Table of Contents

(Mark One)
o		REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
or
þ		ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
		For the fiscal year ended December 31, 2004
or
o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
		For the transition period from           to

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

Title of Each Class		Name of Each Exchange on Which Registered
Common stock, par value Won 500 per share*		Nasdaq National Market
American depositary shares, each representing		Nasdaq National Market
one-fourth of a share of common stock

*	Not for trading, but only in connection with the listing of American depositary shares on the Nasdaq National Market pursuant to the requirements of the Securities and Exchange Commission.

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				Page
CERTAIN DEFINED TERMS					1
FORWARD-LOOKING STATEMENTS					1
PART I					2
ITEM 1.		IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS			2
		1.A. Directors and Senior Management			2
		1.B.  Advisers			2
		1.C.  Auditors			2
ITEM 2.		OFFER STATISTICS AND EXPECTED TIMETABLE			2
ITEM 3.		KEY INFORMATION			2
		3.A. Selected Financial Data			2
		3.B.  Capitalization and Indebtedness			5
		3.C.  Reasons for the Offer and Use of Proceeds			5
		3.D. Risk Factors			5
ITEM 4.		INFORMATION ON THE COMPANY			22
		4.A. History and Development of the Company			22
		4.B.  Business Overview			22
		4.C.  Organizational Structure			44
		4.D. Property, Plants and Equipment			44
ITEM 5.		OPERATING AND FINANCIAL REVIEW AND PROSPECTS			45
		5.A. Operating Results			45
		5.B.  Liquidity and Capital Resources			59
		5.C.  Research and Development, Patents and Licenses, etc.			61
		5.D. Trend Information			62
		5.E.  Off-Balance Sheet Arrangements			62
		5.F.  Contractual Obligations			62
ITEM 6.		DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES			63
		6.A. Directors and Senior Management			63
		6.B.  Compensation			66
		6.C.  Board Practices			66
		6.D. Employees			68
		6.E.  Share Ownership			69
ITEM 7.		MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS			70
		7.A. Major Shareholders			70
		7.B.  Related Party Transactions			71
		7.C.  Interests of Experts and Counsel			72
ITEM 8.		FINANCIAL INFORMATION			72
		8.A. Consolidated Statements and Other Financial Information			72
		8.B.  Significant Changes			73

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				Page
ITEM 9.		THE OFFER AND LISTING			73
		9.A. Offer and Listing Details			73
		9.B.  Plan of Distribution			74
		9.C.  Markets			74
		9.D. Selling Shareholders			74
		9.E.  Dilution			74
		9.F.  Expenses of the Issue			74
ITEM 10.		ADDITIONAL INFORMATION			74
		10.A. Share Capital			74
		10.B. Articles of Incorporation			74
		10.C. Material Contracts			79
		10.D. Exchange Controls			82
		10.E. Taxation			84
		10.F. Dividends and Paying Agents			91
		10.G. Statement by Experts			92
		10.H. Documents on Display			92
		10.I. Subsidiary Information			92
ITEM 11.		QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK			93
		11.A. Quantitative Information about Market Risk			93
		11.B. Qualitative Information about Market Risk			94
		11.C. Interim Periods			94
ITEM 12.		DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES			94
		12.A. Debt Securities			94
		12.B. Warrants and Rights			94
		12.C. Other Securities			94
		12.D. American Depositary Shares			94
PART II					100
ITEM 13.		DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES			100
ITEM 14.		MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS			100
ITEM 15.		CONTROLS AND PROCEDURES			100
ITEM 16.		[RESERVED]			101
		16.A. Audit Committee Financial Expert			101
		16.B. Code of Ethics			101
		16.C. Principal Accountant Fees and Services			101
		16.D. Exemptions from the Listing Standards for Audit Committee			101
		16.E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers			101
PART III					102
ITEM 17.		FINANCIAL STATEMENTS			102
ITEM 18.		FINANCIAL STATEMENTS			102
ITEM 19.		EXHIBITS			102
INDEX TO FINANCIAL STATEMENTS					F-1
INDEX OF EXHIBITS					E-1
EX-4.10 SHARE PURCHASE AGREEMENT
EX-4.16 4TH AMENDMENT TO THE EXCLUSIVE RAGNAROK LICENSE
EX-4.21 3RD AMENDMENT TO THE EXCLUSIVE RAGNAROK LICENSE
EX-4.27 EXCLUSIVE RAGNAROK LICENSE
EX-4.28 EXCLUSIVE RAGNAROK LICENSE
EX-8.1 LIST OF SUBSIDIARIES
EX-11.1 REGISTRANT'S CODE OF BUSINESS CONDUCT
EX-12.1 CERTIFICATION OF CEO UNDER SECTION 302
EX-12.2 CERTIFICATION OF CFO UNDER SECTION 302
EX-13.1 CERTIFICATION OF CEO UNDER SECTION 906
EX-13.2 CERTIFICATION OF CFO UNDER SECTION 906

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	•	“Korea” or the “Republic” are to The Republic of Korea,
	•	“Government” are to the government of the Republic,
	•	“China” or the “PRC” are to the People’s Republic of China,
	•	“Taiwan” or the “ROC” are to Taiwan, the Republic of China, and
	•	“GRAVITY”, “we”, “us”, “our”, or “our company” are to GRAVITY Co., Ltd. and its subsidiaries.

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ITEM 1.	IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

ITEM 2.	OFFER STATISTICS AND EXPECTED TIMETABLE

ITEM 3.	KEY INFORMATION

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				As of and For the Years Ended December 31,
				2000(1)				2001				2002				2003				2004				2004(2)
				(Unaudited)																				(Unaudited)
				(In millions of Won and thousands of US$, except share and per share data, operating
				data and percentages)
Statement of operations:
Revenues:
Online games — subscription revenue				W	—			W	—			W	7,310			W	18,560			W	16,253			US$	15,702
Online games — royalties and license fees					—				—				2,079				22,804				44,236				42,736
Mobile games					—				—				—				43				480				464
Character merchandising, animation and other revenue					405				167				427				1,024				3,471				3,353
		Total revenues			405				167				9,816				42,431				64,440				62,255
Cost of revenues					336				—				1,735				6,866				10,309				9,959
Gross profit					69				167				8,081				35,565				54,131				52,296
Operating expenses:
Selling, general and administrative					211				354				4,956				11,115				13,719				13,253
Research and development					208				718				815				1,597				2,030				1,962
Operating income (loss)					(350	)			(905	)			2,310				22,853				38,382				37,081
Other income (expense)					—				(3	)			(2,339	)			(5,649	)			(4,548	)			(4,393	)
Income (loss) before income tax expenses, minority interest, and losses from equity method investee					(350	)			(908	)			(29	)			17,204				33,834				32,688
Income tax expenses					—				—				467				2,535				4,402				4,253
Income (loss) before minority interest and losses from equity method investee					(350	)			(908	)			(496	)			14,669				29,432				28,435
Minority interest					—				—				—				—				(17	)			(16	)
Equity in loss of related joint venture					—				—				—				—				248				240
	Net income (loss)			W	(350	)		W	(908	)		W	(496	)		W	14,669			W	29,201			US$	28,211
Earnings (loss) per share:
Basic and diluted per share				W	(350	)		W	(492	)		W	(148	)		W	2,859			W	5,263			US$	5.08
Basic and diluted per ADS					—				—				—				—				—				—
Weighted average number of shares outstanding (basic and diluted)					1,000,000				1,846,575				3,355,616				5,130,895				5,548,900				5,548,900
Balance sheet data:
Cash and cash equivalents				W	39			W	1,820			W	560			W	5,405			W	16,405			US$	15,849
Total current assets					75				2,383				7,425				17,304				40,098				38,738
Property and equipment, net					88				522				2,254				5,694				14,951				14,444
Total assets					208				3,055				11,509				28,765				62,134				60,027
Total current liabilities					38				1,123				7,677				9,051				10,319				9,970
Total liabilities					58				2,912				11,772				10,945				15,204				14,688
Total shareholders’ equity					150				143				(263	)			17,820				46,930				45,339

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		As of and For the Years Ended December 31,
		2000(1)				2001				2002				2003				2004				2004(2)
		(Unaudited)																				(Unaudited)
		(In millions of Won and thousands of US$, except share and per share data, operating
		data and percentages)
Selected operating data and financial ratios:
Aggregate peak concurrent Ragnarok Online users(3)			—				—				200,150				597,615				762,585				762,585
Average concurrent Ragnarok Online users(4)			—				—				79,364				252,457				452,519				452,519
Gross profit margin(5)			17.0	%			100.0	%			82.3	%			83.8	%			84.0	%			84.0	%
Operating profit margin(6)			N/M				N/M				23.5				53.9				59.6				59.6
Net profit margin(7)			N/M				N/M				(5.1	)			34.6				45.3				45.3

(1)	Reflects financial information since our inception on April 4, 2000.
(2)	For convenience, the Won amounts are expressed in U.S. dollars at the rate of W1,035.1 to US$1.00, the noon buying rate in effect on December 31, 2004 as quoted by the Federal Reserve Bank of New York.
(3)	The number of peak concurrent users in a given period for a country in which Ragnarok Online is commercially offered represents the highest number of users simultaneously logged on to our games’ servers during that period in that country. The aggregate monthly number of peak concurrent users is computed by adding the number of peak concurrent users for a given month in all of the countries in which Ragnarok Online is commercially offered. The aggregate number of peak concurrent users for any longer period represents the highest aggregate monthly peak concurrent user number within that given period. The number of peak concurrent users in a country (or in the case of Taiwan and Hong Kong, Malaysia and Singapore, or Germany, Austria, Switzerland, Italy and Turkey, in such group of countries) is determined on the basis of computer-generated data that shows the number of concurrent users for such country or group of countries, as applicable, at generally one-minute intervals. Within a given month, due to time differences and other factors, the exact point in time at which the peak number of concurrent users is reached may differ from country to country.
(4)	The number of average concurrent Ragnarok Online users in a given period represents the sum of the average number of concurrent users for that period in Korea, Japan, Taiwan/ Hong Kong, Thailand and China, the five key markets, in terms of revenue contribution from Ragnarok Online, in which it is commercially offered. The number of average concurrent users in a given period is computed by adding the monthly average number of concurrent users and dividing the total by the number of months in the same period. The monthly average number of concurrent users is computed by adding the daily average number of concurrent users during a given month and dividing the total by the actual number of days in that month. The daily average number of concurrent users is generally computed by adding the number of concurrent users selected in three-hour intervals (for example, the number of concurrent users at 12:00 am, 3:00 am, 6:00 am, 9:00 am, 12:00 pm, 3:00 pm, 6:00 pm and 9:00 pm on a given day) and dividing it by eight. In certain limited situations, for example, when our servers are down for maintenance or updates or when our monitoring server fails to maintain connection to our game servers, the number of our concurrent users at such time will appear as “zero”. We have adjusted the daily average number of concurrent users to remove this information from our computation. Within a given period, due to time differences and other factors, the exact points in time used to calculate the average number of concurrent users may differ from country to country.
(5)	Gross profit margin is calculated as gross profit divided by total revenues.
(6)	Operating profit margin is calculated as operating income (loss) divided by total revenues.
(7)	Net profit margin is calculated as net income (loss) divided by total revenues.

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Year Ended December 31,			At End of Period				Average(1)				High				Low
			(Won per US$1.00)
2000				1,267.0				1,130.9				1,267.0				1,105.5
2001				1,313.5				1,292.0				1,369.0				1,234.0
2002				1,186.3				1,250.4				1,332.0				1,160.6
2003				1,192.0				1,192.1				1,262.0				1,146.0
2004				1,035.1				1,139.3				1,195.1				1,035.1
2005 (through June 24)				1,013.5				1,014.8				1,058.0				997.0
	January			1,026.9				1,038.0				1,058.0				1,024.0
	February			1,000.9				1,023.1				1,044.0				1,000.9
	March			1,015.4				1,007.8				1,023.9				997.5
	April			997.0				1,019.0				1,000.4				1,009.0
	May			1,005.0				1,001.8				1,009.0				997.0
	June (through June 24)			1,013.5				1,009.6				1,016.0				1,003.0

(1)	Annual and monthly averages are calculated using the average of the daily rates during the relevant period.

	We currently depend on one product, Ragnarok Online, for substantially all of our revenues.

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	We depend on license fees and royalty payments from our overseas licensees for a substantial portion of our revenues.

	In many of our markets, we rely heavily on our overseas licensees to operate and distribute our games.

	•	holding the required government licenses for the operation and distribution of our games,
	•	publishing, advertising and marketing our games,
	•	establishing the pricing of our games after consultation with us,
	•	owning and operating the server network and other aspects of game management and maintenance,
	•	providing customer service and trouble-shooting,
	•	maintaining network security and providing back-up for game data and software, and
	•	billing and collecting subscription fees from users and remitting royalty payments to us.

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	If we are unable to consistently develop, acquire, license, launch, market or operate commercially successful online games in addition to Ragnarok Online, our business, financial condition and results of operations may be materially and adversely affected.

	We operate in a highly competitive industry and compete against many large companies.

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	We have a limited operating history, which may make it difficult for you to evaluate our business.

	Rapid technological change may adversely affect our future revenues and profitability.

	If we fail to retain and hire skilled and experienced game developers or other key personnel in order to design and develop new online games and additional game features, we may be unable to achieve our business objectives.

	Undetected programming errors or flaws in our games could harm our reputation or decrease market acceptance of our games, which would materially and adversely affect our results of operations.

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	Unexpected network interruptions, security breaches or computer virus attacks could harm our business.

	•	any breakdowns or system failures, including from fire, flood, earthquake, typhoon or other natural disasters, power loss or telecommunications failure, resulting in a sustained shutdown of all or a material portion of our servers;
	•	any disruption or failure in the national or international backbone telecommunications network, which would prevent users in certain countries in which our games are distributed from logging onto or playing our games for which the game servers are all located in other countries; and
	•	any security breach caused by hacking, loss or corruption of data or malfunctions of software, hardware or other computer equipment, and the inadvertent transmission of computer viruses.

	Unauthorized use of our intellectual property by third parties, and the expenses incurred in protecting our intellectual property rights, may adversely affect our business.

	We may be subject to future intellectual property rights claims, which could result in substantial costs and diversion of our financial and management resources.

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	The discontinuation of any of the preferential tax treatments currently available to us in Korea could materially and adversely affect our business, financial condition and results of operations.

	Our limited resources may affect our ability to manage our growth.

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	We may not be able to successfully implement our growth strategies.

	•	distributing games developed in-house,
	•	publishing games acquired from third parties or developed by third parties through licensing arrangements,
	•	offering our games in countries where we currently have little or no presence,
	•	expanding into games offered over other platforms, such as game consoles,
	•	taking advantage of our popular online games to strengthen our other lines of businesses, such as mobile games, animation and character merchandising, and
	•	selectively pursuing acquisitions of, investments in, or joint ventures with, game development companies, technologies and personnel that are complementary to our existing business if the opportunity arises.

	We have limited business insurance coverage in Korea.

	We may be required to take significant actions that are contrary to our business objectives in order to avoid being deemed an investment company as defined under the Investment Company Act of 1940, as amended.

	•	the company is primarily engaged, directly or through a wholly-owned subsidiary or subsidiaries, in a business or businesses other than that of investing, reinvesting, owning, holding or trading in securities, and
	•	40% or less of the fair market value of the company’s assets is represented by investment securities.

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	We may be considered a passive foreign investment company, which could lead to additional taxes for you.

	We and our auditors have identified certain material weaknesses in our internal controls and if we fail to achieve and maintain an effective system of internal controls, we may be unable to accurately report our financial results or reduce our ability to prevent or detect fraud, and investor confidence and the market price of our ADSs may be adversely affected.

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	•	our knowledge of general accounting and specific U.S. GAAP issues and our lack of internal accounting resources and reliance on external resources for accounting, U.S. GAAP, advice and bookkeeping support; and
	•	our reliance on spreadsheet programs, which are generally more prone to errors due to the absence of effective controls over such spreadsheet access and use, to perform consolidation and prepare U.S. GAAP financial statements.

	Our operations are subject to the regulation of the Internet in certain of the countries in which our games are distributed, such as Korea, China, Taiwan, Japan and Thailand, the impact of which is difficult to predict.

	Our online games may be subject to governmental restrictions or rating systems, which could delay or prohibit the release of new games or reduce the existing and potential range of our user base.

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	The legal systems in some of the countries where our games are distributed have uncertainties which could limit the legal protections available to us.

	If the ROC Consumer Protection Commission imposes additional regulatory burdens on our licensee in Taiwan, our licensee in Taiwan may require us to reduce the license fee or royalties, or share the cost of regulatory compliance.

	Our business may be adversely affected by complexities, uncertainties and changes in law and regulations of China regulating Internet companies and businesses operating in China, including those related to online games.

	•	restrictions on content on the Internet, including restriction on distribution of online games containing content that purports to propagate obscenity, gambling or violence, instigate crime, undermine public morality or the cultural traditions of China, or compromise state security or secrets;
	•	license and permit requirements for companies in the Internet industry, including for importing and operating online games, from various regulatory authorities; and
	•	restrictions on and supervision of Internet cafés, including closing of unlicensed Internet cafés and requiring installation of security software to prevent access to subversive sites.

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	Restrictions on currency exchange in certain of the countries in which our games are distributed may limit our ability to receive and remit revenues effectively.

	Restrictions on currency exchange in Korea in certain emergency circumstances may limit our ability to utilize effectively revenues generated in the Korean Won to fund our business activities outside Korea or expenditures denominated in foreign currencies.

	Adverse changes in the withholding tax rates in the countries from which we receive license fees and royalties could adversely affect our net income.

	Our businesses may be adversely affected by developments affecting the economies of the countries in which our games are distributed.

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	Fluctuations in exchange rates could result in foreign currency exchange losses.

	Slow growth or contractions in the Internet café industry in Korea may affect our ability to target a core group of potential users.

	Increased tensions with North Korea could adversely affect us.

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	Disruptions in Taiwan’s political environment could seriously harm our business and operations

	The economic, political and social conditions, as well as government policies in China, could adversely affect our operations in China.

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	Mr. Jung Ryool Kim, one of our executive directors and our largest shareholder, has substantial control over us and can delay or prevent a change in corporate control.

	The public shareholders of our ADSs may have more difficulty protecting their interests than they would as shareholders of a U.S. corporation.

	Any dividends paid on our common shares will be in the Korean Won and fluctuations in the exchange rate between the Won and the U.S. dollar may affect the amount received by you.

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	Your ability to deposit or withdraw common shares underlying the ADSs into and from the depositary facility may be limited, which may adversely affect the value of your investment.

	•	the aggregate number of common shares we have consented to be deposited for the issuance of ADSs (including deposits in connection with offerings of ADSs and stock dividends or other distributions relating to ADSs); and
	•	the number of common shares on deposit with the custodian for the benefit of the depositary at the time of such proposed deposit,

	You may not be able to exercise preemptive rights or participate in rights offerings and may experience dilution of your holdings.

	•	through a general public offering,
	•	to the members of the employee stock ownership association,
	•	upon exercise of a stock option,
	•	in the form of depositary receipts,
	•	to induce foreign direct investment necessary for business in accordance with the Foreign Investment Promotion Act of Korea,
	•	for the purpose of raising funds on an emergency basis,

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	•	as necessary for the inducement of technology, to certain companies under an alliance arrangement with us, or
	•	by a public offering or subscribed for by the underwriters for the purpose of listing on the Korean public stock markets.

	You will not be treated as our shareholder and you will not have shareholder rights such as the voting rights of a holder of common shares.

	You would not be able to exercise dissent and appraisal rights unless you have withdrawn the underlying common shares from the depositary facility and become our direct shareholders.

	We may amend the deposit agreement and the ADRs without your consent for any reason and, if you disagree, your option will be limited to selling the ADSs or withdrawing the underlying securities.

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	You may be subject to Korean withholding tax.

	You may have difficulty bringing an original action or enforcing any judgment obtained outside Korea against us, our directors and officers or other offering participants, such as underwriters or experts, who are not U.S. persons.

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ITEM 4.	INFORMATION ON THE COMPANY

2002				2003				2004
(in billions of Won)
	W2.2				W4.8				W12.3

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(1)	The number of peak concurrent users in a given period for a country in which Ragnarok Online is commercially offered represents the highest number of users simultaneously logged on to our games’ servers

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during that period in that country. The aggregate monthly number of peak concurrent users is computed by adding the number of peak concurrent users for a given month in all of the countries in which Ragnarok Online is commercially offered. The aggregate number of peak concurrent users for any longer period represents the highest aggregate monthly peak concurrent user number within that given period. The number of peak concurrent users in a country (or in the case of Taiwan and Hong Kong, Malaysia and Singapore, or Germany, Austria, Switzerland, Italy and Turkey, in such group of countries) is determined on the basis of computer-generated data that shows the number of concurrent users for such country or group of countries, as applicable, at generally one-minute intervals. Within a given month, due to time differences and other factors, the exact point in time at which the peak number of concurrent users is reached may differ from country to country.

(2)	The number of average concurrent Ragnarok Online users in a given period represents the sum of the average number of concurrent users for that period in Korea, Japan, Taiwan/ Hong Kong, Thailand and China, the five key markets, in terms of revenue contribution from Ragnarok Online, in which it is commercially offered. The number of average concurrent users in a given period is computed by adding the monthly average number of concurrent users and dividing the total by the number of months in the same period. The monthly average number of concurrent users is computed by adding the daily average number of concurrent users during a given month and dividing the total by the actual number of days in that month. The daily average number of concurrent users is generally computed by adding the number of concurrent users selected in three-hour intervals (for example, the number of concurrent users at 12:00 am, 3:00 am, 6:00 am, 9:00 am, 12:00 pm, 3:00 pm, 6:00 pm and 9:00 pm on a given day) and dividing it by eight. In certain limited situations, for example, when our servers are down for maintenance or updates or when our monitoring server fails to maintain connection to our game servers, the number of our concurrent users at such time will appear as “zero”. We have adjusted the daily average number of concurrent users to remove this information from our computation. Within a given period, due to time differences and other factors, the exact points in time used to calculate the average number of concurrent users may differ from country to country.
(3)	We believe that the number of users simultaneously logged on in a given country provides meaningful information about our relative industry position in that country because the number of users simultaneously logged on to our game servers (i) represents a key online game industry benchmark, (ii) is reflective of our active customer base, and (iii) co-relates generally to revenues received for that game.

					Year Ended December 31,
					2002								2003												2004
					(In millions of Won and thousands of US$, except percentages)
Ragnarok Online revenues:
	Subscriptions:
		Korea			W	7,173				73.1	%		W	16,186			US$	15,638				38.1	%		W	12,725			US$	12,293				19.7	%
		United States(1)				137				1.4				2,374				2,292				5.7				3,528				3,408				5.5
	Royalties and license fees:
		Japan				826				8.4				9,008				8,703				21.2				16,818				16,248				26.1
		Taiwan				1,253				12.8				8,526				8,237				20.1				14,233				13,750				22.1
		Thailand				—				—				2,593				2,505				6.1				5,274				5,095				8.2
		China				—				—				1,800				1,739				4.2				2,655				2,565				4.1
		Others				—				—				877				847				2.1				5,256				5,078				8.2
			Sub-total			2,079				21.2				22,804				22,031				53.7				44,236				42,736				68.7
Mobile games:						—				—				43				42				0.1				480				464				0.7
Character merchandising and other revenue:						427				4.3				1,024				989				2.4				3,471				3,353				5.4
	Total revenues				W	9,816				100.0	%		W	42,431			US$	40,992				100.0	%		W	64,440			US$	62,255				100.0	%

(1)	Includes subscriptions from Canada.

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	Maintain and strengthen our competitive position in online games

	Continue to focus on international expansion

	Enhance development of proprietary games and publication of licensed games

	Taking advantage of our current products for revenue diversification and growth

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	Massively multiplayer online role playing games

Massively multiplayer
online role playing game		Description		Game source		Date of commercial launch/testing
Ragnarok Online		Action adventure with 99 levels of skill upgrades, which features two-dimensional characters in three-dimensional backgrounds(1)		In-house developed		Commercial launch in August 2002
R.O.S.E. Online		Three-dimensional action adventure with seven independent storylines		Licensed from third party developer		Commercial launch in January 2005
Requiem		Three-dimensional action adventure		In-house developed		Currently in development with open beta testing with commercialization planned in the first half of 2006
Ragnarok Online 2		Three-dimensional sequel to Ragnarok Online		In-house developed		Currently in development with open beta testing planned in 2006

(1)	A game with such features is typically referred to as a 2.5 dimensional game.

	Massively multiplayer online role playing games currently offered

	— Ragnarok Online

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	•	players may assume an ongoing role, or alter-ego, of a particular game character, each with different strengths and weaknesses. In Ragnarok Online, the user starts as a “novice” and undergoes training in a specialized mapped game zone to become familiar with the game features. Once that stage is completed, the user can choose from six basic characters, each with a distinct combination of different traits;
	•	as each game character advances in challenge levels, the character can enter into a greater range of mapped game zones and morph into a more sophisticated game character in terms of game attributes and special powers;
	•	Ragnarok Online characters may visually express the users’ mood and emotions by using emotive icons that appear within a bubble above the characters’ heads. We believe that this feature significantly expands the interface for user interaction and elevates the level of social reality of the game;
	•	game features may be traded or sold within the game, and game characters may simulate real-life experiences such as marriage, group fights and joining a guild. In addition, players may communicate with each other through in-game chatting or instant messaging;
	•	special events are held from time to time to stimulate community formations. For example, we periodically host “fortress raids” for which players are encouraged to organize themselves into a team to compete against other teams to capture a fortress within a set time; and
	•	the game has no preordained ending and is designed to continuously evolve in terms of plots, mapped game zones and character attributes through enhancements from time to time.

	— R.O.S.E. Online

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	Massively multiplayer online role playing games to be offered in the future

	— Requiem

	— Ragnarok Online 2

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	Our game-related products and services

	Animation

	Game character merchandising

	Korea

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	Overseas markets

				Date of license		Date of
Country		Licensee		agreement		commercial launch		Date of expiry
Japan		GungHo Online Entertainment Inc.		July 2002		December 2002		August 2006(1)
Taiwan/ Hong Kong(2)		Soft-World International		May 2002		October 2002		October 2006(3)
Thailand		Asiasoft International Company Ltd.		June 2002		March 2003		March 2007(4)
China		Value Central Corporation(5)		October 2002		May 2003		August 2005(6)
Singapore/ Malaysia(2)		Value Central Corporation(7)		May 2003		April 2004		April 2006
Philippines		Level Up! Inc.		March 2003		September 2003		August 2006(8)
Indonesia		PT. Lyto Datarindo Fortuna(9)		February 2003		November 2003		February 2007(10)
Europe(11)		Burda Holdings International GmbH		November 2003		April 2004		April 2006
Australia/ New Zealand		Ongamenet PTY LTD.		July 16, 2004		December 2004		November 2006
Brazil		Level Up! Interactive S.A.		August 15, 2004		February 2005		February 2007

	(1)	Renewed in September 2004.
	(2)	Governed under a single license agreement covering both markets.
	(3)	Renewed in October 2004.
	(4)	Renewed in October 2004.
	(5)	Wholly-owned subsidiary of Soft-World International which offers and operates Ragnarok Online through Gameflier (Beijing) Co., Ltd., another subsidiary of Soft-World International, and is operating Ragnarok Online in China through cooperation arrangements with local companies.
	(6)	Term extended in May 2005 for three additional months.
	(7)	Wholly-owned subsidiary of Soft-World International.
	(8)	Renewed in February 2005.
	(9)	Previously with a different licensee.

(10)	Renewed in October 2004.
(11)	Represents massively multiplayer online role playing game operations in Germany, Austria, Switzerland, Italy and Turkey. A single operator services these five countries under one license agreement.

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	•	an initial license fee for initial set-up costs, technical support and advisory services that we provide until commercial launch, and
	•	ongoing royalty payments based on a percentage of revenues generated from Ragnarok Online subscription in the respective overseas markets.

	Korea

			Subscription fees
Individual PC users
	Flat-fee rate			One month			W	22,000
				Two months				41,800
				Three months				59,400
	Hourly-fee rate			5 hours				3,300
				20 hours				8,800

			Number of PCs				Flat fee per PC
Internet cafés(1)
	Monthly flat-fee			1-4 PCs			W	33,000
				5-10 PCs				31,350
				11-20 PCs				30,250
				21-30 PCs				29,700
				over 30 PCs				28,700
	Hourly-fee rate			300 hours				77,000
				600 hours				154,000
				1,000 hours				238,700
				2,000 hours				455,400

(1)	Certain volume discounts apply.

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	Overseas markets

	Japan

	Taiwan

Points(1) or days		Retail price(2)
150 points		NT$	150
30 days			350
90 days			950

(1)	Each time a user logs onto Ragnarok Online, 20 points are deducted. After a user’s playtime exceeds 12 hours, additional 20 points are deducted for every 12 hours of use.
(2)	As of December 31, 2004, the noon buying rate of NT dollars to U.S. dollars quoted by the Federal Reserve Bank of New York was NT$31.74 to US$1.00.

	China

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Points(1) or days		Retail price(2)
150 points			RMB 9
450 points			30
30 days			45

(1)	Six points are deducted for every hour of use.
(2)	As of December 31, 2004, the noon buying rate of Renminbi to U.S. dollars quoted by the Federal Reserve Bank of New York was RMB 8.2765 to US$1.00.

	Thailand

Hours or Days		Retail Price(1)
10 hours			55 Baht
20 hours			89
40 hours			159
15 days			189
30 days			349

(1)	As of December 31, 2004, the noon buying rate of Baht to U.S. dollars quoted by the Federal Reserve Bank of New York was Baht 38.800 to US$1.00.

	The United States

Hours or month		Retail price
30 hours		US $	7.99
1 month			12.00
3 months			32.00
6 months			57.00

	In-house game development

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	Publishing

	•	Preliminary screening. Our preliminary screening process for a game typically includes our preliminary review and testing of the game and discussions with the game developer regarding technological and operational questions.
	•	In-depth examination, analysis and commercial negotiation. Once a game passes the preliminary screening, we thoroughly review and test the game, conduct a cost analysis, develop operational and financial projections and formulate a preliminary game operating plan. We then begin commercial negotiations with the developer.
	•	Game rating and regulatory registration and approval. Once a license agreement for a game is signed, we submit an application to the Korea Media Rating Board to obtain a game rating. This process generally takes anywhere from seven days to three months. We also typically register our intellectual property rights with respect to our license agreements with the relevant Korean government agency.
	•	Testing and marketing. Once the required registration and approvals are obtained, we conduct closed beta testing and open beta testing of the new game and assist the licensor with development of the game. Closed beta testing usually takes 6-12 months for massively multiplayer online role playing games but may take significantly more time if material problems are detected. Open beta testing of massively multiplayer online role playing games usually takes three to six months before commercial launch. We generally commence our other marketing activities for the game during the open beta testing stage. For overseas markets, we also localize the language and content of our games to tailor to the local cultural preferences.

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	Competition in Korea

	Competition in overseas markets

	Competition from PC and console games

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	Korea

	The Sound Records, Video Products and Game Products Act.

	The Telecommunications Business Act

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	The Act on Consumer Protection for Transactions through Electronic Commerce

	The Act on Promotion of Information and Communications Network Utilization and Information Protection

	•	it is necessary for the settlement of service charges,
	•	the personal information is processed so that the specific individual is unidentifiable and is provided for compiling statistics, academic research or surveys, or
	•	it is otherwise permitted by other law and regulations.

	The Korean Civil Code and the Telecommunication Framework Act

	The Special Tax Treatment Control Law

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	Other related laws and regulations

	Taiwan

	Consumer protection

	Regulations of Internet content and game software

	Internet café regulation

	Privacy protection

	Japan

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	Protection of personal information.

	Regulations on sound upbringing of minors

	Thailand

	Registration of Internet cafés and online game operators

	Regulation of business hours

	Restriction on access by children

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	Intellectual property

	China

	•	the Ministry of Information Industry,
	•	the Ministry of Culture,
	•	the State Press and Publications Administration,
	•	the State Copyright Bureau,
	•	the Ministry of Public Security, and
	•	the Bureau of State Secrecy.

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	United States

	Korea

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	United States

	Japan

ITEM 5.	OPERATING AND FINANCIAL REVIEW AND PROSPECTS

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	Revenue recognition

	•	online games — subscription revenue,
	•	online games — royalties and license fees,
	•	mobile games, and
	•	character merchandising, animation and other revenue.

	Online games — subscription revenue

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	Online games — royalties and license fees

	Mobile game revenues

	Character merchandising, animation and other revenue

	Cost of revenues

	•	operational expenses, server depreciation expenses, server maintenance costs and related personnel costs and amortization of development-related costs as described in “— Critical accounting policies — Capitalized software development costs”; and
	•	royalty payments to Mr. Myoung-Jin Lee, on whose cartoon series Ragnarok Online is based, pursuant to our license from Mr. Lee as described below.

	License from Myoung-Jin Lee

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	Selling, general and administrative expenses

	Research and development expenses

	Interest expense

	•	until the accumulated payments amount to W7,000 million, 50% of our domestic and overseas adjusted revenues from Ragnarok Online, which amount was reached in April 2003; and
	•	once the accumulated payments exceed W7,000 million, 20% of our domestic adjusted revenues from Ragnarok Online and 10% of our overseas adjusted revenues from Ragnarok Online.

	Foreign currency effects

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	Income tax expenses

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				Three Months Ended (Unaudited)
				March 31,				June 30,				September 30,				December 31,				March 31,				June 30,				September 30,				December 31,
				2003				2003				2003				2003				2004				2004				2004				2004
				(In millions of Korean Won)
Revenues
	Online games — subscription revenue			W	4,465			W	4,241			W	5,219			W	4,635			W	4,696			W	3,892			W	4,287			W	3,378
	Online games — royalties and license fees				2,837				4,247				6,258				9,462				10,919				11,055				11,083				11,179
	Mobile games				5				15				15				8				21				125				107				227
	Character merchandising, animation and other revenue				195				131				249				449				393				454				946				1,678
		Total revenues			7,502				8,634				11,741				14,554				16,029				15,526				16,423				16,462
Cost of revenues					1,199				1,790				1,811				2,066				2,231				2,333				2,916				2,829
Gross profit					6,303				6,844				9,930				12,488				13,798				13,193				13,507				13,633
Operating expenses					1,655				2,771				3,647				4,639				2,739				3,230				5,623				4,157
Operating income					4,648				4,073				6,283				7,849				11,059				9,963				7,884				9,476
Other income (expense)					(2,006	)			(1,311	)			(1,239	)			(1,093	)			(1,351	)			(1,245	)			(966	)			(986	)
Income before income tax expenses, minority interest, and losses from equity method investee					2,642				2,762				5,044				6,756				9,708				8,718				6,918				8,490
	Income tax expenses				364				453				562				1,156				1,310				1,285				1,381				426
Income before minority interest and losses from equity method investee					2,278				2,309				4,482				5,600				8,398				7,433				5,537				8,064
	Minority interest				—				—				—				—				1				15				1				—
	Equity in loss of related joint venture				—				—				—				—				—				—				(156	)			(92	)

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		Three Months Ended (Unaudited)
		March 31,				June 30,				September 30,				December 31,				March 31,				June 30,				September 30,				December 31,
		2003				2003				2003				2003				2004				2004				2004				2004
		(In millions of Korean Won)
Net income		W	2,278			W	2,309			W	4,482			W	5,600			W	8,399			W	7,448			W	5,382			W	7,972
Aggregate peak concurrent Ragnarok Online users(1)			306,742				460,645				498,888				597,615				732,450				742,647				774,713				762,585
Average concurrent Ragnarok Online users(2)			151,763				240,720				273,433				343,911				427,349				376,049				400,298				452,519
Gross profit margin(3)			84.0	%			79.3	%			84.6	%			85.8	%			86.1	%			85.0	%			82.2	%			82.8	%
Operating profit margin(4)			62.0				47.2				53.5				53.9				69.0				64.2				48.0				57.6
Net margin(5)			30.4				26.7				38.2				38.5				52.4				48.0				32.8				48.4
Revenue growth(6)			N/A				15.1				36.0				24.0				10.1				(3.1	)			5.8				0.2
Net income growth(7)			N/A				1.4				94.1				24.9				50.0				(11.3	)			(27.6	)			48.1

(1)	The number of peak concurrent users in a given period for a country in which Ragnarok Online is commercially offered represents the highest number of users simultaneously logged on to our games’ servers during that period in that country. The aggregate monthly number of peak concurrent users is computed by adding the number of peak concurrent users for a given month in all of the countries in which Ragnarok Online is commercially offered. The aggregate number of peak concurrent users for any longer period represents the highest aggregate monthly peak concurrent user number within that given period. The number of peak concurrent users for a given month in a country (or in the case of Taiwan and Hong Kong, Malaysia and Singapore, or Germany, Austria, Switzerland, Italy and Turkey, in such group of countries) is determined on the basis of computer-generated data that shows the number of concurrent users for such country or group of countries, as applicable, at generally one-minute intervals. Within a given month, due to time differences and other factors, the exact point in time at which the peak number of concurrent users is reached may differ from country to country.
(2)	The number of average concurrent Ragnarok Online users in a given period represents the sum of the average number of concurrent users for that period in Korea, Japan, Taiwan/ Hong Kong, Thailand and China, the five key markets, in terms of revenue contribution from Ragnarok Online, in which it is commercially offered. The number of average concurrent users in a given period is computed by adding the monthly average number of concurrent users and dividing the total by the number of months in the same period. The monthly average number of concurrent users is computed by adding the daily average number of concurrent users during a given month and dividing the total by the actual number of days in that month. The daily average number of concurrent users is generally computed by adding the number of concurrent users selected in three-hour intervals (for example, the number of concurrent users at 12:00 am, 3:00 am, 6:00 am, 9:00 am, 12:00 pm, 3:00 pm, 6:00 pm and 9:00 pm on a given day) and dividing it by eight. In certain limited situations, for example, when our servers are down for maintenance or updates or when our monitoring server fails to maintain connection to our game servers, the number of our concurrent users at such time will appear as “zero”. We have adjusted the daily average number of concurrent users to remove this information from our computation. Within a given period, due to time differences and other factors, the exact points in time used to calculate the average number of concurrent users may differ from country to country.
(3)	Gross profit margin is calculated as gross profit divided by total revenues.
(4)	Operating profit margin is calculated as operating income (loss) divided by total revenues.
(5)	Net profit margin is calculated as net income (loss) divided by total revenues.
(6)	Revenue growth is calculated as quarterly total revenues less total revenues from the prior quarter, as a percentage of the prior quarter total revenues.
(7)	Net income growth is calculated as quarterly net income less net income from the prior quarter, as a percentage of the prior quarter net income.

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	Revenue recognition

	Allowances for doubtful accounts

	Capitalized software development costs

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	Income taxes

	2004 Compared to 2003

				Year Ended December 31,
				2003				2004				2004(1)				% Change
												(Unaudited)
				(In millions of Won and thousands of US$,
				except percentages)
Revenues:
	Online games — subscription revenue			W	18,560			W	16,253			$	15,702				(12.4	)%
	Online games — royalties and license fees				22,804				44,236				42,736				94.0
	Mobile games				43				480				464				N/M
	Character merchandising, animation and other revenue				1,024				3,471				3,353				239.0
		Total revenues			42,431				64,440				62,255				51.9
Cost of revenues					6,866				10,309				9,959				50.1
Gross profit					35,565				54,131				52,296				52.2
	Gross profit margin(2)				83.8	%			84.0	%			84.0	%
Operating expenses:
	Selling, general and administrative				11,115				13,719				13,253				23.4
	Research and development				1,597				2,030				1,962				27.1
		Total operating expenses			12,712				15,749				15,215				23.9
Operating income					22,853				38,382				37,081				68.0
	Operating profit margin(3)				53.9	%			59.6	%			59.6	%

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				Year Ended December 31,
				2003				2004				2004(1)				% Change
												(Unaudited)
				(In millions of Won and thousands of US$,
				except percentages)
Other income (expense):
	Interest income				94				479				463				409.6
	Interest expense				(5,947	)			(4,309	)			(4,163	)			(27.5	)
	Foreign currency gains				418				336				325				(19.6	)
	Foreign currency losses				(240	)			(1,052	)			(1,016	)			338.3
	Others, net				26				(2	)			(2	)			N/M
		Total net other income (expense)			(5,649	)			(4,548	)			(4,393	)			(19.5	)
Income before income tax expenses, minority interest, and losses from equity method investee					17,204				33,834				32,688				96.7
	Income tax expenses				2,535				4,402				4,253				73.6
Income before minority interest and losses from equity method investee					14,669				29,432				28,435				100.6
	Minority interest(4)				—				(17	)			(16	)			N/M
	Equity in loss of related joint venture(5)				—				248				240				N/M
Net income				W	14,669			W	29,201			$	28,211				99.1	%

(1)	For convenience, the Won amounts are expressed in U.S. dollars at the rate of W1,035.1 to US$1.00, the noon buying rate in effect on December 31, 2004, as announced by the Federal Reserve Bank of New York.
(2)	Gross profit margin is calculated as gross profit divided by total revenues.
(3)	Operating profit margin is calculated as operating income divided by total revenues.
(4)	Represents the minority interest in GRAVITY Entertainment Corporation, our Japanese subsidiary. We acquired the remaining 50% of voting equity interest in RO Production in October 2004, resulting in RO Production becoming our wholly-owned subsidiary.
(5)	Represents the losses from our 30% equity investment in Animation Production Committee, a Japanese joint venture to produce and market “Ragnarok the Animation” through GRAVITY Entertainment Corporation, our Japanese subsidiary. This investment was accounted for using the equity method of accounting.

	Revenues

	•	an increase in royalties and license fees from Ragnarok Online to W44,236 million (US$42,736 thousand) in 2004 from W22,804 million in 2003, which primarily resulted from an increase in royalties from the overseas markets in which Ragnarok Online had already been commercialized and the commercialization of Ragnarok Online in new markets. During the periods under review, the increase in revenue attributable to existing markets was W19,974 million and attributable to an entry into new markets was W1,458 million. In April 2004, we commercialized Ragnarok Online in Singapore and Malaysia, from which we derived revenue of W982 million, and in the five European countries in April 2004, from which we derived revenue of W441 million, in each case in 2004. In December 2004, we commercialized Ragnarok Online in Australia and New Zealand, from which we derived revenue of W35 million in 2004; and
	•	a 239.0% increase in character merchandising, animation and other revenue to W3,471 million (US$3,353 thousand) in 2004 from W1,024 million in 2003, which resulted primarily from a 98.0% increase in character merchandising revenue to W2,028 million (US$1,959 thousand) in 2004 from W1,024 million in 2003 and W1,093 million (US$1,056) in revenue from animation in 2004 compared to none in 2003;

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	which more than offset

	•	a 12.4% decrease in subscription revenue to W16,253 million (US$15,702 thousand) in 2004 from W18,560 million in 2003. This 12.4% decrease resulted primarily from a 21.4% decrease in subscription revenue in Korea from Ragnarok Online to W12,725 million (US$12,294 thousand) in 2004 from W16,186 million in 2003, mainly due to a decrease in playing time by our users of Ragnarok Online in Korea. This decrease was partially offset by a 48.6% increase in the subscription revenue in the United States to W3,528 million (US$3,408 thousand) in 2004 from W2,374 million in 2003.

	Cost of revenues

	•	a 63.4% increase in salaries and wages to W4,403 million (US$4,254 thousand) in 2004 from W2,695 million in 2003, which mainly resulted from an increased hiring of game developers and overseas support staff from 130 as of December 31, 2003 to 174 as of December 31, 2004;
	•	a 71.2% increase in fee payments to W1,881 million (US$1,817 thousand) in 2004 from W1,099 million in 2003, which mainly resulted from an increase in fees we paid to Mr. Myoung-Jin Lee and server housing fees we paid to the KIDC; and
	•	a 45.2% increase in depreciation to W1,606 million (US$1,552 thousand) in 2004 from W1,106 million in 2003, which mainly resulted from the addition of servers and software in 2004 to better service Ragnarok Online.

	Gross profit and margin

	Operating expenses

	•	a 81.6% increase in salaries and wages to W3,156 million (US$3,049 thousand) in 2004 from W1,738 million in 2003, primarily as a result of an increase in the number of employees for administrative and other support functions from 86 in 2003 to 148 in 2004;
	•	a 173.4% increase in depreciation expense to W1,028 million (US$993 thousand) in 2004 from W376 million in 2003, which mainly resulted from depreciation attributable to leasehold improvements in property and the addition of servers for the introduction of R.O.S.E. Online; and
	•	a 7.7% increase in advertising expenses to W4,614 million (US$4,458 thousand) in 2004 from W4,285 million in 2003, which resulted from the hosting of the Ragnarok World Championship in August 2004, a significant increase in marketing expenses related to the introduction of R.O.S.E. Online and our participation in the Tokyo Game Show in September 2004.

	Operating income and operating margin

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	Net other income (expense)

	•	a 27.5% decrease in interest expense from W5,947 million in 2003 to W4,309 million (US$4,163 thousand) in 2004 as a result of reduction in payment rates on the loan from Sunny YNK, effective in April 2003, from 50% of all revenues from Ragnarok Online to 20% for domestic adjusted revenues and to 10% for overseas adjusted revenues from Ragnarok Online despite the significant increase in such revenues; and
	•	an increase in interest income from W94 million in 2003 to W479 million (US$463 thousand) in 2004 resulting from an increase in short-term financial instruments in 2004

	which more than offset

	•	an increase in loss in foreign currency transaction from W240 million in 2003 to W1,052 million (US$1,016 thousand) in 2004 resulting from the appreciation of the Korean Won against the U.S. dollar.

	Income tax expenses

	Minority interest

	Equity in loss of related joint venture

	Net income

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	2003 Compared to 2002

				Year Ended December 31,
				2002				2003				% Change
				(In millions of Won and thousands of
				US$, except percentages)
Revenues:
	Online games — subscription revenue			W	7,310			W	18,560				153.9	%
	Online games — royalties and license fees				2,079				22,804				996.9
	Mobile games				—				43				N/M
	Character merchandising, animation and other revenue				427				1,024				139.8
		Total revenues			9,816				42,431				332.3
Cost of revenues					1,735				6,866				295.7
Gross profit					8,081				35,565				340.1
	Gross profit margin(1)				82.3	%			83.8	%
Operating expenses:
	Selling, general and administrative				4,956				11,115				124.3
	Research and development				815				1,597				96.0
		Total operating expenses			5,771				12,712				120.3
Operating income					2,310				22,853				889.3
	Operating profit margin(2)				23.5	%			53.9	%
Other income (expense):
	Interest income				84				94				11.9
	Interest expense				(2,480	)			(5,947	)			139.8
	Foreign currency gains				75				418				457.3
	Foreign currency losses				(17	)			(240	)			1,311.8
	Others, net				(1	)			26				N/M
		Total net other income (expense)			(2,339	)			(5,649	)			141.5
Income before income tax expenses					(29	)			17,204				N/M
Income tax expenses					467				2,535				442.8
Net income (loss)				W	(496	)		W	14,669				N/M

(1)	Gross profit margin is calculated as gross profit divided by total revenues.
(2)	Operating profit margin is calculated as operating income (loss) divided by total revenues.

	Revenues

	•	an increase in royalties and license fees from Ragnarok Online to W22,804 million in 2003 from W2,079 million in 2002, which primarily resulted from substantial increases in royalties from overseas markets, primarily due to the full year of commercial availability of Ragnarok Online in Taiwan and Japan in 2003 as compared to only a few months in 2002 and generation of revenues from markets we newly entered in 2003, mainly Thailand and China; and
	•	a 153.9% increase in subscription revenue, primarily representing the increase in domestic subscriptions from Ragnarok Online, which reflects the recording of revenues from Ragnarok Online for the full year of 2003 as compared to five months in 2002 following the commercial launch of Ragnarok Online in August 2002.

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	Cost of revenues

	•	a 360.7% increase in salary and wages to W2,695 million in 2003 from W585 million in 2002 resulting from an increase in the number of game developers and overseas support staff from 92 in 2002 to 130 in connection with significant hiring for game development and support;
	•	a 702.2% increase in fee payments to W1,099 million in 2003 from W137 million in 2002, which mainly resulted from increases in fees payable to Mr. Myoung-Jin Lee, Web hosting costs, server housing fees to KIDC and software maintenance costs; and
	•	a 162.1% increase in depreciation to W1,106 million in 2003 from W422 million in 2002, which mainly resulted from the purchase of servers and, to a lesser extent, personal computers in 2003.

	Gross profit and margin

	Operating expenses

	•	a 198.6% increase in advertising expenses to W4,285 million in 2003 from W1,435 million in 2002, which mainly resulted from the introduction of increased marketing campaigns, including online and celebrity marketing;
	•	a 113.2% increase in fee payments consisting of fees paid to payment service providers and sales commissions paid to promotional agents distributing Ragnarok Online to Internet cafés to W2,624 million in 2003 from W1,231 million in 2002, primarily due to an increase in revenue in Korea;
	•	a 119.7% increase in salaries and wages to W1,738 million in 2003 from W791 million in 2002, primarily as a result of increase in the average number of employees during the periods under review; and
	•	our recording an impairment loss of W777 million in 2003, resulting from our W1 billion cash investment in an online game portal business in May 2003. In December 2003, due to poor performance and operating results, we sought to nullify the investment arrangement and recovered W223 million in cash and recorded the remaining W777 million as impairment loss.

	Operating income and operating profit margin

	Net other expense

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	Income tax expenses

	Net income (loss)

	Impact of inflation

	Impact of foreign currency fluctuations

	Government, Economic, Fiscal, Monetary or Political Policies or Factors

5.B.	Liquidity and Capital Resources

	Liquidity

			Year Ended December 31,
			2001				2002				2003				2004				2004(1)
Cash and cash equivalents at beginning of period			W	39			W	1,820			W	560			W	5,405			US $	5,220
Net cash provided by operating activities				922				(4,314	)			15,717				32,634				31,528
Net cash used in investing activities				(589	)			(3,520	)			(10,564	)			(19,007	)			(18,361	)
Net cash provided by (used in) financing activities				1,448				6,574				(308	)			(2,627	)			(2,538	)
	Net increase (decrease) in cash and cash equivalents			1,781				(1,260	)			4,845				11,000				10,629
Cash and cash equivalents at end of period			W	1,820			W	560			W	5,405			W	16,405			US $	15,849

(1)	For convenience, the Korean Won amounts are expressed in U.S. dollars at the rate of W1,035.1 to US$1.00, the noon buying rate in effect on December 31, 2004 as quoted by the Federal Reserve Bank of New York.

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	Capital resources

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			Payments Due by Period
							Between 1				Between 3
			Up to				and				and				Beyond
			1 Year				3 Years				5 Years				5 Years				Total
			(In millions of Won)
Long-term debt obligations			W	1,278			W	—			W	—			W	—			W	1,278
Operating lease obligations				728				5				—				—				733
Purchase obligations(1)				—				—				—				—				—
	Total		W	2,006			W	5			W	—			W	—			W	2,011

(1)	As of December 31, 2004, we incurred no purchase obligations.

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ITEM 6.	DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

Name		Position
Jung Ryool Kim		Chairman
David Woong-Jin Yoon		Representative Director and Chief Executive Officer
Richard Hyonkook Kim		Executive Director and Chief Strategy Officer
Kwan Shik Seo		Executive Director and Chief Financial Officer

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Name		Position
Myung Whan Suh		Independent director and audit committee member
Chan Joong Park		Independent director and audit committee member
So Young Choi		Independent director and audit committee member
Jong Mahn Park		Independent director
Mu Sik Jung		Independent director
Hyung Oh Yoo		Independent director

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Name		Position
Kyu Hyeong Lee		Senior Executive Vice President of Human Resources
Young Soo Lee		Executive Vice President of Public Relations
Sang Keun Kim		Executive Vice President of Game Publishing
William Woosuk Song		Executive Vice President of Finance and Accounting

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	Independent directors

	•	the audit committee
	•	the director nomination committee; and
	•	the compensation committee.

	Audit committee

	Director nomination committee

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	Compensation committee

			December 31,
			2001				2002				2003				2004
Senior management				5				6				4				7
Finance				2				4				4				8
Marketing				2				15				18				27
Game development and support				27				167				225				357
	Total			36				192				251				399

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	•	Stock options may be granted to our officers and employees who have contributed or are qualified to contribute to our establishment, management, overseas business and technical innovation. Notwithstanding the foregoing, no stock options may be granted to any executive officer or employee who is (i) our largest shareholder, (ii) a holder of 10% or more of our shares outstanding, (iii) certain specially related persons of the person set forth in (i) and (ii) above, or (iv) a shareholder who would own 10% or more of our shares upon exercise of options granted under the stock option plan.
	•	Stock options may be granted by a special resolution of our shareholders with the aggregate number of shares issuable not to exceed 50% of the total number of our then issued and outstanding common shares.
	•	Upon exercise of stock options, we will deliver our common shares or pay in cash the difference between the market price of our shares and the option exercise price.
	•	Stock option granted under the stock option plan will have a minimum exercise price equal to the higher of (i) the market price of our shares calculated pursuant to the method under the Inheritance and Gift Tax Law and (ii) the par value of our shares.
	•	Stock options can vest after two years from the stock option grant date and can be exercised up to five years from the date of the grant. The stock option may be cancelled by a resolution of our board of directors if (i) the officer or employee who holds the option voluntarily resigns or is discharged from office prior to the vesting date; (ii) the officer or employee who holds the option causes material damage to us by willful misconduct or negligence; (iii) we are unable to deliver our shares or pay the prescribed amount due to bankruptcy or dissolution, or (iv) the occurrence of any cause for cancellation of stock options specified in the stock option agreement.

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				Exercise				Number of
				Price				Granted
Name and Position		Position		(In Won)				Options
Richard Hyonkook Kim		Executive Director and Chief Strategy Officer			W55,431				12,000
Kwan Shik Seo		Executive Director and Chief Financial Officer			55,431				8,000
Young Soo Lee		Director of Public Relations			55,431				6,000
Other(1)					55,431				10,000
					Total				36,000

(1)	Represents options held by Yeon-Ho Moon, a former executive officer.

ITEM 7.	MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

	•	each person who is the beneficial owner of more than 5% of our common shares;
	•	each of our directors;
	•	each of our named executive officers; and
	•	all of our executive officers and directors as a group

			Number of Shares				Percentage
			Beneficially Owned(1)				Beneficially Owned(1)
Five percent and shareholders:
	Jung Ryool Kim(2)(3)(4)(5)			3,396,671				48.9	%
Directors and officers:				—				—
All executive officers and directors as a group				—				—

(1)	Beneficial ownership is determined in accordance with the rules of the Securities Exchange Commission, and includes those securities for which voting or investment power with respect to the securities is held.
(2)	Mr. Jung Ryool Kim is the founder of GRAVITY and has served as our director since our inception. Mr. Kim’s address is Sunkyung Apt. 3-1006, Daechi-dong, Gangnam-gu, Seoul, Korea.

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(3)	Includes holdings by immediate family members of Mr. Jung Ryool Kim, including 248,839 common shares (3.6%) held by Ji Young Kim (his daughter), 192,849 common shares (2.8%) held by Young Joon Kim (his son) and 155,526 common shares (2.2%) held by Ji Yoon Kim (his daughter) as of June 29, 2005.
(4)	The percentage ownership of common shares beneficially owned by Mr. Jung Ryool Kim changed in the past three years as follows: 73.1% as of October 10, 2001, 77.5% as of January 22, 2002 and 86.2% as of March 14, 2003, in each case following the issuance of additional common shares by us, 69.4% as of September 30, 2004 following the sale of shares to certain institutional and individual investors, and 48.9% as of as of June 29, 2005 following the sale of shares in connection with our public offering.
(5)	Pursuant to certain contractual arrangements between Mr. Jung Ryool Kim and certain of our shareholders, the number of common shares beneficially owned by Mr. Jung Ryool Kim may increase by 30,000 or fewer common shares, depending upon the outcome of litigation with one of our shareholders requesting the confirmation of his status as our shareholder.

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ITEM 8.	FINANCIAL INFORMATION

	Class action complaints

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ITEM 9.	THE OFFER AND LISTING

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				Price
Period				High				Low
				(in US$)
2005
	First Quarter				13.77				8.04
		January			N/A				N/A
		February			13.77				10.30
		March			11.90				8.04
	Second Quarter (through June 23)
		April			9.50				8.02
		May			9.72				5.30
		June (through June 23)			8.45				6.30

ITEM 10.	ADDITIONAL INFORMATION

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	•	through a general public offering pursuant to a resolution of the board of directors of no more than 50% of the total number issued and outstanding shares,
	•	to the members of the employee stock ownership association,
	•	upon exercise of a stock option in accordance with our articles of incorporation,
	•	in the form of depositary receipts of no more than 50% of the total number issued and outstanding shares,
	•	to induce foreign direct investment necessary for business in accordance with the Foreign Investment Promotion Act of no more than 50% of the total number issued and outstanding shares,
	•	to domestic or overseas financial institutions, corporations or individuals for the purpose of raising funds on an emergency basis,
	•	as necessary for the inducement of technology, to certain companies under an alliance arrangement with us, or
	•	by a public offering or subscribed for by the underwriters for the purpose of listing on the Stock Market Division of the Korea Exchange, or KSE, or registration with the Korea Securities Dealers Association of no more than 50% of the total number issued and outstanding shares.

	•	as necessary,
	•	at the request of shareholders holding an aggregate of 3% or more of our outstanding shares, or
	•	at the request of our audit committee.

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	•	amending our articles of incorporation,
	•	removing a director,
	•	effecting a capital reduction,
	•	effecting any dissolution, merger or consolidation with respect to us,
	•	transferring all or any significant part of our business,
	•	acquiring all of the business of any other company or a part of the business of any other company having a material effect on our business,
	•	issuing new shares at a price below the par value, or
	•	any other matters for which such resolution is required under relevant law and regulations.

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	Dividends on the shares or ADSs

	Taxation of capital gains

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	Tax treaties

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	Inheritance tax and gift tax

	Securities transaction tax

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	•	dealers in securities or currencies;
	•	financial institutions;
	•	regulated investment companies;
	•	real estate investment trusts;
	•	tax-exempt entities;
	•	insurance companies;
	•	traders in securities that elect to use the mark-to-market method of accounting for their securities;
	•	persons holding shares or ADSs as part of a hedging, integrated, conversion or constructive sale transaction or a straddle;
	•	persons owning 10% or more of our voting stock;
	•	persons liable for alternative minimum tax;
	•	investors in pass-through entities; or
	•	persons whose “functional currency” is not the United States dollar.

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	•	an individual citizen or resident of the United States;
	•	a corporation (or other entity treated as a corporation for United States federal income tax purposes) created or organized in or under the laws of the United States, any state thereof or the District of Columbia;
	•	an estate the income of which is subject to United States federal income taxation regardless of its source; or
	•	a trust:

	—	that is subject to the primary supervision of a court within the United States and the control of one or more United States persons as described in section 7701(a)(30) of the Code, or
	—	that has a valid election in effect under applicable U.S. Treasury regulations to be treated as a United States person.

	ADSs

	Taxation of dividends

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	•	have held ADSs or shares for less than a specified minimum period during which you are not protected from risk of loss, or
	•	are obligated to make payments related to the dividends,

	•	the fair market of the rights is less than 15 percent of the fair market value of the old ADSs or shares at the time of distribution, unless you elect to determine the basis of the old ADSs or shares and of the rights by allocating between the old ADSs or shares and the new ADSs or shares the adjusted basis of the old ADSs or shares, or
	•	the rights are not exercised and thus expire.

	Passive foreign investment companies

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	•	at least 75% of our gross income is passive income, or
	•	at least 50% of the value (determined on a quarterly basis) of our assets is attributable to assets that produce or are held for the production of passive income.

	•	the excess distribution or gain will be allocated ratably over your holding period for the ADSs or shares,
	•	the amount allocated to the current taxable year, and any taxable year prior to the first taxable year in which we were a PFIC, will be treated as ordinary income, and
	•	the amount allocated to each other year will be subject to tax at the highest tax rate in effect for that year and the interest charge generally applicable to underpayments of tax will be imposed on the resulting tax attributable to each such year.

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	Taxation of capital gains

	Estate and gift taxation

	Information reporting and backup withholding

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10.H.	Documents on Display

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ITEM 11.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

	Foreign currency risk

	Interest rate risk

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11.B.	Qualitative Information about Market Risk

11.C.	Interim Periods

ITEM 12.	DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

12.A.	Debt Securities

12.B.	Warrants and Rights

12.C.	Other Securities

12.D.	American Depositary Shares

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	How will a holder of ADSs receive dividends and other distributions on the shares?

	•	Cash. The depositary will convert any cash dividend or other cash distribution we pay on the shares into U.S. dollars, if it can do so on a reasonable basis and can transfer the U.S. dollars to the United States. If that is not possible or if any government approval is needed and cannot be obtained, the deposit agreement allows the depositary to distribute the foreign currency only to those ADS holders to whom it is possible to do so. It will hold the foreign currency it cannot convert for the account of the ADS holders who have not been paid. It will not invest the foreign currency and it will not be liable for any interest.

Before making a distribution, the depositary will deduct any withholding taxes that must be paid. See Item 10.E. “Taxation — Korean taxation”. It will distribute only whole U.S. dollars and cents and will round fractional cents to the nearest whole cent. If the exchange rates fluctuate during a time when the depositary cannot convert the foreign currency, holders of ADSs may lose some or all of the value of the distribution.

	•	Shares. The depositary may distribute additional ADSs representing any shares we distribute as a dividend or free distribution. The depositary will only distribute whole ADSs. It will try to sell shares which would require it to deliver a fractional ADS and distribute the net proceeds in the same way as it does with cash. If the depositary does not distribute additional ADRs, the outstanding ADSs will also represent the new shares.
	•	Rights to purchase additional shares. If we offer holders of our securities any rights to subscribe for additional shares or any other rights, the depositary may make these rights available to holders of ADSs. If the depositary decides it is not legal and practical to make the rights available but that it is practical to sell the rights, the depositary may sell the rights and distribute the proceeds in the same way as it does with cash. The depositary will allow rights that are not distributed or sold to lapse. In that case, holders of ADSs will receive no value for them.

	If the depositary makes rights available to holders of ADSs, it will exercise the rights and purchase the shares on their behalf. The depositary will then deposit the shares and deliver ADSs to holders of ADSs. It will only exercise rights if holders of ADSs pay it the exercise price and any other charges the rights require them to pay.
	U.S. securities laws may restrict transfers and cancellation of the ADSs represented by shares purchased upon exercise of rights. For example, holders of ADSs may not be able to trade these ADSs freely in the United States. In this case, the depositary may deliver restricted depositary shares that have the same terms as the ADRs described in this section except for changes needed to put the necessary restrictions in place.

	•	Other Distributions. The depositary will send to holders of ADSs anything else we distribute on deposited securities by any means it thinks is legal, fair and practical. If it cannot make the distribution in that way, the depositary has a choice. It may decide to sell what we distributed and distribute the net proceeds, in the same way as it does with cash. Or, it may decide to hold what we distributed, in which case ADSs will also represent the newly distributed property. However, the depositary is not required to distribute any securities (other than ADSs) to holders of ADSs unless it receives satisfactory evidence from us that it is legal to make that distribution.

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	How are ADSs issued?

	How do ADS holders cancel an ADR and obtain shares?

	How do holders of ADSs vote?

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If We:		Then:
•  Change the nominal or par value of our shares •  Reclassify, split up or consolidate any of the deposited securities		The cash, shares or other securities received by the depositary will become deposited securities. Each ADS will automatically represent its equal share of the new deposited securities.
• Distribute securities on the shares that are not distributed to holders of ADSs • Recapitalize, reorganize, merge, liquidate, sell all or substantially all of our assets, or take any similar action		The depositary may distribute some or all of the cash, shares or other securities it received. It may also deliver new ADRs or ask holders of ADSs to surrender their outstanding ADRs in exchange for new ADRs identifying the new deposited securities.

Persons Depositing Shares or ADR Holders Must Pay:		For:
$5.00 (or less) per 100 ADSs (or portion of 100 ADSs)		•  Issuance of ADSs, including issuances resulting from a distribution of shares or rights or other property
		•  Cancellation of ADSs for the purpose of withdrawal, including if the deposit agreement terminates
$.02 (or less) per ADS		•  Any cash distribution to holders of ADSs
A fee equivalent to the fee that would be payable if securities distributed to holders of ADSs had been shares and the shares had been deposited for issuance of ADSs		•  Distribution of securities distributed to holders of deposited securities which are distributed by the depositary to ADR holders
$.02 (or less) per ADSs per calendar year (if the depositary has not collected any cash distribution fee during that year)		•  Depositary services (The depositary may collect these fees at the sole discretion of the depositary, by billing the holders of ADSs for such charge or by deducting such charge from one or more cash dividends or other cash distributions.)
Registration or transfer fees		•  Transfer and registration of shares on our share register to or from the name of the depositary or its agent when holders of ADSs deposit or withdraw shares
Expenses of the depositary in converting foreign currency to U.S. dollars
Expenses of the depositary		•  Cable, telex and facsimile transmissions (when expressly provided in the deposit agreement)
Taxes and other governmental charges the depositary or the custodian have to pay on any ADR or share underlying an ADR, for example, stock transfer taxes, stamp duty or withholding taxes
Any charges incurred by the depositary or its agents for servicing the deposited securities		•  No charges of this type are currently made in the Korean market (The depositary may collect these fees at the sole discretion of the depositary, by billing the holders of ADSs for such charge or by deducting such charge from one or more cash dividends or other cash distributions.)

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	How may the deposit agreement be amended?

	How may the deposit agreement be terminated?

	Limits on our obligations and the obligations of the depositary; limits on liability to holders of ADSs

	•	are only obligated to take the actions specifically set forth in the deposit agreement without negligence or bad faith;
	•	are not liable if we or the depositary is prevented or delayed by law or circumstances beyond our or its control from performing our or its obligations under the deposit agreement;
	•	are not liable if we or the depositary exercises discretion permitted under the deposit agreement;
	•	have no obligation to become involved in a lawsuit or other proceeding related to the ADRs or the deposit agreement on behalf of holders of ADSs or on behalf of any other person;
	•	may rely upon any documents we or the depositary believes in good faith to be genuine and to have been signed or presented by the proper party.

	•	payment of stock transfer or other taxes or other governmental charges and transfer or registration fees charged by third parties for the transfer of any shares or other deposited securities;

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	•	satisfactory proof of the identity and genuineness of any signature or other information it deems necessary; and
	•	compliance with regulations it may establish, from time to time, consistent with the deposit agreement, including presentation of transfer documents.

	•	When temporary delays arise because: (i) the depositary has closed its transfer books or we have closed our transfer books; (ii) the transfer of shares is blocked to permit voting at a shareholders’ meeting; or (iii) we are paying a dividend on our shares.
	•	When holders of ADSs seeking to withdraw shares owe money to pay fees, taxes and similar charges.
	•	When it is necessary to prohibit withdrawals in order to comply with any laws or governmental regulations that apply to ADSs or to the withdrawal of shares or other deposited securities.

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ITEM 13.	DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES

ITEM 14.	MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS

ITEM 15.	CONTROLS AND PROCEDURES

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ITEM 16.

			Aggregate Fees Billed
			during the Year
			Ended December 31,
Type of Services			2003				2004				Nature of Services
			(In millions of Won)
Audit Fees			W	22			W	853			Audit service for Company and its subsidiaries.
Audit-Related Fees				9				—			Accounting advisory service.
Tax Fees				4				6			Tax return and consulting advisory service.
All Other Fees				—				—			All other services which do not meet the three categories above.
	Total		W	35			W	859

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ITEM 17.	FINANCIAL STATEMENTS

ITEM 18.	FINANCIAL STATEMENTS

(a)	Financial Statements filed as part of this annual report

		Page
Index to Financial Statements			F-1
Report of Independent Registered Public Accounting Firm			F-2
Consolidated balance sheets as of December 31, 2003 and 2004			F-3
Consolidated statements of income for the years ended December 31, 2002, 2003 and 2004			F-4
Consolidated statements of stockholders’ equity for the years ended December 31, 2002, 2003 and 2004			F-5
Consolidated statements of cash flows for the years ended December 31, 2002, 2003 and 2004			F-7
Notes to the consolidated financial statements			F-8

(b)	Exhibits filed as part of this annual report

	1	.1*		Articles of Incorporation (English translation)
	2	.1*		Form of Stock Certificate of Registrant’s common stock, par value W500 per share
	2	.1**		Form of Deposit Agreement among Registrant, The Bank of New York, as depositary, and all holders and beneficial owners of American depositary shares evidenced by American depositary receipts, including the form of American depositary receipt **
	4	.1*		Agreement on the Development of RAGNAROK Online, dated June 26, 2000, between Myoung-Jin Lee and Registrant (translation in English)
	4	.2*		Agreement on the Exclusive License of Copyright Regarding Ragnarok Game Services, dated June 26, 2000, between Myoung-Jin Lee and Registrant (translation in English)
	4	.3*		Cooperation Agreement on Ragnarok Game Services, dated May 31, 2002, between Myoung-Jin Lee and Registrant (translation in English)
	4	.4*		Agreement on Factual Matters, dated November 19, 2002, between Myoung-Jin Lee and Registrant (translation in English)
	4	.5*		Agreement on Ragnarok Game Services and Related Matters, dated January 22, 2003, between Myoung-Jin Lee and Registrant (translation in English)
	4	.6*		Agreement, dated June 3, 2003, between Myoung-Jin Lee and Registrant (translation in English)
	4	.7*		Agreement, dated October 27, 2004, between Myoung-Jin Lee and Registrant (translation in English)
	4	.8*		Investment Agreement, dated February 19, 2002, between Sunny YNK Inc. and Registrant (translation in English)
	4	.9*		Agreement, dated February 21, 2002, between Sunny YNK Inc. and Registrant (translation in English)
	4	.10		Share Purchase Agreement, dated May 3, 2005, between Mr. Moon Kyu Kim and Registrant (translation in English)
	4	.11*		Ragnarok License and Distribution Agreement, dated July 24, 2002, between GungHo Online Entertainment Inc. (formerly ONSALE Japan K.K.) (licensee in Japan) and Registrant

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	4	.12*		Amendment to Ragnarok License and Distribution Agreement, dated September 23, 2004, between GungHo Online Entertainment Inc. (licensee in Japan) and Registrant
	4	.13*		Ragnarok Exclusive License and Distribution Agreement, dated May 20, 2002, between Soft-World International Corporation (licensee in Taiwan and Hong Kong) and Registrant
	4	.14*		Fourth Amendment to the Exclusive Ragnarok Online License and Distribution Agreement, dated October 19, 2004, between Soft-World International Corporation (licensee in Taiwan and Hong Kong) and Registrant
	4	.15*		Exclusive Ragnarok License and Distribution Agreement, dated October 21, 2002, among Soft-World International Corporation, Value Central Corporation (licensee in China) and Registrant
	4	.16		Fourth Amendment to the Exclusive Ragnarok License and Distribution Agreement, dated May 18, 2005, among Soft-World International Corporation, Value Central Corporation (licensee in China) and Registrant
	4	.17*		Ragnarok License and Distribution Agreement, dated June 13, 2002, between Asiasoft International Co., Ltd. (licensee in Thailand) and Registrant
	4	.18*		Amendment to the Exclusive Ragnarok Online License and Distribution Agreement, dated October 27, 2004, between Asiasoft International Co., Ltd. (licensee in Thailand) and Registrant
	4	.19*		Exclusive Ragnarok License and Distribution Agreement, dated May 12, 2003, among Soft-World International Corporation, Value Central Corporation (licensee in Malaysia and Singapore) and Registrant
	4	.20*		Exclusive Ragnarok License and Distribution Agreement, dated March 25, 2003, between Level Up! Inc. (licensee in the Philippines) and Registrant
	4	.21		Third Amendment to the Exclusive Ragnarok License and Distribution Agreement, dated February 18, 2005, between Level Up! Inc. (licensee in the Philippines) and Registrant
	4	.22*		Exclusive Ragnarok License and Distribution Agreement, dated April 2, 2004, between PT. Lyto Datarindo Fortuna (licensee in Indonesia) and Registrant
	4	.23*		Amendment to the Exclusive Ragnarok Online License and Distribution Agreement, dated October 29, 2004, between PT. Lyto Datarindo Fortuna (licensee in Indonesia) and Registrant
	4	.24*		Exclusive Ragnarok Online License and Distribution Agreement, dated November 26, 2003, between Burda Holding International GmbH (licensee in Germany, Austria, Switzerland, Italy and Turkey) and Registrant
	4	.25*		Amendment to the Exclusive Ragnarok Online License and Distribution Agreement, dated December 2, 2003, between Burda Holding International GmbH (licensee in Germany, Austria, Switzerland, Italy and Turkey) and Registrant
	4	.26*		Second Amendment to the Exclusive Ragnarok License and Distribution Agreement, dated November 18, 2004, between Burda Holding International GmbH (licensee in Germany, Austria, Switzerland, Italy and Turkey) and Registrant
	4	.27		Exclusive Ragnarok License and Distribution Agreement, dated July 16, 2004, between Ongamenet PTY Ltd. (licensee in Australia and New Zealand) and Registrant
	4	.28		Exclusive Ragnarok License and Distribution Agreement, dated August 15, 2004, between Level Up! Interactive SA (licensee in Brazil) and GRAVITY Co., Ltd.
	4	.29*		Exclusive Ragnarok Software License Agreement, dated May 24, 2004, between Level Up Network India Pvt. Ltd. (licensee in India) and GRAVITY Co., Ltd.
	4	.30*		Lease Agreement, dated August 1, 2004, between Jung Ryool Kim and Registrant (translation in English)
	4	.31*		Equipment Sales Agreement, dated December 1, 2003, between GRAVITY Interactive LLC and Registrant
	4	.32*		Service and Distribution of Earnings and Profit Agreement, dated April 1, 2003, between GRAVITY Interactive LLC and Registrant
	4	.33*		Loan Agreement, dated January 1, 2004, between GRAVITY Entertainment Corporation, formerly RO Production Ltd., and Registrant (translation in English)
	4	.34*		Share (syusshi-mochiban) Assignment Agreement, dated October 25, 2004, between GungHo Online Entertainment Inc. and Registrant

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	4	.35*		Joint Project Agreement for TV Animation “Ragnarok”, dated October 1, 2004, among GRAVITY Entertainment Corporation, formerly RO Production Ltd., GDH Co., Ltd., TV Tokyo Medianet Co., Ltd., Amuse Soft Entertainment Co., Ltd. and GNG Entertainment Inc (translation in English)
	4	.36*		Ragnarok Sales Agency Agreement, dated April 10, 2002, between Sunny YNK Inc. and Registrant (translation in English)
	8	.1		List of Registrant’s subsidiaries
	11	.1		Registrant’s Code of Business Conduct and Ethics
	12	.1		Certifications of our Chief Executive Officer required by Rule 13a-14(a) of the Exchange Act (Certifications under Section 302 of the Sarbanes-Oxley Act of 2002), included on the signature page hereto
	12	.2		Certifications of our Chief Executive Officer required by Rule 13a-14(a) of the Exchange Act (Certifications under Section 302 of the Sarbanes-Oxley Act of 2002), included on the signature page hereto
	13	.1		Certifications of our Chief Executive Officer required by Rule 13a-14(b) and Section 1350 of Chapter 63 of the United States Code (18 U.S.C. 1350) (Certifications under Section 906 of the Sarbanes-Oxley Act of 2002), included on the signature page hereto
	13	.2		Certifications of our Chief Financial Officer required by Rule 13a-14(b) and Section 1350 of Chapter 63 of the United States Code (18 U.S.C. 1350) (Certifications under Section 906 of the Sarbanes-Oxley Act of 2002), included on the signature page hereto

*	Incorporated by reference to Registrant’s Registration Statement on For F-1 (File No. 333-122159)
**	Incorporated by reference to Registrant’s Registration Statement on Form F-6 (File No. 333-122160)

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	GRAVITY CO., LTD

	By:	/s/ David Woong-Jin Yoon

	Name: David Woong-Jin Yoon

	Title:	Representative Director and Chief Executive Officer

105

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		Page
Index to Financial Statements			F-1
Report of Independent Registered Public Accounting Firm			F-2
Consolidated balance sheets as of December 31, 2003 and 2004			F-3
Consolidated statements of operations for the years ended December 31, 2002, 2003 and 2004			F-4
Consolidated statements of changes in shareholders’ equity for the years ended December 31, 2002, 2003 and 2004			F-5
Consolidated statements of cash flows for the years ended December 31, 2002, 2003 and 2004			F-7
Notes to the consolidated financial statements			F-8

F-1

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F-2

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Table of Contents

				2003				2004				2004
				(In millions of Korean Won and
				in thousands of US dollars,
				except per share data)
												(Unaudited)
												(Note 3)
ASSETS
Current assets
	Cash and cash equivalents				W 5,405				W16,405			$	15,849
	Short-term financial instruments				1,600				8,900				8,598
	Accounts receivable, net				6,988				7,321				7,073
	Deferred expense				651				2,530				2,444
	Current deferred income tax asset				504				2,684				2,593
	Other current assets				2,156				2,258				2,181
		Total current assets			17,304				40,098				38,738
Property and equipment, net					5,694				14,951				14,444
Leasehold and other deposits					3,913				4,192				4,050
Other non-current assets					1,854				2,893				2,795
		Total assets			W28,765				W62,134			$	60,027
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities
	Accounts payable				W 2,432				W 3,576			$	3,455
	Deferred income				2,671				4,392				4,243
	Current portion of long-term debt				2,633				1,278				1,235
	Other current liabilities				1,315				1,073				1,037
		Total current liabilities			9,051				10,319				9,970
Long-term deferred income					380				1,918				1,853
Long-term debt					1,164				—				—
Accrued severance benefits					342				960				927
Leasehold deposit received					—				2,000				1,932
Other non-current liabilities					8				7				6
		Total liabilities			10,945				15,204				14,688
Commitments and contingencies
Shareholders’ equity
	Preferred shares, W500 par value, 2,000,000 shares authorized, and no shares issued and outstanding at December 31, 2003 and 2004, respectively				—				—				—
	Common shares, W500 par value, 38,000,000 shares authorized, and 5,548,900 shares issued and outstanding as of December 31, 2003 and 2004, respectively				2,774				2,774				2,680
	Additional paid-in capital				2,132				2,180				2,106
	Retained earnings				12,916				42,117				40,689
	Accumulated other comprehensive income (loss)				(2	)			(141	)			(136	)
		Total shareholders’ equity			17,820				46,930				45,339
		Total liabilities and shareholders’ equity			W28,765				W62,134			$	60,027

F-3

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				2002				2003				2004				2004
				(In millions of Korean Won and in thousands of US dollars, except
				per share data)
																(Unaudited)
																(Note 3)
Revenues
	Online games-subscription revenue			W	7,310			W	18,560			W	16,253			$	15,702
	Online games-royalties and license fees				2,079				22,804				44,236				42,736
	Mobile games				—				43				480				464
	Character merchandising, animation and other revenue				427				1,024				3,471				3,353
		Total net revenues			9,816				42,431				64,440				62,255
Cost of revenues					1,735				6,866				10,309				9,959
Gross profit					8.081				35,565				54,131				52,296
Operating expenses
	Selling, general and administrative				4,956				11,115				13,719				13,253
	Research and development				815				1,597				2,030				1,962
		Operating income			2,310				22,853				38,382				37,081
Other income (expenses)
	Interest income				84				94				479				463
	Interest expense				(2,480	)			(5,947	)			(4,309	)			(4,163	)
	Foreign currency gains				75				418				336				325
	Foreign currency losses				(17	)			(240	)			(1,052	)			(1,016	)
	Others, net				(1	)			26				(2	)			(2	)
		Income before income tax expenses and minority interest, losses from equity method investee			(29	)			17,204				33,834				32,688
Income tax expenses					467				2,535				4,402				4,253
		Income before minority interest and losses from equity method investee			(496	)			14,669				29,432				28,435
Minority interest					—				—				(17	)			(16	)
Equity in loss of related joint venture					—				—				248				240
		Net income		W	(496	)		W	14,669			W	29,201			$	28,211
Earnings per share
	Basic and diluted			W	(148	)		W	2,859			W	5,263			$	5.08
Weighted average number of shares outstanding
	Basic and diluted				3,355,616				5,130,895				5,548,900				5,548,900

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															Retained				Accumulated
											Additional				Earnings				Other
			Common				Common				Paid-In				(Accumulated				Comprehensive
			Shares				Shares				Capital				deficit)				Income (Loss)				Total
			(In millions of Korean Won and in thousands of
			US dollars, except number of shares)
Balance at January 1, 2002				2,800,000			W	1,400			W	—			W	(1,257	)		W	—			W	143
Issuance of common shares				600,000				300				—				—				—				300
Comprehensive income (loss)
	Unrealized losses on available-for-sale securities			—				—				—				—				(210	)			(210	)
	Net income			—				—				—				(496	)			—				(496	)
Total comprehensive income																								(706	)
Balance at December 31, 2002				3,400,000				1,700				—				(1,753	)			(210	)			(263	)
Issuance of common shares				2,148,900				1,074				2,132				—				—				3,206
Comprehensive income (loss)
	Unrealized losses on available-for-sale securities			—				—				—				—				218				218
	Cumulative effect of foreign Currency translation			—				—				—				—				(10	)			(10	)
	Net income			—				—				—				14,669				—				14,669
Total comprehensive income																								14,877
Balance at December 31, 2003				5,548,900				2,774				2,132				12,916				(2	)			17,820
Issuance of common shares, net				—				—				—				—				—				—
Amortization of deferred stock compensation				—				—				48				—				—				48
Comprehensive income (loss)
	Unrealized gains on available-for-sale securities			—				—				—				—				(10	)			(10	)
Cumulative effect of foreign currency translation				—				—				—				—				(129	)			(129	)
	Net income			—				—				—				29,201				—				29,201
Total comprehensive income																								29,062
Balance at December 31, 2004				5,548,900			W	2,774			W	2,180			W	42,117			W	(141	)		W	46,930

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Table of Contents

																			Accumulated
											Additional								Other
			Common				Common				Paid-In				Retained				Comprehensive
			Shares				Shares				Capital				Earnings				Income (Loss)				Total
Balance at December 31, 2003 (Note 3) (unaudited)				5,548,900			$	2,680			$	2,060			$	12,478			$	(2	)		$	17,216
Issuance of common shares, net				—				—				—				—				—				—
Amortization of deferred stock compensation				—				—				46				—				—				46
Comprehensive income (loss)
	Unrealized gains on available-for-sale securities			—				—				—				—				(9	)			(9	)
Cumulative effect of foreign currency translation				—				—				—				—				(125	)			(125	)
	Net income			—				—				—				28,211				—				28,211
Total comprehensive income																								28,077
Balance at December 31, 2004				5,548,900			$	2,680			$	2,106			$	40,689			$	(136	)		$	45,339

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Table of Contents

				2002				2003				2004				2004
																(Unaudited)
																(Note 3)
				(In millions of Korean Won and in thousands of
				US dollars, except per share data)
Cash flows from operating activities
Net income				W	(496	)		W	14,669			W	29,201			$	28,211
Adjustments to reconcile net income to net cash provided by operating activities
	Depreciation and amortization				594				1,638				3,303				3,191
	Provision for accrued severance benefits				140				363				913				882
	Loss from impairment on investment				—				777				—				—
	Equity in loss of related joint venture				—				—				248				240
	Deferred income taxes				—				(994	)			(2,093	)			(2,024	)
	Other				218				(54	)			155				152
Changes in operating assets and liabilities									—				—				—
	Accounts receivable				(6,002	)			(1,228	)			(449	)			(434	)
	Accounts payable and accrued expenses				2,048				485				1,141				1,103
	Accrued interest				1,037				(358	)			(442	)			(427	)
	Deferred income				(1,159	)			1,509				3,260				3,149
	Deferred expense				(558	)			(92	)			(1,879	)			(1,816	)
	Development cost				(427	)			(44	)			(412	)			(398	)
	Other current liabilities				220				303				308				298
	Payment of severance benefits				(15	)			(114	)			(144	)			(140	)
	Other assets				86				(1,143	)			(476	)			(459	)
		Net cash provided by operating activities			(4,314	)			15,717				32,634				31,528
Cash flows from investing activities
Increase in short-term financial instruments					—				(2,200	)			(7,300	)			(7,052	)
Decrease (increase) of available-for-sale and other investments, net					(58	)			(1,193	)			151				147
Purchase of equity investments					—				—				(1,243	)			(1,201	)
Purchase of property and equipment					(2,898	)			(4,749	)			(12,324	)			(11,906	)
Disposal of property and equipment					381				510				22				22
Payment of leasehold deposits					(945	)			(3,527	)			(279	)			(269	)
Proceeds from leasehold deposits					—				710				2,000				1,932
Others, net					—				(115	)			(34	)			(34	)
	Net cash used in investing activities				(3,520	)			(10,564	)			(19,007	)			(18,361	)
Cash flows from financing activities
Issuance of common stock, net					300				3,206				—				—
Increase of long-term debt					7,500				—				—				—
Repayment of capital lease liabilities					—				(500	)			(104	)			(100	)
Proceeds from increase in borrowings					2,200				4,015				—				—
Repayment of long-term debt					(673	)			(3,029	)			(2,519	)			(2,434	)
Repayment of borrowings					(2,753	)			(4,000	)			(4	)			(4	)
	Net cash used in financing activities				6,574				(308	)			(2,627	)			(2,538	)
	Net increase in cash and cash equivalents				(1,260	)			4,845				11,000				10,629
Cash and cash equivalents
Beginning of year					1,820				560				5,405				5,220
End of the year				W	560			W	5,405			W	16,405			$	15,849

F-7

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Table of Contents

1.	Description of Business

2.	Significant Accounting Policies

	Basis of presentation

	Principles of consolidation

	Stock split

	Use of estimates

F-8

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Table of Contents

	Risks and Uncertainties

	Start-up costs

	Revenue recognition

	Online games- subscription revenue

	Online games-royalties and license fees

F-9

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Table of Contents

	Cash and cash equivalents

	Short-term financial instruments

	Available-for-sale investments

	Allowance for doubtful accounts

	Property and equipment

Building			40  years
Computer and equipment			4 years
Furniture and fixtures			4 years
Software			3 years
Vehicles			4 years
Capital lease assets			4 years

	Accounting for the impairment of long-lived assets

F-10

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Table of Contents

	Capitalized software development costs

	Research and development costs

	Advertising

F-11

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Table of Contents

	Accrued severance benefits

	Foreign currency translation

	Foreign currency transactions

	Income taxes

	Fair value of financial instruments

	Accounting for Stock-Based Compensation

F-12

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Table of Contents

	Earnings per Share

	Recent Accounting Pronouncements

F-13

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3.	Convenience Translation into United States Dollar Amounts

4.	Allowance for Accounts Receivable

		2002				2003				2004
		(In millions of Korean Won)
Balance at beginning of year		W	—			W	151			W	242
Provision for allowances			151				91				—
Write-offs			—				—				242
Balance at end of year		W	151			W	242			W	—

5.	Investment in equity method investee

6.	Property and Equipment, Net

		2003				2004
		(In millions of
		Korean Won)
Land		W	—			W	5,954
Building			—				2,233
Computer and equipment			3,295				5,468
Furniture and fixtures			557				655
Vehicles			194				189
Capital lease assets			603				—
Leasehold improvements			975				1,043
Software externally-purchased			2,026				4,340
			7,650				19,882
Less: accumulated depreciation			1,956				4,931
		W	5,694			W	14,951

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Table of Contents

7.	Accrued Severance Benefits

		2002				2003				2004
		(In millions of Korean Won)
Balance at beginning of year		W	39			W	164			W	413
Provisions for severance benefits			140				363				913
Severance payments			(15	)			(114	)			(144	)
			164				413				1,182
Less: amounts placed on deposit at insurance company			—				(71	)			(222	)
Balance at end of year		W	164			W	342			W	960

		(In millions of
		Korean Won)
2005		W	1
2006			—
2007			2
2008			3
2009			6
2010 ~ 2014			57

8.	Long-term debt

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Table of Contents

		2003				2004
		(In millions of Korean
		Won)
Loans, representing obligations principally to Sunny YNK Inc Due 2005		W	3,797			W	1,278
Less: Current portion			(2,633	)			(1,278	)
		W	1,164			W	—

9.	Commitments and Contingencies

		2005				2006
		(In millions of
		Korean Won)
Operating lease		W	728			W	5

10.	Shareholders’ Equity

11.	Stock purchase option plan

F-16

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Table of Contents

							Weighted-Average				Weighted-Average
			Number of				Exercise Price				Fair Value at
			Stock Options				Per Share				Date of Grant
Stock options outstanding as of December 31, 2003			W	—			W	—			W	—
	Options granted			271,000				71,845				20,211
	Options exercised			—				—				—
	Options forfeited			—				—				—
Stock options outstanding as of December 31, 2004			W	271,000			W	71,845			W	20,211

Expected dividend yield			0%
Risk-free interest rate			3.50%
Expected volatility			53%
Expected life (in years from vesting)			4.0  years
Fair value of stock			W55,431

12.	Earnings per Share

		2002				2003				2004
		(In millions of Korean Won, except numbers of
		common shares and per share amounts)
Net income available for common shareholders (A)		W	(496	)		W	14,669			W	29,201
Weighted average outstanding shares of common shares (B)			3,355,616				5,130,895				5,548,900
Earnings per share Basic and diluted (A/ B)		W	(148	)		W	2,859			W	5,263

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13.	Income Taxes

				2002				2003				2004
				(In millions of Korean Won)
Income(loss) before income taxes
	Domestic			W	(29	)		W	16,146			W	33,332
	Foreign				—				1,058				502
					(29	)			17,204				33,834
Current income taxes
	Domestic				467				3,235				6,186
	Foreign				—				294				309
					467				3,529				6,495
Deferred income taxes
	Domestic				—				1,127				2,022
	Foreign				—				(133	)			71
					—				994				2,093
		Total income tax expense		W	467			W	2,535			W	4,402

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			2003				2004
			(In millions of
			Korean Won)
Current deferred income tax assets (liabilities)
	Foreign tax credit carryforwards		W	528			W	2,395
	Tax credit carryforwards for research and human resource development			—				351
	Net operating loss carryforwards in Japan			—				86
	Accrued expense			64				9
	Accrued income			(31	)			(17	)
	Deferred expense			(58	)			(54	)
	Unrealized gain and losses on securities			(1	)			1
	Other			1				—
				503				2,771
	Less: Valuation allowance			—				(86	)
	Less: Other comprehensive income of deferred tax asset (liability)			(1	)			1
			W	504			W	2,684
Non-current deferred income tax assets (liabilities)
	Depreciation and amortization		W	190			W	139
	Deferred income			163				52
	Impairment on other investment			192				192
	Provisions for severance benefits			55				145
	Deferred expense			(46	)			(21	)
	Unremitted earnings of subsidiaries			(74	)			(111	)
	Other			10				7
				490				403
	Less: Valuation allowance			—				—
			W	490			W	403

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		2002				2003				2004
		(In millions of Korean Won)
Tax expense at Korean statutory tax rate		W	(8	)		W	5,110			W	10,049
Income tax exemption			4				(2,555	)			(5,025	)
Tax credit carryforwards for research and human resource development			—				—				(351	)
Foreign tax differential			—				274				108
Income not assessable for tax purpose			(40	)			(1	)			(254	)
Expense not deductible for tax purpose			431				185				100
Change in statutory tax rate			(18	)			(110	)			2
Change in valuation allowances			89				(299	)			86
True up of prior year tax return			—				—				(242	)
Others			9				(69	)			(71	)
Total income tax expense		W	467			W	2,535			W	4,402

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14.	Operations by Geographic Area

		2002				2003				2004
		(In millions of Korean Won)
Korea		W	7,304			W	16,475			W	13,524
United States			137				2,374				3,528
Japan			1,121				9,658				18,182
Taiwan			1,253				8,632				15,368
Thailand			—				2,610				5,503
China			—				1,800				2,657
Other			1				882				5,678
		W	9,816			W	42,431			W	64,440

15.	Related Party Transactions

		2002				2003				2004
		(In millions of Korean Won)
Purchases from related parties		W	346			W	721			W	1,096
Amounts due from related parties			900				3,800				3,899
Amounts due to related parties			—				—				305

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16.	Supplemental Cash Flow Information and Non-Cash Activities

		2002				2003				2004
		(In millions of Korean Won)
Supplemental cash flow information
Cash paid during the year for income taxes		W	467			W	3,343			W	6,805
Interest paid			1,443				6,306				4,751
		W	1,910			W	9,649			W	11,556
Supplemental non-cash activities
Increase of available-for-sale securities		W	450			W	—			W	—
Increase of capital lease asset			—				603				—

17.	Subsequent events

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Table of Contents

	1	.1*		Articles of Incorporation (English translation)
	2	.1*		Form of Stock Certificate of Registrant’s common stock, par value W500 per share
	2	.1**		Form of Deposit Agreement among Registrant, The Bank of New York, as depositary, and all holders and beneficial owners of American depositary shares evidenced by American depositary receipts, including the form of American depositary receipt **
	4	.1*		Agreement on the Development of RAGNAROK Online, dated June 26, 2000, between Myoung-Jin Lee and Registrant (translation in English)
	4	.2*		Agreement on the Exclusive License of Copyright Regarding Ragnarok Game Services, dated June 26, 2000, between Myoung-Jin Lee and Registrant (translation in English)
	4	.3*		Cooperation Agreement on Ragnarok Game Services, dated May 31, 2002, between Myoung-Jin Lee and Registrant (translation in English)
	4	.4*		Agreement on Factual Matters, dated November 19, 2002, between Myoung-Jin Lee and Registrant (translation in English)
	4	.5*		Agreement on Ragnarok Game Services and Related Matters, dated January 22, 2003, between Myoung-Jin Lee and Registrant (translation in English)
	4	.6*		Agreement, dated June 3, 2003, between Myoung-Jin Lee and Registrant (translation in English)
	4	.7*		Agreement, dated October 27, 2004, between Myoung-Jin Lee and Registrant (translation in English)
	4	.8*		Investment Agreement, dated February 19, 2002, between Sunny YNK Inc. and Registrant (translation in English)
	4	.9*		Agreement, dated February 21, 2002, between Sunny YNK Inc. and Registrant (translation in English)
	4	.10		Share Purchase Agreement, dated May 3, 2005, between Mr. Moon Kyu Kim and Registrant (translation in English)
	4	.11*		Ragnarok License and Distribution Agreement, dated July 24, 2002, between GungHo Online Entertainment Inc. (formerly ONSALE Japan K.K.) (licensee in Japan) and Registrant
	4	.12*		Amendment to Ragnarok License and Distribution Agreement, dated September 23, 2004, between GungHo Online Entertainment Inc. (licensee in Japan) and Registrant
	4	.13*		Ragnarok Exclusive License and Distribution Agreement, dated May 20, 2002, between Soft-World International Corporation (licensee in Taiwan and Hong Kong) and Registrant
	4	.14*		Fourth Amendment to the Exclusive Ragnarok Online License and Distribution Agreement, dated October 19, 2004, between Soft-World International Corporation (licensee in Taiwan and Hong Kong) and Registrant
	4	.15*		Exclusive Ragnarok License and Distribution Agreement, dated October 21, 2002, among Soft-World International Corporation, Value Central Corporation (licensee in China) and Registrant
	4	.16		Fourth Amendment to the Exclusive Ragnarok License and Distribution Agreement, dated May 18, 2005, among Soft-World International Corporation, Value Central Corporation (licensee in China) and Registrant
	4	.17*		Ragnarok License and Distribution Agreement, dated June 13, 2002, between Asiasoft International Co., Ltd. (licensee in Thailand) and Registrant
	4	.18*		Amendment to the Exclusive Ragnarok Online License and Distribution Agreement, dated October 27, 2004, between Asiasoft International Co., Ltd. (licensee in Thailand) and Registrant
	4	.19*		Exclusive Ragnarok License and Distribution Agreement, dated May 12, 2003, among Soft-World International Corporation, Value Central Corporation (licensee in Malaysia and Singapore) and Registrant
	4	.20*		Exclusive Ragnarok License and Distribution Agreement, dated March 25, 2003, between Level Up! Inc. (licensee in the Philippines) and Registrant
	4	.21		Third Amendment to the Exclusive Ragnarok License and Distribution Agreement, dated February 18, 2005, between Level Up! Inc. (licensee in the Philippines) and Registrant
	4	.22*		Exclusive Ragnarok License and Distribution Agreement, dated April 2, 2004, between PT. Lyto Datarindo Fortuna (licensee in Indonesia) and Registrant

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Table of Contents

	4	.23*		Amendment to the Exclusive Ragnarok Online License and Distribution Agreement, dated October 29, 2004, between PT. Lyto Datarindo Fortuna (licensee in Indonesia) and Registrant
	4	.24*		Exclusive Ragnarok Online License and Distribution Agreement, dated November 26, 2003, between Burda Holding International GmbH (licensee in Germany, Austria, Switzerland, Italy and Turkey) and Registrant
	4	.25*		Amendment to the Exclusive Ragnarok Online License and Distribution Agreement, dated December 2, 2003, between Burda Holding International GmbH (licensee in Germany, Austria, Switzerland, Italy and Turkey) and Registrant
	4	.26*		Second Amendment to the Exclusive Ragnarok License and Distribution Agreement, dated November 18, 2004, between Burda Holding International GmbH (licensee in Germany, Austria, Switzerland, Italy and Turkey) and Registrant
	4	.27		Exclusive Ragnarok License and Distribution Agreement, dated July 16, 2004, between Ongamenet PTY Ltd. (licensee in Australia and New Zealand) and Registrant
	4	.28		Exclusive Ragnarok License and Distribution Agreement, dated August 15, 2004, between Level Up! Interactive SA (licensee in Brazil) and GRAVITY Co., Ltd.
	4	.29*		Exclusive Ragnarok Software License Agreement, dated May 24, 2004, between Level Up Network India Pvt. Ltd. (licensee in India) and GRAVITY Co., Ltd.
	4	.30*		Lease Agreement, dated August 1, 2004, between Jung Ryool Kim and Registrant (translation in English)
	4	.31*		Equipment Sales Agreement, dated December 1, 2003, between GRAVITY Interactive LLC and Registrant
	4	.32*		Service and Distribution of Earnings and Profit Agreement, dated April 1, 2003, between GRAVITY Interactive LLC and Registrant
	4	.33*		Loan Agreement, dated January 1, 2004, between GRAVITY Entertainment Corporation, formerly RO Production Ltd., and Registrant (translation in English)
	4	.34*		Share (syusshi-mochiban) Assignment Agreement, dated October 25, 2004, between GungHo Online Entertainment Inc. and Registrant
	4	.35*		Joint Project Agreement for TV Animation “Ragnarok”, dated October 1, 2004, among GRAVITY Entertainment, formerly RO Production Ltd., GDH Co., Ltd., TV Tokyo Medianet Co., Ltd., Amuse Soft Entertainment Co., Ltd. and GNG Entertainment Inc (translation in English)
	4	.36*		Ragnarok Sales Agency Agreement, dated April 10, 2002, between Sunny YNK Inc. and Registrant (translation in English)
	8	.1		List of Registrant’s subsidiaries
	11	.1		Registrant’s Code of Business Conduct and Ethics
	12	.1		Certifications of our Chief Executive Officer required by Rule 13a-14(a) of the Exchange Act (Certifications under Section 302 of the Sarbanes-Oxley Act of 2002), included on the signature page hereto
	12	.2		Certifications of our Chief Financial Officer required by Rule 13a-14(a) of the Exchange Act (Certifications under Section 302 of the Sarbanes-Oxley Act of 2002), included on the signature page hereto
	13	.1		Certifications of our Chief Executive Officer required by Rule 13a-14(b) and Section 1350 of Chapter 63 of the United States Code (18 U.S.C. 1350) (Certifications under Section 906 of the Sarbanes-Oxley Act of 2002), included on the signature page hereto
	13	.2		Certifications of our Chief Financial Officer required by Rule 13a-14(b) and Section 1350 of Chapter 63 of the United States Code (18 U.S.C. 1350) (Certifications under Section 906 of the Sarbanes-Oxley Act of 2002), included on the signature page hereto

	*	Incorporated by reference to Registrant’s Registration Statement on For F-1 (File No. 333-122159)

**	Incorporated by reference to Registrant’s Registration Statement on Form F-6 (File No. 333-122160)

E-2