-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, EIuayEgWR9Wa5zgWUTE1yPgWXPFlJnohaUCuWRUu5UUzqdLVqTFCCkHtWTwjBzoY YxUz/jRQ/RZ7UQmrjJMdRw== 0001169232-03-002613.txt : 20030331 0001169232-03-002613.hdr.sgml : 20030331 20030331165709 ACCESSION NUMBER: 0001169232-03-002613 CONFORMED SUBMISSION TYPE: 20-F/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20020930 FILED AS OF DATE: 20030331 FILER: COMPANY DATA: COMPANY CONFORMED NAME: EIGER TECHNOLOGY INC CENTRAL INDEX KEY: 0001040702 STANDARD INDUSTRIAL CLASSIFICATION: MISCELLANEOUS FABRICATED METAL PRODUCTS [3490] IRS NUMBER: 000000000 FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 20-F/A SEC ACT: 1934 Act SEC FILE NUMBER: 000-29320 FILM NUMBER: 03631665 BUSINESS ADDRESS: STREET 1: 818 ERIE ST CITY: STRATFORD ONTARIO STATE: A6 ZIP: 00000 MAIL ADDRESS: STREET 1: 330 BAY ST STREET 2: STE 602 CITY: STRATFORD ONTARIO STATE: A6 FORMER COMPANY: FORMER CONFORMED NAME: ALEXA VENTURES INC DATE OF NAME CHANGE: 19970610 20-F/A 1 d03-54965_20fa1.txt AMENDMENT TO FORM 20-F 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 ========= ========== ========= ========== =========== =========== ===========
EX-99.1 3 d03-54965_ex991.txt EXHIBIT 99.1 SARBANES-OXLEY SECTION 302(A) CERTIFICATION Gerry Racicot - President and C.E.O.: I, Gerry Racicot, certify that: 1. I have reviewed this annual report on Form 20-F of Eiger Technology, Inc.; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: March 28, 2003 /s/ GERRY RACICOT - ----------------------------- President & C.E.O. Keith Attoe - Chief Financial Officer: I, Keith Attoe, certify that: 1. I have reviewed this annual report on Form 20-F of Eiger Technology, Inc.; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: March 28, 2003 /s/ KEITH ATTOE - ----------------------------- Chief Financial Officer SARBANES-OXLEY SECTION 906 CERTIFICATION EIGER TECHNOLOGY, INC. Certification of Periodic Financial Report Pursuant to 18 U.S.C. Section 1350 Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, each of the undersigned officers of Eiger Technology, Inc. (the "Company") certifies that the Annual Report on Form 20-F of the Company for the year ended September 30, 2002 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and information contained in that Form 20-F fairly presents, in all material respects, the financial condition and results of operations of the Company. Dated: March 28, 2003 /s/ GERRY RACICOT ---------------------------------------- Gerry Racicot Chief Executive Officer Dated: March 28, 2003 /s/ KEITH ATTOE ---------------------------------------- Keith Attoe Chief Financial Officer This certification is made solely for purpose of 18 U.S.C. Section 1350, subject to the knowledge standard contained therein, and not for any other purpose. -----END PRIVACY-ENHANCED MESSAGE-----