SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 20-F
ANNUAL REPORT PURSUANT TO SECTION 13 OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2000
Commission File No. 0-29320
EIGER TECHNOLOGY, INC.
(Exact name of Registrant as specified in its charter)
Ontario, Canada
(Jurisdiction of incorporation or organization)
330 Bay Street, Suite 602
Toronto, Ontario M5H 2S8
(Address of principal executive offices)
Securities registered or to be registered pursuant to Section 12(b) of the Act:
None
Securities registered or to be registered pursuant
to Section 12(g) of the Act:
Common Shares, without par value
(Title of Class)
Securities for which there is a reporting obligation pursuant to Section 15(d)
of the Act:
None
Indicate the number of outstanding shares of each of the Issuer's classes of
capital or common stock as of the close of the period covered by the annual
report: 33,945,858 Commons Shares without par value.
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes |X| No |_|
Indicate by check mark which financial statement item the registrant has elected
to follow.
Item 17 |_| Item 18 |X|
The Index to Exhibits
is found at Page 30
TABLE OF CONTENTS
Page
CURRENCY EXCHANGE RATE INFORMATION 1
PART I
Item 1. Identity of Directors, Senior Management and Advisors 2
Not Applicable
Item 2. Offer Statistics and Expected Timetable - Not Applicable 2
Item 3. Key Information 2
Item 4. Information on the Company 5
Item 5. Operating and Financial Review and Prospects 12
Item 6. Directors, Senior Management and Employees 16
Item 7. Major Shareholders and Related Party Transactions 20
Item 8. Financial Information 21
Item 9. The Offer and Listing 22
Item 10. Additional Information 23
Item 11. Quantitative and Qualitative Disclosure about Market Risk
Not Applicable 29
Item 12. Description of Securities Other than Equity Securities
Not Applicable 29
PART II
Item 13. Defaults, Dividend Arrearages and Delinquencies
Not Applicable 29
Item 14. Material Modifications to the Rights of Security Holders and
Use of Proceeds - Not Applicable 29
Item 15. Reserved 29
Item 16. Reserved 29
PART III
Item 17. Financial Statements - Not Applicable 30
Item 18. Financial Statements 30
Item 19. Exhibits 30
SIGNATURES
CURRENCY EXCHANGE INFORMATION
The Company's accounts are maintained in Canadian dollars. In this Registration
Statement, all dollar amounts are expressed in Canadian dollars except where
otherwise indicated.
The following table sets forth, for the periods indicated, the high and low
rates of exchange of Canadian dollars into United States dollars, the average of
such exchange rates on the last day of each month during the periods, and the
end of period rates. Such rates are shown as, or are derived from, the
reciprocals of the noon buying rates in New York City for cable transfers
payable in Canadian dollars, as certified for customs purposes by the Federal
Reserve Bank of New York.
- --------------------------------------------------------------------------------
Fiscal Year Ended
September 30
- --------------------------------------------------------------------------------
2000 1999 1998 1997 1996
High 0.6903 0.6913 0.7300 0.7513 0.7527
Low 0.6686 0.6362 0.6330 0.7145 0.7236
Average 0.6793 0.6637 0.6840 0.7300 0.7345
Period 0.6636 0.6813 0.6540 0.7234 0.7342
On March 23, 2001 the exchange rate of Canadian dollars into United States,
based upon the noon buying rate in New York City for cable transfers payable in
Canadian dollars as certified for customs purposes by the Federal Reserve Bank
of New York City, was Cdn. $1.00 equals U.S. $0.6383.
FORWARD LOOKING STATEMENTS
Forward-Looking Information is Subject to Risk and Uncertainty. This report
contains certain "forward-looking statements" within the meaning of the U.S.
Private Securities Litigation Reform Act of 1995. When used in this report, the
words "estimate," "project," "intend," "expect," "anticipate" and similar
expressions are intended to identify forward-looking statements. Readers are
cautioned not to place undue reliance on these forward-looking statements, which
speak only as of the date of this report. These statements are subject to risks
and uncertainties that could cause actual results to differ materially from
those contemplated in such forward-looking statements. Such risks and
uncertainties include, but are not limited to, those identified under the
subheading "Risks Factors" in Item 3 hereof.
1
PART I
Item 1. Identity of Directors, Senior Management and Advisers
Not Applicable.
Item 2. Offer Statistics and Expected Timetable
Not Applicable.
Item 3. Key Information
A. Selected financial data.
2000 1999 1998 1997 1996
- --------------------------------------------------------------------------------------------------------------
Working Capital 23,404,000 4,765,000 1,169,000 1,228,000 903,000
Revenue 57,068,000 8,433,000 4,796,000 3,734,000 4,278,000
Income (loss) from
Operation: 919,000 <742,000> 508,000 138,000 274,000
Income (loss) from
Continuing operation: 919,000 <742,000> 508,000 138,000 274,000
Net Incomes (loss): <693,000> <742,000> 508,000 138,000 274,000
Earnings (loss) per Share: <0.03> <0.05> .01 .01 0.02
Total Assets: 57,145,000 17,018,000 9,221,000 5,385,000 5,172,000
Net Assets: 38,348,000 8,337,000 3,064,000 2,556,000 2,417,000
Long Term debt: 1,488,000 1,111,000 1,477,000 1,326,000 848,000
Total Liabilities: 15,501,000 6,727,000 5,689,000 2,760,000 2,654,000
Share Capital: 38,895,000 8,191,000 2,176,000 2,176,000 2,176,000
Retained Earnings
(Deficit): <764,000> <71,000> 671,000 163,000 25,000
Number of Shares: 33,945,858 20,457,429 13,815,001 13,815,001 13,815,001
B. Capitalization and indebtedness.
Not Applicable.
C. Reasons for the offer and use of proceeds.
Not Applicable.
2
D. Risk factors.
The Company's operations are subject to a variety of risks and uncertainties.
The following factors are not to be considered a definitive list of all risks
associated with the Company's operations.
Foreign Operations
The Company derives 83% of its revenue from international sales outside of North
America and 12% from the United States. International sales are subject to
certain risks, including unexpected changes in legal and regulatory requirements
and policy changes affecting the Company's markets; changes in tariffs, currency
exchange rates and other barriers; political and economic instability;
difficulties in accounts receivable collection; difficulties in managing
distributors and representatives; difficulties in protecting the Company's
intellectual property; and potentially adverse tax consequences. See also
"Foreign Exchange Rate" below.
Management of the Growth of the Company
The implementation of the Company's business strategy could result in a period
of rapid growth. This growth could place a strain on the Company's managerial,
operational and financial resources and information systems. Future operating
results will depend on the ability of senior management to manage rapidly
changing business conditions, and to implement and improve the Company's
technical, administrative, financial control and reporting systems. No assurance
can be given that the Company will succeed in these efforts. The failure to
effectively manage and improve these systems could increase the Company's costs
and adversely affect its ability to sell and deliver its products and services.
Competition
The Company faces competition in each of its markets and has competitors, many
of which are larger and have greater financial resources than the Company. There
can be no assurance that the Company will be able to continue to compete
successfully in its markets. Because the Company competes, in part, on the
technical advantages and cost of its products, significant technical advances by
competitors or the achievement by such competitors of improved operating
effectiveness that enable them to reduce prices could reduce the Company's
competitive advantage in these products and thereby adversely affect the
Company's business and financial results.
New Products and Technological Change
The market for the Company's products is characterized by rapidly changing
technology, evolving industry standards and frequent new product introductions
which may be comparable to or superior to the Company's products. The Company's
success will depend upon market acceptance of its existing products and its
ability to enhance its existing products and to introduce new products and
features to meet changing customer requirements. There can be no assurance that
the Company will be successful in identifying, manufacturing and marketing new
products or enhancing its existing products on a timely and cost-effective basis
or that such new products will achieve market acceptance. In addition, there can
be no assurance that products or technologies
3
developed by others will not render the Company's products or technologies
non-competitive or obsolete.
New Market Development
There can be no assurance that the Company will be able to identify, develop and
export to countries or geographic areas in which it is not presently selling.
Intellectual Property
The Company has not obtained patent protection for its proprietary technology or
products and has not registered any trademarks or copyrights. As the Company has
not protected its intellectual property, its business may be adversely affected
by competitors copying or otherwise exploiting the features of the Company's
technology, products, information or services.
Dependence on Key Personnel and Skilled Employees
The success of the Company is dependent, in large part, on certain key personnel
and on the ability to motivate, retain and attract highly skilled persons. The
employment market for skilled technology employees is extremely tight. There can
be no assurance that the Company will be able to attract and retain employees
with the necessary technical and technological skills given the highly
competitive state of the employment market for these individuals. The loss of
such services or the failure by the Company to continue to attract and retain
other key personnel may have a material adverse effect on the Company, including
its ability to develop new products, its ability to grow earnings and its
ability to accelerate revenue growth.
Risks of International Business
Currently two of the Company's production facilities are based in South Korea
while the other facility is located in Canada. As well, the Company distributes,
markets and sells its products in numerous foreign countries. Accordingly, the
Company is subject to the risks associated with producing and selling in
international markets. These risks include the imposition of tariff and
non-tariff barriers to trade requirements for export licenses local business
regulation including the imposition of taxes.
Relationship with Production Employees
Although the employees of the Company are not unionized, there can be no
assurance that this will not occur. Management of the Company is of the opinion
that the unionization of its operations would have a detrimental effect on the
Company's ability to remain competitive.
Uncertain Operating Results
The Company's operating results have varied and may continue to vary
significantly depending on such factors as the timing of new product
announcements, increases in the cost of raw materials and changes in pricing
policies of the Company and its competitors. The market price of the Shares may
be highly volatile in response to such fluctuations.
4
Foreign Exchange Rate
Material appreciation of the Canadian dollar against the US dollar would reduce
the profitability of the Company's US sales. The Company is also exposed to
exchange rate fluctuations in the US and Canadian dollar against the Korean Won.
Political Climate in South Korea
Political instability in South Korea may negatively affect the Company's ability
to manufacture its products on a timely basis, resulting in product shortages.
Management is unaware of any present evidence of political instability of this
magnitude in South Korea.
Item 4. Information on the Company
A. History and development of the company.
Eiger Technology, Inc. (the "Company") was incorporated under the name "Alexa
Ventures Inc." under the Company Act (British Columbia) on September 8, 1986.
The memorandum of the Company was amended on November 26, 1999 to change the
name of the Company from Alexa Ventures Inc. to "Eiger Technology, Inc." In
November 2000 the Company changed its jurisdiction of incorporation from British
Columbia to Ontario.
The Company's registered head office and executive office is located at 330 Bay
Street, Suite 602, Toronto, Ontario M5H 2S8. The telephone number of the
registered office is (416) 216-8659.
The Company entered the energy efficient lighting business in 1991. The
Company's two main operating subsidiaries in this non-core business are K-Tronik
and ADH. ADH operates from the Company's 55,000 square foot manufacturing and
engineering facility located in Stratford, Ontario. ADH manufactures and
distributes transformer housings, switch housings and electronic data racks, as
well as fluorescent light fixtures and reflectors.
On April 1, 1998, the Company purchased 53% of the common stock of K-Tronik for
$275,000, plus options entitling the holders to acquire up to 250,000 common
shares of the Company. In addition to its US distribution capabilities, K-Tronik
also possesses a South Korean manufacturing facility through its subsidiary,
K-Tronik Asia, Inc. The Company's management does not intend to divest the
Company of its interest in K-Tronik until the public and capital markets
improve.
During fiscal 1998, the Company consolidated two of its South Korean
subsidiaries, Energy Products, Inc. (a manufacturer of electronic ballasts) and
(its South Korean energy saving products sales arm), which were eventually
combined under the name "K-Tronik Asia, Inc."
The Company's focus changed following a series of transactions in September 1999
which resulted in the Company owning a 64% interest in Eiger Labs Group, Inc.
("Eiger Labs") and its Eiger Labs' wholly owned manufacturing subsidiary,
EigerNet, Inc.
5
("EigerNet"). Based in Newark, California (Silicon Valley), Eiger Labs
distributes a wide variety of PC card and desktop peripherals including storage,
multimedia, connectivity and communications products such as MP3 players and
ADSL modems. Based in South Korea, EigerNet is a manufacturer of fax modems,
Ethernet and PCMCIA products and MP3 players for both the South Korean and
United States markets. EigerNet manufactures electronic communication products
for a number of OEMs and PC companies as well as for Eiger Labs.
The Company caused its subsidiary Alexa (USA) Inc. to incorporate Eiger Labs as
a 100% owned California subsidiary on August 18, 1999. On August 18, 2000 Eiger
Labs acquired all of the assets of Eiger Labs, Inc. for consideration of US
$500,000. Also on August 18, 1999, each of Seung Bae Lim, Yong Kook Kim, Tae Jin
Lee and Rae Myung Cha (collectively, the "EigerNet Vendors") subscribed for
shares which, when issued, left the Company (through Alexa (USA) Inc.) holding
64% of Eiger Labs. The Company and the EigerNet Vendors also entered into a
shareholders' agreement with the EigerNet Vendors providing, among other things,
for the appointment of directors and officers, the nature of the business to be
carried out by Eiger Labs, allocation of profits, dividends and distributions,
and restrictions on sales of the parties' shares in Eiger Labs.
The acquisition of the Company's 64% interest in EigerNet was effected through
payment of a combination of cash and stock with a combined aggregate value of US
$1,500,000. US $1,000,000 cash consideration was paid and 500,000 common shares
of the Company were issued. The Company further agreed to issue common shares to
the EigerNet Vendors in equal amounts, as performance earn out consideration
contingent upon achieving the criteria tabled below for the combined results of
Eiger Labs and EigerNet:
COMMON SHARES OF THE
YEAR COMBINED GROSS SALES COMBINED NET INCOME COMPANY TO BE ISSUED
------------------- -------------------------- -------------------------- ------------------------
1999 US $27 million US $1.0 million 600,000
2000 US $70 million US $2.5 million 750,000
2001 US $80 million US $3.5 million 750,000
2002 US $90 million US $4.0 million 900,000
2003 US $110 million US $4.5 million 1,000,000
Under the formula in the agreements, if any of the above targets is not met in
any of the above noted years, any gross sales or net income earned or achieved
in that year is added the targets of subsequent years. The common shares of the
Company to be issued in respect of those targets are to be considered cumulative
and can be achieved in any subsequent year in respect of the terms of the
agreement.
6
600,000 common shares of the Company were issued on February 29, 2000 pursuant
to this agreement. The Company's common shares were trading at $8.00 Cdn. on
that date. No shares will be issued during 2001 for the fiscal 2000 year, and
therefore may be issued during subsequent years provided combined gross sales
and net income targets are achieved on a cumulative basis.
The Company recently moved its EigerNet manufacturing facility to a modern
35,000 sq. ft. facility within Seoul, South Korea. This facility includes
equipment capable of manufacturing high quality, technologically complex printed
circuit board assemblies and electronic technical products. EigerNet also
received QS 9000 certification during the year.
Other Recent Developments
Nixxo Technologies, Inc. Memorandum of Understanding
On March 14, 2000, the Company announced that it has signed a memorandum of
understanding (the "Nixxo MOU") to purchase 25% of Nixxo Technologies, Inc.
("Nixxo") for US $10 million. Nixxo is a research and development and
distribution arm of Standard Telecom Co., Ltd. ("STC") of South Korea. STC,
under the Nixxo brand, is a wireless phone supplier to South Korea Telecom
Freetel, as well as other international phone company partners. Approximately,
US $500,000 of the cash portion of the purchase price is proposed to be paid to
an arms length existing shareholder of Nixxo. During February 2000 the Company
announced that it has changed the March 14, 2000 MOU to convert a US $2,500,000
loan to equity, increasing Eiger's equity position to 31.25% ownership. This
transaction has not closed as at the record date of March 5, 2001. Negotiations
are still ongoing as at March 30, 2001.
2000 Special Warrant Financing
Pursuant to an underwriting agreement dated March 7, 2000 (the "Underwriting
Agreement") between the Company and Dundee Securities Corporation, Canaccord
Capital Corporation and BMO Nesbitt Burns Inc. (collectively, the
"Underwriters"), the Company issued by way of private placement a total of
4,400,000 special warrants ("Special Warrants") at a purchase price of $5.00 per
Special Warrant. Each Special Warrant entitles the holder to acquire 1.1 common
share in the capital of the Company without payment of additional consideration
on or before 5:00pm (Toronto time) on the earlier of (a) the third business day
after a final receipt for the Company's prospectus is issued by the last of the
Securities Commissions of Ontario, British Columbia and Alberta, and (b) March
7, 2001 (the "Expiry Time"). The 1.1 common share conversion factor includes a
10% penalty regarding the Company not clearing a final prospectus within 120
days of March 7, 2000. After the Expiry Time, the Special Warrants will be
automatically exercised without the payment of any additional consideration.
In consideration for services performed in relation to this offering, the
Underwriters received a commission equal to 7% of the aggregate purchase price
for the Special Warrants. As well, the Underwriters also received that number of
special compensation options (the "Special Compensation Options") equal to 7% of
the number of Common
7
Shares issuable on the exchange of the Special Warrants, or a total of 308,000
Special Compensation Options. Each Special Compensation Option is
non-transferable and entitles the Underwriters to receive one compensation
option (the "Compensation Option") without additional payment. Each Compensation
Option is non-transferable and entitles the Underwriters to acquire one Common
Share at any time prior to 5:00 p.m. (Toronto time) on March 7, 2002, at a price
of $5.00 per Common Share.
If the Company is unable to obtain a receipt for a final prospectus from each of
the securities regulatory authorities in each province in which Special Warrants
were sold, the Special Warrants and the Underlying Common Shares may be subject
to statutory resale restriction until March 7, 2001. In addition, if the Company
is unable to obtain such receipts within 120 days of the closing of the private
placement of the Special Warrants, each holder of Special Warrant will
thereafter be entitled to 1.1 common shares upon exercise or deemed exercise of
his or her Special Warrants. The Company was unable to obtain such receipts with
120 days of closing and each warrant holder is entitled to 1.1 common shares
upon exercise or deemed exercise of his or her special warrants.
December 1999 Private Placement
On December 13, 1999, the Company sold by way of private placement 700,000 units
at a price of $1.128 per unit. Each unit consists of one common share of the
Company and one warrant exercisable for one common share of the Company at a
price of $1.41 per common share. The warrants have been exercised.
B. Business overview.
The Company's core business is the manufacturing and distributing electronics
and computer peripherals. The Company's products include DSL modems, MP3 players
and MP3 modules for notebook PC's. The Company's products allow computer users
to communicate, message, and to connect to and store data from alternate
sources.
The Company maintains facilities in both Silicon Valley, California and South
Korea. Management has established relationships with distributors in the United
States and manufacturers in South Korea.
The Company continues its efforts on expanding into the growing field of
information compression technology by introducing its version of the MP3 player.
MPEG Audio Layer 3, or MP3, compresses digital audio information by a factor of
12 while providing virtually the same high fidelity that would be found on
compact discs. Equally important as the Company's involvement in MP3 and
information compression technology is its move into the field of DSL technology,
which increases the speed and digital capacity of ordinary phone lines into the
home or office.
Recently the Company has expanded its product line with the intention to enter
into a strategic investment in the GSM cellular phone, chipset and handset
business through Nixxo Technologies, Inc. This strategic investment has not
closed as at the record date of March 5, 2001.
8
Description of Principal Products
The Company serves the major peripheral market segments of the computing
industry, being the communications, connectivity and storage segments, and has
designed its product line around providing solutions to customers in each of
these market segments. The Company manufactures computer peripherals such as
PCMCIA card data/fax modems, desktop PC modems, data storage and networking
devices and data storage cards for use in digital cameras (collectively, the
"Peripheral Products").
The Company anticipates rapid growth in the information compression and DSL
areas based on market demand for MP3 players and the need to transfer larger
volumes of information at an accelerated rate to accommodate sophisticated
software and Internet applications. While the Company will continue to
manufacture and distribute its Peripheral Products and expects growth from this
sector, management is shifting the Company's focus to emerging and higher growth
areas of information compression and DSL. Accordingly, the Company has
redirected its focus on the development, manufacture and marketing of the
following principal products:
o 56kbps modems;
o MP3 players; and
o DSL modems.
56kbps Modem
The Company's 56kbps modem (the "Eiger Modem") provides high-speed data rates up
to 56kbps, and fax transmission speeds up to 14.4kbps passed over conventional
telephone lines.
MP3 Players
MPEG Audio Layer 3, or MP3, is a technology and standard for compressing a sound
sequence into a very small data file, roughly one-twelfth the size of the
original file, while preserving the original level of sound quality when played
back.
Digital audio is typically created by extracting a 16 bit sample of a one second
analog signal. Since this signal is typically spread out over a measurement
spectrum of 44.1 thousand cycles per second, one second of CD quality sound
requires 1.4 million bits of data. The developers of MP3 have devised a
compression algorithm that reduces data pertaining to sound with a degradation
in sound quality that the average listener cannot detect. By generating greater
compression levels, larger amounts of audio information can be transferred from
its original form to both the Internet and portable devices (MP3 players) at an
accelerated rate without compromising quality or content.
The Company began selling an upgraded version of its MPMan MP3 player called the
"MPMan F20" in the spring of 2000. The MPMan F20 is designed to incorporate all
the current MP3 player features and functions in addition to new and more
advanced information compression capabilities. During the first fiscal quarter
of 2001, Compaq and Samsung have deferred their MP3 product contracts until the
computer peripheral market improves. The Company is shipping an MP3 module for
installation into Notebook PC's.
9
Digital Subscriber Line
DSL is a technology for bringing high-bandwidth information to homes and
businesses over conventional copper telephone lines. DSL enables an individual
to receive data at rates up to 6.1 megabits per second, permitting continuous
transmission of motion video, audio and 3-D effects.
Traditional methods of passing information over limited bandwidth connections
require digital data to be changed into analog form and back into digital form.
DSL technology permits the transmission of digital data to an individual's
computer directly as digital data, thus enabling a phone company to use a much
wider bandwidth for transmitting data. DSL lines can carry both data and voice
signals and the data part of the line remains continuously connected.
Installations of DSL lines began in 1998 and have continued to increase at a
vigorous rate, as Compaq, Intel and Microsoft have been working with telephone
companies throughout the United States to accelerate the conversion of
conventional lines to DSL.
In addition to DSL modems, the Company manufactures modems that service ADSL, or
Asymmetric Digital Subscriber Line. ADSL is a variation of DSL that operates by
way of two-way or duplex bandwidth and is devoted to the downstream transmission
of data. This enables the Company to compete in both the ADSL and DSL markets.
Sales and Revenue Analysis
Sales Fiscal 2000 Fiscal 1999 Fiscal 1998
- -----------------------------------------------------------------------------------------------------
Computer Peripherals $47,513,000 $ 2,467,000 $ Nil
Electronic Ballasts $ 6,718,000 $ 2,950,000 $ 957,000
Fabricated Products $ 2,839,000 $ 2,933,000 $ 3,839,000
The computer peripheral products are distributed internationally, while the
electronic ballasts are distributed in the United States and the fabricated
products are distributed primarily in Canada (with a small amount, less than 3%,
being distributed in the U.S).
The component parts for various circuit boards used in the computer peripheral
and lighting ballast products are sourced from various large electronic
suppliers and are available from many sources. The Company's main business is
not seasonal.
Marketing and Distribution Channels
Key to the Company's success is its distribution network and its ability to
market its product line effectively. Management has identified the two main
means to market its products as sakes to OEM's and internet service providers
("ISPs").
In conjunction with on-line marketing and distribution of its MP3 player, the
Company will focus the distribution of its DSL modems directly through ISPs. By
distributing directly to the ISP market, the Company hopes to establish its
product as industry standard in an effort to increase market penetration.
10
The marketing of the Company's products is a crucial component in the successful
distribution of its products. Management is currently implementing a variety of
marketing initiatives based on its three core products (the Eiger modems, MP3
players/modules and DSL modems) and their distribution.
C. Organizational structure.
The following is a list of each material subsidiary of the Company and the
jurisdiction of incorporation and the direct or indirect percentage ownership by
the Company of each subsidiary:
Jurisdiction of Percentage of Voting Securities
Name of Subsidiary Organization Owned of Controlled
- ------------------------------------------------ -------------------------------- ---------------------------------
Eiger Labs Group, Inc. ("Eiger Labs") California 64%
EigerNet, Inc. ("EigerNet")(1) South Korea 50.1%
K-Tronik International Corp. Nevada 53%
("K-Tronik")
ADH Custom Metal Fabricators Inc. ("ADH") Ontario 100%
- ------------------------------------------------ -------------------------------- ---------------------------------
(1) Formerly Point Multimedia Systems Inc. - name changed February 20, 2000.
The following is an organizational chart showing the Company's material
subsidiaries:
[The following was represented by a chart in the printed material.]
----------------------
Eiger Technology, Inc.
----------------------
64% 50.1% 53% 100%
- ---------------------- ---------------------- ------------------- ------------------
Eiger Labs Group, Inc. EigerNet, Inc. K-Tronik ADH Custom Metal
(a California corp.) (a South Korean corp.) International Corp. Fabricators, Inc.
(a Nevada corp.) (an Ontario corp.)
- ---------------------- ---------------------- ------------------- ------------------
11
D. Property, plants and equipment.
The Company's industrial facility is 55,000 square feet of mixed office,
manufacturing and engineering space located in an industrial designated area in
Stratford, Ontario. The factory capacity currently utilizes 40% with presently
one work shift. This facility is situated on 31.8 acres of land of which 26
acres is available for development or resale, although there are no current
plans for either.
The land and property are subject to a first mortgage of $1,213,000.
The factory is a light gauge fabrication facility that produces energy efficient
fluorescent lighting fixtures and reflectors, electronic data racks and oversize
custom enclosures for the electrical industry.
The Company recently moved its EigerNet manufacturing facility to a modern
35,000 sq. ft. facility within Seoul, South Korea. This facility includes
equipment capable of manufacturing high quality, technologically complex printed
circuit board assemblies and electronic technical products. A second facility of
approximately the same size is also located in Seoul for the manufacturing of
electronic ballasts. Both facilities are leased.
Item 5. Operating and Financial Review and Prospects
A. Operating results.
The Company's generated sales of $57.1 million in fiscal 2000 compared to $8.4
million in fiscal 1999, the increase mainly due to the acquisition of
controlling interests in EigerNet and Eiger Labs late in fiscal 1999. During
fiscal 2000, the Company sold its 60% interest in its California subsidiary,
Lexatec VY Systems, Inc. ("Lexatec") for $1. Lexatec formerly sold distributed
computer peripherals. Revenue from ongoing operations was as follows:
($'000's) 2000 1999 Increase
---- ---- --------
Eiger 47,513 2,467 45,046
K-Tronik 6,718 2,950 3,768
ADH 2,839 3,480 (642)
K-Tronik's sales increased due to an increase in sales representatives in the
U.S., as well as, increased brand name recognition in the commercial lighting
industry. Sales at ADH decreased due to the softening of the economy in
Southwestern Ontario.
12
During the fiscal year ended September 30, 2000, the Company's gross margin
decreased 60% from 28% to 11% principally as a result of reduced Eiger Net
volume of sales and an increase in OEM business, which carries lower margins.
The percentage decrease in gross margin at K-Tronik from 46% to 33% reflects
K-Tronik adding volume lower margin business to the previous niche markets of
specialty electronic ballasts. These specialty electronic ballasts include multi
voltage electronic ballasts that are suitable for installation in South America
and others areas with fluctuating voltages (brown outs) that destroy
conventional single voltage level electronic ballasts.
The increase in sales by the Eiger Labs and Eiger Net subsidiaries includes one
month sales in fiscal 1999 vs. 12 months in fiscal 2000.
Expenses increased approximately 123% during the fiscal year ended September 30,
2000 to $7,076,000 from $3,180,000 (September 30, 1999). Operations and
administrative expenses increased by approximately 113% (2000: $5,154,000; 1999:
$2,410,000). These operations and administrative expenses consisted principally
of salaries and benefits and the operating costs of the Company's Eiger Labs and
Eiger Net sales, design, engineer and manufacturing facility. While interest on
long-term debt also remained steady (September 30, 2000: $92,000; September 30,
1999: $111,000), other interest and bank charges rose (September 30, 2000:
$552,000; September 30, 1999: $233,000). This was due to the increase in bank
indebtedness during the year (September 30, 2000: $2,670,000, September 30,
1999: $1,170,000). The increase in bank indebtedness is due to increased working
capital requirements due to the increased volume of business in Eiger Net, Inc
and K-Tronik International, Inc. Amortization of goodwill and other increased
from $222,000 in fiscal 1999 to $871,000 in fiscal 2000. Most of this increase
was a result of the initial amortization of goodwill recognized by the purchase
of Eiger Labs Group, Inc. and Eiger Net, Inc.
In the Company's view, at no time during any of the last five fiscal years have
inflation or changing prices had a material impact on the Company's sales,
earnings or losses from operations or net income.
The Company has not been materially impacted by foreign currency fluctuations
and net investments are not hedged.
The Company's operations have not been materially affected by any governmental
policies or factors.
B. Liquidity and capital resources.
At September 30, 2000, the Company increased its cash and short-term investments
position to $13,814,000 from $1,173,000 at the end of September 30, 1999 and
increased its working capital by $18,639,000 to $23,404,000 at September 30,
2000 (1999: $4,765,000) principally as a result of the special warrants
financing.
13
The Company increased its share capital from $8,181,000 as at September 30, 1999
to $38,895,000 at September 30, 2000 through the issuance of 12,661,500 shares
at an average price of $2.62.
The Company issued 4,400,000 special warrants on March 7, 2000 at a price of
$5.00 per warrant. Each warrant consists of the right to receive 1.1 common
shares of the Company on March 7, 2001, as a result, of the preliminary
prospectus filed on August 29, 2000 not having received a final receipt from the
Ontario Securities Commission within the prescribed terms of the financing.
Also, 5,000,000 shares were issued in connection with a public offering of units
("Units") at a price of $1.00 per Unit for gross proceeds of $5,000,000, which
closed in June 1999. Each Unit consisted of one common share of the Company and
one share purchase warrant entitling the holder to acquire an additional common
share at a price of $1.10 per common share. These warrants were exercised during
fiscal 2000. Any warrants, which were not exercised, have now expired.
The increase in the Company's accounts receivable to $12,039,000 September 30,
2000 from $5,227,000 at the end of September 30, 1999 is due to the increase in
the volume of business at Eiger Net and K-Tronik.
Inventory increased to $10,878,000 at September 30, 2000 from $3,733,000 at
September 30, 1999 as a result of the increase in the volume of business at
Eiger Net and K-Tronik.
The Company does not foresee any know demands, commitments, events or
uncertainties that will result in a significant change in its liquidity in the
near term.
The Company does not have any material commitments for capital expenditures as
of the end of the last fiscal period or at any subsequent interim period.
The Company does not foresee any material change in the mix between equity, debt
or off balance sheet financing arrangements. The Company expects to arrange
financing prior to any future acquisitions, of which, only the potential
acquisition of an interest in Nixxo Technologies, Inc. is contemplated that
includes the Company funding $2,200,000 U.S. over an 11 month period succeeding
the date of the financial statements enclosed.
C. Research and development, patents and licenses, etc.
Research and development expenses were $987,000 ($725,000 - 1999) for the year
ended September 30, 2000. Research and development expenses for 1998 were
immaterial. Research expenditures are expensed in the year in which they are
incurred.
Research and development is important to the Company's success and the ability
of the Company to maintain a competitive advantage over its competitors.
The Company employs trained professionals to perform its research and
development work, most of whom have work experience in the field of computer
technology and
14
product development for established corporations such as Samsung and Garnet
Systems. Approximately 9% of the Company's 120 employees are engaged in research
and development activities.
Management believes that the Company has a competitive advantage over many of
its competitors in terms of product development and market roll-out as it
currently conducts all of its own research and development, which management
believes many of its competitors do not do. This enables management to monitor
both the timely development of products with a view to current technology and
market demand as well as controlling the cost-effectiveness of research and
development activities, thereby reducing overhead costs and the risk of timing
delays that could lead to introduction of obsolete products into the rapidly
changing marketplace in which the Company operates.
D. Trend information.
The Company is currently affected by several industry trends. One trend is that
of cyclical oversupply in the PC industry which affects Eiger's core operating
revenue. Currently, the majority of Eiger's revenue is derived from the OEM
manufacture of conventional modem and modem related computer products such as
56K modems and modem/LAN cards. The current cyclical trend of oversupply in the
PC industry, coupled with reduced consumer spending and overall economic
activity has the effect of a reduction in orders for components. This trend
began in the first fiscal quarter of 2000 and, although this oversupply of
inventory has been worked down somewhat by major computer companies, it is
likely to persist for at least the next two quarters, resulting in a reduction
of orders for Eiger's manufacturing facility in Korea.
The second major trend affecting the Company is the trend towards MP3 based
distribution of music. For example, it is expected that digital music revenues
from subscription and pay-per-download services of major labeling companies will
reach $1.5 Billion annually by 2005 (Jupiter Communications). Management
believes this trend will result in a trend towards greater demand for MP3
hardware, a key growth area for the Company as it possesses proprietary MP3
technology, manufacturing capability and proven MP3 products for a number of
consumer electronics companies.
The third major trend affecting the Company is the trend in consumer electronics
towards multi-functional mobile internet-enabled electronic devices. This trend
is based on the growth of both the internet and the evolution of 3G wireless
communication technology. Together, these two developments allow for the
development of mobile electronic devices that are internet-enabled through
wireless technology and are capable of a multitude of applications, ranging from
simple voice and data capabilities to transactional capability and entertainment
functions such as digital audio (MP3). At the moment there is a big push towards
listening to music over cell phones and PDAs and for mobile access to personal
music collections. As the Company possesses MP3 technology, it is expected that
demand for this technology will grow beyond stand-alone MP3 hardware to include
MP3 modules for cellular telephones and PDAs. Additionally, through its
investment in Nixxo Technologies Inc., management believes the Company is poised
to capitalize on
15
the evolution to 3G wireless communication as demand for Nixxo's GSM and GPRS
wireless chipsets increases.
Item 6. Directors, Senior Management and Employees
A. Directors and senior management.
The following is a list of the current directors and senior officers of the
Company, their municipalities of residence, their current position with the
Company and their principal occupations:
Gerry A. Racicot Norwich ON President, C.E.O., and Director
Director since August 21, 1992.
Mr. Racicot has a long career in administration, management and self-employment.
The majority of these years were spent as an Investment Account Executive at a
major Canadian brokerage house (Burns Fry), import/export wholesale distribution
and retail business (Red Mountain Holdings Inc. - Stedmans).
Keith Attoe Toronto ON C.F.O. and Director
Director since February 23, 1996.
Mr. Attoe is a Chartered Accountant who practiced in the City of Toronto for 11
years prior to joining the Company. His experience includes corporate financing,
project financing, portfolio management, US/CDA tax planning, investment
strategy and treasury management. Mr. Attoe's clients have included CN, Deloitte
Touche and Mondev group of companies, a major real estate developer in Montreal.
John G. Craig Toronto ON Director
Director since October 16, 2000.
Mr. Craig is a Chartered Accountant who began his career with Deloitte & Touche
and continued on as a CFO and Business Executive for various companies with
operating, corporate and boardroom experience in Canada and the United States.
Currently, as president of Jarway Corporation, Mr. Craig's primary focus is on
project work as an interim CFO with special interest in the technology sector.
Sidney S. Harkema Orillia ON Director
Director since August 22, 1992.
Mr. Harkema founded and built one of Canada's largest privately owned transport
and express companies (Harkema Trucking Group). He served as President and
Chairman of the Board for 27 years. He has since sold the entire trucking
operation, cartage equipment and all 18 terminals located throughout the country
and has devoted his time to public service organizations (principally as
Chairman of the Huntley St. Group of Ministries).
Walter A. Keyser Toronto ON Director
Director since February 23, 1996.
Mr. Keyser is a principal of W.A. Keyser Associates and a director of AGF
Management Inc., the management arm of the AGF group of mutual funds. Mr. Keyser
is also very
16
involved in project financing for real estate, as well as founding Canada's
first real estate mutual fund in the mid 1970's.
Robert Hoegler Richmond BC Director
Director since February 23, 1996.
Mr. Hoegler is an independent businessman who operates a public relations firm
in the junior industrial sector group of companies under his own name. He is
also a director of MCA Equities Ltd, a private management company.
Morden C. Lazarus Montreal PQ Director
Director since June 29, 1999.
Mr. Lazarus is a partner in the Montreal PQ firm of Lazarus Charbonneau. He has
been legal counsel for many years to a number of professional athletes and
entertainment personalities, as well as several Canadian producers and
entertainment corporate entities.
There are no arrangements or understandings between any of the officers or
directors of the Company as to their election or employment, nor are there any
family relationships.
B. Compensation.
For the year ended September 30, 2000 Gerry Racicot was compensated $156,252 for
his roll as President of the Company. For the same period Keith Attoe received
$60,000 for his roll as C.F.O. of the Company.
A total of 20 persons served as members of the administrative, supervisory or
management bodies of the subsidiaries of the Company during fiscal 2000. The
aggregate remuneration paid to such persons was approximately $2.2 million.
The following it a list of stock options granted during the last full financial
year to members of the Company's executive.
Name Quantity Exercise price Expiry
- --------------------------------------------------------------------------------
Gerry Racicot 250,000 $ 4.50 February 1, 2004
Keith Attoe 250,000 $ 4.50 February 1, 2004
Gerry Racicot 50,000 $ 4.75 June 12, 2005
Keith Attoe 50,000 $ 4.75 June 12, 2005
Ernie Kolenda 50,000 $ 4.75 June 12, 2005
Sidney Harkema 50,000 $ 4.75 June 12, 2005
Walter Keyser 50,000 $ 4.75 June 12, 2005
Rob Hoegler 50,000 $ 4.75 June 12, 2005
Morden Lazarus 50,000 $ 4.75 June 12, 2005
None of the above options were exercised during the Company's most recently
completed financial year.
17
There are no other arrangements under which directors or members of the
Company's administrative, supervisory or management bodies were compensated by
the Company during the most recently completed financial year for their
services.
No plan exists, and no amount has been set aside or accrued by the Company or
any of its subsidiaries, to provide pension, retirement or similar benefits for
directors or officers of the Company, or any of its subsidiaries.
C. Board practices.
The directors of the Company are elected annually and hold office until the next
annual general meeting of the Company's shareholders or until their successors
in office are duly elected or appointed. All of the Company's directors were
elected at the Company's most recent annual general meeting, which took place on
March 23, 2000. Under the Company Act (Ontario) the Company is required to hold
an annual general meeting no more than 15 months after its most recent annual
general meeting.
There are no service contracts with the Company or any of it subsidiaries for
the directors providing benefits upon termination of their service.
The Company does not have an executive committee. The audit committee is
comprised of Walter Keyser, Morden Lazarus and John Craig. The committee
operates within the guidelines of the Toronto Stock Exchange.
D. Employees.
The Company and its subsidiaries employ approximately 120 employees worldwide.
The following is a breakdown of persons employed by main category of activity
and geographic location for the last full financial year:
Administrative/ Sales/
Location Clerical Marketing Manufacturing R&D
- --------------------------------------------------------------------------------
Canada 7 3 17
United States 3 5 12
Korea 10 14 39 10
There were no significant changes in the number of employees.
The Company and its subsidiaries have no involvement with labour unions. The
Company and its subsidiaries do not employ a significant number of temporary
employees.
18
E. Share ownership.
Number of Voting Shares
Beneficially Owned or
Name and Address Occupation Director Since Controlled Directly or Indirectly
- --------------------------------------------------------------------------------------------------------------------
Gerry A. Racicot President, Chief August 21, 1992 1,556,530
Norwich, ON Executive Officer and
Director
Keith Attoe Chief Financial Officer February 23, 1996 584,000
Toronto, ON and Director of the
Company;
John G. Craig Director of the October 16, 2000 Nil
Toronto, ON Company; president of
Jarway Corporation
Sidney S. Harkema Director of the August 21, 1992 1,509,100
Orillia, ON Company; retired
Walter A. Keyser President of W.A. February 23, 1996 127,400
Toronto, ON Keyser & Associates
Limited
Robert Hoegler Director of the February 23, 1996 Nil
Richmond, BC Company; director of
MCA Equities Ltd., (a
private management
company)
Morden C. Lazarus Director of the June 29, 1999 Nil
Hampstead, PQ Company; partner at the
Montreal, PQ firm of
Lazarus, Charbonneau
- --------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------
Number of Shares
Beneficially Owned or
Controlled Directly or Percentage of Total
Name Indirectly Shares Issued(1)
-----------------------------------------------------------------------------------------------
Directors and Officers as a Group 3,597,130 9.6%
-----------------------------------------------------------------------------------------------
(1) Based on a total of 37,215,008 Common shares issued and outstanding as at
February 26, 2001.
At the discretion of the Board, the stock option plan may be exercised in
consideration of services rendered and to be rendered by key personnel and
consultants to the Company, its subsidiaries and affiliates.
19
Item 7. Major Shareholders and Related Party Transactions
A. Major shareholders.
To the Company's knowledge no person holds five percent or more of the Company's
common shares.
The only recent significant change in percentage ownership is collectively that
of the Directors and Officers as a group. Total ownership in the previous year
was 33%, with Gerry Racicot holding 15%, Ernest Kolenda 10% and Sid Harkema 8%.
As noted in item 6.E., that percentage has decreased to 9.6% with each
individual holding less than 5%.
All common shareholders have identical voting rights.
There is no trading market for the common shares in the United States. The
following table indicates the approximate number of record holders of common
shares with U.S. addresses and portion and percentage of common shares so held
in the U.S. The calculation is based on the total issued and outstanding as
stated in item 6.E.
Number of U.S. Number of Common % of Common
Holders shares held in the U.S. shares held in
the U.S.
- --------------------------------------------------------------------------------
44 2,740,919 7.37 %
The computation of the number and percentage of common shares held in the United
States is based upon the number of common shares held by record holders with
United States addresses and by trusts, estates or accounts with United States
addresses as disclosed to the Company following inquiry to all record holders
known to the trustees, executors, guardians, custodians or the fiduciaries
holding common shares for one or more trusts, estates, or accounts. United
States residents may beneficially own common shares held of record by non-United
States residents.
A substantial number of common shares are held in "Street Name" by trustees,
executors, guardians, custodians or other fiduciaries, including depositories,
brokerage firms and financial institutions. Management is unable to determine
the total number of individual shareholders that this represents.
To the Company's knowledge, the Company is not directly or indirectly owned or
controlled by another corporation(s) or by any foreign government.
The Management does not anticipate any change in the control of the Company.
B. Related party transactions.
No director, executive officer nor any of their associates or affiliates has or
has had an interest in material transactions of the Company.
20
All transactions within the corporate group are in the normal course of
business, are transacted at fair market value, are recorded at the carrying
value at the time and are eliminated upon consolidation.
C. Interests of experts and counsel.
Not Applicable
Item 8. Financial Information
A. Consolidated Statements and Other Financial Information.
The document contains consolidated financial statements, audited by an
independent auditor and accompanied by an audit report, comprised of:
(a) balance sheet;
(b) income statement;
(c) statement showing changes in equity
(d) cash flow statement;
(e) related notes and schedules required by the comprehensive body of
accounting standards pursuant to which the financial statements are prepared;
and
(f) a note analyzing the changes in each caption of shareholders' equity
presented in the balance sheet.
The document includes comparative financial statements that cover the latest
three financial years, audited in accordance with a comprehensive body of
auditing standards.
Export Sales
Total Sales Volume Export Sales Export Sales as % of Total Sales
- ------------------------------------------------------------------------------
$ 57,068,000 $ 54,236,000 95.04%
Legal Proceedings
There are no material pending legal proceedings to which the Company is a party
or of which any of its subsidiaries or properties are subject. Management is not
aware of any material proceedings in which any director, any member of senior
management, or any of the Company's affiliates are a party adverse to, or have a
material interest adverse to the Company or its subsidiaries.
21
Dividend Policy
The Company has not paid dividends on the common shares in any of its last five
fiscal years. The directors of the Company will determine if and when dividends
should be declared and paid in the future based on the Company's financial
position at the relevant time. All of the common shares of the Company are
entitled to an equal share in any dividends declared and paid.
B. Significant Changes.
There have been no significant changes since the date of the annual financial
statements included in this document.
Item 9. The Offer and Listing.
A. Offer and listing details.
Information regarding the price history of the stock.
Calendar Period High (Cdn$) Low (Cdn$) Volume
Month Ended
February, 2001 1.48 0.93 1,879,727
January, 2001 2.30 1.18 1,673,900
December, 2000 2.75 2.00 1,182,000
November, 2000 2.95 2.05 1,580,600
October, 2000 3.24 2.00 1,460,400
September, 2000 3.70 2.85 1,040,600
Quarter Ended
September 30, 2000 5.00 2.65 4,779,800
June 30, 2000 7.40 2.85 6,224,000
March 31, 2000 10.30 3.00 17,147,400
December 31, 1999 4.25 0.90 9,030,700
September 30, 1999 1.73 1.12 6,191,000
June 30, 1999 1.59 0.35 4,228,200
March 31, 1999 0.48 0.22 144,000
December 31, 1998 0.65 0.41 118,800
Year Ended
September 30, 1998 0.95 0.25 1,506,157
September 30, 1997 0.90 0.40 1,318,300
September 30, 1996 0.92 0.32 1,621,309
Prior to October 11, 1996, all trades were cleared through the VSE and
subsequent to that date all trades were cleared on the TSE.
22
B. Plan of distribution.
Not Applicable.
C. Markets.
The common shares of the Company were listed for trading on the Toronto Stock
Exchange (the "TSE") on October 11, 1996 and previous to this, on the Vancouver
Stock Exchange (the "VSE") on April 3, 1991 under the symbol "AXA".
The common shares were listed on the NASD OTC Electronic Bulletin Board on
October 8, 1997 and trade under the symbol "ETIFF".
D. Selling shareholders.
Not Applicable.
F. Dilution.
Not Applicable.
F. Expenses of the issue.
Not Applicable.
Item 10. Additional Information.
A. Share capital.
Not Applicable.
B. Memorandum and articles of association.
The Company is incorporated under the laws of the Province of Ontario, Canada
and has been assigned company number 942684, with its registered office situated
at 330 Bay St., Suite 602, Toronto, ON M5H 2S8, Canada. The telephone number at
that location is (416) 216-8659.
The purpose of the Company is to perform any and all corporate activities
permissible under Ontario law. A director may vote in respect of any contract or
arrangement in which such director has an interest notwithstanding such
director's interest and an interested director will not be liable to the Company
for any profit realized through and such contract or arrangement by reason of
such director holding the office of director. The remuneration of the directors
shall from time to time be determined by the Company
23
by ordinary resolution. Directors of the Company are not required to own shares
of the Company in order to serve as directors.
The share capital of the Company is an unlimited number of authorized common
shares and 33,945,858 common shares outstanding as at the fiscal year end
September 30, 2000 and 37,415,858 as of March 28, 2001.
All common shares rank equally with other common shares, entitling the common
shareholder to one vote at the annual shareholder's meeting.
There are no provisions for a classified board of directors or for cumulative
voting for directors.
There are no limitations on the rights to own securities, including the rights
of non-resident or foreign shareholders to hold or exercise voting rights on the
securities.
There are no provisions in the Articles of Incorporation that would have the
effect of delaying, deferring or preventing a change in control of the Company
and that would operate only with a respect to a merger, acquisition or corporate
restructuring involving the Company (or any of its subsidiaries).
There are no provisions in the Articles of Incorporation governing the ownership
threshold above which shareholder ownership must be disclosed. United States
federal law and Ontario provincial securities law, however, requires that all
directors, executive officers and holders of 10% or more of the stock of a
company that has a class of stock registered under the Securities Exchange Act
of 1934, as amended, disclose such ownership. In addition, holders of more than
5% of a registered equity security must disclose such ownership.
C. Material contracts.
The Company has not entered into any material contracts, other than in the
ordinary course of business, during the preceding two years.
D. Exchange controls.
Canada has no system of currency exchange controls. There are no exchange
restrictions on borrowing from foreign countries nor on the remittance of
dividends, interest, royalties and similar payments, management fees, loan
repayments, settlements of trade debts or the repatriation of capital.
The Investment Canada Act (the "ICA"), enacted on June 20,1985, requires prior
notification to the Government of Canada on the "acquisition of control" of
Canadian businesses by non-Canadian, as defined by the ICA. Certain acquisitions
of control, discussed below, are reviewed by the Government of Canada. The term
"acquisition of control" is defined as any or more non-Canadian persons
acquiring all or substantially all
24
of the assets used in the Canadian business, or the acquisition of the voting
shares of a Canadian corporation carrying on the Canadian business or the
acquisition of the voting interests of an entity controlling or carrying on the
Canadian business. The acquisition of the majority of the outstanding shares is
deemed to be an "acquisition of control" of a corporation. The acquisition of
less than a majority, but one-third or more, of the voting shares of a
corporation is presumed to be an "acquisition of control" of a corporation
unless it can be established that the purchaser will not control the
corporation.
Investments requiring notification and review are all direct acquisitions of
Canadian business with assets of Cdn. $5,000,000 or more (subject to the
comments below on WTO investors) and all indirect acquisitions of Canadian
businesses (subject to the comments below on WTO investors) with assets of more
than Cdn. $50,000,000 or with assets of between $5,000,000 and Cdn. $50,000,000
which represent more than 50% of the value of the total international
transactions. In addition, specific acquisitions or new business in designated
types of business activities related to Canada's cultural heritage or national
identity could be reviewed if the government of Canada considers that it is in
the public interest to do so.
The ICA was amended with the implementation of the agreement establishing the
World Trade Organization ("WTO") to provide for special review of thresholds for
"WTO investors", as defined in the ICA. "WTO investors" generally means:
(a) an individual, other than a Canadian, who is a member of a WTO member (such
as, for example, the United States), or who has the right of permanent residence
in relation to that WTO member.
(b) governments of WTO members; and
(c) entities that are not Canadian controlled, but which are WTO investor
controlled as determined by the rules specified in the ICA.
The special review thresholds for WTO investors do not apply, and general rules
described above do not apply, to the acquisition of control of certain types of
businesses specified in the ICA, including business that is a "cultural
business". If the WTO investor rules apply, an investment in the shares of the
Company by whom or from a WTO investor will be reviewable only if it is an
investment to acquire control of the Company and the value of the assets of the
Company is equal to or greater than a specified amount (the "WTO Review
Threshold"). The WTO Review Threshold is adjusted annually by formula relating
to increases in the nominal gross domestic product of Canada. The 1996 WTO
Review Threshold is Cdn. $168,000,000.
If any non-Canadian, whether or not a WTO investor, acquires control of the
Company by the acquisition of shares, but the transaction is not reviewable as
described above, the non-Canadian is required to notify the Canadian government
and to provide certain basic information relating to the investment. A
non-Canadian, or not a WTO investor, is required to provide a notice to the
government on the establishment of a new Canadian
25
business. If the business of the Company is then a prescribed type of business
activity related to Canada's cultural heritage or national identity, and if the
Canadian government considers it in the public interest to do so, then the
Canadian government may give a notice in writing within 21 days requiring the
investment to be reviewed.
For non-Canadian (other than WTO investors), and indirect acquisition of
control, by the acquisition of voting interests of an entity that directly or
indirectly controls the Company, is reviewable if the value of the assets of the
Company is then Cdn. $50,000,000 or more. If the WTO investor rules apply, then
this requirement does not apply to a WTO investor, or to a person acquiring the
entity from a WTO investor. Special rules specified in the ICA apply if the
assets of the Company is more than 50% of the value of the assets of the entity
so acquired. By these special rules, if the non-Canadian (whether or not a WTO
investor) is acquiring control of an entity that directly or indirectly control
the Company, and the value of the assets of the company and all other entities
carrying on business in Canada, calculated in the manner provided by the ICA and
the regulations under the ICA, of the assets of all entities, the control of
which is acquired, directly or indirectly, in the transaction of which the
acquisition of control of the Company forms a part, then the threshold for a
direct acquisition of control as discussed above will apply, that is, a WTO
Review Threshold of Cdn. $168,000,000 (n 1996) for a WTO investor or a threshold
of CDN. $5,000,000 for non-Canadian other than a WTO investor. If the value
exceeds that level the transaction must be reviewed in the same manner as a
direct acquisition of control by the purchase of shares by the Company.
If an investment is renewable, an application for review in the form prescribed
by the regulations is normally required to be filed with the Director appointed
under the ICA (the "Director") prior to the investment taking place and the
investment may not be consummated until the review has been completed. There
are, however, certain exceptions. Applications concerning indirect acquisitions
may be filed up to 30 days after the investment is consummated and applications
concerning reviewable investments in culture-sensitive sectors are required upon
receipt of a notice for review. In addition, the Minister (a person designated
as such under the ICA) may permit an investment to be consummated prior to
completion of the review, if he is satisfied that the delay would cause undue
hardship to the acquirer or jeopardize the operations of the Canadian business
that is being acquired. The Director will submit the application to the
Minister, together with many other information or written undertakings given by
the acquirer and any representation submitted to the Director by a province that
is likely to be of net benefit to Canada, taking into account the information
provided and having regard to certain factors of assessment where they are
relevant. Some of the factors to be considered are:
(a) the effect of the investment on the level and nature of economic activity in
Canada, including the effect on employment, on resource processing, and on the
utilization of parts, components and services produced in Canada;
(b) the effect of the investment on exports from Canada;
26
(c) the degree and significance of participation by Canadians in the Canadian
business and in any industry in Canada of which it forms a part;
(d) the effect of the investment on productivity, industrial efficiency,
technological development, product innovation and product variety in Canada;
(e) the effect of the investment on competition within any industry or
industries in Canada;
(f) the compatibility of the investment with national, industrial, economic, and
cultural policies;
(g) the compatibility of the investment with national, industrial, economic, and
cultural policies taking into consideration industrial, economic, and cultural
objectives enunciated by the government of legislature of any province likely to
be significantly affected by the investment; and
(h) the contribution of the investment to Canada's ability to compete in world
markets.
To ensure prompt review, the ICA set certain time limits for the Director and
the Minister. Within 45 days after a completed application has been received,
the minister must notify the acquirer that he is satisfied that the investment
is likely to be of net benefit to Canada, or that he is unable to complete his
review, in which case he shall have 30 additional days to complete his review
(unless the acquirer agrees to longer period), or he is not satisfied that the
investment is likely to be of net benefit to Canada.
Where the Minister has advised the acquirer that he is not satisfied that the
investment is likely to be of net benefit to Canada, the acquirer has the right
to make representations and submit undertakings within 30 days of the date of
notice (or any period that is agreed upon between the acquire and the Minister).
On the expiration of the 30 day period (or the agreed upon extension), the
Minister must quickly notify the acquirer that he is not satisfied that the
investment is likely to be of net benefit to Canada. In the latter case, the
acquirer my not proceed with the investment or, if the investment has already
been consummated, must divest itself of control of the Canadian business.
The ICA provides civil remedies for non-compliance with any provision. There are
also criminal penalties for breach of confidentiality or providing false
information.
Except as provided in the ICA, there are no limitations under the laws of
Canada, the Province of British Columbia, or in any constituent documents of the
Company on the right of non-Canadians to hold or vote the common shares of the
Company.
27
E. Taxation.
A brief description of certain provision of the tax treaty between Canada and
the United States is included below, together with a brief outline of certain
taxes, including withholding provisions to which United States security holders
are subject under existing laws and regulations of Canada and the United States.
The consequences, if any, of state and local taxes are not considered. The
following information is general, and is not intended to be relied upon with
respect to any particular transaction or circumstances.
Canadian federal tax legislation requires a 25% withholding from any dividend
paid or deemed to be paid to the Company's non-resident shareholders. However,
shareholders residing in the United States would generally have this rate
reduced to 15% pursuant to the tax treaty between Canada and the United States.
The amount of stock dividends paid to non-residents of Canada would be subject
to withholding tax at the same rate as cash dividends. The amount of stock
dividends (for tax purposes) would generally be equal to the amount by which the
paid up capital of the Company had decreased by reason of the payment of such
dividend. The Company will furnish additional tax information to shareholders in
the event of such dividend. Interest paid or deemed to be paid on the Company's
debt securities held by non-Canadian residents may also be subject to
withholding tax, depending upon the terms and provision of such securities any
applicable tax treaty.
Gains derived from a disposition of shares of the Company by a non-resident
shareholder will be subject to tax in Canada only if not less than 25% of any
class of shares of the Company were owned by the non-resident shareholder and/or
persons with whom the non-resident did not deal at arm's length at any time
during the five year period immediately preceding the dispositions. In such
cases, gains derived by a U.S. shareholder from a disposition of shares of the
Company would likely be exempt from tax in Canada by virtue of the Canada - U.S.
tax treaty.
G. Dividends and paying agents.
Not Applicable.
H. Statement by experts.
Not Applicable.
I. Documents on display.
The documents concerning the Company which are referred to in the document are
located at its principal executive office in Toronto, at the address stated at
the beginning of this document.
28
I. Subsidiary Information.
Not Applicable.
Item 11. Quantitative and Qualitative Disclosures About Market Risk.
Not Applicable.
Item 12. Description of Securities other than Equity Securities.
Not Applicable.
PART II
Item 13. Defaults, Dividend Arrearages and Delinquencies.
Not Applicable.
Item 14. Material Modifications to the Rights of Security Holders and Use of
Proceeds.
Not Applicable.
Item 15. [Reserved]
Item 16. [Reserved]
29
PART III
Item 17. Financial Statements.
Not Applicable.
Item 18. Financial Statements.
The following financial statements are attached to and form part of this Annual
Report:
Audit Report
Audited Consolidated Financial Statements of the Company for the years ended
September 30, 2000, September 30, 1999 and September 30, 1998.
Item 19. Exhibits.
Exhibit Number
- --------------
Page
----
1.1 Certificate of Incorporation dated September 8, 1986. *
1.2 Certificate of Name Change dated November 26, 1999. *
1.3 Articles (Bylaws) of the Corporation. *
1.4 Company Stock Option Plan *
* Adopted by reference, as previously filed with the Commission.
SIGNATURES
The registrant hereby certifies that it meets all of the requirements for
filing on Form 20-F and that it has duly caused and authorized the undersigned
to sign this Annual Report on its behalf.
Eiger Technology, Inc.
/s/ GERRY RACICOT
- -------------------------------------
Gerry Racicot
President and C.E.O.
March 30, 2001
30
EIGER TECHNOLOGY, INC.
(formerly Alexa Ventures Inc.)
CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000
EIGER TECHNOLOGY, INC.
(formerly Alexa Ventures Inc.)
INDEX
September 30, 2000
Independent Auditor's Report
Consolidated Financial Statements
Balance Sheets
Statements of Operations and Retained Earnings
Statements of Cash Flows
Notes to the Consolidated Financial Statements
[LETTERHEAD OF MONTEITH, MONTEITH & CO.]
INDEPENDENT AUDITOR'S REPORT
To the Shareholders of
Eiger Technology, Inc.:
We have audited the consolidated balance sheets of Eiger Technology, Inc.
as at September 30, 2000, 1999 and 1998 and the consolidated statements of
operations and retained earnings and cash flows for the years then ended. These
financial statements are the responsibility of the company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally
accepted in Canada and the United States of America. Those standards require
that we plan and perform an audit to obtain reasonable assurance whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Eiger Technology, Inc. as at
September 30, 2000, 1999 and 1998 and the results of its operations and its cash
flows for the years then ended in accordance with accounting principles
generally accepted in Canada.
Monteith, Monteith & Co.
CHARTERED ACCOUNTANTS.
Stratford, Ontario,
January 30, 2001.
[Except as to Note 19
which is as of
February 20, 2001]
EIGER TECHNOLOGY, INC.
(formerly Alexa Ventures Inc.)
CONSOLIDATED BALANCE SHEETS
as at September 30
1999
2000 (Restated - Note 16) 1998
---- -------------------- ----
$ $ $
ASSETS
Current:
Cash 2,031,000 1,173,000 146,000
Cash Held in Escrow (Note 4) 4,978,000 -- --
Short-term Investments (Note 5) 6,805,000 -- --
Accounts Receivable (Note 6) 12,039,000 5,227,000 2,223,000
Inventory 10,878,000 3,733,000 2,969,000
Prepaid Expenses 686,000 248,000 43,000
---------- ---------- ---------
37,417,000 10,381,000 5,381,000
Long-term Investments (Note 5) 4,337,000 360,000 342,000
Capital (Note 7) 4,998,000 2,056,000 2,114,000
Goodwill 7,640,000 2,180,000 471,000
Other (Note 8) 2,753,000 2,041,000 913,000
---------- ---------- ---------
57,145,000 17,018,000 9,221,000
========== ========== =========
LIABILITIES and SHAREHOLDERS' EQUITY
Current:
Bank Indebtedness (Note 9) 2,670,000 1,760,000 1,448,000
Accounts Payable and Accrued Liabilities 11,184,000 3,519,000 2,362,000
Income Taxes Payable 39,000 237,000 72,000
Current Portion of Long-term Debt (Note 10) 120,000 100,000 330,000
---------- ---------- ---------
14,013,000 5,616,000 4,212,000
---------- ---------- ---------
Long-term Debt (Note 10) 1,488,000 1,111,000 1,477,000
---------- ---------- ---------
Future Income Taxes (Note 11) 43,000 175,000 176,000
---------- ---------- ---------
Non-controlling Interest 3,253,000 1,779,000 292,000
---------- ---------- ---------
Shareholders' Equity:
Share Capital (Note 12) 38,895,000 8,191,000 2,176,000
Contributed Surplus 217,000 217,000 217,000
Retained Earnings (764,000) (71,000) 671,000
---------- ---------- ---------
38,348,000 8,337,000 3,064,000
---------- ---------- ---------
57,145,000 17,018,000 9,221,000
========== ========== =========
On Behalf of the Board:
"Gerry Racicot" Director
- -------------------------------------
Gerry Racicot
"Keith Attoe" Director
Keith Attoe
(See Accompanying Notes)
EIGER TECHNOLOGY, INC.
(formerly Alexa Ventures Inc.)
CONSOLIDATED STATEMENTS of OPERATIONS and RETAINED EARNINGS
for the years ended September 30
1999
2000 Restated - Note 16) 1998
---- ------------------- ----
$ $ $
Sales 57,068,000 8,433,000 4,796,000
Cost of Sales 50,731,000 6,055,000 3,173,000
----------- ----------- -----------
Gross Margin 6,337,000 2,378,000 1,623,000
----------- ----------- -----------
Expenses:
Selling, General and Administration 5,154,000 2,410,000 948,000
Amortization of Capital Assets 407,000 204,000 141,000
Amortization of Goodwill and Other 871,000 222,000 41,000
Interest on Long-term Debt 92,000 111,000 108,000
Other Interest and Bank Charges 552,000 233,000 100,000
----------- ----------- -----------
7,076,000 3,180,000 1,338,000
----------- ----------- -----------
Income (Loss) before Provision for Income Taxes (739,000) (802,000) 285,000
----------- ----------- -----------
Provision for Income Taxes: (Note 13)
Current 289,000 30,000 67,000
Future (132,000) -- 34,000
----------- ----------- -----------
157,000 30,000 101,000
----------- ----------- -----------
Income (Loss) before Unusual Items (896,000) (832,000) 184,000
Discontinued Operations (Note 15) (162,000) (545,000) (35,000)
Gain on Disposal of Discontinued Operations 226,000 -- --
Negotiated Reduction of Long-term Debt -- 293,000 424,000
----------- ----------- -----------
Income (Loss) before Non-controlling Interest (832,000) (1,084,000) 573,000
Non-controlling Interest (139,000) (342,000) 65,000
----------- ----------- -----------
Net Income (Loss) for the Year (693,000) (742,000) 508,000
Retained Earnings - Beginning of Year (Note 16) (71,000) 671,000 163,000
----------- ----------- -----------
Retained Earnings - End of Year (764,000) (71,000) 671,000
=========== =========== ===========
Earnings per Share:
Before Discontinued Operations:
Basic (0.04) (0.06) 0.01
----- ----- ----
Diluted (0.04) (0.06) --
----- ----- ----
Net Income (Loss)
Basic (0.03) (0.05) 0.01
----- ----- ----
Diluted (0.03) (0.05) --
----- ----- ----
(See Accompanying Notes)
EIGER TECHNOLOGY, INC.
(formerly Alexa Ventures Inc.)
CONSOLIDATED STATEMENTS of CASH FLOWS
for the years ended September 30
1999
2000 (Restated- Note 16) 1998
---- ------------------- ----
$ $ $
Cash Flows from Operating Activities:
Net Income (Loss) for the Year (693,000) (742,000) 508,000
Items not Involving Cash:
Amortization 1,278,000 427,000 242,000
Future Income Taxes (132,000) -- 34,000
----------- ---------- ----------
453,000 (315,000) 784,000
----------- ---------- ----------
Changes in Non-cash Working Capital Balances:
Accounts Receivable (6,812,000) (3,134,000) (1,319,000)
Inventory (7,145,000) (1,037,000) (1,126,000)
Prepaid Expenses (438,000) (226,000) (18,000)
Accounts Payable and Accrued Liabilities 7,665,000 433,000 1,886,000
Income Taxes Payable (198,000) 165,000 27,000
Future Income Taxes -- (1,000) (1,000)
Non-controlling Interest (137,000) 1,468,000 41,000
----------- ---------- ----------
(6,612,000) (2,647,000) 274,000
----------- ---------- ----------
Cash Flows from Investing Activities:
Purchase of Capital Assets (3,349,000) (147,000) (303,000)
Long-term Investments (3,977,000) -- (150,000)
Purchase of Goodwill and Other Assets (2,243,000) (1,326,000) (581,000)
----------- ---------- ----------
(9,569,000) (1,473,000) (1,034,000)
----------- ---------- ----------
Cash Flows from Financing Activities:
Increase (Decrease) in Long-term Debt 397,000 (559,000) 286,000
Increase (Decrease) in Bank Indebtedness 910,000 312,000 730,000
Advances from (Repayments to) Related Parties -- 112,000 (112,000)
Subs. Share Capital Issued to Non-controlling Interest 2,020,000 -- --
Subs. Dividends Paid to Non-controlling Interest (409,000) -- --
Issuance of Share Capital (Net of Costs) 25,904,000 5,282,000 --
----------- ---------- ----------
28,822,000 5,147,000 904,000
----------- ---------- ----------
Net Cash Flows for the Year 12,641,000 1,027,000 144,000
Cash and Cash Equivalents - Beginning of the Year 1,173,000 146,000 2,000
----------- ---------- ----------
Cash and Cash Equivalents - End of the Year 13,814,000 1,173,000 146,000
=========== ========== ==========
Cash and Cash Equivalents Represented by:
Cash 2,031,000 1,173,000 146,000
Cash Held in Escrow 4,978,000 -- --
Short-term Investments 6,805,000 -- --
----------- ---------- ----------
13,814,000 1,173,000 146,000
=========== ========== ==========
(See Accompanying Notes)
EIGER TECHNOLOGY, INC.
SEGMENTED INFORMATION
for the year ended September 30, 2000
Totals per
Lexatec Reconciling Financial
ADH Eiger K-Tronik (Discontinued) All Others Items Statements
=========== =========== =========== ============== =========== =========== ===========
$ $ $ $ $ $ $
Sales:
External Customers:
- Domestic 2,834,000 -- -- -- (2,000) 2,832,000
- Foreign 5,000 47,513,000 6,718,000 (123,000) -- 123,000 54,236,000
----------- ----------- ----------- ----------- ----------- ----------- -----------
2,839,000 47,513,000 6,718,000 (123,000) -- 121,000 57,068,000
Intersegment 18,000 -- -- -- -- (18,000) --
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total 2,857,000 47,513,000 6,718,000 (123,000) -- 103,000 57,068,000
Cost of Sales 2,523,000 43,763,000 4,465,000 (92,000) -- 72,000 50,731,000
----------- ----------- ----------- ----------- ----------- ----------- -----------
Gross Margin 334,000 3,750,000 2,253,000 (31,000) -- 31,000 6,337,000
----------- ----------- ----------- ----------- ----------- ----------- -----------
Expenses:
Operations and Administration 612,000 2,374,000 2,337,000 235,000 (169,000) (235,000) 5,154,000
Amortization of Capital and
Intangible Assets 159,000 646,000 465,000 1,000 8,000 (1,000) 1,278,000
Interest on Long-term Debt 71,000 21,000 -- 92,000
Other Interest and Bank
Charges 103,000 195,000 252,000 1,000 2,000 (1,000) 552,000
----------- ----------- ----------- ----------- ----------- ----------- -----------
945,000 3,236,000 3,054,000 237,000 (159,000) (237,000) 7,076,000
----------- ----------- ----------- ----------- ----------- ----------- -----------
Income (Loss) before Taxes (611,000) 514,000 (801,000) (268,000) 159,000 268,000 (739,000)
Provision for Income Taxes (184,000) 324,000 (55,000) 1,000 72,000 (1,000) 157,000
----------- ----------- ----------- ----------- ----------- ----------- -----------
(427,000) 190,000 (746,000) (269,000) 87,000 269,000 (896,000)
Discontinued Operations (162,000) (162,000)
Disposal of Discontinued
Operations 226,000 226,000
Non-controlling Interest 3,000 (409,000) 545,000 107,000 -- (107,000) 139,000
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net (Loss) Income for the Year (424,000) (219,000) (201,000) (162,000) 87,000 226,000 (693,000)
=========== =========== =========== =========== =========== =========== ===========
EIGER TECHNOLOGY, INC.
SEGMENTED INFORMATION
as at September 30, 2000
(with comparative figures as at September 30, 1999 and 1998)
Totals per
Lexatec Reconciling Financial
ADH Eiger K-Tronik (Discontinued) All Others Items Statements
========= ========== ========= ============== =========== =========== ==========
$ $ $ $ $ $ $
Expenditures on Capital Assets
and Goodwill During the Year 158,000 8,206,000 1,434,000 -- 95,000 -- 9,893,000
========= ========== ========= ========= =========== ========== ==========
September 30, 1999 19,000 1,649,000 587,000 7,000 -- -- 2,262,000
========= ========== ========= ========= =========== ========== ==========
September 30, 1998 21,000 -- 1,044,000 144,000 -- -- 1,209,000
========= ========== ========= ========= =========== ========== ==========
Balance of Capital Assets and
Goodwill as at September 30,
2000
- Domestic 2,050,000 -- -- -- 90,000 -- 2,140,000
- Foreign -- 8,790,000 1,708,000 -- -- -- 10,498,000
--------- ---------- --------- --------- ----------- ---------- ----------
2,050,000 8,790,000 1,708,000 -- 90,000 -- 12,638,000
========= ========== ========= ========= =========== ========== ==========
September 30, 1999 2,052,000 1,755,000 423,000 6,000 -- -- 4,236,000
========= ========== ========= ========= =========== ========== ==========
September 30, 1998 2,187,000 -- 261,000 137,000 -- -- 2,585,000
========= ========== ========= ========= =========== ========== ==========
Amount of Investment in
Investees
Subject to Significant Influence -- -- -- -- 175,000 -- 175,000
========= ========== ========= ========= =========== ========== ==========
September 30, 1999 and 1998 -- -- -- -- 175,000 -- 175,000
========= ========== ========= ========= =========== ========== ==========
Total Assets 3,881,000 28,042,000 8,632,000 -- 16,590,000 -- 57,145,000
========= ========== ========= ========= =========== ========== ==========
September 30, 1999 4,567,000 6,707,000 4,925,000 387,000 432,000 -- 17,018,000
========= ========== ========= ========= =========== ========== ==========
September 30, 1998 5,009,000 -- 2,772,000 1,411,000 4,599,000 (4,570,000) 9,221,000
========= ========== ========= ========= =========== ========== ==========
EIGER TECHNOLOGY, INC.
SEGMENTED INFORMATION
for the year ended September 30, 1999
Totals per
Eiger Lexatec Reconciling Financial
ADH (one month) K-Tronik (Discontinued) All Others Items Statements
========== =========== ========== ============== ========== =========== ==========
$ $ $ $ $ $ $
Sales:
External Customers:
- Domestic 3,397,000 -- -- -- -- (464,000) 2,933,000
- Foreign 83,000 2,467,000 2,950,000 3,007,000 -- (3,007,000) 5,500,000
---------- ---------- ---------- ---------- ---------- ---------- ----------
3,480,000 2,467,000 2,950,000 3,007,000 -- (3,471,000) 8,433,000
Intersegment 55,000 -- -- -- -- (55,000) --
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total 3,535,000 2,467,000 2,950,000 3,007,000 -- (3,526,000) 8,433,000
Cost of Sales 2,852,000 2,282,000 1,585,000 2,964,000 -- (3,628,000) 6,055,000
---------- ---------- ---------- ---------- ---------- ---------- ----------
Gross Margin 683,000 185,000 1,365,000 43,000 -- 102,000 2,378,000
---------- ---------- ---------- ---------- ---------- ---------- ----------
Expenses:
Operations and Administration 126,000 76,000 2,001,000 589,000 128,000 (510,000) 2,410,000
Amortization of Capital and
Intangible Assets 192,000 4,000 161,000 1,000 3,000 65,000 426,000
Interest on Long-term Debt 111,000 111,000
Other Interest and Bank Charges 108,000 2,000 123,000 -- -- -- 233,000
Intersegment Management Fees 125,000 -- -- -- (125,000) -- --
---------- ---------- ---------- ---------- ---------- ---------- ----------
662,000 82,000 2,285,000 590,000 6,000 (445,000) 3,180,000
---------- ---------- ---------- ---------- ---------- ---------- ----------
Income before Taxes 21,000 103,000 (920,000) (547,000) (6,000) 547,000 (802,000)
Provision for Income Taxes (6,000) 28,000 12,000 3,000 (4,000) (3,000) 30,000
---------- ---------- ---------- ---------- ---------- ---------- ----------
27,000 75,000 (932,000) (550,000) (2,000) 550,000 (832,000)
Discontinued Operations (545,000) (545,000)
Negotiated Loan Reduction 293,000 293,000
Non-controlling Interest 12,000 27,000 (381,000) (5,000) -- 5,000 (342,000)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net Income for the Year 15,000 48,000 (551,000) (545,000) 291,000 -- (742,000)
========== ========== ========== ========== ========== ========== ==========
EIGER TECHNOLOGY, INC.
SEGMENTED INFORMATION
for the year ended September 30, 1998
Totals per
Lexatec Reconciling Financial
ADH Eiger K-Tronik (Discontinued) All Others Items Statements
=========== =========== =========== =========== =========== =========== ===========
$ $ $ $ $ $ $
Sales:
External Customers:
- Domestic 3,533,000 -- -- -- -- -- 3,533,000
- Foreign 307,000 -- 956,000 17,938,000 -- (17,938,000) 1,263,000
----------- ----------- ----------- ----------- ----------- ----------- -----------
3,840,000 -- 956,000 17,938,000 -- (17,938,000) 4,796,000
Intersegment 196,000 -- -- -- -- (196,000) --
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total 4,036,000 -- 956,000 17,938,000 -- (18,134,000) 4,796,000
Cost of Sales 2,706,000 -- 663,000 16,269,000 -- (16,465,000) 3,173,000
----------- ----------- ----------- ----------- ----------- ----------- -----------
Gross Margin 1,330,000 -- 293,000 1,669,000 -- (1,669,000) 1,623,000
----------- ----------- ----------- ----------- ----------- ----------- -----------
Expenses:
Operations and Administration 568,000 -- 273,000 1,655,000 107,000 (1,655,000) 948,000
Amortization of Capital and
Intangible Assets 132,000 -- -- 60,000 2,000 (12,000) 182,000
Interest on Long-term Debt 108,000 -- -- 1,000 -- (1,000) 108,000
Other Interest and Bank Charges 78,000 -- 1,000 8,000 21,000 (8,000) 100,000
Intersegment Management Fees 165,000 -- -- -- (165,000) -- --
----------- ----------- ----------- ----------- ----------- ----------- -----------
1,051,000 -- 274,000 1,724,000 (35,000) (1,676,000) 1,338,000
----------- ----------- ----------- ----------- ----------- ----------- -----------
Income before Taxes 279,000 -- 19,000 (55,000) 35,000 7,000 285,000
Provision for Income Taxes 84,000 -- -- 4,000 17,000 (4,000) 101,000
----------- ----------- ----------- ----------- ----------- ----------- -----------
195,000 -- 19,000 (59,000) 18,000 11,000 184,000
Discontinued Operations (59,000) (59,000)
Negotiated Loan Reduction 424,000 424,000
Non-controlling Interest (56,000) -- (9,000) 24,000 -- -- (41,000)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net Income for the Year 139,000 -- 10,000 (35,000) 442,000 (48,000) 508,000
=========== =========== =========== =========== =========== =========== ===========
EIGER TECHNOLOGY, INC.
(formerly Alexa Ventures Inc.)
NOTES to the CONSOLIDATED FINANCIAL STATEMENTS
1. Nature of Business:
Eiger Technology, Inc. ("the Company") is incorporated under the laws of
British Columbia and is engaged in the manufacture and/or distribution of
computer peripherals, electronic ballasts, and custom fabricated metal
products. Subsequent to the end of the year, the Company changed its
jurisdiction from British Columbia to Ontario.
2. Significant Accounting Policies:
(a) Basis of Preparation:
These financial statements have been prepared in accordance with
accounting principles generally accepted in Canada ("Cdn. GAAP"). A
reconciliation to U.S. generally accepted accounting principles
("U.S. GAAP") is provided in Note 17. Because a precise
determination of assets and liabilities depends on future events,
the preparation of periodic financial statements necessitates the
use of estimates and approximations. Actual amounts may differ from
these estimates.
(b) Principles of Consolidation:
The accompanying consolidated financial statements include the
accounts of Eiger Technology, Inc. and all of its subsidiary
companies as listed in Note 3. All significant intercompany
transactions and balances have been eliminated upon consolidation.
(c) Cash and Cash Equivalents:
Cash and cash equivalents consist of cash on account and short-term
investments with remaining maturities of three months or less at
acquisition.
(d) Inventory:
Inventory is valued at the lower of cost and net realizable value.
Cost is determined on a first-in, first-out basis and includes the
costs of materials and direct labour plus the applicable share of
manufacturing overhead.
(e) Investments:
All non-consolidated investments are accounted for at cost.
Short-term investments are written down to market value when less
than cost. Long-term investments are written down to market value
when a decline in market value below the carrying value is
considered to be other than temporary.
EIGER TECHNOLOGY, INC.
(formerly Alexa Ventures Inc.)
NOTES to the CONSOLIDATED FINANCIAL STATEMENTS
2. Significant Accounting Policies - continued:
(f) Capital Assets:
Capital assets are recorded at cost. Amortization is calculated on
the declining-balance basis at the following annual rates:
Building - 4%
Machinery and Equipment - 5-10%
Automotive Equipment - 30%
Computer Equipment - 20%
Leasehold Improvements - 10% straight line basis
(g) Goodwill:
Goodwill represents the excess of the purchase price of the
Company's interest in subsidiary companies over the fair value of
the underlying net identifiable assets arising on acquisitions.
Goodwill is amortized over 10 years on a straight-line basis (40
years for acquisitions prior to 1997). Management evaluates the
expected future net cash flows of the companies at each reporting
date and adjusts goodwill for any impairment.
(h) Other Assets:
Product development costs meeting generally accepted criteria for
deferral are written down to expected realizable value, and are
amortized once production commences over periods ranging from three
to ten years, depending on the anticipated economic life of the
particular product. Deferred organization, finance, and regulatory
approval costs are amortized over 2 to 5 years. Long-term lease
deposits are recorded at cost.
(i) Income Taxes:
Income taxes are provided using the liability method of tax
allocation. Under this method, future tax assets and liabilities are
determined based on differences between financial reporting and
income tax bases of assets and liabilities, and are measured using
the substantially enacted tax rates and laws that will be in effect
when the differences are expected to reverse.
(j) Issuance of Share Capital:
The costs of issuing share capital are netted against share capital.
Previously such costs were charged to retained earnings. The change
in accounting policy better reflects current accounting practice.
1999 figures have been restated - see Note 16.
EIGER TECHNOLOGY, INC.
(formerly Alexa Ventures Inc.)
NOTES to the CONSOLIDATED FINANCIAL STATEMENTS
2. Significant Accounting Policies - continued:
(k) Revenue Recognition:
Sales are recorded upon shipment to customers. Fees are recognized
as services are rendered.
(l) Foreign Currency Translation:
Due to the extensive degree of financing provided to its foreign
subsidiaries by the Company, these subsidiaries are considered to be
integrated operations. Accordingly, the temporal method of foreign
currency translation is used. Under this method, monetary assets and
liabilities of foreign subsidiaries are translated into Canadian
dollars using the exchange rate in effect at the balance sheet date,
non-monetary items are translated at historical exchange rates
(except for items carried at market, which are translated at the
balance sheet date exchange rate), and revenues and expenses are
translated using average exchange rates to approximate the rates
actually in effect at the time of the transactions. Resulting
foreign exchange translation gains or losses are included in the
determination of net income for the year, except for such gains or
losses relating the translation or settlement of foreign currency
denominated long-term monetary items which are deferred and
amortized over the remaining life of the monetary item. There were
no material exchange gains or losses on long-term foreign currency
denominated monetary items during either of the reporting periods.
(m) Stock-based Compensation:
No compensation expense is recognized for stock options granted to
employees. Options are granted at the fair market value of the
shares on the day of the grant. Any consideration paid by employees
on the exercise of stock options is credited to share capital.
(n) Earnings per Share:
Basic earnings per share is calculated based on the weighted average
number of shares outstanding during the year. Diluted earnings per
share is calculated using the treasury stock method based on the
weighted average number of shares that would have been outstanding
during the year had all the dilutive options been exercised at the
beginning of the year, or date of issuance if later, and assuming
that option proceeds would be used to purchase common shares at the
average market price during the year.
EIGER TECHNOLOGY, INC.
(formerly Alexa Ventures Inc.)
NOTES to the CONSOLIDATED FINANCIAL STATEMENTS
3. Subsidiaries and Related Party Transactions:
Eiger Technology, Inc. is related to the following corporations:
Name of Corporation Nature of Relationship
Vision Unlimited Equipment Inc.* 100% Subsidiary
A.D.H. Custom Metal Fabricators Inc. 100% Subsidiary of Vision
Unlimited Equipment Inc.
Alexa Properties Inc. 100% Subsidiary
K-Tronik Int'l Corp. 53% Subsidiary
K-Tronik Asia Corp. 59.3% owned through K-Tronik
Int'l Corp. and directly
Alexa Korea Holdings, Inc.* 100% Subsidiary
EigerNet, Inc. 50.1% Subsidiary of Alexa Korea
Holdings, Inc.
Alexa (U.S.A.), Inc.* 100% Subsidiary
Eiger Labs Group, Inc. 64% Subsidiary of Alexa
(U.S.A.), Inc.
* Inactive - holding company only
As disclosed in Note 15, the company disposed of its 60% equity interest
in Lexatec VR Systems Inc. during the year.
All transactions within the corporate group are in the normal course of
business, are transacted at fair market value, are recorded at the
carrying value at the time, and are eliminated upon consolidation.
Intercompany balances at the financial statement date are also eliminated
upon consolidation.
Service fees paid to corporations owned by four management personnel
during the period totalled $320,000 (1999: $208,000; 1998: $159,500).
4. Cash Held in Escrow:
Under the terms of the share offering dated March 7, 2000, one third of
the gross proceeds are to be held in escrow for a period of time not
exceeding one year. The funds are expected to be released on March 7,
2001. The gross amount of cash held in escrow of $6,718,000 has been
presented net of commissions and expenses to be withheld in the amount of
$1,740,000.
EIGER TECHNOLOGY, INC.
(formerly Alexa Ventures Inc.)
NOTES to the CONSOLIDATED FINANCIAL STATEMENTS
5. Investments:
(a) Short-term Investments:
Short-term investments are comprised of short-term commercial paper plus
accrued interest, having a market value equivalent to their cost amount.
(b) Long-term Investments:
2000 1999 1998
---- ---- ----
$ $
Advances to Nixxo Technology, Inc.
(Note 19) 2,221,000 -- --
Advances to Lexatec VR Systems Inc. 1,444,000 -- --
Subsidiary long-term investment in
debt securities 437,000 -- --
Other 235,000 360,000 342,000
--------- ------- -------
4,337,000 360,000 342,000
========= ======= =======
The advances noted above are non-interest bearing, and have no specific
terms of repayment.
6. Accounts Receivable:
Accounts receivable are reported net of an allowance for doubtful accounts
of $116,000 (1999: $193,000; 1998: 402,865).
7. Capital Assets:
2000 1999 1998
--------------------------------------- --------- ---------
Accumulated Net Book Net Book Net Book
Cost Amortization Value Value Value
--------------------------------------- --------- ---------
$ $ $ $ $
Land 159,000 -- 159,000 159,000 159,000
Buildings 1,089,000 138,000 951,000 463,000 482,000
Machinery and Equipment 4,815,000 1,691,000 3,124,000 1,152,000 1,029,000
Furniture and Fixtures 627,000 235,000 392,000 83,000 64,000
Automotive Equipment 167,000 59,000 108,000 20,000 129,000
Leasehold Improvements 262,000 139,000 123,000 135,000 164,000
Computer Hardware 92,000 21,000 71,000 32,000 68,000
Computer Software 94,000 24,000 70,000 12,000 19,000
--------------------------------------- --------- ---------
7,305,000 2,307,000 4,998,000 2,056,000 2,114,000
======================================= ========= =========
EIGER TECHNOLOGY, INC.
(formerly Alexa Ventures Inc.)
NOTES to the CONSOLIDATED FINANCIAL STATEMENTS
8. Other:
2000 1999 1998
---- ---- ----
$ $ $
Product Development Costs 1,709,000 1,212,000 763,000
Deferred Organization and
and Financing Costs 370,000 525,000 45,000
Non-interest Bearing Long-term
Lease Deposits 435,000 95,000 35,000
Regulatory Approval 174,000 141,000 --
Other 65,000 68,000 70,000
--------- --------- -------
2,753,000 2,041,000 913,000
========= ========= =======
9. Bank Indebtedness:
The Canadian line of credit balance of $1,128,000 bears interest at Royal
Bank prime plus .75%, is due on demand, and is secured by a general
security agreement covering inventory, equipment and accounts receivable.
The U.S. line of credit balance of $1,542,000 (Cdn.) with Business
Alliance Capital Corporation bears interest at 1.5% over the bank's prime
rate, is secured by inventory and equipment, and is due on demand.
10. Long-term Debt:
2000 1999 1998
---- ---- ----
$ $ $
Royal Bank of Canada term loan repayable in
monthly instalments of $10,000 plus interest
calculated at Royal Bank prime plus 1/4% 865,000 878,000 1,213,000
Shin Han Bank (Korea) term loan repayable in
bi-annual instalments of $65,100 commencing
May 8, 2003 and ending November 8, 2007
plus interest calculated at 8% per annum 651,000 -- --
Other 92,000 333,000 594,000
---------- ---------- ----------
1,608,000 1,211,000 1,807,000
Less: Current Portion (120,000) (100,000) (330,000)
---------- ---------- ----------
1,488,000 1,111,000 1,477,000
========== ========== ==========
EIGER TECHNOLOGY, INC.
(formerly Alexa Ventures Inc.)
NOTES to the CONSOLIDATED FINANCIAL STATEMENTS
10. Long-term Debt - continued:
Principal payments required on long-term debt for the next five years are
as follows:
Year Amount
---- ------
$
2001 120,000
2002 120,000
2003 185,000
2004 250,000
2005 250,000
-------
925,000
=======
11. Future Income Taxes:
Significant components of future income tax assets (liabilities) are as
follows:
2000 1999 1998
---- ---- ----
$ $ $
Excess of net book value of capital assets
over tax value (270,000) (257,000) (254,000)
Other future income tax liabilities (53,000) -- --
Operating losses carried forward 372,000 3,000 --
Less: Valuation Allowance (102,000) -- --
"Canadian Exploration Expenses"
carried forward -- 69,000 69,000
Other 10,000 10,000 9,000
-------- -------- --------
Net future income tax assets (liabilities) (43,000) (175,000) (176,000)
======== ======== ========
EIGER TECHNOLOGY, INC.
(formerly Alexa Ventures Inc.)
NOTES to the CONSOLIDATED FINANCIAL STATEMENTS
12. Share Capital:
Authorized: 100,000,000 Common Shares
Issued:
2000 1999 1998
----------------------------- ---------------------------- -------------------------
No. of $ No. of $ No. of $
Shares Shares Shares
------ ------ ------
Beginning of Year: 21,284,358 9,340,000 13,815,001 2,176,000 13,815,001 2,176,000
Issued - private placement* 11,444,500 27,861,000 6,065,500 6,152,000 -- --
- exercise of options 617,000 483,000 50,000 42,000 -- --
- acquisitions -- -- 1,353,857 1,882,000 -- --
- earn out shares 600,000 4,800,000 -- -- -- --
- costs of issue -- (3,047,000) -- (912,000) -- --
----------------------------- ---------------------------- -------------------------
End of Year: 33,945,858 39,437,000 21,284,358 9,340,000 13,815,001 2,176,000
Reciprocal Shareholdings (526,929) (542,000) (826,929) (1,149,000) -- --
----------------------------- ---------------------------- -------------------------
Net per Balance Sheets 33,418,929 38,895,000 20,457,429 8,191,000 13,815,001 2,176,000
============================= ============================ =========================
* Shares in escrow: 4,840,000 (1999 and 1998: none)
The Company awards unconditional stock options to employees, officers,
directors and others at the recommendation of the CEO as approved by the
shareholders. Options are granted at the fair market value of the shares
on the day granted, and vest immediately. The following is a continuity
schedule of outstanding options for the reporting periods, where WAEP
refers to "weighted average exercise price".
2000 1999 1998
------------------------ ------------------- -------------------
WAEP WAEP WAEP
No. of ---- No. of ---- No. of ----
Options $ Options $ Options $
------- ------- -------
Beginning of Year: 895,000 0.74 955,000 0.75 985,000 0.80
Granted 1,535,000 3.70 -- -- 350,000 0.67
Exercised (617,000) 0.76 (50,000) 0.85 -- --
Expired (100,000) 0.90 (10,000) 0.75 (380,000) 0.80
---------- ------- --------
End of Year: 1,713,000 3.37 895,000 0.74 955,000 0.75
========== ======= ========
EIGER TECHNOLOGY, INC.
(formerly Alexa Ventures Inc.)
NOTES to the CONSOLIDATED FINANCIAL STATEMENTS
12. Share Capital - continued:
During the year, proceeds from exercised stock options of $483,000 was
credited to share capital (1999: $42,000). No amounts were recognized as
compensation expense with respect to stock options granted or exercised in
either of the reporting periods.
Stock options have been granted to the CEO of K-Tronik Int'l Corp.
contingent upon meeting sales quotas for that company as tabled below:
Number of
Monthly Sales for Six Options
Consecutive Months Exercisable Total Exercise
Units of Ballasts Per Plateau Cumulative Price
----------------------------------------- ----------- ---------- ---------
50,000 per month for 6 consecutive months 70,000 70,000 .60
60,000 per month for 6 consecutive months 70,000 140,000 .60
70,000 per month for 6 consecutive months 70,000 210,000 .60
80,000 per month for 6 consecutive months 70,000 280,000 .60
90,000 per month for 6 consecutive months 70,000 350,000 .60
No shares were issued in fiscal 2000 or fiscal 1999 as a result of this
agreement.
Management has agreed to issue shares of the Company to four members of
the management team of EigerNet, Inc. and Eiger Labs Group Inc. as
performance earn out consideration contingent upon achieving the criteria
tabled below for the combined results of those two companies:
Common
Year Gross Sales Net Income Shares
---- ----------- ---------- ------
1999 $27 million U.S. $1.0 million U.S. 600,000
2000 $70 million U.S. $2.5 million U.S. 750,000
2001 $80 million U.S. $3.5 million U.S. 750,000
2002 $90 million U.S. $4.0 million U.S. 900,000
2003 $110 million U.S. $4.5 million U.S. 1,000,000
600,000 shares were issued during the year as a result of this agreement
based on the operating results for 1999. As the shares were trading at
$8.00 Cdn. at the time of issue, $4,800,000 was credited to share capital
and added to goodwill upon consolidation. No shares will be issued in
fiscal 2001 pursuant to this agreement as the criteria for fiscal 2000
were not met.
EIGER TECHNOLOGY, INC.
(formerly Alexa Ventures Inc.)
NOTES to the CONSOLIDATED FINANCIAL STATEMENTS
13. Provision for Income Taxes:
2000 1999 1998
---- ---- ----
$ $ $
Current Provision: 289,000 30,000 67,000
-------- -------- --------
Future Provision:
Losses carried forward (267,000) (3,000) 6,000
Net book value of capital assets 13,000 3,000 17,000
Canadian Exploration Expenses 69,000 -- 11,000
Other 53,000 -- --
-------- -------- --------
(132,000) -- 34,000
-------- -------- --------
Total Provision 157,000 30,000 101,000
======== ======== ========
Reconciliation of Tax Provision:
Income (Loss) before Provision for
Income Taxes (739,000) (802,000) 285,000
Taxable Intercompany Dividend
Eliminated on Consolidation 409,000 -- --
Taxable Intercompany Gain Eliminated
on Consolidation -- 467,000 --
Amortization of Goodwill Arising
on Consolidation 549,000 66,000 48,000
Valuation Allowance on Losses Carried
Forward 408,000 -- --
Utilization of Unrecognized Losses
Carried Forward -- (50,000) (43,000)
Minor Permanent Differences -- (4,000) (5,000)
Discontinued Operations - Previous Year -- (547,000) (55,000)
Prior Period Adjustments before
Non-controlling Interest -- 981,000 --
-------- -------- --------
Income Subject to Current and Future
Income Taxes 627,000 111,000 230,000
======== ======== ========
At Average Statutory Rate (2000: 25%;
1999: 27%; 1998: 44%) 157,000 30,000 101,000
======== ======== ========
The average statutory rate varies depending on the relative mix of incomes
from the Company and its subsidiaries located in Canada, Korea and the
United States.
14. Cash Payments of Interest and Income Taxes:
2000 1999 1998
-------- -------- --------
$ $ $
Interest 620,000 332,000 196,000
======== ======== ========
Income Taxes 304,000 72,000 45,000
======== ======== ========
EIGER TECHNOLOGY, INC.
(formerly Alexa Ventures Inc.)
NOTES to the CONSOLIDATED FINANCIAL STATEMENTS
15. Discontinued Operations:
During the year, the company disposed of its 60% equity interest in
Lexatec VR Systems Inc. to an arm's length third party for the sum of $1.
The measurement date for this transaction was June 30, 2000, and the
actual date of disposition was September 1, 2000. No assets or liabilities
of the discontinued operation were on hand at the end of the year. See the
segmented information disclosures for operating results of the
discontinued operation.
16. Prior Period Adjustments:
(a) Retained Earnings: 2000 1999 1998
-------- ------- -------
$ $ $
Balance - Beginning of Year:
As Previously Reported (401,000) 247,000 163,000
Accounting Adjustments -
K-Tronik Asia Corp. (582,000) -- --
Retroactive Change in
Accounting Policy 912,000 424,000 --
-------- ------- -------
As Restated (71,000) 671,000 163,000
======== ======= =======
The consolidated financial statements of K-Tronik Int'l Corp.
reported prior period adjustments to opening retained earnings in
respect of K-Tronik Asia Corp. as follows: understatement of
expenses: $687,000; elimination of unrealized intercompany profit:
$273,000; other: $21,000; portion accruing to non-controlling
interest: ($399,000); net adjustment to retained earnings: $582,000.
In fiscal 1999, the Company retroactively changed its accounting
policy with respect to negotiated reductions to loans payable
($424,000). Such amounts are now recognized as income rather than
treated as additions to contributed capital. In fiscal 2000, the
Company retroactively changed its accounting policy with respect to
the costs of issuing share capital ($912,000). Such costs are now
netted against share capital.
(b) Comparative Figures for 1999 and 1998:
The 1999 consolidated financial statements have been restated to
reflect the items described above. Certain other 1999 and 1998
figures have been restated to conform to the financial statement
format adopted in fiscal 2000.
EIGER TECHNOLOGY, INC.
(formerly Alexa Ventures Inc.)
NOTES to the CONSOLIDATED FINANCIAL STATEMENTS
17. Reconciliation to U.S. GAAP:
These financial statements have been prepared in accordance with
accounting principles generally accepted in Canada ("Cdn. GAAP").
Significant differences under U.S. GAAP are discussed below.
For fiscal years beginning after December 15, 1998, U.S. GAAP requires
that all organization costs (including those previously deferred) be
expensed currently. Also, all product development costs are to be expensed
as incurred.
U.S. GAAP requires the measurement and reporting of "comprehensive
income". Comprehensive income includes net income and all other changes to
Shareholders' Equity other than amounts received from or paid to
shareholders. The only reportable comprehensive income item for the
Company relates to foreign currency translation adjustments as described
below.
U.S. GAAP requires the use of the current rate method of foreign currency
translation, with any resulting foreign exchange translation adjustments
forming part of comprehensive income for the year and accumulating as a
separate component of shareholders' equity.
APB Opinion 25 requires the intrinsic value based method be used to
measure stock option compensation. As the Company grants stock options at
fair market value, no compensation is recognized. SFAS No. 123 requires
pro-forma disclosure of net income and earnings per share as if the fair
value method had been applied.
Reconciliations to U.S. GAAP are as follows:
2000 1999 1998
---- ---- ----
$ $ $
Net Income (Loss):
- per Cdn. GAAP (693,000) (742,000) 508,000
- expense deferred product development costs net
of portion relating to non-controlling interest (328,000) (374,000) (452,000)
- expense deferred organization costs net of
portion relating to non-controlling interest 90,000 (309,000) --
- foreign currency translation adjustment 129,000 6,000 --
- future income tax savings related to above 60,000 265,000 122,000
-------- ---------- --------
- per U.S. GAAP (742,000) (1,154,000) 178,000
Comprehensive item - foreign exchange
adjustment (129,000) (6,000) --
-------- ---------- --------
Comprehensive Income (871,000) (1,160,000) 178,000
======== ========== ========
EIGER TECHNOLOGY, INC.
(formerly Alexa Ventures Inc.)
NOTES to the CONSOLIDATED FINANCIAL STATEMENTS
17. Reconciliation to U.S. GAAP - continued:
2000 1999 1998
---- ---- ----
$ $ $
Retained Earnings:
- per Cdn. GAAP (764,000) (71,000) 671,000
- expense deferred product development costs
net of portion relating to non-controlling
interest (1,154,000) (826,000) (452,000)
- expense deferred organization costs net of
portion relating to non-controlling interest (219,000) (309,000) --
- foreign currency translation adjustments 135,000 6,000 --
- future income tax savings related to above 447,000 387,000 122,000
----------- ----------- -----------
- per U.S. GAAP (1,555,000) (813,000) 341,000
----------- ----------- -----------
Accumulated Other Comprehensive Items:
- per Cdn. GAAP -- -- --
- foreign currency translation adjustments (135,000) (6,000) --
----------- ----------- -----------
- per U.S. GAAP (135,000) (6,000) --
=========== =========== ===========
Total Assets:
- per Cdn GAAP 57,145,000 17,018,000 9,221,000
- expense deferred product
development costs (1,709,000) (1,212,000) (763,000)
- expense deferred organization costs (370,000) -- --
- increase in future income tax assets 404,000 212,000 --
----------- ----------- -----------
- per U.S. GAAP 55,470,000 16,018,000 8,458,000
=========== =========== ===========
Earnings per Share:
Basic (.03) (.08) .01
----------- ----------- -----------
Fully Diluted (.03) (.08) --
----------- ----------- -----------
Pro-forma Disclosure (SFAS No. 123):
Had SFAS No. 123 been followed, net income would have decreased by
$4,342,000 in fiscal 2000 (1999 and 1998: no change), and basic and
fully diluted earnings per share would have been (.20) and (.20)
respectively (1999: (.08) and (.08); 1998: .01 and --).
EIGER TECHNOLOGY, INC.
(formerly Alexa Ventures Inc.)
NOTES to the CONSOLIDATED FINANCIAL STATEMENTS
18. Acquisitions of Subsidiary Companies:
The Company did not complete any acquisitions in fiscal 2000.
In fiscal 1999, the Company incorporated Eiger Labs Group, Inc. pursuant
to the laws of the State of California. On September 1, 1999, the Company
subscribed for its shares through its newly-created holding company, Alexa
(U.S.A.), Inc. by contributing cash of $1,000,000 U.S. and 526,929 shares
of the Company issued at $500,000 U.S. to Eiger Labs Group, Inc.
On September 1, 1999, the Company acquired 64% of the common shares of
EigerNet, Inc. (formerly Point Multimedia Systems, Inc.) through
newly-formed Alexa Korea Holding, Inc. EigerNet, Inc. is incorporated
under the laws of the Republic of South Korea, and is engaged in the
production of multimedia communication products. Eiger Labs Group, Inc.
functions as its distribution arm in the United States. For its interest
in EigerNet, Inc., the Company paid a finder's fee of $417,000 and
contributed $1,000,000 U.S. to EigerNet, Inc. and 526,928 of its own
shares (issued at $500,000 U.S.) to the other shareholders for treasury
stock to equal 64%. In addition, the other shareholders were granted a 36%
interest in Eiger Labs Group, Inc., newly-formed as described in the
preceding paragraph. Additional shares of Eiger Technology, Inc. are
contingently issuable on a performance earn out basis as described in Note
12. 600,000 shares were issued pursuant to that agreement in fiscal 2000.
The acquisition was accounted for using the purchase method as follows:
$Cdn.
----------
Current Assets 4,147,000
Capital Assets 111,000
Goodwill 1,649,000
Liabilities (1,433,000)
Non-controlling Interest (1,044,000)
----------
Net Assets Acquired 3,430,000
==========
Finder's Fee 417,000
Cash Contribution 1,492,000
Shares of Eiger Technology, Inc. 732,000
Shares of Eiger Labs Group, Inc. 789,000
----------
Total Consideration 3,430,000
==========
During fiscal 2000, the Company's interest in EigerNet, Inc. was decreased
to 50.1% as a result of additional treasury stock being issued to other
shareholders.
EIGER TECHNOLOGY, INC.
(formerly Alexa Ventures Inc.)
NOTES to the CONSOLIDATED FINANCIAL STATEMENTS
19. Subsequent Events:
Pursuant to a letter of intent signed September 26, 2000, the Company is
in the process of acquiring a 31.25% equity interest in Nixxo Technology,
Inc. ("Nixxo"), a California developer of GSM chipsets and operating
systems. Consideration will take the form of $500,000 US cash issued to
Nixxo's sole minority shareholder; 1,578,944 shares of the Company issued
to Nixxo's parent company, Standard Telecom Co. Ltd. ("STC") - based in
South Korea; 1,421,056 shares of the Company issued to Nixxo for treasury
stock; and the capitalization of advances to Nixxo of $2.5 million US
($2,221,000 Cdn. to September 30, 2000 - see Note 5).
On February 20, 2001, the Company signed a memorandum of understanding to
acquire a 55% controlling interest in Standard Telecom America, Inc.
("STA") from its parent company, STC. Consideration will take the form of
7,200,000 shares of the Company. STA is based in California, and focuses
on North American distribution of products manufactured by Nixxo.
The above-mentioned transactions are subject to approvals by the
respective Boards of Directors, performance of due diligence procedures,
and receipt of approvals from the applicable regulatory authorities.
20. Financial Instruments:
(a) Fair Value:
Cash and cash equivalents, short-term investments, accounts receivable and
payable, and bank indebtedness are carried at cost which approximates fair
value due to their short time to maturity. Management believes the
carrying value of long-term investments to be equivalent to their fair
market value. The fair values of the Company's long-term debt obligations,
based on current rates for debt with similar terms and maturities, are
approximately the same as their carrying values.
(b) Interest Rate Risk:
The Company is not exposed to significant interest rate risk due to the
short-term maturity of its current monetary assets and liabilities. The
Company's interest rate risk pertaining to its long-term debt obligations
is not considered to be significant due to the relatively low amounts
involved.
EIGER TECHNOLOGY, INC.
(formerly Alexa Ventures Inc.)
NOTES to the CONSOLIDATED FINANCIAL STATEMENTS
21. Financial Instruments - continued:
(c) Credit Risk:
The Company's financial assets that are exposed to credit risk consist
primarily of short-term investments, accounts receivable, and long-term
investments.
Short-term investments consist solely of short-term commercial paper
issued by investment-rated Canadian financial institutions, and are
invested for terms not exceeding 90 days.
The Company, in the normal course of business, is exposed to credit risk
from its customers. Management believes that sufficient allowance has been
made for bad debts in these financial statements based on a review of
accounts on an individual basis. The concentration of credit risk in trade
accounts receivable is not considered to be significant due to the
Company's large client base.
The Company is also exposed to credit risk with respect to its long-term
advances to Lexatec VR Systems Inc. and Nixxo Technology, Inc. Advances to
Lexatec VR Systems Inc. are partially secured by a pledge of reciprocal
shareholdings. It is intended that advances to Nixxo Technology, Inc. will
be capitalized as partial consideration toward the acquisition of a 31.25%
equity interest in that company, as described in Note 19.
22. Commitments:
As at September 30, 2000, the Company had commitments under the terms of
various operating leases requiring annual rental payments as follows:
$
2001 387,000
2002 424,000
2003 267,000
2004 123,000
2005 83,000
EIGER TECHNOLOGY, INC.
(formerly Alexa Ventures Inc.)
NOTES to the CONSOLIDATED FINANCIAL STATEMENTS
23. Segmented Information:
Management has identified four reportable segments: "ADH", "K-Tronik",
"Lexatec" and "Eiger". Lexatec was discontinued in fiscal 2000.
"ADH" consists of A.D.H. Custom Metal Fabricators Inc. and Alexa
Properties Inc. A.D.H. Custom Metal Fabricators Inc. is a manufacturer of
fluorescent light fixtures, data racks and other metal cabinetry. Alexa
Properties Inc. owns the land and manufacturing facility in Stratford,
Ontario.
"K-Tronik" includes K-Tronik Int'l Corp., a distributor of electronic
ballasts based in Hackensack, New Jersey, and K-Tronik Asia Corp., a
manufacturer of electronic ballasts operating in Korea.
"Lexatec" consists of Lexatec VR Systems Inc., a distributor of computer
peripherals operating out of Cerritos, California.
"Eiger" includes Eiger Labs Group, Inc. and EierNet, Inc. Both of these
companies are involved in the production and distribution of electronic
communications products. EigerNet, Inc. is located in South Korea, while
Eiger Labs Group, Inc. operates out of California.
Financial information, segmented according to the above, is presented in
the form of schedules over the next four pages.