EXHIBIT 99.3
iCURIE LAB INC
REPORT ON AUDITS
OF FINANCIAL STATEMENTS
FOR THE YEAR
ENDED DECEMBER 31, 2004.
AND
ENDED DECEMBER 31, 2003.
SHINHAN ACCOUNTING CORPORATION
MEMBER FIRM OF RSM INTERNATIONAL
CONTENTS
INDEPENDENT AUDITOR'S REPORT............................................. 3
FINANCIAL STATEMENTS:
1. BALANCE SHEETS..................................................... 4
2. STATEMENTS OF INCOME............................................... 6
3. STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY...................... 7
4. STATEMENTS OF CASH FLOWS........................................... 8
5. NOTES TO FINANCIAL STATEMENTS...................................... 10
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of
iCurie Lab Inc
We have audited the accompanying balance sheets of iCurie Lab Inc. (the
"Company") as of December 31, 2004 and 2003, and the related statements of
income, changes in stockholder's 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 of theses statement in accordance with the standards
of the Public Company Accounting Oversight Board (United States). 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, the financial statements referred to above present fairly, in
all material respects, the financial position of the Company as of December 31,
2004 and 2003, and the results of its operations, the changes in stockholder's
equity and its cash flows for the years then ended, in conformity with financial
accounting standards generally accepted in the United States of America.
February 7, 2005
/s/ Lee Chan Ha
------------------------------
Shinhan Accounting Corporation
Lee Chan Ha
Shinhan Accounting Corporation is the Koran member firm of RSM International,
each of which is a separate and independent legal entity.
3
iCURIE LAB INC
BALANCE SHEETS
AS OF DECEMBER 31, 2004 AND 2003
(US DOLLARS AND KOREAN WON)
ASSETS 2004 2004 2003
- ------ ---------------- ---------------- ----------------
(note3)
CURRENT ASSETS :
Quick assets
Cash and cash equivalents (note2) $ 14,752 (Won) 15,269,416 (Won)156,254,509
Short term financial instrument (note4) 19,322 20,000,000 -
Account receivables-Others (note2, 5,14) 569,305 589,287,061 8,332,836
Short term loans (note 14) 69,945 72,400,000 55,000,000
Advance payments 45,026 46,606,453 23,530,674
Prepaid expenses 4,762 4,929,094 1,024,282
Prepaid income taxes 11 11,040 360,340
Others-VAT 15,544 16,090,090 -
---------------- ---------------- ----------------
Total current assets 738,667 764,593,154 244,502,641
---------------- ---------------- ----------------
NON-CURRENT ASSETS :
Investments
Guarantee deposits 49,106 50,830,000 60,750,000
---------------- ---------------- ----------------
Total investments 49,106 50,830,000 60,750,000
---------------- ---------------- ----------------
Property, plant and equipment (note2, 6)
Machinery 83,321 86,245,167 61,090,899
Fixture and furniture 211,979 219,419,047 125,072,553
Vehicles 9,410 9,740,120
---------------- ---------------- ----------------
Total 304,710 315,404,334 186,163,452
Less accumulated depreciation (136,419) (141,207,218) (88,506,125)
---------------- ---------------- ----------------
Property, plant and equipment, net 168,291 174,197,116 97,657,327
---------------- ---------------- ----------------
Intangible assets (note2,7)
Industrial properties 4,908 5,080,088 98,897,460
Organization costs 1,249,500
Others 3,422 3,542,300 6,235,700
---------------- ---------------- ----------------
Total intangible assets 8,330 8,622,388 106,382,660
---------------- ---------------- ----------------
Total non-current assets 225,727 233,649,504 264,789,987
---------------- ---------------- ----------------
TOTAL ASSETS $ 964,394 (Won)998,242,658 (Won)509,292,628
================ ================ ================
4
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES :
Account payables-Others 294,566 304,905,096 225,042,929
Short-term borrowings(note 8,14, 16) 590,509 611,235,734 1,065,649,610
Withholdings 3,665 3,793,730 3,899,370
Accrued expenses 23,489 24,313,114 18,765,269
Current portion of long term liability (note 9) - - 200,000,000
VAT Withholdings 39 40,000 -
--------------- --------------- ---------------
Total current liabilities 912,268 944,287,674 1,513,357,178
--------------- --------------- ---------------
LONG-TERM LIABILITIES :
Bond (note 9) 289,842 300,015,000 400,015,000
Total long-term liabilities 289,842 300,015,000 400,015,000
--------------- --------------- ---------------
TOTAL LIABILITIES 1,202,110 1,244,302,674 1,913,372,178
=============== =============== ===============
STOCKHOLDERS' EQUITY : (note11)
Common Stock (note 1) 1,332,746 1,379,525,000 979,525,000
Capital surplus :
Additional paid in capital 1,256,381 1,300,480,000 1,300,480,000
Undisposed deficits
Undisposed deficits to be carried forward (2,826,843) (2,926,065,016) (3,684,084,550)
TOTAL STOCKHOLDERS' EQUITY (237,716) (246,060,016) (1,404,079,550)
--------------- --------------- ---------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 964,394 (Won)998,242,658 (Won)509,292,628
=============== =============== ===============
See accompanying Notes to Financial Statements.
5
iCURIE LAB INC
STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 2004 AND 2003
(US DOLLARS AND KOREAN WON)
2004 2004 2003
---------------- ---------------- ----------------
NET SALES (note 2, 5, 14) - (Won) - -
COST OF SALES - - -
---------------- ---------------- ----------------
GROSS PROFIT - - -
SELLING AND ADMINISTRATIVE EXPENSES 2,250,307 2,329,293,918 1,057,410,085
(Notes 17)
---------------- ---------------- ----------------
OPERATING INCOME (LOSS) (2,250,307) (2,329,293,918) (1,057,410,085)
---------------- ---------------- ----------------
OTHER INCOME
Interest income 82 84,995 2,393,369
Gain on disposition of intangible assets 3,107,312 3,216,379,041
Gain on foreign currency transactions, net - 74 -
Gain on foreign currency translation, net - 8
Miscellaneous income 16,053 16,615,937 6,833
---------------- ---------------- ----------------
OTHER EXPENSES
Interest expense 121,480 125,743,719 76,381,715
Loss on disposition of available
for sales securities - - 7,219
Loss from impairment of intangible assets 11,361 11,759,313
Loss on disposal of property,
plant and equipment, net 290 300,000 1,856,039
Miscellaneous expense 7,694 7,963,571 2,130,959
---------------- ---------------- ----------------
Total Other (Income) Expenses 2,982,622 3,087,313,452 (77,975,730)
---------------- ---------------- ----------------
ORDINARY INCOME (LOSS) 732,315 758,019,534 (1,135,385,815)
INCOME (LOSS) BEFORE INCOME TAXES 732,315 758,019,534 (1,135,385,815)
INCOME TAXES (Notes 10) - -
NET INCOME (LOSS) 732,315 758,019,534 (1,135,385,815)
================ ================ ================
ORDINARY INCOME (LOSS) PER SHARE (Note 12)
Basic 3 3,020 (5,795)
Diluted 3 2,942 (5,288)
NET INCOME (LOSS) PER SHARE (Note 12)
Basic 3 3,020 (5,795)
Diluted 3 2,942 (5,288)
See accompanying Notes to Financial Statements.
6
iCURIE LAB INC
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003
(US DOLLARS AND KOREAN WON)
Accumulated
Common Stock Issued Additional Other
----------------------- Paid-in Accumulated Comprehensive
Shares Amount Capital (Deficit) Income (Loss) Total
(KOREAN WON) ------- ------------- ------------- -------------- ------------- --------------
Balance at December 31, 2002 195,905 979,525,000 1,300,480,000 (2,548,698,735) - (268,693,735)
Net loss (1,135,385,815) (1,135,385,815)
Other comprehensive income (loss):
Balance at December 31, 2003 195,905 979,525,000 1,300,480,000 (3,684,084,550) - (1,404,079,550)
Issue of Common Shares 80,000 400,000,000 - - 400,000,000
Net Income 758,019,534 758,019,534
Other comprehensive income (loss): -
Balance at December 31, 2004 275,905 1,379,525,000 1,300,480,000 (2,926,065,016) - (246,060,016)
======= ============= ============= ============== ============= ==============
Accumulated
Common Stock Issued Additional Other
------------------- Paid-in Accumulated Comprehensive
Shares Amount Capital (Deficit) Income (Loss) Total
(US DOLLARS) ------- --------- ---------- ----------- ------------- ----------
Balance at December 31, 2003 195,905 946,310 1,256,381 (3,559,158) - (1,356,467)
Issue of Common Shares 80,000 386,436 - 386,436
Net Income 732,315 732,315
Other comprehensive income (loss): -
Balance at December 31, 2004 275,905 1,332,746 1,256,381 (2,826,843) - (237,716)
======= ========= ========= ========== ============= ==========
See accompanying Notes to Financial Statements.
7
iCURIE LAB INC
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2004 AND 2003
(US DOLLARS AND KOREAN WON)
2,004 2004 2003
---------------- ---------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income (loss) $ 732,315 (Won) 758,019,534 (1,135,385,815)
---------------- ---------------- --------------
Expenses not involving cash outflows :
Depreciation 53,329 55,201,093 38,301,995
Loss on disposal of available for sale securities - 7,219
Cost of goods sold 77,215 79,925,811 -
Amortization of intangible assets 5,895 6,102,500 5,419,333
Loss form impairment of development costs 11,361 11,759,313 -
Loss on disposal of property, plant and equipment 290 300,000 1,856,039
---------------- ---------------- --------------
Sub-total 148,090 153,288,717 45,584,586
---------------- ---------------- --------------
Income not involving cash inflows :
Gain on disposition of intangible assets 3,107,312 3,216,379,041 -
Sub-total 3,107,312 3,216,379,041 -
---------------- ---------------- --------------
Changes in assets and liabilities related to
operating activities :
Decrease (increase) in accounts and notes receivable - other 7,410 7,669,646 (8,332,836)
Decrease (Increase) in advance payments (22,293) (23,075,779) (17,935,863)
Decrease (Increase) in prepaid expenses (3,772) (3,904,812) 1,956,517
Decrease (increase) in prepaid income taxes 337 349,300 (354,280)
Decrease (increase) in prepaid VAT (15,544) (16,090,090) 7,061,830
Increase (Decrease) in accounts and notes payable - other 77,154 79,862,167 216,446,479
Increase (Decrease) in withholdings (102) (105,640) (14,149,470)
Increase (Decrease) in accrued expenses 5,360 5,547,845 (83,806,963)
Increase (Decrease) in VAT Witholdings 19 20,000 -
Sub-total 48,569 50,272,637 100,885,414
---------------- ---------------- --------------
Net cash provided by operating activities (2,178,338) (2,254,798,153) (988,915,815)
---------------- ---------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES
Cash inflows from investing activities :
Decrease in short-term loan 144,720 149,800,000 -
Disposal of available sale securities - 592,781
Decrease in guarantee deposits 57,965 60,000,000
Disposal of patent 2,538,648 2,627,755,170
Disposal of fixture and furniture 213 220,000 6,363,636
---------------- ---------------- --------------
Sub-total 2,741,546 2,837,775,170 6,956,417
---------------- ---------------- --------------
8
iCURIE LAB INC
STATEMENTS OF CASH FLOWS(CONTINUED)
2004 2004 2003
--------------- --------------- ---------------
Cash outflows for investing activities :
Acquisition of shor-term financial instrument 19,322 20,000,000 -
Increase in long-term loans 161,530 167,200,000 55,000,000
Increase in guarantee deposits 48,382 50,080,000 250,000
Acquisition of machinary 24,301 25,154,268 36,890,900
Acquisition of vehicle 9,410 9,740,120 -
Acquisition of furnitures and fixtures 94,045 97,346,494 2,100,000
Acquisition of intangible assets - 2,000,000
Acquisition of industrial properties 26 27,352 8,133,887
--------------- --------------- ---------------
Sub-total 357,016 369,548,234 104,374,787
--------------- --------------- ---------------
Net cash flows in investing activities 2,384,530 2,468,226,936 (97,418,370)
--------------- --------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES
Cash inflows from financing activities :
Increase in short-term borrowings 719,868 745,135,734 1,086,827,000
Issuance of common stock 386,436 400,000,000 -
Sub-total 1,106,304 1,145,135,734 1,086,827,000
--------------- --------------- ---------------
Cash outflows for financing activities :
Decrease in short term borrowings 1,158,873 1,199,549,610 455,177,390
Repayment of convertible bond 289,827 300,000,000 -
Sub-total 1,448,700 1,499,549,610 455,177,390
--------------- --------------- ---------------
Net cash provided by (used in) financing activities (342,396) (354,413,876) 631,649,610
--------------- --------------- ---------------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (136,204) (140,985,093) (454,684,575)
CASH AND CASH EQUIVALENTS
AT BEGINNING OF THE YEAR 150,956 156,254,509 610,939,084
--------------- --------------- ---------------
CASH AND CASH EQUIVALENTS
AT END OF THE YEAR $ 14,752 (Won) 15,269,416 (Won)156,254,509
=============== =============== ===============
See accompanying Notes to Financial Statements
9
iCURIE LAB INC
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2004 AND 2003
1. ORGANIZATION AND NATURE OF BUSINESS
iCurie Lab Inc. (the "Company") was incorporated in 13th June 2000 under
the Commercial Code of the Republic of Korea to engage in the research and
development, manufacture and sale of micro cooling system using electronic
technology. On May 3, 2001, the Company obtained a certification of
Venture Company form Seoul Small and Medium Business Administration.
The Company is located in 3F Joyang Bldg, 23-1, Seokchon Dong, Sonpa Gu,
Seoul 138-842, Korea, republic of.
The company's common stock was (Won) 600(million) at the incorporation and
as of December 31, 2004, the amount of the Company's common stock is
(Won) 1,379(million).
Mr. Jeong Hyun Lee is the representative and iCurie Lab Holdings Limited
is holding 80.2% of common shares of the Company as the major shareholder.
As of December 31, 2004, the Company's shareholders are as follows:
NUMBER OF PERCENTAGE OF
SHARES OWNERSHIP (%)
--------- -------------
iCurie Lab Holdings Limited 221,286 80.20
Others 54,619 19.80
------- ------
275,905 100.00
======= ======
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The financial statements are presented in accordance with accounting
principles generally accepted in the United States of America ("U.S.
GAAP"). Significant accounting policies followed by the Company in the
preparation of the accompanying financial statements are summarized below.
10
USE OF ESTIMATES
The preparation of financial statements in accordance with U.S. GAAP requires
management to make estimates and assumptions that affect the amounts reported in
the financial statements and accompanying disclosures. The most significant
estimates and assumptions relate to the allowance for uncollectable accounts
receivables, and deferred tax valuation allowance. Although these estimates are
based on management's best knowledge of current events and actions that the
Company may undertake in the future, actual results may be different from the
estimates.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include all cash balances and highly liquid
investments, including time deposits and short-term bonds, which are readily
convertible into known amounts of cash and have an original maturity of three
months or less.
ALLOWANCE FOR DOUBTFUL ACCOUNTS
The Company provides an allowance for doubtful accounts to cover estimated
losses on receivables, based on collection experience and analysis of the
collectibility of individual outstanding trade receivables, other receivables,
and loans.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at acquisition cost. Major renewals and
betterments, which prolong the useful life or enhance the value of assets, are
capitalized; expenditures for maintenance and repairs are charged to expense as
incurred. Depreciation is computed using the straight-line method over the
following useful lives:
Useful Lives
------------
Machinery 5 years
Fixture and furniture 5 "
Vehicles 5 "
INTANGIBLE ASSETS
Intangible assets, comprising intellectual property rights are stated at cost
less accumulated amortization. Amortization is computed using the straight-line
method over the following estimated useful lives.
Intellectual property rights 5 ~ 10 years
Others 5 years
11
ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS
Long-lived assets and intangible assets that do not have indefinite lives are
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of the assets may not be recoverable. When the
aggregate undiscounted future cash flows (undiscounted and without interest
charges) is less than the carrying value of the asset, an impairment loss is
recognized, based on the fair value of the asset.
ACCRUED SEVERANCE BENEFITS
Employees and directors with one year or more of service are entitled to receive
a lump-sum payment upon termination of their employment with the Company, based
on their length of service and rate of pay at the time of termination. Accrued
severance benefits are estimated assuming all eligible employees were to
terminate their employment at the balance sheet date. The annual severance
benefits expense charged to operations is calculated based on the net change in
the accrued severance benefits payable at the balance sheet date, plus the
actual payments made during the year.
The Company provides entitled employees with severance payment at payroll date.
There is no provision for severance benefit in the Company's balance sheet as a
result of monthly settlement.
REVENUE RECOGNITION
Revenues from the sale of the Company's products are recognized when : i)
persuasive evidence of an arrangement exists, ii) delivery has occurred to the
customers, iii) the sales price to the customer is fixed or determinable and iv)
collectibility is reasonably assured.
RESEARCH AND DEVELOPMENT COSTS
Certain costs incurred in connection with the purchase of equipment and
facilities used in the Company's research and development activities are
capitalized into property, plant and equipment, to the extent that they have
alternative future uses. All other research and development costs are expensed
as incurred. The Company has expensed (Won) 565,917 thousand, and (Won) 902,797
thousand during the years ended December 31, 2003 and 2004, respectively, for
research and development costs which are included in selling, general and
administrative expenses. These research and development expenses included
depreciation cost of equipment and facilities used specifically for research and
development activities amounting to (Won) 19,993 thousand and (Won) 22,478
thousand for the years ended December 31, 2003 and 2004, respectively.
12
INCOME TAXES
The Company recognizes deferred tax assets and liabilities created by
temporary differences between the financial statement and tax bases of
assets and liabilities. Deferred tax assets and liabilities are computed
on such temporary differences, including available net operating loss
carryforwards and tax credits, by applying enacted statutory tax rates
applicable to the years when such differences are expected to reverse. A
valuation allowance is provided on deferred tax assets to the extent that
it is more likely than not that such deferred tax assets will not be
realized. The total income tax provision includes current tax expenses
under applicable tax regulations and the change in the balance of deferred
tax assets and liabilities.
3. UNITED STATES DOLLAR AMOUNTS
The Company operates primarily in Korea and its financial accounting
records are maintained in Korean Won. These translations should not be
construed as a representation that the Korean Won amounts shown could be
converted, realized or settled in US dollars at this or any other rate.
The US dollar amounts are provided herein as supplemental information
solely for the convenience of the reader. Korean Won amounts are expressed
in US dollars at the rate of (Won)1,035.1 : US$1, the US Federal Reserve
Bank of New York noon buying exchange rate in effect on December 31, 2004.
The US dollar amounts are unaudited and are not presented in accordance
with generally accepted accounting principles in either Korea or the
United States of America.
4. RESTRICTED CASH AND CASH EQUIVALENT
Detail of the Company's restricted cash and cash equivalent as of December
31, 2004 is as follows (in Korean won) :
Account Creditor Type of account Amount Description
- ------- -------- --------------- ---------- ---------------------
Short-term financial Korea Bank Deposit 20,000,000 Corporate Credit Card
instrument Exchange
Bank
5. ACCOUNTS RECEIVABLE
The following table presents accounts receivable at December 31, 2003 and 2004:
2004 2003
(IN THOUSANDS OF KOREAN WON) ---------------- -------------
(Won) - -
Due from iCurie Lab Holdings, Ltd 588,624 -
Others 663 8,332
--------------- -------------
Sub total 589,287 8,332
--------------- -------------
Allowance for doubtful accounts (-) (-)
--------------- -------------
Account Receivables, net (Won) 589,287 (Won) 8,332
=============== =============
13
6. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment comprise the following at December 31, 2003 and
2004:
2004 2003
(IN THOUSANDS OF KOREAN WON) ---------------- -------------
Machinery (Won) 86,245 (Won) 61,091
Tools 219,419 125,072
Vehicles 9,740 -
---------------- -------------
Sub total 315,404 186,163
---------------- -------------
Accumulated depreciation (141,207) (88,506)
---------------- -------------
Property, plant and equipment, net (Won) 174,197 (Won) 97,657
================ =============
7. INTANGIBLE ASSETS
Intangible assets comprise the following at December 31, 2003 and 2004:
(IN THOUSANDS OF KOREAN WON) 2004 2003
- ---------------------------- ----------------- ---------------
Industrial Properties (Won) 107,639 (Won) 106,478
Others 17,633 17,633
----------------- ---------------
Loss on impairment of industrial property (11,760) -
----------------- ---------------
Sub total 113,512 124,111
----------------- ---------------
Accumulated amortization 23,830 17,728
Cost of disposition 81,060 -
----------------- ---------------
Intangible assets, net (Won) 8,622 (Won) 106,383
================= ===============
Amortization expense for the years ended December 31, 2003 and 2004 amounting to
(Won) 5,419 thousand and (Won) 6,102 thousand, respectively.
Loss on impairment of industrial property for the amount of 11,760 thousand won
is due to the abatement of patent for NVIS (Network of Vehicle Information
System).
14
8. SHORT-TERM BORROWINGS
Details of the Company's short-term borrowings as of December 31, 2004 and
2003 are as follows (IN THOUSANDS OF KOREAN WON):
Amounts
--------------------
Creditor Type of borrowing Interest rate 2004 2003
-------- ----------------- ------------- ------- ---------
Cho Hung Bank Operating fund 7.75% 234,000 234,000
Sae Han IT " 5% 290,000 150,000
Kim Il Han " - - 100,000
Park Jeong Sik " - - 56,827
Lee, Jeong Hyun " - 87,235 74,822
Vantage Consulting " 12% - 450,000
--------------- ------- ---------
Total 611,235 1,065,649
------- ---------
9. CONVERTIBLE BOND
Details of issuance of convertible bond are as follows (IN THOUSANDS OF KOREAN
WON):
Date of Issue
(mm/dd/yr) Date of maturity Interest rate 2004 2003
------------- ---------------- ------------- -------- -------
1st 10/16/01 12/16/02 7.00% - -
2nd 10/31/01 10/31/02 7.00 - -
3rd 12/05/01 12/05/04 7.00 100,000
4th 12/18/01 12/18/04 7.00 100,000
5th 11.04/02 11/04/05 7.00 100,000
6th 12/10/02 12/10/07 0.00 300,015 300,015
Sub Total 300,015 600,015
Current portion of long term bond (200,000)
-------- -------
Total 300,015 400,015
-------- -------
1st and 2nd issue of convertible bond were exercised and converted to 8,000
common shares in October 31, 2002 and 3rd, 4th, 5th issue of convertible bond
were redeemed in December, 2004.
Details of unexercised convertible bond are as follows:
Type and number of shares
Amount Exercise price upon exercise Exercise period
----------- -------------- ------------------------- ---------------------
6th 300,015,000 45,000 6,667 2003.12.09~2007.12.10
15
10. INCOME TAXES
Income before income taxes and tax provision comprises the following:
(IN THOUSANDS OF KOREAN WON) 2004 2003
- ---------------------------- --------------- -----------------
Income before income taxes :
Domestic (Won) 758,019 (Won) (1,135,386)
Income taxes-Current :
Domestic (Won) - (Won) -
Income taxes-Deferred :
Domestic 367,362 (-) 52,018
--------------- -----------------
Total income taxes (Won) 367,362 (Won) (-) 52,018
=============== =================
The tax effects of temporary differences that give rise to significant portions
of the deferred income tax assets and deferred income tax liabilities at
December 31, 2003 and 2004 are as follows:
(IN THOUSANDS OF KOREAN WON) 2004 2003
- ---------------------------- ---------------- -----------------
Current deferred income tax asset - -
Non-Current deferred income tax asset (Won) 432,689 (Won) 800,052
Property, plant and equipment 14,349 14,349
Net loss carry forwards 418,340 785,703
---------------- -----------------
Realization of the future tax benefits related to the deferred tax assets is
dependent on many factors, including the Company's ability to generate taxable
income within the period during which the temporary differences reverse, the
outlook for the Korean economic environment, and the overall future industry
outlook. Management periodically considers these factors in reaching its
conclusion, and has determined that valuation allowance was required as of
December 31, 2003 and 2004. Therefore, the management concluded that no deferred
tax assets and related valuation allowance are recorded in the company's
financial statements with the reason for the remote possibility to generate
future taxable income within the period during which the all temporary
differences reserve due to the continuing loss from its inception (except sales
of patent).
16
The statutory income tax rate, including tax surcharges, applicable to the
Company was approximately 29.7% in 2002. The statutory income tax rate was
amended to 27.5% effective for fiscal years beginning January 1, 2005 in
accordance with the Corporate Income Tax Law enacted in December 2003.
Accordingly, deferred income taxes as of December 31, 2003 and 2004 were
calculated based on the enacted rate of 27.5%.
Statutory corporate income tax rate applied to the Company is 29.7% and there is
no income tax payable and expense due to cumulative deficit for years.
11. STOCKHOLDERS EQUITY
COMMON STOCK
The Company's capital stock consists entirely of common stock with a par value
of (Won) 5,000 and the numbers of authorized, issued and outstanding shares as
of December 31, 2004 and 2003 are as follows (in Korean won) :
2004 2003
------------------ -----------------
Authorized shares 650,000 shares 650,000 shares
================== =================
Issued and outstanding shares 275,905 shares 195,905 shares
Par value (Won) 5,000 (Won) 5,000
------------------ -----------------
Common stock balance (Won)1,379,525,000 (Won) 979,525,000
================== =================
The Company issued common shares and detail is as follows:
(Unit: million won)
As of December 31, 2004
------------------------------------
Number of shares Outstanding
BOD resolution date newly issued Amount shares Amount
- ------------------- ---------------- ----------------- ----------- -------------------
2004.4.22 80,000 (Won) 400,000,000 275,905 (Won) 1,379,525,000
RETAINED EARNINGS (DEFICITS)
The company carries undisposed deficits amounting to (Won) 3,684 million and
(Won) 2,926 million for the years ended December 31, 2003 and 2004,
respectively.
17
12. INCOME (LOSS) PER SHARE
Loss per share is computed by dividing net loss by the weighted-average number
of common shares outstanding during the year.
Loss per share amounts for the years ended December 31, 2004 and 2003 are as
follows:
(1) Basic Income (loss) per share
(in Korean won)
2004 2003
----------------- --------------------
Net Income (loss) available for common stockholders (Won) 758,019,534 (Won) (1,135,385,815)
Weighted average number of shares outstanding 250,987 195,905
----------------- --------------------
Ordinary Income (loss) per share (Won) 3,020 (Won) (5,795)
================= ====================
Net Income (loss) per share (Won) 3,020 (Won) (5,795)
================= ====================
Diluted loss per share is computed in a manner consistent with that of basic
earnings per share while giving effect to all potentially dilutive common shares
that were outstanding during the period.
(1) Dilutive income (loss) per share
(in Korean won)
2004 2003
----------------- --------------------
Net Income (loss) available for common stockholders (Won) 758,019,534 (Won) (1,110,820,873)
Weighted average number of shares outstanding 257,654 210,072
----------------- --------------------
Ordinary Income (loss) per share (Won) 2,942 (Won) (5,288)
================= ====================
Net Income (loss) per share (Won) 2,942 (Won) (5,288)
================= ====================
13. COMMITMENTS
According to the loan agreement on May 21, 2004 with Sea Han IT, the
Company endowed with goodwill right to Sae Han IT. On December 31, 2004,
the Company entered in to an additional agreement with Sae Han IT and
B.A.C. Network.
The Company agreed to provide 50% of gross margin to B.A.C. Network. Gross
margin is determined based on the difference between supplier's unit cost
and selling price to purchaser. The Company set range of purchaser to LG
Electronics, LGIBM, and others to which LG Electronics and LGIBM supply
its product related Micro Cooling System.
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Details of borrowing is as follows:
Loan amount: (Won) 290,000,000
Maturity: 2years and 4months after initial distribution of gross margin
Interest rate: 5%
However, gross margin share agreement will be expired upon request by Sea
Han IT if the accompanying business (MCS) shall not be launched until May
15, 2005. Upon the event stated above, The Company should provide 25% of
gross margin to B.A.C. Network from MCS business for 3 years form the date
of initial sales.
B.A.C. Network will automatically terminate agreement among parties upon
pre-redemption request by B.A.C. Network. In addition, B.A.C. Network can
request extension of the agreement for 2years and 3 months from maturity
date instead of redemption of (Won) 290,000,000. Both parties could alter
the range of purchaser when sales volume is extremely low from designated
purchasers set forth above.
14. RELATED PARTY TRANSACTIONS
The Company's significant account balances and transactions with related
parties as of and for the years ended December 31, 2004 and 2003 are
summarized as follows:
(Unit: Thousand won)
Related Party Account Name 2004 2003 Description
- -------------------------- --------------------- ------- ------- -----------------------
ICurie Lab Holdings, Ltd., Account Receivable 588,623 - Disposition of patent
------- -------
Jeong Hyun, Lee (CEO) Short Term Borrowings 87,235 74,823 For Operating Expenses
------- -------
IL Han, Kim (CEO's wife) Short Term Borrowings - 100,000 For Operating Expenses
------- -------
Jeong Won, Lee and others Short Term Loans 72,400 55,000
(CEO's Brother)
------- -------
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15. ASSETS PLEDGED AS A COLLATERAL
Details of assets pledged as a collateral for borrowings as of December
31, 2004 and 2003 are as follows:
(Unit: thousand)
Creditor Asset pledged Collateral value Description
- ------------------- ------------------- ---------------- ---------------------
Korea Exchange Bank Bank Deposit 20,000 Corporate Credit Card
Sae Han IT Patent (SSMS, NVIS) 290,000 Borrowings
16. GUARANTEES PROVIDED BY OTHERS
Details of guarantees provided by other parties for short-term borrowings
as of December 31, 2004 are as follows:
(Unit: thousand)
Provider Guaranteed amount Claimant Period
- ----------------------- ----------------- ------------- -----------------
Korea Technology Credit 210,600 Cho Hung Bank 05/29/04~05/27/05
Guarantee Fund
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17. SELLING AND ADMINISTRATIVE EXPENSES
The details of selling and administrative expenses for the years ended
December 31, 2004 and 2003 are as follows:
(Unit: won)
2004 2003
------------------- -------------------
Salaries (Won) 373,911,280 (Won) 158,780,414
Wages 8,476,300 -
Severance pay - 11,046,000
Employee welfare 171,092,673 62,279,848
Travel expense 266,774,544 101,248,612
Communication expense 30,336,093 17,229,243
Utilities 5,498,008 -
Tax and due 7,887,140 365,620
Rent 44,278,747 76,670,180
Maintenance of vehicle 35,857,584 194,000
Training 1,091,100 -
Insurance 876,970 -
Entertainment 1,156,819 3,180,500
Office supplies 25,849,483 1,909,130
Publication expense 2,477,671 1,277,030
Freight expense 2,403,420 554,500
Commission 392,688,976 28,730,397
Repairs 13,053,164 1,746,000
Depreciation 32,722,539 18,308,763
Amortization 6,102,500 5,419,333
R&D Expenses 902,797,019 565,917,594
Others 3,961,888 2,552,921
------------------- -------------------
Total (Won) 2,329,293,918 (Won) 1,057,410,085
=================== ===================
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18. GOING CONCERN
These financial statements have been prepared on a going concern basis,
which contemplates the realization of assets and the payment of
liabilities in the ordinary course of business.
Despite a net income of 758,019 thousand Korean won for the years ended
December 31, 2004, iCurie Lab Inc (the "Company") has incurred significant
operating losses in previous years and as at December 31, 2004, has a
working capital deficiency of 179,694 thousand Korean won (2003yr
(-)1,268,854 thousand Korean won). In addition, due to the cumulative
deficits, the Company total liabilities are greater than the Company's
total assets by the amount of 246,060 thousands Korean won as of December
31, 2004. Its continued existence as a going concern is dependent upon the
Company's ability to raise additional capital, to increase sales, and
ultimately become profitable.
Should the Company be unable to continue as a going concern, it may be
unable to realize the carrying value of its assets and to meet its
liabilities as they become due.
The Company believes that future shares issuance and certain sales related
efforts would provide sufficient cash flow for it to continue as a going
concern in its present form.
However, there can be no assurances that the Company will achieve such
results.
Accordingly, the financial statements do not include any adjustments
related to the recoverability and classification of recorded asset amounts
or the amount and classification of liabilities or any other adjustments
that might be necessary should the Company be unable to continue as a
going concern."
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