U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
PRE-EFFECTIVE AMENDMENT NO. 4
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
K-TRONIK INTERNATIONAL CORP.
(formerly LMC Capital Corp.)
(Name of Small Business Issuer in its Charter)
Nevada 3640 88-0436364
(State or jurisdiction of (Primary Standard Industrial I.R.S. Employer
incorportion or organization) Classification Code Number) Identification No.)
290 Vincent Avenue, 4th Floor
Hackensack, New Jersey 07601
Tel: (201) 488-4600
Fax: (201) 488-8480
(Address and telephone number of Registrant's principal executive
offices and principal place of business)
Resident Agent's of Nevada
711 South Carson Street Suite 4
Carson City, Nevada 89701
Tel: (775) 882-4641;
Fax: (775) 882-6818
(Name, address, and telephone number of agent for service)
Page 2
Approximate date of proposed sale to the public: As soon as
practicable after this registration statement becomes effective.
If this Form is filed to register additional securities for an offering
Pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration number of the earlier effective
registration statement for the same offering.
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering.
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering.
If the delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box.
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under
the Securities Act of 1933 check the following box (X)
Page 3
CALCULATION OF REGISTRATION FEE
Title of Amount to be Proposed Proposed Amount of
each class registered (1) Maximum maximum registration
of securities offering price aggregate fee (3)
to be per share(2) offering
registered price
Common Stock 8,288,172 $0.20 $1,657,634.40 $152.50
K-Tronik hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until K-Tronik files a
further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section
8(a) of the Securities Act of 1933 or until the registration statement
shall become effective on such date as the Commission, acting pursuant
to said Section 8(a), may determine.
(1) The total number of shares of common stock to be sold by
shareholders on a continuous offering basis under Rule 415;
(2) Estimated for the purpose of calculating the registration fee
(3) The calculation (given footnote 2 above) was as follows: (
8,288,172 shares X $0.20 ) ($92/1,000,000) = $152.50
Page 4
PROSPECTUS
K-TRONIK INTERNATIONAL CORP.
(formerly LMC Capital Corp.)
290 Vincent Avenue, 4th Floor
Hackensack, New Jersey 07601
Tel: (201) 488-4600
Fax: (201) 488-8480
8,288,172 Shares
Common Stock
K-Tronik International Corp. ("K-Tronik"), a Nevada corporation, is
hereby offering shares of common stock pursuant to the terms of this
prospectus. A total of 8,288,172 shares of common stock are to be
registered for selling shareholders;
This prospectus relates to the resale of up to 8,288,172 shares of
common stock by our shareholders who are hereinafter referred to as
selling shareholders.
There is currently no market for our securities. The selling
shareholders will sell the shares from time to time at $0.20 per share
until our shares are quoted on the Over the Counter Bulletin Board
("OTCBB") or BBX Exchange or some other system of quotation or exchange.
Non-affiliate Selling Shareholders shall thereafter sell their shares at
prevailing market prices or privately negotiated prices while affiliate Selling
Shareholders must continue to sell at $0.20 per share. There is no
assurance that our common stock will be included on the OTCBB or BBX Exchange.
The shares offered hereby are highly speculative and involve a high
degree of risk to public investors and should be purchased only by
persons who can afford to lose their entire investment (See "Risk
Factors" on page 7).
These securities have not been approved or disapproved by the U.S.
Securities and Exchange Commission or any state securities commission
nor has the U.S. Securities and Exchange Commission or any state
securities commission passed upon the accuracy or adequacy of this
prospectus. Any representation to the contrary is a criminal offense.
Information contained herein is subject to completion or amendment.
The registration statement relating to the securities has been filed
with the U.S. Securities and Exchange Commission. The securities may
not be sold nor may offers to buy be accepted prior to the time the
registration statement becomes effective. This prospectus shall not
constitute an offer to sell or the solicitation of an offer to buy nor
shall there be any sale of these securities in any state in which such
offer, solicitation or sale would be unlawful prior to registration or
qualification under the securities laws of any such state.
Subject to Completion, Dated: ______________, 2003
Page 5
TABLE OF CONTENTS
Prospectus Summary 7
Risk Factors 10
Use Of Proceeds 13
Determination Of Offering Price 14
Dilution 14
Selling Security Holders 14
Plan Of Distribution 15
Legal Proceedings 18
Directors, Executive Officers, Promoters
And Control Persons 18
Security Ownership Of Certain Beneficial Owners
And Management 20
Description Of Securities 22
Interest Of Named Experts And Counsel 23
Disclosure Of Commission Position On Indemnification
For Securities Act Liabilities 23
Organization Within Last Five Years 24
Description Of Business 24
Management's Discussion and Analysis of Financial
Condition and Results of Operations 32
Description Of Property 38
Certain Relationships And Related Transactions 39
Market For Common Equity And Related
Stockholder Matters 40
Executive Compensation 41
Financial Statements 42
Changes In And Disagreements With Accountants
On Accounting And Financial Disclosure 60
Indemnification of Officers and Directors 61
Other Expenses of Issuance and Distribution 61
Page 6
Recent Sales of Unregistered Securities 61
Exhibits 61
Undertakings 62
Signatures 63
EXHIBIT INDEX
EXHIBITS
Page 7
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by detailed
information appearing elsewhere in this prospectus. Each prospective
investor is urged to read this prospectus in its entirety.
Business of K-Tronik.
K-Tronik N.A. Inc., our wholly owned subsidiary, is an electronic ballast
manufacturer and distributor. K-Tronik N.A. currently manufactures
ballasts for the US, Canadian, Asian, Latin-American and European markets
although past sales have focused primarily on the United States. K-Tronik
N.A. Inc. has a Korean subsidiary, K-Tronik (Asia), where ballast
manufacture is conducted.
K-Tronik N.A. is particularly active with supplying ESCOs (Energy Services
Companies) electronic ballast products used in generating energy savings
for their customers' commercial and industrial buildings.
A "ballast" is a device in lighting systems that operates fluorescent
lights. The ballast provides the necessary starting voltages,
frequency and wattage to a fluorescent light while limiting and
regulating the current during the light's operation. Without a
ballast, a fluorescent light would be destroyed immediately when
voltages were applied while switching it on. Many people recognize
ballasts as the heavy "black boxes" in their fluorescent light
fixtures at home that they can see when they replace their fluorescent tubes.
Page 8
The Offering.
A total of 8,288,172 shares of common stock are to be registered for
selling shareholders.
Liquidity of Investment.
Although the shares will be free of resale restrictions once
qualified by this Prospectus, there presently exists no public market
for the shares. Therefore, an investor may not be able to sell shares
when he or she wishes; therefore, an investor may consider his or her
investment to be long-term.
Page 9
Summary Financial Information
SELECTED
FINANCIAL SEPTEMBER SEPTEMBER MARCH MARCH
INFORMATION 30, 2002 30, 2001 31, 2003 31, 2002
Net Sales $6,737,719 $6,680,622 $3,106,737 $3,147,495
Gross Profit $1,438,536 $1,587,216 $815,953 $759,370
Selling,
General and
Administrative
Expenses $2,020,670 $2,012,583 $1,024,337 $887,701
Interest and
Other Expenses $228,434 $248,249 $102,201 $108,787
Net Loss $(810,518) $(683,509) $(310,585) $(237,118)
Loss from
Operations $(582,084) $(425,367) $(208,384) $(128,331)
Working Capital $469,051 $1,225,582 $175,286 $1,083,978
Net Cash from
Operating
Activities $11,723 $(1,249,496) $(238,209) $(203,874)
Current Assets $3,603,980 $4,005,903 $2,996,601 $3,786,099
Total Assets $4,201,472 $4,581,305 $3,594,287 $4,307,609
Current
Liabilities $3,134,929 $2,780,321 $2,821,315 $2,702,121
Total
Liabilities and
Stockholders'
Equity (Deficit) $4,201,472 $4,581,305 $3,594,287 $4,307,609
Total
Stockholders'
Equity (Deficit) $1,066,543 $(1,908,196) $772,972 $1,605,488
Page 10
Risk Factors.
The securities offered hereby are highly speculative in nature and
involve a high degree of risk. They should be purchased only by persons
who can afford to lose their entire investment. Therefore, each
prospective investor should, prior to purchase, consider very carefully
the following risk factors, as well as all other information set forth
in this prospectus.
The following risks should be considered carefully. Our business,
financial condition and results of operations could be materially and
adversely affected by any of the following risks:
WE RELY ON COMPONENT MANUFACTURERS AND PRODUCTION FACILITIES IN KOREA AND CHINA.
IF THEIR OPERATIONS ARE DISRUPTED BY POLITICAL INSTABILITY, WE WILL NOT BE ABLE
TO FILL ORDERS AND OUR SALES WILL DECREASE.
We rely on our Chinese manufacturing operations through our subsidiary K-Tronik
(Asia) and through our transformer suppliers in China. Because of our reliance
on them, we are vulnerable to any political instability in China or Korea which
interrupts business operations there. Any such interruption could result in our
not having necessary components and being unable to fill sales orders. This
would result in our sales revenues decreasing.
IF WE WERE UNABLE TO SECURE LOANS FROM OUR PARENT COMPANY OR OUR BANKS WE WOULD
NOT HAVE THE WORKING CAPITAL WE NEED TO CONTINUE OPERATING
Because we have not historically been profitable, we have relied, in the past,
on loans from our parent company, Eiger Technology, Inc. If Eiger Technology,
Inc. does not make loans to us in the future, we might not have the working
capital we needed to continue operating.
We rely on working capital from our credit facilities. If these credit
facilities were unavailable, we would not have the working capital we needed to
continue operating.
IF OUR LENDERS DEMANDED IMMEDIATE PAYMENT OF OUTSTANDING LOANS, WE WOULD BE
UNABLE TO PAY THEM AND WOULD NOT HAVE THE WORKING CAPITAL TO CONTINUE OPERATING
Our lenders, who make credit facilities available to us, have the right to
demand immediate repayment of our outstanding loans under these credit
facilities. If this happened, we would be unable to pay them with our present
working capital and would not have the working capital we require to continue
operating.
RISING INTEREST RATES COULD INCREASE THE BORROWING COSTS OF THE CREDIT
FACILITIES WE RELY UPON FOR WORKING CAPITAL
Rising interest rates could increase the costs of borrowing under the credit
facilities we rely upon. If these costs of borrowing increase, our
profitability would decrease.
RISING INTEREST RATES COULD REDUCE CONSTRUCTION ACTIVITY IN THE UNITED STATES
AND THIS WOULD RESULT IN LOWER SALES REVENUES FOR OUR COMPANY AND OUR INDUSTRY
AS A WHOLE
Rising interest rates could negatively impact activity in the domestic
construction industry. This would negatively affect our sales because our
ballast products are used in the construction of residential and commercial
buildings.
WE RELY ON THE CONTINUED INVOLVEMENT OF OUR PRESIDENT, ROBERT KIM AND DO NOT
HAVE NON-COMPETITION AGREEMENTS WITH OUR OTHER EMPLOYEES
We rely on continued involvement of our President, Robert Kim, who founded
K-Tronik and has been the key management and sales person for the company.
We do not have a non-competition agreement with him in the event that he joined
a competing company. If he were to join a competing company, our sales
revenues would likely decrease.
We do not have non-competition agreements in place with any of our employees.
As a result, if they left us they could compete against us and, through this
competition, reduce our sales revenues.
A DOWNTURN IN THE US ECONOMY COULD DISCOURAGE CUSTOMERS FROM RETROFITTING
(INSTALLING MORE ENERGY EFFICIENT BALLASTS) AND RESULT IN DECREASED SALES AND
REVENUES FOR OUR COMPANY.
Page 11
A significant proportion of our sales are generated by customers
installing more energy efficient electronic ballasts in place of existing
magnetic or older ballasts. This process is know as "retrofitting".
Worsening general economic conditions may affect funding for energy
retrofit initiatives through federal, state and provincial budget cuts. If
such funding were eliminated or reduced, our sales would decrease. We are
particularly vulnerable to this because many of our customers are government
institutions or hospitals and schools;
IF ONE OF OUR TWO MAJOR COMPONENT SUPPLIERS WERE TO FAIL TO DELIVER COMPONENTS,
OUR PRODUCT DELIVERY WOULD BE DELAYED AND SALES REVENUES WOULD BE DELAYED
If one of our two major component suppliers, Fein Tech Company and Dae Gyung
Corp., both of South Korea, were to fail to deliver components to us, we would
not be able to deliver product to our customers on a timely basis. This could
delay our sales and sales revenues. This occurred in the quarter ending
December 31, 2002 when Fein Tech Company was unable to deliver components on
time. As a result of this delay, we were unable to make some product
deliveries and our sales revenues from those product deliveries was delayed.
We do not have other major suppliers to whose failure we are vulnerable.
A DEPRECIATION OF THE US DOLLAR AGAINST THE KOREAN WON WOULD INCREASE OUR COSTS
AND DECREASE OUR PROFITABILITY
Many of our costs are paid in Korean Won at our K-Tronik (Asia) subsidiary.
If the US dollar was to depreciate against the Korean Won, our costs at our
K-Tronik (Asia) subsidiary would increase. This would decrease our gross
margin and profitability because our sales are mostly in the United States and
are made as US dollar sales.
INVESTORS MAY NOT BE ABLE TO RESELL THEIR SECURITIES BECAUSE THERE IS NO
MARKET FOR OUR SECURITIES
There is no market for our securities. As a result, any person purchasing
securities offered hereunder may not be able to resell their securities.
WE HAVE NOT HISTORICALLY BEEN PROFITABLE AND THIS COULD LEAD TO DILUTION OF
INVESTORS SHAREHOLDINGS
We have not historically been profitable and may have to rely on equity
financing in the future. Any equity financing we would dilute investors
existing interest in our company.
Offering Price.
The offering price of the shares for the purpose of calculating the
applicable registration fee with the SEC was determined to be $0.20. No
shares have been issued from treasury for cash proceeds in the 12 months
prior to the filing of this registration statement and, as no market
exists for the shares of common stock, no market price or trading
history for these shares is available. K-Tronik is not listed on any
exchange at this time. The price of $0.20 was not determined in any form
of negotiation of arms length transactions such as negotiation with a
broker dealer. The price represents management's estimate
of what price arms length third parties might be willing to pay to purchase
securities of the Company but is not intended to imply that a formal
valuation of the Company's securities has been undertaken. The book value
of our shares is well below the $0.20 price.
Non-affiliate Selling Shareholders will sell their shares for $0.20 per
share until such time as the shares are traded on an exchange or other
facility such as the NASD's OTCBB at which time they may sell their
shares at prevailing market prices. Affiliate Selling Shareholders will
sell their shares for $0.20 even if the shares are traded on an exchange
or other facility such as the NASD's OTCBB or BBX Exchange.
Page 12
Shares Eligible For Future Sale.
A total of 14,285,714 shares of common stock which are currently held,
directly or indirectly, by management or by our parent company, Eiger
Technology, Inc., have been issued in transactions not requiring
registration under the Securities Act of 1933 and are not registered for
resale pursuant to this registration statement.
Of these 14,285,714 shares of common stock, 6,714,286 were issued to K-
Tronik's President and Director, Mr. Robert Kim, in consideration of
his sale to K-Tronik of his shares of K-Tronik's wholly owned
subsidiary, K-Tronik N.A. Inc.
A further 7,571,428 shares were issued to the ETIFF Holdings, LLC, a
wholly owned subsidiary of Eiger Technology, Inc. in consideration of
its sale to K-Tronik of its shares of K-Tronik's wholly owned
subsidiary, K-Tronik N.A. Inc. ETIFF Holdings, LLC owns an additional
6,788,172 shares of common stock which are being registered for resale
pursuant to this registration statement.
The 14,285,714 shares held by management and by the parent company,
Eiger Technology, Inc., through its wholly owned subsidiary, ETIFF
Holdings, LLC, all of which were acquired in December of 2001,
currently could be made available for resale to the public in reliance
upon Rule 144 . In general, under Rule 144 a person who has beneficially
owned shares acquired in a non-public transaction for at least one year,
including persons who may be deemed affiliates of K-Tronik, would be
entitled to sell within any three-month period a number of shares that
does not exceed the greater of 1% of the then outstanding shares of
common stock, or the average weekly reported trading volume during the
four calendar weeks preceding such sale, provided that certain current
public information is then available. If a substantial number of the
shares owned by these shareholders were sold pursuant to Rule 144 or a
registered offering, the market price of our common stock could be
adversely affected.
In addition to the resale restrictions on these 14,285,714 common shares
detailed above, 6,714,286 of those shares, which are held by the
President and CEO, Robert Kim, are subject to an agreement where the
shares are held in escrow. Upon the first anniversary date of the
Company's listing on a public exchange or upon the board of directors
agreeing (whichever comes first), 10% are to be released to the
President and CEO. Every six months thereafter, 15% of the escrowed
shares are to be released until such time as all are released. The
President and CEO has full rights and ownership of the shares and is
only restricted as to when he can sell those shares as outlined above.
The shares are presently held by K-Tronik's trust and transfer agent,
Pacific Corporate Trust Company. ETIFF Holdings LLC's 7,571,428 shares
are also subject to the terms of this escrow.
There are 1,350,000 shares of common stock which are held by former
directors or officers of K-Tronik who ceased to be affiliates on
December 12, 2001. These shares were issued over two years ago and
would be available for sale under Rule 144 without volume sale restrictions.
There are 150,000 shares of common stock which are held by shareholders
of K-Tronik who are not and have not been affiliates of K-Tronik. These
shares were issued over two years ago and would be available for sale
under Rule 144 without volume sale restrictions.
No sales in reliance upon Rule 144 have been made to date.
Page 13
USE OF PROCEEDS
K-Tronik will not receive proceeds from the sale of shares held by
selling shareholders.
It is estimated that the expenses K-Tronik is incurring in completion of
this registration statement will be approximately $17,200 inclusive of
transfer agent fees, legal costs, audit and accounting fees, regulatory
fees and miscellaneous expenses.
Page 14
DETERMINATION OF OFFERING PRICE
There is no existing market for the securities of K-Tronik and, as a
result, it cannot be practicably determined what will be the offering
price selling shareholders sell their securities for.
DILUTION
As no shares of common stock are to be issued or sold from the treasury
of K-Tronik, no dilution will result from the offering under this
registration statement.
As of March 31, 2003, the last financial quarter end for K-Tronik,
the book value per share of our common stock was $0.04.
SELLING SECURITY HOLDERS
Selling shareholders will be offering a total of 8,288,172 shares
of common stock of K-Tronik, as follows. A number of the selling
shareholders are affiliates of K-Tronik and are designated in the list
as such.
Name of Amount Beneficially Amount Offered for Amount Beneficially Percentage
Selling Shareholder Owned Prior to Offering Selling Shareholder's Owned After Offering Ownership
Account After
Offering (5)
Jason Cassis 10,000 10,000 0 0.0%
Andrea Cassis 10,000 10,000 0 0.0%
Jason Tuff 10,000 10,000 0 0.0%
Lorna Seaton 10,000 10,000 0 0.0%
Shannon Crevits 10,000 10,000 0 0.0%
Serge Borys 4,000 4,000 0 0.0%
Brian Fiddler 2,000 2,000 0 0.0%
Tania Little 25,000 25,000 0 0.0%
Deborah Little 10,000 10,000 0 0.0%
Nicholas Galichenko 4,000 4,000 0 0.0%
Marilyn Marsel 5,000 5,000 0 0.0%
William Cole-Hamilton 2,000 2,000 0 0.0%
Jennifer Mitchell 2,000 2,000 0 0.0%
Stonewall Capital Corp. 35,000 35,000 0 0.0%
Christa Giles 2,000 2,000 0 0.0%
Philip Cassis (1) 450,000 450,000 0 0.0%
Christopher D. Farber(2) 450,000 450,000 0 0.0%
William J. Little (3) 450,000 450,000 0 0.0%
Blair Stearn 2,000 2,000 0 0.0%
Anne-Marie Stearn 2,000 2,000 0 0.0%
Patrick Sipos 500 500 0 0.0%
Liane Scott 500 500 0 0.0%
Bobby Varghese 1,000 1,000 0 0.0%
Louise Dewick 1,000 1,000 0 0.0%
Barry Dewick 1,000 1,000 0 0.0%
Dawn Farber 1,000 1,000 0 0.0%
ETIFF Holdings, LLC(4) 14,359,600 6,788,172 0 33.54%
TOTAL: 15,859,600 8,288,172 0 33.54%
(1) Philip Cassis is a former director and officer of K-Tronik. He
resigned on December 12, 2001 upon completion of K-Tronik's
acquisition of K-Tronik N.A. Inc. His shares were issued more than
two years ago.
(2) Christopher D. Farber is a former director and officer of K-Tronik.
He resigned on December 12, 2001 upon completion of K-Tronik's
acquisition of K-Tronik N.A. Inc. His shares were issued more than
two years ago.
(3) William J. Little is a former director and officer of K-Tronik. He
resigned on December 12, 2001 upon completion of K-Tronik's
acquisition of K-Tronik N.A. Inc. His shares were issued more than
two years ago.
(4) ETIFF Holdings, LLC is a wholly owned subsidiary of Eiger
Technology, Inc., a Toronto Stock Exchange listed company and
reporting issuer. Mr. Keith Attoe, director and officer of K-Tronik,
and Mr. Gerry Racicot, director of K-Tronik, are officers and
directors of Eiger Technology, Inc.
(5) Assumes issued and outstanding shares of common stock of 22,573,886
as at the date of this registration statement.
None of the 14,285,714 shares of common stock issued by K-Tronik to Mr.
Robert Kim and ETIFF Holdings, LLC, 6,714,286 and 7,571,428 shares
respectively, for the purchase of their shares in K-Tronik N.A. Inc. are
to be registered pursuant to this registration statement. These shares
of common stock not being registered represent 63.28% of the issued and
outstanding shares of common stock of K-Tronik.
Where ETIFF Holdings, LLC. sells shares in this offering, it is deemed
to be an underwriter for the purposes of this offering.
To the knowledge of K-Tronik, none of the selling stockholders are
broker-dealers or affiliates of broker-dealers.
Page 15
PLAN OF DISTRIBUTION
Registration under this Offering.
A total of 8,288,172 shares of common stock are to be registered for
selling stockholders, as set forth above.
No commissions or other fees will be paid, directly or indirectly, by K-
Tronik, or any of its principals to any person or firm in connection
with solicitation of sales of the shares. These securities are offered
by their holders subject to prior issue and to approval of certain legal
matters by counsel.
The selling stockholders may, from time to time, sell any or all of
their shares of common stock covered by this prospectus on any stock
exchange, market or trading facility on which the shares are then traded
or in private transactions at a price of $0.20 per share until our
shares are quoted on the Over the Counter Bulletin Board ("OTCBB") and
thereafter non-affiliate selling stockholders may sell at prevailing
market prices or privately negotiated prices. Affiliate selling
stockholders, namely ETIFF Holdings Inc., must sell at
$0.20 per share even if a market for the securities develops. ETIFF
Holdings In. acts as underwriter for any such offering of its shares.
We will pay the expense incurred to register the shares being offered by
the selling stockholders for resale, but the selling stockholders will
pay any underwriting discounts and brokerage commissions associated with
these sales. The commission or discount which may be received by any
member of the National Association of Securities Dealers, Inc. in
connection with these sales will not be greater than 8%. The selling
stockholders may use any one or more of the following methods when
selling shares:
(a) ordinary brokerage transactions and transactions in which the
broker-dealer solicits purchasers;
(b) privately negotiated transactions; and
(c) a combination of these methods of sale.
Page 16
In addition, any shares that qualify for sale under Rule 144 may be sold
under Rule 144 rather than through this prospectus.
If offering the shares covered by this prospectus, the selling
stockholders and any broker-dealers who execute sales for the selling
stockholders may be deemed to be an "underwriter" within the meaning of
the Securities Act in connection with such sales. Any profits realized
by the selling stockholders and the compensation of any broker-dealer
may be deemed to be underwriting discounts and commissions.
Selling stockholders may sell their shares in all 50 states in the U.S.
Each selling stockholder and any other person participating in a
distribution of securities will be subject to applicable provisions of
the Exchange Act and the rules and regulations thereunder, including,
without limitation, Regulation M, which may restrict certain activities
of, and limit the timing of purchases and sales of securities by,
selling stockholders and other persons participating in a distribution
of securities. Furthermore, under Regulation M, persons engaged in a
distribution of securities are prohibited from simultaneously engaging
in market making and certain other activities with respect to such
securities for a specified period of time prior to the commencement of
such distributions, subject to specified exceptions or exemptions. All
of the foregoing my affect the marketability of the securities offered hereby.
Any securities covered by this prospectus that qualify for sale pursuant
to Rule 144 under the Securities Act may be sold under that rule rather
than pursuant to this prospectus. There can be no assurance that the
selling stockholders will sell any or all of the shares of common stock
offered by them hereunder.
As the shares of common stock to be registered in connection with this
offering have already been issued and as legal services are provided to
K-Tronik by inside corporate counsel for its parent corporation, Eiger
Technology, Inc., the costs of the offering are limited.
Page 17
It is estimated that the following costs and expenses will be incurred
in connection with this offering:
Offering cost or expense Amount of Offering Cost or Expense
Transfer Agent fees $ 2,000
Legal expenses $ 2,500
Regulatory and filing fees $ 5,200
Audit and Accounting fees $27,500
Total Offering Costs and Expenses $37,200
These costs and expenses are expected to be covered by existing working
capital and cash flow from operations of K-Tronik and its subsidiaries.
Our common stock is deemed to be "penny stock" as that term is
Defined in Rule 3a51-1 promulgated under the Securities Exchange Act of
1934. Penny stocks are stocks:
- With a price of less than $5.00 per share;
- That are not traded on a "recognized" national exchange;
- Whose prices are not quoted on the Nasdaq automated quotation
system (Nasdaq listed stock must still have a price of not less
than $5.00 per share); or
- In issuers with net tangible assets less than $2.0 million (if
the issuer has been in continuous operation for at least three
years) or $5.0 million (if in continuous operation for less
than three years), or with average revenues of less than $6.0
million for the last three years.
Broker/dealers dealing in penny stocks are required to provide
potential investors with a document disclosing the risks of penny stocks.
Moreover, broker/dealers are required to determine whether an
investment in a penny stock is a suitable investment for a prospective
investor. These requirements may reduce the potential market for our common
stock by reducing the number of potential investors. This may make it more
difficult for investors in our common stock to sell shares to third parties or
to otherwise dispose of them. This could cause our stock price to decline.
Page 18
LEGAL PROCEEDINGS
Neither K-Tronik nor its subsidiaries, K-Tronik N.A. Inc. and K-Tronik
(Asia) Corporation, are party to any litigation and K-Tronik has no
knowledge of any threatened or pending litigation against it.
K-Tronik N.A. is a creditor in the bankruptcy of one of its customers.
Its claim is for $142,806. We believe we will collect $53,306 of
this amount in total with approximately $29,846 received to date and a
total of approximately $23,460 due in equal instalments December 1,
2003, December 1, 2004 and December 1, 2005. The amounts are paid
pursuant to Jademar Corp.'s court approved insolvency plan
(reclamation and payment plan).
The President of K-Tronik, Mr. Robert Kim, is a party to a lawsuit filed
March 2, 2002 in the Superior Court of New Jersey, Morris County Division,
(Ardrey Technical Services, Inc. v. Ardrey Tech LLC and Robert Kim et al:
Docket No. MRS-L-799-02) which has not yet proceeded to the deposition stage.
The plaintiffs in the suit are seeking to collect against a loan guarantee
which Mr. Kim and other parties provided to secure a $500,000 loan extended by
Ardry Technical Services, Inc. to Ardry Tech, LLC. The complainant is seeking
Monetary damages of $500,000 plus interest from Mr. Kim.
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS,AND CONTROL PERSONS
The following discussion contains disclosure concerning the directors,
officers and control persons of K-Tronik. There are no persons which
have acted as a promoter, controlling person, or significant employee
of K-Tronik other than as disclosed below.
Name Position Term of Office*1*2
Robert Kim President and Director Expires at next
shareholders meeting
Gerry Racicot Director Expires at next
shareholders meeting
Keith Attoe Director Expires at next
Shareholders meeting
Ken Edwards Chief Financial Officer *3
211 Fairview Place
Morris Plains, NJ
07950
J.K. Lee Corporate Secretary *2
7002 Boulevard East
Guttenberg, NJ
07093
Page 19
1. Directors, whether appointed at a meeting of stockholders or by the
remaining directors, are appointed until the next annual meeting of
stockholders. We expect to hold our next annual meeting of stockholders
sometime in the summer of 2003 at which time the directors' terms will expire.
2. The President, Secretary and Treasurer do not have a set term of
office. They serve at the pleasure of the Directors and can be
removed at any time by the Directors under the Articles and Bylaws
of K-Tronik.
3. Mr. Edwards was appointed in November of 2002 as both CFO of the Company
and CFO of its subsidiary, K-Tronik N.A. Inc.
Robert Kim, President, Treasurer and Director
Robert Kim, age 46, in addition to being President and Treasurer of K-
Tronik since December of 2001, has been President and CEO of K-Tronik
N.A. since March of 1998.
Gerry Racicot, Director
Gerry Racicot, age 52, in addition to being a director of K-Tronik
since December of 2001, has been director and President of Eiger
Technology, Inc. since 1994. Eiger Technology, Inc., of which K-
Tronik N.A. was an operating division until the closing of the K-
Tronik N.A. Agreement, is a manufacturer and distributor of a number
of products in the technology and commercial lighting industries.
Eiger Technology Inc. is listed for trading on the Toronto Stock
Exchange and has been since 1996. Since November of 2001, he has been
a director and President of Dawn Capital Corp., a blank check
reporting issuer as well as a director and Treasurer of Centro
Services Inc., a blank check reporting issuer. Gerry Raciot was, from
1988 to 2001, president of ADH Custom Metal Fabricator's Inc and Vision
Unlimited Equipment Inc., companies which manufacture and distribute
Various lighting and other products. ADH Custom Metal Fabricators Inc.
recently listed on the TSX Venture Exchange as "Newlook Industries Corp."
Keith Attoe, Director
Keith Attoe, age 52, in addition to being a director of K-Tronik, has
been director and CFO of Eiger Technology, Inc. since March of 1996.
Since November of 2001, he has been a director and Treasurer of Dawn
Capital Corp., a blank check reporting issuer as well as a director
and President of Centro Services Inc., a blank check reporting issuer.
Jang Kun Lee, Corporate Secretary
J.K Lee, age 31, has been accounting manager of K-Tronik N.A. Inc.
since September of 2001 and secretary of K-Tronik since December of
2001. Prior to that he was an accounting department manager with NARA
Travel Inc. from May 1997.
Ken Edwards, Chief Financial Officer
Ken Edwards, age 44, has been the Chief Financial Officer of K-Tronik
N.A. since November of 2002. Prior to that, he was a Senior Manager
with BDO Seidman, LLP from November 2000 to November 2002 and Chief
Financial Officer of Menudirect Corporation from December 1997 to
August 2000. Mr. Edwards is a CPA.
Robert Kim and J.K. Lee devote 100% of their time to the business of
K-Tronik. Keith Attoe and Gerry Racicot as non-management directors,
devote only approximately 10% of their time to K-Tronik. Ken Edwards
devotes approximately 25% of his time to the business of K-Tronik.
Each officer and director generally serves until the next annual
meeting of stockholders or until such time as he or she resigns. The
officers of K-Tronik are appointed at the pleasure of the board of
directors and may be removed at any time, subject to labour laws and
other constraints.
Each officer and director generally serves until the next annual
meeting of stockholders or until such time as he or she resigns.
The company does not have standing nominating or compensation
committees of the board of directors, or committees performing
similar functions. During the last fiscal year ended December 31, 2001,
the board of directors did not formally meet other than following the
last meeting of shareholders on December 19, 2001.
K-Tronik has appointed an audit committee comprised of Mr. Keith Attoe,
Mr. Gerry Racicot and Mr. Robert Kim, a majority of non-management
directors.
Page 20
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information regarding the beneficial
ownership of shares of K-Tronik's common stock as of
May 30, 2003, with 22,573,886 issued and outstanding, by (i) all stockholders
known to K-Tronik to be beneficial owners of more than 5% of the outstanding
common stock; and (ii) all directors and executive officers of K-Tronik, and as
a group.
On May 30, 2003, the Registrant had 22,573,886 shares of common
stock issued and outstanding. No additional shares of common stock
have been issued since that time to the date of this registration
statement.The following table sets forth certain information regarding
the beneficial ownership of the common stock of the Registrant as of
May 30, 2003 of (1) each person who is known to the Registrant to own
beneficially more than 5% of its outstanding common stock, (2) each of
its directors and officers, and (3) all of its directors and officers
as a group:
Name and Address Position Amount of Stock Percentage of
Beneficially Owned Class
ETIFF Holdings, LLC
(Eiger Technology, Inc.
subsidiary) 5% shareholder 14,359,600 63.61%
c/o Suite 602-330
Bay Street
Toronto, Ontario
M5H2S8
(see note 3 below
regarding beneficial
ownership of these
shares)
Robert Kim Director and
1360 Hamburg President,
TPK#704, Wayne NJ 5% shareholder 6,714,286 29.74%
07470
Ken Edwards Chief Financial Officer 0 0%
211 Fairview Place
Morris Plains, NJ
07950
Gerry Racicot Director (1) (1)
34691 Quaker St.
Box 1041
Norwich, Ont.
N0J1P0
Keith Attoe Director (2) (2)
38 Farnham Ave.
Toronto, Ontario
M4V1H4
J.K. Lee Corporate Secretary 0 0%
7002 Boulevard East
Guttenberg, NJ
07093
Directors, Officers
and 5% stockholders
in total (5 Persons) 21,073,886 93.36%
Page 21
1. No shares of common stock are registered in Gerry Racicot's name.
However, as well as being a director of the Registrant, he is a
Director and President of Eiger Technology Inc. which, through its
wholly owned subsidiary ETIFF Holdings, LLC, owns 14,359,600 shares
of common stock of the Registrant. As stated in the table above,
ETIFF holds a total of 63.61% of the issued and outstanding stock
of K-Tronik.
2. No shares of common stock are registered in Keith Attoe's name.
However, as well as being a director of the Registrant, he is a
Director of Eiger Technology, Inc. which, through its wholly owned
subsidiary ETIFF Holdings, LLC, owns 14,359,600 shares of common
stock of the Registrant. As stated in the table above, ETIFF holds
a total of 63.61% of the issued and outstanding stock of K-Tronik.
Mr. Keith Attoe is also an Officer of ETIFF.
3. Beneficial Ownership of Eiger Technology, Inc. and ETIFF Holdings, LLC
Keith Attoe beneficially owns 129,325 shares of common stock in Eiger
Technology, Inc. and Gerry Racicot owns 1,596,755 shares of Eiger Technology,
Inc. As such, Keith Attoe and Gerry Racicot, as a group, are presently
beneficial owners of 4.59% of the issued and outstanding shares of Eiger
Technology, Inc.
Keith Attoe is the holder of stock options to purchase an additional 1,100,000
shares of Eiger Technology, Inc. while Gerry Racicot is the holder of stock
options to purchase an additional 1,350,000 shares of Eiger Technology, Inc.
If both were to exercise all of their stock options, they would, as a group,
own 10.42% of the issued and outstanding shares of Eiger Technology, Inc.
As such, they would be the beneficial owners of the shares held by Eiger
Technology, Inc. through its wholly owned subsidiary, ETIFF Holdings, LLC.
Page 22
DESCRIPTION OF SECURITIES
General Description.
The securities being offered are shares of common stock. The authorized
capital of K-Tronik consists of 100,000,000 shares of common stock,
$0.00001 par value per share of which 22,573,886 shares of common stock
were issued and outstanding as of the date of this registration statement.
Each outstanding share of the common stock entitles the holder to one
vote, either in person or by proxy, on all matters that may be voted
upon by the owners thereof at meetings of the stockholders.
The holders of the common stock (i) have equal rights to dividends
from funds legally available therefore, when, and if, declared
by our the Board of Directors; (ii) are entitled to share ratably in
all of our assets available for distribution to the holders of the
common stock upon liquidation, dissolution or winding up of our
affairs; (iii) do not have preemptive, subscription or conversion
rights; and (iv) are entitled to one non-cumulative vote per share on
all matters on which stockholders may vote at all meetings of stockholders.
Non-Cumulative Voting.
The holders of shares of common stock of K-Tronik do not have cumulative
voting rights, which means that the holders of more than 50% of such
outstanding shares, voting for the election of directors, can elect all
of the directors to be elected, if they so choose. In such event, the
holders of the remaining shares will not be able to elect any of K-
Tronik's directors.
Dividends.
K-Tronik does not currently intend to pay cash dividends. K-Tronik's
proposed dividend policy is to make distributions of its revenues to its
stockholders when K-Tronik's board of directors deems such distributions
appropriate. Because K-Tronik does not intend to make cash
distributions, potential shareholders would need to sell their shares to
realize a return on their investment. There can be no assurances of the
projected values of the shares, nor can there be any guarantees of the
success of K-Tronik.
A distribution of revenues will be made only when, in the judgment of K-
Tronik's board of directors, it is in the best interest of K-Tronik's
stockholders to do so. The board of directors will review, among other
things, the investment quality and marketability of the securities
considered for distribution; the impact of a distribution of the
investee's securities on its customers, joint venture associates,
management contracts, other investors, financial institutions, and K-
Tronik's internal management, plus the tax consequences and the market
effects of an initial or broader distribution of such securities.
Possible Anti-Takeover Effects of Authorized but Unissued Stock.
K-Tronik's authorized but unissued capital stock consists of 77,426,114
shares of common stock. One effect of the existence of authorized but
unissued capital stock may be to enable the board of directors to render
more difficult or to discourage an attempt to obtain control of K-Tronik
by means of a merger, tender offer, proxy contest, or otherwise, and
thereby to protect the continuity of K-Tronik's management. If, in the
due exercise of its fiduciary obligations, for example, the board of
directors were to determine that a takeover proposal was not in K-
Tronik's best interests, such shares could be issued by the board of
directors without stockholder approval in one or more private placements
or other transactions that might prevent, or render more difficult or
costly, completion of the takeover transaction by diluting the voting or
other rights of the proposed acquirer or insurgent stockholder or
stockholder group, by creating a substantial voting block in
institutional or other hands that might undertake to support the
position of the incumbent board of directors, by effecting an
acquisition that might complicate or preclude the takeover, or otherwise.
Transfer Agent.
Because it is the trust and transfer agent of K-Tronik's parent, Eiger
Technology, Inc. K-Tronik has retained the services of Pacific Corporate
Trust Co., 625 Howe Street, Suite 830, Vancouver, British Columbia V6C
3B8, to act as transfer agent and registrar.
Page 23
INTEREST OF NAMED EXPERTS AND COUNSEL
No named expert or counsel was hired on a contingent basis, will receive
a direct or indirect interest in the small business issuer, or was a
promoter, underwriter, voting trustee, director, officer, or employee of
K-Tronik, save and except as disclosed below.
Christopher D. Farber is a former director and officer of K-Tronik and
is employed as inside legal counsel with K-Tronik's parent, Eiger
Technology, Inc. Christopher D. Farber is the registered owner of
450,000 common shares of K-Tronik. He is the sole shareholder of
Stonewall Capital Corp., a Canadian corporation which is the registered
shareholder of 35,000 common shares of K-Tronik.
The September 30, 2002 financial statements included in this Prospectus
and in the Registration Statement have been audited by BDO Seidman, LLP,
independent certified public accountants, to the extent and for the
period set forth in their report appearing elsewhere herein and in the
Registration Statement, and are included in reliance upon said report
given upon the authority of said firm as experts in auditing and
accounting.
The September 30, 2001 financial statements included in this Prospectus
and in the Registration Statement have been audited by Smolin, Lupin &
Co., PA, independent certified public accountants, to the extent and for
the period set forth in their report appearing elsewhere herein and in
the Registration Statement, and are included in reliance upon said
report given upon the authority of said firm as experts in auditing and
accounting.
The September 30, 2001 financial statements of K-Tronik's subsidiary,
K-Tronik (Asia), have been audited by BDO Daejoo Accounting
Corporation of Korea, independent certified public accountants, to the
extent and for the period set forth in their report appearing
elsewhere herein and in the Registration Statement, and are included
in reliance upon said report given upon the authority of said firm as
experts in auditing and accounting.
DISCLOSURE OF COMMISSION POSITION ON
INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
Save and except for Article IX of the Articles of Incorporation, attached
hereto, which provides that K-Tronik will indemnify directors against losses
from acts taken in the performance of their duties to K-Tronik, no statute,
charter provision, article, by-law, contract or other arrangement exists under
which any controlling persons, directors or officers of K-Tronik is insured or
indemnified in any manner against liability which he or she may incur acting in
his or her capacity as such.
The Articles and Bylaws of K-Tronik do not prohibit arrangement by K-
Tronik of indemnification insurance and allow K-Tronik to indemnify
directors and officers against loss or damage from such acts.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of K-Tronik
pursuant to K-Tronik's Articles or Bylaws, K-Tronik has been advised that in the
opinion of the US Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act of 1933 and is,
therefore, unenforceable.
Page 24
ORGANIZATION WITHIN LAST FIVE YEARS
The names of the officers and directors are disclosed elsewhere in this
Form SB-2. None of these individuals, in a capacity as a promoter, has
received anything of value from K-Tronik. No other persons act as or
have acted as promoters of K-Tronik.
The Share Purchase Agreement, which is the agreement by which we
acquired our operating subsidiary, K-Tronik N.A. Inc., is discussed in
Description of Business below. Under the terms of this agreement,
Robert Kim was issued shares of common stock by K-Tronik as was ETIFF
Holdings, LLC, a wholly owned subsidiary of our parent company, Eiger
Technology, Inc. Two of our directors, Gerry Racicot and Keith Attoe,
also serve as directors of Eiger Technology, Inc. As noted below, K-
Tronik was independent of both Robert Kim and Eiger Technology, Inc. at
the time of the negotiation of the Share Purchase Agreement and these
directors only joined our board upon closing of the Share Purchase
Agreement.
DESCRIPTION OF BUSINESS
Company History.
K-Tronik was incorporated in the State of Nevada on September 2, 1999,
under the name of "LMC Capital Corp.".
At its meeting of shareholders dated November 13, 2001, the
shareholders of LMC approved a name change of the corporation to "K-
Tronik International Corp.". The necessary documents have been filed
with the Secretary of State of Nevada to effect this name change and
this name change was confirmed by the Secretary of State of Nevada on
January 14, 2002.
K-Tronik N.A. was incorporated in the State of Nevada on March 17,
1998 under the name of "K-Troniks, Inc.". Its name was changed to "K-
Tronik Int'l Corporation" on August 7, 1998. K-Tronik N.A. was formed
by its former parent, Eiger Technology, Inc. and a predecessor
company, K-Tronik Industries Inc. Shares in K-Tronik N.A. were issued
to the two shareholders, Mr. Robert Kim in exchange for vending in the
assets of K-Tronik Industries, Inc. and Eiger Technology, Inc. in
exchange for financing K-Tronik. K-Tronik N.A. has one subsidiary, K-
Tronik (Asia) Corp., a Korean corporation incorporated on May 31,
1998, of which it owns 100%.
K-Tronik's registered office in the State of Nevada is 711 South Carson
Street Suite 4, Carson City, Nevada 89701. Its principal and corporate
head offices are at 290 Vincent Avenue, 3rd Floor, Hackensack, New Jersey
07601.
We became a reporting issuer under Section 12 of the Securities Exchange
Act of 1934 on September 28, 2000. As a reporting issuer, we are
required to file our financial statements on a quarterly and annual
basis on Forms 10QSB and 10KSB respectively on the EDGAR system
maintained by the Securities and Exchange Commission (www.sec.gov) . We
are also required to report periodic changes in our business and affairs
and distribute a management proxy circular in required form to our
shareholders prior to our annual shareholders' meeting. The public may
read and copy any materials filed with the SEC at the SEC's Public
Reference Room at 450 Fifth Street NW, Washington, DC 20549. The public
may obtain information on the operation of the Public Reference Room by
calling the SEC at 1-800-SEC-0330. The SEC maintains a website:
www.sec.gov and the EDGAR service where review of many documents filed
with the SEC may be done.
Page 25
General.
On November 29, 2001 we entered into an agreement (the "Share Purchase
Agreement"), to purchase all of the issued and outstanding shares of K-
Tronik N.A. from the two holders of these shares: Mr. Robert Kim (47%) and
ETIFF Holdings, LLC , a wholly owned subsidiary of Eiger Technology, Inc.,
a Toronto Stock Exchange listed company, (53%) by way of the issuance of
6,714,286 common shares to Robert Kim and 7,571,428 common shares to ETIFF
Holdings, LLC ("ETIFF"). The issuance of these shares reduced the
percentage of issued and outstanding shares held by the principals of LMC
Capital Corp., Philip Cassis, William J. Little and Christopher D. Farber,
from 11.11% each to approximately 2% each.
ETIFF and Robert Kim were arm's length parties from the company at the time
of negotiating the Share Purchase Agreement. No other parties acted as
intermediaries between the company, ETIFF and Robert Kim. No person or
persons received any compensation, including compensation in the form of
finders' fees or commissions, for negotiating the Share Purchase Agreement.
The number of shares to be issued to ETIFF and Robert Kim under the terms
of the Share Purchase Agreement were negotiated at arm's length to the company.
No formal valuation of the assets of K-Tronik N.A. was undertaken although
the management of the Company did perform due diligence on its business and
affairs prior to completing the Share Purchase Agreement transactions.
Prior to acquiring K-Tronik N.A., we were a blank check company.
As a condition of closing the Share Purchase Agreement, we entered into an
agreement (the "Debt Settlement Agreement") to settle the debts of K-Tronik
N.A. to its parent, ETIFF, in the amount of $3,788,172 by way of the
issuance to ETIFF of 3,788,172 of our common shares at a price of $1.00 of
debt principal for each common share issued.
As a condition of closing, ETIFF was granted the option, and exercised the
option, to purchase a total of 3,000,000 common shares of our outstanding
shares from a number of shareholders. ETIFF had sought, as part of the
Share Purchase Agreement, to purchase most of the issued and outstanding
shares of K-Tronik and paid a total of $30 for these shares. The shares
were held by Canadian resident shareholders and were originally issued in
reliance upon Regulation S. The shares were held by these shareholders for
a period greater than one year. The shares were, in K-Tronik's view,
transferred to ETIFF without need for registration under the Securities Act
of 1933 as ETIFF was not a member of the public. It was, and remains, the
largest shareholder of K-Tronik.
Upon closing, the former directors and officers of K-Tronik resigned. The
Directors were replaced by Mr. Keith Attoe, also Director and CFO of Eiger
Technology, Inc., Mr. Gerry Racicot, also Director and President of Eiger
Technology, Inc., and Mr. Robert Kim, also Director and President of K-
Tronik N.A. Mr. Robert Kim was appointed as President of the Registrant,
Mr. Keith Attoe as Treasurer and Mr. J.K. Lee, also controller of K-Tronik
N.A., as Secretary of the Registrant. Mr. Keith Attoe resigned as
Treasurer and was replaced by Robert Kim as Treasurer on June 6, 2002.
The closing of the Share Purchase Agreement occurred on December 12, 2001.
As a result of this closing, Eiger, through its subsidiary, ETIFF
Holdings, LLC, has a total of 14,359,600 shares of common stock of K-
Tronik. This represents 63.61% of the issued and outstanding shares
of common stock.
Page 26
As a result of this closing, Mr. Robert Kim, who was concurrently
appointed as Director and President, acquired 6,714,286 of the issued
and outstanding shares of common stock of K-Tronik.
Manufacturing, distribution and sales of our products
K-Tronik N.A. is an electronic ballast manufacturer. K-Tronik N.A. has
been in the business of designing, manufacturing and selling
electronic ballasts for the last six years and has key personnel who
have lighting ballast manufacturing experience of over ten years.
K-Tronik N.A. currently manufactures ballasts for the US, Canadian, Asian,
Latin-American and European markets although past sales have primarily
focused on the United States.
K-Tronik N.A. is particularly active with supplying Energy Services
Companies or ESCOs with ballast products used in generating energy savings
for customers' commercial and industrial buildings.
A "ballast" is a device in lighting systems that operates fluorescent
lights. The ballast provides the necessary starting voltages,
frequency and wattage to a fluorescent lights while limiting and
regulating the current during the light's operation. Without a
ballast, a fluorescent light would be destroyed immediately when
voltages were applied by switching it on. Many people recognize
ballasts as the "black boxes" in their fluorescent light fixtures at
home that are visible when they replace the fluorescent tubes.
Electronic ballasts use semi-conductor components to increase the
frequency of fluorescent light operation. The smaller inductive
components provide the light's current control. Fluorescent system
efficiency is increased due to high frequency light operation.
K-Tronik's N.A.'s main sales target is the niche market which other,
larger manufacturers find too small to accommodate and the design and
custom manufacture of specialty ballasts has been key to K-Tronik
N.A.'s acceptance in the lighting industry. Niche market products
represent ballasts that are assembled to meet specific customer
requests. An example of this would be assembling products for suntan
bed manufacturers' requests for ballasts that operate at high
temperatures and refrigeration unit manufacturers' requests for
ballasts that operate at low temperatures. Lighting manufacturers
often request ballasts that have dimming or other features. Such
orders may be too small for our competitors to want to fill. The primary
difference between these products is the electronic transformer they contain.
K-Tronik N.A. has an "MVP" multi-voltage product line which is designed to
cater to growing market demand for multi voltage electronic ballast products
and contain electronic transformers capable of functioning at variable
voltages. Multi-voltage products reduce "brownouts" which are becoming more
common not just in the US but worldwide. Multi-voltage ballasts have an end of
life protection function that allows the ballasts to identify when a
lamp's life is ending and stop the ballasts from sending full voltage
to that lamp. The lamp can be changed and the ballast will, with a
five second delay, automatically recognize there is a new lamp and
send full voltage to that lamp. Multi-voltage ballasts are useful
with "brownouts", which occur when there is a temporary decrease in
the electricity available in a power grid in a community, in that when
power returns they automatically relight. Other ballasts which are
not multi-voltage require a person to switch them off and then on
again before relighting lamps.
Page 27
Our ballasts and ballasts components are manufactured in our K-Tronik (Asia)
plant in South Korea or outsourced to manufacturers in China. Ballast
components are, effectively, commodities so the business failure of any one of
our suppliers, even one of our only two large suppliers, Fein Tech Company or
Dae Gyung Corp. of South Korea, which are transformer companies, would be
unlikely to affect us greatly. Their failure could, however, result in some
product delivery delays. This occurred when we began to source transformers
from Fein Tech Company in South Korea in the quarter ending December 31, 2002.
Fein Tech's deliveries to us were delayed, resulting in delays of our own
product deliveries and a temporary decrease in our sales revenues as a result.
We do not consider ourselves dependent on any suppliers other than those above.
Assembled and manufactured ballasts are then shipped to North America
or other markets for sale and distributed from our premises in
Hackensack, New Jersey to our end customers. When shipped to North
America, they are stored in our public warehouse facilities in New
Jersey and California.
We often grant credit, on an unsecured basis, to our distributors, end
customers and installers in the US. To reduce the risk of operating
this way, we purchase insurance, including Accounts Receivable Credit
Insurance so that some money is recoverable in the event of default
on payment.
We have centralized our sales and marketing functions at our head
office in Hackensack, New Jersey and our sales force is also
headquartered there.
Product Pricing
As electronic ballasts have become more of a commodity item in the lighting
industry over time, the prices for ballasts have dropped from $20.00 to $11.27
on average from 1993 to 2001, based on US Census figures for total ballast sales
and sales revenues. From October, 2001 to July, 2002, prices appear to have
further declined with the average price K-Tronik received for its ballasts over
this time falling to $9.61. The average price for K-Tronik's ballasts for the
twelve months prior to March 31, 2003 was $9.53, indicating some equilibrium has
been reached in market prices. The average price for ballasts for the quarter
ending June 30, 2003 was $9.49.
The result has been increasingly difficult competition, mergers and
closures in the ballast industry and attempts by companies to find low
labour cost jurisdictions, such as mainland China or Mexico, in which to
manufacture product.
Research and Product Development
In the 2001 financial year, we spent $1,365 on research and
development. In the 2002 financial year, we spent $4,903 on research
and development. Research and development costs are charged to
operations when incurred.
Environmental Regulations and Government Approvals
Our products are not adversely affected by environmental laws.
There is no government approval process for our ballasts and no
government approval of our products is required.
Page 28
Markets
The market for our ballasts is essentially split in two parts: the
market for original installations such as those in new buildings where
ballasts are purchased by original equipment manufacturers ("OEM"s)
and the market for replacement of existing ballasts to install energy
saving ballasts. This market is known as the "retrofit" market.
Distribution in the OEM market is effected by a large number of
distributors which typically will carry a whole range of lighting and
building products. Distribution in the retrofit market is effected by
energy saving companies ("ESCO"s) which will often be involved in the
analysis of a buildings or institution's potential cost savings from a
retrofit and which are often owned or operated by energy utilities.
There are two main types of ballast products: magnetic ballasts, which
rely on magnetic technology to carry and regulate current in lighting,
and electronic ballasts which rely on electronic transformers to carry
out the same functions.
There are many different types of magnetic and electronic ballasts,
each suiting individual customer needs which may vary according to
customer tolerance for energy consumption, EMI emissions and multi
voltage needs.
Estimating the size of the ballast market overall is difficult and it
varies from year to year with general economic growth, commercial and
residential real estate markets and other factors including some
"shocks" to the market such as the Department of Energy's requirement
for magnetic ballasts to be phased out by April 1, 2005 or the energy
difficulties of California in 2000-2001 which saw demand for
electronic ballasts increase.
In the year 2000, a total of 101,676,000 ballast were sold in the
United States. Of these ballasts sold, 55,118,000 were magnetic
ballasts and 46,558,000 were electronic ballasts (Source: US Census Bureau).
At this time, electronic ballasts account for approximately 46% of
ballast sales.
K-Tronik N.A. manufactures and distributes only electronic ballasts.
Market Trends and Analysis:
The market for ballasts has been shifting from magnetic to electronic
ballasts over the last 20 years.
The market is likely to further shift to electronic ballasts in the
future because of changing regulatory requirements regarding magnetic
ballasts' EMI emissions, reliability of electronic ballasts,
decreasing costs of electronic ballasts over time and electronic
ballasts' relative versatility. The number of electronic ballasts
sold has been increasing over time at a much greater growth rate than
the overall number of ballasts sold, which has been essentially flat
and has not shown significant growth as a industry (Source: US Census Bureau).
Page 29
The market for ballasts is experiencing significant changes which K-
Tronik N.A. hopes to exploit. The United States Federal Department of
Energy has mandated the elimination of magnetic ballasts in the
commercial and industrial new construction or renovation industry
because of perceived EMI emissions problems and because of energy
efficiency concerns, (Department of Energy news release dated October
15, 1999 at www.energy.gov/HQPress) by April 1, 2005. As a result,
electronic ballasts such as those manufactured by K-Tronik N.A. will
capture the entire ballast market and competitors which have typically
manufactured magnetic ballasts will be forced to introduce new
products or lose their market share.
Marketing Strategy:
K-Tronik's marketing strategy is characterized by the following:
Delivering niche products to customer groups: As a small
manufacturer, K-Tronik can deliver niche or specialty products which
it is uneconomical or unattractive for its larger competitors to deliver.
Exploiting market changes: As a manufacturer of electronic ballasts,
K-Tronik is likely to experience sales growth due to the banning of
magnetic ballasts by the US Department of Energy in 2005 in commercial
and industrial installations.
Building brand name recognition: With sales expanding since its
founding, K-Tronik N.A. is becoming more recognized in this industry
where brand name recognition is important to overall acceptance of
your products by customers. Sales are typically made to purchasing
agents who often base a buying decision on whether or not they
recognize and trust the manufacturer's name.
Focussing on ballasts with energy efficiency advantages: K-Tronik
N.A.'s ballasts, because they are electronic, are, in K-Tronik's view,
less susceptible to variations in power grid currents ("brownouts")
which have occurred in the United States and South America in recent
years. K-Tronik N.A. hopes to continue developing products which have
some superiority in this area and to exploit markets where this
competitive factor is key.
Focussing on relationships with ESCOs: the retrofit market has a
higher margin than the OEM market and, as a result, relationships with
ESCOs are crucial in building profitability.
As part of our strategy outlined above, we spent $71,674 and $111,129
on advertising for the fiscal years 2002 and 2001 respectively. Much
of this expense was targeted in developing ESCO relationships.
We do not have one dominant customer but rather sell to a large number of
companies, agents and distributors. For the year ended September 30, 2002, one
of our customers, Mercury Lighting Company Inc. of Fairfield, NJ accounted for
15% ($1,021,277) of our sales. For the six months ending March 31, 2003,
Mercury Lighting Company Inc. accouted for 12% ($365,091) of our sales and
another customer, Applied Energy Management Inc. of Stockbridge, MA accounted
for 12% of our sales ($373,714). No other single customer accounted for 10% or
more of our sales in the year ended September 30, 2002 or in the six months
ended March 31, 2003.
To date, almost all of our sales have been North American. We are,
however, trying to expand internationally.
Our domestic sales compared to international sales are summarized in the table
below:
For the six-months For the Year
Ending March 31, Ended September 30,
2003 2002 2002 2001
------------- ---------- ----------- ----------
Sales Revenues
United States $2,713,928 $3,087,167 $6,282,165 $6,167,462
Asia and other 392,809 60,328 455,554 513,160
------------ ---------- ---------- ---------
Total Sales $3,106,737 $3,147,495 $6,737,719 $6,680,622
========== ========== ========== ============
Page 30
As part of our attempt to increase international sales, in 1999 we entered into
an agreement with Jademar Corporation granting Jademar Corporation exclusive
distribution rights in a number of territories in South America and the
Caribbean in exchange for representing K-Tronik. Sales to Jademar were
$707,828 in the fiscal year ended September 2001, $671,796 in the fiscal year
ended September 2002. The Jademar agreement ended on December 31, 2002 but was
extended for a period of one year by way of letter agreement dated January 30,
2003. Failure to secure a further extension past January of 2004 could result
in decreased sales for K-Tronik. Jademar has had significant financial
difficulties in the past and any financial failure on its part could greatly
impact K-Tronik's financial results as it accounted for approximately 9.99% of
our sales in fiscal 2002.
The Jademar agreement called for Jademar to meet a sales quota of $1,000,000 in
the fiscal year ended September 2001, a sales quota of $1,500,000 in the fiscal
year ended September 2002 and a sales quota of $500,000 for the six months ended
June 30, 2003. Jademar has failed to meet any of these quotas.
Competitors
The chief competitors in the ballast industry are Advance, a division
of Philips, Magnetek and Osram, a division of Sylvania. Motorola was
also a competitor until 1999 when it sold its ballast manufacturing,
distribution and sales division to Osram.
In 2001, Advance had approximately 25% of the North American ballast
market, Magnetek had approximately 22.5% of the ballast market and
Osram had approximately 16.5% of the ballast market. SLI, a division
of Valmont Industries Inc., had approximately 13% of the market.
Energy Savings Inc. is also a competitor with 10% of the market in
2001. (Source: US Census Bureau).
K-Tronik N.A. has only 1% of the ballast market. Our name is not as
recognizable as our competitors nor do we have their sales volume.
This constitutes a competitive disadvantage for us as discussed below
in Competitive Factors in the Market.
It is possible but unlikely, because of the existing low margins and a
highly competitive atmosphere that additional competitors will enter
the ballast market. Barriers to entry are low compared to industries
which are capital intensive or rely upon intellectual property rights
in production. Many of the components in ballasts are commodities and
readily available to potential competitors.
Competitive Factors in the Market:
K-Tronik has a number of strengths and some weaknesses relating to the
competitive factors in the ballast manufacturing industry.
The main competitive factors in the ballast market are as follows:
- -brand name recognition or credibility
- -low cost production
- -quality and length of customer relationships
- -distribution, warehousing and shipping capabilities
- -new product development capability
- -quality and reliability of ballast products
- -relationships with Energy Saving Companies for industrial and
commercial energy savings retrofits
- -increasingly, ability to produce electronic rather than magnetic
ballasts
Page 31
Each of our competitors has strengths and weaknesses. Energy Savings
Inc. has only "plug in" ballast models that fit a minority of
fixtures. Most fixtures require lead wires, especially in industrial
and commercial fixtures. Advance does not have low cost overseas
production at this time although it has announced it is in the process
of developing such production in Mexico.
K-Tronik hopes to take advantage of low cost production in China. In a highly
competitive industry, this low cost production could be key to its long term
profitability and survival. We had planned to acquire Dae Gyung Corp. in
December of 2001 but difficulties in effecting the transfer of Dae Gyung Corp.'s
shares in Korea, because of foreign ownership rules, caused us to terminate the
acquisition. There are no plans to acquire Dae Gyung Corp. or any other
supplier at this time. In the event that another supplier was identified as an
acquisition candidate, there can be no certainty that K-Tronik will have the
necessary sources of cash funding to complete an acquisition or that the
supplier would accept equity in K-Tronik in lieu of such cash funding.
K-Tronik N.A. has begun to sell direct to consumers while its largest
competitors, because of established intercorporate relationships, must
often sell through distributors including internal distributorship
divisions or subsidiaries. This gives K-Tronik a chance to capture
the profits normally realized by those distributors or to reduce its
own costs relative to other manufacturers.
K-Tronik N.A. and K-Tronik (Asia) have an experienced Korean and
American engineering team to allow us to develop new products in
response to changes in the ballast market such as those which are
periodically created by regulatory changes or initiatives.
K-Tronik N.A., through its hiring of many former employees of
competitors, has developed long term relationships with many customers
and we have ourselves, through our own sales, built our long term
relationships. We are building name recognition through trade shows
and advertising in addition to our sales.
K-Tronik N.A. is actively attempting to expand its sales to Energy
Saving Companies and South American markets, growing segments which
its major competitors have not seemed to target and would like,
ideally, to acquire any available ESCOs which it may have the funds to
acquire. There are presently no agreements in place nor have there
been any negotiations to acquire an ESCO.
The ESCO ("Energy Saving Company") market may become particularly
important to us in the future. ESCOs perform energy usage audits and
evaluations to large companies, the US government, hospitals, school
systems and other groups.
Although there are some independents, most ESCOs are owned by large
utility companies. They typically will recommend upgrade of existing
ballasts to bring cost savings to their customers.
These ESCO companies continue to gain ballast market share annually
and have become a key base for ballast purchases. Approximately 50%
of buildings and institutions in the US have not yet retrofitted to
energy saving electronic ballasts (Market Studies Inc., North Carolina).
Page 32
Although we are pleased with our growth in the last six years, we are
still a minor player in the ballast industry. We do not have the
brand name recognition that Sylvania or Motorola have. We do not
have the strategic or ownership type business relationships with
distributors like our major competitors have. We do not have access
to the same financial resources that our largest competitors may have
through their parent companies although, in the past, our parent
company, Eiger Technology, Inc. has funded our working capital needs a
number of times. There can be no assurance Eiger Technology, Inc.
will continue to do so.
Proprietary Protection
(a) General.
K-Tronik N.A. does not presently have patent applications for its
product lines.
The "K-Tronik" name has been trademarked in the United States but not
in other jurisdictions.
(b) Pending Patents, Copyrights and Trade Secrets.
We do not have any plans to seek patent protection or copyright for any
other products or materials. It is unlikely that the process by which
we assemble and produce our ballast products would itself be patentable.
(b) Pending Trademark Applications.
K-Tronik has not applied for any additional trademarks and has no
current plans to apply for additional trademarks.
Management and Key Employees:
At this time, none of our employees are subject to collective bargaining
agreements.
The key employees of K-Tronik N.A., who also provide management and
other services to K-Tronik (Asia), include the following:
Mr. Robert Kim, President of K-Tronik and President of K-Tronik N.A.:
Robert Kim has a number of years of experience in the ballast industry
in sales and management roles.
Mr. John Andrews, Director of Sales and Operations of K-Tronik N.A.:
John Andrews joined K-Tronik N.A. in June of 1999. His
responsibilities include managing national sales, inventory
management, credit and collection and corporate marketing. John
Andrews was employed by LG Industrial Systems USA, a small ballast
manufacturer, from 1996 to 1999 as Director of Sales and Operations.
Page 33
K-Tronik N.A., on occasion, utilizes the services of engineering and
design consultants where its internal expertise is insufficient or
otherwise committed to other projects.
K-Tronik N.A. has a total of 9 employees and K-Tronik (Asia) has a
total of 28 employees. The majority of K-Tronik (Asia)'s 28 employees
are involved in production / manufacturing positions. A total of 5
employees, 2 in K-Tronik N.A. and 3 in K-Tronik (Asia), are involved
in Research and Development and Engineering positions. Mr. Robert Kim
is actively involved in management of K-Tronik (Asia). All of these
employees are full time.
The number of employees at K-Tronik (Asia) has been reduced over the
past two years in an effort to cut costs and as a result of
automation.
K-Tronik N.A., through hirings from industry competitors, has
attempted to build service, distribution and sales capability.
Hirings have come from Motorola, which ceased ballast production
operations in 1999, and from Magnetek, one of our major competitors.
We do not anticipate any hirings in the remainder of fiscal 2003.
Page 34
MANAGEMENT'S DISCUSSION ANDANALYSIS
The following discussion should be read in conjunction with the
financial statements of K-Tronik and notes thereto contained elsewhere
in this prospectus. Where figures are given, they do not materially
differ from those given in the financial statements filed under the
Securities Exchange Act of 1934.
Critical Accounting Policies
We believe that the estimates, assumptions and judgments involved in the
accounting policies described below have the greatest potential impact
on our financial statements, so we consider these to be our critical
accounting policies. Because of the uncertainty inherent in these
matters, actual results could differ from the estimates we used in
applying the critical accounting policies. Within the context of these
critical accounting policies, we are not currently aware of any
reasonably likely event that would result in materially different
amounts being reported.
(a) Fiscal Years Ended September 30, 2001 and September 30, 2002
Net Sales
We reported net sales of $6,738,000 for the 2002 period, an increase of
$57,000 or 1% from the $6,681,000 in sales reported for the 2001 period.
The small sales increase was mainly attributed to a volume increase of
direct sales to third parties by our subsidiary, K-Tronik (Asia) and an
overall increase in customers by our subsidiary, K-Tronik N.A. Inc.
which was offset by a decrease in sales prices. Sales for the majority
of ballast manufacturers in the US were negatively impacted by a slow
economy and stagnant market during the 2002 period.
Gross Profit
Our gross profit decreased to $1,439,000 in the 2002 period compared to
$1,587,000 in the 2001 period. This decrease was primarily attributed
to competitive sales price pressures resulting from the overall slow
down in the US economy and US markets, inventory write offs of $96,000
and the establishment of a reserve account for slow moving inventory of
$120,000 offset by increased sales volume. In an effort to maintain
monthly sales volume, manufacturers were forced to significantly
decrease sales prices. We anticipate that prices will remain stable
throughout the coming fiscal year 2003 at the 2002 year end levels
although our primary competitors have announced price increases. We
believe that the market will not support a price increase and we have
not increased our prices for 2003 but will instead continue to focus on
ways to minimize our costs.
Selling, General and Administrative expenses
Selling, General and Administrative expense was $2,020,670 in fiscal
2002 vs. $2,012,583 for fiscal 2001. The overall expenses remained
primarily the same as we implemented reductions in advertising,
marketing, consulting, travel and personnel expenses to offset increased
professional fees and salaries.
Operating Loss
The loss from operations increased to ($582,084) in the 2002 period from
($425,367) in the 2001 period. The increase in loss from operations is
directly related to the decrease in gross profit discussed above.
Interest and Other Expense
Interest and other expenses decreased to $228,434 for the 2002 period
from $248,249 for the 2001 period. The decrease was mainly attributed
to lower interest expense, no loss on sales of equipment in the 2002
period as compared to a loss of $9,423 in the 2001 period and other
income of $3,731 generated by K-Tronik (Asia) in the 2002 period.
Interest expense decreased to $232,165 in the 2002 period compared to
$238,826 in the 2001 period primarily due to the lower interest rate for
the 2002 period and decreased debt levels.
Net Loss
For the reasons stated above we incurred a net loss of ($810,518) for
the 2002 period as compared to ($683,509) for the prior period.
Page 35
Liquidity and Capital Resources
At September 30, 2002, we had working capital of $469,051, and cash and
cash equivalents of $294,484 as compared to working capital of
$1,225,582 and cash and cash equivalents of $95,600 at September 30,
2001. The decrease in working capital was primarily attributable to the
net loss in 2002.
Net cash provided by operating activities for the 2002 period was
$11,723 for the 2002 period as compared to net cash used in operating
activities of ($1,249,496) during the 2001 period. The positive net
cash provided by operating activities for the 2002 period as compared to
the 2001 period was primarily attributed to higher amortization and
depreciation, an increase in accounts payable and a decrease in
inventory. The prepaid expenses, security deposits, and accounts
receivables were the primary uses of operating cash in the 2002 period.
Net cash used in investing activities was $61,948 for the 2002 period as
compared to $74,594 for the 2001 period. Investing activities for the
2002 period included purchases of $61,148 of computer equipment and
patents and other intangible assets of $800. We have no significant
plans for equipment purchases in the fiscal year ending September 30, 2003.
Net cash provided by financing activities was $337,999 for the 2002
period as compared to $1,213,323 for the 2001 period. Financing
activities in the 2002 period included additional draw downs in the
Company's revolving credit lines totaling $259,007. The Company
received proceeds from its parent corp. and revolving credit lines of
$1,230,000 during the 2001 period.
As of September 30, 2002, we had credit facilities providing a maximum
borrowing of $2.1 million with asset-based lenders. At September 30, 2002
borrowings under these facilities were $1,685,618 as compared to $1,426,611 at
September 30, 2001. At September 30, 2002 the loans were classified as current
liabilities in the accompanying balance sheet because the credit facilities
matured in less than one year.
The total credit facilities of $2.1 million were with Business Alliance Capital
Corporation or BACC and with Woori Bank (Formerly Hanvit Bank) in Korea. The
BACC credit facility provided credit of up to $1,500,000 and the credit facility
with Woori Bank provided credit of up to $600,000.
The Woori Bank credit facility is secured by equipment, accounts receivables and
inventory. Interest, which was payable upon borrowing, was charged at an
adjustable rate, and was 7.02% per annum at September 30, 2002. The line of
credit was payable upon demand. The line of credit expired May 29, 2003 but
was renewed to May 29, 2004. The interest rate is the lenders' prime rate plus
3.01%.
The credit facility with BACC expired on June 30, 2003 and was not renewed. The
BACC loan agreement contained financial and non-financial covenants. The
Company was in violation of certain of the covenants as of December 31, 2002 and
2001. The Company obtained waivers from BACC on February 13, 2003 for the
violations and this waiver has been attached as an Exhibit.
Instead of renewing the BACC credit facility, we negotiated, on June 30, 2003, a
new credit facility with the Trust Company of New Jersey. The Trust Company of
New Jersey credit facility has a term of three years and is for $1,500,000. The
Company's parent, Eiger Technology, acts as guarantor of the credit facility and
the credit facility is secured by receivables and inventory. Interest is at the
lender's prime rate + 1.75%.
We believe, based upon current circumstances, the pledge of continued support
from our parent company, Eiger Technology, Inc. and the availability of the
credit facilities from Trust Company of New Jersey and the Woori Bank, that we
have adequate capital resources to support our operations to the end of fiscal
2003.
Future minimum annual rent payments under a non cancelable operating
lease, which expires March 31, 2004 are $61,000 and $27,000 for the
fiscal years ended September 30, 2003 and 2004, respectively.
Six months ended March 31, 2003 and March 31, 2002
(b) Results of Operation:
Six Months ended March 31, 2003 ("2003 period") Compared to Six Months Ended
March 31, 2002 ("2002 period").
Net Sales and Gross Profit
The Company reported net sales of $3,107,000 for the 2003 period, an
decrease of $40,000 or 1% from the $3,147,000 in sales reported for the 2002
period. The decrease in sales is attributed to slow sales in the first
quarter which resulted from a weak economy and changes in the Company's
production from in-house to outsourcing. The Company expects sales to
remain at or exceed its second quarter level for the remainder of the fiscal
year ended September 30, 2003.
Page 36
The Company's gross profit increased to $816,000 in the 2003 period compared
to $759,000 in the 2002 period as a result of lower amounts paid for
products purchased. In addition, the overall gross margin increased to 26%
for the 2003 period compared to 24% in the 2002 period. This increase was
primarily attributed to the new manufacturing arrangement whereby, certain
manufacturing previously performed by the Company is now being outsourced at
lower costs. This arrangement started in the Company's first quarter ended
December 31, 2002,and was more established during the 2003 period. The
Company anticipates that its margin will continue to improve through the end
of its fiscal year which ends September 30, 2003 as the new outsourcing
arrangement becomes fully implemented.
Selling, General and Administrative
Selling, general and administrative (SG&A) expenses increased to $1,024,000 in
the 2003 period, an increase of $136,000 or 15% from $888,000 reported in the
2002 period. The increase is primarily attributable to an increase in
provisions for severance and other benefits for K-Tronik (Asia) as it reduced
its employee work force, increased commissions and export expenses as K-Tronik
(Asia) increased its sales activity in the 2003 period. Wages and payroll
related costs also increased as a result of an increase in travel related
costs associated with overseas travel and increased professional, accounting
and legal fees.
Interest and Other Expenses
Interest and other expenses decreased to $102,000 for the 2003 period
compared to $109,000 in the 2002 period primarily due to a decrease in the
average amount borrowed and a lower interest rate associated with a low
prime rate of interest.
Net Loss
The Company reported a net loss attributable to common shareholders of
$(311,000) for the 2003 period as compared to net loss of $(237,000) for the
2002 period as a result of those items discussed above.
Liquidity and Capital Resources
At March 31, 2003, the Company had working capital of $176,000 and $49,000 in
cash and cash equivalents, a decrease of $294,000 from working capital at
September 30, 2002. A decrease in cash and cash equivalents of $245,000 was the
primary component of this decrease in working capital. The decrease in cash and
cash equivalents was primarily a result of the following: cash used for
operations was approximately $239,000 cash was used to reduce accounts payable
and accrued expenses by approximately $359,000 and to purchase capital assets of
approximately $70,000. The cash uses were partially offset by increases in
borrowings of $46,000 and net decreases in inventory and accounts receivables of
approximately $343,000.
Net cash used in operating activities for the 2003 period was $(238,000) as
compared to net cash used in operations of $(204,000) during the 2002
period. A decrease in inventories and prepaid expenses were the primary
sources of operating cash and the decrease in accounts payable and accrued
expenses and the increase in accounts receivables were the primary uses of
cash in the 2003 period.
Investing activities for the 2003 period included purchases of $61,000 of
computer equipment, machinery and equipment, tools and $9,000 related to
costs associated with intangible assets.
Financing activities in the 2003 period included proceeds from the Company's
revolving credit lines totaling $46,000.
The Company had two working capital credit facilities with asset-based lenders,
the Woori Bank of Korea and BACC. At March 31, 2003 borrowings under these
facilities was $1,732,000. At March 31, 2003, the loans were classified as
current in the accompanying balance sheet because the credit facilities matured
in less than one year.
The Woori Bank credit facility is secured by equipment, accounts receivables and
inventory. Interest, which was payable upon borrowing, was charged at an
adjustable rate, and was 7.02% per annum at September 30, 2002. The line of
credit was payable upon demand. The line of credit expired May 29, 2003 but
was renewed to May 29, 2004. The rate of interest is now the lenders' prime rate
plus 3.01%.
The credit facility with BACC expired on June 30, 2003 and was not renewed.
The BACC credity facility was replaced by a new credit facility with the Trust
Company of New Jersey providing for a credit facility of $1,500,000. This credit
facility was negotiated on June 30, 2003. The Trust Company of New Jersey
credit facility and has a term of three years. The Company's parent, Eiger
Technology, acts as guarantor of the credit facility and the credit facility is
secured by receivables and inventory. Interest is at the lender's prime rate +
1.75%.
Management believes, based upon current circumstances, its pledge of
continued support from its parent company and the avaliblity of its
credit facilities that expire through June 2003, that it
has adequate capital resources to support expected operating levels
for the next twelve months.
Any significant depreciation of the US dollar against the Korean Won in the
future could adversely affect our financial results, which are reported in
US dollars, as many of our costs are paid in Korean Won at the K-Tronik
(Asia) plant. Conversely, any significant appreciation of the US dollar
against the Korean Won in the future would favourably affect our financial
results.
Page 37
We have two large suppliers on which we may have some dependence: Fein Tech
Company and Dae Gyung Corp. of South Korea. If either were to experience a
business failure, this could result in some delays of delivery of products, and
therefore of our sales revenues. This occurred when we began to source
transformers from Fein Tech Company in South Korea in the quarter ending
December 31, 2002. Deliveries of Fein Tech Company transformers were delayed,
resulting in delays of our product deliveries and delays in our receipt of sales
revenues. We are not dependent on any suppliers other than those named above.
Forward-Looking Statements.
This prospectus contains "forward looking statements" including statements
regarding, among other items, K-Tronik's business strategies, continued growth
in K-Tronik's markets, projections, and anticipated trends in K-Tronik's
business and the industry in which it operates. The words "believe,"
"expect," "anticipate," "intends," "forecast," "project," and similar
expressions identify forward-looking statements. These forward-looking
statements are based largely on K-Tronik's expectations and are subject
to a number of risks and uncertainties, certain of which are beyond K-
Tronik's control. K-Tronik cautions that these statements are further
qualified by important factors that could cause actual results to differ
materially from those in the forward looking statements, including,
among others, the following: reduced or lack of increase in demand for
K-Tronik's products, competitive pricing pressures, changes in the
market price of ingredients used in K-Tronik's products and the level of
expenses incurred in K-Tronik's operations. In light of these risks and
uncertainties, there can be no assurance that the forward-looking
information contained herein will in fact transpire or prove to be
accurate. K-Tronik disclaims any intent or obligation to update
"forward looking statements."
K-Tronik issues penny stock as that term is defined by the Securities Exchange
Commission's rules and regulations. As a result, Section 27A(b)(1)(C) of the
Securities Act of 1933 and Section 21E(b)(1)(C) of the Securities Exchange Act
do not apply to statements made by our company.
Page 38
DESCRIPTION OF PROPERTY
K-Tronik (Asia) and K-Tronik N.A. do not have any physical property
other than their production and office equipment. K-Tronik (Asia)'s
plant in Korea is leased as is the office and warehousing space of K-
Tronik in New Jersey. K-Tronik (Asia)'s plant has a production
capacity of 100,000 ballast pieces per month. We believe that we have
adequate space for the foreseeable future.
K-Tronik N.A.'s lease of its premises in Hackensack New Jersey expires
on November 30, 2003. Under the terms of the lease of its 3,500
square foot premises, it pays monthly rent of $3,900.
K-Tronik (Asia)'s lease of its factory in South Korea expires on March
31, 2004. The monthly rent is $2,100.
We rent warehousing facilities on a month-to-month basis in New Jersey
and California.
The monthly lease rates for both facilities is based upon usage and
therefore fluctuates. However, the average monthly warehousing fee
for the California facility was $237.40 for the six month period
ended March 31, 2003 and $353.22 for fiscal year ending September 30,
2002. The average monthly warehousing fee for the New Jersey
facility was $2,838.10 for the six month period ended March 31, 2003
and $3,004.86 for the fiscal year ending September 30, 2002.
We do not anticipate that there will be difficulty in renewing our
lease of the Hackensack, New Jersey premises and do not anticipate
that the premises in Korea will require significant upgrading or
additional investment. K-Tronik has made significant investments in
equipment in the Korean factory premises in past fiscal years but does
not anticipate doing so in this fiscal year.
Page 39
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During the past two years, there have not been any transactions that
have occurred between K-Tronik and its officers, directors, and five
percent or greater shareholders, except as follows:
The Share Purchase Agreement described in Description of Business above
resulted in K-Tronik issuing to its president and director, Mr. Robert
Kim, 6,714,286 shares, 29.74% of the total issued and outstanding
shares, in exchange for his shares of K-Tronik's subsidiary, K-Tronik
N.A. Inc. The closing of the Share Purchase Agreement and the Debt
Settlement Agreement also resulted in the issuance of 14,359,600 shares,
63.61% of the total issued and outstanding common shares, to ETIFF
Holdings, LLC, a 100% wholly owned subsidiary of K-Tronik's parent,
Eiger Technology, Inc. Of the 14,359,600 shares issued to the ETIFF Holdings,
LLC, 3,788,172 were issued in settlement of 3,788,172 of debt which
K-Tronik's subsidiary, K-Tronik N.A. Inc., owed to ETIFF Holdings, LLC.
At the time of the negotiation of the Share Purchase Agreement and the
Debt Settlement Agreement, K-Tronik was not a related party of Robert
Kim and Eiger Technology, Inc. The terms of the Share Purchase
Agreement and the Debt Settlement Agreement were negotiated between K-
Tronik, Robert Kim and Eiger Technology, Inc.
The three founders of K-Tronik, William J. Little, Philip Cassis and
Christopher D. Farber, each purchased 5,000 shares from the company for
total consideration of $5.00. The shares were later split, on a 100 for
1 basis, so that these three founders each held 500,000 shares of K-Tronik.
In February of 2003, Mr. Ki-Seung, Vice President of K-Tronik's Korean
subsidiary, K-Tronik (Asia), lent K-Tronik (Asia) a total of $112,000. No
written agreement was made in connection with this loan. However, K-Tronik
(Asia) and Mr. Ki-Seung have agreed that the loan is non-interest bearing,
payable on demand and has no fixed date of repayment. To date, none of these
funds have been repaid by K-Tronik (Asia) to Mr. Ki-Seung.
Certain of the officers and directors of K-Tronik are engaged in other
businesses, either individually or through partnerships and corporations
in which they have an interest, hold an office, or serve on a board of
directors. As a result, certain conflicts of interest may arise between
K-Tronik and its officers and directors. K-Tronik will attempt to
resolve such conflicts of interest in favor of K-Tronik. The officers
and directors of K-Tronik are accountable to it and its shareholders as
fiduciaries, which requires that such officers and directors exercise
good faith and integrity in handling K-Tronik's affairs. A shareholder
may be able to institute legal action on behalf of K-Tronik or on behalf
of itself and other similarly situated shareholders to recover damages
or for other relief in cases of the resolution of conflicts is in any
manner prejudicial to K-Tronik.
Page 40
MARKET FOR COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS.
There is no market for the securities of K-Tronik at this time. K-
Tronik's securities are not traded on a recognized exchange or over-
the-counter trading system at this time.
There are no outstanding warrants or options to purchase shares of K-
Tronik's common stock at this time although the shareholders' meeting
held on November 12, 2001 approved an Incentive Stock Option Plan
which would allow us to grant up to 1,000,000 incentive stock options
to directors and employees at the board of directors' discretion.
As of the date of this prospectus, there were 44 shareholders of record
of K-Tronik's common stock holding a total of 22,573,886 shares of
common stock.
Of these 22,573,886 shares of common stock, a total of 8,288,172 shares
held by 43 persons are being registered under this registration statement.
A total of 14,285,714 shares of common stock are not being registered.
Of these 14,285,714 shares of common stock, 6,714,286 were issued to K-
Tronik's President and Director, Mr. Robert Kim, in consideration of his
sale to K-Tronik of his shares of K-Tronik's wholly owned subsidiary, K-
Tronik N.A. Inc.
A further 7,571,428 shares were issued to the ETIFF Holdings, LLC, a
wholly owned subsidiary of Eiger Technology, Inc. in consideration of
its sale to K-Tronik of its shares of K-Tronik's wholly owned
subsidiary, K-Tronik N.A. Inc. ETIFF Holdings, LLC owns an additional
6,788,172 shares of common stock which are being registered for resale
pursuant to this registration statement.
The 14,285,714 shares will not be available for sale in the open market
without separate registration except in reliance upon Rule 144 under the
Securities Act of 1933. In general, under Rule 144 a person, or persons
whose shares are aggregated, who has beneficially owned shares acquired
in a non-public transaction for at least one year, including persons who
may be deemed affiliates of K-Tronik would be entitled to sell within
any three-month period a number of shares that does not exceed the
greater of 1% of the then outstanding shares of common stock, or the
average weekly reported trading volume during the four calendar weeks
preceding such sale, provided that certain current public information is
then available. If a substantial number of the shares owned by these
shareholders were sold pursuant to Rule 144 or a registered offering,
the market price of the common stock could be adversely affected. The
14,285,714 shares of common stock were issued on December 12, 2001.
In addition to the resale restrictions on these shares detailed above,
the 6,714,286 shares held by Mr. Robert Kim are subject to an agreement
by which he agrees not to separately register the shares.
Dividend Information.
K-Tronik has not declared or paid a cash dividend to stockholders since
it was incorporated on September 2, 1999. The board of directors
presently intends to retain any earnings to finance company operations
and does not expect to authorize cash dividends in the foreseeable
future. Any payment of cash dividends in the future will depend upon K-
Tronik's earnings, capital requirements and other factors.
Page 41
EXECUTIVE COMPENSATION
Summary Compensation Table
Annual compensation Long-term Compensation
Awards Payouts
Name and Other Restricted Securities
principal annual stock underlying LTIP All other
position Year Salary Bonus compensation award(s) options/SARs payouts compensation
($) ($) ($) ($) (#) ($) ($)
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Robert Kim(2) 2001 $165,000 0 0 0 0 0 0
President 2002 $180,000 0 0 0 0 0 0
Treasurer &
Director
Keith Attoe 2001 0 0 0 0 0 0 0
Director 2002 0 0 0 0 0 0 0
Gerry Racicot 2001 0 0 0 0 0 0 0
Director 2002 0 0 0 0 0 0 0
J.K Lee(1) 2001 $ 11,000 0 0 0 0 0 0
Corporate 2002 $ 33,000 0 0 0 0 0 0
Secretary
Ken Edwards 2001 0 0 0 0 0 0 0
CFO 2002 0 0 0 0 0 0 0
(1) J.K. Lee is paid by K-Tronik's subsidiary, K-Tronik. As J.K. Lee
only joined K-Tronik N.A. in September of 2001, his salary figure
does not reflect his annual salary of $33,000. His salary has been increased
to $40,000 per annum effective October 1, 2002.
(2) Robert Kim is paid by K-Tronik's subsidiary, K-Tronik N.A., as is
Ken Edwards. His salary is $15,000 per month.
(3) Ken Edwards did not join K-Tronik until late in 2002. He is presently
compensated with a salary of $4,000 per month commencing November 1, 2002 and
did not receive any compensation in 2002.
K-Tronik, at its annual meeting of shareholders held on November 13,
2001, approved a stockholders' resolution to adopt a Stock Option
Plan. As a result, some or all of the persons named above may be
granted options in the future. To date, no options have been granted
or are contemplated to be granted nor has the plan been filed with the
SEC using the S8 Registration Statements procedure.
There is no known relationship between any of the Directors and
Control persons with major clients or providers of essential products
and technology, nor are there any known related transactions.
Save and except as detailed above, none of the officers and directors of
K-Tronik have received any compensation from K-Tronik. Save and except
as detailed above, none of these individual's total compensation under
these contracts, including special allowances or bonuses, will exceed
$100,000 this year. All officers and directors will be reimbursed for
expenses incurred on behalf of K-Tronik including director expenses
pertaining to attendance at meetings. It is anticipated that additional
management may be hired as K-Tronik develops and revenue is generated.
If such hirings occur, salaries paid to new employees will be consistent
with the salaries of others in similar positions in the industry.
There are no annuity, pension or retirement benefits proposed to be paid
to officers, directors, or employees of K-Tronik in the event of
retirement at normal retirement date as there is no existing plan
provided for or contributed to by K-Tronik.
Page 42
FINANCIAL STATEMENTS
With the completion of the acquisition of K-Tronik N.A. Inc. on December 12,
2001, K-Tronik's year end was changed to September 30. The Company has filed a
transitional 10KSB dated September 30, 2001 to reflect the change.
The stand alone audited financial statements for K-Tronik N.A. Inc. for the
period ended September 30, 2001 are referenced below as they are more material
to a reader's understanding of K-Tronik and its present financial situation and
history. K-Tronik, prior to the acquisition of K-Tronik N.A. Inc., was a blank
check company which had limited operations and activities which were not
material to its financial affairs when consolidated with K-Tronik N.A. Inc.
F-1
K-TRONIK INTERNATIONAL CORPORATION
(Formerly LMC CAPITAL CORP.)
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
Index to Consolidated Financial Statements F-1
Reports of Independent Certified Public Accountants F-2 - F-4
Consolidated Balance sheets, March 31, 2003 (unaudited)
And September 30, 2002 F-5
Consolidated Statements of operations and
Comprehensive loss for the six months ended March
31, 2003 and 2002 (unaudited) and for the years ended
September 30, 2002 and 2001 F-6
Consolidated Statements of changes in stockholders'
equity (deficit) for the six months ended March
31, 2003 (unaudited) and for the years ended
September 30, 2002 and 2001 F-7
Consolidated Statements of cash flows for the six
months ended March 31, 2003 and 2002 (unaudited) and
for the Years ended September 30, 2002 and 2001 F-8
Notes to consolidated financial statements F-9 - F-17
F-2
Report of Independent Certified Public Accountants
Board of Directors
K-Tronik International Corporation
Hackensack, New Jersey
We have audited the accompanying consolidated balance sheet of K-Tronik
International Corporation as of September 30, 2002 and the related consolidated
statements of operations and comprehensive loss, stockholders' equity (deficit),
and cash flows for the year then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of K-Tronik
International Corporation at September 30, 2002, and the results of its
operations and its cash flows for the year then ended in conformity with
accounting principles generally accepted in the United States of America.
BDO Seidman, LLP
Woodbridge, New Jersey
November 7, 2002
F-3
Report of Independent Certified Public Accountants
Board of Directors
K-Tronik Int'l Corporation
290 Vincent Avenue
Hackensack, New Jersey 07601
We have audited the accompanying consolidated statements of operations and
comprehensive loss, stockholders' equity (deficiency) and cash flows for the
year ended September 30, 2001 of K-Tronik International Corporation. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audit. We did not audit the financial
statements of K-Tronik Asia Corporation, a majority owned subsidiary, which
statements reflect total revenues of approximately $5,843,000 for the year ended
September 30, 2001. Those statements were audited by other auditors whose
report has been furnished to us, and our opinion, insofar as it relates to
amounts included for K-Tronik Asia Corporation, is based solely on the
report of the other auditors.
We conducted our audit in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit and the report of other auditors provide a reasonable
basis for our opinion.
In our opinion, based on our audit and the report of other auditors, the
consolidated financial statements referred to in the first paragraph present
fairly, in all material respects, the results of operations, cash flows, and
changes in stockholders' equity (deficiency) for the year ended September 30,
2001 of K-Tronik International Corporation in conformity with accounting
principles generally accepted in the United States of America.
As described in Note 15, the 2001 consolidated financial statements have been
restated as of November 7, 2002 as a result of an error in a prior periods
pertaining to recording minority interest.
Smolin, Lupin & Co., P.A.
Fairfield, New Jersey
November 30, 2001, except for Note 15
and the last paragraph above as to which
the date is November 7, 2002
F-4
BDO
Daejoo Accounting Corporation
629 Daechi-dong Kangnam-ku Seoul
Accountants & Consultants
135-280 Korea Tel: 82-2-2263-2868
A member of BDO International
Fax: 82-2-501-0470
Report of Independent Certified Public Accountants
The Board of Directors
K-Tronik Asia Corp.
We have audited the accompanying statements of operations and accumulated
deficit, stockholders' equity (deficit), and cash flows for the year ended
September 30, 2001 of K-Tronik Asia Corp.(not presented herein). These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the results of K-Tronik Asia Corp.'s operations and its
cash flows for the year ended September 30, 2001, in conformity with accounting
principles generally accepted in the United States of America.
BDO International
Seoul, Korea
November 18, 2001
F-5
K-TRONIK INTERNATIONAL CORP.
(Formerly LMC CAPITAL CORP.)
Consolidated Balance Sheets
March 31, September 30,
2003 2002
------------------------
(Unaudited)
ASSETS
Current Assets:
Cash and cash equivalents $ 49,435 $ 294,484
Accounts receivable net of allowance
$35,000, $18,884 1,618,522 1,466,753
Inventories 1,189,397 1,684,007
Prepaid expenses 139,247 .. 158,736
Total current assets 2,996,601 3,603,980
--------- ---------
Property and equipment, net of accumulated
depreciation of $405,338 and $342,186 403,719 405,581
Security deposits and other 78,567 77,022
Intangible assets, net of accumulated
amortization of $56,164 and $48,019 115,400 114,889
--------- ---------
Total Assets $ 3,594,287 $ 4,201,472
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Notes payable $ 1,731,710 $ 1,685,618
Accounts payable 947,375 1,359,227
Accrued expenses 142,230 90,084
Total Current Liabilities 2,821,315 3,134,929
--------- ---------
Commitments
Stockholders' Equity:
Common stock, $.00001 par value 100,000,000
authorized shares 22,573,886 issued and outstanding 226 226
Additional paid-in capital 5,020,108 5,020,108
Retained deficit (4,034,724) (3,724,139)
Accumulated comprehensive loss, foreign currency
translation adjustment (212,638) (229,652)
Total stockholders' equity 772,972 1,066,543
------ --------
Total liabilities and stockholders' equity $ 3,594,287 $ 4,201,472
=========== ===========
See accompanying notes to consolidated financial statements.
F-6
K-TRONIK INTERNATIONAL CORP.
(Formerly LMC CAPITAL CORP.)
Consolidated Statements of Operations and Comprehensive Loss
Six Months Ended For the Year Ended
March 31, September 30,
2003 2002 2002 2001
---- ---- ---- ----
(Unaudited) (Unaudited) (Restated)
Net Revenues $ 3,106,737 $ 3,147,495 $ 6,737,719 $6,680,622
Cost of revenues 2,290,784 2,388,125 5,299,133 5,093,406
Gross profit 815,953 759,370 1,438,586 1,587,216
------- ------- --------- ---------
Selling, general and
administrative
expenses 1,024,337 887,701 2,020,670 2,012,583
Loss from operations (208,384) (128,331) (582,084) (425,367)
--------- --------- --------- ---------
Other income (expenses)
Interest expense (102,542) (109,132) (232,165) (238,826)
Other income 341 345 3,731 -
Loss on Sales of
Equipment - - - (9,423)
Total other
income (expenses) (102,201) (108,787) (228,434) (248,249)
-------- -------- -------- --------
Loss before
income taxes (310,585) (237,118) (810,518) (673,616)
-------- -------- -------- --------
Income taxes - - - 9,893
Net loss (310,585) (237,118) (810,518) (683,509)
--------- --------- --------- ---------
Foreign currency
translation adjustment 17,014 (17,340) (88,890) (91,218)
------ ------- ------- -------
Comprehensive loss $ (293,571) $ (254,458) $ (899,408) $ (774,727)
========== ========== ========== ==========
Basic and diluted
net loss per share $ (0.01) $ (0.01) $ (0.04) $ (0.05)
======= ======= ======= =======
Weighted average
number of common
shares outstanding 22,573,866 19,330,678 22,573,886 14,285,714
========== ========== ========== ==========
See notes to consolidated financial statements.
F-7
K-TRONIK INTERNATIONAL CORP.
(Formerly LMC CAPITAL CORP.)
Consolidated Statement of Changes in Stockholders' Equity (Deficit)
Total
Additional Accumulated Stockholders'
Paid-in Retained Comprehensive Equity
Shares Amount Capital Deficit Loss (Deficit)
Balance at September 30, 2000
(Restated) 25,000 $ 100,000 $ 1,053,162 $ (2,237,087) $ (49,544) $(1,133,469)
Net loss for the year - - (683,509) - (683,509)
Foreign currency
translation adjustment - - - (91,218) (91,218)
Balance at September 30,
2001 (Restated) 25,000 100,000 1,053,162 (2,920,596) (140,762) (1,908,196)
------ ------- --------- ----------- --------- ----------
Conversion of parent
company debt to equity 3,788,172 3,788,172 - - - 3,788,172
Recapitalization as a result
of reverse merger 18,760,714 (3,887,946) 3,966,946 6,975 - 85,975
Net loss for the year - - (810,518) - (810,518)
Foreign currency translation
adjustment - - - (88,890) (88,890)
Balance at September 30, 2002 22,573,886 $ 226 $5,020,108 $(3,724,139) $(229,652) $ 1,066,543
---------- ----- ---------- ------------ ---------- ------------
Net loss for the six months
ended March 31, 2003 (Unaudited) - - - (310,585) (310,585)
Foreign currency translation
adjustment - - - - 17,014 17,014
Balance at March 31, 2003
(Unaudited) 22,573,886 $ 226 $5,020,108 $(4,034,724) $(212,638) $ 772,972
---------- ----- ---------- ------------ ---------- ---------
See accompanying notes to consolidated financial statements.
F-8
K-TRONIK INTERNATIONAL CORP.
(Formerly LMC CAPITAL CORP.)
Consolidated Statements of Cash Flows
Six Months Ended For the Year Ended
March 31, September 30,
2003 2002 2002 2001
---- ---- ---- ----
(Unaudited) (Unaudited) (Restated)
Net loss $ (310,585) $ (237,118) $ (810,518) $ (683,509)
Adjustments to
reconcile net loss
to net cash provided
by (used in) operating
activities
Amortization and
depreciation 71,297 73,060 148,814 147,097
Reserve for inventory
obsolescence (10,000 - 120,000 -
Bad debt expense 10,000 - 5,660 54,494
Loss on sale of
equipment - - - 9,423
Change in operating
assets and liabilities
Accounts receivable (161,769) 27,999 (108,800) (456,901)
Inventories 504,610 178,085 591,254 (876,099)
Prepaid expenses 19,489 20,022 (7,307) 27,735
Security deposits
and other (1,545) (10,714) (22,981) (11,842)
Accounts payable and
accrued expenses (359,706) (255,208) 95,601 540,106
Net cash proved by
(used in) operating
activities (238,209) (203,874) 11,723 (1,249,496)
--------- --------- ------ -----------
Cash flows from
investing activities
Sales of equipment - - - 68,856
Purchase of equipment (61,290) (1,588) (61,148) (132,048)
Patents and intangible
assets (8,656) (800) (800) (11,402)
Net cash used in
investing activities (69,946) (2,388) (61,948) (74,594)
-------- ------- -------- --------
Cash flows from
financing activities
Proceeds (payments)
from notes payable (46,092) 156,978 259,007 (16,677)
Proceeds from loan
payable-parent - 78,992 78,992 1,230,000
Net cash provided by
(used in) financing
activities (46,092) 235,970 337,999 1,213,323
-------- ------- ------- ---------
Effect of exchange rate
changes 17,014 (17,340) (88,890) (91,218)
------ -------- -------- --------
Net increase (decrease)
in cash and cash
equivalents (245,049) 12,368 198,884 (201,985)
--------- ------ ------- ---------
Cash and cash equivalents
at beginning of year 294,484 95,600 95,600 297,585
Cash and cash equivalents
at end of year $ 49,435 $ 107,968 $ 294,484 $ 95,600
-------- --------- --------- --------
See notes to consolidated financial statements.
F-9
K-TRONIK INTERNATIONAL CORP.
(Formerly LMC CAPITAL CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2002 AND 2001 AUDITED
INFORMATION FOR THE SIX MONTH PERIOD ENDED
MARCH 31, 2003 AND 2002 IS UNAUDITED
NOTE 1 - Summary Of Significant Accounting Policies:
Nature of Business and Basis of Presentation
The Company was incorporated on September 2, 1999 in the State of Nevada as LMC
Capital Corp. and was organized for the purpose of creating a corporate vehicle
to locate and acquire an operating business. On December 12, 2001 the Company
changed its name to K-Tronik International Corp. ("KTI" or the "Company").
By agreement dated November 29, 2001 and approved by the board of directors
effective December 12, 2001, KTI issued 14,285,714 shares of restricted common
stock to the shareholders of K-Tronik Int'l Corporation, a Nevada corporation,
in exchange for 100% of the issued and outstanding shares of K-Tronik Int'l
Corporation which, at the time of the transaction, owned a 100% interest in
K-Tronik Asia Corporation ("KTA"), a Korean corporation. In connection with
this transaction, K-Tronik Int'l Corporation changed its name effective December
12, 2001 to K-Tronik N.A. Inc. ("KTNA").
The acquisition resulted in the former shareholders of KTNA acquiring 93.4% of
the outstanding shares of the KTI and has been accounted for as a reverse
acquisition with KTNA being treated as the accounting parent and KTI, the legal
parent, being treated as the accounting subsidiary. Accordingly, the
consolidated results of operations of the Company include those of KTNA for all
periods shown and those of the KTI since the date of the reverse acquisition.
The Company is engaged in the manufacture and distribution of various types of
electronic stabilizers and illuminator ballasts for fluorescent lighting
fixtures. The Company grants credit, on an unsecured basis, to distributors and
installers located throughout the United States.
Method of Accounting
The financial statements have been prepared on the basis of accounting
principles generally accepted in the United States of America.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of KTI,
KTNA and KTA as described above and in Note 2. All material intercompany
balances and transactions have been eliminated in consolidation.
Unaudited Interim Financial Statements
F-10
K-TRONIK INTERNATIONAL CORP.
(Formerly LMC CAPITAL CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The accompanying unaudited interim consolidated financial statements have been
prepared in accordance with accounting principles generally accepted in the
United States of America for interim financial information and with the
instructions of Regulation S-B. They do not include all information and
footnotes required by accounting principles generally accepted in the United
States of America for complete financial statements. The interim unaudited
consolidated financial statements should be read in conjunction with the
financial statements for the year ended September 30, 2002 included herein. In
the opinion of management, all adjustments considered necessary for a fair
presentation, consisting solely of normal recurring adjustments, have been made.
Operating results for the six months ended March 31, 2003 are not necessarily
indicative of the results that may be expected for the year ending September 30,
2003.
Cash and Cash Equivalents
The Company considers all highly liquid investments with an initial maturity
date of three months or less and money market accounts to be cash equivalents.
Inventories
Inventories are stated at the lower of cost or market, determined by the moving
weighted average method. An allowance has been provided for obsolescence.
Property and Equipment
Property and equipment are stated at cost less accumulated depreciation.
Depreciation of property and equipment is computed using the straight-line and
accelerated methods over their estimated useful lives that range from three to
five years. Repairs and maintenance are charged to expense as incurred.
Patent and Other Intangibles
Patent and other intangibles are recorded at cost and amortized over their
estimated useful lives which range from five-to-ten years.
Research and Development Costs
Research and development costs are charged to operations when incurred. Research
and development expense totaled $4,903, $1,365, $4,062 and $0 for the years
ending September 30, 2002 and 2001 and for the six-month periods ending March
31, 2003 and 2002, respectively.
Revenue Recognition
Sales to customers are FOB shipping point. As a result the Company recognizes
sales when products are shipped. The Company establishes an allowance for
doubtful accounts based upon factors surrounding the credit risk of our
customers, historical trends, and other information.
F-11
K-TRONIK INTERNATIONAL CORP.
(Formerly LMC CAPITAL CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Foreign Currency Translation
Assets and liabilities of the Company's foreign subsidiary, KTA, are translated
at the rate of exchange in effect at the end of the period. Net sales and
expenses are translated at the average rate of exchange for the period.
Translation adjustments are reflected as a separate component of stockholders'
equity.
Advertising Costs
The Company records advertising costs in accordance with SOP 93-7. Advertising
costs of $71,674, $111,129, $16,778 and 28,753 were recognized as expense for
years ended September 30, 2002 and 2001 and for the six-month periods ending
March 31, 2003 and 2002, respectively.
Use of Estimates
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Long-Lived Assets
The carrying values of long-lived assets are periodically reviewed by management
and impairments would be recognized if the expected future operating
non-discounted cash flows derived from an asset were less than carrying value.
No impairments have been recorded through March 31, 2003.
Fair Value of Financial Instruments
Financial instruments reported in the Company's consolidated balance sheet
consist of cash, accounts receivable, prepaid expenses, accounts payable, notes
payable and accrued expenses, the carrying value of which approximate fair value
due to the current maturity of these items.
Earnings Per Share
The Company accounts for earnings per share under the provisions of Statement of
Financial Accounting Standards (SFAS) No. 128, Earnings Per Share, which
requires a dual presentation of basic and diluted earnings per share. Basic
earnings per share
excludes dilution and is computed by dividing income available to common
stockholders by the weighted average number of common shares outstanding for the
period. Diluted earnings per share is computed assuming the conversion of
convertible preferred stock and the exercise or conversion of common stock
equivalent shares, if dilutive, consisting of unissued shares under options and
warrants. Basic and diluted losses are the same as no options, warrants or
convertible preferred stock have been issued.
F-12
K-TRONIK INTERNATIONAL CORP.
(Formerly LMC CAPITAL CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Stock Based Compensation
The Company follows SFAS No. 123, Accounting for Stock-Based Compensation. It
chose to apply Accounting Principle Board Opinion 25 and related interpretations
in accounting for stock options granted to its employees. No options have been
granted to date.
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to credit risk
consist principally of trade receivables. The Company extends credit to a
substantial number of its customers and performs ongoing credit evaluations of
those customers financial condition while, generally requiring no collateral.
Income Taxes
The Company accounts for income taxes under the provisions of SFAS No. 109,
"Accounting for Income Taxes." Deferred income tax assets and liabilities are
recognized for differences between
the financial statement and income tax basis of assets and liabilities based
upon statutory rates enacted for future periods. Valuation allowances are
established when necessary to reduce deferred tax assets to the amount expected
to be realized.
New Accounting Pronouncements
In July 2001, SFAS No. 141, Business Combinations and SFAS No. 142, Goodwill and
Other Intangible Assets were issued. SFAS 141 requires the use of he purchase
method of accounting and prohibits the use of the pooling-of-interests method of
accounting for business combinations initiated after June 30, 2001. SFAS 142
addresses financial accounting and reporting for acquired goodwill and other
intangible assets. SFAS 142 requires, among other things, that companies no
longer amortize goodwill, but instead test goodwill for impairment at least
annually. SFAS 142 is required to be applied for fiscal years beginning after
December 15, 2001. The Company has not recorded any goodwill and will assess
how the adoption of SFAS 141 and SFAS 142 will impact its financial positions
and results of operations in any future acquisitions.
In August 2001, SFAS No. 144, Accounting for the Impairment or Disposal of
Long-Lived Assets was issued. The new guidance resolves significant
implementation issues related to SFAS No. 121, but it retains its fundamental
provisions. It also amends Accounting Research Bulletin No. 51, Consolidated
Financial Statements, to eliminate the exception to consolidate a subsidiary for
which control is likely to be temporary. SFAS 144 retains the requirement of
SFAS 121 to recognize an impairment loss only if the carrying amount of a
long-lived asset within the scope of SFAS 144 is not recoverable from its
undiscounted cash flows an exceeds its fair value.
At this time the adoption of SFAS No. 141, 142 and 144 have had no effect on the
Company's financial statements.
F-13
K-TRONIK INTERNATIONAL CORP.
(Formerly LMC CAPITAL CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - Acquisition:
By agreement dated November 29, 2001 and approved by the board of directors
effective December 12, 2001, KTI acquired 100 % of the issued and outstanding
shares of KTNA, which included KTNA's wholly-owned subsidiary KTA, in exchange
for 14,285,714 shares of restricted common stock of KTI. As a condition of this
acquisition, KTI also issued 3,788,172 shares of restricted common stock to
ETIFF Holdings Inc. ("ETIFF") in settlement of $3,788,172 owed to ETIFF by KTNA.
ETIFF, a wholly owned subsidiary of Eiger Technologies, Inc. ("Eiger"), a
Toronto Stock Exchange listed company, owned 53% of the issued and outstanding
shares of KTNA. Also in connection with this transaction, Eiger was granted and
exercised an option to acquire an additional 3,000,000 shares of KTI from the
original shareholders of KTI. As a result of these transactions, the former
shareholders of KTNA own 93.4% of KTI representing 21,073,886 of the 22,573,886
total issued and outstanding shares of KTI.
This acquisition has been accounted for as a recapitalization using accounting
principles applicable to reverse acquisitions with KTNA being treated as the
accounting parent (acquirer) and KTI being treated as the accounting subsidiary
(acquired). The value assigned to the capital
stock of consolidated KTI on acquisition of KTNA is equal to the book value of
the capital stock of KTNA plus the book value of the net assets of KTI as at the
date of the acquisition.
The carrying value of KTI's capital stock as December 12, 2001, after giving
effect to the reverse acquisition and the ETIFF debt settlement is calculated as
follows:
KTNA capital stock $ 100,000
KTNA additional paid in capital 1,132,162
Settlement of amounts due to ETIFF 3,788,172
------------
KTI capital stock, September 30, 2002 $ 5,020,334
============
The components of KTI capital stock are made up as follows:
Capital stock (22,573,886 common shares issued and outstanding) $ 226
Additional paid-in capital 5,020,108
------------
$ 5,020,334
============
F-14
K-TRONIK INTERNATIONAL CORP.
(Formerly LMC CAPITAL CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 - Investment in K-Tronik Asia Corporation:
As at September 30, 2001, KTNA had an 86.66% ownership interest in KTA. On
December 4, 2001, Eiger acquired the additional 17,199 shares (13.34%) of KTA
for $79,000. Eiger then transferred the 17,199 shares to KTNA in exchange for
$79,000 which was assigned to ETIFF by Eiger and settled in connection with the
amounts due to ETIFF as described in Notes 2 and 8. As a result of this
transaction, KTNA owns 100% of KTA and the fixed assets of KTA were stepped-up
by the acquisition price of $79,000.
The functional currency of Asia is the Korean Won.
NOTE 4 - Inventories:
Inventories consist of the following:
March 31, September 30,
2003 2002
-----------------------------------
Raw materials $ 205,825 $ 244,230
Work in process - 65,435
Finished Goods 1,083,572 1,394,342
--------- ---------
1,289,397 1,804,007
(100,000) (120,000)
-------- --------
$ 1,189,397 $ 1,684,007
=========== ===========
NOTE 5 - Property and Equipment:
Property and equipment consists of the following:
March 31, September 30,
2003 2002
-----------------------------------
Transportation equipment $ 37,255 $ 38,087
Computer Equipment 77,618 $ 52,086
Tools 220,998 178,913
Furniture and fixtures 57,247 58,529
Machinery and equipment 415,939 420,152
------- -------
809,057 747,767
Less: Accumulated depreciation 405,338 342,186
------- -------
403,719 $ 405,581
=========== ===========
Depreciation expense for the years ended September 30, 2002 and 2001 and for the
six- month periods ending March 31, 2003 and 2002 was $139,856, $132,573,
$63,152 and $65,572, respectively.
NOTE 6 - Intangible Assets:
Intangible assets consist of the following:
March 31, September 30,
2003 2002
-----------------------------------
Intangible Assets $ 171,564 $ 162,908
Accumulated Amortization (56,164) (48,019)
-------- --------
Net Amount $115,400 $114,889
=========== ===========
Amortization expense for the years ended September 30, 2002 and 2001 and for the
six- month period ending March 31, 2003 and 2002 was $14,984, $14,524, $8,145
and $7,488, respectively.
The weighted average amortization period is 10 years. The estimated aggregate
amortization expense for each of the five succeeding years is approximately
$16,300 per year.
NOTE 7 - Notes Payable:
The Company has drawn down $1,157,219, $1,205,351and $1,101,186 as of September
30, 2002, 2001 and March 31, 2003, respectively under a $1,500,000 revolving
credit line with Business Alliance Capital Corporation ("Alliance"), which is
due on demand. The line of credit is secured by equipment, general intangibles,
accounts receivables, inventory, and stockholder guarantees of $250,000. The
line expires June 30, 2003. The availability of funds is limited to percentages
of eligible accounts receivable and inventory. Interest, which is payable
monthly, is computed at 1.5 percent above Alliance's prime rate. The finance
fees, also charged to interest expense and payable monthly, are charged at an
amount equal to one-half of one percent of the
F-15
K-TRONIK INTERNATIONAL CORP.
(Formerly LMC CAPITAL CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
average outstanding balance of the previous month based on a minimum outstanding
balance of $200,000. The loan agreement contains financial and non-financial
covenants. The Company was in violation of certain of these covenants as of
December 31, 2002 and 2001. The Company obtained waivers from Alliance on
February 13, 2003 for the violations.
KTA has drawn down $528,399, $221,260 and $518,783 under a separate revolving
line of credit of $600,000 at September 30, 2002, 2001 and March 31, 2003,
respectively with Woori Bank (Formely Hanvit Bank) in Korea. The line of
credit is secured by equipment, accounts receivables and inventory. Interest,
which is payable upon borrowing, is charged at an adjustable rate, currently
7.02% per annum. The line of credit expires May 29, 2003.
In February 2003, KTA was advanced $111,741 by one of its employees. The
advance is non- interest bearing and is payable on demand.
The Company expects that its working capital needs will require it to obtain new
revolving credit facilities by May 29, 2003, when the credit facilities mature,
whether by extending, renewing, replacing or otherwise refinancing the
facilities. While no assurance can be given that any such extension, renewal,
replacement or refinancing can be successfully accomplished, Eiger has committed
to provide the Company with the necessary financing to continue its operations
through 2003. Eiger has supported the Company in the past by providing it with
working capital.
NOTE 8 - Capital Stock:
The legal share capital of the Company subsequent to the reverse acquisition is
that of KTI, the legal parent. KTI has authorized capital of 100,000,000 shares
of common stock with a par value of $0.00001 of which 4,500,000 were issued and
outstanding prior to the reverse acquisition as described in Note 2.
The weighted average number of common shares outstanding prior to the reverse
acquisition is deemed to be 14,285,714 being the number of shares issued to
effect the reverse acquisition. As of September 30, 2002 and March 31, 2003 the
Company had 22,573,866 shares outstanding.
The Company has no stock options outstanding as of September 30, 2002 and March
31, 2003 and has not recorded any stock-based compensation in the current period
or in any prior period.
NOTE 9 - Commitments and Contingencies:
The Company assumed a lease of its office space located in Hackensack, New
Jersey, which expires November 30, 2003. The lease contains a provision
requiring the Company to pay property taxes and operating expenses, which exceed
base year amounts. KTA occupies a factory located in South Korea under a lease,
which expires March 31, 2004. Total rent expense was approximately $67,900,
$105,500, $ 37,991 and $31,950 for the years ended September 30, 2002, 2001 and
for the six-month period ending March 31, 2003 and 2002, respectively.
F-16
K-TRONIK INTERNATIONAL CORP.
(Formerly LMC CAPITAL CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Future minimum annual rent payments under these leases are as follows:
Year Ending
September 30,
- ------------
2003 $ 61,000
2004 27,000
------
$ 88,000
========
NOTE 10 - Major Customer:
One customer accounted for approximately 15% , 11% and two customers accounted
for approximately 24%of sales for the years ended September 30, 2002, 2001 and
for the six-month period ended March 31, 2003, respectively, and 14%, 8% and 33%
of accounts receivables as of September 30, 2002, 2001and March 31, 2003,
respectively.
NOTE 11 - Income Taxes:
Deferred income taxes reflect the tax effects of temporary differences between
the carrying amounts of assets for financial reporting purposes and amounts used
for income tax purposes. The Company provides deferred income taxes for
temporary differences between assets and liabilities recognized for financial
reporting and income tax purposes. A deferred tax asset valuation allowance has
been provided to entirely offset deferred tax assets due to the uncertainty
regarding the realization of these assets based on future probability.
Differences between income tax benefits computed at the federal statutory rate
and reported income taxes in 2001 are primarily attributed to net operating loss
carryforwards, the loss on income from foreign subsidiary and other permanent
differences. At September 30, 2002 and March 31, 2003 the Company had net
operating loss carryforwards of $1,550,000 and $1,881,000, respectively,
available to offset future taxable income expiring through 2008. The tax
effects of temporary differences are as follows:
Deferred tax assets: March 31, September 30,
2003 2002
----------- -----------
Allowance for doubtful accounts $ 11,900 $ 5,100
Net operating losses 543,000 467,000
Allowance for inventory obsolescence 34,000 40,800
Retirement and severance benefits 12,000 16,000
Depreciation and Amortization 7,100 7,100
----- -----
Total deferred tax assets 608,000 536,000
Less valuation allowance (608,000) (536,000)
--------- --------
$ - $ -
======== ========
NOTE 12 - Retirement and Severance Benefits:
Employees who have been with K-Tronik Asia Corporation for over one year are
entitled to
F-17
K-TRONIK INTERNATIONAL CORP.
(Formerly LMC CAPITAL CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
lump-sum payments based on current rates of pay and length of service when they
leave K-
Tronik Asia Corporation. It is not the policy of K-Tronik Asia Corporation to
fund retirement and severance benefits accrued. However, provision in the
amount of approximately $47,000, $44,000 and $43,400 at September 30, 2002,
2001and March 31, 2003, respectively, has been made in the accompanying
financial statements for the estimated accrued liability under the plan, which
would be payable if all employees left on the balance sheet date.
NOTE 13 - Supplemental Disclosure of Cash Flow Information:
Cash paid for interest for the years ended September 30, 2002 and 2001 and for
the six-month period ending March 31, 2003and 2002 was $233,704, $203,033,
$102,542 and $109,132, respectively.
NOTE 14 - Operating Segments
The Company has only one material operating segment, the design, market and
distribution of electronic stabilizers and illuminator ballasts for florescent
lighting fixtures, which is managed on a geographic basis.
The table below presents information by geographic location:
Six Months Ended For the Year Ended
March 31, September 30,
2003 2002 2002 2001
---- ---- ---- ----
Revenues
United States $2,713,928 $3,087,167 $6,282,165 $6,167,462
Asia and other 392,809 60,328 455,554 513,160
------- ------ ------- -------
$3,106,737 $3,147,495 $6,737,719 $6,680,622
========== ========== ========== ==========
Long-lived assets
United States $ 40,061 $ 21,442
Asia and other 363,658 384,139
---------- ----------
$ 403,719 $ 405,581
========== ==========
Revenues are attributed to countries based on the location in which the sale
originated. Long-lived assets principally consist of net equipment, property and
leasehold improvements.
NOTE 15 - Prior Period Adjustment
The accompanying consolidated financial statements for the year ended September
30, 2001 have been restated to correct an error in the accounting for the
minority interest made in that year and in prior years. The effect of the
restatement was to increase the net loss for 2001 by $116,134 and opening
retained deficit at September 30, 2000 by $582,065.
Page 60
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
During K-Tronik's two most recent fiscal years and any subsequent
interim period, there were no disagreements with K-Tronik's
accountants on any matter of accounting principle or practices,
financial statement disclosure or auditing scope or procedure. In
addition, there were no reportable events as described in Item
304(a)(1)(iv)(B)1 through 3 of Regulation S-B that occurred within K-
Tronik's two most recent fiscal years and the subsequent interim periods.
Effective on May 15, 2002, the independent accountants who were
previously engaged as the principal accountants to audit the
Registrant's financial statements, Labonte & Company, resigned. The
accountant's reports on the financial statements for the fiscal year
ended December 31, 2000 neither contained an adverse opinion or a
disclaimer of opinion, nor was qualified or modified as to
uncertainty, audit scope or accounting principles.
Effective on May 15, 2002, BDO Seidman, LLP, through their New Jersey
offices, was engaged to serve as the new principal accountant to audit
K-Tronik's financial statements. They had previously been engaged to
replace Smolin, Lupin & Co., P.A. as the principal accountants of our
subsidiary, K-Tronik (N.A.) earlier in the fiscal year.
The change in principal accountants was disclosed on Form 8K on May
16, 2002.
Page 61
PART II.
INFORMATION NOT REQUIRED IN PROSPECTUS
INDEMNIFICATION OF OFFICERS AND DIRECTORS
Save and except for Article IX of the Articles of Incorporation,
attached hereto, which provides that K-Tronik will indemnify directors
against losses from acts taken in the performance of their duties to
K-Tronik, no statute, charter provision, article, by-law, contract or
other arrangement exists under which any controlling persons,
directors or officers of K-Tronik is insured or indemnified in any
manner against liability which he or she may incur acting in his or
her capacity as such.
Information on this item is set forth in the prospectus under the
heading "Disclosure of Commission Position on Indemnification for
Securities Act Liabilities."
OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Information on this item is set forth in the prospectus under the
heading "Use of Proceeds."
RECENT SALES OF UNREGISTERED SECURITIES
Sales of Unregistered Securities by the Company prior to the acquisition of
K-Tronik N.A. Inc.:
The Company was called "LMC Capital Corp." prior to the acquisition of K-Tronik
N.A. Inc.
In September of 1999, the Company issued a total of 15,000 shares of common
stock to its three directors with each director receiving 5,000 shares of common
stock. These shares of common stock were sold for a total of $15, being $0.001
per share of common stock. The issuance of the shares was exempt from
registration under the Securities Act of 1933 by way of Section 4(2) which
allows an issuer to sell securities to someone who is not a member of the
public. These sales were made to the Company's directors.
In September of 1999, the Company issued a total of 30,000 shares of common
stock under exemptions from registration provided by Regulation S to a total of
15 persons. All of these persons are Canadian residents. The total paid for
these 30,000 shares of common stock was $30 being $0.001 per share.
Each of these 15 persons was asked to confirm in writing their residential
address and each of these persons was a close personal friend, business
associate or family member of one or more of the directors and officers of the
Company at the time of the shares' issuance.
The offering to these 15 persons was undertaken under Regulation S they were
made under Rule 903 (Category 3, equity securities) and:
- the sale was made in an offshore transaction;
- no directed selling efforts were made in the United States by
the Company;
- the purchaser confirmed that it is not a US person and is not
acquiring the securities for the account or benefit of any US person;
- the purchaser agreed to resell such securities only in
accordance with the provisions of the Securities Act of 1933 or
regulations applicable to their securities;
- the securities contained a legend to the effect that transfer
was prohibited unless the securities were first registered under the
Securities Act of 1933 or resale was made pursuant to an exemption
therefrom.
The offers and sales were not made to any US person or for the account or
benefit of a US person.
No commission or professional fees were paid in connection with the
Company's sales of unregistered securities under either Regulation S.
Neither we nor any person acting on our behalf offered or sold the
foregoing securities by means of any form of general solicitation or
general advertising. All purchasers represented in writing that they
acquired the securities for their own accounts. A resale legend has
been provided for the stock certificates stating that the securities
have not been registered under the Securities Act of 1933 and cannot
be resold or otherwise transferred without registration or an
exemption (such as that provided by Regulation S or Rule 144).
Forward Split of Shares:
Upon completion of the share issuances described above, there were 45,000 shares
of common stock outstanding.
The Company decided in September of 1999 to forward split its shares of common
stock on a 100 shares for one share basis.
As a result, the 45,000 shares of common stock became 4,500,000 shares of common
stock issued and outstanding.
Sales of Unregistered Securities in the Acquisition of K-Tronik N.A. Inc.
On December 12, 2001, the Company issued the following shares:
Mr. Robert Kim: 6,714,286
ETIFF Holdings, LLC, a wholly owned subsidiary of Eiger Technology, Inc.:
7,571,428
No cash consideration was paid for the 7,571,428 shares issued to ETIFF
Holdings, LLC or the 6,714,286 shares issued to Robert Kim. These shares were
issued in consideration of the acquisition of 100% of the issued and outstanding
shares of K-Tronik N.A. Inc. at an agreed value of $14,285,714.
In engaging in these sales of unregistered securities and concluding that they
were exempt from registration by way of Section 4(2) of the Securities Act,
K-Tronik relied upon the facts that:
- - Robert Kim was an affiliate of the Company. He was also the President of
K-Tronik and the person most familiar with its business and activities. He is
also familiar with public markets and securities markets.
- - ETIFF Holdings, LLC was the largest shareholder of K-Tronik and, as a
result, familiar with its business and activities. ETIFF is also, through its
management and its position as the wholly owned subsidiary of Eiger Technology,
Inc., sophisticated in its understanding of public markets and securities
markets.
In January of 2002, a total of 3,788,172shares of our common stock were issued
in settlement of the $3,788,172 debt K-Tronik N.A. Inc. owed to ETIFF. As
ETIFF is our majority shareholder and not a member of the public, the shares
were issued in reliance upon Section 4(2) of the Securities Act.
No sales of securities, registered or unregistered, have been undertaken by the
Company other than the issuances described above.
EXHIBITS AND EXHIBIT TABLE
ITEM 27: EXHIBITS
3.1 Articles of K-Tronik International Corp. (formerly LMC Capital
Corp.)
3.2 Certificate of Incorporation of K-Tronik International Corp.
(formerly LMC Capital Corp.)
3.3 Amendment to Certificate of Incorporation of K-Tronik
International Corp. (formerly LMC Capital Corp.)
3.4 Certificate of Amendment to Articles of incorporation concerning
name change to K-Tronik International Corp. from LMC Capital Corp.
3.5 Certificate of Amendment of Articles of incorporation increasing
authorized capital to 100,000,000 common shares dated October 17, 2000.
5.1 Legal Opinion of CD Farber Law Corporation regarding valid
issuance of shares of K-Tronik International Corporation
10.1 Incentive Stock Option Plan dated October 1, 2001
10.2 Credit Facility between the Trust Company of New Jersey and K-Tronik
dated June 30, 2003
10.3 Debt Settlement Agreement between K-Tronik International Corp.
(formerly LMC Capital Corp.), ETIFF Holdings, LLC, K-Tronik N.A.
Inc. and Eiger Technology, Inc. dated December 12, 2001
10.4 Amendment to Debt Settlement Agreement between K-Tronik
International Corp. (formerly LMC Capital Corp.), ETIFF Holdings,
LLC, K-Tronik N.A. Inc. and Eiger Technology, Inc. dated December
30, 2001
10.5 Escrow Agreement between Robert Kim, ETIFF Holdings, LLC
and K-Tronik International Corp. (formerly LMC Capital Corp.) dated
December 12, 2001
10.6 Distributorship Agreement between K-Tronik N.A. Inc.
(formerly K-Tronik Int'l Corporation) and Jademar Corporation dated
October 26, 1999
10.7 Lease Agreement between Eempact Corp. as Tenant and 98
Corporation dated November 12, 1997
10.8 Assignment of Lease Agreement between 98 Corporation,
Eempact Corporation and K-Tronik N.A. Inc. (formerly K-Tronik Int'l
Corporation) dated March 10, 1998 (98 Corporation executing as to
its consent only)
10.9 Share Purchase Agreement between Robert Kim, ETIFF
Holdings, Inc. and K-Tronik International Corp. (formerly LMC
Capital Corp.) dated effective November 29, 2001
10.10 Registrar and Transfer Agent Agreement between K-Tronik
International Corp. and Pacific Corporate Trust Company dated
February 26, 2002
10.11 One year Extension of Agreement to December 31, 2003 with Jademar
Corporation dated January 30, 2003
10.12 Lease Agreement between K-Tronik (Asia) and Bokjeong Merchants
dated Feb. 28, 2003
10.13 Lease Agreement Amendment for K-Tronik Asia
10.14 Line of Credit for K-Tronik (Asia)dated February 28, 2001
10.15 Line of Credit for K-Tronik (Asia)- amended - dated May 29, 2001
10.16 Line of Credit for K-Tronik (Asia) - increase in credit limit -
dated April 24, 2001
10.17 Line of Credit for K-Tronik (Asia) - increase in credit limit -
dated June 30, 2001
10.18 Renewal of line of credit for K-Tronik (Asia) dated May
29, 2003
10.19 Renewal of line of credit for K-Tronik (Asia) dated May
29, 2002
10.20 Loan and Security Agreement Waiver of Default dated Feb. 13, 2003
22.1 Subsidiaries of the Registrant.
23.1 Consent of CD Farber Law Corporation (see below) regarding
inclusion of opinion (Exhibit 5.1)
24.1 Consent of Smolin Lupin & Co., P.A. dated July 21, 2003
regarding inclusion of financial statements
24.2 Consent of BDO Seidman, LLP dated July 21, 2003 regarding
inclusion of financial statements
Page 62
UNDERTAKINGS
In accordance with Rule 415 and Item 512 of Regulation S-K, the
undersigned company hereby undertakes to:
(1) File, during any period in which it offers or sells securities, a
post-effective amendment to this registration statement to:
(i) Include any prospectus required by section 10(a)(3) of
the Securities Act of 1933;
(ii) Reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in
the information in the registration statement; and
notwithstanding the forgoing, any increase or decrease in
volume of securities offered, if the total dollar value of
securities offered would not exceed that which was registered,
and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of
prospects filed with the U.S. Securities and Exchange
Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in the volume and price represent no more than a 20%
change in the maximum aggregate offering price set forth in
the "Calculation of Registration Fee" table in the effective
registration statement.
(iii) Include any additional or changed material information
on the plan of distribution.
(2) For determining liability under the Securities Act of 1933, treat
each post-effective amendment as a new registration statement of the
securities offered, and the offering of the securities at that time to
be the initial bona fide offering.
(3) File a post-effective amendment to remove from registration any of
the securities that remain unsold at the end of the offering.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 (the "Act") may be permitted to directors,
officers and controlling persons of the small business issuer pursuant
to the foregoing provisions, or otherwise, the small business issuer
has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable.
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each
filing of the registrant's annual report pursuant to section 13(a) or
section 15(d) of the Securities Exchange Act of 1934 and, where
applicable, each filing of an employee benefit plan's annual report
pursuant to section 15(d) of the Securities Exchange Act of 1934 that
is incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the securities
offered therein and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof.
Page 63
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
corporation certifies that it has reasonable grounds to believe that it
meets all of the requirements for filing on Form SB-2 and authorized
this registration statement to be signed on its behalf by the
undersigned in the City of Hackensack in the State of New Jersey on this
14th day of July, 2003.
/s/ Keith Attoe /s/ Robert Kim
Keith Attoe, Director Robert Kim, President,
Treasurer and Director
/s/ Ken Edwards /s/ Gerry Racicot
Ken Edwards, CFO and Gerry Racicot, Director
Principal Accounting
Officer/Principal Financial Officer