FORM 10/A
AMENDMENT NO. 2
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
TABLE OF CONTENTS
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
GENERAL
Lotus Pacific, Inc. (the "Company" or "Registrant") is an Internet technology
and services company that, through its five subsidiaries, develops and markets
Internet-related products and services in the United States and international
markets with an emphasis on financial services. Through realizing its Internet
- -Wall Street Solutions(tm) concept, the Company provides new Internet
solutions, services, and opportunities for its customers and shareholders. The
Company's Common Stock is currently traded on OTC Bulletin Board under the
symbol "LPFC".
The Company operates in two segments: (1) the development and marketing of the
Internet-related products and services. Its products include TeleWeb systems,
TeleWeb set-top boxes, Internet routers, cable modems and cable modem chips;
and (2) on-line trading and brokerage services. Regent Electronics Corp,
Arescom Inc. and Turbonet Communications are three subsidiaries of the Company
engaged in the business of the Internet-related products and services.
U.S. Securities & Futures Corp. and Professional Market Brokerage, Inc. are
engaged in the business of on-line trading and brokerage services.
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, TeleWeb A6000, A6060, A8000, and A9000.
In March 1997, Richtime Far East Ltd., a subsidiary of the Company, started
its garment and textile import-export operation in Hong Kong. The Company
received customer orders from Europe and North America, and then contracted
with garment or textile manufacturers, mainly in China, to fulfill those
orders. The finished goods were then shipped overseas. In February 1998,
LPF International Corp. ("LPF"), a new wholly owned subsidiary of the Company,
was set up to expand the Company's existing textile and apparel business
worldwide and place more emphasis on fashion design. LPF is incorporated in
the State of Delaware and operated in New York, NY. 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 $2,500,000
in cash.
On February 12, 1999, the Company signed agreements to acquire US Securities
& Futures Corp. ("USSF") of New York, NY and Professional Market Brokerage,
Inc. ("PMB") of Chicago, IL. Upon completion of the acquisitions, the
Registrant will own 100% of both USSF and PMB.
USSF is a full service financial brokerage firm located on Wall Street in
New York, NY. With over 15 branches worldwide, USSF offers online securities
trading service and other financial and brokerage services to individuals and
institutions all around the world. USSF is registered as a Futures Commission
Merchant (FCM), and is a member of National Association of Securities Dealers
(NASD) and National Futures Association (NFA).
PMB is a Chicago-based securities brokerage firm that provides Internet-based
online trading services to self-directed, broker-assisted, individuals, money
managers, Commodity trading advisers, and introducing brokers. PMB is
registered with the Commodity Futures Trading Commission (CFTC) as a Futures
Commission Merchant (FCM), and is a member of the National Futures
Association (NFA).
The acquisitions of USSF and PMB are an important part of the Company's
strategy to integrate the Company's Internet solutions with financial services
and become an Internet-Wall Street company that combines the Company's own
Internet access devices - TeleWeb & Trade, TeleWeb A9000 and the TeleWeb
System with online trading services. This integration allows the Company to:
1) provide its own end-user set-top boxes to its online trading customers;
2) constantly upgrade and enhance its hardware and software in response to
market conditions and customer needs; and 3) minimize its dependence on the
third parties to maintain its online trading systems.
On March 16, 1999, the Company entered into an Acquisition Agreement to
acquire a majority of equity interest of TurboNet Communications, a San Diego,
California corporation ("TurboNet"). Under the terms of the Acquisition
Agreement, the Company will issue $80 million of worth of its restricted
stock shares in exchange for 81% of TurboNet's equity. The Company also agreed
to provide TurboNet with $20 million of cash as working capital. Turbonet
agreed that the Registrant's shares issued to Turbonet's shareholders shall
be prohibited from being sold, in whole or in part, until Turbonet's annual
gross revenue has exceeded $30 million with pretax annual net income of
$6 million.
Turbonet designs, develops and markets telecommunications products to cable
operators, network service providers, and communications network users,
primarily in the United States and Asia. Its primary products include cable
modem chipsets, internal and external cable modems and cable modem accessories.
Turbonet was incorporated on February 13, 1996 in San Diego, California, and
Toshiba Corporation of Japan owns 5.5% of Turbonet's equity.
On March 16, the Company entered into an agreement with Arescom Inc., a
Fremont, California corporation ("Arescom"). Under the terms of the agreement,
the Company will issue $30 million of worth of its restricted shares to acquire
81% of Arescom's equity. The Company also agreed to provide Arescom with
$10 million of cash as working capital. All shareholders of Arescom agreed
that all the Company's shares issued to them shall be restrictively held from
being sold until the day that Arescom has reached its target of annual sales
of $15 million and annual net income before income tax of $3 million.
Arescom designs, manufactures and markets a complete line of high quality
inter-networking equipment, primarily routers, for PSTN, ISDN, xDSL and
Ethernet environments. It provides users with a broad range of remote access
products that integrate voice and data along with Intelligent GUI and 100%
remote management tools for easy set-up and network management. Its customers
include Internet Service Providers (ISPs), resellers, and system integrators,
primarily in North America. Arescom was incorporated in January 1996 in
Fremont, California.
The Company's acquisitions of USSF, PMB, Turbonet and Arescom are expected to
be completed before the close of the Company's fourth fiscal quarter ending
June 30, 1999.
Since June 1997, the Company has invested significant resources in research,
product development, and engineering activities for its TeleWeb Broadcasting
System and its TeleWeb set-top boxes and other related products. As a result
of these R&D activities and the low volume of sales during the initial
commercialization of its products, the Company incurred net operating losses
during the fiscal year ended June 30, 1998. The Company anticipates that it
will continue to make significant expenditures for product development and
marketing of its Internet-related products and services in the foreseeable
future.
BUSINESS SEGMENTS
Internet-Related Products and Services
The Company's Internet-related products and services segment consists of
Regent Electronics Corp. ("Regent"), Turbonet Communications ("Turbonet"),
and Arescom, Inc. ("Arescom").
Regent designs, develops, provides and markets the Internet-related products
and services to electronics manufacturers, commercial cable-TV networks,
hotels, and general individual customers. Regent also generates its income
from granting its technology or license to electronic manufacturers and
commercial cable TV networks. The Company owns 87.3% of Regent's equity
interest.
Turbonet designs, develops and markets telecommunications products to cable
operators, network service providers, and communications network users,
primarily in the United States and Asia. Its primary products include cable
modem chipsets, internal and external cable modems and cable modem
accessories.
Arescom designs, manufactures and markets a complete line of high quality
inter-networking equipment, primarily routers, for PSTN, ISDN, xDSL and
Ethernet environments. It provides users with a broad range of remote
access products that integrate voice and data along with Intelligent GUI and
100% remote management tools for easy set-up and network management. Its
customers include Internet Service Providers (ISPs), resellers, and system
integrators, primarily in North America.
Online Trading and Brokerage Services
The Company's online trading and brokerage services segment consists of
U.S. Securities & Futures Corp. and Professional Market Brokerage, Inc.
USSF is a full service financial brokerage firm located on Wall Street in
New York, NY. With over 15 branches worldwide, USSF offers online securities
trading service and other financial and brokerage services to individuals and
institutions all around the world. USSF is registered as a Futures Commission
Merchant (FCM), and is a member of National Association of Securities Dealers
(NASD) and National Futures Association (NFA).
PMB is a Chicago-based securities brokerage firm that provides Internet-based
online trading services to self-directed, broker-assisted, individuals, money
managers, commodities trading advisers, and introducing brokers. PMB is
registered with the Commodity Futures Trading Commission (CFTC) as a Futures
Commission Merchant (FCM), and is a member of the National Futures
Association (NFA).
PRIMARY PRODUCTS AND SERVICES
The Company recently entered into several acquisition transactions intended
to provide a strong foundation for the Company's future business and to
reinforce its position as a leading provider and developer of the Internet
- -related products and services with an emphasis on financial services. The
Company also licenses its technologies to electronics manufacturers,
commercial cable TV networks or contracts to manufacturers for production.
While the Company does not maintain manufacturing facilities, it has
arrangements with several manufacturers in Taiwan and China for the purpose
of production. In order to maximize the Company's benefit, the Company does
not fix itself with only one or two manufacturers. Instead, based on
production quality, cost, and other factors, the Company chooses different
manufacturers from time to time.
Teleweb System and TeleWeb Set-Top Boxes
TeleWeb Systems The TeleWeb system is a WWW broadcasting system that
enables cable-TV networks and cable-TV operators to broadcast the Internet
contents and their own commercial information and services to all cable TV
networks subscribers.
TeleWeb Set-Top Boxes The Company's TeleWeb set-top boxes are designed
either to be as end-user terminals for its TeleWeb broadcasting system to
receive TeleWeb broadcasting information, or be operated as an independent
Internet access device for going online via telephone connection. Those TeleWeb
set-top boxes are sold at the price range of approximately $250 to $400. The
TeleWeb Broadcasting Systems sell at approximately about $12,000.
There are many advantages for consumers and operators to use TeleWeb system
and its TeleWeb set-top boxes: (1) ISP independent of Internet access and no
phone charges; (2) utilizing existing networks and no new infrastructure
investments needed; (3) information access controlled easily by operators or
by governments (a very important factor for the Chinese markets and for other
Asian countries); and (4) supporting both NTSC and PAL TV systems. In addition
to selling to general customers, those TeleWeb set-top boxes can be installed
in hotel rooms, business conference rooms, and other public places for hassle
- -free Internet access.
Supported by its TeleWeb system and TeleWeb set-top boxes, the Company is able
to provide TeleWeb System Channels to cable-TV subscribers, such as electronic
shopping channel, shopping guide channel, community service channel, home
financial channel and online education channel. The Company is currently
negotiating with several big government-run cable TV operators in China to
install its TeleWeb system and TeleWeb terminals.
The WonderTV set-top box to be marketed in the United States is an Internet
access device. It enables users to dial into Internet via regular phone
connection. Customers can use their home television as monitor to browse
the Internet. The WonderTv has a built-in modem and comes with a remote
keyboard and a remote control. Apart from being used in families, the WounderTV
can also be valuable service device in hotel rooms, business conference rooms,
and even other public places. The WonderTV's unique functionality and
easy-to-use attributes open a door for those have little computer experience
to go online, trade online and entertain online.
Client Access Products
The Company's client access products include cable modem chipsets, internal
and external cable modems and cable data bridges.
Cable Modem Chipsets and Cable Modems: Cable modems provide dial-up access
to the Internet, enterprise local area networks (LANs) and a host of
communications services. The Company was first to manufacture cable modem with
its own chipsets in the world, and its OEM modem manufactured for Toshiba is
the first of two DOCSIS cable modems certified by CableLabs.
Cable Data Bridges: Cable data bridge is a device that offer system operators
to hook a managed network interface from a router or wide area network (WAN)
to the broadband CATV network, so that Ethernet traffic can be distributed
to the cable modems in end-users' home or offices. The Company has developed
a flexible configuration allowing the use of multiple return path channels
per downstream channel.
Inter-Networking Routers
Netlinker Routers Routers are protocol-dependent devices that connect
sub-networks together. The Company offers a variety of backbone and remote
routers for small-to-medium-sized businesses to facilitate enterprise inter-
networking under PSTN, ISDN, xDSL and Ethernet environments. With the router,
an unlimited number of Ethernet local area network users can access a Wide
Area Network (WAN) via a single ISDN line. The Company's products include
ISDN BRI HUB/PBX router (for Japanese market), Ethernet HUB/ISDN/DSU/POTS
router, Apex 1100 router (for North American and Korean markets), Apex 1000
and Flash 200 high-speed leased line routers. The Company is the first and
only router manufacture that offers five methods of router configuration and
management as standard on router products.
Remote Managing Software Remote managing software is widely used by
network managers and Internet service providers (ISPs) to install, monitor,
troubleshoot, and maintain ISDN connections. The Company's Remote Manager
supports 16 Connection Profiles providing a flexible array of dial-in and
dial-out combinations, caller ID (block) to prevent unwanted solicitors,
faxes and errant dial-ins, while checking SPID registration automatically.
The Remote Manager's comprehensive diagnostic capabilities allows network
managers and ISPs to resolve connectivity conflict problems quickly by using
an intuitive GUI interface or command line administration via the telenet
or the local console. Because the Company's remote managing software is
able to set up client ISDN routers in minutes, rather than three to five hours
they were accustomed to, this software is recommend by their clients
nationally.
Online Trading and Brokerage Services
The Company provides securities brokerage and related financial services to
individuals and institutions all around the world, including self-directed,
broker-assisted, individuals, money managers, commodity trading advisers,
introducing brokers, and other corporate accounts.
The Company offers both full services and online financial trading, including
the purchase and sale of listed and OTC securities, options, futures and
commodities. The Company also trade fixed income investments, such as US
Treasuries, listed and OTC corporate bonds and municipal bonds. The Company's
online investing services include automated order placement, portfolio
tracking, real-time market commentary and analysis, and news. Other
information services are also available to all investors at the Company to
meet their varying investment and financial needs.
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 technologies to continuously upgrade its electronic products
that our customers require to stay competitive in the future.
The markets for the Company's products are highly competitive and are
characterized by rapid technological advances, frequent new product
introductions, evolving industry standards, and competitive price pressures.
The Company will continue to develop and market appropriate products to
remain competitive. The Company believes that one of the factors in its
competitive success is its continued commitment of resources to research
and development.
SIGNIFICANT CUSTOMERS
For the year ended June 30, 1998, the Company had three customers with
billings in excess of 10% of the Company's total revenues. Of the total
revenue, Shanghai Hong Sheng Development Corp. accounted for $4,840,000
(38.7%), Full Chance China Ltd. $2,749,000 (21.4%), D&T Corp., and
$1,815,000 (14.2%).
Although the Company believes that its relations with those three customers
are good, the Company does not have written agreements with any of its
customers that require the purchase of any minimum quantities of products
and, therefore, such customers could reduce or curtail their purchases at
any time. As a result, a substantial reduction in orders from existing
customers would have a material adverse effect on the Company unless the
Company is able to attract orders from new customers, of which there can
be no assurance.
EMPLOYEES
Upon the consummations of its four newly acquired subsidiaries, the Company
will have 250 full-time employees (currently 47). The Company also employs
independent contractors and other temporary employees in its software
development programs. 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 subsidiary Regent Electronics Corp., which financial statements have
been audited by Schiffman Hughes Brown (fiscal 1998, 1997 and 1996), the
Company's independent public accountants, to the extent indicated in their
report included elsewhere herein.
The other four subsidiaries of the Company: TurboNet Communications, Arescom
Inc., U.S. Securities & Futures Corp., and Professional Market Brokerage, Inc.,
were recently acquired by the Company in February and in March, 1999,
respectively. The Company was advised by the United States Securities Exchange
Commission to provide pro forma financial information in its Form 10-Q for
the quarter ended March 31, 1999. Therefore, their accounts are not
consolidated in the Company's consolidated financial statements for the year
ended June 30, 1998 and for the fiscal quarter ended December 31, 1998.
The selected consolidated financial data set forth below is qualified in its
entirely 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.
<TABLE>
<CAPTION>
SELECTED CONSOLIDATED FINANCIAL DATA
(IN THOUSAND, EXCEPT PER SHARE DATA)
(UNAUDITED)
----------------------------------------------------
THREE MONTHS SIX MONTHS
ENDED DECEMBER 31 ENDED DECEMBER 31,
---------------------------- --------------------
1998 1997 1998 1997
-------- -------- -------- ---------
<S> <C> <C> <C> <C>
CONSOLIDATED STATEMENT
OF OPERATIONS DATA:
Revenues .............................. $ 6,551 $ 800 $ 8,971 $1,800
Cost of sales ......................... 6,029 -- 7,227 --
-------- -------- ------- --------
Gross profit .......................... 522 800 1,744 1,800
------- --------- --------
--------
Operating Expenses
General and administrative............. 704 1,128 1,411 2,422
Research and Development .............. 484 210 1,050 268
-------- -------- ------- -------
Total operating expenses ............. 1,188 1,338 2,460 2,690
-------- -------- ------- --------
Operating Income (loss) ................ (666) (538) (716) (890)
-------- -------- -------- --------
Other income (expenses), net .......... 5 2 13 2
Income from continuing operations
Before income taxes ................... (661) (536) (703) (888)
-------- -------- ------- --------
Discontinued operations ............... -- -- 100 --
Net income before income taxes
& minority interest .................. (661) (536) (603) (888)
Minority interest in loss of
Consolidated subsidiary ............... 74 37 67 60
Net income (loss) ...................... $ (587) $ (499) $ (536) $ (828)
======== ======== ======== ========
Net income (loss) per share
Basic .............................. $ (0.01) $ (0.01) $ (0.01) $ (0.02)
Diluted ............................. $ (0.01) $ (0.01) $ (0.01) $ (0.02)
Weighted average
shares outstanding .................... 47,499 46,812 47,488 44,798
</TABLE>
<TABLE>
<CAPTION>
SELECTED CONSOLIDATED FINANCIAL DATA
(IN THOUSAND, EXCEPT PER SHARE DATA)
---------------------------------------------------------
FISCAL YEARS ENDED JUNE 30
(AUDITED)
-----------------------------------------------------------
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT
OF OPERATIONS DATA:
Revenues ............................... $ 12,800 -- -- -- --
Cost of sales .......................... 7,989 -- -- -- --
--------- -------- ------- -------- --------
Gross profit ........................... 4,810 -- -- -- --
Operating Expenses
General and administrative............. 2,827 221 18 17 1
Research and Development .............. 4,372 104 -- -- --
---------- -------- ------- -------- ---------
Total operating expenses ............. 7,199 325 18 17 1
Operating Income (loss) ................ (2,389) (325) (18) (17) (1)
---------- -------- -------- -------- --------
Other income (expenses), net ........... 34 410 40 3 --
Net income before income taxes
& minority interest .................. (2,355) 85 22 -- --
Income tax benefit (expenses) .......... 81 (124) -- -- --
Minority interest in loss of
Consolidated subsidiary ............... 218 82 -- -- --
Net income (loss) ...................... $ (2,057) $ 43 $ 22 $ (14) $ (1)
========= ======== ======= ======= ======
Net income (loss) per share
Basic .............................. $ (0.05) $ 0.00 $ 0.00 $ 0.00 $ 0.00
Diluted ............................. $ (0.05) $ 0.00 $ 0.00 $ 0.00 $ 0.00
Weighted average
shares outstanding .................... 44,421 29,238 26,799 26,860 17,003
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31 AT JUNE 30
(Unaudited) (Audited)
--------------------- --------------------------------------------------
1998 1997 1998 1997 1996 1995 1994
-------- -------- -------- --------- --------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED
BALANCE SHEET DATA:
Cash and cash equivalents .............. $ 895 $ 883 $ 3,193 $ 269 $ 213 $ 221 --
Working capital ........................ 8,201 265 6,919 107 213 221 --
Total assets ........................... 18,341 8,260 16,404 8,221 385 221 --
Long-term obligation ................... -- -- -- -- -- -- --
Total shareholders' equity ............. $ 8,261 $ 6,900 $ 7,821 $ 5,739 $ 385 $ 217 --
</TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The following is a discussion of the consolidated financial condition and
results of operations of Lotus Pacific, Inc. and one of its subsidiaries:
Regent Electronics Corp. for the fiscal years ended June 30, 1998 and 1997
and for the three-month and six-month periods ended December 31, 1998 and
1997. It should be read in conjunction with the Consolidated Financial
Statements of Lotus Pacific, the Notes thereto and other financial information
included elsewhere herein. This management's discussion includes forward-
looking statements made based on current management expectations. These
statements are not guarantees of future performance, and the actual outcomes
may differ materially from what is expressed or forecasted. There are many
factors that affect the Company's business and its results of operations,
including the factors discussed below.
The United States Securities and Exchange Commission advised the Company to
provide pro forma financial information for its four newly acquired
subsidiaries at its Form 10-Q for the quarter ended March 31, 1999. Therefore,
the management discussion of financial conditions and operating results for
the Company's four newly acquired subsidiaries are not included herewith.
GENERAL
Lotus Pacific, Inc. (the "Company" or "Registrant") is an Internet technology
and services company that, through its five subsidiaries, develops and markets
Internet-related products and services in the United States and international
markets with an emphasis on financial services. Through realizing its Internet
- -Wall Street Solutions(tm) concept, the Company provides new Internet
solutions, services, and opportunities for its customers and shareholders. The
Company's Common Stock is currently traded on OTC Bulletin Board under the
symbol "LPFC".
The Company operates in two segments: (1) the development and marketing of the
Internet-related products and services. Its products include TeleWeb systems,
TeleWeb/WonderTV set-top boxes, Internet routers, cable modems and cable modem
chips; and (2) on-line trading and brokerage services. Regent Electronics Corp,
Arescom Inc. and Turbonet Communications are three subsidiaries of the Company
engaged in the business of the Internet-related products and services.
U.S. Securities & Futures Corp. and Professional Market Brokerage, Inc. are
engaged in the business of on-line trading and brokerage services.
RESULTS OF OPERATIONS
FISCAL QUARTERS ENDED DECEMBER 31, 1998 AND 1997
REVENUES For the quarter ended December 31, 1998 (the second quarter of the
Company's 1999 fiscal year), the Company's revenue from sales and royalty fees
increased $5.75 million, or 719%, to $6.55 million from $800,000 in the second
quarter of the fiscal 1998. The increase in revenue was mostly due to the sale
of chipsets, parts and accessories. On a year to date basis, revenue increased
398% from the prior year to $8.97 million.
Gross profit in the second quarter of fiscal 1999, however, decreased to
$521,785 from $800,000 in the comparable quarter of the prior year. This was
due to the facts that the share of royalty fee earned in total revenue
decreased, and the Company reduced its sales price in order to expand its
market share.
On September 30, 1998, the Company sold all of its textile and apparel
business to Clarinet Overseas Ltd. for an aggregation consideration of
$2.5 million in cash in order to concentrate on its Internet-related
electronics products and services. Since then, the Company has no more revenue
from textile and apparel business.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES Selling, general and
administrative expenses consist primarily of personnel costs, including all
compensation and employee benefits, and support costs including utilities,
insurance, travel, communications, office rents, professional fees and all
costs associated with a reporting company. For the quarter ended December 31,
1998, selling, general and administrative expenses decreased $424,000, or 38%,
to $703,498 from $1.12 million for the second fiscal quarter of 1998. This
decrease was primarily due to reducing consulting expenses.
RESEARCH AND DEVELOPMENT Research and development expenses consist of the
costs associated with the design and testing of new technologies and products.
These costs relate primarily to the costs of materials, personnel, and
engineering consulting fees. For the quarter ended December 31, 1998, research
and development expenses increased 130% to $483,995, compared with $210,105 for
the quarter ended December 31, 1997. For the six months ended December 31,
1998, the R&D expense of the Company was up 290% over the prior year. The big
increase in research and development expenses reflects the Company's continuing
commitment to the research and development of its Internet-related products
and services.
NET INCOME (LOSS) Even though the Company's operating expenses for the
quarter ended December 31, 1998 was $150,000 lower than its comparable quarter
of 1997, the Company's net loss from operations increased to $586,728 from
$499,154 because of increased cost of revenue. On a year to date basis, net
income increased by 35% to $536,198 of loss, compared to $828,734 of loss for
the same period of the prior year. For the first half of fiscal 1999, the
diluted earning per shares was $0.01 of loss compared to $0.02 of loss in
fiscal 1998.
FISCAL YEARS ENDED JUNE 30, 1998 AND 1997
REVENUES During the 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 increased to $12.8 million in fiscal 1998
from zero in fiscal 1997. This increase was because (1) the Company generated
its revenue mainly through its subsidiaries. The Company's two subsidiaries
were not operational until March - April 1997. The Company had no operating
revenue in fiscal 1997, except $398,805 of gain on sale of investment; and
(2) starting from the fiscal 1998, the Company's product development and
marketing strategy fit the market trend, the Company's revenue has increased.
Two Company's products, TeleWeb broadcasting systems and TeleWebs, are
marketed to electronics manufactures, commercial cable TV networks, and hotels.
In order to manufacture the Company's products, the manufactures must obtain
the dedicated chipsets and the accompanying software. Therefore, the Company
sells the chipsets to those companies that assemble and market TeleWeb set-top
boxes (the chipsets consist of the following chips: GXM 233, 5520&97317,
XC9538-VQ44, AD1819 AC-97, CYBERPRO 2010, BootPROM, and MD2200-8D). For the
year ended June 30, 1998, the Company's revenue from resale of chipsets was
$6.16 million, about 48% of the Company's total revenue.
For the fiscal 1998, the Company has royalty revenue of 1.8 million, about
14% of the Company's total revenue, which was derived from licensing out its
software to manufactures and cable TV networks. The Company is expected to
continue to receive royalty payments as long as it continues to market its
TeleWebs and TeleWeb System.
The Company's revenue from its textile and apparel business, for the year
ended June 30, 1998, was $4.84 million, approximately 38% of the Company's
total revenue. For the fiscal 1998, the Company's textile and apparel business
generated $90,191 of net income (see Financial Statement Notes 13 for more
information).
On September 30, 1998, the Company sold all of its textile and apparel
business to Clarinet Overseas Ltd. for an aggregation consideration of $2.5
million in cash in order to concentrate on its Internet-related electronics
products and services. Since then, the Company has no more revenue from
textile and apparel business.
SELLING, GENERAL AND ADMINISTRATIVE Selling, general and administrative
expenses consist primarily of personnel costs, including all compensation and
employee benefits, and support costs including utilities, insurance, travel,
communications, office rents, professional fees and all costs associated with
a reporting company. General and administrative expenses increased to $2.83
million in fiscal 1998 from $221,074 in fiscal year ended June 30, 1997. The
primary reason for the increase was due to the fact that the Company has not
fully operated until April 1997. Accordingly, the Company's expenses on office
rent, selling, travel, consulting, legal and accounting expenses significantly
increased in fiscal 1998.
RESEARCH AND DEVELOPMENT Research and development expenses consist of the
costs associated with the design and testing of new technologies and products.
These costs relate primarily to the costs of materials, personnel, and
engineering design consulting fees. For the year ended June 30, 1998, the
Company spent $4.37 million in research and development, approximately 60%
of the Company's total operating expenses, compared with $103,870, about 32%
of the total operating expenses in fiscal 1997. The significant increase in
research and development expenses was primarily a result of developing the
TeleWeb broadcasting system and setting up 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.
NET INCOME (LOSS) As a result of the factors discussed above, the
Company's operating income decreased from $324,944 of loss in fiscal 1997
to $2.39 million of loss in fiscal 1998. For the year ended June 30, 1998,
the Company has net loss of $.05 per diluted share, compared with $0.00 per
diluted shares in the prior year.
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.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1998, the Company's liquid assets, consisting of cash and
cash equivalents, total $894,811 compared to $3.19 million and $268,679 at
June 30, 1998 and 1997, respectively.
Net cash used by operating activities was $3.15 million for the first six
months of fiscal 1999 compared with $22,863 of net cash provided by operating
activities during the first six months of fiscal 1998. This decrease was
largely due to the increases in accounts receivable and notes receivable. The
Company's investing activities provided $175,621 of cash for the six months
ended December 31, 1998, primarily due to gain of $100,000 on sale of
investment. Cash flow from financing activities was $675,000 in the first
six months of fiscal 1999 as compared to $594,000 provided by financing
activities for the first six months of fiscal 1998. This increase in
financing activities was primarily due to issuing the Company's common stock.
As of December 31, 1998, the Company had 47,499,306 shares of Common Stock
with par value $.001 per share and 4,300 shares of Class A Preferred Stock
issued and outstanding.
Since 1997, the Company has financed a portion of its operations and
expenditures 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 5.45% of Regent's equity interest. 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
July 1, 1997 through March 31, 1999, the Company sold 660,500 shares of the
Common Stock to eleven accredited investors for an aggregate consideration of
$2,936,750.
At June 30, 1998, the Company had working capital of $6.92 million (an
increase of $6.8 million from $106,924 at June 30, 1997). During the 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 the Company's private
placements. Approximately 60% of net cash used in 1998 were spent on the
Company's research and development activities.
On March 15, 1999, the Company signed two acquisition agreements to acquire
81% of equity interests of TurboNet Communications, a cable modem developer
and manufacturer of San Diego, California, and Arescom Inc., an inter-
networking equipment manufacturer of Fremont, California, respectively, by
issuing the Company's restricted common stock shares. Under the terms of the
acquisition agreements, the Company agreed to provide TurboNet with $20 million
of cash as working capital and Arescom Inc. with $10 million of cash as working
capital, if such needs are required.
The Company has no other material commitments for capital expenditures to date.
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, either from the secondary
offerings or from private placements. 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 has no long-term debt and has trade credits available from many
corporations with each credit line up to $50,000, net 30 days.
The current Asian economic crisis will have certain impact on the Company's
operations and marketing in the future. The Company is mainly concentrating
on the Chinese market for its sales of Teleweb Broadcasting Systems and TeleWeb
set-top boxes. The Company's operation may be severely affected by the risks
of slow economic growth, devaluation of the Chinese currency, and restrictions
on transferring foreign currencies. In addition to the Chinese market, the
Company has decided to market its Internet-related products and services in
the U.S. and European markets to reduce its Asian risk.
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
TeleWeb 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 TeleWeb series products to
finance the Company's research and development activities in its new generation
of products for multimedia home entertainment.
Some international companies with capability of producing similar products are
also trying to enter into the China's multimedia entertainment market. To
improve its competitiveness, the Company focuses on products that are accustomed
to China's cultural tradition and the Company will persist in its aggressive
drive to reduce business cost. While subject to many variables, the Company
anticipates revenue increases in the coming fiscal year. At the same time, the
Company will continue to raise capital necessary for its expansionary
operations and research and development activities.
RECENT DEVELOPMENTS
On September 30, 1998, in order to concentrate on its Internet-based
electronics products and services, the Company entered into a Stock Purchase
Agreement 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 $2.5 million in
cash.
On February 12, 1999, the Company announced that it had signed agreements to
acquire US Securities & Futures Corp. ("USSF") of New York, NY and
Professional Market Brokerage, Inc. (PMB) of Chicago, IL. Upon completion of
the acquisitions, the Company will own 100% of both USSF and PMB. USSF is a
full service brokerage firm with its headquarters on Wall Street in New York,
NY. With over 15 branches worldwide, USSF offers online securities trading
service and other financial and brokerage services to individuals and
institutions all around the world. PMB is a Chicago-based financial trading
firm that provides online trading service from its advanced Internet-based
system to self-directed, broker-assisted, individuals, money managers,
commodity trading advisers, or introducing brokers.
The acquisitions of USSF and PMB are an important part of the Company's
strategy to integrate the Internet solutions with the financial industry,
and become an Internet-Wall Street company that combines the Company's own
set top box - TeleWeb A9000 and the TeleWeb System with online financial
trading services. The acquisitions allow the Company to provide its own
user-end terminals to its securities trading customers, constantly upgrade
its hardware and software based on market conditions and customer needs,
and to minimize its dependence on the third parties to maintain its online
trading systems.
On March 15, 1999, the Company entered into an Acquisition Agreement to
acquire a majority of equity interest of TurboNet Communications, a San Diego,
California corporation ("TurboNet"). Under the terms of the Acquisition
Agreement, the Registrant will issue $80 million of worth of its restricted
stock shares in exchange for 81% of TurboNet's equity. The Company also
agreed to provide TurboNet with $20 million of cash as working capital.
Turbonet agreed that the Registrant's shares issued to Turbonet's
shareholders shall be prohibited from being sold, in whole or in part,
until Turbonet's annual gross revenue has exceeded $30 million with annual
pretax net income of $6 million.
TurboNet Communications is a premier developer of advanced cable modem
technologies and products. Its products include DOCSIS compliant cable modem
chipsets, TurboPort-MCNS cable network module, MCNS cable data bridges, and
internal & external cable modems. TurboNet Communications provides cable modem
and infrastructure equipment on OEM basis as well. Toshiba Corporation of Japan
is one of the shareholders and partners of TurboNet Communications.
On March 15, the Company entered into an agreement with Arescom Inc.,
a Fremont, California corporation ("Arescom"). Under the terms of the
agreement, the Company will issue $30 million of worth of its restricted
shares to acquire 81% of Arescom's equity. The Company also agreed to provide
Arescom with $10 million of cash as working capital. All shareholders of
Arescom agreed that all the Company's shares issued to them shall be
restrictively held from being sold until the day that Arescom has reached its
target of annual sales of $15 million and annual pretax net income of
$3 million.
Arescom designs, manufactures and markets a complete line of high quality
inter-networking router equipment for PSTN, ISDN, xDSL and Ethernet
environments. Arescom provides users with a broad range of remote access
products that integrate voice and data along with Intelligent GUI and 100%
remote management tools for easy set-up and network management. Arescom has
established worldwide partners and channels to develop and market its router
products for vertical and mass communication markets. Its customers include
ISPs, resellers, and system integrators in North America. Arescom's worldwide
partners include Telecom Device in Japan, NST in China, EuroBizz in Germany,
Viking Telecom in Sweden, Exer Datacom in France, Dakel Information in Spain,
PcExpress in Italy, etc.
The Company's acquisitions of USSF, PMB, Turbonet and Arescom are expected
to be completed before the close of the Company's fourth fiscal quarter
ending June 30, 1999.
Factors that May Affect Future Results
Factors that could cause future results to differ materially these
expectations include the following: growth in the multimedia electronics
industry; lower than expected customer orders; delays in receipt of orders or
cancellation of orders; competitive factors, such as 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; and the general domestic and international economic conditions.
In additional to the information contained in this Report, there are other
factors that could cause the Company's future results to differ materially
from those expressed in any forward-looking statement made by, or on behalf
of, the Company.
Although the Company has been considering entering retail channels in the
future, all of the Company's sales as to date are wholesales. For the year
ended June 30, 1998, the Company had three customers with billings in excess
of 10% of the Company's total revenue. The Company does not have written
agreements with any of its customers that require the purchase of any minimum
quantities of products and, therefore, such customers could reduce or
curtail their purchases at any time. As a result, a substantial reduction
in orders from existing customers would have a material adverse effect on the
Company unless the Company is able to attract orders from new customers, of
which there can be no assurance.
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.
YEAR 2000
The Company recognizes the need to ensure that its operations will not be
adversely impacted by "Year 2000" issue, which has arisen because many
existing computer programs and chip-based embedded technology systems may
recognize a date using "00" as the year 1900 rather than year 2000. This could
result in a system failure or miscalculations which may cause disruptions of
operations, including, among other things, a temporary inability to process
transactions, send invoices, or engage in similar normal business activities.
The Company has assembled a team of internal staff to oversee the matter and
is underway in completing its Year 2000 assessment. Internally, the Company
has upgraded its business system to address the Year 2000 issue. Externally,
the Company has surveyed and will continue to survey its suppliers, financial
institutions, and other organizations to ensure that those parties have
appropriate plans to be "Year 2000 Compliant." Costs incurred to date and
estimated costs to complete the Company's Year 2000 compliance efforts are
not expected to be material.
The Company has substantially completed many procedures to test and replace
existing computer systems. Additionally, the Company continues to assess and
test newly engaged suppliers and their products for Year 2000 compliance as
part of the Company's normal business operations. The Company will continue
to monitor its Year 2000 Compliance program, address any material issues, and
develop contingency plan as it deems appropriate.
The failure to identify or correct a material Year 2000 problem could result
in an interruption in, or a failure of, certain business activities or
operations such as the Company's ability to service its customers. Such
failures could materially and adversely affect the Company's results of
operations, liquidity, and financial condition. The Company's Year 2000
assessment process is expected to significantly reduce the Company's level of
uncertainty about the Year 2000 problem and, in particular, about the Year
2000 compliance and readiness of its material suppliers and customers.
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 other four subsidiaries of the Company are located in
San Diego, CA (13,013 SF), Fremont, CA (11,435 SF), New York, NY (14,000 SF)
and Chicago, IL (4,595 SF). 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
San Diego 5 years July 30, 1997 July 31, 2002
California
Fremont 5 years March 30, 1997 March 31, 2002
California
New York 5 years January 30, 1995 Jan. 30, 2000
New York
Chicago, IL 5 years March 1, 1997 Feb. 28, 2002
Illinois
Overseas, Regent Electronics Corp. maintains a technical support and sales
office space in Shanghai, China.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIALOWNERS AND MANAGEMENT
The following table sets forth certain information known by the Company
regarding the beneficial ownership of the Company's Common Stock as of
March 31, 1999, by (i) each person who is known by the Company to own
beneficially more than 5% of the Company's outstanding Common Stock;
(ii) each of the Company's officers and directors, and (iii) directors and
officers of the Company as a group.
FIVE PERCENT (5%) SHAREHOLDERS
NO. OF SHARES
BENEFICIALLY PERCENT
NAME OF BENEFICIAL OWNER OWNED OF CLASS
------------------------- --------------- ------------
Lotus International Holdings Corp. 8,286,670 13.8%
308 East Bay Street
Nassau, Bahamas
Yao Investment Corp. 8,000,000 13.4%
308 East Bay Street
Nassau, Bahamas
Rightiming Electronics Corp. 6,000,000 10.0%
P.O. Box 186
Piscataweay, NJ 08855-0186
Evolving Investments Ltd. 3,100,000 5.2%
3706 Cricket Circle
Edison, NJ 08820
The percentages indicated are based on the Company's outstanding Stock Options
and Warrants exercisable as of March 31, 1999 and 48,533,804 shares of Common
Stock issued and outstanding as of March 31, 1999.
As of March 31, 1999, there were 48,533,804 shares of the Company's Common
Stock and 4,300 shares of Series A Preferred Stock issued and outstanding.
Each share of Common Stock is entitled to one vote per share.
All issued and outstanding 4,300 shares of Preferred Class A Stock of the
Company are owned by Lotus International Holdings Corp.
None of the Company's officers and directors own shares individually, except
stock options. See Item 6. "Executive Compensation".
James Yao, Chairman of the Board of the Company and James Liu, Vice President
of the Company, are two majority shareholders of Lotus International Holdings
Corp., and both of them serves on the Board of that entity.
James Yao owns Yao Investment Corp.; Sunman Lee owns Evolving Investments
Ltd., and Robert Wang and John Wang are principal shareholders of Rightiming
Electronics 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 their
compensation. All options are exercisable at $6.00 per share and will be
expired in May 2002.
The following table sets forth the certain information known to the Company
with respect to beneficial ownership of the Company's Common Stock Option as
of March 31, 1999. A total of 1,090,000 shares of Common Stock Options were
issued and outstanding as of March 31, 1999.
BENEFICIAL OWNERS NO. OF SHARES
----------------- ---------------
James Yao, Chairman of the Board 180,000
Jeremy Wang, President & Director 180,000
David Leung, Vice President & Director 500,000
James Liu, Vice President & Director 180,000
Cheng Wang, former Director 50,000
All directors and executive officers
As a group 1,090,000
In May 1997, the Company issued 8,000,000 shares of redeemable Common Stock
Warrants to Evolving Investments Limited. 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 March 31, 1999 are as follows:
<TABLE>
<CAPTION>
Name Age Date Appointed Position
- ---------------------------- ------- ---------------- -------------------
<S> <C> <C> <C>
James Yao (1) (2) .......... 45 Jan. 1997 Chairman of the Board & Director
Jeremy Wang (1) (2) ........ 44 March 1999 President & Director
John O. Hing ............... 52 March 1999 Chief Finance Officer
Huaya Lu Tung .............. 46 March 1999 Treasurer
David Leung ................ 54 Jan. 1997 Vice President & Director
James Liu .................. 44 Jan. 1997 Vice President & Director
Thomas V. White ............ 47 March 1999 Vice President
Stefan H. Benger ........... 31 March 1999 Vice President
De-Liang Wang .............. 41 March 1999 Vice President
Richard Ho ................. 45 March 1999 Vice President
C. Jeffrey Gull ............ 38 March 1999 Vice President
Simon Gu (1) ............... 44 Sept. 1997 Director
Jason Chang (1) ............ 45 March 1999 Director
Gary Huang ................. 43 Jan. 1997 Secretary & Director
- ----------------------------------------------------
</TABLE>
(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 has been Chairman of the Company's Board of Directors since January
1997. Previously he served as President of the Company until March 1999. 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.
JEREMY H.WANG has been President of the company since March 1999. He was
elected as Director in 1997. In the past fifteen years, Mr. Wang has worked
for Bell Laboratories and AT&T, and as an independent consultant in the
telecommunications industry. He has extensive experiences in the communications
system development and product and project management. Mr. Wang has an MS in
Engineering from University of Virginia, and an MS in Computer Science from
New Jersey Institute of Technology.
JOHN O. HING has been appointed as the Company's Chief Financial Officer
since March 1999. After earning his MBA from Harvard University in 1974,
Mr. Hing was employed at Merrill Lynch in various capacities of substantial
responsibility for 19 years. Most recently he served as CEO of U.S. Securities
& Futures Corp. in New York, NY. He was a member of the Board Governor of New
York Mercantile Exchange and a former president of Research Division of the
Futures Industry Association.
HUAYA LU TUNG has been the Company's Treasurer since March 1999. Currently
she serves as Chairman of U.S. Securities & Futures Corp. Previously she
worked for AT&T for six years. Mrs. Tung received her bachelor degree from
East Stroudsburg University and MA degree from University of Rochester.
DAVID LEUNG has been a Director and Vice President of the Company since
January 1997. Previously he 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 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., an apparel agent in New York, NY, that contracts
apparel orders and transfers finished goods between wholesalers and apparel
manufacturers. 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.
THOMAS V. WHITE has been appointed as Vice President of the Company since
March 1999. He has over 20 years of experience in a management and sales
enhancing the overall productivity of the full-service brokerage operations.
Before joining Lotus Pacific, Mr. White is President of U.S. Securities and
Futures Corp. He has been a senior executive at many companies in the
financial trading industry. Previously he was senior vice president of
American Futures Group and Index Futures Group. Mr. White holds a BA degree
in Business Administration and Quantitative Analysis from Bernard Baruch
College.
STEFAN H. BENGER has been appointed as vice president of the company since
March 1999. Mr. Benger has been the CEO and Chairman of Professional Market
Brokerage, Inc. ("PMB") since 1995. Under his leadership, PMB become a
leading FCM with a reputation to be one of the most advanced futures trading
firms in the global marketplace. Before founding PMB, Mr. Benger was president
of WB Werbeagentur Stefan Benger GmbH and trading director at Futures &
Options GmbH. Having experience in Europe and the United States, he is very
familiar with the international aspects of trading various financial products,
exchange and over-the-counter securities. He is a frequent speaker at various
industry associations and conferences. His professional expertise is
frequently quoted in industry publications.
DE-LIANG WANG has been appointed as Vice President of the Company since
March 1999. After receiving his MS degree in Electrical Engineering and
Mechanical Engineering from the University of Texas at Austin, Mr. Wang served
as a senior hardware engineer at AT&T Bell Laboratories. He has extensive
experience in leading major system design projects.
RICHARD HO has been appointed as Vice President of the Company since
March 1999. Prior to his joining the company, Mr. Ho was President of
Rightming Electronics Corp. He has many years of experience in corporate
administration and planning. Mr. Ho received his B.A in International
Business in 1986 in China.
C. JEFFREY GULL has been appointed as Vice President of the Company since
March 1999. He began with the company on January 1, 1999. Prior to joining
the company, he was the director of Asia Development for Nu Skin International,
Inc. Mr. Gull spent over 8 years with Nu Skin working with New Market
Development and Operations for their Asia Pacific region. He has also worked
in the financial and computer software industries with Dean Witter and Clyde
Digital. Mr. Gull has a B.S. in business finance from Brigham Young
University.
SIMON GU has been a director since September 1997. Mr. Gu has more than
twelve years of experience in electronics and computer industries, and has
been a senior computer engineer at AT&T since 1990. He held several senior
technology positions at US Army Armament Research, Development and
Engineering Center and Information Department of Town & County
International, Inc. from 1987 to 1990. Mr. Gu holds a Master of Sciences
in computer sciences from Polytechnic University of New York and a BS in
computer sciences at Kean College of New Jersey.
JASON CHANG has been selected as director of the Company since March 1999.
He has many years of experience in corporate management and international
trade. He was Deputy General Manager of Minmetals International Trading Co,
a Chinese governmental corporation; and had been served as president of
Minmetals U.K. Ltd., president of Chi Mei Corporation (USA), and president
of Harmony Corp. Mr. Chang served as a board member at several domestic and
international corporations.
GARY HUANG has been corporate Secretary of the Company since January 1997.
Prior to joining the Company, Mr. Huang served as Senior Accountant /
Financial Analyst at Rightiming Electronics Corp. with 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. James Yao, Jeremy Wang, Simon Gu and Jason Chang.
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) of 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 for the last three fiscal years ended June 30.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Annual Compensation Long Term Compensation
----------------------------------------------- ---------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Restricted Securities
Names and Principle Other Annual Stock Underlying LTIP All Other
Position Year Salary ($) Bonus ($) Compensation Award Options/SAR Payouts Compensation
- ------------------- ------- ----------- ---------- -------------- ------------ ------------- ---------- ------------
James Yao ......... 1998 68, 000 --- --- --- --- --- ---
Chairman 1997 18,000 --- --- --- 180,000 --- ---
1996 --- --- --- --- --- --- ---
Jeremy Wang*....... 1999 120,000 --- --- --- 180,000 --- ---
President 1998 N/A
John O. Hing**..... 1999 120,000 --- --- --- --- --- ---
Chief Financial Officer 1998 N/A
James Liu ........ 1998 68,000 --- --- --- --- --- ---
Vice President 1997 --- --- --- --- 180,000 --- ---
1996 --- --- --- --- --- --- ---
David Leung ....... 1998 --- --- --- --- --- --- ---
Vice President 1997 --- --- --- --- 500,000 --- ---
1996 --- --- --- --- --- --- ---
- ---------------------------------------------------------
</TABLE>
* Mr. Jeremy Wang was appointed in March, 1999. The salary indicated above
is his initial annual base salary.
** Mr. John O. Hing was appointed in March, 1999. The salary indicated above
is his initial annual base salary.
Each of the options issued above is currently exercisable at an exercise price
of $6.00 per share and shall be expired on May 15 and May 30, 2002. As of
March 31, 1998, no stock options have been exercised.
There are no reportable transactions between Lotus Pacific, Inc. and Lotus
International Holdings Corp., Yao Investment Corp., Rightiming Electronics
Corp., Evolving Investments Ltd. other than disclosure as shareholders.
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,
Chairman of the Board of the Company, owns Yao Investment Corp.
ITEM 8. LEGAL PROCEEDINGS
There have been no changes in the legal proceedings previously reported in the
Company's Annual Report on Form 10/A for the year ended June 30, 1998.
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 nine (9) 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 Bulletin Board from January 1997
through March 31, 1999. 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
December 31, 1998 ................ $10.31 $ 7.38
1999
March 31, 1999 ................... $ 7.44 $ 6.13
NUMBER OF REGISTERED HOLDERS
The number of registered holders of the Company's Common Stock as of
December 31, 1998 was 533, 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 Company believes that the transactions set forth below were 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 United States Securities and Exchange Commission. All the
investors were provided opportunities to get access to all relevant
information regarding the Company and they were represented to the Company
that they were "sophisticated" investors. They were 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 entered into two Commission Agreements with Clarinet Overseas Ltd.
on June 8, 1997 and June 1, 1998, respectively. Pursuant to the Agreements,
Clarinet introduced eight sophisticated investors for the Company's private
placements. These individuals purchased a total of 545,000 shares of the
Company's common stock for $2,495,000. As compensation to its service, the
Company paid Clarinet $109,200, plus 136,250 shares of the Company's common
stock.
On March 4, 1999, pursuant to the Share Purchase and Exchange Agreement, the
Company issued 500,000 shares of its common stock to Mr. Stefan Benger, the
sole shareholder of Professional Market Brokerage, Inc. as part of the
consideration for the Company's acquisition of Professional Market Brokerage,
Inc.
On March 15, 1999, the Company entered into an Acquisition Agreement to acquire
an equity interest in TurboNet Communications ("TurboNet"), a San Diego,
California, corporation. Under the terms of the Acquisition Agreement, the
Company will issue $80 million worth of its restricted common stock shares in
exchange for 81% of TurboNet's equity. TurboNet's existing shareholders agreed
that the shares so issued by the Company are prohibited from being sold, in
whole or in part, until TurboNet's annual gross revenue exceeds $30 million
with annual pretax net profit of not less than $6 million.
On March 15, 1999, the Company entered into an agreement with Arescom Inc.
("Arescom"), a Fremont, California, corporation, whereby the Company will
issue $30 million worth of restricted shares to acquire an 81% equity interest
in Arescom. Arescom's existing shareholders agreed not to sell the shares so
issued until Arescom's annual gross revenue exceeds $15 million with annual
pretax net profit of not less than $3 million.
During the period of July 1, 1997 through March 31, 1999, the Company sold
660,500 shares of the Common Stock to eleven accredited investors for an
aggregate consideration of $2,936,750.
ITEM 11. DESCRIPTION OF REGISTRANT'S SECURITIES TO BE REGISTERED
The authorized capital stock of the Company 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 Company is currently amending
its Certificate of Incorporation to increase its authorized number of common
stock shares to 80,000,000 shares in order to consummate its recent
acquisitions of USSF, Turbonet and Arescom (please see "Recent Development"
in Item 2 "Financial Information" for more detailed information). As of
March 31, 1999, there were 48,533,804 shares of Common Stock issued and
outstanding and held of record by approximately 533 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 March 31, 1999, 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 don 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. Holders
of Preferred Stock are entitled to receive dividends when, if any, declared
by the Board of Directors from funds legally available therefor. The
Preferred Stock shares are not redeemable, and the holders of Preferred Stock
do not have the rights to vote.
PREFERRED CLASS A STOCK
The Company has 4,300 shares of Preferred Class A Stock with a par value of
$0.001 authorized, and 4,300 shares have been issued and outstanding. Holders
of Series A 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 Class A Stock do not have the rights to vote, but they
are entitled to receive $10.00 per share upon the liquidation of the Company.
The holders of Preferred Class A Stock may at their option exchange preferred
shares for common stock of the Company at a predetermined ratio, which will be
determined by Board of Directors from time to time. The Preferred Class A
Stock shares are not redeemable.
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 entitled 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 part upon surrender of the
Certificate therefor on or prior to the expiration dates at the officers 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 their compensation in
May 1997. Each share of Options entitled the holder thereof to purchase, at
any time until May 15 and May 30, 2002, 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 part upon surrender of the Certificate
therefor on or prior to the expiration dates at the officers 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 royalty 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 Sheets at June 30, 1998 and 1997
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
7) Consolidated Balance Sheets as of December 31, 998 (Unauduited)
and June 30, 1998 (audited)
8) Consolidated Statements of Operations (Unaudited) for the Three
and Six Months ended December 31, 1998 and 1997
9) Consolidated Statements of Cash Flows (Unaudited) for the Six Months
Ended December 31, 1998 and 1997
10) Notes to Consolidated Financial Statements for the Quarter ended
December 31, 1998
2. Financial Statement Schedules.
3. Exhibits
3.1 Certificate of Incorporation of the Registrant, as amended
(Exhibit 3.1 to General Form for Registration of Securities on
Form 10, filed October 27, 1998)
3.2 Bylaws of the Registrant, as amended (Exhibit 3.2 to General Form
for Registration of Securities on Form 10, filed October 27, 1998)
10.1 Stock Subscription Agreement, dated as of March 18, 1997, between
Evernew International Limited and Lotus Pacific, Inc. (Exhibit
10.1 to Amendment No. 1 to General Form for Registration of
Securities on Form 10, filed January 7, 1999)
10.2 Stock Subscription Agreement, dated as of May 5, 1997, between
Evolving Investments Ltd. and Lotus Pacific, Inc. (Exhibit 10.2 to
Amendment No. 1 to General Form for Registration of Securities on
Form 10, filed January 7, 1999)
10.3 Warrant Purchase Agreement, dated as of May 5, 1997, between
Evolving Investments Ltd. and Lotus Pacific, Inc. (Exhibit 10.3 to
Amendment No. 1 to General Form for Registration of Securities on
Form 10, filed January 7, 1999)
10.4 Stock Exchange Agreement, dated as of September 18, 1997, between
Rightiming Electronics Corp. and Lotus Pacific, Inc. (Exhibit 10.4
to Amendment No. 1 to General Form for Registration of Securities
on Form 10, filed January 7, 1999)
10.5 Stock Subscription Agreement, dated as of December 31, 1997, between
Clarinet Overseas Limited and Lotus Pacific, Inc. (Exhibit 10.5 to
Amendment No. 1 to General Form for Registration of Securities on
Form 10, filed January 7, 1999)
10.6 Stock Purchase Agreement, dated as of September 30, 1998, between
Clarinet Overseas Limited and Lotus Pacific, Inc. (Exhibit 10.6 to
Amendment No. 1 to General Form for Registration of Securities on
Form 10, filed January 7, 1999)
10.7 Commission Agreement, dated as of June 8, 1997, between Clarinet
Overseas Limited and Lotus Pacific, Inc. (Exhibit 10.7 to Amendment
No. 1 to General Form for Registration of Securities on Form 10,
filed January 7, 1999)
10.8 Commission Agreement, dated as of June 1, 1998, between Clarinet
Overseas Limited and Lotus Pacific, Inc. (Exhibit 10.8 to Amendment
No. 1 to General Form for Registration of Securities on Form 10,
filed January 7, 1999)
27.1 Financial Data Schedule, filed herewith
27.2 Financial Data schedule, filed herewith
Signatures
Pursuant to the requirements of Section 12 of the Securities Exchange Act of
1934, the registrant had duly caused this registration statement to be signed
on its behalf by the undersigned, thereto duly authorized.
Date: April 2, 1999 Lotus Pacific, Inc.
By: /s/ James Yao
--------------------------------------
James Yao, Chairman of the Board
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/ Jeremy Wang
--------------------------------------
Jeremy Wang, President & Director
/s/ John O. Hing
---------------------------------------
John O. Hing, Chief Financial Officer
/s/ David Leung
----------------------------------------
David Leung, Vice President & Director
/s/ James Liu
-----------------------------------------
James Liu, Vice President & Director
/s/ Jason Chang
----------------------------------------
Jason Chang, Directoir
/s/ Simon Gu
-----------------------------------------
Simon Gu, Director
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 ended June 30,
1998, 1997 and 1996. 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 ended June 30, 1998, 1997 and 1996 in
conformity with generally accepted accounting principles.
/s/
Schffman Hughes Brown
Blue Bell, Pennsylvania
September 4, 1998
790 PENLLYN PIKE, SUITE 302, BLUE BELL, PENNSYLVANIA 19422
(215) 646-2000 FAX (215) 646-1937
LOTUS PACIFIC, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1998 AND 1997
<TABLE>
<CAPTION>
ASSETS
1998 1997
<S> <C> <C>
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
Total Assets $ 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 .. 6,569,544 2,317,815
(note 5)
Commitments (Note 11) -- --
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)
------------ -----------
Total stockholders' equity 7,820,864 5,738,867
Total Liabilities and
Stockholders' equity $ 16,404,225 $ 8,220,791
============== =============
</TABLE>
The accompanying notes are an integral part of these financial statements
LOTUS PACIFIC, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED JUNE 30, 1998,1997 AND 1996
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Revenues
Net product sales ................. $ 10,998,875 -- --
Royalty income .................... 1,800,000 -- --
------------ ------------- -----------
Total gross revenue 2,798,875 -- --
Cost of sales ...................... 7,989,318 -- --
Gross Profit ....................... 4,809,557 -- --
Operating expenses
Selling, general and administrative 2,826,730 $ 221,074 $ 17,934
Research and development .......... 4,371,990 103,870 --
------------- ------------- ------------
Total operating expenses 7,198,720 324,944 17,934
Operating Loss ...................... (2,389,163) (324,944) (17,934)
Other income (expenses)
Interest income .................... 33,675 11,186 11,008
Gain on sale of investment ......... -- 398,805 --
Equity in earnings of
unconsolidated subsidiary ......... -- -- 29,090
------------- ------------- ----------
33,675 409,991 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 (loss) .................... $ (2,057,045) $ 43,390 $ 22,164
============== ============ ===========
Net income (loss) per share
Basic .............................. $ (.05) $ .00 $ .00
Diluted ............................ $ (.05) $ .00 $ .00
Weighted average shares .............. 44,421,334 29,238,081 26,799,387
</TABLE>
The accompanying notes are an integral part of these 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
<TABLE>
<CAPTION>
Common Preferred Common Additional
Shares Shares Stock Paid-in
Outstanding Outstanding Warrants Amount Capital Deficit Total
-------------- ------------- ----------- ------------ ------------ ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
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..... -- -- -- -- -- -- --
----------- ------------- ------------ ----------- ----------- ------------ ---------
Balance
June 30, 1996..... 26,937,054 4,300 -- $ 26,941 $ 892,148 $ (533,612) $ 385,477
Issuance of
common stock...... 13,800,000 -- -- 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
</TABLE>
The accompanying notes are an integral part of these financial statements
LOTUS PACIFIC, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
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) --
Proceeds from sale of investment.................. -- 571,200 --
Acquisition of investment......................... -- (600,000) --
-------------- ------------ ----------
Net cash used in investing activities (113,854) (7,431,961) --
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 -- --
--------------- -------------- -----------
Net cash provided by financing activities 2,272,000 5,310,000 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
</TABLE>
The accompanying notes are an integral part of these 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. appears 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
Revenue recognition:
The revenue from product sales is recognized 15 days after the date of sale
in accordance with the Company's policy which generally allows the sold
products to be returned within 15 business days; revenue from services
rendered is recognized when services have been performed; and revenue from
royalty is recognized as fees accrue on sales of technology (software
products) by licensee. On some contracts the Company charges a one-time,
non-refundable royalty fee which is recognized as revenue on the basis
specified in the agreement.
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
products. 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.
Earnings (loss) Per Share:
Basic earnings (loss) per share are computed by dividing net income (loss) by
the weighted-average number of shares of common stock during the period.
Diluted earnings (loss) per share reflect the dilutive effect of an equivalent
number of common shares of convertible preferred stock, options and warrants.
For the year ended June 30, 1998, the computation of diluted loss per share was
antidilutive; therefore, the amounts reported for basic and diluted loss per
share were the same.
3. Loans Payable:
Represents money deposited with the Company in June 1998 from a potential
investor who has requested their money back. The $120,000 was refunded to them
in July 1998.
4. Issuance of Stock:
During the year ended June 30, 1998, the Company issued an aggregate of
6,649,750 shares of its common stock. 536,000 shares of common stock were
issued for cash consideration of $2,072,000, 113,750 shares of common stock
were issued for consulting services, and 6,000,000 shares of common stock were
issued to purchase at book value, $1,532,042, an additional 17% interest in
Regent Electronics Corp.
During the year ended June 30, 1997, the Company issued 13,800,000 shares of
its common stock for aggregate cash consideration of $5,310,000.
5. Acquisitions and Dispositions:
Shanghai Union Auto Bicycle Co., Ltd.:
On September 25, 1995 the Company exchanged 560,000 shares of its common stock
for a seventy percent equity interest in Shanghai Union (Shanghai Union) Auto
Bicycle Co., Ltd. in Shanghai, People's Republic of China. At September 25,
1995, Shanghai Union had stockholder's equity of $ 204,721, 70% thereof was
$143,305.
On June 28, 1996 the Company exchanged its investment in Shanghai Union for
5% of the outstanding common stock of Rightiming Electronics Corp.
("Rightiming"). Rightiming was incorporated on January 4, 1996 to design and
manufacture electronic software and other products to be marketed in the Far
East. Five percent of Rightiming's stockholder's equity was $268,018 upon the
date of acquisition. The Company recorded its investment in Rightiming at the
value of its investment in Shanghai Union, on the date of the exchange,
$172,395. On May 6, 1997, the Company sold its 5% interest in Rightiming
Electronics Corp. for $571,200.
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.
Richtime Far East, Ltd. operations include sales of garments and related
goods. The management of Lotus Pacific, Inc. has no operational or managerial
control/input upon the operations of Richtime Far East, Ltd., since Richtime
Far East, Ltd. has its own management staff to direct the operations of this
foreign company. In addition, Lotus Pacific, Inc.'s ability to control
Richtime Far East, Ltd. is severely limited by foreign exchange restrictions
and controls by the Hong Kong government and thus 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
----------- ------------
Current assets $ 2,247,874 $ 780,749
Fixed assets (net) 2,321 2,527
Current liabilities 1,467,361 476,167
Equity 782,834 307,109
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
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, 60,000,000 shares authorized, 47,387,644 and
40,737,894 shares issued and outstanding in 1998 and 1997, respectively.
Preferred stock - $.001 par value, 100,000 shares authorized, there is no
shares issued and outstanding in 1998 and 1997.
Preferred stock, Series A - $.001 par value, 4,300 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 three customers with
billings in excess of 10% of total revenues. These two customers accounted for
approximately 70% of total revenues. Of the total revenue, Shanghai Hong Sheng
Development Corp. accounted for $4,840,000 (38.7%), Full Chance China Ltd.
$2,749,000 (21.4%), and D&T Corp. $1,815,000 (14.2%).
10. Stock options:
The Company accounts for stock-based compensation in accordance with SFAS
No. 123, Accounting for Stock-Based Compensation which permits the use of the
intrinsic value method described in APB Opinion No. 25, Accounting for Stock
Issued to Employees, and required the Company to disclose the pro forma
effects of accounting for stock-based compensation using the fair value method
as described in the optional accounting requirements of SFAS No. 123. As
permitted by SFAS No. 123, the Company will continue to account for stock-based
compensation under APB Opinion No. 25, under which the Company has recognized
no compensation expense.
Had compensation cost for the Company's stock options been determined based on
the fair value of the Company's common stock at the dates of awards under the
fair value method of SFAS No. 123, the Company's net income and net income per
common share would have been reduced to the pro forma amounts indicated below:
1998 1997
Net income (loss):
As reported $(2,057,045) $ 43,390
Pro forma $(2,057,045) $(981,210)
Net income (loss) per common share:
As reported $ (0.05) $ 0.00
Pro forma $ (0.05) $ (0.03)
Significant assumptions used to calculate the above fair value of the awards
are as follows:
Risk free interest rates of return 6.00%
Expected option life 60 months
Expected dividends $ -0-
11. Commitments:
The Company leases its principal facilities of total approximately 9,400
square feet in Piscataway, New Jersey. Under the lease, the Company pays
$7,100 per month until expiration of lease in June 2002. Rent expense for
the year ended June 30, 1998 was $85,200.
The Company leases an additional space in Middlesex, NJ. The lease is annually
renewable and the monthly rent is $825. Rent expenses for the year ended
June 30, 1998 was $9,900.
Minimum annual rentals for each year subsequent to June 30, 1998 are
as follows:
June 30, 1999 $ 95,100
June 30, 2000 85,200
June 30, 2001 85,200
June 30, 2002 85,200
----------
$ 350,700
12. Condensed Financial Statements for Regent Electronics Corp. at
June 30, 1998 and 1997:
<TABLE>
<CAPTION>
BALANCE SHEET
ASSETS
1998 1997
<S> <C> <C>
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
Revenue
Sales......................... $ 6,155,000 --
Royalty income................ 1,800,000 --
------------ -------------
Total revenue 7,955,000 --
Cost of sales................. (3,408,500) --
Operating costs and expenses.. (6,251,873) $ (276,513)
Interest income............... 30,535 2,563
------------ --------------
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
</TABLE>
13. Condensed Financial Statements for LPF International Corp. at
June 30, 1998:
BALANCE SHEET
ASSETS
Current assets....................... $ 1,435,933
Property and equipment............... 75,603
Other assets......................... 50,617
------------
1,562,153
===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities.................. 171,962
Stockholders' deficit:
Common stock........................ 1,300,000
Retained earnings................... 90,191
------------
1,390,191
$ 1,562,153
=============
STATEMENT OF OPERATIONS
Sales................................ $ 4,843,940
Cost of sales........................ (4,580,823)
Interest income...................... 67
Operating costs and expenses......... (172,993)
-------------
Net income........................... $ 90,191
STATEMENT OF CASH FLOWS
Cash flows used in
operating activities............... $ (984,919)
Cash flows used in
investing activities............... (75,603)
Cash flows from
financing activities............... 1,300,000
------------
Net increase in cash................. $ 239,578
LOTUS PACIFIC, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
December 31, 1998 June 30, 1998
(Unaudited) (Audited)
------------------ --------------
Current Assets
Cash........................... $ 894,811 $ 3,193,127
Accounts Receivable............ 9,471,017 4,979,759
Notes Receivable............... 1,808,000 --
Inventory...................... 13,650 --
Prepaid Expenses............... 9,036 833,087
Deposit........................ 22,175 --
------------ -------------
Total Currents Assets 12,218,690 8,933,181
Property and Equipment.......... 1,632,369 1,631,403
Leasehold Improvement........... 1,041 75,612
------------- ------------
1,633,410 1,707,015
Less: Accu. Depreciation........ 512,154 348,286
Investments..................... -- 600,000
Intangible Assets, net of accumulated
amortization of $541,127....... 5,000,915 5,439,523
------------ -----------
Total Assets $ 18,340,861 $ 16,404,225
============== =============
LIABILITIES AND STOCKHOLDERS EQUITY
Current Liabilities
Account Payable................ $ 3,935,725 $ 1,755,654
Loans Payable.................. -- 120,000
Salaries Payable............... 59,995 63,819
Payroll Taxes Payable.......... 21,912 32,234
Income Taxes Payable........... -- 42,110
-------------- -------------
Total Current Liabilities 4,017,632 2,013,817
Minority Interest in Equity of
Consolidated Subsidiary........ 6,062,483 6,569,544
Stockholders' Equity
Preferred Stock, Class A, $.001 par value
4,300 shares authorized; 4,300 shares issued
and outstanding................ 4 4
Common Stock, $.001 par value, 60 million
shares authorized,47,499,304 shares issued
and outstanding................ 47,499 47,387
Stock Warrants.................. 80,000 80,000
Additional paid-in capital...... 11,050,628 10,240,740
Accumulated Deficit............. (2,917,385) (2,547,267)
------------- -------------
Total Stockholders' Equity...... 8,260,746 7,820,864
Total Liabilities &
Stockholders' Equity $ 18,340,861 $ 16,404,225
============== ==============
The accompanying notes are an integral part of the financial statements
LOTUS PACIFIC, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
Dec. 31 Dec. 31
------------------------- ----------------------------
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Net Revenue
Product sales................. $ 6,426,693 -- $ 8,846,693 --
Royalty income................ 124,125 $ 800,000 124,125 $ 1,800,000
------------ ------------- -------------- ------------
Total Revenue................ 6,550,818 800,000 8,970,818 1,800,000
Cost of Revenue............... 6,029,033 -- 7,227,033 --
Gross Profit................... 521,785 800,000 1,743,785 1,800,000
------------ ------------ ------------- -----------
Operating Expenses
Selling, general and
administrative............... 703,498 1,127,507 1,410,521 2,422,666
Research and development...... 483,995 210,105 1,049,738 267,558
------------ ------------- -------------- -----------
Total operating expenses..... 1,187,493 1,337,612 2,460,259 2,690,224
Operating Income (loss)........ (665,708) (537,612) (716,474) (890,224)
------------ ------------- ------------- -----------
Other Income (Expenses)
Interest Income............... 4,793 1,426 13,440 1,893
Income from continuing operations
Before income taxes.......... (660,915) (536,186) (703,034) (888,331)
------------ -------------- -------------- -----------
Discontinued operations
Gain on disposal of
discontinued LPF............. -- -- 100,000 --
Net Income before income taxes
and minority interests........ (660,915) (536,186) (603,034) (888,331)
---------- ----------- ----------- -----------
Minority Interest of Income
Consolidated Subsidiaries..... (74,187) (37,032) (66,836) (59,597)
Net Income..................... $ (586,728) $ (499,154) $ (536,198) $ (828,734)
=========== ============ ============ ============
Earnings Per Share
Basic....................... $ (0.01) $ (0.01) $ (0.01) $ (0.02)
Diluted..................... $ (0.01) $ (0.01) $ (0.01) $ (0.02)
Weighted Average Shares 47,499,304 46,812,554 47,488,428 44,798,804
</TABLE>
The accompanying notes are an integral part of the financial statements
LOTUS PACIFIC, INC. AND SUBSIDIARY
STATEMENTS OF CASH FLOWS
For the Six Months Ended December 31, 1998
(Unaudited)
<TABLE>
<CAPTION>
1998 1997
--------------- ---------------
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net Income................................ $ (536,198) $ (828,911)
Adjustments to reconcile net income to
net cash used in operating activities:
Depreciation & amortization............... 333,804 330,333
Common stock issued for service........... 135,000 --
Changes in assets & liabilities:
Increase in accounts receivable.......... (4,491,258) (215)
Decrease in prepaid expenses............. 729,084 (22,694)
Increase in accounts payable............. 2,003,815 478,444
Increase in notes receivable............. (1,808,000) --
Increase in inventory.................... (13,650) --
Increase in minority interest............ 498,466 65,906
--------------- --------------
(2,612,739) 851,774
Net cash used in operating activities (3,148,937) 22,863
CASH FLOW FROM INVESTING ACTIVITIES:
Purchase of equipment..................... -- (2,603)
Sale of equipment......................... 1,050 --
Sale of leasehold improvement............. 74,571 --
Gain on sale of investment................ 100,000 --
--------------- -------------
Net cash provided in investing activities 175,621 (2,603)
CASH FLOW FROM FINANCING ACTIVITIES:
Increase in loan payable................. -- 220,000
Issuance of common stock................. 675,000 294,000
Issuance of stock warrants............... -- 80,000
-------------- -------------
Net cash provided by financing activities 675,000 594,000
Net increase (decrease) in cash........... (2,298,316) 614,260
------------- ------------
Cash, beginning........................... 3,193,127 268,679
Cash, ending.............................. $ 894,811 $ 82,939
============== ============
Supplemental disclosure of non-cash financing activities:
Issuance of common stock for service...... $ 135,000
</TABLE>
The accompanying notes are an integral part of the financial statements
LOTUS PACIFIC, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 (UNAUDITED)
1. Description of business:
Lotus Pacific, Inc. (the "Company") is a holding company for Regent
Electronics Corp. ("Regent"). The Company, through its subsidiary, designs,
engineers, develops, provides and markets the Internet-related electronics
products and services to electronics manufactures, commercial cable TV
networks, hotels, and general individual customers. Regent also generates its
income from granting its technology or licenses to electronic manufactures and
commercial cable TV networks. The Company owns 87.3% of Regent's equity
interest.
2. Summary of significant accounting policies:
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have
been prepared by the Company pursuant to the rules and regulations of the
Securities and Exchange Commission regarding interim financial reporting.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements
and should be read in conjunction with the financial statements and notes
included in the Company's Annual Report on Form 10-K/A filed on January 7,
1999 for the year ended June 30, 1998.
The accompanying condensed financial statements reflect all adjustments
(consisting of normal, recurring adjustments) which are, in the opinion of
management, necessary for a fair presentation of the results for the interim
periods presented. The results of operations for the quarter ended
December 31, 1998 are not necessarily indicative of the results to be expected
for a full year.
Principle of Consolidation:
The accompanying financial statements include the accounts of Lotus Pacific,
Inc. and its 87.3% owned subsidiary, Regent Electronics 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.
Revenue recognition:
The revenue from product sales is recognized 15 days after the date of sale
in accordance with the Company's policy which generally allows the sold
products to be returned within 15 business days; revenue from services
rendered is recognized when services have been performed; and revenue from
royalty is recognized as fees accrue on sales of technology (software
products) by licensee. On some contracts the Company charges a one-time,
non-refundable royalty fee which is recognized as revenue on the basis
specified in the agreement.
LOTUS PACIFIC, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 (UNAUDITED)
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
products and services. 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.
Earnings (loss) Per Share:
Basic earnings (loss) per share are computed by dividing net income (loss) by
the weighted-average number of shares of common stock during the period.
Diluted earnings (loss) per share reflect the dilutive effect of an equivalent
number of common shares of convertible preferred stock, options and warrants.
For the quarter ended December 31, 1998, the computation of diluted loss per
share was antidilutive; therefore, the amounts reported for basic and diluted
loss per share were the same.
2. Accounts Receivable:
The allowance for doubtful accounts is based on management's evaluation of
outstanding accounts receivable at the end of this fiscal quarter. No allowance
for doubtful accounts has been provided, since management believes all accounts
are collectable.
3. Discontinued Operations:
On September 30, 1998, the Company sold all of its ownership in LPF
International Corp. and Richtime Far East Ltd., including all assets and all
liabilities, to Clarinet Overseas Ltd. for an aggregate consideration of
$2,500,000.
4. Income Taxes Provision
For the quarter ended December 31, 1998, no income taxes have been provided
since those income taxes liabilities could be offset by the Company's net
operating losses (NOLs) incurred in previous years.
5. Significant customers:
For the quarter ended December 31, 1998, the Company's continuing operation
had two customers with billings in excess of 10% of total revenues.
LOTUS PACIFIC, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 (UNAUDITED)
6. Commitments:
The Company leases its principal facilities of total approximately 9,400
square feet in Piscataway, New Jersey. Under the lease, the Company pays
$7,100 per month until expiration of lease in June 2002. Rent expense for the
year ended June 30, 1998 was $85,200.
The Company leases an additional space in Middlesex, NJ. The lease is annually
renewable and the monthly rent is $825. Rent expenses for the year ended
June 30, 1998 was $9,900.
Minimum annual rentals for each year subsequent to June 30, 1998 are
as follows:
June 30, 1999 $ 95,100
June 30, 2000 85,200
June 30, 2001 85,200
June 30, 2002 85,200
-----------
$ 350,700
7. Capital Stock:
Common stock - $.001 par value, 60,000,000 shares authorized, 47,499,304
shares issued and outstanding as of December 31, 1998.
Preferred stock - $.001 par value, 100,000 shares authorized, no shares
issued and outstanding as of December 31, 1998.
Preferred stock, Class A - $.001 par value, 4,300 shares authorized, 4,300
shares issued and outstanding as of December 31, 1998.
Common stock warrant - 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. These warrants expire May 5, 2002. As of December 31, 1998,
no warrants have been exercised.
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
AUDITED CONSOLIDATED FINANCIAL STATEMENTS OF THE COMPANY ON FORM 10-K/A
FOR THE FISCAL YEAR ENDED JUNE 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000789945
<NAME> LOTUS PACIFIC, INC
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<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
AUDITED CONSOLIDATED FINANCIAL STATEMENTS OF THE COMPANY ON FORM 10-K/A
FOR THE YEAR ENDED JUNE 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY
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</LEGEND>
<CIK> 0000789945
<NAME> LOTUS PACIFIC, INC.
<S> <C>
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