GRAVITY Reports Fiscal Year 2007 Results

Subscription revenues increased 13.3% to KRW 6,393 million (US$ 6,832 thousand) for 2007 from KRW 5,643 million for 2006. The increase resulted mainly from increased revenues from commercializing Emil Chronicle Online, Pucca Racing and Requiem in 2007.

Cost of revenues was KRW 13,746 million (US$ 14,689 thousand) for 2007, representing a 14.8% increase from KRW 11,978 million for 2006. The increase in Gravity's cost of revenues is mainly attributed to increased commission paid and partially attributed to commercialization of Emil Chronicle Online, Pucca Racing and Requiem.

As a result of the foregoing factors, gross profit for 2007 was KRW 19,940 million (US$ 21,308 thousand), representing a 12.2% decrease from KRW 22,710 million for 2006. The gross profit ratio declined from 65.5% in 2006 to 59.1% in 2007.

Selling, General & Administrative Expenses ("SG&A")

The Company reduced total SG&A by 8.2% to KRW 29,960 million (US$ 32,015 thousand) for 2007 compared with KRW 32,623 million for 2006.

This reduction in SG&A was attributed primarily to lower commissions and R&D expenses. R&D expenses decreased by 33.9% from KRW 9,229 million for 2006 to KRW 6,096 million for 2007 (US$ 6,514 thousand) because R&D expenses were converted into intangible assets (capitalized R&D cost) after open beta testing and into cost of revenues after commercialization. In 2007, the Company commenced open beta testing of Ragnarok Online2(tm) (May 28), Requiem (July 21), Pucca Racing (August 2), W Baseball (August 23) and Bodycheck Online (August 29) and commercialized Emil Chronicle Online (August 2), Pucca Racing (September 20) and Requiem (October 10). However, the open beta testing and commercialization of these new games contributed to increasing advertising expenses by KRW 2,751 million (or 81.6%), while simultaneously offseting a portion of the decrease in SG&A.

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