FORM 10
GENERAL FORM FOR REGISTRATION OF SECURITIES
PURSUANT TO SECTION 12 (b) OR (g) OF
THE SECURITIES EXCHANGE ACT OF 1934
LOTUS PACIFIC, INC.
(Exact name of registrant as specified in its charter)
Delaware
(State of Incorporation)
52-1947160
(I.R.S. Employer Identification Number)
200 Centennial Avenue, Suite 201, Piscataway, NJ 08854
(Address of Principal Executive Offices)
(732) 885-1750
(Registrant's Telephone Number, Including Area Code)
Securities to be Registered Pursuant to Section 12(b) of the Act:
Title of each class to be registered
NONE
Name of each exchange on each class is to be registered
NOT APPLICABLE
Securities to be Registered Pursuant to Section 12(g)(1) of the Act:
COMMON STOCK, $.001 PAR VALUE PER SHARE
(Title of Class)
LOTUS PACIFIC, INC.
FORM 10
INDEX
1. Business
2. Financial Information
3. Properties
4. Security Ownership of Certain Beneficial Owners and Management
5. Directors and Executive Officers
6. Executive Compensation
7. Certain Relationships and Related Transactions
8. Legal Proceedings
9. Market Price of and Dividends on the Registrant's Common Equity
Related Stockholder Matters
10. Recent Sales of Unregistered Securities
11. Description of Registrant's Securities to be Registered
12. Indemnification of Directors and Officers
13. Financial Statements and Supplementary Data
14. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure
15. Financial Statements and Exhibits
16. Signatures
ITEM 1. BUSINESS
The following discussions contain trend information and other forward-
looking statements that involve a number of risks and uncertainties.
The actual results of Lotus Pacific, Inc. (the "Company") and its
subsidiary Regent Electronics Corp. ("Regent") could differ materially
from its historical results of operations and those discussed in the
forward-looking statements. Factors that could cause actual results to
differ materially include, but are not limited to, business conditions
and growth in the multimedia electronics industry and general economies,
both domestic and international; lower than expected customer orders;
delays in receipt of orders or cancellation of orders; competitive factors,
including increased competition; new product offerings by competitors and
price pressures; the availability of parts and supplies at reasonable prices;
changing technologies; changes in product mix; new product development;
the timing of the negotiation of new contracts; significant quarterly
performance fluctuation due to the receipt of a significant portion of
customer orders and product shipments in the last month of each quarter;
and product shipment interruptions due to manufacturing problems. The
forward-looking statements should be read in light of these factors and
the factors identified in " Item 1. Business" and in "Item 2. Financial
Information--Management's Discussion and Analysis of Financial Condition
and Results of Operations." All period references are to the Company's
fiscal periods ended June 30, 1998, 1997 or 1996,unless otherwise indicated.
GENERAL
Lotus Pacific, Inc. (the "Company" or "Registrant") is a holding company
for Regent Electronics Corp. ("Regent"). The Company's Common Stock is
currently traded on OTC Bulletin Board under the symbol "LPFC".
The Company, through its subsidiary Regent, designs, engineers,develops,
provides and markets Internet-related electronics products and services
to electronics manufactures, commercial cable TV networks, and general
individual customers. Regent generates its revenues through a combination
of direct sales,under resale agreement, and distribution channels. Regent
also generates its income from granting its technology or licenses to
electronic manufacturers and commercial cable TV networks. The Company owns
87.3% of Regent's equity interest.
Using its Internet research and development capabilities,including the
TeleWeb broadcasting system, Internet 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 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 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, Regent Electronics Corp., registered in the
State of Delaware and Richtime Far East Ltd. in Hong Kong.
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 garment and textile import-export business in Hong Kong. The Company
received customer orders from Europe and North America, and contracted with
garment or textile manufacturers, mainly in China, to complete those orders.
The finished goods were then shipped 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.
In order to concentrate on its Internet related electronics products and
services, the Company entered into a Stock Purchase Agreement on September 30,
1998 with Clarinet Overseas Ltd. Under the Agreement, the Company sold all of
its ownership in LPF and Richtime, including all assets and liabilities, to
Clarinet Overseas Ltd. for an aggregation consideration of $900,000 in cash.
At the same time, the Company has taken back its capital investment and
business loan of $1.6 million in cash from LPF International Corp.
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 electronics products and services in the
foreseeable future. The Company believes that its TV-based products currently
have greater market potential than its PC-based Internet access products.
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, commercial cable TV networks or contracts
to manufacturers. The Company does not maintain manufacturing facilities.
TELEWEB SYSTEM AND WONDER-TVS
The Company's products include the 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 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 charac-
terized 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. FINANCIAL INFORMATION
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data presented below under the captions
"Consolidated Statements of Operations Data" and "Consolidated Balance Sheet
Data" are derived from the consolidated financial statements of the Company and
its subsidiaries, which financial statements have been audited by Schiffman
Hughes Brown (fiscal 1998, 1997 and 1996), independent public accountants, to
the extent indicated in their report included elsewhere herein.
The selected consolidated financial data set forth below is qualified in its
entirety by, and should be read in conjunction with, "Management's Discussion
and Analysis of Financial Condition and Results of Operations," the Consolidated
Financial Statements, the notes thereto and the other financial information
included elsewhere in this report.
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 expenses ........ 3,436 310 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
Consolidated Balance Sheet Data:
Cash and cash equivalents ... 3,193 269 213
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
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 Conso-
lidated 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
TV 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 TeleWeb
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 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 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 infor-
mation. 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 deve-
lopment expenses was primarily a result of developing the TeleWeb broad-
casting 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, although 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 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.
Income Taxes. The Company had no income taxes 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.
As of 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
the 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 the 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 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 costs. 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.
ITEM 3. PROPERITIES
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 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
Middlesex Annual June 5, 1998 Renewable
New Jersey Renewable
Overseas, Regent maintains a technical support and sales
office space in Shanghai, China.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets forth certain information known
by the Company regarding the beneficial ownership of Common
Stock by institutional investors or persons owning beneficially
more than 5% of the outstanding Common Stock as of September
30, 1998. A total of 47,386,804 shares of the Company's
Common Stock and 4,300 shares of Series A Preferred Stock
were issued and outstanding as of September 30, 1998.
NO. OF SHARES
BENEFICIALLY PERCENT
NAME OF BENEFICIAL OWNER OWNED OF CLASS (1)
Lotus International Holdings Corp. 8,286,670 15.7%
Yao Investment Corp. 8,000,000 14.2%
Rightiming Electronics Corp. 6,000,000 10.6%
Evolving Investments Ltd. 3,100,000 5.5%
----------------------------------------------
(1) The percentages indicated are based on the Company's
outstanding Stock Options and Warrants exercisable as of
September 30, 1998 and 47,386,804 shares of Common Stock
issued and outstanding as of September 30, 1998.
All issued and outstanding 4,300 shares of Preferred Class
A Stock of the Company are owned by Lotus International
Holdings Corp., and each share of Preferred Class A
Stock has one vote.
None of the Company's officers and directors owns shares
individually, except stock options. See Item 6.
"Executive Compensation".
James Yao, President of the Company and James Liu,
Vice President of the Company, serve on the Board of Directors
of Lotus International Holdings Corp. and are major
shareholders of that entity. James Yao owns Yao Investment Corp.
In addition to the shares of Common Stock and Series A
Preferred Stock issued and outstanding, the Company also
issued 1,090,000 shares of Stock Option in May 1997 to
certain Directors and officers of the Company as part of
the Company's compensation plan. All options are exercisable
at $6.00 per share and will expire on May 15 and May 30,
2002, respectively.
The following table sets forth certain information known to
the Company with respect to the beneficial ownership of the
Company's Common Stock Option as of June 30, 1998. A total
of 1,090,000 shares of Common Stock Options were issued
and outstanding as of June 30, 1998.
BENEFICIAL OWNERS NO. OF SHARES
James Yao,Chairman & President 180,000
David Leung,Vice President & Director 500,000
James Liu,Vice President & Director 180,000
Jeremy Wang,Director 180,000
Cheng Wang, former Director 50,000
In May 1997, the Company issued 8,000,000 shares of redeemable
Common Stock Warrants to Evolving Investments Ltd. Each share
of the warrants entitles the holder to purchase a share of
the Company's Common Stock at $3.00 per share, void
after May 5, 2002.
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 5. DIRECTORS AND EXECUTIVE OFFICERS
The Company's directors, executive officers and their
respective ages and positions as of September 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 Chief Financial Officer,
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.
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 from Kean College of New Jersey.
GARY HUANG has been Treasurer and Secretary of the Company since
January 1997 and Chief Financial Officer since July 1998. 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 Messrs. 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 Messrs. 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-K.
ITEM 6. EXECUTIVE COMPENSATION
The following Summary Compensation Table sets forth information
concerning the total compensation of the Company's executive
officers for services rendered in all capacities to the
Company as of September 30, 1998:
Names of Annual Salaries Other
Officers As of Sept. 30, 1998 Stock Options Compensations
James Yao $68,000 None (Note 1) None
President & Chairman of the Board
David Leung $68,000 None (Note 1) None
Vice President & Director
James Liu $0 None (Note 1) None
Vice President & Director
Gary Huang $50,000 None None
Chief Financial Officer, Secretary & Director
- -------------------------------------------
Note 1: No stock options were granted in fiscal 1998
to the Company's 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 expire on
May 15 and May 30, 2002, respectively. As of September 30,
1998, no stock options were exercised.
ITEM 7. 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 owns Yao Investment Corp.
ITEM 8. 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 9. MARKET PRICE AND DIVIDEND ON THE REGISTRANT'S COMMON
EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock, par value $0.001, has been traded
on the 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 following table sets forth the high and low closing prices
of the Company's Common Stock as reported on the OTC from January
1997 through September 30, 1998. These price quotations reflect
inter-dealer 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
September 30, 1998 $11.50 $8.50
NUMBER OF REGISTERED HOLDERS
The number of registered holders of the Company's Common Stock
as of September 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.
ITEM 10 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 institutional and accredited
individual investors as defined by Item 501 of Regulation D of
the Securities and Exchange Commission (the "Commission"). All
the 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 and not with the view of the distribution
thereof. Restrictive legends were placed on all the stock
certificates issued.
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. Regent also issued Stock
Warrants to H&Q for its intention to subscribe $6 million worth of
Regent's common stock shares on or before December 31, 2002. Pursuant
to the Agreement, the Regent shares held by H&Q may be converted,
subject to certain conditions, into the Common Stock shares of the
Company on or after January 1, 2000.
The Company issued 113,750 shares of its Common Stock on June 5,
1998, and 22,500 shares on August 25, 1998, to Clarinet Overseas Ltd.
for the services it rendered.
During the period of July 1, 1997 through September 30, 1998, the
Company sold 626,000 shares of the Common Stock to eleven accredited
investors for an aggregate consideration of $2,747,000.
ITEM 11. DESCRIPTION OF REGISTRANT'S SECURITIES TO BE REGISTERED
The authorized capital stock of the Company currently consists of
60,000,000 shares of Common Stock with a par value of $0.001 per share,
100,000 shares of Preferred Stock with a par value of $.001 per share
and 4,300 shares of Preferred Class A Stock with a par value of $0.001
per share (the "Preferred Class A Stock"). As of September 30, 1998,
there were 47,499,304 shares of Common Stock issued and outstanding
and held of record by approximately 534 registered stockholders, and
the number of beneficial holders was unknown. There are 4,300 shares
of Preferred Class A stock issued and outstanding. As of September 30,
1998, there were a total of 11,340,000 shares of Common Stock reserved
for issuance upon exercise of outstanding stock options and warrants.
See "Item 4. Security Ownership of Certain Beneficial Owners and
Management" and "Item 10. Recent Sales of Unregistered Securities".
The Company's Common Stock with a par value $.001 is currently
traded on the OTC Bulletin Board under the symbol "LPFC". The
following descriptions of capital stock are qualified in all respects
by reference to the Company's By-laws.
COMMON STOCK
The holders of Common Stock are entitled to one vote per share for
the selection of directors and all other purposes and do not have
cumulative voting rights. As for the election of directors, this
means that the holders of a majority of shares can elect all members
of the Board of Directors. Except as otherwise required by applicable
Delaware law, a majority vote is sufficient for any action that
requires the vote or concurrence of stockholders, except that a
plurality vote is sufficient to elect directors. The holders of
Common Stock are entitled to receive dividends when, as, and if
declared by the Board of Directors, and in the event of the liquidation
by the Company, to receive pro-rata, all assets remaining after payment
of debts and expenses and liquidation of the preferred stock. See
"Item 9. Market Price and Dividends on the Registrant's Common Equity
and Related Stockholder Matters - Dividend Policy".
The holders of Common Stock do not have any pre-emptive or other
rights to subscribe for or purchase additional shares of capital
stock, no conversion rights, redemption, or sinking-fund provisions.
Upon liquidation or dissolution of the Company, the holders of Common
Stock are entitled to share ratably in the net assets of the Company
remaining after payment of liabilities and liquidation preferences of
any outstanding shares of Preferred Stock. All shares of Common Stock
now outstanding are fully paid and non-assessable.
PREFERRED STOCK
The Company has 100,000 shares of Preferred Stock with a par value
of $.001 per share authorized, and no shares has been issued and
outstanding. The Company also has 4,300 shares of Preferred Class A
Stock with a par value of $0.001 issued and outstanding. Holders of
Preferred Stock are entitled to receive dividends when, if any,
declared by the Board of Directors from funds legally available
therefor. The holders of Preferred Stock do not have the rights to
vote, but they are entitled to receive $10.00 per share upon the
liquidation of the Company.
WARRANTS
The Company currently has an outstanding 8,000,000 shares of
Warrants to purchase Common Stock. The above-mentioned Warrants
were issued to the investor purchasing shares of Common Stock in
equity financing closed effective May 5, 1997. Each share of Warrants
entitles the holder thereof to purchase, at any time until May 5,
2002, one share of Common Stock at an exercise price of $3.00 per share,
subject to adjustment.
The Warrants may be exercised in whole or in part upon surrender
of the Certificate therefor on or prior to the expiration dates at
the office of the Company with the Exercise Form attached to the
certificate duly completed and executed, accompanied by payment (in
the form of cash or certified or bank cashier's check payable to
the order of the Company) of the full exercise price. The registered
owner of a Warrant will not possess any rights as a stockholder of
the Company unless and until the Warrant is exercised. Upon the
expiration date of the Warrants, they will no longer be exercisable
for shares of Common Stock and will not have any value.
STOCK OPTIONS
A total of 1,090,000 shares of Stock Purchase Options have been
issued to certain executive officers and directors as part of
the Company's Compensation Plan in May 1997. Each share of Options
entitles the holder thereof to purchase, at any time until May 15
and May 30, 2002, respectively, one share of Common Stock at an
exercise price of $6.00 per share, subject to adjustment.
In February 1998, Hambrecht & Quist Asia Pacific Limited ("H&Q AP),
an investment bank specializing in high-tech companies, and Asia
Pacific Growth Fund II, L.P. ("APGF"), a fund controlled by H&Q AP
(collectively "H&Q), invested $6 million to Regent Electronics
Corp., a subsidiary of the Company, for acquiring 1.5 million shares
of Regent's Preferred Stock. The stock shares acquired by H&Q
represented approximately 5.5% of Regent's equity. Regent also
issued Stock Warrants to H&Q for its intention to subscribe $6 million
worth of Regent's common stock shares on or before December 31, 2002.
Pursuant to the Share Exchange Agreement among the Company, H&Q
and Regent, the Company granted H&Q the irrevocable right to
exchange, under certain circumstances and subject to certain
conditions, any or all of the shares that H&Q subscribed from
Regent for Common Stock shares of the Company ("Lotus Shares")
on the basis of one (1) Regent share for one and one-half (1.5)
Lotus shares. The stock option held by H&Q become exercisable on
or after January 1, 2000.
The Options may be exercised in whole or in part upon surrender
of the Certificate therefor on or prior to the expiration dates
at the office of the Company with the Exercise Form attached to
the certificate duly completed and executed, accompanied by payment
(in the form of cash or certified or bank cashier's check payable
to the order of the Company) of the full exercise price. The
registered owner of an Option will not possess any rights as a
stockholder of the Company unless and until the Option is
exercised. Upon the expiration date of the Options, they will no
longer be exercisable for shares of Common Stock and will not
have any value.
TRANSFER AGENT
The Company's transfer agent and registrar is Colonial Stock
Transfer Co., 455 E. 400 South, Salt Lake City, Utah 84111.
ITEM 12. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's Bylaws provide that the Company shall indemnify
any and all persons who may serve or who have served at any time
as directors or officers, or who at the request of the Board of
Directors of the Company may serve or at any time have served as
directors or officers of another corporation in which the Company
at such time owned or may own shares of stock or of which it was or
may be a creditor, and their respective heirs, administrators, successors
and assigns, against any and all expenses, including amounts paid upon
judgments, counsel fees and amounts paid in settlement (before or
after suit is commenced), actually and necessarily incurred by such
persons in connection with the defense or settlement of any claim,
action, suit or proceeding in which they, or any of them, are made
parties, or a party or which may be asserted against them or any of
them, by reason of being or having been directors or officers or a
director or officer of the Company, or of such other corporation,
except in relation to matters as to which any such director or
officer or former director or officer or person shall be adjudged
in any action, suit or proceeding to be liable for his own negligence
or misconduct in the performance of his duty. Such indemnification
shall be in addition to any other rights to which those indemnified
may be entitled under any law, by-law, amendment, vote of
stockholders or otherwise.
LIMITATION OF LIABILITY
The Bylaws of the Company provides that no director shall be
personally liable to the Company or any shareholder for monetary
damages for breach of fiduciary duty as a director, except for
any matter in respect of which such director shall be liable by
reasons that, in addition to any and all other requirements for
such liability, he (i) shall have breached his duty of loyalty
to the Company or its shareholders, (ii) shall not have acted in
good faith or, in failing to act, shall not have acted in good
faith, (iii) shall have acted in a manner involving intentional
misconduct or a knowing violation of law or, in failing to act,
shall have acted in a manner involving intentional misconduct or
a knowing violation of law.
This provision may have the effect of reducing the likelihood of
derivative litigation against directors and may discourage or deter
stockholders or management from bringing a lawsuit against
directors for breach of their duty of care, even though such an
action, if successful, might otherwise have benefited the Company
and its shareholders. However, this provision, together with the
provision described above that requires the Company to indemnify
its officers and directors against certain liabilities, is intended
to enable the Company to attract qualified persons to serve as
directors who might otherwise be reluctant to do so.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers or persons
controlling the Company pursuant to the foregoing provisions, the
Company has been informed that in the opinion of the Commission,
such indemnification is against public policy as expressed in the
Act and is therefore unenforceable.
ITEM 13. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See ITEM 15 (a) for an index to the audited consolidated financial
statements and supplementary financial information that
are attached hereto.
ITEM 14. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCING 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.
ITEM 15. FINANCIAL STATEMENTS AND EXHIBITS
1. Financial Statements:
The following is a list of each financial statement filed as
a part of this Registration Statement:
1) Report of Schiffman Hughes Brown, Independent Auditors
2) Audited Consolidated Balance Sheet as June 30, 1998, 1997 and 1996
3) Audited Consolidated Statements of Operations - for the Fiscal Years ended
June 30, 1998, 1997 and 1996
4) Audited Consolidated Statements of Shareholders' Equity - for
the Fiscal Years Ended June 30, 1998, 1997 and 1996
5) Consolidated Statements of Cash Flows - for the Fiscal Years
Ended June 30, 1998, 1997 and 1996
6) Notes to the Audited 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
3.1 Certificate of Incorporation of the Registrant, as amended
3.2 Bylaws of the Registrant, as amended
5.1 Accountant's Consent
5.2 Accountant's Consent
Signature
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: October 27, 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, Chief Financial Officer & Secretary
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, 1997 AND 1996
1998 1997
ASSETS
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 72,792 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, 1998,1997 AND 1996
1998 1997 1996
Sales $10,998,875 $-0- $-0-
Cost of Sales 7,989,318
Gross Profit 3,009,557
Operating expenses 4,933,919 310,241 17,934
Operating loss (1,924,362) (310,241) (17,934)
Other income (expenses):
Interest income 33,675 11,186 11,008
Research and development (2,264,801) (14,703)
Gain on sale of investment 398,805
Equity in earnings of
unconsolidated subsidiary 29,090
Royalty Income 1,800,000
(431,126) 395,288 40,098
Net income (loss)
before income taxes and
minority interest in income
of consolidated subsidiaries(2,355,488) 85,047 22,164
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 22,164
Earnings per share
Basic $(.05) $.00 $.00
Diluted $(.05) $.00 $.00
Weighted average shares 44,421,334 29,238,081 26,799,387
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, 1997 AND 1996
Common Preferred Common Additional
Shares Shares Stock Paid-in
Outstanding Outstanding Warrants Amount Capital Deficit Total
Balance
June 30, 1995
26,347,054 4,300 $26,351 $746,433 $(555,776)$217,008
Issuance of
common stock
590,000 590 145,715 146,305
Net Income for
the year Ended
June 30, 1996 22,164 22,164
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, 1997 AND 1996
1998 1997 1996
Cash flows from operating activities:
Net income (loss) $(2,057,045) $43,390 $22,164
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)
Equity in earnings of
unconsolidated subsidiary (29,090)
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 (4,400)
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 (11,326)
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 3,000
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 3,000
Net cash increase
(decrease) in cash 2,924,448 55,597 (8,326)
Cash, beginning 268,679 213,082 221,408
Cash, ending $3,193,127 $268,679 $213,082
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 $3,000
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, 1997 AND 1996
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 United States 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, 1997 AND 1996
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, 1997 AND 1996
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
pon 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, 1997 AND 1996
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.
The 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, 1997 AND 1996
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.
8. 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.
9. 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, 1997 AND 1996
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, 1997 AND 1996
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
Stkholders' Equity:
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 $239,578
Exhibits 3.1
CERTIFICATE OF AMENDMENT
OF CERTIFICATE OF INCORPORATION
OF LOTUS PACIFIC, INC.
LOTUS PACIFIC, INC., a corporation organized and existing under and by
virtue of the General Corporation Law of the State of Delaware, DOES HEREBY
CERTIFY:
FIRST: That the Board of Directors of said corporation at a meeting only
convened and held, adopted the following resolution:
RESOLVED that the Board of Directors hereby declared it advisable and
in the best interest of the Company that Article Fourth of the Certificate
of Incorporation be amended to read as follows:
FOURTH: The total number of shares of stock which this Corporation is
authorized to issue is:
Sixty Million (60,000,000) shares of Common Stock with a par value of One
Mil ($.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 at 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 out-
standing 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 share-
holders. 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 books 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
roper 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 Corporatio
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
rovisions 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.
Exhibit 5. 1
ACCOUNTANT'S CONSENT
To the Stockholders and Board of Directors
Lotus Pacific, Inc. and Subsidiaries
We consent to the use of our Independent Auditors' Report dated
September 4, 1998, and accompanying the financial statements of
Lotus Pacific, Inc. and subsidiaries (the "Company") for the years
June 30, 1998 and 1997 in the Company's Report on Form 10 for the
year ended June 30, 1998, filed with the Securities and Exchange
Commission.
/S/
SCHIFFMAN, HUGHES & BROWN
Certified Public Accountants
Blue Bell, Pennsylvania
October 22, 1998
Exhibit 5. 2
ACCOUNTANT'S CONSENT
To the Stockholders and Board of Directors
Lotus Pacific, Inc. and Subsidiaries
We consent to the use of our Independent Auditors' Report dated
September 16, 1996 and accompanying the financial statements of Lotus
Pacific, Inc. and subsidiaries (the "Company") for the years June 30,
1996 and 1995 in the Company's Report on Form 10 for the year ended
June 30, 1996, filed with the Securities and Exchange Commission.
/S/
SCHIFFMAN, HUGHES & BROWN
Certified Public Accountants
Blue Bell, Pennsylvania
October 22, 1998
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