results or do so on a timely basis and our ability to prevent or detect fraud may be reduced and investor confidence and the market price of our ADSs may be adversely affected.
•The public shareholders of our ADSs may have more difficulty protecting their interests than they would as shareholders of a U.S. corporation.
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RISKS RELATING TO OUR BUSINESS
We currently depend on our main game, Ragnarok Online, and games developed from Ragnarok Online, for a significant portion of our revenues.
A significant portion of our revenues has been and is currently derived from Ragnarok Online and other games developed based on the contents of Ragnarok Online, including our mobile game, Ragnarok Origin, Ragnarok X: Next Generation and Ragnarok M: Eternal Love. In 2023 and 2022, we derived Won 77,660 million (US$ 60,156 thousand) and Won 86,743 million in revenues from Ragnarok Online, respectively, representing approximately 10.7% and 18.7% of our total revenues for such periods. We derived Won 632,213 million (US$ 489,719 thousand) and Won 358,599 million in revenues from the games developed based on the contents of Ragnarok Online in 2023 and 2022, respectively, representing approximately 87.1% and 77.3% of our total revenues for such periods. In 2023 and 2022, our mobile game, Ragnarok Origin, represented 62.3% of our total revenues, or Won 451,887 million (US$ 350,037 thousand), and 35.5% of our total revenues, or Won 164,787 million, Ragnarok X: Next Generation, our mobile game, represented 13.7% of our total revenues, or Won 99,321 million (US$ 76,935 thousand), and 16.7% of our total revenues, or Won 77,278 million, respectively. Ragnarok M: Eternal Love, our mobile game, represented 9.6% of our total revenues, or Won 69,773 million (US$ 54,047 thousand), and 20.1% of our total revenues, or Won 93,203 million in 2023 and 2022, respectively.
Ragnarok Online has been on the market for 22 years and has reached maturity in most of our principal markets. The Company has continually maintained, improved, and updated Ragnarok Online and developed new games based on Ragnarok Online. If we fail to maintain, improve, update, or enhance Ragnarok Online in a timely manner or fail to successfully develop new games based on Ragnarok Online, this is likely to lead to a decline in the user base of games developed from the contents of Ragnarok Online, which in turn is likely to lead to a material decline in our subscription revenues, royalties and mobile revenue. This would likely materially and adversely affect our business, financial condition and results of operations.
If we are unable to consistently and timely develop, acquire, license, launch, market or operate commercially successful online and mobile games, our business, financial condition and results of operations may be materially and adversely affected.
In order to grow our revenues and net income, we must retain our existing users and attract new users by developing, acquiring, licensing, launching, marketing, or operating other commercially successful online and mobile games. In addition to Ragnarok Online, we currently offer five other online games: Ragnarok Online II, Requiem Online, R.O.S.E. Online, Dragonica (which is also known as Dragon Saga in the United States, Canada and South America except for Brazil), and Ragnarok Landverse. None of our other online games to date has proven to be as commercially successful as Ragnarok Online.
In 2023, mobile games represented 86.8% of our total revenues, with one mobile game, Ragnarok Origin, representing 62.3% of our total revenues. Mobile games are played on mobile devices and smartphones, including Google Android compatible phones, the Apple iPhone, other feature phones, and tablet computers. Following a 2015 development agreement with Shanghai The Dream Network Technology Co., Ltd. (“Dream Square”) to develop and distribute two mobile games based on the contents of Ragnarok Online, we launched six mobile games developed by Dream Square (by itself and through certain third-party subcontractors), all of which are based on the contents of Ragnarok Online. For additional information, see ITEM 4.B. “BUSINESS OVERVIEW—OUR PRODUCTS—Mobile games.” Although we have achieved significant commercial success after publishing these mobile games in 2017, there is no guarantee that we will continue to be successful in the mobile game publishing business, and our revenues from mobile game publishing could decline over time.
Our revenues from mobile games increased by 75.5% to Won 629,604 million (US$ 487,698 thousand) in 2023 from Won 358,772 million in 2022. This was mainly due to a 174.2% increase in revenues from Ragnarok Origin to Won 451,887 million (US$ 350,037 thousand) in 2023 from Won 164,787 million in 2022, driven by new launching in Southeast Asia in April 2023. However, mobile revenue from customers in the United States decreased from Won 30,774 million in 2022 to Won 18,172 million in 2023. Mobile revenue from customers in Japan decreased from Won 18,436 million in 2022 to Won 10,879 million in 2023. Although the decreases in mobile revenue in the United States and Japan were more than offset by mobile revenue increases in other markets, such as Thailand and the Philippines, we may also experience declines in mobile game revenue from these or other markets in the future. A game’s commercial success largely depends on appealing to the tastes and preferences of a critical mass of users as well as the willingness of such users to purchase the game and/or in‑game items, and to continue as paying subscribers, all of which are difficult to predict prior
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to a game’s development and introduction. Developing games requires substantial development costs, including the costs of employing skilled developers and acquiring or developing game engines, which enable the creation of games with the latest technological features. For us to continue to succeed, we must acquire, license, or develop promising games at acceptable costs and ensure technical support for the successful operation of such games. The online and mobile gaming industries are highly competitive, and we may not be able to acquire, license, or develop promising games at acceptable costs. In order to successfully distribute and operate a game, we also need a sizable game management and support staff, continued investment in technology, and a substantial marketing budget.
In 2023 and 2024, we launched numerous mobile games in new markets including: Ragnarok X: Next Generation in Korea; Ragnarok Origin in Southeast Asia, North America, Central America, South America, and China; Ragnarok: The Lost Memories in Taiwan, Hong Kong, and Macau; WITH: Whale In The High in Global; White Chord in Japan; Ragnarok 20 Heroes in Korea ; Ragnarok Begins in Korea; Ragnarok Idle Adventure in Thailand; Generation Zombie in Global. We cannot assure you that the games we develop or publish will be attractive to users or otherwise be commercially successful, launched as scheduled or able to successfully compete with games operated by our competitors. If we are not able to consistently develop, acquire, license, launch, market or operate commercially successful games, we may not be able to generate enough revenues to offset our initial development, acquisition, licensing and/or marketing costs and our business, financial condition, and results of operations may be materially and adversely affected.
We may not be successful in making our mobile games profitable, and our profit margins from mobile games may be relatively lower than the profits we have enjoyed historically for online games.
Our profit margins from our mobile games, even if the games are successful, are generally lower than our profits generated from online games. This is because, in order to gain access to our games on mobile app stores, the primary distribution channel for our mobile games, we must enter into revenue-sharing arrangements that result in lower profit margins compared with those of our online games.
We have devoted and expect to continue to devote a significant amount of resources to the development of our mobile games, but the relatively lower profit margins and other uncertainties make it difficult to know whether we will succeed in making our mobile game operations more profitable. If we do not succeed in doing so, our business and results of operations will be adversely affected.
We depend on our overseas licensees for a portion of our revenues and rely on them to distribute, market, and operate our games and comply with applicable laws and government regulations.
In certain markets, we license our games to overseas operators or distributors for license fees and royalty payments based on a percentage of revenues generated from our games in such markets. Overseas license fees and royalty payments generated from our mobile games represented 8.3% of our total revenues in 2023 and 20.8% of our total revenues in 2022, with 79.4% of our 2023 revenues from mobile game license fees and royalty payments attributable to license arrangements with Nuverse (Hong Kong) Limited (“Nuverse”). Under the applicable licensing contract, Nuverse is to provide the service for a term of two years commencing on the date of Ragnarok X: Next Generation’s commercialization in Taiwan, Hong Kong, Macau, and Southeast Asia, with automatic one-year extensions thereafter. Overseas license fees and royalty payments generated from our online games represented 1.4% of our total revenues in 2023 and 1.9% of our total revenues in 2022, with 76.8% of our 2023 revenues from online game license fees and royalty payments attributable to license arrangements with GungHo Online Entertainment Inc. (“GungHo”), which has been our largest shareholder and beneficially owns, as of the date hereof, 59.3% of our common shares.
Deterioration of our relationships with material licensees or material adverse changes in the terms of our licenses with such licensees could have a material adverse effect on our business, prospects, financial condition, and results of operations. In addition, deterioration or any adverse developments in the operations, including changes in senior management, of our overseas licensees may materially and adversely affect our business, financial condition, and results of operations.
Our overseas licensees generally have the exclusive right to distribute our games in their respective markets for a term of two or three years and may also operate or publish other online and mobile games developed or offered by our competitors, and we may not be able to easily terminate the license agreements as the agreements do not specify particular financial or performance criteria that need to be met by our licensees. For example, GungHo, which is our 59.3% shareholder, also has its own mobile games business. If our overseas licensees devote greater time and resources to marketing their proprietary games or those of our competitors, we may not be able to terminate our license agreements or
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enter into new license agreements with different licensees, and our revenues and net profit may be adversely impacted. Also, a failure to satisfy our obligation to provide technical and other consulting services to the licensees under the license agreements may negatively affect user satisfaction and loyalty and hinder our licensees’ efforts to increase market share, which may lead the licensees to focus their attention on our competitors’ games or request modifications to or terminate our licensing agreements and/or not renew expired license agreements.
Our overseas licensees remit royalty payments to us based on a percentage of sales from our games after deducting certain expenses. Some licensees may be allowed to deduct certain expenses before calculating royalty payments depending on the terms of the applicable contracts. Failure by our licensees to maintain a stable and efficient billing, recording, distribution, and payment collection network in their respective markets may result in inaccurate recording of sales or insufficient collection of payments (or an illicit diversion of payments) from such markets and may materially and adversely affect our financial condition and results of operations. Although we have audit rights pursuant to our license agreements to ensure that proper payment amounts are being recorded and remitted, such activities can be disruptive and time consuming and as a result, we do not exercise such rights on a regular basis.
Furthermore, our overseas licensees are responsible for complying with local laws, including obtaining and maintaining the requisite government licenses and permits. Failure by our overseas licensees to do so may result in, among others, a suspension of service of our games in such market, which may result in user complaints and a decrease in the use of our games, which would likely have a material adverse effect on our business, financial condition, and results of operations.
Disruptions in the political environments in which our licensees operate may also have a negative impact on their business and in turn materially and adversely affect our business, financial condition, and results of operations.
We operate in a highly competitive industry and compete against many large companies.
Increased competition in the online and mobile gaming industry from existing and potential competitors could make it difficult for us to retain existing users and attract new users, and could reduce the number of hours users spend playing our current or future games or cause us and our licensees to reduce the fees charged to play our current or future games. In some of our principal markets, such as Korea, Taiwan, and Thailand, growth of the market for online games has continued to slow while competition remains strong. We expect more companies to enter the online and mobile game industries and a wider range of online and mobile games to be introduced in our current and future markets. If we are unable to compete effectively in our principal markets, our business, financial condition, and results of operations could be materially and adversely affected.
Our competitors in the online and mobile game industries vary in size from small companies to very large companies with dominant market shares. Many of our competitors have significantly greater financial, marketing, and game development resources than we have. As a result, we may not be able to devote adequate resources to develop, acquire or license new games, undertake extensive marketing campaigns, adopt aggressive pricing policies, or adequately compensate our game developers or third‑party game developers to the same degree as many of our competitors do.
As the online and mobile game industries are characterized by rapid technological changes, especially in the technical capabilities of devices for mobile games, and changing interests and preferences of users, continuous investment is required to develop and publish new games. Also, as the online and mobile game industries in many of our markets are rapidly evolving, our current or future competitors may adapt to the changing competitive landscape and market conditions and compete more successfully than us. In particular, online and mobile game products are becoming increasingly similar to each other, thus becoming more commoditized and less differentiated. In such an environment, larger companies with relative economies of scale have a clear advantage over smaller companies like us, as they are able to develop games in a more cost efficient manner, diversify their risks with broader categories of games and genres, and increase their chances of offering widely popular games. In addition, any of our competitors may offer products and services that have significant performance, price, creativity, or other advantages over those offered by us. These products and services may weaken the market strength of our brand name and achieve greater market acceptance than ours. In addition, any of our current or future competitors may be acquired by, receive investments from, or enter into strategic relationships with larger and more well established financed companies and therefore may be able to obtain significantly greater financial marketing, game licensing, and development resources than we can.
Furthermore, compared with the online or console game genres, the mobile game market has relatively low barriers to entry because development of a mobile game requires relatively less time and personnel, due to the limitations
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of the devices on which mobile games are played such as screen size and processing power. Moreover, development tools for mobile games are easier to obtain and use, and open marketplaces, such as the Google Play Store and Apple’s App Store, enable developers to easily distribute mobile games to a large global audience. Global game engine companies are also offering game developers support programs to lower the barrier to entry. Therefore, we expect the number of mobile game developers to continually increase in the future and competition to become more intense. See ITEM 4.B. “BUSINESS OVERVIEW—COMPETITION.”
To continue to be successful, we must leverage the global connectivity and distribution of mobile platforms and our relationships with mobile platform providers, which in many cases have the unilateral ability to amend their policies and terms and conditions for applications and developers.
Our mobile games increasingly leverage the global connectivity and distribution of mobile platforms including Apple’s App Store for iOS devices and the Google Play Store for Android devices. Our games are distributed on these platforms and the virtual items we sell in our games are purchased using the payment processing systems of these platform providers. In 2023, 78.4% of our revenues were generated through third-party mobile platforms. We are subject to the standard policies and terms of service of these third-party platforms, which govern the promotion, distribution, and operation of games on the platform, and can be changed by the platform providers, in their sole discretion, at any time. Such changes may decrease the visibility or availability of our games, limit our distribution capabilities, prevent access to our existing games, and reduce revenue we may recognize from in-game purchases, increase our costs to operate on these platforms or result in the exclusion or limitation of our games on such third-party platforms. Any such changes could significantly harm our business in both the short-term and long-term. If we violate, or a platform provider believes we have violated, the terms of service for a platform, our access to the platform could be limited or discontinued, which may materially and adversely affect our business.
We also rely on the continued functionality of the Apple App Store and the Google Play Store. If our players or potential players are not able to access our games through these platforms or encounter difficulties in doing so, we may lose players, resulting in decreased revenue. The level of service provided by these storefronts may also impact users’ purchase and usage of and satisfaction with virtual goods or game money, and adversely affect our business and profitability. Further, in the past these digital storefronts have experienced interruptions in service or issues with their in-app purchasing functionality. If these types of interruptions were to occur regularly or on a prolonged basis, or other similar issues arise that impact our ability to generate revenues from these storefronts, our business, financial condition, and results of operations may be materially and adversely affected.
Our investments in joint ventures or partnerships, or acquisitions of other companies, related to the development or service of online and mobile games may not be successful.
Since 2004, we have made investments in joint ventures and entered into partnership arrangements with third parties to invest in developing and/or servicing online and mobile games. In many cases, the success of such joint ventures and partnership arrangements is heavily dependent on third parties and their investment decisions because we do not have significant voting or other control over such entities.
Joint venture and partnership arrangements may involve risks not otherwise present in investments made solely by us, including:
•we may not control the joint ventures or our partners;
•where we do not have substantial decision-making authority, we may experience impasses or disputes with our joint venture partners on certain decisions, which could require us to expend additional resources to resolve such impasses or disputes, including litigation or arbitration;
•our joint venture partners may become insolvent or bankrupt, fail to fund their share of required capital contributions, or fail to fulfil their obligations as a joint venture partner;
•the arrangements governing our joint ventures may contain certain conditions or milestone events that may never be satisfied or achieved;
•our joint venture partners may have business or economic interests that are inconsistent with ours and may take actions contrary to our interests;
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•we may suffer losses as a result of actions taken by our joint venture partners with respect to our joint venture investments;
•it may be difficult for us to exit a joint venture if an impasse arises or if we desire to sell our interest for any reason; and
•we may make capital investments in our joint ventures or partnership arrangements, which may limit our ability to apply our resources to other endeavors that we find attractive, or decide not to participate in capital investments with our joint venture partners, which may result in the dilution of our ownership and corresponding impact to our decision-making authority and share of future profits or losses.
Our failure to address these risks or resolve any deadlock situations arising out of disagreements with our partners or other problems encountered in connection with our existing or future joint ventures or partnerships could cause us to fail to realize the anticipated benefits of such joint ventures or partnerships and could adversely affect our business, financial condition, results of operations and prospects. In addition, we may, in certain circumstances, be liable for the actions of our joint venture partners or other partners.
If our partners or the joint ventures and partnerships in which we and our partners have invested or companies acquired by us are unable to manage their investments, develop promising online and/or mobile games, or market or operate commercially successful online and/or mobile games, such joint ventures and partnerships or companies will be unable to attain their investment, development or other business objectives, which may materially and adversely affect the value of our investments and commitments and which may have a material adverse effect on our business, financial condition, and results of operations.
We publish games developed by third parties, which exposes us to a number of potential operational, legal, and reputational risks.
In 2023, we derived 86.7% of our revenues from online games and mobile games that were developed by third-party developers, 85.6% of which comprises revenues from mobile games developed by our former key third-party developer Dream Square (by itself and through subcontracting to certain third parties, including X.D. Network Inc. (“Xindong”) and Shanghai Rexue Network Technology Co., Ltd., with each of whom we now have a direct contractual relationship). Under our license agreements for these games, we rely on such third-party developers to provide game updates, enhancements, and new versions; provide materials and other assistance in promoting the games; and resolve game programming errors and issues with intrusions. In particular, our key mobile game, Ragnarok M: Eternal Love, which represented 9.6% of our total revenues in 2023, was developed by Dream Square (by itself and through subcontracting to certain third parties), as is the case of Ragnarok Origin and Ragnarok X: Next Generation, which represented 62.3% and 13.7%, respectively, of our total revenues in 2023.
Any failure of third-party developers to provide game updates, enhancements, and new versions that are appealing to game players in a timely manner, and provide assistance that enables us to effectively promote the games, could adversely affect the game-playing experience of our game players, damage our reputation, or shorten the life-spans of those games, any of which could result in the loss of game players, acceleration of our amortization of the license fees we have paid for those games, or a decrease in our revenues from those games. Since July 2017, technical assistance with respect to certain of our games has been provided by Dream Square (by itself and through subcontracting to certain third parties) pursuant to a publishing and technical support agreement (the “PTSA”), which expired in March 2021, and service to games developed by it expired in March 2024. See ITEM 4.A. “INFORMATION ON THE COMPANY – HISTORY AND DEVELOPMENT OF THE COMPANY.” We are in discussions with other prospective service partners regarding arrangements for our games following their current service terms, including those games provided by Dream Square. Any agreement with new publishing or technical service partners for our games could be on terms that are less favorable than those under the PTSA, and we cannot provide any assurance that any change in publishing or technical service partners will not impact our ability to effectively promote the games or the game-playing experience of our game players.
Publishing games developed by third parties also exposes us to a number of potential operational, legal, and reputational risks. For example, we may be required to provide third-party developers with upfront license fees or non-recoupable minimum guaranteed royalties in order to obtain the rights to publish their games, and we may incur significant marketing costs for these games before or after they have been commercially launched. We must often make such commitments and investments without knowing whether the games we are licensing or jointly developing will be
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successful and generate sufficient revenues to enable us to recoup our costs or for the games to be profitable. In addition, if any of the games created by third-party developers with which we work infringe intellectual property owned by others, or otherwise violate any third party’s rights or any applicable laws and regulations, such as laws with respect to data collection and privacy, we would be exposed to potential legal risks by publishing these games, which could adversely affect our reputation and business. Further, should one of the companies with whom we do business become the subject of any negative attention, reports, publicity or media, our business and reputation may be harmed.
Our revenues fluctuate significantly and may adversely impact the trading price of our ADSs, or any other securities which become publicly traded. We also may not be able to sustain our recent rapid growth in revenue.
Our revenues and results of operations have varied significantly in the past and may continue to fluctuate in the future. Many of the factors that cause such fluctuation, such as competition, regulatory changes, and general economic conditions, are outside our control. In addition, usage of our online and mobile games typically increases slightly around holidays, including the Lunar New Year holidays and during winter and summer holidays for schools. Further, our recent significant growth in revenue may not be sustainable, as our mobile games business may not continue to grow at its current pace. Accordingly, you should not rely on year-to-year, or quarter-to-quarter, comparisons of our results of operations as an indication of our future performance. It is possible that future fluctuations may cause our results of operations to be below the expectations of market analysts and investors, and cause the trading price of our ADSs to decline.
If we fail to hire and retain skilled and experienced game developers or other key personnel to design and develop new online and mobile games and additional game features, we may be unable to achieve our business objectives.
In order to meet our business objectives and maintain our competitiveness, we need to attract and retain qualified employees, including skilled and experienced online and mobile game developers. We compete to attract and retain skilled and experienced personnel with other companies in the online and mobile game industries as well as in the broader entertainment, media, and Internet industries, many of which offer superior compensation arrangements and career opportunities. In addition, our ability to train and integrate new employees into our operations may not meet the changing demands of our business. We cannot assure you that we will be able to attract and retain qualified game developers or other key personnel and successfully train and integrate them to achieve our business objectives, which could materially harm our business prospects.
Undetected programming errors or flaws in our games could harm our reputation or decrease market acceptance of our games, which would materially and adversely affect our business prospects, reputation, financial condition, and results of operations.
Our current and future games may contain programming errors or flaws, which may become apparent only after their release. In addition, our online and mobile games are developed using programs and engines developed by and licensed from third-party vendors, which may include programming errors or flaws over which we have little or no control. If our users have negative experiences with our games related to or caused by undetected programming errors or flaws, they may be less inclined to use our games or recommend our games to other potential users.
While we have not experienced any material disruptions to our business from such errors or flaws in our games or in the programs and engines that we use to develop our games, these risks are inherent to our industry and, if realized, could severely harm our reputation, cause our users to cease playing our games, divert our resources, or delay market acceptance of our games, any of which could materially and adversely affect our business, financial condition, and results of operations.
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Unexpected network interruptions, security breaches, or computer virus attacks could harm our business and reputation.
Failure to maintain satisfactory performance, reliability, security, and availability of our network infrastructure, whether maintained by us or by our licensees, may cause significant harm to our reputation and negatively impact our ability to attract and maintain users. Major risks relating to our network infrastructure include:
•any breakdowns or system failures, including from fire, flood, earthquake, hurricane or other natural disasters, power loss or telecommunications failure, resulting in a sustained shutdown of all or a material portion of our servers;
•any disruptions, failures, or unscheduled service interruptions with data center hosting facilities managed by third-party service providers, which may be due to unforeseen events that are beyond our control or the control of our third-party service providers;
•any disruption or failure in the national or international backbone telecommunications network, which would prevent users in certain countries in which our games are distributed from logging onto or playing our games for which the game servers are located in such countries; and
•any security breach caused by hacking, loss, or corruption of data or malfunctions of software, hardware, or other computer equipment, and the inadvertent transmission of computer viruses.
“Hacking” involves efforts to gain unauthorized access to information or systems or to cause intentional malfunctions or loss or corruption of data, software, hardware, or other computer equipment. Hackers, if successful, could misappropriate proprietary information or cause disruptions in our service. For example, in March and July 2021 and May and August 2022, we experienced a series of incidents where unauthorized users accessed or attempted to access our database or server, by exploiting remote code security vulnerabilities in order to, among others, cause illicit updates to be made to such users’ player data on our database. In response, we took immediate remedial actions such as changing the password for the database, removing the malicious codes identified, and adopting a tool that enables the detection of abnormal queries. No personal information was compromised as a result of these incidents. We have taken steps to ensure these security vulnerabilities have been patched in our systems, but we cannot guarantee that all vulnerabilities have been patched in every system upon which we are dependent or that additional critical vulnerabilities will not be discovered by hackers in the future. While these past incidents have not materially disrupted or damaged our systems or platforms or the performance of our business, there is no assurance that we can anticipate all evolving future attacks, viruses, or intrusions, implement adequate preventative measures, or remediate any security vulnerabilities. Any mitigation or remediation efforts we may have to undertake in the future in response to any such attacks may also require the attention of management and expenditures of significant capital and human resources, which can result in a significant financial impact on our operations and financial results. In addition, we cannot ensure that any measures we take against hacking will be effective. A computer security breach could significantly damage our reputation and materially and adversely affect our business and we could be exposed to a risk of loss, litigation and regulatory proceedings.
We host our servers at third-party data centers located in the U.S., Indonesia, Korea, Taiwan, and Thailand. Given that we lease these data center spaces from third-party data center providers, we do not control the operations of these third-party facilities. Consequently, we have been, and may continue to be, subject to service disruptions, failures, unscheduled service interruptions or failures to provide adequate support for reasons which are beyond our control or the control of our third-party service providers. All of our data center facilities and network infrastructure are vulnerable to damage or interruption from a variety of sources including earthquakes, floods, fires, power loss, system failure, computer vulnerabilities, physical or electronic break-ins, human errors, malfeasance, or interference, including by employees, former employees, or contractors, terrorism, and other catastrophic events. For example, on December 2, 2021, a fire broke out at our third-party data center hosting facility in Indonesia, IDC Indonesia, which services PT Gravity Game Link (“Gravity Game Link”), our 70%‑owned subsidiary in Indonesia. Although basic network infrastructure such as web servers, mails, and virtual private networks (VPN) was restored within 48 hours, and all other services including download servers were restored on the third day after the fire, we experienced a temporary disruption in our services during this period due to continued outages. While all our data and servers were fully restored after the incident, and this incident did not result in a material adverse impact on our operating results, there can be no assurance that any such incidents, which could cause an interruption in our services, will not occur again. In addition, global climate change is expected to result in certain natural disasters occurring more frequently or with greater intensity, such as tsunamis, cyclones, typhoons, drought, wildfires, sea-level rise, heavy rains and flooding. Any such disaster or series of disasters in areas where we have data
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centers, such as the U.S., Indonesia, Korea, Taiwan, and Thailand, could significantly disrupt our operations and have a material adverse effect on our business, results of operations and financial condition. For example, a significant portion of our data centers and operations are located in Korea. A natural disaster, fire, earthquake, volcanic activity, tsunami, power interruption, work stoppage, outbreaks of pandemics or contagious diseases (such as the COVID-19 pandemic) or other calamity in Korea would significantly disrupt our ability to deliver our services and operate our business. The disaster recovery arrangements and data redundancy plans of our Company and our third-party service providers may not be adequate to account for disasters or similar events that may occur in the future and may not effectively permit us to continue operating in the event of any problems with respect to our systems or those of our third-party data centers or any other third-party facilities. If any such event were to occur to our business, our operations could be impaired and our business, financial condition, and results of operations may be materially and adversely affected.
We have been, may continue to be, subject to denial of service attacks that have caused, and could cause, portions of our network to be inaccessible for limited periods of time. For example, in March 2022, we experienced a distributed denial of service (“DDOS”) attack on the Amazon Web Services cloud platform, which we use for the Ragnarok Online service in Malaysia, Singapore, and the Philippines. While this attack caused our service to be unstable intermittently for a period of two weeks, we were able to mitigate the attack by subscribing to AWS Shield, a DDOS protection service, and taking preventive measures. In September 2022, another DDOS attack occurred on the network of IDC Korea, our third-party data center hosting facility in Korea, resulting in the server becoming inaccessible. We restored access to the server within 24 hours and took remedial actions including changing the Canonical NAME (CNAME) record in the Domain Name System (DNS) and adopting Cloudflare’s solution. Although the attacks we have experienced did not cause material losses or damages, we cannot ensure that any protective measures we have implemented, including those by our third-party service providers, will be adequate or effective against future hacking efforts and that any such attacks in the future will not have a material adverse effect on our business, results of operations, financial condition, reputation or prospects.
In addition, computer viruses may cause delays or other service interruptions on our systems and expose us to a material risk of loss or litigation and possible liability. We may be required to expend significant capital and other resources to protect our Web sites against the threat of such computer viruses and to address and resolve any problems resulting from such viruses. Moreover, if a computer virus affecting our system is highly publicized, our reputation could be materially damaged and our visitor traffic may decrease.
Any of the foregoing factors could reduce our users’ satisfaction, harm our business and reputation and have a material adverse effect on our business, financial condition, and results of operations.
Failure to protect personal information could adversely affect our business, reputation, and results of operations.
We collect, process, store, and transmit personal information of game users worldwide for our global game service. Our business may be subject to a number of federal, state, local and foreign laws, and regulations governing data privacy and security, including with respect to the collection, processing, storage, use, transmission, and protection of personal information and other consumer data on the Internet and mobile platforms, the scope of which are continually changing and subject to differing interpretations, and which may be inconsistent among countries or otherwise in conflict with other laws or regulations. These obligations may be interpreted and applied in a manner that is inconsistent from one jurisdiction to another and may conflict with other laws or regulations or our practices. Also, the failure to prevent or mitigate the loss of personal information data or other game user data, including as a result of breaches of our vendors’ technologies and systems, could expose us or our game users to a risk of loss or misuse of such information. Any such failure or perceived failure by us to comply with our privacy policies, our privacy-related obligations to players or other third parties, or our privacy-related legal obligations, including without limitation any compromise of security that results in the unauthorized release or transfer of personally identifiable information or other player data, may result in governmental enforcement actions, litigation or public statements against us by consumer advocacy groups or others and could cause our players to lose trust in us, which may have an adverse effect on our business, reputation, and results of operations. See ITEM 4.B. “BUSINESS OVERVIEW—LAWS AND REGULATIONS” for a detailed discussion regarding laws of Korea, Taiwan, Thailand, the Philippines, Japan, and the United States that may materially impact our operations.
Further, we may not be able to adequately adapt our internal policies and/or procedures to evolving regulations, which may require us to change our practices in a manner adverse to our business or limit access to our products and services in certain countries. As a result, our reputation and brand may be harmed, we could incur substantial costs, and we could lose both customers and revenues. For example, the European General Data Protection Regulation (“GDPR”), which
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became effective as of May 2018, contains significant penalties for non-compliance and apply to us as we receive or process the personal data of residents of the European Union. If we fail to comply with such GDPR regulations, or other data protection laws and regulations globally, we may be subject to significant penalties and sanctions which may have a material adverse effect on our business, financial condition, and results of operations.
Electronic embezzlement could negatively impact the popularity of our online and mobile games and adversely affect our reputation and results of operations.
Some of our employees or licensees’ employees with high‑level security access to our network, or other employees or persons who hack into or otherwise gain unauthorized access to certain sectors of our network, may succeed in breaching internal security systems and engage in electronic embezzlement by creating or diverting game money used in our online and mobile games and publicly or privately selling the game money for their financial benefit. We and our overseas licensees may not be successful in preventing electronic embezzlement. Incidents of electronic embezzlement may negatively impact the reputation of our games, which may materially and adversely affect our business, financial condition, and results of operations.
Cheating by users of online and mobile games could negatively impact the popularity of our online and mobile games and adversely affect our reputation and results of operations.
We have experienced numerous incidents where users were able to modify the published rules of our online and mobile games. Users were able to modify the rules of our online and mobile games during game play in a manner that allowed them to cheat and disadvantage other online game users. For example, users have utilized auto‑run programs that enabled games to be continuously and automatically played without user participation to quickly accumulate in‑game points, causing many other players to stop using the game and shortening the game’s life cycle. For mobile games, some users have purchased game money or in‑game items through cloned mobile phones and sold such illegally obtained property to other users, which resulted in a shortfall between total sales and our actual revenues. Such unauthorized manipulation of our games may negatively impact users’ perception of our games and damage our reputation as well as our results of operations. We or our licensees may not be successful in taking the corrective measures necessary to prevent users from modifying the terms of our games in a timely manner.
Unauthorized use of our intellectual property rights by third parties and the expenses incurred in protecting our intellectual property rights may adversely affect our business.
Our intellectual property rights such as copyrights, service marks, trademarks, and trade secrets are critical to our business. Unauthorized use of the intellectual property rights used in our business, whether owned by us or licensed to us, may materially and adversely affect our business and reputation. We rely on trademark and copyright law, trade secret protection, and confidentiality agreements with our employees, customers, business partners, and others to protect our intellectual property rights. It may be possible for third parties to obtain and use our intellectual property without authorization.
Since the commercialization of Ragnarok Online in August 2002, we have discovered that the server‑end software of Ragnarok Online has been unlawfully released on a consistent basis in most of the countries and markets in which Ragnarok Online has been offered. This enables unauthorized parties to set up local server networks to operate Ragnarok Online, which may result in the diversion of a significant number of paying users. We designate certain employees to be responsible for detecting such illegal servers. In Korea, we report offenders to the relevant enforcement authority for possible prosecution relating to crimes on the Internet. In markets outside of Korea, we cooperate with and rely on our licensees to seek enforcement actions against operators of illegal servers. For example, in December 2007 and June 2008, Gravity Interactive, Inc. (“Gravity Interactive”), our wholly-owned subsidiary in the United States, which manages Ragnarok Online game operations in the United States, petitioned the Federal Bureau of Investigation for remission or mitigation of forfeiture of the property of two illegal server operators of Ragnarok Online, which property was deemed proceeds of copyright infringement violations by the illegal server operators, and US$ 154,674.73 was returned to Gravity Interactive, Inc. in April 2011. In April 2022, Gravity filed a claim against an operator of an illegal server of Ragnarok Online in the United States District Court for the Central District of California. The court held in favor of Gravity finding that the illegal server operator infringed Gravity’s copyrights and, as a result, the server in question closed its operations in July 2023. We may incur considerable costs in the future in order to remedy software piracy of our server software and enforce our rights against the operators of unauthorized server networks.
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The validity, enforceability, enforcement mechanisms, and scope of protection of intellectual property in Internet‑related industries are uncertain and evolving. In particular, the laws and enforcement regimes of Korea, Japan, Taiwan, the Philippines, China, Thailand, and certain other countries in which our games are distributed are uncertain or may not protect intellectual property rights to the same extent as do the laws and enforcement procedures of the United States. Moreover, litigation may be necessary in the future to enforce our intellectual property rights. Such litigation could result in substantial costs and diversion of our resources, disruption of our business, and have a material adverse effect on our business, prospects, financial condition, and results of operations.
We may be subject to claims with respect to the infringement of intellectual property rights of others, which could result in substantial costs and diversion of our financial and management resources.
We cannot be certain that our online and mobile games do not or will not infringe upon patents, copyrights, or other intellectual property rights held by third parties. We have in the past been and may in the future become subject to legal proceedings and claims from time to time relating to the intellectual property of other parties. For example, in November 2010, Gravity Interactive, which manages Dragonica game operations under the name Dragon Saga in the United States and Canada, THQ*ICE LLC, the former game distributor of Dragonica in the United States and Canada, and THQ Inc., the former joint venture partner of THQ*ICE LLC, were accused of trademark infringement. The owner of the registered trademark of Dragonica in the United States filed a lawsuit with the United States District Court for the Southern District of Florida seeking damages and any profits and gains to the defendants through the alleged trademark infringement. The lawsuit was settled in March 2012. If we are found to have violated the intellectual property rights of other parties, we may be enjoined from using such intellectual property rights, be required to pay penalties and fines and pay for the unauthorized use of such intellectual property, and may need to incur additional license fees or be forced to develop alternative technology or obtain other licenses. We may incur substantial expenses in defending against these third-party infringement claims, regardless of their merit. In addition, certain of our employees were recruited from other online and mobile game developers, including current and potential competitors. To the extent these employees have been and are involved in the development of our games that are similar to the games they helped develop at their former employers, we may become subject to claims that we or such employees have improperly used or disclosed trade secrets or other proprietary information. Although we are not aware of any pending or threatened claims of this type, if any such claims were to arise in the future, litigation or other dispute resolution procedures might be necessary to retain our ability to offer our current and future games, which could result in substantial costs and diversion of our financial and management resources.
Successful infringement or licensing claims against us may result in substantial monetary damages, which may materially disrupt our business operations and have a material adverse effect on our reputation, business, financial condition, and results of operations.
Our products and services, including those involving play-to-earn (“P2E”) features and non-fungible tokens (“NFT”), may subject us to additional regulatory requirements in the future, which may be costly and difficult to comply with or adversely affect our business, and other potential risks to our business.
We currently offer the market NFT items created using our game contents, and will continue to develop and launch games integrated with P2E and NFT elements. For example, users of the Sand Box can purchase certain virtual items as NFTs, using Ragnarok Online IP, on the Sandbox Platform, which they can in turn use in their virtual land. Furthermore, the P2E game we are developing allows users to earn rewards through game play, which can be exchanged for certain types of cryptocurrency trading on cryptocurrency exchanges. We may become subject to regulatory requirements in the future in Korea and other countries for providing such products and services.
Governments of different countries have responded differently to cryptoassets (including cryptocurrency and NFTs). Governments of various countries may adopt laws, regulations, or policies that could adversely affect P2E or NFT by restricting rights to acquire, own, hold, sell, use or trade cryptoassets or to exchange them for fiat currency. In addition, there is significant uncertainty regarding the tax treatment of cryptoassets. We cannot rule out the possibility that such restrictions and uncertainties could have a material adverse effect on our ability to pursue P2E, NFT and/or adjacent business, financial condition, and the results of operations.
Furthermore, our P2E and NFT-related businesses may be subject to cybersecurity risks. We cannot rule out the possibility that such risks become materialized affecting our business, financial condition, and the results of operations.
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We may not be able to successfully implement our growth and profit improvement strategies.
We are pursuing a number of growth and profit improvement strategies, including the following:
•distributing games developed in‑house;
•publishing games acquired from or developed by third parties through licensing arrangements;
•intellectual property licensing to or from third parties for game development;
•offering our games in countries where such games have not yet been launched;
•optimizing our marketing and research and development expenditures;
•cross‑selling our popular online games through other lines of businesses, such as mobile games, console games, animation, and character merchandising;
•pursuing strategic relationships with game development and service companies;
•strengthening localized services through the establishment of local subsidiaries in our major markets; and
•developing new business areas other than the game business, such as a screen golf business based on a franchise model.
We cannot assure you that we will be successful in implementing any of these strategies. Certain of our strategies relate to new services or products for which there are no established markets, or in which we lack experience and expertise. If we are unable to successfully implement our growth and profit improvement strategies, our revenues, profitability, and competitiveness may be materially and adversely affected.
We have limited business insurance coverage, and business interruption could have a material adverse effect on our business.
While we carry insurance coverage against certain risks to our property and assets, such as fire, flood and earthquake, as well as directors’ and officers’ liability insurance, we do not separately maintain casualty and liability insurance against litigation, risks or disruptions related to our business. The occurrence of any natural disaster, fire, power loss, telecommunications failure, break‑ins, sabotage, computer viruses, intentional acts of Internet vandalism, human error, or other similar events may damage our facilities or network servers and disrupt the operation of our business. As we do not carry sufficient natural disaster or business interruption insurance to compensate us for all types or amounts of loss that could arise, any damage or disruption from such events might result in our incurring substantial costs and the diversion of our resources, and have a material adverse effect on our business, financial condition, and results of operations. See ITEM 4.B. “BUSINESS OVERVIEW—INSURANCE.”
As we introduce new games, we face the risk that a significant number of users of our existing games may migrate to our new games.
As we introduce new games, a certain number of our existing users may migrate from our existing games to the new games, which may lead to a decrease in the player base of our existing games and in turn make those existing games less playable to other game players, resulting in decreased revenues from our existing games. Players of our existing games may also spend less money to purchase in‑game items in our new games than they would have spent if they had continued playing our existing games. In addition, our game players may migrate from our existing games with a higher profit margin to new games with a lower profit margin. If any of the forgoing occurs, our revenues and profitability are likely to be materially and adversely affected.
New or changed game features in our online games may not be well-received by our game players.
In the course of launching and operating online games, including the release of updates and expansion packs to existing games, certain game features may periodically be introduced, changed or removed. We cannot assure you that the introduction, change or removal of any game feature will be well-received by our game players, who may decide to reduce
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or eliminate their playing time in response to any such introduction, change, or removal. As a result, any introduction, change, or removal of game features may adversely impact our business, financial condition, and results of operations.
We believe that we were a PFIC for taxable years 2008 through 2016, 2022 and 2023, and we may be a PFIC in future years. As a result of being a PFIC in 2023 and prior years, and because of the possibility that we may have been a PFIC for taxable years 2017 through 2021, and may be a PFIC in future taxable years, U.S. investors could be subject to adverse U.S. federal income tax consequences.
The rules governing PFICs can have adverse consequences for U.S. investors for U.S. federal income tax purposes. The tests for determining PFIC status for a taxable year depend upon the relative values of certain categories of assets and the relative amounts of certain kinds of income. As discussed in ITEM 10.E. “TAXATION—MATERIAL U.S. FEDERAL INCOME TAX CONSIDERATIONS,” we believe that we were a PFIC for the taxable years 2023 and 2022 and for taxable years 2008 through 2016 (though we believe we may not have been a PFIC for taxable years 2017 through 2021), and we may be a PFIC in future years. The determination of whether we are a PFIC must be made annually after the end of each taxable year, and our PFIC status for each taxable year will depend on particular facts and circumstances (such as the composition of our income and assets, and the valuation of our assets, including goodwill and other intangible assets, which may be determined by reference to the market price of our ADSs, which has fluctuated and may continue to fluctuate significantly over time) and may be affected by differing interpretations of the PFIC rules. In light of the foregoing, no assurance can be provided that we were not a PFIC for the taxable years 2017 through 2021 or that we will not become a PFIC in the current year or any future taxable year. In addition, our U.S. counsel expresses no opinion with respect to our PFIC status for our past, current, or future taxable years. Furthermore, if we are treated as a PFIC, and one or more of our subsidiaries are also treated as PFICs, U.S. Holders will be subject to the PFIC rules with respect to their indirect interests in those subsidiaries and will be treated as owning a proportionate amount (by value) of the shares of the lower-tier PFIC for purposes of the application of the PFIC rules. Accordingly, U.S. Holders should invest in our ADSs only if they are willing to bear the U.S. federal income tax consequences associated with investments in PFICs.
If we are characterized as a PFIC for any taxable year, and a U.S. Holder (as defined in ITEM 10.E. “TAXATION—MATERIAL U.S. FEDERAL INCOME TAX CONSIDERATIONS.”) held our ADSs or common shares during such taxable year, we generally will continue to be treated as a PFIC with respect to that U.S. Holder for all succeeding taxable years during which the U.S. Holder holds ADSs or common shares, even if we cease to meet the requirements for PFIC status. In such case, U.S. Holders of our common shares and ADSs would be subject to adverse U.S. federal income tax consequences, such as ineligibility for any preferential tax rates on capital gains or on actual or deemed dividends, interest charges on certain taxes treated as deferred, and additional reporting requirements under U.S. federal income tax laws and regulations. Whether U.S. Holders of our common shares or ADSs make (or are eligible to make) a timely qualified electing fund, or QEF, election or a mark-to-market election may affect the U.S. federal income tax consequences to U.S. Holders with respect to the acquisition, ownership, and disposition of our common shares and ADSs and any distributions such U.S. Holders may receive. We do not, however, expect to provide the information regarding our income that would be necessary in order for a U.S. Holder to make a QEF election if we are classified as a PFIC. Investors should consult their own tax advisors regarding all aspects of the application of the PFIC rules to our common shares and ADSs.
Rapid technological developments and changes in market environment may limit our ability to recover game development costs and adversely affect our financial condition and results of operations due to impairment loss.
The online and mobile game industries are subject to rapid technological developments and changes in market environment, which could render our online and mobile games under development and commercialized games obsolete or unattractive to users. Any resulting failure to recover capitalized development costs and the recognition of impairment loss for such costs may materially and adversely affect our financial condition, and results of operations.
We could suffer losses due to asset impairment charges.
We held a total of Won 6,370 million (US$ 4,934 thousand) in intangible assets (comprising software, industrial property rights and other intangible assets) as of December 31, 2023. See Note 9 to our consolidated financial statements included in this Annual Report. We test indefinite‑lived intangible assets at least annually for impairment, and more frequently if an event occurs or circumstances change so that the carrying amount may not be recoverable. Such an event would include unfavorable variances from established business plans, significant changes in forecasted results or volatility inherent to external markets and industries, which are periodically reviewed by our management. If such an adverse event occurs and has the effect of changing one of the critical assumptions or estimates related to the fair value of our intangible
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assets, an impairment charge could result. For example, in 2023, 2022 and 2021, we recognized impairment loss on intangible assets of Won 1,531 million in relation to the games WITH: Whale In The High and Lost Saga, Won 293 million in relation to the games Tera Classic and CPBL Baseball and Won 281 million in relation to the games The Lord and Lost Saga, respectively, and we have recognized other similar impairment losses during the past several years.
There can be no assurance that future reviews of intangible assets will not result in significant impairment charges. Although it does not affect cash flow, an impairment charge does have the effect of decreasing our earnings, assets, and shareholders’ equity.
The value of our deferred tax assets could become impaired, which could materially and adversely affect our results of operations.
As of December 31, 2023, we had approximately Won 5,952 million (US$ 4,610 thousand) in net deferred tax assets. See Note 19 to our consolidated financial statements included in this Annual Report. These deferred tax assets include net operating loss carryforwards, tax credit carryforwards and temporary differences that can be used to offset taxable income in future periods and reduce income taxes payable in those future periods. Each year, we determine the probability of the realization of deferred tax assets, using significant judgments and estimates with respect to, among other things, historical operating results and expectations of future earnings. If we determine in the future that there is not sufficient positive evidence to support the valuation of these assets, due to the risk factors described herein or other factors, we may be required to further adjust the probability of realization to reduce our deferred tax assets. Such a reduction could result in material non-cash expenses in the period in which the probability of realization is adjusted and could have a material adverse effect on our results of operations.
RISKS RELATING TO OUR COMPANY STRUCTURE
GungHo, the licensee of our games in Japan, is our majority shareholder, which gives them control of our board of directors.
Since April 1, 2008, GungHo has been our largest shareholder and beneficially owns, as of the date hereof, 59.3% of our common shares. As a result, GungHo is able to exert significant control over all matters requiring shareholder approval, including the election of directors and approval of significant corporate transactions, including acquisitions, divestitures, strategic relationships, and other matters, and may also exert significant control over decisions related to the status of our ADSs being eligible for quotation and trading on the NASDAQ Global Market. In addition, as GungHo is also an online and mobile game developer, there may be conflicts of interest. For instance, GungHo may lead our management with strategies and efforts which benefit itself, its affiliates, and their respective shareholders to the detriment of our other shareholders. GungHo may also compete directly or indirectly against us for users and customers or increased market share for its games. GungHo is also currently the licensee of Ragnarok Online, Ragnarok M: Eternal Love, Ragnarok Origin, and Ragnarok X: Next Generation in Japan. Furthermore, five of our Executive Directors, Mr. Hyun Chul Park, Mr. Yoshinori Kitamura, Mr. Kazuki Morishita, Mr. Kazuya Sakai, and Mr. Koji Yoshida currently serve as General Manager, Director and Executive General Manager, President and Chief Executive Officer, Chief Financial Officer and Director, and Executive General Manager, Chief Customer Officer, Chief Crisis Management Officer and Director, respectively, of GungHo, and there may be conflicts of interest in the decisions made by the Board of Directors of Gravity (the “Board of Directors”) and senior management. See ITEM 7.B. “RELATED PARTY TRANSACTIONS—Relationship with GungHo Online Entertainment, Inc.”
We are a “controlled company” within the meaning of the NASDAQ Stock Market Rules and may rely on exemptions from certain corporate governance requirements.
As GungHo controls 59.3% of our outstanding voting power as of the date hereof, we are a “controlled company” within the meaning of the NASDAQ Stock Market Rules and may rely on exemptions from certain corporate governance requirements. As a “controlled company,” we are not required to have a majority of our Board of Directors be independent, nor are we required to have a compensation committee or independent director oversight of director nominations which meet the requirements set forth in the NASDAQ Stock Market Rules. We are relying on these exemptions as a controlled company. Accordingly, our shareholders do not have the same protections afforded to shareholders of companies that are subject to all of the corporate governance requirements of the NASDAQ Stock Market Rules. For our corporate governance policies, see ITEM 6.C. “BOARD PRACTICES—CORPORATE GOVERNANCE PRACTICES.”
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RISKS RELATING TO OUR REGULATORY ENVIRONMENT
Our online and mobile operations and businesses are subject to laws, rules, and regulations in the countries in which our games are distributed, such as Thailand, Taiwan, Korea, Japan, the United States, and the Philippines, changes to which are difficult to predict, and uncertainties in interpretation and enforcement of the laws, rules, and regulations in such countries may limit the protections available to us.
The regulatory and legal regimes in many of the countries in which our games are distributed have yet to establish a sophisticated set of laws, rules or regulations designed to regulate the online and mobile game industries. However, in many of our principal markets, such as Thailand, Taiwan, Korea, Japan, the United States, and the Philippines, legislators and regulators have implemented or indicated their intention to implement laws, rules and regulations with respect to issues such as user privacy, defamation, pricing, advertising, taxation, foreign ownership limitations, promotions, financial market regulation, consumer protection, content regulation, quality of products and services, and intellectual property ownership and infringement that may directly or indirectly impact our activities. The impact of such laws, rules, and regulations on our business and results of operations is difficult to predict as many such laws, rules, and regulations are constantly changing. However, as we might unintentionally violate such laws, rules, and regulations, or such laws, rules or regulations may be modified, and new laws, rules and regulations may be enacted in the future, any such developments, or developments stemming from enactment or modification of other laws, rules or regulations, could increase the costs of regulatory compliance, force changes in business practices or otherwise have a material adverse effect on our business, financial condition, and results of operations. Further, if the cost of regulatory compliance increases for our licensees as a result of regulatory changes, our licensees may seek to reduce royalties and license fees payable to us, which may materially and adversely affect our business, financial condition, and results of operations. See ITEM 4.B. “BUSINESS OVERVIEW—LAWS AND REGULATIONS” for a discussion regarding the laws of Thailand, Taiwan, Korea, Japan, the United States, and the Philippines that may materially impact our operations.
Our online and mobile games may be subject to governmental restrictions or ratings systems, which could delay or prohibit the release of new games or reduce the existing and potential scope of our user base.
Legislation is periodically introduced in many of the countries in which our games are distributed to establish a system for protecting consumers from the influence of graphic violence and sexually explicit materials contained in various types of games. For example, Korean law requires online game companies to obtain ratings classifications and implement procedures to restrict access of online games to certain age groups. Similar mandatory ratings systems and other regulations affecting the content and distribution of our games have been adopted or are under review in Taiwan, China, the United States, and other markets for our games. In the future, we may be required to modify our game content or features or alter our marketing strategies to comply with new governmental regulations or ratings assigned to our current or future games, which could delay or prohibit the release of new games or upgrades and reduce the existing and potential scope of our user base. Moreover, uncertainties regarding governmental restrictions or ratings systems applicable to our business could give rise to market confusion, thereby materially and adversely affecting our business, financial condition, and results of operations.
Restrictions and controls on currency exchange in Korea and in certain countries in which our games are distributed may limit our ability to effectively utilize revenues generated in Won to fund our business activities outside Korea or expenditures denominated in foreign currencies, and may limit our ability to receive and remit revenues effectively.
Existing and future restrictions on currency exchange in Korea, including Korean foreign exchange control regulations, may restrict our ability to convert Won into foreign currencies under certain emergency circumstances, such as natural calamities, wars, conflicts of arms or grave and sudden changes in domestic or foreign economic circumstances, difficulties in Korea’s international balance of payments and international finance and obstacles in carrying out currency policies, exchange rate policies, and other Korean macroeconomic policies. Such restrictions may limit our ability to effectively utilize revenues generated in Won to fund our business activities outside Korea or expenditures denominated in foreign currencies.
In addition, the governments in certain markets in which our games are distributed, including without limitation in Taiwan, China, and Thailand, impose controls on the convertibility of local currency into foreign currencies and, in some cases, the remittance of currency outside their countries. Under current foreign exchange control regulations of certain markets, shortages in the availability of foreign currency may restrict the ability of our overseas licensees to pay license fees and royalties, most of which are paid in U.S. dollars, to us. Restrictions on our ability to receive license fees, royalties, and other payments from our licensees would adversely affect our results of operations, financial condition, and liquidity.
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Adverse changes in the withholding tax rates in the countries from which we receive license fees and royalties and adverse changes in our ability to realize deferred tax assets could adversely affect our net profit.
We may be subject to income tax withholding in countries where we derive revenues. Such withholding is made by our overseas licensees at the current withholding rates in such countries. To the extent Korea has a tax treaty with any such country, the withholding rate prescribed by such tax treaty will apply. Under the Corporation Tax Law of Korea, we are entitled to and recognize a capped foreign tax credit computed based on the amount of income taxes withheld overseas when filing our corporate income tax return in Korea. Accordingly, the amount of taxes withheld overseas may be offset against taxes payable in Korea.
Recently, there have been a series of amendments to tax treaties that Korea has entered into with various countries. Under the amended tax treaty between Korea and India, the tax rate applicable to license fees and royalties was reduced from 15% to 10% in respect of income derived in any fiscal year beginning on or after April 1, 2017. The tax treaty between Korea and Hong Kong, which became effective as of September 27, 2016, includes a provision promulgating that license fees and royalties shall be subject to tax at the reduced rate of 10% in respect of income derived in any fiscal year beginning on or after April 1, 2017. Under the amended tax treaty between Korea and Singapore, the tax rate applicable to license fees and royalties was reduced from 15% to 5% in respect of amounts paid, deemed to be paid or liable to be paid (whichever is the earliest) on or after January 1, 2020. Under the amended protocol of tax treaty between Korea and Vietnam, the tax rate applicable to royalties was reduced from 5% or 15% to 5% or 10% in respect of amounts paid on or after January 1, 2022. The tax treaty between Korea and Taiwan, effective as of December 26, 2023, includes a provision stating that royalties shall be subject to a reduced tax rate of 10% for amounts payable on or after January 1, 2024. These series of promulgations are all intended to eventually further limit the source country’s taxation right with respect to license fees and royalties. Any adverse changes in tax treaties between Korea and the countries from which we receive license fees and royalties, such as in the rate of withholding tax in the countries in which our games are distributed or in Korean tax law enabling us to recognize foreign tax credits for taxes withheld overseas, could adversely affect our net income.
Changes in tax laws, regulations, or interpretations thereof, including changes to tax rates, may adversely affect our financial statements and tax position.
New income or other tax laws or regulations could be enacted at any time, which could adversely affect our business operations and financial performance. Further, existing tax laws and regulations could be interpreted, modified, or applied adversely to us. Significant judgment is required in determining our worldwide provision for income and other taxes. Although we believe that we have adequately assessed and accounted for our potential tax liabilities, and that our tax estimates are reasonable, there can be no certainty that additional taxes will not be due upon audit of our tax returns or as a result of changes to the tax laws and interpretations thereof.
In 2021, the Organization for Economic Co-operation and Development (the “OECD”) released Pillar Two model rules defining the global minimum tax rules, which contemplate a jurisdictional 15% minimum tax rate. The OECD continues to release additional guidance on these rules and the framework calls for law enactment by local countries to take effect in 2024 or 2025. These changes, when enacted by various countries in which we do business, may increase our taxes in these countries. South Korea has enacted legislation to implement the OECD framework including the Income Inclusion Rule (the “IIR”) which may impose additional reporting and compliance obligations to our group effective from January 1, 2024 and the Under-taxed Profit Rules (the “UTPR”), which may impose additional reporting and compliance obligations to our group effective from January 1,2025. We are continuing to monitor legislative developments and are in the process of evaluating the potential impact of Korea and other legislation on our taxes.
Changes to tax law or administration such as these, whether at the state level or the international level, could increase our tax administrative costs and tax risk, and negatively affect our overall business, results of operations, financial condition and cash flows. We are currently unable to predict whether such changes will occur and, if so, the ultimate impact on our business.
RISKS RELATING TO OUR MARKET ENVIRONMENT
Our businesses and partnerships may be affected by geopolitical tensions between China and the United States.
In recent years, there has been a deterioration in the relationship between China and the United States, which has resulted in intense potential conflicts between the two countries in trade, technology, finance, and other areas, and this
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has led to greater uncertainties in the geopolitical situations in other parts of the world affecting China, Chinese companies, and companies that have business relationships with Chinese companies. For example, economic and trade sanctions have been threatened and/or imposed by the U.S. government on a number of Chinese technology companies. The United States has also threatened to impose further sanctions, trade embargoes, and other heightened regulatory requirements. Most recently, President Biden issued Executive Order 14034 on June 9, 2021 (the “EO 14034”) authorizing the Secretary of Commerce to evaluate transactions involving apps designed, developed, manufactured, or supplied by “foreign adversaries” that may present national security concerns, particularly with regard to access by persons owned, controlled, or subject to the jurisdiction of “foreign adversaries,” including China.
Revenue originating from the United States represented approximately 3.1% of our 2023 revenue. In addition, we maintain agreements with Chinese entities for distribution of our products in China and elsewhere in Asia. Accordingly, any further deterioration of US-China relations or further sanctions involving Chinese companies with whom we may do business may be detrimental and have an adverse impact on our business.
Our businesses may be adversely affected by developments affecting the economies of the countries in which our games are distributed.
Our future performance will depend in large part on the economic growth of our principal markets. Our top geographic markets in terms of 2023 revenues were Taiwan, Thailand, the Philippines, and Korea representing 24.3%, 18.9%, 14.1% and 11.9%, respectively, of our total revenues in 2023. Accordingly, our business, prospects, financial condition, and results of operations are subject to the economic, political, legal and regulatory conditions, and developments in these countries and markets. Adverse economic developments in such markets may have an adverse effect on the number of our users and our revenues and have a material adverse effect on our results of operations.
The overall prospects for our principal markets as well as the global economy remain uncertain. For example, in Korea, economic indicators in recent years have shown mixed signs, and the future growth of the Korean economy is subject to many factors beyond our control, including developments in the global economy. Unfavorable or uncertain economic and market conditions can be caused by difficulties in the financial sector, corporate, political, or other scandals that may reduce confidence in the markets, declines in business confidence, increases in inflation, natural disasters or pandemics, outbreaks of hostilities, or other geopolitical instability. Deterioration in economic or diplomatic relations between Korea and its trading partners or allies, including deterioration resulting from territorial or trade disputes or disagreements in foreign policy, or a combination of these or other factors, have in the past adversely affected, and may in the future adversely affect, the Korean economy and, in turn, our business and performance.
Further, we derive a significant percentage of our revenue from customers in Taiwan. An increase in tensions between Taiwan and China and the possibility of instability and uncertainty could adversely affect the prices of our ADSs and our shares. Relations between Taiwan and China and other factors affecting Taiwan’s political and economic environment could affect our business.
We also derive a significant percentage of our revenues from customers in Thailand and the Philippines. Both of these countries have been subject to political, social and economic volatility that, directly or indirectly, could have a material adverse impact on our ability to sustain our business and growth in these markets. We cannot assure you that the political environment in Thailand or the Philippines will be stable or that the current or any future government will adopt economic policies that are conducive to sustained economic growth or which do not materially and adversely impact the current regulatory environment for digital gaming companies.
In addition to the above factors, adverse economic developments may be a result of a multitude of factors, including, but not limited to, turmoil in the credit and financial markets, concerns regarding the stability and viability of major financial institutions, declines in gross domestic product, increases in unemployment, volatility in commodity prices and worldwide stock markets, higher interest rates, potential governmental shutdowns, natural catastrophes, the COVID-19 pandemic, warfare, the wars between Russia and Ukraine or Israel and Hamas, and the overall volatility and violence in the Middle East and North Africa, inflation, excessive government debt and disruptions to global trade or tariffs. The severity and length of time that a downturn in economic and financial market conditions may persist, as well as the timing, strength and sustainability of any recovery, are unknown and are beyond our control.
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Fluctuations in exchange rates could result in foreign currency exchange losses.
In most of the countries in which our games are distributed, the revenues generated by our overseas licensees or subsidiaries are denominated in local currencies, which include, among others, the NT dollar, the Japanese Yen, the U.S. dollar, the Euro, the Thai Baht, and the Chinese Yuan. In 2023, approximately 88.1% of our revenues were denominated in currencies other than Won, primarily in the NT dollar, the Thai Baht, the Philippine Peso, the Indonesia Ruphia and the Malaysia Ringgit. As the revenues denominated in currencies other than the U.S. dollar, the Japanese Yen, and the Euro are converted into the U.S. dollar for remittance of monthly royalty payments to us, any depreciation of the local currencies against the U.S. dollar will result in reduced license fees and monthly royalty payments in U.S. dollar terms and may materially and adversely affect our financial condition and results of operations.
While we receive monthly royalty revenues from our overseas licensees in foreign currencies, substantially all of our costs are denominated in Won. Our financial statements are also prepared and presented in Won. We receive monthly royalty payments from our overseas licensees based on a percentage of revenues confirmed and recorded at the end of each month applying the foreign exchange rate applicable on such date. Appreciation of the Won against the NT Dollar, the Thai Baht, the U.S. dollar, the Japanese Yen, or other foreign currencies will result in foreign currency losses that may materially and adversely affect our results of operations and financial condition. Although we take steps to hedge our foreign currency exposures related to our costs denominated in Won, such measures may not adequately protect us from material adverse effects due to the impact of global inflation or from fluctuations in the relative values of foreign currencies in which we transact business, and may result in a financial loss. See ITEM 5.A. “OPERATING RESULTS—OVERVIEW—Foreign currency effects.”
As of December 31, 2023, we have not entered into any outstanding foreign currency forward exchange contract. We may enter into hedging transactions in the future to mitigate our exposure to foreign currency exchange risks, but we may not be able to do so in a timely or cost‑effective manner, or at all.
Increased tensions with North Korea could adversely affect us and the price of our ADSs.
Relations between Korea and North Korea have been tense throughout Korea’s modern history. The level of tension between the two Koreas has fluctuated and may increase abruptly as a result of current and future events. In particular, there have been heightened security concerns stemming from North Korea’s nuclear weapons and ballistic missile programs and its hostile military actions against Korea.
North Korea’s economy also faces severe challenges, which may further aggravate social and political pressures within North Korea. In recent years, three inter-Korean summits were held in April, May, and September of 2018, respectively, and summits between the United States and North Korea were also held in June 2018 and in February and June 2019 (held at the Korean Demilitarized Zone). The United States-North Korea meeting in February 2019 ended abruptly and without an agreement after the United States refused to lift sanctions until North Korea relinquished all of its nuclear weapons. In June 2019, the United States and North Korea had another one-day summit at the Korean Demilitarized Zone, following which both sides announced a resumption of denuclearization talks. However, despite attempted new outreach to North Korea by the United States under the presidency of Joe Biden in early 2021, North Korea has since resumed its missile testing, heightening tensions, and the outlook of such discussions remains uncertain. As such, there can be no assurance that the level of tension on the Korean peninsula will not escalate further in the future. Any such further increase in tensions, which may occur, for example, if North Korea experiences a leadership or economic crisis, high-level contacts between Korea and North Korea break down or further military hostilities occur, could have a material adverse effect on the Korean economy and on our business, prospects, financial condition, and results of operations and could lead to a decline in the market value of our ADSs.
If the Korean government deems that emergency circumstances are likely to occur, it may restrict holders of our ADSs and the depositary from converting and remitting dividends and other amounts in U.S. dollars.
Under the Korean Foreign Exchange Transaction Law, if the Korean government deems that certain emergency circumstances, including sudden fluctuations in interest rates or exchange rates, extreme difficulty in stabilizing the balance of payments or substantial disturbance in the Korean financial and capital markets, are likely to occur, it may impose any necessary restrictions such as requiring Korean or foreign investors to obtain prior approval from the Minister of Strategy and Finance for the acquisition of Korean securities or the repatriation of interest, dividends or sales proceeds arising from disposition of such securities or other transactions involving foreign exchange. See ITEM 10.D. “EXCHANGE CONTROLS.”
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RISKS RELATING TO OUR AMERICAN DEPOSITARY SHARES
If we fail to achieve and maintain an effective system of internal controls over financial reporting, we may be unable to accurately report our financial results or do so on a timely basis and our ability to prevent or detect fraud may be reduced and investor confidence and the market price of our ADSs may be adversely affected.
We are subject to Section 404 of the Sarbanes‑Oxley Act of 2002, which requires us to, among other things, maintain an effective system of internal controls over financial reporting, and requires our management to provide a certification on the effectiveness of our internal controls on an annual basis.
Although we have determined that our internal control over financial reporting was effective as of December 31, 2023, we may in the future determine that we have a material weakness in our internal controls over financial reporting. If we fail to maintain an effective system of internal controls over financial reporting, we may be unable to accurately report our financial results in a timely manner or prevent errors or fraud. Any of these possible outcomes could result in an adverse reaction in the financial marketplace due to loss of investor confidence in the reliability of our consolidated financial statements and could result in investigations or sanctions by the SEC, NASDAQ, or other regulatory authorities or in stockholder litigation. Any of these factors could ultimately harm our business and could adversely impact the market price of our ADSs. See ITEM 15. “CONTROLS AND PROCEDURES.”
The liquidity and price of our ADSs, and our ability to raise capital, may be negatively impacted if our ADSs are delisted from NASDAQ.
Our ADSs are currently listed for trading on the NASDAQ Global Market. There are a number of continuing requirements that must be met in order for our ADSs to remain listed on the NASDAQ Global Market, and the failure to meet these listing standards could result in the delisting of our ADSs by NASDAQ.
If our ADSs cease to be listed for trading on NASDAQ for any reason, the liquidity of our ADSs may be materially reduced and result in a corresponding material reduction in the price of our ADSs. Furthermore, any such delisting could harm our ability to raise capital on terms acceptable to us, or at all, and may result in the potential loss of confidence by investors, suppliers, business partners, licensees, customers, and employees. Such consequences may materially and adversely affect our business, financial condition, and results of operations.
The public shareholders of our ADSs may have more difficulty protecting their interests than they would as shareholders of a U.S. corporation.
Our corporate affairs are governed by our articles of incorporation and by the laws and regulations governing Korean corporations. The rights and responsibilities of our shareholders and members of our Board of Directors under Korean law may be different from those that apply to shareholders and directors of a U.S. corporation. For example, minority shareholder rights afforded under Korean law often require the minority shareholder to meet minimum shareholding requirements in order to exercise certain rights. Under applicable Korean law, of the total issued and outstanding shares, a shareholder must own at least (i) 1% to bring a shareholders’ derivative lawsuit (or to demand that a director cease certain activity or conduct if there are concerns that a director may cause irrevocable damage to the company by acting in violation of applicable laws and regulations or the articles of incorporation), (ii) 3% to demand convocation of an extraordinary meeting of shareholders, demand removal of directors or inspect the books and related documents of a company, or to propose the agenda for a general meeting of shareholders, (iii) 10% to apply to the court for dissolution if there is gross improper management or a deadlock in corporate affairs likely to result in a significant and irreparable harm to the company or to apply to the court for a reorganization in the case of an insolvency and (iv) 20% to block a small‑scale share exchange or a small merger that may be approved only by a board resolution. In addition, while the facts and circumstances of each case will differ, the duty of care required of a director under Korean law may not be the same as the fiduciary duty of a director of a U.S. corporation. Although the “business judgment rule” concept exists in Korea, there is insufficient case law or precedent to provide guidance to the management and shareholders as to how it should be applied
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or interpreted. Holders of our ADSs may have more difficulty protecting their interests against actions of our management, members of our Board of Directors or controlling shareholders than they would as shareholders of a U.S. corporation.
Any dividends paid on our common shares will be in Won and fluctuations in the exchange rate between the Won and the U.S. dollar may affect the amount received by you.
If and when we declare cash dividends, the dividends will be paid to the depositary for the ADSs in the Won and then converted by the depositary into the U.S. dollar pursuant to the deposit agreement that governs the rights and obligations of the holders of ADSs. Fluctuations in the exchange rate between the Won and the U.S. dollar will affect, among other things, the U.S. dollar amounts you will receive from the depositary as dividends. Holders of ADSs may not receive dividends if the depositary does not believe it is reasonable or practicable to do so. In addition, the depositary may collect certain fees and expenses, at the sole discretion of the depositary, by billing the holders of ADSs for such charges or by deducting such charges from one or more cash dividends or other cash distributions from us to be distributed to the holders of ADSs.
Your ability to deposit or withdraw common shares underlying the ADSs into and from the depositary facility may be limited, which may adversely affect the value of your investment.
Under the terms of our deposit agreement, holders of our common shares may deposit such shares with the depositary’s custodian in Korea and obtain ADSs, and holders of our ADSs may surrender the ADSs to the depositary and receive our common shares. However, to the extent that a deposit of common shares exceeds the difference between:
•the aggregate number of common shares we have consented to be deposited for the issuance of ADSs (including deposits in connection with offerings of ADSs and stock dividends or other distributions relating to ADSs); and
•the number of common shares on deposit with the custodian for the benefit of the depositary at the time of such proposed deposit, such common shares will not be accepted for deposit unless (i) our consent with respect to such deposit has been obtained or (ii) such consent is no longer required under Korean laws and regulations or under the terms of the deposit agreement.
Under the terms of the deposit agreement, no consent is required if the common shares are obtained through a dividend, free distribution, rights offering or reclassification of such shares. We might not consent to the deposit of any additional common shares. As a result, if a holder surrenders ADSs and withdraws common shares, the holder may not be able to subsequently deposit the common shares to obtain ADSs.
You may not be able to exercise preemptive rights or participate in rights offerings and as a result, you may experience dilution in your ownership percentage in us.
The Korean Commercial Code and our articles of incorporation require us, with some exceptions, to offer shareholders the right to subscribe for new common shares in proportion to their existing ownership percentages whenever new common shares are issued, except under certain circumstances as provided in our articles of incorporation. See ITEM 10.B. “MEMORANDUM AND ARTICLES OF INCORPORATION—Preemptive rights and issuance of additional shares.”
Such exceptions include an offering of new shares, pursuant to a resolution of the Board of Directors:
•through a general public offering, of no more than 50% of the total number of issued and outstanding shares;
•to the members of the employee stock ownership association;
•upon exercise of a stock option in accordance with our articles of incorporation;
•in the form of depositary receipts of no more than 50% of the total number of issued and outstanding shares;
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•to induce foreign direct investment necessary for business in accordance with the Foreign Investment Promotion Act of Korea, of no more than 50% of the total number of issued and outstanding shares;
•to the extent not exceeding 50% of the total number of issued and outstanding shares, to domestic or overseas financial institutions, corporations, or individuals for the purpose of raising funds on an emergency basis;
•to certain companies under joint venture arrangements; or
•in a public offering or the new shares are underwritten by underwriters for the purpose of listing such shares on any stock exchange, to the extent not exceeding 50% of the total number of issued and outstanding shares.
Accordingly, if we issue new shares to non‑shareholders based on such exceptions, existing holders of ADSs will be diluted. If none of the above exemptions is available under Korean law, we may be required to grant subscription rights when issuing additional common shares. However, under U.S. law, we would not be able to make those rights available in the United States unless we register the securities to which the rights relate or an exemption from the registration requirements of the Securities Act is available. Under the deposit agreement governing the ADSs, if we offer rights to subscribe for additional common shares, the depositary under the deposit agreement, after consultation with us, may make such rights available to you or dispose of such rights on behalf of you and make the net proceeds available to you or, if the depositary is unable to take such actions, it may allow the rights to lapse with no consideration to be received by you. The depositary is generally not required to make available any rights under any circumstances. We are under no obligation to file a registration statement under the Securities Act to enable you to exercise preemptive rights in respect of the common shares underlying the ADSs, and we cannot assure you that any registration statement would be filed or that an exemption from the registration requirement under the Securities Act would be available. Accordingly, you may not be entitled to exercise preemptive rights and may thereby suffer dilution of your interests in the Company.
You will not be treated as our shareholder and you will not have shareholder rights such as the voting rights applicable to a holder of common shares.
As an ADS holder, we are not obligated to and we will not treat you as one of our shareholders and therefore, you will not have the rights of a shareholder. Korean law and our articles of incorporation govern the rights applicable to our shareholders. The depositary will be treated as the shareholder of the common shares underlying your ADSs. As a holder of ADSs, you will have ADS holder rights, which is governed by the deposit agreement among us, the depositary and you, as an ADS holder. Upon receipt of the necessary voting materials, you may instruct the depositary to vote the number of shares your ADSs represent. The depositary will notify you of shareholders’ meetings and arrange to deliver our voting materials to you only when we deliver them to the depositary with sufficient time under the terms of the deposit agreement. If there is a delay or loss of the voting materials, we cannot ensure that you will receive voting materials or otherwise learn of an upcoming shareholders’ meeting to ensure that you may instruct the depositary to vote your shares. In addition, the depositary and its agents are not responsible for failing to carry out voting instructions or for the manner of carrying out voting instructions.
You would not be able to exercise dissent and appraisal rights unless you have withdrawn the underlying common shares from the depositary facility and become a holder of our common stock.
In some limited circumstances, including the transfer of the whole or any significant part of our business, our acquisition of all or a part of the business of any other company having a material effect on our business, or our merger or consolidation with another company, except a small‑scale merger (as prescribed under Korean law) that leaves us as the surviving company, dissenting shareholders have the right to require us to purchase their shares under Korean law. However, if you hold our ADSs, you will not be able to exercise such dissent and appraisal rights unless you have withdrawn the underlying common shares from the depositary facility and become our direct shareholder prior to the record date for the shareholders’ meeting at which the relevant transaction is to be approved.
We may amend the deposit agreement and the ADRs without your consent for any reason and, if you disagree, your option will be limited to selling the ADSs or withdrawing the underlying securities.
We may agree with the depositary to amend the deposit agreement and the ADRs without your consent for any reason. If an amendment adds or increases fees or charges, except for taxes and other governmental charges or expenses of
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the depositary, for registration fees, facsimile costs, delivery charges or similar items, or prejudices a substantial right of ADS holders, it will not become effective for outstanding ADRs until 30 days after the depositary notifies ADS holders of the amendment. At the time an amendment becomes effective, you are considered, by continuing to hold your ADSs, to agree to the amendment and to be bound by the ADRs and the deposit agreement as amended. If you do not agree with an amendment to the deposit agreement or the ADRs, your option is limited to selling the ADSs or withdrawing the underlying securities. No assurance can be given that the sale of ADSs would be made at a price satisfactory to you in such circumstances. In addition, the common shares underlying the ADSs are not listed on any stock exchange in Korea. Your ability to sell the underlying common shares following withdrawal and the liquidity of the common shares may be limited.
Dividend payments and the amount you realize upon a sale of our ADSs that you hold will be affected by fluctuations in the exchange rate between the U.S. dollar and the Korean Won.
Cash dividends, if any, in respect of the shares represented by our ADSs will be paid to the depositary in the Korean Won and then converted by the depositary into the U.S. dollar, subject to certain conditions. Accordingly, fluctuations in the exchange rate between the Korean Won and the U.S. dollar will affect, among other things, the amounts a holder will receive from the depositary in respect of dividends, the U.S. dollar value of the proceeds that a holder would receive upon sale in Korea of the shares of our common stock obtained upon surrender of ADSs and the secondary market price of ADSs. Such fluctuations will also affect the U.S. dollar value of dividends and sales proceeds received by holders of our common stock.
You may be subject to Korean withholding tax.
Under Korean tax law, if you are a U.S. investor, you may be subject to Korean withholding taxes on capital gains and dividends in respect of the ADSs unless an exemption or a reduction under the income tax treaty between the United States and Korea is available. Under the Korea‑United States tax treaty, capital gains realized by holders that are residents of the United States eligible for treaty benefits will not be subject to Korean taxation upon the disposition of the ADSs. However, under the Korea‑United States tax treaty, the following holders are not eligible for such tax treaty benefits: (i) in case the holder is a United States corporation, if by reason of any special measures, the tax imposed on such holder by the United States with respect to such capital gains is substantially less than the tax generally imposed by the United States on corporate profits, and 25% or more of the holder’s capital is held of record or is otherwise determined, after consultation between competent authorities of the United States and Korea, to be owned directly or indirectly by one or more persons who are not individual residents of the United States; and (ii) in case the holder is an individual, if such holder maintains a fixed base in Korea for a period or periods aggregating 183 days or more during the taxable year and the holder’s ADSs or common shares giving rise to capital gains are effectively connected with such fixed base or such holder is present in Korea for a period or periods of 183 days or more during the taxable year.
You may have difficulty bringing an original action or enforcing any judgment obtained outside Korea against us and our directors and officers who are not United States persons.
We are organized under the laws of Korea, and all of our directors and officers reside outside the United States. While we have a wholly‑owned subsidiary in the United States, most of our assets and the assets of such persons are located outside the United States. As a result, it may not be possible for you to effect service of process within the United States upon these persons or to enforce against them or us court judgments obtained in the United States that are predicated upon the civil liability provisions of the federal securities laws of the United States or of the securities laws of any state of the United States. There is doubt as to the enforceability in Korea, either in original actions or in actions for enforcement of judgments of United States courts, of civil liabilities predicated on the federal securities laws of the United States or the securities laws of any state of the United States.
The transfer, sale, or availability for sale of substantial amounts of our ADSs could adversely affect their market price.
We cannot predict the effect, if any, that market sales of shares of our common stock or other securities that may be converted into shares of our common stock or the availability of such shares or securities for sale will have on the market price of our common stock prevailing from time to time. Our largest shareholder, GungHo, beneficially owns 59.3% of our common shares. If GungHo decides to sell or transfer substantial amounts of our common shares into the form of ADSs in the public market or if there is a perception of its intent to sell, the market price of our ADSs could be materially and adversely affected and could materially impair our future ability to raise capital through offerings of our ADSs. Any future sales by GungHo or any future issuance by us of a significant number of shares of our common stock or other securities that may be converted into shares of our common stock in the public market, or the perception that any of
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these events may occur, could cause the market price of our common stock to decrease or to be lower than it might be in the absence of these events or perceptions.
We may need additional capital and may sell additional ADSs or other equity securities or incur indebtedness, which could result in additional dilution to our shareholders or increase our debt service obligations.
We may require additional cash resources due to changed business conditions or other future developments, including any investments or acquisitions we may decide to pursue. If our cash resources are insufficient to satisfy our cash requirements, we may seek to sell additional equity or debt securities or obtain a credit facility. The sale of additional equity securities or equity-linked debt securities could result in additional dilution to our shareholders. The incurrence of indebtedness would result in increased debt service obligations and could result in operating and financing covenants that would restrict our operations. We cannot assure you that financing will be available in amounts or on terms acceptable to us, or at all.
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ITEM 4. INFORMATION ON THE COMPANY
ITEM 4.A. HISTORY AND DEVELOPMENT OF THE COMPANY
We were incorporated as a company with limited liability under the Korean Commercial Code on April 4, 2000 under the legal name of Gravity Co., Ltd. On February 8, 2005, our ADSs, each representing one‑fourth of one share of our common stock, were listed on the NASDAQ Stock Market’s NASDAQ Global Market. Our ADSs each currently represent one share of our common stock, effective since August 27, 2018. Other than from November 26, 2014 through August 27, 2018 (during which period our ADSs were traded on the NASDAQ Capital Market), our ADSs have been traded on the NASDAQ Global Market under the symbol “GRVY.”
In January 2015, we entered into a development agreement with Dream Square to develop and distribute in China two mobile games based on the contents of Ragnarok Online. This agreement was amended on March 25, 2016, to grant Dream Square an exclusive right to develop mobile games and web games based on the contents of Ragnarok Online and distribute such games in China for five years from the date of the amendment. Gravity retained the distribution rights in certain territories other than China. Under the terms of this agreement, the Company has a right to collect royalties that exceed the minimum guaranteed advance payment. Following the agreement, Dream Square developed and we launched six mobile games – RO: Idle Poring, Ragnarok R, Ragnarok M: Eternal Love, Ragnarok H5, Ragnarok Origin, and Ragnarok X: Next Generation – based on the contents of Ragnarok Online in September 2017, February 2017, October 2017, September 2019, July 2020 and October 2020, respectively. We also launched these games in various markets including Taiwan, Korea, Japan, Europe, the United States and Canada, Southeast Asia, North, Central and South America, Oceania, and China.
In July 2017, we further entered into a PTSA with Dream Square, whereby the former would provide technical assistance and profits would be shared. This agreement was amended in September 2018, October 2018, October 2019 and October 2020, whereby certain technical assistance expenses and profit sharing proportions were further clarified. The PTSA, as amended, specified that Gravity retains the distribution rights of the games developed in conjunction with Dream Square (with or without any co-developer) in Korea, Taiwan, Hong Kong, and Macau, as well as globally (other than in China, where the distribution rights are licensed to Xindong). The final amendment of the PTSA expired on March 24, 2021. We are in discussions with other prospective service partners regarding arrangements for these games following their current service terms.
Each of Ragnarok Origin, Ragnarok X: Next Generation and Ragnarok Online received International Standard Book Number (the “ISBN”) codes from the Chinese government in August 2023, December 2023 and February 2024, respectively.
Recent developments relating to our organizational structure include the Company’s acquisition of shares of Gravity NeoCyon held by its minority shareholder, as a result of which Gravity NeoCyon became a wholly-owned subsidiary of the Company as of April 1, 2024.
Our registered office is located at 15F, 396 World Cup buk‑ro, Mapo‑gu, Seoul 03925, Korea. Our telephone number is (822) 2132‑7000. Our main Web site is at http://www.gravity.co.kr. The SEC maintains an Internet site that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC. That address is http://www.sec.gov.
ITEM 4.B. BUSINESS OVERVIEW
OVERVIEW
Gravity is an online and mobile games developer and publisher based in Korea. We generate revenue from online games, mobile games and other sources (including character based merchandise and animation). Our historical principal product, Ragnarok Online, is an online game available in 91 markets. Revenues from Ragnarok Online decreased in 2023, representing 10.7% of our total revenues for the year ended December 31, 2023, compared to 18.7% of our total revenues in 2022. This decrease was primarily due to decreased revenue from Ragnarok Online in Taiwan and the Philippines in 2023, as discussed below.
Our focus on mobile games has increased in recent years, and mobile games represented 86.8% of our total revenues for the year ended December 31, 2023. Our principal mobile games, Ragnarok Origin, Ragnarok X: Next
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Generation and Ragnarok M: Eternal Love accounted for 62.3%, 13.7% and 9.6%, respectively, of our total revenues for the year ended December 31, 2023. In 2022, Ragnarok Origin accounted for 35.5% of our total revenues. We intend to continue to diversify our product offering by developing online and mobile games in-house or through outsourcing as well as publishing additional games developed by third parties.
Our main geographic markets in terms of revenues for the year ended December 31, 2023, were Taiwan, Thailand, the Philippines, Korea, and Indonesia.
Online games
Online games are a genre of computer games in which a large number of players interact with one another within a virtual game world.
The following table summarizes the online games that we currently offer.

Title |  | Genre |  | Game Source |  | Date of Commercial Launch(1)
Ragnarok Online |  | Action adventure MMORPG(2) |  | Developed in‑house |  | August 2002
Dragonica (Dragon Saga)(3) |  | Action adventure MMORPG |  | Originally licensed from third-party developer; currently owned by us(4) |  | February 2009(5)
Ragnarok Online II |  | Action adventure MMORPG |  | Developed in‑house |  | March 2012
Requiem Online |  | Action adventure MMORPG |  | Developed in-house |  | August 2022(6)
R.O.S.E. Online(7) |  | Action adventure MMORPG |  | Developed by third party based on our intellectual property |  | December 2022
Ragnarok Landverse(8) |  | Action adventure MMORPG / P2E |  | Developed by third party based on our intellectual property |  | September 2023

__________________
Notes:
(1)The actual date of commercial launch of games in each jurisdiction is dependent on a variety of factors, including technical viability and durability, availability of in‑house development capability, market conditions, beta testing results, and availability of licensing partners, among others.
(2)MMORPG is an abbreviation for Massively Multiplayer Online Role-Playing Game.
(3)Dragonica is commercially offered in the United States, Canada, and South America except for Brazil under the name Dragon Saga.
(4)We acquired an aggregate of 50.83% equity interest in Gravity Games Corporation (“Gravity Games”), formerly known as Barunson Interactive, which developed Dragonica, on October 21, 2010, and subsequently increased our ownership in Gravity Games to 85.5% in August 2013. Due to the liquidation of Gravity Games, Gravity took over Dragonica IP.
(5)Dragonica was initially launched in China in February 2009 followed by certain other countries and markets under license agreements between Gravity Games and local publishers before our acquisition of Gravity Games.
(6)Requiem Online was relaunched globally on August 25, 2022.
(7)R.O.S.E. Online was relaunched on December 13, 2022.
(8)Ragnarok Landverse was initially launched in Southeast Asia (excluding Thailand and Indonesia), South America, Middle East, India, Africa, and Oceania in September 2023.
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Ragnarok Online
Ragnarok Online is an action adventure based MMORPG that combines cartoon-like characters, community oriented themes and combat features in a virtual world within which thousands of players can interact with another. By combining highly interactive and community oriented themes and features, such as marriages and organization of guilds, we believe we are able to create user loyalty from our users who favor games that provide social interaction in a virtual setting.
Ragnarok Online was first commercially launched in August 2002 and, as of March 31, 2024, was commercially offered in 91 markets. See ITEM 4.B. “BUSINESS OVERVIEW—OUR MARKETS—Online Games.” Ragnarok Online represented 10.7% of our total revenues or Won 77,660 million (US$ 60,156 thousand) in 2023, compared with 18.7% of our total revenues or Won 86,743 million in 2022. Gravity, either directly or through a subsidiary, operates Ragnarok Online in each geographic market other than Japan, Vietnam, Europe, Russia/CIS, and China, where a third-party licensee operates the game. In markets where we or our subsidiary operate Ragnarok Online, our revenues are generated through micro-transaction revenue, and in markets where a third-party licensee operates the game, our revenues are generated through royalties or licensing fees.
We believe that the PC configurations required to run Ragnarok Online are lower than or similar to many other competing online games, which we believe has facilitated our successful entry into and expansion of Ragnarok Online in many of the developed and developing countries in which Ragnarok Online is distributed. The recommended minimum PC configuration for Ragnarok Online is Intel Celeron 2.4 GHz or AMD Athlon 3000+, 512 MB RAM and 32 MB graphics card.
The table below provides, for the periods indicated, the peak concurrent users and average concurrent users of Ragnarok Online since the first quarter of 2021, in each of our principal markets for Ragnarok Online.

|  |  |  | 1Q 24 |  | 4Q 23 |  | 3Q 23 |  | 2Q 23 |  | 1Q 23 |  | 4Q 22 |  | 3Q 22 |  | 2Q 22 |  | 1Q 22 |  | 4Q 21 |  | 3Q 21 |  | 2Q 21 |  | 1Q 21
Japan |  | PCU(1) |  | 7,346 |  |  | 7,367 |  |  | 6,931 |  |  | 9,229 |  |  | 7,352 |  |  | 9,424 |  |  | 9,209 |  |  | 8,772 |  |  | 6,920 |  |  | 7,152 |  |  | 9,641 |  |  | 9,034 |  |  | 8,973 |
|  | ACU(2) |  | 3,618 |  |  | 3,255 |  |  | 3,041 |  |  | 2,917 |  |  | 3,371 |  |  | 3,651 |  |  | 2,769 |  |  | 3,015 |  |  | 3,010 |  |  | 2,792 |  |  | 4,226 |  |  | 3,760 |  |  | 4,284 |
Korea |  | PCU |  | 6,421 |  |  | 8,185 |  |  | 8,212 |  |  | 5,305 |  |  | 6,926 |  |  | 6,843 |  |  | 8,346 |  |  | 6,968 |  |  | 5,697 |  |  | 5,524 |  |  | 4,269 |  |  | 6,138 |  |  | 5,210 |
|  | ACU |  | 5,072 |  |  | 4,841 |  |  | 4,473 |  |  | 3,302 |  |  | 3,998 |  |  | 3,694 |  |  | 4,856 |  |  | 3,267 |  |  | 3,293 |  |  | 3,033 |  |  | 2,589 |  |  | 3,479 |  |  | 2,882 |
Thailand(3) |  | PCU |  | 8,937 |  |  | 9,229 |  |  | 11,285 |  |  | 11,158 |  |  | 13,010 |  |  | 12,642 |  |  | 11,963 |  |  | 14,722 |  |  | 13,261 |  |  | 13,931 |  |  | 23,326 |  |  | 34,214 |  |  | 24,076 |
|  | ACU |  | 5,588 |  |  | 4,291 |  |  | 4,024 |  |  | 5,113 |  |  | 5,787 |  |  | 4,879 |  |  | 5,400 |  |  | 5,619 |  |  | 5,627 |  |  | 5,841 |  |  | 10,288 |  |  | 15,340 |  |  | 11,841 |
USA/ Canada |  | PCU |  | 2,087 |  |  | 2,082 |  |  | 2,078 |  |  | 2,016 |  |  | 1,860 |  |  | 1,824 |  |  | 1,539 |  |  | 1,669 |  |  | 1,839 |  |  | 2,500 |  |  | 3,244 |  |  | 3,140 |  |  | 3,463 |
|  | ACU |  | 2,048 |  |  | 1,772 |  |  | 1,668 |  |  | 1,384 |  |  | 1,340 |  |  | 1,309 |  |  | 1,112 |  |  | 1,124 |  |  | 1,183 |  |  | 1,311 |  |  | 2,230 |  |  | 1,970 |  |  | 2,807 |
Taiwan/ Hong Kong/ Macau |  | PCU |  | 21,858 |  |  | 22,329 |  |  | 19,256 |  |  | 19,317 |  |  | 16,702 |  |  | 25,609 |  |  | 21,648 |  |  | 24,316 |  |  | 22,490 |  |  | 18,960 |  |  | 24,729 |  |  | 25,845 |  |  | 21,072 |
|  | ACU |  | 9,852 |  |  | 13,075 |  |  | 11,698 |  |  | 10,587 |  |  | 10,243 |  |  | 13,815 |  |  | 13,033 |  |  | 15,082 |  |  | 12,418 |  |  | 10,780 |  |  | 13,555 |  |  | 12,640 |  |  | 12,491 |

__________________
Notes:
(1)“PCU,” or peak concurrent users, represents the highest number of users of Ragnarok Online each quarter during the specified time period as recorded on the servers for the various countries.
(2)“ACU,” or average concurrent users, represents the average number of concurrent users of Ragnarok Online each quarter during the specified time period as recorded on the servers for the various countries.
(3)Ragnarok Online was relaunched in Thailand on May 28, 2020.
We believe that the number of users as measured by PCU or ACU (i) is a measure of our active user base and (ii) is correlated with revenues, as revenues from an online game depend on the number of users as well as time spent playing the game. PCU and ACU associated with, and revenues generated from, Ragnarok Online have decreased largely because user preferences are shifting to mobile games, where we have an increased focus. PCU and ACU are non‑financial variables and the data presented has not been audited or reviewed. Other companies may determine PCU or ACU differently than we do.
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The following table provides a breakdown of the revenues generated by Ragnarok Online in certain key markets for the periods indicated:

Revenue Type |  | Country |  | 2023 |  | 2023(1) |  | 2022 |  | 2021
|  |  |  | (In millions of Won and thousands of US$)
Online games—micro-transaction revenue |  | Thailand(2) |  | ₩ | 29,168 |  |  | US$ | 22,594 |  |  | ₩ | 29,657 |  |  | ₩ | 26,866 |
|  | Taiwan/Hong Kong/Macau |  | 25,799 |  |  | 19,984 |  |  | 35,319 |  |  | 25,930 |
|  | Korea |  | 6,822 |  |  | 5,284 |  |  | 5,810 |  |  | 4,429 |
|  | The United States/Canada(3) |  | 3,528 |  |  | 2,733 |  |  | 2,035 |  |  | 2,089 |
|  | Brazil |  | 2,204 |  |  | 1,707 |  |  | 1,681 |  |  | 1,854 |
|  | Philippines(4) |  | 828 |  |  | 641 |  |  | 2,512 |  |  | — |
|  | Other |  | 663 |  |  | 513 |  |  | 1,015 |  |  | 517 |
|  | Subtotal |  | 69,012 |  |  | 53,456 |  |  | 78,029 |  |  | 61,685 |
Online games—royalties and license fees |  | Japan |  | 7,833 |  |  | 6,068 |  |  | 7,611 |  |  | 9,009
|  | The Philippines |  | — |  |  | — |  |  | — |  |  | 324 |
|  | Europe |  | 219 |  |  | 170 |  |  | 212 |  |  | 266
|  | Other |  | 596 |  |  | 462 |  |  | 891 |  |  | 893
|  | Subtotal |  | 8,648 |  |  | 6,700 |  |  | 8,714 |  |  | 10,492 |
|  | Total |  | ₩ | 77,660 |  |  | US$ | 60,156 |  |  | ₩ | 86,743 |  |  | ₩ | 72,177 |

__________________
Notes:
(1)For convenience only, the Won amounts are expressed in the U.S. dollar at the rate of Won 1,290.97 to US$ 1.00, the noon buying rate in effect on December 29, 2023, as certified by the Federal Reserve Bank of New York for customs purposes.
(2)Ragnarok Online game service in Thailand by our former licensee Electronics Extreme Ltd ceased on May 27, 2020. The revenues generated from Thailand on or before May 27, 2020, are shown as “Online games—royalties and license fees—Thailand” and those revenues generated by Gravity Game Tech Co., Ltd (“Gravity Game Tech”) since May 28, 2020 are shown as “Online games—micro transaction revenue—Thailand.”
(3)Includes subscription and other types of game revenues managed by Gravity Interactive, Inc. and generated in countries other than the United States and Canada. Such revenues from other countries constitute an immaterial portion of the revenues recorded as micro-transaction revenues from the United States and Canada.
(4)Ragnarok Online game service in the Philippines by our former licensee Electronics Extreme Ltd. ceased on December 28, 2021. The revenues generated from the Philippines on or before December 28, 2021, are shown as “Online games—royalties and license fees—The Philippines” and those revenues generated by Gravity Game Hub PTE., Ltd. (“Gravity Game Hub”) since December 28, 2021 are shown as “Online games—micro transaction revenue—The Philippines.”
We obtained an exclusive license from Mr. Myoung‑Jin Lee to use the storyline and characters from his cartoon titled “Ragnarok” for the development of games including for animation and character merchandising. We paid Mr. Lee an initial license fee of Won 40 million and are required to pay royalties based on a percentage of adjusted revenues (net of value‑added taxes and certain other expenses) or net income generated from the use of the Ragnarok brand through January 2033.
On December 27, 2017, we launched Ragnarok Zero, a new version of Ragnarok Online, in Korea. New game features were introduced for Ragnarok Zero, such as updated quests, improved user interface, premium character service and new item upgrade systems. Ragnarok Online Classic, a new server of Ragnarok Online, was launched in Thailand on October 28, 2021. The game is based on the original Ragnarok Online, which was first released in 2003, and features new user interface, premium character service and upgraded content.
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On December 15, 2021, we launched Ragnarok Retro, a new server of Ragnarok Online, in Indonesia. Ragnarok Retro features classic and upgraded characters, stories and game items from the original Ragnarok Online launched in 2003.
Mobile games
As compared to online games, mobile games, which are played on mobile phones, including smartphones such as Google Android compatible phones and the Apple iPhone as well as feature phones and other mobile devices, such as tablet computers, have shorter game playtimes and less complex user‑game interactions. We believe that mobile games, due to such characteristics, provide less‑experienced users with a means to become familiar with both game playing and the game culture without making a substantial commitment in time and resources. As a result, we believe that mobile games allow us to target a broader audience of users.
We develop mobile games either in-house or through outsourcing to third-party developers, and we also publish mobile games licensed from third parties. In contrast to online games, the life cycle of a mobile game is relatively short and generally lasts from six to 24 months while reaching its peak popularity within the first three months of its introduction, though it varies by genre. As a result, we generate a significant portion of our mobile games revenue from the games that have been released within the recent 12 months.
The following table sets forth each of the mobile games that we have released since January 2023.

Title |  | Genre |  | Service Area |  | Date of Commercial Launch
Ragnarok X: Next Generation |  | MMORPG |  | Korea |  | January 2023
Ragnrok Origin |  | MMORPG |  | Southeast Asia Central and South America, etc. China |  | April 2023 February 2024 March 2024
Ragnarok Lost Memories |  | Cinematic Newtro Story RPG |  | Taiwan, Hong Kong, Macau |  | May 2023
WITH: Whale In The High |  | Healing Idle |  | Global |  | June 2023
White Chord |  | Character Collecting RPG |  | Japan |  | August 2023
Ragnarok 20 Heroes |  | Action RPG |  | Korea |  | October 2023
Ragnarok Begins |  | Action Side-scrolling MMORPG |  | Korea |  | December 2023
Ragnarok Idle Adventure |  | Idle RPG |  | Thailand |  | January 2024
Generation Zombie |  | Turn-based Card Game of Survival |  | Global |  | March 2024

__________________
Notes:
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The following are revenues generated from our mobile games business for the periods indicated:

Revenue Type |  | Country |  | 2023 |  | 2023(1) |  | 2022 |  | 2021
|  |  |  | (In millions of Won and thousands of US$)
Mobile games— micro transaction revenue |  | Taiwan |  | ₩ | 142,438 |  |  | US$ | 110,334 |  |  | ₩ | 125,516 |  |  | ₩ | 23,906 |
|  | Thailand |  | 103,008 |  |  | 79,791 |  |  | 29,235 |  |  | 14,235 |
|  | The Philippines |  | 89,818 |  |  | 69,574 |  |  | 11,612 |  |  | 13,337 |
|  | Korea |  | 65,626 |  |  | 50,835 |  |  | 24,341 |  |  | 49,798 |
|  | Indonesia |  | 56,736 |  |  | 43,948 |  |  | 2,578 |  |  | 3,629 |
|  | Malaysia |  | 45,759 |  |  | 35,445 |  |  | 5,413 |  |  | 19,359 |
|  | Hong Kong |  | 17,071 |  |  | 13,223 |  |  | 15,987 |  |  | 155 |
|  | The United States |  | 16,337 |  |  | 12,655 |  |  | 30,069 |  |  | 17,241 |
|  | Other(2) |  | 31,872 |  |  | 24,689 |  |  | 16,871 |  |  | 22,986 |
|  | Subtotal |  | 568,665 |  |  | 440,494 |  |  | 261,622 |  |  | 164,646 |
Mobile games— royalties and license fees |  | Malaysia |  | 12,650 |  |  | 9,799 |  |  | 18,734 |  |  | 10,882 |
|  | The Philippines |  | 11,949 |  |  | 9,256 |  |  | 11,879 |  |  | 6,693 |
|  | Japan |  | 10,148 |  |  | 7,861 |  |  | 17,225 |  |  | 26,559 |
|  | Taiwan |  | 7,724 |  |  | 5,983 |  |  | 14,573 |  |  | 26,928 |
|  | Hong Kong |  | 5,584 |  |  | 4,325 |  |  | 8,410 |  |  | 7,493 |
|  | Thailand |  | 4,646 |  |  | 3,599 |  |  | 16,565 |  |  | 53,357 |
|  | Indonesia |  | 1,051 |  |  | 814 |  |  | 1,515 |  |  | 5,198 |
|  | Other(3) |  | 7,187 |  |  | 5,567 |  |  | 8,249 |  |  | 18,408 |
|  | Subtotal |  | 60,939 |  |  | 47,204 |  |  | 97,150 |  |  | 155,518 |
|  | Total |  | ₩ | 629,604 |  |  | US$ | 487,698 |  |  | ₩ | 358,772 |  |  | ₩ | 320,164 |

__________________
Notes:
(1)For convenience only, the Won amounts are expressed in the U.S. dollar at the rate of Won 1,290.97 to US$ 1.00, the noon buying rate in effect on December 29, 2023, as certified by the Federal Reserve Bank of New York for customs purposes.
(2)Other primarily comprises Singapore, Brunei, Europe, Brazil, and Central and South America.
(3)Other primarily comprises China, the United States, and Singapore.
Ragnarok M: Eternal Love
Ragnarok M: Eternal Love is a MMORPG, which we offer in 122 markets across Taiwan, Hong Kong and Macau, Korea, Southeast Asia, North and South America, Oceania, Japan, Europe, and Russia. The game was developed by Gravity and Dream Square, together with co-developer Xindong. We commenced our service for Ragnarok M: Eternal Love in Taiwan in October 2017, Korea in March 2018, Southeast Asia in October 2018, North and South America, and Oceania in January 2019, Japan in June 2019 and Europe and Russia in October 2019.
For the year ended December 31, 2023, Ragnarok M: Eternal Love represented 9.6% of our total revenues or Won 69,773 million (US$ 54,047 thousand), compared with 20.1% of our total revenues or Won 93,203 million in 2022.
Ragnarok X: Next Generation
Ragnarok X: Next Generation is a MMORPG we offer in Taiwan, Hong Kong, Macau, Southeast Asia, and Korea.
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The game was developed by Gravity and Dream Square and we licensed Nuverse to commence the service in Taiwan, Hong Kong and Macau in October 2020, Southeast Asia (except Vietnam) in June 2021 and Vietnam in September 2021. We also directly provide the game in Korea since January 2023. See Item 3.D. “RISK FACTORS—RISKS RELATING TO OUR MARKET ENVIRONMENT—Our businesses and partnerships may be affected by geopolitical tensions between China and the United States.”
For the year ended December 31, 2023, Ragnarok X: Next Generation 13.7% of our total revenues or Won 99,321 million (US$ 76,935 thousand), compared with 16.7% of our total revenues or Won 77,278 million in 2022.
Ragnarok Origin
Ragnarok Origin is a MMORPG, which we offer in Korea, Japan, the United States, Canada, Taiwan, Hong Kong, Macau, Southeast Asia, Central and South America and China. The game was developed by Gravity and Dream Square, together with co-developer Shanghai Rexue Network Technology Co., Ltd. We commenced our service for Ragnarok Origin in Korea in July 2020, Japan in June 2021, the United States and Canada in November 2021, Taiwan, Hong Kong and Macau in September 2022, in Southeast Asia in April 2023 and Central and South America in February 2024 and China in March 2024.
For the year ended December 31, 2023, Ragnarok Origin represented 62.3% of our total revenues or Won 451,887 million (US$ 350,037 thousand), compared with 35.5% of our total revenues or Won 164,787 million in 2022.
Other games and game‑related products and services
Other games
In addition to developing and publishing online games and mobile games, which is our primary business, we also provide games for gaming consoles (including handheld gaming consoles), such as the Steam, Nintendo, Xbox, and the PlayStation series. Console games are distributed in the form of a disc or cartridge (game card), or downloaded directly to a console through the Internet.
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The following table sets forth the console games we have released.

Title |  | Genre |  | Platform |  | Release Date
Ragnarok DS |  | Role playing |  | Nintendo DS |  | December 2008
Ragnarok: The Princess of Light and Darkness |  | Tactical role playing |  | PlayStation Portable |  | October 2011
Ragnarok Odyssey |  | Role playing |  | PlayStation Vita |  | February 2012
Double Dragon II |  | Action |  | Xbox 360 |  | April 2013
Ragnarok Odyssey Ace |  | Role playing |  | PlayStation Vita |  | August 2013
Ragnarok Odyssey Ace |  | Role playing |  | PlayStation 3 |  | April 2014
GRANDIA HD Collection |  | Role playing, Adventure |  | Nintendo Switch |  | October 2021
Pigromance |  | Puzzle Platformer |  | Steam, Stove, Nintendo Switch, Xbox One, Xbox Series X|S |  | December 2022
ALTF4 II |  | Adventure |  | Steam, Stove |  | March 2023
Wetory |  | Roguelike |  | Steam, Stove, Nintedo Switch |  | October 2023

We also provide games for IPTV. In September 2008, we entered into a licensing agreement with ICONIX, Co, LTD., or “ICONIX,” to develop and publish Pororo Game, an IPTV game based on ICONIX’s 3D TV animation series “Pororo: The Little Penguin.” We commercially launched Pororo Game in September 2009. Our licensing agreement with ICONIX has been renewed annually since its inception including, most recently, in March 2024. In January 2018, we entered into a licensing agreement with CJ ENM Corporation or “CJ ENM” to develop and publish an IPTV Game based on CJ ENM’s animation series, “The Haunted House.” We commercially launched the game in May 2019.
In April 2022, we entered into a licensing agreement with YoungToys for “Kongsuni” and “Tobot V.” “Kongsuni” game was launched in July 2023, while “Tobot V” game is still under development.
The amount of revenues from console and IPTV games represented less than 1% of our total revenues in each of 2023 and 2022.
Game character merchandising
In order to optimize the commercial opportunities presented by our games and their characters, we and our licensees have been marketing dolls, stationery, food and other character based merchandise, as well as game manuals, monthly magazines and other publications, based on our games. We currently have arrangements with CM Holdings Company to license Ragnarok Online game characters in Korea; with GungHo in Japan; with EMC Empire Multimedia Corporation in the Philippines and China; with Dream Express Co., Ltd. in Thailand; with Max Licensing & Consulting Co., Ltd. in Taiwan, Hong Kong, and Macau; with Aswas Co.,Ltd. in Korea, Malaysia, and the United States; with Sessom Asia Pte., Ltd. in Singapore, Indonesia, and Malaysia; and with Hellomisterlee Co., Ltd. in Korea, and the United States.
The amount of revenues from game character merchandising represented less than 1% of our total revenues in 2023 and in 2022.
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Other services
In addition to its core mobile game business, Gravity NeoCyon, Inc. (“Gravity NeoCyon”) provides system development and maintenance services as well as system integration services to third parties. The amount of revenues from such other services represented 1.7% of our total revenues or Won 12,368 million (US$ 9,580 thousand) for the year ended December 31, 2023, compared with 3.1% of our total revenues or Won 14,329 million in 2022.
OUR MARKETS
Our biggest geographic markets in terms of revenue for the year ended December 31, 2023, were Taiwan, Thailand, the Philippines and Korea. The following table sets forth a summary of our consolidated statement of operations showing revenues by geographic area for the periods indicated and the percentage represented by such revenues for the year ended December 31, 2023.

|  | Year Ended December 31,
Country |  | 2023 |  | 2023(1) |  | 2022 |  | 2021
|  | (In millions of Won and thousands of US$, except percentages)
Taiwan |  | ₩ | 176,071 |  |  | 24.3 | % |  | US$ | 136,387 |  |  | ₩ | 175,664 |  |  | ₩ | 77,462 |
Thailand |  | 136,874 |  |  | 18.9 | % |  | 106,024 |  |  | 75,498 |  |  | 94,475
The Philippines |  | 102,595 |  |  | 14.1 | % |  | 79,471 |  |  | 26,003 |  |  | 20,173
Korea |  | 86,058 |  |  | 11.9 | % |  | 66,662 |  |  | 46,719 |  |  | 73,751
Indonesia |  | 58,763 |  |  | 8.1 | % |  | 45,518 |  |  | 5,472 |  |  | 10,723
Malaysia |  | 58,553 |  |  | 8.1 | % |  | 45,356 |  |  | 24,830 |  |  | 30,422
The United States (2) |  | 22,702 |  |  | 3.1 | % |  | 17,585 |  |  | 33,697 |  |  | 20,894
Hong Kong |  | 22,656 |  |  | 3.1 | % |  | 17,550 |  |  | 24,397 |  |  | 7,648
Japan |  | 18,999 |  |  | 2.6 | % |  | 14,717 |  |  | 26,133 |  |  | 40,259
Others |  | 42,245 |  |  | 5.8 | % |  | 32,723 |  |  | 25,205 |  |  | 38,131
Total |  | ₩ | 725,516 |  |  | 100.0 | % |  | US$ | 561,993 |  |  | ₩ | 463,618 |  |  | ₩ | 413,938 |

__________________
Notes:
(1)For convenience only, the Won amounts are expressed in the U.S. dollar at the rate of Won 1,290.97 to US$ 1.00, the noon buying rate in effect on December 29, 2023 as certified by the Federal Reserve Bank of New York for customs purposes.
(2)Revenues in the United States, as shown on this table, also include micro-transaction and other types of game revenues generated in other countries managed by Gravity Interactive. Such revenues from other countries constitute an immaterial portion of the revenues recorded as micro-transaction revenues from the United States.
Online games
We manage and distribute (directly or through our subsidiaries) online game operations in Korea, Thailand, Taiwan, Hong Kong and Macau, the United States, Canada, Brazil, Indonesia, the Middle East, the Philippines, Singapore, and Malaysia, and we work with licensees to manage and distribute our games in other markets. Our licensees pay us an initial license fee and/or ongoing royalty payments based on a percentage of revenues generated from subscription fees and/or micro transactions of the game they service in the respective overseas markets. The license agreements may be terminated in the event of bankruptcy or a material breach by either party, including, in our case, in the event the licensee fails to pay royalty fees in a timely manner.
Ragnarok Online is commercially offered in the 91 markets, including Japan, Taiwan, Hong Kong and Macau, the United States, Canada, Thailand, the Philippines, Singapore, Malaysia, and others. We or our subsidiaries manage the distribution of Ragnarok Online in each market other than in Japan, China, Russia/CIS, and 37 European countries and markets. In each of these markets, local licensees publish Ragnarok Online. The following table lists the overseas countries
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and markets in which Ragnarok Online is commercially offered through our licensees, the names of the licensees, the dates of the license agreements, and the commercial launch dates, and expiry dates of the license agreements.

Country |  | Licensee |  | Date of License Agreement |  | Date of Commercial Launch |  | Date of Expiry
Japan |  | GungHo Online Entertainment, Inc. |  | July 2002 |  | December 2002 |  | September 2025
Europe(1) |  | Innova Intellectual Properties SARL |  | August 2019 |  | April 2004 |  | September 2025
China(2) |  | Shanghai BING KUAI Network Technology Co., Ltd. |  | January 2022 |  | February 2013 |  | December 2024
Russia and CIS(3) |  | Innova Solutions FZ-LLC |  | February 2018 |  | March 2007 |  | August 2024
Vietnam(4) |  | VTC Technology and Digital Content Company |  | June 2019 |  | July 2021 |  | December 2025

__________________
Notes:
(1)Represents game operations in France, Belgium, the United Kingdom, Finland, Sweden, Norway, Ireland, Scotland, Denmark, Spain, Austria, Bulgaria, Cyprus, Czech Republic, Germany, Greece, Hungary, Italy, Luxembourg, Malta, Netherlands, Poland, Portugal, Romania, Slovakia, Slovenia, Switzerland, Andorra, Estonia, Iceland, Kosovo, Latvia, Liechtenstein, Lithuania, Monaco, San Marino, and Vatican. Ragnarok Online was initially launched in Germany, Austria, Switzerland, Italy, and Turkey with a different licensee in April 2004.
(2)Ragnarok Online was initially launched in China with a different licensee in February 2013. A license agreement entered into on October 1, 2016, with our previous licensee in China, Shanghai TA REN Network Technology Co., Ltd. (“Shanghai TA REN”) expired on December 31, 2021. On January 1, 2022, we entered into a new licensing agreement with Shanghai BING KUAI Network Technology Co., Ltd. (“BING KUAI”), a subsidiary of Shanghai TA REN, under which BING KUAI will continue to provide the service of Ragnarok Online. The term of this new licensing agreement was extended on January 1, 2023 and again on January 1, 2024 pursuant to the automatic one year extension thereunder.
(3)Ragnarok Online was initially launched in Russia and CIS with a different licensee in March 2007.
(4)Ragnarok Online was initially launched in Vietnam with VTC Technology and Digital Content Company as co-publishers.
Mobile games
With respect to mobile games, as of April 26, 2024, we directly manage the distribution of each of Ragnarok M: Eternal Love (other than in Japan and China, where we work with a third-party licensee), Ragnarok Origin in Korea, the United States, Canada, Taiwan, Hong Kong, Macau, Southeast Asia and Central and South America, and Ragnarok X: Next Generation in Korea.
PRICING STRUCTURE AND PAYMENT SYSTEM
Online games
Our online games, including Ragnarok Online, are priced using a combination of payment models. Historically, we used only a subscription-based fee model, whereby users paid an ongoing subscription fee to access our online games. In December 2006, we introduced micro-transactions (also known as sale of virtual in-game items), whereby players are able to purchase a wide array of items to customize, personalize and enhance their characters and game playing experiences. Micro-transaction purchases are available in all markets where Ragnarok Online is available. Since January 2007, we have allowed free-to-play servers applying the micro-transaction model in all markets where Ragnarok Online is
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available (other than in Japan, which operate under a subscription fee plus micro-transaction model), whereby players may play Ragnarok Online free of any subscription fees and are encouraged to purchase in-game items.
Since September 2007, we have been offering premium services as an additional revenue model. Players may pay additional fees during a specified period of time in order to receive certain additional features, such as the faster accumulation of experience points or higher rates of item drops. Premium services are offered in all the countries and markets where Ragnarok Online is serviced.
Pricing structures are determined primarily based on the cost of publishing and operating the game, the playing and payment patterns of the users, the pricing of competing games in a given market and the purchasing power parity of consumers in that market. Since the launch of Ragnarok Online in August 2002, we have tracked and accumulated user data generated from our user base, which provide us with an extensive database to analyze user patterns and establish pricing for other markets. The pricing for Ragnarok Online has remained generally stable in each of our markets since the respective dates of Ragnarok Online’s commercial launch in those markets.
In markets where we work with third-party licensees, such licensees develop, after consultation with us, a retail pricing structure for the users of the game they service in their respective markets. The pricing structure for Ragnarok Online in Thailand, Korea, Japan, the United States and Canada, Taiwan, Hong Kong and Macau, Singapore, Malaysia, and the Philippines are set forth below.
Thailand
Gravity Game Tech, our wholly-owned subsidiary in Thailand, determines the pricing plan for Ragnarok Online in Thailand. Users can pay through debit card, electronic wallet, and internet banking, which they are able to convert to RO Cash Points, the currency used in Ragnarok Online. RO Cash Points are eligible for use in the purchase of game items. We pay a commission for payment processing ranging from 2% to 14% per transaction to third parties, who bear the delinquency risk associated with payments from users.
Micro‑transaction model
We have been directly providing Ragnarok Online in Thailand since May 28, 2020. We have applied a micro-transaction model for users in Thailand, which allows users to buy game items in the price range between THB 1 and THB 5,000. The following table sets forth our basic pricing for points of Ragnarok Online in Thailand as of December 31, 2023.

Points |  | Retail Price
10 point |  | ฿ | 1.00 |

Korea
Individual PC account users in Korea can choose from a number of alternative payment options, including charges made through mobile or fixed telephone service provider payment systems, prepaid cards, gift certificates, online credit card payments, and bank transfers, to buy G Cash, which can be used for any games we offer and convert G Cash to RO Points, the currency of the money used in Ragnarok Online, which enable them to buy game items. Internet café subscribers make payments through credit card or bank transfers. We pay a commission for payment processing ranging from 1.4% to 2.8% or Won 200 per transaction to third parties who bear the delinquency risk associated with payments from users.
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Subscription‑based fee model
The subscription‑based fee model is currently applied only to Internet cafés, not to individual PC users in Korea, and the subscription‑based revenue is not material. The following table sets forth our published pricing plans for Internet cafés in Korea for Ragnarok Online access as of December 31, 2023.

Hours(1) |  | Flat Fee per PC
300 hours |  | ₩ | 69,300 |
600 hours |  | 138,600 |
1,000 hours |  | 231,000 |
2,000 hours |  | 462,000 |

__________________
Note:
(1)Actual hours may vary depending on additional bonus hours we offer in proportion to hours purchased by the subscriber.
Micro‑transaction model
We have applied a micro‑transaction model in Korea since April 2007. The price range of each of the game items is between Won 400 and Won 29,800. There are certain game items, which users can buy only at Internet cafés.
Japan
GungHo, our licensee in Japan, determines the pricing plan for Ragnarok Online in Japan. A majority of users in Japan typically pay to gain access to or purchase game items of Ragnarok Online with prepaid cards, such as WebMoney, among others, which can be purchased at convenience stores or retail game outlets, or online. In addition, credit cards are also a popular payment method. Mobile payment, which can be used for the payment of subscription-based fees and for payments of micro transactions, is popular in Japan as well.
Subscription‑based fee model
Our licensee in Japan offers only one rate for Ragnarok Online and charges JPY 1,500 per 30 days of unlimited use.
Micro‑transaction model
We have applied a micro‑transaction model in Japan since December 2006. Game users buy GungHo Shop Points, which enable them to buy game items or directly buy game items from the mobile item shop. The price range of the game items is between JPY 50 and JPY 2,000. The following table sets forth our licensee’s published basic pricing for GungHo Shop Points in Japan as of December 31, 2023.

Points |  | Retail Price(1)
10,000 points |  | ¥ | 1,000 |
21,000 points |  | 2,000 |
32,500 points |  | 3,000 |
55,000 points |  | 5,000 |
112,000 points |  | 10,000 |

___________________
Note:
(1)For convenience only, on December 29, 2023, the noon buying rate of the Japanese Yen to the U.S. dollar as certified by the Federal Reserve Bank of New York for customs purposes was JPY 140.92 to US$ 1.00.
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The United States and Canada
Gravity Interactive, our wholly‑owned subsidiary in the United States, determines the pricing plan for Ragnarok Online in the United States and Canada. Users pay through credit cards, wire and/or bank transfers, or mobile payment, or online payment systems such as PayPal. Gravity Interactive ceased to apply the subscription‑based fee model in April 2011.
Micro‑transaction model
We have applied a micro‑transaction model in the United States and Canada since June 2007. Game users buy points, which enable them to buy game items in the price range between US$ 0.05 and US$ 30. The following table sets forth Gravity Interactive’s published basic pricing for points of Ragnarok Online in the United States and Canada as of December 31, 2023.
VIP Items are only sold through the cash shop for 250 points/$2.50.

Points |  | Retail Price
1,100 points |  | US$ | 10.00 |
1,650 points |  | 15.00 |
2,875 points |  | 25.00 |
4,600 points |  | 40.00 |
6,000 points |  | 50.00 |
9,000 points |  | 75.00 |
12,000 points |  | 100.00 |

Taiwan, Hong Kong and Macau
Gravity Communications Co., Ltd. (“Gravity Communications”), our wholly-owned subsidiary in Taiwan, determines the pricing plan for Ragnarok Online in Taiwan, Hong Kong, and Macau. Users can pay through credit cards, wire and/or bank transfers, or mobile payment or online payment systems such as MyCard, which they are able to convert to RO Points, the currency used in Ragnarok Online. RO Points are eligible for use in the purchase of in-game items. We pay a commission for payment processing ranging from 5% to 21% per transaction to third parties.
Micro‑transaction model
We have been directly providing Ragnarok Online in Taiwan, Hong Kong, and Macau since June 15, 2016. We have applied a micro-transaction model for users in Taiwan, Hong Kong, and Macau, which enables them to buy game items in the price range between NT$ 1 and NT$ 449. For purchases in currencies other than the NT dollar, the price will be converted to local currency at the applicable exchange rate when users make the payment. The following table sets forth our basic pricing for points of Ragnarok Online in Taiwan, Hong Kong, and Macau as of December 31, 2023.

Points |  | Retail Price
1 point |  | NT$ | 1.00 |

Singapore, Malaysia, and the Philippines
Gravity Game Hub PTE. Ltd., our wholly-owned subsidiary in Singapore, determines the pricing plan for Ragnarok Online in Singapore, Malaysia, and the Philippines. Users can pay through direct carrier billing, digital payments, electronic wallet and internet banking, which they are able to convert to Kafra Points, the currency used in Ragnarok Online. Kafra Points are eligible for use in the purchase of in-game items. We pay a commission for payment
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processing per transaction to third-party payment processors, who bear the delinquency risk associated with payments from users.
Micro‑transaction model
We have been directly providing Ragnarok Online in Singapore, Malaysia, and the Philippines since February 23, 2022. We have applied a micro-transaction model for users in Singapore, Malaysia, and the Philippines, which allows users to purchase in-game items in the price range between SGD 0.2 and SGD 25. The following table sets forth our basic pricing for Kafra Points in Ragnarok Online in Singapore, Malaysia, and the Philippines.

Points |  | Retail Price
1,000 point |  | S$ | 10.00 |

Mobile games
For our mobile games, we have applied a micro-transaction model by providing virtual item shops in the games where players can purchase a wide array of items to customize, personalize and enhance their characters and game playing experiences. In addition, a Gatcha system (or a random box model to buy virtual in-game items) has been introduced in all the regions and markets where all Ragnarok IP-based games are serviced.
Taiwan, Hong Kong and Macau
For Ragnarok M: Eternal Love in Taiwan, Hong Kong, and Macau, we have applied a micro-transaction model, including a Gatcha system, for users in these markets, which enables them to buy game items in the price range between NT$ 30 and NT$ 10,000 as of December 31, 2023.
For Ragnarok X: Next Generation in Taiwan, Hong Kong, and Macau, we have applied a micro-transaction model, including a Gatcha system, for users in these markets, which enables them to buy game items in the price range between NT$ 30 and NT$ 11,000 as of December 31, 2023.
For Ragnarok Origin in Taiwan, Hong Kong, and Macau, we have applied a micro‑transaction model, including a Gatcha system, for users in these markets, which enables them to buy game items in the price range between NT$ 30 and NT$ 3,290 as of December 31, 2023.
For purchases in currencies other than the NT dollar, the price will be converted to local currency at the applicable exchange rate when users make the payment. Users pay through credit cards, wire and/or bank transfers, or mobile payment or online payment systems such as MyCard.
Korea
For Ragnarok M: Eternal Love in Korea, we have applied a micro‑transaction model, including a Gatcha system, in Korea since March 2018. Game users buy virtual game items in the price range between Won 1,200 and Won 119,000 as of December 31, 2023. Users pay through credit cards, wire and/or bank transfers, or mobile payment or online payment systems.
For Ragnarok Origin in Korea, we have applied a micro‑transaction model, including a Gatcha system, in Korea since July 2020. Game users buy virtual game items in the price range between Won 1,200 and Won 119,000 as of December 31, 2023. Users pay through credit cards, wire and/or bank transfers, or mobile payment or online payment systems.
For Ragnarok X: Next Generation in Korea, we have applied a micro-transaction model, including a Gatcha system, in Korea since January 2023, which enables them to buy game items in the price range between Won 1,500 and Won 149,000 as of April 26, 2024. Users pay through credit cards, wire and/or bank transfers, or mobile payment or online payment systems.
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Southeast Asia, North and South America, Oceania and Europe
We have applied a micro-transaction model including a Gatcha system for Ragnarok M: Eternal Love in Southeast Asia since October 2018, in North and South America, and Oceania since January 2019 and Europe since October 2019. Game users in Southeast Asia, North and South America, Oceania, and Europe buy virtual game items in the price range between US$ 0.99 and US$ 99.99 as of December 31, 2023.
For Ragnarok X: Next Generation in Southeast Asia, we have applied a micro-transaction model, including a Gatcha system, for users in these markets, which enables them to buy game items in the price range between US$ 0.99 and US$ 189.99 as of December 31, 2023.
For Ragnarok Origin in the United States and Canada, we have applied a micro‑transaction model, including a Gatcha system in the United States and Canada since November 2021. Game users buy virtual game items in the price range between US$ 0.99 and US$ 99.99 as of December 31, 2023.
For Ragnarok Origin, we have applied a micro-transaction model, including a Gatcha system in Southeast Asia since April 2023. Game users buy virtual game items in the price range between US$ 0.21 and US$ 104.16 as of December 31, 2023.
For purchases in currencies other than the U.S. dollar, the price will be converted to local currency at the applicable exchange rate when users make the payment. Users pay through credit cards, wire and/or bank transfers, mobile payment, or online payment systems such as PayPal and Huawei.
Japan
For Ragnarok M: Eternal Love in Japan, we have applied a micro‑transaction model including a Gatcha system in Japan since June 2019. Game users buy virtual game items in the price range between JPY 120 and JPY 10,000 as of December 31, 2023. Users pay through credit cards, wire and/or bank transfers, mobile payment, or online payment systems.
For Ragnarok Origin in Japan, we have applied a micro‑transaction model, including a Gatcha system, in Japan since June 2021. Game users buy virtual game items in the price range between JPY 160 and JPY 10,000 as of December 31, 2023. Users pay through credit cards, wire and/or bank transfers, mobile payment, or online payment systems.
GAME DEVELOPMENT AND PUBLISHING
We expect the online and mobile game industries to be characterized by increasing demand for sophisticated or original games with the most up‑to‑date technologies and/or innovative game designs. In response, we intend to expand our game offerings by continuing to develop in‑house additional high quality games with the latest technologies and/or innovative game designs and by publishing such new games developed by us or licensed or acquired from leading third-party developers.
To prepare for the commercial launch of a new online and mobile game, we conduct closed beta testing for the game to fix technical problems, in which we allow registered users to play the game free of charge. During these testing periods, users provide us with feedback and our technical team seeks to address any technical problems and programming flaws that may compromise a stable and consistent game playing environment. We conduct several rounds of closed beta testing, which usually takes a few weeks for each round but may take significantly more time if material problems are detected. Open beta testing of online games usually takes one to three months before commercial launch. We generally commence our other marketing activities for online games during the open beta testing stage. For overseas markets, we also localize the language and content of our games to tailor the game to local cultural preferences.
Game development
Our game development department is divided into two categories of development teams: one is dedicated to online games and the other is dedicated to mobile games. As of December 31, 2023, we employed a total of 228 game developers. We have developed online games, such as Ragnarok Online, Ragnarok Online II, Requiem Online and some social network games and mobile games, such as Ragnarok V: Returns, Ragnarok: The Lost Memories and Ragnrok
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Begins in-house. Furthermore, we have developed cross-platform games, such as Ragnarok V: Returns, Ragnarok Begins, and Ragnarok: The Lost Memories, which will be made available on both online and mobile platforms. In order to remain competitive, we are focusing our in‑house game development efforts on enhancing the game experience and on developing new games incorporating the latest technologies (including software improving the communication and interaction between players).
We also outsource development activities for our new games to third parties. For example, in November 2022, we entered into a game development agreement with Ntriple Co., Ltd, a developer in Korea, to outsource the development of Ragmon Marble using the contents of Ragnarok Online. In January 2023, we entered into a partnership agreement with Zero X And Pte. Ltd., a developer in Singapore, to permit the development of the P2E game Ragnarok Monster World using the contents of Ragnarok Online. In April 2023, we entered into a game development agreement with IOI Co., Ltd., a developer in Korea, to outsource the development of Poring Merge NFT to IOI Co., Ltd. using the contents of Ragnarok Online. We own all intellectual property rights relating to Poring Merge NFT, Ragmon Marble, and Ragnarok Monster World.
Furthermore, we outsource development for console platform games in Steam, Nintendo Switch, PlayStation, and Xbox.
We develop new mobile games and related updates. We will continue to devote substantial resources to develop popular games with high revenue potential. Our in-house teams specialize in game planning, graphic design, research and development, and game operation.
Our game development process generally includes the following key steps:
•concept generation;
•development of new game proposal and commencement of technical review;
•formulation of development projects;
•commencement of development;
•closed beta testing; and
•open beta testing.
Publishing
We also seek opportunities to publish games developed by third parties if we determine such games have potential to become a commercial success. Our publishing and licensing processes include the following:
•Preliminary screening. Our preliminary screening process for a game usually includes preliminary review and testing of the game and discussions with the game developer on technological and operational aspects;
•In‑depth examination, analysis, and commercial negotiation. Once a game passes preliminary screening, we thoroughly review and test the game, conduct a cost analysis, develop operational and financial projections and formulate a preliminary game operating plan. We then begin commercial negotiations with the developer;
•Game rating and regulatory registration and approval. Once a license agreement to publish and distribute a game is signed, we submit an application to the Game Rating and Administration Committee to obtain a game rating, except for mobile games, which are not required to be rated by the Game Rating and Administration Committee and may be rated by us as distributor. This process generally takes approximately 15 days. We also typically register our intellectual property rights in Korea under our license agreements, such as copyright and trademark, with the relevant Korean government agency. Our overseas subsidiaries or licensees follow similar procedures in their respective markets where the games we license are commercially offered; and
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•Testing and marketing. Once the required registration and approvals are obtained, we conduct closed beta testing and open beta testing of the new game and assist the licensor with the development of the game, in the case of online games.
Our game business team takes the lead in conducting preliminary screenings to select games for potential distribution and the commercial negotiations process. The games initially screened by our game business team are additionally evaluated or tested by other teams, such as the marketing team and quality management team, for a second opinion. Once a license agreement is finalized, we generally create a specific team for the selected game within the business department to work with and guide the licensor through the beta testing and/or marketing process for a successful launch of the game.
Intellectual property licensing
Intellectual property licensing is one of our means to diversify our game titles when we determine that certain intellectual property may be valuable in the development and publishing of new games.
We license out certain intellectual property and other rights to third-party developers or to our subsidiaries for the development of new game titles.
We licensed Ragnarok Online to Dream Square, a game developer in China, in May 2013, which led to the development of Ragnarok Prequel and Ragnarok Prequel II, a Web browser-based game. We also signed a license and development agreement with the same developer in January 2015 to grant the developer the right to use the contents of Ragnarok Online to develop two mobile games, which was revised in March 2016 to grant the developer the exclusive right to develop mobile games and web games based on the contents of Ragnarok Online and distribute such games in China for five years from March 25, 2016. Such license and development agreement led to the development of Ragnarok R, RO: Idle Poring, Ragnarok M: Eternal Love, Ragnarok H5, Ragnarok Origin, and Ragnarok X: Next Generation. See ITEM 4.B. “BUSINESS OVERVIEW—OUR PRODUCTS—Mobile games.”
We also entered into a license and development agreement with the same developer in December 2015, which granted the developer the right to develop two mobile games and one web game based on the contents of Dragonica and distribute such games in global market. The term will expire after two years from the commercial launch of such games in such markets. We entered into a license and development agreement with Xian’ Sky Online network technology limited liability Company in July 2018, which granted the developer the right to develop online game based on the contents of Dragonica and distribute such game in China. The agreement will expire after five years from the commercial launch of such game in such market.
We entered into an agreement with Electronics Extreme Ltd., a game developer and publisher in Thailand, in February 2017 and allowed Electronics Extreme Ltd. to use the contents of Ragnarok Online to develop one mobile game and publish the game in Thailand, the Philippines, Singapore and six other Asian countries.
In September 2019, we granted Pin You Technology, a game developer in Taiwan, the right to use the contents of Ragnarok Online to develop one mobile game, which led to the development of Ragnarok Monster’s Arena. Ragnarok Monster’s Arena was commercially launched in Taiwan, Hong Kong, and Macau in May 2022, in Thailand and Korea in September 2022, and in Southeast Asia, South Asia, the Middle East, and Oceania in December 2022.
We entered into an agreement with each of Shanghai Taren Network Technology Co.,Ltd. (“Taren”), and Guangdong Xinghui Teamtop Interactive Entertainment Co.,Ltd. (“Teamtop Interactive”), both game developers and publishers in China, in July 2021 and January 2023, respectively. We allowed Taren and Teamtop Interactive to use the contents of Ragnarok Online to develop three mobile games and one mobile game, respectively, and distribute such games in China.
We entered into an agreement with Shanghai GameAle Network Technology Co., Ltd (“GameAle”), a game developer and publisher in China, under which GameAle is permitted to use the contents of Ragnarok Online to develop and distribute in China two mobile games in January 2022 and in October 2023.
Moreover, we license in existing intellectual property from third parties for developing new games. In September 2008, we entered into a license agreement with ICONIX to develop Pororo Games, an IPTV game, based on a popular Korean television animation series “Pororo: The Little Penguin.” Pororo Games has been commercially offered
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since September 2009. In November 2015, we entered into another licensing agreement with ICONIX, which allowed Gravity to develop and publish games for various platforms based on Pororo: The Little Penguin. In January 2018, we entered into a licensing agreement with CJ ENM Corporation (“CJ ENM”) to develop and publish an IPTV Game based on CJ ENM’s animation series “The Haunted House.” In January 2018, we entered into a game development agreement with Doyeon Games to outsource the development of “The Haunted House” IPTV game. The game was launched in May 2019 in Korea. In May 2020, we entered into an agreement with National Basketball Association (“NBA”) and National Basketball Players Association (“NBPA”) to obtain the right to develop and publish a NBA licensed game. NBA Rise To Stardom, a Sports mobile game, was launched in Japan in November, 2021. In April 2022, we entered into a licensing agreement with YoungToys, to develop and publish Kongsuni Game and Tobot V Game, Internet protocol television (IPTV), cable television and mobile games, based on YoungToys’ TV animation series “Kongsuni” and “Tobot V.”
We continue to seek more opportunities to license out existing intellectual properties or license in existing intellectual properties of third parties for game development and publishing.
MARKETING
We employ a variety of traditional and online marketing programs and promotional activities, including in‑game events, in‑game marketing, and offline events. Due to the close‑knit nature of the game community, we believe that word‑of‑mouth is an important medium for the promotion of our games.
In Korea, two independent promotional agents currently promote our online games to Internet cafés pursuant to agency agreements. Under these agreements, each promotional agent is granted non‑exclusive promotion rights within a specified geographical area. The agent is generally paid a monthly base commission between 10% and 30% of revenues received from Internet cafés in the allocated area. The commission percentage varies according to the amount of revenues.
We conduct a variety of marketing programs and online and offline events to target potential subscribers. Our main marketing efforts include advertising on Web site portals and game magazines, conducting online promotional events, participating in trade shows, and entering into promotional alliances with Internet service providers. We spent Won 13,661 million (US$ 10,582 thousand) on advertising and promotions in 2023, compared with Won 29,898 million in 2022.
We frequently organize in‑game events, such as card exchange events for our users. We also host “fortress raid” events, which we believe encourage the development of virtual communities among our users and increase user interest in our games. We also host from time to time in‑game tournaments in which users can compete against each other either as a team or individually. In addition, we use in‑game events to introduce users to new features of our games. We organized 673 and 515 in‑game events for Ragnarok Online users in 2023 and 2022, respectively.
After the lifting of the COVID-19 quarantine restrictions, we organized large-scale offline events, including e-sports tournaments featuring Ragnarok IP games in Asia and participated in various global game exhibitions, such as Gamescom 2023 in Cologne, Germany, PAX WEST 2023 in Seattle, U.S., Tokyo Game Show 2023 in Tokyo, Japan and G-Star 2023 in Busan, Korea. Particularly, Rangarok Online 2023 (“ROS 2023”) resumed in a decade after Ragnarok World Championship 2013. The countries that participated in ROS 2023 included Korea, Taiwan, Thailand, Indonesia, Philippines, and Malaysia, and on the day of grand finals, approximately 20,000 spectators visited the venue in Jakarta, Indonesia with high excitement. Same as the previous year, we participated in Global Game Exhibition G-Star 2023 (“G-Star 2023”) at BEXCO in Busan, Korea, which was attended by approximately 197,000 offline visitors and 970,000 online viewers. At G-Star 2023, we set up our own booth where we offered hands-on demonstration of Gravity’s newly introduced games and various events for visitors.
In most of our overseas markets, marketing activities are principally conducted by our licensees and typically consist of advertising on Web site game portals and online game magazines and through television commercials, as well as hosting online and offline promotional events. The licensees are responsible for the costs associated with such advertising and promotional activities. For example:
•In January 2024, Gravity Communications Co., Ltd., our subsidiary in Taiwan, participated in the Taipei Game Show, which was attended by 360,000 visitors, At our booth, we introduced Ragnarok Origin and Ragnarok Golf Monsters along with 17 new console titles that will be published.
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•In May 2023, Gravity Game Tech Co. Ltd., our subsidiary in Thailand, held an offline event celebrating the third anniversary of Ragnarok Online with 248 users at Ari Station in Bangkok.
•In June 2023, Nuverse (Hong Kong) Limited, who is responsible for marketing Ragnarok X: Next Generation in Taiwan, Hong Kong, Macau, and Southeast Asia, held a promotional offline event to celebrate the second year anniversary of Ragnarok X: Next Generation in Southeast Asia. The event was a camper van parade themed with Ragnarok X: Next Generation and visited seven cities in Thailand, Indonesia, and Philippines for three days. The number of participants of the event is approximately 18,000.
•In September 2023, Gravity Game Arise, Co. Ltd., our subsidiary in Japan participated in Tokyo Game Show 2023 in Japan. Approximately 243,000 participants attended the show. At our booth, we introduced ten console titles including Snow Brothers 2.
Our licensees are selected in part on the basis of their marketing capabilities, including the size and scope of their distribution networks. Also, in more strategic markets where we anticipate considerable growth such as Taiwan, Thailand, Vietnam, or the United States, we believe that it is important to enhance our own direct publishing network for game services.
GAME SUPPORT AND CUSTOMER SERVICE
We are committed to providing superior customer service to our users directly and through our licensees. As of December 31, 2023, 54 employees were game masters or persons who are in charge of testing, updating and providing server maintenance for our games, as well as dealing with customer complaints, 30 employees were members of our domestic customer service team and 24 employees were members of our overseas customer support team.
In Korea, we provide customer service for our online and mobile games through bulletin boards of the Web sites of our online and mobile games, call centers, email, facsimile, and at our walk‑in customer service center. Our bulletin boards of the Web sites of our online and mobile games allow our customers to post questions to, and receive responses from, other users and our support staff. In our overseas markets, our licensees administer customer service through varying combinations of bulletin boards of the Web sites of our online and mobile games, call centers, email, and facsimile, with assistance from time to time from our overseas customer support staff.
In addition to providing customer service to our users, our customer service staff also collects user comments with respect to our games and generate daily and weekly reports for our management and operations that summarize important issues raised by users as well as how such issues have been addressed.
NETWORK AND TECHNOLOGY INFRASTRUCTURE
We have designed and assembled our game server network and information management system in Korea to allow centralized game management on a global basis. Our system network is designed to speedily accommodate a growing user base and demand for faster game performance. Our game server architecture runs multiple servers on a parallel basis to readily accommodate increased user traffic through deployment of connection to servers, which permits us to route users in the same country to servers with less user traffic. Each of these servers is linked to our information systems network to ensure rapid implementation of game upgrades and to facilitate game monitoring and supervision.
We maintain our server hardware in a single climate‑controlled facility at KT Mokdong Internet Computing Center at 233‑5 Mokdong‑ro, Yangcheon‑gu, Seoul, Korea and our other system hardware in our offices in Seoul. As of December 31, 2023, our server network for our online game operations in Korea consisted of a total of 157 servers, including 70 physical servers and 87 physical servers through the server virtualization technology we have adopted since July 2011, which allows one physical server to be divided into multiple virtual servers, each of which functions individually as a complete and independent server.
In overseas markets, overseas subsidiaries or licensees own or lease the servers necessary to establish the server network for our games, and we assist them with the initial assembly and installation of operating game servers and optimization of their systems network for game operations in their respective markets. While the overseas system architectures are modeled on our system architecture in Korea, they are also tailored to meet the specific needs of each market. When we install and initialize a game in an overseas market, we generally dispatch network engineers and database technicians from Korea to assist with the assembly and operation of the system network and game servers. Following
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installation, we typically send two to five of our technicians and customer support staff to that market, for a few weeks in some cases and much longer periods in other cases, to assist with on‑site game operation and technical support. Our overseas subsidiaries and licensees are responsible for providing database and other game information backup.
Our game management software can program the game content to include localized features such as virtual map zones specific to each market. These features can be updated at the host country level in order to encourage development of a communal spirit among the users from the same country.
COMPETITION
We compete primarily with other online and mobile game developers and distributors in each of our markets. In addition, we compete against providers of games on various platforms, such as console games, handheld games, and arcade games. We compete primarily on the basis of the quality of the game experience offered by us to our users, which depends on a number of factors, including our ability to do the following:
•hire and retain creative personnel to develop games that appeal to our users;
•offer online and mobile game service that is stable and is not prone to server shutdowns, connection problems, or other technical difficulties;
•provide timely and responsive customer service; and
•establish payment systems that are secure and efficient.
Competition in the online game industry
Currently, the leading providers of online games globally, based on the number of peak concurrent users, include Korea-based companies such as NCSoft Corporation, Krafton, Inc., Nexon Co., Ltd. and Smilegate RPG. Co. Ltd. as well as foreign publishers, such as Mojang Studios, Epic Games, Inc., Electronic Arts Inc., Valve, L.L.C. and Riot Games according to data available from various public sources.
PlayerUnknown’s Battlegrounds of PUBG Corporation, Minecraft of Mojang Studios, Fortnite Battle Royale of Epic Games, Inc., CS: Global Offensive of Valve, L.L.C. and League of Legends of Riot Games are some of the most popular online games both in Korea and globally.
Our existing and any potential new competitors in the online games industry compete with us for talent, game player spending, time spent on game playing, marketing activities, quality of games, and distribution network. As many of our competitors have significantly greater financial, marketing, and game development resources than we have, we face intense competition in the online game industry. We expect competition will continue to be strong as new competitors enter the market and existing competitors allocate more resources to develop and market competing games, while the online game industry begins to consolidate into a small number of leading companies or groups of affiliated companies due to the high cost of game development, marketing, and distribution networks, which is likely to drive unsuccessful online game providers to go out of business or be acquired by other successful game providers.
Competition in the mobile game industry
Compared with the online or console game genres, the mobile game market has a relatively low barrier to entry because development of a mobile game requires relatively less time and personnel due to the limitations of the devices on which mobile games are played such as screen size and processing power. Moreover, development tools for mobile games are easier to obtain and use and open marketplaces, such as the Google Play Store and Apple’s App Store, enable developers to easily distribute mobile games to a large global audience. Therefore, we expect the number of mobile game developers to continually increase in the future and competition to become more intense.
We compete with companies that specialize in developing and/or distributing mobile games including leading Korea-based publishers such as NCSoft Corporation, Nexon Co., Ltd., Kakao Games Corp., and Netmarble Corp. as well as foreign publishers such as Tencent Holdings Ltd., NetEase Inc., King.com Ltd., and Playrix Holding Ltd.
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Honor of Kings, PlayerUnknown’s Battlegrounds, Genshin Impact, Candy Crush Saga, and Roblox are some of the most popular mobile games both in Korea and globally.
Our current or potential future competitors for mobile games also include package game companies that have successfully expanded their business into mobile game development such as Electronic Arts Inc. In addition, we believe more companies that previously were or currently are dedicated to developing online or console games will allocate more resources toward developing mobile games because the number of mobile game users is rapidly increasing as the penetration of mobile devices, such as smartphones and tablet computers, continues to deepen.
Competition from other game platforms
We also compete against PC and console‑based game developers that produce popular package games, such as Activision Blizzard, Inc., Bandai Namco Entertainment Inc., and Electronic Arts Inc. and game console manufacturers such as Nintendo Co., Ltd., Sony Interactive Entertainment Inc., and Microsoft Corporation, all of which also have their own console game development studios.
All the current game consoles enable users to play games with other users online by connecting their console to a network over the Internet. Likewise, a number of PC‑based game developers have also introduced online features to their PC‑packaged games, such as team games or user‑to‑user combat.
Competition in the gaming industry is expected to remain intense as established game companies with significant financial resources have various financial and strategic advantages over smaller game companies such as us. See ITEM 3.D. “RISK FACTORS—RISKS RELATING TO OUR BUSINESS—we operate in a highly competitive industry and compete against many large companies.”
INSURANCE
We maintain medical and accident insurance for our employees to the extent required under Korean law, and we also maintain fire and general commercial insurance with respect to our facilities. We do not have any business liability or disruption insurance coverage for our operations in Korea. We maintain a directors’ and officers’ liability insurance policy covering certain potential liabilities of our directors and officers. See ITEM 3.D. “RISK FACTORS—RISKS RELATING TO OUR BUSINESS—We have limited business insurance coverage and business interruption could have a material adverse effect on our business.”
INTELLECTUAL PROPERTY
Our intellectual property is an essential element of our business. We rely on intellectual property such as copyrights, trademarks, and trade secrets, as well as non‑competition, confidentiality, and license agreements with our employees, suppliers, licensees, business partners, and others to protect our intellectual property rights. Our employees are generally required to sign agreements acknowledging that all inventions, trade secrets, works of authorship, developments, and other processes generated by them on our behalf are our property and assigning to us any ownership rights that they may claim in those works. With respect to copyrights and computer program rights created by our employees within their employment scope and which are made public bearing our name, we are not required to pay any additional compensation to our employees.
In developing Ragnarok Online, we obtained an exclusive license from Mr. Myoung‑Jin Lee to use the storyline and characters from his cartoon titled Ragnarok for the production of games, animation and character merchandising. See ITEM 4.B. “BUSINESS OVERVIEW—OUR PRODUCTS—Online games—Ragnarok Online.”
We are the registered owner of 26 registered software copyrights to 17 games: Ragnarok Online, Ragnarok Online II, R.O.S.E. Online, Requiem Online, Ragnarok Violet, Ragnarok Angel Poring, Ragnarok Online—Uprising: Valkyrie, Arcturus, Pucca Racing, W Baseball, Dragonica, Dragon Saga, Ragnarok Online Zero, Ragnarok Spear of Odin and Triple Chain, Ragnarok Origin, Ragnarok M: Eternal Love, each of which has been registered with the Korea Copyright Commission. As of December 31, 2023, we owned 200 registered domain names, including our official Web site and domain names registered in connection with each of the games we offer. We had 1,140 registered discrete trademarks at patent and trademark offices in 68 countries as of December 31, 2023. We registered with the Korea Intellectual Property Office, registered copyrights covering 13 game characters and six online game business model patents, in each case as of December 31, 2023.
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SEASONALITY
Usage of our online and mobile games has typically increased slightly around the Lunar New Year holiday season and other holidays, in particular during winter and summer school holidays.
LAWS AND REGULATIONS
We are subject to many laws and regulations in the different countries in which we operate. See ITEM 3.D. “RISK FACTORS—RISKS RELATING TO OUR REGULATORY ENVIRONMENT.” A general overview of the material laws and regulations that apply to our business is provided below for the countries from which we derive a significant portion of our revenues.
Korea
The Korean game industry and online and mobile game companies operating in Korea are subject to the following laws and regulations:
The Personal Information Protection Act
The Personal Information Protection Act (“PIPA”) was enacted on March 29, 2011, and went into effect on September 30, 2011. PIPA’s scope covers anyone dealing with personal information in the private and public sectors. An amended version of PIPA, enacted on February 4, 2020 (which came into effect on August 5, 2020) now also includes Special Provisions for Personal Information Processing by Information and Communication Network Providers (the “Special Provisions”), which used to be previously covered in the Act on Promotion of Information and Telecommunications Network Utilization and Information Protection, etc. (the “Information Protection Act”).
If a person’s personal information is collected or used, or provided to a third person, such person’s consent should be obtained. However, under the amended PIPA of February 4, 2020 (which came into effect on August 5, 2020), the consent of such persons does not have to be obtained if (i) it is deemed reasonable for the purpose of collecting information, (ii) no adverse consequences are incurred to such persons and if (iii) measures such as encryptions are taken as necessary to secure safety.
If personal information is no longer necessary upon achievement of the purpose of the collection and use of personal information, such information should be immediately destroyed.
Any transaction requiring identifiers granted by law for identification purposes, such as the resident registration number, is generally prohibited, and exceptions are recognized on a restrictive basis only if consent is obtained or required by law. In addition, any person dealing with personal information as determined pursuant to the Presidential Decree, for instance, such as signing up for a website, should provide alternative methods to using the resident registration number.
In the event of a personal information leak, the processor of personal information should promptly notify the affected person after discovering such incident. If the volume of the leak of personal information exceeds a certain number, the processor of personal information should report the incident to the authorities and take necessary measures to minimize damages.
In addition, the same legislation grants to each individual the right to request perusal, the right to request correction or deletion, and the right to request suspension of process with respect to one’s personal information, and also provides the methods to exercise such rights.
We are required to indemnify users for damages occurring as a result of our violation of the foregoing restrictions, unless we can prove the absence of willful misconduct or negligence on our part.
Penalty surcharges are imposed on any personal information processors violating the regulation on the protection of personal information, and some conducts, such as collection of personal information of users without their consent, are the subject of criminal punishment. Any personal information processors violating its obligation to protect personal information by collecting, using, disclosing such information without consent, and not complying with protective measures, may be imposed with surcharges not exceeding 3% of the sales relevant to the conduct of violation in consideration of the details, degree, period, the number of times, and the scale of gained profits.
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Following the continued occurrence of personal information leakage incidents, PIPA was amended on July 24, 2015 (which came into effect on July 25, 2016) to strengthen personal information protection measures and supplement remedial methods for users by strengthening punishment on personal information processors and introducing a statutory damage compensation system. According to the amended PIPA, a user may claim for statutory damage compensation up to Won 3 million in case of loss, theft, or leakage of his/her personal information under management by personal information processors.
To promote prompt and fair settlement of disputes concerning personal information, the same legislation also provides that a Personal Information Dispute Mediation Committee, or “PIDMC,” should be established and the PIDMC’s decision, if accepted by the disputing parties, should have the same legal effect as settlement by trial. In consideration of the fact that most identity theft cases are large in scale and small in the amount of monetary damages, the legislation adopts a collective dispute settlement system. A class action system for personal information has been adopted, but in order to prevent frivolous class action suits, litigants are required to go through the collective dispute settlement system prior to bringing a class action and cases are limited to those seeking suspension or injunctive relief.
The PIPA was amended on March 14, 2023, and became effective as of September 15, 2023, except for (i) below, for which the effective date has not yet been determined. The amended PIPA brings about several changes, including:
(i) Strengthening the rights of data subjects by introducing the right of data subjects to request transmission of their own personal information to themselves or to a third party, thereby enhancing their control over their personal information;
(ii) Unifying the current bifurcated rules for “personal information processors” and “information and communications service providers” by deleting the Special Provisions that overlap with the general provisions applicable to personal information processors, while moving the Special Provisions that apply only to information and communications service providers to the general provision section. In addition, the Special Provisions, which impose an obligation on the information and communications service providers to take necessary measures (e.g., the destruction of personal information) to protect the personal information of users who have not used the information and communication network services for a year, will be abolished due to significant negative feedback from the industry about inconveniences caused to the users and the information and communications service providers;
(iii) Substituting criminal sanctions for certain violations of the PIPA (e.g., failure to obtain consent for collection and use of personal information, failure to destroy personal information, data breaches due to failure to take data protection measures) with economic sanctions in the form of administrative penalties and fines, but with an upward adjustment in the base amount from the amount of the personal information processors’ “revenue specifically related to the violation” to the “total revenue” of the personal information processors;
(iv) Increasing the maximum punitive damages amount from three times to five times the actual damages incurred by the data subject due to cases of loss, theft, leakage, forgery, alteration, or damage of personal information due to willful misconduct or gross negligence of the personal information processors; and
(v) Requiring not only public institutions but also personal information processors to submit to dispute mediation and granting the PIDMC the right to conduct fact-finding investigations, thereby prohibiting personal information processors from refusing the PIDMC access to its premises or materials.
The Act on Promotion of Information and Communications Network Utilization and Information Protection, Etc., or Information Protection Act
Previously, the Information Protection Act was silent on mobile application developers’ access to personal information of application users, and such application users typically consented to such access as they would otherwise not be permitted to use the mobile application services. However, the Information Protection Act was amended on March 22, 2016 (which came into effect on September 23, 2016) to require mobile application developers to distinguish between information that is critical to provision of material components of the application services and information that is not critical, and clearly explain to each user why access to such critical information is necessary when the developers’ request such user to provide consent for such developer’s access to the data stored on such user’s smart phone. Moreover, a mobile application developer may not refuse to provide services based on a user’s refusal to provide access to his or her information, which is not critical to provision of the application services.
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While the current Information Protection Act also includes provisions on matters regarding personal information protection, all such provisions are deleted from the amended version of the Information Protection Act as of February 4, 2020 (which came into effect on August 5, 2020) and integrated into the amended PIPA as of February 4, 2020 (which came into effect on August 5, 2020). The amended PIPA as of February 4, 2020, had differentiated regulations for general personal information processors and information and communication network providers by including Special Provisions, which provide exemptions for the information and communication network providers. However, the amended PIPA as of March 14, 2023, has unified the current bifurcated rules by deleting the Special Provisions that overlap with the general provisions applicable to personal information processors, while moving the Special Provisions that apply only to information and communications service providers to the general provision section.
The Act on Consumer Protection for Transactions through Electronic Commerce
Under this Act, we are required to take necessary measures to maintain the security of consumer information related to our electronic settlement services. We are also required to notify consumers when electronic payments are made and to indemnify consumers for damages resulting from misappropriation of consumer information by third parties.
Copyright Act
The Copyright Act grants certain protections to general works and computer program works. In connection with computer program works, the Copyright Act provides for restrictions on software copyrights, reverse analysis of computer programs and the establishment of the exclusive right to issue computer programs as a special case apart from other kinds of works.
The Copyright Act has the relevant provisions necessary for implementing the Korea‑US Free Trade Agreement, such as recognition of temporary storage as copying, introduction of a system of fair use of copyrighted materials, prohibition of acts of infringement on the rights of copyright holders including the distribution of forged labels, and the introduction of statutory damages in accordance with the agreements in the Korea‑US Free Trade Agreement.
In order to protect the rights of copyright holders in a digital environment, the Copyright Act specifies that temporary storage falls under the scope of “copying” but allows temporary storage to the extent it is deemed necessary for smooth and efficient information processing. Under the Copyright Act, an online service provider will be deemed not liable for copyright infringement: (i) if the online service provider has adopted and reasonably implemented a policy of terminating the account of a person who infringed copyrights or (ii) if the online service provider has accepted and not interfered with a right holder’s use of standard technical measures for identifying and protecting copyrighted materials.
The Act on Promotion of the Game Industry, or “Game Act”
Under the Game Act, which became effective on April 20, 2007, online games are classified into four categories: “suitable for users of all ages,” “suitable for users 12 years of age or older,” “suitable for users 15 years of age or older” and “suitable for users 18 years of age or older.” The 15 years of age or older category was added between the 12 years of age and 18 years of age categories to increase ratings flexibility. However, the Game Act, as amended on March 21, 2023 and effective from January 1, 2024, revised the definition of “juvenile” from a person under the age of 18 to a person under the age of 19, to be in line with the Juvenile Protection Act. Accordingly, the category of “suitable for users 18 years of age or older” was revised to “not permitted for use by juveniles.” Ragnarok Online has been classified as “suitable for users 12 years of age or older.” Amendments to the Game Act also require persons who produce, distribute or provide game products to disclose on each game product, internet homepage, advertisement, and promotional materials the types of probability-based items used in the game, as well as information on the relevant probabilities.
The Game Act includes the definition of the term “speculative game.” A speculative game refers to a game that permits betting and offers monetary loss or profit that is determined by chance. Elements that may cause a game to be considered a speculative game include the existence of game money used as a means for betting or purchasing game items (items used within the game for progression in the game) that become the subject of exchange with real money. The Korean Supreme Court Decision No. 2009Do12117 rendered on February 25, 2010 provided that a ‘speculative game’ under the Game Act, should be carried out in accordance with the contents and method prescribed under Article 2, (1-2) of the Game Act, and further, that the term refers to a gaming device or tool, which directly provides money, prize, or other financial profit or incurs loss on the game user via a payment tool installed on the gaming device or tool depending on the results of the game. Although the Game Act’s definition of speculative games and the Korean Supreme Court decision are intended to provide clarity for the determination of whether a game is deemed speculative or not, because our games
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involve transactions with game items, we have had to take measures to ensure that we are in compliance with the new rules. Such measures include distributing a game after a rating review is conducted by the Game Rating and Administration Committee, or a self-rating review is conducted in respect of such game in accordance with the Article 21-2 of the Game Act.
As described above, the Game Act requires a prior rating to be allocated to any game before its distribution in Korea in order to protect young users from violent and otherwise harmful content and to control the distribution of speculative games. Previously, such rating was allocated solely by government agencies in Korea. However, concerns were raised over potential violation of freedom of speech resulting from the requirement that all games must be rated by government agencies. As a result, the Game Act was amended in July 2011 and again in May 2013 to allow a private agency to conduct a rating review on games and permit a self-rating in cases where a game distributor cannot receive a prior rating from the Game Rating and Administration Committee due to special circumstances in its production and distribution channels. In January 2017, the Game Act was amended to allow governmental authorities to designate a “Self Rating Review Company” which would be entitled to conduct a self rating review on all of its games with the exception of adult-only games and arcade games. The governmental authorities have designated Google LLC, Apple Korea Limited, Sony Interactive Entertainment Korea Inc., Samsung Electronics Co., Ltd, Nintendo of Korea Co., Ltd., etc., as Self Rating Review Companies.
In addition, the amendment to the Game Act in January 2017 allowed allocation of game rating only based on game contents. Prior to such amendment, a game rating was required to be conducted in respect of each gaming device or platform regardless of whether different devices and/or platforms are used for the same game contents. Such requirement, however, came under criticism with emergence of a number of new platforms for games such as Internet protocol television and virtual reality devices and development of new games, which may be played using multiple platforms at the same time, (such as mobile and online games). The amendment to the Game Act in January 2017 addressed such criticism.
A game provider has to report any modification in the content of a game to the Game Rating and Administration Committee or a Self Rating Review Company, which may require the game to be reclassified depending on the scope of the modification.
If the Game Rating and Administration Committee determines that the game is speculative, it can refuse to classify such game, in which case the game will be prohibited. According to Article 1-2 of the Enforcement Decree of the Game Act, any games in which money or items of value are collected from a multiple number of persons and profits or losses are allocated based on winnings or losses determined by chance fall under speculative games. According to Article 16-2 of the Enforcement Decree of the Game Act, so long as certain guidelines are followed, a provision of a gift equivalent to a customer price of Won 10,000 or less, with respect to games that are classified as “suitable for users of all ages,” is not deemed to be an act that encourages gambling.
Under the Game Act, the Minister of Culture, Sports, and Tourism may order information and communication service providers to refuse, stop, or restrict the offering of games if such games are unrated, contents are different from those submitted for rating, were denied rating as speculative games, or were manufactured or distributed by a person not registered for operation of manufacturing or distributing games for profit‑making. The Game Rating and Administration Committee undertakes examination of the information and communications service providers and provides recommendation of correction to the providers as necessary.
In addition, under the Game Act, online game companies are required to comply with the following to prevent players’ excessive preoccupation with games: (i) verification of registered game users, including through verification of their real names, ages and identities, (ii) obtaining a parent/guardian’s consent for minors, (iii) restriction on the playing of games and limits on access hours, among others, when requested by minors or their parent/guardian, (iv) publishing of basic information such as the nature of the game being offered, its rating and in-game purchase policy, and notification to minors and their parents/guardians with respect to game use information such as access hours and payment information, (v) publishing of a warning statement to prevent excessive use of the game, (vi) providing of measures to prevent excessive use of the game including placing the access hour indicator on the game play screen (collectively, the “Prevention Measures”). In accordance with item (iii), upon request from minors or their parents/guardians, an online game company is required to implement the Selective Shut-down System. The Minister of the Ministry of Culture, Sports and Tourism may issue corrective orders if the Prevention Measures adopted are deemed inadequate, and if such corrective orders have not been implemented, imprisonment not exceeding two years or a fine not exceeding Won 20 million may be imposed. The Game Act, as amended on March 21, 2023 and effective from January 1, 2024, deleted the references to the term
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“addiction” from the Prevention Measures as medical tolerance and withdrawal symptoms have not been identified in connection with games and whether such symptoms are included within the scope of diseases remain controversial.
The Juvenile Protection Act
The Juvenile Protection Act prescribes the establishment of the Juvenile Protection Commission under the authority of the Minister of the Ministry of Health and Welfare in Korea, formerly known as the Ministry for Health, Welfare and Family Affairs, or the “MIHWAF,” which has the authority to designate the types of media harmful to juveniles. Under the Juvenile Protection Act, any person who intends to sell, lend, or distribute media materials harmful to minors or provides them for viewing or utilization is required to confirm the age of the intended user, and shall not sell, rent or distribute such materials, or provide them for viewing or utilization, to minors. A person in violation may be punished by imprisonment for a maximum of three years or by a fine not exceeding Won 30 million.
The MIHWAF issued a public notice announcing that “Web sites for trading items” are considered “harmful mass media” to minors based on the findings of Juvenile Protection Commission that such Web sites for trading online game items are likely to encourage gambling and speculation and negatively influence juveniles. In the public notice, the MIHWAF prohibited any person under the age of 19 from visiting Web sites for trading online game items.
A Web site for trading items is a Web site, which offers the services of a brokerage or agency for the trading of tangible or intangible things gained from online games as prescribed in the Game Act. The Supreme Court of Korea held in a case regarding Item Bay, one of the leading Web sites in Korea for trading online game items, that “Trading items on Item Bay falls under speculative activity as it is hard for game users to resist the temptation of cash trades through which they may easily gain items, which will cause users to be attracted to the cash convertibility of items rather than the game itself.” While we offer virtual in‑game items for sale to our users on the game Web sites that we operate in Korea, we do not broker the trade of such game items or any other tangible or intangible acquisitions obtained by using online games among our users, and currently do not fall under the category of “Web site for trading items.”
The Korean Civil Code and the Act on the Establishment and Management of the Korea Communications Commission
Pursuant to the Korean Civil Code, contracts entered into with minors, who were persons under 20 years of age, without parental consent under the Korean Civil Code prior to its amendment, may be invalidated. The definition of minors was changed to persons under 19 years of age in the amendment to the Korean Civil Code on March 7, 2011, which became effective on July 1, 2013. As a result, telecommunications service contracts and online game user agreements are now required to specifically set forth procedures for rescinding service contracts, entered into by persons under 19 years of age without parental consent.
Under the Act on the Establishment and Management of the Korea Communications Commission, the Korea Communications Commission (“KCC”) was established to oversee services relating to broadcasting and communications and also to deliberate and resolve matters concerning the protection of users’ information and communications.
In November 2003, the KCC issued an order addressed to 15 major online game companies in Korea, including us, to regulate certain business practices relating to the settlement of service charges involving minors. The KCC raised concerns about the ability of minors to subscribe to online game services without parental consent by settling charges payable to online game companies through settlement systems operated by fixed‑line or broadband service providers. The order required online game companies to implement more specific and effective procedures to ensure, where relevant, that parental consent has been specifically obtained.
Although only a small number of our current subscribers were using the settlement options mentioned in the KCC order, we have enhanced our age verification and parental consent procedures for players using the relevant settlement options.
In April 2014, to help prevent damages from payments made by minors or unauthorized persons, the KCC required mobile application market providers to strengthen the security apparatus in a charged mobile application as follows: (i) to require setting up a password and entering it before the purchase of a charged mobile application, (ii) to standardize the phrases that indicate the application is a charged one and requires purchase and (iii) to provide certain major notices including the refund policies on the first page of the purchasing process. Moreover, in July 2017, the KCC implemented an alert system regarding minors’ usage of paid content within mobile applications, under which the mobile
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phone account holder and the minor’s parents or guardian will be notified upon the purchased amount exceeding a certain threshold.
The Telecommunications Business Act
Under the Telecommunications Business Act, a person who intends to run a value‑added telecommunications business must report to the Ministry of Science, ICT (“MSIT”), which has the authority to accept and monitor such reports. We are classified as a value‑added telecommunications service provider such that we are required to prepare and submit statistical reports regarding, among others, the current status of facilities, subscription records, and current status of users to the MSIT upon its request. The MSIT is responsible for compiling information and formulating telecommunications policies under this Telecommunications Business Act. In addition, we are required to report any transfer, takeover, suspension or closing of our business activities to the MSIT, which may issue a correction order if we fail to comply with its rules and regulations. Also, the MSIT may cancel our registration or order us to suspend our business for a period of up to one year if we fail to comply with correction order without a justifiable cause.
Meanwhile, Article 2-2 of the Telecommunications Business Act, which was amended on December 24, 2018, established a new application clause for overseas activities, which may have an impact on the Korean market or users, and such amendment took effect on January 1, 2021.
Taiwan
There are currently no laws or regulations that specifically target online and mobile gaming businesses. Some laws and regulations that are relevant to or that may affect the online and mobile gaming businesses are described below.
Protection of Personal Data
A non-governmental entity collecting, processing or using personal data is subject to the Personal Data Protection Act, or the “PDPA,” as amended on May 31, 2023. Any information that may be used to directly or indirectly identify a natural person is considered “personal data,” including the name of the data subject, date of birth, identity card number, passport number, characteristics, fingerprints, marital status, family, education, occupation, medical record, medical treatment, genetic information, sexual life, health examination, criminal record, contact information, financial conditions, and social activities.
When an entity collects personal data, it must inform the data subject of matters including the purpose of collection, how the data will be used, the rights of the data subject to review, duplicate, correct the personal data, and the right to request the entity to cease using the data. When such entity processes or uses any personal data collected by any third parties, it must further inform the data subject about the source of such data in addition to the requirements mentioned above. In principle, prior consent from the data subject is required in order to process and/or use his/her personal data. However, this requirement is exempted if the use relates to matters of public interest or if the personal data is available from the public domain and the interest to be protected is more important than the privacy of the data subject. Furthermore, the competent authorities may impose restrictions on any overseas transmission of personal data if (1) such transmission is related to the interests of the nation, (2) such restriction is imposed pursuant to an international treaty or agreement, (3) the receiving country has no laws or regulations that are sufficient to protect personal data, or (4) such transmission is made through a third nation/region for the purpose of avoiding the regulations of the PDPA.
Violation of the PDPA may lead to a criminal sentence if such violation is committed with the intent to gain profits, and may also lead to damage claims, whether with such intent to gain profits or not, even if no actual damage can be proven. The competent authorities may request an entity to delete the data and prohibit the entity from further collecting, processing or using the data if the entity is perceived to have violated the PDPA. A victim may authorize certain public-interest associations to file a lawsuit against the violator on his/her behalf.
Regulations on Copyrights
Under the Copyright Act, as amended on June 15, 2022, online and mobile games may be protected both as “computer programs” and “audiovisual works.” The period of copyright protection extends to 50 years after the death of the copyright holder. For a copyright holder other than a natural person, the period of copyright protection is 50 years after the publication of the work.
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Any unauthorized reproduction, public transmission, distribution, adaptation or public display of a protected work, removal of any electronic rights management information for the purpose of identification of copyright or copyright holder, or removal of any technological protection measures of a work, either willfully or negligently, may constitute an infringement of the copyright of the holder and may lead to imposition of fine(s) and/or imprisonment. Taiwan courts remain divided regarding whether the operation of an unauthorized server for an online game violates the Copyright Act. In 2017, the Intellectual Property Court of Taiwan ruled that the operator of an unauthorized server of an online game did not violate the Copyright Act by altering the log-in IP address of the online game. On the other hand, the same court ruled that reproducing copyrighted programs and artworks violated the Copyright Act. Any entity that sets up an unauthorized server for our online or mobile games may therefore be deemed as infringing copyrights and violating the relevant laws of Taiwan.
Use of a protected work will not constitute an infringement if it constitutes certain reasonable use based on statutory exemptions, such as use for educational, research, or news reporting purposes. An Internet service provider might not be held liable for copyright infringement by its users if it has adopted certain preventive measures for possible copyright infringements.
Regulations on Welfare and Rights of Children and Youths
Online game and mobile game operators should comply with a five-category game rating system, established under the Protection of Children and Youths Welfare and Rights Act and the Regulations of Game Software Rating Management, as amended on January 20, 2021 and May 23, 2019, respectively. The categories include: “Restricted,” “Parental Guidance 15,” or “PG-15,” “Parental Guidance 12,” or “PG-12,” “Protected,” and “General Public.” The ratings are registered with the Digital Game Rating Committee, or the “DGRC,” and such registration should be filed by the entity selling the game software or operating the game with license, or by the other entity supplying the game to users, prior to the launch of the game for public review and reference. Entities selling, operating with license, renting, disseminating, or displaying the game software or providing software for downloads should mark such classification on the packaging of the game software or next to the link to such game software.
Failure to comply with the rating system and the related marketing requirements by persons selling, operating with license, renting, disseminating, or displaying the game software or providing software for downloads may lead to imposition of fine and suspension of the online or mobile game.
Regulations on Consumer Protection
A transaction between a business operator and a consumer is governed by the Consumer Protection Act (the “CPA”), as amended on June 17, 2015. Any transaction between a business operator and a consumer, if conducted through the Internet such that the customer does not have the opportunity to examine the goods or the services prior to the transaction, will be considered a “distant sale.” A consumer of a distant sale may cancel the transaction without cause within seven days of receiving the goods or services and shall not be subject to any cancellation fee. If a business operator fails to inform the customer of his/her right to cancel the transaction within seven days, such seven-day period shall be calculated from when the business operator later informs the customer of his/her right. A customer may not cancel the transaction after four months since receiving the goods or services. Any agreement that waives such rights of a customer is void.
An online game service agreement between a game operator and a consumer, if reached through standard contract terms drafted by the game operator and without negotiations between the parties, such as the standard terms and conditions between us and our Taiwan users, is subject to the Regulations of Mandatory Provisions to be Included in and Provisions Prohibited from Standard Form Contract for Internet Games Services effective since January 1, 2023. For example, any term in a standard contract for online games that waives a game operator’s responsibility under the CPA, precludes consumers’ right to terminate the agreement at will, or allows a game operator to amend the agreement unilaterally, will be deemed void. The mandatory provisions for a standard contract for an online game include, among others, that (1) a consumer may terminate the agreement without cause within seven days of executing the agreement, (2) a consumer may request for full refund of any paid but unused points/value, (3) a business operator should publish an announcement on the home page of game Web site, the game log-in page or the purchase page 30 days prior to any service fee rate adjustment scheduled to come into effect, (4) for paid-for loot boxes, a business operator should disclose, among others, the odds of winning the loot box rewards in percentage, and a statement that the loot box is a chance to win a product and a consumer’s purchase or participation in the activity does not entitle the consumer to receive specific rewards, and (5) if a business operator closes its business, it should, no less than 30 days prior to closure, publish an announcement on the home page of the game Web site, the game log-in page or the purchase page, and notify the consumers at the
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consumers' registered contact information if previously provided. These mandatory provisions form part of the online game agreement and are effective even if they are not specified in the executed standard contract.
Further, according to the CPA, a business operator that engages in the design, production, and/or manufacture of goods, and/or the provision of services, must ensure that the goods or services produced or provided meet the reasonably expected safety requirements based on the prevailing technology or professional standards at the time of manufacture. One
relevant precedent is a 2023 district court case, in which the court held that, due to the discrepancy between the percentage
of winning loot box virtual goods as advertised by an online game business operator and the actual percentage of winning,
the business operator was in violation of the truth-in-advertising obligation under the CPA. The liability of a business operator to compensate for consumers’ injury cannot be restricted or released in advance. In addition, the CPA imposes strict liability on business operators for loss or damage caused to consumers regardless of whether the product or service has defects or not. A business operator in violation of the CPA thereby causing injury to a consumer or third party is jointly and severally liable; provided, however, that if the business operator can demonstrate that the injury suffered was not caused by negligence on its part, the court may reduce the amount of damages. The CPA also requires that business operators warn consumers of any potential danger that may be caused by their products.
According to the CPA, consumer disputes may be mediated by a local consumer mediation committee, or be brought to the court through class actions by consumer protection organizations on behalf of the consumers.
Thailand
Copyright Act B.E. 2537 (1994)
Under the Copyright Act (first enacted in 1994 and last updated in 2022), both online and mobile games may be protected as “literary work,” which includes “computer programs,” “audiovisual works,” “cinematographic works,” “sound recordings,” or “sound and video broadcasting works.” As Thailand is a member of the Berne Convention for Protection of Literary and Artistic Works, copyright works created in any signatory country will be protected under Thai law and afforded the same protection as those copyright works created by Thai nationals. Generally, the period of copyright protection extends to 50 years after the death of the copyright holder. However, in the case of audiovisual works, cinematographic works, sound recordings, or sound and video broadcasting works, copyright protection endures for 50 years from authorship, provided that if the work is published, copyright protection endures for 50 years from the work’s first publication. For a copyright holder other than a natural person, the period of copyright protection is 50 years after the publication of the work. Unauthorized reproduction, public transmission, distribution, adaptation, or public display of a protected work may constitute an infringement of the copyright of the holder and may lead to both fines and imprisonment.
Intellectual property-related matters in Thailand are overseen by the Department of Intellectual Property, under the auspices of the Ministry of Commerce. Additionally, IP-related lawsuits are submitted to a specialized court: the Court of Intellectual Property and International Trade.
Foreign Business Operations Act B.E. 2542 (1999)
The Foreign Business Operations Act was enacted in 1999 in an effort to restrict foreign participation in a wide range of business, commercial, and industrial activities in Thailand. Specifically, the Foreign Business Operations Act aims to protect Thai businesses in certain industries by limiting or prohibiting foreigners from operating businesses in those industries without specific authorization from the government. Restricted businesses for foreigners are divided into three (3) “Lists,” and List 3 includes businesses in which Thai nationals are not yet ready to compete with foreigners, including a broad subsection (21) of “Other Services.” Due to its broad scope, almost all business activities could fit into this category. Foreigners such as our Company can engage in businesses under List 3 only when a “Foreign Business License” is obtained from the Ministry of Commerce.
Personal Data Protection Act B.B. 2562 (2019)
The Personal Data Protection Act B.E. 2562 (2019) (the “PDPA”) was announced in the Royal Gazette on May 27, 2019. and became fully effective on June 1, 2022. The PDPA, which is mainly based on the General Data Protection Regulation of the European Union (the “GDPR”), has created obligations on the private sector and government (both personal data controllers and personal data processors), especially on burden of proof. Any information which, by itself or in conjunction with other pieces of personal data, can be used to identify any natural person is considered “Personal Data” under the PDPA, e.g., name of data subject, phone numbers, identity card number, passport number, medical record,
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medical treatment, health examination, characteristics, fingerprints, criminal record, financial conditions, and social activities.
The private sector and government must prove that they meet the requirements under the PDPA for all types of treatment of Personal Data, e.g., how to receive consent from data subjects before processing, collecting, or disclosing Personal Data, as well as transferring such data. Further, data subjects also have the right to request access to their personal data and demand for such data to be erased. They also have the right to object to the collection, usage or disclosure of their Personal Data.
If a data controller or a data processor is outside of Thailand, the PDPA shall apply to the collection, use, or disclosure, including transfer of personal data of data subjects who are in Thailand, where the activities of such data controller or data processor involve: i) the offering of goods or services to data subjects who are in Thailand, irrespective of whether the payment is made by the data subject; or ii) the monitoring of the behavior of data subject in Thailand.
The Philippines
Data Privacy Act
The Data Privacy Act of 2012 establishes the Philippines’ data privacy framework. It recognizes an individual’s rights to personal and sensitive information and fines the unlawful processing of such information and the violation of rights of a data subject. Individuals and legal entities that process personal information are considered “personal information controllers” and are subject to the mandatory requirements of the law.
Copyright
Under the Intellectual Property Code of the Philippines, online and mobile games may be protected as “computer programs.” There are two types of rights under copyright, namely (1) economic rights which enable the creator to obtain remuneration from the exploitation of works, and (2) moral rights, which make it possible for the owner to undertake measures to protect the connection between it and the work. The term of protection under the law is during the life of the author and for 50 years after his death.
Child and Youth Welfare Code
The Child and Youth Welfare Code provides that every child has the right to full opportunities for safe and wholesome recreation and activities, individual as well as social, for the wholesome use of his leisure hours. Further, the law provides that every child has the right to protection against exploitation, improper influences, hazards, and other conditions or circumstances prejudicial to the child’s physical, mental, emotional, social, and moral development. Should an online game be determined to promote ideals inimical to the physical, mental, emotional, social, and moral development of a child, then the same may be considered a violation of the law and be the basis for a complaint.
Anti-Online Sexual Abuse or Exploitation of Children (OSAEC) and Anti-Child Sexual Abuse or Exploitation Materials (CSAEM) Act
This Act further provides special protections to children from all forms of sexual violence, abuse, and exploitation especially those committed with the use of information and communications technology (ICT). Under this Act, an internet intermediary is defined to include, among others, participative networking platform providers, which, in turn, is defined to include entities that provide a platform or a site for online gaming. The Act imposes on internet intermediaries the duties to (1) adopt in their terms of service or service agreements with third-party users or creators of contents, products, and services the prohibition of any form or any conduct of streaming or live-streaming of OSAEC and CSAEM in the use of their website, platform, server, or facility; (2) preserve within the periods specified in the Act all subscriber’s or registration information and traffic data in its control and possession; (3) immediately block access to, remove, or take down the internet address, uniform resource locator (URL), websites, or any content thereof containing CSAEM or involving streaming or live-streaming of OSAEC, within 24 hours from receipt of notice from a competent authority or notice containing sufficient information to identify the content and its source; (4) report to the Department of Justice (DOJ), within three days, the internet address or websites blocked, removed or taken down, or any form of unusual data activity using its server or facility; (5) provide pursuant to a valid subpoena, the subscriber’s or registration information and/or traffic data of any person involved in the unlawful actions described in the Act; (6) develop, establish, and install mechanisms or measures designed to prevent, detect, respond, or report violations of this Act within their websites,
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platforms, applications, servers or facilities; (7) coordinate with the Department of Justice-Office of Cybercrime (DOJ-OOC) to define the standard upon which an internet intermediary is measured; and (8) have a policy on notifying their community to ensure that their policy has a provision on delaying or dispensing with notification to an account holder, subscriber or customer of the internet intermediary who is stated to be a suspected offender of an act of OSAEC.
Consumer Act
The Consumer Act of the Philippines (the “Consumer Act”) protects the interests of purchasers, lessees, lessors, or recipients of consumer products within the Philippines. Under the Consumer Act, online and mobile games for personal use are considered as consumer products. Developers and distributors of online and mobile games must ensure compliance with the requirements regarding proper sales and advertising practices, correct labeling, and special packaging for children, among others. Failure to do so may subject developers and distributors to sanctions and penalties provided by law.
Electronic Commerce Act
The Electronic Commerce Act provides for the recognition of messages and documents in the electronic form as valid evidence of a transaction. It applies to all kinds of electronic data messages and electronic documents used in commercial and non-commercial activities and exchanges. Under the Act, the transactions between the users and the providers of online and mobile games can be validly proven by its respective electronic data message and document.
Cybercrime Prevention Act
The Cybercrime Prevention Act aims to protect the integrity of computer systems, networks, and databases, as well as the confidentiality and integrity of the data stored therein from misuse and illegal access. It punishes any person or entity who, among others, illegally accesses or intercepts, or intentionally or recklessly interferes with, computer systems or data. Abetting or aiding in the commission of a cybercrime is also punishable under the Act.
Internet Transactions Act
The Internet Transaction Act aims to promote and maintain a robust electronic commerce environment in the Philippines by fostering trust between online merchants and online consumers. The Act covers business-to-business and business-to-consumer internet transactions where at least one of the parties is situated in the Philippines or where the digital platform, e-retailer, or online merchant is availing of the Philippine market and has minimum contacts in the Philippines. Transactions involving online game websites or applications are subject to the Act as online game websites and applications fall under the category of e-retailers, which means natural or juridical person selling goods or services directly to online consumers through its own website, webpage or application. An e-retailer has the following responsibilities under the Act: (1) to indicate the price of goods and services offered; (2) to ensure that the goods are received by the online consumers in the condition, type, quantity, and quality for which they were intended or requested by the consumers; (3) to deliver goods together with all accessories, with the qualities and performance capabilities that are standard and normal in similar goods; (4) to publish on its homepage its corporate and trade name, address or place of business and contact details; (5) to take necessary precautions to protect the data privacy of consumers and to comply with the minimum information security standards set by relevant government agencies; (6) to issue paper or electronic invoices or receipts for all sales; (7) to maintain an accessible and efficient redress mechanism for handling complaints from consumers. Under the Act, e-retailers have the primary liability to indemnify the online consumers in civil actions or administrative complaints arising from online transactions.
Japan
Japan does not currently have any national government regulations targeted specifically at the online game or mobile game industry. Some regulations that are relevant to or that may affect the online game and mobile game industries are described below.
Protection of Personal Information
Businesses in Japan are subject to certain statutory requirements with respect to personal information acquired during the ordinary course of business. Pursuant to these statutory requirements, businesses must set up appropriate procedures to protect personal information from use for any purpose other than the intended purpose.
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Regulations on the Sound Upbringing of Minors
In Japan, internet and game software content is generally regulated at the local, rather than the national, level. Many local governments have ordinances regarding the sound upbringing of minors, which empower competent authorities to designate game software as detrimental to the sound upbringing of minors and prohibit the sale or distribution to minors of such designated game software. In addition, the Computer Entertainment Rating Organization, or “CERO,” a nonprofit organization, offers rating services for home‑use games, including online and mobile games. Game developers may request a rating for their game software from CERO, which will then review such software and assign one of the following five ratings: “suitable for users of all ages,” “suitable for users 12 years old or older,” “suitable for users 15 years old or older,” “suitable for users 17 years old or older,” and “suitable only for users 18 years old or older.” Ratings are based on, among other factors, the degree of sex, violence, anti‑social expression, language, and ideology related expressions in the game software content. Once a rating is assigned, the relevant game software must prominently display such rating.
Act Against Unjustifiable Premiums and Misleading Representations
In 2012, the Consumer Affairs Agency issued guidance that a certain subset of Gatcha known as “complete Gatcha” (kompu gatcha) violate the Act Against Unjustifiable Premiums and Misleading Representations (“AAUPMR”). In complete Gatcha, a player must first win several items through a standard Gatcha mechanism in order to ultimately win another, rarer item. For example, a player must first win items A through D through normal Gatcha before receiving a “grand prize” item E. Because complete Gatcha induce the player to purchase more and more Gatchas, the Consumer Affairs Agency regards them as offering an improper premium that harms consumer welfare. Regular Gatcha, by contrast, are permitted under the Consumer Affair Agency’s guidance because they do not generate an item, which can be combined with other items. In simple terms, regular Gatcha do not offer a set to “complete.”
In October 2023, the Consumer Affairs Agency added so-called stealth marketing within the definition of “improper representation,” which is banned under the AAUPMR. Stealth marketing, which is subject to regulation under the AAUPMR, covers any representation by a company that is difficult for consumers to identify as an advertising or paid promotion across any media platform (e.g. SNS, Youtube, websites, TV programs, newspaper, radio, or magazines).
Copyright Act
Any game products, including console software, online and mobile games etc., are subject to copyright protections.
Payment Service Act
Under the Payment Services Act, in-game items that are purchasable with real money and function in-game as consideration for any in-game goods or services, which can be used for a period of greater than six months, are regulated as “prepaid payment instruments.” Business operators are required to inform users of their trade name, available amount of in-game currency or amount of goods or services for use, any limitation on the period of use of such in-game items, contact information for claims or consultation, restrictions to area of use of such in-game items, reminders necessary for use, unused balance or method to confirm the unused balance of such in-game items, and the existence of terms and conditions (if any). Business operators are also required to deposit with legal affairs bureaus no less than half of the unused balance of such in-game items sold by the game operator, or otherwise take measures to secure funds as specified therein, in case such unused balance exceeds 10 million yen as of March 31 and September 30 in a given year.
Specified Commercial Transactions Act
Under the Specified Commercial Transactions Act, business operators are required to display a confirmation screen before an individual can complete a transaction in an online game. The confirmation screen must be displayed whenever an individual purchases an in-game item with either real or in-game currency. The confirmation screen must note, among others, the amount of in-game goods to be sold, the consideration for the preceding, the timing and method of payment, when the goods will be delivered, limitation on the period (if any) during which an individual may purchase in-game goods to be sold, and any terms relating to withdrawal or cancellation of the purchase offer.
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The United States
Protection of Personal Information
Most states have enacted legislation regarding the protection of personal information collected, processed, maintained, or used in electronic form, as well as specific notification procedures in the event that such information is accessed or acquired by unauthorized individuals. Under these laws, among other things, businesses are required to implement and maintain reasonable security measures, such as encryption, designed to protect the computerized personal information of its customers or users from unauthorized access, disclosure, or use. The definition of “personal information” varies by state, but may include social security numbers, credit card, or bank account numbers and access codes, and a username or email address in connection with a password or security question that would permit access to an online account. In the event that a business suffers a security breach, these laws may require the business to provide notice of the incident. If notification is required, the business must notify each individual whose data was included in the incident and in some circumstances the State Attorney General, other state agencies, and consumer reporting bureaus. In addition to notifications required under state data breach laws, some other federal or state laws or guidelines may require notifications to other government agencies for incidents involving specific categories of information including but not limited to personal financial data, health data, and tax data. Notice may not be required in some states where an investigation demonstrates there is no risk of harm. In recent years, many states have adopted amendments to these laws, expanding the definition of “personal information” requiring notification, shortening the timing for required notification and imposing new regulator and consumer reporting bureau notification obligations in certain circumstances. If such personal information is accessed or acquired by unauthorized individuals, the business may be subject to litigation risks from impacted customers for harm to them potentially resulting in statutory fines or penalties, as well as civil liabilities. A business that suffers a breach may also experience harm to its reputation and business.
Privacy Policy Requirements
Online privacy policies are generally required for Web sites that collect personal information from consumers under the Federal Trade Commission Act. Privacy policies are also specifically required from children under the Children’s Online Privacy Protection Act (“COPPA”) and the residents of certain states, such as California, Virginia, Colorado, Connecticut, Utah, Nevada, and Delaware. Any company that does publish a privacy policy is obligated to comply with its terms or risk being found to have engaged in a deceptive practice. Notably, the Federal Trade Commission (the “FTC”) and active state data privacy laws require that a posted privacy policy conspicuously and accurately disclose their user data collection and disclosure practices, including informing a business’ customers and users of the personal information that is collected, describing how that personal information is used and shared with third parties, and explaining how users may change or update such information. In addition to possible statutory fines or penalties, a Web site operator may be directly liable to its customers or users if it fails to comply with its posted privacy policy, if such noncompliance harms the users. Moreover, the FTC has increased its enforcement actions against businesses for data privacy violations, with a focus on children’s privacy and targeted advertising, and imposed significant civil penalties on companies that failed to comply with the representations made in their online privacy policies and/or adequately disclose the companies’ actual practices in such policies. Settlement agreements with the FTC frequently include 20 years of privacy audits and mandated revisions to the business’ privacy practices to facilitate protection and enable consumer control, and can include civil penalties. In general, privacy policies are also expected and in certain circumstances required in the mobile application context, including in relation to the collection and use of precise geolocation and mobile device identifier data. Because of the sensitive nature of data that can be collected through mobile applications, mobile application developers should post a privacy policy accessible through the application or the application store, provide just‑in‑time disclosures, obtain affirmative express parental consent when collecting sensitive information such as children’s data, or engaging in certain tracking activities, and use enhanced measures or special notices to alert users to unexpected data use cases to follow best recommended practices from the FTC and State Attorneys General as well as certain requirements recently imposed by state law and mobile application store platform terms. The FTC has increased its scrutiny of mobile platforms and mobile applications and launched several investigations into application developers in recent years relating to misleading privacy disclosures, the over‑collection of data from a user’s mobile device, and the collection of information from children under the age of 13 in violation of COPPA. FTC enforcement actions relating to the failure to properly disclose and obtain valid consent to data collection, use, and sharing may result in a consent order requiring a business to delete all information that was improperly collected and used. Further, mobile application store platforms have increased their requirements and scrutiny of mobile applications available through their platforms, and failure to comply with mobile application store requirements can result in a mobile application’s removal from the mobile application store. Mobile location data sales and mobile apps that contain third-party location gathering software development kits (SDKs) have been the subject of significant scrutiny by Federal lawmakers over the years.
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Business Impact and Liability Arising from New and Evolving Data Privacy and Cybersecurity Laws and Regulations
Data privacy and cybersecurity-related laws and regulations in the United States are evolving and are subject to potentially differing interpretations, and various U.S. federal and state legislative and regulatory bodies may expand or enact new data privacy and cybersecurity-related laws and regulations. For example, the state of California enacted the California Consumer Privacy Act of 2018 (the “CCPA”), which came into effect on January 1, 2020, and which introduces and enhances consumer rights for California residents and disclosure obligations relating to how personal information (which is defined broadly under the CCPA) is processed. In certain circumstances, the CCPA provides a California resident the right to direct a business not to sell his or her personal information or to delete his or personal information, as well as the right to access his or her personal information or to request certain details about how a business processes his or her personal information. The CCPA also provides children’s personal information heightened protection by prohibiting businesses from selling the personal information of a California resident whom the business has actual knowledge is less than 16 years of age unless the business receives affirmative authorization from the resident between the age of 13 and 16, or from his or her parent or guardian, if the individual is less than 13 years of age. California recently significantly amended the CCPA, under the California Privacy Rights Act of 2020 (the “CPRA”), which became effective on January 1, 2023, and will become enforceable on July 1, 2023. Of note, the CPRA expands the CCPA’s right to opt out and the obligation for businesses to obtain affirmative authorization for certain use of personal information of children less than 16 years of age to include not only the selling of personal information but also the sharing of personal information for cross-context behavioral advertising purposes. Outside of California, the Commonwealth of Virginia enacted the Virginia Consumer Data Protection Act (the “VCDPA”), which became effective on January 1, 2023. Similar to the CPRA, the VCDPA grants Virginia residents a broader right to opt out of the processing of personal information for purposes of targeted advertising, the sale of personal data, and certain profiling concerning the consumer, and also prohibits businesses from processing sensitive data (which is defined to include precise geolocation data and personal data collected from a known child younger than 13 years of age) without obtaining the consumer’s consent. Colorado has also enacted the Colorado Privacy Act that similarly provides rights and imposes obligations on business regarding personal information that became effective on July 1, 2023. Additional comprehensive state data privacy laws have become effective in Utah and Connecticut, and in 2024, data privacy laws in Florida, Oregon, Montana, and Texas will take effect creating an evolving climate for data privacy compliance obligations and risks. Five other states (Delaware, Iowa, New Jersey, Tennessee, and Indiana) have similar comprehensive data privacy laws set to become effective by 2026. Major industries we rely on (like the online advertising industry) are undergoing significant change to address these legal and regulatory developments, new platform rules and evolving consumer expectations. In this rapidly changing legal environment, our business may experience disruption in its ability to process certain consumer data, earn revenue from advertising inventory, and obtain new users and subscribers of our games, and our operations may be further impacted if other states in the U.S. adopt similar laws or if comprehensive federal data privacy or cybersecurity laws are enacted. Such laws may require us to modify our data processing practices and policies and to incur substantial costs in order to investigate, comply, and defend against potential regulatory enforcement actions or private class-action litigation.
Game Ratings and Attempts to Regulate Access to Children
Most video game software publishers comply with the standardized rating system established by the Entertainment Software Rating Board, or the “ESRB,” a non‑profit, self‑regulatory body established in 1994 by the Entertainment Software Association, or the “ESA.” The ESRB rates video games submitted by video game publishers; the ratings include both a symbol for age appropriateness (e.g., “E” for Everyone or “M” for Mature) and a content descriptor (e.g., “Blood and Gore” or “Intense Violence”). The ESRB specifically excludes any online interactions from the rating, as the ESRB is unable to review content, such as chat, text, audio, and video generated by other users in an online environment. In 2015, the ESRB, in partnership with the International Age Rating Coalition, extended the ESRB rating system to games accessible via mobile and digital marketplaces.
By submitting a game to the ESRB and using an ESRB rating, a video game publisher must agree to adhere to advertising and packaging guidelines for the rated game, such as using appropriate advertising content and not targeting any advertisement for a game rated “Teen,” “Mature” or “Adults only” to consumers for whom the product is not rated as appropriate. The ESRB’s Advertising Review Council has been granted the oversight and enforcement authority for compliance with the advertising guidelines. The ESRB may enforce sanctions against game producers for failing to label their product properly, including fines up to US$ 1 million, and/or product recall. Games that are digitally available via download may be taken down for incomplete content disclosures. Although submitting a game to the ESRB is voluntary, some retailers may be reluctant to sell games without an ESRB rating.
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The United States Federal Trade Commission, or the “FTC,” may also take action with respect to improper ratings pursuant to its broad authority to prohibit fraudulent, deceptive, or unfair business practices.
The ESRB has rated our games as follows: Requiem Online is rated “Mature,” Ragnarok Online is rated “Teen” and Dragon Saga is rated “Everyone 10+.”
A number of bills have been introduced in Congress to specifically regulate the sale of video games with violent content to minors, but currently no such federal laws are in effect. Several states and cities have enacted or are considering laws that would regulate game industry content and marketing, including the rental or sale of games with violent content by or to minors. Other states have enacted laws that require the posting of signs providing information about ESRB ratings. Lawmakers may pass additional laws and regulations restricting the sale of violent video games to minors, which, if enacted, could adversely affect our sales and results of operations.
Online Collection of Information from Children
COPPA governs the online collection of personal information from children under the age of 13. Under COPPA, a Web site or online service, including an Internet-enabled gaming platform, that knowingly collects information from children under 13 years old, or that in whole or in part is directed to children under 13 years old, must obtain verifiable parental consent before collecting, using and/or disclosing personal information from any child (including, but not limited to, first and last name, home address, email address, telephone number, Social Security number, image or likeness, mobile device identifier, or other persistent identifier that would permit the physical or online contacting of a specific individual) and meet other requirements.
Web sites or online services subject to COPPA must therefore obtain verifiable parental consent before engaging in online advertising that involves tracking of children under the age of 13. The Web site operator must also post and obtain parental consent to a clear online privacy policy that provides notice of what information is collected from children, how the information is used, and a list of third parties with which the operator may share or sell the child’s information. The privacy policy must inform parents of their right to choose whether the child’s information can be shared with third parties, provide parents access to the child’s information, and offer parents the opportunity to delete any collected information. If the company permits third-party advertising networks to use persistent identifiers to serve advertisements, the company must ensure that parental consent covers such collection, sharing, and use. Moreover, the operator must establish and maintain reasonable procedures to protect the confidentiality, security, and integrity of any personal information collected from children under 13 years of age. COPPA also prohibits conditioning a child’s participation in a game on the child disclosing more personal information than is reasonably necessary to participate in such activity. COPPA authorizes the FTC and the State Attorneys General to bring actions against Web site operators to enforce the statute, and provides for penalties of up to US$ 51,744 per violation. A recent 2023 enforcement action alleging COPPA violation by a video game maker resulted in civil penalties of US$ 275,000,000, the largest civil monetary penalty ever imposed under COPPA. Recent legislative efforts to amend COPPA and the initiation of the FTC’s regulatory review process to update the agency’s COPPA Rule implementing the statute may further impact our operations to the extent they involve the collection of information from children.
Liability Arising from User Speech and Conduct
Section 230 of the Communications Decency Act of 1996, or the “CDA,” provides limited protection to interactive computer services, such as an online game service, from liability for publishing information posted or provided by others, such as the users of an online game service. The protections of the CDA, however, do not immunize interactive computer services from criminal liability under United States Federal law (e.g., obscenity or child pornography), for infringement of intellectual property law, or any state laws that are not inconsistent with the CDA. Additionally, Section 230 of the CDA is considered somewhat controversial, leading to several State law proposals seeking to limit the protections offered by the CDA by introducing legislation to carve out protection in cases of violations of state criminal law or child prostitution. Congress or the courts could continue to narrow or change the application of Section 230 of the CDA, in which case online game service operators, such as the Company, could face increased potential liability for certain speech or conduct by the users on their online game service. Recent events in the United States have increased focus on potential reform for Section 230 of the CDA and the scope of the law is under consideration by the U.S. Supreme Court.
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ITEM 4.C. ORGANIZATIONAL STRUCTURE
The following is our organizational structure:
ITEM 4.D. PROPERTY, PLANTS AND EQUIPMENT
As of December 31, 2023, our property and equipment mainly consisted of (i) network servers, (ii) PCs, and (iii) right–of-use assets. As of December 31, 2023, the net book value of our property and equipment was Won 10,151 million (US$ 7,863 thousand).
Korea
Our principal executive and administrative offices are located at 15F, 396 World Cup buk‑ro, Mapo‑gu, Seoul 03925, Korea. We currently occupy 99,537 square feet of office space, which we lease from National IT Industry Promotion Agency, pursuant to an amendment agreement we entered into on November 3, 2022, amending our lease agreement dated December 31, 2019. The lease expires on December 31, 2024. The annual lease payment amounts to Won 1,129 million (US$ 875 thousand). The offices of Gravity NeoCyon, our 99.53% owned subsidiary as of December 31,2023, are located at 12F, 396 World Cup buk‑ro, Mapo‑gu, Seoul 03925, Korea. Gravity NeoCyon currently occupies 26,244 square feet of office space, subleased from us. The annual lease payment amounts to Won 344 million (US$ 266 thousand). We believe that the existing facilities of Gravity and Gravity NeoCyon are adequate for our current requirements and that additional space can be obtained on commercially reasonable terms to meet our future requirements.
The United States
The office of Gravity Interactive, our wholly‑owned subsidiary in the United States, is located at 7001 Village Drive, Suite 150, Buena Park, California 90621. Gravity Interactive currently occupies 6,111 square feet of office space, leased from a third party. The annual lease payment amounts to Won 242 million (US$ 187 thousand). We believe that the existing facilities of Gravity Interactive are adequate for their current requirements and that additional space can be obtained on commercially reasonable terms to meet their future requirements.
Taiwan
The office of Gravity Communications, our wholly‑owned subsidiary in Taiwan, is located at 14th Floor, No. 335 Ruiguang Road, Neihu District, Taipei City. Gravity Communications occupies 11,704 square feet of office space leased from a third party. The annual lease payment amounts to Won 313 million (US$ 242 thousand). We believe that the existing facilities of Gravity Communications are adequate for our current requirements and that additional space can be obtained on commercially reasonable terms to meet our future requirements.
Japan
The office of Gravity Game Arise Co., Ltd. (“Gravity Game Arise”), our wholly‑owned subsidiary in Japan, is located at 2F, 3-14-4, Hacchobori, Chuo-ku, Tokyo. Gravity Game Arise currently occupies 4,693 square feet of office space, leased from a third party. The annual lease payment amounts to Won 318 million (US$ 246 thousand). We believe that the existing facilities of Gravity Game Arise are adequate for their current requirements and that additional space can be obtained on commercially reasonable terms to meet their future requirements.
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Indonesia
The office of Gravity Game Link, our 70%‑owned subsidiary in Indonesia, is located at Jl. Arteri Pos Pengumben No. 8 RT. 05 / RW. 08, Sukabumi Selatan, Kebon Jeruk, RT.5/RW.8, Sukabumi Sel., Kec. Kb. Jeruk, Kota Jakarta Barat, Daerah Khusus Ibukota Jakarta. Gravity Game Link currently occupies 2,014 square feet of office space, leased from a third party. The annual lease payment amounts to Won 75 million (US$ 58 thousand). We believe that the existing facilities of Gravity Game Link are adequate for their current requirements and that additional space can be obtained on commercially reasonable terms to meet their future requirements.
Thailand
The office of Gravity Game Tech, our wholly‑owned subsidiary in Thailand, is located at 139 Sethiwan Tower 19 Floor, Pan Rd, Silom, Bang Rak, Bangkok. Gravity Game Tech currently occupies 8,680 square feet of office space, leased from a third party. The annual lease payment amounts to Won 226 million (US$ 175 thousand). We believe that the existing facilities of Gravity Game Tech are adequate for their current requirements and that additional space can be obtained on commercially reasonable terms to meet their future requirements.
Singapore
The office of Gravity Game Hub, our wholly‑owned subsidiary in Singapore, is located at #10-1~2, 100 Cecil Street, The Globe, Singapore. Gravity Game Hub currently occupies 2,670 square feet of office space, leased from a third party. The annual lease payment amounts to Won 167 million (US$ 129 thousand). We believe that the existing facilities of Gravity Game Hub are adequate for their current requirements and that additional space can be obtained on commercially reasonable terms to meet their future requirements.
Hong Kong
The office of Gravity Game Vision, our wholly-owned subsidiary in Hong Kong, is located at Rm1501-08, Millennium City 5, 418 Kwun Tong Road, KwunTong, Kowloon, KLN, Hong Kong. Gravity Game Vision currently occupies 214 square feet of office space, lease from a third party. The annual lease payment amounts to Won 30 million (US$ 23 thousand). We believe that the existing facilities of Gravity Game Vision are adequate for their current requirements and that additional space can be obtained on commercially reasonable terms to meet their future requirements.
ITEM 4A. UNRESOLVED STAFF COMMENTS
Not applicable.
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS
You should read the following discussion together with our consolidated financial statements and the related notes which appear elsewhere in this Annual Report. The following discussion is based on our consolidated financial statements, which have been prepared in accordance with IFRS. Our historic performance may not be indicative of our future results of operations and capital requirements and resources.
ITEM 5.A. OPERATING RESULTS
OVERVIEW
We are a leading developer and distributor of online games and mobile games in Thailand, Taiwan, and Korea based on the number of peak concurrent users. Our headquarters is in Korea, and we are incorporated under the laws of Korea. Our revenues have been and continue to be driven primarily by our first game, Ragnarok Online, and other games developed based on the content of Ragnarok Online, particularly the mobile games Ragnarok Origin, Ragnarok X: Next Generation and Ragnarok M: Eternal Love, which represented 62.3%, 13.7% and 9.6% in our total revenues in 2023, respectively. Our future growth and profitability will be determined by our ability to enhance the features on our existing games and introduce new games with characters, features, and functions that gain market acceptance and following.
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In 2023, our revenues increased by 56.5% to Won 725,516 million (US$ 561,993 thousand) from Won 463,618 million in 2022. We recorded a net profit attributable to owners of the parent company of Won 132,019 million (US$ 102,265 thousand) in 2023 as compared to a net profit attributable to owners of the parent company of Won 83,162 million in 2022. Our gross profit margin decreased to 33.2% in 2023 from 42.3% in 2022. Our operating profit margin was 22.1% in 2023 with an operating profit of Won 160,367 million (US$ 124,223 thousand) in 2023 as compared to an operating profit margin of 22.6% in 2022.
The increase in revenues in 2023 was primarily due to increased mobile games revenues from Ragnarok Origin, as discussed below, which was launched in Southeast Asia on April 6, 2023.
Our cost of revenues for 2023 increased as compared to 2022 mainly due to increased commissions paid for Ragnarok Origin in Southeast Asia. Our operating expenses for 2023 decreased as compared to 2022 mostly due to decreased advertising expenses. Our revenue trend will continue to be materially affected in the future by the popularity of online and mobile games introduced by our competitors.
Our corporate income tax rate in Korea in 2023 was 21%.
Revenues
We have applied IFRS 15 Revenue from Contracts with Customers on January 1, 2018, the date of initial application.
We derive, and expect to continue to generate, most of our revenues from online games (subscription and micro-transaction revenue generated in the countries and markets where our games are offered by us, royalties and license fees paid by our licensees in our overseas markets) and from mobile games (royalties and license fees paid by our licensees in our overseas markets and micro-transaction revenue). Our revenues can be classified into the following three categories:
•online games;
•mobile games; and
•other revenue.
As our revenue from mobile games takes more significant portion of our total revenue, we presented each revenue stream for both online and mobile games.
Online games
Revenue from micro-transaction
At the end of the reporting period, we defer the total amount of remaining virtual currency.
For consumable in-game virtual items, the related revenue is recognized when the in-game virtual item is consumed. We defer the revenue for remaining amounts of virtual items owned by active users within the estimated user life cycle at the end of the reporting period. For periodic in-game virtual items, the related revenue is recognized ratably over the effective period. We defer the revenue for remaining effective period. For permanent in-game virtual items, revenue is recognized ratably over the estimated user life cycle.
We recognize online subscription revenue as game users make use of in-game premium features. Subscription revenue comes from subscription fee for internet cafés. Prepaid subscription fees from internet cafés are deferred and recognized as revenue monthly based on actual hours used.
Revenue from royalties and license fees
In connection with our online and mobile games, we enter into license agreement in connection with the right to access the intellectual property, such as game character images and stories. We believe that the agreement is a promise to provide a right to the customer to access the related IP because we will undertake activities that significantly affect the
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intellectual property to which the customer has rights, the rights granted by the license directly expose the customer to any positive or negative effects of our activities, and those activities do not result in the transfer of a good or a service to the customer as those activities occur. Therefore, our performance obligations in connection with these agreements are satisfied over time.
Since the nature of the license promise is to provide customers with access to the intellectual property of us during the license period, our performance obligation corresponds to the performance obligation satisfied over time, and revenue is recognized over the license period. We recognize revenue for the license fee through the straight-line method during the contract period, and for the running royalty revenue, the revenue is recognized on an accrual basis at the time the revenue distribution is established in accordance with the terms of the contract. When the running royalty revenue based on the contractual royalty rate and the actual revenue of the licensee exceeds the ratably recognized minimum guarantee, the excess amount is then recognized as revenue and accounts receivable.
Mobile games
Revenue from micro-transaction
Mobile game users purchase virtual currency that can be used to purchase in-game items. We have no refund obligation after the game users purchase virtual currency.
At the end of the reporting period, we defer the revenue for the remaining virtual currency possessed by active paying users within the estimated user life cycle.
For consumable in-game virtual items, revenue is recognized when the in-game virtual item is consumed. At the end of the reporting period, we defer the revenue by reflecting the average unit price to the remaining amount of virtual items possessed by active users within the estimated user life cycle. For periodic in-game virtual items with effective period, revenue is recognized ratably over the effective period. We defer the revenue for remaining effective period. For permanent in-game virtual items, revenue is recognized ratably over the estimated user life cycle. We defer the revenue for remaining period of estimated user life cycle at the end of the reporting period.
Revenue from royalties and license fees
In connection with our online and mobile games, we enter into license agreement in connection with the right to access the intellectual property, such as game character images and stories. We believe that the agreement is a promise to provide a right to the customer to access the related IP because we will undertake activities that significantly affect the intellectual property to which the customer has rights, the rights granted by the license directly expose the customer to any positive or negative effects of our activities, and those activities do not result in the transfer of a good or a service to the customer as those activities occur. Therefore, our performance obligations in connection with these agreements are satisfied over time.
Since the nature of the license promise is to provide customers with access to the intellectual property of us during the license period, our performance obligation corresponds to the performance obligation satisfied over time, and revenue is recognized over the license period. We recognize revenue for the license fee through the straight-line method during the contract period, and for the running royalty revenue, the revenue is recognized on an accrual basis at the time the revenue distribution is established in accordance with the terms of the contract. When the running royalty revenue based on the contractual royalty rate and the actual revenue of the licensee exceeds the ratably recognized minimum guarantee, the excess amount is then recognized as revenue and accounts receivable.
Other revenue
Other revenue consists of revenue from sales of console games, game character merchandise, animation, and other services, including website development and operation services for third parties. Revenues from development and operation services for third parties are recognized over time by measuring progress towards complete satisfaction of a performance obligation. The progress is measured by reference to the costs incurred up to the end of the reporting period as a percentage of total estimated costs for each contract.
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The following table sets forth a breakdown of revenues by type of revenue and the percentage of total revenue for the periods indicated:

|  | Year Ended December 31
Revenue Type |  | 2023 |  | 2023(1) |  | 2022 |  | 2021
|  | (In millions of Korean Won and thousands of US$, except percentages)
Online games |  |  |  |  |  |  |  |  |  |  |  |  |  |
Micro-transaction revenue |  | ₩ | 70,566 |  |  | 9.7 | % |  | US$ | 54,662 |  |  | ₩ | 80,147 |  |  | 17.3 | % |  | ₩ | 64,382 |  |  | 15.6 | %
Royalties and license fees |  | 10,451 |  |  | 1.4 |  |  | 8,095 |  |  | 9,109 |  |  | 2.0 |  |  | 10,988 |  |  | 2.6 |
Subtotal |  | 81,017 |  |  | 11.1 |  |  | 62,757 |  |  | 89,256 |  |  | 19.3 |  |  | 75,370 |  |  | 18.2 |
Mobile games |  |  |  |  |  |  |  |  |  |  |  |  |  |
Micro-transaction revenue |  | 568,665 |  |  | 78.4 |  |  | 440,494 |  |  | 261,622 |  |  | 56.4 |  |  | 164,646 |  |  | 39.8 |
Royalties and license fees |  | 60,939 |  |  | 8.4 |  |  | 47,204 |  |  | 97,150 |  |  | 21.0 |  |  | 155,518 |  |  | 37.6 |
Subtotal |  | 629,604 |  |  | 86.8 |  |  | 487,698 |  |  | 358,772 |  |  | 77.4 |  |  | 320,164 |  |  | 77.4 |
Other revenue |  | 14,895 |  |  | 2.1 |  |  | 11,538 |  |  | 15,590 |  |  | 3.3 |  |  | 18,404 |  |  | 4.4 |
Total |  | ₩ | 725,516 |  |  | 100 | % |  | US$ | 561,993 |  |  | 463,618 |  |  | 100.0 | % |  | ₩ | 413,938 |  |  | 100 | %

__________________
Notes:
(1)For convenience only, the Won amounts are expressed in the U.S. dollar at the rate of Won 1,290.97 to US$ 1.00, the noon buying rate in effect on December 29, 2023, as certified by the Federal Reserve Bank of New York for customs purposes.
Cost of revenues
Our cost of revenues consists principally of the following:
•operational expenses, commissions paid, royalty payments, server depreciation expenses, server maintenance costs and related personnel costs, mobile platform fees, channeling service fees, and outsourcing fees related to developing updates to games currently commercially offered;
•royalty payments to the third parties that are developers of some of the games we offer as a service distributor based on license agreements; and
•royalty payments to Mr. Myoung‑Jin Lee for the right to use the storyline and characters from his “Ragnarok” cartoon series used in our games and other products based on Ragnarok. We paid Mr. Lee an initial license fee of Won 40 million and are required to pay royalties based on 1.0% or 1.5% of adjusted revenues (net of value‑added taxes and certain other expenses) or 2.5%, 5% or 10% of net income generated from the use of the Ragnarok brand, depending on the type of revenues received from the operation or licensing of Ragnarok Online.
Payments to Mr. Myoung‑Jin Lee amounted to Won 2,585 million (US$ 2,002 thousand) for 2023 and Won 1,743 million for 2022. This agreement expires in January 2033.
Selling, general, and administrative expenses
Selling, general, and administrative expenses consist of sales commissions paid to independent promotional agents that distribute our online games to our Internet café subscribers in Korea, commissions paid to payment settlement providers, administrative expenses and related personnel expenses of executive and administrative staff, and marketing and promotional expenses and related personnel expenses.
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Research and development expenses
Research and development expenses consist primarily of payroll and other overhead expenses, which are all expensed as incurred. Research and development expenses for game development are capitalized only after the technological feasibility of a game is established. The technological feasibility of a game is established when game development is substantially complete.
Foreign currency effects
In 2023, 88.1% of our revenues were denominated in foreign currencies, primarily in the NT dollar, the Thai Baht, the Philippine Peso, the Indonesia Ruphia and the Malaysia Ringgit.
In most of the countries in which our games are distributed, the revenues generated by our overseas subsidiaries and licensees are denominated in local currencies, which include the NT dollar, the Thai Baht, the U.S. Dollar, the Japanese Yen, and the Philippine Peso. The revenues from those countries, other than the United States, Japan, and European countries, are converted into the U.S. dollar for remittance of monthly royalty payments to us. Depreciation of these local currencies against the U.S. dollar will result in reduced monthly royalty payments in U.S. dollar terms, thereby having a negative impact on our net profit given that substantially all of our costs are denominated in Won.
We receive monthly royalty payments from our overseas licensees based on an agreed percentage of revenues confirmed and recorded at the end of each month applying the foreign exchange rate applicable on such date. We generally receive these royalty payments 20 to 90 days after the end of each month unless delayed due to extraordinary circumstances. Appreciation or depreciation of the Won against these foreign currencies during this period will result in foreign currency losses or gains and affect our net profit.
As of December 31, 2023 and 2022, we had no foreign currency forward contracts outstanding. See ITEM 11. “QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK—foreign currency risk.”
Income tax expenses
See ITEM 3.D. “RISK FACTORS—RISKS RELATING TO OUR REGULATORY ENVIRONMENT—Adverse changes in the withholding tax rates in the countries from which we receive license fees and royalties and adverse changes in ability to realize deferred tax assets could adversely affect our net profit.”
Segment Reporting
We operate the following business segments: online game, mobile game, and others. The online game segment consists of Micro-transaction and subscription revenue, which is operated by us, and Royalties and license fee. The mobile game segment consists of Micro-transaction, which is operated by us, and Royalties and license fee. The remainder of our operation is categorized as “others.” In 2023, 2022, and 2021, the revenues of online game segment amounted to 11.1%, 19.3% and 18.2% of our consolidated revenues, respectively, the revenues of mobile game segment amounted to 86.8%, 77.4% and 77.4% of our consolidated revenues, respectively, and the revenues of others segment amounted to 2.1%, 3.3%and 4.4% of our consolidated revenues, respectively. The results of operations for our business segments
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substantially mirror our consolidated results of operations. For further information, see Note 24 of the notes to our consolidated financial statements included in this annual report.

| 2023
| Online |  | Mobile |  | Others |  | Total
| (In millions of Korean won)
Segment revenue | ₩ | 96,487 |  |  | ₩ | 697,736 |  |  | ₩ | 21,149 |  |  | ₩ | 815,372 |
Elimination of intersegment revenue | (15,470) |  |  | (68,132) |  |  | (6,254) |  |  | (89,856) |
Consolidated net revenue | 81,017 |  |  | 629,604 |  |  | 14,895 |  |  | 725,516 |
Depreciation/Amortization | 1,436 |  |  | 2,158 |  |  | 4,064 |  |  | 7,658 |
Segment operating profit (1) | ₩ | 44,107 |  |  | ₩ | 122,107 |  |  | ₩ | (5,847) |  |  | ₩ | 160,367 |

| 2022
| Online |  | Mobile |  | Others |  | Total
| (In millions of Korean won)
Segment revenue | ₩ | 107,326 |  |  | ₩ | 404,362 |  |  | ₩ | 21,740 |  |  | ₩ | 533,428 |
Elimination of intersegment revenue | (18,069) |  |  | (45,591) |  |  | (6,150) |  |  | (69,810) |
Consolidated net revenue | 89,257 |  |  | 358,771 |  |  | 15,590 |  |  | 463,618 |
Depreciation/Amortization | 1,349 |  |  | 1,873 |  |  | 3,840 |  |  | 7,062 |
Segment operating profit (1) | ₩ | 45,832 |  |  | ₩ | 58,357 |  |  | ₩ | 519 |  |  | ₩ | 104,708 |

| 2021
| Online |  | Mobile |  | Others |  | Total
| (In millions of Korean won)
Segment revenue | ₩ | 90,123 |  |  | ₩ | 346,928 |  |  | ₩ | 23,417 |  |  | ₩ | 460,468 |
Elimination of intersegment revenue | (14,753) |  |  | (26,764) |  |  | (5,013) |  |  | (46,530) |
Consolidated net revenue | 75,370 |  |  | 320,164 |  |  | 18,404 |  |  | 413,938 |
Depreciation/Amortization | 1,975 |  |  | 1,875 |  |  | 2,468 |  |  | 6,318 |
Segment operating profit (1) | ₩ | 31,271 |  |  | ₩ | 64,837 |  |  | ₩ | 611 |  |  | ₩ | 96,719 |

(1)Other profit or loss items that do not constitute operating profit are not separately disclosed because they are not reviewed by the chief operating decision maker by operating segment. See “—RESULTS OF OPERATIONS: 2023 COMPARED TO 2022—Segment Results.”
New standards and interpretations not yet adopted by us
Certain new accounting standards and interpretations that have been published but are not mandatory for the annual reporting period commencing January 1, 2023, have not been early adopted by us. For a further description of the methods used in the preparation of our consolidated financial statements and new standards and amendments not yet adopted, see Note 4 to our financial statements.
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RESULTS OF OPERATIONS: 2023 COMPARED TO 2022
The following table summarizes our results of operations for the periods indicated:

| Years Ended December 31,
| 2023 |  | 2023(1) |  | 2022 |  | % Changes
| (In millions of Korean Won and thousands of US$, except percentages)
Statements of Comprehensive Income |  |  |  |  |  |  |
Revenues: |  |  |  |  |  |  |
Online games | ₩ | 81,017 |  | US$ | 62,757 |  | 89,256 |  | (9.2)%
Mobile games | 629,604 |  | 487,698 |  | 358,772 |  | 75.5
Other revenue | 14,895 |  | 11,538 |  | 15,590 |  | (4.5)
Total revenues | 725,516 |  | 561,993 |  | 463,618 |  | 56.5
Cost of revenues | 484,958 |  | 375,654 |  | 267,365 |  | 81.4
Gross profit | 240,558 |  | 186,339 |  | 196,253 |  | 22.6
Gross profit margin(2) | 33.2% |  | 33.2% |  | 42.3 | % |  |
Operating expenses: |  |  |  |  |  |  |
Selling, general and administrative expenses | (66,066) |  | (51,175) |  | (77,614) |  | (14.9)
Research and development | (13,486) |  | (10,446) |  | (13,797) |  | (2.3)
Other income | 913 |  | 707 |  | 605 |  | 50.9
Other expenses | (1,552) |  | (1,202) |  | (739) |  | 110.0
Total operation expenses | 80,191 |  | 62,116 |  | 91,545 |  | (12.4)
Operating profit | 160,367 |  | 124,223 |  | 104,708 |  | 53.2
Operating profit margin(3) | 22.1% |  | 22.1% |  | 22.6% |  |
Finance income (costs) |  |  |  |  |  |  |
Finance income | 23,267 |  | 18,023 |  | 15,953 |  | 45.8
Finance costs | (14,935) |  | (11,569) |  | (10,779) |  | 38.6
Profit before income tax | 168,699 |  | 130,677 |  | 109,882 |  | 53.5
Income tax expenses | 36,717 |  | 28,441 |  | 26,824 |  | 36.9
Profit for the year | 131,982 |  | 102,236 |  | 83,058 |  | 58.9
Other comprehensive income |  |  |  |  |  |  |
Items that maybe subsequently reclassified to income or loss |  |  |  |  |  |  |
Foreign currency translation adjustments | 1,559 |  | 1,208 |  | 285 |  | 447.0%
Items that will not be reclassified to profit or loss |  |  |  |  |  |  |
Remeasurement of defined benefit liabilities | 7 |  | 5 |  | (4) |  | N/M
Total comprehensive income for the year | 133,548 |  | 103,449 |  | 83,339 |  | 60.2
Profit (loss) attributable to: |  |  |  |  |  |  |
Owners of the Parent Company | ₩ | 132,019 |  | US$ | 102,265 |  | 83,162 |  | 58.7
Non-controlling interest (4) | (37) |  | (29) |  | (104) |  | (64.4)
Total comprehensive income attributable to: |  |  |  |  |  |  |
Owners of the Parent Company | ₩ | 133,560 |  | US$ | 103,458 |  | 83,457 |  | 60.0
Non-controlling interest (4) | (12) |  | (9) |  | (118) |  | (89.8)

N/M = not meaningful
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Notes:
(1)For convenience only, the Won amounts are expressed in U.S. dollars at the rate of Won 1,290.97 to US$ 1.00, the noon buying rate in effect on December 29, 2023, as certified by the Federal Reserve Bank of New York for customs purposes.
(2)Gross profit margin for each period is calculated by dividing gross profit by total revenue for each period.
(3)Operating profit margin for each period is calculated by dividing operating profit by total revenue for each period.
(4)Represents the non‑controlling interest in Gravity NeoCyon, a 96.1%‑held subsidiary acquired in December 2005, which increased to 98.7% in August 2018, to 99.2% in August 2019 and to 99.5% in April 2020, and Gravity Game Link, a 70%-held subsidiary acquired in February 2019.
Revenues
Our total revenues increased by 56.5% to Won 725,516 million (US$ 561,993 thousand) in 2023 from Won 463,618 million in 2022, primarily due to:
•a 75.5% increase in revenues from mobile games to Won 629,604 million (US$ 487,698 thousand) in 2023 from Won 358,772 million in 2022. This increase was mainly due to increased revenues from Ragnarok Origin, which was launched in Southeast Asia on April 6, 2023 and Ragnarok X: Next Generation, which was launched in Korea in January 5, 2023. Such increase was partially offset by decreased revenues from Ragnarok X: Next Generation in Southeast Asia and Taiwan, Ragnarok Origin in the United States and Canada, Korea and Japan, and Ragnarok M: Eternal Love in Southeast Asia due to increased competition and weak demand for the game.
•a 9.2% decrease in revenue from online games to Won 81,017 million (US$ 62,757 thousand) in 2023 from Won 89,256 million in 2022. The decrease in revenues from online game was mostly due to decreased revenues from Ragnarok Online in Taiwan and the Philippines resulting from increased competition and weak demand for the game.
•a 4.5% decrease in other revenue to Won 14,895 million (US$ 11,538 thousand) in 2023 from Won 15,590 million in 2022, which was mainly attributable to decreased revenues in connection with the Gravity NeoCyon’s website development and operation services for third parties.
Cost of revenues
Our cost of revenues increased by 81.4% to Won 484,958 million (US$ 375,654 thousand) in 2023 from Won 267,365 million in 2022, primarily due to:
•an 86.7% increase in commission paid to Won 452,563 million (US$ 350,560 thousand) in 2023 from Won 242,345 million in 2022, which was mainly due to increased commissions paid in connection with mobile platform service fees, royalty payments and outsourcing fees for game services related to Ragnarok Origin. The increase was partially offset by decreased commissions paid for mobile platform service fees, royalty payments and outsourcing fees related to Ragnarok M: Eternal Love.
Gross profit and gross profit margin
As a result of the foregoing, our gross profit increased by 22.6% to Won 240,558 million (US$ 186,339 thousand) in 2023 from Won 196,253 million in 2022. Our gross profit margin decreased to 33.2% in 2023 from 42.3% in 2022 due to increased revenues from Ragnarok Origin resulting in increased platform service fees, royalties, and commission payable to third parties with respect to Ragnarok Origin offered in Southeast Asia.
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Operating expenses
Selling, general and administrative expenses. Our selling, general and administrative expenses decreased by 14.9% to Won 66,066 million (US$ 51,175 thousand) in 2023 from Won 77,614 million in 2022, primarily due to:
•a 54.3% decrease in advertising expenses to Won 13,661 million (US$ 10,582 thousand) in 2023 from Won 29,898 million in 2022, mainly due to a decrease in advertising expenses as we launched various games in 2022, including Ragnarok Origin in the United States and Canada; Ragnarok Labyrinth NFT in Southeast Asia and Global; Ragnarok Monster's Arena in Taiwan, Hong Kong and Macau; Ragnarok Tactics II in Thailand; Ragnarok Arena in Korea; Ragnarok: Lost Memories in North and South America, Brazil, Australia, New Zealand and Korea; Ragnarok Online in the Philippines, Singapore and Malaysia; and
Such decrease was partially offset by:
•a 17.6% increase in salaries to Won 20,688 million (US$ 16,025 thousand) in 2023 from Won 17,598 million in 2022, primarily resulting from an increase in the number of employees;
Research and development. Our research and development expenses decreased by 2.3% to Won 13,486 million (US$ 10,446 thousand) in 2023 from Won 13,797 million in 2022, mainly due to a decrease in development expenses for mobile games following the launch of Ragnarok V: Returns and Ragnarok Begins in 2022.
Other expenses. We had Won 1,531 million (US$ 1,186 thousand) in impairment losses on intangible assets in 2023, compared to impairment losses on intangible assets and other non-current assets of Won 470 million in 2022, which mostly consisted of impairment losses on intangible assets in relation to WITH: Whale In The High and Lost Saga.
Operating profit and operating profit margin
As a result of the cumulative effects of the reasons stated above, we recorded an operating profit of Won 160,367 million (US$124,223 thousand) in 2023, compared to operating profit of Won 104,708 million in 2022, and our operating profit margin was 22.1% and 22.6% in 2023 and 2022, respectively.
Net finance income (costs)
We recorded net finance income of Won 8,332 million (US$ 6,454 thousand) in 2023, compared to a net finance income of Won 5,174 million in 2022. Net finance income (costs) includes primarily interest income and foreign currency gain (loss).
Income tax expenses
We recorded an income tax expense of Won 36,717 million (US$ 28,441 thousand) in 2023, compared to an income tax expense of Won 26,824 million in 2022. Our effective tax rate has been decreased from 24% in 2022 to 22% in 2023 mainly due to an increase of utilized tax credit, a decrease of corporate tax on unappropriated earnings and a decrease of deferred tax liabilities related to investment in subsidiaries.
Non‑controlling interest
Non‑controlling interest represents the net loss from Gravity NeoCyon, our 99.5%‑held subsidiary in 2023 and net loss from Gravity Game Link, our 70%-held subsidiary, attributable to third-party minority interest holders.
Profit attributable to owners of the parent company
As a result of the foregoing, we recorded profit attributable to owners of the parent company of Won 132,019 million (US$ 102,265 thousand) in 2023 compared to profit attributable to owners of the parent company of Won 83,162 million in 2022.
Segment Results
Our net revenues from online game operations, prior to adjusting for inter-segment transactions, was Won 96,487 million (US$74,740 thousand) in 2023, which was a 10.1% decrease from Won 107,326 million in 2022. This was
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mainly due to decreased revenues related to Ragnarok Online in Taiwan and the Philippines. Our net revenue from mobile game operations was Won 697,736 million (US$540,474 thousand) in 2023, which was a 72.6% increase from Won 404,362 million in 2022. This was mainly due to increased revenues from Ragnarok Origin in Southeast Asia.
We recorded an operating profit of Won 44,107 million (US$34,166 thousand) from online game operations in 2023, which was an decrease of 3.8% from Won 45,832 million in 2022, resulting mainly from decreased revenues from Ragnarok Online in Taiwan and the Philippines. Also, our operating profit from mobile game operations was Won 122,107 million (US$94,585 thousand) in 2023, which was a increase of 109.2% from Won 58,357 million in 2022, resulting mainly from increased revenues from Ragnarok Origin in Southeast Asia.
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RESULTS OF OPERATIONS: 2022 COMPARED TO 2021

| Years Ended December 31,
| 2022 |  | 2021 |  | % Changes
| (In millions of Korean Won except percentages)
Statements of Comprehensive Income |  |  |  |  |
Revenues: |  |  |  |  |
Online games | ₩ | 89,256 |  | ₩ | 75,370 |  | 18.4%
Mobile games | 358,772 |  | 320,164 |  | 12.1
Other revenue | 15,590 |  | 18,404 |  | (15.3)
Total revenues | 463,618 |  | 413,938 |  | 12.0
Cost of revenues | 267,365 |  | 224,173 |  | 19.3
Gross profit | 196,253 |  | 189,765 |  | 3.4
Gross profit margin(1) | 42.3% |  | 45.8% |  |
Operating expenses: |  |  |  |  |
Selling, general and administrative expenses | (77,614) |  | (75,631) |  | 2.6
Research and development | (13,797) |  | (16,570) |  | (16.7)
Other income | 605 |  | 607 |  | (0.3)
Other expenses | (739) |  | (1,452) |  | (49.1)
Total operation expenses | 91,545 |  | 93,046 |  | (1.6)
Operating profit | 104,708 |  | 96,719 |  | 8.3
Operating profit margin(2) | 22.6% |  | 23.4% |  |
Finance income (costs) |  |  |  |  |
Finance income | 15,953 |  | 5,268 |  | 202.8
Finance costs | (10,779) |  | (2,686) |  | 301.3
Profit before income tax | 109,882 |  | 99,301 |  | 10.7
Income tax expenses | 26,824 |  | 33,421 |  | (19.7)
Profit for the year | 83,058 |  | 65,880 |  | 26.1
Other comprehensive income |  |  |  |  |
Items that maybe subsequently reclassified to income or loss |  |  |  |  |
Foreign currency translation adjustments | 285 |  | 3,274 |  | (91.3)
Items that will never be reclassified to profit or loss |  |  |  |  |
Remeasurement of defined benefit liabilities | (4) |  | (3) |  | 33.3
Total comprehensive income for the year | 83,339 |  | 69,151 |  | 20.5
Profit (loss) attributable to: |  |  |  |  |
Owners of the Parent Company | ₩ | 83,162 |  | ₩ | 65,947 |  | 26.1
Non-controlling interest (3) | (104) |  | (67) |  | 55.2
Total comprehensive income attributable to: |  |  |  |  |
Owners of the Parent Company | ₩ | 83,457 |  | ₩ | 69,172 |  | 20.7
Non-controlling interest (3) | (118) |  | (21) |  | 461.9

N/M = not meaningful
__________________
Notes:
(1)Gross profit margin for each period is calculated by dividing gross profit by total revenue for each period.
(2)Operating profit margin for each period is calculated by dividing operating profit by total revenue for each period.
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(3)Represents the non‑controlling interest in Gravity NeoCyon, a 96.1%‑held subsidiary acquired in December 2005, which increased to 98.7% in August 2018, to 99.2% in August 2019, to 99.5% in April 2020, and Gravity Game Link, a 70%-held subsidiary acquired in February 2019.
Revenues
Our total revenues increased by 12.0% to Won 463,618 million in 2022 from Won 413,938 million in 2021, primarily due to:
•a 18.4% increase in revenue from online games to Won 89,256 million in 2022 from Won 75,370 million in 2021. The increase in revenues from online game was mostly due to increased revenues from Ragnarok Online in Taiwan and Thailand as a result of the twentieth anniversary event held in October and in-game job updates in March 2022 in Taiwan, and Ragnarok Classic launched in Thailand in October 2021;
•a 12.1% increase in revenues from mobile games to Won 358,772 million in 2022 from Won 320,164 million in 2021. This increase was mainly due to increased revenues from Ragnarok Origin which was launched in Taiwan, Hong Kong and Macao on September 15, 2022 and such increase was partially offset by decreased revenues from Ragnarok X: Next Generation in Southeast Asia and Taiwan, Ragnarok Origin in Korea, and Ragnarok M: Eternal Love in Southeast Asia due to increased competition and weak demand for the game; and
•a 15.3% decrease in other revenue to Won 15,590 million in 2022 from Won 18,404 million in 2021, which was mainly attributable to decreased revenues from Gravity NeoCyon’s website development and operation services for third parties.
Cost of revenues
Our cost of revenues increased by 19.3% to Won 267,365 million in 2022 from Won 224,173 million in 2021, primarily due to:
•a 6.3% increase in commission paid to Won 242,345 million in 2022 from Won 200,786 million in 2021, which was mainly due to increased commissions paid in connection with mobile platform service fees, royalty payments and outsourcing fees for game services related to Ragnarok Origin. The increase was partially offset by decreased commissions paid for royalty payments related to Ragnarok X: Next Generation, and decreased commissions paid for mobile platform service fees, royalty payments and outsourcing fees related to Ragnarok M: Eternal Love.
Gross profit and gross profit margin
As a result of the foregoing, our gross profit increased by 3.4% to Won 196,253 million in 2022 from Won 189,765 million in 2021. Our gross profit margin decreased to 42.3% in 2022 from 45.8% in 2021 due to increased revenues from Ragnarok Origin resulting in increased platform service fees, royalties and commission payable to third parties with respect to Ragnarok Origin offered in Taiwan, Hong Kong and Macau.
Operating expenses
Selling, general and administrative expenses. Our selling, general and administrative expenses increased by 2.6% to Won 77,614 million in 2022 from Won 75,631 million in 2021, primarily due to:
•a 13.6% increase in salaries to Won 17,598 million in 2022 from Won 15,491 million in 2021, primarily resulting from an increase in the number of employees;
•a 13.7% increase in commission paid to Won 15,875 million in 2022 from Won 13,959 million in 2021, which was mostly related to the payment of gateway fees for Ragnarok Online in Taiwan and Thailand; and
Such increase was partially offset by:
• a 16.8% decrease in advertising expenses to Won 29,898 million in 2022 from Won 35,948 million in 2021, mainly due to a decrease in advertising expenses as we successfully launched various games in 2021,
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including Ragnarok Origin in the United States and Canada; Ragnarok: The Lost Memories in Thailand; Tera in Japan; NBA: Rise to Stardom in Japan; and The Lord in Thailand.
Research and development. Our research and development expenses decreased by 16.7% to Won 13,797 million in 2022 from Won 16,570 million in 2021, mainly due to a decrease in development expenses for mobile games following the launch of Ragnarok V: Returns and NBA Rise to Stardom in 2021.
Other expenses. We had Won 470 million in impairment losses on intangible assets and other non-current assets in 2022, compared to impairment losses on intangible assets and other non-current assets of Won 1,368 million in 2021, which mostly consisted of impairment losses on intangible assets in relation to Tera Classic and CPBL Baseball, and other non-current assets in relation to Tera Classic, CPBL Baseball, Grid Force and Live by the Sword.
Operating profit and operating profit margin
As a result of the cumulative effects of the reasons stated above, we recorded an operating profit of Won 104,708 million in 2022, compared to operating profit of Won 96,719 million in 2021, and our operating profit margin was 22.6% and 23.4% in 2022 and 2021, respectively.
Net finance income (costs)
We recorded net finance income of Won 5,174 million in 2022, compared to a net finance income of Won 2,582 million in 2021. Net finance income (costs) includes primarily interest income and foreign currency gain (loss).
Income tax expenses
We recorded an income tax expense of Won 26,824 million in 2022, compared to an income tax expense of Won 33,421 million in 2021. Our effective tax rate has been decreased from 34% in 2021 to 24% in 2022 mainly due to an increase of utilized tax credit and a decrease of deferred tax liabilities related to investment in subsidiaries.
Non‑controlling interest
Non‑controlling interest represents the net income from Gravity NeoCyon, our 99.5%‑held subsidiary and net loss from Gravity Game Link, our 70%-held subsidiary, attributable to third-party minority interest holders.
Profit attributable to owners of the parent company
As a result of the foregoing, we recorded profit attributable to owners of the parent company of Won 83,162 million in 2022 compared to profit attributable to owners of the parent company of Won 65,947 million in 2021.
Segment Results
Our net revenues from online game operations, prior to adjusting for inter-segment transactions, was Won 107,326 million in 2022, which was a 19.1% increase from Won 90,123 million in 2021. This was mainly due to increased revenues related to Ragnarok Online in Taiwan and Thailand. Our net revenue from mobile game operations was Won 404,362 million in 2022, which was a 16.6% increase from Won 346,928 million in 2021. This was mainly due to increased revenues from Ragnarok Origin in Taiwan, Hong Kong and Macao.
We recorded an operating profit of Won 45,832 million from online game operations in 2022, which was an increase of 46.6% from Won 31,271 million in 2021, resulting mainly from increased revenues from Ragnarok Online in Taiwan and Thailand. Also, our operating profit from mobile game operations was Won 58,357 million in 2022, which was a decrease of 10.0% from Won 64,837 million in 2021, resulting mainly from decreased revenues from Ragnarok X: Next Generation in Southeast Asia and Taiwan.
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ITEM 5.B. LIQUIDITY AND CAPITAL RESOURCES
Liquidity
Following the commercial launch of Ragnarok Online in August 2002, our principal sources of liquidity have been cash flows from our operating activities. As of December 31, 2023, we had approximately Won 184,082 million (US$ 142,592 thousand) in cash and cash equivalents. Our cash and cash equivalents primarily consist of bank deposits with a maturity of three months or less at the time of purchase and money market instruments where the underlying securities have a maturity of three months or less.
We generate cash primarily through revenues from micro transactions, royalties, and license fees in relation to our mobile games, as well revenues from subscriptions and micro-transactions, royalties, and license fees from our online games in various countries as described in ITEM 5.A. “OPERATING RESULTS—OVERVIEW—Revenues.” As our overseas operations are conducted primarily through our subsidiaries and our overseas licensees, our ability to finance our operations and any debt that we or our subsidiaries may incur depends, in part, on the payment of royalties and other fees by our overseas licensees and, to a lesser extent, the flow of dividends from our subsidiaries. The level of popularity of our games in the marketplace is a key factor in how much cash we can generate. Most of our cash disbursements relate to costs such as salaries and other overhead costs for game servicing, other selling, general and administrative activities, and R&D activities.
Net cash used in investing activities has consisted primarily of increase in short-term financial instruments, purchases of intangible assets and property and equipment. Our net property and equipment increased from Won 8,140 million as of December 31, 2022 to Won 10,151 million (US$ 7,863 thousand) as of December 31, 2023 mainly due to the acquisition of property and equipment during 2023. Our intangible assets increased from Won 3,869 million as of December 31, 2022 to Won 6,370 million (US$ 4,934 thousand) as of December 31, 2023 due to the acquisition of intangible assets during 2023.
Our cash investment policy emphasizes liquidity and preservation of principal over other portfolio considerations. We invest our cash in bank deposits and short‑term financial instruments, which primarily consist of money market instruments with maturities of one year or less. Our short‑term financial instruments increased from Won 167,000 million as of December 31, 2022 to Won 277,215 million (US$ 214,734 thousand) as of December 31, 2023. The increase in our short-term financial instruments in 2023 primarily resulted from the conversion of cash and cash equivalents into short-term financial instruments.
As of December 31, 2023, our primary source of liquidity was Won 184,082 million (US$ 142,592 thousand) of cash and cash equivalents. We believe that our available cash and cash equivalents and net cash provided by operating activities will be sufficient to meet our capital needs through at least 2025. However, we cannot assure you that our business or operations will not change in a manner that would consume available capital resources more rapidly than anticipated. We may require additional cash resources due to changed business conditions or other future developments, including any significant investments or acquisitions. If these sources are insufficient to satisfy our cash requirements, we may seek to sell additional securities either in the form of equity or debt. In the past, we raised cash resources through the issuance of common shares. The sale of additional equity securities or convertible debt securities could result in additional dilution to our shareholders. In addition, we may seek to incur indebtedness through the issuance of debt securities or by obtaining a credit facility. The incurrence of indebtedness would result in increased debt service obligations and could result in operating and financial covenants that would restrict operations.
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Cash Flows
The following table sets forth the summary of our cash flows for the periods indicated:

| Year Ended December 31,
| 2023 |  | 2023(1) |  | 2022 |  | 2021
| (In millions of Korean Won and thousands of US$)
Cash and cash equivalents at beginning of year | ₩ | 169,877 |  |  | US$ | 131,589 |  |  | ₩ | 99,105 |  |  | ₩ | 110,632 |
Net cash inflow from operating activities | 132,430 |  |  | 102,581 |  |  | 98,278 |  |  | 74,183 |
Net cash outflow from investing activities | (116,579) |  |  | (90,303) |  |  | (22,340) |  |  | (82,471) |
Net cash outflow from financing activities | (4,083) |  |  | (3,163) |  |  | (3,918) |  |  | (3,306) |
Effect of exchange rate changes on cash and cash equivalents | 2,437 |  |  | 1,888 |  |  | (1,248) |  |  | 67 |
Net increase (decrease) in cash and cash equivalents | 14,205 |  |  | 11,003 |  |  | 70,772 |  |  | (11,527) |
Cash and cash equivalents at end of year | ₩ | 184,082 |  |  | US$ | 142,592 |  |  | ₩ | 169,877 |  |  | ₩ | 99,105 |

__________________________
Note:
(1)For convenience only, the Won amounts are expressed in the U.S. dollar at the rate of Won 1,290.97 to US$1.00, the noon buying rate in effect on December 29, 2023, as certified by the Federal Reserve Bank of New York for customs purposes.
Net cash inflow from operating activities. Net cash inflow from operating activities increased to Won 132,430 million (US$ 102,581 thousand) in 2023 from Won 98,278 million in 2022, which was primarily due to increased cash generated from operations in 2023. The increase in net cash inflow from operating activities in 2022 as compared to 2021 was primarily due to increased net profit as a result of operating activities in 2022.
Net cash outflow from investing activities. Net cash outflow from our investing activities in 2023 was Won 116,579 million (US$ 90,303 thousand), compared to Won 22,340 million in 2022. This increase is primarily due to Won 110,179 million (US$ 85,346 thousand) of net increase of short-term financial instruments compared to net increase of Won 19,000 million of short-term financial instruments in 2022. The decrease in net cash outflow from our investing activities in 2022 as compared to 2021 is primarily due to Won 19,000 million of net increase of short-term financial instruments compared to net increase of Won 77,000 million of short-term financial instruments in 2021.
Net cash outflow from financing activities. Net cash outflow from financing activities increased to Won 4,083 million (US$ 3,163 thousand) in 2023 from Won 3,918 million in 2022, which was primarily due to increased repayment of lease liabilities for renting additional offices. The increase in net cash outflow from financing activities in 2022 as compared to 2021 was also mainly due to increased repayment of lease liabilities for renting additional offices.
Material Cash Requirements
The following table sets forth a summary of our material cash requirements from known contractual and other obligations due by period as of December 31, 2023:

| Payments Due by Period
| Total |  | Less than 1 Year |  | 1-3 Years |  | 3-5 Years |  | More than 5 Years
| (In millions of Korean Won)
Lease obligations | ₩ | 6,718 |  |  | ₩ | 4,340 |  |  | ₩ | 2,323 |  |  | ₩ | 55 |  |  | ₩ | — |
Purchase obligations | 4,942 |  |  | 3,947 |  |  | 995 |  |  | — |  |  | — |
Total | ₩ | 11,660 |  |  | ₩ | 8,287 |  |  | ₩ | 3,318 |  |  | ₩ | 55 |  |  | ₩ | — |

Long‑term debt obligations. We have financed our operations primarily through cash flows from operations as well as proceeds from our initial public offering of ADSs in February 2005. Therefore, there are currently no long‑term debt obligations.
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Lease obligations. With respect to our operating lease obligations, the lease payments due by December 31, 2023 are Won 1,315 million, Won 242 million, Won 318 million, Won 603 million, Won 225 million, Won 75 million, Won 317 million, Won 48 million, Won 560 million, Won 293 million, Won 69 million, and Won 256 million for our principal offices in Seoul, offices for our subsidiary in the United States, Japan, Taiwan, Thailand, Indonesia, Singapore and Hong Kong, our rental server in Seoul, the United States and Taiwan and our company vehicle, respect i vely. The lease terms expire in December 2024, December 2024, April 2025, November 2025, August 2025, May 2025, December 2024, June 2024, March 2026, October 2024, April 2024 and June 2025, respectively. The renewal terms in all of the leases are subject to market conditions.
Purchase obligations. In May 2020, we entered into an agreement with the NBA and NBPA to obtain the right to develop and publish an NBA licensed game. In October 2021, we entered into a development agreement with Funigloo Co., Ltd. to develop Ragnarok IP games. We also have entered into license agreements with various third-party game developers to secure the exclusive rights to publish the games developed by the third-party developers. With respect to our purchase obligations, we note that Won 3,947 million is due in the next 12 months and Won 995 million is due in one to three years..
Commitments for Capital Expenditures
We expect to have capital expenditure requirements for the ongoing expansion into other markets, including expenditures for expanding and upgrading our existing server equipment continuously, for developing new games internally, for acquiring and publishing third-party games, or for investing in enhancing our technological, marketing, distributing, and servicing capabilities. We believe that our internal cash flow from operations, together with our cash and cash equivalents, will be sufficient to satisfy our working capital requirements through at least 2025, including our new game development expenditures.
Other Commitments and Liabilities
For a description of our commercial commitments and contingent liabilities, see Note 12 to our consolidated financial statements included in this Annual Report. For a description of our legal proceedings, see ITEM 8.A. “CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION—LEGAL PROCEEDINGS.”
ITEM 5.C. RESEARCH AND DEVELOPMENT, PATENTS AND LICENSES, ETC.
To remain competitive, we have continued to focus on our research and development efforts. Our research and development efforts and plans consist of the following:
•Strategy and planning—overall game design and review of technical feasibility, market feasibility and the game development process;
•Graphics—designing game characters and game environments, with the objective of optimizing the overall gaming experience;
•Server programming—server design and development, handling interconnections, validation, security, character data and game process coordination, and facilitating online communication among players; and
•Client programming—enhancing the visual and sound experience and movement simulation of game characters.
Our research and development expenditures were Won 13,486 million (US$ 10,446 thousand), Won 13,797 million and 16,570 million in 2023, 2022, and 2021, respectively. Our research and development expenses decreased in 2023 mainly due to a decrease in research and development expenses for mobile games following the launch of Ragnarok Begins and Ragnarok V: Returns in 2022.
See ITEM 4.B. “BUSINESS OVERVIEW—GAME DEVELOPMENT AND PUBLISHING” for information regarding our research and development and ITEM 4.B. “BUSINESS OVERVIEW—INTELLECTUAL PROPERTY” for information regarding our intellectual property.
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ITEM 5.D. TREND INFORMATION
Trends, uncertainties, and events which could have a material impact on our sales, operating revenues, and liquidity and capital resources are discussed above in ITEM 5.A. “OPERATING RESULTS” and ITEM 5.B. “LIQUIDITY AND CAPITAL RESOURCES.”
ITEM 5.E. CRITICAL ACCOUNTING ESTIMATES
See notes 2 and 3 of the notes to our consolidated financial statements, which provide summaries of certain critical accounting estimates that require our management to make difficult, complex, or subjective judgments relating to matters which are highly uncertain and that may have a material impact on our financial conditions and results of operations.
ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
ITEM 6.A. DIRECTORS AND SENIOR MANAGEMENT
The following table sets forth certain information relating to our directors and executive officers as of April 26, 2024. The business address of all of our directors and executive officers is our registered office at 15F, 396 World Cup buk‑ro, Mapo‑gu, Seoul 03925, Korea.

Name |  | Age |  | Position
Hyun Chul Park |  | 52 |  | Chief Executive Officer and Executive Director
Yoshinori Kitamura |  | 55 |  | Chairman of the Board of Directors, Chief Operating Officer and Chief Compliance Officer
Heung Gon Kim |  | 58 |  | Chief Financial Officer and Executive Director
Kazuki Morishita |  | 50 |  | Executive Director
Kazuya Sakai |  | 59 |  | Executive Director
Koji Yoshida |  | 70 |  | Executive Director
Jung Yoo |  | 62 |  | Independent Director
Yong Seon Kwon |  | 65 |  | Independent Director
Kee Woong Park |  | 63 |  | Independent Director
Hyo Eun Lim |  | 48 |  | Independent Director
Geum Ok Sim |  | 52 |  | Independent Director

Hyun Chul Park has served as our Chief Executive Officer and Executive Director since March 2011 and was an officer of our corporate management office from May 2009 to March 2011. Mr. Park has also been a Director and a President at Gravity Interactive since November 2014 and March 2021, respectively. He has been a Director and the Chief Operating Officer at Gravity NeoCyon since December 2009 and April 2012, respectively, and was a Director at Gravity Games from October 2010 to March 2018 and Chief Strategy Officer at Gravity NeoCyon from October 2010 to March 2012. He was also a Director at Gravity Game Arise from December 2019 to March 2021 and a Director at Gravity Communications from April 2018 to March 2023. He has been a general manager of the GV Business Division (formerly known as International Business Division) at GungHo Online Entertainment, Inc. since September 2007. He worked as a general manager at the Content Producing Department of SEGA Networks (China) Co., Ltd. from July 2005 to September 2007 and as a manager of the Asia Division at SEGA Corporation from April 2004 to July 2005. He was a manager at the Overseas Marketing Team at ActozSoft Co., Ltd. from October 2002 to March 2004 and at Siementech Co., Ltd. from October 2001 to October 2002. He worked as part of the Engineer Team of Toyota Vista Tokyo Co., Ltd. from April 1998 to July 2001. Mr. Park obtained a diploma in Automotive Maintenance from the Tokyo College of Technology, which has since been renamed to the Tokyo College of Automotive Technology.
Yoshinori Kitamura has served as our Executive Director since March 2008, Chief Operating Officer since June 2008, Chairman of the Board of Directors since April 2011, and Chief Compliance Officer since December 2022. Mr. Kitamura was a Director at Gravity NeoCyon from October 2008 to October 2009 and has been its Chief Executive Officer since October 2009. He was the Chief Executive Officer of Gravity Entertainment from March 2008 to December 2019. He has been Chief Executive Officer of Gravity Interactive, Gravity Communications, Gravity Game Link, Gravity Game Tech, Gravity Game Arise, Gravity Game Hub, and Gravity Game Vision since July 2008, April 2018, February
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2019, April 2019, July 2019, January 2021 and January 2022, respectively. He was also a Director at Gravity Games from October 2010 to March 2018 and a Director at Gravity EU SAS from July 2011 to November 2014. Mr. Kitamura has also been a Director and Executive General Manager of the GV Business Division (formerly known as International Business Division) at GungHo Online Entertainment, Inc. since March 2006 and June 2007, respectively, and was an Executive General Manager of the Marketing Division at GungHo Online Entertainment, Inc. from February 2003 to June 2007. He worked as a Director of GungHo Online Entertainment Korea, Inc. and GungHo Works, Inc. from March 2007 to October 2008 and from March 2008 to June 2008, respectively. Mr. Kitamura was a Director of L5 Games Inc. from July 2008 to its liquidation in August 2008. Mr. Kitamura also worked at NC Japan K.K. as marketing manager from January 2002 to January 2003 and ICC Corporation as business development manager from September 1999 to December 2001. Mr. Kitamura holds a bachelor’s degree in English Language and Literature from Bunkyo University.
Heung Gon Kim has served as our Chief Financial Officer and Executive Director since September 2008 and March 2021, respectively. Mr. Kim was the Chief Financial Officer at Gravity Interactive from June 2009 to March 2020, and has been a Director and a Vice President at Gravity Interactive since March 2011 and March 2021, respectively. Mr. Kim was a liquidator of Gravity Games from March 2018 to September 2018. He was a Director of Gravity Games from October 2010 to March 2018 and Chief Executive Officer of Gravity Games from March 2013 to March 2018. Mr. Kim was a Director of Gravity Entertainment from March 2011 to December 2019. He has been a Director and Chief Financial Officer of Gravity NeoCyon since March 2011 and May 2011, respectively. He has been a Director and Chief Financial Officer of Gravity Communications since April 2018. He has also been a Director of Gravity Game Link, Gravity Game Tech and Gravity Game Arise since February 2019, July 2019 and July 2019, respectively. Mr. Kim also has been a Director and Chief Financial Officer of Gravity Game Vision since January 2022 and July 2022, respectively. Mr. Kim also has been a Director and Chief Financial Officer of Gravity Game Hub since January 2021 and March 2021, respectively. He was the general manager of our financial management division and accounting and treasury department from March 2007 to September 2008 and from September 2006 to March 2007, respectively. He also worked as a manager of our accounting team from April 2004 to September 2006. Mr. Kim worked at Modottel, Inc. as accounting team manager from June 2002 to April 2004. Mr. Kim holds a bachelor’s degree in Accounting from Chung‑Ang University.
Kazuki Morishita has served as our Executive Director since March 2008. Mr. Morishita has also been the President and Chief Executive Officer of GungHo Online Entertainment, Inc. since January 2004 and was Chief Operating Officer of GungHo Online Entertainment, Inc. from August 2002 to January 2004. In addition, he was a Director of Game Arts Co., Ltd. from December 2005 to March 2008 and has been the President of Game Arts Co., Ltd. since March 2008. Mr. Morishita has also been a Chief Executive Officer of SQUAD STARS, Inc. since June 2023 and a Director of GungHo Online Entertainment America, Inc. since March 2012. He also was a Director of Grasshopper Manufacture, Inc. from March 2018 to May 2021. He was a Director at SUPERTRICK GAMES, Inc., from February 2013 to May 2018, a Chief Executive Officer from June 2018 to March 2022, and has been a Chairman of Board of Directors since March 2022. Mr. Morishita was a Director at Acquire Corp. and Kahon 3 Oy. from October 2011 to November 2014, and from December 2013 to September 2014, respectively. Mr. Morishita was the Chairman of GungHo Works, Inc. from October 2007 to December 2009 and worked as a Director at GungHo Online Entertainment Korea, Inc. from March 2007 to October 2008 and as a Director at Overdriver Game Technologies Ltd. from June 2012 to August 2013. He also was a general manager of the E‑service department at OnSale, Inc. from May 2001 to August 2002. Mr. Morishita served as Director of Kickers Network, Inc. from December 2000 to April 2001 and as Director of Dolphin Net, Inc. from March to November in 2000. Mr. Morishita worked as chief of the system sales department at Softcreate Co., Ltd. from July 1996 to February 2000. Mr. Morishita graduated from the High School Affiliated with Chiba University of Commerce.
Kazuya Sakai has served as our Executive Director since March 2009. He also served as Chief Financial Officer and Director since April 2004 and March 2005 respectively, and was the Investor Relations Officer of GungHo Online Entertainment, Inc., from July 2011 to April 2014. He has served as Director of Games Art Co., Ltd., GungHo Online Entertainment Asia Pacific Pte. Ltd., GungHo Online Entertainment America, Inc., and SUPERTRICK GAMES. Inc. since March 2017, December 2015, July 2015, September 2014, March 2012 and February 2013, respectively. He was also a Director of Grasshopper Manufacture, Inc., mspo, Inc., and Acquire Corp. from March 2018 to May 2021, from April 2018 to May 2021, and from July 2015 to December 2023, respectively. He was a liquidator of mspo, Inc. in May 2021. Mr. Sakai was a Director of PlayPhone, Inc. and GGF B.V. from July 2015 to August 2019 and from October 2013 to September 2014, respectively. He was a Director at Overdriver Game Technologies Ltd. from June 2012 to August 2013, and an Auditor of Acquire Corp. from October 2011 to July 2015. Also, he was Chief Executive Officer of Capri, Inc. from October 2008 to December 2009. He was a Director of Gravity Entertainment from March 2008 to March 2011, and a Director of GungHo Works, Inc. from October 2007 to December 2009. Mr. Sakai was a Director of GungHo Online Entertainment Korea, Inc. from March 2007 to October 2008 and Chief Executive Officer in October 2008 to its liquidation in October 2008. He was Chief Executive Officer of GungHo Asset Management, Inc. from January 2007 to
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October 2008. Mr. Sakai served as a general manager of Administration Division, Director and Chief Executive Officer of Expression Tools, Inc. from January 1993 to March 1996, from April 1996 to April 2000, and from April 2000 to November 2003, respectively. He worked at The Kyushu Sogo Bank, Ltd., the current name of which is The Shinwa Bank, Ltd., from April 1987 to December 1992. Mr. Sakai graduated from Kyushu Sangyo University with a bachelor’s degree in Commercial Science.
Koji Yoshida has newly been appointed as an Executive Director as of March 2024. He has served as a Director since March 2012 and an Executive General Manager of Business Administration Division, Chief Customer Officer and Chief Crisis Management Officer since July 2011 at GungHo Online Entertainment, Inc. Mr. Yoshida also has served as a Director at GungHo Online Entertainment Asia Pacific PTE. Ltd., since December 2014, as well as a Director at SQUAD STARS, Inc since June 2023. He served as a Director for Acquire Corp. from November 2014 to December 2023. He obtained a B.A. in Economics from Keio University.
Jung Yoo has served as our Independent Director since March 2011. Mr. Yoo has been a Director at Merry Year International since October 2014, a Representative Partner of Samhasa GP since June 2007 and a member of the Board of Trustees of Euidang Foundation since August 2007. He was an Advisor of TCAD International, Inc. from March 2008 to March 2010 and an Independent Director of NHN Japan Corporation from September 2004 to April 2006. Mr. Yoo was a Managing Director of PCCW Japan Ltd., from June 2000 to March 2007. He was a Partner of Pacific Cyber‑Venture Co., Ltd. from June 2000 to August 2002 and a Director of Techno‑Venture Co., Ltd. from June 2000 to August 2002. Mr. Yoo worked at Credit Suisse Trust and Banking Co., Ltd. from August 1998 to March 2000, Bain & Company Japan, Inc. from August 1996 to May 1998 and SK Securities Co., Ltd. from September 1991 to November 1994. Mr. Yoo received a B.A. degree in East Asian Languages and Cultures from University of Southern California, an M.A. degree in Commerce from Waseda University and an MBA degree from INSEAD.
Yong Seon Kwon has served as our Independent Director since March 2019. Mr. Kwon has been a Director of Jeonghyeon Tax Services Company since Jan 2019. He was a taxpayer advocate manager at Sokcho Tax office from January 2015 to December 2018. He was a litigation officer of Jungbu Regional Tax office from January 2012 to December 2014 and a team manager at Jungbu Regional Tax office and Bucheon Tax office from November 2010 to January 2012. Mr. Kwon was also an investigator at Suwon Tax office from February 2000 to November 2009, and at Seocho Tax office and Ansan Tax office from February 1992 to February 2000. He was an investigator of Guro and Sogong Tax office and Gangseo Tax office from December 1983 to January 1992. Moreover, he worked on Tax Administration litigation and civil suits at Incheon District Court from February 2005 to February 2007 and Tax Administration litigation and civil suits at Uijeongbu District Court from February 2011 to February 2014. Mr. Kwon received a B.A. degree in Accounting from University of Seoul.
Kee Woong Park has served as our Independent Director since March 2020. Mr. Park has been a Chief Managing Partner of APEX LLC since September 2009. He has been an arbitrator at the Korean Commercial Arbitration Board from June 2002 to May 2020. He has been a director of Kwang-Sung School Foundation since July 2014 as well as a vice president of Trust Science Institute of Korea since January 2019. In addition, Mr. Park was a member of Investigation Review Committee of Supreme Prosecutors’ Office from January 2018 to December 2023. He was a visiting scholar at University of British Columbia, Asia Law Center from January 2004 to June 2005 and he completed the train at the Judicial Research & Training Institute on Supreme Court of the Republic of Korea in February 1989. Mr. Park obtained an LL.B. degree from Seoul National University.
Hyo Eun Lim has served as our Independent Director since March 2023. Mrs. Lim has been an accountant at Hanul LLC since January 2022 and a Finance Director at Korea University Alumni Association of Economics Department since February 2018. She was a team leader of Investment Examination & Review Team from April 2016 to January 2022, and a Risk Management team leader from April 2018 to March 2020 at ORIX Capital Korea. She was also a senior manager of IFRS and Assurance HQ teams of Ernst & Young Global Limited, from January 2010 to December 2011, and January 2009 to January 2010, respectively. She is registered as a member of the Korean Institute of Certified Public Accountants (KICPA) and Korean Association of Certified Public Tax Accountants (KACPTA) since November 2004. She obtained a B.A. degree in Korea University.
Geum Ok Sim has newly been appointed as an Independent Director as of March 2024. Mrs. Sim has been a Director at Accounting Corporation G-Pyung since September 2019. She served as a Director at Jinil and Eujin Accounting Corporation from March 2016 to September 2019. She was also an Adjunct Professor at Gachon University from March 2017 to February 2019. Mrs. Sim was a Director at T-Stone Co., Ltd and TIME Education Co., Ltd from April 2008 to
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March 2016. In addition, she was an Audit Team Manager at KPMG Samjong from December 2001 to April 2008 and also an Accountant at KPMG SanTong Accounting Corp. from November 1996 to September 1999. She obtained an Accounting & Taxation Ph.D. from Gachon University, a Business Law M.A. from Yonsei University, and an Accounting B.A. from Kyungwon University.
ITEM 6.B. COMPENSATION
We have not extended any loans or credit to any of our directors or executive officers, and we have not provided guarantees for borrowings by any of these persons. For the year ended December 31, 2023, the aggregate amount of compensation paid by us to all directors and executive officers was Won 1,734 million (US$ 1,343 thousand). At our general meeting of shareholders held on March 29, 2024, our shareholders approved an aggregate amount of up to Won 4 billion (US$3,098 thousand) as compensation for our directors for 2024.
None of our directors or executive officers are compensated by any third party for their respective services rendered to us as required to be disclosed pursuant to NASDAQ Rule 5250(b)(3).
Under the Labor Standard Act and the Employee Retirement Benefit Security Act, we are required to pay a severance amount to eligible employees who voluntarily or involuntarily terminate their employment with us, including through retirement. The severance amount for our officers equals the monthly salary at the time of his or her departure, multiplied by the number of continuous years of service. There is no severance benefit for our directors.
We maintain directors’ and officers’ liability insurance policy covering certain potential liabilities of our directors and officers.
ITEM 6.C. BOARD PRACTICES
CORPORATE GOVERNANCE PRACTICES
Our ADSs are listed on the NASDAQ Stock Market, and we are subject to the NASDAQ Stock Market Rules. However, as a foreign private issuer, Gravity is exempt from certain corporate governance rules that apply to U.S. domestic companies. NASDAQ’s corporate governance practice rules provide that a foreign private issuer may elect to follow its home country practices in lieu of the requirements under NASDAQ Stock Market Rule 5600 Series, subject to certain exceptions and to the extent such practices are not prohibited by home country law. The following are the significant ways in which Gravity’s corporate governance practices differ from those followed by U.S. domestic companies.
•Under Korean law, we are not required to have a board of directors composed of a majority of independent directors. Our Board of Directors is currently composed of a total of eleven directors, five of whom are independent directors.
•Under Korean law, we are not required to have independent director oversight of director nominations or a compensation committee composed solely of independent directors with a written charter, which includes specific responsibilities and authority of the compensation committee. However, we have established a director nomination committee and a compensation committee in accordance with our articles of incorporation. Our director nomination committee and compensation committee are each composed of two non‑independent directors and one independent director.
•Under Korean law, independent directors are not required to have regularly scheduled meetings at which only independent directors are present. However, our audit committee, which is composed solely of three independent directors, generally holds meetings once a month and whenever there are matters related to the financial results of the Company, related party transactions or other relevant matters. At such meetings, only independent directors are present without management.
•In lieu of the requirement that shareholder approval be obtained prior to an issuance of securities in connection with: (i) the acquisition of the stock or assets of another company; (ii) equity‑based compensation of officers, directors, employees, or consultants; (iii) a change of control; and (iv) transactions other than public offerings, as specified in NASDAQ Stock Market Rule 5635, we require a resolution to be adopted at the general meeting of shareholders when necessary under Korean law,
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including, for example, if an issuance of securities is related to the acquisition of all or a part of the business of another corporation, which significantly affects the business of the Company.
•In lieu of the requirement that copies of an annual report be delivered to shareholders within a reasonable time following the filing of the annual report with the SEC, our business report prepared under Korean law, and financial statements prepared in accordance with IFRS, are made available to shareholders one week before the day of the annual general meeting of shareholders and presented to shareholders at the ordinary general meeting of shareholders. Moreover, such documents as well as our annual report on Form 20‑F, once available, may be viewed at our principal or branch office by any of our shareholders making such a request and are also delivered to any shareholder making a request for delivery. Under Korean law, we are not required to prepare quarterly or interim reports. We furnish our quarterly financial statements prepared in accordance with IFRS on Form 6‑K with the SEC.
•Under Korean law, we are not required to solicit proxies nor provide proxy statements in connection with any general meeting of shareholders. For shareholders holding only our common shares, we do not solicit proxies from nor provide proxy statements to such shareholders. For holders of our ADSs, our depositary, Citibank, N.A. provides proxy statements to, and solicits proxies from, such holders, which proxies will be voted by the Korea Securities Depository, or the “KSD,” on behalf of the holders at the general meeting of shareholders.
In addition, as a controlled company, as GungHo controls 59.3% of our outstanding voting power as of the date hereof, Gravity is exempt from certain corporate governance rules that apply to non-controlled companies. NASDAQ’s corporate governance practice rules provide that a controlled company is exempt from certain corporate governance requirements under NASDAQ Stock Market Rule 5615, subject to certain exceptions. As a controlled company, we are not required to have a majority of our Board of Directors be independent, nor are we required to have a compensation committee or independent director oversight of director nominations, which meet the requirements set forth in the NASDAQ Stock Market Rules. We are relying on these exemptions as a controlled company.
BOARD OF DIRECTORS
Our Board of Directors has the ultimate responsibility for the administration of our affairs. Our articles of incorporation, as currently in effect, provide for a Board of Directors comprised of not less than three directors and also provide for an audit committee, a compensation committee, and a director nomination committee. We currently have eleven members serving as members of our Board of Directors. The directors are elected at a shareholders’ meeting by a majority vote of the shareholders present or represented, which majority is not less than one‑fourth of all issued and outstanding shares with voting rights, so long as not less than one third of all issued and outstanding shares with voting rights are present at the shareholders’ meeting.
Each of our directors is elected for a term of one year. However, if a director’s term of office ends after the end of a business period but before the convocation of the ordinary shareholders’ meeting concerning the said business period, his or her term of office shall extend until the end of the shareholders’ meeting. If a director’s term of office ends after the end of a business period and after the convocation of the ordinary shareholders’ meeting concerning the said business period, his or her term of office shall shorten until the end of the shareholders’ meeting. Directors may serve any number of consecutive terms and may be removed from office at any time by a special resolution adopted at a general meeting of shareholders, which requires approval by the holders of at least two‑thirds of the voting shares present or represented at the meeting and at least one‑third of our total voting shares then issued and outstanding.
The Board of Directors elects one or more representative directors from its members. A representative director is authorized to represent and act on behalf of our company and has the authority to bind our company. We may have (i) one sole representative director, (ii) two or more co‑representative directors, or (iii) two or more joint representative directors. The powers and authorities of a sole representative director and any co‑representative directors are exactly the same while the only distinction for joint representative directors is that they must act jointly (i.e., all of the joint representative directors must act together in order to bind the Company while co‑representative directors may act independently). Currently our Board of Directors has elected Hyun Chul Park as our Representative Director. Under the Korean Commercial Code and our articles of incorporation, any director with special interest in an agenda of a board meeting may not exercise his voting rights in such board meeting. We do not have service contracts with any of our directors, which provide for benefits upon termination.
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Our Board of Directors has determined that Messrs. Jung Yoo, Yong Seon Kwon, Kee Woong Park, Hyo Eun Lim and Geum Ok Sim are “independent directors” within the meaning of NASDAQ Stock Market Rule 5605(a)(2).
The table below provides certain highlights of the composition of our directors. Each of the categories listed in the below table has the meaning as it is used in Nasdaq Rule 5605(f).

Board Diversity Matrix (As of the date of this annual report)
Country of Principal Executive Offices: |  | Republic of Korea
Foreign Private Issuer |  | Yes
Disclosure Prohibited Under Home Country Law |  | No
Total Number of Directors |  | 11
Part I: Gender Identity
Directors |  | Female |  | Male |  | Non-Binary |  | Did Not Disclose Gender
| 2 |  | 9 |  | 0 |  | 0
Part II: Demographic Background
Underrepresented Individual in Home Country Jurisdiction |  | 0
LGBTQ+ |  | 0
Did Not Disclose Demographic Background |  | 0

COMMITTEES OF THE BOARD OF DIRECTORS
Under our articles of incorporation, we currently have three committees that serve under our Board of Directors:
•the audit committee;
•the director nomination committee; and
•the compensation committee.
Audit committee
Our audit committee was established in December 2004. The audit committee currently consists of the following directors: Yong Seon Kwon, Jung Yoo, and Kee Woong Park. All of the audit committee members are “independent directors” within the meaning of NASDAQ Stock Market Rule 5605(a)(2) and meet the criteria for independence as set forth in Rule 10A‑3(b)(1) of the Exchange Act. All of our independent directors are financially literate and have accounting or related financial management expertise. Our Board of Directors has determined that Yong Seon Kwon is an “audit committee financial expert,” as such term is defined by the regulations of the SEC issued pursuant to Section 407 of the Sarbanes‑Oxley Act. The audit committee is responsible for examining internal transactions and potential conflicts of interest and reviewing accounting and other relevant matters. Under the Korean Commercial Code, if a company establishes an audit committee, such company is not permitted to have a statutory auditor. The committee is currently chaired by Yong Seon Kwon.
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Director nomination committee
The director nomination committee consists of the following three directors: Kazuya Sakai, Kazuki Morishita, and Jung Yoo. One of the three members, Jung Yoo, is an “independent director” within the meaning of NASDAQ Stock Market Rule 5605(a)(2). This committee is responsible for recommending and nominating candidates for our director positions. The committee is currently chaired by Kazuya Sakai.
Compensation committee
The compensation committee consists of the following three directors: Kazuki Morishita, Kazuya Sakai, and Kee Woong Park. One of the three members, Kee Woong Park, is an independent director within the meaning of NASDAQ Stock Market Rule 5605(a)(2). This committee is responsible for reviewing and approving the management’s evaluation and compensation programs. The committee is currently chaired by Kazuki Morishita.
ITEM 6.D. EMPLOYEES
As of December 31, 2023, we had 437 full‑time employees (not including employees of our subsidiaries). The total number of employees increased over the course of 2023 mainly due to increase of in-house development employees stemming from the increased number of games launched in 2023 and planned for 2024.
The following table sets forth the number of our employees by department as of the dates indicated:

| December 31,
| 2023 |  | 2022 |  | 2021
Senior management | 12 |  | 11 |  | 11
Finance | 24 |  | 22 |  | 22
Marketing | 101 |  | 96 |  | 87
Game development and support | 300 |  | 271 |  | 257
Total | 437 |  | 400 |  | 377

We do not have a labor union, and none of our employees are covered by collective bargaining agreements. We have a labor‑management council for such employees in Korea as required under the Act on the Promotion of Workers’ Participation and Cooperation in Korea. We believe that we maintain a good working relationship with our employees and we have not experienced any significant labor disputes or work stoppages.
In addition, as of December 31, 2023, our subsidiaries had the number of employees as set forth in the following table:

| December 31,
| 2023 |  | 2022 |  | 2021
Gravity Interactive, Inc.(1) | 25 | {4} |  | 32 | {4} |  | 44 | {4}
Gravity NeoCyon, Inc.(1) | 188 | {4} |  | 197 | {4} |  | 199 | {5}
Gravity Communications Co., Ltd.(1) | 59 | {5} |  | 55 | {6} |  | 50 | {6}
PT Gravity Game Link(1) | 70 | {5} |  | 64 | {5} |  | 58 | {6}
Gravity Game Tech Co., Ltd.(1) | 79 | {7} |  | 71 | {7} |  | 65 | {9}
Gravity Game Arise Co., Ltd.(1) | 47 | {4} |  | 41 | {4} |  | 37 | {4}
Gravity Game Hub PTE., Ltd.(1) | 24 | {5} |  | 27 | {5} |  | 18 | {5}
Gravity Game Vision., Ltd.(1) | 7 | {5} |  | 7 | {5} |  | — | —
Total | 499 |  | 494 |  | 471

__________________________
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Note:
(1)The number in {} is the number of employees (who are included in the total number) seconded from Gravity Co., Ltd. to the relevant subsidiary.
None of the employees of Gravity Interactive, Gravity NeoCyon, Gravity Communications, Gravity Game Link, Gravity Game Tech, Gravity Game Arise, Gravity Game Hub, or Gravity Game Vision is represented by a labor union or covered by a collective bargaining agreement.
We have entered into a standard annual employment contract with most of our officers, managers, and employees. These contracts include a covenant that prohibits the relevant officer, manager, or employee from engaging in any activities that compete with our business during, and for six months after, the period of their employment with our company.
Under the severance payment plan that we have established in accordance with the Employee Retirement Benefit Security Act, employees in Korea with more than one year of service with us are entitled to receive a lump sum payment upon voluntary or involuntary termination of their employment. The amount of the benefit equals the employee’s monthly salary, calculated by averaging the employee’s daily salary for the three months prior to the date of the employee’s departure, multiplied by the number of continuous years of employment. As of December 31, 2023, we provided Won 313 million (US$ 242 thousand) to 216 employees as severance payment, being 100% of our severance liability as of such date.
Pursuant to the Korean National Pension Law, we are required to pay 4.5% of each employee’s standard monthly income to the National Pension Corporation. Our employees are also required to pay 4.5% of their standard monthly income to the National Pension Corporation each month. Our employees are entitled to receive an annuity in the event they lose, in whole or in part, their wage earning capability. Our employees can receive pension payments upon making a claim when they reach a certain age or lose all or part of their income due to disability, such as by receiving age pension payments when they reach the age of 65 after being registered for the national pension plan for at least 10 years and disability pension payments when a disease or illness acquired during the time they were registered for the national pension plan leaves a disability even after the disease or illness that originally caused the disability is cured. The total amount of contributions we, including our subsidiary in Korea, made to the National Pension Corporation in 2022 and 2023 was Won 1,070 million and Won 1,175 million (US$ 910 thousand), respectively.
ITEM 6.E. SHARE OWNERSHIP
None of our current directors or officers beneficially owns our common shares.
Stock option plan
Under our articles of incorporation, we may grant options for the purchase of our shares to certain qualified directors, officers and employees. Set forth below are the details of our stock option plan as currently contained in our articles of incorporation:
•Stock options may be granted to our officers and employees who have contributed or are qualified to contribute to our establishment, management and technical innovation. Notwithstanding the foregoing, no stock options may be granted to any person who is (i) our largest shareholder, (ii) a holder of 10% or more of our shares outstanding, (iii) certain specially related persons of the person set forth in (i) and (ii) above, or (iv) a shareholder who would own 10% or more of our shares upon exercise of options granted under the stock option plan; provided, however, that those who fall under the specially related persons upon becoming one of the officers of the concerned company (including part‑time officers of the affiliated company) shall be excluded from item (iii) above;
•Stock options may be granted by a special resolution of our shareholders with the aggregate number of shares issuable not to exceed 10% of the total number of our then issued and outstanding common shares;
•Upon exercise of stock options, we deliver our common shares or pay in cash the difference between the market price of our shares and the option exercise price;
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•The number of officers and employees subject to grant of stock options shall not exceed 90% of the currently employed officers and employees, and the stock option granted to an officer or an employee shall not exceed 10% of the total issued and outstanding shares;
•Stock options granted under the stock option plan, in case new shares are issued, have a minimum exercise price equal to the higher of (i) the market price of our shares calculated pursuant to the method under the Inheritance and Gift Tax Law and (ii) the par value of our shares, and in other cases, have a minimum exercise price equal to or higher than the market price of our shares calculated pursuant to the method under the Inheritance and Gift Tax Law;
•Stock options may be exercisable by a person who is granted a stock option and has served the Company for two or more years from the date of the special resolution of shareholders granting such stock options; provided, that stock options may be exercised by, or on behalf of, a person that dies, retires or resigns due to any cause not attributable to himself/herself before the completion of such a period of two years;
•Stock options can vest after two years from the stock option grant date and can be exercised up to five years from the vesting date; and
•Stock options may be cancelled by a resolution of our Board of Directors if (i) the officer or employee who holds the option voluntarily retires after being granted stock options, (ii) the officer or employee who holds the option causes material damage to us by willful misconduct or negligence, (iii) we are unable to deliver our shares or pay the prescribed amount due to bankruptcy or dissolution, or (iv) the occurrence of any cause for cancellation of stock options specified in the stock option agreement.
Each stock option confers the right to the grantee to purchase one share of our common stock at the exercise price. On December 24, 2004, our shareholders approved the implementation of our employee stock option plan and the granting of stock options under this plan to our directors, officers, and employees. All the stock options granted on December 24, 2004, have expired. There are no stock options exercisable as of December 31, 2023.
ITEM 6.F. DISCLOSURE OF A REGISTRANT’S ACTION TO RECOVER ERRONEOUSLY AWARDED
COMPENSATION
Not applicable.
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
ITEM 7.A. MAJOR SHAREHOLDERS
The table below sets forth information known to us with respect to the beneficial ownership of our common shares as of April 26, 2024, by each person known to us to own beneficially 5% or more of our common shares based on 6,948,900 common shares outstanding. None of our common shares entitles the holder to any preferential voting rights. Beneficial ownership is determined in accordance with the Exchange Act and the rules and regulations promulgated thereunder and includes the power to direct the voting or the disposition of the securities or to receive the economic benefit of the ownership of the securities.

Name |  | Number of Shares Beneficially Owned |  | Percentage Beneficially Owned
GungHo Online Entertainment, Inc. |  | 4,121,737 |  |  | 59.3 | %

To the best of our knowledge, as of December 31, 2023, approximately 47.5% of our common shares was held in the United States (in the form of ADSs). Also to the best of our knowledge, we had approximately 5,934 beneficial holders of our shares (in the form of ADSs) in the United States as of December 31, 2023. As of the date hereof, our largest shareholder GungHo beneficially owns 59.3% of the voting power of our common shares.
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ITEM 7.B. RELATED PARTY TRANSACTIONS
As further disclosed in Note 24 of to our consolidated financial statements included elsewhere in this Annual Report, we engage in transactions with our related parties, including our largest shareholder, from time to time, involving the sale of our products to, and the purchase of products and services from, such related parties.
Relationship with GungHo Online Entertainment, Inc.
On April 1, 2008, GungHo acquired 3,640,619 shares of our common stock, which was approximately 52.4% of our total shares. On June 23, 2008 and June 24, 2008, GungHo acquired our ADSs representing 450,554.25 and 30,565.25 shares of the Company, respectively. As of April 26, 2024, GungHo beneficially owns approximately 4,121,737 shares of the Company’s common stock, constituting approximately 59.3% of the total issued and outstanding common shares. See ITEM 3.D. “RISK FACTORS—RISKS RELATING TO OUR COMPANY STRUCTURE—GungHo, the licensee of our games in Japan, our principal market in terms of revenues, is our majority shareholder, which gives them control of our board of directors.”
In July 2002, we entered into an agreement with GungHo, formerly known as OnSale, Inc., for the service and distribution of Ragnarok Online in Japan, which was renewed in September 2004, September 2006, September 2009, September 2012, September 2015, September 2017, September 2019, September 2021, and September 2023.
In August 2012, we entered into a co-development agreement with GungHo to develop Ragnarok Odyssey Ace for the PlayStation Vita platform, which was amended in January 2013, June 2013, February 2017, October 2019, and September 2023.
In May 2010, we entered into a license with GungHo to commercialize the merchandise business using Ragnarok Online game characters within Japan, which was amended in May 2012, May 2014, May 2016, September 2017, September 2019, September 2021 and September 2023.
In April 2019, we entered into an agreement with GungHo for the service and distribution of Ragnarok M: Eternal Love in Japan (locally named as Ragnarok Masters in Japan), which was amended in March 2020. Ragnarok M: Eternal Love was launched in Japan in June 2019.
In July 2020, we entered into an agreement with GungHo for the service and distribution of Ragnarok Origin in Japan, which was launched in June 2021.
In August 2021, we entered into an agreement with GungHo Online Entertainment America, Inc. for the distribution of GRANDIA HD Collection in Korea, Hong Kong, Taiwan, and Singapore.
In March 2024, we entered into an agreement with GungHo for the service and distribution of Ragnarok X: Next Generation in Japan.
Mr. Hyun Chul Park, our Chief Executive Officer and Executive Director, Mr. Yoshinori Kitamura, our Chairman of the Board of Directors, Chief Operating Officer and Chief Compliance Officer, Mr. Kazuki Morishita, our Executive Director, Mr. Kazuya Sakai, our Executive Director, and Mr. Koji Yoshida, our Executive Director, have been General Manager, Director and Executive General Manager, President and Chief Executive Officer, Chief Financial Officer and Director, and Director, Executive General Manager, Chief Customer Officer and Chief Crisis Management Officer of GungHo, respectively.
ITEM 7.C. INTERESTS OF EXPERTS AND COUNSEL
Not applicable.
ITEM 8. FINANCIAL INFORMATION
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ITEM 8.A. CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION
FINANCIAL STATEMENTS
All relevant financial statements are included in ITEM 18. “FINANCIAL STATEMENTS.”
LEGAL PROCEEDINGS
As of the date hereof, we are not involved in any lawsuit or other proceeding the outcome of which we believe may, individually or taken as whole, have a material adverse effect on our business, results of operations or financial condition.
DIVIDEND POLICY
Since our inception, we have not declared or paid any dividends on our common shares. Any decision to pay dividends in the future will be subject to a number of factors, including cash requirements for future capital expenditures and investments, and other factors our Board of Directors may deem relevant. We have no intention to pay dividends in the near future. Consequently, we cannot give any assurance that any dividends may be declared and paid in the future. Holders of outstanding common shares on a dividend record date will be entitled, subject to applicable withholding taxes, to the full dividend declared without regard to the date of issuance of the common shares or any subsequent transfer of the common shares. Payment of annual dividends in respect of a particular year, if any, will be made in the following year after approval by our shareholders at the annual general meeting of shareholders or, if (i) an external auditor gives an unqualified opinion to the financial statements and (ii) all members of the audit committee unanimously agree, after approval by the Board of Directors, and payment of interim dividends, if any, will be made in the same year after approval by our Board of Directors, in each case, subject to certain provisions of our articles of incorporation and the Korean Commercial Code. All dividends may be paid in cash, by shares or by other properties (in‑kind). See ITEM 10.B. “MEMORANDUM AND ARTICLES OF INCORPORATION—Dividends.”
Subject to the terms of the deposit agreement for the ADSs, you will be entitled to receive dividends on common shares represented by ADSs to the same extent as the holders of common shares, less the fees and expenses payable under the deposit agreement in respect of, and any Korean tax applicable to, such dividends. See ITEM 10.E. “TAXATION—KOREAN TAXATION.” The depositary will generally convert the Won it receives into U.S. dollars and distribute the U.S. dollar amounts to you. For a description of the U.S. federal income tax consequences of dividends paid to our shareholders, see ITEM 10.E. “TAXATION—MATERIAL U.S. FEDERAL INCOME TAX CONSIDERATIONS.”
ITEM 8.B. SIGNIFICANT CHANGES
We have not experienced any significant changes since the date of our audited consolidated financial statements included in this Annual Report.
ITEM 9. THE OFFER AND LISTING
ITEM 9.A. OFFER AND LISTING DETAILS
Common Stock
Our common shares are not listed on any stock exchange or organized trading market, including in Korea. There is no public market for our common shares, although a small number of our common shares are traded in off‑market transactions involving private sales primarily in Korea.
American Depositary Shares
Following our initial public offering on February 8, 2005, the ADSs were listed on the NASDAQ Stock Market’s the NASDAQ Global Market, formerly the NASDAQ National Market, under the symbol “GRVY.” Other than from November 26, 2014 through August 27, 2018 (during which our ADSs were traded on the NASDAQ Capital Market), our ADSs have been traded on the NASDAQ Global Market under the same symbol. On May 11, 2015, we effected a change of our ADS to common shares ratio from four ADSs to one common share (4:1) to one ADS to two common shares (1:2), which had the effect of a 1-for-8 reverse stock split of our ADSs. On August 28, 2018, we effected a further change
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of our ADS to common shares ratio from one ADS to two common shares (1:2) to one ADS to one common share (1:1), which had the effect of a 2-for-1 stock split of our ADSs.
As of December 31, 2023, 3,304,151 ADSs representing 3,304,151 shares of our common stock were outstanding.
ITEM 9.B. PLAN OF DISTRIBUTION
Not applicable.
ITEM 9.C. MARKETS
See ITEM 9.A. “OFFER AND LISTING DETAILS.”
ITEM 9.D. SELLING SHAREHOLDERS
Not applicable.
ITEM 9.E. DILUTION
Not applicable.
ITEM 9.F. EXPENSES OF THE ISSUE
Not applicable.
ITEM 10. ADDITIONAL INFORMATION
ITEM 10.A. SHARE CAPITAL
Not applicable.
ITEM 10.B. MEMORANDUM AND ARTICLES OF INCORPORATION
The section below provides summary information relating to the material terms of our capital stock and our articles of incorporation. It also includes a brief summary of certain provisions of the Korean Commercial Code and related Korean law, all as currently in effect.
General
We were incorporated as a company with limited liability under Korean law on April 4, 2000, under the legal name of Gravity Co., Ltd.
Objects and Purposes
Under Article 2 of our articles of incorporation, our purpose is to engage in the following businesses: (i) consulting regarding software and development and distribution of software; (ii) software and compact disc development and sale; (iii) development of info-communications related software; (iv) production, development, distribution, sales, and consulting of software such as game software as well as corresponding licensing; (v) online network game service; (vi) development of software for application packages; (vii) computer program development and sale; (viii) software import and export; (xi) electronic transactions; (x) character merchandising; (xi) animation; (xii) real estate lease; (xiii) rest area restaurant business; (xiv) media-related business; (xv) printing and publication; (xvi) production and distribution of audio and visual records; (xvii) production, development, distribution, sales, and consulting of digital contents, including but not limited to, based on blockchain technologies such as NFT, (xviii) sport facilities including golf driving range, such as screen golf course and (xix) all businesses auxiliary to the above.
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Directors
Our articles of incorporation prohibit any of our directors from exercising his or her voting right in respect of any interested transactions. The amount of compensation to be provided to our directors is subject to the approval of our shareholders at a general meeting. Our articles of incorporation are silent on the borrowing powers exercisable by directors and do not prescribe any age limit for directors. Directors are appointed through the general meeting of shareholders and an affirmative vote of the majority of the shares represented at the meeting and at least one-fourth of the total issued and outstanding shares is required for a director’s appointment.
The terms of office of the directors shall be one year. However, if a director’s term of office ends after the end of a business period but before the convocation of the ordinary shareholders’ meeting concerning the said business period, his or her term of office shall extend until the end of the shareholders’ meeting. If a director's term of office ends after the end of a business period and after the convocation of the ordinary shareholders’ meeting concerning the said business period, his or her term of office shall shorten until the end of the shareholders’ meeting. Any vacancy of directors shall be filled by an election at a shareholders’ meeting; provided, however, that the vacancy may not necessarily be filled if we have at least three directors (which is our minimum number of directors under Article 32 of our articles of incorporation), and the vacancy does not interrupt performance of directors’ duties. The term of office for a director who is filled by-election shall be the remainder of the predecessor’s term.
Dividends
We may pay dividends to our shareholders in proportion to the number of shares owned by each shareholder. The common shares represented by the ADSs have the same dividend rights as our other common shares.
In general, we may declare dividends at the annual general meeting of shareholders, which is held within three months after the end of each fiscal year. However, in some cases, we may also declare dividends at a meeting of the Board of Directors, if (i) an external auditor gives an unqualified opinion to our financial statements for such fiscal year and (ii) all members of the audit committee unanimously agree, after approval by the Board of Directors. In addition, we may declare any interim dividends at a meeting of the Board of Directors. All dividends may be paid in cash, by shares or by other properties (in‑kind). However, a dividend in shares must be distributed at par value, and dividends in shares may not exceed one‑half of the annual dividends.
Under the Korean Commercial Code, we may pay an annual dividend only out of the excess of our net assets, on a non‑consolidated basis, over the sum of (i) our stated capital, (ii) the total amount of our capital surplus reserve and earned surplus reserve accumulated up to the end of the relevant dividend period, (iii) the earned surplus reserve to be set aside for the annual dividend period, and (iv) unrealized gains (the amount of net assets stated on the balance sheet increased as a result of an evaluation of the assets and liabilities in accordance with IFRS, which is not offset by unrealized losses).
We may not pay an annual dividend unless we have set aside as earned surplus reserve an amount equal to at least 10% of the cash portion of the annual dividend, or unless we have an accumulated earned surplus reserve of not less than one‑half of our stated capital. We may not use our legal reserves to pay cash dividends but may transfer amounts from our legal reserves to capital stock or use our legal reserves to reduce an accumulated deficit. If our legal reserves exceed 1.5 times our stated capital, the excess legal reserves may be reduced by a majority vote of the shareholders.
In addition to annual dividends, under the Korean Commercial Code and our articles of incorporation, we may pay interim dividends once during each fiscal year in case we earn more retained earnings as of the end of the first half of such year than the retained earnings not disposed of at the time of the general shareholder meeting with respect to the immediately preceding fiscal year. The decision to pay interim dividends shall be made by a resolution of the Board of Directors and is not subject to shareholder approval. Any interim dividends must be paid to the shareholders of record as of June 30 of the relevant fiscal year. We may distribute the interim dividend in cash, in shares or in other form of valuable property (in‑kind).
The total amount of interim dividends payable in a fiscal year shall not be more than the net assets on the balance sheet of the immediately preceding fiscal year, after deducting (i) our capital in the immediately preceding fiscal year, (ii) the aggregate amount of our capital reserves and earned surplus reserves accumulated up to the immediately preceding fiscal year, (iii) the amount relating to the immediately preceding fiscal term, which is confirmed at the annual general meeting of shareholders to be distributed as profit or paid, (iv) the amount of voluntary reserves accumulated up to
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the immediately preceding fiscal year for special purposes pursuant to our articles of incorporation or a resolution by our shareholders, (v) the amount of earned surplus reserves that should be set aside for the current fiscal year following the interim dividend payment, and (vi) unrealized gains (the amount of net assets stated on the balance sheet increased as a result of an evaluation of the assets and liabilities in accordance with IFRS). Furthermore, the rate of interim dividends for non‑voting preferred shares must be the same as that for our common shares.
We have no obligation to pay any dividend unclaimed for five years from the dividend payment date.
Distribution of Free Shares
In addition to paying dividends in shares out of our retained or current earnings, we may also distribute to our shareholders an amount transferred from our capital surplus or earned surplus reserve to our stated capital in the form of bonus shares issued free of charge, or free shares. We must distribute such free shares to all our shareholders in proportion to their existing shareholdings. Since our inception, we have not distributed any free shares. We currently have no intention to make such distribution in the near future.
Preemptive Rights and Issuance of Additional Shares
We may issue authorized but unissued shares from time to time, unless otherwise provided for in the Korean Commercial Code, on such terms as our Board of Directors may determine. We must offer new shares on uniform terms to all shareholders who have preemptive rights and are listed on our shareholders’ register as of the relevant record date.
We may issue new shares pursuant to a board resolution to persons other than existing shareholders, who in these circumstances will not have preemptive rights, if the new shares are issued:
•through a general public offering, of no more than 50% of the total number of issued and outstanding shares;
•to the members of the employee stock ownership association;
•upon exercise of a stock option in accordance with our articles of incorporation;
•in the form of depositary receipts of no more than 50% of the total number of issued and outstanding shares;
•to induce foreign direct investment necessary for business in accordance with the Foreign Investment Promotion Act of no more than 50% of the total number of issued and outstanding shares;
•to the extent not exceeding 50% of the total number of issued and outstanding shares, to domestic or overseas financial institutions, corporations, or individuals for the purpose of raising funds on an emergency basis;
•to certain companies under a joint venture arrangement with us; or
•in a public offering or the new shares are underwritten by underwriters for the purpose of listing such shares on any stock exchange, to the extent not exceeding 50% of the total number of issued and outstanding shares, provided that, if new shares are allocated to persons other than existing shareholders, the Company is required to provide notice to shareholders or make a public notice at least two weeks prior to the payment date of the subscription amount for such new shares.
We must give public notice of preemptive rights regarding new shares and their transferability at least two weeks before the relevant record date. We will notify the shareholders who are entitled to subscribe for newly issued shares of the deadline for subscription at least two weeks prior to such deadline. If a shareholder fails to subscribe by the deadline, the shareholder’s preemptive rights lapse. Our Board of Directors may determine how to distribute fractional shares or shares for which preemptive rights have not been exercised.
In the case of ADS holders, the depositary will be treated as the shareholder entitled to preemptive rights.
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General Meeting of Shareholders
We hold the annual general meeting of shareholders within three months after the end of each fiscal year. Subject to a board resolution or court approval, we may hold an extraordinary general meeting of shareholders:
•as necessary;
•at the request of shareholders holding an aggregate of 3% or more of our outstanding shares; or
•at the request of our audit committee.
We must give shareholders written notice or electronic document setting out the date, place, and agenda of the meeting at least two weeks prior to the general meeting of shareholders. The agenda of the general meeting of shareholders is determined at the meeting of the Board of Directors. In addition, a shareholder holding an aggregate of 3% or more of the outstanding shares may propose an agenda for the general meeting of shareholders. Such proposal should be made in writing at least six weeks prior to the meeting. The Board of Directors may decline such proposal if it is in violation of the relevant laws and regulations or our articles of incorporation. Shareholders not on the shareholders’ register as of the record date are not entitled to receive notice of the general meeting of shareholders or attend or vote at the meeting. Holders of preferred shares, unless enfranchised, are not entitled to receive notice of or vote at the general meeting of shareholders.
A shareholder holding an aggregate of 1% or more of the outstanding shares may, prior to the shareholders’ meeting, request the court to appoint an inspector to examine the appropriateness of the meeting notice process and voting method.
The chairman of the shareholders’ meeting shall be appointed by the Board of Directors, and if the person determined by the Board of Directors cannot serve as chairman, the representative director shall serve as chairman. If the representative director cannot serve as chairman, then the vice president, senior executive director or executive director shall serve as chairman, in that order. If a general meeting of shareholders is proposed by a shareholder or shareholders holding an aggregate of not less than 3% of the outstanding shares, the court may approve such general meeting and may also appoint the chairman of such shareholders’ meeting upon request by the requesting parties or at its own discretion.
Our shareholders’ meetings are held in Seoul, Korea or other nearby areas as deemed necessary.
Voting Rights
Holders of our common shares are entitled to one vote for each common share. However, common shares held by us (i.e., treasury shares) or by any corporate entity in which we have, directly or indirectly, greater than a 10% interest, do not have voting rights. Unless the articles of incorporation explicitly state otherwise, the Korean Commercial Code permits cumulative voting pursuant to which each common share entitles the holder thereof to multiple voting rights equal to the number of directors to be elected at such time. A holder of common shares may exercise all voting rights with respect to his or her shares cumulatively to elect one director. However, our shareholders have decided not to adopt cumulative voting.
Our shareholders may adopt resolutions at a general meeting by an affirmative majority vote of the voting shares present or represented at the meeting, where the affirmative votes also represent at least one‑fourth of our total voting shares then issued and outstanding. However, under the Korean Commercial Code and our articles of incorporation, the following matters require approval by the holders of at least two‑thirds of the voting shares present or represented at the meeting, where the affirmative votes also represent at least one‑third of our total voting shares then issued and outstanding:
•amending our articles of incorporation;
•removing a director;
•effecting a capital reduction (except any reduction in capital to make up for deficits);
•effecting any dissolution, merger or consolidation with respect to us;
•transferring all or any significant part of our business;
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•acquiring all of the business of any other company or a part of the business of any other company having a material effect on our business (the “material effect” qualifier is applied to the acquisition of both the whole and partial business of any other company);
•issuing new shares at a price below the par value; or
•any other matters for which such resolution is required under relevant laws and regulations.
In general, holders of non-voting shares are not entitled to vote on any resolution or receive notice of any general meeting of shareholders. However, in the case of amendments to our articles of incorporation, any merger or consolidation, capital reductions or in some other cases that affect the rights or interests of the preferred shares, approval of the holders of such class of shares is required. We must obtain the approval, by a resolution, of holders of at least two‑thirds of the preferred shares present or represented at a class meeting of the holders of such class of shares, where the affirmative votes also represent at least one‑third of the total issued and outstanding shares of such class. In addition, the Korean Commercial Code provides that a company’s articles of incorporation may prescribe conditions for enfranchisement of non-voting shares. For example, if we are unable to pay dividends on preferred shares as provided in our articles of incorporation, the holders of preferred shares may become enfranchised and may be entitled to exercise voting rights until the dividends are paid. The holders of enfranchised preferred shares have the same rights as holders of voting shares to request, receive notice of, attend and vote at a general meeting of shareholders.
A shareholder may exercise his or her voting rights in writing without attending the shareholders’ meeting. Under our articles of incorporation, if a shareholder wishes to exercise his or her voting rights in writing, the said shareholder shall submit a letter of his or her intention to do so with required information at least one day prior to the date set for such a meeting. Any shareholder may exercise his or her vote by proxy. If such a case, the proxy shall submit a letter evidencing his or her power of representation prior to commencement of the shareholders’ meeting.
Holders of ADSs will exercise their voting rights through the ADS depositary. Subject to the provisions of the deposit agreement, holders of ADSs will be entitled to instruct the depositary how to vote the common shares underlying their ADSs.
Rights of Dissenting Shareholders
In some limited circumstances, including the transfer of all or any part of our business having a material effect on our business and our merger or consolidation with another company except a small‑scale merger (as prescribed under Korean law) that leaves us as the surviving company, dissenting shareholders have the right to require us to purchase their shares. To exercise this right, shareholders must submit to us a written notice of their intention to dissent before the applicable general meeting of shareholders. Within 20 days after the relevant resolution is passed, the dissenting shareholders must request us in writing to purchase their shares. We are obligated to purchase the shares of dissenting shareholders within two months after receiving such request. The purchase price for the shares is required to be determined through negotiations between the dissenting shareholders and us. If an agreement is not attained within 30 days since the receipt of the request, we or the shareholder requesting the purchase of shares may request the court to determine the purchase price. Holders of ADSs will not be able to exercise dissenters’ rights unless they withdraw the underlying common shares and become our direct shareholders.
Register of Shareholders and Record Dates
Our transfer agent, Hana Bank, maintains the register of our shareholders at its office in Seoul, Korea. It registers transfers of shares on the register of shareholders upon presentation of the share certificates.
The record date for annual dividends is December 31 of each year. For the purpose of determining shareholders entitled to annual dividends, the register of shareholders will be closed for the period from January 1 to January 31 of each year. Further, for the purpose of determining the shareholders entitled to some other rights pertaining to the shares, we may, on at least two weeks’ public notice, set a record date and/or close the register of shareholders for not more than three months. The trading of shares and the delivery of share certificates may continue while the register of shareholders is closed.
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Annual Report
At least one week before the annual general meeting of shareholders, we must make our annual business report, auditor’s report, and audited consolidated financial statements available for inspection at our principal office and at all of our branch offices. In addition, copies of such reports, financial statements and any resolutions adopted at the general meeting of shareholders will be available to our shareholders. Under the Korean Commercial Code and the Act on External Audit of Stock Companies, we are required to prepare non‑consolidated and consolidated financial statements. In addition, the non‑consolidated and consolidated financial statements are required to be approved at our shareholders’ meeting. However, the Board of Directors may, without a shareholders’ meeting, approve the non‑consolidated and consolidated financial statements if (i) an external auditor gives an unqualified opinion to the financial statements and (ii) all members of the audit committee unanimously agree.
Transfer of Shares
Except for the procedural requirements, which obligate a non‑citizen or non‑resident of Korea to file a report to the relevant government authority of Korea at the time of acquisition or transfer of the Company’s shares, there is no restriction on the transfer or sale of our shares applicable to our shareholders or holders of ADSs under our articles of incorporation and relevant laws.
Under the Korean Commercial Code, the transfer of shares is effected by delivery of share certificates. However, to assert shareholders’ rights against us, the transferee must have his name and address registered on our register of shareholders. For this purpose, a shareholder is required to file his name, address, and seal with our transfer agent. A non‑Korean shareholder may file a specimen signature in place of a seal, unless he is a citizen of a country with a sealing system similar to that of Korea. In addition, a non‑resident shareholder must appoint an agent authorized to receive notices on his or her behalf in Korea and file a mailing address in Korea. The above requirement does not apply to the holders of ADSs.
Under current Korean regulations, the KSD, foreign exchange banks, investment traders, investment brokers, collective investment business entities, and internationally recognized foreign custodians may act as agents and provide related services for foreign shareholders. Certain foreign exchange controls and securities regulations apply to the transfer of shares by non‑residents or non‑Koreans. See ITEM 10.D. “EXCHANGE CONTROLS.”
Our transfer agent, Hana Bank, maintains the register of our shareholders at its office located at 72 Gukjegeumyung‑ro, Yeongdeungpo‑gu, Seoul, Korea. It registers transfers of shares in the register of shareholders on presentation of the share certificates.
Acquisition of Our Shares
Within the limitation of distributable profits, we may acquire our own common shares with the prior approval of the general meeting of shareholders (or by a resolution of the Board of Directors) after providing notice or making a public notice to all shareholders of the acquisition of treasury stocks. However, in limited circumstances such as in the case of a merger of our company or an acquisition by us of all of another company’s business, or in the case when a shareholder exercises his or her stock option, we may acquire our own common shares without making notice to all shareholders as above.
Under the Korean Commercial Code and our articles of incorporation, our Board of Directors can determine the method by which we dispose of any common shares owned by us. Except in limited circumstances, corporate entities in which we own a 50% or greater equity interest may not acquire our common shares.
Except for the procedural requirements, which obligate a non‑citizen or non‑resident of Korea to file a report to the relevant government authority of Korea at the time of acquisition or transfer of the Company’s shares, there exists no provision which limits the rights to own our shares or exercise voting rights on our shares due to their status as a non‑resident or non‑Korean under our articles of incorporation and applicable Korean laws.
Liquidation Rights
In the event of our liquidation, after payment of all debts, liquidation expenses and taxes, our remaining assets will be distributed among shareholders in proportion to their shareholdings.
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Other Provisions
Under our articles of incorporation, there exists no provision (i) which may delay or prevent a change in control of us and that is triggered in the event of a merger, acquisition or corporate restructuring, (ii) which requires disclosure of ownership above a certain threshold, or (iii) that governs change in capital that is more stringent than required by the applicable laws in Korea.
We may issue bonds by a resolution of the Board of Directors. Our articles of incorporation permit the issuance of convertible bonds and bonds with warrants, but none have been issued.
ITEM 10.C. MATERIAL CONTRACTS
We have not entered into any material contracts within the past two fiscal years other than in the ordinary course of business and other than those described in ITEM 7. “MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS—RELATED PARTY TRANSACTIONS in this Annual Report.
ITEM 10.D. EXCHANGE CONTROLS
General
The Foreign Exchange Transaction Law and the Presidential Decree and regulations under such Law and Decree, or the “Foreign Exchange Transaction Laws,” regulate investment in Korean securities by non‑residents and issuance of securities outside Korea by Korean companies. Under the Foreign Exchange Transaction Laws, if non‑residents wish to acquire Korean securities, a report must be filed with the president of a foreign exchange bank or the President of Bank of Korea except for certain cases, provided, however, that under the Financial Investment Services and Capital Markets Act, foreigners cannot acquire equity securities issued by certain designated public interest corporations in excess of a fixed limit, and under the Foreign Investment Promotion Act, foreigners are either not allowed or restricted in making an investment in certain industries.
Under the Foreign Exchange Transaction Laws, (i) the Ministry of Economy and Finance, or the “MOEF,” may temporarily suspend payment, receipt or the whole or part of transactions to which the Foreign Exchange Transaction Laws apply, or impose an obligation to safe‑keep, deposit, or sell means of payment in or to certain Korean governmental agencies or financial institutions, if the Korean government deems that it is inevitable to take such measures, due to the outbreak of natural calamities, wars, conflict of arms or grave and sudden changes in domestic or foreign economic circumstances, or other situations equivalent thereto; and (ii) if the Korean government deems that the international balance of payments and international finance are confronted or are likely to be confronted with serious difficulty or the movement of capital between Korea and abroad brings or is likely to bring on serious obstacles in carrying out currency policies, exchange rate policies and other macroeconomic policies, the MOEF may take measures to require any person who intends to perform capital transactions to obtain permission from the MOEF or a person/entity designated by the public notification of the MOEF or to require any person who performs capital transactions to deposit part of the means of payment acquired in such transactions in certain Korean governmental agencies or financial institutions, in each case subject to certain limitations thereunder.
Filing with the Korean Government in Connection with the Issuance of American Depositary Shares
In order for us to issue common shares represented by ADSs in an amount exceeding US$ 30 million, we are required to file a prior report of the issuance with the MOEF through the designated foreign exchange bank. No further Korean governmental approval is necessary for the initial offering and issuance of the ADSs.
Under current Korean laws and regulations, the depositary is required to obtain our prior consent for the number of common shares to be deposited in any given proposed deposit, which exceeds the difference between (i) the aggregate number of common shares deposited by us for the issuance of ADSs (including deposits in connection with the initial and all subsequent offerings of ADSs and stock dividends or other distributions related to these ADSs), and (ii) the number of common shares on deposit with the depositary at the time of such proposed deposit. We have agreed to consent to any deposit so long as the deposit would not violate our articles of incorporation or applicable Korean law, and the total number of our common shares on deposit with the depositary would not exceed the sum of the aggregate number of common shares and any number of additional shares for which the depositary has received our written consent.
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Furthermore, prior to making an investment of 10% or more of the outstanding voting shares of a Korean company, foreign investors are generally required under the Foreign Investment Promotion Act to submit a report to the Chairman of the Korea Trade‑Investment Promotion Agency, or “KOTRA,” (including the head of the Trade Center, branch office and/or office designated by the Chairman of KOTRA) or the president of the foreign exchange bank (including the head of the branch office designated by the president of the foreign exchange bank). Subsequent sales of such shares by foreign investors will also require a prior report to the Chairman of KOTRA or the president of the foreign exchange bank.
Certificates of the shares must be kept in custody with an eligible custodian
Under Korean law, certificates evidencing shares of Korean companies must be kept in custody with an eligible custodian in Korea, which certificates may in turn be required to be deposited with the KSD if they are designated as being eligible for deposit with the KSD. Only the KSD, foreign exchange banks, investment traders, investment brokers, collective investment business entities, and internationally recognized foreign custodians are eligible to act as a custodian of shares for a foreign investor. However, a foreign investor may be exempted from complying with the requirement to have the certificates deposited with the KSD with the approval of the Governor of the Financial Supervisory Service in circumstances where such compliance is made impracticable, including cases where such compliance would contravene the laws of the home country of such foreign investor.
A foreign investor may appoint one or more standing proxies from among the KSD, foreign exchange banks, investment traders, investment brokers, collective investment business entities, internationally recognized foreign custodians, and the Bank of Korea (only when related to a treasury bond, a treasury bill or a monetary stabilization bond, which is or will be acquired by a foreign central bank, an international financial organization or a foreign government), and cannot have any other apart from those standing proxies to represent or act on behalf of them in order to exercise rights in respect of acquired shares, or other matters connected thereto. However, a foreign investor may be exempted from complying with these standing proxy rules with the approval of the Governor of the Financial Supervisory Service in circumstances where such compliance is made impracticable, including cases where such compliance would contravene the laws of the home country of such foreign investor.
Restrictions on American Depositary Shares and Shares
Once the report to the MOEF is filed in connection with the issuance of ADSs, no further Korean governmental approval is necessary for the sale and purchase of ADSs in the secondary market outside Korea or for the withdrawal of shares underlying ADSs and the delivery inside Korea of shares in connection with such withdrawal. In addition, persons who have acquired shares as a result of the withdrawal of shares underlying the ADSs may exercise their preemptive rights for new shares, participate in free distributions and receive dividends on shares without any further governmental approval.
A foreign investor may receive dividends on the shares and remit the proceeds of the sale of the shares through a foreign currency account and/or a Won account exclusively for stock investments by the foreign investor, which are opened at a foreign exchange bank designated by the foreign investor without being subject to any procedural restrictions under the Foreign Exchange Transaction Laws. No approval is required for remittance into Korea and deposit of foreign currency funds in the foreign currency account. Foreign currency funds may be transferred from the foreign currency account at the time the foreign investor is required to place a deposit for, or settle the purchase price of, a stock purchase transaction to a Won account opened at a foreign exchange bank. Funds in the foreign currency account may be remitted abroad without any governmental approval.
Dividends on shares are paid in Won. No Korean governmental approval is required for foreign investors to receive dividends on, or the Won proceeds of the sale of, any such shares to be paid, received, and retained in Korea. Dividends paid on, and the Won proceeds of the sale of, any such shares held by a non‑resident of Korea must be deposited in his Won account. Funds in the investor’s Won account may be transferred to his foreign currency account or withdrawn for local living expenses up to certain limitations. Funds in the investor’s Won account may also be used for future investment in shares or for payment of the subscription price of new shares obtained through the exercise of preemptive right.
Investment brokers and investment traders are allowed to open foreign currency accounts with foreign exchange banks exclusively for accommodating foreign investors’ securities investments in Korea. Through such accounts, these investment brokers or investment traders may enter into foreign exchange transactions on a limited basis, such as the
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conversion of foreign currency funds and Won funds, either as a counterparty to or on behalf of foreign investors, without such investors having to open their own Won and foreign currency accounts with foreign exchange banks.
ITEM 10.E. TAXATION
KOREAN TAXATION
The following is a discussion of material Korean tax consequences to owners of our ADSs and common shares that are non‑resident individuals or non‑Korean corporations without a permanent establishment in Korea to which the relevant income is attributable or with which the relevant income is effectively connected. A non‑resident individual according to Korean tax laws means an individual who does not have an address in Korea or a place of residence for longer than a period of 183 days in Korea. A non‑Korean corporation is a corporation whose headquarter or main office is located overseas and does not have a place of effective management in Korea. The statements regarding Korean tax laws set forth below are based on the laws in force and as interpreted by the Korean taxation authorities as of the date hereof. This discussion is not exhaustive of all possible tax considerations, which may apply to a particular investor, and prospective investors are advised to satisfy themselves as to the overall tax consequences of the acquisition, ownership, and disposition of our ADSs and common shares, including specifically the tax consequences under Korean law, the laws of the jurisdiction of which they are resident, and any tax treaty between Korea and their country of residence, by consulting their own tax advisors.
Dividends on the Shares or American Depositary Shares
Under Korean tax laws, the domestic source dividend income of non‑resident individuals and non‑Korean corporations means any profits or surpluses that are distributed by domestic companies or distributed in Korea. Therefore, dividends that are distributed to non‑resident individuals and non-Korean corporations who own common shares of domestic companies are considered to be domestic source dividend income. The dividends provided to the holder of ADSs are also included in the domestic source dividend income as it is no different from dividends that are paid to a holder of common shares in the domestic companies.
With respect to the taxation of domestic source dividend income of a non‑resident individual and non‑Korean corporation, if there is no tax treaty entered into between Korea and the country of tax residence of the non‑resident individual or non‑Korean corporation or if the country of tax residence is a tax haven designated by the Minister of the Ministry of Economy and Finance (“MOEF”) of Korea (currently, only Labuan, Malaysia) and has not acquired prior approval of the Commissioner of the National Tax Service, we will deduct Korean withholding tax from dividends paid to such non‑resident individual or non‑Korean corporation (whether in cash or in shares) at a rate of 22% (including local income tax). If you are a resident of a country that has entered into a tax treaty with Korea and you are a beneficial owner of the dividends, you may qualify for an exemption or a reduced rate of Korean withholding tax according to the tax treaty. In this connection, if the party with whom the income has been provided exists as a paper company in order to receive the benefits of the tax treaty and there exists a separate beneficiary owner who is the real owner of the income (hereinafter referred to as the “Beneficiary Owner”) that is provided with income from dividends, tax will be withheld at source by applying the tax rate determined in the tax treaty entered into between Korea and the country of tax residence of the Beneficiary Owner. If the country of tax residence of the Beneficiary Owner and Korea has not entered into a tax treaty or in the case that such country is Labuan, Malaysia, tax will be withheld at source at a tax rate of 22% according to the Korean Corporate Tax Law.
Generally, in order to obtain a reduced rate of withholding tax pursuant to an applicable tax treaty, you must submit to us, prior to the dividend payment date, together with the request form to apply for the reduced rate, such evidence of tax residence as the Korean tax authorities may require in order to establish your entitlement to the benefits of the applicable tax treaty. If you hold ADSs, evidence of tax residence may be submitted to us through the depositary. See ITEM 10.E. “TAXATION—KOREAN TAXATION—Tax treaties” below for a discussion on treaty benefits.
In order for the beneficiary of dividends that is a corporation or an individual in Labuan to be qualified for a limited tax rate, the beneficiary must obtain an approval before such dividends are paid by submitting legal evidentiary documents that verify the country of tax residence of the beneficiary to the Commissioner of the National Tax Service of Korea along with a request for prior approval of tax withholding or the beneficiary may submit a request for correction to the responsible director of the tax office within five years of withholding tax at source.
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Taxation of Capital Gains
Under Korean tax laws, capital gains from securities are triggered when a non‑resident individual or a non‑Korean corporation transfers his or its securities. Securities subject to taxation include shares and depositary receipts issued based on such shares and equity interests and all securities issued by domestic corporations.
In regards to capital gains tax originating from Korea, if there is no tax treaty entered into between Korea and the country of tax residence of the non‑resident individual or non‑Korean corporation or if the country of tax residence is a tax haven designated by the Minister of the MOEF of Korea (currently, only Labuan, Malaysia) and has not acquired prior approval of the Commissioner of the National Tax Service, capital gains earned by such non‑resident individual or non‑Korean corporation upon the transfer of our common shares or ADSs are subject to Korean withholding tax at the lower of (i) 11% (including local income tax) of the gross proceeds realized and (ii) 22% (including local income tax) of the net realized gains (subject to the production of satisfactory evidence of the acquisition costs and certain direct transaction costs). However, in most cases where a tax treaty is entered into between Korea and the country of tax residence of the non‑resident individual or non‑Korean corporation, such non‑resident individual or non‑Korean corporation is exempt from Korean income taxation under the applicable Korean tax treaty with his or its country of tax residence. In this regard, if the party to whom the capital gains from securities are provided exists as a paper company in order to receive benefits of a tax treaty and there exists a separate Beneficiary Owner that is provided with income from capital gains, tax will be withheld at source by applying the tax rate determined in the tax treaty entered into between Korea and the country of tax residence of the Beneficiary Owner. If the country of tax residence of the Beneficiary Owner and Korea has not entered into a tax treaty or in the case that such country is Labuan, Malaysia, tax will be withheld at source at a tax rate (11% of transfer price or 22% of capital gains, whichever is less) according to the Korean Corporate Tax Law. See ITEM 10.E. “TAXATION—KOREAN TAXATION—Tax treaties” below for a discussion on treaty benefits. Even if you do not qualify for any exemption under a tax treaty, you will not be subject to the foregoing withholding tax on capital gains if you qualify for the relevant Korean domestic tax law exemptions discussed in the following paragraphs.
Aside from the benefits provided in the tax treaties, Korean tax law provides provisions on tax exemptions in regards to capital gains from securities when certain requirements are met. With respect to our common shares, you will not be subject to Korean income taxation on capital gains realized upon the transfer of such common shares, (i) if our common shares are listed on either the Market Division of the Korea Exchange or the KOSDAQ Division of the Korea Exchange, (ii) if shares are transferred through stock market, (iii) if you have no permanent establishment in Korea, and (iv) if you did not own or have not owned (together with any shares owned by any entity which you have a certain special relationship with and possibly including the shares represented by the ADSs) 25% or more of our total issued and outstanding shares at any time during the calendar year in which the sale occurs and during the five calendar years prior to the calendar year in which the sale occurs.
Under the tax law amendments effective for capital gains recognized or to be recognized from disposition of ADSs on or after January 1, 2008, ADSs are viewed as shares of stock for capital gains tax purposes. Accordingly, capital gains from sale or disposition of ADSs are taxed (if taxable) as if such gains are from sale or disposition of shares of our common stock. It should be noted that (i) capital gains earned by you (regardless of whether you have a permanent establishment in Korea) from a transfer of ADSs outside Korea will generally be exempt from Korean income taxation by virtue of the Special Tax Treatment Control Law of Korea, or the “STTCL,” provided that the issuance of ADSs is deemed to be an overseas issuance under the STTCL, but (ii) in the case where an owner of the underlying shares of stock transfers ADSs after conversion of the underlying shares into ADSs, the exemption under the STTCL described in (i) will not apply. In the case where an owner of the underlying shares of stock transfers the ADSs after conversion of the underlying shares of stock into ADSs, such person is obligated to file corporate income tax returns and pay tax unless a purchaser or a financial investment company with a brokerage license, as applicable, withholds and pays the tax on capital gains derived from transfer of ADSs, as discussed below.
Generally, to obtain the benefit of an exemption from tax pursuant to a tax treaty, you must submit to the purchaser or the securities company, or through the ADS depositary, as the case may be, prior to or at the time of payment, such evidence of your tax residence as the Korean tax authorities may require in support of your claim for treaty benefits. However, in order for the beneficiary of capital gains from securities who is a corporation or an individual in Labuan to be qualified for a limited tax rate, the beneficiary must obtain an approval before such capital gains from securities is realized by submitting legal evidentiary documents that verify the country of tax residence of the beneficiary to the Commissioner of the National Tax Service of Korea along with a request for prior approval of tax withholding or the beneficiary may submit a request for correction to the responsible director of the tax office within five years of withholding tax at source.
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See ITEM 10.E. “TAXATION—KOREAN TAXATION—Tax treaties” for additional explanation on claiming treaty benefits.
Tax Treaties
Korea has entered into a number of income tax treaties with other countries (including the United States), which would reduce or exempt Korean withholding tax on dividends on, and capital gains on transfer of, our common shares or ADSs. For example, under the Korea‑United States income tax treaty, reduced rates of Korean withholding tax of 16.5% or 11.0% (respectively, including local income tax, depending on your shareholding ratio) on dividends and an exemption from Korean withholding tax on capital gains are available to residents of the United States that are beneficial owners of the relevant dividend income or capital gains. However, under Article 17 (Investment or Holding Companies) of the Korea‑United States income tax treaty, such reduced rates and exemption do not apply if (i) you are a United States corporation, (ii) by reason of any special measures, the tax imposed on you by the United States with respect to such dividends or capital gains is substantially less than the tax generally imposed by the United States on corporate profits, and (iii) 25% or more of your capital is held of record or is otherwise determined, after consultation between competent authorities of the United States and Korea, to be owned directly or indirectly by one or more persons who are not individual residents of the United States. Also, under Article 16 (Capital Gains) of the Korea‑United States income tax treaty, the exemption on capital gains does not apply if you are an individual, and (a) you maintain a fixed base in Korea for a period or periods aggregating 183 days or more during the taxable year and your ADSs or common shares giving rise to capital gains are effectively connected with such fixed base or (b) you are present in Korea for a period or periods of 183 days or more during the taxable year.
On the other hand, the International Tax Coordination Law provides that in regard to taxable income, gains, assets, acts or transactions, when the holder and Beneficiary Owner is not the same, the Beneficiary Owner is considered to be the taxpayer who is subject to the applicable tax treaty. If one engages in activities to receive benefits of a tax treaty through having international transactions with a third party indirectly or conducts transactions with more than two parties, such activity is considered to be a direct transaction or a single transaction for which the tax treaty applies. Thus, if a non‑Korean company or a non‑resident individual establishes a paper company in a certain country for the purpose of receiving benefits of a tax treaty and tries to unreasonably receive dividends and capital gains from securities pursuant to a tax treaty between a certain country and Korea, the tax treaty that is entered into between the country of the residence of the Beneficiary Owner and Korea shall be applied.
You should inquire for yourself whether you are entitled to the benefit of an income tax treaty with Korea. It is the responsibility of the party claiming the benefits of an income tax treaty in respect of dividend payments or capital gains to submit to us, the purchaser or the securities company, as applicable, a certificate as to its tax residence. In the absence of sufficient proof, we, the purchaser or the securities company, as applicable, must withhold tax at the normal rates. Furthermore, in order for you to claim the benefit of a tax rate reduction or tax exemption on certain Korean source income (e.g., dividends or capital gains) under an applicable tax treaty as the beneficial owner of such Korean source income, Korean tax law requires you (or your agent) to submit an application (in the case for reduced withholding tax rate, an “application for entitlement to reduced tax rate,” and in the case for exemption from withholding tax, an “application for tax exemption”) with a certificate of your tax residency issued by the competent authority of your country of tax residence, subject to certain exceptions (together, the “BO application”). For example, a U.S. resident would be required to provide a Form 6166 as a certificate of tax residency with the application for entitlement to reduced tax rate or the application for tax exemption, as the case may be. However, if an entity applies for the tax exemption for an amount equal to or exceeding Won 1 billion (including where the aggregate exempted amount within one year from the last day of the month in which the payment was made is equal to or exceeds Won 1 billion), in addition to the certificate of tax residence issued by a competent authority of the entity’s country of residence, the entity will be required to additionally submit (i) the names and addresses of all of the members of its board of directors, (ii) the identities and shareholding percentages of all of its shareholders (provided that, if there are more than 100 shareholders, it may instead submit a statement showing the total number of shareholders and the aggregate investment amount from each country), and (iii) audit reports for the most recent three years submitted to the country of residence (or, if the entity has been in existence for less than three years, all audit reports since its incorporation). Such application should be submitted to the withholding agent prior to the payment date of the relevant income. Subject to certain exceptions, where the relevant income is paid to an overseas investment vehicle that is not the beneficial owner of such income (an “OIV”), a beneficial owner claiming the benefit of an applicable tax treaty with respect to such income must submit its BO application to such OIV, which in turn must submit an OIV report and a schedule of beneficial owners (and the BO applications collected from each beneficial owner, if such beneficial owner is applying for tax exemption) to the withholding agent prior to the payment date of such income. Effective from January 1, 2022, an OIV is deemed to be a beneficial owner of the Korean source income if (i) under the applicable tax treaty, the
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OIV bears tax liabilities in the country in which it is established and (ii) such Korean source income is eligible for the treaty benefits under the tax treaty. The benefits under a tax treaty between Korea and the country of such OIV’s residence will apply with respect to the relevant income paid to such OIV, subject to certain application requirements as prescribed by the Corporate Income Tax or Individual Income Tax Law. In the case of a tax exemption application, the withholding agent is required to submit such application (together with the applicable OIV report in the event the income will be paid to an OIV) to the relevant district tax office by the ninth day of the month following the date of the payment of such income.
Inheritance Tax and Gift Tax
Korean inheritance tax is imposed upon (i) all assets (wherever located) of the deceased if at the time of his or her death he or she was domiciled in Korea or resided in Korea for at least 183 days immediately prior to the death and (ii) all property located in Korea, which passes on death (irrespective of the domicile or the residence of the deceased). Gift tax is imposed in similar circumstances to the above (based on the donee’s place of domicile or residence in the case of (i) above). The taxes are imposed if the value of the relevant property is above a limit and vary from 10% to 50% at sliding scale rate according to the value of the relevant property and the identity of the parties involved.
Under the Korean inheritance and gift tax laws, shares issued by Korean corporations are deemed located in Korea irrespective of where the share certificates are physically located or by whom they are owned. If the tax authority’s interpretation of treating depositary receipts as the underlying share certificates under the 2004 tax ruling applies in the context of inheritance and gift taxes as well, you may be treated as the owner of the common shares underlying the ADSs.
At present, Korea has not entered into any tax treaty relating to inheritance or gift taxes.
Securities Transaction Tax
The Securities Transaction Tax Act provides that a securities transaction tax shall be imposed on the transfer of share certificates or shares. The scope of taxable share certificates includes, with respect to share certificates transferred on or after January 1, 2011, rights arising from the acquisition of shares, shares prior to the issuance of share certificates, preemptive rights and subscription securities issued by corporations established under special laws (e.g., Agricultural Cooperatives Act), and depositary receipts (issued by depository of equity securities in a country other than the country of issuance, which describes the rights related to the relevant deposited securities) pursuant to the Financial Investment Services and Capital Markets Act. However, with respect to the transfer of share certificates listed in overseas securities markets that are similar to the Korean securities market, such as the New York Stock Exchange or the NASDAQ Stock Market, or the transfer of share certificates to an underwriter in order to list such share certificates on foreign stock exchanges, such transfer is not subject to the securities transaction tax. The said Act provides that the types of share certificates that are subject to the securities transaction tax are share certificates issued by a domestic corporation established according to the Commercial Act or a special act, or share certificates or depositary receipts, which are issued by a non‑Korean corporation that are listed or registered in the securities market. Therefore, if you transfer common shares in a Korean corporation and the common shares are not listed in the securities market overseas, you will be subject to a securities transaction tax at the rate of 0.35%.
In principle, the securities transaction tax, if applicable, must be paid by the transferor of the shares or the rights to subscribe for such shares. When the transfer is effected through a securities settlement company in Korea, such settlement company is generally required to withhold and pay the tax to the tax authorities. When such transfer is made through a securities company only, such securities company is required to withhold and pay the tax. Where the transfer is effected by a non‑resident without a permanent establishment in Korea, other than through a securities settlement company or a securities company, the transferee is required to withhold and pay the securities transaction tax.
MATERIAL U.S. FEDERAL INCOME TAX CONSIDERATIONS
The following summary describes certain material U.S. federal income tax consequences of the purchase, ownership and disposition of our ADSs or common shares as of the date hereof. The discussion set forth below is applicable only to U.S. Holders (as defined below) (i) who are residents of the United States for purposes of the current Convention Between the United States of America and the Republic of Korea for the Avoidance of Double Taxation, as amended (the “Tax Convention”), (ii) whose ADSs or common shares are not, for purposes of the Tax Convention, attributable to a permanent establishment in Korea and (iii) who otherwise qualify for the full benefits of the Tax Convention. Except where noted, it deals only with U.S. Holders that hold our ADSs and common shares as capital assets within the meaning of Section 1221 of the Internal Revenue Code of 1986, as amended (the “Code”). This section does not
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discuss the tax consequences to any particular holder or any tax considerations that may apply to U.S. Holders subject to special tax rules, such as:
•financial institutions;
•regulated investment companies;
•real estate investment trusts;
•tax‑exempt entities, “individual retirement accounts” or “Roth IRAs”;
•grantor trusts;
•certain former citizens or residents of the United States;
•insurance companies;
•brokers, dealers or traders in securities, commodities or currencies;
•persons liable for alternative minimum tax;
•persons required to accelerate the recognition of any item of gross income with respect to our ADSs or common shares as a result of such income being recognized on an applicable financial statement;
•persons (including dealers or traders in securities) using a mark‑to‑market method of accounting;
•persons that have a “functional currency” for U.S. federal income tax purposes other than the U.S. dollar;
•persons that own (or are deemed to own) 10% or more (by vote or value) of our equity;
•persons owning our ADSs or common shares in connection with a trade or business conducted outside the United States;
•persons who hold our common shares or ADSs as a hedge or as part of a straddle with another position, constructive sale, conversion transaction, wash sale or other integrated transaction; and
•entities or arrangements that are treated as partnerships or other pass-through entities for U.S. federal income tax purposes or holders of equity interests therein.
This discussion is based on the Code, Treasury regulations promulgated thereunder, administrative and judicial interpretations thereof and the Tax Convention, all as in effect and available on the date hereof and all of which are subject to change, possibly with retroactive effect, or to different interpretation. Except as expressly described herein, this discussion does not address the U.S. federal income tax consequences that may apply to U.S. Holders under the Tax Convention. This discussion is for general information only and does not address all of the tax considerations that may be relevant to specific U.S. Holders in light of their particular circumstances or to U.S. Holders subject to special treatment under U.S. federal income tax law. This discussion does not address the 3.8% Medicare contribution tax imposed on certain net investment income, any U.S. state or local or non‑U.S. tax considerations or any U.S. federal estate, gift, or alternative minimum tax considerations. The discussion below is based, in part, upon representations made by the depositary to us and assumes that the deposit agreement, and all related agreements, will be performed in accordance with their terms.
Persons considering the purchase, ownership, or disposition of our ADSs or common shares should consult their own tax advisors concerning U.S. federal income tax consequences (including the U.S. federal income tax rules applicable to PFICs discussed below) in light of their particular situation as well as any other tax consequences arising under the laws of any taxing jurisdiction.
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As used herein, the term “U.S. Holder” means a beneficial holder of our ADSs or common shares that is, for U.S. federal income tax purposes:
•an individual citizen or resident of the United States;
•a corporation (or other entity treated as a corporation for U.S. federal income tax purposes) created or organized in or under the laws of the United States, any state thereof or the District of Columbia;
•an estate the income of which is subject to U.S. federal income taxation regardless of its source; or
•a trust that:
◦is subject to the primary supervision of a court within the United States and the control of one or more United States persons as described in section 7701(a)(30) of the Code; or
◦has a valid election in effect under applicable U.S. Treasury regulations to be treated as a U.S. person.
If an entity or arrangement treated as a partnership or other pass-through entities for U.S. federal income tax purposes acquires, owns, or disposes of our ADSs or common shares, the U.S. federal income tax treatment of a partner, member or other beneficial owner in such partnership or other pass-through entity generally will depend upon the status of the partner, member or other beneficial owner and the status and activities of the partnership or other pass-through entity. Such a partner, member or other beneficial owner or partnership or other pass-through entity should consult its own tax advisor as to the U.S. federal income tax consequences of acquiring, owning, or disposing of our ADSs or common shares.
American Depositary Shares
If you hold our ADSs, for U.S. federal income tax purposes, you generally will be treated as the owner of the underlying common shares that are represented by such ADSs, and the following discussion assumes that such treatment will be respected. Accordingly, upon the exchange of ADSs for a U.S. Holder’s proportionate interest in our common shares represented by such ADSs, (i) no gain or loss should be recognized to such U.S. Holder, (ii) such U.S. Holder’s tax basis in such common shares should be the same as its tax basis in such ADSs, and (iii) the holding period in such common shares should include the holding period in such ADSs.
The U.S. Treasury has expressed concern that parties to whom ADSs are released before shares are delivered to the depositary or intermediaries in the chain of ownership between holders and the issuer of the security underlying the ADSs may be taking actions that are inconsistent with the claiming of foreign tax credits by U.S. Holders of ADSs. These actions would also be inconsistent with the claiming of the reduced rate of tax, described below, applicable to dividends received by certain non-corporate U.S. Holders. Accordingly, the creditability of non-U.S. withholding taxes (if any), and the availability of the reduced tax rate for dividends received by certain non-corporate U.S. Holders, each described below, could be affected by actions taken by such parties or intermediaries. For purposes of the discussion below, we assume that intermediaries in the chain of ownership between the holder of an ADS and us are acting consistently with the claim of U.S. foreign tax credits or reduced rate of tax by U.S. Holders.
Passive Foreign Investment Companies
In general, we will be a PFIC for U.S. federal income tax purposes for any taxable year in which:
•at least 75% of our gross income is passive income; or
•on average at least 50% of the value (generally determined on a quarterly average basis) of our assets is attributable to assets that produce or are held for the production of passive income.
For this purpose, passive income generally includes dividends, interest, rents and royalties (other than rents and royalties derived in the active conduct of a trade or business and not derived from a related person), certain gains from commodities, and securities transactions and gains from the disposition of assets that produce or are held for the production of passive income, subject to various exceptions. If we own, directly or indirectly, at least 25% by value of the stock of
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another corporation, we will be treated, for purposes of the PFIC tests, as owning our proportionate share of the other corporation’s assets and receiving our proportionate share of the other corporation’s income.
Based on the nature of our business, the composition of our income and assets, the value of our assets, and the market price of our ADSs, we believe that we were a PFIC for taxable years 2023 and 2022 and for taxable years 2008 through 2016 (though we believe we may not have been a PFIC for taxable years 2017 through 2021) and may be a PFIC in future taxable years. The determination of whether we are a PFIC must be made annually after the end of each taxable year, and our PFIC status for each taxable year will depend on particular facts and circumstances (such as the composition of our income and assets and the valuation of our assets, including goodwill and intangible assets, which may be determined by reference to the market price of our ADSs, which has fluctuated and may continue to fluctuate significantly over time) and may also be affected by the application of the PFIC rules, which are subject to differing interpretations. In light of the foregoing, no assurance can be provided that we are not currently a PFIC or that we will not become a PFIC in any future taxable year, and our U.S. counsel expresses no opinion with respect to our PFIC status for our past, current, or future taxable years. Furthermore, if we are treated as a PFIC, and one or more of our subsidiaries are also treated as PFICs, you will generally be subject to the PFIC rules with respect to your indirect ownership of interests in such subsidiaries. Accordingly, U.S. Holders should invest in our ADSs only if they are willing to bear the U.S. federal income tax consequences associated with investments in PFICs.
If we are a PFIC for any taxable year during which you hold our ADSs or common shares, we generally will continue to be treated as a PFIC with respect to you in all succeeding taxable years during which you hold the ADSs or common shares, regardless of whether we continue to meet the tests described above. Because we believe that we were a PFIC for taxable years 2023 and 2022 and for taxable years 2008 through 2016, if you held our ADSs or common shares during any of those taxable years, we would continue to be treated as a PFIC with respect to those ADSs or common shares for all succeeding years in which you hold them. Similarly, if you first acquired ADSs or common shares in any year in which we were not a PFIC and we became a PFIC in a subsequent year, we would be treated as a PFIC with respect to those ADSs or common shares for all succeeding years during which you hold them. You may terminate this continued PFIC status by making a “deemed sale election,” as discussed below.
Under attribution rules, if we were a PFIC for any taxable year and any subsidiary or other entity in which we held a direct or indirect equity interest is also a PFIC (a “Lower-tier PFIC”), U.S. Holders would be deemed to own their proportionate share of any such Lower-tier PFIC and would be subject to U.S. federal income tax according to the rules described below under “U.S. Federal Income Tax Treatment of a Holder of ADSs or Common Shares Under PFIC Rules” on (i) certain distributions by the Lower-tier PFIC and (ii) a disposition of equity interests of the Lower-tier PFIC, in each case as if the U.S. Holders held such interests directly, even though the U.S. Holders have not received the proceeds of those distributions or dispositions directly. Generally, a mark-to-market election (as described below) cannot be made for equity interests in a Lower-tier PFIC, and we do not expect that information needed to make a “qualified electing fund” election with respect to a Lower-tier PFIC will be available. Therefore, if we are a PFIC for any taxable year during which you hold our ADSs or common shares, you generally will continue to be subject to the rules described below under “U.S. Federal Income Tax Treatment of a Holder of ADSs or Common Shares Under PFIC Rules” with respect to your indirect interest in any Lower-tier PFIC, even if you were to make a valid mark-to-market election with respect to our ADSs or common shares. You are urged to consult your tax advisors about the application of the PFIC rules to our subsidiaries.
You are urged to consult your own tax advisor concerning the U.S. federal income tax consequences of holding our ADSs or common shares if we are considered a PFIC in any taxable year.
U.S. Federal Income Tax Treatment of a Holder of ADSs or Common Shares Under PFIC Rules
If we are a PFIC for any taxable year during which you hold our ADSs or common shares, absent certain elections (including the mark-to-market election or qualified electing fund election described below), you generally will be subject to adverse tax consequences (regardless of whether we continue to be classified as a PFIC) with respect to (1) any “excess distribution” received with respect to our ADSs or common shares and (2) any gain recognized from a sale or disposition (including a pledge) of such ADSs or common shares (which may include gain realized by reason of transfers of ADSs or common shares that would otherwise qualify as nonrecognition transactions for U.S. federal income tax purposes (together, the “excess distribution rules”). Generally, distributions you received in a taxable year that are greater than 125% of the average annual distributions you received during the shorter of the three preceding taxable years and the
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portion of your holding period for our ADSs or common shares will be treated as excess distributions. Under these excess distribution rules:
•the excess distribution or gain will be allocated ratably over your holding period for our ADSs or common shares;
•the amount allocated to the current taxable year in which you recognized gain or received excess distribution, and any taxable year prior to the first taxable year in which we were a PFIC in your holding period, will be treated as ordinary income arising in the current taxable year; and
•the amount allocated to each other taxable year (or portions thereof) during your holding period in which we were classified as a PFIC will be subject to tax at the highest tax rate in effect for that year and applicable to you, and the interest charge generally applicable to underpayments of tax will be imposed on the resulting tax attributable to each such year.
In addition, if we are a PFIC in the taxable year in which such dividends are paid or in the preceding taxable year, non‑corporate U.S. Holders will not be eligible for reduced rates of taxation on any dividends received from us.
If we are a PFIC, the tax liability for amounts allocated to years prior to the year of disposition or excess distribution cannot be offset by any net operating losses, and gains (but not losses) recognized on the transfer of the ADSs or common shares cannot be treated as capital gains, even if the ADSs or common shares are held as capital assets.
If we are classified as a PFIC and then cease to be so classified, a U.S. Holder may make an election (a “deemed sale election”) to be treated for U.S. federal income tax purposes as having sold such U.S. Holder’s ADSs or common shares on the last day of our taxable year during which we were a PFIC. A U.S. Holder that makes a deemed sale election would then cease to be treated as owning stock in a PFIC. However, gain recognized as a result of making the deemed sale election would be subject to the excess distribution rules described above, and loss would not be recognized.
“Mark-to-market” Election
In certain circumstances, in lieu of being subject to the excess distribution rules discussed above, a shareholder may make an election to include gain on the stock of a PFIC as ordinary income under a mark‑to‑market method (the “mark-to-market election”), provided that such stock is “regularly traded” on a “qualified exchange.” A “qualified exchange” includes a national securities exchange that is registered with the SEC. Generally, a class of stock is considered regularly traded for any calendar year during which such class of stock is traded, other than in de minimis quantities, on at least 15 days during each calendar quarter. Under current law, the mark‑to‑market election may be available to U.S. Holders of our ADSs because our ADSs are listed on NASDAQ, which constitutes a qualified exchange as designated in the Code, although there can be no assurance that our ADSs will be “regularly traded” for purposes of the mark‑to‑market election. Our common shares are not expected to be listed on a qualified exchange. Accordingly, the mark‑to‑market election is not expected to be available for U.S. Holders of our common shares. Moreover, the mark‑to‑market election will not in any event be available with respect to your indirect interest in any of our subsidiaries which are PFICs.
If you timely make an effective mark‑to‑market election, you will be required to include in gross income, as ordinary income, for each taxable year that we are a PFIC an amount equal to the excess of the fair market value of our ADSs that are “marketable stock” at the end of the year over your adjusted tax basis in our ADSs. You will be entitled to deduct, as an ordinary loss in such year an amount equal to the excess of your adjusted tax basis in our ADSs over their fair market value at the end of the year, but only to the extent of the net amount previously included in income as a result of the mark‑to‑market election. Your adjusted tax basis in our ADSs will be increased by the amount of any income inclusion and decreased by the amount of any deductions under the mark‑to‑market rules. If you make a mark‑to‑market election, it will be effective for the taxable year for which the election is made and all subsequent taxable years unless our ADSs are no longer regularly traded on a qualified exchange or the IRS consents to the revocation of the election. You are urged to consult your tax advisor about the availability and consequences of the mark‑to‑market election, the procedures for making such an election and whether making the election would be advisable in your particular circumstances.
You should consult your tax advisor regarding the application of the foreign tax credit rules to the mark-to-market regime described above in the event we are a PFIC.
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“QEF” Election
Alternatively, in certain cases, a U.S. Holder can avoid the interest charge and the other adverse PFIC tax consequences described above by obtaining certain information from the PFIC and electing to treat the PFIC as a “qualified electing fund” (“QEF”) under Section 1295 of the Code. However, we do not anticipate that this option will be available to you because we do not intend to provide the information regarding our income that would be necessary to permit you to make this election.
You are urged to contact your own tax advisor regarding the determination of whether we are a PFIC and the tax consequences of such status.
U.S. Federal Income Tax Treatment of a Shareholder If We Are Not a PFIC
Distributions
If you were a U.S. Holder of our ADSs or common shares in a taxable year in which we are a PFIC (and any subsequent taxable year), then this section generally will not apply to you.
As described in “Dividend Policy” above, we do not currently anticipate paying any distributions on our ADSs or common shares in the near future. However, to the extent that there are any distributions made with respect to our ADSs or common shares, the gross amount of distributions on our ADSs or common shares (without deduction for any withholding tax, including amounts withheld as Korean withholding taxes) will be taxable as dividends, to the extent paid out of our current or accumulated earnings and profits, as determined under U.S. federal income tax principles. Such income (including withheld taxes) will be includible in your gross income as ordinary income on the day actually or constructively received by you, in the case of our common shares, or by the depositary, in the case of our ADSs. Such dividends will not be eligible for the dividends received deduction allowed to U.S. corporations under the Code. With respect to certain non‑corporate U.S. Holders, certain dividends received from a “qualified foreign corporation” may be subject to reduced rates of taxation. A qualified foreign corporation includes a foreign corporation (other than a corporation that is a PFIC in the taxable year in which the dividend is paid or the prior year) that is eligible for the benefits of a comprehensive income tax treaty with the United States that (i) the U.S. Treasury Department determines to be satisfactory for these purposes and (ii) includes an exchange of information provision. The U.S. Treasury Department has determined that the current Tax Convention meets these requirements, and we believe that we are eligible for benefits under the Tax Convention. A foreign corporation (other than a corporation that is a PFIC in the taxable year in which the dividend is paid or the prior year) is also treated as a qualified foreign corporation with respect to dividends paid by that corporation on shares (or ADSs backed by such shares) that are readily tradable on an established securities market in the United States. Our common shares generally will not be considered readily tradable for these purposes. Under the U.S. Treasury Department guidance our ADSs, which are currently listed on NASDAQ, will generally be considered readily tradable on an established securities market in the United States. Thus, we believe that, as long as we are not a PFIC in the taxable year in which dividends are paid or the prior year, the dividends we pay with respect to the ADSs generally should be eligible for the reduced income tax rate on qualified dividends to non-corporate U.S. Holders. However, the determination of whether a dividend qualifies for the preferential tax rates must be made at the time the dividend is paid, and there can be no assurance that our ADSs will be considered readily tradable on an established securities market in future years. Non‑corporate U.S. Holders that do not meet a minimum holding period requirement during which they are not protected from the risk of loss or that elect to treat the dividend income as “investment income” pursuant to section 163(d)(4) of the Code will not be eligible for the reduced rates of taxation regardless of our status as a qualified foreign corporation.
For U.S. federal income tax purposes, the amount of any dividend paid in Won, including any Korean or other taxes withheld, will be included in your gross income in an amount equal to the U.S. dollar value of the Won received calculated by reference to the exchange rate in effect on the date the dividend is actually and constructively received by you, in the case of our common shares, or by the depositary, in the case of our ADSs, regardless of whether the Won are converted into U.S. dollars. If the Won are converted into U.S. dollars on the date of actual or constructive receipt, your tax basis in those Won should be equal to their U.S. dollar value on that date and, as a result, you generally should not be required to recognize any foreign exchange gain or loss. If the Won received as a dividend are not converted into U.S. dollars on the date of actual or constructive receipt, you will have a basis in the Won equal to their U.S. dollar value on the date of receipt. Any gain or loss realized on a subsequent conversion or other disposition of the Won generally will be treated as ordinary income or loss and generally will be income or loss from sources within the United States for foreign tax credit limitation purposes.
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The creditability of non-U.S. income taxes is subject to certain conditions and significant complex limitations, including some that vary depending on a U.S. Holder’s circumstances. U.S. Holders should consult their tax advisors regarding the creditability or deductibility of Korean taxes withheld with respect to the ADSs or common shares generally and in their particular circumstances.
To the extent that the gross amount of any distribution on our ADSs or common shares exceeds our current and accumulated earnings and profits, the excess (including the amount of any Korean taxes withheld from the excess) will first be treated as a non‑taxable return of (and will reduce, but not below zero) your tax basis in the ADSs or common shares to the extent thereof. Any remaining portion of the distribution will be treated as capital gain (which will be either long‑term or short‑term capital gain depending upon whether you have held the ADSs or common shares for more than one year). However, we do not expect to maintain calculations of our earnings and profits under U.S. federal income tax principles and, therefore, U.S. Holders should expect to treat the entire amount of any distribution as dividend income. See “—Information Reporting and Backup Withholding” below.
Taxation of Gains from the Sale, Exchange, or Other Disposition of Our ADSs or Common Shares
You generally will recognize capital gain or loss for U.S. federal income tax purposes upon the sale, exchange, or other disposition of our ADSs or common shares in an amount equal to the difference, if any, between (i) the amount realized on the sale, exchange, or other disposition (without reduction for any Korean or other non‑U.S. tax withheld from such disposition, and determined in the case of sales or exchanges in currencies other than U.S. dollars by reference to the spot exchange rate in effect on the date of the sale or exchange or, if sold or exchanged on an established securities market and you are a cash basis taxpayer or an electing accrual basis taxpayer, the spot exchange rate in effect on the settlement date) and (ii) your adjusted tax basis (as determined in U.S. dollars) in the ADSs or common shares. Such capital gain or loss will be long‑term capital gain (taxable at a reduced rate for non‑corporate U.S. Holders, including individuals) or loss if, on the date of sale, exchange, or other disposition, you have held the ADSs or common shares for more than one year. The deductibility of capital losses is subject to limitations. You should consult with your own tax advisor regarding the availability of a foreign tax credit or deduction in respect of any Korean tax imposed on a sale or other disposition of ADSs or common shares.
Information Reporting Regarding PFICs and Specified Foreign Financial Assets
If we are a PFIC, unless an exception applies, a U.S. Holder would be required to file IRS Form 8621 for each year in which the U.S. Holder owns our ADSs or common shares, including any taxable year in which the U.S. Holder (i) recognizes gain on the direct or indirect disposition of our ADSs or common shares, (ii) receives certain direct or indirect distributions from us, or (iii) makes any of certain reportable elections (including a mark‑to‑market election). An IRS Form 8621 may also be required to be filed with respect to a Lower-tier PFIC. This requirement is in addition to other reporting requirements applicable to ownership in a PFIC. In the event a U.S. Holder does not file such form, the statute of limitations on the assessment and collection of U.S. federal income taxes of such U.S. Holder for the related tax year may be extended.
Owners of “specified foreign financial assets” with an aggregate value in excess of US$50,000 (and in some cases, a higher threshold) may be required to file an information report with the IRS (on IRS Form 8938) with respect to such assets with their tax returns. “Specified foreign financial assets” include any financial accounts maintained with non-U.S. financial institutions, as well as any of the following, but only if they are held for investment and not held in accounts maintained with financial institutions: (i) stocks and securities issued by non-U.S. persons, (ii) financial instruments and contracts that have non-U.S. issuers or counterparties, and (iii) interests in non-U.S. entities. U.S. Holders are urged to consult their tax advisors regarding the application of this disclosure requirement to their ownership of our ADSs and common shares.
If you are a U.S. Holder, you are urged to consult with your own tax advisor regarding the application of the PFIC and specified foreign financial assets information reporting requirements and related statute of limitations tolling provisions with respect to the ADSs or our common shares.
Information Reporting and Backup Withholding
In general, information reporting will apply to payments of dividends in respect of our ADSs or common shares and the proceeds from the sale, exchange, or redemption of our ADSs or common shares that are paid to you within the United States (and in certain cases, outside the United States), unless you are an exempt recipient, such as certain
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corporations, and if required, adequately demonstrates that fact. In addition, backup withholding may apply to such payments unless (1) you are a corporation or other exempt recipient or (2) you provide a correct taxpayer identification number and certify that you are not subject to back up withholding in the manner required. Any amounts withheld under the backup withholding rules generally will be allowed as a refund or a credit against your U.S. federal income tax liability, provided the required information is timely furnished to the IRS. Prospective investors should consult their own tax advisors as to their qualification for exemption from backup withholding and the procedure for establishing an exemption.
ITEM 10.F. DIVIDENDS AND PAYING AGENTS
Not applicable.
ITEM 10.G. STATEMENT BY EXPERTS
Not applicable.
ITEM 10.H. DOCUMENTS ON DISPLAY
We are subject to the informational requirements of the Exchange Act. Accordingly, we are required to file reports and other information with the SEC, including annual reports on Form 20-F and reports of foreign private issuer on Form 6-K. Any filings we make electronically will be available to the public over the Internet at the Web site of the SEC at http://www.sec.gov. and on our website at http://www.gravity.co.kr. The references to the SEC’s and our website are inactive textual references only, and information contained therein or connected thereto is not incorporated into this Annual Report.
As a “foreign private issuer,” we are exempt under the Exchange Act from, among other things, the rules prescribing the furnishing and content of proxy statements, and our executive officers, directors, and principal shareholders are exempt from the reporting and short-swing profit recovery provisions contained in Section 16 of the Exchange Act. In addition, we are not required under the Exchange Act to file periodic reports and financial statements with the SEC as frequently or as promptly as U.S. companies whose securities are registered under the Exchange Act. However, we furnish our quarterly financial statements prepared in accordance with IFRS on Form 6-K with the SEC.
ITEM 10.I. SUBSIDIARY INFORMATION
Not applicable.
ITEM 10.J. ANNUAL REPORT TO SECURITY HOLDERS
Not applicable.
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
In the normal course of our business, we are subject to market risk associated with currency movements on non‑Won denominated assets and liabilities and license and royalty revenues and interest rate movements. For a further description of the market risks that we have exposure to, see Note 23 to our financial statements.
Foreign Currency Risk
We conduct our business primarily in Won, which is also our functional and reporting currency. However, we have exposure to some foreign currency exchange‑rate fluctuations on cash flows from our subsidiary in Taiwan, Thailand, Indonesia, Singapore, Hong Kong, and overseas licensees. The primary foreign currencies to which we are exposed are the NT dollar, the Thai Baht, the Japanese Yen, the U.S. dollar, and Philippine peso. Fluctuations in these exchange rates may affect our micro-transaction revenues or revenues from license fees and royalties and result in exchange losses and increased costs in Won terms.
As of December 31, 2023, of our total financial assets of Won 114,833 million (2022: Won 69,320 million), we had the U.S. dollar denominated financial assets of Won 111,616 million (2022: Won 64,351 million), the Japanese Yen denominated financial assets of Won 3,139 million (2022: Won 4,932 million), and other denominated financial assets of Won 78 million (2022: Won 37 million). As of December 31, 2023, of our total financial liabilities of Won 37,854 million
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(2022: Won 11,467 million), we had the U.S. dollar denominated financial liabilities of Won 36,344 million (2022: Won 10,832 million), the Japanese Yen denominated financial liabilities of Won 1,467 million (2022: Won 527 million), and other denominated liabilities of Won 43 million (2022: Won 108 million). For example, a hypothetical 10% appreciation of the Won against the Japanese Yen, the U.S. dollar, and other foreign currencies, in the aggregate, would reduce our cash flows by Won 7,698 million (2022: Won 5,785 million).
In 2023, Won 639,458 million (2022: Won 416,899 million) of our revenue was derived from currencies other than the Won: primarily the NT dollar, Won 176,071 million (2022: Won 175,664 million); the Japanese Yen, Won 18,999 million (2022: Won 26,133 million); the U.S. dollar, Won 22,702 million (2022: Won 33,697 million); the Thai Baht, Won 136,874 million (2022: Won 75,498 million); the Philippine Peso, Won 102,595 million (2022: Won 26,003 million); the Indonesian Rupiah, Won 58,763 million (2022: Won 5,472 million); the Malaysian Ringgit, Won 58,553 million (2022: Won 24,830 million); and the Hong Kong Dollar, Won 22,656 million (2022: Won 24,397 million). A hypothetical 10% depreciation in the exchange rates of these foreign currencies against the Won in 2023 would have reduced our revenue by Won 59,721 million (2022: Won 39,169 million).
As of April 26, 2024, we had no foreign currency forward contract outstanding. We may in the future enter into hedging transactions in an effort to reduce our exposure to foreign currency exchange risks, but we may not be able to successfully hedge our exposure at all. In addition, our currency exchange losses may be magnified by Korean exchange control regulations that restrict our ability to convert the Won into the U.S. dollar, the Japanese Yen, or the Euro under certain emergency circumstances.
For a further discussion of our foreign currency risk exposures, including a further sensitivity analysis on our foreign currency risk exposures, see Note 23 of the notes to our financial statements.
Interest Rate Risk
Our exposure to risk for changes in interest rates relates primarily to our investments in short‑term financial instruments and other investments. Investments in both fixed rate and floating rate interest earning instruments carry some interest rate risk. The fair value of fixed rate securities may fall due to a rise in interest rates, while floating rate securities may produce less income than expected if interest rates fall. We do not believe that we are subject to any material market risk exposure on our short‑term financial instruments, as they are readily convertible to cash and have short maturities.
Credit Risk
Our cash and cash equivalents and short‑term financial instruments are placed with several local financial institutions. Four different financial institutions are holding approximately 15.2%, 11.1%, 10.0%, and 9.9% (2022: 19.8%, 12.7%, 10.7%, and 10.4% in four different financial institutions, respectively), respectively of our cash and cash equivalents and short term financial instruments. We face a potential credit risk that the financial institutions may become insolvent and be unable to repay our principal and interest in a timely manner. While the management believes such financial institutions are of a high credit quality, it is difficult for us to predict the financial condition of the United States, Korean, Taiwanese, Thai, Singapore or Hong Kong banking sectors and the financial institutions that manage our cash holdings. We may be materially and adversely affected by any widespread failure in the United States, Korean, Taiwanese, Thai, Singapore or Hong Kong banking sectors caused by any economic downturn or volatile financial markets in the future.
The above discussion and the estimated amounts generated from the sensitivity analyses contained in the notes to our financial statements include “forward‑looking statements,” which assume for analytical purposes that certain market conditions may occur. Accordingly, such forward‑looking statements should not be considered projections by us of future events or losses.
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
ITEM 12.A. DEBT SECURITIES
Not applicable.
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ITEM 12.B. WARRANTS AND RIGHTS
Not applicable.
ITEM 12.C. OTHER SECURITIES
Not applicable.
ITEM 12.D. AMERICAN DEPOSITARY SHARES
Fees and Charges Our ADS holders May Have to Pay
Citibank, N.A., the depositary of our ADS program, collects its fees for delivery and surrender of ADSs directly from investors depositing shares or surrendering ADSs for the purpose of withdrawal or from intermediaries acting for them. The depositary collects fees for making distributions to investors by deducting those fees from the amounts distributed or by selling a portion of distributable property to pay the fees. The depositary may generally refuse to provide fee‑attracting services until its fees for those services are paid.

Service | Rate | By Whom Paid
(1) Issuance of ADSs (e.g., an issuance upon a deposit of Shares, upon a change in the ADS(s)-to-Share(s) ratio, or for any other reason), excluding issuances as a result of distributions described in paragraph (4) below. | Up to U.S. $5.00 per 100 ADSs (or fraction thereof) issued. | Person for whom ADSs are issued.
(2) Cancellation of ADSs (e.g., a cancellation of ADSs for Delivery of deposited Shares, upon a change in the ADS(s)-to-Share(s) ratio, or for any other reason). | Up to U.S. $5.00 per 100 ADSs (or fraction thereof) cancelled. | Person for whom ADSs are being cancelled.
(3) Distribution of cash dividends or other cash distributions (e.g., upon a sale of rights and other entitlements). | Up to U.S. $5.00 per 100 ADSs (or fraction thereof) held. | Person to whom the distribution is made.
(4) Distribution of ADSs pursuant to (i) stock dividends or other free stock distributions, or (ii) an exercise of rights to purchase additional ADSs. | Up to U.S. $5.00 per 100 ADSs (or fraction thereof) held. | Person to whom the distribution is made.
(5) Distribution of securities other than ADSs or rights to purchase additional ADSs (e.g., spin-off shares). | Up to U.S. $5.00 per 100 ADSs (or fraction thereof) held. | Person to whom the distribution is made.
(6) ADS Services. | Up to U.S. $5.00 per 100 ADSs (or fraction thereof) held on the applicable record date(s) established by the Depositary. | Person holding ADSs on the applicable record date(s) established by the Depositary.

Fees and Other Payments Made by the Depositary to Us
Citibank, N.A., as depositary, may reimburse the Company for certain expenses incurred by the Company in respect of the ADR program established pursuant to the Deposit Agreement, by making available a portion of the ADS fees charged in respect of the ADR program or otherwise, upon such terms and conditions as the Company and the depositary agree from time to time.
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PART II
ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
Not applicable.
ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
Not applicable.
ITEM 15. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
Our management, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, carried out an evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a‑15(e) and 15d‑15(e) under the Exchange Act) as of December 31, 2023. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded, that our disclosure controls and procedures as of December 31, 2023 were effective to provide reasonable assurance that information required to be disclosed by us in reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
Management’s Annual Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rules 13a‑15(f) and 15d‑15(f) under the Exchange Act. Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with IFRS.
Because of its inherent limitations, internal control over financial reporting is not intended to provide absolute assurance that a misstatement of our financial statements would be prevented or detected. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Our internal control over financial reporting includes those policies and procedures that: (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets; (ii) provide reasonable assurance that transactions are recorded as necessary to permit the preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.
Our management has evaluated the effectiveness of our internal control over financial reporting as of December 31, 2023, based upon criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 Framework) and concluded that we maintained effective internal control over financial reporting as of December 31, 2023.
Attestation Report of the Registered Public Accounting Firm
The effectiveness of the Company’s internal control over financial reporting as of December 31, 2023, has been audited by Samil PricewaterhouseCoopers, an independent registered public accounting firm, as stated in their report which is included in ITEM 19 of this Annual Report.
Changes in Internal Control over Financial Reporting
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There have been no other changes in our internal control over financial reporting that occurred during the year ended December 31, 2023, that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.
ITEM 16. RESERVED
ITEM 16.A. AUDIT COMMITTEE FINANCIAL EXPERT
Our Board of Directors has determined that Mr. Yong Seon Kwon, our outside director, is an “audit committee financial expert,” as such term is defined by the regulations of the SEC issued pursuant to Section 407 of the Sarbanes‑Oxley Act. Mr. Kwon is an independent director as such term is defined in Rule 10A‑3 of the Exchange Act for purposes of the listing standards of NASDAQ that are applicable.
ITEM 16.B. CODE OF ETHICS
Pursuant to the requirements of the Sarbanes‑Oxley Act, we previously adopted a Code of Ethics applicable to all our employees, including our Chief Executive Officer, Chief Financial Officer and all other directors and executive officers. We have adopted an amended Code of Ethics, applicable to all our directors and officers and employees, which was filed as Exhibit 11.1 to our annual report for the year ended December 31, 2005. The amendment was made to more clearly set forth the principles underlying the Code of Ethics in order to assist our directors, officers and employees in connection with their adherence to the guidelines for ethical behavior described in the Code of Ethics. Our Code of Ethics is available on our website at: http://www.gravity.co.kr/en/about/summary/precisionManagement.asp.
We will disclose on our website any amendment to, or waiver from, a provision of our Code of Ethics that applies to our directors or executive officers to the extent required under the rules of the SEC or Nasdaq.
ITEM 16.C. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The table below sets forth the aggregate fees billed or to be billed by Samil PricewaterhouseCoopers and its other PwC affiliates (“PwC”), our principal accountant categorized by the types of services provided and a brief description of the nature of such services.

|  | Year Ended, December 31 |
Type of Service |  | 2023 |  | 2022 |  | Nature of Services
|  | (In millions of Korean Won) |  |
Audit Fees |  | ₩ | 1,501 |  |  | ₩ | 1,224 |  |  | Audit Service for the Company
Audit‑Related Fees |  | — |  |  | — |  |  |
Tax Fees(1) |  | 39 |  |  | 24 |  |  |
All Other Fees |  |  |  | — |  |  |
Total |  | ₩ | 1,540 |  |  | ₩ | 1,248 |  |  |

__________________
Notes:
(1)Tax fees consist of fee for corporate tax return and transfer pricing consulting.
Pre-approval Policies and Procedures of the Audit Committee
Under our audit committee rules and policies, our audit committee or any member thereof, to whom approval authority has been delegated, must approve all services performed by our principal accountant after consulting our management.
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ITEM 16.D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
Not applicable.
ITEM 16.E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
Not applicable.
ITEM 16.F. CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT
Not applicable.
ITEM 16.G. CORPORATE GOVERNANCE
See ITEM 6.C. “BOARD PRACTICES.”
ITEM 16.H. MINE SAFETY DISCLOSURE
Not applicable.
ITEM 16.I. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
Not applicable.
ITEM 16.J. INSIDER TRADING POLICIES
Pursuant to applicable SEC transition guidance, the disclosure required by Item 16J will be applicable to the Company from the fiscal year ending December 31, 2024.
ITEM 16.K. CYBERSECURITY
Risk Management and Strategy
We prioritize the management of cybersecurity risk and the protection of information across our enterprise by embedding data protection and cybersecurity risk management in our operations. Our processes for assessing, identifying, and managing material risks from cybersecurity threats have been integrated into our overall risk management system and processes. As a foundation of our cybersecurity risk management processes, we have implemented a layered governance structure, as discussed further below, to help assess, identify and manage cybersecurity risks.
Our privacy and cybersecurity policies encompass incident response procedures, information security and vendor management. In order to help develop these policies and procedures, we monitor the privacy and cybersecurity laws, regulations and guidance applicable to us in the regions where we do business, as well as proposed privacy and cybersecurity laws, regulations, guidance and emerging risks, as further described in Item 4.B “Business Overview—Laws and Regulations—Business Impact and Liability Arising from New and Evolving Data Privacy and Cybersecurity Laws and Regulations.”
As described in Item 3.D “Risk Factors,” our operations rely on the secure processing, storage and transmission of confidential and other information in our computer systems and networks. Computer viruses, hackers, employee or vendor misconduct, and other external hazards could expose our information systems and those of our vendors to security breaches, cybersecurity incidents or other disruptions, any of which could materially and adversely affect our business. While we have experienced cybersecurity incidents, to date, we are not aware that we have experienced a material cybersecurity incident during fiscal years 2023, 2022 and 2021.
We have contractual arrangements with a number of game developers under which these game developers provide cybersecurity controls for our games and their users. These controls include implementation of an information security management system, establishment of data management policies including data security protection measures, development of policies on risk management, assessment and response processes, and conducting annual risk assessments.
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The sophistication of cybersecurity threats, including through the use of artificial intelligence, continues to increase, and the controls and preventative actions we take to reduce the risk of cybersecurity incidents and protect our systems, including the regular testing of our cybersecurity incident response plan, may be insufficient. In addition, new technology that could result in greater operational efficiency may further expose our computer systems to the risk of cybersecurity incidents.
Governance
We implemented a layered governance structure as a part of our integration of cybersecurity risk management into our overall risk management system and processes. Our Board oversees the operational (including information technology (IT) risks, business continuity and data security) risk affairs of the Company. Our Board is informed of such risks through periodic reports from our Chief Information Security Officer (the “CISO”). In addition, the CISO updates the Board, as necessary, regarding any material cybersecurity incidents, as well as any incidents with lesser impact potential.
Our CISO, Jong Yul Kim, who has been serving in this role since August 2019, oversees the implementation and compliance of our information security standards and mitigation of information security-related risks. As the CISO, he is also responsible for assessing and managing our material risks from cybersecurity threats. Previously, in his capacity as a senior game developer with leading game companies for more than a decade, Mr. Kim oversaw server security and other cybersecurity risk management for such game companies. We also have the following internal groups that support our processes to assess and manage cybersecurity risks as follows:
a.The Security Forum, comprising the Chief Executive Officer (Chair), Chief Operating Officer (Vice Chair), CISO and the Information Security Manager, brings together management, IT, information security and compliance teams. The Security Forum provides a forum for these cross-functional members of management to make major decisions relating to information security matters, including considering emerging technologies, such as artificial intelligence and emerging cybersecurity risks; reviewing and evaluating cybersecurity and privacy regulations; approving, reviewing and updating policies, budgets, procedures and standards as appropriate; and promoting cross-functional collaboration to manage cybersecurity and privacy risks and incidents across the enterprise.
b.The Crisis Incident Management Team, comprising senior cybersecurity, finance, marketing and legal leaders across business segments, manages risks from matters related to business continuity including risks posed by cybersecurity threats, and implements controls to mitigate such operational risks. Among other processes, this team reviews the Company’s programs and processes related to information security, third-party risk, vendor management, facilities, unplanned downtime, business disruption, business continuity and disaster recovery. The team also addresses and manages cybersecurity incidents, natural disasters, and business outages. The head of the team is responsible for reporting to the CISO who will then report to management, in the event of an actual crisis. In addition, upon the conclusion of an incident, the team provides an official comprehensive report to management outlining the incurred damages, the incident’s root cause, and proposed future prevention measures.
c.The Information Security Operation Committee, comprising senior leaders across business segments and led by the Information Security Manager, oversees information security initiatives while considering cybersecurity risk mitigation with respect to these initiatives.
Each of these internal groups provides summary reports on their activities, which are communicated as appropriate to the Board.
At the employee level, we maintain an experienced information technology team that is tasked with implementing our privacy and cybersecurity program and support the CISO in carrying out reporting, security and mitigation functions. We also hold employee trainings on privacy and cybersecurity, records and information management, conduct phishing tests and generally seek to promote awareness of cybersecurity risk through communication and education of our employee population.
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PART III
ITEM 17. FINANCIAL STATEMENTS
We have responded to ITEM 18. “FINANCIAL STATEMENTS” in lieu of responding to this item.
ITEM 18. FINANCIAL STATEMENTS
Reference is made to ITEM 19. “EXHIBITS” for a list of all financial statements and related notes filed as part of this Annual Report.
ITEM 19. EXHIBITS
(a)Financial Statements filed as part of this Annual Report
The following financial statements and related notes, together with the reports of an independent registered public accounting firm thereon, are filed as part of this Annual Report:

| Page
Index to the Consolidated Financial Statements | F-1
Report of Independent Registered Public Accounting Firm (PCAOB ID: 1103) | F-2
Report of Independent Registered Public Accounting Firm (PCAOB ID:1357) | F-4
Consolidated Statements of Financial Position as of December 31, 202 3 and 202 2 | F-5
Consolidated Statements of Comprehensive Income for the Years Ended December 31, 202 3, 202 2 and 202 1 | F-6
Consolidated Statements of Changes in Equity for the Years Ended December 31, 202 3, 202 2 and 202 1 | F-7
Consolidated Statements of Cash Flows for the Years Ended December 31, 202 3, 202 2 and 202 1 | F-8
Notes to the Consolidated Financial Statements | F-9

(b)Exhibits filed as part of this Annual Report

Exhibit No. |  | Description
1.1 |  | Articles of Incorporation, amended as of March 31, 2023(English Translation) (incorporated by reference to Exhibit 1.1 of our annual report on F o r m 20-F (file no. 000-51138) filed on April 27, 2023)
2.1 |  | Form of Stock Certificate of Registrant’s common stock, par value Won 500 per share (incorporated by reference to Exhibit 4.1 of our Registration Statement on Form F‑1 (file no. 333‑122159) filed on January 20, 2005)
2.2 |  | Form of Amended and Restated Deposit Agreement among Registrant, Citibank, N.A., as depositary, and all holders and beneficial owners of American Depositary Shares evidenced by American Depositary Receipts, including the form of American depositary receipt (incorporated by reference to our filing on Form F-6 (file no. 333-227893), filed on October 19, 2018)
2.d* |  | Description of Rights of Each Class of Securities Registered under Section 12 of the Securities Exchange Act of 1934
4.1*† |  | 1 2 th Amendment to the 2nd Renewal of Ragnarok License and Distribution Agreement dated September 29, 202 3 between GungHo Online Entertainment, Inc. and Registrant
8.1 |  | List of Registrant’s subsidiaries (incorporated by reference to Exhibit 8.1 of our annual report on Form 20-F (file no. 000-51138) filed on April 28, 2022)
11.1 |  | Registrant’s Code of Ethics (amended, incorporated by reference to Exhibit 11.1 of our annual report on Form 20‑F (file no. 000‑51138) filed on June 30, 2006)
12.1* |  | CEO Certification Pursuant to Section 302 of the Sarbanes‑Oxley Act of 2002
12.2* |  | CFO Certification Pursuant to Section 302 of the Sarbanes‑Oxley Act of 2002
13.1** |  | CEO Certification Pursuant to Section 906 of the Sarbanes‑Oxley Act of 2002
13.2** |  | CFO Certification Pursuant to Section 906 of the Sarbanes‑Oxley Act of 2002
97* |  | Policy Relating to Recovery of Erroneously Awarded Compensation
101.INS* |  | XBRL Instance Document
101.SCH* |  | XBRL Taxonomy Extension Schema Document

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101.CAL* |  | XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF* |  | XBRL Taxonomy Extension Definition Linkbase Document
101.LAB* |  | XBRL Taxonomy Extension Label Linkbase Document
101.PRE* |  | XBRL Taxonomy Extension Presentation Linkbase Document

__________________________
*Filed herewith.
†Portions of this exhibit have been redacted pursuant to Item 4 of the “Instructions As To Exhibits” of Form 20-F because the Company customarily and actually treats the redacted information as private or confidential and the omitted information is not material. The Company hereby agrees to furnish an unredacted copy of the exhibit to the Commission upon request.
** Furnished herewith.
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SIGNATURES
The registrant hereby certifies that it meets all of the requirements for filing on Form 20‑F and that it has duly caused and authorized the undersigned to sign this Annual Report on its behalf.

| GRAVITY CO., LTD.
| By: | /s/ Heung Gon Kim
| Name: | Heung Gon Kim
| Title: | Chief Financial Officer
Date: April 26, 2024 |  |

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INDEX TO FINANCIAL STATEMENTS

| Page
Index to the Consolidated Financial Statements | F-1
Report of Independent Registered Public Accounting Firm (PCAOB ID: 1103) | F-2
Report of Independent Registered Public Accounting Firm (PCAOB ID: 1357) | F-4
Consolidated Statements of Financial Position as of December 31, 202 3 and 20 22 | F-5
Consolidated Statements of Comprehensive Income for the Years Ended December 31, 202 3, 202 2 and 20 21 | F-6
Consolidated Statements of Changes in Equity for the Years Ended December 31, 202 3, 202 2 and 202 1 | F-7
Consolidated Statements of Cash Flows for the Years Ended December 31, 202 3, 202 2 and 202 1 | F-8
Notes to the Consolidated Financial Statements | F-9

F-1

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Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders
Gravity Co., Ltd.:
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated statements of financial position of Gravity Co., Ltd. and its subsidiaries (the “Group”) as of December 31, 2023 and 2022, and the related consolidated statements of comprehensive income, changes in equity and cash flows for the years then ended, including the related notes (collectively referred to as the “consolidated financial statements”). We also have audited the Group’s internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Group as of December 31, 2023 and 2022, and the results of its operations and its cash flows for the years then ended in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board. Also in our opinion, the Group maintained, in all material respects, effective internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.
Basis for Opinions
The Group's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management's Annual Report on Internal Control over Financial Reporting appearing under Item 15. Our responsibility is to express opinions on the Group’s consolidated financial statements and on the Group's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Group in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
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Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Revenue Recognition – Determination of estimated user life cycle for mobile games
As described in Notes 2, 4 and 14 to the consolidated financial statements, the Group has Korean Won 6,943 million deferred revenue related to mobile games as of December 31, 2023. The Group defers revenue for the remaining virtual currency consumable and permanent in-game items owned by active users at year-end. Management considers a game user as an active user if the period between the time of the user’s most recent access of the game and the end of reporting period equals or is shorter than the estimated game users’ life cycle. Determining the estimated user life cycle is inherently subjective because it is not an explicitly defined period. Management estimates the game user's life cycle based on the average period from the game user's first payment date to the last access date for active paying game users.
The principal considerations for our determination that performing procedures relating to revenue recognition - determination of estimated user life cycle is a critical audit matter are the significant judgment by management when determining the estimated user life cycle in consideration of the playing patterns of mobile game users, which in turn led to a high degree of auditor judgment, subjectivity and effort in performing procedures to evaluate the reasonableness of the management’s estimates of user life cycle.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to the determination of the estimated user life cycle. Those procedures also included, among others, (i) evaluating the logic management used to develop the estimated user life cycle, (ii) testing the completeness and accuracy of underlying data used in the determination of the estimated user life cycle, and (iii) evaluating the reasonableness of the estimated user life cycle by assessing historical accuracy and comparing it to competitors’ information and external market data.
/s/ Samil PricewaterhouseCoopers
Seoul, Korea
April 26, 2024
We have served as the Group's auditor since 2022.
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Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors
Gravity Co., Ltd.:
Opinion on the Consolidated Financial Statements
We have audited the consolidated statements of comprehensive income, changes in equity and cash flows of Gravity Co., Ltd. and its subsidiaries (the Group) for the year ended December 31, 2021, and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the Group’s results of operations and its cash flows for the year ended December 31, 2021 in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board.
Basis for Opinion
These consolidated financial statements are the responsibility of the Group’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Group in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audit included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audit provides a reasonable basis for our opinion.
/s/ KPMG Samjong Accounting Corp.
We have served as the Group’s auditor from 2019 to 2021.
Seoul, Korea
April 28, 2022
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GRAVITY CO., LTD.
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
As of December 31, 2023 and 2022

| Note |  | December 31, 2023 |  | December 31, 2022
|  |  | (In millions of Korean won)
Assets |  |  |  |  |
Cash and cash equivalents | 5, 6, 23 |  | ₩ | 184,082 |  |  | ₩ | 169,877 |
Short-term financial instruments | 6, 23 |  | 277,215 |  |  | 167,000 |
Accounts receivable, net | 6, 7, 14, 23 |  | 71,213 |  |  | 77,257 |
Other receivables, net | 6, 7, 23 |  | 3,637 |  |  | 140 |
Prepaid expenses | 14 |  | 2,994 |  |  | 3,332 |
Other current financial assets | 6, 23 |  | 4,439 |  |  | 3,370 |
Other current assets |  |  | 3,319 |  |  | 791 |
Total current assets |  |  | 546,899 |  |  | 421,767 |
Property and equipment, net | 8, 22 |  | 10,151 |  |  | 8,140 |
Intangible assets, net | 9 |  | 6,370 |  |  | 3,869 |
Deferred tax assets | 19 |  | 5,952 |  |  | 5,660 |
Other non-current financial assets | 6, 23 |  | 1,824 |  |  | 2,176 |
Other non-current assets | 10 |  | 6,985 |  |  | 2,482 |
Total non-current assets |  |  | 31,282 |  |  | 22,327 |
Total assets |  |  | ₩ | 578,181 |  |  | ₩ | 444,094 |
Liabilities |  |  |  |  |
Accounts payable | 6, 23 |  | ₩ | 61,778 |  |  | ₩ | 73,549 |
Deferred revenue | 14 |  | 18,093 |  |  | 18,543 |
Withholdings |  |  | 3,072 |  |  | 3,201 |
Accrued expenses | 6, 23 |  | 2,313 |  |  | 2,041 |
Income tax payable | 19 |  | 16,927 |  |  | 5,469 |
Other current liabilities | 6, 22, 23 |  | 4,251 |  |  | 2,907 |
Total current liabilities |  |  | 106,434 |  |  | 105,710 |
Long-term accounts payable | 6, 23 |  | 677 |  |  | 374 |
Long-term deferred revenue | 14 |  | 1,785 |  |  | 30 |
Deferred tax liabilities | 19 |  | 2,382 |  |  | 2,832 |
Other non-current liabilities | 6, 22, 23 |  | 3,175 |  |  | 4,968 |
Total non-current liabilities |  |  | 8,019 |  |  | 8,204 |
Total liabilities |  |  | 114,453 |  |  | 113,914 |
Equity |  |  |  |  |
Share capital | 1, 13 |  | 3,474 |  |  | 3,474 |
Capital surplus | 13 |  | 27,098 |  |  | 27,098 |
Other components of equity | 13 |  | 4,016 |  |  | 2,475 |
Retained earnings | 13 |  | 428,499 |  |  | 296,480 |
Equity attributable to owners of the Parent Company |  |  | 463,087 |  |  | 329,527 |
Non-controlling interest |  |  | 641 |  |  | 653 |
Total equity |  |  | 463,728 |  |  | 330,180 |
Total liabilities and equity |  |  | ₩ | 578,181 |  |  | ₩ | 444,094 |

The accompanying notes are an integral part of these consolidated financial statements.
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GRAVITY CO., LTD.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the Years Ended December 31, 2023, 2022 and 2021

| Note |  | 2023 |  | 2022 |  | 2021
|  |  | (In millions of Korean won except per share data)
Revenues |  |  |  |  |  |  |
Online games |  |  | ₩ | 81,017 |  |  | ₩ | 89,256 |  |  | ₩ | 75,370 |
Mobile games |  |  | 629,604 |  |  | 358,772 |  |  | 320,164 |
Other revenue |  |  | 14,895 |  |  | 15,590 |  |  | 18,404 |
Total Revenues | 14, 24, 25 |  | 725,516 |  |  | 463,618 |  |  | 413,938 |
Cost of revenues | 15 |  | (484,958) |  |  | (267,365) |  |  | (224,173) |
Gross profit |  |  | 240,558 |  |  | 196,253 |  |  | 189,765 |
Selling, general and administrative expenses | 15, 16 |  | (66,066) |  |  | (77,614) |  |  | (75,631) |
Research and development | 15 |  | (13,486) |  |  | (13,797) |  |  | (16,570) |
Other income | 17 |  | 913 |  |  | 605 |  |  | 607 |
Other expenses | 17 |  | (1,552) |  |  | (739) |  |  | (1,452) |
Operating profit | 24 |  | 160,367 |  |  | 104,708 |  |  | 96,719 |
Finance income | 6, 18 |  | 23,267 |  |  | 15,953 |  |  | 5,268 |
Finance costs | 6, 18 |  | (14,935) |  |  | (10,779) |  |  | (2,686) |
Profit before income tax |  |  | 168,699 |  |  | 109,882 |  |  | 99,301 |
Income tax expenses | 19 |  | 36,717 |  |  | 26,824 |  |  | 33,421 |
Profit for the year |  |  | ₩ | 131,982 |  |  | ₩ | 83,058 |  |  | ₩ | 65,880 |
Other comprehensive income |  |  |  |  |  |  |
Items that may be subsequently reclassified to income or loss: |  |  |  |  |  |  |
Foreign currency translation adjustments |  |  | 1,559 |  |  | 285 |  |  | 3,274 |
Items that will not be reclassified to income or loss: |  |  |  |  |  |  |
Remeasurement of defined benefit liabilities |  |  | 7 |  |  | (4) |  |  | (3) |
Total comprehensive income for the year |  |  | ₩ | 133,548 |  |  | ₩ | 83,339 |  |  | ₩ | 69,151 |
Profit (loss) attributable to: |  |  |  |  |  |  |
Owners of the Parent Company |  |  | 132,019 |  |  | 83,162 |  |  | 65,947 |
Non‑controlling interest |  |  | (37) |  |  | (104) |  |  | (67) |
Total comprehensive income (loss) attributable to: |  |  |  |  |  |  |
Owners of the Parent Company |  |  | 133,560 |  |  | 83,457 |  |  | 69,172 |
Non-controlling interest |  |  | (12) |  |  | (118) |  |  | (21) |
Earnings per share (in Korean won) |  |  |  |  |  |  |
Basic earnings per share | 20 |  | ₩ | 18,999 |  |  | ₩ | 11,968 |  |  | ₩ | 9,490 |
Diluted earnings per share | 20 |  | 18,999 |  |  | 11,968 |  |  | 9,490 |

The accompanying notes are an integral part of these consolidated financial statements.
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GRAVITY CO., LTD.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
For the Years Ended December 31, 2023, 2022 and 2021

|  |  | Attributable to owners of the Parent Company |  | Non- controlling interest |  | Total equity
| Note |  | Share capital |  | Capital surplus |  | Other components of equity |  | Retained earnings |  | Total |  |
|  |  | (In millions of Korean won)
Balance at January 1, 2021 |  |  | ₩ | 3,474 |  |  | ₩ | 27,110 |  |  | ₩ | (1,045) |  |  | ₩ | 147,371 |  |  | ₩ | 176,910 |  |  | ₩ | 438 |  |  | ₩ | 177,348 |
Total comprehensive income (loss) for the year |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Profit (loss) for the year |  |  | — |  |  | — |  |  | — |  |  | 65,947 |  |  | 65,947 |  |  | (67) |  |  | 65,880 |
Remeasurement of defined benefit liabilities |  |  | — |  |  | — |  |  | (2) |  |  | — |  |  | (2) |  |  | (1) |  |  | (3) |
Foreign currency translation adjustments | 13 |  | — |  |  | — |  |  | 3,227 |  |  | — |  |  | 3,227 |  |  | 47 |  |  | 3,274 |
Total comprehensive income (loss) for the year |  |  | — |  |  | — |  |  | 3,225 |  |  | 65,947 |  |  | 69,172 |  |  | (21) |  |  | 69,151 |
Transaction with owners, recognized directly in equity |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Equity transaction |  |  | — |  |  | (12) |  |  | — |  |  | — |  |  | (12) |  |  | 354 |  |  | 342 |
Balance at December 31, 2021 |  |  | 3,474 |  |  | 27,098 |  |  | 2,180 |  |  | 213,318 |  |  | 246,070 |  |  | 771 |  |  | 246,841 |
Balance at January 1, 2022 |  |  | 3,474 |  |  | 27,098 |  |  | 2,180 |  |  | 213,318 |  |  | 246,070 |  |  | 771 |  |  | 246,841 |
Total comprehensive income (loss) for the year |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Profit (loss) for the year |  |  | — |  |  | — |  |  | — |  |  | 83,162 |  |  | 83,162 |  |  | (104) |  |  | 83,058 |
Remeasurement of defined benefit liabilities |  |  | — |  |  | — |  |  | (3) |  |  | — |  |  | (3) |  |  | (1) |  |  | (4) |
Foreign currency translation adjustments | 13 |  | — |  |  | — |  |  | 298 |  |  | — |  |  | 298 |  |  | (13) |  |  | 285 |
Total comprehensive income (loss) for the year |  |  | — |  |  | — |  |  | 295 |  |  | 83,162 |  |  | 83,457 |  |  | (118) |  |  | 83,339 |
Transaction with owners, recognized directly in equity |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Balance at December 31, 2022 |  |  | 3,474 |  |  | 27,098 |  |  | 2,475 |  |  | 296,480 |  |  | 329,527 |  |  | 653 |  |  | 330,180 |
Balance at January 1, 2023 |  |  | 3,474 |  |  | 27,098 |  |  | 2,475 |  |  | 296,480 |  |  | 329,527 |  |  | 653 |  |  | 330,180 |
Total comprehensive income (loss) for the year |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Profit (loss) for the year |  |  | — |  |  | — |  |  | — |  |  | 132,019 |  |  | 132,019 |  |  | (37) |  |  | 131,982 |
Remeasurement of defined benefit liabilities |  |  | — |  |  | — |  |  | 4 |  |  | — |  |  | 4 |  |  | 3 |  |  | 7 |
Foreign currency translation adjustments | 13 |  | — |  |  | — |  |  | 1,537 |  |  | — |  |  | 1,537 |  |  | 22 |  |  | 1,559 |
Total comprehensive income (loss) for the year |  |  | — |  |  | — |  |  | 1,541 |  |  | 132,019 |  |  | 133,560 |  |  | (12) |  |  | 133,548 |
Transaction with owners, recognized directly in equity |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Balance at December 31, 2023 |  |  | ₩ | 3,474 |  |  | ₩ | 27,098 |  |  | ₩ | 4,016 |  |  | ₩ | 428,499 |  |  | ₩ | 463,087 |  |  | ₩ | 641 |  |  | ₩ | 463,728 |

The accompanying notes are an integral part of these consolidated financial statements.
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GRAVITY CO., LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 2023, 2022 and 2021

| Note |  | 2023 |  | 2022 |  | 2021
|  |  | (In millions of Korean won)
Cash flows from operating activities |  |  |  |  |  |  |
Cash generated from operations | 21 |  | ₩ | 150,232 |  |  | ₩ | 124,674 |  |  | ₩ | 103,572 |
Interest received |  |  | 10,435 |  |  | 3,033 |  |  | 995 |
Interest paid |  |  | (157) |  |  | (122) |  |  | (111) |
Income taxes paid |  |  | (28,080) |  |  | (29,307) |  |  | (30,273) |
Net cash inflow from operating activities |  |  | 132,430 |  |  | 98,278 |  |  | 74,183 |
Cash flows from investing activities |  |  |  |  |  |  |
Increase in short‑term financial instruments, net |  |  | (110,179) |  |  | (19,000) |  |  | (77,000) |
Increase in other non-current financial assets |  |  | (626) |  |  | (565) |  |  | (1,289) |
Decrease in other current financial assets |  |  | 3 |  |  | 5 |  |  | — |
Proceeds from disposal of property and equipment | 8 |  | 21 |  |  | 15 |  |  | 14 |
Proceeds from disposal of intangible assets | 9 |  | — |  |  | — |  |  | 15 |
Purchase of property and equipment | 8 |  | (2,461) |  |  | (739) |  |  | (1,747) |
Purchase of intangible assets | 9 |  | (3,337) |  |  | (2,056) |  |  | (2,464) |
Net cash outflow in investing activities |  |  | (116,579) |  |  | (22,340) |  |  | (82,471) |
Cash flows from financing activities |  |  |  |  |  |  |
Proceeds from capital contribution from non-controlling interests |  |  | — |  |  | — |  |  | 353 |
Repayment of lease liabilities | 22 |  | (4,083) |  |  | (3,918) |  |  | (3,648) |
Payment of share issuance costs |  |  | — |  |  | — |  |  | (11) |
Net cash outflow in financing activities |  |  | (4,083) |  |  | (3,918) |  |  | (3,306) |
Effect of exchange rate changes on cash and cash equivalents |  |  | 2,437 |  |  | (1,248) |  |  | 67 |
Net increase (decrease) in cash and cash equivalents |  |  | 14,205 |  |  | 70,772 |  |  | (11,527) |
Cash and cash equivalents at beginning of the year |  |  | 169,877 |  |  | 99,105 |  |  | 110,632 |
Cash and cash equivalents at end of the year |  |  | ₩ | 184,082 |  |  | ₩ | 169,877 |  |  | ₩ | 99,105 |

The accompanying notes are an integral part of these consolidated financial statements.
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GRAVITY CO., LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. General Information
The Parent Company
GRAVITY CO., LTD. (“the Parent Company”) was incorporated on April 4, 2000, to engage in developing and publishing online and mobile games and other related business. The Parent Company’s headquarter is located at 15F, 396 World Cup buk-ro, Mapo-gu, Seoul, Korea. The Parent Company’s principal game product, “Ragnarok”, a massive multi-player online role-playing game, was commercially launched in August 2002, and currently operated internationally in 91 markets. Also, the Parent Company has been operating Mobile games such as Ragnarok M: Eternal Love and Ragnarok Origin in the global market.
On February 8, 2005, the Parent Company listed its shares on the Nasdaq Stock Market in the United States, and issued 1,400,000 shares of common stocks in the form of American Depositary shares (“ADSs”) under the symbol “GRVY”.
As of December 31, 2023, the Parent Company’s total paid-in capital amounts to Korean Won("Won") 3,474 million. The Parent Company’s major shareholders and their respective percentage of ownership as of December 31, 2023 are as follows:

|  | Number of shares |  | Ownership (%)
GungHo Online Entertainment, Inc. |  | 4,121,737 |  |  | 59.31 |
Others |  | 2,827,163 |  |  | 40.69 |
|  | 6,948,900 |  |  | 100.00 |

Consolidated Subsidiaries
Details of the consolidated subsidiaries as of December 31, 2023 and 2022 are as follows:

|  |  |  | Percentage of ownership (%) |  |  |  |
Subsidiary |  | Location |  | 2023 |  | 2022 |  | Fiscal year end |  | Main business
Gravity Interactive, Inc. |  | U.S.A. |  | 100.00 |  |  | 100.00 |  |  | December |  | Online and mobile game services
Gravity NeoCyon, Inc. |  | Korea |  | 99.53 |  |  | 99.53 |  |  | December |  | Mobile game development and service
Gravity Communications Co.,Ltd. |  | Taiwan |  | 100.00 |  |  | 100.00 |  |  | December |  | Online and mobile game services
PT. Gravity Game Link |  | Indonesia |  | 70.00 |  |  | 70.00 |  |  | December |  | Online and mobile game services
Gravity Game Tech Co.,Ltd. |  | Thailand |  | 100.00 |  |  | 100.00 |  |  | December |  | Online and mobile game services
Gravity Game Arise Co., Ltd. |  | Japan |  | 100.00 |  |  | 100.00 |  |  | December |  | Online and mobile game services
Gravity Game Hub PTE., Ltd. |  | Singapore |  | 100.00 |  |  | 100.00 |  |  | December |  | Online and mobile game services
Gravity Game Vision Limited. |  | Hong Kong |  | 100.00 |  |  | 100.00 |  |  | December |  | Online and mobile game services

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Condensed Financial Information of Subsidiaries
Details of the condensed financial information of subsidiaries as of and for the year ended December 31, 2023 and 2022 are as follows:

|  | 2023
Subsidiaries |  | Total assets(*) |  | Total liabilities(*) |  | Revenue(*) |  | Profit(loss) For the year(*)
|  | (In millions of Korean won)
Gravity Interactive, Inc. |  | ₩ | 23,445 |  |  | ₩ | 13,671 |  |  | ₩ | 49,818 |  |  | ₩ | 1,113 |
Gravity NeoCyon, Inc. |  | 11,747 |  |  | 5,784 |  |  | 19,408 |  |  | (1,270) |
Gravity Communications Co., Ltd. |  | 35,754 |  |  | 9,227 |  |  | 33,122 |  |  | 10,116 |
PT Gravity Game Link |  | 2,461 |  |  | 303 |  |  | 2,234 |  |  | (103) |
Gravity Game Tech Co., Ltd. |  | 50,672 |  |  | 8,081 |  |  | 30,604 |  |  | 11,308 |
Gravity Game Arise Co., Ltd. |  | 7,058 |  |  | 1,683 |  |  | 3,807 |  |  | (5,393) |
Gravity Game Hub PTE., Ltd. |  | 74,229 |  |  | 37,718 |  |  | 287,950 |  |  | 34,160 |
Gravity Game Vision Limited |  | 51,811 |  |  | 10,753 |  |  | 145,653 |  |  | 23,547 |

(*) Amount before eliminating the intercompany transactions.

|  | 2022
Subsidiaries |  | Total assets(*) |  | Total liabilities(*) |  | Revenue(*) |  | Profit(loss) For the year(*)
|  | (In millions of Korean won)
Gravity Interactive, Inc. |  | ₩ | 32,143 |  |  | ₩ | 23,617 |  |  | ₩ | 62,745 |  |  | ₩ | (2,448) |
Gravity NeoCyon, Inc. |  | 15,587 |  |  | 8,353 |  |  | 24,639 |  |  | 1,710 |
Gravity Communications Co., Ltd. |  | 39,438 |  |  | 11,161 |  |  | 50,611 |  |  | 14,186 |
PT Gravity Game Link |  | 3,268 |  |  | 1,090 |  |  | 3,372 |  |  | (374) |
Gravity Game Tech Co., Ltd. |  | 40,204 |  |  | 9,740 |  |  | 34,990 |  |  | 9,975 |
Gravity Game Arise Co., Ltd. |  | 3,067 |  |  | 988 |  |  | 3,452 |  |  | (505) |
Gravity Game Hub PTE., Ltd. |  | 4,846 |  |  | 2,726 |  |  | 4,352 |  |  | (3,081) |
Gravity Game Vision Limited |  | 63,608 |  |  | 46,146 |  |  | 116,550 |  |  | 17,090 |

(*) Amounts before eliminating the intercompany transactions.
2. Basis of Accounting
Basis of Preparation
These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by International Accounting Standard Board (“IASB”). These consolidated financial statements were authorized for issuance by the board of directors on April 26, 2024.
Basis of Measurement
The consolidated financial statements have been prepared on the historical cost basis, except for the following material item in the consolidated statement of financial position as of December 31, 2022:
•Financial instruments measured at fair value through profit or loss (“FVTPL”)
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Use of Judgements and Estimates
Use of Judgements and Estimates
The preparation of the consolidated financial statements in conformity with IFRS requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.
The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below.
Critical Accounting Estimate
Information about critical judgments in applying accounting policies that have the most significant effect on the amounts recognized in the consolidated financial statements is included in the following notes.
i)Deferred Revenue
The Gravity Co., Ltd. and its subsidiaries (the "Group") sells virtual currency and items that can be used in mobile games to game users. For each game in each country, the Group estimates and applies the game user's life cycle in order to recognize revenue generated by micro-transactions. The game user's life cycle is estimated based on the average period from the game user's first payment date to the last access date for active paying game users. The Group considers a game user as an active user if the period between the time of the user’s most recent access of the game and the end of reporting period equals or is shorter than the estimated game users’ life cycle. For remaining virtual currency and items that active users own at period-end, the related revenue is deferred considering the items’ attributes. The group estimates the user’s life cycle by analyzing game users’ activity patterns such as payment and access and it periodically reviews if there is any change of these estimates.
3. New Standards and Interpretations Adopted During the Year and Resulting Changes in Accounting Policies
New and Amended Standards Adopted by the Group
The Group has applied the following standards and amendments for the first time for the annual reporting period commencing January 1, 2023.
Amendments to IAS 1 ‘Presentation of Financial Statement’ – Disclosure of Accounting Policies
The amendments to IAS 1 define and require entities to disclose their material accounting policy information (being information that, when considered together with other information included in an entity’s financial statements, can reasonably be expected to influence decisions that the primary users of financial statements make on the basis of those financial statements). The amendments did not have a significant impact on the financial statements.
Amendments to IAS 8 ‘Accounting Policies, Changes in Accounting Estimate and Errors’ – Definition of Accounting Estimates
The amendments define accounting estimates and clarify how to distinguish them from changes in accounting policies. The amendment did not have a significant impact on the financial statements.
Amendments to IAS 12 ‘Income Taxes’ – Deferred Tax related to Assets and liabilities arising from a Single Transaction
The amendments include an additional condition to the exemption to initial recognition of an asset or liability that a transaction does not give rise to equal taxable and deductible temporary differences at the time of the transaction. The amendments did not have a significant impact on the financial statement.
New standards : IFRS 17 ‘Insurance Contract’
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IFRS 17 Insurance Contracts replaces IFRS 4 Insurance Contracts. This Standard estimates future cash flows of an insurance contract and measures insurance liabilities using discount rates applied with assumptions and risks at the measurement date. The entity recognizes insurance revenue on an accrual basis including services (insurance coverage) provided to the policyholder by each annual period. In addition, investment components (Refunds due to termination/maturity) repaid to a policyholder even if an insured event does not occur, are excluded from insurance revenue, and insurance financial income or expense and the investment income or expense are presented separately to enable users of the information to understand the sources of income or expenses. This standard did not have a significant impact on the financial statements.
Amendments to IAS 12 ‘Income Taxes’ – International Tax Reform – Pillar Two Model Rules
The amendments provide a temporary relief from the accounting for deferred taxes arising from legislation enacted to implement the Pillar Two model rules, which aim to reform international corporate taxation for multinational enterprises, and require disclosure of related current tax effects, etc. The Group applies the exception to recognizing and disclosing information about deferred tax assets and liabilities related to Pillar Two income taxes. Since the Pillar Two legislation is scheduled to be effective from January 1, 2024, the Group has no current tax expense related to Pillar Two. The expected impact of the Pillar Two income taxes is described in Note 19.
4. Material Accounting Policies
The principal accounting policies applied in the preparation of these consolidated financial statements in accordance with the IFRS are set out below. These policies have been consistently applied to all years presented, except if mentioned otherwise in Note 3.
Consolidation
The Group has prepared the consolidated financial statements in accordance with IFRS 10 Consolidated Financial Statements.
Subsidiaries are all entities over which Group has control. The Group controls an entity when the Group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power to direct the activities of the entity. Subsidiaries are consolidated from the date on which control is obtained by the Group. They are deconsolidated from the date on which control ceases.
The acquisition method of accounting is used to account for business combinations by the Group. The consideration transferred is measured at the fair values of the assets transferred, and identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date. The Group recognizes any non-controlling interest in the acquired entity on an acquisition-by-acquisition basis at the non-controlling interest’s proportionate share of the acquired entity’s net identifiable assets. Acquisition-related costs are expensed as incurred.
The excess of consideration transferred, amount of any non-controlling interest in the acquired entity and acquisition-date fair value of any previous equity interest in the acquired entity over the fair value of the net identifiable assets acquired is recorded as goodwill. If those amounts are less than the fair value of the net identifiable assets of the business acquired, the difference is recognized directly in the profit as a bargain purchase.
Intercompany transactions, balances and unrealized gains on transactions between consolidated companies are eliminated. Unrealized losses are also eliminated unless the transaction provides evidence of an impairment of the transferred asset. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group.
Segment Reporting
Information of each operating segment is reported in a manner consistent with the internal business segment reporting provided to the chief operating decision-maker (Note 24). The CEO, as the chief operating decision-maker, is responsible for allocating resources and assessing performance of the operating segments.
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Cash and Cash Equivalents
Cash and cash equivalents include cash on hand, deposits held at call with financial institutions, and other short-term investments with original maturities of three months or less that are readily convertible to known amounts of cash.
Financial Assets
Classification
At initial recognition, the Group classifies its financial assets in the following measurement categories:
•measured at fair value through profit or loss
•measured at fair value through other comprehensive income ("FVOCI"), and
•measured at amortized cost.
The classification depends on the Group’s business model for managing the financial assets and the contractual terms of the cash flows.
For financial assets measured at fair value, gains and losses will either be recorded in profit or loss or other comprehensive income. For investments in debt instruments, this will depend on the business model in which the investment is held. The Group reclassifies debt investments when, and only when, its business model for managing those assets changes.
For investments in equity instruments that are not held for trading, this will depend on whether the Group has made an irrevocable election at the time of initial recognition to account for the equity investment at fair value through other comprehensive income. Changes in fair value of equity instruments not elected as equity investment at fair value through other comprehensive income will be recognized in profit or loss.
Measurement
At initial recognition, the Group measures a financial asset at its fair value plus transaction costs that are directly attributable to the acquisition of the financial asset for financial asset not at fair value through profit or loss. Transaction costs of financial assets carried at fair value through profit or loss are expensed in profit or loss.
Financial assets with embedded derivatives are considered in their entirety when determining whether their cash flows are solely payment of principal and interest.
(i) Debt instruments
Subsequent measurement of debt instruments depends on the Group’s business model for managing the asset and the cash flow characteristics of the asset. The Group classifies its debt instruments into one of the following three measurement categories:
•Amortized cost: Assets that are held for collection of contractual cash flows where those cash flows represent solely payments of principal and interest are measured at amortized cost. A gain or loss on a debt investment that is subsequently measured at amortized cost and is not part of a hedging relationship is recognized in profit or loss when the asset is derecognized or impaired. Interest income from these financial assets is included in ‘finance income’ using the effective interest rate method.
•Fair value through other comprehensive income : Assets that are held for collection of contractual cash flows and for selling the financial assets, where the assets’ cash flows represent solely payments of principal and interest, are measured at fair value through other comprehensive income. Movements in the carrying amount are taken through other comprehensive income, except for the recognition of impairment loss (reversal of impairment loss), interest income and foreign exchange gains and losses which are recognized in profit or loss. When the financial asset is derecognized, the cumulative gain or loss previously recognized in other comprehensive income is reclassified from equity to profit or loss. Interest income from these financial assets is included in ‘finance income’ using the
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effective interest rate method. Foreign exchange gains and losses are presented in ‘finance income or costs’ and impairment losses are presented in ‘other non-operating expenses’.
•Fair value through profit or loss: Assets that do not meet the criteria for amortized cost or fair value through other comprehensive income are measured at fair value through profit or loss. A gain or loss on a debt investment that is subsequently measured at fair value through profit or loss and is not part of a hedging relationship is recognized in profit or loss and presented net in the statement of profit or loss within ‘finance income or costs’ in the year in which it arises.
(ii) Equity instruments
The Group subsequently measures all equity investments at fair value. Where the Group’s management has elected to present fair value gains and losses on equity investments, which are held for long-term investment or strategic purpose, in other comprehensive income, there is no subsequent reclassification of fair value gains and losses to profit or loss following the derecognition of the investment.
Changes in the fair value of financial assets at fair value through profit or loss are recognized in ‘other non-operating income or expenses’ in the statement of profit or loss as applicable. Impairment loss (reversal of impairment loss) on equity investments measured at fair value through other comprehensive income are not reported separately from other changes in fair value.
Impairment
The Group recognizes loss allowances for expected credit losses (“ECLs”) on:
•financial assets measured at amortized cost;
•debt investments measured at FVOCI; and
•contract assets under IFRS 15.
The Group measures loss allowances at an amount equal to lifetime ECLs, except for the following, which are measured at 12-month ECLs:
•debt securities that are determined to have low credit risk at the reporting date; and
•other debt securities and bank balances for which credit risk (i.e. the risk of default occurring over the expected life of the financial instrument) has not increased significantly since initial recognition.
Loss allowances for accounts and other receivables (including lease receivables) and contract assets are always measured at an amount equal to lifetime ECLs.
When determining whether the credit risk of a financial asset has increased significantly since initial recognition and when estimating ECLs, the Group considers reasonable and supportable information that is relevant and available without undue cost or effort. This includes both quantitative and qualitative information and analysis, based on the Group’s historical experience and informed credit assessment that includes forward-looking information.
The Group considers a financial asset to be in default when:
•the debtor is unlikely to pay its obligations to the Group in full, without recourse by the Group to actions such as realizing security (if any is held); or
•the financial asset is more than 90 days past due.
Lifetime ECLs are the ECLs that result from all possible default events over the expected life of a financial instrument.
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12-month ECLs are the portion of ECLs that result from default events that are possible within the 12 months after the reporting date (or a shorter period if the expected life of the instrument is less than 12 months).
The maximum period considered when estimating ECLs is the maximum contractual period over which the Group is exposed to credit risk.
ECLs are a probability-weighted estimate of credit losses. Credit losses are measured as the present value of all cash shortfalls (i.e. the difference between the cash flows due to the entity in accordance with the contract and the cash flows that the Group expects to receive). ECLs are discounted at the effective interest rate of the financial asset.
At each reporting date, the Group assesses whether financial assets carried at amortized cost and debt securities at FVOCI are credit-impaired. A financial asset is ‘credit-impaired’ when one or more events that have a detrimental impact on the estimated future cash flows of the financial asset have occurred.
Loss allowances for financial assets measured at amortized cost are deducted from the gross carrying amount of the assets. For debt securities at FVOCI, the loss allowance is charged to profit or loss.
Recognition and Derecognition
Regular way purchases and sales of financial assets are recognized or derecognized on trade-date, the date on which the Group commits to purchase or sell the asset. Financial assets are derecognized when the rights to receive cash flows from the financial assets have expired or have been transferred and the Group has transferred substantially all the risks and rewards of ownership.
If a transfer does not result in derecognition because the Group has retained substantially all the risks and rewards of ownership of the transferred asset, the Group continues to recognize the transferred asset in its entirety and recognizes a financial liability for the consideration received.
Offsetting of Financial Instruments
Financial assets and liabilities are offset and the net amount reported in the consolidated statement of financial position where there is a legally enforceable right to offset the recognized amounts and there is an intention to settle on a net basis or realize the assets and settle the liability simultaneously. The legally enforceable right must not be contingent on future events and must be enforceable in the normal course of business and in the event of default, insolvency or bankruptcy of the Group or the counterparty.
Accounts receivables
Accounts receivables are recognized initially at the amount of consideration that is unconditional, unless they contain significant financing components in which case they are recognized at fair value. Account receivables are subsequently measured at amortized cost using the effective interest method, less loss allowance.
Property and Equipment
Property and equipment are initially measured at cost. The cost of property and equipment includes expenditures arising directly from the construction or acquisition of the asset, any costs directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management, and the initial estimate of the costs of dismantling and removing the item and restoring the site on which it is located.
Property and equipment, subsequently, are carried at cost less accumulated depreciation and accumulated impairment losses.
Subsequent costs are recognized in the carrying amount of property and equipment at cost or, if appropriate, as a separate item if it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be reliably measured.
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Depreciation of all property and equipment, except for land, is calculated using the straight-line method to allocate their cost or revalued amounts, net of their residual values, over their estimated useful lives as follows:

Computer and other equipment | 4 years
Furniture and fixtures | 4 years
Vehicles | 4 years
Leasehold improvements | (*)
Right-of-use assets | (*)

(*)The Group depreciates Right-of-use asset and the Leasehold improvements from the commencement date and the available date to the earlier date between the end of the lease term and the expiration date of Right-of-use asset’s useful life using the straight-line method.
Depreciation method, residual values and useful lives are reviewed, and adjusted if appropriate, at the end of each reporting period. The change is accounted for as a change in an accounting estimate.
Intangible Assets
Intangible assets, except for goodwill, are initially recognized at its historical cost, and carried at cost less accumulated amortization and accumulated impairment losses.
The Group amortizes intangible assets with a definite useful life using the straight-line method over the following periods:

Software | 1 ~ 3 years
Industrial property rights | 10 years
Other intangible assets | 3 years

Expenditure on research activities is recognized expenses as incurred. Development expenditure is capitalized only if the expenditure can be measured reliably, the product or process is technically and commercially feasible, future economic benefits are probable and the Group intends to and has sufficient resources to complete development and to use or sell the asset. Other development expenditure is recognized in expenses as incurred.
The Group entered into a game licensing agreement with a number of third parties to gain exclusive rights to the games developed by those companies. The license fee payments are recognized as other intangible assets and amortized over the term of the contract using the straight-line method.
Impairment of Non-financial Assets
At each reporting date, the Group reviews the carrying amounts of its non-financial assets (other than contract assets, incremental costs of obtaining a contract, costs to fulfil a contract, employee benefit related assets and deferred tax assets) to determine whether there is any indication of impairment. If any such indication exists, then the asset’s recoverable amount is estimated. Goodwill and intangible assets that have indefinite useful lives or that are not yet available for use, irrespective of whether there is any indication of impairment, are tested for impairment annually by comparing their recoverable amounts to their carrying amounts.
The recoverable amount of an asset or cash generating unit (“CGU”) is the greater of its value in use and its fair value less costs to sell. Value in use is based on the estimated future cash flows, discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset or CGU.
An impairment loss is recognized in profit or loss if the carrying amount of an asset or CGU exceeds its recoverable amount.
Leases
At inception of a contract, the Group assesses whether a contract is, or contains, a lease. A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. To
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assess whether a contract conveys the right to control the use of an identified asset, the Group uses the definition of a lease in IFRS 16.
i)As a Lessee
At commencement or on modification of a contract that contains a lease component, the Group allocates the consideration in the contract to each lease component on the basis of its relative stand-alone prices. However, the Group has elected not to separate non-lease components and account for the lease and non-lease components as a single lease component by class of underlying asset.
The Group determines the lease term as the non-cancellable period of a lease, together with both (a) periods covered by an option to extend the lease if the lessee is reasonably certain to exercise that option; and (b) periods covered by an option to terminate the lease if the lessee is reasonably certain not to exercise that option. When the lessee and the lessor each has the right to terminate the lease without permission from the other party, the Group should consider a termination penalty in determining the period for which the contract is enforceable.
The Group recognizes a right-of-use asset and a lease liability at the lease commencement date. The right-of-use asset is initially measured at cost, which comprises the initial amount of the lease liability adjusted for any lease payments made at or before the commencement date, plus any initial direct costs incurred and an estimate of costs to dismantle and remove the underlying asset or to restore the underlying asset or the site on which it is located, less any lease incentives received.
The right-of-use asset is subsequently depreciated using the straight-line method from the commencement date to the end of the lease term, unless the lease transfers ownership of the underlying asset to the Group by the end of the lease term or the cost of the right-of-use asset reflects that the Group will exercise a purchase option. In that case the right-of-use asset will be depreciated over the useful life of the underlying asset, which is determined on the same basis as those of property and equipment. In addition, the right-of-use asset is periodically reduced by impairment losses, if any, and adjusted for certain remeasurements of the lease liability.
The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the Group’s incremental borrowing rate. Generally, the Group uses its incremental borrowing rate as the discount rates.
The Group determines its incremental borrowing rate by obtaining interest rates from various external financing sources and makes certain adjustments to reflect the terms of the lease and type of the asset leased.
Lease payments included in the measurement of the lease liability comprise the following:
•fixed payments, including in-substance fixed payments;
•variable lease payments that depend on an index or a rate, initially measured using the index or rate as of the commencement date;
•amounts expected to be payable under a residual value guarantee; and
•the exercise price under a purchase option that the Group is reasonably certain to exercise, lease payments in an optional renewal period if the Group is reasonably certain to exercise an extension option, and penalties for early termination of a lease unless the Group is reasonably certain not to terminate early.
The lease liability is measured at amortized cost using the effective interest method. It is remeasured when there is a change in future lease payments arising from a change in an index or rate, if there is a change in the Group’s estimate of the amount expected to be payable under a residual value guarantee, if the Group changes its assessment of whether it will exercise a purchase, extension or termination option or if there is a revised in-substance fixed lease payment.
When the lease liability is remeasured in this way, a corresponding adjustment is made to the carrying amount of the right-of-use asset, or is recorded in profit or loss if the carrying amount of the right-of-use asset has been reduced to zero.
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The Group presents right-of-use assets that do not meet the definition of investment property in ‘property, plant, and equipment’ and lease liabilities in ‘other current liabilities’ and ‘other non-current liabilities’ in the statement of consolidated financial position.
The Group has elected not to recognize right-of-use assets and lease liabilities for leases of low-value assets and short-term leases. The Group recognizes the lease payments associated with these leases as an expense on a straight-line basis over the lease term.
ii)As a Lessor
At inception or on modification of a contract that contains a lease component, the Group allocates the consideration in the contract to each lease component on the basis of their relative stand-alone prices.
When the Group acts as a lessor, it determines at lease inception whether each lease is a finance lease or an operating lease.
To classify each lease, the Group makes an overall assessment of whether the lease transfers substantially all of the risks and rewards incidental to ownership of the underlying asset. If this is the case, then the lease is a finance lease; if not, then it is an operating lease. As part of this assessment, the Group considers certain indicators such as whether the lease is for the major part of the economic life of the asset.
When the Group is an intermediate lessor, it accounts for its interests in the head lease and the sub-lease separately. It assesses the lease classification of a sub-lease with reference to the right-of-use asset arising from the head lease, not with reference to the underlying asset. If a head lease is a short-term lease to which the Group applies the exemption described above, then it classifies the sub-lease as an operating lease.
If an arrangement contains lease and non-lease components, then the Group applies IFRS 15 to allocate the consideration in the contract.
The Group applies the derecognition and impairment requirements in IFRS 9 to the net investment in the lease. The Group further regularly reviews estimated unguaranteed residual values used in calculating the gross investment in the lease.
The Group recognizes lease payments received under operating leases as income on a straight-line basis over the lease term as part of ‘other income’.
Financial Liabilities
Classification and Measurement
The Group’s financial liabilities at fair value through profit or loss are financial instruments held for trading. A financial liability is held for trading if it is incurred principally for the purpose of repurchasing in the near term. A derivative that is not designated as a hedging instrument and an embedded derivative that is separated are also classified as held for trading.
The Group classifies non-derivative financial liabilities, except for financial liabilities at fair value through profit or loss, financial guarantee contracts and financial liabilities that arise when a transfer of financial assets does not qualify for derecognition, as financial liabilities carried at amortized cost and present as ‘account payables,’ ‘other current liabilities,’ and ‘other non-current liabilities’ in the consolidated statement of financial position.
Derecognition
Financial liabilities are removed from the consolidated statement of financial position when they are extinguished; for example, when the obligation specified in the contract is discharged or cancelled or expired or when the terms of an existing financial liability are substantially modified. The difference between the carrying amount of a financial liability extinguished or transferred to another party and the consideration paid (including any non-cash assets transferred or liabilities assumed) is recognized in profit or loss.
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Provisions and Contingencies
Provisions for legal claim and service warranties are recognized when the Group has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources will be required to settle the obligation and the amount can be reliably estimated.
Provisions are measured at the present value of management's best estimate of the expenditure required to settle the present obligation at the end of the reporting period. The discount rate used to determine the present value reflects current market assessments of the time value of money and the risks specific to the liability.
In addition, when there is a possible obligation that arises from past events and whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the entity or a present obligation that arises from past events but is not recognized because it is not probable that an outflow of resources embodying economic benefits will be required to settle the obligation or the amount of the obligation cannot be measured with sufficient reliability, a disclosure regarding the contingent liabilities is made in the notes to the financial statements.
Foreign Currency Translation
Functional and Presentation Currency
Items included in the consolidated financial statements of each of the Group’s entities are measured using the currency of the primary economic environment in which each entity operates (the “functional currency”). The consolidated financial statements are presented in Korean won, which is the Parent Company’s functional and presentation currency.
Foreign Operations
If the presentation currency of the Group is different from a foreign operation’s functional currency, the financial statements of the foreign operation are translated into the presentation currency using the following methods:
The assets and liabilities of foreign operations, whose functional currency is not the currency of a hyperinflationary economy, are translated to presentation currency at exchange rates at the end of reporting period. The income and expenses of foreign operations are translated to functional currency at exchange rates at the dates of the transactions. Foreign currency differences are recognized in other comprehensive income.
Any goodwill arising on the acquisition of a foreign operation and any fair value adjustments to the carrying amounts of assets and liabilities arising on the acquisition of that foreign operation is treated as assets and liabilities of the foreign operation. Thus, they are expressed in the functional currency of the foreign operation and translated at the exchange rates at the end of reporting date.
When a foreign operation is disposed of, the relevant amount in the translation is transferred to profit or loss as part of the profit or loss on disposal. On the partial disposal of a subsidiary that includes a foreign operation, the relevant proportion of such cumulative amount is reattributed to non-controlling interest. In any other partial disposal of a foreign operation, the relevant proportion is reclassified to profit or loss.
Transactions and Balances
Foreign currency transactions are translated into the functional currency using the exchange rates at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation of monetary assets and liabilities denominated in foreign currencies at the exchange rate at the reporting date are generally recognized in profit or loss. They are recognized in other comprehensive income if they relate to qualifying cash flow hedges and qualifying effective portion of net investment hedges, or are attributable to monetary part of the net investment in a foreign operation.
Exchange differences arising on non-monetary financial assets and liabilities such as equity instruments at fair value through profit or loss and equity instruments at fair value through other comprehensive income are recognized in profit or loss and other comprehensive income, respectively, as part of the fair value gain or loss.
Statement of Cash Flow s
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The Group has elected to present cash flows from operating activities using the indirect method. Cash flows denominated in a foreign currency are reported using average exchange rate.
Revenue from Contracts with Customers
The Group engages in game licensing, IP licensing and game publishing businesses.
Revenue is measured at the fair value of the consideration received or receivable for the sale of goods or rendering of services arising from the normal course of the business. Amounts recognized as revenue are net of value added taxes, returns, rebates and discounts.
Revenue from Micro-transaction
The Group recognizes micro-transaction revenue of online and mobile games when the Group satisfies its performance obligations.
Whether the performance obligations are satisfied depends on the natures of virtual currency and in-game virtual items. Items are categorized into consumable, periodic, and permanent in-game virtual items.
Consumable in-game virtual items are items that are consumed by the specific action of a game user, and periodic in-game virtual items are items that can be used by game users repeatedly during a specified effective period. Permanent in-game virtual items are items that can be used by game users repeatedly without an effective period.
The accounting policy on revenue recognition is described below in relation to micro-transaction revenue from the sales of virtual currency and items.
i)Online Games
At the end of the reporting period, the Group defers the total amount of remaining virtual currency.
For consumable in-game virtual items, the related revenue is recognized when the in-game virtual item is consumed. The Group defers the revenue for remaining amounts of virtual items owned by active users within the estimated user life cycle at the end of the reporting period.
For periodic in-game virtual items, the related revenue is recognized ratably over the effective period and the Group defers the revenue for remaining effective period.
For permanent in-game virtual items, revenue is recognized ratably over the estimated user life cycle.
ii)Mobile Games
Mobile game users purchase virtual currency that can be used to purchase in-game items. The Group has no refund obligation after the game users purchase virtual currency.
At the end of the reporting period, the Group defers the revenue for the remaining virtual currency possessed by active paying users within the estimated user life cycle.
For consumable in-game virtual items, revenue is recognized when the in-game virtual item is consumed. At the end of the reporting period, the Group defers the revenue by reflecting the average unit price to the remaining amount of virtual items possessed by active users within the estimated user life cycle.
For periodic in-game virtual items, revenue is recognized ratably over the effective period. The Group defers the revenue for remaining effective period.
For permanent in-game virtual items, revenue is recognized ratably over the estimated user life cycle. The Group defers the revenue for remaining period of estimated user life cycle at the end of the reporting period.
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Online and Mobile games - Royalties and License Fees
In connection with the Group’s online and mobile games, the Group enters into license agreement in connection with the right to access the intellectual property, such as game character images and stories. The Group considers that the agreement is a promise to provide a right to the customer to access the related IP because the Group undertakes activities that significantly affect the intellectual property to which the customer has rights, the rights granted by the license directly expose the customer to any positive or negative effects of the Group’s activities, and those activities do not result in the transfer of a good or a service to the customer as those activities occur. Therefore, the Group’s performance obligations in connection with these agreements are satisfied over time.
Since the nature of the license promise is to provide customers with access to the intellectual property of the Group during the license period, the Group's performance obligation corresponds to the performance obligation satisfied over time, and revenue is recognized over the license period. The Group recognizes revenue for the license fee through the straight-line method during the contract period, and for the running royalty revenue, the revenue is recognized on an accrual basis at the time the revenue distribution is established in accordance with the terms of the contract. When the running royalty revenue based on the contractual royalty rate and the actual revenue of the licensee exceeds the ratably recognized minimum guarantee, the excess amount is then recognized as revenue and accounts receivable.
Other Revenue
Other revenue consists of revenue from sales of console games, game character merchandise, animation and other services, including website development and operation services for third parties. Revenues from development and operation services for third parties are recognized over time by measuring progress towards complete satisfaction of a performance obligation.
Incremental Costs of Obtaining Contract
The Group pays platform processing fees to operate mobile games on third party platforms. These fees are charged based on the game users’ purchases in cash, and considered as incremental cost of obtaining contracts with customers and therefore capitalized. The Group presents these costs as prepaid expense and amortizes them to costs of revenue at the same time when the related revenue of the services provided to the game users are recognized.
Earnings per Share
Basic earnings per share is calculated by dividing profit attributable to owners of the Parent by the weighted average number of common shares outstanding during the period. Diluted earnings per share is computed by dividing net earnings by the weighted average number of common shares outstanding, increased by common stock equivalents. However, for the years ended December 31, 2023, 2022 and 2021, there have been no common stock equivalents outstanding.
Current and Deferred Tax
The tax expense for the period consists of current and deferred tax. Current and deferred tax is recognized in profit or loss, except to the extent that it relates to items recognized in other comprehensive income or directly in equity. The tax expense is measured at the amount expected to be paid to the taxation authorities, using the tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period.
Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation, and considers whether it is probable that a taxation authority will accept an uncertain tax treatment. The Group measures its tax balances either based on the most likely amount or the expected value, depending on which method provides a better prediction of the resolution of the uncertainty.
Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. However, deferred income tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss.
Deferred tax assets are recognized only if it is probable that future taxable income will be available to utilize those temporary differences and tax credit.
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The Group recognizes a deferred tax liability for all taxable temporary differences associated with investments in subsidiaries, associates, and interests in joint arrangements, except to the extent that the Group is able to control the timing of the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. In addition, The Group recognizes a deferred tax asset for all deductible temporary differences arising from such investments to the extent that it is probable the temporary difference will reverse in the foreseeable future and taxable profit will be available against which the temporary difference can be utilized.
Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets and liabilities and when the deferred tax balances relate to the same taxation authority. Current tax assets and tax liabilities are offset where the entity has a legally enforceable right to offset and intends to settle on a net basis.
Employee Benefits
Short-term Employee Benefits
Short-term employee benefits are employee benefits that are due to be settled within 12 months after the end of the period in which the employees render related services. When an employee has rendered a service to the Group during an accounting period, the Group recognizes the undiscounted amount of short-term employee benefits expected to be paid in exchange for that service.
Defined Contribution Pension Plan
The Group has a defined contribution pension plan with the related contribution to the pension plan recorded as severance benefit expenses for the employees with service period over a year. The Group recognizes provision for severance benefits for the employees with service period less than a year.
Standards Issued but not yet Effective
The following new standards are effective for annual periods beginning after January 1, 2023 and earlier application is permitted; however, the Group has not early adopted these new or amended standards in preparing these consolidated financial statements.
The following new or amended standards and interpretations are not expected to have a significant impact on the Group’s consolidated financial statements.
•Classification of Liabilities as Current or Non-current, Non-current Liabilities with Covenant (Amendment to IAS 1 ‘Presentation of Financial Statement’)
•Supplier finance arrangement (Amendment to IAS 7 ’Statement of Cash Flows’, IFRS 7 Financial instruments: Disclosures’)
•Lease Liability in a Sale and Leaseback (Amendment to IFRS 16 ‘Leases’)
•Redefining financial performance reporting. (New standards : IFRS 18 'Presentation and Disclosure in Financial Statements')
5. Cash and Cash Equivalents
(1)Cash and cash equivalents as of December 31, 2023 and 2022 consist of the follows:

| December 31, 2023 |  | December 31, 2022
| (In millions of Korean won)
Deposits in banks | 184,082 |  |  | 169,877 |
Total | ₩ | 184,082 |  |  | ₩ | 169,877 |

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(2)The Group does not have any restricted cash and cash equivalents as of December 31, 2023 and 2022.
6. Financial Instruments by Category
(1)Carrying amounts of financial instruments by category as of December 31, 2023 and 2022 are as follows:

| December 31, 2023 |  | December 31, 2022
Financial assets at amortized cost | (In millions of Korean won)
Cash and cash equivalents | ₩ | 184,082 |  |  | ₩ | 169,877 |
Short-term financial instruments | 277,215 |  |  | 167,000 |
Accounts receivable, net | 71,213 |  |  | 77,257 |
Other receivables, net | 7 |  |  | 12 |
Other current financial assets(*1) | 4,439 |  |  | 3,370 |
Other non-current financial assets(*2) | 1,824 |  |  | 1,676 |
Financial assets at fair value through profit or loss |  |  |
Other non-current financial assets | — |  |  | 500 |
Total | ₩ | 538,780 |  |  | ₩ | 419,692 |

(*1) Other current financial assets consist of accrued income and deposits.
(*2) Other non-current financial assets consist of deposits.

| December 31, 2023 |  | December 31, 2022
Financial liabilities at amortized cost | (In millions of Korean won)
Accounts payable (*) | ₩ | 57,615 |  |  | ₩ | 70,170 |
Long-term accounts payable | 677 |  |  | 374 |
Accrued expenses (*) | 395 |  |  | 429 |
Other current liabilities | 4,225 |  |  | 2,906 |
Other non-current liabilities | 2,337 |  |  | 3,057 |
Total | ₩ | 65,249 |  |  | ₩ | 76,936 |

(*)Annual leave allowance, bonus accruals, etc. that should be paid to employees are excluded.
(2)Net income and expenses from financial instruments for the years ended December 31, 2023, 2022 and 2021 are as follows:

| 2023 |  | 2022 |  | 2021
Financial assets at amortized cost | (In millions of Korean won)
Interest income | ₩ | 11,487 |  |  | ₩ | 4,496 |  |  | ₩ | 1,355 |
Differences in foreign currency | (1,654) |  |  | 2,101 |  |  | 2,135 |
Financial assets at fair value through profit or loss |  |  |  |  |
Interest income | 5 |  |  | 5 |  |  | 28 |
Financial liabilities at amortized cost |  |  |  |  |
Interest expense | (162) |  |  | (127) |  |  | (115) |
Differences in foreign currency | (1,344) |  |  | (1,301) |  |  | (821) |

(3)Fair Value Hierarchy
Fair values are categorized into different levels in a fair value hierarchy based on the inputs used in the valuation techniques as follows:
•Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities;
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•Level 2: all inputs other than quoted prices included in Level 1 that are observable (either directly that is, prices, or indirectly that is, derived from prices) for the asset or liability;
•Level 3: unobservable inputs for the asset or liability.
The fair value of financial instruments traded in an active market is determined based on the quoted market price as of the end of the reporting period. If the quoted prices are readily and regularly available through exchanges, sellers, brokers, industry groups, rating agencies or regulators and such prices represent actual market transactions that occur regularly between independent parties, they are considered active markets. These products are included in Level 1.
The fair value of financial instruments that are not traded in an active market is determined using valuation techniques. These valuation techniques use as much market observable information as possible and use the least amount of group-specific information. At this time, if all the significant input variables required to measure the fair value of a good are observable, the good is included in Level 2.
If more than one significant input variable is not based on observable market information, the item is included in Level 3.
The valuation techniques used to measure the fair value of a financial instrument include:
•Market price or dealer price of a similar financial instrument
•The fair value of derivative instruments is determined by discounting the amount to present value using the leading exchange rate as of the end of the reporting period
For the other financial instruments, the Group applied other valuation techniques such as discounted cash flow, etc.
7. Accounts and Other Receivables
(1)Accounts and other receivables as of December 31, 2023 and 2022 are as follows:

| December 31, 2023 |  | December 31, 2022
| (In millions of Korean won)
Accounts receivable |  |  |
Non-related party | ₩ | 69,867 |  |  | ₩ | 74,702 |
Related party | 1,972 |  |  | 2,874 |
Less : Loss allowance | (626) |  |  | (319) |
Accounts receivables, net | ₩ | 71,213 |  |  | ₩ | 77,257 |

| December 31, 2023 |  | December 31, 2022
| (In millions of Korean won)
Other receivables |  |  |
Non-related party | ₩ | 3,642 |  |  | ₩ | 145 |
Related party | — |  |  | — |
Less: Loss allowance | (5) |  |  | (5) |
Other receivables, net | ₩ | 3,637 |  |  | ₩ | 140 |

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(2)Changes in the loss allowance of accounts and other receivables during the years ended December 31, 2023, 2022 and 2021 are as follows:

| 2023 |  | 2022 |  | 2021
| (In millions of Korean won)
Accounts receivable |  |  |  |  |
Beginning balance | ₩ | 319 |  |  | ₩ | 689 |  |  | ₩ | 579 |
Bad debt expenses | 1,402 |  |  | 701 |  |  | 933 |
Reversal of allowance for doubtful accounts | — |  |  | — |  |  | (132) |
Write-off | (1,095) |  |  | (1,071) |  |  | (691) |
Ending balance | ₩ | 626 |  |  | ₩ | 319 |  |  | ₩ | 689 |

| 2023 |  | 2022 |  | 2021
| (In millions of Korean won)
Other receivables |  |  |  |  |
Beginning balance | ₩ | 5 |  |  | ₩ | 5 |  |  | ₩ | 5 |
Bad debt expenses | — |  |  | — |  |  | — |
Reversal of allowance for doubtful accounts | — |  |  | — |  |  | — |
Write-off | — |  |  | — |  |  | — |
Ending balance | ₩ | 5 |  |  | ₩ | 5 |  |  | ₩ | 5 |

(3)Expected credit losses (ECLs) and credit risk exposures for accounts and other receivables as of December 31, 2023 and 2022 are as follows:
① Accounts receivables

As of December 31, 2023 |  | Expected loss rate |  | Carrying amount |  | Loss allowance
|  |  |  | (In millions of Korean won)
Not due or overdue less than 90 days |  | 0.6 | % |  | ₩ | 71,334 |  |  | ₩ | 438 |
More than 90 days ~ Less than 180 days |  | 3.2 | % |  | 315 |  |  | 10 |
More than 180 days ~ Less than 270 days |  | 57.4 | % |  | 27 |  |  | 16 |
More than 270 days ~ Less than 1 year |  | 87.3 | % |  | 5 |  |  | 4 |
More than 1 year |  | 100.0 | % |  | 158 |  |  | 158 |
Total |  |  |  | ₩ | 71,839 |  |  | ₩ | 626 |

As of December 31, 2022 |  | Expected loss rate |  | Carrying amount |  | Loss allowance
|  |  |  | (In millions of Korean won)
Not due or overdue less than 90 days |  | 0.1 | % |  | ₩ | 77,073 |  |  | ₩ | 85 |
More than 90 days ~ Less than 180 days |  | 18.2 | % |  | 318 |  |  | 58 |
More than 180 days ~ Less than 270 days |  | 46.6 | % |  | 4 |  |  | 2 |
More than 270 days ~ Less than 1 year |  | 82.3 | % |  | 40 |  |  | 33 |
More than 1 year |  | 100.0 | % |  | 141 |  |  | 141 |
Total |  |  |  | ₩ | 77,576 |  |  | ₩ | 319 |

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② Other receivables

As of December 31, 2023 |  | Expected loss rate |  | Carrying amount |  | Loss allowance
|  |  |  | (In millions of Korean won)
Not due or overdue less than 90 days |  | — | % |  | ₩ | 3,637 |  |  | ₩ | — |
More than 90 days ~ Less than 180 days |  | — | % |  | — |  |  | — |
More than 180 days ~ Less than 270 days |  | — | % |  | — |  |  | — |
More than 270 days ~ Less than 1 year |  | — | % |  | — |  |  | — |
More than 1 year |  | 100 | % |  | 5 |  |  | 5 |
Total |  |  |  | ₩ | 3,642 |  |  | ₩ | 5 |

As of December 31, 2022 |  | Expected loss rate |  | Carrying amount |  | Loss allowance
|  |  |  | (In millions of Korean won)
Not due or overdue less than 90 days |  | — | % |  | ₩ | 140 |  |  | ₩ | — |
More than 90 days ~ Less than 180 days |  | — | % |  | — |  |  | — |
More than 180 days ~ Less than 270 days |  | — | % |  | — |  |  | — |
More than 270 days ~ Less than 1 year |  | — | % |  | — |  |  | — |
More than 1 year |  | 100 | % |  | 5 |  |  | 5 |
Total |  |  |  | ₩ | 145 |  |  | ₩ | 5 |

In assessing the recoverability of accounts receivable, the Group considers changes in the credit rating of accounts and other receivables from the commencement of the credit to the end of the reporting period.
The Group applies the simplified approach for account and other receivables to measure the loss allowance at an amount equal to lifetime expected credit losses. To measure the expected credit losses, account and other receivables are grouped based on credit risk characteristics and the duration of past due balances. ECLs are a probability-weighted estimate of credit losses. Credit losses are measured as the present value of all cash shortfalls. The Group considers reasonable and supportable information that is relevant and available without undue cost or effort. This includes the Group’s historical experience and informed credit assessment that includes forward-looking information.
8. Property and Equipment
(1)Details of property and equipment as of December 31, 2023 and 2022 are as follows:

| December 31, 2023
| Acquisition price |  | Accumulated depreciation |  | Book amount
| (In millions of Korean won)
Computer and other equipment | ₩ | 7,186 |  |  | ₩ | (5,650) |  |  | ₩ | 1,536 |
Furniture and fixture | 1,887 |  |  | (1,620) |  |  | 267 |
Construction In Progress | 1,209 |  |  | — |  |  | 1,209 |
Vehicle | 9 |  |  | (8) |  |  | 1 |
Leasehold improvements | 2,172 |  |  | (1,655) |  |  | 517 |
Right-of-use assets | 15,514 |  |  | (8,893) |  |  | 6,621 |
Total | ₩ | 27,977 |  |  | ₩ | (17,826) |  |  | ₩ | 10,151 |

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| December 31, 2022
| Acquisition price |  | Accumulated depreciation |  | Book amount
| (In millions of Korean won)
Computer and other equipment | ₩ | 6,381 |  |  | ₩ | (5,268) |  |  | ₩ | 1,113 |
Furniture and fixture | 1,787 |  |  | (1,449) |  |  | 338 |
Vehicle | 9 |  |  | (5) |  |  | 4 |
Leasehold improvements | 2,084 |  |  | (1,357) |  |  | 727 |
Right-of-use assets | 16,197 |  |  | (10,239) |  |  | 5,958 |
Total | ₩ | 26,458 |  |  | ₩ | (18,318) |  |  | ₩ | 8,140 |

(2)Changes in property and equipment for the years ended December 31, 2023, 2022 and 2021 are as follows:

| 2023
| Computer and other equipment |  | Furniture and fixture |  | Construction in progress |  | Vehicle |  | Leasehold improvements |  | Right-of- use assets |  | Total
| (In millions of Korean won)
Beginning balance | ₩ | 1,113 |  |  | ₩ | 338 |  |  | ₩ | — |  |  | ₩ | 4 |  |  | ₩ | 727 |  |  | ₩ | 5,958 |  |  | ₩ | 8,140 |
Lease | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 261 |  |  | 261 |
Acquisitions/Capital expenditure | 1,065 |  |  | 105 |  |  | 1,209 |  |  | — |  |  | 82 |  |  | 4,443 |  |  | 6,904 |
Depreciation | (656) |  |  | (177) |  |  | — |  |  | (3) |  |  | (300) |  |  | (4,116) |  |  | (5,252) |
Disposals/Disposition/Removals | — |  |  | (1) |  |  | — |  |  | — |  |  | — |  |  | — |  |  | (1) |
Reclassification | (1) |  |  | 1 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Foreign exchange differences | 15 |  |  | 1 |  |  | — |  |  | — |  |  | 8 |  |  | 75 |  |  | 99 |
Ending balance | ₩ | 1,536 |  |  | ₩ | 267 |  |  | ₩ | 1,209 |  |  | ₩ | 1 |  |  | ₩ | 517 |  |  | ₩ | 6,621 |  |  | ₩ | 10,151 |

| 2022
| Computer and other equipment |  | Furniture and fixture |  | Construction in progress |  | Vehicle |  | Leasehold improvements |  | Right-of- use assets |  | Total
| (In millions of Korean won)
Beginning balance | ₩ | 1,455 |  |  | ₩ | 380 |  |  | ₩ | — |  |  | ₩ | 6 |  |  | ₩ | 757 |  |  | ₩ | 8,740 |  |  | ₩ | 11,338 |
Leases | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | (64) |  |  | (64) |
Acquisitions/Capital expenditure | 307 |  |  | 181 |  |  | — |  |  | — |  |  | 252 |  |  | 1,209 |  |  | 1,949 |
Depreciation | (657) |  |  | (222) |  |  | — |  |  | (2) |  |  | (266) |  |  | (3,998) |  |  | (5,145) |
Disposals/Disposition/Removals | (1) |  |  | (2) |  |  | — |  |  | — |  |  | (10) |  |  | (45) |  |  | (58) |
Reclassification | (6) |  |  | 6 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Foreign exchange differences | 15 |  |  | (5) |  |  | — |  |  | — |  |  | (6) |  |  | 116 |  |  | 120 |
Ending balance | ₩ | 1,113 |  |  | ₩ | 338 |  |  | ₩ | — |  |  | ₩ | 4 |  |  | ₩ | 727 |  |  | ₩ | 5,958 |  |  | ₩ | 8,140 |

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| 2021
| Computer and other equipment |  | Furniture and fixture |  | Construction in progress |  | Vehicle |  | Leasehold improvements |  | Right-of-use assets |  | Total
| (In millions of Korean won)
Beginning balance | ₩ | 1,380 |  |  | ₩ | 310 |  |  | ₩ | 128 |  |  | ₩ | 8 |  |  | ₩ | 132 |  |  | ₩ | 5,737 |  |  | ₩ | 7,695 |
Acquisitions/Capital expenditure | 712 |  |  | 322 |  |  | — |  |  | — |  |  | 753 |  |  | 6,319 |  |  | 8,106 |
Depreciation | (648) |  |  | (249) |  |  | — |  |  | (2) |  |  | (223) |  |  | (3,448) |  |  | (4,570) |
Disposals | (15) |  |  | (3) |  |  | — |  |  | — |  |  | (44) |  |  | (63) |  |  | (125) |
Reclassification | — |  |  | — |  |  | (128) |  |  | — |  |  | 128 |  |  | — |  |  | — |
Foreign exchange differences | 26 |  |  | — |  |  | — |  |  | — |  |  | 11 |  |  | 195 |  |  | 232 |
Ending balance | ₩ | 1,455 |  |  | ₩ | 380 |  |  | ₩ | — |  |  | ₩ | 6 |  |  | ₩ | 757 |  |  | ₩ | 8,740 |  |  | ₩ | 11,338 |

(3)Classification of depreciation expenses in the statements of comprehensive income for the years ended December 31, 2023, 2022 and 2021 are as follows:

| 2023 |  | 2022 |  | 2021
| (In millions of Korean won)
Cost of revenues | ₩ | 1,853 |  |  | ₩ | 2,028 |  |  | ₩ | 2,102 |
Selling, general and administrative expenses | 3,369 |  | 2,976 |  | 2,167
Research and development | 30 |  | 141 |  | 301
Total | ₩ | 5,252 |  |  | ₩ | 5,145 |  |  | ₩ | 4,570 |

(4)As of the end of the reporting period, there are no property and equipment that are pledged as collateral for the Group’s debts.
9. Intangible Assets
(1)Details of intangible assets as of December 31, 2023 and 2022 are as follows:

| December 31, 2023
| (In millions of Korean Won)
| Acquisition price |  | Accumulated amortization(*) |  | Book Amount
Software | ₩ | 17,567 |  |  | ₩ | (14,787) |  |  | ₩ | 2,780 |
Industrial property rights | 1,376 |  |  | (750) |  |  | 626 |
License fee | 8,510 |  |  | (5,832) |  |  | 2,678 |
Other intangible assets | 1,367 |  |  | (1,081) |  |  | 286 |
Total | ₩ | 28,820 |  |  | ₩ | (22,450) |  |  | ₩ | 6,370 |

| December 31, 2022
| (In millions of Korean Won)
| Acquisition price |  | Accumulated amortization(*) |  | Book Amount
Software | ₩ | 16,284 |  |  | ₩ | (14,346) |  |  | ₩ | 1,938 |
Industrial property rights | 1,215 |  |  | (670) |  |  | 545 |
License fee | 5,043 |  |  | (3,692) |  |  | 1,351 |
Other intangible assets | 1,117 |  |  | (1,082) |  |  | 35 |
Total | ₩ | 23,659 |  |  | ₩ | (19,790) |  |  | ₩ | 3,869 |

(*)Accumulated amortization includes the amount of accumulated impairment loss.
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(2)Changes in intangible assets for the years ended December 31, 2023, 2022 and 2021 are as follows:

| 2023
| Software |  | Industrial property rights |  | License fee |  | Other intangible assets |  | Total
| (In millions of Korean won)
Beginning balance | ₩ | 1,938 |  |  | ₩ | 545 |  |  | ₩ | 1,351 |  |  | ₩ | 35 |  |  | ₩ | 3,869 |
Acquisitions/Capital expenditure | 2,136 |  |  | 170 |  |  | 3,886 |  |  | 263 |  |  | 6,455 |
Amortization | (1,296) |  |  | (83) |  |  | (1,027) |  |  | — |  |  | (2,406) |
Disposals | — |  |  | (6) |  |  | — |  |  | (12) |  |  | (18) |
Impairment(*) | — |  |  | — |  |  | (1,531) |  |  | — |  |  | (1,531) |
Foreign exchange differences | 2 |  |  | — |  |  | (1) |  |  | — |  |  | 1 |
Ending balance | ₩ | 2,780 |  |  | ₩ | 626 |  |  | ₩ | 2,678 |  |  | ₩ | 286 |  |  | ₩ | 6,370 |

(*)The Group recognized Korean Won 1,531 million of impairment loss as carrying amount of the other intangible assets exceeded recoverable amount as of December 31, 2023.

| 2022
| Software |  | Industrial property rights |  | License fee |  | Other intangible assets |  | Total
| (In millions of Korean won)
Beginning balance | ₩ | 1,264 |  |  | ₩ | 483 |  |  | ₩ | 1,430 |  |  | ₩ | 165 |  |  | ₩ | 3,342 |
Acquisitions/Capital expenditure | 1,856 |  |  | 138 |  |  | 747 |  |  | — |  |  | 2,741 |
Amortization | (1,184) |  |  | (71) |  |  | (538) |  |  | (124) |  |  | (1,917) |
Disposals | — |  |  | (5) |  |  | — |  |  | (5) |  |  | (10) |
Impairment(*) | — |  |  | — |  |  | (293) |  |  | — |  |  | (293) |
Foreign exchange differences | 2 |  |  | — |  |  | 5 |  |  | (1) |  |  | 6 |
Ending balance | ₩ | 1,938 |  |  | ₩ | 545 |  |  | ₩ | 1,351 |  |  | ₩ | 35 |  |  | ₩ | 3,869 |

(*)The Group recognized Korean Won 293 million of impairment loss as carrying amount of the license exceeded recoverable amount as of December 31, 2022.

| 2021
| Software |  | Industrial property rights |  | Other intangible assets |  | Total
| (In millions of Korean won)
Beginning balance | ₩ | 2,234 |  |  | ₩ | 332 |  |  | ₩ | 797 |  |  | ₩ | 3,363 |
Acquisitions/Capital expenditure | 116 |  |  | 224 |  |  | 1,676 |  |  | 2,016 |
Amortization | (1,088) |  |  | (73) |  |  | (587) |  |  | (1,748) |
Disposals | (15) |  |  | — |  |  | — |  |  | (15) |
Impairment(*) | — |  |  | — |  |  | (281) |  |  | (281) |
Foreign exchange differences | 17 |  |  | — |  |  | (10) |  |  | 7 |
Ending balance | ₩ | 1,264 |  |  | ₩ | 483 |  |  | ₩ | 1,595 |  |  | ₩ | 3,342 |

(*)The Group recognized Korean Won 281 million of impairment loss as carrying amount of the license exceeded recoverable amount as of December 31, 2021.
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(3)Classification of amortization in the statements of comprehensive income for the years ended December 31, 2023, 2022 and 2021 are as follows:

| 2023 |  | 2022 |  | 2021
| (In millions of Korean won)
Cost of revenues | ₩ | 708 |  |  | ₩ | 719 |  |  | ₩ | 737 |
Selling, general and administrative expenses | 1,340 |  |  | 1,155 |  |  | 931 |
Research and development | 358 |  |  | 43 |  |  | 80 |
Total | ₩ | 2,406 |  |  | ₩ | 1,917 |  |  | ₩ | 1,748 |

10. Other Non-Current Assets

| December 31, 2023 |  | December 31, 2022
| (In millions of Korean won)
Prepaid Expenses(*) | ₩ | 6,309 |  |  | ₩ | 2,036 |
Other | 676 |  |  | 446 |
Total | ₩ | 6,985 |  |  | ₩ | 2,482 |

(*)Prepaid Expenses consist of the minimum guaranteed royalty paid to third parties.
11. Employee Benefits
The expenses recognized in relation to defined contribution plan for the years ended December 31, 2023, 2022 and 2021 are Won 2,413 million, Won 2,181 million and Won 2,067 million, respectively. Won 47 million and Won 28 million in relation to the defined benefit plan is recognized as other non-current liabilities as of December 31, 2023 and December 31, 2022, respectively.
12. Commitments and Contingencies
The Group has entered into license agreements with various third-party game developers to secure exclusive right to publish the games developed by the third-party developers. Upfront license fees paid are capitalized and recognized as other intangible assets and minimum guaranteed royalties are capitalized and recognized as other non-current asset. Purchase obligations for future payment related to above agreements as of December 31, 2023 and 2022 are Won 4,942 million and Won 3,242 million, respectively.
As of December 31, 2023, the Group benefited from payment guarantee of USD 658,500 from KB Kookmin Bank regarding overseas IP contracts.
As of December 31, 2023, the Group has been provided with a payment guarantee amounting to Won 524 million from Seoul Guarantee Insurance Co., Ltd.
13. Capital
(1)Details of common shares as of December 31, 2023 and 2022 are as follows:

| December 31, 2023 |  | December 31, 2022
| (In Korean won and number of shares)
Number of authorized shares | 40,000,000 |  |  | 40,000,000 |
Value per share | ₩ | 500 |  |  | ₩ | 500 |
Number of shares issued | 6,948,900 |  |  | 6,948,900 |
Common shares | ₩ | 3,474,450,000 |  |  | ₩ | 3,474,450,000 |

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(2)Details of capital surplus as of December 31, 2023 and 2022 are as follows:

| December 31, 2023 |  | December 31, 2022
| (In millions of Korean won)
Additional paid in capital | ₩ | 25,292 |  |  | ₩ | 25,292 |
Other capital surplus | 1,806 |  |  | 1,806 |
Total | ₩ | 27,098 |  |  | ₩ | 27,098 |

(3)Details of other components of equity as of December 31, 2023 and 2022 are as follows:

| December 31, 2023 |  | December 31, 2022
| (In millions of Korean won)
Factors for re-measurement of defined benefit liabilities | ₩ | — |  |  | ₩ | (4) |
Foreign currency translation adjustments | 4,016 |  |  | 2,479 |
Total | ₩ | 4,016 |  |  | ₩ | 2,475 |

(4)Details of retained earnings as of December 31, 2023 and 2022 are as follows:

| December 31, 2023 |  | December 31, 2022
| (In millions of Korean won)
Unappropriated retained earnings | ₩ | 428,499 |  |  | ₩ | 296,480 |

(5)According to the Parent company's Articles of Incorporation, the Parent company may issue 2,000,000 shares of preferred stock without voting rights, and there are no preferred shares issued as of December 31, 2023 and 2022.
14. Revenue from Contracts with Customers
(1)Details of revenue from contracts with customers based on the service contract type and the timing of satisfaction of performance obligations are as follows:

| 2023 |  | 2022 |  | 2021
| (In millions of Korean won)
Service contract |  |  |  |  |
Micro-transaction revenue |  |  |  |  |
Online game | ₩ | 70,566 |  |  | ₩ | 80,147 |  |  | ₩ | 64,382 |
Mobile game | 568,665 |  |  | 261,622 |  |  | 164,646 |
| 639,231 |  |  | 341,769 |  |  | 229,028 |
Royalties and license fees |  |  |  |  |
Online game | 10,451 |  |  | 9,109 |  |  | 10,988 |
Mobile game | 60,939 |  |  | 97,150 |  |  | 155,518 |
| 71,390 |  |  | 106,259 |  |  | 166,506 |
Others | 14,895 |  |  | 15,590 |  |  | 18,404 |
| 725,516 |  |  | 463,618 |  |  | 413,938 |
Timing of satisfaction of performance obligations |  |  |  |  |
At a point in time | 119 |  |  | 25 |  |  | 8 |
Over time | 725,397 |  |  | 463,593 |  |  | 413,930 |
| ₩ | 725,516 |  |  | ₩ | 463,618 |  |  | ₩ | 413,938 |

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(2)Accounts receivables, incremental costs of obtaining a contract, and contract liabilities related to contracts with customers as of December 31, 2023 and 2022 are as follows:

| 2023 |  | 2022
| (In millions of Korean won)
Accounts receivable | ₩ | 71,213 |  |  | ₩ | 77,257 |
Incremental costs of obtaining a contract (Prepaid expenses) | 1,557 |  |  | 1,722 |
Contract liabilities (Deferred revenue) | 19,875 |  |  | 18,574 |
Micro-transaction revenue | 17,159 |  |  | 16,788 |
Royalties and license fees | 2,426 |  |  | 101 |
Website and application development | 290 |  |  | 1,685 |

(3)The amount of revenue recognized from previous period’s contract liabilities satisfied during the years ended December 31, 2023 and 2022 are Won 16,788 million and Won 12,622 million in Micro-transaction revenue; Won 71 million and Won 18 million in Royalties and license fees and Won 1,685 million and Won 840 million in Website and application development, respectively.
(4)Transaction price allocated to unsatisfied performance obligations as of December 31, 2023, 2022 and 2021 are as follows:

| 2023 |  | 2022 |  | 2021
| (In millions of Korean won)
Micro-transaction revenue |  |  |  |  |
Online game | ₩ | 10,216 |  |  | ₩ | 9,918 |  |  | ₩ | 9,374 |
Mobile game | 6,943 |  |  | 6,869 |  |  | 3,248 |
| 17,159 |  |  | 16,787 |  |  | 12,622 |
Royalties and license fees |  |  |  |  |
Online game | 164 |  |  | 49 |  |  | 96 |
Mobile game | 2,262 |  |  | 52 |  |  | 21 |
| 2,426 |  |  | 101 |  |  | 117 |
Website and application development | 290 |  |  | 1,686 |  |  | 840 |
Total | ₩ | 19,875 |  |  | ₩ | 18,574 |  |  | ₩ | 13,579 |

The Group’s management expects to recognize 91.0% (Won 18,090 million) of the transaction price allocated to contracts that have not been performed as of December 31, 2023 as revenue within 12 months. The remaining 9.0% (Won 1,785 million) is expected to be recognized as revenue thereafter. The amounts disclosed above do not include variable consideration which is constrained.
(5)Details of incremental costs of obtaining a contract recognized as assets as of and for the years ended December 31, 2023 and 2022 are as follows:

| December 31, 2023 |  | December 31, 2022
| (In millions of Korean won)
Incremental costs of obtaining a contract | ₩ | 1,557 |  |  | ₩ | 1,722 |

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Details of incremental costs of obtaining a contract recognized as cost of revenues as of December 31, 2023, 2022 and 2021 are as follows:

| 2023 |  | 2022 |  | 2021
| (In millions of Korean won)
Incremental costs of obtaining a contract recognized as cost of revenues | ₩ | 1,722 |  |  | ₩ | 861 |  |  | ₩ | 1,277 |

15. Classification of Expenses by Nature
Details of classification of expenses by nature for the years ended December 31, 2023, 2022 and 2021 are as follows:

| 2023 |  | 2022 |  | 2021
| (In millions of Korean won)
Advertising expenses | ₩ | 13,661 |  |  | ₩ | 29,898 |  |  | ₩ | 35,948 |
Fees and commissions | 472,324 |  |  | 259,024 |  |  | 215,613 |
Lease expenses | 1,292 |  |  | 1,179 |  |  | 1,125 |
Outsourcing expenses | 13,053 |  |  | 11,415 |  |  | 12,997 |
Salaries | 44,339 |  |  | 40,315 |  |  | 35,532 |
Expenses related to defined contribution and benefit plans | 2,505 |  |  | 2,255 |  |  | 2,090 |
Employee benefits | 4,256 |  |  | 3,895 |  |  | 3,390 |
Depreciation | 5,252 |  |  | 5,145 |  |  | 4,570 |
Amortization | 2,406 |  |  | 1,917 |  |  | 1,748 |
Other expenses | 5,422 |  |  | 3,733 |  |  | 3,361 |
Total | ₩ | 564,510 |  |  | ₩ | 358,776 |  |  | ₩ | 316,374 |

Total expenses consist of cost of sales, selling, general and administrative expenses and research and development.
16. Selling, General and Administrative Expenses
Details of the selling, general and administrative expenses for the years ended December 31, 2023, 2022 and 2021 are as follows:

| 2023 |  | 2022 |  | 2021
| (In millions of Korean won)
Advertising expenses | ₩ | 13,661 |  |  | ₩ | 29,898 |  |  | ₩ | 35,948 |
Fees and commissions | 16,662 |  |  | 15,909 |  |  | 13,959 |
Lease expenses | 712 |  |  | 646 |  |  | 530 |
Salaries | 20,688 |  |  | 17,598 |  |  | 15,491 |
Expenses related to defined contribution and benefit plans | 991 |  |  | 783 |  |  | 729 |
Employee benefits | 2,257 |  |  | 1,972 |  |  | 1,598 |
Depreciation | 3,369 |  |  | 2,976 |  |  | 2,166 |
Amortization | 1,340 |  |  | 1,155 |  |  | 930 |
Other expenses | 6,386 |  |  | 6,677 |  |  | 4,280 |
Total | ₩ | 66,066 |  |  | ₩ | 77,614 |  |  | ₩ | 75,631 |

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17. Other Income and Expenses
(1)Details of other income for the years ended December 31, 2023, 2022 and 2021 are as follows:

| 2023 |  | 2022 |  | 2021
| (In millions of Korean won)
Gain on disposal of property and equipment | ₩ | 20 |  |  | ₩ | 15 |  |  | ₩ | 7 |
Miscellaneous gain | 893 |  |  | 590 |  |  | 600 |
Total | ₩ | 913 |  |  | ₩ | 605 |  |  | ₩ | 607 |

(2)Details of other expenses for the years ended December 31, 2023, 2022 and 2021 are as follows:

| 2023 |  | 2022 |  | 2021
| (In millions of Korean won)
Loss on retirement and disposal of property and equipment | ₩ | — |  |  | ₩ | — |  |  | ₩ | 57 |
Impairment loss on intangible assets | 1,531 |  |  | 293 |  |  | 281 |
Impairment loss on other non-current assets (*) | — |  |  | 177 |  |  | 1,087 |
Donation | — |  |  | — |  |  | 1 |
Loss on retirement and disposal of intangible assets | 6 |  |  | 4 |  |  | — |
Miscellaneous loss | 15 |  |  | 265 |  |  | 26 |
Total | ₩ | 1,552 |  |  | ₩ | 739 |  |  | ₩ | 1,452 |

(*)The Group recognized an impairment loss as the recoverable amount was less than the book value of minimum guaranteed royalties for the game in service.
18. Finance Income and Costs
Details of finance income and costs for the years ended December 31, 2023, 2022 and 2021 are as follows:

| 2023 |  | 2022 |  | 2021
| (In millions of Korean won)
Finance income |  |  |  |  |
Interest income | ₩ | 11,492 |  |  | ₩ | 4,501 |  |  | ₩ | 1,383 |
Unrealized foreign currency gain | 1,417 |  |  | 689 |  |  | 134 |
Gain on foreign currency transactions | 10,358 |  |  | 10,763 |  |  | 3,751 |
Total | ₩ | 23,267 |  |  | ₩ | 15,953 |  |  | ₩ | 5,268 |
Finance costs |  |  |  |  |
Unrealized foreign currency loss | ₩ | 1,595 |  |  | ₩ | 1,311 |  |  | ₩ | 211 |
Loss on foreign currency transactions | 13,178 |  |  | 9,341 |  |  | 2,360 |
Interest expense | 162 |  |  | 127 |  |  | 115 |
Total | ₩ | 14,935 |  |  | ₩ | 10,779 |  |  | ₩ | 2,686 |

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19. Income Tax Expense
(1)Details of income tax expense for the years ended December 31, 2023, 2022 and 2021 are as follows:

| 2023 |  | 2022 |  | 2021
| (In millions of Korean won)
Current tax on profit for the year |  |  |  |  |
Current year | ₩ | 37,459 |  |  | ₩ | 27,932 |  |  | ₩ | 29,903 |
Adjustments recognized related to prior period incomes | — |  |  | — |  |  | 1,647 |
Deferred tax expense |  |  |  |  |
Change in net deferred tax assets | (742) |  |  | (1,108) |  |  | 1,871 |
Income tax expense | ₩ | 36,717 |  |  | ₩ | 26,824 |  |  | ₩ | 33,421 |

(2)The differences between the tax expense on the Group’s profit before tax and the amount that would arise using the statutory tax rate applicable to profits of the entities for the years ended December 31, 2023, 2022 and 2021 are as follows:

| 2023 |  | 2022 |  | 2021
| (In millions of Korean won)
Profit before income tax | ₩ | 168,699 |  |  | ₩ | 109,882 |  |  | ₩ | 99,301 |
Income tax using the statutory tax rate of each country | 31,300 |  |  | 23,951 |  |  | 25,957 |
Adjustments |  |  |  |  |
Expenses not deductible for tax purpose | 9 |  |  | 7 |  |  | 11 |
Non taxable income | (131) |  |  | — |  |  | — |
Withholding tax | 8,615 |  |  | 5,028 |  |  | 4,500 |
Utilization of previously unrecognized loss carried forward | (714) |  |  | (239) |  |  | — |
Adjustments recognized related to prior period incomes | — |  |  | — |  |  | 1,647 |
Tax credit | (1,174) |  |  | (2,131) |  |  | (765) |
Corporate tax on unappropriated earnings | (134) |  |  | 1,085 |  |  | 487 |
Changes in deferred tax liabilities related to investment in subsidiaries | (422) |  |  | (1,101) |  |  | 1,351 |
Others | (632) |  |  | 224 |  |  | 233 |
Total adjustments | 5,417 |  |  | 2,873 |  |  | 7,464 |
Income tax expense | ₩ | 36,717 |  |  | ₩ | 26,824 |  |  | ₩ | 33,421 |
Effective tax rate | 22 | % |  | 24 | % |  | 34 | %

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(3)Details of the changes in deferred income tax assets (liabilities) for the years ended December 31, 2023 and 2022 are as follows:

| 2023
| Beginning balance |  | Increase (decrease) |  | Ending balance
| (In millions of Korean won)
Deferred income tax on temporary differences |  |  |  |  |
Property and equipment | ₩ | 38 |  |  | ₩ | 13 |  |  | ₩ | 51 |
Intangible assets | 442 |  |  | 223 |  |  | 665 |
Other non-current assets | 202 |  |  | (177) |  |  | 25 |
Accounts payables | 1,701 |  |  | (183) |  |  | 1,518 |
Accrued expenses | 233 |  |  | 49 |  |  | 282 |
Deferred revenue | 94 |  |  | 261 |  |  | 355 |
Allowance for doubtful account | 299 |  |  | 880 |  |  | 1,179 |
Other non-current liabilities | 81 |  |  | 1 |  |  | 82 |
Lease | (30) |  |  | (8) |  |  | (38) |
Investments in subsidiaries | (2,791) |  |  | 423 |  |  | (2,368) |
Others | (278) |  |  | 1,160 |  |  | 882 |
Sub Total | (9) |  |  | 2,642 |  |  | 2,633 |
Deferred tax due to carry-forward losses | 759 |  |  | (58) |  |  | 701 |
Deferred tax due to tax credit carry-forward | 2,078 |  |  | (1,842) |  |  | 236 |
Deferred tax assets (*) | 5,660 |  |  | 292 |  |  | 5,952 |
Deferred tax liabilities | ₩ | (2,832) |  |  | ₩ | 450 |  |  | ₩ | (2,382) |

| 2022
| Beginning balance |  | Increase (decrease) |  | Ending balance
| (In millions of Korean won)
Deferred income tax on temporary differences |  |  |  |  |
Property and equipment | ₩ | 34 |  |  | ₩ | 4 |  |  | ₩ | 38 |
Intangible assets | 398 |  |  | 44 |  |  | 442 |
Other non-current assets | 530 |  |  | (328) |  |  | 202 |
Accounts payables | 1,404 |  |  | 297 |  |  | 1,701 |
Accrued expenses | 192 |  |  | 41 |  |  | 233 |
Deferred revenue | 311 |  |  | (217) |  |  | 94 |
Allowance for doubtful account | 367 |  |  | (68) |  |  | 299 |
Other non-current liabilities | 75 |  |  | 6 |  |  | 81 |
Lease | (43) |  |  | 13 |  |  | (30) |
Investments in subsidiaries | (3,759) |  |  | 968 |  |  | (2,791) |
Others | (2) |  |  | (276) |  |  | (278) |
Sub Total | (494) |  |  | 485 |  |  | (9) |
Deferred tax due to carry-forward deficits | 135 |  |  | 624 |  |  | 759 |
Deferred tax due to tax credit carry-forward | 2,078 |  |  | — |  |  | 2,078 |
Deferred tax assets (*) | 1,719 |  |  | 3,941 |  |  | 5,660 |
Deferred tax liabilities | ₩ | — |  |  | ₩ | (2,832) |  |  | ₩ | (2,832) |

(*) The future realizability of deferred tax assets is reassessed by taking into consideration various factors such as the each entity's performance, the overall economic environment and industry outlook, expected future earnings and deductible period of tax credits carry-forward and carry-forward deficits. As of December 31, 2023 and 2022, the Group has recognized deferred tax assets related to temporary differences, tax loss carryforward and tax credit carryforwards,
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which can be utilized based on the likelihood of each entity's future taxable income. This amount may change if the estimate of future taxable income changes.
(4)Details of unused tax loss carryforwards and unused tax credit carryforwards that are not recognized as deferred income tax assets as of December 31, 2023 are as follows:

Year of expiration |  | Unused loss carryforwards |  | Unused tax credit carryforwards
2024 |  | ₩ | 2,585 |  |  | ₩ | — |
2025 |  | 1,421 |  |  | 160 |
2026 |  | 2,002 |  |  | 175 |
2027 |  | 353 |  |  | 163 |
2028 |  | 2,134 |  |  | 520 |
After 2028 |  | 5,339 |  |  | 1,284 |
Total |  | ₩ | 13,834 |  |  | ₩ | 2,302 |

(5) As of December 31, 2023 and 2022, the Group did not recognize deferred income tax asset for the temporary difference of Won 23,087 million and Won 22,409 million relating to investments in subsidiaries as it is not probable such temporary differences can be utilized in the foreseeable future.
(6) The gross balances of deferred tax assets and liabilities for the years ended December 31, 2023 and 2022, is as follows:

| December 31, 2023 |  | December 31, 2022
| (In millions of Korean won)
Deferred tax assets |  |  |
- Deferred tax assets to be recovered after more than 12 months | ₩ | 1,601 |  |  | ₩ | 1,935 |
- Deferred tax assets to be recovered within 12 months | 5,801 |  |  | 5,075 |
Sub-total | 7,402 |  |  | 7,010 |
Deferred tax liabilities |  |  |
- Deferred tax liabilities to be recovered after more than 12 months | (15) |  |  | (3,124) |
- Deferred tax liabilities to be recovered within 12 months | (3,817) |  |  | (1,058) |
Sub-total | (3,832) |  |  | (4,182) |

(7) Impact of Pillar Two income taxes
Under the Pillar Two legislation, the Group is liable to pay a top-up tax for the difference between their GloBE effective tax rate per jurisdiction and the 15% minimum rate. All entities within the Group have an effective tax rate that exceeds 15%, except for Gravity Game Vision Limited that operates in Hong Kong.
For 2023, the average effective tax rate (calculated in accordance with paragraph 86 of IAS 12) of Gravity Game Vision Limited operating in Hong Kong is:

|  | Gravity Game Vision Limited
|  | (In millions of Korean won)
Tax expense for year ended 31 December 2023 |  | ₩ | 3,396 |
Profit before income tax |  | 26,943 |
Average effective tax rate |  | 12.60 | %

The Group is in the process of assessing its exposure to the Pillar Two legislation for when it comes into effect. This assessment indicates for Hong Kong that the average effective tax rate based on accounting profit is 12.6% for the annual reporting period to 31 December 2023. However, although the average effective tax rate is below 15%, the Group might
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not be exposed to paying Pillar Two income taxes in relation to Hong Kong. Also, even for those entities with an accounting effective tax rate above 15%, there may still be Pillar Two tax implications.
The Group is in the process of evaluating the potential impact of the legislation on the taxes through a rational methodology.
20. Earnings per Share
Basic earnings per share is calculated by dividing the profit attributable to owners of the Parent by the weighted average number of common shares outstanding each year.
(1)Basic earnings per share

| 2023 |  | 2022 |  | 2021
| (In millions of Korean won, except per share data)
Profit attributable to owners of the Parent | ₩ | 132,019 |  |  | ₩ | 83,162 |  |  | ₩ | 65,947 |
Weighted average outstanding shares of common shares | 6,948,900 |  |  | 6,948,900 |  |  | 6,948,900 |
Basic earnings per share | ₩ | 18,999 |  |  | ₩ | 11,968 |  |  | ₩ | 9,490 |

(2)Diluted earnings per share
As of and for the years ended December 31, 2023, 2022 and 2021, the Group does not have dilutive potential ordinary shares outstanding. Accordingly, the diluted earnings per share for the years ended December 31, 2023, 2022 and 2021 are the same as the basic earnings per share.
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21. Statements of Cash Flows
(1)Cash generated from operations for the years ended December 31, 2023, 2022 and 2021 are as follows:

| 2023 |  | 2022 |  | 2021
| (In millions of Korean won)
Profit for the year | ₩ | 131,982 |  |  | ₩ | 83,058 |  |  | ₩ | 65,880 |
Depreciation expense | 5,252 |  |  | 5,145 |  |  | 4,570 |
Amortization expense | 2,406 |  |  | 1,917 |  |  | 1,748 |
Bad debt expenses | 1,402 |  |  | 701 |  |  | 933 |
Unrealized foreign currency loss | 1,595 |  |  | 1,311 |  |  | 211 |
Interest expense | 162 |  |  | 127 |  |  | 115 |
Loss on disposal of property and equipment | — |  |  | — |  |  | 57 |
Impairment loss on intangible assets | 1,531 |  |  | 293 |  |  | 281 |
Impairment loss on other non-current assets | — |  |  | 177 |  |  | 1,087 |
Post-employment benefit expense | 23 |  |  | 66 |  |  | 23 |
Income tax expense | 36,717 |  |  | 26,824 |  |  | 33,421 |
Unrealized foreign currency gain | (1,417) |  |  | (689) |  |  | (134) |
Interest income | (11,492) |  |  | (4,501) |  |  | (1,383) |
Gain on disposal of property and equipment | (20) |  |  | (15) |  |  | (7) |
Reversal of allowance for doubtful accounts | — |  |  | — |  |  | (132) |
Others | 6 |  |  | 6 |  |  | (214) |
Change in accounts receivable | 2,365 |  |  | (38,199) |  |  | 5,530 |
Change in other receivables | (3,770) |  |  | 899 |  |  | (1,082) |
Change in prepaid expenses | 397 |  |  | (104) |  |  | (3,296) |
Change in prepayment | (1) |  |  | (1,641) |  |  | 2,165 |
Change in other current assets | (696) |  |  | 34 |  |  | 243 |
Change in other non-current assets | (3,486) |  |  | 218 |  |  | 144 |
Change in accounts payable | (13,837) |  |  | 43,900 |  |  | (8,512) |
Change in deferred revenue | (1,292) |  |  | 4,915 |  |  | 1,185 |
Change in withholdings | (262) |  |  | (631) |  |  | 686 |
Change in accrued expenses | 255 |  |  | 547 |  |  | 118 |
Change in other current liabilities | 165 |  |  | 301 |  |  | 34 |
Change in other non-current liabilities | 2,247 |  |  | 15 |  |  | (99) |
Total | ₩ | 150,232 |  |  | ₩ | 124,674 |  |  | ₩ | 103,572 |

(2)Significant non-cash transactions for the years ended December 31, 2023, 2022 and 2021 are as follows:

| 2023 |  | 2022 |  | 2021
| (In millions of Korean won)
Reclassification of prepayment to intangible assets | ₩ | 102 |  |  | ₩ | 64 |  |  | ₩ | 219 |
Increase of accounts payable relating to the acquisition of software | 2,033 |  |  | 609 |  |  | 667 |
Acquisitions of right-of-use assets | 4,704 |  |  | 1,209 |  |  | 6,055 |
Increase of accounts payable relating to the acquisition of other intangible assets | 1,147 |  |  | — |  |  | — |
Reclassification of other non-current financial asset to other non- current assets | 1,030 |  |  | — |  |  | — |

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(3)Changes in liabilities arising from financing activities for the year ended December 31, 2023, 2022 and 2021 are as follows:

| 2023 |  | 2022 |  | 2021
| (In millions of Korean won)
Beginning of the year | ₩ | 5,963 |  |  | ₩ | 8,730 |  |  | ₩ | 5,900 |
Cash flows used in financing activities – Payment of lease liabilities | (4,083) |  |  | (3,918) |  |  | (3,648) |
Cash flows from operating activities – Interest paid | (157) |  |  | (122) |  |  | (111) |
Non-cash transactions |  |  |  |  |
Acquisitions – leases | 4,358 |  |  | 1,209 |  |  | 6,055 |
Interest expense | 157 |  |  | 122 |  |  | 111 |
Others | 260 |  |  | (124) |  |  | — |
Translation difference | 64 |  |  | 66 |  |  | 423 |
Ending of the year | ₩ | 6,562 |  |  | ₩ | 5,963 |  |  | ₩ | 8,730 |

22. Lease
The Group leases offices, vehicles and others. The leases typically run for a period of 1 ~5 years, with an option to renew or terminate the lease after that date. There are no restrictions or covenants imposed to leases, but the lease assets shall not be provided as collateral for borrowings.
(1)Details of right-of-use assets and lease liabilities recognized in the consolidated statements of financial position as of December 31, 2023 and 2022 are as follows:

| December 31, 2023 |  | December 31, 2022
| (In millions of Korean won)
Right-of-use assets(*1) |  |  |
Offices | ₩ | 4,720 |  |  | ₩ | 5,067 |
Vehicles | 368 |  |  | 65 |
Others | 1,533 |  |  | 826 |
Total | ₩ | 6,621 |  |  | ₩ | 5,958 |
Lease liabilities(*2) |  |  |
Current | 4,225 |  |  | 2,906 |
Non-current | 2,337 |  |  | 3,057 |
Total | ₩ | 6,562 |  |  | ₩ | 5,963 |

(*1)Right-of-use assets are included in the ‘Property and equipment’ in the consolidated statement of financial position.
(*2)Lease liabilities are included in the ‘Other current liabilities’ and ‘Other non-current liabilities’ in the consolidated statement of financial position.
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(2)Changes in right-of-use assets for the years ended December 31, 2023 and 2022 are as follows:

| 2023
| Offices |  | Vehicles |  | Others |  | Total
| (In millions of Korean won)
Balance as of January 1, 2023 | ₩ | 5,067 |  |  | ₩ | 65 |  |  | ₩ | 826 |  |  | ₩ | 5,958 |
Depreciation | (2,794) |  |  | (239) |  |  | (1,083) |  |  | (4,116) |
Reassessment | 210 |  |  | 52 |  |  | (1) |  |  | 261 |
Acquisitions | 2,178 |  |  | 490 |  |  | 1,775 |  |  | 4,443 |
Disposals | — |  |  | — |  |  | — |  |  | — |
Translation difference | 59 |  |  | — |  |  | 16 |  |  | 75 |
Balance as of December 31, 2023 | ₩ | 4,720 |  |  | ₩ | 368 |  |  | ₩ | 1,533 |  |  | ₩ | 6,621 |

| 2022
| Offices |  | Vehicles |  | Others |  | Total
| (In millions of Korean won)
Balance as of January 1, 2022 | ₩ | 6,698 |  |  | ₩ | 292 |  |  | ₩ | 1,750 |  |  | ₩ | 8,740 |
Depreciation | (2,549) |  |  | (231) |  |  | (1,218) |  |  | (3,998) |
Reassessment | 1 |  |  | (52) |  |  | (13) |  |  | (64) |
Acquisitions | 923 |  |  | 55 |  |  | 231 |  |  | 1,209 |
Disposals | (45) |  |  | — |  |  | — |  |  | (45) |
Translation difference | 39 |  |  | 1 |  |  | 76 |  |  | 116 |
Balance as of December 31, 2022 | ₩ | 5,067 |  |  | ₩ | 65 |  |  | ₩ | 826 |  |  | ₩ | 5,958 |

(3)Details of amounts recognized in the consolidated statements of profit or loss for the years ended December 31, 2023, 2022 and 2021 are as follows:

| 2023 |  | 2022 |  | 2021
| (In millions of Korean won)
Interest expense relating to lease liabilities (included in finance cost) | ₩ | 157 |  |  | ₩ | 122 |  |  | ₩ | 111 |
Expense relating to short-term leases | 30 |  |  | 45 |  |  | 117 |
Expense relating to leases of low-value assets excluding short-term leases | 22 |  |  | 23 |  |  | 21 |

(4)Details of amounts recognized in the consolidated statements of Cash flows for the years ended December 31, 2023, 2022 and 2021 are as follows:

| 2023 |  | 2022 |  | 2021
| (In millions of Korean won)
Total cash outflows of leases | ₩ | 4,292 |  |  | ₩ | 4,107 |  |  | ₩ | 3,897 |

23. Financial Risk Management
The Group’s operating activities expose itself to a variety of financial risks: market risk, credit risk and liquidity risk from which the Group’s risk management program focuses on minimizing any adverse effects on its financial performance. The Group operates financial risk management policies and programs that closely monitor and respond to each risk factor.
(1)Capital Risk Management
The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern, so the Group can continue to provide returns and benefits for shareholders and to maintain an optimal capital structure to reduce
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the cost of capital. The Group monitors capital on the basis of the debt ratio. This ratio is calculated as total debt divided by total capital. The debt ratios as of December 31, 2023 and 2022 are as follows:

| 2023 |  | 2022
| (In millions of Korean won)
Total liabilities | ₩ | 114,453 |  |  | ₩ | 113,914 |
Total equity | 463,728 |  |  | 330,180 |
Debt ratio | 25 | % |  | 35 | %

(2)Market risk
(a)Foreign exchange risk
The Group is exposed to foreign exchange risk arising from royalty revenues and commission payment primarily with respect to the US dollar. The Group’s financial assets and liabilities are exposed to foreign currency risk as of December 31, 2023 and 2022 are as follows:

| December 31, 2023
| Assets in foreign currency |  | Liabilities in foreign currency |  | Assets in Korean Won |  | Liabilities in Korean Won
| (Individual amounts in each foreign currency) |  | (In millions of Korean won)
USD | 86,681,440 |  |  | 28,203,218 |  |  | ₩ | 111,616 |  |  | ₩ | 36,344 |
JPY | 343,984,702 |  |  | 160,779,008 |  |  | 3,139 |  |  | 1,467 |
EUR | 36,780 |  |  | 30,472 |  |  | 52 |  |  | 43 |
IDR | 12,955,000 |  |  | 3,103,944 |  |  | 1 |  |  | — |
THB | 28,510 |  |  | 7,379 |  |  | 1 |  |  | — |
VND | 9,270,000 |  |  | 3,243,600 |  |  | — |  |  | — |
HKD | 144,997 |  |  | — |  |  | 24 |  |  | — |
Total |  |  |  |  | ₩ | 114,833 |  |  | ₩ | 37,854 |

| December 31, 2022
| Assets in foreign currency |  | Liabilities in foreign currency |  | Assets in Korean Won |  | Liabilities in Korean Won
| (Individual amounts in each foreign currency) |  | (In millions of Korean won)
USD | 50,865,141 |  |  | 8,528,692 |  |  | ₩ | 64,351 |  |  | ₩ | 10,832 |
JPY | 517,431,793 |  |  | 55,296,530 |  |  | 4,932 |  |  | 527 |
EUR | 25,839 |  |  | 37,607 |  |  | 35 |  |  | 51 |
IDR | 12,955,000 |  |  | 703,608,946 |  |  | 1 |  |  | 57 |
THB | 28,510 |  |  | 7,379 |  |  | 1 |  |  | — |
VND | 9,270,000 |  |  | 3,243,600 |  |  | — |  |  | — |
Total |  |  |  |  | ₩ | 69,320 |  |  | ₩ | 11,467 |

The Group measures foreign exchange risk as a 10% fluctuation in the exchange rate of each foreign currency, which reflects the management's assessment of the risk of exchange rate fluctuation that can be reasonably occur. The impact of a
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10% fluctuation in foreign currency exchange rates on the Group’s profit before income tax for the years ended December 31, 2023 and 2022 are as follows:

| December 31, 2023 |  | December 31, 2022
| Increased by 10% |  | Decreased by 10% |  | Increased by 10% |  | Decreased by 10%
| (In millions of Korean won)
USD | ₩ | 7,527 |  |  | ₩ | (7,527) |  |  | ₩ | 5,352 |  |  | ₩ | (5,352) |
JPY | 167 |  |  | (167) |  |  | 440 |  |  | (440) |
Others | 4 |  |  | (4) |  |  | (7) |  |  | 7 |
Total | ₩ | 7,698 |  |  | ₩ | (7,698) |  |  | ₩ | 5,785 |  |  | ₩ | (5,785) |

The sensitivity analysis is based on monetary assets and liabilities denominated in foreign currencies other than the functional currency as of the end of the reporting period.
(b)Interest rate risk
There are no borrowings under variable interest rate conditions as of December 31, 2023 and 2022.
(c)Price risk
There are no assets and liabilities exposed to price risk as of the end of the reporting period.
(3)Credit risk
Credit risk arises from normal trading and investing activities and occurs when a customer or a counterparty fails to comply with the terms of the contract. In order to manage these credit risks, the Group regularly evaluates the creditworthiness of our customers based on their financial condition, past experience and other factors.
The carrying amount of a financial asset represents the maximum exposure to credit risk. The maximum exposure to credit risk of the Group as of December 31, 2023 and 2022 are as follows.

| December 31, 2023 |  | December 31, 2022
| (In millions of Korean won)
Cash and cash equivalents | ₩ | 184,082 |  |  | ₩ | 169,877 |
Short-term financial instruments | 277,215 |  |  | 167,000 |
Accounts receivable, net | 71,213 |  |  | 77,257 |
Other receivables, net | 7 |  |  | 12 |
Other current financial assets | 4,439 |  |  | 3,370 |
Other non-current financial assets | 1,824 |  |  | 2,176 |
Total | ₩ | 538,780 |  |  | ₩ | 419,692 |

Cash and cash equivalents and short-term financial instruments are deposited in financial institutions with strong credit rating. Accounts receivables are mainly due from payment processing companies and platform service providers, which in the Group believes have low levels of credit risk.
(4)Liquidity risk
Liquidity risk management includes the maintenance of sufficient cash and marketable securities, the availability of funds from appropriately committed credit lines, and the ability to settle market positions. The following table summarizes the financial liabilities of the Group by maturity according to the remaining period from the end of the reporting period to the contractual maturity date.
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| December 31, 2023
| Carrying value |  | Less than 3 months |  | 3 months ~ 1 year |  | 1~2 years |  | 2~3 years |  | 3~5 years |  | Total
| (In millions of Korean won)
Accounts payable | ₩ | 58,292 |  |  | ₩ | 57,430 |  |  | ₩ | 185 |  |  | ₩ | 677 |  |  | ₩ | — |  |  | ₩ | — |  |  | ₩ | 58,292 |
Accrued expense | 395 |  |  | 395 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 395 |
Other liabilities (*) | 6,562 |  |  | 1,081 |  |  | 3,259 |  |  | 1,902 |  |  | 476 |  |  | — |  |  | 6,718 |
Total | ₩ | 65,249 |  |  | ₩ | 58,906 |  |  | ₩ | 3,444 |  |  | ₩ | 2,579 |  |  | ₩ | 476 |  |  | ₩ | — |  |  | ₩ | 65,405 |

(*)Other liabilities as of December 31, 2023 consist of lease liabilities.

| December 31, 2022
| Carrying value |  | Less than 3 months |  | 3 months ~ 1 year |  | 1~2 years |  | 2~3 years |  | 3~5 years |  | Total
| (In millions of Korean won)
Accounts payable | ₩ | 70,544 |  |  | ₩ | 69,803 |  |  | ₩ | 367 |  |  | ₩ | 374 |  |  | ₩ | — |  |  | ₩ | — |  |  | ₩ | 70,544 |
Accrued expense | 429 |  |  | 429 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 429 |
Other liabilities (*) | 5,963 |  |  | 1,016 |  |  | 2,023 |  |  | 2,476 |  |  | 617 |  |  | — |  |  | 6,132 |
Total | ₩ | 76,936 |  |  | ₩ | 71,248 |  |  | ₩ | 2,390 |  |  | ₩ | 2,850 |  |  | ₩ | 617 |  |  | ₩ | — |  |  | ₩ | 77,105 |

(*)Other liabilities as of December 31, 2022 consist of lease liabilities.
The cash flows above are not discounted and the amount of accounts payable and accrued expense due within 12 months is the same as the carrying amount since the effect of the discount is not material.
24. Segment Information
(1)The Group’s operating segments
The Group determines the operating segments by establishing strategic decisions. Chief operating decision maker (“CODM”) reviews operating profit by each segment in order to make decisions regarding the resources to be allocated to the segment and to evaluate the performance of the segment.
The reportable segments of the Group are in line with the organizational structure and CEO’s review of operations, and include mobile, online and others.
The accounting policies of the operating segments are the same as those described in the significant accounting policies.
The Group assesses the performance of its operating segments based on its operating profit or loss, which does not differ from operating profit reported on the consolidated statement of comprehensive income except for inter-segment transactions. Total assets and liabilities for each segment are not reported to CODM. The segment information for the years ended December 31, 2023, 2022 and 2021.

| 2023
| Online |  | Mobile |  | Others |  | Total
| (In millions of Korean won)
Segment revenue | ₩ | 96,487 |  |  | ₩ | 697,736 |  |  | ₩ | 21,149 |  |  | ₩ | 815,372 |
Elimination of intersegment revenue | (15,470) |  |  | (68,132) |  |  | (6,254) |  |  | (89,856) |
Consolidated net revenue | 81,017 |  |  | 629,604 |  |  | 14,895 |  |  | 725,516 |
Depreciation/Amortization | 1,436 |  |  | 2,158 |  |  | 4,064 |  |  | 7,658 |
Segment operating profit | 44,107 |  |  | 122,107 |  |  | (5,847) |  |  | 160,367 |

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| 2022
| Online |  | Mobile |  | Others |  | Total
| (In millions of Korean won)
Segment revenue | ₩ | 107,326 |  |  | ₩ | 404,362 |  |  | ₩ | 21,740 |  |  | ₩ | 533,428 |
Elimination of intersegment revenue | (18,069) |  |  | (45,591) |  |  | (6,150) |  |  | (69,810) |
Consolidated net revenue | 89,257 |  |  | 358,771 |  |  | 15,590 |  |  | 463,618 |
Depreciation/Amortization | 1,349 |  |  | 1,873 |  |  | 3,840 |  |  | 7,062 |
Segment operating profit | 45,832 |  |  | 58,357 |  |  | 519 |  |  | 104,708 |

| 2021
| Online |  | Mobile |  | Others |  | Total
| (In millions of Korean won)
Segment revenue | ₩ | 90,123 |  |  | ₩ | 346,928 |  |  | ₩ | 23,417 |  |  | ₩ | 460,468 |
Elimination of intersegment revenue | (14,753) |  |  | (26,764) |  |  | (5,013) |  |  | (46,530) |
Consolidated net revenue | 75,370 |  |  | 320,164 |  |  | 18,404 |  |  | 413,938 |
Depreciation/Amortization | 1,975 |  |  | 1,875 |  |  | 2,468 |  |  | 6,318 |
Segment operating profit | 31,271 |  |  | 64,837 |  |  | 611 |  |  | 96,719 |

Other profit or loss items that do not constitute operating profit are not separately disclosed because they are not reviewed by the chief operating decision maker by operating segment.
(2)Revenue from external customers by country for the years ended December 31, 2023, 2022 and 2021 are as follows:

| 2023 |  | 2022 |  | 2021
| (In millions of Korean won)
Korea | ₩ | 86,058 |  |  | ₩ | 46,719 |  |  | ₩ | 73,751 |
Taiwan | 176,071 |  |  | 175,664 |  |  | 77,462 |
Japan | 18,999 |  |  | 26,133 |  |  | 40,259 |
The United States of America | 22,702 |  |  | 33,697 |  |  | 20,894 |
Thailand | 136,874 |  |  | 75,498 |  |  | 94,475 |
The Philippines | 102,595 |  |  | 26,003 |  |  | 20,173 |
Indonesia | 58,763 |  |  | 5,472 |  |  | 10,723 |
Hong Kong | 22,656 |  |  | 24,397 |  |  | 7,648 |
Malaysia | 58,553 |  |  | 24,830 |  |  | 30,422 |
Other | 42,245 |  |  | 25,205 |  |  | 38,131 |
Total | ₩ | 725,516 |  |  | ₩ | 463,618 |  |  | ₩ | 413,938 |

Revenue was attributed to the country based on the customer’s location and royalty revenue was attributed to the country where the end user's payment was made.
Non-Current assets by geographical regions as of December 31, 2023, 2022 and 2021 are as follows:

| December 31, 2023 |  | December 31, 2022 |  | December 31, 2021
| (In millions of Korean won)
Korea | ₩ | 15,488 |  |  | ₩ | 9,183 |  |  | ₩ | 10,884 |
Overseas | 8,018 |  |  | 5,309 |  |  | 5,769 |
Total | ₩ | 23,506 |  |  | ₩ | 14,492 |  |  | ₩ | 16,653 |

The amounts are exclusive of financial assets and deferred tax assets.
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(3)There was no customer who represented more than 10% revenue in mobile segment for the year ended December 31, 2023 and Won 76,581 million, or 16.5% of revenue, and Won 126,336 million, or 30.4% of revenue came from one major customer in the mobile segment for the year ended December 31, 2022 and December 31, 2021, respectively.
25. Transactions with Related Parties
(1)Related parties of the Group include entities and individuals capable of exercising control or significant influence over the Group. Related parties include GungHo Online Entertainment, Inc. (the controlling shareholder with 59.31% common shares), its subsidiaries, members of board of directors, executives with strategic responsibilities and their immediate families.
(2)Account balances with related parties
Balances of receivables and payables to related parties as of December 31, 2023 and 2022 are as follows:

|  |  |  | December 31, 2023 |  | December 31, 2022
Related party |  | Name of entity |  | Receivables |  | Payables |  | Receivables |  | Payables
Parent company |  | GungHo Online Entertainment, Inc. |  | ₩ | 1,972 |  |  | ₩ | 3 |  |  | ₩ | 2,874 |  |  | ₩ | 3 |
Other company |  | GungHo Online Entertainment America |  | — |  |  | 1 |  | — |  |  | 30 |
|  | Total |  | ₩ | 1,972 |  |  | ₩ | 4 |  |  | ₩ | 2,874 |  |  | ₩ | 33 |

(3)Transactions with related parties
The details of transaction with related parties for the years ended December 31, 2023, 2022 and 2021 are as follows:

|  |  |  | 2023 |  | 2022 |  | 2021
Related party |  | Name of entity |  | Revenue |  | Purchases |  | Revenue |  | Purchases |  | Revenue |  | Purchases
|  |  |  | (In millions of Korean won)
Parent company |  | GungHo Online Entertainment, Inc. |  | ₩ | 18,417 |  |  | ₩ | 15 |  |  | ₩ | 25,741 |  |  | ₩ | 20 |  |  | ₩ | 36,647 |  |  | ₩ | 55 |
Other company |  | GungHo Online Entertainment America |  | — |  |  | 55 |  |  | — |  |  | 42 |  |  | — |  |  | — |
|  | Total |  | ₩ | 18,417 |  |  | ₩ | 70 |  |  | ₩ | 25,741 |  |  | ₩ | 62 |  |  | ₩ | 36,647 |  |  | ₩ | 55 |

(4)Other transactions with related parties
No financing transactions were made with related parties for the years ended December 31, 2023, 2022 and 2021.
(5)Key management personnel compensation
The compensation for the key management personnel (registered directors), for the years ended December 31, 2023, 2022 and 2021 are as follows:

| 2023 |  | 2022 |  | 2021
| (In millions of Korean won)
Salaries | ₩ | 1,734 |  |  | ₩ | 1,503 |  |  | ₩ | 1,472 |

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