SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 8-K/A
Amendment No. 1
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934.
Date of report: March 16, 1999
Lotus Pacific, Inc.
(Exact name of registrant as specified in its charter)
Delaware
State of Organization
000-24999
Commission File Number
52-1947160
Employer Identification Number
200 Centennial Avenue, Suite 201, Piscataway, New Jersey 08854
Address of Principal Executive Office
(732) 885-1750
Registrant's Telephone Number, Including Area Code
Item 2. Acquisition or Disposition of Assets
Registrant and TurboNet Communications, a California corporation ("TurboNet"),
entered into an Acquisition Agreement dated March 15, 1999 and an Addendum to
Acquisition Agreement dated March 31, 1999 (together, the "TurboNet
Agreement"). Registrant, TurboNet and the existing shareholders of TurboNet
(the "Prior Shareholders") entered into a Share Exchange Agreement dated
March 15, 1999 (the "Exchange Agreement"). Pursuant to the TurboNet Agreement
and the Exchange Agreement, Registrant (i) on March 15, 1999, acquired
20,676,316 shares of the common stock of TurboNet representing an 81% equity
interest in TurboNet and (ii) on April 5, 1999, issued to the Prior
Shareholders 11,091,395 shares of Registrant's common stock valued at
$80,000,000. Pursuant to the TurboNet Agreement, Registrant also agreed to
provide TurboNet with $20,000,000 in cash as working capital. Pursuant to the
Share Exchange Agreement, the Prior Shareholders agreed that the shares issued
to them by Registrant are prohibited from being sold, in whole or in part,
until TurboNet's annual gross revenue exceeds $30,000,000 with a before-tax
annual net profit of not less than $6,000,000.
TurboNet is a developer of cable modem technologies and products, including
DOCSIS compliant cable modem chipsets, TurboPort-MCNS cable network module,
MCNS cable data bridge, and internal and external cable modems. TurboNet also
provides cable modems and infrastructure on an OEM basis.
On March 15, 1999, Registrant and the existing shareholders of Arescom Inc.,
a California corporation ("Arescom"), entered into a Share Exchange Agreement
(the "Arescom Agreement"). Pursuant to the Arescom Agreement, Registrant
(i) on March 15, 1999, acquired 142,673,690 shares of the common stock of
Arescom representing an 81% equity interest in Arescom and (ii) on June 8,
1999, issued to the existing shareholders of Arescom 4,159,274 shares of
Registrant's common stock valued at $30,000,000. Pursuant to the Arescom
Agreement, Registrant also agreed to provide Arescom with $10,000,000 in cash
as working capital, and Arescom's existing shareholders agreed not to sell the
shares issued by to them by Registrant until Arescom's annual gross revenue
exceeds $15,000,000 with a before-tax annual net profit of not less than
$3,000,000.
Arescom designs, manufactures and markets inter-networking router equipment
for PSTN, ISDN, xDSL and Ethernet environments. Arescom provides users with
a broad range of remote access products that integrate voice and data along
with Intelligent GUI and 100% remote management tools for set-up and network
management. Arescom has established partners and channels throughout the world
to develop and market its router products for vertical and mass communication
markets. Its customers include ISPs, re-sellers and system integrators in
North America.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits
(a) Financial Statements of the Businesses Acquired
Financial statements of the businesses acquired are attached hereto as
Exhibit 99.1 and Exhibit 99.2.
(b) Pro Forma Financial Information
Pro forma financial statements of the Registrant reflecting the
acquisitions are attached hereto as Exhibit 99.3.
(c) Exhibits
2.1 Acquisition Agreement by and between Registrant and TurboNet
Communications dated March 15, 1999.
2.2 Addendum to Acquisition Agreement by and between Registrant and
TurboNet Communications dated March 31, 1999.
2.3 Share Exchange Agreement by and between Registrant, TurboNet
Communications and the Shareholders of TurboNet Communications
dated March 15, 1999.
2.4 Share Exchange Agreement by and between Registrant and the
Shareholders of Arescom Inc. dated March 15, 1999.
99.1 Audited Financial Statements of Arescom Inc. for the Year Ended
June 30, 1997.
99.2 Audited Financial Statements of Arescom Inc. for the Year Ended
June 30, 1998.
99.3 Audited Financial Statements of Arescom Inc. for the Nine Months
Ended June 30, 1999.
99.4 Audited Financial Statements of TurboNet Communications for the
Nine Months Ended March 31, 1999 and for the Years Ended June 30,
1998 and 1997.
99.5 Pro Forma Condensed Consolidated Balance Sheet of Registrant as of
March 31, 1999 and Pro Forma Condensed Consolidated Statement of
Operations of Registrant for the Nine Months Ended March 31, 1999.
Signatures
Pursuant to the requirements of Section 12 of the Securities Exchange Act of
1934, the Registrant had duly caused this report to be signed on its behalf by
the undersigned, thereto duly authorized.
LOTUS PACIFIC, INC.
Date: January 28, 2000
By: /s/ Jeremy Wang
---------------------------
Jeremy Wang, President
EXHIBIT INDEX
Exhibit No. Description
- ---------- --------------------------------------------------------
2.1 Acquisition Agreement by and between Registrant and TurboNet
Communications dated March 15, 1999.
2.2 Addendum to Acquisition Agreement by and between Registrant and
TurboNet Communications dated March 31, 1999.
2.3 Share Exchange Agreement by and between Registrant, TurboNet
Communications and the Shareholders of TurboNet Communications
dated March 15, 1999.
2.4 Share Exchange Agreement by and between Registrant and the
Shareholders of Arescom Inc. dated March 15, 1999.
99.1 Audited Financial Statements of Arescom Inc. for the Year Ended
June 30, 1997.
99.2 Audited Financial Statements of Arescom Inc. for the Year Ended
June 30, 1998.
99.3 Audited Financial Statements of Arescom Inc. for the Nine Months
Ended June 30, 1999.
99.4 Audited Financial Statements of TurboNet Communications for the
Nine Months Ended March 31, 1999 and for the Years Ended June 30,
1998 and 1997.
99.5 Pro Forma Condensed Consolidated Balance Sheet of Registrant as of
March 31, 1999 and Pro Forma Condensed Consolidated Statement of
Operations of Registrant for the Nine Months Ended March 31, 1999.
EXHIBIT 2.1
ACQUISITION AGREEMENT
BETWEEN
LOTUS PACIFIC, INC.
AND
TURBONET COMMUNICATIONS
March 15, 1999
THIS ACQUISITION AGREEMENT (this "Agreement") is entered into effective
as of March 15, 1999, by and between Lotus Pacific, Inc. (hereinafter "LPFC")
and Turbonet Communications (hereinafter "Turbonet"). Each of LPFC and Turbonet
is also referred to as a "Party", collectively the "Parties".
RECITALS
WHEREAS, LPFC desires to acquire certain interest in Turbonet as defined
herein;
WHEREAS, LPFC agrees to issue to the existing shareholders of Turbonet
eighty million U.S. dollars ($80,000,000) worth of common stock (hereinafter
the "LPFC Shares");
WHEREAS, LPFC agrees to provide Turbonet with twenty million U.S. dollars
($20,000,000) in cash as additional working capital based on Turbonet's
financial needs (hereinafter the "Working Capital"); and
WHEREAS, Turbonet desires to issue certain number of shares of common stock
constituting eighty-one percent (81%) of its equity interest at the time of the
closing.
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. Interest Acquired
LPFC will acquire eighty-one percent (81%) of the equity interest in Turbonet
(hereinafter the "Turbonet Equity Interest").
2. Consideration
a. In consideration of Turbonet's agreement to sell to LPFC the Turbonet
Equity Interest, LPFC shall transfer to the existing shareholders of
Turbonet certain number of shares of its common stock with a market value
of eighty million U.S. dollars ($80,000,000), which shall be determined
based on the average closing price of LPFC shares in the open market
during the four (4) weeks immediately after the execution of this
Agreement.
b. As of the date hereof, Turbonet has four million eight hundred fifty
thousand (4,850,000) shares of common stock issued and outstanding. In
consideration of LPFC's transfer of LPFC Shares, Turbonet shall issue
twenty million six hundred seventy-six thousand three hundred fifteen
(20,676,315) shares (or such other number of shares) of its common stock
constituting eighty-one percent (81%) of Turbonet's equity interest at
the time of the closing (hereinafter the "Turbonet Shares").
3. Additional Working Capital
LPFC agrees to provide Turbonet with twenty million U.S. dollars ($20,000,000)
in cash as additional working capital based on Turbonet's financial needs.
4. Restriction on LPFC Shares
The Parties understand that the LPFC Shares to be transferred to the existing
shareholders of Turbonet are restricted as defined under the Securities Act of
1933 (the "1933 Act") as amended, the Securities Exchange Act of 1934 (the
"1934 Act"), as amended, and other federal and state securities laws and
regulations. As such, the share certificate(s) shall bear certain legend
pursuant to the 1933 and 1934 Acts. The Parties agree that the LPFC Shares so
transferred shall be prohibited from being sold, in whole or in part, and shall
be held in trust by Mr. Hsing Chih Tuan, President of Turbonet acting as
representative of its existing shareholders, until Turbonet's annual gross
revenue shall have exceeded thirty million U.S. dollars ($30,000,000) with an
annual (before-tax) net profit of not less than six million U.S. dollars
($6,000,000).
5. 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.
6. Turbonet's Obligations
a. Currently, Turbonet is authorized to issue up to ten million (10,000,000)
shares of common stock. Turbonet agrees to amend, or cause to be amended,
its certificate of incorporation to increase the number of shares it is
authorized to issue to thirty million (30,000,000) shares so as to
consummate the transaction contemplated hereby;
b. At the time of Closing, Turbonet shall deliver to LPFC a stock
certificate or stock certificates representing and evidencing the
Turbonet Shares, endorsed in blank or accompanied by duly executed
assignment documents or stock powers sufficient to transfer good and
marketable title to the Turbonet Shares to LPFC;
c. Execute and deliver this Agreement and all other documents, instruments,
and agreements referred to herein or contemplated hereby; and
d. Provide LPFC with a list of individuals and entities specifying the
respective numbers of shares to be transferred.
7. LPFC's Obligations
a. At the time of Closing, LPFC shall deliver to Turbonet's Representative
a stock certificate or stock certificates representing and evidencing the
LPFC Shares, endorsed in blank or accompanied by duly executed assignment
documents or stock powers sufficient to transfer good and marketable
title to the LPFC Shares to the individuals and entities set forth in the
list provided by Turbonet pursuant to Section 6.d. hereof;
b. Execute and deliver this Agreement and all other documents, instruments,
and agreements referred to herein or contemplated hereby; and
c. LPFC shall provide Turbonet with twenty million U.S. dollars
($20,000,000) in cash as additional working capital based on Turbonet's
financial needs.
8. Conditions Precedent
a. LPFC's completion of satisfactory due diligence (which shall mean that
LPFC has found nothing that varies substantially or materially with its
understanding currently of the operations of Turbonet), which shall
continue immediately and Turbonet agrees to cooperate with LPFC in all
reasonable respects.
b. Approval by the respective Parties' Boards of Directors and shareholders,
if necessary; and
c. The completion of any revisions and alterations which LPFC may deem
advisable to the documentation evidencing the operations of Turbonet.
9. Regulatory Approval
The parties recognize that, in securing required regulatory approvals, they may
be required to provide confirmation of the terms of this Agreement in form and
substance satisfactory to regulatory authorities. It is not contemplated that
copies of this Agreement will be provided to regulatory authorities. Rather,
the Parties agree to cooperate in the preparation and execution of any
agreements or confirmations necessary to secure regulatory approvals.
10. Representations and warranties of Turbonet
Turbonet hereby represents and warrants to LPFC that the statements contained
in this Section 10 are correct and complete as of the Closing Date.
Notwithstanding LPFC's due diligence investigation of Turbonet, LPFC may rely
on the representations and warranties contained in this Section 10.
a. Organization of Turbonet. Turbonet is duly organized, validly existing,
and in good standing under the laws of the jurisdiction of its
incorporation;
b. Authorization of Transaction. Turbonet has full power and authority to
execute and deliver this Agreement and to perform its obligations
hereunder.
c. Authority to Issue Additional Turbonet Shares. Currently, Turbonet is
authorized to issue up to ten million (10,000,000) shares of common
stock. Turbonet shall amend, or cause to be amended, its certificate of
incorporation to increase the number of shares it is authorized to issue
to thirty million (30,000,000) shares so as to consummate the transaction
contemplated hereby.
d. 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 Turbonet is subject, 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 he is a party or by which he is bound or to which
any of his assets or properties is subject.
e. Broker's Fees. Turbonet 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 Turbonet could
become liable or obligated.
f. Disclosure. The representations and warranties contained in this Section
10 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 10 not misleading.
11. Representations and Warranties of LPFC. LPFC hereby represents and
warrants to Turbonet that the statements contained in this Section 11 are
correct and complete as of the Closing Date. Moreover, notwithstanding
Turbonet's due diligence investigation of LPFC, Turbonet may rely on the
representations and warranties contained in this Section 11.
a. Organization of LPFC. LPFC is duly organized, validly existing, and
in good standing under the laws of the jurisdiction of its incorporation.
b. Authorization of Transaction. LPFC has full power and authority to
execute and deliver this Agreement and to perform its obligations
hereunder.
c. Authorization to Issue Shares of Common Stock. LPFC is duly authorized
to issue eighty million U.S. dollars ($80,000,000) worth of shares of
common stock to consummate the transaction contemplated hereby.
d. 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 LPFC 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.
e. Broker's Fees. LPFC 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 LPFC could become
liable or obligated.
f. Disclosure. The representations and warranties contained in this Section
11 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 11 not misleading.
12. Miscellaneous
a. 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.
b. 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:
Lotus Pacific, Inc.
200 Centennial Avenue
Suite 201
Piscataway, NJ 08854
Turbonet Communications
5932 Bernardo Center Drive
San Diego, CA 92127
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.
LOTUS PACIFIC, INC.
By: /s/ James Yao
____________________________
James Yao, Chairman
TURBONET COMMUNICATIONS
Representative of Shareholders
By: /s/ Hsing Chih Tuan
____________________________
Hsing Chih Tuan, President
EXHIBIT 2.2
ADDENDUM TO ACQUISITION AGREEMENT
THIS ADDENDUM TO ACQUISITION AGREEMENT (this "Addendum") is entered into
effective as of March 31, 1999, by and between LOTUS PACIFIC, INC., a Delaware
corporation ("LPFC"), and TURBONET COMMUNIATIONS, a California corporation
("TurboNet"), with reference to the following:
A. WHEREAS, LPFC and TurboNet previously entered into an Acquisition
Agreement effective as of March 15, 1999 (the "Acquisition Agreement"),
pursuant to which LPFC has agreed to purchase eighty-one percent (81%)
of the equity of TurboNet; and
B. WHEREAS, the parties desire to clarify and amend certain terms of the
Acquisition Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual promises
made in this Addendum, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereby
agree as follows:
1. Structure of Transaction. On March 30, 1999, TurboNet declared a stock
dividend in the amount of four and 5/19ths shares of common stock for
each one share of common stock held (or issuable upon conversion of
preferred stock) by the TurboNet shareholders (rounded to the nearest
whole share for each shareholder). Such dividend shall be paid on such
date that TurboNet amends its articles of incorporation to authorize at
least 25,000,000 shares of common stock. On the date of the payment of
such stock dividend, pursuant to a Share Exchange Agreement, the
TurboNet shareholders will assign the dividend shares to LPFC in exchange
for 0.5364 shares of LPFC common stock for each one dividend share of
TurboNet common stock (rounded to the nearest whole share for each
TurboNet shareholder), and in consideration of LPFC's agreement to
provide TurboNet with $20,000,000 of working capital as further described
in this Addendum.
2. Preferred Stock. Within ninety (90) days from the date of this Addendum,
TurboNet intends to issue up to 800,000 shares of Series C Preferred
Stock at a price of $5.00 per share. Concurrently with such issuance
of Series C Preferred Stock, TurboNet shall issue additional dividend
shares to the Series C Preferred shareholders at the rate of four and
5/19ths shares of common stock for each one share of Series C Preferred
Stock so issued upon the agreement by each such shareholder to exchange
such shares for 0.5364 shares of common stock of LPFC. TurboNet shall
further use its good faith efforts to cause each preferred shareholder of
TurboNet to convert its shares of preferred stock into TurboNet common
stock within sixty (60) days after the issuance of such shares of Series
C Preferred Stock. LPFC hereby consents and agrees to such issuance of
Series C Preferred Stock within ninety (90) days after the date of this
Addendum, and further agrees to issue such shares of LPFC common stock
in exchange therefor.
3. Stock Options. TurboNet has issued, and expects to issue in the future,
employee stock options pursuant to its 1998 Stock Option Plan. With
respect to any shares of common stock issued pursuant to the exercise of
such options after the date hereof, TurboNet shall use its good faith
efforts to cause each optionee to assign eighty-one percent (81%) of
such shares of common stock (rounded to the nearest whole number) to
LPFC concurrently with such exercise, in exchange for 0.5364 shares of
LPFC common stock (rounded to the nearest whole number) to be issued by
LPFC to such optionee. LPFC hereby agrees to issue such shares of LPFC
common stock in connection with such exchange. Notwithstanding the
foregoing however, TurboNet shall not be obligated to cause such
optionees to assign more than 2,674,066 shares of TurboNet common stock
to LPFC, and LPFC shall not be obligated issue more than 1,434,449 shares
of LPFC common stock pursuant to this Section 3.
4. Working Capital. LPFC shall provide working capital funds to TurboNet
in the aggregate amount of Twenty Million dollars ($20,000,000) in
exchange for the issuance by TurboNet of convertible promissory notes
in the form of Exhibit A attached hereto. Such amounts shall be
advanced to TurboNet at such times as are requested in writing by the
President of TurboNet, but an aggregate of at least $10,000,000 shall be
advance to later than December 31, 1999, and all of such funds shall be
advanced no later than December 31, 2000. The promissory notes
evidencing such working capital advances shall be convertible into shares
of Series D Preferred Stock of TurboNet having such rights, preferences
and privileges as are provided in the Restated Articles of Incorporation
of TurboNet in the form attached hereto as Exhibit B.
5. Restriction of LPFC Shares. Section 4 of the Acquisition Agreement is
hereby deleted. The restrictions on the LPFC shares shall be governed by
the provisions of Section 3 of the Share Exchange Agreement(s) between
LPFC and the TurboNet shareholders.
6. Effect on Acquisition Agreement. Except as modified by this Addendum,
the terms and provisions of the Acquisition Agreement shall remain in
full force and effect.
IN WITNESS WHEREOF, the parties have executed and delivered this Addendum
to Acquisition Agreement effective as of the date first above written.
TURBONET COMMUNICATIONS, LOTUS PACIFIC, INC.,
A California corporation a Delaware corporation
By: /s/ Hsing Chih Tuan By: /s/ Jeremy Wang
- -------------------------- -------------------------
Name: Hsing Chih Tuan Name: Jeremy Wang
Title: President Title: President
By: /s/ Gordon Lum
- --------------------------
Name: Gordon Lum
Title: Secretary
EXHIBIT 2.3
SHARE EXCHANGE AGREEMENT
BETWEEN
LOTUS PACIFIC, INC.
AND
SHAREHOLDERS OF TURBONET COMMUNICATIONS
March 15, 1999
THIS SHARE EXCHANGE AGREEMENT (this "Agreement") is entered into effective
as of March 15, 1999, by and between Lotus Pacific, Inc. (hereinafter "LPFC")
and existing shareholders (hereinafter "Shareholders") of TurboNet
Communications (hereinafter "TurboNet") represented by Hsing Chih Tuan (the
"Representative"). Each of LPFC and Shareholders is also referred to as a
"Party", collectively the "Parties".
RECITALS
WHEREAS, LPFC desires to acquire certain interest in TurboNet as defined
herein;
WHEREAS, LPFC agrees to issue to the Shareholders eighty million U.S.
dollars ($80,000,000) worth of common stock (hereinafter the "LPFC Shares")
and to provide TurboNet with an additional twenty-million U.S.dollars
($20,000,000) in cash as working capital;
WHEREAS, TurboNet desires to issue twenty million six hundred seventy-six
thousand three hundred fifteen (20,676,315) shares of its common stock
constituting eighty-one percent (81%) of TurboNet's equity interest at the
time of the closing (hereinafter the "TurboNet Shares") to Shareholders on a
pro rata basis.
WHEREAS, Shareholders desire immediately to transfer the TurboNet Shares
to LPFC in exchange for the LPFC Shares.
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. Interest Acquired
LPFC will acquire eighty-one percent (81%) of the equity interest in TurboNet
(hereinafter the "TurboNet Equity Interest").
2. Consideration
a. In consideration of Shareholders' agreement to transfer to LPFC the
TurboNet Shares, LPFC shall transfer to the Shareholders certain number
of shares of its common stock with a market value of eighty million U.S.
dollars ($80,000,000), which shall be determined based on the average
closing price of LPFC shares in the open market during the four (4) weeks
immediately after the execution of this Agreement.
b. As of the date hereof, TurboNet has four million eight hundred fifty
thousand (4,850,000) shares of stock issued and outstanding.
In consideration of LPFC's transfer of LPFC Shares, TurboNet shall issue,
on a pro rata basis, twenty million six hundred seventy-six thousand
three hundred fifteen (20,676,315) shares of its common stock
constituting eighty-one percent (81%) of TurboNet's equity interest at
the time of the closing to the Shareholders who shall, in turn,
immediately transfer the same to LPFC in exchange for the LPFC Shares.
3. Restriction on LPFC Shares
The Parties understand that the LPFC Shares to be transferred to the
Shareholders are restricted as defined under the Securities Act of 1933
(the "1933 Act") as amended, the Securities Exchange Act of 1934 (the
"1934 Act"), as amended, and other federal and state securities laws and
regulations. As such, the share certificate(s) shall bear certain legend
pursuant to the 1933 and 1934 Acts. The Parties agree that the LPFC
Shares so transferred shall be prohibited from being sold, in whole or
in part, and shall be held in trust by Mr. Hsing Chih Tuan, President of
TurboNet acting as Representative of the Shareholders, until TurboNet's
annual gross revenue shall have exceeded thirty million U.S. dollars
($30,000,000) with an annual (before-tax) net profit of not less than six
million U.S. dollars ($6,000,000).
4. 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.
5. Shareholders' Obligations
a. Currently, TurboNet is authorized to issue up to ten million (10,000,000)
shares of stock. Shareholders agree to authorize TurboNet to amend, or
cause to be amended, its certificate of incorporation to increase the
number of shares it is authorized to issue to thirty million (30,000,000)
shares so as to consummate the transaction contemplated hereby;
b. At the time of Closing, Representative shall, on behalf of Shareholders,
deliver to LPFC a stock certificate or stock certificates representing
and evidencing the TurboNet Shares, endorsed in blank or accompanied by
duly executed assignment documents or stock powers sufficient to transfer
good and marketable title to the TurboNet Shares to LPFC;
c. Execute and deliver this Agreement and all other documents, instruments,
and agreements referred to herein or contemplated hereby; and
d. Provide LPFC with a list of Shareholders specifying the respective
numbers of shares to be transferred to each individual shareholder.
6. LPFC's Obligations
a. At the time of Closing, LPFC shall deliver to the Representative a stock
certificate or stock certificates representing and evidencing the LPFC
Shares, endorsed in blank or accompanied by duly executed assignment
documents or stock powers sufficient to transfer good and marketable
title to the LPFC Shares to the individuals and entities set forth in the
list provided by TurboNet pursuant to Section 5.d hereof; and
b. Execute and deliver this Agreement and all other documents, instruments,
and agreements referred to herein or contemplated hereby.
7. Conditions Precedent
a. LPFC's completion of satisfactory due diligence (which shall mean that
LPFC has found nothing that varies substantially or materially with its
understanding currently of the operations of TurboNet), which shall
continue immediately and TurboNet agrees to cooperate with LPFC in all
reasonable respects.
b. Approval by the respective Parties' Boards of Directors and shareholders,
if necessary; and
c. The completion of any revisions and alterations which LPFC may deem
advisable to the documentation evidencing the operations of TurboNet.
8. Regulatory Approval
The parties recognize that, in securing required regulatory approvals, they
may be required to provide confirmation of the terms of this Agreement in
form and substance satisfactory to regulatory authorities. It is not
contemplated that copies of this Agreement will be provided to regulatory
authorities. Rather, the Parties agree to cooperate in the preparation and
execution of any agreements or confirmations necessary to secure regulatory
approvals.
9. Representations and Warranties of Shareholders
a. Validity of Shares. Shareholders hereby represent and warrant to LPFC
that they hold good and marketable title to the TurboNet Shares to be
transferred, which are duly and validly issued, fully paid and non-
assessable, free and clear of any and all liens, security interests and
other encumbrances.
b. Authorization of Transaction. Shareholders have authorized TurboNet's
directors and officers to execute and deliver this Agreement and to
perform its obligations hereunder.
c. Authority to Issue Additional TurboNet Shares. Currently, TurboNet is
authorized to issue up to ten million (10,000,000) shares of stock.
Shareholders have authorized TurboNet to amend, or cause to be amended,
its certificate of incorporation to increase the number of shares it is
authorized to issue to thirty million (30,000,000) shares so as to
consummate the transaction contemplated hereby.
d. Disclosure. The representations and warranties contained in this Section
9 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 9 not misleading.
10. Representations and Warranties of LPFC
LPFC hereby represents and warrants to Shareholders that the statements
contained in this Section 10 are correct and complete as of the Closing
Date. Moreover, notwithstanding TurboNet's due diligence investigation of
LPFC, Shareholders may rely on the representations and warranties contained
in this Section 10.
a. Organization of LPFC. LPFC is duly organized, validly existing, and in
good standing under the laws of the jurisdiction of its incorporation.
b. Authorization of Transaction. LPFC has full power and authority to
execute and deliver this Agreement and to perform its obligations
hereunder.
c. Authorization to Issue Shares of Common Stock. LPFC is duly authorized
to issue eighty million U.S. dollars ($80,000,000) worth of shares of
common stock to consummate the transaction contemplated hereby.
e. Validity of Shares. LPFC hereby represents and warrants to Shareholders
that the LPFC Shares to be transferred to Shareholders are duly and
validly issued, fully paid and non-assessable, free and clear of any and
all liens, security interests and other encumbrances.
f. 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 LPFC 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.
g. Disclosure. The representations and warranties contained in this Section
10 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 10 not misleading.
11. Miscellaneous
a. 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.
b. 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.
c. 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.
d. 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.
e. 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:
Lotus Pacific, Inc.
200 Centennial Avenue
Suite 201
Piscataway, NJ 08854
Shareholders
5932 Bernardo Center Drive
San Diego, CA 92127
Attention: Hsing Chih Tuan
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.
f. 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.
g. 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.
h. 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.
i. 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.
j. 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.
k. 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.
LOTUS PACIFIC, INC.
By: /s/ James Yao
- ----------------------
Name: James Yao
Title: Chairman
SHAREHOLDERS OF
TURBONET COMMUNICATIONS
By: /s/Hsing Chin Tuan
- -------------------------
Name: Hsing Chih Tuan
Title: Representative of Shareholders
EXHIBIT 2.4
SHARE EXCHANGE AGREEMENT
BETWEEN
LOTUS PACIFIC, INC.
AND
ARESCOM INC
March 15, 1999
THIS SHARE EXCHANGE AGREEMENT (this "Agreement") is entered into effective
as of March 15, 1999, by and between Lotus Pacific, Inc., a corporation
registrated in the State of Delaware (hereinafter "Lotus") and Arescom Inc.,
a high tech corporation of California (hereinafter "Arescom"). Each of Lotus
and Arescom is also referred to as a "Party", collectively the "Parties".
RECITALS
WHEREAS, Arescom has 33,466,667 shares of capital stock and stock option
currently issued and outstanding;
WHEREAS, Arescom desires to issue another 142,673,690 shares, which shall
constitute eighty one percent (81%) of all the capital stock of Arescom
(hereinafter the "Arescom Shares"), to Lotus in exchange for $30,000,000 worth
of the Common Stock shares of Lotus (hereinafter the "Lotus Shares");
WHEREAS, Lotus desires to acquire 81% of Arescom's equity interest with its
Common Stock shares;
WHEREAS, Lotus desires to invest additional $10,000,000 of capital in
Arescom;
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. SHARE EXCHANGE AND CAPITAL INVESTMENT
a. Share Exchange. Arescom shall issue one hundred forty two million six
hundred seventy three thousand six hundred and ninety (142,673,690) shares
of the common stock of Arescom, which shall constitute eighty one percent
(81%) of all the capital stock of Arescom, to Lotus in exchange for
$30,000,000 worth of shares of Common Stock of Lotus, which shall be issued
to Arescom's shareholders. The number of the Lotus Shares issued shall be
determined by the four-week average market closing price. The said four-week
period shall start at two two weeks before the signing of the Agreement and
end at two weeks after the signing of the Agreement.
b. Capital Investment. Lotus agrees to invest additional $10,000,000
of capital in Arescom after the signing of this Agreement.
c. The Lotus Shares. Pursuant to the Rule 145 of the Securities Act of
1933, as amended, the Lotus shares issued to Arescom shall bear a restricted
legend with a holding period of one (1) year. However, all shareholders of
Arescom agree that all the Lotus Shares issued to Arescom's shareholders
shall be restrictively held by Mr. Max Lu, President of Arescom Inc. and the
Representative of Arescom's shareholders, not to sell until the day that
Arescom reaches its annual sales of fifteen million ($15,000,000) US dollars
and annual net income before income tax of three million ($3,000,000) US
dollars.
d. 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.
e. Deliveries at the Closing.
i. Arescom's Obligation at Closing. A the Closing, Arescom will:
(1) deliver to Lotus a stock certificate or stock certificates
representing and evidencing the Arescom Shares, endorsed in blank
or accompanied by duly executed assignment documents or stock
powers sufficient to transfer good and marketable title to the
Arescom Shares to Lotus; and
(2) execute and deliver this Agreement and all other documents,
instruments, and agreements referred to herein or contemplated
hereby.
ii. Lotus's Obligation at Closing. A the Closing, Lotus will:
(1) deliver to Arescom a corporate resolution representing and
evidencing that the Board of Directors of Lotus has authorized
to issue $30,000,000 worth of Common Stock shares of Lotus to
Arescom's shareholders, and authorized the Corpotation's stock
transfer agent to issue such number of Common Stock shares of
Lotus to Arescom's shareholders within four weeks after the
Closing based on the list provided by Arescom; and
(2) execute and deliver this Agreement and all other documents,
instruments, and agreements referred to herein or contemplated
hereby.
2. REPRESENTATIONS AND WARRANTIES
a. Representations and Warranties of Arescom. Arescom hereby
represents and warrants to Lotus that the statements contained in
this Section 2.a. are correct and complete as of the Closing Date.
Notwithstanding Lotus' due diligence investigation of Arescom,
Arescom may rely on the representations and warranties contained in
this Section 2.a.
i. Authorization to Issue Shares of Common Stock. Arescom has
currently 33,466,667 shares of capital stock and stock option
issued and outstanding, and Arescom is duly authorized to issue
142,673,690 shares of its capital stock shares, which shall
constitute eighty one percent (81%) of all the capital stock of
Arescom, to consummate the transaction contemplated hereby.
ii. Authorization of Transaction. Arescom has full power and
authority to execute and deliver this Agreement and to perform its
obligations hereunder.
iii. 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 Arescom is subject, 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 he is a party or by which he is bound or to
which any of his assets or properties is subject.
iv. Broker's Fees. Arescom 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
Arescom could become liable or obligated.
v. 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 Lotus. Lotus hereby represents
and warrants to Arescom that the statements contained in this Section
2.b are correct and complete as of the Closing Date. Moreover,
notwithstanding Arescom's due diligence investigation of Lotus, Arescom
may rely on the representations and warranties contained in this
Section 2.b.
i. Organization of Lotus. Lotus is duly organized, validly existing,
and in good standing under the laws of the jurisdiction of its
incorporation.
ii. Authorization of Transaction. Lotus has full power and authority
to execute and deliver this Agreement and to perform its
obligations hereunder.
iii. Authorization to Issue Shares of Common Stock. Lotus is duly
authorized to issue $30,000,000 worth of shares of common stock to
consummate the transaction contemplated hereby.
iv. 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 Lotus 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
aggrements, 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.
v. Broker's Fees. Lotus 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 Lotus
could become liable or obligated.
vi. 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
a. 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.
b. 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.
c. 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.
d. 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.
e. 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:
Lotus Pacific, Inc.
200 Centennial Avenue
Suite 201
Piscataway, NJ 08854
Arescom Inc.
46724 Lakeview Blvd.
Fremont, CA 94538
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.
f. 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.
g. 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.
h. 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.
i. 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.
j. 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.
k. 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.
LOTUS PACIFIC, INC.
By: /s/ James Yao
________________________________
James Yao
Title: Chairman of Lotus Pacific, Inc.
ARESCOM INC
Representative of Shareholders of Arescom Inc.
By: /s/ Max Lu
______________________________
Max Lu
Title: President of Arescom Inc. and
Representative of Shareholders of Arescom Inc.
Exhibit 99.1
MOK, SHEN & COMPANY
Certified Public Accountants
INDEPENDENT AUDITORS' REPORT
Board of Directors
Arescom Inc.
Fremont, California
We have audited the accompanying balance sheet of Arescom Inc. as of June 30,
1997 and the related statements of loss, changes in stockholders' equity, and
cash flows for the year 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 audit.
We conducted out audit 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 management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Arescom Inc. as of June 30,
1997, and the results of its operations and its cash flows for the year ended
in conformity with generally accepted accounting principles.
Mok, Shen & Company
December 20, 1999
ARESCOM INC.
BALANCE SHEET
JUNE 30, 1997
ASSETS
CURRENT ASSETS:
Cash ..................................... $ 655,878
Accounts Receivable....................... 66,735
Inventories (Note 2) ..................... 1,002,309
Employee Advances ........................ 968
Other current assets...................... 3,934
-----------
Total current assets .................... 1,729,824
Property and Equipment (Note 2)
Furniture and fixtures ................... 90,887
Equipment ................................ 259,344
Software and other fixed assets........... 90,191
Leasehold improvement .................... 20,211
Less: accumulated depreciation............ (50,397)
----------
Total property and equipment, net........ 410,236
Other Assets:
Deposits ................................. 57,288
Organization cost ........................ 1,959
Less accumulated amortization ............ (359)
Life insurance ........................... 11,000
----------
Total other assets ...................... 69,888
Total Assets .............................. $2,209,948
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable ......................... $96,552
Sales tax payable ........................ 725
Customer deposit ......................... 8,750
----------
Total current liabilities ............... 106,027
Stockholders' Equity:
Common stock, no par value; 50 million shares
authorized, 22,000,000 shares issued and
outstanding ............................ 3,891,600
Retained earnings ....................... (1,787,679)
-----------
Total Stockholders' Equity ............. 2,103,921
Total Liabilities and Stockholders' Equity.. $2,209,948
===========
See accompanying independent accounts' audit report and notes
to financial statements
ARESCOM INC.
STATEMENT OF LOSS
FOR THE YEAR ENDED JUNE 30, 1997
Sales ..................................... $ 90,060
Cost of sales ............................. 77,374
------------
Gross Profit .............................. 19,686
Operating Expenses:
Selling, general and administrative expenses 1,664,118
Research and development ................. 89,874
-----------
Total operating expenses ............... 1,753,992
Operating Loss ............................ (1,734,306)
Other income (expenses):
Interest income .......................... 60,900
Other income ............................. 21,599
Other expenses ........................... (9,298)
Gain/loss on sale of assets .............. (1,507)
-----------
Total other income (expenses) ........... 71,694
State income tax provision ................ (1,600)
Net loss .................................. $ (1,664,212)
==============
See accompanying independent accounts' audit report and notes
to financial statements
ARESCOM INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
JUNE 30, 1997
<TABLE>
<CAPTION>
Common Stock Retained Earnings Total
----------------- -------------------- -----------
<S> <C> <C> <C>
Balance, July 1, 1996 ...... $ 1,821,600 $ (123,467) $ 1,698,133
Issuance of common stock ... 2,070,000 --- 2,070,000
Current year loss .......... --- (1,664,212) (1,664,212)
----------------- ------------------- --------------
Balance, June 30, 1997...... $ 3,891,600 $ (1,787,679) $ 2,103,921
</TABLE>
See accompanying independent accounts' audit report and notes
to financial statements
ARESCOM INC.
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED JUNE 30, 1997
Cash flows from operating activities:
Net Loss .................................. $ (1,664,212)
Adjustments to reconcile net loss to net cash
Used by operating activities:
Depreciation and amortization ............ 54,714
Loss on sale of assets ................... 1,507
Decrease (increase) in:
Accounts receivable ..................... (66,735)
Inventories ............................. (1,002,309)
Employee advances ....................... (968)
Other current assets .................... (3,934)
Deposits ................................ (47,293)
Life insurance .......................... (11,000)
Increase (decrease) in:
Accounts payable ........................ 83,896
Other payable ........................... 725
Customer deposit ........................ 8,750
------------
Net cash used in operating activities...... (2,646,859)
Cash flows from investing activities:
Sale of furniture and fixtures ........... 5,464
Additions to furniture and fixtures ...... (83,228)
Additions to equipment ................... (158,322)
Additions to other fixed assets .......... (56,789)
Additions to leasehold improvement ....... (20,211)
------------
Net cash used in investing activities ..... (313,086)
Cash flows from financing activities:
Issuance of common stock ................. 2,070,000
------------
Net cash provided by financing activities.. 2,070,000
Net decrease in cash ...................... (889,945)
Cash balance, beginning of year ........... 1,545,823
-----------
Cash balance, end of year ................. $ 655,878
===========
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest .............................. None
Income taxes ........................... $ 1,600
=======
See accompanying independent accounts' audit report and notes
to financial statements
Arescom Inc.
Note of Financial Statements
1) The Company
Arescom Inc. (the Company) was incorporated in 1996 in the State of California.
Its principal business is designing and manufacturing a complete line of inter-
networking router equipment for PSTN, ISDN, xDSL and Ethernet environments.
The Company's headquarter is located in Fremont, California.
2) Summary of Accounting Policies
Basis of Accounting
The Company's financial statements are presented using the accrual method of
accounting.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amount of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements, and
the reported amounts of revenue and expenses during the reporting period.
Actual results could differ from those estimates.
Inventories
Inventories are stated at the lower of cost or market with cost determined on
a first-in first-out method.
Property and Equipment
Property and equipment are stated at cost less accumulated depreciation.
Depreciation is provided by the straight-line method over the estimated useful
lives of each asset. Leasehold improvements are amortized on a straight-line
basis over the lease term.
Allowance for Bad Debt
Bad debts are provided by the allowance method based on historical experience
and management's evaluation of outstanding account receivable. There was no
allowance for doubtful account at June 30, 1997.
Income Taxes
The Company's income taxes are accounted for under the provisions of Statement
of Financial Accounting Standards No. 109, "Accounting for Income Taxes", which
requires the liability method of accounting.
Uncertainty Due to the Year 2000 Issue
The Year 2000 issue arises because many computerized systems use two digits
rather than four to identify a year. Date-sensitive systems may recognize the
Year 2000 as 1900 or some other date, resulting in errors when information
using year 2000 dates is processed. In addition, similar problem may arise
in some systems which use certain dates in 1999 to represent something other
than a date. The effects of the Year 2000 issue may be experienced before,
on or after January 1, 2000 and, if not addressed, the impact on operations
and financial reporting may range from minor errors to significant systems
failure which could affect a company's ability to conduct normal business
operations. It is not possible to be certain that all aspects of the Year 2000
issue affecting Arescom Inc. including those related to the efforts of
customers, suppliers or other third parties will be fully resolved.
3) Lease Commitment
The Company leased its office at Lakeview Boulevard, Fremont, California, from
Renco Investment Company. The lease term is five years starting April 1, 1997.
Currently, the monthly rental payment is $13,722 and will be increased on each
anniversary date. In addition to the monthly base rent, the Company was
required to pay for its estimated share of operating and property tax expense.
The Company paid $44,596 as security deposit for the lease. The Company also
leases an office in San Jose for $5,371 per month. The minimum future lease
payments at June 30, 1997 are as follows:
Years Total
----------- -----------
1998 $ 230,832
1999 189,357
2000 180,090
2001 186,915
2002 144,081
---------
Total $ 931,275
4) Retirement Plan
In January 1996, the Company established a qualified cash-or-deferred profit
sharing retirement plan under Section 401(k) of the Internal Revenue Code.
Under the plan, Qualified full-time employees may defer up to 15% of their
compensation, subject to the limits set by the Internal Revenue Code.
5) Subsequent Event
In March 1999, Lotus Pacific, Inc., a public traded company, became the major
stockholder of the Company.
In November 1999, the Company relocated to 3541 Gateway Blvd., Fremont.
Exhibit 99.2
MOK, SHEN & COMPANY
Certified Public Accountants
INDEPENDENT AUDITORS' REPORT
Board of Directors
Arescom Inc.
Fremont, California
We have audited the accompanying balance sheet of Arescom Inc. as of June 30,
1998 and the related statements of loss, changes in stockholders' equity, and
cash flows for the year 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 audit.
We conducted out audit 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 management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Arescom Inc. as of June 30,
1998, and the results of its operations and its cash flows for the year ended
in conformity with generally accepted accounting principles.
Mok, Shen & Company
December 20, 1999
ARESCOM INC.
BALANCE SHEET
JUNE 30, 1998
ASSETS
CURRENT ASSETS:
Cash ..................................... $ 727,191
Accounts Receivable....................... 101,311
Inventories (Note 2) ..................... 1,823,750
Employee Advances ........................ 12,092
Commission Advances ...................... 4,285
Other current assets...................... 14,557
----------
Total current assets ................... 2,683,186
Property and Equipment (Note 2)
Furniture and fixtures ................... 79,296
Equipment ................................ 286,114
Software and other fixed assets........... 148,296
Leasehold improvement .................... 28,871
Less: accumulated depreciation............ (217,512)
----------
Total property and equipment, net........ 325,065
Other Assets:
Deposits ................................. 59,242
Life insurance ........................... 23,000
Organization cost ........................ 1,959
Less accumulated amortization ............ (949)
----------
Total other assets ..................... 83,252
Total Assets .............................. $3,091,503
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable & accrued expenses ...... $ 150,580
Sales tax payable ........................ 1,245
Customer deposit ......................... 9,293
Stockholder loan ......................... 50,000
Other payables ........................... 3,244
-----------
Total current liabilities .............. 214,362
Stockholders' Equity:
Common stock, no par value; 200 million shares
authorized, 27,800,000 shares issued
and outstanding ......................... 7,491,600
Retained earnings ........................ (4,614,459)
------------
Total Stockholders' Equity .............. 2,877,141
Total Liabilities and Stockholders' Equity.. $3,091,503
============
See accompanying independent accounts' audit report and notes
to financial statements
ARESCOM INC.
STATEMENT OF LOSS
FOR THE YEAR ENDED JUNE 30, 1998
Sales ..................................... $ 313,449
Cost of sales ............................. 205,539
-------------
Gross Profit .............................. 107,910
Operating Expenses:
Selling, general and administrative expenses 2,901,197
Research and development (Note 8)......... 139,765
------------
Total operating expenses ................ 3,040,962
Operating Loss ............................ (2,933,052)
Other income (expenses):
Interest income .......................... 31,811
Other income ............................. 81,827
Other expenses ........................... (5,544)
Gain/loss on sale of assets .............. (1,022)
------------
Total other income (expenses) ........... 107,072
State income tax provision ................ (800)
Net loss .................................. $ (2,826,780)
==============
See accompanying independent accounts' audit report and notes
to financial statements
ARESCOM INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED JUNE 30, 1998
<TABLE>
<CAPTION>
Common Stock Retained Earnings Total
---------------- ------------------ -----------
<S> <C> <C> <C>
Balance, July 1, 1997 ....... $ 3,891,600 $ (1,787,679) $ 2,103,921
Issuance of common stock .... 3,600,000 --- 3,600,000
Current year loss ........... --- (2,826,780) (2,826,780)
-------------- ------------------ -------------
Balance, June 30, 1998 $ 7,491,600 $ (4,614,459) $ 2,877,141
</TABLE>
See accompanying independent accounts' audit report and notes
to financial statements
ARESCOM INC.
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED JUNE 30, 1998
Cash flows from operating activities:
Net Loss .................................. $ (2,826,780)
Adjustments to reconcile net loss to net cash
Used by operating activities:
Depreciation and amortization ............ 167,705
Loss on sale of assets ................... 1,022
Decrease (increase) in:
Accounts receivable ..................... (34,576)
Inventories ............................. (821,441)
Employee advances ....................... (11,124)
Commission advances ..................... (4,285)
Other current assets .................... (10,623)
Deposits ................................ (1,954)
Life insurance .......................... (12,000)
Increase (decrease) in:
Accounts payable & accrued expenses....... 54,037
Stockholder loan ......................... 50,000
Other payable ............................ 3,764
Customer deposit ......................... 543
-----------
Net cash used in operating activities...... (3,445,721)
Cash flows from investing activities:
Sale of furniture and fixtures ........... 10,569
Additions to equipment ................... (26,770)
Additions to other fixed assets .......... (58,105)
Additions to leasehold improvement ....... (8,660)
----------
Net cash used in investing activities ..... (82,966)
Cash flows from financing activities:
Issuance of common stock ................. 3,600,000
-----------
Net cash provided by financing activities.. 3,600,000
Net increase in cash ...................... 71,313
Cash balance, beginning of year ........... 655,878
----------
Cash balance, end of year ................. $ 727,191
==========
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest ............................. None
Income taxes .......................... $ 800
======
See acompanying independent accounts' audit report and notes
to financial statements
Arescom Inc.
Note of Financial Statements
1) The Company
Arescom Inc. (the Company) was incorporated in 1996 in the State of California.
Its principal business is designing and manufacturing a complete line of inter-
networking router equipment for PSTN, ISDN, xDSL and Ethernet environments.
The Company's headquarter is located in Fremont, California.
2) Summary of Accounting Policies
Basis of Accounting
The Company's financial statements are presented using the accrual method of
accounting.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amount of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements, and
the reported amounts of revenue and expenses during the reporting period.
Actual results could differ from those estimates.
Inventories
Inventories are stated at the lower of cost or market with cost determined on
a first-in first-out method.
Property and Equipment
Property and equipment are stated at cost less accumulated depreciation.
Depreciation is provided by the straight-line method over the estimated useful
lives of each asset. Leasehold improvements are amortized on a straight-line
basis over the lease term.
Allowance for Bad Debt
Bad debts are provided by the allowance method based on historical experience
and management's evaluation of outstanding account receivable. There was no
allowance for doubtful account at June 30, 1998.
Income Taxes
The Company's income taxes are accounted for under the provisions of Statement
of Financial Accounting Standards No. 109, "Accounting for Income Taxes", which
requires the liability method of accounting.
Uncertainty Due to the Year 2000 Issue
The Year 2000 issue arises because many computerized systems use two digits
rather than four to identify a year. Date-sensitive systems may recognize the
Year 2000 as 1900 or some other date, resulting in errors when information
using year 2000 dates is processed. In addition, similar problem may arise in
some systems which use certain dates in 1999 to represent something other
than a date. The effects of the Year 2000 issue may be experienced before, on
or after January 1, 2000 and, if not addressed, the impact on operations and
financial reporting may range from minor errors to significant systems failure
which could affect a company's ability to conduct normal business operations.
It is not possible to be certain that all aspects of the Year 2000 issue
affecting Arescom Inc. including those related to the efforts of customers,
suppliers or other third parties will be fully resolved.
3) Lease Commitment
The Company leased its office at Lakeview Boulevard, Fremont, California, from
Renco Investment Company. The lease term is five years starting April 1, 1997.
Currently, the monthly rental payment is $14,294 and will be increased on each
anniversary date. In addition to the monthly base rent, the Company was
required to pay for its estimated share of operating and property tax expense.
The Company paid $44,596 as security deposit for the lease. The Company also
leases an office in San Jose for $5,371 per month. The minimum future lease
payments at June 30, 1998 are as follows:
Years Total
----------- ------------
1999 $ 189,357
2000 180,090
2001 186,915
2002 144,081
-----------
Total $ 700,443
4) Retirement Plan
In January 1996, the Company established a qualified cash-or-deferred profit
sharing retirement plan under Section 401(k) of the Internal Revenue Code.
Under the plan, Qualified full-time employees may defer up to 15% of their
compensation, subject to the limits set by the Internal Revenue Code.
5) Subsequent Event
In March 1999, Lotus Pacific, Inc., a public traded company, became the major
stockholder of the Company.
In November 1999, the Company relocated to 3541 Gateway Blvd., Fremont.
Exhibit 99.3
MOK, SHEN & COMPANY
Certified Public Accountants
INDEPENDENT AUDITORS' REPORT
Board of Directors
Arescom Inc.
Fremont, California
We have audited the accompanying balance sheet of Arescom Inc. as of March 31,
1999 and the related statements of loss, changes in stockholders' equity, and
cash flows for July 1, 1998 to March 31, 1999. 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 audit.
We conducted out audit 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 management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Arescom Inc. as of March 31,
1999, and the results of its operations and its cash flows for July 1, 1998
to March 31, 1999, in conformity with generally accepted accounting principles.
Mok, Shen & Company
December 20, 1999
ARESCOM INC.
BALANCE SHEET
MARCH 31, 1999
ASSETS
CURRENT ASSETS:
Cash ..................................... $ 761,658
Accounts Receivable....................... 405,074
Inventories (Note 2) ..................... 1,149,208
Employee Advances ........................ 10,515
Commission Advances ...................... 3,943
Prepaid expenses ......................... 31,570
------------
Total current assets .................... 2,361,968
Property and Equipment (Note 2)
Furniture and fixtures ................... 115,523
Equipment ................................ 374,923
Software and other fixed assets........... 236,196
Leasehold improvement .................... 29,836
Less: accumulated depreciation............ (326,801)
-----------
Total property and equipment, net........ 429,677
Other Assets:
Deposits ................................. 57,563
Life insurance ........................... 13,436
Organization cost ........................ 1,959
Less accumulated amortization ............ (1,246)
-----------
Total other assets ...................... 71,712
Total Assets .............................. $ 2,863,357
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable & accrued expenses ...... $ 463,441
Customer deposit ......................... 9,293
Other payables ........................... 7,295
-----------
Total current liabilities ............... 480,029
Stockholders' Equity:
Common stock, no par value; 200 million shares
authorized, 31,266,667 shares issued and
outstanding ............................. 10,291,600
Retained earnings ........................ (7,908,272)
------------
Total Stockholders' Equity .............. 2,383,328
Total Liabilities and Stockholders' Equity. $ 2,863,357
============
See accompanying independent accounts' audit report and
notes to financial statements
ARESCOM INC.
STATEMENT OF LOSS
FOR THE NINE MONTHS ENDED MARCH 31, 1999
Sales ..................................... $ 1,330,242
Cost of sales ............................. 944,614
-------------
Gross Profit .............................. 385,628
Operating Expenses:
Selling, general and
administrative expenses ................. 3,597,345
Research and development ................ 149,978
------------
Total operating expenses ................ 3747,323
Operating Loss ............................ (3,361,695)
Other income (expenses):
Interest income .......................... 13,175
Other income ............................. 56,100
Interest expenses ........................ (593)
-----------
Total other income (expenses) .......... 68,682
State income tax provision .................. (800)
Net loss .................................. $ (3,293,813)
==============
See accompanying independent accounts' audit report and notes
to financial statements
ARESCOM INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED MARCH 31, 1999
<TABLE>
<CAPTION>
Common Stock Retained Earnings Total
-------------- -------------------- -----------
<S> <C> <C> <C>
Balance,
July 1, 1998 ........... $ 7,491,600 $ (4,614,459) $ 2,877,141
Issuance of common stock. 2,800,000 --- 2,800,000
Current year loss........ --- (3,293,813) (3,293,813)
-------------- -------------- ------------
Balance,
March 31, 1999 ......... $ 10,291,600 $ (7,908,272) $ 2,383,328
</TABLE>
See accompanying independent accounts' audit report and notes
to financial statements
ARESCOM INC.
STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED MARCH 31, 1999
Cash flows from operating activities:
Net Loss ................................. $ (3,293,813)
Adjustments to reconcile net loss to net cash
Used by operating activities:
Depreciation and amortization ........... 109,586
Decrease (increase) in:
Accounts receivable .................... (303,764)
Inventories ............................ 674,542
Employee advances ...................... 1,578
Prepaid expenses ....................... (22,233)
Other current assets ................... 5,563
Deposits ............................... 1,679
Life insurance ......................... 9,564
Increase (decrease) in:
Accounts payable & accrued expenses..... 312,861
Other payable .......................... 2,806
--------------
Net cash used in operating activities...... (2,501,631)
Cash flows from investing activities:
Additions to furniture and fixtures....... (36,228)
Additions to equipment ................... (88,809)
Additions to other fixed assets .......... (87,900)
Additions to leasehold improvement ....... (965)
-------------
Net cash used in investing activities ..... (213,902)
Cash flows from financing activities:
Repayment of stockholders' loan .......... (50,000)
Issuance of common stock ................. 2,800,000
------------
Net cash provided by financing activities.. 2,750,000
Net increase in cash ...................... 34,467
Cash balance, beginning of year ........... 727,191
-----------
Cash balance, end of year ................. $ 761,658
===========
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest ................................ $ 593
======
Income taxes ............................. $ 800
======
See accompanying independent accounts' audit report and notes to
financial statements
Arescom Inc.
Note of Financial Statements
1) The Company
Arescom Inc. (the Company) was incorporated in 1996 in the State of California.
Its principal business is designing and manufacturing a complete line of inter-
networking router equipment for PSTN, ISDN, xDSL and Ethernet environments.
The Company's headquarter is located in Fremont, California. Lotus Pacific,
Inc., a publicly traded company, is the majority stockholder.
2) Summary of Accounting Policies
Basis of Accounting
The Company's financial statements are presented using the accrual method of
accounting.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amount of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements,
and the reported amounts of revenue and expenses during the reporting period.
Actual results could differ from those estimates.
Inventories
Inventories are stated at the lower of cost or market with cost determined on
a first-in first-out method.
Property and Equipment
Property and equipment are stated at cost less accumulated depreciation.
Depreciation is provided by the straight-line method over the estimated useful
lives of each asset. Lease hold improvements are amortized on a straight-line
basis over the lease term.
Allowance for Bad Debt
Bad debts are provided by the allowance method based on historical experience
and management's evaluation of outstanding account receivable. There was no
allowance for doubtful account at March 31, 1999.
Income Taxes
The Company's income taxes are accounted for under the provisions of Statement
of Financial Accounting Standards No. 109, "Accounting for Income Taxes",
which requires the liability method of accounting.
Uncertainty Due to the Year 2000 Issue
The Year 2000 issue arises because many computerized systems use two digits
rather than four to identify a year. Date-sensitive systems may recognize the
Year 2000 as 1900 or some other date, resulting in errors when information
using year 2000 dates is processed. In addition, similar problem may arise in
some systems which use certain dates in 1999 to represent something other than
a date. The effects of the Year 2000 issue may be experienced before, on or
after January 1, 2000 and, if not addressed, the impact on operations and
financial reporting may range from minor errors to significant systems failure
which could affect a company's ability to conduct normal business operations.
It is not possible to be certain that all aspects of the Year 2000 issue
affecting Arescom Inc. including those related to the efforts of customers,
suppliers or other third parties will be fully resolved.
3) Lease Commitment
The Company leased its office at Lakeview Boulevard, Fremont, California,
from Renco Investment Company. The lease term is five years starting April 1,
1997. Currently, the monthly rental payment is $14,294 and will be increased
on each anniversary date. In addition to the monthly base rent, the Company
was required to pay for its estimated share of operating and property tax
expense. The Company paid $44,596 as security deposit for the lease. The
minimum future lease payments for the Lakeview Boulevard office and warehouse
at March 31, 1999 are as follows:
Years Total
----------- ------------
2000 $ 180,090
2001 186,915
2002 144,081
---------
Total $ 511,086
4) Retirement Plan
In January 1996, the Company established a qualified cash-or-deferred profit
sharing retirement plan under Section 401(k) of the Internal Revenue Code.
Under the plan, Qualified full-time employees may defer up to 15% of their
compensation, subject to the limits set by the Internal Revenue Code.
5) Subsequent Event
In March 1999, Lotus Pacific, Inc., a public traded company, became the major
stockholder of the Company.
In November 1999, the Company relocated to 3541 Gateway Blvd., Fremont.
Exhibit 99.4
TURBONET COMMUNICATIONS
FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED MARCH 31, 1999 AND
FOR THE YEARS ENDED JUNE 30, 1998 AND 1997
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholders
of Turbonet Communications
We have audited the accompanying balance sheets of Turbonet Communications
as of March 31, 1999 and June 30, 1998 and 1997 and the related statements
of operations, stockholders' equity, and cash flows for the nine months
ended March 31, 1999 and for the years ended June 30, 1998 and 1997. 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 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 Turbonet Communications as of
March 31, 1999 and June 30, 1998 and 1997, and the results of its operations
and its cash flows for the nine months ended March 31, 1999 and the years
ended June 30, 1998 and 1997 in conformity with generally accepted accounting
principles.
Schiffman Hughes Brown
Blue Bell, Pennsylvania
December 17, 1999
TURBONET COMMUNICATIONS
BALANCE SHEETS
MARCH 31, 1999, JUNE 30, 1998 AND 1997
<TABLE>
<CAPTION>
ASSETS
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Current Assets:
Cash ............................. $ 467,494 $ 977,156 $2,024,114
Accounts receivable .............. 460,945 46,588 665,633
Advance .......................... 1,000,000 --- ---
Inventories and supplies ......... 579,065 --- ---
Other ............................ 3,500 3,500 3,500
--------- ---------- ---------
Total current assets ........... 2,511,004 1,027,244 2,693,247
Property and equipment, net ....... 244,756 301,136 253,338
Other assets:
Restricted cash .................. 90,000 90,000 90,000
----------- ----------- -----------
$2,845,760 $1,418,380 $3,036,585
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current installments ............. $ 16,173 $ 31,938 $ 29,604
Accounts payable and
accrued expenses ............... 373,048 307,832 97,562
---------- --------- ----------
Total current liabilities....... 389,221 339,770 127,166
Long-term debt .................... --- 5,560 37,498
Commitments
Stockholders' equity:
Common stock ..................... 5,167 4,167 4,167
Preferred stock .................. 6,980,000 4,450,000 2,999,985
Foreign currency translation
adjustment .................. 9,612 --- ---
Accumulated deficit .............. (4,538,240) (3,381,117) (132,231)
------------ ------------ ----------
2,456,539 1,073,050 2,871,921
$2,845,760 $1,418,380 $3,036,585
=========== =========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements
TURBONET COMMUNICATIONS
STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED MARCH 31, 1999 AND
FOR THE YEARS ENDED JUNE 30, 1998 AND 1997
<TABLE>
<CAPTION>
1999 1998 1997
------------ ----------- ----------
<S> <C> <C> <C>
Sales ........................ $ 994,656 $ 0 $ 0
Cost of sales ................ 460,430 0 0
----------- --------- ----------
Gross profit ................. 534,226 0 0
Reimbursed research and
development expenses ....... 221,500 1,238,400 503,000
Operating expenses:
Selling, general and
administrative expenses ..... 473,629 231,550 24,209
Research and development ..... 1,472,432 4,343,422 224,784
------------ ---------- ----------
1,946,061 4,574,972 448,993
Operating income (loss) ....... (1,190,335) (3,336,572) 54,007
Other income:
Interest income (net) ........ 33,212 87,686 51,845
Net income (loss).............. (1,157,123) (3,248,886) 105,852
Other comprehensive losses:
Foreign currency translation
adjustments ............... 9,612 --- ---
Comprehensive income (loss).... $(1,166,735) $(3,248,886) $ 105,852
============= ============ ==========
Earnings (loss) per share:
Basic ........................ $ (0.32) $ (0.98) $ 0.05
Diluted ...................... $ (0.32) $ (0.98) $ 0.05
Weighted average shares ....... 3,669,098 3,313,602 2,171,831
</TABLE>
The accompanying notes are an integral part of these financial statements
TURBONET COMMUNICATIONS
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED MARCH 31, 1999 AND
FOR THE YEARS ENDED JUNE 30, 1998 AND 1997
<TABLE>
<CAPTION>
Accumulated other
Common Preferred comprehensive losses-
Shares Shares foreign currency
Outstanding Outstanding Amount translation adjustment Deficit Total
-------------- --------------- ----------- ---------------------- --------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance,
June 30, 1996..... 900,000 500,000 $ 754,167 --- $ (238,083) $ 516,084
Issuance of
preferred stock... --- 1,800,000 2,249,985 --- --- 2,249,985
Net income for the
year ended
June 30, 1997..... --- --- --- --- 105,852 105,852
----------- -------- --------- ------------- ---------- ---------
Balance,
June 30, 1997..... 900,000 2,300,000 3,004,152 --- (132,231) 2,871,921
Issuance of
preferred stock... --- 250,000 1,450,015 --- --- 1,450,015
Net loss for the year
ended June 30, 1998 --- --- --- --- (3,248,886) (3,248,886)
----------- --------- ---------- ------------ ----------- ------------
Balance,
June 30, 1998..... 900,000 2,550,000 4,454,167 --- (3,381,117) 1,073,050
Issuance of
preferred stock... --- 506,000 2,530,000 --- --- 2,530,000
Redemption of
common stock...... (36,000) --- --- --- --- ---
Exercise of common
stock options .... 5,000 --- 1,000 --- --- 1,000
Common stock
dividend.......... 14,575,737 --- --- --- --- ---
Comprehensive loss. --- --- --- $9,612 --- 9,612
Net loss for the
nine months ended
March 31, 1999.... --- --- --- --- ---
(1,157,123) (1,156,123)
------------- ----------- ----------- --------------- ------------ -----------
15,444,737 3,056,000 $6,985,167 $9,612 $(4,538,240) $ 2,456,539
<CAPTION>
The accompanying notes are an integral part of these financial statements
TURBONET COMMUNICATIONS
STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED MARCH 31, 1999 AND
FOR THE YEARS ENDED JUNE 30, 1998 AND 1997
</TABLE>
<TABLE>
<CAPTION>
1999 1998 1997
------------ ------------ -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss).......................... $(1,157,123) $(3,248,886) $ 105,852
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization........... 60,278 82,453 40,729
Foreign currency translation adjustment.. 9,612 --- ---
Changes in assets and liabilities:
(Increase) decrease in accounts receivable. (414,357) 619,045 (663,257)
Increase in inventory..................... (579,065) --- ---
Decrease in other current assets ......... --- --- 2,500
Increase in restricted cash .............. --- --- (90,000)
Increase (decrease) in accounts payable... 65,216 210,270 5,735
--------------- ------------- ----------
Net cash used in operating activities...... (2,015,439) (2,337,118) (598,441)
Net cash used in investing activities:
Purchase of property and equipment......... (3,898) (130,251) (235,189)
Cash flows from financing activities:
Issuance of preferred stock ............... 2,530,000 1,450,015 2,249,985
Exercise of common stock options........... 1,000 --- ---
Increase in notes receivable .............. (1,000,000) --- ---
Increase (decrease) in loans payable ...... (21,325) (29,604) 67,102
------------- -------------- ----------
Net cash provided by financing activities... 1,509,675 1,420,411 2,317,087
Net increase (decrease) in cash............. (509,662) (1,046,958) 1,483,457
Cash, beginning............................. 977,156 2,024,114 540,657
----------- ------------- -----------
Cash, ending ............................... $ 467,494 $ 977,156 $ 2,024,114
============= ============= ===========
Supplemental disclosure of cash flow information:
Cash paid for interest .................... $ 1,468 $ 4,159 $ 4,703
</TABLE>
The accompanying notes are an integral part of these financial statements
TURBONET COMMUNICATIONS
NOTES TO FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED MARCH 31, 1999 AND
FOR THE YEARS ENDED JUNE 30, 1998 AND 1997
1. Organization and summary of significant accounting policies:
The Company:
Turbonet Communications (the "Company") was incorporated on February 13, 1996.
The Company is organized to design, develop and market telecommunications
products to cable operators, network service providers, and communications
network users, primarily in the United States and Asia.
Basis of accounting:
From inception, February 13, 1996 through June 30, 1998, the Company performed
research and development activities and had not completed product development.
Accordingly, the Company's activities had been accounted for as those of a
"development stage enterprise" as set forth in the Financial Accounting
Standards Board Statement No. 7 ("FASB 7"). The Company developed a product
during the nine months ended March 31, 1999 and generated revenue from sales
of the product; therefore, the Company is no longer a development stage
enterprise.
Comprehensive income:
In July 1998, the Company adopted SFAS No. 130, "Reporting Comprehensive
Income." SFAS No. 130 requires the disclosure of comprehensive income, which
includes, in addition to net income, other comprehensive income consisting of
unrealized gains and losses, which bypass the traditional income statement and
are recorded indirectly into a separate section of shareholders' equity on the
balance sheet. The components of other comprehensive income for the Company
consist of gains and losses on foreign currency translation adjustments.
Foreign currency translation:
The financial statements of the Company include transactions measured using
the local currency of Taiwan as the functional currency. Assets and
liabilities arising from these transactions are translated at exchange rates
as of the balance sheet date. Revenues and expenses are translated at average
rates of exchange in effect during the year. The resulting cumulative
translation adjustments have been recorded as a separate component of
stockholders' equity. Foreign currency transaction gains and losses are
included in comprehensive income.
Cash and cash equivalents:
Cash equivalents consist of highly liquid investments purchased with a maturity
of three months or less.
Inventories and supplies:
Inventories and supplies consist of supplies and cable modem chips and are
valued at the lower of cost or market. Cost is determined using the first-in,
first-out (FIFO) method.
Property:
Property is stated at cost. Depreciation is provided using the straight-line
method over the estimated useful lives of the assets (generally five years).
Concentration of credit risk:
The Company invests its excess cash in money market accounts. The Company has
not experienced any material losses on these accounts.
Income taxes:
Income taxes are accounted for under the provisions of Statement of Financial
Accounting Standards No. 109 ("FASB 109"), "Accounting for Income Taxes."
Under FASB 109, the deferred tax provision is determined under the liability
method. Under this method, deferred tax assets and liabilities are recognized
based on differences between the financial statement and tax basis of assets
and liabilities using presently enacted tax rates (Note 7).
Reimbursements - research and development expenditures:
Reimbursement for research and development expenditures is recognized on a
basis consistent with the performance requirements of the related agreements
(Note 8).
Accounting estimates:
The preparation of financial statements in conformity with generally accepted
accounting principles requires that management make estimates and assumptions
that affect the reported amount of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements.
Actual results may differ from the estimates.
Earnings per common share:
In 1997, the Financial Accounting Standards Board issued Financial Accounting
Standards No. 128 (FAS 128), "Earnings Per Share" which replaced the
calculation of primary and fully diluted earnings per share with basic and
diluted earnings per share. Unlike primary earnings per share, basic earnings
per share excludes any dilutive effects of options, warrants and convertible
securities. Dilutive earnings per share is very similar to the previously
reported fully diluted earnings per share. The Company adopted FAS 128 in the
second quarter of 1998. Share and per share amounts for all periods presented
have been restated to comply with FAS 128.
2. Advance:
In March, 1999 the Company advanced a Taiwanese manufacturer, an unrelated
party, $1 million for preproduction costs and the initial production of cable
modems. The advance was repaid in May, 1999.
3. Inventories and supplies:
Inventories at March 31, 1999 consisted of chips for cable modems and supplies
totaling $23,163 and $555,902, respectively.
4. Property:
Property as of March 31, 1999 and June 30, 1998 and 1997 are as follows:
March 31, June 30,
------------- ----------------------
1999 1998 1997
------------- ------------ ---------
PROPERTY - at cost:
Equipment .................... $184,716 $184,716 $164,955
Furniture and fixtures........ 33,974 30,401 21,898
Instruments .................. 99,662 99,662 73,444
Computer hardware............. 40,914 40,914 25,942
Computer software............. 24,972 24,972 7,828
Leasehold improvements........ 43,978 43,653 ---
---------- ---------- ---------
428,216 424,318 294,067
Less accumulated depreciation.. (183,460) (123,182) (40,729)
----------- --------- ---------
Total......................... $244,756 $301,136 $253,338
5. Long-term debt:
The Company's long-term debt consists of a bank note with an original maturity
of three years. The note bears interest at 7.76% per annum and is repayable in
36 monthly installments of $2,810 including interest. The unpaid balance is
secured by a $90,000 certificate of deposit. The loan is personally guaranteed
by certain Company officers. The repayment schedule on the note is as follows:
March 31, June 30,
------------- ---------------------
1999 1998 1997
------------- ----------- ---------
Note payable ................ $16,173 $37,498 $ 67,102
Current installment ......... 16,173 31,938 29,604
------------- --------- ---------
Long term debt .............. $ 0 $ 5,560 $37,498
============= ========== ==========
6. Shareholders' equity:
The Company is authorized to issue two classes of stock designated "Common
Stock" and "Preferred Stock", respectively.
Common stock:
The Company issued 900,000 shares of common stock to four shareholders
/employees at approximately $.0046 per share. Under a shareholders' agreement
(the "Agreement"), the Company has a right to repurchase any "unvested" shares
in the event of the termination of any of the four shareholders/employees at
the original issue price. 300,000 of the shares vest immediately and the
remainder of the shares vest at the rate of 150,000 shares each year on
March 1. The unvested shares vest immediately upon the occurrence of certain
events stipulated in the Agreement. The unvested shares at December 31, 1997
and 1996 totaled 450,000 and 600,000, respectively. Under the Agreement,
transfer of the common stock is restricted. During 1999 one of the original
shareholders sold his vested shares to two of the original shareholders and
eight other employees, and the unvested shares were repurchased by the Company
at the original issue price. At March 31, 1999, 869,000 shares were issued and
outstanding.
Preferred stock purchase agreements:
In June 1996 the Company entered into a stock purchase agreement with three
Taiwan corporations. Pursuant to the agreement, the Taiwan corporations
indicated their intention to purchase 3,324,997 shares of the Company's Series
A preferred stock for a total of $6,000,000. As of September 30, 1996, the
Corporation had received $250,000 stock subscriptions for the purchase of
166,667 shares of Series A preferred stock at $1.50 per share.
The obligations to purchase all shares remaining to be issued under the June
1996 agreement were cancelled by Amendment No. 1 to the agreement, which was
entered into June 1, 1997. In August 1997, the Company entered into a second
stock purchase agreement with various investors for the sale and issuance of
up to 2,133,333 shares of Series A Preferred Stock at $1.50 per share. During
fiscal 1997, all such shares were issued under the agreement for a total
consideration of $3,200,000.
Preferred Stock:
The owners of the Series A, B and C Preferred Stock have a liquidation
preference over the owners of the Common Stock in the event of a Company
liquidation. Each preferred shareholder also has:
. one vote for each full share of Common Stock for which its respective
Preferred Stock would be converted.
. the right to convert their shares into Common Stock at a designated
"Conversion Price" as defined in the Stock Purchase Agreement.
. the obligation to convert to Common Stock all their preferred shares in
the event of a public offering of $6,000,000 or more at a per share price
of at least $10.
. certain anti-dilutive rights.
Stock dividend and exchange of shares:
On March 30, 1999, the Company declared a Common Stock dividend of
approximately 4.26 shares for each outstanding share of Common Stock and
Preferred Stock. The stock dividend was payable upon the Company's filing of
Restated Articles of Incorporation to increase the authorized number of shares
of Common Stock. Such filing was effective on May 17, 1999, whereupon the
Company issued the stock dividend of approximately 18,002,250 shares of Common
Stock. The shareholders exchanged approximately 74% of their Common Stock for
Lotus Pacific, Inc.'s stock on May 18, 1999.
Stock option plan:
In 1998, the Company established a stock option plan under which it could issue
stock options in an aggregate amount up to 30% of its issued and outstanding
shares of Common Stock. Through March 31, 1999, the Company had granted options
to purchase 232,500 shares (without adjustment for the stock dividend) of its
Common Stock at an exercise price ranging from $0.20 to $.50 per share. The
options vest 25% on the vesting start date, and vest over the following three
years at the rate of 25% on each anniversary of the vesting start date. At
March 31, 1999, options for 30,375 (without adjustment for the stock dividend)
shares had been exercised.
7. Commitments and contingencies:
Leases:
The Company leases its facilities under various non-cancelable operating
leases, which expire through July 31, 2002. Lease expense for the nine months
ended March 31, 1999 and the years ended June 30, 1998 and 1997 was
approximately $82,926, $119,576, and $46,864, respectively.
Future minimum lease commitments, including leased equipment under a non-
cancelable sublease agreement, are summarized as follows:
Year ended June 30,
--------------------
2000 $114,996
2001 119,592
2002 124,404
IRA savings plan:
Effective January 1, 1997, the Company adopted a Simple IRA Plan, which enables
eligible employees to make pre-tax contributions to the Plan, subject to annual
limits. The Company is required to contribute 2% of participating employees'
annual salary.
Legal Proceedings:
On August 10, 1999 a former shareholder filed suit against the Company and
several individuals alleging intentional misrepresentation, negligent
misrepresentation and constructive fraud/breach of fiduciary duty. TurboNets
management and the individuals are attempting to settle the disputes. The
Companys legal counsel has not expressed an opinion concerning the outcome of
the case.
On October 19, 1999 the Company received a letter from the attorney for CIS
Technology, Inc. (CIS) alleging that the Company has refused to perform under
a contract dated April 10, 1998 whereby CIS was to purchase 400,000 shares of
the Companys Class C Preferred Stock. No action has been commenced; however,
if and when action does commence it is the intention of TurboNets management
to vigorously defend against CIS claim. The Companys legal counsel has not
expressed an opinion concerning the outcome of the case.
8. Income taxes:
The Company had Federal and state net operating loss carryforwards available
to offset future taxable income of approximately $4,500,000. Such Federal and
state net operating loss carryforwards expire at various dates beginning with
the year 2011. In the event of certain ownership changes, the Internal Revenue
Code imposes certain restrictions on the amount of net operating loss
carryforwards which may be used in any year by the Company. As discussed in
Note 6, "Stock Dividend and Exchange of Shares", control changed on March 31,
1999. The net operating loss carryforward therefore, is limited to the value of
the stock of the Company immediately before the exchange and each years net
operating loss carryforward deduction is limited to an amount determined by
multiplying the value of the Company just prior to the ownership change by
the Federal long term tax exempt rate in effect on the date of the change.
Under this formula, the Company can carryforward the entire amount of its
pre-change net operating losses.
The Company has Federal and state income tax credit carryforwards available to
offset future tax liabilities of $6,117 and $6,524, respectively. Such Federal
and state income tax credit carryforwards expire at various dates beginning
with the year 2010.
The Company has recorded a valuation allowance equal to the net deferred tax
assets as of March 31, 1999. The realization of these net deferred tax assets
is dependent upon the timing and amount of future earnings. The valuation
allowance will be reduced at such time as management is able to determine that
it is more likely than not that these tax assets will be realized.
9. Research and development agreement:
Effective November 12, 1996 and amended March 24, 1998, the Company entered
into a memorandum of understanding ("MOU"), as amended, with a Japanese
corporation for joint development activities. The MOU provides that the
Japanese corporation reimburse the Company for milestones attained up to a
maximum of $2,012,000. Any technology developed under the MOU will be jointly
owned by the Company and the Japanese corporation, subject to licensing and
royalty arrangements between the parties with respect to products developed
pursuant to the MOU.
For the nine months ended March 31, 1999 and the years ended June 30, 1998
and 1999, the Company received $221,500, $1,238,400, and $503,000, respectively
under the MOU as reimbursement of research and development expenditures
(Note 1). The total received under the contract was $1,962,900.
10. Significant customer and vendor:
For the nine months ended March 31, 1999, the Company had one customer with
billings in excess of 95% of total sales. One hundred percent of the
reimbursement for research and development expenses was received from one
unrelated party.
The Company purchased one hundred percent of the cable modems sold during the
nine months ended from one vendor located in Taiwan.
11. Year 2000:
The Year 2000 issue is the result of shortcomings in many electronic data
processing systems and other electronic equipment that may adversely affect the
Companys operations as early as fiscal year 1999.
The Company has assessed its various types of electronic equipment and does not
believe the Year 2000 issue will pose significant operational problems. The
Company also is communicating with parties with whom the Company does business
to coordinate Year 2000 conversion.
Exhibit 99.5
LOTUS PACIFIC, INC.
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
MARCH 31, 1999
(Unaudited)
<TABLE>
<CAPTION>
ASSETS
Lotus Pacific Pro Forma
Inc. Acquisitions Adjustments Totals
------------- ------------ ------------- ----------
<S> <C> <C> <C> <C>
Current assets:
Cash ....................... $ 249,599 $ 1,319,152 $ 1,568,751
Accounts receivable ........ 11,031,334 1,866,019 12,897,353
Inventory .................. 1,331,051 1,728,273 3,059,324
Other ...................... 9,035 49,528 58,563
---------- ---------- -----------
Total current assets ..... 12,621,019 4,962,972 17,583,991
Property and equipment:
Furniture and office equipment 104,978 636,295 741,273
Equipment ................... 1,540,222 474,585 2,014,807
Leasehold improvements ...... 1,041 73,814 74,855
--------- --------- ------------
1,646,241 1,184,694 2,830,935
Less: accumulated depreciation (593,993) (510,261) (1,104,254)
---------- --------- ------------
1,052,248 674,433 1,726,681
Other assets:
Cash surrender value
of life insurance ........ 13,436 13,436
Intangible asset, net of
accumulated amortization... 4,915,473 713 4,916,186
Goodwill, net of
accumulated amortization... 25,265,317 $101,473,036 126,738,353
Deposits .................... 23,775 57,563 81,338
Investment in affiliates .... 5,128,852 5,128,852
---------- --------- ------------ -----------
35,333,417 71,712 101,473,036 136,878,165
$49,006,684 $5,709,117 $101,473,036 $156,188,837
============ ========== ============ ============
LIABILITIES AND STOCKHOLDERS EQUITY
Current liabilities:
Accounts payable and
accrued expenses .......... $ 8,099,044 $ 853,077 $ 8,952,121
Loans payable ............... 16,173 16,173
------------ --------- ------------
Total current liabilities.. 8,099,044 869,250 8,968,294
Minority interest in subsidiary 6,512,289 1,887,430 8,399,719
Commitments
Stockholders equity:
Common stock ................ 63,784 63,784
Preferred stock, Series A ... 4 4
Common stock warrants ....... 80,000 80,000
Additional paid-in capital .. 38,343,349 4,839,867 113,580,947 156,764,163
Accumulated deficit ......... (4,091,786) (13,995,341) (18,087,127)
------------ ---------- ------------- ------------
34,395,351 4,839,867 99,585,606 138,820,824
$49,006,684 $5,709,117 $101,473,036 $156,188,837
============ =========== ============= ============
</TABLE>
LOTUS PACIFIC, INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED MARCH 31, 1999
(Unaudited)
<TABLE>
<CAPTION>
Lotus Pacific Pro Forma
Inc. Acquisitions Adjustments Totals
--------------- ------------- ----------- -----------
<S> <C> <C> <C> <C>
Sales ........................ $19,030,444 $2,325,898 $ 21,356,342
Cost of sales ................ 16,740,554 2,156,238 18,896,792
------------ ---------- ------------
Gross profit ............... 2,289,890 169,660 2,459,550
Royalty income ............... 124,125 124,125
Operating expenses:
Selling, general &
administrative expenses .... 2,543,168 3,321,173 $10,331,203 16,195,544
Research and development .... 571,747 1,400,910 1,972,657
------------ ---------- ----------- ----------
3,114,915 (4,722,083) (10,331,203) 18,168,201
Operating loss ............... (700,900) (4,552,423) (10,331,203) (15,584,526)
Other income (expense):
Interest income ............. 33,104 46,387 79,491
Equity in income (loss) of
unconsolidated subsidiaries . (721,733) (721,733)
Other income ................. 56,100 56,100
------------ --------- ------------ -----------
(688,629) 102,487 (586,142)
Net income (loss) before income taxes,
minority interest in income of
consolidated subsidiary and
discontinued operations ..... (1,389,529) (4,449,936) (16,170,668)
Minority interest in loss of
consolidated subsidiaries ... 902,745 902,745
Loss from discontinued operations (53,017) (53,017)
Loss on sale of subsidiaries . (590,641) (590,641)
----------- ------------ ------------- -----------
Net income (loss) ............ $(1,130,442) $(4,449,936) $(10,331,203) $(15,911,581)
============ ============ ============== =============
Earnings (loss) per share:
Basic........................ $ (.03) $ (.09) $ (.33)
=========== =========== ==========
</TABLE>
The following unaudited pro forma information represents the results of
operations for the nine months ended March 31, 1999 of the Company as if the
acquisitions had taken place on July 1, 1998. These pro forma results of
operations have been prepared for comparative purposes only and do not purport
to be indicative of the results of operations which actually would have
resulted had the acquisitions occurred on the date indicated, or which may
result in the future.
The figures include amortization of goodwill as if the acquisitions had taken
place on July 1, 1998, and amounted to $10,331,203.
