UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM SB-2/A
PRE-EFFECTIVE AMENDMENT NO. 5
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
K-TRONIK INTERNATIONAL CORP.
(formerly LMC Capital Corp.)
(Name of Small Business Issuer in its Charter)
| Nevada | 3640 | 88-0436364 |
| (State or jurisdiction of | (Primary Standard Industrial | (I.R.S. Employer |
| incorportion or organization) | Classification Code Number) | Identification No.) |
290 Vincent Avenue, 4th Floor
Hackensack, New Jersey 07601
Tel: (201) 488-4600
Fax: (201) 488-8480
(Address and telephone number of Registrant's principal executive
offices and principal place of business)
Resident Agent's of Nevada
711 South Carson Street Suite 4
Carson City, Nevada 89701
Tel: (775) 882-4641;
Fax: (775) 882-6818
(Name, address, and telephone number of agent for service)
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Approximate date of proposed sale to the public: As soon as practicable after this registration statement becomes effective.
If this Form is filed to register additional securities for an offering Pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration number of the earlier effective registration statement for the same offering.
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.
If the delivery of the prospectus is expected to be made pursuant to Rule 434, check the following box.
If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933 check the following box (X)
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CALCULATION OF REGISTRATION FEE
Title of Amount to be Proposed Proposed Amount of
each class registered (1) Maximum maximum registration
of securities offering price aggregate fee (3)
to be per share(2) offering
registered price
Common Stock 8,288,172 $0.20 $1,657,634.40 $152.50
K-Tronik hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until K-Tronik files a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.
(1) The total number of shares of common stock to be sold by shareholders on a continuous offering basis under Rule 415;
(2) Estimated for the purpose of calculating the registration fee
(3) The calculation (given footnote 2 above) was as follows: ( 8,288,172 shares X $0.20 ) ($92/1,000,000) = $152.50
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PROSPECTUS
K-TRONIK INTERNATIONAL CORP.
(formerly LMC Capital Corp.)
290 Vincent Avenue, 4th Floor
Hackensack, New Jersey 07601
Tel: (201) 488-4600
Fax: (201) 488-8480
8,288,172 Shares
Common Stock
K-Tronik International Corp. ("K-Tronik"), a Nevada corporation, is hereby offering shares of common stock pursuant to the terms of this prospectus. A total of 8,288,172 shares of common stock are to be registered for selling shareholders;
This prospectus relates to the resale of up to 8,288,172 shares of common stock by our shareholders who are hereinafter referred to as selling shareholders.
There is currently no market for our securities. The selling shareholders will sell the shares from time to time at $0.20 per share until our shares are quoted on the Over the Counter Bulletin Board (“OTCBB”). Non-affiliate Selling Shareholders shall thereafter sell their shares at prevailing market prices or privately negotiated prices while affiliate Selling Shareholders must continue to sell at $0.20 per share. There is no assurance that our common stock will be included on the OTCBB.
The shares offered hereby are highly speculative and involve a high degree of risk to public investors and should be purchased only by persons who can afford to lose their entire investment (See "Risk Factors" on page 7).
These securities have not been approved or disapproved by the U.S. Securities and Exchange Commission or any state securities commission nor has the U.S. Securities and Exchange Commission or any state securities commission passed upon the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense.
Information contained herein is subject to completion or amendment. The registration statement relating to the securities has been filed with the U.S. Securities and Exchange Commission. The securities may not be sold nor may offers to buy be accepted prior to the time the registration statement becomes effective. This prospectus shall not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of these securities in any state in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such state.
Subject to Completion, Dated: ______________, 2003
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TABLE OF CONTENTS
Prospectus Summary 7
Risk Factors 10
Use Of Proceeds 13
Determination Of Offering Price 14
Dilution 14
Selling Security Holders 14
Plan Of Distribution 15
Legal Proceedings 18
Directors, Executive Officers, Promoters
And Control Persons 18
Security Ownership Of Certain Beneficial Owners
And Management 20
Description Of Securities 22
Interest Of Named Experts And Counsel 23
Disclosure Of Commission Position On Indemnification
For Securities Act Liabilities 23
Organization Within Last Five Years 24
Description Of Business 24
Management's Discussion and Analysis of Financial
Condition and Results of Operations 34
Description Of Property 39
Certain Relationships And Related Transactions 40
Market For Common Equity And Related
Stockholder Matters 41
Executive Compensation 42
Financial Statements 43
Changes In And Disagreements With Accountants
On Accounting And Financial Disclosure 44
Indemnification of Officers and Directors 45
Other Expenses of Issuance and Distribution 45
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Recent Sales of Unregistered Securities 45
Exhibits 46
Undertakings 47
Signatures 48
EXHIBIT INDEX
EXHIBITS
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by detailed information appearing elsewhere in this prospectus. Each prospective investor is urged to read this prospectus in its entirety.
Business of K-Tronik.
K-Tronik N.A. Inc., our wholly owned subsidiary, is an electronic ballast manufacturer and distributor. K-Tronik N.A. currently manufactures ballasts for the US, Canadian, Asian, Latin-American and European markets although past sales have focused primarily on the United States. K-Tronik N.A. Inc. has a Korean subsidiary, K-Tronik (Asia), where ballast manufacture is conducted.
K-Tronik N.A. is particularly active with supplying ESCOs (Energy Services Companies) electronic ballast products used in generating energy savings for their customers' commercial and industrial buildings.
A "ballast" is a device in lighting systems that operates fluorescent lights. The ballast provides the necessary starting voltages, frequency and wattage to a fluorescent light while limiting and regulating the current during the light's operation. Without a ballast, a fluorescent light would be destroyed immediately when voltages were applied while switching it on. Many people recognize ballasts as the heavy "black boxes" in their fluorescent light fixtures at home that they can see when they replace their fluorescent tubes.
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The Offering.
A total of 8,288,172 shares of common stock are to be registered for selling shareholders.
Liquidity of Investment.
Although the shares will be free of resale restrictions once qualified by this Prospectus, there presently exists no public market for the shares. Therefore, an investor may not be able to sell shares when he or she wishes; therefore, an investor may consider his or her investment to be long-term.
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Summary Financial Information
SELECTED
FINANCIAL SEPTEMBER SEPTEMBER JUNE JUNE
INFORMATION 30, 2002 30, 2001 30, 2003 30, 2002
Net Sales $6,737,719 $6,680,622 $4,728,223 $4,975,416
Gross Profit $1,438,536 $1,587,216 $1,239,282 $1,180,240
Selling,
General and
Administrative
Expenses $2,020,670 $2,012,583 $1,626,770 $1,461,051
Interest and
Other Expenses $228,434 $248,249 $142,847 $160,050
Net Loss $(810,518) $(683,509) $(530,335) $(440,861)
Loss from
Operations $(582,084) $(425,367) $(387,488) $(280,811)
Working Capital $469,051 $1,225,582 $(147,544) $998,157
Net Cash from
Operating
Activities $11,723 $(1,249,496) $452,145 $(218,116)
Current Assets $3,603,980 $4,005,903 $3,274,419 $3,822,001
Total Assets $4,201,472 $4,581,305 $3,936,679 $4,350,427
Current
Liabilities $3,134,929 $2,780,321 $3,421,963 $2,823,844
Total
Liabilities and
Stockholders'
Equity (Deficit) $4,201,472 $4,581,305 $3,936,679 $4,350,427
Total
Stockholders'
Equity (Deficit) $1,066,543 $(1,908,196) $514,716 $1,526,583
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Risk Factors.
The securities offered hereby are highly speculative in nature and involve a high degree of risk. They should be purchased only by persons who can afford to lose their entire investment. Therefore, each prospective investor should, prior to purchase, consider very carefully the following risk factors, as well as all other information set forth in this prospectus.
The following risks should be considered carefully. Our business, financial condition and results of operations could be materially and adversely affected by any of the following risks:
WE RELY ON COMPONENT MANUFACTURERS AND PRODUCTION FACILITIES IN KOREA AND CHINA. IF THEIR OPERATIONS ARE DISRUPTED BY POLITICAL INSTABILITY, WE WILL NOT BE ABLE TO FILL ORDERS AND OUR SALES WILL DECREASE.
We rely on our Chinese manufacturing operations through our subsidiary K-Tronik (Asia) and through our transformer suppliers in China. Because of our reliance on them, we are vulnerable to any political instability in China or Korea which interrupts business operations there. Any such interruption could result in our not having necessary components and being unable to fill sales orders. This would result in our sales revenues decreasing.
IF WE WERE UNABLE TO SECURE LOANS FROM OUR PARENT COMPANY OR OUR BANKS WE WOULD NOT HAVE THE WORKING CAPITAL WE NEED TO CONTINUE OPERATING
Because we have not historically been profitable, we have relied, in the past, on loans from our parent company, Eiger Technology, Inc. If Eiger Technology, Inc. does not make loans to us in the future, we might not have the working capital we needed to continue operating.
We rely on working capital from our credit facilities. If these credit facilities were unavailable, we would not have the working capital we needed to continue operating.
IF OUR LENDERS DEMANDED IMMEDIATE PAYMENT OF OUTSTANDING LOANS, WE WOULD BE UNABLE TO PAY THEM AND WOULD NOT HAVE THE WORKING CAPITAL TO CONTINUE OPERATING
Our lenders, who make credit facilities available to us, have the right to demand immediate repayment of our outstanding loans under these credit facilities. If this happened, we would be unable to pay them with our present working capital and would not have the working capital we require to continue operating.
RISING INTEREST RATES COULD INCREASE THE BORROWING COSTS OF THE CREDIT FACILITIES WE RELY UPON FOR WORKING CAPITAL
Rising interest rates could increase the costs of borrowing under the credit facilities we rely upon. If these costs of borrowing increase, our profitability would decrease.
RISING INTEREST RATES COULD REDUCE CONSTRUCTION ACTIVITY IN THE UNITED STATES AND THIS WOULD RESULT IN LOWER SALES REVENUES FOR OUR COMPANY AND OUR INDUSTRY AS A WHOLE
Rising interest rates could negatively impact activity in the domestic construction industry. This would negatively affect our sales because our ballast products are used in the construction of residential and commercial buildings.
IF OUR PRESIDENT, ROBERT KIM WERE TO JOIN A COMPETITOR OUR SALES REVENUES MIGHT BE REDUCED
We rely on continued involvement of our President, Robert Kim, who founded K-Tronik and has been the key management and sales person for the company. We do not have a non-competition agreement with him in the event that he joined a competing company. If he were to join a competing company, our sales revenues would likely decrease.
A DOWNTURN IN THE US ECONOMY COULD DISCOURAGE CUSTOMERS FROM RETROFITTING (INSTALLING MORE ENERGY EFFICIENT BALLASTS) AND RESULT IN DECREASED SALES AND REVENUES FOR OUR COMPANY.
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A significant proportion of our sales are generated by customers installing more energy efficient electronic ballasts in place of existing magnetic or older ballasts. This process is know as "retrofitting". Worsening general economic conditions may affect funding for energy retrofit initiatives through federal, state and provincial budget cuts. If such funding were eliminated or reduced, our sales would decrease. We are particularly vulnerable to this because many of our customers are government institutions or hospitals and schools;
IF ONE OF OUR TWO MAJOR COMPONENT SUPPLIERS WERE TO FAIL TO DELIVER COMPONENTS, OUR PRODUCT DELIVERY WOULD BE DELAYED AND SALES REVENUES WOULD BE DELAYED
If one of our two major component suppliers, Fein Tech Company and Dae Gyung Corp., both of South Korea, were to fail to deliver components to us, we would not be able to deliver product to our customers on a timely basis. This could delay our sales and sales revenues. This occurred in the quarter ending December 31, 2002 when Fein Tech Company was unable to deliver components on time. As a result of this delay, we were unable to make some product deliveries and our sales revenues from those product deliveries was delayed. We do not have other major suppliers to whose failure we are vulnerable.
A DEPRECIATION OF THE US DOLLAR AGAINST THE KOREAN WON WOULD INCREASE OUR COSTS AND DECREASE OUR PROFITABILITY
Many of our costs are paid in Korean Won at our K-Tronik (Asia) subsidiary. If the US dollar was to depreciate against the Korean Won, our costs at our K-Tronik (Asia) subsidiary would increase. This would decrease our gross margin and profitability because our sales are mostly in the United States and are made as US dollar sales.
INVESTORS MAY NOT BE ABLE TO RESELL THEIR SECURITIES BECAUSE THERE IS NO MARKET FOR OUR SECURITIES
There is no market for our securities. As a result, any person purchasing securities offered hereunder may not be able to resell their securities.
WE HAVE NOT HISTORICALLY BEEN PROFITABLE AND MAY NOT BE PROFITABLE IN THE FUTURE
We have not historically been profitable and there can be no certainty that we will be profitable in the future.
Offering Price.
The offering price of the shares for the purpose of calculating the applicable registration fee with the SEC was determined to be $0.20. No shares have been issued from treasury for cash proceeds in the 12 months prior to the filing of this registration statement and, as no market exists for the shares of common stock, no market price or trading history for these shares is available. K-Tronik is not listed on any exchange at this time. The price of $0.20 was not determined in any form of negotiation of arms length transactions such as negotiation with a broker dealer. The price represents management's estimate of what price arms length third parties might be willing to pay to purchase securities of the Company but is not intended to imply that a formal valuation of the Company's securities has been undertaken. The book value of our shares is well below the $0.20 price.
Non-affiliate Selling Shareholders will sell their shares for $0.20 per share until such time as the shares are traded on the NASD’s OTCBB at which time they may sell their shares at prevailing market prices. Affiliate Selling Shareholders will sell their shares for $0.20 even if the shares are traded on the NASD’s OTCBB.
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Shares Eligible For Future Sale.
A total of 14,285,714 shares of common stock which are currently held, directly or indirectly, by management or by our parent company, Eiger Technology, Inc., have been issued in transactions not requiring registration under the Securities Act of 1933 and are not registered for resale pursuant to this registration statement.
Of these 14,285,714 shares of common stock, 6,714,286 were issued to K- Tronik's President and Director, Mr. Robert Kim, in consideration of his sale to K-Tronik of his shares of K-Tronik's wholly owned subsidiary, K-Tronik N.A. Inc.
A further 7,571,428 shares were issued to the ETIFF Holdings, LLC, a wholly owned subsidiary of Eiger Technology, Inc. in consideration of its sale to K-Tronik of its shares of K-Tronik's wholly owned subsidiary, K-Tronik N.A. Inc. ETIFF Holdings, LLC owns an additional 6,788,172 shares of common stock which are being registered for resale pursuant to this registration statement.
The 14,285,714 shares held by management and by the parent company, Eiger Technology, Inc., through its wholly owned subsidiary, ETIFF Holdings, LLC, all of which were acquired in December of 2001, currently could be made available for resale to the public in reliance upon Rule 144 . In general, under Rule 144 a person who has beneficially owned shares acquired in a non-public transaction for at least one year, including persons who may be deemed affiliates of K-Tronik, would be entitled to sell within any three-month period a number of shares that does not exceed the greater of 1% of the then outstanding shares of common stock, or the average weekly reported trading volume during the four calendar weeks preceding such sale, provided that certain current public information is then available. If a substantial number of the shares owned by these shareholders were sold pursuant to Rule 144 or a registered offering, the market price of our common stock could be adversely affected.
In addition to the resale restrictions on these 14,285,714 common shares detailed above, 6,714,286 of those shares, which are held by the President and CEO, Robert Kim, are subject to an agreement where the shares are held in escrow. Upon the first anniversary date of the Company's listing on a public exchange or upon the board of directors agreeing (whichever comes first), 10% are to be released to the President and CEO. Every six months thereafter, 15% of the escrowed shares are to be released until such time as all are released. The President and CEO has full rights and ownership of the shares and is only restricted as to when he can sell those shares as outlined above. The shares are presently held by K-Tronik's trust and transfer agent, Pacific Corporate Trust Company. ETIFF Holdings LLC's 7,571,428 shares are also subject to the terms of this escrow.
There are 1,350,000 shares of common stock which are held by former directors or officers of K-Tronik who ceased to be affiliates on December 12, 2001. These shares were issued over two years ago and would be available for sale under Rule 144 without volume sale restrictions.
There are 150,000 shares of common stock which are held by shareholders of K-Tronik who are not and have not been affiliates of K-Tronik. These shares were issued over two years ago and would be available for sale under Rule 144 without volume sale restrictions.
No sales in reliance upon Rule 144 have been made to date.
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USE OF PROCEEDS
K-Tronik will not receive proceeds from the sale of shares held by selling shareholders.
It is estimated that the expenses K-Tronik is incurring in completion of this registration statement will be approximately $17,200 inclusive of transfer agent fees, legal costs, audit and accounting fees, regulatory fees and miscellaneous expenses.
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DETERMINATION OF OFFERING PRICE
There is no existing market for the securities of K-Tronik and, as a result, it cannot be practicably determined what will be the offering price selling shareholders sell their securities for.
DILUTION
As no shares of common stock are to be issued or sold from the treasury of K-Tronik, no dilution will result from the offering under this registration statement.
As of June 30, 2003, the last financial quarter end for K-Tronik, the book value per share of our common stock was $0.02.
SELLING SECURITY HOLDERS
Selling shareholders will be offering a total of 8,288,172 shares of common stock of K-Tronik, as follows. A number of the selling shareholders are affiliates of K-Tronik and are designated in the list as such.
Name of Amount Beneficially Amount Offered for Amount Beneficially Percentage
Selling Shareholder Owned Prior to Offering Selling Shareholder's Owned After Offering Ownership
Account After
Offering (5)
Jason Cassis 10,000 10,000 0 0.0%
Andrea Cassis 10,000 10,000 0 0.0%
Jason Tuff 10,000 10,000 0 0.0%
Lorna Seaton 10,000 10,000 0 0.0%
Shannon Crevits 10,000 10,000 0 0.0%
Serge Borys 4,000 4,000 0 0.0%
Brian Fiddler 2,000 2,000 0 0.0%
Tania Little 25,000 25,000 0 0.0%
Deborah Little 10,000 10,000 0 0.0%
Nicholas Galichenko 4,000 4,000 0 0.0%
Marilyn Marsel 5,000 5,000 0 0.0%
William Cole-Hamilton 2,000 2,000 0 0.0%
Jennifer Mitchell 2,000 2,000 0 0.0%
Stonewall Capital Corp. 35,000 35,000 0 0.0%
Christa Giles 2,000 2,000 0 0.0%
Philip Cassis (1) 450,000 450,000 0 0.0%
Christopher D. Farber(2) 450,000 450,000 0 0.0%
William J. Little (3) 450,000 450,000 0 0.0%
Blair Stearn 2,000 2,000 0 0.0%
Anne-Marie Stearn 2,000 2,000 0 0.0%
Patrick Sipos 500 500 0 0.0%
Liane Scott 500 500 0 0.0%
Bobby Varghese 1,000 1,000 0 0.0%
Louise Dewick 1,000 1,000 0 0.0%
Barry Dewick 1,000 1,000 0 0.0%
Dawn Farber 1,000 1,000 0 0.0%
ETIFF Holdings, LLC(4) 14,359,600 6,788,172 0 33.54%
TOTAL: 15,859,600 8,288,172 0 33.54%
(1) Philip Cassis is a former director and officer of K-Tronik. He resigned on December 12, 2001 upon completion of K-Tronik's acquisition of K-Tronik N.A. Inc. His shares were issued more than two years ago.
(2) Christopher D. Farber is a former director and officer of K-Tronik. He resigned on December 12, 2001 upon completion of K-Tronik's acquisition of K-Tronik N.A. Inc. His shares were issued more than two years ago. He is also the sole shareholder of Stonewall Capital Corp., a Canadian company in the business of providing management consulting services.
(3) William J. Little is a former director and officer of K-Tronik. He resigned on December 12, 2001 upon completion of K-Tronik's acquisition of K-Tronik N.A. Inc. His shares were issued more than two years ago.
(4) ETIFF Holdings, LLC is a wholly owned subsidiary of Eiger Technology, Inc., a Toronto Stock Exchange listed company and reporting issuer. Mr. Keith Attoe, director and officer of K-Tronik, and Mr. Gerry Racicot, director of K-Tronik, are officers and directors of Eiger Technology, Inc.
(5) Assumes issued and outstanding shares of common stock of 22,573,886 as at the date of this registration statement.
None of the 14,285,714 shares of common stock issued by K-Tronik to Mr. Robert Kim and ETIFF Holdings, LLC, 6,714,286 and 7,571,428 shares respectively, for the purchase of their shares in K-Tronik N.A. Inc. are to be registered pursuant to this registration statement. These shares of common stock not being registered represent 63.28% of the issued and outstanding shares of common stock of K-Tronik. Where ETIFF Holdings, LLC. sells shares in this offering, it is deemed to be an underwriter for the purposes of this offering.
To the knowledge of K-Tronik, none of the selling stockholders are broker-dealers or affiliates of broker-dealers.
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PLAN OF DISTRIBUTION
Registration under this Offering.
A total of 8,288,172 shares of common stock are to be registered for selling stockholders, as set forth above.
No commissions or other fees will be paid, directly or indirectly, by K- Tronik, or any of its principals to any person or firm in connection with solicitation of sales of the shares. These securities are offered by their holders subject to prior issue and to approval of certain legal matters by counsel.
The selling stockholders may, from time to time, sell any or all of their shares of common stock covered by this prospectus on any stock exchange, market or trading facility on which the shares are then traded or in private transactions at a price of $0.20 per share until our shares are quoted on the Over the Counter Bulletin Board ("OTCBB") and thereafter non-affiliate selling stockholders may sell at prevailing market prices or privately negotiated prices. Affiliate selling stockholders, namely ETIFF Holdings Inc., must sell at $0.20 per share even if a market for the securities develops. ETIFF Holdings In. acts as underwriter for any such offering of its shares.
We will pay the expense incurred to register the shares being offered by the selling stockholders for resale, but the selling stockholders will pay any underwriting discounts and brokerage commissions associated with these sales. The commission or discount which may be received by any member of the National Association of Securities Dealers, Inc. in connection with these sales will not be greater than 8%. The selling stockholders may use any one or more of the following methods when selling shares:
(a) ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers;
(b) privately negotiated transactions; and
(c) a combination of these methods of sale.
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In addition, any shares that qualify for sale under Rule 144 may be sold under Rule 144 rather than through this prospectus.
If offering the shares covered by this prospectus, the selling stockholders and any broker-dealers who execute sales for the selling stockholders may be deemed to be an "underwriter" within the meaning of the Securities Act in connection with such sales. Any profits realized by the selling stockholders and the compensation of any broker-dealer may be deemed to be underwriting discounts and commissions.
Selling stockholders may sell their shares in all 50 states in the U.S.
Each selling stockholder and any other person participating in a distribution of securities will be subject to applicable provisions of the Exchange Act and the rules and regulations thereunder, including, without limitation, Regulation M, which may restrict certain activities of, and limit the timing of purchases and sales of securities by, selling stockholders and other persons participating in a distribution of securities. Furthermore, under Regulation M, persons engaged in a distribution of securities are prohibited from simultaneously engaging in market making and certain other activities with respect to such securities for a specified period of time prior to the commencement of such distributions, subject to specified exceptions or exemptions. All of the foregoing my affect the marketability of the securities offered hereby.
Any securities covered by this prospectus that qualify for sale pursuant to Rule 144 under the Securities Act may be sold under that rule rather than pursuant to this prospectus. There can be no assurance that the selling stockholders will sell any or all of the shares of common stock offered by them hereunder.
As the shares of common stock to be registered in connection with this offering have already been issued and as legal services are provided to K-Tronik by inside corporate counsel for its parent corporation, Eiger Technology, Inc., the costs of the offering are limited.
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It is estimated that the following costs and expenses will be incurred in connection with this offering:
Offering cost or expense Amount of Offering Cost or Expense
Offering cost or expense Amount of Offering Cost or Expense
Transfer Agent fees $ 2,000
Legal expenses $ 2,500
Regulatory and filing fees $ 5,200
Audit and Accounting fees $27,500
Total Offering Costs and Expenses $37,200
These costs and expenses are expected to be covered by existing working capital and cash flow from operations of K-Tronik and its subsidiaries.
Our common stock is deemed to be "penny stock" as that term is Defined in Rule 3a51-1 promulgated under the Securities Exchange Act of 1934. Penny stocks are stocks:
- With a price of less than $5.00 per share;
- That are not traded on a "recognized" national exchange;
- Whose prices are not quoted on the Nasdaq automated quotation system (Nasdaq listed stock must still have a price of not less than $5.00 per share); or
- In issuers with net tangible assets less than $2.0 million (if the issuer has been in continuous operation for at least three
years) or $5.0 million (if in continuous operation for less than three years), or with average revenues of less than $6.0 million for the last three years.
Broker/dealers dealing in penny stocks are required to provide potential investors with a document disclosing the risks of penny stocks.
Moreover, broker/dealers are required to determine whether an investment in a penny stock is a suitable investment for a prospective investor. These requirements may reduce the potential market for our common stock by reducing the number of potential investors. This may make it more difficult for investors in our common stock to sell shares to third parties or to otherwise dispose of them. This could cause our stock price to decline.
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LEGAL PROCEEDINGS
Neither K-Tronik nor its subsidiaries, K-Tronik N.A. Inc. and K-Tronik (Asia) Corporation, are party to any litigation and K-Tronik has no knowledge of any threatened or pending litigation against it.
K-Tronik N.A. is a creditor in the bankruptcy of one of its customers. Its claim is for $142,806. We believe we will collect $53,306 of this amount in total with approximately $29,846 received to date and a total of approximately $23,460 due in equal instalments December 1, 2003, December 1, 2004 and December 1, 2005. The amounts are paid pursuant to Jademar Corp.'s court approved insolvency plan (reclamation and payment plan).
The President of K-Tronik, Mr. Robert Kim, is a party to a lawsuit filed March 2, 2002 in the Superior Court of New Jersey, Morris County Division, (Ardrey Technical Services, Inc. v. Ardrey Tech LLC and Robert Kim et al: Docket No. MRS-L-799-02) which has not yet proceeded to the deposition stage. The plaintiffs in the suit are seeking to collect against a loan guarantee which Mr. Kim and other parties provided to secure a $500,000 loan extended by Ardry Technical Services, Inc. to Ardry Tech, LLC. The complainant is seeking Monetary damages of $500,000 plus interest from Mr. Kim.
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS,AND CONTROL PERSONS
The following discussion contains disclosure concerning the directors, officers and control persons of K-Tronik. There are no persons which have acted as a promoter, controlling person, or significant employee of K-Tronik other than as disclosed below.
Name Position Term of Office*1*2
Robert Kim President and Director Expires at next
shareholders meeting
Gerry Racicot Director Expires at next
shareholders meeting
Keith Attoe Director Expires at next
Shareholders meeting
Ken Edwards Chief Financial Officer *3
211 Fairview Place
Morris Plains, NJ
07950
J.K. Lee Corporate Secretary *2
7002 Boulevard East
Guttenberg, NJ
07093
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1. Directors, whether appointed at a meeting of stockholders or by the remaining directors, are appointed until the next annual meeting of stockholders. We expect to hold our next annual meeting of stockholders sometime in the summer of 2003 at which time the directors' terms will expire.
2. The President, Secretary and Treasurer do not have a set term of office. They serve at the pleasure of the Directors and can be removed at any time by the Directors under the Articles and Bylaws of K-Tronik.
3. Mr. Edwards was appointed in November of 2002 as both CFO of the Company and CFO of its subsidiary, K-Tronik N.A. Inc.
Robert Kim, President, Treasurer and Director
Robert Kim, age 46, in addition to being President and Treasurer of K-Tronik since December of 2001, has been President and CEO of K-Tronik N.A. since March of 1998.
Gerry Racicot, Director
Gerry Racicot, age 52, in addition to being a director of K-Tronik since December of 2001, has been director and President of Eiger Technology, Inc. since 1994. Eiger Technology, Inc., of which K-Tronik N.A. was an operating division until the closing of the K-Tronik N.A. Agreement, is a manufacturer and distributor of a number of products in the technology and commercial lighting industries. Eiger Technology Inc. is listed for trading on the Toronto Stock Exchange and has been since 1996. Since November of 2001, he has been a director and President of Dawn Capital Corp., a blank check reporting issuer as well as a director and Treasurer of Centro Services Inc., a blank check reporting issuer. Gerry Raciot was, from 1988 to 2001, president of ADH Custom Metal Fabricator's Inc and Vision Unlimited Equipment Inc., companies which manufacture and distribute Various lighting and other products. ADH Custom Metal Fabricators Inc. recently listed on the TSX Venture Exchange as "Newlook Industries Corp."
Keith Attoe, Director
Keith Attoe, age 52, in addition to being a director of K-Tronik, has been director and CFO of Eiger Technology, Inc. since March of 1996. Since November of 2001, he has been a director and Treasurer of Dawn Capital Corp., a blank check reporting issuer as well as a director and President of Centro Services Inc., a blank check reporting issuer.
Jang Kun Lee, Corporate Secretary
J.K Lee, age 31, has been accounting manager of K-Tronik N.A. Inc. since September of 2001 and secretary of K-Tronik since December of 2001. Prior to that he was an accounting department manager with NARA Travel Inc. from May 1997.
Ken Edwards, Chief Financial Officer
Ken Edwards, age 44, has been the Chief Financial Officer of K-Tronik N.A. since November of 2002. Prior to that, he was a Senior Manager with BDO Seidman, LLP from November 2000 to November 2002 and Chief Financial Officer of Menudirect Corporation from December 1997 to August 2000. Mr. Edwards is a CPA.
Robert Kim and J.K. Lee devote 100% of their time to the business of K-Tronik. Keith Attoe and Gerry Racicot as non-management directors, devote only approximately 10% of their time to K-Tronik. Ken Edwards devotes approximately 25% of his time to the business of K-Tronik.
Each officer and director generally serves until the next annual meeting of stockholders or until such time as he or she resigns. The officers of K-Tronik are appointed at the pleasure of the board of directors and may be removed at any time, subject to labour laws and other constraints.
Each officer and director generally serves until the next annual meeting of stockholders or until such time as he or she resigns.
The company does not have standing nominating or compensation committees of the board of directors, or committees performing
similar functions. During the last fiscal year ended December 31, 2001, the board of directors did not formally meet other than following the last meeting of shareholders on December 19, 2001.
K-Tronik has appointed an audit committee comprised of Mr. Keith Attoe, Mr. Gerry Racicot and Mr. Robert Kim, a majority of non-management directors.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information regarding the beneficial ownership of shares of K-Tronik's common stock as of May 30, 2003, with 22,573,886 issued and outstanding, by (i) all stockholders known to K-Tronik to be beneficial owners of more than 5% of the outstanding common stock; and (ii) all directors and executive officers of K-Tronik, and as a group.
On May 30, 2003, the Registrant had 22,573,886 shares of common stock issued and outstanding. No additional shares of common stock have been issued since that time to the date of this registration statement.The following table sets forth certain information regarding the beneficial ownership of the common stock of the Registrant as of May 30, 2003 of (1) each person who is known to the Registrant to own beneficially more than 5% of its outstanding common stock, (2) each of its directors and officers, and (3) all of its directors and officers as a group:
Name and Address Position Amount of Stock Percentage of
Beneficially Owned Class
ETIFF Holdings, LLC
(Eiger Technology, Inc.
subsidiary) 5% shareholder 14,359,600 63.61%
c/o Suite 602-330
Bay Street
Toronto, Ontario
M5H2S8
(see note 3 below
regarding beneficial
ownership of these
shares)
Robert Kim Director and
1360 Hamburg President,
TPK#704, Wayne NJ 5% shareholder 6,714,286 29.74%
07470
Ken Edwards Chief Financial Officer 0 0%
211 Fairview Place
Morris Plains, NJ
07950
Gerry Racicot Director (1) (1)
34691 Quaker St.
Box 1041
Norwich, Ont.
N0J1P0
Keith Attoe Director (2) (2)
38 Farnham Ave.
Toronto, Ontario
M4V1H4
J.K. Lee Corporate Secretary 0 0%
7002 Boulevard East
Guttenberg, NJ
07093
Directors, Officers
and 5% stockholders
in total (5 Persons) 21,073,886 93.36%
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1. No shares of common stock are registered in Gerry Racicot's name. However, as well as being a director of the Registrant, he is a Director and President of Eiger Technology Inc. which, through its wholly owned subsidiary ETIFF Holdings, LLC, owns 14,359,600 shares of common stock of the Registrant. As stated in the table above, ETIFF holds a total of 63.61% of the issued and outstanding stock of K-Tronik.
2. No shares of common stock are registered in Keith Attoe's name. However, as well as being a director of the Registrant, he is a Director of Eiger Technology, Inc. which, through its wholly owned subsidiary ETIFF Holdings, LLC, owns 14,359,600 shares of common stock of the Registrant. As stated in the table above, ETIFF holds a total of 63.61% of the issued and outstanding stock of K-Tronik. Mr. Keith Attoe is also an Officer of ETIFF.
3. Beneficial Ownership of Eiger Technology, Inc. and ETIFF Holdings, LLC Keith Attoe beneficially owns 129,325 shares of common stock in Eiger Technology, Inc. and Gerry Racicot owns 1,596,755 shares of Eiger Technology, Inc. As such, Keith Attoe and Gerry Racicot, as a group, are presently beneficial owners of 4.59% of the issued and outstanding shares of Eiger Technology, Inc.
Keith Attoe is the holder of stock options to purchase an additional 1,100,000 shares of Eiger Technology, Inc. while Gerry Racicot is the holder of stock options to purchase an additional 1,350,000 shares of Eiger Technology, Inc.
If both were to exercise all of their stock options, they would, as a group, own 10.42% of the issued and outstanding shares of Eiger Technology, Inc.
As such, they would be the beneficial owners of the shares held by Eiger Technology, Inc. through its wholly owned subsidiary, ETIFF Holdings, LLC.
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DESCRIPTION OF SECURITIES
General Description.
The securities being offered are shares of common stock. The authorized capital of K-Tronik consists of 100,000,000 shares of common stock, $0.00001 par value per share of which 22,573,886 shares of common stock were issued and outstanding as of the date of this registration statement.
Each outstanding share of the common stock entitles the holder to one vote, either in person or by proxy, on all matters that may be voted upon by the owners thereof at meetings of the stockholders.
The holders of the common stock (i) have equal rights to dividends from funds legally available therefore, when, and if, declared by our the Board of Directors; (ii) are entitled to share ratably in all of our assets available for distribution to the holders of the common stock upon liquidation, dissolution or winding up of our affairs; (iii) do not have preemptive, subscription or conversion rights; and (iv) are entitled to one non-cumulative vote per share on all matters on which stockholders may vote at all meetings of stockholders.
Non-Cumulative Voting.
The holders of shares of common stock of K-Tronik do not have cumulative voting rights, which means that the holders of more than 50% of such outstanding shares, voting for the election of directors, can elect all of the directors to be elected, if they so choose. In such event, the holders of the remaining shares will not be able to elect any of K-Tronik's directors.
Dividends.
K-Tronik does not currently intend to pay cash dividends. K-Tronik's proposed dividend policy is to make distributions of its revenues to its stockholders when K-Tronik's board of directors deems such distributions appropriate. Because K-Tronik does not intend to make cash distributions, potential shareholders would need to sell their shares to realize a return on their investment. There can be no assurances of the projected values of the shares, nor can there be any guarantees of the
success of K-Tronik.
A distribution of revenues will be made only when, in the judgment of K-Tronik's board of directors, it is in the best interest of K-Tronik's stockholders to do so. The board of directors will review, among other things, the investment quality and marketability of the securities considered for distribution; the impact of a distribution of the investee's securities on its customers, joint venture associates, management contracts, other investors, financial institutions, and K-Tronik's internal management, plus the tax consequences and the market effects of an initial or broader distribution of such securities.
Possible Anti-Takeover Effects of Authorized but Unissued Stock.
K-Tronik's authorized but unissued capital stock consists of 77,426,114 shares of common stock. One effect of the existence of authorized but unissued capital stock may be to enable the board of directors to render more difficult or to discourage an attempt to obtain control of K-Tronik by means of a merger, tender offer, proxy contest, or otherwise, and thereby to protect the continuity of K-Tronik's management. If, in the due exercise of its fiduciary obligations, for example, the board of directors were to determine that a takeover proposal was not in K-Tronik's best interests, such shares could be issued by the board of directors without stockholder approval in one or more private placements or other transactions that might prevent, or render more difficult or costly, completion of the takeover transaction by diluting the voting or other rights of the proposed acquirer or insurgent stockholder or stockholder group, by creating a substantial voting block in institutional or other hands that might undertake to support the position of the incumbent board of directors, by effecting an acquisition that might complicate or preclude the takeover, or otherwise.
Transfer Agent.
Because it is the trust and transfer agent of K-Tronik's parent, Eiger Technology, Inc. K-Tronik has retained the services of Pacific Corporate Trust Co., 625 Howe Street, Suite 830, Vancouver, British Columbia V6C 3B8, to act as transfer agent and registrar.
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INTEREST OF NAMED EXPERTS AND COUNSEL
No named expert or counsel was hired on a contingent basis, will receive a direct or indirect interest in the small business issuer, or was a promoter, underwriter, voting trustee, director, officer, or employee of K-Tronik, save and except as disclosed below.
Christopher D. Farber is a former director and officer of K-Tronik and is employed as inside legal counsel with K-Tronik's parent, Eiger Technology, Inc. Christopher D. Farber is the registered owner of 450,000 common shares of K-Tronik. He is the sole shareholder of Stonewall Capital Corp., a Canadian corporation which is the registered shareholder of 35,000 common shares of K-Tronik.
The September 30, 2002 financial statements included in this Prospectus and in the Registration Statement have been audited by BDO Seidman, LLP, independent certified public accountants, to the extent and for the period set forth in their report appearing elsewhere herein and in the Registration Statement, and are included in reliance upon said report given upon the authority of said firm as experts in auditing and accounting.
The September 30, 2001 financial statements included in this Prospectus and in the Registration Statement have been audited by Smolin, Lupin & Co., PA, independent certified public accountants, to the extent and for the period set forth in their report appearing elsewhere herein and in the Registration Statement, and are included in reliance upon said report given upon the authority of said firm as experts in auditing and accounting.
The September 30, 2001 financial statements of K-Tronik's subsidiary, K-Tronik (Asia), have been audited by BDO Daejoo Accounting Corporation of Korea, independent certified public accountants, to the extent and for the period set forth in their report appearing elsewhere herein and in the Registration Statement, and are included in reliance upon said report given upon the authority of said firm as experts in auditing and accounting.
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
Save and except for Article IX of the Articles of Incorporation, attached hereto, which provides that K-Tronik will indemnify directors against losses from acts taken in the performance of their duties to K-Tronik, no statute, charter provision, article, by-law, contract or other arrangement exists under which any controlling persons, directors or officers of K-Tronik is insured or indemnified in any manner against liability which he or she may incur acting in his or her capacity as such.
The Articles and Bylaws of K-Tronik do not prohibit arrangement by K-Tronik of indemnification insurance and allow K-Tronik to indemnify directors and officers against loss or damage from such acts.
Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of K-Tronik pursuant to K-Tronik's Articles or Bylaws, K-Tronik has been advised that in the opinion of the US Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act of 1933 and is, therefore, unenforceable.
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ORGANIZATION WITHIN LAST FIVE YEARS
The names of the officers and directors are disclosed elsewhere in this Form SB-2. None of these individuals, in a capacity as a promoter, has received anything of value from K-Tronik. No other persons act as or have acted as promoters of K-Tronik.
The Share Purchase Agreement, which is the agreement by which we acquired our operating subsidiary, K-Tronik N.A. Inc., is discussed in Description of Business below. Under the terms of this agreement, Robert Kim was issued shares of common stock by K-Tronik as was ETIFF Holdings, LLC, a wholly owned subsidiary of our parent company, Eiger Technology, Inc. Two of our directors, Gerry Racicot and Keith Attoe, also serve as directors of Eiger Technology, Inc. As noted below, K-Tronik was independent of both Robert Kim and Eiger Technology, Inc. at the time of the negotiation of the Share Purchase Agreement and these directors only joined our board upon closing of the Share Purchase Agreement.
DESCRIPTION OF BUSINESS
Company History.
K-Tronik was incorporated in the State of Nevada on September 2, 1999, under the name of "LMC Capital Corp.".
At its meeting of shareholders dated November 13, 2001, the shareholders of LMC approved a name change of the corporation to "K-Tronik International Corp.". The necessary documents have been filed with the Secretary of State of Nevada to effect this name change and this name change was confirmed by the Secretary of State of Nevada on January 14, 2002.
K-Tronik N.A. was incorporated in the State of Nevada on March 17, 1998 under the name of "K-Troniks, Inc.". Its name was changed to "K-Tronik Int'l Corporation" on August 7, 1998. K-Tronik N.A. was formed by its former parent, Eiger Technology, Inc. and a predecessor company, K-Tronik Industries Inc. Shares in K-Tronik N.A. were issued to the two shareholders, Mr. Robert Kim in exchange for vending in the assets of K-Tronik Industries, Inc. and Eiger Technology, Inc. in exchange for financing K-Tronik. K-Tronik N.A. has one subsidiary, K-Tronik (Asia) Corp., a Korean corporation incorporated on May 31,
1998, of which it owns 100%.
K-Tronik's registered office in the State of Nevada is 711 South Carson Street Suite 4, Carson City, Nevada 89701. Its principal and corporate head offices are at 290 Vincent Avenue, 3rd Floor, Hackensack, New Jersey 07601.
We became a reporting issuer under Section 12 of the Securities Exchange Act of 1934 on September 28, 2000. As a reporting issuer, we are required to file our financial statements on a quarterly and annual basis on Forms 10QSB and 10KSB respectively on the EDGAR system maintained by the Securities and Exchange Commission (www.sec.gov). We are also required to report periodic changes in our business and affairs and distribute a management proxy circular in required form to our shareholders prior to our annual shareholders' meeting. The public may read and copy any materials filed with the SEC at the SEC's Public Reference Room at 450 Fifth Street NW, Washington, DC 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains a website: www.sec.gov and the EDGAR service where review of many documents filed with the SEC may be done.
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General.
On November 29, 2001 we entered into an agreement (the "Share Purchase Agreement"), to purchase all of the issued and outstanding shares of K-Tronik N.A. from the two holders of these shares: Mr. Robert Kim (47%) and ETIFF Holdings, LLC , a wholly owned subsidiary of Eiger Technology, Inc., a Toronto Stock Exchange listed company, (53%) by way of the issuance of 6,714,286 common shares to Robert Kim and 7,571,428 common shares to ETIFF Holdings, LLC ("ETIFF"). The issuance of these shares reduced the percentage of issued and outstanding shares held by the principals of LMC Capital Corp., Philip Cassis, William J. Little and Christopher D. Farber, from 11.11% each to approximately 2% each.
ETIFF and Robert Kim were arm's length parties from the company at the time of negotiating the Share Purchase Agreement. No other parties acted as intermediaries between the company, ETIFF and Robert Kim. No person or persons received any compensation, including compensation in the form of finders' fees or commissions, for negotiating the Share Purchase Agreement.
The number of shares to be issued to ETIFF and Robert Kim under the terms of the Share Purchase Agreement were negotiated at arm's length to the company. No formal valuation of the assets of K-Tronik N.A. was undertaken although the management of the Company did perform due diligence on its business and affairs prior to completing the Share Purchase Agreement transactions.
Prior to acquiring K-Tronik N.A., we were a blank check company.
As a condition of closing the Share Purchase Agreement, we entered into an agreement (the "Debt Settlement Agreement") to settle the debts of K-Tronik N.A. to its parent, ETIFF, in the amount of $3,788,172 by way of the issuance to ETIFF of 3,788,172 of our common shares at a price of $1.00 of debt principal for each common share issued.
As a condition of closing, ETIFF was granted the option, and exercised the option, to purchase a total of 3,000,000 common shares of our outstanding shares from a number of shareholders. ETIFF had sought, as part of the Share Purchase Agreement, to purchase most of the issued and outstanding shares of K-Tronik and paid a total of $30 for these shares. The shares were held by Canadian resident shareholders and were originally issued in reliance upon Regulation S. The shares were held by these shareholders for a period greater than one year. The shares were, in K-Tronik's view, transferred to ETIFF without need for registration under the Securities Act of 1933 as ETIFF was not a member of the public. It was, and remains, the largest shareholder of K-Tronik.
Upon closing, the former directors and officers of K-Tronik resigned. The Directors were replaced by Mr. Keith Attoe, also Director and CFO of Eiger Technology, Inc., Mr. Gerry Racicot, also Director and President of Eiger Technology, Inc., and Mr. Robert Kim, also Director and President of K-Tronik N.A. Mr. Robert Kim was appointed as President of the Registrant, Mr. Keith Attoe as Treasurer and Mr. J.K. Lee, also controller of K-Tronik N.A., as Secretary of the Registrant. Mr. Keith Attoe resigned as Treasurer and was replaced by Robert Kim as Treasurer on June 6, 2002.
The closing of the Share Purchase Agreement occurred on December 12, 2001.
As a result of this closing, Eiger, through its subsidiary, ETIFF Holdings, LLC, has a total of 14,359,600 shares of common stock of K-Tronik. This represents 63.61% of the issued and outstanding shares of common stock.
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As a result of this closing, Mr. Robert Kim, who was concurrently appointed as Director and President, acquired 6,714,286 of the issued and outstanding shares of common stock of K-Tronik.
Manufacturing, distribution and sales of our products
K-Tronik N.A. is an electronic ballast manufacturer. K-Tronik N.A. has been in the business of designing, manufacturing and selling electronic ballasts for the last six years and has key personnel who have lighting ballast manufacturing experience of over ten years.
K-Tronik N.A. currently manufactures ballasts for the US, Canadian, Asian, Latin-American and European markets although past sales have primarily focused on the United States.
K-Tronik N.A. is particularly active with supplying Energy Services Companies or ESCOs with ballast products used in generating energy savings for customers' commercial and industrial buildings.
A "ballast" is a device in lighting systems that operates fluorescent lights. The ballast provides the necessary starting voltages, frequency and wattage to a fluorescent lights while limiting and regulating the current during the light's operation. Without a ballast, a fluorescent light would be destroyed immediately when voltages were applied by switching it on. Many people recognize ballasts as the "black boxes" in their fluorescent light fixtures at home that are visible when they replace the fluorescent tubes.
Electronic ballasts use semi-conductor components to increase the frequency of fluorescent light operation. The smaller inductive components provide the light's current control. Fluorescent system efficiency is increased due to high frequency light operation.
K-Tronik's N.A.'s main sales target is the niche market which other, larger manufacturers find too small to accommodate and the design and custom manufacture of specialty ballasts has been key to K-Tronik N.A.'s acceptance in the lighting industry. Niche market products represent ballasts that are assembled to meet specific customer requests. An example of this would be assembling products for suntan bed manufacturers' requests for ballasts that operate at high temperatures and refrigeration unit manufacturers' requests for ballasts that operate at low temperatures. Lighting manufacturers often request ballasts that have dimming or other features. Such orders may be too small for our competitors to want to fill. The primary difference between these products is the electronic transformer they contain.
K-Tronik N.A. has an "MVP" multi-voltage product line which is designed to cater to growing market demand for multi voltage electronic ballast products and contain electronic transformers capable of functioning at variable voltages. Multi-voltage products reduce "brownouts" which are becoming more common not just in the US but worldwide. Multi-voltage ballasts have an end of life protection function that allows the ballasts to identify when a lamp's life is ending and stop the ballasts from sending full voltage to that lamp. The lamp can be changed and the ballast will, with a five second delay, automatically recognize there is a new lamp and send full voltage to that lamp. Multi-voltage ballasts are useful with "brownouts", which occur when there is a temporary decrease in the electricity available in a power grid in a community, in that when power returns they automatically relight. Other ballasts which are not multi-voltage require a person to switch them off and then on
again before relighting lamps.
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Our ballasts and ballasts components are manufactured in our K-Tronik (Asia) plant in South Korea or outsourced to manufacturers in China. Ballast components are, effectively, commodities so the business failure of any one of our suppliers, even one of our only two large suppliers, Fein Tech Company or Dae Gyung Corp. of South Korea, which are transformer companies, would be unlikely to affect us greatly. Their failure could, however, result in some product delivery delays. This occurred when we began to source transformers from Fein Tech Company in South Korea in the quarter ending December 31, 2002. Fein Tech's deliveries to us were delayed, resulting in delays of our own product deliveries and a temporary decrease in our sales revenues as a result. We do not consider ourselves dependent on any suppliers other than those above.
Assembled and manufactured ballasts are then shipped to North America or other markets for sale and distributed from our premises in Hackensack, New Jersey to our end customers. When shipped to North America, they are stored in our public warehouse facilities in New Jersey and California.
We often grant credit, on an unsecured basis, to our distributors, end customers and installers in the US. To reduce the risk of operating this way, we purchase insurance, including Accounts Receivable Credit Insurance so that some money is recoverable in the event of default on payment.
We have centralized our sales and marketing functions at our head office in Hackensack, New Jersey and our sales force is also headquartered there.
Product Pricing
As electronic ballasts have become more of a commodity item in the lighting industry over time, the prices for ballasts have dropped from $20.00 to $11.27 on average from 1993 to 2001, based on US Census figures for total ballast sales and sales revenues. From October, 2001 to July, 2002, prices appear to have further declined with the average price K-Tronik received for its ballasts over this time falling to $9.61. The average price for K-Tronik's ballasts for the twelve months prior to March 31, 2003 was $9.53, indicating some equilibrium has been reached in market prices. The average price for ballasts for the quarter ending June 30, 2003 was $9.49.
The result has been increasingly difficult competition, mergers and closures in the ballast industry and attempts by companies to find low labour cost jurisdictions, such as mainland China or Mexico, in which to manufacture product.
Research and Product Development
In the 2001 financial year, we spent $1,365 on research and development. In the 2002 financial year, we spent $4,903 on research and development. Research and development costs are charged to operations when incurred.
Environmental Regulations and Government Approvals
Our products are not adversely affected by environmental laws.
There is no government approval process for our ballasts and no government approval of our products is required.
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MarketsThe market for our ballasts is essentially split in two parts: the market for original installations such as those in new buildings where ballasts are purchased by original equipment manufacturers ("OEM"s) and the market for replacement of existing ballasts to install energy saving ballasts. This market is known as the "retrofit" market.
Distribution in the OEM market is effected by a large number of distributors which typically will carry a whole range of lighting and building products. Distribution in the retrofit market is effected by energy saving companies ("ESCO"s) which will often be involved in the analysis of a buildings or institution's potential cost savings from a retrofit and which are often owned or operated by energy utilities.
There are two main types of ballast products: magnetic ballasts, which rely on magnetic technology to carry and regulate current in lighting, and electronic ballasts which rely on electronic transformers to carry out the same functions.
There are many different types of magnetic and electronic ballasts, each suiting individual customer needs which may vary according to customer tolerance for energy consumption, EMI emissions and multi voltage needs.
Estimating the size of the ballast market overall is difficult and it varies from year to year with general economic growth, commercial and residential real estate markets and other factors including some "shocks" to the market such as the Department of Energy's requirement for magnetic ballasts to be phased out by April 1, 2005 or the energy difficulties of California in 2000-2001 which saw demand for electronic ballasts increase.
In the year 2000, a total of 101,676,000 ballast were sold in the United States. Of these ballasts sold, 55,118,000 were magnetic ballasts and 46,558,000 were electronic ballasts (Source: US Census Bureau).
At this time, electronic ballasts account for approximately 46% of ballast sales.
K-Tronik N.A. manufactures and distributes only electronic ballasts.
Market Trends and Analysis:
The market for ballasts has been shifting from magnetic to electronic ballasts over the last 20 years.
The market is likely to further shift to electronic ballasts in the future because of changing regulatory requirements regarding magnetic ballasts' EMI emissions, reliability of electronic ballasts, decreasing costs of electronic ballasts over time and electronic ballasts' relative versatility. The number of electronic ballasts sold has been increasing over time at a much greater growth rate than the overall number of ballasts sold, which has been essentially flat and has not shown significant growth as a industry (Source: US Census Bureau).
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The market for ballasts is experiencing significant changes which K-Tronik N.A. hopes to exploit. The United States Federal Department of Energy has mandated the elimination of magnetic ballasts in the commercial and industrial new construction or renovation industry because of perceived EMI emissions problems and because of energy efficiency concerns, (Department of Energy news release dated October 15, 1999 at www.energy.gov/HQPress) by April 1, 2005. As a result, electronic ballasts such as those manufactured by K-Tronik N.A. will capture the entire ballast market and competitors which have typically manufactured magnetic ballasts will be forced to introduce new products or lose their market share.
Marketing Strategy:
K-Tronik's marketing strategy is characterized by the following:
Delivering niche products to customer groups: As a small manufacturer, K-Tronik can deliver niche or specialty products which it is uneconomical or unattractive for its larger competitors to deliver.
Exploiting market changes: As a manufacturer of electronic ballasts, K-Tronik is likely to experience sales growth due to the banning of magnetic ballasts by the US Department of Energy in 2005 in commercial and industrial installations.
Building brand name recognition: With sales expanding since its founding, K-Tronik N.A. is becoming more recognized in this industry where brand name recognition is important to overall acceptance of your products by customers. Sales are typically made to purchasing agents who often base a buying decision on whether or not they recognize and trust the manufacturer's name.
Focussing on ballasts with energy efficiency advantages: K-Tronik N.A.'s ballasts, because they are electronic, are, in K-Tronik's view, less susceptible to variations in power grid currents ("brownouts") which have occurred in the United States and South America in recent years. K-Tronik N.A. hopes to continue developing products which have some superiority in this area and to exploit markets where this competitive factor is key.
Focussing on relationships with ESCOs: the retrofit market has a higher margin than the OEM market and, as a result, relationships with ESCOs are crucial in building profitability.
As part of our strategy outlined above, we spent $71,674 and $111,129 on advertising for the fiscal years 2002 and 2001 respectively. Much of this expense was targeted in developing ESCO relationships.
We do not have one dominant customer but rather sell to a large number of companies, agents and distributors. For the year ended September 30, 2002, one of our customers, Mercury Lighting Company Inc. of Fairfield, NJ accounted for 15% ($1,021,277) of our sales. For the nine months ending June 30, 2003, Mercury Lighting Company Inc. accouted for 16% ($766,454) of our sales and another customer, Jademar Corporation of Stockbridge, MA accounted for 13% of our sales ($597,710). No other single customer accounted for 10% or more of our sales in the year ended September 30, 2002 or in the nine months ended June 30, 2003.
To date, almost all of our sales have been North American. We are, however, trying to expand internationally.
Our domestic sales compared to international sales are summarized in the table below:
For the nine-months For the Year
Ending June 30, Ended September 30,
2003 2002 2002 2001
------------- ---------- ----------- ----------
Sales Revenues
United States $3,876,860 $4,876,626 $6,282,165 $6,167,462
Asia and other 851,363 98,790 455,554 513,160
------------ ---------- ---------- ---------
Total Sales $4,728,223 $4,975,416 $6,737,719 $6,680,622
========== ========== ========== ============
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As part of our attempt to increase international sales, in 1999 we entered into an agreement with Jademar Corporation granting Jademar Corporation exclusive distribution rights in a number of territories in South America and the Caribbean in exchange for representing K-Tronik. Sales to Jademar were $707,828 in the fiscal year ended September 2001, $671,796 in the fiscal year ended September 2002. The Jademar agreement ended on December 31, 2002 but was extended for a period of one year by way of letter agreement dated January 30, 2003. Failure to secure a further extension past January of 2004 could result in decreased sales for K-Tronik. Jademar has had significant financial difficulties in the past and any financial failure on its part could greatly impact K-Tronik's financial results as it accounted for approximately 9.99% of our sales in fiscal 2002.
The Jademar agreement called for Jademar to meet a sales quota of $1,000,000 in the fiscal year ended September 2001, a sales quota of $1,500,000 in the fiscal year ended September 2002 and a sales quota of $500,000 for the six months ended June 30, 2003. Jademar has failed to meet any of these quotas.
Competitors
The chief competitors in the ballast industry are Advance, a division of Philips, Magnetek and Osram, a division of Sylvania. Motorola was also a competitor until 1999 when it sold its ballast manufacturing, distribution and sales division to Osram.
In 2001, Advance had approximately 25% of the North American ballast market, Magnetek had approximately 22.5% of the ballast market and Osram had approximately 16.5% of the ballast market. SLI, a division of Valmont Industries Inc., had approximately 13% of the market.Energy Savings Inc. is also a competitor with 10% of the market in 2001. (Source: US Census Bureau).
K-Tronik N.A. has only 1% of the ballast market. Our name is not as recognizable as our competitors nor do we have their sales volume. This constitutes a competitive disadvantage for us as discussed below in Competitive Factors in the Market.
It is possible but unlikely, because of the existing low margins and a highly competitive atmosphere that additional competitors will enter the ballast market. Barriers to entry are low compared to industries which are capital intensive or rely upon intellectual property rights in production. Many of the components in ballasts are commodities and readily available to potential competitors.
Competitive Factors in the Market:
K-Tronik has a number of strengths and some weaknesses relating to the competitive factors in the ballast manufacturing industry.
The main competitive factors in the ballast market are as follows:
-brand name recognition or credibility
-low cost production
-quality and length of customer relationships
-distribution, warehousing and shipping capabilities
-new product development capability
-quality and reliability of ballast products
-relationships with Energy Saving Companies for industrial and commercial energy savings retrofits
-increasingly, ability to produce electronic rather than magnetic ballasts
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Each of our competitors has strengths and weaknesses. Energy Savings Inc. has only "plug in" ballast models that fit a minority of fixtures. Most fixtures require lead wires, especially in industrial and commercial fixtures. Advance does not have low cost overseas production at this time although it has announced it is in the process of developing such production in Mexico.
K-Tronik hopes to take advantage of low cost production in China. In a highly competitive industry, this low cost production could be key to its long term profitability and survival. We had planned to acquire Dae Gyung Corp. in December of 2001 but difficulties in effecting the transfer of Dae Gyung Corp.'s shares in Korea, because of foreign ownership rules, caused us to terminate the acquisition. There are no plans to acquire Dae Gyung Corp. or any other supplier at this time. In the event that another supplier was identified as an acquisition candidate, there can be no certainty that K-Tronik will have the necessary sources of cash funding to complete an acquisition or that the supplier would accept equity in K-Tronik in lieu of such cash funding.
K-Tronik N.A. has begun to sell direct to consumers while its largest competitors, because of established intercorporate relationships, must often sell through distributors including internal distributorship divisions or subsidiaries. This gives K-Tronik a chance to capture the profits normally realized by those distributors or to reduce its own costs relative to other manufacturers.
K-Tronik N.A. and K-Tronik (Asia) have an experienced Korean and American engineering team to allow us to develop new products in response to changes in the ballast market such as those which are periodically created by regulatory changes or initiatives.
K-Tronik N.A., through its hiring of many former employees of competitors, has developed long term relationships with many customers and we have ourselves, through our own sales, built our long term relationships. We are building name recognition through trade shows and advertising in addition to our sales.
K-Tronik N.A. is actively attempting to expand its sales to Energy Saving Companies and South American markets, growing segments which its major competitors have not seemed to target and would like, ideally, to acquire any available ESCOs which it may have the funds to acquire. There are presently no agreements in place nor have there been any negotiations to acquire an ESCO.
The ESCO ("Energy Saving Company") market may become particularly important to us in the future. ESCOs perform energy usage audits and evaluations to large companies, the US government, hospitals, school systems and other groups.
Although there are some independents, most ESCOs are owned by large utility companies. They typically will recommend upgrade of existing ballasts to bring cost savings to their customers.
These ESCO companies continue to gain ballast market share annually and have become a key base for ballast purchases. Approximately 50% of buildings and institutions in the US have not yet retrofitted to energy saving electronic ballasts (Market Studies Inc., North Carolina).
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Although we are pleased with our growth in the last six years, we are still a minor player in the ballast industry. We do not have the brand name recognition that Sylvania or Motorola have. We do not have the strategic or ownership type business relationships with distributors like our major competitors have. We do not have access to the same financial resources that our largest competitors may have through their parent companies although, in the past, our parent company, Eiger Technology, Inc. has funded our working capital needs a number of times. There can be no assurance Eiger Technology, Inc. will continue to do so.
Proprietary Protection
(a) General.
K-Tronik N.A. does not presently have patent applications for its product lines.
The "K-Tronik" name has been trademarked in the United States but not in other jurisdictions.
(b) Pending Patents, Copyrights and Trade Secrets.
We do not have any plans to seek patent protection or copyright for an other products or materials. It is unlikely that the process by which we assemble and produce our ballast products would itself be patentable.
(b) Pending Trademark Applications.
K-Tronik has not applied for any additional trademarks and has no current plans to apply for additional trademarks.
Management and Key Employees:
At this time, none of our employees are subject to collective bargaining agreements.
The key employees of K-Tronik N.A., who also provide management and other services to K-Tronik (Asia), include the following:
Mr. Robert Kim, President of K-Tronik and President of K-Tronik N.A.:
Robert Kim has a number of years of experience in the ballast industry in sales and management roles.
Mr. John Andrews, Director of Sales and Operations of K-Tronik N.A.:
John Andrews joined K-Tronik N.A. in June of 1999. His responsibilities include managing national sales, inventory management, credit and collection and corporate marketing. John Andrews was employed by LG Industrial Systems USA, a small ballast manufacturer, from 1996 to 1999 as Director of Sales and Operations.
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K-Tronik N.A., on occasion, utilizes the services of engineering and design consultants where its internal expertise is insufficient or otherwise committed to other projects.
K-Tronik N.A. has a total of 9 employees and K-Tronik (Asia) has a total of 28 employees. The majority of K-Tronik (Asia)'s 28 employees are involved in production / manufacturing positions. A total of 5 employees, 2 in K-Tronik N.A. and 3 in K-Tronik (Asia), are involved in Research and Development and Engineering positions. Mr. Robert Kim is actively involved in management of K-Tronik (Asia). All of these employees are full time.
The number of employees at K-Tronik (Asia) has been reduced over the past two years in an effort to cut costs and as a result of automation.
K-Tronik N.A., through hirings from industry competitors, has attempted to build service, distribution and sales capability. Hirings have come from Motorola, which ceased ballast production operations in 1999, and from Magnetek, one of our major competitors.
We do not anticipate any hirings in the remainder of fiscal 2003.
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MANAGEMENT'S DISCUSSION AND ANALYSIS
The following discussion should be read in conjunction with the financial statements of K-Tronik and notes thereto contained elsewhere in this prospectus. Where figures are given, they do not materially differ from those given in the financial statements filed under the Securities Exchange Act of 1934.
Critical Accounting Policies
We believe that the estimates, assumptions and judgments involved in the accounting policies described below have the greatest potential impact on our financial statements, so we consider these to be our critical accounting policies. Because of the uncertainty inherent in these matters, actual results could differ from the estimates we used in applying the critical accounting policies. Within the context of these critical accounting policies, we are not currently aware of any reasonably likely event that would result in materially different amounts being reported.
(a) Fiscal Years Ended September 30, 2001 and September 30, 2002
Net Sales
We reported net sales of $6,738,000 for the 2002 period, an increase of $57,000 or 1% from the $6,681,000 in sales reported for the 2001 period. The small sales increase was mainly attributed to a volume increase of direct sales to third parties by our subsidiary, K-Tronik (Asia) and an overall increase in customers by our subsidiary, K-Tronik N.A. Inc. which was offset by a decrease in sales prices. Sales for the majority of ballast manufacturers in the US were negatively impacted by a slow economy and stagnant market during the 2002 period.
Gross Profit
Our gross profit decreased to $1,439,000 in the 2002 period compared to $1,587,000 in the 2001 period. This decrease was primarily attributed to competitive sales price pressures resulting from the overall slow down in the US economy and US markets, inventory write offs of $96,000 and the establishment of a reserve account for slow moving inventory of $120,000 offset by increased sales volume. In an effort to maintain monthly sales volume, manufacturers were forced to significantly decrease sales prices. We anticipate that prices will remain stable throughout the coming fiscal year 2003 at the 2002 year end levels although our primary competitors have announced price increases. We believe that the market will not support a price increase and we have not increased our prices for 2003 but will instead continue to focus on ways to minimize our costs.
Selling, General and Administrative expenses
Selling, General and Administrative expense was $2,020,670 in fiscal 2002 vs. $2,012,583 for fiscal 2001. The overall expenses remained primarily the same as we implemented reductions in advertising, marketing, consulting, travel and personnel expenses to offset increased professional fees and salaries.
Operating Loss
The loss from operations increased to ($582,084) in the 2002 period from ($425,367) in the 2001 period. The increase in loss from operations is directly related to the decrease in gross profit discussed above.
Interest and Other Expense
Interest and other expenses decreased to $228,434 for the 2002 period from $248,249 for the 2001 period. The decrease was mainly attributed to lower interest expense, no loss on sales of equipment in the 2002 period as compared to a loss of $9,423 in the 2001 period and other income of $3,731 generated by K-Tronik (Asia) in the 2002 period.
Interest expense decreased to $232,165 in the 2002 period compared to $238,826 in the 2001 period primarily due to the lower interest rate for the 2002 period and decreased debt levels.
Net Loss
For the reasons stated above we incurred a net loss of ($810,518) for the 2002 period as compared to ($683,509) for the prior period.
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Liquidity and Capital Resources
At September 30, 2002, we had working capital of $469,051, and cash and cash equivalents of $294,484 as compared to working capital of $1,225,582 and cash and cash equivalents of $95,600 at September 30, 2001. The decrease in working capital was primarily attributable to the net loss in 2002.
Net cash provided by operating activities for the 2002 period was $11,723 for the 2002 period as compared to net cash used in operating activities of ($1,249,496) during the 2001 period. The positive net cash provided by operating activities for the 2002 period as compared to the 2001 period was primarily attributed to higher amortization and depreciation, an increase in accounts payable and a decrease in inventory. The prepaid expenses, security deposits, and accounts receivables were the primary uses of operating cash in the 2002 period.
Net cash used in investing activities was $61,948 for the 2002 period as compared to $74,594 for the 2001 period. Investing activities for the 2002 period included purchases of $61,148 of computer equipment and patents and other intangible assets of $800. We have no significant plans for equipment purchases in the fiscal year ending September 30, 2003.
Net cash provided by financing activities was $337,999 for the 2002 period as compared to $1,213,323 for the 2001 period. Financing activities in the 2002 period included additional draw downs in the Company's revolving credit lines totaling $259,007. The Company received proceeds from its parent corp. and revolving credit lines of $1,230,000 during the 2001 period.
As of September 30, 2002, we had credit facilities providing a maximum borrowing of $2.1 million with asset-based lenders. At September 30, 2002 borrowings under these facilities were $1,685,618 as compared to $1,426,611 at September 30, 2001. At September 30, 2002 the loans were classified as current liabilities in the accompanying balance sheet because the credit facilities matured in less than one year.
The total credit facilities of $2.1 million were with Business Alliance Capital Corporation or BACC and with Woori Bank (Formerly Hanvit Bank) in Korea. The BACC credit facility provided credit of up to $1,500,000 and the credit facility with Woori Bank provided credit of up to $600,000.
The Woori Bank credit facility is secured by equipment, accounts receivables and inventory. Interest, which was payable upon borrowing, was charged at an adjustable rate, and was 7.02% per annum at September 30, 2002. The line of credit was payable upon demand. The line of credit expired May 29, 2003 but was renewed to May 29, 2004. The interest rate is the lenders' prime rate plus 3.01%.
The credit facility with BACC expired on June 30, 2003 and was not renewed. The BACC loan agreement contained financial and non-financial covenants. The Company was in violation of certain of the covenants as of December 31, 2002 and 2001. The Company obtained waivers from BACC on February 13, 2003 for the violations and this waiver has been attached as an Exhibit.
Instead of renewing the BACC credit facility, we negotiated, on June 30, 2003, a new credit facility with the Trust Company of New Jersey. The Trust Company of New Jersey credit facility has a term of three years and is for $1,500,000. The Company's parent, Eiger Technology, acts as guarantor of the credit facility and the credit facility is secured by receivables and inventory. Interest is at the lender's prime rate + 1.75%.
We believe, based upon current circumstances, the pledge of continued support from our parent company, Eiger Technology, Inc. and the availability of the credit facilities from Trust Company of New Jersey and the Woori Bank, that we have adequate capital resources to support our operations to the end of fiscal 2003.
Future minimum annual rent payments under a non cancelable operating lease, which expires March 31, 2004 are $61,000 and $27,000 for the fiscal years ended September 30, 2003 and 2004, respectively.
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(b) Nine months ended June 30, 2003 and June 30, 2002
Results of Operation:
Nine Months Ended June 30, 2003 ("2003 period") Compared to Nine Months Ended June 30, 2002 ("2002 period").
Net Sales and Gross Profit
The Company reported net sales of $4,728,000 for the 2003 period, a decrease of $247,000 or 5% from the $4,975,000 in sales reported for the 2002 period. The decrease in sales is attributed to a weak economy, activities in the Middle East and changes in the Company's production from in-house to outsourcing. The Company expects sales to increase during the remainder of the fiscal year ended September 30, 2003.
The Company's gross profit increased to $1,239,000 in the 2003 period compared to $1,180,000 in the 2002 period as a result of lower amounts paid for products purchased. In addition, the overall gross margin increased to 26% for the 2003 period compared to 24% in the 2002 period. This increase was primarily attributed to the new manufacturing arrangements whereby certain manufacturing previously performed by the Company is now being outsourced at lower costs. This arrangement started in the Company's first quarter ended December 31, 2002, and was more established during the 2003 period. The Company anticipates that its margin will continue to improve through the end of its fiscal year which ends September 30, 2003 as the new outsourcing arrangement becomes fully implemented.
Selling, General and Administrative
Selling, general and administrative (SG&A) expenses increased to $1,627,000 in the 2003 period, an increase of $166,000 or 11% from $1,461,000 reported in the 2002 period. The increase is primarily attributable to an increase in provisions for severance and other benefits for KTA as it reduced its employee work force, increased commissions and export expenses as KTA increased its sales activities in the 2003 period. Wages and payroll related costs also increased as a result of an increase in staff at the corporate headquarters as well as an increase in travel related costs associated with overseas travel and increased professional accounting and legal fees.
Interest and Other Expenses
Interest and other expenses decreased to $143,000 for the 2003 period compared to $160,000 in the 2002 period primarily due to a decrease in the average amount borrowed and a lower interest rate associated with a low prime rate of interest.
Net Loss
The Company reported a net loss attributable to common shareholders of $(530,000) for the 2003 period as compared to net loss of $(441,000) for the 2002 period as a result of those items discussed above.
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Liquidity and Capital Resources
At June 30, 2003, the Company had a working capital deficit of $147,000 and $53,000 in cash and cash equivalents.
Net cash provided by operating activities for the 2003 period was $452,000 as compared to net cash used in operations of $(218,000) during the 2002 period. A increase in inventories and prepaid expenses were the primary uses of operating cash and the increase in accounts payable and accrued expenses and the decrease in accounts receivables were the primary sources of cash in the 2003 period.
Investing activities for the 2003 period included purchases of $161,000 of computer equipment, machinery and equipment, tools and $9,000 related to costs associated with intangible assets.
Financing activities in the 2003 period included repayments of the Company's revolving credit lines totaling $502,000.
The Company has working capital facilities of $2.1 million with asset-based lenders limited to percentages of eligible accounts receivable and inventory. Borrowings under these facilities bear interest at the lender's prime rate plus 1.75% and 7.6%. At June 30, 2003 borrowings under these facilities was $907,000. At June 30, 2003, the loans have been classified as current in the accompanying balance sheet because the facilities mature in less than one year. To September 15, 2003, the borrowings under these facilities are approximately $671,952 under the Trust Company of New Jersey credit facility and $543,805 under the Woori Bank credit facility. Current interest rates applicable are 5.75% to the Woori Bank credit facility and 7.6% to the Trust Company of New Jersey credit facility.
Management believes, based upon current circumstances, its pledge of continued support from its parent company and assuming that it is able to renew its credit facilities that expire through June 2004, that it has adequate capital resources to support expected operating levels for the next twelve months.
Any significant depreciation of the US dollar against the Korean Won in the future could adversely affect our financial results, which are reported in US dollars, as many of our costs are paid in Korean Won at the K-Tronik (Asia) plant. Conversely, any significant appreciation of the US dollar against the Korean Won in the future would favourably affect our
financial results.
We have two large suppliers on which we may have some dependence: Fein Tech Company and Dae Gyung Corp. of South Korea. If either were to experience a business failure, this could result in some delays of delivery of products, and therefore of our sales revenues. This occurred when we began to source transformers from Fein Tech Company in South Korea in the quarter ending December 31, 2002. Deliveries of Fein Tech Company transformers were delayed, resulting in delays of our product deliveries and delays in our receipt of sales revenues. We are not dependent on any suppliers other than those named above.
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Forward-Looking Statements.
This prospectus contains "forward looking statements" including statements regarding, among other items, K-Tronik's business strategies, continued growth in K-Tronik's markets, projections, and anticipated trends in K-Tronik's business and the industry in which it operates. The words "believe," "expect," "anticipate," "intends," "forecast," "project," and similar expressions identify forward-looking statements. These forward-looking statements are based largely on K-Tronik's expectations and are subject to a number of risks and uncertainties, certain of which are beyond K-Tronik's control. K-Tronik cautions that these statements are further qualified by important factors that could cause actual results to differ materially from those in the forward looking statements, including, among others, the following: reduced or lack of increase in demand for K-Tronik's products, competitive pricing pressures, changes in the market price of ingredients used in K-Tronik's products and the level of expenses incurred in K-Tronik's operations. In light of these risks and uncertainties, there can be no assurance that the forward-looking information contained herein will in fact transpire or prove to be accurate. K-Tronik disclaims any intent or obligation to update "forward looking statements."
K-Tronik issues penny stock as that term is defined by the Securities Exchange Commission's rules and regulations. As a result, Section 27A(b)(1)(C) of the Securities Act of 1933 and Section 21E(b)(1)(C) of the Securities Exchange Act do not apply to statements made by our company.
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DESCRIPTION OF PROPERTY
K-Tronik (Asia) and K-Tronik N.A. do not have any physical property other than their production and office equipment. K-Tronik (Asia)'s plant in Korea is leased as is the office and warehousing space of K-Tronik in New Jersey. K-Tronik (Asia)'s plant has a production capacity of 100,000 ballast pieces per month. We believe that we have adequate space for the foreseeable future.
K-Tronik N.A.'s lease of its premises in Hackensack New Jersey expires on November 30, 2003. Under the terms of the lease of its 3,500 square foot premises, it pays monthly rent of $3,900.
K-Tronik (Asia)'s lease of its factory in South Korea expires on March 31, 2004. The monthly rent is $2,100.
We rent warehousing facilities on a month-to-month basis in New Jersey and California.
The monthly lease rates for both facilities is based upon usage and therefore fluctuates. However, the average monthly warehousing fee for the California facility was $195.44 for the nine month period ended June 30, 2003 and $353.22 for fiscal year ending September 30, 2002. The average monthly warehousing fee for the New Jersey facility was $2,952.22 for the nine month period ended June 30, 2003 and $3,004.86 for the fiscal year ending September 30, 2002.
We do not anticipate that there will be difficulty in renewing our lease of the Hackensack, New Jersey premises and do not anticipate that the premises in Korea will require significant upgrading or additional investment. K-Tronik has made significant investments in equipment in the Korean factory premises in past fiscal years but does not anticipate doing so in this fiscal year.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During the past two years, there have not been any transactions that have occurred between K-Tronik and its officers, directors, and five percent or greater shareholders, except as follows:
The Share Purchase Agreement described in Description of Business above resulted in K-Tronik issuing to its president and director, Mr. Robert Kim, 6,714,286 shares, 29.74% of the total issued and outstanding shares, in exchange for his shares of K-Tronik's subsidiary, K-Tronik N.A. Inc. The closing of the Share Purchase Agreement and the Debt Settlement Agreement also resulted in the issuance of 14,359,600 shares, 63.61% of the total issued and outstanding common shares, to ETIFF Holdings, LLC, a 100% wholly owned subsidiary of K-Tronik's parent, Eiger Technology, Inc. Of the 14,359,600 shares issued to the ETIFF Holdings, LLC, 3,788,172 were issued in settlement of 3,788,172 of debt which K-Tronik's subsidiary, K-Tronik N.A. Inc., owed to ETIFF Holdings, LLC.
At the time of the negotiation of the Share Purchase Agreement and the Debt Settlement Agreement, K-Tronik was not a related party of Robert Kim and Eiger Technology, Inc. The terms of the Share Purchase Agreement and the Debt Settlement Agreement were negotiated between K-Tronik, Robert Kim and Eiger Technology, Inc.
The three founders of K-Tronik, William J. Little, Philip Cassis and Christopher D. Farber, each purchased 5,000 shares from the company for total consideration of $5.00. The shares were later split, on a 100 for 1 basis, so that these three founders each held 500,000 shares of K-Tronik.
In February of 2003, Mr. Ki-Seung, Vice President of K-Tronik's Korean subsidiary, K-Tronik (Asia), lent K-Tronik (Asia) a total of $112,000. No written agreement was made in connection with this loan. However, K-Tronik (Asia) and Mr. Ki-Seung have agreed that the loan is non-interest bearing, payable on demand and has no fixed date of repayment. To date, none of these funds have been repaid by K-Tronik (Asia) to Mr. Ki-Seung.
Certain of the officers and directors of K-Tronik are engaged in other businesses, either individually or through partnerships and corporations in which they have an interest, hold an office, or serve on a board of directors. As a result, certain conflicts of interest may arise between K-Tronik and its officers and directors. K-Tronik will attempt to resolve such conflicts of interest in favor of K-Tronik. The officers and directors of K-Tronik are accountable to it and its shareholders as fiduciaries, which requires that such officers and directors exercise good faith and integrity in handling K-Tronik's affairs. A shareholder may be able to institute legal action on behalf of K-Tronik or on behalf of itself and other similarly situated shareholders to recover damages or for other relief in cases of the resolution of conflicts is in any manner prejudicial to K-Tronik.
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MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
There is no market for the securities of K-Tronik at this time. K-Tronik's securities are not traded on a recognized exchange or over-the-counter trading system at this time.
There are no outstanding warrants or options to purchase shares of K-Tronik's common stock at this time although the shareholders' meeting held on November 12, 2001 approved an Incentive Stock Option Plan which would allow us to grant up to 1,000,000 incentive stock options to directors and employees at the board of directors' discretion.
As of the date of this prospectus, there were 44 shareholders of record of K-Tronik's common stock holding a total of 22,573,886 shares of common stock.
Of these 22,573,886 shares of common stock, a total of 8,288,172 shares held by 43 persons are being registered under this registration statement.
A total of 14,285,714 shares of common stock are not being registered. Of these 14,285,714 shares of common stock, 6,714,286 were issued to K-Tronik's President and Director, Mr. Robert Kim, in consideration of his sale to K-Tronik of his shares of K-Tronik's wholly owned subsidiary, K-Tronik N.A. Inc.
A further 7,571,428 shares were issued to the ETIFF Holdings, LLC, a wholly owned subsidiary of Eiger Technology, Inc. in consideration of its sale to K-Tronik of its shares of K-Tronik's wholly owned subsidiary, K-Tronik N.A. Inc. ETIFF Holdings, LLC owns an additional 6,788,172 shares of common stock which are being registered for resale pursuant to this registration statement.
The 14,285,714 shares will not be available for sale in the open market without separate registration except in reliance upon Rule 144 under the Securities Act of 1933. In general, under Rule 144 a person, or persons whose shares are aggregated, who has beneficially owned shares acquired in a non-public transaction for at least one year, including persons who may be deemed affiliates of K-Tronik would be entitled to sell within any three-month period a number of shares that does not exceed the greater of 1% of the then outstanding shares of common stock, or the average weekly reported trading volume during the four calendar weeks preceding such sale, provided that certain current public information is then available. If a substantial number of the shares owned by these shareholders were sold pursuant to Rule 144 or a registered offering, the market price of the common stock could be adversely affected. The 14,285,714 shares of common stock were issued on December 12, 2001.
In addition to the resale restrictions on these shares detailed above, the 6,714,286 shares held by Mr. Robert Kim are subject to an agreement by which he agrees not to separately register the shares.
Dividend Information.
K-Tronik has not declared or paid a cash dividend to stockholders since it was incorporated on September 2, 1999. The board of directors presently intends to retain any earnings to finance company operations and does not expect to authorize cash dividends in the foreseeable future. Any payment of cash dividends in the future will depend upon K-Tronik's earnings, capital requirements and other factors.
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EXECUTIVE COMPENSATION
Summary Compensation Table
Annual compensation Long-term Compensation
Awards Payouts
Name and Other Restricted Securities
principal annual stock underlying LTIP All other
position Year Salary Bonus compensation award(s) options/SARs payouts compensation
($) ($) ($) ($) (#) ($) ($)
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Robert Kim(2) 2001 $165,000 0 0 0 0 0 0
President 2002 $180,000 0 0 0 0 0 0
Treasurer &
Director
Keith Attoe 2001 0 0 0 0 0 0 0
Director 2002 0 0 0 0 0 0 0
Gerry Racicot 2001 0 0 0 0 0 0 0
Director 2002 0 0 0 0 0 0 0
J.K Lee(1) 2001 $ 11,000 0 0 0 0 0 0
Corporate 2002 $ 33,000 0 0 0 0 0 0
Secretary
Ken Edwards 2001 0 0 0 0 0 0 0
CFO 2002 0 0 0 0 0 0 0
(1) J.K. Lee is paid by K-Tronik's subsidiary, K-Tronik. As J.K. Lee only joined K-Tronik N.A. in September of 2001, his salary figure does not reflect his annual salary of $33,000. His salary has been increased to $40,000 per annum effective October 1, 2002.
(2) Robert Kim is paid by K-Tronik's subsidiary, K-Tronik N.A., as is Ken Edwards. His salary is $15,000 per month.
(3) Ken Edwards did not join K-Tronik until late in 2002. He is presently compensated with a salary of $4,000 per month commencing November 1, 2002 and did not receive any compensation in 2002.
K-Tronik, at its annual meeting of shareholders held on November 13, 2001, approved a stockholders' resolution to adopt a Stock Option Plan. As a result, some or all of the persons named above may be granted options in the future. To date, no options have been granted or are contemplated to be granted nor has the plan been filed with the SEC using the S8 Registration Statements procedure.
There is no known relationship between any of the Directors and Control persons with major clients or providers of essential products and technology, nor are there any known related transactions. Save and except as detailed above, none of the officers and directors of K-Tronik have received any compensation from K-Tronik. Save and except as detailed above, none of these individual's total compensation under these contracts, including special allowances or bonuses, will exceed $100,000 this year. All officers and directors will be reimbursed for expenses incurred on behalf of K-Tronik including director expenses pertaining to attendance at meetings. It is anticipated that additional management may be hired as K-Tronik develops and revenue is generated.
If such hirings occur, salaries paid to new employees will be consistent with the salaries of others in similar positions in the industry.
There are no annuity, pension or retirement benefits proposed to be paid to officers, directors, or employees of K-Tronik in the event of retirement at normal retirement date as there is no existing plan provided for or contributed to by K-Tronik.
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FINANCIAL STATEMENTS
With the completion of the acquisition of K-Tronik N.A. Inc. on December 12, 2001, K-Tronik's year end was changed to September 30. The Company has filed a transitional 10KSB dated September 30, 2001 to reflect the change.
The stand alone audited financial statements for K-Tronik N.A. Inc. for the period ended September 30, 2001 are referenced below as they are more material to a reader's understanding of K-Tronik and its present financial situation and history. K-Tronik, prior to the acquisition of K-Tronik N.A. Inc., was a blank check company which had limited operations and activities which were not material to its financial affairs when consolidated with K-Tronik N.A. Inc.
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K-TRONIK INTERNATIONAL CORPORATION
(Formerly LMC CAPITAL CORP.)
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
Index to Consolidated Financial Statements F-1
Reports of Independent Certified Public Accountants F-2 - F-4
Consolidated Balance sheets, June 30, 2003 (unaudited)
And September 30, 2002 F-5
Consolidated Statements of operations and
Comprehensive loss for the six months ended June
30, 2003 and 2002 (unaudited) and for the years ended
September 30, 2002 and 2001 F-6
Consolidated Statements of changes in stockholders'
equity (deficit) for the six months ended June
30, 2003 (unaudited) and for the years ended
September 30, 2002 and 2001 F-7
Consolidated Statements of cash flows for the six
months ended June 30, 2003 and 2002 (unaudited) and
for the Years ended September 30, 2002 and 2001 F-8
Notes to consolidated financial statements F-9 - F-19F-1
Report of Independent Certified Public Accountants
Board of Directors
K-Tronik International Corporation
Hackensack, New Jersey
We have audited the accompanying consolidated balance sheet of K-Tronik International Corporation as of September 30, 2002 and the related consolidated statements of operations and comprehensive loss, stockholders' equity (deficit), and cash flows for the year then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated 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 audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of K-Tronik International Corporation at September 30, 2002, and the results of its operations and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.
BDO Seidman, LLP
Woodbridge, New Jersey
November 7, 2002
F-2
Report of Independent Certified Public Accountants
Board of Directors
K-Tronik Int'l Corporation
290 Vincent Avenue
Hackensack, New Jersey 07601
We have audited the accompanying consolidated statements of operations and comprehensive loss, stockholders' equity (deficiency) and cash flows for the year ended September 30, 2001 of K-Tronik International Corporation. 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 audit. We did not audit the financial statements of K-Tronik Asia Corporation, a majority owned subsidiary, which statements reflect total revenues of approximately $5,843,000 for the year ended September 30, 2001. Those statements were audited by other auditors whose report has been furnished to us, and our opinion, insofar as it relates to amounts included for K-Tronik Asia Corporation, is based solely on the report of the other auditors.
We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit and the report of other auditors provide a reasonable basis for our opinion.
In our opinion, based on our audit and the report of other auditors, the consolidated financial statements referred to in the first paragraph present fairly, in all material respects, the results of operations, cash flows, and changes in stockholders' equity (deficiency) for the year ended September 30, 2001 of K-Tronik International Corporation in conformity with accounting principles generally accepted in the United States of America.
As described in Note 15, the 2001 consolidated financial statements have been restated as of November 7, 2002 as a result of an error in a prior periods pertaining to recording minority interest.
Smolin, Lupin & Co., P.A.
Fairfield, New Jersey
November 30, 2001, except for Note 15
and the last paragraph above as to which
the date is November 7, 2002
F-3
BDO
Daejoo Accounting Corporation
629 Daechi-dong Kangnam-ku Seoul
Accountants & Consultants
135-280 Korea Tel: 82-2-2263-2868
A member of BDO International
Fax: 82-2-501-0470
Report of Independent Certified Public Accountants
The Board of Directors
K-Tronik Asia Corp.
We have audited the accompanying statements of operations and accumulated deficit, stockholders' equity (deficit), and cash flows for the year ended September 30, 2001 of K-Tronik Asia Corp.(not presented herein). These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the results of K-Tronik Asia Corp.'s operations and its cash flows for the year ended September 30, 2001, in conformity with accounting principles generally accepted in the United States of America.
BDO International
Seoul, Korea
November 18, 2001
F-4
K-TRONIK INTERNATIONAL CORP.
(Formerly LMC CAPITAL CORP.)
Consolidated Balance Sheets
| | | June 30, | | | September 30, | |
| | | 2003 | | | 2002 | |
| | | (Unaudited) | | | | |
| ASSETS | | | | | | |
| Current Assets: | | | | | | |
| Cash and cash equivalents | $ | 52,752 | | $ | 294,484 | |
| Accounts receivable net of allowance $45,000, $18,884 | | 1,260,458 | | | 1,466,753 | |
| Inventories | | 1,794,759 | | | 1,684,007 | |
| Prepaid expenses | | 166,450 | | | 158,736 | |
| Total current assets | | 3,274,419 | | | 3,603,980 | |
| | | | | | | |
| Property and equipment, net of accumulated | | | | | | |
| depreciation of $469,182 and $342,186 | | 439,855 | | | 405,581 | |
| Security deposits and other | | 111,403 | | | 77,022 | |
| Intangible assets, net of accumulated amortization of | | | | | | |
| $60,562 and $48,019 | | 111,002 | | | 114,889 | |
| | | | | | | |
| Total Assets | $ | 3,936,679 | | $ | 4,201,472 | |
| | | | | | | |
| LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | | | |
| | | | | | | |
| Current Liabilities: | | | | | | |
| Notes payable | $ | 1,183,159 | | $ | 1,685,618 | |
| Accounts payable and accrued expenses | | 2,238,804 | | | 1,449,311 | |
| Total Current Liabilities | | 3,421,963 | | | 3,134,929 | |
| | | | | | | |
| Commitments | | | | | | |
| | | | | | | |
| Stockholders’ Equity: | | | | | | |
| Common stock, $.00001 par value 100,000,000 | | | | | | |
| authorized shares 22,573,886 issued and outstanding | | 226 | | | 226 | |
| Additional paid–in capital | | 5,020,108 | | | 5,020,108 | |
| Retained deficit | | (4,254,474 | ) | | (3,724,139 | ) |
| Accumulated comprehensive loss, foreign currency | | | | | | |
| translation adjustment | | (251,144 | ) | | (229,652 | ) |
| Total stockholders’ equity | | 514,716 | | | 1,066,543 | |
| | | | | | | |
| Total liabilities and stockholders’ equity | $ | 3,936,679 | | $ | 4,201,472 | |
See accompanying notes to consolidated financial statements.
F-5
K-TRONIK INTERNATIONAL CORP.
(Formerly LMC CAPITAL CORP.)
Consolidated Statements of Operations and Comprehensive Loss
| | Nine Months Ended | | For the Year Ended | |
| | June 30, | | September 30, | |
| | | 2003 | | | 2002 | | | 2002 | | | 2001 | |
| | | (Unaudited) | | | (Unaudited) | | | | | | (Restated) | |
| | | | | | | | | | | | | |
| Net Revenues | $ | 4,728,223 | | $ | 4,975,416 | | $ | 6,737,719 | | $ | 6,680,622 | |
| Cost of revenues | | 3,488,941 | | | 3,488,941 | | | 5,299,133 | | | 5,093,406 | |
| Gross profit | | 1,239,282 | | | 1,180,240 | | | 1,438,586 | | | 1,587,216 | |
| Selling, general and administrative expenses | | 1,626,770 | | | 1,461,051 | | | 2,020,670 | | | 2,012,583 | |
| Loss from operations | | (387,488 | ) | | (280,811 | ) | | (582,084 | ) | | (425,367 | ) |
| Other income (expenses) | | | | | | | | | | | | |
| Interest expense | | (143,196 | ) | | (160,404 | ) | | (232,165 | ) | | (238,826 | ) |
| Other income | | 349 | | | 354 | | | 3,731 | | | - | |
| Loss on Sales of Equipment | | - | | | - | | | - | | | (9,423 | ) |
| Total other income (expenses) | | (142,847 | ) | | (160,050 | ) | | (228,434 | ) | | (248,249 | ) |
| Loss before income taxes | | (530,335 | ) | | (440,861 | ) | | (810,518 | ) | | (673,616 | ) |
| Income taxes | | - | | | - | | | - | | | 9,893 | |
| Net loss | | (530,335 | ) | | (440,861 | ) | | (810,518 | ) | | (683,509 | ) |
| Foreign currency translation adjustment | | (21,492 | ) | | 100,470 | | | (88,890 | ) | | (91,218 | ) |
| Comprehensive loss | $ | (551,827 | ) | $ | (340,391 | ) | $ | (899,408 | ) | $ | (774,727 | ) |
| Basic and diluted net loss per share | $ | (0.02 | ) | $ | (0.02 | ) | $ | (0.04 | ) | $ | (0.05 | ) |
| Weighted average number of common | | | | | | | | | | | | |
| shares outstanding | | 22,573,866 | | | 19,330,678 | | | 22,573,886 | | | 14,285,714 | |
See notes to consolidated financial statements.
F-6
K-TRONIK INTERNATIONAL CORP.
(Formerly LMC CAPITAL CORP.)
Consolidated Statement of Changes in Stockholders’ Equity (Deficit)
| | | | | | | | | | | | | | | | | Total | |
| | | | | | | | Additional | | | | | | Accumulated | | | Stockholders’ | |
| | | | | | | | Paid-in | | | Retained | | | Comprehensive | | | Equity | |
| | Shares | | | Amount | | | Capital | | | Deficit | | | Loss | | | (Deficit) | |
| | | | | | | | | | | | | | | | | | |
| Balance at September 30, 2000 (Restated) | 25,000 | | $ | 100,000 | | $ | 1,053,162 | | $ | (2,237,087 | ) | $ | (49,544 | ) | $ | (1,133,469 | ) |
| Net loss for the year | | | | - | | | - | | | (683,509 | ) | | - | | | (683,509 | ) |
| Foreign currency translation adjustment | | | | - | | | - | | | - | | | (91,218 | ) | | (91,218 | ) |
| Balance at September 30, 2001 (Restated) | 25,000 | | | 100,000 | | | 1,053,162 | | | (2,920,596 | ) | | (140,762 | ) | | (1,908,196 | ) |
| Conversion of parent company debt to equity | 3,788,172 | | | 3,788,172 | | | - | | | - | | | - | | | 3,788,172 | |
| Recapitalization as a result of reverse merger | 18,760,714 | | | (3,887,946 | ) | | 3,966,946 | | | 6,975 | | | - | | | 85,975 | |
| Net loss for the year | | | | - | | | - | | | (810,518 | ) | | - | | | (810,518 | ) |
| Foreign currency translation adjustment | | | | - | | | - | | | - | | | (88,890 | ) | | (88,890 | ) |
| Balance at September 30, 2002 | 22,573,886 | | $ | 226 | | $ | 5,020,108 | | $ | (3,724,139 | ) | $ | (229,652 | ) | $ | 1,066,543 | |
| Net loss for the nine months ended | | | | | | | | | | | | | | | | | |
| June 30, 2003 (Unaudited) | - | | | - | | | - | | | (530,335 | ) | | | | | (530,335 | ) |
| | | | | | | | | | | | | | | | | | |
| Foreign currency translation adjustment | - | | | - | | | - | | | - | | | (21,492 | ) | | (21,492 | ) |
| Balance at June 30, 2003 (Unaudited) | 22,573,886 | | $ | 226 | | $ | 5,020,108 | | $ | (4,034,724 | ) | $ | (251,144 | ) | $ | 514,716 | |
See accompanying notes to consolidated financial statements.
F-7
K-TRONIK INTERNATIONAL CORP.
(Formerly LMC CAPITAL CORP.)
Consolidated Statements of Cash Flows
| | Nine Months Ended | | For the Year Ended | |
| | June 30, | | September 30, | |
| | | 2003 | | | 2002 | | | 2002 | | | 2001 | |
| | | (Unaudited) | | | (Unaudited) | | | | | | (Restated) | |
| | | | | | | | | | | | | |
| Net loss | $ | (530,335 | ) | $ | (440,861 | ) | $ | (810,518 | ) | $ | (683,509 | ) |
| | | | | | | | | | | | | |
| Adjustments to reconcile net loss to net cash | | | | | | | | | | | | |
| provided by (used in) operating activities | | | | | | | | | | | | |
| Amortization and depreciation | | 139,539 | | | 127,932 | | | 148,814 | | | 147,097 | |
| Reserve for inventory obsolescence | | (10,000 | ) | | - | | | 120,000 | | | - | |
| Bad debt expense | | 30,000 | | | - | | | 5,660 | | | 54,494 | |
| Loss on sale of equipment | | - | | | - | | | - | | | 9,423 | |
| Change in operating assets and liabilities | | | | | | | | | | | | |
| Accounts receivable | | 176,295 | | | 62,836 | | | (108,800 | ) | | (456,901 | ) |
| Inventories | | (100,572 | ) | | 74,001 | | | 591,254 | | | (876,099 | ) |
| Prepaid expenses | | (7,714 | ) | | (19,021 | ) | | (7,307 | ) | | 27,735 | |
| Security deposits and other | | (34,381 | ) | | (22,634 | ) | | (22,981 | ) | | (11,842 | ) |
| Accounts payable and accrued expenses | | 789,493 | | | (369 | ) | | 95,601 | | | 540,106 | |
| | | | | | | | | | | | | |
| Net cash proved by (used in) operating activities | | 452,145 | | | (218,116 | ) | | 11,723 | | | (1,249,496 | ) |
| | | | | | | | | | | | | |
| Cash flows from investing activities | | | | | | | | | | | | |
| Sales of equipment | | - | | | - | | | - | | | 68,856 | |
| Purchase of equipment | | (161,270 | ) | | (56,790 | ) | | (61,148 | ) | | (132,048 | ) |
| Patents and intangible assets | | (8,656 | ) | | (800 | ) | | (800 | ) | | (11,402 | ) |
| | | | | | | | | | | | | |
| Net cash used in investing activities | | (169,926 | ) | | (57,590 | ) | | (61,948 | ) | | (74,594 | ) |
| | | | | | | | | | | | | |
| Cash flows from financing activities | | | | | | | | | | | | |
| Proceeds (payments) from notes payable | | (502,459 | ) | | 30,889 | | | 259,007 | | | (16,677 | ) |
| Proceeds from loan payable-parent | | - | | | 78,992 | | | 78,992 | | | 1,230,000 | |
| | | | | | | | | | | | | |
| Net cash provided by (used in) financing activities | | (502,459 | ) | | 109,881 | | | 337,999 | | | 1,213,323 | |
| | | | | | | | | | | | | |
| Effect of exchange rate changes | | (21,492 | ) | | 100,470 | | | (88,890 | ) | | (91,218 | ) |
| Net increase (decrease) in cash and cash | | | | | | | | | | | | |
| equivalents | | (241,732 | ) | | (65,355 | ) | | 198,884 | | | (201,985 | ) |
| | | | | | | | | | | | | |
| Cash and cash equivalents at beginning of year | | 294,484 | | | 95,600 | | | 95,600 | | | 297,585 | |
| Cash and cash equivalents at end of year | $ | 52,752 | | $ | 30,245 | | $ | 294,484 | | $ | 95,600 | |
See notes to consolidated financial statements.
F-8
K-TRONIK INTERNATIONAL CORP.
(Formerly LMC CAPITAL CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2002 AND 2001 AUDITED
INFORMATION FOR THE NINE MONTH PERIOD ENDED
JUNE 30, 2003 AND 2002 IS UNAUDITED
NOTE 1 – Summary Of Significant Accounting Policies:
Nature of Business and Basis of Presentation
The Company was incorporated on September 2, 1999 in the State of Nevada as LMC Capital Corp. and was organized for the purpose of creating a corporate vehicle to locate and acquire an operating business. On December 12, 2001 the Company changed its name to K-Tronik International Corp. (“KTI” or the “Company”).
By agreement dated November 29, 2001 and approved by the board of directors effective December 12, 2001, KTI issued 14,285,714 shares of restricted common stock to the shareholders of K-Tronik Int’l Corporation, a Nevada corporation, in exchange for 100% of the issued and outstanding shares of K-Tronik Int’l Corporation which, at the time of the transaction, owned a 100% interest in K-Tronik Asia Corporation (“KTA”), a Korean corporation. In connection with this transaction, K-Tronik Int’l Corporation changed its name effective December 12, 2001 to K-Tronik N.A. Inc. (“KTNA”).
The acquisition resulted in the former shareholders of KTNA acquiring 93.4% of the outstanding shares of the KTI and has been accounted for as a reverse acquisition with KTNA being treated as the accounting parent and KTI, the legal parent, being treated as the accounting subsidiary. Accordingly, the consolidated results of operations of the Company include those of KTNA for all periods shown and those of the KTI since the date of the reverse acquisition.
The Company is engaged in the manufacture and distribution of various types of electronic stabilizers and illuminator ballasts for fluorescent lighting fixtures. The Company grants credit, on an unsecured basis, to distributors and installers located throughout the United States.
Method of Accounting
The financial statements have been prepared on the basis of accounting principles generally accepted in the United States of America.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of KTI, KTNA and KTA as described above and in Note 2. All material intercompany balances and transactions have been eliminated in consolidation.
F-9
K-TRONIK INTERNATIONAL CORP.
(Formerly LMC CAPITAL CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Unaudited Interim Financial Statements
The accompanying unaudited interim consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions of Regulation S-B. They do not include all information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. The interim unaudited consolidated financial statements should be read in conjunction with the financial statements for the year ended September 30, 2002 included herein. In the opinion of management, all adjustments considered necessary for a fair presentation, consisting solely of normal recurring adjustments, have been made. Operating results for the nine months ended June 30, 2003 are not necessarily indicative of the results that may be expected for the year ending September 30, 2003.
Cash and Cash Equivalents
The Company considers all highly liquid investments with an initial maturity date of three months or less and money market accounts to be cash equivalents.
Inventories
Inventories are stated at the lower of cost or market, determined by the moving weighted average method. An allowance has been provided for obsolescence.
Property and Equipment
Property and equipment are stated at cost less accumulated depreciation. Depreciation of property and equipment is computed using the straight-line and accelerated methods over their estimated useful lives that range from three to five years. Repairs and maintenance are charged to expense as incurred.
Patent and Other Intangibles
Patent and other intangibles are recorded at cost and amortized over their estimated useful lives which range from five-to-ten years.
Research and Development Costs
Research and development costs are charged to operations when incurred. Research and development expense totaled $4,903, $1,365, $4,062 and $0 for the years ending September 30, 2002 and 2001 and for the nine-month periods ending June 30, 2003 and 2002, respectively.
Revenue Recognition
Sales to customers are FOB shipping point. As a result the Company recognizes sales when products are shipped. The Company establishes an allowance for doubtful accounts based upon factors surrounding the credit risk of our customers, historical trends, and other information.
F-10
K-TRONIK INTERNATIONAL CORP.
(Formerly LMC CAPITAL CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Foreign Currency Translation
Assets and liabilities of the Company’s foreign subsidiary, KTA, are translated at the rate of exchange in effect at the end of the period. Net sales and expenses are translated at the average rate of exchange for the period. Translation adjustments are reflected as a separate component of stockholders’ equity.
Advertising Costs
The Company records advertising costs in accordance with SOP 93-7. Advertising costs of $71,674, $111,129, $40,733 and 68,589 were recognized as expense for years ended September 30, 2002 and 2001 and for the nine-month periods ending June 30, 2003 and 2002, respectively.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Long-Lived Assets
The carrying values of long-lived assets are periodically reviewed by management and impairments would be recognized if the expected future operating non-discounted cash flows derived from an asset were less than carrying value. No impairments have been recorded through June 30, 2003.
Fair Value of Financial Instruments
Financial instruments reported in the Company’s consolidated balance sheet consist of cash, accounts receivable, prepaid expenses, accounts payable, notes payable and accrued expenses, the carrying value of which approximate fair value due to the current maturity of these items.
Earnings Per Share
The Company accounts for earnings per share under the provisions of Statement of Financial Accounting Standards (SFAS) No. 128, Earnings Per Share, which requires a dual presentation of basic and diluted earnings per share. Basic earnings per share excludes dilution and is computed by dividing income available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted earnings per share is computed assuming the conversion of convertible preferred stock and the exercise or conversion of common stock equivalent shares, if dilutive, consisting of unissued shares under options and warrants. Basic and diluted losses are the same as no options, warrants or convertible preferred stock have been issued.
F-11
K-TRONIK INTERNATIONAL CORP.
(Formerly LMC CAPITAL CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Stock Based Compensation
The Company follows SFAS No. 123, Accounting for Stock-Based Compensation. It chose to apply Accounting Principle Board Opinion 25 and related interpretations in accounting for stock options granted to its employees. No options have been granted to date.
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to credit risk consist principally of trade receivables. The Company extends credit to a substantial number of its customers and performs ongoing credit evaluations of those customers financial condition while, generally requiring no collateral.
Income Taxes
The Company accounts for income taxes under the provisions of SFAS No. 109, “Accounting for Income Taxes.” Deferred income tax assets and liabilities are recognized for differences between the financial statement and income tax basis of assets and liabilities based upon statutory rates enacted for future periods. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized.
New Accounting Pronouncements
In July 2001, SFAS No. 141, Business Combinations and SFAS No. 142, Goodwill and Other Intangible Assets were issued. SFAS 141 requires the use of he purchase method of accounting and prohibits the use of the pooling-of-interests method of accounting for business combinations initiated after June 30, 2001. SFAS 142 addresses financial accounting and reporting for acquired goodwill and other intangible assets. SFAS 142 requires, among other things, that companies no longer amortize goodwill, but instead test goodwill for impairment at least annually. SFAS 142 is required to be applied for fiscal years beginning after December 15, 2001. The Company has not recorded any goodwill and will assess how the adoption of SFAS 141 and SFAS 142 will impact its financial positions and results of operations in any future acquisitions.
In August 2001, SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets was issued. The new guidance resolves significant implementation issues related to SFAS No. 121, but it retains its fundamental provisions. It also amends Accounting Research Bulletin No. 51, Consolidated Financial Statements, to eliminate the exception to consolidate a subsidiary for which control is likely to be temporary. SFAS 144 retains the requirement of SFAS 121 to recognize an impairment loss only if the carrying amount of a long-lived asset within the scope of SFAS 144 is not recoverable from its undiscounted cash flows an exceeds its fair value.
At this time the adoption of SFAS No. 141, 142 and 144 have had no effect on the Company’s financial statements.
F-12
K-TRONIK INTERNATIONAL CORP.
(Formerly LMC CAPITAL CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 – Acquisition:
By agreement dated November 29, 2001 and approved by the board of directors effective December 12, 2001, KTI acquired 100 % of the issued and outstanding shares of KTNA, which included KTNA’s wholly-owned subsidiary KTA, in exchange for 14,285,714 shares of restricted common stock of KTI. As a condition of this acquisition, KTI also issued 3,788,172 shares of restricted common stock to ETIFF Holdings Inc. (“ETIFF”) in settlement of $3,788,172 owed to ETIFF by KTNA. ETIFF, a wholly owned subsidiary of Eiger Technologies, Inc. (“Eiger”), a Toronto Stock Exchange listed company, owned 53% of the issued and outstanding shares of KTNA. Also in connection with this transaction, Eiger was granted and exercised an option to acquire an additional 3,000,000 shares of KTI from the original shareholders of KTI. As a result of these transactions, the former shareholders of KTNA own 93.4% of KTI representing 21,073,886 of the 22,573,886 total issued and outstanding shares of KTI.
This acquisition has been accounted for as a recapitalization using accounting principles applicable to reverse acquisitions with KTNA being treated as the accounting parent (acquirer) and KTI being treated as the accounting subsidiary (acquired). The value assigned to the capital
stock of consolidated KTI on acquisition of KTNA is equal to the book value of the capital stock of KTNA plus the book value of the net assets of KTI as at the date of the acquisition.
The carrying value of KTI’s capital stock as December 12, 2001, after giving effect to the reverse acquisition and the ETIFF debt settlement is calculated as follows:
| KTNA capital stock | $ | 100,000 | |
| KTNA additional paid in capital | | 1,132,162 | |
| Settlement of amounts due to ETIFF | | 3,788,172 | |
| | | | |
| | | | |
| KTI capital stock, September 30, 2002 | $ | 5,020,334 | |
| | | | |
| The components of KTI capital stock are made up as follows: | | | |
| Capital stock (22,573,886 common shares issued and outstanding) | $ | 226 | |
| Additional paid-in capital | | 5,020,108 | |
| | | | |
| | $ | 5,020,334 | |
F-13
K-TRONIK INTERNATIONAL CORP.
(Formerly LMC CAPITAL CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 – Investment in K-Tronik Asia Corporation:
As at September 30, 2001, KTNA had an 86.66% ownership interest in KTA. On December 4, 2001, Eiger acquired the additional 17,199 shares (13.34%) of KTA for $79,000. Eiger then transferred the 17,199 shares to KTNA in exchange for $79,000 which was assigned to ETIFF by Eiger and settled in connection with the amounts due to ETIFF as described in Notes 2 and 8. As a result of this transaction, KTNA owns 100% of KTA and the fixed assets of KTA were stepped-up by the acquisition price of $79,000.
The functional currency of Asia is the Korean Won.
NOTE 4 – Inventories:
Inventories consist of the following:
| | | June 30 | | | September 30, | |
| | | 2003 | | | 2002 | |
| | | | | | | |
| Raw materials | $ | 216,142 | | $ | 344,230 | |
| Work-in-process | | - | | | 65,435 | |
| Finished goods | | 1,678,617 | | | 1,394,342 | |
| | | 1,894,759 | | | 1,804,007 | |
| Reserve for inventory obsolescence | | (100,000 | ) | | (120,000 | ) |
| | $ | 1,794,759 | | $ | 1,684,007 | |
NOTE 5 – Property and Equipment:
Property and equipment consists of the following:
| | June 30, | | | September 30, | |
| | 2003 | | | 2002 | |
| Transportation equipment | $ | 39,122 | | $ | 38,087 | |
| Computer equipment | | 118,077 | | | 52,086 | |
| Tools | | 258,895 | | | 178,913 | |
| Furniture and fixtures | | 60,116 | | | 58,529 | |
| Machinery and equipment | | 432,827 | | | 420,152 | |
| | 909,037 | | | 747,767 | |
| Less: Accumulated depreciation | | 469,182 | | | 342,186 | |
| | 439,855 | | $ | 405,581 | |
Depreciation expense for the years ended September 30, 2002 and 2001 and for the nine- month periods ending June 30, 2003 and 2002 was $139,856, $109,040, $127,086 and $116,696, respectively.
F-14
K-TRONIK INTERNATIONAL CORP.
(Formerly LMC CAPITAL CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 – Intangible Assets:
Intangible assets consist of the following:
| | | June 30 | | | September 30, | |
| | | 2003 | | | 2002 | |
| | | | | | | |
| Intangible Assets | $ | 171,564 | | $ | 162,908 | |
| Accumulated Amortization | | (60,562 | ) | | (48,019 | ) |
| Net Amount | $ | 111,002 | | $ | 114,889 | |
Amortization expense for the years ended September 30, 2002 and 2001 and for the nine- month period ending June 30, 2003 and 2002 was $14,984, $14,524, $12,453 and $11,236, respectively.
The weighted average amortization period is 10 years. The estimated aggregate amortization expense for each of the five succeeding years is approximately $16,300 per year.
NOTE 7 – Notes Payable:
The Company has drawn down $1,157,219 and $1,205,351 as of September 30, 2002 and 2001, respectively under a $1,500,000 revolving credit line with Business Alliance Capital Corporation (“Alliance”), which is due on demand. The line of credit is secured by equipment, general intangibles, accounts receivables, inventory, and stockholder guarantees of $250,000. The line expires June 30, 2003. The availability of funds is limited to percentages of eligible accounts receivable and inventory. Interest, which is payable monthly, is computed at 1.5 percent above Alliance’s prime rate. The finance fees, also charged to interest expense and payable monthly, are charged at an amount equal to one-half of one percent of the average outstanding balance of the previous month based on a minimum outstanding balance of $200,000. The loan agreement contains financial and non-financial covenants. The Company was in violation of certain of these covenants as of December 31, 2002 and 2001. The Company obtained waivers from Alliance on February 13, 2003 for the violations.
The Company has drawn down $455,893 as of June 30, 2003 under a $1,500,000 revolving credit line with Trust Company Bank of New Jersey (“Trust”), which is due on demand. The line of credit is secured by equipment, general intangibles, inventory, and stockholder guarantees of up to $500,000. The line expires June 30, 2006, however it is renewable annually at June 30, 2004 and 2005. The availability of funds is limited to percentages of eligible accounts receivable and inventory.
KTA has drawn down $528,399, $221,260 and $450,675 under separate revolving lines of credit of $600,000 at September 30, 2002, 2001 and June 30, 2003, respectively with Woori Bank (Formely Hanvit Bank) in Korea. These lines of credit are secured by equipment, accounts receivables and inventory. Interest, which is payable upon borrowing, is charged at an adjustable rate, currently 7.02% per annum. These lines expire through May 29, 2004.
F-15
K-TRONIK INTERNATIONAL CORP.
(Formerly LMC CAPITAL CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In February 2003, KTA was advanced $111,741 by one of its employees, the total amount outstanding at June 30, 2003 was $108,960. The advance is non- interest bearing and is payable on demand.
In May 2003, KTA was advanced $167,631 by an outside financier. The advance bears interest at the rate of 12% and is due by November 2003.
The Company expects that its working capital needs will require it to obtain new revolving credit facilities by May 29, 2003, when the credit facilities mature, whether by extending, renewing, replacing or otherwise refinancing the facilities. While no assurance can be given that any such extension, renewal, replacement or refinancing can be successfully accomplished, Eiger has committed to provide the Company with the necessary financing to continue its operations through 2003. Eiger has supported the Company in the past by providing it with working capital.
NOTE 8 – Capital Stock:
The legal share capital of the Company subsequent to the reverse acquisition is that of KTI, the legal parent. KTI has authorized capital of 100,000,000 shares of common stock with a par value of $0.00001 of which 4,500,000 were issued and outstanding prior to the reverse acquisition as described in Note 2.
The weighted average number of common shares outstanding prior to the reverse acquisition is deemed to be 14,285,714 being the number of shares issued to effect the reverse acquisition. As of September 30, 2002 the Company had 22,573,866 shares outstanding.
The Company has no stock options outstanding as of June 30, 2003 and has not recorded any stock-based compensation in the current period or in any prior period.
NOTE 9 – Commitments and Contingencies:
The Company assumed a lease of its office space located in Hackensack, New Jersey, which expires November 30, 2003. The lease contains a provision requiring the Company to pay property taxes and operating expenses, which exceed base year amounts. KTA occupies a factory located in South Korea under a lease, which expires March 31, 2004. Total rent expense was approximately $67,900, $105,500, $ 48,689 and $75,410 for the years ended September 30, 2002, 2001 and for the nine-month period ending June 30, 2003 and 2002, respectively.
F-16
K-TRONIK INTERNATIONAL CORP.
(Formerly LMC CAPITAL CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Future minimum annual rent payments under these leases are as follows:
| Year Ending | | | | |
| September 30, | | | | |
| 2003 | | $ | 61,000 | |
| 2004 | | | 27,000 | |
| | | $ | 88,000 | |
NOTE 10 – Major Customer:
One customer accounted for approximately 15% , 11% and two customers accounted for approximately 29%of sales for the years ended September 30, 2002, 2001 and for the nine-month period ended June, 2003, respectively, and 14% and 8% of accounts receivables as of September 30, 2002 and 2001, respectively and four customers accounted for 53% of accounts receivables as of June 30, 2003.
NOTE 11 – Income Taxes:
Deferred income taxes reflect the tax effects of temporary differences between the carrying amounts of assets for financial reporting purposes and amounts used for income tax purposes. The Company provides deferred income taxes for temporary differences between assets and liabilities recognized for financial reporting and income tax purposes. A deferred tax asset valuation allowance has been provided to entirely offset deferred tax assets due to the uncertainty regarding the realization of these assets based on future probability. Differences between income tax benefits computed at the federal statutory rate and reported income taxes in 2001 are primarily attributed to net operating loss carryforwards, the loss on income from foreign subsidiary and other permanent differences. At September 30, 2002 and June 30, 2003 the Company had net operating loss carryforwards of $1,550,000 and $2,080,000, respectively, available to offset future taxable income expiring through 2008. The tax effects of temporary differences are as follows:
| Deferred tax assets: | | June 30, | | | September 30, | |
| | | 2003 | | | 2002 | |
| | | | | | | |
| Allowance for doubtful accounts | $ | 15,800 | | $ | 5,100 | |
| Net operating losses | | 647,000 | | | 467,000 | |
| Allowance for inventory obsolescence | | 34,000 | | | 40,800 | |
| Retirement and severance benefits | | 12,000 | | | 16,000 | |
| Depreciation and Amortization | | 7,100 | | | 7,100 | |
| Total deferred tax assets | | 715,900 | | | 536,000 | |
| Less valuation allowance | | (715,900 | ) | | (536,000 | ) |
| | $ | - | | $ | - | |
F-17
K-TRONIK INTERNATIONAL CORP.
(Formerly LMC CAPITAL CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12 – Retirement and Severance Benefits:
Employees who have been with K-Tronik Asia Corporation for over one year are entitled to lump-sum payments based on current rates of pay and length of service when they leave K- Tronik Asia Corporation. It is not the policy of K-Tronik Asia Corporation to fund retirement and severance benefits accrued. However, provision in the amount of approximately $47,000, $44,000 and $41,000 at September 30, 2002, 2001and June 30, 2003, respectively, has been made in the accompanying financial statements for the estimated accrued liability under the plan, which would be payable if all employees left on the balance sheet date.
NOTE 13 – Supplemental Disclosure of Cash Flow Information:
Cash paid for interest for the years ended September 30, 2002 and 2001 and for the nine-month period ending June 30, 2003and 2002 was $233,704, $203,033, $143,196 and $160,404, respectively.
NOTE 14 – Operating Segments
The Company has only one material operating segment, the design, market and distribution of electronic stabilizers and illuminator ballasts for florescent lighting fixtures, which is managed on a geographic basis.
The table below presents information by geographic location:
| | For the nine-months | | For the Year | |
| | Ending June 30, | | Ended September 30, | |
| | | 2003 | | | 2002 | | | 2002 | | | 2001 | |
| Revenues | | | | | | | | | | | | |
| United States | $ | 3,876,860 | | $ | 4,876,626 | | $ | 6,282,165 | | $ | 6,167,462 | |
| Asia and other | | 851,363 | | | 98,790 | | | 455,554 | | | 513,160 | |
| | $ | 4,728,223 | | $ | 4,975,416 | | $ | 6,737,719 | | $ | 6,680,622 | |
| | | | | | | | | | | | | |
| Long-lived assets | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| United States | $ | 75,270 | | | | | $ | 21,442 | | | | |
| Asia and other | | 364,585 | | | | | | 384,139 | | | | |
| | $ | 439,855 | | | | | $ | 405,581 | | | | |
Revenues are attributed to countries based on the location in which the sale originated. Long-lived assets principally consist of net equipment, property and leasehold improvements.
F-18
K-TRONIK INTERNATIONAL CORP.
(Formerly LMC CAPITAL CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 15 – Prior Period Adjustment
The accompanying consolidated financial statements for the year ended September 30, 2001 have been restated to correct an error in the accounting for the minority interest made in that year and in prior years. The effect of the restatement was to increase the net loss for 2001 by $116,134 and opening retained deficit at September 30, 2000 by $582,065.
F-19
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
During K-Tronik's two most recent fiscal years and any subsequent interim period, there were no disagreements with K-Tronik's accountants on any matter of accounting principle or practices, financial statement disclosure or auditing scope or procedure. In addition, there were no reportable events as described in Item 304(a)(1)(iv)(B)1 through 3 of Regulation S-B that occurred within K-Tronik's two most recent fiscal years and the subsequent interim periods.
Effective on May 15, 2002, the independent accountants who were previously engaged as the principal accountants to audit the Registrant's financial statements, Labonte & Company, resigned. The accountant's reports on the financial statements for the fiscal year ended December 31, 2000 neither contained an adverse opinion or a disclaimer of opinion, nor was qualified or modified as to uncertainty, audit scope or accounting principles.
Effective on May 15, 2002, BDO Seidman, LLP, through their New Jersey offices, was engaged to serve as the new principal accountant to audit K-Tronik's financial statements. They had previously been engaged to replace Smolin, Lupin & Co., P.A. as the principal accountants of our subsidiary, K-Tronik (N.A.) earlier in the fiscal year.
The change in principal accountants was disclosed on Form 8K on May 16, 2002.
44
PART II.
INFORMATION NOT REQUIRED IN PROSPECTUS
INDEMNIFICATION OF OFFICERS AND DIRECTORS
Save and except for Article IX of the Articles of Incorporation, attached hereto, which provides that K-Tronik will indemnify directors against losses from acts taken in the performance of their duties to K-Tronik, no statute, charter provision, article, by-law, contract or other arrangement exists under which any controlling persons, directors or officers of K-Tronik is insured or indemnified in any manner against liability which he or she may incur acting in his or her capacity as such.
Information on this item is set forth in the prospectus under the heading "Disclosure of Commission Position on Indemnification for Securities Act Liabilities."
OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Information on this item is set forth in the prospectus under the heading "Use of Proceeds."
RECENT SALES OF UNREGISTERED SECURITIES
Sales of Unregistered Securities by the Company prior to the acquisition of K-Tronik N.A. Inc.:
The Company was called "LMC Capital Corp." prior to the acquisition of K-Tronik N.A. Inc.
In September of 1999, the Company issued a total of 15,000 shares of common stock to its three directors with each director receiving 5,000 shares of common stock. These shares of common stock were sold for a total of $15, being $0.001 per share of common stock. The issuance of the shares was exempt from registration under the Securities Act of 1933 by way of Section 4(2) which allows an issuer to sell securities to someone who is not a member of the public. These sales were made to the Company's directors.
In September of 1999, the Company issued a total of 30,000 shares of common stock under exemptions from registration provided by Regulation S to a total of 15 persons. All of these persons are Canadian residents. The total paid for these 30,000 shares of common stock was $30 being $0.001 per share.
Each of these 15 persons was asked to confirm in writing their residential address and each of these persons was a close personal friend, business associate or family member of one or more of the directors and officers of the Company at the time of the shares' issuance.
The offering to these 15 persons was undertaken under Regulation S they were made under Rule 903 (Category 3, equity securities) and:
- the sale was made in an offshore transaction;
- no directed selling efforts were made in the United States by the Company;
- the purchaser confirmed that it is not a US person and is not acquiring the securities for the account or benefit of any US person;
- the purchaser agreed to resell such securities only in accordance with the provisions of the Securities Act of 1933 or regulations applicable to their securities;
- the securities contained a legend to the effect that transfer was prohibited unless the securities were first registered under the Securities Act of 1933 or resale was made pursuant to an exemption therefrom.
The offers and sales were not made to any US person or for the account or benefit of a US person.
No commission or professional fees were paid in connection with the Company's sales of unregistered securities under either Regulation S.
Neither we nor any person acting on our behalf offered or sold the foregoing securities by means of any form of general solicitation or general advertising. All purchasers represented in writing that they acquired the securities for their own accounts. A resale legend has been provided for the stock certificates stating that the securities have not been registered under the Securities Act of 1933 and cannot be resold or otherwise transferred without registration or an exemption (such as that provided by Regulation S or Rule 144).
Forward Split of Shares:
Upon completion of the share issuances described above, there were 45,000 shares of common stock outstanding.
The Company decided in September of 1999 to forward split its shares of common stock on a 100 shares for one share basis.
As a result, the 45,000 shares of common stock became 4,500,000 shares of common stock issued and outstanding.
Sales of Unregistered Securities in the Acquisition of K-Tronik N.A. Inc.
On December 12, 2001, the Company issued the following shares:
Mr. Robert Kim: 6,714,286
ETIFF Holdings, LLC, a wholly owned subsidiary of Eiger Technology, Inc.:
7,571,428
No cash consideration was paid for the 7,571,428 shares issued to ETIFF Holdings, LLC or the 6,714,286 shares issued to Robert Kim. These shares were issued in consideration of the acquisition of 100% of the issued and outstanding shares of K-Tronik N.A. Inc. at an agreed value of $14,285,714.
In engaging in these sales of unregistered securities and concluding that they were exempt from registration by way of Section 4(2) of the Securities Act, K-Tronik relied upon the facts that:
- Robert Kim was an affiliate of the Company. He was also the President of K-Tronik and the person most familiar with its business and activities. He is also familiar with public markets and securities markets.
- ETIFF Holdings, LLC was the largest shareholder of K-Tronik and, as a result, familiar with its business and activities. ETIFF is also, through its management and its position as the wholly owned subsidiary of Eiger Technology, Inc., sophisticated in its understanding of public markets and securities markets.
In January of 2002, a total of 3,788,172shares of our common stock were issued in settlement of the $3,788,172 debt K-Tronik N.A. Inc. owed to ETIFF. As ETIFF is our majority shareholder and not a member of the public, the shares were issued in reliance upon Section 4(2) of the Securities Act.
No sales of securities, registered or unregistered, have been undertaken by the Company other than the issuances described above.
45
EXHIBITS AND EXHIBIT TABLE
ITEM 27: EXHIBITS
3.1 Articles of K-Tronik International Corp. (formerly LMC Capital
Corp.)
3.2 Certificate of Incorporation of K-Tronik International Corp.
(formerly LMC Capital Corp.)
3.3 Amendment to Certificate of Incorporation of K-Tronik
International Corp. (formerly LMC Capital Corp.)
3.4 Certificate of Amendment to Articles of incorporation concerning
name change to K-Tronik International Corp. from LMC Capital Corp.
3.5 Certificate of Amendment of Articles of incorporation increasing
authorized capital to 100,000,000 common shares dated October 17, 2000.
5.1 Legal Opinion of CD Farber Law Corporation regarding valid
issuance of shares of K-Tronik International Corporation
10.1 Incentive Stock Option Plan dated October 1, 2001
10.2 Credit Facility between the Trust Company of New Jersey and K-Tronik
dated June 30, 2003
10.3 Debt Settlement Agreement between K-Tronik International Corp.
(formerly LMC Capital Corp.), ETIFF Holdings, LLC, K-Tronik N.A.
Inc. and Eiger Technology, Inc. dated December 12, 2001
10.4 Amendment to Debt Settlement Agreement between K-Tronik
International Corp. (formerly LMC Capital Corp.), ETIFF Holdings,
LLC, K-Tronik N.A. Inc. and Eiger Technology, Inc. dated December
30, 2001
10.5 Escrow Agreement between Robert Kim, ETIFF Holdings, LLC
and K-Tronik International Corp. (formerly LMC Capital Corp.) dated
December 12, 2001
10.6 Distributorship Agreement between K-Tronik N.A. Inc.
(formerly K-Tronik Int'l Corporation) and Jademar Corporation dated
October 26, 1999
10.7 Lease Agreement between Eempact Corp. as Tenant and 98
Corporation dated November 12, 1997
10.8 Assignment of Lease Agreement between 98 Corporation,
Eempact Corporation and K-Tronik N.A. Inc. (formerly K-Tronik Int'l
Corporation) dated March 10, 1998 (98 Corporation executing as to
its consent only)
10.9 Share Purchase Agreement between Robert Kim, ETIFF
Holdings, Inc. and K-Tronik International Corp. (formerly LMC
Capital Corp.) dated effective November 29, 2001
10.10 Registrar and Transfer Agent Agreement between K-Tronik
International Corp. and Pacific Corporate Trust Company dated
February 26, 2002
10.11 One year Extension of Agreement to December 31, 2003 with Jademar
Corporation dated January 30, 2003
10.12 Lease Agreement between K-Tronik (Asia) and Bokjeong Merchants
dated Feb. 28, 2003
10.13 Lease Agreement Amendment for K-Tronik Asia
10.14 Line of Credit for K-Tronik (Asia)dated February 28, 2001
10.15 Line of Credit for K-Tronik (Asia)- amended - dated May 29, 2001
10.16 Line of Credit for K-Tronik (Asia) - increase in credit limit -
dated April 24, 2001
10.17 Line of Credit for K-Tronik (Asia) - increase in credit limit -
dated June 30, 2001
10.18 Renewal of line of credit for K-Tronik (Asia) dated May
29, 2003
10.19 Renewal of line of credit for K-Tronik (Asia) dated May
29, 2002
10.20 Loan and Security Agreement Waiver of Default dated Feb. 13, 2003
22.1 Subsidiaries of the Registrant.
23.1 Consent of CD Farber Law Corporation (see below) regarding
inclusion of opinion (Exhibit 5.1)
24.1 Consent of Smolin Lupin & Co., P.A. dated July 21, 2003
regarding inclusion of financial statements
24.2 Consent of BDO Seidman, LLP dated July 21, 2003 regarding
inclusion of financial statements
46
UNDERTAKINGS
In accordance with Rule 415 and Item 512 of Regulation S-K, the undersigned company hereby undertakes to:
(1) File, during any period in which it offers or sells securities, a post-effective amendment to this registration statement to:
(i) Include any prospectus required by section 10(a)(3) of the Securities Act of 1933;
(ii) Reflect in the prospectus any facts or events which, individually or together, represent a fundamental change in the information in the registration statement; and notwithstanding the forgoing, any increase or decrease in volume of securities offered, if the total dollar value of securities offered would not exceed that which was registered, and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospects filed with the U.S. Securities and Exchange Commission pursuant to Rule 424(b) if, in the aggregate, the changes in the volume and price represent no more than a 20% change in the maximum aggregate offering price set forth in the "Calculation of Registration Fee" table in the effective registration statement.
(iii) Include any additional or changed material information on the plan of distribution.
(2) For determining liability under the Securities Act of 1933, treat each post-effective amendment as a new registration statement of the securities offered, and the offering of the securities at that time to be the initial bona fide offering.
(3) File a post-effective amendment to remove from registration any of the securities that remain unsold at the end of the offering. Insofar as indemnification for liabilities arising under the Securities Act of 1933 (the "Act") may be permitted to directors, officers and controlling persons of the small business issuer pursuant to the foregoing provisions, or otherwise, the small business issuer has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable.
The undersigned registrant hereby undertakes that, for purposes of determining any liability under the Securities Act of 1933, each filing of the registrant's annual report pursuant to section 13(a) or section 15(d) of the Securities Exchange Act of 1934 and, where applicable, each filing of an employee benefit plan's annual report pursuant to section 15(d) of the Securities Exchange Act of 1934 that is incorporated by reference in the registration statement shall be deemed to be a new registration statement relating to the securities offered therein and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
47
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the corporation certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form SB-2 and authorized this registration statement to be signed on its behalf by the undersigned in the City of Hackensack in the State of New Jersey on this 15th day of September, 2003.
/s/ Keith Attoe /s/ Robert Kim
Keith Attoe, Director Robert Kim, President,
Treasurer and Director
/s/ Ken Edwards /s/ Gerry Racicot
Ken Edwards, CFO and Gerry Racicot, Director
Principal Accounting
Officer/Principal Financial Officer
48
