SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) July 31, 2002
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SKINTEK LABS, INC.
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(Exact name of registrant as specified in its charter)
Delaware 0-23532 65-0636277
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(State or other jurisdiction (Commission (IRS
Employer
of incorporation) File No.)
Identification No.)
1400 Quail Street, Suite 138
Newport Beach, California 92660
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Address of Principal Executive Offices
2700 North 29th Avenue, Suite 305, Hollywood, Florida 33020
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Former Address
Registrant's telephone number, including area code (949) 250-1147
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Item 1. Changes in Control of Registrant.
Item 2. Acquisition or Disposition of Assets
Effective at closing on July 31, 2002, the Registrant acquired 90% of the
outstanding shares of Hunno Technologies, Inc., (?Hunno?) a Korean corporation
engaged in developing and marketing fingerprint identification technology. The
acquisition was effected pursuant to an Exchange Agreement dated July 22, 2002
between the parties and the exchange (the Exchange?) of shares by 90% of the
Hunno shareholders for 14,850,000 shares of the Registrant?s common stock.
Immediately prior to the acquisition, there were outstanding 12,024,102 shares
of the Registrant?s common stock, of which 8,500,000 shares were cancelled,
resulting in 3,524,102 shares held by pre-Exchange holders of common stock, and
a total of 18,374,102 shares outstanding following consummation of the Exchange.
The number of share held by each of the directors, executive officers and each
person who holds more than 5% of the outstanding shares of the Registrant is as
follows. The address of each person is care of the Registrant
Name Number of Shares Percent
Kim Sang-Gyun
Chairman, Ceo and President 4,380,761 24.1%
Seo Bo Kun
Chief Financial Officer -- --
Kim Seo
Director -- --
Paeng Moon-Bo
Director 1,453,513 8.0%
Lawrence Hartman
Director -- --
All executive
officers and
directors 5,834,274 32.1%
as a group (5
persons)
The following persons were elected as directors and/or officers of Registrant in
connection with the acquisition:
Directors: Kim Sang-Gyun, Kim Seo, Paeng Moon-Bo and Lawrence Hartmen.
Officers: Kim Sang-Gyun, Chairman,
President and CEO, Seo Bo Kun, Chief Financial Officer.
Item 2. Acquisition or Disposition of Assets.
The description contained herein of the Hunno
acquisition is qualified in its entirety by reference to the Agreement which is
attached hereto as Exhibit 2.1 and incorporated herein by reference.
Item 7. Financial Statements and Exhibits.
(a) Financial Statements and ProForma Financial Information.
The audited financial statement of Hunno are filed herewith.
(c) Exhibits.
The following exhibits are filed herewith:
Exhibit No. Description
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2.1 Exchange Agreement between the Registrant and Hunno
Technologies, Inc. dated July 22, 2002.
SIGNATURES
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Pursuant to the requirements of the Securities Act of 1934, the Registrant
has duly caused this report to be signed on its behalf by the undersigned
hereunto duly authorized.
SKINTEK LABS, INC.
By: /s/Kim Sang-Gyun
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August 9, 2002 Kim Sang-Gyun
Chairman
HUNNO TECHNOLOGIES, INC.
REPORT ON AUDITS OF FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2000 AND 2001
PREPARED UNDER ACCOUNTING
PRINCIPLES GENERALLY ACCEPTED
IN THE UNITED STATES OF AMERICA
SONGHYUN ACCOUNTING CORPORATION
CONTENTS
Page
I. Independent Auditor's Report............................................................ 1
II. Financial Statements
1. Balance Sheets................................................................. 2
2. Statements of Income........................................................... 4
3. Statements of Changes in Stockholders' equity 5
4. Statements of Cash Flows....................................................... 6
III. Notes to Financial Statements........................................................... 9
To the Board of Directors and Shareholders of HUNNO TECHNOLOGIES, INC.
We have audited the accompanying balance sheets of HUNNO TECHNOLOGIES, INC. (the
"Company") as of December 31, 2001 and 2000, and the related statements of
operations, comprehensive income (loss), stockholders' equity and cash flows for
the years then ended, all expressed in Korean Won. 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 the auditing standards generally
accepted in the United States of America. 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 statements 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 HUNNO TECHNOLOGIES, INC. as of
December 31, 2001 and 2000, and the results of its operations, the changes in
its retained earnings (or deficit) and its cash flows for the years then ended
in conformity with accounting principles generally accepted in the United States
of America.
Seoul, Korea
March 21, 2002
Hunno Technologies, Inc.
BALANCE SHEETS
As of December 31, 2001 and 2000
In Thousand of In Thousands of
Korean Won U.S. Dollars (Unaudited)
2001 2000 2001 2000
ASSETS
Current Assets:
Cash and cash equivalents (Notes 2 and 3) W 227,083 W 125,313 $ 171 $ 94
Bank savings accounts (Note 3) 149,000 144,589 112 109
Short-term fund investments (Note 4) 148,817 -- 112 --
Trade receivables (Note 2) 4,208,262 1,335,654 3,173 1,007
Less allowance for doubtful accounts (42,083) (13,357) (32) (10)
Net trade receivables 4,166,179 1,322,297 3,142 997
Inventories (Note 2)
Merchandise -- 426,385 -- 322
Finished goods 2,905,864 2,522,108 2,191 1,902
Raw materials 678,157 -- 511 --
Total inventory 3,594,021 2,948,493 2,710 2,223
Other current assets (note 7) 296,952 716,669 224 540
Total current assets 8,582,052 5,257,361 6,472 3,965
Long-term investments
Investment in stock (available-for-sale Notes 2 and 4) 249,102 1,439,300 188 1,085
Investment in bonds (held to maturity Notes 2 and 4) 13,000 -- 10 --
Long-term Loans 75,010 23,700 57 18
Security deposits (note 8) 652,961 328,504 492 248
Total long-term investments 990,073 1,791,504 747 1,351
Property, plant and equipment
Machinery and equipment 59,229 58,750 45 44
Vehicle and transportation equipment 40,002 40,002 30 30
Office equipment 942,328 389,311 711 294
Furniture and Fixtures 179,809 179,809 136 136
Less accumulated depreciation (Note 9) (723,977) (342,624) (546) (258)
Total property, plant and equipment 497,391 325,248 375 245
Intangible assets (Notes 2 and 5)
Industrial property 25,105 28,243 19 21
TOTAL ASSETS W 10,094,621 W 7,402,357 $ 7,612 $ 5,582
Continued:
Hunno Technologies, Inc.
BALANCE SHEETS - Continued
As of December 31, 2001 and 2000
In Thousand of In Thousands of
Korean Won U.S. Dollars (Unaudited)
2001 2000 2001 2000
Liabilities and stockholders' equity
Current liabilities:
Trade accounts payable (Note 2) W 33,000 # -- $ 25 $ --
Other accounts payable 28,597 1,065,613 22 804
Accrued expenses 18,478 9,254 14 7
Short term Borrowings (Note 11) 2,569,174 1,409,173 1,937 1,063
Current portion of long-term debts 28,500 -- 21 --
Other current liabilities (Note 10) 14,689 16,795 11 13
Total current liabilities 2,692,438 2,500,835 2,030 1,887
Noncurrent liabilities:
Convertible bond (Notes 2 and 13) 7,562,895 2,214,955 5,703 1,670
Long-term borrowings (Note 12) 267,500 306,000 202 231
Severance Retirement Benefits (Notes 2 and 14) 138,914 92,868 105 70
Total long-term liabilities 7,969,309 2,613,823 6,010 1,971
Total liabilities W 10,661,747 W 5,114,658 $ 8,040 $ 3,857
Stockholders' equity
Capital stock (Note 16)
Common Stock, W 5,000 par 6,000,000 authorized
912,220 issued, 11 held in treasury W 4,561,100 W 4,133,750 $ 3,439 $ 3,117
Additional paid-in capital from
Paid-in capital in excess of par value 517,433 819,444 390 618
Stock options outstanding 80,160 80,160 60 60
Less deferred compensation cost (50,315) (63,673) (38) (48)
Total additional paid-in capital 542,278 835,931 413 630
Retained earnings (Accumulated deficit) (5,675,449) (2,681,927) (4,280) (2,022)
Total stockholders' equity (567,071) 2,287,754 (428 1,725
Less treasury stock at cost (55) (55) 0 0
Total liabilities and stockholders' equity W 10,094,631 W 7,402,357 $ 7,612 $ 5,582
See accompanying notes to financial statements
Hunno Technologies, Inc.
INCOME STATEMENT
For the years ended December 31, 2001 and 2000
In Thousand of In Thousands of
Korean Won U.S. Dollars (Unaudited)
2001 2000 2001 2000
Sales W 10,286,334 W9,223,443 $7,757 $6,955
Cost of sales 6,278,637 6,036,060 4,735 4,552
Gross profit 4,007,697 3,187,383 3,022 2,404
Operating expenses (Notes 5, 17 and 19)
Selling and administrative expenses 4,573,403 3,623,296 3,449 2,732
Operating income (loss) (565,706) (435,913) (427) (329)
Other revenues and gains
Interest income 64,969 67,934 49 51
Rental income -- 5,071 -- 4
Gain on disposition of marketable securities -- 250,000 -- 189
Realized gain on foreign currency transaction 718 3,071 1 2
Unrealized gain on foreign currency transaction (Note 18)36,179 -- 27 --
Miscellaneous 6,222 145 5 --
Total other revenue and gains 108,088 326,221 82 246
Other expenses and losses
Interest expenses (817,825) (285,891) (617) (216)
Other amortization expense (440,998) -- (332) --
Realized impairment loss on available-for-sale
securities (1,015,736) -- (766) --
Realized loss on sale of available for sale
securities (260,000) -- (196) --
Commission on engagement of investment -- (223,004) -- (168)
Realized loss on foreign currency transaction (41) (13,186) -- (10)
Unrealized loss on foreign currency transaction (844) -- (1) --
Miscellaneous (459) (4,414) -- (3)
Total other expenses and losses (2,535,904) (526,495) (1,912) (397)
Loss from continuing operations before tax (2,993,522) (636,187) (2,257) (480)
Income tax expense (Note 2) -- -- -- --
Net loss (2,993,522 (636,187) (2,257) (480)
See accompanying notes to financial statements.
Hunno Technologies, Inc.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
For the year ended December 31, 2000
In Thousands of Korean Won
Additional Retained
Common Paid-in earnings Treasury
Stock Capital (deficits) Stock Total
Balance, January 1, 2000 W 4,010,000 (21,896) (2,045,740) (55) 1,942,309
Net income (loss) -- -- (636,187) -- (636,187)
Proceeds from issuance of shares 123,750 819,444 -- -- 943,194
Increase from stock option -- 16,487 -- -- 16,487
Change in discounts on stock issuance -- 21,896 -- -- 21,896
Balance, December 31, 2000 W 4,133,750 W 835,931 (2,681,927) (55) 2,287,699
For the year ended December 31, 2001
In Thousands of Korean Won
Additional Retained
Common Paid-in earnings Treasury
Stock Capital (deficits) Stock Total
Balance, January 1, 2001 W 4,133,750 W 835,931 (2,681,927) (55) 2,287,699
Net income (loss) -- -- (2,993,522) -- (2,993,522)
Proceeds from issuance of shares 427,350 (302,011) -- -- 125,339
Increase from stock option -- 13,358 -- -- 13,358
Balance, December 31, 2001 4,561,100 547,278 (5,675,449) (55) (567,126)
See accompanying notes to financial statements.
Hunno Technologies, Inc.
STATEMENTS OF CASH FLOWS
For the years ended December 31, 2001 and 2000
In Thousand of In Thousands of
Korean Won U.S. Dollars (Unaudited)
2001 2000 2001 2000
I. CASH FLOWS FROM OPERATING ACTIVITIES
1. Net Income (Loss) W (2,993,522) W (636,187) $ (2,257) $ (480)
2. Addition of expenses not involving
cash outflows
Bad debt expense 595,256 11,995 449 9
Investment securities impairment loss 1,015,736 -- 766 --
Loss on disposition of investment assets 260,000 -- 196 --
Depreciation 401,925 243,047 303 183
Amortization of intangible assets 3,138 3,138 2 2
Other bad debt expense 440,998 -- 333 --
Interest payable of long-term 479,463 219,111 362 165
Retirement allowance 109,147 59,421 82 45
Others 13,358 16,487 10 12
3,319,020 553,199 2,503 417
3. Deduction of revenues not involving cash inflows
Gain on foreign currency translation (36,179) -- (27) --
Gain on disposition of marketable securities -- (250,000) (27) (189)
(36,179) (250,000) (27) (189)
4. Changes in assets and liabilities resulting
from operations
Decrease (Increase) in trade receivables (3,402,958) (1,196,251) (2,566) (902)
Decrease (Increase) in inventories (645,528) (2,768,329 (487) (2,088)
Decrease (Increase) in other current assets 63,718 (375,430) 48 (283)
Increase (Decrease) in trade payables 33,000 -- 25 --
Increase (Decrease) in other payables (1,037,017) 986,813 (782) 744
Increase (Decrease) in accrued expenses 9,223 (16,976) 7 (13)
Payment of retirement pay (63,099) (3,000) (48) (2)
Increase (Decrease) in other current liabilities (2,106) 12,929 (2) 10
(5,044,767) (3,360,244) (3,804) (2,534)
Total (1+2+3+4) (4,755,448) (3,693,232) (3,586) (2,785)
Continued:
Hunno Technologies, Inc.
STATEMENTS OF CASH FLOWS, Continued
For the years ended December 31, 2001 and 2000
In Thousand of In Thousands of
Korean Won U.S. Dollars (Unaudited)
2001 2000 2001 2000
II. CASH FLOWS FROM INVESTING ACTIVITIES
Decrease (Increase) in short-term financial instrument (4,411) (33,089) (3) (25)
Decrease (Increase) in short-term loans (85,000) -- (64) --
Decrease (Increase) in marketable securities (148,816) 570,000 (112) 430
Decrease (Increase) in investment securities (98,538) (581,700) (74) (439)
Decrease (Increase) in guarantee deposits (324,456) (27,204) (245) (21)
Decrease (Increase) in long-term loans (51,310 (3,950) (39) (3)
Decrease (Increase) in machinery and equipment (480) (6,627) (0) (5)
Decrease (Increase) in industrial property -- (27,528) -- (21)
Decrease (Increase) in office installation -- (4,600) -- (3)
Decrease (Increase) in office equipment (573,588) (315,103) (433) (238)
(1,286,599) (429,801) (970) (324)
III. CASH FLOWS FROM FINANCING ACTIVITIES
Increase (Decrease) in short-term borrowings 1,160,001 1,409,172 875 1,063
Increase (Decrease) in long-term borrowings (10,000) (322,313) (8) (243)
Increase (Decrease) in dividend payable -- -- -- --
Increase (Decrease) in debenture -- -- -- --
Increase (Decrease) in bond with warrants 5,000,000 -- 3,770 --
Increase (Decrease) in stock issue costs (6,184) -- (5) --
Increase (Decrease) of capital stock by
payment in cash -- 965,090 00 728
6,143,817 2,051,949 4,633 1,547
IV. INCREASE (DECREASE) IN CASH (I+II+III) 101,770 (2,071,084) 77 (1,562)
V. CASH AT BEGINNING OF YEAR 125,313 2,196,397 94 1,656
VI. CASH AT END OF YEAR W 277,083 W 125,313 $ 171 $ 94
Cash payment for interest and income tax
Cash paid (refunded) for income tax: (5,201) 11,542 (4) 9
Cash paid for interest 817,823 285,178 617 215
Non-cash Activities
(See accompanying Note 20)
HUNNO TECHNOLOGIES, INC.
Notes to Financial Statements
December 31, 2001 and 2000
1. Description of the Company
Hunno Technologies, Inc. (the "Company") is a venture company for the business
of fingerprint identification technology among Biometrics industry established
in May 1997 under the laws of the Republic of Korea. The Company's key
developments are in its unique fingerprint identification algorithon and the
state-of-the-art optical-based fingerprint identification module together with
the first chip-based fingerprint module in the worldwide. The Company is
currently engaged in providing PC security device, access control system and
home security products based on its unique fingerprint identification technology
developed by the Company.
In the meanwhile, it has changed the Company's name from Jeil FDate System Co.,
Ltd. to Hunno Technologies,
Inc. after its movement to 705-18, Yeoksam-Dong, Kangnam-Ku, Seoul.
The authorized number of shares is shown 6,000,000 shares (par value: W5,000)
and the Company's capital has been increased to W 4.561 million as of December
31, 2001 through several times of capital increase.
According to the Articles of Incorporation of the Company, the preferred shares
shall be of non-voting type and can be issued within the number of 1,500,000
shares. Preferred shares shall be entitled to receive dividends at a rate equal
to, or higher than, 2% but not exceeding 20% per annum based on par value, and
the dividend ratio shall be determined by the Board of Directors at the time of
issuance. In case of the payment of prescribed dividends, the Company can issue
preferred shares with the duration of 5 years and the shares shall be converted
to common shares upon termination. As of December 31, 2001, the issuance of
preferred shares does not occur to the Company.
The Company may, by a special resolution of the shareholders' general meeting,
grant share purchase option rights tot he Company officers and employees within
an amount not exceeding 15/100 of the total shares issued and outstanding. The
number of officers and employees granted with the share purchase option rights
shall not exceed 90/100 of the total incumbent officers and employees. As of
December 31, 2001, the number of share purchase option rights granted in 77.750
shares.
The Company may issue convertible bonds which can be converted to common shares
or preferred shares, and bonds with subscription warrant which can be exercised
to common shares or preferred shares within W 20,000 million and W 5,000
million, respectively. As of December 31, 2001, the outstanding amount of
convertible bonds shows W 6,800 million.
2. Summary of Significant Accounting Policies and Basis of Presenting
Financial Statements
The significant accounting policies followed by the Company in preparation of
the accompanying financial statements are summarized below.
(a) Basis of Presentation
Hunno Technologies, Inc. maintains its legal books of accounts in
accordance with accounting principles generally accepted in the
Republic of Korea ("Korean GAAP"). However, the financial statements
have been prepared in a manner, and reflect the adjustments which
management believes are necessary, to conform them with accounting
principles generally accepted in the United States of America ("US
GAAP").
2. Summary of Significant Accounting Policies and Basis of Presenting
Financial Statements - Continued
(b) Basis of Translating Financial Statements
The financial statements are expressed in Korean Won and, solely for
the convenience of the reader, have been translated into U.S. dollars
are the rate of W 1,32610 to US $1, the basic exchange rate on December
31, 2001. These translations should not be construed as a
representation that any or all of the amounts shown could be converted
into US dollars at this or any other rate.
(c) Cash Equivalents
Cash equivalents consist of demand deposits. For the purpose of the
statements of cash flows, the Company considers all highly liquid debt
instruments with original maturities of three months or less to be cash
equivalents.
(d) Allowance for Doubtful Accounts
Allowance for doubtful accounts is estimated based on an analysis of
individual accounts and past experience of collection of trade
receivables and other receivables included in other current assets and
investments.
(e) Marketable Securities and Investments
Investment in affiliated companies where the Company has the ability to
exercise significant influence, are accounted for by the equity method
of accounting. Investments in other investee companies are accounted
for using the cost method of accounting.
The Company classifies its marketable investments included in
"marketable securities" and "investment" into three categories and
accounts for such securities as follows:
(degree) Debt securities that the enterprise has the positive
intent and ability hold to maturity are classified as
held-to-maturity securities and reported at amortized
cost.
(degree) Debt and equity securities that are bought and held
primarily for the purpose of selling them in near
future are classified as trading securities and
reported at fair value, with unrealized gains and
losses included in current operations.
(degree) Debt and equity securities not classified as
held-to-maturity securities or trading securities are
classified as available-for-sale securities and
reported at fair value, with unrealized gains and
losses excluded in current operations and reported in
other comprehensive income (loss) as a separate
component of stockholders' equity.
The Company classified its marketable investments included in
"marketable securities" as trading securities and its
marketable investments included in "investments" as
available-for-sale and heldto-maturity securities at December
31, 2001 and 2000. Gross proceeds from the sale of such
securities are separately classified on the statements of cash
flow. Equity securities included in "investments" that are not
publicly traded are carried at cost.
2. Summary of Significant Accounting Policies and Basis of Presenting
Financial Statements - Continued
(e) Marketable Securities and Investments - Continued
The Company has a policy to regularly review its investments
for declines in fair value below the amortized cost basis and
if such declines in fair value of individual investments are
considered to be other than temporary, an other than temporary
impairment loss if considered to have occurred. In cash of
such declines in fair value, the cost basis of the individual
security is written down to fair value as a new cost basis,
and the amount of the write down is included in the result of
operation (that is, accounted for as a realized loss). The new
costs basis is not changed for subsequent recoveries in fair
value. Subsequent increase in fair value of available-for-sale
securities is included in the related separate component of
equity.
(f) Value-Added Taxes
Under the Korean value added tax ("VAT") system, the Company pays a 10
VAT on the purchase of most goods and services, and receives VAT from
its customers equal to 10% of revenue. To the extent the Company has
paid its suppliers and vendors more VAT than it has received from its
customers, the net amount is recorded as prepaid value-added taxes. if
more VAT is received from customers than is paid to vendors and
suppliers, the net amount is recorded as a current liability.
(g)Inventories
The Company's inventories are stated at the lower of cost or market
value, with cost being determined by using the first-in first-out
method.
(h) Property, Plant and Equipment
Property, Plant and Equipment are stated at acquisition cost.
Improvements that significantly extend the life of an asset or add to
its productive capacity are capitalized. Expenditures for routine
maintenance and repairs are changed to expense when incurred.
Depreciation is computed by using declining balance method using rate
based on useful lives of the respective assets, 5 year has been used as
estimated useful lives for the Company's asset ant 0.451 ration was
applied.
(i) Intangible Assets
Intangible assets are stated at cost less accumulated amortization and
impairment losses. Intangible assets are amortized using the
straight-line method for a reasonable period based on the nature of the
asset.
(j) Stock based compensation
The Company applies the minimum value method of accounting prescribed
by SFAS No. 123 "Accounting for Stock-Based Compensation" in accounting
for its fixed plan stock options. The computed amount of minimum value
are amortized over the service periods using straight-line method and
included in current earnings.
(k) Discounts (Premium) on Bonds
Discounts (premium) on debentures issued, which represent the
difference between the face value of debentures issued and the issuance
price of debentures, are amortized on the effective interest method
over the life of the debentures. The amount amortized is included in
interest expense.
2. Summary of Significant Accounting Policies and Basis of Presenting
Financial Statements - Continued
(l) Accrued Severance Indemnities
Employees who have been with the Company for more than one year are
entitled to lump sum payments based on current rates of pay and length
of service when they leave the Company. The Company's estimated
liability under the plan which would be payable if all employees left
on the balance sheet date is accrued in the accompanying balance
sheets.
(m) Income Taxes
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases and operating loss carry-forwards. Deferred tax
assets and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. Deferred tax
assets are reduced by a valuation allowance when, in the opinion of
management, it is more likely than not that some portion or all of the
deferred tax assets will not be realized. Deferred tax assets and
liabilities are adjusted for the effects of changes in tax laws and
rates on the date of enactment.
Because of the Company's cumulative deficits in recent years, valuation
allowance is necessary for deferred tax asset account and no provision
of income tax is necessary. The detailed disclosures for deferred tax
assets and liabilities are omitted in these statements for
cost-benefit.
(n) Comprehensive income
The Company applies the provisions of SFAS NO. 130 "Reporting
Comprehensive Income" with respect to the reporting and display of
comprehensive income and its components for each periods presented. The
information is presented in the accompanying statements of income and
comprehensive income is not presented because there is no "other
comprehensive income."
(o) Foreign Currency Transactions
Monetary assets and liabilities denominated in foreign currencies are
translated into Korean Won at the balance sheet date, with the
resulting gains and losses recognized in current results of operations.
Monetary assets and liabilities denominated in foreign currencies are
translated into Korean Won at W1,32510 to US $1, the rate of exchange
on December 31, 2001 that is permitted by the Financial Accounting
Standards.
(p) Fair Value of Financial Instruments
The following methods and assumptions were used to estimate the fair
value of each class of financial instruments for which it is
practicable to estimate that value;
(i) Cash and cash equivalents, marketable securities, accounts
receivable and short-term borrowings
The carrying amount approximates fair value because of the
nature and short maturity of those instruments.
(ii) Marketable securities and investment securities
The fair value of market-traded investments is estimated based
on quoted market prices for those or similar investments. For
other investments for which there are no quoted market prices,
a reasonable value could not be made without incurring
excessive costs.
2. Summary of Significant Accounting Policies and Basis of Presenting
Financial Statements - Continued
(p) Fair Value of Financial Instruments - Continued
(iii) Long-term debts and bonds
The fair value of long-term debts and bonds are estimated
based on quoted market prices for same or similar issues or
based on the current rates offered for debt of the same
remaining maturities.
(q) Use of estimates
The preparation of financial instruments in accordance with generally
accepted accounting principles requires management to make estimate and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the period. Actual results could differ from those estimates.
(r) Basis of Translating Financial Statements (Unaudited)
The financial statements are expressed in Korean Won and, solely for
the convenience of the reader, the December 31, 2001 financial
statements have been translated into United States dollars at the rate
of W 1,32610 to US $1, the rate of exchange on December 31, 2001 that
is permitted by the Financial Accounting Standards. The translation
should not be construed as a representation that any or all of the
amounts shown could be converted into U.S. dollars at this or any other
rate.
3. Cash & cash equivalents and Bank savings accounts
Cash and cash equivalents as of December 31, 2001 and 2000 are summarized as
follows (in thousands of Korea Won):
2001 2000
Cash on hand W 749 W 130
Demand deposit 375,333 269,772
376,083 269,902
Bank savings accounts 149,000 144,589
4. Investment Securities
4-1 Classification of Investment Securities
Investment securities as of December 31, 2001 are summarized as follows
(in thousands of Korea Won):
Classification Description 2001
Investment in stocks Unmarketable Securities W 249,101
Investment in Bonds Government bonds 3,000
Subordinated bonds 10,000
Short-term fund investments Beneficiary Certificates 148,816
W 410,918
4. Investment Securities - Continued
4-2 Unmarketable Equity Securities
Percentage of Acquisition Net Assets Book
Company Name Ownership Cost Value Value
(cost method...Available-for-sale)
Geto Korea Co., Ltd. 4.1% W857,600 W64,477 W64,477
UniSecurity, Inc. 4.7% 281,700 59,086 59,086
(Equity method)
PT Hunno Integrasi 33.3% 125,538 125,507 125,507
5. Research and Development Costs
The Company charges all research and development costs to expenses as incurred.
The Company incurred research and development costs of W 1,752,636,855 and W
1,619,004,828 for the years ended December 31, 2001 and 2000, respectively.
6. Insurance
As of December 31, 2001, the Company maintains insurance policies covering loss
and liability arising from automobile accidents and employee accident insurance.
7. Other current assets
2001 2000
Accounts
Accrued revenues W 11,731 W 2,820
Other receivables 40,185 438,118
Advance payments 181,230 255,233
Prepaid expenses 9,697 8,394
Prepaid value-added taxes 47,206 --
Tax refund receivable 6,902 12,104
Total other current assets W 269,952 W 716,669
8. Security deposits
2001 2000
Accounts
Refundable leasehold deposits W 652,846 W 300,000
Other deposits -- 500
Money on deposit 115 27,924
Telephone deposit -- 80
Total security deposits W 652,961 W 328,504
9. Accumulated depreciation
2001 2000
Accounts
Machinery and equipment W 48,574 W 40,018
Vehicle and transportation equipment 30,664 22,993
Other equipment 507,786 177,866
Furniture and fixtures 136,953 101,747
Total security deposits W 723,977 W 342,624
10. Other current liabilities
2001 2000
Accounts
Withholding payables W 13,739 W 16,765
Security deposits 950 --
Total other current liabilities W 136,953 W 101,747
11. Short-term Borrowings
The outstanding for the years ended December 31, 2001 and 2000 are
summarized as follows (in thousands of Korea Won):
2001 2000
Kookmin Bank W 169,174 W 183,172
Chohung Bank, etc. 2,400,000 1,226,000
W 2,569,174 W 1,409,172
12. Long-term Borrowings
The outstanding for the years ended December 31, 2001 and 2000 are
summarized as follows (in thousands of Korea Won):
2001 2000
Chohung Bank, etc. W 279,000 W 289,000
SMBA 17,000 17,000
W 296,000 W 306,000
* Current portion 28,500
* Non-current portion 267,500 306,000
[Redemption schedule for next 6 years]
2002: 28,500
2003: 70,500
2004: 62,000
2005: 62,000
2006: 52,000
2007: 21,000
13. Debentures and Convertible Bonds
Convertible Bonds as of December 31, 2001 and 2000 are summarized as
follows (in thousands of Korea Won):
Amount
No. Issuing Date Maturity Coupon Compensation 2001 2000
1st Oct. 24, 1998 Oct. 24, 2001 6% 15% -- 100,000
2nd Jul. 27, 1999 Dec. 31, 2002 1% 12% 1,800,000 1,800,000
3rd May 15, 2001 May 15, 2004 3% 10.5% 5,000,000 --
TOTAL 6,800,000 1,900,000
The 2nd convertible bonds are convertible into common stock from the date after
issuance date (Jul 28, 1999) until the day before maturity date (Dec. 30, 2002).
The 3rd bonds are convertible into common stock from May 12, 2002 to May 15,
2004. At initial issuance of these bonds, the conversion prices were W 20,000
and W 23,000 (In the case of dilution, price adjustments would be made.) for 2nd
and 3rd convertible bonds, respectively. All of the 1st convertible bonds were
converted in 2001.
14. Retirement and Severance Benefits
Retirement and severance benefits as of December 31, 2001 are summarized as
follows (in thousands of Korea Won):
2001
Liability at beginning of year W 92,868
Provision for the year 109,146
Payment for the year 63,099
W 138,914
15. Guarantee Provided by Others
The payment guarantee for the Company provided by Korea Technology Credit
Guarantee Fund ("KTCGF") as of December 31, 2001 are summarized as follows (in
thousands of Korea Won):
Guaranteed Guaranteed
Guarantor Amount Contents
KTCGF W 5,000,000 Primary CBO (Convertible Bond)
KTCGF 850,000 Short-term borrowings
W 5,850,000
16. Capital Stock
Authorized stocks, outstanding stocks and par value as of December 31, 201 and
2000 are as follows:
Classification 2001 2000
Authorized stock 6,000,000 shares 6,000,000 shares
Preferred stock (1,500,000) shares (1,500,000) shares
Par value
Common stock 5,000 won 5,000 won
Preferred stock 5,000 won 5,000 won
Outstanding stock
Common stock 912,220 shares 826,750 shares
Preferred stock __________ shares ________ shares
17. Selling and general and administrative expenses
Accounts 2001 2000
Salary W 720,015 W 578,522
Bonus 33,792 --
Miscellaneous salary 17,637 9,020
Severance expense 104,235 55,337
Employee benefits 204,403 104,640
Travel 127,117 106,990
Meals and entertainment 121,023 32,380
Telephone 35,604 33,274
Utilities -- 20
Dues and taxes 44,509 40,202
Depreciation 327,189 230,184
Rent 44,041 17,059
Repairs and maintenance 15,306 11,271
Insurance 6,686 385
Automobile maintenance 9,352 16,083
Research and development 1,752,637 1,619,005
Transportation 20,580 11,800
Training and education 1,147 15,197
Printing and Books 58,570 50,397
Office supplies 8,928 1,600
Other supplies 13,702 14,072
Commissions 229,494 82,223
Advertising 22,035 380,774
Bad debt expense 595,256 11,996
Amortization of intangibles 3,138 3,138
Miscellaneous expenses 240 280
Recruiting 11,045 31,400
Operating management -- 149,560
Stock option expense 13,358 16,487
Events, promotion 32,362 --
Total operating expense W 4,573,403 W 3,623,296
18. Unrealized transaction gain on assets denominated in foreign currency
Unrealized
Transaction Exchange
Account US $ W Gain Rate
Trade Accounts
receivable $ 825,464 W1,095,973,910 W 36,179,295 W 1,326,10/$1
19. Stock Option
The Company granted employee stock option in 1999 and 2000. Exercise period is
for one year starting after 3 years of grant date and if there is any dilution
of stock value, the exercise price and number of exercisable amounts will be
adjusted.
The Company computes stock option expense using "minimum value method" under
SFAS 123 "Accounting for Stock-Based Compensation."
(degree) Market price at grant date: W5,000
(degree) Present value of exercise price: W3,969
(risk free interest rate: 7.5%, exercise periods:
3 years, no expected dividends)
(degree) Minimum value per share: W1,031
(degree) Total value for stock option: W80,160,250
20. Non-cash activities
The statements of cash flows are stated using indirect methods. Non-cash
activities on cash flows statements are listed as follows:
Explanation Amount
(degree) Write-off of accounts receivable with allowance for doubtful accounts W 566,529,970
(degree) Write-off of other receivables with allowance for doubtful accounts 355,998,150
(degree) Conversion of convertible bonds into common stock 427,350,000
(degree) Reclassification of current portion of long-term borrowings 28,500,000
21. Risks and uncertainties
Beginning in 1997, Korea and other countries in the Asia Pacific region
experienced a severe contraction in substantially al aspects of their economies.
Through early 1999, it was widely accepted that the economic situation had
stabilized, but not fully recovered from the crisis.
The Korean economy is currently experiencing additional difficulties in delay of
restructuring and reforming the industry. These risks and uncertainties may
affect the financial position of the Company and its business. The accompanying
financial statements do not reflect the impacts from such uncertainties.
22. Subsequent events
During January, 2002, the Company acquired 780,000 shares of common stock of
Simsvalley Co., Ltd. (registered company on KOSDAQ) at W 6,500 per share (total
amount of W 5.072 million). Now the Company is the largest shareholder of
Simsvalley Co., Ltd. and the Company's president is in charge of CEO of
Simsvalley Co., Ltd. too.