1. Organization and business

Cyper Entertainment Co., Ltd. (the "Company") was incorporated in 2000 in accordance with the laws of the Republic of Korea, to manufacture and distribute 3D digital animation, multi media, and entertainment related products. The Company's head office is located in Seoul, Korea.

Mr. Duk-Jin Jang, the president of the Company and largest shareholder, owns 51.30% of the Company's outstanding shares.

2. Basis of interim financial statements and summary of significant accounting policies

Basis of financial statements - The Company maintains its official accounting records in Korean won prepares its statutory financial statements in conformity with accounting principles generally accepted in the Republic of Korea ("Korean GAAP"), which may differ from accounting principles generally accepted in countries and jurisdictions other than the Republic of Korea. Accordingly, the accompanying financial statements are not intended for use by those who are not informed about Korean GAPP and their application in practice.

For the convenience of the reader, in preparing the accompanying financial statements, certain reclassifications, and changes in statement format and extent of disclosures have been made to the financial statements issued in the Korean language for domestic statutory purposes. Certain supplementary information included in the statutory Korean language financial statements, but not required for a fair presentation of the Company's financial position, results of operations and cash flows, is not presented in the accompanying financial statements.

Basis of translation the financial statements - For the convenience of the reader, the 2001 financial statements, expressed in Korean won, have been translated into United States dollar amounts at the exchange rate of W 1313.5 to US$1, the average middle exchange rate for trading on December 31, 2001. Such translation should not be construed as a representation that any or all of amounts stated in Korean won could have been converted into United Stated dollars at this or any other rate.

2. Basis of interim financial statements and summary of significant accounting policies (cont'd)

Cash equivalents - Marketable securities and short-term financial instruments with original maturities of three months or less, and which are easily converted into cash and which have no significant risk of loss in value by interest rate fluctuations, are considered as cash equivalents.

Allowance for doubtful accounts - The Company provides an allowance for doubtful accounts in consideration of estimated losses that may arise from non-collection of its receivables. The estimate of losses is based on the estimated collectibles of receivables and historical bad debts experience.

Inventories - Finished goods and work-in process are valued at production costs, plus incidental expenses, determined using total average cost method.

Property, plant and equipment - Property, plant and equipment are stated at cost. Expenditures that enhance the value or extend the lives of assets are capitalized as additions to property, plant and equipment. Maintenance and repairs are expensed in the year in which they are incurred.

Depreciation of tangible asset is computed using the straight-line method, based on the following estimated useful lives:

CYPER ENTERTAINMENT CO., LTD.

2. Basis of interim financial statements and summary of significant accounting policies (cont'd)

3D Animation - 3D Animation, manufactured by computer graphic, is stated at production cost. The production cost of 3D Animation is transferred to cost of goods manufactured equal amount to recognized sales of current term in proportion to total expected sales of related project and the residual production cost is annually assessed by possibility of realization in the future.

Intangible assets - Intangible assets, organizing cost, is amortized over 3 years using the straight-line method.

Convertible bonds - Convertible bond is recorded in the Company's accounts using the same method with debentures. Interest expense is calculated using effective interest rate which makes present value of cash flow of the principle and interest (including redemption premium) equal to market value of a bond and redemption premium interest is recorded in long-term accrued interest expense.

Severance and retirement benefits - In accordance with the Company's regulations, employees and directors with more than one year of service are entitled to severance and retirement benefits upon termination of their employment based on years of service, rates of pay in effect at the time of termination and certain other factors. The annual provision is sufficient to state the estimated obligation arising from services performed to and at rates of pay in effect at the balance sheet date. Funding of this liability is not required by Korean law.

Basis of revenue recognition - Sales of finished goods is to be recognized when goods are sold and delivered. Revenues related to pre-contract sales are recognized using the percentage-of-completion method.

2. Basis of interim financial statements and summary of significant accounting policies (cont'd)

Income taxes - Korean GAAP requires the recognition of deferred tax assets and liabilities arising from temporary differences between the financial reporting and tax reporting bases of assets and liabilities. Deferred tax assets and liabilities are measured using enacted tax rates which are expected to be applied to taxable income in the period such temporary differences are expected to be recovered or settled.

Per share amounts - Ordinary earnings and earnings per share of common stock are computed by dividing ordinary income and net income by the weighted average number of shares of common stock issued and outstanding during the period (1,235,000 shares in 2001 and 1,185,000 shares in 2000). Ordinary earnings per share is also required to be disclosed and is computed by reversing the effect of extraordinary items (net of the effect of income taxes), if any.

Use of estimates - The preparation of financial statements in conformity with Korean GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures 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 those estimates.

As of December 31, 2001, W10, 000 thousand (US$7.6 thousand) of short-term financial instruments have been provided as collateral in connection with short-term borrowings.

4. Ordinary development costs

Ordinary development expenses amounting to W104, 929 thousand (US$79.4 thousand) and W100, 138 thousand (US$76.2 thousand) for the periods ended December 31, 2001 and 2000, respectively, were charged to current operations.

5. Insurance

Machinery and equipments are insured against fire and other casualty damage for up to W 750,000 thousand (US$571thousand) as of December 31, 2001.

6. Borrowings and guarantees

Borrowings as of December 31, 2001 and 2000 are as follows:

In connection with the repayment of above long-term debt, the Company's tangible assets have been mortgaged to the bank as security to the extent of W 300,000 thousand (US$ 228.4 thousand). And Korea Technology Credit Guarantee Fund has issued a guarantee on behalf of the Company for up to W297, 500 thousand (US$ 226.5thousand) to the bank.

Bank deposit amounting to W10, 000 thousand (US$ 7.6 thousand) at December 31, 2001 have been deposited with banks as security for short-term debt

7. Convertible bond

As of December 31, 2001and 2000, the convertible bond is as follows:

9. Stockholders' equity

As of December 31, 2001, the authorized common shares and the outstanding common shares are 50,000,000 and 1,235,000 shares, respectively with par value of .500

As of December 31, 2001, the ownership of the Company's is as follows:

10. Income taxes (cont'd)

11. Per share amounts

Ordinary earnings per share and earnings per share for the periods ended December 31, 2001 and 2000 are computed as follows (Korean won and shares in units):