FORM 10
Amendment No. 1 to Form 10
GENERAL FORM FOR REGISTRATION OF SECURITIES PURSUANT TO SECTION 12 (b)
OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
LOTUS PACIFIC, INC.
(Exact name of registrant as specified in its charter)
Delaware
(State of Incorporation)
52-1947160
(I.R.S. Employer Identification Number)
200 Centennial Avenue, Suite 201, Piscataway, NJ 08854
(Address of Principal Executive Offices)
(732) 885-1750
(Registrant's Telephone Number, Including Area Code)
Securities to be Registered Pursuant to Section 12(b) of the Act:
Title of each class to be registered
NONE
Name of each exchange on each class is to be registered
NOT APPLICABLE
Securities to be Registered Pursuant to Section 12(g)(1) of the Act:
COMMON STOCK, $.001 PAR VALUE PER SHARE
(Title of Class)
LOTUS PACIFIC, INC.
FORM 10
INDEX
1. Business
2. Financial Information
3. Properties
4. Security Ownership of Certain Beneficial Owners and Management
5. Directors and Executive Officers
6. Executive Compensation
7. Certain Relationships and Related Transactions
8. Legal Proceedings
9. Market Price of and Dividends on the Registrant's Common Equity
Related Stockholder Matters
10. Recent Sales of Unregistered Securities
11. Description of Registrant's Securities to be Registered
12. Indemnification of Directors and Officers
13. Financial Statements and Supplementary Data
14. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
15. Financial Statements and Exhibits
16. Signatures
ITEM 1. BUSINESS
GENERAL
Lotus Pacific, Inc. (the "Company" or "Registrant") is a holding company
for Regent Electronics Corp. ("Regent"). The Company's Common Stock is
currently traded on OTC Bulletin Board under the symbol "LPFC".
The Company, through its subsidiary Regent, designs, engineers, develops,
provides and markets Internet related electronics products and services to
electronics manufactures, commercial cable TV networks, and general
individual customers. Regent generates its revenues through a combination of
direct sales, under resale agreement, and distribution channels. Regent also
generates its income from granting its technology or licenses to electronic
manufacturers and commercial cable TV networks.
The Company owns 87.3% of Regent's equity interest. The remaining 12.7% of
Regent's equity is owned by Rightiming Electronics Corp.(7.27%), and
Hambrecht & Quist Asia Pacific Ltd. and its affiliate Asia Pacific Growth
Fund II, L.P. (5.45%).
The Company's distribution channels mainly consist of local cable TV
stations in Shanghai, which have more than 2 million subscribers. These
subscribers can be referred from the TV stations to purchase the Company's
products. Although the Company considers entering retail channels in the
future, all of the Company's sales to date are wholesales.
Two Company's products, TeleWeb broadcasting systems and WonderTVs, are
primarily marketed to electronics manufactures and commercial cable TV
networks. In order to produce the Company's products, the manufactures must
obtain the dedicated chipsets and the accompanying software. There are two
revenue sources for the Company: (1) resale of its dedicated chipsets; and
(2) collecting loyalty fee from licensing out its software.
Utilizing its Internet R&D capabilities and its TeleWeb system, the
Company has started on-line service business that (a) provide retail services
over the Internet to Chinese customers for purchasing a variety of
merchandises, and (b) offer information and electronic commerce services.
The information and services provided by the Company includes breaking
financial news, real-time stock quotes, corporate information as well as
consumer entertainment information. The information may be derived either
directly from the Internet or from the Company's own sources, which are
collected by the Company from individuals, companies, communities, or other
organizations who intend to broadcast their information via TeleWeb system.
The Company's electronic commerce services consist of advertising sales and
initiating business transactions over the Internet, such as home shopping,
online stock trading and online utility bill payments.
The Company was incorporated under the laws of the State of Delaware on
June 25, 1985, as Quatech, Inc. to raise capital and investigate and acquire
any suitable asset, property or pursue other business opportunities. In April
1987, the Company completed a public offering of securities registered on
Form 3-18 with the Securities and Exchange Commission. In June 1993, the
Company disposed of all of its interests in other entities and ceased to
have any business operations.
In September 1994, the Company was reorganized and changed its name to
Lotus Pacific, Inc. In January 1997, the Company's majority ownership was
changed. After new directors and executive officers were elected, the Company
set up two wholly owned subsidiaries, Regent Electronics Corp., registered in
the State of Delaware and Richtime Far East Ltd. in Hong Kong.
In June 1997, the Company, through its subsidiary Regent Electronics
Corp., acquired Amiga-based multimedia technology and its related assets and
rights from Rightiming Electronics Corp. for an aggregate consideration of
US $5 million plus 8 million shares of common stock of Regent Electronics
Corp. The acquired assets included all Amiga-Commodore's patents, licenses,
trademarks, and copyrights to be registered and used in China, Taiwan, Hong
Kong, Macao, and the bordering countries between China and the former Soviet
Union. Over the past years Regent developed a series of multimedia and
multi-functional TV based set-top Internet access devices, including the
TeleWeb Broadcasting System, WonderTV A6000, A6060, A8000, and A9000.
In March 1997, Richtime Far East Ltd., a subsidiary of the Company,
started its garment and textile import-export 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, a new wholly owned subsidiary LPF International Corp.(" LPF")
was set up by the Company. LPF is incorporated in the State of Delaware and
operated in New York, NY. The purpose of LPF was to expand the Company's
existing textile and apparel business worldwide and place more emphasis on
fashion design. Richtime Far East Ltd. was then merged into LPF to be an
indirect subsidiary of the Company.
In order to concentrate on its Internet related electronics products
and services, the Company entered into a Stock Purchase Agreement on
September 30, 1998 with Clarinet Overseas Ltd. Under the Agreement, the
Company sold all of its ownership in LPF and Richtime, including all
assets and liabilities, to Clarinet Overseas Ltd. for an aggregation
consideration of $2,500,000 in cash.
Since June 1997, the Company has invested significant resources in
research, product development, and engineering activities for its Internet
broadcasting system and its WonderTV series of set-top box and other related
products. As a result of these R&D activities and the low volume of sales
during the initial commercialization of its products, the Company incurred
net operating losses during the fiscal year ended June 30, 1998. The Company
anticipates that it will continue to make significant expenditures for
product development and marketing of its Internet-related electronics
products and services in the foreseeable future.
THE COMPANY'S PRIMARY PRODUCTS AND SERVICES
The Company has primarily positioned itself as a researcher and developer
of cable TV-based Internet access related consumer electronics products,
including hardware and software. The Company then licenses its technologies
to electronics manufacturers, commercial cable TV networks or contracts to
manufacturers 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 WONDER-TVS
The Company's products include the TeleWeb System and WonderTV series
products. The TeleWeb system is a WWW broadcasting system that sends the
Internet contents and selected commercial information through existing cable
TV networks subscribers.
Based on the technology of the TeleWeb system, the Company has developed
WonderTV series products: WonderTV A6000, A6060, A8000, and A9000, which sell
at the price range of approximately $250 (without hard disk) to $400 (with
hard disk). The Teleweb Broadcasting Systems sell at approximately about
$12,000.
Using the Company's TeleWeb system and its WonderTV terminals, subscribers
can download desirable information to the hard disk of WonderTV according
to the monitored data attributes of the user selection. Information is
updated in real time and can be stored on the hard disk for later use. The
Company offers a variety of related services, such as pay-per-view, real time
stock trading, on-line shopping and commercial advertisement.
ONLINE SERVICES
Utilizing its Internet R&D capabilities and TeleWeb System, the Company
launched a project to: (1) provide online merchandise retail services over
the Internet to Chinese customers with a variety of merchandises, and (2)
offer information and electronic commerce services. The information and
services provided by the Company includes breaking financial news, real-time
stock quotes, corporate information as well as consumer entertainment
information. The information may be derived either directly from the Internet
or from the Company's own sources, which are collected by the Company from
individuals, companies, communities, or other organizations who intend to
broadcast their information via TeleWeb system. The Company's electronic
commerce services consist of advertising sales and initiating business
transactions over the Internet, such as home shopping, online stock trading
and online utility bill payments. The Company also broadcasts its own home
shopping service via the Teleweb system.
The Company believes that its targeted market of consumers represents
an attractive and rapidly growing segment of the Web commerce industry. The
service charge for an individual subscriber will be determined by
negotiations with different TV stations. Usually the monthly charge for
an individual subscriber is under $30.
PATENTS, TRADEMARKS AND LICENSES
The Company is pursuing patent applications in certain foreign countries.
There can be no assurance that any of the Company's currently pending patent
applications or future applications will be granted in full or in part or
that claims allowed will be sufficiently broad to protect the Company's
technology. The Company currently holds all right, title, and interest in
and to the trademarks, copyrights, patent license of Amiga-Commodore for
registration and use in the People's Republic of China, Taiwan, Hong Kong,
Macao and the Asian bordering countries between the People's Republic of
China and the former Soviet Union.
COMPETITION
As the Company enters the market for Internet related products, it expects
to experience significant competition from both existing competitors and
additional companies that may enter this market. Some of these companies have
greater technical, marketing, manufacturing, and financial resources than the
Company.
To address the competitive nature of the business, the Company is
constantly seeking innovation to maintain its competitive edge. This includes
using newly developed technology to periodically upgrade its electronic
products always with new features accustomed to local users.
The markets for the Company's products are highly competitive and are
characterized by rapid technological advances, frequent new product
introductions, evolving industry standards, and competitive price pressures.
The Company will continue to develop and market appropriate products to
remain competitive. The Company believes that one of the factors in its
competitive success is its continued commitment of resources to research
and development.
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
As of June 30, 1998, the Company had 47 full-time employees. The
Company also employs independent contractors and other temporary employees
in its software development department. None of the Company's employees is
represented by a labor union. The Company considers relations with its
employee to be excellent.
ITEM 2. FINANCIAL INFORMATION
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data presented below under the
captions "Consolidated Statements of Operations Data" and "Consolidated
Balance Sheet Data" are derived from the consolidated financial statements
of the Company and its subsidiaries, which financial statements have been
audited by Schiffman Hughes Brown (fiscal 1998, 1997 and 1996), the
Company's independent public accountants, to the extent indicated in their
report included elsewhere herein.
The selected consolidated financial data set forth below is qualified
in its 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.
Selected Consolidated Financial Data
(in thousands, except per share data)
Fiscal Years Ended June 30
1998 1997 1996
Consolidated Statement
of Operations Data:
Revenues .................. 12,833 410 40
Cost of Sales ............. 7,989
Operating Expenses
General and administrative expenses
2,827 221 18
Research and Development .. 4,372 104
7,199 325
Income tax benefit (expenses) 81 (124)
Minority interest in loss of
Consolidated subsidiary ...... 218 82
Operating income (loss) ....... (2,057) 43 22
Net income per share
Basic ....................... (.05) .00 .00
Diluted ...................... (.05) .00 .00
Weighted average shares
outstanding ................. 44,421 29,238 26,799
Fiscal Year Ended June 30
1998 1997 1996
Consolidated Balance Sheet Data:
Cash and cash equivalents .. 3,193 269 213
Working capital ............. 6,919 107 213
Total assets ................ 16,404 8,221 385
Long-term obligation ........ 0 0 0
Total shareholders' equity .. 7,821 5,739 3,85
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
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.
OVERVIEW
The Company, through its subsidiary Regent Electronics Corp., designs,
engineers, develops, provides and markets Internet related electronics
products and services to electronics manufactures, commercial cable TV
networks, and general individual customers. Using its Internet research
and development capabilities, including the TeleWeb broadcasting system,
set-top boxes, WonderTV series products, the Company has started its
on-line service business.
The Company has primarily positioned itself as a researcher and developer
of cable TV-based Internet access related consumer electronics products,
including hardware and software. The Company then licenses its technologies
to electronics manufacturers, 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.
The Company's products include the TeleWeb System and WonderTV series
products. The TeleWeb system is a WWW broadcasting system that sends Internet
contents and selected commercial information through the existing cable TV
network subscribers. Based on the technology of the TeleWeb system, the
Company has developed WonderTV series products: WonderTV A6000, A6060, A8000,
and A9000. From the Company's TeleWeb system and its WonderTV terminals,
subscribers can download desirable information to the hard disk of WonderTV
according to the monitored data attributes of the user selection. Information
is updated in real time and can be stored on the hard disk for later use. The
Company offers a variety of related services, such as pay-per-view, real time
stock trading, on-line shopping and commercial advertisement.
In 1998, the Company has started its on-line service business that (a)
provide retail services over the Internet to Chinese customers for purchasing
a variety of merchandises, and (b) offer information and electronic commerce
services. The information and services provided by the Company includes
breaking financial news, real-time stock quotes, corporate information as
well as consumer entertainment information. The information may be derived
either directly from the Internet or from the Company's own sources, which
are collected by the Company from individuals, companies, communities, or
other organizations who intend to broadcast their information via TeleWeb
system. The Company's electronic commerce services consist of advertising
sales and initiating business transactions over the Internet, such as home
shopping, online stock trading and online utility bill payments. The Company
believes that its targeted market of consumers represents an attractive and
rapidly growing segment of the Web commerce industry.
FISCAL YEARS ENDED JUNE 30, 1998 AND 1997
Results Of Operations
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 $409,991 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
little 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 WonderTVs, are
marketed to electronics manufactures and commercial cable TV networks. 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 WonderTV
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 loyalty 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 loyalty payments as long as it continues
to market its WonderTVs 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).
SELLING, GENERAL AND ADMINISTRATIVE 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 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 1997. The significant increase in research and
development expenses was primarily a result of developing the TeleWeb
broadcasting system and setting up online merchandise retail and electronic
commerce services. The Company's software development costs are recorded in
accordance with Statement of Financial Accounting Standards No. 86. To date,
the Company has expensed all of its internal software development.
OPERATING LOSS As a result of the factors discussed above, the Company's
operating income decreased from $43,390 in fiscal 1997 to $2.06 million of net
loss in fiscal 1998. For the year ended June 30, 1998, the Company has net
loss of $.05 per diluted share.
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
The Company ended the fiscal 1998 with a cash and cash equivalents
position of approximately $3.2 million, compared to $268,679 in fiscal 1997.
Since January 1997, the Company has financed its operations and
expenditures primarily through the sale of capital stock. On February 8,
1998, Hambrecht & Quist Asia Pacific Ltd. and its affiliate Asia Pacific
Growth Fund II, L.P. (collectively "H&Q") invested $6 million to acquire
1,500,000 shares of Preferred Stock of Regent Electronics Corp. H&Q's
cquisition 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 June 30, 1997 through June 30, 1998, the Company
sold 536,000 shares of the Common Stock to eleven accredited investors for
an aggregate consideration of $2,072,000.
As of June 30, 1998, the Company had working capital of $6.92 million
(an increase of $6.8 million from $106,924 as of June 30, 1997). During 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.
The Company has no 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. 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 trade credits available from many corporations with credit
line up to $50,000, net 30 days. The Company may raise its capital in the
future either from the secondary offerings or from private placements.
In fiscal 1999, the Company, through its subsidiary Regent Electronics
Corp., will actively look for business opportunities in China and its
bordering countries to manufacture and market its TeleWeb broadcasting system
and WonderTV series products. The Company has been contacting several big TV
manufacturers in China seeking a contractor for such purpose. The Company is
confident in its market potential based on the continuation of economic
growth and the increasing demand for Internet access and multimedia
entertainment in China. It is part of the Company's business strategy to use
the revenues generated from sales of the TeleWeb system and WonderTV series
products to finance the Company's research and development activities in
its new generation of products for multimedia home entertainment.
Some international companies with capability of producing similar products
are also trying to enter into the China's multimedia entertainment market.
To improve its competitiveness, the Company focuses on products that are
accustomed to China's cultural tradition and the Company will persist in its
aggressive drive to reduce business cost. While subject to many variables,
the Company anticipates revenue increases in the coming fiscal year. At the
same time, the Company will continue to raise capital necessary for its
expansionary operations and research and development activities.
FISCAL QUARTERS ENDED SEPTEMBER 30, 1998 AND 1997
Results Of Operations
NET REVENUES For the quarter ended September 30, 1998, sales from the
Company's continuing operations increased to $2.42 million from zero for the
quarter ended September 30,1997. The increase in sales was due primarily to
the sale of chipsets. During this quarter, the Company deposed of its textile
and apparel subsidiary, LPF International Corp. The Company has not generated
revenue from its discontinuing operations for this quarter, except $100,000
gain of disposal of LPF operation.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES Selling, general and
administrative expenses consist primarily of general and administrative
expenses, such as travel, selling, communications, employee benefits,
management, administrative and office rents. For the quarter ended
September 30, 1998, selling, general and administrative expenses increased
63%, about $272,000, to $707,000 from the corresponding period in 1997.
This increase was primarily, about 85%, due to the higher salary expenses and
higher consulting fee expenses.
RESEARCH AND DEVELOPMENT For the quarter ended September 30, 1998, the
Company had R&D expenses of $565,800, compared with $918,000 for the quarter
ended September 30, 1997. The decrease in research and development expenses
was primarily because of (1) less R&D related consulting fee expenses; and
(2) major R&D expenses has been spent in the previous quarters.
NET INCOME Because of higher sales and lower R&D expenses, the Company's
net loss from continuing operations decreased from $352,000 for the quarter
ended September 30, 1997 to $42,100 for the quarter ended September 30, 1998.
The Company has not generated income from its discontinuing operations
during this fiscal quarter, except $100,000 gain on disposal of its
subsidiary. Because of this gain, the Company's net income reached to
$50,500 compared to the net loss $330,000 for the corresponding quarter
in 1997.
RECENT DEVELOPMENTS
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. See "Item 6. Exhibits and Reports on Form 8-K".
LIQUIDITY AND CAPITAL RESOURCES
The Company ended this fiscal quarter with a cash position of
approximately $2.62 million.
During the quarter ended September 30, 1998, the Company used approximately
$1.43 million of cash for operations. The Company's accounts payable decreased
by more than $1 million during the quarter, and accounts receivable was
increased by $1.82 million during this quarter because of new sales and delay
in customer payments.
As of September 30, 1998, the Company's working capital was approximately
$8.70 million as compared to $6.9 million on June 30, 1998. The higher
working capital at September 30, 1998 as compared to June 30, 1998 was
primarily the result of higher accounts receivable and lower accounts payable.
For the quarter ended September 30, 1998, the Company generated $675,000 of
cash from financing activities in this quarter by issuing 90,000 shares of
the Company's common stock in private placements, and generated $176,000 cash
from disposal of its discontinuing operation. As of September 30, 1998 the
Company had 47,499,306 shares of Common Stock with par value $.001 per share
and 4,300 shares of Series A Preferred Stock issued and outstanding.
The Company has no 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. 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 trade credits available from many corporations with credit
line up to $50,000, net 30 days. The Company may raise its capital in the
future either from the secondary offerings or from private placements.
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, so far, all of the Company's sales 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.
The current Asian economic crisis will have certain impact on the
Company's operation and marketing in the future. The Company is mainly
concentrating on the Chinese market for its sales of Teleweb Broadcasting
Systems and WonderTVs. 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. The Company has decided to
expand its market presence, and market its products in the U.S. and European
markets.
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 Company believes that its existing facilities are adequate
to meet its requirements for the near term and that additional space will be
available on commercially reasonable terms if needed.
The following table summarizes the lease agreements held by the Company
and its subsidiaries relating to offices and other facilities:
Location Lease Term Commence Date Expiration Date
Piscataway 5 years June 5, 1997 June 4, 2002
New Jersey
Middlesex Annual June 5, 1998 Renewable
New Jersey Renewable
Overseas, Regent maintains a technical support and sales office space
in Shanghai, China.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN 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
December 31, 1998, 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 14.6%
308 East Bay Street
Nassau, Bahamas
Yao Investment Corp. 8,000,000 14.1%
308 East Bay Street
Nassau, Bahamas
Rightiming Electronics Corp. 6,000,000 10.6%
P.O. Box 186
Piscataweay, NJ 08855-0186
Evolving Investments Ltd. 3,100,000 5.5%
3706 Cricket Circle
Edison, NJ 08820
The percentages indicated are based on the Company's outstanding Stock
Options and Warrants exercisable as of December 31, 1998 and 47,499,304
shares of Common Stock issued and outstanding as of December 31, 1998.
As of December 31, 1998, there were 47,499,304 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 is 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, President & Chairman 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., Rightiming Electronics Corp. is
mainly owned by Robert Wang and John Wang, Sunman Lee owns Evolving
Investments Ltd.
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 December 31, 1998. A total of 1,090,000 shares of Common Stock
Options were issued and outstanding as of December 31, 1998.
BENEFICIAL OWNERS NO. OF SHARES
James Yao
Chairman & President 180,000
David Leung
Vice President & Director 500,000
James Liu
Vice President & Director 180,000
Jeremy Wang
Director 180,000
Cheng Wang
former Director 50,000
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 December 31, 1998 are as follows:
Name Age Date Appointed Position
James Yao (2) 44 January 1997 Chairman, President & Director
David Leung 53 January 1997 Vice President & Director
James Liu 43 January 1997 Vice President & Director
Jeremy Wang(1) (2) 43 May 1997 Director
Simon Gu (1) 43 September 1997 Director
Gary Huang (1) 43 January 1997 Chief Financial Officer,Secretary
& Director
(1) Member of the Audit Committee.
(2) Member of the Compensation Committee
The following are biographies of the Company's executive officers and
directors for the recent years.
JAMES YAO joined the Company as President and a Director in January 1997
and was elected Chairman of the Board of Directors. He has over 15 years of
business experience in multinational companies as well as new ventures in
textile and apparel industry, most recently with Yao Investment Corp. and
Lotus International Holdings Corp., where he served as Chairman. Mr. Yao
graduated from Miya Gawa University in Tokyo, Japan.
DAVID LEUNG joined the Company as Vice President in January 1997. Prior
to joining the Company, Mr. Leung served as General Manager of Shenzhen New
Technology Development Co., Ltd. in Shenzhen, China. He is a director of
Lotus International Holdings Corp. He was employed as a research fellow with
Electronics Research Institute in Guangzhou, China under Academia Sinica from
1984 to 1992. Mr. Leung had a BS from Beijing Institute of Technology.
JAMES LIU has been a director and Vice President of the Company since
January 1997. Prior to his joining the Company, Mr. Liu served as President
of JBL International Inc., 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.
JEREMY WANG was elected Director in March 1997. In the past ten years, he
worked at AT&T Bell Laboratories and Merck & Co. He held various
responsibilities in system engineering, development and product management
in the telecommunications industry. Mr. Wang had an MS in Chemical
Engineering from University of Virginia, and a MS in Computer Science from
New Jersey Institute of Technology.
SIMON GU has been a director since September 1997. Mr. Gu has more than
twelve years of experience in electronics and computer industries, and has
been a senior computer engineer at AT&T since 1990. He held several senior
technology positions at US Army Armament Research, Development and
Engineering Center and Information Department of Town & County International,
Inc. from 1987 to 1990. Mr. Gu holds a Master of Sciences in computer
sciences from Polytechnic University of New York and a BS in computer
sciences at Kean College of New Jersey.
GARY HUANG has been Treasurer and Secretary of the Company since January
1997 and Chief Financial Officer since July 1998. Prior to joining the
Company, Mr. Huang served as Senior Accountant / Financial Analyst at
Rightiming Electronics Corp. with responsibilities in accounting, financial
reporting and treasury functions. He holds an MBA in finance from University
of New Haven and an MA in Economics from Yale University.
All directors hold office for their elected term or until their successors
are duly elected and qualified. Should a director be disqualified or unable
to serve as a director, the vacancy so arising may be filled by the Board of
Directors for the unexpired portion of his term. All officers serve at the
discretion of the Board of Directors. There are no family relationships
among the members of the Board of Directors or any executive officers of
the Company.
COMMITTEES AND BOARD COMPENSATION
The Board of Directors conducts its business through meetings of the Board
of Directors and through its committees. In accordance with the By-laws of
the Company, the Board of Directors has established an Audit Committee and a
Compensation Committee.
AUDIT COMMITTEE
The Audit Committee acts on behalf of the Board of Directors with respect
to the Company's financial statements, record-keeping, auditing practices
and matters relating to the Company's independent public accountants,
including recommending to the Board of Directors the firm to be engaged as
its independent public accountants for the next fiscal year; reviewing with
the Company's independent public accountants the scope and results of the
audit and any related management letter; consulting with the independent
public accountants and management with regard to the Company's accounting
methods and adequacy of its internal accounting controls; approving the
professional services rendered by the independent public accountants; and
reviewing the independence of the independent public accountants. The Audit
Committee consists of Messrs. Jeremy Wang, Simon Gu and Gary Huang.
COMPENSATION COMMITTEE
The Compensation Committee reviews and makes recommendations to the
Board of Directors the appropriate compensation of directors and executive
officers of the Company. The Compensation Committee consists of Messrs.
James Yao and Jeremy Wang.
DIRECTORS' COMPENSATION
Directors are not paid a fee for attending Board of Directors or committee
meetings, but are reimbursed for their travel expenses to and from the
meetings.
INVOLVEMENT IN CERTAIN LEGAL PROCEEDINGS
None of the officers or directors has been involved in any material legal
proceedings that occurred within the last five years of any type as described
in Section 401(f) or Regulation S-K.
ITEM 6. EXECUTIVE COMPENSATION
The following Summary Compensation Table (1): Annual Compensation, and
Table (2): Long Term Compensation set 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.
Summary Compensation Table (1): Annual Compensation
Names and Principle Other Annual
Position Year Salary($) Bonus($) Compensation
James Yao 1998 $68,000 0 0
President & Chairman 1997 18,000 0 0
1996 0 0 0
James Liu 1998 68,000 0 0
Vice President 1997 0 0 0
1996 0 0 0
David Leung 1998 0 0 0
Vice President 1997 0 0 0
1996 0 0 0
Gary Huang 1998 34,337 0 0
Chief Financial Officer 1997 10,666 0 0
1996 0 0 0
- -------------------------------------------------
Summary Compensation Table (2): Long Term Compensation
Restricted Securities
Names and Principle Stock Underlying All Other
Position Year Award Options/SAR Compensation
James Yao 1998 0 0 0
President & Chairman 1997 0 180,000 0
1996 0 0 0
James Liu 1998 0 0 0
Vice President 1997 0 180,000 0
1996 0 0 0
David Leung 1998 0 0 0
Vice President 1997 0 500,000 0
1996 0 0 0
Gary Huang 1998 0 0 0
Chief Financial Officer1997 0 0 0
1996 0 0 0
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 December 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, President & Chairman of the Company, also owns Yao
Investment Corp.
ITEM 8. LEGAL PROCEEDINGS
In July 1997, Gateway 2000 claimed that it "owns all Amiga patents,
copyrights and trademarks worldwide." No documentation in support of
Gateway's claim has been produced. After Gateway's claim, the Company has its
attorney contacted with Gateway and showed Gateway the pertinent document
that proves the company's ownership of the exclusive rights to all Amiga
patents, copyrights and trademarks 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. After the Company's interactions with Gateway, to the best
knowledge of the Company to date, Gateway 2000 has not taken, nor has it
threatened to take, any further action with respect to its claim. Gateway
did not mention this issue in its 10K filings with the SEC.
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 December 31, 1998. These price quotations reflect inter-dealer
prices, without retail mark-up, mark-down or commission, and may not
necessarily represent actual transactions.
Quarte 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
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 greate
number of beneficial owners of shares of its Common Stock.
DIVIDENDS
To date, the Company has not declared or paid any cash dividends on its
Common Stock. The Company currently anticipates that it will retain all
available funds for use in the operation and expansion of its business, and
no cash dividend are expected to be paid on the Common Stock in the
foreseeable future. Further, there can be no assurance that the proposed
operations of the Company will generate the revenue and cash flow needed
to declare cash dividends in the foreseeable future.
ITEM 10 RECENT SALES OF UNREGISTERED SECURITIES
The transactions set forth below were deemed exempt from registration
under the Securities Act of 1933, as amended (the "Securities Act"), by
reason of Section 4(2) of the Securities Act. In connection with each of
these transactions, the shares were sold to a limited number of institutional
and accredited individual investors as defined by Item 501 of Regulation D
of the Securities and Exchange Commission (the "Commission"). All the
investors were provided opportunities to get access to all relevant
information regarding the Company and they 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.
During the period of July 1, 1997 through December 31, 1998, the Company
sold 626,000 shares of the Common Stock to eleven accredited investors for
an aggregate consideration of $2,747,000.
ITEM 11. DESCRIPTION OF REGISTRANT'S SECURITIES TO BE REGISTERED
The authorized capital stock of the Company currently consists of
60,000,000 shares of Common Stock with a par value of $0.001 per share,
100,000 shares of Preferred Stock with a par value of $.001 per share and
4,300 shares of Preferred Class A Stock with a par value of $0.001 per share
(the "Preferred Class A Stock"). As of December 31, 1998, there were
47,499,304 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 December 31, 1998, there were a total of
11,340,000 shares of Common Stock reserved for issuance upon exercise of
outstanding stock options and warrants. See "Item 4. Security Ownership of
Certain Beneficial Owners and Management" and "Item 10. Recent Sales of
Unregistered Securities".
The Company's Common Stock with a par value $.001 is currently traded on
the OTC Bulletin Board under the symbol "LPFC". The following descriptions of
capital stock are qualified in all respects by reference to the Company's
By-laws.
COMMON STOCK
The holders of Common Stock are entitled to one vote per share for the
selection of directors and all other purposes and 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
loyalty to the Company or its shareholders, (ii) shall not have acted in
good faith or, in failing to act, shall not have acted in good faith, (iii)
shall have acted in a manner involving intentional misconduct or a knowing
violation of law or, in failing to act, shall have acted in a manner
involving intentional misconduct or a knowing violation of law.
This provision may have the effect of reducing the likelihood of
derivative litigation against directors and may discourage or deter
stockholders or management from bringing a lawsuit against directors for
breach of their duty of care, even though such an action, if successful,
might otherwise have benefited the Company and its shareholders. However,
this provision, together with the provision described above that requires
the Company to indemnify its officers and directors against certain
liabilities, is intended to enable the Company to attract qualified persons
to serve as directors who might otherwise be reluctant to do so.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers or persons controlling
the Company pursuant to the foregoing provisions, the Company has been
informed that in the opinion of the Commission, such indemnification is
against public policy as expressed in the Act and is therefore unenforceable.
ITEM 13. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See ITEM 15 (a) for an index to the audited consolidated financial
statements and supplementary financial information that are attached hereto.
ITEM 14.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCING DISCLOSURE
The Company appointed the accounting firm of Schiffman, Hughes & Brown
to serve as the independent auditors of its year-end financial statements
starting from its fiscal year of 1995. To the best knowledge of the current
management, the Company did not use an auditor for its fiscal year prior to
1995 and therefore had no auditors.
The Company has no disagreement with accounting and financial disclosure.
ITEM 15.FINANCIAL STATEMENTS AND EXHIBITS
1. Financial Statements:
The following is a list of each financial statement filed as a part of
this Registration Statement:
1) Report of Schiffman Hughes Brown, Independent Auditors
2) Audited Consolidated Balance Sheet as June 30, 1998, 1997 and 1996
3) Audited Consolidated Statements of Operations - for the Fiscal
Years ended June 30, 1998, 1997 and 1996
4) Audited Consolidated Statements of Shareholders' Equity - for the
Fiscal Years Ended June 30, 1998, 1997 and 1996
5) Consolidated Statements of Cash Flows - for the Fiscal Years Ended
June 30, 1998, 1997 and 1996
6) Notes to the Audited Consolidated Financial Statements
7) Condensed Consolidated Balance Sheets as of September 30,
1998 (Unauduited) and June 30, 1998 (audited)
8) Condensed Consolidated Statements of Operations (Unaudited) for
the Quarter ended September 30, 1998 and September 30, 1997
9) Condensed Consolidated Statements of Cash Flows (Unaudited) for
the Quarter ended September 30, 1998 and September 30, 1997
10) Notes to Condensed Consolidated Financial Statements
2. Financial Statement Schedules.
3. Exhibits
3.1* Certificate of Incorporation of the Registrant, as amended
3.2* Bylaws of the Registrant, as amended
10.1** Stock Subscription Agreement, dated as of March 18, 1997, between
Evernew International Limited and Lotus Pacific, Inc.
10.2** Stock Subscription Agreement, dated as of May 5, 1997, between
Evolving Investments Ltd. and Lotus Pacific, Inc.
10.3** Warrant Purchase Agreement, dated as of May 5, 1997, between
Evolving Investments Ltd. and Lotus Pacific, Inc.
10.4** Stock Exchange Agreement, dated as of September 18, 1997, between
Rightiming Electronics Corp. and Lotus Pacific, Inc.
10.5** Stock Subscription Agreement, dated as of December 31, 1997,
between Clarinet Overseas Limited and Lotus Pacific, Inc.
10.6** Stock Purchase Agreement, dated as of September 30, 1998, between
Clarinet Overseas Limited and Lotus Pacific, Inc.
10.7** Commission Agreement, dated as of June 8, 1997, between Clarinet
Overseas Limited and Lotus Pacific, Inc.
10.8** Commission Agreement, dated as of June 1, 1998, between
Clarinet Overseas Limited and Lotus Pacific, Inc.
27.1 ** Financial Data Schedule, filed herewith
27.2 ** Financial Data Schedule, filed herewith
* Incorporated by reference from the Company's Form 10-K filed
on October 1, 1998.
** 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: January 5, 1999
Lotus Pacific, Inc.
/S/ James Yao
James Yao, Chairman & President
Pursuant to the requirements of the Securities Exchange Act 1934, this
report has been signed below by the following persons on behalf of the
registrants and in capacities and on the dates indicated.
/S/
David Leung, Director & Vice President
/S/
James Liu, Director & Vice President
/S/
Jeremy Wang, Director
/S/
Simon Gu, Director
/S/
Gary Huang, Chief Financial Officer & Secretary
SCHIFFMAN HUGHES BROWN
A PROFESSIONAL CORPORATION
CERTIFIED PUBLIC ACCOUNTS
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholders
of Lotus Pacific, Inc. and Subsidiaries
We have audited the accompanying balance sheets of Lotus pacific, Inc.
and Subsidiaries as of June 30, 1998, 1997 and 1996 and the related
statements of operations, stockholders' equity, and cash flows for the years
then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by the management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide
a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Lotus Pacific, Inc. and
Subsidiaries as of June 30, 1998, 1997, and 1996, and the results of its
operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.
/s/
Schffman Hughes Brown
Blue Bell, Pennsylvania
September 4, 1998
790 PENLLYN PIKE, SUITE 302, BLUE BELL, PENNSYLVANIA 19422
(215) 646-2000 FAX (215) 646-1937
LOTUS PACIFIC, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1998, 1997 AND 1996
ASSETS
1998 1997
Current Assets:
Cash $3,193,127 $268,679
Accounts Receivable 4,979,759
Prepaid Expenses 760,295
Advances 2,354
Total current assets 8,933,181 271,033
Investments (Note 5) 600,000 600,000
Property and equipments:
Furniture and office equipment 90,192 90,000
Equipment 1,541,231 1,502,120
Leasehold improvements 75,612 1,041
1,707,015 1,593,161
Less: accumulated depreciation 348,286 26,623
1,358,729 1,566,538
Other assets:
Intangible asset, net of accumulated
amortization of $370,477 and $28,480
in 1998 and 1997, respectively 5,439,523 5,781,520
Deposit 72,792 1,700
5,512,315 5,783,220
$16,404,225 $8,220,791
LIABILITY AND STOCKHOLDERS' EQUITY
Current liabilities:
Account payable $1,755,654 $14,946
Loan Payable (Note 3) 120,000
Salaries Payable 63,819
Payroll taxes payable 32,234 25,771
Income taxes payable (Note 6) 42,110 123,392
Total current liabilities 2,013,817 164,109
Minority interest in subsidiary
(Note 5) 6,569,544 2,317,815
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)
7,820,864 5,738,867
$16,404,225 $8,220,791
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
1998 1997 1996
Sales - Products $10,998,875 $-0- $-0-
Cost of Sales 7,989,318
Gross Profit 3,009,557
Operating expenses
Selling, general and
administrative 2,826,730 221,074 17,934
Research and development 4,371,990 103,870
7,198,720 324,944 17,934
Operating Loss (4,189,163) (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
Royalty Income 1,800,000
1,833,675 409,991 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 $(2,057,045) $43,390 22,164
Earnings per share
Basic $(.05) $.00 $.00
Diluted $(.05) $.00 $.00
Weighted average shares 44,421,334 29,238,081 26,799,387
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
Common Preferred Common Additional
Shares Shares Stock Paid-in
Outstanding Outstanding Warrants Amount Capital Deficit Total
Balance
June 30, 1995
26,347,054 4,300 $26,351 $746,433 $(555,776)$217,008
Issuance of
common stock
590,000 590 145,715 146,305
Net Income for
the year Ended
June 30, 1996
22,164 22,164
Balance
June 30, 1996
26,937,054 4,300 $26,941 $892,148 $(533,612)$385,477
Issuance of
common stock
13,800,00 13,800 5,296,200 5,310,000
Net income for
the year ended
June 30, 1997
_______ _______ _______ ______ _______ 43,390 43,390
Balance
June 30, 1997
40,737,054 4,300 40,741 6,188,348 (490,222) 5,738,867
Issuance of
common stock
536,000 536 2,071,464 2,072,000
Issuance of
Common stock
For services
113,750 114 454,886 455,000
Issuance of
Common Stock
For purchase
Of subsidiary
6,000,000 6,000 1,526,042 1,532,042
Issuance of Common
Stock Warrants
8,000,000 80,000 80,000
Net loss for the year
ended June 30, 1998
_______ _______ _______ ______ ____ (2,057,045)(2,057,045)
Balance
June 30, 1998
47,386,804 4,300 8,000,000 $127,391 $10,240,740 $(2,547,267) $7,820,864
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
1998 1997 1996
Cash flows from operating activities:
Net income (loss) $(2,057,045) $43,390 $22,164
Adjustments to reconcile income (loss) to
net cash provided by operating activities:
Depreciation and amortization 663,660 55,103
Common stock issued for services 455,000
Gain on sale of investment (398,805)
Equity in earnings of
unconsolidated subsidiary (29,090)
Changes in assets and liabilities:
Increase in accounts receivable (4,979,759)
Increase in prepaid expenses (760,295)
Increase (decrease) in advances 2,354 (2,354)
Increase in deposit (71,092) (1,700)
Increase in accounts payable 1,740,708 14,946 (4,400)
Increase in payroll taxes payable 6,463 25,771
Increase in salaries payable 63,819
Increase (decrease) in
income tax payable (81,282) 123,392
Increase in minority interest
in subsidiary 5,783,771 2,317,815
Net cash provided by (used
in) operating activities 766,302 2,177,558 (11,326)
Cash flows from investing activities:
Purchase of property and equipment (113,854) (1,593,161)
Purchase of intangible asset (5,810,000)
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
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. appear as minority interest in subsidiary on the
balance sheet in accordance with generally accepted accounting principles.
All intercompany transactions have been eliminated in consolidation.
Cash and Cash Equivalents:
For purposes of reporting cash flows, the Company considers all cash accounts
that are not subject to withdrawal restrictions or penalties to be cash or
cash equivalents.
Accounts Receivable:
The allowance for doubtful accounts is based on management's evaluation of
outstanding accounts receivable at the end of the year. No allowance for
doubtful accounts has been provided, since management believes all accounts
are collectable.
LOTUS PACIFIC, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1998, 1997 AND 1996
Revenue recognition:
The revenue from product sales is recognized at the date of sale; revenue
from services rendered is recognized when services have been performed;
and revenue from royalty is recognized when the technology (software
products) of the Company is delivered. The Company generally allows the
sales of products to be returned within 15 business days.
Equipment and Depreciation:
Property and equipment are stated at cost. Depreciation is calculated
using the straight-line method over their estimated useful lives from 3 to
40 years. Depreciation expense for the years ended June 30, 1998 and 1997
was $321,896 and $26,623, respectively.
Intangible Asset:
Intangible asset consists of the acquisition of patents by the Company in
June 1997. The patents are carried at cost and amortized over the useful
life of 17 years.
Research and Development:
Research and development costs consist of expenditures incurred by the
Company during the course of planned search and investigation aimed at the
discovery of new knowledge that will be used to develop and improve its
Internet access product. The Company expenses all such research and
development costs as they are incurred.
Income Taxes:
Income taxes are provided for the tax effects of transactions reported
in the financial statements and consist of taxes currently due plus deferred
taxes related primarily to differences between the basis of balance sheet
items for financial and income tax reporting. There is no difference between
the basis for financial and income reporting.
Investment in Unconsolidated Subsidiary:
The Company recorded its investment in Richtime Far East, Ltd. (a Hong Kong
company) at cost.
Use of Estimates:
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect certain reported amounts and disclosures. Accordingly, actual
results could differ from those estimates.
LOTUS PACIFIC, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1998, 1997 AND 1996
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 per share are computed by dividing net income (loss) by the
weighted average number of shares of common stock and the equivalent number
of common shares of convertible preferred stock. Diluted earnings (loss) per
share reflect the dilutuive effect of 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
LOTUS PACIFIC, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1998, 1997 AND 1996
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. The
management of Lotus Pacific, Inc. has limited operational input upon the
operations of Richtime Far East, Ltd. and carries the investment at cost.
Richtime Far East, Ltd. is not consolidated with Lotus Pacific, Inc. in
accordance with generally accepted accounting principles.
Pertinent financial information for Richtime Far East, Ltd. is as follows:
1998 1997
Sales $5,699,495 $1,990,480
Gross Profit $587,095 $213,717
Net Income $475,725 $177,742
LOTUS PACIFIC, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1998, 1997 AND 1996
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%).
LOTUS PACIFIC, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1998, 1997 AND 1996
10. Stock options:
The Company accounts for stock-based compensation in accordance with ASAS
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) .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 2000.
The Company also leases an additional space in Middlesex, NJ. The lease is
annually renewable and the monthly rent is $825.
12.Condensed Financial Statements for Regent Electronics Corp. at
June 30, 1998 and 1997:
BALANCE SHEET
ASSETS
1998 1997
Current assets $7,232,436 $205,035
Property and equipment 1,281,029 1,564,334
Other assets 5,461,930 5,783,220
$13,975,395 $7,552,589
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities $2,134,683 $38,539
Stockholders' deficit:
Common stock 26,000 26,000
Preferred stock 1,500
Stock warrants 1,500
Additional paid-in capital 13,760,500 7,762,000
Accumulated deficit (1,948,788) (273,950)
11,840,712 7,514,050
$13,975,395 $7,552,589
STATEMENT OF OPERATIONS
Sales $6,155,000
Cost of sales (3,408,500)
Interest income 30,535 $2,563
Royalty income 1,800,000
Operating costs
and expenses (6,251,873) (276,513)
Net Loss $(1,674,838) $(273,950)
STATEMENT OF CASH FLOWS
Cash flows used
in operating activities $(3,914,716) $(235,411)
Cash flows used
in investing activities (38,083) (7,347,554)
Cash flows from
financing activities 6,436,500 7,788,000
Net increase in cash $2,483,701 $205,035
LOTUS PACIFIC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1998, 1997 AND 1996
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 SHEET
For the Quarter Ended September 30, 1998
(Unaudited)
ASSETS
September 30, 1998 June 30, 1998
Current Assets
Cash $2,618,594 $3,193,127
Accounts Receivable 6,800,806 4,979,759
Prepaid Expenses 2,874 833,087
Deposit 22,175
Total Currents Assets 9,444,449 8,933,181
Property and Equipment 1,630,353 1,631,403
Leasehold Improvement 1,041 75,612
1,631,394 1,707,015
Less: Accu. Depreciation 511,921 348,286
Investments 600,000
Intangible Assets, net of
accumulated amortization
of $455,686 5,086,356 5,439,523
Total Assets 15,650,278 16,404,225
LIABILITIES AND STOCKHOLDERS EQUITY
Current Liabilities
Account Payable $663,668 1,755,654
Loans Payable 120,000
Salaries Payable 60,489 63,819
Payroll Taxes Payable 23,001 32,234
Income Taxes Payable 42,110
Total Current Liabilities 747,158 2,013,817
Minority Interest in Equity of
Consolidated Subsidiary 6,136,670 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 (2,411,681) (2,547,267)
Total Stockholders' Equity 8,766,450 7,820,864
Total Liabilities &
Stockholders' Equity $15,650,278 $16,404,225
The accompanying notes are an integral part of the financial statements
LOTUS PACIFIC, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF OPERATIONS
For the Quarter Ended September 30, 1998
(Unaudited)
1998 1997
Net Sales - Products $2,420,000 $ -0-
Cost of Sales 1,198,000
Gross Profit 1,222,000 - 0-
Operating Expenses
Selling, general and
administrative 707,023 434,746
Research and development 565,743 917,866
1,272,766 1,352,622
Operating Income (loss) (50,766) (1,352,612)
Other Income (Expenses)
Interest Income 8,647 467
Royalty Income 1,000,000
Income from continuing operations
Before income taxes (42,119) (352,145)
Discontinuing operations:
Income from operation of LPF, -0-
net of tax
Gain of disposal of LPF,
net of tax 100,000
Net Income before income taxes
and minority interest in income
of consolidated subsidiary 57,881 (352,145)
Income Taxes -0- -0-
Minority Interest of Income
Consolidated Subsidiaries 7,351 (22,398)
Net Income 50,530 (329,747)
Earnings Per Share
Basic $0.00 $0.00
Diluted $0.00 $0.00
Weighted Average Shares 47,477,552 42,785,054
The accompanying notes are an integral part of the financial statements
LOTUS PACIFIC, INC. AND SUBSIDIARY
STATEMENT OF CASH FLOWS
For the Quarter Ended September 30, 1998
(Unaudited)
Sept. 30, 1998 Sept. 30, 1997
CASH FLOW FROM OPERATING ACTIVITIES
Net Income $50,530 $(329,747)
Adjustments to reconcile net income to
net cash used in operating activities:
Depreciation & amortization 248,572 79,714
Common stock issued for service 135,000
Changes in assets & liabilities:
Increase in accounts receivable (1,821,047) (471)
Decrease in Prepaid Expenses 757,421 (20,995)
Increase in deposit 50,617 100,000
Decrease in accounts payable (1,008,496) 667,001
Increase in minority interest 162,249 62,877
(1,475,684) 888,126
Net cash used in operating activities (1,425,154) 558,379
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:
Issuance of common stock 675,000 216,000
Issuance of stock warrants 80,000
Net cash provided by financing activities 675,000 296,000
Net increase (decrease) in cash (574,533) 851,776
Cash, beginning 3,193,127 268,679
Cash, ending $2,618,594 $1,120,455
Supplemental disclosure of non-cash financing activities:
Issuance of common stock for service $135,000
The accompanying notes are an integral part of the financial statements
LOTUS PACIFIC, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 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 Regent,
designs, engineers, develops, provides and markets the Internet-related
electronics products and services to electronics manufactures, commercial
cable TV networks, 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.
In order to concentrate on its Internet related electronics products and
services, the Company sold all of its ownership in LPF International Corp.
and Richtime Far East Ltd., including all assets and assumption of all
liabilities, to Clarinet Overseas Ltd. on September 30, 1998, for an
aggregation consideration of $2,500,000 in cash.
LPF International Corp. was set up by the Company to expand its existing
textile and apparel business worldwide. Richtime Far East Ltd. ("Richtime"),
a Hong Kong-based subsidiary of the Company, was then merged into LPF.
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 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 September 30, 1998 are not necessarily indicative of the results to be
expected for the 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%
on-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.
LOTUS PACIFIC, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998 (UNAUDITED)
LPF International Corp., a wholly owned subsidiary of the Company, was sold
to Clarinet Overseas Ltd. on September 30, 1998. The balance sheet accounts
of LPF were not included in the consolidated financial statement, but its
income statement accounts were consolidated as discontinued operations.
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.
Revenue recognition:
The revenue from product sales is recognized at the date of sale; revenue
from services rendered is recognized when services have been performed; and
revenue from royalty is recognized when the technology (software products)
of the Company is delivered. The Company generally allows the sales of
products to be returned within 15 business days.
Research and Development:
Research and development costs consist of expenditures incurred by the
Company during the course of planned search and investigation aimed at the
discovery of new knowledge that will be used to develop and improve its
Internet access product. The Company expenses all such research and
development costs as they are incurred.
Income Taxes:
Income taxes are provided for the tax effects of transactions reported in
the financial statements and consist of taxes currently due plus deferred
taxes related primarily to differences between the basis of balance sheet
items for financial and income tax reporting. There is no difference between
the basis for financial and income reporting.
For the quarter ended September 30, 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.
Earnings (loss) Per Share:
Basic earnings per share are computed by dividing net income (loss) by the
weighted average number of shares of common stock and the equivalent number
of common shares of convertible preferred stock. Diluted earnings (loss) per
share reflect the dilutuive effect of stock options and warrants.
LOTUS PACIFIC, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998 (UNAUDITED)
3.Issuance of Stock:
During the quarter ended September 30, 1998, the Company issued an aggregate
of 112,500 shares of its common stock. 90,000 shares of common stock were
issued for cash consideration of $675,000, 22,500 shares of common stock were
issued for consulting services rendered.
4.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
assumption of all liabilities, to Clarinet Overseas Ltd. Revenues from
discontinued operation were $2,500,000, including $100,000 gain on sale
of investment.
LPF was originally set up by the Company as a wholly owned subsidiary in
February 1998 to be a fashion designer and a broker in the worldwide textile
and apparel business.
5. Capital Stock:
Common stock - $.001 par value, 60,000,000 shares authorized, 47,499,304
shares issued and outstanding as of September 30, 1998.
Preferred stock - $.001 par value, 100,000 shares authorized, no shares
issued and outstanding as of September 30, 1998.
Preferred stock, Series A - $.001 par value, 4,300 shares authorized, 4,300
shares issued and outstanding as of September 30, 1998.
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 September 30,
1998, no warrants have been exercised.
6. Significant customers:
For the quarter ended September 30, 1998, the Company's continuing operation
had two customers with billings in excess of 10% of total revenues. These two
customers accounted for approximately 100% of total revenues. Of the total
revenue, Shanghai Hong Sheng Development Corp. accounted for $1.74 million
(72%), and Lanzhou Sanmao Oindustrial Co. $680,000 (28%).
LOTUS PACIFIC, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998 (UNAUDITED)
7. 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 2000.
The Company also leases an additional space in Middlesex, NJ. The lease
is annually renewable and the monthly rent is $825.
8. Condensed Financial Statements for Regent Electronics Corp.:
BALANCE SHEET
ASSETS
Sept. 30, 1998 June 30, 1998
Current assets $6,268,322 $7,232,436
Property and equipment 1,1188,123 1,281,029
Other assets 5,086,356 5,461,930
$12,472,801 $13,975,395
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities $721,257 $2,134,683
Stockholders' equity:
Common stock 26,000 26,000
Preferred stock 1,500 1,500
Stock warrants 1,500 1,500
Additional paid-in capital 13,760,500 13,760,500
Accumulated deficit (1,743,998) (1,948,788)
11,751,544 11,840,712
$12,472,801 $13,975,395
STATEMENT OF OPERATIONS
For the Quarter ended September 30
1998 1997
Sales $2,420,000
Cost of sales (1,198,000)
Interest income 5,604 $666
Royalty income 1,000,000
Operating costs and expenses (1,051,699) (1,290,502)
Net Income (Loss ) $175,905 $(289,835)
LOTUS PACIFIC, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998 (UNAUDITED)
STATEMENT OF CASH FLOWS
For the Quarter ended September 30
Cash flows used
in operating activities $(1,995,931) $(3,914,716)
Cash flows used
in investing activities (38,083)
Cash flows from
financing activities (435,000) 6,436,500
Net increase (decrease) in cash $(2,430,931) $2,483,70
EX 10.1
LOTUS PACIFIC, INC.
COMMON STOCK
SUBSCRIPTION AGREEMENT
THE SHARES OF COMMON STOCK OF LOTUS PACIFIC, INC., A DELAWARE
CORPORATION (THE "COMPANY"), PURCHASED PURSUANT TO THIS SUBSCRIPTION
AGREEMENT (THE "AGREEMENT"), HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933 OR UNDER THE LAWS OF ANY JURISDICTION.
1. Subscription. The undersigned subscriber (the "Subscriber"), agreeing
to be legally bound hereby, does subscribe for and agree to purchase
10,000,000 (ten million) shares of the Company's Common Stock with a par
value of $0.001 per share (the "Shares"). The total purchase price is US
$2,000,000 (two million dollars). The Subscriber herewith tenders payment
upon signing this Stock Subscription Agreement, in such amount, the receipt
of which is hereby acknowledged by the Company, in the form of a check or
wire transfer payable to the Company from the Subscriber. The Company shall
cause its stock transfer agent to issue the Shares as soon as practicable
thereafter.
2. Representations and Warranties of Subscriber. To induce the Company
to enter into this Agreement, the Subscriber hereby represents and warrants
to the Company as follows:
(A) The Subscriber
(i) has had access to the books and records of the Company, and is
fully familiar with and understands the contents thereof;
(ii) acknowledges that it has had the opportunity to ask questions
of and receive answers from the management and from the authorized
representatives of the Company concerning the Company and to obtain any
additional information necessary to verify the accuracy of the information
so furnished;
(iii) has read carefully this Agreement;
(iv) has received no solicitation or general advertisement with
respect to the purchase of the Shares; and
(v) has based its investment decision on such information as is
described above and supplied herein and has not received any other written
communication in connection with this transaction.
(B) The Subscriber understands and acknowledges the following:
(i) The Shares are being offered and sold under the exemption provided
in, among others, Section 4(2) of the Securities Act of 1933, as amended (the
"Act") and under applicable exemptions from securities registration as a
transaction by an issuer not involving a public offering;
(ii) The Shares have not been registered under the Act or under any
securities act; and the Shares can not be sold or transferred unless they are
registered under the Act or an exemption from registration is otherwise
available;
(iii) The Company has no obligation or intention to register said
Shares for resale under any federal or other securities laws or to take any
action which would make available any such exemption from the registration
requirements of any such laws;
(iv) Rule 144 of the Securities and Exchange Commission under the Act
would substantially restrict the transferability of the Shares; and
(v) There is no assurance of a public market for the Shares and,
accordingly, the Subscriber must bear the economic risks of its investment
for a infinite period of time.
(C) The Subscriber is acquiring the Shares solely for its own account,
for investment only, and not with a view towards the further distribution
thereof. The Subscriber will not sell, transfer, hypothecate, or otherwise
dispose of the Shares, or any portion thereof, unless such sale, transfer,
hypothecation or disposition is made in compliance with the requirements of
the Act and any and all applicable laws, rules and regulations.
(D) THE SUBSCRIBER RECOGNIZES THAT ANY INVESTMENT IN THE COMPANY
INVOLVES SUBSTANTIAL RISK FACTORS.
(E) The Subscriber has adequate financial means of providing for its
current needs and financial contingencies without the need for liquidity
in this investment and has the ability to bear the economic risks of this
investment and can afford a complete loss of the purchase price; and the
Subscriber has no reason to contemplate any change in its financial
condition.
(F) The Subscriber, through its management and advisors, is fully
familiar with, and has the knowledge and expertise in, financial and business
matters necessary to evaluate the merits and the risks involved in the
purchase of the Shares.
(G) These representations and warranties provided to the Company by
the Subscriber are true and correct as of the date hereof and the Subscriber
agrees to advise the Company prior to its acceptance of this Agreement of
any material change in any of such information.
(H) The Subscriber fully understands that no governmental agency has
approved or disapproved, passed upon or endorsed the merits of the sale or
purchase of the Shares.
(I) The Subscriber is a corporation duly organized and existing in
good standing under the laws of the jurisdiction of its incorporation.
(J) The undersigned representative of the Subscriber has full power,
in accordance with all applicable laws, to execute and perform this
Agreement, and such execution and performance do not have any conflict with
any applicable charter or bylaw provision or with any contract to which it
is a party or to which it is subject. The Board of Directors of the
Subscriber has duly authorized this Agreement, the transactions contemplated
herein, and the execution hereof by the undersigned representative.
3. Representations and Warranties of Company. To induce the Subscriber
to enter into the Agreement, the Company and its principal shareholders do
hereby represent and warrant as follows:
(A) The Company's Shares to be delivered to the Subscriber will
constitute, under Delaware corporate law, valid and legally issued Shares of
the Company, fully paid, and nonassessable.
(B) The officers of the Company are duly authorized to execute this
Agreement and have taken all actions required by law and agreement, its
charter and bylaws, to properly and legally execute this Agreement.
(C) The Company is not involved in any pending litigation, claims, or
governmental investigation or proceeding not reflected in its financial
statements or otherwise disclosed in writing to the Subscriber and there are
no lawsuits, claims, assessments, investigations, or similar matters, to the
best knowledge of the management, threatened or contemplated against the
Company, its management or properties.
(D) The Company is duly organized, validly existing and in good standing
under the laws of the State of Delaware; it has the corporate power to own
its property and to carry on its business as now being conducted and is duly
qualified to conduct such business in any jurisdiction so required.
(E) Pursuant to its Certificate of Incorporation, as amended, the Company
is authorized to issue 50,000,000 shares of Common Stock, par value $0.001
per share, 26,937,054 shares of which are issued and outstanding, fully paid
and nonassessable. The company is authorized to issue 4,300 shares of Series
A preferred stock, 4,300 shares of which are issued and outstanding. The
Company has authorized 100,000 shares of preferred stock, none of which is
issued or outstanding prior to the closing hereof. The Company has no
treasury stock. There are no other authorized or outstanding subscriptions,
options, warrants, or other agreements or commitments obligating the Company
to issue any additional shares of its capital stock of any class, or any
options or rights with respect thereto, or any securities convertible into
any shares of stock of any class. No shareholder of the Company has any right
of first refusal or any preemptive rights with respect to the issuance of
the Company's capital stock.
(F) Attached hereto and marked as Exhibit A, and hereby made a part
hereof, are the Financial Statements of the Company as of December 31, 1996,
hereinafter referred to as the "Financial Statements". Except as explained
in the notes thereto, the Financial Statements present fairly the financial
condition of the Company as of the dates thereof and the results of
operations for periods covered thereby and, except as aforesaid, the
Financial Statements have been prepared in accordance with generally
accepted accounting principles applied on a consistent basis throughout the
periods involved.
(G) The Company has in all material aspects performed all obligations
required to be performed by it in the past and no claim exists for default
in any material respect under any agreements, leases, or other documents to
hich the Company is a party.
(H) The Company has complied in all material aspects with all applicable
statutes and regulations of any governmental authority having jurisdiction
over it or that have been applicable to its business. The Company is current
in its SEC filings and has filed all reports required to be filed with the
SEC during the past twelve (12) months.
(I) The Company has filed in correct form all income tax returns due with
respect to all prior years, and all franchise, real and personal property
tax returns that are required to be filed, and has paid all taxes as shown
on the said returns and all assessments received by it to the extent that
such taxes and assessments have become due.
(J) No loans or other obligations are payable to officers, directors,
employees, or stockholders of the Company.
4. Legends. The Subscriber hereby agrees that the certificate(s)
evidencing the Shares shall bear such legends with regard to restrictions
on transfer as may be required under the Act and other applicable law.
5. Inspection Rights. It is understood that all documents, records and
books pertaining to this investment have been made available for inspection
by the Subscriber and each of its attorney, accountant and representative,
and that they will be available, upon reasonable notice, for inspection
during reasonable business hours at the office of the Company.
6. Indemnification by Subscriber. The Subscriber hereby agrees to
indemnify and hold harmless the Company and its officers and directors from
and against any and all loss, damage, or liability (including attorney's
fees) due to, or arising out of, a breach of any representation or warranty
made by the Subscriber contained herein.
7. Indemnification by Company. The Company and its undersigned principal
shareholders agree that they, jointly and severally, will indemnify
Subscriber and the Company against, and will hold each of them harmless from,
any and all loss, damage, or liability (including attorney's fees) due to,
or arising out of, a breach of any representation or warranty made by the
Company contained herein.
8. No Assignment or Transfer. The Subscriber agrees not to transfer or
assign this Subscription Agreement or any interest of the Subscriber herein
except as described above; any attempted transfer or assignment shall be
deemed void and without force or effect.
9. Governing Law. This Agreement shall be construed in accordance with
and governed and interpreted by the laws of the State of Delaware.
10. Headings. The headings employed in each of the numbered paragraphs
herein are for reference and convenience of the parties, but shall not be
deemed to have any substantive effect.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective authorized representatives and have caused
their signatures to be affixed hereto this eighteenth day of March, 1997.
Company: Subscriber:
Lotus Pacific, Inc. Evernew International Ltd.
A Delaware Corporation
By: /S/ By: /S/
James Yao, President Yizhi Xiong, President
EX. 10.2
LOTUS PACIDFIC, INC.
COMMON STOCK
SUBSCRIPTION AGREEMENT
THE SHARES OF COMMON STOCK OF LOTUS PACIFIC, INC., A DELAWARE CORPORATION
(THE "COMPANY"), PURCHASED PURSUANT TO THIS SUBSCRIPTION AGREEMENT (THE
"AGREEMENT"), HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR
UNDER THE LAWS OF ANY JURISDICTION.
1. Subscription. The undersigned subscriber (the "Subscriber"), agreeing
to be legally bound hereby, does subscribe for and agree to purchase 3,100,000
(three million one hundred thousand) shares of the Company's Common Stock
with a par value of $0.001 per share (the "Shares"). The total purchase price
is US $3,100,000 (three million one hundred thousand US Dollars). The
Subscriber herewith tenders payment upon signing this Stock Subscription
Agreement, in such amount, the receipt of which is hereby acknowledged by the
Company, in the form of a check or wire transfer payable to the Company from
the Subscriber. The Company shall cause its stock transfer agent to issue the
Shares as soon as practicable thereafter.
2. Representations and Warranties of Subscriber. To induce the Company
to enter into this Agreement, the Subscriber hereby represents and warrants
to the Company as follows:
(A) The Subscriber
(i) has had access to the books and records of the Company, and
is fully familiar with and understands the contents thereof;
(ii) acknowledges that it has had the opportunity to ask questions
of and receive answers from the management and from the authorized
representatives of the Company concerning the Company and to obtain any
additional information necessary to verify the accuracy of the information so
furnished;
(iii) has read carefully this Agreement;
(iv) has received no solicitation or general advertisement with
respect to the purchase of the Shares; and
(v) has based its investment decision on such information as is
described above and supplied herein and has not received any other written
communication in connection with this transaction.
(B) The Subscriber understands and acknowledges the following:
(i) The Shares are being offered and sold under the exemption
provided in, among others, Section 4(2) of the Securities Act of 1933, as
amended (the "Act") and under applicable exemptions from securities
registration as a transaction by an issuer not involving a public offering;
(ii) The Shares have not been registered under the Act or under
any securities act; and the Shares can not be sold or transferred unless
they are registered under the Act or an exemption from registration is
otherwise available;
(iii) The Company has no obligation or intention to register said
Shares for resale under any federal or other securities laws or to take any
action which would make available any such exemption from the registration
requirements of any such laws;
(iv) Rule 144 of the Securities and Exchange Commission under the
Act would substantially restrict the transferability of the Shares; and
(v) There is no assurance of a public market for the Shares and,
accordingly, the Subscriber must bear the economic risks of its investment
for a infinite period of time.
(C) The Subscriber is acquiring the Shares solely for its own account,
for investment only, and not with a view towards the further distribution
thereof. The Subscriber will not sell, transfer, hypothecate, or otherwise
dispose of the Shares, or any portion thereof, unless such sale, transfer,
hypothecation or disposition is made in compliance with the requirements of
the Act and any and all applicable laws, rules and regulations.
(D) THE SUBSCRIBER RECOGNIZES THAT ANY INVESTMENT IN THE COMPANY
INVOLVES SUBSTANTIAL RISK FACTORS.
(E) The Subscriber has adequate financial means of providing for its
current needs and financial contingencies without the need for liquidity in
this investment and has the ability to bear the economic risks of this
investment and can afford a complete loss of the purchase price; and the
Subscriber has no reason to contemplate any change in its financial condition.
(F) The Subscriber, through its management and advisors, is fully
familiar with, and has the knowledge and expertise in, financial and business
matters necessary to evaluate the merits and the risks involved in the
purchase of the Shares.
(G) These representations and warranties provided to the Company by the
Subscriber are true and correct as of the date hereof and the Subscriber
agrees to advise the Company prior to its acceptance of this Agreement of any
material change in any of such information.
(H) The Subscriber fully understands that no governmental agency has
approved or disapproved, passed upon or endorsed the merits of the sale or
purchase of the Shares.
(I) The Subscriber is a corporation duly organized and existing in good
standing under the laws of the jurisdiction of its incorporation.
(J) The undersigned representative of the Subscriber has full power, in
accordance with all applicable laws, to execute and perform this Agreement, and
such execution and performance do not have any conflict with any applicable
charter or bylaw provision or with any contract to which it is a party or to
which it is subject. The Board of Directors of the Subscriber has duly
authorized this Agreement, the transactions contemplated herein, and the
execution hereof by the undersigned representative.
3. Representations and Warranties of Company. To induce the Subscriber
to enter into the Agreement, the Company and its principal shareholders do
hereby represent and warrant as follows:
(A) The Company's Shares to be delivered to the Subscriber will
constitute, under Delaware corporate law, valid and legally issued Shares of
the Company, fully paid, and nonassessable.
(B) The officers of the Company are duly authorized to execute this
Agreement and have taken all actions required by law and agreement, its
charter and bylaws, to properly and legally execute this Agreement.
(C) The Company is not involved in any pending litigation, claims, or
governmental investigation or proceeding not reflected in its financial
statements or otherwise disclosed in writing to the Subscriber and there
are no lawsuits, claims, assessments, investigations, or similar matters,
to the best knowledge of the management, threatened or contemplated against
the Company, its management or properties.
(D) The Company is duly organized, validly existing and in good standing
under the laws of the State of Delaware; it has the corporate power to own
its property and to carry on its business as now being conducted and is duly
qualified to conduct such business in any jurisdiction so required.
(E) Pursuant to its Certificate of Incorporation, as amended, the Company
is authorized to issue 50,000,000 shares of Common Stock, par value $0.001
per share, 37,637,054 shares of which are issued and outstanding, fully paid
and nonassessable. The company is authorized to issue 4,300 shares of Series
A preferred stock, 4,300 shares of which are issued and outstanding. The
Company has authorized 100,000 shares of preferred stock, none of which is
issued or outstanding prior to the closing hereof. The Company has no
treasury stock. There are no other authorized or outstanding subscriptions,
options, warrants, or other agreements or commitments obligating the Company
to issue any additional shares of its capital stock of any class, or any
options or rights with respect thereto, or any securities convertible into
any shares of stock of any class. No shareholder of the Company has any right
of first refusal or any preemptive rights with respect to the issuance of
the Company's capital stock.
(F) Attached hereto and marked as Exhibit A, and hereby made a part hereof,
are the Financial Statements of the Company as of December 31, 1996,
hereinafter referred to as the "Financial Statements". Except as explained
in the notes thereto, the Financial Statements present fairly the financial
condition of the Company as of the dates thereof and the results of
operations for periods covered thereby and, except as aforesaid, the
Financial Statements have been prepared in accordance with generally
accepted accounting principles applied on a consistent basis throughout
the periods involved.
(G) The Company has in all material aspects performed all obligations
required to be performed by it in the past and no claim exists for default
in any material respect under any agreements, leases, or other documents to
which the Company is a party.
(H) The Company has complied in all material aspects with all applicable
statutes and regulations of any governmental authority having jurisdiction
over it or that have been applicable to its business. The Company is
current in its SEC filings and has filed all reports required to be filed
with the SEC during the past twelve (12) months.
(I) The Company has filed in correct form all income tax returns due with
respect to all prior years, and all franchise, real and personal property tax
returns that are required to be filed, and has paid all taxes as shown on the
said returns and all assessments received by it to the extent that such
taxes and assessments have become due.
(J) No loans or other obligations are payable to officers, directors,
employees, or stockholders of the Company.
4. Legends. The Subscriber hereby agrees that the certificate(s)
evidencing the Shares shall bear such legends with regard to restrictions on
transfer as may be required under the Act and other applicable law.
5. Inspection Rights. It is understood that all documents, records and
books pertaining to this investment have been made available for inspection
by the Subscriber and each of its attorney, accountant and representative,
and that they will be available, upon reasonable notice, for inspection
during reasonable business hours at the office of the Company.
6. Indemnification by Subscriber. The Subscriber hereby agrees to
indemnify and hold harmless the Company and its officers and directors from
and against any and all loss, damage, or liability (including attorney's
fees) due to, or arising out of, a breach of any representation or warranty
made by the Subscriber contained herein.
7. Indemnification by Company. The Company and its undersigned principal
shareholders agree that they, jointly and severally, will indemnify
Subscriber and the Company against, and will hold each of them harmless from,
any and all loss, damage, or liability (including attorney's fees) due to,
or arising out of, a breach of any representation or warranty made by the
Company contained herein.
8. No Assignment or Transfer. The Subscriber agrees not to transfer or
assign this Subscription Agreement or any interest of the Subscriber herein
except as described above; any attempted transfer or assignment shall be
deemed void and without force or effect.
9. Governing Law. This Agreement shall be construed in accordance with
and governed and interpreted by the laws of the State of Delaware.
10. Headings. The headings employed in each of the numbered paragraphs
herein are for reference and convenience of the parties, but shall not be
deemed to have any substantive effect.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective authorized representatives and have caused
their signatures to be affixed hereto this fifth day of May, 1997.
Lotus Pacific, Inc. Evolving Investments Ltd.
By: /S/ By: /S/
James Yao, President Jinli Dong, President
EX. 10.3
LOTUS PACIDFIC, INC.
Warrant Subscription Agreement
THE WARRANTS TO PURCHASE COMMON STOCK OF LOTUS PACIFIC, INC.,
A DELAWARE CORPORATION (THE "COMPANY"), PURCHASED PURSUANT TO THIS
SUBSCRIPTION AGREEMENT (THE "AGREEMENT"), HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933 OR UNDER THE LAWS OF ANY JURISDICTION.
1. Subscription. The undersigned subscriber (the "Subscriber"), agreeing
to be legally bound hereby, does subscribe for and agree to purchase
8,000,000 shares of the Company's Warrant to purchase its Common Stock (the
"Warrants"). The total purchase price is US $80,000.
Each Warrant entitles the holder to purchase a share of the Company's
Common Stock with a par value of $0.01 per share during a period of five (5)
years commencing from the issuing date at a price ("the exercise price") of
US $3.00 per share.
The Subscriber herewith tenders payment upon signing this Warrant
Subscription Agreement, in such amount, the receipt of which is hereby
acknowledged by the Company, in the form of a check or wire transfer payable
to the Company from the Subscriber. The Company shall cause its stock
transfer agent to issue the Warrants as soon as practicable thereafter.
2. Representations and Warranties of Subscriber. To induce the Company
to enter into this Agreement, the Subscriber hereby represents and warrants
to the Company as follows:
(A) The Subscriber
(i) has had access to the books and records of the Company, and
is fully familiar with and understands the contents thereof;
(ii) acknowledges that it has had the opportunity to ask
questions of and receive answers from the management and from the authorized
representatives of the Company concerning the Company and to obtain any
additional information necessary to verify the accuracy of the information
so furnished;
(iii) has read carefully this Agreement;
(iv) has received no solicitation or general advertisement with
respect to the purchase of the Warrants; and
(v) has based its investment decision on such information as is
described above and supplied herein and has not received any other written
communication in connection with this transaction.
(B) The Subscriber understands and acknowledges the following:
(i) The Warrants are being offered and sold under the exemption
provided in, among others, Section 4(2) of the Securities Act of 1933, as
amended (the "Act") and under applicable exemptions from securities
registration as a transaction by an issuer not involving a public offering;
(ii) The Warrants have not been registered under the Act or
under any securities act; and the Warrants can not be sold or transferred
unless they are registered under the Act or an exemption from registration is
otherwise available;
(iii) The Company has no obligation or intention to register
said Warrants for resale under any federal or other securities laws or to
take any action which would make available any such exemption from the
registration requirements of any such laws;
(iv) Rule 144 of the Securities and Exchange Commission under
the Act would substantially restrict the transferability of the Warrants; and
(v) There is no assurance of a public market for the Warrants
and, accordingly, the Subscriber must bear the economic risks of its
investment for a infinite period of time.
(C) The Subscriber is acquiring the Warrants solely for its
own account, for investment only, and not with a view towards the further
distribution thereof. The Subscriber will not sell, transfer, hypothecate,
or otherwise dispose of the Warrants, or any portion thereof, unless such
sale, transfer, hypothecation or disposition is made in compliance with the
requirements of the Act and any and all applicable laws, rules and
regulations.
(D) THE SUBSCRIBER RECOGNIZES THAT ANY INVESTMENT IN THE
COMPANY INVOLVES SUBSTANTIAL RISK FACTORS.
(E) The Subscriber has adequate financial means of providing
for its current needs and financial contingencies without the need for
liquidity in this investment and has the ability to bear the economic risks
of this investment and can afford a complete loss of the purchase price; and
the Subscriber has no reason to contemplate any change in its financial
condition.
(F) The Subscriber, through its management and advisors, is
fully familiar with, and has the knowledge and expertise in, financial and
business matters necessary to evaluate the merits and the risks involved in
the purchase of the Warrants.
(G) These representations and warranties provided to the
Company by the Subscriber are true and correct as of the date hereof and the
Subscriber agrees to advise the Company prior to its acceptance of this
Agreement of any material change in any of such information.
(H) The Subscriber fully understands that no governmental
agency has approved or disapproved, passed upon or endorsed the merits of the
sale or purchase of the Warrants.
(I) The Subscriber is a corporation duly organized and
existing in good standing under the laws of the jurisdiction of its
incorporation.
(J) The undersigned representative of the Subscriber has
full power, in accordance with all applicable laws, to execute and perform
this Agreement, and such execution and performance do not have any conflict
with any applicable charter or bylaw provision or with any contract to which
it is a party or to which it is subject. The Board of Directors of the
Subscriber has duly authorized this Agreement, the transactions contemplated
herein, and the execution hereof by the undersigned representative.
3. Representations and Warranties of Company. To induce the
Subscriber to enter into the Agreement, the Company and its principal
shareholders do hereby represent and warrant as follows:
(A) The Company's Warrants to be delivered to the Subscriber
will constitute, under Delaware corporate law, valid and legally issued
Warrants of the Company, fully paid, and nonassessable.
(B) The officers of the Company are duly authorized to execute
this Agreement and have taken all actions required by law and agreement, its
charter and bylaws, to properly and legally execute this Agreement.
(C) The Company is not involved in any pending litigation,
claims, or governmental investigation or proceeding not reflected in its
financial statements or otherwise disclosed in writing to the Subscriber
and there are no lawsuits, claims, assessments, investigations, or similar
matters, to the best knowledge of the management, threatened or contemplated
against the Company, its management or properties.
(D) The Company is duly organized, validly existing and in good
standing under the laws of the State of Delaware; it has the corporate power
to own its property and to carry on its business as now being conducted and
is duly qualified to conduct such business in any jurisdiction so required.
(E) Pursuant to its Certificate of Incorporation, as amended,
the Company is authorized to issue 50,000,000 shares of Common Stock, par
value $0.001 per share, 37,637,054 shares of which are issued and
outstanding, fully paid and nonassessable. The company is authorized to issue
4,300 shares of Series A preferred stock, 4,300 shares of which are issued
and outstanding. The Company has authorized 100,000 shares of preferred
stock, none of which is issued or outstanding prior to the closing hereof.
The Company has no common stock warrant outstanding prior to the closing
hereof. The Company has no treasury stock. There are no other authorized or
outstanding subscriptions, options, or other agreements or commitments
obligating the Company to issue any additional shares of its capital stock
of any class, or any options or rights with respect thereto, or any
securities convertible into any shares of stock of any class. No shareholder
of the Company has any right of first refusal or any preemptive rights with
respect to the issuance of the Company's capital stock.
(F) Attached hereto and marked as Exhibit A, and hereby made a
part hereof, are the Financial Statements of the Company as of December 31,
1996, hereinafter referred to as the "Financial Statements". Except as
explained in the notes thereto, the Financial Statements present fairly the
financial condition of the Company as of the dates thereof and the results
of operations for periods covered thereby and, except as aforesaid, the
Financial Statements have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis throughout the periods
involved.
(G) The Company has in all material aspects performed all
obligations required to be performed by it in the past and no claim exists
for default in any material respect under any agreements, leases, or other
documents to which the Company is a party.
(H) The Company has complied in all material aspects with all
applicable statutes and regulations of any governmental authority having
jurisdiction over it or that have been applicable to its business. The
Company is current in its SEC filings and has filed all reports required to
be filed with the SEC during the past twelve (12) months.
(I) The Company has filed in correct form all income tax returns
due with respect to all prior years, and all franchise, real and personal
property tax returns that are required to be filed, and has paid all taxes
as shown on the said returns and all assessments received by it to the extent
that such taxes and assessments have become due.
(J) No loans or other obligations are payable to officers,
directors, employees, or stockholders of the Company.
4. Legends. The Subscriber hereby agrees that the certificate(s)
evidencing the Warrants shall bear such legends with regard to restrictions
on transfer as may be required under the Act and other applicable law.
5. Inspection Rights. It is understood that all documents, records and
books pertaining to this investment have been made available for inspection
by the Subscriber and each of its attorney, accountant and representative,
and that they will be available, upon reasonable notice, for inspection
during reasonable business hours at the office of the Company.
6. Indemnification by Subscriber. The Subscriber hereby agrees to
indemnify and hold harmless the Company and its officers and directors from
and against any and all loss, damage, or liability (including attorney's
fees) due to, or arising out of, a breach of any representation or warranty
made by the Subscriber contained herein.
7. Indemnification by Company. The Company and its undersigned principal
shareholders agree that they, jointly and severally, will indemnify
Subscriber and the Company against, and will hold each of them harmless
from, any and all loss, damage, or liability (including attorney's fees)
due to, or arising out of, a breach of any representation or warranty made
by the Company contained herein.
8. No Assignment or Transfer. The Subscriber agrees not to transfer or
assign this Subscription Agreement or any interest of the Subscriber herein
except as described above; any attempted transfer or assignment shall be
deemed void and without force or effect.
9. Governing Law. This Agreement shall be construed in accordance with
and governed and interpreted by the laws of the State of Delaware.
10. Headings. The headings employed in each of the numbered paragraphs
herein are for reference and convenience of the parties, but shall not be
deemed to have any substantive effect.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their respective authorized representatives and have caused
their signatures to be affixed hereto this fifth day of May, 1997.
Lotus Pacific, Inc. Evilving Investments Ltd.
By: /S/ By: /S/
James Yao, President Jinli Dong, President
EX. 10.4
STOCK EXCHANGE AGREEMENT
This Agreement is made between Rightiming Electronics Corp. (hereinafter
"Rightiming") and Lotus Pacific, Inc. (hereinafter "Lotus") on September 18,
1997.
WHEREAS, Rightiming beneficially owns 6,000,000 shares of common stock
of Regent Electronics Corp., and Lotus has the right to issue 6,000,000
shares of common stock of Lotus Pacific, Inc.
WHEREAS, Both parties expressed their willingness to exchange for the
equity position owned by the other party.
For good consideration the parties hereby agree as follows:
1. Rightiming shall transfer 6,000,000 shares of common stock of Regent
Electronics Corp., which it currently owns, to Lotus in exchange for
6,000,000 shares of common stock of Lotus Pacific, Inc., which shall be
issued by Lotus.
2. Lotus shall issue 6,000,000 shares of common stock of Lotus Pacific,
Inc. to Rightiming to acquire 6,000,000 shares of common stock of Regent
Electronics Corp., which is currently owned by Rightiming.
3. Upon signing by both parties, the present Agreement shall take effect
immediately. Rightiming shall transfer 6,000,000 shares of common stock of
Regent Electronics Corp. it currently owns to Lotus, and Lotus shall cause
its stock transfer agent to issue 6,000,000 shares of its common stock to
Rightiming as soon as practicable.
4. Rightiming is aware that the 6,000,000 shares to be issued by Lotus
Pacific, Inc. are restricted securities as defined in Rule 144 of Securities
Act of 1933.
5. Rightiming warrants and covenants to Lotus that Rightiming is the
exclusive owner of said 6,000,000 shares of common stock of Regent Electronics
Corp. and said shares are free of any lien, mortgages or other encumbrances.
6. Lotus warrants and covenants to Rightiming that the said shares to
be issued are free of any lien, mortgages or other encumbrances.
7. All the matters related to the present agreement shall be governed
in accordance with the laws of the State of Delaware.
8. This Agreement may be executed in two counterparts, each of which
shall be deemed an original, but all of which together shall constitute one
and the same instrument.
9. This Agreement shall be binding upon the parties hereto and inure to
the benefit of the parties, their respective administrators, executors,
successors and assigns.
IN WITNESS WHEREOF, the parties have executed this Agreement the day and
year first above written.
For and on behalf of For and on behalf of
Rightiming Electronics Corp. Lotus Pacific, Inc.
By: /s/ By: /s/
Richard Ho, President James Yao, President
EX 10-5
LOTUS PACIFIC, INC.
COMMON STOCK
SUBSCRIPTION AGREEMENT
THE SHARES OF COMMON STOCK OF LOTUS PACIFIC, INC., A DELAWARE CORPORATION
(THE "COMPANY"), PURCHASED PURSUANT TO THIS SUBSCRIPTION AGREEMENT (THE
"AGREEMENT"), HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR
UNDER THE LAWS OF ANY JURISDICTION.
1. Subscription. The undersigned subscriber (the "Subscriber"), agreeing
to be legally bound hereby, does subscribe for and agree to purchase 37,500
shares of the Company's Common Stock with a par value of $0.001 per share
(the "Shares") at a price of US $4.00 per share. The total purchase price is
US $150,000. The Subscriber herewith tenders payment upon signing this Stock
Subscription Agreement, in such amount, the receipt of which is hereby
acknowledged by the Company, in the form of a check or wire transfer payable
to the Company from the Subscriber. The Company shall cause its stock
transfer agent to issue the Shares as soon as practicable thereafter.
2. Representations and Warranties of Subscriber. To induce the Company
to enter into this Agreement, the Subscriber hereby represents and warrants
to the Company as follows:
(A) The Subscriber
(i) has had access to the books and records of the Company, and
is fully familiar with and understands the contents thereof;
(ii) acknowledges that it has had the opportunity to ask
questions of and receive answers from the management and from the authorized
representatives of the Company concerning the Company and to obtain any
additional information necessary to verify the accuracy of the information
so furnished;
(iii) has read carefully this Agreement;
(iv) has received no solicitation or general advertisement with
respect to the purchase of the Shares; and
(v) has based its investment decision on such information as is
described above and supplied herein and has not received any other written
communication in connection with this transaction.
(B) The Subscriber understands and acknowledges the following:
(i) The Shares are being offered and sold under the exemption
provided in, among others, Section 4(2) of the Securities Act of 1933, as
amended (the "Act") and under applicable exemptions from securities
registration as a transaction by an issuer not involving a public offering;
(ii) The Shares have not been registered under the Act or under
any securities act; and the Shares can not be sold or transferred unless
they are registered under the Act or an exemption from registration is
otherwise available;
(iii) The Company has no obligation or intention to register said
Shares for resale under any federal or other securities laws or to take any
action which would make available any such exemption from the registration
requirements of any such laws;
(iv) Rule 144 of the Securities and Exchange Commission under the
Act would substantially restrict the transferability of the Shares; and
(v) There is no assurance of a public market for the Shares and,
accordingly, the Subscriber must bear the economic risks of its investment for
a infinite period of time.
(C) The Subscriber is acquiring the Shares solely for its own
account, for investment only, and not with a view towards the further
distribution thereof. The Subscriber will not sell, transfer, hypothecate,
or otherwise dispose of the Shares, or any portion thereof, unless such sale,
transfer, hypothecation or disposition is made in compliance with the
requirements of the Act and any and all applicable laws, rules and
regulations.
(D) THE SUBSCRIBER RECOGNIZES THAT ANY INVESTMENT IN THE COMPANY
INVOLVES SUBSTANTIAL RISK FACTORS.
(E) The Subscriber has adequate financial means of providing for
its current needs and financial contingencies without the need for liquidity
in this investment and has the ability to bear the economic risks of this
investment and can afford a complete loss of the purchase price; and the
Subscriber has no reason to contemplate any change in its financial
condition.
(F) The Subscriber, through its management and advisors, is fully
familiar with, and has the knowledge and expertise in, financial and business
matters necessary to evaluate the merits and the risks involved in the
purchase of the Shares.
(G) These representations and warranties provided to the Company
by the Subscriber are true and correct as of the date hereof and the
Subscriber agrees to advise the Company prior to its acceptance of this
Agreement of any material change in any of such information.
(H) The Subscriber fully understands that no governmental agency
has approved or disapproved, passed upon or endorsed the merits of the sale
or purchase of the Shares.
(I) The Subscriber is a corporation duly organized and existing
in good standing under the laws of the jurisdiction of its incorporation.
(J) The undersigned representative of the Subscriber has full
power, in accordance with all applicable laws, to execute and perform this
Agreement, and such execution and performance do not have any conflict with
any applicable charter or bylaw provision or with any contract to which it
is a party or to which it is subject. The Board of Directors of the
Subscriber has duly authorized this Agreement, the transactions contemplated
herein, and the execution hereof by the undersigned representative.
3. Representations and Warranties of Company. To induce the
Subscriber to enter into the Agreement, the Company and its principal
shareholders do hereby represent and warrant as follows:
(A) The Company's Shares to be delivered to the Subscriber will
constitute, under Delaware corporate law, valid and legally issued Shares of
the Company, fully paid, and nonassessable.
(B) The officers of the Company are duly authorized to execute
this Agreement and have taken all actions required by law and agreement, its
charter and bylaws, to properly and legally execute this Agreement.
(C) The Company is not involved in any pending litigation, claims,
or governmental investigation or proceeding not reflected in its financial
statements or otherwise disclosed in writing to the Subscriber and there are
no lawsuits, claims, assessments, investigations, or similar matters, to the
best knowledge of the management, threatened or contemplated against the
Company, its management or properties.
(D) The Company is duly organized, validly existing and in good
standing under the laws of the State of Delaware; it has the corporate power
to own its property and to carry on its business as now being conducted and
is duly qualified to conduct such business in any jurisdiction so required.
(E) Pursuant to its Certificate of Incorporation, as amended, the
Company is authorized to issue 50,000,000 shares of Common Stock, par value
$0.001 per share, 46,809,054 shares of which are issued and outstanding,
fully paid and nonassessable. The company is authorized to issue 4,300
shares of Series A preferred stock, 4,300 shares of which are issued and
outstanding. The Company is authorized to issue 100,000 shares of preferred
stock, none of which is issued or outstanding prior to the closing hereof.
The Company has 8,000,000 shares of redeemable common stock warrant and
1,090,000 shares of stock option outstanding. The warrants and the options
will be exercisable for a period of five years. No shareholder of the Company
has any right of first refusal or any preemptive rights with respect to the
issuance of the Company's capital stock.
(F) Attached hereto and marked as Exhibit A, and hereby made a part
hereof, are the Financial Statements of the Company as of September 30, 1997,
hereinafter referred to as the "Financial Statements". Except as explained
in the notes thereto, the Financial Statements present fairly the financial
condition of the Company as of the dates thereof and the results of
operations for periods covered thereby and, except as aforesaid, the
Financial Statements have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis throughout the periods
involved.
(G) The Company has in all material aspects performed all obligations
required to be performed by it in the past and no claim exists for default in
any material respect under any agreements, leases, or other documents to which
the Company is a party.
(H) The Company has complied in all material aspects with all
applicable statutes and regulations of any governmental authority having
jurisdiction over it or that have been applicable to its business. The
Company is current in its SEC filings and has filed all reports required to
be filed with the SEC during the past twelve (12) months.
(I) The Company has filed in correct form all income tax returns due
with respect to all prior years, and all franchise, real and personal
property tax returns that are required to be filed, and has paid all taxes
as shown on the said returns and all assessments received by it to the
extent that such taxes and assessments have become due.
(J) No loans or other obligations are payable to officers, directors,
employees, or stockholders of the Company.
4. Legends. The Subscriber hereby agrees that the certificate(s)
evidencing the Shares shall bear such legends with regard to restrictions on
transfer as may be required under the Act and other applicable law.
5. Inspection Rights. It is understood that all documents, records and
books pertaining to this investment have been made available for inspection by
the Subscriber and each of its attorney, accountant and representative, and
that they will be available, upon reasonable notice, for inspection during
reasonable business hours at the office of the Company.
6. Indemnification by Subscriber. The Subscriber hereby agrees to
indemnify and hold harmless the Company and its officers and directors from
and against any and all loss, damage, or liability (including attorney's fees)
due to, or arising out of, a breach of any representation or warranty made
by the Subscriber contained herein.
7. Indemnification by Company. The Company and its undersigned principal
shareholders agree that they, jointly and severally, will indemnify
Subscriber and the Company against, and will hold each of them harmless
from, any and all loss, damage, or liability (including attorney's fees)
due to, or arising out of, a breach of any representation or warranty made
by the Company contained herein.
8. No Assignment or Transfer. The Subscriber agrees not to transfer or
assign this Subscription Agreement or any interest of the Subscriber herein
except as described above; any attempted transfer or assignment shall be
deemed void and without force or effect.
9. Governing Law. This Agreement shall be construed in accordance with
and governed and interpreted by the laws of the State of Delaware.
10. Headings. The headings employed in each of the numbered paragraphs
herein are for reference and convenience of the parties, but shall not be
deemed to have any substantive effect.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective authorized representatives and have caused
their signatures to be affixed hereto this thirty first day of December,
1997.
Subscriber:
Clarinet Overseas, Ltd.
By: /S/
Crystal Chu
Confirmed and Agreed to
Lotus Pacific, Inc.
By: /S/
Gary Huang
EX 10.6
STOCK PURCHASE AGREEMENT
BETWEEN
CLARINET OVERSEAS LIMITED
AND
LOTUS PACIFIC, INC.
September 30, 1998
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (this "Agreement") is entered into effective
as of September 30, 1998, by and between Clarinet Overseas Limited (the
"Buyer"), a corporation registered in the British Virgin Islands, and Lotus
Pacific, Inc., a Delaware corporation (the "Seller"), each a "Party",
collectively the "Parties".
RECITALS
WHEREAS, the Seller owns one hundred percent (100%) of the outstanding
ownership interests in LPF International Corp., a New York Corporation
engaged in the apparel business ("LPF");
WHEREAS, LPF owns one hundred percent (100%) of the outstanding ownership
interests in Richtime Far East Ltd., a Hong Kong corporation, which is also
engaged in the apparel business ("Richtime");
WHEREAS, the Seller desires to sell all of its ownership interests in LPF,
including LPF's ownership interests in Richtime;
WHEREAS, the Buyer desires to purchase from the Seller all of its ownership
interests in LPF and Richtime, respectively.
NOW, THEREFORE, in consideration of the premises and the mutual promises
herein made and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Parties hereby agree as
follows:
1. PURCHASE AND SALE OF LPF AND RICHTIME SHARES.
a. Basic Transaction. Subject to the terms and conditions of this
Agreement, the Buyer hereby purchases from the Seller, and the Seller hereby
sells to the Buyer its ownership interests in LPF and Richtime in the form
of shares (the "Shares"), including all assets and liabilities, for the
consideration specified below.
b. Purchase Price and Payments.
1. Purchase Price. The Buyer agrees to pay a total of nine hundred
thousand dollars ($900,000.00) for the LPF and Richtime Shares,
which Purchase Price will be paid as follows:
2. Payment from Buyer. Upon execution of this Agreement by the
Parties, the Buyer will pay to the Seller nine hundred thousand
dollars ($900,000.00) in certified funds or by wire transfer.
3. Return of Seller's Capital Investment Upon execution of this
Agreement by the Parties, LPF shall transfer, or cause to be
transferred, to Seller one million six hundred thousand dollars
($1,600,000.00) from its corporate account in certified funds or
by wire transfer.
c. The Closing. The closing of the transactions contemplated by this
Agreement (the "Closing") shall occur upon execution and delivery
of this Agreement by the Parties together with all documents,
instruments, and agreements referred to herein by the respective
parties referred to in such documents, instruments, and agreements.
The date on which the Closing occurs shall be referred to as the
"Closing Date". The Closing shall occur at such location and at
such time as the Parties shall mutually agree.
d. Deliveries at the Closing.
1. Seller's Obligation at Closing. A the Closing, the Seller will:
(1) deliver to Buyer a stock certificate or stock certificates
representing and evidencing the LPF and Richtime Shares,
respectively, endorsed in blank or accompanied by duly
executed assignment documents or stock powers sufficient
to transfer good and marketable title to the LPF and Richtime
Shares to the Buyer; and
(2) execute and deliver this Agreement and all other documents,
instruments, and agreements referred to herein or contemplated
hereby.
2. Buyer's Obligations at Closing. At the closing, the Buyer will:
(1) deliver to Seller a certified check or confirmation of wire
transfer in the amount of nine hundred thousand dollars
($900,000.00); and
(2) execute and deliver this Agreement and all other documents,
instruments, and agreements referred to herein or
contemplated hereby.
2. REPRESENTATIONS AND WARRANTIES CONCERNING THE SELLER AND THE BUYER
a. Representations and Warranties of the Seller. The Seller hereby
represents and warrants to the Buyer that the statements contained in this
Section 2.a. are correct and complete as of the Closing Date. The Buyer may
rely on the representations and warranties contained in this Section 2.a.
1. Organization of the Seller. The Seller is duly organized,
validly existing, and in good standing under the laws of the jurisdiction of
its incorporation.
2. Authorization of Transaction. The Seller has full power and
authority to execute and deliver this Agreement and to perform its
obligations hereunder. This Agreement constitutes the valid and legally
binding obligations of the Seller, enforceable in accordance with its terms
and conditions. The Seller does not need to give any notice to, make any
filing with, or obtain any authorization, consent, or approval of any
governmental authorities in order to consummate the transactions contemplated
by this Agreement.
3. Noncontravention. Neither the execution and delivery of this
Agreement, nor the consummation of the transactions contemplated hereby, will
(a) violate any governing law or other restrictions of any governmental
authority to which the Seller is subject, or any provision of its charter or
bylaws, or (b) conflict with, result in a breach of, constitute a default
under, result in the acceleration of, create in any person the right to
accelerate, terminate, modify, or cancel, or require any notice under any
agreement, contract, lease, license, permit, governmental approval,
certificate, instrument, or other arrangement to which it is a party or by
which it is bound or to which any of its assets or properties is subject.
4. Broker's Fees. The Seller has no liability or obligation to pay
any fees or commissions to any broker, finder, or agent with respect to the
transactions contemplated by this Agreement for which the Buyer could become
liable or obligated.
5. LPF Shares. The Seller holds of record and owns beneficially all
of the outstanding shares of capital stock of LPF International Corp., free
and clear of any restrictions on transfer (other than any restrictions under
the Securities Act of 1933, as amended, and applicable state securities
laws), taxes, security interests, options, warrants, purchase right, or other
contracts, commitments, equities, claims and demands. the Seller is not a
party to any option, warrant, purchase right, or other contract or commitment
that could require the Seller to sell, transfer, or otherwise dispose of any
capital stock of LPF (other than this Agreement). The Seller is not a party
to any voting trust, proxy, or other agreement or understanding with respect
to the voting of any capital stock of LPF. All of the issued and outstanding
equity interests of LPF have been duly authorized and are validly issued,
fully paid and non-assessable.
6. Richtime Shares. LPF holds of record and owns beneficially all of
the outstanding shares of capital stock of Richtime Far East Ltd. free and
clear of any restrictions on transfer (other than any restrictions under the
Securities Act of 1933, as amended, and applicable state securities laws),
taxes, security interests, options, warrants, purchase right, or other
contracts, commitments, equities, claims and demands. LPF is not a party to
any option, warrant, purchase right, or other contract or commitment that
could require LPF to sell, transfer, or otherwise dispose of any capital
stock of Richtime (other than this Agreement). LPF is not a party to any
voting trust, proxy, or other agreement or understanding with respect to the
voting of any capital stock of Richtime. All of the issued and outstanding
equity interests of Richtime have been duly authorized and are validly
issued, fully paid and non-assessable.
7. Disclosure. The representations and warranties contained in this
Section 2.a. do not contain any untrue statement of a material fact or omit
to state any material fact necessary in order to make the statements and
information contained in this Section 2.a. not misleading.
b. Representations and Warranties of the Buyer. The Buyer hereby
represents and warrants to the Seller that the statements contained in this
Section 2.b. are correct and complete as of the Closing Date. The Seller may
rely on the representations and warranties contained in this Section 2b.
1. Organization of the Buyer. The Buyer is duly organized, validly
existing, and in good standing under the laws of the jurisdiction of its
incorporation.
2. Authorization of Transaction. The Buyer has full power and
authority to execute and deliver this Agreement and to perform its
obligations hereunder. This Agreement constitutes the valid and legally
binding obligations of the Buyer, enforceable in accordance with its terms
and conditions. The Buyer does not need to give any notice to, make any
filing with, or obtain any authorization, consent, or approval of any
governmental authorities in order to consummate the transactions contemplated
by this Agreement.
3. Noncontravention. Neither the execution and delivery of this
Agreement, nor the consummation of the transactions contemplated hereby,
will (a) violate any governing law or other restrictions of any governmental
authority to which the Buyer is subject, or any provision of its charter or
bylaws, or (b) conflict with, result in a breach of, constitute a default
under, result in the acceleration of, create in any Person the right to
accelerate, terminate, modify, or cancel, or require any notice under any
agreement, contract, lease, license, permit, governmental approval,
certificate, instrument, or other arrangement to which it is a party or by
which it is bound or to which any of its assets or properties is subject.
4. Broker's Fees. The Buyer has no liability or obligation to pay any
fees or commissions to any broker, finder, or agent with respect to the
transactions contemplated by this Agreement for which the Seller could become
liable or obligated.
5. Disclosure. The representations and warranties contained in this
Section 2.b. do not contain any untrue statement of a material fact or omit
to state any material fact necessary in order to make the statements and
information contained in this Section 2.b. not misleading.
3. MISCELLANEOUS
1. Entire Agreement. This Agreement (including the documents referred
to herein) constitutes the entire agreement between the Parties and
supersedes any prior understandings, agreements, or representations by or
between the Parties, written or oral, to the extent they related in any way
to the subject matter hereof.
2. Succession and Assignment. This Agreement shall be binding upon
and inure to the benefit of the Parties named herein and their respective
successors and assigns. No Party may assign this Agreement or any of its
rights, interests, or obligations hereunder without the prior written consent
of the other; provided, however, that such consent shall not be unreasonably
withheld.
3.Counterparts. This Agreement may be executed by facsimile signature
and in one or more counterparts, each of which shall be deemed an original
but all of which together will constitute one and the same instrument.
4. Headings. The section headings contained herein are inserted for
convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
5. Notices. All Notices, requests, demands, claims, and other
communications hereunder will be in writing. Any notice, request, demand,
claim, or other communication hereunder shall be deemed duly given if
(and then five (5) business days after) it is sent by air mail, postage
prepaid, and address to the intended recipient as set forth below:
Seller:
Lotus Pacific, Inc.
200 Centennial Avenue
Suite 201
Piscataway, NJ 08854
Attn: James Liu
Buyer:
Clarinet Overseas Limited
2625 Alcatraze Avenue
Suite 242
Berkeley, CA 94705
Attn: Crystal Chu
Any Party may send any notice, request, demand, claim, or other
communication hereunder to the intended recipient at the addresses set forth
above using any other means (including personal delivery, recognized
overnight or international courier, messenger service, confirmed telecopy,
or electronic mail), but no such notice, request, demand, claim, or other
communication shall be deemed to have been duly given unless and until it
actually is received by the intended recipient or receipt is confirmed by
a third party or by electronic means. Any Party may change the address to
which notices, requests, demands, claims, and other communications hereunder
are to be delivered by giving the other Party notice in the manner herein
set forth.
6. Applicable Law. This Agreement shall be governed by and construed
in accordance with the domestic laws of the State of Delaware, U.S.A.,
without giving effect to any choice or conflict of law provision or rule
(whether of the State of Delaware or any other state or jurisdiction) that
would cause the application of the laws of any state or jurisdiction other
than the State of Delaware.
7. Amendments and Waivers. No amendments of any provision of this
Agreement shall be valid unless the same shall be in writing and signed by
the Parties. No waiver by any Party of any default, misrepresentation, or
breach of warranty or covenants hereunder, whether intentional or not,
shall be deemed to extend to any prior or subsequent default,
misrepresentation, or breach of warranty or covenant hereunder to affect
in any way any rights arising by virtue of any prior or subsequent such
occurrence.
8. Severability. Any term or provision of this Agreement that is
invalid or unenforceable in any situation in any state or jurisdiction
shall not affect the validity or enforceability of the remaining terms and
provision hereof or the validity or enforceability of the offending term
or provision in any other situation or in any other state or jurisdiction.
9. Expenses. Each of the Parties will bear its own costs and
expenses (including legal fees and expenses) incurred in connection with
this Agreement and the transactions contemplated hereby.
10. Construction: Official Version. The Parties have participated
jointly in the negotiation and drafting of this Agreement. In the event
an ambiguity or question of intent or interpretation arises, this Agreement
shall be construed as if drafted jointly by the Parties and no presumption
or burden of proof shall arise favoring or disfavoring any Party by virtue
of the authorship of any of the provisions of this Agreement.
11. Specific Performance. Each of the Parties acknowledges and agrees
that the other Party would be damaged irreparably in the event any of the
provisions of this Agreement are not performed in accordance with their
specific terms or otherwise are breached. Accordingly, each of the Parties
agrees that the other Party shall be entitled to an injunction or injunctions
to prevent breach of the provisions of this Agreement and to enforce
specifically this Agreement and the terms and provisions hereof in any
action instituted in any court of the U.S.A. or any state thereof having
jurisdiction over the Parties and the matter, in addition to any other
remedy to which they may be entitled, at law or equity.
IN WITNESS WHEREOF, the Parties have executed and delivered this
Agreement on the date first above written.
SELLER: BUYER:
LOTUS PACIFIC, INC. CLARINET OVERSEAS LIMITED,
a Delaware corporation a British Virgin Islands corporation
By: /S/ By: /S/
James Yao , President Crystal Chu, President
EX 10.7
COMMISSION AGREEMENT
THIS AGREEMENT is made as of June 8, 1997 between Lotus Pacific, Inc.,
hereinafter referred to as "Lotus" and Clarinet Overseas Ltd., hereinafter
referred to as "Clarinet".
WITNESS THAT
IN CONSIDERATION OF the promises and mutual covenants and agreements
herein contained, the parties agree as follows:
1. Clarinet shall introduce accredited investors to Lotus' private
placements of its common stock shares.
2. Lotus agrees to pay Clarinet 6% of the total amount of funds
from the investors that Clarinet introduced plus one (1) share of common
stock of Lotus for each US $16.00 that Lotus raised from those investors.
3. All said shares of Lotus' common stock are restricted securities
as defined in Rule 144 of Securities Act of 1933, as amended. Clarinet shall
comply with all regulations of the Securities and Exchange Commission of the
United States in its presentation, and shall not make any improper statements
of Lotus to prospective investors.
4. This agreement shall become effective on June 8, 1997 and
terminate on March 31, 1998.
5. The payment of said commission shall be paid by April 10, 1998,
and there is no guarantee of any minimum amount to be paid under this
Agreement.
6. The term "Clarinet" as used herein shall be deemed to include the
employees and officers of Clarinet Overseas Ltd. in the performance of this
Agreement. The obligations, warranties, and representations of Clarinet
Overseas Ltd. hereunder are also imposed on the employees and officers of
Clarinet.
IN WITNESS WHEREOF, the parties hereto have cause this Agreement to
be executed as of the day and year first above written.
Lotus Pacvific, Inc. Clarinet Overseas Ltd.
By: /S/ By: /S/
James Yao, President Crystal Chu, President
EX 10.8
COMMISSION AGREEMENT
THIS AGREEMENT is made as of June 1, 1998 between Lotus Pacific, Inc.,
hereinafter referred to as "Lotus" and Clarinet Overseas Ltd., hereinafter
referred to as "Clarinet".
WITNESS THAT
IN CONSIDERATION OF the promises and mutual covenants and agreements
herein contained, the parties agree as follows:
1. Clarinet shall introduce accredited investors to Lotus' private
placements of its common stock shares.
2. Lotus agrees to pay Clarinet $1.50 as consideration for each share
that Clarinet introduced, and all the payments Lotus made to Clarinet shall
be replaced by issuing Clarinet common stock shares of Lotus at a price
of $6.00 per share.
3. All said shares of Lotus' common stock are restricted securities
as defined in Rule 144 of Securities Act of 1933, as amended. Clarinet shall
comply with all regulations of the Securities and Exchange Commission of the
United States in its presentation, and shall not make any improper statements
of Lotus to prospective investors.
4. This agreement shall become effective on June 1, 1998 and shall be
terminated on December 31, 1998.
5. There is no guarantee of any minimum number of shares of Lotus'
common stock to be issued to Clarinet under this Agreement.
6. The term "Clarinet" as used herein shall be deemed to include the
employees and officers of Clarinet Overseas Ltd. in the performance of this
Agreement. The obligations, warranties, and representations of Clarinet
Overseas Ltd. hereunder are also imposed on the employees and officers of
Clarinet.
IN WITNESS WHEREOF, the parties hereto have cause this Agreement to be
executed as of the day and year first above written.
Lotus Pacvific, Inc. Clarinet Overseas Ltd.
By: /S/ By: /S/
James Yao, President Crystal Chu, President
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