THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

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.

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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

	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

DEFINITIONS

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

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

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
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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

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 the supplemental agreement to the Subscription Agreement dated 31 Agreement” 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.

LETTER FROM THE BOARD

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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
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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:

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
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

LETTER FROM THE BOARD

(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 consideration being KRW11,070,004,580 (equivalent to approximately HK$75,821,949)); and
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LETTER FROM THE BOARD

(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 the US$17,794,497 (equivalent to approximately HK$138,263,242), Subscription Bonds: 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.

LETTER FROM THE BOARD

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:

Events of default:

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.

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
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LETTER FROM THE BOARD

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.

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LETTER FROM THE BOARD

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) volumeweighted-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;
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LETTER FROM THE BOARD

(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.

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LETTER FROM THE BOARD

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 nonresident 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)

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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 nonfulfillment 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
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(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.

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EFFECT OF THE SECURITIES SUBSCRIPTION AND THE SHARES SUBSCRIPTION ON THE SHAREHOLDING 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:

							Immediately after the
							Subscription Closing and
							assuming the Existing Bonds
							are fully converted into
							Nitgen Shares and the
	Existing (as at the Latest				Immediately	after the	Investment Closing does not
	Practicable Date)				Subscription Closing		take place
			%	of		% of enlarged	% of enlarged
	No. of Nitgen	shareholding			No. of Nitgen	shareholding	No. of Nitgen shareholding
Shareholder	Shares	in	Nitgen		Shares	in Nitgen	Shares 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.

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(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) No. of Nitgen Shares % of shareholding in Nitgen 7,179,925 20.28 – – – – 28,220,391 79.72 35,400,316 100.00	Immediately after the Subscription Closing No. of Nitgen Shares % of enlarged shareholding in Nitgen 19,444,011 40.79 – – – – 28,220,391 59.21 47,664,402 100.00	Immediately after the Subscription Closing and the Investment Closing No. of Nitgen Shares % of enlarged shareholding in Nitgen 25,444,011 35.94 17,136,230 24.20 – – 28,220,391 39.86 70,800,632 100.00	Immediately after the Investment Closing and assuming the NCC Bonds, the SHK Bonds and the Existing Bonds are fully converted into Nitgen Shares No. of Nitgen Shares % of enlarged shareholding in Nitgen 38,119,772 34.68 34,837,233 31.70 8,726,970 7.94 28,220,391 25.68 109,904,366 100.00

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.

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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	ended		For the year ended	For the year ended
		31 December	2011		31 December 2010
		KRW (million)	HK$	(million)	KRW (million)	HK$	(million)
		approximately	approximately		approximately	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.

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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;
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(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”).

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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 consolidated
	financial information for
	the 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 consolidated
	financial information
	as 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 SHARES SUBSCRIPTION 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

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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

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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.

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RELAXATION OF THE REQUIREMENT TO INCLUDE AN ACCOUNTANTS’ REPORT ON NITGEN

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;
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(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;
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(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 audited financial statements of Nitgen for the year ended 31 December 2009; (2) the extracts of the annual report and the audited financial statements of Nitgen for the year ended 31 December 2010; (3) the extracts of the annual report and the audited financial statements of Nitgen for the year ended 31 December 2011; and (4) the extracts of the interim report of Nitgen and the unaudited financial statements of Nitgen for the six months ended 30 June 2012, which were published in Korean, are set out 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 published Korean versions.

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

The audited financial statements of Nitgen for the year ended 31 December 2009 (as set out in section (2) of Appendix IIA to this circular) and the financial statements of Nitgen for the year ended 31 December 2010 (as set out in section (2) of Appendix IIB to this circular) were prepared in accordance with K-GAAP and such financial statements were not consolidated financial statements as before the amendment of Enforcement Decree of the Financial Investment Services and Capital Market Act of the laws of Korea on June 11 2010, Nitgen was not required to report as consolidated financial statements before the end of 2010. In addition, for the two years ended 31 December 2010, Nitgen was not 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 in section (2) of Appendix IIC to this circular) were prepared in accordance with K-IFRS. Section (2) of Appendix IIC to this circular includes the audited consolidated financial statements of Nitgen for the year ended 31 December 2011 and the audited separate financial statements of Nitgen for the year ended 31 December 2011 of Nitgen.

27 -

LETTER FROM THE BOARD

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 according to Article 23 of (No. 20947) of the Enforcement Decree of the Act on the Capital Market and Financial Investment Business of the laws of Korea, even if a company has subsidiaries which are subject for consolidation 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 consolidated financial statements but separate financial statements. This relevant Korean law is applicable only for the 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 December 2011 and the six months ended 30 June 2012, Nitgen itself had business operations and was engaged in the business of biometric technology with embedded module, fingerprint scanner, PC peripheral device and fingerprint server certification. Nitgen’s businesses during the three years ended 31 December 2011 were substantially conducted at the company level and Nitgen’s businesses during the six months ended 30 June 2012 were conducted at the company level only.

Based on the confirmation by the directors of Nitgen, the Directors confirm that there have been no 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 and belief, 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. Shareholders are advised to consult professional advice if there is any doubt in reading such financial information 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 -

LETTER FROM THE BOARD

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 Limited So Yuk Kwan Chairman

29 -

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

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 March	Year ended 31 March
	2012	2011	2010
	HK$’000	HK$’000	HK$’000
		(Restated)
Revenue	3,366,541	2,909,125	2,457,688
Profit/(Loss) before tax	5,241	121,809	50,158
Income tax	(4,756)	1,254	26,859
Profit/(Loss) for the year attributable to:	485	123,063	77,017
Owners of the Company	2,416	123,601	77,017
Non-controlling interests	(1,931)	(538)	–
		As at 31 March
	2012	2011	2010
	HK$’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 -

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

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 THE DISPOSAL

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 INFORMATION OF THE GROUP

APPENDIX I

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

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

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 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

Based on the unaudited pro forma assets and liabilities statement of the Group as set out in Appendix III to this circular, the Disposal is not expected to have any impact on the liabilities of the Group.

I-3 -

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Earnings

Save for the expected unaudited gain of approximately HK$82.37 million from the Disposal as mentioned in the section headed “Reasons for and benefits of the Securities Subscription, the Shares Subscription and the Disposal” in the Letter from the Board in this circular, the Disposal is not expected to have any material effect on the earnings of the Group.

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

After 31 March 2012, being the date on which the latest published audited consolidated accounts of the Group where made up, New Concept (1) acquired 7,179,925 common shares of Nitgen, representing approximately 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 the issued 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 electronic components, and the design, development and sale of electronic products. As disclosed in the annual report of the Company for the year ended 31 March 2012, for the consumer electronic product business of the Group, over the years the Group has successfully established a unique differentiation for its high definition headphones under the SOUL by Ludacris® brand through the superior sound quality with a distinctive flair for self-expression and individual style. Following penetration of new markets including the European Union and South Africa, the Group is striving to lay a foundation for future business development through a range of marketing activities to amplify the brand image and extend its reach across the international market in terms of coverage and sales. This product segment is set to be the Group’s principal growth driver in the coming years.

Regarding its semiconductor distribution business, the Group will continue to leverage its diversified product portfolio, established distribution network and extensive clientele to achieve steady growth. Noting the rising public concern about energy conservation, the Group plans to engage in the business 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 issued shares in Nitgen at a total consideration of approximately HK$88.44 million in May 2012. Nitgen has developed LED segment with good development prospects and potential synergy with the Group’s LED business. The Group is continuing to explore and evaluate business opportunities between Nitgen and its current core businesses through restructuring. The acquisition is in line with the Group’s development strategy which enables the Group to plan ahead in broadening its product range towards downstream products, for example, LED light bulbs, general lighting and street lamps.

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

I-4 -

APPENDIX IIA

FINANCIAL INFORMATION OF NITGEN FOR THE YEAR 2009

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

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

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FINANCIAL INFORMATION OF NITGEN FOR THE YEAR 2009

APPENDIX IIA

(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 -

FINANCIAL INFORMATION OF NITGEN FOR THE YEAR 2009

APPENDIX IIA

(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 bioscan 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

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 -

FINANCIAL INFORMATION OF NITGEN FOR THE YEAR 2009

APPENDIX IIA

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 -

FINANCIAL INFORMATION OF NITGEN FOR THE YEAR 2009

APPENDIX IIA

(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 -

FINANCIAL INFORMATION OF NITGEN FOR THE YEAR 2009

APPENDIX IIA

(4) Contents and prospect of new business and others
Not applicable
(5) Organization Chart

==> picture [439 x 168] intentionally omitted <==

----- Start of picture text -----

Representative
Director
Managing
Director Auditor
Business Development
Division Office
Management Support Advance Research Sales Planning H/W Team S/W Team Quality Team ProductTeam
Office Team Team Team
----- End of picture text -----

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

IIA-6 -

APPENDIX IIA FINANCIAL INFORMATION OF NITGEN FOR THE YEAR 2009

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)	(Unit: 1,000 won)
	2008.01 ~ 2008.12	2009.01 ~ 2009.12
Classification	(The 5th Term)	(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, %)
			Detailed access		Sales revenue
Business fields	Sales type	Item	security	Major trademark	(ratio)
Enpia Business	Service	Added	Cyber trading network	SecurePack and 2	311
Department		communication	for securities	types	(4.1%)
			company
	Product/	Solution	Enpia S series	Enpia S-series	–
	merchandise
Nitgen Business	Product	Access controller	Access controller	NAC-2500/3000	6,570
Department					(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.

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FINANCIAL INFORMATION OF NITGEN FOR THE YEAR 2009

APPENDIX IIA

C. Status of major raw materials and others

(Unit: Won, %)

Business	Type of			Purchase
field	purchase	Item	Concrete use	amount	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	–

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APPENDIX IIA FINANCIAL INFORMATION OF NITGEN FOR THE YEAR 2009

3. MATTERS ON PRODUCTION AND FACILITIES

A. Basis of production capability and calculation for production capability

(1) Production capability

(Unit: Time)

Business field Item Business office Nitgen Hamster Guro Plant NAC-3000 Guro Plant NAC-2500 Guro Plant NAC-5000 Guro Plant SW101 Guro Plant eNBioScan Guro Plant Mouse(OEM) Guro Plant Optic Module Ass’y Guro Plant FIM PCB Ass’y Guro Plant Total	The 26th Term The 25th Term The 24th Term Production standard hours 37,826 – – 2.3 1,257 – – 20.76 3,166 – – 18.8 – – 1,056 – – 26.6 4,072 – – 25.8 – – 28,997 – – 3.53 10,374 1.55 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

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FINANCIAL INFORMATION OF NITGEN FOR THE YEAR 2009

APPENDIX IIA

k Calculation method: Divide the production available hour into production MH share rate for each product

(Unit: hour, %)

Business	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	Guro Plant	1,171	11%
	management
	Irregular (design error	Guro Plant	1,952	18%
	and re-inspection)
	Others	Guro Plant	959	9%
Total			11,152	100%

B. Production performance and operation rate

(1) Production performance

					(Unit: hour)
Business			The 26th	The 25th	The 24th
field	Item	Business office	Term	Term	Term
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	Guro Plant
	management
Total			86,016	–	–

IIA-10 -

FINANCIAL INFORMATION OF NITGEN FOR THE YEAR 2009

APPENDIX IIA

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, %)
		Applicable	Real	Average
		operation	operation	operation
Business office	Item	hours	hours	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	1,171	1,186	101%
	management
Guro Plant	Irregular (design error	1,952	1,969	101%
	and re-inspection)
Guro Plant	Others	959	968	101%
Total		11,152	11,246	101%

IIA-11 -

FINANCIAL INFORMATION OF NITGEN FOR THE YEAR 2009

APPENDIX IIA

C. Status of production facilities and others
(1) Status of production facilities

							(Unit: 1,000 won)	(Unit: 1,000 won)	(Unit: 1,000 won)
								Ending
Business	Ownership			Beginning	Applicable	change		book
premises	type	Location	Classification	book value	Increase	Decrease	Depreciation	value	Remark
Head office	Independent	Nonhyeon-	Land	327,688				327,688	–
and plant	ownership	dong, Guro	Building	618,415			19,856	598,559	–
	(registry)		Facilities	87,662	27,600		63,258	52,004
			Vehicle transport	148,103	62,138		83,142	127,099
			Tools and	22,985	1,800		11,110	13,675
			equipment
			Fixture	336,765	9,775	147,146	96,210	103,184
			Mold	194,958	32,160		90,344	136,774
			Computer	216,600			99,246	117,354
			equipment
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

There is no applicable matter to this present time.

IIA-12 -

FINANCIAL INFORMATION OF NITGEN FOR THE YEAR 2009

APPENDIX IIA

4. MATTERS ON SALES

A. Sales performance

(Unit: million won)

				The 26th	The 25th	The 24th
Business field	Sales type		Item	Term	Term	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	–	–	–
			Domestic demand	–	5	146
			Total	–	5	146
	Nitgen product		Export	5,035	802
			Domestic demand	1,535	60
			Total	6,570	862
	Nitgen		Export	4	–
	merchandise		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 -

FINANCIAL INFORMATION OF NITGEN FOR THE YEAR 2009

APPENDIX IIA

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, NAC3000, 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:

Domestic sales by distributor
Nitgen Business Department

Place of sales:

Domestic – Bidding on public institutions/agency and direct sales
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 -

FINANCIAL INFORMATION OF NITGEN FOR THE YEAR 2009

APPENDIX IIA

(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

– Nitgen Business Department

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 -

APPENDIX IIA FINANCIAL INFORMATION OF NITGEN FOR THE YEAR 2009

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	Development of core algorithm for Finger Scan
Team	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 -

FINANCIAL INFORMATION OF NITGEN FOR THE YEAR 2009

APPENDIX IIA

B. Performance of major R&D

Project name	Development period	Contents of major developments
Development of high class	November 2007 ~ On	Development of highest class finger scan access control
access controller	going	system
		Application of 5’7” color LCD and touch screen
		Integrated terminal by diverse UI realizations
Development of Access	February 2008 ~ On	Server solution for access control terminal management
Manager pro.	going	Integrated management function for up to 2,000 units of
		terminal from single network
DEVELOPMENT of	July 2008 ~ December	Upgrade and stabilization of existing eNFAS v 1.0
eNFAS v 2.0 (finger	2008	function
scan server)		Strengthening of simultaneous processing disposition of
		certified server
		Certified server stabilization
Development of eNDeSS	March 2008 ~ May	Providing eNDeSS Enterprise function upgrade and
Enterprise v 1.20	2008	admin. Tool
Development of BioAPI v	July 2007 ~ April 2008	Development of framework that satisfies the ISO
2.0 Framework		standard, BioAPI v 2.0
Development of optic	December 2007 ~	Development of optic finger scan sensor structures false
sensor possible for fake	February 2009	finger print identifying function in single type
finger print
identification (OPP06)
Development of RF	May 2008 ~ December	Development of Mifare Card Reader Module applied on
module	2008	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 -

APPENDIX IIA FINANCIAL INFORMATION OF NITGEN FOR THE YEAR 2009

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 -

FINANCIAL INFORMATION OF NITGEN FOR THE YEAR 2009

APPENDIX IIA

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 -

FINANCIAL INFORMATION OF NITGEN FOR THE YEAR 2009

APPENDIX IIA

(2) Financial condition

Financial condition of the recent 3 fiscal years of the Company is shown as follows.

Category I. Current Assets 1. Quick assets 2. Inventories II. Non-current Assets 1. Investment assets 2. Tangible assets 3. Intangible assets 4. Other non-current assets Total Assets I. Current Liabilities II. Non-current Liabilities Total Liabilities I. Equity Capital II. Capital Surplus III. Capital Adjustment IV. Deficit amount Total Capital Total Liabilities and Capital	The 26th Term 12,194,070,059 10,713,365,620 1,480,704,439 7,399,056,527 4,384,507,227 1,450,767,236 710,346,064 853,436,000 19,593,126,586 866,765,889 616,226,502 1,482,992,391 17,700,158,000 8,680,935,738 (4,484,730,333) (3,786,229,210) 18,110,134,195 19,593,126,586	The 25th Term 14,279,735,295 12,025,128,668 2,254,606,627 10,671,256,018 3,617,638,625 1,917,883,711 431,765,812 4,703,967,870 24,950,991,313 2,198,889,061 855,738,847 3,054,627,908 17,700,158,000 25,408,823,981 (4,484,730,333) (16,727,888,243) 21,896,363,405 24,950,991,313	(Unit: won) The 24th Term 2,671,072,722 2,658,339,322 12,733,400 7,243,111,190 5,627,979,896 946,655,568 114,724,804 553,750,922 9,914,183,912 405,241,196 267,777,810 673,019,006 20,523,435,500 27,186,788,961 (4,860,585,130) 33,608,474,425 9,241,164,906 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 -

FINANCIAL INFORMATION OF NITGEN FOR THE YEAR 2009

APPENDIX IIA

(2) AUDITED FINANCIAL STATEMENTS OF NITGEN FOR THE YEAR ENDED 31 DECEMBER 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 INFORMATION OF NITGEN FOR THE YEAR 2009

APPENDIX IIA

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)

			(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
allowance for doubtful accounts		(856,362,277)	(910,431,351)
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
allowance for doubtful accounts		(26,147,330)	(29,805,726)
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 -

FINANCIAL INFORMATION OF NITGEN FOR THE YEAR 2009

APPENDIX IIA

			(Unit: won)
Category	Note	The 26th Term	The 25th Term
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
Cumulative depreciation amount		(196,250,000)	(196,250,000)
Facilities equipment		157,955,352	130,355,352
Cumulative depreciation amount		(105,951,674)	(42,693,212)
Vehicle transportation		357,820,252	295,682,612
Cumulative depreciation amount		(230,721,512)	(147,579,739)
Tools and equipment		445,327,541	443,527,541
Cumulative depreciation amount		(431,652,858)	(420,542,417)
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)
National subsidy		(22,598,051)	(30,322,937)
Metal mold		682,502,500	650,342,500
Cumulative depreciation amount		(545,727,734)	(455,384,165)
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
National subsidy		(2,620,914)	(11,971,132)
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 -

FINANCIAL INFORMATION OF NITGEN FOR THE YEAR 2009

APPENDIX IIA

			(Unit: won)
Category	Note	The 26th Term	The 25th Term
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 -

FINANCIAL INFORMATION OF NITGEN FOR THE YEAR 2009

APPENDIX IIA

Statement of Income

The 26th Term: From 1 January 2009 to 31 December 2009 The 25th Term: From 1 January 2008 to 31 December 2008

			(Unit: won)
Category	Note	The 26th Term	The 25th Term
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 -

FINANCIAL INFORMATION OF NITGEN FOR THE YEAR 2009

APPENDIX IIA

			(Unit: won)
Category	Note	The 26th Term	The 25th Term
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 -

FINANCIAL INFORMATION OF NITGEN FOR THE YEAR 2009

APPENDIX IIA

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)

Statement of changes in equity

The 26th Term: From 1 January 2009 to 31 December 2009

(Unit: won)

						(Unit: won)
				Accumulated
				amount of other
			Capital	comprehensive	Retained
Classification	Capital equity	Capital surplus	adjustment	income	earning	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 -

FINANCIAL INFORMATION OF NITGEN FOR THE YEAR 2009

APPENDIX IIA

Statement of cash flow

The 26th Term: From 1 January 2009 to 31 December 2009 The 25th Term: From 1 January 2008 to 31 December 2008

		(Unit: won)
Category	The 26th Term	The 25th Term
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 -

FINANCIAL INFORMATION OF NITGEN FOR THE YEAR 2009

APPENDIX IIA

		(Unit: won)
Category	The 26th Term	The 25th Term
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 -

FINANCIAL INFORMATION OF NITGEN FOR THE YEAR 2009

APPENDIX IIA

		(Unit: won)
Category	The 26th Term	The 25th Term
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 -

APPENDIX IIA FINANCIAL INFORMATION OF NITGEN FOR THE YEAR 2009

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 -

FINANCIAL INFORMATION OF NITGEN FOR THE YEAR 2009

APPENDIX IIA

(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 shortterm 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 -

FINANCIAL INFORMATION OF NITGEN FOR THE YEAR 2009

APPENDIX IIA

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 undisposed 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 nonoperating 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 undisposed 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 -

FINANCIAL INFORMATION OF NITGEN FOR THE YEAR 2009

APPENDIX IIA

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 -

FINANCIAL INFORMATION OF NITGEN FOR THE YEAR 2009

APPENDIX IIA

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 -

APPENDIX IIA FINANCIAL INFORMATION OF NITGEN FOR THE YEAR 2009

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)
		Annual interest
Type	Deposit institution	rate (%)	Current term	Previous term

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

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
	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 -

FINANCIAL INFORMATION OF NITGEN FOR THE YEAR 2009

APPENDIX IIA

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)
	Interest rate	Amount
Customers	(%)	Current Term	Previous Term	Remark
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,		–	1,220,000
employees and officers

(*) 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)

			Current Term
		Equity rate	Cost of
Company name	Item classification	(%)	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	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

National and public bonds	Debt securities		17,676	17,676	17,676

IIA-38 -

FINANCIAL INFORMATION OF NITGEN FOR THE YEAR 2009

APPENDIX IIA

(*) 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-forsale 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)

			Previous Term
		Equity rate	Cost of
Company name	Item classification	(%)	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)
			Cost of
Corporate name	Equity rate	No. of stocks	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 -

FINANCIAL INFORMATION OF NITGEN FOR THE YEAR 2009

APPENDIX IIA

(2) As of the end of the current term, the contents of evaluation on the equity approach application investment stock are shown as follows.

				(Unit:	1,000 won)
			Equity
			approach
Company name	Beginning	Acquisition	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 as follows.

				(Unit:	1,000 won)
		Changed
Company name	Beginning	amount	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 approach invested company is shown as follows.

			(Unit:	1,000 won)
		Total
	Total asset	reliability		Operating
Company name	amount	amount	Depreciation	income
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 -

APPENDIX IIA

FINANCIAL INFORMATION OF NITGEN FOR THE YEAR 2009

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)
				Depreciation
Classification	Beginning	Acquisition	Disposition	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)

			Replacement			Depreciation
Classification	Beginning	Acquisition	(*)	Merger (**)	Disposition	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 -

FINANCIAL INFORMATION OF NITGEN FOR THE YEAR 2009

APPENDIX IIA

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 -

FINANCIAL INFORMATION OF NITGEN FOR THE YEAR 2009

APPENDIX IIA

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)
			Excessive
			amount of
Classification	Date	Capital equity	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	2008.01.11	645,161	1,354,838
(Note 1)
Capital increase with consideration	2008.03.27	5,000,000	–
(Note 2)
Capital decrease without consideration	2008.06.27	(23,551,737)	–
(Note 3)
Capital increase with consideration	2008.08.04	13,084,298	–
(Note 4)
Conversion of convertible bond	2008.10.31	1,999,000	24,726
(Note 5)
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 -

FINANCIAL INFORMATION OF NITGEN FOR THE YEAR 2009

APPENDIX IIA

(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)
	The 25th Term	The 24th Term
Classification	(previous 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)
Classification		Current term	Previous term
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 -

APPENDIX IIA FINANCIAL INFORMATION OF NITGEN FOR THE YEAR 2009

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)
Classification	Current term		Previous term
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 -

FINANCIAL INFORMATION OF NITGEN FOR THE YEAR 2009

APPENDIX IIA

(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)
	Beginning			Ending		Non-
Accounting category	balance	Increase	Decrease	balance	Distribution	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
Available-for-sale securities
(JJ Holic Media)	178,406	–	–	178,406	–	178,406
Available-for-sale securities
(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 -

APPENDIX IIA

FINANCIAL INFORMATION OF NITGEN FOR THE YEAR 2009

(4) The contents of the deficit amount on taxes are shown as follows.

					(Unit: 1,000 won)
		Income tax	effect	Income tax effect
		reflecting the		not reflected on	Income tax effect
		current income of		the current	terminated during
Occurrence year	Amount	the year		income (*)	the 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

EARNINGS PER SHARE
(1) The calculation base of the distributed common stocks of the current term is shown as follows.

				(Unit: share)
				Added-weighted
	Distributed			average
	common stock	Added-weighted	Appropriate	outstanding
Classification	number	value	number	common 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)
Classification	Current term	Previous term
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 -

APPENDIX IIA

FINANCIAL INFORMATION OF NITGEN FOR THE YEAR 2009

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 MK Electronics Co., Ltd. Semiconductor and equipment influence part manufacturing Shinsung Construction Co., Housing construction and lease Ltd. 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)
	Contents of
Special relationship	transaction	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	Interest income	58,137	6,588
officers

(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	Short-term credit	–	1,220,000
officers
Unearned income	–	6,588

IIA-48 -

FINANCIAL INFORMATION OF NITGEN FOR THE YEAR 2009

APPENDIX IIA

(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	amount
		Current 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)
		Current Term			Previous Term
			Won currency			Won currency
Account category	Foreign	currency amount	amount	Foreign	currency amount	amount
Cash and cash equivalent	USD	102,884.61	120,128	USD	50,707.95	63,765
assets	–	–	–	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)
Classification	Current term	Previous term
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 -

FINANCIAL INFORMATION OF NITGEN FOR THE YEAR 2009

APPENDIX IIA

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 Munseok 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)

	Selling and	Selling and
	administrative expenses		Cost of manufacturing		Development cost		Total
	Current	Previous	Current	Previous	Current	Previous	Current	Previous
Account category	Term	Term	Term	Term	Term	Term	Term	Term
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 INFORMATION YET 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)
	4th quarter of the	4th quarter of the
Classification	current term	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 -

APPENDIX IIA FINANCIAL INFORMATION OF NITGEN FOR THE YEAR 2009

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.

Organize the IFRS introduction team in December 2009 and advance review

Prepare comparative financial information of 2010, description on IFRS conversion required under IFRS 1 by the end of the 4th quarter of 2010

Analyze the influence of introduction by the end of 2nd quarter of 2010

Training of officers and Acquisition of specialized employees 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 Completion of accounting system system arrangement for the IFRS application by the end of September 2010

In review of influence on the scope of system change

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APPENDIX IIB

FINANCIAL INFORMATION OF NITGEN FOR THE YEAR 2010

The following is an English (in case of Chinese version of this circular, Chinese) translation of (1) the 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 audited financial statements of Nitgen for the year ended 31 December 2010 set out below are provided for information purpose only and the financial statements of Nitgen for the year ended 31 December 2010 were prepared in accordance with K-GAAP. Shareholders should also note that the financial statements of Nitgen for the year ended 31 December 2010 was not consolidated financial statements as before the amendment of Enforcement Decree of the Financial Investment Services and Capital Market Act of the laws of Korea on 11 June 2010, Nitgen was not required to report as consolidated financial statements before the end of 2010. In addition, for the financial years ended 31 December 2010, Nitgen was not required to prepare consolidated financial statements under K-GAAP. Shareholders are advised to consult professional advice if there is any doubt in reading such financial information of Nitgen. Terms defined herein apply to this Appendix only.

(1) EXTRACTS OF THE ANNUAL REPORT OF NITGEN FOR THE YEAR ENDED 31 DECEMBER 2010

II. CONTENTS OF BUSINESS

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

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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 earlierpresented 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.

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APPENDIX IIB

FINANCIAL INFORMATION OF NITGEN FOR THE YEAR 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 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

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FINANCIAL INFORMATION OF NITGEN FOR THE YEAR 2010

APPENDIX IIB

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 faceto-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.

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APPENDIX IIB FINANCIAL INFORMATION OF NITGEN FOR THE YEAR 2010

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.

k Structure and characteristics of users

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 bioscan 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.

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APPENDIX IIB FINANCIAL INFORMATION OF NITGEN FOR THE YEAR 2010

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

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FINANCIAL INFORMATION OF NITGEN FOR THE YEAR 2010

APPENDIX IIB

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, %)	(Unit: million won, %)
					Sales amount
Business fields	Sales type	Items	Detailed application	Main trademark	(ratio)
Nitgen Business	Product	Access controller	Access controller and	NAC-2500/3000/	9,208
Dept			others	5000	(86.4%)
	Merchandise	Door lock	Door lock	NDL-100/600	514
					(4.8%)
Enpia Business	Service	Added	Cyber trading network	SecurePack and 2	79
Dept		communication	for securities	types	(0.7%)
			company
	Product/	Solution	Enpia S series	Enpia S-series	16
	merchandise				(0.2%)
Landscaping	Service	Landscaping	Landscaping plants	–	841
Business Dept			and landscaping		(7.9%)
			facilities
Total					10,658
					(100.0%)

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FINANCIAL INFORMATION OF NITGEN FOR THE YEAR 2010

APPENDIX IIB

B. Trend of price change in main products

The major causes of price change would be the influence of price decline, exchange rate change and model MIX.

C. Status of main raw materials

(Unit: 1,000 won, %)

Business	Type of			Purchase
field	purchase	Item	Concrete use	amount	Ratio	Remark
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	–

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 27th Term	The 26th Term	The 25th Term
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

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FINANCIAL INFORMATION OF NITGEN FOR THE YEAR 2010

APPENDIX IIB

E. Status of production facilities
(1) Status of production facilities

							(Unit: 1,000 won)	(Unit: 1,000 won)	(Unit: 1,000 won)
								Ending
Business	Ownership			Beginning	Applicable	change		book
premises	type	Location	Classification	book value	Increase	Decrease	Depreciation	value	Remark
Head office	Independent	Nonhyeon-	Land	327,688	138,839	–	–	466,526
and plant	ownership	dong, Guro	Building	598,559	–	–	19,856	578,703
	(registry)		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

There is no applicable matter to this present time.

(2) Future investment plan

There is no applicable matter to this present time.

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FINANCIAL INFORMATION OF NITGEN FOR THE YEAR 2010

APPENDIX IIB

4. MATTERS ON SALES

A. Sales performance

					(Unit: million won)	(Unit: million won)
				The 27th	The 26th	The 25th
Business field	Sales type		Item	Term	Term	Term
Enpia/Nitgen	Enpia service	Added service	Export	35	–	–
			Domestic demand	44	311	2,725
			Total	79	311	2,725
	Enpia product	S-series iBOS	Export	–	–	–
			Domestic demand	16	–	38
			Total	16	–	38
	Nitgen product	NAC-2500/	Export	6,198	5,035	802
		3000/5000	Domestic demand	3,010	1,535	60
			Total	9,208	6,570	862
	Nitgen	NDL-100/600	Export	12	4	–
	merchandise		Domestic demand	502	745	6
			Total	514	749	6
	Landscaping	Landscaping	Export	–	–	–
	service	planting/	Domestic demand	841	–	–
		landscaping	Total	841	–	–
		facilities
Total			Export	6,245	5,039	802
			Domestic demand	4,413	2,591	2,834
			Total	10,658	7,630	3,636

B. Sales route and sales method

(A) Nitgen Business Department

(i) Domestic business

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FINANCIAL INFORMATION OF NITGEN FOR THE YEAR 2010

APPENDIX IIB

(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.

(B) Enpia Business Department

Direct sales by Sales Marketing Division and indirect sales through distributors of the Company

(2) Sales routes

(A) Nitgen Business Department

Place of sales:

Domestic – Bidding on public institutions/agency and direct sales
Overseas – Agency and direct sales (indirect sales through overseas agency)

(B) ENPIA Business Department

Place of sales:

Domestic sales by distributor

(3) Sales method and conditions

(A) Nitgen Business Department

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FINANCIAL INFORMATION OF NITGEN FOR THE YEAR 2010

APPENDIX IIB

(B) 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.

(4) Sales strategy

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) Organization Chart

==> picture [441 x 127] intentionally omitted <==

----- Start of picture text -----

Representative
Director
Managing Auditor
Director
Business Development
Division Office
Support OfficeManagement Research TeamAdvance Sale Team Planning Team H/W Team S/W Team Quality Team Product Team
----- End of picture text -----

5. ORDERS

A. Finger Scan Business

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FINANCIAL INFORMATION OF NITGEN FOR THE YEAR 2010

APPENDIX IIB

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: ~~W~~ 845,460,000 Facilities: ~~W~~ 567,993,000 Total: ~~W~~ 1,413,453,000

Subcontract work period 12 July 2010 ~ 24 March 2011

(2) Ecological River Building-up Project in Jeonnam District (District 1) for Seomjin River Reviving Project

Classification Contents

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: ~~W~~ 3,592,820,000 Facilities: ~~W~~ 843,920,000 Total: ~~W~~ 4,436,740,000

Subcontract work period 25 October 2010 ~ 31 October 2012

(3) Ecological River Building-up Project in Jeonnam District (District 1) for Seomjin River Reviving Project

Classification

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

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FINANCIAL INFORMATION OF NITGEN FOR THE YEAR 2010

APPENDIX IIB

Work location Aprok, Bongseo, Gwangpyeong (Sado), Dongbangcheon Districts

Subcontract amount Planting: ~~W~~ 613,624,000 Facilities: ~~W~~ 831,512,000 Total: ~~W~~ 1,445,136,000

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

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.

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APPENDIX IIB FINANCIAL INFORMATION OF NITGEN FOR THE YEAR 2010

C. Sales performance of the subsidiary company

			(Unit: 1,000 won)
	2009.01 ~ 2009.12	2010.01 ~ 2010.12
Classification	(The 6th Term)	(The 7th term)	Remark
Sales revenue	2,075,633	1,650,077
Operating income	77,137	57,177
Net income	56,767	131,277

7. MATTERS ON DERIVATIVE PRODUCTS

A. Status of execution for derivative product contracts

Not applicable

B. Matter on risk management

Not applicable

8. MAIN CONTRACT OF MANAGEMENT

Not applicable

9. 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 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
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APPENDIX IIB

FINANCIAL INFORMATION OF NITGEN FOR THE YEAR 2010

Classification

R&D projects

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

Project name	Development period	Contents of major developments
Attendance management	January 2010 ~	Development of attendance and edible water
SW development	currently in progress	management program by using the Finger Scan
BCS (Biometric Server	January 2010 ~	Development of solution available for linkage and
Client) development	currently in progress	management server and Finger Scan terminal of
		the Company
Development of FA 10-01	September 2009 ~	Development of individual information security
AFIS exclusive	currently in progress	server/client by using the bio-metric information
algorithm
KT 101/KT 101+	November 2009 ~	Manage the information of each user and PC
development	currently in progress	security policies from the server
Development of finger	January 2010 ~	Confirmation of PC service record of each user
scan and facial scan	currently in progress	from the server
integrated terminal

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APPENDIX IIB FINANCIAL INFORMATION OF NITGEN FOR THE YEAR 2010

10. OTHER MATTERS REQUIRED IN DETERMINING INVESTMENT

A. Summarized chart for external fund procurement
(1) Domestic procurement

Not applicable

(2) Overseas procurement

Not applicable

B. Credit rating in recent 3 years

Not applicable

C. Other important matters

Not applicable

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APPENDIX IIB FINANCIAL INFORMATION OF NITGEN FOR THE YEAR 2010

V. MANAGEMENT EXAMINATION AND ANALYSIS OF DIRECTORS

1. CAUTION ON 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 27th fiscal year from 1 January 2010 to 31 December 2010 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.

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FINANCIAL INFORMATION OF NITGEN FOR THE YEAR 2010

APPENDIX IIB

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)

				(Unit: won)
Category		The 27th Term	The 26th Term	The 25th Term
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 -

FINANCIAL INFORMATION OF NITGEN FOR THE YEAR 2010

APPENDIX IIB

(2) Financial condition

Financial condition of the recent 3 fiscal years of the Company is shown as follows.

Category I. Current Assets 1. Quick assets 2. Inventories II. Non-current Assets 1. Investment assets 2. Tangible assets 3. Intangible assets 4. Other non-current assets Total Assets I. Current Liabilities II. Non-current Liabilities Total Liabilities I. Equity Capital II. Capital Surplus III. Capital Adjustment IV. Cumulative Amount of Other Comprehensive Income V. Profit Surplus (Deficit) Total Capital Total Liabilities and Capital	The 27th Term 16,612,287,581 14,601,781,663 2,010,505,918 4,945,174,114 1,242,223,388 1,448,599,612 1,108,130,479 1,146,220,635 21,557,461,695 1,413,225,056 777,949,582 2,191,174,638 17,700,158,000 4,894,706,528 (4,391,447,947) (347,050,926) 1,509,921,402 19,366,287,057 21,557,461,695	The 26th Term 12,194,070,059 10,713,365,620 1,480,704,439 7,399,056,527 4,384,507,227 1,450,767,236 710,346,064 853,436,000 19,593,126,586 866,765,889 616,226,502 1,482,992,391 17,700,158,000 8,680,935,738 (4,484,730,333) – (3,786,229,210) 18,110,134,195 19,593,126,586	(Unit: won) The 25th Term 14,279,735,295 12,025,128,668 2,254,606,627 10,671,256,018 3,617,638,625 1,917,883,711 431,765,812 4,703,967,870
			24,950,991,313
			2,138,889,061 855,738,847
			3,054,627,908
			17,700,158,000 25,408,823,981 (4,484,730,333 – (16,727,888,243
			21,896,363,405
			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%.

4. LIQUIDITY AND FUND EXPENDITURE AND PROCUREMENT

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 -

FINANCIAL INFORMATION OF NITGEN FOR THE YEAR 2010

APPENDIX IIB

(2) AUDITED FINANCIAL STATEMENTS OF NITGEN FOR THE YEAR ENDED 31 DECEMBER 2010

Independent Auditors’ Report

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.

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 Bum

Induk 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 INFORMATION OF NITGEN FOR THE YEAR 2010

APPENDIX IIB

FINANCIAL STATEMENTS

For The Years Ended 31 December 2010 and 2009

The accompanying financial statements were prepared by the Company.

Heo Sang Hee

Representative Director of NITGEN&COMPANY Co., Ltd.

IIB-22 -

FINANCIAL INFORMATION OF NITGEN FOR THE YEAR 2010

APPENDIX IIB

STATEMENT OF FINANCIAL POSITION

For the years ended 31 December 2010 and 31 December 2009

NITGEN&COMPANY

NI	TGE	N&	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
			Allowance for doubtful account	(866,256,031)		(856,362,277)
		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
			Accumulated depreciation	(196,250,000)		(196,250,000)

IIB-23 -

FINANCIAL INFORMATION OF NITGEN FOR THE YEAR 2010

APPENDIX IIB

						(In Korean Won)
Account				2010		2009
		4.	Facility Equipment	158,955,352		157,955,352
			Accumulated depreciation	(129,868,291)		(105,951,674)
		5.	Vehicles	357,820,252		357,820,252
			Accumulated depreciation	(288,043,044)		(230,721,512)
		6.	Tools & fixtures	465,326,041		445,327,541
			Accumulated depreciation	(456,887,804)		(431,652,858)
			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
			Accumulated depreciation	(639,798,712)		(545,727,734)
		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)
			Allowance for doubtful account	(31,551,460)		(31,551,460)
		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 -

FINANCIAL INFORMATION OF NITGEN FOR THE YEAR 2010

APPENDIX IIB

				(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)
Total	Liabilities		2,191,174,638	1,482,992,391
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 -

FINANCIAL INFORMATION OF NITGEN FOR THE YEAR 2010

APPENDIX IIB

STATEMENT OF INCOME

For the years ended 31 December 2010 and 2009

Nitgen & Company	Nitgen & Company	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 -

FINANCIAL INFORMATION OF NITGEN FOR THE YEAR 2010

APPENDIX IIB

					(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)

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

IIB-27 -

APPENDIX IIB FINANCIAL INFORMATION OF NITGEN FOR THE YEAR 2010

STATEMENT OF APPROPRIATIONS OF RETAINED EARNINGS

For the years ended 31 December 2010 and 2009

Estimated date of	Estimated date of
	appropriation	28 March 2011	Date of appropriation	29 March 2011
Nitgen & Company				(In Korean Won)
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

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

IIB-28 -

APPENDIX IIB FINANCIAL INFORMATION OF NITGEN FOR THE YEAR 2010

STATEMENT OF CHANGES IN EQUITY

For the years ended 31 December 2010 and 2009

Nitgen & Company


Nitgen & Company					(In Korean Won)
				Other
				Comprehensive
				income/loss
			Capital	accumulated	Retained
Account	Issued capital	Capital surplus	Adjustment	amount	earnings	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

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

IIB-29 -

FINANCIAL INFORMATION OF NITGEN FOR THE YEAR 2010

APPENDIX IIB

STATEMENT OF CASH FLOWS

For the years ended 31 December 2010 and 2009

NITGEN&COMPANY

NI	TGE	N&	COMPANY			(In Korean Won)
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

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FINANCIAL INFORMATION OF NITGEN FOR THE YEAR 2010

APPENDIX IIB

						(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

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

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FINANCIAL INFORMATION OF NITGEN FOR THE YEAR 2010

APPENDIX IIB

NOTES TO THE FINANCIAL STATEMENTS

1. GENERAL INFORMATION

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:

	Number of
Shareholders	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.

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FINANCIAL INFORMATION OF NITGEN FOR THE YEAR 2010

APPENDIX IIB

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-tomaturity, 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-tomaturity 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

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FINANCIAL INFORMATION OF NITGEN FOR THE YEAR 2010

APPENDIX IIB

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 availablefor-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

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FINANCIAL INFORMATION OF NITGEN FOR THE YEAR 2010

APPENDIX IIB

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

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FINANCIAL INFORMATION OF NITGEN FOR THE YEAR 2010

APPENDIX IIB

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.

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FINANCIAL INFORMATION OF NITGEN FOR THE YEAR 2010

APPENDIX IIB

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.

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APPENDIX IIB

FINANCIAL INFORMATION OF NITGEN FOR THE YEAR 2010

(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	It is organized with statement of	It is organized with statement of
financial statements	financial position, statement of	financial position, statement of income,
	comprehensive income, statement of	statement of retained earnings
	cash flows, statement of changes in	disposition, statement of cash flows,
	equity and notes and it is the	statement of changes in equity and
	consolidated financial statements	notes and it is the individual financial
	standard.	statements standard.
Recognition of allowance for	Set for the estimated amount for loss	Set the doubtful accounts estimated
doubtful accounts	in the event that objective damage	amount estimated in accordance with
	cause occurred.	the reasonable and subjective standard
		as the allowance for doubtful accounts.
Tangible asset	Cost model is preferred but revaluation	Cost model is applied on all tangible
	model is also optional. In applying	assets.
	revaluation model, an asset is
	measured at revalued amount if the
	fair value can be measured reliably.
Measurement of retirement	Appropriate the present value of the	Appropriate the forecasted retirement
wage provision liabilities	calculated forecasted retirement fund	fund for retirement wage provision
	for retirement wage provision liabilities	liabilities to be paid in the event that
	by using actuarial technique and	any officer and employee that worked
	discount rate in accordance with the	for over a year as of the financial
	forecasted unit reserve method by	statements date by adopting the
	adopting the concept of the forecasting	liquidation value concept.
	wage debt.
Indication of deferred income	All deferred income tax assets or	Following the classification of the
tax assets	liabilities are classified for non-current	statement of financial condition of
	category and the Company is indicated	relevant assets or liabilities category, it
	for setting off in the event that there	is classified for current assets
	is any intent for payment with legal	(liabilities) or non-current assets
	authority on setting off of deferred	(liabilities) and indicates for setting off
	income tax assets and liabilities.	with deferred income tax assets and
		liabilities for same current and non-
		current matters.
Degree of possible disclosure	Recognize provision liabilities in the	Recognize the provision liabilities in
of resources from the	event that it has high possibility to	the event that it has very high
recognized requirements of	occur.	possibility to occur.
provision liabilities

(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.

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FINANCIAL INFORMATION OF NITGEN FOR THE YEAR 2010

APPENDIX IIB

(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)

		Adjustments
Classification	K-GAAP	Amount	Description	K-IFRS
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
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FINANCIAL INFORMATION OF NITGEN FOR THE YEAR 2010

APPENDIX IIB

  - (*2) Effect of change of depreciation method to straight-line basis and present value of security deposit

  - (*3) Application of the actuarial valuation method for retirement benefit (*4) Deferred income tax effect as a result of adjustment of accounting 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)
Classification	Amount
Shareholders’ equity under K-GAAP	19,713,337,983
Adjustments as a result of transition to K-IFRS	366,730,051
Adoption of the projected unit credit method for accrued
severance liabilities (*1)	75,514,688
Adjustments of the present value of security deposit (*2)	(14,161)
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

(*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) Recognition of goodwill as a result of business consolidation (M&A)
(*5) Deferred income tax effect as a result of adjustment of accounting standard differences
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FINANCIAL INFORMATION OF NITGEN FOR THE YEAR 2010

APPENDIX IIB

(B) Adjustments of statement of financial position as of the transition date (1 January 2010)

			(In	Korean Won)
		Adjustments
Classification	K-GAAP	Amount	Description	K-IFRS
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 noncurrent assets
(*3) Effect of change of depreciation method to straight-line basis and present value of security deposit
(*4) Recognition of goodwill as a result of business consolidation (M&A)
(*5) Application of the actuarial valuation method for retirement benefit
(*6) Deferred income tax effect as a result of adjustment of accounting standard differences
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)
Classification	Amount
Net Profit under K-GAAP	1,509,921,402
Adjustments as a result of transition to K-IFRS	86,508,876
Adoption of the projected unit credit method for accrued
severance liabilities (*1)	34,245,220
Adjustments of the present value of security deposit (*2)	(12,428)
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

(*1) Application of the actuarial valuation method for retirement benefit
IIB-41 -

FINANCIAL INFORMATION OF NITGEN FOR THE YEAR 2010

APPENDIX IIB

(*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) Recognition of goodwill as a result of business consolidation (M&A)
(*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)

		Adjustment as a result
		of transition to K-IFRS
Classification	K-GAAP	Amount	Note	K-IFRS
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

(*1) Application of the actuarial valuation method for retirement benefit
(*2) Effect of change of depreciation method to straight-line basis
(*3) 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)
(*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) Amount Description of Classification Deposit type 2010 2009 withdrawal restriction Short-term financial instrument Installment deposits 100,000 0 Lien on KB Card

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FINANCIAL INFORMATION OF NITGEN FOR THE YEAR 2010

APPENDIX IIB

4. Short-term Loans

Short-term loans as of 31 December 2010 and 2009, consist of the following:

			(In thousands of Korean Won)	(In thousands of Korean Won)
	Interest	Amount
Creditors	rate(%)	2010	2009	Remarks
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)

			(In	thousands of	Korean Won)
			2010
		Ownership	Acquisition
Company Name	Type	(%)	Cost	Fair Value	Book Value

Samsung Life Insurance Co. Ltd.	Equity securities	–	4,552,150	4,363,528	4,363,528

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	Investment	–	15,864	15,864	15,864
Financial Cooperative
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

Government & Public Bonds	Liability securities	–	17,676	17,676	17,676

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FINANCIAL INFORMATION OF NITGEN FOR THE YEAR 2010

APPENDIX IIB

(2009)

			(In	thousands of	Korean Won)
			2009
		Ownership	Acquisition
Company Name	Type	(%)	Cost	Fair Value	Book Value

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
Information & Communication	Investment	–	15,864	15,864	15,864
Financial Cooperative
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

			(In thousands of Korean Won)	(In thousands of Korean Won)
	Ownership	Number of	Acquisition
Investee	%	shares	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:

			(In	thousands of	Korean Won)
	Beginning of			Impairment
Investee	year	Acquisition	Gain/Loss	Loss	End of year
RIA Soft Co., Ltd.	1,354,617	0	(433,725)	(70,892)	850,000

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APPENDIX IIB

FINANCIAL INFORMATION OF NITGEN FOR THE YEAR 2010

(3) The investment differences during the reporting period are as follows:

			(In	thousands of	Korean Won)
	Beginning of	Increase/		Impairment
Investee	year	decrease	Amortization	loss	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:

			(In thousands of Korean Won)	(In thousands of Korean Won)
				Operating
Investee	Assets	Liabilities	Revenue	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.

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)

(In thousands of Korean Won)

	Beginning of
Description	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 -

APPENDIX IIB

FINANCIAL INFORMATION OF NITGEN FOR THE YEAR 2010

(2009)

(In thousands of Korean Won)

	Beginning of
Description	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>

			(In thousands of Korean Won)	(In thousands of Korean Won)
	Beginning of
Description	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 -

FINANCIAL INFORMATION OF NITGEN FOR THE YEAR 2010

APPENDIX IIB

<2009>

			(In thousands of Korean Won)	(In thousands of Korean Won)
	Beginning of
Description	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:

			(In thousands of Korean Won)	(In thousands of Korean Won)
	Beginning of
Year	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 -

FINANCIAL INFORMATION OF NITGEN FOR THE YEAR 2010

APPENDIX IIB

12. Statement of Comprehensive Income

The statement of comprehensive income during 2010 and 2009 is summarized as follows:

				(In thousands of Korean Won)
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:

			(In thousands of Korean Won)	(In thousands of Korean Won)
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:

	(In thousands of Korean Won)	(In thousands of Korean Won)
Classification	2010	2009
Profit (Loss) before tax	857,604	(3,786,229)
Income tax expense	(652,317)	0
Effective tax rate	–	-

IIB-48 -

FINANCIAL INFORMATION OF NITGEN FOR THE YEAR 2010

APPENDIX IIB

(3) The changes in the accumulated temporary differences and deferred income tax during 2010 are as follows:

				(In thousands of Korean Won)	(In thousands of Korean Won)	(In thousands of Korean Won)
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
Available-for-sale securities
(succeeded)	1,061,211			1,061,211		233,466
Available-for-sale securities
(Zeroin)	289,307			289,307		63,648
Available-for-sale securities (JJ
Holic Media)	178,406			178,406		39,249
Available-for-sale securities
(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 -

APPENDIX IIB

FINANCIAL INFORMATION OF NITGEN FOR THE YEAR 2010

(4) Probability of realizing the deferred income tax assets

			(In thousands of Korean Won)	(In thousands of Korean Won)
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)
				Weighted-
				average
	Number of		Accumulated	number of
	common shares		number of	common shares
Classification	outstanding	Weight	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:

	(In thousands of Korean Won)	(In thousands of Korean Won)
Classification	2010	2009
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 -

FINANCIAL INFORMATION OF NITGEN FOR THE YEAR 2010

APPENDIX IIB

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)
	Number of			Weighted
	potential			number of
	common			shares with
Classification	shares	Base date	Weight	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:

	(In thousands of Korean Won)	(In thousands of Korean Won)
Classification	2010	2009
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	Ocean B Holdings Co., Ltd	Financing, Shareholdings
Company has the ability to
exercise significant influence
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)

		(In thousands of Korean Won)	(In thousands of Korean Won)
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 -

APPENDIX IIB

FINANCIAL INFORMATION OF NITGEN FOR THE YEAR 2010

(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:

		(In thousands of Korean Won)	(In thousands of Korean Won)
	Receivables/
Related parties	payables	2010	2009
	Advance payment	171,500	200,000
RIA Soft Co., Ltd.	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:

	(In thousands	of Korean Won)
	Amount of Compensation
Classification	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			2009
Account	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 nonoperating income/loss.

17. Statement of Cash Flows

Significant transactions without cash inflows or outflows during 2010 and 2009 are as follows:

	(In thousands of Korean Won)	(In thousands of Korean Won)
Classification	2010	2009
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 -

FINANCIAL INFORMATION OF NITGEN FOR THE YEAR 2010

APPENDIX IIB

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:

							(In thousands	(In thousands	of Korean Won)	of Korean Won)
	Cost of	S&GA	Cost of	Sales	Development	expenses	Construction	costs	Total
Account	2010	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	2,079,504
Severance indemnities	133,523	191,024	25,797	19,614	94,297	80,240	–	-	253,617	290,878
Employee benefits	231,863	342,256	36,970	40,092	60,208	92,708	10,083	–	339,124	475,056
Rental	215,506	481,833	–	-	–	1,814	–	217,320	481,833
Depreciation	242,875	440,730	40,623	56,971	–	-	–	283,498	497,701
Taxes/dues	12,591	181,523	648	2,447	–	796	–	14,035	183,970
Total	1,778,688	2,793,447	335,653	370,328	629,705	845,167	77,608	–	2,821,654	4,008,942

IIB-53 -

FINANCIAL INFORMATION OF NITGEN FOR THE YEAR 2010

APPENDIX IIB

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

			(In thousands of Korean Won)	(In thousands of Korean Won)
		Estimated	Accumulated	Accumulated
	Contract	construction	construction	construction
Project Name	Amount	cost	sales	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)

		(In thousands of Korean Won)	(In thousands of Korean Won)
	Advance	Account receivables
Project Name	payment	Claimed	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:

	(In thousands of Korean Won)	(In thousands of Korean Won)
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)

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APPENDIX IIB FINANCIAL INFORMATION OF NITGEN FOR THE YEAR 2010

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:

Review Report on Internal Accounting Control System
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.

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APPENDIX IIB FINANCIAL INFORMATION OF NITGEN FOR THE YEAR 2010

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 Bum

Representative Director, INDUK ACCOUNTING CORPORATION

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FINANCIAL INFORMATION OF NITGEN FOR THE YEAR 2010

APPENDIX IIB

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.

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APPENDIX IIC

FINANCIAL INFORMATION OF NITGEN FOR THE YEAR 2011

The following is an English (in case of Chinese version of this circular, Chinese) translation of (1) the 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 audited financial statements of Nitgen for the year ended 31 December 2011 set out below are provided for information purpose only and the financial statements of Nitgen for the year ended 31 December 2011 were prepared in accordance with K-IFRS. Shareholders are advised to consult professional advice if there is any doubt in reading such financial information of Nitgen. Terms defined herein apply to this Appendix only.

(1) EXTRACTS OF THE ANNUAL REPORT OF NITGEN FOR THE YEAR ENDED 31 DECEMBER 2011

II. CONTENTS OF BUSINESS

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 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 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.

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FINANCIAL INFORMATION OF NITGEN FOR THE YEAR 2011

B. Status of industry and market

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 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 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.

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 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

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FINANCIAL INFORMATION OF NITGEN FOR THE YEAR 2011

APPENDIX IIC

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 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.

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.

D. Facilitation fields

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 economic feasibility. In early times of the market, the market was formed mainly for research institutes or general corporate facilities where the security is priority, but in recent days, the

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FINANCIAL INFORMATION OF NITGEN FOR THE YEAR 2011

APPENDIX IIC

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

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 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 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.

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.

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FINANCIAL INFORMATION OF NITGEN FOR THE YEAR 2011

E. Position of Finger Scan in the bio-scan market

F. Characteristics of market

j Main target market

k Structure and characteristics of users

l Changing factors of demand

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FINANCIAL INFORMATION OF NITGEN FOR THE YEAR 2011

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. 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

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

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APPENDIX IIC

FINANCIAL INFORMATION OF NITGEN FOR THE YEAR 2011

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

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APPENDIX IIC

FINANCIAL INFORMATION OF NITGEN FOR THE YEAR 2011

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.

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APPENDIX IIC

FINANCIAL INFORMATION OF NITGEN FOR THE YEAR 2011

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.

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APPENDIX IIC

FINANCIAL INFORMATION OF NITGEN FOR THE YEAR 2011

3. MAIN PRODUCTS AND RAW MATERIALS

A. Status of main products

(Unit: 1,000 won, %)

					Sales amount
Business fields	Sales type	Items	Detailed application	Main trademark	(ratio)
Finger Scan	Product	Access controller	Access controller and	NAC-2500/3000/	5,334,795
			others	5000	(50.62%)
	Merchandise	Door lock	Door lock	NDL-100/600/	730,520
				scanner	(6.93%)
Enpia	Service	Added	Cyber trading network	SecurePack and 2	64,446
		communication	for securities	types	(0.6%)
			company
	Product/	Solution	Enpia S series	Enpia S-series	23,400
	merchandise				(0.2%)
Landscaping	Service	Landscaping	Landscaping plants	–	2,304,454
			and landscaping		(21.87%)
			facilities
RIA	Service	SW	SW development	FLEX	2,081,056
					(19.75%)
Total					10,538,671
					(100.0%)

B. Trend of price change in main products

The major causes of price change would be the influence of price decline, exchange rate change and model MIX.

C. Status of main raw materials

				(Unit: 1,000	(Unit: 1,000	won, %)
Business	Type of			Purchase
field	purchase	Item	Concrete use	amount	Ratio	Remark
Finger	Raw materials	AC parts	Parts for access controller	1,468,389	53.91	–
Scan	Raw materials	ENBIO parts	Parts for ENBIO SCAN	59,835	2.20	–
	Raw materials	FIM parts	Parts for processing board	372,616	13.68	–
	Raw materials	HAM parts	Hamster related parts	250,523	9.20	–
	Raw materials	OP parts	Optic module parts	572,462	21.01	–
	Total raw materials			2,723,826	100.01	–
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.

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APPENDIX IIC

FINANCIAL INFORMATION OF NITGEN FOR THE YEAR 2011

D. Trend of price change of main raw materials

			(Unit: won)
Item	The 28th Term	The 27th Term	The 26th Term
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

E. Status of production facilities
(1) Status of production facilities

(Unit: 1,000 won)

								Ending
Business	Ownership			Beginning	Applicable	change		book
premises	type	Location	Classification	book value	Increase	Decrease	Depreciation	value	Remark
Head office	Independent	Nonhyeon-	Building	598,559	–	–	19,856	578,703
and plant	ownership	dong, Guro	Facilities	80,724	1,000	–	23,054	58,670
	(registry)		Vehicle transport	213,258	–	–	70,021	143,237
			Tools and	25,408	1,696	–	2,537	24,567
			equipment
			Fixture	165,157	21,000	732	72,926	112,499
			Mold	157,426	122,200	–	68,274	211,352
			Computer	272,155		–	146,797	125,358
			equipment
Total				1,512,687	145,896	732	403,465	1,254,386

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

There is no applicable matter to this present time.

(2) Future investment plan

There is no applicable matter to this present time.

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APPENDIX IIC

FINANCIAL INFORMATION OF NITGEN FOR THE YEAR 2011

4. MATTERS ON SALES

A. Sales performance

(Unit: million won)

				The 28th	The 27th	The 26th
Business field	Sales type		Item	Term	Term	Term
Finger Scan	Finger Scan	NAC-2500/	Export	3,885	6,198	5,035
	product	3000/5000	Domestic demand	1,450	3,010	1,535
			Total	5,335	9,208	6,570
	Finger Scan	NDL-100/600	Export	437	12	4
	merchandise		Domestic demand	293	502	745
			Total	730	514	749
Enpia	Enpia service	Added service	Export	32	35	–
			Domestic demand	33	173	311
			Total	65	208	311
	Enpia product	S-series iBOS	Export	–	–	–
			Domestic demand	23	16	–
			Total	23	16	–
Landscaping	Landscaping	Landscaping	Export	–	–	–
	service	planting/	Domestic demand	2,304	841	–
		landscaping	Total	2,304	841	–
		facilities
RIA	SW development	FLEX	Export	–	–	–
			Domestic demand	2,081	1,381	2,076
			Total	2,081	1,381	2,076
Total			Export	4,354	6,245	5,039
			Domestic demand	6,184	5,923	4,667
			Total	10,538	12,168	9,706

B. Sales route and sales method

(A) Finger scan business

(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 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.

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FINANCIAL INFORMATION OF NITGEN FOR THE YEAR 2011

(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 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.

(B) Enpia Business Department

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

(A) Nitgen Business Department

Place of sales: 1. Domestic – Bidding on public institutions/agency and direct sales
Overseas – Agency and direct sales (indirect sales through overseas agency)

(B) Enpia Business Department

Place of sales: 1. Domestic sales by distributor

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FINANCIAL INFORMATION OF NITGEN FOR THE YEAR 2011

(3) Sales method and conditions

(A) Finger Scan Business

(B) 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.

(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

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
Conversion and strengthening into solution-based business through SW solution supply from single item strategy
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FINANCIAL INFORMATION OF NITGEN FOR THE YEAR 2011

(5) Organization Chart

==> picture [441 x 167] intentionally omitted <==

----- Start of picture text -----

Representative
Director
Managing
Director Auditor
Business Development
Division Office
ManagementSupport ResearchAdvance TeamSales PlanningTeam H/W Team S/W Team QualityTeam ProductTeam
Office Team
----- End of picture text -----

5. ORDERS

A. Finger Scan Business

B. Landscaping Business Department
(1) Ecological River Building-up Project in Jeonnam District (District 1) for Seomjin River Reviving Project

Classification Contents

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: ~~W~~ 3,592,820,000 Facilities: ~~W~~ 843,920,000 Total: ~~W~~ 4,436,740,000 Subcontract work period 25 October 2010 ~ 31 October 2012

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(2) Ecological River Building-up Project in Jeonnam District (District 1) for Seomjin River Reviving Project

Classification Contents

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 Aprok, Bongseo, Gwangpyeong (Sado), Dongbangcheon Districts Subcontract amount Planting: ~~W~~ 613,624,000 Facilities: ~~W~~ 831,512,000 Total: ~~W~~ 1,445,136,000

Subcontract work period 2 November 2010 ~ 16 December 2012

C. RIA Business Department
(1) Improvement service for BSC outcome management system

Classification Contents

Project name Improvement service for BSC outcome management system Subcontract amount ~~W~~ 86,000,000 Contract term 21 February 2012 ~ 19 June 2012

(2) PMS integrated development – Structuring project management integrated system

Classification Contents

Project name PMS integrated development – Structuring project management integrated system Subcontract amount ~~W~~ 25,500,000 Contract term 8 February 2012 ~ 30 April 2012

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FINANCIAL INFORMATION OF NITGEN FOR THE YEAR 2011

(3) Online system structuring service for encouragement fund for cooling and heating consolidation

Classification

Project name Online system structuring service for encouragement fund for cooling and heating consolidation Subcontract amount ~~W~~ 19,430,000 Contract term 8 March 2012 ~ 21 April 2012

6. MATTERS ON DERIVATIVE PRODUCTS

A. Status of Derivative Products Contract Conclusion

Not applicable

B. Matter on risk management

Not applicable

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 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
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APPENDIX IIC

FINANCIAL INFORMATION OF NITGEN FOR THE YEAR 2011

Classification

R&D projects

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

Project name	Development period	Contents of major developments
Attendance management	January 2010 ~	Development of attendance and edible water
SW development	currently in progress	management program by using the Finger Scan
BCS (Biometric Server	January 2010 ~	Development of solution available for linkage and
Client) development	currently in progress	management server and Finger Scan terminal of
		the Company
Development of FA 10-01	September 2009 ~	Development of individual information security
AFIS exclusive	currently in progress	server/client by using the bio-metric information
algorithm
KT 101/KT 101+	November 2010 ~	Manage the information of each user and PC
development	currently in progress	security policies from the server
Development of fiscal year	January 2010 ~	Confirmation of PC service record of each user
and facial recognition	currently in progress	from the server
integrated terminal
Multi-processor applying	January 2011 ~	Development of finger print image processing
high capability	currently in progress	technology
certification development
server

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FINANCIAL INFORMATION OF NITGEN FOR THE YEAR 2011

APPENDIX IIC

Project name Development period Contents of major developments Image enhanced algorithm January 2011 ~ Development of small optic-type Finger Scan currently in progress sensor to satisfy the US FBI PIV dimension PIV sensor development January 2011 ~ Development of Finger Scan terminal of new currently in progress platform and development of WinCE 6.0 applying platform New platform development January 2011 ~ Development of PC and network security solution currently in progress by centrally-focused management eNBio-Secure development November 2010 ~ Development of Finger Scan exclusive server by currently in progress applying multi-processor

9. OTHER MATTERS REQUIRED IN DETERMINING INVESTMENT

A. Summarized chart for external fund procurement
(1) Domestic procurement

Not applicable

(2) Overseas procurement

Not applicable

B. Credit rating in recent 3 years

Not applicable

C. Other important matters

Not applicable

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APPENDIX IIC FINANCIAL INFORMATION OF NITGEN FOR THE YEAR 2011

V. MANAGEMENT EXAMINATION AND ANALYSIS OF DIRECTORS

1. CAUTION ON 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 28th fiscal year from 1 January 2011 to 31 December 2011 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.

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APPENDIX IIC

FINANCIAL INFORMATION OF NITGEN FOR THE YEAR 2011

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 28th Term	The 27th Term
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.

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FINANCIAL INFORMATION OF NITGEN FOR THE YEAR 2011

APPENDIX IIC

(2) Financial condition

Financial condition of the recent 3 fiscal years of the Company is shown as follows.

			(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

4. LIQUIDITY AND FUND EXPENDITURE AND PROCUREMENT

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.

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APPENDIX IIC

FINANCIAL INFORMATION OF NITGEN FOR THE YEAR 2011

(2) AUDITED FINANCIAL STATEMENTS OF NITGEN FOR THE YEAR ENDED 31 DECEMBER 2011
A. Consolidated financial statements of Nitgen for the year ended 31 December 2011

Induk Accounting Corporation

==> picture [28 x 21] intentionally omitted <==

3[rd] Floor Daeha B/D 14-11 Yeouido-dong Phone : 82-2-761-9800 Yeongdeungpo-gu, Seoul 150-715 Korea Faxne : 82-2-761-2794

Independent Auditors’ Report

The Board of Directors and Stockholders NITGEN&COMPANY CO., LTD.

We have audited the accompanying consolidated statements of financial position of NITGEN&COMPANY Co., Ltd. and its subsidiaries (the “Group”) as of 31 December 2011 and the related consolidated statements 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 these consolidated financial statements in accordance with Korean International Financial Reporting Standards (“K-IFRS”). Our responsibility is to express an opinion on these consolidated financial statements based on our audits. The accompanying consolidated statements of financial position of the Group as of and for the year ended 31 December 2010, presented for comparative purposes, were not audited.

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 consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated 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 the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Group as of 31 December 2011 and the results of its operations 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 and practices used in the Republic of Korea to audit such financial statements may differ from those generally accepted and applied in other countries. Accordingly, this report is for use by those who are informed about Korean auditing standards and their application in practice.

Induk Accounting Corporation

Seoul, Korea 14 March 2012

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APPENDIX IIC FINANCIAL INFORMATION OF NITGEN FOR THE YEAR 2011

This report is effective as of 14 March 2012, 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 consolidated financial statements and notes thereto. Accordingly, the readers of the audit report should understand that the above audit report has not been updated to reflect the impact of such subsequent events or circumstances, if any.

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APPENDIX IIC

FINANCIAL INFORMATION OF NITGEN FOR THE YEAR 2011

Consolidated Statements of Financial Position

31 December 2011, 2010 and 1 January 2010

Notes ASSETS Current assets Cash and cash equivalents 6,8 Other current financial assets 6,9 Trade and other receivables 11,23,24 Current tax assets Inventories 10 Other current assets 12 Total current assets Non-current assets Other non-current financial assets 6,9 Investment property 15 Investments in associates 16 Property, plant and equipment 13 Intangible assets 14 Trade and other receivables 6,11 Deferred tax assets 28 Total non-current assets Total assets LIABILITIES AND EQUITY Current liabilities Borrowings 6,17 Trade and other payables 19,24 Other current liabilities 19,23 Total current liabilities Non-current liabilities Long-term borrowings 6,17 Defined benefit obligation 20 Other non-current liabilities Deferred tax liabilities 28 Total non-current liabilities Total liabilities Equity Capita stock 22 Capital surplus 22 Other components of equity 21,22 Retained earnings 22 Total Equity attributable to owners of the Company Non-controlling interests Total equity Total equity and liabilities	31 December 2011 8,717,578 1,404,731 2,144,387 64,964 2,486,073 170,270 14,988,003 384,668 138,839 – 1,369,605 2,903,794 343,626 477,726 5,618,258 20,606,261 145,173 1,923,151 269,883 2,338,207 – 1,094,058 – – 1,094,058 3,432,265 17,700,158 4,894,707 (4,518,578) (902,291) 17,173,996 – 17,173,996 20,606,261	(In thousands of Korean won) 31 December 2010 1 January 2010 (Unaudited) (Unaudited) 5,086,540 6,348,279 4,463,528 – 5,019,009 4,476,796 79,645 53,958 2,010,506 1,480,704 231,461 169,858 16,890,689 12,529,595 392,223 575,488 138,839 – – 2,454,402 1,582,074 1,840,375 2,896,636 2,751,964 208,352 335,156 693,025 38,350 5,911,149 7,995,735 22,801,838 20,525,330 310,000 – 1,598,407 1,175,411 88,309 38,384 1,996,716 1,213,795 – 90,000 971,658 728,336 528 16,728 – 80,594 972,186 915,658 2,968,902 2,129,453 17,700,158 17,700,158 4,894,707 8,680,936 (4,662,148) (4,484,730) 1,900,219 (3,500,487) 19,832,936 18,395,877 – – 19,832,936 18,395,877 22,801,838 20,525,330

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

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APPENDIX IIC

FINANCIAL INFORMATION OF NITGEN FOR THE YEAR 2011

Consolidated Statements of Comprehensive Income

Years Ended 31 December 2011 and 2010

Notes
Sales
23,24
Cost of sales
23,24,29
Gross profit
Selling and administrative expenses
26,29
Other operating income
18,24,27
Other operating expenses
24,27
Operating income(loss)
Gain on disposal of associate
16
Financial income
24,27
Financial expenses
24,27
Loss on Goodwill
14
Profit before income tax
Income tax expense(benefit)
28
Profit for the year
Other comprehensive income (loss)
Change in value of available-for-sale financial
assets
9,28
Actuarial loss on post employment benefit
obligations
20,28
Total comprehensive income for the year
Profit attributable to:
Equity holders of the Parent Company
Non-controlling interest
Total comprehensive income attributable to:
Equity holders of the Parent Company
Non-controlling interest
Earnings per share from profit attributable to
the equity holders of the company during the
year
Basic and diluted earnings per share (in Korean
won)
30

(In thousands of Korean won)
2011
2010
(Unaudited)
10,538,672
12,168,387
8,289,069
7,109,193
2,249,603
5,059,194
5,090,980
4,431,054
282,578
228,800
157,230
118,596
(2,716,029)
738,344
–
666,412
1,003,953
711,913
593,153
594,248
263,508
504,617
(2,568,737)
1,017,804
214,819
(645,126)
(2,783,556)
1,662,930
20,652
(270,700)
(18,954)
(48,453)
1,698
(319,153)
(2,781,858)
1,343,777
(2,783,556)
1,662,930
–
–
(2,781,858)
1,343,777
–
–
(79)
47

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

IIC-26 -

APPENDIX IIC FINANCIAL INFORMATION OF NITGEN FOR THE YEAR 2011

Consolidated Statements of Changes in Equity

Years Ended 31 December 2011 and 2010

(In thousands of Korean won)

		Attributable to	equity holders of the Company	equity holders of the Company
			Other			Non-
		Capital	Components	Retained		controlling
	Capital Stock	Surplus	of Equity	Earnings	Total	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 the
Company:
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
Actuarial loss on post employment benefit
obligations	–	–	–	(18,954)	(18,954)	–	(18,954)
Change in value of available-for-sale
financial assets	–	–	20,652	–	20,652	–	20,652
Transactions with equity holders of the
Company:
Balance at 31 December 2011	17,700,158	4,894,707	(4,518,578)	(902,291)	17,173,996	–	17,173,996

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

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APPENDIX IIC FINANCIAL INFORMATION OF NITGEN FOR THE YEAR 2011

Consolidated Statements of Cash Flows Years

Ended 31 December 2011 and 2010

Notes
Cash flows from operating activities
Cash generated from operations
25
Interest received
Interest paid
Income tax paid
Dividends received
Net cash generated from operating activities
Cash flows from investing activities
Acquisition of short-term trading securities
Proceeds from disposal of guarantee deposits
Decrease in short-term loans
Disposal of associates
Disposal of property, plant and equipment
Disposal(Acquisition) of short-term financial
instruments
Disposal of short-term trading securities
Increase in short-term loans
Increase in available-for-sale financial assets
Acquisition of property, plant and equipment
Acquisition of intangible assets
Increase in other non-current assets
Others
Net cash used in investing activities
Cash flows from financing activities
Proceeds from short-term borrowings
Repayments of short-term borrowings
Net cash provided by (used in) financing
activities
Net increase (decrease) in cash and cash
equivalents
Cash and cash equivalents at the beginning of
period
Cash and cash equivalents at the end of period

(In thousands of Korean won)
2011
2010
(Unaudited)
1,364,673
(1,362,505)
273,782
362,575
(6,217)
(97,412)
–
(125)
57,142
–
1,689,380
(1,097,467)
10,198,991
4,268,399
3,933
32,899
16,133,700
12,977,000
–
3,120,814
755
473
(9,000)
(100,000)
(7,079,261)
(8,673,883)
(15,830,000)
(10,500,000)
–
(163,786)
(1,195,282)
(1,331,756)
(3,250)
(432)
(139,101)
(104,000)
25,000
–
2,106,485
(474,272)
1,145,173
1,230,000
(1,310,000)
(920,000)
(164,827)
310,000
3,631,038
(1,261,739)
5,086,540
6,348,279
8,717,578
5,086,540

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

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APPENDIX IIC

FINANCIAL INFORMATION OF NITGEN FOR THE YEAR 2011

Notes to the Consolidated Financial Statements

31 December 2011 and 2010

1. GENERAL INFORMATION

(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 (%)
	Types of		31 December	31 December	1 January
Subsidiaries	Business	Location	2011	2010	2010
RIA Soft Co.,	IT development	Korea	100%	100%	100%
Ltd.	and program

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)
					Total
					comprehensive
				Profit for the	income for the
	Assets	Liabilities	Sales	year	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.
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FINANCIAL INFORMATION OF NITGEN FOR THE YEAR 2011

APPENDIX IIC

(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

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(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

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APPENDIX IIC

FINANCIAL INFORMATION OF NITGEN FOR THE YEAR 2011

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 -

APPENDIX IIC

FINANCIAL INFORMATION OF NITGEN FOR THE YEAR 2011

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. Acquisitionrelated 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.

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FINANCIAL INFORMATION OF NITGEN FOR THE YEAR 2011

(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.

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APPENDIX IIC

(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-tomaturity 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-forsale equity instrument are recognized in profit or loss when the Group’s right to receive payment is established.

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APPENDIX IIC

(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.

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APPENDIX IIC FINANCIAL INFORMATION OF NITGEN FOR THE YEAR 2011

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

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FINANCIAL INFORMATION OF NITGEN FOR THE YEAR 2011

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:

	Useful lives (years)
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.

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FINANCIAL INFORMATION OF NITGEN FOR THE YEAR 2011

APPENDIX IIC

(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.

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FINANCIAL INFORMATION OF NITGEN FOR THE YEAR 2011

APPENDIX IIC

(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.

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FINANCIAL INFORMATION OF NITGEN FOR THE YEAR 2011

APPENDIX IIC

(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.

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FINANCIAL INFORMATION OF NITGEN FOR THE YEAR 2011

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.

(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 of K-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.

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FINANCIAL INFORMATION OF NITGEN FOR THE YEAR 2011

(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:

Reported amount under the previous K-GAAP Adjustments for: Actuarial valuations of defined benefit obligation (1) Present value of deposits provided (2) Changes in depreciation methods of property, plant and equipment (3) Paid absences (4) Tax-effect on adjustments (5) Changes in scope of consolidation (6) Adjusted amount under Korean IFRS	Total assets 19,593,127 – (2) 329,330 – – 602,875 932,203 20,525,330	(in thousands of Korean won) Total liabilities Equity 1,482,993 18,110,134 (81,474) 81,474 – (2) – 329,330 44,466 (44,466) 80,593 (80,593) 602,875 – 646,460 285,743 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
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FINANCIAL INFORMATION OF NITGEN FOR THE YEAR 2011

APPENDIX IIC

(*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:

Reported amount under the previous K-GAAP Adjustments for: Actuarial valuations of defined benefit obligation (1) Present value of deposits provided (2) Changes in depreciation methods of property, plant and equipment (3) Goodwill acquired as a result of business combination (4) Paid absences (5) Tax-effect on adjustments (6) Changes in scope of consolidation (*7) Adjusted amount under Korean IFRS	Total assets 21,557,463 – (14) 228,718 106,101 – 942,888 (33,318) 1,244,375 22,801,838	(in thousands of Korean won) Total liabilities Equity 2,191,175 19,366,288 (75,515) 75,515 – (14) – 228,718 – 106,101 46,689 (46,689) 806,553 136,335 – (33,318) 777,727 466,648 2,968,902 19,832,936

(*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 goodwill acquired as a result of business combination
(*5) Effects of paid absence(Recognizing the liability for unused annual leave regarding accumulated paid vacations)
(*6) Effects of adjustments which are made for additional deferred income tax incurred from temporary differences of income tax
(*7) Effects of change in scope of consolidation and the effects of the adoption of IFRS by the Company’s associates
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FINANCIAL INFORMATION OF NITGEN FOR THE YEAR 2011

APPENDIX IIC

(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:

Reported amount under the previous K-GAAP Adjustments for: Actuarial valuations of defined benefit obligation (1) Present value of deposits provided (2) Changes in depreciation methods of property, plant and equipment (3) Goodwill acquired as a result of business combination (4) paid absences (5) Tax-effect on adjustments(6) Changes in scope of consolidation(*7) Adjusted amount under Korean IFRS	(in thousands Profit 1,509,921 45,585 (12) (100,612) 106,101 (2,223) 144,585 (40,415) 153,009 1,662,930	of Korean won) Comprehen- sive income 1,509,921 5,380 (12) (100,612) 106,101 (2,223) 136,336 (311,114) (166,144) 1,343,777

(*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 goodwill acquired as a result of business combination
(*5) Effects of paid absence(Recognizing the liability for unused annual leave regarding accumulated paid vacations)
(*6) Effects of adjustments which are made for additional deferred income tax incurred from temporary differences of income tax
(*7) Effects of change in scope of consolidation and the effects of the adoption of IFRS by the Company’s associates
(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.

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APPENDIX IIC

FINANCIAL INFORMATION OF NITGEN FOR THE YEAR 2011

(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.

K-GAAP Operating income Adjustment for: Reversal of Allowance for Doubtful Accounts Gains from Liabilities Exempted Miscellaneous Revenues Impairment Losses on Investments Impairment Losses on Intangible Assets Losses on Disposition of Property, Plant, and Equipment Other Bad Debt Expenses Donations Miscellaneous Losses K-IFRS Operating income	(in thousands 2011 (2,835,879) 9,834 – 272,744 – (27,556) (1,821) (1,646) (500) (131,205) (2,716,029)	of Korean won) 2010 628,139 23,561 90,000 115,239 (100,000) (3,216) (259) – – (15,120) 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:

			(in thousands of Korean won)	(in thousands of Korean won)
		31 December	2011
	Finger 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

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APPENDIX IIC

FINANCIAL INFORMATION OF NITGEN FOR THE YEAR 2011

			(in thousands of Korean won)	(in thousands of Korean won)
		31 December 2010
	Finger Scan	Landscaping	IT business	Total
Assets	21,209,279	649,670	1,370,641	23,229,590
Liabilities	2,040,346	122,004	999,425	3,161,775
Equity	19,168,933	527,666	371,216	20,067,815
Consolidation reconciliations				(234,879)
Net Equity				19,832,936
			(in thousands of Korean won)
		1 January	2010
	Finger Scan	Landscaping	IT business	Total
Assets	19,922,456	–	1,143,252	21,065,708
Liabilities	1,526,579	–	908,373	2,434,952
Equity	18,395,877	–	234,879	18,630,756
Consolidation reconciliations				(234,879)
Net Equity				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:

			(in thousands of Korean won)	(in thousands of Korean won)
		2011
	Finger Scan	Landscaping	IT business	Total
Sales	6,140,604	2,304,454	2,093,614	10,538,672
Operating income(loss)	(2,457,280)	195,126	(453,875)	(2,716,029)
Financial income(loss)	448,504	769	(38,473)	410,800
Gains 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)
			(in thousands of Korean won)
		2010
	Finger Scan	Landscaping	IT business	Total
Sales	9,817,608	841,295	1,509,484	12,168,387
Operating income(loss)	532,662	73,907	131,775	738,344
Financial income(loss)	138,078	–	(20,413)	117,665
Gains on disposal of
associate	–	–	666,412	666,412
Loss on Goodwill	161,795	–	(666,412)	(504,617)
Profit before income tax	832,535	73,907	111,362	1,017,804

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FINANCIAL INFORMATION OF NITGEN FOR THE YEAR 2011

APPENDIX IIC

(3) Geographical information for sales

South America Asia Middle East Europe Other Korea Total	(in thousands 2011 980,701 2,027,093 861,300 204,377 248,483 6,216,718 10,538,672	of Korean won) 2010 2,502,585 2,252,157 954,826 470,904 28,901 5,959,014
		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	(In thousands of Korean won, except	equity ratio)
	31 December	31 December	1 January
	2011	2010	2010
Borrowings	145,173	310,000	–
Other liabilities	3,287,092	2,658,902	2,129,453
Total liabilities	3,432,265	2,968,902	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.

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APPENDIX IIC

FINANCIAL INFORMATION OF NITGEN FOR THE YEAR 2011

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:

		(in thousands of Korean won)	(in thousands of Korean won)
	Less than 1	More than 1
	year	year	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.

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FINANCIAL INFORMATION OF NITGEN FOR THE YEAR 2011

APPENDIX IIC

Book values of the financial assets represent the maximum exposed amounts of the credit risk

				(in thousands of Korean won)	(in thousands of Korean won)
			31 December	31 December	1 January
			2011	2010	2010
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:

						(in thousands of Korean won)	(in thousands of Korean won)	(in thousands of Korean won)
		31 December		2011	31 December 2010		1 January	2010
		1%		1%	1%	1%	1%	1%
		increase	decrease		increase	decrease	increase	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:

					(in thousands of Korean won)	(in thousands of Korean won)	(in thousands of Korean won)
		31 December	2011	31 December	2010	1 January	2010
		USD	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

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APPENDIX IIC

FINANCIAL INFORMATION OF NITGEN FOR THE YEAR 2011

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.

				(in thousands of Korean won)	(in thousands of Korean won)	(in thousands of Korean won)
	Trade receivables		Financial	instruments	Total
	10%	10%	10%	10%	10%	10%
	increase	decrease	increase	decrease	increase	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 ~~W~~ 4,441 million. As of 31 December 2011 and 31 December 2010, the effects on other comprehensive income would be increased/decreased by ~~W~~ 14 million and ~~W~~ 44 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:

			(in thousands of Korean won)	(in thousands of Korean won)	(in thousands of Korean won)
		31 December 2011
	Level 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

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APPENDIX IIC

FINANCIAL INFORMATION OF NITGEN FOR THE YEAR 2011

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.

				(in	thousands of Korean won)	thousands of Korean won)
			31	December 2010
	Level 1		Level 2		Level 3	Total
Asset:
Short-term trading securities	4,363,528			–	–	4,363,528
Available-for-sale financial
assets	78,000			–	296,547	374,547
Held-to-maturity investments		–		–	17,676	17,676
	4,441,528			–	314,223	4,755,751
				(in	thousands of Korean won)
			1	January 2010
	Level 1		Level 2		Level 3	Total
Asset:
Short-term trading securities		–		–	–	–
Available-for-sale financial
assets		–		–	557,812	557,812
Held-to-maturity investments		–		–	17,676	17,676
		–		–	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.

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FINANCIAL INFORMATION OF NITGEN FOR THE YEAR 2011

APPENDIX IIC

6. CATEGORIES OF FINANCIAL INSTRUMENT

Categorization of financial instruments as of 31 December 2011 and 2010, and 1 January 2010, are as follows:

(in thousands of Korean won)

			31 December	2011
	Assets at
	fair value		Assets
	through		classified as
	profit and	Loans and	available-	Held-to-
	loss	receivables	for-sale	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

				(in	thousands of	Korean won)
			31 December	2010
	Assets at
	fair value		Assets
	through		classified as
	profit and	Loans and	available-	Held-to-
	loss	receivables	for-sale	maturity	Total	Fair value
Cash and cash equivalents	–	5,086,540	–	–	5,086,540	5,086,540
Short-term financial instruments	–	100,000	–	–	100,000	100,000
Short-term trading securities	4,363,528	–	–	–	4,363,528	4,363,528
Trade and other receivables	–	5,019,009	–	–	5,019,009	5,019,009
Held-to-maturity investments	–	–	–	17,676	17,676	17,676
Available-for-sale financial assets	–	–	374,547	–	374,547	374,547
Other non-current	–	208,352	–	–	208,352	208,352
	4,363,528	10,413,901	374,547	17,676	15,169,652	15,169,652

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APPENDIX IIC

FINANCIAL INFORMATION OF NITGEN FOR THE YEAR 2011

						(in	thousands	thousands	thousands	of	Korean won)
					1 January 2010
	Assets at
	fair value				Assets
	through				classified as
	profit and	Loans and			available-	Held-to-
	loss	receivables			for-sale	maturity			Total		Fair value
Cash and cash equivalents	–	6,348,279			–	–		6,348,279			6,348,279
Short-term financial instruments	–		–		–	–				–	–
Short-term trading securities	–		–		–	–				–	–
Trade and other receivables	–	4,476,796			–	–		4,476,796			4,476,796
Held-to-maturity investments	–		–		–	17,676			17,676		17,676
Available-for-sale financial assets	–		–		557,812	–			557,812		557,812
Other non-current	–	335,156			–	–			335,156		335,156
	–	11,160,231			557,812	17,676		11,735,719			11,735,719
						(in	thousands			of	Korean won)
					31 December 2011
	Liabilities at
	fair	value			Financial
	through profit			liabilities at
	and loss		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
						(in	thousands			of	Korean won)
					31 December 2010
	Liabilities at
	fair	value			Financial
	through profit			liabilities at
	and loss		amortized cost				Total				Fair value
Trade and other payables		–			1,598,407	1,598,407					1,598,407
Borrowings		–			310,000	310,000					310,000
Long-term borrowings		–			–			–			–
		–			1,908,407	1,908,407					1,908,407

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APPENDIX IIC

FINANCIAL INFORMATION OF NITGEN FOR THE YEAR 2011

Liabilities at fair value through profit and loss – – – –	(in thousands of Korean won) 1 January 2010 Financial liabilities at amortized cost Total Fair value 1,175,411 1,175,411 1,175,411 – – – 90,000 90,000 90,000 1,265,411 1,265,411 1,265,411	of Korean won) Fair value 1,175,411 – 90,000

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:

			(in	thousands of	Korean won)
			2011
	Assets at fair		Assets	Financial
	value through		classified as	liabilities at
	profit and	Loans and	available-for-	amortized
	loss	receivables	sale	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

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APPENDIX IIC

FINANCIAL INFORMATION OF NITGEN FOR THE YEAR 2011

(in thousands of Korean won)

		2010
	Assets at fair		Assets	Financial
	value through		classified as	liabilities at
	profit and	Loans and	available-for-	amortized
	loss	receivables	sale	cost	Total
Interest incomes	–	262,050	–	–	262,050
Interest expenses	–	–	–	(97,412)	(97,412)
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:

		(in thousands of Korean won)	(in thousands of Korean won)
	31 December	31 December	1 January
	2011	2010	2010
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

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FINANCIAL INFORMATION OF NITGEN FOR THE YEAR 2011

APPENDIX IIC

9. FINANCIAL ASSETS

(1) Other financial assets as of 31 December 2011 and 2010, and 1 January 2010, are as follows:

		(in thousands of Korean won)	(in thousands of Korean won)
	31 December	31 December	1 January
	2011	2010	2010
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:

			(in thousands of Korean won)	(in thousands of Korean won)	(in thousands of Korean won)
		31 December	31 December	1	January
		2011	2010		2010
Short-term financial	KB Corporate credit	100,000	100,000		–
instruments	cards
Short-term financial	Woori bank	9,000	–		–
instruments	borrowings
Term deposits	SGIC	1,500	–		–
	implementation
	contract
		110,500	100,000		–

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FINANCIAL INFORMATION OF NITGEN FOR THE YEAR 2011

APPENDIX IIC

(3) Securities as of 31 December 2011 and 2010, are as follows:

		(in	(in	thousands of	Korean won)
		31 December	2011
		Acquisition			Book
	Category classification	Cost		Fair Value	Value
< 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

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	Non-marketable equity	500,010		152,960	152,960
(Formerly, Artplace
Co.,Ltd)
Information&Communication	Equity in partnership	15,864		16,508	16,508
Financial Cooperative
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

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 availablefor-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.

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APPENDIX IIC

FINANCIAL INFORMATION OF NITGEN FOR THE YEAR 2011

		(in	thousands of	Korean won)
		31 December 2010
		Acquisition
	Category classification	Cost	Fair Value	Book Value
< 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

Zeroin Co.,Ltd	Non-marketable equity	300,000	10,693	10,693
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,	Non-marketable equity	500,010	152,959	152,959
Artplace Co.,Ltd)
Information&Communication	Equity in partnership	15,864	15,864	15,864
Financial Cooperative
Construction Guarantee	Equity in partnership	81,786	81,786	81,786
Korea Lottery Service Co.,Ltd	Marketable equity	78,000	78,000	78,000
LEDLIC	Equity in partnership	4,000	4,000	4,000
		1,890,406	374,547	374,547

Government and public bonds	Available-for-sale debts	17,676	17,676	17,676
		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:

Beginning Acquisition Valuation(*) Impairment Disposal Ending	Short-term trading securities 4,363,528 6,956,278 (120,387) – (9,903,688) 1,295,731	2011 Available- for-sale securities 374,547 – 26,477 (35,245) – 365,779	Held-to- maturity securities 17,676 – 1,212 – – 18,888	(in Short-term trading securities – 8,673,883 (188,623) – (4,121,732) 4,363,528	thousands of Korean won) 2010 Available- for-sale securities Held-to- maturity securities 557,812 17,676 163,786 – (347,051) – – – – – 374,547 17,676	thousands of Korean won) 2010 Available- for-sale securities Held-to- maturity securities 557,812 17,676 163,786 – (347,051) – – – – – 374,547 17,676
						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.

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FINANCIAL INFORMATION OF NITGEN FOR THE YEAR 2011

APPENDIX IIC

10. INVENTORIES

Inventories as of 31 December 2011 and 2010, and 1 January 2010, are as follows:

		(in thousands of Korean won)	(in thousands of Korean won)
	31 December	31 December	1 January
	2011	2010	2010
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:

Beginning Reversal of losses on valuation of inventories Losses on valuation of inventories Ending	(in thousands 2011 837,809 (837,809) 1,045,019 1,045,019	of Korean won) 2010 858,992 (858,992) 837,809 837,809

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FINANCIAL INFORMATION OF NITGEN FOR THE YEAR 2011

APPENDIX IIC

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:

		(in thousands of Korean won)	(in thousands of Korean won)
	31 December	31 December	1 January
	2011	2010	2010
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: allowance for doubtful accounts	–	(184,917)	(184,917)
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:

		(in thousands of Korean won)	(in thousands of Korean won)
	31 December	31 December	1 January
	2011	2010	2010
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

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FINANCIAL INFORMATION OF NITGEN FOR THE YEAR 2011

(3) Change in allowance for bad debts of trade and other receivables for the years ended 31 December 2011 and 2010, are as follows:

Beginning Provision for receivables impairment Reversal allowance doubtful accounts Write-off Ending	(in thousands 31 December 2011 888,270 491,259 (9,834) (530,946) 838,749	of Korean won) 31 December 2010 1,677,938 102,592 (81,583 (810,677
		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:

		(in thousands of Korean won)	(in thousands of Korean won)
	31 December	31 December	1 January
	2011	2010	2010
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:

		(in thousands of Korean won)	(in thousands of Korean won)
	31 December	31 December	1 January
	2011	2010	2010
Advance payments	154,583	215,902	147,574
Prepaid expenses	15,687	15,559	22,284
	170,270	231,461	169,858

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FINANCIAL INFORMATION OF NITGEN FOR THE YEAR 2011

13. TANGIBLE ASSETS

(1) Tangible assets as of 31 December 2011, are as follows:

				(in thousands of	Korean won)
			31 December 2011
	Beginning	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

(2) Tangible assets as of 31 December 2010, are as follows:

				(in thousands of	Korean won)
			31 December 2010
	Beginning	Acquisition	Disposal	Depreciation	Ending
Land	327,688	–	–	–	327,688
Buildings	598,559	–	–	19,856	578,703
Machinery	–	–	–	–	–
Facilities & equipment	80,724	1,000	–	23,054	58,670
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.
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FINANCIAL INFORMATION OF NITGEN FOR THE YEAR 2011

APPENDIX IIC

14. INTANGIBLE ASSETS

(1) Changes in intangible assets as of 31 December 2011, are as follows:

(in thousands of Korean won)

Beginning Acquisition Increase Construction in progress(out) Construction in progress(in) Amortization Impairment losses Ending	Development costs 994,228 – – – 581,144 (702,977) (27,556) 844,839	Industrial property 38,300 – – – – (9,345) – 28,955	31 December 2011 Memberships Goodwill 339,800 721,221 (25,000) – – – – – – – – – – (263,508) 314,800 457,713	Construction in progress 796,740 – 1,038,249 (581,144) – – – 1,253,845	Other 6,346 3,252 – – – (5,956) – 3,642	Total 2,896,635 (21,748 1,038,249 (581,144 581,144 (718,278 (291,064
						2,903,794

(2) Changes in intangible assets as of 31 December 2010, are as follows:

(in thousands of Korean won)

Beginning Acquisition Increase Construction in progress(out) Construction in progress(in) Amortization Impairment losses Ending	Development costs 1,220,260 – – – 231,977 (458,008) – 994,229	Industrial property 48,765 – – – – (10,465) – 38,300	31 December 2010 Memberships Goodwill 339,800 1,119,738 – 106,101 – – – – – – – – – (504,617) 339,800 721,222	Construction in progress – 796,740 231,977 (231,977) – – – 796,740	Other 23,401 – 431 – – (14,271) (3,216) 6,345	Total 2,751,964 902,841 232,408 (231,977 231,977 (482,744 (507,833
						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.
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FINANCIAL INFORMATION OF NITGEN FOR THE YEAR 2011

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:

Beginning Acquisition Disposal Ending	(in thousands 31 December 2011 138,839 – – 138,839	of Korean won) 31 December 2010 – 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:

				(in	thousands of	Korean won)
					31 December	1 January
		31 December	2011		2010	2010
	Percentage of		Acquisition
	Ownership(%)	No. of shares	cost	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:

Beginning Acquisition Disposal Ending	(in thousands 2011 – – – –	of Korean won) 2010 2,454,402 – (2,454,402
		–

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FINANCIAL INFORMATION OF NITGEN FOR THE YEAR 2011

(3) Gains on the investment in associate for years ended 31 December 2011 and 2010 are as follows:

					(in	thousands	of	Korean won)
						2011		2010
Gains	on	disposition	of	investments		–		666,412

(4) Summary of financial information of the associate of 1 January 2010, follows:

						thousands of	Korean won)
						Operating
			Assets	Liabilities	Revenue	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:

				(in thousands of Korean won)	(in thousands of Korean won)
		Annual
		Interest Rates
		(%)
		31 December	31 December	31 December	1 January
		2011	2011	2010	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:

Financial Institutions Operating loan Woori Bank Loan on Trade receivables Woori Bank Loan on Trade receivables Hana Bank Loan on Trade receivables Shinhan Bank	(in thousands loan agreements 100,000 200,000 50,000 40,000 390,000	of Korean won) Related Borrowings 100,000 – – 1,104
		101,104

(2) The unexpired amount following account receivables discounting as at the end of the current year is KRW1,104 thousand.

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APPENDIX IIC

FINANCIAL INFORMATION OF NITGEN FOR THE YEAR 2011

(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:

		(in thousands of Korean won)	(in thousands of Korean won)
	31 December	31 December	1 January
	2011	2010	2010
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:

		(in thousands of Korean won)	(in thousands of Korean won)
	31 December	31 December	1 January
	2011	2010	2010
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.

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FINANCIAL INFORMATION OF NITGEN FOR THE YEAR 2011

APPENDIX IIC

(1) The amounts recognized in the statements of financial position are determined as follows:

		(in thousands of Korean won)	(in thousands of Korean won)
	31 December	31 December	1 January
	2011	2010	2010
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:

Beginning Current service cost Interest cost Actuarial loss on defined benefit liability Benefits paid Ending	(in thousands 2011 972,960 289,044 49,860 24,289 (240,760) 1,095,393	of Korean won) 2010 729,594 282,676 42,645 62,116 (144,071) 972,960

(3) Changes in fair value of plan assets as of 31 December 2011 and 2010, are as follows:

Beginning Expected return on plan assets Benefits paid Actuarial gain on defined benefit liability Ending	(in thousands 2011 1,301 45 – (11) 1,335	of Korean won) 2010 1,258 47 – (3) 1,302

(4) The amounts recognized in the statements of comprehensive income as of 31 December 2011 and 2010, are as follows:

Current service cost Interest cost Expected return on plan assets	(in thousands 2011 289,045 49,860 (44) 338,861	of Korean won) 2010 282,676 42,645 (47) 325,274

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FINANCIAL INFORMATION OF NITGEN FOR THE YEAR 2011

APPENDIX IIC

(5) The principal actuarial assumptions used were as follows:

	31 December	31 December
	2011	2010
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	~~W~~590
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%

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FINANCIAL INFORMATION OF NITGEN FOR THE YEAR 2011

(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.

(in thousands Prior to the current year Current year After the current year Total compensation costs	of Korean won) 2011 93,282 122,917 29,972
	246,171

(6) Changes in stock options recognized as the equity for the years ended 31 December 2011 and 2010, are as follows:

Beginning Compensation cost Exercise/Forfeiture Ending	(in thousands 2011 93,282 122,917 – 216,199	of Korean won) 2010 – 93,282 –
		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:

		(in thousands of Korean won)	(in thousands of Korean won)
	31 December	31 December	1 January
	2011	2010	2010
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

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FINANCIAL INFORMATION OF NITGEN FOR THE YEAR 2011

(3) Other components of equity as of 31 December 2011 and 2010, and 1 January 2010, are as follows:

		(in thousands of Korean won)	(in thousands of Korean won)
	31 December	31 December	1 January
	2011	2010	2010
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:

Unappropriated retained earnings carried over from prior year Effects of Korean-IFRS adoption Transfer from gains on capital reduction Actuarial loss on defined benefit liability Consolidated Net income Accumulated Deficit	(in thousands 2011 1,900,219 – – (18,954) (2,783,556) (902,291)	of Korean won) 2010 (3,786,229) 285,742 3,786,229 (48,453) 1,662,930 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:

Beginning Balance Increase Changing of Contracts Construction Revenue Ending Balance	(in thousands 2011 5,776,565 531,174 100,439 (2,304,454) 4,103,724	of Korean won) 2010 – 6,617,860 – (841,295) 5,776,565

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FINANCIAL INFORMATION OF NITGEN FOR THE YEAR 2011

APPENDIX IIC

(2) Cumulative construction and cumulative gain or loss as of 31 December 2011 and 2010, are as follows:

Domestic construction Accumulative construction revenue Accumulative construction cost Net gross profit	(in thousands 2011 3,145,749 2,887,730 258,019	of Korean won) 2010 841,295 767,317
		73,978

(3) Receivables and advances from in-progress construction contracts as of 31 December 2011 and 2010, are as follows:

						(in thousands of Korean won)
			Advances	Receivables	from	construction contracts
			Overbilled	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:

Sales – finished goods Sales – merchandise Sales – services Sales – landscaping	(in thousands 31 December 2011 5,334,796 730,520 2,168,902 2,304,454 10,538,672	of Korean won) 31 December 2010 9,207,998 514,262 1,604,832 841,295
		12,168,387

(5) Cost of Sales

Cost of sales for the years ended 31 December 2011 and 2010, are as follows:

Cost of sales – finished goods Cost of sales – merchandise Cost of sales – services Cost of sales – landscaping	(in thousands 31 December 2011 3,842,361 690,664 1,635,631 2,120,413 8,289,069	of Korean won) 31 December 2010 4,924,334 502,375 915,167 767,317
		7,109,193

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FINANCIAL INFORMATION OF NITGEN FOR THE YEAR 2011

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:

				(in	thousands of Korean won)	thousands of Korean won)
			2011		2010
		Related parties	Receivables	Payables	Receivables	Payables
Parent	company	Ocean B Holdings	–	–	–	46,748
Others		Shinsung Engineering &	370,620	63,782	329,689	86,614
		Construction Co., Ltd
Others		Representative of	–	44,068	–	310,000
		Subsidiaries

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:

				(in	thousands of Korean won)	thousands of Korean won)
			2011		2010
				Purchase,		Purchase,
		Related parties	Sales, etc	etc.	Sales, etc	etc.
Parent	company	Ocean B Holdings	3,086,712	3,120,000	–	–
Others		Shinsung Engineering &	5,671,330	3,550,000	2,352,473	1,500,000
		Construction Co., Ltd
Others		Balhae Civil & Architecture	2,434,652	2,400,000	–	–
		Co., Ltd
Others		Jeongam Engineering &	103,516	100,000	–	–
		Construction Co., Ltd
Others		Global Construction Co., Ltd	–	–	2,543,082	2,500,000
Others		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.

	(in thousands of Korean won)	(in thousands of Korean won)
	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

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APPENDIX IIC

FINANCIAL INFORMATION OF NITGEN FOR THE YEAR 2011

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:

	(in thousands of Korean won)	(in thousands of Korean won)
	2011	2010
Profit for the period	(2,783,556)	1,662,930
Adjustments:
Compensation expenses for stock option	122,917	93,282
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

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APPENDIX IIC

FINANCIAL INFORMATION OF NITGEN FOR THE YEAR 2011

Changes in operating assets and liabilities: Decrease(Increase) in trade receivables Decrease(Increase) in receivables from Construction Contracts Increase in non-trade receivables Decrease(Increase) in advance payments Decrease(Increase) in prepaid expenses Decrease(Increase) in income tax refund receivables Decrease(Increase) in deferred Income tax assets Increase in inventories Decrease in deferred long-term advance payments Increase in trade payables Decrease in non-trade payables Decrease in advances from customers Increase in withholdings Decrease in unearned revenues Increase(Decrease) in accrued expenses Increase in advances from construction contracts Decrease in current portion of long-term non-trade payables Decrease in deferred Income tax liabilities Decrease in long-term non-trade payables Payments for Severance Benefits Sub Total Cash generated from operations	(in thousands 2011 2,065,979 173,755 (105,557) 61,319 (127) 14,681 214,819 (475,567) 30,000 (435,222) 908,526 (70,452) 2,439 – (9,499) 80,526 – – – (240,762) 2,214,858 1,364,673	of Korean won) 2010 (2,741,087 (329,689 (130,690 (68,328 6,724 (25,687 (564,657 (529,801 57,000 449,597 (101,900 (60,860 58,323 (2,229 11,478 86,614 (30,600 (80,594 (16,200 (144,071
		(4,156,657
		(1,362,505

(2) Significant transactions not affecting cash flows for the years ended 31 December 2011 and 2010, are as follows:

	(in thousands of Korean won)	(in thousands of Korean won)
	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

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APPENDIX IIC

FINANCIAL INFORMATION OF NITGEN FOR THE YEAR 2011

26. SELLING AND ADMINISTRATIVE EXPENSES

Selling and administrative expenses for the years ended 31 December 2011 and 2010, are as follows:

Salaries Severance benefits Compensation expenses for stock option Employee benefits Travel Entertainment Communication Utility Taxes and dues Depreciation Amortization on intangible assets Development expense Rental Insurance premium Vehicles maintenance Freight Publication Supplies Service fees Advertising Bad debts expense Training expense Repairs Event expense Office supplies Building administrative expense	(in thousands 2011 1,402,308 103,250 122,917 275,923 78,770 174,431 32,260 1,265 32,222 328,964 718,278 204,935 221,350 15,052 53,027 123,879 5,754 14,237 496,410 37,645 491,259 4,773 1,407 144,489 3,934 2,241 5,090,980	of Korean won) 2010 1,314,914 112,630 93,282 281,355 96,509 172,891 34,222 2,000 12,709 352,902 482,743 380,919 229,484 12,830 65,008 109,692 5,974 11,817 437,799 56,822 102,591 3,316 3,561 50,887 2,245 1,952
		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:

Other income Reversal of allowance for doubtful accounts Gain from liabilities exempted Miscellaneous revenue	(in thousands 2011 9,834 – 272,744 282,578	of Korean won) 2010 23,561 90,000 115,239
		228,800

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APPENDIX IIC

FINANCIAL INFORMATION OF NITGEN FOR THE YEAR 2011

Other expense Other bad debts expense Loss on impairment of investment assets Impairment losses on intangible assets Loss on sale of property, plant and equipment Donations Miscellaneous loss	(in thousands 2011 1,646 – 27,556 1,821 500 125,707 157,230	of Korean won) 2010 – 100,000 3,217 259 – 15,120
		118,596

(2) Financial income and costs for the years ended 31 December 2011 and 2010, are as follows:

Financial income Interest income Gain on foreign currency transactions Gain on foreign currency translation Dividend income Gain on sale of short-term trading securities Gain on valuation of short-term held for trading investments Financial costs Interest expense Loss on foreign currency transactions Loss on foreign currency translation Loss on valuation of short-term trading securities Loss on sale of short-term trading securities Loss on impairment of available-for-sale securities	(in thousands 2011 274,861 164,337 53,818 57,142 451,199 2,596 1,003,953 6,217 148,074 5,755 122,983 278,879 31,245 593,153	of Korean won) 2010 262,050 123,087 56,270 – 270,506 –
		711,913
		97,412 159,408 24,964 188,623 123,841 –
		594,248

28. INCOME TAX EXPENSE

(1) Income tax expense for the years ended 31 December 2011 and 2010 consists of:

Current income taxes Deferred income tax due to temporary differences Deferred income tax charged to equity Income tax expenses	(in thousands 2011 – 215,299 (480) 214,819	of Korean won) 2010 125 (735,269 90,018
		(645,126

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FINANCIAL INFORMATION OF NITGEN FOR THE YEAR 2011

APPENDIX IIC

(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:

(in thousands of Korean won)

	(in	thousands of Korean won)	thousands of Korean won)
Accrued income Accumulated impairment loss of inventories Retirement benefit obligations Loss on valuation of equity- method investments Impairment loss on equity-method investments Short-term trading securities Impairment loss on investments Losses on foreign currency translation Gains on foreign currency translation Allowance for doubtful accounts Other bad debt expense Goodwill Other Intangible assets Retirement insurance deposit Available-for-sale financial assets Accumulated paid absent Financial guarantee contract Depreciation Patents Development costs Deficit carried-forward Tax deduction Not recognized deferred tax assets(liabilities) Effects of Korean-IFRS adoption Deferred tax assets Deferred tax liabilities Deferred tax assets(liabilities), net	2011 Temporary differences Beginning Increase (Decrease) Ending (413) (164) (577) 837,809 207,209 1,045,018 826,766 92,990 919,756 941,960 (1,300) 940,660 1,208,040 263,508 1,471,548 188,623 (68,236) 120,387 100,000 – 100,000 24,964 (24,964) – (56,270) 56,270 – 986,441 73,419 1,059,860 2,482,614 184,917 2,667,531 106,101 (106,101) – 6,251 – 6,251 (1,258) – (1,258) 1,941,665 4,768 1,946,433 68,913 (8,640) 60,273 – 1,300 1,300 (228,718) 228,718 – 1,941 (782) 1,159 96,892 109,882 206,774 9,532,321 1,012,794 10,545,115 – 182,986 182,986 18,711 – –	Deferred tax assets(liabilities) Beginning Ending (91) (127 184,318 229,904 181,889 202,346 207,231 206,945 265,769 323,741 41,497 26,485 22,000 22,000 5,492 – (12,379) – 217,017 233,169 546,175 586,857 23,342 – 1,375 1,375 (277) (277 427,166 428,215 15,161 13,260 – 286 (50,318) – 427 255 21,316 45,490 2,097,110 2,319,924 – 40,257 18,711 18,711 1,389,479 1,901,166 (33,317) – 693,025 437,469 693,025 477,726 – – 693,025 477,726
			2,319,924
			40,257 18,711 1,901,166 –
			437,469
			477,726 –
			477,726

IIC-77 -

APPENDIX IIC

FINANCIAL INFORMATION OF NITGEN FOR THE YEAR 2011

(in thousands of Korean won)

	(in	thousands of Korean won)	thousands of Korean won)
Accrued income Accumulated impairment loss of inventories Retirement benefit obligations Loss on valuation of equity- method investments Impairment loss on equity-method investments Short-term trading securities Impairment loss on investments Losses on foreign currency translation Gains on foreign currency translation Allowance for doubtful accounts Other bad debt expense Goodwill Other Intangible assets Retirement insurance deposit Available-for-sale financial assets Accumulated paid absent Depreciation Patents Development costs Tax deduction Not recognized deferred tax assets(liabilities) Effects of Korean-IFRS adoption Deferred tax assets Deferred tax liabilities Deferred tax assets(liabilities), net	2010 Temporary differences Beginning Increase (Decrease) Ending (11,434) 11,021 (413) 858,992 (21,183) 837,809 606,930 219,836 826,766 508,235 433,725 941,960 1,137,148 70,892 1,208,040 – 188,623 188,623 – 100,000 100,000 67,810 (42,846) 24,964 (1,929) (54,341) (56,270) 1,789,519 (803,078) 986,441 1,686,467 796,147 2,482,614 – 106,101 106,101 7,708 (1,457) 6,251 (1,258) – (1,258) 1,594,614 347,051 1,941,665 44,466 24,447 68,913 (329,330) 100,612 (228,718) 1,941 – 1,941 150,374 (53,482) 96,892 8,110,253 1,422,068 9,532,321 – 18,711 18,711	Deferred tax assets(liabilities) Beginning Ending (2,515) (91 188,978 184,318 133,525 181,889 111,812 207,231 250,173 265,769 – 41,497 – 22,000 14,918 5,492 (424) (12,379 393,694 217,017 371,023 546,175 – 23,342 1,696 1,375 (277) (277 350,815 427,166 9,783 15,161 (72,453) (50,318 427 427 33,082 21,316 1,784,257 2,097,110 – 18,711 1,745,906 1,389,479 (80,594) (33,317 (42,243) 693,025 38,351 693,025 (80,594) – (42,243) 693,025
			2,097,110
			18,711 1,389,479 (33,317
			693,025
			693,025 –
			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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FINANCIAL INFORMATION OF NITGEN FOR THE YEAR 2011

APPENDIX IIC

(3) Deferred income taxes charged directly to the equity as of 31 December 2011 and 2010, are as follows:

Fair value gains from available-for-sale financial assets Fair value loss from available-for-sale financial assets Actuarial loss on retirement benefit obligations	(in thousands 2011 (5,825) – 5,346 (479)	of Korean won) 2010 – 76,351 13,666
		90,017

29. EXPENSES BY NATURE

Expenses that are recorded by nature for the years ended 31 December 2011 and 2010, are as follows:

Changes in inventories Employee benefits Compensation expenses for stock option Depreciation expenses Impairment losses/Bad debt expenses Freight expenses Outsourcing fees/Rental Service fees Construction expenses Commission of equipment lease Other expenses Total1	(in thousands 2011 1,710,936 4,148,729 122,917 1,085,205 491,259 168,698 1,740,235 616,955 1,664,294 76,980 1,553,841 13,380,049	of Korean won) 2010 3,604,640 3,470,371 93,282 884,586 102,592 142,280 1,141,014 483,338 – 60,390 1,557,755
		11,540,248

1 The amount is the same as the total of cost of sales, selling and administrative expenses

30. EARNINGS PER SHARE

Basic earnings per share for the years ended 31 December 2011 and 2010, are as follows:

Profit attributable to equity holders of the company Weighted-average number of common stock outstanding Basic earnings per share	2011 (2,783,556,269) 35,400,316 (79)	2010 1,662,930,254 35,400,316
		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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APPENDIX IIC

FINANCIAL INFORMATION OF NITGEN FOR THE YEAR 2011

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:

	(in thousands of Korean won)
	2010
Financial instruments	11,364
Trade and other receivables	267,922
Other current assets	192,276
Property, plant and equipment	43,596
Intangible assets	727,485
Other non-current assets	106,625
Trade and other payables	(226,802)
Borrowings	(310,000)
Retirement benefit obligations	(269,751)
Total net assets that are classified as held for sale	542,715
Cumulative 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:

	(in thousands of Korean won)
	2010
Sales	1,509,484
Cost of sales	(985,572)
Other income	103,041
Selling 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)	33,223
Profit(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:

(in thousands Cash flows from operating activities Cash flows from investing activities Cash flows from financing activities Net cash inflow (outflow)	of Korean won) 2010 (130,558) 285,264 (164,827) (10,121)

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APPENDIX IIC

FINANCIAL INFORMATION OF NITGEN FOR THE YEAR 2011

B. Separate financial statements of Nitgen for the year ended 31 December 2011

Induk Accounting Corporation

==> picture [28 x 21] intentionally omitted <==

3[rd] Floor Daeha B/D 14-11 Yeouido-dong Phone : 82-2-761-9800 Yeongdeungpo-gu, Seoul 150-715 Korea Faxne : 82-2-761-2794

Independent Auditors’ Report

The Board of Directors and Stockholders NITGEN&COMPANY CO., LTD.

We have audited the accompanying separate statements of financial position of NITGEN&COMPANY Co., Ltd.(the “Company”) as of 31 December 2011 and the related separate statements 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 these separate 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 our audits.

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 those statements reported 7 March 2011. The 31 December 2010 financial statements do not reflect the adjustments as described in Note 3 required by K-IFRS. However, the financial statements presented herein for comparative purposes reflect such adjustments in accordance with K-IFRS.

In our opinion, the separate financial statements referred to above present fairly, in all material respects, the financial position of the Company as of 31 December 2011 and the results of its operations and its cash flows for the year ended 31 December 2011, in accordance with K-IFRS.

Induk Accounting Corporation

Seoul, Korea 14 March 2012

IIC-81 -

APPENDIX IIC FINANCIAL INFORMATION OF NITGEN FOR THE YEAR 2011

This report is effective as of 14 March 2012, 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 separate financial statements and notes thereto. Accordingly, the readers of the audit report should understand that the above audit report has not been updated to reflect the impact of such subsequent events or circumstances, if any.

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APPENDIX IIC

FINANCIAL INFORMATION OF NITGEN FOR THE YEAR 2011

Separate Statements of Financial Position

31 December 2011, 2010 and 1 January 2010

Notes ASSETS Current assets Cash and cash equivalents 8 Other current financial assets 9 Trade and other receivables 11,22 Current tax assets Inventories 10 Other current assets 12 Total current assets Non-current assets Other non-current financial assets 9 Investment property 15 Investments in subsidiaries 16 Property, plant and equipment 13 Intangible assets 14 Trade and other receivables 11 Deferred tax assets 26 Total non-current assets Non-current assets held for sale 16 Total assets LIABILITIES AND EQUITY Current liabilities Trade and other payables 17,22 Other current liabilities 17 Total current liabilities Non-current liabilities Defined benefit obligation 18 Other non-current liabilities 22 Deferred tax liabilities 26 Total non-current liabilities Total liabilities Equity Capita stock 20 Capital surplus 20 Other components of equity 19,20 Retained earnings 18 Total equity Total equity and liabilities	31 December 2011 8,716,335 1,395,731 2,294,217 64,964 2,486,073 169,940 15,127,260 384,668 138,839 587,792 1,338,162 2,136,808 311,366 331,841 5,229,476 – 20,356,736 1,732,243 269,883 2,002,126 916,700 1,300 – 918,000 2,920,126 17,700,158 4,894,707 (4,518,578) (639,677) 17,436,610 20,356,736	(In thousands of Korean won) 31 December 2010 1 January 2010 (Unaudited) (Unaudited) 5,075,175 6,330,747 4,463,528 – 4,751,087 4,177,643 78,549 51,402 2,010,506 1,480,704 40,281 169,653 16,419,126 12,210,149 392,223 575,488 138,839 – – 3,809,019 1,538,479 1,780,098 1,554,030 1,050,146 347,251 497,555 619,000 – 4,589,822 7,712,306 850,000 – 21,858,948 19,922,455 1,371,605 872,848 88,308 38,384 1,459,913 911,232 701,907 518,024 528 16,728 – 80,594 702,435 615,346 2,162,348 1,526,578 17,700,158 17,700,158 4,894,707 8,680,936 (4,662,148) (4,484,730) 1,763,883 (3,500,487) 19,696,600 18,395,877 21,858,948 19,922,455

The accompanying notes are an integral part of these Separate financial statements.

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FINANCIAL INFORMATION OF NITGEN FOR THE YEAR 2011

APPENDIX IIC

Separate Statements of Comprehensive Income

Years Ended 31 December 2011 and 2010

Notes
Sales
4,21,22
Cost of sales
4,21,22
Gross profit
Selling and administrative expenses
19,24,28
Other operating income
25,27
Other operating expenses
25
Operating income(loss)
Gain(Loss) on disposal and valuation of
associate
16
Financial income
25
Financial expenses
25
Profit before income tax
Income tax expense(benefit)
26
Profit for the year
Other comprehensive income (loss)
Change in value of available-for-sale financial
assets
9,26
Actuarial loss on post employment benefit
obligations
18,26
Total comprehensive income for the year
Earnings per share from
29
Basic and diluted earnings per share
(in Korean won)

(In thousands of Korean won)
2011
2010
(Unaudited)
8,445,058
10,658,903
6,705,235
6,264,215
1,739,823
4,394,688
4,254,225
3,802,931
256,582
125,759
4,334
110,947
(2,262,154)
606,569
(263,508)
161,795
1,036,209
726,652
586,936
588,574
(2,076,389)
906,442
291,418
(611,903)
(2,367,807)
1,518,345
20,652
(270,700)
(35,753)
(40,205)
(15,101)
(310,905)
(2,382,908)
1,207,440
(67)
43

The accompanying notes are an integral part of these Separate financial statements.

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APPENDIX IIC

FINANCIAL INFORMATION OF NITGEN FOR THE YEAR 2011

Separate Statements of Changes in Equity

Years Ended 31 December 2011 and 2010

Capital Stock Balance at 1 January 2010 Profit for the year Transfer from gains on capital reduction Compensation expenses for stock option Actuarial loss on post employment benefit obligations Change in value of available-for-sale financial assets Balance at 31 December 2010 Balance at 1 January 2011 Profit for the year Compensation expenses for stock option Actuarial loss on post employment benefit obligations Change in value of available-for-sale financial assets Balance at 31 December 2011	Capital Surplus 17,700,158 – – – – – 17,700,158 17,700,158 – – – – 17,700,158	Other 8,680,936 – (3,786,229) – – – 4,894,707 4,894,707 – – – – 4,894,707	(In thousands of Korean won) Components of Equity Retained Earnings Total equity (4,484,730) (3,500,487) 18,395,877 – 1,518,345 1,518,345 – 3,786,229 – 93,282 – 93,282 – (40,204) (40,204) (270,700) – (270,700) (4,662,148) 1,763,883 19,696,600 (4,662,148) 1,763,883 19,696,600 – (2,367,807) (2,367,807) 122,918 – 122,918 – (35,753) (35,753) 20,652 – 20,652 (4,518,578) (639,677) 17,436,610

The accompanying notes are an integral part of these Separate financial statements.

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FINANCIAL INFORMATION OF NITGEN FOR THE YEAR 2011

APPENDIX IIC

Separate Statements of Cash Flows

Years Ended 31 December 2011 and 2010

Notes
Cash flows from operating activities
Cash generated from operations
23
Interest received
Interest paid
Dividends received
Net cash generated from operating activities
Cash flows from investing activities
Acquisition of short-term trading securities
Proceeds from disposal of guarantee deposits
Decrease in short-term loans
Disposal of associates
Disposal(Acquisition) of short-term financial
instruments
Disposal of short-term trading securities
Increase in short-term loans
Increase in available-for-sale financial assets
Acquisition of property, plant and equipment
Acquisition of intangible assets
Increase in other non-current assets
Others
Net cash used in investing activities
Cash flows from financing activities
Net cash provided by (used in) financing
activities
Net increase (decrease) in cash and cash
equivalents
Cash and cash equivalents at the beginning of
period
Cash and cash equivalents at the end of period

(In thousands of Korean won)
2011
2010
(Unaudited)
1,489,967
(1,369,777)
272,829
356,873
–
(91,738)
57,142
–
1,819,938
(1,104,642)
10,198,991
4,268,399
1,400
27,899
15,133,700
12,570,000
–
3,120,814
–
(100,000)
(7,079,261)
(8,673,883)
(15,130,000)
(10,000,000)
–
(163,786)
(1,188,451)
(1,096,373)
(3,250)
–
(136,907)
(104,000)
25,000
–
1,821,222
(150,930)
–
–
–
–
3,641,160
(1,255,572)
5,075,175
6,330,747
8,716,335
5,075,175

The accompanying notes are an integral part of these Separate financial statements.

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APPENDIX IIC

FINANCIAL INFORMATION OF NITGEN FOR THE YEAR 2011

Notes to the Consolidated Financial Statements

31 December 2011 and 2010

1. GENERAL INFORMATION

As of 31 December 2011, the Company’s major stockholders consist of Ocean B Holdings Co., Ltd (20.28 %).

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(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.

New standards, amendments and interpretations issued but not effective for the financial year beginning 1 January 2011, and not early adopted by the Company are as follows:

– Amendments to Korean IFRS 1019, Employee Benefits

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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.

– 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 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.

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(6) Cash and cash equivalents

(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.

(a) Financial assets at fair value through profit or loss

(b) Held-to-maturity investments

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

(d) Available-for-sale financial assets

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APPENDIX IIC

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-forsale 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.

(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

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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

(11) Property, plant and equipment

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.

	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.

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(12) Intangible assets

The estimated useful life used for amortizing intangible assets is as follows:

	Useful lives (years)
Development costs	3~5
Industrial property rights	10
Software and Other intangible assets	5
Facility-use memberships	Indefinite useful life

(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 cashgenerating 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.

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(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

(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.

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FINANCIAL INFORMATION OF NITGEN FOR THE YEAR 2011

(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.

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).

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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

(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).

(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.

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FINANCIAL INFORMATION OF NITGEN FOR THE YEAR 2011

(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

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

(a) Current tax

(b) Deferred tax

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

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FINANCIAL INFORMATION OF NITGEN FOR THE YEAR 2011

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.

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.

(25) Earnings per share

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 of K-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.

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FINANCIAL INFORMATION OF NITGEN FOR THE YEAR 2011

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:

Reported amount under the previous K-GAAP Adjustments for: Actuarial valuations of defined benefit obligation (1) Present value of deposits provided (2) Changes in depreciation methods of property, plant and equipment (3) Paid absences (4) Tax-effect on adjustments (*5) Adjusted amount under Korean IFRS	Total assets 19,593,127 – (2) 329,330 – – 329,328 19,922,455	(in thousands of Korean won) Total liabilities Equity 1,482,993 18,110,134 (81,474) 81,474 – (2) – 329,330 44,466 (44,466) 80,593 (80,593) 43,585 285,743 1,526,578 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
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APPENDIX IIC

(b) Effects of the Korean IFRS adoption on the Company’s total assets, liabilities, equity as of 31 December 2010, are as follows:

Reported amount under the previous K-GAAP Adjustments for: Actuarial valuations of defined benefit obligation (1) Present value of deposits provided (2) Changes in depreciation methods of property, plant and equipment (3) Goodwill acquired as a result of business combination (4) Paid absences (5) Tax-effect on adjustments (6) Adjusted amount under Korean IFRS	Total assets 21,557,462 – (14) 228,718 106,101 – (33,319) 301,486 21,858,948	(in thousands of Korean won) Total liabilities Equity 2,191,175 19,366,287 (75,515) 75,515 – (14) – 228,718 – 106,101 46,688 (46,688) – (33,319) (28,827) 330,313 2,162,348 19,696,600

(*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 goodwill acquired as a result of business combination
(*5) Effects of paid absence (Recognizing the liability for unused annual leave regarding accumulated paid vacations)
(*6) Effects of adjustments which are made for additional deferred income tax incurred from temporary differences of income tax
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APPENDIX IIC

(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:

Reported amount under the previous K-GAAP Adjustments for: Actuarial valuations of defined benefit obligation (1) Present value of deposits provided (2) Changes in depreciation methods of property, plant and equipment (3) Goodwill acquired as a result of business combination (4) paid absences (5) Tax-effect on adjustments (6) Adjusted amount under Korean IFRS	(in thousands of Korean won) Profit Comprehensive income 1,509,921 1,509,921 45,585 5,380 (12) (12) (100,612) (100,612) 106,101 106,101 (2,223) (2,223) (40,415) (311,115) 8,424 (302,481) 1,518,345 1,207,440

(*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 goodwill acquired as a result of business combination
(*5) Effects of paid absence (Recognizing the liability for unused annual leave regarding accumulated paid vacations)
(*6) Effects of adjustments which are made for additional deferred income tax incurred from temporary differences of income tax
(d) Cash Flow Adjustments due to conversion into Korea International Financial Reporting Standards

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(e) Effects of the adoption of K-IFRSs on the Company’s operating income

K-GAAP Operating income Adjustment for: Reversal of allowance for doubtful accounts Miscellaneous revenues Impairment losses on investments Other bad debt expenses Donations Miscellaneous losses K-IFRS Operating income	(In thousands 2011 (2,514,402) 6,923 249,658 – (1,646) (500) (2,187) (2,262,154)	of Korean won) 2010 591,757 19,640 106,119 (100,000 – – (10,947
		606,569

4. SEGMENT INFORMATION

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:

		(in thousands of Korean won)	(in thousands of Korean won)
		31 December 2011
	Finger 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
		(in thousands of Korean won)
		31 December 2010
	Finger 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

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		(in thousands of Korean won)	(in thousands of Korean won)
		1 January 2010
	Finger 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:

Sales Operating income(loss) Financial income(loss) Gains on disposal of associate Profit before income tax Sales Operating income(loss) Financial income(loss) Gains on disposal of associate Profit before income tax (3) Geographical information for sales South America Asia Middle East Europe Other Korea Total	Finger Scan 6,140,604 (2,457,280) 448,504 – (2,272,284) Finger Scan 9,817,608 532,662 138,078 – 832,535	(in thousands 2011 Landscaping 2,304,454 195,126 769 – 195,895 (in thousands 2010 Landscaping 841,295 73,907 – – 73,907 (in thousands 2011 980,701 2,027,093 861,300 204,377 248,483 4,123,104 8,445,058	of Korean won) Total 8,445,058 (2,262,154 449,273 –
			(2,076,389
			of Korean won) Total 10,658,903 606,569 138,078 161,795
			906,442
			of Korean won) 2010 2,502,586 2,252,157 954,826 470,904 28,901 4,449,529
			10,658,903

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FINANCIAL INFORMATION OF NITGEN FOR THE YEAR 2011

5. RISK MANAGEMENT

(1) Capital 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	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:

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FINANCIAL INFORMATION OF NITGEN FOR THE YEAR 2011

		(in thousands of Korean won)	(in thousands of Korean won)
	Less than 1	More than 1
	year	year	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

				(in thousands of Korean won)	(in thousands of Korean won)
			31 December	31 December	1 January
			2011	2010	2010
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:

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FINANCIAL INFORMATION OF NITGEN FOR THE YEAR 2011

						(in	thousands of Korean	won)
			31 December 2011		31 December 2010		1 January 2010
		1%	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 USD Korean 318,616.38 367,460 1,336,780.50 1,541,709 1,655,396.88 1,909,169	(in thousands of Korean won) 31 December 2010 1 January 2010 USD Korean USD Korean 420,000.81 482,711 102,884.61 120,128 2,405,641.22 2,739,784 1,157,958.85 1,352,033 2,825,642.03 3,222,495 1,260,843.46 1,472,161	(in thousands of Korean won) 31 December 2010 1 January 2010 USD Korean USD Korean 420,000.81 482,711 102,884.61 120,128 2,405,641.22 2,739,784 1,157,958.85 1,352,033 2,825,642.03 3,222,495 1,260,843.46 1,472,161
		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.

					(in thousands of Korean won)	(in thousands of Korean won)	(in thousands of Korean won)
		Trade receivables		Financial	instruments	Total
	10%	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 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).

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FINANCIAL INFORMATION OF NITGEN FOR THE YEAR 2011

üLevel 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).

Fair values of financial instruments by hierarchy level as of 31 December 2011, 31 December 2010 and 1 January 2010 are as follows:

		(in thousands	(in thousands	of	Korean won)
		31 December 2011
	Level 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

				(in thousands of	(in thousands of	Korean won)
			31 December 2010
	Level 1		Level 2		Level 3	Total
Asset:
Short-term trading securities	4,363,528			–	–	4,363,528
Available-for-sale financial assets	78,000			–	296,547	374,547
Held-to-maturity investments		–		–	17,676	17,676
	4,441,528			–	314,223	4,755,751
				(in thousands of		Korean won)
			1	January 2010
	Level 1		Level 2		Level 3	Total
Asset:
Short-term trading securities		–		–	–	–
Available-for-sale financial assets		–		–	557,812	557,812
Held-to-maturity investments		–		–	17,676	17,676
		–		–	575,488	575,488

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FINANCIAL INFORMATION OF NITGEN FOR THE YEAR 2011

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.

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:

(in thousands of Korean won)

			31 December	2011
			Assets
	Assets at fair		classified as
	value through	Loans and	available-for-	Held-to-
	profit and loss	receivables	sale	maturity	Total	Fair value
Cash and cash equivalents	–	8,716,335	–	–	8,716,335	8,716,335
Short-term financial instruments	–	100,000	–	–	100,000	100,000
Short-term trading securities	1,295,731	–	–	–	1,295,731	1,295,731
Trade and other receivables	–	2,294,217	–	–	2,294,217	2,294,217
Held-to-maturity investments	–	–	–	18,888	18,888	18,888
Available-for-sale financial assets	–	–	365,780	–	365,780	365,780
Other non-current	–	311,366	–	–	311,366	311,366
	1,295,731	11,421,918	365,780	18,888	13,102,317	13,102,317

(in thousands of Korean won)

Assets at fair value through profit and loss – – 4,363,528 – – – – 4,363,528	Loans and receivables 5,075,175 100,000 – 4,751,087 – – 347,251 10,273,513	31 December 2010 Assets classified as available-for- sale Held-to- maturity – – – – – – – – – 17,676 374,547 – – – 374,547 17,676	Total 5,075,175 100,000 4,363,528 4,751,087 17,676 374,547 347,251 15,029,264	Fair value 5,075,175 100,000 4,363,528 4,751,087 17,676 374,547 347,251
				15,029,264

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FINANCIAL INFORMATION OF NITGEN FOR THE YEAR 2011

(in thousands of Korean won)

			1 January 2010
			Assets
	Assets at fair		classified as
	value through	Loans and	available-for-	Held-to-
	profit and loss	receivables	sale	maturity	Total	Fair value
Cash and cash equivalents	–	6,330,747	–	–	6,330,747	6,330,747
Short-term financial instruments	–	–	–	–	–	–
Short-term trading securities	–	–	–	–	–	–
Trade and other receivables	–	4,177,643	–	–	4,177,643	4,177,643
Held-to-maturity investments	–	–	–	17,676	17,676	17,676
Available-for-sale financial assets	–	–	557,812	–	557,812	557,812
Other non-current	–	497,555	–	–	497,555	497,555
	–	11,005,945	557,812	17,676	11,581,433	11,581,433

						(in	thousands of Korean won)	thousands of Korean won)
					31 December	2011
				Liabilities at
				fair value	Financial
				through profit	liabilities at
				and loss	amortized cost		Total	Fair value
Trade	and	other	payables	–	1,732,243	1,732,243		1,732,243
Others				–	–		–	–
				–	1,732,243	1,732,243		1,732,243

(in thousands of Korean won) 31 December 2010

				Liabilities at
				fair value	Financial
				through profit	liabilities at
				and loss	amortized cost	Total	Fair value
Trade	and	other	payables	–	1,371,605	1,371,605	1,371,605
Others				–	–	–	–
				–	1,371,605	1,371,605	1,371,605

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FINANCIAL INFORMATION OF NITGEN FOR THE YEAR 2011

			(in thousands of Korean won)	(in thousands of Korean won)
		1 January	2010
	Liabilities at
	fair value	Financial
	through profit	liabilities at
	and loss	amortized cost	Total	Fair value
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:

					(in thousands of Korean won)	(in thousands of Korean won)
			2011
	Assets at
	fair value		Assets		Financial
	through		classified	as	liabilities at
	profit and	Loans and	available-		amortized
	loss	receivables	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-
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	370,230	26,477		(30,033)	475,750

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FINANCIAL INFORMATION OF NITGEN FOR THE YEAR 2011

					(in thousands of Korean won)	(in thousands of Korean won)
			2010
	Assets at
	fair value		Assets		Financial
	through		classified	as	liabilities at
	profit and	Loans and	available-		amortized
	loss	receivables	for-sale		cost	Total
Interest incomes	–	276,789		–	–	276,789
Interest expenses	–	–		–	(91,738)	(91,738)
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)	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:

		(in thousands of Korean won)	(in thousands of Korean won)
	31 December	31 December	1 January
	2011	2010	2010
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

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APPENDIX IIC

9. FINANCIAL ASSETS

(1) Other financial assets as of 31 December 2011 and 2010, and 1 January 2010, are as follows:

		(in thousands of Korean won)	(in thousands of Korean won)
	31 December	31 December	1 January
	2011	2010	2010
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

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APPENDIX IIC

(2) Securities as of 31 December 2011 and 2010, are as follows:

			(in thousands of Korean won)	(in thousands of Korean won)
		31 December	2011
		Acquisition
	Category classification	Cost	Fair Value	Book Value

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

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,	Non-marketable equity	500,010	152,960	152,960
Artplace Co.,Ltd)
Information&Communication	Equity in partnership	15,864	16,508	16,508
Financial Cooperative
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

Government and public bonds	Available-for-sale debts	17,676	18,888	18,888
		17,676	18,888	18,888

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FINANCIAL INFORMATION OF NITGEN FOR THE YEAR 2011

			(in thousands of Korean won)	(in thousands of Korean won)
		31 December	2010
		Acquisition
	Category classification	Cost	Fair Value	Book Value

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

Zeroin Co.,Ltd	Non-marketable equity	300,000	10,693	10,693
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,	Non-marketable equity	500,010	152,959	152,959
Artplace Co.,Ltd)
Information&Communication	Equity in partnership	15,864	15,864	15,864
Financial Cooperative
Construction Guarantee	Equity in partnership	81,786	81,786	81,786
Korea Lottery Service Co.,Ltd	Marketable equity	78,000	78,000	78,000
LEDLIC	Equity in partnership	4,000	4,000	4,000
		1,890,406	374,547	374,547

Government and public bonds	Available-for-sale debts	17,676	17,676	17,676
		17,676	17,676	17,676

(3) The changes in Short-term trading securities and Available-for-sale securities as of 31 December 2011 and 2010, are as follows:

Beginning Acquisition Valuation(*) Impairment Disposal Ending	Short-term held for trading investments 4,363,528 6,956,278 (120,387) – (9,903,688) 1,295,731	2011 Available-for- sale securities 374,547 – 26,477 (35,245) – 365,779	Held-to- maturity securities 17,676 – 1,212 – – 18,888	(in Short-term held for trading investments – 8,673,883 (188,623) – (4,121,732) 4,363,528	thousands of Korean won) 2010 Available-for- sale securities Held-to- maturity securities 557,812 17,676 163,786 – (347,051) – – – – – 374,547 17,676	thousands of Korean won) 2010 Available-for- sale securities Held-to- maturity securities 557,812 17,676 163,786 – (347,051) – – – – – 374,547 17,676
						17,676

The gains and losses from the evaluation of available-for-sale securities are amounts prior to reflecting the corporate tax effects.

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APPENDIX IIC

(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:

		(in thousands of Korean won)	(in thousands of Korean won)
	31 December	31 December	1 January
	2011	2010	2010
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:

Beginning Reversal of losses on valuation of inventories Losses on valuation of inventories Ending	(in thousands 2011 837,809 (837,809) 1,045,019 1,045,019	of Korean won) 2010 858,992 (858,992) 837,809 837,809

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APPENDIX IIC

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:

		(in thousands of Korean won)	(in thousands of Korean won)
	31 December	31 December	1 January
	2011	2010	2010
Current
Short-term loans	300,000	303,700	2,873,700
Less: allowance for doubtful accounts	–	(3,037)	(791,037)
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: allowance for doubtful accounts	–	(184,917)	(184,917)
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

(2) Allowance for doubtful accounts, as of 31 December 2011 and 2010 and 1 January 2010, are as follows:

		(in thousands of Korean won)	(in thousands of Korean won)
	31 December	31 December	1 January
	2011	2010	2010
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

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FINANCIAL INFORMATION OF NITGEN FOR THE YEAR 2011

(3) Change in allowance for bad debts of trade and other receivables for the years ended 31 December 2011 and 2010, are as follows:

Beginning Provision for receivables impairment Reversal allowance doubtful accounts Write-off Ending	(in thousands 31 December 2011 885,359 377,430 (6,923) (530,945) 724,921	of Korean won) 31 December 2010 1,674,017 99,681 (77,662 (810,677
		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:

		(in thousands of Korean won)	(in thousands of Korean won)
	31 December	31 December	1 January
	2011	2010	2010
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:

		(in thousands of Korean won)	(in thousands of Korean won)
	31 December	31 December	1 January
	2011	2010	2010
Advance payments	154,583	25,749	147,573
Prepaid expenses	15,357	14,532	22,080
	169,940	40,281	169,653

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FINANCIAL INFORMATION OF NITGEN FOR THE YEAR 2011

13. TANGIBLE ASSETS

(1) Tangible assets as of 31 December 2011, are as follows:

(in thousands of Korean won)

		31	December 2011	December 2011
	Beginning	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	–	–	70,021	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

(2) Tangible assets as of 31 December 2010, are as follows:

(in thousands of Korean won)

		31	December 2010	December 2010
	Beginning	Acquisition	Disposal	Depreciation	Ending
Land	327,688	–	–	–	327,688
Buildings	598,559	–	–	19,856	578,703
Machinery	–	–	–	–	–
Facilities & equipment	80,724	1,000	–	23,054	58,670
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.
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FINANCIAL INFORMATION OF NITGEN FOR THE YEAR 2011

14. INTANGIBLE ASSETS

(1) Changes in intangible assets as of 31 December 2011, are as follows:

Beginning Acquisition Increase Construction in progress(out) Construction in progress(in) Amortization Ending	Development costs 271,682 – – – 581,144 (423,360) 429,466	Industrial property 38,300 – – – – (9,344) 28,956	(in thousands of Korean won) 31 December 2011 Memberships Goodwill Construction in progress Other Total 339,800 106,101 796,739 1,408 1,554,030 (25,000) – – 3,250 (21,750 – – 1,038,249 – 1,038,249 – – (581,144) – (581,144 – – – – 581,144 – – – (1,017) (433,721 314,800 106,101 1,253,845 3,640 2,136,808	(in thousands of Korean won) 31 December 2011 Memberships Goodwill Construction in progress Other Total 339,800 106,101 796,739 1,408 1,554,030 (25,000) – – 3,250 (21,750 – – 1,038,249 – 1,038,249 – – (581,144) – (581,144 – – – – 581,144 – – – (1,017) (433,721 314,800 106,101 1,253,845 3,640 2,136,808
				2,136,808

(2) Changes in intangible assets as of 31 December 2010, are as follows:

(in thousands of Korean won)

Beginning Acquisition Increase Construction in progress(out) Construction in progress(in) Amortization Ending	Development costs 658,258 – – – – (386,576) 271,682	Industrial property 48,765 – – – – (10,465) 38,300	31 December 2010 Memberships Goodwill Construction in progress 339,800 – – – 106,101 796,739 – – – – – – – – – – – – 339,800 106,101 796,739	Other 3,322 – – – – (1,915) 1,408	Total 1,050,146 902,840 – – – (398,956
					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.

15. INVESTMENT PROPERTY

(1) Changes in investment property as of 31 December 2011 and 2010 are as follows:

Beginning Acquisition Disposal Ending	(in thousands 31 December 2011 138,839 – – 138,839	of Korean won) 31 December 2010 – 138,839 –
		138,839

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(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:

				(in	thousands of	thousands of	Korean won)
					31	December	1 January
		31 December	2011			2010	2010
	Percentage of		Acquisition
	Ownership(%)	No. of shares	cost	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:

Beginning Acquisition Transfer of non-current assets held for sale Reclassification of Investment in associate Impairment losses Fair value of financial guarantee contract Disposal Ending	(in thousands 2011 – – – 850,000 (263,508) 1,300 – 587,792	of Korean won) 2010 3,809,019 – (850,000 – (504,617 – (2,454,402
		–

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.

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FINANCIAL INFORMATION OF NITGEN FOR THE YEAR 2011

(3) Gains on the investment in associate for years ended 31 December 2011 and 2010 are as follows:

Impairment Losses on Investments Gains on disposition of investments	(in thousands 2011 (263,508) – (263,508)	of Korean won) 2010 (504,617 666,412
		161,795

(4) Summary of financial information of the associate for years ended 31 December 2011 and 2010 are as follows:

				(in thousands of	Korean won)
				Operating
	Assets	Liabilities	Revenue	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:

		(in thousands of Korean won)	(in thousands of Korean won)
	31 December	31 December	1 January
	2011	2010	2010
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:

		(in thousands of Korean won)	(in thousands of Korean won)
	31 December	31 December	1 January
	2011	2010	2010
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

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FINANCIAL INFORMATION OF NITGEN FOR THE YEAR 2011

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:

		(in thousands of Korean won)	(in thousands of Korean won)
	31 December	31 December	1 January
	2011	2010	2010
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:

Beginning Current service cost Interest cost Actuarial loss on defined benefit liability Benefits paid Ending	(in thousands 2011 703,209 194,366 36,455 45,827 (61,821) 918,035	of Korean won) 2010 519,282 177,520 30,559 51,541 (75,693) 703,209

(3) Changes in fair value of plan assets as of 31 December 2011 and 2010, are as follows:

Beginning Expected return on plan assets Benefits paid Actuarial gain on defined benefit liability Ending	(in thousands 2011 1,301 45 – (11) 1,335	of Korean won) 2010 1,258 47 – (3) 1,302

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(4) The amounts recognized in the statements of comprehensive income as of 31 December 2011 and 2010, are as follows:

Current service cost Interest cost Expected return on plan assets	(in thousands 2011 194,366 36,455 (45) 230,776	of Korean won) 2010 177,520 30,559 (47
		208,032

(5) The principal actuarial assumptions used were as follows:

	31 December	31 December
	2011	2010
Discount rate (%)	4.76%	5.42%
Expected rate of return (%)	3.52%	3.52%
Future salary increase (%)	5.00%	5.00%

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	~~W~~590
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.

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(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%

(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.

(in thousands Prior to the current year Current year After the current year Total compensation costs	of Korean won) 2011 93,282 122,917 29,972
	246,171

(6) Changes in stock options recognized as the equity for the years ended 31 December 2011 and 2010, are as follows:

Beginning Compensation cost Exercise/Forfeiture Ending	(in thousands 2011 93,282 122,917 – 216,199	of Korean won) 2010 – 93,282 –
		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

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(2) Capital surplus as of 31 December 2011 and 2010, and 1 January 2010, are as follows:

		(in thousands of Korean won)	(in thousands of Korean won)
	31 December	31 December	1 January
	2011	2010	2010
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:

		(in thousands of Korean won)	(in thousands of Korean won)
	31 December	31 December	1 January
	2011	2010	2010
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:

Unappropriated retained earnings Unappropriated retained earnings carried over from prior year Effects of KIFRS adoption Actuarial gains and losses Net income(loss) Total Unappropriated retained earnings carried over to succeeding year	(in thousands 2011 1,763,883 – (35,753) (2,367,807) (639,677) (639,677)	of Korean won) 2010 – 285,742 (40,204 1,518,345
		1,763,883
		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.

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FINANCIAL INFORMATION OF NITGEN FOR THE YEAR 2011

21. CONSTRUCTION CONTRACTS, SALES AND COST OF SALES

(1) The changes of construction contracts as of 31 December 2011 and 2010, are as follows:

Beginning Balance Increase Changing of Contracts Construction Revenue Ending Balance	(in thousands 2011 5,776,565 531,174 100,439 (2,304,454) 4,103,724	of Korean won) 2010 – 6,617,860 – (841,295
		5,776,565

(2) Cumulative construction and cumulative gain or loss as of 31 December 2011 and 2010, are as follows:

Domestic construction Accumulative construction revenue Accumulative construction cost Net gross profit	(in thousands 2011 3,145,749 2,887,730 258,019	of Korean won) 2010 841,295 767,317
		73,978

(3) Receivables and advances from in-progress construction contracts as of 31 December 2011 and 2010, are as follows:

						(in thousands of Korean won)
			Advances	Receivables	from	construction contracts
			Overbilled	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:

Sales – finished goods Sales – merchandise Sales – services Sales – landscaping	(in thousands 31 December 2011 5,334,796 730,520 75,289 2,304,453 8,445,058	of Korean won) 31 December 2010 9,207,999 514,262 95,347 841,295
		10,658,903

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(5) Cost of Sales

Cost of sales for the years ended 31 December 2011 and 2010, are as follows:

Cost of sales – finished goods Cost of sales – merchandise Cost of sales – services Cost of sales – landscaping	(in thousands 31 December 2011 3,842,361 690,663 51,798 2,120,413 6,705,235	of Korean won) 31 December 2010 4,924,335 502,375 70,187 767,318
		6,264,215

22. RELATED PARTY TRANSACTIONS

(1) The balances of significant transactions with related parties as of 31 December 2011 and 2010, are as follows:

			(in	thousands of Korean won)	thousands of Korean won)
		2011		2010
	Related parties	Receivables	Payables	Receivables	Payables
Parent company	Ocean B Holdings	–	–	–	46,748
Subsidiaries	RIA Soft Co., Ltd	495,149	–	192,873	–
Others	Shinsung Engineering &	370,620	63,782	329,689	86,614
	Construction Co., Ltd

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:

			(in	thousands of Korean won)	thousands of Korean won)
		2011		2010
			Purchase,		Purchase,
	Related parties	Sales, etc	etc.	Sales, etc	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
	Construction Co., Ltd
Others	Balhae Civil &	2,434,652	2,400,000	–	–
	Architecture Co., Ltd
Others	Jeongam Engineering &	103,516	100,000	–	–
	Construction Co., Ltd
Others	Global Construction Co.,	–	–	2,543,082	2,500,000
	Ltd
Others	MK Electron (H.K.)	21,290	–	–	–

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FINANCIAL INFORMATION OF NITGEN FOR THE YEAR 2011

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.

Salaries expenses Severance benefits Compensation associated with Stock Option	(in thousands 2011 281,450 157,780 122,917 562,147	of Korean won) 2010 236,700 136,759 93,282
		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:

	(in thousands of Korean won)	(in thousands of Korean won)
	2011	2010
Profit for the period	(2,367,807)	1,518,345
Adjustments:
Compensation associated with Stock Option	122,917	93,282
Depreciation	350,519	384,110
Amortization	433,721	398,956
Provision for severance indemnities	230,778	208,032
Write-downs of intangible assets	263,508	504,617
Bad debt expenses	377,430	99,681
Other bad debts expense	1,646	–
Losses on foreign currency translation	5,307	20,424
Losses on valuation of trading securities	122,983	188,623
Losses on disposal of trading securities	278,879	123,841
Interest expenses	–	91,738
Loss on impairment of securities available for sale	31,245	–
Loss on impairment of investments	–	100,000
Dues	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

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FINANCIAL INFORMATION OF NITGEN FOR THE YEAR 2011

Changes in operating assets and liabilities: Decrease(Increase) in trade receivables Decrease(Increase) in receivables from Construction Contracts Increase in non-trade receivables Decrease(Increase) in advance payments Decrease(Increase) in prepaid expenses Decrease(Increase) in income tax refund receivables Decrease(Increase) in deferred Income tax assets Increase in inventories Decrease in deferred long-term advance payments Increase in trade payables Decrease in non-trade payables Decrease in advances from customers Increase in withholdings Decrease in unearned revenues Increase(Decrease) in accrued expenses Increase in advances from construction contracts Decrease in current portion of long-term non-trade payables Decrease in deferred Income tax liabilities Decrease in long-term non-trade payables Payments for Severance Benefits Sub Total Cash generated from operations	(in thousands 2011 2,234,843 173,755 (105,749) (128,834) (825) 13,585 291,418 (475,567) 30,000 (395,622) 758,686 101,048 1,577 – (4,000) 80,526 – – – (61,822) 2,513,019 1,489,967	of Korean won) 2010 (2,842,081 (329,689 (139,995 121,825 7,546 (27,148 (531,309 (529,801 28,500 504,267 (10,250 (3,860 (6,737 (2,229 11,478 86,613 (30,600 (80,594 (16,200 (75,694 (3,865,958
		(1,369,777

(2) Significant transactions not affecting cash flows for the years ended 31 December 2011 and 2010, are as follows:

	(in thousands of Korean won)	(in thousands of Korean won)
	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

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FINANCIAL INFORMATION OF NITGEN FOR THE YEAR 2011

24. SELLING AND ADMINISTRATIVE EXPENSES

Selling and administrative expenses for the years ended 31 December 2011 and 2010, are as follows:

Salaries Severance benefits Compensation associated with Stock Option Other employee benefits Travel Entertainment Communication Utility Taxes and dues Depreciation Amortization on intangible assets Development expense Rental Insurance premium Vehicles maintenance Freight Publication Supplies Service fees Advertising Bad debts expense Training expense Repairs Event expense	(in thousands 2011 1,137,152 79,485 122,917 218,864 74,640 164,016 28,209 1,265 31,962 319,118 433,721 204,935 214,625 15,052 18,408 123,879 3,286 14,237 485,843 37,645 377,430 1,640 1,407 144,489 4,254,225	of Korean won) 2010 944,553 87,938 93,282 231,863 93,116 163,847 30,254 2,000 12,591 343,487 398,956 380,919 223,714 12,830 23,056 109,692 4,254 11,817 422,292 56,822 99,681 1,520 3,561 50,886
		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:

Other income Reversal of allowance for doubtful accounts Miscellaneous revenue	(in thousands 2011 6,923 249,659 256,582	of Korean won) 2010 19,640 106,119
		125,759

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FINANCIAL INFORMATION OF NITGEN FOR THE YEAR 2011

Other expense Loss on impairment of investment assets Other bad debts expense Donations Miscellaneous loss	(in thousands 2011 – 1,646 500 2,188 4,334	of Korean won) 2010 100,000 – – 10,947
		110,947

(2) Financial income and costs for the years ended 31 December 2011 and 2010, are as follows:

Financial income Interest income Gain on foreign currency transactions Gain on foreign currency translation Dividend income Gain on sale of Short-term trading securities Gain on valuation of Short-term trading securities Financial costs Interest expense Loss on foreign currency transactions Loss on foreign currency translation Loss on valuation of Short-term trading securities Loss on sale of Short-term trading securities Loss on impairment of available-for-sale securities	(in thousands 2011 307,117 164,336 53,818 57,142 451,199 2,597 1,036,209 – 148,073 5,756 122,983 278,879 31,245 586,936	of Korean won) 2010 276,789 123,087 56,270 – 270,506 –
		726,652
		91,738 159,408 24,964 188,623 123,841 –
		588,574

26. INCOME TAX EXPENSE

(1) Income tax expense for the years ended 31 December 2011 and 2010 consists of:

Current income taxes Deferred income tax due to temporary differences Deferred income tax charged to equity Income tax expenses	(in thousands 2011 – 287,159 4,259 291,418	of Korean won) 2010 – (699,594 87,691
		(611,903

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FINANCIAL INFORMATION OF NITGEN FOR THE YEAR 2011

(2) Reconciliation between net income before tax and income tax expense for the years ended 31 December 2011 and 2010, are as follows:

Profit before income tax Tax rate Income tax based on statutory rate Adjustment Tax credit Deferred tax effective Others Income tax expense Effective tax rate1	(in thousands 2011 (2,076,389) 24.2% (502,486) 58,085 734,541 1,278 291,418 –	of Korean won) 2010 906,442 24.2% 219,359 69,127 (901,910) 1,521 (611,903) –

1 Income tax expense ÷ Profit before income tax

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(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:

(in thousands of Korean won)

Accrued income Accumulated impairment loss of inventories Retirement benefit obligations Loss on valuation of equity- method investments Impairment loss on equity-method investments Trading securities Impairment loss on investments Losses on foreign currency translation Gains on foreign currency translation Allowance for doubtful accounts Other bad debt expense Goodwill Other Intangible assets Retirement insurance deposit Available-for-sale financial assets Accumulated paid absent Financial guarantee contract Depreciation Patents Development costs Not recognized deferred tax assets(liabilities) Effects of Korean-IFRS adoption Deferred tax assets(liabilities), net	2011 Temporary differences Beginning Increase (Decrease) Ending (413) (164) (577) 837,809 207,209 1,045,018 600,059 157,911 757,970 941,959 (1,300) 940,659 1,208,041 263,508 1,471,549 188,623 (68,236) 120,387 100,000 – 100,000 24,964 (24,964) – (56,270) 56,270 – 986,441 (35,829) 950,612 2,482,614 184,917 2,667,531 106,101 (106,101) – 6,251 – 6,251 (1,258) (78) (1,336) 1,941,665 4,768 1,946,433 46,689 2,335 49,024 – 1,300 1,300 (228,718) 228,718 – 1,941 (782) 1,159 94,395 (417) 93,978 9,280,893 869,065 10,149,958	Deferred tax assets(liabilities) Beginning Ending (91) (127 184,318 229,904 132,013 166,753 207,231 206,945 265,769 323,741 41,497 26,485 22,000 22,000 5,492 – (12,379) – 217,017 209,135 546,175 586,857 23,342 – 1,375 1,375 (277) (294 427,166 428,215 10,272 10,785 – 286 (50,318) – 427 255 20,767 20,675 2,041,796 2,232,990 1,389,479 1,901,149 (33,317) – 619,000 331,841	Deferred tax assets(liabilities) Beginning Ending (91) (127 184,318 229,904 132,013 166,753 207,231 206,945 265,769 323,741 41,497 26,485 22,000 22,000 5,492 – (12,379) – 217,017 209,135 546,175 586,857 23,342 – 1,375 1,375 (277) (294 427,166 428,215 10,272 10,785 – 286 (50,318) – 427 255 20,767 20,675 2,041,796 2,232,990 1,389,479 1,901,149 (33,317) – 619,000 331,841
			2,232,990
			1,901,149 –
			331,841

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FINANCIAL INFORMATION OF NITGEN FOR THE YEAR 2011

(in thousands of Korean won)

Accrued income Accumulated impairment loss of inventories Retirement benefit obligations Loss on valuation of equity- method investments Impairment loss on equity-method investments Trading securities Impairment loss on investments Losses on foreign currency translation Gains on foreign currency translation Allowance for doubtful accounts Other bad debt expense Goodwill Other Intangible assets Retirement insurance deposit Available-for-sale financial assets Accumulated paid absent Depreciation Patents Development costs Not recognized deferred tax assets(liabilities) Effects of Korean-IFRS adoption Deferred tax assets(liabilities), net	2010 Temporary differences Beginning Increase (Decrease) Ending (11,434) 11,021 (413) 858,992 (21,183) 837,809 432,610 167,448 600,058 508,235 433,725 941,960 1,137,148 70,892 1,208,040 – 188,623 188,623 – 100,000 100,000 67,810 (42,846) 24,964 (1,929) (54,341) (56,270) 1,789,519 (803,078) 986,441 1,686,467 796,147 2,482,614 – 106,101 106,101 7,708 (1,457) 6,251 (1,258) – (1,258) 1,594,614 347,051 1,941,665 44,466 2,223 46,689 (329,330) 100,612 (228,718) 1,941 – 1,941 150,374 (55,978) 94,396 7,935,933 1,344,960 9,280,893	Deferred tax assets(liabilities) Beginning Ending (2,515) (91 188,978 184,318 95,174 132,013 111,812 207,231 250,173 265,769 – 41,497 – 22,000 14,918 5,492 (424) (12,379 393,694 217,017 371,023 546,175 – 23,342 1,696 1,375 (277) (277 350,815 427,166 9,783 10,272 (72,453) (50,318 427 427 33,082 20,767 1,745,906 2,041,796 1,745,906 1,389,479 (80,594) (33,317 (80,594) 619,000	Deferred tax assets(liabilities) Beginning Ending (2,515) (91 188,978 184,318 95,174 132,013 111,812 207,231 250,173 265,769 – 41,497 – 22,000 14,918 5,492 (424) (12,379 393,694 217,017 371,023 546,175 – 23,342 1,696 1,375 (277) (277 350,815 427,166 9,783 10,272 (72,453) (50,318 427 427 33,082 20,767 1,745,906 2,041,796 1,745,906 1,389,479 (80,594) (33,317 (80,594) 619,000
			2,041,796
			1,389,479 (33,317
			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.

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FINANCIAL INFORMATION OF NITGEN FOR THE YEAR 2011

(4) Deferred income taxes charged directly to the equity as of 31 December 2011 and 2010, are as follows:

Fair value gains from available-for-sale financial assets Fair value losses from available-for-sale financial assets Actuarial loss on retirement benefit obligations	(in thousands 2011 (5,825) – 10,084 4,259	of Korean won) 2010 – 76,351 11,340
		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.

28. EXPENSES BY NATURE

Expenses that are recorded by nature for the years ended 31 December 2011 and 2010, are as follows:

Changes in inventories Employee benefits Compensation associated with Stock Option Depreciation expenses Impairment losses/Bad debt expenses Freight expenses Outsourcing fees/Rental Service fees Construction expenses Commission of equipment lease Other expenses Total1	(in thousands 2011 1,710,936 2,700,196 122,917 784,240 377,430 168,698 1,254,427 636,388 1,664,294 76,980 1,462,954 10,959,460	of Korean won) 2010 3,604,640 2,095,270 93,282 783,065 99,681 142,280 1,109,439 608,193 – 60,390 1,470,906
		10,067,146

1 The amount is the same as the total of cost of sales, selling and administrative expenses
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FINANCIAL INFORMATION OF NITGEN FOR THE YEAR 2011

APPENDIX IIC

29. EARNINGS PER SHARE

Basic earnings per share for the years ended 31 December 2011 and 2010, are as follows:

Profit attributable to equity holders of the company Weighted-average number of common stock outstanding Basic earnings per share	2011 (2,367,806,762) 35,400,316 (67)	2010 1,518,344,900 35,400,316
		43

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.

	(in thousands of Korean won)	(in thousands of Korean won)
	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

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APPENDIX IIC FINANCIAL INFORMATION OF NITGEN FOR THE YEAR 2011

Induk Accounting Corporation

==> picture [28 x 21] intentionally omitted <==

3[rd] Floor Daeha B/D 14-11 Yeouido-dong Phone : 82-2-761-9800 Yeongdeungpo-gu, Seoul 150-715 Korea Faxne : 82-2-761-2794

Internal Accounting Control System Review Report

Representative Director 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 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 report 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 2011, the Company’s IACS has been effectively designed and has operated as of 31 December 2011, in all material respects, in accordance with the IACS standards established by the IACS Operations Committee.”

We conducted our review in accordance with the IACS review standards established by the Korean Institute of Certified Public Accountants. These standards require that we plan and perform our review 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 to management’s report on the operations of the IACS and performing a review of related documentation within limited scope, if necessary. However, as a listed small and medium sized company, the establishment and operation of the management’s internal accounting management system and the evaluation reporting on the system’s operation status were performed in a noticeably modified method compared to listed large companies in accordance to Article 5 ‘Application of Small and Medium Size Companies’ of IACS. Accordingly, we conducted our review based on 14. Review exemptions on Small and Medium Sized companies etc of the IACS standards.

A company’s IACS consists of an establishment of related policies and organization to ensure that it is designed to provide reasonable assurance on the reliability of financial reporting and the preparation of financial statements for external financial reporting purposes in accordance with accounting principles generally accepted in the Republic of Korea. However, because of its inherent limitations, 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 IACS may become inadequate due to the changes in conditions, or that the degree of compliance with the policies or procedures may be significantly reduced.

Based on our review of the management’s report on the operations of the IACS, nothing has come to our attention that causes us to believe that the management’s report referred to above is not presented 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 not review the IACS subsequent to 31 December 2011. This report has been prepared for Korean regulatory purposes pursuant to the Act on External Audit for Joint-Stock Companies, and may not be appropriate for other purposes or for other users.

Induk Accounting Corporation

Seoul, Korea 14 March 2012

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APPENDIX IIC FINANCIAL INFORMATION OF NITGEN FOR THE YEAR 2011

Report on the Operations of the Internal Accounting Control System

To the Board of Directors and Audit Committee of NITGEN&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

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APPENDIX IID

FINANCIAL INFORMATION OF NITGEN FOR THE SIX MONTHS ENDED 30 JUNE 2012

The following is an English (in case of Chinese version of this circular, Chinese) translation of (1) the 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 financial statements of Nitgen for the six months ended 30 June 2012 set out below are provided for information purpose only and the unaudited financial statements of Nitgen for the six months ended 30 June 2012 were prepared in accordance with K-IFRS. Shareholders should also note that such financial statements of Nitgen was unconsolidated financial statements as according to Article 23 of of the Enforcement Decree of the Act on the Capital Market and Financial Investment Business of the laws of Korea, if a company has subsidiaries which are subject for consolidation 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 consolidated financial statements but separate financial statements. This relevant Korean law is applicable only for the quarterly and semi-term basis and is not applicable for the annual financial statements. Shareholders are advised to consult professional advice if there is any doubt in reading such financial information of Nitgen. Terms defined herein apply to this Appendix only.

(1) EXTRACTS OF THE INTERIM REPORT OF NITGEN FOR THE SIX MONTHS ENDED 30 JUNE 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:

II. CONTENTS OF BUSINESS

1. SUMMARY OF FINGER PRINT READING BUSINESS

A. Summary of finger scan business

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APPENDIX IID

in advancement of digital technology, expansion of IT infra dispersion, concern on increasing personal 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 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 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 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.

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 the 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 earlierpresented 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.

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APPENDIX IID

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.

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 economic feasibility. In early times of the market, the market was formed mainly for research institutes or general corporate facilities where the 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.

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APPENDIX IID

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 faceto-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 the 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.

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APPENDIX IID

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.

k Structure and characteristics of users

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

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

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APPENDIX IID

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.

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APPENDIX IID

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.

3. MAIN PRODUCTS AND RAW MATERIALS

A. Status of main products

(Unit: 1,000 won, %)

					Sales amount
Business fields	Sales type	Items	Detailed application	Main trademark	(ratio)
Finger scan	Product	Access controller	Access controller and	NAC-2500/3000	/
			others	5000	(83%)
	Merchandise	Door lock	Door lock	NDL-100/600/	506,588
				scanner	(16%)
Enpia	Service	Added	Cyber trading network	SecurePack and 2	48,803
		communication	for securities	types	(2%)
			company
	Product/	Solution	Enpia S series	Enpia S-series	–
	merchandise
Total					3,211,519
					(100%)

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APPENDIX IID

B. Trend of price change in main products

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.

C. Status of main raw materials

(Unit: 1,000 won, %)

	Type of			Purchase
Business field	purchase	Item	Concrete use	amount	Ratio	Remark
Finger scan	Raw materials	AC parts	Parts for access controller	634,887	52.7	–
	Raw materials	ENBIO parts	Parts for ENBIO SCAN	6,845	0.5	–
	Raw materials	FIM parts	Parts for processing board	158,226	13.1	–
	Raw materials	HAM parts	Hamster related parts	172,928	14.4	–
	Raw materials	OP parts	Optic module parts	231,936	19.3	–
	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.

D. Trend of price change of main raw materials

			(Unit: won)
Item	The 29th Term	The 28th Term	The 27th Term
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

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APPENDIX IID

FINANCIAL INFORMATION OF NITGEN FOR THE SIX MONTHS ENDED 30 JUNE 2012

E. Status of production facilities
(1) Status of production facilities

							(Unit: 1,000	(Unit: 1,000	won)
Business	Ownership			Beginning	Applicable	change		Ending book
premises	type	Location	Classification	book value	Increase	Decrease	Depreciation	value	Remark
Head office	Independent	Nonhyeon-	Building	558,847	–	–	9,928	548,919
and plant	ownership	dong, Guro	Facilities	61,493	–	–	14,179	47,314
	(registry)		Vehicle transport	73,217	–	39,735	7,507	25,974
			Tools and	17,671	5,598	1,696	1,866	19,706
			equipment
			Fixture	60,406	11,493	–	14,615	57,284
			Mold	222,414	27,200	–	42,096	207,519
			Computer	16,427	–	–	5,226	11,201
			equipment
Total				1,010,475	44,291	41,431	95,417	917,917

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

(A) On-going investment

There is no applicable matter to this present time.

(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.

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APPENDIX IID

FINANCIAL INFORMATION OF NITGEN FOR THE SIX MONTHS ENDED 30 JUNE 2012

4. MATTERS ON SALES

A. Sales performance

					(Unit: million won)	(Unit: million won)
				The first
				half of the	The 28th	The 27th
Business field	Sales type		Item	29th term	Term	Term
Finger	Finger scan	NAC-2500/	Export	2,093	3,885	6,198
Scan/Enpia	product	3000/5000	Domestic demand	564	1,450	3,010
			Total	2,657	5,335	9,208
	Finger scan	NDL-100/	Export	453	437	12
	merchandise	600	Domestic demand	53	293	502
			Total	506	730	514
	Enpia service	Added service	Export	–	32	35
			Domestic demand	48	30	44
			Total	48	62	79
	Enpia product	S-series iBOS	Export	–	–	–
			Domestic demand	–	14	16
			Total	–	14	16
Total			Export	2,546	4,354	6,245
			Domestic demand	665	4,091	4,413
			Total	3,211	8,445	10,658

B. Sales route and sales method
(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

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APPENDIX IID

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

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

(A) Nitgen Business Department

Place of sales: 1 Domestic – Bidding on public institutions/agency and direct sales

Overseas – Agency and direct sales (indirect sales through overseas agency)
(B) Enpia Business Department

Place of sales: 1. Domestic sales by distributor

(3) Sales method and conditions

(A) Finger Scan Business Department

(B) 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.

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FINANCIAL INFORMATION OF NITGEN FOR THE SIX MONTHS ENDED 30 JUNE 2012

APPENDIX IID

(4) Sales strategy

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) Organization Chart

==> picture [449 x 207] intentionally omitted <==

----- Start of picture text -----

Headquarters
Biometric Biz.
Sales R&D LED Biz.
Management Overseas Domestic Planning Algoridum S/W Dev. HW Dev. Production QC
----- End of picture text -----

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.

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APPENDIX IID

FINANCIAL INFORMATION OF NITGEN FOR THE SIX MONTHS ENDED 30 JUNE 2012

6. MATTERS ON DERIVATIVE PRODUCTS

A. Status of derivative products contracts

Not applicable

B. Matter on risk management

Not applicable

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	1)	Development of core algorithm for finger scan
Team
	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	1)	Development of access security and	attendance
Team		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

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APPENDIX IID

FINANCIAL INFORMATION OF NITGEN FOR THE SIX MONTHS ENDED 30 JUNE 2012

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

Project name	Development period	Contents of major developments
Attendance management SW	January 2010 ~ April	Development of attendance and edible water
development	2012	management program by using the finger scan
BCS (Biometric Server	January 2010 ~ May	Development of solution available for linkage
Client) development	2012	and management server and finger scan
		terminal of the Company
KT 101/KT 101+	November 2009 ~	Development of the terminal exclusively for KT
development	April 2012	Telecop
Development of finger scan	January 2010 ~ April	Development of the terminal with multi-
and facial scan integrated	2012	recognition by using the finger scan and
terminal		facial scan
Multi-processor applying high	January 2011 ~	Development of finger scan exclusive server by
capability certification	currently in progress	applying multi-processor
development server
Image enhanced algorithm	January 2011 ~	Development of finger print image processing
	currently in progress	technology
PIV sensor development	January 2011 ~	Development of small optic-type finger scan
	currently in progress	sensor to satisfy the US FBI PIV dimension
New platform development	January 2011 ~	Development of finger scan terminal of new
	currently in progress	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
	currently in progress	on the server

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APPENDIX IID FINANCIAL INFORMATION OF NITGEN FOR THE SIX MONTHS ENDED 30 JUNE 2012

OTHER MATTERS REQUIRED IN DETERMINING INVESTMENT
A. Summarized chart for external fund procurement
- (1) Domestic procurement

Not applicable

(2) Overseas procurement

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))

B. Credit rating in recent 3 years

Not applicable

C. Other important matters

Not applicable

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FINANCIAL INFORMATION OF NITGEN FOR THE SIX MONTHS ENDED 30 JUNE 2012

APPENDIX IID

(2) UNAUDITED FINANCIAL STATEMENTS OF NITGEN FOR THE SIX MONTHS ENDED 30 JUNE 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 financial statements 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).

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FINANCIAL INFORMATION OF NITGEN FOR THE SIX MONTHS ENDED 30 JUNE 2012

APPENDIX IID

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.

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FINANCIAL INFORMATION OF NITGEN FOR THE SIX MONTHS ENDED 30 JUNE 2012

APPENDIX IID

(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 Bum Induk 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.

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APPENDIX IID

FINANCIAL INFORMATION OF NITGEN FOR THE SIX MONTHS ENDED 30 JUNE 2012

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 Geun

Representative Director of NITGEN&COMPANY CO., LTD.

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FINANCIAL INFORMATION OF NITGEN FOR THE SIX MONTHS ENDED 30 JUNE 2012

APPENDIX IID

STATEMENT OF FINANCIAL POSITION

As of 30 June 2012 and 31 December 2011

NITGEN&COMPANY				(In	Korean Won)
Account	Note	As of June	2012	As of 31 December 2011
Assets
Current 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
Liabilities
Current 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
Total Liabilities			1,448,495,042		2,920,127,502
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.”

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FINANCIAL INFORMATION OF NITGEN FOR THE SIX MONTHS ENDED 30 JUNE 2012

APPENDIX IID

STATEMENT OF COMPREHENSIVE INCOME

For the half year periods ended 30 June 2012 and 2011

NITGEN&COMPANY				(In Korean Won)	(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	3,843,244,520
Sales- finished goods		1,035,625,791	2,656,128,497	1,409,715,364	3,392,543,744
Sales- merchandise		123,337,420	506,588,670	356,259,225	386,870,986
Sales- Service		8,204,546	48,802,609	58,729,790	63,829,790
Cost of Sales		1,116,140,719	2,525,312,305	1,093,987,288	2,097,199,080
Cost of Sales – finished goods		952,863,681	1,994,007,545	797,570,775	1,770,093,385
Cost of Sales – Service		155,590,948	483,926,544	261,521,853	289,803,338
Cost of Sales – Service		7,686,090	47,378,216	34,894,660	37,302,357
Gross Profit		51,027,038	686,207,471	730,717,091	1,746,045,440
Other-operating income	24	368,552,196	387,871,688	27	1,083,947
Selling and Administrative expense	23,29	905,667,101	1,919,080,668	1,127,829,016	2,117,202,459
Other-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	373,435,947
Financial expenses	24	495,838,332	597,926,452	352,707,485	389,893,270
Gain (loss) on investment in
subsidiary/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	61,473,481
Profit (loss) from continuing
operations		(2,677,977,838)	(2,913,521,182)	(650,566,831)	(448,003,876)
Profit (loss) from discontinued
operations	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	8,915,088
Valuation gain on available-for-sale
financial assets		(26,334,248)	(14,123,737)	10,296,000	10,296,000
Valuation loss on available-for-sale
financial assets		270,902,085	270,699,722	–	–
Actuarial loss on post employment
benefit obligations	18	(29,762,258)	(18,190,010)	(1,380,912)	(1,380,912)
Total Comprehensive income for
the year		(2,482,895,037)	(2,683,026,729)	(613,778,295)	(332,136,959)
Basic earnings (loss) per share:	27
Basic earnings per share from
continuing operations		(76)	(82)	(18)	(13)
Basic earnings per share from
discontinued operations		(1)	–	1	3
Basic earnings per share		(76)	(83)	(18)	(10)
Diluted earnings per share from
continuing operations		(76)	(82)	(18)	(13)
Diluted earnings per share from
discontinued operations		(1)	–	1	3
Diluted earnings per share		(76)	(82)	(18)	(10)

“The accompanying notes are an integral part of these semiannual financial statements.”

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FINANCIAL INFORMATION OF NITGEN FOR THE SIX MONTHS ENDED 30 JUNE 2012

APPENDIX IID

STATEMENT OF CHANGES IN EQUITY

For the half year periods ended 30 June 2012 and 2011

NITGEN&COMPANY


NITGEN&COMPANY				(In	Korean Won)
			Other equity	Retained
Account	Issued capital	Capital surplus	items	earnings	Total
2011.1.1	17,700,158,000	4,894,706,528	(4,662,147,669)	1,763,882,607	19,696,599,466
Profit(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	19,425,921,119
2012.1.1	17,700,158,000	4,894,706,528	(4,518,578,180)	(639,677,478)	17,436,608,870
Profit (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

“The accompanying notes are an integral part of these semiannual financial statements.”

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FINANCIAL INFORMATION OF NITGEN FOR THE SIX MONTHS ENDED 30 JUNE 2012

APPENDIX IID

STATEMENT OF CASH FLOWS

For the half year periods ended 30 June 2012 and 2011

NITGEN&COMPANY			(In Korean Won)
Account	Note	30 June 2012	30 June 2011
Cash flows from operating activities
Cash 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)	113,224,749
Cash flows from investing activities
Disposal 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	1,423,437,307
Cash flows from financing activities		–	–
Increase in cash & cash equivalents		(3,436,605,884)	1,536,662,056
Cash & cash equivalent at the
beginning of the year		8,716,334,693	5,075,175,218
Cash & cash equivalent at the
end of the year		5,279,728,809	6,611,837,274

“The accompanying notes are an integral part of these semiannual financial statements.”

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FINANCIAL INFORMATION OF NITGEN FOR THE SIX MONTHS ENDED 30 JUNE 2012

APPENDIX IID

NOTES TO THE SEMIANNUAL 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 Nigen 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.. 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:

	Number of
Shareholders	Shares Owned	Ownership
		%
New Concept Capital Limited	7,179,925	20.28
Others	28,220,391	79.72
Total	35,400,316	100.00

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(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.

New standards, amendments and interpretations issued but not effective for the financial year beginning on or after 1 January 2012 and not early adopted are set out below

– Amendments to Korean IFRS 1019, Employee Benefits

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.

Enactment of Korean IFRS 1113, Fair value measurement

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-

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FINANCIAL INFORMATION OF NITGEN FOR THE SIX MONTHS ENDED 30 JUNE 2012

APPENDIX IID

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.

4. SEGMENT INFORMATION

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.

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APPENDIX IID

FINANCIAL INFORMATION OF NITGEN FOR THE SIX MONTHS ENDED 30 JUNE 2012

(1) Assets, liabilities and shareholders’ equity of each segment as of 30 June 2012 and 31 December 2011 consist of the following:

					(In thousands of Korean Won)	(In thousands of Korean Won)	(In thousands of Korean Won)
			30 June 2012			31 December 2011
		Fingerprint	Landscape		Fingerprint	Landscape
Classification		recognition	(Discontinued)	Total	recognition	(Discontinued)	Total
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:

				(In thousands of Korean Won)	(In thousands of Korean Won)	(In thousands of Korean Won)
		30 June 2012		31	December 2011
	Fingerprint	Landscape		Fingerprint	Landscape
Classification	recognition	(Discontinued)	Total	recognition	(Discontinued)	Total
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:

	(In thousands of Korean Won)	(In thousands of Korean Won)
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

(1) Capital 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

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FINANCIAL INFORMATION OF NITGEN FOR THE SIX MONTHS ENDED 30 JUNE 2012

APPENDIX IID

Net liabilities, shareholders’ equity, and the liability-to-equity ratio as of 30 June 2012 and 31 December 2011 are as follows:

	(In thousands of Korean Won)	(In thousands of Korean Won)
		31 December
Classification	30 June 2012	2011
Short & long-term borrowings	–	–
Other liabilities	1,448,495	2,920,128
Total 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

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FINANCIAL INFORMATION OF NITGEN FOR THE SIX MONTHS ENDED 30 JUNE 2012

APPENDIX IID

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.

			(In thousands of	(In thousands of	Korean Won)
		Contractual	Less than 1		More than 5
Classification	Book value	cash flows	year	1~5 years	years
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:

	(In thousands of Korean Won)	(In thousands of Korean Won)
		31 December
Classification	30 June 2012	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

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FINANCIAL INFORMATION OF NITGEN FOR THE SIX MONTHS ENDED 30 JUNE 2012

APPENDIX IID

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:

			(In thousands of Korean Won)	(In thousands of Korean Won)
	30 June 2012		30 June 2011
Classification	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:

			(In	thousands of Korean Won)	thousands of Korean Won)
		30 June	2012	31 December 2011
Classification	Currency	USD	KRW	USD	KRW

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)

				(In thousands of	(In thousands of	Korean Won)
	Trade	receivables	Financial assets		Total
Classification	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)

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APPENDIX IID

FINANCIAL INFORMATION OF NITGEN FOR THE SIX MONTHS ENDED 30 JUNE 2012

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)

				(In thousands of	(In thousands of	Korean Won)
	Trade	receivables	Financial assets		Total
Classification	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.

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FINANCIAL INFORMATION OF NITGEN FOR THE SIX MONTHS ENDED 30 JUNE 2012

APPENDIX IID

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)

			(In	thousands of Korean Won)	thousands of Korean Won)
		30 June	2012
Classification	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)

				(In thousands of Korean Won)	(In thousands of Korean Won)
		31	December 2012
Classification	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-forsale.

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.

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FINANCIAL INFORMATION OF NITGEN FOR THE SIX MONTHS ENDED 30 JUNE 2012

APPENDIX IID

6. FINANCIAL INSTRUMENTS BY CATEGORY

(1) Financial instruments by category as of 30 June 2012 consist of the following:

				(In thousands of Korean Won)	(In thousands of Korean Won)	(In thousands of Korean Won)
	At fair value	Loans &
	through	account	Available-	Held-to-
Classification	profit or loss	receivables	for-sales	maturity	Book value	Fair value
Cash & cash equivalents	–	5,279,729	–	–	5,279,729	5,279,729
Short-term financial instruments	–	100,000	–	–	100,000	100,000
Short-term trading securities	–	–	–	–	–	–
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:

				(In thousands of Korean Won)	(In thousands of Korean Won)	(In thousands of Korean Won)
	At fair value	Loans &
	through	account	Available-	Held-to-
Classification	profit or loss	receivables	for-sales	maturity	Book value	Fair value
Cash & cash equivalents	–	8,716,335	–	–	8,716,335	8,716,335
Short-term financial instruments	–	100,000	–	–	100,000	100,000
Short-term trading securities	1,295,731	–	–	–	1,295,731	1,295,731
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:

			(In thousands of Korean Won)	(In thousands of Korean Won)
	At fair value
	through profit	Carried at
Classification	or loss	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

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APPENDIX IID

FINANCIAL INFORMATION OF NITGEN FOR THE SIX MONTHS ENDED 30 JUNE 2012

(4) Financial liabilities by category as of 31 December 2011 consist of the following:

			(In thousands of Korean Won)	(In thousands of Korean Won)
	At fair value
	through profit	Carried at
Classification	or loss	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)

			(In	thousands of	Korean Won)
	At fair value			Financial
	through profit	Trade & other	Available-for-	liabilities at
Transaction Type	or loss	receivables	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)

			(In	thousands of Korean Won)	thousands of Korean Won)
	At fair value			Financial
	through profit	Trade & other	Available-for-	liabilities at
Transaction Type	or loss	receivables	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

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APPENDIX IID

FINANCIAL INFORMATION OF NITGEN FOR THE SIX MONTHS ENDED 30 JUNE 2012

8. CASH & CASH EQUIVALENTS

Cash and cash equivalents as of 30 June 2012 and 31 December 2011 consist of the following:

	(In thousands of Korean Won)	(In thousands of Korean Won)
		31 December
Account	30 June 2012	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:

			(In thousands of Korean Won)	(In thousands of Korean Won)
	30 June 2012		31 December 2011
Account	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.

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FINANCIAL INFORMATION OF NITGEN FOR THE SIX MONTHS ENDED 30 JUNE 2012

APPENDIX IID

(2) Investment securities as of 30 June 2012 and 31 December 2011 consist of the following:

(30 June 2012)

		(In	thousands of	Korean Won)
		30 June 2012
		Acquisition
Investee	Type	cost	Fair value	Book value

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	Non-marketable equity	500,010	–	–
(Formerly, Artplace Co.,Ltd)
Information & Communication	Equity in partnership	15,864	16,862	16,862
Financial Cooperative
Korea Lottery Service Co.,Ltd	Marketable equity	35,945	41,475	41,475
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.

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FINANCIAL INFORMATION OF NITGEN FOR THE SIX MONTHS ENDED 30 JUNE 2012

APPENDIX IID

(31 December 2011)

			(In thousands of	Korean Won)
		31 December	2011
		Acquisition
Investee	Type	cost	Fair value	Book value

SK Innovation	Marketable equity	374,542	284,000	284,000
	securities
Celtrion	Marketable equity	900,882	868,441	868,441
	securities
BH	Marketable equity	140,693	143,290	143,290
	securities
Total		1,416,117	1,295,731	1,295,731

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	Non-marketable equity	500,010	152,959	152,959
(Formerly, Artplace Co.,Ltd)
Information & Communication	Equity in partnership	15,864	16,508	16,508
Financial Cooperative
Construction Guarantee	Equity in partnership	81,786	82,419	82,419
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:

				(In thousands of Korean Won)	(In thousands of Korean Won)	(In thousands of Korean Won)
		30 June 2012		31	December 2011
		Available-	Held-to-		Available-	Held-to-
Account	Trading	for-sale	maturity	Trading	for-sale	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.

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APPENDIX IID

FINANCIAL INFORMATION OF NITGEN FOR THE SIX MONTHS ENDED 30 JUNE 2012

10. INVENTORIES

Inventories as of 30 June 2012 and 31 December 2011 consist of the following:

				(In thousands of Korean Won)	(In thousands of Korean Won)	(In thousands of Korean Won)
		30 June 2012			31 December 2011
	Acquisition	Allowance for		Acquisition	Allowance for
Classification	cost	valuation loss	Book value	cost	valuation 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:

			(In thousands of Korean	(In thousands of Korean	Won)
	30 June	2012	31 December 2011
Classification	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:

	(In thousands of Korean Won)	(In thousands of Korean Won)
		31 December
Classification	30 June 2012	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

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APPENDIX IID

FINANCIAL INFORMATION OF NITGEN FOR THE SIX MONTHS ENDED 30 JUNE 2012

(3) The changes in the allowances for doubtful accounts during the reporting periods are as follows:

	(In thousands of Korean Won)	(In thousands of Korean Won)
		31 December
Classification	30 June 2012	2011
Beginning balance	724,921	885,359
Contribution to allowance for doubtful accounts	817,595	377,430
Reversal allowance doubtful accounts	(367,111)	(6,923)
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:

				(In thousands of Korean Won)	(In thousands of Korean Won)	(In thousands of Korean Won)
		30 June 2012			31 December 2011
	Receivable	Impairment		Receivable	Impairment
Classification	balance	loss (Accrued)	Book value	balance	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:

	(In thousands of Korean Won)	(In thousands of Korean Won)
		31 December
Classification	30 June 2012	2011
Advance payment	3,018,070	154,583
Prepaid expenses	9,757	15,357
Total	3,027,827	169,940

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APPENDIX IID

FINANCIAL INFORMATION OF NITGEN FOR THE SIX MONTHS ENDED 30 JUNE 2012

13. PROPERTY, PLANT AND EQUIPMENT

(1) Changes in property, plant and equipment during the first half, 2012 are as follows:

(In thousands of Korean Won)

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:

				(In thousands of	(In thousands of	Korean Won)
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.
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APPENDIX IID

FINANCIAL INFORMATION OF NITGEN FOR THE SIX MONTHS ENDED 30 JUNE 2012

14. INTANGIBLE ASSETS

(1) Changes in the book value of intangible assets during the first half 2012 are as follows:

(In thousands of Korean Won)

		Intellectual
	Development	property			Construction
Account	costs	rights	Membership	Goodwill	in 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)
Reclassification of construction
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:

(In thousands of Korean Won)

		Intellectual
	Development	property			Construction
Account	costs	rights	Membership	Goodwill	in 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
Reclassification of construction
in progress to main account	–	–	–	–	(581,144)	–	–	(581,144)
Reclassification of construction
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.

15. INVESTMENT PROPERTY

Changes in the book value of the investment property during the first half 2012 are as follows:

		(In thousands of Korean Won)	(In thousands of Korean Won)
			31 December
Classification	30	June 2012	2011
Beginning		138,839	138,839
Acquisition		–	–
Disposal		(138,839)	–
Total		–	138,839

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APPENDIX IID

FINANCIAL INFORMATION OF NITGEN FOR THE SIX MONTHS ENDED 30 JUNE 2012

16. INVESTMENTS IN ASSOCIATES

(1) Investments in subsidiaries and associates as of 30 June 2012 consist of the following.

				(In thousands of Korean	(In thousands of Korean	(In thousands of Korean	Won)
			No. of	Acquisition	Book	Value
Name	Ownership %	Major businesses	Shares	cost	6/30/2012	12/31/2011
RIA Soft Co., Ltd.(*)	100.00%	Software development	10,000	3,000,000	–		587,792
Human Green Landscape	100.00%	Landscaping	840,000	715,969	–		–
Co., Ltd. (**)
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

		(In thousands of Korean Won)
		Book Value
	Acquisition	31 December
Company Name	cost	30 June 2012 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 -

APPENDIX IID

FINANCIAL INFORMATION OF NITGEN FOR THE SIX MONTHS ENDED 30 JUNE 2012

* Statement of Financial Position by Equity Method

	(In thousands of Korean Won)	(In thousands of Korean Won)
Classification	30 June 2012	30 June 2011
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
Total liabilities	1,448,495	1,810,829
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

	(In thousands of Korean Won)	(In thousands of Korean Won)
Classification	30 June 2012	30 June 2011
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.

	(In thousands of Korean Won)	(In thousands of Korean Won)
Classification	30 June 2012	30 June 2011
Impairment loss on investment securities	(586,492)	–

(5) The financial information on investment securities in subsidiaries and associate is summarized as follows:

				(In thousands of Korean Won)	(In thousands of Korean Won)	(In thousands of Korean Won)
		Total	Total		Operating	Net profit
Name	Period ended	assets	liabilities	Sales	income	(loss)
RIA Soft Co., Ltd.	30 June 2012 31 December 2011	600,949 980,853	1,072,393 1,008,587	469,321 2,123,613	(423,055) (459,374)	(443,710) (415,750)
Human Green Landscape	30 June 2012	805,600	89,631	–	–	–

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APPENDIX IID

FINANCIAL INFORMATION OF NITGEN FOR THE SIX MONTHS ENDED 30 JUNE 2012

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:

	(In thousands of Korean Won)	(In thousands of Korean Won)
		31 December
Classification	30 June 2012	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:

	(In thousands of Korean Won)	(In thousands of Korean Won)
		31 December
Classification	30 June 2012	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:

	(In thousands of Korean Won)	(In thousands of Korean Won)
		31 December
Classification	30 June 2012	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

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APPENDIX IID

FINANCIAL INFORMATION OF NITGEN FOR THE SIX MONTHS ENDED 30 JUNE 2012

(2) Changes in post-employment benefit obligations during the reporting periods are as follows:

	(In thousands of Korean Won)	(In thousands of Korean Won)
		31 December
Classification	30 June 2012	2011
Beginning	918,036	703,209
Current service cost (*)	111,785	194,366
Interest cost	19,760	36,455
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:

	(In thousands of Korean Won)	(In thousands of Korean Won)
		31 December
Classification	30 June 2012	2011
Beginning	1,336	1,302
Expected return on plan assets	23	44
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:

	(In thousands of Korean Won)	(In thousands of Korean Won)
Classification	30 June 2012	30 June 2011
Current service cost	111,785	97,183
Interest cost	19,760	18,228
Expected return on plan assets	(23)	(22)
Gain(loss) on reduction or liquidation	–	–
Total	131,522	115,389
The principal actuarial assumptions used were as follows:
		31 December
Classification	30 June 2012	2011
Discount rate	4.06%	4.76%
Expected return on plan assets	3.52%	3.52%
Future salary increases	5.00%	5.00%

(5) The principal actuarial assumptions used were as follows:

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 -

APPENDIX IID

FINANCIAL INFORMATION OF NITGEN FOR THE SIX MONTHS ENDED 30 JUNE 2012

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 the registered form
(2) Granting method: either by issuing new shares or by delivering treasury stocks as determined by the 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	3.84%
with 5-year maturity):
Expected option life	3 years
Expected stock price volatility	63.24%
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:

			(In thousands of Korean Won)
Classification			Amount
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

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FINANCIAL INFORMATION OF NITGEN FOR THE SIX MONTHS ENDED 30 JUNE 2012

APPENDIX IID

(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:

	(In thousands of Korean Won)	(In thousands of Korean Won)
		31 December
Classification	30 June 2012	2011
Beginning	216,199	93,282
Compensation cost	29,972	122,917
Exercise/Forfeiture	–	–
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:

			31 December
Classification	Unit	30 June 2012	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:

	(In thousands of Korean Won)	(In thousands of Korean Won)
		31 December
Classification	30 June 2012	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:

	(In thousands of Korean Won)	(In thousands of Korean Won)
		31 December
Classification	30 June 2012	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 -

FINANCIAL INFORMATION OF NITGEN FOR THE SIX MONTHS ENDED 30 JUNE 2012

APPENDIX IID

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.

	(In thousands of Korean Won)
	Assets and
Classification	Liabilities
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.

	(In thousands of Korean Won)	(In thousands of Korean Won)
Classification	30 June 2012	30 June 2011
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:

	(In thousands of Korean Won)	(In thousands of Korean Won)
Classification	30 June 2012	30 June 2011
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 -

FINANCIAL INFORMATION OF NITGEN FOR THE SIX MONTHS ENDED 30 JUNE 2012

APPENDIX IID

22. STATEMENT OF CASH FLOWS

Adjustments in cash flows from operating activities and changes in net working capital are as follows:

	(In thousands of Korean Won)	(In thousands of Korean Won)
Classification	30 June 2012	30 June 2011
Profit (loss) from continuing operations	(2,913,521)	(448,004)
Profit (loss) from discontinued operations	(7,892)	106,952
Adjustments
Retirement benefits	131,545	115,389
Depreciation	104,585	193,200
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	–
Compensation associated with Stock Option	29,972	61,459
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 -

APPENDIX IID

FINANCIAL INFORMATION OF NITGEN FOR THE SIX MONTHS ENDED 30 JUNE 2012

23. SELLING AND ADMINISTRATIVE EXPENSES

Selling and general administration expenses during the reporting periods consist of the following:

	(In thousands of Korean Won)	(In thousands of Korean Won)
Classification	30 June 2012	30 June 2011
Salaries & wages	599,377	533,476
Severance benefit	40,204	115,389
Compensation associated with Stock Option	29,972	61,459
Employee benefits	120,006	98,698
Travel	22,319	61,253
Entertainment	72,764	76,961
Communication expenses	13,874	15,161
Utility	543	792
Taxes & dues	7,638	12,250
Depreciation	68,591	176,651
Amortization on intangible assets	246,391	120,510
Ordinary research and development expense	135,814	107,908
Rental	185,582	108,961
Insurance premium	5,676	7,008
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
Advertising	12,979	26,075
Bad debts expense	13,549	64,408
Training expense	321	640
Repairs	–	1,051
Event expense	15,000	144,489
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:

	(In thousands of Korean Won)	(In thousands of Korean Won)
Classification	30 June 2012	30 June 2011
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
Other bad debts expense	804,045	–
Impairment loss on goodwill	106,101	–
Loss on financial guarantee liabilities	88,000	–
Total other expenses	998,146	–

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APPENDIX IID

FINANCIAL INFORMATION OF NITGEN FOR THE SIX MONTHS ENDED 30 JUNE 2012

(2) Financial income and financial costs during the reporting period consist of the following:

	(In thousands of Korean Won)	(In thousands of Korean Won)
Classification	30 June 2012	30 June 2011
Interest income	109,811	130,762
Gain on foreign exchange transaction	80,567	59,471
Gain on foreign currency translation	7,135	1,311
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 foreign currency translation	31,283	98,968
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

INCOME TAX EXPENSE

(1) Income tax expense (income) during the reporting periods consists of the following:

	(In thousands of Korean Won)	(In thousands of Korean Won)
Classification	30 June 2012	30 June 2011
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)	(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)
Adjustments
Disallowed expenses (share-based payments, outflow of
income)	29,972	74,659
Disallowed income (dividend and others)	(7,992)	(18,906)
Increase(decrease) of deferred income tax arising from
division	82	–
Deferred income tax effect	561,406	80,881
Others (tax rate differences, etc.)	–	(7,503)
Income tax expense	261,397	61,473
Effective tax rate (income tax/profit before tax)	–	–

(*) Effective tax rate is not shown as it is a negative rate.

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APPENDIX IID

FINANCIAL INFORMATION OF NITGEN FOR THE SIX MONTHS ENDED 30 JUNE 2012

(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)

(In thousands of Korean Won)

					Deferred income	Deferred income
	Temporary	difference to be deducted		(added)	tax assets (liabilities)
Classification	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 -

FINANCIAL INFORMATION OF NITGEN FOR THE SIX MONTHS ENDED 30 JUNE 2012

APPENDIX IID

(31 December 2011)

				(In thousands of Korean Won)	(In thousands of Korean Won)	(In thousands of Korean Won)
					Deferred income
	Temporary	difference to be deducted		(added)	tax assets (liabilities)
Classification	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.

				(In thousands of Korean Won)	(In thousands of Korean Won)	(In thousands of Korean Won)
		30 June 2012			30 June 2011
		Income tax			Income tax
Classification	Before tax	effect	After tax	Before 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 -

FINANCIAL INFORMATION OF NITGEN FOR THE SIX MONTHS ENDED 30 JUNE 2012

APPENDIX IID

26. EXPENSES BY NATURE

Expenses related to business activities during the reporting periods consist of the following:

	(In thousands of Korean Won)	(In thousands of Korean Won)
Classification	30 June 2012	30 June 2011
Change of goods	1,811,946	1,108,355
Salaries and wages	902,232	839,148
Compensation associated with Stock Option	29,972	61,459
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.

27. EARNINGS PER SHARE

(1) Basic earnings per share during the reporting periods are calculated as follows:

			(In	Korean	Won)
Classification	30 June	2012	30 June	2011
	3 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 -

APPENDIX IID

FINANCIAL INFORMATION OF NITGEN FOR THE SIX MONTHS ENDED 30 JUNE 2012

(2) Diluted earnings per share during the reporting periods are calculated as follows:

			(In	Korean	Won)
Classification	30 June	2012	30 June	2011
	3 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
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)
Classification	30 June 2012		30 June 2011
	3 months	YTD	3 months	YTD
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.

29. RELATED PARTY TRANSACTIONS

(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 New Concept Capital Limited(British Virgin Islands) exercise significant influence over the Company

IID-54 -

FINANCIAL INFORMATION OF NITGEN FOR THE SIX MONTHS ENDED 30 JUNE 2012

APPENDIX IID

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:

			(In	thousands of Korean Won)
		30 June	2012	31 December 2011
Relationship	Name	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)

			(In thousands of Korean Won)	(In thousands of Korean Won)
Relationship	Name	Transaction	30 June 2012	30 June 2011
Subsidiaries	RIA Soft Co., Ltd.	Interest income Lease	15,210 79,000	13,168 300,000
Other related parties	AV CONCEPT	Advance payment	2,950,085	–
	Limited	for raw materials

(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.

	(In thousands of Korean Won)	(In thousands of Korean Won)
Classification	30 June 2012	30 June 2011
Wages, salaries, short-term loans	172,800	170,250
Retirement benefits	230,892	151,817
Compensation associated with Stock Option	29,972	61,459
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

APPENDIX III

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.

==> picture [56 x 32] intentionally omitted <==

L & P CPA Limited

Certified Public Accountants Unit A, 3rd Floor, Queen’s Centre 58-64 Queen’s Road East, Wan Chai, Hong Kong Tel: (852) 3188 3631 Fax: (852) 3188 1769

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 REPORTING ACCOUNTANTS

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 -

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE GROUP

APPENDIX III

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 -

APPENDIX III

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE GROUP

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 Limited

Certified Public Accountants Hong Kong

Chung Kwok Fai Practising Certificate No.: P04953

III-3 -

APPENDIX III

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE GROUP

Unaudited Pro Forma Financial Information of the Group

		Pro	forma		Pro	forma		Pro	forma
		adjustment			adjustment			adjustment
										Pro forma statement of
										assets and liabilities of
							Pro forma statement of			the Group upon
							assets and liabilities of			completion of the
				Pro forma statement of			the Group upon			Subscription
				assets and liabilities of			completion of the			Agreement, Investment
				the Group upon			Subscription Agreement			Agreement & Disposal
	The Group as at 31			completion of the			& Investment			of 35% interest in
	March 2012			Subscription Agreement			Agreement			Success 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 ASSETS
Property, plant and equipment	131,037			131,037			131,037			131,037
Investment properties	97,065			97,065			97,065			97,065
Goodwill	48,795			48,795			48,795			48,795
Other intangible assets	30,572			30,572			30,572			30,572
Investments in jointly-controlled entities	53,199			53,199			53,199			53,199
Investments in associates	110,025	54,264		164,289	26,548	30,948	221,785		(29,604)	192,181
Available-for-sales investments	6,623			6,623			6,623			6,623
Financial assets at fair value through profit or
loss	–			–		26,747	26,747			26,747
Other deposits	13,448			13,448			13,448			13,448
Deferred tax asset	2,473			2,473			2,473			2,473
Total non-current assets	493,237			547,501			631,744			602,140
CURRENT ASSETS
Available-for-sales investments	15,091			15,091			15,091			15,091
Inventories	296,278			296,278			296,278			296,278
Trade receivables	270,531			270,531			270,531			270,531
Prepayments, deposits and other receivables	89,692			89,692			89,692			89,692
Equity investments at fair value through profit
or loss	111,129			111,129			111,129			111,129
Tax recoverable	997			997			997			997
Cash 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 LIABILITIES
Trade payables, deposits received and accrued
expenses	210,938			210,938			210,938			210,938
Interest-bearing bank borrowings	525,909			525,909			525,909			525,909
Finance lease payables	423			423			423			423
Tax payable	9,578			9,578			9,578			9,578
Financial 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 CURRENT
LIABILITIES	692,544			691,414			691,414			746,223
NON-CURRENT LIABILITIES
Interest-bearing bank borrowings	51,523			51,523			51,523			51,523
Finance lease payables	1,142			1,142			1,142			1,142
Deferred 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 -

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE GROUP

APPENDIX III

Notes:

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.
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.

The adjustment is to reflect the settlement of directly attributable transaction costs. This comprises legal and other professional expenses.
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.
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.

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 -

APPENDIX III

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE GROUP

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).

Consideration on disposal Cost of investments Gain on disposal of Success Pillar Interest of the Group in Nitgen upon completion of the Subscription Agreement & Investment Agreement Unrealised profits	HK$’000 84,413 (2,042) 82,371 35.94% 29,604

III-6 -

GENERAL INFORMATION

APPENDIX IV

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

			Approximate
		Number of	percentage of
Name of Director	Nature of interest	Shares	interest
So Yuk Kwan	Interest of controlled	270,392,189	44.83%
	corporations (note)
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 whollyowned 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 -

GENERAL INFORMATION

APPENDIX IV

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

			Approximate
		Number of	percentage of
Name of Shareholder	Nature of interest	Shares	interest
Yeung Kit Ling	Interest of spouse	270,392,189	44.83%
	(Note 1)
B.K.S. Company Limited	Beneficial owner	189,138,300	31.36%
	(Note 2)
Jade Concept Limited	Beneficial owner	80,639,889	13.37%
	(Note 2)
Och Daniel Saul	Interest of controlled	54,376,000	9.00%
	corporations (Note 3)
Och-Ziff Capital	Interest of controlled	54,376,000	9.00%
Management Group LLC	corporations (Note 3)
Och-Ziff Holding	Interest of controlled	54,376,000	9.00%
Corporation	corporations (Note 3)
OZ Management L.P.	Investment manager	54,376,000	9.00%
	(Note 3)
OZ Master Fund, Ltd	Beneficial owner	30,616,000	5.01%
	(Note 4)

Notes:

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.
Each of B.K. S. Company Limited and Jade Concept Limited is wholly-owned by So Yuk Kwan.
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
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GENERAL INFORMATION

APPENDIX IV

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.

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.

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GENERAL INFORMATION

APPENDIX IV

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)
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APPENDIX IV

GENERAL INFORMATION

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;
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APPENDIX IV

GENERAL INFORMATION

(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
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GENERAL INFORMATION

APPENDIX IV

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.

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GENERAL INFORMATION

APPENDIX IV

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 KY11104, 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;
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GENERAL INFORMATION

APPENDIX IV

(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.
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NOTICE OF EXTRAORDINARY GENERAL MEETING

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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

“THAT
(A) the form and substance of the subscription agreement (“Subscription Agreement”) dated 5 September 2012 and entered into between New Concept Capital Limited (“New Concept”), 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.”
“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
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NOTICE OF EXTRAORDINARY GENERAL MEETING

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.”
“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”) of 262,500 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
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NOTICE OF EXTRAORDINARY GENERAL MEETING

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 Limited So 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:

A form of proxy for use at the EGM is being despatched to the shareholders of the Company together with a copy of the Company’s circular dated 20 November 2012.
Any shareholder of the Company entitled to attend and vote at the EGM convened by the above notice shall be entitled to appoint one proxy or, if he is the holder of two or more Shares, more than one proxy to attend and vote instead of him. A proxy need not be a shareholder of the Company.
The instrument appointing a proxy shall be in writing under the hand of the appointor or of his attorney duly authorised in writing or, if the appointor is a corporation, either under its seal or under the hand of an officer, attorney or duly authorised person.
In order to be valid, the form of proxy, together with the power of attorney or other authority (if any) under which it is signed, or a notarially certified copy of such power or authority, must be deposited at the Company’s branch share registrar 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.
Completion and return of the form of proxy will not preclude a shareholder of the Company from attending and voting in person at the EGM convened or any adjourned meeting and in such event, the form of proxy will be deemed to be revoked.
Where there are joint registered holders of any share of the Company, any one of such joint holders may vote, either in person or by proxy, in respect of such share as if he/she were solely entitled thereto, but if more than one of such joint holders are present at the meeting personally or by proxy, that one of the said persons so present whose name stands first on the register in respect of such shares shall alone be entitled to vote in respect of the relevant joint holding and, for this purpose, seniority shall be determined by reference to the order in which the names of the joint holders stand on the register in respect of the relevant joint holding. Several executors or administrators of a deceased member in whose name any 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.

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AI assistant

AV Concept Holdings Limited — Proxy Solicitation & Information Statement 2012

49323_rns_2012-11-19_921d9c68-92bf-4e2a-afd8-9365a08827f6.pdf

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

CONTENTS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

MAJOR TRANSACTIONS:

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

(2) DISPOSAL OF 35% INTEREST IN SUCCESS PILLAR

INTRODUCTION

LETTER FROM THE BOARD

THE INVESTMENT AGREEMENT

Date

Parties

LETTER FROM THE BOARD

Subject matters of the Investment Agreement

(1) The Investment Shares

(2) The NCC Bonds

(3) Investment by SHK under the Investment Agreement

LETTER FROM THE BOARD

LETTER FROM THE BOARD

LETTER FROM THE BOARD

Consideration

LETTER FROM THE BOARD

Lock-up period under the Investment Agreement

Investment Closing Conditions

LETTER FROM THE BOARD

LETTER FROM THE BOARD

Termination

Investment Closing

Other terms of the Investment Agreement

THE SUBSCRIPTION AGREEMENT

Date

LETTER FROM THE BOARD

Parties

Subject matter of the Shares Subscription

Lock-up period of the Subscription Shares

Subscription Closing Conditions

LETTER FROM THE BOARD

Termination

Subscription Closing

Other terms of the Subscription Agreement

LETTER FROM THE BOARD

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

LETTER FROM THE BOARD

INFORMATION ON NITGEN

LETTER FROM THE BOARD

THE DISPOSAL AGREEMENT

Date

Parties

LETTER FROM THE BOARD

Assets to be disposed of

Consideration

Completion of the Disposal Agreement

Conditions Precedent of the Disposal Agreement

LETTER FROM THE BOARD

INFORMATION ON SUCCESS PILLAR

LETTER FROM THE BOARD

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

LETTER FROM THE BOARD

LETTER FROM THE BOARD

IMPLICATIONS UNDER THE LISTING RULES

LETTER FROM THE BOARD

RELAXATION OF THE REQUIREMENT TO INCLUDE AN ACCOUNTANTS’ REPORT ON NITGEN

LETTER FROM THE BOARD

LETTER FROM THE BOARD

LETTER FROM THE BOARD

EGM

LETTER FROM THE BOARD

RECOMMENDATION

ADDITIONAL INFORMATION

1. SUMMARY OF FINANCIAL RESULTS

2. AUDITED CONSOLIDATED FINANCIAL STATEMENTS

3. INDEBTEDNESS

AV Concept Holdings Limited Proxy Solicitation & Information Statement 2012