Neowiz company prospectus 2003

1

Neowiz company prospectus 2003

Creating Excitement!

Neowiz Corporation6th Floor, Asem Tower,

159 Samsung-dong,Gangnam-gu, SeoulKorea

2

3 Profile

4 Trend Statement

5 Products & Services

8 Solid Foundation: Our Customers

12 Strategy & Reviews

19 Financials

Contents

3

Profile

Established in 1997, Neowiz is Korea’s leading online game and community service provider that offers its unique online contents to more than 8 million active fun-seeking individuals in Korea. Neowiz’s revenue is generated from its three major business lines: web-board games, Avatar characters and online advertising. The company currently operates two fast growing Internet sites namely www.Sayclub.com and www.SayGame.com.

The company is known for its ability to set a standard in the industry by consistently introducing unique online profit models to the market. In April 1998, the Company introduced its Internet dial-up access service for modem users before high-speed broadband had been widely accepted. As this business gained enormous popularity from general public, about 500 companies followed this Neowiz business model. The market reached its peak in 2001 and the company generated KRW 33bn that represents the leading market share of over 50%.

In November 2001, Neowiz set a monumental Internet-portal-benchmark with the launch of its commercialized Avatar services for the first time in the world. This genuine invention from Neowiz became an invaluable Internet culture for many Internet users in Korea. The Korean Avatar market created by Neowiz is expected to grow to KRW 200bn in 2003. This unique invention has become a revenue source for most established Korean Internet portals. The revenue from Neowiz’s Avatar business holds the dominant market position with approximately a 20% share of the market.

In July 2002, Neowiz started fee-based web-board game services and within 6 months from its inception generated KRW 9.8bn, laying a solid foundation for rapid growth and strong market share gains in 2003.

As of March 20, 2002, Neowiz had a market capitalization of KRW 180bn, making it the 20th largest company on the KOSDAQ.

For the last 6 years, we’ve been inventing and reinventing… focusing and expanding…

Creating new online profit models…

And developing innovative online services that create and define markets.

http://www.sayclub.com/

http://www.saygame.com/



4

Trend Statements

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80

2001Y 2002Y 2003Y (E)

Game

SayClub Premium

AD.

OCD, etc

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70

2001Y 2002Y 2003Y (E)

Net Income

EBITDA

Operating Revenue

010

20304050

607080

90100

2000Y 2001Y 2002Y

Assets

Liabilities

Shareholders' Equity

>> SALES BY CATEGORY

>> SUMMARY OF INCOME STATEMENT

>> SUMMARY OF BALANCE SHEET

5

Products& Services

6

Avatar Characters

In the Korean online industry “Avatar” is a buzzword.Our users are required to create a cartoon character to represent themselves when entering SayClub’s online chat rooms and community. SayClub chatting dominates the Korean online chatting market. Everyday over 1,500,000 unique visitors login to SayClub to chat with their friends. SayClub community services are also extremely popular in Korea where one either starts a new group or joins an existing one and members can share photos and music files, and discuss topics ranging from current affairs to health. SayClub users can enjoy chatting with friends, meeting new friends or just play games with complete strangers via Avatar. Every month, 8 million Koreans visit SayClub and its number of concurrent users exceeds 400,000 everyday. In order to stand out from the this massive crowd, our users are willing to purchase Avatar clothes to get noticed and draw attention from other SayClub users.

Our users are willing to pay for items such as suits and costumes from movies like Load-of-the-Rings to dress up their avatars, which costs US$2-5 per item. Neowiz was the first company to commercialize avatar items and earned KRW 23bn in 2002.

-2002 Avatar Sales-

Avatar Fashion items (KRW 1,000 ~ KRW 6,900)

Free Default Avatar \ 6,500 \ 5,000 \ 4,900

Hair & accessory items

Movie Avatar Characters:Lord of the Rings

3,519

5,390

6,7647,438

-

1,500

3,000

4,500

6,000

7,500

Q1 Q2 Q3 Q4

\ 4,700 \ 4,000

\ 2,000 \ 700

(KRW 5,000) (KRW 5,100)

(in Million KRW)

http://www.sayclub.com/global/nph-nocon.cgi?saymallshopping=&styleshopping=&mychest=&myalbum=&changemood=&changedusername=&myprofile=

7

Web board Games

Can fun be a serious business? At Neowiz, we firmly think so.

In December 2002, Our users spent more than 3.5 billion minutes at our web board games. This newly acquired gaming audience also represents a significant opportunity to produce new revenue streams for Neowiz. In 2002, we introduced new web-board game services that will allow users to play fee-based games.

Neowiz offers a selection of web board games, including card games like poker and traditional Korean card game (GoStop), as well as other games like Tetris and so forth. More than 4 million people visit and play our web-board games every month. Commercialized in July 2002, it is attracting more than 1,000,000 unique visitors every day and by end of 2002, its monthly revenue exceeded KRW 2.7bn in December 2002.

-Say GamePoker-

-SayGame GoStop-

Game Avatar items

Premium Game items

(KRW 950~ KW 5,000)

(KRW 2000~ KW 6,500)

-

1,000

2,000

3,000

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Before Commercialization

-2002 Game Sales-

(in Million KRW)

8

SayClub & its Customers

9

Solid Foundation: SayClub and its customers

The power of our unique user experience has kept us in leading position in market share and the customer loyalty.

The revenues generated by Avatar characters and game items are growing as the traffic of Sayclub expand. SayClub is the only major portal that combines three distinct services: Chatting, Community and Games. SayClub has become a powerful communication medium, helping millions of people in Korea connect with each other everyday. Instant chatting and community became one of the most effective links to families, loved ones and friends. Because of the fun seeking nature of Sayclub users, they also enjoy playing games.

SayClub has been recognized as one of the top 10 sites in the world, ranked ahead of large and well-known international companies such as Ebay.

Rank Site

1 Yahoo

2 MSN

3 Daum

4 Naver

5 Google

6 Passport.net

7 Yahoo Japan

8 SayClub

9 Microsoft Corporation

10 Ebay

* Source: Alexa Internet - Top 500 sites / Period: Feb 2003

Best community site in Korea!

World No.1 Chatting Site !

Simply, the best chat in the world !

Reviews:

http://www.alexa.com/data/details/reviews?q=&url=http://www.sayclub.com

10

3.3

4.03.6

0.0

1.5

3.0

4.5

sayclub.com yahoo.co.kr naver.com

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

9.0


They come to be entertained.

They come to become involved.

What makes our site so special? It’s the power of our user experience and growing audience.

More than 8 million unique individuals used Sayclub in December 2002—up more than 33% over year-end 2001. Page views increased 47% from 900 million per day in December 2000 to more than 1.3 billion per day in December 2001.

-Monthly Unique Visitors Jan 2001 ~ Jan 2003-

Although its traffic and visitors lag behind domestic leading media portals in traffic and visitors, it surpasses them in pageviews per user and time spent per visit, the key indicators of customer loyalty.

8.2 M

(in billion)

(in million)

(Jan 2003)

-Monthly Pageviews: SayClub/Yahoo / Naver-

11


222

109 105

0

50

100

150

200

250

sayclub.com naver.com yahoo.co.kr

(in Min)-Average Duration-

*Source – KoreanClick / Period: Jan 2003

0

100,000

200,000

300,000

400,000

500,000

600,000

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

-2002 Sayclub Monthly Buying Users-

(Persons)Avatar Buying Users

Game Buying Users

600,000

290,000

This high loyalty is translated into healthy earnings and it shows. Monthly Avatar character buying users are continuously expanding. But what’s more spectacular it that the number of our newly launched Game customers is expanding rapidly, laying asolid foundation for future sales growth.

SayClub has the most lucrative game customers segments of any web board game destination on the web.

Customer LoyaltyCounts!

12

Strategy& Reviews

13

Strategy & Review

Before the year ended we had already demonstrated strong early momentum, and as we move into 2003 we are focused on scoring even more points on the board. What follows are the key priorities that support our strategy and a review of some for the progress we made in 2002:

Consistent Business Reorientation

While Neowiz had achieved extraordinary success in its first five years by providing Internet Dial-up access Services and SayClub’s Avatars, it was apparent that the company needed to be more focused on long-term growth.

Neowiz saw that things had to change if the Company was to be positioned for long-term growth. In 2001, the unprecedented growth in Korea’s broadband penetration resulted in the decline of our modem based dial-up access service. The company was heavily dependent on the Avatar business as its primary source of revenue.

Neowiz’s first priority was to stabilize the Avatar business, while at the same time focus on those opportunities we could take advantage of in order to build and grow Neowiz with the goal of ultimately delivering long-term shareholder value.

Neowiz…

We are foreverNew.

1999

Dial-up Access Service

AvatarCharacters

Web-BoardGames

2001 2003

14

Strategy & Review

Neowiz… We areforever New.

0

50,000

100,000

150,000

200,000

Jul Aug Sep Oct Nov Dec

0

5,000

10,000

15,000

ARPU (KRW)BU (persons)

\10,000

Emergence of Web board Games…

During 2002, the Neowiz team developed a clear direction for the company and demonstrated early momentum with the implementation of a new web-board game business plan.

This move brings considerable synergy effects to the Company’s overall business operations as our existing loyal chatting community customer base could finds our Web-board game services as an additional online playground. Our users visit SayClub for positive and humorous communication and content to share with other people. Our Web-board games use the same Avatars that are used in chatting and our community. In this was, playing games with complete strangers was accepted instantly by our existing users. Since commercialization in July 2002, our Web-board games have generated KRW98bn within 6 months of launch.

Neowiz’s Web-board games outshine our peers with creative and distinctive features as evidenced by the highest ARPU in the market. Neowiz game ARPU is currently in the KRW 15,000 range which is 3 times higher than our peers.

-2002 SayGame Monthly Buying Users & ARPU-

15

Strategy & Review

SayGame…

Countless

Opportunities.

New Web-board games are generating healthy profits and the market is expanding. Neowiz believes that the Company is well positioned to help drive this trend and win a growing share of this fast-growing online game market. Our game team is busing themselves to form a strategy that will bring a long-term sustainable growth.

1Q03~ :Strengthening Web-Board game business

3Q03: Launch Mobile Games Services

1Q04: Commercialize Published Game

The result of this hard work has been the development of a new 2nd phased online game strategy and operating structure that we believe positions the company for growth in 2003 and beyond. And we are moving aggressively to capture the opportunity in a variety of ways.

In 2003 we are improving the quality of our Web-board game revenue by strengthening our game customer base, build new revenue streams and enhance existing ones.

Strengthening the existing Web-Board game business

In 2003 the top-three companies dominating and defining the Web-board game market in Korea are Netmable, Hangame and Neowiz. As a late starter among the top-three, our Web-board game business has still a lot of catching up to do. The number of monthly fee paying customers for the game service reached 160,000 by the end of 2002. Considering the number of monthly paid customers for the other two companies, which has exceeded 700,000, Neowiz expects its monthly Web-board game customer base to expand to 500,000 by end of 2003.

Thorough out the year 2003, Neowiz plans to release more games in its portfolio that will provide a solid foundation for long-term growth in 2003 and beyond.

16

Strategy & Review

Expanding Game Revenue Streams: Game Publishing

A new game publishing business will enable us to significantly broaden our game business and enrich the services we provide to our game users. The Company stepped up those efforts significantly, forming an alliance with Doobic Corp to launch the ‘Heat Project’, a new first person perspective online shooting game. A closed, beta service will kick off in May of this year we have scheduled for this business to be fully commercialized in early 2004.

Our relationship with Doobic Corp has the potential to create a significant new revenue stream, beginning in the first half of 2004. We continue to seek additional partnerships with other leading quality game developers to increase our Web game footprint.

Mobile Games

In 2Q 2003, Neowiz is rolling out its first wireless mobile game for all three Korean mobile carrier services (SK Telecom, KTF and LG Telecom). And two additional mobile games will be released before 4Q 2003.

We believe that these and other new revenue producing game services present a growth opportunity complementing our already strong Web-board game business.

Expandingyour Internet

Horizons

17

Strategy & Review

Avatar Characters: the legend continues…

Launched in late 2000, our Avatar character business has shown dramatic growth. By end of 2002, more than 3 million Korean have purchased Avatar Character from SayClub and our 2002 Avatar sales KRW 23bn. This represent an increase of 78% from 2001 sales of KRW 13bn.

In 2003, as Avatar market is expected to grow to a solid KRW 200bn +, the Company’s Avatar business will lead the industry with its consistent upgrades.

This year SayClub users will see even more unique online experiences where they can show off their Avatar characters to even wider audience. A series of new SayClub services are being developed to be launched before the Summer of 2003 and these will create even more opportunity for a long-term sales growth.

Neowiz Avatar sales target for 2003 is KRW 35bn for an increase of 52% compared to 2002.

Avatar character business is evolving rapidly and Neowiz will help drive this trend through out this year to ensure its long-term growth.

Avatar…

A Step closer to ‘Virtual Reality’.

18

Finance

19

ManagementSales Forecasts

The Company's solid growth will continue in 2003, with annual sales rising 91% YoY to KRW79.5bn and operating income also rising 108% to KRW 17.9bn. Thanks to increasing paying customer base of Games, Sayclub and higher advertising sales.

With new revenue stream expansion, the management set initial sales target of 2004 to exceed 120bn.

0

5

10

15

20

25

Q1 02 Q2 02 Q3 02 Q4 02 Q1 02 Q2 02 Q3 02 Q4 02

Game

Sayclub

AD

Others

Q1 02 Q2 02 Q3 02 Q4 02Others 1.8 1.3 1.1 0.8

AD 0.3 0.3 0.7 1.2

Sayclub 3.7 5.6 7.1 8.0Game 0.0 0.0 2.5 7.3

Total 5.8 7.2 11.3 17.2

Q1 03 Q2 03 Q3 03 Q4 03- - - -

1.0 1.2 1.5 1.88.2 8.5 9.1 9.29.1 9.8 10.1 10.2

18.3 19.5 20.7 21.1

FY 2002 Sales FY 2003 Sales (Pro Forma)

(In KRW Billion)

2001 2002 2003 (E)Sales 31.4 41.5 79.5Operating Profit 6.8 8.7 17.9Net Income 7.3 7.7 15.20.0

10.0

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60.0

70.0

80.0

90.0

2001 2002 2003 (E)

Sales

Operating Profit

Net Income

[ Summary of Income Statement 2001~2003Y]

(In KRW Billion)

20

Financial:Balance Sheets

BALANCE SHEETSDecember 31, 2002 and 2001

─ ─ ─ ─ ─ ─ ─ ─ ─

2002 2001ASSETSCURRENT ASSETS :

Cash and cash equivalents ￦ 14,605,997,592 ￦ 37,087,932,138

Short-term financial instruments (Note 3) 45,767,718,643 9,140,700,378

Marketable securities (Note 4) 1,166,335,960 8,250,916,265

Accounts receivable-trade, 14,944,168,195 6,553,764,117

net of allowance for doubtful accounts of

￦1,060,556,678 in 2002 and

￦86,970,119 in 2001

Short-term loans (Note 19) 70,000,000 -

Accounts receivable-other 790,000 -

Accrued income 599,218,797 244,805,902

479,330,460 821,193,345

Prepaid expenses 62,508,195 40,342,774

Short-term loans to employees (Note 5) 24,487,880 51,273,480

Total current assets 77,720,555,722 62,190,928,399

NON-CURRENT ASSETS :INVESTMENTS

Long-term financial instruments (Notes 3 and 19) 2,000,000,000 1,000,000,000

Investment securities (Note 6) 2,053,955,325 3,834,018,722

Guarantee deposits 1,051,582,046 1,474,436,000

Long-term loans to employees (Note 5) - 26,899,050

Total investments 5,105,537,371 6,335,353,772

PROPERTY, PLANT

AND EQUIPMENT

Machinery, 5,875,228,906 3,185,522,532 net of accumulated depreciation of ￦ 9,880,875,344 in 2002 and ￦ 5,263,783,375 in 2001 (Note 8)

Vehicles, 2,000 1,424,052 net of accumulated depreciation of ￦ 20,988,250 in 2002 and

￦ 19,566,198 in 2001

Tools, furniture and fixtures, 382,403,740 296,381,610

net of accumulated depreciation of

￦ 1,215,706,690 in 2002 and ￦ 837,309,921 in 2001

Total property, plant and equipment 6,257,634,646 3,483,328,194 ￦ 315,158 thousand in 1997

INTANGIBLE ASSETSIntellectual proprietary rights 123,138,693 167,376,430 Development costs (Note 7) 245,411,931 472,407,971 Other intangible assets 539,009,584 189,793,000

Total intangible assets 907,560,208 829,577,401 Total non-current assets 12,270,732,225 10,648,259,367

Total assets ￦ 89,991,287,947 ￦ 72,839,187,766

In Korean Won

Advance payment (Note 19)

21

Financial:Balance Sheets

2002 2001

LIABILITIES AND SHAREHOLDERS' EQUITYCURRENT LIABILITIES :

Accounts payable-trade ￦ 1,543,371,301 ￦ 1,215,276,406 Accounts payable-other 1,037,210,371 1,039,226,810 Accrued expenses 1,021,465,255 654,272,184 Advance from customers 2,086,535,208 291,001,283 Unearned revenues - 26,408,987 Withholdings 934,815,655 46,641,940 Value added tax withheld 1,244,473,152 152,962,401 Income taxes payable 1,136,091,971 204,975,253 Dividends payable (Note 18) 1,524,226,000 1,452,578,500

Total current liabilities 10,528,188,913 5,083,343,764

LONG-TERM LIABILITIES :Deferred income tax liabilities (Note 15) 2,783,847,348 2,771,611,966

Total long-term liabilities 2,783,847,348 2,771,611,966

Total liabilities 13,312,036,261 7,854,955,730

SHAREHOLDERS' EQUITY :Capital stock (Note 9) 1,533,226,000 1,533,226,000 Capital surplus

Paid-in capital in excess of par value 52,249,928,140 52,249,928,140

Other capital surplus (Note 10) 459,325,197 207,335,546

Retained earnings (Note 11)Legal reserve 443,834,290 291,411,690 Reserve for business rationalization - 653,892,088 Reserve for investment of small and medium enterprises 1,053,771,176 1,087,104,506 Reserve for research and development 3,192,834,684 2,259,501,354 Reserve for business losses 10,872,030,666 7,268,030,666 Unappropriated retained earnings

carried-forward to the subsequent year 7,545,658,499 5,416,432,486

Capital adjustmentStock options (Note 12) 9,355,034 - Treasury stock (Note 13) (680,712,000) (5,982,630,440)

Total shareholders' equity 76,679,251,686 64,984,232,036

Total liabilities and shareholders' equity ￦ 89,991,287,947 ￦ 72,839,187,766

In Korean Won

BALANCE SHEETS, ContinuedDecember 31, 2002 and 2001

─ ─ ─ ─ ─ ─ ─ ─ ─

22

Financial:Income Statements

INCOME STATEMENTSFor the years ended December 31, 2002 and 2001

─ ─ ─ ─ ─ ─ ─ ─ ─ ─ ─ ─

2002 2001

SALESSales in SayClub ￦ 36,515,718,300 ￦ 14,200,080,089 Sales in OneClick 5,031,887,045 16,989,947,010

41,547,605,345 31,190,027,099COST OF SALES (Note 19)

Cost in SayClub sold 22,023,932,307 8,807,608,823Cost in OneClick sold 2,448,032,149 10,998,472,154

24,471,964,456 19,806,080,977

GROSS PROFIT 17,075,640,889 11,383,946,122

SELLING, GENERAL

AND ADMINISTRATIVE EXPENSESSalaries 2,973,874,748 1,822,317,742 Provision for severance benefits 167,125,722 84,672,308 Other employee benefits 927,701,750 494,478,923 Travel 180,145,791 82,823,451 Advertising 833,876,157 349,632,067 Entertainment 52,390,787 52,241,444 Communications 76,424,126 65,661,732 Taxes and dues 17,616,559 31,940,237 Rent 473677090 312,799,497 Depreciation 192093515 296,031,815 Insurance 25,444,449 12,808,081 Vehicles maintenance 9,917,725 11,708,017 Education and training 27,441,287 25,840,955 Publication 34,921,966 33,847,714 Supplies 29,601,702 32,470,696 Commissions 626,545,795 394,091,236 Bad debt expenses 1,201,580,461 403,361,200 Amortization of intangible assets 497,590,684 122,205,130 Compensation cost (Note 12) 9,355,034 - Miscellaneous expenses - 375,000

8,357,325,348 4,629,307,245

OPERATING INCOME 8,718,315,541 6,754,638,877

NON-OPERATING INCOME

Interest income 2,509,746,910 2,953,508,165

Gain on foreign currency transactions 1,919,994 25,888,217

Gain on foreign currency translation 13,607,500 1,624,069

Rental income (Note 19) 33,177,554 2,578,000

Gain on disposal of marketable securities 41,442,517 349,228,314

Gain on valuation of marketable securities 67,849,286 237,971,050

Gain on prior period adjustments (Note 14) - 147,115,664 Others 15,332,676 1,697,046

￦ 2,683,076,437 ￦ 3,719,610,525

In Korean Won

23

Financial:Income Statements

INCOME STATEMENTS, ContinuedFor the years ended December 31, 2002 and 2001

─ ─ ─ ─ ─ ─ ─ ─ ─ ─ ─ ─

2002 2001

NON-OPERATING EXPENSES

Interest expenses ￦ - ￦ 1,456,950

Loss on foreign currency transactions 99,532 6,548,402

Loss on foreign currency translation 31,200,000 -

Loss on disposal of marketable securities 550,846 7,986,736

Loss on equity method investees 1,726,983,103 730,679,536

Impairment loss on investment securities (Note 6) 53,080,294 177,235,475

Impairment loss on intangible assets 154,196,509 -

Additional payment of income taxes 129,399,897 119,377,156

Donations 10,000,000 490,000

Loss on prior period adjustments (Note 14) - 200,495,980

Others 11,386,904 419,338

2,116,897,085 1,244,689,573

ORDINARY INCOME 9,284,494,893 9,229,559,829

EXTRAORDINARY GAINS - -

EXTRAORDINARY LOSSES - -

INCOME BEFORE INCOME TAXES 9,284,494,893 9,229,559,829

INCOME TAX EXPENSES (Note 15) 1,628,512,368 1,918,523,442

NET INCOME ￦ 7,655,982,525 ￦ 7,311,036,387

BASIC ORDINARY INCOME PER SHARE (Note 16) ￦ 2,626 ￦ 2,507

BASIC EARNINGS PER SHARE (Note 16) ￦ 2,626 ￦ 2,507

DILUTED ORDINARY INCOME PER SHARE (Note 16) ￦ 2,626 ￦ 2,507

DILUTED EARNINGS PER SHARE (Note 16) ￦ 2,626 ￦ 2,507

In Korean Won

24

Financial:Statements of Cash Flows

STATEMENTS OF CASH FLOWS

For the years ended December 31, 2002 and 2001

─ ─ ─ ─ ─ ─ ─ ─ ─ ─ ─ ─ ─ ─ ─ ─

2002 2001

CASH FLOWS FROM OPERATING ACTIVITIES :Net income ￦ 7,655,982,525 ￦ 7,311,036,387Addition of expenses not involving operating cash outflowsProvision for severance benefits 342,089,853 158,923,250Bad debt expenses 1,201,580,461 403,361,200Depreciation of property, plant and equipment 4,996,910,790 3,742,507,079Amortization of intangible assets 497,590,684 122,205,130Loss on disposal of marketable securities 550,846 7,986,736Impairment loss on investment securities 53,080,294 177,235,475Loss on equity method investees 1,726,983,103 730,679,536Impairment loss on intangible assets 154,196,509 - Compensation cost 9,355,034 -

8,982,337,574 5,342,898,406

Deduction of revenues not involving operating cash inflowsGain on foreign currency translation - 1,624,069 Gain on disposal of marketable securities 67,849,286 237,971,050 Gain on valuation of marketable securities 41,442,517 349,228,314 Income tax added to capital surplus - 92,282,294

109,291,803 681,105,727Changes in operating assets and liabilities

Decrease (increase) in accounts and notes receivable-trade (9,613,491,623) 152,772,469Increase in accounts receivable-other (790,000) - Decrease (increase) in accrued income (354,412,895) 144,792,345Decrease (increase) in advance payment 341,862,885 (638,635,467)Increase in prepaid expenses (22,165,421) (5,090,665)Increase (decrease) in accounts payable-trade 328,094,895 (1,463,827,435)Increase (decrease) in accounts payable-other (2,016,439) 654,508,660Increase (decrease) in accrued expenses 267,963,763 (67,574,706)Increase in advance from customers 1,795,533,925 291,001,283Increase (decrease) in unearned revenues (26,408,987) 26,408,987Increase (decrease) in withholdings 888,173,715 (2,662,116)Increase (decrease) in value added tax withheld 1,113,017,835 (34,766,051)Increase (decrease) in income taxes payable 931,116,718 (603,880,812)Payment of severance benefits (242,860,545) (2,997,226)Increase (decrease) in deferred income tax liabilities (94,223,972) 561,896,269

(4,690,606,146) (988,054,465)

Net cash provided by operating activities ￦ 11,838,422,150 ￦ 10,984,774,601

In Korean Won

25


STATEMENTS OF CASH FLOWS, Continued;For the years ended December 31, 2002 and 2001

─ ─ ─ ─ ─ ─ ─ ─ ─ ─ ─ ─ ─ ─ ─ ─

2002 2001

CASH FLOWS FROM INVESTING ACTIVITIES :Cash inflows from investing activitiesProceeds from disposal of short-term financial instruments ￦ 16,146,109,595 ￦ 26,218,953,028Proceeds from disposal of marketable securities 24,270,752,566 25,772,280,174Proceeds from disposal of long-term financial instruments 1,000,000,000 - Decrease in short-term loans to employees 53,684,650 34,295,634Decrease in long-term loans to employees - 24,714,336

1,472,820,000 1,130,091,000

42,943,366,811 53,180,334,172

Cash outflows from investing activities Acquisition of short-term financial instruments 52,773,127,860 - Acquisition of marketable securities 17,077,431,304 28,343,637,902 Increase in short-term loans 70,000,000 - Acquisition of long-term financial instruments 2,000,000,000 1,000,000,000 Acquisition of investment securities - 3,160,864,315 Increase in guarantee deposits 1,049,966,046 440,892,000 Acquisition of machinery 7,306,798,343 4,669,226,395 Acquisition of tools, furniture and fixtures 464,418,899 378,569,226 Acquisition of intellectual proprietary rights 10,000,000 552,000 Increase in development costs - 518,194,164 Acquisition of other intangible assets 719,770,000 212,837,000

81,471,512,452 38,724,773,002Net cash provided by (used in) investing activities (38,528,145,641) 14,455,561,170

CASH FLOWS FROM FINANCING ACTIVITIES :Cash inflows from financing activities

Issuance of common stock - 1,818,126,720

Proceeds from disposal of treasury stock 5,660,367,445 698,743,600

5,660,367,445 2,516,870,320 Cash outflows from financing activitiesPayment of dividends 1,452,578,500 1,461,538,400Repayments of current portion of long-term borrowings - 33,320,000Repayments of long-term borrowings - 58,310,000Acquisition of treasury stock - 3,436,980,020

1,452,578,500 4,990,148,420

Net cash provided by (used in) financing activities 4,207,788,945 (2,473,278,100)

NET INCREASE (DECREASE) IN CASH (22,481,934,546) 22,967,057,671

CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE YEAR 37,087,932,138 14,120,874,467

CASH AND CASH EQUIVALENTS AT THE END OF THE YEAR ￦ 14,605,997,592 ￦ 37,087,932,138

In Korean Won

Decrease in guarantee deposits

26


STATEMENTS OF CASH FLOWS, Continued;For the years ended December 31, 2002 and 2001

─ ─ ─ ─ ─ ─ ─ ─ ─ ─ ─ ─ ─ ─ ─ ─

2002 2001

CASH FLOWS FROM INVESTING ACTIVITIES :Cash inflows from investing activitiesProceeds from disposal of short-term financial instruments ￦ 16,146,109,595 ￦ 26,218,953,028Proceeds from disposal of marketable securities 24,270,752,566 25,772,280,174Proceeds from disposal of long-term financial instruments 1,000,000,000 - Decrease in short-term loans to employees 53,684,650 34,295,634Decrease in long-term loans to employees - 24,714,336

1,472,820,000 1,130,091,000

42,943,366,811 53,180,334,172

Cash outflows from investing activities Acquisition of short-term financial instruments 52,773,127,860 - Acquisition of marketable securities 17,077,431,304 28,343,637,902 Increase in short-term loans 70,000,000 - Acquisition of long-term financial instruments 2,000,000,000 1,000,000,000 Acquisition of investment securities - 3,160,864,315 Increase in guarantee deposits 1,049,966,046 440,892,000 Acquisition of machinery 7,306,798,343 4,669,226,395 Acquisition of tools, furniture and fixtures 464,418,899 378,569,226 Acquisition of intellectual proprietary rights 10,000,000 552,000 Increase in development costs - 518,194,164 Acquisition of other intangible assets 719,770,000 212,837,000

81,471,512,452 38,724,773,002Net cash provided by (used in) investing activities (38,528,145,641) 14,455,561,170

CASH FLOWS FROM FINANCING ACTIVITIES :Cash inflows from financing activitiesIssuance of common stock - 1,818,126,720 Proceeds from disposal of treasury stock 5,660,367,445 698,743,600

5,660,367,445 2,516,870,320 Cash outflows from financing activitiesPayment of dividends 1,452,578,500 1,461,538,400Repayments of current portion of long-term borrowings - 33,320,000Repayments of long-term borrowings - 58,310,000Acquisition of treasury stock - 3,436,980,020

1,452,578,500 4,990,148,420

Net cash provided by (used in) financing activities 4,207,788,945 (2,473,278,100)

NET INCREASE (DECREASE) IN CASH (22,481,934,546) 22,967,057,671

CASH AND CASH EQUIVALENTS

AT THE BEGINNING OF THE YEAR 37,087,932,138 14,120,874,467

CASH AND CASH EQUIVALENTS AT THE END OF THE YEAR ￦ 14,605,997,592 ￦ 37,087,932,138

In Korean Won

Decrease in guarantee deposits

27

Financial:Audit Report 2002

C O N T E N T S

Page

Independent Auditor’s Report .......................................... 1 ∼ 2 FINANCIAL STATEMENTS : Balance Sheets .................................................................... 3 ∼ 4 Income Statements .............................................................. 5 ∼ 6 Statements of Appropriations of Retained Earnings ............................................................... 7 Statements of Cash Flows ................................................... 8 ∼ 9 Notes to Financial Statements ............................................ 10 ∼ 26

28


Audit Report 2002 Continued;

Independent Auditor’s Report

To the Board of Directors and Shareholders ofNEOWIZ Corporation We have audited the accompanying balance sheets of NEOWIZ Corporation (the “Company”) as of December 31, 2002 and 2001, and the related statements of income, appropriations of retained earnings and cash flows for the years then ended expressed in Korean Won. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.We conducted our audits in accordance with auditing standards generally accepted in the Republic of Korea. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial positions of NEOWIZ Corporation as of December 31, 2002 and 2001, and the results of its operations, the changes in its retained earnings and its cash flows for the years then ended, in conformity with financial accounting standards generally accepted in the Republic of Korea. As discussed in Note 2 to the financial statements, effective January 1, 2002, in order to enhance the matching principle, the Company has changed its fractional year depreciation method from a half-year convention to a monthly convention for mid-year asset acquisitions. As a result of this change in accounting estimate, the Company’s depreciation expense has decreased by ￦ 996 million for the year ended December 31, 2002.As discussed in Note 19 to the financial statements, as of December 31, 2002, the Company has pledged ￦ 2,000 million of time deposit to KorAm Bank, as collateral for housing loans to employees.

Accounting principles and auditing standards and their application in practice vary among countries. The accompanying financial statements are not intended to present the financial position, results of operations and cash flows in conformity with accounting principles and practices generally accepted in countries and jurisdictions other than the Republic of Korea. In addition, the procedures and practices used in the Republic of Korea to audit such financial statements may differ from those generally accepted and applied in other countries. Accordingly, this report and the accompanying financial statements are for use by those who are knowledgeable about Korean accounting principles or auditing standards and their application in practice.

Seoul, Korea January 21, 2003

29


NEOWIZ Corporation (the “Company”) was incorporated on June 6, 1997 under the Commercial Code of the Republic of Korea to engage in computer equipment consulting, software consulting and development business. The Company was identified as a venture company on July 28, 1997 under the Act on Special Measure for the Promotion of Venture Business and the Company’s shares were listed on the KOSDAQ on June 23, 2000.The Company provides online community service SayClub (“SayClub”) and an instant internet access service OneClick, (“OneClick”) SayClub, web-based community service, provides instant messenger, community, chatting, and game services. Based on the online community, SayClub provides charged premium digital contents service such as character items. In April 1998, OneClick has started to provide internet connection service to modem users. OneClick now includes eGames service that provides internet game connection service.The capital of the Company as of December 31, 2002 was ￦ 1,533 million after several capital increases. The Company’s shareholders as of December 31, 2002 are as follows :

Shareholders’ name Number of shares Ownership (%)

S.K. Na 540,000 17.61

B.K. Chang 471,160 15.36

S.Y. Choi 323,900 10.56

Others 1,731,392 56.47

3,066,452 100.00

The significant accounting policies followed by the Company in the preparation of its financial statements in accordance with Financial Accounting Standards of the Republic of Korea are summarized below:

Basis of Financial Statement Presentation -

The Company maintains its official accounting records in Korean Won and prepares statutory financial statements in the Korean language in conformity with financial accounting standards generally accepted in the Republic of Korea. The accompanying financial statements have been condensed, restructured and translated into English from the Korean language financial statements. Certain accounting principles applied by the Company that conform with financial accounting standards and accounting principles in the Republic of Korea may not conform with generally accepted accounting principles in other countries. Accordingly, these financial statements are intended for use by those who are informed about Korean accounting principles and practices. Certain information attached to the Korean language financial statements, but not required for a fair presentation of the Company's financial position and results of operations, is not presented in the accompanying financial statements. The preparation of the financial statements requires management to make estimates and assumptions that affect amounts reported therein. Due to the inherent uncertainty involved in making estimates, actual results reported in future periods may differ from those estimates.

1. The Company :

2. Summary of Significant Accounting Policies :

30


Revenue Recognition and Allowance for Doubtful Accounts - Revenues are recognized when services are rendered, and the Company provides an allowance for doubtful accounts based on the aggregate estimated collectibility of the receivables. Marketable Securities - All marketable securities are initially carried at cost, including incidental expenses, with cost determined using the weighted average method. Marketable securities are subsequently carried at their market value and unrealized gains and losses on marketable securities are included in the statements of operations.

Investment Securities - Investments in equity securities of companies over which the Company exercises significant control or influence (controlled investees) are recorded using the equity method of accounting. Under the equity method, the Company records changes in its proportionate ownership of the book value of the investee in current operations, as capital adjustments or as adjustments to retained earnings, depending on the nature of the underlying change in book value of the investee. Differences between the initial purchase price and the Company’s initial proportionate ownership of the net book value of the investee (goodwill) are amortized over five years using the straight-line method. Such goodwill is amortized over less than five years or reversed if the net realizable period of goodwill is less than five years. In addition, if the net realizable value of goodwill is less than book value of the goodwill, the book value is reduced to the net realizable value and loss on equity method investees is recognized in current operation. Investments in non-marketable equity securities of non-controlled investees are carried at cost, except for declines in the Company’s proportionate ownership of the underlying book value of the investee which are anticipated to be permanent, which are recorded as impairment losses in current operations.

Property, Plant and Equipment - Property, plant and equipment are recorded at cost. Depreciation is computed using the declining balance method, over the estimated useful lives of the assets, as follows: Estimated useful lives Machinery 3years Vehicles 3 yearsTools, furniture and fixtures 2~3 years Routine maintenance and repairs are charged to expense as incurred. Expenditures, which enhance the value or extend the useful life of the related assets, are capitalized. Lease Transaction - The Company accounts for lease transactions as either operating leases or financing leases, depending on the terms of the underlying lease agreement. There is no financing lease transaction as of December 31, 2002. Machinery acquired under operating lease agreements is not included in property, plant and equipment. Rather, the related lease rentals are charged to expense when incurred.

2. Summary of Significant Accounting Policies, Continued;

31



Intangible Assets - Intangible assets are stated at cost, net of accumulated amortization. Amortization of intangible assets are computed using the straight-line method over the estimated useful lives as follows:

Estimated useful lives Intellectual proprietary rights 5 yearsDevelopment costs 5 yearsOther intangible assets 2 years Ordinary research and development costs are expensed as incurred. Development costs directly relating to new technology or new products of which the estimated future benefits are probable are capitalized as intangible assets. Amortization of development costs is computed using the straight-line method over five years from the commencement of commercial production of related products or used of the related technology. Such costs are subject to continual analysis of recoverability. In the event that such amounts are estimated to be not recoverable, they are written-down or written-off.

Foreign Currency Translation -

Monetary assets and liabilities denominated in foreign currencies are translated into Korean Won at the basic rates in effect at the balance sheet date, and resulting translation gains and losses are recognized in current operations.Monetary assets denominated in foreign currencies as of December 31, 2002 and 2001 are as follows:

2002 2001

Foreign currencies

In thousands of Korean Won

Foreign currenciesIn thousands of Korean

Won

Cash and cash equivalentsJP ￥ 75,013,982.00

￦ 1,105,902 - ￦ -

US ＄ 300,000.00

Short-term financial instruments

-

-US ＄ 431,749.52

567,103

JP ￥ 75,013,982.00

￦ 1,105,902 US$ 431,749.52 ￦ 567,103 US ＄ 300,000.00

Deferred Income Taxes -

The Company recognizes deferred income taxes for anticipated future tax consequences resulting from temporary differences between amounts reported for financial reporting and income tax purposes. Deferred tax assets and liabilities are computed on such temporary differences by applying enacted statutory tax rates applicable to the years when such differences are expected to reverse. Deferred tax assets are recognized when it is more likely than not that such deferred tax assets will be realized. The total income tax provision includes the current tax expense, under applicable tax regulations, and the change in the balance of deferred tax assets and liabilities during the year.

32



Stock Options -

Compensation costs for stock option plans are determined using an option-pricing model (minimum value method) in which the Company assumes that there is no volatility in the underlying stock prices at grant dates and recognizes an equal amount of compensation expense over the vesting period.

Deferred Income Taxes -

The Company recognizes deferred income taxes for anticipated future tax consequences resulting from temporary differences between amounts reported for financial reporting and income tax purposes. Deferred tax assets and liabilities are computed on such temporary differences by applying enacted statutory tax rates applicable to the years when such differences are expected to reverse. Deferred tax assets are recognized when it is more likely than not that such deferred tax assets will be realized. The total income tax provision includes the current tax expense, under applicable tax regulations, and the change in the balance of deferred tax assets and liabilities during the year.

Stock Options -

Compensation costs for stock option plans are determined using an option-pricing model (minimum value method) in which the Company assumes that there is no volatility in the underlying stock prices at grant dates and recognizes an equal amount of compensation expense over the vesting period.

Changes in Accounting Estimate –

Effective January 1, 2002, in order to enhance the matching principle, the Company has changed its fractional year depreciation method from a half-year convention to a monthly convention for mid-year asset acquisitions. As a result of this change in accounting estimate, the Company’s depreciation expense has decreased by ￦ 996,255 thousand for the year ended December 31, 2002.

3. Restricted Financial Instruments : Restricted financial instruments as of December 31, 2002 and 2001 comprise the following:


Account 2002 2001

Short-term financial instruments ￦ 20,000 (*) ￦ -

5,703,640 (**) 23,597

Long-term financial instruments 2,000,000 (***)

1,000,000

￦ 7,723,640 ￦ 1,023,597

(*) Short-term financial instruments are pledged as collateral to SK Corporation for guarantee of business performance.(**) Short-term financial instruments are the specified money trust for acquiring the treasury stock.(***) Long-term financial instruments are pledged as collateral to KorAm Bank for the loans to employees.

33


4. Marketable Securities : Marketable securities as of December 31, 2002 and 2001 comprise the following:


Acquisition cost Fair value Book value

Type 2002 2001 2002 2001 2002 2001

MMF ￦ 1,012,945 ￦ 8,012,945 ￦ 1,166,336 ￦ 8,250,916 ￦ 1,166,336 ￦ 8,250,916

5. Short-term Loans to Employees : Short-term loans to employees as of December 31, 2002 and 2001 comprise the following:


2002 2001

Loans to employees for acquiring stocks ￦ 24,488 ￦ 78,713

Less : current portion - 51,273

￦ 24,488 ￦ 26,899

6. Investment Securities : Investment securities as of December 31, 2002 and 2001 comprise the following (In thousands of Korean Won): Details of Non-marketable Investment Securities -

Number of shares

Ownership (%) Acquisition cost

Net asset value

Book value

2002 2002 2001

Viewsystem Korea Co., Ltd. (*) 90,000 15.0 ￦ 450,000 ￦ 219,684 ￦ 219,684 ￦ 272,765

(*) Net asset value is calculated by using the unaudited financial statements of the investee. Declines in the Company’s proportionate ownership of the underlying book value of the Viewsystem Korea Co., Ltd., which are anticipated to be permanent, are recorded as impairment losses in current operations.

34



2002 2001

Beginning balance ￦ 472,408￦

-Increases - 518,194

Amortization 72,799 45,786

Impairment 154,197 -

Ending balance ￦ 245,412 ￦ 472,408

6. Investment Securities, Continued;

Details of Equity Method Investees -

2002 2001

Number of shares

Ownership (%)

Acquisition costNet asset

valueBook value Acquisition cost

Bookvalue

Saycupid corporation

55,660 49.3 ￦ 625,000￦ -

￦ -

￦ 625,000 ￦ 223,022

Intromobile Co., Ltd.

420,000 24.7 700,000 9,461 294,570 700,000 631,089

Mcube Co., Ltd. 200,000 100.0 3,160,864 - 1,539,701 3,160,864 2,707,143

￦ 4,485,864 ￦ 9,461 ￦ 1,834,271 ￦ 4,485,864 ￦ 3,561,254

7. Development Costs : Development costs incurred for the years ended December 31, 2002 and 2001 are as follows:

35


As of December 31, 2002 and 2001, the Company has entered into contracts of payment agency and circuit use with Korea Telecom, DANAL, and others. Information fee and circuit use fee for the year ended December 31, 2002 amount to ￦ 5,220,172 thousand and ￦ 2,451,898 thousand, respectively. Information fee and circuit use fee for the year ended December 31, 2001 amount to ￦ 7,348,180 thousand and ￦ 3,105,071 thousand, respectively.

Assets provided as Collaterals - The Company has pledged ￦ 2,000 million of long-term financial instruments to KorAm Bank, as collateral for housing loans and other loans to employees (see Notes 3 and 19). In addition, the Company has pledged ￦ 20 million of short-term financial instruments to SK Corporation, as collateral for guarantee of business performance. Lease Agreement - The Company has leased machinery from IBM Korea under operating lease agreement with lease period from September 27, 2001 to September 30, 2004 and monthly rental payment of ￦ 46,930 thousand. The Company’s rental payments, which are recognized as expenses, for the years ended December 31, 2002 and 2001 amount to ￦ 563,160 thousand and ￦ 140,790 thousand, respectively. Remaining rental payments under operating lease agreement are as follows:

8. Commitments and Contingencies :

Service Agreements -


2003.1.1 – 2003.12.31 ￦ 563,1602004.1.1 – 2004. 9.30 422,370

￦ 985,530

Litigations - Effective January 12, 2001, the Company has entered into the eBilling service contract with Softfamily Co., Ltd. (“Softfamily”) in connection to introducing Softfamily’s payment system (700ARS) for the payments of SayClub members. However, as of December 31, 2002, the Company is a defendant in a lawsuit filed by Softfamily seeking ￦ 100,000 thousand for early termination of eBilling service contract. The ultimate effect of these uncertainties cannot presently be determined. Insurance - The Company maintains insurance coverage for losses which may arise in connection with certain assets as of December 31, 2002 as follows:

Assets In thousands of Korean Won

Machinery (Server) ￦ 6,178,896

36


9. Capital Stock : The Company’s capital stock as of December 31, 2002 is as follows: Authorized : Common share 30,000,000 shares Issued and outstanding : Common share 3,066,452 shares Par value : ￦ 500 Capital : ￦ 1,533,226,000 10. Other Capital Surplus : Other capital surplus incurred by disposing the treasury stock for the years ended December 31, 2002 and 2001 are as follows (see Note 13):


2002 2001

Number of disposed treasury stock 143,295 shares 10,308 shares

Gain on disposal of treasury stock (A) ￦ 358,449 ￦ 299,618

Income tax effect (B) 106,459 92,282

Other capital surplus (A-B) ￦ 251,990 ￦ 207,336

11. Retained Earnings : Legal Reserve - Pursuant to the Korean Commercial Code, the Company is required to appropriate, as a legal reserve, an amount equal to a minimum of 10% of annual cash dividends declared, until such reserve equals 50% of its paid-in capital. This reserve is not available for the payment of cash dividends, but may be transferred to capital stock, or used to reduce accumulated deficit, if any. Other Reserves - Pursuant to the Special Tax Treatment Control Law, the Company appropriates a portion of retained earnings equal to tax reductions as reserves for investment in small and medium-sized enterprises, research and development, and business losses. These reserves may be utilized for payment of dividends upon expiration of certain grace periods as prescribed under the Korean Tax Laws.

37


Date of grantGranted number

of sharesExercisable period

Exercise price(In Korean Won)

Exercisable numberof shares

1999. 12. 23 3,200 2002.12.23 2007. 12.23∼ ￦ 52,500 20% each year

2002. 12. 4 30,6652004.12.5 2005. 12. 4∼2005.12.5 2006. 12. 4∼2006.12.5 2007. 12. 4∼

36,500

12,6669,2009,199

2002. 12. 4 6,1322004.12.5 2005.12.4∼2005.12.5 2006.12.4∼ 36,500

3,6802,452

39,997

12. Stock Options : The details of the Company’s granted stock options as of December 31, 2002 are as follows:

The assumptions and method for calculating compensation costs as of the date of grant are as follows:

Date of grant

1999. 12. 23 2002 .12. 4

Calculation method of compensation costs

Minimum value based method Minimum value based method

Risk-free interest rate 10.05% 5.37%

Expected exercise period 5.5 years 2.9 ~ 3.4 years

Variance ofexpected stock price

0.001 0.001

Expected dividend yield ratio

0.0% 0.0%

Calculation method ofstock price

Accounting-based valuation model

Market price of date of grant

The compensation costs are amortized over the service period and the resulting amortization expenses charged to current operations amount to ￦ 9,355 thousand (selling and administrative expenses). The compensation costs to be recognized after current year amount to ￦ 364,253 thousand. The total compensation costs calculated based on the fair value based method are ￦ 1,258,218 thousand.

38


The Company has acquired and keeps 18,000 shares of treasury stock of as of December 31, 2002 and intends to sell these shares in the near future. Details of changes in the Company’s treasury stock for the years ended December 31, 2002 and 2001 are as follows:

13. Treasury Stock :

2002 2001

Numberof shares

In thousands of Korean

Won

Numberof shares

In thousands of Korean

Won

Beginning balance 161,295 ￦ 5,982,630 384,616 ￦ 2,944,776

Acquisition before stock consolidation - - 33,500 252,004

Stock consolidation - - (334,493) -

Acquisition after stock consolidation

- - 87,980 3,184,976

Disposition after stock consolidation

143,295 5,301,918 (10,308) (399,126)

Ending balance 18,000 ￦ 680,712 161,295 ￦ 5,982,630

14. Prior Period Adjustments :

Classification Correspondingyear Description In thousands of

Korean Won

Loss on priorperiod adjustments

20002000

Underestimation of salesOverestimation of cost of sales

￦ 108,013 39,103

￦ 147,116

Gain on priorperiod adjustments 2000 Underestimation of cost of sales ￦ (200,496)

39


15. Income Tax Expenses :

The details of the Company’s income taxes are as follows:

Composition of Income Tax Expenses -


2002 2001

Current year’s income tax expense ￦ 1,722,736 ￦ 1,448,909

Deferred tax due to temporary difference(*) 12,235 561,896

Income tax deducted from capital surplus (106,459) (92,282)

Income tax expenses ￦ 1,628,512 ￦ 1,918,523

(*) Ending net deferred tax liability ￦ 2,783,847 ￦ 2,771,612

Beginning net deferred tax liability 2,771,612 2,267,313

Deferred tax asset added to retained earnings - (57,597)

Deferred tax due to temporary difference ￦ 12,235 ￦ 561,896

Income Tax Expenses and Deferred Income Tax added to Retained Earnings -


2002

2001

Expense Tax effect Expense Tax effect

Gain on disposal of treasury stock ￦ 358,449 ￦ (106,459)￦

299,618￦ (92,282)

Decrease in retained earnings By using equity method

- - (193,930) 57,597


2002 2001

(1) Income tax expenses ￦ 1,628,512 ￦ 1,918,523

(2) Income before income tax expenses 9,284,495 9,229,560

(3) Effective tax rate [(1) /(2)] 17.54% 20.79%

Effective Tax Rate -

40


Ordinary income per share and earnings per share for the years ended December 31, 2002 and 2001 are calculated as follows:

2002 2001

Basic ordinary income per share

Ordinary income ￦ 7,665,982,525 ￦ 7,311,036,387Weighted average number ofoutstanding common shares

2,915,757 shares 2,916,332 shares

￦ 2,626 ￦ 2,507

Basic earnings per share

Net income ￦ 7,665,982,525 ￦ 7,311,036,387Weighted average number ofoutstanding common stocks

2,915,757 shares 2,916,332 shares

￦ 2,626 ￦ 2,507

16. Ordinary Income per Share and Earnings Per Share :

Diluted ordinary income per share and diluted earnings per share for the years ended December 31, 2002 and 2001 are the same as basic ordinary income per share and basic earnings per share, respectively, since the Company’s stock options granted to employees and executives have no diluting effect.

17. Value-added Information :

Accounts for computing value added for the years ended December 31, 2002 and 2001 are as follows :


2002 2001

Salaries ￦ 7,830,528 ￦ 3,521,837

Provision for severance benefits 342,090 158,923

Other employee benefits 1,730,435 858,009

Rent 1,542,275 738,480

Depreciation 4,996,910 3,742,507

Taxes and dues 35,951 40,368

￦ 16,478,189 ￦ 9,060,214

41


18. Dividends :

Details of dividends, propensity to dividend and dividend yield ratio for the years ended December 31, 2002 and 2001 are as follows: Dividends -

2002 2001

(1) Shares eligible for dividends (a-b) 3,048,452 shares 2,905,157 shares

a. Issued and outstanding common shares 3,066,452 shares 3,066,452 shares

b. Treasury stock (18,000) shares (161,295) shares

(2) Par value per share ￦ 500 ￦ 500

(3) Dividend ratio (cash dividends) 100% 100%

(4) Dividends [(1)×(2)×(3)] ￦ 1,524,226,000 ￦ 1,452,578,500

Propensity to Dividend and Dividend Yield Ratio -

Calculation 2002 2001

(1)Net Income ￦ 7,665,982,525 ￦ 6,962,369,352

(2)Propensity to dividend

Dividends / net income 19.91% 19.87%

(3)Dividend yield ratio

Dividends per share / market price as of December 31, 2002 and 2001

1.39% 1.4%

42


Significant transactions which occurred in the ordinary course of business with related companies for the years ended December 31, 2002 and 2001 and the related account balances outstanding as of December 31, 2002 and 2001, are as follows:

19. Transactions with Related Parties :

Transactions Receivables and payables

2002 DescriptionIn thousand of Korean won

AccountsIn thousand of Korean won


Information fee ￦ 85,002


Rental income 9,120Short-term

loans￦ 70,000

Mcube Co., Ltd.Ordinarydevelopment costs

457,736

Transactions

Receivables and payables

2001 DescriptionIn thousand of Korean won

Accounts In thousand of Korean won


Information fee ￦ 25,342Advance payment

￦ 150,000


Revenues-advertising

7,400

Mcube Co., Ltd. Ordinary development costs

19,500

As of December 31, 2002 and 2001, the Company has pledged long-term financial instruments of ￦ 2,000 million and ￦ 1,000 million, respectively, to KorAm Bank, as collateral for housing loans to employees (see Notes 3 and 8).

21. Korean Economic Uncertainties :

43


20. Supplemental Cash Flow Information :

Significant transactions not affecting cash flows for the years ended December 31, 2002 and 2001 are as follows:


2002 2001

Reclassification of current portion of long-term loans to employees

￦ 26,899 ￦ 51,273

Increase in dividends payable by appropriation of retained earnings

1,524,226 1,452,579

Changes in retained earnings by using equity method of accounting

-193,930

Decrease in deferred tax liability added to retained earnings

-57,597

In response to general unstable economic conditions, the Korean government and the private sector have been implementing structural reforms to historical business practices. Implementation of these reforms is progressing slowly, particularly in the areas of restructuring private enterprises and reforming the banking industry. The Korean government continues to apply pressure to Korean companies to restructure into more efficient and profitable firms. The Company may be either directly or indirectly affected by these general unstable economic conditions and the reform program described above. The accompanying financial statements reflect management’s assessment of the impact to date of the economic situation on the financial position of the Company. Actual results may differ materially from management’s current assessment.

21. Korean Economic Uncertainties :

Documents

Neowiz company prospectus 2003