Business Context and Reporting Period
This Form 6-K filing by GRAVITY Co., Ltd. (Nasdaq: GRVY) is dated March 17, 2006. The Company is a Korean developer and distributor of online games, with its principal product being the MMORPG Ragnarok Online, which is offered in 20 markets. The filing addresses the status of financial restatements for the years ended December 31, 2002, 2003, and 2004, and provides preliminary commentary on the financial performance for the twelve months ended December 31, 2005.
Key Financial Metrics
The filing does not provide specific numerical values for revenue, profit, cash flow, margins, debt, or liquidity for the 2005 period. It states only that net income for the twelve months ended December 31, 2005, was negatively affected. The Company expects to file a detailed annual report on Form 20-F by June 30, 2006, which will contain the specific financial data.
Material Changes and Operational Impact
- Revenue Decline: The Company reported a decline in revenue for 2005, attributed to increased competition and the later-than-expected release of new games.
- Increased Operating Expenses: Operating expenses increased, partly due to costs associated with investigating irregularities regarding the diversion of royalty payments by former Chairman Mr. Jung Ryool Kim.
- Financial Restatement: The Company is restating financial statements for 2002, 2003, and 2004 under US GAAP, with completion expected by the end of April 2006.
Guidance, Outlook, and Risks
Product Development Schedule
- Time N Tales: Beta testing expected in Q1 2006.
- STYLIA: Beta testing expected in Q2 2006.
- Ragranok II: Beta service expected in Q4 2006.
- Requiem and Pucca Online: Beta service expected in Q1 2007.
Risks and Contingencies
The filing highlights significant risks including the ability to collect license fees and royalty payments from overseas licensees, the success of new game launches, and intense industry competition. The investigation into the former Chairman's diversion of royalty payments represents a material contingency affecting past and potentially future financial integrity.
Investor Verification Checklist
- Verify the final restated financial figures for 2002, 2003, and 2004 upon the filing of the amended Form 20-F.
- Confirm the specific impact of the former Chairman's irregularities on the 2005 net income and total operating expenses.
- Monitor the actual launch dates of Ragranok II, Time N Tales, and STYLIA against the provided beta testing schedule.
- Review the upcoming Form 20-F (due by June 30, 2006) for detailed 2005 revenue and profit metrics.