SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 20-F/A-1
ANNUAL REPORT PURSUANT TO SECTION 13 OF THE SECURITIES EXCHANGE ACT OF 1934 FOR
THE FISCAL YEAR ENDED SEPTEMBER 30, 2002
Commission File No. 0-29320
EIGER TECHNOLOGY, INC.
(Exact name of Registrant as specified in its charter)
Ontario, Canada
(Jurisdiction of incorporation or organization)
330 Bay Street, Suite 602
Toronto, Ontario M5H 2S8
(Address of principal executive offices)
Securities registered or to be registered pursuant to Section 12(b) of the Act:
None
Securities registered or to be registered pursuant to Section 12(g) of the Act:
Common Shares, without par value
(Title of Class)
Securities for which there is a reporting obligation pursuant to Section 15(d)
of the Act: None
Indicate the number of outstanding shares of each of the Issuer's classes of
capital or common stock as of the close of the period covered by the annual
report: 36,615,853 Common Shares without par value.
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes |X| No |_|
Indicate by check mark which financial statement item the registrant has elected
to follow.
Item 17 |_| Item 18 |X|
The Index to Exhibits
is found at Page 39
FORWARD LOOKING STATEMENTS
Forward-Looking Information is Subject to Risk and Uncertainty. This report
contains certain "forward-looking statements" within the meaning of the U.S.
Private Securities Litigation Reform Act of 1995. When used in this report, the
words "estimate," "project," "intend," "expect," "anticipate" and similar
expressions are intended to identify forward-looking statements. Readers are
cautioned not to place undue reliance on these forward-looking statements, which
speak only as of the date of this report. These statements are subject to risks
and uncertainties that could cause actual results to differ materially from
those contemplated in such forward-looking statements. Such risks and
uncertainties include, but are not limited to, those identified under the
subheading "Risk Factors" in Item 3 hereof.
GLOSSARY
The following is a glossary of some terms that appear in the discussion of the
business of the Company as contained in this Annual Report.
"ADSL" ADSL is a variation of DSL that operates by way of
two-way or duplex bandwidth and is devoted to the
downstream transmission of data.
"bandwidth" The maximum speed at which data can be transmitted
between computers in a network.
"bus" A device for transmitting data to and from the
different components of a PC.
"DSL" "Digital Subscriber Line" - A technology for
bringing high- bandwidth information to homes and
businesses over conventional copper telephone
lines, permitting continuous transmission of
motion video, audio and 3-D effects.
"electronic ballasts" A component that starts a fluorescent lamp.
"Ethernet" A LAN, the different nodes of which are connected
by coaxial cable. This cable can be thin (which
can connect two nodes up to a distance of about
1000 feet) or thick (which can connect two nodes
up to a distance of about 3300 feet). The Ethernet
standard has a provision to transmit data at a
rate of 10 megabits per second.
"kbps" "Kilobytes Per Second" - a measure of the rate at
which a modem can transmit data. This is measured
in bits per second (bps).
2
"LAN" "Local Area Network" - A group of PC's, computers
and peripheral devices that are linked together
where each device is located in close proximity to
all the other devices. LANs typically consist of a
number of PC's, shares printers, shared
directories and files.
"PCMCIA" "Personal Computer Memory Card International
Association" - A PCMCIA card as an expansion bus
designed for laptop computers, which allows modems
and other devices to be connected to the PC.
"PC" "Personal Computer".
"peripherals" A peripheral is a device, which can be attached to
a PC and is controlled by its processor. Examples
include printers and modems.
"VOIP" Voice Over Internet Protocol is a term used in the
telecom world for a set of facilities for managing
the delivery of voice information using the
Internet. A major advantage of VOIP is that it
avoids the tolls charged by ordinary telephone
service.
"Soft Switch Technology" Software based telecommunications equipment as
opposed to dedicated analog circuit switched
technology.
"Analog Voice" The traditional telephone technology in which
sound waves are converted into electrical impulses
of varying strength or amplitude.
"IP Packets" A form of data transmission in which data is
broken into small binary packets that are
transmitted independently and reassembled at the
destination. This is in contrast with
circuit-switching, traditionally used for voice
telephony, in which the transmission occurs over a
dedicated circuit.
"Advertising Based Whereby a user listens to a 15 second
Calling" advertisement prior to receiving a free long
distance call.
"Technology Platform" A chosen architecture for technology.
"Toll Quality" The standard of quality on a traditional circuit
switched network.
"OEM" Original Equipment Manufacturer.
3
TABLE OF CONTENTS
Page
PART I
Item 1. Identity of Directors, Senior Management and Advisors 5
Not Applicable
Item 2. Offer Statistics and Expected Timetable - Not Applicable. 5
Item 3. Key Information 5
Item 4. Information on the Company 9
Item 5. Operating and Financial Review and Prospects 19
Item 6. Directors, Senior Management and Employees 22
Item 7. Major Shareholders and Related Party Transactions 25
Item 8. Financial Information 26
Item 9. The Offer and Listing 27
Item 10. Additional Information 29
Item 11. Quantitative and Qualitative Disclosure about Market Risk
Not Applicable 37
Item 12. Description of Securities Other than Equity Securities
Not Applicable 37
PART II
Item 13. Defaults, Dividend Arrearages and Delinquencies
Not Applicable 38
Item 14. Material Modifications to the Rights of Security Holders and
Use of Proceeds - Not Applicable 38
Item 15. Controls and Procedures 38
Item 16. Reserved. 38
PART III
Item 17. Financial Statements - Not Applicable 39
Item 18. Financial Statements 39
Item 19. Exhibits 39
SIGNATURES
4
PART I
Item 1. Identity of Directors, Senior Management and Advisers
Not Applicable.
Item 2. Offer Statistics and Expected Timetable
Not Applicable.
Item 3. Key Information
A. Selected financial data.
The selected consolidated financial information set out below has been obtained
from financial statements which reflect the Company's business operations. The
financial statements have been prepared in accordance with accounting principles
generally accepted in Canada. For reconciliation to US GAAP refer to Note 13 of
the attached audited statements. The following table summarizes information
pertaining to operations of the Company for the last five years ended September
30, 2002.
2002 2001 2000 1999 1998
------------ ------------ ------------ ------------ ------------
Working Capital $3,992,000 $12,815,000 $23,404,000 $4,765,000 $1,169,000
Revenue $19,325,000 $30,070,000 $57,068,000 $8,433,000 $4,796,000
Income (Loss) from
Operation: ($5,238,000) ($20,327,000) ($693,000) ($742,000) $508,000
Income (Loss) from
Continuing Operation: ($5,238,000) ($20,327,000) ($629,000) ($1,287,000) $508,000
Net Income (Loss): ($5,238,000) ($20,327,000) ($693,000) ($742,000) $508,000
Earnings (Loss) per Share: ($0.15) ($0.59) ($0.03) ($0.05) $0.01
Total Assets: $23,758,000 $30,721,000 $57,145,000 $17,018,000 $9,221,000
Net Assets: $16,123,000 $21,127,000 $38,348,000 $8,337,000 $3,064,000
Long Term Debt: $940,000 $1,014,000 $1,488,000 $1,111,000 $1,477,000
5
2002 2001 2000 1999 1998
------------ ------------ ------------ ------------ ------------
Total Liabilities: $9,508,000 $10,265,000 $15,501,000 $6,727,000 $5,689,000
Share Capital: $42,235,000 $42,001,000 $38,895,000 $8,191,000 $2,176,000
Retained Earnings
(Deficit): ($26,329,000) ($21,091,000) ($764,000) ($71,000) $671,000
Number of Shares: 36,615,853 36,215,853 33,945,858 20,457,429 13,815,001
CURRENCY EXCHANGE INFORMATION
The Company's accounts are maintained in Canadian dollars. In this Registration
Statement, all dollar amounts are expressed in Canadian dollars except where
otherwise indicated.
The following table sets forth, for the periods indicated, the high and low
rates of exchange of Canadian dollars into United States dollars, the average of
such exchange rates on the last day of each month during the periods, and the
end of period rates. Such rates are shown as, or are derived from, the
reciprocals of the noon buying rates in New York City for cable transfers
payable in Canadian dollars, as certified for customs purposes by the Federal
Reserve Bank of New York.
- --------------------------------------------------------------------------------
Fiscal Year Ended
September 30
- --------------------------------------------------------------------------------
2002 2001 2000 1999 1998
High 0.6619 0.6669 0.6903 0.6913 0.7300
Low 0.6200 0.6330 0.6686 0.6362 0.6330
Average 0.6357 0.6513 0.6793 0.6637 0.6840
Period 0.6304 0.6330 0.6636 0.6813 0.6540
On March 11, 2003 the exchange rate of Canadian dollars into United States
dollars, based upon the noon buying rate in New York City for cable transfers
payable in Canadian dollars as certified for customs purposes by the Federal
Reserve Bank of New York City, was Cdn. $1.00 equals U.S. $0.6791.
The following table sets forth, for the most recent previous six months, the
high and low rates of exchange of Canadian dollars into United States dollars.
The latest practicable date for March was noon buying rate on March 25, 2003.
6
MAR FEB JAN DEC NOV OCT
2003 2003 2003 2002 2002 2002
High 0.6822 0.6720 0.6570 0.6461 0.6440 0.6407
Low 0.6709 0.6530 0.6349 0.6329 0.6288 0.6272
B. Capitalization and indebtedness.
Not Applicable.
C. Reasons for the offer and use of proceeds.
Not Applicable.
D. Risk factors.
The Company's operations are subject to a variety of risks and uncertainties.
The following factors are considered a list of known material risks factors
associated with the Company's operations.
Foreign Operations
The Company derives 30% of its revenue from international sales outside of North
America and 53% from the United States. International sales are subject to
certain risks, including unexpected changes in legal and regulatory requirements
and policy changes affecting the Company's markets; changes in tariffs, currency
exchange rates and other barriers; political and economic instability;
difficulties in accounts receivable collection; difficulties in managing
distributors and representatives; difficulties in protecting the Company's
intellectual property; and potentially adverse tax consequences. See also
"Foreign Exchange Rate" below.
Management of the Growth of the Company
The implementation of the Company's business strategy could result in a period
of rapid growth. This growth could place a strain on the Company's managerial,
operational and financial resources and information systems. Future operating
results will depend on the ability of senior management to manage rapidly
changing business conditions, and to implement and improve the Company's
technical, administrative, financial control and reporting systems. No assurance
can be given that the Company will succeed in these efforts. The failure to
effectively manage and improve these systems could increase the Company's costs
and adversely affect its ability to sell and deliver its products and services.
Competition
The Company faces competition in each of its markets and has competitors, many
of which are larger and have greater financial resources than the Company. There
can be no assurance that the Company will be able to continue to compete
successfully in its markets. Because the Company competes, in part, on the
technical advantages and cost
7
of its products, significant technical advances by competitors or the
achievement by such competitors of improved operating effectiveness that enable
them to reduce prices could reduce the Company's competitive advantage in these
products and thereby adversely affect the Company's business and financial
results.
New Products and Technological Change
The market for the Company's products is characterized by rapidly changing
technology, evolving industry standards and frequent new product introductions
which may be comparable to or superior to the Company's products. The Company's
success will depend upon market acceptance of its existing products and its
ability to enhance its existing products and to introduce new products and
features to meet changing customer requirements. There can be no assurance that
the Company will be successful in identifying, manufacturing and marketing new
products or enhancing its existing products on a timely and cost-effective basis
or that such new products will achieve market acceptance. In addition, there can
be no assurance that products or technologies developed by others will not
render the Company's products or technologies non-competitive or obsolete.
New Market Development
There can be no assurance that the Company will be able to identify, develop and
export to countries or geographic areas in which it is not presently selling.
Intellectual Property
The Company has not obtained patent protection for its proprietary technology or
products and has not registered any trademarks or copyrights. As the Company has
not protected its intellectual property, competitors copying or otherwise
exploiting the features of the Company's technology, products, information or
services may adversely affect its business.
Dependence on Key Personnel and Skilled Employees
The success of the Company is dependent, in large part, on certain key personnel
and on the ability to motivate, retain and attract highly skilled persons. There
can be no assurance that the Company will be able to attract and retain
employees with the necessary technical and technological skills given the highly
competitive state of the employment market for these individuals. The loss of
such services or the failure by the Company to continue to attract and retain
other key personnel may have a material adverse effect on the Company, including
its ability to develop new products, grow earnings and accelerate revenue
growth.
Risks of International Business
Currently two of the Company's production facilities are based in South Korea
while the other facility is located in Canada. As well, the Company distributes,
markets and sells its products in numerous foreign countries. Accordingly, the
Company is subject to the risks associated with producing and selling in
international markets. These risks include the imposition of tariff and
non-tariff barriers, trade requirements for export licenses, and local business
regulation, including the imposition of taxes.
8
Relationship with Production Employees
Although the employees of the Company are not unionized, there can be no
assurance that this will not occur. Management of the Company is of the opinion
that the unionization of its operations would have a detrimental effect on the
Company's ability to remain competitive.
Uncertain Operating Results
The Company's operating results have varied and may continue to vary
significantly depending on such factors as the timing of new product
announcements, increases in the cost of raw materials and changes in pricing
policies of the Company and its competitors. The market price of the Shares may
be highly volatile in response to such fluctuations.
Foreign Exchange Rate
Material appreciation of the Canadian dollar against the US dollar would reduce
the profitability of the Company's US sales. The Company is also exposed to
exchange rate fluctuations in the US and Canadian dollar against the Korean Won.
Political Climate in South Korea
Political instability in South Korea may negatively affect the Company's ability
to manufacture its products on a timely basis, resulting in product shortages.
Management is unaware of any present evidence of political instability of this
magnitude in South Korea.
Item 4. Information on the Company
A. History and development of the company.
Eiger Technology, Inc. (the "Company") was incorporated under the name "Alexa
Ventures Inc." under the Company Act (British Columbia) on September 8, 1986.
The memorandum of the Company was amended on November 26, 1999 to change the
name of the Company from Alexa Ventures Inc. to "Eiger Technology, Inc." In
November 2000 the Company changed its jurisdiction of incorporation from British
Columbia to Ontario.
The Company's registered head office and executive office is located at 330 Bay
Street, Suite 602, Toronto, Ontario M5H 2S8. The telephone number of the
registered office is (416) 216-8659.
The Company entered the energy efficient lighting business in 1991. The
Company's two main operating subsidiaries in this non-core business are K-Tronik
and ADH. ADH operates from the Company's 55,000 square foot manufacturing and
engineering facility located in Stratford, Ontario. ADH manufactures and
distributes transformer housings, switch housings and electronic data racks, as
well as fluorescent light fixtures and reflectors.
On April 1, 1998, the Company purchased 53% of the common stock of K-Tronik for
$275,000, plus options entitling the holders to acquire up to 250,000 common
shares of the Company. In addition to its US distribution capabilities, K-Tronik
also possesses a
9
South Korean manufacturing facility through its subsidiary, K-Tronik Asia, Inc.
The Company's management does not intend to divest the Company of its interest
in K-Tronik until the public and capital markets improve.
On September 15, 2000, the Company sold its 60% interest in Lexatec VR Systems,
Inc.
During fiscal 1998, the Company consolidated two of its South Korean
subsidiaries, Energy Products, Inc. (a manufacturer of electronic ballasts) and
Chakers, Inc. (its South Korean energy saving products sales arm), which were
eventually combined under the name "K-Tronik Asia, Inc."
The Company entered the computer peripheral business following a series of
transactions in September 1999 which resulted in the Company owning a 64%
interest in Eiger Labs Group, Inc. ("Eiger Labs") and its Eiger Labs' wholly
owned manufacturing subsidiary, Eiger Net, Inc. ("Eiger Net"). Based in Newark,
California (Silicon Valley), Eiger Labs distributes a wide variety of PC card
and desktop peripherals including storage, multimedia, connectivity and
communications products such as MP3 players and ADSL modems. Based in South
Korea, Eiger Net is a manufacturer of fax modems, Ethernet and PCMCIA products
and MP3 players for both the South Korean and United States markets. Eiger Net
manufactures electronic communication products for a number of OEMs and PC
companies as well as for Eiger Labs.
The Company caused its subsidiary Alexa (USA) Inc. to incorporate Eiger Labs as
a 100% owned California subsidiary on August 18, 1999. On August 18, 2000 Eiger
Labs acquired all of the assets of Eiger Labs, Inc. for consideration of US
$500,000. Also on August 18, 1999, each of Seung Bae Lim, Yong Kook Kim, Tae Jin
Lee and Rae Myung Cha (collectively, the "Eiger Net Vendors") subscribed for
shares which, when issued, left the Company (through Alexa (USA) Inc.) holding
64% of Eiger Labs. The Company and the Eiger Net Vendors also entered into a
shareholders' agreement with the Eiger Net Vendors providing, among other
things, for the appointment of directors and officers, the nature of the
business to be carried out by Eiger Labs, allocation of profits, dividends and
distributions, and restrictions on sales of the parties' shares in Eiger Labs.
The acquisition of the Company's 64% interest in Eiger Net was effected through
payment of a combination of cash and stock with a combined aggregate value of US
$1,500,000. US $1,000,000 cash consideration was paid and 500,000 common shares
of the Company were issued. The Company further agreed to issue common shares to
the Eiger Net Vendors in equal amounts, with performance earn out consideration
contingent upon achieving the criteria tabled below for the combined results of
Eiger Labs and Eiger Net:
COMBINED GROSS COMBINED NET
YEAR SALES INCOME COMMON SHARES
- ----------------------------- -------------- --------------- -------------
1999 US $27 million US $1.0 million 600,000
2000 US $70 million US $2.5 million 750,000
10
2001 US $80 million US $3.5 million 750,000
2002 US $90 million US $4.0 million 900,000
2003 US $110 million US $4.5 million 1,000,000
Under the formula in the agreements, if any of the above targets is not met in
any of the above noted years, any gross sales or net income earned or achieved
in that year is added to the targets of subsequent years. The common shares of
the Company to be issued in respect of those targets are to be considered
cumulative and can be achieved in any subsequent year in respect of the terms of
the agreement.
600,000 common shares of the Company were issued on February 29, 2000 pursuant
to this agreement. The Company's common shares were trading at $8.00 Cdn. on
that date. No shares were be issued during 2002 for the fiscal 2001 year, and
therefore may be issued during subsequent years provided combined gross sales
and net income targets are achieved on a cumulative basis.
The Company moved its Eiger Net manufacturing facility to a modern 35,000 sq.
ft. facility within Seoul, South Korea. This facility includes equipment capable
of manufacturing high quality, technologically complex printed circuit board
assemblies and electronic technical products. Eiger Net also received QS 9000
certification during the 2000 fiscal year. Eiger Labs and Eiger Net have
experienced a significant decrease in sales and earnings as a result of the
global recession and a downturn in the computer peripheral sector.
Eiger has acquired 100% of the shares of Onlinetel through a Share Exchange
agreement under the provisions of Chapter 92a of the NGCL (Nevada General
Corporate Law). Onlinetel has commitments totalling 97.7% from its shareholder
base of 57, with final signatures expected over the next 90 days. Eiger issued
1,800,000 shares on a pro rata basis for 100% of the shares of Onlinetel.
As consideration for the acquisition of Onlinetel, Eiger will issue a maximum of
9,000,000 common shares which shall be comprised of 1,800,000 shares to the
former shareholders of Onlinetel and up to an additional 7,200,000 shares
pursuant to an earn out provision totalling 1,800,000 shares per year, over a
period of four years, with extension provisions for an additional period of four
years, based on Onlinetel's ability to meet the following operating benchmarks:
2002 2003 2004 2005
----------- ----------- ----------- -----------
Revenue $19,083,488 $37,347,766 $50,849,180 $59,867,184
Net Income $2,442,015 $6,212,532 $9,352,747 $13,848,741
11
Under the formula in the agreements, if any of the above targets is not met in
any of the above noted years, any gross sales or net income earned or achieved
in that year is added the targets of subsequent years. The common shares of the
company to be issued in respect of those targets are to be considered cumulative
and can be achieved in any subsequent year in respect of the terms of the
agreement.
Recent Financings
2003 Private Placement
On March 27, 2003, Eiger closed a private placement (the "Private Placement") of
1 million units in its securities at a price of $0.45 per unit for total
proceeds of $450,000. Each unit (the "Units") is comprised of one share and one
share purchase warrant (the "Warrants"). The Warrants, each of which is
convertible to one common share upon exercise, are exercisable for a period of
one year at an exercise price of $0.55 per warrant. The shares and warrants
comprising the private placement carry a hold period of four months commencing
from the date of their issuance, being July 26, 2003. Insiders of the company
purchased a total of 310,598 units at $0.46 per unit. The higher price to
insiders resulted in the issuance of 993,098 units for total proceeds of
$450,000. Proceeds from the Private Placement will be used to fund ongoing
working capital requirements of Eiger, which include the funding of new
marketing initiatives aimed at accelerating the growth of Onlinetel's Voice over
IP telephony business.
2000 Special Warrant Financing
Pursuant to an underwriting agreement dated March 7, 2000 (the "Underwriting
Agreement") between the Company and Dundee Securities Corporation, Canaccord
Capital Corporation and BMO Nesbitt Burns Inc. (collectively, the
"Underwriters"), the Company issued by way of private placement a total of
4,400,000 special warrants ("Special Warrants") at a purchase price of $5.00 per
Special Warrant. Each Special Warrant entitles the holder to acquire 1.1 common
shares in the capital of the Company without payment of additional consideration
on or before 5:00pm (Toronto time) on the earlier of (a) the third business day
after a final receipt for the Company's prospectus is issued by the last of the
Securities Commissions of Ontario, British Columbia and Alberta, and (b) March
7, 2001 (the "Expiry Time"). The 1.1 common share conversion factor includes a
10% penalty regarding the Company not clearing a final prospectus within 120
days of March 7, 2000. The Company did not receive clearance of a final
prospectus and as such the 10% penalty was included.
In consideration for services performed in relation to this offering, the
Underwriters received a commission equal to 7% of the aggregate purchase price
for the Special Warrants. As well, the Underwriters also received that number of
special compensation options (the "Special Compensation Options") equal to 7% of
the number of Common Shares issuable on the exchange of the Special Warrants, or
a total of 308,000 Special Compensation Options. Each Special Compensation
Option is non-transferable and entitles the Underwriters to receive one
compensation option (the "Compensation Option") without additional payment. Each
Compensation Option is non-transferable
12
and entitles the Underwriters to acquire one Common Share at any time prior to
5:00 p.m. (Toronto time) on March 7, 2002, at a price of $5.00 per Common Share.
December 1999 Private Placement
On December 13, 1999, the Company sold by way of private placement 700,000 units
at a price of $1.128 per unit. Each unit consists of one common share of the
Company and one warrant exercisable for one common share of the Company at a
price of $1.41 per common share. The warrants have been exercised.
Other Recent Developments
Eiger takes K-Tronik Public
Eiger Technology took its subsidiary, K-Tronik International Corp., public in
2002 by way of a reverse acquisition with LMC Capital Corp., a US reporting
issuer. Eiger Technology owns 53% of K-Tronik through its US subsidiary ETIFF
Holdings, Inc.
Eiger has received 7,571,428 shares of LMC for its 53% stake in K-Tronik. Eiger
also received 7,071,000 shares at an average price of US $0.58 per share in part
because of its agreement to convert debt owed to it by K-Tronik totaling US
$4,071,000. The total consideration that Eiger is to receive in the transaction
is 14,642,428 shares, which represents 64% of the shares of LMC. Mr. Robert Kim,
President and founder of K-Tronik received a total of 6,714,286 shares of
K-Tronik for his 47% stake in the company.
Eiger takes ADH Public
Eiger has taken its subsidiary ADH Custom Metal Fabricators Inc. public in 2002,
by way of a reverse acquisition with Newlook Capital Corp., a CDNX listed
company (Ticker Symbol - NLI). Eiger Technology currently owns 100% of ADH
through its subsidiary Vision Unlimited Equipment Inc.
The action is in keeping with Eiger's strategy to monetize its non-core
technology holdings by way of outright sale or public offering. This strategy
was completed in order to raise additional working capital for Eiger without
further dilution to shareholders.
The terms of the transaction are as follows:
In exchange for the issuance to it of 4,800,000 common shares of Newlook at a
deemed price of $0.50 per common share (for a total purchase price of
$2,400,000), Eiger has sold to Newlook all of the issued and outstanding shares
of Vision Unlimited Equipment Inc. (the "Vision Shares") and through the sale of
the Vision shares, all of the issued and outstanding shares of Vision's
subsidiary, ADH Custom Metal Fabricators Inc.
Closing of the Vision/ADH Agreement has seen the resignations of the existing
board of directors and officers of Newlook and the appointment of Mr. Gerry
Racicot, Mr. Keith Attoe and Mr. John Ramsbottom to the board of directors of
Newlook. These persons have also been appointed as the officers of Newlook.
13
ADH has recently hired Mr. John Ramsbottom as President. Mr. Ramsbottom brings
23 years of management, manufacturing and engineering strength from
Westinghouse, Emerson Electric and most recently Taylor Pipe Supports. He has
held the titles of Facilities and Development Manager, Engineering Manager, and
Director of Manufacturing and Engineering.
B. Business overview.
The Company has four principal subsidiaries, namely, Onlinetel Corp., K-Tronik
International Corporation, Eiger Net Inc. and ADH Custom Metal Fabricators, Inc.
ONLINETEL CORP.
Onlinetel Corp. is a telecommunications software and services company, which
harnesses the power of soft-switch technology to deliver state of the art Voice
over Internet Protocol (VoIP) communication services to individuals, businesses
and carriers. Utilizing soft switch technology, Onlinetel converts analog voice
conversation to digital I.P. packets and routes voice calls, phone-to-phone,
over the Internet from any wireless or landline connection. VoIP and the
integration of voice and data networks is a competitive threat to providers of
traditional telecom services because of the substantial increase in
communication cost efficiencies of both running voice and data over a single
integrated infrastructure and the ability to bypass per minute usage rates.
Using its Intelliswitch application, Onlinetel pioneered and developed a new
media for advertisers, enabling individuals and businesses to benefit from free
long distance calling in exchange for listening to a 15 second paid
advertisement, and enabling sponsors to benefit from one-to-one advertisements
to callers. The first commercial application of this advertisement-based calling
network was launched in the Greater Toronto Area (GTA) 905 area code. In 2001,
Onlinetel experienced dramatic growth in advertising revenue as its user base in
the GTA 905 area code grew to over 200,000 households, or just under 20% of the
market. Additionally, Onlinetel is currently processing over 15 million minutes
of traffic per month in this market.
In 2003, Onlinetel anticipates continuing to launch advertising based calling
networks in additional area codes nationally in order to significantly expand
its user base and advertising revenue. As well, by leveraging its technology
platform and scalable network infrastructure, Onlinetel has commenced several
potentially lucrative product offerings targeted to its growing user base;
lowest cost 10-10 based international calling, residential and corporate flat
rate subscription plans for unlimited calling between major centers nationally,
flat rate unlimited internet access services, and customized prepaid phone card
plans.
Onlinetel delivers toll-quality communications at relatively low long distance
rates. With reduced investment cost burdens, Onlinetel's soft-switch technology
reliably scales to service millions of callers. Onlinetel's continued expansion
of its own national network along with seamless and virtual connections
worldwide with leading carriers is anticipated to extend Onlinetel's reach to
the global community in the future.
14
K-TRONIK INTERNATIONAL CORPORATION
K-Tronik is a North American manufacturer of energy efficient electronic
ballasts for fluorescent lighting. K-Tronik supplies ballasts worldwide to OEMs
such as Lightolier, Fontana, Edison, Visioneering, Peerless and others. K-Tronik
has developed a broad product line, low cost production and one of the lowest
product defect rates in the growing energy technology industry (less than
0.04%).
K-Tronik had sales of CDN$10,107,000 in 2002, and has experienced steady sales
revenue from the previous year. This rapid growth is due in part to the United
States Department of Energy's mandate that all fluorescent lamp ballasts
produced after April 1, 2005 must be converted to energy efficient electronic
ballasts, as opposed to less efficient electromagnetic ballasts. Currently,
electronic ballasts represent 40% of the annual US $1 Billion North American
ballast market. The strong brand recognition and market share built by K-Tronik
over the past three years has also contributed significantly to its growth and
has positioned it for sales momentum in the future.
Based on this growth, Eiger announced its plans to take K-Tronik public in 2003
by way of a reverse acquisition with LMC Capital Corp., a US reporting issuer.
The decision to take K- Tronik public was also based on maximizing Eiger's
return on shareholder equity that, according to management, is currently not
reflected in Eiger's share price. The public listing of K-Tronik will
potentially enable Eiger to realize this value and raise working capital without
dilution to Shareholders through the sale of its K-Tronik shares to the public.
K-Tronik's strategy moving forward is to increase market share through the
acquisition of ESCO'S (General Contractors that specialize in conducting energy
efficiency audits of multiple tenant commercial buildings and retrofitting them
with high efficiency lighting ballasts) and various other component
manufacturers that supply the electronic ballast Industry. Integrating both the
manufacturing and distribution of ballasts will increase gross margin
substantially and will create operating efficiencies overall.
EIGER NET INC.
Eiger Net is involved in the R&D, engineering and manufacturing of CDMA and GSM
wireless phones, and multimedia and data communication cards such as 56K and DSL
modem cards, Home PNA cards, LAN cards, MP3 modules and other Internet access
devices for OEM consumer electronics companies worldwide. Eiger Net is located
in South Korea and has 30 employees.
In 2000 Eiger Net invested in new manufacturing capacity and obtained a QS 9000
certification in order to able to compete for large volume OEM consumer
electronics contracts. As a result of those initiatives, Eiger experienced
dramatic revenue growth in 2000 and was cash flow positive. Eiger Net has
commenced production of cellular phone assembly as is expected to continue
production throughout 2003.
15
However, the global economic downturn that began last year resulted in a
difficult year for Eiger Net in 2001. The cost of new investments coupled with
much lower production volumes than anticipated substantially increased unit
production costs thereby eliminating operating margins.
With continued growth of the Internet and the convergence of voice and data
networks, demand for multimedia and data communication cards that enable
consumer electronic devices to access those networks will grow. As such, Eiger
Net is positioned in growth areas of the computer components industry. However,
until there is evidence of an overall economic recovery, Eiger Net will
experience weaker than average operating results.
ADH CUSTOM METAL FABRICATORS INC.
ADH Custom Metal Fabricators is a fully integrated custom sheet metal
manufacturer that specializes in low volume custom enclosures and cabinets.
Products are custom engineered using the latest CAD technology and CNC
manufacturing equipment. Products are all built to NEMA specifications and can
range in size from a mailbox to a small house. In addition to its focus on
enclosures and cabinetry, ADH contract manufactures for nationwide distribution
of data and relay racks, custom control enclosures, fluorescent light fixtures
and store display fixtures. ADH fabricates using a wide variety of metals and
finishes including mild steels, aluminum, and stainless steel. ADH is located in
Stratford, Ontario, in a 55,000 square foot manufacturing facility on 35 acres
of land that is wholly owned by Eiger.
ADH went through significant restructuring in 2001 and, in November 2001 hired
John Ramsbottom as President. ADH identified certain high growth segments in the
electrical cabinetry and enclosure market that management believes will fuel
internal growth, and also developed an acquisition strategy to consolidate a
highly fragmented North American manufacturing industry. As part of this
consolidation strategy, Eiger announced in December 2001 that it is taking ADH
public by way of reverse acquisition of CDNX listed Newlook Capital Corp. in
order to utilize capital markets to facilitate its acquisition strategy.
Description of Principal Products
The Onlinetel subsidiary serves the retail and business market segments of the
long distance industry in Ontario with the rest of Canada being expanded into
within the next year. Currently, Onlinetel offers fee based long distance
service, advertising based long distance service, and ISP services.
The K-Tronik subsidiary serves the retro fit and new building electronic
fluorescent light ballast market in the USA, Canada, South America and Korea.
The K-Tronik energy efficient electronic ballast is manufactured in its factory
in Seoul, Korea with research and development facilities in both Seoul and New
Jersey.
16
The Company serves the major peripheral market segments of the computing
industry, being the communications, connectivity and storage segments, and has
designed its product line around providing solutions to customers in each of
these market segments. The Company manufactures computer peripherals such as
PCMCIA card data/fax modems, desktop PC modems, data storage and networking
devices and data storage cards for use in digital cameras (collectively, the
"Peripheral Products").
The ADH subsidiary serves the custom metal fabrication market in Southwestern
Ontario. ADH's principal products include data and relay racks, custom control
enclosures, fluorescent light fixtures and store display fixtures.
Sales and Revenue Analysis
Sales Fiscal 2002 Fiscal 2001 Fiscal 2000
- -------------------------------------- ----------- ----------- -----------
Computer Peripherals $ 5,882,000 $17,428,000 $47,513,000
Electronic Ballasts $10,107,000 $10,107,000 $ 6,718,000
Fabricated Products $ 1,418,000 $ 2,301,000 $ 2,839,000
VoIP Communication Services $ 1,917,000 $ 234,000 Nil
The computer peripheral products are distributed internationally, while the
electronic ballasts are distributed in the United States and the fabricated
products are distributed primarily in Canada (with a small amount, less than 3%,
being distributed in the U.S).
The component parts for various circuit boards used in the computer peripheral
and lighting ballast products are sourced from various large electronic
suppliers and are available from many sources. The Company's main business is
not seasonal.
Marketing and Distribution Channels
The Company's Onlinetel subsidiary markets its fee based long distance service
through offering the initial service free and allowing word of mouth to increase
the subscription base. When a critical mass is accomplished, the service is
turned over to a fee based service with a 15% retention rate. The advertising
based long distance service is marketed by an internal sales staff that market
Onlinetel services directly to advertising agencies and large advertisers.
The K-Tronik subsidiary has an extensive distribution network that includes a
head office sales force coupled with regional sales representatives. This has
allowed K-Tronik to sell to a broad base of customers in the construction and
retrofit sector of the U.S.A.
The key to the Eiger Net's distribution network is its ability to market its
product line effectively to major OEM's in Korea such as Samsung and LG.
17
ADH's distribution is performed by an internal sales force directly to
manufacturers in Southwestern Ontario.
C. Organizational structure.
The following is a list of each subsidiary of the Company and the jurisdiction
of incorporation and the direct or indirect percentage ownership by the Company
of each subsidiary:
Percentage of Voting
Jurisdiction of Securities Owned of
Name of Subsidiary Organization Controlled
- -------------------------------------- --------------- --------------------
Onlinetel Corp. Ontario 100%
Eiger Net, Inc. ("Eiger Net") South Korea 58%
K-Tronik International Corp. Nevada 64%
("K-Tronik")
ADH Custom Metal Fabricators Inc. Ontario 83%
"ADH")
Eiger Labs Group, Inc. ("Eiger Labs") California 64%
The following is an organizational chart showing the Company's material
subsidiaries:
----------------------
Eiger Technology, Inc.
----------------------
|
|
|
+-----------------------+----------------------+-------------------------+
| | | |
| | | |
| 100% | 58% | 64% | 83%
- ------------------ ---------------------- ------------------- ---------------------------
Onlinetel Corp. Eiger Net, Inc. K-Tronik Newlook Industries Corp.
(an Ontario corp.) (a South Korean corp.) International Corp. (an British Columbia corp.)
(a Nevada corp.)
- ------------------ ---------------------- ------------------- ---------------------------
D. Property, plants and equipment.
The Company's industrial facility is 55,000 square feet of mixed office,
manufacturing and engineering space located in an industrial designated area in
Stratford, Ontario. The
18
factory capacity currently utilizes 40% with presently one work shift. This
facility is situated on 31.8 acres of land of which 26 acres is available for
development or resale, although there are no current plans for either.
The land and property are subject to a first mortgage of $1,213,000, with a
balance of $625,000 at September 30, 2002.
The factory is a light gauge fabrication facility that produces energy efficient
fluorescent lighting fixtures and reflectors, electronic data racks and oversize
custom enclosures for the electrical industry.
The Company recently moved its EigerNet manufacturing facility to a modern
35,000 sq. ft. facility within Seoul, South Korea. This facility includes
equipment capable of manufacturing high quality, technologically complex printed
circuit board assemblies and electronic technical products. A second facility of
approximately the same size is also located in Seoul for the manufacturing of
electronic ballasts. Both facilities are leased.
Item 5. Operating and Financial Review and Prospects
The information provided in this section endeavors to summarize the company's
financial condition and results of operations for the periods specified,
including the causes for material changes to provide an understanding of the
company's business as a whole. The information also attempts to relate all
separate segments of the company. The discussion provided therein should be read
in conjunction with the Company's consolidated financial statements and related
notes.
A. Operating results.
Despite continued weakness in the global economy in 2002, Eiger was successful
in reducing overall losses. In fiscal 2002, earnings per share improved to
($0.15) from ($0.23) in fiscal 2001 and cash flow from operations improved to
($0.7 million) from ($4.7 million) during the same period. Despite revenue
growth at Onlinetel, overall revenue decreased to $19.3 million in fiscal 2002
compared to $30.1 million in fiscal 2001, mainly due to a reduction in Eiger Net
Inc.'s sales of $11.5 million reflecting continued weakness in the global
economy. Revenue from ongoing operations were as follows:
Increase
($000's) 2002 2001 (Decrease)
Onlinetel 1,917 234 1,683
Eiger 5,882 17,428 (11,546)
K-Tronik 10,107 10,107 --
ADH 1,418 2,301 (883)
------ ------- ----------
19,324 30,070 (10,746)
====== ======= ==========
19
Management is of the opinion that the economic recession will continue for the
remainder of 2003. Management also believes that cost savings businesses such as
energy saving electronic ballasts (K-Tronik) and VoIP (Onlinetel) should benefit
from a cost-conscious marketplace.
Onlinetel revenue increased due to the launch of Voice over IP telephony
services, including flat rate long distance subscription plans, 10-10 casual
calling long distance services, and carrier termination and origination
services. K-Tronik sales were maintained through a broadening of product
offerings and continued increase in brand recognition. ADH sales decreased due
to the reduction in outsourcing needed by its primary customers in South-western
Ontario. Sales at Eiger Labs and Eiger Net decreased as a result of reduced
consumer demand due to a weak global economy.
Expenses decreased approximately 2% during the year ended September 30, 2002 to
$9,809,000 from $9,947,000 for the year ended September 30, 2001. Selling,
General and Administrative Expenses ("SG&A") increased by approximately 8.7%
(2002: $8,451,000; 2001: $ 7,769,000), primarily due to recording a full year of
SG&A from Onlinetel in 2002 vis-a-vis 2 months of operations in the previous
year. SG&A consisted principally of salaries and benefits, and the operating
costs associated with sales at Eiger Labs, Eiger Net and K-Tronik.
While interest on long-term debt also decreased (September 30, 2002: $60,000;
September 30, 2001: $98,000), other interest and bank charges increased
(September 30, 2002: $501,000; September 30, 2001: $480,000). This was due to a
reduction in long-term debt at Eiger Group of Companies.
Amortization of goodwill and other assets decreased from $1,032,000 in fiscal
2001 to $235,000 in fiscal 2002.
B. Liquidity and capital resources.
At September 30, 2002, the Company's cash position has decreased to $3,635,000
from $5,993,000 at the end of September 30, 2001 and its working capital
decreased by $7,873,000 to $4,942,000 at September 30, 2002, $ 2,390,000
principally as a result of investment commitments funded during the year at
Onlinetel. The Company increased its share capital from $42,001,000 at September
30, 2001 to $42,235,000 at September 30, 2002, through the issuance of 400,000
shares at an average price of $ 0.64.
The decrease in the Company's accounts receivable to $ 5,004,000 at September
30, 2002 from $8,759,000 at September 30, 2001 is due to the decrease in the
volume of business at Eiger Net.
Inventory decreased to $4,493,000 September 30, 2002 from $6,545,000 as a result
in the decrease in the volume of business at Eiger Net. Accounts payable
decreased from $5,616,000 to $4,395,000.
20
C. Research and development, patents and licenses, etc.
Research and development expenses were nil ($20,000: 2001; $987,000: 2000) for
the year ended September 30, 2002 as a result of a cost cutting program in place
until the economy improves.
The Company has employed trained professionals to perform its research and
development work, most of whom have work experience in the field of computer
technology and product development for established corporations such as Samsung
and Garnet Systems.
Management believes that the Company has a competitive advantage over many of
its competitors in terms of product development and market rollout as it has
conducted all of its own research and development, which management believes
many of its competitors do not. This has enabled management to monitor both the
timely development of products with a view to current technology and market
demand as well as controlling the cost-effectiveness of research and development
activities, thereby reducing overhead costs and the risk of timing delays that
could lead to introduction of obsolete products into the rapidly changing
marketplace in which the Company operates.
D. Trend information.
The Company is currently affected by several industry trends. One trend is that
of the expansion of Voice over Internet Protocol (VoIP) usage in North America.
VoIP is expected to a high growth market over the next few years. For example,
revenue from VoIP services is expected to be $32 Billion in 2005, up from $1.8
Billion in 2000 according to iLocus. Additionally, Frost & Sullivan has
commented that the compounded annual growth rate of VoIP services from 1999-2006
will be 182%. The impetus for this growth is the competitive threat that VoIP
poses to providers of traditional telecom services. Essentially, VoIP
substantially increases communication cost efficiencies by running voice and
data over a single integrated infrastructure and bypassing traditional per
minute telecommunication usage rates.
Through its wholly owned subsidiary, Onlinetel Corp., Eiger is positioned to
play a principal role in the Canadian VoIP services market. Through its
advertising based calling network, Onlinetel currently has a user base of over
250,000 households in the Greater Toronto Area (GTA) 905 area code and processes
over 15 million minutes of traffic per month in this market. In 2002, Onlinetel
anticipates launching additional advertising based calling networks nationally
in order to significantly expand its user base and introducing several
potentially lucrative VoIP products to its growing user base; lowest cost 10-10
based international calling, residential and corporate flat rate subscription
plans for unlimited calling between major centers nationally, flat rate
unlimited internet access services, and customized prepaid phone card plans.
The second less significant trend is that of cyclical oversupply in the PC
industry which affects Eiger's core operating revenue. Currently, the majority
of Eiger's revenue is derived from the OEM manufacture of conventional modem and
modem related
21
computer products such as 56K modems and modem/LAN cards. The current cyclical
trend of oversupply in the PC industry, coupled with reduced consumer spending
and overall economic activity has the effect of a reduction in orders for
components. This trend began in the first fiscal quarter of 2000 and, although
this oversupply of inventory has been worked down somewhat by major computer
companies, it is likely to persist for at least the next two quarters, resulting
in a reduction of orders for Eiger's manufacturing facility in Korea.
Item 6. Directors, Senior Management and Employees
A. Directors and senior management.
The following is a list of the current directors and senior officers of the
Company, their municipalities of residence, their current position with the
Company and their principal occupations:
Gerry A. Racicot Norwich ON President, C.E.O., and Director
Director since August 21, 1992.
Mr. Racicot has a long career in administration, management and self-employment.
The majority of these years were spent as an Investment Account Executive at a
major Canadian brokerage house (Burns Fry), import/export wholesale distribution
and retail business (Red Mountain Holdings Inc. - Stedmans). Mr. Racicot is
wholly involved in managing Eiger's business operations.
Keith Attoe Toronto ON C.F.O. and Director
Director since February 23, 1996.
Mr. Attoe is a Chartered Accountant who practiced in the City of Toronto for 11
years prior to joining the Company. His experience includes corporate financing,
project financing, portfolio management, US/CDA tax planning, investment
strategy and treasury management. Mr. Attoe's clients have included CN and
Deloitte Touche. Mr. Attoe is wholly involved in managing Eiger's business
operations.
Sidney S. Harkema Orillia ON Director
Director since August 22, 1992.
Mr. Harkema founded and built one of Canada's largest privately owned transport
and express companies (Harkema Trucking Group). He served as President and
Chairman of the Board for 27 years. He has since sold the entire trucking
operation, cartage equipment and all 18 terminals located throughout the country
and has devoted his time to public service organizations (principally as
Chairman of the Huntley St. Group of Ministries). Mr. Harkema is not involved in
managing Eiger's daily business operations.
Robert Hoegler Richmond BC Director
Director since February 23, 1996.
22
Mr. Hoegler is an independent businessman who operates a public relations firm
in the junior industrial sector group of companies under his own name. He is
also a director of MCA Equities Ltd, a private management company. Mr. Hoegler
is not involved in managing Eiger's daily business operations.
There are no arrangements or understandings between any of the officers or
directors of the Company as to their election or employment, nor are there any
family relationships.
B. Compensation.
For the year ended September 30, 2002 Gerry Racicot was compensated $228,000 for
his role as President of the Company. For the same period, Keith Attoe received
$228,000 for his role as C.F.O. of the Company.
A total of 21 persons served as members of the administrative, supervisory or
management bodies of the subsidiaries of the Company during fiscal 2002. The
aggregate remuneration paid to such persons was approximately $2.0 million.
The following it a list of stock options granted during the last full financial
year to members of the Company's executives.
Name Quantity Exercise price Expiry
- ------------------------------------ -------- -------------- -------------
Gerry Racicot 325,000 $.50 March 5, 2007
Keith Attoe 325,000 $.50 March 5, 2007
Sidney Harkema 75,000 $.50 March 5, 2007
Rob Hoegler 75,000 $.50 March 5, 2007
None of the above options were exercised during the Company's most recently
completed financial year.
There are no other arrangements under which directors or members of the
Company's administrative, supervisory or management bodies were compensated by
the Company during the most recently completed financial year for their
services.
No plan exists, and no amount has been set aside or accrued by the Company or
any of its subsidiaries, to provide pension, retirement or similar benefits for
directors or officers of the Company, or any of its subsidiaries.
C. Board practices.
The directors of the Company are elected annually and hold office until the next
annual general meeting of the Company's shareholders or until their successors
in office are duly elected or appointed. All of the Company's directors were
elected at the Company's most recent annual general meeting, which took place on
April 12, 2001. Under the
23
Company Act (Ontario) the Company is required to hold an annual general meeting
no more than 15 months after its most recent annual general meeting.
There are no service contracts with the Company or any of it subsidiaries for
the directors providing benefits upon termination of their service.
The Company does not have an executive committee. The audit committee is
comprised of Keith Attoe, Sidney Harkema and Robert Hoegler. The committee
operates within the guidelines of the Toronto Stock Exchange.
D. Employees.
The Company and its subsidiaries employ approximately 82 employees worldwide.
The following is a breakdown of persons employed by main category of activity
and geographic location for the last full financial year:
Administrative/ Sales/
Location Clerical Marketing Manufacturing
- ---------------------------------- --------------- --------- -------------
Canada 13 5 16
United States 3 9 6
Korea 5 5 20
The significant change in the number of employees was primarily due to the
impact of the addition of Onlinetel and the reduction of staffing levels at
Eiger Net due to cost controls established as a result of reduced economic
activity.
The Company and its subsidiaries have no involvement with labour unions. The
Company and its subsidiaries do not employ a significant number of temporary
employees.
E. Share ownership.
Number of Voting Shares
Beneficially Owned or
Name and Address Occupation Director Since Controlled Directly or Indirectly
- ----------------- ----------------------- ----------------- ---------------------------------
Gerry A. Racicot President, Chief August 21, 1992 1,456,530(1)
Norwich, ON Executive Officer and
Director
Keith Attoe Chief Financial Officer February 23, 1996 3,200(2)
Toronto, ON and Director of the
Company;
Sidney S. Harkema Director of the August 21, 1992 1,509,100(3)
Orillia, ON Company; retired
24
Robert Hoegler Director of the February 23, 1996 Nil(4)
Richmond, BC Company; director of
MCA Equities Ltd., (a
private management
company)
(1) Mr. Racicot also holds options to purchase 1,250,000 Shares.
(2) Mr. Attoe also holds options to purchase 1,000,000 Shares.
(3) Mr. Harkema also holds options to purchase 200,000 Shares.
(4) Mr. Hoegler holds options to purchase 150,000 Shares.
Number of Shares
Beneficially Owned
or Controlled Percentage of
Directly or Total Shares
Name Indirectly Issued(1)
- ------------------------------------------ ------------------ -------------
Directors and Officers as a Group 2,969,230 8.1%
(1) Based on a total of 36,615,853 Common shares issued and outstanding as at
February 28, 2003.
At the discretion of the Board, the stock option plan may be exercised in
consideration of services rendered and to be rendered by key personnel and
consultants to the Company, its subsidiaries and affiliates.
Item 7. Major Shareholders and Related Party Transactions
A. Major shareholders.
To the Company's knowledge no person holds five percent or more of the Company's
common shares. There has been no significant change in percentage ownership held
by any major shareholder.
All common shareholders have identical voting rights.
There is no trading market for the common shares in the United States. The
following table indicates the approximate number of record holders of common
shares with U.S. addresses and portion and percentage of common shares so held
in the U.S. The calculation is based on the total issued and outstanding as
stated in item 6.E.
Number of Number of Common % of Common shares
U.S. Holders shares held in U.S. held in U.S.
- ------------ ------------------- ------------------
13 2,654,121 7.25 %
The computation of the number and percentage of common shares held in the United
States is based upon the number of common shares held by record holders with
United States addresses and by trusts, estates or accounts with United States
addresses as disclosed to the Company following inquiry to all record holders
known to the trustees,
25
executors, guardians, custodians or the fiduciaries holding common shares for
one or more trusts, estates, or accounts. United States residents may
beneficially own common shares held of record by non-United States residents.
A substantial number of common shares are held in "Street Name" by trustees,
executors, guardians, custodians or other fiduciaries, including depositories,
brokerage firms and financial institutions. Management is unable to determine
the total number of individual shareholders that this represents.
To the Company's knowledge, the Company is not directly or indirectly owned or
controlled by another corporation(s) or by any foreign government.
The Management does not anticipate any change in the control of the Company.
B. Related party transactions.
No director, executive officer nor any of their associates or affiliates has or
has had an interest in material transactions of the Company.
All transactions within the corporate group are in the normal course of
business, are transacted at fair market value, are recorded at the carrying
value at the time and are eliminated upon consolidation.
C. Interests of experts and counsel.
Not Applicable
Item 8. Financial Information
A. Consolidated Statements and Other Financial Information.
The following financial statements have been audited by an independent auditor,
are accompanied by an audit report, and are attached and incorporated herein:
(a) balance sheet;
(b) income statement;
(c) statement showing changes in equity
(d) cash flow statement;
(e) related notes and schedules required by the comprehensive body of
accounting standards pursuant to which the financial statements are prepared;
and
26
(f) a note analyzing the changes in each caption of shareholders' equity
presented in the balance sheet.
Incorporated herewith are the comparative financial statements covering the
latest three financial years, audited in accordance with a comprehensive body of
auditing standards.
Export Sales
Total Sales Export Sales Export Sales as % of Total Sales
- ----------- ------------ --------------------------------
$19,324,000 $16,145,000 83.55%
Legal Proceedings
There are no material pending legal proceedings to which the Company is a party
or of which any of its subsidiaries or properties are subject. Management is not
aware of any material proceedings in which any director, any member of senior
management, or any of the Company's affiliates are a party adverse to, or have a
material interest adverse to the Company or its subsidiaries.
Dividend Policy
The Company has not paid dividends on the common shares in any of its last five
fiscal years. The directors of the Company will determine if and when dividends
should be declared and paid in the future based on the Company's financial
position at the relevant time. All of the common shares of the Company are
entitled to an equal share in any dividends declared and paid.
B. Significant Changes.
There have been no significant changes since the date of the annual financial
statements included in this document.
Item 9. The Offer and Listing.
A. Offer and listing details.
Information regarding the price history of the stock.
Calendar Period High (Cdn$) Low (Cdn$) Volume
Month Ended
27
February, 2003 0.85 0.53 1,039,007
January, 2003 0.83 0.53 1,623,484
December, 2002 0.65 0.50 1,008,095
November, 2002 0.80 0.50 1,333,888
October, 2002 0.84 0.50 1,520,524
Quarter Ended
September 30, 2002 1.55 0.50 4,012,933
June 30, 2002 2.24 0.85 15,040,108
March 31, 2002 1.15 0.38 7,259,916
December 31, 2001 0.63 0.37 6,288,712
September 30, 2001 0.80 0.40 3,190,200
June 30, 2001 1.05 0.39 4,339,300
March 31, 2001 0.63 0.38 4,223,000
December 31, 2000 3.70 2.05 4,081,600
Year Ended
September 30, 2000 10.30 0.90 37,181,900
September 30, 1999 1.73 0.22 10,682,000
September 30, 1998 0.95 0.25 1,506,157
Prior to October 11, 1996, all trades were cleared through the VSE and
subsequent to that date all trades were cleared on the TSE.
B. Plan of distribution.
Not Applicable.
C. Markets.
The common shares of the Company were listed for trading on the Toronto Stock
Exchange (the "TSE") on October 11, 1996 and previous to this, on the Vancouver
Stock Exchange (the "VSE") on April 3, 1991 under the symbol "AXA".
The common shares were listed on the NASD OTC Electronic Bulletin Board on
October 8, 1997 and trade under the symbol "ETIFF".
D. Selling shareholders.
Not Applicable.
F. Dilution.
Not Applicable.
F. Expenses of the issue.
28
Not Applicable.
Item 10. Additional Information.
A. Share capital.
Not Applicable.
B. Memorandum and articles of association.
The Company is incorporated under the laws of the Province of Ontario, Canada
and has been assigned company number 942684, with its registered office situated
at 330 Bay St., Suite 602, Toronto, ON M5H 2S8, Canada. The telephone number at
that location is (416) 216-8659.
The purpose of the Company is to perform any and all corporate activities
permissible under Ontario law. A director may vote in respect of any contract or
arrangement in which such director has an interest notwithstanding. Such
director's interest and an interested director will not be liable to the Company
for any profit realized through and such contract or arrangement by reason of
such director holding the office of director. The remuneration of the directors
shall from time to time be determined by the Company by ordinary resolution.
Directors of the Company are not required to own shares of the Company in order
to serve as directors.
The share capital of the Company is an unlimited number of authorized common
shares and 36,615,853 common shares outstanding as at the fiscal year end
September 30, 2002 and is unchanged as of March 28, 2003.
All common shares rank equally with other common shares, entitling the common
shareholder to one vote at the annual shareholder's meeting.
There are no provisions for a classified board of directors or for cumulative
voting for directors.
There are no limitations on the rights to own securities, including the rights
of non-resident or foreign shareholders to hold or exercise voting rights on the
securities.
There are no provisions in the Articles of Incorporation that would have the
effect of delaying, deferring or preventing a change in control of the Company
and that would operate only with respect to a merger, acquisition or corporate
restructuring involving the Company (or any of its subsidiaries).
There are no provisions in the Articles of Incorporation governing the ownership
threshold above which shareholder ownership must be disclosed. United States
federal
29
law and Ontario provincial securities law, however, requires that all directors,
executive officers and holders of 10% or more of the stock of a company that has
a class of stock registered under the Securities Exchange Act of 1934, as
amended, disclose such ownership. In addition, holders of more than 5% of a
registered equity security must disclose such ownership.
C. Material contracts.
The Company has not entered into any material contracts, other than in the
ordinary course of business, during the preceding two years.
D. Exchange controls.
Canada has no system of currency exchange controls. There are no exchange
restrictions on borrowing from foreign countries nor on the remittance of
dividends, interest, royalties and similar payments, management fees, loan
repayments, settlements of trade debts or the repatriation of capital.
The Investment Canada Act (the "ICA"), enacted on June 20, 1985, requires prior
notification to the Government of Canada on the "acquisition of control" of
Canadian businesses by a non-Canadian, as defined by the ICA. Certain
acquisitions of control, discussed below, are reviewed by the Government of
Canada. The term "acquisition of control" is defined as one or more non-Canadian
persons acquiring all or substantially all of the assets used in the Canadian
business, or the acquisition of the voting shares of a Canadian corporation
carrying on the Canadian business, or the acquisition of the voting interests of
an entity controlling or carrying on the Canadian business. The acquisition of
the majority of the outstanding shares is deemed to be an "acquisition of
control" of a corporation. The acquisition of less than a majority, but
one-third or more, of the voting shares of a corporation is presumed to be an
"acquisition of control" of a corporation unless it can be established that the
purchaser will not control the corporation.
Investments requiring notification and review are all direct acquisitions of
Canadian business with assets of Cdn. $5,000,000 or more (subject to the
comments below on WTO investors) and all indirect acquisitions of Canadian
businesses (subject to the comments below on WTO investors) with assets of more
than Cdn. $50,000,000 or with assets of between $5,000,000 and Cdn. $50,000,000
which represent more than 50% of the value of the total international
transactions. In addition, specific acquisitions or new business in designated
types of business activities related to Canada's cultural heritage or national
identity could be reviewed if the government of Canada considers that it is in
the public interest to do so.
The ICA was amended with the implementation of the agreement establishing the
World Trade Organization ("WTO") to provide for special review of thresholds for
"WTO investors", as defined in the ICA. "WTO investors" generally means:
30
(a) an individual, other than a Canadian, who is a member of a WTO member (such
as, for example, the United States), or who has the right of permanent residence
in relation to that WTO member.
(b) governments of WTO members; and
(c) entities that are not Canadian controlled, but which are WTO investor
controlled as determined by the rules specified in the ICA.
The special review thresholds for WTO investors do not apply, and general rules
described above do not apply, to the acquisition of control of certain types of
businesses specified in the ICA, including business that is a "cultural
business". If the WTO investor rules apply, an investment in the shares of the
Company by or from a WTO investor will be reviewable only if it is an investment
to acquire control of the Company and the value of the assets of the Company is
equal to or greater than a specified amount (the "WTO Review Threshold"). The
WTO Review Threshold is adjusted annually by using a formula relating to
increases in the nominal gross domestic product of Canada. The 1996 WTO Review
Threshold is Cdn. $168,000,000.
If any non-Canadian, whether or not a WTO investor, acquires control of the
Company by the acquisition of shares, but the transaction is not reviewable as
described above, the non-Canadian is required to notify the Canadian government
and to provide certain basic information relating to the investment. A
non-Canadian, or non-WTO investor, is required to provide a notice to the
government on the establishment of a new Canadian business. If the business of
the Company is then a prescribed type of business activity related to Canada's
cultural heritage or national identity, and if the Canadian government considers
it in the public interest to do so, then the Canadian government may give a
notice in writing within 21 days requiring the investment to be reviewed.
For non-Canadian (other than WTO investors), and indirect acquisition of
control, by the acquisition of voting interests of an entity that directly or
indirectly controls the Company, is reviewable if the value of the assets of the
Company is then Cdn. $50,000,000 or more. If the WTO investor rules apply, then
this requirement does not apply to a WTO investor, or to a person acquiring the
entity from a WTO investor. Special rules specified in the ICA apply if the
assets of the Company is more than 50% of the value of the assets of the entity
so acquired. By these special rules, if the non-Canadian (whether or not a WTO
investor) is acquiring control of an entity that directly or indirectly controls
the Company, and the value of the assets of the company and all other entities
carrying on business in Canada, calculated in the manner provided by the ICA and
the regulations under the ICA, of the assets of all entities, the control of
which is acquired, directly or indirectly, in the transaction of which the
acquisition of control of the Company forms a part, then the threshold for a
direct acquisition of control as discussed above will apply, that is, a WTO
Review Threshold of Cdn. $168,000,000 (n 1996) for a WTO investor or a threshold
of CDN. $5,000,000 for non-Canadian other than a WTO investor. If the value
exceeds that level the transaction must be reviewed in
31
the same manner as a direct acquisition of control by the purchase of shares by
the Company.
If an investment is renewable, an application for review in the form prescribed
by the regulations is normally required to be filed with the Director appointed
under the ICA (the "Director") prior to the investment taking place and the
investment may not be consummated until the review has been completed. There
are, however, certain exceptions. Applications concerning indirect acquisitions
may be filed up to 30 days after the investment is consummated and applications
concerning reviewable investments in culture-sensitive sectors are required upon
receipt of a notice for review. In addition, the Minister (a person designated
as such under the ICA) may permit an investment to be consummated prior to
completion of the review, if he is satisfied that the delay would cause undue
hardship to the acquirer or jeopardize the operations of the Canadian business
that is being acquired. The Director will submit the application to the
Minister, together with any other information or written undertakings given by
the acquirer and any representation submitted to the Director by a province that
is likely to be of net benefit to Canada, taking into account the information
provided and having regard to certain factors of assessment where they are
relevant. Some of the factors to be considered are:
(a) the effect of the investment on the legal economic activity in Canada,
including the effect on employment, on resource processing, and on the
utilization of parts, components and services produced in Canada;
(b) the effect of the investment on exports from Canada;
(c) the degree and significance of participation by Canadians in the Canadian
business and in any industry in Canada of which it forms a part;
(d) the effect of the investment on productivity, industrial efficiency,
technological development, product innovation and product variety in Canada;
(e) the effect of the investment on competition within any industry or
industries in Canada;
(f) the compatibility of the investment with national, industrial, economic, and
cultural policies;
(g) the compatibility of the investment with national, industrial, economic, and
cultural policies taking into consideration industrial, economic, and cultural
objectives enunciated by the government of legislature of any province likely to
be significantly affected by the investment; and
(h) the contribution of the investment to Canada's ability to compete in world
markets.
To ensure prompt review, the ICA set certain time limits for the Director and
the Minister. Within 45 days after a completed application has been received,
the Minister
32
must notify the acquirer that he is satisfied that the investment is likely to
be of net benefit to Canada, or that he is unable to complete his review, in
which case he shall have 30 additional days to complete his review (unless the
acquirer agrees to longer period), or he is not satisfied that the investment is
likely to be of net benefit to Canada.
Where the Minister has advised the acquirer that he is not satisfied that the
investment is likely to be of net benefit to Canada, the acquirer has the right
to make representations and submit undertakings within 30 days of the date of
notice (or any period that is agreed upon between the acquirer and the
Minister). On the expiration of the 30 day period (or the agreed-upon
extension), the Minister must quickly notify the acquirer that he is not
satisfied that the investment is likely to be of net benefit to Canada. In the
latter case, the acquirer my not proceed with the investment or, if the
investment has already been consummated, must divest itself of control of the
Canadian business.
The ICA provides civil remedies for non-compliance with any provision. There are
also criminal penalties for breach of confidentiality or providing false
information.
Except as provided in the ICA, there are no limitations under the laws of
Canada, the Province of British Columbia, or in any constituent documents of the
Company on the right of non-Canadians to hold or vote the common shares of the
Company.
E. Taxation.
Certain United States Federal Income Tax Consequences
The following is a general discussion of the material United States Federal
income tax law for U.S. holders that hold such common shares as a capital asset,
as defined under United States Federal income tax law and is limited to
discussion of U.S. Holders that own less than 10% of the common stock. This
discussion does not address all potentially relevant Federal income tax matters
and it does not address consequences peculiar to persons subject to special
provisions of Federal income tax law, such as those described below as excluded
from the definition of a U.S. Holder. In addition, this discussion does not
cover any state, local or foreign tax consequences.
The following discussion is based upon the sections of the Internal Revenue Code
of 1986, as amended to the date hereof (the "Code"), Treasury Regulations,
published Internal Revenue Service ("IRS") rulings, published administrative
positions of the IRS and court decisions that are currently applicable, any or
all of which could be materially and adversely changed, possibly on a
retroactive basis, at any time. In addition, this discussion does not consider
the potential effects, both adverse and beneficial, of any future legislation
which, if enacted, could be applied, possibly on a retroactive basis, at any
time. The following discussion is for general information only and it is not
intended to be, nor should it be construed to be, legal or tax advice to any
holder or prospective holder of common shares of the Company and no opinion or
representation with respect to the United States Federal income tax consequences
to any such holder or prospective holder is made. Accordingly, holders and
prospective holders of common shares of the
33
Company should consult their own tax advisors about the Federal, state, local,
and foreign tax consequences of purchasing, owning and disposing of common
shares of the Company.
U.S. Holders
As used herein, a "U.S. Holder" is a holder of common shares of the Company who
or which is a citizen or individual resident (or is treated as a citizen or
individual resident) of the United States for federal income tax purposes, a
corporation or partnership created or organized (or treated as created or
organized for federal income tax purposes) in the United States, including only
the States and District of Columbia, or under the law of the United States or
any State or Territory or any political subdivision thereof, or a trust or
estate the income of which is includable in its gross income for federal income
tax purposes without regard to its source, if, (i) a court within the United
States is able to exercise primary supervision over the administration of the
trust and (ii) one or more United States trustees have the authority to control
all substantial decisions of the trust. For purposes of this discussion, a U.S.
Holder does not include persons subject to special provisions of Federal income
tax law, such as tax-exempt organizations, qualified retirement plans, financial
institutions, insurance companies, real estate investment trusts, regulated
investment companies, broker-dealers and Holders who acquired their stock
through the exercise of employee stock options or otherwise as compensation.
Distributions on common shares of the Company
U.S. Holders receiving dividend distributions (including constructive dividends)
with respect to common shares of the Company are required to include in gross
income for United States Federal income tax purposes the gross amount of such
distributions to the extent that the Company has current or accumulated earnings
and profits, without reduction for any Canadian income tax withheld from such
distributions. Such Canadian tax withheld may be credited, subject to certain
limitations, against the U.S. Holder's United States Federal income tax
liability or, alternatively, may be deducted in computing the U.S. Holder's
United States Federal taxable income by those who itemize deductions. (See more
detailed discussion at "Foreign Tax Credit" below). To the extent that
distributions exceed current or accumulated earnings and profits of the Company,
they will be treated first as a return of capital up to the U.S. Holder's
adjusted basis in the common shares and thereafter as gain from the sale or
exchange of the common shares. Preferential tax rates for long-term capital
gains are applicable to a U.S. Holder which is an individual, estate or trust.
There are currently no preferential tax rates for long-term capital gains for a
U.S. Holder which is a corporation.
Dividends paid on the common shares of the Company will not generally be
eligible for the dividends received deduction provided to corporations receiving
dividends from certain United States corporations. A U.S. Holder which is a
corporation may, under certain circumstances, be entitled to a 70% deduction of
the United States source portion of dividends received from the Company if such
U.S. Holder owns shares representing at least 10% of the voting power and value
of the Company. The availability of this
34
deduction is subject to several complex limitations, which are beyond the scope
of this discussion.
Foreign Tax Credit
A U.S. Holder who pays (or has withheld from distributions) Canadian income tax
with respect to the ownership of common shares of the Company may be entitled,
at the option of the U.S. Holder, to either a deduction or a tax credit for such
foreign tax paid or withheld. Generally, it will be more advantageous to claim a
credit because a credit reduces United States Federal income taxes on a
dollar-for-dollar basis, while a deduction merely reduces the taxpayer's income
subject to tax. This election is made on a year-by-year basis and applies to all
foreign taxes paid by (or withheld from) the U.S. Holder during that year. There
are significant and complex limitations, which apply to the credit, among which
is the general limitation that the credit cannot exceed the proportionate shares
of the U.S. Holder's United States income tax liability that the U.S. Holder's
foreign source income bears to his or its world-wide taxable income. In the
determination of the application of this limitation, the various items of income
and deduction must be classified into foreign and domestic sources. Complex
rules govern this classification process. There are further limitations on the
foreign tax credit for certain types of income such as "passive income," "high
withholding tax interest," "financial services income," "shipping income" and
certain other classifications of income. The availability of the foreign tax
credit and the application of the limitations on the credit are fact specific
and holders and prospective holders of common shares of the Company should
consult their own tax advisors regarding their individual circumstances.
Disposition of common shares of the Company
A U.S. Holder will recognize gain or loss upon the sale of common shares of the
Company equal to the difference, if any, between the amount of cash plus the
fair market value of any property received, and the Holder's tax basis in the
common shares of the Company. This gain or loss will be capital gain or loss if
the common shares are a capital asset in the hands of the U.S. Holder. Any
capital gain will be a short-term or long-term capital gain or loss depending
upon the holding period of the U.S. Holder. Gains and losses are netted and
combined according to special rules in arriving at the overall capital gain or
loss for a particular tax year. Deductions for net capital losses are subject to
significant limitations. For U.S. Holders which are individuals, any unused
portion of such net capital loss may be carried over to be used in later tax
years until such net capital loss is thereby exhausted. For U.S. Holders which
are corporations (other than corporations subject to Subchapter S of the Code),
an unused net capital loss may be carried back three years from the loss year
and carried forward five years from the loss year to be offset against capital
gains until such net capital loss is thereby exhausted.
Canadian Federal Income Taxation
The following discussion summarizes the principal Canadian federal income tax
considerations generally applicable to a person who owns one or more common
shares of
35
the Company (the "Shareholder"), and who at all material times for the purposes
of the Income Tax Act (Canada) (the "Canadian Act") deals at arm's length with
the Company, holds all common shares solely as capital property, is a
non-resident of Canada, and does not, and is not deemed to, use or hold any
Common share in or in the course of carrying on business in Canada. It is
assumed that the common shares will at all material times be listed on a stock
exchange that is prescribed for the purposes of the Canadian Act.
This summary is based on the current provisions of the Canadian Act, including
the regulations thereunder, and the Canada-United States Income Tax Convention
(1980) (the "Treaty") as amended. This summary takes into account all specific
proposals to amend the Canadian Act and the regulations thereunder publicly
announced by the government of Canada to the date hereof and the Company's
understanding of the current published administrative and assessing practices of
Canada Customs and Revenue Agency. It is assumed that all such amendments will
be enacted substantially as currently proposed, and that there will be no other
material change to any such law or practice, although no assurances can be given
in these respects. Except to the extent otherwise expressly set out herein, this
summary does not take into account any provincial, territorial or foreign income
tax law or treaty.
This summary is not, and is not to be construed as, tax advice to any particular
Shareholder. Each prospective and current Shareholder is urged to obtain
independent advice as to the Canadian income tax consequences of an investment
in common shares applicable to the Shareholder's particular circumstances.
A Shareholder generally will not be subject to tax pursuant to the Canadian Act
on any capital gain realized by the Shareholder on a disposition of a Common
share unless the Common share constitutes "taxable Canadian property" to the
Shareholder for purposes of the Canadian Act and the Shareholder is not eligible
for relief pursuant to an applicable bilateral tax treaty. A Common share that
is disposed of by a Shareholder will not constitute taxable Canadian property of
the Shareholder provided that the Common share is listed on a stock exchange
that is prescribed for the purposes of the Canadian Act (the Toronto Stock
Exchange is so prescribed), and that neither the Shareholder, nor one or more
persons with whom the Shareholder did not deal at arm's length, alone or
together at any time in the five years immediately preceding the disposition
owned, or owned any right to acquire, 25% or more of the issued shares of any
class of the capital stock of the Company. In addition, the Treaty generally
will exempt a Shareholder who is a resident of the United States for the
purposes of the Treaty, and who would otherwise be liable to pay Canadian income
tax in respect of any capital gain realized by the Shareholder on the
disposition of a Common share, from such liability provided that the value of
the Common share is not derived principally from real property (including
resource property) situated in Canada or that the Shareholder does not have, and
has not had within the 12-month period preceding the disposition, a "permanent
establishment" or "fixed base," as those terms are defined for the purposes of
the Treaty, available to the Shareholder in Canada. The Treaty may not be
available to a non-resident Shareholder that is a U.S. LLC, which is not subject
to tax in the U.S.
36
Any dividend on a Common share, including a stock dividend, paid or credited, or
deemed to be paid or credited, by the Company to a Shareholder will be subject
to Canadian withholding tax at the rate of 25% on the gross amount of the
dividend, or such lesser rate as may be available under an applicable income tax
treaty. Pursuant to the Treaty, the rate of withholding tax applicable to a
dividend paid on a Common share to a Shareholder who is a resident of the United
States for the purposes of the Treaty will be reduced to 5% if the beneficial
owner of the dividend is a company that owns at least 10% of the voting stock of
the Company, and in any other case will be reduced to 15%, of the gross amount
of the dividend. It is Canada Customs and Revenue Agency's position that the
Treaty reductions are not available to a Shareholder that is a "limited
liability company" resident in the United States. The Company will be required
to withhold any such tax from the dividend, and remit the tax directly to Canada
Customs and Revenue Agency for the account of the Shareholder.
F. Dividends and paying agents.
Not Applicable.
G. Statement by experts.
Not Applicable.
H. Documents on display.
The documents concerning the Company which are referred to in the document are
located at its principal executive office in Toronto, at the address stated at
the beginning of this document.
I. Subsidiary Information.
Not Applicable.
Item 11. Quantitative and Qualitative Disclosures About Market Risk.
Not Applicable.
Item 12. Description of Securities other than Equity Securities.
Not Applicable.
PART II
Item 13. Defaults, Dividend Arrearages and Delinquencies.
37
Not Applicable.
Item 14. Material Modifications to the Rights of Security Holders and Use of
Proceeds.
Not Applicable.
Item 15. Controls and Procedures.
Our Chief Executive Officer and Chief Financial Officer, after evaluating the
effectiveness of the Company's disclosure controls and procedures (as defined in
US Exchange Act Rule 13a-14(c)) within 90 days of the date of this Form 20-F,
have concluded that, as of such date, the Company's disclosure controls and
procedures were effective to ensure that material information relating to the
Company was made known to them by others within the Company particularly during
the period in which this Form 20- F was being prepared.
There were no significant changes in the Company's internal controls or in other
factors that could significantly affect these controls subsequent to the date
our Chief Executive Officer and our Chief Financial Officer completed their
evaluation, nor were there any significant deficiencies or material weaknesses
in the Company's internal controls requiring corrective actions.
Item 16. [Reserved]
38
PART III
Item 17. Financial Statements.
Not Applicable.
Item 18. Financial Statements.
The following financial statements are attached to and form part of this Annual
Report:
Audit Report
Audited Consolidated Financial Statements of the Company for the years ended
September 30, 2002, September 30, 2001 and September 30, 2000.
Item 19. Exhibits.
Exhibit Number
Page
1.1 Certificate of Incorporation dated September 8, 1986. *
1.2 Certificate of Name Change dated November 26, 1999. *
1.3 Articles (Bylaws) of the Corporation. *
1.4 Company Stock Option Plan *
4.a.1 Plan of Exchange dated as of August 3, 2001 between Onlinetel and
Eiger Technology, Inc. *
4.a.2 Share Purchase Agreement dated as of November 8, 2001 among ETIFF
Holdings Inc., K-Tronik International Corp., and LMC Capital Corp. *
4.a.3 Share Purchase Agreement dated as of December 19, 2001 among
Vision Unlimited Equipment Inc., ADH Custom Metal Fabricators
Inc., and Newlook Capital Corp. *
99.1 Section 906 Certification
* Adopted by reference, as previously filed with the Commission.
39
SIGNATURES
The registrant hereby certifies that it meets all of the requirements for
filing on Form 20-F and that it has duly caused and authorized the undersigned
to sign this Annual Report on its behalf.
Eiger Technology, Inc.
/s/ GERRY RACICOT
-----------------------
Gerry Racicot
President and C.E.O.
March 28, 2003
40
EIGER TECHNOLOGY, INC.
CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2002, 2001 and 2000
EIGER TECHNOLOGY, INC.
INDEX
September 30, 2002, 2001 and 2000
Auditor's Report
Consolidated Financial Statements
Balance Sheets
Statements of Operations and Retained Earnings
Statements of Cash Flows
Notes to the Consolidated Financial Statements
Monteith, Monteith & Co.
Chartered Accountants
208 ONTARIO STREET
STRATFORD, ONTARIO N5A 3H4
Telephone: (519) 271-6550 Fax: (519) 271-4796
e-mail: administrator@monteith.on.ca
Partners: Principals:
ROBERT F. LIGHTFOOT, C.A.
STEPHEN J. LANDERS, B.A., C.A. MERVYN T. DIETZ, C.M.A
ROBERT B. LIGHTFOOT, B.B.A, C.A. ROBERT W. STEINBACH, C.G.A
AUDITOR'S REPORT
To the Shareholders of
Eiger Technology, Inc.:
We have audited the consolidated balance sheets of Eiger Technology, Inc.
as at September 30, 2002, 2001 and 2000 and the consolidated statements of
operations and retained earnings and cash flows for the years then ended. These
financial statements are the responsibility of the company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally
accepted in Canada and the United States of America. Those standards require
that we plan and perform an audit to obtain reasonable assurance whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation.
In our opinion, the financial statements present fairly, in all material
respects, the financial position of Eiger Technology, Inc. as at September 30,
2002, 2001 and 2000 and the results of its operations and its cash flows for the
years then ended in accordance with accounting principles generally accepted in
Canada.
Monteith, Monteith & Co.
CHARTERED ACCOUNTANTS.
Stratford, Ontario,
January 31, 2003.
EIGER TECHNOLOGY, INC.
CONSOLIDATED BALANCE SHEETS
as at September 30
ASSETS
2002 2001
----------- -----------
$ $
Current:
Cash 1,982,000 1,847,000
Cash Held in Escrow -- --
Short-term Investments (Note 4) 1,653,000 4,146,000
Accounts Receivable (Note 5) 5,004,000 8,759,000
Inventory 4,493,000 6,545,000
Prepaid Expenses 378,000 769,000
----------- -----------
13,510,000 22,066,000
Long-term Investments (Note 4) 1,650,000 404,000
Capital (Note 6) 4,867,000 4,541,000
Goodwill 3,013,000 2,488,000
Other (Note 7) 718,000 1,222,000
----------- -----------
23,758,000 30,721,000
=========== ===========
LIABILITIES and SHAREHOLDERS' EQUITY
Current:
Bank Indebtedness (Note 8) 4,028,000 3,515,000
Accounts Payable and Accrued Liabilities 4,395,000 5,616,000
Income Taxes Payable -- --
Current Portion of Long-term Debt (Note 9) 145,000 120,000
----------- -----------
8,568,000 9,251,000
----------- -----------
Long-term Debt (Note 9) 940,000 1,014,000
----------- -----------
Future Income Taxes (Note 10) -- --
----------- -----------
Non-controlling Interest (1,873,000) (671,000)
----------- -----------
Shareholders' Equity:
Share Capital (Note 11) 42,235,000 42,001,000
Contributed Surplus 217,000 217,000
Retained Earnings (26,329,000) (21,091,000)
----------- -----------
16,123,000 21,127,000
----------- -----------
23,758,000 30,721,000
=========== ===========
On Behalf of the Board:
"Gerry Racicot" Director
- -----------------------------------
Gerry Racicot
"Keith Attoe" Director
- -----------------------------------
Keith Attoe
(See Accompanying Notes)
EIGER TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS of OPERATIONS and RETAINED EARNINGS
for the years ended September 30
2002 2001
----------- -----------
$ $
Sales 19,325,000 30,070,000
Cost of Sales 17,146,000 27,711,000
----------- -----------
Gross Margin 2,179,000 2,359,000
----------- -----------
Expenses:
Selling, General and Administration 8,451,000 7,769,000
Amortization of Capital Assets 562,000 568,000
Amortization of Goodwill and Other 235,000 1,032,000
Interest on Long-term Debt 60,000 98,000
Other Interest and Bank Charges 501,000 480,000
----------- -----------
9,809,000 9,947,000
----------- -----------
Income (Loss) before Provision for Income Taxes (7,630,000) (7,588,000)
----------- -----------
Provision for Income Taxes: (Note 12)
Current -- (6,000)
Future -- (56,000)
----------- -----------
-- (62,000)
----------- -----------
Income (Loss) before Unusual Items (7,630,000) (7,526,000)
Discontinued Operations -- --
Gain on Disposal of Discontinued Operations -- --
Non-recurring Items (Note 14) -- (16,366,000)
----------- -----------
Income (Loss) before Non-controlling Interest (7,630,000) (23,892,000)
Non-controlling Interest (2,392,000) (3,565,000)
----------- -----------
Net Income (Loss) for the Year (5,238,000) (20,327,000)
Retained Earnings - Beginning of Year (21,091,000) (764,000)
----------- -----------
Retained Earnings - End of Year (26,329,000) (21,091,000)
=========== ===========
Earnings per Share:
Before Non-recurring Items
Basic (0.15) (0.23)
----------- -----------
Diluted (0.15) (0.23)
----------- -----------
Net Income (Loss)
Basic (0.15) (0.61)
----------- -----------
Diluted (0.15) (0.61)
----------- -----------
(See Accompanying Notes)
EIGER TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS of CASH FLOWS
for the years ended September 30
2002 2001
---------- -----------
$ $
Cash Flows from Operating Activities:
Net Income (Loss) for the Year (5,238,000) (20,327,000)
Items not Involving Cash:
Non-recurring Items (Note 14) -- 16,366,000
Amortization 797,000 1,600,000
Future Income Taxes -- (56,000)
---------- -----------
(4,441,000) (2,417,000)
---------- -----------
Changes in Non-cash Working Capital Balances:
Accounts Receivable 3,755,000 3,280,000
Inventory 2,052,000 3,203,000
Prepaid Expenses 391,000 (83,000)
Accounts Payable and Accrued Liabilities (1,221,000) (5,568,000)
Income Taxes Payable -- (39,000)
Non-controlling Interest (1,202,000) (3,094,000)
---------- -----------
(666,000) (4,718,000)
---------- -----------
Cash Flows from Investing Activities:
Purchase of Capital Assets (888,000) (478,000)
Long-term Investments (1,246,000) (3,571,000)
Purchase of Goodwill and Other Assets (256,000) (2,531,000)
---------- -----------
(2,390,000) (6,580,000)
---------- -----------
Cash Flows from Financing Activities:
Increase (Decrease) in Long-term Debt (49,000) (474,000)
Increase (Decrease) in Bank Indebtedness 513,000 845,000
Subs. Share Capital Issued to Non-controlling Interest -- --
Subs. Dividends Paid to Non-controlling Interest -- --
Issuance of Share Capital (Net of Costs) 234,000 3,106,000
---------- -----------
698,000 3,477,000
---------- -----------
Net Cash Flows for the Year (2,358,000) (7,821,000)
Cash and Cash Equivalents - Beginning of the Year 5,993,000 13,814,000
---------- -----------
Cash and Cash Equivalents - End of the Year 3,635,000 5,993,000
========== ===========
Cash and Cash Equivalents Represented by:
Cash 1,982,000 1,847,000
Cash Held in Escrow -- --
Short-term Investments 1,653,000 4,146,000
---------- -----------
3,635,000 5,993,000
========== ===========
(See Accompanying Notes)
EIGER TECHNOLOGY, INC.
NOTES to the CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2002 and 2001
1. Nature of Business:
Eiger Technology, Inc. ("the Company") is incorporated under the laws of
Ontario. Through its various subsidiaries, the Company offers Voice over
Internet Protocol services to the Canadian long-distance market and
manufactures and distributes electronic/computer peripherals and
electronic ballasts to OEM and consumer markets worldwide.
2. Significant Accounting Policies:
(a) Basis of Preparation:
These financial statements have been prepared in accordance with
accounting principles generally accepted in Canada ("Cdn. GAAP"). A
reconciliation to U.S. generally accepted accounting principles
("U.S. GAAP") is provided in Note 13. Because a precise
determination of assets and liabilities depends on future events,
the preparation of periodic financial statements necessitates the
use of estimates and approximations. Actual amounts may differ from
these estimates.
(b) Principles of Consolidation:
The accompanying consolidated financial statements include the
accounts of Eiger Technology, Inc. and all of its subsidiary
companies as listed in Note 3. All significant intercompany
transactions and balances have been eliminated upon consolidation.
(c) Cash and Cash Equivalents:
Cash and cash equivalents consist of cash on account and short-term
investments with remaining maturities of three months or less at
acquisition.
(d) Inventory:
Inventory is valued at the lower of cost and net realizable value.
Cost is determined on a first-in, first-out basis and includes the
costs of materials and direct labour plus the applicable share of
manufacturing overhead.
(e) Investments:
All non-consolidated investments are accounted for at cost.
Short-term investments are written down to market value when less
than cost. Long-term investments are written down to market value
when a decline in market value below the carrying value is
considered to be other than temporary.
EIGER TECHNOLOGY, INC.
NOTES to the CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2002 and 2001
2. Significant Accounting Policies - continued:
(f) Capital Assets:
Capital assets are recorded at cost. Amortization is calculated on
the declining-balance basis at the following annual rates:
Building - 4-5%
Machinery and Equipment - 5-10%
Automotive Equipment - 20-30%
Computer Equipment - 20-30%
Leasehold Improvements - 10% straight line basis
(g) Goodwill:
Goodwill represents the excess of the purchase price of the
Company's interest in subsidiary companies over the fair value of
the underlying net identifiable assets at the time of acquisition.
Goodwill is amortized over 10 years on a straight-line basis (40
years for acquisitions prior to 1997). Goodwill arising on
acquisitions after June 30, 2001 is not amortized. Management
evaluates the expected future net cash flows of the companies at
each reporting date and adjusts goodwill for any impairment.
(h) Other Assets:
Product development costs meeting generally accepted criteria for
deferral are written down to expected realizable value, and are
amortized once production commences over periods ranging from three
to ten years, depending on the anticipated economic life of the
particular product. Deferred organization, finance, and regulatory
approval costs are amortized over 2 to 5 years. Long-term lease
deposits are recorded at cost.
(i) Income Taxes:
Income taxes are provided using the liability method of tax
allocation. Under this method, future tax assets and liabilities are
determined based on differences between financial reporting and
income tax bases of assets and liabilities, and are measured using
the substantially enacted tax rates and laws that will be in effect
when the differences are expected to reverse.
(j) Issuance of Share Capital:
The costs of issuing share capital are netted against share capital.
EIGER TECHNOLOGY, INC.
NOTES to the CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2002 and 2001
2. Significant Accounting Policies - continued:
(k) Revenue Recognition:
Sales are recorded upon shipment to customers. Fees are recognized
as services are rendered.
(l) Foreign Currency Translation:
Due to the extensive degree of financing provided to its foreign
subsidiaries by the Company, these subsidiaries are considered to be
integrated operations. Accordingly, the temporal method of foreign
currency translation is used. Under this method, monetary assets and
liabilities of foreign subsidiaries are translated into Canadian
dollars using the exchange rate in effect at the balance sheet date,
non-monetary items are translated at historical exchange rates
(except for items carried at market, which are translated at the
balance sheet date exchange rate), and revenues and expenses are
translated using average exchange rates to approximate the rates
actually in effect at the time of the transactions. Resulting
foreign exchange translation gains or losses are included in the
determination of net income for the year, except for such gains or
losses relating the translation or settlement of foreign currency
denominated long-term monetary items which are deferred and
amortized over the remaining life of the monetary item. There were
no material exchange gains or losses on long-term foreign currency
denominated monetary items during either of the reporting periods.
(m) Stock-based Compensation:
No compensation expense is recognized for stock options granted to
employees. Options are granted at the fair market value of the
shares on the day of the grant. Any consideration paid by employees
on the exercise of stock options is credited to share capital.
(n) Earnings per Share:
Basic earnings per share is calculated based on the weighted average
number of shares outstanding during the year. Diluted earnings per
share is calculated using the treasury stock method based on the
weighted average number of shares that would have been outstading
during the year had all the dilutive options been exercisted at the
beginning of the year, or date of issuance if later, and assuming
that option proceeds would be used to purchase common shares at the
average market price during the year.
EIGER TECHNOLOGY, INC.
NOTES to the CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2002 and 2001
3. Subsidiaries and Related Party Transactions:
Eiger Technology, Inc. is related to the following corporations:
Name of Corporation Nature of Relationship
------------------- ----------------------
Newlook Industries Corp. 83.2% Subsidiary
Vision Unlimited Equipment Inc.* 100% Subsidiary of Newlook
Industries Corp.
A.D.H. Custom Metal Fabricators Inc. 100% Subsidiary of Vision
Unlimited Equipment Inc.
Alexa Properties Inc. 100% Subsidiary
ETIFF Holdings, Inc.* 100% Subsidiary
K-Tronik International Corp.* 64% Subsidiary of ETIFF
Holdings, Inc.
K-Tronik North America Corp. 100% Subsidiary of K-Tronik
International Corp.
K-Tronik Asia Corp. 100% Subsidiary of K-Tronik
North America Corp.
Alexa Korea Holdings, Inc.* 100% Subsidiary
EigerNet, Inc. 58.4% Subsidiary of Alexa Korea
Holdings, Inc.
Alexa (U.S.A.), Inc.* 100% Subsidiary
Eiger Labs Group, Inc. 64% Subsidiary of Alexa
(U.S.A.), Inc.
Onlinetel, Inc. 100% Subsidiary
Onlinetel, Corp. 100% Susidiary
* Inactive - holding company only
All transactions within the corporate group are in the normal course of
business, are transacted at fair market value, are recorded at the
carrying value at the time, and are eliminated upon consolidation.
Intercompany balances at the financial statement date are also eliminated
upon consolidation.
Service fees paid to corporations owned by four management personnel
during the period totalled $456,000 (2001: $412,000; 2000: $320,000).
EIGER TECHNOLOGY, INC.
NOTES to the CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2002 and 2001
4. Investments:
(a) Short-term Investments:
Short-term investments are comprised of Canadian money market funds
and short-term commercial paper plus accrued interest, having a
market value equivalent to their cost amount.
(b) Long-term Investments:
2002 2001
--------- -------
$ $
Advances to Lexatec VR Systems Inc. (Note 10) 123,000 324,000
Subsidiary long-term portfolio equity investments 1,527,000 --
Subsidiary long-term investment in debt securities -- 80,000
Other -- --
--------- -------
1,650,000 404,000
========= =======
The advances noted above are non-interest bearing, and have no specific
terms of repayment.
5. Accounts Receivable:
Accounts receivable are reported net of an allowance for doubtful accounts
of $2,373,000 (2001: $196,000; 2000: 116,000).
6. Capital Assets:
2002 2001
------------------------------------ ---------
Accumulated Net Book Net Book
Cost Amortization Value Value
--------- ------------ --------- ---------
$ $ $ $
Land 217,000 -- 217,000 159,000
Buildings 1,060,000 150,000 910,000 920,000
Machinery and Equipment 5,497,000 2,549,000 2,948,000 2,315,000
Furniture and Fixtures 652,000 397,000 255,000 428,000
Automotive Equipment 157,000 62,000 95,000 118,000
Leasehold Improvements 116,000 4,000 112,000 116,000
Computer Hardware 409,000 134,000 275,000 283,000
Computer Software 58,000 3,000 55,000 202,000
--------- ------------ --------- ---------
8,166,000 3,299,000 4,867,000 4,541,000
========= ============ ========= =========
EIGER TECHNOLOGY, INC.
NOTES to the CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2002 and 2001
7. Other:
2002 2001
------- ---------
$ $
Product Development Costs -- 298,000
Deferred Organization Costs -- --
Non-interest Bearing Long-term Deposits 409,000 682,000
Regulatory Approval 153,000 174,000
Other 156,000 68,000
------- ---------
718,000 1,222,000
======= =========
8. Bank Indebtedness :
Foreign subsidiary lines of credit balances totalling $4,028,000 (Cdn.)
bear interest at rates ranging from 5 - 7.25%, are secured by short-term
investments, inventory and equipment, and are repayable upon demand.
9. Long-term Debt:
2002 2001
--------- ---------
$ $
Royal Bank of Canada term loan repayable in
monthly instalments of $10,000 plus interest
calculated at Royal Bank prime plus 1/4%. 625,000 745,000
Shin Han Bank (Korea) term loan payable -- 303,000
KiUp Bank (Korea) term loan repayable in
monthly instalments of $2,083 plus interest
calculated at 5.9% per annum 375,000 --
Other 85,000 86,000
--------- ---------
1,085,000 1,134,000
Less: Current Portion (145,000) (120,000)
--------- ---------
940,000 1,014,000
========= =========
Principal payments required on long-term debt for the next five years are
as follows: 2003: $145,000; 2004: $230,000; 2005: $145,000; 2006:
$145,000; 2007: $145,000.
EIGER TECHNOLOGY, INC.
NOTES to the CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2002 and 2001
10. Financial Instruments:
(a) Fair Value:
Cash and cash equivalents, short-term investments, accounts receivable and
payable, and bank indebtedness are carried at cost which approximates fair
value due to their short time to maturity. Management believes the
carrying value of long-term investments to be equivalent to their fair
market value. The fair values of the Company's long-term debt obligations,
based on current rates for debt with similar terms and maturities, are
approximately the same as their carrying values.
(b) Interest Rate Risk:
The Company is not exposed to significant interest rate risk due to the
short-term maturity of its current monetary assets and liabilities. The
Company's interest rate risk pertaining to its long- term debt obligations
is not considered to be significant due to the relatively low amounts
involved.
(c) Credit Risk:
The Company's financial assets that are exposed to credit risk consist
primarily of short-term investments, accounts receivable, and long-term
investments.
Short-term investments consist solely of money market funds and short-term
commercial paper issued by investment-rated Canadian financial
institutions, and are invested for terms not exceeding 90 days.
The Company, in the normal course of business, is exposed to credit risk
from its customers. Management believes that sufficient allowance has been
made for bad debts in these financial statements based on a review of
accounts on an individual basis. The concentration of credit risk in trade
accounts receivable is not considered to be significant due to the
Company's large client base.
The Company is also exposed to credit risk with respect to its long-term
advances to Lexatec VR Systems Inc. and certain subsidiary investments.
Advances to Lexatec VR Systems Inc. are partially secured by a pledge of
reciprocal shareholdings.
EIGER TECHNOLOGY, INC.
NOTES to the CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2002 and 2001
11. Share Capital:
Authorized: 100,000,000 Common Shares
Issued:
2002 2001
--------------------------- ---------------------------
No. of Shares $ No. of Shares $
------------- -------------
Beginning of Year: 36,215,853 42,543,000 33,945,858 39,437,000
Issued - private placement* -- -- 70,000 1,839,000
- exercise of options 310,000 209,000 400,000 350,000
- acquisitions -- -- 1,799,995 936,000
- other 90,000 47,000 -- --
- costs of issue -- -- -- (19,000)
------------- ---------- ------------- ----------
End of Year: 36,615,853 42,799,000 36,215,853 42,543,000
Reciprocal Shareholdings (568,049) (564,000) (526,929) (542,000)
------------- ---------- ------------- ----------
Net per Balance Sheets 36,047,804 42,235,000 35,688,924 42,001,000
============= ========== ============= ==========
The Company awards unconditional stock options to employees, officers,
directors and others at the recommendation of the CEO as approved by the
shareholders. Options are granted at the fair market value of the shares
on the day granted, and vest immediately. The following is a continuity
schedule of outstanding options for the reporting periods, where WAEP
refers to "weighted average exercise price".
2002 2001
------------------------ ------------------------
No. of Options WAEP No. of Options WAEP
-------------- ---- -------------- ----
$ $
Beginning of Year: 3,446,000 2.29 1,713,000 3.37
Granted 1,075,000 0.55 2,133,000 1.16
Exercised (310,000) 0.67 (400,000) 0.88
Expired (300,000) 2.02 -- 0.90
-------------- --------------
End of Year: 3,911,000 1.96 3,446,000 2.29
============== ==============
EIGER TECHNOLOGY, INC.
NOTES to the CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2002 and 2001
11. Share Capital - continued:
Stock options were exercised during the year at prices ranging from $0.50
to $0.75. The weighted average contractual life for options outstanding at
year end was 1,244 days.
During the year, proceeds from exercised stock options of $209,000 was
credited to share capital (2001: $350,000; 2000: $483,000). No amounts
were recognized as compensation expense with respect to stock options
granted or exercised in either of the reporting periods.
Stock options have been granted to the CEO of K-Tronik Int'l Corp.
contingent upon meeting sales quotas for that company as tabled below:
Number of
Monthly Sales for Six Options
Consecutive Months Exercisable Total Excercise
Units of Ballasts Per Plateau Cumulative Price
----------------------------------------- ----------- ---------- --------
50,000 per month for 6 consecutive months 70,000 70,000 .60
60,000 per month for 6 consecutive months 70,000 140,000 .60
70,000 per month for 6 consecutive months 70,000 210,000 .60
80,000 per month for 6 consecutive months 70,000 280,000 .60
90,000 per month for 6 consecutive months 70,000 350,000 .60
No shares were issued in fiscal 2002, fiscal 2001 or fiscal 2000 as a
result of this agreement.
Management has agreed to issue shares of the Company to four members of
the management team of EigerNet, Inc. and Eiger Labs Group Inc. as
performance earn out consideration contingent upon achieving the criteria
tabled below for the combined results of those two companies:
Common
Year Gross Sales Net Income Shares
---- ----------------- ----------------- ---------
1999 $27 million U.S. $1.0 million U.S. 600,000
2000 $70 million U.S. $2.5 million U.S. 750,000
2001 $80 million U.S. $3.5 million U.S. 750,000
2002 $90 million U.S. $4.0 million U.S. 900,000
2003 $110 million U.S. $4.5 million U.S. 1,000,000
600,000 shares were issued in fiscal 2000 as a result of this agreement
based on the operating results for 1999. No shares have been issued since
that time, and none will be issued in fiscal 2003 pursuant to this
agreement as the sales and income criteria have not been met.
EIGER TECHNOLOGY, INC.
NOTES to the CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2002 and 2001
11. Share Capital - continued:
In connection with the Company's acquisition of Onlinetel, Inc. in fiscal
2001, the share exchange agreement allows that additional shares of Eiger
Technology, Inc. may be issued to the former shareholders of Onlinetel,
Inc. if certain earn out provisions are met as follows:
Fiscal Gross Net Common
Year Revenue Income Shares
------ ---------- ---------- ---------
$ $ $
2002 19,083,000 2,442,000 1,800,000
2003 37,348,000 6,213,000 1,800,000
2004 50,849,000 9,353,000 1,800,000
2005 59,867,000 13,849,000 1,800,000
Unmet earn out targets may be carried forward and met on a cumulative
basis. The targets for fiscal 2002 were not met and are not being carried
forward.
12. Non-recurring Items:
2002 2001
---- ----------
$ $
Charge for impairment in value of consolidated goodwill -- 6,500,000
Charge for impairment in value of long-term loans receivable -- 7,003,000
Non-recurring charge for impairment in value of inventory -- 566,000
Charge for impairment in value of capital assets -- 184,000
Charge for decline in value of long-term investments in
shares of other corporations -- 982,000
Charge for impairment in value of deferred product
development costs -- 1,131,000
---- ----------
-- 16,366,000
==== ==========
Due to unfavourable economic conditions, particularly in the Republic of
South Korea, the Company has experienced significant and long-term decline
in the value of the asset groups noted above.
EIGER TECHNOLOGY, INC.
NOTES to the CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2002 and 2001
13. Reconciliation to U.S. GAAP:
These financial statements have been prepared in accordance with
accounting principles generally accepted in Canada ("Cdn. GAAP").
Significant differences under U.S. GAAP are discussed below.
For fiscal years beginning after December 15, 1998, U.S. GAAP requires
that all organization costs (including those previously deferred) be
expensed currently. Also, all product development costs are to be expensed
as incurred.
U.S. GAAP requires the measurement and reporting of "comprehensive
income". Compre- hensive income includes net income and all other changes
to Shareholders' Equity other than amounts received from or paid to
shareholders. The only reportable comprehensive income item for the
Company relates to foreign currency translation adjustments as described
below.
U.S. GAAP requires the use of the current rate method of foreign currency
translation, with any resulting foreign exchange translation adjustments
forming part of comprehensive income for the year and accumulating as a
separate component of shareholders' equity.
APB Opinion 25 permits the intrinsic value based method to be used to
measure stock option compensation. As the Company grants stock options at
fair market value, no compensation is recognized. SFAS No. 123 requires
pro-forma disclosure of net income and earnings per share as if the fair
value method had been applied.
Reconciliations to U.S. GAAP are as follows:
2002 2001
---------- -----------
$ $
Net Income (Loss):
- per Cdn. GAAP (5,238,000) (20,327,000)
- expense deferred product development costs net
of portion relating to non-controlling interest 298,000 856,000
- expense deferred organization costs net of
portion relating to non-controlling interest -- 219,000
- foreign currency translation adjustment 341,000 191,000
- future income tax savings related to above (100,000) (347,000)
---------- -----------
- per U.S. GAAP (4,699,000) (19,408,000)
---------- -----------
Comprehensive item - foreign exchange
adjustment (341,000) (191,000)
---------- -----------
Comprehensive Income (5,040,000) (19,599,000)
========== ===========
EIGER TECHNOLOGY, INC.
NOTES to the CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2002 and 2001
13. Reconciliation to U.S. GAAP - continued:
2002 2001
----------- -----------
$ $
Retained Earnings:
- per Cdn. GAAP (26,329,000) (21,091,000)
- expense deferred product development costs
net of portion relating to non-controlling
interest -- (298,000)
- expense deferred organization costs net of
portion relating to non-controlling interest -- --
- foreign currency translation adjustments 667,000 326,000
- future income tax savings related to above -- 100,000
----------- -----------
- per U.S. GAAP (25,662,000) (20,963,000)
=========== ===========
Accumulated Other Comprehensive Items:
- per Cdn. GAAP -- --
- foreign currency translation adjustments (667,000) (326,000)
----------- -----------
- per U.S. GAAP (667,000) (326,000)
=========== ===========
Total Assets:
- per Cdn GAAP 23,758,000 30,721,000
- expense deferred product
development costs -- (298,000)
- expense deferred organization costs -- --
- increase in future income tax assets -- 100,000
----------- -----------
- per U.S. GAAP 23,758,000 30,523,000
=========== ===========
Earnings per Share:
Basic (.14) (.59)
----------- -----------
Fully Diluted (.14) (.59)
----------- -----------
Pro-forma Disclosure (SFAS No. 123):
Had SFAS No. 123 been followed, net income would have decreased by
$285,000 in fiscal 2002 (2001: $1,766,000; 2000: $4,342,000), and
basic and fully diluted earnings per share would have been (.15) and
(.15) respectively (2001: (.64) and (.64)); (2000: (.20) and (.20)).
EIGER TECHNOLOGY, INC.
NOTES to the CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2002 and 2001
14. Cash Payments of Interest and Income Taxes:
2002 2001
------- -------
$ $
Interest 538,000 555,000
======= =======
Income Taxes -- 15,000
======= =======
15. Commitments:
As at September 30, 2002, the Company had commitments under the terms of
various operating leases requiring annual rental payments as follows:
2003: $551,000; 2004: $347,000; 2005: $160,000; 2006: $160,000; 2007:
$160,000.
16. Segmented Information:
Management has identified four reportable segments: "Newlook" (formerly
"ADH"), "K- Tronik", "Onlinetel" and "Eiger". Segementation is determined
on the basis of the types of goods and services provided and geographic
location.
"Newlook" consists of A.D.H. Custom Metal Fabricators Inc. and Alexa
Properties Inc. A.D.H. Custom Metal Fabricators Inc. is a manufacturer of
fluorescent light fixtures, data racks and other metal cabinetry. Alexa
Properties Inc. owns the land and manufacturing facility in Stratford,
Ontario.
"K-Tronik" includes K-Tronik North America Corp., a distributor of
electronic ballasts based in Hackensack, New Jersey, and K-Tronik Asia
Corp., a manufacturer of electronic ballasts operating in South Korea.
"Onlinetel" consists of Onlinetel Corp. and Onlinetel, Inc. which provide
Voice over Internet Protocol services to the Canadian long distance
market.
"Eiger" includes Eiger Labs Group, Inc. and EierNet, Inc. Both of these
companies are involved in the production and distribution of electronic
communications products. EigerNet, Inc. is located in South Korea, while
Eiger Labs Group, Inc. operates out of California.
Segmented financial information is presented on the following two pages.
EIGER TECHNOLOGY, INC.
SEGMENTED INFORMATION
September 30, 2002
Totals per
All Reconciling Financial
Newlook K-Tronik Onlinetel Eiger Others Items Statements
--------- ---------- ---------- ---------- ---------- ----------- ----------
$ $ $ $ $ $ $
Sales:
External:
- Domestic 1,310,000 -- 1,869,000 -- -- -- 3,179,000
- Foreign 108,000 10,107,000 48,000 5,882,000 -- -- 16,145,000
Intersegment -- -- -- -- -- -- --
--------- ---------- ---------- ---------- ---------- ----------- ----------
1,418,000 10,107,000 1,917,000 5,882,000 -- -- 19,324,000
Cost of Sales 1,342,000 8,023,000 1,615,000 6,358,000 -- (193,000) 17,145,000
--------- ---------- ---------- ---------- ---------- ----------- ----------
Gross Margin 76,000 2,084,000 302,000 (476,000) -- 193,000 2,179,000
--------- ---------- ---------- ---------- ---------- ----------- ----------
Expenses:
Operations and Administration 314,000 2,890,000 1,573,000 2,242,000 1,237,000 193,000 8,449,000
Amortization of Capital and Other Assets 164,000 147,000 252,000 202,000 33,000 -- 798,000
Interest on Long-term Debt 39,000 -- -- 21,000 -- -- 60,000
Other Interest and Bank Charges 5,000 351,000 12,000 127,000 7,000 -- 502,000
--------- ---------- ---------- ---------- ---------- ----------- ----------
522,000 3,388,000 1,837,000 2,592,000 1,277,000 193,000 9,809,000
--------- ---------- ---------- ---------- ---------- ----------- ----------
Income (Loss) before Taxes (446,000) (1,304,000) (1,535,000) (3,068,000) (1,277,000) -- (7,630,000)
Provision for Income Taxes -- -- -- -- -- -- --
--------- ---------- ---------- ---------- ---------- ----------- ----------
Income (Loss) before Non-recurring Items (446,000) (1,304,000) (1,535,000) (3,068,000) (1,277,000) -- (7,630,000)
Non-recurring Items -- -- -- -- -- -- --
Non-controlling Interest 34,000 443,000 -- 1,915,000 -- -- 2,392,000
--------- ---------- ---------- ---------- ---------- ----------- ----------
Net Income (Loss) for the Year (412,000) (861,000) (1,535,000) (1,153,000) (1,277,000) -- (5,238,000)
========= ========== ========== ========== ========== =========== ==========
Cash Flows:
From Operating Activities (331,000) (147,000) (660,000) (698,000) (1,271,000) 2,441,000 (666,000)
From Investing Activities 144,000 -- (1,380,000) 593,000 (1,622,000) (125,000) (2,390,000)
From Financing Activities 107,000 442,000 1,909,000 323,000 233,000 (2,316,000) 698,000
--------- ---------- ---------- ---------- ---------- ----------- ----------
(80,000) 295,000 (131,000) 218,000 (2,660,000) -- (2,358,000)
Cash and Cash Equivalents:
Beginning of the Year 312,000 147,000 208,000 1,461,000 3,865,000 -- 5,993,000
--------- ---------- ---------- ---------- ---------- ----------- ----------
End of the Year 232,000 442,000 77,000 1,679,000 1,205,000 -- 3,635,000
========= ========== ========== ========== ========== =========== ==========
Expenditures on Capital Assets
and Goodwill during the Year 614,000 -- 794,000 235,000 5,000 -- 1,648,000
========= ========== ========== ========== ========== =========== ==========
Balance of Capital Assets and
Goodwill - End of the Year
- Domestic 2,323,000 -- 2,579,000 -- 107,000 -- 5,009,000
- Foreign -- 1,338,000 -- 1,533,000 -- -- 2,871,000
--------- ---------- ---------- ---------- ---------- ----------- ----------
2,323,000 13,338,000 2,579,000 1,533,000 107,000 -- 7,880,000
========= ========== ========== ========== ========== =========== ==========
Amount of Investment in Investees
Subject to Significant Influence -- -- -- -- -- -- --
========= ========== ========== ========== ========== =========== ==========
Total Assets 3,573,000 7,012,000 3,870,000 8,579,000 34,261,000 (33,537,000) 23,758,000
========= ========== ========== ========== ========== =========== ==========
EIGER TECHNOLOGY, INC.
SEGMENTED INFORMATION
September 30, 2001
Totals per
All Reconciling Financial
ADH K-Tronik Onlinetel Eiger Others Items Statements
--------- ---------- --------- ---------- ----------- ----------- -----------
$ $ $ $ $ $ $
Sales:
External:
- Domestic 2,301,000 -- 234,000 -- -- -- 2,535,000
- Foreign -- 10,107,000 -- 17,428,000 -- -- 27,535,000
Intersegment -- -- -- -- -- -- --
--------- ---------- --------- ---------- ----------- ----------- -----------
2,301,000 10,107,000 234,000 17,428,000 -- -- 30,070,000
Cost of Sales 2,004,000 7,934,000 -- 17,958,000 -- (185,000) 27,711,000
--------- ---------- --------- ---------- ----------- ----------- -----------
Gross Margin 297,000 2,173,000 234,000 (530,000) -- -- 2,359,000
--------- ---------- --------- ---------- ----------- ----------- -----------
Expenses:
Operations and Administration 509,000 3,014,000 335,000 3,394,000 777,000 (260,000) 7,769,000
Amortization of Capital and Other Assets 210,000 655,000 28,000 676,000 31,000 -- 1,600,000
Interest on Long-term Debt 65,000 -- -- 33,000 -- -- 98,000
Other Interest and Bank Charges 56,000 360,000 -- 61,000 3,000 -- 480,000
--------- ---------- --------- ---------- ----------- ----------- -----------
840,000 4,029,000 363,000 4,164,000 811,000 -- 9,947,000
--------- ---------- --------- ---------- ----------- ----------- -----------
Income (Loss) before Taxes (543,000) (1,856,000) (129,000) (4,694,000) (811,000) -- (7,588,000)
Provision for Income Taxes (72,000) 15,000 -- (20,000) -- 15,000 (62,000)
--------- ---------- --------- ---------- ----------- ----------- -----------
Income (Loss) before Non-recurring Items (471,000) (1,871,000) (129,000) (4,674,000) (811,000) -- (7,526,000)
Non-recurring Items (136,000) (1,048,000) -- (8,691,000) (6,491,000) -- (16,366,000)
Non-controlling Interest 2,000 1,245,000 -- 2,318,000 -- -- 3,565,000
--------- ---------- --------- ---------- ----------- ----------- -----------
Net Income (Loss) for the Year (605,000) (1,674,000) (129,000) (11,047,000) (7,302,000) -- (20,327,000)
========= ========== ========= ========== =========== =========== ===========
Cash Flows:
From Operating Activities (224,000) (1,892,000) (303,000) (1,399,000) (900,000) -- (4,718,000)
From Investing Activities (32,000) (112,000) (158,000) (2,282,000) (10,801,000) 6,805,000 (6,580,000)
From Financing Activities 568,000 1,705,000 669,000 4,205,000 3,135,000 (6,805,000) 3,477,000
--------- ---------- --------- ---------- ----------- ----------- -----------
312,000 (299,000) 208,000 524,000 (8,566,000) -- (7,821,000)
Cash and Cash Equivalents:
Beginning of the Year -- 446,000 -- 937,000 12,431,000 -- 13,814,000
--------- ---------- --------- ---------- ----------- ----------- -----------
End of the Year 312,000 147,000 208,000 1,461,000 3,865,000 -- 5,993,000
========= ========== ========= ========== =========== =========== ===========
Expenditures on Capital Assets
and Goodwill during the Year 32,000 207,000 1,472,000 43,000 38,000 -- 1,792,000
========= ========== ========= ========== =========== =========== ===========
Balance of Capital Assets and
Goodwill - End of the Year
- Domestic 1,803,000 -- 2,037,000 -- 116,000 -- 3,956,000
- Foreign -- 1,596,000 -- 1,477,000 -- -- 3,073,000
--------- ---------- --------- ---------- ----------- ----------- -----------
1,803,000 1,596,000 2,037,000 1,477,000 116,000 -- 7,029,000
========= ========== ========= ========== =========== =========== ===========
Amount of Investment in Investees
Subject to Significant Influence -- -- -- -- -- -- --
========= ========== ========= ========== =========== =========== ===========
Total Assets 4,428,000 8,440,000 2,423,000 14,351,000 35,402,000 (34,323,000) 30,721,000
========= ========== ========= ========== =========== =========== ===========