Gravity Co., Ltd. Form 20-F: Fiscal Year Ended December 31, 2007

Gravity Co., Ltd. reported a net loss of KRW 23,201 million (US$24.79 million) for fiscal year 2007, driven by a 1.8% revenue decline to KRW 40,229 million and a gross profit margin contraction from 70% to 56.7%.

The company remains heavily dependent on its flagship title, Ragnarok Online, which accounted for 77% of total sales despite experiencing declining subscription and royalty income.

Revenue concentration is high, with 72% of total revenue derived from overseas licensing, including a 44% reliance on a single partner, GungHo, which also holds a 59% ownership stake in the company.

Financial stability is threatened by a lack of currency hedging instruments, leaving 72% of revenue exposed to volatility in USD and JPY exchange rates.

Operational risks include significant impairment losses, such as the liquidation of TriggerSoft and a $9 million write-down of Perpetual Entertainment holdings, alongside identified material deficiencies in financial reporting controls.

Future recovery efforts are focused on diversifying revenue through micro-transactions and free-to-play servers, contingent upon the successful launch of new titles and the remediation of internal control gaps.