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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT UNDER SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Year Ended: October 31, 2002
Commission File Number: 0-27002
INTERNATIONAL DISPLAYWORKS, INC.
(Exact name of Registrant as specified in its charter)
Delaware 94-3333649
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(State or Incorporation) (I.R.S. Employer Identification No.)
599 Menlo Drive, Suite 200, Rocklin, California 95765
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(Address of principal executive offices) (Zip Code)
(916) 415-0864
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(Registrant's telephone number, including area code)
Securities Registered Pursuant to Section 12(b) of the Act: None
Securities Registered Pursuant to Section 12(g) of the Act: Common Stock
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 twelve 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. [X] Yes [ ] No
Check if there is no disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K, is not contained herein, and will not be contained, to the best
of the registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of the Form 10-K or any amendment of this
Form 10-K. [ ]
Indicate by a check mark whether the registrant is an accelerated filer.
[ ] Yes [X] No
Aggregate Market Value of the voting stock held by non-affiliates of the
registrant based on the closing sale price as reported by the NASDAQ OTCBB on
January 10, 2003 is $3,023,646.
The number of shares of the registrant's common stock, no par value, outstanding
on January 10, 2003 was 19,217,246.
Documents incorporated by reference: None
With the exception of historical facts stated herein, the matters discussed in
this Form 10-K are "forward looking" statements that involve risks and
uncertainties that could cause actual results to differ materially from
projected results. Such "forward looking" statements include, but are not
necessarily limited to statements regarding anticipated levels of future
revenues and earnings from the operations of International DisplayWorks, Inc.
and its subsidiaries, (the "Company"), projected costs and expenses related to
the operations of the Company, liquidity, capital resources, and availability of
future equity capital on commercially reasonable terms. Factors that could cause
actual results to differ materially are discussed under "Item 7 - Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Liquidity and Capital Resources - Factors That May Affect Future Results."
Readers of this Form 10-K are cautioned not to put undue reliance on "forward
looking" statements, which, by their nature, are not reliable indicators of
future performance. The Company disclaims any intent or obligation to publicly
update these "forward looking" statements, whether as a result of new
information, future events or otherwise.
PART I
ITEM 1. BUSINESS
Granite Bay Technologies, Inc. ("GBAY"), merged into its wholly owned
subsidiary, International DisplayWorks, Inc. (the "Company," "IDW," "we" or
"us") on October 31, 2001. IDW assumed the reporting obligations of GBAY. As a
result of the merger, the Company is now a Delaware corporation. GBAY was
originally incorporated under Oregon law as Morrow Snowboards, Inc., to
manufacture and market snowboard equipment and apparel. In 1999, Morrow sold the
snowboard business to K2 and the apparel business to Westbeach and on January
31, 2000, Morrow purchased all of the outstanding shares of Common Stock of IDW
from four private investors and IDW became our wholly owned subsidiary. On
February 1, 2000, IDW acquired through its wholly-owned subsidiary,
International DisplayWorks (Hong Kong) Ltd. ("IDWHK"), a company organized under
the laws of Hong Kong, SAR, all of the shares of MULCD Microelectronics
(Shenzhen) Co., Ltd. ("MULCD") and IDW Technology (Shenzhen) Co., Ltd. ("IDWT"),
companies organized under the laws of the People's Republic of China from Vikay
Industrial Ltd., a Singapore company operating under judicial management ("Vikay
Group"). (IDW, IDWHK, MULCD, and IDWT are collectively referred to as "IDW," the
"Group," the "Company," "we" or "us") (MULCD and IDWT are collectively referred
to as the "PRC Companies"). IDW Singapore was incorporated by the Company in the
third quarter of 2000 and discontinued operations in June of 2001 as a result of
general cost cutting and reorganization programs. Copies of our reports can be
found on our website "www.idwlcd.com."
Our headquarters are located in Rocklin, California. The design and
manufacturing of our products is conducted in our facilities in the PRC where we
employ approximately 1,250 people. The Company's continuing operations consist
of International DisplayWorks, Inc. (IDW), a Delaware corporation, International
DisplayWorks Hong Kong Limited. (IDWHK), and IDW Technology (Shenzhen) Co. Ltd.
(IDWT), MULCD Microelectronics (Shenzhen) Co., Ltd. (MULCD). We design and
manufacture a wide range of display products including liquid crystal displays
("LCD"), LCD modules, turnkey assemblies, front panel display systems, and
printed circuit board assemblies for use in the end products of Original
Equipment Manufacturers ("OEM") and products incorporating LCDs.
The LCDs and circuits we design and manufacture are used in
telecommunications (cell phones and other wireless communication devices), as
well as in medical equipment, household appliances, utility applications,
automotive equipment, retail and office equipment and consumer electronic
products. Targeted areas for new applications include audio, cash register
vending, lawn sprinklers and personal digital assistants (PDAs). In addition, we
are developing new distribution channels for existing applications.
To remain competitive, we are expanding production technology and
capabilities, and improving the organization and deployment of the staff at the
manufacturing facilities. We are focusing on high-volume production and
management support to increase yields and decrease unit costs, and reducing the
inventory to sales ratio through careful planning and scheduling. We have
established internal systems to improve the level of communications among the
factory, sales offices and customers to reduce lead times for price quotations,
design and production.
These internal changes have laid the foundation for the future development
of the Group and give us strength in designing prototypes and producing products
on a timely and cost-efficient basis, including a wide variety of custom design,
quality display modules required in the end products of OEMs and increasing the
volume and efficiency throughout our LCD line.
Industry Overview
The Technology
Since the commercial production of the first light emitting diodes ("LED")
in the 1960s and twisted nematic ("TN") liquid crystal displays in the 1970s,
the use of LCD and LED indicators has become widespread in industrial and
consumer electronics products with LCD now the predominant display technology.
These technologies were developed to overcome limitations in uses, principally
in terms of size, life and power consumption of standard displays or indicators.
An LCD modifies light that passes through or is reflected by it, rather
than emitting light like an LED. An LCD generally consists of a layer of liquid
crystalline material suspended between two glass plates. The crystals align
themselves in a predictable manner, which changes when stimulated electrically.
The change in alignment produces a visual representation of the information
desired when used in conjunction with polarizers and either an external light
source or natural ambient light.
The flexibility of liquid crystal technology allows for easy customization
in both size and design. Displays are manufactured in sheet form and the images
can be changed by generating artwork to the customer's requirements. Display
size can be controlled by programming the cutting tool to the desired
dimensions. There is no significant additional manufacturing cost for a fully
custom display that allows each product to have its own unique appearance such
as icons, annunciators and color printing.
The Industry
OEMs often design their products to contain unique display modules and
features as a highly cost-effective means of differentiating their products from
those of competitors. OEMs then make the decision whether to use standard
devices, design and produce devices in-house or outsource design and/or
production. In making the decision, OEMs often recognize that their greatest
strengths are consumer recognition of their brand names, market research and
product development expertise and effective sales and distribution channels
rather than in manufacturing. OEMs also recognize that the time constraints and
limitations of available resources often preclude them from maintaining the
specialized in-house expertise and equipment necessary to design and manufacture
custom devices and that standard "off-the-shelf" device are not always
available. As a result, many OEMs outsource the design and production of devices
and components in which they lack the requisite technology and expertise and
focus their resources on the areas where they have the greatest expertise and
leverage. Outsourcing allows them to gain access to specialized design and
manufacturing technology and expertise, accelerate the design process, and
reduce their own investment in equipment, facilities, and the personnel
necessary for specialized design and production. By reducing design and
manufacturing costs by utilizing the specialized resources of a supplier, such
as ourselves, and concentrating their resources on their strengths in the
production and distribution of their core products, they can maximize
profitability and reduce risk and time to market. Our specialization on design
and production provides a partnership advantageous to both parties and provides
value through focus and economies of scale. This is further enhanced by locating
our manufacturing operations in the PRC.
Several major OEMs in the electronics industry have announced their
decision to outsource production of components and final assembly of end
products, including major cellular phone, PDA manufacturers and many others. We
believe that these decisions have been made to allow major OEMs to concentrate
on designing concepts for finished products, marketing the finished product and
to better control costs by reducing the need for specialized equipment, while
the Company can produce products for multiple companies. IDW expects to benefit
from these decisions because it will provide us with more design input and
create more value-added opportunities, resulting in increased module and
assembly business, and solidified relationships, while providing our customers
with quality, reliability and lower overall product and service costs.
Products and Service
Our products consist of LCDs and subassemblies, ranging from the low-end
LCDs for calculators, watches and electronic games to STN-LCDs for use in
applications that require high multiplex rates and wide viewing angles. Such
devices are used in cellular telephones, consumer appliances, office equipment,
bar code readers, hand held computers, automotive equipment and medical
electronics. The display company, MULCD, produces the LCDs. The electronics
company, IDWT, designs and manufactures customized LCD modules adding value to
the basic displays with electronics, keypads, interface circuitry, back lighting
and mounting hardware. This division also produces assemblies without LCDs. IDWT
has production and design capability in module processes, including
chip-on-glass (COG), surface mount technology ("SMT"), chip-on-board ("COB"),
tape automated bonding ("TAB"), keypads and back lighting.
We currently emphasize custom-design display modules. Custom devices and
displays represent more than 90% of our current sales and we believe, offer the
best opportunity for higher profits and potential growth. For each custom
device, we work directly with our customer to develop and produce the original
design and then manufacture the device in accordance with the customer's
specifications. We identify the specific needs of existing and prospective
customer's applications. We then assign a cross-functional team of our engineers
to a custom design project to develop the product working with the customer's
engineers throughout the design phase, prototype development and manufacturing
process. This effort results in a complete system or product, which requires a
specific visual display (cellular telephones, medical instruments or hand-held
data collection devices). We, also, have an inventory of completed designs that
are currently generating revenue and are expected to generate additional revenue
in the future.
We are instituting a careful marketing and customer selection process to
more closely align our growth and development objectives with that of the
customers and industries, which offer the greatest opportunity for growth. Our
research and development is focused upon technological developments and products
that meet the current and future requirements of those industries and companies.
Manufacturing
We have a broad range of production processes to manufacture a variety of
LCD types and features, including TN and STN displays, which incorporate a wide
variety of interface technologies, as well as appearance and environmental
options. MULCD, the display subsidiary, has a fully automated, LCD front-end
sheet processing production line that started in 1998, which is supported by
back-end processing and testing operators. MULCD's LCD line was awarded an ISO
9001 certification for quality. (ISO is a quality standard established by the
International Organization for Standardization.)
IDWT, the module and assembly subsidiary is an ISO 9001 certified display
module and assembly production facility. Current manufacturing technologies are
Chip on Glass (COG), Chip on Board (COB), Surface Mount Technology (SMT), Tape
Automated Bonding (TAB) assembly and heat seal flex circuitry assembly to which
we have added Quarter VGA (QVGA). IDWT has the option to buy displays from
outside sources in order to expand its production capabilities or to have a
second source to meet customers' requirements. IDWT's production capabilities
include SMT lines for high-speed electronic component placement and production
lines for LCD Modules, Printed Circuit Board Assemblies (PCBA). IDWT also
produces PCBAs without LCDs.
Wage costs for manufacturing are currently materially lower in China than
in the mature markets of the West. We are thus positioned with a competitive
advantage to compete effectively for business in the United States and Europe as
well as Asia. IDW may be less able to compete for customers outside China or
with companies with closer manufacturing facilities if this wage advantage were
to decrease or other cost differentials affecting IDW's ability to provide
products at competitive prices were eroded.
We seek to increase our value to customers by providing responsive,
flexible, total design and manufacturing services. To date, manufacturing
services have been concentrated towards the manufacture of LCDs and assembly of
custom design display modules. IDW will provide extended manufacturing services
beyond those base services if the customer requests them. Extended services
include design, process development and turnkey manufacturing.
Quality Control
IDW has an aggressive quality control program and maintains quality systems
and processes that meet or exceed the requirements set by many leading OEMs and
competitors in our targeted industries. IDW's quality control program is based
upon Total Quality Management ("TQM"). IDW routinely performs product testing on
its standard and custom products to ensure product reliability and quality. IDW
analyzes test results and takes actions to adjust the manufacturing process or
enhance product design and quality. IDW's customers generally evaluate price in
the quotation process, while delivery and quality are evaluated after the
product is shipped. Therefore, many customers evaluate a company's quality by
reviewing the quality systems employed. IDW's receipt of an ISO 9001
certification for quality for the MULCD facility and an ISO 9001 certification
for the IDWT facility give its clients assurance as to IDW's quality control
processes. IDW is also certified with QS9000 for automotive products, which
qualifies it to work with North American automakers. We are in the process of
obtaining certification for ISO 14001.
Sales and Marketing
IDW has sales representative organizations and a network of sales
representatives covering North America and key markets in the Far East and
Europe. In support of our sales force, we employ design and sales support
engineers for technical backup.
IDW's sales in Asia were approximately 39% of total sales in fiscal year
2002, primarily concentrated in the Hong Kong market. The United States
accounted for 53% of total sales and Europe accounted for approximately 3% of
total sales in fiscal year 2002.
Customers
IDW operates under Non-Disclosure Agreements with many of its major
customers and thus, cannot provide specific customer details. Our largest
customer accounted for approximately 30% of sales in fiscal year 2002. Sales to
our five largest customers represented more than 52% of sales in fiscal year
2002.
Research and Development
IDW is currently developing wide temperature LCD displays for automotive,
appliance and outdoor utility meters; high density graphic displays for handheld
computers, cell phones and personal digital assistants; cold cathode and white
LED backlighting for black and white, half tone and color displays; and is
developing standard and custom chip-on-glass displays for personal products and
appliances.
Additionally, IDW will conduct research and development that is focused on
improving technology, developing improved designs, improving manufacturing
processes and improving the overall quality of the products and services that
IDW offers. IDW expects to increase its research and development efforts on new
display technologies and more sophisticated display technologies. IDW expects to
restore research and development funding activities to appropriate levels and is
hiring research personnel to accomplish that goal.
Seasonality and Backlog
IDW's business experiences a minimal amount of seasonality. Our production
tends to ramp up in the second calendar quarter, continuing through the fourth
quarter, but declines somewhat in the first quarter leading up to and
immediately following the Chinese Lunar New Year. In common with most businesses
in China where the Lunar New Year is the major festive break of the year, our
manufacturing facility is closed for a week or longer. We attempt to produce our
customers' requirements prior to the plant shut down. Chinese Lunar New Year
usually occurs in late January to mid February. As of October 31, 2002, IDW had
a backlog of orders in excess of $4,000,000 scheduled for delivery in fiscal
2003. The changing economic environment has encouraged customers to place orders
on a shorter order cycle, thus reducing overall value of IDW's backlog. However,
customers are ordering consistently and on a more frequent basis. We believe
that IDW will continue to receive orders from its key customers, resulting in
increased revenues overall.
Intellectual Property
IDW relies upon a combination of trade secrets, confidential procedures and
contractual provisions to protect its intellectual property. IDW's core business
is not dependent on any patent or trademark protection and IDW does not expect
to seek patent protection for any technology in the near future and does not
presently hold any patents for existing technology.
Raw Materials/Suppliers
The principal raw materials used in producing IDW's products consist of raw
and coated glass, polarizers, liquid crystal, chemicals, printed circuit boards,
driver integrated circuits, molded plastic parts, electronic components and
packaging materials. These are sourced from within the PRC, Hong Kong, other
locations in Asia and the US in both US Dollars and the supplier's local
currency. IDW has alternative sources of supply for the majority of these
materials and believes that additional sources would be available if any of our
existing suppliers were to go out of business or not be able to furnish
materials. Several of these materials, however, must be obtained from foreign
suppliers, which subjects IDW to the risk inherent in obtaining materials from
foreign sources, including currency fluctuations and supply interruptions. The
PRC Companies electric power plant requires the use of diesel fuel to generate
electricity. We regularly evaluate the possibility to switch to the local
utility power grid, which would eliminate the need for consuming diesel fuel to
generate electricity.
Employees
As of October 31, 2002, the Company and its subsidiaries employed
approximately 1,270 persons. Of those, most are employed by the PRC Companies,
with 9 employed by IDW in California, and 8 by IDW HK in Hong Kong. Over 90% of
our employees in the PRC Companies work in manufacturing. We consider our
relationships with employees to be good and that compensation provided to our
employees is similar to comparable employers in the same geographic markets and
industry. Our employees do not belong to a union or other collective bargaining
unit.
Environmental
IDW's operations generate small amounts of hazardous waste as manufacturing
by products, including various gases, epoxies, inks, solvents and other wastes.
The PRC Companies also operate a diesel-fired electricity plant on its property.
As IDW's operations expand, the amount of such hazardous waste produced may
increase. Over time, hazardous waste has received increased regulation from
federal, state, local and foreign governments. Our operations comply with all
applicable environmental regulations and all hazardous waste is being stored,
used, and disposed of in accordance with applicable laws.
Competition
There are many competitors in IDW's industry. Some of these competitors are
larger companies that have greater financial, technical, marketing,
manufacturing, research and development and personnel resources than IDW. IDW's
success, including its revenue and profitability, depends substantially on its
ability to compete with the other suppliers of display modules. There is no
assurance that IDW will continue to be able to compete successfully with such
companies. There are also other companies in the electronics industry that have
significantly greater resources than the Company and these other companies could
decide to enter the LCD market and become major competitors. However, we believe
that IDW can compete favorably on the basis of customer relationships, service,
technical innovation, design capability, product performance, cost, quality and
timely delivery. To remain competitive and increase market share, IDW needs to
develop more sophisticated, higher-end LCD displays.
Return Policy
The Company warrants its products against defects for fifteen days after
delivery to customers. As the Company manufactures custom products to customer
specifications and has not experienced significant returns, the Company does not
anticipate it will incur a material amount of warranty expense.
ITEM 2. PROPERTY
The PRC Companies own manufacturing facilities which consist of three
buildings totaling approximately 270,000 square feet situated on four acres of
leased land in Heng Gang Industrial Estate located 30 minutes from the center of
the city of Shenzhen, PRC and about one hour from Hong Kong. The buildings are
approximately twelve years old, the LCD production line approximately five years
old, the SMT production machinery approximately three to five years old. The
Company also operates its own diesel power plant for generation of the power
requirements of the manufacturing facilities. There is sufficient land to
accommodate future expansion and growth of the business. There is additional
production floor space for available support and expansion of IDW's
manufacturing operations. The PRC Companies' facilities are on land leased
pursuant to a 50-year land lease expiring in 2043 at an annual land rent of
approximately $70,000, subject to certain periodic rent increases. We also lease
dormitory facilities for our production employees on an adjacent property from
the local government and ancillary accommodation in the area for senior staff
The Group's corporate offices consist of 4,700 square feet in an industrial
park in Rocklin, California. The lease is for a term of 62 months and expires in
April 2005. The rent is now $69,000 per year through the first 33 months and
$73,000 per year for the remainder of the lease. IDW pays a proportionate share
of operating expenses of approximately $12,400 per year.
ITEM 3. LEGAL PROCEEDINGS
The Company is currently involved in the litigation and proceeding
described below.
Nicolas Steenolsen vs. Squaw Valley Ski Corporation, Granite Bay Technologies,
Inc., Morrow Snowboards, Inc., et al., Superior Court of California, Los Angeles
County, Case No. BC243817. The case is a complaint for personal injuries which
arose from plaintiff's use of a snowboard allegedly manufactured by Morrow
Snowboards, Inc. The complaint seeks unspecified general damages and unspecified
past and future medical expenses. The Company is defending the action.
Indications are that the Company will be dismissed from this action, but there
has been no ruling to that affect. There is no basis for determining the amount
of damages or probability of outcome at this time.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of the security holders during
the fiscal year ended October 31, 2002.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
From December 14, 1995 until February 18, 2000 the Company's Common Stock
was trading under the symbol "MRRW," from February 18, 2000 until November 8,
2001 the Company's Common Stock was trading under the symbol "GBAY," and since
November 8, 2001 under the symbol "IDWK." On April 27, 1999, the Company was
delisted from the NASDAQ National Market. The Company traded on the NASDAQ Pink
Sheets from that date until it was upgraded to the OTC Bulletin Board on
September 21, 2001. As of October 31, 2002, there were approximately 900
registered holders of Common Stock of the Company. As many of the shares of
Common Stock are held in street name, there may be additional beneficial holders
of the Company's Common Stock.
The following table shows the range of high and low bid as reported by Pink
Sheets or Over-the-Counter Bulletin Board while the Company was involved in its
current operations.
Low High
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Fiscal 2002:
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Fourth Quarter (to October 31) $0.17 $0.32
Third Quarter (to July 31) $0.19 $0.48
Second Quarter (to April 30) $0.30 $0.46
First Quarter (to January 31) $0.21 $0.51
*Fiscal 2001:
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Fourth Quarter (to October 31) $0.28 $0.45
Third Quarter (to September 29) $0.20 $0.56
Second Quarter (to June 30) $0.42 $0.63
First Quarter (to March 31) $0.47 $0.87
*Note the Company changed its year end to October 31, effective October 31, 2001
(see note 3c to the Financial Statements)
Dividends
The Company has paid no dividends on its Common Stock since its inception.
For the foreseeable future any earnings will be retained to finance the growth
of the Company and accordingly, the Company does not anticipate the payment of
cash dividends.
Recent Sales of Unregistered Securities
None.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The following table presents a summary of selected financial data for each
of the year ended October 31, 2002, the ten months ended October 31, 2001 and
the eleven months ended December 30, 2000 (in thousands, except per share date).
The financial data excludes the Company's discontinued snowboard operations,
except where noted.
October 31, October 31, December 30,
2002 2001 2000
(eleven months
(twelve months) (ten months) of operations)
Net sales $ 20,928 $ 14,658 $ 17,804
Cost of goods sold 15,730 11,468 12,593
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Gross profit 5,198 3,190 5,211
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Operating expenses :
General and administrative 4,036 4,071 5,124
Selling, marketing and customer service 1,562 1,231 1,545
Engineering, advanced design and
product management 691 901 570
Impairment of Machinery 270 - -
Impairment of Goodwill 5,287 - -
---------------- -------------- ----------------
Total operating expenses 11,846 6,203 7,239
---------------- -------------- ----------------
Operating loss (6,648) (3,013) (2,028)
Other income (expenses) :
Interest expense (464) (530) (442)
Loss on investment - - (1,000)
Other income (expense) 170 972 (29)
---------------- -------------- ----------------
(294) 442 (1,471)
---------------- -------------- ----------------
Loss from continuing operations
before income taxes (6,942) (2,571) (3,499)
---------------- -------------- ----------------
Provision for Income taxes - - -
---------------- -------------- ----------------
Loss from continuing operations (6,942) (2,571) (3,499)
---------------- -------------- ----------------
Loss from discontinued
operations, net of taxes - - (581)
Net loss $ (6,942) $ (2,571) $ (4,080)
================ ============== ================
Basic and diluted loss per common share :
Continuing operations $ (0.36) $ (0.14) $ (0.20)
Discontinued operations - - (0.03)
---------------- -------------- ----------------
$ (0.36) $ (0.14) $ (0.23)
================ ============== ================
Weighted average common shares outstanding
basic and diluted 19,207,246 19,192,611 17,482,583
================ ============== ================
As Of
--------------------------------------------------------
October 31, October 31, December 30,
2002 2001 2000
--------------------------------------------------------
(in thousands, except share and per share data)
Balance Sheet Data
- ------------------
Cash and cash equivalents 1,556 982 885
Net current assets from continuing operations 6,618 5,950 6,151
Equipment, fixtures, and property, net 5,197 6,389 7,297
Total assets from continuing operations 11,815 18,058 19,543
Current liabilities 6,043 5,861 5,631
Long-term debt and capital lease obligations, net of
current portion 1,280 807 201
Shareholders' equity 4,442 11,390 13,735
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
Overview
Since its formation in 1989 until 1999, the Company focused its business
activities on designing, manufacturing and marketing premium snowboards and
related products under the "Morrow" brand name. In 1999, the Company sold its
snowboarding and related businesses resulting in discontinuance of all
operations. On January 31, 2000, the Company, through its subsidiary IDW HK,
acquired 100% of the shares of the PRC Companies. The PRC Companies are engaged
in the manufacturing and assembly of liquid crystal displays and assemblies in
the Peoples Republic of China ("PRC Companies").
The following discussion is presented on a consolidated basis, and analyzes
the financial condition and results of operations of IDW and its subsidiaries
for the twelve month fiscal period ended October 31, 2002, the ten-month fiscal
year ended October 31, 2001 and the eleven months from the acquisition of the
PRC Companies on January 31, 2000 through December 30, 2000.
Comparison of the Periods Ended October 31, 2002 and October 31, 2001
Continuing operations - The Company's continuing operations consist of
International Display Works Inc. a Delaware corporation (IDW), International
DisplayWorks Hong Kong Limited. (IDWHK), and IDW Technology (Shenzhen) Co., Ltd
(IDWT), MULCD Microelectronics (Shenzhen) Co., Ltd. (MULCD), collectively the
PRC Companies, which manufacture liquid crystal displays and assemblies.
Net sales - Net sales for the fiscal year ended October 31, 2002 were
$20,928,000 and for the ten months ended October 31, 2001 were $14,658,000, an
annualized increase of 19%. This increase can be attributed to the Company's
overall sales effort in all market areas.
Cost of goods sold - Cost of sales decreased to 75.2% of net sales for the
fiscal year ended October 31, 2002 from 78.2% for the ten months ended October
31, 2001. This decrease can be attributed to the Company's overall cost
containment programs implemented at the end of fiscal year 2001 and absorption
of fixed overhead over increased production.
Operating expenses - Operating expenses consist of selling, marketing,
customer service, engineering, and general and administrative expenses and
impairment charges to reduce the carrying value of certain assets. Operating
expenses were $11,846,000 for the fiscal year ended October 31, 2002 and
$6,203,000 for the ten months ended October 31, 2001. The operating loss for the
current year includes impairment charges to write off all unamortized goodwill
at the year end of $5,287,000 (which is after charging amortization in the year
of $432,000) and a charge to write off certain machinery that we are no longer
using with a net book value at the year end of $270,000. Were it not for these
impairment charges, the operating expenses would have been $6,289,000, a
decrease of 16% on an annualized basis. The decrease is attributed to the
Company's cost containment programs and overhead reductions begun at the end of
fiscal 2001 and the volume increase causing a greater absorption of attributed
overhead into cost of goods sold.
General and administrative - General and administrative expenses were
$4,036,000 for the fiscal year ended October 31, 2002 and $4,071,000 for the ten
months ended October 31, 2001, an annualized decrease of 17%. The decrease can
be attributed to the downsizing of the Rocklin and Hong Kong administrative
offices at the end of fiscal 2001. Significant elements of this expense include
employee related expenses of $1,600,000, professional fees of $406,000,
amortization of goodwill of $432,000, rent and utilities of $172,000, insurance
of $191,000, local PRC government fees of $197,000 and bad debt expense of
$77,000.
Selling, marketing and customer service - Selling, marketing and customer
service expenses were $1,562,000 for the fiscal year ended October 31, 2002 and
$1,231,000 for the ten month fiscal period ended October 31, 2001, an annualized
increase of 5.7%. Significant elements of this expense consist of employee
related expenses of $580,000, commission expense of $575,000 and rent of
$71,000. The increase is largely attributable to higher commission from the
increased sales volume.
Engineering, advanced design and project management - Engineering, advanced
design and project management expenses were $691,000 for the fiscal year ended
October 31, 2002 and $901,000 for the ten month fiscal period ended October 31,
2001, an annualized decrease of 36%. The significant decrease was due to the
relocation of design and project management to the PRC resulting in lower
engineering salary costs. Significant elements of this expense include employee
related expenses of $645,000 and travel and lodging of $40,000.
Impairment of goodwill - A review of the carrying value of goodwill
resulting from the acquisition of IDW Inc. by the then parent Granite Bay
Technologies Inc. (with which it later merged and gave its name) in the fourth
quarter stemming from the continued depressed markets, uncertain recovery in
global markets, the possibility of war with Iraq, and liquidity issues facing
the Company suggested that the undiscounted future cash flows were not
sufficiently certain to support continued recognition of the unamortized portion
of this goodwill. We commissioned an independent professional appraisal which
also concluded that the goodwill had become completely impaired. An impairment
charge of $5,287,000 has thus been charged.
Impairment of machinery - A review of the carrying value of long lived
assets in the fourth quarter suggested that we cannot be certain to recommence
the use of certain equipment that was decommissioned when it became more
economical to outsource rather than manufacture in house, nor do we foresee
significant proceeds from the sale of such equipment, we have thus written it
off by way of an impairment charge of $270,000.
Interest expense - Interest expense reduced to $464,000 for the fiscal year
ended October 31, 2002 from $530,000 for the ten months ended October 31, 2001 a
reduction of 27% on an annualized basis. The overall decrease in interest
expense is primarily due to a reduction in outstanding loan notes in the year
and a reduction in the fixed commitment fee on a factoring line.
Other income - Other income for the fiscal year ended October 31, 2002 was
$170,000. The significant element included in other income was rental received
from a sublet of leased property of $63,000, duty drawback and bad debt recovery
of $52,000. In the ten months ended October 31, 2001, other income was $972,000
which included a gain on the issue of common stock from the settlement of a put
option, rental income from subleased property, duty draw back and insurance
refunds.
Net loss - The net loss for the year was $6,942,000 including impairment
charges for the write off of all goodwill at the year end and the charge for the
impairment of machinery. Were it not for these two items the net operating loss
would have been $1,385,000 compared to $2,571,000 for the ten months to October
31, 2001 and a loss of $4,080,000 in the preceding year; this improvement is
primarily due to a 3% increase in margin and a volume increase in sales of 18%
on an annualized basis.
Comparison of the Ten Month Period Ended October 31, 2001 and the Eleven Month
Period Ended December 30, 2000
Continuing operations - The Company's continuing operations consist of
International Display Works Inc. a Delaware corporation (IDW), International
DisplayWorks Hong Kong Limited. (IDWHK), and IDW Technology (Shenzhen) Co., Ltd
(IDWT), MULCD Microelectronics (Shenzhen) Co., Ltd. (MULCD), collectively the
PRC Companies, which manufacture liquid crystal displays and assemblies. There
was no material income or expense from the discontinued operations in 2001.
Effective October 31, 2001, the Company changed its year end from a 52 week
year ending on the last Saturday of the calendar year closest to December 31st.
The effective date of acquisition of the PRC companies was February 1 2000. The
comparison of performance related to continuing operations below reflects
operations for the ten months to October 31, 2001 (a short period due to
accounting year change and eleven months (post acquisition) to December 30,
2000.
Net sales - Net sales for the ten months ended October 31, 2001 were
$14,658,000 and for the eleven months ended December 30, 2000 were $17,804,000,
an annualized reduction of 9%. This decrease can be attributed to pricing
pressures and the overall down-turn of the world economy first noticed in early
2001.
Cost of goods sold - Cost of sales increased to 78.2% of net sales for the
ten months ended October 31, 2001 from 70.7% for the eleven months ended
December 30, 2000. This increase can be attributed to pricing pressures from our
customers and under-absorption issues resulting from decreased production.
Operating expenses - Operating expenses consist of selling, marketing,
customer service, engineering, and general and administrative expenses.
Operating expenses decreased 14.3% to $6,203,000 for the ten months ended
October 31, 2001 from $7,239,000 for the eleven months ended December 30, 2000.
These expenses included a fourth quarter charge for the costs of staff
reductions and downsizing of administrative and sales operations in Hong Kong
during the period ended October 31, 2001.
General and administrative - General and administrative expenses decreased
21% to $4,071,000 for the ten months ended October 31, 2001 from $5,124,000 for
the eleven months ended December 30, 2000. The effects of cost reductions in
this category are minimized by the accruals for the downsizing of the Hong Kong
and Rocklin offices. Significant elements of this expense include employee
related expenses of $1,242,000, professional fees of $786,000, amortization of
goodwill of $360,000, rent, telephone and utilities of $314,000, insurance of
$201,000, local PRC government fees of $184,000 and bad debt expense of
$113,000.
Selling, marketing and customer service - Selling, marketing and customer
service expenses decreased 20% to $1,231,000 for the ten months ended October
31, 2001 from $1,545,000 for the eleven months ended December 30, 2000.
Significant decreases in this category were made in the second quarter of fiscal
2000 by the closure of the Singapore Sales office and other cost reductions. The
effect was minimized by the accrual of expenses related to the downsizing of the
Hong Kong sales office. Significant elements of this expense consist of employee
related expenses of $513,000, commission expense of $424,000 and rent of
$54,000.
Engineering advanced design and project management - Engineering, advanced
design and project management expenses increased 58% to $901,000 for the ten
months ended October 31, 2001 from $570,000 for the eleven months ended December
30, 2000. The significant increase was due to reclassification of some expenses
from General and Administrative to this category. Significant elements of this
expense include employee related expenses of $844,000, rent of $10,000 and
travel and lodging of $25,000.
Interest expense - Interest expense increased 20% to $530,000 for the ten
months ended October 31, 2001 from $442,000 for the eleven months ended December
31, 2000. The overall increase in interest expense is a direct result of use of
lines of credit for the factoring of accounts receivable established this fiscal
year and the mortgage on the Company's manufacturing facility in the PRC.
Other income - Other income for the ten months ended October 31, 2001 was
$972,000. Significant elements of this category include gain on the issue of
common stock to satisfy the put option, rental income from subleased property,
duty drawback; and insurance refunds and recovery of bad debt from discontinued
operations.
Discontinued operations - There was no material income or charge from
discontinued operations in the year ended October31, 2002 or ten months ended
October 31, 2001. The loss from discontinued operations in the year ended
December 31, 2000 was $581,000.
Net loss - The net loss for the ten months ended October 31, 2001 was
$2,571,000 compared to $4,080,000 for the twelve months ended December 30, 2000.
The loss from continuing operations was $2,571,000 for the ten months ended
October 31, 2001 compared to $3,499,000 for the period ended December 30, 2000.
This 39% decrease can be attributed to the loss of $1,000,000 from write-down of
the Company's investment in Globalgate, an e-commerce company that had suffered
deteriorated financial condition such that the Company believed that its
investment had no market value. The Company carried this investment at cost.
Liquidity and Capital Resources
IDW requires capital to repay certain existing fixed obligations, and to
provide for additional working capital and investment in capital equipment if it
is to grow in accordance with its plan. As discussed below, IDW intends to
generate working capital to implement its current Business Plan but may require
additional debt and/or equity to refinance its borrowing and capital expenditure
program.
The Company incurred net losses of $6,942,000, $2,571,000 and $4,080,000 in
fiscal periods ended October 31, 2002, October 31, 2001, and December 30, 2000,
respectively and has $1,658,000 of debt falling due within a year. In addition
the Company produced an increase in working capital of $455,000 in the ten
months to October 31, 2001. In the year to October 31, 2002, the Company
decreased its working capital requirement by $1,133,000 which stemmed primarily
from an increase in accounts payable of $1,120,000.
The cash generated and improvement in working capital resulted in net cash
of $1,268,000 being generated by operations in the year ended October 31, 2002.
$183,000 was applied to new capital equipment and $522,000 to the retirement of
debt. In addition, the Company was successful in negotiating the roll over of
the current portion of its mortgage in the PRC and loan notes that would
otherwise have fallen due. As a result net cash balances rose by $574,000 to
$1,556,000.
Liquidity remains tight with maturities of long-term debt falling due in
2003 of $1,658,000 upon which the Company has not yet concluded negotiations for
rollover or extension. The planned future expansion of IDW and its subsidiaries
includes $1,976,000 of capital expenditures in fiscal 2003 to enhance existing
production capabilities, assure product quality reduce costs and comply with the
investment conditions under which the business license of IDWT was granted. In
addition IDW may require additional working capital to fund growth.
The Company believes that it has developed a viable plan to address these
issues and that its plan will enable the Company to continue as a going concern
for the next twelve months. The plan includes the realization of revenues from
the sale of products, the consummation of debt or equity financing and the
reduction of certain operating expenses as required. The financial statements do
not include any adjustments to reflect the uncertainties related to the
recoverability and classification of assets or the amounts and classification of
liabilities that my result from the inability of the Company to continue as a
going concern. There is no assurance that the Company will be able to achieve
additional financing or that such events will be on terms favorable to the
Company.
Factors That May Affect Future Results
A wide variety of factors will affect IDW's operating results and could
impact net sales and profitability. Most significant will be our ability to
continue to operate as a Going Concern which will require extension, rollover or
replacement of existing debt and / or additional equity. Significant factors in
our success will be our ability to establish new and maintain existing design
and manufacturing relationships with key OEM customers that will generate
sufficient orders, including orders of high margin products to increase revenues
and profitability.
Our products are incorporated in a wide variety of communications, consumer
and appliance products. A slowdown in demand for such products that utilize
IDW's displays and modules as a result of economic or other conditions and the
market served by IDW or other factors could adversely affect IDW's operating
results. Our products are sold into an industry characterized by increasingly
rapid product turnaround, increasingly shorter lead times, product obsolescence,
order cancellation and other factors that make it difficult to forecast future
orders, production and personnel needs and other resource requirements with a
high level of certainty. Our ability to anticipate such factors and respond to
them in a timely fashion will affect IDW's ability to utilize manufacturing
capacity effectively, maintain a proper product mix and avoid downtimes due to
product conversions and other factors. Such uncertainty also creates
difficulties in maintaining adequate supplies of raw materials to meet shifting
customer needs and customer orders placed on short notice.
IDW's 2002 Operating Results - The actual performance of IDW for 2002 was
an improvement over 2001 operating results but reflected the general weakness in
the world economy and was characterized by longer than expected lead times from
customers in bringing their new products to market due to the uncertainties
associated with economic conditions.
IDW's Capital Resources - An increasingly difficult environment in North
America for raising new capital has limited our ability to provide for the
financing requirements of the Company. While the Company produced a positive
cash flow in the year, if we are unsuccessful in raising capital when required,
then the Company could face the risk of loss of its investment. Further, any
financing involving equity or rights to acquire equity interests, would result
in dilution in the percentage ownership of existing stockholders when such
equity interest were issued and, depending on the sales price, a dilution in
book value. Further, to capitalize on certain growth opportunities for the PRC
Companies or if projected revenues are less and/or costs higher than projected,
we would have to raise additional financing beyond that outlined above. Without
such expansion, we are limited; and this could affect the value of the Company's
Common Stock.
Dependence on Key Personnel - Since our acquisition of the PRC companies we
have endeavored to involve senior staff in the management of the Company and
empower our staff at every level. In addition, we have codified and recorded
procedures. While this process is on going we believe that no single executive
is sufficiently key that their departure would disrupt the Company to the extent
it presents a significant risk.
A Few Customers and Applications Account for a Significant Portion of IDW's
Sales - In fiscal 2002, five customers represented 51% of total sales revenue,
including one customer representing 30% of the Company's revenue. This compares
with fiscal 2001 where five customers represented 57% of total sales revenue and
one customer represented 35% of the Company's revenue. At our present size, the
loss of any one of these customers could have a material affect on the Company's
performance, liquidity, and prospects. Customers have not made firm long-term
purchase commitments. Delay or reduction of customer orders could result in
under-absorption of manufacturing capacity. These risks are enhanced because of
the large percentage of sales to electronic industry customers who are subject
to severe competitive pressures, rapid technological change and obsolescence.
While we expect to continue to receive orders from existing customers, there is
no assurance orders will be received, and if received, not cancelled, delayed or
reduced, which could have material adverse effect on the Company's results of
operations. To reduce this risk, we expect to continue to emphasize custom
devices where purchase orders are generally longer term with lower probability
of cancellation.
Need for Additional Financing - The opportunities for long-term growth in
the Company's lines of business are dependent upon having sufficient capital
resources available to fund rapid growth in significant OEM accounts, which we
have identified and targeted. We may therefore need additional financing to fund
growth in both working capital and capital expenditure.
IDW Faces Intense Competition - We operate in a competitive environment
that is characterized by price compression and rapid technological change. IDW
competes with major Asian and international companies. Some of IDW's competitors
have greater market recognition and substantially greater financial, technical,
marketing, distribution, manufacturing, and other resources than IDW.
Furthermore, some of our competitors have manufacturing and sales forces that
are geographically diversified allowing them to reduce transportation, tariff
costs and currency fluctuations for certain customers in markets where their
facilities are located. Many competitors have production lines that allow them
to produce more sophisticated and complex devices than IDW and to offer a
broader range of display devices to customers. New emerging companies or
companies in related industries may also increase their participation in the
display module market, which would increase competition.
IDW's ability to compete successfully depends on a number of factors, both
within and beyond its control. These factors include: the price, quality,
performance, reliability, ease of use and features of our products; the variety
of our product solutions; foreign currency exchange rates; trade barriers and
customs duties which may effect the cost of products; our ability to design and
manufacture new product solutions, including incorporating new technology; the
availability and price of raw materials; our ability to fully utilize our
manufacturing facility; new product technology or solutions by our competitors;
the number and success of competitors; and general market and economic
conditions. Our competitive position could also be adversely affected if one or
more of our customers, including key customers, decided to design and
manufacture their own display modules, use different devices or purchase devices
from competitors. We cannot assure that we will compete successfully in the
future.
Risk of Inability to Produce High-End Products - IDW's success is partly
dependent upon our ability to effectively offer higher-end products which we do
not currently produce, including color STN, TFT products, and OLED (organic
liquid emissive display) graphic displays, as the market is believed to be
moving in this direction.
Some of these products would offer both the opportunity to increase
utilization of existing manufacturing capacity and also the opportunity to
generate higher margins and profits at given revenue levels. The production of
such products requires increased custom design and manufacturing, maintenance of
strong customer relationships and additional capital equipment.
Changing Technologies - IDW operates in an industry characterized by
frequent and rapid technological advances, the introduction of new products and
new design and manufacturing technologies. As a result, IDW is required to
expend funds and to commit resources to continuing research and development
activities, possibly requiring additional engineering and other technical
personnel; purchasing new design, production, and test equipment; and
continually enhancing design and manufacturing processes and techniques. IDW's
future operating results will depend significantly on our ability to provide
timely design and manufacturing services for new products that compete favorably
with design and manufacturing capabilities of OEMs and third party suppliers.
IDW could invest significant sums in design and manufacturing services for
new product solutions that may not receive or maintain customer or market
acceptance or effectively address customer needs, which could adversely affect
the Company's future operating results. Further, customers may change or delay
product introductions or terminate existing products without notice for any
number of reasons unrelated to IDW, including lack of market acceptance for a
product.
We may also be required to increase our design staff and other personnel
and incur other expenses on capital equipment and other items to meet
anticipated or actual demand of our customers. Those additional costs may
adversely impact operating margins in the short term.
Maintenance of Satisfactory Manufacturing Yields and Capacities;
Variability of Customer Requirements - The profitability and operating results
of IDW are dependent upon a variety of factors, including: product mix,
utilization rates of its manufacturing lines, downtime due to product
changeover, impurities in raw materials causing shutdowns, maintenance of
contaminant-free operations and other factors.
Risks Associated with International Operations - IDW has made a decision to
locate all of its manufacturing operations in China and to establish sales
offices in Asia, Europe and the United States. The geographical distance between
its manufacturing facilities in China and its customers in North America and
Europe create a number of logistical and communications challenges. Because of
the location of the manufacturing facilities in China, IDW may be affected by
economic and political conditions in that country, as well as economic and
political conditions in the countries in which it markets and distributes its
products, including, without limitation, problems related to labor unrest, lack
of developed infrastructure, variances in payment cycles, currency fluctuations,
overlapping taxes and multiple taxation issues, employment and severance taxes,
compliance with local laws and regulatory requirements, greater difficulty in
collecting accounts receivable, political and economic instability and the
burdens of cost and compliance with a variety of foreign laws.
Further, changes in policies by the United States or other foreign
governments resulting in, among other things, increased duties, higher taxation,
currency conversion rates or limits, limitations and restrictions on the
transfer or repatriation of funds or limitations on imports or exports, or the
expropriation of private enterprises could also have a materially adverse effect
on IDW and its results of operations. China has a less comprehensive and
developed system of laws, particularly with respect to foreign investment
activities and foreign trade than the US and other developed economies.
Enforcement of existing and future laws and contracts is uncertain and
implementation and interpretation of such laws may be inconsistent. Changes in
existing laws, the adoption of new laws and preemption of local regulations by
national laws may adversely affect foreign investment in China. IDW could also
be adversely affected by other factors, including: the imposition of austerity
and other monetary measure to fight inflation or to achieve other economic
objectives; inadequate development or maintenance of infrastructure, including
adequate power and water supplies; transportation; raw materials availability;
or the deterioration in the general political, economic or social environment.
Risks Associated with Collectibility of Receivables - IDW extends credit to
its customers based on assessment of a customer's financial circumstances,
generally without requiring collateral, in both the United States and in various
countries in the Far East and Europe. These extended payment terms, present an
exposure to risk of uncollected receivables. The inability to collect on these
accounts receivable could have a materially adverse effect on our results of
operations and profitability.
Risks Associated with Currency Fluctuations and International Trade - Sales
in global markets, primarily Europe, the United States and other parts of Asia,
are expected to increase significantly in fiscal year 2003 and subsequent years.
Economic and political conditions internationally may adversely affect the
manufacture and sale of IDW's products. Protectionist trade legislation in the
United States or foreign countries, such as a change in export or import
legislation , tariff or duty structures, or other trade policies, could
adversely affect our ability to sell products in foreign markets, and to
purchase raw materials or equipment from foreign suppliers.
IDW transacts business in a variety of currencies including Hong Kong
dollars, Singapore dollars, US dollars and the Chinese Yuan Renminbi ("RMB").
Increased sales to Europe may result in receivables in other currencies, such as
the Euro. Further, IDW incurs a significant portion of its costs, such as
payroll, land rent and other costs associated with running the facilities in the
PRC in RMB. Adverse movements between the selling currency (primarily the US
dollars) and the RMB would have a material impact or profitability. Changes in
exchange rates would affect the value of deposits of currencies IDW holds. The
RMB has been broadly stable against US dollar in the past three years but as it
is not fully convertible and fully traded there are only limited options
available for the management of exchange risk which the Company is not currently
utilizing. The Company is thus exposed to an increase in the RMB against the US
dollar.
IDW May Experience Shortages of Raw Material Supplies - Principal raw
materials used in producing IDW's products consist of raw and coated glass,
polarizers, liquid crystal, chemicals, printed circuit boards, drive ICs, molded
plastic parts, electronic components and packaging materials. For its energy
supply, IDW uses diesel fuel. IDW purchases most of these materials in Asia. We
do not have long-term supply contracts with our suppliers. IDW believes that it
has secondary sources of supplies for most of its products and, if we were to
lose any of our primary or secondary sources, we could develop new sources of
supply. However, because IDW's sources for many materials are from foreign
suppliers, IDW may be subject to certain risks, including: tariffs, currency
fluctuations and supply interruptions. The impact of price increases will affect
operating costs and product margins, the materiality of which cannot be
presently determined.
Environmental Regulations - Our manufacturing processes result in the
creation of small amounts of hazardous wastes, including: various gases,
epoxies, inks, solvents and other organic wastes. IDW is, therefore, subject to
PRC governmental regulations related to the use, storage and disposal of such
hazardous wastes used in the manufacturing processes. IDW also has its own
electrical power generation plant that operates on diesel fuel. The amounts of
such hazardous waste are expected to increase in the future as our manufacturing
operations increase. The failure to comply with present and future environmental
regulation can result in the imposition of fines, suspension or halting of
production or closure of manufacturing operations. Environmental compliance may
also require IDW to purchase pollution-control equipment or to incur significant
capital or other expenses. Although we believe we are operating in compliance
with applicable environmental laws, there is no assurance that IDW is in
compliance or will remain in compliance as such laws and regulations change.
Governmental Regulations - IDW is subject to numerous foreign, state and
local governmental regulations. We are subject to laws and regulations governing
our relationship with our employees, including: wage and hour requirements,
working and safety conditions, citizenship requirements, work permits and travel
restrictions. Further, the PRC Companies are leasing the land under their
facilities under a 50-year lease, which expires in the year 2043. We are also
subject to significant government regulation to property ownership and use,
import restrictions, currency restrictions, restrictions on the volume of
domestic sales, and other areas, all of which consistently impact profits and
operating results.
Other Risks - Other risks IDW faces include the cyclical nature of the
electronics industry, the protection of IDW's trade secrets and technology,
management of expected rapid growth in personnel, capital equipment, outside
sales force, sales and accounts receivable and other items and maintenance of
adequate research and development efforts and personnel.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Inflation Risk
While inflation has remained low in recent years in the markets in which we
sell and is expected to remain so for the foreseeable future the general
inflation rate in the PRC is higher with wage expectation running at 5-10%
annually. Such inflation represents a risk to our profitability if sustained and
not compensated for by a movement in exchange rates or productivity
improvements.
Interest Rate Risk
The Company's principal exposure to interest rate changes is on the
factoring lines which are based on prime rates in the US and Hong Kong. Interest
on other financial obligations is fixed for the duration of the obligation
Foreign Currency Exchange Risk
IDW derives the majority of its revenues in U.S. and Hong Kong dollars. The
Hong Kong dollar remained "pegged" to the U.S. dollar in fiscal year 2002,
therefore, the Company's sales proceeds have a minimal exposure to foreign
currency fluctuations.
The Company incurs approximately 30% of its operating expenses in the PRC
currency, Renminbi yuan ("RMB"). An increase in the value of the RMB against the
U.S. Dollar would result in an increase in operating costs incurred in the PRC
and a translation gain on cash balances held in RMB in anticipation of meeting
payment obligations. The Company generally does not hold more than two weeks of
RMB requirements and they are always less than total payment obligations.
The Company has long term debt, repayable in installments over three years,
of RMB 10 million (US$ 1.2 million at current exchange rates), designated in
RMB. An increase in the value of the RMB against the US dollar would result in a
translation loss in US dollar terms which would be realized as US dollars from
sales revenues are utilized to meet the repayment obligation.
INTERNATIONAL DISPLAYWORKS, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS AND REPORTS OF
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
TABLE OF CONTENTS
Page
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Reports of Independent Certified Public Accountants F-2
Consolidated Financial Statements
Consolidated Balance Sheets as of October 31, 2002 and 2001 F-4
Consolidated Statements of Operations for the year ended
October 31, 2002, ten-months ended October 31, 2001
and the year ended December 30, 2000 F-5
Consolidated Statements of Stockholders' Equity for the year
ended October 31, 2002, ten-months ended October 31, 2001
and the year ended December 30, 2000 F-6
Consolidated Statements of Cash Flows for the year ended
October 31, 2002, ten-months ended October 31, 2001 and the
year ended December 30, 2000 F-7
Notes to Consolidated Financial Statements F-8
Supplementary Information F-30
F-1
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
International DisplayWorks, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheet of International
DisplayWorks, Inc. and Subsidiaries (the "Company"), as of October 31, 2002 and
the related consolidated statements of operations, stockholders' equity and cash
flows, for the year then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit. The financial
statements of the Company as of and for the ten-months and year ended October
31, 2001 and December 30, 2000, respectively, were audited by other auditors
whose report dated January 23, 2002, expressed an unqualified opinion on those
statements.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of International DisplayWorks,
Inc. and Subsidiaries as of October 31, 2002, and the results of its operations
and its cash flows for the year then ended, in conformity with accounting
principles generally accepted in the United States of America.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 1 to the
consolidated financial statements, the Company incurred a net loss of $6,942,000
during the year ended October 31, 2002, and, as of that date, the Company has an
accumulated deficit of $36,845,000. These factors, among others, raise
substantial doubt about the Company's ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note 1. The
consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
In connection with our audit of the consolidated financial statements referred
to above, we have audited Schedule II - Valuation and Qualifying Accounts, for
the year ended October 31, 2002. In our opinion this schedule presents fairly,
in all material respects, the information required to be set forth therein.
/S/ GRANT THORNTON
Hong Kong
December 13, 2002
F-2
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
International DisplayWorks, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheet of International
DisplayWorks, Inc. and subsidiaries (the "Company") as of October 31, 2001, and
the related consolidated statements of operations, shareholders' equity and cash
flows for the ten months ended October 31, 2001 and for the year ended December
30, 2000. These consolidated financial statements and the schedules referred to
on the following pages are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements and supplemental schedules based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the consolidated
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the consolidated statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
International DisplayWorks, Inc. and subsidiaries as of October 31, 2001 and the
consolidated results of their operations and their cash flows for the ten months
ended October 31, 2001 and for the year ended December 30, 2000, in conformity
with accounting principles generally accepted in the United States of America.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 1 to the
consolidated financial statements, certain matters raise substantial doubt about
the Company's ability to continue as a going concern. Management's plan in
regard to these matters is described in Note 1. The consolidated financial
statements do not include any adjustments relating to the recoverability and
classification of asset carrying amounts or the amount and classification of
liabilities that might result should the Company be unable to continue as a
going concern.
Our audits were conducted for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole. The Supplemental Schedule of
Valuation and Qualifying Accounts is presented for purpose of complying with the
Securities and Exchange Commission's rules and is not a part of the basic
consolidated financial statements. This information has been subjected to the
auditing procedures applied in the audit of the basic consolidated financial
statements and, in our opinion, is fairly stated in all material respects in
relation to the basic consolidated financial statements taken as a whole.
/S/ PERRY-SMITH LLP
Sacramento, California
January 23, 2002
F-3
INTERNATIONAL DISPLAYWORKS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Share Data)
October 31,
2002 2001
Assets
Current assets :
Cash and cash equivalents $ 1,556 $ 982
Accounts receivable, net of allowance for doubtful
accounts of $341 and $196, respectively 3,064 3,231
Inventories 1,460 1,322
Prepaid expenses and other current assets 538 415
-------------------- -------------------
Total current assets 6,618 5,950
-------------------- -------------------
Property, plant and equipment, net 5,197 6,389
Goodwill, net - 5,719
-------------------- -------------------
Total assets $ 11,815 $ 18,058
==================== ===================
Liabilities and Stockholders' Equity
Current liabilities :
Accounts payable $ 3,070 $ 1,950
Accrued liabilities 1,365 1,258
Current portion of long-term debt - related parties 200 749
Current portion of long-term debt 1,458 1,905
-------------------- -------------------
Total current liabilities 6,093 5,862
Long-term debt, net of current portion - related parties 474 -
Long-term debt, net of current portion 806 806
-------------------- -------------------
Total liabilities 7,373 6,668
Commitments and contingencies
Stockholders' equity :
Preferred stock, no par value, 10,000,000 shares
authorized, no shares issued or outstanding - -
Common stock, no par value, 40,000,000 shares
authorized, 19,217,246 and 19,321,246 shares issued
and outstanding at October 31, 2002 and 2001, 41,216 41,205
respectively
Accumulated deficit (36,845) (29,903)
Accumulated other comprehensive income 71 88
-------------------- -------------------
Total stockholders' equity 4,442 11,390
-------------------- -------------------
Total liabilities and stockholders' equity $ 11,815 $ 18,058
==================== ===================
F-4
INTERNATIONAL DISPLAYWORKS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Per Share Data)
For the Year Ended October 31, 2002, the Ten-months Ended October 31, 2001
and the Year Ended December 30, 2000
October 31, October 31, December 30,
2002 2001 2000
(twelve-months) (ten-months) (twelve-months)
Net sales $ 20,928 $ 14,658 $ 17,804
Cost of goods sold 15,730 11,468 12,593
---------------- -------------- ----------------
Gross profit 5,198 3,190 5,211
---------------- -------------- ----------------
Operating expenses :
General and administrative 4,036 4,071 5,124
Selling, marketing and customer service 1,562 1,231 1,545
Engineering, advanced design and
product management 691 901 570
Impairment of Machinery 270 - -
Impairment of Goodwill 5,287 - -
---------------- -------------- ----------------
Total operating expenses 11,846 6,203 7,239
---------------- -------------- ----------------
Operating loss (6,648) (3,013) (2,028)
Other income (expenses) :
Interest expense (464) (530) (442)
Loss on investment - - (1,000)
Other income (expense) 170 972 (29)
---------------- -------------- ----------------
(294) 442 (1,471)
---------------- -------------- ----------------
Loss from continuing operations
before income taxes (6,942) (2,571) (3,499)
Provision for income taxes - - -
---------------- -------------- ----------------
Loss from continuing operations (6,942) (2,571) (3,499)
Loss from discontinued
operations, net of taxes - - (581)
---------------- -------------- ----------------
Net loss $ (6,942) $ (2,571) $ (4,080)
================ ============== ================
Basic and diluted loss per common share :
Continuing operations $ (0.36) $ (0.14) $ (0.20)
Discontinued operations - - (0.03)
---------------- -------------- ----------------
$ (0.36) $ (0.14) $ (0.23)
================ ============== ================
Weighted average common shares outstanding
basic and diluted 19,207,246 19,192,611 17,482,583
================ ============== ================
F-5
INTERNATIONAL DISPLAYWORKS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(In Thousands, Except Share and Per Share Data)
For the Year Ended October 31, 2002, the Ten-months Ended October 31, 2001
and the Year Ended December 30, 2000
Accumulated
other
Common Stock Accumulated comprehensive
Shares Amount deficit income (Loss) Total
Balance at January 2, 2000 9,176,556 $ 27,866 $ (23,252) $ (11) $ 4,603
Comprehensive income (loss) :
Net loss - twelve-months - - (4,080) - (4,080)
Change in translation
adjustment - - - 81 81
-----------
Total comprehensive loss (3,999)
Stock issued for acquisition 2,680,000 7,236 - - 7,236
Stock issued in private placement 7,251,634 6,078 - - 6,078
Exercise of common stock options 42,350 18 - - 18
Common stock subject to put option - (201) - - (201)
------------ ------------ --------------- ------------------ -----------
Balance at December 30, 2000 19,150,540 40,997 (27,332) 70 13,735
Comprehensive income (loss) :
Net loss - ten-months - - (2,571) - (2,571)
Change in translation
adjustment - - - 18 18
-----------
Total comprehensive loss (2,553)
Stock issued 170,706 59 - - 59
Warrants issued - 149 - - 149
------------ ------------ --------------- ------------------ -----------
Balance at October 31, 2001 19,321,246 41,205 (29,903) 88 11,390
Comprehensive income (loss) :
Net loss - twelve months - - (6,942) - (6,942)
Change in translation
adjustment - - - (17) (17)
-----------
Total comprehensive loss (6,959)
Stock Retired (134,000) - - - -
Warrants issued - 4 - - 4
Exercise of common stock options 30,000 7 - - 7
------------ ------------ --------------- ------------------ -----------
Balance at October 31, 2002 19,217,246 $ 41,216 $ (36,845) $ 71 $ 4,442
============ ============ =============== ================== ===========
F-6
INTERNATIONAL DISPLAYWORKS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
For the Year Ended October 31, 2002, the Ten-months Ended October 31, 2001
and the Year Ended December 30, 2000
October 31, October 31, December 30,
2002 2001 2000
(twelve-months) (ten-months) (twelve-months)
Cash flows from operating activities:
Net loss $ (6,942) $ (2,571) $ (4,080)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Loss from discontinued operations - - 581
Depreciation 1,096 941 1,912
Impairment of goodwill 5,287 - -
Amortization of goodwill 432 360 395
Loss on investment - - 1,000
Impairment of machinery 270 - -
Loss on disposal of fixed assets 9 - 33
Loss (income) on foreign currency
translation (17) 18 2
----------------- --------------- ------------------
135 (1,252) (157)
Changes in operating assets and
liabilities, net of business
combinations :
(Increase) decrease in :
Accounts receivable 167 (292) (1,419)
Inventories (138) 747 (231)
Prepaid expenses and other
current assets (123) (129) 1,002
Accounts payable 1,120 (910) (1,004)
Accrued liabilities 107 (382) 729
----------------- ---------------- ------------------
Net cash provided by (used in)
operating activities 1,268 (2,218) (1,080)
Cash flows from investing activities :
Acquisitions, net of cash acquired - - (4,208)
Acquisition of property, plant and equipment (183) (33) (285)
Proceeds from sale of warehouse from
discontinued operations - - 2,394
----------------- ---------------- ------------------
Net cash used in investing
activities (183) (33) (2,099)
Cash flows from financing activities :
Proceeds from issuance of common stock 11 59 6,078
Proceeds from long-term debt - related parties - 325 349
Proceeds from long-term debt - 2,636 3,071
Payments on long-term debt - related parties (75) - -
Payments on long-term debt (447) (821) (7,141)
Issuance of warrants - 149 -
Payment of loan fees - - (223)
----------------- ---------------- ------------------
Net cash provided by (used in)
financing activities (511) 2,348 35
Net increase (decrease) in cash and cash
equivalents 574 97 (1,045)
Cash and cash equivalents at beginning period 982 885 1,930
----------------- ---------------- ------------------
Cash and cash equivalents at end of period $ 1,556 $ 982 $ 885
================= ================ ==================
F-7
INTERNATIONAL DISPLAYWORKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS AND LIQUIDITY
a. Description of Business
International DisplayWorks, Inc. and subsidiaries (the
"Company"), headquartered in Rocklin, California, was
incorporated in the state of Delaware in July of 1999. On October
31, 2001 the Company merged with its parent, Granite Bay
Technologies, Inc., a California corporation which was originally
incorporated in the State of Oregon as Morrow Snowboards, Inc.
(Morrow) in October of 1989.
The Company is engaged in the design, manufacture and worldwide
distribution of liquid crystal displays (LCDs), modules, and
assemblies for major original equipment manufacturers (OEMs) with
applications in telecommunications, automotive, industrial,
medical, and consumer products. The Company's operations are
primarily in Shenzhen, People's Republic of China (PRC).
Morrow was originally organized to design, manufacture and market
snowboards and related apparel and accessories to retail outlets
in the United States, as well as internationally, which business
was conducted from inception through discontinuance of the
snowboard and apparel operations in November 1999. In March 1999,
Morrow sold all of its "Morrow" intellectual property, along with
all snowboard inventories and its snowboard and binding
production equipment for $3,200,000. In November 1999, a
subsidiary, Westbeach Canada ULC, sold all of its "Westbeach"
operations along with all apparel inventories for $2,680,000. The
results of operations for these business segments have been
reflected as discontinued operations in the accompanying
consolidated statements of operations.
b. Going Concern
The Company incurred net losses of $6,942,000, $2,571,000 and
$4,080,000 in fiscal periods ended October 31, 2002, October 31,
2001, and December 30, 2000, respectively and has $1,658,000 of
debt falling due within a year. The Company has experienced tight
liquidity as a result. These factors raise substantial doubt
about the Company's ability to continue as a going concern. The
consolidated financial statements do not contain any adjustments
that might result from the outcome of this uncertainty.
Management believes, based on current forecasts of projected
order volumes that it will be successful in extending, rolling
over or replacing its current long term debt as it falls due and
that the Company will generate sufficient liquidity from
operations, such that it will be able to sustain the Company's
operating needs in fiscal year 2003. Further, in the event of a
shortfall, management believes that it has the ability to raise
additional equity capital and/or debt financing and ability to
cut operating costs. However, there can be no assurances that the
Company will be successful in raising additional capital.
F-8
2. ACQUISITIONS
On January 31, 2000, Morrow Snowboards, Inc. DBA Granite Bay
Technologies acquired 100% of the outstanding shares of International
DisplayWorks, Inc., (IDW), through the issuance of 2,680,000 shares of
common stock. The acquisition was accounted for using the purchase
method of accounting.
On February 1, 2000, International DisplayWorks, Inc. (IDW) through
its wholly owned subsidiary, International DisplayWorks (Hong Kong)
Limited (IDWHK), acquired 100% of the shares of MULCD Microelectronics
(Shenzhen) Co. Ltd., (MULCD) and IDW Technology (Shenzhen) Co., Ltd.
(IDWT) from Vikay Industrial (Hong Kong) Ltd. MULCD and IDWT,
collectively the "PRC Companies", are engaged in the manufacturing and
assembly of LCDs and modules in the PRC for markets in the USA, Far
East and Europe. This acquisition, which was accounted for by the
purchase method of accounting, required a total payment of
approximately $8,481,000, part of which was deferred. On April 11,
2001, the final payment of $821,000 was made for all remaining amounts
due under the sale and purchase agreement and the supplemental deed
and charge, thereby, finalizing all matters relating to the
acquisition.
The consolidated financial statements include accounts and
transactions of IDW and the PRC Companies from February 1, 2000, the
effective date of their acquisition.
The following unaudited pro forma information presents the results of
operations of the Company as if the acquisitions had taken place on
January 2, 2000, the first day of the year ended December 30, 2000,
(in thousands, except share data) :
Net sales $ 19,320
Cost of goods $ 13,804
Operating expenses $ 7,360
Net loss $ (3,916)
Weighted average shares outstanding 17,703,341
Loss per share $ (0.22)
These unaudited pro forma results of operations have been prepared for
comparative purposes only and do not purport to be indicative of the
results of operations which actually would have resulted had the
acquisition occurred on the date indicated, or which may result in the
future.
F-9
INTERNATIONAL DISPLAYWORKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Principles of Consolidation
The consolidated financial statements include the financial
statements of IDW, and all of the following wholly-owned
subsidiaries:
o International DisplayWorks (Hong Kong) Limited, (a Hong
Kong company)
o MULCD Microelectronics (Shenzhen) Co., Ltd., (a PRC
company)
o IDW Technology (Shenzhen) Co., Ltd. (a PRC company)
o International DisplayWorks Ltd., (a BVI company)
o International DisplayWorks Pte., Ltd., (a Singapore
company)
o Westbeach LLC., (a U.S. company)
o Westbeach ULC., (a Canadian company)
All significant intercompany accounts and transactions have been
eliminated on consolidation.
b. Equity Method of Accounting
The equity method of accounting is used when the Company has a
20% to 50% interest in other entities. When the interest is below
20% the investment is carried at cost less provisions for
permanent diminution in value.
In October 2000, the Company wrote off an investment carried at
cost of $1,000,000 in Globalgate, an e-commerce company that had
suffered deteriorated financial condition such that the Company
believed its investment had no market value.
c. Fiscal Year
The Company changed its fiscal year end to October 31 for fiscal
year 2001. Accordingly, the financial information presented for
the fiscal year ended October 31, 2001 is a short ten-month
period.
Previously, the Company used a 52 week fiscal year ending on the
Saturday nearest December 31. Accordingly, the 2000 fiscal year
ended December 30, 2000.
d. Cash and Cash Equivalents
The Company considers all highly liquid investments with
maturity, at date of purchase, of three months or less to be cash
equivalents.
F-10
e. Financial Instruments
The carrying value of the Company's financial instruments
approximates their fair value based on their short-term nature.
f. Inventories
Inventories are stated at the lower of cost or market. Cost is
determined on the weighted average-cost basis. Costs included in
the valuation of inventory are labor, materials (including
freight and duty) and manufacturing overhead. Provisions are made
for obsolete or slow moving inventory based on management
estimates.
g. Property, Plant and Equipment
Property, plant and equipment are recorded at cost less
accumulated depreciation and any provision for impairment. The
cost of major improvements is capitalized whereas the cost of
maintenance and repairs is expensed in the period incurred. Gains
and losses from the disposal of property, plant and equipment are
included in income/loss from operations.
All land in the PRC is owned by the PRC government. According to
PRC law the government may sell the right to use the land for a
specified period of time. Thus all of the Company's land
purchases in the PRC are considered to be leasehold land and are
amortized on the straight-line basis over the respective term of
the right to use the land. The buildings on the land are also
depreciated over the same period.
Amortization of leasehold improvements is provided using the
straight-line method over the shorter of the expected useful life
of the asset or the remaining lease term.
Depreciation rates computed using the straight-line method are as
follows:
Land and Buildings 30 years
Machinery 10 years
Furniture, fixtures, and equipment 5 years
h. Impairment of Long-Lived Assets
Statement of Financial Accounting Standards (SFAS) No. 121,
"Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of " requires that long-lived
assets and certain identifiable intangibles, including goodwill,
be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may
not be recoverable. Recoverability of assets to be held and used
is measured by a comparison of the carrying amount of an asset to
future undiscounted net cash flows expected to be generated by
the asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which
the carrying amount of the assets exceeds the fair value of the
assets. Assets to be disposed of are reported at the lower of the
carrying amount or fair value less cost to sell. See notes 6 and
7.
F-11
i. Warranty Costs
The Company warrants its products against defects for fifteen
days after delivery to customers. As the Company manufactures
custom products to customer specifications and has not
experienced significant returns, the Company does not anticipate
it will incur a material amount of warranty expense.
j. Advertising and Promotion Costs
Advertising and promotion costs are expensed as incurred and are
included in selling, marketing and customer service expenses.
Advertising expenses were approximately $2,200, $17,000 and
$73,000 for the periods ending October 31, 2002, October 31, 2001
and December 30, 2000, respectively.
k. Revenue Recognition
The Company recognizes revenue from the sale of its products when
the products are shipped from its factory in the PRC, provided
collectability is reasonably assured from the customer. Sales
revenue is recorded net of discounts and rebates except for
prompt payment discounts which are accounted for as interest
expense. Returns and adjustments are booked as soon as they
become known.
l. Income Taxes
Deferred tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. Deferred tax assets,
including tax loss and credit carry forwards, and liabilities are
measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date. Deferred
income tax expense represents the change during the period in the
deferred tax assets and deferred tax liabilities. The components
of the deferred tax assets and liabilities are individually
classified as current and non-current based on their
characteristics. Deferred tax assets are reduced by a valuation
allowance when, in the opinion of management, it is more likely
than not that some portion or all of the deferred tax assets will
not be realized in the foreseeable future.
m. Stock Options and Warrants
SFAS No. 123, "Accounting for Stock-Based Compensation", allows
companies which have stock-based compensation arrangements with
employees to adopt a new fair value basis of accounting for stock
options and other equity instruments or to continue to apply the
existing accounting rules under APB Opinion No. 25, "Accounting
for Stock Issued to Employees," but with additional financial
statement disclosure. The Company continues to account for
stock-based compensation arrangements under APB Opinion No. 25
and provides additional disclosures required by SFAS No. 123 in
note 11.
F-12
n. Product Development Costs
Expenditures associated with the development of new products and
improvements to existing products are expensed as incurred.
Product development costs were approximately $28,000, $636,000
and $314,000 for the periods ended October 31, 2002, October 31,
2001 and December 30, 2000, respectively.
o. Net Loss per Share
Basic net loss per common share is computed by dividing net loss
applicable to common shareholders by the weighted-average number
of common shares outstanding during the period. Diluted net loss
per common share is determined using the weighted-average number
of common shares outstanding during the period, adjusted for the
dilutive effect of common stock equivalents, consisting of shares
that might be issued upon exercise of common stock options. In
periods where losses are reported, the weighted-average number of
common shares outstanding excludes common stock equivalents,
because their inclusion would be anti-dilutive. For the periods
ended October 31, 2002 and 2001 and December 30, 2000 the
weighted-average number of common shares outstanding excludes
common stock equivalents of 2,889,709, 2,457,709, and 1,915,509
shares, respectively.
p. Foreign Currency
All transactions in currencies other than functional currencies
during the year are translated at the exchange rates prevailing
on the respective transaction dates. Monetary assets and
liabilities existing at the balance sheet date denominated in
currencies other than functional currencies are translated at the
exchange rates existing on that date. Exchange differences are
recorded in the consolidated statement of operations. For the
periods ended October 31, 2002, October 31, 2001 and December 31,
2000, the exchange differences resulted in expense of $48,900,
$14,000 and $27,400, respectively.
The Company and its subsidiaries have adopted the U.S. dollar,
Hong Kong dollar and the PRC renminbi as their functional
currencies. The financial statements of all subsidiaries with
functional currencies other than the U.S. dollar are translated
in accordance with SFAS No. 52, "Foreign Currency Translation".
All assets and liabilities are translated at the rates of
exchange ruling at the balance sheet date and all income and
expense items are translated at the average rates of exchange
over the year. All exchange differences arising from the
translation of subsidiaries' financial statements are recorded as
a component of comprehensive income.
The exchange rate between the Hong Kong dollar and the U.S.
dollar has been pegged (HK$7.80 to US$1.00) since October 1983.
The exchange rate between the renminbi and the U.S. dollar is
based on the prevailing market rate, which was Renminbi 8.3, 8.3
and 8.4 to US$1.00 at October 31, 2002, October 31, 2001 and
December 30, 2000, respectively.
F-13
q. Segment Reporting
The Company accounts for its segments pursuant to SFAS No. 131
"Disclosures about Segments of an Enterprise and Related
Information." Operating segments, as defined in SFAS No. 131, are
components of an enterprise for which separate financial
information is available and is evaluated regularly by the
Company in deciding how to allocate resources and in assessing
performance. The financial information is required to be reported
on the basis that it is used internally for evaluating the
segment performance. The Company believes it operates in only one
segment.
r. New Accounting Pronouncements
i. On July 20, 2001, the Financial Accounting Standards Board
(FASB) issued SFAS No. 141, "Business Combinations", and SFAS
No. 142, "Goodwill and Intangible Assets". SFAS No.141 is
effective for all business combinations completed after June
30, 2001. SFAS No. 142 is effective for fiscal years beginning
after December 15, 2001; however, certain provisions of this
Statement apply to goodwill and other intangible assets
acquired between July 1, 2001 and the effective date of SFAS
No. 142. Major provisions of these Statements and their
effective dates for the Company are as follows:
o All business combinations initiated after June 30, 2001
must use the purchase method of accounting. The pooling of
interest method of accounting is prohibited except for
transactions initiated before July 1, 2001.
o Intangible assets acquired in a business combination must
be recorded separately from goodwill if they arise from
contractual or other legal rights or are separable from the
acquired entity and can be sold, transferred, licensed,
rented or exchanged, either individually or as part of a
related contract, asset or liability.
o Goodwill, as well as intangible assets with indefinite
lives, acquired after June 30, 2001, will not be amortized.
Effective November 1, 2002, all previously recognized
goodwill and intangible assets with indefinite lives are no
longer to be subject to amortization.
o Effective November 1, 2002, goodwill and intangible assets
with indefinite lives will be tested for impairment
annually and whenever there is an impairment indicator all
acquired goodwill must be assigned to reporting units for
purposes of impairment testing and segment reporting.
o The Company adopted SFAS No. 141 during the fiscal year
ending October 31, 2002 and it did not impact the Company's
financial statements. The Company has adopted SFAS No. 142
on November 1, 2002, and has determined that there will be
no material impact on the Company's fiscal 2003 financial
position and results of operations.
ii. In June 2001, the FASB issued SFAS No. 143, "Accounting for
Asset Retirement Obligations," which addresses financial
accounting and reporting for obligations associated with the
retirement of tangible long-lived assets and the associated
asset retirement costs. SFAS No. 143 is effective for the
F-14
Company's fiscal year beginning November 1, 2002 and
management does not believe that the impact of the adoption
of SFAS No. 143 will be material.
iii. In August 2001 the FASB issued SFAS No. 144, "Accounting for
the Impairment or Disposal of Long-Lived Assets", which
among other things, establishes one accounting model for
long-lived assets to be disposed of by sale. SFAS No. 144 is
effective for financial statements issued for years beginning
after December 15, 2001 (November 1, 2002 for the Company),
and interim periods within those financial statements.
Management does not believe the adoption of SFAS No. 144 will
have a material impact on the Company's financial position or
results of operations.
iv. In April 2002, the FASB issued SFAS No. 145, "Rescission of
FASB Statements No. 4, 44 and 64, amendment of FASB Statement
No. 13, and Technical Corrections," which among other things,
restricts the classification of gains and losses from
extinguishment of debt as extraordinary to only those
transactions that are unusual and infrequent in nature as
defined by APB Opinion No. 30 as extraordinary, SFAS No. 145
for the Company's fiscal year beginning November 1, 2002.
Upon adoption, gains and losses on certain debt
extinguishment, if any, will be recorded in income (loss)
before income taxes. The impact of the adoption of SFAS No.
145 is not expected to be material.
v. In June 2002, the FASB issued SFAS No. 146, "Accounting for
Costs Associated with Exit or Disposal Activities." SFAS No.
146 addresses financial accounting and reporting for costs
associated with exit or disposal activities and nullifies
Emerging Issues Task Force Issue No. 94-3, "Liability
Recognition for Certain Employee Termination Benefits and
Other Costs to Exit an Activity (including Certain Costs
Incurred in a Restructuring)." SFAS No. 146 requires that a
liability for a cost associated with an exit or disposal
activity be recognized when the liability is incurred. The
provisions of SFAS No. 146 are effective for exit or disposal
activities that are initiated after December 31, 2002. The
impact of the adoption of SFAS No. 146 is not expected to be
material.
vi. In December 2002, the FASB issued SFAS No. 148, "Accounting
for Stock-Based Compensation - Transition and Disclosure".
SFAS No. 148 amends the disclosure and certain transition
provision of SFAS No. 123, "Accounting for Stock-Based
Compensation". In summary, the significant provisions of
SFAS No. 148 include:
o Requires entities with stock-based employee compensation
arrangements to provide additional disclosures in their
summary accounting policies note. For entities that use
the intrinsic value method of Opinion 25, "Accounting for
Stock Issued to Employees", to account for employee stock
compensation for any period presented, their accounting
policies note should include a tabular presentation of pro
forma net income and earnings per share using the fair
value method.
o Permits entities changing to the fair value method of
accounting for employee stock compensation to choose from
one of three transition methods--the prospective method,
the modified prospective method, or the retroactive
restatement method.
F-15
o Requires interim-period pro forma disclosures if stock-
based compensation is accounted for under the intrinsic
value method in any period presented.
The provisions of SFAS No. 148 are effective for the Company
on November 1, 2002. As noted in Note 3(m), the Company
currently accounts for its stock-based compensation under
the provisions of APB Opinion No. 25 and will continue to do
so for the foreseeable future.
s. Reclassifications
Certain amounts in the prior periods' financial statements have
been reclassified to conform to the current year presentation.
t. Use of Estimates
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ
from those estimates.
4. INVENTORIES
Inventories consisted of the following at October 31 (in thousands) :
2002 2001
------------------- --------------------
Finished goods $ 165 $ 326
Work-in-progress 250 126
Raw materials 1,414 1,455
Less : reserve for obsolete inventory (369) (585)
------------------- --------------------
$ 1,460 $ 1,322
=================== ====================
5. PREPAID EXPENSES AND OTHER CURRENT ASSETS
Prepaid expenses and other current assets consisted of the following
at October 31 (in thousands) :
2002 2001
------------------- --------------------
Prepaid expenses $ 206 $ 144
Advances to suppliers 172 105
PRC - VAT tax refund 135 52
Other 25 114
------------------- --------------------
$ 538 $ 415
=================== ====================
F-16
6. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following at October 31
(in thousands):
2002 2001
------------------- --------------------
Land and buildings $ 1,185 $ 1,187
Furniture, fixtures and equipment 1,837 1,637
Machinery 4,720 5,247
Leasehold improvements 83 57
------------------- --------------------
7,825 8,128
Less accumulated depreciation (2,628) (1,739)
------------------- --------------------
$ 5,197 $ 6,389
=================== ====================
Depreciation expense totaled $1,096,000, $941,000 and $1,912,000 for
the periods ended October 31, 2002, October 31, 2001, and December 30,
2000, respectively.
In October 2002, the Company assessed the recoverability of the
carrying value of a certain PRC based machine under the provisions of
SFAS No. 121. The assessment resulted in an impairment loss of the
machine's entire net book value of $270,000. This loss reflects the
amount by which the carrying value of the machine exceeded its
estimated fair value. The impairment loss is recorded as a component
of operating expenses in the statement of operations for fiscal 2002
In December 2000, the Company sold its Salem, Oregon facility for
$2,700,000, less related expenses, and recorded a loss on the sale of
$348,565. The proceeds were used to retire a note payable and for
working capital. The loss is included in loss from discontinued
operations.
7. GOODWILL
Costs in excess of net assets of businesses acquired (goodwill)
represents the unamortized excess of the cost of acquiring a business
over the fair values of the net assets received at the date of
acquisition.
In accordance with SFAS No.121 management periodically reviews the
operating environment and performance of the Company to determine if
there are any grounds for reviewing the carrying value of goodwill to
determine whether impairment may exist. The Company considers relevant
cash flow and profitability information, including estimated future
operation results, trends, and other available information, in
assessing whether the carrying value of goodwill can be recovered. If
the Company determines that the carrying value of goodwill will not be
recovered from the undiscounted future cash flows of the acquired
business, the Company considers the carrying value of the goodwill as
impaired and reduces it by a charge to operations by the amount of the
impairment. An impairment charge is measured as any deficiency in the
amount of estimated undiscounted future cash flows of the acquired
business available to recover the carrying value of the related
goodwill.
F-17
In October 2002, the Company recorded a goodwill impairment of
$5,287,000, which eliminated all remaining goodwill of the Company.
Goodwill was determined to have been impaired because the Company
incurred losses of $6,942,000, $2,571,000 and $4,080,000 in fiscal
periods ended October 31, 2002, October 31, 2001 and December 30, 2000
and has $1,708,000 of debt falling due within one year. This caused
management to commission an independent valuation of the goodwill
under the provisions of SFAS No. 121. Goodwill was determined to be
impaired and is included as a component of operating expenses in
fiscal 2002.
Goodwill was being amortized on a straight-line basis over 15 years.
Amortization expense charged to operations was $432,000, $360,000 and
$395,000 for the periods ended October, 31, 2002, October 31, 2001,
and December 30, 2000, respectively.
8. ACCRUED LIABILITIES
Accrued liabilities consisted of the following at October 31 (in
thousands) :
2002 2001
------------------- --------------------
Accrued payroll and related liabilities $ 523 $ 454
Accrued staff hostel expenses 247 230
Accrued inventory purchases 165 101
Accrued PRC government management fees 115 95
Accrued commissions 102 97
Other accrued liabilities 213 281
------------------- --------------------
Total accrued liabilities $ 1,365 $ 1,258
=================== ====================
9. LONG-TERM DEBT
Long-term debt consisted of the following at October 31 (in thousands,
except interest payments) :
October 31, October 31,
2002 2001
------------------- --------------------
Notes payable to a major shareholder,
officer and director of the Company and
his immediate family, interest only
payments due in monthly installments of
approximately $2,700 at a yearly interest
rate ranging from 12.00% to 12.68%;
principal balance due and payable in full
December 31, 2003, collateralized by the
accounts receivable, inventory, equipment
and other tangible assets of the Company. $ 274 $ 274
Notes payable to major shareholders and
director of the Company, interest only
payments due in monthly installments of
$2,400 at a yearly interest rate of 12.68%;
principal balance due and payable in full
F-18
December 31, 2003, collateralized by the
accounts receivable, inventory, equipment
and other tangible assets of the Company. 150 225
Note payable to a shareholder of the Company,
interest only payments due in monthly
installments of $500 at a yearly interest
rate of 12.00%; principal balance due and
payable in full December 31, 2003,
collateralized by the accounts receivable,
inventory, equipment and other tangible
assets of the Company. 50 50
Note payable to a shareholder of the Company,
interest only payments due in monthly
installments of $500 at a yearly interest
rate of 12.00%; principal balance due and
payable in full December 31, 2002,
collateralized by the accounts receivable,
inventory, equipment and other tangible
assets of the Company. The Company is in the
process of extending the due date of the note
for one year. 50 50
Note payable to a major shareholder and director
of the Company, interest only payments due in
monthly installments of $1,600 at a yearly
interest rate of 12.68%; principal balance due
and payable in ten monthly installments of
$10,000 each and one final payment of $50,000
on October 25, 2003, collateralized by the
accounts receivable, inventory, equipment and
other tangible assets of the Company. 150 150
Notes payable to a third-party, interest only
payments due in monthly installments of $3,993
at a yearly interest rate of 12.68%; principal
balance due and payable in full April 15, 2002,
collateralized by the accounts receivable,
inventory, equipment and other tangible assets
of the Company. The note was repaid during
fiscal 2002. - 275
Note payable to a third-party, interest only
payments due in monthly installments of $1,585
at 12.68% interest; principal balance due and
payable in full October 26, 2001 collateralized
F-19
by the accounts receivable, inventory, equipment
and other tangible assets of the Company. The
note was repaid during fiscal 2002. - 150
Factoring line, at 2.25% over the prime lending
rate (approximately 7.4% at October 31, 2002),
collateralized by accounts receivable. 219 488
Credit line at 3% over U.S. prime (approximately)
7.75% at October 31, 2002), collateralized by
the accounts receivable, inventory, equipment
and intangible assets of the Company with
minimum interest charge of $7,800 and $12,500,
respectively, per month. The credit line
expires in March 2003. 837 588
Mortgage loan, at 8.3% yearly interest, to be
repaid in three annual installments,
collateralized by the three factory buildings
in Shenzhen, PRC. 1,208 1,210
------------------- --------------------
2,938 3,460
Less: current portion (1,658) (2,654)
------------------- --------------------
$ 1,280 $ 806
=================== ====================
Maturities of long-term debt are as follows:
Year Ending
October 31, Related parties Third parties Total
-------------------- ------------------------ --------------------- --------------------
2003 $ 200 $ 1,458 $ 1,658
2004 474 403 877
2005 - 403 403
------------------------ --------------------- --------------------
$ 674 $ 2,264 $ 2,938
======================== ===================== ====================
During the ten-month period ended October 31, 2001, the Company issued
approximately $1,100,000 of collateralized notes to a key employee,
board members and other individual investors. The related parties
received warrants to purchase 185,000 shares of the Company's common
stock at prices ranging from $0.36 to $0.75 per share. The proceeds
were used for general working capital, capital expenditures and to
retire maturing debt.
In the quarter ended December 30, 2000, the Company issued
approximately $499,000 of collateralized notes payable due December
15, 2001 to a key employee, board members and other individual
investors. The due dates were extended to April 15, 2002. The related
parties received warrants to purchase 99,861 shares of the Company's
common stock at $0.75 per share. The proceeds were used for general
working capital.
F-20
During the year ended October 31, 2002, the Company extended the due
dates on all but $50,000 of the unpaid notes payable due to related
parties and others to October 25, 2003 or December 31, 2003.
On March 23, 2001, the Company entered into an asset based lending
program for a $3,000,000 line of credit secured by the Company's
accounts receivable, inventory, equipment, and intangibles. The
agreement is for twelve months at an interest rate of 3% above the
"prime rate" (7.75% at October 31, 2002) with a minimum monthly
charge of $12,500 in the periods ending October 31, 2002 and October
31, 2001. In March 2002 the agreement was extended to March 2003 but
the facility reduced to $2,000,000 and minimum monthly charge reduced
to $7,800. The Company has been incurring the minimum interest charge
since inception of the agreement. As of October 31, 2002 the Company
has available approximately $1,163,000 for use under this facility,
subject to eligible receivables.
In August of 2001 and as amended in July 2002, the Company, through
its wholly owned subsidiary, IDWHK, entered into a factoring agreement
collateralized by accounts receivable and inventory of IDWHK. The
agreement is guaranteed by the Company. The facility provides for a
maximum borrowing of $1,282,000 with an interest rate of 2.25% above
the prime lending rate. The prevailing rate was approximately 7.4% at
October 31, 2002. As of October 31, 2002 the Company has available
$1,063,000 for use under this facility, subject to eligible
receivables.
In June of 2001, the Company, through its wholly owned subsidiary,
IDWT, entered into a mortgage on the three buildings located at its
manufacturing facility in Shenzhen, PRC. The amount borrowed was
approximately $1,200,000 for three years at an interest rate of 8.3%
per year. The loan is scheduled to be repaid in three annual
installments, the first originally being due in June 2002. The loan
agreement was amended in June 2002, deferring each installment by
one-year.
10. COMMITMENTS AND CONTINGENCIES
a. Lease Obligations
The Company is currently obligated under the following operating
leases:
i. The Company leases its land in the PRC pursuant to a land
lease expiring in 2043 at an annual rent of $70,000.
ii. In March 2000, the Company entered into a 5-year lease for
office space in Rocklin, California. The payment terms were
$106,000 per year for the first 32 months and then $111,000
per year for the last 28 months. In February 2002, the
lease was amended such that the Company surrendered 4,600
square feet back to the lessor in exchange for a reduction
in the yearly rent. The rent is now $69,000 per year
through the first 33 months and $73,000 per year for the
remainder of the lease. The Company also pays a
proportionate share of operating expenses of approximately
$12,400 per year.
iii. The Company leases office space in Hong Kong at $24,000 a
year. The lease is month-to-month and can be terminated at
will.
iv. The Company has entered into a lease agreement for a
workers' dormitory in Shenzhen, PRC. The lease on the
workers' dormitory expires on August 3, 2020 and costs
$233,700 per year.
F-21
v. On December 31, 2002, the lease on the staff quarters was
terminated effective February 23, 2003, without penalty. On
the same day a new dormitory was leased for a term of five
years commencing February 1, 2003 at a cost of $23,100 per
year.
vi. The Company has entered into various lease agreements for
individual employee quarters in Shenzhen, PRC. The lease
terms of these quarters range from six to sixty months. The
yearly lease payments range from $1,800 to $13,000. During
the fiscal year ended October 31, 2002, the Company entered
into nine of the aforementioned leases with terms of
between six and sixty months and yearly lease payments of
between $1,800 and $13,000.
vii. On October 31, 2002 the Company gave notice to terminate a
lease on a housing accommodation for an officer of the
Company on December 9, 2002, without penalty. In November
2002 the Company entered into a one-year lease at an
annual cost of $40,600 for housing accommodation for an
officer of the Company to replace the housing accommodation
vacated on December 9, 2002.
The following is a schedule of future minimum lease payments
under non-cancelable operating leases as of October 31, 2002 (in
thousands):
Minimum Lease Net Lease
Commitments Sublease Income Commitments
--------------------- --------------------- ------------------
2003 $ 470 $ (67) $ 403
2004 406 (43) 363
2005 380 - 380
2006 377 - 377
2007 322 - 322
Thereafter 5,442 - 5,442
--------------------- --------------------- ------------------
$ 7,397 $ (110) $ 7,287
===================== ===================== ==================
For the year ended October 31, 2002, ten-months ended October 31,
2001 and year-ended December 30, 2000 rental expense was
$117,000, $241,000 and $91,000, respectively.
b. Legal Matters
The Company is currently involved in the following litigation and
proceeding:
Nicolas Steenolsen vs. Squaw Valley Ski Corporation, Granite Bay
Technologies, Inc., Morrow Snowboards, Inc., et al., Superior
Court of California, Los Angeles County, Case No. BC243817. The
case is a complaint for personal injuries which arose from the
plaintiff's use of a snowboard allegedly manufactured by Morrow
Snowboards, Inc. The complaint seeks unspecified general damages
and unspecified past and future medical expenses. The Company is
defending the action. Indications are that the Company will be
dismissed from this action, but there has been no ruling to that
effect. There is no basis for determining the amount of damages,
if any, at this time.
F-22
From time to time the Company is subject to exposure to legal
proceedings and claims which arise in the ordinary course of
business. In the opinion of management, the amount of ultimate
liability with respect to any such current actions will not
materially affect the financial position or results of operations
of the Company.
c. Employment Agreement
In November 2002, the Company entered into an employment
agreement with one of its officers. The agreement has a term of
two years expiring on October 31, 2004. Annual compensation is
approximately $163,000 inclusive of the annual cost of $40,600
for housing accommodation (see note 10(a)(vii).
d. Registered Capital
To obtain a license to do business in the PRC, Wholly Foreign
Owned Enterprises (WFOE's) commit to a certain investment over a
period of time. This investment must comprise expenditures by the
Company on productive fixed assets such as land, buildings and
property, plant and equipment. IDWT's total required commitment
was $8,100,000 of which the Company has made $6,321,000.
Therefore, as of October 31, 2002 IDWT has a remaining commitment
to invest a further $1,779,000, which must be fulfilled by April
30, 2003, unless extended further by the PRC government. The
Company has recently purchased assets costing $110,000, which it
believes satisfies the criteria. Over the course of the next
eighteen months the Company forecasts it will be purchasing
sufficient qualifying assets to fulfill the investment
requirement. Furthermore, if necessary, the Company believes that
the PRC government will grant additional extensions of time.
e. Purchase Commitment:
The Company enters into forward purchase commitments in the
normal course of business in anticipation of orders from
customers not all of which are matched by contracts from
customers. The Company believes that such commitments will be
required for future production or could be cancelled without
material cost. In July 2002, the Company entered into a
commitment to purchase certain inventory from a vendor for
$261,000. The Company is under no certain deadline to purchase
the inventory.
11. STOCKHOLDERS' EQUITY
a. Stock Issued
In September 2001, in settlement of a put option entered into in
December 2000, the Company made a cash payment of $201,000, and
issued 125,000 shares of the Company's common stock at a stock
price of $0.34 per share together with 75,000 warrants with an
exercise price of $0.75.
b. Stock Option Plans
The Company maintains the Morrow Snowboard, Inc. 1990 Equity
Incentive Plan for selected executives, employees and directors
for which 1,102,500 shares of
F-23
common stock have been reserved for issuance under the plan. The
plan permits the granting of options for terms not to exceed ten
years from the date of grant. The options generally vest ratably
over a four-year period and are exercisable subject to terms
established in the plan document. The exercise price of the
options granted under the plan must be equal to or greater than
the fair market value of the shares on the date of grant for
incentive stock options and not less than 85 percent of the fair
market value for nonqualified stock options. The exercise price
of the options granted by the Company has generally been equal to
or greater than fair market value at the date of grant. There was
no activity in the plan in the year ended October 31, 2002, there
were 240,000 options cancelled in the ten months ended October
31, 2001 and there were 477,500 options granted and 191,450
options cancelled in the year ended December 30, 2000. This Plan
has now expired and no new options are available for grant.
In September 2000, the Company established the Granite Bay
Technologies 2000 Equity Incentive Plan for certain key employees
of the Company. The plan also permits the granting of stock
options, restricted stock awards, stock appreciation rights,
stock units and other stock grants to certain persons with a
relationship with the Company, including agents, consultants,
advisors, independent contractors, sales representatives,
distributors, principals and retail distribution outlets for the
Company's products. The plan provides for up to 882,800 shares of
stock that are authorized for issuance. The price of each share
of stock covered by an option shall not be less than 100% of the
fair value of the Company's common stock on the date of grant.
Each option certificate shall have an exercise period of six
months to ten years. There were 515,000 options granted and
68,000 options cancelled during the year ended October 31, 2002;
there were 255,000 options granted and 62,500 cancelled during
the ten months ended October 31, 2001; and there were 131,000
options granted during the year ended December 30, 2000. At
October 31, 2002 approximately 112,300 options are available for
grant under the plan. In December 2002, the Company granted an
additional 82,000 options to employees under the plan.
In October 1999, the Company established the Morrow Snowboards,
Inc. 1999 Stock Option Plan for non-employee directors. This plan
provides for the issuance of up to 300,000 shares of the
Company's common stock to existing directors and, in the case of
extra services or duties, past directors. Unless otherwise
provided in the option grant, the options vest over the year
following the date of grant and expire after the later of five
years after the date of grant or five years after termination as
a director. At October 31, 2002 there are no options available
for grant under the plan. During the year ended October 30, 2002
there were 30,000 options exercised under the plan. There was no
activity in this plan for the ten months ended October 31, 2001.
During the year ended December 31, 2000 there were 215,000
options granted, 42,350 options exercised and 39,800 options
cancelled.
The board has granted 235,000 options that are not part of
compensation plans. There are 150,000 share options granted in
fiscal 2001 to the Company's former President and Director at an
exercise price of $0.50, 50,000 share options granted to a
Director in fiscal 1999 at an exercise price of $0.75, 25,000 and
10,000 share options granted to a Director in fiscal 2000 at an
exercise price of $0.78 and $0.75, respectively.
F-24
The following is a summary of the status of all of the Company's
stock option plans as of October 31, 2002, October 31, 2001 and
December 30, 2000 and changes during the periods ended on those
dates:
Weighted
Number Average
Of Shares Exercise Price
--------------------- --------------------
Options outstanding at
January 1, 2000 550,448 $ 1.84
Granted 858,500 1.64
Exercised (42,350) .43
Cancelled (231,250) 3.69
--------------------- --------------------
Options outstanding at
December 30, 2000 1,135,348 1.36
Granted 405,000 .58
Exercised - -
Cancelled (302,500) .95
--------------------- --------------------
Options outstanding at
October 31, 2001 1,237,848 1.21
Granted 515,000 .42
Exercised (30,000) .25
Cancelled (68,000) .76
--------------------- --------------------
Options outstanding at
October 31, 2002 1,654,848 $ 1.00
===================== ====================
Options exercisable at :
October 31, 2002 1,038,332 $ 0.93
===================== ====================
October 31, 2001 806,852 $ 0.87
===================== ====================
December 30, 2000 665,707 $ 0.79
===================== ====================
F-25
b. Stock Option Plans (continued)
The following table summarizes information about stock options
outstanding and exercisable at October 31, 2002 :
Weighted
Number of Average Weighted Number of Weighted
Shares Remaining Average Shares Average
Range of Outstanding Contractual Exercise Exercisable Exercise
Exercise price at October Life (Years) price per at October Price per
31, 2002 Share 31, 2002 Share
$ .01 - $ 5.00 1,614,848 3.34 $ 0.87 1,038,332 $ .87
$ 5.01 - $10.00 40,000 2.82 6.02 - -
--------------- --------------- ------------- --------------- --------------
1,654,848 3.33 $ 1.00 1,038,332 $ .87
=============== =============== ============= =============== ==============
c. Pro forma Results of Operations
The Company has computed, for pro forma disclosure purposes, the
value of all options granted during the periods ending October
31, 2002, October 31, 2001 and December 30, 2000 using the
Black-Scholes option pricing model, and the following weighted
average assumptions for grants for the periods ended :
October 31, October 31, December 30,
2002 2001 2000
---------------- -------------------- --------------------
Risk-free interest rate 3.7% 6.0% 6.0%
Expected dividend yield 0.0% 0.0% 0.0%
Expected life (years) 5 5 5
Expected volatility 100.1% 82.8% 90.0%
Using the Black-Scholes methodology, the total value of options
granted during the periods ending October 31, 2002, October 31,
2001 and December 30, 2000 was $94,025, $76,826 and $576,928,
respectively, which would be amortized on a pro forma basis over
the vesting period of the options (typically four years). The
weighted average fair value per share of options granted during
the periods ending October 31, 2002, October 31, 2001 and
December 30, 2000 was $0.42, $0.49 and $0.91 respectively.
Had the measurement provisions of SFAS No. 123 been adopted,
results of operations computed on a pro forma basis would have
been as follows (in thousands, except per share information):
Year ended Ten-months Year ended
October 31, 2002 October 31, 2001 December 30, 2000
As Pro As Pro As Pro
Reported Forma Reported Forma Reported Forma
Net loss $ (6,942) $(7,072) $ (2,571) $(2,636) $ (4,080) $(4,726)
Net loss per
share basic
and diluted: $ (0.36) $ (0.37) $ (0.14) $ (0.14) $ (0.23) $ (0.27)
F-26
d. Stock Warrants
The Company, from time to time has issued stock warrants as
payment for fees, interest and services rendered. For the periods
ended October 31, 2002, October 31, 2001 and December 30, 2000,
the Company had outstanding warrants to purchase 1,234,861,
1,291,861 and 780,161 shares of common stock, respectively. All
warrants are exercisable at a weighted average price per share of
$0.78., have a term of five years and are exercisable immediately
or over the term of the related note if any. In fiscal 2002, 2001
and 2000, no warrants to purchase common stock were exercised.
During 2002, 15,000 warrants were granted and none lapsed. During
2001, 460,000 warrants were granted and none lapsed. 100,000 of
these 2001 warrants were issued to a member of the Company's
Board of Directors, at an exercise price of $0.36 per share as
compensation for consulting services to the Company resulting in
compensation expense of $28,300. During 2000, 780,161 warrants
were granted and none lapsed.
12. INCOME TAXES
The Company has not recorded an income tax expense or benefit for the
periods ended October 31, 2002, October 31, 2001 and December 31,
2000.
The reconciliation between the actual income tax expense and income
tax computed by applying the statutory U.S. Federal and State, PRC and
Hong Kong income tax rates to earnings before provision for income
taxes for the periods ended October 31, 2002, October 31, 2001 and
December 30, 2000 is as follows (amounts in thousands):
October 31, October 31, December 30,
2002 2001 2000
Pre-tax loss $ (6,942) $ (2,571) $ (4,080)
------------ ------------ -------------
Computed Federal income tax benefit
at 34.0% (2,360) (874) (1,387)
Computed state income tax benefit
at 4.4% net of federal income
benefit (202) (75) (118)
Effect of difference between Hong
Kong and PRC tax rates and U.S.
Federal and state tax rates 207 267 41
Impairment of goodwill 1,937 - -
Other permanent differences 561 (393) (137)
Elimination of net operating
loss carry forwards due to
Section 382 limitation - 8,692 -
Change in valuation allowance (143) (7,617) 1,601
-------------- ------------- -------------
$ - $ - $ -
============== ============== =============
The tax effects of temporary differences that give rise to significant
portions of deferred tax assets and deferred tax liabilities at
October 31, 2002 and 2001 are presented below (amounts in thousands):
F-27
2002 2001
-------------------- -------------------
Deferred tax assets : $ $
Net operating loss (NOL) carry forwards 3,255 2,961
Depreciation and amortization (4) (8)
Allowance for doubtful accounts receivable 38 -
Unrealized loss on investment - 384
Write-off of machinery 41 -
Accrued expenses (23) 113
------------------- --------------------
Total gross deferred tax assets 3,307 3,450
Less valuation allowance (3,307) (3,450)
------------------- --------------------
Net deferred tax asset $ - $ -
=================== ====================
The Company has provided a valuation allowance for all of its deferred
tax assets at October 31, 2002 and October 31, 2001 because the
Company could not conclude that it was more likely than not that it
would realize these assets due principally to the Company's history of
losses.
At October 31, 2002 and October 31, 2001, the Company had an estimated
federal net operating loss carry forward of approximately $8,027,000
and $7,711,000, respectively, expiring through 2020.
Due to the discontinuation of its snowboard and apparel operations and
the purchase of IDW and the PRC Companies (Note 2), the Company does
not meet the continuity of operations requirement of Internal Revenue
Code Section 382. Accordingly, approximately $22,636,000 in net
operating losses was eliminated.
PRC Taxation:
The fiscal year end of the PRC Companies is December 31. The tax rate
for both companies is 15%. At December 31, 2001 IDWT had a tax loss
carry forward of $51,300. Management expects both companies to incur
tax losses in the year ending December 31, 2002. A valuation allowance
for the deferred tax assets has been provided as it could not be
concluded that it was more likely than not that these assets would be
realized given the history of trading losses.
Hong Kong Taxation:
The rate of taxation in Hong Kong is 16%. The Company has incurred
losses since its inception. A valuation allowance for the deferred tax
assets has been provided as it could not be concluded that it was more
likely than not that these assets would be realized given the history
of trading losses
13. SUPPLEMENTAL CASH FLOW DISCLOSURES
Supplemental cash flow disclosures are as follows (in thousands):
F-28
Periods Ended
October 31, October 31, December 30,
2002 2001 2000
Supplemental disclosure:
Cash paid for interest $ 458 $ 531 $ 442
Cash paid for taxes $ - $ - $ -
Non-cash investing transactions:
Assets acquired under capital lease $ - $ - $ 4,272
During the year ended December 30, 2000, IDW HK purchased all of the
outstanding securities of the PRC Companies for cash. In conjunction
with the acquisition, liabilities were assumed as follows: (in
thousands):
Fair value of assets acquired $ 12,017
Liabilities assumed (2,213)
Deposit paid in 1999 by IDW HK (1,000)
Payment due to complete acquisition (4,532)
Less : cash acquired (64)
--------------------
Cash paid to acquire PRC Companies $ 4,208
====================
14. RETIREMENT PLANS
The Company maintains the "IDW 401(k) Plan" (the "Plan") under the
provisions of Section 401(k) of the Internal Revenue Code. The Plan
covers substantially all full-time U.S. employees. At its option, the
Company can make discretionary matching contributions. To date the
Company has not made such a contribution.
For its Hong Kong employees, the Company currently contributes
approximately $12,000 per year to a "Mandatory Provident Fund" (MPF)
under the laws of the Hong Kong Special Administrative Region of the
PRC.
15. SEGMENT AND GEOGRAPHIC INFORMATION
The Company produces displays or display modules for end products of
OEMs manufacturers and hence operates in one segment. However, the
Company has two major geographic territories where it sells and
distributes essentially the same products. The geographic territories
are the United States, Hong Kong (including China) and all other
locations. The following represents geographical data for continuing
operations (in thousands).
Year Ended October 31, 2002
"Long-Lived"
Revenues Assets
United States $ 11,169 $ 162
Hong Kong (including China) 8,130 5,035
Other 1,629 -
--------- ---------
$ 20,928 $ 5,197
========= =========
F-29
Ten Months Ended October 31, 2001
"Long-Lived"
Revenues Assets
United States $ 7,642 $ 5,902
Hong Kong (including China) 5,634 6,206
Other 1,382 -
-------- ---------
$ 14,658 $ 12,108
======== =========
Year Ended December 30, 2000
"Long-Lived"
Revenues Assets
United States $ 7,300 $ 6,283
Hong Kong (including China) 9,804 7,109
Other 700 -
-------- ---------
$ 17,804 $ 13,392
======== =========
Major Customer
Sales to one customer for the year ended October 31, 2002, ten-months ended
October 31, 2001 and year ended December 30, 2000, accounted for approximately
30%, 35% and 28%, respectively of total sales.
F-28
SUPPLEMENTARY INFORMATION
F-30
INTERNATIONAL DISPLAYWORKS, INC. AND SUBSIDIARIES
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
(In Thousands)
For the year Ended October 31, 2002, the Ten-months Ended October 31, 2001
and the Year Ended December 30, 2000
Balance at Charged to Balance
beginning costs and Deductions at End
Description of Period Expenses (write-offs) of Period
- --------------------------------------- --------------- --------------- --------------- --------------
December 30, 2000
Allowance for doubtful accounts $ 1,006 $ (1,006) $ 127 $ 127
Allowance for obsolete inventory $ 42 $ (42) $ 482 $ 482
October 31, 2001
Allowance for doubtful accounts $ 127 $ 69 $ - $ 196
Allowance for obsolete inventory $ 482 $ 103 $ - $ 585
October 31, 2002
Allowance for doubtful accounts $ 196 $ 237 $ (92) $ 341
Allowance for obsolete inventory $ 585 $ (216) $ - $ 369
F-31
PART III
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS AND FINANCIAL DISCLOSURE
None
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
NAME AGE SINCE POSITION WITH THE COMPANY
Stephen C. Kircher 49 1999 Chairman and Chief Executive Officer
William H. Hedden 50 1999 Director
Anthony G. Genovese 60 2000 Vice-Chairman, Chief Technology
Officer and Assistant Secretary
Timothy Nyman 52 2000 Director
Ronald A. Cohan 62 2000 Director
Ian Bebbington 47 2001 Chief Financial Officer and
Secretary
Messrs Nyman, Cohan and Hedden are the Companies independent Directors and
comprise the Audit and Compensation committees.
(a) Corporate Directors
The following is the business background for the Directors of the Company:
Stephen C. Kircher, age 49, has served as Chairman of the Board of
Directors of the Company since February 2000 and as a director since October
1999. Mr. Kircher was appointed as the Chief Executive Officer of the Company in
July 2001. Since 1993, he served as Chairman and majority owner of Capitol Bay
Group, Inc., and as Chairman of Capitol Bay Securities, Inc. (securities and
investment banking) and Capitol Bay Management, Inc. (Investment Company). Both
Capitol Bay Securities, Inc. and Capitol Bay Management, Inc. are wholly owned
subsidiaries of Capitol Bay Group, Inc. Mr. Kircher closed Capital Bay
Securities in February of 2001. Mr. Kircher was also a founding Director of
Burlingame Bancorp and served on its Board from 1984 to 1991. Prior to 1993, Mr.
Kircher formed and managed Spinner Corporation, which engaged in leveraged
buyouts of troubled companies. Mr. Kircher has extensive experience as a
principal in equity private placements, sale and leaseback financing, and
multiple forms of debt financing and initial public offerings. Mr. Kircher began
his career with Dean Witter in 1975 before joining Bateman, Eichler, Hill &
Richards, a regional investment-banking firm in 1978. Mr. Kircher has a Bachelor
of Arts degree from the University of California, San Diego.
Anthony G. Genovese, 60, has been a Director of the Company since September
2000, Chief Technology Officer since 2000 and Assistant Secretary since July
2001. He founded IDW in June 1999 to purchase the shares of MULCD and Vikay
Industrial (Shenzhen) Limited ("IDWT"). IDW operated MULCD and IDWT under a
management contract with Vikay Industrial (Singapore) Limited ("Vikay"), MULCD's
and IDWT's parent company, from August 1, 1999. From 1997 to 1999, Mr. Genovese
was President, joint member of the Office of the Chief Executive and Director of
Vikay. Vikay entered Judicial Management, a form of bankruptcy proceeding in
Singapore, in December 1997. The Judicial Managers of Vikay selected Mr.
Genovese to oversee continuing operations. In 1986, Mr. Genovese founded VGI,
Inc, a joint venture company with Vikay to market Vikay LCD's and enter the LCD
module business in the United States. In 1992, VGI became a subsidiary of Vikay
and was renamed Vikay America, Inc. Mr. Genovese continued as President and CEO
of Vikay America from 1992 to 1997. Prior to Vikay, Mr. Genovese was a
technologist and Marketing Executive for PCI Displays (1977 to1986), and founded
the LCD operations at Beckman Instruments (1972 to1976) and Rockwell
International (1966 to 1969). Mr. Genovese received a Bachelor of Science in
Physics from Manhattan College in 1964, a Master of Science in Physics &
Mathematics from NYU & Courant Institute of Mathematical Sciences in 1966 and
attended USC for 18 graduate credits towards a Master Degree in Systems
Management in 1975 and 1976.
William H. Hedden, age 50, has served as a Director of the Company since
1999. Mr. Hedden has served as President and Chief Executive Officer of
Consolidated Adjusting, Inc. (construction insurance adjusting) since 1992. From
1985 to 1992, Mr. Hedden served as a Director of Burlingame Bancorp and its
subsidiary, Burlingame Bank & Trust Co. In 1984, Mr. Hedden served as Chairman
of the Board of Bayhill Service Corporation, a mortgage-banking subsidiary of
Delta Federal Savings & Loan. From 1983 to 1987, Mr. Hedden served as Chairman
of the Board and majority stockholder of Delta Federal Savings & Loan. Mr.
Hedden received his Juris Doctor degree from Hastings College of the Law, San
Francisco in 1979 and a Bachelor of Arts degree from Stanford University, Palo
Alto in 1975. He has been a director of the Company since October 1999.
Timothy B. Nyman, 52, has served as a Director of the Company since October
2000. Mr. Nyman is the Senior Vice President of Global Services at GTECH
Corporation, the world's largest supplier of online lottery systems and
services. In 1979, Mr. Nyman went to work with the predecessor company of GTECH
Corporation, which was the gaming division of Datatrol, Inc. In his twenty-three
years with GTECH and its predecessors, Mr. Nyman has held various positions in
operations and marketing. He has directed a full range of corporate marketing
activities and participated in the planning and installation of new online
lottery systems domestically and internationally. Mr. Nyman received a Bachelor
of Science degree in Marketing, Accounting and Finance from Michigan State
University in 1973.
Ronald A. Cohan, 62, has served as a Director of the Company since October
2000. Since 1995, Mr. Cohan has served as a consultant to High Integrity
Systems, Inc., a subsidiary of Equifax Inc. Prior to that, Mr. Cohan joined the
San Francisco law firm of Pettit & Martin as an Associate in 1968 and was
admitted as a Partner in 1972. He opened the Los Angeles office of Pettit &
Martin in October of 1972 and was partner in charge until March of 1983. Mr.
Cohan left Pettit & Martin in February of 1992 and became principal of his own
law firm. Mr. Cohan has specialized in government procurement matters for
various institutional clients such as Honeywell, 3M, Mitsui, Centex and Equifax.
Mr. Cohan received a Bachelor of Arts degree from Occidental College in 1963 and
a Juris Doctor degree from the University of California, Berkeley (Boalt Hall)
Law School in 1966.
(b) Corporate Officers
The following table sets fourth certain information with respect to
executive officers of the Company. There is no family relationship between any
of the officers and directors.
Ian Bebbington, age 47, is a chartered accountant and has been the
Company's Chief Financial Officer since July 2001. Mr. Bebbington founded
Findatsys Worldwide Ltd., an internet start-up company where he worked from 1995
to 2001. He was the Chief Financial Officer from 1991 to 1993 and the Chief
Executive Officer from 1993 to 1995 of Contimach Ltd., and its PRC subsidiaries,
a subsidiary of Fenner PLC, a U.K. public company. He held various financial
positions in eight countries with subsidiaries of Inchcape PLC, a UK "FTSE 100"
quoted company from 1980 to 1991. Mr. Bebbington earned a Bachelor of Science
degree in Economics and Commerce from the University of Southampton. He is a
member of the Institute of Chartered Accountants of England and Wales qualifying
whilst with KPMG London.
(c) Compliance with Section 16 of the Securities Exchange Act of 1934
Based solely upon a review of Forms 3, 4 and 5 delivered to the Company as
filed with the Securities and Exchange Commission ("Commission"), directors and
officers of the Company and persons who own more than 10% of the Company's
common stock timely filed all required reports pursuant to Section 16(a) of the
Securities Exchange Act of 1934, except that Ian Bebbington, the Company's Chief
Financial Officer, was late reporting one purchase of common stock and Stephen
Kircher, the Company's Chief Executive Officer was late reporting one
acquisition of common stock, seven warrants and one option.
ITEM. 11. EXECUTIVE COMPENSATION.
Compensation Summary
The following table summarizes all compensation earned by or paid to the
Company's Chairman and Chief Executive Officer, Chief Financial Officer, and
other executive officers, whose total compensation exceeded $100,000 for
services rendered in all capacities for the year ended October 31,2002, the ten
months ended October 31,2001 and the year ended December 30, 2000.
Summary Compensation Table
Securities
Name and Other Underlying
Principal Position *Period Salary Bonus Compensation Options
------------------ ------- ------ ----- ------------ -------
$ $ $
- -
Stephen C. Kircher, 2002 $138,542 - - -
Chief Executive Officer & Chairman 2001 $ 61,417 - - 100,000
2000 - - - -
Anthony Genovese, 2002 $214,850 - $ 9,000(1) -
Chief Technology Officer 2001 $145,833 - $ 7,500(1) 30,000
& Vice Chairman 2000 $200,833 - $ 9,000(1) 260,000
Ian Bebbington, 2002 $102,194 $30,967 $54,065(4) 50,000
Chief Financial Officer 2001 $ 33,848 - $17,436(4) 50,000
2000 - - - -
Philip Gregory, 2002 $150,000 - $20,580(2) 10,000
Vice President of Manufacturing 2001 $141,583 - $11,772(2) 30,000
2000 $114,583 - $ 5,000(2) 60,000
Alan Lefko, 2002 $107,588 - $ 5,000(1) -
Former Chief Financial Officer of IDW 2001 $112,280 - $ 5,000(1) 50,000
Current Corporate Controller 2000 $109,375 - $13,250(3) -
- --------------------------
Footnotes:
The periods covered by the above table are the year ended October 31st 2002, the
ten months ended October 31,2001 and the year ended December 31 2000.
(1) Represents vehicle allowance.
(2) Represents moving allowance in 2000 and housing & subsistence allowance for
the PRC in 2001 and 2002.
(3) Represents $8,000 moving allowance and $5,250 vehicle allowance.
(4) Housing allowance in 2001, $17,436; 2002, housing allowance $52,645,
pension $1,420.
Option Grants in 2002
The following table provides information relating to stock options granted
during the year ended October 31, 2002.
Individual Grants
Potential Realizable
Value
at Assumed Annual
Rates
Number of Percent of Total of Stock Price
Securities Options Granted to Exercise Appreciation
Underlying to Price For Option Terms
Warrants and Employees Per Expiration ---------------------------
Name Options Granted In Fiscal Year Share Date 5% 10%
---- --------------- -------------- --------- ---------- ------- -------
Ian Bebbington 50,000 9.7% $0.42 02/01/07 $7,000 $16,500
Philip Gregory 10,000 1.2% $.042 02/01/07 $1,400 $3,300
The exercise price of each option was equal to or more than the fair market
value of our Common Stock on the date of the grant. Percentages shown under
"Percent of Total Options Granted to Employees in the Last Fiscal Year" are
based on an aggregate of 515,000 options granted to our employees under the 2000
Equity Incentive Plan during the year ended October 31, 2002.
Potential realizable value is based on the assumption that our Common Stock
appreciates at the annual rate shown, compounded annually, from the date of
grant until the expiration of the five-year term. These numbers are calculated
based on Securities and Exchange Commission requirements and do not reflect our
projection or estimate of future stock price growth. Potential realizable values
are computed by:
o Multiplying the number of shares of Common Stock subject to a given
option by the exercise price;
o Assuming that the aggregate stock value derived from that calculation
compounds at the annual 5% or 10% rate shown in the table for the entire
five-year term of the option; and
o Subtracting from that result the aggregate option exercise price.
Ten-Year Options/SAR Repricings
There was no repricing of options for the fiscal year ended October 31, 2002.
Fiscal Year End Option Values
The following table sets forth for each of the executive officers named in
the Summary Compensation Table the number and value of exercisable and
un-exercisable options for the year ended October 31, 2002.
Number of Securities
Shares Underlying Unsecured Value of Unexercised
Acquired Value Options and Warrants In-The-Money Options
on at October 31, 2002 at October 31, 2002
Name Exercise Realized ($) Exercisable Unexercisable Exercisable Unexercisable
---- -------- ------------ ----------- ------------- ----------- -------------
Stephen Kircher - - 595,861 - - -
Anthony Genovese - - 222,500 97,500 - -
Phil Gregory - - 65,000 35,000 - -
Alan Lefko - - 37,500 12,500 - -
Ian Bebbington - - 37,500 62,500 - -
Compensation of Directors
Board members are currently not compensated for participation in Board
meetings. This policy may change in the future. All Directors are reimbursed for
expenses incurred in attending Board and committee meetings. Additionally, the
Board may grant stock options to its members for service as directors. During
the fiscal year ended October 31, 2002, non-employee directors were not granted
options. Performance Measurement Comparison
COMPARISON OF CUMULATIVE TOTAL RETURN ON INVESTMENT
[GRAPHIC OMITTED]
There can be no assurance that the Company's stock performance will
continue into the future with the same or similar trends depicted in the graph
above. The market price of the Company's common stock in recent years has
fluctuated significantly and it is likely that the price of the stock will
fluctuate in the future. The Company does not endorse any predictions of future
stock performance. Furthermore, the stock performance chart is not considered by
the Company to be (i) soliciting material, (ii) deemed filed with the Securities
and Exchange Commission, and (iii) to be incorporated by reference in any
filings by the Company under the Securities Act of 1933, or the Securities
Exchange Act of 1934.
Compensation Committee Report on Executive Compensation
The executive compensation policies and programs developed by the Company
are designed to retain and motivate executive officers and to ensure that their
interests are aligned with the interests of the Company's stockholders. The
Company's policy is to offer competitive compensation opportunities for its
employees based on a combination of factors, including Company growth, corporate
performance and the individual's personal contribution to the business.
The Company's compensation programs are implemented by the Compensation
Committee of the Board of Directors ("Board"). Such programs consist of base
salary, annual incentives and long-term incentives. Executive officers who are
also directors do not participate in decisions affecting their own compensation.
Base Salary
The Compensation Committee considered its own assessment of the individual
performances of each executive officer and its own subjective assessment of the
Company's overall financial performance. There is no fixed relationship between
base salary and corporate performance or between base salary and the competitive
range of salaries that may be offered by competitive companies. The Compensation
Committee members considered their business judgment in light of their
experience to be an important factor in establishing executive compensation.
Annual Incentives
On an annual basis, the Compensation Committee considers the grant of
annual incentive bonuses to each executive officer. Incentive bonuses are
discretionary and are determined subjectively, with the Compensation Committee
taking into consideration the individual's performance, contribution and
accomplishments during the past fiscal year and the Company's financial
performance. Neither the decision to award a bonus, nor the specific size of the
incentive bonus, is based on any specific measure of corporate performance. In
fiscal 2002, an incentive bonus was awarded to the Chief Financial Officer.
Stock Incentive Compensation
The Board believes that stock ownership by executive officers and key
employees provides valuable incentives for those persons to benefit as the
Company's Common Stock price increases, and that stock option-based incentive
compensation arrangements help align the interests of executives, employees and
stockholders.
The Board has granted stock options to executives and key employees through
the Company's Employee Equity Incentive Plan (formerly, the 1990 Amended and
Restated Stock Option Plan) (the "Plan"), approved by the stockholders in 1991.
The Plan was amended by the Board in 1995 to increase the number of shares
available under the Plan to 1,102,500, which amendment was approved by the
Company's stockholders. The Plan was again amended by the Board in 1997 to
change the name of the Plan, add certain additional types of equity grants,
provide for acceleration of vesting on certain changes in control or sale of
substantially all the Company's assets and a number of immaterial changes to
update, modernize and reorganize the Plan, which amendment was also approved by
the Company's stockholders. This Plan has now expired.
Effective October 12, 1999, the Board adopted the 1999 Stock Option Plan
for Non-Employee Directors (the "Directors' Plan"). The Plan provides for the
issuance of up to 300,000 shares of the Company's Common Stock (as presently
constituted) to existing directors and, in the case of extra service or duties,
to prior directors. Options may be awarded in such amounts, at such times, at
such exercise prices and on such other terms as the Board determines, subject to
any limitations in the Plan. Unless otherwise designated, options vest uniformly
over the year following the date of grant. The options, subject to earlier
termination under the Plan or option grant, expire after the later of (i) five
years after the date of grant or (ii) five years after termination as a
director. In 2002, the Board did not grant any options to directors.
Effective September 28, 2000, the Board and the stockholders of the Company
approved the 2000 Employee Equity Incentive Plan ("Equity Incentive Plan"). A
total of 882,800 shares of Common Stock were reserved for issuance under the
Equity Incentive Plan. The purpose of the Equity Incentive Plan is to attract
and retain the services of key employees, directors, officers and consultants
and to help such individuals realize a direct proprietary interest in the
Company. In 2002, the Board issued options to purchase 515,000 shares at an
exercise price of $0.42.
In determining the number of options granted to executive officers and key
employees, the Board considered the person's opportunity to affect the share
price of the Company's Common Stock, the level of the person's performance based
on past performance, future contribution to the Company and the anticipated
incentive effect of the number of options granted.
The Board believes that the policies and plans described above provide
competitive levels of compensation and effectively link executives and
stockholder interests. Moreover, the Board believes such policies and plans are
consistent with the long-term investment objectives appropriate to the business
in which the Company is engaged.
Respectfully Submitted,
Compensation Committee of
International DisplayWorks, Inc.
William H. Hedden
Ronald Cohan
Timothy Nyman
Employment Agreement
In November 2002, the Company entered into an employment agreement with the
Company's Chief Financial Officer, Ian Bebbington. The agreement has a term of
two years expiring on October 31, 2004. Annual compensation is approximately
$163,000, inclusive of the annual cost of $40,600 for leasehold accomodation. In
the event of earlier termintion by the Company, the Company will be required to
pay the balance of salary due until expiration and continue accommodation and
schooling of Mr. Bebbington's children until the end of the current school year.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Principal Stockholders
The following table sets forth certain information as of January10, 2003,
with respect to the beneficial ownership of our common stock for (i) each
director, (ii) all of our directors and officers as a group, and (iii) each
person known to us to own beneficially five percent (5%) or more of the
outstanding shares of our Common Stock.
Unless otherwise indicated, the address for each listed stockholder is:
International DisplayWorks, Inc., 599 Menlo Drive, Suite 200, Rocklin,
California 95765. To our knowledge, except as indicated in the footnotes to this
table or pursuant to applicable community property laws, the persons named in
the table have sole voting and investment power with respect to the shares of
common stock indicated.
Number of
Name of Beneficial Owner Shares(1) Percent(2)
------------------------ --------- ----------
Stephen C. Kircher 2,801,861(3) 14.1%
William H. Hedden 67,000(4) *
Anthony Genovese 1,596,353(5) 8.2%
Ronald Cohan 156,000(6) *
Timothy Nyman 338,664(7) 1.8%
All directors and executive 5,061,878(8) 25.1%
officers as a group
(six persons)
- -------------------
Footnotes:
* Does not exceed 1% of the class.
(1) "Beneficial Ownership" is defined pursuant to Rule 13d-3 of the
Exchange Act, and generally means any person who directly or indirectly
has or shares voting or investment power with respect to a security. A
person shall be deemed to be the beneficial owner of a security if that
person has the right to acquire beneficial ownership of the security
within 60 days, including, but not limited to, any right to acquire the
security through the exercise of any option or warrant or through the
conversion of a security. Any securities not outstanding that are
subject to options or warrants shall be deemed to be outstanding for
the purpose of computing the percentage of outstanding securities of
the class owned by that person, but shall not be deemed to be
outstanding for the purpose of computing the percentage of the class
owned by any other person.
(2) Based on 19,217,246 shares of the Company's Common Stock outstanding at
January 10, 2003, plus that number of shares subject to options
exercisable within 60 days of January 10, 2003, owned by each
individual or group of individuals.
(3) Includes 2,079,000 shares, options to purchase 87,000 shares and
warrants to purchase 435,861 shares in Mr. Kircher's name and 125,000
shares held by Capital Bay Securities, Inc. ("CBS") and warrants to
purchase 75,000. CBS is a wholly owned subsidiary of Capital Bay Group
("CBG") and Mr. Kircher is a majority shareholder in CBG.
(4) Includes 30,000 shares held in the name of Mr. Hedden and 37,000 shares
subject to options exercisable within 60 days after January 10, 2003.
(5) Includes 670,000 shares held in joint tenancy with Mr. Genovese's wife,
Mrs. Sharon Genovese, 694,353 shares held by an individual retirement
account for Anthony Genovese and 172,000 shares subject to options and
60,000 shares subject to warrants exercisable within 60 days after
January 10, 2003.
(6) Includes 134,000 shares and options to purchase 22,000 shares
exercisable within 60 days after January 10, 2003.
(7) Includes 316,664 shares and options to purchase 22,000 shares
exercisable within 60 days after June 30, 2001.
(8) Includes 3,940,899 shares, options to purchase 325,000 shares and
warrants to purchase 495,861 shares exercisable within 60 days after
January 10, 2003 owned by the Directors and 50,000 share options to
purchase 52,000 shares exercisable within 60 days after January 10,
2003 owned by Mr. Bebbington.
Equity Compensation Plan Information
Compensation Plan Table
The following table provides aggregate information as of the end of the
fiscal year ended October 31, 2002 with respect to all compensation plans
(including individual compensation arrangements) under which equity securities
are authorized for issuance.
Plan category Number of securities to be Weighted-average exercise Number of securities
issued upon exercise of price of outstanding remaining available for
outstanding options, options, warrants and rights future issuance under
warrants and rights equity compensation plans
(excluding securities
reflected in column (a))
(a) (b) (c)
Equity compensation plans
approved by security holders 1,419,818 $0.87 835,452
Equity compensation plans
not approved by security 235,000 $0.48 -
holders
Total 1,654,848 $0.87 835,452
A description of the equity compensation plans approved by the stockholders
can be found in Note 11 to the Financial Statements.
Equity Compensation Plans Not Approved by Security Holders
The Board has granted 235,000 options that are not part of compensation
plans approved by the security holders. There are 150,000 share options granted
in the fiscal 2001 to the Company's former President and Director at an exercise
price of $.050, 50,000 share options granted to a Director in fiscal 1999 at an
exercise price of $0.75, 25,000 and 10,000 share options granted to a Director
in fiscal 2000 at an exercise price of $0.78 and $0.75 respectively.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On November 20, 2002 loan notes to the Company from Directors and Officers
and parties related to a Director of the Company totaling $474,304 had their due
dates extended for one year by the holders to December 31, 2003.
On August 30, 2001, the Company's Vice-Chairman and Chief Technology
Officer loaned the Company $150,000 and was granted warrants to purchase 30,000
shares of common stock at $.36 per share expiring August 29, 2006.
On October 15, 2001, a party related to the a member of the Company's Board
of Directors agreed to assume the loan to the Company of $100,000 from a former
Director of the Company and to extend the repayment date until October 15, 2001.
For the extension, the Company granted a warrant to purchase 20,000 shares of
common stock at $0.36 per share expiring November 1, 2006.
ITEM 14. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls
Within the 90 days prior to the date of this Form 10-K, the Company carried out
an evaluation, under the supervision and with the participation of the Company's
management, including the Company's Chief Executive Officer along with the
Company's Chief Financial Officer, of the effectiveness of the design and
operation of the Company's disclosure controls and procedures pursuant to
Exchange Act Rule 13a-14. Based upon that evaluation, the Company's Chief
Executive Officer along with the Company's Chief Financial Officer concluded
that the Company's disclosure controls and procedures are effective in timely
alerting them to material information relating to the Company required to be
included in this Form 10-K.
Changes in Internal Controls
There have been no significant changes in the Company's internal controls or in
other factors which could significantly affect internal controls subsequent to
the date the Company carried out its evaluation.
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
1. Financial Statements (see Item 8.)
o Report of Independent Public Accountants (Grant Thornton,
Hong Kong)
o Report of Independent Public Accountants (Perry-Smith,
LLP)
o Consolidated Balance Sheets - October 31, 2002 and October
31, 2001
o Consolidated Statements of Operations - Year Ended October
31, 2002, ten months ended October 31, 2001 and year ended
December 30, 2000.
o Consolidated Statements of Stockholders' Equity - Year
Ended October 31, 2002, ten months ended October 31, 2001
and year ended December 30, 2000.
o Consolidated Statements of Cash Flows - Years Ended
October 31, 2002, ten months ended October 31, 2001 and
year ended December 30, 2000.
o Notes to Consolidated Financial Statements
2. Financial Statement Schedules
o Schedule II - Valuation and Qualifying Accounts (accounts
not required or not material have been omitted)
3. Exhibits
See Exhibit Index.
(b) Reports on Form 8-K
The following reports on Form 8-K were filed during the last
quarter of the period covered by this report:
Date of Event Reported Item Reported
---------------------- -------------
None filed
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Act
of 1934, the registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
INTERNATIONAL DISPLAYWORKS, INC.,
A Delaware corporation
Dated: January 27, 2003 By: /S/ STEPHEN C. KIRCHER
---------------- ----------------------------------------
Stephen C. Kircher,
Chairman and Chief Executive Officer
(Principal Executive Officer)
Pursuant to the requirements of the Securities Act of 1934 this report has
been signed below by the following persons on behalf of the registrant and in
the capacities and on the dates indicated.
INTERNATIONAL DISPLAYWORKS, INC.,
A Delaware corporation
Dated: January 27, 2003 By: /S/ STEPHEN C. KIRCHER
---------------- ----------------------------------------
Stephen C. Kircher,
Chairman and Chief Executive Officer
(Principal Executive Officer)
Dated: January 27, 2003 By: /S/ ANTHONY GENOVESE
---------------- ----------------------------------------
Anthony Genovese,
Vice-Chairman and Chief Technology
Officer
Dated: January 28, 2003 By: /S/ WILLIAM H. HEDDEN
---------------- ----------------------------------------
William H. Hedden, Director
Dated: January 24, 2003 By: /S/ RONALD A. COHAN
---------------- ----------------------------------------
Ronald Cohan, Director
Dated: January 24, 2003 By: /S/ TIMOTHY NYMAN
---------------- ----------------------------------------
Timothy Nyman, Director
Dated: January 28, 2003 By: /S/ IAN BEBBINGTON
---------------- ----------------------------------------
Ian Bebbington,
Chief Financial Officer
(Principal Financial Officer)
CERTIFICATION
I, Stephen C. Kircher, Chief Executive Officer for International DisplayWorks,
Inc., certify that:
1. I have reviewed this annual report on Form 10-K of International
DisplayWorks, 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 function):
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.
Dated: January 27, 2003 By: /S/ STEPHEN C. KIRCHER
---------------- ----------------------------------------
Stephen C. Kircher
Chief Executive Officer
(Principal Executive Officer)
CERTIFICATION
I, Ian Bebbington, Chief Financial Officer for International DisplayWorks, Inc.,
certify that:
1. I have reviewed this annual report on Form 10-K of International
DisplayWorks, 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 function):
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.
Dated: January 27, 2003 By: /S/ IAN BEBBINGTON
---------------- ----------------------------------------
Ian Bebbington
Chief Financial Officer
(Principal Financial and Accounting
Officer)
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------------
EXHIBITS
Filed with the
ANNUAL REPORT ON
FORM 10-K
FOR THE FISCAL YEAR ENDED OCTOBER 31, 2001
UNDER
THE SECURITIES EXCHANGE ACT OF 1934
------------------------
INTERNATIONAL DISPLAYWORKS, INC.
EXHIBIT INDEX
Exhibit No. Description
2.1 Agreement and Plan of Merger merging Morrow Snowboards, Inc. into
Granite Bay Technologies, Inc. (1)
2.2 Agreement and Plan of Merger merging Granite Bay Technologies, Inc.
into International DisplayWorks, Inc.(2)
3.1 Certificate of Incorporation (2)
3.2 Bylaws38
4.2 Securities Purchase Agreement dated October 31, 1997 among the
Registrant, Morrow, LLC, Morrow Snowboards ULC, Westbeach Snowboard
Canada Ltd. and the security holders of Westbeach Snowboard Canada
Ltd. listed therein (6)
10.1 Forms of Warrant (3)
10.2 Morrow Snowboards, Inc. Employee Equity Incentive Plan as amended and
restated February 13, 1997 (4)
10.3 Form of Nonqualified Stock Option Agreement (3-4)
10.4 Form of Incentive Stock Option Agreement (3-4)
10.5 Form of Indemnification Agreement (3-4)
10.6 Stock Option Plan for Non-Employee Directors (3-4)
10.7 Securities Purchase Agreement dated October 31, 1997 among the
Registrant, Morrow, LLC, Morrow Snowboards ULC, Westbeach Snowboard
Canada Ltd. and the Security holders of Westbeach Snowboard Canada
Ltd. listed therein (6)
10.8 Guarantee and Postponement of Claim by Morrow Westbeach Canada ULC in
favor of Foothill Capital Corporation dated as of May 7, 1998
(as assigned to Capitol Bay Management, Inc.) (19)
10.9 Intellectual Property and Security Agreement dated as of May 7, 1998,
between Morrow Snowboards, Inc. and Foothill Capital Corporation (as
assigned to Capitol Bay Management, Inc.)(19)
10.10 General Security Agreement dated as of May 7, 1998, between Morrow
Westbeach Canada ULC and Foothill Capital Corporation (as assigned to
Capitol Bay Management, Inc.)(19)
10.11 Security Agreement-Stock Pledge dated as of May 7, 1998, between
Morrow Snowboards, Inc. and Foothill Capital Corporation (as assigned
to Capitol Management, Inc.)(19)
10.12 Assignment and Acknowledgment Agreement dated May 7, 1999, between
Capitol Bay Management, Inc. and Foothill Capital Corporation, the
Registrant and Westbeach Snowboard U.S.A. Inc.(19)
10.13 Acquisition Agreement dated as of March 26, 1999, by and between K2
Acquisitions, Inc. and the Registrant (10)
10.14 Memorandum of Understanding between Capitol Bay Management, Inc. and
the Company (11)
10.15 Payment Agreement effective June 17, 1999 among Morrow Snowboards,
Inc., certain Petitioning Creditors named therein and Robert K.
Morrow, Inc., a Disbursing Agent for the Petitioning Creditors (12)
10.16 Promissory Note dated August 25, 1999, given by Morrow Snowboards,
Inc. to Dennis and Carol Pekkola (12)
10.17 Trust Deed dated August 25, 1999, given by Morrow Snowboards, Inc. to
Robert Smejkel, as Trustee, with Dennis and Carol Pekkola as
beneficiaries (13)
10.18 Subordination Agreement dated August 25, 1999, among Morrow
Snowboards, Inc., Robert K. Morrow, as Escrow Agent for certain
creditors of the Company and the Pekkolas (13)
10.19 Morrow Snowboards, Inc. 1999 Stock Option Plan for Non-Employee
Directors (14)
10.20 Asset Purchase Agreement dated as of November 12, 1999, among
Westbeach Canada ULC and Westbeach Sports Inc.(15)
10.21 General Assignment dated as of November 12, 1999, among
Westbeach Canada ULC and Westbeach Sports Inc.(15)
10.22 Assignment of Lease and Consent among Westbeach Canada ULC, Westbeach
Sports Inc. and Western Immo Holdings, Inc. dated as of November 12,
1999 (15)
10.23 Assignment of Lease and Consent among Westbeach Canada ULC, Westbeach
Sports Inc. and Welf Arne Von Dehn dated as of November 12, 1999 (15)
10.24 Bill of Sale between Westbeach Canada ULC and Westbeach Sports Inc.
dated as of November 12, 1999 (15)
10.25 Letter from Arthur Andersen, LLP dated January 24, 2000 (16)
10.26 Placement Agent Agreement dated January 13, 2000, between Morrow
Snowboards, Inc. and Capitol Bay Securities, Inc (17)
10.27 Securities Purchase Agreement effective as of January 31, 2000, among
Morrow Snowboards, Inc. and the Sellers (18)
10.28 Sale and Purchase Agreement February 1, 2000 among Vikay Industrial
(Hong Kong) Ltd. and International DisplayWorks, Inc. (19)
10.29 Supplemental Deed and Charge dated February 1, 2000, between
International DisplayWorks (Hong Kong) Ltd. and International
DisplayWorks, Inc., as Chargors, and Vikay Industrial Ltd. (in
Judicial Management) and Vikay Industrial (Hong Kong) Ltd. as
Chargees (18)
10.30 2000 Equity Incentive Plan for Non-Employee Directors (21)
10.31 Stock Option Agreements [Form of} (22)
10.32 Equity Incentive Plan (21)
10.33 Employment Contract with Ian Bebbington
23.1 Consent of Auditor (Grant Thornton)
23.2 Consent of Auditor (Perry Smith)
99 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 for the Sarbanes-Oxley Act of 2002
(1) Incorporated herein by reference from the Company's Current Report on
Form 8-K dated November 6, 2000 (File No. 0-753683).
(2) Incorporated by reference from the Company's Current Report on Form
8-K dated October 31, 2001 (File No. 0-27002).
(3) Incorporated herein by reference from the Company's Registration
Statement on Form S-1 (File No. 33-97800).
(4) Management contract or compensatory plan or arrangement.
(5) Incorporated herein by reference from the Company's 1995 Annual
Report on Form 10-K (File No. 0-27002).
(6) Incorporated by reference from the Company's Current Report on Form
8-K dated October 31, 1997 (File No. 0-27002).
(7) Incorporated by reference from the Company's Current Report on Form
8-K dated November 11,1997 (File No. 0-27002).
(8) Incorporated by reference from the Company's 1997 Annual Report on
Form 10-K (File No. 0-27002).
(9) Incorporated by reference from the Company's Current Report on Form
8-K dated May 8, 1998 (File No. 0-27002).
(10) Incorporated by reference from the Company's Current Report on Form
8-K dated March 26, 1999 (File No. 0-27002).
(11) Incorporated by reference from the Company's Current Report on Form
8-K dated April 27, 1999 (File No. 0-27002).
(12) Incorporated by reference from the Company's Current Report on Form
8-K dated June 28, 1999 (File No. 0-27002).
(13) Incorporated by reference from the Company's Current Report on Form
8-K dated August 25, 1999 (File No. 0-27002).
(14) Incorporated by reference from the Company's Current Report on Form
8-K dated September 30, 1999 (File No. 0-27002).
(15) Incorporated by reference from the Company's Current Report on Form
8-K dated November 12, 1999 (File No. 0-27002).
(16) Incorporated by reference from the Company's Current Report on Form
8-K dated January 14, 2000 (File No. 0-27002).
(17) Incorporated by reference from the Company's Current Report on Form
8-K dated January 31, 2000 (File No. 0-27002).
(18) Incorporated by reference from the Company's Current Report on Form
8-K dated January 31, 2000 (File No. 0-27002).
(19) Incorporated by reference from the Company's Annual Report on Form
10-K for the year ended January 1, 2000 (File No.0-27002).
(20) Incorporated by reference from the Company's Proxy Statement for the
meeting held on September 28, 2000 (File No. 707647).
(21) Incorporated by reference from the Company's current report on Form
8-K filed October 15, 1999 (File No. 000-27002).
(22) Incorporated by reference from the Company's current report on Form
S-8 effective May 1, 2002 (File No. 333-87296).