SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-KSB
(X) ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended June 30, 1998
( ) TRANSITION REPORT PURSUANT TO SECTION
13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 33-3272-W
LOTUS PACIFIC, INC
(Exact name of registrant as specified in its charter)
Delaware
(State of Organization)
52-1947160
(I.R.S. Employer Identification Number)
200 Centennial Avenue, Suite 201, Piscataway, New Jersey 08854
(Address of principal executive offices)
(732) 885-1750
(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: None
Indicate by check mark whether the Registrant (1) filed all
reports required to be filed by Section 13 or 15 (d) of the
Exchange Act during the preceding 12 months (or for such
shorter period than the registrant was required to file
such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes ___X___ No ______
Indicate by check mark if disclosure of delinquent
filers pursuant to Item 405 of Regulation S-B is
not contained herein, and will not be contained to
the best of Registrant's knowledge, in definitive
proxy or information statements incorporated by
reference in Part III of this Form 10-K or any
amendment to this Form 10-K. ( )
The aggregate market value of the voting stock held
by non-affiliates of the Registrant was approximately
$304 million as of June 30, 1998, based on the
closing sale price on the OTC Bulletin Board reported
for such date. Shares of common stock held by each
executive officer and director and by each person
known by the Company to own 5% of more of the
outstanding common stock have been excluded in that
such persons may be deemed to be affiliates.
This determination of affiliate status is not
necessarily a conclusive determination for other purposes.
The number of shares outstanding of Registrant's
Common Stock, $0.001 par value, was 47,386,804
shares at June 30, 1998.
DOCUMENTS INCORPORATED BY REFERENCE
The information required by Part III of this report,
to the extent not set forth herein, is incorporated
herein by reference from the Registrant's definitive
proxy statement relating to the annual meeting
of stockholders to be held in 1998, which definitive
proxy statement shall be filed with the Securities
and Exchange Commission within 120 days after the
end of the fiscal year to which this Report relates.
LOTUS PACIFIC, INC.
FORM 10-K
FOR THE YEAR ENDED JUNE 30, 1998
TABLE OF CONTENTS
Part I
Item 1. Business
Item 2. Properties
Item 3. Legal Proceedings
Item 4. Submission of Matters to a Vote of Security Holders
Part II
Item 5. Market for Registrant's Common Equity and
Related Stockholder Matters
Item 6. Selected Financial Data
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operation
Item 7A. Quantitative and Qualitative Disclosures
about Market Risk
Item 8. Financial Statements and Supplementary Data
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure
Part III
Item 10. Directors and Executive officers of the Registrant
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial
Owners & Management
Item 13. Certain Relationship and Related Transactions
Part IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K
Signatures
Part I
Item 1. BUSINESS
Except for historical information contained herein,
the matters discussed in this report contain certain
forward-looking statements based on current
expectations, estimates and projections about the
Company's business, management's beliefs and
certain assumptions made by the management.
These forward-looking statements involve risks and
uncertainties that could cause actual results to
differ materially from those anticipated in such
forward-looking statements.
GENERAL
Lotus Pacific, Inc. (the "Company" or "Registrant") is
a holding company for Regent Electronics Corp. ("Regent")
and LPF International Corp. ("LPF"). The Company,
through its 87.3%-owned subsidiary Regent, designs,
engineers, develops, provides and markets Internet
related electronic products and services to
electronics manufactures, commercial cable networks,
and general individual customers.
LPF International Corp., a wholly-owned subsidiary
of the Company, is an apparel fashion designer,
wholesaler and manufacturer located in New York,
NY. For the fiscal year ended June 30, 1998,
Regent provides the Company with 43 % of revenues
and LPF contributes the remaining 57%.
Using its Internet research and development capabilities,
including TeleWeb broadcasting system, set top boxes,
WonderTV series products, the Company has started
on-line service business. The business operation
includes: (a) providing retail services over the
Internet to Chinese customers for purchasing a
variety of well-designed, high-margin merchandises
made in North America or Europe, and (b) offering
information and electronic commerce services.
The Company's marketing target is China's 1.2
billion people with unsatisfied thirst for
information to make their day-to-day business and
entertainment decisions. The information and
services provided by the Company includes breaking
financial news, real-time stock quotes, corporate
financial information as well as consumer
entertainment information. The information may
be derived either directly from the Internet or
from the Company's own sources. The electronic commerce
services consist of advertising sales and initiating
business transactions over the Internet, such as
home shopping, online stock trading and online
utility bill payments. The management of the
Company believes that the Internet will provide
the Company with a powerful point of entry into
the world biggest emerging market.
The Company was incorporated under the laws of the
State of Delaware on June 25, 1985, as Quatech,
Inc. to raise capital and investigate and acquire
any suitable asset, property or pursue other business
opportunities. In April 1987, the Company completed
a public offering of securities registered on Form
3-18 with the Securities and Exchange Commission.
In June 1993, the Company disposed of all of its
interests in other entities and ceased to have
any business operations.
In September 1994, the Company was reorganized and
changed its name to Lotus Pacific, Inc. In January
1997, the Company's majority ownership was changed.
After new directors and executive officers were
elected, the Company set up two wholly owned
subsidiaries, Richtime Far East Ltd. in Hong Kong
and Regent Electronics Corp. registered in the
State of Delaware.
In June, 1997, the Company, through its subsidiary
Regent Electronics Corp., acquired Amiga-based
multimedia technology and its related assets and
rights from Rightiming Electronics Corp. for
an aggregate consideration of US $5 million
plus 8 million shares of common stock of Regent
Electronics Corp. The acquired assets
included all Amiga-Commodore's patents, licenses,
trademarks, and copyrights to be registered and
used in China, Taiwan, Hong Kong, Macao, and the
bordering countries between China and the former
Soviet Union. Over the past years Regent developed
a series of multimedia and multi-functional
TV-based set-top Internet access devices,
including the TeleWeb Broadcasting System, WonderTV
A6000, A6060, A8000, and A9000.
In March 1997, Richtime Far East Ltd., a
subsidiary of the Company, started its high
quality garment and textile import-export
business in Hong Kong. The Company receives
customer orders from Europe and North America,
and contracts with garment or textile manufacturers,
mainly in China, to complete those orders. The
Company then ships the finished goods overseas.
In February 1998, the Company set up a new
wholly owned subsidiary LPF International Corp. ("LPF").
LPF is incorporated in the State of Delaware and
operated in New York, NY. The purpose of LPF is to
expand the Company's existing textile and apparel
business worldwide and place more emphasis on
fashion design. Richtime Far East Ltd. was then
merged into LPF to be an indirect subsidiary
of the Company.
Since June 1997, the Company has invested
significant resources in research, product
development, and engineering activities for
its Internet broadcasting system and its
WonderTV series of set-top box and other
related products. As a result of these R&D
activities and the low volume of sales during
the initial commercialization of its products,
the Company incurred net operating losses
during the fiscal year ended June 30, 1998.
The Company anticipates that it will continue
to make significant expenditures for product
development and marketing of its Internet-related
products in the foreseeable future. The Company
believes that its TV-based products currently
have greater market potential than its PC-based
Internet access products. See Item 6 - "Management
Discussion and Analysis or Plan of Operation".
THE COMPANY'S PRIMARY PRODUCTS AND SERVICES
The Company has primarily positioned itself
as a researcher and developer of cable TV-based
Internet access related consumer electronics
products, including hardware and software.
The Company then licenses its technologies to
electronics manufacturers or contracts to
manufacturers. The Company does not maintain
manufacturing facilities.
TELEWEB SYSTEM AND WONDER-TVS
The Company's products include TeleWeb System and
WonderTV series products. The TeleWeb system is
a WWW broadcasting system to send the Internet
contents and selected commercial information
through existing cable TV networks subscribers.
Based on the technology of the TeleWeb system, the
Company has developed WonderTV series products:
WonderTV A6000, A6060, A8000, and A9000.
Using the Company's the TeleWeb system and its WonderTV
terminals, subscribers can download desirable
information to the hard disk of WonderTV according
to the monitored data attributes of the user
selection. Information is updated in real time
and can be stored on the hard disk for later
use. The Company offers a variety of related
services, such as pay-per-view, real time stock
trading, on-line shopping and commercial
advertisement.
ONLINE SERVICES
Using its Internet research and development
capabilities, the Company launched a project to: (1)
provide online merchandise retail services over
the Internet to Chinese customers with a variety
of well-designed, high-margin merchandises made
in North America or Europe. The Company's
ready-to-launch online specialized superstore
features a fun, easy to navigate interface with
extensive product information and powerful
search capabilities, and (2) provide information
and electronic commerce services to hundreds of
millions of Chinese people. The information provided
includes breaking financial news, real-time stock
quotes, corporate financial information as well as
consumer entertainment information. The information
may be derived either directly from the Internet or
from the Company's own sources. The management of
the Company believes that its targeted market of
consumers represents an attractive and rapidly growing
segment of the Web commerce industry.
PATENTS, TRADEMARKS AND LICENSES
The Company is pursuing patent applications in
certain foreign countries. There can be no assurance
that any of the Company's currently pending patent
applications or future applications will be granted
in full or in part or that claims allowed will be
sufficiently broad to protect the Company's technology.
The Company currently holds all right, title, and
interest in and to the trademarks, copyrights, patent
license of Amiga-Commodore for registration and
use in the People's Republic of China, Taiwan,
Hong Kong, Macao and the Asian bordering countries
between the People's Republic of China and the
former Soviet Union.
COMPETITION
As the Company enters the market for Internet related
products, it expects to experience significant competition
from both existing competitors and additional companies
that may enter this market. Some of these companies have
greater technical, marketing, manufacturing, and
financial resources than the Company.
To address the competitive nature of the business
the Company is constantly seeking innovation to
maintain its competitive edge. This includes using
newly developed technology to periodically upgrade
its electronic products always with new features
accustomed to local users.
The markets for the Company's products are highly
competitive and are characterized by rapid technological
advances, frequent new product introductions, evolving
industry standards, and competitive price pressures.
The Company will continue to develop and market
appropriate products to remain competitive. The
Company believes that one of the factors in its
competitive success is its continued commitment
of resources to research and development.
EMPLOYEES
As of June 30, 1998, the Company had 47 full-time
employees. The Company also employs independent
contractors and other temporary employees in its
software development department. None of the Company's
employees is represented by a labor union. The Company
considers relations with its employee to be excellent.
Item 2. PROPERTIES
The Company's corporate headquarters, including Regent's
offices and R&D facility, is located at 200 Centennial
Avenue, Piscataway, New Jersey and consist of
approximately 9,400 square feet under a lease that
expires in June 4, 2002. The company's subsidiary
LPF is housed in a 6,800 square-foot leased space at
525 Seventh Avenue, New York, NY. The Company believes
that its existing facilities are adequate to meet its
requirements for the near term and that additional
space will be available on commercially reasonable
terms if needed.
The following table summarizes the lease agreements held
by the Company and its subsidiaries relating to offices
and other facilities:
Location Lease Term Commence Date Expiration Date
Piscataway 5 years June 5, 1997 June 4, 2002
New Jersey
New York 10 years June 28,1998 Oct. 28,2008
New York
Middlesex Annual June 5, 1998 Renewable
New Jersey Renewable
Overseas, Regent maintains a technical support and
sales office space in Shanghai, China, and Richtime
Far East, Ltd. maintains an office space at 3/F, 4 Hok
Yuen Street East, Hunghom, Hong Kong.
Item 3. LEGAL PROCEEDINGS
As of the date hereof, there is no pending, or, to
the best knowledge of the Company, threatened
litigation involving the Company.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of the security
holders, through solicitation of proxies or
otherwise, during the fiscal year covered by
this report.
Part II
Item 5. MARKET FOR COMPANY'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
MARKET INFORMATION
The Company's Common Stock, par value $0.001, has
been traded on OTC Electronic Bulletin Board under
the symbol "LPFC" since December 1, 1994, and
there are currently ten (10) market makers for
the stock of the Company.
The table below sets forth the high and low closing
prices of the Company's Common Stock from January
1997 through June 30, 1998. These price quotations
reflect interdealer prices, without retail mark-up,
mark-down or commission, and may not necessarily
represent actual transactions.
Quarter Ended High Low
--------------------- -------- -------
1997
March 31, 1997 $2.50 $0.13
June 30, 1997 $4.50 $1.50
September 30, 1997 $7.00 $2.38
December 31, 1997 $7.13 $4.87
1998
March 31, 1998 $7.50 $5.50
June 30, 1998 $10.50 $5.88
NUMBER OF REGISTERED HOLDERS
The number of registered holders of the Company's
Common Stock as of June 30, 1998, was 534, and
the Company believes that there are a greater
number of beneficial owners of shares of its
Common Stock.
DIVIDENDS
To date, the Company has not declared or paid
any cash dividends on its Common Stock. The
Company currently anticipates that it will
retain all available funds for use in the
operation and expansion of its business, and no
cash dividend are expected to be paid on the
Common Stock in the foreseeable future. Further,
there can be no assurance that the proposed
operations of the Company will generate the
revenue and cash flow needed to declare cash
dividends in the foreseeable future.
RECENT SALES OF UNREGISTERED SECURITIES
The transactions set forth below were deemed
exempt from registration under the Securities
Act of 1933, as amended (the "Securities Act"),
by reason of Section 4(2) of the Securities Act.
In connection with each of these transactions,
the shares were sold to a limited number of
accredited investors as defined by Item 501
of Regulation D of the Securities and Exchange
Commission (the "Commission"). The accredited
investors were provided opportunities to get
access to all relevant information regarding the
Company and they represented to the Company
that they were "sophisticated" investors.
They also represented to the Company
that the shares they purchased were for
investment purposes only. Restrictive legends
were placed on all stock certificates.
On September 18, 1997, the Company issued 6 million
shares of its Common Stock to Rightiming Electronics
Corp. in exchange for 6 million shares of Regent
Electronics Corp., a subsidiary of the Company.
The purpose of the share exchange was to gain
more control over the subsidiary of the Company.
On February 8, 1998, the Company entered into
a stock subscription agreement with Hambrecht &
Quist Asia Pacific Ltd. and its affiliate Asia
Pacific Growth Fund II, L.P. (collectively
"H&Q"). Under the agreement, H&Q invested $6 million
to acquire 1,500,000 shares of Preferred Stock of
Regent Electronics Corp., a subsidiary of the
Company. H&Q's acquisition represented approximately
5.5% of equity interest of Regent Electronics Corp.
Pursuant to the agreement, the Regent shares held
by H&Q may be converted, subject to certain
conditions, into Common Stock shares of
the Company after January 1, 2000.
During the period of June 30, 1997 through June
30, 1998, the Company sold 648,500 shares of the
Common Stock to ten accredited investors for an
aggregate consideration of $2,594,000.
Item 6. SELECTED FINANCIAL DATA
The following selected consolidated financial
data as of and for each of the three fiscal years
in the period ended June 30, 1998 has been derived
from the consolidated financial statements of the
Company, which have been audited by Schiffman
Hughes Brown, independent auditors, whose reports
as of June 30, 1998, 1997 and 1996 are included
elsewhere herein. The selected consolidated
financial data should be read in conjunction
with the attached consolidated Financial Statements
and the related notes thereto and "Management's
Discussion and Analysis or Plan of Operation" appearing
in Item 7 of this Form 10-K.
Selected Consolidated Financial Data
(in thousands, except per share data)
Fiscal Year Ended June 30
1998 1997 1996
Consolidated Statement of
Operations Data:
Revenues 4,843 410 40
General and administrative expenses3,436 310 18
Research and Development 3,762 15
Minority interest in loss of
Consolidated subsidiary 218 82
Operating income (loss) (2,057) 43 22
Net income per share (.05) .00 .00
Weighted average shares outstanding 44,421 29,238 26,799
Fiscal Year Ended June 30
1998 1997 1996
Balance Sheet Data:
Working capital 6,920 107 213
Total assets 16,404 8,221 385
Long-term obligation 0 0 0
Total shareholders'equity 7,820 5,739 3,85
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OR
PLAN OF OPERATION
The following Management's Discussion and Analysis
of Financial Condition and Results of Operations should
be read in conjunction with the Company's Consolidated
Financial Statements as of June 30, 1998 and 1997
included herein this Report on Form 10-K for the
fiscal year ended June 30, 1998.
OVERVIEW
Regent, designs, engineers, develops, provides and
markets Internet related electronics products and
services to electronics manufactures, commercial
cable networks, and general individual customers.
Using its Internet research and development
capabilities, including the TeleWeb broadcasting system,
set-top boxes, WonderTV series products, the Company
has started its on-line service business.
The Company has primarily positioned itself as a
researcher and developer of cable TV-based Internet
access related consumer electronics products, including
hardware and software. The Company then licenses
its technologies to electronics manufacturers or
contracts to manufacturers.
The Company's products include the TeleWeb System and
WonderTV series products. The TeleWeb system is a
WWW broadcasting system to send Internet contents and
selected commercial information through existing cable
TV network subscribers. Based on the technology of
the TelWeb system, the Company has developed WonderTV
series products: WonderTV A6000, A6060, A8000,
and A9000.
Using the Company's TeleWeb system and its WonderTV
terminals, subscribers can download desirable
information to the hard disk of WonderTV according
to the monitored data attributes of the user's
selection. Information is updated in real time and
can be stored on the hard disk for later use. The
Company offers a variety of related services, such
as pay-per-view, real time stock trading, on-line
shopping and commercial advertisement.
In 1998, the Company launched a project to: (1)
provide online merchandise retail services over
the Internet to Chinese customers with a variety of
well-designed, high-margin merchandises made in
the North America or Europe. The Company's ready-to-launch
online specialized superstore features a fun, easy
to navigate interface with extensive product
information and powerful search capabilities, and
(2)provide information and electronic commerce
services to hundreds of millions of Chinese people.
The information provided includes breaking financial
news, real-time stock quotes, corporate financial
information as well as consumer entertainment information.
The information may be derived either directly from
the Internet or from the Company's own sources. The
management of the Company believes that its targeted
market of consumers represents an attractive and
rapidly growing segment of the Web commerce industry.
RESULTS OF OPERATIONS
FISCAL 1998 AS COMPARED TO FISCAL 1997
Revenues During fiscal 1998, the Company generated
its revenue primarily from (1) licensing the rights
to its software products to business customers; (2)
resale of chipsets; and (3) sales from its textile and
apparel business. The Company's revenues reached $7.99
million in fiscal 1998 from zero in fiscal 1997.
International sales in fiscal 1998 represented 52%
of net sales. The Company had no sales in fiscal 1997.
Research and Development Fiscal 1998's increase
in research and development expenses was primarily a
result of developing the TeleWeb broadcasting system
and setting up online merchandise retail and electronic
commerce services. The Company's software development
costs are recorded in accordance with Statement of
Financial Accounting Standards No. 86. To date, the
Company has expensed all of its internal software
development.
General and Administrative General and administrative
expenses increased to $3.44 million in fiscal 1998
from $310,241 in fiscal 1997. The primary reason for
the increase was hiring more software engineers to
conduct product development. The other increase was
due to the fact that the Company has to rent more office
space for its growing business activities. In addition,
administrative expenses including legal and accounting also increased.
Operating Loss As a result of the factors discussed above,
the Company's operating income decreased from $43,390 in
fiscal 1997 to $2.06 million of net loss in fiscal 1998.
Income Taxes. The Company's losses for fiscal 1998 may
be utilized as an offset against future earnings.
There is no assurance that future operations will
produce taxable earnings.
FISCAL 1997 AS COMPARED TO FISCAL 1996
The Company became active in January 1997. For the fiscal
year ended June 30, 1997, the Company had a net income of
$43,390 compared to $22,160 in fiscal 1996.
Revenues The revenues of the Company in fiscal 1997
were $582,386 compared to $40,098 in fiscal 1996. The
revenues in fiscal 1997 were primarily from the sale
of its investment in Rightiming Electronics Corp., a
NJ-based high tech company.
Research and Development Regent Electronics Corp.,
a subsidiary of the Company, began to carry out its
product development activities in June 1997. For
the fiscal year ended June 30, 1997, the Company had
R&D expenses of $14,703. There were no R&D expenses
in fiscal 1996.
Net Income. The Company become active in January 1997.
For the fiscal year ended June 30, 1997, the Company
had a net income of $43,390 compared to $22,160
in fiscal 1996.
Income Taxes. The Company had no income taxe
liabilities in fiscal 1997 and 1996 because those
income taxes liabilities were offset by the Company's
net operating losses (NOLs) incurred in previous years.
LIQUIDITY AND CAPITAL RESOURCES
The Company ended the fiscal 1998 with a cash and
cash equivalents position of approximately $3.2 million,
compared to $268,679 in fiscal 1997.
Since January 1997, the Company has financed its
operations and expenditures primarily through the
sale of capital stock. On February 8, 1998, Hambrecht
& Quist Asia Pacific Ltd. and its affiliate Asia
Pacific Growth Fund II, L.P. (collectively "H&Q")
invested $6 million to acquire 1,500,000 shares of
Preferred Stock of Regent Electronics Corp. H&Q's
acquisition represented approximately 5.5% of equity
interest of Regent. Pursuant to the agreement,
subject to certain conditions, the Regent shares
held by H&Q may be converted into Common Shares of
the Company after January 1, 2000.
During the period of June 30, 1997 through June 30,
1998, the Company sold 648,500 shares of the Common
Stock to ten accredited investors for an aggregate
consideration of $2,594,000.
At June 30, 1998, the Company had working capital
of $6.92 million (an increase of $6.8 million from
$106,924 as of June 30, 1997). During Fiscal 1998,
operating activities provided $766,302 of net cash,
investing activities used $ 113,854 of net cash for
equipment purchases, and financing activities
provided $2.27 million of net cash, primarily
from H&Q's investment and private placements.
Approximately 60% of net cash used in 1998 were
spent on research and development and related activities.
The Company believes that the anticipated funds from
operations and existing cash and cash equivalents
will be sufficient to meet its cash requirements
for at least the next twelve months. Although the Company's
operating activities may generate cash to cover its
operating costs, the Company's continuing operating
and investing activities may require the Company
to obtain additional sources of financing. There
can be no assurance that any necessary additional
financing will be available to the Company on
commercially reasonable terms, if at all.
The Company's foreign sales are denominated in
U.S. dollars. The Company does not incur any
foreign currency risks; however, fluctuations in
currency exchange rates could cause the Company's
products and services to become relatively more
expensive to foreign customers, which may result
in a reduction in foreign sales or the profitability
of any of such sales.
Historically, the size and timing of sale
transactions have varied substantially from
quarter to quarter, and the Company expects
such variations to continue into the future.
Because a significant portion of the Company's
overhead is fixed in the short-term, the
Company's results of operations may be adversely
affected if revenues fall below the Company's
expectation.
In fiscal 1999, the Company, through its subsidiary
Regent Electronics Corp., will actively look for
business opportunities in China and its bordering
countries to manufacture and market its TeleWeb
broadcasting system and WonderTV series products.
The Company has been contacting several big TV
manufacturers in China seeking a contractor for
such purpose. The Company is confident in its
market potential based on the continuation of economic
growth and the increasing demand for Internet
access and multimedia entertainment in China.
It is part of the Company's business strategy to
use the revenues generated from sales of the TeleWeb
system and WonderTV series products to finance the
Company's research and development activities in
its new generation of products for multimedia
home entertainment.
Some international companies with capability of
producing similar products are also trying to
enter into the China's multimedia entertainment
market. To improve its competitiveness, the
Company focuses on products that are accustomed
to China's cultural tradition and the Company
will persist in its aggressive drive to reduce
business cost. While subject to many variables,
the Company anticipates revenue increases in the
coming fiscal year. At the same time, the Company
will continue to raise capital necessary for its
expansionary operations and research and
development activities.
RECENTLY ISSUED FINANCIAL ACCOUNTING STANDARDS
Effective for fiscal 1998, the Company adopted
SFAS No. 123, "Accounting for Stock-Based
Compensation," and, as permitted by this standard,
will continue to apply the recognition and
measurement principles of Accounting Principles
Board Opinion No. 25 to its stock options. This
statement requires footnotes disclosure of the pro
forma impact on net income and earnings per share of
the compensation cost that would have been recognized
if the fair value of all stock-based awards were
recorded in the income statement.
In March 1997, the Financial Accounting Standards
Board issued SFAS No. 128, "Earnings Per Share" which
simplifies the standards for computing EPS previously
found in Accounting Principles Board Opinion No.
15 and makes them comparable to international EPS
standards. The Statement is effective for financial
statements issued for periods ending after December
15, 1997. Had this statement been effective for the
years ended June 30, 1997 and 1996, earnings would
have been presented as follows:
Year ended June 30 1998 1997
EPS - basic $(.05) $0.00
EPS - diluted $(.05) $0.00
In June 1997, the Financial Accounting Standards
Board (FASB) issued two SFASs: SFAS No. 130, "Reporting
Comprehensive Income", and SFAS No. 131, "Disclosures
about Segments of an Enterprise and Related Information".
As specified by these statements, the Company will apply
these statements beginning in fiscal 1999 and reclassify
its financial statements for earlier periods provided for
comparative purposes.
SFAS 130 establishes standards for reporting and display
of comprehensive income and its components (revenues,
expenses, gains, and losses) in a full set of general-purpose
financial statements. This statement requires that all
items that Are required to be recognized under accounting
standards as components of comprehensive income be reported
in a financial statement that is displayed with the same
prominence as other financial statements.
SFAS 131 establishes standards for the way that the public
business enterprises report information about operating
segments in annual financial statements and requires that
those enterprises report selected information about
operating segments in interim financial reports issued
to shareholders. It also establishes standards for
related disclosures about products and services,
geographic areas, and major customers. This Statement
supersedes FASB Statement No. 14, "Financial Reporting
for Segments of a Business Enterprise", but retains
the requirement to report information about major
customers. It amends FASB No. 94, "Consolidation of
All Majority-Owned Subsidiaries", to remove the
special disclosure requirements for previously
unconsolidated subsidiaries.
At this point, the Company has not determined the
impact of adopting SFAS 131.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
The Company has not entered into any transactions
using derivative financial instruments or derivative
commodity instruments and believes that its exposure
to market risk associated with other financial
instruments (such as investments) are not material.
Item 8. FINANCIAL STATEMENTS
See Item 14 (a) for an index to the audited consolidated
financial statements and supplementary financial
information that are attached hereto.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTING
AND FINANCIAL DISCLOSURE
The Company appointed the accounting firm of
Schiffman, Hughes & Brown to serve as the independent
auditors of its year-end financial statements starting
from its fiscal year of 1995. To the best knowledge
of the current management, the Company did not use
an auditor for its fiscal year prior to 1995 and
therefore had no auditors.
The Company has no disagreement with
accounting and financial disclosure.
Part III
Item 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The Company's directors, executive officers and their
respective ages and positions as of June 30, 1998 are as follows:
Name Age Date Appointed Position
James Yao (2) 44 January 1997 Chairman, President & Director
David Leung 53 January 1997 Vice President & Director
James Liu 43 January 1997 Vice President & Director
Jeremy Wang(1) (2) 43 May 1997 Director
Simon Gu (1) 43 September 1997 Director
Gary Huang (1) 42 January 1997 Treasurer, Secretary & Director
(1)Member of the Audit Committee.
(2)Member of the Compensation Committee
The following are biographies of the
Company's executive officers and directors
for the recent years.
JAMES YAO joined the Company as President and a
Director in January 1997 and was elected Chairman
of the Board of Directors. He has over 15 years of
business experience in multinational companies as
well as new ventures in textile and apparel industry,
most recently with Yao Investment Corp. and Lotus
International Holdings Corp., where he served as
Chairman. Mr. Yao graduated from Miya
Gawa University in Tokyo, Japan.
DAVID LEUNG joined the Company as Vice President
in January 1997. Prior to joining the Company, Mr.
Leung served as General Manager of Shenzhen New
Technology Development Co., Ltd. in Shenzhen, China.
He is a director of Lotus International Holdings Corp.
He was employed as a research fellow with Electronics
Research Institute in Guangzhou, China under Academia
Sinica from 1984 to 1992. Mr. Leung had a BS from
Beijing Institute of Technology.
JAMES LIU has been a director and Vice President
of the Company since January 1997. Prior to his
joining the Company, Mr. Liu served as President
of JBL International Inc. in New York, NY. He is
a director of Lotus International Holdings Corp.
From 1983 to 1990, he was a manager in charge
of international trade in Jiangsu Provincial
Government of the People's Republic of China.
He graduated with a BA degree from Nanjing
University, China.
JEREMY WANG was elected Director in March 1997.
In the past ten years, he worked at AT&T Bell
Laboratories and Merck & Co. He held various
responsibilities in system engineering,
development and product management in the
telecommunications industry. Mr. Wang had an MS
in Chemical Engineering from University of Virginia,
and a MS in Computer Science from New Jersey
Institute of Technology.
SIMON GU has been a director since September 1997.
Mr. Gu has more than twelve years of experience in
electronics and computer industries, and has been
a senior computer engineer at AT&T since 1990.
He held several senior technology positions at
US Army Armament Research, Development and
Engineering Center and Information Department of
Town & County International, Inc. from 1987 to
1990. Mr. Gu holds a Master of Sciences in
computer sciences from Polytechnic University of
New York and a BS in computer sciences at Kean
College of New Jersey.
GARY HUANG has been Treasurer and Secretary of
the Company since January 1997. Prior to joining
the Company, Mr. Huang served as Senior
Accountant / Financial Analyst at Rightiming
Electronics Corp. with full responsibilities
in accounting, financial reporting and treasury
functions. He holds an MBA in finance from
University of New Haven and an MA in Economics
from Yale University.
All directors hold office for their elected term
or until their successors are duly elected and
qualified. Should a director be disqualified or
unable to serve as a director, the vacancy so
arising may be filled by the Board of Directors
for the unexpired portion of his term. All
officers serve at the discretion of the Board
of Directors. There are no family relationships
among the members of the Board of Directors or
any executive officers of the Company.
COMMITTEES AND BOARD COMPENSATION
The Board of Directors conducts its business through
meetings of the Board of Directors and through
its committees. In accordance with the By-laws
of the Company, the Board of Directors has
established an Audit Committee and a Compensation
Committee.
AUDIT COMMITTEE
The Audit Committee acts on behalf of the Board
of Directors with respect to the Company's financial
statements, record-keeping, auditing practices
and matters relating to the Company's
independent public accountants, including recommending to
the Board of Directors the firm to be engaged
as its independent public accountants for the
next fiscal year; reviewing with the
Company's independent public accountants the scope and
results of the audit and any related management
letter; consulting with the independent public
accountants and management with regard to the
Company's accounting methods and adequacy of its
internal accounting controls; approving the professional
services rendered by the independent public
accountants; and reviewing the independence of the
independent public accountants. The Audit Committee
consists of Directors Jeremy Wang, Simon Gu
and Gary Huang.
COMPENSATION COMMITTEE
The Compensation Committee reviews and makes
recommendations to the Board of Directors the
appropriate compensation of directors and executive
officers of the Company. The Compensation Committee
consists of Directors James Yao and Jeremy Wang.
DIRECTORS' COMPENSATION
Directors are not paid a fee for attending Board of
Directors or committee meetings, but are reimbursed
for their travel expenses to and from the meetings.
INVOLVEMENT IN CERTAIN LEGAL PROCEEDINGS
None of the officers or directors has been
involved in any material legal proceedings that
occurred within the last five years of any type
as described in Section 401(f) or Regulation S-B.
Item 11. EXECUTIVE COMPENSATION
The following Summary Compensation Table sets
forth information concerning the total compensation
of the Company executive officers for services
rendered in all capacities to the Company for the
fiscal year ended June 30, 1998:
Cash Compensation
Names of for twelve Months Other
Officers Ending June 30, 1998 Stock Options Compensations
James Yao $ 68,000 None (Note 1) None
President & Chairman of the Board
David Leung $ 0 None (Note 1) None
Vice President & Director
James Liu $ 68,000 None (Note 1) None
Vice President & Director
Gu Huang $ 36,000 None None
Treasurer & Secretary
- ---------------------------------------------------------------------
Note 1: No stock options were granted in fiscal
1998 to the Company directors and officers. For
fiscal 1997, the Company issued 1,090,000 shares of
stock options to its four directors and officers as
part of the compensation plans. Each of those options
is currently exercisable at an exercise price of $6.00
per share and shall be expired on May 15 and May 30,
2002. As of June 30, 1998, no stock options
have been exercised.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS & MANAGEMENT
The Company has 47,386,804 shares of common stock
issued and outstanding and 4,300 shares of Series
A Preferred Stock issued and outstanding. All of
the series A Preferred Stock is owned by Lotus
International Holding Corp. The following institutional
investors hold 5% or more of the Company's
common stock shares:
Lotus International Holdings Corp. 9,000,000 shares 15.9%
Yao Investment Corp. 8,000,000 shares 14.2%
Rightiming Electronics Corp. 6,000,000 shares 10.6%
Evolving Investments Ltd. 3,100,000 shares 5.5%
The percentages indicated are based on the Company s
Stock Options and Warrants exercisable as of June 30,
1998 and 47,386,804 shares of Common Stock issued
and outstanding as of June 30, 1998.
None of the Company's officers and directors own
shares individually, except stock options. See Item
11 - Executive Compensation.
Each share of Series A Preferred Stock has one vote.
James Yao and James Liu constitute all the directors
of Lotus International Holdings Corp. and James Yao
also serves as President of Yao Investment Corp.
There are no arrangements including pledges by any
person of securities of the Company, the operation
of which may at a subsequent date result in a change
in control of the Company.
Item 13. CERTAIN RELATIONSHIP AND RELATED TRANSACTIONS
On December 2, 1997, Lotus International Holdings
Corp., a shareholder of the Company, disposed of
the Company s Common Stock shares to its shareholders,
affiliate companies and related parties. From
this transaction, Yao Investment Corp. received
8 million shares of Common Stock of the Company.
James Yao, President & Chairman of the Company,
also serves as President of Yao Investment Corp.
Item 14. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following documents are filed as a part
of this report:
Financial Statements and Reports of Schiffman Hughes
Brown, Independent Auditors
Report of Schiffman Hughes Brown, Independent Auditors
Consolidated Balance Sheet as June 30, 1998 and 1997
Consolidated Statements of Operations - for the Fiscal Years ended
June 30, 1998, 1997 and 1996
Consolidated Statements of Shareholders' Equity -
for the Fiscal Years Ended June 30, 1998, 1997 and 1996
Consolidated Statements of Cash Flows - for the Fiscal Years
Ended June 30, 1998, 1997 and 1996
Notes to Consolidated Financial Statements
2. Financial Statement Schedules.
Schedules not listed above have been omitted because
the information required to be set forth therein is
not applicable or is shown in the financial
statements or notes thereto.
3. Exhibits
Amended Certificate of Incorporation of the Registrant
filed with the Delaware Secretary of State
Amended and Restated Bylaws of the Registrant
(b) Reports on form 8-K
The Registrant filed a Form 8-K as of September 9,
1997, wherein it reported that Mr. Simon Gu was elected
as a member of the Board of Directors.
The Registrant filed a Form 8-K as of September 18, 1997,
wherein it reported that the Company issued 6 million
shares of common stock to Rightiming Electronics Corp.
in exchange for its 6 million shares of common stock
of Regent Electronics Corp.
The Registrant filed a Form 8-K as of March 4, 1998,
wherein it reported that H&Q Asia Pacific and Asia
Pacific Growth Fund II invested $6 million to acquire
1.5 million shares of preferred stock of Regent
Electronics Corp., a subsidiary of the Company.
The Registrant filed a Form 8-K as of March 6, 1998,
wherein it reported that the Company created a new,
wholly owned subsidiary, LPF International Corp., in
order to control and expand its existing textile business
worldwide. Richtime Far East Ltd. became an indirect
subsidiary of the Company.
LOTUS PACIFIC, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JUNE 30, 1998 AND 1997
SCHIFFMAN HUGHES BROWN
A PROFESSIONAL CORPORATION
CERTIFIED PUBLIC ACCOUNTS
SCHIFFMAN HUGHES BROWN
A PROFESSIONAL CORPORATION
CERTIFIED PUBLIC ACCOUNTS
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholders
of Lotus Pacific, Inc. and Subsidiaries
We have audited the accompanying balance sheets
of Lotus pacific, Inc. and Subsidiaries as of
June 30, 1998 and 1997 and the related statements
of operations, stockholders' equity, and cash
flows for the years then ended. These financial
statements are the responsibility of the Company's
management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally
accepted auditing standards. 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 the management, as well
as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, the financial statements referred to
above present fairly, in all material respects, the
financial position of Lotus Pacific, Inc. and
Subsidiaries as of June 30, 1998 and 1997, and the
results of its operations and its cash flows for
the years then ended in conformity with generally
accepted accounting principles.
/s/
Schffman Hughes Brown
Blue Bell, Pennsylvania
September 4, 1998
790 PENLLYN PIKE, SUITE 302, BLUE BELL, PENNSYLVANIA 19422
(215) 646-2000 FAX (215) 646-1937
LOTUS PACIFIC, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1998 AND 1997
ASSETS
1998 1997
Current Assets:
Cash $3,193,127 $268,679
Accounts Receivable 4,979,759
Prepaid Expenses 760,295
Advances _________ 2,354
Total current assets 8,933,181 271,033
Investments (Note 5) 600,000 600,000
Property and equipments:
Furniture and office equipment 90,192 90,000
Equipment 1,541,231 1,502,120
Leasehold improvements 75,612 1,041
1,707,015 1,593,161
Less: accumulated depreciation 348,286 26,623
1,358,729 1,566,538
Other assets:
Intangible asset, net of accumulated
amortization of $370,477 and $28,480
in 1998 and 1997, respectively 5,439,523 5,781,520
Deposit 7 1,700
5,512,315 5,783,220
$16,404,225 $8,220,791
LIABILITY AND STOCKHOLDERS' EQUITY
Current liabilities:
Account payable $1,755,654 $14,946
Loan Payable (Note 3) 120,000
Salaries Payable 63,819
Payroll taxes payable 32,234 25,771
Income taxes payable (Note 6) 42,110 123,392
Total current liabilities 2,013,817 164,109
Minority interest in subsidiary (Note 5)
6,569,544 2,317,815
Stockholders' equity:
Common stock (Note 8) 47,387 40,737
Preferred stock, Series A (Note 8) 4 4
Common Stock Warrant (Note 8) 80,000
Additional paid-in capital 10,240,740 6,188,348
Accumulated deficit (2,547,267) (490,222)
7,820,864 5,738,867
$16,404,225 $8,220,791
See independent auditor's report and notes to
financial statements
LOTUS PACIFIC, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED JUNE 30, 1998 AND 1997
1998 1997
Sales $10,998,875 $ - 0 -
Cost of Sales 7,989,318
Gross Profit 3,009,557
Operating expenses 4,933,919 310,241
Operating loss (1,924,362) (310,241)
Other income (expenses):
Interest income 33,675 11,186
Research and development (2,264,801) (14,703)
Gain on sale of investment 398,805
Royalty Income 1,800,000
(431,126) 395,288
Net income (loss) before income taxes
and minority interest in income
of consolidated subsidiaries (2,355,488) 85,047
Income tax benefit (expenses)
(Note 6) 80,714 (123,842)
Minority interest in loss of
consolidated subsidiaries 217,729 82,185
Net income $(2,057,045) $43,390
Earnings per share
Basic $(.05) $.00
Diluted $(.05) $.00
Weighted average shares 44,421,334 29,238,081
See independent auditor's report and notes
to financial statements
LOTUS PACIFIC, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED IN JUNE 30, 1998 AND 1997
Common Preferred Common Additional
Shares Shares Stock Paid-in
Outstanding Outstanding Warrants Amount Capital Deficit total
Balance, June 30, 1996
26,937,054 4,300 $26,941 $892,148 $(533,612) $385,477
Issuance of common stock
13,800,00 13,800 5,296,200 5,310,000
Net income for the year ended June 30, 1997
_______ _______ ______ ______ ________ 43,390 43,390
Balance,June 30,1997
40,737,054 4,300 $40,741$6,188,348$(490,222)$5,738,867
Issuance of common stock
536,000 536 2,071,464 2,072,000
Issuance of Common stock For services
113,750 114 454,886 455,000
Issuance of Common Stock For purchase Of subsidiary
6,000,000 6,000 1,526,042 1,532,042
Issuance of Common Stock Warrants
8,000,000 80,000 80,000
Net loss for the year ended June 30, 1998
_______ ___ __ ________ _______ (2,057,045) (2,057,045)
Balance, June 30, 1998
47,386,804 4,300 8,000,000$127,391$10,240,740 $(2,547,267) $7,820,864
See independent auditor's report and notes to financial statements
LOTUS PACIFIC, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30, 1998 AND 1997
1998 1997
Cash flows from operating activities:
Net income (loss) $(2,057,045) $43,390
Adjustments to reconcile income (loss) to
net cash provided by operating activities:
Depreciation and amortization 663,660 55,103
Common stock issued for services 455,000
Gain on sale of investment (398,805)
Changes in assets and liabilities:
Increase in accounts receivable (4,979,759)
Increase in prepaid expenses (760,295)
Increase (decrease) in advances 2,354 (2,354)
Increase in deposit (71,092) (1,700)
Increase in accounts payable 1,740,708 14,946
Increase in payroll taxes payable 6,463 25,771
Increase in salaries payable 63,819
Increase (decrease) in income tax payable (81,282) 123,392
Increase in minority interest in subsidiary 5,783,771 2,317,815
Net cash provided by (used in)
operating activities 766,302 2,177,558
Cash flows from investing activities:
Purchase of property and equipment (113,854) (1,593,161)
Purchase of intangible asset (5,810,000)
Net cash used in investing activities (113,854) (7,403,161)
Cash flows from financing activities:
Issuance of common stock 2,072,000 5,310,000
Issuance of common stock warrants 80,000
Increase in loans payable 120,000
Proceeds from sale of investment 571,200
Acquisition of investment (600,000)
Net cash provided by financing
activities 2,272,000 5,281,200
Net cash increase in cash 2,924,448 55,597
Cash, beginning 268,679 213,082
Cash, ending $3,193,127 $268,679
Supplemental disclosure of cash flow information:
Cash paid for taxes $500 $150
Supplemental disclosure of non-cash financing activities:
Issuance of common stock for services $455,000
Issuance of common stock for
purchase of subsidiary $1,532,042
See independent auditor's report and notes to financial statements
LOTUS PACIFIC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998 AND 1997
1. Description of business:
Lotus Pacific, Inc. (the "Company") is a holding company
and its main business is conducted through its two
subsidiaries: Regent Electronics Corp. ("Regent") and
LPF International Corp. ("LPF").
Regent is a New Jersey based cybetech corporation.
Regent generates its income from granting technology
patent and licenses to manufactures and from selling
products to China or its neighboring countries
through a combination of direct sales, under reseal
agreement, or through distribution channels, such
as governmental authorities and local cable TV
stations. The Company owns 87.3% of Regent's equity interest.
LPF International Corp., a newly formed and wholly
owned subsidiary of the Company, was incorporated in
the State of Delaware in February 1998 and operates
in New York City, NY. The formation of this new subsidiary
in the U.S. is part of the Company's business strategy
to develop the Company's textile and apparel business
worldwide.
In January 1997, the Company set up a wholly owned
subsidiary, Richtime Far East, Ltd. (a Hong Kong
corporation operated in Hong Kong). The Company
is continuing to investigate business opportunities.
2. Summary of significant accounting policies:
Principle of Consolidation:
The accompanying financial statements include the
accounts of Lotus Pacific, Inc.; its 87.3% owned
subsidiary, Regent Electronics Corp.; and its
wholly owned subsidiary, LPF International Corp.
The 12.7% non-owned portion of Regent Electronics
Corp. appear as minority interest in subsidiary
on the balance sheet in accordance with generally
accepted accounting principles. All intercompany
transactions have been eliminated in consolidation.
Cash and Cash Equivalents:
For purposes of reporting cash flows, the
Company considers all cash accounts that are
not subject to withdrawal restrictions or penalties
to be cash or cash equivalents.
Accounts Receivable:
The allowance for doubtful accounts is based
on management's evaluation of outstanding
accounts receivable at the end of the year.
No allowance for doubtful accounts has been
provided, since management believes all
accounts are collectable.
LOTUS PACIFIC, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1998 AND 1997
Equipment and Depreciation:
Property and equipment are stated at cost.
Depreciation is calculated using the straight-line
method over their estimated useful lives from 3
to 40 years. Depreciation expense for the
years ended June 30, 1998 and 1997 was $321,896
and $26,623, respectively.
Intangible Asset:
Intangible asset consists of the acquisition
of patents by the Company in June 1997. The
patents are carried at cost and amortized over
the useful life of 17 years.
Research and Development:
Research and development costs consist of
expenditures incurred by the Company during
the course of planned search and investigation
aimed at the discovery of new knowledge that will
be used to develop and improve its Internet access
product. The Company expenses all such research
and development costs as they are incurred.
Income Taxes:
Income taxes are provided for the tax effects of
transactions reported in the financial statements
and consist of taxes currently due plus deferred
taxes related primarily to differences between the
basis of balance sheet items for financial and
income tax reporting. There is no difference
between the basis for financial and income reporting.
Investment in Unconsolidated Subsidiary:
The Company recorded its investment in Richtime
Far East, Ltd. (a Hong Kong company) at cost.
Use of Estimates:
The preparation of financial statements in conformity
with generally accepted accounting principles
requires management to make estimates and assumptions
that affect certain reported amounts and disclosures.
Accordingly, actual results could differ from
those estimates.
Concentration of Credit Risk:
The Company occasionally maintains deposits in
excess of federally insured limits. The risk is
managed by maintaining all deposits in high
quality financial institutions.
LOTUS PACIFIC, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1998 AND 1997
Earnings Per Share:
Primary earnings per share are computed by dividing
net income (loss) by the weighted average number of
shares of common stock and equivalent number of
common shares of convertible preferred stock. Fully
diluted earnings per share reflect the dilutuive
effect of stock options and warrants. For the year
ended June 30, 1998, the computation of fully
diluted loss per share was antidilutive; therefore,
the amounts reported for primary and fully dilutive
loss per share were the same.
3. Loans Payable:
Represents money deposited with the Company in
June 1998 from a potential investor who has
requested their money back. The $120,000 was
refunded to them in July 1998.
4. Issuance of Stock:
During the year ended June 30, 1998, the Company
issued an aggregate of 6,649,750 shares of its
common stock. 536,000 shares of common stock were
issued for cash consideration of $2,072,000, 113,750
shares of common stock were issued for consulting
services, and 6,000,000 shares of common stock were
issued to purchase at book value, $1,532,042,
an additional 17% interest in Regent Electronics Corp.
During the year ended June 30, 1997, the Company
issued 13,800,000 shares of its common stock for
aggregate cash consideration of $5,310,000.
5. Acquisitions and Dispositions:
Shanghai Union Auto Bicycle Co., Ltd.:
On September 25, 1995 the Company exchanged 560,000
shares of its common stock for a seventy percent
equity interest in Shanghai Union (Shanghai Union)
Auto Bicycle Co., Ltd. in Shanghai, People's
Republic of China. At September 25, 1995 Shanghai
Union had stockholder's equity of $ 204,721, 70%
thereof was $143,305.
On June 28, 1996 the Company exchanged its
investment in Shanghai Union for 5% of the
outstanding common stock of Rightiming Electronics
Corp. (Rightiming). Rightiming was incorporated
on January 4, 1996 to design and manufacture
electronic software and other products to be
marketed in the Far East. Five percent of
Rightiming's stockholder's equity was $268,018
upon the date of acquisition. The Company
recorded its investment in Rightiming at the
value of its investment in Shanghai Union, on the
date of the exchange, $172,395. On May 6, 1997,
the Company sold its 5% interest in Rightiming
Electronics Corp. for $571,200.
LOTUS PACIFIC, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1998 AND 1997
Regent Electronics Corp.:
In April and May 1997, the Company also acquired
70% of the common stock of Regent Electronics corp.
for $5,388,000. In September 1997, the Company
purchased an additional 17% of the common stock
of Regent Electronics Corp. through the issuance
of 6,000,000 shares of common stock. Regent
Electronics Corp. was incorporated to manufacture
electronic Interest access equipment and software
to be marketed and sold in the Far East. The accounts
of Regent Electronics Corp. are consolidated with
the parents (Lotus Pacific, Inc.) accounts.
LPF International Corp.:
In February 1998, the Company acquired 100% of the
common stock of LPF International Corp. for $1,300,000.
LPF International Corp. was incorporated to be a
fashion designer and a broker in the worldwide
textile and apparel business. The accounts of LPF
International Corp. are consolidated with the
parent's (Lotus Pacific, Inc.) accounts.
Richtime Far East, Ltd.:
In April 1997, the Company acquired 100% of the
stock of Richtime Far East, Ltd. (a Hong Kong
corporation) for monetary consideration of $600,000.
he management of Lotus Pacific, Inc. has limited
operational input upon the operations of Richtime
Far East, Ltd. and carries the investment at cost.
Richtime Far East, Ltd. is not consolidated with
Lotus Pacific, Inc. in accordance with generally
accepted accounting principles.
Pertinent financial information for Richtime Far East,
Ltd. is as follows:
1998 1997
Unaudited Unaudited
Sales $5,699,495 $1,990,480
Gross Profit $587,095 $213,717
Net Income $475,725 $177,742
6. Income Taxes:
Income taxes for years ended June 30, 1998 and 1997
consisted of the following:
1998 1997
Current:
Federal $(61,917) $92,120
State (18,797) 31,722
$(80,714) $123,842
LOTUS PACIFIC, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1998 AND 1997
7. Financial Instrument:
Cash accounts are secured by the Federal Deposit
Insurance Corporation up to $100,000. At June 30,
1998 and June 30, 1997, the uninsured balance was
$2.743,480 and $56,199 respectively.
Capital Stock:
Common stock - $.001 par value, 6,000,000 shares
authorized, 47,387,644 and 40,737,894 shares issued
and outstanding in 1998 and 1997, respectively.
Preferred stock, Series A - $.001 par value,
100,000 shares authorized, 4,300 shares issued
and outstanding in 1998 and 1997.
Common stock warrants - 8,000,000 warrants
issued and outstanding. Each warrant entitled
the holder to purchase one share of the Company's
common stock at $3.00 per share. Warrants expire
May 5, 2002. As of June 30, 1998, no warrants
have been exercised.
Significant customers:
For the year ended June 30, 1998, the Company had
four customers with billings in excess of 10% of
total revenues. These two customers accounted
for approximately 70% of total revenues.
LOTUS PACIFIC, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1998 AND 1997
10. Condensed Financial Statements for Regent
Electronics Corp. at June 30, 1998 and 1997:
BALANCE SHEET
ASSETS
1998 1997
Current assets $7,232,436 $205,035
Property and equipment 1,281,029 1,564,334
Other assets 5,461,930 5,783,220
$13,975,395 $7,552,589
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities $2,134,683 $38,539
Stockholders' deficit:
Common stock 26,000 26,000
Preferred stock 1,500
Stock warrants 1,500
Additional paid-in capital 13,760,500 7,762,000
Accumulated deficit (1,948,788) (273,950)
11,840,712 7,514,050
$13,975,395 $7,552,589
STATEMENT OF OPERATIONS
Sales $6,155,000
Cost of sales (3,408,500)
Interest income 30,535 $2,563
Royalty income 1,800,000
Operating costs and expenses (6,251,873) (276,513)
Net Loss $(1,674,838) $(273,950)
STATEMENT OF CASH FLOWS
Cash flows used in operating activities
$(3,914,716) $(235,411)
Cash flows used in investing activities
(38,083) (7,347,554)
Cash flows from financing activities
6,436,500 7,788,000
Net increase in cash $2,483,701 $205,035
LOTUS PACIFIC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1998 AND 1997
10. Condensed Financial Statements for LPF
International Corp. at June 30, 1998:
BALANCE SHEET
ASSETS
Current assets $1,435,933
Property and equipment 75,603
Other assets 50,617
$1,562,153
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities $171,962
Stockholders' deficit:
Common stock 1,300,000
Retained earnings 90,191
1,390,191
$1,562,153
STATEMENT OF OPERATIONS
Sales $4,843,940
Cost of sales (4,580,823)
Interest income 67
Operating costs and expenses (172,993)
Net income $90,191
STATEMENT OF CASH FLOWS
Cash flows used in operating activities $(984,919)
Cash flows used in investing activities (75,603)
Cash flows from financing activities 1,300,000
Net increase in cash $239,578
Signatures
Pursuant to the requirements of Section 12 of the
Securities Exchange Act of 1934, the registrant
had duly caused this registration statement to
be signed on its behalf by the undersigned,
thereto duly authorized.
Date: September 29, 1998
Lotus Pacific, Inc.
/S/ James Yao
James Yao, Chairman & President
Pursuant to the requirements of the Securities
Exchange Act 1934, this report has been signed
below by the following persons on behalf of the
registrants and in capacities and on the dates indicated.
/S/ David Leung, Director & Vice President
/S/ James Liu, Director & Vice President
/S/ Jeremy Wang, Director
/S/ Simon Gu, Director
/S/ Gary Huang, Secretary, Treasurer & Director
Exhibits 3.1
CERTIFICATE OF AMENDMENT
OF CERTIFICATE OF INCORPORATION
OF LOTUS PACIFIC, INC.
LOTUS PACIFIC, INC., a corporation organized and
existing under and by virtue of the General Corporation
Law of the State of Delaware, DOES HEREBY CERTIFY:
FIRST: That the Board of Directors of said
corporation at a meeting only convened and held,
adopted the following resolution:
RESOLVED that the Board of Directors hereby
declared it advisable and in the best interest of
the Company that Article Fourth of the Certificate
of Incorporation be amended to read as follows:
FOURTH: The total number of shares of stock which
this Corporation is authorized to issue is:
Sixty Million (60,000,000) shares of Common Stock
with a par value of One Mil ($.001) per share, One
Hundred Thousand (100,000) shares of Preferred Stock
with a par value of One Mil ($.001) per share and Four
Thousand Three Hundred (4,300) shares of Preferred
Class A Stock with a par value of One Mil ($.001) per share.
SECOND: That the said amendment has been consented
to and authorized by the holders of a majority of the
issued and outstanding stock entitled to vote by
written consent given in accordance with the previsions
of Section 228 of the General Corporation law of the
State of Delaware.
THIRD: That the aforesaid amendment was duly adopted
in accordance with the applicable provisions of Sections
242 and 228 of the General Corporation Law of the
State of Delaware.
IN WITNESS WHEREOF, said corporation has caused this
Certificate to be signed by James Yao this fifteenth
day of June A.D. 1998.
/S/ James Yao
____________________________
James Yao, President & Chairman
Exhibit 3.2
BYLAWS
OF
LOTUS PACIFIC, INC.
(a Delaware corporation)
ARTICLE I
OFFICES
The principal office of the Corporation shall be
located in 200 Centennial Avenue, Suite 201,
Piscataway, NJ 08854. The Corporation may have
such other offices, either within or without the
State New Jersey, as the Board of Directors may
designate or as the business of the Corporation
may require from time to time.
ARTICLE II
SHAREHOLDERS
SECTION 1. Annual Meeting. The annual meeting of the
shareholders shall be held on the second day in the
month of December in each year, beginning with the
year 1998, at the hour of 2 p.m., for the purpose of
electing Directors and for the transaction of such
other business as may come before the meeting. If the
election of Directors shall not be held on the day
designated herein for any annual meeting of the
shareholders, or at any adjournment thereof, the Board
of Directors shall cause the election to be held at
a special meeting of the shareholders as soon as
thereafter as conveniently may be.
SECTION 2. Special Meeting. Special meeting of the
shareholders, for any purpose or purposes, unless
otherwise prescribed by statute, may be called by the
President or by the Board of Directors, and shall be
called by the President at the request of the holders
of not less than fifty one percent ( 51%) of all the
outstanding share of the Corporation entitled to vote
at the meeting.
SECTION 3. Place of Meeting. The Board of Directors
may designate any place, either within or without the
State of New Jersey, unless otherwise prescribed by
statute, as the place of meeting for any annual
meeting or for any special meeting. A waiver of
notice signed by all shareholders entitled to vote
at a meeting may designate any place, either within
or without the State of New Jersey, unless otherwise
prescribed by statute, as the place for the holding
of such meeting. If no designation is made, the
place of meeting shall be the principal office of
the Corporation.
SECTION 4. Notice of Meeting. Written notice stating,
day and hour of the meeting and, in case of a special '
meeting, the purpose or purposes for which the meeting
is called, shall unless otherwise prescribed by statute,
be delivered not less than 10 days, nor more than 60
days before the date of the meeting, to each shareholder
of record entitled to vote at such meeting. If mailed,
such notice shall be deemed to be delivered when deposited
in the United States, addresses to the shareholder at
his address as it appears on the stock transfer books
of the Corporation, with postage thereon prepaid.
SECTION 5. Waiver of Notice. Notice need not be given
to any stockholder who submits a written waiver of
notice signed by him before or after the time stated
therein. Attendance of a stockholder at a meeting of
stockholders shall constitute a waiver of notice of
such meeting, except when the stockholder attends
the meeting for the express purpose of objecting, at
the beginning of the meeting, to the transaction of
any business because the meeting is not lawfully called
or convened. Neither the business to be transacted at,
nor the purpose of, any regular or special meeting of
the stockholders need be specified in any written
waiver of notice.
SECTION 6. Closing of Transfer Books or Fixing of
Record. For the purpose of determining shareholders
entitled to notice of or to vote at any meeting of
shareholders or any adjournment thereof, or shareholders
entitled to receive payment of any dividend , or in
order to make a determination of shareholders for any
other proper purpose, the Board of Directors of the
Corporation may provide that the stock transfer books
shall be closed for a stated period, but not to exceed
in any case fifty (50) days. If the stock transfer books
shall be closed for the purpose of determining shareholders
entitled to notice of or to vote at a meeting of
shareholders, such books shall be closed for at least
21 days immediately preceding such meeting. In lieu of
closing the stock transfer books, the Board of Directors
may fix in advance a date as the record date for any
such determination of shareholders, such date in any
case to be not more than 50 days and, in case of a
meeting of shareholders, not less than 30 days, prior
to the date on which the particular action requiring such
determination of shareholders is to be taken. If the stock
transfer books are not closed and no record date is fixed
for the determination of shareholders entitled to notice
or to vote at a meeting of shareholders, or shareholders
entitled to receive payment of a dividend, the date on
which notice of the meeting is mailed or the date on
which the resolution of the Board of Directors declaring
such dividend is adopted, as the case may be, shall be
the record date for such determination of shareholders.
When a determination of shareholders entitled to vote
at any meeting of shareholders has been made as provided
in this section, such determination shall apply to any
adjournment thereof.
SECTION 7. Stockholder List. The officer or agent
having charge of the stock transfer books for shares
of the corporation shall make a complete list of the
shareholders entitled to vote at each meeting of
shareholders or any adjournment thereof, arranged in
alphabetical order, with the address of and the number
of shares held by each. Such list shall be produced
and kept open at the time and place of the meeting
and shall be subject to the inspection of any shareholder
during the whole time of the meeting for the purposes thereof.
The stock ledger shall be the only evidence as to who
are the stockholders entitled to examine the stock ledger,
the list required by this section or the books of the
Corporation, or to vote at any meeting of stockholders.
SECTION 8. Conduct of Meeting. Meetings of the
stockholders shall be presided over by one of the
following officers in the order of seniority and if
present and acting, the Chairman of the Board, if any,
the Vice Chairman of the Board, if any, the President,
a Vice President, or if none of the foregoing is in officer
and present and acting, by a chairman to be chosen by the
stockholders. The Secretary of the Corporation shall
act as secretary of every meeting, but if the Secretary
is not present, the Chairman of the meeting shall
appoint a secretary of the meeting.
SECTION 9. Quorum. A majority of the outstanding shares
of the Corporation entitled to vote, represented in
person or by proxy, shall constitute a quorum at a meeting
of shareholders. If less than a majority of the
outstanding shares are represented at a meeting, a majority
of the shares so represented may adjourn the meeting from
time to time without further notice. At such adjourned meeting
at which a quorum shall be present or represented, any
business may be transacted which might have been transacted
at the meeting as originally noticed. The shareholders
present at a duly organized meeting may continue to
transact business until adjournment, notwithstanding the
withdrawal of enough shareholders to leave less than a quorum.
SECTION 10. Proxy Representation. Every stockholder
may authorize another person or persons to act for him
by proxy in all matters in which a stockholder is
entitled to participate, whether by waiving notice of
any meeting, voting or participating at a meeting, or
expressing consent or dissent without a meeting.
Every proxy must be signed by the stockholder or by his
attorney-in-fact. NO proxy shall be voted or acted
upon after three years from its date unless such proxy
provides for a longer period. A duly executed proxy
shall be irrevocable if it states that it is irrevocable
and, if, and only as long as, it is coupled with an
interest sufficient in law to support an irrevocable
power. A proxy may be made irrevocable regardless of
whether the interest with which it is coupled is an
interest in the stock itself or an interest in the
Corporation generally. Such proxy shall be filed with
the Secretary of the Corporation before or at the time
of the meeting.
A meeting of the Board of Directors may be had by
means of a telephone conference or similar communications
equipment by which all persons participating in the
meeting can hear each other, and participation in a
meeting under such circumstances shall constitute
presence at the meeting.
SECTION 11. Voting of Shares. Each outstanding share
entitled to vote shall be entitled to one upon each
matter submitted to a vote at a meeting of shareholders.
Directors shall be elected by a plurality of the
votes of the shares present in person or represented
by proxy at the meeting and entitled to vote on the
election of directors. Any other action shall be
authorized by a majority of the votes cast except
where the General Corporation Law prescribes a different
percentage of votes and/or a different exercise of
voting power, and except as may be otherwise prescribed
by the provisions of the certificate of incorporation
and these Bylaws. In the election of directors, and
for any other action, voting need not be ballot.
SECTION 12. Voting of Shares by Certain Holders.
Shares standing in the name of another corporation
may be voted by such officer, agent or proxy as the
Bylaws of such corporation may prescribe or, in the
absence of such provision, as the Board of Directors
of such corporation may determine.
Shares held by an administrator, executor, guardian or
conservator may be voted by him either in person or
by proxy, without a transfer of such shares into his
name. Shares standing in the name of a trustee may be
voted by him, either in person or by proxy, but no
trustee shall be entitled to vote shares held by him
without a transfer of such shares into his name.
Shares standing in the name of a receiver may be
voted by such receiver, and shares held by or under
the control of a receiver may be voted by such
receiver without the transfer thereof into his name,
if authority to do so be contained in an appropriate
order of the court by which such receiver was appointed.
A shareholder whose shares are pledged shall be
entitled to vote such shares until the shares have
been transferred into the name of the pledge, and
thereafter the pledge shall be entitled to vote
the shares so transferred.
Shares of its own stock belonging to the
Corporation shall not be voted directly or
indirectly, at any meeting, and shall not be
counted in determining the total number of
outstanding shares at any given time.
SECTION 13. Stockholder Action without Meeting.
Any action required to be taken at a meeting of the
shareholders, or any other action which may be taken
at a meeting of the shareholders, may be taken without
a meeting, without prior notice and without a vote,
upon the written consent of not less than fifty one
percent (51%) of the shareholders who would have
been entitled to cast their votes to authorize the
action at a meeting at which all shareholders
entitled to vote thereon were present and voting.
ARTICLE III
BOARD OF DIRECTORS
SECTION 1. General Powers. The business and affairs
of the Corporation shall be managed by or under the
direction of the Board of Directors of the Corporation.
The Board of Directors shall have the authority to
fix the compensation of the members thereof. The use
of the phrase whole board' herein refers to the total
number of directors which the Corporation would have
if there were no vacancies.
SECTION 2. Qualifications and Number. A director
need not to be stockholder or a citizen of the United
States. The initial Board of Directors shall consist
of two( 2 ) persons. Thereafter the number of directors
constituting the whole board shall be at least one.
Subject to the foregoing limitation and except for the
first Board of Directors, such number may be fixed
from time to time by action of the stockholders or
of the directors. The number of directors may be
increased or decreased by action of the shareholders
or of the directors.
SECTION 3. Election and Term. The first Board of Directors,
unless the members thereof shall have been named in the
certificate of incorporation, shall be elected by the
incorporator or incorporators and shall hold office
until the first annual meeting of stockholders and
until their successor are elected and qualified or
until their earlier resignation or removal. Any
director may resign at any time upon written notice to
the Corporation. Thereafter, directors who are elected
at an annual meeting of stockholders, and directors
who are elected in the interim to fill vacancies and newly
created directorships, shall hold office until the next
annual meeting of stockholders and until their successors
are elected and qualified or until their earlier
resignation or removal. Except as the General Corporation
Law may otherwise require, in the interim between annual
meetings of shareholders or of special meetings of
shareholders called for the election of directors and/or
for the removal of one or more directors and for the
filling of any vacancy in that connection, newly created
directorships and any vacancies in the Board of Directors,
including unfilled vacancies resulting from the removal
of directors for cause or without cause, may be filled by
the vote of a majority of the remaining directors then in
office, although less than a quorum, or by the sole
remaining director.
SECTION 4. Regular Meeting. A regular meeting of the
Board of Directors shall be held without other notice
than this Bylaw immediately after, and at the same
place as, the annual meeting of shareholders. The Board
of Directors may provide, by resolutions, the time and
place for the holding of additional regular meetings
without notice other than such resolution.
SECTION 5. Special Meetings. Special meetings of the
Board of Directors may be called by or at the request
of the President or any two directors. The person or
persons authorized to call special meetings of the
Board of Directors may fix the place for holding any
special meeting of the Board of Directors called by them.
SECTION 6. Notice or Constructive Waiver. No notice
shall be required for regular meetings for which the
time and place have been fixed. Written, oral, or any
other mode of notice of the time and place shall be
given for special meetings in sufficient time for the
convenient assembly of the directors thereat. Notice
need not be given to any director who submits a
written waiver of notice signed by him before or after
the time stated therein. Attendance of any such
person at a meeting shall constitute a waiver of
notice of such meeting, except when he attends a meeting
for the express purpose of objecting, at the beginning
of the meeting, to the transaction of any business
because the meeting is not lawfully called or convened.
Neither the business to be transacted at, nor the
purpose of, any regular or special meeting of the
directors need be specified in any written waiver
of notice.
SECTION 7. Quorum. A majority of the whole Board
shall constitute a quorum for the transaction of
business at any meeting of the Board of Directors,
but if less than such majority is present at a
meeting, a majority of the directors present may
adjourn the meeting from time to time without
further notice.
Any member or members of the Board of Directors
or of any committee designated by the Board, may
participate in a meeting of the Board, or any
such committee, as the case may be, by means of
conference telephone or similar communications
equipment by means of which all persons participating
in the meeting can hear each other.
SECTION 8. Manner of Acting. The act of the
majority of the directors present at a meeting
at which a quorum is present shall be act of the Board of Directors.
SECTION 9. Action Without a Meeting. Any action
that may be taken by the Board of Directors at a
meeting may be taken without a meeting if a consent
in writing, setting forth the action so to be
taken, shall be signed before such action by all
the directors.
SECTION 10. Compensation. By resolution of the
Board of Directors, each director may be paid his
expenses, if any, of attendance at each meeting
of the Board of Directors, and may be paid a stated
salary as a director or a fixed sum for attendance
at each meeting of the Board of Directors or both.
No such payment shall preclude any director from
serving the Corporation in any other capacity and
receiving compensation therefor.
SECTION 11. Presumption of Assent. A director
of the Corporation who is present at a meeting
of the Board of Directors at which action on
any corporate matter is taken shall be presumed
to have assented to the action taken unless his
dissent shall be entered in the minutes of the
meeting or unless he shall file his written dissent
to such action with the person acting the Secretary
of the meeting before the adjournment thereof, or
shall forward such dissent by registered mail to
the Secretary of the Corporation immediately after
the adjournment of the meeting. Such right to dissent
shall not apply to a director who vote in favor of
such action.
SECTION 12. Removal of Directors. Except as may
otherwise be provided by the General Corporation
Law, any director or the entire Board of Directors
may be removed, with or without cause, by the
holders of a majority of the shares then entitled
to vote at an election of directors.
SECTION 13. Committees. The Board of Directors may,
by resolution passed by a majority of the whole Board,
designate one or more committees, each committee to
consist of one or more of directors of the Corporation.
The Board may designate one or more directors as
alternate members of any committee, who may replace
any absent or disqualified member at any meeting of
the committee. Any such committee, to the extent
provided in the resolution of the Board, shall have
and may exercise the powers and authority of the
Board of Directors in the management of the business
and affairs of the Corporation with the exception of
any authority the delegation of which is prohibited
by Section 141 of the General Corporation Law, and
may authorize the seal of the Corporation to be
affixed to all papers which may require it.
ARTICLE IV
OFFICERS
SECTION 1. Number. The officers of the Corporation
shall consist of a President, a Secretary, a Chief
Financial Officer or Treasurer, and, if deemed necessary,
expedient, or desirable by the Board of Directors, a
Chairman of the Board, a Vice-Chairman of the Board,
one or more vice-president, each of whom shall be
elected by the Board of Directors. Such other
officers with such titles as the resolution of
the Board of Directors choosing them shall designate.
Except as may otherwise be provided in the
resolution of the Board of Directors choosing him,
no officer other than the Chairman or Vice-Chairman
of the Board, if any, need be a director.
Any two or more offices may be held by the same
person, as the directors may determine, except for
the offices of President and Secretary which may not
held by the same person. Officers may be directors
or shareholders of the Corporation.. Unless otherwise
provided in the resolution choosing him, each officer
shall be chose for a term which shall continue the
meeting of the Board of Directors following the next
annual meeting of stockholders and until his
successor shall have been chosen and qualified.
SECTION 2. Election and Term of Office. The officers
of the Corporation to be elected by the Board of
Directors shall be elected annually by the Board of
Directors at the first meeting of the Board of
Directors held after each annual meeting of the
shareholders. If the election of officers shall not
be held at such meeting, such election shall be held
as soon thereafter as conveniently may be. Each officer
shall hold office until his successor shall have been
duly elected and shall have qualified, or until he hall
resign or shall have been removed in the manner
hereinafter provided.
SECTION 3. Removal. Any officer or agent may be removed
by the Board of Directors whenever, in its judgment,
the best interests of the Corporation will be served
thereby, but such removal shall be without prejudice
to the contract rights, if any, of the person so removed.
Election or appointment of an officer or agent shall not
of itself create contract rights, and such appointment
shall be terminable at will.
SECTION 4. Vacancies. A vacancy in any office because
of resignation, removal, disqualification or otherwise,
may be filled by the Board of Directors for the
unexpired portion of term.
SECTION 5. President. The President shall be the
principal executive officer of the Corporation and,
subject to the control of the Board of Directors,
shall in general supervise and control all of the
business and affairs of the Corporation. He shall,
when present, preside at all meetings of the shareholders
and of the Board of Directors, unless there is a
Chairman of the Board, in which case the Chairman
shall preside. He may sign, with the Secretary or
any other proper officer of the Corporation thereunto
authorized by the Board of Directors, certificate for
shares of the Corporation, any deeds, mortgages,
bonds, contracts, or other instruments which the
Board of Directors has authorized to be executed,
except in case where the signing and execution thereof
shall be expressly delegated by the Board of Directors
or by these Bylaws to some other officer or agent of
the Corporation, or shall be required by law to be
otherwise signed or executed; and in general shall
perform all duties incident to the office of
President and such other duties as may be prescribed
by the Board of Directors from time to time.
SECTION 6. Vice President. In the absence of
the President or in event of his inability or
refusal to act, the Vice President shall perform
the duties of the President, and when so acting,
shall have all the powers of and be subject to all
the restrictions upon the President. The vice president
shall perform such other duties as from time to time
may be assigned to him by the President or by the
Board of Directors. If there is more than one Vice
President, each Vice President shall succeed to the
duties of the President in order of rank as determined
by the Board of Directors. If no such rank has been
determined, then each Vice President shall succeed to
the duties of the President in order of date of election,
the earliest date having the first rank.
SECTION 7. Secretary. The Secretary shall (a) keep
the minutes of the proceedings of the shareholders
and of the Board of Directors in one or more minute
ooks provided for that purpose; (b) see that all
notices are duly given in accordance with the provisions
of these Bylaws or as required by law; (c) be custodian
of the Corporation records and of the seal of the
Corporation and see that the seal of the Corporation
is affixed to all documents, the execution of which
on behalf of the Corporation under its seal is duly
authorized; (d) keep a register of the post office
address of each shareholder which shall be furnished
to the Secretary by such shareholder; (e) sign
with the President certificates for shares of the
Corporation, the issuance of which shall have been
authorized by resolution of the Board of Directors;
(f) have general charge of the stock transfer books
of the Corporation; and (g) in general perform all
duties incident to the office of the Secretary and
such other duties as from time to time may be assigned
to him by the President or by the Board of Directors.
SECTION 8. Chief Financial Officer or Treasurer. The
Chief Financial Officer or Treasurer shall: (a) have
charge and custody of and be responsible for all funds
and securities of the Corporation; (b) receive and give
receipts for moneys due and payable to the Corporation
from any source whatever, and deposit all such moneys in
the name of the Corporation in such banks, trust companies
or other depositories as shall be selected in accordance
with the provisions of Article VI of these Bylaws; and (c)
in general perform all of the duties incident to the office
of Treasurer and such other duties as from time to time by
the President or by the Board of Directors. If required by
the Board of Directors, the Chief Financial Officer or
Treasurer shall give a bond for the faithful discharge of
his duties in such sum and with such sureties as the Board
of Directors shall determine.
SECTION 9. Salaries. The salaries of the officers shall be
fixed from time to time by the Board of Directors, and no
officer shall be prevented from receiving such salary by
reason of the fact that he is also a director of the Corporation.
ARTICLE V
INDEMNITY
The Corporation shall indemnify its directors, officers
and employees as follows:
(a) Every director, officer, or employee of the
Corporation shall be indemnified by the Corporation
against all expresses and liabilities, including
counsel fees, reasonably incurred by or imposed upon
him in connection with any proceeding to which he
may become involved, by reason of his being or having
been a director, officer, employee or agent of the
Corporation or is or was serving at the request of the
Corporation as a director, officer, employee or agent
of the Corporation, partnership, joint venture, trust
or enterprise, or any settlement thereof, whether or
not he is a director, officer, employee or agent at
the time such expenses are incurred, except in such
cases wherein the director, officer, or employee is
adjudged guilty of willful misfeasance or malfeasance
in the performance of his duties; provided that in the
event of a settlement the indemnification herein shall
apply only when the Board of Directors approves such
settlement and reimbursement as being for the best
interests of the Corporation.
(b) The Corporation shall provide to any person who
is or was a director, officer, employee, or agent of
the Corporation or is or was serving at the request
of the Corporation as a director, officer, employee
or agent of the Corporation, partnership, joint venture,
trust or enterprise, the indemnity against expenses of
suit, litigation or other proceedings which is specifically
permissible under applicable law.
(c) The Board of Directors may, in its discretion,
direct the purchase of liability insurance by way of
implementing the provisions of this Article V.
ARTICLE VI
CERTIFICATES FOR SHARES AND THEIR TRANSFER
SECTION 1. Certificates for Shares. Certificates
representing shares of the Corporation shall be in
such form as shall be determined by the Board of
Directors. Such certificates shall be signed by
the President and by the Secretary or by such
other officers authorized by law and by the Board
of Directors so to do, and sealed with the
corporate seal. The name and address of the
person to whom the shares represented thereby
are issued, with the number of shares and date
of issue, shall be entered on the stock transfer
books of the Corporation. All certificates
surrendered to the Corporation for transfer
shall be canceled and no new certificate shall
be issued until the former certificate for
those shares shall have been surrendered and canceled,
except that in case of a lost, destroyed or
mutilated certificate a new one may be issued
therefore upon such terms and indemnity to the
Corporation as the Board of Directors may prescribe.
SECTION 2. Uncertificated Shares. Subject to any
conditions imposed by the General Corporation Law,
the Board of Directors of the Corporation may
provided by resolution or resolutions that some or
all of any or all classes or series of the stock of
the Corporation shall be uncertificated shares.
Within a reasonable time after the issuance or transfer
of any uncertificated shares, the Corporation shall
send to the registered owner thereof written notice
prescribed by the General Corporation Law.
SECTION 3. Transfer of Shares. Transfer of shares
of the Corporation shall be made only on the stock
transfer books of the Corporation by the holder of
record thereof or by his legal representative, who
shall furnish proper evidence of authority to transfer,
or by his attorney thereunto authorized by power of
attorney duly executed and filed with the Secretary
of the Corporation, and on surrender for cancellation
of the certification for such shares. The person in
whose name shares stand on the books of the Corporation
shall be deemed by the corporation to be the owner
thereof for all purposes.
ARTICLE VIII
FISCAL YEAR
The fiscal year of the Corporation shall begin on
the first day of July and end on the 30th day of
June of each year.
ARTICLE IX
CORPORATE SEAL
The Board of Directors shall provide a corporate
seal which shall be circular in form and shall have
inscribed thereon the name of the Corporation and
the state of incorporation and the words, Corporate Seal.
ARTICLE X
WAIVER OF NOTICE
Unless otherwise provided by law, whenever any
notice is required to be given to any shareholder
or director of the Corporation under the provisions
of these Bylaws or under the provisions of the
Article of Incorporation or under the provisions
of the applicable Business Corporation Act, a
waiver thereof in writing, signed by the person
or persons entitled to such notice, whether before
or after the time stated therein, shall be deemed
equivalent to the giving of such notice.
ARTICLE XI
AMENDMENTS
These Bylaws may be altered, amended or repealed
and new Bylaws may be adopted by the Board of Directors
at any regular or special meeting of the Board
of Directors.
The above Bylaws are certified to have been adopted
by the Board of Directors of the Corporation on the
twenty fifth day of June, 1998.
___________________________
Corporate Secretary
