LTN20121119180.pdf - HKEXnews

If you are in any doubt as to any aspect of this circular or as to the action to be taken, you should consult

your stockbroker or other registered dealer in securities, bank manager, solicitor, professional accountant or

other professional adviser.

If you have sold or transferred all your shares in AV Concept Holdings Limited (“Company”), you should

at once hand this circular and the accompanying form of proxy to the purchaser, the transferee or to the bank,

stockbroker or other agent through whom the sale or transfer was effected for transmission to the purchaser or

transferee.

Hong Kong Exchanges and Clearing Limited and The Stock Exchange of Hong Kong Limited take no

responsibility for the contents of this circular, make no representation as to its accuracy or completeness and

expressly disclaim any liability whatsoever for any loss howsoever arising from or in reliance upon the whole

or any part of the contents of this circular.

MAJOR TRANSACTIONS:(1) SUBSCRIPTION OF SHARES IN AND BONDS ISSUED BY NITGEN;

AND(2) DISPOSAL OF 35% INTEREST IN SUCCESS PILLAR

AND NOTICE OF EXTRAORDINARY GENERAL MEETING

A notice convening the extraordinary general meeting of the Company to be held at 10:00 a.m. on Thursday,

6 December 2012 at 6th Floor, Enterprise Square Three, 39 Wang Chiu Road, Kowloon Bay, Hong Kong is

set out on pages EGM-1 to EGM-3 of this circular. Whether or not you are able to attend the meeting, you

are requested to complete and return the enclosed form of proxy in accordance with the instructions printed

thereon as soon as possible and in any event not less than 48 hours before the time of the meeting to the

office of the Company’s branch registrar in Hong Kong, Tricor Tengis Limited at 26/F, Tesbury Centre, 28

Queen’s Road East, Wanchai, Hong Kong. Completion and return of the form of proxy will not preclude you

from attending and voting at the meeting in person should you so wish.

20 November 2012

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

Page

Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

Letter from the Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

Appendix I – Financial information of the Group . . . . . . . . . . . . . . . . . . . . . . . . . I-1

Appendix IIA – Financial information of Nitgen for the year 2009

(1) Extracts of the annual report of Nitgen for the year ended 31 December 2009 . . . IIA-1

(2) Audited financial statements of Nitgen for the year ended 31 December 2009 . . . IIA-21

Appendix IIB – Financial information of Nitgen for the year 2010

(1) Extracts of the annual report of Nitgen for the year ended 31 December 2010 . . . IIB-1

(2) Audited financial statements of Nitgen for the year ended 31 December 2010 . . . IIB-21

Appendix IIC – Financial information of Nitgen for the year 2011

(1) Extracts of the annual report of Nitgen for the year ended 31 December 2011 . . . IIC-1

(2) Audited financial statements of Nitgen for the year ended 31 December 2011 . . . IIC-23

Appendix IID – Financial information of Nitgen for the six months ended 30 June 2012

(1) Extracts of the interim report of Nitgen for the six months ended 30 June 2012 . IID-1

(2) Unaudited financial statements of Nitgen for the six months ended 30 June 2012 . IID-16

Appendix III – Unaudited Pro forma financial information of the Group . . . . . . . . . . III-1

Appendix IV – General information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . IV-1

Notice of Extraordinary General Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . EGM-1

- i -

CONTENTS

In this circular, unless the context otherwise requires, the following expressions have the following

meanings:

“AV Sale Shares” the 262,500 shares of US$1 each in the share capital of Success

Pillar held by New Concept, representing 35% of the entire share

capital of Success Pillar

“Board” the board of Directors

“Business Day” a day, other than a Saturday or Sunday, on which banks are open in

Hong Kong to the general public for business

“Company” AV Concept Holdings Limited, a company incorporated in the

Cayman Islands with limited liability and the issued shares of which

are listed on the Main Board of the Stock Exchange

“connected person(s)” has the meaning ascribed to it under the Listing Rules

“Consideration” the aggregate of the consideration payable by the Purchaser to New

Concept and SHK for the Sale Shares under the Disposal Agreement

“Conversion Nitgen Shares” Nitgen Shares to be allotted and issued by Nitgen upon conversion

of the Subscription Bonds

“Conversion Price” the price at which Conversion Nitgen Shares will be issued upon

conversion of the Subscription Bonds which will initially be

US$0.585793 per Conversion Nitgen Share and will be subject to

adjustment in the manner provided in the terms and conditions of

the Subscription Bonds

“Director(s)” the director(s) of the Company

“Disposal” the disposal of the AV Sale Shares

“Disposal Agreement” the Disposal Agreement dated 5 September 2012 entered into

between the Purchaser, SHK and New Concept in relation to the

Disposal

“EGM” the extraordinary general meeting of the Company convened to be

held on Thursday, 6 December 2012 at 10:00 a.m. for the purposes

of, among other matters, considering, and if thought fit, approving

the Securities Subscription, the Shares Subscription and the Disposal

“Ego Time” Ego Time Limited, a company in incorporated in the British Virgin

Islands with limited liability, which as at the Latest Practicable Date,

was a 51% subsidiary of Success Pillar

- 1 -

DEFINITIONS

“Existing Bondholder” a company incorporated in the British Virgin Islands with limited

liability and to the best of the Directors’ knowledge, information

and belief after having made all reasonable enquires, each of the

Existing Bondholder and its ultimate beneficial owner is a third

party independent of the Company and the connected persons of the

Company

“Existing Bonds” the zero coupon convertible bonds issued by Nitgen to the Existing

Bondholder in an aggregate face amount of US$5,500,000 at an

issue price equal to 100% of the principal amount of the bonds and

due on 31 July 2015

“Group” the Company and its subsidiaries

“HK$” Hong Kong dollars, the lawful currency of Hong Kong

“Hong Kong” the Hong Kong Special Administrative Region of the PRC

“Investment Agreement” the subscription agreement dated 5 September 2012 entered into

between Nitgen, New Concept and SHK in relation to, among

others, the Securities Subscription (as amended and supplemented

by The Investment Supplemental Agreement)

“Investment Closing” completion of the Investment Agreement

“Investment Closing Conditions” conditions precedent to the Investment Closing as set out in the

paragraph headed “Investment Closing Conditions” in the Letter

from the Board in this circular

“Investment Closing Date” 18 December 2012 (or such other day as may be agreed between

Nitgen, New Concept and SHK), subject to the fulfillment (or

waiver, if applicable) all the Investment Closing Conditions as set

out in the paragraph headed “Investment Closing Conditions” in the

Letter from the Board in this circular

“Investment Shares” 6,000,000 Nitgen Shares

“Investment Supplemental

Agreement”

the supplemental agreement to the Investment Agreement dated 31

October 2012 and entered into between Nitgen, New Concept and

SHK

“Korea” the Republic of Korea

“KOSDAQ” the Korean Securities Dealers Automated Quotations, a trading

board of the Korean Exchange

- 2 -

DEFINITIONS

“KRW” Korean Won, the lawful currency of Korea

“Latest Practicable Date” 16 November 2012, being the last practicable date before the

printing of this circular for the purpose of ascertaining certain

information for inclusion in this circular

“Listing Rules” the Rules Governing the Listing of Securities on the Stock

Exchange

“Market Trial Period” the market trial period of the Success Pillar Subsidiaries of 3 months

immediately preceding 1 August 2012 during which the operations

of the Success Pillar Subsidiaries were validated and the clientele of

the Success Pillar Subsidiaries was established through market trials

and business promotion

“NCC Bonds” the Subscription Bonds in an aggregate face amount of

US$7,425,373 to be purchased by New Concept under the

Investment Agreement

“New Concept” New Concept Capital Limited, a company incorporated in the

British Virgin Islands with limited liability and a wholly-owned

subsidiary of the Company

“NewOcean Petroleum” NewOcean Petroleum Company Limited, a company in incorporated

in the British Virgin Islands with limited liability, which as at the

Latest Practicable Date, was a wholly-owned subsidiary of Ego

Time

“NewOcean Oil Products” NewOcean Oil Products Company Limited, a company in

incorporated in the British Virgin Islands with limited liability,

which as at the Latest Practicable Date, was a wholly-owned

subsidiary of Ego Time

“Nitgen” Nitgen&Company Co., Ltd., a company incorporated in Korea

whose common shares are listed on KOSDAQ

“Nitgen Group” Nitgen and its subsidiaries

“Nitgen Share(s)” Share(s) of common stock having par value of KRW500 per share

in the share capital of Nitgen

“NO Sale Shares” the 487,500 shares of US$1 each in the share capital of Success

Pillar held by SHK, representing 65% of the entre share capital of

Success Pillar

- 3 -

DEFINITIONS

“NOL” NewOcean Energy Holdings Limited, a company incorporated in

Bermuda whose issued shares are listed on the Main Board of the

Stock Exchange (stock code: 342)

“PRC” the People’s Republic of China

“Purchaser” Nitgen Eco & Energy International Limited (formerly known as

Nitgen Lighting Limited), a company incorporated in Hong Kong

with limited liability and a wholly-owned subsidiary of Nitgen

“Sale Shares” the AV Sale Shares and the NO Sale Shares, representing the entire

share capital of Success Pillar

“Securities Subscription” subscription of the Investment Shares and purchase of the NCC

Bonds by New Concept under the Investment Agreement

“Shareholder(s)” shareholder(s) of the Company

“Shares Subscription” subscription of the Subscription Shares by New Concept under the

Subscription Agreement

“Shares Subscription Price” the price for each Subscription Share, each Investment Share and

each Nitgen Share to be subscribed by SHK under the Investment

Agreement, being KRW646 (equivalent to approximately HK$4.42)

“SHK” Sound Hong Kong Limited, a company incorporated in the British

Virgin Islands with limited liability and a wholly-owned subsidiary

of NOL

“SHK Bonds” the Subscription Bonds in an aggregate face amount of

US$10,369,124 to be purchased by SHK under the Investment

Agreement

“Stock Exchange” The Stock Exchange of Hong Kong Limited

“Subscription Agreement” the subscription agreement dated 5 September 2012 entered into

between Nitgen and New Concept in relation to, among others, the

Shares Subscription (as amended and supplemented by the

Subscription Supplemental Agreement)

“Subscription Bonds” the zero coupon convertible bonds to be issued by Nitgen to New

Concept and SHK at an issue price equal to 100% of the principal

amount of the bonds and due on the third anniversary of the date of

issue, subject to the terms and conditions of the Investment

Agreement

- 4 -

DEFINITIONS

“Subscription Closing” completion of the Shares Subscription

“Subscription Closing Conditions” conditions precedent to the Subscription Closing as set out in the

paragraph headed “Subscription Closing Conditions” in the Letter

from the Board in this circular

“Subscription Closing Date” 17 December 2012 or at such other time and date as Nitgen, New

Concept and SHK may agree, subject to the fulfillment (or waiver,

if applicable) of the Subscription Closing Conditions as set out in

the paragraph headed “Subscription Closing Conditions” in the

Letter from the Board in this circular

“Subscription Shares” 12,264,086 Nitgen Shares

“Subscription Supplemental

Agreement”

the supplemental agreement to the Subscription Agreement dated 31

October 2012 and entered into between Nitgen and New Concept

“Success Pillar” Success Pillar Limited, a company incorporated in the British Virgin

Islands, which as at the Latest Practicable Date was held as to 35%

by New Concept and as to 65% by SHK

“Success Pillar Subsidiaries” Ego Time, NewOcean Petroleum and NewOcean Oil Products

“US$” United States dollars, the lawful currency of the United States of

America

“Zhuhai Petroleum Depot” a 80,000 metric ton oil products depot under construction at NOL’s

Zhuhai sea terminal intended for use by the oil products business of

NOL which is expected to commence operation in 2013

In this circular, amounts quoted in US$ have been converted into HK$ at a rate of US$1 to HK$7.77

and amounts quoted in KRW have been converted into HK$ at a rate of KRW146 to HK$1. Such exchange

rates has been used, where applicable, for the purposes of illustration only and does not constitute a

representation that any amounts were or may have been exchanged at this or any other rates at all.

- 5 -

DEFINITIONS

Executive Directors:

Dr. Hon. So Yuk Kwan (Chairman)

Mr. So Chi On

Mr. Ho Choi Yan, Christopher

Independent non-executive Directors:

Dr. Hon. Lui Ming Wah, SBS, JP

Mr. Charles E. Chapman

Mr. Wong Ka Kit

Registered office:

P.O. Box 309

Ugland House

Grand Cayman KY1-1104

Cayman Islands

Head office and principal place

of business in Hong Kong:

6th Floor

Enterprise Square Three

39 Wang Chiu Road

Kowloon Bay

Hong Kong

20 November 2012

Dear Sir or Madam,

MAJOR TRANSACTIONS:(1) SUBSCRIPTION OF SHARES IN AND OF BONDS ISSUED BY NITGEN;

AND(2) DISPOSAL OF 35% INTEREST IN SUCCESS PILLAR

INTRODUCTION

On 5 September 2012 (after the trading hours):

(1) New Concept, SHK and Nitgen entered into the Investment Agreement, pursuant to which,

among other matters, (a) New Concept has conditionally agreed to subscribe for, and Nitgen

has conditionally agreed to allot and issue to New Concept, the Investment Shares; and (b) New

Concept conditionally agreed to purchase and Nitgen has conditionally agreed to issue to New

Concept, the NCC Bonds, subject to the terms and conditions of the Investment Agreement;

(2) New Concept and Nitgen entered into the Subscription Agreement, pursuant to which, among

other matters, New Concept has conditionally agreed to subscribe for, and Nitgen has

conditionally agreed to allot and issue to New Concept, the Subscription Shares subject to the

terms and conditions of the Subscription Agreement; and

- 6 -

LETTER FROM THE BOARD

(3) the Purchaser, New Concept and SHK entered into the Disposal Agreement, pursuant to which,

among other matters, the Purchaser has conditionally agreed to purchase and New Concept has

conditionally agreed to sell the AV Sale Shares, representing 35% of the entire share capital of

Success Pillar, for a consideration of HK$84,413,000.

On 31 October 2012:

1. Nitgen, New Concept and SHK entered into the Investment Supplemental Agreement, pursuant

to which Nitgen, New Concept and SHK agreed to extend: (a) the Investment Closing Date to

18 December 2012 (or such other time and date as may be agreed between Nitgen, New

Concept and SHK in writing); and (b) the long stop date of the Investment Agreement to 31

December 2012; and

2. Nitgen and New Concept entered into the Subscription Supplemental Agreement, pursuant to

which Nitgen and New Concept agreed to extend: (a) the Subscription Closing Date to 17

December 2012 (or such other time and date as may be agreed between Nitgen and New

Concept in writing); and (b) the long stop date of the Investment Agreement to 30 December

2012.

Each of: (a) the Securities Subscription and Shares Subscription, both on their own and in aggregate

with the acquisition of interests in Nitgen by the Group as disclosed in the announcement of the Company

dated 10 May 2012; and (b) the Disposal, in aggregate with the disposal of 48% interest in Signeo Green

Energy Limited to the Purchaser as disclosed in the announcement of the Company dated 12 July 2012

constitutes a major transaction for the Company under the Listing Rules and is subject to reporting and

announcement and Shareholders’ approval requirements of Chapter 14 of the Listing Rules.

The purpose of this circular is to provide you with, among other things, (i) further information on the

Investment Agreement, the Subscription Agreement and the Disposal Agreement; and (ii) a notice of the

EGM.

THE INVESTMENT AGREEMENT

The major terms of the Investment Agreement are set out below:

Date

5 September 2012 (date of the Investment Supplemental Agreement being 31 October 2012)

Parties

Investors : (1) New Concept; and

- 7 -


(2) SHK, a company incorporated in the British Virgin Islands with

limited liability, and is a wholly-owned subsidiary of NOL, a

company listed on the Main Board of the Stock Exchange,

principally engaged in sale and distribution of liquefied

petroleum gas, sale and distribution of oil products and sale of

electronics parts.

Nitgen : Nitgen&Company Co., Ltd., a company incorporated in Korea with

limited liability whose common shares are listed on KOSDAQ. The

Nitgen Group is principally engaged in the provision of biometric

solutions.

As at the Latest Practicable Date, Nitgen was owned as to approximately 20.28% by the Group.

Save as disclosed above, to the best of the Directors’ knowledge, information and belief after having

made all reasonable enquires, each of Nitgen and SHK and their respective ultimate beneficial owners

is a third party independent of the Company and the connected persons of the Company.

Subject matters of the Investment Agreement

(1) The Investment Shares

Nitgen has conditionally agreed to allot and issue to New Concept, and New Concept has

conditionally agreed to subscribe for, the Investment Shares (being 6,000,000 Nitgen Shares) at the

Share Subscription Price (being KRW646 (equivalent to approximately HK$4.42) per Investment

Share) (i.e. at an aggregate consideration being KRW3,876 million (equivalent to approximately

HK$26,547,945).

(2) The NCC Bonds

New Concept has conditionally agreed to purchase, and Nitgen has conditionally agreed to

issue to New Concept, the NCC Bonds. Assuming full conversion of the NCC Bonds at the initial

Conversion Price of US$0.585793, the NCC Bonds will be convertible into 12,675,762 Conversion

Nitgen Shares.

(3) Investment by SHK under the Investment Agreement

In addition to the Investment Shares to be subscribed for and the NCC Bonds to be purchased

by New Concept, pursuant to and subject to the terms of the Investment Agreement:

(a) Nitgen has conditionally agreed to allot and issue, and SHK has conditionally agreed to

subscribe for, 17,136,230 Nitgen Shares at the Share Subscription Price (being KRW646

(equivalent to approximately HK$4.42) per Nitgen Share) (i.e. at an aggregate

considerat ion being KRW11,070,004,580 (equivalent to approximately

HK$75,821,949)); and

- 8 -


(b) Nitgen has conditionally agreed to issue to SHK, and SHK has conditionally agreed to

purchase the SHK Bonds at the price of US$10,369,124 (equivalent to approximately

HK$80,568,093). Assuming full conversion of the SHK Bonds at the initial Conversion

Price of US$0.585793, the SHK Bonds will be convertible into 17,701,003 Nitgen

Shares.

(4) Principal terms of the Subscription Bonds

Set out below are the principle terms of the Subscription Bonds:

Issuer: Nitgen.

Principal amount of theSubscription Bonds:

US$17,794,497 (equivalent to approximately HK$138,263,242),

as to NCC Bonds of US$7,425,373 (equivalent to approximately

HK$57,695,148) and as to SHK Bonds of US$10,369,124

(equivalent to approximately HK$80,568,093).

Issue price: 100% of the principal amount of the Subscription Bonds.

Rank: The Subscription Bonds constitute direct, unconditional,

unsecured and unsubordinated obligations of Nitgen and rank

pari passu among themselves and (other than any obligations for

which priority in payment is conferred by mandatory provisions

of law) with all other present and future direct, unsecured and

unsubordinated obligations of Nitgen.

Form and denomination: In registered form. After one year from the date of the issuance,

the bondholder may at its discretion exchange the certificate

representing the bonds for certificates in integral multiples of

US$10,000.

Interest: No interest, except that in the event any principal amount of a

Subscription Bond is not paid when due, interest shall accrue on

such unpaid amount from (but excluding) the due date thereof to

(and including) the date of payment at a rate of 10% per annum,

calculated on the basis of a 365-day year and actual number of

days lapsed.

Maturity date: The third anniversary of the issue date of the Subscription Bonds

(“Maturity Date”).

Conversion period: After the first anniversary of the issue date of the Subscription

Bonds up to the close of business (in Seoul) on the date one

business day prior to the Maturity Date.

- 9 -


Conversion price: The initial Conversion Price is US$0.585793 (equivalent to

approximately HK$4.55) per Conversion Nitgen Share.

The Conversion Price will be subject to adjustment for, among

other things, free distribution, sub-division, consolidation or

reclassification of shares, declaration of dividends in shares, a

grant, issue or offer of securities less than the current market

price, issue of convertible or exchangeable securities less than

the current market price, and issue of rights for shares or

convertible or exchangeable securities other than to shareholders

less than the current market price.

Under the terms and conditions of the Subscription Bonds, in no

event shall the Conversion Price be adjusted for (i) any issues of

Nitgen Shares, up to the maximum number of 35,400,316 Nitgen

Shares, in one or more issues within a period of six (6) months

after the issue date of the Subscription Bonds, provided that the

share price for such issues of Nitgen Shares is in accordance

with the applicable floor price under applicable laws and

regulations; or (ii) any issues of convertible bonds within a

period of six (6) months after the issue date of the Subscription

Bonds, up to a total principal amount (aggregating all such

issues) of US$25,000,000 (or equivalent in KRW or other

currency at the time(s) of payment for such issues), or any

Nitgen Shares issued upon conversion of such convertible bonds.

Redemption: Unless previously redeemed, converted or purchased and in each

case cancelled as provided in the terms and conditions of the

Subscription Bonds, Nitgen will on the Maturity Date redeem the

Subscription Bonds at 100% of its principal amount.

Events of default: Under the terms and conditions of the Subscription Bonds, if any

of the following events occurs and is continuing, the holder of

the Subscription Bonds may, by written notice addressed to

Nitgen and delivered to Nitgen, declare such Subscription Bond

to be immediately due and payable whereupon it shall become

immediately due and payable at its principal amount according

to the terms thereof without further action or formality:

(a) Nitgen is in breach of the covenants given under the terms

and conditions of the Subscription Bonds, or defaults in

performance of any material provision under the terms

and conditions of the Subscription Bonds and such default

continues for a period of 30 days (or, in case of default on

any obligation to pay monies, a period of 15 days) after

Nitgen receives written notice of such default from any

- 10 -


holder of the Subscription Bonds, or it becomes unlawful

for Nitgen to perform any material provision under the

terms and conditions of the Subscription Bonds.

(b) Any other bonds or other indebtedness of Nitgen for

borrowed money having an aggregate principal amount of

at least US$1,000,000 (or its equivalent in any other

currency or currencies) or more (“Indebtedness”)becomes prematurely repayable following default, or

steps are taken to enforce any security therefore; or

Nitgen defaults in repayment of any such Indebtedness at

the maturity thereof, or defaults on any guarantee

provided by it in respect of any Indebtedness of others.

(c) Otherwise than as part of a corporate merger, either (i) a

resolution is passed for the winding up or dissolution of

Nitgen, or (ii) Nitgen ceases, or resolves or undertakes to

cease, the conduct of business.

(d) Nitgen is unable to pay its debts as and when they fall

due; or a bankruptcy, reorganization, insolvency, creditor

workout or similar proceeding is initiated or consented to

by Nitgen (or are commenced against Nitgen and not

discharged or stayed within 30 days).

(e) A liquidator, receiver, administrator or other similar

officer is appointed in respect of Nitgen, or any asset of

Nitgen is or becomes subject to expropriation, attachment,

sequestration, distress or execution which is not

discharged within 10 days.

(f) Trading of the Nitgen Shares on KOSDAQ is suspended,

whether at the instance of Nitgen or any regulatory body,

for 10 or more consecutive days or a notice is issued by

any regulatory body of its intention to terminate or

otherwise cease the listing of Nitgen Shares on KOSDAQ.

(g) New Concept (together with its affiliates) ceases to be the

single largest shareholder of Nitgen or there is otherwise a

change of control in Nitgen.

Consideration

The aggregate Share Subscription Price in respect of all Investment Shares (being KRW3,876

million (equivalent to approximately HK$26,547,945)) will be settled in cash by New Concept on the

Investment Closing Date and funded by the Group’s internal resources.

- 11 -


The Share Subscription Price was arrived at after arm’s length negotiations between Nitgen,

New Concept and SHK and it was based on the lower of (a) arithmetic average of (i) volume-

weighted-average share price (“Average Price”) during one (calendar) month; (ii) Average Price

during one (calendar) week; and (iii) Average Price on the (last) trading day, before the date of board

resolution of Nitgen on the share issue (i.e. the date of the Investment Agreement); and (b) Average

Price on the (last) trading day before the date of board resolution of Nitgen on the share issue (i.e. the

date of the Investment Agreement), which is in accordance with the applicable Korean laws.

The Conversion Price of US$0.585793 (equivalent to approximately HK$4.55) was arrived at

after arm’s length negotiations between Nitgen, New Concept and SHK and was determined based on

the highest of the following formulae, which is in accordance with the applicable Korean laws:

(a) arithmetic average of (i) Average Price during one (calendar) month, (ii) Average Price

during one (calendar) week, and (iii) Average Price on the (last) trading day, before the

date of board resolution of Nitgen on the issue of the NCC Bonds (i.e. the date of the

Investment Agreement);

(b) Average Price on the (last) trading day before the date of board resolution of Nitgen on

the issue of the NCC Bonds; and

(c) Average Price of 3 trading days (third to last trading day) before the date of the

Investment Agreement.

Payment of the issue price of the NCC Bonds will be made in cash by New Concept on the

Investment Closing Date and funded by the Group’s internal resources.

Lock-up period under the Investment Agreement

Each of the Investment Shares and the Nitgen Shares issued to SHK under the Investment

Agreement shall, upon issuance, subject to a one-year lock-up requirement by depositing the certificate

representing such Nitgen Shares with the Korea Securities Depositary as required under applicable

Korean laws.

Investment Closing Conditions

The completion of the Investment Agreement shall be conditional upon the following conditions

being fulfilled (or waived by such party to the Investment Agreement, if applicable) before or at the

Investment Closing, provided that such a party shall not be excused from obligations based on any of

the condition if non-fulfillment hereof results from such party’s failure to use its reasonable, diligent

efforts to obtain and effect any government approvals and any consents of third parties, or other

procedures, that are necessary for the Investment Closing:

(1) each of Nitgen, New Concept and SHK has complied with those covenants under the

Investment Agreement that are required to be complied with by it before the Investment

Closing and the representations and warranties given by each of Nitgen, New Concept

and SHK are true and correct in all material aspects as of the Investment Closing Date;

- 12 -


(2) no lawsuit or other legal proceeding is pending, or threatened, that challenges the

validity of the Investment Agreement or seeks to restrict the transactions provided for

thereunder.

Investment Closing shall not proceed unless and until there occurs the fulfillment of each of the

following conditions:

(a) all approvals or authorisations from, or registration or filing with, any government

authority or securities exchange, and any other consent from or notice to a third party, or

other procedure, that is required of any party to the Investment Agreement for (and prior

to or as of) the Investment Closing under applicable laws, or securities exchange rules,

has been duly obtained and effected;

(b) the Shareholders shall have, at a general meeting of the Company, approved the

transactions to be undertaken by New Concept under the Investment Agreement; and

(c) the shareholders of NOL shall have, at a general meeting of NOL, approved the

transactions to be undertaken by SHK under the Investment Agreement.

(d) pursuant to the Subscription Agreement (subject to the conditions therein), the Company

shall have issued to New Concept and New Concept shall have subscribed for additional

12,264,086 Nitgen Shares at the Share Subscription Price; and

(e) Nitgen shall have entered into a subscription agreement with the Purchaser providing for

additional subscription by Nitgen of a number of shares in the Purchaser for a total

subscription price of US$31,000,000, and such subscription agreement shall be in full

force and effect.

Save that the Investment Closing Conditions mentioned in paragraphs (1) and (2) above can be

waived by the party to the Investment Agreement, all the Investment Closing Conditions mentioned

above cannot be waived.

On 5 September 2012, Nitgen and the Purchaser entered into a subscription agreement, which

was amended and supplemented by the supplemental agreement dated 31 October 2012, pursuant to

which Nitgen has conditionally agreed to subscribe for 240,250,000 shares in the Purchaser for a total

subscription price of US$31,000,000. The entering into of such subscription agreement is included as

one of the Investment Closing Conditions to ensure that the Purchaser will have funds to pay the

consideration for the Disposal.

As at the Latest Practicable Date, the Investment Closing Conditions mentioned in paragraphs

(c) and (e) above had been fulfilled and the remaining Investment Closing Conditions had not been

fulfilled or waived, and no party to the Investment Agreement had any intention to waive any

Investment Closing Condition.

- 13 -


Termination

The Investment Agreement may be terminated before the Investment Closing: (a) by agreement

between Nitgen, New Concept and SHK; (b) by any party thereto, effective immediately upon written

notice to the other parties, if, for any other reason other than fault of such terminating Party, the

Investment Closing Conditions set out in the paragraph headed “Investment Closing Conditions”

above have not been fulfilled (or waived, if applicable), or the Investment Closing has not occurred on

or before 31 December 2012; or (c) by any party thereto, effective immediately upon written notice to

the other parties, in case of a material breach of, or material inaccuracy in, any covenant,

representation or warranty of another party under the Investment Agreement. If the Investment Closing

does not occur and the Investment Agreement is duly terminated, for the avoidance of doubt, any

moneys that may have been paid for the Nitgen Shares, the NCC Bonds or the SHK Bonds (if any)

shall, forthwith upon demand, be returned to the respective party.

Upon termination of the Investment Agreement pursuant to the above, the Investment

Agreement shall immediately cease to have effect, and no party shall have any further obligation

thereunder (save those continuing obligation such as confidentiality); provided, that termination shall

not discharge any liability for a breach arising before termination, or prejudice any rights in respect

thereof.

Investment Closing

Subject to fulfillment or waiver (if applicable) of the Investment Closing Conditions,

Investment Closing shall take place at 11:00 a.m. (Korea time) on the Investment Closing Date.

Other terms of the Investment Agreement

Pursuant to the Investment Agreement, Nitgen shall use the proceeds of the Securities

Subscription for a capital injection into the Purchaser to provide funding for the Purchaser in its

proposed acquisition of Success Pillar.

Each of New Concept and SHK shall not, within one year from the Investment Closing Date,

sell or transfer the Subscription Bonds, in whole or in part, to any third party Korean resident, nor

exercise its conversion right under the Subscription Bonds. Further, in case New Concept or SHK

sells, transfers, assigns or otherwise disposes of the Subscription Bonds to a non-resident in Korea

during the period of one year from the issuance date of the Subscription Bonds, New Concept or SHK

(as the case may be) shall procure a written consent from such non-resident under which such non-

resident undertakes to comply with the restriction on sale or transfer thereto.

THE SUBSCRIPTION AGREEMENT

The major terms of the Subscription Agreement are set out below:

Date

5 September 2012 (date of the Subscription Supplemental Agreement being 31 October 2012)

- 14 -


Parties

Subscriber : New Concept.

Nitgen : Nitgen&Company Co., Ltd., a company incorporated in Korea with

limited liability whose common shares are listed on KOSDAQ.

Subject matter of the Shares Subscription

Nitgen has conditionally agreed to allot and issue, and New Concept has conditionally agreed to

subscribe for, the Subscription Shares (being 12,264,086 Nitgen Shares), at the Share Subscription

Price (being KRW646 (equivalent to approximately HK$4.42)) per Subscription Share.

The aggregate Share Subscription Price (being KRW7,922,599,556 (equivalent to

approximately HK$54,264,381)) in respect of all Subscription Shares will be settled in cash by

New Concept on the Subscription Closing Date and funded by the Group’s internal resources.

Lock-up period of the Subscription Shares

Each of the Subscription Shares shall, upon issuance, subject to a one-year lock-up requirement

by depositing the share certificates representing the Subscription Shares with the Korea Securities

Depositary as required under applicable Korean laws.

Subscription Closing Conditions

Completion of the Subscription Agreement shall be conditional upon the following conditions

being fulfilled (or waiver by such party thereto, if applicable) before or at the Subscription Closing,

provided that such a party shall not be excused from obligations based on any of the condition if non-

fulfillment hereof results from such party’s failure to use its reasonable, diligent efforts to obtain and

effect any government approvals and any consents of third parties, or other procedures, that are

necessary for the Subscription Closing:

(1) all approvals or authorisations from, or registration or filing with, any government

authority or securities exchange, and any other consent from or notice to a third party, or

other procedure, that is required of any party to the Subscription Agreement for (and

prior to or as of) the Subscription Closing under applicable laws, or securities exchange

rules, has been duly obtained and effected;

(2) each of Nitgen and New Concept has complied with those covenants under the

Subscription Agreement that are required to be complied with by it before the

Subscription Closing and the representations and warranties given by Nitgen and New

Concept are true and correct in all material aspects as of the Subscription Closing Date;

(3) no lawsuit or other legal proceeding is pending, or threatened, that challenges the

validity of the Subscription Agreement or seeks to restrict the transactions provided for

thereunder; and

- 15 -


(4) the Shareholders shall have, at a general meeting of the Company, approved the

Subscription Agreement and the transactions contemplated thereunder.

Under the Subscription Agreement, the Subscription Closing Conditions in (1) and (4) above

are incapable of being waived and Nitgen and New Concept may waive in writing the Subscription

Closing Conditions in (2) and (3) above. As at the Latest Practicable Date, none of the Subscription

Closing Conditions had been waived or completed, and no party to the Subscription Agreement had

any intention to waive any Subscription Closing Condition.

Termination

The Subscription Agreement may be terminated before the Subscription Closing: (a) by

agreement between Nitgen and New Concept; (b) by either party thereto, effective immediately upon

written notice to the other party, if, for any other reason other than fault of such terminating party, the

Subscription Closing Conditions set out in paragraph headed “Subscription Closing Conditions” above

have not been fulfilled (or waived, if applicable), or the Subscription Closing has not occurred on or

before 30 December 2012; or (c) by either party thereto, effective immediately upon written notice to

the other party, in case of a material breach of, or material inaccuracy in, any covenant, representation

or warranty of another party under the Subscription Agreement. If the Subscription Closing does not

occur and the Subscription Agreement is duly terminated, for the avoidance of doubt, any moneys that

may have been paid for the Nitgen Shares (if any) shall, forthwith upon demand, be returned to New

Concept.

Upon termination of the Subscription Agreement pursuant to the above, the Subscription

Agreement shall immediately cease to have effect (save those continuing obligation such as

confidentiality), and no party shall have any further obligation hereunder; provided, that termination

shall not discharge any liability for a breach arising before termination, or prejudice any rights in

respect thereof.

Subscription Closing

Subject to fulfillment or waiver (if applicable) of the Subscription Closing Conditions, Closing

shall take place at 11:00 a.m. (Korea time) on the Subscription Closing Date.

Other terms of the Subscription Agreement

Pursuant to the Subscription Agreement, Nitgen shall use the proceeds of the Shares

Subscription for general working capital and any other corporate purposes.

- 16 -


EFFECT OF THE SECURITIES SUBSCRIPTION AND THE SHARES SUBSCRIPTION ON THESHAREHOLDING OF NITGEN

For illustrative purposes:

(1) Assuming the Subscription Closing is to proceed, the following table represents (i) the existing

shareholding structure of Nitgen; (ii) the shareholding structure of Nitgen immediately after the

Subscription Closing; and (iii) the shareholding structure of Nitgen immediately after the

Subscription Closing and assuming full conversion of the Existing Bonds at the initial

conversion price of US$0.6302 under the terms and conditions of the Existing Bonds and the

Investment Closing does not take place:

Existing (as at the LatestPracticable Date)

Immediately after theSubscription Closing

Immediately after theSubscription Closing and

assuming the Existing Bondsare fully converted intoNitgen Shares and the

Investment Closing does nottake place

ShareholderNo. of Nitgen

Shares

% of

shareholding

in Nitgen

No. of Nitgen

Shares

% of enlarged

shareholding

in Nitgen

No. of Nitgen

Shares

% of enlarged

shareholding

in Nitgen

New Concept 7,179,925 20.28 19,444,011 40.79 19,444,011 34.48

Existing Bondholder (Note) – – – – 8,726,970 15.48

Other shareholders 28,220,391 79.72 28,220,391 59.21 28,220,391 50.04

Total 35,400,316 100.00 47,664,402 100.00 56,391,372 100.00

Note: As at the Latest Practicable Date, the Existing Bondholder did not own any Nitgen Shares and was the

holder of the Existing Bonds. The Existing Bonds are zero coupon convertible bonds in the aggregate

principal amount of US$5,500,000 due 31 July 2015 which, assuming full conversion of the Existing

Bonds at the initial conversion price of US$0.6302 under the terms and conditions of the Existing

Bonds, will be convertible into 8,726,970 Nitgen Shares.

- 17 -


(2) Based on the existing shareholding structure of Nitgen, assuming the Investment Closing is to

proceed (which shall take place after the Subscription Closing), the following table represents

(i) the shareholding structure of Nitgen as at the Latest Practicable Date; (ii) the shareholding

structure of Nitgen immediately after the Subscription Closing; and (iii) the shareholding

structure of Nitgen immediately after the Subscription Closing and the Investment Closing; and

(iv) the shareholding structure of Nitgen immediately after the Investment Closing and

assuming full conversion of the NCC Bonds and the SHK Bonds at the initial Conversion Price

and full conversion of the Existing Bonds at the initial conversion price of US$0.6302 under the

terms and conditions of the Existing Bonds:

Existing (as at the Latest

Practicable Date)

Immediately after the

Subscription Closing


Subscription Closing and

the Investment Closing


Investment Closing and

assuming the NCC Bonds,

the SHK Bonds and the

Existing Bonds are fully

converted into Nitgen

Shares

Shareholder

No. of

Nitgen

Shares

% of

shareholding

in Nitgen

No. of

Nitgen

Shares

% of

enlarged

shareholding

in Nitgen

No. of

Nitgen

Shares

% of

enlarged

shareholding

in Nitgen

No. of

Nitgen

Shares

% of

enlarged

shareholding

in Nitgen

New Concept 7,179,925 20.28 19,444,011 40.79 25,444,011 35.94 38,119,772 34.68

SHK – – – – 17,136,230 24.20 34,837,233 31.70

Existing Bondholder (Note) – – – – – – 8,726,970 7.94

Other shareholders 28,220,391 79.72 28,220,391 59.21 28,220,391 39.86 28,220,391 25.68

Total 35,400,316 100.00 47,664,402 100.00 70,800,632 100.00 109,904,366 100.00

Note: As at the Latest Practicable Date, the Existing Bondholder did not own any Nitgen Shares and was the

holder of the Existing Bonds. The Existing Bonds are zero coupon convertible bonds in the aggregate

principal amount of US$5,500,000 due 31 July 2015 which, assuming full conversion of the Existing

Bonds at the initial conversion price of US$0.6302 under the terms and conditions of the Existing

Bonds, will be convertible into 8,726,970 Nitgen Shares.

INFORMATION ON NITGEN

Nitgen is a company incorporated in Korea whose commons shares are listed on KOSDAQ and the

Nitgen Group is principally engaged in the provision of biometric solutions. The Nitgen Group provides

biometric technology with embedded module, fingerprint scanner, PC peripheral device and fingerprint server

certification.

As at the Latest Practicable Date, Nitgen was owned as to approximately 20.28% by the Group.

- 18 -


The audited financial information of Nitgen (which were prepared in accordance with financial

accounting standards generally accepted in Korea) for the two years ended 31 December 2011 are set out

below:

For the year ended31 December 2011

For the year ended31 December 2010

KRW (million)

approximately

HK$ (million)

approximately

KRW (million)

approximately

HK$ (million)

approximately

Turnover 10,538.7 72.2 12,168.4 83.3

Profit/(Loss) before tax (2,568.7) (17.6) 1,017.8 7.0

Profit/(Loss) after tax (2,783.6) (19.1) 1,662.9 11.4

As at 30 June 2012, the Nitgen Group had unaudited net assets of approximately KRW14,783.6

million (equivalent to approximately HK$101.3 million) respectively.

THE DISPOSAL AGREEMENT

The major terms of the Disposal Agreement are set out below:

Date

5 September 2012

Parties

Vendors : (1) New Concept; and

(2) SHK, a company incorporated in the British Virgin Islands with

limited liability, and is a wholly-owned subsidiary of NOL, a

company listed on the Main Board of the Stock Exchange,

principally engaged in sale and distribution of liquefied

petroleum gas, sale and distribution of oil products and sale of

electronics parts.

Purchaser : Nitgen Eco & Energy International Limited (formerly known as Nitgen

Lighting Limited), a company incorporated in Hong Kong with limited

liability, and is principally engaged in investment holding.

The Purchaser is wholly owned by Nitgen, which as at the Latest

Practicable Date, was owned as to approximately 20.28% by the Group.

Save as disclosed above, to the best of the Directors’ knowledge,

information and belief after having made all reasonable enquires, each

of SHK and the Purchaser and their respective ultimate beneficial

owners is a third party independent of the Company and the connected

persons of the Company.

- 19 -


Assets to be disposed of

New Concept and SHK have conditionally agreed to sell, and the Purchaser has conditionally

agreed to purchase, the Sale Shares for an aggregate consideration of approximately HK$241 million.

The Sale Shares represent the entire issued share capital of Success Pillar.

Consideration

The Consideration for the Sale Shares shall be, upon completion of the Disposal, paid by the

Purchaser in cash:

(1) as to HK$84,413,000 for the AV Sale Shares to New Concept; and

(2) as to HK$156,767,000 for the NO Sale Shares to SHK.

The Consideration was arrived at after arm’s length negotiations between SHK, New Concept

and the Purchaser on normal commercial terms taking into account the benchmark net revenue of

HK$215,533,248 achieved by the Success Pillar Subsidiaries during the Market Trial Period, of which

51% was attributable to Success Pillar, being HK$109,921,956 (“Attributable Quarterly Net

Revenue”). The total consideration payable by the Purchaser for the entire issued share capital of

Success Pillar equals approximately 2.2 times the Attributable Quarterly Net Revenue.

In arriving at the consideration, the parties had regard to the quarterly trading volume of 61,650

metric tons of bunker fuel (being approximately 3% of the average quarterly sales in the whole of

Hong Kong for year 2011) and an acceptable level of gross profit (being HK$10,664,013) achieved by

the Success Pillar Subsidiaries during the Market Trial Period. The parties agree that the method of

price determination is fair and reasonable taking into account the growth potential of Success Pillar,

the limited member of bunkering service providers in Hong Kong and the growth trend of the industry.

Completion of the Disposal Agreement

Completion of the Disposal shall take place on the second Business Day after all the conditions

precedent as set out in the paragraph headed “Conditions Precedent of the Disposal Agreement” below

shall have been fulfilled or waived (if applicable) or such other date as may be agreed between the

parties to the Disposal Agreement.

Conditions Precedent of the Disposal Agreement

The Disposal shall be conditional upon the following conditions being fulfilled:

(1) NOL having complied with the shareholders’ approval requirements under the Listing

Rules with respect to the Disposal Agreement and the transactions contemplated

thereunder;

- 20 -


(2) the Company having complied with the shareholders’ approval requirements under the

Listing Rules with respect to the Disposal Agreement and the transactions contemplated

thereunder;

(3) the warranties given by SHK and New Concept under the Disposal Agreement (subject

to matters already disclosed by SHK and New Concept to the Purchaser) remaining true

and accurate in all material respects;

(4) completion of the Investment Agreement; and

(5) completion of the subscription agreement dated 5 September 2012 entered into between

Nitgen and the Purchaser in relation to the subscription of shares in the Purchaser by

Nitgen.

The conditions precedent in paragraphs (1) and (2) cannot be waived. The Purchaser may waive

in writing the condition precedent in paragraph (3) above and the Vendor together may waive in

writing the conditions precedent in paragraphs (4) and (5) above. As at the Latest Practicable Date, the

conditions precedent in paragraph (1) above has been fulfilled, the remaining conditions precedent

above had not been waived or fulfilled, and no party to the Disposal Agreement had any intention to

waive any conditions precedent to the Disposal Agreement.

INFORMATION ON SUCCESS PILLAR

Success Pillar is a company incorporated in the British Virgin Islands on 23 April 2012 and is

principally engaged in investment holding. As at the date of the Disposal Agreement, Success Pillar is owned

as to 35% by New Concept and as to 65% by SHK and Success Pillar is an associated company of the

Company.

The principal assets of Success Pillar are its 51% interests in the Success Pillar Subsidiaries. In May

2012, the Success Pillar Subsidiaries commenced marine bunkering services in Hong Kong as a spearhead

project for the NOL’s oil products business prior to commencement of operation of the Zhuhai Petroleum

Depot and chartered a marine bunkering station and three bunker ships, which all operated in the Hong Kong

Harbour. Requisite operating licenses and validation, including Dangerous Goods Carriage Permits and

Declaration of Fitness have been obtained by these vessels. It was the objective of the spearhead project to

provide business channels for the Zhuhai Petroleum Depot outside of the PRC so that, when the Zhuhai

Petroleum Depot commences operation, its efficiency can be boosted by additional trading volume brought in

from other Asian regions.

In pursuance of the object of the spearhead project, during the Market Trial Period the equipment,

supply channels and logistics arrangements of the Success Pillar Subsidiaries were tested and validated, and

efforts were made to establish a local clientele. The Success Pillar Subsidiaries formally launched their

operation on 1 August 2012 (“Launch Date”).

- 21 -


Brief financial information on Success Pillar and the Success Pillar Subsidiaries, on a consolidated

basis, for the Market Trial Period, being 1 May 2012 to 31 July 2012, and as at the Launch Date are set out

below:

Unaudited consolidatedfinancial information forthe Market Trial Period

HK$

Turnover 215,533,248

Net profit before and after tax (Note) 6,748,759

Net Profit:

attributable to non-controlling interest 3,306,892

attributable to equity owner 3,441,867

Unaudited consolidatedfinancial informationas at 1 August 2012

HK$

Total assets 125,115,528

Total liabilities 122,280,131

Net assets 5,835,397

Note: No tax provision has been made as the operation was for a short period of 3 months.

As Success Pillar and the Success Pillar Subsidiaries were established in 2012, there were no financial

information of Success Pillar and the Success Pillar Subsidiaries for the last two financial years.

Upon completion of the Disposal, save that the Group’s indirect interest in Success Pillar (through the

Group’s holding in Nitgen), the Group will cease to have any interest in Success Pillar.

REASONS FOR AND BENEFITS OF THE SECURITIES SUBSCRIPTION, THE SHARESSUBSCRIPTION AND THE DISPOSAL

The principal activities of the Group consist of the marketing and distribution of electronic

components, and the design, development and sale of electronic products.

It has been the business strategy of the Group to seek business and investment opportunities which

provide growth potential and enhance value of the Shareholders. The Securities Subscription and the Shares

Subscription, together with the acquisition of interests in Nitgen by the Group as disclosed in the

announcement of the Company dated 10 May 2012 and the disposal of 48% interest in Signeo Green Energy

- 22 -


Limited to the Purchaser, a wholly-owned subsidiary of Nitgen, as disclosed in the announcement of the

Company dated 12 July 2012, are in line with the Group’s development strategy and enhance the synergy

between Nitgen and the Group through restructuring and/or acquisitions and disposals with a view to creating

value for the Shareholders. The Directors consider that the Securities Subscription and the Shares

Subscription offer a good opportunity for the Group to tap on opportunities in and expand its business in

electronic components and electronic products. Nitgen Group is principally engaged in the provision of

biometric solutions and provides biometric technology with embedded module, fingerprint scanner, PC

peripheral device and fingerprint server certification, which requires certain electronic components of which

the Group could supply to Nitgen. By supplying electronic components to Nitgen, the Company expects to be

able to foster a steady stream of revenue in its electronic components business.

Further, Nitgen has good development prospects and potential synergy with the Group’s LED

business. The Group considers that the market acceptance and response to LED lighting and energy saving

products to be better in Korea. Accordingly, the Company intends to streamline its business, explore the

opportunities to launch, pursue restructure and/or expand its business through Nitgen, a company

incorporated and operated in Korea.

Through cooperation with Nitgen, both the Group and Nitgen may concentrate on their respective

comparative advantages, increase net efficiency, and ultimately improve the Group’s competitiveness. For

example, the Company has an established sales and distribution network in the Southeast Asia region and

while Nitgen has established businesses and presence in Korea. While each of them can continue to

strengthen such advantages, Nitgen can leverage on the Group’s established sales and distribution network in

Southeast Asia so as to expand its business in Southeast Asia; the Group can also launch or expand business

which have better market acceptance or response in Korea via Nitgen.

All the above factors are expected to offer synergy effects and complementary benefits, and provide

incentive for long-term collaboration to achieve a win-win situation for the Group and Nitgen. The

transactions will allow the Group to better enhance and strengthen its competitive advantages in the industry

and improve its profitability.

Besides, although the Nitgen Group recorded a loss before tax for the year ended 31 December 2011

and the six months ended 30 June 2012, this will not eliminate benefits deriving from the potential synergy

mentioned above. In addition, the Directors believe that the financial performance of the Nitgen Group may

be improved after the Purchaser’s acquisition of 100% interest in Success Pillar.

Assuming completion of the Investment Agreement and the Subscription Agreement, the Group’s

interest in Nitgen will increase from approximately 20.28% to approximately 35.94% of the enlarged share

capital of Nitgen immediately upon the Investment Closing (without taking into account the Conversion

Nitgen Shares to be issued under full conversion of the NCC Bonds, the SHK Bonds and the Existing

Bonds), and approximately 45.67% of the enlarged share capital of Nitgen after the Investment Closing and

upon full conversion of the NCC Bonds (assuming no conversion of the SHK Bonds and the Existing Bonds

taking place).

The Directors consider that the Disposal represents an opportunity for the Group to realise its

investment in Success Pillar. The Directors expects to recognise an unaudited gain of approximately

HK$82.37 million from the Disposal, being the difference between the consideration for the Disposal and the

- 23 -


Group’s cost of investment in Success Pillar. It is expected that the net proceeds from the Disposal will be

used for general working capital and/or future development of the Group such as acquisition of companies or

assets when opportunities arise. As at the Latest Practicable Date, the Group had not identified any

investment target. The consideration of HK$84,413,000 for the AV Sale Shares represents an excess of

approximately HK$82.37 million over approximately HK$2.04 million, being 35% of the net asset value as at

1 August 2012 of Success Pillar attributable to the Group.

When the Group agreed to invest in Success Pillar, Success Pillar has not yet actively commenced its

operation and at that time, there was no certainty on the success of the business of Success Pillar and the

Group has to bear investment risk. During the Market Trial Period, the Success Pillar Subsidiaries

commenced marine bunkering services in Hong Kong, chartered a marine bunkering station and three bunker

ships, which all operated in Hong Kong Harbour and requisite operating licenses and validation have been

obtained by these vessels. In addition, the equipment, supply channels and logistics arrangements of the

Success Pillar Subsidiaries were tested and validated, and efforts were made to establish a local clientele

during the Market Trial Period. With these efforts, the Success Pillar Subsidiaries are able to demonstrate

good financial results during the Market Trial Period and growth potential, which have been taken into

account in determining the consideration for the Sale Shares. The Company contemplated the negotiation

with the Purchaser about the Disposal in or about August 2012, after the market Trial Period. The Directors

believe that difference between the investment cost of Success Pillar of the Group and SHK and the

consideration for the Sale Shares reflect the efforts made by, and achievements of, Success Pillar and the

Success Pillar Subsidiaries during the Market Trial Period mentioned above.

Before completion of the Disposal, the Group has 35% interest in Success Pillar. Immediately after

completion of the Disposal, the Group will have 35.94% interest in Nitgen (without taking into account the

Conversion Nitgen Shares to be issued under full conversion of the NCC Bonds, the SHK Bonds and the

Existing Bonds), which will then via the Purchaser (which is 100% subsidiary of Nitgen), own 100% interest

in Success Pillar, resulting the Group having 35.94% indirect interest in Success Pillar. Given that the

Group’s interest in Success Pillar remains almost the same before and after the Disposal and the Group will

record a substantial gain from the Disposal, the Directors consider that the Disposal is in the best interest of

the Shareholders and the Company as a whole.

Each of the terms of the Investment Agreement, the Subscription Agreement and the Disposal

Agreement were determined after arm’s length negotiations between the parties thereto. The Directors are of

the view that each of the Securities Subscription, the Shares Subscription and the Disposal is on normal

commercial terms and is in the interests of the Company and that the terms of the Investment Agreement, the

Subscription Agreement and the Disposal Agreement are fair and reasonable and in the interests of the

Shareholders as a whole.

IMPLICATIONS UNDER THE LISTING RULES

Each of: (a) the Securities Subscription and the Shares Subscription, both on their own and in

aggregate with the acquisition of interests in Nitgen by the Group as disclosed in the announcement of the

Company dated 10 May 2012; and (b) the Disposal, in aggregate with the disposal of 48% interest in Signeo

Green Energy Limited to the Purchaser as disclosed in the announcement of the Company dated 12 July 2012

constitutes a major transaction for the Company under the Listing Rules and is subject to reporting and

announcement and Shareholders’ approval requirements of Chapter 14 of the Listing Rules.

- 24 -


RELAXATION OF THE REQUIREMENT TO INCLUDE AN ACCOUNTANTS’ REPORT ONNITGEN

Pursuant to Rule 14.67(6)(a)(i) of the Listing Rules, on an acquisition of any business, company or

companies, a circular issued in relation to an acquisition constituting a major transaction must contain, among

other matters, an accountants’ report on the business, company or companies being acquired in accordance

with Chapter 4 of the Listing Rules provided that, where any company in question has not or will not become

a subsidiary of the listed issuer, the Exchange may be prepared to relax this requirement. The accounts on

which the report is based must relate to a financial period ended 6 months or less before the circular is issued.

The financial information on the business, company or companies being acquired as contained in the

accountants’ report must be prepared using accounting policies which should be materially consistent with

those of the listed issuer. Further, pursuant to Rule 14.67(7) of the Listing Rules, in a circular issued in

relation to an acquisition constituting a major transaction must contain, among other matters, a management

discussion and analysis of results of the business, company or companies being acquired covering all those

matters set out in paragraph 32 of Appendix 16 to the Listing Rules for the period reported in the

accountants’ report.

The Company has applied for a relaxation to include an accountants’ report under Rule 14.67(6)(a)(i)

of the Listing Rules and a waiver from strict compliance of the management discussion and analysis of results

as referred to under Rule 14.67(7) of the Listing Rules in relation to the transactions contemplated under the

Investment Agreement and the Subscription Agreement for the following reasons:

(1) as Nitgen is not and will not be a subsidiary of the Company, the financial assets of Nitgen has

not been and will not be consolidated into that of the Company. The Group has no access to the

financial information and underlying supporting documents of Nitgen to prepare the audited

financial statements of Nitgen, save for those published by Nitgen in the public domain. The

financial information available to the Company and other shareholders of Nitgen are the same

and the Company does not have any privilege over other shareholders of Nitgen in this regard;

(2) Nitgen is a public listed company whose common shares are listed on KOSDAQ of the Korean

Exchange. Under the applicable laws of Korea, Nitgen will provide the shareholders of Nitgen

with the annual, interim and quarterly reports of Nitgen (in Korean), and financial information

of Nitgen in connection with certain transactions or other events which are required to be

disclosed under the applicable laws of Korea;

(3) the Group has requested Nitgen for the provision of the relevant financial information and

underlying supporting documents. However Nitgen was not able to provide the same on the

grounds that:

(i) based on the fact that (a) the Nitgen was not and will not become a subsidiary of the

Company; (b) the financial statement of Nitgen will not be consolidated into that of the

Group; and (c) New Concept is already an existing shareholder of Nitgen, Nitgen

considered that the publicly published financial information of Nitgen would be

sufficient for the Group, as a shareholder of Nitgen, to assess Nitgen’s financial position;

- 25 -


(ii) further, the management of Nitgen has a fiduciary duty to Nitgen to safeguard any

release or use of Nitgen’s information, and in the case of its books and underlying

financial records, the proprietary and non-public information of Nitgen. To maintain this

fiduciary duty to Nitgen, before disclosing the books and underlying financial records to

the Company (if required), the management of Nitgen would require obtaining from the

Company (and the reporting accountant) formal confidentiality undertakings not to

divulge the information to third parties or to let Nitgen to have absolute right on

disclosure. Such undertakings could not be given by the Company (and the reporting

accountant), as the information is to be used for in a circular which is published to the

public; and

(iii) the management of Nitgen consider that the request would place an undue burden on

Nitgen, incur unnecessary costs and manpower to collate and provide all the information

required for preparation of the accountants’ report, especially when Nitgen has published

its audited financial statements for the past three financial years;

(4) as Nitgen is not a subsidiary of the Company, its financial results would not be consolidated

into that of the Group, the Group’s interest in Nitgen will be accounted as an investment in an

associated company. Further, the Company has access to the financial information of Nitgen

which are published in the public domain and made available to all shareholders of Nitgen.

Nitgen is a public listed company on the Korean Exchange and, under the applicable laws of

Korea, Nitgen is required to inform its shareholders and the Financial Services Commission of

Korea and its shareholders (by way of announcements and reports which are publicly

published) on the details of matters including those which materially affect the financial

position and operations of Nitgen. In addition, the Share Subscription Price was not determined

by reference to historical financial information of Nitgen but in accordance with the

requirements under the applicable Korean laws. The Company considers that the absence of the

accountants’ report of Nitgen would not be prejudicial to the interest of the Shareholders or

constitute omission of significant information; and

(5) as there will be no such accountants’ report of Nitgen to be prepared by the Company based on

the reasons as set out above, there will be no management discussion and analysis of results of

Nitgen as referred to in Rule 14.67(7) of the Listing Rules.

In this connection, the Company agrees that this circular will include the following:

(1) the English and Chinese translations of the audited financial statements for the three years

ended 31 December 2011 and the unaudited financial statements of Nitgen for the six months

ended 30 June 2012, and extracts of the annual reports of Nitgen for the three years ended 31

December 2011 and the interim report of Nitgen for the six months ended 30 June 2012 (which

were published in Korean), which are true, accurate and complete translations of the published

Korean versions;

(2) confirmation from the Directors that, based on the confirmation by the directors of Nitgen, there

have been no material adverse changes in the financial positions or prospect of Nitgen since 30

June 2012;

- 26 -


(3) confirmation from the Directors that this circular contains sufficient information about Nitgen to

allow the Shareholders to make a properly informed decision regarding the Investment

Agreement and the Subscription Agreement;

(4) a statement on which accounting standards the accounts of Nitgen for the three years ended 31

December 2011 and the six months ended 30 June 2012 were prepared with, and whether such

accounts of Nitgen were consolidated or unconsolidated; and

(5) confirmation from the Directors that, based on the confirmation by the directors of Nitgen, the

principal business activities of Nitgen during the three financial years ended 31 December 2011

and the six months ended 30 June 2012 were substantially conducted at the company level.

The Stock Exchange granted a dispensation of the requirement under Rule 14.67(4)(a)(i) of the Listing

Rules and a waiver from strict compliance of the management discussion and analysis of results as referred to

under Rule 14.67(7) of the Listing Rules.

The English (and Chinese) translations of (1) the extracts of the annual report and auditedfinancial statements of Nitgen for the year ended 31 December 2009; (2) the extracts of the annualreport and the audited financial statements of Nitgen for the year ended 31 December 2010; (3) theextracts of the annual report and the audited financial statements of Nitgen for the year ended 31December 2011; and (4) the extracts of the interim report of Nitgen and the unaudited financialstatements of Nitgen for the six months ended 30 June 2012, which were published in Korean, are setout in Appendices IIA to IID to this circular respectively for information purpose only. The English(and Chinese) translations of the above are true, accurate and complete translations of the publishedKorean versions.

The financial statements of Nitgen for the two years ended 31 December 2010 were prepared inaccordance with Korea Generally Accepted Accounting Principles (“K-GAAP”), while the financialstatements of Nitgen for the year ended 31 December 2011 and onward were/are prepared inaccordance with Korean International Financial Reporting Standards (“K-IFRS”).

The audited financial statements of Nitgen for the year ended 31 December 2009 (as set out insection (2) of Appendix IIA to this circular) and the financial statements of Nitgen for the year ended31 December 2010 (as set out in section (2) of Appendix IIB to this circular) were prepared inaccordance with K-GAAP and such financial statements were not consolidated financial statements asbefore the amendment of Enforcement Decree of the Financial Investment Services and Capital MarketAct of the laws of Korea on June 11 2010, Nitgen was not required to report as consolidated financialstatements before the end of 2010. In addition, for the two years ended 31 December 2010, Nitgen wasnot required to prepare consolidated financial statements under K-GAAP.

The audited financial statements of Nitgen for the year ended 31 December 2011 (as set out insection (2) of Appendix IIC to this circular) were prepared in accordance with K-IFRS. Section (2) ofAppendix IIC to this circular includes the audited consolidated financial statements of Nitgen for theyear ended 31 December 2011 and the audited separate financial statements of Nitgen for the yearended 31 December 2011 of Nitgen.

- 27 -


The unaudited financial statements for the six months ended 30 June 2012 (as set out in section(2) of Appendix IID to this circular) were unaudited unconsolidated financial statements as accordingto Article 23 of (No. 20947) of the Enforcement Decree of the Act on the Capital Market and FinancialInvestment Business of the laws of Korea, even if a company has subsidiaries which are subject forconsolidation following K-IFRS by the fiscal year that begins for the first time after 1 January 2012,the quarterly and semi-term financial statements are not required to be prepared as consolidatedfinancial statements but separate financial statements. This relevant Korean law is applicable only forthe quarterly and semi-term basis and is not applicable for the annual financial statements.

Based on the confirmation by the directors of Nitgen, during the three years ended 31 December2011 and the six months ended 30 June 2012, Nitgen itself had business operations and was engaged inthe business of biometric technology with embedded module, fingerprint scanner, PC peripheral deviceand fingerprint server certification. Nitgen’s businesses during the three years ended 31 December 2011were substantially conducted at the company level and Nitgen’s businesses during the six months ended30 June 2012 were conducted at the company level only.

Based on the confirmation by the directors of Nitgen, the Directors confirm that there have beenno material adverse changes in the financial positions or prospect of Nitgen since 30 June 2012.

The Directors confirm that, having made all reasonable enquiries, that to their knowledge andbelief, this circular contains sufficient information about Nitgen to allow the Shareholders to make aproperly informed decision regarding the Investment Agreement and the Subscription Agreement.Shareholders are advised to consult professional advice if there is any doubt in reading such financialinformation of Nitgen.

EGM

The EGM will be held at 10:00 a.m. on Thursday, 6 December 2012 at 6th Floor, Enterprise Square

Three, 39 Wang Chiu Road, Kowloon Bay, Hong Kong, the notice of which is set out on pages EGM-1 to

EGM-3 of this circular, for the Shareholders to consider and, if thought fit, to approve the Securities

Subscription, the Shares Subscription and the Disposal.

In compliance with the Listing Rules, each of the resolutions to approve the Securities Subscription,

the Shares Subscription and the Disposal will be voted on by way of poll at the EGM. Any Shareholder with

a material interest in the Securities Subscription, the Shares Subscription or the Disposal and his/her/its

associates (as defined under the Listing Rules) will abstain from voting on the resolutions approving the

Securities Subscription, the Shares Subscription or the Disposal at the EGM. To the best of the Directors’

knowledge, information and belief having made all reasonable enquiry, as at the Latest Practicable Date, none

of the Shareholders and any of its associates (as defined in the Listing Rules) would be required to abstain

from voting at the EGM.

You will find enclosed a form of proxy for use at the EGM. Whether or not you are able to attend the

EGM, you are requested to complete and return the enclosed form of proxy in accordance with the

instructions printed thereon as soon as possible and in any event not less than 48 hours before the time of the

- 28 -


meeting to the office of the Company’s branch registrar in Hong Kong, Tricor Tengis Limited at 26/F,

Tesbury Centre, 28 Queen’s Road East, Wanchai, Hong Kong. Completion and return of the form of proxy

will not preclude you from attending and voting at the EGM in person should you so wish.

RECOMMENDATION

The Directors consider that the terms of the Investment Agreement, the Subscription Agreement and

the Disposal Agreement are on normal commercial terms and are fair and reasonable and in the interests of

the Shareholders as a whole and recommend the Shareholders to vote for the resolutions as set out in the

notice of the EGM.

ADDITIONAL INFORMATION

Your attention is drawn to the information set out in the appendices to this circular.

By order of the Board

AV Concept Holdings LimitedSo Yuk Kwan

Chairman

- 29 -


1. SUMMARY OF FINANCIAL RESULTS

The following is a summary of certain financial information of the audited consolidated results for the

three financial years ended 31 March 2010, 2011 and 2012 extracted from the annual reports of the Company

for the two years ended 31 March 2011 and 2012.

Year ended 31 March2012 2011 2010

HK$’000 HK$’000 HK$’000

(Restated)

Revenue 3,366,541 2,909,125 2,457,688

Profit/(Loss) before tax 5,241 121,809 50,158

Income tax (4,756) 1,254 26,859

Profit/(Loss) for the year attributable to: 485 123,063 77,017

Owners of the Company 2,416 123,601 77,017

Non-controlling interests (1,931) (538) –

As at 31 March2012 2011 2010

HK$’000 HK$’000 HK$’000

(Restated)

Non-current assets 493,237 350,334 249,884

Current assets 950,185 1,037,773 621,308

Current liabilities 750,878 702,328 482,457

Net current assets 199,307 335,445 138,851

Total assets less current liabilities 692,544 685,779 388,735

Non-current liabilities 57,852 5,607 7,658

Net assets 634,692 680,172 381,077

- I-1 -

APPENDIX I FINANCIAL INFORMATION OF THE GROUP

2. AUDITED CONSOLIDATED FINANCIAL STATEMENTS

Details of the audited consolidated financial information of the Group for each of the three years

ended 31 March 2010, 2011 and 2012 together with accompanying notes have been set out in the annual

reports of the Company for each of the three year ended 31 March 2010, 2011 and 2012 respectively, which

have been published on the website of the Stock Exchange and the Company’s website at

www.avconcept.com respectively.

3. INDEBTEDNESS

As at the close of business on 30 September 2012, being the latest practicable date for the purpose of

this indebtedness statement prior to the printing of this circular, the Group had secured bank borrowings of

approximately HK$121,590,000, unsecured bank borrowings of approximately HK$406,081,000 and had

pledged its properties with carrying value of approximately HK$166,829,000 to secure the general banking

facilities granted to the Group. Additionally, the Group had contingent liabilities in respect of guarantees

issued for banking facilities utilised by a jointly-controlled entity of approximately HK$425,816,000 as at the

close of business on 30 September 2012.

Save as aforesaid and apart from intra-group liabilities and normal trade payables, as at the close of

business on 30 September 2012, the Group did not have any debt securities issued and outstanding or agreed

to be issued, bank overdrafts, loans or other similar indebtedness, liabilities under acceptance or acceptance

credits, debentures, mortgages, charges, hire purchase or finance lease commitments, guarantees or other

material contingent liabilities.

4. WORKING CAPITAL STATEMENT

The Directors are of the opinion that, taking into account of the internal resources of the Group and

the available banking facilities, the Group will have sufficient working capital for its present requirements for

at least the next twelve months following the date of this circular.

5. MATERIAL ADVERSE CHANGE

The Directors confirm that there has been no material adverse change in the financial and trading

position of the Group since 31 March 2012, being the date on which the latest published audited financial

statements of the Company were made up.

6. EFFECT OF THE SECURITIES SUBSCRIPTION, THE SHARES SUBSCRIPTION AND THEDISPOSAL

As at 31 March 2012, the audited total assets and total liabilities of the Group amounted to

approximately HK$1,443,422,000 and HK$808,730,000 respectively.

- I-2 -


Financial effects of the Securities Subscription and the Shares Subscription

Assets

Based on the unaudited pro forma assets and liabilities statement of the Group as set out in

Appendix III to this circular, upon completion of the Securities Subscription and the Shares

Subscription, the unaudited pro forma consolidated total assets of the Group would be decreased to

approximately HK$1,442,292,000.

Liabilities


Appendix III to this circular, the Securities Subscription and the Shares Subscription are not expected

to have any impact on the liabilities of the Group.

Earnings

Since Nitgen will not be a subsidiary of the Company, the financial results of Nitgen have not

been consolidated with those of the Group and the Group’s interest in Nitgen will only be accounted

as an investment in an associated company. Save for the dividends that may be declared and

distributed by Nitgen to the Group, the Securities Subscription and the Shares Subscription are not

expected to have any significant impact on the earnings of the Group.

Financial effects of the Disposal

At the Latest Practicable Date, Success Pillar was owned as to 35% by the Group. The assets

and liabilities and the profits and loss of Success Pillar are not consolidated into the consolidated

financial statements of the Company.

Assets


Appendix III to this circular, upon completion of Disposal (which shall take place after the completion

of the Securities Subscription and the Shares Subscription), the unaudited pro forma consolidated total

assets of the Group would be increased to approximately HK$1,497,101,000.

Liabilities


Appendix III to this circular, the Disposal is not expected to have any impact on the liabilities of the

Group.

- I-3 -


Earnings

Save for the expected unaudited gain of approximately HK$82.37 million from the Disposal asmentioned in the section headed “Reasons for and benefits of the Securities Subscription, the SharesSubscription and the Disposal” in the Letter from the Board in this circular, the Disposal is notexpected to have any material effect on the earnings of the Group.

7. EVENTS AFTER 31 MARCH 2012, BEING THE DATE ON WHICH THE LATESTPUBLISHED AUDITED CONSOLIDATED ACCOUNTS OF THE GROUP WERE MADE UP

After 31 March 2012, being the date on which the latest published audited consolidated accounts ofthe Group where made up, New Concept (1) acquired 7,179,925 common shares of Nitgen, representingapproximately 20.28% of the then issued shares of Nitgen at a total consideration of KRW13 billion; and (2)subscribed for 262,500 shares of US$1 each in the share capital of Success Pillar, representing 35% of theissued share capital of Success Pillar, at an aggregate consideration of HK$2,042,250.

8. BUSINESS PROSPECTS

Trading and financial prospects of the Group

The principal activities of the Group consist of the marketing and distribution of electroniccomponents, and the design, development and sale of electronic products. As disclosed in the annualreport of the Company for the year ended 31 March 2012, for the consumer electronic productbusiness of the Group, over the years the Group has successfully established a unique differentiationfor its high definition headphones under the SOUL by Ludacris® brand through the superior soundquality with a distinctive flair for self-expression and individual style. Following penetration of newmarkets including the European Union and South Africa, the Group is striving to lay a foundation forfuture business development through a range of marketing activities to amplify the brand image andextend its reach across the international market in terms of coverage and sales. This product segment isset to be the Group’s principal growth driver in the coming years.

Regarding its semiconductor distribution business, the Group will continue to leverage itsdiversified product portfolio, established distribution network and extensive clientele to achieve steadygrowth. Noting the rising public concern about energy conservation, the Group plans to engage in thebusiness of more green and energy-saving electronic components as a way to protect the environment.

To further tap the LED industry, the Group has acquired approximately 20.28% of the issuedshares in Nitgen at a total consideration of approximately HK$88.44 million in May 2012. Nitgen hasdeveloped LED segment with good development prospects and potential synergy with the Group’sLED business. The Group is continuing to explore and evaluate business opportunities between Nitgenand its current core businesses through restructuring. The acquisition is in line with the Group’sdevelopment strategy which enables the Group to plan ahead in broadening its product range towardsdownstream products, for example, LED light bulbs, general lighting and street lamps.

By continuing to closely monitor developments in the market and technological trends, theGroup’s management team will make every effort to strongly position the Group to capture freshopportunities, paving the way for long-term growth.

- I-4 -


The following is an English (in case of Chinese version of this circular, Chinese) translation of (1) the

extracts of annual report of Nitgen and (2) the audited financial statements of Nitgen for the year ended 31

December 2009, which were published in Korean. Such financial statements were prepared in accordance

with Korea Generally Accepted Accounting Principles (“K-GAAP”). The annual report of Nitgen and the

audited financial statements of Nitgen for the year ended 31 December 2009 have been published in Korean

on the website of the Repository of Korea’s Corporate Filings (http://dart.fss.or.kr/dsab001/main.do). The

English (and Chinese) translations of the full annual report of Nitgen for the year ended 31 December 2009

are published on the website of the Company at http://www.avconcept.com. In case of any discrepancy

between the English (or Chinese) version and the Korean text, the Korean text shall prevail.

Shareholders should note that the extracts of the annual report of Nitgen and the auditedfinancial statements of Nitgen for the year ended 31 December 2009 set out below are provided forinformation purpose only and the financial statements of Nitgen for the year ended 31 December 2009were prepared in accordance with K-GAAP. Shareholders should also note that the financialstatements of Nitgen for the year ended 31 December 2009 was not consolidated financial statements asbefore the amendment of Enforcement Decree of the Financial Investment Services and Capital MarketAct of the laws of Korea on 11 June 2010, Nitgen was not required to report as consolidated financialstatements before the end of 2010. In addition, for the financial years ended 31 December 2009, Nitgenhas not required to prepare consolidated financial statements under K-GAAP. Shareholders areadvised to consult professional advice if there is any doubt in reading such financial information ofNitgen. Terms defined herein apply to this Appendix only.

(1) EXTRACTS OF THE ANNUAL REPORT OF NITGEN FOR THE YEAR ENDED 31DECEMBER 2009

Set out below are the sections headed “II. CONTENTS OF BUSINESS” and “V. MANAGEMENT

EXAMINATION AND ANALYSIS OF DIRECTORS” as extracted from the annual report of Nitgen for the

year ended 31 December 2009:

II. CONTENTS OF BUSINESS

1. SUMMARY OF BUSINESS

A. Status of business

The business field of the Company belongs is in bio-scan including finger scan, face scan, iris

scan and others in its technological classification. However, the bio-scan has diverse access security

fields as the core technology rather than a product group within. When looking under the standard of

front-line market to apply the finger scan technology as the business field of the Company, it is

classified into three access security markets in access security and attendance management, device and

system access security, identify confirmation and AFIS and others.

- IIA-1 -

APPENDIX IIA FINANCIAL INFORMATION OF NITGEN FOR THE YEAR 2009

(1) Definition of bio-scan industry

The bio-scan technology is the technology to informatize by extracting ecologic or

behavioral bio-information of an individual. Instead of existing ID, card or password, it uses the

physical characteristics in finger print, face and others to confirm the identity. This industry is

closely related to the security market and it is expected to be of great beneficiary since the

technology in security market has shifted from analog to digital. In fact, it is assured to make

great expansion of the scale for the bio-scan industry in accordance with the technology

changes in the present security market.

(2) The bio-scan industry in initial phase to grow into high-tech industry

The bio-scan industry prior to 1990s had slow advancement of the market due to lack of

technology stability and high price, but, following the advancement of the IT technology after

1990s, the price of product has declined and the sensor has become slimmed down to increase

convenience to broaden its range of application. In particular, government institutions,

industries, research institutes and general public have facilitated in diverse fields for bio-scan

tangible asset to drastically expand after the ‘September 11 Terror’. The US and other countries

have applied bio-scan technology in electronic passport, electric resident card and others for

personal identification or immigration control with the drastic growth of security market that

used the bio-scan technology around public field and the US and other governments have

established various policies to develop the bio-scan industry or adopted the bio-scan

technology.

(3) Industry with diverse access security field

As it is still in initial growth phase, diversification of products has been very active.

From the existing market of access security, attendance management, door lock, savings,

security, laptop PC, e-commerce, mobile certifications, it has expand its application field to new

markets in e-passport reader, financial security card, scanner market and others. The bio-scan

technology has applied in all fields of using password, card, authentication and ID to be

available to replace, and when introducing the bio-scan technology in existing system, there is

no separate infra to be structured that it is easy to advance to the market. It is expected to be

expanded into application fields of bio-scan technology as the advancement of technology to

accelerate and IC technology to develop.

(4) Industry with high entry barrier

The bio-scan industry has close relationship with the field that demands high level of

reliability in access security or ID confirmation that the product would not be used before

verifying it in long period of time that new entry is hard to come by. Even if a product is

developed, it requires sustained demand or training on product changes from users as well as

technology support on product that it maintains closed features with close maintenance of

relationship of manufacturing companies and intermediary distribution company.

- IIA-2 -


(5) Position of the finger scan within the bio-scan market

The field that has the largest portion within the bio-scan market is the finger scan

market. The finger scan market takes 58.9% of global market as of 2007 and it is in

overwhelming position for 91.4% in the domestic market. The finger scan technology has less

sense of refusal for users compared to any other bio-scan technology and it has the upper

position relatively for its price competitiveness and accuracy that this is an industry with fastest

growth and it has high access security for diverse fields that it is most widely used for bio-scan

methods now.

The finger scan that is most widely used in the bio-scan fields is the technology

equipped with several factors required in actual life application for security (accuracy), user

convenience, appropriate price and others that it has formed unique market scale in bio-scan

technologies. According to the global market share rate for each bio-scan technology as of 2007

on the “Biometrics Market and Industry Report 2007-2012” by IBG (International Biometrics

Group), the finger scan has 60% of market share rate from the entire bio-scan technologies.

In 2000s, after the September 11 Terror in the US, there is an explosive demand on the

security industry that it has brought another turning point for the bio-scan industry once again.

With the active movement to apply the bio-scan-based immigration management system to

detect possible terrorists and heighten the national security level, the trend is to load the bio-

scan information for personal confirmation on various ID cards, such as, passport, resident card,

driver’s license and others. In addition, the application field of bio-scan technology has been

broadened to access security, information security and attendance management and others.

B. Status of the Company

(1) Outline of business

Since 1998 when the term of bio-scan technology was unfamiliar, the Company has been

fully devoted for unyielding R&D effort with the pride in leading the domestic and global

finger scan technology for over 10 years. The Company holds the core technologies in finger

scan field, such as, sensor, algorithm, applied technology and others, and in particular, the

Company holds the original technologies on optic-method fiscal year sensor and algorithm. On

the basis of such original technologies, the Company is the only company to provide integrated

finger scan solution for access control terminal, PC peripheral device live, live scanner and

finger scan server. The Company may divide its business fields for access controller, attendance

management terminal, finger scan mouse and PC peripheral device, electronic passport and

other public use in library scanner, PC log in finger scan server solution, mass capacity and

high speed search solution and others.

The most representative field from the application fields of finger scan technology is the

access control and attendance management system. The existing method of using a key or

password has the problem of being stolen, theft, loss of memory and others, and representative

technology to supplement the existing problems would be bio-scan technology and this finger

scan technology has outstanding user convenience and economic feasibility to make one of the

- IIA-3 -


fastest growing industries. In early time of market, the emphasis was on security in research

institutes or general business with special premises but it has broadened into general business,

plant, apartment and others.

Since releasing the Finger Scan access control terminal of NAC-3000 in 2003, the

Company has released NAC-2500 in 2006, NAC-5000 of high class access controller in 2009,

Fingkey Access as the dispersion-type model in later part of 2009 to structure diverse product

line-up. In particular, in the event of Fingkey Access Plus, it is one notch higher for functions

and capabilities by reflecting the requirements of customers and market after the release of

Fingkey Access that it actively responds to the market change to make product accommodated

the requirements of diverse customers.

One of the recent spotlights in domestic and overseas markets is the live scanner used in

public fields. Together with the IC technology in electronic passport, national ID, health care

and others, the importance of personal identification has been increased with the increasing

cases of using the Finger Scan, and the Company has supplied live scanner (model name of

eNBioScan-F) for the electronic passport business of Korea in 2009, won the orders for major

domestic and overseas projects from Mexico Police Agency, Brazil Transportation

Administration and others, and has supplied Finger Scan algorithm in the pilot project of

“structure the finger print confirmation system for foreigners’ that the Ministry of Justice

promoted and scheduled to promote this project in 2010.

In the event of the finger scan scanner and mouse, it combines with the finger scan

server solution to carry out the system structuring business. In 2009, there have been many

outcomes in individual information discharge prevention system business for Customs Office,

trust system of the Supreme Court, SKT customer management system, responsible approval

system of Kookmin Bank and other large scale businesses. In 2010, the Company plans to

expand the market by coming up with the strategic partners in overseas as well as continuously

working on computer/network security solution projects for public institutions, financial

institutions, and general businesses.

(2) Market share rate and others

As the company with the second largest domestic market share rate, the Company has

orders in major projects for Army (PC security), national airport access control, SKT (internal

security), Saegeumyeon (Internal approval system) and others. In addition, the Company has

some 500 domestic customers and 25 domestic and overseas dealers to work in 48 countries

(America, Southeast Asia, China, Europe, Middle East, South America and others). In addition,

the Company is expected to grow from securing major new customers on long term basis,

advancement into new solution businesses, and participating in major national policy projects

(e-passport, token business for finger print security for PPS, finger scan Hi-pass exemption

terminal project, e-science investigation data table project for National Police Agency and

others).

- IIA-4 -


(3) Characteristics of market

j Major target market

The finger scan technology of our company is the key technology to apply in

diverse fields in access security, network security, financial payment, mobile certification

and others. Up to the present time, the Company has been focusing on physical security

field in access security, attendance management and others, and it has the plan to expand

the business into public project field for e-passport, immigration management, criminal

identification and others.

k Structure and characteristics of users

Structure and characteristics of users of our company’s products follow the

characteristics of component and SW license industry for finger scan solution, completed

product and application SW distribution industry for the finger scan system depending

on the characteristics of the product group.

l Factors to change the demand

Factors changing the demand of our company’s products can be divided into

external factors, such as the change of the bio-scan market, change of security market

and others as well as internal factors following the products and business undertaking of

the Company. The bio-scan market environment is expected to grow continuously under

price and technology. From the earlier days, there was a great consensus on needs and

efficacy of the bio-scan product but high price and immature technology have been the

obstacles. However, after 2000s, significant interest and investment have been given to

the bio-scan industry to upgrade the overall level of bio-scan technology and our

company in particular, and some other leading companies have been making great stride

for market expansion. It is expected to make even higher level of technical maturity with

the advancement of the fingerprint sensor related technology and capability improvement

of CPU as well as the improvement in finger scan algorithm. With respect to the price

aspect, the finger scan related component price has been lowered over 50% in recent

several years. In fact, the finger print sensor, one of the key hardware that composes the

core part of the finger scan solution was USD50 or more by the early times of 2000, but

it is in the range of USD15-30 and in the event of the semiconductor method of finger

print sensor applied in laptop computer, mobile phone and others have come to the

USD5 range. CPU that carries out the Finger Scan computation has been approximately

4-5 times lower compared to the same capability in the recent several years. Such

advancement in technology and price decline would lead to the market expansion and the

demand for Finger Scan solution and system products of the Company would be

influenced as well. Demand for the Finger Scan product of the Company is related to the

expansion or slow down of security market as the representative application field. The

September 11 Terror incident of the US has brought sense of alarm on security

throughout the world, including the US, and it has brought remarkable advancement of

video security and access security industry.

- IIA-5 -


(4) Contents and prospect of new business and others

Not applicable

(5) Organization Chart

Representative Director

ManagingDirector Auditor

Business Division

Development Office

Management Support Office

Advance Research

Team

SalesTeam

PlanningTeam

H/W Team S/W Team Quality Team

ProductTeam

C. Business performance of the subsidiary company

(1) Status of industry where the subsidiary company belongs

RIA (Rich Internet Application) means the technology that enables to process the plain

expression and sequential process of existing web Application technology in one interface with

affordable cost through the linkage of DB and dynamic user interface. It has been known since

Macro Media that was acquired by Adobe introduced it for the first time and Google Map of

Google has applied the Ajax technology to gain global reputation.

In Korea, RIA and X-Internet were simultaneously introduced in 2003 with the

respective strength in respective field to form different demand class for their advancement.

Their fundamental purposes are consistent in that they both are striven for rich UI (User

Interface) with the concept to overcome the limitations in existing HTLM-based web

technology but RIA has advanced with the focus on UI innovation to process several web-pages

or several phases of process in one page.

Global vendors, such as, Adobe and Microsoft, emphasize such a difference to

strengthen the marketing effort for image building as the RIA specialized vendor, but in the

domestic market, RIA and X-internet are shown for the trend to integrated into RIA or

combined to it within the frame of Web 2.0.

(2) Status of business of the subsidiary company

RIA Soft Co., Ltd. has been registered as a partner on the flex product, an Adobe

product, and has developed RIA Plus to enable to link the flex products in several fields in

2007. Sales of the Company are made in the form of development and maintenance of

- IIA-6 -


applicable system in meeting to the customer needs for officer information system, data board

and SEM portal and others by selling the flex products or provide additional service to RIA

Plus.

(3) Sales performance of the subsidiary company

(Unit: 1,000 won)

Classification2008.01 ~ 2008.12(The 5th Term)

2009.01 ~ 2009.12(The 6th term 3Q) Remark

Sales revenue 2,064,251 2,075,633 –

Operating income 145,518 77,137 –

Net income 102,791 56,767 –

2. MAJOR PRODUCTS, RAW MATERIALS AND OTHERS

A. Status of major products and others

(Unit: million, %)

Business fields Sales type ItemDetailed accesssecurity Major trademark

Sales revenue(ratio)

Enpia Business

Department

Service Added

communication

Cyber trading network

for securities

company

SecurePack and 2

types

311

(4.1%)

Product/

merchandise

Solution Enpia S series Enpia S-series –

Nitgen Business

Department

Product Access controller Access controller NAC-2500/3000 6,570

(86.1%)

Merchandise Door lock Door lock NDL-100/600 749

(9.8%)

Total 7,630

(100.0%)

B. Trend of price change for major products and others

The major causes of price change would be the influence of price decline, exchange rate change

and model MIX.

- IIA-7 -


C. Status of major raw materials and others

(Unit: Won, %)

Businessfield

Type ofpurchase Item Concrete use

Purchaseamount Ratio Remark

Nitgen Raw materials AC parts Parts for access controller 804,145,364 42.86 –

Raw materials ENBIO parts Parts for ENBIO SCAN 239,543,376 12.77 –

Raw materials FIM parts Parts for processing board 186,257,001 9.94 –

Raw materials HAM parts Hamster related parts 355,394,815 18.94 –

Raw materials OP parts Optic module parts 290,671,857 15.49 –

Total raw materials 1,876,012,413 100.00 –

Enpia It currently uses the server of Compaq and HP but the sales scale to use the server as the raw material is

not significant from the entire sales scale and the absolute volume of raw material is negligible that it is

deleted hereof.

D. Trend of price change of main raw materials

(Unit: won)

Item The 26th Term The 25th Term The 24th Term

AC parts 335.5 348.2 –

ENBIO parts 947.5 840.4 –

FIM parts 568.4 978.9 –

HAM parts 166.3 159.3 –

OP parts 110.7 112.8 –

Total 242.4 238.9 –

- IIA-8 -


3. MATTERS ON PRODUCTION AND FACILITIES

A. Basis of production capability and calculation for production capability

(1) Production capability

(Unit: Time)

Business field ItemBusinessoffice

The 26thTerm

The 25thTerm

The 24thTerm

Productionstandard

hours

Nitgen Hamster Guro Plant 37,826 – – 2.3

NAC-3000 Guro Plant 1,257 – – 20.76

NAC-2500 Guro Plant 3,166 – – 18.8

NAC-5000 Guro Plant – –

SW101 Guro Plant 1,056 – – 26.6

eNBioScan Guro Plant 4,072 – – 25.8

Mouse(OEM) Guro Plant – –

Optic Module Ass’y Guro Plant 28,997 – – 3.53

FIM PCB Ass’y Guro Plant 10,374 1.55

Total 86,748

ø Merger was made in November 2008 that the 25th term and the 24th term prior to the merger

are not recorded.

(2) Basis of calculating the production capability

j Calculation standard

No. of working days: 254 days

Working hours: 8 hours/day

Working personnel: 5.5 persons (6 persons in the first half and 5 persons in the

second half)

Production available hours: 11,152 hours

- IIA-9 -


k Calculation method: Divide the production available hour into production MH

share rate for each product

(Unit: hour, %)

Business field Item Business office Hours Share rate

Nitgen Hamster Guro Plant 1,450 13%

NAC-3000 Guro Plant 435 4%

NAC-2500 Guro Plant 992 9%

NAC-5000 Guro Plant

SW101 Guro Plant 468 4%

eNBioScan Guro Plant 1,751 16%

Mouse(OEM) Guro Plant

Optic Module Ass’y Guro Plant 1,706 15%

FIM PCB Ass’y Guro Plant 268 2%

Packing and shipment

management

Guro Plant 1,171 11%

Irregular (design error

and re-inspection)

Guro Plant 1,952 18%

Others Guro Plant 959 9%

Total 11,152 100%

B. Production performance and operation rate

(1) Production performance

(Unit: hour)

Businessfield Item Business office

The 26thTerm

The 25thTerm

The 24thTerm

Nitgen Hamster Guro Plant 33,004

NAC-3000 Guro Plant 858

NAC-2500 Guro Plant 3,328

NAC-5000 Guro Plant –

SW101 Guro Plant 840

eNBioScan Guro Plant 3,742

Mouse(OEM) Guro Plant –

Optic Module Ass’y Guro Plant 33,978

FIM PCB Ass’y Guro Plant 10,266

Packing and shipment

management

Guro Plant

Total 86,016 – –

- IIA-10 -


ø Merger was made in November 2008 that the 25th term and the 24th term prior to the merger

are not recorded.

(2) Applicable operation rate

(Unit: hour, %)

Business office Item

Applicableoperation

hours

Realoperation

hours

Averageoperation

rate

Guro Plant Hamster 1,450 1,458 101%

Guro Plant NAC-3000 435 436 100%

Guro Plant NAC-2500 992 998 101%

Guro Plant NAC-5000 – –

Guro Plant SW101 468 471 101%

Guro Plant eNBioScan 1,751 1,768 101%

Guro Plant Mouse(OEM) – –

Guro Plant Optic Module Ass’y 1,706 1,725 101%

Guro Plant FIM PCB Ass’y 268 267 100%

Guro Plant Packing and shipment

management

1,171 1,186 101%

Guro Plant Irregular (design error

and re-inspection)

1,952 1,969 101%

Guro Plant Others 959 968 101%

Total 11,152 11,246 101%

- IIA-11 -


C. Status of production facilities and others

(1) Status of production facilities

(Unit: 1,000 won)

Business

premises

Ownership

type Location Classification

Beginning

book value

Applicable change

Depreciation

Ending

book

value RemarkIncrease Decrease

Head office

and plant

Independent

ownership

(registry)

Nonhyeon-

dong, Guro

Land 327,688 327,688 –

Building 618,415 19,856 598,559 –

Facilities 87,662 27,600 63,258 52,004

Vehicle transport 148,103 62,138 83,142 127,099

Tools and

equipment

22,985 1,800 11,110 13,675

Fixture 336,765 9,775 147,146 96,210 103,184

Mold 194,958 32,160 90,344 136,774

Computer

equipment

216,600 99,246 117,354

Total 1,953,176 133,473 147,146 463,166 1,476,337 –

ø The book value is the standard of the cost of acquisition.

ø The unit is in million won and below it is rounded off. (Possible to have the difference of single

unit).

(2) New establishment, purchase plan and others of facilities

(A) On-going investment

There is no applicable matter to this present time.

(B) Future investment plan


- IIA-12 -


4. MATTERS ON SALES

A. Sales performance

(Unit: million won)

Business field Sales type ItemThe 26th

TermThe 25th

TermThe 24th

Term

Enpia/Nitgen Enpia service Added service Export – – –

Domestic demand 311 2,725 3,273

Total 311 2,725 3,273

Enpia product S-series iBOS Export – – –

Domestic demand – 38 247

Total – 38 247

Merchandise Export – – –


Total – 5 146

Nitgen product Export 5,035 802

Domestic demand 1,535 60

Total 6,570 862

Nitgen

merchandise

Export 4 –

Domestic demand 745 6

Total 749 6

Total Export 5,039 802 –

Domestic demand 2,591 2,834 3,666

Total 7,630 3,636 3,666

B. Sales route and sales method

(1) Sales organization

– Enpia Business Department

Direct sales by Sales Marketing Division and indirect sales through distributors of

the Company.

- IIA-13 -


– Nitgen Business Department

(i) Domestic business

The finger scan system part of the Company structures the access security

system and attendance management system for customers in the domestic market

through bidding of public institutions and sales on agencies. And, the finger scan

solution part focuses in providing the optimal products to customers by

developing various finger scan applied products.

(ii) Overseas business

This is the sales organization exclusively in charge of overseas sales of

diverse products of the Company with finger scan terminal (NAC-2500, NAC-

3000, NAC 5000, SW 101, and others), to establish the competitive strategy in

overseas markets through survey and analysis on overseas market and competing

companies and provides the optimal finger scan solution for structuring access

security and attendance management system for customers in respective regions

around the world through overseas distribution network structure and overseas

agency.

(2) Sales routes

– Enpia Business Department

Place of sales:

1. Domestic sales by distributor


Place of sales:

1. Domestic – Bidding on public institutions/agency and direct sales

2. Overseas – Agency and direct sales (indirect sales through overseas

agency)

(3) Sales method and conditions

(A) Enpia Business Department

With the differentials in official price of the Company, sales price of distributor,

and actual sales price of locality for final consumers, it is set to generate margin for

distributor.

- IIA-14 -


(B) Nitgen Business Department

Domestic sales condition is to transact for advance payment or trade payable in

accordance with credibility and contract conditions of the sales place. The sales proceeds

are paid by cash (deposit to account) or electronic note (purchase card) and the period

possible to cash after the supply is approximately 0-3 months (0-90 days).

Sales condition of export is mainly in T/T transaction along with the credit card

payment through Korea Exchange Bank. The sales proceed is mostly paid in advance

and, in the event of certain customers, it may have proceeds recovery period of

0-2 months (0-60 days) depending on the transaction conditions.

(4) Sales strategy

The sales strategy of the Company is shown as follows.

– Stability of product quality and customer satisfaction with the priority

– Strengthening of sales activities mainly for new products and high value-added

products

– Timely development and supply of new products

– Undertaking intense advancement for major customers and diversification of

transacted items

5. ORDER SITUATION


The Company has the business structure to generate sales within one month after the order for

customer. Therefore, the status of order of the Company is very short for the period from ordering and

selling that status of order is difficult to record.

6. MATTERS ON DERIVATIVE PRODUCTS

A. Status of execution for derivative product contract

Not applicable

B. Matter on risk management

Not applicable

- IIA-15 -


7. MAIN CONTRACT OF MANAGEMENT

Not applicable

8. R&D ACTIVITIES

A. Summary of R&D activities

The research institute of the Company is consisted of the Technology Development Team and

the Product Development Team and each team is undertaking following R&D projects.

Classification R&D projects

Technology Development

Team

Development of core algorithm for Finger Scan

Development of Finger Scan PC solution

Development of Finger Scan server solution

Development of mobile Finger Scan solution

Development of Finger Scan capability evaluation

technology

Product Development Team Development of access security and attendance management

system application SW

Development of access security and attendance management

system terminal SW

Development of embedded Finger Scan module palm-ware

Development of live scanner application SW

Development of Finger Scan live scanner

Development of application SW for electronic passport

Development of device for electronic passport

- IIA-16 -


B. Performance of major R&D

Project name Development period Contents of major developments

Development of high class

access controller

November 2007 ~ On

going

Development of highest class finger scan access control

system

Application of 5’7” color LCD and touch screen

Integrated terminal by diverse UI realizations

Development of Access

Manager pro.

February 2008 ~ On

going

Server solution for access control terminal management

Integrated management function for up to 2,000 units of

terminal from single network

DEVELOPMENT of

eNFAS v 2.0 (finger

scan server)

July 2008 ~ December

2008

Upgrade and stabilization of existing eNFAS v 1.0

function

Strengthening of simultaneous processing disposition of

certified server

Certified server stabilization

Development of eNDeSS

Enterprise v 1.20

March 2008 ~ May

2008

Providing eNDeSS Enterprise function upgrade and

admin. Tool

Development of BioAPI v

2.0 Framework

July 2007 ~ April 2008 Development of framework that satisfies the ISO

standard, BioAPI v 2.0

Development of optic

sensor possible for fake

finger print

identification (OPP06)

December 2007 ~

February 2009

Development of optic finger scan sensor structures false

finger print identifying function in single type

Development of RF

module

May 2008 ~ December

2008

Development of Mifare Card Reader Module applied on

the access controller

Available for cost savings by independent development

for ones depended on existing outsourcing

9. OTHER MATTERS REQUIRED IN DETERMINING INVESTMENT

A. Summarized chart for external fund procurement

(Domestic procurement)

Not applicable

(Overseas procurement)

Not applicable

B. Credit rating in recent 3 years

Not applicable

C. Other important matters

Not applicable

- IIA-17 -


V. MANAGEMENT EXAMINATION AND ANALYSIS OF DIRECTORS

1. CAUTION ON FORECASTING INFORMATION

Activities, incidents or phenomenon that the Company anticipated or forecasted to occur in future

under this business report have reflected the opinion of the Company on the incident and financial outcome

of the time of preparing the applicable notice documents. This forecasting information is based on various

assumptions related to the future business environment and these hypotheses may be determined as inaccurate

consequently. In addition, these hypotheses include risk, uncertainty and other factors that may inflict

important difference between the expected figure and actual result. For the factor that may be resulted in such

an important difference, the factors on external environment and factors related to internal management of the

Company. In order to reflect the risk or uncertainty issues after the time of preparing the same forecasting

information, it has not obligation to notify the corrected report for the matters recorded on the forecasting

information. Consequently, the same business report does not provide the assurance that it has the influence

that the Company initially expected or realizes the matter or result that the Company expected. The

forecasting information recorded on the same report is prepared on the basis of preparing this report and it

should be recognized that the Company does not plan to update the risk factor or forecasting information.

2. SUMMARY OF MANAGEMENT EXAMINATION

The board of directors of Nitgen&Company Co., Ltd. has implemented the management examination

on accounting and works of the 26th fiscal year from 1 January 2009 to 31 December 2009 to submit the

opinion examined as follows. In order to find out general matters on the management of the Company, books

and relevant document are displayed and close review is made on financial statements and same incidental

statement.

The report on documents recognized as required for the management examination has been reported

and the document on important works are disclosed as reviewed closely for its contents in appropriate method

to find out the contents on the management of the Company.

- IIA-18 -


3. FINANCIAL CONDITION AND BUSINESS PERFORMANCE

(1) Business performance

The business performance of the two recent fiscal years of the Company is shown as follows.

(Unit: won)

Category The 26th Term The 25th Term The 24th Term

I. SALES REVENUE 7,630,118,573 3,636,861,354 3,665,980,532

II. COST OF SALES 4,490,660,695 3,672,889,764 3,390,120,968

III. GROSS INCOME (LOSS)

FROM SALES 3,139,457,878 (36,028,410) 275,859,564

IV. SELLING AND

ADMINISTRATIVE

EXPENSES 6,148,096,639 6,548,709,514 4,557,715,386

V. OPERATING LOSS (3,008,638,761) (6,584,737,924) 4,281,855,822

VI. NON-OPERATING

INCOME 2,094,503,006 2,076,284,182 1,147,524,805

VII. NON-OPERATING

EXPENSES 2,872,093,455 5,797,749,037 28,490,415,355

VIII. NET INCOME (LOSS)

BEFORE DEDUCTING

THE INCOME TAX

EXPENSES (3,786,229,210) (10,306,202,779) (31,624,746,372)

IX. INCOME TAX EXPENSES 0 0 0

X. NET INCOME (LOSS) (3,786,229,210) (10,306,202,779) (31,624,746,372)

XI. INCOME (LOSS) PER

STOCK (107) (629) (948)

The sales amount of the Company in 2009 was 7,630,118,573 won with the business loss of

3,008,638,761 won and the net loss of 3,786,229,210 won. This is attributable to the sales revenue

growing 109% compared to the previous year, and for the operating income and net income, it had the

income improvement effect of 54% and 63%, respectively.

For the detailed contents related to other business status, domestic business had 2.28 billion

won, overseas business for 5.08 billion won and others for 0.27 billion won, and the ratio of sales for

home and abroad is 33% and 67%, respectively.

Domestic sales are mainly held for the orders of electronic passport, customs office, Supreme

Court and other public institutions, and for overseas sales, sales increase has been conspicuous for

access controller and Finger Scan live scanner.

- IIA-19 -


(2) Financial condition

Financial condition of the recent 3 fiscal years of the Company is shown as follows.

(Unit: won)


I. Current Assets 12,194,070,059 14,279,735,295 2,671,072,722

1. Quick assets 10,713,365,620 12,025,128,668 2,658,339,322

2. Inventories 1,480,704,439 2,254,606,627 12,733,400

II. Non-current Assets 7,399,056,527 10,671,256,018 7,243,111,190

1. Investment assets 4,384,507,227 3,617,638,625 5,627,979,896

2. Tangible assets 1,450,767,236 1,917,883,711 946,655,568

3. Intangible assets 710,346,064 431,765,812 114,724,804

4. Other non-current assets 853,436,000 4,703,967,870 553,750,922

Total Assets 19,593,126,586 24,950,991,313 9,914,183,912

I. Current Liabilities 866,765,889 2,198,889,061 405,241,196

II. Non-current Liabilities 616,226,502 855,738,847 267,777,810

Total Liabilities 1,482,992,391 3,054,627,908 673,019,006

I. Equity Capital 17,700,158,000 17,700,158,000 20,523,435,500

II. Capital Surplus 8,680,935,738 25,408,823,981 27,186,788,961

III. Capital Adjustment (4,484,730,333) (4,484,730,333) (4,860,585,130)

IV. Deficit amount (3,786,229,210) (16,727,888,243) 33,608,474,425

Total Capital 18,110,134,195 21,896,363,405 9,241,164,906

Total Liabilities and Capital 19,593,126,586 24,950,991,313 9,914,183,912

Asset is 19,593 million won, a decrease of 27% compared to the previous fiscal year and the

total of liabilities is 1,482 million won, a decrease of 48%.

4. LIQUIDITY AND FUND EXPENDITURE AND PROCUREMENT

The currency rate of the Company is 1,046.0%, an increase of 748.4% compared to the previous year,

and unless otherwise having a special situation, the current liquidity is determined as having no problem, and

the liabilities ratio is managed for less than 10% with the full commitment for maintaining the financial

soundness for later.

- IIA-20 -


(2) AUDITED FINANCIAL STATEMENTS OF NITGEN FOR THE YEAR ENDED 31DECEMBER 2009

Independent Auditors’ Report

8 March 2010

To the Board of directors and Shareholders of Nitgen&Company Co., Ltd.

We have audited the accompanying financial statements of Nitgen&Company Co., Ltd.

(collectively referred to as the “Company”), which comprise the statements of financial position as of

31 December 2009 and 31 December 2008, the statements of income, disposition of deficits, changes

in equity and cash flow for the years ended 31 December 2009 and 2008. These financial statements

are the responsibility of the Company’s management. Our responsibility is to express an opinion on

these financial statements based on our audit.

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 audit to obtain reasonable

assurance about whether the 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 statement presentation. We believe

that our audits provide a reasonable basis for our opinion.

In our opinion, based on our audits, the financial statements referred to above present fairly, in

all material respects, the financial position of Nitgen&Company Co., Ltd. as of 31 December 2009 and

31 December 2008 and of their financial performance and deficits, changes in equity and their cash

flows for the years ended 31 December 2009 and 2008, in accordance with auditing standards

generally accepted in the Republic of Korea.

In the matters which does not affect the audit opinion, as shown and described in Note 1 to the

financial statements, the largest shareholder of the company were changed from SAMO Co., Ltd. to

Shinsung Construction Co., Ltd. and 1 other (MK Electron Co., Ltd.) in the current term.

Yeouido-dong 14-11, Yeongdeungpo-gu, Seoul

Induk Accounting Corporation

CEO Park Jong Beom

This report is effective as of 8 March 2010, 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 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.

- IIA-21 -


FINANCIAL STATEMENTS

Statement of Financial Position (Balance Sheet)

The 26th Term As of 31 December 2009

The 25th Term As of 31 December 2008

(Unit: won)

Category Note The 26th Term The 25th Term

Assets

Current assets 12,194,070,059 14,279,735,295

Quick assets 10,713,365,620 12,025,128,668

Cash and cash equivalent assets 3,16 6,330,747,411 4,274,688,713

Short-term financial product 3 2,459,967,183

Short-term loans 4,15 2,873,700,000 1,883,000,000

allowance for doubtful accounts (791,037,000) (329,580,000)

Trade receivable 16 2,816,879,070 2,924,830,949


Accrued amount 51,015,281 213,327,140

allowance for doubtful accounts (470,549) (1,432,557)

Accrued income 15 110,066,001 86,440,835


Advance payment 147,573,753 241,494,914

allowance for doubtful accounts (100,616,031)

Pre-paid expense 5,999,480 57,040,472

Pre-paid tax 51,401,780 37,424,127

Short-term credit to shareholders,

officers and employees 1,220,000,000

Doubtful accounts reserve (1,220,000)

Inventories 8 1,480,704,439 2,254,606,627

Product 474,842,614 804,298,727

Evaluation reserve (103,765,695) (57,990,075)

Raw materials 1,864,853,752 2,041,100,125

Evaluation reserve (755,226,232) (532,802,150)

Non-current assets 7,399,056,527 10,671,256,018

Investment assets 4,384,507,227 3,617,638,625

Long-term financial product 3 10,000,000

Available-for-sale securities 5 557,812,210 607,638,625

Maturity-held securities 5 17,676,220

Equity method applying

investment stocks 6 3,809,018,797 3,000,000,000

- IIA-22 -


(Unit: won)


Tangible asset 7,8 1,450,767,236 1,917,883,711

Land 327,687,780 327,687,780

Building 794,244,650 794,244,650

Cumulative depreciation amount (195,685,556) (175,829,440)

Machine and equipment 196,250,000 196,250,000


Facilities equipment 157,955,352 130,355,352


Vehicle transportation 357,820,252 295,682,612


Tools and equipment 445,327,541 443,527,541


National subsidy (2,970,649) (4,969,533)

Fixture 2,090,524,936 2,411,380,273

Cumulative depreciation amount (1,987,341,864) (2,074,615,221)


Metal mold 682,502,500 650,342,500


Computer device 3,923,521,337 3,923,521,337

Cumulative depreciation amount (3,806,167,214) (3,706,921,670)

Intangible assets 10 710,346,064 431,765,812

Development cost 658,823,954 343,975,709

National subsidy (565,800) (1,376,078)

Intellectual property rights 48,764,885 70,567,190

Computer SW 2,278,549 7,961,933

Other intangible assets 3,665,390 22,608,190


Other Non-current Assets 853,436,000 4,703,967,870

Security deposit 403,436,000 4,271,215,574

Long-term accrued amount 216,468,440 216,468,440

Doubtful accounts reserve (184,916,980) (2,164,684)

Present value discount differential (31,551,460) (31,551,460)

Illegal activity accrued 19 28,730,721,904

Doubtful accounts reserve (28,730,721,904)

Long-term advance payment 15 450,000,000 250,000,000

- IIA-23 -


(Unit: won)


Total Assets 19,593,126,586 24,950,991,313

Liabilities

Current liabilities 866,765,889 2,198,889,061

Trade payables 570,072,137 264,232,559

Short-term borrowings 1,320,000,000

Other accounts payables 181,764,082 320,594,341

Advance from customers 5,554,158 66,982,736

Withholdings 13,639,894 90,247,188

Unearned income 2,229,420

Accrued expense 62,906,198 53,512,237

Current long-term liabilities 83,320,000

Current long-term account payables 30,600,000

Non-current Liabilities 616,226,502 855,738,847

Long-term borrowings 145,810,000

Long-term account payables 16,200,000 36,900,000

Security deposit on withholdings 528,000 528,000

Retirement wage appropriated

liabilities 2 600,709,071 673,711,416

Retirement insurance deposit (1,210,569) (1,210,569)

Total Liabilities 1,482,992,391 3,054,627,908

Capital 1,11

Capital equity 17,700,158,000 17,700,158,000

Capital equity for common stocks 11 17,700,158,000 17,700,158,000

Capital surplus 8,680,935,738 25,408,823,981

Exceeded amount in stock issuance 1,379,564,073 1,379,564,073

Gain on capital decrease 7,301,371,665 23,551,737,000

Consideration for conversion right 211,141,187

Other capital surplus 266,381,721

Capital Adjustment (4,484,730,333) (4,484,730,333)

Loss on disposition of equity stock (4,484,730,333) (4,484,730,333)

Accumulated Amount of Other

Comprehensive Income

Retained earnings (deficit) 11 (3,786,229,210) (16,727,888,243)

Un-disposed retained earnings

(un-disposed deficit) (3,786,229,210) (16,727,888,243)

Total Capital 18,110,134,195 21,896,363,405

Total Capital and Liabilities 19,593,126,586 24,950,991,313

- IIA-24 -


Statement of Income

The 26th Term: From 1 January 2009 to 31 December 2009


(Unit: won)


Sales Revenue 7,630,118,573 3,636,861,354

Sales revenue for product 6,569,858,834 900,757,831

Sales revenue for merchandise 748,995,491 10,266,845

Sales revenue for service 311,264,248 2,725,836,678

Cost of Sales 4,490,660,695 3,672,889,764

Cost of sales for product 3,623,911,767 968,952,507

Beginning product inventory 746,308,652

Replace from another account 889,523,322

Cost of manufacturing for current

product 3,268,453,344 854,778,327

Replace to another account (19,773,310) (29,040,490)

Ending product inventory (371,076,919) (746,308,652)

Cost of sales for merchandise 725,713,045 27,420,000

Beginning merchandise inventory

Current merchandise purchase amount 725,713,045 27,420,000

Ending merchandise inventory

Cost of sales for service 141,035,883 2,676,517,257

Gross Sales Income (loss) 3,139,457,878 (36,028,410)

Selling and Administrative Expenses 20 6,148,096,639 6,548,709,514

Wage 1,156,080,599 1,360,595,081

Retirement wage 191,024,045 554,698,745

Stock compensation expense 89,096,027

Welfare 342,255,734 330,057,087

Travel and transport 91,001,154 158,506,638

Entertainment 139,740,654 154,526,596

Communication 41,450,368 41,750,085

Water and heating 3,155,630 89,134,489

Taxes and dues 181,523,019 151,454,493

Depreciation 7 440,729,673 238,881,493

Depreciation for intangible assets 10 422,867,727 95,115,872

Ordinary development cost 10 491,428,989 55,617,060

Lease payment 481,833,459 335,617,998

Insurance premium 53,284,318 98,526,150

Vehicle maintenance 44,569,565 79,808,381

Transportation 104,595,617 19,833,047

Printing and books 6,199,275 29,006,628

Expandable goods 15,913,756 21,618,019

Payment fees 1,460,958,103 2,562,045,902

- IIA-25 -


(Unit: won)


Advertisement 111,684,288 32,211,495

Doubtful accounts depreciation 308,793,986 25,088,535

Education and training 1,557,837 3,886,000

Repairing 70,447 535,000

Event 55,667,941 13,030,720

External stipulation 8,067,973

Miscellaneous expenses 1,710,455

Operating Income (Loss) (3,008,638,761) (6,584,737,924)

Non-operating Income 2,094,503,006 2,076,284,182

Interest income 5 404,800,225 330,370,177

Gain on foreign currency transaction 214,106,344 730,324

Gain on foreign currency translation 1,929,067

Transfer on allowance for

doubtful accounts 273,394,168 122,822,785

Gain on disposition of tangible assets 21,963,307

Gain on disposition of short-term

trade securities 1,108,548,000

License income 7,841,637 1,521,994,594

Gain on correcting the error of

the previous term 12,152,949

Miscellaneous income 71,730,616 78,402,995

Non-operating Expenses 2,872,093,455 5,797,749,037

Interest expense 106,118,512 185,974,699

Loss on foreign currency transaction 271,705,008 41,119,433

Loss on foreign currency translation 67,810,097 183,876,435

Other doubtful accounts depreciation 4 548,900,000 4,178,522,001

Loss on disposition of

available-for-sale securities 65,690,322 637,531,660

Loss on disposition of tangible assets 75,637,785 23,925,195

Loss on equity approach 5 508,234,508 359,163,655

Loss on damage in equity approach

application investment stock 6 1,137,148,375

Bond redemption loss 7 150,579,406

Miscellaneous loss 90,848,848 37,056,553

Net Gain (Loss) before Deducting Income

Tax Expenses (3,786,229,210) (10,306,202,779)

Income tax Expense 13

Current Net Income (Loss) (3,786,229,210) (10,306,202,779)

Earnings per share 14

Basic earnings (loss) per share 107 629

- IIA-26 -


Statement of Disposition on Retained Earnings/Statement of Disposition of Deficits

The 26th Term: From 1 January 2009 to 31 December 2009 (Disposition Finalization Date: 29 March

2010)

The 25th Term: From 1 January 2008 to 31 December 2008 (Disposition Finalization Date: 29 March

2009)

(Unit: won)

Category The 26th Term The 25th Term

Un-disposed Retained Earnings (Un-disposed Deficit) (3,786,229,210) (16,727,888,243)

Un-disposed Retained Earnings Carried Forward

from the Previous Term (Un-disposed Deficit) (6,421,685,464)

Current Net Income (Loss) (3,786,229,210) (10,306,202,779)

Loss Disposition Amount 3,786,229,210 16,727,888,243

Capital reduction gain transfer amount 3,786,229,210 16,250,365,335

Conversion right consideration transfer amount 211,141,187

Capital surplus transfer amount 266,381,721

Un-disposed Retained Earnings Carried Forward to

Next Term (Un-disposed Deficit)

- IIA-27 -


Statement of changes in equity


(Unit: won)

Classification Capital equity Capital surplusCapital

adjustment

Accumulatedamount of othercomprehensive

incomeRetainedearning Total

1 January 2009 (Early

of the current term) 17,700,158,000 25,408,823,981 (4,484,730,333) (16,727,888,243) 21,896,363,405

Conservation of deficit (16,727,888,243) 16,727,888,243 0

Current net gain (loss) 247,629,731 247,629,731

31 December 2009

(End of the current

term) 17,700,158,000 8,680,935,738 (4,484,730,333) 247,629,731 22,143,993,136

- IIA-28 -


Statement of cash flow



(Unit: won)


Cash flow from Operating activity (774,793,970) (8,217,873,980)

Current net income (loss) (3,786,229,210) (10,306,202,779)

Addition of expense and others without cash

inflow 3,916,350,931 6,906,368,603

Depreciation of the present value discount

differential 85,294,082

Depreciation expense 497,700,993 500,657,506

Intangible asset depreciation expense 422,867,727 95,115,872

Retirement wage 290,877,415 578,303,112

Doubtful accounts depreciation expense 308,793,986 25,088,535

Other doubtful accounts depreciation expense 548,900,000 4,179,620,001

Loss on foreign currency translation 60,499,820 181,993,552

Loss on disposition of available-for-sale

securities 637,531,660

Loss on equity approach 508,234,508 359,163,655

Loss on damage of the equity approach

application investment stock 1,137,148,375

Loss on damage to available-for-sale securities 65,690,322

Loss on disposition of tangible assets 75,637,785 23,925,195

Loss on bond repayment 150,579,406

Stock compensation expense 89,096,027

Reduction of income and others without cash

inflow (1,383,728,628) (37,251,646)

Gain on foreign currency conversion 1,786,460

Doubtful accounts reserve transfer 273,394,168

Gain on disposition of short-term trade

securities 1,108,548,000

Gain on disposition of tangible assets 21,983,272

Depreciation of present value discount differential

(interest income) 15,268,374

Modification of assets and liabilities from the

business activities 478,812,937 (4,780,788,158)

Increase (decrease) of withholding deposit

Decrease (Increase) of trade receivable 49,238,519 (314,936,427)

Decrease (Increase) of work receivables 162,311,859 (4,032,672,698)

Decrease (Increase) of receivables (23,625,166) (4,640,514)

Decrease (Increase) of accrued income (6,694,870) (111,590,034)

Decrease (Increase) of advance payment 51,040,992 117,975,336

- IIA-29 -


(Unit: won)


Decrease (Increase) of pre-paid expenses (13,977,653) 11,196,781

Decrease (Increase) of inventories 773,902,188 802,563,023

Increase of long-term receivables (200,000,000)

Decrease (Increase) of long-term advance

payments (250,000,000)

Increase (Decrease) of account payables 305,839,578 99,570,313

Increase (Decrease) of other account payables (128,930,259) (278,513,691)

Increase (Decrease) of advance from customers (61,428,578) 64,923,043

Increase (Decrease) of withholdings (76,607,294) 52,469,413

Increase (Decrease) of unearned income 2,229,420

Increase (Decrease) of work pre-payment 9,393,961 (113,473,324)

Increase (Decrease) of long-term account

payables (119,126,152)

Payment of retirement allowance (363,879,760) (685,401,914)

Decrease (Increase) of retirement insurance

deposit (67,683)

Cash flow amount from investment activities 4,379,982,668 (9,634,085,198)

Cash inflow amount from investment activities 17,548,869,757 12,928,382,072

Reduction of short-term financial product 2,459,967,183 2,551,325,965

Decrease of short-term loans 6,170,000,000 6,417,870,000

Decrease of shareholders, officers and

employees 1,220,000,000 8,092,390

Decrease of long-term financial product 34,500,000

Disposition of available-for-sale securities 2,212,150,000

Disposition of fixture 27,250,000 54,505,143

Disposition of computer equipment 154,545

Decrease of security deposit 3,930,544,574 1,502,937,426

Disposition of short-term trade securities 3,706,608,000

Increase of cash and cash equivalent from

merger 181,346,603

Cash outflow from investment activities (13,168,887,089) (22,562,467,270)

Increase of short-term financial product 4,494,414,641

Increase of short-term loans 7,160,700,000 7,701,098,000

Increase of short-term credit for shareholders,

officers and employees 1,220,000,000

Acquisition of short-term trade securities 2,598,060,000

Acquisition of long-term financial product 24,500,000

Acquisition of available-for-sale securities 15,863,907 849,691,660

Acquisition of maturity-held securities 17,676,220

Acquisition of equity approach application

investment stocks 2,454,401,680 3,000,000,000

Acquisition of facility assets 27,600,000 70,838,188

- IIA-30 -


(Unit: won)


Acquisition of vehicle transportation equipment 62,137,640 35,033,078

Acquisition of tools and equipment 1,800,000

Acquisition of fixture 9,774,663 96,537,036

Acquisition of metal mold 32,160,000

Increase of development cost 701,087,979 65,220,545

Increase of intellectual property rights 1,300,122

Acquisition of computer SW 360,000 1,184,000

Increase of security deposit 62,765,000 5,027,150,000

Cash Flow from Financial Activities (1,549,130,000) 21,843,297,600

Cash flow amount from financial activities 29,273,297,600

Borrowings of short-term borrowings 5,200,000,000

Capital increase with consideration 20,084,297,600

Issuance of bond 3,989,000,000

Cash Outflow Amount from Financial Activities (1,549,130,000) (7,430,000,000)

Re-payment of short-term borrowings 1,320,000,000 5,200,000,000

Re-payment of bond 1,990,000,000

Re-payment of current long-term liabilities 83,320,000 240,000,000

Re-payment of long-term borrowings 145,810,000

Other Increase of Cash

Other Decrease of Cash

Increase (Decrease) of Cash 2,056,058,698 3,991,338,422

Beginning Cash 4,274,688,713 283,350,291

Ending Cash 6,330,747,411 4,274,688,713

- IIA-31 -


NOTES TO THE FINANCIAL STATEMENTS

1. GENERAL INFORMATION

NITGEN&COMPANY Co., Ltd. (the “Company”) was incorporated on 20 March 1984 to be engage in the

provision of network and solution services. The Company has been listed on KOSDAQ, a trading board of Korea

Exchange, since 30 September 1994. The Company is headquartered in 231-13 Nonhyeon-dong, Gangnam-gu, Seoul. On

21 November 2008, the Company merged with Nitgen Co., Ltd, a subsidiary engaged in development of security and

authentication service products based on fingerprint recognition technology in an effort to improve management

efficiency, build the foundation for sustainable growth, maximize the corporate value by focusing on fingerprint

recognition business as our core business.

On 10 December 2008, the Company changed its business name from Proze Co., Ltd. to Nitgen&Company Co.,

Ltd. As of 31 December 2009, total equity of the Company is KRW17,700,158,000, and the largest shareholder of the

company were changed from SAMO Co., Ltd to Shinsung Construction Co., Ltd. and 1 other (MK Electron Co., Ltd.) in

the current term.

As of December 31, 2009, the major shareholders of the Company are as follows:

Shareholders Number of Shares Owned Ownership %

Shinsung Construction Co., Ltd. 4,282,521 12.10

MK Electron Co., Ltd. 2,420,000 6.84

Others 28,697,795 81.06

Total 35,400,316 100.00

2. PREPARATION STANDARD FOR FINANCIAL STATEMENTS

The financial statements of the Company have been prepared in accordance with the generally accepted

accounting standard of Korea, including Section 1 through Section 23 (excluding Section 14) of the Corporate

Accounting Standard of Korea, and it is consistent to the accounting policy adopted at the time of preparing the financial

statements on the accounting year ended as of 31 December 2008 for the important accounting policy adopted to prepare

the financial statements.

(1) Recognition of income

The profit is measured by the fair value of consideration received or to be received on the sale of

monetary terms and the sales discount, discount and transfer are deducted from the income. When most of risk

and benefit following the ownership of monetary term is transferred to the purchaser and the ownership on the

monetary goods sold is available, the income is recognized when it does not have ordinary level of management

or effective control, very high for inflow possibility of economic benefit, and reliable measurement for cost

related expense as well as measurable for costs to inject to complete the cost and transaction already occurred.

(2) Cash and cash equivalent asset

The Company disposes the cash and cash equivalent asset for financial products not important for the

risk of value change following the interest rate change with easy conversion into cash without the currency

alternative securities for currency and checks issued by others, quick deposit, deposits and others and less than 3

months of maturity date at the time of acquisition.

- IIA-32 -


(3) Allowance for doubtful accounts

The estimated doubtful accounts amount under the doubtful accounts experience rate of the past and the

individual analysis on trade receivable and others is set for the allowance for doubtful accounts and marks it in

the form of deducting from the relevant assets.

(4) Evaluation of inventories

The inventories are evaluated as the cost of acquisition under the individual approach and the loss

normally occurred and evaluation loss arising for having the market price of inventories to decline below the

book value are added to the cost of sales and the evaluation loss is marked on the reduction account of the

inventories. The Company disposes the expenses arising for similar financial expenses and interest expense

arising up to the manufacturing or acquisition time of the applicable assets on the borrowings used for

manufacturing and others for applicable assets in the event that a long time is required for manufacturing,

purchase, construction or development of the inventories.

(5) Evaluation of marketable securities

With respect to the debt securities and equity securities excluding the investment on the subsidiary

company, equity approach invested company and joint venture, it is classified as the maturity-held securities,

available-for-sale securities and short-term trade securities at the time of acquisition and the appropriateness of

classification is reviewed for each date of financial statements.

In the event that there is an active intent and capability to hold the debt securities that is finalized or

available to finalize the repayment amount with the maturity already been finalized until the maturity period, it is

classified as the maturity-held securities. The marketable securities acquired for the purpose of short-term

purchase gain is classified for short-term trade securities and the marketable securities not classified as the short-

term trade securities or maturity-held securities is classified as the available-for-sale securities.

The Company calculates by adding the incidental expenses of acquisition on the market price provided

for the acquisition of the marketable securities for the cost of acquisition of marketable securities.

The Company evaluates the maturity-held securities as the cost of acquisition after the depreciation and

the short-term trade securities and available-for-sale securities as the fair value. However, in the event that the

fair value of equity securities without the marketability from the available-for-sale securities is unable to measure

with the reliability, it is evaluated as the cost of acquisition.

The evaluation of the marketable securities is considered market price as the fair value with the final

amount as of the financial statements date. In the event of the debt securities without the market price, the future

cash flow is reasonably estimated, and in the event that there is any credit rating evaluated by independent credit

evaluation agency, it uses the discount rate appropriately considered for the credit rating to have the evaluated

amount as the fair value. In the meantime, in the event that it is the beneficiary securities without the

marketability, the sales standard price of the beneficiary securities presented by the fund management company

is taken as the fair value.

The Company processes the unrealized income of the short-term trade securities as the current income

category and the unrealized income of available-for-sale securities as the s0 securities evaluation income (other

comprehensive income accumulated amount), and the applicable available-for-sale securities are reflected in the

current income at the point of recognizing the damage loss or disposition of the applicable available-for-sale

securities. The Company uses the effective interest rate method for the difference of cost of acquisition and

maturity face value of the maturity-held securities to modify on cost of acquisition and interest income.

- IIA-33 -


The Company evaluates for each of financial statements whether there is any objective evidence on

having any damage loss to reflect on the current income by recognizing the damage loss unless there is no clear

contradiction as no need for reduction amount if the recoverable amount of the marketable securities is smaller

than the acquisition cost after the depreciation for the debt securities or cost of acquisition for equity securities.

The maturity-held securities with the maturity within one year from the financial statements date and

available-for-sale securities almost certain to be disposed by sales and others or having the maturity coming

within 1 year from the financial statements date and short-term trade securities are classified as the current

assets.

(6) Evaluation of the equity approach application investment stock

The Company applies and evaluates the equity method on the equity securities on the invested company

to exercise the material influence. However, with respect to the stocks not importance for equity change amount

as a small company, of which total asset amount is under KRW 7 billion, it evaluates with the same cost method

with the equity securities without the different marketability.

(A) Accounting disposition of the equity change amount

The Company processes accounting for amount applicable for equity rate of the Company

(hereinafter referred to as the equity change amount”) from the net asset change amount of the equity

approach invested company when applying the equity approach in accordance with the origin of the

change for net asset amount of the equity approach invested company. In other words, the Company

processes (1) the equity change amount generated from the current net income (loss) of the equity

approach invested company as the non-operating income (expense) as the category for equity approach

gain (loss), (2) the equity change amount from the change of un-disposed retained earnings carried

forward from the previous term of the equity approach invested company is considered as the un-

disposed retained earnings carried forward from the previous term with the category of the change in

(negative) equity approach retained earnings, and (3) the equity change amount arising from increase or

decrease of capital with the exception of the un-disposed retained earnings carried forward from the

previous term and current net income of the equity approach invested company is processed with other

comprehensive income accumulative amount as the category for the (negative) change of equity

approach. However, in the event that it is changed by correcting the material error by the un-disposed

retained earnings carried forward from the previous term of the equity approach invested company, if the

influence on the financial statements of the Company is not material, the applicable equity change

amount is considered as the category of the equity approach gain (loss) with the disposition for non-

operating income (expense), and in the event that it is modified by the change in accounting policy of

the equity approach invested company, the applicable equity change amount is reflected on the un-

disposed retained earnings carried forward from the previous term in accordance with the Corporate

Accounting Standard on correcting the error and the accounting change. In the meantime, in the event

that the equity approach invested company resolves to pay the cash dividend, the dividend to be received

by the Company at the time of resolving the dividend is directly reduced from the equity approach

application investment stock.

(B) Disposition of the investment differential amount

From the fair value of identifiable net assets of the invested company of the acquisition time of

the equity approach application investment stock, the amount affiliated companies for the equity rate

acquired by the Company and the differential amount of the acquisition (hereinafter referred to as the

“investment differential”) are considered as goodwill that they are processed for accounting in

accordance with the matters set forth under the Corporate Accounting Standard on corporate

consolidation for corporate acquisition, merger and others.

- IIA-34 -


Accordingly, the applicable amount for good will has to be depreciated with the fixed amount

method throughout 5 years of service year from the year of occurrence, and the amount applicable for

the negative goodwill is reflected on the equity approach income by transferring in to the fixed amount

method throughout the added-weighted average service year of the depreciation assets from the

identifiable non-current assets of the invested company. In the event that the invested company is a

Subsidiary company subject for consolidation, with the exception of case that the balance of the

investment account is zero on the applicable equity approach application investment stock to suspend the

Application of the equity approach, the current net income and net assets of the individual financial

statements of the Control company is processed for accounting to be consistent to the equity of the

Control company on the current net income and net assets of the consolidated financial statements.

In the meantime, in the event that the equity rate of the Company is increased as a result of

implementing the capital increase with consideration by the equity rate Application invested company

(audit with consideration, capital increase without consideration, and capital reduction without

consideration; hereinafter collectively referred to as the “capital increase with consideration and

others”), the differential amount of equity change is processed as the investment differential, and in the

event that the equity rate is reduced, the applicable equity change amount is processed for accounting in

disposition income. However, in the event that the equity approach invested company belongs to the

subsidiary company; the equity change amount generated from the capital increase with consideration

and others is disposed with the capital surplus (or capital adjustment).

(C) Disposition on differential amount of net asset fair value and book value of the equity

approach invested company

The amount applicable for the equity rate of the Company from the differential amount of the

book value and the amount evaluated with the fair value for identifiable assets and liabilities of the

equity approach invested company at the time of acquisition of the equity approach application

investment stock is reflected on the equity approach income by depreciating or transferring in

accordance with the disposition method of the equity approach invested company on the applicable

assets and liabilities for the equity rate of the Company.

(D) Removal of unrealized income of inside transaction

From the amount multiplied the equity rate of the Company on the income generated from the

transaction between the Company and the equity approach invested company, the part reflected in the

book value of the assets owned as of the financial statements date is considered as the unrealized income

of the Company, and in this case, the unrealized income is reduced from the equity approach application

investment stock. However, in the event that the equity approach invested company is the subsidiary

company of the Company, the unrealized income generated from the transaction disposing the assets on

the subsidiary company by the Company (“downward sale”) shall be removed in its entirety to deduct

from the equity approach application investment stock.

(7) Evaluation of the tangible assets and depreciation method

The tangible assets are marked as the balance to modify the accumulated amount of depreciation from

the cost of acquisition added for incidental expense of acquisition and capital expenditure (expense amount to

extend the service year of the assets or practically increasing the value) on the purchase cost or manufacturing

cost. The depreciation of the tangible assets is calculated with the fixed rate method throughout the period of

generating the economic effect and the service year for each asset that the Company applied is shown as follows.

- IIA-35 -


In the meantime, the interest cost or similar financial expense on borrowings used on manufacturing,

purchase, construction and development are appropriated for the term expense.

Classification Estimated service year

Building 40 years

Other tangible assets 5 years

(8) Evaluation and depreciation method of the intangible assets

The intangible assets excluding goodwill and development cost are appropriated with the cost of

acquisition for the amount added with the incidental expense of acquisition on the cost of manufacturing or

purchase amount of the applicable cost of the applicable assets, and the residual amount from the time of use of

the applicable asset is set for zero (0) to depreciate for fixed amount method during the following service year

and it evaluates the depreciation amount appropriated as the balance directly deducted.

Classification Estimated service year

Development cost 3 years

Intellectual property rights 10 years

SW and other intangible assets 5 years

(9) Reduction of assets

In the event that the recoverable amount of the applicable assets is insufficient to the book value due to

the causes of obsoleteness, physical damage, drastic decline of market value and others in assets under the

statement of financial condition and the insufficient amount is important The Company, it is directly deducted

from the book value and adjust for recoverable amount and the difference of the book value and the recoverable

amount is processed as the damage loss. However, in the event that the recoverable amount of the reduced asset

is in excess of the book value after the following term, the book value of the case where the deduction has not

been made is taken as the limit to dispose as the current income with the excess amount to be the category of

reduced amount loss transfer on the same assets. However, the goodwill reduced is not transferred in later.

(10) Retirement wage provision liabilities

The Company appropriates entire amount of the retirement allowance (a greater amount from the Labor

Standard Act and the retirement payment regulation of the Company) to be paid in the event that entire 1s and

employees working more than a year as of the foreign exchange date as the retirement wage provision liabilities.

(11) Conversion of foreign currency assets and liabilities

The Company converts monetary foreign currency assets and liabilities under the appropriate exchange

rate as of the financial statements date and any income from converting the foreign currency is disposed as the

current income.

(12) Income tax expense and deferred income tax

The income tax expense is appropriated by modifying the changed amount of the depreciation income

tax on the income tax payment amount under the Income Tax Act and other laws and regulations. In the event

that it is applicable to the exceptional category, the income tax effect on the temporary difference to add to

increase the taxable income of future period from the temporary difference as the book value and the taxable

amount of assets and liabilities would be recognized as the deferred income tax liabilities for its entire amount.

The income tax effect on temporary difference, deficit amount and others to reduce the taxable income for the

future period would be recognized as the deferred income tax assets in the event that it is expected to realize the

- IIA-36 -


income tax savings of future with almost certain not to cause the taxable income. In addition, the income tax

payment amount and deferred income tax related to the category directly changed on the capital account are

directly modified on the capital accounting.

(13) Stock standard compensation transaction

The Company disposes the amount based on the fair value of the equity product granted or fair value of

monetary term or service provided on the stock standard compensation transaction of stock payment-type as the

cost of compensation and capital adjustment by apportioning for fixed amount method during the period. As of

the date of f0, there is no stock option granted to any officers and employees.

(14) Use of estimation

In order to prepare the financial statements in accordance with the generally accepted accounting

standard of Korea, the Company uses a number of reasonable estimations and assumptions in relations to the

measurement of notification, income and expense on the amount of assets and liabilities, appropriate liabilities

and others. It includes the book value of tangible assets, trade receivables, evaluation on inventories and others.

Such an evaluation amount may differ from actual status.

(15) Final date of financial statements and institution

The financial statements of the Company have been finalized in fact at the board of directors of the

Company on 5 March 2010 for submitting to meeting of shareholders. However, in the event that the financial

statements submitted to the meeting of shareholders is revised and approved at the meeting of shareholders, it is

finalized on the date of the meeting of shareholders.

3. CASH AND CASH EQUIVALENT ASSET AND FINANCIAL PRODUCT

As of the end of the current term and the previous term, the contents of the financial products and cash and cash

equivalent are shown as follows.

(Unit: 1,000 won)

Type Deposit institutionAnnual interest

rate (%) Current term Previous term

<Cash and cash equivalent>

Cash 236,208 1,297

Ordinary deposit Shinhan Bank and 3 others 0.1-1.0 471,411 2,209,625

Foreign currency deposit Shinhan Bank and 2 others 0.6 120,128 63,767

Time deposit Kookmin Bank 3.25 1,500,000 2,000,000

Regular time deposit Hana Bank 2.7 3,000 –

Other deposits Nonghyup 0.81 4,000,000 –

Total 6,330,747 4,274,689

<Short-term financial product>

Time deposit and regular deposit Hana Bank 5.9 – 1,400,000

Specific monetary trust Nonghyup “ – 1,003,325

MMF Nonghyup “ – 1,000

Deposit E Trade Securities and 1 other 0.25 – 55,642

Total – 2,459,967

<Long-term financial product> Time deposit 3.35 – 10,000

Total – 10,000

(*) From the regular deposit of Kookmin Bank, there is no cash and cash equivalent and financial product

restricted for using as of the f0 date with the exception of 100 million won set for security.

- IIA-37 -


4. SHORT-TERM LOANS

As of the end of current term and the previous term, the contents of short-term loans of the Company are shown

as follows.

(Unit: 1,000 won)

CustomersInterest rate

(%)Amount

RemarkCurrent Term Previous Term

PMP Partners Co., Ltd. 10.0 770,000 770,000 Purpose to support the

operation fund

Noblesse Industry Co., Ltd. 10.0 – 600,000 Purpose to support the

operation fund

Gaenari Wall Paper Co., Ltd. 3.5 – 510,000 Purpose to support the

operation fund

RIA Soft Co., Ltd. 9 100,000 – Purpose to support the

operation fund

Fuencon Construction Co., Ltd. (*) 9 1,000,000 – Purpose to support the

operation fund

Global Gongyoung (**) 9 1,000,000 – Purpose to support the

operation fund

Other – 3,700 3,000 Cooperative membership fees

Total of short-term loans 2,873,700 1,883,000

SHORT-TERM credit from shareholders,

employees and officers

– 1,220,000

(*) The loan on PMP Partners Co., Ltd. is unlikely to recover that its entire amount has been set for

doubtful accounts appropriation and relevant income is processed as other doubtful accounts depreciation

of non-operating expense.

(**) The loans on Fuencon Construction Co., Ltd. and Global Gongyoung have been recovered after the

financial statements date.

5. MARKETABLE SECURITIES

As of the end of current term and the previous term, the contents of marketable securities that the Company

holds are shown as follows.

(Current Term)

(Unit: 1,000 won)

Company name

Current Term

Item classificationEquity rate

(%)Cost of

acquisition Fair amount Book value

<Available-for-sale securities>

Zeroin Co., Ltd. Equity securities 1.45 300,000 10,693 10,693

SecuGen Japan (*) Equity securities 8.29 909,746 30,245 30,245

Inke Corporation Co., Ltd. Equity securities 0.29 1,000 1,000 1,000

Art Place Co., Ltd. Equity securities 19.23 500,010 500,010 500,010

IC Cooperative Union Capital investment – 15,864 15,864 15,864

Total 1,726,620 557,812 557,812

<Maturity-held securities>

National and public bonds Debt securities 17,676 17,676 17,676

- IIA-38 -


(*) The available-for-sale securities are the equity securities without the marketability that could not measure

the fair amount with reliability that it is evaluated with the cost of acquisition. From the available-for-

sale securities, SecuGen Japan has its recoverable amount of net asset equity amount for clear decline

and it is recognized as the damage loss of available-for-sale securities additionally in the previous term

as its recoverability to be uncertain.

(Previous Term)

(Unit: 1,000 won)

Company name

Previous Term

Item classificationEquity rate

(%)Cost of

acquisition Fair amount Book value


Zeroin Co., Ltd. (*) Equity securities 1.45 300,000 10,693 10,693

SecuGen Japan (*) Equity securities 8.29 909,746 95,936 95,936

Inke Corporation Co., Ltd. Equity securities 0.29 1,000 1,000 1,000

Art Place Co., Ltd. Equity securities 19.23 500,010 500,010 500,010

Total 1,710,756 607,639 607,639

6. EQUITY APPROACH APPLICATION INVESTMENT STOCKS

As of the end of the current term, the contents of equity approach application investment stocks of the Company

are shown as follows.

(1) Status of the equity on the equity approach invested company

(Unit: 1,000 won)

Corporate name Equity rate No. of stocksCost of

acquisition Book value

RIA Soft Co., Ltd. 100% 10,000 shares 3,000,000 1,354,617

MK Electronics (H.K.) (*) 49.8% 2,000,000 shares 2,454,402 2,454,402

Total 5,454,402 3,809,019

(*) The capital investment equity was acquired on 21 October 2009 with the capital increase with

consideration for US$2,000,000 to MK Electronics Co., Ltd. (H.K.), the investment and

brokerage trade companies jointly with MK Electronics Co., Ltd., the largest shareholder of the

Company.

(**) When evaluating for equity approach of the equity approach application investment stock, there

was no difference of settlement period between the Company and the invested company. The

provisional settlement f0 of the invested company was used and there was no adjustment matter

detected in the process of confirming if it is appropriately prepared in accordance with the

corporate accounting standard.

- IIA-39 -


(2) As of the end of the current term, the contents of evaluation on the equity approach applicationinvestment stock are shown as follows.

(Unit: 1,000 won)

Company name Beginning Acquisition

Equityapproach

income Damage loss Ending

RIA Soft Co., Ltd. 3,000,000 – (508,235) (1,137,148) 1,354,617

MK Electronics (H.K.) – 2,454,402 – – 2,454,402

Total 3,000,000 2,454,402 (508,235) (1,137,148) 3,809,019

(3) During the current term, the contents of disposition for the investment differential are shown asfollows.

(Unit: 1,000 won)

Company name BeginningChangedamount Depreciation Damage loss Ending

RIA Soft Co., Ltd. 2,825,010 – (565,002) (1,137,148) 1,122,860

(*) The future net cash flow (fair amount) expected from RIA Soft Co., Ltd., the invested company,

is clearly declined from the book value that the investment differential (goodwill) impossible to

identify in accordance with No. 15 (Equity approach) of the corporate accounting standard is

reduced first and it is recognized as the damage loss of the equity approach application

investment stock.

(4) As of the end of the current term, the summarized financial information of the equity approachinvested company is shown as follows.

(Unit: 1,000 won)

Company nameTotal asset

amount

Totalreliabilityamount Depreciation

Operatingincome

RIA Soft Co., Ltd. 1,106,152 874,395 2,075,633 77,137

MK Electronics Co., Ltd. (H.K.) 4,660,330 6,772 – (28,521)

- IIA-40 -


7. TANGIBLE ASSETS

(1) As of the end of the current term, the official land price of the land that is possessed by the Company

(area of 173.83m, book value of 327,688,000 won) is 439,790,000 won.

(2) During the current term and the previous term, the contents of change of the tangible assets are shown as

follows.

(Current Term)

(Unit: 1,000 won)

Classification Beginning Acquisition DispositionDepreciation

expense Ending

Land 327,688 – – – 327,688

Building 618,415 – – 19,856 598,559

Facility and equipment 87,662 27,600 – 63,258 52,004

Vehicle transportation

equipment 148,103 62,138 – 83,142 127,099

Tools and devices 22,985 1,800 – 11,110 13,675

Fixture 336,765 9,775 147,146 96,210 103,184

Metal mold 194,958 32,160 – 90,344 136,774

Computer equipment 216,600 – 99,246 117,354

Sub-total 1,953,176 133,473 147,146 463,166 1,476,337

Deduction

National subsidy (35,293) – – (9,724) (25,569)

Total 1,917,883 133,473 147,146 453,442 1,450,768

(Previous Term)

(Unit: 1,000 won)

Classification Beginning AcquisitionReplacement

(*) Merger (**) DispositionDepreciation

expense Ending

Land – – – 327,688 – – 327,688

Building – – – 620,070 – 1,655 618,415

Facility and equipment 78,340 70,838 – – 18,756 42,760 87,662

Vehicle transportation equipment 194,900 35,033 – 11,424 – 93,254 148,103

Tools and devices – – – 24,030 – 1,045 22,985

Fixture 276,666 96,537 – 171,443 37,125 170,756 336,765

Metal mold – – – 200,247 – 5,289 194,958

Computer equipment 396,750 – 8,500 – 728 187,922 216,600

Sub-total 946,656 202,408 8,500 1,354,902 56,609 502,681 1,953,176

Deduction

National subsidy – – – (37,316) – (2,023) (35,293)

Total 946,656 202,408 8,500 1,317,586 56,609 500,658 1,917,883

(*) This is the amount replaced from inventories to computer equipment.

(**) This is the amount increased for the merger with Nitgen Co., Ltd., the subsidiary company

during the previous term.

- IIA-41 -


8. INSURANCE SUBSCRIBED ASSETS

As of the end of the current term, the Company has subscribed to the fire insurance of 2.9 billion won and

417,280,000 won for inventories and tangible assets to Meritz Fire and Maritime Insurance Co., Ltd. In addition, it is

subscribed for employee liability insurance and vehicle liability insurance.

9. OPERATION LEASE

The Company has contracted with Orix Capital Korea Co., Ltd. to use the vehicle and transportation with the

operation lease that the lease payment to be made in relations to the same lease contract is shown as follows.

(Unit: 1,000 won)

Classification Basic lease payment

2010.1.1 ~ 2010.12.31 6,275

Total 6,275

10. INTANGIBLE ASSETS

(1) The contents of change for each accounting category of the intangible assets during the current term and

the previous term are shown as follows.

(Current Term) (Unit: 1,000 won)

Classification Beginning Increase Depreciation Ending

Development cost (*) 343,976 701,088 386,240 658,824

Industrial property rights 70,567 – 21,802 48,765

SW 7,962 360 6,043 2,279

Other intangible assets 22,608 – 18,943 3,665

Subtotal 445,113 701,448 433,028 713,533

Reduction

National subsidy (13,347) – (10,160) -3,187

Total 431,766 701,448 422,868 710,346

(*) The increase portion of the development cost includes 12,153,000 won of the gain from

correcting the error of the previous term.

(Previous term) (Unit: 1,000 won)

Classification Beginning Increase Merger Depreciation Ending

Development cost (*) – 65,221 334,864 56,109 343,976

Industrial property rights 91,117 1,300 – 21,850 70,567

SW 23,608 1,184 – 16,830 7,962

Other intangible assets – – 24,467 1,859 22,608

Subtotal 114,725 67,705 359,331 96,648 445,113

Reduction –

National subsidy – – (14,879) (1,532) (13,347)

Total 114,725 67,705 344,452 95,116 431,766

(2) The ordinary R&D expenses recognized as expenses in the current term are 491,429,000 won.

- IIA-42 -


11. CAPITAL EQUITY

(1) As of the end of the current term and the previous term, the contents of the capital equity are shown as

follows.

Classification Current term Previous term

No. of authorized stocks 100,000,000 stocks 100,000,000 stocks

No. of outstanding stocks 35,400,316 stocks 35,400,316 stocks

Par value 500 won 500 won

Capital equity on common stocks 17,700,158,000 won 17,700,158,000 won

(2) Contents of change of capital equity and excessive amount of stock issuance

During the current term, there is no change of capital and the contents of the capital and excessive

amount of stock issuance of the Company during the previous term are shown as follows.

(Unit: 1,000 won)

Classification Date Capital equity

Excessiveamount of

stock issuance

End of prior previous term 2007.12.31 20,523,436 26,771,180

Conservation of loss – – (26,771,180)

Capital increase with consideration

(Note 1)

2008.01.11 645,161 1,354,838


(Note 2)

2008.03.27 5,000,000 –

Capital decrease without consideration

(Note 3)

2008.06.27 (23,551,737) –


(Note 4)

2008.08.04 13,084,298 –

Conversion of convertible bond

(Note 5)

2008.10.31 1,999,000 24,726

End of the Previous term 2008.12.31 17,700,158 1,379,564

(Note 1) Following the resolution of the board of directors on 8 January 2008, capital increase with

consideration was implemented on 11 January 2008 to issue at premium of 1,550 won per

share for 1,290,322 common stocks with the third party allocation method.

(Note 2) Following the resolution of the board of directors on 11 February 2008, capital increase with

consideration was implemented on 27 March 2008 to issue at par value of 500 won per

share for 10,000,000 common stocks with the third party allocation method.

(Note 3) Following the resolution of the board of directors on 11 April 2008, equal capital decrease

without consideration was implemented for the improvement of the financial structure with

the standard date of 27 June 2008, and because of this, the capital equity of the common

stocks of 23,551,737,000 won was reduced for setting off with the capital reduction.

(Note 4) Following the resolution of the board of directors on 23 April 2008, capital increase with

consideration was implemented on 3 August 2008 to issue at par value of 500 won per share

for 26,168,597 common stocks with the shareholder allocation method.

- IIA-43 -


(Note 5) The second convertible bond of 1,990,000,000 won (100%) issued on 31 October 2008 was

converted to 100% common stocks on 23 December 2008 during the current term to issue

3,998,000 common stocks and the consideration of the conversion right of 24,726,000 won

was replaced with the excessive amount of the stock issuance.

(3) Deficit amount

The contents of the conservation of carried over deficit resolved at the meeting of shareholders within

the recent 2 years are shown as follows.

(Unit: 1,000 won)

ClassificationThe 25th Term(previous term)

The 24th Term(prior previous term)

Excessive amount of the stock issuance – 26,771,180

Gain on differential for capital reduction 16,250,365 –

Consideration of conversion right 211,141 –

Other capital surplus 266,382 415,609

Total 16,727,888 27,186,789

12. COMPREHENSIVE STATEMENT OF INCOME

The contents of the comprehensive income of the Company during the current term and the previous term are

shown as follows.

(Unit: 1,000 won)


I. Current net loss 3,786,229 10,306,203

II. Other comprehensive income – –

III. Comprehensive Loss 3,786,229 10,306,203

- IIA-44 -


13. INCOME TAX EXPENSES

(1) The income tax expense (including the resident tax) for the Company to pay for legal tax rate is

approximately 24.2% but there is no income tax expenses to be paid in the current term from the loss in

the current term.

(2) The relationship between the net income before the deduction of the income tax expense and the income

tax expense is shown as follows.

(Unit: 1,000 won)


Net income before the deduction

of the income tax expense (3,786,229) (10,306,203)

Income tax following the applied

tax rate (24.2%) (916,267) (2,834,206)

Adjusted matter 916,267 2,834,206

(-) Nontaxable income – (3,599,349)

(+) Non-deductible expense 6,977,184 1,383,572

(±) Effect of changes in

unrealized deferred

income tax assets (6,060,916) 5,049,982

(±) Others (tax rate difference

and others) – –

Income tax expense – –

Effective tax rate (income tax

expense/net income before the

deduction of the income tax

expense) – –

- IIA-45 -


(3) The contents of change of the cumulative temporary difference and the deferred income tax of the

Current Term are shown as follows.

(Unit: 1,000 won)

Accounting categoryBeginning

balance Increase DecreaseEndingbalance Distribution

Non-distribution

Retirement wage appropriate liabilities 629,869 188,656 320,037 498,488 – 498,488

Retirement insurance deposit (1,211) – – (1,211) – (1,211)

Doubtful accounts proceeds 1,686,467 – – 1,686,467 – 1,686,467

Unearned income (27,194) (11,434) (27,194) (11,434) (11,434) –

Doubtful accounts appropriation 30,053,356 1,789,519 30,053,856 1,789,519 1,789,519 –

Loss on foreign currency conversion 183,876 67,810 183,876 67,810 67,810 –

Gain on foreign currency conversion – (1,929) – (1,929) (1,929) –

Reserve for inventory evaluation 590,792 858,992 590,792 858,992 858,992 –

Available-for-sale securities

(succession) 1,061,211 – – 1,061,211 – 1,061,211

Available-for-sale securities (Zero-in) 289,307 – – 289,307 – 289,307


(JJ Holic Media) 178,406 – – 178,406 – 178,406


(SecuGen Japan) – 65,690 – 65,690 – 65,690

Loss on equity approach (*) – 508,235 – 508,235 508,235 –

Damage loss on equity approach (*) – 1,137,148 – 1,137,148 – 1,137,148

Depreciation (patent right) 1,941 – 1,941 – – –

Depreciation (development cost) 339,510 – – 339,510 339,510 –

Depreciation (other intangible assets) 5,398 – 5,398 – – –

Pre-paid income tax (2,847) – (2,847) – – –

Total of temporary difference 34,989,381 4,602,687 31,125,859 8,466,209 3,550,703 4,915,506

Deficit carried over 103,836,892 1,478,065 1,731,681 103,583,276 – 103,583,276

Total 133,826,273 6,080,752 32,857,540 112,049,485 3,550,703 108,498,782

Amount excluding from the deferred

income tax 28,730,722 1,645,383 508,235 1,137,148

Amount realized for deferred income

tax 110,095,551 110,404,102 3,042,468 107,361,634

Tax rate 24.2% 24.2% 24.2% 22.0%

Deferred income tax assets (**) 26,643,123 26,717,793 736,277 23,619,559

(*) The Company has no plan to dispose the stocks of the invested company in near future that the

loss on equity approach generated in accordance with the equity approach evaluation of the

invested company that the income tax effect of the applicable temporary difference is not

recognized. In addition, the income tax effect of the temporary difference occurred from the

illegal activities is excluded.

(**) The Company did not recognized full amount of temporary difference from uncertainty of

taxable income generated in future and the deferred income tax effect from the deficit carried

over.

- IIA-46 -


(4) The contents of the deficit amount on taxes are shown as follows.

(Unit: 1,000 won)

Occurrence year Amount

Income tax effectreflecting the

current income ofthe year

Income tax effectnot reflected on

the currentincome (*)

Income tax effectterminated duringthe current term

Income tax effect

2004.12.31 1,731,681 – – 1,731,681

2005.12.31 484,362 – 484,362 –

2006.12.31 – – – –

2007.12.31 3,191,133 – 3,191,133 –

2008.12.31 98,429,716 – 98,429,716 –

2009.12.31 1,478,065 – 1,478,065 –

Total 105,314,957 – 103,583,276 1,731,681

14. EARNINGS PER SHARE

(1) The calculation base of the distributed common stocks of the current term is shown as follows.

(Unit: share)

Classification

Distributedcommon stock

numberAdded-weighted

valueAppropriate

number

Added-weightedaverage

outstandingcommon stocks

Beginning 35,400,316 365 days 12,921,115,340 35,400,316

Total 35,400,316 365 days 12,921,115,340 35,400,316

(2) The calculation base of the loss per stock of the Company is shown as follows.

(Unit: 1,000 won)


Current net loss 3,786,229 10,306,203

Distributed common stocks 35,400,316 stocks 16,397,353 stocks

Net loss per stock 107 won 629 won

In the meantime, the diluted securities of the Company have no potential common stocks for dilution by

terminating or converting during the previous term that loss per diluted stock is the same as the loss per base stock.

- IIA-47 -


15. TRANSACTION WITH SPECIAL RELATIONSHIPS

(1) As of the end of the current term, the status of the special relationships of the current term is shown as

follows.

Classification Corporate name Business type

Company with material

influence

MK Electronics Co., Ltd. Semiconductor and equipment

part manufacturing

Shinsung Construction Co.,

Ltd.

Housing construction and lease

sales industry

Noblesse Industry Co., Ltd. Housing construction and lease

sales industry

Subsidiary company RIA Soft Co., Ltd. SW and HW development

business

(2) During the current term and the previous term, the contents of major transactions with the special

relationships are shown as follows.

(Unit: 1,000 won)

Special relationshipContents oftransaction Current term Previous term

Book Mark Co., Ltd. Interest income – 74,458

Noblesse Industry Co., Ltd. Interest income 28,437 35,161

Virtual Sunshine Co., Ltd. Interest expense – 3,945

RIA Soft Co., Ltd. Interest income 5,499 –

Shareholders, employees and

officers

Interest income 58,137 6,588

(3) As of the end of the current term and the previous term, the contents of credit and debt arising in the

transaction with the special relationships are shown as follows.

(Unit: 1,000 won)

Special relationship Credit/debt Current term Previous term

Noblesse Industry Co., Ltd. Short-term loans – 600,000

Unearned income – 8,219

RIA Soft Co., Ltd. Advance payment 200,000 110,000

Short-term loans 100,000 –

Unearned income 5,499 –

Shareholders, employees and

officers

Short-term credit – 1,220,000

Unearned income – 6,588

- IIA-48 -


(4) The contents of the total compensation amount and the compensation amount for each classification paid

during the current term and the previous term on registered officers and non-registered officers of the

Company are shown as follows.

(Unit: 1,000 won)

Compensation amountCurrent term Previous term

Wage 371,600 714,096

Retirement wage 136,759 486,000

Total 508,359 1,200,096

16. FOREIGN CURRENCY ASSETS

As of the end of the current term and the previous term, the contents of the foreign currency assets are shown as

follows.

(Unit: 1,000 won)

Account category

Current Term Previous Term

Foreign currency amountWon currency

amount Foreign currency amountWon currency

amount

Cash and cash equivalent

assets

USD 102,884.61 120,128 USD 50,707.95 63,765

– – – JPY 114 2

Trade receivables USD 1,157,958.85 1,352,033 USD 1,084,676 1,363,981

Total USD 1,260,843.46 1,472,161 USD 1,135,383.95 1,427,748

JPY 114

(*) In relations to the above foreign currency assets, foreign currency conversion loss and conversion gain

are 67,811,000 won and 1,929,000 won, respectively, and it is appropriated with the non-operating

income.

17. MAJOR STIPULATIONS

The Company entered into the supply contract for solution (CDN and SLB service and others) equivalent to

US$300,000 with Asia Soft of Thailand as of 11 December 2008 to supply the goods.

18. STATEMENT OF CASH FLOW

The contents of important transaction without cash inflow and outflow are shown as follows.

(Unit: 1,000 won)


Replacement of currency of the long-term accrued payments 20,700 26,590

Replacement of other capital surplus of stock options – 266,382

Increase of net assets from merger – 3,304,164

- IIA-49 -


19. CONTINGENT DEBTS AND LITIGATION

During the previous term and the prior previous term, the practical majority shareholder of Synergy Next Co.,

Ltd. who was the largest shareholder of the Company, Ho-young Kwak, embezzled the Company fund that the doubtful

accounts appropriation was set for its entire amount as it was difficult to recover the accrued amount from the illegal

activities. In relations to the illegal activities of Ho-young Kwak, the largest shareholder of the Company, creditor Mun-

seok Jang raised suit for credit garnishment for 4 billion won during the previous term with respect to the paid-in stocks

from the capital increase with consideration implemented on 4 August 2008 and deposit of the Company and the

Company stipulated with creditor Mun-seok Jang to withdraw the credit garnishment and collection order to end the

enforcement and there is no pending litigation as of the accounting closing date.

20. MATTERS REQUIRED ON ADDED-VALUE CALCULATION

Matters required in calculation of added value included in selling and administrative expenses and cost of

manufacturing of the Company are shown as follows.

(Unit: 1,000 won)

Account category

Selling andadministrative expenses Cost of manufacturing Development cost Total

CurrentTerm

PreviousTerm

CurrentTerm

PreviousTerm

CurrentTerm

PreviousTerm

CurrentTerm

PreviousTerm

Wage 1,156,081 1,360,595 251,204 340,560 672,219 89,911 2,079,504 1,791,066

Retirement wage 191,024 554,699 19,614 16,652 80,240 6,952 290,878 578,303

Welfare 342,256 330,057 40,092 45,383 92,708 7,545 475,056 382,985

Lease payment 481,833 335,618 – 1,491,387 – – 481,833 1,827,005

Depreciation expense 440,730 238,881 56,971 261,777 – – 497,701 500,658

Taxes and dues 181,523 151,454 2,447 11,593 – 2,644 183,970 165,691

Total 2,793,447 2,971,304 370,328 2,167,352 845,167 107,052 4,008,942 5,245,708

21. MAJOR INFORMATION FOR THE FINAL INTERMEDIARY PERIOD (FINANCIAL INFORMATIONYET TO BE AUDITED)

The Company did not prepare for the separate f0 for the final intermediary period that the major management

outcome of the Company is shown as follows.

(Unit: 1,000 won)

Classification4th quarter of the

current term4th quarter of the

previous term

Sales revenue 2,359,480 897,173

Loss on quarterly operating activity (704,603) (776,809)

Net loss of the quarter (2,614,502) (765,409)

Net loss per common stock of the quarter 74 won 27 won

- IIA-50 -


22. ADVANCE NOTIFICATION ON INFLUENCE OF INTRODUCING K-IFRS

After the announcement of the road map to introduce the IFRS in March 2007, the company has reviewed in

various angles on entire fields from preparation to implementation to introduce the K-IFRS that will be applicable to all

listed companies from the fiscal year of 2011.

The Company is planning for introduction preparation team with its recognition of importance by all officers and

employees as well as accounting department and executives on all fields possible for introduction in establishing the

accounting policies on K-IFRS, standardized accounting process manual, structuring of consolidated settlement system,

structuring of notification system, advancement of IFRS specialized personnel and others, and accordingly, it has

contemplated its mid-term to long-term plan for 2010. Followings show detailed preparation plan and promotion status.

Major activities Preparation plan Status of promotion

Operation of IFRS introduction

team and analysis of influence on

its introduction

Complete the IFRS introduction

by the end of 2010 by operating

the IFRS introduction team.

Prepare comparative financial

information of 2010, description

on IFRS conversion required

under IFRS 1 by the end of the

4th quarter of 2010

Organize the IFRS introduction

team in December 2009 and

advance review

Analyze the influence of

introduction by the end of 2nd

quarter of 2010

Training of officers and

employees

Acquisition of specialized

knowledge required for the IFRS

conversion work by the 2nd

quarter of 2010

Schedule to implement the

practitioner training in the first

half of 2010

Arrangement of accounting

system

Completion of accounting system

arrangement for the IFRS

application by the end of

September 2010

In review of influence on the

scope of system change

- IIA-51 -



extracts of the annual report and (2) the audited financial statements of Nitgen for the year ended 31

December 2010, which were published in Korean. Such financial statements was prepared in accordance with

Korea Generally Accepted Accounting Principles (“K-GAAP”). The annual report of Nitgen and the audited

financial statements of Nitgen for the year ended 31 December 2010 have been published in Korean on the

website of the Repository of Korea’s Corporate Filings (http://dart.fss.or.kr/dsab001/main.do). The English

(and Chinese) translations of the full annual report of Nitgen for the year ended 31 December 2010 are

published on the website of the Company at http://www.avconcept.com. In case of any discrepancy between

the English (or Chinese) version and the Korean text, the Korean text shall prevail.

Shareholders should note that the extracts of the annual report of Nitgen and the auditedfinancial statements of Nitgen for the year ended 31 December 2010 set out below are provided forinformation purpose only and the financial statements of Nitgen for the year ended 31 December 2010were prepared in accordance with K-GAAP. Shareholders should also note that the financialstatements of Nitgen for the year ended 31 December 2010 was not consolidated financial statements asbefore the amendment of Enforcement Decree of the Financial Investment Services and Capital MarketAct of the laws of Korea on 11 June 2010, Nitgen was not required to report as consolidated financialstatements before the end of 2010. In addition, for the financial years ended 31 December 2010, Nitgenwas not required to prepare consolidated financial statements under K-GAAP. Shareholders areadvised to consult professional advice if there is any doubt in reading such financial information ofNitgen. Terms defined herein apply to this Appendix only.






1. SUMMARY OF FINGER SCAN BUSINESS

A. Summary of bio-scan business

The Company has the main businesses in the finger scan field from the bio-scan fields in finger

scan, face scan, iris scan and others. The bio-scan technology means the technology to identify

individuals by using the physical characteristics of human, such as, finger print, face, iris, blood vein

and others or behavioral characteristics, such as, signature, walking pattern and others. The bio-scan

technology has the characteristics of safer practice in relative terms compared to other identification

technology since it is difficult to forge or modulate if there is no consent or intent of the applicable

person, and this type of characteristics and user convenience attracts attention as the next generation

core scanning technology. In particular, as it is in synch with the technical and social-cultural factors

in advancement of digital technology, expansion of IT infra dispersion, concern on increasing personal

- IIB-1 -

APPENDIX IIB FINANCIAL INFORMATION OF NITGEN FOR THE YEAR 2010

information interference and others, the convergence of bio-scanning technology and information

technology has been accelerated, and accordingly, the bio-scanning industry has attracted attention as

the cutting edge tangible asset-based industry since 1990s.

B. Status of industry and market

The bio-scan industry prior to 1990s had slow advancement of the market due to lack of

technology stability and high price but, following the advancement of the IT technology after 1990s,

the price of product has declined and the sensor has become slimed down to increase convenience to

broaden its range of application.

In 2000s, government institutions, industries, research institutes and general public have

facilitated in diverse fields for bio-scan tangible asset to drastically expand after the ‘September 11

Terror’. The US and other countries have applied bio-scan technology in electronic passport, electric

resident card and others for personal identification or immigration control with the drastic growth of

security market that used the bio-scan technology around public field and the US and other

governments have established various policies to develop the bio-scan industry or adopted the bio-scan

technology.

In the event of Korea, by introducing the electronic passport, the government and public

institutions have expanded the bio-scan businesses to have heightened expected for the market growth.

In particular, with the successful pilot project in 2010 to “structure the finger print confirmation

system for foreigners’ that the Ministry of Justice promoted and schedule to promote this project in

2011 to show the expansion of business fields in public sector.

C. Status of the Company

Since 1998 when the term of bio-scan technology was unfamiliar, the Company has been fully

devoted for unyielding R&D effort with the pride in leading the domestic and global finger scan

technology for over 10 years. The Company holds the core technologies in finger scan field, such as,

sensor, algorithm, applied technology and others, and in particular, the Company holds the original

technologies on optic-method fiscal year sensor and algorithm. On the basis of such original

technologies, the Company is the only company to provide integrated finger scan solution for access

control terminal, PC peripheral device live, live scanner and finger scan server. The Company may

divide its business fields for access controller, attendance management terminal, finger scan mouse and

PC peripheral device, electronic passport and other public use in live scanner, PC log in finger scan

server solution, mass capacity and high speed search solution and others. As the leader of the industry,

the Company may make diverse products and handles entire technologies and products in earlier-

presented fields. The Company has structured product line up to accommodate diverse requirements of

customers as well as the customization system to respond the demands of customer in case-by-case to

realize the customer satisfaction. Recent society has unlimited demands of customers as it is referred to

as the diversity society and the speed of the change is very fast as well, The effort of the Company to

supply product and solution in due time has been shown its fruition.

- IIB-2 -


One of the recent spotlights in domestic and overseas markets is the live scanner used in public

fields. Together with the IC technology in electronic passport, national ID, health care and others, the

importance of personal identification has been increased with the increasing cases of using the Finger

Scan, and the Company has supplied live scanner (model name of eNBioScan-F) for the electronic

passport business of Korea in 2009, won the orders for major domestic and overseas projects from

Mexico Police Agency, Brazil Transportation Administration and others, and has supplied Finger Scan

algorithm in the pilot project of “structure the finger print confirmation system for foreigners’ that the

Ministry of Justice promoted and scheduled to promote this project in 2010.

Since releasing the Finger Scan access control terminal of NAC-3000 in 2003, the Company

has released NAC-2500 in 2006, NAC-5000 of high class access controller in 2009, Fingkey Access as

the dispersion-type model in later part of 2009, and Fingkey Access Plus in 2010 to structure diverse

product line-up. In particular, in the event of Fingkey Access Plus, it is one notch higher for functions

and capabilities by reflecting the requirements of customers and market after the release of Fingkey

Access that it actively responds to the market change to make product accommodated the requirements

of diverse customers. In addition, the Company expects even better result in 2011 by developing the

product linked to the KT Tele-Cop Security System, a security service company, in 2011.

In the event of the finger scan scanner and mouse, it combines with the finger scan server

solution to carry out the system structuring business. In 2009, there have been many outcomes in

individual information discharge prevention system business for Customs Office, trust system of the

Supreme Court, SKT customer management system, responsible approval system of Kookmin Bank

and other large scale businesses.

In 2010, the Company has actively participate in High-Pass terminal business that Korea

Highway Corporation to adopt the solution of the Company with the finger scan system loaded with

the exemption terminal distributed in the market, and the exemption terminal issuance standard

structure business ordered by Korea Highway Corporation has been successfully performed by the

winning the order by the Company.

D. Facilitation fields

The core original technology of the Finger Scan business could be listed as scanning algorithm,

sensor technology, and accompanying HW and SW applied technologies. On the basis of such

technologies, it is possible to apply in diverse devices in access control, attendance management, door

lock, savings, financial payment, ATM and others, and for the public field, the application fields are

very broad for AFIS, electronic passport, social insurance and others. Among them, followings are the

key businesses applied.

j Access control and attendance management

The representative field in the application fields of Finger Scan technology is the access

control and attendance management system. Existing method of using the key or password has

problems in theft, stolen, lapse of memory and others, and the bio-scan technology is the

representative technology to supplement these existing problems, and the Finger Scan

technology is the field with the fastest growth with its excellent convenience in use and

- IIB-3 -


economic feasibility. In early times of the market, the market was formed mainly for research

institutes or general corporate facilities where security is priority, but in recent days, the

emphasis is on security as well as convenience in use that the application field has been very

broad for general business, plants and apartments. The Finger Scan access control system has

no troubles in re-issuance from loss, burden on key or card possession that the demand has been

on the rise in the access control and attendance management fields.

k PC/network security

PC/network security means the use of Finger Scan technology in server access control

and others under the access control and network environment on PC or laptop computer.

Following the drastic advancement of the IC technology, it breaks away from the existing face-

to-face transactions to increase non-face-to-face transactions, and under the environment, the

demand on accurate personal identification has been valued more than anything else. In the

event of existing password or token method, it has the risk of theft, loss, lapse of memory, and

others while the Finger Scan has resolved such risk and provides the user convenience at the

same time. In addition, most of corporate activities are computerized to emerge the security

issue in access authority for users, and in recent times, there have been increasing numbers of

companies introducing the security solution within the corporate network by using the Finger

Scan technology.

l Live scanner

The market has been drastically expanded around the public field in recent days. By

breaking away from existing Finger Scan sensor, the live scanner is normally referred to as the

Finger Scan scanner to facilitate in crime investigation, electronic passport, electronic resident

card and others. In order to supplement the weakness of acquiring the limited finger print

information in the commercial sensor, the general live scanner structured with the large finger

print input window is structured to have input in sheet 1, sheet 2 and sheet 4 at the same time.

In recent days, Brazil, Mexico and other Central and South America countries as well as India

and others have shown a drastic increase in demand, and in Korea, in the event that the

electronic resident card project that has been the recent social issues already applied from the

National Police Agency, the Ministry of Justice, the Ministry of Foreign Affairs and Trade and

others are undertaken, the demand is expected to be explosive.

E. Position of Finger Scan in the bio-scan market

The field that takes the highest ratio in the bio-scan market is clearly the Finger Scan market.

The Finger Scan market takes appropriately 67% (including AFIS) of global market in 2009 that it has

the overwhelming position for 93.5% as of 2008 for the domestic market. The Finger Scan technology

has less sense of denial for users compared to other bio-scan technologies with higher price

competitiveness and accuracy compared to others for the fastest growth and it has high possibility to

apply in diverse fields that it has the widest use in the present bio-scan methods.

- IIB-4 -


F. Characteristics of market

j Main target market

The Finger Scan technology that the Company holds is the key technology to apply in

diverse fields of access security, network security, financial payment, mobile scanning and

others. Up to this point, the Company has focused on physical security fields in access security,

attendance management and others, and it plans to expand the business into public field in

electronic passport, immigration management, criminal identification and others.


The structure and characteristics of the product users of the Company follow the

characteristics of finished product and applied SW distribution industry for the Finger Scan

system and characteristics of SW license industry and components for Finger Scan solution.

l Changing factors of demand

Factors to change the demand of the Company’s product may be divided into the

external factors in change of bio-scan market and change of security market and the internal

factors following the product and sales undertaking of the Company. First of all, the bio-scan

market environment is expected to continuously grow under the price and technology in future.

From the old days, there are consensus on the efficacy and need of the bio-scan products, but

high price and immature technology have been the obstacles. However, after 2000, significant

interest and investment on bio-scan industry have brought higher level upgrading in overall bio-

scan technology for certain leading companies, including the Company, and the market is

evaluated at the level with technology no longer an issue to hinder further market expansion.

With the improvement of the Finger Scan algorithm as well as the advancement of finger

print sensor related technology and capability improvement of CPU, such technical maturity is

expected to be even higher in the future. In the aspect of price, the Finger Scan related part

price has been lowered for 50% or more in recent several years. In fact, the finger print sensor,

one of the key hardware to structure the Finger Scan solution as the core component of the

Finger Scan product was USD50 or more by the early times of 2000, but it is in the range of

USD15~30 and in the event of the semiconductor method of finger print sensor applied in

laptop computer, mobile phone and others have come to the USD5 range. CPU that carries out

the Finger Scan computation has been approximately 4-5 times lower compared to the same

capability in the recent several years. Such advancement in technology and price decline would

lead to the market expansion and the demand for Finger Scan solution and system products of

the Company would be influenced as well. Demand for the Finger Scan product of the

Company is related to the expansion or slow down of security market as the representative

application field. The September 11 Terror incident of the US has brought sense of alarm on

security throughout the world, including the US, and it has brought remarkable advancement in

video security and access security industry. Thereafter, increase of terror, various disputes,

crime rate and others throughout the world are expected to grow even more in the future for the

security industry.

- IIB-5 -


2. CONTENTS AND PROSPECT OF LANDSCAPING BUSINESS

A. Understanding of landscaping industry

Landscaping is a comprehensive industry to build-up the landscaping by applying the naturally

obtained landscaping material to process it appropriately for living and purpose. In addition,

landscaping is to build up the scenic view to enable human to facilitate more functional, economic and

visual environment in use, development and creativeness of all external space and land to conserve for

ecologic integrated industry.

The scope of landscaping industry is subject for all external space. It encompasses housing

garden, commercial building with garden, street and square, large residential complex, college campus,

express way, industrial complex, port, plant and other infra facilities, playground, neighborhood park,

sports park and other urban green park, cemetery park, indoor landscaping, rooftop landscaping,

provincial park, national park, natural monument protection site and other nature park, palace park,

temple, old housing and other cultural heritage, zoo, camping ground, horseracing track, gold course,

ski resort and other tourism and recreational facilities for landscaping industry.

Furthermore, outdoor sculpture, super graphic and other art works, water fountain, street

decoration, pavement and other facilities are included as subject of landscaping.

B. Characteristics of landscaping business

j Specialization-oriented market structure

The landscaping business is the business requiring specialized technology and rich

experience that this is expert-oriented business with the characteristics required for persons with

expert knowledge.

k Independent market structure

In 1974, the landscaping work business license was newly established as a special work

business to securely settled as an independent territory for construction industry together with

the housing construction business in 1980s, and it has increased relatively compared to other

construction business as of 2010 since 1970 that this is a very bright business with the

technology power with advancement of specialized personnel under the globalization of the

landscaping business.

l Business with high domestic demand dependence

The most of landscaping business is consisted of business with subcontract of public

fields from government and local governments as well as private housing business field from

private construction companies that the landscaping companies have greatly increased since

1997, and after 2000s, with the extension of high class housing construction demand and

- IIB-6 -


recover of housing construction economy, as well as expansion of business volume in the

environment-friendly business field in forestry landscaping, urban forest building up project and

others, the landscaping business has been well facilitated.

C. Status of landscaping business and future prospect

The landscaping market of Korea has been structured with government works and housing

landscaping works led by the private sector. Residential complex landscaping field implemented by the

private construction companies has been assessed as high class quality second to none in the global

market. Looking into the record for each year of general construction industry, it had 59 trillion 470

billion won in 1997 to have 189% increase for the next 10 years to 112 trillion 436.8 billion won in

2006, but the landscaping work business made drastic increase of 367% from 528.7 billion won in

1997 to 1 trillion 939.7 won in 2006 for relatively extended landscaping works.

Due to the self-regulated housing work subdivision sales, the overheated competition for the

private housing market began with the higher quality of external, internal and landscaping spaces.

Under the “Declaration of Human Environment” declared in UN Human Environment Session of 1972

and “Rio Declaration (ESSD)” of 1992, the Korean government has attempted for diverse landscaping

projects for 4 Major River Revitalization Project and landscaping ecologic approach on landscaping

business and it is highly likely to have growth possibility in the industry by looking at the reality of

higher level of recognition on the landscaping business from qualitative improvement of national

living standard.

3. MAIN PRODUCTS AND RAW MATERIALS

A. Status of main products

(Unit: million won, %)

Business fields Sales type Items Detailed application Main trademarkSales amount

(ratio)

Nitgen Business

Dept

Product Access controller Access controller and

others

NAC-2500/3000/

5000

9,208

(86.4%)

Merchandise Door lock Door lock NDL-100/600 514

(4.8%)

Enpia Business

Dept

Service Added

communication


for securities

company

SecurePack and 2

types

79

(0.7%)

Product/

merchandise

Solution Enpia S series Enpia S-series 16

(0.2%)

Landscaping

Business Dept

Service Landscaping Landscaping plants

and landscaping

facilities

– 841

(7.9%)

Total 10,658

(100.0%)

- IIB-7 -


B. Trend of price change in main products


and model MIX.

C. Status of main raw materials

(Unit: 1,000 won, %)

Businessfield



Nitgen Raw materials AC parts Parts for access controller 604,598 18.23 –

Raw materials ENBIO parts Parts for ENBIO SCAN 57,044 1.72 –

Raw materials FIM parts Parts for processing board 2,236,317 67.43 –

Raw materials HAM parts Hamster related parts 193,683 5.84 –

Raw materials OP parts Optic module parts 224,858 6.78 –

Total raw materials 3,316,500 100.00 –



deleted hereof.


(Unit: won)


AC parts 342.5 335.5 348.2

ENBIO parts 953.8 947.5 840.4

FIM parts 423.5 568.4 978.9

HAM parts 172.4 166.3 159.3

OP parts 103.2 110.7 112.8

Total 245.6 242.4 238.9

- IIB-8 -


E. Status of production facilities


(Unit: 1,000 won)

Business

premises

Ownership


Beginning

book value

Applicable change

Depreciation

Ending

book


Head office

and plant

Independent

ownership

(registry)

Nonhyeon-

dong, Guro

Land 327,688 138,839 – – 466,526

Building 598,559 – – 19,856 578,703

Facilities 52,004 1,000 – 23,917 29,087

Vehicle transport 127,099 – – 57,322 69,777

Tools and

equipment 13,675 – – 5,237 8,438

Fixture 103,184 17,595 – 52,484 68,295

Mold 136,774 122,200 – 94,071 164,903

Computer

equipment 117,354 – – 54,486 62,868

Total 1,476,337 279,634 – 587,007 1,449,597

ø The book value is based on the cost of acquisition and this is the amount excluding the national

subsidy.

ø Unit is 1,000 won and below the figure is rounded off (possible for single number change)

(2) New establishment of facilities – purchase plan

(1) On-going investment


(2) Future investment plan


- IIB-9 -


4. MATTERS ON SALES


(Unit: million won)


TermThe 26th

TermThe 25th

Term

Enpia/Nitgen Enpia service Added service Export 35 – –

Domestic demand 44 311 2,725

Total 79 311 2,725


Domestic demand 16 – 38

Total 16 – 38

Nitgen product NAC-2500/

3000/5000

Export 6,198 5,035 802

Domestic demand 3,010 1,535 60

Total 9,208 6,570 862

Nitgen

merchandise

NDL-100/600 Export 12 4 –

Domestic demand 502 745 6

Total 514 749 6

Landscaping

service

Landscaping

planting/

landscaping

facilities

Export – – –

Domestic demand 841 – –

Total 841 – –

Total Export 6,245 5,039 802


Total 10,658 7,630 3,636


(A) Nitgen Business Department


The finger scan system part of the Company structures the access security system

and attendance management system for customers in the domestic market through

bidding of public institutions and sales on agencies. And, the finger scan solution part

focuses in providing the optimal products to customers by developing various finger scan

applied products.

- IIB-10 -



This is the sales organization exclusively in charge of overseas sales of diverse

products of the Company with finger scan terminal (NAC-2500, NAC-3000, NAC 5000,

SW 101, and others), to establish the competitive strategy in overseas markets through

survey and analysis on overseas market and competing companies and provides the

optimal finger scan solution for structuring access security and attendance management

system for customers in respective regions around the world through overseas

distribution network structure and overseas agency.

(B) Enpia Business Department

Direct sales by Sales Marketing Division and indirect sales through distributors of the

Company

(2) Sales routes


Place of sales:

1. Domestic – Bidding on public institutions/agency and direct sales

2. Overseas – Agency and direct sales (indirect sales through overseas agency)

(B) ENPIA Business Department

Place of sales:

1. Domestic sales by distributor




accordance with credibility and contract conditions of the sales place. The sales proceeds are

paid by cash (deposit to account) or electronic note (purchase card) and the period possible to

cash after the supply is approximately 0-3 months (0-90 days).

Sales condition of export is mainly in T/T transaction along with the credit card payment

through Korea Exchange Bank. The sales proceed is mostly paid in advance and, in the event of

certain customers, it may have proceeds recovery period of 0-2 months (0-60 days) depending

on the transaction conditions.

- IIB-11 -



With the differentials in official price of the Company, sales price of distributor, and

actual sales price of locality for final consumers, it is set to generate margin for distributor.

(4) Sales strategy


– Strengthening of sales activities mainly for new products and high value-added products


– Undertaking intense advancement for major customers and diversification of transacteditems


ManagingDirector

AdvanceResearch Team

Sale Team

BusinessDivision

DevelopmentOffice

Planning TeamManagement

Support OfficeS/W Team Quality Team Product TeamH/W Team

Auditor

RepresentativeDirector

5. ORDERS

A. Finger Scan Business




- IIB-12 -


B. Landscaping Business Department

(1) Landscaping Project in Gimje Gyo-dong Apt.

Classification Contents

Work name Landscaping Project in Gimje Gyo-dong (Juhwan and

Kukim 533) Apt.

Work location 109-1 Gyo-dong, Gimje-si, Jeollabuk-do

Subcontract amount Planting: W845,460,000

Facilities: W567,993,000

Total: W1,413,453,000

Subcontract work period 12 July 2010 ~ 24 March 2011

(2) Ecological River Building-up Project in Jeonnam District (District 1) for SeomjinRiver Reviving Project


Work name Landscaping planting work and landscaping facility work

from the Ecological River Building-up Project in Jeonnam

District (District 1) for Seomjin River Reviving Project

Work location Jewol, Jangseon, Sinwon, Wongil and Osa Districts

Subcontract amount Planting: W3,592,820,000


Total: W4,436,740,000

Subcontract work period 25 October 2010 ~ 31 October 2012






- IIB-13 -


Work location Aprok, Bongseo, Gwangpyeong (Sado), Dongbangcheon

Districts



Total: W1,445,136,000

Subcontract work period 2 November 2010 ~ 16 December 2012

6. STATUS OF BUSINESS OF SUBSIDIARY COMPANY

A. Status of industry where the subsidiary company belongs

RIA (Rich Internet Application) means the technology that enables to process the plain

expression and sequential process of existing web Application technology in one interface with

affordable cost through the linkage of DB and dynamic user interface. It has been known since Macro

Media that was acquired by Adobe introduced it for the first time and Google Map of Google has

applied the Ajax technology to gain global reputation.

In Korea, RIA and X-Internet were simultaneously introduced in 2003 with the respective

strength in respective field to form different demand class for their advancement. Their fundamental

purposes are consistent in that they both are striven for rich UI (User Interface) with the concept to

overcome the limitations in existing HTLM-based web technology but RIA has advanced with the

focus on UI innovation to process several web-pages or several phases of process in one page.

Global vendors, such as, Adobe and Microsoft, emphasize such a difference to strengthen the

marketing effort for image building as the RIA specialized vendor, but in the domestic market, RIA

and X-internet are shown for the trend to integrated into RIA or combined to it within the frame of

Web 2.0.

B. Status of business of the subsidiary company

RIA Soft Co., Ltd. has been registered as a partner on the flex product, an Adobe product, and

has developed RIA Plus to enable to link the flex products in several fields in 2007. Sales of the

Company are made in the form of development and maintenance of applicable system in meeting to

the customer needs for officer information system, data board and SEM portal and others by selling

the flex products or provide additional service to RIA Plus.

- IIB-14 -


C. Sales performance of the subsidiary company

(Unit: 1,000 won)

Classification2009.01 ~ 2009.12(The 6th Term)

2010.01 ~ 2010.12(The 7th term) Remark

Sales revenue 2,075,633 1,650,077

Operating income 77,137 57,177

Net income 56,767 131,277


A. Status of execution for derivative product contracts

Not applicable


Not applicable


Not applicable

9. R&D ACTIVITIES





Technology Development Team 1) Development of core algorithm for Finger Scan

2) Development of Finger Scan PC solution

3) Development of Finger Scan server solution

4) Development of mobile Finger Scan solution

5) Development of Finger Scan capability evaluation

technology

- IIB-15 -



Product Development Team 1) Development of access security and attendance

management system application SW

2) Development of access security and attendance

management system terminal SW

3) Development of embedded Finger Scan module

palm-ware

4) Development of live scanner application SW

5) Development of Finger Scan live scanner

6) Development of application SW for electronic

passport

7) Development of device for electronic passport

B. Performance of major R&D development


Attendance management

SW development

January 2010 ~

currently in progress

Development of attendance and edible water

management program by using the Finger Scan

BCS (Biometric Server

Client) development

January 2010 ~


Development of solution available for linkage and

management server and Finger Scan terminal of

the Company

Development of FA 10-01

AFIS exclusive

algorithm

September 2009 ~


Development of individual information security

server/client by using the bio-metric information

KT 101/KT 101+

development

November 2009 ~


Manage the information of each user and PC

security policies from the server

Development of finger

scan and facial scan

integrated terminal

January 2010 ~


Confirmation of PC service record of each user

from the server

- IIB-16 -




(1) Domestic procurement

Not applicable

(2) Overseas procurement

Not applicable


Not applicable


Not applicable

- IIB-17 -






















statement.




- IIB-18 -





(Unit: won)


I. SALES REVENUE 10,658,902,971 7,630,118,573 3,636,861,354

II. COST OF SALES 6,264,214,629 4,490,660,695 3,672,889,764

III. GROSS INCOME (LOSS) FROM SALES 4,394,688,342 3,139,457,878 (36,028,410)

IV. SELLING AND ADMINISTRATIVE EXPENSES 3,737,472,370 6,148,096,639 6,548,709,514

V. OPERATING INCOME 657,215,972 (3,008,638,761) (6,584,737,924)

VI. NON-OPERATING INCOME 1,510,626,494 2,094,503,006 2,076,284,182

VII. NON-OPERATING EXPENSES 1,310,238,223 2,872,093,455 5,797,749,037

VIII. NET INCOME (LOSS) BEFORE DEDUCTING

THE INCOME TAX EXPENSES 278,470,829 (3,786,229,210) (10,306,202,779)

IX. INCOME TAX EXPENSES (652,317,159) – –

X. NET INCOME (LOSS) 1,509,921,402 (3,786,229,210) (10,306,202,779)

XI. INCOME (LOSS) PER STOCK 43 (107) (629)

The sales amount of the Company in 2010 was 10,658,902,971 won with the Operating income

of 657,215,972 won and the net income of 1,509,921,402 won, and for the detailed contents related to

other business status, domestic business is 4.4 billion won and overseas business is 6.2 billion won,

and the ratio of sales for home and abroad is 40% and 60%, respectively.




- IIB-19 -




(Unit: won)


I. Current Assets 16,612,287,581 12,194,070,059 14,279,735,295

1. Quick assets 14,601,781,663 10,713,365,620 12,025,128,668

2. Inventories 2,010,505,918 1,480,704,439 2,254,606,627

II. Non-current Assets 4,945,174,114 7,399,056,527 10,671,256,018

1. Investment assets 1,242,223,388 4,384,507,227 3,617,638,625

2. Tangible assets 1,448,599,612 1,450,767,236 1,917,883,711

3. Intangible assets 1,108,130,479 710,346,064 431,765,812

4. Other non-current assets 1,146,220,635 853,436,000 4,703,967,870

Total Assets 21,557,461,695 19,593,126,586 24,950,991,313

I. Current Liabilities 1,413,225,056 866,765,889 2,138,889,061

II. Non-current Liabilities 777,949,582 616,226,502 855,738,847

Total Liabilities 2,191,174,638 1,482,992,391 3,054,627,908

I. Equity Capital 17,700,158,000 17,700,158,000 17,700,158,000

II. Capital Surplus 4,894,706,528 8,680,935,738 25,408,823,981

III. Capital Adjustment (4,391,447,947) (4,484,730,333) (4,484,730,333)

IV. Cumulative Amount of Other Comprehensive Income (347,050,926) – –

V. Profit Surplus (Deficit) 1,509,921,402 (3,786,229,210) (16,727,888,243)

Total Capital 19,366,287,057 18,110,134,195 21,896,363,405

Total Liabilities and Capital 21,557,461,695 19,593,126,586 24,950,991,313

Asset is 21,557 million won, an increase of 10.02% compared to the previous fiscal year and

the total of liabilities is 1,482 million won, an increase of 47.84%.


The currency rate of the Company is 117%, a reduction of 16% compared to the previous year for an

improvement, and unless otherwise having a special situation, the current liquidity is determined as having no

problem, and the liabilities ratio is managed for less than 11.31% with the full commitment for maintaining

the financial soundness for later.

- IIB-20 -




7 March 2011

To the Board of Directors and Shareholders of NITGEN&COMPANY Co., Ltd.

We have audited the accompanying statement of financial position of NITGEN&COMPANY

Co., Ltd. (the “Company”) as of 31 December 2010 and 31 December 2009 and the related statements

of income, appropriations of retained earnings, changes in shareholders’ equity and cash flows for the

years then ended. These financial statements are the responsibility of the Company’s management. Our

responsibility is to express an opinion on these 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 audit to obtain reasonable

assurance about whether the 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 statement presentation. We believe

that our audits provide a reasonable basis for our opinion.

In our opinion, based on our audits, the financial statements referred to above present fairly, in

all material respects, the financial position of NITGEN&COMPANY Co., Ltd. as of 31 December

2010 and 2009, and of their financial performance and their cash flows for the years then ended in

conformity with accounting principles generally accepted in the Republic of Korea.

Without qualifying our opinion, we draw your attention to Note 1 to the accompanying

financial statements, in which as discussed, the largest shareholder of the Company has been changed

to Ocean B Holdings Co., Ltd. from SHINSUNG Engineering & Construction Co., Ltd. and one other

(MK Electron Co., Ltd.) during the reporting period.

Representative Director Park Jong BumInduk Accounting Corporation

14-11 Yoido-dong, Youngdeungpo-gu, Seoul

This report is effective as of the date of this audit report date (7 March 2011). 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 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.

- IIB-21 -


FINANCIAL STATEMENTS

For The Years Ended 31 December 2010 and 2009

The accompanying financial statements were prepared by the Company.

Heo Sang HeeRepresentative Director of NITGEN&COMPANY Co., Ltd.

- IIB-22 -


STATEMENT OF FINANCIAL POSITIONFor the years ended 31 December 2010 and 31 December 2009

NITGEN&COMPANY (In Korean Won)

Account 2010 2009

Assets

I. Current Assets 16,612,287,581 12,194,070,059

(1) Quick Assets 14,601,781,663 10,713,365,620

1. Cash and cash equivalents (Notes 2, 3, 16) 5,075,175,218 6,330,747,411

2. Short-term financial instruments (Note 3) 100,000,000 0

3. Trading securities (Note 5) 4,363,527,500 0

4. Short-term loans (Notes 4, 15) 303,700,000 2,873,700,000

Allowance for doubtful account (3,037,000) (791,037,000)

5. Trade receivable (Notes 2, 16) 4,790,261,158 2,816,879,070


6. Construction account receivable (Note 20) 329,689,238 0

7. Accounts receivable – others 191,009,785 51,015,281

Allowance for doubtful account (16,065,944) (470,549)

8. Accrued Income (Note 15) 21,785,752 110,066,001

Allowance for doubtful account 0 (26,147,330)

9. Advance payments (Note 15) 25,748,546 147,573,753

10. Prepaid expenses 6,661,465 5,999,480

11. Tax refund receivable 78,549,452 51,401,780

12. Deferred income tax assets (Note 13) 201,032,524 0

(2) Inventories (Note 8) 2,010,505,918 1,480,704,439

1. Finished goods 425,873,953 474,842,614

Allowance for valuation (71,843,613) (103,765,695)

2. Raw materials 2,422,440,846 1,864,853,752

Allowance for valuation (765,965,268) (755,226,232)

II. Non-Current Assets 4,945,174,114 7,399,056,527

(1) Investments 1,242,223,388 4,384,507,227

1. Available-for-sale securities (Note 2, 5) 374,547,168 557,812,210

2. Held-to-maturity securities (Note 5) 17,676,220 17,676,220

3. Equity-method securities (Note 6) 850,000,000 3,809,018,797

(2) Tangible Assets (Note 2, 7, 8) 1,448,599,612 1,450,767,236

1. Land 466,526,893 327,687,780

2. Building 794,244,650 794,244,650

Accumulated depreciation (215,541,672) (195,685,556)

3. Machinery 196,250,000 196,250,000


- IIB-23 -


(In Korean Won)

Account 2010 2009

4. Facility Equipment 158,955,352 157,955,352


5. Vehicles 357,820,252 357,820,252


6. Tools & fixtures 465,326,041 445,327,541


Government Grants 0 (2,970,649)

7. Office equipment 2,108,120,134 2,090,524,936

Accumulated depreciation (2,036,911,451) (1,987,341,864)

Government Grants (2,913,555) (22,598,051)

8. Mold 804,702,500 682,502,500


9. IT Equipment 3,923,521,337 3,923,521,337

Accumulated depreciation (3,860,653,018) (3,806,167,214)

(3) Intangible assets (Note 9) 1,108,130,479 710,346,064

1. Development expenses 1,068,422,505 658,823,954

Government Grants 0 (565,800)

2. Industrial property rights 38,300,300 48,764,885

3. Software 1,189,342 2,278,549

4. Other intangible assets 218,332 3,665,390

Government Grants 0 (2,620,914)

(4) Other Non-Current Assets 1,146,220,635 853,436,000

1. Guarantee deposits 273,436,000 403,436,000

2. Long-term receivable 216,468,440 216,468,440

Present value discount (184,916,980) (184,916,980)


3. Deferred income tax assets (Note 13) 451,284,635 0

4. Long-term advance payment 421,500,000 450,000,000

Total Assets 21,557,461,695 19,593,126,586

Liabilities

I. Current Liabilities 1,413,225,056 866,765,889

1. Trade payable 1,074,339,220 570,072,137

2. Account payable – other 171,513,857 181,764,082

3. Advances from customers 1,694,628 5,554,158

4. Withholdings 6,902,490 13,639,894

5. Accrued income 0 2,229,420

6. Accrued expenses 72,160,849 62,906,198

7. Construction advances (Note 20) 86,614,012 0

8. Current long-term account payable 0 30,600,000

- IIB-24 -


(In Korean Won)

Account 2010 2009

II. Long-term Liabilities 777,949,582 616,226,502

1. Long-term account payable 0 16,200,000

2. Withheld guarantee 528,000 528,000

3. Accrued severance benefit (Note 2, 10) 778,632,151 600,709,071

Retirement pension management assets (1,210,569) (1,210,569)


Shareholders’ Equity

I. Shareholders’ Equity (Note 1, 11) 17,700,158,000 17,700,158,000

1. Common stock 17,700,158,000 17,700,158,000

II. Capital surplus 4,894,706,528 8,680,935,738

1. Share premium 1,379,564,073 1,379,564,073

2. Gain on capital reduction 3,515,142,455 7,301,371,665

III. Capital Adjustment (4,391,447,947) (4,484,730,333)

1. Loss on disposal of treasury stock (4,484,730,333) (4,484,730,333)

2. Stock options (Note 18) 93,282,386 0

IV. Accumulated other Comprehensive income/loss (Note 12) (347,050,926) 0

1. Valuation loss on available-for-sale securities (347,050,926) 0

V. Retained earnings 1,509,921,402 (3,786,229,210)

1. Unappropriated retained earnings (Undisposed

accumulated deficit) 1,509,921,402 (3,786,229,210)

Shareholders’ Equity 19,366,287,057 18,110,134,195

Total Liabilities and Shareholders’ Equity 21,557,461,695 19,593,126,586

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

- IIB-25 -


STATEMENT OF INCOMEFor the years ended 31 December 2010 and 2009

Nitgen & Company (In Korean Won)

Account 2010 2009

I. Sales (Note 2, 21) 10,658,902,971 7,630,118,573

1. Merchandise sale 9,207,998,248 6,569,858,834

2. Goods sale 514,262,388 748,995,491

3. Others 95,347,108 311,264,248

4. Construction revenue 841,295,227 0

II. Cost of Sales 6,264,214,629 4,490,660,695

1. Cost of sale for goods 4,924,335,012 3,623,911,767

Beginning inventory 371,076,919 746,308,652

Cost of goods manufactured 4,947,653,833 3,268,453,344

Reclassification to other account (40,365,400) (19,773,310)

Ending inventory (354,030,340) (371,076,919)

2. Cost of sales for merchandise 502,375,072 725,713,045

Beginning inventory 0 0

Purchase of merchandise 502,375,072 725,713,045

Ending inventory 0 0

3. Cost of sales for service 70,187,261 141,035,883

4. Cost of sales for construction 767,317,284 0

III. Gross Profit 4,394,688,342 3,139,457,878

IV. Selling & General Administrative Expenses (Note 19) 3,737,472,370 6,148,096,639

1. Salaries and wages (Note 15) 942,330,036 1,156,080,599

2. Provision for severance indemnities 133,523,050 191,024,045

3. Share-based payments (Note 18) 93,282,386 0

4. Employee benefits 231,862,860 342,255,734

5. Travel expenses 93,115,730 91,001,154

6. Entertainment expenses 163,847,431 139,740,654

7. Communication expenses 30,253,593 41,450,368

8. Utility expenses 2,000,210 3,155,630

9. Taxes and dues 12,591,312 181,523,019

10. Depreciation (Note 7) 242,874,508 440,729,673

11. Intangible asset amortization (Note 9) 398,955,702 422,867,727

12. Ordinary development expenses (Notes 9) 380,918,997 491,428,989

13. Rental expenses 215,505,520 481,833,459

14. Insurance premium 12,829,795 53,284,318

15. Vehicle maintenance 23,056,290 44,569,565

16. Freight expenses 109,691,978 104,595,617

17. Publication expenses 4,253,600 6,199,275

- IIB-26 -


(In Korean Won)

Account 2010 2009

18. Supply expenses 11,817,050 15,913,756

19. Commissions 422,292,187 1,460,958,103

20. Advertising expenses 56,821,622 111,684,288

21. Bad debt expenses 99,680,619 308,793,986

22. Training expenses 1,519,900 1,557,837

23. Repair expenses 3,561,000 70,447

24. Event expenses 50,886,994 55,667,941

25. Miscellaneous 0 1,710,455

V. Operating Income (Loss) 657,215,972 (3,008,638,761)

VI. Non-Operating Income 1,510,626,494 2,094,503,006

1. Interest income (Note 15) 268,592,528 404,800,225

2. Gain on foreign currency transaction 123,086,710 214,106,344

3. Gain on foreign exchange translation (Note 16) 56,269,810 1,929,067

4. Reversal of allowances for doubtful account 19,640,120 273,394,168

5. Gain on disposal of trading securities 270,506,454 1,108,548,000

6. License income 0 7,841,637

7. Gain on disposal Equity-method securities 666,412,070 0

8. Gain on corrections of errors 0 12,152,949

9. Miscellaneous income 106,118,802 71,730,616

VII. Non-operating expenses 1,310,238,223 2,872,093,455

1. Interest expense 91,738,251 106,118,512

2. Loss on foreign exchange transaction 159,408,263 271,705,008

3. Loss on foreign exchange translation (Note 16) 24,964,047 67,810,097

4. Other bad-debt expenses 0 548,900,000

5. Valuation loss on trading securities 188,622,583 0

6. Loss on disposal of trading securities 123,840,671 0

7. Loss on disposal of tangible assets 0 75,637,785

8. Impairment loss on available-for-sale

securities (Note 5) 0 65,690,322

9. Equity in losses on equity method accounted investees

(Note 6) 433,724,901 508,234,508

10. Impairment loss on equity-method securities (Note 7) 70,892,216 1,137,148,375

11. Impairment loss on investment 100,000,000 0

12. Loss on disposal of investment 106,100,507 0

13. Miscellaneous loss 10,946,784 90,848,848

VIII. Profit (Loss) before tax 857,604,243 (3,786,229,210)

IX. Income tax (Note 13) (652,317,159) –

X. Net Profit (Loss) 1,509,921,402 (3,786,229,210)

XI. Earnings per share (Note 17)

1. Basic earnings (loss) per share 43 (107)


- IIB-27 -


STATEMENT OF APPROPRIATIONS OF RETAINED EARNINGSFor the years ended 31 December 2010 and 2009

Estimated date of

appropriation 28 March 2011 Date of appropriation 29 March 2011


Account 2010 2009

I. Retained earnings before appropriation 1,509,921,402 (3,786,229,210)

1. Unappropriated retained earnings carried over from

prior years 0

2. Net Profit (Loss) 1,509,921,402 (3,786,229,210)

II. Disposal of deficit 0 3,786,229,210

1. Gain on capital reduction 3,786,229,210

III. Unappropriated retained earnings to be carried forward to

subsequent year 1,509,921,402 0


- IIB-28 -


STATEMENT OF CHANGES IN EQUITYFor the years ended 31 December 2010 and 2009


Account Issued capital Capital surplusCapital

Adjustment

OtherComprehensive

income/lossaccumulated

amountRetainedearnings Total

Balance as of 1 January 2009 17,700,158,000 25,408,823,981 (4,484,730,333) 0 (16,727,888,243) 21,896,363,405

Disposal of deficit 0 (16,727,888,243) 0 0 16,727,888,243 0

Net Profit (Loss) (3,786,229,210) (3,786,229,210)

Balance as of 31 December 2009 17,700,158,000 8,680,935,738 (4,484,730,333) 0 (3,786,229,210) 18,110,134,195

Balance as of 1 January 2010 17,700,158,000 8,680,935,738 (4,484,730,333) 0 (3,786,229,210) 18,110,134,195

Stock options 0 0 93,282,386 0 0 93,282,386

Valuation loss on available-for-sale securities (347,050,926) (347,050,926)

Gain on capital reduction 0 (3,786,229,210) 0 0 3,786,229,210 0

Net Profit (Loss) 1,509,921,402 1,509,921,402

Balance as of 31 December 2010 17,700,158,000 4,894,706,528 (4,391,447,947) (347,050,926) 1,509,921,402 19,366,287,057


- IIB-29 -


STATEMENT OF CASH FLOWSFor the years ended 31 December 2010 and 2009


Account 2010 2009

I. Cash flows from operating activities (Note 17) (1,104,642,324) (774,793,970)

1. Net Profit (loss) 1,509,921,402 (3,786,229,210)

2. Cash flows from operating activities 2,172,638,034 3,916,350,931

A. Compensation Expenses Associated with Stock Option 93,282,386 0

B. Depreciation 283,497,448 497,700,993

C. Intangible asset amortization 398,955,702 422,867,727

D. Severance benefit 253,616,973 290,877,415

E. Bad debt expense 99,680,619 308,793,986

F. Other bad-debt expenses 0 548,900,000

G. Loss on foreign exchange translation 20,424,028 60,499,820

H. Valuation loss on trading securities 188,622,583 0

I. Loss on disposal of trading securities 123,840,671 0

J. Loss on equity method 433,724,901 508,234,508

K. Impairment loss on equity-method securities 70,892,216 1,137,148,375

L. Impairment loss on available-for-sale securities 0 65,690,322

M. Impairment loss on investments 100,000,000 0

N. Loss on disposal of investment 106,100,507 0

O. Loss on disposal of tangible assets 0 75,637,785

3. Deduction of income involving no cash inflow (958,679,685) (1,383,728,628)

A. Gain on foreign exchange transaction 2,121,041 1,786,460

B. Reversal of allowances for doubtful account 19,640,120 273,394,168

C. Gain on disposal of trading securities 270,506,454 1,108,548,000

D. Gain on disposal of equity-method securities 666,412,070 0

4. Changes in assets and liabilities resulting from operations (3,828,522,075) 478,812,937

A. Decrease in trade receivable (increase) (2,842,080,768) 49,238,519

B. Decrease (increase) of construction A/R (329,689,238) 0

C. Decrease (increase) of account receivable (139,994,504) 162,311,859

D. Decrease (increase) of accrued income 88,280,249 (23,625,166)

E. Decrease (increase) of advance payment 121,825,207 (6,694,870)

F. Decrease (increase) of prepaid expenses (661,985) 51,040,992

G. Decrease (increase) in tax refund receivable (27,147,672) (13,977,653)

H. Increase (decrease) of deferred income tax assets (652,317,159) 0

I. Decrease (increase) of inventories (529,801,479) 773,902,188

J. Decrease (increase) of long-term a/payments 28,500,000 (200,000,000)

K. Increase in trade payable 504,267,083 305,839,578

L. Decrease in account payable (10,250,225) (128,930,259)

M. Increase (decrease) of advance payment (3,859,530) (61,428,578)

N. Increase (decrease) of withholdings (6,737,404) (76,607,294)

O. Increase in accrued income (2,229,420) 2,229,420

- IIB-30 -


(In Korean Won)

Account 2010 2009

P. Increase (decrease) of accrued expenses 9,254,651 9,393,961

Q. Increase in advance payment in construction 86,614,012 0

R. Decrease in current portion of long-term account payable (30,600,000) 0

S. Decrease in long-term account payable (16,200,000) 0

T. Payment of severance benefit (75,693,893) (363,879,760)

II. Cash flows from investing activities (150,929,869) 4,379,982,668

1. Cash inflows from investing activities 21,404,958,193 17,548,869,757

A. Decrease in short-term financial instruments 0 2,459,967,183

B. Decrease in short-term loans 12,570,000,000 6,170,000,000

C. Decrease in short-term loan to SH & employees 0 1,220,000,000

D. Decrease in long-term financial instruments 0 34,500,000

E. Disposal of equipment 0 27,250,000

F. Decrease in guarantee deposits 27,899,493 3,930,544,574

G. Disposal of trading securities 4,268,398,700 3,706,608,000

H. Disposal of securities using equity method 4,538,660,000 0

2. Cash outflows from investing activities (21,555,888,062) (13,168,887,089)

A. Increase in short-term financial instruments 100,000,000 0

B. Increase in short-term loans 10,000,000,000 7,160,700,000

C. Acquisition of trading securities 8,673,883,000 2,598,060,000

D. Increase in long-term financial instruments 0 24,500,000

E. Acquisition of available-for-sale securities 163,785,884 15,863,907

F. Acquisition of held-to-maturity securities 0 17,676,220

G. Acquisition of securities using equity method 1,417,846,250 2,454,401,680

H. Acquisition of land 138,839,113 0

I. Acquisition of facility equipment 1,000,000 27,600,000

J. Acquisition of vehicles 0 62,137,640

K. Acquisition of tools and fixtures 19,998,500 1,800,000

L. Acquisition of office equipment 17,595,198 9,774,663

M. Acquisition of mold 122,200,000 32,160,000

N. Increase in development expense 796,740,117 701,087,979

O. Increase in software 0 360,000

P. Increase in guarantee deposits 104,000,000 62,765,000

III. Cash flows from financing activities 0 (1,549,130,000)

1. Cash inflows from financing activities 0 –

2. Cash outflows from financing activities 0 (1,549,130,000)

A. Repayment of short-term borrowings 0 1,320,000,000

B. Repayment of current portion of long-term liabilities 0 83,320,000

C. Repayment of long-term borrowings 0 145,810,000

IV. Increase (decrease) in cash and cash equivalents (I+II+III) (1,255,572,193) 2,056,058,698

V. Cash and cash equivalents, at the beginning of the year 6,330,747,411 4,274,688,713

VI. Cash and cash equivalents, at the end of the year 5,075,175,218 6,330,747,411


- IIB-31 -


NOTES TO THE FINANCIAL STATEMENTS





21 November 2008, the Company merged with Nitgen Co., Ltd, a subsidiary engaged in development of security and


efficiency, build the foundation for sustainable growth, maximize the corporate value by focusing on fingerprint


On 10 December 2008, the Company changed its business name from Proze Co., Ltd. to Nitgen&Company Co.,

Ltd.. As of 31 December 2010, total equity of the Company is KRW17,770,158,000, and the largest shareholder of the

Company has been changed to Ocean B Holdings Co., Ltd. from Shinsung Engineering & Construction Co., Ltd and one

other (MK Electron (H.K.)) during the reporting period.

As of 31 December 2010, the major shareholders of the Company are as follows:

ShareholdersNumber of

Shares Owned Ownership %

Ocean B Holdings Co., Ltd. 7,179,925 20.28

Others 28,220,391 79.72

Total 35,400,316 100.00

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The financial statements of the Company have been prepared in accordance with the accounting standards

generally accepted in Korea, including Statement of Korea Accounting Standards (“SKAS”) No. 1 through No. 25

(except SKAS No. 14). The principal accounting policies applied in the preparation of these financial statements are the

same as those used for the financial statements for the year ended 31 December 2009.

Major accounting standards adopted by the Company are as follows:

2.1. Revenue Recognition

Revenue is measured at the fair value of the consideration received or receivable from sale of goods and

rendering of services. Sales allowances, sales discounts, and sales returns are deducted from revenue. The

Company recognizes revenue when (1) the significant risks and rewards of ownership of goods have transferred

to the buyer; (2) the Company retains neither continuing managerial involvement, to the degree usually

associated with ownership, nor effective control over the goods sold; (3) the amount of revenue can be reliably

measured, and (4) it is probable that future economic benefits associated with the transaction will flow to the

Company. Revenue associated with rendering of services is recognized by reference to the stage of completion

of the transaction at the balance sheet date when (a) the amount of revenue can be measured reliably; (b) it is

probable that the economic benefits associated with the transaction will flow into the entity; (c) the stage of

completion of the transaction at the balance sheet date can be measured reliably; and (d) the costs incurred for

the transaction and the costs to complete the transaction can be measured reliably.

- IIB-32 -


Contract revenue is recognized by reference to the percentage of completion of the contract activity

measured as of the balance sheet date when the outcome of a construction contract can be estimated reliably. The

total estimated contract cost is measured consistently according to the systematic and reasonable procedures and

is regularly updated as new information is obtained in the performance of the contract activity. The estimated

cost to fulfill any defect liability under the contract is included in construction costs.

2.2. Cash and cash equivalents

Currency, checks issued by others, other currency equivalents, checking accounts, passbook deposits and

other short-term financial instruments that are readily convertible into cash with immaterial transaction costs,

with maturities (or redemption date) of three months or less from the date of acquisition and present insignificant

risk of changes in interest rate are classified as cash and cash equivalents.

2.3. Allowance for doubtful accounts

Allowance for doubtful accounts is estimated based on an analysis of individual accounts and past

experience of collection and presented as a deduction from trade receivables account receivables outstanding at

the end of the reporting period.

2.4. Inventories

The cost of inventories is determined by the specific identification method. Valuation loss incurred when

the market value of an inventory falls below its carrying amount, and the loss incurred in the ordinary course of

business is added to the cost of goods sold and reported as a contra inventory account. When the purchase,

production, construction or development of inventories requires a long period of time for completion, the interest

cost and other similar borrowing costs incurred during the production or acquisition process is expensed as

incurred.

2.5. Investment Securities

After acquisition, the Company classifies equity securities and liability securities other than investments

in subsidiaries, investees under equity method and joint venture, into one of the three categories: held-to-

maturity, available-for-sale or trading. The appropriateness of the classification is reassessed at each balance

sheet date.

Liability securities that have fixed or determinable payments and fixed maturity is classified as held-to-

maturity when the entity has both the positive intent and ability to hold those securities to maturity. Securities

that are bought to generate profits from short-term price differences are classified as trading securities. Securities

that are not classified as either held-to-maturity securities or trading securities are classified as available-for-sale

securities.

The Company measures the initial acquisition cost of a security as the market price of the consideration

given, including any ancillary acquisition costs.

After initial recognition, held-to-maturity securities are stated at amortized costs, while trading securities

and available-for-sale securities are stated at fair value. However non-marketable equity securities are stated at

acquisition cost if their fair values cannot be reliably measured.

The fair value of a marketable security that is traded in an active public securities market refers to the

quoted market price, which is the closing price quoted as of the balance sheet date. Even though quoted market

prices established in an active market are not available for a certain non-marketable liability security, if future

cash flows of the liability security can be reasonably estimated and if credit rating of the issuing entity assessed

by a publicly reliable, independent credit rating agency is available, the fair value of the non-marketable liability

- IIB-33 -


security is be measured at the discounted future cash flows by using a discount rate that appropriately reflects the

credit rating. For a non-marketable beneficiary certificate, the certificate’s standard sales price published by

fund-managing firms is be used as its fair value.

Unrealized holding gain or loss on a trading security is accounted for as an item of current earnings.

Unrealized holding gain or loss on an available-for-sale security is accounted for as valuation loss on available-

for-sale security. When an available-for-sale security is disposed of or written down to recognize impairment

loss, the lump-sum cumulative amount of gain or loss previously recognized in equity is reflected in current

earnings. When held-to-maturity securities are measured at amortized costs, the difference between their

acquisition costs and face values is amortized over the remaining terms of the securities by applying the effective

interest method and added to or subtracted from the acquisition costs and interest income of the remaining

period.

Securities are assessed at each balance sheet date to determine whether there is any objective evidence of

impairment loss. When there is an evidence that the amount estimated to be recoverable is less than the

amortized cost of a liability security or the acquisition cost of an equity security, the Company recognizes

impairment loss in current earnings, unless there is a clear counter-evidence that recognition of impairment is

unnecessary.

Trading securities and available-for-sale securities, whose maturity dates are due within one year from

the balance sheet date or whose likelihood of being disposed of within one year from the balance sheet date is

certain, are classified as current assets. Likewise, held-to-maturity securities whose maturity dates are due within

one year from the balance sheet date are classified as current assets.

2.6. Equity-Method Investment Securities

Investments in equity securities of companies, over which the Company can exercise significant

influence, are reported using the equity method of accounting. Equity securities of small businesses with the

effect of equity change being insignificant are stated at cost like other non-marketable equity securities.

(1) Accounting for Changes in the Investor’s Share of Equity Interest

The amount relating to the investor’s share of the total change in net assets of the investee

(“Changes in the investor’s share of equity interest in the investee”) is adjusted to the balance of

investment in the investee and accounted for in accordance with the source of changes in the net assets

of the investee.

Specifically, (1) changes in the investor’s share of equity interest in the investee arising as a

result of Net Profit or net loss for the current period, are accounted for as an item of non-operating

income (loss), such as gain or loss on application of the equity method; (2) changes in the investor’s

share of equity interest in the investee arising as a result of change in the unappropriated retained

earnings for the prior period, are accounted for as negative changes in retained earnings arising on

application of the equity method; (3) changes in the investor’s share of equity interest in the investee

arising as a result of an increase or decrease in equity, excluding the investee’s Net Profit or net loss for

the current period and changes in the investee’s beginning balance of retained earnings, are included in

the investor’s accumulated other comprehensive income. Provided that, if the investee’s beginning

balance of retained earnings has been changed because of a material error correction and if the effect of

such change on the financial statements of the investor is immaterial, the resulting changes in the

investor’s share of equity interest in the investee are included in the investor’s non-operating income

(loss) such as gain or loss on application of the equity method; If an investee’s beginning balance of

retained earnings has been changed because of the investee’s accounting changes, the resulting changes

in the investor’s share of equity interest in the investee are reflected in the investor’s beginning balance

of retained earnings in accordance with Korea Accounting Standards for accounting changes and

- IIB-34 -


corrections of errors. In the meantime, at the date of an investee’s dividend declaration, the investor

subtracts the amount of dividend receivable directly from the carrying amount of the investment in the

investee.

(2) Accounting for the Investment Difference

The amount of difference between the cost of acquisition and the investor’s share of the fair

values of the net identifiable assets of the investee (“investment difference”) arising on the date of

acquisition of an investment in an investee, is treated as goodwill and accounted for in accordance with

Korea Accounting Standards on business combinations.

Goodwill is amortized on a straight-line basis from the year of acquisition over its useful life not

exceeding 5 years from the year of acquisition. Negative good will is revered on a straight-line basis

over the weighted average useful life up to the fair value of identifiable non-monetary assets. If the

subsidiary is included in the investor’s consolidated financial statements, current earnings and net assets

reported in the separate financial statements of the investor should coincide with its share of current

earnings and net assets of an investee included in the consolidated financial statements unless the

investor ceases to apply the equity method because the balance of the investment in the associate has

become zero.

When the investor’s share of equity interest in an investee increases or decreases as a result of

an increase (or decrease) in contributed capital with (or without) consideration, such difference is treated

as investment difference (for the increased share of equity interest) or as gain or loss on disposal of the

investment (for the decreased share of equity interest). Provided that, if the investee is a subsidiary, the

difference arising as a result of an increase in contributed capital with consideration is accounted for as

capital surplus (or capital adjustment).

(3) Accounting for the Difference between the Fair Value and Book Value of the Net Assets of

the Investee

At the date of acquisition of an investment in an investee, among the difference between the fair

value and book value of the identifiable assets and liabilities of an investee, the amount relating to the

investor’s share of equity interest in the associate is amortized or reversed as gain or loss on application

of the equity method in accordance with the investee’s methods of accounting for assets and liabilities.

(4) Elimination of Unrealized Gains/Losses

Among the amount calculated by multiplying the investor’s share of an investee’s equity to the

total amount of gains or losses arising on transactions between the investor and the investee, the portion

of the calculated amount that continues to be reflected in the carrying amount of the investor’s

investment held as of the balance sheet date is treated as unrealized gains or losses of the Investor.

Unrealized gains are accounted for as a reduction of the carrying amount of the investment in the

investee, while unrealized losses are added to the carrying amount of the investment in the investee.

Provided that if the investee is a subsidiary, the entire portion of unrealized gains or losses arising on

sales of assets from the investor to an investee (commonly referred to as upstream sales transactions) that

is included in the carrying amount of assets held as of the balance sheet date are eliminated and

accounted for as specified in the foregoing sentence.

2.7. Property, plant and equipment

An item of property, plant, and equipment is presented in the statement of financial position in the form

of deducting accumulated depreciation from its acquisition cost, which is comprised of its purchase price or

manufacturing costs and any other directly attributable costs of bringing the asset to the working condition of its

- IIB-35 -


intended use, and subsequent capital expenditure (which is used to extend the useful life or increases future

economic benefits). Depreciation on property, plant and equipment is calculated using the straight-line method to

allocate their cost to their residual values over their estimated useful lives, as follows:

Classification Estimated Useful Life

Buildings 40 years

Other property, plant, and equipment 5 years

In the meantime, the interest cost and other similar borrowing costs related to production, purchase,

construction, or development of certain qualifying assets are recognized as an expense in the period in which

they are incurred

2.8. Intangible assets

Expenditures on research and development activities are recognized as an intangible asset only if they

satisfy all criteria for recognition and it is probable that future economic benefits that are attributable to the asset

will flow into the Company. In all other cases, the costs related to research and development activities are

included in cost of sales or cost of selling and general administration.

An intangible asset other than goodwill and development expense is measured at its acquisition cost,

comprised of the manufacturing cost or purchase price and any other directly attributable expenditure on

preparing the asset for its intended use. An intangible asset is amortized over its useful life using the straight line

basis from the point when the asset is available for use. An intangible asset is stated net of accumulated

amortization and accumulated impairment loss, and the residual value is assumed to be zero.

Intangible Assets Estimated Useful Life

Development Expenses 3 years

Industrial property rights 10 years

Software and other intangible assets 5 years

2.9. Impairment of Asset

When the carrying value of an asset is significantly greater than its recoverable value due to

obsolescence, physical damage, or the decline in the fair value of the asset, the decline in value is deducted from

the book value and recognized as an asset impairment loss in the current period. However, if the recoverable

amount of an asset, for which impairment loss was recognized in prior periods, exceeds its carrying amount in

subsequent fiscal periods, the amount of impairment loss recognized is reversed to the extent of an increased

carrying amount of the intangible assets that does not exceed the carrying amount that would have been

determined, net of amortization, if no impairment loss were recognized in prior periods. Provided that

impairment loss for goodwill is not reversed in the future.

2.10. Accrued Severance Benefits

Accrued severance benefits are recognized for the greater of (1) the amount payable under the Labor

Standard Act and (2) the amount payable under the Company’s Severance Benefit Policy, assuming that officers

and employees with at least one year of service were to terminate their employment as of the balance sheet date.

2.11. Foreign currency transactions and translation

Monetary assets and liabilities denominated in foreign currencies are re-measured into Korean Won at

the appropriate exchange rates in effect at the end of the reporting period and resulting translation gains and

losses are recognized in the statement of income.

- IIB-36 -


2.12. Income Tax Expense and Deferred Income Tax

Income tax expense is accounted for by adding to or subtracting the changes in the deferred income tax

from the current income tax payable according to the Income Tax Law. The Company recognizes deferred

income tax assets or liabilities for the temporary differences between the carrying amount of an asset and

liability and tax base. A deferred income tax liability for taxable temporary difference is fully recognized except

to the extent in accordance with related Statement of Korea Accounting Standards, while a deferred tax asset for

deductible temporary difference is recognized to the extent that it is almost certain that future taxable profit will

be available against which the deductible temporary difference can be utilized. However, income tax resulting

from transactions or events, which are directly recognized in shareholders’ equity in current or prior periods, is

directly adjusted to equity account.

2.13. Share-based Payment Arrangement

The Company uses the fair-value method in determining compensation costs under share-based payment

arrangement for its employees and directors in connection with for the goods and services they provide. The

compensation cost is accrued and charged to expense over the vesting period, with a corresponding increase in a

separate component of shareholders’ equity.

2.14. Critical Accounting Judgments, Estimates and Assumptions

The preparation of the financial statements under the K-GAAP requires management to make judgments,

estimates and assumptions that affect amounts reported therein including revenues, expenses, assets and

liabilities, contingent liabilities, and measurement of carrying value of assets, trade receivables, and inventories.

As a result of the uncertainties inherent in estimates and assumptions, a change in an accounting estimate may

give rise to significant changes in assets and liabilities in the future.

2.15. Approval of Financial Statements

The financial statements as of and for the year ended 31 December 2010, which are expected to be

submitted to General Shareholders’ Meeting, were approved by the Company’s Board of Directors on 7 March

2011. However, the financial statements submitted to General Shareholders’ Meeting may be amended and

finally approved by General Shareholders’ Meeting.

2.16. Adoption of International Financial Reporting Standards:

The Company will adopt the International Financial Reporting Standards (IFRS) from the fiscal year

2011 as adopted by Republic of Korea (“K-IFRS”). The Company’s approach to adopt K-IFRS is illustrated as

follows:

(1) Preparation and implementation of IFRS adoption

The Company has formed a task force team to prepare for its transition from K-GAAP to IFRS

according to the road map to Adoption of the International Financial Reporting Standards (IFRS) issued

by the Financial Supervisory Service (FSS) in March 2007. The IFRS task force team performed a

preliminary analysis and impact assessments over the Company’s current accounting policies, financial

reporting processes, including the determination of the reporting entity, and the IT systems to identify

key areas that would be impacted by the transition to K-IFRS. After initial analysis, the Company

conducted employee training, applied and embedded the changes identified above in the Company’s

operational processes and system. As of the date of the report, all three phases as described above were

substantially completed. The Company has been preparing financial statements under K-IFRS from the

date of transition and onwards and expects that financial information for the fiscal year 2011 will be

compliant with K-IFRS.

- IIB-37 -


(2) Significant differences between the accounting policies chosen by the Company under K-IFRS

and under current generally accepted accounting principle in Republic of Korean (K-GAAP) are

as follows:

Classification K-IFRS K-GAAP

Organization and name of

financial statements

It is organized with statement of

financial position, statement of

comprehensive income, statement of

cash flows, statement of changes in

equity and notes and it is the

consolidated financial statements

standard.

It is organized with statement of

financial position, statement of income,

statement of retained earnings

disposition, statement of cash flows,

statement of changes in equity and

notes and it is the individual financial

statements standard.

Recognition of allowance for

doubtful accounts

Set for the estimated amount for loss

in the event that objective damage

cause occurred.

Set the doubtful accounts estimated

amount estimated in accordance with

the reasonable and subjective standard

as the allowance for doubtful accounts.

Tangible asset Cost model is preferred but revaluation

model is also optional. In applying

revaluation model, an asset is

measured at revalued amount if the

fair value can be measured reliably.

Cost model is applied on all tangible

assets.

Measurement of retirement

wage provision liabilities

Appropriate the present value of the

calculated forecasted retirement fund

for retirement wage provision liabilities

by using actuarial technique and

discount rate in accordance with the

forecasted unit reserve method by

adopting the concept of the forecasting

wage debt.

Appropriate the forecasted retirement

fund for retirement wage provision

liabilities to be paid in the event that

any officer and employee that worked

for over a year as of the financial

statements date by adopting the

liquidation value concept.

Indication of deferred income

tax assets

All deferred income tax assets or

liabilities are classified for non-current

category and the Company is indicated

for setting off in the event that there

is any intent for payment with legal

authority on setting off of deferred

income tax assets and liabilities.

Following the classification of the

statement of financial condition of

relevant assets or liabilities category, it

is classified for current assets

(liabilities) or non-current assets

(liabilities) and indicates for setting off

with deferred income tax assets and

liabilities for same current and non-

current matters.

Degree of possible disclosure

of resources from the

recognized requirements of

provision liabilities

Recognize provision liabilities in the

event that it has high possibility to

occur.

Recognize the provision liabilities in

the event that it has very high

possibility to occur.

(3) Changes in Scope of Consolidation

The Company does not have any consolidated subsidiaries under K-GAPP, and there will be no

change in the scope of consolidation coincident with adoption of K-IFRS.

- IIB-38 -


(4) Effect on the financial position and management result of the Company

The effect of the adoption of K-IFRS on financial position and management result of the

Company is as follows:

j Quantifiable information on the effect on financial position

A. Effect as of the date of the transition to K-IFRS (1 January 2010)

(A) Adjustments of shareholders’ equity as of the transition date (1 January 2010)

(In Korean Won)

Classification Amount

Shareholders’ equity under K-GAAP 18,110,134,195

Adjustments as a result of transition to K-IFRS 320,425,759

Adoption of the projected unit credit method for accrued

severance liabilities (*1) 81,474,051

Adjustments of the present value of security deposit (*2) (1,733)

Accounting change of depreciation (*3) 329,330,426

Deferred income tax effect as a result of adjustment of

accounting standard differences (*4) (90,376,985)

Shareholders’ equity under K-IFRS 18,430,559,954

(*1) Application of the actuarial valuation method for retirement benefit

(*2) Pre-paid expenses to be expensed over the affected period based on the

present value of security deposit and interest income recognized

(*3) Effect of change of depreciation method to straight-line basis

(*4) Deferred income tax effect as a result of adjustment of accounting

standard differences

(B) Adjustments of statement of financial position as of the transition date (1

January 2010)

(In Korean Won)

Classification K-GAAPAdjustments

K-IFRSAmount Description

Current assets 12,194,070,059 16,079,160 (*1) 12,210,149,219

Non-current assets 7,399,056,527 313,249,533 (*2) 7,712,306,060

Total assets 19,593,126,586 329,328,693 19,922,455,279

Current liabilities 866,765,889 0 866,765,889

Non-current liabilities 616,226,502 8,902,934 (*3,4) 625,129,436

Total liabilities 1,482,992,391 8,902,934 1,491,895,325

Total shareholders’ equity 18,110,134,195 320,425,759 18,430,559,954

Total liabilities & shareholders’

equity 19,593,126,586 329,328,693 19,922,455,279

(*1) Prepaid expense recognized as a result of valuation of the present value

of security deposit

- IIB-39 -


(*2) Effect of change of depreciation method to straight-line basis and

present value of security deposit



differences

B. Effect as of the end of the fiscal period (31 December 2010) where the transition date of

transition belongs

(A) Adjustments of shareholders’ equity as of 31 December 2010

(In Korean Won)


Shareholders’ equity under K-GAAP 19,713,337,983





Accounting change of depreciation (*3) 228,718,124

Recognition of goodwill as a result of business

consolidation(*4) 106,100,507

Deferred income tax effect as a result of adjustment of

accounting standard differences (*5) (43,589,107)

Shareholders’ equity under K-IFRS 20,080,068,034


(*2) Pre-paid expenses to be expensed over the affected period based on the

present value of security deposit and interest income recognized


(*4) Recognition of goodwill as a result of business consolidation (M&A)



- IIB-40 -


(B) Adjustments of statement of financial position as of the transition date (1

January 2010)

(In Korean Won)

Classification K-GAAPAdjustments

K-IFRSAmount Description

Current assets 16,612,287,581 (193,161,843) (*1,2) 16,419,125,738

Non-current assets 4,945,174,114 484,377,206 (*2,3,4) 5,429,551,320

Total assets 21,557,461,695 291,215,363 21,848,677,058

Current liabilities 1,413,225,056 0 1,413,225,056

Non- current liabilities 777,949,582 (75,514,688) (*5,6) 702,434,894

Total liabilities 2,191,174,638 (75,514,688) 2,115,659,950

Total shareholders’ equity 19,366,287,057 366,730,051 19,733,017,108

Total liabilities & shareholders’

equity 21,557,461,695 291,215,363 21,848,677,058

(*1) Prepaid expense recognized as a result of valuation of the present value

of security deposit

(*2) Reclassification of deferred income tax assets from current to non-

current assets

(*3) Effect of change of depreciation method to straight-line basis and

present value of security deposit





k Quantifiable information on the effect on income/loss

A. Adjustment of income/loss prepared under K-GAPP for the fiscal period (1 January to

31 December 2010) where the transition date belongs, to statement of comprehensive

income under K-IFRS

(In Korean Won)


Net Profit under K-GAAP 1,509,921,402





Accounting change of depreciation (*3) (100,612,302)

Recognition of goodwill as a result of business consolidation(*4) 106,100,507

Deferred income tax effect as a result of adjustment of accounting

standard differences (*5) 46,787,878

Net Profit under K-IFRS 1,596,430,278


- IIB-41 -


(*2) Pre-paid expenses to be expensed over the affected period based on the present

value of security deposit and interest income recognized



(*5) Deferred income tax effect as a result of adjustment of accounting standard

differences

B. Statement of Comprehensive Income under K-IFRS for the fiscal period (1 January to 31

December 2010)

(In Korean Won)

Classification K-GAAP

Adjustment as a resultof transition to K-IFRS

K-IFRSAmount Note

Revenue 10,658,902,971 0 10,658,902,971

Cost of sales 6,264,214,629 0 6,264,214,629

Gross profit 4,394,688,342 0 4,394,688,342

Cost of selling & general administration 3,737,472,370 63,235,806 (*1,2) 3,800,708,176

Operating income 657,215,972 (63,235,806) 593,980,166

Non-operating income 1,510,626,494 8,196,051 (*3) 1,518,822,545

Non-operating expenses 1,310,238,223 (106,100,507) (*4) 1,204,137,716

Income before tax 857,604,243 51,060,752 908,664,995

Income tax expenses (652,317,159) (35,448,124) (*5) (687,765,283)

Profit from continuing operations 1,509,921,402 86,508,876 1,596,430,278

Profit from discontinued operations 0 0 0

Net profit 1,509,921,402 86,508,876 1,596,430,278



(*3) Pre-paid expenses to be expensed over the affected period based on the present

value of security deposit and interest income recognized


(*5) Deferred income tax effect as a result of adjustment of accounting standard

differences

3. Cash and Cash Equivalents and Financial Instruments assets subject to withdrawal restrictions

Cash and cash equivalents and financial instruments subject to withdrawal restrictions as of 31

December 2010 and 2009, consist of the following:

(In thousands of Korean Won)

Classification Deposit typeAmount Description of

withdrawal restriction2010 2009

Short-term financial instrument Installment deposits 100,000 0 Lien on KB Card

- IIB-42 -


4. Short-term Loans

Short-term loans as of 31 December 2010 and 2009, consist of the following:


CreditorsInterestrate(%)

AmountRemarks2010 2009

PMP Partners 10.0 0 770,000 To support operating

funds

RIA Soft Co. Ltd. 9 0 100,000 ditto

Purencon Construction Co. Ltd. 9 0 1,000,000 ditto

Global Construction Co. Ltd. 9 0 1,000,000 ditto

Bookmark 18 300,000 0 ditto

Others – 3,700 3,700 Mutual aid fee

Total 303,700 2,873,700

5. Financial Instruments

Financial securities held by the Company as of 31 December 2010 and 2009, consist of the following:

(2010)


Company Name

2010

TypeOwnership

(%)Acquisition

Cost Fair Value Book Value

<Trading securities>

Samsung Life Insurance Co. Ltd. Equity securities – 4,552,150 4,363,528 4,363,528

<Available-for-sales securities>

Zeroin Co. Ltd. Equity securities 1.45 300,000 10,693 10,693

SecuGen Japan Equity securities 8.29 909,746 30,245 30,245

Inkecorporation Co. Ltd. Equity securities 0.29 1,000 1,000 1,000

Artplace Co. Ltd. Equity securities 19.23 500,010 152,959 152,959

Information & Communication

Financial Cooperative

Investment – 15,864 15,864 15,864

Construction Guarantee Investment – 81,786 81,786 81,786

Korea Lottery Service Co. Ltd. Equity securities 78,000 78,000 78,000

LEDLIC Investment – 4,000 4,000 4,000

Total 1,890,406 374,547 374,547

<Held-to-maturity securities>

Government & Public Bonds Liability securities – 17,676 17,676 17,676

- IIB-43 -


(2009)


Company Name

2009

TypeOwnership

(%)Acquisition


<Available-for-sales securities>

Zeroin Co. Ltd. Equity securities 1.45 300,000 10,693 10,693

SecuGen Japan(*) Equity securities 8.29 909,746 30,245 30,245

Inkecorporation Co. Ltd. Equity securities 0.29 1,000 1,000 1,000

Artplace Co. Ltd. Equity securities 19.23 500,010 500,010 500,010



Investment – 15,864 15,864 15,864

Total 1,726,620 557,812 557,812


Government & Public Bonds Liability securities – 17,676 17,676 17,676

(*) Available-for-sale securities are non-marketable equity securities, which are stated at cost as

their value values cannot be reliably measured. The recoverable value or the Company’s share of

equity interest in SecuGen Japan has decreased significantly and the recoverability was highly

uncertain. Accordingly, the Company recognized impairment loss on available-for-sale securities

6. Equity-method Investment Securities

Equity-method investment securities held by the Company as of 31 December 2010 and 2009, consist of

the following:

(1) Equity interest % in Equity-method Investees


InvesteeOwnership

%Number of

sharesAcquisition

Cost Book Value

RIA Soft Co., Ltd. 100% 10,000 3,000,000 850,000

(*) The accounting period of the above investment is the same as the Company. In

preparing the financial statements, the Company used unaudited financial statements of

the investees after performing appropriate procedures to verify the unaudited financial

statements.

(2) Equity interest % in Equity-method Investees

Gain/loss of Valuation on equity-method investment securities as of 31 December 2010 is

measured as follows:


InvesteeBeginning of

year Acquisition Gain/LossImpairment

Loss End of year

RIA Soft Co., Ltd. 1,354,617 0 (433,725) (70,892) 850,000

- IIB-44 -


(3) The investment differences during the reporting period are as follows:


InvesteeBeginning of

yearIncrease/decrease Amortization

Impairmentloss End of year

RIA Soft Co., Ltd. 1,122,860 0 1,122,860 0 0

(4) The summarized financial information of the investee as of 31 December 2010 is as follows:


Investee Assets Liabilities RevenueOperating

Income/loss

RIA Soft Co., Ltd. 1,296,615 933,581 1,650,077 56,423

On 7 February 2011, the Company has made an agreement to sell all of 10,000 shares of the

RIA Soft Co., Ltd. to another investor at KRW 850 million.

7. Property, Plant and Equipment

(1) The officially assessed price for the land held by the Company (area: 1,046.82m, book value:

KRW466,527 thousand) is KRW 617,599 thousand.

(2) The changes in property, plant and equipment during 2010 and 2009 are as follows:

(2010)


DescriptionBeginning of

year Acquisition Disposal Depreciation End of year

Land 327,688 138,839 0 0 466,527

Buildings 598,559 0 0 19,856 578,703

Facilities and Equipment 52,004 1,000 0 23,917 29,087

Vehicles 127,099 0 0 57,320 69,777

Tools and Instruments 13,675 19,999 0 6,932 8,438

Furniture & Fixtures 103,184 17,595 0 49,570 71,209

Mould 136,774 122,200 0 94,071 164,904

Computation equipment 117,354 0 0 54,486 62,868

Sub-total 1,476,337 299,633 0 306,152 1,451,513

Deduction

Government Subsidies (25,569) 0 0 (22,655) (2,913)

Total 1,450,768 299,633 0 283,497 1,448,600

- IIB-45 -


(2009)



year Acquisition Disposal Depreciation End of year

Land 327,688 0 0 0 327,688

Buildings 618,415 0 0 19,856 598,559

Facilities and Equipment 87,662 27,600 0 63,258 52,004

Vehicles 148,103 62,138 0 83,142 127,099

Tools and Instruments 22,985 1,800 0 11,110 13,675

Furniture & Fixtures 336,765 9,775 147,146 96,210 103,184

Mold 194,958 32,160 0 90,344 136,774

Computation equipment 216,600 0 0 99,246 117,354

Sub-total 1,953,176 133,473 147,146 463,166 1,476,337

Deduction

Government Subsidies (35,293) 0 0 (9,724) (25,569)

Total 1,917,883 133,473 147,146 453,442 1,450,768

8. Insured Assets

As of 31 December 2010, the Company maintained property all risk insurance and fire insurance for

inventories (insured amount KRW2.5 billion) and property, plant and equipment (insured amount KRW652

million) with Mertiz Fire & Marine Insurance Co., Ltd. In addition to the above insurance, the Company

maintains commercial general liability insurance and compulsory automobile liability insurance.

9. Intangible Assets

(1) The changes in the intangible assets during 2010 and 2009 are as follows:

<2010>



year Increase Decrease End of year

Development cost 658,825 796,740 (387,142) 1,068,423

Industrial property right 48,765 0 10,465 38,300

Software 2,278 0 1,089 1,189

Others 3,665 0 3,447 218

Total 713,533 796,740 402,143 1,108,130

Deduction

Government Subsidies (3,187) 0 (3,187) 0

Total 710,346 796,740 398,956 1,108,130

- IIB-46 -


<2009>



year Increase Decrease End of year

Development cost(*) 343,976 701,088 386,240 658,824

Industrial property right 70,567 0 21,802 48,765

Software 7,962 360 6,043 2,279

Others 22,608 0 18,943 3,665

Total 445,113 701,448 433,028 713,533

Deduction

Government Subsidies (13,347) 0 (10,160) (3,187)

Total 431,766 701,448 422,868 710,346

(*) The increase in the Development expenses includes gains on prior period error

corrections (KRW12,153 thousand).

(2) The overhead development expenditures recognized as expense in 2010 are KRW380,919

thousand.

10. Accrued Severance Benefit Liabilities

The changes in the accrued severance benefit liabilities during 2010 and 2009 are as follows:


YearBeginning of

the year Increase Decrease End of year

2010 600,709 253,617 75,694 778,632

2009 673,711 290,877 363,879 600,709

11. Equity Capital

The changes in the equity capital during 2010 and 2009 are as follows:

Classifications 2010 2009

Number of authorized shares 100,000,000 100,000,000

Number of issued and outstanding shares 35,400,316 35,400,316

Par value 500 500

Equity Capital 17,700,158,000 17,700,158,000

- IIB-47 -


12. Statement of Comprehensive Income

The statement of comprehensive income during 2010 and 2009 is summarized as follows:


Classification 2010 2009

I. Net Profit (loss) 1,509,921 (3,786,229)

II. Other comprehensive income (loss) (347,051) 0

1. Valuation loss on available-for-sale

securities (347,051) 0

III. Comprehensive income (loss) 1,162,870 (3,786,229)

(Note): Income tax effect was not recognized due to the uncertainty regarding its ultimate realizability.

13. Income Tax Expense

(1) Income tax expense for the years ended 31 December 2010 and 2009 are calculated as follows:


Classifications 2010 2009

I. Income tax currently payable 0

II. Increase(decrease) of deferred income tax

arising from temporary difference (652,317)

1. Increase(decrease) of deferred income tax

assets arising from temporary difference (652,317)

2. Increase(decrease) of deferred income tax

liabilities arising from temporary

difference 0

3. Income tax effect directly charged to

equity 0

III. Income tax expense (652,317)

(2) The relationship between the profit before-tax and income tax expense for the years ended 31

December 2010 and 2009, are as follows:



Profit (Loss) before tax 857,604 (3,786,229)

Income tax expense (652,317) 0

Effective tax rate – -

- IIB-48 -


(3) The changes in the accumulated temporary differences and deferred income tax during 2010 are

as follows:


Classification 1/1 Increase Decrease 12/31 Current Non-current

(Temporary differences to be

deducted)

Provision for severance

indemnities 514,037 161,489 675,526 148,616

Impairment loss 1,686,467 868,699 2,555,165 562,136

Allowance for doubtful account 1,789,519 986,441 1,789,519 986,441 238,719

Loss on FX translation 67,810 24,964 67,810 24,964 6,041

Allowance for inventory

valuation 858,992 837,809 858,992 837,809 202,750

Trading securities 188,623 188,623 45,647


(succeeded) 1,061,211 1,061,211 233,466


(Zeroin) 289,307 289,307 63,648

Available-for-sale securities (JJ

Holic Media) 178,406 178,406 39,249


(SecuGen Japan) 65,690 65,690 14,452

Available-for-sale securities (Art

place) 347,051 347,051 76,351

Equity method investment

securities 1,645,383 504,617 2,150,000 473,000

Amortization (Patent) 1,941 1,941 427

Amortization (Development

expenses) 150,374 56,137 94,237 22,805

Amortization (Other intangible

assets) 7,708 1,457 6,251 1,513

Amortization (Goodwill) 99,027 99,027 23,964

Impairment loss on investment

assets (security deposit) 100,000 100,000 22,000

Sub-total 8,316,845 4,118,720 2,773,915 9,661,649 541,439 1,633,345

(Temporary differences to be

added)

Deposits on retirement insurance (1,211) (1,211) (266)

Accrued income (11,434) (413) (11,434) (413) (100)

Gain on FX translation (1,929) (56,270) (1,929) (56,270) (13,617)

Sub-total (14,574) (56,683) (13,363) (57,894) (13,717) (266)

Total 8,302,271 4,062,037 2,760,552 9,603,755 527,722 1,633,079

- IIB-49 -


(4) Probability of realizing the deferred income tax assets


Classification 2011 2012 2013 Total

Extinction of temporary

differences to be added 57,894 0 0 57,894

Projected taxable income 779,742 934,001 1,117,293 2,831,036

Total 837,636 934,001 1,117,293 2,888,930

Tax rate 24.2% 22% 22%

Income tax effect 201,033 205,480 245,804 652,317

(Note): The Company has turned black in 2010, and the income tax effect on temporary

differences is recognized only to the extent that it is almost certain that future taxable

profit will be available against which the deductible temporary difference can be

utilized.

(5) There is no income tax expense directly charged to shareholders’ equity.

14. Earnings Per Share

(1) Basic earnings per share

Basic earnings (loss) per share is calculated by dividing Net Profit (loss) available to common

shareholders by the weighted-average number of common shares outstanding during the year.

A. The weighted average number of common shares outstanding is calculated as follows:

(in shares)

Classification

Number ofcommon shares

outstanding Weight

Accumulatednumber of

shares

Weighted-average

number ofcommon shares

outstanding

Beginning of year 35,400,316 365 days 12,921,115,340 35,400,316

Total 35,400,316 365 days 12,921,115,340 35,400,316

B. Basic earnings (loss) per share is calculated as follows:



Net Profit (loss) 1,509,921 (3,786,229)

Number of common shares outstanding 35,400,316 35,400,316

Earnings (loss) per share 43 (107)

(2) Diluted earnings per share

Diluted earnings per share is calculated by adjusting the weighted average number of common

shares outstanding to assume conversion of all dilutive potential common shares including the number of

shares to be issued as a result of exercise of the stock options. Diluted earnings per share is calculated

by adding the share-based payment arrangement (stock options).

- IIB-50 -


A. Diluted earnings per share for the weighted average number of common shares that have

dilutive effect for the year ended 31 December 2010 are calculated as follows:

(In shares)

Classification

Number ofpotentialcommonshares Base date Weight

Weightednumber ofshares with

dilutive effect

Weighted average number of

common shares outstanding 35,400,316

Stock options 1,000,000 2010.3.29 277/365 758,904

Total 1,000,000 36,159,220

B. Diluted earnings per share for the years ended 31 December 2010 and 2009 are

calculated as follows:



Net earnings for common shares 1,509,921 (3,786,229)

Diluted earnings 93,282 0

Total 1,603,203 (3,786,229)

Weighted number of shares with dilutive effect 36,159,220 35,400,316

Diluted earnings (loss) per share KRW44 (KRW107)

C. Diluted earnings per preferred share is equal to basic earnings per share because of the

counter dilutive effect as described above.

15. Related Party Transactions

(1) Related parties of the Company as of 31 December 2010 consist of the following:

Classification Company name Businesses

Related party on which the

Company has the ability to

exercise significant influence

Ocean B Holdings Co., Ltd Financing, Shareholdings

Subsidiary RIA Soft Co., Ltd. Development of software

and hardware

(2) Transaction with the related parties of the Company for the years ended 31 December 2010 and

2009 are as follows: (in thousands of KRW)


Related Parties Transaction 2010 2009

Nobless Industry Interest income 0 28,437

RIA Soft Co., Ltd. Interest income 20,257 5,499

Shareholders, officers, employees Interest income 0 58,137

- IIB-51 -


(3) Significant transactions, which occurred in the ordinary course of business, with related parties

for the years ended 31 December 2010 and 2009, and the related account balances as of 31

December 2010 and 2009 are as follows:


Related partiesReceivables/payables 2010 2009

RIA Soft Co., Ltd.

Advance payment 171,500 200,000

Short-term loans 0 100,000

Accrued income 21,372 5,499

(4) The compensation paid or payable key management (including registered and unregistered

executives) of the Company for their services during 2010 and 2009 is shown below:


Amount of CompensationClassification 2010 2009

Salaries and wages 236,700 371,600

Retirement benefits 54,684 136,759

Total 291,384 508,359

16. Foreign Currency Assets

(1) Foreign currency assets of the Company as of 31 December 2010 and 2009 consist of the

following:

2010 2009Account In Foreign currency In KRW000 In Foreign currency In KRW000

Cash and cash equivalents USD 420,000.81 482,711 USD 102,884.61 120,128

Trade receivables USD 2,405,641.22 2,739,784 USD 1,157,958.85 1,352,033

Total USD 2,825,642.03 3,222,495 USD 1,260,843.46 1,472,161

(*) Foreign currency translation gain and loss on the above assets in 2010 and 2009 are

KRW24,964,000 and KRW56,270,000 respectively, which were recognized in non-

operating income/loss.

17. Statement of Cash Flows

Significant transactions without cash inflows or outflows during 2010 and 2009 are as follows:



Reclassification of current/non-current portion of long-term

account receivables 0 20,700

Valuation loss on available-for-sale securities 347,051 0

- IIB-52 -


18. Stock Options

The Company may grant its officers and employees stock options pursuant by a special resolution of a

General Shareholders’ Meeting, to the extent of not exceeding 15/100 of the total number of issued and

outstanding shares. Notwithstanding the foregoing provision, such stock options may be granted by a resolution

of the Board of Directors, to the extent of not exceeding 3/100 of the total number of issued and outstanding

shares as follows:

(1) Class of shares to be issued as a result of exercise of stock options: Common shares or preferred

shares both in registered form

(2) Method of issuance: Delivery of new shares or treasury stocks

(3) The Company has used the fair value method to calculate the cost of compensation under the

stock options. The methods and assumptions used for such calculation are as follows:

A. Risk-free interest rate (Market yield for government & public bonds with 5-year

maturity): 4.42%

B. Projected exercise period: 3 years

C. Projected stock price volatility: 63.24%

D. Project dividend yield ratio: 0%

(4) The number of shares to be granted under the stock options and the exercise price per share are

as follows:

A. Number of shares granted: 1,000,000 shares

B. Exercise price per share: KRW590

(5) The cost of compensation under the stock options recognized or to be recognized as expenses

during 2010, 2011 and 2012 is as follows:

Classification 2010 2011 2012

Compensation cost recognized in 2010 93,282,386 0 0

Compensation cost to be recognized in

subsequent years – 122,917,223 29,971,597

19. Cost Items for VAT Calculation

The cost items for calculating VAT included in the Cost of Sales and Selling & General Administrative

Expenses are as follows:


AccountCost of S&GA Cost of Sales Development expenses Construction costs Total2010 2009 2010 2009 2010 2009 2010 2009 2010 2009

Salaries & wages 942,330 1,156,081 231,615 251,204 475,200 672,219 64,915 – 1,714,060 2,079,504Severance indemnities 133,523 191,024 25,797 19,614 94,297 80,240 – - 253,617 290,878Employee benefits 231,863 342,256 36,970 40,092 60,208 92,708 10,083 – 339,124 475,056Rental 215,506 481,833 – - – 1,814 – 217,320 481,833Depreciation 242,875 440,730 40,623 56,971 – - – 283,498 497,701Taxes/dues 12,591 181,523 648 2,447 – 796 – 14,035 183,970Total 1,778,688 2,793,447 335,653 370,328 629,705 845,167 77,608 – 2,821,654 4,008,942

- IIB-53 -


20. Matters related to construction

The Company newly entered into the landscaping business in 2010. The details of the construction

works in progress are as follows:

(1) Details of construction works in progress


Project NameContractAmount

Estimatedconstruction

cost

Accumulatedconstruction

sales

Accumulatedconstruction

cost

Landscaping for Sumjin

River Project 5,347,160 4,972,859 338,386 314,699

Landscaping for Kimje

Gyodong Apt Complex 1,270,700 1,143,630 502,909 452,618

Total 6,617,860 6,116,489 841,295 767,317

(2) Details of amount claimed and collected (In thousands of Korean Won)


Project NameAdvancepayment

Account receivablesClaimed Not claimed

Landscaping for Sumjin River Project 86,614 0 0

Landscaping for Kimje Gyodong Apt

Complex 0 68,780 260,909

Total 86,614 68,780 260,909

21. Unaudited Financial Information

The Company has not prepared interim financial statements. The profits/losses during the 4th quarter of

2010 and 2009 are as follows:


Classification Q4 2010 Q4 2009

Sales 3,884,732 2,359,480

Operating income/loss for the quarter 402,931 (704,603)

Net Profit/loss for the quarter 821,103 (2,614,502)

Net Profit/loss per share for the quarter 23 (74)

- IIB-54 -


REVIEW REPORT ON INTERNAL ACCOUNTING CONTROL SYSTEM

The Review Report on Internal Accounting Control System has been prepared by these independent

auditors and is attached hereto pursuant to Article 2-3 of the Act on External Audit of Stock Companies, after

auditing the financial statements of NITGEN&COMPANY Co., Ltd. for the fiscal year ended 31 December

2010, and reviewing the internal accounting control system of the Company.

Attachments:

1. Review Report on Internal Accounting Control System

2. Assessment on the Operating Status by Internal Accounting Controller

Report of Independent Accountants’ Review of Internal Accounting Control System

10 March 2011

To Representative Director of NITGEN&COMPANY Co., Ltd.

We have reviewed the accompanying management’s report on the operations of the Internal

Accounting Control System (“IACS”) of Nitgen & Company Co., Ltd. (the “Company”) as of 31 December

2010. 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 31 December 2009, the

Company’s IACS has been designed and is operating effectively as of 31 December 2009 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, since the Company is a non-listed large

company, the establishment and operation of the internal accounting control system, and the assessment

report on the operating status thereof have been made in a significantly lessened manner than listed large

companies pursuant to the provisions of Chapter V (Application to Small and Medium-Sized Companies) of

the Exemplary Standard on Internal Accounting Control System. Accordingly we have conducted our review

according to Article 14 (Special Exceptions to Small and Medium-Sized Companies) of the Review Standard

on Internal Accounting System.

- IIB-55 -


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 the provisions of Chapter V (Application to Small and Medium-Sized Companies) of the

Exemplary Standard on Internal Accounting Control System.

Our review is based on the Company’s IACS as of 31 December 2010, and we did not review

management’s assessment of its IACS subsequent to 31 December 2009. 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.

Park Jong BumRepresentative Director, INDUK ACCOUNTING CORPORATION

- IIB-56 -


Assessment on the Operating Status by Internal Accounting Controller

To: Board of Directors and Auditor of NITGEN&COMPANY Co., Ltd.

I, the undersigned internal controllers, have assessed the operating status of the internal accounting

control system of the Company for the fiscal year ended 31 December 2010.

It is the responsibility of the Company’s management including the undersigned internal accounting

controller to design and operate the internal accounting control system. We have assessed whether the

Company’s internal accounting control system has been effectively designed or maintained to prevent and

identify the errors and misconduct that may lead to distortion of the financial statement in order to provide

reliability of the financial statements prepared for the public notice. We have used the provisions of the

Example Standard on Internal Accounting Control System as our assessment standard.

As a result of our assessment, the internal accounting control system of the Company as of 31

December 2010 has not presented any significant deficiencies from the point of their significance based on

provisions of Chapter V (Application to Small and Medium-Sized Companies) of the Exemplary Standard on

Internal Accounting Control System.

3 March 2011

Internal Accounting Controller

NITGEN&COMPANY Co., Ltd.

- IIB-57 -



extracts of the annual report and (2) the audited financial statements (both consolidated and separate) of

Nitgen for the year ended 31 December 2011, which were published in Korean. Such financial statements

was prepared in accordance with Korean International Financial Reporting Standards (“K-IFRS”). The annual

report of Nitgen and the audited financial statements of Nitgen for the year ended 31 December 2011 have

been published (in Korean) on the website of the Repository of Korea’s Corporate Filings

(http://dart.fss.or.kr/dsab001/main.do). The English (and Chinese) translations of the full annual report of

Nitgen for the year ended 31 December 2011 are published on the website of the Company at

http://www.avconcept.com. In case of any discrepancy between the English (or Chinese) version and the

Korean text, the Korean text shall prevail.

Shareholders should note that the extracts of the annual report of Nitgen and the auditedfinancial statements of Nitgen for the year ended 31 December 2011 set out below are provided forinformation purpose only and the financial statements of Nitgen for the year ended 31 December 2011were prepared in accordance with K-IFRS. Shareholders are advised to consult professional advice ifthere is any doubt in reading such financial information of Nitgen. Terms defined herein apply to thisAppendix only.






1. SUMMARY OF FINGER PRINT READING BUSINESS

A. Summary of Finger Scan business

The Company has the main businesses in the Finger Scan field from the bio-scan fields in

Finger Scan, face scan, iris scan and others. The bio-scan technology means the technology to identify











- IIC-1 -

APPENDIX IIC FINANCIAL INFORMATION OF NITGEN FOR THE YEAR 2011


The bio-scan industry before 1990s had slow advancement of the market due to lack of

technical stability and high price, but following the advancement of the IT technology after the 1990s,

the scope of application has been widened with the increase of convenience with the slimed down

sensors and product price decline. In 2000s, government institutions, industries, research institutes and

general public have facilitated in diverse fields for bio-scan tangible asset to drastically expand after

the ‘September 11 Terror’. The US and other countries have applied bio-scan technology in electronic

passport, electric resident card and others for personal identification or immigration control with the

drastic growth of security market that used the bio-scan technology around public field and the US and

other governments have established various policies to develop the bio-scan industry or adopted the

bio-scan technology.



In particular, with the successful pilot project to “structure the finger print confirmation system for

foreigners” that the Ministry of Justice promoted and schedule to promote this project in 2012 to show

the expansion of business fields in public sector.

In Southeast Asia and Central America, the market has drastically expanded since 2011 and

there is fierce competition by companies.



devoted for unyielding R&D effort with the pride in leading the domestic and global Finger Scan

technology for over 10 years. The Company holds the core technologies in Finger Scan field, such as,

sensor, algorithm, applied technology and others, and in particular, the Company holds the original


technologies, the Company is the only company to provide integrated Finger Scan solution for access

control terminal, PC peripheral device live, live scanner and Finger Scan server. The Company may

divide its business fields for access controller, attendance management terminal, Finger Scan mouse

and PC peripheral device, electronic passport and other public use in library scanner, PC log in Finger

Scan server solution, mass capacity and high speed search solution and others. As the leader of the

industry, the Company may make diverse products and handles entire technologies and products in

earlier-presented fields. The Company has structured product line up to accommodate diverse

requirements of customers as well as the customization system to respond the demands of customer in

case-by-case to realize the customer satisfaction. Recent society has unlimited demands of customers

as it is referred to as the diversity society and the speed of the change is very fast as well, The effort

of the Company to supply product and solution in due time has been shown its fruition.

One of the recent spotlights in domestic and overseas markets is the library scanner used in

public fields. Together with the IC technology in electronic passport, national ID, health care and

others, the importance of personal identification has been increased with the increasing cases of using

the Finger Scan, and the Company has supplied library scanner (model name of eNBioScan-F) for the

electronic passport business of Korea in 2009, won the orders for major domestic and overseas

- IIC-2 -


projects from Mexico Police Agency, Brazil Transportation Administration and others, and has

supplied Finger Scan algorithm in the pilot project of “structure the finger print confirmation system

for foreigners” that the Ministry of Justice promoted and scheduled to promote this project in 2010.

Since releasing the Finger Scan access control terminal of NAC-3000 in 2003, the Company

has released NAC-2500 in 2006, NAC-5000 of high class access controller in 2009, Fingkey Access as

the dispersion-type model in later part of 2009, and Fingkey Access Plus in 2010 to structure diverse

product line-up. In particular, in the event of Fingkey Access Plus, it is one notch higher for functions

and capabilities by reflecting the requirements of customers and market after the release of Fingkey

Access that it actively responds to the market change to make product accommodated the requirements

of diverse customers.

In the event of the Finger Scan scanner and mouse, it combines with the Finger Scan server





In 2010, the Company has actively participate in High-Pass terminal business that Korea

Highway Corporation to adopt the solution of the Company with the Finger Scan system loaded with

the exemption terminal distributed in the market, and the exemption terminal issuance standard

structure business ordered by Korea Highway Corporation has been successfully performed by the

winning the order by the Company.

In 2012, the Company has requested for introducing the technology for the solutions with

technology improvement with the development as it is recognized as only technology with the intent

for continuing expansion.


The core original technology of the Finger Scan business could be listed as scanning algorithm,







The representative field in the application fields of Finger Scan technology is the access



representative technology to supplement these existing problems, and the Finger Scan



institutes or general corporate facilities where the security is priority, but in recent days, the

- IIC-3 -



broad for general business, plants and apartments. The Finger Scan access control system has

no troubles in re-issuance from loss, burden on key or card possession that the demand has been

on the rise in the access control and attendance management fields.


PC/network security means the use of Finger Scan technology in server access control






others while the Finger Scan has resolved such risk and provides the user convenience at the



companies introducing the security solution within the corporate network by using the Finger

Scan technology.

l Live scanner


breaking away from existing Finger Scan sensor, the library scanner is normally referred to as

the Finger Scan scanner to facilitate in crime investigation, electronic passport, electronic

resident card and others. In order to supplement the weakness of acquiring the limited finger

print information in the commercial sensor, the general library scanner structured with the large

finger print input window is structured to have input in sheet 1, sheet 2 and sheet 4 at the same

time. In recent days, Brazil, Mexico and other Central and South America countries as well as

India and others have shown the drastic increase in demand, and in Korea, in the event that the




m finger print certification server solution

This is the field applied to the search system for criminal identity system of the Police

Agency, AFIS, missing children service program and others. This is the field expected to have

great business opportunities together with the market expansion on the Finger Scan regardless

of home and abroad.

- IIC-4 -


E. Position of Finger Scan in the bio-scan market

The field that takes the highest ratio in the bio-scan market is clearly the Finger Scan market.

The Finger Scan market takes appropriately 67% (including AFIS) of global market in 2009 that it has

the overwhelming position for 93.5% as of 2008 for the domestic market. The Finger Scan technology






The Finger Scan technology that the Company holds is the key technology to apply in




electronic passport, immigration management, criminal identification and others and it plans to

expand for SW solution supply rather than product sales-oriented strategy.



characteristics of finished product and applied SW distribution industry for the Finger Scan

system and characteristics of SW license industry and components for Finger Scan solution.











With the improvement of the Finger Scan algorithm as well as the advancement of finger


expected to be even higher in the future. In the aspect of price, the Finger Scan related part

price has been lowered for 50% or more in recent several years. In fact, the finger print sensor,

one of the key hardware to structure the Finger Scan solution as the core component of the

Finger Scan product was USD50 or more by the early times of 2000, but it is in the range of

USD15-30 and in the event of the semiconductor method of finger print sensor applied in


- IIC-5 -


the Finger Scan computation has been approximately 4-5 times lower compared to the same


lead to the market expansion and the demand for Finger Scan solution and system products of

the Company would be influenced as well. Demand for the Finger Scan product of the

Company is related to the expansion or slow down of security market as the representative

application field. The September 11 Terror incident of the US has brought sense of alarm on

security throughout the world, including the US, and it has brought remarkable advancement in

video security and access security industry. Thereafter, increase of terror, various disputes,

crime rate and others throughout the world are expected to grow even more in the future for the

security industry. In fact, the market scale has been grown in explosive ways around Southeast

Asia, Central and South America around the end of 2011.

2. CONTENTS AND PROSPECT OF LANDSCAPING BUSINESS

A. Understanding of landscaping industry

Landscaping is a comprehensive industry to build-up the landscaping by applying the naturally

obtained landscaping material to process it appropriately for living and purpose. In addition,

landscaping is to build up the scenic view to enable human to facilitate more functional, economic and

visual environment in use, development and creativeness of all external space and land to conserve for

ecologic integrated industry.

The scope of landscaping industry is subject for all external space. It encompasses housing

garden, commercial building with garden, street and square, large residential complex, college campus,

express way, industrial complex, port, plant and other infra facilities, playground, neighborhood park,

sports park and other urban green park, cemetery park, indoor landscaping, rooftop landscaping,

provincial park, national park, natural monument protection site and other nature park, palace park,

temple, old housing and other cultural heritage, zoo, camping ground, horseracing track, gold course,

ski resort and other tourism and recreational facilities for landscaping industry.

Furthermore, outdoor sculpture, super graphic and other art works, water fountain, street

decoration, pavement and other facilities are included as subject of landscaping.

B. Characteristics of landscaping business

j Specialization-oriented market structure

The landscaping business is the business requiring specialized technology and rich

experience that this is expert-oriented business with the characteristics required for persons with

expert knowledge.

- IIC-6 -


k Independent market structure

In 1974, the landscaping work business license was newly established as a special work

business to securely settled as an independent territory for construction industry together with

the housing construction business in 1980s, and it has increased relatively compared to other

construction business as of 2011 since 1970 that this is a very bright business with the

technology power with advancement of specialized personnel under the globalization of the

landscaping business.

l Business with high domestic demand dependence

The most of landscaping business is consisted of business with subcontract of public

fields from government and local governments as well as private housing business field from

private construction companies that the landscaping companies have greatly increased since

1997, and after 2000s, with the extension of high class housing construction demand and

recover of housing construction economy, as well as expansion of business volume in the

environment-friendly business field in forestry landscaping, urban forest building up project and

others, the landscaping business has been well facilitated.

C. Status of landscaping business and future prospect

The landscaping market of Korea has been structured with government works and housing

landscaping works led by the private sector. Residential complex landscaping field implemented by the

private construction companies has been assessed as high class quality second to none in the global

market. Looking into the record for each year of general construction industry, it had 59 trillion 470

billion won in 1997 to have 189% increase for the next 10 years to 112 trillion 436.8 billion won in

2006, but the landscaping work business made drastic increase of 367% from 528.7 billion won in

1997 to 1 trillion 939.7 won in 2006 for relatively extended landscaping works.

Due to the self-regulated housing work subdivision sales, the overheated competition for the

private housing market began with the higher quality of external, internal and landscaping spaces.

Under the “Declaration of Human Environment” declared in UN Human Environment Session of 1972

and “Rio Declaration (ESSD)” of 1992, the Korean government has attempted for diverse landscaping

projects for 4 Major River Revitalization Project and landscaping ecologic approach on landscaping

business and it is highly likely to have growth possibility in the industry by looking at the reality of

higher level of recognition on the landscaping business from qualitative improvement of national

living standard.

- IIC-7 -


3. SUMMARY OF RIA BUSINESS

A. Summary of RIA business

The RIA business field is largely consisted of RIA (Rich Internet Application)-based EIS

structure field by using the flex technology and security related SI (System Integration) by using the

JAVA language.

RIA is the new concept of flash web page production technology that provides more dynamic

and interactive web page than existing hyper text manufactured language (HTML) by integrating the

flash animation technology and web server application technology. It provides the customer-oriented

web page of dynamic and convenient ways not shown in existing web through single interface to link

the DB and multimedia tools, such as, flash added with diverse components and flex.

In 2001, since Macro Media first displayed the flash MX production tool, it has expanded

broadly around shopping mall, large customer web service, portal and others. Originally, RIA is one of

the web applications that has the similar type for functions and characteristics of ordinary desktop

application. MS’s remote scripting, Java of SUN, X-internet of Macro Media, AJAX and others are

also referred to as RIA.

B. Characteristics of RIA

1) Component library is provided to develop diverse user controls and graphic effects

unable to express by HTLM.

2) It provides the engine for user interface processing. It is purported to draw the graphic

elements unable to draw by the browser on the screen.

3) The execution code is transmitted to the client from the server. In order to reduce the

server loan, the client engine executes the code to show the screen.

4) Diverse devices show the same screen structure. Client in some RIA provides experience

of the same interface under web as well as mobile environment.

C. Status of industry and market

In the event of the RIA business field, entire size of the last year was determined for about 20

billion won and the SW development market for 2012 is expected to be similar. However, for the

difference from the other SW development field, new development platforms of HTML 5 and others

may be slowed down a little. Java related SI business has most of entire development markets for the

domestic business and the market is expected to be around 200 billion won for security field SI.

- IIC-8 -


D. Status of the Company

There are about 5-6 RIA based SI companies and the market share rate of the Company is

estimated to be around 15%. In addition, EIS (executive information system) of the head office and the

BSC-based KPI solution take overwhelming position in the same industry.

There are about 20 Java-based security SI companies and the head office expects the sales of

approximately 1.5 billion won by formulating close cooperative relationship with PKI-based security

solution specialty companies. In addition, it expects the sales of around 1 billion won by focusing on

system structure for web-based work for the public institutions.

E. Future prospect

In the event of the RIA field, the flex-based development market has been declined to move

into the market with the new technology in HTLM 5, J Query and others that the head office has

approached to a number of projects as well as making effort in securing the team and technology to

respond to the trend.

In the event of the Java development part, the Company plans to enter into diverse fields other

than security related SI field and, due to the policy to restrict major companies for entry and separate

order for SW, as part of important policies of the government, SMEs, such as, the head office, are

expected to have greater opportunities.

In addition, due to the technology improvement of generalization in mobile equipment, the

business territory of the mobile field is growing and it is expected to provide growth engine and great

opportunity to the head office with the market expansion.

- IIC-9 -




(Unit: 1,000 won, %)


(ratio)

Finger Scan Product Access controller Access controller and

others

NAC-2500/3000/

5000

5,334,795

(50.62%)

Merchandise Door lock Door lock NDL-100/600/

scanner

730,520

(6.93%)

Enpia Service Added

communication


for securities

company

SecurePack and 2

types

64,446

(0.6%)

Product/

merchandise

Solution Enpia S series Enpia S-series 23,400

(0.2%)

Landscaping Service Landscaping Landscaping plants

and landscaping

facilities

– 2,304,454

(21.87%)

RIA Service SW SW development FLEX 2,081,056

(19.75%)

Total 10,538,671

(100.0%)



and model MIX.


(Unit: 1,000 won, %)

Businessfield



Finger

Scan

Raw materials AC parts Parts for access controller 1,468,389 53.91 –


Raw materials FIM parts Parts for processing board 372,616 13.68 –



Total raw materials 2,723,826 100.01 –



deleted hereof.

- IIC-10 -



(Unit: won)


AC parts 292.1 342.5 335.5

ENBIO parts 854.2 953.8 947.5

FIM parts 683.5 423.5 568.4

HAM parts 159.1 172.4 166.3

OP parts 101.8 103.2 110.7



(Unit: 1,000 won)

Business

premises

Ownership


Beginning

book value

Applicable change

Depreciation

Ending

book


Head office

and plant

Independent

ownership

(registry)

Nonhyeon-

dong, Guro

Building 598,559 – – 19,856 578,703

Facilities 80,724 1,000 – 23,054 58,670

Vehicle transport 213,258 – – 70,021 143,237

Tools and

equipment

25,408 1,696 – 2,537 24,567

Fixture 165,157 21,000 732 72,926 112,499

Mold 157,426 122,200 – 68,274 211,352

Computer

equipment

272,155 – 146,797 125,358

Total 1,512,687 145,896 732 403,465 1,254,386


subsidy.

ø Unit is 1,000 won and below the figure is rounded off (possible for single number change)


(1) On-going investment


(2) Future investment plan


- IIC-11 -


4. MATTERS ON SALES


(Unit: million won)


TermThe 27th

TermThe 26th

Term

Finger Scan Finger Scan

product

NAC-2500/

3000/5000

Export 3,885 6,198 5,035


Total 5,335 9,208 6,570

Finger Scan

merchandise

NDL-100/600 Export 437 12 4


Total 730 514 749

Enpia Enpia service Added service Export 32 35 –


Total 65 208 311


Domestic demand 23 16 –

Total 23 16 –

Landscaping Landscaping

service

Landscaping

planting/

landscaping

facilities

Export – – –

Domestic demand 2,304 841 –

Total 2,304 841 –

RIA SW development FLEX Export – – –


Total 2,081 1,381 2,076

Total Export 4,354 6,245 5,039


Total 10,538 12,168 9,706


(A) Finger scan business


The Finger Scan system part of the Company structures the access security system

and attendance management system for customers in the domestic market through

bidding of public institutions and sales on agencies. And, the Finger Scan solution part

seeks to expand the market through steady supply to public institution or large corporate

research institutes for PC shareholder server scan solution (eNBioSecure) and large

capacity finger print speedy search server (eNBio-MAS) that the Company holds in the

market.

- IIC-12 -



This is the sales organization exclusively in charge of overseas sales of diverse

products of the Company with Finger Scan terminal (NAC-2500 Plus, NAC-5000, NAC

5000 FACE, SW 101, SW 101+, and others), access control and attendance/water

management solution (Access Manager Professional), PC security server scan solution

(eNBioSecure), mass capacity finger print speedy search server (eNBio-MAS), Hamster I

DX, Hamster II DX, Hamster III, eNGioScanC 1, eNBioScan-F, eNBioScan-D, 4 slap

scanner and others to establish the competitive strategy in overseas markets through

survey and analysis on overseas market and competing companies and provides the

optimal Finger Scan solution for structuring access security and attendance management

system for customers in respective regions around the world through overseas

distribution network structure and overseas agency.


Direct sales by Sales Marketing Division and indirect sales through distributors of the

Company

(C) RIA Business Department

(i) Domestic public institutions: Bidding on new institutions and bidding and

maintenance and repair type around the already supplied institutions

(ii) Domestic general businesses: Sales as the specialized cooperative company

around the sales activities on new companies and already supplied companies

(2) Sales routes


Place of sales: 1. Domestic – Bidding on public institutions/agency and direct

sales

2. Overseas – Agency and direct sales (indirect sales through

overseas agency)


Place of sales: 1. Domestic sales by distributor

- IIC-13 -



(A) Finger Scan Business


accordance with credibility and contract conditions of the sales place. The sales proceeds are

paid by cash (deposit to account) or electronic note (purchase card) and the period possible to

cash after the supply is approximately 0-3 months (0-90 days).

Sales condition of export is mainly in T/T transaction along with the credit card payment

through Korea Exchange Bank. The sales proceed is mostly paid in advance and, in the event of

certain customers, it may have proceeds recovery period of 0-2 months (0-60 days) depending

on the transaction conditions.


With the differentials in official price of the Company, sales price of distributor, and

actual sales price of locality for final consumers, it is set to generate margin for distributor.

(C) RIA Business Department

In the event of the public institutions, cash transaction has to be made in principle, and

in the event of general business, trade payable transactions are made depending on the

credibility and contract conditions and payment is made in cash (deposit to account) or

electronic note (purchase card) by cashing within 10-90 days after the sales consummated.

(4) Sales strategy


– Strengthening of sales activities mainly for new products and high value-added products


– Undertaking intense advancement for major customers and diversification of transacted

items

– Conversion and strengthening into solution-based business through SW solution supply

from single item strategy

- IIC-14 -



RepresentativeDirector

ManagingDirector Auditor

BusinessDivision

DevelopmentOffice

ManagementSupportOffice

AdvanceResearch

Team

SalesTeam

PlanningTeam

H/W Team S/W Team QualityTeam

ProductTeam

5. ORDERS

A. Finger Scan Business




B. Landscaping Business Department






Work location Jewol, Jangseon, Sinwon, Wongil and Osa Districts

Subcontract amount Planting: W3,592,820,000


Total: W4,436,740,000

Subcontract work period 25 October 2010 ~ 31 October 2012

- IIC-15 -







Work location Aprok, Bongseo, Gwangpyeong (Sado), Dongbangcheon

Districts



Total: W1,445,136,000

Subcontract work period 2 November 2010 ~ 16 December 2012

C. RIA Business Department

(1) Improvement service for BSC outcome management system


Project name Improvement service for BSC outcome management

system

Subcontract amount W86,000,000

Contract term 21 February 2012 ~ 19 June 2012

(2) PMS integrated development – Structuring project management integrated system


Project name PMS integrated development – Structuring project

management integrated system


Contract term 8 February 2012 ~ 30 April 2012

- IIC-16 -


(3) Online system structuring service for encouragement fund for cooling and heatingconsolidation


Project name Online system structuring service for encouragement fund

for cooling and heating consolidation


Contract term 8 March 2012 ~ 21 April 2012


A. Status of Derivative Products Contract Conclusion

Not applicable


Not applicable


Not applicable

8. R&D ACTIVITIES





Technology Development Team 1) Development of core algorithm for Finger Scan

2) Development of Finger Scan PC solution

3) Development of Finger Scan server solution

4) Development of mobile Finger Scan solution

5) Development of Finger Scan capability evaluation

technology

- IIC-17 -



Product Development Team 1) Development of access security and attendance




3) Development of embedded Finger Scan module

palm-ware


5) Development of Finger Scan live scanner

6) Development of application SW for electronic

passport




Attendance management

SW development

January 2010 ~



management program by using the Finger Scan


Client) development

January 2010 ~


Development of solution available for linkage and

management server and Finger Scan terminal of

the Company

Development of FA 10-01

AFIS exclusive

algorithm

September 2009 ~


Development of individual information security

server/client by using the bio-metric information

KT 101/KT 101+

development

November 2010 ~


Manage the information of each user and PC

security policies from the server

Development of fiscal year

and facial recognition

integrated terminal

January 2010 ~


Confirmation of PC service record of each user

from the server

Multi-processor applying

high capability

certification development

server

January 2011 ~


Development of finger print image processing

technology

- IIC-18 -



Image enhanced algorithm January 2011 ~


Development of small optic-type Finger Scan

sensor to satisfy the US FBI PIV dimension

PIV sensor development January 2011 ~


Development of Finger Scan terminal of new

platform and development of WinCE 6.0

applying platform

New platform development January 2011 ~


Development of PC and network security solution

by centrally-focused management

eNBio-Secure development November 2010 ~


Development of Finger Scan exclusive server by

applying multi-processor




Not applicable


Not applicable


Not applicable


Not applicable

- IIC-19 -






















statement.




- IIC-20 -





(Unit: won)


Sales amount 10,538,671,591 12,168,387,414

Cost of sales 8,289,068,701 7,109,193,698

Total income from sales 2,249,602,890 5,059,193,716

Other income 282,578,067 228,800,084

Selling and administrative expenses 5,090,979,998 4,431,053,935

Other expenses, for each function 157,229,807 118,595,911

Operating income (loss) (2,716,028,848) 738,343,954

Financial income 1,003,952,927 711,913,093

Cost of finance 593,152,893 594,247,997

Subsidiary company and relevant corporate

investment income 0 666,412,070

Goodwill damage loss 263,508,000 504,617,117

Gain (loss) before deducting the income tax

expenses (2,568,736,814) 1,017,804,003

Income tax expenses 214,819,455 (645,126,251)

Current net gain (loss) (2,783,556,269) 1,662,930,254

The sales amount of the Company in 2011 was 10,538,671,591 won with the Operating income

of -2,716,028,848 won and the net income of -2,783,556,269 won, and for the detailed contents related

to other business status, domestic business is 6.2 billion won and overseas business is 4.3 billion won,

and the ratio of sales for home and abroad is 59% and 51%, respectively.




- IIC-21 -




(Unit: won)

Classification The 28th Term The 27th Term The 26th Term

Current assets 14,988,003,501 16,890,687,817 12,529,595,175

Cash and cash equivalent assets 8,717,577,820 5,086,539,707 6,348,278,739

Other current financial assets 1,404,731,200 4,463,527,500 0

Trade receivables and other credits 2,144,387,429 5,019,008,531 4,476,795,865

Current income tax assets 64,964,147 79,645,342 53,958,173

Inventories 2,486,073,373 2,010,505,918 1,480,704,439

Other current assets 170,269,532 231,460,819 169,857,959

Non-current assets 5,618,257,308 5,911,149,811 7,995,734,682

Other non-current financial assets 384,667,505 392,223,388 575,488,430

Investment real estate 138,839,113 138,839,113

Investment on relevant companies 0 0 2,454,401,680

Tangible asset 1,369,604,862 1,582,074,411 1,840,374,865

Intangible asset 2,903,793,724 2,896,636,591 2,751,963,753

Long-term trade receivables and other non-current

credits 343,626,013 208,351,658 335,155,607

Deferred income tax assets 477,726,091 693,024,650 38,350,347

Total Assets 20,606,260,809 22,801,837,628 20,525,329,857

Current liabilities 2,338,207,534 1,996,715,953 1,213,794,548

Short-term borrowings 145,172,673 310,000,000 0

Trade payables and other payables 1,923,151,449 1,598,407,313 1,175,410,970

Other current liabilities 269,883,412 88,308,640 38,383,578

Non-current liabilities 1,094,057,577 972,185,573 915,658,824

Long-term borrowings 0 0 90,000,000

Defined benefit obligation 1,094,057,577 971,657,573 728,336,356

Other non-current liabilities 0 528,000 16,728,000

Deferred income tax liabilities 0 0 80,594,468

Total liabilities 3,432,265,111 2,968,901,526 2,129,453,372

Capital equity 17,700,158,000 17,700,158,000 17,700,158,000

Capital surplus 4,894,706,528 4,894,706,528 8,680,935,738

Other capital (4,518,578,180) (4,662,147,669) (4,484,730,333)

Retained earnings (902,290,650) 1,900,219,243 (3,500,486,920)

Total capital 17,173,995,698 19,832,936,102 18,395,876,485


The currency rate of the Company is 641%, a reduction of 24% compared to the previous year, and

unless otherwise having a special situation, the current liquidity is determined as having no problem, and the

liabilities ratio is managed for 19.98% with the full commitment for maintaining the financial soundness for

later.

- IIC-22 -



A. Consolidated financial statements of Nitgen for the year ended 31 December 2011


3rd Floor Daeha B/D 14-11 Yeouido-dong Yeongdeungpo-gu, Seoul 150-715 Korea

Phone : 82-2-761-9800 Faxne : 82-2-761-2794


The Board of Directors and StockholdersNITGEN&COMPANY CO., LTD.

We have audited the accompanying consolidated statements of financial position ofNITGEN&COMPANY Co., Ltd. and its subsidiaries (the “Group”) as of 31 December 2011 andthe related consolidated statements of comprehensive income, changes in equity and cash flows for theyear then ended, expressed in Korean won. Management is responsible for the preparation and fairpresentation of these consolidated financial statements in accordance with Korean InternationalFinancial Reporting Standards (“K-IFRS”). Our responsibility is to express an opinion on theseconsolidated financial statements based on our audits. The accompanying consolidated statements offinancial position of the Group as of and for the year ended 31 December 2010, presented forcomparative purposes, were not audited.

We conducted our audits in accordance with auditing standards generally accepted in theRepublic of Korea. Those standards require that we plan and perform the audit to obtain reasonableassurance about whether the consolidated financial statements are free of material misstatement. Anaudit includes examining, on a test basis, evidence supporting the amounts and disclosures in theconsolidated financial statements. An audit also includes assessing the accounting principles used andsignificant estimates made by management, as well as evaluating the overall financial statementpresentation. We believe that the audit evidence we have obtained is sufficient and appropriate toprovide a basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in allmaterial respects, the financial position of the Group as of 31 December 2011 and the results of itsoperations and its cash flows for the year ended 31 December 2011, in accordance with K-IFRS.

Auditing standards and their application in practice vary among countries. The procedures andpractices used in the Republic of Korea to audit such financial statements may differ from thosegenerally accepted and applied in other countries. Accordingly, this report is for use by those who areinformed about Korean auditing standards and their application in practice.

IInduk AccountingCorporation

Seoul, Korea14 March 2012

- IIC-23 -


This report is effective as of 14 March 2012, the audit report date. Certain subsequent events orcircumstances, which may occur between the audit report date and the time of reading this report,could have a material impact on the accompanying consolidated financial statements and notes thereto.Accordingly, the readers of the audit report should understand that the above audit report has not beenupdated to reflect the impact of such subsequent events or circumstances, if any.

- IIC-24 -


Consolidated Statements of Financial Position31 December 2011, 2010 and 1 January 2010

(In thousands of Korean won)

Notes31 December

201131 December

20101 January

2010(Unaudited) (Unaudited)

ASSETSCurrent assetsCash and cash equivalents 6,8 8,717,578 5,086,540 6,348,279Other current financial assets 6,9 1,404,731 4,463,528 –Trade and other receivables 11,23,24 2,144,387 5,019,009 4,476,796Current tax assets 64,964 79,645 53,958Inventories 10 2,486,073 2,010,506 1,480,704Other current assets 12 170,270 231,461 169,858

Total current assets 14,988,003 16,890,689 12,529,595

Non-current assetsOther non-current financial assets 6,9 384,668 392,223 575,488Investment property 15 138,839 138,839 –Investments in associates 16 – – 2,454,402Property, plant and equipment 13 1,369,605 1,582,074 1,840,375Intangible assets 14 2,903,794 2,896,636 2,751,964Trade and other receivables 6,11 343,626 208,352 335,156Deferred tax assets 28 477,726 693,025 38,350

Total non-current assets 5,618,258 5,911,149 7,995,735

Total assets 20,606,261 22,801,838 20,525,330

LIABILITIES AND EQUITYCurrent liabilitiesBorrowings 6,17 145,173 310,000 –Trade and other payables 19,24 1,923,151 1,598,407 1,175,411Other current liabilities 19,23 269,883 88,309 38,384

Total current liabilities 2,338,207 1,996,716 1,213,795

Non-current liabilitiesLong-term borrowings 6,17 – – 90,000Defined benefit obligation 20 1,094,058 971,658 728,336Other non-current liabilities – 528 16,728Deferred tax liabilities 28 – – 80,594

Total non-current liabilities 1,094,058 972,186 915,658

Total liabilities 3,432,265 2,968,902 2,129,453

EquityCapita stock 22 17,700,158 17,700,158 17,700,158Capital surplus 22 4,894,707 4,894,707 8,680,936Other components of equity 21,22 (4,518,578) (4,662,148) (4,484,730)Retained earnings 22 (902,291) 1,900,219 (3,500,487)

Total Equity attributable to owners ofthe Company 17,173,996 19,832,936 18,395,877

Non-controlling interests – – –

Total equity 17,173,996 19,832,936 18,395,877

Total equity and liabilities 20,606,261 22,801,838 20,525,330

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

- IIC-25 -


Consolidated Statements of Comprehensive IncomeYears Ended 31 December 2011 and 2010

(In thousands of Korean won)Notes 2011 2010

(Unaudited)

Sales 23,24 10,538,672 12,168,387Cost of sales 23,24,29 8,289,069 7,109,193

Gross profit 2,249,603 5,059,194Selling and administrative expenses 26,29 5,090,980 4,431,054Other operating income 18,24,27 282,578 228,800Other operating expenses 24,27 157,230 118,596

Operating income(loss) (2,716,029) 738,344Gain on disposal of associate 16 – 666,412Financial income 24,27 1,003,953 711,913Financial expenses 24,27 593,153 594,248Loss on Goodwill 14 263,508 504,617

Profit before income tax (2,568,737) 1,017,804Income tax expense(benefit) 28 214,819 (645,126)

Profit for the year (2,783,556) 1,662,930

Other comprehensive income (loss)Change in value of available-for-sale financialassets 9,28 20,652 (270,700)

Actuarial loss on post employment benefitobligations 20,28 (18,954) (48,453)

1,698 (319,153)

Total comprehensive income for the year (2,781,858) 1,343,777

Profit attributable to:Equity holders of the Parent Company (2,783,556) 1,662,930Non-controlling interest – –

Total comprehensive income attributable to:Equity holders of the Parent Company (2,781,858) 1,343,777Non-controlling interest – –

Earnings per share from profit attributable tothe equity holders of the company during theyear

Basic and diluted earnings per share (in Koreanwon) 30 (79) 47


- IIC-26 -


Consolidated Statements of Changes in EquityYears Ended 31 December 2011 and 2010


Attributable to equity holders of the Company

Capital StockCapitalSurplus

OtherComponents

of EquityRetainedEarnings Total

Non-controlling

Interest Total equity

Balance at 1 January 2010 17,700,158 8,680,936 (4,484,730) (3,500,487) 18,395,877 – 18,395,877

Comprehensive income(expenses):Profit for the year – – – 1,662,930 1,662,930 – 1,662,930

Transfer from gains on capital reduction – (3,786,229) – 3,786,229 – – –

Compensation expenses for stock option – – 93,282 – 93,282 – 93,282

Actuarial loss on post employment benefit

obligations – – – (48,453) (48,453) – (48,453)

Change in value of available-for-sale

financial assets – – (270,700) – (270,700) – (270,700)

Transactions with equity holders of theCompany:

Balance at 31 December 2010 17,700,158 4,894,707 (4,662,148) 1,900,219 19,832,936 – 19,832,936

Balance at 1 January 2011 17,700,158 4,894,707 (4,662,148) 1,900,219 19,832,936 – 19,832,936

Comprehensive income(expenses): – – –

Profit for the year – – – (2,783,556) (2,783,556) – (2,783,556)

Compensation expenses for stock option – – 122,918 – 122,918 – 122,918


obligations – – – (18,954) (18,954) – (18,954)


financial assets – – 20,652 – 20,652 – 20,652

Transactions with equity holders of theCompany:

Balance at 31 December 2011 17,700,158 4,894,707 (4,518,578) (902,291) 17,173,996 – 17,173,996


- IIC-27 -


Consolidated Statements of Cash Flows YearsEnded 31 December 2011 and 2010

(In thousands of Korean won)Notes 2011 2010

(Unaudited)

Cash flows from operating activitiesCash generated from operations 25 1,364,673 (1,362,505)Interest received 273,782 362,575Interest paid (6,217) (97,412)Income tax paid – (125)Dividends received 57,142 –

Net cash generated from operating activities 1,689,380 (1,097,467)

Cash flows from investing activitiesAcquisition of short-term trading securities 10,198,991 4,268,399Proceeds from disposal of guarantee deposits 3,933 32,899Decrease in short-term loans 16,133,700 12,977,000Disposal of associates – 3,120,814Disposal of property, plant and equipment 755 473Disposal(Acquisition) of short-term financialinstruments (9,000) (100,000)

Disposal of short-term trading securities (7,079,261) (8,673,883)Increase in short-term loans (15,830,000) (10,500,000)Increase in available-for-sale financial assets – (163,786)Acquisition of property, plant and equipment (1,195,282) (1,331,756)Acquisition of intangible assets (3,250) (432)Increase in other non-current assets (139,101) (104,000)Others 25,000 –

Net cash used in investing activities 2,106,485 (474,272)

Cash flows from financing activitiesProceeds from short-term borrowings 1,145,173 1,230,000Repayments of short-term borrowings (1,310,000) (920,000)

Net cash provided by (used in) financingactivities (164,827) 310,000

Net increase (decrease) in cash and cashequivalents 3,631,038 (1,261,739)

Cash and cash equivalents at the beginning ofperiod 5,086,540 6,348,279

Cash and cash equivalents at the end of period 8,717,578 5,086,540


- IIC-28 -


Notes to the Consolidated Financial Statements31 December 2011 and 2010


(1) The Parent Company

NITGEN&COMPANY Co., Ltd. (the “Company”) was incorporated on 20 March 1984 under the laws

of the Republic of Korea to engage in network and solution businesses. The Company prepared the foundation

for stable growth through capability intensification and improvement of management efficiency as of 21

November 2008 and has absorbed and merged Nitgen Co., Ltd., the subsidiary of the Company that has the main

business in the development of products for scanning and security based on the Finger Scan technology to

maximize the corporate value.

The Company’s head office and manufacturing plant are located in Seoul, Korea. On 30 September 1994

the Company was listed on the KOSDAQ (Korean Securities Dealers Automated Quotation) market from the

Korea Exchange. As of 31 December 2011, the Company has issued 35,400,316 common shares amounting to

17,700,158 thousand in Korean won.

As of 31 December 2011, the Company’s major stockholders consist of Ocean B Holdings Co., Ltd.

(20.28%).

(2) Consolidated Subsidiaries

The Company’s consolidated subsidiaries as of 31 December 2011, are as follows:

Ownership (%)

SubsidiariesTypes ofBusiness Location

31 December2011

31 December2010

1 January2010

RIA Soft Co.,

Ltd.

IT development

and program

Korea 100% 100% 100%

The condensed statements of financial position as of 31 December 2011 and 2010, and the condensed

statements of comprehensive income for the years ended 31 December 2011 and 2010, of consolidated

subsidiaries are as follows:

(in thousands of Korean won)

Assets Liabilities SalesProfit for the

year

Totalcomprehensiveincome for the

year

2011.12.31 980,853 1,008,587 2,123,613 (415,750) (398,950)

2010.12.31 1,370,641 999,425 1,650,077 144,585 136,337

2010.01.01 1,143,252 908,373 2,075,633 59,890 59,890

(*) The above summarized financial information is prepared on the basis of the financial statements

before setting off for insider transaction between the controlling company and subsidiary

company subject for consolidation.

- IIC-29 -


(3) Following the introduction of the K-IFRS from the annual report period commenced after 1 January

2011, the subsidiary company, RIA Soft Co., Ltd., has been included in the scope of consolidation from

1 January 2010, the first adoption date.

(4) The financial statements of the subsidiary company used at the time of preparing the consolidated

financial statements used the financial statements with audit applied for the K-IFRS of the same report

period with the report period of the Company


(1) Basis of Preparation

The consolidated financial statements are prepared in accordance with International Financial Reporting

Standards as adopted by the Republic of Korea (“K-IFRS”). These are the standards, subsequent amendments

and related interpretations issued by the International Accounting Standards Board (“IASB”) that have been

adopted by the Republic of Korea. The accompanying financial statements and notes have been condensed,

restructured and translated into English from the Korean language financial statements.

These are the Group’s first consolidated financial statements prepared in accordance with K-IFRS and K-

IFRS No. 1101 First-time Adoption of Korean International Financial Reporting Standards (“K-IFRS No.

1101”) has been applied. The Group’s date of transition to K-IFRS is 1 January 2010, and the effect of the

transition from Korean Generally Accepted Accounting Principles (“K-GAAP”) to K-IFRS on the Group’s

reported financial position and financial performance is explained in note 3.

The principal accounting policies applied in the preparation of these consolidated financial statements

are set out below. These policies have been consistently applied to all the periods presented, unless otherwise

stated.

Plans to sell the Subsidiary which were expected held for sale in the previous year were cancelled in the

current year. In accordance with K-IFRS 1105 Non-current Assets Held For Sale and Discontinued Operations,

the results of operations of the component previously presented in discontinued operations in the consolidated

financial statements of the previous year were reclassified and included in income from continuing operations as

done in the current year.

New standards, amendments and interpretations issued but not effective for the financial year beginning

1 January 2011, and not early adopted by the Group are as follows:

– Amendments to Korean IFRS 1019, Employee Benefits

According to the amendments to Korean IFRS 1019, Employee Benefits, use of a ‘corridor’

approach is no longer permitted, and therefore all actuarial gains and losses incurred are immediately

recognized in other comprehensive income. All past service costs incurred from changes in pension plan

are immediately recognized, and expected returns on interest costs and plan assets that used to be

separately calculated are now changed to calculating net interest expense(income) by applying discount

rate used in measuring defined benefit obligation in net defined benefit liabilities(assets). This

amendment will be effective for the Group as of 1 January 2013, and the Group is assessing the impact

of application of the amended Korean IFRS 1019 on its consolidated financial statements as of the report

date.

– Amendments to Korean IFRS 1107, Financial Instruments: Disclosures

According to the amendment, an entity should provide the required disclosures of nature,

carrying amount, risk and rewards associated with all transferred financial instruments that are not

derecognized from an entity’s financial statements. In addition, an entity is required to disclose

- IIC-30 -


additional information related to transferred and derecognized financial instruments for any continuing

involvement in transferred assets. This amendment is effective for the Group as of 1 January 2012, and

The Group expects that it would not have a material impact on the Group.

– Enactment of Korean IFRS 1113, Fair value measurement

Korean IFRS1113, Fair value measurement, aims to improve consistency and reduce complexity

by providing a precise definition of fair value and a single source of fair value measurement and

disclosure requirements for use across Korean IFRSs. Korean IFRS1113 does not extend the use of fair

value accounting but provides guidance on how it should be applied where its use is already required or

permitted by other standards within Korean IFRSs. This amendment will be effective for the Group as of

1 January 2013, and the Group expects that it would not have a material impact on the Group.

(2) Basis of measurement

The consolidated financial statements have been prepared on the historical cost basis, except for the

matters separately mentioned on the statement of financial position.

(3) Consolidation standards

The consolidated financial statements incorporate the financial statements of the Parent and entities

(including special purpose entities) controlled by the Parent (its subsidiaries). Control is achieved where an entity

has the power to govern the financial and operating policies of another entity so as to obtain benefits from its

activities.

Income and expenses of subsidiaries acquired or disposed of during the year are included in the

consolidated statement of comprehensive income from the effective date of acquisition and up to the effective

date of disposal, as appropriate. If different accounting policies are used by a company which forms a

consolidated entity on equivalent transactions and cases under similar circumstances other than the accounting

policy adopted by the consolidated financial statements, the financial statements are appropriately revised to

prepare the consolidated financial statements.

All intra-Company transactions, balances, income and expenses, unrealized profit etc. are eliminated in

full upon consolidation. Amongst the subsidiary’s net assets, uncontrolled shares are included as capital or equity

in the consolidated financial statements but disclosed separately from the controlling company’s equity

ownership. The book value of uncontrolled shares is the initial recognized amount upon acquisition which

reflects the proportion of uncontrolled shares following equity changes. Total comprehensive income is

attributed to non-controlling interests even if this results in the non-controlling interests having a deficit balance.

Changes in the Parent’s ownership interests in subsidiaries that do not result in the Parent losing control

over the subsidiaries are accounted for as equity transactions. The carrying amounts of the Parent’s interests and

the non-controlling interests are adjusted to reflect the changes in their relative interests in the subsidiaries. Any

difference between the amount by which the non-controlling interests are adjusted and the fair value of the

consideration paid or received is recognized directly in equity and attributed to owners of the Parent.

When the Parent loses control of a subsidiary, the profit or loss on disposal is calculated as the

difference between (i) the aggregate of the fair value of the consideration received and the fair value of any

retained interest and (ii) the previous carrying amount of the assets (including goodwill), and liabilities of the

subsidiary and any non-controlling interests. When assets of the subsidiary are carried at revalued amounts or

fair values and the related cumulative gain or loss has been recognized in other comprehensive income and

accumulated in equity, the amounts previously recognized in other comprehensive income and accumulated in

equity are accounted for as if the Parent had directly disposed of the relevant assets (i.e. reclassified to profit or

loss or transferred directly to retained earnings). The fair value of any investment retained in the former

- IIC-31 -


subsidiary at the date when control is lost is recognized as the fair value on initial recognition for subsequent

accounting under K-IFRS 1039 Financial Instruments: Recognition and Measurement or, when applicable, the

cost on initial recognition of an investment in an associates or joint ventures.

(4) Business Combination

Acquisitions of businesses are accounted for using the acquisition method. The consideration transferred

in a business combination is measured at fair value, which is calculated as the sum of the acquisition-date fair

values of the assets transferred by the Company, liabilities incurred by the Company to the former owners of the

acquiree and the equity interests issued by the Company in exchange for control of the acquiree. Acquisition-

related costs are generally recognized in profit or loss as incurred.

When a business combination is achieved in stages, the Company’s previously held equity interest in the

acquiree is re-measured to fair value at the acquisition date (i.e. the date when the Company obtains control) and

the resulting gain or loss, if any, is recognized in profit or loss. Amounts arising from interests in the acquiree

prior to the acquisition date that have previously been recognized in other comprehensive income are reclassified

to profit or loss where such treatment would be appropriate if that interest were disposed of.

(5) Revenue Recognition

(a) Sale of goods

Consolidated entities recognize revenue from the sale of goods when the important risk and

rewards following possession of the goods are transferred to the purchaser, the amount of revenue can be

measured reliably, and it is highly probable that the economic benefits associated with the transaction

will flow to the Company.

(b) Rendering of services

Consolidated entities recognize revenue from contracts to render service when the amount of

revenue following the stages of completion can be measured reliably and when it is highly probable that

the economic benefits associated with the transaction will flow to the Company.

(c) Dividend Income and Interest Income

Dividend income from investments is recognized when the Company’s right to received payment

has been established. Interest income is accrued on a time basis, by reference to the principal outstanding

and at the effective interest rate applicable.

(d) Construction Contracts

Where the outcome of a construction contract can be estimated reliably, revenue and costs are

recognized by reference to the stage of completion of the contract activity at the end of the reporting

period, measured based on the proportion of contract costs incurred for work performed to date relative

to the estimated total contract costs, except where this would not be representative of the stage of

completion. Variations in contract work, claims and incentive payments are included to the extent that

the amount can be measured reliably and its receipt is considered probable.

Where the outcome of a construction contract cannot be estimated reliably, contract revenue is

recognized to the extent of contract costs incurred that it is probable will be recoverable. Contract costs

are recognized as expenses in the period in which they are incurred.

When it is probable that total contract costs will exceed total contract revenue, the expected loss

is recognized as an expense immediately.

- IIC-32 -


(6) Foreign currencies

The individual financial statements of each entity are presented in the currency of the primary economic

environment in which the entity operates (its functional currency).

In preparing the financial statements of the individual entities, transactions in currencies other than the

entity’s functional currency (foreign currencies) are recognized at the rates of exchange prevailing at the dates of

the transactions. At the end of each reporting period, monetary items denominated in foreign currencies are

retranslated at the rates prevailing at that date. Non-monetary items that are measured in terms of historical cost

in a foreign currency are not retranslated. Non-monetary items carried at fair value that are denominated in

foreign currencies are retranslated at the rates prevailing at the date when the fair value was determined.

Exchange differences arising on the settlement of items or on translating monetary items are recognized

in net income in the period in which they arise with some exceptions.

For the purpose of presenting consolidated financial statements, the assets and liabilities of the

Company’s foreign operations are expressed in Korean won using exchange rates prevailing at the end of the

reporting period. Income and expense items are translated at the average exchange rates for the period, unless

exchange rates fluctuated significantly during that period, in which case the exchange rates at the dates of the

transactions are used. Exchange differences arising, if any, are recognized in other comprehensive income and

accumulated in equity. On the disposal of a foreign operation, all of the accumulated exchange differences in

respect of that operation attributable to the Company are reclassified to net income.

Exchange differences which are recognized in profit or loss is classified as the other operating

income(expense) or financial income(expense) in accordance with the transaction or nature of the case arising for

relevant foreign exchange income.

(7) Use of estimates and judgments

We have prepared our consolidated financial statements in accordance with IFRS as issued by the IASB.

These accounting principles require us to make certain estimates and judgments that affect the reported amounts

in our consolidated financial statements. Our estimates and judgments are based on historical experience,

forecasted future events and various other assumptions that we believe to be reasonable under the circumstances.

Estimates and judgments may differ under different assumptions or conditions. We evaluate our estimates and

judgments on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the

estimates are revised and in any future periods affected. Major categories of the financial statements influencing

important influence for accounting estimates and judgments are inventories, investment on affiliated companies,

property, plant and equipment, intangible assets, provision for estimated Liabilities, and deferred income taxes.

(8) Operating segment

An operating segment is a component of the Group that engages in business activities from which it may

earn revenues and incur expenses, including revenues and expenses that relate to transactions with any of the

Group’s other components. All operating segments’ operating results are reviewed regularly by the Group’s ceo

to make decisions about resources to be allocated to the segment and assess its performance, and for which

discrete financial information is available. Geographical segment is a component of an entity that provides

products and services within a particular economic environment, that is subject to risks and returns that are

different from those of components operating in other economic environments.

(9) 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 that are readily convertible to known amounts of cash and which are subject to an

insignificant risk of changes in value with original maturities of less than three months.

- IIC-33 -


(10) Non-derivative financial assets

The Group recognizes and measures non-derivative financial assets by the following four categories:

financial assets at fair value through profit or loss, held-to-maturity investments, loans and receivables and

available-for-sale financial assets. The Group recognizes financial assets in the consolidated statement of

financial position when the Group becomes a party to the contractual provisions of the instrument. Financial

assets are derecognized when the rights to receive cash flows from the investments have expired or have been

transferred and the Company has transferred substantially all risks and rewards of ownership. Separate assets or

liabilities are recognized if any rights and obligations are created or retained in the transfer.

Upon initial recognition, non-derivative financial assets are measured at their fair value plus, in the case

of a financial asset not at fair value through profit or loss, transaction costs that are directly attributable to the

asset’s acquisition or issuance.

(a) Financial assets at fair value through profit or loss

A financial asset is classified as financial assets are classified at fair value through profit or loss

if it is held for trading or is designated as such upon initial recognition. Upon initial recognition,

transaction costs are recognized in profit or loss when incurred. Financial assets at fair value through

profit or loss are measured at fair value, and changes therein are recognized in profit or loss.

(b) Held-to-maturity investments

Held-to-maturity investments are non-derivative financial assets with fixed or determinable

payments and fixed maturity that an entity has the positive intention and ability to hold to maturity other

than the bellows

– those that the entity upon initial recognition designates as at fair value through profit or

loss;

– those that the entity designates as available for sale; and

– those that meet the definition of loans and receivables.

(c) Loans and receivables

Loans and receivables are financial assets with fixed or determinable payments that are not

quoted in an active market. Subsequent to initial recognition, loans and receivables are measured at

amortized cost using the effective interest method except for loans and receivables of which the effect of

discounting is immaterial.

(d) Available-for-sale financial assets

Available-for-sale financial assets are those non-derivative financial assets that are designated as

available-for-sale or are not classified as financial assets at fair value through profit or loss, held-to-

maturity investments or loans and receivables. Subsequent to initial recognition, they are measured at

fair value, which changes in fair value, net of any tax effect, recorded in other comprehensive income in

equity. Investments in equity instruments that do not have a quoted market price in an active market and

whose fair value cannot be reliably measured and derivatives that are linked to and must be settled by

delivery of such unquoted equity instruments are measured at cost. When a financial asset is

derecognized or impairment losses are recognized, the cumulative gain or loss previously recognized in

other comprehensive income is reclassified from equity to profit or loss. Dividends on an available-for-

sale equity instrument are recognized in profit or loss when the Group’s right to receive payment is

established.

- IIC-34 -


(11) Impairment of financial assets

The Company assesses at the end of each reporting period whether there is objective evidence that a

financial asset or a group of financial assets is impaired. A financial asset or a group of financial assets is

impaired and impairment losses are incurred only if there is objective evidence of impairment as a result of one

or more events that occurred after the initial recognition of the asset (a ‘loss event’) and that loss event (or

events) has an impact on the estimated future cash flows of the financial asset or a group of financial assets that

can be reliably estimated.

For certain categories of financial asset, such as trade and bills receivables, assets that are assessed not to

be impaired individually are subsequently assessed for impairment on a collective basis. Objective evidence of

impairment for a portfolio of receivables could include the Group’s past experience of collecting payments and

changes in national or local economic conditions that correlate with default on receivables.

An impairment loss in respect of a financial asset measured at amortized cost is calculated as the

difference between its carrying amount and the present value of its estimated future cash flows discounted at the

asset’s original effective interest rate. The Group can recognize impairment losses directly or establish a

provision to cover impairment losses. If, in a subsequent period, the amount of the impairment loss decreases

and the decrease can be related objectively to an event occurring after the impairment was recognized (such as

an improvement in the debtor’s credit rating), the previously recognized impairment loss shall be reversed either

directly or by adjusting an allowance account.

If there is objective evidence that an impairment loss has occurred on an unquoted equity instrument that

is not carried at fair value because its fair value cannot be reliably measured, or on a derivative asset that is

linked to and must be settled by delivery of such an unquoted equity instrument, the amount of the impairment

loss is measured as the difference between the carrying amount of the financial asset and the present value of

estimated future cash flows discounted at the current market rate of return for a similar financial asset. Such

impairment losses shall not be reversed.

When a decline in the fair value of an available-for-sale financial asset has been recognized in other

comprehensive income and there is objective evidence that the asset is impaired, the cumulative loss that had

been recognized in other comprehensive income shall be reclassified from equity to profit or loss as a

reclassification adjustment even though the financial asset has not been derecognized. Impairment losses

recognized in profit or loss for an investment in an equity instrument classified as available-for-sale shall not be

reversed through profit or loss. If, in a subsequent period, the fair value of a debt instrument classified as

available-for-sale increases and the increase can be objectively related to an event occurring after the impairment

loss was recognized in profit or loss, the impairment loss shall be reversed, with the amount of the reversal

recognized in profit or loss.

(12) Derecognition of financial instruments

A financial asset shall be derecognised when the contractual rights to the cash flows from the financial

asset expire or the Group transfer the contractual rights to receive the cash flows of the financial asset and

substantially all the risks and rewards of ownership of the financial asset. If most of the risks and rewards which

follow in possessing financial assets have not been retained nor transferred, the Group should: i) dispose the

financial asset if it currently does not control the financial asset; or ii) continuously recognize the transferred

assets until the assets are of concern as well as recognize the related liabilities if the Company continues to

control the financial asset.

If the Group transfers the contractual rights to receive the cash flows of financial assets but retains

substantially all the risks and rewards of ownership of the financial assets, the financial assets shall continue to

be recognized while the proceeds received from the disposal of financial assets shall be recognized as liabilities.

- IIC-35 -


The Company has a legal right to offset the financial assets and liabilities. The assets and liabilities can be offset

only when they are settled based on the net method or there is an intention to settle the liabilities simultaneously

to realizing the asset.

(13) Inventories

Inventories are stated at the lower of cost and net realizable value. The cost of inventories is based on

the weighted average method principle, and includes expenditures for acquiring the inventories, production or

conversion costs and other costs incurred in bringing them to their existing location and condition. The net

realizable value (hereinafter ‘NRV’) is measured by deducting the estimated additional cost to completion and

selling expenses from the estimated selling price in the ordinary course of business. The evaluation losses arising

from the decrease in the inventory asset NRV below the book value or obsolescence losses arising under normal

circumstances shall be added to the cost of sales while the evaluation losses shall be disclosed in the inventory

asset-contra account.

(14) Property, plant and equipment

Property, plant and equipment are initially measured at cost and after initial recognition, are carried at

cost less accumulated depreciation and accumulated impairment losses. The cost of property, plant and

equipment includes expenditures arising directly from the construction or acquisition of the asset, any costs

directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating

in the manner intended by management and the initial estimate of the costs of dismantling and removing the item

and restoring the site on which it is located.

Subsequent costs are recognized in the carrying amount of property, plant and equipment at cost or, if

appropriate, as separate items if it is probable that future economic benefits associated with the item will flow to

the Group and the cost of the item can be measured reliably. The carrying amount of the replaced part is

derecognized. The costs of the day-to-day servicing are recognized in profit or loss as incurred.

Land is not depreciated. Depreciation on other assets is calculated using the straight-line method to

allocate the difference between their cost and their residual values over their estimated useful lives, as follows:

Useful lives (years)

Buildings 40

Other property, plant and equipment 5

Depreciation methods, useful lives and residual values are reviewed at the end of each reporting date and

adjusted, if appropriate. The change is accounted for as a change in an accounting estimate.

The carrying amount of an item of property and equipment is derecognized on disposal or when no

future economic benefits are expected from its use or disposal. The gain or loss arising from the derecognition of

an item of property and equipment is determined as the difference between the net disposal proceeds and the

carrying amount of the item, and is included in net income when the item is derecognized.

(15) Intangible assets

(a) Goodwill

Goodwill arising on an acquisition of a business is recognized as an asset as established at the

date of acquisition of the business. Goodwill is measured as the excess of the sum of the consideration

transferred, the amount of any non-controlling interests in the acquiree, and the fair value of the

Company’s previously held equity interest in the acquiree (if any) over the net of the acquisition-date

amounts of the identifiable assets acquired and the liabilities assumed. If, after reassessment, net of the

- IIC-36 -


acquisition-date amounts of the identifiable assets acquired and liabilities assumed exceeds the sum of

the consideration transferred, the amount of any non-controlling interests in the acquiree and the fair

value of the Company’s previously held interest in the acquiree (if any), the excess is recognized

immediately in profit or loss as a bargain purchase gain.

Consolidated entities do not amortize goodwill but rather the goodwill is assessed for

impairment testing at least once a year. For impairment testing, goodwill is allocated to cash-generating

units (or groups of cash-generating units) of the Company that were expected, at the date of acquisition,

to benefit from the synergies of the combination giving rise to the goodwill. A cash-generating unit to

which goodwill has been allocated is tested for impairment annually, or more frequently when there is

indication that the unit may be impaired.

If the recoverable amount of the cash-generating unit is less than its carrying amount, the

impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and

then to the other assets of the unit on a pro-rata basis based on the carrying amount of each asset in the

unit. An impairment loss recognized for goodwill is not reversed in subsequent periods. On disposal of

the relevant cash-generating unit, the attributable amount of goodwill is included in the determination of

the profit or loss on disposal.

(b) Research and development

Development expenditures are capitalized only if development costs can be measured reliably,

the product or process is technically and commercially feasible, future economic benefits are probable,

and the Group intends to and has sufficient resources to complete development and to use or sell the

asset. Other development expenditures are recognized in profit or loss as incurred. Subsequent

expenditures are capitalized only when they increase the future economic benefits embodied in the

specific asset to which it relates. All other expenditures, including expenditures on internally generated

goodwill and brands, are recognized in profit or loss as incurred.

(c) Intangible assets acquired individually

Intangible assets acquired individually are measured initially at cost and, subsequently, are

carried at cost less accumulated amortization and accumulated impairment losses. Amortization of

intangible assets is calculated on a straight-line basis over the estimated useful lives of intangible assets

from the date that they are available for use. The depreciation method and useful life of an asset with

definite useful life are reviewed at the end of each reporting period. If management judges that previous

estimates should be adjusted, the change is accounted for as a change in an accounting estimate.

The estimated useful life used for amortizing intangible assets is as follows:


Development costs 3~5

Industrial property rights 10

Software and Other intangible assets 5

Facility-use memberships Indefinite useful life

Facility-use memberships are recognized as intangible assets with an indefinite useful life, there

is no foreseeable limit to the period over which the asset is expected to generate net cash inflows for the

entity.

- IIC-37 -


(16) Investment property

Investment property is held to earn rentals or for capital appreciation or both. Investment property is

measured initially at its cost including transaction costs incurred in acquiring the asset. After recognition as an

asset, investment property is carried at its cost less any accumulated depreciation and impairment losses. The

profits or losses from the purchase, disposal, reissue, or retirement of treasury shares are not recognized as

current profit or loss. If the Group acquires and retains treasury shares, the consideration paid or received is

directly recognized in equity.

(17) Equity capital

Ordinary shares are classified as equity. Transaction costs associated with the issuing of shares are

deducted from additional paid-in capital(amount after deducting taxes and other expenses arising for issuing of

new ordinary shares in the event that the capital increase is made), net of any related income tax benefits.

Incremental costs directly attributable to the issue of new ordinary shares are shown in equity as a deduction, net

of tax. The profits or losses from the disposal, or retirement of treasury is directly recognized in equity, not

recognized as current profit or loss.

(18) Employee benefits

Regardless of the grounds for retirement, the Group’s employees have the right to receive severance

payments in a lump sum payment when their employment is terminated based on their term of service and

payment rate at the retirement period.

(a) Defined Benefit Plan

The retirement benefit liability appropriated in the statement of financial position is the present

value of the severance payment liabilities as at the end of the reporting period less the fair value of plan

assets. The calculation is performed annually by an independent actuary using the projected unit credit

method. The Group’s net obligation in respect of defined benefit plans is calculated by estimating the

amount of future benefit that employees have earned in return for their service in the current and prior

periods; that benefit is discounted to determine its present value. The Group’s net obligation in respect

of defined benefit plans is denominated in the same currency in which the benefits are expected to be

paid.

All actuarial gains and losses that arise in calculating the present value of the defined benefit

obligation and the fair value of plan assets are recognized immediately in retained earnings and included

in the statement of comprehensive income, not reclassified to income or loss thereafter.

(b) Short-term employee benefits

Short-term employee benefits are employee benefits that are due to be settled within 12 months

after the end of the period in which the employees render the related service. When an employee has

rendered service to the Group during an accounting period, the Group recognizes the undiscounted

amount of short-term employee benefits expected to be paid in exchange for that service.

The Group has a legal obligation or constructive obligation to pay the employee for its historical

working service and the estimated amount in distribution of profits and/or bonus shall be recognized as

liabilities if the liability amount can be estimated reliably.

- IIC-38 -


(19) Share-based payment transactions

In regards to share settlement type stock grant transactions in which the Group grants shares or share

options to its employees as payment for goods or services received, if the fair value of the goods or services

received is unknown or cannot be reliably estimated, the fair value of the granted stock should be used as a basis

to indirectly estimate the fair value of goods or services. The fair value amount shall accordingly be recognized

as employee salary expense and capital during the vesting period. If the vesting conditions of the share options

are vesting conditions other than service providing conditions or market conditions, the recognized employee

expense is adjusted so that the actual amount of share options which is ultimately vested is used as a basis for

determination.

(20) Provisions

Provisions are recognized when the Group has a present legal or constructive obligation as a result of

past events and an outflow of resources required to settle the obligation is probable and can be reliably

estimated.

The risks and uncertainties that inevitably surround many events and circumstances are taken into

account in reaching the best estimate of a provision. Where the effect of the time value of money is material,

provisions are determined at the present value of the expected future cash flows.

Where some or all of the expenditures required to settle a provision are expected to be reimbursed by

another party, the reimbursement shall be recognized when, and only when, it is virtually certain that

reimbursement will be received if the Group settles the obligation. The reimbursement shall be treated as a

separate asset. Provisions are reviewed at the end of each reporting period and adjusted to reflect the current best

estimates. If it is no longer probable that an outflow of resources embodying economic benefits will be required

to settle the obligation, the provision is reversed.

Provisions are not recognized for future operating losses. But, a provision for onerous contracts is

recognized when the expected benefits to be derived by the Group from a contract are lower than the

unavoidable costs of meeting its obligations under the contract. The provision is measured at the present value of

the lower of the expected cost of terminating the contract and the expected net cost of continuing with the

contract. Before a provision is established, the Group recognizes any impairment loss on the assets associated

with that contract.

(21) Non-derivative financial liabilities

The Group classifies non-derivative financial liabilities into financial liabilities at fair value through

profit or loss or other financial liabilities in accordance with the substance of the contractual arrangement and the

definitions of financial liabilities. The Group recognizes financial liabilities in the consolidated statement of

financial position when the Group becomes a party to the contractual provisions of the financial liability. The

Group derecognizes a financial liability from the consolidated statement of financial position when it is

extinguished (i.e. when the obligation specified in the contract is discharged, cancelled or expires).

The Group classifies loans, account payables, and other liabilities as Non-Derivative Financial

Liabilities. These non derivative financial liabilities are measured by the fair value which includes the transaction

cost directly related to the acquisition upon initial recognition, followed by measurement using the amortized

cost by using the effective interest method. Unless unconditional rights are held to defer the liability settlement

for at least 12 months following the financial statement date, the non derivative financial liabilities shall be

classified as current liabilities.

- IIC-39 -


(22) Financial guarantee contracts

Financial guarantee liabilities are obligations by the Company to pay certain amounts to the creditor to

compensate for the losses incurred following the inability for a certain debtor to pay on the payment date as per

the initial or revised contract terms and conditions. The fair value less the transaction expenses directly related to

the issuance are initially recognized. Following the initial recognition, financial guarantee liabilities shall be

measured based on the larger amount of i) the determined amount as per Article 1037 (Provisions, Contingent

Liabilities, and Contingent Assets) of the Financial Accounting Standards; and ii) the initial recognized amount

less the accumulated amortized cost recognized per Article 1018 (Revenue) of the Financial Accounting

Standards.

(23) Impairment of non-financial assets

The carrying amounts of the Group’s non-financial assets, other than assets arising from inventories,

deferred tax assets and non-current assets held for sale, are reviewed at the end of the reporting period to

determine whether there is any indication of impairment. If any such indication exists, then the asset’s

recoverable amount is estimated. Intangible assets that have indefinite useful lives or that are not yet available

for use, irrespective of whether there is any indication of impairment, are tested for impairment annually by

comparing their recoverable amount to their carrying amount.

If there is any indication that an asset may be impaired, recoverable amount shall be estimated for the

individual asset. If it is not possible to estimate the recoverable amount of the individual asset, The Group shall

determine the recoverable amount of the cash-generating unit(“CGU”) to which the asset belongs (the asset’s

cash-generating unit).

The recoverable amount of an asset or CGU is the greater of its value in use and its fair value less costs

to sell. An impairment loss is recognized if the carrying amount of an asset or a CGU exceeds its recoverable

amount. Impairment losses are recognized in profit or loss.

(24) Current and deferred income tax

Income tax expense comprises current and deferred tax. Current tax and deferred tax are recognized in

profit or loss except to the extent that it relates to a business combination, or items recognized directly in equity

or in other comprehensive income.

(a) Current tax

Current tax is the expected tax payable or receivable on the taxable profit or loss for the year,

using tax rates enacted or substantively enacted at the end of the reporting period and any adjustment to

tax payable in respect of previous years. The taxable profit is different from the accounting profit for the

period since the taxable profit is calculated excluding the temporary differences, which will be taxable or

deductible in determining taxable profit (tax loss) of future periods, and non-taxable or non-deductible

items from the accounting profit.

(b) Deferred tax

Deferred tax is recognized, using the asset-liability method, in respect of temporary differences

between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts

used for taxation purposes. A deferred tax liability is recognized for all taxable temporary differences. A

deferred tax asset is recognized for all deductible temporary differences to the extent that it is probable

that taxable profit will be available against which they can be utilized. However, deferred tax is not

recognized for the following temporary differences: taxable temporary differences arising on the initial

recognition of goodwill, or the initial recognition of assets or liabilities in a transaction that is not a

business combination and that affects neither accounting profit or loss nor taxable income.

- IIC-40 -


The Group recognizes a deferred tax liability for all taxable temporary differences associated

with investments in subsidiaries, associates, and interests in joint ventures, except to the extent that the

Group is able to control the timing of the reversal of the temporary difference and it is probable that the

temporary difference will not reverse in the foreseeable future. The Group recognizes a deferred tax asset

for all deductible temporary differences arising from investments in subsidiaries and associates, to the

extent that it is probable that the temporary difference will reverse in the foreseeable future and taxable

profit will be available against which the temporary difference can be utilized.

The carrying amount of a deferred tax asset is reviewed at the end of each reporting period and

reduces the carrying amount to the extent that it is no longer probable that sufficient taxable profit will

be available to allow the benefit of part or all of that deferred tax asset to be utilized.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the

period when the asset is realized or the liability is settled, based on tax rates (and tax laws) that have

been enacted or substantively enacted by the end of the reporting period. The measurement of deferred

tax liabilities and deferred tax assets reflects the tax consequences that would follow from the manner in

which the Group expects, at the end of the reporting period to recover or settle the carrying amount of

its assets and liabilities.

Deferred tax assets and liabilities are offset only if there is a legally enforceable right to offset

the related current tax liabilities and assets, and they relate to income taxes levied by the same tax

authority and they intend to settle current tax liabilities and assets on a net basis.

(25) Earnings per share

Basic earnings per share is calculated by dividing the profit attributable to shareholders of the Company

by the weighted average number of ordinary shares in issue during the year. Diluted earnings per share is

calculated by dividing the profit attributable to shareholders of the Company by the weighted average number of

ordinary shares in issue and dilutive potential ordinary shares. Dilutive potential ordinary shares are included in

the calculation of diluted earnings per share when they have a dilutive effect on the basic earnings per share of

the Company

(26) Approval of Issuance of the Financial Statements

The issuance of the 31 December 2011 financial statements of the Company was approved by the Board

of Directors on 8 March 2012.

3. FIRST-TIME ADOPTION OF K-IFRS

The Group’s financial statements were prepared in accordance with accounting principles generally accepted in

the Republic of Korea (“K-GAAP”). The Group determined to adopt International Financial Reporting Standards

(“IFRS”) for the annual periods beginning on or after 1 January 2011. These financial statements prepared in accordance

with K-IFRS and K-IFRS No. 1101 First-time Adoption of Korean International Financial Reporting Standards (“K-IFRS

No. 1101”) has been applied. The Group’s date of transition to K-IFRS is 1 January 2010.

Reconciliations and descriptions of the effect of the transition from K-GAAP to K-IFRS on the financial

position, financial performance, and cash flows of the Group is as follows

(1) The exemptions the Group adopted in accordance with K-IFRS No. 1101 First-time Adoption ofK-IFRS

K-IFRS No. 1101 permits those companies adopting K-IFRS for the first time certain exemptions from

the full requirements of K-IFRS in the transition period. The Group has taken the following key exemptions.

- IIC-41 -


(a) Business combination

Business combinations prior to the date of transition are not restated.

(b) Deemed cost for property and equipment

The Group has elected to measure land at fair value as of 1 January 2010, (the date of transition

to IFRS) and uses that fair value as its deemed cost at that.

(c) Borrowing costs

The Group capitalizes borrowing costs that are directly attributable to the acquisition,

construction or production of a qualifying asset as part of the cost of that asset after the date of

transition to K-IFRS.

(2) The effects of the adoption of Korean IFRS on the financial position

(a) Effects of the Korean IFRS adoption on the Group’s total assets, liabilities and equity as of 1

January 2010, the date of Korean IFRS transition, are as follows:


Total assetsTotal

liabilities Equity

Reported amount under the previous

K-GAAP 19,593,127 1,482,993 18,110,134

Adjustments for:Actuarial valuations of defined benefit

obligation (*1) – (81,474) 81,474

Present value of deposits provided (*2) (2) – (2)

Changes in depreciation methods of

property, plant and equipment (*3) 329,330 – 329,330

Paid absences (*4) – 44,466 (44,466)

Tax-effect on adjustments (*5) – 80,593 (80,593)

Changes in scope of consolidation (*6) 602,875 602,875 –

932,203 646,460 285,743

Adjusted amount under Korean IFRS 20,525,330 2,129,453 18,395,877

(*1) Effects of defined benefit obligation

(*2) Effects of present value of deposits provided

(*3) Effects of revaluation of land, property, plant and equipment and investment property

(*4) Effects of paid absences(Recognizing the liability for unused annual leave regarding

accumulated paid vacations)

(*5) Effects of adjustments which are made for additional deferred income tax incurred from

temporary differences of income tax

- IIC-42 -


(*6) Effects of change in scope of consolidation and the effects of the adoption of IFRS by

the Company’s associates

(b) Effects of the Korean IFRS adoption on the Group’s total assets, liabilities, equity as of 31

December 2010, are as follows:


Total assetsTotal

liabilities Equity


K-GAAP 21,557,463 2,191,175 19,366,288


obligation (*1) – (75,515) 75,515




Goodwill acquired as a result of

business combination (*4) 106,101 – 106,101

Paid absences (*5) – 46,689 (46,689)

Tax-effect on adjustments (*6) 942,888 806,553 136,335

Changes in scope of consolidation (*7) (33,318) – (33,318)

1,244,375 777,727 466,648





(*4) Effects of goodwill acquired as a result of business combination

(*5) Effects of paid absence(Recognizing the liability for unused annual leave regarding






- IIC-43 -


(c) Effects of the Korean IFRS adoption on the Group’s profit and comprehensive income for the

year ended 31 December 2010, are as follows:


ProfitComprehen-sive income

Reported amount under the previous K-GAAP 1,509,921 1,509,921

Adjustments for:Actuarial valuations of defined benefit obligation (*1) 45,585 5,380

Present value of deposits provided (*2) (12) (12)

Changes in depreciation methods of property, plant

and equipment (*3) (100,612) (100,612)

Goodwill acquired as a result of business combination

(*4) 106,101 106,101

paid absences (*5) (2,223) (2,223)

Tax-effect on adjustments(*6) 144,585 136,336

Changes in scope of consolidation(*7) (40,415) (311,114)

153,009 (166,144)

Adjusted amount under Korean IFRS 1,662,930 1,343,777





(*5) Effects of paid absence(Recognizing the liability for unused annual leave regarding






(d) Cash Flow Adjustments due to conversion into Korea International Financial Reporting

Standards

As per the K-IFRS, the cash flow details on related income (expenses) and related assets

(liabilities) were adjusted in order to separately disclose interest receivables, interest payables, dividend

income, and corporate tax in the Cash Flow Statement, items which were not separately disclosed under

the previous accounting standards. There are no other significant differences between the disclosed Cash

Flow Statement based on the K-IFRS and the previous Accounting Standards.

- IIC-44 -


(e) Effects of the adoption of K-IFRSs on the Group’s operating income

Operating gains and losses based on the previous accounting standards were calculated by gross

profit on sales less selling and administrative expenses, however, the operating gains and losses under

the K-IFRS were calculated by gross profit on sales less selling and administrative expenses, other

revenues, and other expenses.


2011 2010

K-GAAP Operating income (2,835,879) 628,139

Adjustment for:Reversal of Allowance for Doubtful Accounts 9,834 23,561

Gains from Liabilities Exempted – 90,000

Miscellaneous Revenues 272,744 115,239

Impairment Losses on Investments – (100,000)

Impairment Losses on Intangible Assets (27,556) (3,216)

Losses on Disposition of Property, Plant, and

Equipment (1,821) (259)

Other Bad Debt Expenses (1,646) –

Donations (500) –

Miscellaneous Losses (131,205) (15,120)

K-IFRS Operating income (2,716,029) 738,344

4. SEGMENT INFORMATION

The Group’s operating segment is an identifiable component which operates business activities that create profits

and expenses. The decision making and performance evaluation of the resources to be allocated to the business sector is

based on internal reports reviewed regularly by the highest business decision maker to classify the sector. The

management board constructs the segmental reporting by integrating businesses with similar economic characteristics.

(1) Financial information by business segments

Assets and liabilities as of 31 December 2011 and 2010,and 1 January 2010, are as follows:


31 December 2011Finger Scan Landscaping IT business Total

Assets 18,523,815 1,832,921 980,853 21,337,589

Liabilities 1,810,768 1,109,359 1,008,587 3,928,714

Equity 16,713,047 723,562 (27,734) 17,408,875

Consolidation reconciliations (234,879)

Net Equity 17,173,996

- IIC-45 -


(in thousands of Korean won)31 December 2010

Finger Scan Landscaping IT business Total

Assets 21,209,279 649,670 1,370,641 23,229,590Liabilities 2,040,346 122,004 999,425 3,161,775Equity 19,168,933 527,666 371,216 20,067,815Consolidation reconciliations (234,879)


(in thousands of Korean won)1 January 2010


Assets 19,922,456 – 1,143,252 21,065,708Liabilities 1,526,579 – 908,373 2,434,952Equity 18,395,877 – 234,879 18,630,756Consolidation reconciliations (234,879)


(2) Operating income (loss) by business segments

Operating income and loss by category for the years ended 31 December 2011 and 2010, are as follows:

(in thousands of Korean won)2011


Sales 6,140,604 2,304,454 2,093,614 10,538,672Operating income(loss) (2,457,280) 195,126 (453,875) (2,716,029)Financial income(loss) 448,504 769 (38,473) 410,800Gains on disposal of

associate – – – –

Loss on Goodwill (263,508) – – (263,508)

Profit before income tax (2,272,284) 195,895 (492,348) (2,568,737)



Sales 9,817,608 841,295 1,509,484 12,168,387Operating income(loss) 532,662 73,907 131,775 738,344Financial income(loss) 138,078 – (20,413) 117,665Gains on disposal of

associate – – 666,412 666,412Loss on Goodwill 161,795 – (666,412) (504,617)

Profit before income tax 832,535 73,907 111,362 1,017,804

- IIC-46 -


(3) Geographical information for sales


2011 2010

South America 980,701 2,502,585

Asia 2,027,093 2,252,157

Middle East 861,300 954,826

Europe 204,377 470,904

Other 248,483 28,901

Korea 6,216,718 5,959,014

Total 10,538,672 12,168,387

5. RISK MANAGEMENT

(1) Capital risk management

The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a

going concern in order to provide returns for shareholders and to maintain an optimal capital structure to reduce

the cost of capital. The Group monitors capital on the basis of the gearing ratio. This ratio is calculated as net

liabilities divided by total capital. Net liabilities are calculated as total liabilities less cash and cash equivalents

and other current financial instruments. Total capital is calculated as ‘equity’ as shown in the consolidated

statements. The Company’s overall capital risk management strategy remains unchanged from that of the prior

year.

The Group’s Net liabilities to equity ratio at the end of the reporting period were as follows:

(In thousands of Korean won, except equity ratio)

31 December2011

31 December2010

1 January2010

Borrowings 145,173 310,000 –

Other liabilities 3,287,092 2,658,902 2,129,453


Less:

Cash and cash equivalents 8,717,578 5,086,540 6,348,279

Other current financial instruments 1,404,731 4,463,528 –

Net liabilities(Assets) (6,690,044) (6,581,166) (4,218,826)

Total equity 17,173,996 19,832,936 18,395,877

Net liabilities to equity ratio on

31 December – – –

(2) Financial risk management

The Group is exposed to various risks related to its financial instruments, such as, Liquidity risk, credit

risk, interest rate risk. The Group’s overall risk management program focuses on the unpredictability of financial

markets and seeks to minimize potential adverse effects on the Group’s financial performance. The Group uses

derivative financial instruments to hedge certain risk exposures. Risk management is carried out by a central

treasury department under policies approved by the board of directors. Group treasury identifies, evaluates and

hedges financial risks in close co-operation with the Group’s operating units. The Group’s overall financial risk

management strategy remains unchanged from the prior year.

- IIC-47 -


Liquidity risk

Liquidity risk is the risk that the Group will encounter difficulty in meeting the obligations

associated with its financial liabilities that are settled by delivering cash or another financial asset. The

Group’s approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient

liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring

unacceptable losses or risking damage to the Group’s reputation.

The Group’s Finance team monitors rolling forecasts of the Company’s liquidity requirements to

ensure it has sufficient cash to meet operational needs. Such forecasting takes into consideration the

Company’s debt financing plans, covenant compliance, compliance with internal statement of financial

position ratio targets and, if applicable external regulatory or legal requirements, for example, currency

restrictions.

Contractually remaining expiries for non-derivative financial liabilities as of 31 December 2011

are as follows:


Less than 1year

More than 1year Total

Short-term borrowings 145,173 – 145,173

Trade payable and other payable 1,923,151 – 1,923,151

2,068,324 – 2,068,324

This table, based on undiscounted cash flow of the financial liabilities, has been completed

based on the earliest maturity date for the Group.

Credit risk

Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial

instrument fails to meet its contractual obligations, and arises principally from the Group’s receivables

from customers and investment securities.

The Group’s exposure to credit risk is influenced mainly by the individual characteristics of each

customer. However, management also considers the demographics of the Group’s customer base,

including the default risk of the industry and country in which customers operate, as these factors may

have an influence on credit risk, particularly in the currently deteriorating economic circumstances.

The Risk Management Committee has established a credit policy under which each new

customer is analyzed individually for creditworthiness before the Group’s standard payment and delivery

terms and conditions are offered. The Group’s review includes external ratings, when available, and in

some cases bank references. Purchase limits are established for each customer, which represents the

maximum open amount without requiring approval from the Risk Management Committee; these limits

are reviewed quarterly. Customers that fail to meet the Group’s benchmark creditworthiness may transact

with the Group only on a prepayment basis.

- IIC-48 -


Book values of the financial assets represent the maximum exposed amounts of the credit risk


31 December2011

31 December2010

1 January2010

Trade and other receivables 2,144,387 5,019,009 4,476,796

Long term receivables 343,626 208,352 335,156

2,488,013 5,227,361 4,811,952

Interest rate risk

The Group is exposed to interest rate risk through changes in interest-bearing liabilities or assets.

The risk mainly arises from borrowings and financial deposits with variable interest rates linked to

market interest rate changes in the future. The objective of interest rate risk management lies in

maximizing corporate value by minimizing uncertainty caused by fluctuations in interest rates and

minimizing net interest expense.

If interest rates on borrowings with floating rates had been 1% higher or lower with all other

variables held constant, the impact on the gain or loss of the applicable period would be as follows:


31 December 2011 31 December 2010 1 January 20101%

increase1%

decrease1%

increase1%

decrease1%

increase1%

decrease

Interest expenses 1,011 (1,011) – – 900 (900)

Interest revenues (88,160) 88,160 (51,862) 51,862 (61,116) 61,116

Foreign exchange risk

Foreign exchange risk arises when future commercial transactions or recognized assets or

liabilities are denominated in a currency that is not the entity’s functional currency. The Group operates

internationally and is exposed to foreign exchange risk arising from various currency exposures,

primarily with respect to the US dollar. Management has set up a policy to require Group companies to

manage their foreign exchange risk against their functional currency.

Financial assets and liabilities that are outstanding to foreign exchange risk as of 31 December

2011 and 2010, and 1 January 2010, are as follows:


31 December 2011 31 December 2010 1 January 2010USD Korean USD Korean USD Korean

Cash and cash equivalents 318,616.38 367,460 420,000.81 482,711 102,884.61 120,128

Trade receivables 1,336,780.50 1,541,709 2,405,641.22 2,739,784 1,157,958.85 1,352,033

1,655,396.88 1,909,169 2,825,642.03 3,222,495 1,260,843.46 1,472,161

- IIC-49 -


Effects of a 10% change in foreign currency to the Group’s functional currency on income

before income tax for the year ended 31 December 2011 are as follows.


Trade receivables Financial instruments Total10%

increase10%

decrease10%

increase10%

decrease10%

increase10%

decrease

(USD)/Won 154,171 (154,171) 36,746 (36,746) 190,917 (190,917)

Sensitivity analysis above is conducted for monetary assets and liabilities denominated in foreign

currencies

Equity Price Risk

The Company’s investments in equity of other entities that are listed or unlisted stock. As of 31

December 2011 and 31 December 2010, fair value of equity securities is respectively W1,398 million

and W4,441 million. As of 31 December 2011 and 31 December 2010, the effects on other

comprehensive income would be increased/decreased by W14 million and W44 million, respectively.

The Group classifies fair value measurements using a fair value hierarchy that reflects the

significance of the inputs used in measurements.

üLevel 1: quoted prices (unadjusted) in active markets for identical assets or liabilities.

üLevel 2: inputs other than quoted prices included within Level 1 that are observable for the

asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices).

üLevel 3: inputs for the asset or liability that are not based on observable market data

(unobservable inputs).

In the case of account receivables and other receivables, the approximation of the fair value is

assumed as the book value. Cost is assumed as the book value for share products in which the fair value

cannot be measured reliably and there is no market price notified in the active market.

Fair values of financial instruments by hierarchy level as of 31 December 2011, 31 December

2010 and 1 January 2010 are as follows:


31 December 2011Level 1 Level 2 Level 3 Total

Asset:

Short-term trading securities 1,295,731 – – 1,295,731

Available-for-sale financial

assets 202,127 – 163,653 365,780

Held-to-maturity investments 18,888 – – 18,888

1,516,746 – 163,653 1,680,399

- IIC-50 -


In the current year, the fair value measurement grade for the full amount of expired security

holdings and the cooperative equity investments amongst the available for sale securities was revised

from Level 3 to Level.



Asset:



assets 78,000 – 296,547 374,547

Held-to-maturity investments – – 17,676 17,676

4,441,528 – 314,223 4,755,751


1 January 2010Level 1 Level 2 Level 3 Total

Asset:

Short-term trading securities – – – –


assets – – 557,812 557,812


– – 575,488 575,488

The fair value of financial instruments traded in active markets is based on quoted market prices

at the date of the end of reporting period. A market is regarded as active if quoted prices are readily and

regularly available from an exchange, dealer, broker, industry group, pricing service, or regulatory

agency, and those represent actual and regularly occurring market transactions on an arm’s length basis.

The quoted market price used for financial assets held by the Company is the bid price. These

instruments are included in level 1. Instruments included in level 1 comprise listed equity investments

classified as available-for-sale.

The fair value of financial instruments that are not traded in an active is determined by using

valuation techniques. These valuation techniques maximize the use of observable market data where it is

available and rely as little as possible on entity specific estimates. If all significant inputs required to fair

value of an instrument are observable, the instrument is included in level 2.

If one or more of the significant inputs are not based on observable market data, the instrument

is included in level 3.

- IIC-51 -


6. CATEGORIES OF FINANCIAL INSTRUMENT

Categorization of financial instruments as of 31 December 2011 and 2010, and 1 January 2010, are as follows:


31 December 2011Assets atfair valuethrough

profit andloss

Loans andreceivables

Assetsclassified as

available-for-sale

Held-to-maturity Total Fair value

Cash and cash equivalents – 8,717,578 – – 8,717,578 8,717,578

Short-term financial instruments – 109,000 – – 109,000 109,000

Short-term trading securities 1,295,731 – – – 1,295,731 1,295,731

Trade and other receivables – 2,144,387 – – 2,144,387 2,144,387

Held-to-maturity investments – – – 18,888 18,888 18,888

Available-for-sale financial assets – – 365,780 – 365,780 365,780

Other non-current – 343,626 – – 343,626 343,626

1,295,731 11,314,591 365,780 18,888 12,994,990 12,994,990


31 December 2010Assets atfair valuethrough

profit andloss


Assetsclassified as

available-for-sale









4,363,528 10,413,901 374,547 17,676 15,169,652 15,169,652

- IIC-52 -



1 January 2010Assets atfair valuethrough

profit andloss


Assetsclassified as

available-for-sale



Short-term financial instruments – – – – – –

Short-term trading securities – – – – – –





– 11,160,231 557,812 17,676 11,735,719 11,735,719


31 December 2011Liabilities at

fair valuethrough profit

and loss

Financialliabilities at

amortized cost Total Fair value

Trade and other payables – 1,923,151 1,923,151 1,923,151

Borrowings – 145,173 145,173 145,173

Long-term borrowings – – – –

– 2,068,324 2,068,324 2,068,324




and loss




Borrowings – 310,000 310,000 310,000

Long-term borrowings – – – –

– 1,908,407 1,908,407 1,908,407

- IIC-53 -



1 January 2010Liabilities at


and loss




Borrowings – – – –

Long-term borrowings – 90,000 90,000 90,000

– 1,265,411 1,265,411 1,265,411

7. INCOME AND LOSS OF FINANCIAL INSTRUMENTS BY CATEGORY

Income and loss of financial instruments by category for the years ended 31 December 2011 and 2010, are as

follows:


2011Assets at fairvalue through

profit andloss


Assetsclassified as

available-for-sale

Financialliabilities atamortized

cost Total

Interest incomes – 273,649 – 1,212 274,861

Interest expenses – – – (6,217) (6,217)

Gain on disposal of short-term trading

securities 451,199 – – – 451,199

Loss on disposal of short-term trading

securities (278,879) – – – (278,879)

Valuation gains on short-term trading

securities 2,597 – – – 2,597

Valuation losses on short-term trading

securities (122,983) – – – (122,983)

Loss on foreign currency translation – (5,756) – – (5,756)

Gain on foreign currency translation – 53,818 – – 53,818

Loss on foreign currency transactions – (148,074) – – (148,074)

Gain on foreign currency transactions – 164,337 – – 164,337

Dividends 57,142 – – – 57,142

Impairment losses available-for-sale

financial assets – – – (31,245) (31,245)

Gain on valuation available-for-sale

financial assets – – 26,477 – 26,477

109,076 337,974 26,477 (36,250) 437,277

(*) Gain(Loss) on valuation available-for-sale financial assets are before income tax

- IIC-54 -



2010Assets at fairvalue through

profit andloss


Assetsclassified as

available-for-sale


cost Total

Interest incomes – 262,050 – – 262,050


Gain on disposal of short-term trading

securities 270,506 – – – 270,506

Loss on disposal of short-term trading

securities (123,841) – – – (123,841)

Valuation losses on short-term trading

securities (188,623) – – – (188,623)

Loss on foreign currency translation – (24,964) – – (24,964)

Gain on foreign currency translation – 56,270 – – 56,270

Loss on foreign currency transactions – (159,408) – – (159,408)

Gain on foreign currency transactions – 123,087 – – 123,087

Loss on valuation available-for-sale

financial assets – – (347,051) – (347,051)

(41,958) 257,035 (347,051) (97,412) (229,386)

8. CASH AND CASH EQUIVALENTS

Cash and cash equivalents as of 31 December 2011 and 2010, and 1 January 2010, are as follows:


31 December2011

31 December2010

1 January2010

Cash 10,541 294 236,696

Ordinary deposits 8,339,568 4,607,907 5,991,455

Foreign deposits 367,469 478,339 120,128

8,717,578 5,086,540 6,348,279

- IIC-55 -


9. FINANCIAL ASSETS

(1) Other financial assets as of 31 December 2011 and 2010, and 1 January 2010, are as follows:


31 December2011

31 December2010

1 January2010

Current

Short-term financial instruments 109,000 100,000 –

Short-term trading securities 1,295,731 4,363,528 –

1,404,731 4,463,528 –

Non-current

Available-for-sale securities 365,780 374,547 557,812

Held-to-maturity securities 18,888 17,676 17,676

384,668 392,223 575,488

(2) Restricted deposits as of 31 December 2011 and 2010, and 1 January 2010, are as follows:


31 December2011

31 December2010

1 January2010

Short-term financial

instruments

KB Corporate credit

cards

100,000 100,000 –

Short-term financial

instruments

Woori bank

borrowings

9,000 – –

Term deposits SGIC

implementation

contract

1,500 – –

110,500 100,000 –

- IIC-56 -


(3) Securities as of 31 December 2011 and 2010, are as follows:


31 December 2011

Category classificationAcquisition

Cost Fair ValueBookValue

< Short-term trading securities >SK Innovation Co.,Ltd Marketable equity 374,542 284,000 284,000

Celltrion, Inc. Marketable equity 900,882 868,441 868,441

BH Co.,Ltd Marketable equity 140,693 143,290 143,290

1,416,117 1,295,731 1,295,731

<Available-for-sale securities>Zeroin Co.,Ltd Non-marketable equity 300,000 10,693 10,693

SecuGen Japan Non-marketable equity 909,746 – –

Inkecorporation Co.,Ltd Non-marketable equity 1,000 – –

HNH Creative Co.,Ltd

(Formerly, Artplace

Co.,Ltd)

Non-marketable equity 500,010 152,960 152,960

Information&Communication


Equity in partnership 15,864 16,508 16,508

Construction Guarantee Equity in partnership 81,786 82,419 82,419

Korea Lottery Service Co.,Ltd Marketable equity 78,000 103,200 103,200

1,886,406 365,780 365,780

<Held-to-maturity securities>Government and public bonds Available-for-sale debts 17,676 18,888 18,888

17,676 18,888 18,888

In regards to available-for-sale securities which cannot be reliably measured and an active transaction

market does not exist, or the difference between the fair value and acquisition cost of the securities is not

material, the acquisition cost of unlisted stocks have been measured based on fair value. Amongst the available-

for-sale assets, the net asset book value or recoverable value of the available-for-sale assets at SecuGen Japan

and Inkecorporation Co.,Ltd. have noticeably decreased and based on the judgment that the possibility of

recovery in the future was uncertain, KRW31,245 thousands was recognized as available-for-sale asset

impairment loss.

- IIC-57 -



31 December 2010



< Short-term trading securities >Samsung Life Insurance Co.,Ltd Marketable equity 4,552,150 4,363,528 4,363,528

4,552,150 4,363,528 4,363,528


SecuGen Japan Non-marketable equity 909,746 30,245 30,245

Inkecorporation Co.,Ltd Non-marketable equity 1,000 1,000 1,000

HNH Creative Co.,Ltd (Formerly,

Artplace Co.,Ltd)







LEDLIC Equity in partnership 4,000 4,000 4,000

1,890,406 374,547 374,547


17,676 17,676 17,676

(4) The changes in Short-term trading securities and Available-for-sale securities as of 31 December 2011

and 2010, are as follows:


2011 2010Short-term

tradingsecurities

Available-for-sale

securities

Held-to-maturitysecurities

Short-termtrading

securities

Available-for-sale

securities


Beginning 4,363,528 374,547 17,676 – 557,812 17,676

Acquisition 6,956,278 – – 8,673,883 163,786 –

Valuation(*) (120,387) 26,477 1,212 (188,623) (347,051) –

Impairment – (35,245) – – – –

Disposal (9,903,688) – – (4,121,732) – –

Ending 1,295,731 365,779 18,888 4,363,528 374,547 17,676

The gains and losses from the evaluation of available-for-sale securities are amounts prior to reflecting

the corporate tax effects.

(5) The highest credit risk exposure as at the reporting date is the fair value of the financial assets.

- IIC-58 -


10. INVENTORIES

Inventories as of 31 December 2011 and 2010, and 1 January 2010, are as follows:


31 December2011

31 December2010

1 January2010

Finished goods 1,011,790 425,874 474,843

Less: provision for finished goods (203,805) (71,844) (103,766)

Raw materials 2,519,302 2,422,441 1,864,853

Less: provision for raw materials (841,214) (765,965) (755,226)

2,486,073 2,010,506 1,480,704

Changes in provision for valuation of inventories for the years ended 31 December 2011 and 2010, are as

follows:


2011 2010

Beginning 837,809 858,992

Reversal of losses on valuation of inventories (837,809) (858,992)

Losses on valuation of inventories 1,045,019 837,809

Ending 1,045,019 837,809

- IIC-59 -


11. TRADE AND OTHER RECEIVABLES

(1) Trade receivables, net of allowance for doubtful accounts, as of 31 December 2011 and 2010 and 1

January 2010, are as follows:


31 December2011

31 December2010

1 January2010

Current

Short-term loans – 303,700 2,780,700

Less: allowance for doubtful accounts – (3,037) (791,037)

Trade receivables 2,532,766 5,081,342 3,208,954

Less: allowance for doubtful accounts (824,389) (869,167) (860,283)

Receivables from Construction Contracts 155,934 329,689 –

Non-trade receivables 293,859 191,203 60,513

Less: allowance for doubtful accounts (14,360) (16,066) (471)

Accrued revenues 577 1,345 104,567

Less: allowance for accrued revenues – – (26,147)

2,144,387 5,019,009 4,476,796

Non-current

Leasehold deposits provided 319,100 205,100 340,100

Less: present value discounts, leasehold

deposits provided (7,250) (7,885) (16,081)

Other deposits provided 31,776 11,137 11,137

Long-term other receivables – 216,468 216,468


Less: Present value discounts, long-term

other receivables – (31,551) (31,551)

343,626 208,352 335,156

The fair value of non-current account receivables and other receivables was measured by discounting the

future expected nominal cash inflow by an appropriate discount rate which takes the asset’s characteristics into

consideration.

(2) Allowance for doubtful accounts, as of 31 December 2011 and 2010 and 1 January 2010, are as follows:


31 December2011

31 December2010

1 January2010

Trade receivables 824,389 869,167 860,283

Non-trade receivables 14,360 16,066 471

Accrued revenues – – 26,147

Short-term loans – 3,037 791,037

838,749 888,270 1,677,938

- IIC-60 -


(3) Change in allowance for bad debts of trade and other receivables for the years ended 31 December 2011



31 December2011

31 December2010

Beginning 888,270 1,677,938

Provision for receivables impairment 491,259 102,592

Reversal allowance doubtful accounts (9,834) (81,583)

Write-off (530,946) (810,677)

Ending 838,749 888,270

In regards to account receivables, the Group measures the estimated bad debt based on historical bad

debt experience and individual analysis to provide as allowance for bad debts. There is no concentration of

essential credit risk apart from foreign export receivables which are diversified amongst multiple clients.

(4) Aging analysis of trade receivables as of 31 December 2011 and 2010, and 1 January 2010, follows:


31 December2011

31 December2010

1 January2010

Under 3 months 883,120 2,684,866 1,894,879

3 months to 1 year 1,259,122 1,629,435 626,197

Over one year 390,524 767,041 687,878

2,532,766 5,081,342 3,208,954

12. OTHER NON-CURRENT ASSETS

Other non-current assets as of 31 December 2011 and 2010, are as follows:


31 December2011

31 December2010

1 January2010

Advance payments 154,583 215,902 147,574

Prepaid expenses 15,687 15,559 22,284

170,270 231,461 169,858

- IIC-61 -


13. TANGIBLE ASSETS

(1) Tangible assets as of 31 December 2011, are as follows:


31 December 2011Beginning Acquisition Disposal Depreciation Ending

Land 327,688 – – – 327,688

Buildings 578,703 – – 19,856 558,847

Machinery – – – – –

Facilities & equipment 58,670 26,350 – 23,527 61,493

Vehicles 143,237 – – 70,020 73,217

Tools and instruments 24,567 690 – 7,586 17,671

Furniture & Fixtures 115,413 36,573 (2,575) 57,083 92,328

Government subsidies (2,914) – – (2,435) (479)

Mould 211,352 82,000 – 70,939 222,413

Computation equipment 125,358 11,420 – 120,351 16,427

1,582,074 157,033 (2,575) 366,927 1,369,605




Land 327,688 – – – 327,688

Buildings 598,559 – – 19,856 578,703



Vehicles 213,258 – – 70,021 143,237

Tools and instruments 28,379 1,696 – 5,508 24,567

Government subsidies (2,971) – – (2,971) –

Furniture & Fixtures 187,755 21,000 (732) 92,610 115,413

Government subsidies (22,598) – – (19,684) (2,914)

Mould 157,426 122,200 – 68,274 211,352

Computation equipment 272,155 – – 146,797 125,358

1,840,375 145,896 (732) 403,465 1,582,074

(3) The appraised value of land held by the Group (Area 171.82m², Book value of KRW327,688 thousand)

is KRW558,448 thousand and KRW506,899 thousand for the previous and current year respectively.

There are no capitalized amounts from borrowing costs in relation to tangible assets in the current and

previous year.

(4) As at the end of the current year, the Group is insured to KRW2,500 million and KRW652 million

worth of fire insurance in respect to its inventory assets and tangible assets respectively at Meritz Fire &

Marine Insurance Co,. Ltd. Furthermore, the Group is insured to employee accident insurance and full

insurance coverage on motor vehicles.

- IIC-62 -



(1) Changes in intangible assets as of 31 December 2011, are as follows:


31 December 2011Development

costsIndustrialproperty Memberships Goodwill

Constructionin progress Other Total

Beginning 994,228 38,300 339,800 721,221 796,740 6,346 2,896,635

Acquisition – – (25,000) – – 3,252 (21,748)

Increase – – – – 1,038,249 – 1,038,249

Construction in

progress(out) – – – – (581,144) – (581,144)

Construction in

progress(in) 581,144 – – – – – 581,144

Amortization (702,977) (9,345) – – – (5,956) (718,278)

Impairment losses (27,556) – – (263,508) – – (291,064)

Ending 844,839 28,955 314,800 457,713 1,253,845 3,642 2,903,794






Beginning 1,220,260 48,765 339,800 1,119,738 – 23,401 2,751,964

Acquisition – – – 106,101 796,740 – 902,841

Increase – – – – 231,977 431 232,408

Construction in

progress(out) – – – – (231,977) – (231,977)

Construction in

progress(in) 231,977 – – – – – 231,977

Amortization (458,008) (10,465) – – – (14,271) (482,744)

Impairment losses – – – (504,617) – (3,216) (507,833)

Ending 994,229 38,300 339,800 721,222 796,740 6,345 2,896,636

(3) The ordinary research and development expense in relation to research and development activities in the

current and previous year is KRW204,935 thousand and KRW380,918 thousand respectively.

(4) A sectional impairment loss was incurred in the current year in regards to IT development and software.

The Group has evaluated the recoverable amount based on cash generating units which compose of this

business area. As a result, the book value of the cash generating units of the IT development and

software exceeded the recoverable amount and accordingly, KRW263,508 thousand (KRW504,617

thousand for the previous year) was recognized as impairment loss. The impairment loss was allocated to

the full amount of goodwill and accordingly, the goodwill allocated to IT development and software was

reduced to KRW351,612 thousand.

- IIC-63 -


The recoverable amount was determined based on the value of use continuously applied by the Group.

The value of use was determined by considering the expected income (intrinsic value evaluation) from

continuous use of the asset. The value of use was calculated by using a discount rate of 10% (10% for

the previous year).

15. INVESTMENT PROPERTY

(1) Changes in investment property as of 31 December 2011 and 2010 are as follows:


31 December2011

31 December2010

Beginning 138,839 –

Acquisition – 138,839

Disposal – –

Ending 138,839 138,839

(2) There was no income arising from investment property in the current and previous year, and the

appraised value of the investment property held as at the end of the reporting period is KRW111,605

thousand.

16. INVESTMENT IN ASSOCIATE

(1) Investment in associate of 31 December 2011 and 2010, and 1 January 2010, follows:


31 December 201131 December

20101 January

2010Percentage ofOwnership(%) No. of shares

Acquisitioncost Book Value Book Value Book Value

MK Electron

(H.K.)(*) 48% 2,000,000 – – – 2,454,402

(*) During the previous year, all of MK Electron (H.K.) shares were sold to MK Electron Co., Ltd.

(2) Changes in the investment in associate for years ended 31 December 2011 and 2010 are as follows:


2011 2010

Beginning – 2,454,402

Acquisition – –

Disposal – (2,454,402)

Ending – –

- IIC-64 -


(3) Gains on the investment in associate for years ended 31 December 2011 and 2010 are as follows:


2011 2010

Gains on disposition of investments – 666,412

(4) Summary of financial information of the associate of 1 January 2010, follows:


Assets Liabilities RevenueOperating

income Net income

MK Electron (H.K.) 4,660,330 6,772 – (28,521) (28,518)

17. BORROWINGS

(1) Borrowings as of 31 December 2011 and 2010, and 1 January 2010, are as follows:


AnnualInterest Rates

(%)31 December

201131 December

201131 December

20101 January

2010

Short-term borrowings 5.55~8.13 145,172 310,000 –

Long-term borrowings 9.00 – – 90,000

(2) In regards to the above financial loans, the Company provides payment guarantee of KRW100 million to

the related bank. The Group entered into commercial bill discount agreements with financial institutions

like Shinhan Bank. Of the account receivables sold to the financial institutions, amounts not yet expired

are appropriated as short term loans.

18. COMMITMENTS AND CONTINGENCIES

(1) Commitments with financial institutions as of 31 December 2011, are as follows:


FinancialInstitutions

loanagreements

RelatedBorrowings

Operating loan Woori Bank 100,000 100,000

Loan on Trade receivables Woori Bank 200,000 –

Loan on Trade receivables Hana Bank 50,000 –

Loan on Trade receivables Shinhan Bank 40,000 1,104

390,000 101,104

(2) The unexpired amount following account receivables discounting as at the end of the current year is

KRW1,104 thousand.

- IIC-65 -


(3) When supplying to public institutions in regards to security solutions and construction contracts, the

Company performs government and public work through bidding. Due to the related performance

guarantees etc, the Company receives payment guarantee worth KRW334 million from Seoul Guarantee

Insurance Co., Ltd. Furthermore, savings of KRW1.5 million are deposited as security deposit for

performance guarantee purposes to Seoul Guarantee Insurance Co., Ltd in regards to the fingerprint

verification security solution to be provided for the persons in charge at the Korean Federation of

Community Credit Cooperatives.

(4) The Company shares held by Shinsung Engineering & Construction Co., Ltd in the previous year were

sold to Ocean Be Holdings Co., Ltd to change the holding company. Based on the Financial Supervisory

Service’s decision following the Capital Market and Financial investment Business Act in regards to the

current year’s share transaction, Shinsung Engineering & Construction Co., Ltd’s surrender value on

short-term transaction profits worth KRW215 million was recognized as other revenues.

(5) the Company signed the contract with Asiasoft Inc. on the supply of solution (CDN and SLB service) in

11 December 2008 amount to $300,000.

19. TRADE AND OTHER PAYABLES, OTHER CURRENT LIABILITIES

(1) Trade and other payables as of 31 December 2011 and 2010, and 1 January 2010, are as follows:


31 December2011

31 December2010

1 January2010

Trade payables 678,716 1,113,939 664,342

Non-trade payables 1,032,082 265,056 366,956

Accrued expenses 114,850 124,349 107,372

Withholdings 97,503 95,063 36,741

1,923,151 1,598,407 1,175,411

(2) Other current liabilities as of 31 December 2011 and 2010, and 1 January 2010, are as follows:


31 December2011

31 December2010

1 January2010

Advances from customers 102,743 1,695 5,554

Unearned revenue – – 2,230

Current portion of long-term payables – – 30,600

Advances from construction 167,140 86,614 –

269,883 88,309 38,384

20. DEFINED BENEFIT OBLIGATION

The Group operates a Defined Benefit Plan as its Retirement Plan for employees. According to the Defined

Benefit Plan, the average of the final three months’ salaries per year multiplied by the payment rate should be paid upon

the employee’s retirement. The actuarial evaluation of the defined benefit liability was performed by a qualified

independent actuary using the Projected Unit Credit Method.

- IIC-66 -


(1) The amounts recognized in the statements of financial position are determined as follows:


31 December2011

31 December2010

1 January2010

Present value of defined benefit liability 1,095,393 972,960 729,594

Fair value of plan assets (1,335) (1,302) (1,258)

Liabilities on financial statements 1,094,058 971,658 728,336

(2) Changes in defined benefit liability for the years ended 31 December 2011 and 2010, are as follows:


2011 2010

Beginning 972,960 729,594

Current service cost 289,044 282,676

Interest cost 49,860 42,645

Actuarial loss on defined benefit liability 24,289 62,116

Benefits paid (240,760) (144,071)

Ending 1,095,393 972,960

(3) Changes in fair value of plan assets as of 31 December 2011 and 2010, are as follows:


2011 2010

Beginning 1,301 1,258

Expected return on plan assets 45 47

Benefits paid – –

Actuarial gain on defined benefit liability (11) (3)

Ending 1,335 1,302

(4) The amounts recognized in the statements of comprehensive income as of 31 December 2011 and 2010,

are as follows:


2011 2010



Expected return on plan assets (44) (47)

338,861 325,274

- IIC-67 -


(5) The principal actuarial assumptions used were as follows:

31 December2011

31 December2010

Discount rate (%) 4.49~4.76 5.29~5.42

Expected rate of return (%) 3.52 3.52

Future salary increase (%) 5.00~7.00 5.00~7.00

In order to calculate the present value of the defined benefit liability, the market profitability ratio of outstanding

corporate bonds which were consistent with the expected payment period of the defined benefit liability as at the end of

the reporting period was used as a reference for decision making.

21. SHARE-BASED PAYMENT

Based on the resolution of the Shareholders’ general meeting held on 29 March 2010, the Company bestowed

share options to its employees. The main details are as follows

(1) Share type to be issued as share options: Registered ordinary shares.

(2) Method of bestowment: An exercise method determined by the board of directors amongst issuance of

new shares and issuance of treasury stock methods.

(3) Number of shares to be bestowed as share options and exercise price per share are follows:

2010

Quantity of stock to be issued 1,000,000 shares

Exercise price per share W590

Date of grant 29 March 2010

Exercisable period from the date of the grant1 9 years

1 The options can be fully vested after two years from the date of grant.

(4) The compensation cost in regards to call options was calculated by applying the fair-value method. The

methods used for the calculation and the assumptions are as the following.

Major Assumptions

Annual risk-free interest rate 3.84%

Expected option life 3 years

Expected stock price volatility 63.24%

Expected dividend yield 0.00%

- IIC-68 -


(5) The amount to be recognized as expenses in the current due to the granting of share options and the

compensation cost to be recognized as expenses after the current year are as the following.


2011

Prior to the current year 93,282

Current year 122,917

After the current year 29,972

Total compensation costs 246,171

(6) Changes in stock options recognized as the equity for the years ended 31 December 2011 and 2010, are

as follows:


2011 2010


Compensation cost 122,917 93,282

Exercise/Forfeiture – –

Ending 216,199 93,282

22. EQUITY

(1) Capital stock as of 31 December 2011 and 2010, and 1 January 2010, are as follows:

(in Korean won)

31 December 2011 31 December 2010 1 January 2010

Authorized shares to issue 100,000,000 shares 100,000,000 shares 100,000,000 shares

Issued shares 35,400,316 shares 35,400,316 shares 35,400,316 shares

par value per share 500 500 500

Common stock 17,700,158,000 17,700,158,000 17,700,158,000

(2) Capital surplus as of 31 December 2011 and 2010, and 1 January 2010, are as follows:


31 December2011

31 December2010

1 January2010

Additional Paid-in Capital 1,379,564 1,379,564 1,379,564

Gains on Capital Reduction 3,515,143 3,515,143 7,301,372

4,894,707 4,894,707 8,680,936

- IIC-69 -


(3) Other components of equity as of 31 December 2011 and 2010, and 1 January 2010, are as follows:


31 December2011

31 December2010

1 January2010

Losses on sale of treasury stock (4,484,730) (4,484,730) (4,484,730)

Stock option 216,200 93,282 –

Losses on valuation of available-for-sale

financial assets (270,700) (270,700) –

Gains on valuation of available-for-sale

financial assets 20,652 – –

(4,518,578) (4,662,148) (4,484,730)

(4) Changes in Retained earnings for the years ended 31 December 2011 and 2010 are as follows:


2011 2010

Unappropriated retained earnings carried over from prior year 1,900,219 (3,786,229)

Effects of Korean-IFRS adoption – 285,742

Transfer from gains on capital reduction – 3,786,229

Actuarial loss on defined benefit liability (18,954) (48,453)

Consolidated Net income (2,783,556) 1,662,930

Accumulated Deficit (902,291) 1,900,219

23. CONSTRUCTION CONTRACTS, SALES AND COST OF SALES

(1) The changes of construction contracts as of 31 December 2011 and 2010, are as follows:


2011 2010

Beginning Balance 5,776,565 –

Increase 531,174 6,617,860

Changing of Contracts 100,439 –

Construction Revenue (2,304,454) (841,295)

Ending Balance 4,103,724 5,776,565

- IIC-70 -


(2) Cumulative construction and cumulative gain or loss as of 31 December 2011 and 2010, are as follows:


2011 2010

Domestic construction

Accumulative construction revenue 3,145,749 841,295

Accumulative construction cost 2,887,730 767,317

Net gross profit 258,019 73,978

(3) Receivables and advances from in-progress construction contracts as of 31 December 2011 and 2010, are

as follows:


Advances Receivables from construction contractsOverbilled Billed Unbilled Total

31 December 2011 167,140 – 155,934 155,934

31 December 2010 86,614 68,780 260,909 329,689

(4) Sales

Sales for the years ended 31 December 2011 and 2010, are as follows:


31 December2011

31 December2010

Sales – finished goods 5,334,796 9,207,998

Sales – merchandise 730,520 514,262

Sales – services 2,168,902 1,604,832

Sales – landscaping 2,304,454 841,295

10,538,672 12,168,387

(5) Cost of Sales

Cost of sales for the years ended 31 December 2011 and 2010, are as follows:


31 December2011

31 December2010

Cost of sales – finished goods 3,842,361 4,924,334

Cost of sales – merchandise 690,664 502,375

Cost of sales – services 1,635,631 915,167

Cost of sales – landscaping 2,120,413 767,317

8,289,069 7,109,193

- IIC-71 -


24. RELATED PARTY TRANSACTIONS

The entire balance of Intra-Group transactions, receivables, and debt was all eliminated during the consolidation

process.

(1) The balances of significant transactions with related parties as of 31 December 2011 and 2010, are as

follows:


2011 2010Related parties Receivables Payables Receivables Payables

Parent company Ocean B Holdings – – – 46,748Others Shinsung Engineering &

Construction Co., Ltd370,620 63,782 329,689 86,614

Others Representative ofSubsidiaries

– 44,068 – 310,000

The above receivables and debt includes completion progress amounts

(2) Significant transactions with related parties for the years ended 31 December 2011 and 2010, are as

follows:


2011 2010

Related parties Sales, etcPurchase,

etc. Sales, etcPurchase,

etc.

Parent company Ocean B Holdings 3,086,712 3,120,000 – –

Others Shinsung Engineering &Construction Co., Ltd

5,671,330 3,550,000 2,352,473 1,500,000

Others Balhae Civil & ArchitectureCo., Ltd

2,434,652 2,400,000 – –

Others Jeongam Engineering &Construction Co., Ltd

103,516 100,000 – –

Others Global Construction Co., Ltd – – 2,543,082 2,500,000Others MK Electron (H.K.) 21,290 – – –

The Company provides payment guarantee of KRW100 million in regards to the financial loans of RIA

Soft Co., Ltd.

(3) The compensation amount per classification on the current and previous year’s main management board

and the total compensation amount are as the following. The main management board includes directors

(non-executive directors included) who have important rights and responsibilities on the planning,

operation, and control of the Company’s activities and the auditors.


2011 2010

Salaries expenses 375,450 329,200

Severance benefits 187,648 145,662

Compensation expenses for stock option 122,917 93,282

686,015 568,144

- IIC-72 -


25. CASH GENERATED FROM OPERATIONS

(1) Reconciliation between operating profit and net cash inflow (outflow) from operating activities as for the

years ended 31 December 2011 and 2010, are as follows:


2011 2010

Profit for the period (2,783,556) 1,662,930

Adjustments:


Depreciation 366,927 403,465

Amortization 718,277 482,743

Provision for severance indemnities 338,861 325,274

Loss on sale of property, plant and equipment 1,823 259

Write-downs of intangible assets 27,556 3,216

Bad debt expenses 491,259 102,591

Loss on disposal of trade receivables 797 –

Other bad debts expense 1,646 –

Losses on foreign currency translation 5,307 20,424

Losses on valuation of short-term trading securities 122,983 188,623

Losses on disposal of short-term trading securities 278,879 123,841

Interest expenses 6,217 97,412

Loss on impairment of goodwill 263,508 504,617

Loss on impairment of securities available for sale 31,245 –

Loss on impairment of investments – 100,000

Income tax expenses – 125

Dues 4,000 –

Gains on foreign currency translation (53,199) (2,121)

Reversal of allowance for doubtful accounts (9,834) (23,561)

Gain on disposal of short-term trading securities (451,199) (270,506)

Gain on valuation of short-term trading securities (2,596) –

Gains from liabilities exempted – (90,000)

Interest revenues (274,861) (262,050)

Gain on disposal of Equity-method Investments (666,412)

Dividend income (57,142) –

Sub Total 1,933,371 1,131,222

- IIC-73 -



2011 2010

Changes in operating assets and liabilities:

Decrease(Increase) in trade receivables 2,065,979 (2,741,087)

Decrease(Increase) in receivables from Construction Contracts 173,755 (329,689)

Increase in non-trade receivables (105,557) (130,690)

Decrease(Increase) in advance payments 61,319 (68,328)

Decrease(Increase) in prepaid expenses (127) 6,724

Decrease(Increase) in income tax refund receivables 14,681 (25,687)

Decrease(Increase) in deferred Income tax assets 214,819 (564,657)

Increase in inventories (475,567) (529,801)

Decrease in deferred long-term advance payments 30,000 57,000

Increase in trade payables (435,222) 449,597

Decrease in non-trade payables 908,526 (101,900)

Decrease in advances from customers (70,452) (60,860)

Increase in withholdings 2,439 58,323

Decrease in unearned revenues – (2,229)

Increase(Decrease) in accrued expenses (9,499) 11,478

Increase in advances from construction contracts 80,526 86,614

Decrease in current portion of long-term non-trade payables – (30,600)

Decrease in deferred Income tax liabilities – (80,594)

Decrease in long-term non-trade payables – (16,200)

Payments for Severance Benefits (240,762) (144,071)

Sub Total 2,214,858 (4,156,657)

Cash generated from operations 1,364,673 (1,362,505)

(2) Significant transactions not affecting cash flows for the years ended 31 December 2011 and 2010, are as

follows:


2011 2010

Transfer of non-trade receivables of long-term prepaid

expenses 141,500 –

Transfer of development costs of construction in progress 581,144 –

Losses on trade securities 20,652 347,051

Goodwill for business combination – 106,101

Actuarial gains or losses on defined benefit plans 18,954 48,453

- IIC-74 -


26. SELLING AND ADMINISTRATIVE EXPENSES

Selling and administrative expenses for the years ended 31 December 2011 and 2010, are as follows:


2011 2010

Salaries 1,402,308 1,314,914



Employee benefits 275,923 281,355

Travel 78,770 96,509

Entertainment 174,431 172,891

Communication 32,260 34,222

Utility 1,265 2,000

Taxes and dues 32,222 12,709


Amortization on intangible assets 718,278 482,743

Development expense 204,935 380,919

Rental 221,350 229,484

Insurance premium 15,052 12,830

Vehicles maintenance 53,027 65,008

Freight 123,879 109,692

Publication 5,754 5,974

Supplies 14,237 11,817

Service fees 496,410 437,799

Advertising 37,645 56,822

Bad debts expense 491,259 102,591

Training expense 4,773 3,316

Repairs 1,407 3,561

Event expense 144,489 50,887

Office supplies 3,934 2,245

Building administrative expense 2,241 1,952

5,090,980 4,431,054

27. OTHER INCOME AND EXPENSE, FINANCIAL INCOME AND COSTS

(1) Other income and expense for the years ended 31 December 2011 and 2010, are as follows:


2011 2010

Other incomeReversal of allowance for doubtful accounts 9,834 23,561

Gain from liabilities exempted – 90,000

Miscellaneous revenue 272,744 115,239

282,578 228,800

- IIC-75 -



2011 2010

Other expenseOther bad debts expense 1,646 –

Loss on impairment of investment assets – 100,000

Impairment losses on intangible assets 27,556 3,217

Loss on sale of property, plant and equipment 1,821 259

Donations 500 –

Miscellaneous loss 125,707 15,120

157,230 118,596

(2) Financial income and costs for the years ended 31 December 2011 and 2010, are as follows:


2011 2010

Financial incomeInterest income 274,861 262,050

Gain on foreign currency transactions 164,337 123,087

Gain on foreign currency translation 53,818 56,270

Dividend income 57,142 –

Gain on sale of short-term trading securities 451,199 270,506

Gain on valuation of short-term held for trading investments 2,596 –

1,003,953 711,913

Financial costsInterest expense 6,217 97,412

Loss on foreign currency transactions 148,074 159,408

Loss on foreign currency translation 5,755 24,964

Loss on valuation of short-term trading securities 122,983 188,623

Loss on sale of short-term trading securities 278,879 123,841

Loss on impairment of available-for-sale securities 31,245 –

593,153 594,248

28. INCOME TAX EXPENSE

(1) Income tax expense for the years ended 31 December 2011 and 2010 consists of:


2011 2010

Current income taxes – 125

Deferred income tax due to temporary differences 215,299 (735,269)

Deferred income tax charged to equity (480) 90,018

Income tax expenses 214,819 (645,126)

- IIC-76 -


(2) Change in cumulative temporary differences for the year ended 31 December 2011, and deferred income

tax assets and liabilities as of 31 December 2011 and 2010, are as follows:


2011Temporary differences Deferred tax assets(liabilities)

BeginningIncrease

(Decrease) Ending Beginning Ending

Accrued income (413) (164) (577) (91) (127)

Accumulated impairment loss of

inventories 837,809 207,209 1,045,018 184,318 229,904

Retirement benefit obligations 826,766 92,990 919,756 181,889 202,346

Loss on valuation of equity-

method investments 941,960 (1,300) 940,660 207,231 206,945

Impairment loss on equity-method

investments 1,208,040 263,508 1,471,548 265,769 323,741

Short-term trading securities 188,623 (68,236) 120,387 41,497 26,485

Impairment loss on investments 100,000 – 100,000 22,000 22,000

Losses on foreign currency

translation 24,964 (24,964) – 5,492 –

Gains on foreign currency

translation (56,270) 56,270 – (12,379) –

Allowance for doubtful accounts 986,441 73,419 1,059,860 217,017 233,169

Other bad debt expense 2,482,614 184,917 2,667,531 546,175 586,857

Goodwill 106,101 (106,101) – 23,342 –

Other Intangible assets 6,251 – 6,251 1,375 1,375

Retirement insurance deposit (1,258) – (1,258) (277) (277)

Available-for-sale financial assets 1,941,665 4,768 1,946,433 427,166 428,215

Accumulated paid absent 68,913 (8,640) 60,273 15,161 13,260

Financial guarantee contract – 1,300 1,300 – 286

Depreciation (228,718) 228,718 – (50,318) –

Patents 1,941 (782) 1,159 427 255

Development costs 96,892 109,882 206,774 21,316 45,490

9,532,321 1,012,794 10,545,115 2,097,110 2,319,924

Deficit carried-forward – 182,986 182,986 – 40,257

Tax deduction 18,711 – – 18,711 18,711

Not recognized deferred tax

assets(liabilities) 1,389,479 1,901,166

Effects of Korean-IFRS adoption (33,317) –

693,025 437,469

Deferred tax assets 693,025 477,726

Deferred tax liabilities – –

Deferred tax assets(liabilities), net 693,025 477,726

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2010Temporary differences Deferred tax assets(liabilities)

BeginningIncrease


Accrued income (11,434) 11,021 (413) (2,515) (91)


inventories 858,992 (21,183) 837,809 188,978 184,318



method investments 508,235 433,725 941,960 111,812 207,231


investments 1,137,148 70,892 1,208,040 250,173 265,769

Short-term trading securities – 188,623 188,623 – 41,497

Impairment loss on investments – 100,000 100,000 – 22,000


translation 67,810 (42,846) 24,964 14,918 5,492


translation (1,929) (54,341) (56,270) (424) (12,379)

Allowance for doubtful accounts 1,789,519 (803,078) 986,441 393,694 217,017


Goodwill – 106,101 106,101 – 23,342

Other Intangible assets 7,708 (1,457) 6,251 1,696 1,375



Accumulated paid absent 44,466 24,447 68,913 9,783 15,161

Depreciation (329,330) 100,612 (228,718) (72,453) (50,318)

Patents 1,941 – 1,941 427 427

Development costs 150,374 (53,482) 96,892 33,082 21,316

8,110,253 1,422,068 9,532,321 1,784,257 2,097,110

Tax deduction – 18,711 18,711 – 18,711



Effects of Korean-IFRS adoption (80,594) (33,317)

(42,243) 693,025

Deferred tax assets 38,351 693,025

Deferred tax liabilities (80,594) –

Deferred tax assets(liabilities), net (42,243) 693,025

Deferred income tax assets related to the deductible temporary differences arising on investment in

subsidiaries and associates did not recognize as the temporary difference will not reverse in the foreseeable

future. Other deferred income tax assets recognized to the extent that the realization of the related tax benefit

through future taxable profits is probable.

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(3) Deferred income taxes charged directly to the equity as of 31 December 2011 and 2010, are as follows:


2011 2010

Fair value gains from available-for-sale financial assets (5,825) –

Fair value loss from available-for-sale financial assets – 76,351

Actuarial loss on retirement benefit obligations 5,346 13,666

(479) 90,017

29. EXPENSES BY NATURE

Expenses that are recorded by nature for the years ended 31 December 2011 and 2010, are as follows:


2011 2010

Changes in inventories 1,710,936 3,604,640

Employee benefits 4,148,729 3,470,371


Depreciation expenses 1,085,205 884,586

Impairment losses/Bad debt expenses 491,259 102,592

Freight expenses 168,698 142,280

Outsourcing fees/Rental 1,740,235 1,141,014

Service fees 616,955 483,338

Construction expenses 1,664,294 –

Commission of equipment lease 76,980 60,390

Other expenses 1,553,841 1,557,755

Total1 13,380,049 11,540,248

1 The amount is the same as the total of cost of sales, selling and administrative expenses


Basic earnings per share for the years ended 31 December 2011 and 2010, are as follows:

2011 2010

Profit attributable to equity holders of the company (2,783,556,269) 1,662,930,254

Weighted-average number of common stock outstanding 35,400,316 35,400,316

Basic earnings per share (79) 47

Diluted earnings per share is calculated by adjusting the weighted average number of ordinary shares outstanding

to assume conversion of all dilutive potential ordinary shares. The Company has one category of dilutive potential

ordinary shares: Stock option. The number of shares calculated as above is compared with the number of shares that

would have been issued assuming the exercise of the stock option. Diluted earnings per share equal to basic earnings per

share of each years as there is no any dilutive effect.

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31. NON-CURRENT ASSETS HELD FOR SALE AND DISCONTINUED OPERATIONS

Plans to sell the subsidiary which were expected held for sale in the previous year were cancelled in the current

year. In accordance with K-IFRS 1105 Non-current Assets Held For Sale and Discontinued Operations, the results of

operations of the component previously presented in discontinued operations in the consolidated financial statements of

the previous year were reclassified and included in income from continuing operations as done in the current year.

(1) In regards to the prior year financial statements, the assets and liabilities of the disposal group (group of

assets to be disposed of by sale) held for sale prior to reclassification are as the follows:


Financial instruments 11,364Trade and other receivables 267,922Other current assets 192,276Property, plant and equipment 43,596Intangible assets 727,485Other non-current assets 106,625Trade and other payables (226,802)Borrowings (310,000)Retirement benefit obligations (269,751)Total net assets that are classified as held for sale 542,715Cumulative other comprehensive income and expense that are classified as held

for sale (8,249)

The assets and liabilities related to the above disposal group held for sale are amounts after netting

internal transactions and the accumulated other comprehensive income (retained earnings) related to the disposal

group held for sale relates to full actuarial gains and losses.

(2) In regards to the prior year financial statements, the gains and losses from discontinued operations of the

disposal group held for sale prior to reclassification are as the follows:


Sales 1,509,484Cost of sales (985,572)Other income 103,041Selling and administrative expenses (628,122)Other profit or loss (7,649)Financial expenses (155)Profit(loss) before income tax of discontinued operations (8,973)Income tax expense(benefit) 33,223Profit(loss) of discontinued operations 24,250

The cash flow which arose from discontinued operations prior to being reclassified as continuing

operations is as the follows:


Cash flows from operating activities (130,558)Cash flows from investing activities 285,264Cash flows from financing activities (164,827)

Net cash inflow (outflow) (10,121)

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B. Separate financial statements of Nitgen for the year ended 31 December 2011



Phone : 82-2-761-9800 Faxne : 82-2-761-2794


The Board of Directors and StockholdersNITGEN&COMPANY CO., LTD.

We have audited the accompanying separate statements of financial position ofNITGEN&COMPANY Co., Ltd.(the “Company”) as of 31 December 2011 and the related separatestatements of comprehensive income, changes in equity and cash flows for the year then ended,expressed in Korean won. Management is responsible for the preparation and fair presentation of theseseparate financial statements in accordance with Korean International Financial Reporting Standards(“K-IFRS”). Our responsibility is to express an opinion on these financial statements based on ouraudits.

The financial statements of the Company as of and for the year ended 31 December 2010,presented herein for comparative purposes, were audited, expressed an unqualified opinion on thosestatements reported 7 March 2011. The 31 December 2010 financial statements do not reflect theadjustments as described in Note 3 required by K-IFRS. However, the financial statements presentedherein for comparative purposes reflect such adjustments in accordance with K-IFRS.

We conducted our audits in accordance with auditing standards generally accepted in theRepublic of Korea. Those standards require that we plan and perform the audit to obtain reasonableassurance about whether the financial statements are free of material misstatement. An audit includesexamining, on a test basis, evidence supporting the amounts and disclosures in the financialstatements. An audit also includes assessing the accounting principles used and significant estimatesmade by management, as well as evaluating the overall financial statement presentation. We believethat our audits provide a reasonable basis for our opinion.

In our opinion, the separate financial statements referred to above present fairly, in all materialrespects, the financial position of the Company as of 31 December 2011 and the results of itsoperations and its cash flows for the year ended 31 December 2011, in accordance with K-IFRS.

Auditing standards and their application in practice vary among countries. The procedures andpractices used in the Republic of Korea to audit such financial statements may differ from thosegenerally accepted and applied in other countries. Accordingly, this report is for use by those who areinformed about Korean auditing standards and their application in practice.

IInduk AccountingCorporation

Seoul, Korea14 March 2012

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This report is effective as of 14 March 2012, the audit report date. Certain subsequent events orcircumstances, which may occur between the audit report date and the time of reading this report,could have a material impact on the accompanying separate financial statements and notes thereto.Accordingly, the readers of the audit report should understand that the above audit report has not beenupdated to reflect the impact of such subsequent events or circumstances, if any.

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Separate Statements of Financial Position31 December 2011, 2010 and 1 January 2010


Notes31 December

201131 December

20101 January

2010(Unaudited) (Unaudited)

ASSETSCurrent assetsCash and cash equivalents 8 8,716,335 5,075,175 6,330,747Other current financial assets 9 1,395,731 4,463,528 –

Trade and other receivables 11,22 2,294,217 4,751,087 4,177,643Current tax assets 64,964 78,549 51,402Inventories 10 2,486,073 2,010,506 1,480,704Other current assets 12 169,940 40,281 169,653

Total current assets 15,127,260 16,419,126 12,210,149

Non-current assetsOther non-current financial assets 9 384,668 392,223 575,488Investment property 15 138,839 138,839 –

Investments in subsidiaries 16 587,792 – 3,809,019Property, plant and equipment 13 1,338,162 1,538,479 1,780,098Intangible assets 14 2,136,808 1,554,030 1,050,146Trade and other receivables 11 311,366 347,251 497,555Deferred tax assets 26 331,841 619,000 –

Total non-current assets 5,229,476 4,589,822 7,712,306

Non-current assets held for sale 16 – 850,000 –

Total assets 20,356,736 21,858,948 19,922,455

LIABILITIES AND EQUITYCurrent liabilitiesTrade and other payables 17,22 1,732,243 1,371,605 872,848Other current liabilities 17 269,883 88,308 38,384

Total current liabilities 2,002,126 1,459,913 911,232

Non-current liabilitiesDefined benefit obligation 18 916,700 701,907 518,024Other non-current liabilities 22 1,300 528 16,728Deferred tax liabilities 26 – – 80,594

Total non-current liabilities 918,000 702,435 615,346


EquityCapita stock 20 17,700,158 17,700,158 17,700,158Capital surplus 20 4,894,707 4,894,707 8,680,936Other components of equity 19,20 (4,518,578) (4,662,148) (4,484,730)Retained earnings 18 (639,677) 1,763,883 (3,500,487)

Total equity 17,436,610 19,696,600 18,395,877

Total equity and liabilities 20,356,736 21,858,948 19,922,455

The accompanying notes are an integral part of these Separate financial statements.

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Separate Statements of Comprehensive IncomeYears Ended 31 December 2011 and 2010


Notes 2011 2010(Unaudited)

Sales 4,21,22 8,445,058 10,658,903

Cost of sales 4,21,22 6,705,235 6,264,215

Gross profit 1,739,823 4,394,688

Selling and administrative expenses 19,24,28 4,254,225 3,802,931

Other operating income 25,27 256,582 125,759

Other operating expenses 25 4,334 110,947

Operating income(loss) (2,262,154) 606,569

Gain(Loss) on disposal and valuation of

associate 16 (263,508) 161,795

Financial income 25 1,036,209 726,652

Financial expenses 25 586,936 588,574

Profit before income tax (2,076,389) 906,442

Income tax expense(benefit) 26 291,418 (611,903)

Profit for the year (2,367,807) 1,518,345

Other comprehensive income (loss)Change in value of available-for-sale financial

assets 9,26 20,652 (270,700)


obligations 18,26 (35,753) (40,205)

(15,101) (310,905)

Total comprehensive income for the year (2,382,908) 1,207,440

Earnings per share from 29

Basic and diluted earnings per share

(in Korean won) (67) 43


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Separate Statements of Changes in EquityYears Ended 31 December 2011 and 2010


Capital StockCapitalSurplus Other

Componentsof Equity

RetainedEarnings Total equity

Balance at 1 January 2010 17,700,158 8,680,936 (4,484,730) (3,500,487) 18,395,877

Profit for the year – – – 1,518,345 1,518,345

Transfer from gains on capital

reduction – (3,786,229) – 3,786,229 –

Compensation expenses for stock

option – – 93,282 – 93,282

Actuarial loss on post employment

benefit obligations – – – (40,204) (40,204)



Balance at 31 December 2010 17,700,158 4,894,707 (4,662,148) 1,763,883 19,696,600

Balance at 1 January 2011 17,700,158 4,894,707 (4,662,148) 1,763,883 19,696,600

Profit for the year – – – (2,367,807) (2,367,807)

Compensation expenses for stock

option – – 122,918 – 122,918

Actuarial loss on post employment

benefit obligations – – – (35,753) (35,753)



Balance at 31 December 2011 17,700,158 4,894,707 (4,518,578) (639,677) 17,436,610


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Separate Statements of Cash FlowsYears Ended 31 December 2011 and 2010


Notes 2011 2010(Unaudited)

Cash flows from operating activitiesCash generated from operations 23 1,489,967 (1,369,777)Interest received 272,829 356,873Interest paid – (91,738)Dividends received 57,142 –

Net cash generated from operating activities 1,819,938 (1,104,642)

Cash flows from investing activitiesAcquisition of short-term trading securities 10,198,991 4,268,399Proceeds from disposal of guarantee deposits 1,400 27,899Decrease in short-term loans 15,133,700 12,570,000Disposal of associates – 3,120,814Disposal(Acquisition) of short-term financialinstruments – (100,000)Disposal of short-term trading securities (7,079,261) (8,673,883)Increase in short-term loans (15,130,000) (10,000,000)Increase in available-for-sale financial assets – (163,786)Acquisition of property, plant and equipment (1,188,451) (1,096,373)Acquisition of intangible assets (3,250) –

Increase in other non-current assets (136,907) (104,000)Others 25,000 –

Net cash used in investing activities 1,821,222 (150,930)

Cash flows from financing activities – –

Net cash provided by (used in) financingactivities – –

Net increase (decrease) in cash and cashequivalents 3,641,160 (1,255,572)

Cash and cash equivalents at the beginning ofperiod 5,075,175 6,330,747

Cash and cash equivalents at the end of period 8,716,335 5,075,175


- IIC-86 -


Notes to the Consolidated Financial Statements31 December 2011 and 2010


NITGEN&COMPANY Co., Ltd. (the “Company”) was incorporated on 20 March 1984 under the laws of the

Republic of Korea to engage in network and solution businesses. The Company prepared the foundation for stable

growth through capability intensification and improvement of management efficiency as of 21 November 2008 and has

absorbed and merged Nitgen Co., Ltd., the subsidiary of the Company that has the main business in the development of

products for scanning and security based on the Finger Scan technology to maximize the corporate value.

The Company’s head office and manufacturing plant are located in Seoul, Korea. On 30 September 1994 the

Company was listed on the KOSDAQ (Korean Securities Dealers Automated Quotation) market from the Korea

Exchange. As of 31 December 2011, the Company has issued 35,400,316 common shares amounting to 17,700,158

thousand in Korean won.

As of 31 December 2011, the Company’s major stockholders consist of Ocean B Holdings Co., Ltd (20.28 %).


(1) Basis of Preparation

The financial statements are prepared in accordance with International Financial Reporting Standards as

adopted by the Republic of Korea (“K-IFRS”). These are the standards, subsequent amendments and related

interpretations issued by the International Accounting Standards Board (“IASB”) that have been adopted by the

Republic of Korea. The accompanying financial statements and notes have been condensed, restructured and

translated into English from the Korean language financial statements.

These are the Company’s first financial statements prepared in accordance with K-IFRS and K-IFRS No.

1101 First-time Adoption of Korean International Financial Reporting Standards (“K-IFRS No. 1101”) has been

applied. The Company’s date of transition to K-IFRS is 1 January 2010, and the effect of the transition from

Korean Generally Accepted Accounting Principles (“K-GAAP”) to K-IFRS on the Company’s reported financial

position and financial performance is explained in note 3.

The financial statements are separate financial statements prepared in accordance with K-IFRS No.1027

Consolidated and Separate Financial Statements (“K-IFRS No. 1027”) presented by a parent, an investor in an

associate or a venture in a jointly controlled entity, in which the investments are accounted for on the basis of

the direct equity interest rather than on the basis of the reported results and net assets of the investees.

The principal accounting policies applied in the preparation of these financial statements are set out

below. These policies have been consistently applied to all the periods presented, unless otherwise stated.


1 January 2011, and not early adopted by the Company are as follows:


According to the amendments to Korean IFRS 1019, Employee Benefits, use of a ‘corridor’

approach is no longer permitted, and therefore all actuarial gains and losses incurred are immediately

recognized in other comprehensive income. All past service costs incurred from changes in pension plan

are immediately recognized, and expected returns on interest costs and plan assets that used to be

separately calculated are now changed to calculating net interest expense(income) by applying discount

rate used in measuring defined benefit obligation in net defined benefit liabilities(assets). This

- IIC-87 -


amendment will be effective for the Company as of 1 January 2013, and the Company is assessing the

impact of application of the amended Korean IFRS NO.1019 on its financial statements as of the report

date.

– Amendments to Korean IFRS 1107, Financial Instruments: Disclosures

According to the amendment, an entity should provide the required disclosures of nature,

carrying amount, risk and rewards associated with all transferred financial instruments that are not

derecognized from an entity’s financial statements. In addition, an entity is required to disclose

additional information related to transferred and derecognized financial instruments for any continuing

involvement in transferred assets. This amendment is effective for the Company as of 1 January 2012,

and The Company expects that it would not have a material impact on the Company.


Korean IFRS1113, Fair value measurement, aims to improve consistency and reduce complexity

by providing a precise definition of fair value and a single source of fair value measurement and

disclosure requirements for use across Korean IFRSs. Korean IFRS1113 does not extend the use of fair

value accounting but provides guidance on how it should be applied where its use is already required or

permitted by other standards within Korean IFRSs. This amendment will be effective for the Company

as of 1 January 2013, and the Company expects that it would not have a material impact on the

Company.

(2) Basis of measurement

The financial statements have been prepared on the historical cost basis, except for the matters separately

mentioned on the statement of financial position.

(3) Functional and presentation currency

These financial statements are presented in Korean won, which is the Company’s functional currency

and the currency of the primary economic environment in which the Company operates.

(4) Use of estimates and judgments

We have prepared our financial statements in accordance with IFRS as issued by the IASB. These

accounting principles require us to make certain estimates and judgments that affect the reported amounts in our

financial statements. Our estimates and judgments are based on historical experience, forecasted future events

and various other assumptions that we believe to be reasonable under the circumstances. Estimates and

judgments may differ under different assumptions or conditions. We evaluate our estimates and judgments on an

ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised

and in any future periods affected. Major categories of the financial statements influencing important influence

for accounting estimates and judgments are inventories, investment on affiliated companies, property, plant and

equipment, intangible assets, provision for estimated Liabilities, and deferred income taxes.

(5) Operating segment

An operating segment is a component of the Company that engages in business activities from which it

may earn revenues and incur expenses, including revenues and expenses that relate to transactions with any of

the Company’s other components. All operating segments’ operating results are reviewed regularly by the

Company’s ceo to make decisions about resources to be allocated to the segment and assess its performance, and

for which discrete financial information is available. Geographical segment is a component of an entity that

provides products and services within a particular economic environment, that is subject to risks and returns that

are different from those of components operating in other economic environments.

- IIC-88 -


(6) 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 that are readily convertible to known amounts of cash and which are subject to an

insignificant risk of changes in value with original maturities of less than three months.

(7) Non-derivative financial assets

The Company recognizes and measures non-derivative financial assets by the following four categories:

financial assets at fair value through profit or loss, held-to-maturity investments, loans and receivables and

available-for-sale financial assets. The Company recognizes financial assets in the statement of financial position

when the Company becomes a party to the contractual provisions of the instrument. Financial assets are

derecognized when the rights to receive cash flows from the investments have expired or have been transferred

and the Company has transferred substantially all risks and rewards of ownership. Separate assets or liabilities

are recognized if any rights and obligations are created or retained in the transfer.

Upon initial recognition, non-derivative financial assets are measured at their fair value plus, in the case

of a financial asset not at fair value through profit or loss, transaction costs that are directly attributable to the

asset’s acquisition or issuance.

(a) Financial assets at fair value through profit or loss

A financial asset is classified as financial assets are classified at fair value through profit or loss

if it is held for trading or is designated as such upon initial recognition. Upon initial recognition,

transaction costs are recognized in profit or loss when incurred. Financial assets at fair value through

profit or loss are measured at fair value, and changes therein are recognized in profit or loss.

(b) Held-to-maturity investments

Held-to-maturity investments are non-derivative financial assets with fixed or determinable

payments and fixed maturity that an entity has the positive intention and ability to hold to maturity other

than the bellows

– those that the entity upon initial recognition designates as at fair value through profit or

loss;

– those that the entity designates as available for sale; and

– those that meet the definition of loans and receivables.

(c) Loans and receivables

Loans and receivables are financial assets with fixed or determinable payments that are not

quoted in an active market. Subsequent to initial recognition, loans and receivables are measured at

amortized cost using the effective interest method except for loans and receivables of which the effect of

discounting is immaterial.

(d) Available-for-sale financial assets

Available-for-sale financial assets are those non-derivative financial assets that are designated as

available-for-sale or are not classified as financial assets at fair value through profit or loss, held-to-

maturity investments or loans and receivables. Subsequent to initial recognition, they are measured at

fair value, which changes in fair value, net of any tax effect, recorded in other comprehensive income in

equity. Investments in equity instruments that do not have a quoted market price in an active market and

- IIC-89 -


whose fair value cannot be reliably measured and derivatives that are linked to and must be settled by

delivery of such unquoted equity instruments are measured at cost. When a financial asset is

derecognized or impairment losses are recognized, the cumulative gain or loss previously recognized in

other comprehensive income is reclassified from equity to profit or loss. Dividends on an available-for-

sale equity instrument are recognized in profit or loss when the Company’s right to receive payment is

established.

(8) Impairment of financial assets

The Company assesses at the end of each reporting period whether there is objective evidence that a

financial asset or a Company of financial assets is impaired. A financial asset or a Company of financial assets is

impaired and impairment losses are incurred only if there is objective evidence of impairment as a result of one

or more events that occurred after the initial recognition of the asset (a ‘loss event’) and that loss event (or

events) has an impact on the estimated future cash flows of the financial asset or a Company of financial assets

that can be reliably estimated.

For certain categories of financial asset, such as trade and bills receivables, assets that are assessed not to

be impaired individually are subsequently assessed for impairment on a collective basis. Objective evidence of

impairment for a portfolio of receivables could include the Company’s past experience of collecting payments

and changes in national or local economic conditions that correlate with default on receivables.

An impairment loss in respect of a financial asset measured at amortized cost is calculated as the

difference between its carrying amount and the present value of its estimated future cash flows discounted at the

asset’s original effective interest rate. The Company can recognize impairment losses directly or establish a

provision to cover impairment losses. If, in a subsequent period, the amount of the impairment loss decreases

and the decrease can be related objectively to an event occurring after the impairment was recognized (such as

an improvement in the debtor’s credit rating), the previously recognized impairment loss shall be reversed either

directly or by adjusting an allowance account.

If there is objective evidence that an impairment loss has occurred on an unquoted equity instrument that

is not carried at fair value because its fair value cannot be reliably measured, or on a derivative asset that is

linked to and must be settled by delivery of such an unquoted equity instrument, the amount of the impairment

loss is measured as the difference between the carrying amount of the financial asset and the present value of

estimated future cash flows discounted at the current market rate of return for a similar financial asset. Such

impairment losses shall not be reversed.

When a decline in the fair value of an available-for-sale financial asset has been recognized in other

comprehensive income and there is objective evidence that the asset is impaired, the cumulative loss that had

been recognized in other comprehensive income shall be reclassified from equity to profit or loss as a

reclassification adjustment even though the financial asset has not been derecognized. Impairment losses

recognized in profit or loss for an investment in an equity instrument classified as available-for-sale shall not be

reversed through profit or loss. If, in a subsequent period, the fair value of a debt instrument classified as

available-for-sale increases and the increase can be objectively related to an event occurring after the impairment

loss was recognized in profit or loss, the impairment loss shall be reversed, with the amount of the reversal

recognized in profit or loss.

(9) Derecognition of financial instruments

A financial asset shall be derecognised when the contractual rights to the cash flows from the financial

asset expire or the Company transfers the contractual rights to receive the cash flows of the financial asset and

substantially all the risks and rewards of ownership of the financial asset. If most of the risks and rewards which

follow in possessing financial assets have not been retained nor transferred, the Company should: i) dispose the

- IIC-90 -


financial asset if it currently does not control the financial asset; or ii) continuously recognize the transferred

assets until the assets are of concern as well as recognize the related liabilities if the Company continues to

control the financial asset.

If the Company transfers the contractual rights to receive the cash flows of financial assets but retains

substantially all the risks and rewards of ownership of the financial assets, the financial assets shall continue to

be recognized while the proceeds received from the disposal of financial assets shall be recognized as liabilities.

The Company has a legal right to offset the financial assets and liabilities. The assets and liabilities can be offset

only when they are settled based on the net method or there is an intention to settle the liabilities simultaneously

to realizing the asset.

(10) Inventories

Inventories are stated at the lower of cost and net realizable value. The cost of inventories is based on

the weighted average method principle, and includes expenditures for acquiring the inventories, production or

conversion costs and other costs incurred in bringing them to their existing location and condition. The net

realizable value (hereinafter ‘NRV’) is measured by deducting the estimated additional cost to completion and

selling expenses from the estimated selling price in the ordinary course of business. The evaluation losses arising

from the decrease in the inventory asset NRV below the book value or obsolescence losses arising under normal

circumstances shall be added to the cost of sales while the evaluation losses shall be disclosed in the inventory

asset-contra account.

(11) Property, plant and equipment

Property, plant and equipment are initially measured at cost and after initial recognition, are carried at

cost less accumulated depreciation and accumulated impairment losses. The cost of property, plant and

equipment includes expenditures arising directly from the construction or acquisition of the asset, any costs

directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating

in the manner intended by management and the initial estimate of the costs of dismantling and removing the item

and restoring the site on which it is located.

Subsequent costs are recognized in the carrying amount of property, plant and equipment at cost or, if

appropriate, as separate items if it is probable that future economic benefits associated with the item will flow to

the Company and the cost of the item can be measured reliably. The carrying amount of the replaced part is

derecognized. The costs of the day-to-day servicing are recognized in profit or loss as incurred.

Land is not depreciated. Depreciation on other assets is calculated using the straight-line method to

allocate the difference between their cost and their residual values over their estimated useful lives, as follows:


Buildings 40

Other property, plant and equipment 5

Depreciation methods, useful lives and residual values are reviewed at the end of each reporting date and

adjusted, if appropriate. The change is accounted for as a change in an accounting estimate.

The carrying amount of an item of property and equipment is derecognized on disposal or when no

future economic benefits are expected from its use or disposal. The gain or loss arising from the derecognition of

an item of property and equipment is determined as the difference between the net disposal proceeds and the

carrying amount of the item, and is included in net income when the item is derecognized.

- IIC-91 -


(12) Intangible assets

Intangible assets acquired individually are measured initially at cost and, subsequently, are carried at

cost less accumulated amortization and accumulated impairment losses. Amortization of intangible assets is

calculated on a straight-line basis over the estimated useful lives of intangible assets from the date that they are

available for use. The depreciation method and useful life of an asset with definite useful life are reviewed at the

end of each reporting period. If management judges that previous estimates should be adjusted, the change is

accounted for as a change in an accounting estimate.

The estimated useful life used for amortizing intangible assets is as follows:


Development costs 3~5

Industrial property rights 10

Software and Other intangible assets 5

Facility-use memberships Indefinite useful life

Facility-use memberships are recognized as intangible assets with an indefinite useful life, there is no

foreseeable limit to the period over which the asset is expected to generate net cash inflows for the entity.

(a) Research and development

Development expenditures are capitalized only if development costs can be measured reliably,

the product or process is technically and commercially feasible, future economic benefits are probable,

and the Company intends to and has sufficient resources to complete development and to use or sell the

asset. Other development expenditures are recognized in profit or loss as incurred. Subsequent

expenditures are capitalized only when they increase the future economic benefits embodied in the

specific asset to which it relates.

(b) Intangible assets acquired individually

Subsequent expenditures are capitalized only when they increase the future economic benefits

embodied in the specific asset to which it relates. All other expenditures, including expenditures on

internally generated goodwill and brands, are recognized in profit or loss as incurred.

(c) Goodwill

Company do not amortize goodwill but rather the goodwill is assessed for impairment testing at

least once a year. Goodwill is measured at cost less accumulated impairment losses. An impairment loss

recognized for goodwill is not reversed in subsequent periods. On disposal of the relevant cash-

generating unit, the attributable amount of goodwill is included in the determination of the profit or loss

on disposal.

(13) Investment property

Investment property is held to earn rentals or for capital appreciation or both. Investment property is

measured initially at its cost including transaction costs incurred in acquiring the asset. After recognition as an

asset, investment property is carried at its cost less any accumulated depreciation and impairment losses. The

profits or losses from the purchase, disposal, reissue, or retirement of treasury shares are not recognized as

current profit or loss. If the Company acquires and retains treasury shares, the consideration paid or received is

directly recognized in equity.

- IIC-92 -


(14) Investments in subsidiaries and associates

These separate financial statements are prepared and presented in accordance with K-IFRS No. 1027

Consolidated and Separate Financial Statements. The Company applied the cost method to investments in

subsidiaries and associates in accordance with K-IFRS No. 1027. The carrying amount under previous K-GAAP

on the date of transition to K-IFRS is considered to be the deemed cost of investments in subsidiaries and

associates on the date of transition. Dividends from a subsidiary or associate are recognized in profit or loss

when the right to receive the dividend is established.

(15) Non-current assets held for sale

Non-current assets, or disposal Company’s comprising assets and liabilities, that are expected to be

recovered primarily through sale rather than through continuing use, are classified as held for sale. The assets or

disposal Company that are classified as non-current assets held for sale are measured at the lower of their

carrying amount and fair value less cost to sell.

Non-current assets classified as held for sale or part of a disposal Company comprising of assets that are

expected to be sold shall not be depreciated. If the asset’s net fair value decreases, the impairment loss from the

difference shall immediately be recognized as current profits and losses. Alternatively, if the asset’s net fair

value increases, the gains shall be recognized to the limit of the accumulated impairment loss recognized in

accordance with K-IFRS NO. 1036 Impairment of Assets

(16) Equity capital

Ordinary shares are classified as equity. Transaction costs associated with the issuing of shares are

deducted from additional paid-in capital(amount after deducting taxes and other expenses arising for issuing of

new ordinary shares in the event that the capital increase is made), net of any related income tax benefits.

Incremental costs directly attributable to the issue of new ordinary shares are shown in equity as a deduction, net

of tax. The profits or losses from the disposal, or retirement of treasury is directly recognized in equity, not

recognized as current profit or loss.

(17) Employee benefits

Regardless of the grounds for retirement, the Company’s employees have the right to receive severance

payments in a lump sum payment when their employment is terminated based on their term of service and

payment rate at the retirement period.

(a) Defined Benefit Plan

The retirement benefit liability appropriated in the statement of financial position is the present

value of the severance payment liabilities as at the end of the reporting period less the fair value of plan

assets. The calculation is performed annually by an independent actuary using the projected unit credit

method. The Company’s net obligation in respect of defined benefit plans is calculated by estimating the

amount of future benefit that employees have earned in return for their service in the current and prior

periods; that benefit is discounted to determine its present value. The Company’s net obligation in

respect of defined benefit plans is denominated in the same currency in which the benefits are expected

to be paid.

All actuarial gains and losses that arise in calculating the present value of the defined benefit

obligation and the fair value of plan assets are recognized immediately in retained earnings and included

in the statement of comprehensive income, not reclassified to income or loss thereafter.

- IIC-93 -


(b) Short-term employee benefits

Short-term employee benefits are employee benefits that are due to be settled within 12 months

after the end of the period in which the employees render the related service. When an employee has

rendered service to the Company during an accounting period, the Company recognizes the undiscounted

amount of short-term employee benefits expected to be paid in exchange for that service.

The Company has a legal obligation or constructive obligation to pay the employee for its

historical working service and the estimated amount in distribution of profits and/or bonus shall be

recognized as liabilities if the liability amount can be estimated reliably.

(18) Share-based payment transactions

In regards to share settlement type stock grant transactions in which the Company grants shares or share

options to its employees as payment for goods or services received, if the fair value of the goods or services

received is unknown or cannot be reliably estimated, the fair value of the granted stock should be used as a basis

to indirectly estimate the fair value of goods or services. The fair value amount shall accordingly be recognized

as employee salary expense and capital during the vesting period. If the vesting conditions of the share options

are vesting conditions other than service providing conditions or market conditions, the recognized employee

expense is adjusted so that the actual amount of share options which is ultimately vested is used as a basis for

determination.

(19) Provisions

Provisions are recognized when the Company has a present legal or constructive obligation as a result of

past events and an outflow of resources required to settle the obligation is probable and can be reliably

estimated.

The risks and uncertainties that inevitably surround many events and circumstances are taken into

account in reaching the best estimate of a provision. Where the effect of the time value of money is material,

provisions are determined at the present value of the expected future cash flows.

Where some or all of the expenditures required to settle a provision are expected to be reimbursed by

another party, the reimbursement shall be recognized when, and only when, it is virtually certain that

reimbursement will be received if the Company settles the obligation. The reimbursement shall be treated as a

separate asset. Provisions are reviewed at the end of each reporting period and adjusted to reflect the current best

estimates. If it is no longer probable that an outflow of resources embodying economic benefits will be required

to settle the obligation, the provision is reversed.

Provisions are not recognized for future operating losses. But, a provision for onerous contracts is

recognized when the expected benefits to be derived by the Company from a contract are lower than the

unavoidable costs of meeting its obligations under the contract. The provision is measured at the present value of

the lower of the expected cost of terminating the contract and the expected net cost of continuing with the

contract. Before a provision is established, the Company recognizes any impairment loss on the assets associated

with that contract.

(20) Non-derivative financial liabilities

The Company classifies non-derivative financial liabilities into financial liabilities at fair value through

profit or loss or other financial liabilities in accordance with the substance of the contractual arrangement and the

definitions of financial liabilities. The Company recognizes financial liabilities in the statement of financial

position when the Company becomes a party to the contractual provisions of the financial liability. The

Company derecognizes a financial liability from the statement of financial position when it is extinguished (i.e.

when the obligation specified in the contract is discharged, cancelled or expires).

- IIC-94 -


The Company classifies loans, account payables, and other liabilities as Non-Derivative Financial

Liabilities. These non derivative financial liabilities are measured by the fair value which includes the transaction

cost directly related to the acquisition upon initial recognition, followed by measurement using the amortized

cost by using the effective interest method. Unless unconditional rights are held to defer the liability settlement

for at least 12 months following the financial statement date, the non derivative financial liabilities shall be

classified as current liabilities.

(21) Financial guarantee contracts

Financial guarantee liabilities are obligations by the Company to pay certain amounts to the creditor to

compensate for the losses incurred following the inability for a certain debtor to pay on the payment date as per

the initial or revised contract terms and conditions. The fair value less the transaction expenses directly related to

the issuance are initially recognized. Following the initial recognition, financial guarantee liabilities shall be

measured based on the larger amount of i) the determined amount as per Article 1037 (Provisions, Contingent

Liabilities, and Contingent Assets) of the Financial Accounting Standards; and ii) the initial recognized amount

less the accumulated amortized cost recognized per Article 1018 (Revenue) of the Financial Accounting

Standards.

(22) Impairment of non-financial assets

The carrying amounts of the Company’s non-financial assets, other than assets arising from inventories,

deferred tax assets and non-current assets held for sale, are reviewed at the end of the reporting period to

determine whether there is any indication of impairment. If any such indication exists, then the asset’s

recoverable amount is estimated. Intangible assets that have indefinite useful lives or that are not yet available

for use, irrespective of whether there is any indication of impairment, are tested for impairment annually by

comparing their recoverable amount to their carrying amount.

If there is any indication that an asset may be impaired, recoverable amount shall be estimated for the

individual asset. If it is not possible to estimate the recoverable amount of the individual asset, The Company

shall determine the recoverable amount of the cash-generating unit (“CGU”) to which the asset belongs (the

asset’s cash-generating unit).

The recoverable amount of an asset or CGU is the greater of its value in use and its fair value less costs

to sell. An impairment loss is recognized if the carrying amount of an asset or a CGU exceeds its recoverable

amount. Impairment losses are recognized in profit or loss.

(23) Revenue Recognition

(a) Sale of goods

Company recognize revenue from the sale of goods when the important risk and rewards

following possession of the goods are transferred to the purchaser, the amount of revenue can be

measured reliably, and it is highly probable that the economic benefits associated with the transaction

will flow to the Company.

(b) Interest income

Interest income is accrued on a time basis, by reference to the principal outstanding and at the

effective interest rate applicable.

- IIC-95 -


(c) Rendering of services

Company recognize revenue from contracts to render service when the amount of revenue

following the stages of completion can be measured reliably and when it is highly probable that the

economic benefits associated with the transaction will flow to the Company.

(d) Construction Contracts

Where the outcome of a construction contract can be estimated reliably, revenue and costs are

recognized by reference to the stage of completion of the contract activity at the end of the reporting

period, measured based on the proportion of contract costs incurred for work performed to date relative

to the estimated total contract costs, except where this would not be representative of the stage of

completion. Variations in contract work, claims and incentive payments are included to the extent that

the amount can be measured reliably and its receipt is considered probable.

Where the outcome of a construction contract cannot be estimated reliably, contract revenue is

recognized to the extent of contract costs incurred that it is probable will be recoverable. Contract costs

are recognized as expenses in the period in which they are incurred.

When it is probable that total contract costs will exceed total contract revenue, the expected loss

is recognized as an expense immediately.

(24) Current and deferred income tax

Income tax expense comprises current and deferred tax. Current tax and deferred tax are recognized in

profit or loss except to the extent that it relates to a business combination, or items recognized directly in equity

or in other comprehensive income.

(a) Current tax

Current tax is the expected tax payable or receivable on the taxable profit or loss for the year,

using tax rates enacted or substantively enacted at the end of the reporting period and any adjustment to

tax payable in respect of previous years. The taxable profit is different from the accounting profit for the

period since the taxable profit is calculated excluding the temporary differences, which will be taxable or

deductible in determining taxable profit (tax loss) of future periods, and non-taxable or non-deductible

items from the accounting profit.

(b) Deferred tax

Deferred tax is recognized, using the asset-liability method, in respect of temporary differences

between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts

used for taxation purposes. A deferred tax liability is recognized for all taxable temporary differences. A

deferred tax asset is recognized for all deductible temporary differences to the extent that it is probable

that taxable profit will be available against which they can be utilized. However, deferred tax is not

recognized for the following temporary differences: taxable temporary differences arising on the initial

recognition of goodwill, or the initial recognition of assets or liabilities in a transaction that is not a

business combination and that affects neither accounting profit or loss nor taxable income.

The Company recognizes a deferred tax liability for all taxable temporary differences associated

with investments in subsidiaries, associates, and interests in joint ventures, except to the extent that the

Company is able to control the timing of the reversal of the temporary difference and it is probable that

the temporary difference will not reverse in the foreseeable future. The Company recognizes a deferred

- IIC-96 -


tax asset for all deductible temporary differences arising from investments in subsidiaries and associates,

to the extent that it is probable that the temporary difference will reverse in the foreseeable future and

taxable profit will be available against which the temporary difference can be utilized.

The carrying amount of a deferred tax asset is reviewed at the end of each reporting period and

reduces the carrying amount to the extent that it is no longer probable that sufficient taxable profit will

be available to allow the benefit of part or all of that deferred tax asset to be utilized.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the

period when the asset is realized or the liability is settled, based on tax rates (and tax laws) that have

been enacted or substantively enacted by the end of the reporting period. The measurement of deferred

tax liabilities and deferred tax assets reflects the tax consequences that would follow from the manner in

which the Company expects, at the end of the reporting period to recover or settle the carrying amount

of its assets and liabilities.

Deferred tax assets and liabilities are offset only if there is a legally enforceable right to offset

the related current tax liabilities and assets, and they relate to income taxes levied by the same tax

authority and they intend to settle current tax liabilities and assets on a net basis.

(25) Earnings per share

Basic earnings per share is calculated by dividing the profit attributable to shareholders of the Company

by the weighted average number of ordinary shares in issue during the year. Diluted earnings per share is

calculated by dividing the profit attributable to shareholders of the Company by the weighted average number of

ordinary shares in issue and dilutive potential ordinary shares. Dilutive potential ordinary shares are included in

the calculation of diluted earnings per share when they have a dilutive effect on the basic earnings per share of

the Company.

3. FIRST-TIME ADOPTION OF K-IFRS

The Company’s financial statements were prepared in accordance with accounting principles generally accepted

in the Republic of Korea (“K-GAAP”). The Company determined to adopt International Financial Reporting Standards

(“IFRS”) for the annual periods beginning on or after 1 January 2011. These financial statements prepared in accordance

with K-IFRS and K-IFRS No. 1101 First-time Adoption of Korean International Financial Reporting Standards (“K-IFRS

No. 1101”) has been applied. The Company’s date of transition to K-IFRS is 1 January 2010.

Reconciliations and descriptions of the effect of the transition from K-GAAP to K-IFRS on the financial

position, financial performance, and cash flows of the Company is as follows

(1) The exemptions the Company adopted in accordance with K-IFRS No. 1101 First-time Adoption ofK-IFRS

K-IFRS No. 1101 permits those companies adopting K-IFRS for the first time certain exemptions from

the full requirements of K-IFRS in the transition period. The Company has taken the following key exemptions.

Business combination

Business combinations prior to the date of transition are not restated.

Deemed cost for property and equipment

The Company has elected to measure land at fair value as of 1 January 2010, (the date of

transition to IFRS) and uses that fair value as its deemed cost at that.

- IIC-97 -


Borrowing costs

The Company capitalizes borrowing costs that are directly attributable to the acquisition,

construction or production of a qualifying asset as part of the cost of that asset after the date of transition

to K-IFRS.

Investments in Subsidiaries and associates

The Company elected the deemed cost exemption to account for investments in subsidiaries and

associates in separate financial statements.

(2) The effects of the adoption of Korean IFRS on the financial position

(a) Effects of the Korean IFRS adoption on the Company’s total assets, liabilities and equity as of 1

January 2010, the date of Korean IFRS transition, are as follows:


Total assetsTotal

liabilities Equity


K-GAAP 19,593,127 1,482,993 18,110,134


obligation (*1) – (81,474) 81,474




Paid absences (*4) – 44,466 (44,466)

Tax-effect on adjustments (*5) – 80,593 (80,593)

329,328 43,585 285,743





(*4) Effects of paid absences (Recognizing the liability for unused annual leave regarding




- IIC-98 -


(b) Effects of the Korean IFRS adoption on the Company’s total assets, liabilities, equity as of 31

December 2010, are as follows:


Total assetsTotal

liabilities Equity


K-GAAP 21,557,462 2,191,175 19,366,287


obligation (*1) – (75,515) 75,515




Goodwill acquired as a result of

business combination (*4) 106,101 – 106,101

Paid absences (*5) – 46,688 (46,688)

Tax-effect on adjustments (*6) (33,319) – (33,319)

301,486 (28,827) 330,313






(*5) Effects of paid absence (Recognizing the liability for unused annual leave regarding




- IIC-99 -


(c) Effects of the Korean IFRS adoption on the Company’s profit and comprehensive income for the

year ended 31 December 2010, are as follows:


ProfitComprehensive

income

Reported amount under the previous K-GAAP 1,509,921 1,509,921

Adjustments for:Actuarial valuations of defined benefit obligation (*1) 45,585 5,380

Present value of deposits provided (*2) (12) (12)

Changes in depreciation methods of property, plant

and equipment (*3) (100,612) (100,612)

Goodwill acquired as a result of business combination

(*4) 106,101 106,101

paid absences (*5) (2,223) (2,223)

Tax-effect on adjustments (*6) (40,415) (311,115)

8,424 (302,481)

Adjusted amount under Korean IFRS 1,518,345 1,207,440





(*5) Effects of paid absence (Recognizing the liability for unused annual leave regarding




(d) Cash Flow Adjustments due to conversion into Korea International Financial Reporting

Standards

As per the K-IFRS, the cash flow details on related income (expenses) and related assets

(liabilities) were adjusted in order to separately disclose interest receivables, interest payables, dividend

income, and corporate tax in the Cash Flow Statement, items which were not separately disclosed under

the previous accounting standards. There are no other significant differences between the disclosed Cash

Flow Statement based on the K-IFRS and the previous Accounting Standards.

- IIC-100 -


(e) Effects of the adoption of K-IFRSs on the Company’s operating income

Operating gains and losses based on the previous accounting standards were calculated by gross

profit on sales less selling and administrative expenses, however, the operating gains and losses under

the K-IFRS were calculated by gross profit on sales less selling and administrative expenses, other

revenues, and other expenses.


2011 2010

K-GAAP Operating income (2,514,402) 591,757

Adjustment for:Reversal of allowance for doubtful accounts 6,923 19,640

Miscellaneous revenues 249,658 106,119

Impairment losses on investments – (100,000)

Other bad debt expenses (1,646) –

Donations (500) –

Miscellaneous losses (2,187) (10,947)

K-IFRS Operating income (2,262,154) 606,569


The Company’s operating segment is an identifiable component which operates business activities that create

profits and expenses. The decision making and performance evaluation of the resources to be allocated to the business

sector is based on internal reports reviewed regularly by the highest business decision maker to classify the sector. The

management board constructs the segmental reporting by integrating businesses with similar economic characteristics.

(1) Financial information by business segments

Assets and liabilities as of 31 December 2011 and 2010,and 1 January 2010, are as follows:


31 December 2011Finger Scan Landscaping Total

Assets 18,523,815 1,832,921 20,356,736

Liabilities 1,810,768 1,109,358 2,920,126

Equity 16,713,047 723,563 17,436,610


31 December 2010Finger Scan Landscaping Total

Assets 21,209,278 649,670 21,858,948

Liabilities 2,040,345 122,003 2,162,348

Equity 19,168,933 527,667 19,696,600

- IIC-101 -



1 January 2010Finger Scan Landscaping Total

Assets 19,922,455 – 19,922,455

Liabilities 1,526,578 – 1,526,578

Equity 18,395,877 – 18,395,877

(2) Operating income (loss) by business segments

Operating income and loss by category for the years ended 31 December 2011 and 2010, are as follows:


2011Finger Scan Landscaping Total

Sales 6,140,604 2,304,454 8,445,058

Operating income(loss) (2,457,280) 195,126 (2,262,154)

Financial income(loss) 448,504 769 449,273

Gains on disposal of associate – – –

Profit before income tax (2,272,284) 195,895 (2,076,389)


2010Finger Scan Landscaping Total

Sales 9,817,608 841,295 10,658,903

Operating income(loss) 532,662 73,907 606,569

Financial income(loss) 138,078 – 138,078

Gains on disposal of associate – – 161,795

Profit before income tax 832,535 73,907 906,442

(3) Geographical information for sales


2011 2010

South America 980,701 2,502,586

Asia 2,027,093 2,252,157

Middle East 861,300 954,826

Europe 204,377 470,904

Other 248,483 28,901

Korea 4,123,104 4,449,529

Total 8,445,058 10,658,903

- IIC-102 -


5. RISK MANAGEMENT


The Company’s objectives when managing capital are to safeguard the Company’s ability to continue as

a going concern in order to provide returns for shareholders and to maintain an optimal capital structure to

reduce the cost of capital. The Company monitors capital on the basis of the gearing ratio. This ratio is

calculated as net liabilities divided by total capital. Net liabilities are calculated as total liabilities less cash and

cash equivalents and other current financial instruments. Total capital is calculated as ‘equity’ as shown in the

statements. The Company’s overall capital risk management strategy remains unchanged from that of the prior

year.

The Company’s Net liabilities to equity ratio at the end of the reporting period were as follows:

In thousands of Korean won, except equity ratio

2011 2010

Borrowings – –

Other liabilities 2,920,126 2,162,348

Total liabilities 2,920,126 2,162,348

Less:

Cash and cash equivalents 8,716,335 5,075,175

Other current financial instruments 1,395,731 4,463,528

Net liabilities(Assets) (7,191,940) (7,376,355)

Total equity 17,436,610 19,696,600

Net liabilities to equity ratio on 31 December – –

(2) Financial risk management

The Company are exposed to various risks related to its financial instruments, such as, Liquidity risk,

credit risk, interest rate risk. The Company’s overall risk management program focuses on the unpredictability of

financial markets and seeks to minimize potential adverse effects on the Company’s financial performance. The

Company uses derivative financial instruments to hedge certain risk exposures. Risk management is carried out

by a central treasury department under policies approved by the board of directors. Company treasury identifies,

evaluates and hedges financial risks in close co-operation with the Company’s operating units. The Company’s

overall financial risk management strategy remains unchanged from the prior year.

Liquidity risk

Liquidity risk is the risk that the Company will encounter difficulty in meeting the obligations

associated with its financial liabilities that are settled by delivering cash or another financial asset. The

Company’s approach to managing liquidity is to ensure, as far as possible, that it will always have

sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without

incurring unacceptable losses or risking damage to the Company’s reputation.

The Company’s Finance team monitors rolling forecasts of the Company’s liquidity

requirements to ensure it has sufficient cash to meet operational needs. Such forecasting takes into

consideration the Company’s debt financing plans, covenant compliance, compliance with internal

statement of financial position ratio targets and, if applicable external regulatory or legal requirements,

for example, currency restrictions.

Contractually remaining expiries for non-derivative financial liabilities as of 31 December 2011

are as follows:

- IIC-103 -



Less than 1year

More than 1year Total

Trade payable and other payable 1,732,243 – 1,732,243

Financial guarantee 100,000 – 100,000

1,832,243 – 1,832,243

This table, based on undiscounted cash flow of the financial liabilities, has been completed

based on the earliest maturity date for the Company.

Credit risk

Credit risk is the risk of financial loss to the Company if a customer or counterparty to a

financial instrument fails to meet its contractual obligations, and arises principally from the Company’s

receivables from customers and investment securities.

The Company’s exposure to credit risk is influenced mainly by the individual characteristics of

each customer. However, management also considers the demographics of the Company’s customer

base, including the default risk of the industry and country in which customers operate, as these factors

may have an influence on credit risk, particularly in the currently deteriorating economic circumstances.

The Risk Management Committee has established a credit policy under which each new

customer is analyzed individually for creditworthiness before the Company’s standard payment and

delivery terms and conditions are offered. The Company’s review includes external ratings, when

available, and in some cases bank references. Purchase limits are established for each customer, which

represents the maximum open amount without requiring approval from the Risk Management

Committee; these limits are reviewed quarterly. Customers that fail to meet the Company’s

benchmark creditworthiness may transact with the Company only on a prepayment basis.

Book values of the financial assets represent the maximum exposed amounts of the credit risk


31 December2011

31 December2010

1 January2010

Trade and other receivables 2,294,217 4,751,087 4,177,643

Long term receivables 311,366 347,251 497,555

2,605,583 5,098,338 4,675,198

Interest rate risk

The Company is exposed to interest rate risk through changes in interest-bearing liabilities or

assets. The risk mainly arises from borrowings and financial deposits with variable interest rates linked

to market interest rate changes in the future. The objective of interest rate risk management lies in

maximizing corporate value by minimizing uncertainty caused by fluctuations in interest rates and

minimizing net interest expense.

If interest rates on borrowings with floating rates had been 1% higher or lower with all other

variables held constant, the impact on the gain or loss of the applicable period would be as follows:

- IIC-104 -



31 December 2011 31 December 2010 1 January 20101% increase 1% decrease 1% increase 1% decrease 1% increase 1% decrease

Interest expenses – – – – – –

Interest revenues (88,059) 88,059 (51,749) 51,749 (60,945) 60,945

Foreign exchange risk

Foreign exchange risk arises when future commercial transactions or recognized assets or

liabilities are denominated in a currency that is not the entity’s functional currency. The Company

operates internationally and is exposed to foreign exchange risk arising from various currency exposures,

primarily with respect to the US dollar. Management has set up a policy to require Company companies

to manage their foreign exchange risk against their functional currency.

Financial assets and liabilities that are outstanding to foreign exchange risk as of 31 December

2011 and 2010, and 1 January 2010, are as follows:


31 December 2011 31 December 2010 1 January 2010USD Korean USD Korean USD Korean

Cash and cash equivalents 318,616.38 367,460 420,000.81 482,711 102,884.61 120,128

Trade receivables 1,336,780.50 1,541,709 2,405,641.22 2,739,784 1,157,958.85 1,352,033

1,655,396.88 1,909,169 2,825,642.03 3,222,495 1,260,843.46 1,472,161

Effects of a 10% change in foreign currency to the Company’s functional currency on income

before income tax for the year ended 31 December 2011 are as follows.


Trade receivables Financial instruments Total10% increase 10% decrease 10% increase 10% decrease 10% increase 10% decrease

(USD)/Won 154,171 (154,171) 36,746 (36,746) 190,917 (190,917)

Sensitivity analysis above is conducted for monetary assets and liabilities denominated in foreign

currencies

Equity Price Risk

The Company’s investments in equity of other entities that are listed or unlisted stock. As of 31

December 2011 and 31 December 2010, fair value of equity securities is respectively W1,398 million

and W4,441 million. As of 31 December 2011 and 31 December 2010, the effects on other

comprehensive income would be increased/decreased by W14 million and W44 million, respectively.

The Company classifies fair value measurements using a fair value hierarchy that reflects the

significance of the inputs used in measurements.

üLevel 1: quoted prices (unadjusted) in active markets for identical assets or liabilities.

üLevel 2: inputs other than quoted prices included within Level 1 that are observable for the

asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices).

- IIC-105 -


üLevel 3: inputs for the asset or liability that are not based on observable market data

(unobservable inputs).

In the case of account receivables and other receivables, the approximation of the fair value is

assumed as the book value. Cost is assumed as the book value for share products in which the fair value

cannot be measured reliably and there is no market price notified in the active market.

Fair values of financial instruments by hierarchy level as of 31 December 2011, 31 December

2010 and 1 January 2010 are as follows:



Asset:


Available-for-sale financial assets 202,127 – 163,653 365,780

Held-to-maturity investments 18,888 – – 18,888

1,516,746 – 163,653 1,680,399

In the current year, the fair value measurement grade for the full amount of expired security

holdings and the cooperative equity investments amongst the available for sale securities was revised

from Level 3 to Level.



Asset:


Available-for-sale financial assets 78,000 – 296,547 374,547


4,441,528 – 314,223 4,755,751


1 January 2010Level 1 Level 2 Level 3 Total

Asset:

Short-term trading securities – – – –

Available-for-sale financial assets – – 557,812 557,812


– – 575,488 575,488

The fair value of financial instruments traded in active markets is based on quoted market prices

at the date of the end of reporting period. A market is regarded as active if quoted prices are readily and

regularly available from an exchange, dealer, broker, industry Company, pricing service, or regulatory

agency, and those represent actual and regularly occurring market transactions on an arm’s length basis.

- IIC-106 -


The quoted market price used for financial assets held by the Company is the bid price. These

instruments are included in level 1. Instruments included in level 1 comprise listed equity investments

classified as available-for-sale.

The fair value of financial instruments that are not traded in an active is determined by using

valuation techniques. These valuation techniques maximize the use of observable market data where it is

available and rely as little as possible on entity specific estimates. If all significant inputs required to fair

value of an instrument are observable, the instrument is included in level 2.

If one or more of the significant inputs are not based on observable market data, the instrument

is included in level 3.

6. CATEGORIES OF FINANCIAL INSTRUMENT

Categorization of financial instruments as of 31 December 2011 and 2010, and 1 January 2010, are as follows:


31 December 2011

Assets at fairvalue throughprofit and loss


Assetsclassified as

available-for-sale









1,295,731 11,421,918 365,780 18,888 13,102,317 13,102,317


31 December 2010



Assetsclassified as

available-for-sale









4,363,528 10,273,513 374,547 17,676 15,029,264 15,029,264

- IIC-107 -



1 January 2010



Assetsclassified as

available-for-sale



Short-term financial instruments – – – – – –






– 11,005,945 557,812 17,676 11,581,433 11,581,433




and loss




Others – – – –

– 1,732,243 1,732,243 1,732,243




and loss




Others – – – –

– 1,371,605 1,371,605 1,371,605

- IIC-108 -



1 January 2010Liabilities at


and loss



Trade and other payables – 872,848 872,848 872,848

Borrowings – – – –

– 872,848 872,848 872,848

7. INCOME AND LOSS OF FINANCIAL INSTRUMENTS BY CATEGORY

Income and loss of financial instruments by category for the years ended 31 December 2011 and 2010, are as

follows:


2011Assets atfair valuethrough

profit andloss


Assetsclassified as

available-for-sale


cost Total

Interest incomes – 305,905 – 1,212 307,117

Gain on disposal of Short-

term trading securities 451,199 – – – 451,199

Loss on disposal of Short-

term trading securities (278,879) – – – (278,879)

Valuation gains on Short-


Valuation losses on Short-


Loss on foreign currency

translation – (5,756) – – (5,756)

Gain on foreign currency

translation – 53,818 – – 53,818


transactions – (148,074) – – (148,074)


transactions – 164,337 – – 164,337

Dividends 57,142 – – – 57,142

Impairment losses

available-for-sale

financial assets – – – (31,245) (31,245)

Gain on valuation

available-for-sale


109,076 370,230 26,477 (30,033) 475,750

- IIC-109 -



2010Assets atfair valuethrough

profit andloss


Assetsclassified as

available-for-sale


cost Total

Interest incomes – 276,789 – – 276,789


Gain on disposal of Short-


Loss on disposal of Short-


Valuation losses on Short-



translation – (24,964) – – (24,964)


translation – 56,270 – – 56,270


transactions – (159,408) – – (159,408)


transactions – 123,087 – – 123,087

Loss on valuation

available-for-sale


(41,958) 271,774 (347,051) (91,738) (208,973)

8. CASH AND CASH EQUIVALENTS

Cash and cash equivalents as of 31 December 2011 and 2010, and 1 January 2010, are as follows:


31 December2011

31 December2010

1 January2010

Cash 10,460 239 236,208

Ordinary deposits 8,338,406 4,596,597 5,974,411

Foreign deposits 367,469 478,339 120,128

8,716,335 5,075,175 6,330,747

- IIC-110 -


9. FINANCIAL ASSETS

(1) Other financial assets as of 31 December 2011 and 2010, and 1 January 2010, are as follows:


31 December2011

31 December2010

1 January2010

Current

Short-term financial instruments (*) 100,000 100,000 –

Short-term trading securities 1,295,731 4,363,528 –

1,395,731 4,463,528 –

Non-current

Available-for-sale securities 365,780 374,547 557,812

Held-to-maturity securities 18,888 17,676 17,676

384,668 392,223 575,488

(*) Short-term financial instruments is restricted by KB corporate credit cards deposit

- IIC-111 -


(2) Securities as of 31 December 2011 and 2010, are as follows:


31 December 2011



<Short-term trading securities>SK Innovation Co.,Ltd Marketable equity 374,542 284,000 284,000

Celltrion, Inc. Marketable equity 900,882 868,441 868,441

BH Co.,Ltd Marketable equity 140,693 143,290 143,290

1,416,117 1,295,731 1,295,731





Artplace Co.,Ltd)







1,886,406 365,780 365,780


17,676 18,888 18,888

In regards to available-for-sale securities which cannot be reliably measured and an active transaction

market does not exist, or the difference between the fair value and acquisition cost of the securities is not

material, the acquisition cost of unlisted stocks have been measured based on fair value. Amongst the available-

for-sale assets, the net asset book value or recoverable value of the available-for-sale assets at SecuGen Japan

and Inkecorporation Co.,Ltd. have noticeably decreased and based on the judgment that the possibility of

recovery in the future was uncertain, KRW31,245 thousands was recognized as available-for-sale asset

impairment loss.

- IIC-112 -



31 December 2010



<Short-term trading securities>Samsung Life Insurance Co.,Ltd Marketable equity 4,552,150 4,363,528 4,363,528

4,552,150 4,363,528 4,363,528


SecuGen Japan Non-marketable equity 909,746 30,245 30,245

Inkecorporation Co.,Ltd Non-marketable equity 1,000 1,000 1,000


Artplace Co.,Ltd)







LEDLIC Equity in partnership 4,000 4,000 4,000

1,890,406 374,547 374,547


17,676 17,676 17,676

(3) The changes in Short-term trading securities and Available-for-sale securities as of 31 December 2011



2011 2010Short-term

held fortrading

investmentsAvailable-for-sale securities


Short-termheld fortrading

investmentsAvailable-for-sale securities


Beginning 4,363,528 374,547 17,676 – 557,812 17,676

Acquisition 6,956,278 – – 8,673,883 163,786 –

Valuation(*) (120,387) 26,477 1,212 (188,623) (347,051) –

Impairment – (35,245) – – – –

Disposal (9,903,688) – – (4,121,732) – –

Ending 1,295,731 365,779 18,888 4,363,528 374,547 17,676

The gains and losses from the evaluation of available-for-sale securities are amounts prior to reflecting

the corporate tax effects.

- IIC-113 -


(4) The highest credit risk exposure as at the reporting date is the fair value of the financial assets.

10. INVENTORIES

Inventories as of 31 December 2011 and 2010, and 1 January 2010, are as follows:


31 December2011

31 December2010

1 January2010

Finished goods 1,011,790 425,874 474,842

Less: provision for finished goods (203,805) (71,844) (103,766)

Raw materials 2,519,302 2,422,441 1,864,854

Less: provision for raw materials (841,214) (765,965) (755,226)

2,486,073 2,010,506 1,480,704

Changes in provision for valuation of inventories for the years ended 31 December 2011 and 2010, are as

follows:


2011 2010

Beginning 837,809 858,992

Reversal of losses on valuation of inventories (837,809) (858,992)

Losses on valuation of inventories 1,045,019 837,809

Ending 1,045,019 837,809

- IIC-114 -


11. TRADE AND OTHER RECEIVABLES

(1) Trade receivables, net of allowance for doubtful accounts, as of 31 December 2011 and 2010 and 1

January 2010, are as follows:


31 December2011

31 December2010

1 January2010

Current

Short-term loans 300,000 303,700 2,873,700


Trade receivables 2,073,618 4,790,261 2,816,879

Less: allowance for doubtful accounts (710,561) (866,256) (856,362)

Receivables from Construction Contracts 155,935 329,689 –

Non-trade receivables 435,359 191,010 51,015

Less: allowance for doubtful accounts (14,360) (16,066) (471)

Accrued revenues 54,226 21,786 110,066

Less: allowance for accrued revenues – – (26,147)

2,294,217 4,751,087 4,177,643

Non-current

Leasehold deposits provided 289,100 175,100 305,100

Less: present value discounts,

leasehold deposits provided (7,250) (7,885) (16,081)

Other deposits provided 29,516 8,536 8,536

Long-term other receivables – 216,468 216,468


Less: Present value discounts,

long-term other receivables – (31,551) (31,551)

Long-term advance payments – 171,500 200,000

311,366 347,251 497,555

The fair value of non-current account receivables and other receivables was measured by discounting the

future expected nominal cash inflow by an appropriate discount rate which takes the asset’s characteristics into

consideration.

(2) Allowance for doubtful accounts, as of 31 December 2011 and 2010 and 1 January 2010, are as follows:


31 December2011

31 December2010

1 January2010

Trade receivables 710,561 866,256 856,362

Non-trade receivables 14,360 16,066 471

Accrued revenues – – 26,147

Short-term loans – 3,037 791,037

724,921 885,359 1,674,017

- IIC-115 -


(3) Change in allowance for bad debts of trade and other receivables for the years ended 31 December 2011



31 December2011

31 December2010

Beginning 885,359 1,674,017

Provision for receivables impairment 377,430 99,681


Write-off (530,945) (810,677)

Ending 724,921 885,359

In regards to account receivables, the Company measures the estimated bad debt based on historical bad

debt experience and individual analysis to provide as allowance for bad debts. There is no concentration of

essential credit risk apart from foreign export receivables which are diversified amongst multiple clients.

(4) Aging analysis of trade receivables as of 31 December 2011 and 2010, and 1 January 2010, follows:


31 December2011

31 December2010

1 January2010

Under 3 months 533,221 2,508,409 1,502,804

3 months to 1 year 1,259,122 1,629,435 626,196

Over one year 281,275 652,417 687,879

2,073,618 4,790,261 2,816,879

12. OTHER NON-CURRENT ASSETS

Other non-current assets as of 31 December 2011 and 2010, are as follows:


31 December2011

31 December2010

1 January2010

Advance payments 154,583 25,749 147,573

Prepaid expenses 15,357 14,532 22,080

169,940 40,281 169,653

- IIC-116 -


13. TANGIBLE ASSETS




Land 327,688 – – – 327,688

Buildings 578,703 – – 19,856 558,847



Vehicles 143,237 – – 70,021 73,216

Tools and instruments 24,566 690 – 7,586 17,670

Furniture & Fixtures 71,817 29,742 – 40,674 60,885

Government subsidies (2,914) – – (2,435) (479)

Mould 211,354 82,000 – 70,939 222,415

Computation equipment 125,358 11,420 – 120,351 16,427

1,538,479 150,202 – 350,519 1,338,162




Land 327,688 – – – 327,688

Buildings 598,559 – – 19,856 578,703



Vehicles 213,258 – – 70,021 143,237

Tools and instruments 28,379 1,696 – 5,508 24,566

Government subsidies (2,971) – – (2,971) –

Furniture & Fixtures 127,477 17,595 – 73,255 71,817

Government subsidies (22,598) – – (19,684) (2,914)

Mould 157,426 122,200 – 68,274 211,353

Computation equipment 272,155 – – 146,797 125,358

1,780,098 142,491 – 384,110 1,538,479

(3) The appraised value of land held by the Company (Area 171.82m², Book value of KRW327,688

thousand) is KRW558,448 thousand and KRW506,899 thousand for the previous and current year

respectively. There are no capitalized amounts from borrowing costs in relation to tangible assets in the

current and previous year.

(4) As at the end of the current year, the Company is insured to KRW2,500 million and KRW652 million

worth of fire insurance in respect to its inventory assets and tangible assets respectively at Meritz Fire &

Marine Insurance Co,. Furthermore, the Company is insured to employee accident insurance and full

insurance coverage on motor vehicles.

- IIC-117 -








Beginning 271,682 38,300 339,800 106,101 796,739 1,408 1,554,030

Acquisition – – (25,000) – – 3,250 (21,750)

Increase – – – – 1,038,249 – 1,038,249

Construction in progress(out) – – – – (581,144) – (581,144)

Construction in progress(in) 581,144 – – – – – 581,144

Amortization (423,360) (9,344) – – – (1,017) (433,721)

Ending 429,466 28,956 314,800 106,101 1,253,845 3,640 2,136,808






Beginning 658,258 48,765 339,800 – – 3,322 1,050,146

Acquisition – – – 106,101 796,739 – 902,840

Increase – – – – – – –

Construction in progress(out) – – – – – – –

Construction in progress(in) – – – – – – –

Amortization (386,576) (10,465) – – – (1,915) (398,956)

Ending 271,682 38,300 339,800 106,101 796,739 1,408 1,554,030

(3) The ordinary research and development expense in relation to research and development activities in the

current and previous year is KRW204,935 thousand and KRW380,918 thousand respectively.


(1) Changes in investment property as of 31 December 2011 and 2010 are as follows:


31 December2011

31 December2010


Acquisition – 138,839

Disposal – –

Ending 138,839 138,839

- IIC-118 -


(2) There was no income arising from investment property in the current and previous year, and the

appraised value of the investment property held as at the end of the reporting period is KRW111,605

thousand.

16. INVESTMENT IN ASSOCIATE

(1) Investment in associate of 31 December 2011 and 2010, and 1 January 2010, follows:


31 December 201131 December

20101 January

2010Percentage ofOwnership(%) No. of shares

Acquisitioncost Book Value Book Value Book Value

RIA Soft Co., Ltd. (*) 100% 10,000 3,000,000 587,792 – 1,354,617

MK Electron (H.K.)

(**) 48% 2,000,000 – – – 2,454,402

3,000,000 587,792 – 3,809,019

(*) The available-for-sale non-current assets at the end of the previous year end were reclassified as

subsidiary and related company investment shares during the current term. KRW1,300,000

which related to the fair value of the financial guarantee contract for the Company’s subsidiary,

RIA Soft Ltd was deemed as additional investment share and appropriated as subsidiary

investment shares and financial guarantee contract liability.

(**) During the previous year, all of MK Electron (H.K.) shares were sold to MK Electron Co., Ltd..

(2) Changes in the investment in associate for years ended 31 December 2011 and 2010 are as follows:


2011 2010

Beginning – 3,809,019

Acquisition – –

Transfer of non-current assets held for sale – (850,000)

Reclassification of Investment in associate 850,000 –

Impairment losses (263,508) (504,617)

Fair value of financial guarantee contract 1,300 –

Disposal – (2,454,402)

Ending 587,792 –

The Company estimated that the above investment share book value would exceed the recoverable

amount and recognized the difference in loss. The recoverable amount was determined based on the value in use

continuously applied by the Company. The value in use was determined by considering the profits (intrinsic

value evaluation method) expected from continuous use of the asset and a 10% discount rate was applied on the

value in use for the current and previous year respectively.

- IIC-119 -


(3) Gains on the investment in associate for years ended 31 December 2011 and 2010 are as follows:


2011 2010

Impairment Losses on Investments (263,508) (504,617)

Gains on disposition of investments – 666,412

(263,508) 161,795

(4) Summary of financial information of the associate for years ended 31 December 2011 and 2010 are as

follows:


Assets Liabilities RevenueOperating

income Net income

RIA Soft Co., Ltd.(*)

31 December 2011 980,853 1,008,587 2,123,613 (459,374) (415,750)

31 December 2010 1,370,641 999,425 1,650,077 130,044 144,585

1 January 2010 1,143,252 908,373 2,075,633 41,908 59,890

MK Electron (H.K.)

1 January 2010 4,660,330 6,772 – (28,521) (28,518)

17. TRADE AND OTHER PAYABLES, OTHER CURRENT LIABILITIES

(1) Trade and other payables as of 31 December 2011 and 2010, and 1 January 2010, are as follows:


31 December2011

31 December2010

1 January2010

Trade payables 678,717 1,074,339 570,072

Non-trade payables 930,200 171,514 181,764

Accrued expenses 114,850 118,850 107,372

Withholdings 8,476 6,902 13,640

1,732,243 1,371,605 872,848

(2) Other current liabilities as of 31 December 2011 and 2010, and 1 January 2010, are as follows:


31 December2011

31 December2010

1 January2010

Advances from customers 102,743 1,695 5,554

Unearned revenue – – 2,230

Current portion of long-term payables – – 30,600

Advances from construction 167,140 86,613 –

269,883 88,308 38,384

- IIC-120 -


18. DEFINED BENEFIT OBLIGATION

The Company operates a Defined Benefit Plan as its Retirement Plan for employees. According to the Defined

Benefit Plan, the average of the final three months’ salaries per year multiplied by the payment rate should be paid upon

the employee’s retirement. The actuarial evaluation of the defined benefit liability was performed by a qualified

independent actuary using the Projected Unit Credit Method.

(1) The amounts recognized in the statements of financial position are determined as follows:


31 December2011

31 December2010

1 January2010

Present value of defined benefit liability 918,035 703,209 519,282

Fair value of plan assets (1,335) (1,302) (1,258)

Liabilities on financial statements 916,700 701,907 518,024

(2) Changes in defined benefit liability for the years ended 31 December 2011 and 2010, are as follows:


2011 2010

Beginning 703,209 519,282



Actuarial loss on defined benefit liability 45,827 51,541

Benefits paid (61,821) (75,693)

Ending 918,035 703,209

(3) Changes in fair value of plan assets as of 31 December 2011 and 2010, are as follows:


2011 2010



Benefits paid – –

Actuarial gain on defined benefit liability (11) (3)

Ending 1,335 1,302

- IIC-121 -


(4) The amounts recognized in the statements of comprehensive income as of 31 December 2011 and 2010,

are as follows:


2011 2010




230,776 208,032


31 December2011

31 December2010

Discount rate (%) 4.76% 5.42%

Expected rate of return (%) 3.52% 3.52%

Future salary increase (%) 5.00% 5.00%

In order to calculate the present value of the defined benefit liability, the market profitability ratio of

outstanding corporate bonds which were consistent with the expected payment period of the defined benefit

liability as at the end of the reporting period was used as a reference for decision making.

19. SHARE-BASED PAYMENT

Based on the resolution of the Shareholders’ general meeting held on 29 March 2010, the Company bestowed

share options to its employees. The main details are as follows

(1) Share type to be issued as share options: Registered ordinary shares.

(2) Method of bestowment: An exercise method determined by the board of directors amongst issuance of

new shares and issuance of treasury stock methods.

(3) Number of shares to be bestowed as share options and exercise price per share are follows:

2010

Quantity of stock to be issued 1,000,000 shares

Exercise price per share W590

Date of grant 29 March 2010

Exercisable period from the date of the grant1 9 years

1 The options can be fully vested after two years from the date of grant.

- IIC-122 -


(4) The compensation cost in regards to call options was calculated by applying the fair-value method. The

methods used for the calculation and the assumptions are as the following.

Major Assumptions

Annual risk-free interest rate 3.84%



Expected dividend yield 0.00%

(5) The amount to be recognized as expenses in the current due to the granting of share options and the

compensation cost to be recognized as expenses after the current year are as the following.


2011

Prior to the current year 93,282

Current year 122,917

After the current year 29,972

Total compensation costs 246,171

(6) Changes in stock options recognized as the equity for the years ended 31 December 2011 and 2010, are

as follows:


2011 2010




Ending 216,199 93,282

20. EQUITY

(1) Capital stock as of 31 December 2011 and 2010, and 1 January 2010, are as follows:

(in Korean won)

31 December 2011 31 December 2010 1 January 2010

Authorized shares to issue 100,000,000 shares 100,000,000 shares 100,000,000 shares

Issued shares 35,400,316 shares 35,400,316 shares 35,400,316 shares

par value per share 500 500 500

Common stock 17,700,158,000 17,700,158,000 17,700,158,000

- IIC-123 -


(2) Capital surplus as of 31 December 2011 and 2010, and 1 January 2010, are as follows:


31 December2011

31 December2010

1 January2010

Additional Paid-in Capital 1,379,564 1,379,564 1,379,564

Gains on Capital Reduction 3,515,143 3,515,143 7,301,372

4,894,707 4,894,707 8,680,936

(3) Other components of equity as of 31 December 2011 and 2010, and 1 January 2010, are as follows:


31 December2011

31 December2010

1 January2010

Losses on sale of treasury stock (4,484,730) (4,484,730) (4,484,730)

Stock option 216,200 93,282 –

Losses on valuation of available-for-sale

financial assets (270,700) (270,700) –

Gains on valuation of available-for-sale

financial assets 20,652 – –

(4,518,578) (4,662,148) (4,484,730)

(4) The appropriation of retained earnings for the years ended 31 December 2011 and 2010, is as follows:


2011 2010

Unappropriated retained earnings

Unappropriated retained earnings carried over from prior year 1,763,883 –

Effects of KIFRS adoption – 285,742

Actuarial gains and losses (35,753) (40,204)

Net income(loss) (2,367,807) 1,518,345

Total (639,677) 1,763,883

Unappropriated retained earnings carried over to succeeding

year (639,677) 1,763,883

The expected date of the disposal of deficits for the current year is 30 March 2012 and the disposition

confirmation date of the prior year’s retained earnings is 28 March. The conversion effects of adopting the K-

IFRS have been reflected. The financial statements currently as at 31 March 2011 or for the accounting period

ending on the aforementioned date have been in fact approved by the board of directors on 8 March 2012.

- IIC-124 -


21. CONSTRUCTION CONTRACTS, SALES AND COST OF SALES

(1) The changes of construction contracts as of 31 December 2011 and 2010, are as follows:


2011 2010

Beginning Balance 5,776,565 –

Increase 531,174 6,617,860

Changing of Contracts 100,439 –

Construction Revenue (2,304,454) (841,295)

Ending Balance 4,103,724 5,776,565

(2) Cumulative construction and cumulative gain or loss as of 31 December 2011 and 2010, are as follows:


2011 2010

Domestic construction

Accumulative construction revenue 3,145,749 841,295

Accumulative construction cost 2,887,730 767,317

Net gross profit 258,019 73,978

(3) Receivables and advances from in-progress construction contracts as of 31 December 2011 and 2010, are

as follows:


Advances Receivables from construction contractsOverbilled Billed Unbilled Total

31 December 2011 167,140 – 155,934 155,934

31 December 2010 86,614 68,780 260,909 329,689

(4) Sales

Sales for the years ended 31 December 2011 and 2010, are as follows:


31 December2011

31 December2010

Sales – finished goods 5,334,796 9,207,999

Sales – merchandise 730,520 514,262

Sales – services 75,289 95,347

Sales – landscaping 2,304,453 841,295

8,445,058 10,658,903

- IIC-125 -


(5) Cost of Sales

Cost of sales for the years ended 31 December 2011 and 2010, are as follows:


31 December2011

31 December2010

Cost of sales – finished goods 3,842,361 4,924,335

Cost of sales – merchandise 690,663 502,375

Cost of sales – services 51,798 70,187

Cost of sales – landscaping 2,120,413 767,318

6,705,235 6,264,215


(1) The balances of significant transactions with related parties as of 31 December 2011 and 2010, are as

follows:


2011 2010Related parties Receivables Payables Receivables Payables

Parent company Ocean B Holdings – – – 46,748

Subsidiaries RIA Soft Co., Ltd 495,149 – 192,873 –

Others Shinsung Engineering &

Construction Co., Ltd

370,620 63,782 329,689 86,614

The above receivables and debt includes completion progress amounts. The Company does not have any

bad debt allowance established in relation to related parties as at the end of the reporting period.

(2) Significant transactions with related parties for the years ended 31 December 2011 and 2010, are as

follows:


2011 2010

Related parties Sales, etcPurchase,

etc. Sales, etcPurchase,

etc.

Parent company Ocean B Holdings 3,086,712 3,120,000 – –

Subsidiaries RIA Soft Co., Ltd 353,236 30,000 920,258 1,040,593

Others Shinsung Engineering &


5,671,330 3,550,000 2,352,473 1,500,000

Others Balhae Civil &

Architecture Co., Ltd

2,434,652 2,400,000 – –

Others Jeongam Engineering &


103,516 100,000 – –

Others Global Construction Co.,

Ltd

– – 2,543,082 2,500,000

Others MK Electron (H.K.) 21,290 – – –

- IIC-126 -


The Company provides payment guarantee of KRW100 million in regards to the financial loans of RIA

Soft Co., Ltd. KRW1,300,000 which related to the fair value of the financial guarantee contract for the

Company’s subsidiary, RIA Soft Co., Ltd. was deemed as additional investment share and appropriated as

subsidiary investment shares and financial guarantee contract liability.

(3) The compensation amount per classification on the current and previous year’s main management board

and the total compensation amount are as the following. The main management board includes directors

(non-executive directors included) who have important rights and responsibilities on the planning,

operation, and control of the Company’s activities and the auditors.


2011 2010

Salaries expenses 281,450 236,700


Compensation associated with Stock Option 122,917 93,282

562,147 466,741

23. CASH GENERATED FROM OPERATIONS

(1) Reconciliation between operating profit and net cash inflow (outflow) from operating activities as for the

years ended 31 December 2011 and 2010, are as follows:


2011 2010

Profit for the period (2,367,807) 1,518,345

Adjustments:Compensation associated with Stock Option 122,917 93,282Depreciation 350,519 384,110Amortization 433,721 398,956Provision for severance indemnities 230,778 208,032Write-downs of intangible assets 263,508 504,617Bad debt expenses 377,430 99,681Other bad debts expense 1,646 –

Losses on foreign currency translation 5,307 20,424Losses on valuation of trading securities 122,983 188,623Losses on disposal of trading securities 278,879 123,841Interest expenses – 91,738Loss on impairment of securities available for sale 31,245 –

Loss on impairment of investments – 100,000Dues 4,000 –

Gains on foreign currency translation (53,199) (2,121)Reversal of allowance for doubtful accounts (6,923) (19,640)Gain on disposal of trading securities (451,199) (270,506)Gain on valuation of trading securities (2,597) –

Interest revenues (307,118) (276,789)Gain on disposal of Equity-method Investments – (666,412)Dividend income (57,142) –

Sub Total 1,344,755 977,836

- IIC-127 -



2011 2010

Changes in operating assets and liabilities:

Decrease(Increase) in trade receivables 2,234,843 (2,842,081)

Decrease(Increase) in receivables from Construction Contracts 173,755 (329,689)

Increase in non-trade receivables (105,749) (139,995)

Decrease(Increase) in advance payments (128,834) 121,825

Decrease(Increase) in prepaid expenses (825) 7,546

Decrease(Increase) in income tax refund receivables 13,585 (27,148)

Decrease(Increase) in deferred Income tax assets 291,418 (531,309)

Increase in inventories (475,567) (529,801)

Decrease in deferred long-term advance payments 30,000 28,500

Increase in trade payables (395,622) 504,267

Decrease in non-trade payables 758,686 (10,250)

Decrease in advances from customers 101,048 (3,860)

Increase in withholdings 1,577 (6,737)

Decrease in unearned revenues – (2,229)

Increase(Decrease) in accrued expenses (4,000) 11,478

Increase in advances from construction contracts 80,526 86,613

Decrease in current portion of long-term non-trade payables – (30,600)

Decrease in deferred Income tax liabilities – (80,594)

Decrease in long-term non-trade payables – (16,200)

Payments for Severance Benefits (61,822) (75,694)

Sub Total 2,513,019 (3,865,958)

Cash generated from operations 1,489,967 (1,369,777)

(2) Significant transactions not affecting cash flows for the years ended 31 December 2011 and 2010, are as

follows:


2011 2010

Transfer of non-trade receivables of long-term prepaid

expenses 141,500 –

Transfer of development costs of construction in progress 581,144 –

Losses on trade securities 20,652 347,051

Goodwill for business combination – 106,101

Actuarial gains or losses on defined benefit plans 35,753 40,205

- IIC-128 -



Selling and administrative expenses for the years ended 31 December 2011 and 2010, are as follows:


2011 2010

Salaries 1,137,152 944,553



Other employee benefits 218,864 231,863

Travel 74,640 93,116


Communication 28,209 30,254

Utility 1,265 2,000

Taxes and dues 31,962 12,591



Development expense 204,935 380,919

Rental 214,625 223,714


Vehicles maintenance 18,408 23,056

Freight 123,879 109,692

Publication 3,286 4,254

Supplies 14,237 11,817

Service fees 485,843 422,292



Training expense 1,640 1,520

Repairs 1,407 3,561


4,254,225 3,802,931

25. OTHER INCOME AND EXPENSE, FINANCIAL INCOME AND COSTS

(1) Other income and expense for the years ended 31 December 2011 and 2010, are as follows:


2011 2010

Other incomeReversal of allowance for doubtful accounts 6,923 19,640

Miscellaneous revenue 249,659 106,119

256,582 125,759

- IIC-129 -



2011 2010

Other expenseLoss on impairment of investment assets – 100,000


Donations 500 –

Miscellaneous loss 2,188 10,947

4,334 110,947

(2) Financial income and costs for the years ended 31 December 2011 and 2010, are as follows:


2011 2010

Financial incomeInterest income 307,117 276,789

Gain on foreign currency transactions 164,336 123,087


Dividend income 57,142 –

Gain on sale of Short-term trading securities 451,199 270,506

Gain on valuation of Short-term trading securities 2,597 –

1,036,209 726,652

Financial costsInterest expense – 91,738

Loss on foreign currency transactions 148,073 159,408


Loss on valuation of Short-term trading securities 122,983 188,623

Loss on sale of Short-term trading securities 278,879 123,841

Loss on impairment of available-for-sale securities 31,245 –

586,936 588,574


(1) Income tax expense for the years ended 31 December 2011 and 2010 consists of:


2011 2010

Current income taxes – –

Deferred income tax due to temporary differences 287,159 (699,594)

Deferred income tax charged to equity 4,259 87,691

Income tax expenses 291,418 (611,903)

- IIC-130 -


(2) Reconciliation between net income before tax and income tax expense for the years ended 31 December

2011 and 2010, are as follows:


2011 2010

Profit before income tax (2,076,389) 906,442

Tax rate 24.2% 24.2%

Income tax based on statutory rate (502,486) 219,359

Adjustment

Tax credit 58,085 69,127

Deferred tax effective 734,541 (901,910)

Others 1,278 1,521

Income tax expense 291,418 (611,903)

Effective tax rate1 – –

1 Income tax expense ÷ Profit before income tax

- IIC-131 -


(3) Change in cumulative temporary differences for the year ended 31 December 2011, and deferred income

tax assets and liabilities as of 31 December 2011 and 2010, are as follows:


2011

Temporary differencesDeferred tax

assets(liabilities)

BeginningIncrease


Accrued income (413) (164) (577) (91) (127)


inventories 837,809 207,209 1,045,018 184,318 229,904



method investments 941,959 (1,300) 940,659 207,231 206,945


investments 1,208,041 263,508 1,471,549 265,769 323,741

Trading securities 188,623 (68,236) 120,387 41,497 26,485

Impairment loss on investments 100,000 – 100,000 22,000 22,000


translation 24,964 (24,964) – 5,492 –


translation (56,270) 56,270 – (12,379) –

Allowance for doubtful accounts 986,441 (35,829) 950,612 217,017 209,135


Goodwill 106,101 (106,101) – 23,342 –

Other Intangible assets 6,251 – 6,251 1,375 1,375

Retirement insurance deposit (1,258) (78) (1,336) (277) (294)



Financial guarantee contract – 1,300 1,300 – 286

Depreciation (228,718) 228,718 – (50,318) –

Patents 1,941 (782) 1,159 427 255

Development costs 94,395 (417) 93,978 20,767 20,675

9,280,893 869,065 10,149,958 2,041,796 2,232,990



Effects of Korean-IFRS adoption (33,317) –

Deferred tax assets(liabilities), net 619,000 331,841

- IIC-132 -



2010

Temporary differencesDeferred tax

assets(liabilities)

BeginningIncrease


Accrued income (11,434) 11,021 (413) (2,515) (91)


inventories 858,992 (21,183) 837,809 188,978 184,318



method investments 508,235 433,725 941,960 111,812 207,231


investments 1,137,148 70,892 1,208,040 250,173 265,769

Trading securities – 188,623 188,623 – 41,497

Impairment loss on investments – 100,000 100,000 – 22,000


translation 67,810 (42,846) 24,964 14,918 5,492


translation (1,929) (54,341) (56,270) (424) (12,379)

Allowance for doubtful accounts 1,789,519 (803,078) 986,441 393,694 217,017


Goodwill – 106,101 106,101 – 23,342

Other Intangible assets 7,708 (1,457) 6,251 1,696 1,375




Depreciation (329,330) 100,612 (228,718) (72,453) (50,318)

Patents 1,941 – 1,941 427 427

Development costs 150,374 (55,978) 94,396 33,082 20,767

7,935,933 1,344,960 9,280,893 1,745,906 2,041,796



Effects of Korean-IFRS adoption (80,594) (33,317)

Deferred tax assets(liabilities), net (80,594) 619,000

Deferred tax assets and liabilities are offset only if there is a legally enforceable right to offset the

related current tax liabilities and assets, and they relate to income taxes levied by the same tax authority and they

intend to settle current tax liabilities and assets on a net basis. Deferred income tax assets related to the

deductible temporary differences arising on investment in subsidiaries and associates did not recognize as the

temporary difference will not reverse in the foreseeable future. Other deferred income tax assets recognized to

the extent that the realization of the related tax benefit through future taxable profits is probable.

- IIC-133 -


(4) Deferred income taxes charged directly to the equity as of 31 December 2011 and 2010, are as follows:


2011 2010

Fair value gains from available-for-sale financial assets (5,825) –

Fair value losses from available-for-sale financial assets – 76,351

Actuarial loss on retirement benefit obligations 10,084 11,340

4,259 87,691

27. COMMITMENTS AND CONTINGENCIES

(1) When supplying to public institutions in regards to security solutions and construction contracts, the

Company performs government and public work through bidding. Due to the related performance

guarantees etc, the Company receives payment guarantee worth KRW130 million from Seoul Guarantee

Insurance Co., Ltd. Furthermore, savings of KRW1.5 million are deposited as security deposit for

performance guarantee purposes to Seoul Guarantee Insurance Co., Ltd in regards to the fingerprint

verification security solution to be provided for the persons in charge at the Korean Federation of

Community Credit Cooperatives.

(2) The Company shares held by Shinsung Engineering & Construction Co., Ltd in the previous year were

sold to Ocean Be Holdings Co., Ltd to change the holding company. Based on the Financial Supervisory

Service’s decision following the Capital Market and Financial investment Business Act in regards to the

current year’s share transaction, Shinsung Engineering & Construction Co., Ltd’s surrender value on

short-term transaction profits worth KRW215 million was recognized as other revenues.


Expenses that are recorded by nature for the years ended 31 December 2011 and 2010, are as follows:


2011 2010

Changes in inventories 1,710,936 3,604,640

Employee benefits 2,700,196 2,095,270


Depreciation expenses 784,240 783,065

Impairment losses/Bad debt expenses 377,430 99,681

Freight expenses 168,698 142,280

Outsourcing fees/Rental 1,254,427 1,109,439

Service fees 636,388 608,193

Construction expenses 1,664,294 –

Commission of equipment lease 76,980 60,390

Other expenses 1,462,954 1,470,906

Total1 10,959,460 10,067,146

1 The amount is the same as the total of cost of sales, selling and administrative expenses

- IIC-134 -



Basic earnings per share for the years ended 31 December 2011 and 2010, are as follows:

2011 2010

Profit attributable to equity holders of the company (2,367,806,762) 1,518,344,900

Weighted-average number of common stock outstanding 35,400,316 35,400,316

Basic earnings per share (67) 43

Diluted earnings per share is calculated by adjusting the weighted average number of ordinary shares outstanding

to assume conversion of all dilutive potential ordinary shares. The Company has one category of dilutive potential

ordinary shares: Stock option. The number of shares calculated as above is compared with the number of shares that

would have been issued assuming the exercise of the stock option. Diluted earnings per share equal to basic earnings per

share of each years as there is no any dilutive effect.

30. BUSINESS PERFORMANCE OF THE FINAL INTERIM PERIOD

The business performance for the 4th quarter which is the final interim period for the current and previous year

is as the following.


2011 2010

Sales 1,671,297 3,884,732

Operating income(loss) (1,633,245) (155,287)

Profit for the year (1,854,278) 571,152

- IIC-135 -




Phone : 82-2-761-9800 Faxne : 82-2-761-2794

Internal Accounting Control System Review Report

Representative DirectorNITGEN&COMPANY CO., LTD.

We have reviewed the accompanying management’s report on the operations of the internalaccounting control system (“IACS”) of NITGEN&COMPANY CO., LTD. (the “Company”) as of 31December 2011. The Company’s management is responsible for design and operations of its IACS,including the reporting of its operations. Our responsibility is to review the management’s IACS reportand issue a report based on our review. The management’s report on the operations of the IACS of theCompany states that “based on its assessment of the operations of the IACS as of 31 December 2011,the Company’s IACS has been effectively designed and has operated as of 31 December 2011, in allmaterial respects, in accordance with the IACS standards established by the IACS OperationsCommittee.”

We conducted our review in accordance with the IACS review standards established by theKorean Institute of Certified Public Accountants. These standards require that we plan and perform ourreview to obtain less assurance than an audit as to management’s report on the operations of the IACS.A review includes the procedures of obtaining an understanding of the IACS, inquiring as tomanagement’s report on the operations of the IACS and performing a review of related documentationwithin limited scope, if necessary. However, as a listed small and medium sized company, theestablishment and operation of the management’s internal accounting management system and theevaluation reporting on the system’s operation status were performed in a noticeably modified methodcompared to listed large companies in accordance to Article 5 ‘Application of Small and Medium SizeCompanies’ of IACS. Accordingly, we conducted our review based on 14. Review exemptions onSmall and Medium Sized companies etc of the IACS standards.

A company’s IACS consists of an establishment of related policies and organization to ensurethat it is designed to provide reasonable assurance on the reliability of financial reporting and thepreparation of financial statements for external financial reporting purposes in accordance withaccounting principles generally accepted in the Republic of Korea. However, because of its inherentlimitations, the IACS may not prevent or detect material misstatements of the financial statements.Also, projections of any assessment of the IACS on future periods are subject to the risk that IACSmay become inadequate due to the changes in conditions, or that the degree of compliance with thepolicies or procedures may be significantly reduced.

Based on our review of the management’s report on the operations of the IACS, nothing hascome to our attention that causes us to believe that the management’s report referred to above is notpresented fairly, in all material respects, in accordance with the IACS standards.

We conducted our review of the IACS in existence as of 31 December 2011, and we did notreview the IACS subsequent to 31 December 2011. This report has been prepared for Koreanregulatory purposes pursuant to the Act on External Audit for Joint-Stock Companies, and may not beappropriate for other purposes or for other users.

IInnduk AccountingCorporationSeoul, Korea14 March 2012

- IIC-136 -


Report on the Operations of the Internal Accounting Control System

To the Board of Directors and Audit Committee ofNITGEN&COMPANY CO., LTD.

I, as the Internal Accounting Control Officer (“IACO”) of NITGEN&COMPANY 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 31 December 2011.

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 the IACS standard (Article 5 ‘Application of Small and

Medium Size Companies’), for the assessment of design and operations of the IACS.

Based on the assessment on the operations of the IACS, the Company’s IACS has been

effectively designed and is operating as of 31 December 2011, in all material respects, in accordance

with the IACS standards.

16 February 2012

Sang Won Moon,Internal Accounting Control System Officer

Sang Hee Huh,Chief Executive Officer and President

- IIC-137 -



extracts of the interim report and (2) the unaudited financial statements of Nitgen for the six months ended 30

June 2012, which were published in Korean. The unaudited financial statements of Nitgen for the six months

ended 30 June 2012 was prepared in accordance with Korean International Financial Reporting Standards

(“K-IFRS”). The interim report and the unaudited financial statements of Nitgen for the six months ended 30

June 2012 have been published (in Korean) on the website of the Repository of Korea’s Corporate Filings

(http://dart.fss.or.kr/dsab001/main.do). The English (and Chinese) translations of the full interim report of

Nitgen for the six months ended 30 June 2012 are published on the website of the Company at http://

www.avconcept.com. In case of any discrepancy between this English (or Chinese) version and the Korean

text, the Korean text shall prevail.

Shareholders should note that the extracts of the interim report and the unaudited financialstatements of Nitgen for the six months ended 30 June 2012 set out below are provided for informationpurpose only and the unaudited financial statements of Nitgen for the six months ended 30 June 2012were prepared in accordance with K-IFRS. Shareholders should also note that such financialstatements of Nitgen was unconsolidated financial statements as according to Article 23 of of theEnforcement Decree of the Act on the Capital Market and Financial Investment Business of the laws ofKorea, if a company has subsidiaries which are subject for consolidation following K-IFRS by the fiscalyear that begins for the first time after 1 January 2012, the quarterly and semi-term financialstatements are not required to be prepared as consolidated financial statements but separate financialstatements. This relevant Korean law is applicable only for the quarterly and semi-term basis and isnot applicable for the annual financial statements. Shareholders are advised to consult professionaladvice if there is any doubt in reading such financial information of Nitgen. Terms defined hereinapply to this Appendix only.

(1) EXTRACTS OF THE INTERIM REPORT OF NITGEN FOR THE SIX MONTHS ENDED 30JUNE 2012

Set out below are the section headed “II. CONTENTS OF BUSINESS” as extracted from the interim

report of Nitgen for the six months ended 30 June 2012:


1. SUMMARY OF FINGER PRINT READING BUSINESS

A. Summary of finger scan business

The Company has the main businesses in the finger scan field from the bio-scan fields in finger

scan, face scan, iris scan and others. The bio-scan technology means the technology to identify







- IID-1 -

APPENDIX IID FINANCIAL INFORMATION OF NITGENFOR THE SIX MONTHS ENDED 30 JUNE 2012






The bio-scan industry before 1990s had slow advancement of the market due to lack of

technical stability and high price, but following the advancement of the IT technology after the 1990s,

the scope of application has been widened with the increase of convenience with the slimmed down

sensors and product price decline. In 2000s, government institutions, industries, research institutes and

general public have facilitated in diverse fields for bio-scan tangible asset to drastically expand after

the ‘September 11 Terror’. The US and other countries have applied bio-scan technology in electronic

passport, electric resident card and others for personal identification or immigration control with the

drastic growth of security market that used the bio-scan technology around public field and the US and

other governments have established various policies to develop the bio-scan industry or adopted the

bio-scan technology.



In particular, with the successful pilot project to “structure the finger print confirmation system for

foreigners’ that the Ministry of Justice promoted and schedule to promote this project in 2012 to show

the expansion of business fields in public sector.



devoted for unyielding R&D effort with the pride in leading the domestic and global finger scan

technology for over 10 years. The Company holds the core technologies in the finger scan field, such

as, sensor, algorithm, applied technology and others, and in particular, the Company holds the original


technologies, the Company is the only company to provide integrated finger scan solution for access

control terminal, PC peripheral device live, live scanner and finger scan server. The Company may

divide its business fields for access controller, attendance management terminal, finger scan mouse and

PC peripheral device, electronic passport and other public use in live scanner, PC log in finger scan

server solution, mass capacity and high speed search solution and others. As the leader of the industry,

the Company may make diverse products and handles entire technologies and products in earlier-

presented fields. The Company has structured product line up to accommodate diverse requirements of

customers as well as the customization system to respond the demands of customer in case-by-case to

realize the customer satisfaction.

One of the recent spotlights in domestic and overseas markets is the live scanner used in public

fields. Together with the IC technology in electronic passport, national ID, health care and others, the

importance of personal identification has been increased with the increasing cases of using the finger

scan, and the Company has supplied live scanner (model name of eNBioScan-F) for the electronic

- IID-2 -


passport business of Korea in 2009, won the orders for major domestic and overseas projects from

Mexico Police Agency, Brazil Transportation Administration and others, and has supplied finger scan

algorithm in the pilot project of “structure the finger print confirmation system for foreigners’ that the

Ministry of Justice promoted and scheduled to promote this project in 2010.

Since releasing the finger scan access control terminal of NAC-3000 in 2003, the Company has

released NAC-2500 in 2006, NAC-5000 of high class access controller in 2009, Fingkey Access as the

dispersion-type model in later part of 2009, and Fingkey Access Plus in 2010 to structure diverse

product line-up. In particular, in the event of Fingkey Access Plus, the Company is one notch higher

for functions and capabilities by reflecting the requirements of customers and market after the release

of Fingkey Access that it actively responds to the market change to make product accommodated the

requirements of diverse customers.

In the event of the finger scan scanner and mouse, it combines with the finger scan server






The core original technology of the finger scan business could be listed as scanning algorithm,







The representative field in the application fields of finger scan technology is the access



representative technology to supplement these existing problems, and the finger scan



institutes or general corporate facilities where the security is priority, but in recent days, the


broad for general business, plants and apartments. The finger scan access control system has no

troubles in re-issuance from loss, burden on key or card possession that the demand has been on

the rise in the access control and attendance management fields.

- IID-3 -



PC/network security means the use of finger scan technology in server access control






others while the finger scan has resolved such risk and provides the user convenience at the



companies introducing the security solution within the corporate network by using the finger

scan technology.

l Live scanner


breaking away from existing finger scan sensor, the live scanner is normally referred to as the

finger scan scanner to facilitate in crime investigation, electronic passport, electronic resident

card and others. In order to supplement the weakness of acquiring the limited finger print

information in the commercial sensor, the general live scanner structured with the large finger

print input window is structured to have input in sheet 1, sheet 2 and sheet 4 at the same time.

In recent days, Brazil, Mexico and other Central and South America countries as well as India

and others have shown the drastic increase in demand, and in Korea, in the event that the




E. Position of finger scan in the bio-scan market

The field that takes the highest ratio in the bio-scan market is clearly the finger scan market.

The finger scan market takes appropriately 67% (including AFIS) of global market in 2009 that it has

the overwhelming position for 93.5% as of 2008 for the domestic market. The finger scan technology




- IID-4 -




The finger scan technology that the Company holds is the key technology to apply in




electronic passport, immigration management, criminal identification and others.



characteristics of finished product and applied SW distribution industry for the finger scan

system and characteristics of SW license industry and components for finger scan solution.











With the improvement of the finger scan algorithm as well as the advancement of finger


expected to be even higher in the future. In the aspect of price, the finger scan related part price

has been lowered for 50% or more in recent several years. In fact, the finger print sensor, one

of the key hardware to structure the finger scan solution as the core component of the finger

scan product was USD50 or more by the early times of 2000, but it is in the range of

USD15~30 and in the event of the semiconductor method of finger print sensor applied in


the finger scan computation has been approximately 4-5 times lower compared to the same


lead to the market expansion and the demand for finger scan solution and system products of

the Company would be influenced as well. Demand for the finger scan product of the Company

is related to the expansion or slow down of security market as the representative application

field. The September 11 Terror incident of the US has brought sense of alarm on security

throughout the world, including the US, and it has brought remarkable advancement in video

- IID-5 -


security and access security industry. Thereafter, increase of terror, various disputes, crime rate

and others throughout the world are expected to grow even more in the future for the security

industry.

2. LANDSCAPING BUSINESS

The Company incorporated Human Green Landscaping Co., Ltd. as a newly established company by

spinning off in simple property division method for the landscaping business with the division date of 30

June 2012, and the newly established company was disposed for 716 million won as of 13 July 2012.

(The Company no longer engages in landscaping business and it has been classified as the suspended

operating income during the notification period of the same report that the recording on the landscaping

business part has been omitted.)

(*) New business to be undertaken in future

A. Matters undertaken as of the preparation date of the report

The Company has added the business purpose for “LED lighting product development,

manufacturing, selling and processing business” at the special meeting of shareholders on 26 June

2012.

After that, on 16 July 2012, an investment was made to the 100% subsidiary company of the

Company, Nitgen Lighting Limited (Hong Kong) in the amount of US$4,500,000, and on 31 July

2012, the overseas convertible bond of US$5,500,000 was issued to make the financial resource with

the fund and reserve fund of the Company for US$2,000,000 to support the operation fund of the

subsidiary company and new business investment fund.

The Company intends to continuously engage in the business of development, manufacturing,

selling and processing of LED lighting product through the subsidiary company, and in the event that

the realization of the said business is visualized, the information is scheduled to provide in details.

B. Prospect of LED lighting business

The LED lighting has the strength in every savings and semi-perpetual life (estimated to be

100,000 hours or more) that it has made fast growth from early to mid-2000s, and in 2012, it is

expected to build-up approximately 3.4 trillion won only in the domestic market. (Data of Daeshin

Securities)

The high price has been the stumbling block even with the high power efficiency, but it has

shown the trend of improving the efficiency for 35% and price decline of 20% range.

Due to such characteristics and economic effect, it is expected to make fast replacement of

existing fluorescent light market, and accordingly, the LED lighting market is expected to make even

faster growth not only in domestic market but also in overseas markets.

- IID-6 -


Japan, the US and others have set forth the market as one of the new growth engine businesses

for the 21st century since 2002 and they have developed the market as a major national project to take

the opportunity for taking the market by GE of the US, Nichia of Japan and others. Taiwan also has

been working on surpassing Japan by undertaking the LED light source development as its core

national business since 2002.

China, the place where the Company is to be actively undertaken the business through the

subsidiary company, has recently announced to place large scale of financial resources for promoting

LED lighting consumption.

Processing R&D for semi-conductor lighting and LED China Solid State Lighting Alliance, the

Chinese government has promoted the business quickly by injecting 2.2 billion Yuan and energy

saving-type home appliance consumption promotion (subsidy support) for energy savings and LED

lighting consumption expansion.

According to the KOTRA data, the LED lighting market scale of China is expected to grow in

2010 for 150 billion Yuan and 2015 for 500 billion Yuan, making the third largest market in the

world.

These series of activities would be the clear cases of showing the fast growing LED lighting

markets at home and abroad.



(Unit: 1,000 won, %)


(ratio)

Finger scan Product Access controller Access controller and

others

NAC-2500/3000|/

5000

2,656,128

(83%)

Merchandise Door lock Door lock NDL-100/600/

scanner

506,588

(16%)

Enpia Service Added

communication


for securities

company

SecurePack and 2

types

48,803

(2%)

Product/

merchandise

Solution Enpia S series Enpia S-series –

Total 3,211,519

(100%)

- IID-7 -



The major causes of price change would be the influence of (i) price decline to purchase raw

materials, (ii) change of exchange rate at the time of purchase, and (iii) mix of raw material applicable

to the product.


(Unit: 1,000 won, %)

Business fieldType ofpurchase Item Concrete use


Finger scan Raw materials AC parts Parts for access controller 634,887 52.7 –


Raw materials FIM parts Parts for processing board 158,226 13.1 –



Total raw materials 1,204,822 100

Enpia It currently uses the server of Compaq and HP but the sales scale to use the server as the raw material is not

significant from the entire sales scale and the absolute volume of raw material is little that it is deleted hereof.


(Unit: won)


AC parts 251.1 262.8 342.5

ENBIO parts 536.2 843.5 953.8

FIM parts 865.8 928.8 423.5

HAM parts 193.9 123.5 172.4

OP parts 110.4 93.4 103.2

- IID-8 -




(Unit: 1,000 won)Business

premises

Ownership


Beginning

book value

Applicable change

Depreciation

Ending book


Head office

and plant

Independent

ownership

(registry)

Nonhyeon-

dong, Guro

Building 558,847 – – 9,928 548,919

Facilities 61,493 – – 14,179 47,314

Vehicle transport 73,217 – 39,735 7,507 25,974

Tools and

equipment

17,671 5,598 1,696 1,866 19,706

Fixture 60,406 11,493 – 14,615 57,284

Mold 222,414 27,200 – 42,096 207,519

Computer

equipment

16,427 – – 5,226 11,201

Total 1,010,475 44,291 41,431 95,417 917,917


subsidy.

ø Unit is 1,000 won and below the figure is rounded off (possible for single number change).


(A) On-going investment


(B) Future investment plan

The Company has the investment plan for new installation for new equipment,

purchase and others on the LED business through the subsidiary company but it has no

detailed plan for now.

- IID-9 -


4. MATTERS ON SALES


(Unit: million won)

Business field Sales type Item

The firsthalf of the29th term

The 28thTerm

The 27thTerm

Finger

Scan/Enpia

Finger scan

product

NAC-2500/

3000/5000

Export 2,093 3,885 6,198


Total 2,657 5,335 9,208

Finger scan

merchandise

NDL-100/

600

Export 453 437 12


Total 506 730 514

Enpia service Added service Export – 32 35


Total 48 62 79



Total – 14 16

Total Export 2,546 4,354 6,245


Total 3,211 8,445 10,658


(1) Sales organization

(A) Finger Scan Business Department

(a) Domestic business

The finger scan system part of the Company structures the access security

system and attendance management system for customers in the domestic market

through bidding of public institutions and sales on agencies. And, the finger scan

solution part is doing its best to provide the optimal product to the customers with

diverse finger scan applied products.

(b) Overseas business

This is the sales organization exclusively in charge of overseas sales of the

finger scan terminals, NAC-2500 Plus, NAC-3000, NAC 5000, and SW 101 to

establish the competitive strategy in overseas markets through survey and analysis

on overseas market and competing companies and provides the optimal finger

- IID-10 -


scan solution for structuring access security and attendance management system

for customers in respective regions around the world through overseas distribution

network structure and overseas agency.


The Company has the direct sales by Sales Marketing Division and indirect sales

through distributors of the Company and the ratio in the sales structure of the Company

is very minimal.

(2) Sales routes


Place of sales: 1 Domestic – Bidding on public institutions/agency and

direct sales

2. Overseas – Agency and direct sales (indirect sales through

overseas agency)


Place of sales: 1. Domestic sales by distributor


(A) Finger Scan Business Department


accordance with credibility and contract conditions of the sales place. The sales proceeds

are paid by cash (deposit to account) or electronic note (purchase card) and the period

possible to cash after the supply is approximately 0-3 months (0-90 days).

Sales condition of export is mainly in T/T transaction along with the credit card

payment through Korea Exchange Bank. The sales proceed is mostly paid in advance

and, in the event of certain customers, it may have proceeds recovery period of 0-2

months (0-60 days) depending on the transaction conditions.


With the differentials in official price of the Company, sales price of distributor,

and actual sales price of locality for final consumers, it is set to generate margin for

distributor.

- IID-11 -


(4) Sales strategy


– Strengthening of sales activities mainly for new products and high value-added

products


– Undertaking intense advancement for major customers and diversification of

transacted items


Overseas Domestic

Sales R&D LED Biz.

PlanningManagement S/W Dev. HW Dev. Production QCAlgoridum

Headquarters

Biometric Biz.

5. ORDERS

Finger Scan Business Department




Landscaping Business Department

The Company spun off the landscaping business in simple property division method on 30 June

2012 and disposed it on 13 July 2012 that the orders are not recorded herein.

- IID-12 -



A. Status of derivative products contracts

Not applicable


Not applicable


Not applicable

8. R&D ACTIVITIES





Technology Development

Team

1) Development of core algorithm for finger scan

2) Development of finger scan PC solution

3) Development of finger scan server solution

4) Development of mobile finger scan solution

5) Development of finger scan capability evaluation

technology

Product Development

Team





3) Development of embedded finger scan module palm-ware


- IID-13 -


5) Development of finger scan live scanner

6) Development of application SW for electronic passport




Attendance management SW

development

January 2010 ~ April

2012


management program by using the finger scan


Client) development

January 2010 ~ May

2012

Development of solution available for linkage

and management server and finger scan

terminal of the Company

KT 101/KT 101+

development

November 2009 ~

April 2012

Development of the terminal exclusively for KT

Telecop

Development of finger scan

and facial scan integrated

terminal

January 2010 ~ April

2012

Development of the terminal with multi-

recognition by using the finger scan and

facial scan

Multi-processor applying high

capability certification

development server

January 2011 ~


Development of finger scan exclusive server by

applying multi-processor

Image enhanced algorithm January 2011 ~


Development of finger print image processing

technology

PIV sensor development January 2011 ~


Development of small optic-type finger scan

sensor to satisfy the US FBI PIV dimension

New platform development January 2011 ~


Development of finger scan terminal of new

platform – Development of WinCE 6.0

applying platform Development of PC and

network security solution by centrally-focused

management

eNBio-Secure development November 2010 ~


Manage user information and PC security policy

on the server

- IID-14 -





Not applicable


Not applicable during the period subject for notification, but on 31 July 2012 after the

standard date of this report, the Company has procured from Precise Energy Holdings in the

sum of US$5,500,000.

(Refer to the disclosure of announcement on 27 July 2012 (decision to issue convertible

bond))


Not applicable


Not applicable

- IID-15 -


(2) UNAUDITED FINANCIAL STATEMENTS OF NITGEN FOR THE SIX MONTHS ENDED 30JUNE 2012

Review Report on Semiannual Financial Statements

25 July 2012

To the Board of Directors and Shareholders of NITGEN&COMPANY CO., LTD.

Financial Statements Reviewed

We have reviewed the accompanying semiannual f inancia l s ta tements of

NITGEN&COMPANY CO., LTD. (the “Company”), which are comprised of statement of financial

position as of 30 June 2012, and statement of comprehensive income for the period ended 30 June

2012 and 2011, and statement of changes in shareholders’ equity and cash flows, and information on

significant accounting policy and other notes for the reporting period.

Responsibility of Management

The Company’s management is responsible for preparing and fairly presenting these financial

statements according to K-IFRS No. 1034 (Interim Financial Reporting) as well as internal control

deemed necessary to ensure that the financial statements are free of material misstatement.

Responsibility of the Auditor

Our responsibility is to conduct a review and provide a report on these financial statements

based on our review

We conducted our review in accordance with the procedures of Interim Financial Reporting in

Korea. The review includes questions & answers with the financial and accounting mangers of the

Company, analytical analysis, and other evaluation procedures. The scope of our review did not

include procedures considered necessary under generally accepted accounting standards for the

purpose of expressing an opinion on the accompanying financial statements of the Company taken as a

whole or on the individual amounts presented therein. Accordingly, we do not express any such

opinion. Had we performed such procedures, other matters might have come to our attention that

would have been reported to you.

Review opinion

In our opinion, based on our review, we have not found anything that is not presented fairy in

material respect in according with K-IFRS 1034 (Interim Financial Reporting).

- IID-16 -


Other Matters

We have audited the statement of financial position of the Company as of 31 December 2011

and the related statements of comprehensive income, cash flows and changes in shareholders’ equity

for the year then ended, for which we expressed an unqualified opinion in our Auditor’s Report dated

14 March 2012 (not attached hereto). The statement of financial position as of 31 December 2011

presented herein for comparative purpose is not different from the audited financial statements for the

same fiscal year in all material respects.

Important Notice

The following are the matters which we believe may be used to make a reasonable decision to

use this review report.

(1) Disclosure of Separate Financial Statements

As described in Note 2 to the accompanying semiannual financial statements, the

Company is allowed to disclose its separate financial statements only for the quarterly and

semiannual financial statements even if the Company has subsidiaries which are subject to

consolidation under K-IFRS. until the first fiscal year beginning on or after 1 January 2012,

according to Article 23 of Supplementary Provisions No. 20947 of the Enforcement Decree of

the Financial Investment Services and Capital Market Act. Accordingly, Nitgen & Company

Co., Ltd. has disclosed only separate financial statements according to K-IFRS 1027 for the first

half of 2012. This exception is applicable only to the quarterly and semiannual financial

statements. The Company is required to prepare both the consolidated financial statements and

separate financial statements for the annual financial statement.

(2) Change of the largest shareholder

As described in Note 1, the largest shareholder of the Company has been changed to

New Concept Capital Limited (British Virgin Islands) from Ocean B Holdings Co., Ltd. during

the reporting period.

(3) Significant transaction with related parties

As described in Note 29, the advance payment paid to AV CONCEPT Limited amounted

to KRW2,950 million as of 30 June 2012.

(4) Real division

As described in Note 21, the Company established a spin-off subsidiary named Human

Green Landscape Co. in the form of real division from the Landscaping Business Division of

the Company on 31 July 2012. After the reporting period, the Company sold the spin-off

subsidiary to another investor at KRW 716 million on 13 July 2012.

- IID-17 -


(5) Events after the Reporting Period

As described in Note 30, the Company established a subsidiary named Nitgen Lighting

Limited (Hong Kong) on 19 July 2012 to expand LED business in the overseas market. In

addition, the Company loaned KRW8,522 million to Nitgen Lighting Limited (Hong Kong) on

31 July 2012.

In the meantime, the Company issued overseas bonds with warrants (face value

USD5,500,000) to PRECISE ENERGY HOLDINGS Limited on 31 July 2012.

Representative Director

Park Jong BumInduk Accounting Firm

2nd Fl Daeha Building, 14-11 Yoido-dong, Youngdeungpo-gu, Seoul

This review report is effective as of 25 July 2012. 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 financial statements and notes thereto. Accordingly, the readers

of the review report should understand that there is a possibility that the above review report may have

to be revised to reflect the impact of such subsequent events or circumstances, if any.

- IID-18 -


SEMI-ANNUAL FINANCIAL STATEMENTS

For Half Year Periods Ended 30 June 2012 and 2011

The accompanying financial statements including all footnote disclosures were prepared by and are the

responsibility of the Company.

Woo In GeunRepresentative Director of NITGEN&COMPANY CO., LTD.

- IID-19 -


STATEMENT OF FINANCIAL POSITIONAs of 30 June 2012 and 31 December 2011


Account Note As of June 2012 As of 31 December 2011

AssetsCurrent assets 11,726,875,079 15,127,259,914

Cash and cash equivalents 8 5,279,728,809 8,716,334,693

Other current financial assets 9 100,000,000 1,395,731,200

Trade and others receivable others 11,29 1,036,084,444 2,294,216,520

Current tax asset 22,398,987 64,964,147

Other current assets 12,29 3,027,827,204 169,939,981

Inventories 10 2,260,835,635 2,486,073,373

Non-current Assets 3,789,204,484 5,229,476,458

Other non-current financial assets 9 89,551,584 384,667,505

Investment Property 15 – 138,839,113

Investment in associate 16 – 587,792,000

Tangible assets 13 1,245,606,073 1,338,162,435

Intangible assets 14 2,151,112,741 2,136,808,290

Trade and other receivables 11 302,934,086 311,366,013

Deferred income tax assets 25 – 331,841,102

Non-current assets held for sale 16,21 715,969,217 –

Total Asset 16,232,048,780 20,356,736,372

LiabilitiesCurrent Liabilities 630,998,255 2,002,126,885

Trade and other payables 17 629,413,627 1,732,243,473

Other current liabilities 17 1,584,628 269,883,412

Non-current Liabilities 817,496,787 918,000,617

Defined benefit obligation 18 729,496,787 916,700,617

Other non-current liabilities 28 88,000,000 1,300,000


Equity 20

Capital Stock 17,700,158,000 17,700,158,000

Capital surplus 4,894,706,528 4,894,706,528

Components of equity 18,19 (4,232,030,598) (4,518,578,180)

Retained earnings (3,579,280,192) (639,677,478)

Total Equity 14,783,553,738 17,436,608,870

Total Liabilities and Equity 16,232,048,780 20,356,736,372

“The accompanying notes are an integral part of these semiannual financial statements.”

- IID-20 -


STATEMENT OF COMPREHENSIVE INCOMEFor the half year periods ended 30 June 2012 and 2011

NITGEN&COMPANY (In Korean Won)First Half 2012 First Half 2011

Account Note 3 months 30 June 3 months 30 June

Sales 4 1,167,167,757 3,211,519,776 1,824,704,379 3,843,244,520Sales- finished goods 1,035,625,791 2,656,128,497 1,409,715,364 3,392,543,744Sales- merchandise 123,337,420 506,588,670 356,259,225 386,870,986Sales- Service 8,204,546 48,802,609 58,729,790 63,829,790Cost of Sales 1,116,140,719 2,525,312,305 1,093,987,288 2,097,199,080Cost of Sales – finished goods 952,863,681 1,994,007,545 797,570,775 1,770,093,385Cost of Sales – Service 155,590,948 483,926,544 261,521,853 289,803,338Cost of Sales – Service 7,686,090 47,378,216 34,894,660 37,302,357Gross Profit 51,027,038 686,207,471 730,717,091 1,746,045,440Other-operating income 24 368,552,196 387,871,688 27 1,083,947Selling and Administrative expense 23,29 905,667,101 1,919,080,668 1,127,829,016 2,117,202,459Other-operating expenses 24 998,146,008 998,146,016 – –

Operating Income(Loss) (1,484,233,875) (1,843,147,525) (397,111,898) (370,073,072)Financial income 24,29 156,634,380 375,441,926 160,726,033 373,435,947Financial expenses 24 495,838,332 597,926,452 352,707,485 389,893,270Gain (loss) on investment insubsidiary/associate 16 (586,492,000) (586,492,000) – –

Profit (Loss) before income taxes (2,409,929,827) (2,652,124,051) (589,093,350) (386,530,395)Income tax expense 25 268,048,011 261,397,131 61,473,481 61,473,481Profit (loss) from continuingoperations (2,677,977,838) (2,913,521,182) (650,566,831) (448,003,876)

Profit (loss) from discontinuedoperations 21 (19,722,778) (7,891,522) 27,873,448 106,951,829

Profit (loss) (2,697,700,616) (2,921,412,704) (622,693,383) (341,052,047)Other comprehensive income 25 214,805,579 238,385,975 8,915,088 8,915,088Valuation gain on available-for-salefinancial assets (26,334,248) (14,123,737) 10,296,000 10,296,000

Valuation loss on available-for-salefinancial assets 270,902,085 270,699,722 – –

Actuarial loss on post employmentbenefit obligations 18 (29,762,258) (18,190,010) (1,380,912) (1,380,912)

Total Comprehensive income forthe year (2,482,895,037) (2,683,026,729) (613,778,295) (332,136,959)

Basic earnings (loss) per share: 27Basic earnings per share fromcontinuing operations (76) (82) (18) (13)

Basic earnings per share fromdiscontinued operations (1) – 1 3

Basic earnings per share (76) (83) (18) (10)Diluted earnings per share fromcontinuing operations (76) (82) (18) (13)

Diluted earnings per share fromdiscontinued operations (1) – 1 3

Diluted earnings per share (76) (82) (18) (10)


- IID-21 -


STATEMENT OF CHANGES IN EQUITYFor the half year periods ended 30 June 2012 and 2011


Account Issued capital Capital surplusOther equity

itemsRetainedearnings Total

2011.1.1 17,700,158,000 4,894,706,528 (4,662,147,669) 1,763,882,607 19,696,599,466Profit(loss) (341,052,047) (341,052,047)

Stock options 61,458,612 61,458,612

Actuarial gain (loss) (1,380,912) (1,380,912)

Gain on valuation of Available

for -sales financial assets 10,296,000 10,296,000

2011.06.30 17,700,158,000 4,894,706,528 (4,590,393,057) 1,421,449,648 19,425,921,1192012.1.1 17,700,158,000 4,894,706,528 (4,518,578,180) (639,677,478) 17,436,608,870Profit (Loss) (2,921,412,704) (2,921,412,704)

Stock options 29,971,597 29,971,597

Actuarial gain (loss) (18,190,010) (18,190,010)

Gain on valuation of Available

for-sales financial assets (14,123,737) (14,123,737)

Loss on valuation of AFS

financial assets 270,699,722 270,699,722

2012.06.30 17,700,158,000 4,894,706,528 (4,232,030,598) (3,579,280,192) 14,783,553,738


- IID-22 -


STATEMENT OF CASH FLOWSFor the half year periods ended 30 June 2012 and 2011


Account Note 30 June 2012 30 June 2011

Cash flows from operating activitiesCash generated from operating activities 22 (4,259,828,071) (56,571,049)

Receipt of interest income 91,303,865 112,653,798

Stock dividends 7,992,400 57,142,000

Net cash flows from operating activities (4,160,531,806) 113,224,749Cash flows from investing activitiesDisposal of trading securities 1,962,392,270 1,867,250,000

Disposal of available-for-sale securities 74,404,700 –

Decrease in guarantee deposit 39,183,600 89,800,000

Decrease in short-term loans 5,200,000,000 8,853,663,000

Decrease in long-term advance payments – 30,000,000

Disposal of investment Property 140,000,000 –

Disposal of vehicles 45,454,545 –

Acquisition of trading securities (540,713,800) –

Increase in short-term loans (5,279,000,000) (8,850,000,000)

Increase in guarantee deposit (30,483,600) (110,680,000)

Acquisition of tools and furniture (17,091,457) (11,217,546)

Acquisition of mold (27,200,000) –

Increase in intangible assets in progress (362,427,665) –

Increase in development expenses – (445,378,147)

Increase in software (4,368,000) –

Decrease in cash due to real division (476,224,671) –

Net cash flows from investing activities 723,925,922 1,423,437,307Cash flows from financing activities – –

Increase in cash & cash equivalents (3,436,605,884) 1,536,662,056Cash & cash equivalent at thebeginning of the year 8,716,334,693 5,075,175,218

Cash & cash equivalent at theend of the year 5,279,728,809 6,611,837,274


- IID-23 -


NOTES TO THE SEMIANNUAL FINANCIAL STATEMENTS





21 November 2008, the Company merged with Nigen Co., Ltd, a subsidiary engaged in development of security and


efficiency build the foundation for sustainable growth, maximize the corporate value by focusing on fingerprint


On 10 December 2008, the Company changed its business name from Proze Co., Ltd. to NITGEN&COMPANY

Co., Ltd.. During the reporting period, the largest shareholder of the Company has been changed to New Concept

Capital Limited (British Virgin Islands) from Ocean B Holdings Co., Ltd. As of 30 June 2012, the capital stock of the

Company is KRW17,770,158,000, and the major shareholders of the Company are as follows:

ShareholdersNumber of

Shares Owned Ownership%

New Concept Capital Limited 7,179,925 20.28

Others 28,220,391 79.72

Total 35,400,316 100.00


(1) Basis of Presentation

The Company has prepared its semiannual financial statements for the 6-month period ended 30 June

2012 according to Korean International Financial Reporting Standard (“K-IFRS”) No. 1034 (Interim Financial

Reporting). The principles used in the preparation of these financial statements are based on Korean IFRS which

is effective as of 30 June 2012 or the Company has decided to early adopt.


on or after 1 January 2012 and not early adopted are set out below


Under K-IFRS No. 1019, it is no longer allowed to use the corridor approach for actuarial gains

and losses. Accordingly, actuarial gains and losses shall be recognized immediately in the period in

which they occur, in other comprehensive income. The Standard also requires actuarial gains and losses

and past service cost to be recognized immediately. Under K-GAAP, the interest cost and the expected

return on plan assets had been determined separately, but K-IFRS requires the net interest cost (income)

to be determined based on the net defined benefit assets using the discount rate for the defined benefit

liabilities. The Company will apply the amended standard from 1 January 2013.


K-IFRS No. 1113 (Fair value measurement) has been established to clearly define the fair value,

and to set forth the procedures of the system, procedures and disclosures associated with the

measurement of the fair value, and to improve the consistency and reduce complexity in applying K-

- IID-24 -


IFRS. K-IFRS No.1101 does not required additional measurement of the fair value other than required or

permitted by other standards, and provide guidance if such measurement is required or permitted by

other standards. The Company will apply the amended standard from 1 January 2013.

The Company does not anticipate that these amendments referred to above will have a

significant effect on the Company’s financial statements and disclosures.

(2) Accounting Policies Applied

The significant accounting policies and calculation methods used for the preparation of these semiannual

financial statements are the same as those use for the prior period. However, the Company has reclassified some

of the comparatively-presented accounts of the prior period for convenience of comparison with the semiannual

financial statements of 2012. Such reclassification does not affect the Net Profit or the net assets reported in the

prior period.

(3) Non-preparation of Consolidated Financial Statements

According to Article 23 of Supplementary Provisions No. 20947 of the Enforcement Decree of the

Financial Investment Services and Capital Market Act. Accordingly, the Company is allowed to disclose its

separate financial statements only for the quarterly and semiannual financial statements even if the Company has

subsidiaries which are subject to consolidation under K-IFRS until the first fiscal year beginning on or after 1

January 2012. Accordingly, the Company. has disclosed only separate financial statements according to K-IFRS

1027 (Consolidated and Separate Financial Statements) for the first half of 2012. This exception is applicable

only to the quarterly and semiannual financial statements. The Company is required to prepare both the

consolidated financial statements and separate financial statements for the annual financial statement.

3. CRITICAL ACCOUNTING ESTIMATES AND ASSUMPTIONS

The preparation of the interim financial statements requires management to exercise significant estimates and

assumptions based on historical experience and other factors, including expectations of future events that are believed to

be reasonable under the circumstances, and such estimates and assumptions may affect amounts reported therein

including revenues, expenses, assets and liabilities, and contingent liabilities. As a result of the uncertainties inherent in

estimates and assumptions, a change in an accounting estimate may give rise to significant changes in assets and

liabilities in the future.

The significant estimates and assumptions used in the preparation of interim financial statements are the same as

those used in the preparation of financial statements of the prior period, except the estimates used in determining the

income tax expense.


Operating segments of the Company are determined by the chief operating decision-maker on a regular basis,

who is responsible for making strategic decisions on resource allocation and performance assessment of the operating

segments, based on the internal reporting provided to him on a regular basis.

- IID-25 -


(1) Assets, liabilities and shareholders’ equity of each segment as of 30 June 2012 and 31 December 2011

consist of the following:


30 June 2012 31 December 2011

ClassificationFingerprintrecognition

Landscape(Discontinued) Total

Fingerprintrecognition


Assets 16,232,049 – 16,232,049 18,523,815 1,832,921 20,356,736

Liabilities 1,448,495 – 1,448,495 1,810,768 1,109,359 2,920,128

Shareholders’ equity 14,783,554 – 14,783,554 16,713,047 723,562 17,436,609

(2) Profit and loss of each segment as of 30 June 2012 and 31 December 2011 are as follows:



ClassificationFingerprintrecognition


Fingerprintrecognition


Sales 3,211,520 1,134,235 4,345,754 3,843,245 1,231,481 5,074,726

Operating income (1,843,148) (8,308) (1,851,455) (370,073) 106,661 (263,412)

Financial income(loss) (222,901) 416 (222,484) (16,457) 291 (16,166)

Investment income(loss)

from subsidiaries &

associates (586,492) – (586,492) – – –

Profit (loss) before tax (2,652,124) (7,892) (2,660,016) (386,239) 106,952 (279,287)

(3) The regional sales during the period ended 30 June 2012 and 2011 are as follows:


Classification 30 June 2012 30 June 2011

South America 676,549 1,402,900

Asia 323,307 439,024

Korea 1,869,293 2,361,642

Middle East 626,811 829,883

Others 849,795 41,277

Discontinued business (1,134,235) (1,231,481)

Total 3,211,520 3,843,245

5. RISK MANAGEMENT


The object of capital management of the Company is maintain sustainability as a going concern, and

minimize the capital expenses in order to maximize the shareholders’ value. The Company monitors capital on

the basis of the debt to equity ratio. This ratio is calculated as net liabilities (less cash and cash equivalents)

divided by equity based on the financial statements. The management monitors the capital structure on a regular

basis. During the reporting period, there has not been any change in the objective, policy, and process of the

capital management of the Company

- IID-26 -


Net liabilities, shareholders’ equity, and the liability-to-equity ratio as of 30 June 2012 and 31 December

2011 are as follows:


Classification 30 June 201231 December

2011

Short & long-term borrowings – –

Other liabilities 1,448,495 2,920,128


Less:

Cash & cash equivalents 5,279,729 8,716,335

Current portion of other financial assets 100,000 1,395,731

Net liabilities (Assets) (3,931,234) (7,191,938)

Shareholders’ equity 14,783,554 17,436,609

Net debt-to-equity ratio (*) – –

(*) Net debt-to-equity ratio is not shown as it is a negative ratio.

(2) Financial Risk Management

The Company is exposed to various financial risks such as liquidity risk, credit risk and interest rate risk.

The purpose of risk management of the Company is to identify potential risks related to financial performance

and reduce, eliminate and evade those risks to a degree acceptable to the Company. The Company has a risk

management program in place under the Management Support Team to monitor and actively manage such risks,

particularly with respect to the uncertainties of the financial market that may have significantly adverse impact

on the Company’s operation. The internal auditor of the Company monitors the compliance with the general risk

management policy and procedures as well as the risk exposure limit of the Company on an ongoing basis.

During the reporting period, there has not been any change in the objective, policy, and process of the financial

risk management of the Company.

j Liquidity risk

Liquidity risk is defined as a risk that an entity will encounter difficulty in meeting obligations

associated with financial liabilities that are settled by delivering cash or another financial asset. The

purpose of liquidity risk management is to maintain adequate net working capital to pay debts on or

before maturity in order to maintain the credibility of the Company or to prevent unnecessary damages

to the Company even under the financially difficult circumstances.

The Company manages its liquidity risk based on its short/medium & long-term funding

schedules and constantly manage projected cash flows by properly matching the maturities of financial

assets and financial liabilities. The Company has been able to generate incremental cash flows from its

strong operating activities and abundant cash reserves to satisfy the cash requirements for capital

expenditure and operating activities. The Company monitors cash flows through its management plans

- IID-27 -


and business strategies. Most of the Company’s assets are comprised of cash & cash equivalents and

financial assets. In the meantime, the following is the maturity analysis of the Company’s outstanding

non-derivative financial liabilities as of 30 June 2012.


Classification Book valueContractualcash flows

Less than 1year 1~5 years

More than 5years

Borrowings – – – – –

Trade & other payables (*) 629,414 629,414 556,218 73,195 –

Financial guarantee liabilities 88,000 88,000 88,000 – –

Total 717,414 717,414 644,218 73,195 –

(*) Other payables include account payables, accrued expenses and withholdings.

The non-derivative financial liabilities in the above maturity analysis are classified according to

their remaining contractual maturity. The amount presented in the maturity analysis is the current value

without discounted cash flow analysis.

k Credit risk

The Company operates a policy and procedures to manage credit risk associated with financial

assets. Credit risk arises during the normal course of transactions and investing activities, where

customers or other party fails to discharge an obligation. In most cases, credit risk arise in trade

receivables and other receivables.

Credit risk exposed to the Company depends large on the specific characteristics of individual

customers. The Company has been doing business with most customers for many year. The Company

monitors and sets the payment conditions for a new customer on an individual basis.

on a periodic basis based on the counterparty’s financial conditions, default history and other

important factors. The Company also monitors the credit ratings of the counterparties on an ongoing

basis. The Company reviews trade receivables and other receivables individually or collectively and

reserve allowances for doubtful accounts based on past experience of collection. Trade receivables and

other receivables consist entirely of security deposit. If recovery of any financial assets is delayed, the

status and action plans for recovery are reported to the Company for appropriate follow-up actions. The

degree of risk exposure is summarized as follows:



2011

Trade receivables and other receivables 1,036,084 2,294,217

Non-current portion of trade receivables and other

receivables 302,934 311,366

Total 1,339,018 2,605,583

l Interest Rate Risk

Interest rate risk is defined as the risk that the fair value or future cash flows of a financial

instrument will fluctuate because of changes in market interest rates. The Company is exposed to interest

rate risk mainly arising through floating-interest bearing financial assets. The objectives of the

- IID-28 -


Company’s interest rate risk management is to minimize the uncertainties resulting from fluctuation of

interest rates, and to increase interest income, and reduce interest expenses in order to maximize the

shareholders’ value.

Based on the assumption that all other factors remain constant at the end of the reporting

periods, The sensitivity analysis of the changes to interest income and expense as a result of a 1%

increase or decrease in interest rate on floating-interest bearing borrowings and deposit is presented as

follows:


30 June 2012 30 June 2011Classification 1% Down 1% Up 1% Down 1% Up

Interest expense – – – –

Interest Income (53,812) 53,812 (67,118) 67,118

As of 30 June 2012, there are no borrowings from financial institutions but the Company is

exposed to interest rate risk due to absence of any long-term fixed-interest bearing financial instruments.

m Foreign exchange risk

The Company is exposed to foreign exchange risk arising from various currency exposures in

connection with export sales denominated in foreign currency. Revenues and expenses arise from foreign

currency transactions and exchange positions, and the most widely used currency is the US Dollar.

Foreign exchange risk management of the Company is carried out to evade economic risk of financial

assets and liabilities denominated in foreign currency through separate financial instruments. The

Company’s foreign risk management policy focuses on minimizing variability of profits resulting from

foreign exchange risk by adjusting the collection and payment dates. A summary of monetary assets and

liabilities of the Company denominated in foreign currency instead of functional currency as of 30 June

2012 and 31 December 2011 as follows:


30 June 2012 31 December 2011Classification Currency USD KRW USD KRW

<Assets>

Cash & cash

equivalents USD 177,617.83 204,935 318,616.38 367,460

Trade receivables USD 871,809.09 1,005,893 1,336,780.50 1,541,709

Total assets USD 1,049,426.92 1,210,829 1,655,396.88 1,909,169

Based on the assumption that all other factors remain constant at the end of the reporting

periods, foreign currency exposure to financial assets and liabilities of a 10% currency rate change

against the functional currency (Korean Won) is presented as follows:

(30 June 2012)


Trade receivables Financial assets TotalClassification 10% Up 10% Down 10% Up 10% Down 10% Up 10% Down

(USD)/KRW 100,589 (100,589) 20,494 (20,494) 121,083 (121,083)

Total 100,589 (100,589) 20,494 (20,494) 121,083 (121,083)

- IID-29 -


The above sensitivity analysis is based on monetary assets and liabilities of the Company

denominated in foreign currency instead of functional currency at the end of the reporting period.

(30 June 2011)


Trade receivables Financial assets TotalClassification 10% Up 10% Down 10% Up 10% Down 10% Up 10% Down

(USD)/KRW 268,591 (268,591) 119,927 (119,927) 388,518 (388,518)

Total 268,591 (268,591) 119,927 (119,927) 388,518 (388,518)

n Price risk

The Company’s investment portfolio consists of direct and indirect investments in listed and

non-listed securities. The market values for the Company’s equity investments for the periods ended 30

June 2012 and 31 December 2011 are KRW42 million and KRW1,398 million respectively.

If there is change in price of equity investment by 1%, the amount of other comprehensive

income changes for the periods ended 30 June 2012 and 31 December 2011 are KRW0.4 million and

KRW14 million, respectively.

(3) Estimation of Fair Value

The levels of the fair value hierarchy and its application to financial assets and liabilities are described as

follows:

Classification Description

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

Level 2 Inputs other than quoted prices included within level 1 that are observable for

the asset or liability, either directly (i.e. prices) or indirectly (i.e. derived from

prices)

Level 3 Inputs for the asset or liability that are not based on observable market data (that

is, unobservable inputs)

The book values of trade receivables and other account receivables are measured at approximate fair

value. Equity securities that are not traded in an active market or its fair value cannot be measured reliably are

measured at cost.

- IID-30 -


Financial assets and liabilities of the Company measure at the fair value as of the end of the reporting

periods are presented as follows.

(30 June 2012)


30 June 2012Classification Level 1 Level 2 Level 3 Total

Assets:

Trading securities – – – –

Available-for-sale securities 58,337 – 10,693 69,030

Held-to-maturity securities 19,022 – – 19,022

Total 77,359 – 10,693 88,052

(31 December 2011)


31 December 2012Classification Level 1 Level 2 Level 3 Total

Assets:

Trading securities 1,295,731 – – 1,295,731

Available-for-sale securities 202,127 – 163,652 365,779

Held-to-maturity securities 18,888 – – 18,888

Total 1,516,746 – 163,652 1,680,398

During the prior period. the level of the fair value hierarchy for all of held-to-maturity securities and

investment securities in cooperatives has been changed from Level 3 to Level 1 during the prior period.

The fair value of financial instruments traded in active markets is based on quoted market prices at the

balance sheet date. A market is regarded as active if quoted prices are readily and regularly available from an

exchange, dealer, broker, industry group, pricing service, or regulatory agency, and those prices represent actual

and regularly occurring market transactions on an arm’s length basis. The quoted market price used for financial

assets held by the Company is the current bid price. These instruments are included in level 1. Instruments

included in level 1 comprise primarily listed equity investments classified as trading securities or available-for-

sale.

The fair value of financial instruments that are not traded in an active market is determined by using

valuation techniques. The Company uses various valuation techniques and establishes assumptions based on the

market conditions at the balance sheet date. These valuation techniques maximize the use of observable market

data where it is available and rely as little as possible on entity specific estimates. If all significant inputs

required to fair value an instrument are observable, the instrument is included in level 2.

If one or more of the significant inputs is not based on observable market data, the instrument is

included in level 3.

- IID-31 -


6. FINANCIAL INSTRUMENTS BY CATEGORY

(1) Financial instruments by category as of 30 June 2012 consist of the following:


Classification

At fair valuethrough

profit or loss

Loans &account

receivablesAvailable-for-sales

Held-to-maturity Book value Fair value

Cash & cash equivalents – 5,279,729 – – 5,279,729 5,279,729



Trade & other receivables – 1,036,084 – – 1,036,084 1,036,084

Long-term financial instruments – 1,500 – – 1,500 1,500

Held-to-maturity securities – – – 19,022 19,022 19,022

Available-for-sales financial assets – – 69,030 – 69,030 69,030

Long-term trade receivable and

other receivables – 302,934 – – 302,934 302,934

Total – 6,720,247 69,030 19,021 6,808,299 6,808,299

(2) Financial instruments by category as of 31 December 2011 consist of the following:


Classification

At fair valuethrough

profit or loss

Loans &account

receivablesAvailable-for-sales

Held-to-maturity Book value Fair value

Cash & cash equivalents – 8,716,335 – – 8,716,335 8,716,335



Trade & other receivables – 2,294,217 – 2,294,217 2,294,217

Long-term financial instruments – – – 18,888 18,888 18,888

Held-to-maturity securities – – 365,779 – 365,779 365,779

Available-for-sales financial assets – 311,366 – – 311,366 311,366

Long-term trade receivable and

other receivables 1,295,731 11,421,918 365,779 18,888 13,102,316 13,102,316

Total

(3) Financial liabilities by category as of 30 June 2012 consist of the following:


Classification

At fair valuethrough profit

or lossCarried at

amortized cost Book value Fair value

Trade & other payables – 629,414 629,414 629,414

Other financial liabilities – – – –

Total – 629,414 629,414 629,414

- IID-32 -


(4) Financial liabilities by category as of 31 December 2011 consist of the following:


Classification


or lossCarried at

amortized cost Book value Fair value

Trade & other payables – 1,732,243 1,732,243 1,732,243

Other financial liabilities – – – –

Total – 1,732,243 1,732,243 1,732,243

7. PROFIT/LOSS OF FINANCIAL INSTRUMENTS BY CATEGORY

Profit/loss of financial instruments by category as of the end of the reporting period is as follows:

(30 June 2012)


Transaction Type


or lossTrade & other

receivablesAvailable-for-

sale


amortized cost Total

Interest income – 58,160 – – 58,160

Gain on disposal of trading securities 137,587 – – – 137,587

Loss on disposal of trading securities (11,640) – – – (11,640)

Loss on foreign exchange translation – (31,283) – – (31,283)

Gain on foreign exchange translation – 7,135 – – 7,135

Loss on foreign currency transaction – (54,993) – – (54,993)

Gain on foreign currency transaction – 80,567 – – 80,567

Dividend income 7,992 – – – 7,992

Gain on disposal of available-for-sale

securities – – 32,350 – 32,350

Impairment loss on available-for-sale securities – – (500,010) – (500,010)

Valuation gain on available-for-sale securities – – 256,576 – 256,576

Total 133,940 59,585 (211,084) – (17,559)

(30 June 2011)


Transaction Type


or lossTrade & other

receivablesAvailable-for-

sale


amortized cost Total

Interest income – 131,053 – – 131,053

Gain on disposal of trading securities 124,750 – – – 124,750

Valuation loss on trading securities (98,968) – – – (98,968)

Loss on foreign exchange translation – (98,968) – – (98,968)

Gain on foreign exchange translation – 1,311 – – 1,311

Loss on foreign currency transaction – (99,143) – – (99,143)

Gain on foreign currency transaction – 59,471 – – 59,471

Dividend income 57,142 – – – 57,142

Valuation gain on available-for-sale securities – – 13,200 – 13,200

Total 82,924 (6,276) 13,200 – 89,848

- IID-33 -


8. CASH & CASH EQUIVALENTS

Cash and cash equivalents as of 30 June 2012 and 31 December 2011 consist of the following:


Account 30 June 201231 December

2011

Cash 10,969 10,460

Korean Won deposits 5,063,824 8,338,406

Foreign currency deposit 204,935 367,469

Total 5,279,729 8,716,335

9. FINANCIAL ASSETS

(1) Financial assets as of 30 June 2012 and 31 December 2011 consist of the following:


30 June 2012 31 December 2011Account Current Non-current Current Non-current

Short * long-term financial

instruments (*) 100,000 1,500 100,000 –

Trading securities – – 1,295,731 –

Available-for-sale securities – 69,030 – 365,779

Held-to-maturity securities – 19,022 – 18,889

Total 100,000 89,552 1,395,731 384,668

(*) The short-term financial instruments are corporate credit cards, on which lien is placed by KB,

and therefore are subject to use restrictions. Long-term financial instruments are deposited as

performance guarantee deposit.

- IID-34 -


(2) Investment securities as of 30 June 2012 and 31 December 2011 consist of the following:

(30 June 2012)


30 June 2012

Investee TypeAcquisition

cost Fair value Book value


Zeroin Co.,Ltd Non-marketable equity 300,000 10,693 10,693




(Formerly, Artplace Co.,Ltd)

Non-marketable equity 500,010 – –





Total 1,762,565 69,030 69,030


Government and Public Bonds Available-for-sale debts 17,676 19,022 19,022

Among available-for-sale securities unlisted and non-marketable equity securities are stated at cost if

their value values cannot be reliably measured and the difference between the fair value and acquisition cost is

insignificant. The recoverable value or the Company’s share of equity interest in H&H Creative has decreased

significantly and the recoverability was highly uncertain. Accordingly, the Company recognized impairment loss

on available-for-sale securities for the amount of KRW500,010 thousand.

- IID-35 -


(31 December 2011)


31 December 2011

Investee TypeAcquisition

cost Fair value Book value

<Trading securities>

SK Innovation Marketable equity

securities

374,542 284,000 284,000

Celtrion Marketable equity

securities

900,882 868,441 868,441

BH Marketable equity

securities

140,693 143,290 143,290

Total 1,416,117 1,295,731 1,295,731


Zeroin Co.,Ltd Non-marketable equity 300,000 10,693 10,693




(Formerly, Artplace Co.,Ltd)






Korea Lottery Services Marketable equity 78,000 103,200 103,200

Total 1,886,406 365,779 365,779


Government & Public Bonds Available-for-sale debts 17,676 18,889 18,889

(3) Changes in trading securities, available-for-sale securities, and held-to-maturity securities are as follows:



Account TradingAvailable-

for-saleHeld-to-maturity Trading

Available-for-sale

Held-to-maturity

Beginning balance 1,295,731 365,779 18,889 4,363,528 374,547 17,676

Acquisition cost 540,714 – – 6,956,278 – –

Valuation (*) – 349,312 133 (120,387) 26,477 1,213

Impairment loss – (500,010) – – (35,245) –

Decrease as a result of division – (82,160) – – – –

Disposal (1,836,445) (63,891) – (9,903,688) – –

Book value at balance sheet date – 69,030 19,022 1,295,731 365,779 18,889

(*) Amount before recognizing the income tax effect of valuation loss on available-for-sale

securities

(4) The maximum exposure to credit risk as of the reporting period is the fair value of financial assets.

- IID-36 -


10. INVENTORIES

Inventories as of 30 June 2012 and 31 December 2011 consist of the following:



ClassificationAcquisition

costAllowance forvaluation loss Book value

Acquisitioncost

Allowance forvaluation loss Book value

Finished goods 735,805 (205,785) 530,019 1,011,790 (203,805) 807,985

Raw materials 2,682,880 (952,064) 1,730,817 2,519,302 (841,214) 1,678,088

Total 3,418,685 (1,157,849) 2,260,836 3,531,092 (1,045,019) 2,486,073

11. TRADE RECEIVABLES AND OTHER RECEIVABLES

(1) Trade receivables and other receivables as of as of 30 June 2012 and 31 December 2011 consist of the

following:


30 June 2012 31 December 2011Classification Current Non-current Current Non-current

Short-term loans 379,000 – 300,000 –

Allowance for doubtful account (379,000) – – –

Trade receivables 1,388,821 – 2,073,617 –

Allowance for doubtful account (356,998) – (710,561) –

Receivables from Construction

Contracts – – 155,934 –

Account receivables 157,600 – 435,359 –

Allowance for doubtful account (155,860) – (14,360) –

Accrued income 71,381 – 54,228 –

Allowance for doubtful account (68,860) – – –

Lease deposit (*) – 280,300 – 289,100

Discount on present valuation – (5,482) – (7,250)

Other security deposit – 28,116 – 29,516

Total 1,036,084 302,934 2,294,217 311,366

(*) Fair value of non-current portion of trade receivables and other receivables is measured using the

appropriate discount rate to calculate the present value of the estimated future cash flows. The

maximum exposure to credit risk as of the balance sheet date is the fair value of the financial

assets.

(2) Allowances for doubtful accounts as of 30 June 2012 and 31 December 2011 consist of the following:



2011

Trade receivables 356,998 710,561

Account receivables 155,860 14,360

Accrued income 68,860 –

Short-term loan 379,000 –

Total 960,718 724,921

- IID-37 -


(3) The changes in the allowances for doubtful accounts during the reporting periods are as follows:



2011

Beginning balance 724,921 885,359

Contribution to allowance for doubtful accounts 817,595 377,430


Write-off (214,686) (530,945)

End of the period 960,718 724,921

The Company accrues allowance for doubtful account for trade receivables based on individual analysis

and historical experience. Except trade receivables from export business, there is no significant concentration of

credit risk, which is distributed over a number of different customers.

(4) The aging analysis of trade and other receivables as of 30 June 2012 and 31 December 2011 is presented

below:



ClassificationReceivable

balanceImpairment

loss (Accrued) Book valueReceivable

balanceImpairment

loss (Accrued) Book value

Less than 3 month 906,795 – 906,795 533,219 – 533,219

3~12 months 169,622 (78,137) 91,485 1,259,122 (429,284) 829,838

More than 1 year 312,404 (278,861) 33,543 281,277 (281,277) –

Total 1,388,821 (356,998) 1,031,823 2,073,617 (710,561) 1,363,057

12. OTHER CURRENT ASSETS

Other current assets as of 30 June 2012 and 31 December 2011 consist of the following:



2011

Advance payment 3,018,070 154,583

Prepaid expenses 9,757 15,357

Total 3,027,827 169,940

- IID-38 -


13. PROPERTY, PLANT AND EQUIPMENT

(1) Changes in property, plant and equipment during the first half, 2012 are as follows:


Classification 1/1 Acquisition Disposal Depreciation Reclassified (*) 6/30

Land 327,688 – – – – 327,688

Buildings 558,847 – – 9,928 – 548,919

Machinery and Equipment – – – – – –

Facilities and Equipment 61,493 – – 14,179 – 47,314

Vehicles 73,216 – 39,735 7,507 – 25,974

Tools and instruments 17,670 5,598 1,696 1,866 – 19,706

Furniture & Fixture 60,885 11,493 – 15,094 – 57,284

Government Subsidies (479) – – (479) – –

Mould 222,415 27,200 – 42,096 – 207,519

Computation equipment 16,427 – – 5,226 – 11,201

Total 1,338,162 44,291 41,430 95,417 – 1,245,606

(*) The book value for furniture (KRW1,696,000) has been decreased as a result of real division

during the first half 2012.

(2) Changes in property, plant and equipment during 2011 are as follows:


Classification 1/1 Acquisition Disposal Depreciation Reclassified (*) 12/31

Land 327,688 – – – – 327,688

Buildings 578,703 – – 19,856 – 558,847

Machinery and Equipment – – – – – –

Facilities and Equipment 58,670 26,350 – 23,527 – 61,493

Vehicles 143,237 – – 70,021 – 73,216

Tools and instruments 24,566 690 – 7,586 – 17,670

Furniture & Fixture 71,817 29,742 – 40,674 – 60,885

Government Subsidies (2,914) – – (2,435) – (479)

Mould 211,354 82,000 – 70,939 – 222,415

Computation equipment 125,358 11,420 – 120,351 – 16,427

Total 1,538,479 150,202 – 350,519 – 1,338,162

(3) No borrowing costs have been capitalized in connection with property, plant and equipment during the

reporting periods.

- IID-39 -



(1) Changes in the book value of intangible assets during the first half 2012 are as follows:


AccountDevelopment

costs

Intellectualproperty

rights Membership GoodwillConstructionin progress Software Others Total

Beginning 429,466 28,956 314,800 106,101 1,253,845 3,640 – 2,136,808

External acquisition – – – – – 4,369 – 4,369

Internal development – – – – 362,428 – – 362,428

Reclassification of construction

in progress to main account – – – – (740,747) – – (740,747)


in progress 740,747 – – – – – – 740,747

Amortization (241,334) (4,217) – – – (840) – (246,391)

Impairment loss – – – (106,101) – – – (106,101)

Ending 928,879 24,739 314,800 – 875,526 7,169 – 2,151,113

(2) Changes in intangible assets during 2011 are as follows:


AccountDevelopment

costs

Intellectualproperty

rights Membership GoodwillConstructionin progress Software Others Total

Beginning 271,682 38,300 339,800 106,101 796,740 1,189 218 1,554,031

External acquisition – – (25,000) – – 3,250 – (21,750)

Internal development – – – – 1,038,249 – – 1,038,249


in progress to main account – – – – (581,144) – – (581,144)


in progress 581,144 – – – – – – 581,144

Amortization (423,360) (9,345) – – – (799) (218) (433,722)

Ending 429,466 28,956 314,800 106,101 1,253,845 3,640 – 2,136,808

(3) Ordinary development expenses on research and development activities during the first half 2012 and

2011 are KRW135,814 thousand and KRW107,908 thousand respectively.


Changes in the book value of the investment property during the first half 2012 are as follows:



2011

Beginning 138,839 138,839

Acquisition – –

Disposal (138,839) –

Total – 138,839

- IID-40 -


16. INVESTMENTS IN ASSOCIATES

(1) Investments in subsidiaries and associates as of 30 June 2012 consist of the following.


Name Ownership % Major businessesNo. ofShares

Acquisitioncost

Book Value6/30/2012 12/31/2011

RIA Soft Co., Ltd.(*) 100.00% Software development 10,000 3,000,000 – 587,792

Human Green Landscape

Co., Ltd. (**)

100.00% Landscaping 840,000 715,969 – –

Total 3,715,969 – 587,792

(*) With regard to the investment securities in RIA Soft Co, Ltd., the Company recognized

impairment loss of KRW586,492 thousand less KRW1,300 thousand equal to the fair value of

the financial guarantee agreement for this subsidiary as the carrying value of such investment

securities is deemed to exceed their recoverable value. As of the end of the reporting period, an

amount equal to these financial guarantee liabilities is recognized as other provision liabilities.

(See Note 28)

(**) During the reporting period, the Company established a spin-off subsidiary named Human Green

Landscape Co., Ltd. in the form of physical division from the Landscaping Business Division of

the Company. After the reporting period, the Company executed a sales/purchase agreement

with an investor on 13 July 2012 to sell the establish spin-off subsidiary. In this connection, the

lesser of (1) fair value less costs to sell and (2) carrying value of the assets held for sales is

recognized as non-current assets held for sale.

(2) Non-current assets held for sale as of 30 June 2012 are as follows


Company NameAcquisition

cost

Book Value

30 June 201231 December

2011

Human Green Landscape Co., Ltd. 715,969 715,969 –

(3) The Company discloses the financial information on the investments in subsidiaries and associates

accounted by the equity method, according to the paragraph, Han 16A.1 of K-IFRS No.1034 (Interim

Financial Reporting). The statement of financial position and the statement of comprehensive income

computed by the equity method are summarized as follows:

- IID-41 -


* Statement of Financial Position by Equity Method



Current assets 11,726,875 15,755,396

Non-current assets 3,789,204 5,512,743

Non-current assets held for sale 715,969 –

Total assets 16,232,049 21,268,139

Current liabilities 630,998 1,031,780

Non-current liabilities 817,497 779,049


Shareholders’ equity 14,783,554 19,457,311

Total liabilities and shareholders’ equity 16,232,049 21,268,140

* Statement of Comprehensive Income by Equity Method



Sales 3,211,520 3,843,245

Cost of sales 2,525,312 2,097,199

Gross Profit 686,207 1,746,045

Operating income (1,843,148) (370,073)

Profit/loss using equity method (586,492) –

Financial income 375,442 373,436

Financial costs 597,926 389,893

Profit(loss) before tax (2,652,124) (386,530)

Income tax expense 261,397 61,473

Profit(loss) from continuing operations (2,913,521) (448,004)

Profit(loss) from discontinued operations (7,892) 106,952

Profit (loss) (2,921,413) (341,052)

Other comprehensive income 238,386 8,915

Total comprehensive income (2,683,027) (332,137)

(4) Investment profit(loss) in subsidiaries and associate during the reporting periods is as follows.



Impairment loss on investment securities (586,492) –

(5) The financial information on investment securities in subsidiaries and associate is summarized as

follows:


Name Period endedTotalassets

Totalliabilities Sales

Operatingincome

Net profit(loss)

RIA Soft Co., Ltd.30 June 2012 600,949 1,072,393 469,321 (423,055) (443,710)

31 December 2011 980,853 1,008,587 2,123,613 (459,374) (415,750)

Human Green Landscape 30 June 2012 805,600 89,631 – – –

- IID-42 -


17. TRADE PAYABLES AND OTHER PAYABLES

(1) Trade payables and other payables as of 30 June 2012 and 31 December 2011 consist of the following:



2011

Trade Payables 253,315 678,717

Account Payables 271,493 930,200

Accrued expenses 101,124 114,850

Withholdings 3,482 8,476

Total 629,414 1,732,243

(2) Other current liabilities as of 30 June 2012 and 31 December 2011 consist of the following:



2011

Advance payment 1,585 102,743

Construction advance payment – 167,140

Total 1,585 269,883

18. DEFINED BENEFIT OBLIGATIONS

The Company operates defined benefit plans as retirement benefit plans, which an employee will receive on

retirement, usually dependent on one or more factors such as age, years of service and compensation. (i.e. 3 month

average wages x pre-determined rate x number of years of service), The defined benefit obligations are calculated

annually by qualified independent actuaries using the projected unit credit method.

(1) Post-employment benefit obligations as of 30 June 2012 and 31 December 2011 consist of the

following:



2011

Present value of defined benefit obligations 730,855 918,036

Fair value of plan assets (1,358) (1,336)

Total obligations recognized in the financial statements 729,497 916,701

- IID-43 -


(2) Changes in post-employment benefit obligations during the reporting periods are as follows:



2011

Beginning 918,036 703,209

Current service cost (*) 111,785 194,366


Actuarial gains and losses (Before-tax) 18,190 45,827

Decrease as a result of division (13,424) –

Severance Benefits paid (323,492) (61,822)

Ending 730,855 918,036

(3) Changes in the fair value of plan assets during the reporting periods are as follows:



2011



Severance Benefits paid – –

Actuarial gains and losses (Before-tax) (1) (11)

Ending 1,358 1,336

(4) The amounts recognized in the statements of income during the reporting periods are as follows:






Gain(loss) on reduction or liquidation – –

Total 131,522 115,389



2011

Discount rate 4.06% 4.76%

Expected return on plan assets 3.52% 3.52%

Future salary increases 5.00% 5.00%

The Company determined the discount rate based on interest rates of high-quality corporate bonds that have

terms to maturity approximating to the terms of the related defined benefit obligations.

- IID-44 -


19. STOCK OPTIONS

The Company granted stock options to qualified officers and employees of the Company by a resolution of the

General Shareholders’ Meeting held on 29 March 2010 as follows:

(1) Class of shares to be result as a result of exercise of stock options: Common shares in theregistered form

(2) Granting method: either by issuing new shares or by delivering treasury stocks as determined bythe Board of Directors

(3) Number of shares to be issued and the exercise price per share

Classification 2010

Number of shares 1,000,000 shares

Exercise price per share KRW590

Date of granting stock options 29 March 2010

Exercise period Within 7 years after 2 years have elapsed from the

date of granting the stock options

(4) The Company has used the Black-Scholes Model to measure the fair value as the date of granting the

stock options. The methods and assumptions used for such calculation are as follows:

Classification Key assumptions

Risk-free interest rate (Market yield for government & public bonds

with 5-year maturity):

3.84%



Expected dividend yield 0%

(5) The cost of compensation under the stock options that has been or will be recognized up to the reporting

period and subsequent periods is as follows:



Compensation cost recognized up to 31 December 2011 216,199

Compensation cost recognized in the first half of 2012 29,972

Compensation cost to be recognized in subsequent years –

Total 246,171

- IID-45 -


(6) Changes in the stock options recognized in the shareholders’ equity for the periods ended 30 June 2012

and 31 December 2011 are as follows:



2011

Beginning 216,199 93,282



Ending Balance 246,171 216,199

20. CAPITAL STOCK

(1) The capital stocks of the Company as of the end of the reporting periods consist of the following:

Classification Unit 30 June 201231 December

2011

Number of authorized shares Shares 200,000,000 200,000,000

Number of issued and outstanding shares Shares 35,400,316 35,400,316

Par value KRW 500 500

Common share capital stocks thousands of KRW 17,700,158 17,700,158

(2) Capital surplus as of the end of the reporting periods consist of the following:



2011

Additional Paid-in Capital 1,379,564 1,379,564

Gain on capital reduction 3,515,143 3,515,143

Total 4,894,707 4,894,707

(3) Other shareholders’ equity items as of the end of the reporting periods consist of the following:



2011

Loss on disposal of treasury stock (4,484,730) (4,484,730)

Stock options 246,171 216,200

Valuation loss on available-for-sale securities – (270,700)

Valuation gain on available-for-sale securities 6,529 20,652

Total (4,232,031) (4,518,578)

- IID-46 -


21. PROFIT/LOSS FROM DISCONTINUED OPERATIONS

The Company established a spin-off subsidiary named Human Green Landscape Co., Ltd. in the form of physical

division from the Landscaping Business Division of the Company effective from 30 June 2012 in order to improve

operational efficiency, according to the Division Plan approved by the Special General Shareholders’ Meeting held on 26

June 2012. After the reporting period, the Company has sold all of its equity securities of the spin-off subsidiary.

(1) Assets and liabilities transferred to the spin-off company as a result of the real division consist of the

following.


ClassificationAssets andLiabilities

Assets within the spin-off division 11,364

Cash & cash equivalents 476,225

Trade receivables and other receivables 245,520

Other non-current financial assets 82,160

Property, plant and equipment 1,696

Total assets 805,600

Liabilities within the spin-off division 1,242,643

Trade payables and other payables 63,060

Other current liabilities 13,065

Defined benefit obligations 13,424

Other liabilities 82

Total liabilities 89,631

Net assets 715,969

(2) The profit/loss and cash flows of the spin-off Landscape Business Division are separated from

continuing operations and classified as discontinued operations separated. The comparative statement of

income for the comparative period has been restated to reflect this change.



Sales 1,134,235 1,231,481

Cost of sales 1,142,543 1,124,820

Gross profit (8,308) 106,661

Finance income(loss) 416 291

Pretax profit (loss) from discontinued operations (7,892) 106,952

Income tax expense – –

Profit (loss) from discontinued operations (7,892) 106,952

Cash flows generated from discontinued operations during the reporting periods are as follows:



Cash flows from operating activities (1,117,003) 643,121

Cash flows from investment activities – –

Cash flows from financial activities – –

Net cash flows (1,117,003) 643,121

- IID-47 -


22. STATEMENT OF CASH FLOWS

Adjustments in cash flows from operating activities and changes in net working capital are as follows:



Profit (loss) from continuing operations (2,913,521) (448,004)

Profit (loss) from discontinued operations (7,892) 106,952

Adjustments



Amortization of intangible assets 246,391 120,510

Impairment loss on goodwill 106,101 –

Loss on foreign exchange translation 29,872 91,205

Bad debt expenses 13,549 64,408

Other bad debt expenses 804,045 –

Loss on valuation of trading securities – 191,783

Loss on disposal of trading securities 11,640 –

Impairment loss on available-for-sale securities 500,010 –

Impairment loss on equity securities of subsidiaries 586,492 –

Loss on financial guarantee 88,000 –


Present value discounts (1,768) (3,943)

Reversal of bad debt expenses (367,111) (1,084)

Gain on foreign exchange translation (6,511) (1,311)

Interest income (108,614) (127,110)

Dividend income (7,992) (57,142)

Gain on disposal of trading securities (137,587) (124,750)

Gain on disposal of available-for-sale securities (32,350) –

Gain on disposal of property, plant & equipment (14,888) –

Gain on disposal of investment assets (1,161) –

Sub-total 1,974,220 522,614

Change in working capital:

Increase(decrease) in trade receivables 661,435 622,345

Increase(decrease) in account receivables 62,878 92,675

Increase(decrease) in construction A/R (89,392) 278,324

Increase(decrease) in advance payments (2,863,487) (116,788)

Increase(decrease) in prepaid expenses 5,600 (1,341)

Increase(decrease) in accrued income tax refund 42,565 51,020

Increase(decrease) in inventories 225,238 (802,550)

Increase(decrease) in trade payables (425,402) (581,900)

Increase(decrease) in account payables (595,647) 115,706

Increase(decrease) in advances (101,158) (286)

Increase(decrease) in withholdings (4,995) (755)

Increase(decrease) in accrued expenses (13,726) (340)

Increase(decrease) in construction advances (154,075) 86,130

Changes in deferred income tax 261,023 61,473

Payment of retirement benefits (323,492) (41,846)

Sub-total (3,312,635) (238,133)

Cash flows from operating activities (4,259,828) (56,571)

- IID-48 -



Selling and general administration expenses during the reporting periods consist of the following:



Salaries & wages 599,377 533,476

Severance benefit 40,204 115,389


Employee benefits 120,006 98,698

Travel 22,319 61,253


Communication expenses 13,874 15,161

Utility 543 792

Taxes & dues 7,638 12,250



Ordinary research and development expense 135,814 107,908

Rental 185,582 108,961


Vehicle maintenance 7,167 8,992

Freight 55,302 54,386

Publication 1,978 840

Supplies 7,316 6,640

Service Fees 256,720 313,205



Training expense 321 640

Repairs – 1,051


Total 1,919,081 2,117,202

24. OTHER INCOME AND EXPENSES, FINANCIAL INCOME AND COSTS

(1) Other income and expenses and financial income and costs during the reporting periods consist of the

following:



Reversal of allowance for doubtful account 367,111 1,084

Gain on disposal of property, plant & equipment 14,888 –

Gain on disposal of investment assets 1,161 –

Miscellaneous income 4,712 –

Total other income 387,872 1,084


Impairment loss on goodwill 106,101 –

Loss on financial guarantee liabilities 88,000 –

Total other expenses 998,146 –

- IID-49 -


(2) Financial income and financial costs during the reporting period consist of the following:



Interest income 109,811 130,762

Gain on foreign exchange transaction 80,567 59,471


Dividend income 7,992 57,142

Gain on disposal of trading securities 137,587 124,750

Gain on disposal of available-for-sale securities 32,350 –

Total financial income 375,442 373,436

Loss on foreign exchange transaction 54,993 99,142


Loss on valuation of trading securities – 191,783

Loss on disposal of trading securities 11,640 –

Impairment loss on available-for-sale securities 500,010 –

Total financial costs 597,926 389,893


(1) Income tax expense (income) during the reporting periods consists of the following:



Income tax currently payable – –

Increase(decrease) of deferred tax assets arising from

temporary difference 331,841 63,988

Increase(decrease) of deferred tax assets arising from division 82 –

Income tax effect directly charged to equity (70,526) (2,515)

Income tax expense 261,397 61,473

(2) The relationship between profit before tax and the income tax expense for the reporting periods is as

follows:

(In thousands of Korean Won)Classification 30 June 2012 30 June 2011

Profit before tax (2,652,124) (386,530)Effective tax rate 22% 24.20%Income tax (583,467) (67,658)AdjustmentsDisallowed expenses (share-based payments, outflow of

income) 29,972 74,659Disallowed income (dividend and others) (7,992) (18,906)Increase(decrease) of deferred income tax arising from

division 82 –

Deferred income tax effect 561,406 80,881Others (tax rate differences, etc.) – (7,503)Income tax expense 261,397 61,473Effective tax rate (income tax/profit before tax) – –

(*) Effective tax rate is not shown as it is a negative rate.

- IID-50 -


(3) As of the end of the reporting periods, deferred income tax expenses arising from occurrence and

extinction of temporary differences between deferred income tax assets and liabilities consist of the

following:

(30 June 2012)


ClassificationTemporary difference to be deducted (added)

Deferred incometax assets (liabilities)

Beginning Increase Decrease Ending Beginning Ending

Accrued income (577) (68,860) (577) (68,860) (127) (15,149)

Provision for valuation of inventories 1,045,018 1,157,849 1,045,018 1,157,849 229,904 254,727

Provisions for severance indemnities 757,970 – – 757,970 166,753 166,753

Loss on equity method 940,659 – – 940,659 206,945 206,945

Impairment loss on equity method 1,471,549 586,492 0 2,058,041 323,741 452,769

Trading securities 120,387 – 120,386 – 26,485 –

Impairment on investment assets 100,000 – 0 100,000 22,000 22,000

Allowance for doubtful accounts 950,612 817,595 367,111 1,401,095 209,135 308,241

Bad debt expenses 2,667,531 – – 2,667,531 586,857 586,857

Goodwill – 106,101 – 106,101 – 23,342

Other intangible assets 6,251 – – 6,251 1,375 1,375

Retirement insurance deposits (1,336) – – (1,336) (294) (294)

Available-for-sale securities 1,946,433 500,010 – 2,446,443 428,215 538,217

Accrued paid leave 49,024 43,261 49,024 43,261 10,785 9,517

Finance guarantee contract 1,300 88,000 1,300 88,000 286 19,360

Depreciation – – – – – –

Patent 1,159 – 391 768 255 169

Development expense 93,978 – 209 93,769 20,675 20,629

Total temporary differences 10,149,958 3,230,448 1,582,862 11,797,542 2,232,990 2,595,459

Unrecognized deferred income tax

assets (liabilities) (1,901,149) (2,595,459)

Recognized deferred income tax assets

(liabilities) 331,841 –

There is no income tax payable by the Company as a result of undisposed accumulated loss. Deferred

tax effect from temporary differences and undisposed accumulated loss was not recognized as deferred income

tax assets due to the uncertainty regarding ultimate realizability of such assets.

- IID-51 -


(31 December 2011)


ClassificationTemporary difference to be deducted (added)

Deferred incometax assets (liabilities)

Beginning Increase Decrease Ending Beginning Ending

Accrued income (413) (577) (413) (577) (91) (127)

Provision for valuation of inventories 837,809 1,045,018 837,809 1,045,018 184,318 229,904

Provisions for severance indemnities 600,059 157,911 – 757,970 132,013 166,753

Loss on equity method 941,959 – 1,300 940,659 207,231 206,945

Impairment loss on equity method 1,208,041 263,508 – 1,471,549 265,769 323,741

Trading securities 188,623 122,983 191,219 120,387 41,497 26,485

Impairment on investment assets 100,000 – – 100,000 22,000 22,000

Loss on foreign currency transactions 24,964 – 24,964 – 5,492 –

Gain on foreign currency translation (56,270) – (56,270) – (12,379) –

Allowance for doubtful accounts 986,441 684,120 719,949 950,612 217,017 209,135

Bad debt expenses 2,482,614 184,917 – 2,667,531 546,175 586,857

Goodwill 106,101 – 106,101 – 23,342 –

Other intangible assets 6,251 – – 6,251 1,375 1,375

Retirement insurance deposits (1,258) (78) – (1,336) (277) (294)

Available-for-sale securities 1,941,665 31,245 26,477 1,946,433 427,166 428,215

Accrued paid leave 46,689 49,024 46,689 49,024 10,272 10,785

Finance guarantee contract – 1,300 – 1,300 – 286

Depreciation (228,718) – (228,718) – (50,318) –

Patent 1,941 – 782 1,159 427 255

Development expense 94,395 – 417 93,978 20,767 20,675

Total temporary differences 9,280,892 2,539,371 1,670,306 10,149,958 2,041,796 2,232,990

Unrecognized deferred income tax

assets (liabilities) (1,389,479) (1,901,149)

Recognized effect from transition to

K-IFRS (33,317) –

Recognized deferred income tax assets

(liabilities) 619,000 331,841

(4) Deferred income tax directly charged to shareholders’ equity during the reporting periods consist of the

following.


Classification

30 June 2012 30 June 2011

Before taxIncome tax

effect After tax Before taxIncome tax

effect After tax

Gain on valuation of available-for-sale

securities (19,949) (5,825) (14,124) 13,200 2,904 10,296

Loss on valuation of available-for-sale

securities 347,051 76,351 270,700 – – –

Actuarial gain (loss) (18,190) – (18,190) (1,770) (389) (1,381)

Total 308,912 70,526 238,386 11,430 2,515 8,915

Deferred tax effect for items not recognized as current earnings was not recognized as deferred income

tax assets due to the uncertainty regarding ultimate realizability of such assets.

- IID-52 -



Expenses related to business activities during the reporting periods consist of the following:



Change of goods 1,811,946 1,108,355

Salaries and wages 902,232 839,148


Depreciation and amortization 350,976 313,710

Impairment loss and bad debt expense 13,549 64,408

Freight 81,441 74,991

Raw materials for prototype 4,208 –

Outside service expense and rental expenses 459,362 707,666

Service Fees 334,527 392,566

Others 456,180 652,101

Total (*) 4,444,393 4,214,402

(*) Sum of the cost of sales and selling & general administrative expenses presented in the statement of

income.


(1) Basic earnings per share during the reporting periods are calculated as follows:

(In Korean Won)

Classification 30 June 2012 30 June 20113 months YTD 3 months YTD

Profit(loss) from continuing

operations (2,677,977,838) (2,913,521,182) (650,566,831) (448,003,876)

Profit(loss) available for common

stock (2,697,700,616) (2,921,412,704) (622,693,383) (341,052,047)

Weighted-average number of

common shares outstanding 35,400,316 35,400,316 35,400,316 35,400,316

Earnings per share (from

continuing operations) (76) (82) (18) (13)

Basic earnings (loss) per share (76) (83) (18) (10)

- IID-53 -


(2) Diluted earnings per share during the reporting periods are calculated as follows:

(In Korean Won)


Profit(loss) from continuing

operations (2,677,977,838) (2,913,521,182) (650,566,831) (448,003,876)

Profit(loss) available for common

stock (2,697,700,616) (2,921,412,704) (622,693,383) (341,052,047)

Weighted-average number of

common shares outstanding 35,400,316 35,400,316 35,400,316 35,400,316

Number of diluted shares 1,338 58,718 – –

Diluted earnings (loss) per share

(from continuing operations) (76) (82) (18) (13)

Diluted earnings (loss) per share (76) (83) (18) (10)

Diluted earnings per share is calculated by adjusting the weighted average number of common shares

outstanding to assume conversion of all dilutive potential common shares to be issued as a result of exercise of

stock options. The dilute effect arises as the average market price per common share is higher than the exercise

price of stock options.

(3) Basic earnings and diluted earnings per share from discontinued operations

(In Korean Won)


Basic earnings (loss) per share (1) (0) 1 3

Diluted earnings (loss) per share (1) (0) 1 3

28. CONTINGENCIES AND COMMITMENTS

(1) The Company supplies security solution services to public agencies through competitive bids. In this

connection, the Company has been provided with payment guarantee of KRW93,866,000 from Seoul

Guarantee Insurance as performance bond. The Company has placed a security deposit of KRW1.5

million with Seoul Guarantee Insurance to guarantee the performance of the contract made with Korea

Federation of Community Credit Cooperatives for the fingerprint recognition security solution service.

(2) The Company has provide payment guarantees up to KRW88 million for the loans borrowed by RIA

Soft Co., Ltd, one of the subsidiaries of the Company, from financial institutions. This amount is

recognized as other provisions due to high probability of occurrence.


(1) Related parties of the Company as of 30 June 2012 consist of the following:

Classification Related Parties

Related party which has the ability to

exercise significant influence over the

Company

New Concept Capital Limited(British Virgin Islands)

- IID-54 -


Other related parties AV CONCEPT Limited and its associates

Subsidiaries RIA Soft Co., Ltd.

(2) The related account balances as of 30 June 2012 and 31 December 2011 are as follows:


Relationship Name30 June 2012 31 December 2011

Receivables Payables Receivables Payables

Subsidiary RIA Soft Co,. Ltd. 589,360 – 495,149 –

Other related party AV CONCEPT Limited 2,950,085 – – –

As of 30 June 2011, the Company has recognized provision for all receivables from RIA Soft Co., Ltd,

one of the subsidiaries of the Company

(3) Transaction with the related parties of the Company during the reporting periods are as follows: (in

thousands of KRW)


Relationship Name Transaction 30 June 2012 30 June 2011

Subsidiaries RIA Soft Co., Ltd.Interest income 15,210 13,168

Lease 79,000 300,000

Other related parties AV CONCEPT

Limited

Advance payment

for raw materials

2,950,085 –

(4) Compensation for key management

The compensation paid or payable to key management for their services during the reporting period are

as follows. Key management includes registered executive officers (including non-standing directors and auditor)

who have the authority and responsibility in the planning, directing and controlling of Company operations.



Wages, salaries, short-term loans 172,800 170,250



Total 433,664 383,525

30. EVENTS AFTER THE REPORTING PERIOD

(1) The Company established a subsidiary named Nitgen Lighting Limited (Hong Kong) on 19 July 2012 to

expand LED business in the overseas market. In addition, the Company loaned KRW8,522 million to

Nitgen Lighting Limited (Hong Kong) on 31 July 2012.

(2) The Company issued overseas bonds with warrants (face value USD5,500,000 or KRW6,310 million) to

PRECISE ENERGY HOLDINGS Limited on 31 July 2012. The exercise price of the BW is KRW723

and the maturity is 31 July 2015.

- IID-55 -


UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE GROUP

Introduction

The following is the unaudited pro forma financial information of the Group prepared in accordance

with paragraph 4.29 of The Listing Rules for the purpose of illustrating the effect of the Securities

Subscription, Shares Subscription and the Disposal on the financial position, results and cash flows of the

Group as if the Securities Subscription, Shares Subscription and Disposal had been completed. As it is

prepared for illustrative purpose only, and because of its nature, it may not give a true picture of the financial

position, results and cash flows of the Group following the completion of the Investment Agreement and the

Subscription Agreement and the Disposal Agreement.

Certified Public AccountantsUnit A, 3rd Floor, Queen’s Centre

58-64 Queen’s Road East, Wan Chai, Hong Kong

Tel: (852) 3188 3631

Fax: (852) 3188 1769

L & P CPA Limited 歷寶會計師事務所有限公司執業會計師香港灣仔皇后大道東58-64號

帝后商業中心3樓A室

電話： (852) 3188 3631

傳真：(852) 3188 1769

20 November 2012

The directors

AV Concept Holdings Limited(Incorporated in the Cayman Islands with limited liability)

Dear Sirs,

We report on the unaudited pro forma financial information (the “Unaudited Pro Forma Financial

Information”) of AV Concept Holdings Limited (the “Company”) and its subsidiaries (hereinafter

collectively referred to as the “Group”) set out in Appendix III to the circular dated 20 November 2012

issued by the Company, in connection with the Company’s proposed major transactions regarding the

Subscription of Shares in and Bonds Issued by Nitgen, and Disposal of 35% Interest in Success Pillar (the

“Circular”). The Unaudited Pro Forma Financial Information is unaudited and has been prepared by the

directors of the Company for illustrative purposes only, to provide information about how the proposed major

transactions might have affected the financial information of the Group presented in Appendix I to the

Circular. The basis of preparation of the Unaudited Pro Forma Financial Information is set out on pages III-4

to III-6 of the Circular.

RESPECTIVE RESPONSIBILITIES OF THE DIRECTORS OF THE COMPANY AND REPORTINGACCOUNTANTS

It is the responsibility solely of the directors of the Company to prepare the Unaudited Pro Forma

Financial Information in accordance with paragraph 4.29 of the Rules Governing the Listing of Securities on

The Stock Exchange of Hong Kong Limited (the “Listing Rules”) and with reference to Accounting

Guideline 7 “Preparation of Pro Forma Financial Information for Inclusion in Investment Circulars” issued by

the Hong Kong Institute of Certified Public Accountants (“HKICPA”).

- III-1 -

APPENDIX III UNAUDITED PRO FORMAFINANCIAL INFORMATION OF THE GROUP

It is our responsibility to form an opinion, as required by paragraph 4.29(7) of the Listing Rules, on

the Unaudited Pro Forma Financial Information and to report our opinion to you. We do not accept any

responsibility for any reports previously given by us on any financial information used in the compilation of

the Unaudited Pro Forma Financial Information beyond that owed to those to whom those reports were

addressed by us at the dates of their issue.

BASIS OF OPINION

We conducted our engagement in accordance with the Hong Kong Standard on Investment Circular

Reporting Engagements 300 “Accountants’ Reports on Pro Forma Financial Information in Investment

Circulars” issued by the HKICPA. Our work consisted primarily of comparing the unadjusted financial

information with the source documents, considering the evidence supporting the adjustments and discussing

the Unaudited Pro Forma Financial Information with the directors of the Company. This engagement did not

involve independent examination of any of the underlying financial information.

Our work did not constitute an audit or a review made in accordance with Hong Kong Standards on

Auditing or Hong Kong Standards on Review Engagements issued by the HKICPA, and accordingly, we do

not express any such audit or review assurance on the Unaudited Pro Forma Financial Information.

We planned and performed our work so as to obtain the information and explanations we considered

necessary in order to provide us with sufficient evidence to give reasonable assurance that the Unaudited Pro

Forma Financial Information has been properly compiled by the directors of the Company on the basis stated,

that such basis is consistent with the accounting policies of the Group and that the adjustments are

appropriate for the purposes of the Unaudited Pro Forma Financial Information as disclosed pursuant to

paragraph 4.29(1) of the Listing Rules.

The Unaudited Pro Forma Financial Information is for illustrative purpose only, based on the

judgements and assumptions of the directors of the Company, and, because of its hypothetical nature, it does

not provide any assurance or indication that any event will take place in the future and may not be indicative

of the financial position of the Group as at 31 March 2012 or any future dates.

OPINION

In our opinion:

a) the Unaudited Pro Forma Financial Information has been properly compiled by the directors of

the Company on the basis stated;

b) such basis is consistent with the accounting policies of the Group; and

- III-2 -


c) the adjustments are appropriate for the purpose of the Unaudited Pro Forma Financial

Information as disclosed pursuant to paragraph 4.29(1) of the Listing Rules.

Yours faithfully,

L & P CPA LimitedCertified Public Accountants

Hong Kong

Chung Kwok FaiPractising Certificate No.: P04953

- III-3 -


Unaudited Pro Forma Financial Information of the Group

Pro formaadjustment

Pro formaadjustment

Pro formaadjustment

The Group as at 31March 2012

Pro forma statement ofassets and liabilities of

the Group uponcompletion of the

Subscription Agreement



Subscription Agreement& Investment

Agreement



SubscriptionAgreement, InvestmentAgreement & Disposal

of 35% interest inSuccess Pillar

HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000(Note 1) (Note 2) (Note 3) (Note 4) (Note 5) (Note 6) (Note 7)

NON-CURRENT ASSETSProperty, plant and equipment 131,037 131,037 131,037 131,037Investment properties 97,065 97,065 97,065 97,065Goodwill 48,795 48,795 48,795 48,795Other intangible assets 30,572 30,572 30,572 30,572Investments in jointly-controlled entities 53,199 53,199 53,199 53,199Investments in associates 110,025 54,264 164,289 26,548 30,948 221,785 (29,604) 192,181Available-for-sales investments 6,623 6,623 6,623 6,623Financial assets at fair value through profit or

loss – – 26,747 26,747 26,747Other deposits 13,448 13,448 13,448 13,448Deferred tax asset 2,473 2,473 2,473 2,473

Total non-current assets 493,237 547,501 631,744 602,140

CURRENT ASSETSAvailable-for-sales investments 15,091 15,091 15,091 15,091Inventories 296,278 296,278 296,278 296,278Trade receivables 270,531 270,531 270,531 270,531Prepayments, deposits and other receivables 89,692 89,692 89,692 89,692Equity investments at fair value through profit

or loss 111,129 111,129 111,129 111,129Tax recoverable 997 997 997 997Cash and bank balances 166,467 (54,264) (1,130) 111,073 (26,548) (57,695) 26,830 84,413 111,243

Total current assets 950,185 894,791 810,548 894,961

CURRENT LIABILITIESTrade payables, deposits received and accrued

expenses 210,938 210,938 210,938 210,938Interest-bearing bank borrowings 525,909 525,909 525,909 525,909Finance lease payables 423 423 423 423Tax payable 9,578 9,578 9,578 9,578Financial guarantee obligation 4,030 4,030 4,030 4,030

Total current liabilities 750,878 750,878 750,878 750,878

NET CURRENT ASSETS 199,307 143,913 59,670 144,083

TOTAL ASSETS LESS CURRENTLIABILITIES 692,544 691,414 691,414 746,223

NON-CURRENT LIABILITIESInterest-bearing bank borrowings 51,523 51,523 51,523 51,523Finance lease payables 1,142 1,142 1,142 1,142Deferred tax liability 5,187 5,187 5,187 5,187

Total non-current liabilities 57,852 57,852 57,852 57,852

Net assets 634,692 633,562 633,562 688,371

- III-4 -


Notes:

1. The balances are extracted from the audited consolidated statement of financial position of the Group as at 31

March 2012 included in the published annual report of the Group for the year ended 31 March 2012.

2. The adjustment represents the consideration payable for the Subscription Shares of KRW7,922,599,556

(equivalent to approximately HK$54,264,381) pursuant to the Subscription Agreement.

As at the date of this Circular, the Group holds 7,179,925 shares which represent 20.28% shareholding in Nitgen

(details of which were disclosed in the Company’s discloseable transaction announcement dated 10 May 2012).

The Group paid cash consideration of KRW13 billion (equivalent to approximately HK$88,577,026) for

acquiring these shares which was completed subsequent to 31 March 2012. The effect of acquiring these shares,

resulting from which the Group’s investments in associates and cash and bank balances have been increased and

decreased by approximately HK$88,577,026 respectively, has not been included in the above unaudited pro

forma financial information.

3. The adjustment is to reflect the settlement of directly attributable transaction costs. This comprises legal and

other professional expenses.

4. The adjustment represents the consideration payable for the Investment Shares of KRW3,876 million (equivalent

to approximately HK$26,547,945) pursuant to the Investment Agreement.

5. The adjustment represents the consideration payable for the NCC Bonds of US$7,425,373 (equivalent to

approximately HK$57,695,148) pursuant to the Investment Agreement.

According to the Group’s accounting policies, the Group shall measure the loan portion of the NCC Bonds at

amortised cost using the effective interest method. The conversion right attached in the NCC Bonds shall be

separately accounted for as a derivative and measured at fair value and classified as financial assets at fair value

through profit and loss.

For the purpose of this Unaudited Pro Forma Financial Information, the amortised cost of the loan portion of the

NCC Bonds is determined by assuming the effective interest rate of 23.074%. The basis of the effective interest

rate is determined by the directors with reference to the discounted rate suggested by an independent valuer in

assessing the loan portion of the NCC Bonds which sum up the risk free rate of 2.820%, credit spread of

18.974% and country risk of 1.280%. The value of the conversion right is measured at the difference of the fair

value of the NCC Bonds and the fair value of the loan portion.

The Group will determine the amortised cost of the loan portion of the NCC Bonds and the fair value of the

conversion right attached in the NCC Bonds upon Completion. Since the effective interest rate at the Completion

may be different from the effective interest rate used in the preparation of this Unaudited Pro Forma Financial

Information, the final amounts of the amortised cost of the loan portion and the fair value of the conversion right

may be different from the amounts stated herein.

6. The adjustment represents the consideration receivable from disposal of 35% interest in Success Pillar pursuant

to the Disposal Agreement.

As at the date of this Circular, the Group holds 262,500 shares which represent 35% shareholding in Success

Pillar. The Group paid cash consideration of HK$2,042,250 for acquiring these shares which was completed

subsequent to 31 March 2012. The effect of acquiring these shares, resulting from which the Group’s

investments in associates and cash and bank balances have been increased and decreased by approximately

HK$2,042,250 respectively, has not been included in the above unaudited pro forma financial information.

- III-5 -


7. The adjustment is to eliminate the unrealised profits resulting from the downstream transaction of disposal of the

35% interest in Success Pillar to the Purchaser, a wholly-owned subsidiary of Nitgen (an associate of the Group).

HK$’000

Consideration on disposal 84,413

Cost of investments (2,042)

Gain on disposal of Success Pillar 82,371

Interest of the Group in Nitgen upon completion of the Subscription Agreement &

Investment Agreement 35.94%

Unrealised profits 29,604

- III-6 -


1. RESPONSIBILITY STATEMENT

This circular, for which the Directors collectively and individually accept full responsibility, includes

particulars given in compliance with the Listing Rules for the purpose of giving information with regard to

the Company. The Directors, having made all reasonable enquiries, confirm that to the best of their

knowledge and belief, the information contained in this circular is accurate and complete in all material

respects and not misleading or deceptive, and there are no other matters the omission of which would make

any statement herein or this document misleading.

2. DIRECTORS’ INTERESTS

(a) As at the Latest Practicable Date, the interests and short positions of each Director in the shares

or underlying shares of the Company and its associated corporations (within the meaning of

Part XV of the SFO) which were required to be notified to the Company and the Stock

Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests and short

positions in which he was deemed or taken to have under such provisions of the SFO), or

which were required, pursuant to section 352 of the SFO, to be entered in the register

maintained by the Company referred to therein, or which were required, pursuant to the Model

Code for Securities Transactions by Directors of Listed Issuers contained in the Listing Rules,

to be notified to the Company and the Stock Exchange were as follows:

Long position in the Shares

Name of Director Nature of interestNumber of

Shares

Approximatepercentage of

interest

So Yuk Kwan Interest of controlled

corporations (note)

270,392,189 44.83%

So Chi On Beneficial owner 1,400,000 0.23%

Note: Of these 270,392,189 Shares, 614,000 were held by So Yuk Kwan, 189,138,300 Shares were registered

in the name of B.K.S. Company Limited and 80,639,889 Share were registered in the name of Jade

Concept Limited. Each of B.K.S. Company Limited and Jade Concept Limited is a company wholly-

owned by So Yuk Kwan.

(b) Save as disclosed in this circular, as at the Latest Practicable Date, none of the Directors or

chief executive of the Company had any interest and short positions in the shares, underlying

shares and debentures of the Company or any associated corporations (within the meaning of

Part XV of the SFO) which were required to be notified to the Company and the Stock

Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including the interests and

short positions in which they were deemed or taken to have under such provisions of the SFO),

or which are required, pursuant to section 352 of the SFO, to be entered in the register

maintained by the Company referred to therein, or which were required, pursuant to the Model

Code for Securities Transactions by Directors of Listed Issuers contained in the Listing Rules,

to be notified to the Company and the Stock Exchange.

- IV-1 -

APPENDIX IV GENERAL INFORMATION

3. SUBSTANTIAL SHAREHOLDERS’ INTERESTS

(a) As at the Latest Practicable Date, so far as is known to the Directors, the following persons,

other than a director or chief executive of the Company, had an interest or short position in the

shares and underlying shares of the Company which would fall to be disclosed to the Company

under the provisions of Divisions 2 and 3 of Part XV of the SFO, or were directly or indirectly,

interested in 10% or more of the nominal value of any class of share capital carrying rights to

vote in all circumstances at general meetings of the Company:

Long position in the Shares

Name of Shareholder Nature of interestNumber of

Shares

Approximatepercentage of

interest

Yeung Kit Ling Interest of spouse

(Note 1)

270,392,189 44.83%

B.K.S. Company Limited Beneficial owner

(Note 2)

189,138,300 31.36%

Jade Concept Limited Beneficial owner

(Note 2)

80,639,889 13.37%

Och Daniel Saul Interest of controlled

corporations (Note 3)

54,376,000 9.00%

Och-Ziff Capital

Management Group LLC

Interest of controlled


54,376,000 9.00%

Och-Ziff Holding

Corporation

Interest of controlled


54,376,000 9.00%

OZ Management L.P. Investment manager

(Note 3)

54,376,000 9.00%

OZ Master Fund, Ltd Beneficial owner

(Note 4)

30,616,000 5.01%

Notes:

1. Yeung Kit Ling is the spouse of So Yuk Kwan. By virtue of the provisions of Part XV of the SFO,

Yeung Kit Ling is deemed to be interested in all the Shares in which So Yuk Kwan is interested or

deemed to be interested.

2. Each of B.K. S. Company Limited and Jade Concept Limited is wholly-owned by So Yuk Kwan.

3. Based on the individual substantial shareholder notice of Daniel Saul Och filed on 20 January 2012: (i)

of these shares of the Company: (a) 14,614,000 shares are held by OZ Asia Master Fund, Ltd.; (b)

1,184,000 shares are held by Gordel Holdings Ltd.; (c) 33,688,000 shares are held by OZ Master Fund,

Ltd.; (d) 906,000 shares are held by OZ Global Special Investments Master Fund, LP; (e) 2,048,000

shares are held by OZ Eureka Fund, LP; (f) 1,008,000 shares are held by OZ ELS Master Fund, Ltd.;

and (g) 928,000 shares are held by Goldman Sachs & Co. Profit Sharing Master Trust; (ii) OZ

Management II L.P. has 100% control in each of OZ ELS Master Fund, Ltd and Goldman Sachs & Co.

Profit Sharing Master Trust; (iii) OZ Management, LP has 100% control in each of OZ Asia Master

- IV-2 -


Fund, Ltd., Gordel Holdings Ltd., OZ Master Fund, Ltd., OZ Global Special Investments Master Fund,

LP, OZ Eureka Fund, LP and OZ Management II, LP; (iv) Och-Ziff Capital Management Group LLC

has 100% control in Och-Ziff Holding Corporation, which in turn has 100% control in OZ Management,

LP; and (v) Daniel Saul Och has 77.40% control in Och-Ziff Capital Management Group LLC and

accordingly, is interested or deemed to be interested in the 54,376,000 shares of the Company by virtue

of Part XV of the SFO.

4. This interest is based on the individual substantial shareholder notice of OZ Master Fund, Ltd filed on

23 November 2011.

(b) Save as disclosed in this circular, so far as is known to the Directors, there is no other person

who had an interest or short position in the shares and underlying shares of the Company which

would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part

XV of the SFO, or, had a direct or indirect interests amounting to 10% or more of the nominal

value of any class of share capital carrying rights to vote in all circumstances at general

meetings of any members of the Group.

(c) Mr. So Yuk Kwan is a director of each of B.K.S. Company Limited and Jade Concept Limited.

4. INTERESTS IN CONTRACT OR ARRANGEMENT

Save as disclosed in this circular, as at the Latest Practicable Date, none of the Directors was

materially interested in contract or arrangement subsisting which is significant in relation to the business of

the Group, nor had any Director had any direct or indirect interest in any assets which have been acquired or

disposed of by or leased to or are proposed to be acquired or disposed of by or leased to any member of the

Group since 31 March 2012, the date to which the latest published audited consolidated financial statements

of the Group were made up.

5. LITIGATION

As at the Latest Practicable Date, no member of the Group was engaged in any litigation or arbitration

of material importance and there is no litigation or claim of material importance known to the Directors to be

pending or threatened by or against any member of the Group.

6. MATERIAL ADVERSE CHANGE

As at the Latest Practicable Date, the Directors confirm that there was no material adverse change in

the financial or trading position of the Group since 31 March 2012, being the date to which the latest

published audited accounts of the Group were made up.

7. SERVICE CONTRACTS

None of the Directors has a service contract with the Company which is not determinable by the

Company within one year without payment of compensation other than statutory compensation.

- IV-3 -


8. MATERIAL CONTRACTS

The following contracts (not being contracts in the ordinary course of business of the Company) have

been entered into by members of the Group within two years immediately preceding the Latest Practicable

Date which are or may be material:

(a) the memorandum of understanding dated 8 December 2010 entered into by Wavesquare China

Limited and Wavesquare Inc. pursuant to which Wavesquare China Limited has agreed, among

other things, to set up a factory in Korea engaged in manufacturing of LED wafer in one year

and be responsible for the funding of the total capital expenditure of the factory which is

expected to be not more than US$25 million, and Wavesquare Inc. has agreed, among other

things, to purchase all the LED wafer manufactured by the Factory at fair market price and

provide the Factory at its own cost with all the technology, management and technical supports

required for manufacture of LED wafer, further details of which are set out in the

announcement of the Company dated 9 December 2010;

(b) the placing agreement (“Placing Agreement”) dated 8 December 2010 (together with the two

supplemental agreements entered into between B.K.S. Company Limited, Jade Concept Limited

and Kingsway Financial Services Group Limited dated 10 December 2010) entered into

between B.K.S. Company Limited, Jade Concept Limited and Kingsway Financial Services

Group Limited pursuant to which Kingsway Financial Services Group Limited has agreed to

place, on a best efforts basis, up to 97,200,000 existing Shares held by B.K.S. Company

Limited and Jade Concept Limited, at the placing price of HK$1.62 per Share, further details of

which are set out in the announcement of the Company dated 10 December 2010;

(c) the subscription agreement dated 8 December 2010 entered into between B.K.S. Company

Limited and the Company (as amended by an amendment agreement entered into by the same

parties on 10 December 2010) pursuant to which the Company has agreed to issue and B.K.S.

Company Limited has agreed to subscribe for up to 27,804,000 new Shares at the subscription

price of HK$1.62 per Share, which Shares was the same as the number of Shares to be placed

by B.K.S. Company Limited under the Placing Agreement, further details of which are set out

in the announcement of the Company dated 10 December 2010;

(d) the subscription agreement dated 10 December 2010 entered into between Jade Concept

Limited and the Company pursuant to which the Company has agreed to issue and Jade

Concept Limited has agreed to subscribe for up to 69,396,000 new Shares at the subscription

price of HK$1.62 per Share, which was the same as the number of Shares to be placed by Jade

Concept Limited under the Placing Agreement, further details of which are set out in the

announcement of the Company dated 10 December 2010;

(e) the share transfer agreement dated 16 May 2011 entered into between AV Electronics Group

Limited as purchaser and Tae-Suk Hwang, Soon-Yong Lee, Young-Chul Kim, Tae-Gon Park

and Seung-Hwan Kim as vendors in relation to the acquisition of 80,000 shares of KRW 5,000

each in the issued share capital of P&S Semiconductor Co., Ltd. by AV Electronics Group

Limited from the vendors for an aggregate initial price of (i) 3.0 multiplied by P&S

Semiconductor Co., Ltd.’s net income for the financial year ended 31 December 2010, plus (ii)

- IV-4 -


the net asset value of P&S Semiconductor Co., Ltd. as of 31 December 2010, each of which

was based on the financial statements for the financial year ended 31 December 2010 of P&S

Semiconductor Co., Ltd. as audited in AV Electronics Group Limited’s financial due diligence

review and subject to adjustment, further details of which are set out in the announcement of

the Company dated 16 May 2011;

(f) the share transfer agreement dated 31 May 2011 entered into between New Concept Capital

Limited as vendor and 廣州博勤網絡科技有限公司 (unofficial English translation being

Guangzhou Boqin Web Technology Company Limited) as purchaser in relation to the disposal

by New Concept Capital Limited of the 200 shares of HK$1.00 each in the issued share capital

of Dragon Favour Technology Limited (“Dragon Favour”), representing the entire issued share

capital of Dragon Favour and all indebtedness, obligations and liabilities due, or owing by

Dragon Favour to New Concept Capital Limited for a total consideration of RMB40,800,000

(as supplemented by a deed of assignment of loan dated 31 May 2011 and entered into between

the vendor, Dragon Favour and the purchaser), further details of which are set out in the

announcement of the Company dated 31 May 2011;

(g) the two provisional agreements for sale and purchase dated 2 June 2011 entered into between

New Concept Capital Limited as purchaser and Hunter Enterprises Limited as vendor in relation

to the acquisition of certain properties by New Concept Capital Limited at an aggregate

consideration of HK$51,500,000, further details of which are set out in the announcement of

the Company dated 3 June 2011;

(h) the subscription agreement entered into between (i) Memoriki Holdings Limited; (ii) Memoriki

Limited; and (iii) OZ Master Fund, Ltd., OZ Asia Master Fund, Ltd. and OZ Global Special

Investments Master Fund, L.P. (collectively, the “Investors”), in relation to the subscription by

the Investors for 22,500 convertible redeemable preference shares of par value US$0.01 each in

the capital of Memoriki Holdings Limited at the total subscription price of US$2,999,925, and

the letter agreement in connection with the above subscription entered into between the

Company, the Investors and Memoriki Holdings Limited, details of which are set out in the

announcement of the Company dated 12 July 2011;

(i) the two assignments dated 1 August 2011 entered into between New Concept Capital Limited

as purchaser and Hunter Enterprises Limited as vendor in relation to the acquisition of certain

properties by New Concept Capital Limited at an aggregate consideration of HK$51,500,000;

(j) the provisional agreement for sale and purchase dated 25 November 2011 and the formal sale

and purchase agreement dated 20 December 2011 (as supplemented by a supplemental

agreement entered into by the same parties dated 20 December 2011) entered into between New

Concept Capital Limited as purchaser and Glory Moon Greeting Cards Company Limited as

vendor in relation to the acquisition of certain warehouses at an aggregate consideration of

HK$53,480,000, details of which are set out in the announcement of the Company dated 28

November 2011;

- IV-5 -


(k) the provisional agreement for sale and purchase dated 25 November 2011 entered into between

AV Concept Limited as purchaser and Chapbase Investment Limited as vendor in relation to the

acquisition of two car parks at an aggregate consideration of HK$3,800,000, details of which

are set out in the announcement of the Company dated 28 November 2011;

(l) the shareholders’ agreement dated 9 January 2012 entered into between AV Electronics Group

Limited, Good Profit Hong Kong Group Limited and AVP ELECTRONICS LIMITED pursuant

to which, among others, AV Electronics Group Limited and Good Profit Hong Kong Group

Limited agreed to subscribe for 57,500,000 new shares and 17,500,000 new shares in AVP

ELECTRONICS LIMITED respectively at the subscription price of HK$1 per new share,

details of which are set out in the announcement of the Company dated 9 January 2012.

(m) the agreement dated 19 January 2012 entered into between AV Concept Limited and Chapbase

Investment Limited for cancelling a formal sale and purchase agreement for the acquisition of

the certain warehouses, further details of which are set out in the announcement of the

Company dated 19 January 2012;

(n) the formal sale and purchase agreement dated 19 January 2012 entered into between New

Concept Capital Limited and Chapbase Investment Limited for the acquisition of the two car

parks at an aggregate consideration of HK$3,800,000, further details of which are set out in the

announcement of the Company dated 19 January 2012;

(o) the agreement dated 10 May 2012 entered into between Ocean Be Holdings Co., Ltd and New

Concept Capital Limited, pursuant to which among others Ocean Be Holdings Co., Ltd has

conditionally agreed to sell and New Concept Capital Limited has conditionally agreed to

acquire 7,179,925 common shares of Nitgen&Company Co., Ltd. at a total consideration of

KRW13 billion subject to adjustment, further details of which are set out in the announcement

of the Company dated 10 May 2012;

(p) the shareholders’ agreement (“Joint Venture Agreement”) regarding Asset Vehicle

Investments Limited dated 8 June 2012 entered into between AV Electronics Group Limited,

Forever Century Limited, Law Lai Sim Sara, the Company and Asset Vehicle Investments

Limited, pursuant to which AV Electronics Group Limited and Forever Century Limited has

agreed to subscribe for 765 shares of HK$1 each in the share capital of Asset Vehicle

Investments Limited at a subscription price of HK$42,223,410 and 135 shares of HK$1 each in

the share capital of Asset Vehicle Investments Limited at a subscription price of HK$7,451,190

respectively, further details of which are set out in the announcement of the Company dated 8

June 2012; and the supplemental agreement dated 30 August 2012 thereto;

(q) the agreement (“SP Agreement”) dated 8 June 2012 entered into between Asset Vehicle

Investments Limited, Zhang Deming, Zhang Jingping, Yan Juewei, Shao Lijiang, Gao Dajun,

Liu Zhichun, Easton Bright Limited, Forever Century Limited and the Company in relation to

the acquisition by Asset Vehicle Investments Limited of the entire registered capital of 深圳市

威爾達電子有限公司 (unofficial English translation being Shenzhen Welldone Electronics Co.,

Ltd.) and 100% of the issued share capital of each of Welldone Electronics (Hong Kong)

Limited and Khuawei Technology (Hong Kong) Limited, at the consideration and subject to

- IV-6 -


adjustment as set out under the agreement, further details of which are set out in the

announcement of the Company dated 8 June 2012; and the supplemental agreement dated 30

August 2012 thereto;

(r) the agreement dated 12 July 2012 entered into between Signeo Limited as vendor and Nitgen

Lighting Limited as purchaser in relation to the disposal of 48% interest in Signeo Green

Energy Limited by Signeo Limited to Nitgen Lighting Limited at an aggregate consideration of

US$8 million, further details of which are set out in the announcement of the Company dated

12 July 2012;

(s) the letter of intent for marine bunkering services dated 10 April 2012 entered into between SHK

and New Concept and the subscription agreement dated 1 August 2012 entered into between

SHK, New Concept and Success Pillar regarding the subscription of 262,500 shares of US$1

each in the share capital of Success Pillar by New Concept at an aggregate consideration of

HK$2,042,250;

(t) the supplemental agreement to the Joint Venture Agreement dated 30 August 2012 entered into

between AV Electronics Group Limited, Forever Century Limited, Law Lai Sim Sara, the

Company and Asset Vehicle Investments Limited, pursuant to which the parties thereto has

agreed to extend the long stop date of the Joint Venture Agreement to 31 December 2012,

further details of which are set out in the announcement of the Company dated 30 August 2012;

(u) the supplemental agreement to the SP Agreement dated 30 August 2012 entered into between

Asset Vehicle Investments Limited, Zhang Deming, Zhang Jingping, Yan Juewei, Shao Lijiang,

Gao Dajun, Liu Zhichun, Easton Bright Limited, Forever Century Limited and the Company,

pursuant to which the parties thereto has agreed to extend the long stop date of the SP

Agreement to 31 December 2012, further details of which are set out in the announcement of

the Company dated 30 August 2012;

(v) the Investment Agreement and the Investment Supplemental Agreement;

(w) the Subscription Agreement and the Subscription Supplemental Agreement; and

(x) the Disposal Agreement.

9. COMPETING BUSINESS

As at the Latest Practicable Date, none of the Directors nor his associates (as defined in the Listing

Rules) was interested in any business apart from the business of the Group, which competes or is likely to

compete, either directly or indirectly, with that of the Group.

- IV-7 -


10. EXPERT AND CONSENT

The following is the qualifications of the expert whose statements have been included in this circular:

Name Qualification

L&P CPA Limited Certified Public Accountants

L&P CPA Limited has given and has not withdrawn their written consent to the issue of this circular

with the inclusion herein of its letters or opinions or reports or references to its name in the form and context

in which it appear.

As at the Latest Practicable Date, L&P CPA Limited had not had any shareholding in any member of

the Group or the right (whether legally enforceable or not) to subscribe for or to nominate persons to

subscribe for securities in any member of the Group.

As at the Latest Practicable Date, L&P CPA Limited had not had any direct or indirect interests in any

assets which have been, since 31 March 2012 (being the date to which the latest published audited accounts

of the Company were made up), acquired or disposed of by or leased to any member of the Group, or which

are proposed to be acquired or disposed of by or leased to any member of the Group.

11. GENERAL

(a) The registered office of the Company is at P.O. Box 309, Ugland House, Grand Cayman KY1-

1104, Cayman Islands.

(b) The principal place of business of the Company in Hong Kong is at 6th Floor, Enterprise

Square Three, 39 Wang Chiu Road, Kowloon Bay, Hong Kong.

(c) The branch share registrar and transfer office of the Company in Hong Kong is Tricor Tengis

Limited at 26th Floor, Tesbury Centre, 28 Queen’s Road East, Hong Kong.

(d) The company secretary of the Company is Mr. Ho Choi Yan Christopher, who is a member of

Hong Kong Institute of Certified Public Accountants and a fellow member of the Association of

Chartered Certified Accountants.

12. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents are available for inspection during normal business hours at the

Company’s principal place of business in Hong Kong at 6th Floor, Enterprise Square Three, 39 Wang Chiu

Road, Kowloon Bay, Hong Kong from the date of this circular up to and including the date of the EGM:

(a) the memorandum of association and the articles of association of the Company;

(b) the audited consolidated financial statements of the Group for the two years ended 31 March

2012;

- IV-8 -


(c) the English and Chinese translations of the annual report and the audited financial statements of

Nitgen for the year ended 31 December 2009 as referred to or set out in Appendix IIA to this

circular;

(d) the English and Chinese translations of the annual report and the audited financial statements of

Nitgen for the year ended 31 December 2010 as referred to or set out in Appendix IIB to this

circular;

(e) the English and Chinese translations of the annual report and the consolidated and separate

audited financial statements of Nitgen for the year ended 31 December 2011 as referred to or

set out in Appendix IIC to this circular;

(f) the English and Chinese translations of the full interim report and the unaudited financial

statements of Nitgen for the six months ended 30 June 2012 as referred to or set out in

Appendix IID to this circular;

(g) the accountants’ report on the unaudited pro forma financial information of the Group as set out

in Appendix III to this circular;

(h) the written consent referred to in the section headed “Expert and consent” in this appendix; and

(i) the material contracts referred to in the paragraph headed “Material contracts” in this appendix.

- IV-9 -


NOTICE OF EXTRAORDINARY GENERAL MEETING

NOTICE IS HEREBY GIVEN that the extraordinary general meeting (“EGM”) of AV Concept

Holdings Limited (“Company”) will be held at 10:00 a.m. on Thursday, 6 December 2012 at 6th Floor,

Enterprise Square Three, 39 Wang Chiu Road, Kowloon Bay, Hong Kong to consider and, if thought fit, pass

each of the following resolutions as an ordinary resolution:

ORDINARY RESOLUTIONS

1. “THAT

(A) the form and substance of the subscription agreement (“Subscription Agreement”)dated 5 September 2012 and entered into between New Concept Capital Limited (“NewConcept”), and Nitgen&Company Co., Ltd. (“Nitgen”), as supplemented and amended

by a supplemental agreement dated 31 October 2012 and entered into between the same

parties, in relation to the subscription (“Shares Subscription”) of 12,264,086 shares of

common stock having par value of KRW500 per share in the share capital of Nitgen

(“Nitgen Shares”) by New Concept at an aggregate subscription price of

KRW7,922,599,556 (a copy of which is marked “A” and signed by the chairman of

the meeting for identification purpose has been tabled at the meeting) and the

transactions contemplated thereunder be and are hereby approved; and

(B) the directors (“Directors”) of the Company or a duly authorised committee of the board

of Directors be and are hereby authorised to do all such acts and things (including,

without limitation, signing, executing (under hand or under seal), perfecting and delivery

of all agreements, documents and instruments) which are in their opinion necessary,

appropriate, desirable or expedient to implement or to give effect to the Shares

Subscription and the terms of the Subscription Agreement and all transactions

contemplated thereunder and all other matters incidental thereto or in connection

therewith and to agree to and make such variation, amendment and waiver of any of the

matters relating thereto or in connection therewith that are, in the opinion of the

Directors or the duly authorised committee, not material to the terms of the Subscription

Agreement and are in the interests of the Company.”

2. “THAT

(A) the form and substance of the investment agreement (“Investment Agreement”) dated 5

September 2012 and entered into between Nitgen, New Concept and Sound Hong Kong

Limited, as supplemented and amended by a supplemental agreement dated 31 October

2012 and entered into between the same parties, in relation to, among other matters, the

subscription of 6,000,000 Nitgen Shares (“Investment Shares”) by New Concept at an

- EGM-1 -


aggregate subscription price of KRW3,876 million and the purchase of the zero coupon

convertible bonds (“NCC Bonds”) in an aggregate face amount of US$7,425,373 to be

issued by Nitgen to New Concept at an issue price equal to 100% of the principal

amount of the bonds (the subscription of the Investment Shares and the NCC Bonds,

collectively, the “Investment Subscription”) (a copy of which is marked “B” and signed

by the chairman of the meeting for identification purpose has been tabled at the meeting)

and the transactions contemplated thereunder be and are hereby approved; and

(B) the Directors or a duly authorised committee of the board of Directors be and are hereby

authorised to do all such acts and things (including, without limitation, signing,

executing (under hand or under seal), perfecting and delivery of all agreements,

documents and instruments) which are in their opinion necessary, appropriate, desirable

or expedient to implement or to give effect to the Investment Subscription and all

transactions contemplated thereunder and all other matters incidental thereto or in

connection therewith and to agree to and make such variation, amendment and waiver of

any of the matters relating thereto or in connection therewith that are, in the opinion of

the Directors or the duly authorised committee, not material to the terms of the

Investment Agreement and are in the interests of the Company.”

3. “THAT

(A) the form and substance of the agreement (“Disposal Agreement”) for the sale and

purchase of the entire issued share capital of Success Pillar Limited dated 5 September

2012 and entered into between Sound Hong Kong Limited and New Concept as vendors

and Nitgen Eco & Energy International Limited (formerly known as Nitgen Lighting

Limited) as purchaser in relation to, among other matters, the disposal (“Disposal”) of262,500 shares of par value of US$1 per share in the share capital of Success Pillar

Limited from New Concept to Nitgen Eco & Energy International Limited at a

consideration of HK$84,413,000 (a copy of which is marked “C” and signed by the

chairman of the meeting for identification purpose has been tabled at the meeting) and

the transactions contemplated thereunder be and are hereby approved; and

(B) the Directors or a duly authorised committee of the board of Directors be and are hereby

authorised to do all such acts and things (including, without limitation, signing,

executing (under hand or under seal), perfecting and delivery of all agreements,

documents and instruments) which are in their opinion necessary, appropriate, desirable

or expedient to implement or to give effect to the Disposal and the terms of the Disposal

Agreement and all transactions contemplated thereunder and all other matters incidental

thereto or in connection therewith and to agree to and make such variation, amendment

- EGM-2 -


and waiver of any of the matters relating thereto or in connection therewith that are, in

the opinion of the Directors or the duly authorised committee, not material to the terms

of the Disposal Agreement and are in the interests of the Company.”

By order of the Board

AV Concept Holdings LimitedSo Yuk Kwan

Chairman

Hong Kong, 20 November 2012

Head office and principal place of business in Hong Kong:

6th Floor

Enterprise Square Three

39 Wang Chiu Road

Kowloon Bay

Hong Kong

Notes:

1. A form of proxy for use at the EGM is being despatched to the shareholders of the Company together with a copy of theCompany’s circular dated 20 November 2012.

2. Any shareholder of the Company entitled to attend and vote at the EGM convened by the above notice shall be entitledto appoint one proxy or, if he is the holder of two or more Shares, more than one proxy to attend and vote instead ofhim. A proxy need not be a shareholder of the Company.

3. The instrument appointing a proxy shall be in writing under the hand of the appointor or of his attorney duly authorisedin writing or, if the appointor is a corporation, either under its seal or under the hand of an officer, attorney or dulyauthorised person.

4. In order to be valid, the form of proxy, together with the power of attorney or other authority (if any) under which it issigned, or a notarially certified copy of such power or authority, must be deposited at the Company’s branch shareregistrar and transfer office in Hong Kong, Tricor Tengis Limited, at 26/F, Tesbury Centre, 28 Queen’s Road East,Wanchai, Hong Kong not less than 48 hours before the time appointed for holding the EGM or any adjournment thereof.

5. Completion and return of the form of proxy will not preclude a shareholder of the Company from attending and votingin person at the EGM convened or any adjourned meeting and in such event, the form of proxy will be deemed to berevoked.

6. Where there are joint registered holders of any share of the Company, any one of such joint holders may vote, either inperson or by proxy, in respect of such share as if he/she were solely entitled thereto, but if more than one of such jointholders are present at the meeting personally or by proxy, that one of the said persons so present whose name stands firston the register in respect of such shares shall alone be entitled to vote in respect of the relevant joint holding and, forthis purpose, seniority shall be determined by reference to the order in which the names of the joint holders stand on theregister in respect of the relevant joint holding. Several executors or administrators of a deceased member in whose nameany share stands shall be deemed joint holders thereof.

As at the date hereof, the Board comprises three executive Directors, Dr. Hon. So Yuk Kwan

(Chairman), Mr. So Chi On and Mr. Ho Choi Yan, Christopher and three independent non-executive

Directors, Dr. Hon. Lui Ming Wah, SBS, JP, Mr. Charles E. Chapman and Mr. Wong Ka Kit.

- EGM-3 -


LTN20121119180.pdf - HKEXnews

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