##### Table of Contents

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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FORM 20-F/A

AMENDMENT NO. 2



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(Mark One)

| ̈ | REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ----------------------------------------------------------------------------------------------



OR



|x | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ------------------------------------------------------------------------------------



For the fiscal year ended December 31, 2004



OR



| ̈ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ----------------------------------------------------------------------------------------



For the transition period from [] to
[]



Commission file number 0-30376



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MIRAE CORPORATION

(Exact name of Registrant as specified in its charter)



---



Republic of Korea

(Jurisdiction of incorporation or organization)



#9-2, Cha Am-Dong,

Chun An, Chung Chong Nam-Do 330-200

Republic of Korea

(Address of principal executive offices)



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Securities registered or to be registered pursuant to Section 12(b) of
the Act.



|                                                                     |  |                                          
|-------------------------------------------------------------------- |  | -----------------------------------------
|Title of Each Class                                                  |  | Name of Each Exchange on Which Registered
|American Depositary Shares, Common Stock par value Won 100 per share |  | The NASDAQ National Market               



Securities
registered or to be registered pursuant to Section 12(g) of the Act.



None

(Title of Class)



Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act.



None

(Title of Class)



---



Indicate the number of outstanding shares of each of the issuers classes of capital or
common stock as of the close of the period covered by the annual report.



|             |  |            
|------------ |  | -----------
|Common Stock |  | 179,186,000



Indicate by check mark whether the
registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.    Yes  x    No ̈



Indicate by check mark which financial statement item the Registrant has elected to follow.    Item 17 ̈Item 18  x



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TABLE OF CONTENTS



|                                                     |  |     
|---------------------------------------------------- |  | ----
|                                                     |  | Page
|SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS    |  | 1   
|                                                     | 
|EXPLANATORY NOTE                                     |  | 2   
|                                                     | 
|ITEM 3. Key Information                              |  | 4   
|                                                     | 
|ITEM 5. Operating and Financial Review and Prospects |  | 14  
|                                                     | 
|ITEM 15. Controls and Procedures                     |  | 33  
|                                                     | 
|ITEM 18. Financial Statements                        |  | 34  
|                                                     | 
|ITEM 19. Exhibits                                    |  | 34  



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##### Table of Contents

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS



This amendment to our annual report on Form 20-F contains forward-looking statements,  as defined in Section 27A of the U.S. Securities Act of 1933, as amended, and Section 21E of the U.S.
Securities Exchange Act of 1934, as amended. All statements, other than statements of historical facts, included in this annual report that address activities, events or developments which we expect or anticipate will or may occur in the future are
forward-looking statements. The words believe, intend, expect, anticipate, project, estimate, predict, considering, depends, may,
could, should or could and similar expressions are also intended to identify forward-looking statements.



These forward-looking statements address, among others, such issues as:



| |  |  | future prices of and demand for our products,
| | - |  | ---------------------------------------------



| |  |  | future earnings and cash flow,
| | - |  | ------------------------------



| |  |  | future plans and capital expenditures,
| | - |  | --------------------------------------



| |  |  | expansion and other development trends of the semiconductor industry,
| | - |  | ---------------------------------------------------------------------



| |  |  | expansion and other development trends of the SMD placement system industry,
| | - |  | ----------------------------------------------------------------------------



| |  |  | expansion and growth of our business and operations, and
| | - |  | --------------------------------------------------------



| |  |  | our prospective operational and financial information.
| | - |  | ------------------------------------------------------



These statements are based on assumptions and analyses made by us in light of our experience and our perception of historical trends, current conditions
and expected future developments, as well as other factors we believe are appropriate in particular circumstances. However, whether actual results and developments will meet our expectations and predictions depends on a number of risks and
uncertainties which could cause actual results to differ materially from our expectations, including the risks set forth in Item 3 Key InformationRisk Factors and the following:



| |  |  | fluctuations in prices of our products,
| | - |  | ---------------------------------------



| |  |  | potential acquisitions and other business opportunities,
| | - |  | --------------------------------------------------------



| |  |  | general economic, market and business conditions, and
| | - |  | -----------------------------------------------------



| |  |  | other risks and factors beyond our control.
| | - |  | -------------------------------------------



Consequently, all of the forward-looking statements made in this amendment to our annual report on Form 20-F are qualified by these cautionary statements.
We cannot assure you that the actual results or developments anticipated by us will be realized or, even if substantially realized, that they will have the expected effect on us or our business or operations.



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##### Table of Contents

References to Mirae, the Company, we, our and
us in this amendment to our annual report on Form 20-F are to Mirae Corporation and its consolidated subsidiaries.



EXPLANATORY NOTE



We are filing
this Amendment No. 2 to our annual report on Form 20-F for the fiscal year ended December 31, 2004, as filed with the U.S. Securities and Exchange Commission on June 30, 2005 (the 2004 20-F) and amended on July 28,
2005, by setting forth the following amendments to Item 18 of the 2004 20-F:



| |  |  | The restatement of Note 29 to the financial statements contained in the 2004 20-F.
| | - |  | ----------------------------------------------------------------------------------



| |  |  | The restatement of the following US GAAP consolidated balance sheets and consolidated statement of operations information reported in Note 29 to the financial statements
contained in the 2004 20-F:
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Operating expenses;
| | - |  | -------------------



| |  |  | Operating loss;
| | - |  | ---------------



| |  |  | Cash flow from investing activities;
| | - |  | ------------------------------------



| |  |  | Cash flow from operating activities;
| | - |  | ------------------------------------



| |  |  | Net loss;
| | - |  | ---------



| |  |  | Net loss per share;
| | - |  | -------------------



| |  |  | Shareholders equity.
| | - |  | ---------------------



| |  |  | Current assets;
| | - |  | ---------------



| |  |  | Non-current assets;
| | - |  | -------------------



| |  |  | Total assets;
| | - |  | -------------



| |  |  | Current liabilities;
| | - |  | --------------------



| |  |  | Long-term liabilities;
| | - |  | ----------------------



| |  |  | Minority interest in equity of consolidated subsidiaries; and
| | - |  | -------------------------------------------------------------



| |  |  | Total liabilities and minority interest.
| | - |  | ----------------------------------------



| |  |  | The inclusion of an updated audit report from Deloitte Anjin LLC, our independent registered public accounting firm, that refers to the amendments to the financial statements for
the year ended December 31, 2004.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



To
reflect the foregoing restatement of financial statements reported in the 2004 20-F, this Amendment No. 2 on Form 20-F/A also amends the Selected Financial Data in Item 3. Key Information, certain disclosures under Item 5.
Operating and Financial Review and Prospects and certain disclosures under Item 15. Controls and Procedures. Furthermore, this Amendment No. 2 on Form 20-F/A amends the list of exhibits in Item 19.
Exhibits to reflect the filing of new certifications of the Chief Executive Officer and the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Sarbanes-Oxley Act), and furnishing of new
certifications of the Chief Executive Officer and the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act.



The foregoing amendments to the 2004 20-F relate to consolidation of Cyber Bank Corporation (Cyber Bank), our affiliate, in our financial
statements and related notes thereto (the Financial Statements) pursuant to the requirements under FIN 46(R). As of December 31, 2004, we owned 28.25% of the common shares of Cyber Bank while the family members of Mr. Moon Soul
Chung (our former CEO, who owned 12.50% of our issued and outstanding shares as of December 31, 2004) owned 37.6% of the common shares of Cyber Bank. In preparing our Financial Statements, such parties should have been treated as one entity for
the purposes of determining the identity of the primary beneficiary of Cyber Bank in connection with the analysis of the variable interests in Cyber Bank pursuant to FIN 46(R), which would have led us to conclude that Cyber Bank should be
consolidated in our Financial Statements rather than accounting for Cyber Bank under the equity method pursuant to US GAAP. In connection with the consolidation of Cyber Bank in our Financial Statements, total assets increased to Won
258,102 million from Won 232,031 million and total liabilities and minority interest increased to Won 147,493 million from Won 115,311 million. However, the restatement of our Financial Statements pursuant to FIN 46(R) did not affect
the US GAAP net loss or the US GAAP net loss per share for the year ended December 31, 2004 or shareholders equity as of December 31, 2004.



Furthermore, in the process of performing an audit of the financial statements of Cyber Bank for the purpose of
consolidation of Cyber Bank in our Financial Statements, we discovered that our net loss for the year ended December 31, 2004 based on US GAAP was understated by Won 6,111 million. As further explained in our restated Note 29 to the
Financial Statements, this accounting error resulted from the failure to record additional losses of Won 6,111 million which should have been recorded under FIN No. 45 and APB Opinion No. 18.



2



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##### Table of Contents

In addition, in the process of preparing the consolidated Financial Statements for purposes of this
Amendment No. 2, we discovered that (i) cash flows activities of trading securities were misclassified under US GAAP as cash flow from investing activities instead of operating activities for the years ended December 31, 2002,
2003 and 2004, as further explained in our restated Note 29(a) and (ii) operating expenses for the years ended December 31, 2000, 2001, 2002, 2003 and 2004 did not include donations, provisions for guarantees issued and certain provisions
for other doubtful accounts, which, when included, resulted in the amount of operating loss for the years ended December 31, 2000, 2001, 2002, 2003 and 2004 increasing by Won 514 million, Won 232 million, Won 968 million, Won
1,845 million and Won 1,102 million, respectively, as further explained in our restated Note 29(w). We have made appropriate amendments in the Financial Statements to address the foregoing as set forth in Item 18.



Other than for the purpose of amending the information referred to above,
this Amendment No. 2 does not, and does not purport to, amend, update or restate the information in any other item of the 2004 20-F or reflect any events that have occurred after the date on which such annual report was first filed.



3



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##### Table of Contents

ITEM 3. Key Information



A. Selected
Financial Data



Our selected consolidated financial
information set forth below should be read in conjunction with, and is qualified in its entirety by reference to, our audited consolidated financial statements, as of and for the years ended December 31, 2002, 2003 and 2004, together with the
notes thereto, which appear elsewhere in this annual report.



Our consolidated financial statements are prepared in accordance with Korean generally accepted accounting principles (Korean GAAP), which differ in certain material respects from United States generally accepted accounting
principles (US GAAP). See notes 29 and 30 of notes to our consolidated financial statements.



|                                                                  |  |                                                                  |   |  |         |   |  |         |   |  |         |   |  |         |   |  |         |  
|----------------------------------------------------------------- |  | ---------------------------------------------------------------- | - |  | ------- | - |  | ------- | - |  | ------- | - |  | ------- | - |  | ------- | -
|                                                                  |  | For the Year Ended December 31,                                  |  
|Consolidated Statements of Operations Data                        |  | 2000                                                             |   |  | 2001    |   |  | 2002    |   |  | 2003    |   |  | 2004    |   |  | 2004    |  
|                                                                  |  | Won                                                              |   |  | Won     |   |  | Won     |   |  | Won     |   |  | Won     |   |  | US$(1)  |  
|                                                                  |  | (in millions of Won and thousands of US$, except per share data) |  
|Korean GAAP(2):                                                   |  |                                                                  |   |  |         |   |  |         |   |  |         |   |  |         |   |  |         |  
|Sales                                                             |  | 146,099                                                          |   |  | 68,977  |   |  | 64,430  |   |  | 95,053  |   |  | 66,881  |   |  | 64,613  |  
|Cost of sales                                                     |  | 111,377                                                          |   |  | 63,590  |   |  | 56,863  |   |  | 72,703  |   |  | 51,645  |   |  | 49,894  |  
|                                                                  |  |                                                                  |   |  |         |   |  |         |   |  |         |   |  |         |   |  |         |  
|Gross profit                                                      |  | 34,722                                                           |   |  | 5,387   |   |  | 7,567   |   |  | 22,350  |   |  | 15,236  |   |  | 14,719  |  
|Selling, general and administrative expenses                      |  | 27,233                                                           |   |  | 45,321  |   |  | 37,651  |   |  | 27,973  |   |  | 22,657  |   |  | 21,889  |  
|                                                                  |  |                                                                  |   |  |         |   |  |         |   |  |         |   |  |         |   |  |         |  
|Operating income (loss)                                           |  | 7,499                                                            |   |  | (39,934 | ) |  | (30,084 | ) |  | (5,623  | ) |  | (7,421  | ) |  | (7,170  | )
|Other income                                                      |  | 12,809                                                           |   |  | 11,020  |   |  | 13,285  |   |  | 36,810  |   |  | 5,224   |   |  | 5,047   |  
|Other expenses                                                    |  | 20,173                                                           |   |  | 54,945  |   |  | 56,091  |   |  | 30,271  |   |  | 29,722  |   |  | 28,714  |  
|                                                                  |  |                                                                  |   |  |         |   |  |         |   |  |         |   |  |         |   |  |         |  
|Income (loss) before income taxes and minority interest           |  | 135                                                              |   |  | (83,859 | ) |  | (72,890 | ) |  | 916     |   |  | (31,919 | ) |  | (30,837 | )
|Income tax expense (benefit)                                      |  | (3,602                                                           | ) |  | 14,234  |   |  | 277     |   |  | 18      |   |  |        |   |  |        |  
|                                                                  |  |                                                                  |   |  |         |   |  |         |   |  |         |   |  |         |   |  |         |  
|Income (loss) before minority interest                            |  | 3,737                                                            |   |  | (98,093 | ) |  | (73,167 | ) |  | 898     |   |  | (31,919 | ) |  | (30,837 | )
|                                                                  |  |                                                                  |   |  |         |   |  |         |   |  |         |   |  |         |   |  |         |  
|Minority interest in net loss (gain) of consolidated Subsidiaries |  | 533                                                              |   |  | (1,055  | ) |  | 176     |   |  | 1,626   |   |  | 265     |   |  | 256     |  
|                                                                  |  |                                                                  |   |  |         |   |  |         |   |  |         |   |  |         |   |  |         |  
|Net income (loss)                                                 |  | 4,270                                                            |   |  | (99,148 | ) |  | (72,991 | ) |  | 2,524   |   |  | (31,654 | ) |  | (30,581 | )
|                                                                  |  |                                                                  |   |  |         |   |  |         |   |  |         |   |  |         |   |  |         |  
|Net income (loss) per share(3)                                    |  | 28                                                               |   |  | (654    | ) |  | (470    | ) |  | 16      |   |  | (178    | ) |  | (0.172  | )
|                                                                  |  |                                                                  |   |  |         |   |  |         |   |  |         |   |  |         |   |  |         |  
|Cash dividends per share                                          |  | 20                                                               |   |  | 15      |   |  |        |   |  |        |   |  |        |   |  |        |  
|                                                                  |  |                                                                  |   |  |         |  
|US GAAP(4):                                                       |  |                                                                  |   |  |         |   |  |         |   |  |         |   |  |         |   |  |         |  
|Sales                                                             |  | 143,643                                                          |   |  | 69,827  |   |  | 69,715  |   |  | 96,039  |   |  | 83,697  |   |  | 80,859  |  
|Gross profit (loss)                                               |  | 43,545                                                           |   |  | (8,193  | ) |  | (7,071  | ) |  | 13,867  |   |  | 22,975  |   |  | 22,196  |  
|Operating loss, as restated(6)                                    |  | (12,417                                                          | ) |  | (62,919 | ) |  | (51,163 | ) |  | (23,363 | ) |  | (19,745 | ) |  | (19,075 | )
|                                                                  |  |                                                                  |   |  |         |   |  |         |   |  |         |   |  |         |   |  |         |  
|Net income (loss) , as restated(6)                                |  | 9,290                                                            |   |  | (84,811 | ) |  | (62,607 | ) |  | (24,278 | ) |  | (41,155 | ) |  | (39,759 | )
|                                                                  |  |                                                                  |   |  |         |   |  |         |   |  |         |   |  |         |   |  |         |  
|Net income (loss) per share, as restated(3)(6)                    |  | 64                                                               |   |  | (589    | ) |  | (426    | ) |  | (161    | ) |  | (232    | ) |  | (224    | )
|                                                                  |  |                                                                  |   |  |         |   |  |         |   |  |         |   |  |         |   |  |         |  



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|                                                               |  |                                           |  |         |  |         |  |         |  |               |  |        
|-------------------------------------------------------------- |  | ----------------------------------------- |  | ------- |  | ------- |  | ------- |  | ------------- |  | -------
|                                                               |  | As of December 31,                       
|Consolidated Balance Sheet Data                                |  | 2000                                      |  | 2001    |  | 2002    |  | 2003    |  | 2004          |  | 2004   
|                                                               |  | Won                                       |  | Won     |  | Won     |  | Won     |  | Won           |  | US$(1) 
|                                                               |  | (in millions of Won and thousands of US$)
|Korean GAAP(2):                                                |  |                                           |  |         |  |         |  |         |  |               |  |        
|Cash and cash equivalents and short-term financial instruments |  | 35,338                                    |  | 57,724  |  | 39,784  |  | 36,197  |  | 48,647        |  | 46,998 
|Working capital(5)                                             |  | 148,087                                   |  | 89,333  |  | 83,491  |  | 78,545  |  | 35,148        |  | 33,957 
|Total assets                                                   |  | 379,172                                   |  | 351,122 |  | 240,512 |  | 231,717 |  | 218,102       |  | 210,716
|Current liabilities                                            |  | 38,136                                    |  | 95,594  |  | 51,061  |  | 36,349  |  | 72,782        |  | 70,314 
|Long-term liabilities                                          |  | 11,819                                    |  | 5,076   |  | 14,565  |  | 18,776  |  | 18,720        |  | 18,086 
|Total shareholders equity                                     |  | 329,217                                   |  | 250,452 |  | 174,886 |  | 176,592 |  | 126,600       |  | 122,306
|                                                               |  |                                           |  |         | 
|                                                               |  |                                           |  |         |  |         |  |         |  | [Restated](6)
|US GAAP(4):                                                    |  |                                           |  |         |  |         |  |         |  |               |  |        
|Total assets                                                   |  | 356,154                                   |  | 338,607 |  | 236,177 |  | 223,876 |  | 258,102       |  | 249,350
|Total liabilities                                              |  | 68,053                                    |  | 129,088 |  | 87,926  |  | 74,967  |  | 147,493       |  | 142,492
|Total shareholders equity                                     |  | 288,101                                   |  | 209,519 |  | 148,251 |  | 148,909 |  | 110,609       |  | 106,858

---

|(1) | The translation of Korean Won amounts into U.S. dollar amounts is included solely for the convenience of readers outside of Korea and has been made at the rate of Won 1,035.10 to US
$1.00, the Noon Buying Rate on the last business day of the year ended December 31, 2004.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | The Korean GAAP balance sheet of the Company has been prepared in accordance with Statement of Korea Accounting Standards (SKAS) No. 2 through No. 10,
No. 12 and No. 13, of which we adopted SKAS No. 10, No. 12 and No. 13 in 2004. SKAS No. 10 (Inventories) requires loss from valuation of inventories, which were recorded as other expenses through 2003, to be
classified as cost of sales. As a result, the consolidated operating loss of the Company and its subsidiaries for the year ended December 31, 2004 increased by (Won)1,946 million, the amount of loss from valuation of inventories for such year,
while the consolidated financial position as of December 31, 2004 and the consolidated net loss for the year then ended remained unchanged as a result of such accounting treatment.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | Net income (loss) per share is calculated by dividing net income (loss) by the weighted average number of shares outstanding for the relevant period. In addition, net income (loss)
per share was recalculated taking into the effect of (i) the additional issuance of 24,927,500 shares which were issued for less than fair value, with the difference in the amount of the issuance price and the fair value deemed to constitute an
additional share issuance without consideration, such amount deemed to be an issuance without consideration at approximately 5.12% of the total amount of such additional issuance, (ii) the repurchase of treasury stocks, and (iii) 20% stock
dividends in 2003. However, diluted income (loss) per share is not presented as our potential common shares including stock options and convertible bonds have anti-dilutive effect. See note 21 of the notes to consolidated financial statements.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) | See notes 29 and 30 of the notes to our consolidated financial statements for reconciliation of the Korean GAAP figures to US GAAP.
|--- | -----------------------------------------------------------------------------------------------------------------------------------

|(5) | Working capital means current assets minus current liabilities.
|--- | ---------------------------------------------------------------

|(6) | See Note 29 to our Financial Statements.
|--- | ----------------------------------------



Exchange Rates



The following table sets forth, for the periods indicated, the Noon Buying Rate expressed in Won per US$1.00.



|       |  |                    |  |            |  |       |  |      
|------ |  | ------------------ |  | ---------- |  | ----- |  | -----
|       |  | Noon Buying Rate  
|Period |  | End                |  | Average(1) |  | High  |  | Low  
|       |  | (Won per US $1.00)
|2000   |  | 1,267              |  | 1,140      |  | 1,267 |  | 1,106
|2001   |  | 1,314              |  | 1,293      |  | 1,369 |  | 1,234
|2002   |  | 1,186              |  | 1,242      |  | 1,332 |  | 1,160
|2003   |  | 1,192              |  | 1,192      |  | 1,258 |  | 1,146
|2004   |  | 1,035              |  | 1,145      |  | 1,195 |  | 1,035



5



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|                      |  |                   |  |      
|--------------------- |  | ----------------- |  | -----
|Past Six Months       |  | High              |  | Low  
|                      |  | (Won per US$1.00)
|December 2004         |  | 1,067             |  | 1,035
|January 2005          |  | 1,058             |  | 1,024
|February 2005         |  | 1,044             |  | 1,001
|March 2005            |  | 1,024             |  | 998  
|April 2005            |  | 1,019             |  | 997  
|May 2005              |  | 1,007             |  | 997  
|Through June 29, 2005 |  | 1,030             |  | 1,003

---

|(1) | The average of the Noon Buying Rate on the last business day of each month (or a portion thereof) during the period.
|--- | --------------------------------------------------------------------------------------------------------------------



B. Capitalization and Indebtedness



Not applicable.



C. Reasons for the Offer and Use of Proceeds



Not applicable.



D. Risk Factors



Risks Relating to Mirae Corporation



Our business could be adversely affected by the cyclical nature of the semiconductor industry.



We sell substantially all of our products to companies which operate in the
semiconductor industry. The semiconductor industry has been and continues to be characterized by sudden, extreme, cyclical variations in product supply and demand. Since late 2000, the semiconductor industry has been in a cyclical downturn
characterized by reduced demand for products, lower average selling prices, reduced investment in semiconductor capital equipment and other factors all of which have resulted in lower sales and earnings for our business. The timing, length and
severity of these cycles are difficult to predict. In some cases, these cycles have lasted for more than a year. The latest downturn has lasted longer than past cycles and, although conditions in the industry improved in the fourth quarter of 2003,
the market still remains volatile and hard to predict. Semiconductor manufacturers in the past have contributed to the severity of these cycles by not properly gauging market conditions and have in the past made untimely capital expenditures,
over-investing or under-investing. Such downturns may have a material adverse effect on our business, financial condition and results of operations to the extent that we are unable to respond effectively to these industry cycles.



Downturns in the semiconductor industry often occur in connection with, or
anticipation of, maturing product cycles and declines in general economic conditions. Industry downturns have been characterized by reduced demand for semiconductor devices and equipment, production over-capacity and a decline in average selling
prices. During a period of declining demand, we must be able to quickly and effectively reduce expenses and motivate and retain key employees. Our ability to reduce expenses in response to any downturn in the semiconductor industry is limited by our
need for continued investment in engineering and research and development and extensive ongoing customer service and support requirements. In addition, the long lead time for production and delivery of some of our products creates a risk that we may
incur expenditures or purchase inventories for products, which we cannot sell. During periods of extended downturn, a portion of our inventory may be written down or eventually completely written off if it is not sold. No assurance can be given that
any future downturns in the semiconductor industry will not be as or more severe than in the past, or that our results of operations or financial condition will not be materially and adversely affected by such downturns or other developments in
these industries.



Industry upturns have been characterized by
fairly abrupt increases in demand for semiconductor devices and equipment and insufficient production capacity. During a period of increasing demand and rapid growth, we must be able to quickly increase manufacturing capacity to meet customer demand
and hire and assimilate a sufficient number of additional qualified personnel. Our inability to quickly respond in times of increased demand could harm our reputation and cause some of our existing or potential customers to place orders with our
competitors rather than us.



6



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##### Table of Contents

In addition, the semiconductor industry has been highly cyclical from quarter to quarter and as a result
our operating results can fluctuate from quarter to quarter, which could negatively impact our business and our stock price. For a detailed summary of historical semiconductor industry performance, see Item 4 Information on the
CompanyIndustry BackgroundThe Semiconductor Market.



Our customer concentration may adversely affect our profitability



The semiconductor manufacturing industry is highly concentrated, with a relatively small number of large semiconductor manufacturers worldwide accounting for a substantial portion of the purchases of semiconductor
test handling equipment. We are heavily dependent on several major customers, including Hynix Semiconductor Inc. (formerly Hyundai Electronics Industries Co., Ltd.) and Samsung Electronics Co., Ltd., both Korean companies, SanDisk Corporation and
Infineon Technologies AG. In the SMD placement systems industry, mechatronics companies including E-Pro Co., Ltd., UCS Corporation, and WeTech Co., Ltd. are our major customers. SanDisk Corporation is the worlds largest supplier of flash
memory data storage card products and Infineon is a leading innovator in the international semiconductor industry.



Although one of our strategies is to expand our domestic customer base and increase our overseas sales to reduce our reliance on a few large customers,
such customers will likely remain important customers for the foreseeable future. Financial difficulties of any of these customers, the loss of any of these customers or a reduction in orders or sales by any of these customers would have a material
adverse effect on our business, financial condition and results of operations.



Our products may become obsolete as a result of rapid technological change in the semiconductor and semiconductor related industries.



The semiconductor and the semiconductor related industries and the semiconductor equipment manufacturing industry are subject to rapid technological
change and new product introductions and enhancements. Our ability to remain competitive will depend in part upon our ability to develop new products and to introduce these products at competitive prices and on a timely and cost effective basis. Our
success in developing new and enhanced products depends upon a variety of factors, including:



| |  |  | timely and efficient completion of product design;
| | - |  | --------------------------------------------------



| |  |  | timely and efficient implementation of manufacturing and assembly processes;
| | - |  | ----------------------------------------------------------------------------



| |  |  | enhancement of product performance; and
| | - |  | ---------------------------------------



| |  |  | effective sales and marketing.
| | - |  | ------------------------------



Since new product development commitments must be made well in advance of actual sales being realized, we must anticipate both future demand and the
technology that will be available to supply that demand. Furthermore, introductions of new and complex products typically involve a period in which we identify design, engineering and reliability issues. While we believe that we the research and
development capability and have the technological resources and ability to identify these issues, manage technological advances in the industry and, in many instances, improve upon that technology, future improvements in semiconductor design and in
manufacturing technology may make our products obsolete.



We may not be
able to increase our market share because certain of our competitors are more established than we are in some of our key and target markets.



We seek to increase sales of our products in Korea, other Asian markets, the United States and Europe. Since certain of our competitors already operate in
these key markets, many of whom have greater resources than we do, we may not be able to compete effectively for market share in such markets.



Our ability to compete successfully against our competitors will depend on our ability to anticipate and respond to various competitive factors affecting
the industry, including new services that may be introduced, changes in consumer preferences, economic conditions and discount pricing strategies by our competitors. Future business combinations and alliances in the industry may create significant
new competitors and could harm our business and results of operations.



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Some of our major competitors have the following advantages:



| |  |  | greater name recognition;
| | - |  | -------------------------



| |  |  | more diversified product lines;
| | - |  | -------------------------------



| |  |  | larger customer base; and
| | - |  | -------------------------



| |  |  | significantly greater financial, technical and marketing resources.
| | - |  | -------------------------------------------------------------------



| |  |  | As a result, as compared with us, they may be able to:
| | - |  | ------------------------------------------------------



| |  |  | better withstand downturns in our key markets;
| | - |  | ----------------------------------------------



| |  |  | adapt more quickly to new or emerging technologies or changes in customer requirements; and
| | - |  | -------------------------------------------------------------------------------------------



| |  |  | market, sell and support their products more effectively.
| | - |  | ---------------------------------------------------------



Our inability to compete effectively in such markets and increase sales and market share in such markets will likely have a material adverse effect on our
financial condition and results of operations.



Our new products and new
business lines may not be successful.



Our strategies
entail expanding the range of our products, as well as widening our customer base in the Asia Pacific region, the United States and Europe. Our ability to implement these strategies will depend upon our use of our core competencies to develop new
products and market them successfully both in and outside of Korea. We have expanded our core product offerings to include equipment that are specifically designed to handle flash card products, SMD placement systems and Information Technology
related products and services. We will continue to seek to develop new products and new business lines. However, no assurance can be given that any of these new products or new business lines will be accepted by the marketplace and be profitable or
that we will be able to find suitable markets with sufficient demand for our products. Our inability to develop new products or enter into new business lines or the failure of one or more of these products or business lines could have a material
adverse effect on our business, results of operations and financial condition.



We may not be able to manage our growth into new products, new product lines and new markets.



Our diversification and expansion strategy may place strains on our administrative, operational and financial resources and affect our competitiveness.
Such expansion will increase responsibilities placed upon management personnel and will require development or enhancement of operational, managerial and financial systems and controls. If we are unable to effectively manage the expansion of our
mechatronics product lines, our business, financial condition and results of operations will likely be adversely affected. Our diversification and expansion strategy may also require that we hire additional administrative, sales and marketing
personnel, which would increase overall expenses and make it more difficult to maintain our simplified decision making process.



We have had in the past and may in the future have significant amounts of uncollected and uncollectable trade accounts receivable.



In order to penetrate new markets and build market share quickly, in
particular for our SMD placement systems, beginning in 1999, we offered longer payment periods to our customers. To increase our market share in the SMD placement systems market, we also provided credit to customers whose credit was not as strong as
our semiconductor test handler customers. As a result of such marketing efforts and due to the weakness in the markets in which we operate, we have experienced significant uncollected and uncollectable trade accounts receivable. The percentage of
trade accounts receivable which remain uncollected for more than 6 months to total accounts receivable has been high and has been increasing in recent years. See Item 4 Information on the CompanyBusiness OverviewSMD Placement
SystemsSales and Marketing. No assurance can be given that we will not have to extend credit terms in the future in order to be competitive or as a result of deteriorating economic conditions which may further negatively impact our
ability to collect on our accounts receivable and may result in us having to take higher provisions in the future for allowance for doubtful accounts which will negatively impact our financial condition, results of operations and business.



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We may hold excess raw material and product inventories.



We had inventories of Won 27,848 million as of December 31, 2004.
This was a increase of 188.1%, or Won 18,184 million, from Won 9,664 million as of December 31, 2003 resulting from our adoption of a new inventory management system in 2004. Generally, we make advance purchases of raw material
inventories for the production of SMD placement systems and advance manufacturing of SMD placement systems in order to reduce the time required for delivery to meet our projected customer demand on a timely basis. We may misjudge the size of raw
material and product inventories needed, and thereby hold excess and unusable inventories, which are expensed as inventory valuation losses. We reported Won 1,946 million of loss from loss in valuation of inventories in 2004, which was a 84.3%
decrease from Won 12,428 million in 2003. Our financial condition and results of operations would be adversely affected if we are unable to maintain adequate inventory level or if there are significant increases in the costs of raw materials or
problems with the quality of these raw materials.



Market prices for our
products may decline in the future.



We anticipate
that market prices for our main products may decline in the future due to continuing competitive factors. We expect that significant competition among local and international companies, including from new entrants, may continue to drive equipment
prices lower. We had in the past decreased the price on our models by an average of approximately 5-10% in response to increased competition. We expect that there may be increases in promotional spending by companies competing in our industry, which
we believe will also likely contribute to increasing movement of customers between competitors. Such increased competition and the resulting decline of market prices for our products would have a material adverse effect on our business, financial
condition and results of operations.



Our operating results may fluctuate
due to the seasonality of our sales of semiconductor test handlers and SMD placement systems.



Our business has been seasonal and our sales have typically been higher in the second half of the year as a result of our semiconductor manufacturing
customers making more of their capital expenditures decisions during such period. In addition, our operating results may fluctuate considerably from quarter to quarter. Changes in the nature or level of customer orders or a particularly large
customer order or customer cancellation in any particular quarter could cause significant variations in our revenues. For instance, for our handlers, our major customers typically provide to us the specifications needed for their orders. Our success
may be dependent upon our ability to mobilize our various divisions to manufacture products to meet our customers customization and volume demands in a timely and cost efficient manner and, if we are unable to do so, our results will be
adversely affected.



Normally, we deliver our handlers between
11/2and 31/2months after we receive an order. During these lead times, customers may modify or cancel their orders due to their own changing technology or for various other reasons, including economic and other
factors. The volume and timing of orders placed by our customers vary due to fluctuations in product demand, the development of new semiconductor devices and other microeconomic and macroeconomic factors. Likewise, customers may misinterpret the
marketplace direction and incorrectly indicate to us the future customization or volume demand for a particular product. Although our entry into the SMD placement system industry has reduced our dependence on our semiconductor test handler sales,
changes in the volume of customer orders could have a material effect on our profitability, in part because of the fixed costs associated with our handler product line and because the volume of customer orders affects the utilization rate of our
equipment, labor and other overhead costs.



Our sales and
results may be adversely impacted by worldwide economic downturns.



Our sales and operating results are increasingly linked to worldwide economic trends, including economic downturns in the United States, the European Union, Japan and Asia. The economic downturn in Asia in 1998 had a
negative effect on the worldwide semiconductor market and made semiconductor and end-user market requirements more difficult to predict. The deterioration of the economic conditions in 2001 and 2002 in the United States and in most economically
developed countries has been negatively impacting the semiconductor market since 2001. According to industry data provided by Worldwide Semiconductor Trade Statistics (WSTS) Inc., following a growth of 36.8% in 2000, the semiconductor market
declined by 32% in 2001 and increased by a mere 1.3% in 2002, although the market grew by 18.3% and 32.3% in 2003 and 2004, respectively. Economic downturn and uncertainties worldwide may have a material adverse effect on our customers
business, which will likely reduce demand for our products. See Risks Relating to KoreaOur businesses may be adversely affected by developments affecting the Korean economy.



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Infringement of our intellectual property rights could negatively impact our results of operations



Our success is dependent in part on our technology
and our ability to continue to use our technology as well as our ability to obtain from third party sources technology used in our business. We rely on a combination of contractual rights and patent, copyright, trademark and trade secret laws to
establish and protect proprietary rights in our technology. If we are unable to establish or protect these rights in the domestic and international markets in which we compete, our competitors may be able to use our intellectual property to compete
against us in such markets. This could limit our growth and adversely affect our operating results. The laws of certain countries in which our products are distributed do not protect our products and intellectual property rights to the same extent
as the laws of the United States and Korea. Accordingly, effective patent, copyright and trademark protection may be unavailable in certain foreign countries.



It is possible that no additional patents will be issued to us or any of our affiliates. In addition, our issued patents and trademarks may not prevent
other companies from competing with us. Furthermore, although we maintain confidentiality agreements with many of our employees to limit disclosure or use of any information obtained as a result of an employees position with us, these
employees may leave us or may be terminated by us at any time, and no assurance can be given that an employee will not misappropriate our proprietary information or that the Korean courts will enforce our rights under the confidentiality agreements.
We cannot guarantee that any of the foregoing measures will discourage others from misappropriating our technology or independently developing similar technology. We recently applied for preliminary injunction against a Korean company for patent
infringement in respect of test handlers, and the Korean Court has ordered that Korean company to cease manufacturing, selling, using, exhibiting and/or transferring of test handlers. See Item 8 Financial InformationConsolidated
Statements and Other Financial InformationLegal Proceedings.



We also rely on, through contracts, purchases and other means, the intellectual property rights of others in our business. The inability to obtain commercially reasonable terms on such intellectual property or the
threat by a third party of intellectual property right infringement may have a material adverse effect on our business and results of operations. Intellectual property rights in Korea may not be as extensive as those in the United States or
elsewhere. Additionally, a Korean court may apply a less strict enforcement standard and/or award a smaller amount of damages than a U.S. court. The laws of other countries may not protect our intellectual property as vigorously as in the United
States or Korea. An adverse outcome in any dispute could subject us to significant liabilities, require us to cease manufacture, sales and shipments of products or our use of processes requiring the relevant technologies or alter the design of our
products or make it necessary for us to obtain licenses from third parties. Litigation could also adversely affect our sales of the challenged product and divert the efforts of our technical and management personnel, whether or not such litigation
is resolved in our favor. For example, we have an ongoing dispute with Techwing Inc., a Korean company, involving Techwing Inc.s alleged infringement of our patent rights with respect to memory test handlers. See Item 8 Financial
InformationConsolidated Statements and Other Financial InformationLegal Proceedings. We do not believe that we have infringed on the intellectual property rights of any third party.



We are controlled by a major shareholder.



Moon Soul Chung, our founder and former President, Chief Executive Officer
and Chairman of the Board of Directors, together with his family members, beneficially owns approximately 13.86% of our outstanding common stock, on a fully diluted basis as of December 31, 2004. See Item 6 Directors, Senior
Management and EmployeesShare Ownership. Accordingly, Mr. Chung may be able to influence the composition and decisions of our Board of Directors and shareholder votes relating to certain types of decisions and transactions,
including those involving an actual or potential change of control.



We
rely on key personnel.



As is common in the
semiconductor and related industries, success depends to a significant extent upon our key senior executives and research and development, engineering, marketing, sales, manufacturing, support and other personnel. Our success also depends upon our
ability to continue to attract, retain and motivate qualified personnel. The competition for such employees is intense, and the loss of the services of any of these key personnel without adequate replacement or the inability to attract new qualified
personnel could have a material adverse effect on us. Although we have key man life insurance for all executive officers, the loss of the services of key personnel or the inability to attract additional qualified personnel could have a
material adverse effect on our business, financial condition and results of operations.



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We may be classified as a passive foreign investment company for United States federal income tax purposes, which
could result in negative tax consequences to you.



Since we presently hold a significant amount of short-term investments and other passive assets, including cash, and as we anticipate that we will continue to hold a significant amount of passive assets, there is a risk that we will be a
passive foreign investment company (a PFIC) for United States federal income tax purposes. If we are a PFIC for the current or any future taxable year, a U.S. Holder (as defined in Item 10 Additional
InformationTaxationUnited States Federal Income Tax ConsiderationsPFIC Considerations) of our common shares or ADSs may be subject to tax at ordinary income tax rates on (i) any gain recognized on the sale, exchange or
other disposition of our common shares or ADSs and (ii) any excess distribution paid on our common shares or ADSs (generally, a distribution in excess of 125% of the average annual distributions paid by us in the three preceding
taxable years). In addition, a U.S. Holder may be subject to an interest charge on such gain or excess distribution. Further, a U.S. Holder would not be eligible for the 15% reduced tax rate on dividends paid on our common shares or ADSs in a year
that we were a PFIC or in the subsequent year. Certain aspects of this adverse tax treatment, however, may be avoided by a U.S. Holder who makes a mark-to-market election. See Item 10 Additional
InformationTaxationUnited States Federal Income Tax ConsiderationsPFIC Considerations for a more detailed discussion of the United States federal income tax consequences if we were a PFIC and the tax consequences of the
mark-to-market election. Each investor is urged to consult its tax advisor regarding the application and the effect of the PFIC rules in connection with the acquisition, ownership and disposition of our common shares or ADSs.



Becoming an investment company would preclude us from making subsequent offerings.



While we believe we are not an investment company, as
defined in the U.S. Investment Company Act of 1940, as amended, and we do not intend to become an investment company, to the extent we acquire additional investment securities as the result of which the value of our total investment securities
exceeds 40% of the value of our total assets (exclusive of U.S. government securities and cash items) on an unconsolidated basis, we could become an investment company. If we became an investment company, we would be precluded from raising
additional capital in the United States.



Risks Relating to Korea



Our businesses may be adversely affected by developments affecting
the Korean economy.



We are dependent to a large
extent on sales of our products to Korean companies. As a result, our future performance will depend in large part on Koreas economic growth and stability. Adverse developments in Koreas economy or in political or social conditions in
Korea may have an adverse effect on our results of operations, which could have an adverse effect on our business.



In 1997 and 1998, Korea experienced a significant increase in the number and size of companies filing for corporate reorganization and protection from
their creditors. As a result of these corporate failures, high levels of short-term foreign currency borrowings from foreign financial institutions and the non-market oriented factors in making lending decisions, Koreas financial institutions
experienced a sharp increase in non-performing loans and a deterioration in their capital adequacy ratios. These developments led to a substantial increase in the number of unemployed workers, reducing the purchasing power of consumers in Korea.
These developments also led international credit rating agencies to downgrade the credit ratings of Korea and various companies and financial institutions in Korea to below investment grade, although Standard & Poors Ratings Services
(S&P) and Moodys Investors Service, Inc. (Moodys) raised the credit rating of Korea back to investment grade levels in early 1999. The current long-term foreign currency rating of Korea by S&P is A- and
the current foreign currency rating on bond obligations of Korea by Moodys is A3. Prompted by heightened security concerns stemming from nuclear weapons program of Democratic Peoples Republic of Korea, or North Korea, Moodys
changed the outlook on the long-term ratings of Korea from positive to negative in February 2003 before changing it to stable in June 2004 as a series of six party talks involving Korea, the United States, North Korea, China, Japan and Russia
suggested that tensions may lessen with regard to the nuclear weapons program of North Korea.



Although the Korean economy began to experience a recovery in 1999, the pace of the recovery has since slowed and has been volatile. The economic indicators in 2002, 2003 and 2004 have shown mixed signs of recovery
and uncertainty, and future recovery or growth of the economy is subject to many factors beyond our control. Events related to terrorist attacks in the United States that took place on September 11, 2001, recent developments in the Middle East,
including the war in Iraq, higher oil prices and the general weakness of the global economy have increased the uncertainty of world economic prospects in general and continue to have an adverse effect on the Korean economy. Any future deterioration
of the Korean economy would adversely affect our financial condition and results of operations.



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The Korean economy in 2004 has been volatile and growth has been limited, in part as a result of decrease
in the domestic demand and deterioration in consumer sentiment due to the record-high credit card and household debt, which constrains any increases in consumption.



Developments that could hurt Koreas economy in the future include:



| |  |  | financial problems relating to Korean conglomerates, or chaebols, or their suppliers, and their potential adverse impact on Koreas financial sector, including as a result of
recent investigations relating to unlawful political contributions by chaebols;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | failure of restructuring of large troubled companies, including LG Card and other troubled credit card companies and financial institutions;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | adverse changes or volatility in foreign currency reserve levels, commodity prices (including oil prices), exchange rates (including depreciation of the U.S. dollar or Yen),
interest rates and stock markets;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | increased reliance on exports to service foreign currency debts, which could cause friction with Koreas trading partners;
| | - |  | --------------------------------------------------------------------------------------------------------------------------



| |  |  | adverse developments in the economies of countries such as the United States, China and Japan to which Korea exports, or in emerging market economies in Asia or elsewhere that could
result in a loss of confidence in the Korean economy;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the continued emergence of China, to the extent its benefits (such as increased exports to China) are outweighed by its costs (such as competition in export markets or for foreign
investment and the relocation of the manufacturing base from Korea to China);
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | social and labor unrest or declining consumer confidence or spending resulting from lay-offs, increasing unemployment and lower levels of income;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | another widespread outbreak of severe acute respiratory syndrome, or SARS, or any similar contagion, in Asia and other parts of the world;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | a decrease in tax revenues and a substantial increase in the Korean governments expenditures for unemployment compensation and other social programs that, together, lead to an
increased government budget deficit;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | political uncertainty or increasing strife among or within political parties in Korea; and
| | - |  | ------------------------------------------------------------------------------------------



| |  |  | a deterioration in economic or diplomatic relations between Korea and its trading partners or allies, including such deterioration resulting from trade disputes or disagreements in
foreign policy.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Any developments that could
adversely affect Koreas economic recovery will likely also decrease demand for our products and adversely affect our financial condition and results of operations.



Depreciation of the value of the Won against the U.S. dollar and other major foreign currencies may have a material adverse effect on
our results of operations and on the prices of our common stock and the ADSs.



Substantially all of our revenues are denominated in Won. Depreciation of the Won may materially affect our results of operations because, among other things, it causes:



| |  |  | an increase in the amount of Won required by us to make interest and principal payments on our foreign currency-denominated debt, which accounted for approximately 64.8% of our
total consolidated long-term debt, including current portion, as of December 31, 2004; and
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | an increase in Won terms, of the costs of equipment that we purchase from overseas sources which we pay for in U.S. dollars or other foreign currencies.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------



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Fluctuations in the exchange rate between the Won and the U.S. dollar will affect the U.S. dollar
equivalent of the Won price of the shares of our common stock on the KRX Stock Market. These fluctuations also will affect the amounts a registered holder or beneficial owner of ADSs will receive from the ADR depositary in respect of:



| |  |  | dividends, which will be paid in Won to the ADR depositary and converted by the ADR depositary into U.S. dollars;
| | - |  | -----------------------------------------------------------------------------------------------------------------



| |  |  | the U.S. dollar value of the proceeds that a holder will receive upon sale in Korea of the shares; and
| | - |  | ------------------------------------------------------------------------------------------------------



| |  |  | the secondary market price of the ADSs.
| | - |  | ---------------------------------------



Increased tensions with North Korea could have an adverse effect on us and the prices of our common stock and the ADSs.



Relations between Korea and North Korea have been tense over most of
Koreas history. The level of tension between Korea and North Korea has fluctuated and may increase or change abruptly as a result of current and future events, including ongoing contacts at the highest levels of the governments of Korea and
North Korea and increasing hostility between North Korea and the United States. In December 2002, North Korea removed the seals and surveillance equipment from its Yongbyon nuclear power plant and evicted inspectors from the United Nations
International Atomic Energy Agency, and has reportedly resumed activity at its Yongbyon power plant. In January 2003, North Korea announced its intention to withdraw from the Nuclear Non-Proliferation Treaty, demanding that the United States sign a
non-aggression pact as a condition to North Korea dismantling its nuclear program. In August 2003, representatives of Korea, the United States, North Korea, China, Japan and Russia held multilateral talks in an effort to resolve issues relating to
North Koreas nuclear weapons program. While the talks concluded without resolution, participants in the August meeting indicated that further negotiations may take place in the future and, in February 2004, six party talks resumed in Beijing,
China. Since the last six party talks in June 2004, however, the talks involving the six countries aimed at dismantling the North Koreas nuclear programs have been stalled. In February 2005, North Korea claimed that it had nuclear weapons and
were pulling out of the six party talks. Any further increase in tensions, resulting for example from a break-down in contacts, test of long-range nuclear missiles coupled with continuing nuclear programs by North Korea or an outbreak in military
hostilities, could hurt our business, results of operations and financial condition and could lead to a decline in the market value of our common stock and the ADSs.



Koreas new legislation allowing class action suits related to securities transactions may expose us to additional litigation
risk.



A new law enacted on January 12, 2004
allows class action suits to be brought by shareholders of companies (including us) listed on the KRX Stock Market for losses incurred in connection with purchases and sales of securities and other securities transactions arising from (i) false
or inaccurate statements provided in the registration statements, prospectuses, business reports and audit reports; (ii) insider trading and (iii) market manipulation. This law became effective starting from January 1, 2005 with
respect to companies whose total assets are equal to or greater than Won 2.0 trillion as of the end of the fiscal year immediately preceding January 1, 2005. However, in the event that certain elements of a financial statement for the fiscal
year ended before January 1, 2005 were not in compliance with the then effective accounting standards, this law does not apply, if such non-compliance is cured or addressed in the financial statements for the fiscal year ending on
December 31, 2006, and such corrected information is submitted to the Financial Supervisory Commission or the Korea Exchange Inc., or the KRX, or made publicly available. This law permits 50 or more shareholders who collectively hold 0.01% of
the shares of a company to bring a class action suit against, among others, the issuer and its directors and officers. It is uncertain how the courts will apply this law. Litigation can be time-consuming and expensive to resolve, and can divert
management time and attention from the operation of a business. We are not aware of any basis under which such suit may be brought against us, nor are any such suits pending or threatened. Any such litigation brought against us could have a material
adverse effect on our business, financial condition and results of operations.



Risks Relating to the ADSs



Liquidity of our ADSs may be
limited.



Our ADSs were first quoted for trading on
The Nasdaq National Market on November 17, 1999 under the symbol MRAE and we issued new ADSs on February 17, 2000. An active market for our ADSs has not yet developed and trading volumes of our ADSs in The Nasdaq National
Market remain low. There can be no assurance that an active market will develop or, if such a market does develop, that it will continue.



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An investor in our ADSs may not be able to exercise preemptive rights for additional shares and may suffer dilution
of his equity interest in us.



The Korean Commercial
Code and our articles of incorporation require us, with some exceptions, to offer shareholders the right to subscribe for new shares in proportion to their existing ownership percentage whenever new shares are issued. If we offer any rights to
subscribe for additional shares of our common stock or any rights of any other nature, the ADR depositary, after consultation with us, may make the rights available to an ADS holder or use reasonable efforts to dispose of the rights on behalf of the
ADS holder and make the net proceeds available to the ADS holder. The ADR depositary, however, is not required to make available to an ADS holder any rights to purchase any additional shares unless it deems that doing so is lawful and feasible and:



| |  |  | a registration statement filed by us under the U.S. Securities Act of 1933, as amended, is in effect with respect to those shares; or
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the offering and sale of those shares is exempt from, or is not subject to, the registration requirements of the U.S. Securities Act.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------



We are under no obligation to file any registration statement with respect to
any ADSs. If a registration statement is required for an ADS holder to exercise preemptive rights but is not filed by us, the ADS holder will not be able to exercise his preemptive rights for additional shares. As a result, ADS holders may suffer
dilution of their equity interest in us.



Your ability to deposit shares
with the Depositary and obtain ADSs may be limited.



Under current Korean laws and regulations, neither shares of our common stock acquired in the open market nor shares withdrawn from the depositary facility may be deposited or re deposited, as the case may be, in the depositary facility
without our consent. No assurance can be given that we will always consent to the deposit of such shares.



As a holder of ADSs, you will have fewer rights than a shareholder has and you will have to act through the Depositary to exercise those rights.



The rights of shareholders under Korean law to take actions, including
voting their shares, receiving dividends and distributions, bringing derivative actions, examining our accounting books and records and exercising appraisal rights, are available only to holders of record. Since the Depositary, through Korea
Securities Depository, is the holder of record of the shares underlying the ADSs, only the Depositary can exercise those rights in connection with the deposited shares. The Depositary will, if we ask it to, make efforts to vote the shares underlying
your ADSs as instructed by you and will pay to you the dividends and distributions collected from us. However, in your capacity as an ADS holder, you will not be able to bring a derivative action, examine our accounting books and records or exercise
appraisal rights. Furthermore, we may not ask the Depositary to solicit your instructions on how to vote. If you surrender your ADSs and take delivery of the underlying shares, you can exercise all the rights of a shareholder, including voting your
shares. However, you may not be informed of events affecting shareholders sufficiently in advance.



ITEM 5. Operating and Financial Review and Prospects



The following discussion should be read in conjunction with our consolidated financial statements and notes thereto included elsewhere herein. Our consolidated financial statements have been prepared in accordance
with Korean GAAP, which differs in certain significant respects from US GAAP. The section titled Critical Accounting Policies, Estimates and Judgments as well as note 2 to our consolidated financial statements should be read
carefully which provide summaries of certain critical accounting policies that require our management to make difficult, complex or subjective judgments relating to matters which are highly uncertain and that may have a material impact on our
financial conditions and results of operations.



Overview



We design and manufacture mechatronics machines, including the
high-precision robotic parts and software that controls these robotic parts, primarily for sale to the semiconductor manufacturing and PCB assembly industries. Our product lines consist of semiconductor test handlers and their components and SMD
placement systems. We transferred our TFT-LCD test handler line to DE&T, which was our affiliate in 2001, for Won 825 million on August 1, 2001. We also sold 2,726,800 shares of common stock in SoftForum to a third party for Won
9,010 million on March 24, 2005. In addition, we provided Information Technology related



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services in Korea through our subsidiaries and joint ventures and other strategic alliances with, and by making strategic investments in, Information
Technology related companies. We have, however, recently made a strategic decision to not pursue this line of business in order to focus on our core businesses and have recently disposed of certain investments in such companies. See Item 4
Information on the CompanyHistory and Development of the CompanyCorporate Restructuring.



Historically, our sales had been concentrated with a small number of Korean customers that are semiconductor manufacturers as well as major conglomerates
in Korea. In 1999, we began to market our products internationally in pursuit of customer diversification and profit maximization, and our global sales have gradually increased over the years. However, in 2001, our export sales decreased
significantly, in large part due to the worldwide decline in the semiconductor industry and the bankruptcy of Quad Systems Corporation, formerly one of our major customers for SMD placement systems, which filed a voluntary petition for
reorganization under Chapter 11 of the U.S. Bankruptcy Code on September 29, 2000. In 2001, the portion of total sales derived from export sales decreased to 18% from 41% in 2000. In 2002, 2003 and 2004, however, export sales were almost double
the 2001 figure, or 32%, 31% and 36%, respectively, of our total sales revenue, due to sales increases in the United States and Asia.



Our sales and results of operations depend significantly on levels of capital expenditures by semiconductor manufacturers, electronic manufacturers and
PCB assemblers, which in turn depend on the current and anticipated market demand for semiconductors and products utilizing semiconductors and PCB assemblies.



Demand for semiconductor devices and expenditures for related capital equipment is cyclical and is dependent on levels of worldwide demand for
computing and peripheral equipment, telecommunications devices and automotive and industrial components, as well as the production capacity of global semiconductor manufacturers. Historically, changes in production capacity in the semiconductor
industry and in the demand for electronic systems have resulted in pronounced periodic declines in the level of semiconductor sales and significant fluctuations in prices and margins for semiconductor devices.



The cyclical variations in the supply and demand of DRAM chips and the
fluctuations in the electronic manufacturing industry have affected and will continue to affect our sales and results of operations. Our principal means of responding to this situation have been and will be as follows:



| |  |  | we adopted a concerted marketing and export strategy focused beyond our traditional Korean customer base;
| | - |  | ---------------------------------------------------------------------------------------------------------



| |  |  | we expanded our mechatronics product lines to include Display Materials;
| | - |  | ------------------------------------------------------------------------



| |  |  | we will, on an ongoing basis, concentrate our research and development on several projects that would enhance our product development; and
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | we sold buildings and subsequently transferred employees to Chun An City to focus on our core businesses and to increase efficiency of organization and reduce expenses.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Future operating profits will depend on many
factors, some of which are beyond our control, including:



| |  |  | the business fluctuation of the semiconductor and electronic manufacturing industry;
| | - |  | ------------------------------------------------------------------------------------



| |  |  | our ability to successfully expand our product markets outside of Korea;
| | - |  | ------------------------------------------------------------------------



| |  |  | receipt, timing and shipment of orders;
| | - |  | ---------------------------------------



| |  |  | the introduction and industry acceptance of our new semiconductor test handlers and Display Materials;
| | - |  | ------------------------------------------------------------------------------------------------------



| |  |  | SMD placement systems; and
| | - |  | --------------------------



| |  |  | the success of our competitors.
| | - |  | -------------------------------



Results of operations for the periods discussed herein should not be considered indicative of the results to be expected in any future period, and
fluctuations in operating results may also result in fluctuations in the market price of our common stock and the ADSs.



15



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##### Table of Contents

A. Operating Results



The following table sets forth certain information regarding our financial performance for each of the years ended December 31, 2002, 2003 and 2004:



|                                                                  |  |                    |   |  |                  |   |  |                    |   |  |                  |   |  |                    |   |  |                  |  
|----------------------------------------------------------------- |  | ------------------ | - |  | ---------------- | - |  | ------------------ | - |  | ---------------- | - |  | ------------------ | - |  | ---------------- | -
|                                                                  |  | 2002               |   |  | 2003             |   |  | 2004               |  
|                                                                  |  | (inmillionsof Won) |   |  | (% oftotalsales) |   |  | (inmillionsof Won) |   |  | (% oftotalsales) |   |  | (inmillionsof Won) |   |  | (% oftotalsales) |  
|Sales                                                             |  | 64,430             |   |  | 100              | % |  | 95,053             |   |  | 100              | % |  | 66,881             |   |  | 100              | %
|Semiconductor test handlers                                       |  | 14,434             |   |  | 22.4             |   |  | 44,184             |   |  | 46.5             |   |  | 33,523             |   |  | 50.1             |  
|SMD placement systems                                             |  | 23,486             |   |  | 36.5             |   |  | 19,201             |   |  | 20.2             |   |  | 24,299             |   |  | 36.3             |  
|Security solutions(1)                                             |  | 15,881             |   |  | 24.6             |   |  | 17,189             |   |  | 18.1             |   |  |                   |   |  |                 |  
|Other                                                             |  | 10,629             |   |  | 16.5             |   |  | 14,479             |   |  | 15.2             |   |  | 9,059              |   |  | 13.6             |  
|Cost of sales                                                     |  | 56,863             |   |  | 88.2             |   |  | 72,703             |   |  | 76.5             |   |  | 51,645             |   |  | 77.2             |  
|Gross profit                                                      |  | 7,567              |   |  | 11.8             |   |  | 22,350             |   |  | 23.5             |   |  | 15,236             |   |  | 22.8             |  
|Selling, general and administrative expenses                      |  | 37,651             |   |  | 58.4             |   |  | 27,973             |   |  | 29.4             |   |  | 22,657             |   |  | 33.9             |  
|Operating income (loss)                                           |  | (30,084            | ) |  | (46.6            | ) |  | (5,623             | ) |  | (5.9             | ) |  | (7,421             | ) |  | (11.1            | )
|Other income                                                      |  | 13,285             |   |  | 20.6             |   |  | 36,810             |   |  | 38.7             |   |  | 5,224              |   |  | 7.8              |  
|Other expense                                                     |  | 56,091             |   |  | 87.1             |   |  | 30,271             |   |  | 31.8             |   |  | 29,722             |   |  | 44.4             |  
|Income (loss) before income taxes and minority interest           |  | (72,890            | ) |  | (113.1           | ) |  | 916                |   |  | 1                |   |  | (31,919            | ) |  | (47.7            | )
|Income tax expense (benefit)                                      |  | 277                |   |  | 0.4              |   |  | 18                 |   |  | 0.02             |   |  |                   |   |  |                 |  
|Net income (loss) before minority interest                        |  | (73,167            | ) |  | (113.6           | ) |  | 898                |   |  | 0.9              |   |  | (31,919            | ) |  | (47.7            | )
|Minority interest in net loss (gain) of consolidated subsidiaries |  | 176                |   |  | 0.3              |   |  | 1,626              |   |  | 1.7              |   |  | 265                |   |  | 0.4              |  
|Net income (loss)                                                 |  | (72,991            | ) |  | (113.3           | ) |  | 2,524              |   |  | 2.7              |   |  | (31,654            | ) |  | (47.3            | )
|                                                                  |  |                    |   |  |                  |   |  |                    |   |  |                  |   |  |                    |   |  |                  |  

---

|(1) | On March 24, 2005, we sold 2,726,800 shares of common stock in SoftForum to a third party for Won 9,010 million and currently own 7.51% of the issued and outstanding
shares of such company. As a result, we expect that there will not be any revenues from our securities solutions business, resulting from the consolidation of our investment in SoftForum.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Factors Affecting Operating Results



Our operating results have experienced, and may continue to experience,
severe fluctuation and downward pressure as a result of a number of factors, some of which are interrelated, associated with the markets in which we operate, including the following:



| |  |  | As a result of our diversification efforts into SMD placement systems and our successful launch of new models of SMD placement systems in the domestic market since the second half
of 1999, our earnings have been less vulnerable to the cyclical nature of the semiconductor industry than it had been prior to such time. Our revenues from the sale of SMD placement systems accounted for 36.5%, 20.2% and 36.3% of our total revenues
in 2002, 2003 and 2004, respectively. Our gross profit margins on our SMD placement systems were not, and continue to be less profitable than our test handler products as we have and expect to continue to provide significant discounts in order to
maintain and gain market share amid a very competitive environment.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | As of December 31, 2004, we had investments valued at Won 13 billion in companies involved in Information Technology. Such businesses showed moderate levels of
success over the years but not all of these investments were profitable. For various reasons, including our managements strategic decision to focus on our core businesses, we sold many of our investments in such companies. In August 2002, we
sold our interests in SK Communications to SK Telecom Co., Ltd. for cash, reducing our ownership interest from 43.25% to 4.54%. We sold our remaining ownership interests in SK Communications on June 13, 2003. As a result of such disposal, we
recorded gain on disposal of available-for-sale securities of Won 26,940 million in 2003. On March 24, 2005, we disposed 2,726,800 shares of common stock in SoftForum to a third party for Won 9,010 million and expect to record a gain
on disposal of available-for-sale securities of Won 9,734 million. As a result of such disposal, our ownership percentage of SoftForum decreased to 7.51% and SoftForum, MR Tech, Alpha Logics were excluded from consolidation for the year ended
December 31, 2004 in accordance with Korean GAAP. Although we currently hold 7.51% of the issued and outstanding shares of SoftForum, we do not currently expect to increase our ownership interest in SoftForum in the future nor do we currently
anticipate making any new investments in companies
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



16



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##### Table of Contents

| | related to Information Technology. As a result, income attributable to our investments in such companies is expected to be significantly reduced in the
future.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Virtually all of our handler products are subject to life cycles, which generally range from 18 to 24 months, after which prices which can charge for these products generally
decrease as newer models with improved performance are introduced. If new products are not introduced on a regular basis to replace older models, our overall gross margins will experience downward pressure as the gross margins on the older models
decline.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Our semiconductor test handlers and SMD placement systems come with a one-year product warranty, for both parts and labor. Prior to January 1, 2004, we expensed warranty costs
as they were incurred rather than provide for estimated costs at the time of sale, which resulted in the delayed recognition of warranty costs, generally by approximately one year. Beginning in January 1, 2004, however, estimated warranty
expenses are accrued at the time of sale based on historical experience and expected future expenses, which we believe more accurately reflects the timing and recognition of costs relating to warranties expenses. Our domestic semiconductor test
handler customers have historically focused on front-end manufacturing processes and do not have the facilities or expertise necessary to maintain and repair their back-end equipment. When our customers experience difficulties with one of our
handler products, we have provided complimentary after-sale services even if the problem is not expressly covered by the terms of the product warranty. The costs incurred in providing these services are booked as product warranty expenses. We do not
intend to provide similar complimentary services, which are not covered by the terms of our product warranties for our SMD placement systems.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Year Ended December 31, 2004 Compared to Year Ended December 31, 2003



Sales



Sales revenue for the year ended December 31, 2004 decreased by Won 28,172 million, or 29.6%, to Won 66,881 million, compared to Won
95,053 million for the year ended December 31, 2003. The decrease of sales revenues in 2004 was primarily due to the decrease of revenues from security solutions, resulting from the sale of our ownership interest in SoftForum in March
2005. Although the sale took place in 2005, the sale from SoftForum were not consolidated in 2004 as under Korean GAAP when a parent company is obviously expected to lose control over a consolidated subsidiary within one year from the balance sheet
date, the subsidiary is not to be included in the consolidated financial statements for such fiscal year. The decrease of sales revenues in 2004 was also due to the decrease of revenues derived from sales of semiconductor test handlers, which was
partially offset by the increase of revenues derived from sales of SMD placement systems.



Revenues from our securities solutions business, resulting from the consolidation of our investment in SoftForum decreased from Won 17,189 million in 2003 to nil in 2004 as a result of the sale of our ownership
interest in SoftForum. SoftForums revenues were from sales of software-based securities solutions for on-line banking, trading, electronic commerce and related security solutions products and services.



The sales revenue derived from semiconductor test handlers and components
decreased by Won 10,661 million, or 24.1%, from Won 44,184 million in 2003 to Won 33,523 million in 2004, largely due to the decline in the semiconductor and related industries over the period.



The sales revenue derived from SMD placement systems increased by Won
5,098 million, or 26.6%, from Won 19,201 million in 2003 to Won 24,299 million in 2004, primarily due to introduction of new models and stronger demand for our products.



The proportion of export sales revenue compared to total sales revenue for semiconductor test handlers and components
decreased to 26.5% for the year ended December 31, 2004, from 30.0% for the year ended December 31, 2003. In addition, the proportion of export sales revenue compared to total sales revenue for SMT placement systems increased to 13.0% for
the year ended December 31, 2004, from 11.6% for the year ended December 31, 2003.



Cost of Sales



The
principal components of cost of sales are raw material costs, labor costs, depreciation expense, research and development costs and outsourced manufacturing expenses. Cost of sales decreased by Won 21,058 million, or 28.9%, to Won
51,645 million for the year ended December 31, 2004 from Won 72,703 million for the year ended December 31, 2003.



17



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##### Table of Contents

This decrease was primarily due to decrease of semiconductor test handlers and components sales and also due to the sale
of our ownership interest in SoftForum.



The ratio of cost of
sales to total sales revenue in 2004 was 77.2% compared to 76.5% in 2003. The ratio of cost of sales to sales revenue decreased slightly due to a disproportionate decrease in cost of sales compared to the decrease in total sales revenue over the
period.



Gross Profit



Gross profit decreased by Won 7,114 million, or 31.8%, to Won
15,236 million for the year ended December 31, 2004 from Won 22,350 million for the year ended December 31, 2003 due to the factors discussed above.



Gross profit to sales ratio also decreased slightly to 22.8% in 2004 from 23.5% in 2003, primarily a result of an decrease
in the sales of semiconductor test handlers, which generally have higher gross margins than that of SMD placement systems.



Selling, General and Administrative Expenses



Selling, general and administrative expenses primarily include salaries, sales expense, bad debt expense, commissions expense, depreciation expense and
warranty expense. Selling, general and administrative expenses decreased by Won 5,316 million, or 19.0%, to Won 22,657 million in 2004 from Won 27,973 million in 2003 as a result of the following reasons:



| |  |  | A decrease in salaries to Won 7,137 million of salaries expense for the year ended December 31, 2004, which represented a decrease of Won 2,531 million, or 26.2%,
compared to Won 9,668 million for the year ended December 31, 2003. The decrease in salaries was primarily due to the exclusion of SoftForum from consolidation for the year ended December 31, 2004.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | A decrease in bad debts to Won 1,784 million for the year ended December 31, 2004, which represented a decrease of Won 1,440 million, or 44.7%, compared to Won
3,224 million for the year ended December 31, 2003, respectively. The decrease in bad debt expenses was due to our efforts to control credit quality of our potential and current customers through our credit control process upon opening up
an account with us.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | A decrease in commissions expense, including sales and customer service commissions by Won 1,014 million, or 23.2%, from Won 4,370 million in 2003 to Won
3,356 million in 2004, which was primarily due to the decrease of sales revenues.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | A decrease in depreciation expenses by Won 914 million, or 33.9%, from Won 2,699 million in 2003 to Won 1,785 million in 2004. This decrease was primarily due to the
exclusion of SoftForum from our results of operations for the year ended December 31, 2004.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The decrease in selling, general and administrative expenses was offset in part by:



| |  |  | An increase in products warranty expenses by Won 1,826 million from Won 86 million in 2003 to Won 1,912 million in 2004. This result was due to a change in the
accounting treatment of product warranty expenses. Through 2003, under Korean GAAP prevailing at such time, product warranty expenses were expensed as they were incurred. Effective January 1, 2004, estimated warranty expenses are accrued at the
time of sale based on historical experience and expected future expenses.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Operating Loss



Operating loss for the year
ended December 31, 2004 was Won 7,421 million, which represents an increase in loss of Won 1,798 million, or 31.9%, from our operating loss of Won 5,623 million for the year ended December 31, 2003.



Other Income



Other income consists primarily of interest income, gain on disposal and valuation of trading securities, gain on disposal
of available-for-sale securities, foreign exchange and translation gains and miscellaneous other income. Other income decreased by Won 31,586 million, or 85.8%, from Won 36,810 million in 2003 to Won 5,224 million in 2004, primarily
due to a recognition of gain on disposal of available-for-sale securities resulting from the sale of available-for-sale securities of Won 26,940 million in 2003 compared to nil in 2004, resulting from the sale of all of our ownership interests
in SK Communications Corporation in 2003.



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##### Table of Contents

Other Expenses



Other expenses consist primarily of interest expense, foreign exchange and translation losses, loss on valuation of inventory, provision for other
doubtful accounts, loss on collateralized assets, loss from impairment of deferred development costs, loss from impairment of available-for-sale securities, equity in losses of affiliates and miscellaneous other expenses. Other expenses decreased
slightly by Won 549 million, or 1.8%, to Won 29,722 million in 2004 from Won 30,271 million in 2003 for the following reasons:



| |  |  | Equity in losses of affiliates in 2004 decreased by Won 3,485 million, or 43.8%, to Won 4,468 million in 2004 from Won 7,953 million in 2003.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | A decrease in loss from valuation of inventories from Won 12,428 million in 2003 to nil in 2004 as a result of the recognition of such expense as cost of sales beginning in
2004 in accordance with our adoption of SKAS No. 10. For the year ended December 31, 2004, loss from valuation of inventories recognized as cost of sales totaled Won 1,946 million.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | A decrease in provision for other doubtful accounts from Won 1,746 million in 2003 to Won 1,101 million in 2004 as a result of reduction in advance payments, long-term
loans and others.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | A decrease in equity in losses of affiliates from Won 7,953 million in 2003 to Won 4,468 million in 2004 as a result of the decrease in equity in losses of Cyber Bank from
Won 7,495 million in 2003 to Won 2,066 million in 2004.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The above decreases were offset in part by increases in:



| |  |  | Foreign exchange and translation losses from Won 477 million in 2003 to Won 2,638 million in 2004 as a result of the appreciation of the value of Won compared to the
Dollar.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Loss on collateralized assets from nil in 2003 to Won 14,816 million 2004 as a result of provisioning for collateralized assets in connection with the borrowings by Cyber Bank.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Loss from impairment of deferred development costs increased by Won 967 million, or 63.6%, to Won 2,488 million in 2004 from Won 1,521 million in 2003 primarily due
to the discontinuation of certain development projects.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Income Taxes



A full valuation allowance has
been provided for the tax effect of temporary differences, net operating loss carry-forwards and tax credit carry-forwards as of December 31, 2004 as we made a determination that the realization of the deferred tax assets is uncertain. Income
tax expense decreased by Won 18 million, or 100.0%, to zero in 2004 from Won 18 million in 2003.



Net Loss



Net loss was
Won 31,654 million in 2004, from a net income of Won 2,524 million in 2003, principally as a result of the factors discussed above.



Year Ended December 31, 2003 Compared to Year Ended December 31, 2002



Sales



Sales revenue for the year ended December 31, 2003 increased by Won 30,623 million, or 47.5%, to Won 95,053 million, compared to Won
64,430 million for the year ended December 31, 2002. The increase of sales revenues in 2003 was primarily due to the increase of revenues derived from sales of semiconductor test handlers, which was partially offset by the decrease of
revenues derived from sales of SMD placement systems. Sales revenue also increased due to increased sales revenues derived sales relating to securities solutions resulting from our ownership interest in SoftForum, for sales of software-based
securities solutions.



19



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##### Table of Contents

The sales revenue derived from semiconductor test handlers and components increased by Won
29,750 million, or 206.1%, from Won 14,434 million in 2002 to Won 44,184 million in 2003. The sales increase in semiconductor test handlers and components was largely due to the recovery in the semiconductor and related industries as
well as the sales of our new flash memory test handlers which we introduced in 2003. Sales revenue attributable to sales of flash memory test handlers were Won 14,860 million or 33.6% of our semiconductor equipment sales in 2003 compared to nil
in 2002.



Sales revenue derived from SMD placement systems
decreased by Won 4,285 million, or 18.2%, from Won 23,486 million in 2002 to Won 19,201 million in 2003. This decrease was attributable to the fact that we changed our policy of expanding our SMD market penetration to a strategy of
focusing on profit and more credit-worthy customers.



We
recognized revenues of Won 17,189 million from sales of software-based securities solutions for on-line banking, trading and electronic commerce for the year ended December 31, 2003 compared to Won 15,881 million for the year ended
December 31, 2002 from our subsidiary, SoftForum. Such increase in revenue was primarily due to the increase in sales of network equipment which use securities solutions offered by SoftForum.



The proportion of export sales revenue compared to total sales revenue for
semiconductor test handlers and components increased to 30.0% for the year ended December 31, 2003, from 19.0% for the year ended December 31, 2002. The proportion of export sales revenue compared to total sales revenue for SMT placement
systems decreased to 11.6% for the year ended December 31, 2003, from 28.7% for the year ended December 31, 2002.



Cost of Sales



The principal components of cost of sales are raw material costs, labor costs, depreciation expense, research and development costs and outsourced
manufacturing expenses. Cost of sales increased by Won 15,840 million, or 27.9%, to Won 72,703 million for the year ended December 31, 2003 from Won 56,863 million for the year ended December 31, 2002. This increase was
primarily due to increase of semiconductor test handlers and components sales.



The ratio of cost of sales to total sales revenue in 2003 was 76.5% compared to 88.2% in 2002. As the total sales volume increased, the ratio of cost of sales to sales revenue decreased due to our efforts to reduce
manufacturing costs resulting in part from higher capacity utilizations caused by increased production volumes for our test handler equipment manufacturing.



Gross Profit



Gross profit increased by Won 14,783 million, or 195.4%, to Won 22,350 million for the year ended December 31, 2003 from Won
7,567 million for the year ended December 31, 2002 primarily due to a greater rate of increase in our sales revenues compared to the rate of increase in our cost of sales.



Gross profit to sales ratio also increased to 23.5% in 2003 from 11.7% in 2002, primarily a result of an increase in the
sales of semiconductor test handlers, which have higher gross margins than that of SMD placement systems.



Selling, General and Administrative Expenses



Selling, general and administrative expenses decreased by Won 9,678 million, or 25.7%, to Won 27,973 million in 2003 from Won 37,651 million in 2002 as a result of the following reasons:



| |  |  | A decrease in bad debts to Won 3,224 million in December 31, 2003, which represented a decrease of Won 8,562 million, or 72.6%, compared to bad debts expense of Won
11,786 million for the year ended December 31, 2002. This decrease was primarily due to our efforts to control credit quality of our customers through our credit control process;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | A decrease in research and development costs of Won 1,357 million, or 56.3%, from Won 2,410 million in 2002 to Won 1,053 million in 2003 primarily due to the results
of the application to our research and development division of our corporate management and cost control system, known as ERP, which aims to streamline and make efficient our various business divisions; and
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



20



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##### Table of Contents

| |  |  | A decrease in salaries by Won 535 million, or 5.2%, from Won 10,203 million in 2002 to Won 9,668 million in 2003 due to a change in the composition of the seniority
levels of our employees.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The decrease in
selling, general and administrative expenses was offset in part by:



| |  |  | An increase by Won 1,041 million, or 31.3%, in commission expense, from Won 3,329 million in 2002 to Won 4,370 million in 2003. Commission expense includes sales and
customer service commissions. Such expenses increased as a result of the sales revenues increases.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Operating Loss



Operating loss for the year ended December 31, 2003 was Won 5,623 million, which represents an improvement of Won 24,461 million, or 81.3%,
from our operating loss of Won 30,084 million for the year ended December 31, 2002. The decrease in operating loss resulted primarily from the increase in total sales revenues and the decrease in selling, general and administrative
expenses in 2003, as compared to 2002.



Other Income



Other income consists primarily of interest income, gain on disposal and
valuation of trading securities, foreign exchange and translation gains and miscellaneous income. Other income increased by Won 23,525 million, or 177.1%, from Won 13,285 million in 2002 to Won 36,810 million in 2003.



Other income increased primarily due to a Won 26,940 million gain on
disposal of available-for-sale securities, which was incurred when we sold all of our 6,836,690 shares in SK Communications Corporation.



Other Expenses



Other expenses for the year ended December 31, 2003 consisted primarily of loss from valuation of inventories, equity in losses of affiliates and
interest expenses, loss on disposal and valuation of trading securities and provision for other doubtful accounts. Other expenses decreased by Won 25,820 million, or 46.0%, to Won 30,271 million in 2003 from Won 56,091 million in 2002
primarily due to the following reasons:



| |  |  | A decrease in loss from valuation of inventories from Won 20,409 million in 2003 to Won 12,428 million in 2002 primarily due to our inventory revaluation process on
obsolescent raw materials and finished products;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Loss from impairment of deferred development costs in 2003 decreased by Won 9,816 million, or 86.6%, to Won 1,521 million in 2003 from Won 11,337 million in 2002
primarily due to the discontinuation of certain development projects;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Provision for other doubtful accounts decreased by Won 5,341 million, or 75.3%, to Won 1,746 million in 2003 from Won 7,087 million in 2002 due to the decrease in
provisioning with respect to the money deposited with the court in connection with a certain dispute over the sale of our Kangnam building;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Loss on disposal and valuation of trading securities decreased by Won 3,049 million, or 90.2%, to Won 328 million in 2003 from Won 3,377 million in 2002 due to the
recovery of the Korean stock market;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Loss from impairment of available-for-securities decreased by Won 2,288 million, or 63.0%, from Won 3,631 million in 2002 to Won 1,343 million in 2003 due to the
increase in the value of such securities in connection with the recovery of the Korean stock market;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Interest expense decreased by Won 1,503 million, or 41%, to Won 2,160 million in 2003 from Won 3,663 million in 2002 primarily due to the decrease in the amount of
short term borrowings; and
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Foreign exchange and translation losses decreased by Won 1,625 million, or 77.3%, from Won 2,102 million in 2002 to Won 477 million in 2003 as a result of a smaller
appreciation of the value of Won in 2003 as compared to 2002.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



21



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##### Table of Contents

The above decreases were offset in part by in the following increases:



| |  |  | Equity in losses of affiliates in 2003 increased by Won 7,126 million, or 861.7%, to Won 7,953 million in 2003 from Won 827 million in 2002 primarily due to
additional Won 10,000 million investment in Cyber Bank, which increased our ownership to 28.24% from 1.05%.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Income Taxes



A full valuation allowance has been provided for the tax effect of temporary differences, net operating loss carry-forwards and tax credit carry-forwards
as of December 31, 2003 since we believe that the realization of the deferred tax assets is uncertain. Income tax expense decreased by Won 259 million, or 93.5%, to Won 18 million in 2003 from Won 277 million in 2002 due to
decrease of net profit of SoftForum.



Net Income



Net income for the year ended December 31, 2003 was Won
2,524 million, which was an improvement of Won 75,515 million, or 103.5%, compared to the net loss of Won 72,991 million in 2002, principally as a result of the factors discussed above.



Critical Accounting Policies, Estimates and Judgments



Our consolidated financial statements are prepared in accordance with Korean
GAAP. The preparation of these financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses as well as the disclosure of contingent assets and liabilities.
Management continually evaluates our estimates and judgments including those related to allowances for doubtful accounts, inventories, useful lives of property and equipment, investments, employee stock option compensation plans and income taxes.
Management bases their estimates and judgments on historical experience and other factors that are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions. We
believe that of our significant accounting policies, the following may involve a higher degree of judgment or complexity:



Allowances for Doubtful Accounts



An allowance for doubtful accounts is provided based on the estimated collectibility of individual accounts and historical bad debt experience. We
maintain allowances for doubtful accounts for estimated losses that result from the inability of our customers to make required payments. We base our allowances on the likelihood of recoverability of accounts receivable based on past experience and
taking into account current collection trends that are expected to continue. If economic or specific industry trends worsen beyond our estimates, we increase our allowances for doubtful accounts by recording additional expense.



Inventories



Inventories are stated at the lower of cost, determined using the weighted average method, or net realizable value.
Inventories consist of raw materials, finished goods, merchandise, work-in-process and inventories in transit. During the year, perpetual inventory systems are used to value inventories, which are adjusted to physical inventory counts performed at
the end of the year.



Estimated Useful Lives of Property and Equipment



We estimate the useful lives of property and equipment in
order to determine the amount of depreciation and amortization expense to be recorded during any reporting period. The useful lives are estimated at the time the asset is acquired and are based on historical experience with similar assets as well as
taking into account anticipated technological or other changes. If technological changes were to occur more rapidly than anticipated, or in a different form than anticipated, the useful lives assigned to certain assets may need to be shortened,
resulting in the recognition of increased depreciation and amortization expense in future periods. Alternatively, these technological changes could result in the recognition of an impairment charge to reflect the write-down in value of the asset. We
review these types of assets for impairment annually or when events or circumstances indicate that the carrying amount may not be recoverable over the remaining lives of the assets. In assessing impairments, we use cash flows that take into account
managements estimates of future operations.



The cost of
maintenance and repairs is charged to operations as incurred; expenditures which extend the useful life of the asset or result in increased future economic benefits, such as increase in capacity and improvement in the quality of output or standard
of



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performance, are capitalized. When assets are retired or otherwise disposed of, their carrying values and the related accumulated depreciation are removed
from the accounts and any resulting gain or loss is reflected in the current operations.



Investments



Investment
securities of non-consolidated-affiliated companies, over which we exercise significant influence, are stated using the equity method of accounting, whereby our initial investment is recorded at cost. The carrying value is subsequently increased or
decreased to reflect our share of income or loss of the investee and dividends received therefrom. Our share in net losses of its affiliates is reflected only to the extent of its investment-carrying amount.



Other investments in available-for-sale equity securities of listed
companies, available-for-sale debt securities and held-to-maturity debt securities are stated at fair value and the net unrealized gain or loss is recorded as a capital adjustment. Other investments in equity securities of non-listed companies are
stated at acquisition cost. If the fair value (or the net asset value for non-listed companies) of the investments declines significantly below the acquisition cost and is not expected to recover, such investments are carried at fair value (or net
asset value) and the resulting unrealized loss on investments is charged to current operations.



Employee Stock Option Compensation Plan



We adopted the fair value based method of accounting for the employee stock option compensation plan, which was established, effective as of March 25, 2000, in order to reward the performance of individual
officers and other employees who have contributed, or have the ability to contribute, significantly to us. Under the fair value based method, compensation cost is measured at the grant date, based on the value of the award, and is recognized over
the service period. For stock options, fair value is determined using an option-pricing model that takes into account the stock price at the grant date, the exercise price, the expected life of the option, the volatility of the underlying stock, the
expected dividends and a risk-free interest rate over the expected life of the option. However, as permitted under Korean GAAP, we exclude the volatility factor in estimating the value of its stock options granted before December 31, 2003,
which results in measurement at minimum value. The total compensation cost at the grant date is not subsequently adjusted for changes in the price of the underlying stock or its volatility, the expected life of the option, dividends on the stock, or
the risk-free interest rate.



Valuation of Long-term Receivables



Long-term receivables resulted from long-term installment
transactions are stated at the present value of the expected future cash flows. Imputed interest amounts are recorded in present value discount accounts that are deducted directly from the related nominal receivable balances. Such imputed interest
is included in operations using the effective interest rate method over the redemption period.



Derivative Instruments



We record rights and obligations arising from derivative instruments as assets and liabilities, which are stated at fair value. The gains and losses that resulted from the change in the fair value of derivative instruments are reported in
the current earnings. However, derivative instruments designed as hedging instruments are recorded as a separate component of shareholders equity and credited/charged to operations when the hedged transactions affect earnings, and the
ineffective portion of the gains or losses is credited/charged immediately to operations. We have no outstanding derivative instruments as of December 31, 2003 and 2004.



Income Taxes



Deferred tax assets and liabilities are recognized for the future tax consequences of operating loss carry-forwards, tax credits and temporary differences
between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets are recognized to the extent that they are expected to be realizable. Deferred tax assets and liabilities are
presented on the balance sheet as a single non-current net number.



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US GAAP Reconciliation



The consolidated financial statements have been prepared in accordance with Korean GAAP, which differs in certain respects
from US GAAP. The significant differences are described below. Other differences were determined not to have a significant effect on either the Company and its subsidiaries consolidated net income or shareholders equity.



Restatement of previously reported US GAAP information



In the course of responding to certain SEC staff comments to the
Companys annual report for the fiscal year ended December 31, 2004, the Company identified errors in its reconciliation to US GAAP as of and for the year ended December 31, 2004. The errors relate to the application of Financial
Accounting Standards Board (FASB) Interpretation No. 46 (Revised), Consolidation of Variable Interest Entities, an interpretation of ARB No. 51 (FIN 46(R)), Accounting Principles Board (APB)
Opinion No. 18 Equity Method of Accounting for Investments(APB Opinion No. 18), FASB Interpretation No. 45 Guarantors Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others (FIN 45), and Statement of Financial Accounting Standards (SFAS) No. 115 Accounting for Certain Investments in Debt and Equity Securities(SFAS No. 115). As a result,
the US GAAP amounts previously reported as of and for the year ended December 31, 2004 have been restated as follows.



| |  |  | Adjusted impairment losses from Cyber Bank: As stated in Note 13, allowance for loss on collateralized assets was recorded based on the Companys estimate that use of
such collateral to repay debts on behalf of Cyber Bank was probable. The amount of allowance was estimated based on the financial statements of Cyber Bank in accordance with Korean GAAP. Under US GAAP, such collateral is considered to be
guarantees of indebtedness of Cyber Bank, an equity method investee under APB Opinion No. 18. The guarantees of indebtedness were accounted for under FIN 45, which resulted in an increase in liabilities and equity method investments. Due to
Cyber Banks continued losses during the year ended December 31, 2004, the Companys investments in Cyber Bank were reduced to zero. Subsequent to recognizing such losses, the Company adopted FIN46(R) on December 31, 2004, and
consolidated Cyber Bank in accordance with FIN46(R) as of that date. During the process of applying FIN46(R) the Company identified additional losses of Won 6,111 million that should have been recorded under FIN No. 45 and APB Opinion
No. 18. The effects of these corrections are as follows (in millions of Won):
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|                                                                    |  |              |  
|------------------------------------------------------------------- |  | ------------ | -
|                                                                    |  | 2004         |  
|Net loss based on US GAAP as previously reported                    |  | (Won)(35,044 | )
|Effect of restatement:                                              |  |              |  
|Adjusted impairment losses                                          |  | (6,111       | )
|                                                                    |  |              |  
|Net loss based on US GAAP as restated                               |  | (Won)(41,155 | )
|                                                                    | 
|Net loss per share (basic and diluted) based on US GAAP (in Won)    |  |              |  
|Net loss per share (basic and diluted) as previously reported       |  | (Won) (197   | )
|Effect of restatement:                                              |  |              |  
|Adjusted impairment losses                                          |  | (35          | )
|Net loss per share (basic and diluted) based on US GAAP as restated |  | (Won) (232   | )



|                                                             |  |              |  
|------------------------------------------------------------ |  | ------------ | -
|                                                             |  | 2004         |  
|Shareholders equity based on US GAAP as previously reported |  | (Won)116,720 |  
|Effect of restatement:                                       |  |              |  
|Adjusted impairment losses                                   |  | (6,111       | )
|                                                             |  |              |  
|Shareholders equity based on US GAAP as restated            |  | (Won)110,609 |  



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| |  |  | Application of FIN 46(R): As mentioned in Note 29(u), the Company previously did not consolidate Cyber Bank as it did not consider the relationship with the family members of
Mr. Moon Soul Chung, the Companys former CEO, who are the largest shareholders of the Company and Cyber Bank. After consideration of the relationship between the Company and Mr. Chungs family, the Company restated its
US GAAP reconciliation to consolidate Cyber Bank at December 31, 2004. However, such restatement did not affect the US GAAP net loss or the US GAAP net loss per share for the year ended December 31, 2004 or
shareholders equity as of December 31, 2004. The effects of these corrections are as follows (in millions of Won):
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|                                                         |  |                       |  |                      |  |             
|-------------------------------------------------------- |  | --------------------- |  | -------------------- |  | ------------
|                                                         |  | As previouslyreported |  | Effect ofrestatement |  | As restated 
|Current assets                                           |  | (Won)120,090          |  | (Won)24,506          |  | (Won)144,596
|Non-current assets                                       |  | 111,941               |  | 1,565                |  | 113,506     
|                                                         |  |                       |  |                      |  |             
|Total assets                                             |  | 232,031               |  | 26,071               |  | 258,102     
|                                                         |  |                       |  |                      |  |             
|Current liabilities                                      |  | 77,359                |  | 18,901               |  | 96,260      
|                                                         |  |                       |  |                      |  |             
|Long-term liabilities                                    |  | 23,094                |  | 13,281               |  | 36,375      
|                                                         |  |                       |  |                      |  |             
|Minority interest in equity of consolidated subsidiaries |  | 14,858                |  |                     |  | 14,858      
|                                                         |  |                       |  |                      |  |             
|Total liabilities and minority interest                  |  | 115,311               |  | 32,182               |  | 147,493     
|                                                         |  |                       |  |                      |  |             



| |  |  | Cash flows activities of trading securities: As discussed in Note 29(w), the Company previously recorded US GAAP cash flows activities related to trading securities
under investing activities. However, upon further consideration of SFAS No. 115, the Company restated its US GAAP cash flows reconciliation to record such activities under operating activities. The effects of these corrections are as
follows (in millions of Won):
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|                                      |  |                       |   |  |                      |   |  |              |  
|------------------------------------- |  | --------------------- | - |  | -------------------- | - |  | ------------ | -
|                                      |  | As previouslyreported |   |  | Effect ofrestatement |   |  | As restated  |  
|For the year ended December 31, 2002: |  |                       |   |  |                      |   |  |              |  
|Cash flows from operating activities  |  | (Won)(27,451          | ) |  | (Won)(7,153          | ) |  | (Won)(34,604 | )
|Cash flows from investing activities  |  | 32,289                |   |  | 7,153                |   |  | 39,442       |  
|                                      |  |                       |  
|For the year ended December 31, 2003: |  |                       |   |  |                      |   |  |              |  
|Cash flows from operating activities  |  | (2,250                | ) |  | 9,833                |   |  | 7,583        |  
|Cash flows from investing activities  |  | (5,514                | ) |  | (9,833               | ) |  | (15,347      | )
|                                      |  |                       |  
|For the year ended December 31, 2004: |  |                       |   |  |                      |   |  |              |  
|Cash flows from operating activities  |  | (16,469               | ) |  | 21,062               |   |  | 5,134        |  
|Cash flows from investing activities  |  | (13,321               | ) |  | (21,062              | ) |  | (34,924      | )



| |  |  | Operating loss reconciliation: the Company restated its operating loss reconciliation to include donations, provisions for guarantees issued, and certain provisions for other
doubtful accounts in US GAAP operating loss as discussed in Note 29(w) as such items are determined to be operating activities under US GAAP. The effects of these corrections are as follows (in millions of Won):
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|                                   |  |             |   |  |             |   |  |             |  
|---------------------------------- |  | ----------- | - |  | ----------- | - |  | ----------- | -
|                                   |  | 2002        |   |  | 2003        |   |  | 2004        |  
|Sales                              |  | (Won)69,715 |   |  | (Won)96,039 |   |  | (Won)83,697 |  
|Cost of sales                      |  | 76,786      |   |  | 82,172      |   |  | 60,772      |  
|Gross profit (loss)                |  | (7,071      | ) |  | 13,867      |   |  | 22,975      |  
|Operating expenses, as restated(1) |  | 44,092      |   |  | 37,231      |   |  | 42,720      |  
|Operating loss, as restated(1)     |  | (51,163     | ) |  | (23,363     | ) |  | (19,745     | )
|Net loss, as restated(1)           |  | (62,607     | ) |  | (24,278     | ) |  | (41,155     | )

---

|(1) | See Note 29 to our Financial Statements.
|--- | ----------------------------------------



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Deferred Income Taxes



| |  |  | Under US GAAP, deferred tax assets and liabilities are separated into their current and non-current portions based on the classification of related asset or liability for
financial reporting purposes. Under Korean GAAP, deferred tax assets and liabilities are presented on the balance sheet as a single non-current net number.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Effective from January 1, 2005, deferred income tax assets and liabilities will be separated into their current and
non-current portions based on the classification of related asset or liability under Korean GAAP.



Research and Development Costs



| |  |  | Under Korean GAAP, research and development costs that meet specific conditions, such as new product development, technological feasibility, marketability and usefulness, are
deferred and amortized over a period not to exceed 20 years, while such costs are expensed under US GAAP.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Revenue Recognition



| |  |  | Under Korean GAAP, through 2002, sales were recognized at the time products are delivered to customers while under US GAAP, product sales are recognized upon final customer
acceptance and passage of legal title. However, effective January 1, 2003, Korean GAAP was revised so that products sales are recognized upon final acceptance and passage of legal title. This accounting change has been applied prospectively.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Impairment of Investment Securities and Recoveries



| |  |  | Under US GAAP, if the decline in fair value is judged to be other than temporary, the cost basis of the individual securities is written down to fair value as a new cost basis
and the amount of the write-down is included in current operations. Under Korean GAAP, if the collectible value from the securities is less than acquisition costs with objective evidence of impairment such as bankruptcy of investees, an impairment
loss is recognized.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Under Korean GAAP, the subsequent recoveries of impaired available-for-sale securities, held-to-maturity debt securities and equity securities without readily determinable fair
value result in an increase of their carrying amount up to the original acquisition cost, and the recovery gains are reported in current operations up to the previously recognized impairment loss as reversal of loss on impairment of investment
securities. Under US GAAP, the subsequent increase in carrying amount of the impaired and written down held-to-maturity debt securities and equity securities without readily determinable fair value is not allowed. The subsequent increase in
fair value of available-for-sale securities is reported in other comprehensive income.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Impairment of Long-Lived Assets



| |  |  | US GAAP (SFAS No. 144) requires that long-lived assets and certain identifiable intangibles to be held and used by an entity, be reviewed for impairment whenever events or
changes in circumstance indicate that the carrying amount of an asset may not be recoverable. If the sum of the expected future cash flows (undiscounted and without interest charges) is less than the carrying amount of the asset, an impairment loss
is recognized. Otherwise, an impairment loss is not recognized. Measurement of an impairment loss for long-lived assets and identifiable intangibles that an entity expects to hold and use is based on the fair value of the asset. Under Korean GAAP,
an impairment loss is recognized when the carrying value of long-lived assets and certain identifiable intangibles exceeds recoverable value, which is deemed to be the higher of the assets value in use or net sale price.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Under US GAAP after an asset write-down, representing the new cost basis, subsequent recoveries in value may not be recognized, whereas under Korean GAAP, such recoveries are
recognized as gains to the extent of impairment losses previously recognized.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Costs for Products Warranties



| |  |  | Through 2003, under the previous Korean GAAP, product warranty costs were expensed as incurred. Effective January 1, 2004, estimated warranty costs are accrued at the time of
sale based on historical experience and expected future cost in line with US GAAP.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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|                                                 |  |                      |   |  |               |  
|------------------------------------------------ |  | -------------------- | - |  | ------------- | -
|                                                 |  | 2003                 |   |  | 2004          |  
|                                                 |  | (in millions of Won) |  
|                                                 |  |                      |   |  | [restated](1) |  
|Beginning balance                                |  | (Won)607             |   |  | (Won)949      |  
|Provided                                         |  | 1,899                |   |  | 1,986         |  
|Assumed in connection with adoption of FIN 46(R) |  |                     |   |  | 1,548         |  
|Incurred                                         |  | (86                  | ) |  | (919          | )
|Adjustment                                       |  | (1,471               | ) |  | (1,023        | )
|                                                 |  |                      |   |  |               |  
|Ending balance                                   |  | (Won)949             |   |  | (Won)2,541    |  

---

|(1) | See Note 29 to our Financial Statements.
|--- | ----------------------------------------



Comprehensive Income



| |  |  | Under Korean GAAP, there is no requirement to present comprehensive income. Under US GAAP, comprehensive income and its components must be presented in the financial
statements. Comprehensive income includes all changes in shareholders equity during a period except those resulting from investments by, or distributions to, owners, including certain items not included in the current results of operations.
There were no such changes in our shareholders equity in all periods presented.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Loss from Valuation of Inventories



| |  |  | Through 2003, under the previous Korean GAAP, loss from valuation of inventories is classified as other expenses while under US GAAP, it is classified as cost of sales;
however, effective January 1, 2004, loss from valuation of inventories are classified as cost of sales under Korean GAAP.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Applying the Equity Method of Accounting



| |  |  | Under US GAAP, when an investor holds other types of interest (for example, loans and preferred stock) in addition to common stock of an investee accounted for by the equity
method of accounting and the investors share of losses of the investee exceed the carrying amount of the common stock investment, additional equity method losses are recognized by the investor. Under Korean GAAP, no such additional losses are
required to be recognized by the investor. If the investee subsequently reports net income or issues its common stock, the investor shall resume applying the equity method and recognize its share of the net loss not recognized during the period the
equity method was suspended as an adjustment to retained earnings from prior periods, under Korean GAAP.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Sales of Stock and Purchase by Subsidiary and Affiliate and Purchase of Non-controlling Equity Interest



| |  |  | Under Korean GAAP, a parent company is required to account for sales of stock by a subsidiary as an equity transaction to be included in capital surplus, while under US GAAP, a
parent company may elect income statement or equity transaction treatment, depending on certain criteria being met and so long as such election is applied consistently on a prospective basis for all subsidiary stock transactions.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Under Korean GAAP, a purchase by a subsidiary of a non-controlling equity interest in the subsidiary is recorded as a capital adjustment in the consolidated financial statements in
proportion to the parents equity interest. Under US GAAP, this purchase is accounted for using the purchase method in the consolidated financial statements.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Accounting for Employee Stock Option Compensation Plan



| |  |  | Effective as of December 31, 2003, Korean GAAP permits all entities to exclude the volatility factor in estimating the value of their stock options, which results in
measurement at minimum value. Under US GAAP, public entities are not permitted to exclude the volatility factor in estimating the value of their stock options. In addition, under US GAAP, if the fair value of the modified option exceeds
the value of the related old option, the entity recognizes additional compensation cost for the difference. From January 1, 2004, under Korean GAAP, the fair value based method of accounting for the employee stock option compensation plan was
adopted.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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Depreciation



| |  |  | Under Korean GAAP, depreciation for six months was permitted to be recorded for any asset placed in service during the second half of the year in accordance with Korean tax law
until 2001. Effective from 2002, depreciation expense commences in the month the related asset is placed in service. Under US GAAP, depreciation expense starts to accrue from the month the related asset is deployed into service.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Gain on Disposal of the Investments in Common Stock of
Subsidiary



| |  |  | Under Korean GAAP, gain on disposal of investments in common stock of a subsidiary incurred from a transaction between the Company and its subsidiarys employees, which should
be included in capital surplus, is measured based on the actual selling price and the carrying value of such investment. Under US GAAP, however, if the actual selling price differs from the fair value of the investment, the difference between
the fair value and the actual selling price should be recorded as an employee benefits expense.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Provision for Doubtful Other Accounts



| |  |  | Under Korean GAAP, provisions for doubtful accounts other than trade receivables are classified as other expenses while provisions for doubtful trade receivables are classified as
selling, general and administrative expenses. Under US GAAP, this provision is recorded as selling, general and administrative expenses considering the original nature of those receivables.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Minority Interest in Equity of Consolidated Subsidiaries



| |  |  | Under Korean GAAP, minority interest in equity of consolidated subsidiaries is presented to be included in shareholders equity. Under US GAAP, minority interest is
presented as an item separate from shareholders equity.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Financing to Purchase Treasury Shares



| |  |  | Under Korean GAAP, loans provided by the Company to employees to finance purchases of the Companys shares are accounted for as receivables, and related payment guarantees
provided by the Company to a lender are accounted for as a contingency. Under US GAAP, such loans are deducted from stockholders equity and the related payment guarantees are recorded as a liability with a corresponding deduction from
stockholders equity.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Consideration for conversion right



| |  |  | Under Korean GAAP, the proceeds from issuance of convertible bonds are allocated between the conversion rights and the debt issued; the portion allocable to the conversion rights is
accounted for as capital surplus, with corresponding conversion right adjustment being deducted from related bonds. Such conversion right adjustment is amortized into interest expenses over the period of convertible bonds. Under US GAAP,
convertible bonds are analyzed to evaluate whether conversion option are bifurcated and valued. If an embedded conversion option in convertible bond is net cash settled upon the occurrence of an event, which is outside of an entitys control,
US GAAP generally requires bifurcation.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Consolidated
subsidiary



| |  |  | Under Korean GAAP, when a parent company is expected to lose control over a consolidated subsidiary within one year from the balance sheet date, the subsidiary should not be
included in the consolidated financial statements. Under US GAAP, although a parent company has a temporary control over a consolidated subsidiary, the subsidiary should be included in the consolidation.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Under Korean GAAP, in computing earnings per share (EPS), when common stock is issued at a price less than fair value, the number of shares equivalent to the discount is treated in
a manner similar to stock split or stock dividend, whereby such number of shares is retroactively applied as if they existed as of the beginning of the reporting period. Under US GAAP, however, such retroactive treatment is only allowed for
nominal issuances of common stock, which are interpreted to accompany very deep discount and to be rare in occurrence.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

New Accounting Pronouncements



| |  |  | On January 17, 2003, the FASB issued Interpretation No. 46 (FIN 46)Consolidation of Variable Interest Entities, which addresses consolidation
by business enterprises where equity investors do not bear the residual economic risks and rewards. These entities have been commonly referred to as Special purpose entities (SPEs). The underlying principle behind the new
Interpretation is that if a business enterprise has the majority financial interest in an entity, which is defined in the guidance as a variable interest entity, the assets, liabilities and results of the activities of the variable interest entity
should be included in the consolidated financial statements with those of the business enterprise. The Interpretation also explains how to identify variable interest entities and how an enterprise should assess its interest in an entity when
deciding whether or not it will consolidate that entity. In December 2003, the FASB released a revision of FIN No. 46 (FIN No. 46(R)) in which the calculation of expected losses and expected residual returns have been altered
to reduce the impact of decision maker and guarantor fees. In addition, FIN No. 46(R) changes the definition of a variable interest. The Company as a foreign private issuer adopted FIN 46(R) on December 31, 2004. The Company previously
determined that Cyber Bank, an equity method investee and a manufacturer of telecommunication appliance, was a VIE and that the Company held variable interests in Cyber Bank, but was not a primary beneficiary. Therefore, the accounts of Cyber Bank
were not consolidated under US GAAP. In the course of preparing responses to SEC comments to the Companys annual report for the year ended December 31, 2004, the Company noted that the previous analysis did not consolidate Cyber Bank as
it did not consider the relationship with the family members of Mr. Moon Soul Chung, the Companys former CEO, who are the largest shareholders of the Company and Cyber Bank. After consideration of the relationship between the Company and
Mr. Chungs family, the Company determined that the aggregate variable interests in Cyber Bank held by the Company and its related parties (the Related Party Group) will absorb a majority of Cyber Banks expected losses.
In addition, as the Company has the largest exposure to the expected losses of Cyber Bank within the Related Party Group, the Company determined that it was Cyber Banks most closely associated party and primary beneficiary. As a result, the
Company restated its US GAAP reconciliation to consolidate Cyber Bank at December 31, 2004. Such restatement did not affect the US GAAP net loss or the US GAAP net loss per share for the year ended December 31, 2004 or
shareholders equity as of December 31, 2004.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | In November 2004, the FASB issued SFAS No. 151, Inventory Costs, an Amendment of ARB No. 43, Chapter 4. SFAS No.151 clarifies the accounting for abnormal
amounts of idle facility expense, freight, handling costs, and wasted material. The Statement is effective for inventory costs incurred during fiscal year beginning after June 15, 2005. Management does not expect this statement will have a
material impact on the Companys consolidated financial position or results of operations.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | In December 2004, the FASB issued Statement of Financial Accounting Standards (SFAS) No.123 (revised 2004), Share-Based Payments (SFAS 123R). This statement
eliminates the option to apply the intrinsic value measurement provisions of Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees to stock compensation awards issued to employees.
Rather, SFAS 123R requires companies to measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award. That cost will be recognized over the period during which an
employee is required to provide services in exchange for the award (usually the vesting period). SFAS 123R applies to all awards granted after the required effective date and to awards modified, repurchased, or cancelled after that date. SFAS 123R
will be effective from January 1, 2006. Management does not expect that adoption of this statement will have a material impact on the Companys consolidated financial position or results of operations.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | In December 2004, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No.153, Exchanges of Nonmonetary Assets - an amendment of APB
Opinion No. 29 (SFAS 153), which amends Accounting Principles Board Opinion No. 29, Accounting for Nonmonetary Transactions to eliminate the exception for nonmonetary exchanges of similar productive assets and
replaces it with a general exception for exchanges of nonmonetary assets that do not have commercial substance. SFAS 153 is effective for nonmonetary assets exchanges occurring in fiscal periods beginning after June 15, 2005. Management does
not anticipate that the adoption of this statement will have a material effect on the Companys consolidated financial position or results of operations.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | In May 2005, the FASB issued Statement of Financial Accounting Standards No. 154, Accounting Changes and Error Corrections (FAS 154).
FAS 154 replaces APB Opinion No. 20, Accounting Changes and FAS No. 3, Reporting Accounting Changes in Interim Financial Statements. FAS 154 requires that a voluntary change in accounting principle be applied
retrospectively to prior periods financial statements as if that principle had always been used. FAS 154 also requires that a change in depreciation, amortization, or depletion method for long- lived, non-financial assets be accounted for as a
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



29



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| | change in accounting estimate effected by a change in accounting principle and correction of errors in previously issued financial statements should be
termed a restatement. FAS 154 is effective for accounting changes and correction of errors made in fiscal years beginning after December 15, 2005. The implementation of FAS 154 is not expected to have a material impact on the
Companys consolidated financial statements.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



For a discussion of these and other significant differences between Korean GAAP and US GAAP, see notes 29 and 30 of notes to consolidated financial statements.



Sales, cost of sales, gross profit (loss), operating expenses, operating loss, net income (loss) and shareholders
equity under US GAAP as of and for the years ended December 31, 2002, 2003 and 2004 are as follows:



|                                     |  |                      |   |  |             |   |  |             |  
|------------------------------------ |  | -------------------- | - |  | ----------- | - |  | ----------- | -
|                                     |  | 2002                 |   |  | 2003        |   |  | 2004        |  
|                                     |  | (in millions of Won) |  
|Sales                                |  | (Won)69,715          |   |  | (Won)96,039 |   |  | (Won)83,697 |  
|Cost of sales                        |  | 76,786               |   |  | 82,172      |   |  | 60,772      |  
|Gross profit (loss)                  |  | (7,071               | ) |  | 13,867      |   |  | 22,975      |  
|Operating expenses, as restated(1)   |  | 44,092               |   |  | 37,231      |   |  | 42,720      |  
|Operating loss, as restated(1)       |  | (51,163              | ) |  | (23,363     | ) |  | (19,745     | )
|Net income (loss), as restated(1)    |  | (62,607              | ) |  | (24,278     | ) |  | (41,155     | )
|Shareholders equity, as restated(1) |  | 148,251              |   |  | 148,909     |   |  | (110,609    | )

---

|(1) | See Note 29 to our Financial Statements.
|--- | ----------------------------------------



Taxation



We have benefited from, and may continue to benefit from, certain tax benefits as set forth below:



| |  | The Korean tax code provides for various special tax credits for expenses related to the development of technology and human resources and capital investments. However, we could not
benefit from such tax credits in 2002, 2003 and 2004 because we did not realize taxable income for these years. Such tax credits can be carried forward for a period of four to seven years from the date of accrual. As of December 31, 2004, we
had Won 7,328 million in tax credit carry-forwards expiring between 2006 and the end of 2008.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Korean customs duty laws provide for the imposition of a general duty of 8% on certain equipment imported for use in the sector of the economy in which we operate. As a result, in
the domestic market our semiconductor test handlers and SMD placement systems benefit from a competitive price advantage compared to similar products imported into Korea. Korean customs duty laws also provide for the imposition of a special duty of
18% on medium-speed general gantry type SMD placement systems with test times slower than 0.1 second per chip. This special duty had been imposed since December 31, 2001.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



B. Liquidity and Capital Resources



We have traditionally met our working capital and capital requirements
principally from cash provided by operations, while addressing the remainder of our requirements primarily through the issuance of common stock, convertible bonds and short- and long-term borrowings. We believe that our working capital is sufficient
for our present requirements.



Net cash provided by (or used
in) operating activities in 2002, 2003 and 2004 was (Won 24,340 million), Won 519 million and (Won 8,705 million), respectively. Net cash provided by (used in) investing activities was Won 29,682 million, (Won 10,175 million) and (Won
20,759 million) in 2002, 2003 and 2004, respectively. We received proceeds from disposal of property, plant and equipment in 2002 in the amount of Won 58,655 million for the sale of the office building in Kangnam-gu, Seoul. In 2003, we used Won
22,669 million for the acquisition of the office building and land in Dokok-dong, Seoul. In 2004, we invested in short-term financial instruments in the amount of Won 23,537 million and sold trading securities, net in the amount of Won
21,062 million. Cash from financing activities for the year ended December 31, 2002 was Won 13,375 million. Cash used in financing activities in 2002 was mainly due to a payment of short-term borrowings of Won 21,885 million. While short-term
borrowings decreased, long-term borrowings increased by Won 10,000 million for the year ended December 31, 2002. Cash provided by financing activities for the



30



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year ended December 31, 2003 was Won 12,217 million. Cash provided by financing activities in 2003 was mainly due to an issuance of 24,927,500
additional shares at Won 1,020 per share. Cash provided by financing activities for the year ended December 31, 2004 was Won 25,235 million. Cash provided by financing activities in 2004 was mainly due to an increase in short-term
borrowings of Won 18,775 million.



Cash and cash equivalents,
short-term financial instruments, trading securities and current portion of available-for-sale securities as of December 31, 2002, 2003 and 2004 were Won 70,202 million (29% of total assets), Won 57,582 million (25% of total assets)
and Won 48,795 million (22% of total assets), respectively. Short-term financial instruments are comprised of time deposits and financial instruments readily convertible into cash within one year. Trading securities are primarily comprised of
Korean debt unit trusts. In order to compensate for this decrease in our cash flow, we made a divestiture of our Kangnam Mirae building for approximately Won 60 billion in 2002. The decrease for the year ended December 31, 2003 was mainly due
to the acquisition of 4 million shares of Cyber Bank at Won 2,500 per share. As a result of the acquisition, our ownership percentage increased to 28.24% from 1.05%. The decrease for the year ended December 31, 2004 was mainly due to
the purchase of merchandise in the amount of Won 4,951 million and construction-in-progress of Won 6,496 million.



Our capital expenditures for the years ended December 31, 2002, 2003 and 2004 were Won 3,238 million, Won 22,669 million and Won
9,872 million, respectively. For the year ended December 31, 2002, we received Won 58,655 million for the disposal of an office building in Seoul and spent Won 3,238 million for capital expenditures. For the year ended
December 31, 2003, we spent Won 17,683 million in connection with the purchase of an office building by SoftForum, one of our subsidiaries, in 2003 for Korean GAAP purposes and Won 2,149 million for the construction of a plant in Chun
An City. For the year ended December 31, 2004, we spent Won 9,872 million in connection with construction-in-progress of Won 6,496 million and acquisition of tools, furniture and fixtures in the amount of Won 1,720 million.



As of December 31, 2004, we had short-term credit lines
with Korea Exchange Bank, Korea Development Bank, Shinhan Bank, Woori Bank and other financial institutions, the aggregate limits of which were Won 11,302 million, Won 19,882, Won 6,755 million, Won 800 million and Won
100 million, respectively, bearing interest rates in the range of 4.4% to 7.7%. As of December 31, 2004, the amounts of these credit lines being used were Won 11,302 million from Korea Exchange Bank, Won 19,882 million from Korea
Development, Won 6,755 million from Shinhan Bank and Won 800 million from Woori Bank. Although such facilities have been renewed on an annual basis, no assurance can be given that we will be able to do so in the future. A certain portion
of our land and buildings is pledged as collateral for the credit line with Korea Exchange Bank.



As of December 31, 2004, we had long-term credit lines with Korea Development Bank and Korea Exchange Bank bearing interest at rates ranging from
3.03% to 5.50%. The aggregate limit of these credit lines was Won 12,976 million and are due to expire in 2011. As of December 31, 2004, we were utilizing the full amount of this credit line. A certain portion of our land and buildings is
pledged as collateral for this credit line.



Traditionally, the
functional currency for our operations has been the Korean Won. We believe that with overseas sales, our liquidity may be affected by exchange rate fluctuations, especially rates for US dollars. However, for the periods referred to above, there had
been no material operating trends or effects on liquidity as a result of fluctuations in currency exchange rates.



We had total outstanding trade accounts receivable of Won 33,965 million, Won 40,589 million and Won 26,832 million, net of allowance, as
of December 31, 2002, 2003 and 2004, respectively.



In the
future, we may need to raise additional funds to develop new and enhanced products and to respond to competitive pressures. Such funds, if necessary, would be raised through additional equity or debt financing, credit facilities or disposal of
properties, although no assurance can be given that we will be able to obtain such financing, facilities or disposals on satisfactory terms. As our working capital and capital requirements are principally satisfied by cash provided by operations,
circumstances affecting our operations will in turn affect our liquidity. Our operations may be detrimentally affected by several factors, including the highly cyclical nature of the electronics, semiconductor and semiconductor related industries,
intense competition, economic downturn, especially in Korea, periodic industry downturn, loss of customers and the lack of success of future products or business lines. Any of these factors or a combination thereof could depress our sales revenue
and overall profitability and thereby constrain our operating cash flow. For an in-depth discussion of risks related to our operations, see Item 3 Key InformationRisk Factors. For an in-depth discussion of factors that have
historically affected our operating results, see Operating Results.



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We may in the future provide performance guarantees on our affiliates or third parties
behalf, in accordance with common business practices in Korea. Accordingly, collection by a secured party on a guarantee could affect our liquidity. See Notes 13 and 27 to the consolidated financial statements for collateral provided for related
parties.



We have provided collateral to Seoul Guarantee
Insurance Company guaranteeing the performance of certain of Miraes significant customers for their timely delivery of goods and satisfaction of their warranty obligations. In the event Seoul Guarantee collects on our guarantees, our maximum
liability is Won 1,000 million. We have also provided a promissory note to a significant customer guaranteeing our performance on a contract. In the event we fail to satisfy our contractual obligations, the customer could utilize the guarantee to
cover its resulting losses. Our management does not presently anticipate any losses as a result of any of the above guarantees.



C. Research and Development, Patents and Licenses, Etc.



The semiconductor equipment manufacturing industry is subject to rapid technological change. We believe that continued and timely development and
introduction of new and enhanced products is essential for us to maintain our competitive position. We believe a short lead time for product development may contribute to our ability to maintain our competitive position in the global marketplace. If
product cycles become shorter due to the rapid pace of technological advancements, we believe that our research and development capabilities may help us maintain our competitive position in the marketplace. In order for us to maintain our
competitive position in the global marketplace, Mirae research group is a six months development lead-time principle, from the concept design stage to the design verification test stage.



Mirae research group is focusing on developing new generations of
mechatronics equipment and software, and on advancing our core competencies and current system features relating primarily to accuracy, reliability and flexibility. Mirae research center has developed core technologies such as machine vision
technology, high performance linear motor design technology, intelligent control technology and the distributed motion control technology. Since most of our essential technology is developed by Mirae research group, we do not license outside
technology and, consequently, are not obligated to pay royalty fees.



In 2003, Mirae research center developed new SMT equipment named Mx310 and Mx240 and new test handlers named MR2700 and MR5700. High speed chip placement system, Mx310, and multi-functional chip placement system, Mx240, successfully passed
qualification process of a large EMS company in the United States. These two models can be used in production of mobile phone with high density PCB. The evaluation of the new SMT machines was accomplished in California and for successful evaluation,
Mirae dispatched development engineers to the EMS company for six months. The two new models are currently used for production in PCB assembly line at the company.



In 2004, Mirae research center improved Mx310 to Mx310T and Mx310QP and developed new test handlers named MR2700 and MR5700.
High-speed chip placement system, Mx310T, and multi-functional chip placement system, Mx310QP, are under design verification test stage. These two models can be used in production of mobile phone with high density PCB. We expect that they will
contribute to our revenue and profits in 2005.



We are
well-recognized in the memory test handler market. In 2003, Mirae research center completed development of logic test handler with high throughput, MR2700. MR2700 passed qualification process of a testing house and chip maker in Korea and have been
used in production of CIS (CMOS Image Sensor). We expect that MR2700 will contribute to our revenue and profits in 2004. In order to maintain the competitive position in memory test handler marketplace, Mirae research center completed development of
memory test handler with 128 parallelism, MR5700, in 2003 and MR5700 product contributed to the revenue of 2003 year. From the second half of 2003, for diversification of our businesses, Mirae research center has focused its resource on the
development of assembly and test equipments associated with flash memory cards and mobile phones. These application equipment has been developed by using the technologies accumulated in Mirae research center. As a result, our businesses will be
diversified into flash memory card market and mobile phone market and we expect that this equipment will contribute to our revenue and profits in 2005.



Historically, we have placed high strategic importance on fostering our research and development expertise. As a result, our aggregate research and
development expenditures for the years ended December 31, 2004, 2003 and 2002 amounted to Won 10,387 million, Won 7,653 million and Won 9,278 million, respectively. Over the next several years, we plan to allocate up to 10% of
our sales revenue to research and development expenditures, though this percentage may vary depending upon our financial results in any given year.



For information on our patents and other intellectual property, please refer to Item 4 Information on the CompanyBusiness
OverviewIntellectual Property.



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D. Trend Information



See Item 4 Information on the CompanyBusiness Overview and Operating Results.



E. Off-Balance Sheet Arrangements



We do not have any off-balance sheet arrangements that have or are
reasonably likely to have a current or future material effect on our financial condition, change in financial conditions, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources, except for variable
interests as disclosed in Note 29(u) to the consolidated financial statements.



F. Tabular Disclosure of Contractual Obligations



The tables below set forth our contractual obligations and commercial commitments as of December 31, 2004. For further discussion, see Note 24 of the notes to our consolidated financial statements.



Contractual Obligations as of December 31, 2004



|                                   |  |                            |  |                 |  |           |  |           |  |             
|---------------------------------- |  | -------------------------- |  | --------------- |  | --------- |  | --------- |  | ------------
|                                   |  | Payments Due by Period    
|Contractual Obligations            |  | Total                      |  | Less Than1 year |  | 1-3 years |  | 4-5 years |  | After5 years
|                                   |  | (Unit: in millions of Won)
|Long-Term Debt                     |  | 12,976                     |  | 2,237           |  | 6,538     |  | 4,201     |  |            
|Capital Lease Obligations          |  | 160                        |  | 160             |  |          |  |          |  |            
|Other Long-Term Obligations        |  |                           |  |                |  |          |  |          |  |            
|                                   |  |                            |  |                 |  |           |  |           |  |             
|Total Contractual Cash Obligations |  | 13,136                     |  | 2,397           |  | 6,538     |  | 4,201     |  |            



Other Commercial Commitments as of
December 31, 2004



|                             |  |                                            |  |                 |  |           |  |           |  |            
|---------------------------- |  | ------------------------------------------ |  | --------------- |  | --------- |  | --------- |  | -----------
|                             |  | Amount of Commitment Expiration Per Period
|Other Commercial Commitments |  | Total                                      |  | Less Than1 year |  | 1-3 years |  | 4-5 years |  | Over5 years
|                             |  | (Unit: in millions of Won)                
|Lines of Credit              |  | 38,839                                     |  | 38,839          |  |          |  |          |  |           
|Standby Letters of Credit    |  | 1,035                                      |  | 1,035           |  |          |  |          |  |           
|Guarantees                   |  | 2,929                                      |  | 2,929           |  |          |  |          |  |           
|Other Commercial Commitments |  | 493                                        |  | 493             |  |          |  |          |  |           
|                             |  |                                            |  |                 |  |           |  |           |  |            
|Total Commercial Commitments |  | 40,138                                     |  | 40,138          |  |          |  |          |  |           



ITEM 15. Controls and Procedures



An evaluation of the effectiveness of our disclosure controls and procedures was carried out under the supervision and with the participation of our management as at the reporting date prior to the filing of our 2004 20-F. During the period
covered by this report, there were no significant changes in our internal controls and procedures over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.



Beginning with our annual report on Form 20-F for the year
ending December 31, 2006, we will be required under Section 404 of the Sarbanes-Oxley Act to provide annual management assessments of the effectiveness of our internal controls over financial reporting and a report by our independent
registered public accounting firm addressing these assessments. We have begun the process of putting in place the internal controls and procedures over financial reporting for the purpose of meeting the relevant requirements under Section 404
of the Sarbanes-Oxley Act.



In response to the restatement of
the Financial Statements contained in the 2004 20-F, as set forth in this Amendment No. 2, we have increased our attention on establishing an effective internal controls and procedures over financial reporting.



All internal control systems, no matter how well designed, have inherent
limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. We will continue to improve the design and effectiveness of our disclosure
controls and procedures to the extent necessary in the future to provide our senior management with timely access to such material information, and to correct any deficiencies that we may discover in the future.



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ITEM 18. Financial Statements



We have appended our consolidated financial statements as of and for the year ended December 31, 2004 on pages F-1 to F-48 of this Amendment No.2 to our annual report on Form 20-F.



ITEM 19. Exhibits



|            |  |                                                                                                                                                  
|----------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description                                                                                                                                      
|            | 
|12.1        |  | Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act                                               
|            | 
|12.2        |  | Certification of Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act                                               
|            | 
|13.1        |  | Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|            | 
|13.2        |  | Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002



34



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SIGNATURES



The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F/A and that it has duly caused and authorized the
undersigned to sign this amendment to its annual report on its behalf.



MIRAE CORPORATIONBy:

/s/ Soon Do KwonName:

Soon Do KwonTitle:

Chief Executive Officer and President




Date: November 30, 2005



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##### Table of Contents

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS



|                                                                                                     |  |     
|---------------------------------------------------------------------------------------------------- |  | ----
|                                                                                                     |  | Page
|                                                                                                     | 
|Report of Independent Registered Public Accounting Firm                                              |  | F-2 
|Consolidated balance sheets as of December 31, 2003 and 2004                                         |  | F-3 
|Consolidated statements of operations for the years ended December 31, 2002, 2003 and 2004           |  | F-5 
|Consolidated statements of shareholders equity for the years ended December 31, 2002, 2003 and 2004 |  | F-7 
|Consolidated statements of cash flows for the years ended December 31, 2002, 2003 and 2004           |  | F-9 
|Notes to consolidated financial statements                                                           |  | F-12



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##### Table of Contents

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM



To the Board of Directors and Shareholders of

Mirae Corporation



We have audited the accompanying consolidated balance sheets of Mirae Corporation (the Company) and its subsidiaries as of December 31, 2003 and 2004,
and the related consolidated statements of operations, shareholders equity and cash flows for each of the three years in the period ended December 31, 2004 (all expressed in Korean won). These consolidated financial statements are the
responsibility of the Companys management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.



We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial
reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of
the Companys internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, 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, such consolidated financial statements present fairly, in all material
respects, the financial position of Mirae Corporation and its subsidiaries at December 31, 2003 and 2004, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2004, in
conformity with financial accounting standards generally accepted in the Republic of Korea (Korean GAAP).



Our audits also comprehended the translation of the Korean won amounts into U.S. dollar amounts and, in our opinion, such translation has been made in conformity with the
basis stated in note 2(a) to the accompanying consolidated financial statements. Such U.S. dollar amounts are presented solely for the convenience of readers outside of the Republic of Korea.



As described in Notes 2, 27 and 30(d) to the accompanying consolidated financial statements,
in accordance with the resolution of the Companys board of directors dated January 27, 2005, on March 24, 2005, the Company sold 2,726,800 shares of 3,328,840 shares of SoftForum Corporation (SoftForum) held by the
Company, representing 34% of the total outstanding common stock of SoftForum for a total selling price of (Won)9,010 million ((Won)3,304 per share), to a third party. As a result of such trade, the Companys ownership in SoftForum Corporation
decreased to 7.51% as of April 1, 2005, and SoftForum and its two consolidated subsidiaries, MR Tech Town Co. and Alpha Logics Co., Ltd., have been excluded from consolidation for the year ended December 31, 2004 in accordance with the
Korean GAAP. As a result of exclusion of such companies from consolidation, the Companys total assets as of December 31, 2004 decreased by (Won)24,233 million.



Accounting principles generally accepted in the Republic of Korea vary in certain respects from accounting principles generally accepted in
the United States of America. Application of accounting principles generally accepted in the United States of America would have affected the determination of net income (loss) for the years ended December 31, 2002, 2003 and 2004 and the
determination of shareholders equity and financial position as of December 31, 2003 and 2004 to the extent summarized in Notes 29 and 30 to the consolidated financial statements.



As discussed in Note 29, the accompanying Notes 29 and 30 to
the financial statements have been restated.



|                      
|----------------------
|/s/ Deloitte Anjin LLC
|Seoul, Korea          

April 1, 2005 (November 28, 2005 as to the effect of the restatement
discussed in Note 29)



F-2



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##### Table of Contents

MIRAE CORPORATION AND ITS SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

DECEMBER 31, 2003 AND 2004



|                                                                            |  |                           |  |                                           |  |   |        
|--------------------------------------------------------------------------- |  | ------------------------- |  | ----------------------------------------- |  | - | -------
|                                                                            |  | In millions of Korean won |  | In thousandsof U.S. dollars (Note 2) 2004
|                                                                            |  | 2003                      |  | 2004                                      | 
|ASSETS                                                                      |  |                           |  |                                           |  |   |        
|CURRENT ASSETS:                                                             |  |                           |  |                                           |  |   |        
|Cash and cash equivalents (Note 14)                                         |  | (Won) 21,569              |  | (Won) 14,955                              |  | $ | 14,448 
|Short-term financial instruments (Notes 4 and 13)                           |  | 14,628                    |  | 33,692                                    |  |   | 32,550 
|Trading securities (Note 2)                                                 |  | 21,382                    |  | 148                                       |  |   | 143    
|Current portion of available-for-sale securities (Notes 2 and 5)            |  | 3                         |  |                                          |  |   |       
|Accounts receivable - trade, net (Notes 2, 13, 14 and 22)                   |  | 40,589                    |  | 26,832                                    |  |   | 25,922 
|Accounts receivable - other, net (Notes 2 and 13)                           |  | 3,320                     |  | 2,787                                     |  |   | 2,692  
|Inventories (Notes 2 and 3)                                                 |  | 9,664                     |  | 27,848                                    |  |   | 26,904 
|Accrued interest income                                                     |  | 189                       |  | 489                                       |  |   | 472    
|Advance payments and other, net (Notes 2, 7 and 13)                         |  | 3,550                     |  | 1,179                                     |  |   | 1,140  
|                                                                            |  |                           |  |                                           |  |   |        
|Total Current Assets                                                        |  | 114,894                   |  | 107,930                                   |  |   | 104,271
|                                                                            |  |                           |  |                                           |  |   |        
|NON-CURRENT ASSETS:                                                         |  |                           |  |                                           |  |   |        
|Property, plant and equipment, net (Notes 2, 8, 12, 23 and 25)              |  | 91,056                    |  | 77,894                                    |  |   | 75,253 
|Intangible assets, net (Note 2)                                             |  |                           |  |                                           |  |   |        
|Development costs                                                           |  | 4,668                     |  | 6,179                                     |  |   | 5,969  
|Other                                                                       |  | 2,851                     |  | 1,670                                     |  |   | 1,613  
|Available-for-sale securities (Notes 2 and 5)                               |  | 3,055                     |  | 2,339                                     |  |   | 2,260  
|Equity securities accounted for using the equity method (Notes 2, 6 and 13) |  | 2,173                     |  | 10,932                                    |  |   | 10,561 
|Long-term financial instruments (Note 4)                                    |  | 991                       |  | 1,348                                     |  |   | 1,302  
|Guarantee deposits, net (Note 2)                                            |  | 3,819                     |  | 4,857                                     |  |   | 4,692  
|Long-term loans and other, net (Notes 2 and 7)                              |  | 8,210                     |  | 4,953                                     |  |   | 4,785  
|                                                                            |  |                           |  |                                           |  |   |        
|Total Non-Current Assets                                                    |  | 116,823                   |  | 110,172                                   |  |   | 106,435
|                                                                            |  |                           |  |                                           |  |   |        
|TOTAL ASSETS                                                                |  | (Won) 231,717             |  | (Won) 218,102                             |  | $ | 210,706
|                                                                            |  |                           |  |                                           |  |   |        



(Continued)



F-3



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##### Table of Contents

MIRAE CORPORATION AND ITS SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS (CONTINUED)

DECEMBER 31, 2003 AND 2004



|                                                                                                                                   |  |                           |   |  |                                            |   |  |   |         
|---------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------- | - |  | ------------------------------------------ | - |  | - | --------
|                                                                                                                                   |  | In millions of Korean won |   |  | In thousands of U.S. dollars (Note 2) 2004
|                                                                                                                                   |  | 2003                      |   |  | 2004                                       |   | 
|LIABILITIES AND SHAREHOLDERS EQUITY                                                                                               |  |                           |   |  |                                            |   |  |   |         
|CURRENT LIABILITIES:                                                                                                               |  |                           |   |  |                                            |   |  |   |         
|Accounts payable - trade (Notes 13 and 14)                                                                                         |  | (Won)  7,908              |   |  | (Won)  9,350                               |   |  | $ | 9,033   
|Short-term borrowings (Notes 9 and 14)                                                                                             |  | 19,955                    |   |  | 38,839                                     |   |  |   | 37,522  
|Accounts payable - other (Note 13)                                                                                                 |  | 3,035                     |   |  | 2,722                                      |   |  |   | 2,630   
|Income taxes payable                                                                                                               |  | 13                        |   |  |                                           |   |  |   |        
|Advance receipts from customers                                                                                                    |  | 147                       |   |  | 1,209                                      |   |  |   | 1,168   
|Dividends payable                                                                                                                  |  | 1                         |   |  | 1                                          |   |  |   | 1       
|Guarantee deposits payable (Note 13)                                                                                               |  | 301                       |   |  | 183                                        |   |  |   | 177     
|Allowance for loss on collateralized assets (Note 13)                                                                              |  |                          |   |  | 14,816                                     |   |  |   | 14,314  
|Reserve for product warranties (Note 2)                                                                                            |  |                          |   |  | 993                                        |   |  |   | 959     
|Current portion of long-term lease payable (Notes 2 and 10)                                                                        |  | 461                       |   |  | 160                                        |   |  |   | 155     
|Current portion of long-term debts (Notes 2, 11 and 14)                                                                            |  | 1,787                     |   |  | 2,237                                      |   |  |   | 2,161   
|Accrued expenses and other (Note 13)                                                                                               |  | 2,741                     |   |  | 2,272                                      |   |  |   | 2,194   
|                                                                                                                                   |  |                           |   |  |                                            |   |  |   |         
|Total Current Liabilities                                                                                                          |  | 36,349                    |   |  | 72,782                                     |   |  |   | 70,314  
|                                                                                                                                   |  |                           |   |  |                                            |   |  |   |         
|LONG-TERM LIABILITIES:                                                                                                             |  |                           |   |  |                                            |   |  |   |         
|Long-term borrowings (Notes 11 and 14)                                                                                             |  | 8,245                     |   |  | 10,739                                     |   |  |   | 10,375  
|Long-term guarantee deposits payable (Note 13)                                                                                     |  | 6,665                     |   |  | 2,401                                      |   |  |   | 2,320   
|Long-term lease payable (Notes 2 and 10)                                                                                           |  | 160                       |   |  |                                           |   |  |   |        
|Convertible bonds payable, net (Notes 2 and 12)                                                                                    |  |                          |   |  | 3,009                                      |   |  |   | 2,907   
|Accrued severance indemnities, net (Note 2)                                                                                        |  | 3,706                     |   |  | 2,571                                      |   |  |   | 2,484   
|                                                                                                                                   |  |                           |   |  |                                            |   |  |   |         
|Total Long-Term Liabilities                                                                                                        |  | 18,776                    |   |  | 18,720                                     |   |  |   | 18,086  
|                                                                                                                                   |  |                           |   |  |                                            |   |  |   |         
|Total Liabilities                                                                                                                  |  | 55,125                    |   |  | 91,502                                     |   |  |   | 88,400  
|                                                                                                                                   |  |                           |   |  |                                            |   |  |   |         
|COMMITMENTS AND CONTINGENCIES (Note 24)                                                                                            |  |                           |   |  |                                            |   |  |   |         
|                                                                                                                                   |  |                           |  
|SHAREHOLDERS EQUITY:                                                                                                              |  |                           |   |  |                                            |   |  |   |         
|Capital stock                                                                                                                      |  |                           |   |  |                                            |   |  |   |         
|Common stock - par value (Won)100 per share; issued and outstanding: 179 million shares as of December 31, 2003 and 2004 (Note
15) |  | 17,919                    |   |  | 17,919                                     |   |  |   | 17,311  
|Capital surplus:                                                                                                                   |  |                           |   |  |                                            |   |  |   |         
|Additional paid-in capital (Notes 2 and 15)                                                                                        |  | 140,792                   |   |  | 127,914                                    |   |  |   | 123,576 
|Retained earnings (deficit):                                                                                                       |  |                           |   |  |                                            |   |  |   |         
|Unappropriated (undisposed) (Notes 2 and 16)                                                                                       |  | 2,805                     |   |  | (28,786)                                   |   |  |   | (27,810)
|Capital adjustments:                                                                                                               |  |                           |   |  |                                            |   |  |   |         
|Treasury stock (Notes 2 and 17)                                                                                                    |  | (4,344                    | ) |  | (4,344                                     | ) |  |   | (4,197) 
|Stock options (Notes 2 and 26)                                                                                                     |  | 713                       |   |  | 1,515                                      |   |  |   | 1,464   
|Other capital adjustment (Notes 5 and 6)                                                                                           |  | (1,231                    | ) |  | 11,538                                     |   |  |   | 11,147  
|Minority interest in equity of consolidated subsidiaries (Note 2)                                                                  |  | 19,938                    |   |  | 844                                        |   |  |   | 815     
|                                                                                                                                   |  |                           |   |  |                                            |   |  |   |         
|Total Shareholders Equity                                                                                                         |  | 176,592                   |   |  | 126,600                                    |   |  |   | 122,306 
|                                                                                                                                   |  |                           |   |  |                                            |   |  |   |         
|TOTAL LIABILITIES AND SHAREHOLDERS EQUITY                                                                                         |  | (Won) 231,717             |   |  | (Won) 218,102                              |   |  | $ | 210,706 
|                                                                                                                                   |  |                           |   |  |                                            |   |  |   |         



See accompanying notes
to consolidated financial statements.



F-4



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##### Table of Contents

MIRAE CORPORATION AND ITS SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

YEARS ENDED DECEMBER 31, 2002, 2003 AND 2004



|                                                                                   |  |                                                                             |   |  |                                                                                             |   |  |             |   |  |   |         |  
|---------------------------------------------------------------------------------- |  | --------------------------------------------------------------------------- | - |  | ------------------------------------------------------------------------------------------- | - |  | ----------- | - |  | - | ------- | -
|                                                                                   |  | In millions of Korean
won,except for share and income (loss) per share data |   |  | In thousands of U.S. dollars, except for shareand income (loss)per share data (Note 2) 2004 |  
|                                                                                   |  | 2002                                                                        |   |  | 2003                                                                                        |   |  | 2004        |   | 
|SALES (Notes 2, 13, 18, 22 and 23)                                                 |  | (Won)64,430                                                                 |   |  | (Won)95,053                                                                                 |   |  | (Won)66,881 |   |  | $ | 64,613  |  
|                                                                                   |  |                                                                             |   | 
|COST OF SALES (Notes 2 and 13)                                                     |  | (56,863                                                                     | ) |  | (72,703                                                                                     | ) |  | (51,645     | ) |  |   | (49,894 | )
|                                                                                   |  |                                                                             |   |  |                                                                                             |   |  |             |   |  |   |         |  
|GROSS PROFIT                                                                       |  | 7,567                                                                       |   |  | 22,350                                                                                      |   |  | 15,236      |   |  |   | 14,719  |  
|                                                                                   |  |                                                                             |   | 
|SELLING, GENERAL AND ADMINISTRATIVE EXPENSES (Notes 2, 13 and 19)                  |  | (37,651                                                                     | ) |  | (27,973                                                                                     | ) |  | (22,657     | ) |  |   | (21,889 | )
|                                                                                   |  |                                                                             |   |  |                                                                                             |   |  |             |   |  |   |         |  
|OPERATING LOSS (Note 23)                                                           |  | (30,084                                                                     | ) |  | (5,623                                                                                      | ) |  | (7,421      | ) |  |   | (7,170  | )
|                                                                                   |  |                                                                             |   |  |                                                                                             |   |  |             |   |  |   |         |  
|OTHER INCOME:                                                                      |  |                                                                             |   |  |                                                                                             |   |  |             |   |  |   |         |  
|Interest income (Note 13)                                                          |  | 2,532                                                                       |   |  | 1,861                                                                                       |   |  | 1,212       |   |  |   | 1,171   |  
|Gain on disposal and valuation of trading securities                               |  | 2,725                                                                       |   |  | 2,875                                                                                       |   |  | 525         |   |  |   | 507     |  
|Gain on disposal and valuation of current portion of available-for-sale securities |  | 156                                                                         |   |  | 4                                                                                           |   |  |            |   |  |   |        |  
|Gain on disposal of available-for-sale securities (Note 5)                         |  |                                                                            |   |  | 28,378                                                                                      |   |  |            |   |  |   |        |  
|Gain on disposal of equity securities valued using the equity method               |  |                                                                            |   |  | 101                                                                                         |   |  |            |   |  |   |        |  
|Foreign exchange and translation gains (Note 2)                                    |  | 635                                                                         |   |  | 796                                                                                         |   |  | 1,300       |   |  |   | 1,256   |  
|Reversal of provision for guarantees issued (Note 24)                              |  | 3,739                                                                       |   |  |                                                                                            |   |  |            |   |  |   |        |  
|Other (Note 12)                                                                    |  | 3,498                                                                       |   |  | 2,795                                                                                       |   |  | 2,187       |   |  |   | 2,113   |  
|                                                                                   |  |                                                                             |   |  |                                                                                             |   |  |             |   |  |   |         |  
|                                                                                   |  | 13,285                                                                      |   |  | 36,810                                                                                      |   |  | 5,224       |   |  |   | 5,047   |  
|                                                                                   |  |                                                                             |   |  |                                                                                             |   |  |             |   |  |   |         |  
|OTHER EXPENSES:                                                                    |  |                                                                             |   |  |                                                                                             |   |  |             |   |  |   |         |  
|Interest expense                                                                   |  | (3,663                                                                      | ) |  | (2,160                                                                                      | ) |  | (1,907      | ) |  |   | (1,842  | )
|Donations                                                                          |  | (121                                                                        | ) |  | (99                                                                                         | ) |  | (1          | ) |  |   | (1      | )
|Foreign exchange and translation losses (Note 2)                                   |  | (2,102                                                                      | ) |  | (477                                                                                        | ) |  | (2,638      | ) |  |   | (2,549  | )
|Loss from valuation of inventories (Note 2)                                        |  | (20,409                                                                     | ) |  | (12,428                                                                                     | ) |  |            |   |  |   |        |  
|Loss on disposal and valuation of trading securities                               |  | (3,377                                                                      | ) |  | (328                                                                                        | ) |  | (165        | ) |  |   | (159    | )
|Loss on disposal and valuation of current portion of available-for-sale securities |  | (1                                                                          | ) |  | (1                                                                                          | ) |  | (20         | ) |  |   | (19     | )
|Provision for other doubtful accounts (Note 2)                                     |  | (7,087                                                                      | ) |  | (1,746                                                                                      | ) |  | (1,101      | ) |  |   | (1,064  | )
|Provision for guarantees issued                                                    |  | (649                                                                        | ) |  |                                                                                            |   |  |            |   |  |   |        |  
|Loss on collateralized assets                                                      |  |                                                                            |   |  |                                                                                            |   |  | (14,816     | ) |  |   | (14,314 | )
|Loss from impairment of deferred development costs (Note 2)                        |  | (11,337                                                                     | ) |  | (1,521                                                                                      | ) |  | (2,488      | ) |  |   | (2,404  | )
|Loss from impairment of available-for-sale securities (Note 2)                     |  | (3,631                                                                      | ) |  | (1,343                                                                                      | ) |  | (169        | ) |  |   | (163    | )
|Equity in losses of affiliates (Notes 2 and 6)                                     |  | (827                                                                        | ) |  | (7,953                                                                                      | ) |  | (4,468      | ) |  |   | (4,316  | )
|Other (Note 13)                                                                    |  | (2,887                                                                      | ) |  | (2,215                                                                                      | ) |  | (1,949      | ) |  |   | (1,883  | )
|                                                                                   |  |                                                                             |   |  |                                                                                             |   |  |             |   |  |   |         |  
|                                                                                   |  | (56,091                                                                     | ) |  | (30,271                                                                                     | ) |  | (29,722     | ) |  |   | (28,714 | )
|                                                                                   |  |                                                                             |   |  |                                                                                             |   |  |             |   |  |   |         |  
|INCOME (LOSS) BEFORE INCOME TAXES AND MINORITY INTEREST                            |  | (72,890                                                                     | ) |  | 916                                                                                         |   |  | (31,919     | ) |  |   | (30,837 | )
|INCOME TAX EXPENSE (Notes 2 and 20)                                                |  | 277                                                                         |   |  | 18                                                                                          |   |  |            |   |  |   |        |  
|                                                                                   |  |                                                                             |   |  |                                                                                             |   |  |             |   |  |   |         |  



F-5



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##### Table of Contents

MIRAE CORPORATION AND ITS SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED)

YEARS ENDED DECEMBER 31,
2002, 2003 AND 2004



|                                                                                      |  |                                                                             |   |  |                                                                                          |  |                |   |  |   |         |  
|------------------------------------------------------------------------------------- |  | --------------------------------------------------------------------------- | - |  | ---------------------------------------------------------------------------------------- |  | -------------- | - |  | - | ------- | -
|                                                                                      |  | In millions of Korean
won,except for share and income (loss) per share data |   |  | In thousandsof U.S. dollars,except for shareand income (loss)per share data(Note 2) 2004 | 
|                                                                                      |  | 2002                                                                        |   |  | 2003                                                                                     |  | 2004           |   | 
|INCOME (LOSS) BEFORE MINORITY INTEREST                                                |  | (73,167                                                                     | ) |  | 898                                                                                      |  | (31,919        | ) |  |   | (30,837 | )
|MINORITY INTEREST IN NET LOSS OF CONSOLIDATED SUBSIDIARIES                            |  | 176                                                                         |   |  | 1,626                                                                                    |  | 265            |   |  |   | 256     |  
|                                                                                      |  |                                                                             |   |  |                                                                                          |  |                |   |  |   |         |  
|NET INCOME (LOSS)                                                                     |  | (Won) (72,991                                                               | ) |  | (Won) 2,524                                                                              |  | (Won) (31,654  | ) |  | $ | (30,581 | )
|                                                                                      |  |                                                                             |   |  |                                                                                          |  |                |   |  |   |         |  
|WEIGHTED AVERAGE NUMBER OF COMMON STOCK OUTSTANDING (In millions of shares) (Note 21) |  | 155                                                                         |   |  | 160                                                                                      |  | 178            |   |  |   | 178     |  
|                                                                                      |  |                                                                             |   |  |                                                                                          |  |                |   |  |   |         |  
|INCOME (LOSS) PER SHARE (Note 21) (In Korean won and U.S. dollars)                    |  | (Won)     (470                                                              | ) |  | (Won)       16                                                                           |  | (Won)     (178 | ) |  | $ | (0.172  | )
|                                                                                      |  |                                                                             |   |  |                                                                                          |  |                |   |  |   |         |  



See accompanying notes
to consolidated financial statements.



F-6



---

##### Table of Contents

MIRAE CORPORATION AND ITS SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY

YEARS ENDED DECEMBER 31, 2002, 2003 AND 2004



|                                                                                                                                    |  |              |  |                 |   |  |                             |   |  |                     |   |  |               |  |         |   |  |                                                         |   |  |                          |  
|----------------------------------------------------------------------------------------------------------------------------------- |  | ------------ |  | --------------- | - |  | --------------------------- | - |  | ------------------- | - |  | ------------- |  | ------- | - |  | ------------------------------------------------------- | - |  | ------------------------ | -
|                                                                                                                                    |  |              |  |                 |   |  |                             |   |  | Capital Adjustments |   |  |               |  |         |   | 
|(In millions of Korean won)                                                                                                         |  | Common Stock |  | Capital Surplus |   |  | Retained Earnings (Deficit) |   |  | Treasury Stock      |   |  | Stock Options |  | Other   |   |  | MinorityInterest in Equity of Consolidated Subsidiaries |   |  | TotalShareholdersEquity |  
|Balance, January 1, 2002                                                                                                            |  | (Won) 12,464 |  | (Won) 286,706   |   |  | (Won) (66,274               | ) |  | (Won) (4,843        | ) |  | (Won) 198     |  | (Won)  |   |  | (Won) 22,201                                            |   |  | (Won) 250,452            |  
|Net loss                                                                                                                            |  |             |  |                |   |  | (72,991                     | ) |  |                    |   |  |              |  |        |   |  |                                                        |   |  | (72,991                  | )
|Decrease in capital surplus relating to additional stock transactions by consolidated subsidiaries (Note 15)                        |  |             |  | (1,616          | ) |  |                            |   |  |                    |   |  |              |  |        |   |  |                                                        |   |  | (1,616                   | )
|Gain on disposal of treasury stock (Note 15)                                                                                        |  |             |  | 35              |   |  |                            |   |  |                    |   |  |              |  |        |   |  |                                                        |   |  | 35                       |  
|Offsetting against deficit (Notes 2 and 15)                                                                                         |  |             |  | (65,263         | ) |  | 65,263                      |   |  |                    |   |  |              |  |        |   |  |                                                        |   |  |                         |  
|Reversal of losses in excess of minority interest                                                                                   |  |             |  |                |   |  | 377                         |   |  |                    |   |  |              |  |        |   |  |                                                        |   |  | 377                      |  
|Treasury stock transactions                                                                                                         |  |             |  |                |   |  |                            |   |  | 29                  |   |  |              |  |        |   |  |                                                        |   |  | 29                       |  
|Stock compensation plans (Notes 2 and 26)                                                                                           |  |             |  |                |   |  |                            |   |  |                    |   |  | 159           |  |        |   |  |                                                        |   |  | 159                      |  
|Gain on valuation of equity securities valued using the equity method                                                               |  |             |  |                |   |  |                            |   |  |                    |   |  |              |  | 332     |   |  |                                                        |   |  | 332                      |  
|Increase in treasury stock by consolidated subsidiary                                                                               |  |             |  |                |   |  |                            |   |  |                    |   |  |              |  | (1,188  | ) |  |                                                        |   |  | (1,188)                  |  
|Decrease in minority interest in equity of consolidated subsidiaries                                                                |  |             |  |                |   |  |                            |   |  |                    |   |  |              |  |        |   |  | (816                                                    | ) |  | (816)                    |  
|Other                                                                                                                               |  |             |  |                |   |  | 168                         |   |  |                    |   |  |              |  | (55     | ) |  |                                                        |   |  | 113                      |  
|                                                                                                                                    |  |              |  |                 |   |  |                             |   |  |                     |   |  |               |  |         |   |  |                                                         |   |  |                          |  
|Balance, December 31, 2002                                                                                                          |  | 12,464       |  | 219,862         |   |  | (73,457                     | ) |  | (4,814              | ) |  | 357           |  | (911    | ) |  | 21,385                                                  |   |  | 174,886                  |  
|Net income                                                                                                                          |  |             |  |                |   |  | 2,524                       |   |  |                    |   |  |              |  |        |   |  |                                                        |   |  | 2,524                    |  
|Additional issuance (Note 15)                                                                                                       |  | 2,493        |  | 22,611          |   |  |                            |   |  |                    |   |  |              |  |        |   |  |                                                        |   |  | 25,104                   |  
|Additional issuance without consideration                                                                                           |  | 2,962        |  | (2,962          | ) |  |                            |   |  |                    |   |  |              |  |        |   |  |                                                        |   |  |                         |  
|Treasury stock transactions (Note 17)                                                                                               |  |             |  |                |   |  |                            |   |  | 470                 |   |  |              |  |        |   |  |                                                        |   |  | 470                      |  
|Loss on disposal of treasury stock (Note 17)                                                                                        |  |             |  |                |   |  |                            |   |  |                    |   |  |              |  | (113    | ) |  |                                                        |   |  | (113                     | )
|Stock compensation plans (Notes 2 and 26)                                                                                           |  |             |  |                |   |  |                            |   |  |                    |   |  | 356           |  |        |   |  |                                                        |   |  | 356                      |  
|Offsetting against deficit (Notes 2 and 15)                                                                                         |  |             |  | (73,738         | ) |  | 73,738                      |   |  |                    |   |  |              |  |        |   |  |                                                        |   |  |                         |  
|Decrease in capital surplus and capital adjustment relating to disposal of available-for-sale securities (Note 15)                  |  |             |  | (24,628         | ) |  |                            |   |  |                    |   |  |              |  | (332    | ) |  |                                                        |   |  | (24,960                  | )
|Decrease in capital surplus and capital adjustment relating to additional stock transactions by consolidated subsidiaries (Note
15) |  |             |  | (353            | ) |  |                            |   |  |                    |   |  |              |  | 125     |   |  |                                                        |   |  | (228                     | )
|Decrease in minority interest in equity of consolidated subsidiaries                                                                |  |             |  |                |   |  |                            |   |  |                    |   |  |              |  |        |   |  | (1,447                                                  | ) |  | (1,447                   | )
|                                                                                                                                    |  |              |  |                 |   |  |                             |   |  |                     |   |  |               |  |         |   |  |                                                         |   |  |                          |  
|Balance, December 31, 2003                                                                                                          |  | 17,919       |  | 140,792         |   |  | 2,805                       |   |  | (4,344              | ) |  | 713           |  | (1,231  | ) |  | 19,938                                                  |   |  | 176,592                  |  
|Net loss                                                                                                                            |  |             |  |                |   |  | (31,654                     | ) |  |                    |   |  |              |  |        |   |  |                                                        |   |  | (31,654                  | )
|Reclassification of loss on disposal of treasury stock (Note 17)                                                                    |  |             |  |                |   |  | (113                        | ) |  |                    |   |  |              |  | 113     |   |  |                                                         |   |  |                         |  
|Stock compensation plans (Notes 2 and 25)                                                                                           |  |             |  |                |   |  |                            |   |  |                    |   |  | 802           |  |        |   |  |                                                        |   |  | 802                      |  
|Adjustment for changes in consolidated subsidiaries                                                                                 |  |             |  | (12,878         | ) |  | 302                         |   |  |                    |   |  |              |  | 12,656  |   |  | (19,137                                                 | ) |  | (19,057                  | )
|Increase in minority interest in equity of consolidated subsidiaries                                                                |  |             |  |                |   |  |                            |   |  |                    |   |  |              |  |        |   |  | 43                                                      |   |  | 43                       |  
|Losses in excess of minority interest                                                                                               |  |             |  |                |   |  | (126                        | ) |  |                    |   |  |              |  |        |   |  |                                                        |   |  | (126                     | )
|                                                                                                                                    |  |              |  |                 |   |  |                             |   |  |                     |   |  |               |  |         |   |  |                                                         |   |  |                          |  



F-7



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##### Table of Contents

MIRAE CORPORATION AND ITS SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY (CONTINUED)

YEARS ENDED
DECEMBER 31, 2002, 2003 AND 2004



|                                                                     |  |              |             |                 |   |              |                            |  |   |                     |   |  |               |             |       |  |   |                                                          |  |   |                          |   |  |   |          |   |  |   |              |  
|-------------------------------------------------------------------- |  | ------------ | ----------- | --------------- | - | ------------ | -------------------------- |  | - | ------------------- | - |  | ------------- | ----------- | ----- |  | - | -------------------------------------------------------- |  | - | ------------------------ | - |  | - | -------- | - |  | - | ------------ | -
|                                                                     |  |              |             |                 |   |              |                            |  |   | Capital Adjustments |   |  |               |             |       |  |  
|                                                                     |  | Common Stock |             | Capital Surplus |   |              | RetainedEarnings (Deficit) |  |   | Treasury Stock      |   |  | Stock Options |             | Other |  |   | Minority Interest in Equity of Consolidated Subsidiaries |  |   | TotalShareholdersEquity |  
|(In millions of Korean won)                                          |  |              |             |                 |   |              |                            |  |   |                     |   |  |               |             |       |  |   |                                                          |  |   |                          |   |  |   |          |   |  |   |              |  
|Balance, December 31, 2004                                           |  |              | (Won)17,919 |                 |   | (Won)127,914 |                            |  |   | (Won)(28,786        | ) |  |               | (Won)(4,344 | )     |  |   | (Won)1,515                                               |  |   | (Won)11,538              |   |  |   | (Won)844 |   |  |   | (Won)126,600 |  
|                                                                     |  |              |             |                 |   |              |                            |  |   |                     |   |  |               |             |       |  |   |                                                          |  |   |                          |   |  |   |          |   |  |   |              |  
|(In thousands of U.S. dollars) (Note 2)                              |  |              |             |                 |   |              |                            |  |   |                     |   |  |               |             |       |  |   |                                                          |  |   |                          |   |  |   |          |   |  |   |              |  
|Balance, December 31, 2003                                           |  | $            | 17,311      |                 | $ | 136,018      |                            |  | $ | 2,710               |   |  | $             | (4,197      | )     |  | $ | 689                                                      |  | $ | (1,189                   | ) |  | $ | 19,262   |   |  | $ | 170,604      |  
|Net loss                                                             |  |              |            |                 |   |             |                            |  |   | (30,581             | ) |  |               |            |       |  |   |                                                         |  |   |                         |   |  |   |         |   |  |   | (30,581      | )
|Reversal of loss on disposal of treasury stock (Note 17)             |  |              |            |                 |   |             |                            |  |   | (109                | ) |  |               |            |       |  |   |                                                         |  |   | 109                      |   |  |   |         |   |  |   |             |  
|Stock compensation plans (Notes 2 and 25)                            |  |              |            |                 |   |             |                            |  |   |                    |   |  |               |            |       |  |   | 775                                                      |  |   |                         |   |  |   |         |   |  |   | 775          |  
|Changes in consolidated subsidiaries                                 |  |              |            |                 |   | (12,442      | )                          |  |   | 292                 |   |  |               |            |       |  |   |                                                         |  |   | 12,227                   |   |  |   | (18,489  | ) |  |   | (18,412      | )
|Increase in minority interest in equity of consolidated subsidiaries |  |              |            |                 |   |             |                            |  |   |                    |   |  |               |            |       |  |   |                                                         |  |   |                         |   |  |   | 42       |   |  |   | 42           |  
|Losses in excess of minority interest                                |  |              |            |                 |   |             |                            |  |   | (122                | ) |  |               |            |       |  |   |                                                         |  |   |                         |   |  |   |         |   |  |   | (122         | )
|                                                                     |  |              |             |                 |   |              |                            |  |   |                     |   |  |               |             |       |  |   |                                                          |  |   |                          |   |  |   |          |   |  |   |              |  
|Balance, December 31, 2004                                           |  | $            | 17,311      |                 | $ | 123,576      |                            |  | $ | (27,810)            |   |  | $             | (4,197)     |       |  | $ | 1,464                                                    |  | $ | 11,147                   |   |  | $ | 815      |   |  | $ | 122,306      |  
|                                                                     |  |              |             |                 |   |              |                            |  |   |                     |   |  |               |             |       |  |   |                                                          |  |   |                          |   |  |   |          |   |  |   |              |  



See accompanying notes
to consolidated financial statements.



F-8



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##### Table of Contents

MIRAE CORPORATION AND ITS SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

YEARS ENDED DECEMBER 31, 2002, 2003 AND 2004



|                                                                                   |  |                           |              |   |                                            |            |   |      |              |   |  |   |         |  
|---------------------------------------------------------------------------------- |  | ------------------------- | ------------ | - | ------------------------------------------ | ---------- | - | ---- | ------------ | - |  | - | ------- | -
|                                                                                   |  | In millions of Korean won |              |   | In thousands of U.S. dollars (Note 2) 2004 |           
|                                                                                   |  | 2002                      |              |   | 2003                                       |            |   | 2004 |              |  
|CASH FLOWS FROM OPERATING ACTIVITIES:                                              |  |                           |              |   |                                            |            |   |      |              |   |  |  
|Net income (loss)                                                                  |  |                           | (Won)(72,991 | ) |                                            | (Won)2,524 |   |      | (Won)(31,654 | ) |  | $ | (30,581 | )
|                                                                                   |  |                           |              |   |                                            |            |   |      |              |   |  |   |         |  
|Expenses not involving cash payments:                                              |  |                           |              |   |                                            |            |   |      |              |   |  |   |         |  
|Depreciation and amortization                                                      |  |                           | 8,066        |   |                                            | 7,579      |   |      | 5,731        |   |  |   | 5,537   |  
|Loss from impairment of deferred development cost                                  |  |                           | 11,337       |   |                                            | 1,521      |   |      | 2,488        |   |  |   | 2,404   |  
|Provision for severance indemnities                                                |  |                           | 2,264        |   |                                            | 1,705      |   |      | 1,442        |   |  |   | 1,393   |  
|Provision for doubtful accounts                                                    |  |                           | 18,874       |   |                                            | 4,970      |   |      | 2,885        |   |  |   | 2,787   |  
|Provision for guarantees issued                                                    |  |                           | 649          |   |                                            |           |   |      |             |   |  |   |        |  
|Loss on collateralized assets                                                      |  |                           |             |   |                                            |           |   |      | 14,816       |   |  |   | 14,314  |  
|Loss from valuation of inventories                                                 |  |                           | 20,409       |   |                                            | 12,428     |   |      | 1,946        |   |  |   | 1,880   |  
|Loss on disposal and valuation of trading securities                               |  |                           | 3,377        |   |                                            | 328        |   |      | 165          |   |  |   | 159     |  
|Loss on disposal and valuation of current portion of available-for-sale securities |  |                           | 1            |   |                                            | 1          |   |      | 20           |   |  |   | 19      |  
|Foreign currency translation loss                                                  |  |                           | 1,419        |   |                                            | 23         |   |      | 1,672        |   |  |   | 1,615   |  
|Equity in losses of affiliate                                                      |  |                           | 827          |   |                                            | 7,953      |   |      | 4,468        |   |  |   | 4,316   |  
|Loss from impairment of available-for-sale securities                              |  |                           | 3,631        |   |                                            | 1,343      |   |      | 169          |   |  |   | 163     |  
|Compensation cost related to stock options                                         |  |                           | 159          |   |                                            | 356        |   |      | 802          |   |  |   | 775     |  
|Provision for warranty                                                             |  |                           |             |   |                                            |           |   |      | 1,913        |   |  |   | 1,848   |  
|Other                                                                              |  |                           | 542          |   |                                            | 146        |   |      | 517          |   |  |   | 498     |  
|                                                                                   |  |                           |              |   |                                            |            |   |      |              |   |  |   |         |  
|Sub-total                                                                          |  |                           | 71,555       |   |                                            | 38,353     |   |      | 39,034       |   |  |   | 37,708  |  
|                                                                                   |  |                           |              |   |                                            |            |   |      |              |   |  |   |         |  
|Income not involving cash receipts:                                                |  |                           |              |   |                                            |            |   |      |              |   |  |   |         |  
|Foreign currency translation gain                                                  |  |                           | (542         | ) |                                            | (192       | ) |      | (1,098       | ) |  |   | (1,061  | )
|Reversal of provision for guarantees issued                                        |  |                           | (3,739       | ) |                                            |           |   |      |             |   |  |   |        |  
|Gain on disposal and valuation of trading securities                               |  |                           | (2,725       | ) |                                            | (2,875     | ) |      | (525         | ) |  |   | (507    | )
|Gain on disposal and valuation of current portion of available-for-sale securities |  |                           | (156         | ) |                                            | (4         | ) |      |             |   |  |   |        |  
|Gain on disposal of available-for-sale securities                                  |  |                           |             |   |                                            | (28,378    | ) |      |             |   |  |   |        |  
|Gain on disposal of equity securities valued using the equity method               |  |                           |             |   |                                            | (101       | ) |      |             |   |  |   |        |  
|Gain on disposal of property, plant and equipment                                  |  |                           | (1,832       | ) |                                            | (272       | ) |      | (27          | ) |  |   | (26     | )
|Minority interest in net loss of consolidated affiliates                           |  |                           | (176         | ) |                                            | (1,626     | ) |      | (265         | ) |  |   | (256    | )
|Other                                                                              |  |                           | (462         | ) |                                            | (553       | ) |      | (343         | ) |  |   | (332    | )
|                                                                                   |  |                           |              |   |                                            |            |   |      |              |   |  |   |         |  
|Sub-total                                                                          |  |                           | (9,632       | ) |                                            | (34,001    | ) |      | (2,258       | ) |  |   | (2,182  | )
|                                                                                   |  |                           |              |   |                                            |            |   |      |              |   |  |   |         |  
|Changes in assets and liabilities related to operating activities:                 |  |                           |              |   |                                            |            |   |      |              |   |  |   |         |  
|Accounts receivable - trade                                                        |  |                           | (10,491      | ) |                                            | (9,731     | ) |      | (835         | ) |  |   | (807    | )
|Accounts receivable - other                                                        |  |                           | (345         | ) |                                            | (2,219     | ) |      | (218         | ) |  |   | (211    | )
|Inventories                                                                        |  |                           | 10,783       |   |                                            | 115        |   |      | (20,144      | ) |  |   | (19,461 | )
|Accrued interest income                                                            |  |                           | (40          | ) |                                            | 61         |   |      | (398         | ) |  |   | (385    | )
|Advance payments and other current assets                                          |  |                           | (1,636       | ) |                                            | 8,295      |   |      | 2,192        |   |  |   | 2,118   |  
|Accounts payable - trade                                                           |  |                           | 4,535        |   |                                            | (2,108     | ) |      | 6,750        |   |  |   | 6,521   |  
|Accounts payable - other                                                           |  |                           | (13,916      | ) |                                            | 335        |   |      | (3           | ) |  |   | (3      | )
|Income taxes payable                                                               |  |                           | (251         | ) |                                            | 13         |   |      |             |   |  |   |        |  
|Advance receipts from customers                                                    |  |                           | 47           |   |                                            | (176       | ) |      | 1,063        |   |  |   | 1,027   |  
|Accrued expenses and other current liabilities                                     |  |                           | (718         | ) |                                            | 1,026      |   |      | (1,269       | ) |  |   | (1,226  | )
|Severance indemnity payments                                                       |  |                           | (1,240       | ) |                                            | (1,968     | ) |      | (965         | ) |  |   | (932    | )
|                                                                                   |  |                           |              |   |                                            |            |   |      |              |   |  |   |         |  



(Continued)



F-9



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##### Table of Contents

MIRAE CORPORATION AND ITS SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

YEARS ENDED DECEMBER 31,
2002, 2003 AND 2004



|                                                                                               |  |                           |             |   |                                            |            |   |      |            |   |  |   |         |  
|---------------------------------------------------------------------------------------------- |  | ------------------------- | ----------- | - | ------------------------------------------ | ---------- | - | ---- | ---------- | - |  | - | ------- | -
|                                                                                               |  | In millions of Korean won |             |   | In thousands of U.S. dollars (Note 2) 2004 |           
|                                                                                               |  | 2002                      |             |   | 2003                                       |            |   | 2004 |            |  
|Sub-total                                                                                      |  |                           | (13,272     | ) |                                            | (6,357     | ) |      | (13,827    | ) |  |   | (13,359 | )
|                                                                                               |  |                           |             |   |                                            |            |   |      |            |   |  |   |         |  
|Net cash provided by (used in) operating activities                                            |  |                           | (24,340     | ) |                                            | 519        |   |      | (8,705)    |   |  |   | (8,414  | )
|                                                                                               |  |                           |             |   |                                            |            |   |      |            |   |  |   |         |  
|CASH FLOWS FROM INVESTING ACTIVITIES:                                                          |  |                           |             |   |                                            |            |   |      |            |   |  |   |         |  
|Proceeds from disposal of property, plant and equipment                                        |  |                           | (Won)58,655 |   |                                            | (Won)  965 |   |      | (Won)  118 |   |  | $ | 114     |  
|Decrease (increase) in short-term financial instruments                                        |  |                           | 9,765       |   |                                            | 6,194      |   |      | (23,537    | ) |  |   | (22,739 | )
|Decrease in long-term loans                                                                    |  |                           | 9,770       |   |                                            | 235        |   |      | 806        |   |  |   | 779     |  
|Decrease in guarantee deposits                                                                 |  |                           | 614         |   |                                            | 5,918      |   |      | 1,327      |   |  |   | 1,282   |  
|Decrease (increase) in trading securities, net                                                 |  |                           | (7,153      | ) |                                            | 9,833      |   |      | 21,062     |   |  |   | 20,348  |  
|Decrease (increase) in current portion of available-for-sale securities, net                   |  |                           |            |   |                                            | 1,750      |   |      | (17        | ) |  |   | (16     | )
|Acquisition of property, plant and equipment                                                   |  |                           | (3,238      | ) |                                            | (22,669    | ) |      | (9,872     | ) |  |   | (9,537  | )
|Acquisition of available-for-sale securities                                                   |  |                           | (6,565      | ) |                                            |           |   |      |           |   |  |   |        |  
|Proceeds from disposal of available-for-sale securities                                        |  |                           |            |   |                                            | 4,206      |   |      |           |   |  |   |        |  
|Acquisition of equity securities valued using the equity method                                |  |                           |            |   |                                            | (9,818     | ) |      |           |   |  |   |        |  
|Increase in long-term financial instruments, net                                               |  |                           | (618        | ) |                                            | (348       | ) |      | (384       | ) |  |   | (371    | )
|Increase in long-term loans                                                                    |  |                           | (3,200      | ) |                                            | (8,966     | ) |      | (173       | ) |  |   | (167    | )
|Decrease (increase) in investments and other non-current assets                                |  |                           | (8,311      | ) |                                            | 1,693      |   |      | 809        |   |  |   | 782     |  
|Increase in guarantee deposits                                                                 |  |                           | (5,879      | ) |                                            | (1,158     | ) |      | (3,627     | ) |  |   | (3,504  | )
|Increase in deferred development costs                                                         |  |                           | (4,002      | ) |                                            | (2,884     | ) |      | (6,239     | ) |  |   | (6,027  | )
|Disposal of deferred development costs                                                         |  |                           | 1,250       |   |                                            |           |   |      |           |   |  |   |        |  
|Increase (decrease) in long-term guarantee deposits payable                                    |  |                           | (11,406     | ) |                                            | 4,874      |   |      | (1,032     | ) |  |   | (997    | )
|                                                                                               |  |                           |             |   |                                            |            |   |      |            |   |  |   |         |  
|Net cash provided by (used in) investing activities                                            |  |                           | 29,682      |   |                                            | (10,175    | ) |      | (20,759    | ) |  |   | (20,053 | )
|                                                                                               |  |                           |             |   |                                            |            |   |      |            |   |  |   |         |  
|CASH FLOWS FROM FINANCING ACTIVITIES:                                                          |  |                           |             |   |                                            |            |   |      |            |   |  |   |         |  
|Increase in short-term borrowings                                                              |  |                           |            |   |                                            | 94         |   |      | 18,775     |   |  |   | 18,138  |  
|Increase in long-term borrowings                                                               |  |                           | 10,000      |   |                                            | 500        |   |      | 6,561      |   |  |   | 6,339   |  
|Increase in long-term lease payable                                                            |  |                           | 918         |   |                                            |           |   |      |           |   |  |   |        |  
|Issuance of convertible bonds payable                                                          |  |                           |            |   |                                            |           |   |      | 3,000      |   |  |   | 2,898   |  
|Issuance of common stock                                                                       |  |                           |            |   |                                            | 25,103     |   |      |           |   |  |   |        |  
|Increase (decrease) in minority interest in equity of consolidated affiliate                   |  |                           | (218        | ) |                                            | 180        |   |      | 9          |   |  |   | 9       |  
|Disposal of treasury stock                                                                     |  |                           | 1,273       |   |                                            | 373        |   |      |           |   |  |   |        |  
|Payment of short-term borrowings                                                               |  |                           | (21,885     | ) |                                            | (13,684    | ) |      |           |   |  |   |        |  
|Payment of current portion of long-term debt                                                   |  |                           |            |   |                                            |           |   |      | (1,788     | ) |  |   | (1,727  | )
|Payment of current portion of long-term lease payable                                          |  |                           | (152        | ) |                                            | (458       | ) |      | (461       | ) |  |   | (445    | )
|Payment of long-term lease payable                                                             |  |                           | (146        | ) |                                            |           |   |      | (861       | ) |  |   | (832    | )
|Acquisition of treasury stock                                                                  |  |                           | (1,499      | ) |                                            | (16        | ) |      |           |   |  |   |        |  
|Increase (decrease) in other capital adjustment                                                |  |                           | (1,243      | ) |                                            | 125        |   |      |           |   |  |   |        |  
|Payment of dividends                                                                           |  |                           | (423        | ) |                                            |           |   |      |           |   |  |   |        |  
|                                                                                               |  |                           |             |   |                                            |            |   |      |            |   |  |   |         |  
|Net cash provided by (used in) financing activities                                            |  |                           | (13,375     | ) |                                            | 12,217     |   |      | 25,235     |   |  |   | 24,380  |  
|                                                                                               |  |                           |             |   |                                            |            |   |      |            |   |  |   |         |  
|NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS FROM CHANGES IN CONSOLIDATED SUBSIDIARIES |  |                           | 126         |   |                                            |           |   |      | (2,385     | ) |  |   | (2,304  | )
|                                                                                               |  |                           |             |   |                                            |            |   |      |            |   |  |   |         |  



F-10



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##### Table of Contents

MIRAE CORPORATION AND ITS SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

YEARS ENDED DECEMBER 31,
2002, 2003 AND 2004



|                                                     |  |                           |   |  |                                            |   |  |             |   |  |   |        |  
|---------------------------------------------------- |  | ------------------------- | - |  | ------------------------------------------ | - |  | ----------- | - |  | - | ------ | -
|                                                     |  | In millions of Korean won |   |  | In thousands of U.S. dollars (Note 2) 2004 |  
|                                                     |  | 2002                      |   |  | 2003                                       |   |  | 2004        |   | 
|NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS |  | (7,907                    | ) |  | 2,561                                      |   |  | (6,614      | ) |  |   | (6,391 | )
|                                                     |  |                           |   |  |                                            |   |  |             |   |  |   |        |  
|CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR       |  | 26,915                    |   |  | 19,008                                     |   |  | 21,569      |   |  |   | 20,838 |  
|                                                     |  |                           |   |  |                                            |   |  |             |   |  |   |        |  
|CASH AND CASH EQUIVALENTS AT END OF YEAR             |  | (Won)19,008               |   |  | (Won)21,569                                |   |  | (Won)14,955 |   |  | $ | 14,447 |  
|                                                     |  |                           |   |  |                                            |   |  |             |   |  |   |        |  
|CASH PAID FOR INTEREST, NET OF AMOUNT CAPITALIZED    |  | (Won)  3,609              |   |  | (Won)  2,041                               |   |  | (Won)1,882  |   |  | $ | 1,818  |  
|                                                     |  |                           |   |  |                                            |   |  |             |   |  |   |        |  
|CASH PAID (REFUNDED) FOR INCOME TAXES                |  | (Won)      220            |   |  | (Won)     (88                              | ) |  | (Won)  (141 | ) |  | $ | (136   | )
|                                                     |  |                           |   |  |                                            |   |  |             |   |  |   |        |  



See accompanying notes
to consolidated financial statements.



F-11



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##### Table of Contents

MIRAE CORPORATION AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



|1. | GENERAL
|-- | -------



Mirae Corporation (the Company) was incorporated in December 1990 under the laws of the Republic of Korea (Korea) and is currently
engaged in the manufacture of semiconductor-related equipment including handlers, SMD placement systems for sale in domestic and overseas markets. The Companys common shares and American Depositary Shares (ADSs) are listed on the
KRX Stock Market and the Nasdaq National Market, respectively. Each ADS represents two shares of common stock. As of December 31, 2004, the Companys largest shareholder was Mr. Moon-Soul Chung, the Companys former president, with a
shareholding of 12.50% and, including his family members, 13.86%.



|2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
|-- | ------------------------------------------



Significant accounting policies followed by the Company in the preparation of the accompanying consolidated financial statements are summarized as
follows:



| | a. | Basis of Presentation
| | -- | ---------------------



The official accounting records of the Company are expressed in Korean won and are maintained in accordance with the relevant laws and regulations of the
Republic of Korea. The accounting principles and reporting practices followed by the Company and generally accepted in the Republic of Korea (Korean GAAP) may differ in certain respects from accounting principles and reporting practices
generally accepted in other countries and jurisdictions.



The
financial statements are stated in Korean won, the currency of the country, in which the Company is incorporated and operates. The translation of Korean won amounts into U.S. dollar amounts is included solely for the convenience of readers outsides
of the Republic of Korea and have been made at the rate of (Won)1,035.10 to US$1, the Noon Buying Rate in the City of New York for cable transfers in Korean won as certified for customs purposes by the Federal Reserve Bank of New York on the last
business day of the year ended December 31, 2004. Such translations should not be construed as representations that the Korean won amounts could be converted into U.S. dollars at that or any other rate.



| | b. | Principles of Consolidation
| | -- | ---------------------------



The consolidated financial statements include the accounts of the Company and all subsidiaries. Significant inter-company accounts and transactions have
been eliminated in consolidation. Affiliates, over which the Company exercises significant influence, are accounted for using the equity method of accounting (see note 2(i)).



The Companys consolidated subsidiaries and its affiliates as of December 31, 2004, which are accounted for using the
equity method of accounting, are as follows:



|                                      |  |                       |  |                          |   |  |              
|------------------------------------- |  | --------------------- |  | ------------------------ | - |  | -------------
|                                      |  | Year of establishment |  | Ownership Percentage (%) |   |  | Remark       
|Mirae Online Co., Ltd. (MOL)        |  | 2000                  |  | 67.47                    | % |  | Consolidated 
|Korea Internet. Com. (KIC)          |  | 2000                  |  | 87.38                    | % |  | Consolidated 
|GLD Co., Ltd. (GLD)                 |  | 1999                  |  | 80.00                    | % |  | Consolidated 
|SoftForum Corporation (SoftForum)   |  | 1999                  |  | 41.51                    | % |  | Equity method
|Mirae America, Inc. (Mirae America) |  | 2001                  |  | 50.00                    | % |  | Equity method
|AIO Corporation (AIO)               |  | 1990                  |  | 21.63                    | % |  | Equity method
|Cyber Bank Corporation (Cyber Bank) |  | 1999                  |  | 28.25                    | % |  | Equity method



MOL was incorporated
in March 2000 under the laws of Korea in order to engage in providing broadcasting program sending service. As of December 31, 2004, MOL is 67.47%-owned by the Company.



KIC was incorporated in July 2000 under the laws of Korea as a joint venture company between the Company and internet.com
Corporation, a United States corporation, in order to provide e-business related information, real-time news, and information for internet professionals on the internet. As of December 31, 2004, KIC is 87.38%-owned by the Company.



GLD was incorporated in October 1999 under the laws of Korea in order to
engage in development and sale of liquid crystal display related components and products. In February 2004, the Company purchased a 80% interest in GLD, which was accounted for using the purchase method. The total assets and total liabilities of GLD
as of acquisition date were (Won)1,134,520,648 and (Won)605,363,090, respectively.



F-12



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##### Table of Contents

SoftForum was incorporated in April 1999 under the laws of Korea as a 70%-owned subsidiary of the Company
and is currently engage in providing security solutions for on-line banking, trading and electronic commerce. SoftForums shares have been listed in the Korea Securities Dealers Automated Quotation (KOSDAQ) market since October 30,
2001. As of December 31, 2004, SoftForum, which is 41.51%-owned by the Company, has wholly-owned subsidiaries of MR Tech Town Co. (MR Tech) and Alpha Logics Co., Ltd. (Alpha Logics). On March 24, 2005, the Company sold
2,726,800 shares of common stock in SoftForum to a third party for (Won)9,010 million. As a result, the Companys ownership percentage of SoftForum decreased to 7.51% and SoftForum, MR Tech, and Alpha Logics were excluded from consolidation for
the year ended December 31, 2004 in accordance with Korean GAAP.



Mirae America was incorporated in February 2001 under the laws of United States of America as a joint venture company. Mirae America currently sells products manufactured by the Company and provides after-sales services for the products.



AIO Corporation was incorporated in the United States of
America in 1990 in order to design, manufacture and market silicon wafer cleaning systems, track systems and ancillary equipment.



Cyber Bank was incorporated in January 1999 under the laws of Korea in order to develop and manufacture telecommunication appliance, and develop total
information system and software.



| | c. | Use of Estimates
| | -- | ----------------



The preparation of the Companys financial statements, in conformity with accounting principles generally accepted in the Republic of Korea, requires
management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported
amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates.



| | d. | Adoption of Statements of Korea Accounting Standards (SKAS)
| | -- | -------------------------------------------------------------



On January 1, 2003, the Company and its subsidiaries adopted SKAS No. 2 through No. 9. Such adoptions of new SKAS did not have an effect on the
consolidated financial position of the Company and its subsidiaries as of December 31, 2003 or consolidated operating loss and net income of the Company and its subsidiaries for the year ended December 31, 2003.



On January 1, 2004, the Company and its subsidiaries adopted SKAS No. 10,
No. 12 and No. 13. SKAS No. 10, Inventories requires a loss from valuation of inventories, which were recorded as other expenses through 2003, to be presented in cost of sales. As a result, consolidated operating loss of the Company and
its subsidiaries for the year ended December 31, 2004 increased by (Won)1,946 million, whilst the consolidated financial position as of December 31, 2004 and consolidated net loss for the year then ended remain the same.



| | e. | Revenue Recognition
| | -- | -------------------



Through 2002, under Korean GAAP, sales were recognized at the time products are delivered to customers. Effective January 1, 2003, Korean GAAP was revised
that product sales are recognized upon final acceptance and passage of legal title. This accounting change has been applied prospectively.



| | f. | Allowance for Doubtful Accounts
| | -- | -------------------------------



An allowance for doubtful accounts is provided based on the estimated collectibility of individual accounts and historical bad debt experience.



Activity in the allowance for doubtful accounts balances for
the years ended December 31, 2003 and 2004 is as follows (in millions of Korean won):



|                                                                     |  |             |   |  |             |  
|-------------------------------------------------------------------- |  | ----------- | - |  | ----------- | -
|                                                                     |  | 2003        |   |  | 2004        |  
|(Allowance for doubtful accounts receivable - trade)                 |  |             |   |  |             |  
|                                                                     |  |            
|Beginning balance                                                    |  | (Won)14,322 |   |  | (Won)17,414 |  
|Provision (charged to selling, general and administrative expenses)  |  | 3,224       |   |  | 1,784       |  
|Changes in consolidated subsidiaries                                 |  |            |   |  | (938        | )
|Offset against uncollectible trade receivables                       |  | (132        | ) |  | (387        | )
|                                                                     |  |             |   |  |             |  
|Ending balance                                                       |  | (Won)17,414 |   |  | (Won)17,873 |  
|                                                                     |  |             |   |  |             |  
|                                                                     |  |            
|                                                                     |  | 2003        |   |  | 2004        |  
|(Allowance for doubtful advance payments, long-term loans and other) |  |             |   |  |             |  
|                                                                     |  |            
|Beginning balance                                                    |  | (Won)6,999  |   |  | (Won)9,394  |  
|Provision (charged to other expenses)                                |  | 1,746       |   |  | 1,101       |  
|Transfer from provision for guarantees and other                     |  | 649         |   |  | 262         |  
|Changes in consolidated subsidiaries                                 |  |            |   |  | (157        | )
|                                                                     |  |             |   |  |             |  
|Ending balance                                                       |  | (Won)9,394  |   |  | (Won)10,600 |  
|                                                                     |  |             |   |  |             |  



F-13



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##### Table of Contents

| | g. | Inventories
| | -- | -----------



Inventories are stated at the lower of cost, determined using the weighted average cost method (the specific identification method for inventories-in-transit), or net realizable value. During the year, perpetual
inventory systems are used to value inventories, which are adjusted to physical inventory counts performed at the end of the year. Through 2003, when the net realizable value of inventories was less than the carrying amount, the difference between
the net realizable value and the carrying amount was charged to current operations as other expenses. Effective January 1, 2004, in accordance with the application of SKAS No. 10, Inventories, the Company recognizes such expense as cost
of sales. For the years ended December 31, 2002, 2003 and 2004, loss from valuation of inventories recognized as other expenses or cost of sales totaled (Won)20,409 million, (Won)12,428 million and (Won)1,946 million, respectively.



| | h. | Securities (Except for securities accounted for using the equity method)
| | -- | ------------------------------------------------------------------------



Debt and equity securities are initially stated at their acquisition costs (fair value of consideration paid) including incidental cost incurred in
connection with acquisition of the related securities, determined using the weighted average method and divided into trading, available-for-sale and held-to-maturity securities depending on the acquisition purpose and nature. The following details
the Companys accounting for trading securities and available-for-sale securities, except for the equity securities accounted for using the equity method.



| | i) | Trading Securities
| | -- | ------------------



Debt and equity securities bought and held for the purpose of selling them in the near term are classified as trading securities. Trading securities are
recorded at their fair value and valuation gains or losses from trading securities are recorded in current earnings.



| | ii) | Held-to-maturity
| | --- | ----------------



Held-to-maturity securities are presented at acquisition cost after premiums or discounts for debt securities are amortized or accreted, respectively.
The Company recognizes write-downs resulting from the other-than-temporary declines in the fair value below its book value on the balance sheet date if there is objective evidence of impairment. The related write-downs are recorded in current
operations as a loss on impairment of investment securities.



| | iii) | Available-for-sale Securities
| | ---- | -----------------------------



Debt and equity securities that do not fall under the classifications of trading or held-to-maturity securities are categorized as available-for-sale
securities in the long-term asset section. However, if an available-for-sale security matures or it is certain to be disposed of within one year from the balance sheet date, it is presented as a current asset.



Available-for-sale securities are recorded at fair value. However,
available-for-sale equity securities, of which fair value cannot be reliably measured, are recorded at cost, and the fair value of available-for-sale debt securities without quoted market price is estimated discounting the expected future cash flows
at an interest rate commensurate with the credit rating published by independent credit rating institutions.



F-14



---

##### Table of Contents

Unrealized gains or losses from available-for-sale securities are recorded as capital adjustments and
when the decline in fair value is not deemed recoverable, an impairment loss is recognized in current operations. If the value of impaired securities subsequently recovers and the recovery objectively relates to an event arising after the period
when the impairment loss was recorded, such recovery is credited in current operations up to the previously recorded impairment losses. In connection with this policy, the Company recorded impairment losses of (Won)3,631 million, (Won)1,343 million
and (Won)169 million for the years ended December 31, 2002, 2003 and 2004, respectively, and recorded recovery of impairment losses of (Won)11 million for the year ended December 31, 2002.



| | i. | Equity Method of Accounting
| | -- | ---------------------------



Investments in equity securities of companies, over which the Company exercises significant influence, are reported using the equity method of accounting.
Such investments are initially carried at acquisition cost including incidental cost incurred in connection with acquisition of the related securities, determined using the weighted average method. Under the equity method of accounting, the Company
records changes in its proportionate equity of the book value of the investee as current operations, capital adjustments or adjustments to retained earnings, depending on the nature of the underlying changes in the investee.



The details of applying the equity method of accounting are as follows:



Differences between the acquisition cost and net asset value
of the investee are amortized over 20 years using the straight-line method. However, when the Companys ownership decreases due to the investees issuance of additional stock, the difference is accounted for in capital adjustment
(valuation loss in investment securities using the equity method of accounting).



Unrealized profits arising from sales by the Company to equity-method investees are eliminated. The Companys proportionate unrealized profits arising from sales by equity-method investees to the Company or
transactions between equity-method investees are also eliminated.



| | j. | Property, Plant and Equipment
| | -- | -----------------------------



Property, plant and equipment are stated at cost. Major renewals and betterments are capitalized; expenditures for repairs and maintenance are charged to
current operations as incurred.



Depreciation is computed
using the declining balance or straight-line methods over the estimated economic useful lives (four to sixty years) of the related assets.



| | k. | Research and Development Costs
| | -- | ------------------------------



Development costs which meet certain specific conditions such as new product development, technological feasibility, marketability and usefulness are
deferred and amortized over five years, while all research and ordinary development costs are expensed as incurred. Amortization of deferred development costs is to commence when the related revenue or benefit is first realized. In addition, the
amortization of deferred development costs and research and ordinary development expenses are classified as manufacturing or selling, general and administrative expenses depending on their nature.



During 2002, 2003 and 2004, the Company discontinued some of its research
and development projects. As a result, the Company wrote off the related deferred development costs of (Won)11,337 million, (Won)1,521 million and (Won)2,488 million for the years ended December 31, 2002, 2003 and 2004, respectively.



Expenditures on research and development activities for the years ended
December 31, 2002, 2003 and 2004 are as follows (in millions of Korean won):



|                              |  |            |  |            |  |             |  |                                             
|----------------------------- |  | ---------- |  | ---------- |  | ----------- |  | --------------------------------------------
|                              |  | 2002       |  | 2003       |  | 2004        |  | Remark                                      
|Research expenses             |  | (Won)2,410 |  | (Won)1,053 |  | (Won)880    |  | Selling, general and administrative expenses
|Ordinary development expenses |  | 2,866      |  | 3,716      |  | 3,269       |  | Cost of sales                               
|Deferred development costs    |  | 4,002      |  | 2,884      |  | 6,238       |  | Intangible assets                           
|                              |  |            |  |            |  |             |  |                                             
|                              |  | (Won)9,278 |  | (Won)7,653 |  | (Won)10,387 |  |                                             
|                              |  |            |  |            |  |             |  |                                             



F-15



---

##### Table of Contents

Changes in deferred development costs for the years ended December 31, 2003 and 2004 are as follows (in
millions of Korean won):



|                                    |  |            |   |  |            |  
|----------------------------------- |  | ---------- | - |  | ---------- | -
|                                    |  | 2003       |   |  | 2004       |  
|Beginning balance                   |  | (Won)4,054 |   |  | (Won)4,668 |  
|Incurred                            |  | 2,884      |   |  | 6,238      |  
|Change in consolidated subsidiaries |  |           |   |  | (1,751     | )
|Amortized                           |  | (749       | ) |  | (488       | )
|Loss from impairment                |  | (1,521     | ) |  | (2,488     | )
|                                    |  |            |   |  |            |  
|Ending Balance                      |  | (Won)4,668 |   |  | (Won)6,179 |  
|                                    |  |            |   |  |            |  

| | l. | Other Intangible Assets
| | -- | -----------------------



Other intangible assets are stated at cost, less amortization, computed using the straight-line method over five to ten years.



| | m. | Stock Issuance Costs
| | -- | --------------------



Stock issuance costs are shown as a direct reduction to shareholders equity.



| | n. | Accounting for Impairment
| | -- | -------------------------



When the book value of an asset exceeds its estimated recoverable value, which is the greater of the net realizable value or use value of the asset, due
to obsolescence, physical damage or a sharp decline in market value, and the amount is material, the asset is recorded at its reduced value and the resulting impairment loss is charged to current operations. In subsequent periods, if the recoverable
value exceeds the adjusted book value of the asset, the recoveries of previously recognized losses is recognized as a gain in subsequent periods until the net realizable value equals the original book value of the asset.



| | o. | Convertible Bonds
| | -- | -----------------



The proceeds from issuance of convertible bonds are allocated between the conversion rights and the debt issued; the portion allocable to the conversion
rights is accounted for as capital surplus with a corresponding conversion right adjustment which is deducted from the related bonds. Such conversion right adjustment is amortized to interest expense using the effective interest rate method over the
redemption period of the convertible bonds. The portion allocable to the conversion rights is measured by deducting the present value of the debt at time of issuance from the gross proceeds from issuance of convertible bonds, with the present value
of the debt being computed by discounting the expected future cash flows using the effective interest rate applied to ordinary or straight debt of the Company at the issue date.



| | p. | Accrued Severance Indemnities
| | -- | -----------------------------



In accordance with Korean labor laws, all employees with more than one year of service are entitled to receive severance indemnities, based on length of
service and rate of pay, upon termination of their employment. Accruals for severance indemnities are recorded to approximate the amount required to be paid if all employees were to terminate at the balance sheet date.



Changes in accrued severance indemnities for the years ended December 31,
2003 and 2004 are as follows (in millions of Korean won):



|                                    |  |            |   |  |            |  
|----------------------------------- |  | ---------- | - |  | ---------- | -
|                                    |  | 2003       |   |  | 2004       |  
|Beginning balance                   |  | (Won)4,047 |   |  | (Won)3,706 |  
|Provision                           |  | 1,705      |   |  | 1,442      |  
|Change in consolidated subsidiaries |  |           |   |  | (1,612     | )
|Payments                            |  | (1,968     | ) |  | (965       | )
|Other                               |  | (78        | ) |  |           |  
|                                    |  |            |   |  |            |  
|Ending Balance                      |  | (Won)3,706 |   |  | (Won)2,571 |  
|                                    |  |            |   |  |            |  



F-16



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##### Table of Contents

In addition, the Company and certain subsidiaries expect to pay the following future benefits for the
next 10 years to their employees upon their normal retirement age as follows (in millions of Korean won):



|                         |  |           
|------------------------ |  | ----------
|Year ending December 31, |  |           
|2005                     |  | (Won) 625 
|2006                     |  | 263       
|2007                     |  | 45        
|2008                     |  | 141       
|2009                     |  | 82        
|2010 ~ 2014              |  | 525       
|                         |  |           
|Total                    |  | (Won)1,681
|                         |  |           



The above amounts were
determined based on the employees current salary rates and the number of service years that will be accumulated upon their retirement date. These amounts do not include amounts that might be paid to employees that will cease working with the
Company before their normal retirement age.



| | q. | Treasury Stock
| | -- | --------------



Treasury stock is shown separately as a capital adjustment item within stockholders equity. Gains on sales of treasury stock are credited to capital
surplus, and losses are charged against either capital surplus arising from previous treasury stock transactions or against retained earnings.



| | r. | Costs for Product Warranties
| | -- | ----------------------------



Through 2003, under the previous Korean GAAP, product warranty costs were expensed as incurred. Effective January 1, 2004, estimated warranty cots are
accrued at the time of sale based on historical experience and expected future costs.



| | s. | Income Taxes
| | -- | ------------



Deferred tax assets and liabilities are recorded for future tax consequences of operating loss carryforwards, tax credits and temporary differences
between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets are recognized to the extent that they are expected to be realizable. Deferred tax assets and liabilities are
presented on the balance sheet as a single non-current net number.



| | t. | Accounting for Foreign Currency Transactions
| | -- | --------------------------------------------



The Company and its subsidiaries maintain their accounts in Korean won. Transactions in foreign currencies are recorded in Korean won based on the
prevailing rate of exchange at the dates of transactions. Monetary assets and liabilities denominated in foreign currencies are translated in the accompanying consolidated financial statements at the Base Rates announced by Seoul Money Brokerage
Service, Ltd. on the balance sheet dates, which, for U.S. dollars, were (Won)1,197.80=$1.00 and (Won)1,043.80=$1.00, at December 31, 2003 and 2004, respectively. The resulting gains and losses arising from the translation or settlement of such
assets and liabilities are included in current operations.



| | u. | Valuation of Long-Term Receivables
| | -- | ----------------------------------



Long-term receivables resulting from long-term installment transactions are stated at the present value of the expected future cash flows. Imputed
interest amounts are recorded in present value discount accounts which are deducted directly from the related nominal receivable balances. Such imputed interest is included in current operations using the effective interest rate method over the
redemption period.



| | v. | Accounting for Employee Stock Option Compensation Plan
| | -- | ------------------------------------------------------



The Company adopted the fair value based method of accounting for the employee stock option compensation plan, which was established, effective as of
March 25, 2000, to reward the performance of individual officers and other employees who have contributed, or have the ability to contribute, significantly to the Company. Under the fair value based method, compensation cost is measured at the grant
date based on the value of the award and is recognized over the service period. For stock options, fair value is determined using an option-pricing model that takes into account the stock price at the grant date, the exercise price, the expected
life of the option, the volatility of the underlying stock, the expected dividends, and a risk-free interest rate over the expected life of the option. However, as permitted under Korean GAAP, the Company excludes the volatility factor in estimating
the value of its stock options granted before December 31, 2003, which results in measurement at minimum value.



F-17



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##### Table of Contents

The total compensation cost of an option estimated at the grant date is not subsequently adjusted for
changes in the price of the underlying stock or its volatility, the actual life of the option, dividends on the stock, or the risk-free interest rate.



| | w. | Accounting for Leases
| | -- | ---------------------



Lease agreements that include a bargain purchase option, result in transfer of ownership at the end of the lease term, have a term longer than 75% of the
estimated economic life of the leased property or have present value of minimum lease payments equal to or exceeding 90% of fair market value of the leased property, are accounted for as capital leases. Leases that do not meet any of these criteria
are accounted for as operating leases.



The leased properties
and related capital lease obligations are recorded at an amount equal to the total minimum lease payments over the lease term, less the portion attributable to interest. Depreciation of leased properties accounted for as capital leases is computed
using the straight-line method over the useful lives of related assets.



| | x. | Derivative Instruments
| | -- | ----------------------



The Company records rights and obligations arising from derivative instruments as assets and liabilities, which are stated at fair value. The gains and
losses that result from the change in the fair value of derivative instruments are reported in current earnings. However, for derivative instruments designated as hedging the exposure of variable cash flows, the effective portion of the gains or
losses on the hedging instruments are recorded as a separate component of shareholders equity and credited/charged to operations at the time the hedged transactions affect earnings, and the ineffective portion of the gains or losses is
credited/charged immediately to operations. The Company has no outstanding derivative instruments as of December 31, 2003 and 2004.



|3. | INVENTORIES
|-- | -----------



Inventories as of December 31, 2003 and 2004 are as follows (in millions of Korean won):



|                       |  |             |  |             
|---------------------- |  | ----------- |  | ------------
|                       |  | 2003        |  | 2004        
|Merchandise            |  | (Won)   202 |  | (Won)  6,906
|Finished goods         |  | 2,278       |  | 12,890      
|Work in-process        |  | 4,748       |  | 4,173       
|Raw materials          |  | 2,410       |  | 3,869       
|Inventories in-transit |  | 26          |  | 10          
|                       |  |             |  |             
|                       |  | (Won)9,664  |  | (Won)27,848 
|                       |  |             |  |             



|4. | RESTRICTED DEPOSITS
|-- | -------------------



Restricted deposits as of December 31, 2003 and 2004 are as follows (in millions of Korean won):



|                                 |  |            |  |             |  |                                                   
|-------------------------------- |  | ---------- |  | ----------- |  | --------------------------------------------------
|                                 |  | 2003       |  | 2004        |  | Remark                                            
|Short-term financial instruments |  | (Won)7,482 |  | (Won)32,182 |  | Collateral of letters of credit and other         
|Long-term financial instruments  |  | 458        |  | 705         |  | Guarantee deposits for checking accounts and other
|                                 |  |            |  |             |  |                                                   
|                                 |  | (Won)7,940 |  | (Won)32,887 |  |                                                   
|                                 |  |            |  |             |  |                                                   



F-18



---

##### Table of Contents

|5. | AVAILABLE-FOR-SALE SECURITIES
|-- | -----------------------------



Available-for-sale securities as of December 31, 2003 and 2004 are as follows (in millions of Korean won):



|                                                                             |  |                         |   |  |                 |  |            |   |                             |            |  |           
|---------------------------------------------------------------------------- |  | ----------------------- | - |  | --------------- |  | ---------- | - | --------------------------- | ---------- |  | ----------
|                                                                             |  | Ownershippercentage (%) |   |  | Acquisitioncost |  | Book value |   | Net assetvalue or fairvalue
|                                                                             |  | 2004                    |   |  | 2004            |  | 2003       |   |                             | 2004       |  | 2004      
|(Available-for-sale securities in equity securities of non-listed companies) |  |                         |   |  |                 |  |            |   |                             |            |  |           
|SK Communications Corporation (note a)                                       |  |                        |   |  | (Won)          |  | (Won)     |   |                             | (Won)     |  | (Won)    
|On-net Corporation (note b)                                                  |  | 14.39                   | % |  | 795             |  | 459        |   |                             | 459        |  | 363       
|Intro System (note b)                                                        |  | 15.16                   | % |  | 500             |  |           |   |                             |           |  |          
|JIT Corporation (note b)                                                     |  | 3.65                    | % |  | 100             |  |           |   |                             |           |  |          
|Nara Vision (note b)                                                         |  | 17.43                   | % |  | 3,500           |  | 264        |   |                             | 151        |  | 151       
|NetThru (note b)                                                             |  | 9.87                    | % |  | 296             |  | 24         |   |                             | 24         |  | 93        
|Infinity Telecom (note b)                                                    |  | 16.70                   | % |  | 500             |  | 62         |   |                             | 62         |  | 128       
|Korea Technology Transfer Center (note c)                                    |  | 8.40                    | % |  | 1,500           |  | 1,500      |   |                             | 1,500      |  | 1,415     
|TeleFree (note b)                                                            |  | 2.57                    | % |  | 504             |  | 62         |   |                             | 62         |  | 17        
|Streambox Korea (note b)                                                     |  | 5.11                    | % |  | 1,500           |  |           |   |                             |           |  |          
|NeoBill Co., Ltd. (note b)                                                   |  | 1.84                    | % |  | 225             |  | 52         |   |                             |           |  |          
|Mobens Co., Ltd. (note b)                                                    |  | 15.09                   | % |  | 1,000           |  |           |   |                             |           |  |          
|Mirae (Hong Kong) Co., Ltd.                                                  |  | 99.00                   | % |  | 2               |  | 2          |   |                             | 2          |  | 2         
|Linxtek (note b)                                                             |  | 1.22                    | % |  | 28              |  | 28         |   |                             |           |  |          
|Seoul Venture (note b)                                                       |  | 5.69                    | % |  | 80              |  |           |   |                             |           |  |          
|EON Group (note b)                                                           |  | 1.33                    | % |  | 13              |  | 6          |   |                             |           |  |          
|CAMIS Co., Ltd. (note c)                                                     |  | 0.26                    | % |  | 10              |  | 10         |   |                             | 10         |  | 17        
|YESS World Inc. (note c)                                                     |  | 0.72                    | % |  | 20              |  | 20         |   |                             | 20         |  | 17        
|Sunwoo Information System (note b)                                           |  | 1.00                    | % |  | 10              |  |           |   |                             |           |  |          
|Dabonet Co., Ltd. (note c)                                                   |  | 0.79                    | % |  | 8               |  | 8          |   |                             | 8          |  | 9         
|Digital Photo Corp. (note c)                                                 |  | 0.93                    | % |  | 5               |  | 5          |   |                             | 5          |  | 6         
|Telinker (note b)                                                            |  | 0.75                    | % |  | 22              |  | 6          |   |                             | 6          |  | 6         
|E-GIOS Corporation (note d)                                                  |  |                         |   |  |                |  |           |   |                             |           |  |           
|Hackers Lab Co., Ltd. (note d)                                               |  |                         |   |  |                |  |           |   |                             |           |  |           
|Interchem Korea (note d)                                                     |  |                         |   |  | 100             |  |           |   |                             |           |  |           
|Imobiz (note d)                                                              |  |                         |   |  |                |  |           |   |                             |           |  |           
|Other (note d)                                                               |  |                         |   |  | 5               |  |           |   |                             |           |  |           
|                                                                             |  |                         |   |  |                 |  |            |   |                             |            |  |           
|Sub-total                                                                    |  |                         |   |  | 10,618          |  | 2,613      |   |                             | 2,309      |  | 2,224     
|                                                                             |  |                         |   |  |                 |  |            |   |                             |            |  |           
|(Available-for-sale securities in debt securities)                           |  |                         |   |  |                 |  |            |   |                             |            |  |           
|Public Bonds                                                                 |  |                         |   |  | 30              |  | 445        |   |                             | 30         |  | 30        
|Cen21 Co., Ltd. (note b)                                                     |  |                         |   |  | 250             |  |           |   |                             |           |  |          
|Mobens Co., Ltd. (note b)                                                    |  |                         |   |  | 1,000           |  |           |   |                             |           |  |          
|                                                                             |  |                         |   |  |                 |  |            |   |                             |            |  |           
|Sub-total                                                                    |  |                         |   |  | 1,280           |  | 445        |   |                             | 30         |  | 30        
|                                                                             |  |                         |   |  |                 |  |            |   |                             |            |  |           
|Less: current portion                                                        |  |                         |   |  |                 |  | (3         | ) |                             |           |  |          
|                                                                             |  |                         |   |  |                 |  |            |   |                             |            |  |           
|Long-term portion                                                            |  |                         |   |  |                 |  | 442        |   |                             | 30         |  | 30        
|                                                                             |  |                         |   |  |                 |  |            |   |                             |            |  |           
|Total long-term portion of available-for-sale securities                     |  |                         |   |  |                 |  | (Won)3,055 |   |                             | (Won)2,339 |  | (Won)2,254
|                                                                             |  |                         |   |  |                 |  |            |   |                             |            |  |           

---

|         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|-------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(note a) |  | The Companys initial investment cost was (Won)50 million. In 1999, the carrying value was subsequently reduced to zero to reflect the Companys share of SK Communications loss
for the year ended December 31, 1999 which exceeded the carrying amount of the common stock investment. In February 2000, SK Communications issued and sold 3,122 additional shares of its common stock at a premium to outside entities including Mirae
Asset Venture Capital, Sumitomo Corp., SingTel and Hikari, for (Won)18,000,000 per share (par value: (Won)5,000 per share). As a result of such issuance, the Companys equity ownership in SK Communications decreased from 50% to 43.25% and its
investment increased by (Won)24,628 million. The resulting gain on sale of stock by SK Communications was accounted for as an equity transaction and included in capital surplus. In August 2002, the Companys ownership percentage decreased from
43.25% to 4.54% through a sale to SK Telecom Co., Ltd. As a result, the investment in SK Communications was accounted for using the equity method through July 2002 and thereafter the Company used the cost method of accounting. In June 2003, the
Company disposed of its 6,836,690 shares of SK Communications for (Won)660 per share. As a result of such disposal, the Company recorded a gain on disposal of securities of (Won)26,940 million. Details are as follows (in millions of Korean
won):



|               |  |                     |  |                        |  |                     |  |                                   
|-------------- |  | ------------------- |  | ---------------------- |  | ------------------- |  | ----------------------------------
|Book value (A) |  | Capital surplus (B) |  | Capital adjustment (C) |  | Disposal amount (D) |  | Gain on disposal (D)-((A)-(B)-(C))
|(Won) 2,532    |  | (Won) 24,628        |  | (Won) 332              |  | (Won) 4,512         |  | (Won) 26,940                      

---

|         |  |                                                                                                                                                                                                                                                                                 
|-------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(note b) |  | The carrying values of investments were adjusted to the relevant net asset value of each investee or fully written down where the decline in net asset value is not deemed to be
temporary.                                                                                     
|         | 
|(note c) |  | As a reasonable estimate of fair value could not be made, the investment is stated at acquisition cost.                                                                                                                                                                         
|         | 
|(note d) |  | The equity securities in these companies are owned by SoftForum, which was excluded from consolidation for the year ended December 31, 2004. Therefore, the ownership percentage, book value
and net asset value of these investments as of December 31, 2004 are not disclosed.



F-19



---

##### Table of Contents

|6. | EQUITY SECURITIES ACCOUNTED FOR USING THE EQUITY METHOD
|-- | -------------------------------------------------------



Securities accounted for using the equity method of accounting as of December 31, 2003 and 2004 are as follows (in millions of Korean won):



|                                         |  |                         |   |  |                 |  |            |  |                 |  |            
|---------------------------------------- |  | ----------------------- | - |  | --------------- |  | ---------- |  | --------------- |  | -----------
|                                         |  | Ownershippercentage (%) |   |  | Acquisitioncost |  | Book value |  | Net asset value
|                                         |  | 2004                    |   |  | 2004            |  | 2003       |  | 2004            |  | 2004       
|SoftForum (note a)                       |  | 41.51                   | % |  | (Won)   539     |  | (Won)     |  | (Won)10,932     |  | (Won)10,932
|Mirae America (note b)                   |  | 50.00                   | % |  | 126             |  |           |  |                |  |           
|AIO Corporation preferred stock (note c) |  | 21.63                   | % |  | 3,513           |  |           |  |                |  |           
|Cyber Bank (note d)                      |  | 26.87                   | % |  | 11,750          |  | 2,173      |  |                |  |           
|                                         |  |                         |   |  |                 |  |            |  |                 |  |            
|Total                                    |  |                         |   |  | (Won)15,389     |  | (Won)2,173 |  | (Won)10,932     |  | (Won)10,932
|                                         |  |                         |   |  |                 |  |            |  |                 |  |            

---

|         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|-------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(note a) |  | Through 2003, SoftForum was one of the Companys consolidated subsidiaries and was included in the consolidation. As mentioned in Note 2, on March 24, 2005, the Company sold 2,726,800
shares of 3,328,840 shares of SoftForum held by the Company to a third party and the Companys ownership percentage decreased to 7.51%. As a result, the investment in SoftForum was accounted for using the equity method for the year ended
December 31, 2004.      
|         | 
|(note b) |  | As of December 31, 2003 and 2004, Mirae America has a net equity deficit.                                                                                                                                                                                                                                                                                                                                                                                     
|         | 
|(note c) |  | The carrying value was fully written down in 2001 since the Companys management believes that there is uncertainty relating to AIO Corporations ability to continue as a going
concern and the recoverability of the carrying value was remote.                                                                                                                                                                                                             
|         | 
|(note d) |  | From 2003, the investment in Cyber Bank was accounted for using the equity method as the Company acquired additional common shares of Cyber Bank for the year ended December 31, 2003 and the
ownership percentage in Cyber Bank increased to 28.24%, including the investment made by SoftForum of 1.46% as of December 31, 2003. As of December 31, 2004, the ownership percentage decreased to 26.87% due to the exclusion of SoftForum from
consolidation.



Changes in securities
accounted for using the equity method of accounting for the years ended December 31, 2003 and 2004 are as follows (in millions of Korean won):



|                                                                                                       |  |            |   |  |              |  |                |  |           |   |  |             |  
|------------------------------------------------------------------------------------------------------ |  | ---------- | - |  | ------------ |  | -------------- |  | --------- | - |  | ----------- | -
|                                                                                                       |  | MobileGame |   |  | MiraeAmerica |  | AIOCorporation |  | CyberBank |   |  | Soft Forum  |  
|At January 1, 2003                                                                                     |  | (Won)137   |   |  | (Won)       |  | (Won)         |  | (Won)    |   |  | (Won)      |  
|Changes in equity method securities                                                                    |  |           |   |  |             |  |               |  | 62        |   |  |            |  
|Acquisition                                                                                            |  |           |   |  |             |  |               |  | 10,000    |   |  |            |  
|Disposal                                                                                               |  | (74        | ) |  |             |  |               |  |          |   |  |            |  
|Valuation gain in equity securities valued using the equity method of accounting (capital adjustments) |  | 1          |   |  |             |  |               |  |          |   |  |            |  
|Equity in losses of affiliates                                                                         |  | (64        | ) |  |             |  |               |  | (7,889    | ) |  |            |  
|                                                                                                       |  |            |   |  |              |  |                |  |           |   |  |             |  
|At December 31, 2003                                                                                   |  |           |   |  |             |  |               |  | 2,173     |   |  |            |  
|Change in consolidated subsidiary                                                                      |  |           |   |  |             |  |               |  | (107      | ) |  | 13,308      |  
|Equity in losses of affiliates                                                                         |  |           |   |  |             |  |               |  | (2,066    | ) |  | (2,402      | )
|Valuation gain in equity securities valued using the equity method of accounting (capital adjustments) |  |           |   |  |             |  |               |  |          |   |  | 26          |  
|                                                                                                       |  |            |   |  |              |  |                |  |           |   |  |             |  
|At December 31, 2004                                                                                   |  | (Won)     |   |  | (Won)       |  | (Won)         |  | (Won)    |   |  | (Won)10,932 |  
|                                                                                                       |  |            |   |  |              |  |                |  |           |   |  |             |  



F-20



---

##### Table of Contents

|7. | SHORT-TERM AND LONG-TERM LOANS TO EMPLOYEES
|-- | -------------------------------------------



Short-term and long-term loans to employees as of December 31, 2003 and 2004 are (Won)3,292 million and (Won)1,599 million, respectively.



|8. | PROPERTY, PLANT AND EQUIPMENT
|-- | -----------------------------



Property, plant and equipment as of December 31, 2003 and 2004 are as follows (in millions of Korean won):



|                              |  |                     |  |             |   |  |             |  
|----------------------------- |  | ------------------- |  | ----------- | - |  | ----------- | -
|                              |  | Useful lives(years) |  | 2003        |   |  | 2004        |  
|Land                          |  |                    |  | (Won)25,700 |   |  | (Won)15,375 |  
|Buildings and structures      |  | 5 ~ 60              |  | 62,677      |   |  | 55,970      |  
|Machinery                     |  | 4 ~ 10              |  | 7,163       |   |  | 8,170       |  
|Vehicles                      |  | 5 ~ 6               |  | 886         |   |  | 890         |  
|Tools, furniture and fixtures |  | 4 ~ 10              |  | 31,033      |   |  | 30,799      |  
|Construction-in-progress      |  |                     |  |            |   |  | 6,496       |  
|                              |  |                     |  |             |   |  |             |  
|Total                         |  |                     |  | 127,459     |   |  | 117,700     |  
|Less accumulated depreciation |  |                     |  | (36,403     | ) |  | (39,806     | )
|                              |  |                     |  |             |   |  |             |  
|Net                           |  |                     |  | (Won)91,056 |   |  | (Won)77,894 |  
|                              |  |                     |  |             |   |  |             |  



Changes in net book
value of property, plant and equipment for the years ended December 31, 2003 and 2004 are as follows (in millions of Korean won):



|                                     |  |             |   |  |                         |   |  |            |   |  |          |   |  |                             |   |  |                           |  |             |  
|------------------------------------ |  | ----------- | - |  | ----------------------- | - |  | ---------- | - |  | -------- | - |  | --------------------------- | - |  | ------------------------- |  | ----------- | -
|                                     |  | Land        |   |  | Building and structures |   |  | Machinery  |   |  | Vehicles |   |  | Tools,furnitureand fixtures |   |  | Construction -in-progress |  | Total       |  
|January 1, 2003                      |  | (Won)15,494 |   |  | (Won)47,949             |   |  | (Won)3,808 |   |  | (Won)248 |   |  | (Won)7,818                  |   |  | (Won)                    |  | (Won)75,317 |  
|Purchases                            |  | 10,369      |   |  | 9,669                   |   |  | 292        |   |  | 210      |   |  | 2,129                       |   |  |                          |  | 22,669      |  
|Disposals                            |  | (163        | ) |  | (388                    | ) |  |           |   |  | (7       | ) |  | (137                        | ) |  |                          |  | (695        | )
|Impairment loss                      |  |            |   |  |                        |   |  |           |   |  |         |   |  | (103                        | ) |  |                          |  | (103        | )
|Depreciation                         |  |            |   |  | (1,509                  | ) |  | (598       | ) |  | (122     | ) |  | (3,903                      | ) |  |                          |  | (6,132      | )
|                                     |  |             |   |  |                         |   |  |            |   |  |          |   |  |                             |   |  |                           |  |             |  
|December 31, 2003                    |  | 25,700      |   |  | 55,721                  |   |  | 3,502      |   |  | 329      |   |  | 5,804                       |   |  |                          |  | 91,056      |  
|Purchases                            |  |            |   |  | 652                     |   |  | 753        |   |  | 251      |   |  | 1,720                       |   |  | 6,496                     |  | 9,872       |  
|Disposals                            |  |            |   |  |                        |   |  |           |   |  | (33      | ) |  | (58                         | ) |  |                          |  | (91         | )
|Changes in consolidated subsidiaries |  | (10,325     | ) |  | (7,206                  | ) |  | 241        |   |  | (22      | ) |  | (686                        | ) |  |                          |  | (17,998     | )
|Depreciation                         |  |            |   |  | (1,452                  | ) |  | (811       | ) |  | (170     | ) |  | (2,512                      | ) |  |                          |  | (4,945      | )
|                                     |  |             |   |  |                         |   |  |            |   |  |          |   |  |                             |   |  |                           |  |             |  
|December 31, 2004                    |  | (Won)15,375 |   |  | (Won)47,715             |   |  | (Won)3,685 |   |  | (Won)355 |   |  | (Won)4,268                  |   |  | (Won)6,496                |  | (Won)77,894 |  
|                                     |  |             |   |  |                         |   |  |            |   |  |          |   |  |                             |   |  |                           |  |             |  





F-21



---

##### Table of Contents

The Korean governments declared standard value of land compared to the book value of land owned as
of December 31, 2003 and 2004 is as follows (in millions of Korean won):



|               |  |                |  |               
|-------------- |  | -------------- |  | --------------
|               |  | 2003           |  | 2004          
|Standard value |  | (Won)   24,821 |  | (Won)   19,928
|Book value     |  | 25,700         |  | 15,375        



A certain portion of
the Companys land and buildings is pledged as collateral for the Companys short-term borrowings, bonds and long-term borrowings up to (Won)8,000 million with Korea Exchange Bank and (Won)9,000 million and US$24,900 thousand with Korea
Development Bank.



|9. | SHORT-TERM BORROWINGS
|-- | ---------------------



Short-term borrowings as of December 31, 2003 and 2004 are as follows (in millions of Korean won):



|                       |  |                                |  |                |  |               
|---------------------- |  | ------------------------------ |  | -------------- |  | --------------
|Lender                 |  | Annual interestrate - 2004 (%) |  | 2003           |  | 2004          
|Korea Exchange Bank    |  | 1.00 ~ 6.73                    |  | (Won)   14,652 |  | (Won)   11,302
|Hana Bank              |  |                               |  | 153            |  |              
|Korea Development Bank |  | 2.00 ~ 4.65                    |  |               |  | 19,882        
|Shinhan Bank           |  | 5.75 ~ 6.42                    |  | 5,000          |  | 6,755         
|Woori Bank             |  | 7.70                           |  |               |  | 800           
|Other                  |  | 9.00                           |  | 150            |  | 100           
|                       |  |                                |  |                |  |               
|Total                  |  |                                |  | (Won)   19,955 |  | (Won)   38,839
|                       |  |                                |  |                |  |               



|10. | LEASED PROPERTY AND LIABILITIES UNDER CAPITAL LEASES
|--- | ----------------------------------------------------



Lease payables as of December 31, 2003 and 2004 are as follows (in millions of Korean won):



|                            |  |               |   |  |               |  
|--------------------------- |  | ------------- | - |  | ------------- | -
|Leasing company             |  | 2003          |   |  | 2004          |  
|KDB Capital Co.             |  | (Won)     621 |   |  | (Won)     160 |  
|Less: payable within 1 year |  | (461          | ) |  | (160          | )
|                            |  |               |   |  |               |  
|Long-term portion           |  | (Won)     160 |   |  | (Won)        |  
|                            |  |               |   |  |               |  



Leased property under
capital leases as of December 31, 2003 and 2004 are as follows (in millions of Korean won):



|                         |  |                              |   |  |               |   |  |                              |   |  |               |  
|------------------------ |  | ---------------------------- | - |  | ------------- | - |  | ---------------------------- | - |  | ------------- | -
|                         |  | 2003                         |   |  | 2004          |  
|                         |  | Tools, furnitureand fixtures |   |  | Machinery     |   |  | Tools, furnitureand fixtures |   |  | Machinery     |  
|Acquisition cost         |  | (Won)     799                |   |  | (Won)     591 |   |  | (Won)     799                |   |  | (Won)     119 |  
|Accumulated depreciation |  | (799                         | ) |  | (127          | ) |  | (799                         | ) |  | (33           | )
|                         |  |                              |   |  |               |   |  |                              |   |  |               |  
|Net book value           |  | (Won)                       |   |  | (Won)     464 |   |  | (Won)                       |   |  | (Won)     86  |  
|                         |  |                              |   |  |               |   |  |                              |   |  |               |  



|11. | LONG-TERM BORROWINGS
|--- | --------------------



Long-term borrowings denominated in Korean won as of December 31, 2003 and 2004 are as follows (in millions of Korean won):



|                       |  |                         |  |                 |   |  |                 |  
|---------------------- |  | ----------------------- |  | --------------- | - |  | --------------- | -
|Lender                 |  | Annual interestrate (%) |  | 2003            |   |  | 2004            |  
|Korea Development Bank |  | 5.4%~5.5%               |  | (Won)     5,000 |   |  | (Won)     4,063 |  
|Korea Exchange Bank    |  | 3.03%                   |  | 500             |   |  | 500             |  
|Sub-total              |  |                         |  | 5,500           |   |  | 4,563           |  
|Less current portion   |  |                         |  | (938            | ) |  | (1,250          | )
|                       |  |                         |  |                 |   |  |                 |  
|Total                  |  |                         |  | (Won)     4,562 |   |  | (Won)     3,313 |  
|                       |  |                         |  |                 |   |  |                 |  



F-22



---

##### Table of Contents

Long-term borrowings denominated in foreign currency as of December 31, 2003 and 2004 are as follows (in
thousands of U.S. dollars):



|                                              |  |                         |  |                   |   |  |                   |  
|--------------------------------------------- |  | ----------------------- |  | ----------------- | - |  | ----------------- | -
|Lender                                        |  | Annual interestrate (%) |  | 2003              |   |  | 2004              |  
|Korea Development Bank                        |  | 4.4%~5.23%              |  | US$         3,784 |   |  | US$         8,060 |  
|Less current portion                          |  |                         |  | (710              | ) |  | (946              | )
|                                              |  |                         |  |                   |   |  |                   |  
|Total                                         |  |                         |  | US$         3,074 |   |  | US$         7,114 |  
|                                              |  |                         |  |                   |   |  |                   |  
|Current portion of equivalent in Korean won   |  |                         |  | (Won)        849  |   |  | (Won)        987  |  
|                                              |  |                         |  |                   |   |  |                   |  
|Long-term portion of equivalent in Korean won |  |                         |  | (Won)     3,683   |   |  | (Won)     7,426   |  
|                                              |  |                         |  |                   |   |  |                   |  



The future maturities
of long-term borrowings at December 31, 2004 are as follows (in millions of Korean won and thousands of U.S. dollars):



|                         |  |                                   |  |                                         |       |                         |               |       |               
|------------------------ |  | --------------------------------- |  | --------------------------------------- | ----- | ----------------------- | ------------- | ----- | --------------
|Year ending December 31, |  | Long-term borrowings inKorean won |  | Long-termborrowings in foreign currency |       | Equivalent inKorean won |               | Total
|2005                     |  | (Won)   1,250                     |  | US$                                     | 946   |                         | (Won)     987 |       | (Won)   2,237 
|2006                     |  | 1,250                             |  |                                         | 1,446 |                         | 1,510         |       | 2,760         
|2007                     |  | 1,750                             |  |                                         | 1,943 |                         | 2,028         |       | 3,778         
|2008                     |  | 313                               |  |                                         | 1,233 |                         | 1,287         |       | 1,600         
|2009 and after           |  |                                  |  |                                         | 2,492 |                         | 2,601         |       | 2,601         
|                         |  |                                   |  |                                         |       |                         |               |       |               
|Total                    |  | (Won)   4,563                     |  | US$                                     | 8,060 |                         | (Won)   8,413 |       | (Won)   12,976
|                         |  |                                   |  |                                         |       |                         |               |       |               



|12. | CONVERTIBLE BONDS PAYABLE
|--- | -------------------------



Details of the convertible bonds payable as of December 31, 2004 are as follows (in millions of Korean won):



|                                     |  |                   |  |                    |   |  |               |  
|------------------------------------ |  | ----------------- |  | ------------------ | - |  | ------------- | -
|                                     |  | Maturity          |  | Annual coupon rate |   |  | 2004          |  
|1st non-guaranteed convertible bonds |  | December 14, 2007 |  | 1.5                | % |  | (Won)   3,000 |  
|Add: premium on bonds                |  |                   |  |                    |   |  | 632           |  
|Less: Conversion right adjustments   |  |                   |  |                    |   |  | (623          | )
|                                     |  |                   |  |                    |   |  |               |  
|Net                                  |  |                   |  |                    |   |  | (Won)   3,009 |  
|                                     |  |                   |  |                    |   |  |               |  



The details of the
above convertible bonds are as follows:



| |  |  | Issuance date: December 14, 2004
| | - |  | --------------------------------



| |  |  | Face value: (Won)3,000 million
| | - |  | ------------------------------



| |  |  | Interest payment: every three months after issuance
| | - |  | ---------------------------------------------------



| |  |  | Yield to maturity: 7.8% per annum (for bonds not converted, 121.44% of principal will be due at maturity)
| | - |  | ---------------------------------------------------------------------------------------------------------



| |  |  | Conversion price: (Won)640 per share
| | - |  | ------------------------------------



| |  |  | Class of stocks to be issued: common stock
| | - |  | ------------------------------------------



| |  |  | Conversion period: From December 14, 2005 through December 13, 2007
| | - |  | -------------------------------------------------------------------



Conversion right was measured at zero (0) as the yield to maturity is not more favorable compared to the ordinary corporate bonds. The Company provided a
certain portion of its land and buildings as collateral.



|13. | RELATED PARTY TRANSACTIONS
|--- | --------------------------



Detailed related party transactions for the years ended December 31, 2002, 2003 and 2004 and account balances as of December 31, 2003 and 2004 are as
follows (in millions of Korean won):



| | (1) | Transactions with affiliates which are accounted for using the equity method
| | --- | ----------------------------------------------------------------------------



F-23



---

##### Table of Contents

|                                                                            |  |               |   |  |                  |   |  |               |  
|--------------------------------------------------------------------------- |  | ------------- | - |  | ---------------- | - |  | ------------- | -
|                                                                            |  | 2002          |   |  | 2003             |   |  | 2004          |  
|Sales to:                                                                   |  |               |   |  |                  |   |  |               |  
|Mirae America                                                               |  | (Won)   1,783 |   |  | (Won)         58 |   |  | (Won)   1,351 |  
|Cyber Bank                                                                  |  |              |   |  | 7,494            |   |  | 530           |  
|                                                                            |  |               |   |  |                  |   |  |               |  
|Total                                                                       |  | 1,783         |   |  | 7,552            |   |  | 1,881         |  
|                                                                            |  |               |   |  |                  |   |  |               |  
|Other income (expense) from (to):                                           |  |               |   |  |                  |   |  |               |  
|Mirae America                                                               |  | (26           | ) |  | (289             | ) |  | (135          | )
|Mobile Game                                                                 |  | 253           |   |  |                 |   |  |              |  
|Cyber Bank                                                                  |  |              |   |  |                 |   |  | 15            |  
|                                                                            |  |               |   |  |                  |   |  |               |  
|Total                                                                       |  | 227           |   |  | (289             | ) |  | (120          | )
|                                                                            |  |               |   |  |                  |   |  |               |  
|Acquisition of equity securities valued using the equity method accounting: |  |               |   |  |                  |   |  |               |  
|Cyber Bank                                                                  |  |              |   |  | 10,000           |   |  |              |  
|                                                                            |  |               |   |  |                  |   |  |               |  



(2) Account balances
with affiliates, which are accounted for using the equity method



|                                           |  |             |  |            
|------------------------------------------ |  | ----------- |  | -----------
|                                           |  | 2003        |  | 2004       
|(Assets)                                   |  |             |  |            
|Accounts receivable  trade:               |  |             |  |            
|Mirae America                              |  | (Won) 1,408 |  | (Won) 2,266
|Cyber Bank                                 |  | 6,065       |  | 5,929      
|                                           |  |             |  |            
|Sub  total                                |  | 7,473       |  | 8,195      
|                                           |  |             |  |            
|Accounts receivableother from Cyber Bank: |  | 1           |  | 3          
|                                           |  |             |  |            
|Advance payments to Mirae America          |  | 800         |  | 800        
|                                           |  |             |  |            
|Guarantee deposits from SoftForum          |  |            |  | 386        
|                                           |  |             |  |            
|Total                                      |  | (Won) 8,274 |  | (Won) 9,384
|                                           |  |             |  |            
|(Liabilities)                              |  |             |  |            
|Accrued expenses to Mirae America          |  | 10          |  | 135        
|                                           |  |             |  |            
|Guarantee deposits payable to Cyber Bank   |  | 199         |  |           
|                                           |  |             |  |            
|Total                                      |  | (Won)  209  |  | (Won)   135
|                                           |  |             |  |            



In 2004, SoftForum was
changed to an affiliate of the Company accounted for using the equity method from a consolidated subsidiary. In 2003, Cyber Bank became an affiliate of the Company accounted for using the equity method and Mobile Game was excluded from an affiliate
of the Company.



(3) Transactions with other related parties



|                                                                       |  |            |  |          |  |         
|---------------------------------------------------------------------- |  | ---------- |  | -------- |  | --------
|                                                                       |  | 2002       |  | 2003     |  | 2004    
|Sales to:                                                              |  |            |  |          |  |         
|Cyber Bank                                                             |  | (Won)3,974 |  | (Won)   |  | (Won)  
|Mirae Hong Kong                                                        |  |           |  | 1,063    |  | 1,143   
|                                                                       |  |            |  |          |  |         
|Sub-total                                                              |  | 3,974      |  | 1,063    |  | 1,143   
|                                                                       |  |            |  |          |  |         
|Disposition of property and equipment and intangible assets to Testech |  | 1,338      |  |         |  |        
|                                                                       |  |            |  |          |  |         
|Purchase of property and equipment and intangible assets from Testech  |  |           |  | 7        |  |        
|                                                                       |  |            |  |          |  |         
|Interest income from Cyber Bank                                        |  | 235        |  |         |  |        
|                                                                       |  |            |  |          |  |         
|Other income from Testech                                              |  | 10         |  | 10       |  |        
|                                                                       |  |            |  |          |  |         
|Purchases from Testech                                                 |  | 1,784      |  | 460      |  |        
|                                                                       |  |            |  |          |  |         
|Other expense to Testech                                               |  | 15         |  | 3        |  |        
|                                                                       |  |            |  |          |  |         
|Other expense to MR Tech                                               |  |           |  |         |  | 33      
|                                                                       |  |            |  |          |  |         
|Acquisition of investments from Cyber Bank                             |  | 1,800      |  |         |  |        
|                                                                       |  |            |  |          |  |         



F-24



---

##### Table of Contents

In 2004, Testech became a non-related party due to the executive serving both the Company and Testech
through 2003 resigned from the Company; and MR Tech was changed to a non-consolidated related company due to the disposal of investments in SoftForum (see Note 27).



(4) Account balances with other related parties



|                                               |  |                |  |               
|---------------------------------------------- |  | -------------- |  | --------------
|                                               |  | 2003           |  | 2004          
|(Assets)                                       |  |                |  |               
|Accounts receivabletrade from Mirae Hong Kong |  | (Won)     624  |  | (Won)     785 
|                                               |  |                |  |               
|(Liabilities)                                  |  |                |  |               
|Accounts payabletrade to Testech              |  | (Won)       88 |  | (Won)        
|                                               |  |                |  |               
|Accounts payable  other                       |  |                |  |               
|Mirae Hong Kong                                |  | 14             |  | 62            
|MR Tech                                        |  |               |  | 3             
|                                               |  |                |  |               
|Sub-total                                      |  | 14             |  | 65            
|                                               |  |                |  |               
|Total                                          |  | (Won)     102  |  | (Won)       65
|                                               |  |                |  |               



(5) Collateral
Provided for the Related Parties



As of December 31, 2004, the
Company provided collateral for its related parties as follows (in millions of Korean won):



|             |  |                                  |  |                |  |                            
|------------ |  | -------------------------------- |  | -------------- |  | ---------------------------
|Company      |  | Assets pledged                   |  | Amount         |  | Remark                     
|Cyber Bank   |  | Short-term financial instruments |  | (Won)   18,000 |  | Repayment of borrowings    
|Mirae Online |  |                                 |  | 980            |  | Letters of credit and other



For the year ended
December 31, 2004, the Company provided allowance for loss on collateralized assets totaling (Won)14,816 million in connection with the collateral provided for Cyber Bank as the management believed that such collateral would probably be used to
repay on behalf of Cyber Bank.



In addition, for the year
ended December 31, 2004, the Company provided allowance for doubtful accounts amounting to (Won)2,929 million for trade receivable from Cyber Bank. As of December 31, 2004, the SoftForums short-term financial instruments totaling (Won)2,000
million were pledged as collateral for borrowings of Cyber Bank Corporation. See Note 27 for additional provision of collateral for Cyber Bank in 2005.



|14. | ASSETS AND LIABILITIES DENOMINATED IN FOREIGN CURRENCIES
|--- | --------------------------------------------------------



The details of monetary assets and liabilities denominated in foreign currencies as of December 31, 2003 and 2004 are as follows (in millions of Korean
won, thousands of U.S. dollars, H.K. dollars, and Japanese yens):



|                                  |  |                    |        |      |     |        
|--------------------------------- |  | ------------------ | ------ | ---- | --- | -------
|                                  |  | Foreign currencies
|                                  |  | 2003               |        | 2004
|Cash and cash equivalents         |  | US$                | 2,451  |      | US$ | 2,844  
|                                 |  | ¥                  | 86     |      |     |       
|                                 |  | HK$                | 154    |      |     |       
|Accounts receivable  trade       |  | US$                | 12,665 |      | US$ | 15,313 
|                                 |  | ¥                  | 2,044  |      | ¥   | 994    
|Accounts payable  trade          |  |                    |       |      | US$ | 47     
|                                 |  | ¥                  | 885    |      | ¥   | 12,913 
|Short-term borrowings             |  |                    |       |      | US$ | 9,533  
|                                 |  | ¥                  | 13,557 |      | ¥   | 988,719
|Current portion of long-term debt |  | US$                | 710    |      | US$ | 946    
|Long-term borrowings              |  | US$                | 3,075  |      | US$ | 7,114  



F-25



---

##### Table of Contents

|                                  |  |                       |  |           
|--------------------------------- |  | --------------------- |  | ----------
|                                  |  | Korean won equivalent
|                                  |  | 2003                  |  | 2004      
|Cash and cash equivalents         |  | (Won)2,936            |  | (Won)2,969
|                                 |  | 1                     |  |          
|                                 |  | 24                    |  |          
|Accounts receivable  trade       |  | 15,170                |  | 15,983    
|                                 |  | 23                    |  | 10        
|Accounts payable  trade          |  |                      |  | 49        
|                                 |  | 10                    |  | 131       
|Short-term borrowings             |  |                      |  | 9,950     
|                                 |  | 152                   |  | 10,007    
|Current portion of long-term debt |  | 849                   |  | 987       
|Long-term borrowings              |  | 3,683                 |  | 7,426     



|15. | CAPITAL STOCK AND CAPITAL SURPLUS
|--- | ---------------------------------



The Companys capital stock consists entirely of common stock. The par value and the number of shares authorized, issued and outstanding as of
December 31, 2003 and 2004 are as follows:



|                                          |  |                  |  |                 
|----------------------------------------- |  | ---------------- |  | ----------------
|                                          |  | 2003             |  | 2004            
|Par value (in Korean won)                 |  | (Won)        100 |  | (Won)        100
|Authorized shares                         |  | 351,000,000      |  | 351,000,000     
|Issued shares                             |  | 179,186,000      |  | 179,186,000     
|Outstanding shares, net of treasury stock |  | 177,711,861      |  | 177,711,861     



Changes in capital
stock and additional paid-in capital in 2003 and 2004 are as follows (in millions of Korean won except for share data):



|                                                                                                     |  |                         |  |               |  |                            |  
|---------------------------------------------------------------------------------------------------- |  | ----------------------- |  | ------------- |  | -------------------------- | -
|                                                                                                     |  | Numbers ofshares issued |  | Capital stock |  | Additional paid-in capital |  
|At January 1, 2003                                                                                   |  | 124,637,500             |  | (Won)12,464   |  | (Won)  219,862             |  
|Additional issuance (note a)                                                                         |  | 24,927,500              |  | 2,493         |  | 22,611                     |  
|Additional issuance without consideration                                                            |  | 29,621,000              |  | 2,962         |  | (2,962                     | )
|Decrease in capital surplus relating to disposal of available-for-sale securities (note b)           |  |                        |  |              |  | (24,628                    | )
|Decrease in capital surplus relating to disposal of investment in consolidated subsidiaries (note c) |  |                        |  |              |  | (353                       | )
|Offset against deficit                                                                               |  |                        |  |              |  | (73,738                    | )
|                                                                                                     |  |                         |  |               |  |                            |  
|At December 31, 2003                                                                                 |  | 179,186,000             |  | 17,919        |  | 140,792                    |  
|Changes in consolidated subsidiaries                                                                 |  |                        |  |              |  | (12,878                    | )
|                                                                                                     |  |                         |  |               |  |                            |  
|At December 31, 2004                                                                                 |  | 179,186,000             |  | (Won)17,919   |  | (Won)127,914               |  
|                                                                                                     |  |                         |  |               |  |                            |  

---

|         |  |                                                                                                                                                                                                                                        
|-------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(note a) |  | In August 2003, the Company issued 24,927,500 additional shares for (Won)1,020 per share.                                                                                                                                              
|         | 
|(note b) |  | In June 2003, the Company disposed of 6,836,690 shares of SK Communications for (Won)660 per share. As a result of such disposal, the Companys additional paid-in capital of (Won)24,628
million decreased.                           
|         | 
|(note c) |  | In 2003, the Company disposed of 130,000 shares of MOL. As a result of such disposal, the Companys equity ownership in MOL decreased from 81.39% to 67.47% and the Companys
additional paid-in capital decreased by (Won)353 million.



F-26



---

##### Table of Contents

|16. | RETAINED EARNINGS (DEFICIT)
|--- | ---------------------------



Changes in unappropriated retained earnings (undisposed deficit) for the years ended December 31, 2003 and 2004 are as follows (in millions of Korean
won):



|                                                                                                  |  |              |   |  |              |  
|------------------------------------------------------------------------------------------------- |  | ------------ | - |  | ------------ | -
|                                                                                                  |  | 2003         |   |  | 2004         |  
|Unappropriated retained earnings (undisposed deficit) at beginning of the year                    |  | (Won)(73,457 | ) |  | (Won)2,805   |  
|Changes in unappropriated retained earnings:                                                      |  |              |   |  |              |  
|Change in consolidated subsidiaries                                                               |  |             |   |  | 302          |  
|Losses in excess of minority interest                                                             |  |             |   |  | (126         | )
|                                                                                                  |  |              |   |  |              |  
|Sub-total                                                                                         |  | (73,457      | ) |  | 176          |  
|                                                                                                  |  |              |   |  |              |  
|Transfers from appropriated reserves or disposition of deficit:                                   |  |              |   |  |              |  
|Additional paid-in capital                                                                        |  | 73,738       |   |  |             |  
|Reclassification of loss on disposal of treasury stock                                            |  |             |   |  | (113         | )
|                                                                                                  |  |              |   |  |              |  
|Sub-total                                                                                         |  | 73,738       |   |  | (113         | )
|                                                                                                  |  |              |   |  |              |  
|Net income (loss)                                                                                 |  | 2,524        |   |  | (31,654      | )
|                                                                                                  |  |              |   |  |              |  
|Unappropriated retained earnings (undisposed deficit) to be carried forward to the following year |  | (Won)  2,805 |   |  | (Won)(28,786 | )
|                                                                                                  |  |              |   |  |              |  



|17. | TREASURY STOCK
|--- | --------------



As of December 31, 2004, the Company holds 1,474,139 shares of treasury stock (book value: (Won)4,344 million) purchased in order to stabilize the market
price of its stock. During the year ended December 31, 2003, the Company acquired 14,139 shares of treasury stock in the market for (Won)17 million and later sold 300,000 shares for (Won) 374 million and a loss from disposal of treasury stock
amounting to (Won)113 million was deducted from other capital adjustments. For the year ended December 31, 2004, such loss from disposal of treasury stock was offset against retained earnings through appropriation of retained earnings. Changes in
treasury stock during the years ended December 31, 2003 and 2004 are as follows (in millions of Korean won except for share data):



|                              |  |                         |  |               
|----------------------------- |  | ----------------------- |  | --------------
|                              |  | Number oftreasury stock |  | Carryingamount
|At January 1, 2003            |  | 1,760,000               |  | (Won)    4,814
|Purchase of treasury stock    |  | 14,139                  |  | 17            
|Disposal of treasury stock    |  | (300,000)               |  | (487)         
|                              |  |                         |  |               
|At December 31, 2003 and 2004 |  | 1,474,139               |  | (Won)    4,344
|                              |  |                         |  |               



The Company intends
to sell its treasury stock in the market in the future. No dividends will be paid on treasury stock.



|18. | SALES
|--- | -----



Details of sales for the years ended December 31, 2002, 2003 and 2004 are as follows (in millions of Korean won):



|                                                  |  |             |  |             |  |            
|------------------------------------------------- |  | ----------- |  | ----------- |  | -----------
|                                                  |  | 2002        |  | 2003        |  | 2004       
|Handlers and components                           |  | (Won)14,434 |  | (Won)44,184 |  | (Won)33,523
|SMD placement systems                             |  | 23,486      |  | 19,201      |  | 24,299     
|Security solutions products and services (note a) |  | 15,881      |  | 17,189      |  |           
|Other                                             |  | 10,629      |  | 14,479      |  | 9,059      
|                                                  |  |             |  |             |  |            
|                                                  |  | (Won)64,430 |  | (Won)95,053 |  | (Won)66,881
|                                                  |  |             |  |             |  |            

---

|         |  |                                                                                                                                                                                               
|-------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(note a) |  | Because SoftForum was excluded from consolidation for the year ended December 31, 2004, the related security solutions products and services revenue was also eliminated from the above
table.



|19. | SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
|--- | --------------------------------------------



The details of selling, general and administrative expenses for the years ended December 31, 2002, 2003 and 2004 are as follows (in millions of Korean
won):



|                         |  |             |  |             |  |            
|------------------------ |  | ----------- |  | ----------- |  | -----------
|                         |  | 2002        |  | 2003        |  | 2004       
|Salaries                 |  | (Won)10,203 |  | (Won)9,668  |  | (Won)7,137 
|Commissions              |  | 3,329       |  | 4,370       |  | 3,356      
|Travel                   |  | 745         |  | 810         |  | 879        
|Depreciation             |  | 3,142       |  | 2,699       |  | 1,785      
|Entertainment            |  | 826         |  | 1,179       |  | 536        
|Advertising              |  | 941         |  | 1,035       |  | 976        
|Research and development |  | 2,410       |  | 1,053       |  | 880        
|Product warranty         |  | 1,004       |  | 86          |  | 1,912      
|Bad debts                |  | 11,786      |  | 3,224       |  | 1,784      
|Other                    |  | 3,265       |  | 3,849       |  | 3,412      
|                         |  |             |  |             |  |            
|                         |  | (Won)37,651 |  | (Won)27,973 |  | (Won)22,657
|                         |  |             |  |             |  |            



F-27



---

##### Table of Contents

|20. | INCOME TAXES
|--- | ------------



The following is a reconciliation between financial accounting income and taxable income, together with a computation of income taxes for the years ended
December 31, 2002, 2003 and 2004 (in millions of Korean won):



|                                                                                 |  |              |   |  |          |   |  |              |  
|-------------------------------------------------------------------------------- |  | ------------ | - |  | -------- | - |  | ------------ | -
|                                                                                 |  | 2002         |   |  | 2003     |   |  | 2004         |  
|Income (loss) before income taxes and minority interest                          |  | (Won)(72,890 | ) |  | (Won)916 |   |  | (Won)(31,919 | )
|Additions (deductions):                                                          |  |              |   |  |          |   |  |              |  
|Provision for severance indemnities                                              |  | 799          |   |  | (540     | ) |  | 272          |  
|Loss from valuation of inventories                                               |  | 2,497        |   |  | (7,692   | ) |  | (10,465      | )
|Entertainment expenses                                                           |  | 672          |   |  | 921      |   |  | 260          |  
|Accrued interest income                                                          |  | (39          | ) |  | 60       |   |  | (388         | )
|Gain (loss) on valuation of trading securities                                   |  | 3,227        |   |  | (3,238   | ) |  | 396          |  
|Reversal of tax-free reserves                                                    |  | 1,081        |   |  |         |   |  |             |  
|Net loss (income) of consolidated affiliate                                      |  | 3,943        |   |  | 402      |   |  | (172         | )
|Provision for doubtful accounts                                                  |  | 3,429        |   |  | 10,534   |   |  | 16,891       |  
|Depreciation                                                                     |  | 50           |   |  |         |   |  |             |  
|Loss from impairment of deferred development costs                               |  | 8,345        |   |  | (2,466   | ) |  | (403         | )
|Loss from impairment of available-for-sale securities                            |  | 3,830        |   |  | 1,343    |   |  | 169          |  
|Equity in losses of affiliate                                                    |  | 11,434       |   |  | (15,484  | ) |  | 5,826        |  
|Other                                                                            |  | 957          |   |  | 1,229    |   |  | 581          |  
|                                                                                 |  |              |   |  |          |   |  |              |  
|Total                                                                            |  | (32,665      | ) |  | (14,015  | ) |  | (19,952      | )
|Add back                                                                         |  |              |   |  |          |   |  |              |  
|- Net operating loss carryforwards (note a)                                      |  | 34,746       |   |  | 14,119   |   |  | 19,952       |  
|                                                                                 |  |              |   |  |          |   |  |              |  
|Net taxable income                                                               |  | (Won)2,081   |   |  | (Won)104 |   |  | (Won)       |  
|                                                                                 |  |              |   |  |          |   |  |              |  
|                                                                                 |  |              |  
|                                                                                 |  | 2002         |   |  | 2003     |   |  | 2004         |  
|Corporate income taxes at statutory Korean corporate income tax rates of 27%     |  | (Won)542     |   |  | (Won)16  |   |  | (Won)       |  
|Special tax credit for small and medium-sized venture companies                  |  | (266         | ) |  |         |   |  |             |  
|Tax credit for technology and human resource development and capital investments |  | (24          | ) |  |         |   |  |             |  
|                                                                                 |  |              |   |  |          |   |  |              |  
|Corporate income taxes payable                                                   |  | 252          |   |  | 16       |   |  |             |  
|Resident surtax payable                                                          |  | 25           |   |  | 2        |   |  |             |  
|                                                                                 |  |              |   |  |          |   |  |              |  
|Total income taxes payable                                                       |  | (Won)277     |   |  | (Won)18  |   |  | (Won)       |  
|                                                                                 |  |              |   |  |          |   |  |              |  

---

|         |  |                                                                                                                                                                                                                                                                                                                                                                   
|-------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(note a) |  | In Korea, there is no tax payment system based on consolidated taxable income (or loss). Increase in net operating loss carryforwards of the Company and subsidiaries, which have no tax
liabilities due to the net operating loss, for the years ended December 31, 2002, 2003 and 2004, were added to show taxable income for subsidiaries with tax liabilities.



The provision for
income taxes for the years ended December 31, 2002, 2003 and 2004 consists of the following (in millions of Korean won):



|                   |  |          |  |         |  |       
|------------------ |  | -------- |  | ------- |  | ------
|                   |  | 2002     |  | 2003    |  | 2004  
|Currently payable  |  | (Won)277 |  | (Won)18 |  | (Won)
|Deferred           |  |         |  |        |  |      
|                   |  |          |  |         |  |       
|Income tax expense |  | (Won)277 |  | (Won)18 |  | (Won)
|                   |  |          |  |         |  |       



F-28



---

##### Table of Contents

The difference between income tax expense computed using the statutory income tax rate and the recorded
income tax expense for the years ended December 31, 2002, 2003 and 2004 is attributable to the following (in millions of Korean won):



|                                                                                 |  |              |   |  |            |   |  |             |  
|-------------------------------------------------------------------------------- |  | ------------ | - |  | ---------- | - |  | ----------- | -
|                                                                                 |  | 2002         |   |  | 2003       |   |  | 2004        |  
|Income tax expense (benefit) at statutory income tax rate of 27%                 |  | (Won)(19,680 | ) |  | (Won)  247 |   |  | (Won)(8,618 | )
|Resident surtax                                                                  |  | (1,968       | ) |  | 25         |   |  | (862        | )
|Tax credit for technology and human resource development and capital investments |  | (242         | ) |  |           |   |  |            |  
|Special tax credit for small and medium-sized venture companies                  |  | (293         | ) |  |           |   |  |            |  
|Tax effect of permanent differences                                              |  | 472          |   |  | 729        |   |  | 249         |  
|Change in valuation allowance                                                    |  | 22,037       |   |  | (4,748     | ) |  | 8,919       |  
|Change in income tax rate (note a)                                               |  |             |   |  | 3,551      |   |  |            |  
|Other                                                                            |  | (49          | ) |  | 214        |   |  | 312         |  
|                                                                                 |  |              |   |  |            |   |  |             |  
|Recorded income tax expense                                                      |  | (Won)  277   |   |  | (Won)  18  |   |  | (Won)      |  
|                                                                                 |  |              |   |  |            |   |  |             |  

---

|         |  |                                                                                                                                                                       
|-------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(note a) |  | Pursuant to a revision in the Korean Corporate Income Tax Law, statutory corporate income tax rate will be changed from current 27% to 25%, effective January 1, 2005.



The tax effects of
each type of temporary difference, net operating loss carryforwards and tax credit carryforwards that gave rise to a significant portion of the deferred income tax assets at December 31, 2003 and 2004 are as follows (in millions of Korean won):



|                                                   |  |          |   |  |           |  
|-------------------------------------------------- |  | -------- | - |  | --------- | -
|                                                   |  | 2003     |   |  | 2004      |  
|Current:                                           |  |          |   |  |           |  
|Accrued interest income                            |  | (Won)(41 | ) |  | (Won)(131 | )
|Gain (loss) on valuation of trading securities     |  | (56      | ) |  | 60        |  
|Loss from valuation of inventories                 |  | 3,457    |   |  | 323       |  
|                                                   |  |          |   |  |           |  
|Sub-total                                          |  | 3,360    |   |  | 252       |  
|                                                   |  |          |   |  |           |  
|Non-current portion:                               |  |          |   |  |           |  
|Provision for severance indemnities                |  | 589      |   |  | 401       |  
|Net operating loss carryforwards (note a)          |  | 19,445   |   |  | 26,190    |  
|Net loss of consolidated subsidiaries              |  | 4,408    |   |  | 4,167     |  
|Tax credit carryforwards (note a)                  |  | 7,360    |   |  | 7,328     |  
|Deferred development costs                         |  | 1,494    |   |  | 1,477     |  
|Impairment loss from available-for-sale securities |  | 3,734    |   |  | 3,626     |  
|Equity in losses of affiliate                      |  | 6,657    |   |  | 7,961     |  
|Depreciation                                       |  | 275      |   |  | 254       |  
|Provision for doubtful accounts                    |  | 7,748    |   |  | 12,349    |  
|Other                                              |  | 35       |   |  | 19        |  
|                                                   |  |          |   |  |           |  
|Sub-total                                          |  | 51,745   |   |  | 63,772    |  
|                                                   |  |          |   |  |           |  
|Total deferred income tax assets                   |  | 55,105   |   |  | 64,024    |  
|                                                   |  |         
|Valuation allowance (note b)                       |  | (55,105  | ) |  | (64,024   | )
|                                                   |  |          |   |  |           |  
|Net deferred income tax assets                     |  | (Won)   |   |  | (Won)    |  
|                                                   |  |          |   |  |           |  

---

|         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|-------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(note a) |  | At December 31, 2004, the Company and subsidiaries had tax credit carryforwards for tax purposes relating to technology and human resource development and capital investments, of which
(Won)2,536 million will expire in 2006, (Won)3,369 million in 2007, (Won)1,423 million in 2008. The Company and subsidiaries also had net operating loss carryforwards, of which (Won)56,590 million will expire in 2007 and (Won)14,051 million in 2008
and (Won)24,597 million in 2009, respectively.
|         | 
|(note b) |  | A full valuation allowance has been provided for deferred income tax assets as of December 31, 2004 and 2003 since the Companys management believes that the realization of the deferred
tax assets is uncertain.                                                                                                                                                                                                                                                                              



F-29



---

##### Table of Contents

|21. | INCOME (LOSS) PER COMMON SHARE
|--- | ------------------------------



Net income (loss) per common share for the years ended December 31, 2002, 2003 and 2004 are computed as follows (in millions of Korean won, except for
share data):



|                                                         |  |                |   |  |              |  |                |  
|-------------------------------------------------------- |  | -------------- | - |  | ------------ |  | -------------- | -
|                                                         |  | 2002           |   |  | 2003         |  | 2004           |  
|Net income (loss)                                        |  | (Won)  (72,991 | ) |  | (Won)  2,524 |  | (Won)  (31,654 | )
|Weighted average number of shares outstanding (note a)   |  | 155,173,720    |   |  | 159,684,809  |  | 177,711,861    |  
|                                                         |  |                |   |  |              |  |                |  
|Basic net income (loss) per common share (in Korean won) |  | (Won)  (470    | ) |  | (Won)  16    |  | (Won)  (178    | )
|                                                         |  |                |   |  |              |  |                |  

---

|         |  |                                                                                                                             
|-------- |  | ----------------------------------------------------------------------------------------------------------------------------
|(note a) |  | Weighted average number of shares outstanding for the years ended December 31, 2002, 2003 and 2004 is calculated as follows:



2002



|                                  |  |                           |   |  |      |  |                          |  
|--------------------------------- |  | ------------------------- | - |  | ---- |  | ------------------------ | -
|                                  |  | Number of shares (note b) |   |  | Days |  | Weighted numberof shares |  
|Beginning balance                 |  | 157,217,552               |   |  | 365  |  | 57,384,406,379           |  
|Treasury stock                    |  | (2,061,125                | ) |  | 365  |  | (752,310,661             | )
|Disposal of treasury stock        |  | 219,483                   |   |  | 224  |  | 49,164,267               |  
|Acquisition of treasury stock     |  | (365,806                  | ) |  | 219  |  | (80,111,417              | )
|                                 |  | (239,666                  | ) |  | 218  |  | (52,247,125              | )
|                                 |  | (151,368                  | ) |  | 216  |  | (32,695,448              | )
|Disposal of treasury stock        |  | 378,420                   |   |  | 173  |  | 65,466,581               |  
|                                 |  | 350,669                   |   |  | 170  |  | 59,613,692               |  
|                                 |  | 27,751                    |   |  | 169  |  | 4,689,880                |  
|Acquisition of treasury stock     |  | (378,420                  | ) |  | 20   |  | (7,568,391               | )
|                                  |  |                           |   |  |      |  |                          |  
|Total                             |  | 154,997,490               |   |  |      |  | 59,638,407,756           |  
|                                  |  |                           |   |  |      |  |                          |  
|                                  |  |                           |   |  |      |  | ÷365                     |  
|                                  |  |                           |   |  |      |  |                          |  
|Weighted average number of shares |  |                           |   |  |      |  | 155,173,720              |  
|                                  |  |                           |   |  |      |  |                          |  



2003



|                                  |  |                           |   |  |      |  |                          |  
|--------------------------------- |  | ------------------------- | - |  | ---- |  | ------------------------ | -
|                                  |  | Number of shares (note b) |   |  | Days |  | Weighted numberof shares |  
|Beginning balance                 |  | 157,217,552               |   |  | 365  |  | 57,384,406,379           |  
|Treasury stock                    |  | (2,220,061                | ) |  | 365  |  | (810,322,377             | )
|Disposal of treasury stock        |  | 252,280                   |   |  | 331  |  | 83,504,579               |  
|                                 |  | 126,140                   |   |  | 329  |  | 41,500,010               |  
|Additional issuance               |  | 22,350,090                |   |  | 71   |  | 1,586,856,393            |  
|Acquisition of treasury stock     |  | (14,139                   | ) |  | 70   |  | (989,730                 | )
|                                  |  |                           |   |  |      |  |                          |  
|Total                             |  | 177,711,861               |   |  |      |  | 58,284,955,254           |  
|                                  |  |                           |   |  |      |  |                          |  
|                                  |  |                           |   |  |      |  | ÷365                     |  
|                                  |  |                           |   |  |      |  |                          |  
|Weighted average number of shares |  |                           |   |  |      |  | 159,684,809              |  
|                                  |  |                           |   |  |      |  |                          |  

---

|         |  |                                                                                                                                                                                                                          
|-------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(note b) |  | The Companys number of shares was retrospectively recalculated considering the effect (5.12%) of additional issuance with consideration in 2003 which were issued less than fair value,
and 20% stock dividends in 2003.



2004



|                                  |  |                 |   |  |      |  |                          |  
|--------------------------------- |  | --------------- | - |  | ---- |  | ------------------------ | -
|                                  |  | Number ofshares |   |  | Days |  | Weighted numberof shares |  
|Beginning balance                 |  | 179,186,000     |   |  | 366  |  | 65,582,076,000           |  
|Treasury stock                    |  | (1,474,139      | ) |  | 366  |  | (539,534,874             | )
|                                  |  |                 |   |  |      |  |                          |  
|Total                             |  | 177,711,861     |   |  |      |  | 65,042,541,126           |  
|                                  |  |                 |   |  |      |  |                          |  
|                                  |  |                 |   |  |      |  | ÷366                     |  
|                                  |  |                 |   |  |      |  |                          |  
|Weighted average number of shares |  |                 |   |  |      |  | 177,711,861              |  
|                                  |  |                 |   |  |      |  |                          |  



F-30



---

##### Table of Contents

Diluted income (loss) per share for the years ended December 31, 2002, 2003 and 2004 is not presented as
stock options and convertible bonds have anti-dilutive effect.



|22. | CONCENTRATION OF CREDIT RISK AND MAJOR CUSTOMERS
|--- | ------------------------------------------------



A substantial portion of the Company and its subsidiaries sales for the years ended December 31, 2002, 2003 and 2004 are made to customers in the
semiconductor industry. Details of customers accounting for 10% or more of the Company and its subsidiaries sales are as follows (in millions of Korean won):



|                              |  |       |        |      |       |        |  |       |       
|----------------------------- |  | ----- | ------ | ---- | ----- | ------ |  | ----- | ------
|Customers                     |  | 2002  |        | 2003 |       | 2004  
|Samsung Electronics Co., Ltd. |  | (Won) | 4,804  |      | (Won) |       |  | (Won) |      
|Hynix Semiconductor Co., Ltd. |  |       | 923    |      |       | 17,151 |  |       | 10,500
|SanDisk                       |  |       | 436    |      |       | 14,860 |  |       | 6,931 
|Other                         |  |       | 58,267 |      |       | 63,042 |  |       | 49,450
|                              |  |       |        |      |       |        |  |       |       
|                              |  | (Won) | 64,430 |      | (Won) | 95,053 |  | (Won) | 66,881
|                              |  |       |        |      |       |        |  |       |       



The related accounts
receivable balances from the above major customers as of December 31, 2003 and 2004 are as follows (in millions of Korean won):



|                                |  |       |         |   |      |       |         |  
|------------------------------- |  | ----- | ------- | - | ---- | ----- | ------- | -
|Customers                       |  | 2003  |         |   | 2004 |      
|Hynix Semiconductor Co., Ltd.   |  | (Won) | 9,012   |   |      | (Won) | 417     |  
|SanDisk                         |  |       | 255     |   |      |       | 742     |  
|Other                           |  |       | 48,736  |   |      |       | 43,546  |  
|                                |  |       |         |   |      |       |         |  
|Total                           |  |       | 58,003  |   |      |       | 44,706  |  
|Allowance for doubtful accounts |  |       | (17,414 | ) |      |       | (17,873 | )
|                                |  |       |         |   |      |       |         |  
|Net                             |  | (Won) | 40,589  |   |      | (Won) | 26,832  |  
|                                |  |       |         |   |      |       |         |  

|23. | SEGMENT INFORMATION
|--- | -------------------



| | a. | Export Sales
| | -- | ------------



The Company had foreign export sales amounting to 32.24%, 31.36% and 35.94% of total sales for the years ended December 31, 2002, 2003 and 2004,
respectively. The export sales were made principally to the following locations:



|                         |  |       |   |  |       |   |  |       |  
|------------------------ |  | ----- | - |  | ----- | - |  | ----- | -
|                         |  | 2002  |   |  | 2003  |   |  | 2004  |  
|Asia                     |  | 12.21 | % |  | 11.10 | % |  | 14.52 | %
|Europe                   |  | 15.32 | % |  | 3.51  | % |  | 7.25  | %
|United States of America |  | 4.71  | % |  | 16.75 | % |  | 14.17 | %
|                         |  |       |   |  |       |   |  |       |  
|                         |  | 32.24 | % |  | 31.36 | % |  | 35.94 | %
|                         |  |       |   |  |       |   |  |       |  



F-31



---

##### Table of Contents

| | b. | Business Segment Information
| | -- | ----------------------------



Through 1998, the Company operated in one major business segment, the handler manufacturing business. As the Company expanded its sales of SMD placement
systems and security solutions, additional business segments were designated. Sales, operating income (loss), identifiable assets, capital expenditures and depreciation as of and for the years ended December 31, 2002, 2003 and 2004, pertaining to
the business segments in which the Company and its subsidiaries operated are presented as follows (in millions of Korean won):



|                                                 |  |       |        |                         |       |                    |  |                     |         |                                            |       |        |  |       |      
|------------------------------------------------ |  | ----- | ------ | ----------------------- | ----- | ------------------ |  | ------------------- | ------- | ------------------------------------------ | ----- | ------ |  | ----- | -----
|                                                 |  | Sales |        | Operating income (loss) |       | Identifiableassets |  | Capitalexpenditures |         | Depreciationof property,plant andequipment
|(As of and for the year ended December 31, 2002) |  |       |        |                         |       |                    |  |                     |         |                                            |       |        |  |       |      
|Handlers and components                          |  | (Won) | 14,434 |                         | (Won) | (8,468)            |  | (Won)               | 18,515  |                                            | (Won) | 327    |  | (Won) | 594  
|SMD placement systems                            |  |       | 23,486 |                         |       | (16,760)           |  |                     | 37,469  |                                            |       | 537    |  |       | 977  
|Security solutions                               |  |       | 15,881 |                         |       | 99                 |  |                     | 38,897  |                                            |       | 215    |  |       | 321  
|Research and development center                  |  |       |       |                         |       |                   |  |                     | 20,441  |                                            |       | 189    |  |       | 343  
|Other                                            |  |       | 10,629 |                         |       | (4,955)            |  |                     |        |                                            |       | 1,970  |  |       | 4,476
|                                                 |  |       |        |                         |       |                    |  |                     |         |                                            |       |        |  |       |      
|Consolidated                                     |  | (Won) | 64,430 |                         | (Won) | (30,084)           |  | (Won)               | 115,322 |                                            | (Won) | 3,238  |  | (Won) | 6,711
|                                                 |  |       |        |                         |       |                    |  |                     |         |                                            |       |        |  |       |      
|(As of and for the year ended December 31, 2003) |  |       |        |                         |       |                    |  |                     |         |                                            |       |        |  |       |      
|Handlers and components                          |  | (Won) | 44,184 |                         | (Won) | 1,093              |  | (Won)               | 23,931  |                                            | (Won) | 398    |  | (Won) | 468  
|SMD placement systems                            |  |       | 19,201 |                         |       | (2,406)            |  |                     | 25,776  |                                            |       | 654    |  |       | 770  
|Security solutions                               |  |       | 17,189 |                         |       | (1,860)            |  |                     | 41,549  |                                            |       | 18,401 |  |       | 588  
|Research and development center                  |  |       |       |                         |       |                   |  |                     | 19,610  |                                            |       | 1,097  |  |       | 1,290
|Other                                            |  |       | 14,479 |                         |       | (2,450)            |  |                     |        |                                            |       | 2,119  |  |       | 3,016
|                                                 |  |       |        |                         |       |                    |  |                     |         |                                            |       |        |  |       |      
|Consolidated                                     |  | (Won) | 95,053 |                         | (Won) | (5,623 )           |  | (Won)               | 110,866 |                                            | (Won) | 22,669 |  | (Won) | 6,132
|                                                 |  |       |        |                         |       |                    |  |                     |         |                                            |       |        |  |       |      
|(As of and for the year ended December 31, 2004) |  |       |        |                         |       |                    |  |                     |         |                                            |       |        |  |       |      
|Handlers and components                          |  | (Won) | 33,523 |                         | (Won) | (3,259 )           |  | (Won)               | 27,790  |                                            | (Won) | 706    |  | (Won) | 299  
|SMD placement systems                            |  |       | 24,299 |                         |       | (3,829)            |  |                     | 28,277  |                                            |       | 637    |  |       | 271  
|Research and development center                  |  |       |       |                         |       |                   |  |                     | 11,363  |                                            |       | 1,491  |  |       | 632  
|Other                                            |  |       | 9,059  |                         |       | (333)              |  |                     |        |                                            |       | 7,038  |  |       | 3,743
|                                                 |  |       |        |                         |       |                    |  |                     |         |                                            |       |        |  |       |      
|Consolidated                                     |  | (Won) | 66,881 |                         | (Won) | (7,421 )           |  | (Won)               | 67,430  |                                            | (Won) | 9,872  |  | (Won) | 4,945
|                                                 |  |       |        |                         |       |                    |  |                     |         |                                            |       |        |  |       |      



|24. | COMMITMENTS AND CONTINGENCIES
|--- | -----------------------------



| | a. | Checks and Promissory notes Provided as Collateral
| | -- | --------------------------------------------------



In accordance with normal Korean business practices, the Company has provided two blank checks to Seoul Guarantee Insurance Company (Seoul
Guarantee) as collateral for performance guarantees it has provided to certain of the Companys significant customers for the timely delivery of goods and satisfaction of warranty obligations. In the event Seoul Guarantee pays claims on
such guarantees, the blank checks would be utilized by Seoul Guarantee to recover resulting losses from the Company up to a total maximum amount of (Won)1,000 million. Company management does not currently anticipate any such losses.



In addition, in accordance with normal Korean business practices, at the
request of a significant customer the Company has provided a blank promissory note to such customer in order to guarantee the timely delivery of goods and satisfaction of warranty obligations. In the event that the Company fails to properly perform
its contractual obligations to such customer, the blank note would be utilized by the customer to recover resulting losses. There is no legal limit to the exposure of the Company in connection with this arrangement. Because of the general nature of
the underlying contractual agreement with such customer, it is not possible to determine the Companys potential loss exposure associated with this arrangement. Company management does not currently anticipate any such loss.



| | b. | Guarantees Provided by Other Parties
| | -- | ------------------------------------



Guarantees provided for the Company by other companies as of December 31, 2004 are as follows (in millions of Korean won and thousands of U.S. dollars):



|                            |  |        |         |        |                                         
|--------------------------- |  | ------ | ------- | ------ | ----------------------------------------
|                            |  | Amount |         | Remark
|Seoul Guarantee             |  | (Won)  | 2,929   |        | Guarantees for timely delivery and other
|Korea Exchange Bank         |  |        | 1,035   |        | Letters of credit and other             
|                            |  | $      | (1,000) |        |                                         
|Korea Credit Guarantee Fund |  |        | 493     |        | Borrowings                              
|                            |  |        |         |        |                                         
|                            |  | (Won)  | 4,457   |        |                                         
|                            |  |        |         |        |                                         



F-32



---

##### Table of Contents

|25. | INSURANCE
|--- | ---------



At December 31, 2004, certain of the Companys assets are insured with local insurance companies as follows (in millions of Korean won):



|                              |  |                                  |  |            |        |          |       |       
|----------------------------- |  | -------------------------------- |  | ---------- | ------ | -------- | ----- | ------
|Asset                         |  | Risk                             |  | Book value |        | Coverage
|Property, plant and equipment |  | Fire and comprehensive liability |  | (Won)      | 49,541 |          | (Won) | 48,662
|                              |  |                                  |  |            |        |          |       |       



The Company carries
director and officer liability insurance policies with up to $1 million of coverage against losses arising from any claims made against the directors and officers for any alleged wrongful acts in their respective capacities as directors or officers
of the Company.



|26. | STOCK OPTION COMPENSATION PLAN
|--- | ------------------------------



In accordance with the approval of the Companys shareholders, the Company granted stock options to its employees. Changes in options outstanding for
the years ended December 31, 2003 and 2004 are as follows (in Korean won):



|                                        |  |                           |   |  |                                          |      
|--------------------------------------- |  | ------------------------- | - |  | ---------------------------------------- | -----
|                                        |  | Number of shares (note a) |   |  | Weighted average exercise price (note a)
|Options outstanding  January 1, 2003   |  | 3,261,108                 |   |  | (Won)                                    | 1,343
|Granted                                 |  | 3,887,715                 |   |  |                                          | 1,114
|Cancelled                               |  | (403,068                  | ) |  |                                          | 1,306
|                                        |  |                           |   |  |                                          |      
|Options outstanding  December 31, 2003 |  | 6,745,755                 |   |  |                                          | 1,213
|Granted                                 |  | 1,350,000                 |   |  |                                          | 1,218
|Cancelled                               |  | (238,859                  | ) |  |                                          | 1,157
|                                        |  |                           |   |  |                                          |      
|Options outstanding  December 31, 2004 |  | 7,856,896                 |   |  |                                          | 1,216
|                                        |  |                           |   |  |                                          |      

---

|        |   |  |                                                                                                                                                                                      
|------- | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(note a | ) |  | For the year ended December 31, 2003, the Companys number of stock option and exercise price were recalculated considering the effect of 20% stock dividend and additional
issuance.



The stock options
shall become exercisable after two to three years from the date of grant and shall be exercisable within five years from the first exercisable date. When the length of employment is less than two years after the grant of stock option, the Company
may cancel the stock options awarded. Upon exercise of stock options, in accordance with the sole discretion of the board of directors, the Company may (1) grant newly issued common stock, (2) grant treasury stock or (3) grant the net difference
between the exercise price and the market price with either cash or treasury stock (not applicable for stock options granted in 2004).



As described in note 2, the Company used the fair value based method in valuing the stock options granted in 2004 in accordance with revised
interpretation of Korean GAAP. However, for stock option granted before January 1, 2004, as permitted under Korean GAAP, the Company excludes the volatility factor in estimating the value of its stock options, which results in measurement at minimum
value. Using such valuation methods, total compensation costs were measured at (Won)617 million, (Won)1,267 million and (Won)2,255 million for options granted in 2002, 2003 and 2004, respectively, and are recognized over the service period (2
years). Such compensation costs amounting to (Won)159 million in 2002, (Won)356 million in 2003 and (Won)802 million in 2004 were recognized.



Assuming the Company had considered a volatility factor in estimating the value of its stock options granted in 2002 and 2003, the pro forma consolidated
net income and consolidated net income per common share for the years ended December 31, 2002, 2003 and 2004 would have been as follows (in millions of Korean won except per share data):



|                         |  |       |         |   |      |       |       |  |       |         |  
|------------------------ |  | ----- | ------- | - | ---- | ----- | ----- |  | ----- | ------- | -
|                         |  | 2002  |         |   | 2003 |       | 2004  | 
|Net income (loss):       |  |       |         |   |      |       |       |  |       |         |  
|As reported              |  | (Won) | (72,991 | ) |      | (Won) | 2,524 |  | (Won) | (31,654 | )
|Pro forma                |  |       | (73,449 | ) |      |       | 1,394 |  |       | (32,735 | )
|Income (loss) per share: |  |       |         |   |      |       |       |  |       |         |  
|As reported              |  | (Won) | (470    | ) |      | (Won) | 16    |  | (Won) | (178    | )
|Pro forma                |  |       | (473    | ) |      |       | 9     |  |       | (184    | )



The assumptions and
variables used by the Company in measuring the fair value of stock options granted in the respective years are as follows:



|                                   |  |         |   |  |                 |   |  |         |  
|---------------------------------- |  | ------- | - |  | --------------- | - |  | ------- | -
|                                   |  | 2002    |   |  | 2003            |   |  | 2004    |  
|Risk free interest rate            |  | 5.80    | % |  | 4.32% ~ 4.75%   |   |  | 4.52    | %
|Expected life                      |  | 4 years |   |  | 4 years         |   |  | 4 years |  
|Volatility factor                  |  | 92.14   | % |  | 81.95% ~ 91.17% |   |  | 84.60   | %
|Dividend yield                     |  | 11.6    | % |  |                | % |  |        | %
|Expected expiration rate of rights |  |        | % |  |                | % |  |        | %



F-33



---

##### Table of Contents

|27. | SUBSEQUENT EVENTS
|--- | -----------------



In accordance with the resolution of the Companys board of directors dated January 19, 2005, on March 3, 2005, the Company sold its land and
building of its research and development center located in Hwasung-city, Gyunggi-do for (Won)24,000 million (book value: (Won)20,680 million) and in accordance with the resolution made on January 24, 2005, on March 11, 2005, the Company sold its
land and building located in Sungnam-city, Gyunggi-do for (Won) 11,550 million (book value: (Won)7,146 million). In addition, on March 24, 2005, the Company also sold 2,726,800 shares of 3,328,840 shares of SoftForum held by the Company,
representing 34% of the total outstanding common stock of SoftForum for a total selling price of (Won)9,010 million ((Won)3,304 per share), to a third party.



The Company also provided additional short-term financial instruments of (Won)5,000 million as collateral for Cyber Banks borrowings during
January and February of 2005 and as a result, collateral provided for Cyber Bank totaled at (Won)23,000 million as of April 1, 2005.



|28. | UNCERTAINTIES IN BUSINESS ENVIRONMENT
|--- | -------------------------------------



The semiconductor industry in Korea is highly competitive and concentrated, with a relatively small number of large semiconductor manufacturers. The
industry is characterized by rapid technological changes and fluctuating product prices. The rapid rate of technological change within the industry will require the Company to continually develop new and improved products and processes to maintain
its competitive position. The Companys future operating results will be affected by a wide variety of factors, including general economic conditions and conditions specific to semiconductor-related industries, timing of new product
introductions (both by the Company and its competitors), competitive pricing, timely and efficient completion of product design and the availability of new manufacturing technologies.



|29. | RECONCILIATION TO ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN THE UNITED STATES OF AMERICA (AS RESTATED)
|--- | --------------------------------------------------------------------------------------------------------



The consolidated financial statements have been prepared in accordance with
Korean GAAP, which differs in certain respects from accounting principles generally accepted in the United States of America (US GAAP). The significant differences are described below. Other differences were determined not to have a
significant effect on either the Company and its subsidiaries consolidated net income or shareholders equity.



| | a. | Restatement of previously reported US GAAP information
| | -- | ------------------------------------------------------



In the course of responding to SEC staff comments, the Company has identified errors in its reconciliation to US GAAP as of and for the year ended
December 31, 2004. The errors relate to the application of Financial Accounting Standards Board (FASB) Interpretation No. 46 (Revised), Consolidation of Variable Interest Entities, an interpretation of ARB No. 51 (FIN
46(R)), Accounting Principles Board (APB) Opinion No. 18 Equity Method of Accounting for Investments (APB Opinion No. 18), FASB Interpretation No. 45 Guarantors Accounting and Disclosure Requirements for
Guarantees, Including Indirect Guarantees of Indebtedness of Others (FIN 45), and Statement of Financial Accounting Standards (SFAS) No. 115 Accounting for Certain Investments in Debt and Equity Securities
(SFAS No. 115). As a result, the US GAAP amounts previously reported as of and for the year ended December 31, 2004 have been restated as follows.



F-34



---

##### Table of Contents

| | (i) | Adjusted impairment losses from Cyber Bank: As stated in Note 13, allowance for loss on collateralized assets was recorded based on the Companys estimate that use of
such collateral to repay debts on behalf of Cyber Bank was probable. The amount of allowance was estimated based on the financial statements of Cyber Bank in accordance with Korean GAAP. Under US GAAP, such collateral is considered to be guarantees
of indebtedness of Cyber Bank, an equity method investee under APB Opinion No. 18. The guarantees of indebtedness were accounted for under FIN 45, which resulted in an increase in liabilities and equity method investments. Due to Cyber Banks
continued losses during the year ended December 31, 2004, the Companys investments in Cyber Bank were reduced to zero. Subsequent to recognizing such losses, the Company adopted FIN46(R) on December 31, 2004, and consolidated Cyber Bank in
accordance with FIN46(R) as of that date. During the process of applying FIN46(R) the Company identified additional losses of (Won)6,111 million that should have been recorded under FIN No. 45 and APB Opinion No. 18. The effects of these corrections
are as follows (in millions of Korean won):
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|                                                                        |  |       |         |  
|----------------------------------------------------------------------- |  | ----- | ------- | -
|                                                                        |  | 2004  |        
|Net loss based on US GAAP as previously reported                        |  | (Won) | (35,044 | )
|Effect of restatement:                                                  |  |       |         |  
|Adjusted impairment losses                                              |  |       | (6,111  | )
|                                                                        |  |       |         |  
|Net loss based on US GAAP as restated                                   |  | (Won) | (41,155 | )
|                                                                        | 
|Net loss per share (basic and diluted) based on US GAAP (in Korean won) |  |       |         |  
|Net loss per share (basic and diluted) as previously reported           |  | (Won) | (197    | )
|Effect of restatement:                                                  |  |       |         |  
|Adjusted impairment losses                                              |  |       | (35     | )
|Net loss per share (basic and diluted) based on US GAAP as restated     |  | (Won) | (232    | )
|                                                                        | 
|                                                                        |  | 2004  |        
|Shareholders equity based on US GAAP as previously reported            |  | (Won) | 116,720 |  
|Effect of restatement:                                                  |  |       |         |  
|Adjusted impairment losses                                              |  |       | (6,111  | )
|                                                                        |  |       |         |  
|Shareholders equity based on US GAAP as restated                       |  | (Won) | 110,609 |  



| | (ii) | Application of FIN 46(R): As mentioned in Note 29(u), the Company previously did not consolidate Cyber Bank as it did not consider the relationship with the family members of
Mr. Moon Soul Chung, the Companys former CEO, who are the largest shareholders of the Company and Cyber Bank. After consideration of the relationship between the Company and Mr. Chungs family, the Company restated its US GAAP
reconciliation to consolidate Cyber Bank at December 31, 2004. Such restatement did not affect the US GAAP net loss or the US GAAP net loss per share for the year ended December 31, 2004 or shareholders equity as of December 31, 2004. The
effects of these corrections are as follows (in millions of Korean won):
| | ---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|                                                         |  |                        |         |                       |       |             |  |       |        
|-------------------------------------------------------- |  | ---------------------- | ------- | --------------------- | ----- | ----------- |  | ----- | -------
|                                                         |  | As previously reported |         | Effect of restatement |       | As restated
|Current assets                                           |  | (Won)                  | 120,090 |                       | (Won) | 24,506      |  | (Won) | 144,596
|Non-current assets                                       |  |                        | 111,941 |                       |       | 1,565       |  |       | 113,506
|                                                         |  |                        |         |                       |       |             |  |       |        
|Total assets                                             |  |                        | 232,031 |                       |       | 26,071      |  |       | 258,102
|                                                         |  |                        |         |                       |       |             |  |       |        
|Current liabilities                                      |  |                        | 77,359  |                       |       | 18,901      |  |       | 96,260 
|                                                         |  |                        |         |                       |       |             |  |       |        
|Long-term liabilities                                    |  |                        | 23,094  |                       |       | 13,281      |  |       | 36,375 
|                                                         |  |                        |         |                       |       |             |  |       |        
|Minority interest in equity of consolidated subsidiaries |  |                        | 14,858  |                       |       |            |  |       | 14,858 
|                                                         |  |                        |         |                       |       |             |  |       |        
|Total liabilities and minority interest                  |  |                        | 115,311 |                       |       | 32,182      |  |       | 147,493
|                                                         |  |                        |         |                       |       |             |  |       |        



| | (iii) | Cash flows activities of trading securities: As discussed in Note 29(w), the Company previously recorded US GAAP cash flows activities related to trading securities under
investing activities. However, upon further consideration of SFAS No. 115, the Company restated its US GAAP cash flows reconciliation to record such activities under operating activities. The effects of these corrections are as follows (in millions
of Korean won):
| | ----- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|                                      |  |                        |         |   |                       |       |         |             |  |       |         |  
|------------------------------------- |  | ---------------------- | ------- | - | --------------------- | ----- | ------- | ----------- |  | ----- | ------- | -
|                                      |  | As previously reported |         |   | Effect of restatement |       |         | As restated | 
|For the year ended December 31, 2002: |  |                        |         |   |                       |       |         |             |  |       |         |  
|Cash flows from operating activities  |  | (Won)                  | (27,451 | ) |                       | (Won) | (7,153  | )           |  | (Won) | (34,604 | )
|Cash flows from investing activities  |  |                        | 32,289  |   |                       |       | 7,153   |             |  |       | 39,442  |  
|                                      |  |                        |        
|For the year ended December 31, 2003: |  |                        |         |   |                       |       |         |             |  |       |         |  
|Cash flows from operating activities  |  |                        | (2,250  | ) |                       |       | 9,833   |             |  |       | 7,583   |  
|Cash flows from investing activities  |  |                        | (5,514  | ) |                       |       | (9,833  | )           |  |       | (15,347 | )
|                                      |  |                        |        
|For the year ended December 31, 2004: |  |                        |         |   |                       |       |         |             |  |       |         |  
|Cash flows from operating activities  |  |                        | (16,469 | ) |                       |       | 21,062  |             |  |       | 5,134   |  
|Cash flows from investing activities  |  |                        | (13,321 | ) |                       |       | (21,062 | )           |  |       | (34,924 | )



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In addition, the Company restated its operating loss reconciliation to include donations, provisions for
guarantees issued, and certain provisions for other doubtful accounts in US GAAP operating loss as discussed in Note 29(w) as such items are determined to be operating activities under US GAAP.



| | b. | Deferred Income Taxes (see Note 2)
| | -- | ----------------------------------



Under US GAAP, deferred tax assets and liabilities are separated into their current and non-current portions based on the classification of related asset
or liability for financial reporting purposes. Under Korean GAAP, deferred tax assets and liabilities are presented on the balance sheet as a single non-current net number.



From effective January 1, 2005, deferred income tax assets and liabilities will be separated into their current and
non-current portions based on the classification of related asset or liability under Korean GAAP.



| | c. | Research and Development Costs (see Note 2)
| | -- | -------------------------------------------



Under Korean GAAP, the Company defers development costs which meet specific conditions such as new product development, technological feasibility,
marketability and usefulness, and expenses research costs and ordinary development costs as incurred. Amortization of deferred development costs and research and ordinary development expenses are classified as manufacturing costs or selling, general
and administrative expenses depending on their nature.



All
research and development costs are charged to expense as incurred under US GAAP, which totaled (Won)9,278 million, (Won)7,653 million and (Won)11,528 million for the years ended December 31, 2002, 2003 and 2004, respectively.



| | d. | Revenue Recognition
| | -- | -------------------



Through 2002, under Korean GAAP, sales were recognized at the time products are delivered to customers. Effective January 1, 2003, Korean GAAP was revised
that product sales are recognized upon final acceptance and passage of legal title. This accounting change has been applied prospectively.



Under US GAAP, product sales are recognized upon final customer acceptance and passage of legal title. Final customer acceptance and passage of legal
title first require the completion of installation and final calibration of the products within the customers production line, which typically occurs between one month and one year after product delivery. Under US GAAP, amounts received on
products where delivery has occurred but final customer acceptance and passage of legal title have not yet occurred are recorded as advance receipts from customers in the current liabilities section of the balance sheets.



| | e. | Marketable Securities and Investment Securities (see Note 2)
| | -- | ------------------------------------------------------------



Through 2002, under Korean GAAP, debt and equity securities were classified into marketable securities and investment securities. Effective January 1,
2003, Korean GAAP was revised to classify investment in securities into three separate categories; trading securities, available-for-sales securities and held-to-maturity securities in a similar manner as Statement of Financial Accounting Standards
No. 115 (SFAS No. 115), Accounting for Certain Investments in Debt and Equity Securities, described below. The valuation method for each category is similar to SFAS No. 115; however, the accounting treatment for impairment of investment
securities and recoveries under Korean GAAP differ from those under U.S. GAAP as described in Note 29-(e).



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Under US GAAP, Statement of Financial Accounting Standards No. 115 (SFAS No. 115) Accounting for
Certain Investments in Debt and Equity Securities, requires that equity securities with readily determinable fair value and all debt securities be classified into three categories and be accounted for as follows:



| |  |  | Debt securities that the enterprise has the positive intent and ability to hold to maturity are classified as held-to-maturity securities and reported at amortized cost.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Debt and equity securities that are bought and held principally for the purpose of selling them in the near term are classified as trading securities and reported at fair value,
with unrealized gains and losses included in income.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Debt and equity securities not classified as either held-to-maturity securities or trading securities are classified as available-for-sale securities and reported at fair value,
with unrealized gains and losses excluded from earnings and reported in other comprehensive income.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Gross proceeds from the sale of trading securities were (Won)187,908 million, (Won)71,071 million and (Won) 21,603 million for the years ended December
31, 2002, 2003 and 2004, respectively. The net realized gains (losses) arising from such sales were (Won)2,580 million, ((Won)1,757) million and ((Won)2,732) million for the years ended December 31, 2002, 2003 and 2004, respectively.



Information with respect to trading securities at December
31, 2003 and 2004 is as follows (in millions of Korean won):



|                      |  |       |        |                        |       |                         |  |       |                         |   |  |       |       
|--------------------- |  | ----- | ------ | ---------------------- | ----- | ----------------------- |  | ----- | ----------------------- | - |  | ----- | ------
|                      |  | Cost  |        | Gross unrealized gains |       | Gross unrealized losses |  |       | Fair value (book value)
|At December 31, 2003: |  |       |        |                        |       |                         |  |       |                         |   |  |       |       
|Equity securities     |  | (Won) | 59     |                        | (Won) |                        |  | (Won) | (3)                     |   |  | (Won) | 56    
|Debt securities       |  |       | 20,063 |                        |       | 1,512                   |  |       | (249                    | ) |  |       | 21,326
|                      |  |       |        |                        |       |                         |  |       |                         |   |  |       |       
|                      |  | (Won) | 20,122 |                        | (Won) | 1,512                   |  | (Won) | (252)                   |   |  | (Won) | 21,382
|                      |  |       |        |                        |       |                         |  |       |                         |   |  |       |       
|At December 31, 2004: |  |       |        |                        |       |                         |  |       |                         |   |  |       |       
|Equity securities     |  | (Won) | 56     |                        | (Won) | 61                      |  | (Won) |                        |   |  | (Won) | 117   
|Debt securities       |  |       | 35     |                        |       |                        |  |       | (4                      | ) |  |       | 31    
|                      |  |       |        |                        |       |                         |  |       |                         |   |  |       |       
|                      |  | (Won) | 91     |                        | (Won) | 61                      |  | (Won) | (4                      | ) |  | (Won) | 148   
|                      |  |       |        |                        |       |                         |  |       |                         |   |  |       |       



Information with respect to
available-for-sale debt securities including the current portion affected by SFAS No. 115 at December 31, 2003 and 2004 is as follows (in millions of Korean won):



|                      |  |                       |       |                        |       |                         |  |                   |   |                         |       |       |  |       |    
|--------------------- |  | --------------------- | ----- | ---------------------- | ----- | ----------------------- |  | ----------------- | - | ----------------------- | ----- | ----- |  | ----- | ---
|                      |  | Cost (amortized cost) |       | Gross unrealized gains |       | Gross unrealized losses |  | Impairment losses |   | Fair Value (book value)
|At December 31, 2003: |  |                       |       |                        |       |                         |  |                   |   |                         |       |       |  |       |    
|Debt securities       |  | (Won)                 | 1,695 |                        | (Won) |                        |  | (Won)             |  |                         | (Won) | 1,250 |  | (Won) | 445
|                      |  |                       |       |                        |       |                         |  |                   |   |                         |       |       |  |       |    
|At December 31, 2004: |  |                       |       |                        |       |                         |  |                   |   |                         |       |       |  |       |    
|Debt securities       |  | (Won)                 | 1,698 |                        | (Won) |                        |  | (Won)             |  |                         | (Won) | 1,250 |  | (Won) | 448
|                      |  |                       |       |                        |       |                         |  |                   |   |                         |       |       |  |       |    



The aggregate
carrying amount of the Companys cost method investments at December 31, 2004 totaled (Won)2,459 million, on a restated basis, and were not evaluated for impairment because (a) the Company did not estimate the fair value of those investments in
accordance with paragraphs 14 and 15 of Statement 107 and (b) the Company did not identify any events or changes in circumstances that may have had a significant adverse effect on the fair value of those investments.



| | f. | Impairment of Investment Securities and Recoveries
| | -- | --------------------------------------------------



Under U.S. GAAP, if the decline in fair value is judged to be other than temporary, the cost basis of the individual securities is written down to fair
value as a new cost basis and the amount of the write-down is included in current operations. Under Korean GAAP, if the collectible value from the securities is less than acquisition costs with objective evidence of impairment such as bankruptcy of
investees, an impairment loss is recognized.



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Under Korean GAAP, the subsequent recoveries of impaired available-for-sale securities, held-to-maturity
debt securities and equity securities without readily determinable fair value result in an increase of their carrying amount up to the original acquisition cost, and the recovery gains are reported in current operations up to the previously
recognized impairment loss as reversal of loss on impairment of investment securities. Under U.S. GAAP, the subsequent increase in carrying amount of the impaired and written down held-to-maturity debt securities and equity securities without
readily determinable fair value is not allowed. The subsequent increase in fair value of available-for-sale securities is reported in other comprehensive income.



| | g. | Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed of
| | -- | -----------------------------------------------------------------------



US GAAP (SFAS No. 144) requires that long-lived assets and certain identifiable intangibles to be held and used by an entity, be reviewed for impairment
whenever events or changes in circumstance indicate that the carrying amount of an asset may not be recoverable. If the sum of the expected future cash flows (undiscounted and without interest charges) is less than the carrying amount of the asset,
an impairment loss is recognized. Otherwise, an impairment loss is not recognized. Measurement of an impairment loss for long-lived assets and identifiable intangibles that an entity expects to hold and use is based on the fair value of the asset.



SFAS No. 144 also requires that long-lived assets and certain
identifiable intangibles to be disposed of by sale be reported at the lower of the carrying amount or fair value, less cost to sell. Under US GAAP after an asset write- down, representing the new cost basis, subsequent recoveries in value may not be
recognized, whereas under Korean GAAP, such recoveries are recognized as gains to the extent of impairment losses previously recognized.



The Company has made significant additions to its facilities in recent years. Because of a decline in sales, the Company has reviewed its long-lived
assets for potential impairment in accordance with the provisions of SFAS No. 144 and determined the carrying values are appropriately recorded.



In addition, during March 2005, the Company sold certain of its investments in equity and property (land and buildings) to third parties at the value
greater than the corresponding carrying amount under both Korean GAAP and US GAAP. Accordingly, no valuation losses for the assets to be disposed of were recorded as of December 31, 2004.



| | h. | Costs for Product Warranties (see Note 2)
| | -- | -----------------------------------------



Through 2003, under the previous Korean GAAP, product warranty costs were expensed as incurred. Effective January 1, 2004, estimated warranty costs are
accrued at the time of sale based on historical experience and expected future cost in line with US GAAP.



Changes in reserve for product warranties for the years ended December 31, 2003 and 2004 are as follows (in millions of Korean won):



|                                                |  |              |   |  |                  |  
|----------------------------------------------- |  | ------------ | - |  | ---------------- | -
|                                                |  | 2003         |   |  | As restated 2004 |  
|Beginning balance                               |  | (Won)    607 |   |  | (Won)     949    |  
|Provided                                        |  | 1,899        |   |  | 1,986            |  
|Assumed in connection with adoption of FIN46(R) |  |             |   |  | 1,548            |  
|Incurred                                        |  | (86          | ) |  | (919             | )
|Adjustment                                      |  | (1,471       | ) |  | (1,023           | )
|                                                |  |              |   |  |                  |  
|Ending balance                                  |  | (Won)    949 |   |  | (Won)   2,541    |  
|                                                |  |              |   |  |                  |  



| | i. | Comprehensive Income
| | -- | --------------------



Under Korean GAAP, there is no requirement to present comprehensive income. Under US GAAP, comprehensive income and its components must be presented in
the financial statements. Comprehensive income includes all changes in shareholders equity during a period except those resulting from investments by, or distributions to, owners, including certain items not included in the current results of
operations. There were no such changes in the Companys shareholders equity in all periods presented.



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| | j. | Loss from Valuation of Inventories
| | -- | ----------------------------------



Through 2003, under the previous Korean GAAP, loss from valuation of inventories was classified as other expense. Effective January 1, 2004, Korean GAAP
was revised that such loss from valuation of inventories is classified as cost of sales in line with the US GAAP.



| | k. | Applying the Equity Method of Accounting
| | -- | ----------------------------------------



Under US GAAP, when an investor holds other types of interest (for example, loans and preferred stock) in addition to common stock of an investee
accounted for using the equity method of accounting and the investors share of losses of the investee exceeds the carrying amount of the common stock investment, additional equity method losses are recognized by the investor. Under Korean
GAAP, no such additional losses are required to be recognized by the investor. If the investee subsequently reports net income or issues its common stock, the investor shall resume applying the equity method and recognize its share of the net loss
not recognized during the period the equity method was suspended as an adjustment to retained earnings from prior periods, under Korean GAAP.



| | l. | Sales of Stock and Purchase by Subsidiary and Affiliate and Purchase of Non-controlling Equity Interest
| | -- | -------------------------------------------------------------------------------------------------------



Under US GAAP, a parent company or investor may elect to reflect the accounting effect of sales of stock by a subsidiary or
affiliate which is accounted for by the equity method, in either the income statement or as an equity transaction depending on certain criteria being met. Such election must be applied consistently and on a prospective basis for all subsidiary
and/or affiliate stock transactions. The Company elected income statement recognition in accounting for the sales of stock by its subsidiary and affiliate. Under Korean GAAP, a parent company or investor is required to account for sales of stock by
a subsidiary or affiliate which is accounted for by the equity method, as an equity transaction included in capital surplus.



Under Korean GAAP, a purchase by a subsidiary of the noncontrolling equity interest in the subsidiary is presented as a capital adjustment in the
consolidated financial statements in proportion to the parents equity interest, while under US GAAP such purchase is accounted for using the purchase method in the consolidated financial statements.



| | m. | Accounting for Employee Stock Option Compensation Plan
| | -- | ------------------------------------------------------



For Korean and U.S. GAAP purposes, the Company charges to expense the value of stock options granted. Korean GAAP permits all entities to exclude the
volatility factor in estimating the value of their stock options granted prior to December 31, 2003, which results in measurement at minimum value. Under U.S. GAAP, public entities are not permitted to exclude the volatility factor in estimating the
value of their stock options. In addition, under US GAAP, a modification of the terms of a stock-based compensation award is accounted for based on a comparison of the fair value of the modified option at the date it is granted and the value at that
date of the old option that is repurchased (immediately before its terms are modified) determined based on the shorter of (a) its remaining initially estimated expected life or (b) the expected life of the modified option. If the fair value of the
modified option exceeds the value of the old option repurchased, the entity recognizes additional compensation cost for the difference. Under Korean GAAP, however, no such practice has evolved.



| | n. | Depreciation
| | -- | ------------



As allowed under the previous Korean GAAP, six months depreciation expense was recorded for assets placed in service in the second half of the year
in accordance with Korean tax law. Effective from 2002, depreciation expense commences in the month the related asset is placed in service. Under US GAAP, depreciation expense commences in the month the related asset is placed in service.



| | o. | Gain on Disposal of the Investments in Common Stock of Subsidiary
| | -- | -----------------------------------------------------------------



Under Korean GAAP, gain on disposal of investments in common stock of subsidiary incurred from a transaction between the Company and its subsidiarys
employees, which should be included in capital surplus, is measured based on the actual selling price and the carrying value of such investment. Under US GAAP, however, if the actual selling price differs from the fair value of the investment at the
transaction date, such gain should be measured based on the fair value of the investment and the difference between the fair value and the actual selling price should be recorded as an employee benefits expense.



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##### Table of Contents

| | p. | Minority Interest in Equity of Consolidated Subsidiaries
| | -- | --------------------------------------------------------



Under Korean GAAP, minority interest in equity of consolidated subsidiaries is presented to be included in shareholders equity. Under US GAAP,
minority interest is presented as a separate item from shareholders equity.



| | q. | Financing to Purchase Treasury Shares
| | -- | -------------------------------------



Under Korean GAAP, loans provided to the companys employee to finance purchase of the companys shares are presented as receivables of the
company and payment guarantees provided by the company to a lender who gave loans to the companys employee association for the same purpose are presented as a contingency. Under US GAAP, such loans are presented as a deduction of
stockholders equity of the company and such payment guarantees are presented as liabilities of the company with a corresponding deduction of stockholders equity.



| | r. | Consideration for conversion right
| | -- | ----------------------------------



Under Korean GAAP, the proceeds from issuance of convertible bonds are allocated between the conversion rights and the debt issued; the portion allocable
to the conversion rights is accounted for as capital surplus, with corresponding conversion right adjustment being deducted from related bonds. Such conversion right adjustment is amortized into interest expenses over the period of convertible
bonds. Under US GAAP, convertible bonds are analyzed to evaluate whether conversion option are bifurcated and valued. If an embedded conversion option in convertible bond is net cash settled upon the occurrence of an event which is outside of an
entitys control, it generally requires bifurcation under US GAAP.



| | s. | Consolidated subsidiary
| | -- | -----------------------



Under Korean GAAP, when a parent company is expected to lose control over a consolidated subsidiary within one year from the balance sheet date, the
subsidiary should not be included in the consolidated financial statements. Under US GAAP, although a parent company has a temporary control over a consolidated subsidiary, the subsidiary should be included in the consolidation.



| | t. | Income (Loss) per common share
| | -- | ------------------------------



Under Korean GAAP, in computing earnings per share (EPS), when common stock is issued at a price less than fair value, the number of shares equivalent to
the discount is treated in a manner similar to stock split or stock dividend, whereby such number of shares is retroactively applied as if they existed as of the beginning of the reporting period. Under US GAAP, however, such retroactive treatment
is only allowed for nominal issuances of common stock, which are interpreted to accompany very deep discount and to be rare in occurrence.



| | u. | New Accounting Pronouncements
| | -- | -----------------------------



On January 17, 2003, the Financial Accounting Standards Boards (FASB) issued Interpretation No. 46 (FIN 46) - Consolidation
of Variable Interest Entities, which addresses consolidation by business enterprises where equity investors do not bear the residual economic risks and rewards. These entities have been commonly referred to as special purpose entities
(SPEs). The underlying principle behind FIN 46 is that if a business enterprise has the majority financial interest in an entity, which is defined in the guidance as a variable interest entity, the assets, liabilities and results
of the activities of the variable interest entity should be included in the consolidated financial statements with those of the business enterprise. FIN 46 also explains how to identify variable interest entities and how an enterprise should assess
its interest in an entity when deciding whether or not it will consolidate that entity. In December 2003, the FASB released a revision of FIN No. 46 (FIN No. 46R) in which the calculation of expected losses and expected residual returns
have been altered to reduce the impact of decision maker and guarantor fees. In addition, FIN No. 46R changes the definition of a variable interest. The Company as a foreign private issuer adopted FIN 46(R)on December 31, 2004. The Company
previously determined that Cyber Bank, an equity method investee and a manufacturer of telecommunication appliance, was a VIE and that the Company held variable interests in Cyber Bank, but was not a primary beneficiary. Therefore, the accounts of
Cyber Bank were not consolidated under US GAAP. In the course of preparing responses to SEC comments, the Company noted that the previous analysis did not consolidate Cyber Bank as it did not consider the relationship with the family members of Mr.
Moon Soul Chung, the Companys former CEO, who are the largest shareholders of the Company and Cyber Bank. After consideration of such relationship, the Company determined that the aggregate variable interests in Cyber Bank held by the Company
and its related parties (the Related Party Group) will absorb a majority of Cyber Banks expected losses. In addition, as the Company has the largest exposure to the expected losses of Cyber Bank within the Related Party Group, the
Company determined that it was Cyber Banks most closely associated party and primary beneficiary.



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##### Table of Contents

As a result, the Company restated its US GAAP reconciliation to consolidate Cyber Bank at December 31,
2004. Such restatement did not affect the US GAAP net loss or the US GAAP net loss per share for the year ended December 31, 2004 or shareholders equity as of December 31, 2004.



In November 2004, the FASB issued SFAS No. 151, Inventory Costs, an Amendment of ARB No. 43, Chapter 4. SFAS No.
151 clarifies the accounting for abnormal amounts of idle facility expense, freight, handling costs, and wasted material. The Statement is effective for inventory costs incurred during fiscal year beginning after June 15, 2005. Management does not
expect this statement will have a material impact on the Companys consolidated financial position or results of operations.



In December 2004, the FASB issued Statement of Financial Accounting Standards (SFAS) No.123 (revised 2004), Share-Based Payments
(SFAS 123R). This statement eliminates the option to apply the intrinsic value measurement provisions of Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees to stock compensation awards
issued to employees. Rather, SFAS 123R requires companies to measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award. That cost will be recognized over the period
during which an employee is required to provide services in exchange for the award (usually the vesting period). SFAS 123R applies to all awards granted after the required effective date and to awards modified, repurchased, or cancelled after that
date. SFAS 123R will be effective from January 1, 2006. Management does not expect that adoption of this statement will have a material impact on the Companys consolidated financial position or results of operations.



In December 2004, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No.153, Exchanges of Nonmonetary Assets - an amendment of Accounting Principles Board (APB) Opinion No. 29 (SFAS 153), which amends APB Opinion No. 29, Accounting for
Nonmonetary Transactions to eliminate the exception for nonmonetary exchanges of similar productive assets and replaces it with a general exception for exchanges of nonmonetary assets that do not have commercial substance. SFAS 153 is
effective for nonmonetary assets exchanges occurring in fiscal periods beginning after June 15, 2005. Management does not anticipate that the adoption of this statement will have a material effect on the Companys consolidated financial
position or results of operations.



| | v. | Summary Financial Information
| | -- | -----------------------------



Sales, cost of sales, gross profit (loss), operating expenses, operating loss and net loss under US GAAP for the year ended December 31, 2002, 2003 and
2004 are as follows (in millions of Korean won):



|                                |  |       |         |   |      |       |         |      |  |       |         |  
|------------------------------- |  | ----- | ------- | - | ---- | ----- | ------- | ---- |  | ----- | ------- | -
|                                |  | 2002  |         |   | 2003 |       |         | 2004 | 
|Sales                           |  | (Won) | 69,715  |   |      | (Won) | 96,039  |      |  | (Won) | 83,697  |  
|Cost of sales                   |  |       | 76,786  |   |      |       | 82,172  |      |  |       | 60,772  |  
|Gross profit (loss)             |  |       | (7,071  | ) |      |       | 13,867  |      |  |       | 22,975  |  
|Operating expenses, as restated |  |       | 44,092  |   |      |       | 37,231  |      |  |       | 42,720  |  
|Operating loss, as restated (*) |  |       | (51,163 | ) |      |       | (23,363 | )    |  |       | (19,745 | )
|Net loss, as restated (*)       |  |       | (62,607 | ) |      |       | (24,278 | )    |  |       | (41,155 | )

---

|(*) | See reconciliation of amounts from Korean GAAP to US GAAP below.
|--- | ----------------------------------------------------------------



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##### Table of Contents

|w. | Reconciliation of Korean GAAP to US GAAP
|-- | ----------------------------------------



The following table reconciles net income (loss) and operating loss for the years ended December 31, 2002, 2003 and 2004 and shareholders equity as
of December 31, 2002, 2003 and 2004 under Korean GAAP, as reported in the consolidated financial statements, to the net loss, operating loss and shareholders equity amounts determined under US GAAP, giving effect to adjustments for the
differences listed above (in millions of Korean won, except per share amounts):



|                                                                                                                       |  |       |         |   |      |       |         |                  |  |       |         |  
|---------------------------------------------------------------------------------------------------------------------- |  | ----- | ------- | - | ---- | ----- | ------- | ---------------- |  | ----- | ------- | -
|                                                                                                                       |  | 2002  |         |   | 2003 |       |         | 2004 As restated | 
|Net income (loss) based on Korean GAAP                                                                                 |  | (Won) | (72,991 | ) |      | (Won) | 2,524   |                  |  | (Won) | (31,654 | )
|Adjustments:                                                                                                           |  |       |         |   |      |       |         |                  |  |       |         |  
|Revenue recognition timing difference related to deliveries awaiting final customer acceptance                         |  |       | (51     | ) |      |       | (633    | )                |  |       |        |  
|Additional US GAAP assumed losses from Cyber Bank                                                                      |  |       |        |   |      |       |        |                  |  |       | (6,111  | )
|Warranty cost accrual                                                                                                  |  |       | 67      |   |      |       | 342     |                  |  |       | 950     |  
|Development costs recorded as intangible assets, net                                                                   |  |       | (1,755  | ) |      |       | (2,135  | )                |  |       | (6,273  | )
|Research and development costs charged to ending inventory cost                                                        |  |       | 3,006   |   |      |       | 237     |                  |  |       | (929    | )
|Write-off of impaired deferred development costs under Korean GAAP                                                     |  |       | 11,337  |   |      |       | 1,521   |                  |  |       | 4,165   |  
|Sales of stock by subsidiary and affiliate                                                                             |  |       |        |   |      |       | (228    | )                |  |       |        |  
|Adjustment of capital surplus upon sale of stock                                                                       |  |       |        |   |      |       | (24,628 | )                |  |       |        |  
|Loss relating to additional stock transactions by consolidated subsidiaries                                            |  |       | (1,616  | ) |      |       |        |                  |  |       |        |  
|Employee benefits related to consolidated subsidiarys treasury stock purchased from employee exceeding fair value     |  |       | (359    | ) |      |       | 115     |                  |  |       |        |  
|Compensation cost related to stock options                                                                             |  |       | (611    | ) |      |       | (1,393  | )                |  |       | (1,177  | )
|Reversal of loss from impairment of investment securities                                                              |  |       | (11     | ) |      |       |        |                  |  |       |        |  
|Losses in excess of minority interest                                                                                  |  |       |        |   |      |       |        |                  |  |       | (126    | )
|Reversal of losses in excess of minority interest                                                                      |  |       | 377     |   |      |       |        |                  |  |       |        |  
|                                                                                                                       |  |       |         |   |      |       |         |                  |  |       |         |  
|Net loss based on US GAAP                                                                                              |  | (Won) | (62,607 | ) |      | (Won) | (24,278 | )                |  | (Won) | (41,155 | )
|                                                                                                                       |  |       |         |   |      |       |         |                  |  |       |         |  
|Net loss per share (basic and diluted) based on US GAAP (In Korean won)                                                |  | (Won) | (426    | ) |      | (Won) | (161    | )                |  | (Won) | (232    | )
|                                                                                                                       |  |       |         |   |      |       |         |                  |  |       |         |  
|                                                                                                                       |  |       |        
|                                                                                                                       |  | 2002  |         |   | 2003 |       |         | 2004             | 
|Operating loss based on Korean GAAP                                                                                    |  | (Won) | (30,084 | ) |      | (Won) | (5,623  | )                |  | (Won) | (7,421  | )
|Adjustments:                                                                                                           |  |       |         |   |      |       |         |                  |  |       |         |  
|Difference in consolidation scope                                                                                      |  |       |        |   |      |       |        |                  |  |       | (4,928  | )
|Revenue recognition timing difference related to deliveries awaiting final customer acceptance                         |  |       | (51     | ) |      |       | (633    | )                |  |       |        |  
|Warranty cost accrual                                                                                                  |  |       | 67      |   |      |       | 342     |                  |  |       | 950     |  
|Development costs recorded as intangible assets, net                                                                   |  |       | (1,755  | ) |      |       | (2,135  | )                |  |       | (5,138  | )
|Research and development costs charged to ending inventory cost                                                        |  |       | 3,006   |   |      |       | 237     |                  |  |       | (929    | )
|Employee benefits related to consolidated subsidiarys treasury stocks purchased from employee exceeding fair value    |  |       | (359    | ) |      |       | 115     |                  |  |       |        |  
|Compensation cost related to stock options                                                                             |  |       | (611    | ) |      |       | (1,393  | )                |  |       | (1,177  | )
|Loss from valuation of inventories                                                                                     |  |       | (20,408 | ) |      |       | (12,428 | )                |  |       |        |  
|Restatement to include donations, provisions for guarantees issued, and certain provisions for other doubtful accounts |  |       | (968    | ) |      |       | (1,845  | )                |  |       | (1,102  | )
|                                                                                                                       |  |       |         |   |      |       |         |                  |  |       |         |  
|Operating loss based on US GAAP, as restated                                                                           |  | (Won) | (51,163 | ) |      | (Won) | (23,363 | )                |  | (Won) | (19,745 | )
|                                                                                                                       |  |       |         |   |      |       |         |                  |  |       |         |  
|                                                                                                                       |  |       |        
|                                                                                                                       |  | 2002  |         |   | 2003 |       |         | 2004 As restated | 
|Shareholders equity based on Korean GAAP                                                                              |  | (Won) | 174,886 |   |      | (Won) | 176,592 |                  |  | (Won) | 126,600 |  
|Adjustments:                                                                                                           |  |       |         |   |      |       |         |                  |  |       |         |  
|Difference in consolidation scope                                                                                      |  |       |        |   |      |       |        |                  |  |       | 15,405  |  
|Additional US GAAP assumed losses from Cyber Bank                                                                      |  |       |        |   |      |       |        |                  |  |       | (6,111  | )
|Revenue recognition timing difference related to deliveries awaiting final customer acceptance                         |  |       | 98      |   |      |       |        |                  |  |       |        |  
|Warranty cost accrual                                                                                                  |  |       | (756    | ) |      |       | (949    | )                |  |       |        |  
|Development costs recorded to intangible assets                                                                        |  |       | (4,054  | ) |      |       | (4,668  | )                |  |       | (6,775  | )
|Research and development costs charged to ending inventory cost                                                        |  |       | (419    | ) |      |       | (182    | )                |  |       | (1,111  | )
|Reversal of loss from impairment of investment securities                                                              |  |       | (11     | ) |      |       | (11     | )                |  |       | (11     | )
|Minority interest in equity of consolidated subsidiaries                                                               |  |       | (21,385 | ) |      |       | (19,938 | )                |  |       | (16,328 | )
|Other adjustments due to loans for purchasing treasury stock and consolidated subsidiaries stock transactions         |  |       | (108    | ) |      |       | (1,935  | )                |  |       | (1,060  | )
|                                                                                                                       |  |       |         |   |      |       |         |                  |  |       |         |  
|Shareholders equity based on US GAAP                                                                                  |  | (Won) | 148,251 |   |      | (Won) | 148,909 |                  |  | (Won) | 110,609 |  
|                                                                                                                       |  |       |         |   |      |       |         |                  |  |       |         |  



F-42



---

##### Table of Contents

Income tax amounts under Korean GAAP and US GAAP are the same for the years ended December 31, 2002,
2003, and 2004, as the Company provided a full valuation allowance for deferred tax assets for such periods.



Changes in shareholders equity based on US GAAP for the years ended December 31, 2002, 2003 and 2004 are as follows (in millions of Korean won):



|                                                                                                               |  |       |         |   |      |       |         |                  |  |       |         |  
|-------------------------------------------------------------------------------------------------------------- |  | ----- | ------- | - | ---- | ----- | ------- | ---------------- |  | ----- | ------- | -
|                                                                                                               |  | 2002  |         |   | 2003 |       |         | 2004 As restated | 
|Balance, beginning of the period                                                                               |  | (Won) | 209,519 |   |      | (Won) | 148,251 |                  |  | (Won) | 148,909 |  
|Net loss for the period                                                                                        |  |       | (62,607 | ) |      |       | (24,278 | )                |  |       | (41,155 | )
|Issuance of common stock                                                                                       |  |       |        |   |      |       | 25,104  |                  |  |       |        |  
|Gain (loss) on disposal of treasury stock                                                                      |  |       | 35      |   |      |       | (113    | )                |  |       |        |  
|Stock options                                                                                                  |  |       | 770     |   |      |       | 1,749   |                  |  |       | 1,980   |  
|Treasury stock transactions                                                                                    |  |       | 29      |   |      |       | 470     |                  |  |       |        |  
|Increase (decrease) of gain on valuation of investment securities                                              |  |       | 332     |   |      |       | (332    | )                |  |       |        |  
|Other adjustments due to loans for purchasing treasury stock and consolidated subsidiaries stock transactions |  |       | 5       |   |      |       | (1,935  | )                |  |       | 875     |  
|Other                                                                                                          |  |       | 168     |   |      |       | (7      | )                |  |       |        |  
|                                                                                                               |  |       |         |   |      |       |         |                  |  |       |         |  
|Balance, end of the period                                                                                     |  | (Won) | 148,251 |   |      | (Won) | 148,909 |                  |  | (Won) | 110,609 |  
|                                                                                                               |  |       |         |   |      |       |         |                  |  |       |         |  



A reconciliation of
the significant balance sheet accounts, except for the shareholders equity items listed above, to the amounts determined under US GAAP as of December 31, 2003 and 2004, is as follows (in millions of Korean won):



|                                                                      |  |       |         |   |                  |       |         |  
|--------------------------------------------------------------------- |  | ----- | ------- | - | ---------------- | ----- | ------- | -
|                                                                      |  | 2003  |         |   | 2004 As restated |      
|Current assets:                                                       |  |       |         |   |                  |       |         |  
|Based on Korean GAAP                                                  |  | (Won) | 114,894 |   |                  | (Won) | 107,930 |  
|US GAAP adjustments, as restated                                      |  |       |         |   |                  |       |         |  
|- difference in consolidation scope                                   |  |       |        |   |                  |       | 37,777  |  
|- inventories                                                         |  |       | (182    | ) |                  |       | (1,111  | )
|                                                                      |  |       |         |   |                  |       |         |  
|Based on US GAAP, as restated                                         |  |       | 114,712 |   |                  |       | 144,596 |  
|                                                                      |  |       |         |   |                  |       |         |  
|Non-current assets:                                                   |  |       |         |   |                  |       |         |  
|Based on Korean GAAP                                                  |  |       | 116,822 |   |                  |       | 110,172 |  
|US GAAP adjustments, as restated                                      |  |       |         |   |                  |       |         |  
|- difference in consolidation scope                                   |  |       |        |   |                  |       | 12,527  |  
|- deferred development costs                                          |  |       | (4,668  | ) |                  |       | (6,775  | )
|- investment securities                                               |  |       | (11     | ) |                  |       | (11     | )
|- long-term loans                                                     |  |       | (2,979  | ) |                  |       | (2,407  | )
|                                                                      |  |       |         |   |                  |       |         |  
|Based on US GAAP, as restated                                         |  |       | 109,164 |   |                  |       | 113,506 |  
|                                                                      |  |       |         |   |                  |       |         |  
|Total assets based on US GAAP, as restated                            |  | (Won) | 223,876 |   |                  | (Won) | 258,102 |  
|                                                                      |  |       |         |   |                  |       |         |  
|                                                                      |  |      
|                                                                      |  | 2003  |         |   | 2004 As restated |      
|Current liabilities:                                                  |  |       |         |   |                  |       |         |  
|Based on Korean GAAP                                                  |  | (Won) | 36,349  |   |                  | (Won) | 72,782  |  
|US GAAP adjustments, as restated                                      |  |       |         |   |                  |       |         |  
|- difference in consolidation scope                                   |  |       |        |   |                  |       | 23,355  |  
|- provision for warranty cost                                         |  |       | 949     |   |                  |       |        |  
|- provision for guarantee issued                                      |  |       | 1,056   |   |                  |       | 123     |  
|                                                                      |  |       |         |   |                  |       |         |  
|Based on US GAAP, as restated                                         |  |       | 38,354  |   |                  |       | 96,260  |  
|                                                                      |  |       |         |   |                  |       |         |  
|Long-term liabilities:                                                |  |       |         |   |                  |       |         |  
|Based on Korean GAAP                                                  |  |       | 18,776  |   |                  |       | 18,720  |  
|US GAAP adjustments, as restated                                      |  |       |         |   |                  |       |         |  
|- difference in consolidation scope                                   |  |       |        |   |                  |       | 17,655  |  
|                                                                      |  |       |         |   |                  |       |         |  
|Based on US GAAP, as restated                                         |  |       | 18,776  |   |                  |       | 36,375  |  
|                                                                      |  |       |         |   |                  |       |         |  
|Minority interest in equity of consolidated subsidiaries:             |  |       |         |   |                  |       |         |  
|Based on Korean GAAP                                                  |  |       |        |   |                  |       |        |  
|US GAAP adjustments, as restated                                      |  |       | 17,837  |   |                  |       | 14,858  |  
|                                                                      |  |       |         |   |                  |       |         |  
|Based on US GAAP, as restated                                         |  |       | 17,837  |   |                  |       | 14,858  |  
|                                                                      |  |       |         |   |                  |       |         |  
|Total liabilities and minority interest based on US GAAP, as restated |  | (Won) | 74,967  |   |                  | (Won) | 147,493 |  
|                                                                      |  |       |         |   |                  |       |         |  



F-43



---

##### Table of Contents

The following table reconciles cash flows from operating, investing and financing activities for the
years ended December 31, 2002, 2003 and 2004 under Korean GAAP, as reported in the consolidated financial statements, to cash flows from operating, investing and financing activities for the years ended December 31, 2002, 2003 and 2004 under US
GAAP, giving effect to adjustments for the differences listed in this Note (in millions of Korean won):



|                                                          |  |                  |         |   |                  |       |         |                  |  |       |         |  
|--------------------------------------------------------- |  | ---------------- | ------- | - | ---------------- | ----- | ------- | ---------------- |  | ----- | ------- | -
|                                                          |  | 2002 As restated |         |   | 2003 As restated |       |         | 2004 As restated | 
|Cash flows from operating activities based on Korean GAAP |  | (Won)            | (24,340 | ) |                  | (Won) | 519     |                  |  | (Won) | (8,705  | )
|Adjustments:                                              |  |                  |         |   |                  |       |         |                  |  |       |         |  
|Difference in consolidation scope                         |  |                  |        |   |                  |       |        |                  |  |       | (936    | )
|Reclassification of payments for research and development |  |                  | (2,752  | ) |                  |       | (2,884  | )                |  |       | (6,287  | )
|Reclassification of other capital adjustments             |  |                  | (359    | ) |                  |       | 115     |                  |  |       |        |  
|Reclassification of trading securities                    |  |                  | (7,153  | ) |                  |       | 9,833   |                  |  |       | 21,062  |  
|                                                          |  |                  |         |   |                  |       |         |                  |  |       |         |  
|Cash flows from operating activities based on US GAAP     |  | (Won)            | (34,604 | ) |                  | (Won) | 7,583   |                  |  | (Won) | 5,134   |  
|                                                          |  |                  |         |   |                  |       |         |                  |  |       |         |  
|Cash flows from investing activities based on Korean GAAP |  | (Won)            | 29,682  |   |                  | (Won) | (10,175 | )                |  | (Won) | (20,759 | )
|Adjustments:                                              |  |                  |         |   |                  |       |         |                  |  |       |         |  
|Difference in consolidation scope                         |  |                  |        |   |                  |       |        |                  |  |       | 1,182   |  
|Reclassification of payments for research and development |  |                  | 2,752   |   |                  |       | 2,884   |                  |  |       | 6,287   |  
|Long-term loans to employee                               |  |                  | (145    | ) |                  |       | 1,777   |                  |  |       | (572    | )
|Reclassification of trading securities                    |  |                  | 7,153   |   |                  |       | (9,833  | )                |  |       | (21,062 | )
|                                                          |  |                  |         |   |                  |       |         |                  |  |       |         |  
|Cash flows from investing activities based on US GAAP     |  | (Won)            | 39,442  |   |                  | (Won) | (15,347 | )                |  | (Won) | (34,924 | )
|                                                          |  |                  |         |   |                  |       |         |                  |  |       |         |  
|Cash flows from financing activities based on Korean GAAP |  | (Won)            | (13,375 | ) |                  | (Won) | 12,217  |                  |  | (Won) | 25,235  |  
|Adjustments:                                              |  |                  |         |   |                  |       |         |                  |  |       |         |  
|Difference in consolidation scope                         |  |                  |        |   |                  |       |        |                  |  |       | 216     |  
|Reclassification of other capital adjustments             |  |                  | 504     |   |                  |       | (1,892  | )                |  |       | 572     |  
|                                                          |  |                  |         |   |                  |       |         |                  |  |       |         |  
|Cash flows from financing activities based on US GAAP     |  | (Won)            | (12,871 | ) |                  | (Won) | 10,325  |                  |  | (Won) | 26,023  |  
|                                                          |  |                  |         |   |                  |       |         |                  |  |       |         |  



The Company
previously recorded US GAAP cash flows activities related to trading securities under investing activities. However, upon further consideration of SFAS No. 115, the Company restated its US GAAP cash flows reconciliation to record such activities
under operating activities.



F-44



---

##### Table of Contents

30. ADDITIONAL DISCLOSURES REQUIRED BY US GAAP (AS RESTATED)



|a. | Income Taxes
|-- | ------------



Income tax expense under US GAAP for the years ended December 31, 2002, 2003 and 2004 is as follows (in millions of Korean won):



|                   |  |           |  |          |  |        
|------------------ |  | --------- |  | -------- |  | -------
|                   |  | 2002      |  | 2003     |  | 2004   
|Currently payable  |  | (Won) 277 |  | (Won) 18 |  | (Won) 
|Deferred           |  |          |  |         |  |       
|                   |  |           |  |          |  |        
|Income tax expense |  | (Won) 277 |  | (Won) 18 |  | (Won) 
|                   |  |           |  |          |  |        



The difference between
income tax expense computed using the statutory income tax rate and the recorded income tax expense for the years ended December 31, 2002, 2003 and 2004 is attributable to the following (in millions of Korean won):



|                                                                                 |  |              |   |  |             |   |  |                  |  
|-------------------------------------------------------------------------------- |  | ------------ | - |  | ----------- | - |  | ---------------- | -
|                                                                                 |  | 2002         |   |  | 2003        |   |  | 2004 As restated |  
|Income tax benefit at statutory Korean corporate income tax rates of 27%         |  | (Won)(16,876 | ) |  | (Won)(6,989 | ) |  | (Won)(12,087     | )
|Resident surtax                                                                  |  | (1,688       | ) |  | (699        | ) |  | (1,209           | )
|Tax credit for technology and human resource development and capital investments |  | (242         | ) |  |            |   |  |                 |  
|Special tax credit for small and medium-sized venture companies                  |  | (293         | ) |  |            |   |  |                 |  
|Tax effect of permanent differences                                              |  | 472          |   |  | 729         |   |  | 142              |  
|Change in valuation allowance                                                    |  | 18,953       |   |  | 3,178       |   |  | 15,022           |  
|Change in income tax rate (Note a)                                               |  |             |   |  | 3,518       |   |  |                 |  
|Other                                                                            |  | (49          | ) |  | 281         |   |  | (1,868           | )
|                                                                                 |  |              |   |  |             |   |  |                  |  
|Recorded income tax expense                                                      |  | (Won) 277    |   |  | (Won) 18    |   |  | (Won)           |  
|                                                                                 |  |              |   |  |             |   |  |                  |  

---

|         |  |                                                                                                                                                                       
|-------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(note a) |  | Pursuant to a revision in the Korean Corporate Income Tax Law, statutory corporate income tax rate will be changed from current 27% to 25%, effective January 1, 2005.



The tax effects of
each type of temporary difference, net operating loss carryforwards and the tax credit carryforwards that gave rise to a significant portion of the deferred tax assets and liabilities at December 31, 2002, 2003 and 2004, computed under US GAAP, and
a description of the financial statement items that created these differences are as follows (in millions of Korean won):



|                                                                                               |  |          |   |  |          |   |  |                  |  
|---------------------------------------------------------------------------------------------- |  | -------- | - |  | -------- | - |  | ---------------- | -
|                                                                                               |  | 2002     |   |  | 2003     |   |  | 2004 As restated |  
|Current:                                                                                       |  |          |   |  |          |   |  |                  |  
|Accrued interest income                                                                        |  | (Won)(56 | ) |  | (Won)(41 | ) |  | (Won)(148        | )
|Gain on valuation of trading securities                                                        |  | 887      |   |  | (56      | ) |  | 60               |  
|Loss from valuation of inventories                                                             |  | 5,742    |   |  | 3,457    |   |  | 323              |  
|Revenue recognition timing difference related to deliveries awaiting final customer acceptance |  | (29      | ) |  |         |   |  |                 |  
|Warranty cost accrual                                                                          |  | 225      |   |  | 282      |   |  |                 |  
|Other                                                                                          |  |         |   |  | 54       |   |  | 306              |  
|                                                                                               |  |          |   |  |          |   |  |                  |  
|                                                                                               |  | 6,769    |   |  | 3,696    |   |  | 541              |  
|                                                                                               |  |          |   |  |          |   |  |                  |  
|Non-Current:                                                                                   |  |          |   |  |          |   |  |                  |  
|Provision for severance indemnities                                                            |  | 693      |   |  | 589      |   |  | 621              |  
|Net operating loss carryforwards                                                               |  | 16,807   |   |  | 19,445   |   |  | 26,592           |  
|Net loss of consolidated subsidiaries                                                          |  | 4,642    |   |  | 4,408    |   |  | 4,545            |  
|Tax credit carryforwards                                                                       |  | 7,747    |   |  | 7,360    |   |  | 7,917            |  
|Research and development costs                                                                 |  | 3,686    |   |  | 2,777    |   |  | 3,645            |  
|Impairment loss from available-for-sale securities                                             |  | 3,607    |   |  | 3,734    |   |  | 3,844            |  
|Equity in losses of affiliate                                                                  |  | 11,788   |   |  | 6,657    |   |  | 8,443            |  
|Sales of stock by subsidiary and affiliate                                                     |  | (11,050  | ) |  | (3,458   | ) |  | (3,458           | )
|Stock options                                                                                  |  | 1,142    |   |  | 1,342    |   |  | 1,666            |  
|Depreciation                                                                                   |  | 275      |   |  | 275      |   |  | 255              |  
|Provision for bad debt accounts                                                                |  | 5,229    |   |  | 7,748    |   |  | 13,079           |  
|Other                                                                                          |  | 506      |   |  | 447      |   |  | 2,352            |  
|                                                                                               |  |          |   |  |          |   |  |                  |  
|                                                                                               |  | 45,072   |   |  | 51,324   |   |  | 69,501           |  
|                                                                                               |  |          |   |  |          |   |  |                  |  
|Total deferred income tax assets                                                               |  | 51,841   |   |  | 55,020   |   |  | 70,042           |  
|Valuation allowance (note a)                                                                   |  | (51,841  | ) |  | (55,020  | ) |  | (70,042          | )
|                                                                                               |  |          |   |  |          |   |  |                  |  
|Net deferred income tax assets                                                                 |  | (Won)   |   |  | (Won)   |   |  | (Won)           |  
|                                                                                               |  |          |   |  |          |   |  |                  |  



|         |  |                                                                                                                                                                                               
|-------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(note a) |  | A full valuation allowance was provided for the tax effect of deferred income tax assets since the Companys management believes that the realization of the deferred tax assets is
uncertain.



F-45



---

##### Table of Contents

|b. | Fair Value of Financial Instruments
|-- | -----------------------------------



The following methods and assumptions were used to estimate the fair value of each class of financial instruments as of December 31, 2003 and 2004.



Cash and Cash Equivalents, Short-term Financial
Instruments, Accounts Receivable (trade and other), Short-term Loans, Accounts Payable (trade and other) and Short-Term Borrowings



The carrying amount approximates fair value due to the short maturity of these instruments.



Securities



The fair value of trading securities is estimated based on quoted market price. For equity securities without readily determinable fair value and equity
method investments, a reasonable estimate of fair value could not be made without incurring excessive costs. Additional information pertinent to these investments is provided in Notes 5 and 6.



Long-Term Bank Deposits



The carrying amount approximates fair value based on interest rates
currently available for similar deposits.



Long-Term Loans
and Long-Term Receivables



The fair value of long-term
loans and long-term receivables is estimated by discounting the future cash flows using the current interest rate of time deposits with a maturity of one year.



Long-Term Borrowings, Lease Payables and Convertible Bonds Payable



The carrying amount of lease payables and certain long- term borrowings approximates fair value due to repricing of interest
rate based on floating rate. The fair value of long-term borrowings that are not repriced based on floating rate are estimated using a discounted cash flow method based on the current rate for similar borrowings. The carrying amount of convertible
bonds payable approximates fair value because issue date was near the end of 2004.



The fair value of financial instruments under US GAAP as of December 31, 2003 and 2004 is as follows (in millions of Korean won):



|                                                                                          |  |                 |  |                  |  |                 |  |             
|----------------------------------------------------------------------------------------- |  | --------------- |  | ---------------- |  | --------------- |  | ------------
|                                                                                          |  | 2003            |  | 2004 As restated
|                                                                                          |  | Carrying amount |  | Fair value       |  | Carrying amount |  | Fair value  
|Financial assets:                                                                         |  |                 |  |                  |  |                 |  |             
|Cash and cash equivalents                                                                 |  | (Won)21,569     |  | (Won)21,569      |  | (Won)17,163     |  | (Won)17,163 
|Short-term financial instruments                                                          |  | 14,628          |  | 14,628           |  | 42,134          |  | 42,134      
|Trading securities                                                                        |  | 21,382          |  | 21,382           |  | 148             |  | 148         
|Accounts receivable (trade and other) including long-term receivable                      |  | 48,533          |  | 48,533           |  | 38,272          |  | 38,272      
|Available-for-sale securities, including current portion of available-for-sale securities |  | 445             |  | 445              |  | 448             |  | 448         
|Other investments, including equity securities valued using the equity method accounting  |  | 4,786           |  | N/A              |  | 2,459           |  | N/A         
|Long-term bank deposits                                                                   |  | 533             |  | 533              |  | 655             |  | 655         
|Restricted deposits                                                                       |  | 458             |  | 458              |  | 1,187           |  | 1,187       
|Short-term and long-term loans                                                            |  | 478             |  | 465              |  | 675             |  | 671         
|                                                                                          |  |                 |  |                  |  |                 |  |             
|                                                                                          |  | (Won)112,812    |  |                  |  | (Won)103,141    |  |             
|                                                                                          |  |                 |  |                  |  |                 |  |             
|Financial liabilities:                                                                    |  |                 |  |                  |  |                 |  |             
|Accounts payable (trade and other)                                                        |  | (Won) 10,943    |  | (Won) 10,943     |  | (Won) 23,092    |  | (Won) 23,092
|Short-term borrowings                                                                     |  | 19,955          |  | 19,955           |  | 62,914          |  | 62,914      
|Lease payable                                                                             |  | 621             |  | 621              |  | 160             |  | 160         
|Current portion of long-term borrowings                                                   |  | 1,787           |  | 1,787            |  | 2,546           |  | 2,546       
|Long-term borrowings                                                                      |  | 8,245           |  | 8,245            |  | 22,788          |  | 22,788      
|Convertible bonds                                                                         |  |                |  |                 |  | 3,009           |  | 3,009       
|                                                                                          |  |                 |  |                  |  |                 |  |             
|                                                                                          |  | (Won) 41,551    |  |                  |  | (Won) 114,509   |  |             
|                                                                                          |  |                 |  |                  |  |                 |  |             



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---

##### Table of Contents

|c. | Segment Information
|-- | -------------------



Export Sales



The Company had foreign export product sales under US GAAP amounting to 29.79%, 31.05% and 28.72% of total sales for the years ended December 31, 2002,
2003 and 2004, respectively. The export sales under US GAAP were made principally to the following locations:



|                         |  |       |   |  |       |   |  |       |  
|------------------------ |  | ----- | - |  | ----- | - |  | ----- | -
|                         |  | 2002  |   |  | 2003  |   |  | 2004  |  
|Asia                     |  | 11.28 | % |  | 10.99 | % |  | 11.60 | %
|Europe                   |  | 14.16 | % |  | 3.48  | % |  | 5.80  | %
|United States of America |  | 4.35  | % |  | 16.58 | % |  | 11.32 | %
|                         |  |       |   |  |       |   |  |       |  
|                         |  | 29.79 | % |  | 31.05 | % |  | 28.72 | %
|                         |  |       |   |  |       |   |  |       |  



Business Segment



Sales, operating income, identifiable assets, capital
expenditures and depreciation under US GAAP as of and for the years ended December 31, 2002, 2003 and 2004, pertaining to the business segments in which the Company and its subsidiaries operated are presented as follows (in millions of Korean won):



|                                                 |  |             |  |                        |   |  |                    |  |                     |  |                                            
|------------------------------------------------ |  | ----------- |  | ---------------------- | - |  | ------------------ |  | ------------------- |  | -------------------------------------------
|                                                 |  | Sales       |  | Operatingincome (loss) |   |  | Identifiableassets |  | Capitalexpenditures |  | Depreciation ofproperty, plantand equipment
|(As of and for the year ended December 31, 2002) |  |             |  |                        |   |  |                    |  |                     |  |                                            
|Handlers and components                          |  | (Won)16,859 |  | (Won)(14,192           | ) |  | (Won)19,794        |  | (Won)327            |  | (Won)594                                   
|SMD placement systems                            |  | 23,486      |  | (30,472                | ) |  | 35,404             |  | 537                 |  | 977                                        
|TFT-LCD handlers and testers                     |  | 2,860       |  | 19                     |   |  |                   |  |                    |  |                                           
|Security solutions                               |  | 15,881      |  | (788                   | ) |  | 35,360             |  | 215                 |  | 321                                        
|Research and development center                  |  |            |  |                       |   |  | 20,441             |  | 189                 |  | 343                                        
|Other                                            |  | 10,629      |  | (4,762                 | ) |  |                   |  | 1,970               |  | 4,477                                      
|                                                 |  |             |  |                        |   |  |                    |  |                     |  |                                            
|Consolidated                                     |  | (Won)69,715 |  | (Won)(50,195           | ) |  | (Won)110,999       |  | (Won)3,238          |  | (Won)6,711                                 
|                                                 |  |             |  |                        |   |  |                    |  |                     |  |                                            



F-47



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##### Table of Contents

|                                                              |  |              |  |                        |   |  |                    |  |                     |  |                                            
|------------------------------------------------------------- |  | ------------ |  | ---------------------- | - |  | ------------------ |  | ------------------- |  | -------------------------------------------
|                                                              |  | Sales        |  | Operatingincome (loss) |   |  | Identifiableassets |  | Capitalexpenditures |  | Depreciation ofproperty, plantand equipment
|(As of and for the year ended December 31, 2003)              |  |              |  |                        |   |  |                    |  |                     |  |                                            
|Handlers and components                                       |  | (Won)45,170  |  | (Won)(6,870            | ) |  | (Won)22,891        |  | (Won)398            |  | (Won)468                                   
|SMD placement systems                                         |  | 19,201       |  | (9,222                 | ) |  | 24,852             |  | 654                 |  | 770                                        
|Security solutions                                            |  | 17,189       |  | (2,601                 | ) |  | 37,574             |  | 18,401              |  | 588                                        
|Research and development center                               |  |             |  |                       |   |  | 19,610             |  | 1,097               |  | 1,290                                      
|Other                                                         |  | 14,479       |  | (2,825                 | ) |  |                   |  | 2,119               |  | 3,016                                      
|                                                              |  |              |  |                        |   |  |                    |  |                     |  |                                            
|Consolidated                                                  |  | (Won) 96,039 |  | (Won)(21,518           | ) |  | (Won)104,927       |  | (Won)22,669         |  | (Won)6,132                                 
|                                                              |  |              |  |                        |   |  |                    |  |                     |  |                                            
|                                                              |  |              |  |                        |  
|                                                              |  | Sales        |  | Operatingincome (loss) |   |  | Identifiableassets |  | Capitalexpenditures |  | Depreciation ofproperty, plantand equipment
|(As of and for the year ended December 31, 2004, as restated) |  |              |  |                        |   |  |                    |  |                     |  |                                            
|Handlers and components                                       |  | (Won) 33,523 |  | (Won)(6,372            | ) |  | (Won) 22,467       |  | (Won)706            |  | (Won)299                                   
|SMD placement systems                                         |  | 24,299       |  | (4,597                 | ) |  | 27,682             |  | 638                 |  | 270                                        
|Security solutions                                            |  | 16,044       |  | (3,603                 | ) |  | 32,435             |  | 124                 |  | 547                                        
|Telecommunication appliance                                   |  |             |  |                       |   |  | 29,074             |  |                    |  |                                           
|Research and development center                               |  |             |  |                       |   |  | 11,363             |  | 1,491               |  | 632                                        
|Other                                                         |  | 9,831        |  | (4,071                 | ) |  |                   |  | 7,040               |  | 3,755                                      
|                                                              |  |              |  |                        |   |  |                    |  |                     |  |                                            
|Consolidated                                                  |  | (Won) 83,697 |  | (Won)(18,643           | ) |  | (Won)123,021       |  | (Won)9,999          |  | (Won)5,503                                 
|                                                              |  |              |  |                        |   |  |                    |  |                     |  |                                            



In addition to
business segment identifiable assets, total assets as of December 31, 2002, 2003 and 2004 of (Won)236,177 million, (Won)223,876 million and (Won)258,102 million, respectively, include unallocated corporate assets consisting of cash and investments
((Won)60,496 million, (Won)57,447 million and (Won)52,969 million as of December 31, 2002, 2003 and 2004, respectively), land ((Won)7,749 million, (Won)7,730 million and (Won)10,487 million as of December 31, 2002, 2003 and 2004, respectively),
loans  net ((Won)441 million, (Won)478 million and (Won)311 million as of December 31, 2002, 2003 and 2004, respectively) and other ((Won)56,492 million, (Won)53,294 million and (Won)71,314 million as of December 31, 2002, 2003 and 2004,
respectively).



The unallocated other corporate assets of
(Won)56,492 million as of December 31, 2002 mainly consisted of buildings of (Won)16,311 million, long-term receivable-net of (Won)6,099 million and other assets of (Won)34,082 million. Unallocated other corporate assets of (Won)53,294 million as of
December 31, 2003 mainly consisted of buildings of (Won)17,727 million, long-term receivable-net of (Won)4,602 million and other assets of (Won)30,965 million. Unallocated other corporate assets of (Won)71,314 million as of December 31, 2004 mainly
consisted of buildings of (Won)33,864 million, long-term receivable-net of (Won)3,109 million and other assets of (Won)34,341 million.



Telecommunication appliance was added as a business segment on December 31, 2004 in connection with consolidating Cyber Bank in accordance with FIN46(R).



|d. | Subsequent events
|-- | -----------------



In accordance with the resolution of the Companys board of directors dated January 27, 2005, on March 24, 2005, the Company sold 2,726,800 shares of
3,328,840 shares of SoftForum held by the Company, representing 34% of the total outstanding common stock of SoftForum for a total selling price of (Won)9,010 million ((Won)3,304 per share), to a third party. As a result of such trade, the
Companys ownership in SoftForum Corporation decreased to 7.51% as of April 1, 2005. The carrying amounts of the major classes of assets and liabilities included as part of the disposal group as of December 31, 2003 and 2004 are as follows (in
million of Korean won):



|                      |  |             |  |            
|--------------------- |  | ----------- |  | -----------
|                      |  | 2003        |  | 2004       
|Current assets        |  | (Won)17,848 |  | (Won)13,271
|Non-current assets    |  | 8,080       |  | 9,383      
|                      |  |             |  |            
|Total assets          |  | 25,928      |  | 22,654     
|                      |  |             |  |            
|Current liabilities   |  | 7,476       |  | 4,577      
|Long-term liabilities |  | 4,660       |  | 4,175      
|                      |  |             |  |            
|Total liabilities     |  | (Won)12,136 |  | (Won)8,752 
|                      |  |             |  |            



F-48