UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form 6-K

 

REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO RULE 13a-16 OR 15d-16 UNDER THE SECURITIES EXCHANGE ACT OF 1934

 

For the month of April 2019

Commission File Number 000-51138

 

GRAVITY Co., Ltd.
———————————————————————————————————————

(Translation of registrant’s name into English)

 

15F, 396 World Cup buk-ro, Mapo-gu, Seoul 121-795, Korea

———————————————————————————————————————
(Address of principal executive office)

 

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F:  [x] Form 20-F    [ ] Form 40-F

 

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1):  [ ]

 

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7):  [ ]



Samil PricewaterhouseCoopers, our independent auditor for the fiscal year ended December 31, 2018 and December 31, 2017 for our separate financial statements in conformity with International Financial Reporting Standards as adopted by the Republic of Korea, or Korean IFRS, have conducted audits and expressed opinions with regards to the separate statements of financial position of Gravity Co., Ltd. (the “Company”) as of December 31, 2018 and December 31, 2017 and the related separate statements of comprehensive income, changes in equity and cash flows for the years then ended at December 31, 2018 and 2017, expressed in Korean Won.

Samil PricewaterhouseCoopers, our independent auditor for the fiscal year ended December 31, 2018 and December 31, 2017 has also conducted audits and expressed opinions with regards to the consolidated statements of financial position of the Company and its subsidiaries as of December 31, 2018 and December 31, 2017 and the related consolidated statements of comprehensive income, changes in equity and cash flows for the years then ended at December 31, 2018 and 2017 expressed in Korean Won. The consolidated subsidiaries as of December 31, 2018 are NeoCyon, Inc., Gravity Interactive, Inc., Gravity Entertainment Corporation and Gravity Communications Co.,Ltd.

The audited separate financial statements and the audited consolidated financial statements are attached hereto as Exhibit 99.1 and Exhibit 99.2, respectively, and are incorporated herein by reference.as Exhibit 99.1 and Exhibit 99.2, respectively, and are incorporated herein by reference.


SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

GRAVITY CO., LTD

 

 

By:

/s/ Heung Gon Kim

Name:

Heung Gon Kim

Title:

Chief Financial Officer

 

Date: April 12, 2019


 

Exhibit Index

 

Exhibit No.

 

Description

99. 1

 

The Company’s Korean IFRS separate financial statements as of and for the years ended December 31, 2018 and December 31, 2017 and the independent auditor’s report

99. 2

 

The Company’s Korean IFRS consolidated financial statements as of and for the years ended December 31, 2018 and December 31, 2017 and the independent auditor’s report

 

grvy-ex991_6.htm

 

Exhibit 99.1

 

GRAVITY CO., LTD.

 

 

Separate Financial Statements

December 31, 2018 and 2017

 

 

 

 

 


GRAVITY CO., LTD.

Index

December 31, 2018 and 2017

 

 

 

Page(s)

 

 

 

Independent Auditor’s Report

 

1-3

 

 

 

Separate Financial Statements

 

 

 

 

 

Separate Statements of Financial Position

 

4-5

 

 

 

Separate Statements of Comprehensive Income

 

6

 

 

 

Separate Statements of Changes in Equity

 

7

 

 

 

Separate Statements of Cash Flows

 

8

 

 

 

Notes to the Separate Financial Statements

 

9-47

 

 

 

Report on Independent Auditor’s Review of Internal Control over Financial Reporting

 

48-51

 

 

 

 

 


Independent Auditor’s Report

 

(English Translation of a Report Originally Issued in Korean)

 

To the Board of Directors and Shareholders of Gravity Co., Ltd.

 

Opinion

We have audited the accompanying separate financial statements of Gravity Co., Ltd. (the Company), which comprise the separate statements of financial position as at December 31, 2018 and 2017, and the separate statements of comprehensive income, separate statements of changes in equity and separate statements of cash flows for the years then ended, and notes to the separate financial statements, including a summary of significant accounting policies.

 

In our opinion, the accompanying separate financial statements present fairly, in all material respects, the separate financial position of the Company as at December 31, 2018 and 2017, and its separate financial performance and its separate cash flows for the years then ended in accordance with International Financial Reporting Standards as adopted by the Republic of Korea (Korean IFRS).

 

Basis for Opinion

We conducted our audits in accordance with Korean Standards on Auditing. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of our report. We are independent of the Company in accordance with the ethical requirements of the Republic of Korea that are relevant to our audit of the financial statements and we have fulfilled our other ethical responsibilities in accordance with the ethical requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

 

Other Matter

Auditing standards and their application in practice vary among countries. The procedures and practices used in the Republic of Korea to audit such financial statements may differ from those generally accepted and applied in other countries.

 

Responsibilities of Management and Those Charged with Governance for the Financial Statements

Management is responsible for the preparation and fair presentation of the separate financial statements in accordance with Korean IFRS, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

 

 

Samil PricewaterhouseCoopers, 100 Hangang-daero, Yongsan-gu, Seoul 04386, Korea, www.samil.com


1

 


 

In preparing the financial statements, management is responsible for assessing the Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Company or to cease operations.

 

Those charged with governance are responsible for overseeing the Company’s financial reporting process.

 

Auditor’s Responsibilities for the Audit of the Financial Statements

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Korean Standards on Auditing will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.

 

As part of an audit in accordance with Korean Standards on Auditing, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:

Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control.

Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.

Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Company to cease to continue as a going concern.

Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

 

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

2

 


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Seoul, Korea

March 25, 2019

This report is effective as of March 25, 2019, the audit report date. Certain subsequent events or circumstances, which may occur between the audit report date and the time of reading this report, could have a material impact on the accompanying separate financial statements and notes thereto. Accordingly, the readers of the audit report should understand that there is a possibility that the above audit report may have to be revised to reflect the impact of such subsequent events or circumstances, if any.

3

 


GRAVITY CO., LTD.

Separate Statements of Financial Position

December 31, 2018 and 2017

(In thousands of Korean won)

Notes

 

December 31,

2018

 

December 31,

2017

 

 

 

 

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

4,5

 

46,598,874

 

34,990,206

 

 

Short-term financial instruments

5

 

 

9,500,000

 

 

22,500,000

 

 

Accounts receivables, net

5,6

 

 

24,659,595

 

 

38,890,644

 

 

Other receivables, net

5,6

 

 

469,710

 

 

704,664

 

 

Prepaid expenses

12

 

 

618,219

 

 

2,753,700

 

 

Other current assets

5

 

 

1,539,476

 

 

1,858,280

 

 

 

 

 

 

83,385,874

 

 

101,697,494

 

Non-current assets

 

 

 

 

 

 

 

 

 

Investments in subsidiaries

7

 

 

9,464,638

 

 

1,783,228

 

 

Property and equipment, net

8

 

 

882,089

 

 

476,027

 

 

Intangible assets, net

9

 

 

1,572,714

 

 

988,855

 

 

Deferred tax assets

18

 

 

7,413,106

 

 

3,036,165

 

 

Other non-current financial assets

5

 

 

1,405,988

 

 

1,357,272

 

 

Other non-current assets

11

 

 

1,880,367

 

 

2,078,575

 

 

 

 

 

22,618,902

 

 

9,720,122

 

Total assets

 

 

106,004,776

 

111,417,616

 

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

 

 

Account payables

5

 

14,440,762

 

42,150,983

 

 

Deferred revenue

12

 

 

6,751,978

 

 

14,141,070

 

 

Withholdings

 

 

 

1,240,957

 

 

1,348,968

 

 

Accrued expenses

 

 

 

564,621

 

 

343,690

 

 

Income tax payable

18

 

 

1,390,798

 

 

1,628,368

 

 

Other current liabilities

5

 

 

159,151

 

 

140,470

 

 

 

 

 

24,548,267

 

 

59,753,549

 

Non-current liabilities

 

 

 

 

 

 

 

 

Long-term deferred revenue

12

 

 

3,362,537

 

 

6,335,827

 

Other non-current liabilities

 

 

 

305,853

 

 

294,809

 

 

 

 

 

3,668,390

 

 

6,630,636

 

Total liabilities

 

 

28,216,657

 

66,384,185

 

 

 

 

 

 

 

 

 

 

(Continued)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The above separate statements of financial position should be read in conjunction with the accompanying notes.

4


GRAVITY CO., LTD.

Separate Statements of Financial Position

December 31, 2018 and 2017

 

 

 

 

(In thousands of Korean won)

Notes

 

December 31,

2018

 

December 31,

2017

 

 

 

 

 

 

 

 

 

Equity

 

13

 

 

 

 

 

 

 

Equity attributable to owners of

the Parent Company

 

 

 

 

 

 

 

 

 

Share capital

 

 

 

 

 

 

 

 

 

Common shares

 

 

3,474,450

 

3,474,450

 

 

Capital surplus

13

 

 

27,482,683

 

 

27,482,683

 

 

Other components of equity

13

 

 

(270,936)

 

 

(348,479)

 

 

Retained earnings

13

 

 

47,101,922

 

 

14,424,777

 

Total equity

 

 

 

77,788,119

 

 

45,033,431

 

Total liabilities and equity

 

 

106,004,776

 

111,417,616

 

 

 

 

 

 

 

 

 

 

 

 

The above separate statements of financial position should be read in conjunction with the accompanying notes.

5


GRAVITY CO., LTD.

Separate Statements of Comprehensive Income

Years Ended December 31, 2018 and 2017

 

 

(in thousands of Korean won)

Notes

2018

 

2017

 

 

 

 

 

Revenue

21

 

 

 

 

 

  Online games – subscription revenue

 

18,891,718

 

31,533,084

  Online games – royalties and license fees

 

 

15,378,752

 

 

17,069,208

  Mobile games

 

 

164,303,242

 

 

70,634,135

  Other revenue

 

 

123,799

 

 

186,127

 

 

 

198,697,511

 

 

119,422,554

Cost of revenue

14

 

123,500,203

 

 

75,972,759

Gross profit

 

 

75,197,308

 

 

43,449,795

Selling, general and administrative expenses

14,15

 

34,746,608

 

 

29,774,222

Operating profit

 

 

40,450,700

 

 

13,675,573

Non-operating income and expenses

 

 

 

 

 

 

Finance income

5,16

 

1,075,820

 

 

556,997

Finance costs

5,16

 

(79,822)

 

 

(186,723)

Other non-operating income

5,17

 

5,803,645

 

 

1,601,880

Other non-operating expenses

5,7,17

 

(12,110,993)

 

 

(1,725,488)

Profit before income tax

 

 

35,139,350

 

 

13,922,239

Income tax expense

18

 

2,462,205

 

 

939,752

Profit for the year

 

32,677,145

 

12,982,487

Other comprehensive income

 

 

 

 

 

 

Items that may be subsequently reclassified to profit or loss

 

 

 

 

 

 

Foreign currency translation adjustments

 

 

77,543

 

 

(373,554)

Total comprehensive income for the year

 

32,754,688

 

12,608,933

 

 

 

The above separate statements of comprehensive income should be read in conjunction with the accompanying notes.

6


GRAVITY CO., LTD.

Separate Statements of Changes in Equity

Years Ended December 31, 2018 and 2017

(in thousands of Korean won)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Notes

 

Share

capital

 

 

Capital

surplus

 

 

Other components

of equity

 

 

Retained earnings

 

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at January 1, 2017

 

3,474,450

 

28,219,282

 

25,075

 

705,691

 

32,424,498

Profit for the year

 

 

-

 

 

-

 

 

 

 

 

12,982,487

 

 

12,982,487

Disposition of deficit with capital surplus

13

 

-

 

 

(736,599)

 

 

-

 

 

736,599

 

 

-

Foreign currency translation adjustments

13

 

-

 

 

-

 

 

(373,554)

 

 

-

 

 

(373,554)

Balance at December 31, 2017

 

3,474,450

 

27,482,683

 

(348,479)

 

14,424,777

 

45,033,431

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at January 1, 2018

 

3,474,450

 

27,482,683

 

(348,479)

 

14,424,777

 

45,033,431

Profit for the year

 

 

-

 

 

-

 

 

 

 

 

32,677,145

 

 

32,677,145

Foreign currency translation adjustments

13

 

-

 

 

-

 

 

77,543

 

 

-

 

 

77,543

Balance at December 31, 2018

 

3,474,450

 

27,482,683

 

(270,936)

 

47,101,922

 

77,788,119

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The above separate statements of changes in equity should be read in conjunction with the accompanying notes.

7


GRAVITY CO., LTD.

Separate Statements of Cash Flow

Years Ended December 31, 2018 and 2017

 

(in thousands of Korean won)

Notes

2018

 

2017

 

 

 

 

 

Cash flows from operating activities

 

 

 

 

 

 

Profit for the year

 

32,677,145

 

12,982,487

Adjustments

19

 

6,558,769

 

 

2,392,360

Changes in operating assets and liabilities

19

 

(19,018,839)

 

 

11,274,302

Interest received

 

 

1,161,390

 

 

539,635

Income tax paid

18

 

(7,133,795)

 

 

(2,437,390)

Net cash inflow from operating activities

 

 

14,244,670

 

 

24,751,394

 

 

 

 

 

 

 

Cash flows from investing activities

 

 

 

 

 

 

  Decrease in short term financial instruments

 

 

13,000,000

 

 

 

  Decrease in other non-current financial assets

 

 

3,772,670

 

 

7,014

  Decrease in other current assets

 

 

3,333

 

 

3,333

  Disposal of property and equipment

8

 

68,285

 

 

1,656

  Disposal of intangible assets

9

 

2,434

 

 

13,063

  Acquisition of subsidiaries

7

 

(18,261,560)

 

 

 

  Increase in short-term financial instruments, net

 

 

-

 

 

(1,000,000)

  Increase in other non-current financial assets

 

 

-

 

 

(660,667)

  Acquisition of property and equipment

8

 

(797,791)

 

 

(383,267)

  Acquisition of intangible assets

9

 

(450,832)

 

 

(1,141,276)

Net cash outflows from investing activities

 

 

(2,663,461)

 

 

(3,160,144)

 

 

 

 

 

 

 

Net cash inflow from financing activities

 

 

-

 

 

-

 

 

 

 

 

 

 

Effects of exchange rate changes on cash and cash equivalents

 

 

27,459

 

 

(596,309)

Net increase in cash and cash equivalents

 

 

11,608,668

 

 

20,994,941

Cash and cash equivalents at beginning of the year

 

 

34,990,206

 

 

13,995,265

Cash and cash equivalents at end of the year

 

46,598,874

 

34,990,206

 

The above separate statements of cash flows in should be read in conjunction with the accompanying notes.

8


 

1. General Information

GRAVITY CO., LTD. (the “Company”) was incorporated on April 4, 2000, to engage in developing and distributing online games and other related business. The Company’s headquarters is located at 15F, 396 World Cup buk‑ro, Mapo‑gu, Seoul, Korea. On November 17, 2016, the Company has established a Gravity Taiwan Branch in Taipei City, Taiwan. The Company’s principal game product, “Ragnarok”, a massive multi-player online role-playing game, was commercially launched in August 2002, and is currently operated internationally in 81 markets. The Company also operates many other games.

On February 8, 2005, the Company listed its shares on NASDAQ in the United States, and issued 1,400,000 shares of ordinary shares by means of American Depositary Shares.

The Company started with total paid-in capital amount of 500,000 thousand, and as at December 31, 2018, the total paid-in capital amounts to 3,474,450 thousand. The Company’s major shareholders and their respective percentage of ownership as at December 31, 2018, are as follows:

Shareholder

 

Number of shares

 

Ownership (%)

GungHo Online Entertainment, Inc.

 

4,121,737

 

59.31

Others

 

2,827,163

 

40.69

 

 

6,948,900

 

100.00

 

2. Significant Accounting Polices

The principal accounting policies applied in the preparation of these financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated.

2.1 Basis of Presentation

The Company has first adopted International Financial Reporting Standards as adopted by the Republic of Korea (Korean IFRS). Korean IFRS are the standards, subsequent amendments and related interpretations issued by the International Accounting Standards Board (IASB) that have been adopted by the Republic of Korea.

The preparation of the separate financial statements requires the use of certain critical accounting estimates. It also requires management to exercise judgment in the process of applying the Company's accounting policies. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the separate financial statements are disclosed in Note 3.

2.2 Changes in Accounting Policies and Disclosures

(a) New and amended standards adopted by the Company

The Company has applied the following standards and amendments for the first time for their annual reporting period commencing January 1, 2018. The amendment does not have a significant impact on the financial statements.

9


GRAVITY CO., LTD.

Notes to the Separate Financial Statements

December 31, 2018 and 2017

- Amendment to Korean IFRS 1028 Investments in Associates and Joint Ventures

When an investment in an associate or a joint venture is held by, or is held indirectly through, an entity that is a venture capital organization, or a mutual fund, unit trust and similar entities including investment-linked insurance funds, the entity may elect to measure each investment separately at fair value through profit or loss in accordance with Korean IFRS 1109. The amendment does not have a significant impact on the financial statements because the Company is not a venture capital organization.

- Amendment to Korean IFRS 1040 Transfers of Investment Property

The amendment to Korean IFRS 1040 clarifies that a transfer to, or from, investment property, including property under construction, can only be made if there has been a change in use that is supported by evidence, and the list of evidence for a change of use in the standard was re-characterized as a non-exclusive list of example. The amendment does not have a significant impact on the financial statements.

- Amendment to Korean IFRS 1102 Share-based Payment

Amendments to Korean IFRS 1102 clarify accounting for a modification to the terms and conditions of a share-based payment that changes the classification of the transaction from cash-settled to equity-settled. Amendments also clarify that the measurement approach should treat the terms and conditions of a cash-settled award in the same way as for an equity-settled award. The amendment does not have a significant impact on the financial statements.

- Enactment of Interpretation 2122 Foreign Currency Transaction and Advance Consideration

According to the enactment, the date of the transaction for the purpose of determining the exchange rate to use on initial recognition of the related asset, expense or income (or part of it) is the date on which an entity initially recognizes the non-monetary asset or non-monetary liability arising from the payment or receipt of advance consideration. The enactment does not have a significant impact on the financial statements.

- Korean IFRS 1109 Financial Instruments

The Company has applied Korean IFRS 1109 Financial Instruments on January 1, 2018, the date of initial application. In accordance with the transitional provisions in Korean IFRS 1109, comparative figures have not been restated, and the differences between previous book amounts and book amounts at the date of initial application are recognized to retained earnings (or equity). Application of IFRS 1109 does not have a significant impact on the financial statements.

- Korean IFRS 1115 Revenue from Contracts with Customers

10


GRAVITY CO., LTD.

Notes to the Separate Financial Statements

December 31, 2018 and 2017

The Company has applied to apply Korean IFRS 1115 Revenue from Contracts with Customers. In accordance with the transition provisions in Korean IFRS 1115, comparative figures have not been restated. The Company elected the modified retrospective approach, and recognized the cumulative impact of initially applying the revenue standard as an adjustment to retained earnings (or equity) as at January 1, 2018, the period of initial application. Application of IFRS 1115 does not have a significant impact on the financial statements.

(b) New and amended standards not yet adopted by the Company

Certain new accounting standards and interpretations that have been published that are not mandatory for annual reporting period commencing January 1, 2018 and have not been early adopted by the Company are set out below.

- Korean IFRS 1116 Leases

Korean IFRS 1116 Leases issued on May 22, 2017 is effective for annual periods beginning on or after January 1, 2019, with early adoption permitted. This standard will replace Korean IFRS 1017 Leases, Interpretation 2104 Determining whether an Arrangement contains a Lease, Interpretation 2015 Operating Leases-Incentives, and Interpretation 2027 Evaluating the Substance of Transactions Involving the Legal Form of a Lease.

At inception of a contract, the entity shall assess whether the contract is, or contains, a lease. Also, at the date of initial application, the entity shall assess whether the contract is, or contains, a lease in accordance with the standard. However, the entity will not need to reassess all contracts with applying the practical expedient because the entity elected to apply the practical expedient only to contracts entered before the date of initial application.

For a contract that is, or contains, a lease, the entity shall account for each lease component within the contract as a lease separately from non-lease components of the contract. A lessee is required to recognize a right-of-use asset representing its right to use the underlying leased asset and a lease liability representing its obligation to make lease payments. The lessee may elect not to apply the requirements to short-term lease (a lease term of 12 months or less at the commencement date) and low value assets (e.g. underlying assets below $ 5,000). In addition, as a practical expedient, the lessee may elect, by class of underlying asset, not to separate non-lease components from lease components, and instead account for each lease component and any associated non-lease components as a single lease component. The accounting treatment as a lessor did not change significantly from the one under IAS 1017 Leases.

Lease accounting as a lessee

The Group plans to apply Korean IFRS 1116 retrospectively with the cumulative effect of initially applying the standard as at January 1, 2019. The cumulative effect of applying the standard will be recognized as an adjustment to the opening balance of retained earnings at the date of initial application. The assessment was performed based on available information as at December 31, 2018 to identify effects on 2018 separate financial statements.

11


GRAVITY CO., LTD.

Notes to the Separate Financial Statements

December 31, 2018 and 2017

The total minimum lease payment expected to be paid by the Group in relation to operating leases before discounted to their present value is 4,725,933 thousand. When the payment is discounted at incremental borrowing rate of the lessee, the total minimum lease payment amounts to 4,357,664 thousand. For a contract that is, or contains, a lease, the Company plans to apply the practical expedient to account for each lease component and any associated non-lease components as a single lease component.

The Company is analyzing the effects on the financial statement; however, it is difficult to provided reasonable estimates of financial effects until the analysis is complete.

Lease accounting as a lessor

In accordance with Korea IFRS 1116, the Company as a lessor, determined that its accounting will significantly change in identifying a lease and separating components of a contract; accordingly, the Company is analyzing the effects on the financial statements. As at December 31, 2018, it is expected that lease payments receivable to be increased by 310,715 thousand. However, the results of the assessment may be subject to change as the Company obtains additional available information.

2.3 Subsidiaries, Joint Ventures, and Associates – accounted for at cost

The financial statements of the Company are the separate financial statements prepared in accordance with Korean IFRS 1027 Separate Financial Statements. The Company is investing in four subsidiaries, including NeoCyon, Inc..

Investments in subsidiaries, joint ventures and associates are recognized at cost under the direct equity method in accordance with Korean IFRS 1027 (Note 7). Management applied the carrying amounts under the previous K-GAAP at the time of transition to Korean IFRS as deemed cost of investment. The Company recognizes dividend income from subsidiaries, joint ventures and associates in profit or loss when its right to receive the dividend is established.

2.4 Foreign Currency Translation

(a) Functional and presentation currency

Items included in the financial statements of each of the Company’s entities are measured using the currency of the primary economic environment in which each entity operates (the “functional currency”), which the financial statements in main office and local branch (Taiwan) are presented in Korean won (KRW) and New Taiwan Dollar (NTD), respectively. The financial statements are presented in Korean won, which is the Company’s functional and presentation currency.

12


GRAVITY CO., LTD.

Notes to the Separate Financial Statements

December 31, 2018 and 2017

(b) 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 year end exchange rates are generally recognized in profit or loss.

Non-monetary items that are measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined. Translation differences on assets and liabilities carried at fair value are reported as part of the fair value gain or loss. For example, translation differences on non-monetary assets and liabilities such as equities held at fair value through profit or loss are recognized in profit or loss as part of the fair value gain or loss and translation differences on non-monetary assets such as equities classified as available-for-sale financial assets are recognized in other comprehensive income.

2.5 Statement of Cash flow

The statement of cash flows are prepared using the indirect method, and cash flows denominated in foreign currencies are translated at average exchange rates for the period.

2.6 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 without significant transaction costs.

2.7 Financial Assets

 

(a)

Classification

From January 1, 2018, the Company classifies its financial assets in the following measurement categories:

 

those to be measured at fair value through profit or loss

 

those to be measured at fair value through other comprehensive income, and

 

those to be measured at amortized cost.

The classification depends on the Company’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 Company reclassifies debt investments when, and only when its business model for managing those assets changes.

13


GRAVITY CO., LTD.

Notes to the Separate Financial Statements

December 31, 2018 and 2017

For investments in equity instruments that are not held for trading, this will depend on whether the Company 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.

 

(b)

Measurement

At initial recognition, the Company measures a financial asset at its fair value plus, in the case of a financial asset not at fair value through profit or loss, transaction costs that are directly attributable to the acquisition of the financial asset. 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.

A. Debt instruments

Subsequent measurement of debt instruments depends on the Company’s business model for managing the asset and the cash flow characteristics of the asset. The Company 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 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 ‘other non-operating income or expenses’ in the year in which it arises.

14


GRAVITY CO., LTD.

Notes to the Separate Financial Statements

December 31, 2018 and 2017

B. Equity instruments

The Company subsequently measures all equity investments at fair value. Where the Company’s management has elected to present fair value gains and losses on equity investments, which 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. Dividend income from such investments continue to be recognized in profit or loss as ‘finance income’ when the right to receive payments is established.

Changes in the fair value of financial assets at fair value through profit or loss are recognized in ‘other income and 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.

 

(c)

Impairment

The Company assesses on a forward looking basis the expected credit losses associated with its debt instruments carried at amortized cost and fair value through other comprehensive income. The impairment methodology applied depends on whether there has been a significant increase in credit risk. For trade receivables and lease receivables, the Company applies the simplified approach, which requires expected lifetime credit losses to be recognized from initial recognition of the receivables.

 

(d)

Recognition and Derecognition

Regular way purchases and sales of financial assets are recognized or derecognized on trade-date, the date on which the Company 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 Company has transferred substantially all the risks and rewards of ownership.

If a transfer does not result in derecognition because the Company has retained substantially all the risks and rewards of ownership of the transferred asset, the Company continues to recognize the transferred asset in its entirety and recognizes a financial liability for the consideration received.

(e) Offsetting of financial instruments

Financial assets and liabilities are offset and the net amount reported in the statements 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 Company or the counterparty.


15


GRAVITY CO., LTD.

Notes to the Separate Financial Statements

December 31, 2018 and 2017

2.8 Property and Equipment

Property and equipment are stated at cost less accumulated depreciation and impairment, which includes acquisition cost, production cost and other costs required to prepare the asset for its intended use. It also includes the present value of the estimated cost of dismantling and removing the asset, and restoring the site after the termination of the asset's useful life, provided it meets the criteria for recognition of provisions.

Depreciation is calculated under straight-line method over estimated useful lives as follows:

 

 

Estimated Useful Lives

Computer and other equipment

 

4 years

Furniture and fixture

 

4 years

Leasehold improvements

 

4 years

 

Expenditures incurred after the acquisition or completion of assets are capitalized only when it is probable that future economic benefits associated with the item will flow to the Company, which includes the enhancement of the value of the related assets over their recently appraised value or extension of the useful life of the related assets, and the fair value for the related cost can be reliably measured. All other routine maintenance and repairs are charged to expense as incurred.

2.9 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.

Software development costs that are directly attributable to internally generated by the Company are recognized when the criteria; such as, technically feasible, generate probable future economic benefits and other, are met. Customer contracts acquired in a business combination are recognized at fair value at the acquisition date. Membership rights that have an indefinite useful life are not subject to amortization because there is no foreseeable limit to the period over which the assets are expected to be utilized.

The Company entered into a game licensing agreement with a number of third parties to gain exclusive rights to the games developed by other companies. The license fee payments are recognized as other intangible assets and amortized over the term of the contract.

The Company amortizes intangible assets with a limited useful life using the straight-line method over the following periods:

 

 

Estimated Useful Lives

Software

 

2~3 years

Patents

 

10 years

Other intangible assets

 

2 years

 


16


GRAVITY CO., LTD.

Notes to the Separate Financial Statements

December 31, 2018 and 2017

2.10 Impairment of Non-financial Assets

Intangible assets not yet available for use are tested annually for impairment. Goodwill acquired in a business combination is tested for impairment at the end of each reporting period by assessing its recoverable amount. Assets that are subject to amortization or depreciation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Property and equipment are reviewed for impairment under the above circumstances and when gross estimated future cash flows expected from the use and disposal of property and equipment (individual assets or cash-generating units) is less than the carrying amount. Impairment loss is recognized for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and its value-in-use. For the purposes of assessing impairment, assets are grouped at the lowest levels (cash-generating units) for which there are separate and identifiable cash flows.

2.11 Financial Liabilities

(a) Classification and measurement

The Company’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 a designated as hedging instruments and an embedded derivative that is separated are also classified as held for trading.

The Company 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 separate statement of financial position.

(b) Derecognition

Financial liabilities are removed from the statement of financial position when it is 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

2.12 Provisions and Contingent Liabilities

Provisions for legal claims, service warranties and make good obligations are recognized when the Company 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.

17


GRAVITY CO., LTD.

Notes to the Separate Financial Statements

December 31, 2018 and 2017

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.

2.13 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.

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 separate 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 amounts will be available to utilize those temporary differences and losses.

The Company recognizes a deferred tax liability all taxable temporary differences associated with investments in subsidiaries, associates, and interests in joint arrangements, except to the extent that the Company 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 Company 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 either to settle on a net basis.


18


GRAVITY CO., LTD.

Notes to the Separate Financial Statements

December 31, 2018 and 2017

2.14 Employee Benefits

(a) Annual paid leave obligations

The Company recognizes expenses and liabilities related to annual paid leave during an accounting period when an employee has rendered service that gives rise to employee’s entitlement to future annual paid leave.

(b) Defined contribution pension plan

The Company 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 Company recognizes provision for severance benefits for the employees with service period less than a year.

2.15 Revenue Recognition

From January 1, 2018, the Company has applied Korean IFRS 1115 Revenue from Contracts with Customers.

The Company engages in game licensing, IP licensing and game publishing business. Upon application of IFRS 1115, the Company identifies services promised in a contract as a single performance obligation.

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 disclosed as revenue are net of value added taxes, returns, rebates and discounts and after elimination of inter-company transactions.

(a) Subscription revenue (Online and Mobile)

The Company recognizes online and mobile subscription revenue on accrual basis when players make use of in-game premium features.

Players can access certain games free of charge, but may purchase game points to acquire in-game premium features. The Company defer revenue recognition for the unused game points at the end of reporting period. Consumable in-game items are deferred when such in-game items are purchased by users with game points and recognized as revenue when the purchased in-game items are used in the games. In-game items with limited time period are deferred and recognized as revenue in proportion to the number of days lapsed while permanent in-game items are recognized ratably as revenues over the estimated life cycle of game users.

(b) Royalties and license fees

According to IFRS 15, revenue is recognized over time when there is reasonable expectation of ongoing activities that may have a significant effect on the customers during the duration of the contracts and the customers are exposed to the effect by the activities and there is no additional goods or services offered to the customers from the activities.

19


GRAVITY CO., LTD.

Notes to the Separate Financial Statements

December 31, 2018 and 2017

The nature of licensing promise is to provided a right to access the entity’s intellectual property as it exists throughout the license period. The Company determines performance obligation satisfied over time and recognizes revenue over a period of time.

The prepaid license fee revenues are recorded as deferred revenue and recognized on a straight-line method over the license period. The running royalties are recognized monthly on accrual basis as royalty payments are determined based on the conditions of contracts. The minimum guarantee (“MG”) royalties are recorded as deferred revenue and recognized on a straight-line method over the license period. If actual cumulative royalties exceed the cumulative revenue amount recognized under the straight-line method, the Company recognizes the excess amount as revenue.

2.16 Lease

A lease is an agreement, whereby the lessor conveys to the lessee, in return for a payment or series of payments, the right to use an asset for an agreed period of time. Leases in which a significant portion of the risks and rewards of ownership are not transferred to the Company are classified as operating leases. Payments made under operating leases are charge to expenses on a straight-line basis over the period of lease.

2.17 Approval of the Financial Statements

The separate financial statements were approved by the Board of Directors on March 8, 2019.

3. Critical Accounting Estimates and Assumptions

 

The preparation of financial statements requires the Company to make estimates and assumptions concerning the future. Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. The resulting accounting estimates will, by definition, seldom equal the related actual results. 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.

(a) Deferred taxes

In assessing the realizability of the deferred tax assets, the Company considers whether it is probable that a portion or all of the deferred tax assets will not be realized. When the Company assessed the realizability of the deferred tax assets, the Company considered its performance, general economic environment, projected future taxable income, periods available to deduct tax loss carryforwards and tax credit carryforwards and etc. The ultimate realization of deferred tax assets is dependent on whether the Company is able to generate future taxable income in specific tax jurisdictions during the periods in which temporary differences become deductible. However, the amount of deferred tax assets may be different if we do not realize estimated future taxable income during the carry forward periods as originally expected.


20


GRAVITY CO., LTD.

Notes to the Separate Financial Statements

December 31, 2018 and 2017

4. Cash and cash equivalent

Cash and cash equivalents as at December 31, 2018 and 2017, consist of:

(in thousands of Korean won)

 

December 31, 2018

 

December 31, 2017

 

 

 

 

 

 

 

 

 

Cash in bank, etc.

 

46,598,874

 

34,990,206

 

 

Restricted cash and cash equivalents as at December 31, 2018 and 2017, are as follows:

(in thousands of Korean won)

 

December 31, 2018

 

December 31, 2017

 

 

 

 

 

 

 

 

 

Deposits for membership

 

-

 

20,120

 

 

5. Financial Instruments by Category

5.1 Carrying Amounts of Financial Instruments by Category

Carrying amounts of financial assets and liabilities by category as at December 31, 2018 and 2017, are as follows:

(in thousands of Korean won)

 

Financial assets at amortized cost

 

 

December 31, 2018

 

December 31, 2017

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

46,598,874

 

34,990,206

 

Short-term financial assets

 

 

9,500,000

 

 

22,500,000

 

Accounts receivables, net

 

 

24,659,595

 

 

38,890,644

 

Other receivables, net

 

 

469,710

 

 

704,664

 

Other current assets

 

 

189,539

 

 

154,371

 

Other non-current financial assets

 

 

1,405,988

 

 

1,357,272 

 

 

 

82,823,706

 

98,597,157

 

 

(in thousands of Korean won)

 

Financial liabilities at amortized cost

 

 

December 31, 2018

 

December 31, 2017

 

 

 

 

 

 

 

 

 

 

 

 

Account payables

 

14,440,762

 

42,150,983

 

Other current liabilities

 

 

150,008

 

 

120,535

 

 

 

14,590,770

 

42,271,518

 

 


21


GRAVITY CO., LTD.

Notes to the Separate Financial Statements

December 31, 2018 and 2017

5.2 Net Gains or Losses by Category of Financial Instruments

Net gains or losses on each category of financial instruments for the years ended December 31, 2018 and 2017, are as follows:

(in thousands of Korean won)

 

Financial assets at amortized cost

 

 

2018

 

2017

 

 

 

 

 

 

 

Interest Income

 

1,075,805

 

538,448

Gain on foreign currency transaction

 

 

148,918

 

 

281,768

 

 

 

 

 

 

 

(in thousands of Korean won)

 

Financial liabilities at amortized cost

 

 

2018

 

2017

 

 

 

 

 

 

 

Gain (loss) on foreign currency transaction

 

108,279

 

(349,249)

 

 


22


GRAVITY CO., LTD.

Notes to the Separate Financial Statements

December 31, 2018 and 2017

5.3 Fair value of Financial Instruments by Category

The carrying amount and fair value of financial assets and liabilities as at December 31, 2018 and 2017, are as follows:

(in thousands of Korean won)

 

 

December 31, 2018

 

December 31, 2017

 

 

 

 

 

 

 

 

 

 

Carrying

amount

 

Fair

Value

 

Carrying

amount

 

Fair

Value

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

46,598,874

 

46,598,874

 

34,990,206

 

34,990,206

Short-term financial instruments

 

9,500,000

 

 

9,500,000

 

 

22,500,000

 

 

22,500,000

Accounts receivable, net

 

24,659,595

 

 

(*)

 

 

38,890,644

 

 

(*)

Other receivables, net

 

469,710

 

 

(*)

 

 

704,664

 

 

(*)

Other current assets

 

189,539

 

 

(*)

 

 

154,371

 

 

(*)

Other non-current assets

 

1,405,988

 

 

(*)

 

 

1,357,272

 

 

(*)

 

82,823,706

 

 

 

98,597,157

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Account payables

14,440,762

 

(*)

 

42,150,983

 

(*)

Other current liabilities

 

150,008

 

 

(*)

 

 

120,535

 

 

(*)

 

14,590,770

 

 

 

42,271,518

 

 

 

(*) As the carrying amount is a reasonable approximation of fair value, it is excluded from fair value disclosure.

 


23


GRAVITY CO., LTD.

Notes to the Separate Financial Statements

December 31, 2018 and 2017

5.4 Fair value Hierarchy

Fair value hierarchy classifications of the financial assets and financial liabilities that are measured at fair value or its fair value is disclosed as at December 31, 2018 and 2017, are as follows:

(in thousands of Korean won)

 

December 31, 2018

 

 

Level 1

 

Level 2

 

Level 3

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

38,222,868

 

8,376,006

 

-

 

46,598,874

Short-term financial assets

 

 

5,500,000

 

 

4,000,000

 

 

-

 

 

9,500,000

 

 

43,722,868

 

12,376,006

 

-

 

56,098,874

 

(in thousands of Korean won)

 

December 31, 2017

 

 

Level 1

 

Level 2

 

Level 3

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

21,236,081

 

13,754,125

 

-

 

34,990,206

Short-term financial assets

 

 

11,000,000

 

 

11,500,000

 

 

-

 

 

22,500,000

 

 

32,236,081

 

25,254,125

 

-

 

57,490,206

 

Assets measured at fair value or for which the fair value is disclosed are categorized within the fair value hierarchy, and the defined levels are as follows:

 

 

Quoted prices (unadjusted) in active markets for identical assets or liabilities (Level 1)

 

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 2)

 

Unobservable inputs for the asset or liability (Level 3)

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. Most of the products included in Level 1 consist of ordinary deposits and time deposits.

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 company-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.

24


GRAVITY CO., LTD.

Notes to the Separate Financial Statements

December 31, 2018 and 2017

The valuation techniques used to measure the fair value of a financial instrument include:

- Disclosure of similar goods Market price or dealer price

- The fair value of derivative instruments is determined by discounting the amount at present value using the leading exchange rate as of the end of the reporting period

For other financial instruments, we use other techniques, such as a discounted cash flow method. For accounts and other receivables classified as current assets, the carrying amount is estimated as a reasonable approximation of fair value.

 

6. Accounts and Other Receivables

Accounts receivables as at December 31, 2018 and 2017, are as follows:

 

(in thousands of Korean won)

 

 

December 31, 2018

 

 

December 31, 2017

 

 

 

 

 

 

 

 

 

Non-related party

 

9,093,546

 

37,980,807

 

Related party

 

 

15,587,784

 

 

3,856,366

 

Less: provision for impairment

 

 

(21,735)

 

 

(2,946,529)

 

Accounts receivables, net

 

24,659,596

 

38,890,644

 

 

Other receivables as at December 31, 2018 and 2017, are as follows:

 


(in thousands of Korean won)

 

December 31, 2018

 

December 31, 2017

 

 

 

 

 

 

 

 

 

Non-related party

 

192,625

 

691,453

 

Related party

 

 

358,764

 

 

382,906

 

Less: provision for impairment

 

 

(81,679)

 

 

(369,695)

 

Other receivables - net

 

469,710

 

704,664

 

 

Above accounts and other receivables are classified as financial assets at amortized cost.

 

The aging analysis of accounts receivables as at December 31, 2018 and 2017, are as follows:


(in thousands of Korean won)

 

December 31, 2018

 

December 31, 2017

 

 

 

 

 

 

 

 

 

Receivables not past due

 

24,637,596

 

38,868,644

 

Past due but not impaired

 

 

22,000

 

 

22,000

 

Impaired

 

 

21,735

 

 

2,946,529

 

Total

 

24,681,331

 

41,837,173

 

 

 

25


GRAVITY CO., LTD.

Notes to the Separate Financial Statements

December 31, 2018 and 2017

The aging analysis of other receivables as at December 31, 2018 and 2017, are as follows:


(in thousands of Korean won)

 

December 31, 2018

 

December 31, 2017

 

 

 

 

 

 

 

 

 

Receivables not past due

 

469,710

 

704,625

 

Past due but not impaired

 

 

-

 

 

39

 

Impaired

 

 

81,679

 

 

369,695

 

Total

 

551,389

 

1,074,359

 

 

The Company calculates recoverable amount of receivables for which loss event has been individually identified through individual analysis and recognizes the difference between such calculated recoverable amount and book value as impairment loss.

As for the receivables for which loss event has not been individually identified, the Company classifies such receivables based on the contractual collection period, and receivables whose collection period has not expired yet are deemed as receivables not past due. With regard to the receivables past due, the Company makes adjustments to provision for impairment by applying certain specified rate of impaired receivables in consideration of the credit risk based on the overdue period.

Movements in the provision for impairment of accounts and other receivables for the years ended December 31, 2018 and 2017, are as follows:

 

(in thousands of Korean won)

 

2018

 

2017

 

 

Accounts

 

Other

 

Accounts

 

Other

 

 

 

 

 

 

 

 

 

Balance as at January 1

 

2,946,529

 

369,695

 

2,353,716

 

330,451

Provisions for impaired receivables/ (reversals of unused amounts)

 

 

(2,870,546)

 

 

(285,816)

 

 

592,813

 

 

39,244

Receivables written off during the year as uncollectible

 

 

(54,248)

 

 

(2,200)

 

 

-

 

 

-

Balance as at December 31

 

21,735

 

81,679

 

2,946,529

 

369,695

 

In assessing the recoverability of accounts receivables, etc., the Company takes into consideration changes in the credit rating of accounts receivables from commencement of the credit granting to end of the reporting period.


26


GRAVITY CO., LTD.

Notes to the Separate Financial Statements

December 31, 2018 and 2017

7. Investment in Subsidiaries

 

Details of investment in subsidiaries at the end of reporting periods are as follows:

 

 

 

 

 

 

 

 

 

Percentage of ownership (%)

Subsidiary

 

Location

 

Main business

 

Closing month

 

December 31, 2018

 

December 31, 2017

 

 

 

 

 

 

 

 

 

 

 

 

 

Gravity

Interactive, Inc.

 

USA

 

Online and mobile game services

 

December

 

100

%

 

100

%

 

Gravity Entertainment Corp.

 

Japan

 

Animation production, distribution, and game services

 

December

 

100

%

 

100

%

 

NeoCyon, Inc.

 

Korea

 

Mobile Game Development and Service

 

December

 

98.73

%

 

96.11

%

 

Gravity Games Corp.

 

Korea

 

Online Game Development

 

December

 

-

%

 

85.50

%

 

Gravity Communications Co.,Ltd.

 

Taiwan

 

Online and mobile game services

 

December

 

100

%

 

-

%

 

 

Changes in investment in subsidiaries for the years ended December 31, 2018 and 2017, are as follows:

 

(in thousands of Korean won)

 

2018

Subsidiary

 

Beginning balance

 

Acquisition

 

Impairment

 

Others

 

Ending

balance

Gravity Interactive, Inc. 1

 

-

 

10,580,150

 

(10,580,150)

 

-

 

-

Gravity Entertainment Corp.

 

 

379,978

 

 

-

 

 

-

 

 

-

 

 

379,978

NeoCyon, Inc. 2

 

 

1,403,250

 

 

1,999,995

 

 

-

 

 

-

 

 

3,403,245

Gravity Games Corp. 3

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

Gravity Communications Co.,Ltd. 4

 

 

-

 

 

5,681,415

 

 

-

 

 

 

 

 

5,681,415

 

 

1,783,228

 

18,261,560

 

(10,580,150)

 

-

 

9,464,638

 

1 The Company reduced the carrying amount of investment in Gravity Interactive, Inc. to zero as indications of impairment were present and carrying amount exceeded recoverable amount.

2 Percentage of ownership increased as Gravity participated in capital increase with consideration by NeoCyon, Inc.

3 Excluded from the consolidation as liquidated in current year.

4 Newly established in current year with 100% ownership of Gravity.

 

 

 

 

 

 

 

 

27


GRAVITY CO., LTD.

Notes to the Separate Financial Statements

December 31, 2018 and 2017

(in thousands of Korean won)

 

2017

Subsidiary

 

Beginning balance

 

Acquisition

 

Impairment

 

Others

 

Ending

balance

Gravity Interactive, Inc.

 

-

 

-

 

-

 

-

 

-

Gravity Entertainment Corp.

 

 

379,978

 

 

-

 

 

-

 

 

-

 

 

379,978

NeoCyon, Inc.

 

 

1,403,250

 

 

-

 

 

-

 

 

-

 

 

1,403,250

Gravity Games Corp.

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

1,783,228

 

-

 

-

 

-

 

1,783,228

 

Summarized financial information for subsidiaries as at and for the years ended December 31, 2018 and 2017, are as follows:

(in thousands of Korean won)

December 31, 2018

Subsidiary

 

Assets

 

Liabilities

 

Sales

 

Profit (loss) for the year

Gravity Interactive, Inc.

 

79,806,232

 

80,016,529

 

84,329,085

 

(2,511,020)

Gravity Entertainment Corp.

 

 

509,183

 

 

96,184

 

 

157,425

 

 

29,797

NeoCyon, Inc.

 

 

6,619,844

 

 

5,209,590

 

 

22,782,618

 

 

(2,056,820)

Gravity Communications Co.,Ltd.

 

 

8,231,267

 

 

2,352,489

 

 

2,200,724

 

 

204,883

Gravity Games Corp.

 

 

-

 

 

-

 

 

11,641

 

 

4,164,622

 

(in thousands of Korean won)

December 31, 2017

Subsidiary

 

Assets

 

Liabilities

 

Sales

 

Profit (loss) for the year

Gravity Interactive, Inc.

 

2,152,360

 

10,087,107

 

5,418,466

 

(638,112)

Gravity Entertainment Corp.

 

 

361,573

 

 

3,077

 

 

16

 

 

(8,305)

NeoCyon, Inc.

 

 

6,855,116

 

 

5,376,927

 

 

23,601,638

 

 

18,143

Gravity Games Corp.

 

 

3,403,607

 

 

4,442,408

 

 

307,842

 

 

(40,100)

 


28


GRAVITY CO., LTD.

Notes to the Separate Financial Statements

December 31, 2018 and 2017

8. Property and Equipment

 

Details of property and equipment as at December 31, 2018 and 2017, are as follows:

(in thousands of Korean won)

 

December 31, 2018

 

December 31, 2017

 

 

 

Cost

 

Accumulated depreciation

 

Book amount

 

Cost

 

Accumulated depreciation

 

Book amount

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Computer and other equipment

 

4,524,208

 

(3,981,176)

 

543,032

 

4,413,663

 

(4,094,625)

 

319,038

 

Furniture

and fixture

 

 

497,137

 

 

(282,402)

 

 

214,735

 

 

654,411

 

 

(624,189)

 

 

30,222

 

Leasehold improvements

 

 

1,121,820

 

 

(997,498)

 

 

124,322

 

 

1,080,809

 

 

(954,042)

 

 

126,767

 

 

 

6,143,165

 

(5,261,076)

 

882,089

 

6,148,883

 

(5,672,856)

 

476,027

 

 

Changes in property and equipment for the years ended December 31, 2018 and 2017, are as follows:

 

(in thousands of Korean won)

 

December 31, 2018

 

 

Computer

and

other equipment

 

Furniture

and

fixture

 

Leasehold

improvements

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

Opening net book amount

 

319,038

 

30,222

 

126,767

 

476,027

Acquisitions

 

 

442,402

 

 

238,800

 

 

116,589

 

 

797,791

Depreciation

 

 

(187,394)

 

 

(33,508)

 

 

(115,098)

 

 

(336,000)

Disposals

 

 

(31,606)

 

 

(21,182)

 

 

(5,275)

 

 

(58,063)

Exchange differences

 

 

592

 

 

403

 

 

1,339

 

 

2,334

Closing net book amount

 

543,032

 

214,735

 

124,322

 

882,089

 

(in thousands of Korean won)

 

December 31, 2017

 

 

Computer

and

other equipment

 

Furniture

and

fixture

 

Leasehold

improvements

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

Opening net book amount

 

155,737

 

21,403

 

143,420

 

320,560

Acquisitions

 

 

245,042

 

 

21,113

 

 

117,112

 

 

383,267

Depreciation

 

 

(81,096)

 

 

(11,813)

 

 

(98,281)

 

 

(191,190)

Disposals

 

 

-

 

 

-

 

 

(36,540)

 

 

(36,540)

Exchange differences

 

 

(645)

 

 

(481)

 

 

1,056

 

 

(70)

Closing net book amount

 

319,038

 

30,222

 

126,767

 

476,027

 


29


GRAVITY CO., LTD.

Notes to the Separate Financial Statements

December 31, 2018 and 2017

Line items including depreciation in the statements of comprehensive income for the years ended December 31, 2018 and 2017, are as follows:


(in thousands of Korean won)

 

2018

 

2017

 

 

 

 

 

 

 

Cost of revenue

 

114,460

 

47,241

Selling, general and administrative expenses

 

 

221,540

 

 

143,949

 

 

336,000

 

191,190

 

As at December 31, 2018, there are no tangible assets of the Company that are pledged as collaterals for the Company’s debts.

 

9. Intangible Assets

 

Details of intangible assets as at December 31, 2018 and 2017, are as follows:

 

(in thousands of Korean won)

 

December 31, 2018

 

December 31, 2017

 

 

 

Cost

 

Accumulated amortization1

 

Book amount

 

Cost

 

Accumulated amortization1

 

Book amount

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Software

 

10,078,904

 

(9,575,685)

 

503,219

 

9,203,772

 

(9,186,698)

 

17,074

 

Patents

 

 

532,832

 

 

(461,451)

 

 

71,381

 

 

516,861

 

 

(440,326)

 

 

76,535

 

Other intangible assets

 

 

3,454,522

 

 

(2,456,408)

 

 

998,114

 

 

3,331,438

 

 

(2,436,192)

 

 

895,246

 

 

 

14,066,258

 

(12,493,544)

 

1,572,714

 

13,052,071

 

(12,063,216)

 

988,855

 

 

1 Accumulated amortization includes the amount of accumulated impairment loss

 


30


GRAVITY CO., LTD.

Notes to the Separate Financial Statements

December 31, 2018 and 2017

Changes in intangible assets for the years ended December 31, 2018 and 2017, are as follows:

 

(in thousands of Korean won)

 

2018

 

 

Software

 

Patents

 

Other intangible assets

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning balance

 

17,074

 

76,535

 

895,246

 

988,855

Acquisitions

 

 

877,339

 

 

15,971

 

 

976,225

 

 

1,869,535

Amortization

 

 

(388,811)

 

 

(21,125)

 

 

(250,216)

 

 

(660,152)

Disposals

 

 

(2,438)

 

 

-

 

 

-

 

 

(2,438)

Impairment loss (*)

 

 

-

 

 

-

 

 

(623,141)

 

 

(623,141)

Exchange differences

 

 

55

 

 

-

 

 

-

 

 

55

Ending balance

 

503,219

 

71,381

 

998,114

 

1,572,714

 

(*) The Company recognized \ 623,141 thousand in impairment loss as carrying amount of other intangible assets exceeded recoverable amount.

 

(in thousands of Korean won)

 

2017

 

 

Software

 

Patents

 

Other intangible assets

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning balance

 

43,907

 

88,966

 

28,000

 

160,873

Acquisitions

 

 

11,966

 

 

11,936

 

 

1,129,310

 

 

1,153,212

Amortization

 

 

(25,765)

 

 

(24,367)

 

 

(32,064)

 

 

(82,196)

Disposals

 

 

(13,063)

 

 

-

 

 

-

 

 

(13,063)

Impairment loss

 

 

-

 

 

-

 

 

(230,000)

 

 

(230,000)

Exchange differences

 

 

29

 

 

-

 

 

-

 

 

29

Ending balance

 

17,074

 

76,535

 

895,246

 

988,855

 

The amortization expenses of intangible assets for the years ended December 31, 2018 and 2017 are charged to the following accounts:

 

(in thousands of Korean won)

2018

 

2017

 

 

 

 

Cost of revenue

255,321

 

11,946

Selling, general and administrative expenses

 

404,831

 

 

70,250

 

660,152

 

82,196

 

 

10. Employee Benefit

The expense recognized in relation to defined contribution plan for the years ended December 31, 2018 and 2017, are 770,086 thousand and 578,139 thousand, respectively.

31


GRAVITY CO., LTD.

Notes to the Separate Financial Statements

December 31, 2018 and 2017

11. Commitments

The Company has entered into exclusive license agreement with foreign licensees, such as GungHo Online Entertainment, Inc. and Electronics Extreme Ltd., etc. to provide exclusive license to distribute and sell online games and receives a certain portion of each licensee’s revenues (20-40%) as royalties.

 

In March 2016, the Company and Shanghai The Dream Network Technology Co., Ltd. entered existing development agreements to grant them an exclusive right to develop mobile games and web games in China based on the contents of Ragnarok Online and distribute such games in mainland China for five years.

 

As at December 31, 2018, the Company has entered into contracts with Gravity Interactive, Inc. and NeoCyon, Inc. for the exclusive rights of publishing and distributing online games and for the exclusive rights of developing, publishing and distributing mobile games, respectively. The Company also has entered into contracts with Gravity Communications Co., Ltd., for the exclusive rights of publishing and distributing online and mobile games(Note 21).

 

As at December 31, 2018, the Company has entered into license agreements with various third party game developers to secure exclusive right to publish the games developed by third party developers. Upfront license fees paid are capitalized as other intangible assets and minimum guaranteed royalties are capitalized as other non-current asset. Purchase obligations for future payment related to above agreements as at December 31, 2018 and 2017 are 1,709,357 thousand and 1,700,466 thousand, respectively.

 

The Company has entered into lease agreements for principal office in Seoul, its overseas branch office, etc. as at December 31, 2018.

 

Future minimum lease payments for the operating leases as at December 31, 2018 and 2017, are as follows:

 


(in thousands of Korean won)

 

December 31, 2018

 

December 31, 2017

 

 

 

 

 

 

 

 

 

Within one year

 

1,856,346

 

1,972,220

 

Later than one year but not later than three years

 

 

2,019,825

 

 

245,349

 

Total

 

3,876,171

 

2,217,569

 

 

The lease payments recognized as expenses resulting from operating leases for the years ended December 31, 2018 and 2017, are as follows:


(in thousands of Korean won)

 

2018

 

2017

 

 

 

 

 

Lease payments

 

2,056,655

 

1,817,813

 

12. Contract Assets and Liabilities

 

As explained in Note 2, the Company has applied Korean IFRS 1115 Revenue from Contracts with Customers on January 1, 2018, the date of initial application.

32


GRAVITY CO., LTD.

Notes to the Separate Financial Statements

December 31, 2018 and 2017

Details of the incremental costs of obtaining a contract and contract liabilities are as follows:


(in thousands of Korean won)

 

December 31, 2018

 

January 1, 2018

 

 

 

 

 

 

 

Incremental costs of obtaining a contract

(Prepaid expenses)

 

221,180

 

2,071,368

 

 

 

 

 

 

 

 

 

Contact liabilities(Deferred revenue)

 

10,114,516

 

20,476,897

 

  Subscription revenue

 

 

3,254,122

 

 

10,628,665

 

  Royalties and license fees

 

 

6,860,394

 

 

9,848,232

 

 

Changes in contract liabilities for the year ended December 31, 2018, are as follows:

(in thousands of Korean won)

Contract liabilities

 

 

 

Balance as at January 1, 2018

20,476,897

Increase due to subscription revenue

 

3,254,122

Increase due to royalties and license fees

 

540,460

Decrease due to satisfaction of performance obligation – subscription revenue

 

(10,628,665)

Decrease due to satisfaction of performance obligation – royalties and license fees

 

(2,919,483)

Decrease due to termination of contracts

 

(608,815)

Balance as at December 31, 2018

10,114,516

 

Meanwhile, there is no revenue in the reporting period which arises from performance obligations satisfied in previous periods.

Transaction price allocated to unsatisfied performance obligations as at December 31, 2018, are as follows:

(in thousands of Korean won)

Closing balance

 

 

 

  Subscription revenue

3,254,122

Royalties and license fees

 

6,860,394

 

The Company expects to recognize 67%(₩6,751,978 thousand) of transaction price allocated to unsatisfied performance in the following reporting period. The Company expects the remaining 33% (₩3,362,537 thousand) to be recognized after the following reporting period. Above amounts do not include estimation on variable consideration.

 

 

 

33


GRAVITY CO., LTD.

Notes to the Separate Financial Statements

December 31, 2018 and 2017

Incremental costs of obtaining a contract as at December 31, 2018, are as follows:

(in thousands of Korean won)

Closing balance

 

 

 

  Assets recognized from the costs incurred to obtain or fulfill a contract with a customer

221,180

  Amortization recognized as cost of revenue

 

2,071,368

 

 

13. Share Capital and Share Premium

 

Details of common shares as at December 31, 2018 and 2017, are as follows:


(in Korean won and in number of shares)

 

December 31, 2018

 

December 31, 2017

 

 

 

 

 

 

 

 

 

Shares authorized

 

 

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

 

 

Details of capital surplus as at December 31, 2018 and 2017, are as follows:


(in thousands of Korean won)

 

December 31, 2018

 

December 31, 2017

 

 

 

 

 

 

 

 

 

Share premium

 

25,357,547

 

25,357,547

 

Other capital surplus

 

 

2,125,136

 

 

2,125,136

 

 

 

27,482,683

 

27,482,683

 

 

Details of other components of equity at the end of reporting periods are as follows:

 


(in thousands of Korean won)

 

December 31, 2018

 

December 31, 2017

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

(270,936)

 

(348,479)

 

 

Details of retained earnings (accumulated deficit) at the end of reporting periods are as follows:


(in thousands of Korean won)

 

December 31, 2018

 

December 31, 2017

 

 

 

 

 

 

 

 

 

Unappropriated retained earnings

(Undisposed accumulated deficit)

 

47,101,922

 

14,424,777

 

 

According to the Company's Articles of Incorporation, the Company may issue 2,000,000 shares of preferred stock without voting rights, and there are no preferred shares issued as at December 31, 2018.

34


GRAVITY CO., LTD.

Notes to the Separate Financial Statements

December 31, 2018 and 2017

The appropriation of retained earnings for the year ended December 31, 2018, is expected to be appropriated at the shareholders’ meeting on March 29, 2019. The disposition date for the year ended December 31, 2017, was March 30, 2018.

 

Statements of appropriation of retained earnings as at December 31, 2018 and 2017 are as follows:


(in thousands of Korean won)

 

2018

 

2017

Retained earnings available for appropriation

 

 

 

 

Unappropriated retained earnings carried over from prior year1

 

14,424,777

 

1,442,290

Profit for the year

 

 

32,677,145

 

 

12,982,487

 

 

47,101,922

 

14,424,777

Appropriation of retained earnings

 

 

 

 

 

 

Disposition of accumulated deficit with share premium

 

 

-

 

 

-

Unappropriated retained earnings to be carried forward

 

47,101,922

 

14,424,777

 

1 Unappropriated retained earnings carried over from prior year presented in 2017 were prepared in accordance with K-GAAP. As a result, the aforementioned balance is different from the one disposed on March 30, 2017.

 

14. Classification of expenses by nature

 

(in thousands of Korean won)

 

2018

 

2017

 

 

 

 

 

 

 

Fees and commissions

 

120,801,617

 

73,758,662

Advertising expenses

 

 

16,545,848

 

 

12,031,083

Salaries

 

 

12,014,404

 

 

9,458,547

Outsourcing expenses

 

 

5,180,257

 

 

4,486,855

Rent

 

 

2,056,655

 

 

1,817,813

Employee benefits

 

 

1,134,249

 

 

943,377

Expenses related to defined contribution plan

 

 

820,488

 

 

680,657

Depreciation

 

 

336,000

 

 

191,190

Amortization

 

 

660,152

 

 

82,196

Reversal of allowance for doubtful accounts

 

 

(2,912,321)

 

 

-

Other expenses

 

 

1,609,462

 

 

2,296,601

Total1

 

158,246,811

 

105,746,981

 

1 Total cost of revenue and selling, general and administrative expenses per the statement of comprehensive income.


35


GRAVITY CO., LTD.

Notes to the Separate Financial Statements

December 31, 2018 and 2017

15. Selling, General and Administrative Expenses

 

(in thousands of Korean won)

 

2018

 

2017

 

 

 

 

 

 

 

Advertising expenses

 

16,545,848

 

12,031,083

Fees and commissions

 

 

4,766,120

 

 

5,506,706

Research and development

 

 

7,511,840

 

 

4,544,004

Salaries

 

 

5,393,115

 

 

4,369,447

Employee benefits

 

 

740,282

 

 

606,246

Rent

 

 

754,490

 

 

597,125

Expenses related to defined contribution plan

 

 

324,484

 

 

298,062

Depreciation

 

 

211,616

 

 

137,873

Amortization

 

 

400,772

 

 

63,585

Reversal of allowance for doubtful accounts

 

 

(2,912,321)

 

 

-

Other expenses

 

 

1,010,362

 

 

1,620,091

 

 

34,746,608

 

29,774,222

 

 

16. Finance Income and Costs

 

(in thousands of Korean won)

 

2018

 

2017

 

 

 

 

 

 

 

Finance income

 

 

 

 

 

 

Interest Income

 

1,075,805

 

538,448

Unrealized foreign currency gain

 

 

-

 

 

1,289

Gain on foreign currency transaction

 

 

15

 

 

17,260

 

 

1,075,820

 

556,997

 

 

(in thousands of Korean won)

 

2018

 

2017

 

 

 

 

 

 

 

Finance costs

 

 

 

 

 

 

Unrealized foreign currency loss

 

72,667

 

175,128

Loss on foreign currency transaction

 

 

7,155

 

 

11,595

 

 

79,822

 

186,723

 

 


36


GRAVITY CO., LTD.

Notes to the Separate Financial Statements

December 31, 2018 and 2017

17. Other Non-Operating Income and Expenses

 

Details of other non-operating income for the years ended December 31, 2018 and 2017, are as follows:

 

(in thousands of Korean won)

 

2018

 

2017

 

 

 

 

 

 

 

Unrealized foreign currency gain

 

80,541

 

286,744

Gain on foreign currency transaction

 

 

1,154,194

 

 

1,005,419

Gain on disposal of property and equipment

 

 

15,497

 

 

1,656

Reversal of allowance for doubtful accounts

 

 

4,233,457

 

 

-

Others

 

 

319,956

 

 

308,061

 

 

5,803,645

 

1,601,880

 

Details of other non-operating expenses for the years ended December 31, 2018 and 2017, are as follows:

 

(in thousands of Korean won)

 

2018

 

2017

 

 

 

 

 

 

 

Unrealized foreign currency loss

 

27,590

 

472,838

Loss on foreign currency transaction

 

 

870,139

 

 

718,632

Other bad debt expense

 

 

-

 

 

267,364

Impairment loss on intangible assets

 

 

623,141

 

 

230,000

Loss on retirement of property and equipment

 

 

5,275

 

 

36,540

Impairment loss on investment in subsidiaries

 

 

10,580,150

 

 

-

Others

 

 

4,698

 

 

114

 

 

12,110,993

 

1,725,488

 

18. Tax Expense and Deferred Tax

 

Income tax expense for the years ended December 31, 2018 and 2017, consists of:


(in thousands of Korean won)

 

2018

 

2017

 

 

 

 

 

 

 

Current tax:

 

 

 

 

 

 

Current tax on profits for the year

 

6,839,146

 

3,975,917

Deferred tax:

 

 

 

 

 

 

Origination and reversal of temporary differences

 

 

(4,376,941)

 

 

(3,036,165)

Income tax expense

 

2,462,205

 

939,752

 


37


GRAVITY CO., LTD.

Notes to the Separate Financial Statements

December 31, 2018 and 2017

The tax on the Company’s profit before tax differs from the theoretical amount that would arise using the effective tax rate applicable to profits of the Company as follows:


(in thousands of Korean won)

 

2018

 

2017

 

 

 

 

 

 

 

Profit before income tax expense

 

35,139,350

 

13,922,239

Tax at domestic tax rates applicable to profits in the respective countries

 

 

8,041,723

 

 

3,040,893

Tax effects of:

 

 

 

 

 

 

Expenses not deductible for tax purposes

 

 

36,420

 

 

134,852

Tax amounts paid in a foreign country

 

 

4,671,928

 

 

3,794,261

Utilization of previously unrecognized tax losses

 

 

(3,799,856)

 

 

(2,621,094)

Utilization of previously unrecognized tax credits  

 

 

(652,938)

 

 

(633,273)

Change in deferred tax due to temporary differences

 

 

-

 

 

(3,036,165)

Change in deferred tax due to carry-forward deficits

 

 

(1,950,584)

 

 

-

Change in deferred tax due to tax credit carry-forward

 

 

(4,314,883)

 

 

-

Others

 

 

430,395

 

 

260,278

Income tax expense

 

2,462,205

 

939,752

 

   The effective tax rate of the Company was 7%(2017: 7%).


38


GRAVITY CO., LTD.

Notes to the Separate Financial Statements

December 31, 2018 and 2017

The movements in deferred tax assets and liabilities for the years ended December 31, 2018 and 2017, without taking into consideration the offsetting of balances within the same tax jurisdiction, are as follows:

 

(in thousands of Korean won)

2018

 

2017

Beginning balance

 

Increase

(Decrease)

 

Ending

balance

 

Beginning balance

 

Increase

(Decrease)

 

Ending

balance

Deferred tax assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Property and equipment

 

14,867

 

9,718

 

24,585

 

9,039

 

5,828

 

14,867

Intangible assets

 

 

68,802

 

 

169,669

 

 

238,471

 

 

182,252

 

 

(113,450)

 

 

68,802

Accounts Payable

 

 

346,301

 

 

184,881

 

 

531,182

 

 

253,680

 

 

92,621

 

 

346,301

Deferred revenue

 

 

179,929

 

 

(120,115)

 

 

59,814

 

 

171,221

 

 

8,708

 

 

179,929

Provision for impaired receivables

 

 

216,553

 

 

47,931

 

 

264,484

 

 

234,758

 

 

(18,205)

 

 

216,553

Asset retirement obligation

 

 

39,205

 

 

7,059

 

 

46,264

 

 

31,505

 

 

7,700

 

 

39,205

Investment in subsidiaries

 

 

2,747,475

 

 

(2,747,475)

 

 

-

 

 

2,747,475

 

 

-

 

 

2,747,475

Other

 

 

50,365

 

 

(21,653)

 

 

28,712

 

 

76,502

 

 

(26,137)

 

 

50,365

Deferred tax liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Tax paid in a foreign country

 

 

  (13,178)

 

 

9,343

 

 

(3,835)

 

 

(13,021)

 

 

(157)

 

 

(13,178)

Other

 

 

-

 

 

(42,038)

 

 

(42,038)

 

 

-

 

 

-

 

 

-

Subtotal(Ⅰ)

 

3,650,319

 

(2,502,680)

 

1,147,639

 

3,693,411

 

(43,092)

 

3,650,319

Deferred tax due to carry-forward deficits(Ⅱ)

 

 

5,404,999

 

 

(3,454,415)

 

 

1,950,584

 

 

8,026,093

 

 

(2,621,094)

 

 

5,404,999

Deferred tax due to tax credit carry-forward(Ⅲ)

 

 

6,571,462

 

 

(2,256,579)

 

 

4,314,883

 

 

4,214,228

 

 

2,357,234

 

 

6,571,462

Evaluation of realization(Ⅳ)

 

 

(12,590,615)

 

 

12,590,615

 

 

-

 

 

(15,933,732)

 

 

3,343,117

 

 

(12,590,615)

Deferred tax asset after evaluating realization

(Ⅰ+Ⅱ+Ⅲ+Ⅳ) 1

 

3,036,165

 

4,376,941

 

7,413,106

 

-

 

3,036,165

 

3,036,165

 

1 The future realizability of deferred income tax assets is assessed by taking into consideration various factors such as the Company's performance, the overall economic environment and industry outlook, expected future earnings, tax credits. As of December 31, 2018, the Company has recognized full deferred tax assets related to temporary differences, carry-forward deficits and tax credit carry-forward, which can be utilized based on the likelihood of future taxable income. This amount may change if the estimate for future taxable income changes.


39


GRAVITY CO., LTD.

Notes to the Separate Financial Statements

December 31, 2018 and 2017

As at December 31, 2018, the Company did not recognize deferred tax asset for deductible temporary differences associated with investments in subsidiaries of \ 23,547,775 thousand because it is probable that the temporary difference will not reverse in the forseeable future.

 

The analysis of deferred tax assets and liabilities as at December 31, 2018 and 2017, is as follows:


(in thousands of Korean won)

 

December 31, 2018

 

 

December, 31 2017

 

 

 

 

 

 

 

 

 

Deferred tax assets

 

 

 

 

 

 

 

Deferred tax asset to be recovered after more than 12 months

 

1,465,970

 

230,310

 

Deferred tax asset to be recovered within 12 months

 

 

5,993,009

 

 

2,819,033

 

 

 

 

7,458,979

 

 

3,049,343

 

Deferred tax liabilities

 

 

 

 

 

 

 

Deferred tax liability to be recovered after more than 12 months

 

 

-

 

 

-

 

Deferred tax liability to be recovered within 12 months

 

 

(45,873)

 

 

(13,178)

 

 

 

 

(45,873)

 

 

(13,178)

 

Deferred tax assets, net

 

7,413,106

 

3,036,165

 

 

 

19. Cash Generated from Operations

 

(a) Cash generated from operations

 

(in thousands of Korean won)

 

2018

 

2017

 

 

 

 

 

 

 

Adjustments for:

 

 

 

 

 

 

Depreciation

 

336,000

 

191,190

Amortization

 

 

660,152

 

 

82,196

Impairment loss on receivables

 

 

98,166

 

 

997,396

Impairment loss on investment in subsidiaries

 

 

10,580,150

 

 

-

Unrealized foreign currency loss

 

 

100,257

 

 

647,967

Loss on retirement of property and plant

 

 

5,275

 

 

36,540

Impairment loss on intangible asset

 

 

623,141

 

 

230,000

Post-employment benefit expenses

 

 

11,044

 

 

95,457

Income tax expense

 

 

2,462,205

 

 

939,752

Unrealized foreign currency gain

 

 

(80,541)

 

 

(288,034)

Gain on disposal of property and plant

 

 

(15,497)

 

 

(1,656)

Interest income

 

 

(1,075,805)

 

 

(538,448)

Reversal of allowance for doubtful accounts

 

 

(7,145,778)

 

 

-

Cash generated from operations

 

6,558,769

 

2,392,360

 


40


GRAVITY CO., LTD.

Notes to the Separate Financial Statements

December 31, 2018 and 2017

(b) Changes in assets and liabilities arising from operating activities

 

(in thousands of Korean won)

 

2018

 

2017

 

 

 

 

 

 

 

Change in accounts receivable

 

17,078,691

 

(27,314,057)

Change in other receivable

 

 

412,364

 

 

309,247

Change in prepaid expenses

 

 

2,168,456

 

 

(1,658,996)

Change in other current assets

 

 

393,224

 

 

(943,094)

Change in other non-current assets

 

 

(901,789)

 

 

(724,238)

Change in account payables

 

 

(27,909,531)

 

 

33,604,247

Change in deferred revenue

 

 

(10,344,989)

 

 

2,855,495

Change in withholdings

 

 

(108,012)

 

 

1,217,498

Change in accrued expenses

 

 

220,931

 

 

33,358

Change in other current liabilities

 

 

(10,792)

 

 

19,759

Change in long-term deferred revenue

 

 

(17,392)

 

 

3,875,083

Cash generated from operations

 

(19,018,839)

 

11,274,302

 

 

(c) Non-cash transactions

 

(in thousands of Korean won)

 

2018

 

2017

 

 

 

 

 

 

 

Reclassification of long-term deferred revenue to deferred revenue

 

3,392,146

 

4,021,854

Reclassification of long-term loan to short-term loan

 

 

-

 

 

3,333

Reclassification of other non-current assets to intangible assets

 

 

3,392,146

 

 

11,935

Increase in account payable due to purchase software

 

 

225,710

 

 

-

 


41


GRAVITY CO., LTD.

Notes to the Separate Financial Statements

December 31, 2018 and 2017

20. Financial Risk Management

 

The Company’s activities expose it to a variety of financial risks: market risk, credit risk and liquidity risk. The Company’s overall risk management program focuses on the unpredictability of financial markets and seeks to minimize any adverse effects on the financial performance of the Company. The Company operates financial risk management policies and programs that closely monitor and respond to each risk factor.

20.1 Capital Risk Management

The Company’s objectives when managing capital are to safeguard the Company’s ability to continue as a going concern, so the Company can continue to provide returns for shareholders and benefits for other stakeholders, and to maintain an optimal capital structure to reduce the cost of capital. The Company monitors capital on the basis of the debt ratio. This ratio is calculated as total debt divided by total capital. The debt ratios at December 31, 2018 and 2017, are as follows:

(in thousands of Korean won)

 

December 31, 2018

December 31, 2017

 

 

 

 

 

 

Total debt

 

28,216,657

66,384,185

Total capital

 

 

77,788,119

 

45,033,431

Debt ratio

 

 

36%

 

147%

 

20.2 Market Risk

(a) Foreign exchange risk

The Company is exposed to foreign exchange risk arising from royalty revenues and commission payment primarily with respect to the US dollar. The Company’s financial assets and liabilities exposed to foreign currency risk as at December 31, 2018 and 2017, are as follows:

(in thousands of Korean won)

December 31, 2018

 

 

Assets in

foreign

currency

 

Liabilities in foreign currency

 

Assets in Korean Won

 

Liabilities in Korean Won

 

 

 

 

 

 

 

 

 

 

 

 

 

USD

 

 

22,022,340

 

 

7,468,609

 

24,624,065

 

8,351,245

JPY

 

 

82,108,730

 

 

14,110,499

 

 

831,996

 

 

142,965

EUR

 

 

359,769

 

 

-

 

 

460,202

 

 

-

IDR

 

 

172,789,131

 

 

3,098,944

 

 

13,270

 

 

238

THB

 

 

34,633

 

 

173,389

 

 

1,190

 

 

5,956

TWD

 

 

36,311,172

 

 

6,597,223

 

 

1,328,263

 

 

241,326

VND

 

 

9,270,000

 

 

3,243,600

 

 

447

 

 

156

HKD

 

 

2,731

 

 

-

 

 

390

 

 

-

 

 

 

 

 

 

 

 

27,259,823

 

8,741,886

 

42


GRAVITY CO., LTD.

Notes to the Separate Financial Statements

December 31, 2018 and 2017

(in thousands of Korean won)

December 31, 2017

 

 

Assets in

foreign

currency

 

Liabilities in foreign currency

 

Assets in Korean Won

 

Liabilities in Korean Won

 

 

 

 

 

 

 

 

 

 

 

 

 

USD

 

 

33,614,003

 

 

31,552,864

 

36,025,704

 

33,814,817

JPY

 

 

66,496,407

 

 

294,217

 

 

631,124

 

 

2,792

BRL

 

 

161,846

 

 

-

 

 

52,349

 

 

-

EUR

 

 

354,016

 

 

-

 

 

452,875

 

 

-

IDR

 

 

901,309,637

 

 

17,291

 

 

71,203

 

 

1

THB

 

 

219,424

 

 

35,317

 

 

7,191

 

 

1,157

TWD

 

 

147,903,421

 

 

29,537,654

 

 

5,312,691

 

 

1,060,993

VND

 

 

84,010,000

 

 

22,830,100

 

 

396,527

 

 

107,758

HKD

 

 

300,649

 

 

4,967

 

42,521

 

681

 

 

 

 

 

 

 

 

42,992,185

 

34,988,199

 

The Company measures foreign exchange risk at the exchange rate of 10% for each foreign currency, and the rate of change reflects the management's assessment of the risk of exchange rate fluctuation that can be reasonably experienced. The effects of changes in foreign currency exchange rate on profit before tax for the years ended of December 31, 2018 and 2017, are as follows:

(in thousands of Korean won)

 

Impact on pre-tax profit

 

 

 

2018

 

2017

 

 

 

 

 

 

 

 

USD

Strengthened

 

1,627,282

 

221,089

 

Weakened

 

 

(1,627,282)

 

 

(221,089)

JPY

Strengthened

 

 

68,903

 

 

62,833

 

Weakened

 

 

(68,903)

 

 

(62,833)

Others

Strengthened

 

 

155,608

 

 

516,477

 

Weakened

 

 

(155,608)

 

 

(516,477)


The sensitivity analysis is based on monetary assets and liabilities denominated in foreign currencies other than the functional currency at the end of the reporting period.

(b) Interest rate risk

As of the end of the reporting period, there are no borrowings under variable interest rate conditions.

(c) Price risk

There are no assets and liabilities exposed to price risk as at December 31, 2018 and 2017.

 

43


GRAVITY CO., LTD.

Notes to the Separate Financial Statements

December 31, 2018 and 2017

20.3 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 Company regularly evaluate the creditworthiness of 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 Company at the end of the reporting period, is as follows:

(in thousands of Korean won)

 

December 31, 2018

 

December 31, 2017

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

46,598,874

 

34,990,206

 

Short-term financial instruments

 

 

9,500,000

 

 

22,500,000

 

Account receivables, net

 

 

24,659,595

 

 

38,890,644

 

Other receivables, net

 

 

469,710

 

 

704,664

 

Other current assets

 

 

189,539

 

 

154,371

 

Oher non-current assets

 

 

1,405,988

 

 

1,357,272

 

 

 

82,823,706

 

98,597,157

 

 

Cash and cash equivalents and short-term financial instruments are deposited in financial institutions with strong credit ratings. Accounts receivables are mainly due from payment processing companies and platform service providers, which results in low levels of credit risk.

 

20.4 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 Company by maturity according to the remaining period from the end of the reporting period to the contractual maturity date.

 

(in thousands of Korean won)

 

December 31, 2018

 

 

Less than

3 months

 

Between

3 months and 1 year

 

More than 1 year

 

Between

2 and 5 years

 

 

 

 

 

 

 

 

 

 

 

 

 

Account payable

 

12,915,953

 

1,524,809

 

-

 

14,440,762

Other current liabilities

 

 

150,008

 

 

-

 

 

-

 

 

150,008

 

 

13,065,961

 

1,524,809

 

-

 

14,590,770

 

 

44


GRAVITY CO., LTD.

Notes to the Separate Financial Statements

December 31, 2018 and 2017

 

(in thousands of Korean won)

 

 

December 31, 2017

 

 

Less than

3 months

 

Between

3 months and 1 year

 

More than 1 year

 

Between

2 and 5 years

 

 

 

 

 

 

 

 

 

 

 

 

 

Accounts Payable

 

40,827,245

 

1,323,738

 

-

 

42,150,983

Other current liabilities

 

 

-

 

 

120,535

 

 

-

 

 

120,535

 

 

40,827,245

 

1,444,273

 

-

 

42,271,518

 

The above cash flow is not discounted and the amount due within 12 months is the same as the carrying amount since the effect of the discount is not material.

 

21. Related Party Transactions

 

Related parties of the Company are entities and individuals capable of exercising control or significant influence over the Company. Related parties include GungHo Online Entertainment, Inc. (the largest shareholder of the Company through its 59.31% common shares) and its subsidiaries, members of board of directors, and executives with strategic responsibilities and their immediate families.

 

Interests in subsidiaries as at December 31, 2018 and 2017, are as follows;

 

Name of entity

 

Percentage of ownership (%)

 

 

December 31, 2018

 

December 31, 2017

 

 

 

 

 

Gravity Interactive, Inc.

 

100.00

 

100.00

Gravity Entertainment Corp.

 

100.00

 

100.00

NeoCyon, Inc.

 

98.73

 

96.11

Gravity Games Corp.

 

-

 

85.50

Gravity Communications Co.,Ltd.

 

100.00

 

-

 

 


45


GRAVITY CO., LTD.

Notes to the Separate Financial Statements

December 31, 2018 and 2017

21.1 Balances of Receivables and Payables

 

Balances of receivables and payables arising from sales and purchase of goods and services as at December 31, 2018 and 2017, are as follows:

 

 

 

 

 

 

(in thousands of Korean won)

 

December 31, 2018

December 31, 2017

Type

 

Name of entity

 

Receivables1

 

Payables

 

Receivables1

 

Payables

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Parent

company

 

GungHo Online Entertainment, Inc.

 

831,478

 

2,981

 

629,728

 

2,792

Subsidiaries

 

Gravity Interactive, Inc.

 

 

14,911,497

 

 

215,381

 

 

7,975,591

 

 

5

 

Gravity Entertainment Corp.

 

 

-

 

 

139,984

 

 

-

 

 

-

 

NeoCyon, Inc.

 

 

851,615

 

 

660,630

 

 

1,691,503

 

 

220,279

 

Gravity Games Corp.

 

 

-

 

 

-

 

 

3,873,051

 

 

4,396

 

Gravity Communications Co.,Ltd

 

 

590,891

 

 

13,396

 

 

-

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

17,185,481

 

1,032,372

 

14,169,873

 

227,472

 

1 From above receivables, the Company established provision amounting to 37,520 thousand for the accounts receivables, loans, etc. to subsidiaries as at December 31, 2018(10,704,993 thousand as at December 31, 2017).

 

21.2 Sale and Purchase Transactions

 

Sale and purchase transactions with related parties for the years ended December 31, 2018 and 2017, are as follows:

 

(in thousands of Korean won)

 

 

 

 

 

 

 

 

 

 

 

Type

Name of entity

2018

 

2017

Sales

 

Purchases

 

Sales

 

Purchases

Parent company

GungHo Online Entertainment, Inc.

9,538,157

 

-

 

9,488,821

 

35,912

Subsidiaries

Gravity Interactive, Inc.

 

15,068,304

 

 

2,937

 

 

918,141

 

 

-

Gravity Entertainment Corp

 

-

 

 

158,025

 

 

-

 

 

-

NeoCyon, Inc.

 

74,931

 

 

5,392,633

 

 

462,360

 

 

4,901,306

Gravity Games Corp.

 

255

 

 

2,635

 

 

985

 

 

218,600

Gravity Communications Co.,Ltd.

 

741,076

 

 

13,845

 

 

-

 

 

-

 

25,422,723

 

5,570,075

 

10,870,307

 

5,155,818

 

 

 

 

 

 

46


GRAVITY CO., LTD.

Notes to the Separate Financial Statements

December 31, 2018 and 2017

21.3 Funds transactions

 

Fund transactions with related parties for the years ended December 31, 2018 and 2017, are as follows:

 

(in thousands of Korean won)

 

 

 

 

 

 

2018

 

2017

Type

 

Name of entity

 

Loans

Collection

Contribution

 

Loans

Collection

Contribution

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Subsidiary

 

Gravity Interactive, Inc.

 

-

3,772,670

10,580,150

 

230,550

-

-

Subsidiary

 

Gravity Communications Co.,Ltd.

 

 

-

 

-

 

5,681,415

 

 

-

 

-

 

-

Subsidiary

 

NeoCyon, Inc.

 

 

-

 

-

 

1,999,995

 

 

-

 

-

 

-

 

21.4 Key Management Compensation

 

The compensation for the key management personnel (registered directors) for the years ended December 31, 2018 and 2017 consists of:

 


(in thousands of Korean won)

 

2018

 

2017

 

 

 

 

 

 

 

Salaries

 

640,059

 

577,550

Post-employment benefits

 

 

-

 

 

-

 

 

640,059

 

577,550

 

22. Events After the Reporting Period

 

On January 29, 2019, the Company newly established a subsidiary named Gravity Game Tech. Co.,Ltd. in Thailand, and on February 7, 2019, the Company newly established joint venture named Gravity Game Link Co.,Ltd. in Indonesia.

 

 


47


 

Report on Independent Auditor’s

Review of Internal Control over Financial Reporting

 

(English Translation of a Report Originally Issued in Korean)

 

To the Chief Executive Officer of Gravity Co., Ltd.

 

We have reviewed the accompanying management’s report on the effectiveness of the Internal Control over Financial Reporting (“ICFR”) of Gravity Co., Ltd. (the “Company”) as of December 31, 2018. The Company’s management is responsible for designing and operating ICFR and for its assessment of the effectiveness of ICFR. Our responsibility is to review the management’s report on the effectiveness of the ICFR and issue a report based on our review. The management’s report on the effectiveness of the ICFR of the Company states that “Based on the assessment results, Chief Executive Officer and ICFR Officer believe that the Company’s ICFR has material weaknesses as of December 31, 2018, in conformity with the Best Practice Guideline”

 

Our review was conducted in accordance with the ICFR review standards established by the Korean Institute of Certified Public Accountants. Those standards require that we plan and perform, in all material respects, the review of management’s report on the effectiveness of the ICFR to obtain a lower level of assurance than an audit. A review is to obtain an understanding of a company’s ICFR and consists principally of inquiries of management and, when deemed necessary, a limited inspection of underlying documents, which is substantially less in scope than an audit.

 

A company’s ICFR is a system to monitor and operate those policies and procedures designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with International Financial Reporting Standards as adopted by the Republic of Korea. Because of its inherent limitations, ICFR may not prevent or detect a material misstatement of the financial statements. 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.

 

A material weakness is a control deficiency, or a combination of control deficiencies, that results in more than a remote likelihood that a material misstatement of the financial statements will not be prevented or detected. The following material weaknesses have been included in the management’s report referred to above.

 

1. Material Weakness related to ITGC: The Company did not design and operate sufficient and appropriate control procedures related to the interface and monitoring of data between database in game operation system. This deficiency means such material weakness that relevant accounts cannot be recorded appropriately with regard to manual and automated controls related to mobile revenue that utilize data generated from the database of game operation system.

2. Material Weakness related to Revenue recognition of Mobile game: The company did not design and operate sufficient and appropriate control procedures in the recognition of revenue and deferred revenue of mobile game, such as reconciliation of external PG data and game operation data, the review of cut-off, and the review of logic in calculating deferred revenue.

 

48


 

3. Material Weakness related to Control Environment: The company identified material weaknesses in the course of designing and operating control procedures of the fiscal year. This means a control environment that can generate material weaknesses due to lack of sufficient and experienced personnel to design and operate appropriate internal control procedures because of rapid growth of the company.

 

Based on our review on the management’s report on the effectiveness of the ICFR, no other material weakness has come to our attention other than the material weaknesses described in the preceding paragraph and the management’s report referred to above.

 

Our review is based on the Company’s ICFR as of December 31, 2018, and we did not review management’s assessment of its ICFR subsequent to December 31, 2018. This report has been prepared pursuant to the Acts on External Audit for Stock Companies, etc. in Korea and may not be appropriate for other purposes or for other users.

 

Samil PricewaterhouseCoopers

March 25, 2019

49


 

Report on the Effectiveness of the Internal Control over Financial Reporting

(English Translation of a Report Originally Issued in Korean)

 

 

To Shareholders, the Board of Directors, and the Audit Committee,

 

The CEO and the Internal Control over Financial Reporting (“ICFR”) Officer of Gravity (“the Company”), assessed the effectiveness of the design and operation of the Company’s ICFR for the year ending December 31, 2018.

 

The Company’s management, including the CEO and ICFR officer, is responsible for designing and operating an ICFR.

 

The CEO and ICFR Officer assessed the design and operational effectiveness of the ICFR in the prevention and detection of an error or fraud which may cause a misstatement in the preparation and disclosure of reliable financial statements.

 

The CEO and ICFR Officer followed Chapter 5 (Application to Small-and-Medium sized Companies) of the Best Practice Guideline to evaluate the effectiveness of the ICFR design and operation.

 

Based on our assessment, the following material weaknesses in the Company’s ICFR, in all material respects, was(were) noted from the standpoint of Chapter 5 of the Practice Guideline.

 

<Description of material weaknesses>

1. Material weakness related to ITGC: The Company did not design and operate sufficient and appropriate control procedures related to the interface and monitoring of data between database in game operation system. This deficiency means such material weakness that relevant accounts cannot be recorded appropriately with regard to manual and automated controls related to mobile revenue that utilize data generated from the database of game operation system.

 

2. Material Weakness related to Revenue recognition of Mobile game: The company did not design and operate sufficient and appropriate control procedures in the recognition of revenue and deferred revenue of mobile game, such as reconciliation of external PG data and game operation data, the review of cut-off, and the review of logic in calculating deferred revenue.

 

3. Material Weakness related to Control Environment: The company identified material weaknesses in the course of designing and operating control procedures of the fiscal year. This means a control environment that can generate material weaknesses due to lack of sufficient and experienced personnel to design and operate appropriate internal control procedures because of rapid growth of the company.

 

<Remediation plans for material weaknesses>

1. We plan to implement the ongoing monitoring control on the appropriateness of data interface between databases in order to make relevant accounts related to mobile revenue recorded appropriately and completely.

50


 

2. When recognizing mobile revenue, we plan to strengthen a periodic reconciliation control of external PG data and game operation data and upper managers’ review control on the appropriateness of cut-off and the logic in calculating deferred revenue.

 

3. We plan to hire additional experienced knowledgeable personnel and conduct expanded training programs for our new and existing personnel with regard to internal control over financial reporting.

 

The CEO and ICFR Officer have confirmed that this report does not contain any untrue statement and omit to state a material fact necessary to make the statements made. Also the CEO and ICFR Officer have confirmed the report does not include any statements that may lead to material misunderstanding and have carefully reviewed the statements of the report.

 

 

 

March 8, 2019

 

Chief Executive Officer    Park Hyun Chul

ICFR Officer   Kim Heung Gon

 

 

 

 

 

 

51

grvy-ex992_7.htm

 

Exhibit 99.2

 

GRAVITY CO., LTD. and Subsidiaries

 

Consolidated Financial Statements

December 31, 2018 and 2017

 

 

 

 


GRAVITY CO., LTD. and Subsidiaries

Index

December 31, 2018 and 2017

 

 

 

Page(s)

 

 

 

Independent Auditor’s Report

 

1-3

 

 

 

Separate Financial Statements

 

 

 

 

 

Separate Statements of Financial Position

 

4-5

 

 

 

Separate Statements of Comprehensive Income

 

6

 

 

 

Separate Statements of Changes in Equity

 

7

 

 

 

Separate Statements of Cash Flows

 

8

 

 

 

Notes to the Separate Financial Statements

 

9-49

 

 

 

 

 


Independent Auditor’s Report

 

(English Translation of a Report Originally Issued in Korean)

 

To the Board of Directors and Shareholders of Gravity Co., Ltd.

 

Opinion

We have audited the accompanying consolidated financial statements of Gravity Co., Ltd. (the Company), which comprise the consolidated statements of financial position as at December 31, 2018 and 2017, and the consolidated statements of comprehensive income, consolidated statements of changes in equity and consolidated statements of cash flows for the years then ended, and notes to the consolidated financial statements, including a summary of significant accounting policies.

 

In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company as at December 31, 2018 and 2017, and its consolidated financial performance and its consolidated cash flows for the years then ended in accordance with International Financial Reporting Standards as adopted by the Republic of Korea (Korean IFRS).

 

Basis for Opinion

We conducted our audits in accordance with Korean Standards on Auditing. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of our report. We are independent of the Company in accordance with the ethical requirements of the Republic of Korea that are relevant to our audit of the financial statements and we have fulfilled our other ethical responsibilities in accordance with the ethical requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

 

Other Matter

Auditing standards and their application in practice vary among countries. The procedures and practices used in the Republic of Korea to audit such financial statements may differ from those generally accepted and applied in other countries.

 

Responsibilities of Management and Those Charged with Governance for the Financial Statements

Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with Korean IFRS, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

 

Samil PricewaterhouseCoopers, 100 Hangang-daero, Yongsan-gu, Seoul 04386, Korea, www.samil.com

1

 


 

In preparing the financial statements, management is responsible for assessing the Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Company or to cease operations.

 

Those charged with governance are responsible for overseeing the Company’s financial reporting process.

 

Auditor’s Responsibilities for the Audit of the Financial Statements

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Korean Standards on Auditing will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.

 

As part of an audit in accordance with Korean Standards on Auditing, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:

Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control.

Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.

Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Company to cease to continue as a going concern.

Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

 

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

2

 


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Seoul, Korea

March 25, 2019

This report is effective as of March 25, 2019, the audit report date. Certain subsequent events or circumstances, which may occur between the audit report date and the time of reading this report, could have a material impact on the accompanying consolidated financial statements and notes thereto. Accordingly, the readers of the audit report should understand that there is a possibility that the above audit report may have to be revised to reflect the impact of such subsequent events or circumstances, if any.

3

 


GRAVITY CO., LTD. and Subsidiaries

Consolidated Statements of Financial Position

December 31, 2018 and 2017

(In thousands of Korean won)

Notes

 

December 31,

2018

 

December 31,

2017

 

 

 

 

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

4,5

 

86,050,738

 

39,095,216

 

 

Short-term financial instruments

5

 

 

9,500,000

 

 

22,500,000

 

 

Accounts receivables, net

5,6

 

 

60,663,917

 

 

42,167,869

 

 

Other receivables, net

5,6

 

 

254,540

 

 

698,059

 

 

Prepaid expenses

11

 

 

2,515,511

 

 

3,026,966

 

 

Other current assets

5

 

 

1,182,249

 

 

1,382,758

 

 

 

 

 

 

160,166,955

 

 

108,870,868

 

Non-current assets

 

 

 

 

 

 

 

 

 

Property and equipment, net

7

 

 

1,498,486

 

 

945,943

 

 

Intangible assets, net

8

 

 

1,163,001

 

 

1,036,049

 

 

Deferred tax assets

17

 

 

7,413,402

 

 

3,036,165

 

 

Other non-current financial assets

5

 

 

1,494,032

 

 

1,394,347

 

 

Other non-current assets

10

 

 

1,437,953

 

 

599,766

 

 

 

 

 

13,006,874

 

 

7,012,270

 

Total assets

 

 

173,173,829

 

115,883,138

 

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

 

 

Account payables

5

 

71,928,274

 

44,409,786

 

 

Deferred revenue

11

 

 

16,476,351

 

 

16,100,168

 

 

Withholdings

 

 

 

2,018,894

 

 

1,438,723

 

 

Accrued expenses

5

 

 

1,030,598

 

 

1,037,440

 

 

Income tax payable

17

 

 

1,943,994

 

 

1,628,368

 

 

Other current liabilities

5

 

 

122,928

 

 

129,926

 

 

 

 

 

93,521,039

 

 

64,744,411

 

Non-current liabilities

 

 

 

 

 

 

 

 

Long-term deferred revenue

11

 

 

3,598,140

 

 

6,580,815

 

Other non-current liabilities

5

 

 

502,865

 

 

559,461

 

 

 

 

 

4,101,005

 

 

7,140,276

 

Total liabilities

 

 

97,622,044

 

71,884,687

 

 

 

 

 

 

 

 

 

 

(Continued)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The above consolidated statements of financial position should be read in conjunction with the accompanying notes.

4


GRAVITY CO., LTD. and Subsidiaries

Consolidated Statements of Financial Position

December 31, 2018 and 2017

 

(In thousands of Korean won)

Notes

 

December 31,

2018

 

December 31,

2017

 

 

 

 

 

 

 

 

 

Equity

 

12

 

 

 

 

 

 

 

Equity attributable to owners of

the Parent Company

 

 

 

 

 

 

 

 

 

Share capital

 

 

 

 

 

 

 

 

 

Common shares

 

 

3,474,450

 

3,474,450

 

 

Capital surplus

12

 

 

27,140,255

 

 

27,163,600

 

 

Other components of equity

12

 

 

138,433

 

 

(39,679)

 

 

Retained earnings

(Accumulated deficit)

12

 

 

45,404,608

 

 

13,961,805

 

Non-controlling interest

 

 

 

(605,961)

 

 

(561,725)

 

Total equity

 

 

 

75,551,785

 

 

43,998,451

 

Total liabilities and equity

 

 

173,173,829

 

115,883,138

 

 

 

 

 

 

 

 

 

 

 

 

The above consolidated statements of financial position should be read in conjunction with the accompanying notes.

5


GRAVITY CO., LTD. and Subsidiaries

Consolidated Statements of Comprehensive Income

Years Ended December 31, 2018 and 2017

 

(in thousands of Korean won, except per share amounts)

Notes

2018

 

2017

 

 

 

 

 

Revenues

21,22

 

 

 

 

 

  Online games – subscription revenue

 

25,897,784

 

36,428,402

  Online games – royalties and license fees

 

 

13,555,827

 

 

16,244,377

  Mobile games

 

 

239,488,896

 

 

82,624,332

Other revenue

 

 

7,827,918

 

 

6,326,370

 

 

 

286,770,425

 

 

141,623,481

Cost of revenues

13

 

210,043,556

 

 

94,234,263

Gross profit

 

 

76,726,869

 

 

47,389,218

Selling, general and administrative expenses

13,14

 

42,837,372

 

 

33,250,837

Operating profit

21

 

33,889,497

 

 

14,138,381

Non-operating income and expenses

 

 

 

 

 

 

Finance income

5,15

 

825,982

 

 

594,574

Finance costs

5,15

 

(92,202)

 

 

(209,969)

Other non-operating income

5,16

 

1,369,819

 

 

1,444,954

Other non-operating expenses

5,16

 

(1,553,598)

 

 

(1,509,826)

Profit before income tax expense

 

 

34,439,498

 

 

14,458,114

Income tax expense

17

 

3,053,167

 

 

1,144,177

Profit for the year

 

31,386,331

 

13,313,937

 

 

 

 

 

 

 

Profit (loss) attributable to:

 

 

 

 

 

 

Owners of the Parent Company

 

 

31,442,803

 

 

13,319,047

Non-controlling interests

 

 

(56,472)

 

 

(5,110)

 

 

 

 

 

 

 

Other comprehensive income

 

 

 

 

 

 

Items that may be subsequently reclassified to profit or loss

 

 

 

 

 

 

Foreign currency translation adjustments

12

 

178,112

 

 

37,087

Total comprehensive income for the year

 

31,564,443

 

13,351,024

 

 

 

 

 

 

 

Total comprehensive income (loss) attributable to:

 

 

 

 

 

 

Owners of the Parent Company

 

 

31,620,915

 

 

13,356,134

Non-controlling interests

 

 

(56,472)

 

 

(5,110)

 

 

 

 

 

 

 

Earnings per share attributable to the equity holders of the Parent Company

 

 

 

 

 

 

Basic earnings per share

18

 

4,525

 

 

1,917

Diluted earnings per share

18

 

4,525

 

 

1,917

 

 

 

 

 

 

 

 

 

The above consolidated statements of comprehensive income should be read in conjunction with the accompanying notes.

6


GRAVITY CO., LTD. and Subsidiaries

Consolidated Statements of Changes in Equity

Years Ended December 31, 2018 and 2017

 

(in thousands of Korean won)

 

Attributable to owners of the Parent Company

 

 

Non-controlling

interest

 

 

 

 

 

 

 

Total

Equity

 

Notes

 

 

 

 

 

Share

capital

 

 

Capital

surplus

 

 

Other components of equity

 

 

Retained earnings (Accumulated deficit)

 

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at

January 1, 2017

 

3,474,450

 

27,900,199

 

(76,766)

 

(93,841)

 

31,204,042

 

(556,615)

 

30,647,427

Profit for the year

 

 

-

 

 

-

 

 

-

 

 

13,319,047

 

 

13,319,047

 

 

(5,110)

 

 

13,313,937

Disposition of deficit with capital surplus

 

 

-

 

 

(736,599)

 

 

-

 

 

736,599

 

 

-

 

 

-

 

 

-

Foreign currency translation adjustments

12

 

-

 

 

-

 

 

37,087

 

 

-

 

 

37,087

 

 

-

 

 

37,087

Balance at December 31, 2017

 

3,474,450

 

27,163,600

 

(39,679)

 

13,961,805

 

44,560,176

 

(561,725)

 

43,998,451

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at

January 1, 2018

 

3,474,450

 

27,163,600

 

(39,679)

 

13,961,805

 

44,560,176

 

(561,725)

 

43,998,451

Profit for the year

 

 

-

 

 

-

 

 

-

 

 

31,442,803

 

 

31,442,803

 

 

(56,472)

 

 

31,386,331

Equity transaction

 

 

-

 

 

(23,345)

 

 

-

 

 

-

 

 

(23,345)

 

 

12,236

 

 

(11,109)

Foreign currency translation adjustments

12

 

-

 

 

-

 

 

178,112

 

 

-

 

 

178,112

 

 

-

 

 

178,112

Balance at December 31, 2018

 

3,474,450

 

27,140,255

 

138,433

 

45,404,608

 

76,157,746

 

(605,961)

 

75,551,785

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The above consolidated statements of changes in equity should be read in conjunction with the accompanying notes.

7


GRAVITY CO., LTD. and Subsidiaries

Consolidated Statements of Cash Flow

Years Ended December 31, 2018 and 2017

(in thousands of Korean won)

Notes

2018

 

2017

 

 

 

 

 

Cash flows from operating activities

 

 

 

 

 

 

Profit for the year

 

31,386,331

 

13,313,937

Adjustments

19

 

4,480,905

 

 

1,997,679

Changes in operating assets and liabilities

19

 

6,703,895

 

 

12,877,744

Interest received

 

 

680,501

 

 

554,362

Income taxes paid

 

 

(7,279,170)

 

 

(2,607,286)

Net cash inflow from operating activities

 

 

35,972,462

 

 

26,136,436

 

 

 

 

 

 

 

Cash flows from investing activities

 

 

 

 

 

 

  Decrease in short-term financial instruments, net

 

 

13,000,000

 

 

-

  Decrease in other non-current financial assets

 

 

-

 

 

7,014

  Decrease in other current assets

 

 

3,333

 

 

3,333

  Disposal of property and equipment

7

 

69,318

 

 

1,656

  Increase in short-term financial instruments, net

 

 

-

 

 

(500,000)

  Increase in other non-current financial assets

 

 

-

 

 

(430,117)

  Acquisition of property and equipment

7

 

(1,141,440)

 

 

(899,011)

Acquisition of intangible assets

8

 

(1,108,876)

 

 

(1,165,069)

Net cash inflow(outflow) from investing activities

 

 

10,822,335

 

 

(2,982,194)

 

 

 

 

 

 

 

Cash flows from financing activities

 

 

 

 

 

 

Redemption of lease liabilities

 

 

(197,159)

 

 

-

Net cash outflow from financing activities

 

 

(197,159)

 

 

-

 

 

 

 

 

 

 

Effects of exchange rate changes on cash and cash equivalents

 

 

357,884

 

 

(778,698)

Net increase in cash and cash equivalents

 

 

46,955,522

 

 

22,375,544

Cash and cash equivalents at beginning of the year

 

 

39,095,216

 

 

16,719,672

Cash and cash equivalents at end of the year in the statements of financial position

 

86,050,738

 

39,095,216

 

The above consolidated statements of cash flows in should be read in conjunction with the accompanying notes.

8

 


GRAVITY CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017

1. General Information

GRAVITY CO., LTD. (“Gravity”) was incorporated on April 4, 2000, to engage in developing and distributing online games and other related business. Gravity’s headquarters is located at 15F, 396 World Cup buk‑ro, Mapo‑gu, Seoul, Korea. On November 17, 2016, Gravity has established a Gravity Taiwan Branch in Taipei City, Taiwan. On April 13, 2018, Gravity has established Gravity Communications Co., Ltd. in Taipei City, Taiwan. Gravity’s principal game product, “Ragnarok”, a massive multi-player online role-playing game, was commercially launched in August 2002, and currently operated internationally 81 markets. The Company also operates many other games.

On February 8, 2005, Gravity listed its shares on NASDAQ in the United States, and issued 1,400,000 shares of ordinary shares by means of American Depositary Shares.

Gravity started with total paid-in capital amount of 500,000 thousand, and as at December 31, 2018, the total paid-in capital amounts to 3,474,450 thousand. Gravity’s major shareholders and their respective percentage of ownership as at December 31, 2018, are as follows:

Shareholder

 

Number of shares

 

Ownership (%)

GungHo Online Entertainment, Inc.

 

4,121,737

 

59.31

Others

 

2,827,163

 

40.69

 

 

6,948,900

 

100.00

 

 

The accompanying consolidated financial statements include the accounts of Gravity and its consolidated subsidiaries (collectively referred to as the “Company”). Details of the consolidated subsidiaries as at December 31, 2018, are as follows:

 

Subsidiaries

 

Location

 

Ownership interest held by the Company (%)

 

Main business

NeoCyon, Inc. 1

 

Korea

 

98.73%

 

Mobile game development and services

Gravity Interactive, Inc.

 

United States

 

100%

 

Online and mobile game services

Gravity Games Corp. 2

 

Korea

 

-

 

Online game development

Gravity Entertainment Corp.

 

Japan

 

100%

 

Animation production, distribution and game services

Gravity Communications Co.,Ltd. 3

 

Taiwan

 

100%

 

Online and mobile game services

1 Percentage of ownership increased as Gravity participated in capital increase with consideration by NeoCyon, Inc.

2 Excluded from the consolidation as liquidated in current year.

3 Newly established in current year with 100% ownership of Gravity.

 


9

 


GRAVITY CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017

Summarized financial information of consolidated subsidiaries as at and for the years ended December 31, 2018 and 2017, are as follows:

 

(in thousands of Korean won)

 

December 31, 2018

Subsidiaries

 

Assets

 

Liabilities

 

Sales

 

Profit (loss) for the period

 

 

 

 

 

 

 

 

 

 

 

 

 

NeoCyon, Inc.

 

6,619,844

 

5,209,590

 

22,782,618

 

(2,056,820)

Gravity Interactive, Inc.

 

 

79,806,232

 

 

80,016,529

 

 

84,329,085

 

 

(2,511,020)

Gravity Entertainment Corp.

 

 

509,183

 

 

96,184

 

 

157,425

 

 

29,797

Gravity Communications Co.,Ltd.

 

 

8,231,267

 

 

2,352,489

 

 

2,200,724

 

 

204,883

Gravity Games Corp.

 

 

-

 

 

-

 

 

11,641

 

 

4,164,622

 

(in thousands of Korean won)

 

December 31, 2017

Subsidiaries

 

Assets

 

Liabilities

 

Sales

 

Profit (loss) for the period

 

 

 

 

 

 

 

 

 

 

 

 

 

NeoCyon, Inc.

 

6,855,116

 

5,376,927

 

23,601,638

 

18,143

Gravity Interactive, Inc.

 

 

2,152,360

 

 

10,087,107

 

 

5,418,466

 

 

(638,112)

Gravity Games Corp.

 

 

3,403,607

 

 

4,442,408

 

 

307,842

 

 

(40,100)

Gravity Entertainment Corp.

 

 

361,573

 

 

3,077

 

 

16

 

 

(8,305)

 

2. Significant Accounting Polices

The principal accounting policies applied in the preparation of these financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated.

2.1 Basis of Presentation

The Company has first adopted International Financial Reporting Standards as adopted by the Republic of Korea (Korean IFRS). Korean IFRS are the standards, subsequent amendments and related interpretations issued by the International Accounting Standards Board (IASB) that have been adopted by the Republic of Korea.

The preparation of the separate financial statements requires the use of certain critical accounting estimates. It also requires management to exercise judgment in the process of applying the Company's accounting policies. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the separate financial statements are disclosed in Note 3.


10

 


GRAVITY CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017

2.2 Changes in Accounting Policies and Disclosures

(a) New and amended standards adopted by the Company

The Group has applied the following standards and amendments for the first time for their annual reporting period commencing January 1, 2018. The amendment does not have a significant impact on the financial statements.

- Amendment to Korean IFRS 1028 Investments in Associates and Joint Ventures

When an investment in an associate or a joint venture is held by, or is held indirectly through, an entity that is a venture capital organization, or a mutual fund, unit trust and similar entities including investment-linked insurance funds, the entity may elect to measure each investment separately at fair value through profit or loss in accordance with Korean IFRS 1109. The amendment does not have a significant impact on the financial statements because the Company is not a venture capital organization.

- Amendment to Korean IFRS 1040 Transfers of Investment Property

The amendment to Korean IFRS 1040 clarifies that a transfer to, or from, investment property, including property under construction, can only be made if there has been a change in use that is supported by evidence, and the list of evidence for a change of use in the standard was re-characterized as a non-exclusive list of example. The amendment does not have a significant impact on the financial statements.

- Amendment to Korean IFRS 1102 Share-based Payment

Amendments to Korean IFRS 1102 clarify accounting for a modification to the terms and conditions of a share-based payment that changes the classification of the transaction from cash-settled to equity-settled. Amendments also clarify that the measurement approach should treat the terms and conditions of a cash-settled award in the same way as for an equity-settled award. The amendment does not have a significant impact on the financial statements.

- Enactment of Interpretation 2122 Foreign Currency Transaction and Advance Consideration

According to the enactment, the date of the transaction for the purpose of determining the exchange rate to use on initial recognition of the related asset, expense or income (or part of it) is the date on which an entity initially recognizes the non-monetary asset or non-monetary liability arising from the payment or receipt of advance consideration. The enactment does not have a significant impact on the financial statements.

- Korean IFRS 1109 Financial Instruments

The Company has applied Korean IFRS 1109 Financial Instruments on January 1, 2018, the date of initial application. In accordance with the transitional provisions in Korean IFRS 1109, comparative figures have not been restated, and the differences between previous book amounts and book amounts at the date of initial application are recognized to retained earnings (or equity). Application of IFRS 1109 does not have a significant impact on the financial statements.

- Korean IFRS 1115 Revenue from Contracts with Customers

11

 


GRAVITY CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017

The Company has applied to apply Korean IFRS 1115 Revenue from Contracts with Customers. In accordance with the transition provisions in Korean IFRS 1115, comparative figures have not been restated. The Company elected the modified retrospective approach, and recognized the cumulative impact of initially applying the revenue standard as an adjustment to retained earnings (or equity) as at January 1, 2018, the period of initial application. Application of IFRS 1115 does not have a significant impact on the financial statements.

(b) New and amended standards not yet adopted by the Company

Certain new accounting standards and interpretations that have been published that are not mandatory for annual reporting period commencing January 1, 2018 and have not been early adopted by the Company are set out below.

- Korean IFRS 1116 Leases

Korean IFRS 1116 Leases issued on May 22, 2017 is effective for annual periods beginning on or after January 1, 2019, with early adoption permitted. This standard will replace Korean IFRS 1017 Leases, Interpretation 2104 Determining whether an Arrangement contains a Lease, Interpretation 2015 Operating Leases-Incentives, and Interpretation 2027 Evaluating the Substance of Transactions Involving the Legal Form of a Lease.

At inception of a contract, the entity shall assess whether the contract is, or contains, a lease. Also, at the date of initial application, the entity shall assess whether the contract is, or contains, a lease in accordance with the standard. However, the entity will not need to reassess all contracts with applying the practical expedient because the entity elected to apply the practical expedient only to contracts entered before the date of initial application.

For a contract that is, or contains, a lease, the entity shall account for each lease component within the contract as a lease separately from non-lease components of the contract. A lessee is required to recognize a right-of-use asset representing its right to use the underlying leased asset and a lease liability representing its obligation to make lease payments. The lessee may elect not to apply the requirements to short-term lease (a lease term of 12 months or less at the commencement date) and low value assets (e.g. underlying assets below $ 5,000). In addition, as a practical expedient, the lessee may elect, by class of underlying asset, not to separate non-lease components from lease components, and instead account for each lease component and any associated non-lease components as a single lease component. The accounting treatment as a lessor did not change significantly from the one under IAS 1017 Leases.

Lease accounting as a lessee

The Company plans to apply Korean IFRS 1116 retrospectively with the cumulative effect of initially applying the standard as at January 1, 2019. The cumulative effect of applying the standard will be recognized as an adjustment to the opening balance of retained earnings at the date of initial application. The assessment was performed based on available information as at December 31, 2018 to identify effects on 2018 consolidated financial statements.


12

 


GRAVITY CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017

The total minimum lease payment expected to be paid by the Company in relation to operating leases before discounted to their present value is 4,725,933 thousand. When the payment is discounted at incremental borrowing rate of the lessee, the total minimum lease payment amounts to 4,357,664 thousand. For a contract that is, or contains, a lease, the Company plans to apply the practical expedient to account for each lease component and any associated non-lease components as a single lease component.

The Company is analysing the effects on the financial statement; however, it is difficult to provided reasonable estimates of financial effects until the analysis is complete.

Lease accounting as a lessor

The Company is not engaged in any contracts as a lessor as at December 31, 2018.

2.3 Consolidation

The Company has prepared the consolidated financial statements in accordance with Korean IFRS 1110 Consolidated Financial Statements.

(a) Subsidiaries

Subsidiaries are all entities over which the Company has control. The Company controls an entity when the Company 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 fully consolidated from the date on which control is transferred to the Company. They are deconsolidated from the date that control ceases.

The acquisition method of accounting is used to account for business combinations by the Company. 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 Company recognizes any non-controlling interest in the acquired entity on an acquisition-by-acquisition basis either at fair value or at the non-controlling interest’s proportionate share of the acquired entity’s net identifiable assets. All other non-controlling interests are measured at fair values, unless otherwise required by other standards. 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 recoded 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 or loss 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 Company.


13

 


GRAVITY CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017

2.4 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 21). The chief operating decision-maker is responsible for allocating resources and assessing performance of the operating segments.

2.5 Foreign Currency Translation

(a) Functional and presentation currency

Items included in the financial statements of each of the Company’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 (KRW), which is the Company’s functional and presentation currency

(b) 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 year end exchange rates are generally recognized in profit or loss.

Non-monetary items that are measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined. Translation differences on assets and liabilities carried at fair value are reported as part of the fair value gain or loss. For example, translation differences on non-monetary assets and liabilities such as equities held at fair value through profit or loss are recognized in profit or loss as part of the fair value gain or loss and translation differences on non-monetary assets such as equities classified as available-for-sale financial assets are recognized in other comprehensive income.

2.6 Statement of Cash flow

The statement of cash flows are prepared using the indirect method, and cash flows denominated in foreign currencies are translated at average exchange rates for the period.

2.7 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 without significant transaction costs.


14

 


GRAVITY CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017

2.8 Financial Assets

(a) Classification

From January 1, 2018, the Company classifies its financial assets in the following measurement categories:

 

those to be measured at fair value through profit or loss

 

those to be measured at fair value through other comprehensive income, and

 

those to be measured at amortized cost.

The classification depends on the Company’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 Company 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 Company 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.

(b) Measurement

At initial recognition, the Company measures a financial asset at its fair value plus, in the case of a financial asset not at fair value through profit or loss, transaction costs that are directly attributable to the acquisition of the financial asset. 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.

 

A.

Debt instruments

Subsequent measurement of debt instruments depends on the Company’s business model for managing the asset and the cash flow characteristics of the asset. The Company 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.

 

15

 


GRAVITY CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017

 

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 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 ‘other non-operating income or expenses’ in the year in which it arises.

 

B.

Equity instruments

The Company subsequently measures all equity investments at fair value. Where the Company’s management has elected to present fair value gains and losses on equity investments, which 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. Dividend income from such investments continue to be recognized in profit or loss as ‘finance income’ when the right to receive payments is established.

Changes in the fair value of financial assets at fair value through profit or loss are recognized in ‘other income and 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.

(c) Impairment

The Company assesses on a forward looking basis the expected credit losses associated with its debt instruments carried at amortized cost and fair value through other comprehensive income. The impairment methodology applied depends on whether there has been a significant increase in credit risk. For trade receivables and lease receivables, the Company applies the simplified approach, which requires expected lifetime credit losses to be recognized from initial recognition of the receivables.


16

 


GRAVITY CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017

(d) Recognition and Derecognition

Regular way purchases and sales of financial assets are recognized or derecognized on trade-date, the date on which the Company 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 Company has transferred substantially all the risks and rewards of ownership.

If a transfer does not result in derecognition because the Company has retained substantially all the risks and rewards of ownership of the transferred asset, the Company continues to recognize the transferred asset in its entirety and recognizes a financial liability for the consideration received.

(e) Offsetting of financial instruments

Financial assets and liabilities are offset and the net amount reported in the statements 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 Company or the counterparty.

2.9 Property and Equipment

Property and equipment are stated at cost less accumulated depreciation and impairment, which includes acquisition cost, production cost and other costs required to prepare the asset for its intended use. It also includes the present value of the estimated cost of dismantling and removing the asset, and restoring the site after the termination of the asset's useful life, provided it meets the criteria for recognition of provisions.

Depreciation is calculated under straight-line method over estimated useful lives as follows:

 

 

 

Estimated Useful Lives

Computer and other equipment

 

 

4 years

Furniture and fixture

 

 

4 years

Leasehold improvements

 

 

4 years

 

Expenditures incurred after the acquisition or completion of assets are capitalized only when it is probable that future economic benefits associated with the item will flow to the Company, which includes the enhancement of the value of the related assets over their recently appraised value or extension of the useful life of the related assets, and the fair value for the related cost can be reliably measured. All other routine maintenance and repairs are charged to expense as incurred.

 


17

 


GRAVITY CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017

2.10 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.

Development costs that are internally generated by the Company are recognized when the criteria; such as, technically feasible, generate probable future economic benefits and other, are met. Membership rights that have an indefinite useful life are not subject to amortization because there is no foreseeable limit to the period over which the assets are expected to be utilized.

The Company entered into a game licensing agreement with a number of third parties to gain exclusive rights to the games developed by other companies. The license fee payments are recognized as other intangible assets and amortized over the term of the contract.

The Company amortizes intangible assets with a limited useful life using the straight-line method over the following periods:

 

 

Estimated Useful Lives

Software

 

2~3 years

Patents

 

10 years

Other intangible assets

 

2 years

 

2.11 Impairment of Non-financial Assets

Intangible assets not yet available for use are tested annually for impairment. Goodwill acquired in a business combination is tested for impairment at the end of each reporting period by assessing its recoverable amount. Assets that are subject to amortization or depreciation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Property and equipment are reviewed for impairment under the above circumstances and when gross estimated future cash flows expected from the use and disposal of property and equipment (individual assets or cash-generating units) is less than the carrying amount. Impairment loss is recognized for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and its value-in-use. For the purposes of assessing impairment, assets are grouped at the lowest levels (cash-generating units) for which there are separate and identifiable cash flows.

2.12 Financial Liabilities

(a) Classification and measurement

The Company’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 a designated as hedging instruments and an embedded derivative that is separated are also classified as held for trading.


18

 


GRAVITY CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017

The Company 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.

(b) Derecognition

Financial liabilities are removed from the statement of financial position when it is 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

2.13 Provisions and Contingent Liabilities

Provisions for legal claims, service warranties and make good obligations are recognized when the Company 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.

2.14 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.

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 separate 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 amounts will be available to utilize those temporary differences and losses.

19

 


GRAVITY CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017

The Company recognizes a deferred tax liability all taxable temporary differences associated with investments in subsidiaries, associates, and interests in joint arrangements, except to the extent that the Company 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 Company 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 either to settle on a net basis.

2.15 Employee Benefits

(a) Annual paid leave obligations

The Company recognizes expenses and liabilities related to annual paid leave during an accounting period when an employee has rendered service that gives rise to employee’s entitlement to future annual paid leave.

(b) Defined contribution pension plan

The Company 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 Company recognizes provision for severance benefits for the employees with service period less than a year.

2.16 Revenue Recognition

From January 1, 2018, the Company has applied Korean IFRS 1115 Revenue from Contracts with Customers.

The Company engages in game licensing, IP licensing and game publishing business. Upon application of IFRS 1115, the Company identifies services promised in a contract as a single performance obligation.

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 disclosed as revenue are net of value added taxes, returns, rebates and discounts and after elimination of inter-company transactions.

(a) Subscription revenue (Online and Mobile)

The Company recognizes online and mobile subscription revenue on accrual basis when players make use of in-game premium features.

20

 


GRAVITY CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017

Players can access certain games free of charge, but may purchase game points to acquire in-game premium features. The Company defer revenue recognition for the unused game points at the end of reporting period. Consumable in-game items are deferred when such in-game items are purchased by users with game points and recognized as revenue when the purchased in-game items are used in the games. In-game items with limited time period are deferred and recognized as revenue in proportion to the number of days lapsed while permanent in-game items are recognized ratably as revenues over the estimated life cycle of game users.

(b) Royalties and license fees

According to IFRS 15, revenue is recognized over time when there is reasonable expectation of ongoing activities that may have a significant effect on the customers during the duration of the contracts and the customers are exposed to the effect by the activities and there is no additional goods or services offered to the customers from the activities.

The nature of licensing promise is to provide a right to access the entity’s intellectual property as it exists throughout the license period. The Company determines performance obligation satisfied over time and recognizes revenue over a period of time.

The prepaid license fee revenues are recorded as deferred revenue and recognized on a straight-line method over the license period. The running royalties are recognized monthly on accrual basis as royalty payments are determined based on the conditions of contracts. The minimum guarantee (“MG”) royalties are recorded as deferred revenue and recognized on a straight-line method over the license period. If actual cumulative royalties exceed the cumulative revenue amount recognized under the straight-line method, the Company recognizes the excess amount as revenue.

2.17 Lease

A lease is an agreement, whereby the lessor conveys to the lessee, in return for a payment or series of payments, the right to use an asset for an agreed period of time. Leases in which a significant portion of the risks and rewards of ownership are not transferred to the Company are classified as operating leases. Payments made under operating leases are charge to expenses on a straight-line basis over the period of lease.

2.18 Approval of the Financial Statements

The consolidated financial statements were approved by the Board of Directors on March 8, 2019.


21

 


GRAVITY CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017

3. Critical Accounting Estimates and Assumptions

 

The preparation of financial statements requires the Company to make estimates and assumptions concerning the future. Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. The resulting accounting estimates will, by definition, seldom equal the related actual results. 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.

(a) Deferred taxes

In assessing the realizability of the deferred tax assets, the Company considers whether it is probable that a portion or all of the deferred tax assets will not be realized. When the Company assessed the realizability of the deferred tax assets, the Company considered its performance, general economic environment, projected future taxable income, periods available to deduct tax loss carryforwards and tax credit carryforwards and etc. The ultimate realization of deferred tax assets is dependent on whether the Company is able to generate future taxable income in specific tax jurisdictions during the periods in which temporary differences become deductible. However, the amount of deferred tax assets may be different if we do not realize estimated future taxable income during the carry forward periods as originally expected.

4. Cash and cash equivalent

 

Cash and cash equivalents as at December 31, 2018 and 2017, consist of:

 

(in thousands of Korean won)

 

December 31, 2018

 

December 31, 2017

 

 

 

 

 

 

 

 

 

Cash in bank, etc.

 

86,050,738

 

39,095,216

 

 

Restricted cash and cash equivalents as at December 31, 2018 and 2017, are as follows:

(in thousands of Korean won)

 

December 31, 2018

 

December 31, 2017

 

 

 

 

 

 

 

 

 

Deposits for membership

 

-

 

20,120

 

 


22

 


GRAVITY CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017

5. Financial Instruments by Category

5.1 Carrying Amounts of Financial Instruments by Category

Carrying amounts of financial assets and liabilities by category as at December 31, 2018 and 2017, are as follows:

(in thousands of Korean won)

 

Financial assets at amortized cost

 

 

December 31, 2018

 

December 31, 2017

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

86,050,738

 

39,095,216

 

Short-term financial assets

 

 

9,500,000

 

 

22,500,000

 

Accounts receivables, net

 

 

60,663,917

 

 

42,167,869

 

Other receivables, net

 

 

254,540

 

 

698,059

 

Other current assets

 

 

191,342

 

 

155,257

 

Other non-current financial assets

 

 

1,494,032

 

 

1,394,347

 

 

 

158,154,569

 

106,010,748

 

 


(in thousands of Korean won)

 

Financial liabilities at amortized cost

 

 

December 31, 2018

 

December 31, 2017

 

 

 

 

 

 

 

 

 

 

 

 

Account payables

 

71,928,274

 

44,409,786

 

Accrued expenses

 

 

1,030,598

 

 

322,288

 

Other current liabilities

 

 

112,673

 

 

106,660

 

Other non-current liabilities

 

 

34,413

 

 

140,943

 

 

 

73,105,958

 

44,979,677

 

 

5.2 Net Gains or Losses by Category of Financial Instruments

Net gains or losses on each category of financial instruments for the years ended December 31, 2018 and 2017, are as follows:

(in thousands of Korean won)

 

Financial assets at amortized cost

 

 

2018

 

2017

 

 

 

 

 

 

 

Interest Income

 

819,397

 

553,844

Gain on foreign currency transaction

 

 

158,644

 

 

230,300

 

 

 

23

 


GRAVITY CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017


(in thousands of Korean won)

 

Financial liabilities at amortized cost

 

 

2018

 

2017

 

 

 

 

 

 

 

Gain (loss) on foreign currency transaction

 

105,009

 

(349,043)

 

5.3 Fair value of Financial Instruments by Category

The carrying amount and fair value of financial assets and liabilities as at December 31, 2018 and 2017, are as follows:

(in thousands of Korean won)

 

 

December 31, 2018

 

December 31, 2017

 

 

 

 

 

 

 

 

 

 

Carrying

amount

 

Fair

Value

 

Carrying

amount

 

Fair

Value

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

86,050,738

 

86,050,738

 

39,095,216

 

39,095,216

Short-term financial instruments

 

9,500,000

 

 

9,500,000

 

 

22,500,000

 

 

22,500,000

Accounts receivable, net

 

60,663,917

 

 

(*)

 

 

42,167,869

 

 

(*)

Other receivables, net

 

254,540

 

 

(*)

 

 

698,059

 

 

(*)

Other current assets

 

191,342

 

 

(*)

 

 

155,257

 

 

(*)

Other non-current assets

 

1,494,032

 

 

(*)

 

 

1,394,347

 

 

(*)

 

158,154,569

 

 

 

106,010,748

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Account payables

71,928,274

 

(*)

 

44,409,786

 

(*)

Accrued expenses

 

1,030,598

 

 

 

 

 

322,288

 

 

 

Other current liabilities

 

112,673

 

 

(*)

 

 

106,660

 

 

(*)

Other non-current liabilities

 

34,413

 

 

 

 

 

140,943

 

 

 

 

73,105,958

 

 

 

44,979,677

 

 

 

(*) As the carrying amount is a reasonable approximation of fair value, it is excluded from fair value disclosure.


24

 


GRAVITY CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017

5.4 Fair value Hierarchy

Fair value hierarchy classifications of the financial assets and financial liabilities that are measured at fair value or its fair value is disclosed as at December 31, 2018 and 2017, are as follows:

(in thousands of Korean won)

 

December 31, 2018

 

 

Level 1

 

Level 2

 

Level 3

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

48,004,506

 

38,046,232

 

-

 

86,050,738

Short-term financial assets

 

 

5,500,000

 

 

4,000,000

 

 

-

 

 

9,500,000

 

 

53,504,506

 

42,046,232

 

-

 

95,550,738

 

(in thousands of Korean won)

 

December 31, 2017

 

 

Level 1

 

Level 2

 

Level 3

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

24,431,061

 

14,664,155

 

-

 

39,095,216

Short-term financial assets

 

 

11,000,000

 

 

11,500,000

 

 

-

 

 

22,500,000

 

 

35,431,061

 

26,164,155

 

-

 

61,595,216

 

Assets measured at fair value or for which the fair value is disclosed are categorized within the fair value hierarchy, and the defined levels are as follows:

 

 

Quoted prices (unadjusted) in active markets for identical assets or liabilities (Level 1)

 

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 2)

 

Unobservable inputs for the asset or liability (Level 3)

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. Most of the products included in Level 1 consist of ordinary deposits and time deposits.

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 company-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.


25

 


GRAVITY CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017

The valuation techniques used to measure the fair value of a financial instrument include:

- Disclosure of similar goods Market price or dealer price

- The fair value of derivative instruments is determined by discounting the amount at present value using the leading exchange rate as of the end of the reporting period

For other financial instruments, we use other techniques, such as a discounted cash flow method. For accounts and other receivables classified as current assets, the carrying amount is estimated as a reasonable approximation of fair value.

 

6. Accounts and Other Receivables

Accounts receivables as at December 31, 2018 and 2017, are as follows:

 

(in thousands of Korean won)

 

 

December 31, 2018

 

 

December 31, 2017

 

 

 

 

 

 

 

 

 

Non-related party

 

59,633,006

 

41,515,693

 

Related party

 

 

1,052,723

 

 

775,498

 

Less: provision for impairment

 

 

(21,812)

 

 

(123,322)

 

Accounts receivables, net

 

60,663,917

 

42,167,869

 

 

Other receivables as at December 31, 2018 and 2017, are as follows:

 


(in thousands of Korean won)

 

December 31, 2018

 

December 31, 2017

 

 

 

 

 

 

 

 

 

Non-related party

 

338,444

 

744,456

 

Related party

 

 

-

 

 

-

 

Less: provision for impairment

 

 

(83,904)

 

 

(46,397)

 

Other receivables - net

 

254,540

 

698,059

 

 

Above accounts and other receivables are classified as loans and receivables and are subsequently measured at amortized cost.


26

 


GRAVITY CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017

The aging analysis of accounts receivables as at December 31, 2018 and 2017, are as follows:

 


(in thousands of Korean won)

 

December 31, 2018

 

December 31, 2017

 

 

 

 

 

 

 

 

 

Receivables not past due

 

60,641,917

 

42,145,869

 

Past due but not impaired

 

 

22,000

 

 

22,000

 

Impaired

 

 

21,812

 

 

123,322

 

Total

 

60,685,729

 

42,291,191

 

 

The aging analysis of other receivables as at December 31, 2018 and 2017, are as follows:

 


(in thousands of Korean won)

 

December 31, 2018

 

December 31, 2017

 

 

 

 

 

 

 

 

 

Receivables not past due

 

254,540

 

698,020

 

Past due but not impaired

 

 

-

 

 

39

 

Impaired

 

 

83,904

 

 

46,397

 

Total

 

338,444

 

744,456

 

 

The Company calculates recoverable amount of receivables for which loss event has been individually identified through individual analysis and recognizes the difference between such calculated recoverable amount and book value as impairment loss.

As for the receivables for which loss event has not been individually identified, the Company classifies such receivables based on the contractual collection period, and receivables whose collection period has not expired yet are deemed as receivables not past due. With regard to the receivables past due, the Company makes adjustments to provision for impairment by applying certain specified rate of impaired receivables in consideration of the credit risk based on the overdue period.

Movements in the provision for impairment of accounts and other receivables for the years ended December 31, 2018 and 2017, are as follows:

(in thousands of Korean won)

 

2018

 

2017

 

 

Accounts

 

Other

 

Accounts

 

Other

 

 

 

 

 

 

 

 

 

Balance as at January 1

 

123,322

 

46,397

 

125,985

 

44,673

Provisions for impaired receivables/ (reversals of unused amounts)

 

 

54,982

 

 

39,707

 

 

(2,663)

 

 

1,724

Receivables written off during the year as uncollectible

 

 

(156,492)

 

 

(2,200)

 

 

-

 

 

-

Balance as at December 31

 

21,812

 

83,904

 

123,322

 

46,397

27

 


GRAVITY CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017

In assessing the recoverability of accounts receivables, etc., the Company takes into consideration changes in the credit rating of accounts receivables from commencement of the credit granting to end of the reporting period.

7. Property and Equipment

Details of property and equipment as at December 31, 2018 and 2017, are as follows:

 

(in thousands of Korean won)

 

December 31, 2018

 

December 31, 2017

 

 

 

Cost

 

Accumulated depreciation

 

Book amount

 

Cost

 

Accumulated depreciation

 

Book amount

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Computer and other equipment

 

7,125,083

 

(6,237,454)

 

887,629

 

6,794,885

 

(6,140,582)

 

654,303

 

Furniture

and fixture

 

 

1,924,324

 

 

(1,440,008)

 

 

484,316

 

 

1,866,871

 

 

(1,702,000)

 

 

164,871

 

Leasehold improvements

 

 

1,124,298

 

 

(997,757)

 

 

126,541

 

 

1,080,809

 

 

(954,040)

 

 

126,769

 

 

 

10,173,705

 

(8,675,219)

 

1,498,486

 

9,742,565

 

(8,796,622)

 

945,943

 

 

Changes in property and equipment for the years ended December 31, 2018 and 2017, are as follows:

 

(in thousands of Korean won)

 

December 31, 2018

 

 

Computer

and

other equipment

 

Furniture

and

fixture

 

Leasehold

improvements

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

Opening net book amount

 

654,303

 

164,871

 

126,769

 

945,943

Acquisitions

 

 

550,134

 

 

472,280

 

 

119,026

 

 

1,141,440

Depreciation

 

 

(297,448)

 

 

(133,196)

 

 

(115,351)

 

 

(545,995)

Disposals

 

 

(32,634)

 

 

(21,188)

 

 

(5,275)

 

 

(59,097)

Exchange differences

 

 

13,274

 

 

1,549

 

 

1,372

 

 

16,195

Closing net book amount

887,629

 

484,316

 

126,541

 

1,498,486

 


28

 


GRAVITY CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017

(in thousands of Korean won)

 

December 31, 2017

 

 

Computer

and

other equipment

 

Furniture

and

Fixture

 

Leasehold

improvements

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

Opening net book amount

 

231,381

 

103,271

 

143,421

 

478,073

Acquisitions

 

 

616,677

 

 

165,222

 

 

117,112

 

 

899,011

Depreciation

 

 

(174,193)

 

 

(102,935)

 

 

(98,281)

 

 

(375,409)

Disposals

 

 

-

 

 

(806)

 

 

(36,540)

 

 

(37,346)

Exchange differences

 

 

(19,562)

 

 

119

 

 

1,057

 

 

(18,386)

Closing net book amount

 

654,303

 

164,871

 

126,769

 

945,943

 

Line items including depreciation in the statements of comprehensive income for the years ended December 31, 2018 and 2017, are as follows:

 


(in thousands of Korean won)

 

2018

 

2017

 

 

 

 

 

 

 

Cost of revenue

 

260,164

 

182,509

Selling, general and administrative expenses

 

 

285,831

 

 

192,900

 

 

545,995

 

375,409

 

At the end of the reporting period, there are no tangible assets of the Company that are pledged as collaterals for the Company’s debts.

 

8. Intangible Assets

 

Details of intangible assets as at December 31, 2018 and 2017, are as follows:

 

(in thousands of Korean won)

 

December 31, 2018

 

December 31, 2017

 

 

 

Cost

 

Accumulated amortization1

 

Book amount

 

Cost

 

Accumulated amortization1

 

Book amount

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Software

 

11,341,174

 

(10,349,891)

 

991,283

 

10,536,363

 

(10,472,095)

 

64,268

 

Patents

 

 

532,832

 

 

(461,451)

 

 

71,381

 

 

516,861

 

 

(440,326)

 

 

76,535

 

Other intangible assets

 

 

3,409,886

 

 

(3,309,549)

 

 

100,337

 

 

3,331,438

 

 

(2,436,192)

 

 

895,246

 

 

 

15,283,891

 

(14,120,891)

 

1,163,001

 

14,384,662

 

(13,348,613)

 

1,036,049

 

 

1 Accumulated amortization includes the amount of accumulated impairment loss

 


29

 


GRAVITY CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017

Changes in intangible assets for the years ended December 31, 2018 and 2017, are as follows:

 

(in thousands of Korean won)

 

2018

 

 

Software

 

Patents

 

Other intangible assets

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning balance

 

64,268

 

76,535

 

895,246

 

1,036,049

Acquisitions

 

 

1,523,161

 

 

15,971

 

 

78,447

 

 

1,617,579

Amortization

 

 

(596,974)

 

 

(21,125)

 

 

(250,216)

 

 

(868,315)

Disposals

 

 

-

 

 

-

 

 

-

 

 

-

Impairment loss1

 

 

-

 

 

-

 

 

(623,140)

 

 

(623,140)

Exchange differences

 

 

828

 

 

-

 

 

-

 

 

828

Ending balance

 

991,283

 

71,381

 

100,337

 

1,163,001

 

1 Impairment loss of \ 623,141 thousand was recognized as carrying amount of other intangible assets exceeded recoverable amount.

 

(in thousands of Korean won)

 

2017

 

 

Software

 

Patents

 

Other intangible assets

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning balance

 

114,993

 

88,966

 

30,038

 

233,997

Acquisitions

 

 

35,759

 

 

11,936

 

 

1,129,310

 

 

1,177,005

Amortization

 

 

(86,291)

 

 

(24,367)

 

 

(34,102)

 

 

(144,760)

Disposals

 

 

-

 

 

-

 

 

-

 

 

-

Impairment loss

 

 

-

 

 

-

 

 

(230,000)

 

 

(230,000)

Exchange differences

 

 

(193)

 

 

-

 

 

-

 

 

(193)

Ending balance

 

64,268

 

76,535

 

895,246

 

1,036,049

 

The amortization expenses of intangible assets for the years ended December 31, 2018 and 2017 are charged to the following accounts:

 

(in thousands of Korean won)

2018

 

2017

 

 

 

 

Cost of revenue

251,180

 

40,306

Selling, general and administrative expenses

 

617,135

 

 

104,454

 

868,315

 

144,760

 

9. Employee Benefit

The expense recognized in relation to defined contribution plan for the years ended December 31, 2018 and 2017, are ₩1,459,083 thousand and ₩931,782 thousand, respectively.

 


30

 


GRAVITY CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017

10. Commitments

The Company has entered into exclusive license agreement with foreign licensees, such as GungHo Online Entertainment, Inc., and Electronics Extreme Ltd. etc., to provide exclusive license to distribute and sell online games and receives a certain portion of each licensee’s revenues (20-40%) as royalties.

In March 2016, the Company and Shanghai The Dream Network Technology Co., Ltd. entered existing development agreements to grant them an exclusive right to develop mobile games and web games in China based on the contents of Ragnarok Online and distribute such games in mainland China for five years.

As at December 31, 2018, the Company has entered into license agreements with various third party game developers to secure exclusive right to publish the games developed by third party developers. Upfront license fees paid are capitalized as other intangible assets and minimum guaranteed royalties are capitalized as other non-current asset. As at December 31, 2018, purchase obligations for future payment related to above agreements is 1,089,297 thousand (As at December 31, 2017 : 1,436,167 thousand).

The Company entered into lease agreements for principal office in Seoul, its overseas branch office, etc. as at December 31, 2018.

 

Future minimum lease payments for the operating leases as at December 31, 2018 and 2017, are as follows:


(in thousands of Korean won)

 

December 31, 2018

 

December 31, 2017

 

 

 

 

 

 

 

 

 

Within one year

 

2,592,311

 

2,332,900

 

Later than one year but not later than three years

 

 

2,737,922

 

 

357,850

 

Total

 

5,330,233

 

2,690,750

 

 

The lease payments recognized as expenses resulting from operating leases for the years ended December 31, 2018 and 2017, are as follows:


(in thousands of Korean won)

 

2018

 

2017

Lease payments

 

2,603,623

 

2,204,854

 


31

 


GRAVITY CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017

11. Contract Assets and Liabilities

 

As explained in Note 2, the Company has applied Korean IFRS 1115 Revenue from Contracts with Customers on January 1, 2018, the date of initial application.

Details of the incremental costs of obtaining a contract and contract liabilities are as follows:


(in thousands of Korean won)

 

December 31, 2018

 

January 1, 2018

 

 

 

 

 

 

 

Incremental costs of obtaining a contract

(Prepaid expenses)

 

2,036,015

 

2,230,595

 

 

 

 

 

 

 

 

 

Contact liabilities(Deferred revenue)

 

20,074,491

 

22,680,983

 

Subscription revenue

 

 

12,016,773

 

 

12,409,010

 

Royalties and license fees

 

 

7,223,183

 

 

10,243,589

 

App development and service revenue

 

 

834,535

 

 

28,384

 

 

 

Changes in contract liabilities for for the years ended December 31, 2018, are as follows:

(in thousands of Korean won)

Contract liabilities

 

 

 

Balance as at January 1, 2018

22,680,983

Increase due to subscription revenue

 

12,016,773

Increase due to royalties and license fees

 

540,460

Increase due to app development and service revenue

 

834,535

Decrease due to satisfaction of performance obligation – subscription revenue

 

(12,409,010)

Decrease due to satisfaction of performance obligation – royalties and license fees

 

(3,065,443)

Decrease due to satisfaction of performance obligation – app development and service revenue

 

(495,423)

Decrease due to termination of contracts

 

(28,384)

Balance as at December 31, 2018

20,074,491

 

Meanwhile, there is no revenue in the reporting period which arises from performance obligations satisfied in previous periods.


32

 


GRAVITY CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017

Transaction price allocated to unsatisfied performance obligations as at December 31, 2018, are as follows:

(in thousands of Korean won)

Closing Balance

 

 

 

Subscription revenue

12,016,773

Royalties and license fees

 

7,223,183

App development and service revenue

 

834,535

 

The Company expects to recognize 82%(16,476,352 thousand) of transaction price allocated to unsatisfied performance in the following reporting period. The Company expects the remaining 18% (3,598,139 thousand) to be recognized after the following reporting period. Above amounts do not include estimation on variable consideration.

Incremental costs of obtaining a contract as at December 31, 2018, are as follows:

(in thousands of Korean won)

Closing balance

 

 

 

Assets recognized from the costs incurred to obtain or fulfill a contract with a customer

2,036,015

Amortization recognized as cost of revenue

 

2,230,595

 

12. Share Capital and Share Premium

 

Details of common shares as at December 31, 2018 and 2017, are as follows:


(in Korean won and in number of shares)

 

December 31, 2018

 

December 31, 2017

 

 

 

 

 

 

 

 

 

Shares authorized

 

 

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

 

 

Details of capital surplus as at December 31, 2018 and 2017, are as follows:


(in thousands of Korean won)

 

December 31, 2018

 

December 31, 2017

 

 

 

 

 

 

 

 

 

Share premium

 

25,334,202

 

\

25,357,547

 

Other capital surplus

 

 

1,806,053

 

 

1,806,053

 

 

 

27,140,255

 

\

27,163,600

 

 


33

 


GRAVITY CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017

Details of other components of equity at the end of reporting periods are as follows:

 


(in thousands of Korean won)

 

December 31, 2018

 

December 31, 2017

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

138,433

 

(39,679)

 

 

Details of retained earnings (accumulated deficit) at the end of reporting periods are as follows:


(in thousands of Korean won)

 

December 31, 2018

 

December 31, 2017

 

 

 

 

 

 

 

 

 

Unappropriated retained earnings

 

45,404,608

 

13,961,805

 

 

According to the Company's Articles of Incorporation, the Company may issue 2,000,000 shares of preferred stock without voting rights, and there are no preferred shares issued as at December 31, 2018.

 

13. Classification of expenses by nature

 

(in thousands of Korean won)

 

2018

 

2017

 

 

 

 

 

 

 

Fees and commissions

 

195,173,112

 

83,356,234

Advertising expenses

 

 

17,262,943

 

 

12,525,124

Salaries

 

 

23,137,389

 

 

17,847,223

Outsourcing expenses

 

 

6,175,990

 

 

5,188,650

Rent

 

 

2,603,623

 

 

2,204,854

Employee benefits

 

 

2,655,375

 

 

2,168,789

Expenses related to defined contribution plan

 

 

1,545,612

 

 

1,218,666

Depreciation

 

 

545,995

 

 

375,409

Amortization

 

 

868,315

 

 

144,760

Other expenses

 

 

2,912,574

 

 

2,455,391

Total1

 

252,880,928

 

127,485,100

 

1 Total cost of revenue and selling, general and administrative expenses per the statement of comprehensive income.

 


34

 


GRAVITY CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017

14. Selling, General and Administrative Expenses

 

(in thousands of Korean won)

 

2018

 

2017

 

 

 

 

 

 

 

Advertising expenses

 

17,262,943

 

12,525,124

Fees and commissions

 

 

5,727,264

 

 

6,594,426

Research and development

 

 

7,079,825

 

 

5,467,507

Salaries

 

 

8,018,311

 

 

5,239,234

Employee benefits

 

 

1,140,450

 

 

919,054

Rent

 

 

941,451

 

 

686,443

Expenses related to defined contribution plan

 

 

386,921

 

 

356,538

Depreciation

 

 

232,504

 

 

149,528

Amortization

 

 

581,197

 

 

67,726

Other expenses

 

 

1,466,506

 

 

1,245,257

 

 

42,837,372

 

33,250,837

 

15. Finance Income and Costs

 

(in thousands of Korean won)

 

2018

 

2017

 

 

 

 

 

 

 

Finance income

 

 

 

 

 

 

Interest Income

 

819,397

 

553,844

Unrealized foreign currency gain

 

 

379

 

 

1,289

Gain on foreign currency transaction

 

 

6,206

 

 

39,441

 

 

825,982

 

594,574

 

(in thousands of Korean won)

 

2018

 

2017

 

 

 

 

 

 

 

Finance costs

 

 

 

 

 

 

Unrealized foreign currency loss

 

72,733

 

185,367

Loss on foreign currency transaction

 

 

7,295

 

 

11,594

Other

 

 

12,174

 

 

13,008

 

 

92,202

 

209,969

 


35

 


GRAVITY CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017

16. Other Non-Operating Income and Expenses

 

Details of other non-operating income for the years ended December 31, 2018 and 2017, are as follows:

 

(in thousands of Korean won)

 

2018

 

2017

 

 

 

 

 

 

 

Unrealized foreign currency gain

 

81,615

 

286,785

Gain on foreign currency transaction

 

 

1,166,665

 

 

993,352

Gain on disposal of property and equipment

 

 

15,497

 

 

1,655

Others

 

 

106,042

 

 

163,162

 

 

1,369,819

 

1,444,954

 

Details of other non-operating expenses for the years ended December 31, 2018 and 2017, are as follows:

 

(in thousands of Korean won)

 

2018

 

2017

 

 

 

 

 

 

 

Unrealized foreign currency loss

 

27,736

 

485,449

Loss on foreign currency transaction

 

 

883,446

 

 

757,199

Loss on retirement of property and equipment

 

 

5,275

 

 

36,540

Impairment loss on intangible assets

 

 

623,141

 

 

230,000

Donations

 

 

3,871

 

 

-

Others

 

 

10,129

 

 

638

 

 

1,553,598

 

1,509,826

 

17. Tax Expense and Deferred Tax

 

Income tax expense for the years ended December 31, 2018 and 2017, consists of:


(in thousands of Korean won)

 

2018

 

2017

 

 

 

 

 

 

 

Current tax:

 

 

 

 

 

 

Current tax on profits for the year

 

7,430,404

 

4,180,342

Deferred tax:

 

 

 

 

 

 

Origination and reversal of temporary differences

 

 

(4,377,237)

 

 

(3,036,165)

Income tax expense

 

3,053,167

 

1,144,177

 


36

 


GRAVITY CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017

The tax on the Company’s profit before tax differs from the theoretical amount that would arise using the effective tax rate applicable to profits of the consolidated entities as follows:


(in thousands of Korean won)

 

2018

 

2017

 

 

 

 

 

 

 

Profit before income tax expense

 

34,439,498

 

14,458,114

Tax at domestic tax rates applicable to profits in the respective countries

 

 

8,993,807

 

 

3,232,649

Tax effects of:

 

 

 

 

 

 

Expenses not deductible for tax purposes

 

 

61,893

 

 

136,336

Tax amounts paid in a foreign country

 

 

5,195,891

 

 

3,962,769

Utilization of previously unrecognized tax losses

 

 

(4,694,338)

 

 

(2,673,552)

Utilization of previously unrecognized tax credits  

 

 

(652,938)

 

 

(633,273)

Change in deferred tax due to temporary differences

 

 

-

 

 

(3,036,165)

Change in deferred tax due to carry-forward deficits

 

 

(1,950,584)

 

 

-

Change in deferred tax due to tax credit carry-forward

 

 

(4,314,883)

 

 

-

Effect of exchange rate fluctuations

 

 

(220,795)

 

 

495,364

Others

 

 

635,114

 

 

(339,951)

Income tax expense

 

3,053,167

 

1,144,177

 

   The effective average tax rate of the Company was 9% (2017: 8%).


37

 


GRAVITY CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017

The movements in deferred tax assets and liabilities for the years ended December 31, 2018 and 2017, without taking into consideration the offsetting of balances within the same tax jurisdiction, are as follows:

(in thousands of Korean won)

2018

 

2017

Beginning balance

 

Increase

(Decrease)

 

Ending

balance

 

Beginning balance

 

Increase

(Decrease)

 

Ending

balance

Deferred tax assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Intangible assets

 

88,706

 

155,527

 

244,233

 

197,511

 

(108,805)

 

88,706

Other non-current asset

 

 

49,498

 

 

(41,058)

 

 

8,440

 

 

110,093

 

 

(60,595)

 

 

49,498

Accounts Payable

 

 

1,439,985

 

 

3,259,696

 

 

4,699,681

 

 

590,085

 

 

849,900

 

 

1,439,985

Accrued expenses

 

 

88,134

 

 

15,692

 

 

103,826

 

 

51,473

 

 

36,661

 

 

88,134

Deferred revenue

 

 

812,490

 

 

125,339

 

 

937,829

 

 

(20,095)

 

 

832,585

 

 

812,490

Provision for impaired receivables

 

 

216,553

 

 

40,860

 

 

257,413

 

 

270,762

 

 

(54,209)

 

 

216,553

Asset retirement obligation

 

 

39,205

 

 

7,059

 

 

46,264

 

 

31,505

 

 

7,700

 

 

39,205

Investment in subsidiaries

 

 

2,747,475

 

 

(2,747,475)

 

 

-

 

 

2,747,475

 

 

-

 

 

2,747,475

Other

 

 

27,888

 

 

(45,080)

 

 

(17,192)

 

 

67,988

 

 

(40,100)

 

 

27,888

Deferred tax liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Tax paid in a foreign country

 

 

(13,178)

 

 

38,165

 

 

24,987

 

 

(13,021)

 

 

(157)

 

 

(13,178)

Property and equipment

 

 

(32,636)

 

 

13,219

 

 

(19,417)

 

 

38,183

 

 

(70,819)

 

 

(32,636)

Subtotal(Ⅰ)

 

5,464,120

 

821,944

 

6,286,064

 

4,071,959

 

1,392,161

 

5,464,120

Deferred tax due to carry-forward deficits(Ⅱ)

 

 

14,001,968

 

 

(10,132,977)

 

 

3,868,991

 

 

20,662,150

 

 

(6,660,182)

 

 

14,001,968

Deferred tax due to tax credit carry-forward(Ⅲ)

 

 

8,089,715

 

 

(2,405,781)

 

 

5,683,934

 

 

6,696,572

 

 

1,393,143

 

 

8,089,715

Evaluation of realization(Ⅳ)

 

 

(24,519,638)

 

 

16,094,051

 

 

(8,425,587)

 

 

(31,430,681)

 

 

6,911,043

 

 

(24,519,638)

Deferred tax asset after evaluating realization

(Ⅰ+Ⅱ+Ⅲ+Ⅳ) 1

 

3,036,165

 

4,377,237

 

7,413,402

 

-

 

3,036,165

 

3,036,165

38

 


GRAVITY CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017

1 The future realizability of deferred income tax assets is assessed by taking into consideration various factors such as the Company's performance, the overall economic environment and industry outlook, expected future earnings, tax credits. As of December 31, 2018, the Company has recognized full deferred tax assets related to temporary differences, carry-forward deficits and tax credit carry-forward, which can be utilized based on the likelihood of future taxable income. This amount may change if the estimate for future taxable income changes.


39

 


GRAVITY CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017

Details of unrecognized deductible (taxable) temporary differences, carry-forward deficits and tax credit carry-forward as deferred tax assets (liabilities) as at December 31, 2018 is as follows:

(in thousands of Korean won)

 

 

 

 

Maturity

 

Carry-forward deficits

 

Tax credit carry-forward

2019

 

-

 

297,979

2020

 

 

-

 

 

212,374

2021

 

 

-

 

 

175,371

2022

 

 

-

 

 

162,959

2023

 

 

1,043,279

 

 

520,368

After 2023

 

 

7,677,898

 

 

-

Total

 

8,721,177

 

1,369,051

 

As at December 31, 2018, the Company did not recognize deferred tax asset for deductible temporary differences of \ 18,452,540 thousand (As at December 31, 2017: \ 10,325,477 thousand) and deductible temporary differences associated with investments in subsidiaries of \ 25,536,203 thousand (As at December 31, 2017: \ 13,051,886 thousand) because it is probable that the temporary difference will not reverse in the forseeable future.

 

The analysis of deferred tax assets and liabilities as at December 31, 2018 and 2017, is as follows:


(in thousands of Korean won)

 

December 31, 2018

 

December, 31 2017

 

 

 

 

 

 

 

 

 

Deferred tax assets

 

 

 

 

 

 

 

Deferred tax asset to be recovered after more than 12 months

 

1,465,927

 

262,946

 

Deferred tax asset to be recovered within 12 months

 

 

5,993,009

 

 

2,819,033

 

 

 

7,458,936

 

3,081,979

 

Deferred tax liabilities

 

 

 

 

 

 

 

Deferred tax liability to be recovered after more than 12 months

 

 

-

 

 

(32,636)

 

Deferred tax liability to be recovered within 12 months

 

(45,534)

 

(13,178)

 

 

 

 

(45,534)

 

 

(45,814)

 

Deferred tax assets, net

 

7,413,402

 

3,036,165

 

 

 


40

 


GRAVITY CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017

18. Earnings per Share

 

Basic earnings per share is calculated by dividing net income of the controlling company’s common stock by the weighted average number of common shares outstanding during the period.

 

18.1 Basic earnings per share

 

(in thousands of Korean won, except per share data)

 

2018

 

2017

 

 

 

 

 

 

 

Profit attributable to controlling shareholders (A)

 

  

31,442,803

 

  

13,319,047

Weighted average outstanding shares

of common shares (B)

 

 

6,948,900 shares

 

 

6,948,900 shares

Basic earnings per share (A/B)

 

4,525

 

1,917

 

18.2 Diluted earnings per share

 

The Company did not issue any potential ordinary shares. Therefore, basic earnings per share is identical to diluted earnings per share.

 

19. Cash Generated from Operations

 

(a) Cash generated from operations

 

(in thousands of Korean won)

 

2018

 

2017

 

 

 

 

 

 

 

Adjustments for:

 

 

 

 

 

 

Depreciation

 

545,995

 

375,409

Amortization

 

 

868,315

 

 

144,760

Impairment loss on receivables

 

 

151,497

 

 

74,187

Unrealized foreign currency loss

 

 

100,469

 

 

670,816

Loss on retirement of property and plant

 

 

5,275

 

 

36,540

Impairment loss on intangible asset

 

 

623,141

 

 

230,000

Post-employment benefit expenses

 

 

49,934

 

 

164,459

Income tax expense

 

 

3,053,167

 

 

1,144,177

Unrealized foreign currency gain

 

 

(81,994)

 

 

(288,074)

Gain on disposal of property and plant

 

 

(15,497)

 

 

(1,656)

Interest income

 

 

(819,397)

 

 

(553,844)

  Other

 

 

-

 

 

905

Cash generated from operations

 

4,480,905

 

1,997,679

 


41

 


GRAVITY CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017

(b) Changes in assets and liabilities arising from operating activities

 

(in thousands of Korean won)

 

2018

 

2017

 

 

 

 

 

 

 

Change in accounts receivable

 

(18,573,734)

 

(27,786,585)

Change in other receivable

 

 

406,304

 

 

11,945

Change in prepaid expenses

 

 

544,025

 

 

(1,390,092)

Change in other current assets

 

 

192,249

 

 

(400,291)

Change in other non-current assets

 

 

(1,137,778)

 

 

(449,210)

Change in account payables

 

 

27,319,034

 

 

35,046,175

Change in deferred revenue

 

 

(2,706,900)

 

 

1,980,127

Change in withholdings

 

 

580,171

 

 

1,239,295

Change in accrued expenses

 

 

(6,873)

 

 

186,624

Change in other current liabilities

 

 

(13,012)

 

 

67,684

Change in long-term deferred revenue

 

 

100,409

 

 

4,110,733

Change in other non-current liabilities

 

 

-

 

 

261,339

Cash generated from operations

 

6,703,895

 

12,877,744

 

(c) Non-cash transactions

 

(in thousands of Korean won)

 

2018

 

2017

 

 

 

 

 

 

 

Reclassification of long-term deferred revenue to deferred revenue

 

3,392,146

 

4,190,829

Reclassification of long-term loan to short-term loan

 

 

-

 

 

3,333

Reclassification of other non-current assets to intangible assets

 

 

-

 

 

11,936

Increase in account payable due to purchase software

 

 

225,710

 

 

-


42

 


GRAVITY CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017

20. Financial Risk Management

 

The Company’s activities expose it to a variety of financial risks: market risk, credit risk and liquidity risk. The Company’s overall risk management program focuses on the unpredictability of financial markets and seeks to minimize any adverse effects on the financial performance of the Company. The Company operates financial risk management policies and programs that closely monitor and respond to each risk factor.

20.1 Capital Risk Management

The Company’s objectives when managing capital are to safeguard the Company’s ability to continue as a going concern, so the Company can continue to provide returns for shareholders and benefits for other stakeholders, and to maintain an optimal capital structure to reduce the cost of capital. The Company monitors capital on the basis of the debt ratio. This ratio is calculated as total debt divided by total capital. The debt ratios at December 31, 2018 and 2017, are as follows:

(in thousands of Korean won)

 

December 31, 2018

December 31, 2017

 

 

 

 

 

 

Total debt

 

97,622,044

 

71,884,687

Total capital

 

 

75,551,785

 

43,998,451

Debt ratio

 

 

129%

 

163%

 

20.2 Market Risk

(a) Foreign exchange risk

The Company is exposed to foreign exchange risk arising from royalty revenues and commission payment primarily with respect to the US dollar. The Company’s financial assets and liabilities exposed to foreign currency risk as at December 31, 2018 and 2017, are as follows:

 

(in thousands of Korean won)

December 31, 2018

 

 

Assets in

foreign

currency

 

Liabilities in foreign currency

 

Assets in Korean Won

 

Liabilities in Korean Won

 

 

 

 

 

 

 

 

 

 

 

 

 

USD

 

 

9,623,496

 

 

7,486,441

 

10,760,964

 

8,373,417

JPY

 

 

103,945,453

 

 

1,042,657

 

 

1,053,242

 

 

10,564

EUR

 

 

359,772

 

 

-

 

 

460,206

 

 

-

IDR

 

 

172,822,025

 

 

3,098,944

 

 

13,273

 

 

238

THB

 

 

34,633

 

 

173,389

 

 

1,190

 

 

5,956

TWD

 

 

36,311,172

 

 

6,597,223

 

 

1,328,263

 

 

241,326

VND

 

 

9,270,000

 

 

3,243,600

 

 

447

 

 

156

HKD

 

 

2,731

 

 

-

 

 

390

 

 

-

 

 

 

 

 

 

 

 

13,617,975

 

8,631,657

 

 

 

43

 


GRAVITY CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017



(in thousands of Korean won)

December 31, 2017

 

 

Assets in

foreign

currency

 

Liabilities in foreign currency

 

Assets in Korean Won

 

Liabilities in Korean Won

 

 

 

 

 

 

 

 

 

 

 

 

 

USD

 

 

33,614,259

 

 

31,553,072

 

36,025,978

 

33,815,040

JPY

 

 

93,528,526

 

 

294,217

 

 

887,689

 

 

2,792

BRL

 

 

161,846

 

 

-

 

 

52,349

 

 

-

EUR

 

 

354,019

 

 

-

 

 

452,879

 

 

-

IDR

 

 

901,342,531

 

 

17,291

 

 

71,206

 

 

1

THB

 

 

334,038

 

 

35,317

 

 

10,946

 

 

1,157

TWD

 

 

147,972,077

 

 

29,537,654

 

 

5,315,157

 

 

1,060,993

VND

 

 

84,010,000

 

 

22,830,100

 

 

396,527

 

 

107,758

HKD

 

 

304,033

 

 

4,967

 

 

42,985

 

 

681

 

 

 

 

 

 

 

 

43,255,716

 

34,988,422

 

The Company measures foreign exchange risk at the exchange rate of 10% for each foreign currency, and the rate of change reflects the management's assessment of the risk of exchange rate fluctuation that can be reasonably experienced. The effects of changes in foreign currency exchange rate on profit before tax for the years ended of December 31, 2018 and 2017, are as follows:

(in thousands of Korean won)

 

Impact on pre-tax profit

 

 

 

2018

 

2017

 

 

 

 

 

 

 

 

USD

Strengthened

 

238,755

 

221,094

 

Weakened

 

 

(238,755)

 

 

(221,094)

JPY

Strengthened

 

 

104,268

 

 

88,490

 

Weakened

 

 

(104,268)

 

 

(88,490)

Others

Strengthened

 

 

155,609

 

 

517,146

 

Weakened

 

 

(155,609)

 

 

(517,146)


The sensitivity analysis is based on monetary assets and liabilities denominated in foreign currencies other than the functional currency at the end of the reporting period.

(b) Interest rate risk

As of the end of the reporting period, there are no borrowings under variable interest rate conditions.

(c) Price risk

There are no assets and liabilities exposed to price risk as at December 31, 2018 and 2017.

 

 

 

44

 


GRAVITY CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017

20.3 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 Company regularly evaluate the creditworthiness of 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 Company at the end of the reporting period, is as follows:

(in thousands of Korean won)

 

December 31, 2018

 

December 31, 2017

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

86,050,738

 

39,095,216

 

Short-term financial instruments

 

 

9,500,000

 

 

22,500,000

 

Account receivables, net

 

 

60,663,917

 

 

42,167,869

 

Other receivables, net

 

 

254,540

 

 

698,059

 

Other current assets

 

 

191,342

 

 

155,257

 

Oher non-current assets

 

 

1,494,032

 

 

1,394,347

 

 

 

158,154,569

 

106,010,748

 

 

Cash and cash equivalents and short-term financial instruments are deposited in financial institutions with strong credit ratings. Accounts receivables are mainly due from payment processing companies and platform service providers, which results in low levels of credit risk.

20.4 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 Company by maturity according to the remaining period from the end of the reporting period to the contractual maturity date.

 

(in thousands of Korean won)

 

December 31, 2018

 

 

Less than

3 months

 

Between

3 months and 1 year

 

More than 1 year

 

Between

2 and 5 years

 

 

 

 

 

 

 

 

 

 

 

 

 

Account payables

 

70,381,483

 

1,546,791

 

-

 

71,928,274

Accrued expenses

 

 

1,030,598

 

 

-

 

 

-

 

 

1,030,598

Other liabilities

 

 

-

 

 

112,673

 

 

34,413

 

 

147,086

 

 

71,412,081

 

1,659,464

 

34,413

 

73,105,958

 

 

 

 

45

 


GRAVITY CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017


(in thousands of Korean won)

 

 

December 31, 2017

 

 

Less than

3 months

 

Between

3 months and 1 year

 

More than 1 year

 

Between

2 and 5 years

 

 

 

 

 

 

 

 

 

 

 

 

 

Account payables

 

42,790,140

 

1,619,646

 

-

 

44,409,786

Accrued expenses

 

 

322,288

 

 

-

 

 

-

 

 

322,288

Other liabilities

 

 

-

 

 

106,660

 

 

140,943

 

 

247,603

 

 

43,112,428

 

1,726,306

 

140,943

 

44,979,677

 

The above cash flow is not discounted and the amount due within 12 months is the same as the carrying amount since the effect of the discount is not material.

21. Segment Information

 

The Company determines the operating segments of the Company 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 reporting entity of the Company is in line with the organizational structure and CODM's review of operations, and the reportable segments as of the end of the reporting period are mobile, online, and others.

 

The Company assesses the performance of its operating segments based on its operating profit or loss, which does not differ from operating profit reported on the Statement of Comprehensive Income except for inter-segment transactions. The following information is available for each business segment for the years ended December 31, 2018 and 2017.

 

 

December 31, 2018

 

 

(in thousands of Korean won)

 

Sales

 

 

Depreciation

and

amortization

 

 

Operating profit (loss)2

 

 

 

 

 

 

 

 

 

Online

41,288,178

 

238,650

 

4,640,895

Mobile

 

257,364,411

 

 

473,167

 

 

24,863,202

Others

 

9,526,416

 

 

714,716

 

 

1,184,434

 

 

308,179,005

 

 

1,426,533

 

 

30,688,531

Inter-company eliminations1

 

(21,408,580)

 

 

(12,222)

 

 

3,200,966

 

286,770,425

 

1,414,311

 

33,889,497

 

 

 

 

 

 

 

46

 


GRAVITY CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017

 

December 31, 2017

 

 

(in thousands of Korean won)

 

Sales

 

 

Depreciation

and

amortization

 

 

Operating profit (loss)2

 

 

 

 

 

 

 

 

 

Online

53,790,092

 

222,170

 

14,572,751

Mobile

 

87,193,559

 

 

267,889

 

 

(2,416,218)

Others

 

7,532,491

 

 

35,666

 

 

1,000,192

 

 

148,516,142

 

 

525,725

 

 

13,156,725

Inter-company eliminations1

 

(6,892,661)

 

 

(5,556)

 

 

981,656

 

141,623,481

 

520,169

 

14,138,381

 

1 Intercompany eliminations are reflected as adjustments.

2 Other profit or loss items that do not constitute operating profit (loss) are not separately disclosed because they are not reviewed by the chief operating decision maker.

 

Revenue from external customers broken down by location of the customers are shown as follows:

 

(in thousands of Korean won)

 

 

 

 

Countries

 

 

2018

 

 

2017

 

 

 

 

 

 

 

Korea

 

80,814,090

 

28,707,706

Taiwan

 

 

98,210,301

 

 

76,120,668

Japan

 

 

9,766,958

 

 

9,491,401

United States of America

 

 

10,423,377

 

 

7,773,552

Thailand

 

 

43,846,433

 

 

6,569,561

Philippines

 

 

15,539,154

 

 

883,239

Indonesia

 

 

9,358,982

 

 

1,074,797

Other

 

 

18,811,130

 

 

11,002,557

 

 

286,770,425

 

141,623,481

 

Total of non-current assets broken down by location are shown as follows:

 

(in thousands of Korean won)

 

 

 

 

Countries

 

 

20181

 

 

20171

 

 

 

 

 

 

 

Korea

 

3,054,142

 

2,113,712

Other

 

 

1,045,297

 

 

468,047

 

 

4,099,439

 

2,581,759

1 Excludes financial assets and deferred tax assets.

 

There were no external customers, who contributed more than 10% of the Company's revenue for the years ended December 31, 2018 and 2017.

 


47

 


GRAVITY CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017

22. Related Party Transactions

 

Related parties of the Company are entities and individuals capable of exercising control or significant influence over the Company. Related parties include GungHo Online Entertainment, Inc. (the largest shareholder of Gravity through its 59.31% common shares) and its subsidiaries, members of board of directors, and executives with strategic responsibilities and their immediate families.

 

22.1 Balances of Receivables and Payables

 

Balances of receivables and payables arising from sales and purchase of goods and services as at December 31, 2018 and 2017, are as follows:

 

 

 

 

 

 

(in thousands of Korean won)

 

December 31, 2018

December 31, 2017

Type

 

Name of entity

 

Receivables1

 

Payables

 

Receivables1

 

Payables

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Parent

company

 

GungHo Online Entertainment, Inc.

 

1,052,723

 

2,981

 

775,498

 

2,792

 

 

 

 

1,052,723

 

2,981

 

775,498

 

2,792

 

22.2 Sale and Purchase Transactions

 

Sale and purchase transactions with related parties for the years ended December 31, 2018 and 2017, are as follows:

 

(in thousands of Korean won)

 

 

 

 

 

 

 

 

 

 

 

Type

Name of entity

2018

 

2017

Sales

 

Purchases

 

Sales

 

Purchases

Parent company

GungHo Online Entertainment, Inc.

10,516,380

 

2,635

 

10,528,846

 

35,917

 

10,516,380

 

2,635

 

10,528,846

 

35,917

 

22.3 Funds transactions

 

There are no fund transactions with related parties for the years ended December 31, 2018 and 2017.:

 


48

 


GRAVITY CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017

22.4 Key Management Compensation

 

The compensation for the key management personnel (registered directors) for the years ended December 31, 2018 and 2017 consists of:

 


(in thousands of Korean won)

 

2018

 

2017

 

 

 

 

 

 

 

Salaries

 

690,059

 

628,750

Post-employment benefits

 

 

-

 

 

-

 

 

690,059

 

628,750

 

23. Events After the Reporting Period

 

On January 29, 2019, the Company newly established a subsidiary named Gravity Game Tech. Co.,Ltd. in Thailand, and on February 7, 2019, the Company newly established joint venture named Gravity Game Link Co.,Ltd. in Indonesia.

 

49