Exhibit 99.1

GRAVITY CO., LTD.

Non-Consolidated Financial Statements

December 31, 2012 and 2011

GRAVITY CO., LTD.

Index

December 31, 2012 and 2011

	Page(s)
Report of Independent Auditors	1 - 2
Non-Consolidated Financial Statements
Statements of Financial Position	3 - 4
Statements of Operations	5
Statements of Changes in Shareholders’ Equity	6
Statements of Cash Flows	7 - 8
Notes to Non-Consolidated Financial Statements	9 - 36
Report of Independent Accountants’ Review of Internal Accounting Control System	37
Report on the Operations of the Internal Accounting Control System	38

Report of Independent Auditors

To the Shareholders and Board of Directors of

GRAVITY Co., Ltd.

We have audited the accompanying non-consolidated statements of financial position of GRAVITY Co., Ltd. (the “Company”) as of December 31, 2012 and 2011, and the related non-consolidated statements of operations, changes in shareholders’ equity and cash flows for the years then ended, expressed in Korean won. These non-consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these non-consolidated financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the Republic of Korea. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the non-consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statements presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the non-consolidated financial statements referred to above present fairly, in all material respects, the non-consolidated financial position of GRAVITY Co., Ltd. as of December 31, 2012 and 2011, and its financial performance and cash flows for the years then ended in accordance with the Accounting Standards for Non-Public Entities in the Republic of Korea.

Samil PricewaterhouseCoopers is the Korean member firm of PricewaterhouseCoopers. PricewaterhouseCoopers refers to the network of member firms of PricewaterhouseCoopers International Limited, each of which is a separate and independent legal entity.

1

Accounting principles and auditing standards and their application in practice vary among countries. The accompanying non-consolidated financial statements are not intended to present the financial position, financial performance and cash flows in conformity with accounting principles and practices generally accepted in other countries and jurisdictions other than the Republic of Korea. In addition, the procedures and practices used in the Republic of Korea to audit such financial statements may differ from those generally accepted and applied in other countries. Accordingly, this report and the accompanying non-consolidated financial statements are for use by those who are informed about the Korean Accounting Standards for Non-Public Entities or auditing standards and their application in practice.

Seoul, Korea

March 19, 2013

This report is effective as of March 19, 2013, the audit report date. Certain subsequent events or circumstances, which may occur between the audit report date and the time of reading this report, could have a material impact on the accompanying non-consolidated financial statements and notes thereto. Accordingly, the readers of the audit report should understand that there is a possibility that the above audit report may have to be revised to reflect the impact of such subsequent events or circumstances, if any.

2

GRAVITY CO., LTD.

Statements of Operations

Years Ended December 31, 2012 and 2011

(in thousands of Korean won)
	2012		2011
Assets
Current assets
Cash and cash equivalents (Note 3)	￦	29,078,231	￦	31,740,564
Short-term financial instruments (Note 3)		17,500,000		15,000,000
Trade accounts receivable, net (Notes 4 and 27)		4,636,583		7,512,653
Short-term loans receivable, net (Notes 9, 10 and 27)		55,000		926,233
Other accounts receivable, net (Notes 5 and 27)		250,811		691,055
Advance Payments, net (Notes 6 and 27)		1,591,969		2,823,335
Current deferred tax assets (Note 18)		633,000		1,239,000
Prepaid income taxes		963,145		897,447
Other current assets (Notes 7, 9 and 27)		1,008,885		1,113,963
Total current assets		55,717,624		61,944,250
Equity-method investments (Note 9)		11,811,903		19,996,357
Long-term available-for-sale securities (Note 8)		647,061		1,046,466
Long-term loans receivable, net (Notes 9, 10 and 27)		1,199,278		29,722
Property and equipment, net (Notes 11 and 12)		1,007,536		1,261,672
Intangible assets, net (Notes 14 and 27)		19,286,514		19,905,124
Leasehold deposits paid (Note 13)		1,374,232		1,376,596
Deferred tax assets, net (Note 18)		8,905,000		8,747,000
Other non-current assets (Notes 17 and 27)		4,234,710		4,396,183
Total assets	￦	104,183,858	￦	118,703,370
Liabilities and Shareholders’ Equity
Current liabilities
Accounts payable (Note 27)		4,094,503		4,269,286
Advanced receipt (Notes 17 and 27)		1,920,366		1,920,366
Withholdings		148,737		210,685
Deferred income (Notes 17 and 27)		2,203,565		3,134,985
Income tax payable (Note 18)		244,685		312,103
Total current liabilities		8,611,856		9,847,425
Long-term deferred income (Notes 17 and 27)		8,495,438		7,287,820
Asset retirement obligatoins		99,000		99,000
Leasehold deposits received (Note 27)		154,488		144,224
Total liabilities	￦	17,360,782	￦	17,378,469

The accompanying notes are an integral part of these non-consolidated financial statements.

3

GRAVITY CO., LTD.

Statements of Operations

Years Ended December 31, 2012 and 2011

(in thousands of Korean won)
	2012			2011
Shareholders’ Equity
Capital stock (Notes 1 and 19)
Common stock	￦	3,474,450		￦	3,474,450
Capital surplus
Paid in capital in excess of par value (Note 19)		73,255,073			73,255,073
Other capital surplus		2,125,136			2,125,136
Accumulated other comprehensive income and loss
Accumulated comprehensive income of equity method investees (Notes 9 and 23)		1,484,906			1,636,751
Accumulated comprehensive loss of equity method investees (Notes 9 and 23)		(51,580	)		—
Retained earnings (Note 22)
Unappropriated retained earnings		6,535,091			20,833,492
Total shareholders’ equity		86,823,076			101,324,902
Total liabilities and shareholders’ equity	￦	104,183,858		￦	118,703,372

The accompanying notes are an integral part of these non-consolidated financial statements.

4

GRAVITY CO., LTD.

Statements of Operations

Years Ended December 31, 2012 and 2011

(in thousands of Korean won)
	2012			2011
Revenues (Notes 17, 20 and 27)	￦	40,104,850		￦	40,224,259
Cost of revenues (Note 27)		20,303,476			11,327,111
Gross profit		19,801,374			28,897,148
Selling and administrative expenses (Notes 21 and 27)		19,601,087			20,434,896
Operating income		200,287			8,462,252
Non-operating income
Interest income (Note 27)		1,570,695			1,647,258
Gain on foreign currency translation		31,569			91,506
Gain on foreign currency transactions		406,127			999,555
Gain on valuation of equity-method investments (Note 9)		1,709,804			1,868,881
Gain on disposal of property and equipment		7,188			1,559
Gain on disposal of equity-method investments (Note 9)		—			311,085
Other income		768,206			389,384
		4,493,589			5,309,228
Non-operating expenses
Other bad debt expenses (Notes 5, 6, 9, 10 and 27)		2,067,280			1,841,810
Loss on foreign currency translation		395,764			59,690
Loss on foreign currency transactions		764,070			823,549
Loss on valuation of equity-method investments (Note 9)		4,180,479			2,006,446
Loss on impairment of long-term abailable-for-sale securities (Note 8)		399,405			—
Loss on disposal of intangible assets		924			—
Loss on impairment of intangible assets (Note 14)		291,094			798,958
Loss on disposal of short-term available-for-sale securities		—			125
Loss on impairment of equity-method investments (Note 9)		6,732,617			235,828
Loss on disposal of equity-method investments (Note 9)		333,389			—
Loss on disposal of other non-current assets		5,880			—
Donation		—			10,237
Other losses		—			7,513
		15,170,902			5,784,156
Profit (Loss) before income taxes		(10,477,026	)		7,987,324
Income tax expense (benefit) (Note 18)		3,821,375			(6,784,248	)
Net income (loss)	￦	(14,298,401	)	￦	14,771,572
Basic earnings (loss) per share (in Korean won) (Note 25)	￦	(2,058	)	￦	2,126

The accompanying notes are an integral part of these non-consolidated financial statements.

5

GRAVITY CO., LTD.

Statements of Changes in Shareholders’ Equity

Years Ended December 31, 2012 and 2011

(in thousands of Korean won)
	Capital stock		Capital surplus		Accumulated other comprehensive income and loss			Retained earnings			Total
Balance at January 1, 2011	￦	3,474,450	￦	75,380,209	￦	2,079,331		￦	6,061,920		￦	86,995,910
Net income		—		—		—			14,771,572			14,771,572
Gain on valuation of available-for-sale securities (Note 24)		—		—		1,120			—			1,120
Changes in equity-method investees with accumulated comprehensive expense (Notes 9 and 24)		—		—		(443,701	)		—			(443,701	)
Balance at December 31, 2011	￦	3,474,450	￦	75,380,209	￦	1,636,750		￦	20,833,492		￦	101,324,901
Balance at January 1, 2012	￦	3,474,450	￦	75,380,209	￦	1,636,750		￦	20,833,492		￦	101,324,901
Net loss		—		—		—			(14,298,401	)		(14,298,401	)
Changes in equity-method investees with accumulated comprehensive income (Notes 9 and 24)		—		—		(151,844	)		—			(151,844	)
Changes in equity-method investees with accumulated comprehensive loss (Notes 9 and 24)		—		—		(51,580	)		—			(51,580	)
Balance at December 31, 2012	￦	3,474,450	￦	75,380,209	￦	1,433,326		￦	6,535,091		￦	86,823,076

The accompanying notes are an integral part of these non-consolidated financial statements.

6

GRAVITY CO., LTD.

Statements of Cash Flows

Years Ended December 31, 2012 and 2011

(in thousands of Korean won)
	2012			2011
Cash flows from operating activities
Net income (loss)	￦	(14,298,401	)	￦	14,771,572
Adjustments to reconcile net income (loss) to net cash provided by operating activities Depreciation		490,035			654,397
Amortization of intangible assets		5,179,798			736,987
Loss on foreign exchange translation		152,637			33,610
Loss on valuation of equity-method investments		4,180,479			2,006,446
Loss on impairment of equity-method investments		6,732,617			235,828
Loss on disposal of other non-current assets		5,880			—
Loss on disposal of equity-method investments		333,389			—
Loss on disposal of short-term available-for-sale securities		—			125
Loss on impairment of long-term available-for-sale securities		399,405			—
Bad debt expenses		5,901			81,275
Other bad debt expenses		2,067,280			1,841,810
Loss on disposal of intangible assets		924			—
Loss on impairement of intangible assets		291,094			798,958
Gain on foreign exchange translation		(31,569	)		(165,914	)
Gain on valuation of equity-method investments		(1,709,804	)		(1,868,881	)
Gain on disposal of equity-method investments		—			(311,085	)
Gain on disposal of property and equipment		(7,188	)		(1,559	)
Gain on disposal of of other non-current assets		—			(62,392	)
		18,090,877			3,979,603
Changes in operating assets and liabilities
Decrease in trade accounts receivable		2,314,423			501,240
Decrease(increase) in other accounts receivable		188,142			(391,181	)
Increase in accrued income		(6,294	)		(182,136	)
Increase in advance payments		(580,423	)		(2,515,004	)
Decrease in prepaid expenses		137,536			120,868
Decrease(increase) in prepaid income taxes		(65,699	)		114,158
Decrease(increase) in tax refund receivable		(28,163	)		66,916
Decrease(increase) in current portion of deferred tax assets		606,000			(1,239,000	)
Decrease in merchandise		—			42,095
Increase in other deposits		—			(4,139,454	)
Decrease(increase) in long-term prepaid expenses		42,460			(204,781	)
Increase in deferred tax assets		(107,000	)		(8,866,000	)
Decrease in accounts payable		(1,044,783	)		(848,521	)
Increase in advance receipt		—			60,698
Increase(decrease) in withholdings		(61,948	)		61,806
Increase in leasehold deposits received		10,264			76,289
Decrease in deferred income		(1,638,873	)		(1,820,576	)
Decrease in income tax payables		(67,417	)		(61,078	)
Increase in long-term deferred income		2,085,298			1,014,444
		1,783,523			(18,209,217	)
Net cash provided by operating activities	￦	5,576,000		￦	541,960

The accompanying notes are an integral part of these non-consolidated financial statements.

7

GRAVITY CO., LTD.

Statements of Cash Flows

Years Ended December 31, 2012 and 2011

(in thousands of Korean won)
	2012			2011
Cash flows from investing activities
Proceeds from disposal of short-term financial instruments	￦	30,000,000		￦	22,000,000
Collection of short-term loans receivable		176,250			319,750
Proceeds from disposal of short-term available-for-sale securities		905,280			5,000,000
Proceeds from disposal of property and equipment		7,201			17,694
Proceeds from disposal of intangible assets		—			5,856
Proceeds from disposal of long-term available-for-sale securities		-21,440
Collection of long-term loans receivable		12,778			15,278
Decrease in other non-current assets		28,000			954,545
Decrease in leasehold deposits		2,634			7,774
Increase in short-term financial instruments		(32,500,000	)		(25,000,000	)
Increase in short-term loans receivable		—			(125,514	)
Acquisition of equity-method investments		—			(374,015	)
Increase in long-term loans receivable		(2,965,600	)		(70,000	)
Acquisition of property and equipment		(259,351	)		(976,542	)
Acquisition of intangible assets		(3,617,255	)		(4,747,761	)
Increase in leasehold deposits		(270	)		(130,110	)
Increase in other non-current assets		(28,000	)		—
Net cash used in investing activities		(8,238,333	)		(3,081,605	)
Cash flows from financing activities
Net cash provided by financing activities		—			—
Net decrease in cash and cash equivalents		(2,662,333	)		(2,539,645	)
Cash and cash equivalents
Beginning of the year		31,740,564			34,280,209
End of the year	￦	29,078,231		￦	31,740,564

The accompanying notes are an integral part of these non-consolidated financial statements.

8

GRAVITY CO., LTD.

Notes to Non-Consolidated Financial Statements

December 31, 2012 and 2011

1. The Company

GRAVITY Co., Ltd. (the “Company”) was incorporated on April 4, 2000, to engage in developing and distributing online games and other related business principally in the Republic of Korea and other countries in Asia, United States and Europe. The Company maintains a single business segment engaged in developing online games, software licensing and other related services. The Company’s principal game product, “RAGNAROK”, a massive multi-player online role-playing game, was commercially launched in August 2002, and currently operated internationally over the 79 markets through three subsidiaries, including Gravity Interactive, Inc. In addition, the Company has another subsidiary, NeoCyon, Inc., which operates in mobile service business in Republic of Korea. The Company also acquired 50.83% ownership of Gravity Games Corporation (formerly, Barunson Interactive Corporation), the developer of “Dragonica”, a massive multi-player online role playing game.

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

As of December 31, 2012, the total paid-in capital amounts to ￦3474,450 thousand. The Company’s major shareholders and their respective percentage of ownership as of December 31, 2012, are as follows:

	Number of shares		Percentage of ownership (%)
GungHo Online Entertainment, Inc.		4,121,739		59.31
Others		2,827,161		40.69
		6,948,900		100.00

On April 1, 2008, GungHo Online Entertainment, Inc. became the majority shareholder by acquiring 52.39% of the voting shares from Heartis, Inc., the former majority shareholder, and acquired additional 6.92% voting shares on June 24, 2008, resulting in 59.31% of shares in total as of December 31, 2012.

2. Summary of Significant Accounting Policies

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

Certain prior year’s accounts, presented herein for comprehensive purpose, have been reclassified to conform to current year’s presentation within the financial statements. Such reclassification does not impact the net income or net assets reported in the prior year.

2.1 Basis of Presentation

The Company maintains its accounting records in Korean won and prepares statutory financial statements in the Korean language (Hangul) in accordance with the Korean Accounting Standards for Non-Public Entities (“KAS-NPEs”), which apply to those companies which are subject to the Act on External Audit of Stock Companies but do not prepare their financial statements in accordance with International Financial Reporting Standards as adopted by the Republic of Korea (“Korean IFRS”). Certain accounting principles applied by the Company that conform with financial accounting standards and accounting principles in the Republic of Korea may not conform with generally accepted accounting principles in other countries. Accordingly, these financial statements are intended for use by those who are informed about Korean accounting principles and practices. The accompanying financial statements have been condensed, restructured and translated into English from the Korean language financial statements.

The accompanying notes are an integral part of these non-consolidated financial statements.

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GRAVITY CO., LTD.

Notes to Non-Consolidated Financial Statements

December 31, 2012 and 2011

Certain information attached to the Korean language financial statements, but not required for a fair presentation of the Company’s financial position, financial performance or cash flows, is not presented in the accompanying financial statements.

2.2 Foreign Currency Translation

2.2.1 Functional and presentation currency

Items included in the Company’s financial statements are measured using the currency of the primary economic environment in which the entity operates (“the functional currency”). The financial statements are presented in Korean won, which is the Company’s functional and presentation currency.

2.2.2 Foreign currency transactions and translations

Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions or valuation where items are re-measured. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at each reporting date of monetary assets and liabilities denominated in foreign currencies are recognized in the statements of operations, except when deferred in other comprehensive income as qualifying cash flow hedges or available-for-sale debt securities.

Translation differences on non-monetary financial assets and liabilities, such as equities held at fair value through profit or loss, are recognized in profit or loss as part of the fair value gain or loss.

Translation differences on non-monetary financial assets, such as equities classified as available-for-sale, are included in other comprehensive income.

Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated at the closing rate.

2.3 Cash and Cash Equivalents

Cash and cash equivalents include cash on hand, deposits held at call with banks, and other short-term highly liquid investments with original maturities of three months or less that are readily convertible to known amounts of cash without significant transaction costs which are subject to an insignificant risk of changes in value.

2.4 Investments in Securities

Costs of securities are determined using the moving average method. Investments in equity securities or debt securities are classified into trading securities, available-for-sale securities and held-to-maturity securities, depending on the acquisition and holding purpose. Investments in equity securities of companies, over which the Company exercises a significant control or influence, are recorded using the equity-method of accounting. Trading securities are classified as short-term investments while available-for-sale securities and held-to-maturity securities are classified as long-term investments, excluding those securities that mature or are certain to be disposed of within one year, which are then classified as short-term investments.

The accompanying notes are an integral part of these non-consolidated financial statements.

10

GRAVITY CO., LTD.

Notes to Non-Consolidated Financial Statements

December 31, 2012 and 2011

Held-to-maturity securities are measured at amortized cost while available-for-sale and trading securities are measured at fair value. However, non-marketable securities, classified as available-for-sale securities, are carried at cost when the fair values are not readily determinable.

Gains and losses related to trading securities are recognized in the statements of operations, while unrealized gains and losses of available-for-sale securities are recognized under other comprehensive income and loss. Realized gains and losses on available-for-sale securities are recognized in the statements of operations.

In case that the estimated amount recoverable from the securities (“recoverable amount”) is less than the amortized cost of the debt security or the acquisition cost of the equity security, the Company considers the necessity to recognize impairment losses. The Company assesses at the end of each reporting period whether there is objective evidence for impairment. If there is objective evidence for impairment, in the absence of evidence to the contrary, the recoverable amount is estimated and impairment losses are recognized in profit and losses.

If, in a subsequent period, the reversal of impairment loss can be objectively related to an event occurring after the impairment loss was recognized, the impairment loss is reversed through the statement of income for held-to-maturity securities and available-for-sale securities valued at cost, and the revised book value does not exceed the amortized cost (acquisition cost for available-for-sale securities) that would have been recorded without the impairment. The reversal for available-for-sale securities measured at fair value is recognized in the profit and losses only to the extent of the amount recognized as impairment losses.

2.5 Allowance for Doubtful Accounts

The Company provides an allowance for doubtful accounts for trade receivables. Allowances are calculated based on the estimates made through a reasonable and objective method. Bad debts expense is recorded as the difference between the estimated loss on doubtful accounts and the balance of allowance for doubtful accounts, if the estimated loss on doubtful accounts is larger than the balance of the allowance. Bad debts expense for trade receivable from commercial transactions is accounted for as selling and administrative expenses, while bad debts expense from other receivables is accounted for as non-operating expense. Uncollectible receivables are offset against allowance for doubtful accounts and in case of insufficient amount of allowance, bad debts expense is recognized.

2.6 Equity-Method Investments

The Company reflects any changes in the book value of its equity-method investments on which it has significant influence after the initial purchase date. Under the equity-method, the Company records changes in its proportionate ownership in the book value of the investee in current operations, as capital adjustments or as adjustments to retained earnings, depending on the nature of the underlying change in the book value of the investee. Changes in the Company’s proportionate ownership in the book value of the investee incurred by major error corrections to the investee’s retained earnings are recognized in the profit and losses if there is no significant effect to the Company’s financial statements. All other changes in equity are accounted for under other comprehensive income and loss (changes in equity due to equity-method investments). Dividends paid by the investee to the Company are directly deducted from the Company’s equity-method investments at the moment the dividend payment is declared. Except when the Company or its investee applies the KAS-NPEs No. 31, Special Accounting for Small and Medium-sized Companies, or when an investee prepares its financial statements in accordance with

Korean IFRS, which are different from the accounting policies the Company applies for like transactions and events with similar circumstances, adjustments are made to conform the investee’s accounting policies to those of the Company when the investee’s financial statements are used by the Company in applying the equity-method.

The accompanying notes are an integral part of these non-consolidated financial statements.

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GRAVITY CO., LTD.

Notes to Non-Consolidated Financial Statements

December 31, 2012 and 2011

In case the investee is also a subsidiary of the Company, net income and net assets of the investee in its non-consolidated financial statements should be equal to the corresponding share of the Company presented in the financial statements, unless the equity-method of accounting has been discontinued on the said investee.

2.7 Property and Equipment

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

Property and equipment are stated net of accumulated depreciation calculated based on the following depreciation method and estimated useful lives:

	Estimated Useful Lives		Depreciation Method
Computers and other equipment		4 years		Straight-line method
Vehicles		4 years		Straight-line method
Furniture and fixtures		4 years		Straight-line method
Leasehold improvements		4 years		Straight-line method

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

2.8 Operating Leases

Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are charged to the statements of operations on a straight-line basis over the period of the lease.

The accompanying notes are an integral part of these non-consolidated financial statements.

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GRAVITY CO., LTD.

Notes to Non-Consolidated Financial Statements

December 31, 2012 and 2011

2.9 Intangible Assets

Intangible assets are stated at cost, which includes acquisition cost, production cost and other costs required to prepare the asset for its intended use. Intangible assets are stated net of accumulated amortization calculated based on the following depreciation methods and estimated useful lives:

	Estimated Useful Lives	Depreciation Method
Development costs	2 ~ 5 years		Straight-line method
Software	3 years		Straight-line method
Other intangible assets	2 ~ 10 years		Straight-line method

New product and new technology related development costs, which are individually identifiable and it is probable that the expected future economic benefits will flow to the Company, are capitalized as intangible assets. Amortization of development costs begins when the related product or technology are available for sale or use, which calculated in the straight-line basis over 2 to 5 years.

In addition, costs for exclusive rights to distribute online games which are being developed with probable future benefits are capitalized as other intangible assets. Such intangible assets are amortized in straight-line basis over the term of the agreement from the point of commercialization.

2.10 Government Grants

Government grants are not recognized until there is reasonable assurance that the Company will comply with the conditions attached to it and that the grants will be received.

Government grants related to assets, including non-monetary grants at fair value, are accounted for by deducting the grant in arriving at the carrying amount of the asset. The grant is recognized in profit or loss over the life of the depreciation asset, as a reduced depreciation expense, and the remaining balance upon disposal is recognized in gain or loss on disposal.

When government grants are paid to compensate specific expenses, they are deducted in the related expenses. When there are no expenses to be deducted, they are accounted for as operating revenue if they are directly related to the Company’s main operation activities and non-operating income if not. If specific requirements have to be met in order to use the grants related to income, grants received before meeting those requirements are accounted for as unearned revenue.

2.11 Impairment of Non-financial Assets

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

For the purpose of impairment testing, goodwill acquired in a business combination, from the acquisition date, should be allocated to each of the acquirer’s cash-generating units that are expected to benefit from the synergies of the combination. If the recoverable amount of the unit is less than its carrying amount, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the cash-generating unit and then to the other assets of the unit pro rata on the basis of the carrying amount of each asset in the unit.

The accompanying notes are an integral part of these non-consolidated financial statements.

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GRAVITY CO., LTD.

Notes to Non-Consolidated Financial Statements

December 31, 2012 and 2011

Non-financial assets, other than goodwill, that suffered impairment are reviewed for possible reversal of the impairment at each reporting date. Reversal of impairment of goodwill is not allowed.

2.12 Provisions and Contingent Liabilities

Provisions are recognized when it is probable that an outflow of resources will occur due to a present obligation resulting from a past event, and the amount can be reliably estimated. However, when such outflow is dependent upon a future event, is not certain to occur, or cannot be reliably estimated, a disclosure regarding the contingent liability is made in the notes to the financial statements.

2.13 Income Tax and Deferred Income Tax

Income tax expense (benefit) includes the current income tax under the relevant income tax law and the changes in deferred tax assets or liabilities. Deferred tax assets and liabilities represent temporary differences between financial reporting and the tax bases of assets and liabilities. Deferred tax assets are recognized for temporary differences which will decrease future taxable income or operating loss to the extent that it is probable that future taxable income will be available against which the temporary differences can be utilized. Deferred tax effects applicable to items in the shareholders’ equity are directly reflected in the shareholders’ equity.

2.14 Employee Benefits

2.14.1 Defined Contribution Pension Plan

The Company has a defined contribution pension plan with the related contribution to the pension plan recorded as severance benefit expenses.

2.14.2 Annual Paid Leave Obligations

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

The Company recognized expenses and liabilities for the entire annual paid leave resulting from the rendered service as the Company compensates for unused annual leaves.

2.15 Revenue Recognition

Prepaid online game subscriptions are recognized as revenue upon their actual usage. The Company licenses the right to sell and distribute its games in exchange for an initial prepaid license fees and guarantee minimum royalty payments. The prepaid license fee revenues are deferred and recognized ratably over the license period. The guarantee minimum royalty payments are deferred and recognized as the royalties are earned. In addition, the Company receives royalty payments based on a specified percentage of the licensees’ sales. These royalties are recognized on a monthly basis as the related revenues are earned by the licensees. Revenues from other sales are recognized when goods are transferred or by the reference to the stage of completion.

The accompanying notes are an integral part of these non-consolidated financial statements.

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GRAVITY CO., LTD.

Notes to Non-Consolidated Financial Statements

December 31, 2012 and 2011

Interest income is recognized using the effective interest method. When receivables are impaired, the Company reduces the carrying amount to its recoverable amount and continues unwinding the discount as interest income. Interest income on impaired receivables is recognized using the original effective interest rate.

Dividend income is recognized when the rights to receive payment is established.

2.16 Measurement of Financial Assets and Financial Liabilities

2.16.1 Initial Measurement

Financial assets and financial liabilities are measured at the fair value at the initial recognition. Generally, the transaction price (i.e. the fair value of the consideration paid for financial assets and received for financial liabilities) is treated as fair value. In addition, if there is any significant difference between the fair value and the nominal amount of receivable and payable from long-term lending and borrowing transactions or sales transactions with long-term deferred payment conditions, total amount of receivable and payable is carried at fair value.

If the consideration paid (or received) includes any amount for other than financial instruments, fair value of the financial instrument is carried at the market price. When market price is not available, fair value is estimated using valuation techniques (including present value based techniques). However, although the consideration consists of the amount for other than financial instrument, the whole amount is initially recognized if a benefit in return from using the funds is imposed or there is a certain relationship between raising and using funds. Also for lease deposits, the whole transaction price is recognized at the initial recognition. Trading securities and derivatives (except when hedging accounting is applied) are subsequently measured at fair value after initial recognition, and changes in fair value are recognized in profit and loss. In case of other financial assets and liabilities, any transaction costs related to acquisition of financial assets or issuance of financial liabilities are added to or deducted from initially recognized fair value.

When measuring the present value of financial instruments, the Company uses the internal interest rate of transactions that occurred in the current period. If internal interest rate is not available or the difference from the market interest rate is material, market interest rate is applied. If the market interest rate cannot be calculated, then the weighted average interest rate which is calculated by reasonable and objective standards is used. If reasonable and objective standards are unavailable, the Company applies the financing costs which are reasonably estimated using the distribution rate of corporate bonds, reflecting the Company’s credit rating.

2.16.2 Subsequent Measurement

Financial assets and financial liabilities other than securities (note 2.4), derivatives, financial instruments at fair value through profit or loss, and financial guarantee contracts are measured at amortized cost using the effective interest method. Financial assets at fair value through profit or loss are subsequently measured using subsequent measurement method of trading securities (note 2.4).

2.17 Foreign currency translations for foreign affiliates

The Company translates assets and liabilities at closing rate, equity at exchange rate in the date of transaction, and income and expenses at average exchange rate for foreign affiliates. Gains and losses arising from such translations are recognized in other comprehensive income and loss. The translation gains and losses will be recognized in the statement of operations as profit or loss at disposal or liquidation of the foreign affiliates.

The accompanying notes are an integral part of these non-consolidated financial statements.

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GRAVITY CO., LTD.

Notes to Non-Consolidated Financial Statements

December 31, 2012 and 2011

3. Cash and Cash Equivalents and Short-Term Financial Instruments

As of December 31, 2012 and 2011, there are no restrictions for use of time deposits.

4. Trade Accounts Receivable

Trade accounts receivable as of December 31, 2012 and 2011 are as follows:

(in thousands of Korean won)	2012			2011
Trade accounts receivable	￦	4,645,298		￦	7,820,845
Less: Allowance for doubtful accounts		(8,715	)		(308,192	)
	￦	4,636,583		￦	7,512,653

5. Other Accounts Receivable

Other accounts receivable as of December 31, 2012 and 2011 are as follows:

(in thousands of Korean won)	2012			2011
Other accouts receivable	￦	507,410		￦	695,504
Less: Allowance for doubtful accounts		(256,599	)		(4,449	)
	￦	250,811		￦	691,055

6. Advance Payments

Advance payments as of December 31, 2012 and 2011 are as follows:

(in thousands of Korean won)	2012			2011
Advance payments	￦	3,091,969		￦	2,823,335
Less: Allowance for doubtful accounts1		(1,500,000	)		—
	￦	1,591,969		￦	2,823,335

¹  As of December 31, 2012, the Company provided bad debt reserve of ￦1,500 million advance payments due from Gravity Games Corporation.

7. Other Current Assets

Other current assets as of December 31, 2012 and 2011 are as follows:

(in thousands of Korean won)	2012		2011
Accrued income (Notes 9 and 27)	￦	342,864	￦	451,700
Tax refund receivable		216,352		188,189
Prepaid expenses (Note 27)		449,669		474,074
	￦	1,008,885	￦	1,113,963

The accompanying notes are an integral part of these non-consolidated financial statements.

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GRAVITY CO., LTD.

Notes to Non-Consolidated Financial Statements

December 31, 2012 and 2011

8. Long-term Available-For-Sale Securities

Long-term available-for-sale securities as of December 31, 2012 and 2011 are as follows:

(in thousands of Korean won)	2012		2011
Long-term available-for-sale securities
Non-marketable available-for-sale securities1	￦	647,061	￦	1,046,466
	￦	647,061	￦	1,046,466

¹ The non-marketable available-for-sale securities represent investment and profit sharing in Online Game Revolution Fund No.1, Limited liability partnership, which was established altogether by the Company, SoftBank Corp., GungHo Online Entertainment, Inc. and others. The Company has invested total of JPY 910 million in the partnership and holds 16.39% equity interest as of December 31, 2012. The partnership is in process of liquidation as of December 31, 2012. The Company assesses recoverable amount on the investment based on the actual sales performance of the games, which were invested and commercialized by the partnership. The difference between the carrying amount and the recoverable amount of the investment is reflected in the statement of operations. The Company recognized an impairment loss on long-term available-for-sale securities amounting to ￦399,405 thousand as of December 31, 2012.

The accompanying notes are an integral part of these non-consolidated financial statements.

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GRAVITY CO., LTD.

Notes to Non-Consolidated Financial Statements

December 31, 2012 and 2011

9. Equity-Method Investments

Equity-method investments as of December 31, 2012 and 2011 are as follows:

(in thousands of Korean won)
			2012
Investees	Percentage of owner-ship (%)		Acquisition cost		Net Asset Value			Book value
Gravity Interactive, Inc.		100.00	￦	4,636,784	￦	(1,771,127)		￦	—
Gravity Entertainment Corporation		100.00		1,763,994		574,719			574,719
Gravity EU SAS		25.00		2,519,363		(19,737	)		—
Gravity Middle East&Africa FZ-LLC1		100.00		1,979,640		1,464,423			1,464,423
NeoCyon, Inc.		96.11		7,715,763		9,570,976			9,452,037
Gravity Games Corporation		50.83		11,688,480		(703,307	)		320,724
			￦	30,304,024	￦	9,115,947		￦	11,811,903

(in thousands of Korean won)
			2011
Investees	Percentage of owner-ship (%)		Acquisition cost		Net Asset Value			Book value
Gravity Interactive, Inc.		100.00	￦	4,636,784	￦	(213,345	)	￦	—
Gravity Entertainment Corporation		100.00		1,763,994		643,017			643,017
Gravity EU SAS		25.00		2,519,363		253,589			253,589
Gravity Middle East&Africa FZ-LLC1		100.00		1,979,640		1,576,812			1,576,812
Gravity Rus Co., Ltd.2		99.99		2,452,158		(15,785	)		—
NeoCyon, Inc.		96.11		7,715,763		8,512,663			8,235,144
Gravity Games Corporation		50.83		11,688,480		(362,206	)		9,287,795
			￦	32,756,182	￦	10,394,745		￦	19,996,357

¹  On May 7, 2007, the Company founded a wholly owned subsidiary in the United Arab Emirates, which is in process of liquidation as of December 31, 2012.

²  In 2012, the Company surrendered its ownership of shares in Gravity RUS Co., Ltd in accordance with statutory laws of Russia. Therefore, the Company no longer holds any shares in Gravity RUS Co., Ltd as of December 31, 2012.

Details of changes in the differences between the initial purchase price and the Company’s initial proportionate ownership in the net book value of the investee for the years ended December 31, 2012 and 2011 are as follows:

(in thousands of Korean won)
	2012
Investee	Beginning		Increase		Decrease1		Ending
Gravity Games Corporation	￦	9,650,001	￦	—	￦	8,625,970	￦	1,024,031

¹  In the amount of decrease, loss on impairment of equity-method investment of ￦6,732,617 thousand is included.

The accompanying notes are an integral part of these non-consolidated financial statements.

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GRAVITY CO., LTD.

Notes to Non-Consolidated Financial Statements

December 31, 2012 and 2011

Differences between cost of investment and the underlying net book value of the investee consist of intangible assets and goodwill. Amortization is calculated using the straight-line method over three to five years for intangible assets and goodwill, recorded as loss on valuation of equity-method investments.

(in thousands of Korean won)
	2011
Investee	Beginning		Increase		Decrease1		Ending
Gravity Games Corporation	￦	11,950,305	￦	—	￦	2,300,304	￦	9,650,001

¹  In the amount of decrease, loss on impairment of equity-method investment of ￦235,828 thousand is included.

Details of the elimination of unrealized gain or loss arising from inter-company transactions with an equity-method investee are as follows:

(in thousands of Korean won)	2012		2011
NeoCyon, Inc.
Other intangible assets	￦	118,939	￦	277,519

Changes in equity-method investments in subsidiaries for the years ended December 31, 2012 and 2011 are as follows:

(in thousands of Korean won)	2012
Investees	Beginning Balanace		Acquisition (Disposal)			Valuation Gain(Loss)			Other Increase (Decrease)5			Ending Balanace
Gravity Interactive, Inc.1	￦	—	￦	—		￦	(82,456	)	￦	82,456		￦	—
Gravity Entertainment Corporation		643,017		—			39,193			(107,491	)		574,719
Gravity EU SAS2		253,589		—			(256,917	)		3,328			—
Gravity Middle East&Africa FZ-LLC		1,576,812		—			—			(112,389	)		1,464,423
Gravity Rus Co., Ltd.3		—		(434,770	)		453,718			(18,948	)		—
NeoCyon, Inc.		8,235,144		—			1,216,893			—			9,452,037
Gravity Games Corporation4,5		9,287,795		—			(2,234,454	)		(6,732,617	)		320,724
	￦	19,996,357	￦	(434,770)		￦	(864,023	)	￦	(6,885,661	)	￦	11,811,903

¹  Equity-method of accounting has been suspended since 2011 for Gravity Interactive, Inc., due to its accumulated losses. In relation to this, amount of unrecognized changes in equity for the years ended December 31, 2012 is ￦164,477 thousand. Among total loss on valuation of equity-method investment in Gravity Interactive, Inc. amounting to ￦1,689,106 thousand, ￦1,606,650 thousand was reflected in the allowance for doubtful accounts on long-term loans

²  Equity-method of accounting has been suspended in 2012 for Gravity EU SAS, due to its accumulated losses. In relation to this, amount of unrecognized changes in equity for the year ended December 31, 2012 is ￦19,737 thousand.

³  With respect to surrendering the ownership of Gravity RUS Co., Ltd. during this year, the Company recognized a loss on disposal of equity method investments amounting to ￦333,389 thousand for the difference between the book value of the investment amounting to ￦434,770 thousand and accumulated other comprehensive income from equity-method investments amounting to ￦101,381 thousand.

The accompanying notes are an integral part of these non-consolidated financial statements.

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GRAVITY CO., LTD.

Notes to Non-Consolidated Financial Statements

December 31, 2012 and 2011

⁴  As estimated recoverable amount from equity-method investments on Gravity Games Corporation (formerly, Barunson Interactive Corporation) is less than its book value, the difference is recognized as a loss on impairment of equity investments.

⁵  Other increase (decrease) consists of changes in accumulated other comprehensive income (loss) and a loss on impairment of equity-method investments.

(in thousands of Korean won)

	2011
Investees	Beginning Balanace		Acquisition (Disposal)		Valuation Gain(Loss)			Other Increase (Decrease)5			Ending Balanace
Gravity Interactive, Inc.1	￦	233,280	￦	—	￦	(233,280)		￦	—		￦	—
Gravity Entertainment Corporation		471,274		—		133,833			37,910			643,017
Gravity EU SAS2		—		324,603		(49,215	)		(21,799	)		253,589
Gravity Middle East&Africa FZ-LLC		1,557,126		—		—			19,686			1,576,812
Gravity Rus Co., Ltd.3		—		—		—			—			—
NeoCyon, Inc.		7,311,966		—		923,178			—			8,235,144
Gravity Games Corporation4,5		11,296,789		—		(1,773,166	)		(235,828	)		9,287,795
	￦	20,870,435	￦	324,603	￦	(998,650)		￦	(200,031)		￦	19,996,357

¹  Equity-method of accounting had been suspended in 2011 for Gravity Interactive, Inc., due to its accumulated losses. In relation to this, amount of unrecognized changes in equity for the year ended December 31, 2011 was ￦213,345 thousand.

²  In 2011, Gravity EU SAS issued new shares to new investors and the Company. Due to a dilution of the Company’s interest in Gravity EU SAS, the Company recognized gain on disposal of equity-method investments for the amount of ￦311,085 thousand. The Company recaptured gain on valuation of equity-method investments of ￦861,085 thousand, which has been reflected in allowances for loans and accrued income, as equity-method investments fell below zero.

³  Equity-method of accounting had been suspended in 2011 for Gravity RUS Co., Ltd., due to its accumulated losses. In relation to this, the amount of unrecognized changes in equity for the year ended December 31, 2011 was ￦15,785 thousand.

⁴  As estimated recoverable amount from equity-method investments on Gravity Games Corporation (formerly, Barunson Interactive Corporation) is less than its book value, the difference is recognized as a loss on impairment of equity investments.

⁵  Other increase (decrease) consists of changes in accumulated other comprehensive income (loss) and a loss on impairment of equity-method investments.

The accompanying notes are an integral part of these non-consolidated financial statements.

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GRAVITY CO., LTD.

Notes to Non-Consolidated Financial Statements

December 31, 2012 and 2011

Changes in accumulated other comprehensive income and loss from equity-method investments are as follows:

(in thousands of Korean won)
	2012
Investees	Beginning Balance			Increase		Decrease1			Ending Balance
Gravity Interactive, Inc.	￦	1,037,431		￦	82,456	￦	—		￦	1,119,887
Gravity Entertainment Corporation		55,911			—		107,491			(51,580	)
Gravity EU SAS		119,377			3,328		—			122,705
Gravity Middle East&Africa FZ-LLC		422,703			—		112,389			310,314
Gravity Rus Co., Ltd.1		120,329			—		120,329			—
		1,755,751			85,784		340,209			1,501,326
Deferred income tax deducted to equity2		(119,000	)		—		(51,000	)		(68,000	)
	￦	1,636,751		￦	85,784	￦	289,209		￦	1,433,326

¹ As the Company’s ownership of Gravity RUS Co., Ltd. was surrendered in 2012, ￦101,381 thousand of accumulated other comprehensive income from equity-method investment was recognized as a loss on disposal of equity-method investments.

² Deferred income taxes charged directly to equity was ￦68,000 as of December 31, 2012 (Refer to note 18).

(in thousands of Korean won)
	2011
Investees	Beginning Balance		Increase			Decrease1		Ending Balance
Gravity Interactive, Inc.	￦	1,037,431	￦	—		￦	—	￦	1,037,431
Gravity Entertainment Corporation		18,001		37,910			—		55,911
Gravity EU SAS1		501,673		—			382,296		119,377
Gravity Middle East&Africa FZ-LLC		403,017		19,686			—		422,703
Gravity Rus Co., Ltd.		120,329		—			—		120,329
		2,080,451		57,596			382,296		1,755,751
Deferred income tax deducted to equity2		—		(119,000	)		—		(119,000	)
	￦	2,080,451	￦	(61,404	)	￦	382,296	￦	1,636,751

¹  Due to a dilution of the Company’s interest in Gravity EU SAS in 2011, ￦311,085 thousand of accumulated other comprehensive income from equity-method investments was recognized.

² Deferred income taxes charged directly to equity was ￦119,000 as of December 31, 2011 (Refer to Note 18).

The accompanying notes are an integral part of these non-consolidated financial statements.

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GRAVITY CO., LTD.

Notes to Non-Consolidated Financial Statements

December 31, 2012 and 2011

The unaudited financial statements of the Company’s subsidiaries for the years ended December 31, 2012 and 2011 were used in the valuation of these equity-method investments. The Company has concluded that any difference between the audited and unaudited financial statements is not material.

Summary of financial information of equity-method investees as of and the years ended December 31, 2012, and 2011 are as follows:

(in thousands of Korean won)
	2012
Investees	Assets		Liabilities		Revenue		Net income (Loss)
Gravity Interactive, Inc.	￦	1,475,904	￦	3,247,031	￦	4,719,506	￦	(1,654,905	)
Gravity Entertainment Corporation		578,511		3,792		33		39,193
Gravity EU SAS		1,349,101		1,428,049		1,449,696		(1,106,617	)
Gravity Middle East&Africa FZ-LLC		1,476,818		12,395		—		—
NeoCyon, Inc.		12,743,638		2,785,282		15,322,700		1,101,147
Gravity Games Corporation		3,841,791		5,225,492		2,806,105		(671,089	)

(in thousands of Korean won)
	2011
Investees	Assets		Liabilities		Revenue		Net income (Loss)
Gravity Interactive, Inc.	￦	3,238,583	￦	3,451,928	￦	5,861,140	￦	(431,958	)
Gravity Entertainment Corporation		922,480		279,463		333,221		133,833
Gravity EU SAS		1,851,164		836,807		1,630,281		1,013,303
Gravity Middle East&Africa FZ-LLC		1,590,159		13,347		—		—
Gravity Rus Co., Ltd.		3,739		19,526		—		(400	)
NeoCyon, Inc.		11,346,515		2,489,307		10,659,602		773,850
Gravity Games Corporation		3,736,409		4,449,021		5,384,739		312,013

The accompanying notes are an integral part of these non-consolidated financial statements.

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GRAVITY CO., LTD.

Notes to Non-Consolidated Financial Statements

December 31, 2012 and 2011

10. Short-Term and Long-Term Loans Receivabl

Short-term and long-term loans receivable of the Company as of December 31, 2012 and 2011 consist of the following:

(in thousands of Korean won)
	Annual Interest Rate(%)	2012			2011
Loans for employee housing	2.0~3.0	￦	100,278		￦	79,305
Loans to Gravity CIS Co., Ltd.	4.9		—			576,650
Loans to Naru entertainment, Co., Ltd.1	8.0		1,200,000			1,300,000
Loans to Gravity Interactive Inc.2	4.0		1,606,650			—
Loans to Gravity Games Corporation3	6.9		1,154,000			—
Total			4,060,928			1,955,955
Less: Short-term portion (maturity of less than a year)			(255,000	)		(926,233	)
Long-term loans receivable			3,805,928			1,029,722
Allowance for doubtful accounts1,2			(2,806,650	)		(1,000,000	)
		￦	999,278		￦	29,722

¹ With respect to loans receivables from Naru Entertainment Co., Ltd, the estimated recoverable amount is less than the carrying value of the receivables. The Company recognized the difference as other bad debt expense.

²  Equity-method of accounting has been suspended since 2011 for Gravity Interactive, Inc., due to its accumulated losses. In relation to this, amount of unrecognized changes in equity for the years ended December 31, 2012 and 2011, are ￦164,477 thousand and ￦213,345 thousand, respectively. Among total loss on valuation of equity-method investment in Gravity Interactive, Inc. amounting to ￦1,689,106 thousand, ￦1,606,650 thousand was reflected in the allowance for doubtful accounts on long-term loans (Refer to Note 9).

³  The Company pledged intellectual property rights under Gravity Games, and shares of Gravity Games held by the CEO of Gravity Games as collaterals in exchange for loans amounting to ￦1,154,000 thousand.

The accompanying notes are an integral part of these non-consolidated financial statements.

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GRAVITY CO., LTD.

Notes to Non-Consolidated Financial Statements

December 31, 2012 and 2011

11. Property and Equipment

Changes in property and equipment as of December 31, 2012 and 2011 are as follows:

(in thousands of Korean won)
	2012
Investees	Computer and Other Equipment			Vehicles			Furniture and fixtures			Leasehold improvements			Total
Beginning	￦	1,164,511		￦	—		￦	75,989		￦	21,172		￦	1,261,672
Acquisition		251,528			—			2,786			—			254,314
Disposal and retirement		(13	)		—			—			—			(13	)
Depreciation		(453,413	)		—			(35,223	)		(19,801	)		(508,437	)
Ending	￦	962,613		￦	—		￦	43,552		￦	1,371		￦	1,007,536
Acquisition cost	￦	10,110,036		￦	28,111		￦	876,559		￦	745,967		￦	11,760,673
Accumulated depreciation		(9,147,423	)		(28,111	)		(833,007	)		(744,596	)		(10,753,137	)

(in thousands of Korean won)
	2011
Investees	Computer and Other Equipment			Vehicles			Furniture and fixtures			Leasehold improvements			Total
Beginning	￦	720,372		￦	—		￦	110,204		￦	207,663		￦	1,038,239
Acquisition		970,460			—			11,119			—			981,579
Disposal and retirement		(16,135	)		—			—			—			(16,135	)
Depreciation		(510,186	)		—			(45,334	)		(186,491	)		(742,011	)
Ending	￦	1,164,511		￦	—		￦	75,989		￦	21,172		￦	1,261,672
Acquisition cost	￦	11,266,484		￦	28,111		￦	887,604		￦	745,967		￦	12,928,166
Accumulated depreciation		(10,101,973	)		(28,111	)		(811,615	)		(724,795	)		(11,666,494	)

12. Insurance

Property and equipment covered by insurance policies as of December 31, 2012 and 2011 are as follows:

(in thousands of Korean won)
		Amount Insured
Type of Insurance	Properties	2012		2011		Insurance Company
Fire insurance	Buildings	￦	5,000,000	￦	5,000,000	Heungkuk Fire & Marine Insurance Co., Ltd.
General insurance	Equipment, furniture and fixtures		1,253,155		885,139	Heungkuk Fire & Marine Insurance Co., Ltd.

All vehicles not included in the table above are insured under liability insurance and general insurance. The Company maintains accident insurance for officers and employees with Hyundai Marine & Fire Insurance Co., Ltd. and Hanwha Life Insurance Co., Ltd. In addition, the Company carries directors’ and officers’ liability insurance with indemnities of US $10 million per litigation with Hyundai Marine & Fire Insurance Co., Ltd.

The accompanying notes are an integral part of these non-consolidated financial statements.

24

GRAVITY CO., LTD.

Notes to Non-Consolidated Financial Statements

December 31, 2012 and 2011

13. Operating Lease

The Company entered into a lease agreement with National IT Industry Promotion Agency and SH Corporation and has paid leasehold deposits of ￦1,371,328 thousand to National IT Industry Promotion Agency and ￦2,904 thousand to SH Corporation as of December 31, 2012.

Future lease payments under operating lease as of December 31, 2012 and 2011 are as follows:

(in thousands of Korean won)
	2012		2011
Less than one year	￦	1,888,519	￦	2,008,030
One year to three years		1,857,359		—
	￦	3,745,878	￦	2,008,030

The term of lease agreement with National IT Industry Promotion Agency is to December 31, 2014. The term of lease agreement with SH Corporation is to December 1, 2013.

Lease payments recognized in operations for the years ended December 31, 2012 and 2011, are as follows:

(in thousands of Korean won)
	2012		2011
Lease payments	￦	2,015,425	￦	2,006,662

14. Intangible Assets

Changes in intangible assets for the years ended December 31, 2012 and 2011 are as follows:

(in thousands of Korean won)
	2012
	Development costs1			Software			Others2			Total
Beginning	￦	18,464,789		￦	282,664		￦	1,157,671		￦	19,905,124
Acquisition1,2		2,277,376			1,820,307			780,567			4,878,250
Amortization		(3,750,010	)		(727,013	)		(727,820	)		(5,204,843	)
Disposition		—			(924	)		—			(924	)
Impairment3		—			—			(291,094	)		(291,094	)
Ending	￦	16,992,155		￦	1,375,034		￦	919,324		￦	19,286,513
Acquisition cost	￦	30,331,702		￦	10,578,419		￦	4,340,904		￦	45,251,025
Accumulated depreciation		(10,127,812	)		(9,090,052	)		(1,830,149	)		(21,048,013	)
Accumulated impairment		(3,211,735	)		(113,333	)		(1,591,431	)		(4,916,499	)

¹  The Company has internally developed and commenced commercialization of the game “Ragnarok 2” during the year. The Company developed game “Ragnarok Odyssey” for a consol game in a joint effort with GungHo Online Entertainment, Inc. and commercialized the game in Korea and Japan. The Company recorded fees incurred to develop “Ragnarok Odyssey” as a development cost.

The accompanying notes are an integral part of these non-consolidated financial statements.

25

GRAVITY CO., LTD.

Notes to Non-Consolidated Financial Statements

December 31, 2012 and 2011

²  The Company acquired exclusive distribution right of “Finding Neverland Online” game in Korea in 2011. and exclusive distribution right of the game, “Maestia” in North America. In 2012, both games were commercialized. The Company recognized the amount paid for acquiring distribution rights as other intangible assets.

³  When the book value of an asset exceeds its recoverable value due to obsolescence or an abrupt decline in the market value of the asset, the said decline in value is deducted from the book value to correspond with the recoverable amount and recognized as a loss on impairment of intangible assets.

(in thousands of Korean won)
	2011
	Development costs			Software			Others1			Total
Beginning	￦	13,700,337		￦	332,974		￦	1,154,109		￦	15,187,420
Acquisition1		4,764,452			203,750			1,391,928			6,360,130
Amortization		0			(248,204	)		(589,408	)		(837,612	)
Disposition		—			(5,856	)		—			(5,856	)
Impairment2		—			—			(798,958	)		(798,958	)
Ending	￦	18,464,789		￦	282,664		￦	1,157,671		￦	19,905,124
Acquisition cost	￦	28,054,326		￦	8,759,036		￦	3,560,337		￦	40,373,699
Accumulated depreciation		(6,377,802	)		(8,363,039	)		(1,102,329	)		(15,843,170	)
Acuumulated impairment		(3,211,735	)		(113,333	)		(1,300,337	)		(4,625,405	)

¹  In 2010, the Company acquired exclusive distribution rights of “H.A.V.E. online” game in Japan and “Eternal Destiny” game in North America. In 2011, the Company commercialized both games and recognized the amount paid for acquiring distribution rights as other intangible assets.

²  When the book value of an asset exceeds its recoverable value due to obsolescence or an abrupt decline in the market value of the asset, the said decline in value is deducted from the book value to correspond with the recoverable amount and recognized as a loss on impairment of intangible assets.

The amortization expenses of intangible assets for the years ended December 31, 2012 and 2011, are charged to the following accounts:

(in thousands of Korean won)
	2012		2011
Cost of sales	￦	4,932,116	￦	410,341
Selling and administrative expenses		223,109		323,848
Development costs		25,045		100,625
Research and development expenses		24,573		2,798
	￦	5,204,843	￦	837,612

The Company recognized research and development costs amounting to ￦ 2,692,108 thousand and ￦1,738,494 thousand in 2012 and 2011, respectively.

The accompanying notes are an integral part of these non-consolidated financial statements.

26

GRAVITY CO., LTD.

Notes to Non-Consolidated Financial Statements

December 31, 2012 and 2011

15. Government Grants

Changes in government grants for the years ended December 31, 2012 and 2011, are as follows:

(in thousands of Korean won)
	2012		2011
Beginning	￦	172,000	￦	—
Increase		—		172,000
Decrease		172,000		—
Ending	￦	—	￦	172,000

The Company received government grants of ￦172,000 thousand from Korea Contents Industry Promotion Agency pursuant to the agreement signed in 2011 for supporting next generation contents production. During 2012, repayment obligation has been extinguished upon the performance assessment of related assignments.

16. Severance Benefit Expense

On December 26, 2005, the Company implemented a defined contribution pension plan in accordance with the Employee Retirement Benefit Security Act and entered into an agreement for a defined contribution insurance contract with Samsung Life Insurance Company. The insurance premiums paid in 2012 is amounted to ￦1,190,340 thousand (2011: ￦1,085,423 thousand).

17. Commitments and Contingencies

Litigation

As of December 31, 2012, there are three pending domestic litigations in which the Company is a defendant including compensation for damages claimed by the Company’s former executives. Total claims have amounted to approximately ￦1,788 million. Among those, one litigation amounted at ￦110 million, has been withdrawn in January 2013. The timing and the amount of outflow of economic benefits and the final outcome of the other litigations and their impact on the Company’s financial statements cannot be reasonably estimated as of the audit report date. As for the litigation regarding return of capital to the subsidiaries, ￦2,150 million and ￦1,990 million are held as deposits due to the court orders from Seoul Southern District Court and Seoul Western District Court, respectively.

Commitments

The Company has exclusive contracts with its licensees, such as the foreign subsidiaries, GungHo Entertainment, inc., Soft-World International Corporation and Level up! Interactive S.A., etc, to distribute and sell online games and earns 20% to 40% of sales from the online games.

The accompanying notes are an integral part of these non-consolidated financial statements.

27

GRAVITY CO., LTD.

Notes to Non-Consolidated Financial Statements

December 31, 2012 and 2011

18. Deferred Income Taxes

Income tax expenses (benefits) for the years ended December 31, 2012 and 2011 consist of the followings:

(in thousands of Korean won)
	2012		2011
Current income tax	￦	3,322,375	￦	3,609,941
Additional income taxes for prior years		—		135,933
Refund of prior years’ income taxes		—		(425,122	)
Changes in deferred tax assets from temporary differences		448,000		(9,986,000	)
Deferred income tax charged to equity		51,000		(119,000	)
Income tax expenses (benefits)	￦	3,821,375	￦	(6,784,248	)

Deferred income tax charged directly to equity for the years ended December 31, 2012 and 2011 are as follows:

(in thousands of Korean won)
	2012		2011
Accumulated comprehensive income (loss) from equity method investment	￦	51,000	￦	(119,000	)

Reconciliation between net income (loss) before tax and income tax expenses (benefits) for the years ended December 31, 2012 and 2011 are as follows:

(in thousands of Korean won)
	2012			2011
Net income (loss) before taxes (A)	￦	(10,477,027	)	￦	7,987,324
Income tax based on statutory rates	￦	(2,326,946	)	￦	1,906,532
Add (deduct):
Non-deductible expenses		101,288			548,560
Additional income taxes for prior years		—			993,876
Changes in tax credits		3,291,838			2,123,646
Change in valuation allowance		2,691,535			(12,549,763	)
Others		63,660			192,901
Income tax expenses(benefits) (B)	￦	3,821,375		￦	(6,784,248	)
Effective tax rates (B/A)		(36.47	%)		(84.94	%)
		-36.47	%		-84.94	%

The accompanying notes are an integral part of these non-consolidated financial statements.

28

GRAVITY CO., LTD.

Notes to Non-Consolidated Financial Statements

December 31, 2012 and 2011

Changes in the temporary differences and related deferred tax assets and liabilities for the years ended December 31, 2012 and 2011 are as follows:

(in thousands of Korean won)
	2012
	Temporary differences									Deferred tax assets(liabilities)
	Beginning			Change			Ending			Beginning			Ending
Accrued income	￦	(324,164	)	￦	656		￦	(323,508	)	￦	(71,316	)	￦	(71,172	)
Property and equipment		398,760			(197,133	)		201,627			87,727			44,358
Intangible assets		529,542			281,464			811,006			116,499			178,421
Equity-method investments		13,443,549			5,837,621			19,281,170			2,957,581			4,572,149
Accounts payable		318,551			683,369			1,001,920			70,081			220,422
Available-for-sale securities		3,621,227			399,404			4,020,631			796,670			884,539
Gain(loss) on foreign currency translation		(39,964	)		48,654			8,690			(8,792	)		1,912
Deferred income		764,341			522,494			1,286,835			168,155			283,104
Allowance for doubtful accounts		1,185,737			1,685,136			2,870,873			260,862			631,592
Asset retirement obligations		99,000			—			99,000			21,780			21,780
	￦	19,996,579		￦	9,261,665		￦	29,258,244		￦	4,399,247		￦	6,767,105
Tax credit carryforwards		19,307,382			(113,021	)		19,194,361			21,238,121			21,113,797
Valuation allowance1											(15,651,368	)		(18,342,902	)
										￦	9,986,000		￦	9,538,000

¹  To determine the realizability of deferred tax assets, all available positive and negative evidences are considered, including the Company’s performance, the market environment in which the Company operates, forecasts of future profitability, the utilization period of past tax credits and other factors. Management periodically considers these factors in reaching its conclusion. As of December 31, 2012, the Company has recognized deferred income tax assets related to temporary differences and the tax credit carryforwards, excluding those which are deemed to be not realizable. The balance of the deferred income tax assets is subject to change in accordance with changes in estimates for future taxable income.

The accompanying notes are an integral part of these non-consolidated financial statements.

29

GRAVITY CO., LTD.

Notes to Non-Consolidated Financial Statements

December 31, 2012 and 2011

(in thousands of Korean won)
	2011
	Temporary differences									Deferred tax assets(liabilities)
	Beginning			Change			Ending			Beginning			Ending
Short-term available-for-sale securities	￦	(125	)	￦	125		￦	—		￦	(30	)	￦	—
Accrued income		(187,014	)		(137,150	)		(324,164	)		(45,257	)		(71,316	)
Property and equipment		549,309			(150,549	)		398,760			124,876			87,727
Intangible assets		1,384,856			(855,314	)		529,542			304,668			116,499
Equity-method investments		13,056,541			387,008			13,443,549			2,935,682			2,957,581
Accounts payable		303,008			15,543			318,551			73,328			70,081
Available-for-sale securities		7,352,114			(3,730,887	)		3,621,227			1,779,212			796,670
Gain(loss) on foreign currency translation		425,427			(465,391	)		(39,964	)		102,286			(8,792	)
Deferred income		—			764,341			764,341			—			168,155
Allowance for doubtful accounts		758,480			427,257			1,185,737			183,552			260,862
Asset retirement obligations		99,000			—			99,000			21,780			21,780
	￦	23,741,596		￦	(3,745,017	)	￦	19,996,579		￦	5,480,097		￦	4,399,247
Tax credit carryforwards		20,655,485			(1,348,104	)		19,307,381			22,721,034			21,238,121
Valuation allowance1											(28,201,131	)		(15,651,368	)
										￦	—		￦	9,986,000

¹  To determine the realizability of deferred tax assets, all available positive and negative evidences are considered, including the Company’s performance, the market environment in which the Company operates, forecasts of future profitability, the utilization period of past tax credits and other factors. Management periodically considers these factors in reaching its conclusion. As of December 31, 2011, the Company has recognized deferred income tax assets related to temporary differences and the tax credit carryforwards, excluding those which are deemed to be not realizable. The balance of the deferred income tax assets is subject to change in accordance with changes in estimates for future taxable income.

Tax credit carryforwards not recognized as deferred tax assets as of December 31, 2012 are as follows:

(in thousands of Korean won)
Year of expiration	Amount
2013	￦	4,071,354
2014		2,712,607
2015		2,302,069
2016		1,834,748
2017		1,715,142
	￦	12,635,920

The accompanying notes are an integral part of these non-consolidated financial statements.

30

GRAVITY CO., LTD.

Notes to Non-Consolidated Financial Statements

December 31, 2012 and 2011

The gross balances of deferred tax assets and liabilities as of December 31, 2012 and 2011, are as follows:

(in thousands of Korean won)
	2012				2011
	Deferred Tax Assets		Deferred Tax Liabilities		Deferred Tax Assets		Deferred Tax Liabilities
Current	￦	704,172	￦	(71,172)		￦1,319,108	￦	(80,108)
Non-current		8,905,000		—		8,747,000		—

19. Capital Stock

The Company is authorized to issue a total of 40 million shares with a par value of ￦500 per share, in registered form, consisting of common shares and non-voting preferred shares. Of those authorized shares, the Company is authorized to issue up to 2 million non-voting preferred shares.

As of December 31, 2012, the Company had a total of 6,948,900 common shares issued and outstanding. All of the issued and outstanding shares are fully paid and are registered. No shares of non-voting preferred shares are currently outstanding.

There has been no change in the total number of common shares for the years ended December 31, 2012 and 2011.

20. Revenues

Details of accounts included in the computation of revenues for the years ended December 31, 2012 and 2011 are as follows:

(in thousands of Korean won)
	2012		2011
Online games-subscription revenue	￦	5,437,988	￦	4,766,264
Online games-royalties and license fees		30,485,995		32,754,389
Mobile games		1,511,694		1,925,513
Character merchandising, animation and other revenue		2,669,173		778,093
	￦	40,104,850	￦	40,224,259

The accompanying notes are an integral part of these non-consolidated financial statements.

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GRAVITY CO., LTD.

Notes to Non-Consolidated Financial Statements

December 31, 2012 and 2011

21. Selling and Administrative Expenses

Details of accounts included in the computation of selling and administrative expenses for the years ended December 31, 2012 and 2011 are as follows:

(in thousands of Korean won)
	2012		2011
Salaries	￦	5,778,272	￦	6,817,924
Service fees and commissions		3,298,959		4,007,935
Rent		929,417		1,034,712
Employee benefits		977,961		1,081,794
Research and development expenses		2,692,108		1,738,494
Advertising expenses		4,124,412		2,793,250
Depreciation		161,664		340,915
Amortization		223,109		323,848
Severance benefit expenses		409,454		421,575
Transportation expenses		337,662		445,010
Tax and dues		289,823		913,994
Insurance premium		156,261		161,753
Bad debt expense		5,901		81,275
Miscellaneous		216,084		272,417
	￦	19,601,087	￦	20,434,896

22. Retained Earnings

Statements of appropriations of retained earnings for the years ended December 31, 2012, and 2011 are as follows:

(in thousands of Korean won)
	2012			2011
Retained earnings before appropriations
Unappropriated retained earnings carried over from prior year	￦	20,833,492		￦	6,061,920
Net income (loss)		(14,298,401	)		14,771,572
		6,535,091			20,833,492
Appropriations of retained earnings		—			—
Unappropriated retained earnings carried forward to subsequent year	￦	6,535,091		￦	20,833,492

The accompanying notes are an integral part of these non-consolidated financial statements.

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GRAVITY CO., LTD.

Notes to Non-Consolidated Financial Statements

December 31, 2012 and 2011

23. Value Added Information

Value added information for the years ended December 31, 2012 and 2011 are as follows:

(in thousands of Korean won)
	2012		2011
Salaries	￦	14,514,384	￦	15,882,429
Severance benefit expenses		1,190,340		1,085,423
Employee benefits		1,593,414		1,683,317
Rent		2,015,425		2,006,662
Depreciation		508,437		742,011
Amortization		5,204,843		837,612
Taxes and dues		634,861		1,244,656
	￦	25,661,704	￦	23,482,110

24. Comprehensive Income (Loss)

Comprehensive income (loss) for the years ended December 31, 2012 and 2011 are as follows:

(in thousands of Korean won)
	2012		2011
Net income (loss)		￦(14,298,401)		￦14,771,572
Other comprehensive income and loss
Valuation of available-for-sale securities		—		1,120
Accumulated comprehensive income of equity-method investments		(151,844)		(443,701)
(net of tax : 2012 ￦51,000 thousand, 2011 ￦(119,000) thousand)
Accumulated comprehensive loss of equity-method investments		(51,580)		—
Comprehensive income (loss)		￦(14,501,825)		￦14,328,991

25. Earnings (loss) per Share

The earnings (loss) per share is calculated by diving the profit (loss) by the number of common stock shares. The earnings (loss) per share calculations are as follows:

(in thousands of Korean won)
	2012			2011
Net income (loss) attributable to common stock	￦	(14,298,401	)	￦	14,771,572
Weighted average number of common stock outstanding (shares)		6,948,900			6,948,900
Basic earnings (loss) per share (in Korean won)	￦	(2,058	)	￦	2,126

The accompanying notes are an integral part of these non-consolidated financial statements.

33

GRAVITY CO., LTD.

Notes to Non-Consolidated Financial Statements

December 31, 2012 and 2011

26. Significant Transactions Not Affecting Cash Flows

Significant transactions not affecting cash flows for the years ended December 31, 2012 and 2011 are as follows:

(in thousands of Korean won)
	2012			2011
Reclassification of long-term deferred income to short-term deferred income	￦	814,524		￦	1,869,888
Reclassification of advance payments to other intangible assets		311,789			1,391,928
Reclassification of short-term loans receivable to long-term loans receivable		—			1,000,000
Write-off of trade accounts receivable		305,378			650,234
Deferred income tax effect directly reflected in shareholders’ equity		(51,000	)		119,000
Reclassification of long-term prepaid expenses to short-term prepaid expenses		113,132			137,011
Reclassification of amortization of intangible assets to development costs		25,045			100,625
Reclassification of long-term loans receivable to short-term loans receivable		81,666			78,333
Reclassification of tangible and intangible assets to accounts payable		937,960			37,238
Offset short-term deferred income against accounts receivable		170,227			—
Write-off of accrued income		115,130			—
Changes in equity method securities due to change in valuation of investments		254,424			324,700

27. Related Party Transactions

Details of the parent and subsidiaries as of December 31, 2012 are as follows:

	Entity
Parent company	GungHo Online Entertainment, Inc.
Ultimate parent Company	SoftBank Corp.
Subsidiaries	Gravity Interactive, Inc.
	Gravity Entertainment Corp.
	Gravity Middle East & Africa FZ-LLC
	NeoCyon, Inc.
	Gravity Games Corporation
Equity-method investee	Gravity EU SAS

The accompanying notes are an integral part of these non-consolidated financial statements.

34

GRAVITY CO., LTD.

Notes to Non-Consolidated Financial Statements

December 31, 2012 and 2011

Significant transactions, which occurred in the ordinary course of business with related parties for the years ended December 31, 2012 and 2011 and their related balances outstanding as of December 31, 2012 and 2011 are as follows:

(in thousands of Korean won)
	Sales				Purchases
	2012		2011		2012		2011
GungHo Online Entertainment, Inc.	￦	25,341,971	￦	24,041,388	￦	2,766,976	￦	701,228
Gravity Interactive, Inc.		887,986		1,141,499		—		—
Gravity Entertainment Corporation		—		91,687		—		—
Gravity Middle East & Africa FZ-LLC		—		—		—		—
NeoCyon, Inc.		1,739,398		1,992,510		1,896,145		1,455,010
Gravity Games Corporation		16,706		6,570		288,633		75,300
Gravity EU SAS		433,401		518,311		—		—
Gravity CIS Co., Ltd.		6,950		27,680		120,361		—
Ingamba LLC		137,803		275,416		—		—
	￦	28,564,215	￦	28,095,061	￦	5,072,115	￦	2,231,538

(in thousands of Korean won)
	Receivables				Payables
	2012		2011		2012		2011
GungHo Online Entertainment, Inc.	￦	2,189,392	￦	2,604,620	￦	6,455,698	￦	5,360,054
Gravity Interactive, Inc.		2,165,044		2,045,544		—		184,959
Gravity Entertainment Corporation		—		—		—		162
Gravity Middle East & Africa FZ-LLC		—		—		1,820,301		1,820,301
NeoCyon, Inc.		547,804		1,006,957		370,184		242,071
Gravity Games Corporation		3,161,366		1,580,373		75,245		182,213
Gravity EU SAS		166,628		317,447		106,806		182,199
Gravity CIS Co., Ltd.		—		1,293,108		—		—
Ingamba LLC		—		46,621		—		—
	￦	8,230,234	￦	8,894,670	￦	8,828,234	￦	7,971,959

As of December 31, 2012, loans granted by the Company to Gravity Interactive Inc. and Gravity Games Corporation are ￦1,606,650 thousand and ￦1,154,000 thousand, respectively. Interest income arising from each loan for the reporting period are ￦21,531 thousand and ￦13,370 thousand.

As of December 31, 2012, the Company provided bad debt reserve of ￦1,748,850 thousand of accounts receivable and advance payments due from Gravity Games Corporation.

As of December 31, 2011, other bad debt expense recorded due to receivable write-offs to Gravity EU SAS was ￦841,810 thousand.

Respect to Gravity CIS Co., Ltd., the Company recorded bad debt expense and other bad debt expense amounting to ￦5,231 thousand and ￦115,130 thousand respectively to account for receivables write-offs from Gravity CIS Co., Ltd. as of December 31, 2012.

The accompanying notes are an integral part of these non-consolidated financial statements.

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GRAVITY CO., LTD.

Notes to Non-Consolidated Financial Statements

December 31, 2012 and 2011

With respect to Gravity CIS Co., Ltd., the Company provided loans of ￦576,650 thousand and recorded allowances for doubtful accounts for receivables of ￦300,147 thousand in December 31, 2011. The Company recognized bad debt expense of ￦60,493 thousand as of December 31, 2011.

The Company has exclusive contracts with GungHo Online Entertainment, Inc., its parent company, to distribute and sell online games in Japan (Refer to Note 17).

28. Approval of Non-Consolidated Financial Statements

The Company’s non-consolidated financial statements were approved by the Board of Directors on February 27, 2013.

The accompanying notes are an integral part of these non-consolidated financial statements.

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Report of Independent Accountants’

Review of Internal Accounting Control System

To the President of

GRAVITY CO., LTD.

We have reviewed the accompanying management’s report on the operations of the Internal Accounting Control System (“IACS”) of GRAVITY CO., LTD. (the “Company”) as of December 31, 2012. The Company’s management is responsible for designing and operating IACS and for its assessment of the effectiveness of IACS. Our responsibility is to review the management’s report on the operations of the IACS and issue a report based on our review. The management’s report on the operations of the IACS of the Company states that “based on its assessment of the operations of the IACS as of December 31, 2012, no material weaknesses are identified as of December 31, 2011, in all material respects, in accordance with the IACS standards established by the Internal Accounting Control System Operations Committee (IACSOC) of the Korea Listed Companies Association.”

Our review was conducted in accordance with the IACS review standards established by the Korean Institute of Certified Public Accountants. Those standards require that we plan and perform, in all material respects, the review of management’s report on the operations of the IACS to obtain a lower level of assurance than an audit. A review is to obtain an understanding of a company’s IACS and consists principally of inquiries of management and, when deemed necessary, a limited inspection of underlying documents, which is substantially less in scope than an audit. However, in accordance with Chapter 5, Application for small- and medium-sized companies of the IACS standards, the design, operation and assessment of its IACS are limited compared with those of public large-sized companies as the Company is a non-public large-sized company (or a public small and medium-sized company). As such, we performed our review in accordance with Chapter 14, Review standards for small- and medium-sized companies.

A company’s IACS is a system to monitor and operate those policies and procedures designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the Republic of Korea. Because of its inherent limitations, IACS may not prevent or detect a material misstatement of the financial statements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Based on our review, nothing has come to our attention that causes us to believe that management’s report on the operations of the IACS, referred to above, is not presented fairly, in all material respects, in accordance with Chapter 5, Application for small- and medium-sized companies, of the IACS standards established by IACSOC.

Our review is based on the Company’s IACS as of December 31, 2012, and we did not review management’s assessment of its IACS subsequent to December 31, 2012. This report has been prepared pursuant to the Acts on External Audit for Stock Companies in Korea and may not be appropriate for other purposes or for other users.

Samil PricewaterhouseCoopers

March 19, 2013

The accompanying notes are an integral part of these non-consolidated financial statements.

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Report on the Operations of the Internal Accounting Control System

To the Board of Directors and Audit Committee of

GRAVITY CO., LTD.

I, as the Internal Accounting Control Officer (“IACO”) of GRAVITY CO., LTD. (“the Company”), assessed the status of the design and operations of the Company’s internal accounting control system (“IACS”) for the year ended December 31, 2012.

The Company’s management including IACO is responsible for designing and operating IACS. I, as the IACO, assessed whether the IACS has been effectively designed and is operating to prevent and detect any error or fraud which may cause any misstatement of the financial statements, for the purpose of establishing the reliability of financial reporting and the preparation of financial statements for external purposes. I, as the IACO, applied Chapter 5, Application to small- and medium-sized companies, of the IACS standards for the assessment of design and operations of the IACS.

Based on the assessment on the operation of the IACS, no material weakness has been identified as of December 31, 2012, in all material respect, in accordance with the IACS standards.

March 19, 2013

Heung Gon Kim, Internal Accounting Control Officer

Hyun Chul Park, Chief Executive Officer

The accompanying notes are an integral part of these non-consolidated financial statements.

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