SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT OF
1934
For the transition period from__________to__________.
Commission File Number 33-18834-LA
OPAL TECHNOLOGIES, INC.
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(Exact name of small business issuer as specified in its charter)
Nevada 87-0306464
- -------------------------------- -----------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
Suite 4704, Central Plaza, 18 Harbour Road, Wanchai, Hong Kong
--------------------------------------------------------------
(Address of principal executive offices)
852-2541-1999
-------------------------
(Issuer's telephone number)
N/A
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(Former name, former address and formal fiscal year,
if changed since last report)
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
twelve (12) months (or such shorter period that the Registrant was required to
file such reports) and (2) has been subject to such filing requirements for the
past ninety (90) days. Yes X No
----- -----
As of August 15, 1998, 35,991,954 shares of Common Stock of the issuer were
outstanding.
<PAGE>
OPAL TECHNOLOGIES, INC.
FORM 10-QSB
INDEX
Page
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PART I - FINANCIAL INFORMATION
ITEM 1 . Financial Statements
Consolidated Balance Sheets as of June 30, 1998 and
December 31, 1997......................................... 3
Consolidated Statements of Operations-for the three
months and six months ended June 30, 1998 and 1997...... 4
Consolidated Statements of Cash Flows-for the three
months and six months ended June 30, 1998 and 1997...... 5
Notes to Consolidated Financial Statements................ 6
ITEM 2. Management's Discussion and Analysis or Plan of Operations.... 7
PART II - OTHER INFORMATION............................................ 9
2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
OPAL TECHNOLOGIES, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED BALANCE SHEET
<TABLE>
6/30/98 12/31/97
------------------- ---------------------
US$'000 US$'000
------------------- ---------------------
<S> <C> <C>
ASSETS
Current assets 134 1,453
Cash and bank deposits 3,081 2,590
Accounts receivable, net 18 412
Due from a shareholder - 2
Due from a director -
Due from a related company 66 26
Prepayments and other current assets 791 642
Inventories, net
--------------- -----------------
Total current assets 4,090 5,125
Property, machinery and equipment, net 9,515 2,123
Construction-in-progress 5,783 625
Licensing costs, net 881 201
Goodwill, net 181 38
--------------- -----------------
Total assets 20,450 2,103
=============== =================
LIABILITIES, MINORITY INTERESTS AND SHAREHOLDERS' EQUITY
=============== =================
Current liabilities:
Short-term borrowings 1,976 1,239
Accounts payable 500 625
Accrued liabilities 72 201
Taxation payable 38 38
--------------- -----------------
Total current liabilities 2,586 2,103
Non-current payable 2,700 2,877
Loans from PRC joint venture partner 640 639
Loans from a shareholder 282
--------------- -----------------
Total liabilities 6,208 5,619
--------------- -----------------
Minority interests 2,634 2,649
Shareholders' equity:
Common stock, par value US$0.001:
- authorized - 49,000,000 shares as of December 31, 1997 and
June 30, 1998 36 36
- outstanding and fully paid - 35,991,964 shares as of December
31, 1997 and June 30, 1998
Preferred stock, par value US$0.001:
- authorized - 1,000,000 shares as of December 31, 1997 and
June 30, 1998 -
- outstanding and fully paid - 100,000 shares of December 31,
1997 and June 30, 1998
Additional paid in capital 12,213 12,213
Accumulated losses (628) (506)
Cumulative translation adjustments (13) (44)
--------------- -----------------
Total shareholders' equity 11,608 11,699
--------------- -----------------
Total liabilities, minority interest and shareholders' equity 20,450 19,967
=============== =================
</TABLE>
3
<PAGE>
OPAL TECHNOLOGIES, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
For the three months ended For the six months ended
June 30 June 30
------------------------------------ -----------------------------------
1998 1997 1998 1997
-------------- ---------------- -------------- ---------------
US$'000 US$'000 US$'000 US$'000
-------------- ---------------- -------------- ---------------
<S> <C> <C> <C> <C>
Net sales 376 1,526 816 1,938
Cost of goods sold (187) (1,075) (407) (1,217)
-------------- ---------------- -------------- ---------------
Gross profit 189 451 409 721
Selling, general and administrative expenses (251) (247) (467) (444)
Interest expenses (43) - (79) -
Interest income - - - 1
Other expenses, net - - - -
-------------- ---------------- -------------- ---------------
Loss before income taxes (105) 204 (137) 278
Provision for income taxes - - 15 -
-------------- ---------------- -------------- ---------------
Profit / (loss) before minority interests (105) 204 (137) 278
Minority interest 1 (29) 15 (41)
-------------- ---------------- -------------- ---------------
Net income / (loss) (104) 175 (122) 237
============== ================ ============== ===============
Weighted Average Number of Shares Outstanding 35,991,964 13,591,964 35,991,964 13,591,964
Loss per common share (0.00) 0.01 (0.00) 0.02
============== ================ ============== ===============
</TABLE>
See Notes to Unaudited Consolidated Financial Statements
4
<PAGE>
OPAL TECHNOLOGIES, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
For the six months ended
June 30,
-------------------------------------
1998 1997
--------------- ---------------
US$`000 US$`000
--------------- ---------------
<S> <C> <C>
Cash flow from operating activities
Net income/(losses) (122) 237
Adjustments to reconcile net income /(loss) to net cash provided by /
(used in) operating activities -
Depreciation of property, machinery & equipment 60 42
Amortization of good will 5 4
Amortization of licensing costs 27 27
Minority interest (15) 41
(Increase)/Decrease in operating assets -
Accounts receivable, net (491) (1,511)
Prepayments, and other current assets (40) (41)
Inventories, net (149) (275)
Increase /(Decrease) in operating liabilities -
Accounts payables (125) (180)
Accrued liabilities (129) 112
Taxation payable - -
Non-current payable (177) -
------------ -------------
Net cash provided by/(used in) operating activities (1,156) (1,544)
------------ -------------
Cash flows from investing activities
Acquisition of property, machinery & equipment (1,610) (180)
(Advance to) Repayment from a shareholder 394 -
(Advance to) Repayment from a director 2 1
(Advance to) Repayment from a related company - 90
------------ -------------
Net cash provided by/(used in) investing activities (1,214) (89)
------------ -------------
Cash flows from financing activities
Issuance of common shares - -
New loans from a shareholder 282 1,206
New loans from PRC joint venture partner 1 903
Net short-term bank loan 592 -
Other loans 145
------------ -------------
Net cash provided by/(used in) financing activities 1,020 2,109
------------ -------------
Effect of cumulative translation adjustments 31 (21)
------------ -------------
Net increase / (decrease) in cash and bank deposits (1,319) 455
Cash and bank deposits, as of beginning of period 1,453 67
------------ -------------
Cash and bank deposits, as of end of period 134 522
============ =============
</TABLE>
See Notes to Unaudited Consolidated Financial Statements
5
<PAGE>
OPAL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED
FINANCIAL STATEMENTS
1. INTERIM PRESENTATION
The interim financial statements were prepared pursuant to the requirements
for reporting on Form 10-QSB. The December 31, 1997 balance sheet data was
derived from audited financial statements but does not include all
disclosures required by generally accepted accounting principles. The
interim financial statements and notes thereto should be read in
conjunction with the financial statements and notes thereto included in the
Company's report on Form 10-KSB for the year ended December 31, 1997. In
the opinion of management, the interim financial statements reflect all
adjustments of a normal recurring nature necessary for a fair statement of
the results for the interim periods presented.
2. ACQUISITION OF OPERATING BUSINESSES
The acquisition of Opal Agriculture Development Limited and Triple Star
Holding Limited by the Company on June 6, 1997 was treated as a
recapitalization of the acquired companies with the acquired entities
considered the acquirer (a reverse acquisition). Accordingly, the
historical consolidated financial statements of the Company prior to June
6, 1997 are those of the combined financial statements of two acquired
companies. The shareholders equity of the Company as of December 31, 1996
has been retroactively restated to reflect the one for ten reverse stock
split, the reauthorization of 50,000,000 shares of (49,000,000 common
shares and 1,000,000 preferred shares) and the issuance of Series A
preferred stock. The Series A preferred stock has a vote on all corporate
matters equal to thirty percent of the total vote, is not subject to
redemption and has a liquidation preference of $.001 per share.
3. MINORITY INTEREST
The minority interest reflects the 45% interest held by a non-related party
in Beijing Opal Agriculture Biochemistry, Co. Ltd., a PRC joint-venture
engaged in the manufacture and production of organic agricultural
fertilizer.
6
<PAGE>
This release contains forward looking statements within the meaning of Section
27A of the Securities Act of 1933, as amended and Section 21E of the Securities
Exchange Act of 1934, as amended. The Company's actual results could differ
materially from those set forth on the forward looking statements as a result of
the risks set forth in a Company's filings with the Securities and Exchange
Commission, general economic conditions, and changes in the assumptions used in
making such forward looking statements.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
The following should be read in conjunction with the consolidated financial
statements and notes thereto.
Material Changes in Results of Operations
Three Months Ended March 31, 1997 Compared to the Three Months Ended March 31,
1996.
Net Sales. Net sales for the three months ended June 30, 1998 decreased by
US$1,150,000 or 75% to US$376,000 from US$1,526,000 for the corresponding period
of the prior year. This decrease was primarily due to the devastating Yangtze
River floods which prohibited customers of the Company from preparing their
fields or planting their crops.
According to the China Daily newspaper, floods have killed thousands and
affected another 240 million people or a fifth of China's population. The floods
are the worst since 1954; have destroyed 5.58 million homes; have damaged
another 12.05 million homes and forced the evacuation of 13.8 million people.
More than 53.3 million acres of crops have been badly affected, and another 11.9
million acres have been totally destroyed. Unfortunately, China may continue to
face the threat of additional floods during the coming months as this is the
period when heavy rainfall generally occurs.
Although the striken areas cover most of Opal's major markets in China, the
Company anticipates that its sales will accelerate in the fourth quarter because
of production from the granular fertilizer plant and shipments to Taiwan which
has not been affected by flooding.
Gross Profit. Gross profit for the three months ended June 30, 1998 decreased by
US$262,000 or 58% to US$189,000 from US$451,000 for the corresponding period of
the prior year. This decrease resulted from a decline in sales which was
partially offset by a decline in cost of goods sold as a percentage of sales.
Cost of goods sold totalled 49.7% of sales for the three months ended June 30,
1998, a significant reduction from 70% for the corresponding period of the prior
year. This decrease resulted from the Company's sales being made exclusively to
third parties at normal margins during three months ended June 30, 1998 compared
to the prior period when a large percentage of the Company's sales were made to
a related party at virtually no profit margin.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for the three months ended June 30, 1998 increased by
US$4,000 or 2% to US$251,000 from US$247,000 for the corresponding period of the
prior year. This increase resulted from additional supervisory costs associated
with the installation of the dry fertilizer production line.
Interest Expense. Interest expense increased to US$43,000 for the three months
ended June 30, 1998 from $0 for the corresponding period of the prior year. This
increase resulted from borrowings to finance machinery and equipment for the dry
fertilizer line.
Net Loss. Because of the foregoing, the net loss for the three months ended June
30, 1998 was US$104,000 compared with net income of US$175,000 for the
corresponding period of the prior year.
Six Months Ended June 30, 1998 Compared to the Six Months Ended June 30, 1997.
Net Sales. Net sales for the six months ended June 30, 1998 decreased by
US$1,122,000 or 58% to US$816,000 from US$1,938,000 for the six months ended
June 30, 1997. This decrease was primarily due to the Yangtze River floods.
Gross Profits. Gross profits for the six months ended June 30, 1998 decreased by
US$312,000 or 43% to US$409,000 from US$721,000 for the same period last year.
This decrease resulted from the decline in net sales which was partially offset
by a decline in cost of goods sold as a percentage of sales. Cost of goods sold
totalled from 49.9% to sales for the six months ended June 30, 1998 compared
with 62.8% for the corresponding period of the prior year. This decrease
resulted from the Company's sales being made exclusively to third parties at
normal margins during the six months ended June 30, 1998 compared to the prior
period when a large percentage of the sales were made to a related party at
virtually no profit margin.
7
<PAGE>
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for the six months ended June 30, 1998 increased by
US$23,000 or 5% to US$467,000 from US$444,000 for the corresponding period of
the prior year. This increase is attributable to additional supervisory costs
associated with the installation of the dry fertilizer line.
Interest Expense. Interest expense increased to US$79,000 for the six months
ended June 30, 1998 from $0 for the corresponding period of the prior year. This
increase resulted from borrowings to finance machinery and equipment for the dry
fertilizer line.
Net Loss. Because of the foregoing, the net loss for the six months ended June
30, 1998 was US$122,000 compared with net profit of US$237,000 for the
corresponding period of the prior year.
Changes in Financial Condition, Liquidity and Capital Resources
For the past twelve months, the Company has funded its operating and
capital requirements with loans from the parent company and its PRC
joint-venture partner, the sale of common stock, a bank loan and a related party
short-term loan. As of June 30, 1998, the Company had cash of US$134,000 and
working capital of US$1,504,000. This compares with cash of US$522,000 and
working capital of US$2,805,000 as of June 30, 1997.
Net cash used in operating activities increased to US$1,156,000 for the six
months ended June 30, 1998 from US$1,544,000 for the six months ended June 30,
1997. This increase resulted from a loss from operations, an increase in
accounts receivable, other assets and inventories which was partially offset by
a decrease in accounts payable, accrued liabilities and non-current payables.
Net cash used in investing activities increased to US$1,214,000 for the six
months ended June 30, 1998 from US$89,000 for the six months ended June 30,
1997. This increase is primarily due to the additional expenditures for the
acquisition of machinery and equipment for the dry fertilizer line which were
partially offset by repayment of an advance from a shareholder.
Net cash provided by financing activities decreased to US$1,020,000 for the
six months ended June 30, 1998 from US$2,109 for the six months ended June 30,
1997. This decrease is attributable to reduced loans from shareholders and joint
venture partners which were partially offset by a short-term bank loan and
another loan.
To provide for its working capital requirements and to repay its short term
debt, the Company during the next six months will need to place additional
equity or develope additional lending sources without which the Company will be
unable to meet its business plans.
8
<PAGE>
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
4.1 Warrant - Corinthian Capital Limited
27.1 Financial Data Schedule
(b) Reports on Form 8-K
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant has
duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
OPAL TECHNOLOGIES, INC.
Date: August 19, 1998 By: /s/ John K. C. Koon
---------------------------------------
John K. C. Koon
President and Chief Executive Officer
Dated: August 19, 1998 By: /s/ Kenneth Poon
----------------------------------------
Kenneth Poon
Chief Financial Officer
9
THIS WARRANT AND THE SHARES OF COMMON STOCK OF OPAL TECHNOLOGIES, INC. TO BE
ISSUED UPON ANY EXERCISE OF THE WARRANT HAVE NOT BEEN REGISTERED UNDER THE
UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND
THIS WARRANT AND THE UNDERLYING SHARES OF COMMON STOCK MAY NOT BE SOLD,
TRANSFERRED OR ASSIGNED UNLESS REGISTERED UNDER THE SECURITIES ACT OR AN
EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE.
WARRANT
to Purchase Shares
of
Common Stock (.001 par value)
of
Opal Technologies, Inc.
May 12, 1998
This certifies that, for value received, Corinthian Capital Limited, ("CC")
and any subsequent transferee pursuant to the terms hereof (each, a "Holder"),
is entitled to purchase, subject to the provisions of this Warrant, from Opal
Technologies, Inc., a Nevada corporation (the "Issuer"), at any time or from
time to time on or after May 12, 1998 and on or before September 1, 2000 (the
"Expiration Date"), such number as is equal to the sum of the following:
(a) Twenty-five percent of the total of the issued and outstanding shares
of the Issuer as of May 12, 1998, plus
(b) Twenty-five percent of the total warrants issued and outstanding as of
May 12, 1998, including this warrant; plus
(c) Twenty-five percent of the total of any other shares reserved or
issuable by the Issuer used in computing the number of shares
outstanding on a fully diluted basis; less
(d) That number of shares of the Issuer owned by Bestalong Group, Inc.
multiplied by the percentage of share ownership of CC in Bestalong
Group, Inc.
fully paid and nonassessable shares of common stock, $.001 par value (the
"Common Stock"), of the Issuer at an exercise price equal to $1.00 per share,
subject to adjustment pursuant to the terms hereunder (the "Exercise Price")
(such shares of Common Stock and other securities issued and issuable upon
exercise of this Warrant, the "Warrant Shares"). This Warrant supercedes and
replaces the warrants granted pursuant to the Agreement dated April 22, 1997
between Bestalong Group, Inc. and Corinthian Capital Limited.
Section 1. Exercise of Warrant.
1
<PAGE>
(a) Subject to the provisions hereof, this Warrant may be exercised,
in whole or in part, but not as to a fractional share, at any time or from
time to time on or after May 12, 1998 and on or before the Expiration Date,
by presentation and surrender hereof to the Issuer at the address which, in
accordance with the provisions of Section 9 hereof, is then effective for
notices to the Issuer, with the Election to Purchase Form annexed hereto as
Schedule One, duly executed and accompanied by payment to the Issuer as
further set forth below in this Section 1, for the account of the Issuer,
of the Exercise Price for the number of Warrant Shares specified in such
form. If this Warrant should be exercised in part only, the Issuer shall,
upon surrender of this Warrant, execute and deliver a new Warrant
evidencing the rights of the Holder hereof to purchase the balance of the
Warrant Shares purchasable hereunder. The Issuer shall maintain at its
principal place of business a register for the registration of this Warrant
and registration of transfer of the Warrant. The Exercise Price for the
number of Warrant Shares specified in the Election to Purchase Form shall
be payable in United States Dollars by certified or official bank check
payable to the order of the Issuer or by wire transfer of immediately
available funds to an account specified by the Issuer for that purpose.
(b) Certificates representing Warrant Shares shall bear the following
restrictive legend:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THE SHARES HAVE BEEN
ACQUIRED FOR INVESTMENT AND MAY NOT BE SOLD, TRANSFERRED OR ASSIGNED
IN THE ABSENCE OF EITHER AN EFFECTIVE REGISTRATION STATEMENT FOR THESE
SHARES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR AN OPINION OF
COUNSEL THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT.
(c) Once the registration of the Common Stock underlying the Warrants
has been declared effective, the restriction legend denoted in Paragraph
(b) of this Section 1 shall be removed from any outstanding Common Share.
Section 2. Reservation of Shares; Preservation of Rights of Holder. The
Issuer hereby agrees that there shall be reserved for issuance and/or delivery
upon exercise of this Warrant, such number of Warrant Shares as shall be
required for issuance or delivery upon exercise of this Warrant. The Warrant
surrendered upon exercise shall be canceled by the Issuer. After the Expiration
Date no shares of Common Stock shall be subject to reservation in respect of
this Warrant. The Issuer further agrees (i) that it will not, by amendment of
its Articles of Incorporation or through reorganization, consolidation, merger,
dissolution or sale of assets, or by any other voluntary act, avoid or seek to
avoid the observation or performance of any of the covenants, stipulations or
conditions to be observed or performed hereunder by the Issuer, (ii) promptly to
take all action as may from time to time be required in order to permit the
Holder to exercise this Warrant and the Issuer duly and effectively to issue
shares of its Common Stock or other securities as provided herein upon the
exercise hereof, and (iii) promptly to take all action required or provided
herein to protect the rights of the Holder granted hereunder against dilution.
Without limiting the generality of the foregoing, should the Warrant Shares at
any time consist in whole or in part of shares of capital stock having a par
value, the Issuer agrees that before taking any action which would cause an
adjustment of the Exercise Price so that the same would be less than the then
par value of such Warrant Shares, the Issuer shall take any corporate action
which may, in the opinion of its counsel, be necessary in order that the Issuer
may validly and legally issue fully paid and nonassessable shares of such Common
Stock at the Exercise Price as so adjusted. The Issuer further agrees that it
will not establish a par value for its Common Stock while this Warrant is
outstanding in an amount greater than the Exercise Price.
2
<PAGE>
Section 3. Exchange, Transfer, Assignment or Loss of Warrant. This Warrant
is not transferable or assignable except as provided in this Section 3. Any
attempted transfer of this Warrant, the Warrant Shares or any new Warrant not in
accordance with this Section shall be null and void, and the Issuer shall not in
any way be required to give effect to such transfer. No transfer of this Warrant
shall be effective for any purpose hereunder until (i) written notice of such
transfer and of the name and address of the transferee has been received by the
Issuer, and (ii) the transferee shall first agree in a writing deposited with
the Secretary of the Issuer to be bound by all the provisions of this Warrant.
Upon surrender of this Warrant to the Issuer by any transferee authorized under
the provisions of this Section 3, the Issuer shall, without charge, execute and
deliver a new Warrant registered in the name of such transferee at the address
specified by such transferee, and this Warrant shall promptly be canceled. The
Issuer may deem and treat the registered holder of any Warrant as the absolute
owner thereof for all purposes, and the Issuer shall not be affected by any
notice to the contrary. Any Warrant if presented by an authorized transferee,
may be exercised by such transferee without prior delivery of a new Warrant
issued in the name of the transferee.
Upon receipt by the Issuer of evidence reasonably satisfactory to it of the
loss, theft, destruction or mutilation of this Warrant, and (in the case of
loss, theft or destruction) of reasonably satisfactory indemnification, and upon
surrender and cancellation of this Warrant, if mutilated, the Issuer will
execute and deliver a new Warrant of like tenor and date. Any such new Warrant
executed and delivered shall constitute a separate contractual obligation on the
part of the Issuer, whether or not the Warrant so lost, stolen destroyed or
mutilated shall be at any time enforceable by anyone.
3
<PAGE>
Section 4. Rights of Holder. Neither a Holder nor his transferee by devise
or otherwise shall be, or have any rights or privileges of, a shareholder of the
Issuer with respect to any Warrant Shares, unless and until certificates
representing such Warrant Shares shall have been issued and delivered thereto.
Section 5. Adjustments in Exercise Price and Warrant Shares. The Exercise
Price and Warrant Shares shall be subject to adjustment from time to time as
provided in this Section 5.
(a) If the Issuer is recapitalized through the subdivision or
combination of its outstanding shares of Common Stock into a larger or
smaller number of shares, the number of shares of Common Stock for which
this Warrant may be exercised shall be increased or reduced, as of the
record date for such recapitalization, in the same proportion as the
increase or decrease in the outstanding shares of Common Stock, and the
Exercise Price shall be adjusted so that the aggregate amount payable for
the purchase of all Warrant Shares issuable hereunder immediately after the
record date for such recapitalization shall equal the aggregate amount so
payable immediately before such record date.
(b) If the Issuer declares a dividend on Common Stock, or makes a
distribution to holders of Common Stock, and such dividend or distribution
is payable or made in Common Stock or securities convertible into or
exchangeable for Common Stock, or rights to purchase Common Stock or
securities convertible into or exchangeable for Common Stock, the number of
shares of Common Stock for which this Warrant may be exercised shall be
increased, as of the record date for determining which holders of Common
Stock shall be entitled to receive such dividend or distribution, in
proportion to the increase in the number of outstanding shares (and shares
of Common Stock issuable upon conversion of all such securities convertible
into common Stock) of Common Stock as a result of such dividend or
distribution, and the Exercise Price shall be adjusted so that the
aggregate amount payable for the purchase of all the Warrant Shares
issuable hereunder immediately after the record date for such dividend or
distribution shall equal the aggregate amount so payable immediately before
such record date.
(c) If the Issuer declares a dividend on Common Stock (other than a
dividend covered by subsection (b) above) or distributes to holders of its
Common Stock, other than as part of its dissolution or liquidation or the
winding up of its affairs, any shares of its capital stock, any evidence of
indebtedness or any cash or other of its assets (other than Common Stock or
securities convertible into or exchangeable for Common Stock), the Holder
shall receive notice of such event as set forth in Section 7 below.
(d) In case of any consolidation of the Issuer with, or merger of the
Issuer into, any other corporation (other than a consolidation or merger in
which the Issuer is the continuing corporation and in which no change
occurs in its outstanding Common Stock), or in case of any sale or transfer
of all or substantially all of the assets of the Issuer, or in the case of
any statutory exchange of securities with another corporation (including
any exchange effected in connection with a merger of a third corporation
into the Issuer, except where the Issuer is the surviving entity and no
change occurs in its outstanding Common Stock), the corporation formed by
such consolidation or the corporation resulting from such merger or the
corporation which shall have acquired such assets or securities of the
Issuer, as the case may be, shall execute and deliver to the Holder
simultaneously therewith a new Warrant, satisfactory in form and substance
to the Holder, together with such other documents as the Holder may
reasonably request, entitling the Holder thereof to receive upon exercise
of such Warrant the kind and amount of shares of stock and other securities
and property receivable upon such consolidation, merger, sale, transfer, or
exchange of securities, or upon the dissolution following such sale or
other transfer, by a holder of the number of shares of Common Stock
purchasable upon exercise of this Warrant immediately prior to such
consolidation, merger, sale, transfer, or exchange. Such new Warrant shall
contain the same basic other terms and conditions as this Warrant and shall
provide for adjustments which, for events subsequent to the effective date
of such written instrument, shall be as nearly equivalent as may be
practicable to the adjustments provided for in this Section 5. If any such
consolidation, merger, sale, transfer or exchange should occur prior to May
12, 1998, the date shall be adjusted to the date which is one business day
prior to the closing of any such consolidation, merger, sale, transfer or
exchange. The above provisions of this paragraph (d) shall similarly apply
to successive consolidations, mergers, exchanges, sales or other transfers
covered hereby.
4
<PAGE>
(e) If the Issuer shall, at any time before the expiration of this
Warrant dissolve, liquidate or wind up its affairs, the Holder shall, upon
exercise of this Warrant have the right to receive, in lieu of the shares
of Common Stock of the Issuer that the Holder otherwise would have been
entitled to receive, the same kind and amount of assets as would have been
issued, distributed or paid to the Holder upon any such dissolution,
liquidation or winding up with respect to such shares of Common Stock of
the Issuer had the Holder been the holder of record of such shares of
Common Stock receivable upon exercise of this Warrant on the date for
determining those entitled to receive any such distribution. If any such
dissolution, liquidation or winding up results in any cash distribution in
excess of the Exercise Price provided by this Warrant for the shares of
Common Stock receivable upon exercise of this Warrant, the Holder may, at
the Holder's option, exercise this Warrant without making payment of the
Exercise Price and, in such case, the Issuer shall, upon distribution to
the Holder, consider the Exercise Price to have been paid in full and, in
making settlement to the Holder, shall obtain receipt of the Exercise Price
by deducting an amount equal to the Exercise Price for the shares of Common
Stock receivable upon exercise of this Warrant from the amount payable to
the Holder. For purposes of this paragraph, the sale of all or
substantially all of the assets of the Issuer and distribution of the
proceeds thereof to the Issuer's shareholders shall be deemed liquidation.
5
<PAGE>
(f) If an event occurs which is similar in nature to the events
described in this Section 5, but is not expressly covered hereby, the Board
of Directors of the Issuer shall make or arrange for an equitable
adjustment to the number of Warrant Shares and the Exercise Price.
(g) If the loan dated May 5, 1998 to Bestalong Group, Inc. in the
amount of $2,200,000 for the benefit of the Issuer is not repaid in full
non or before September 6, 1998, the Exercise Price shall be reduced to the
following Exercise Price if the loan is repaid in full.
Date Exercise Price
-------------------------------- ---------------------------
1. On or after September 1, 1998,
but before September 7, 1998 $ 0.50
2. On or after September 7, 1998, but
before September 15, 1998 0.40
3. On or after September 15, 1998, but
before September 22, 1998 0.30
4. On or after September 22, 1998 but
before September 29, 1998 0.25
5. On or after September 29, 1998 but
before October 6, 1998 0.20
6. On or after October 6, 1998 but
before October 13, 1998 0.15
7. On or after October 13, 1998 but
before October 20, 1998 0.10
8. On or after October 20, 1998 0.05
(h) The term "Common Stock" shall mean the Common Stock, $.001 par
value, of the Issuer as the same exists at the date of issuance of this
Warrant or as such stock may be constituted from time to time, except that
for the purpose of this Section 5, the term "Common Stock" shall include
any stock of any class of the Issuer which has no preference in respect of
dividends or of amounts payable in the event of any voluntary or
involuntary liquidation, dissolution or winding up of the Issuer and which
is not subject to redemption by the Issuer.
6
<PAGE>
(i) The Issuer shall retain a firm of independent public accountants
of recognized standing (who may be any such firm regularly employed by the
Issuer) to make any computation required under this Section 5, and a
certificate signed by such firm shall be conclusive evidence of the
correctness of any computation made under this Section 5.
(j) Whenever the number of Warrant Shares or the Exercise Price shall
be adjusted as required by the provisions of this Section 5, the Issuer
forthwith shall file in the custody of its secretary or an assistant
secretary, at its principal office, and furnish to each Holder hereof, a
certificate prepared in accordance with paragraph (h) above, showing the
adjusted number of Warrant Shares and the Exercise Price and setting forth
in reasonable detail the circumstances requiring the adjustments.
(k) Notwithstanding any other provision, this Warrant shall be binding
upon and inure to the benefit of any successors and assigns of the Issuer.
(l) No adjustment in the Exercise Price in accordance with the
provisions of this Section 5 need be made if such adjustment would amount
to a change in such Exercise Price of less than $.01 provided however, that
the amount by which any adjustment is not made by reason of the provisions
of this paragraph (k) shall be carried forward and taken into account at
the time of any subsequent adjustment in the Exercise Price.
(m) If an adjustment is made under this Section 5 and the event to
which the adjustment relates does not occur, then any adjustments in
accordance with this Section 5 shall be readjusted to the Exercise Price
and the number of Warrant Shares which would be in effect had the earlier
adjustment not been made.
Section 6. Taxes on Issue or Transfer of Common Stock and Warrant. The
Issuer shall pay any and all documentary stamp or similar issue or transfer
taxes payable in respect of the issue or delivery of shares of Common Stock or
other securities on the exercise of this Warrant. The Issuer shall not be
required to pay any tax which may be payable in respect of any transfer of this
Warrant or in respect of any transfers involved in the issue or delivery of
shares or the exercise of this Warrant in a name other than that of the Holder
and the person requesting such transfer, issue or delivery shall be responsible
for the payment of any such tax (and the Issuer shall not be required to issue
or deliver said shares until such tax has been paid or provided for).
7
<PAGE>
Section 7. Notice of Adjustment. So long as this Warrant shall be
outstanding, (a) if the Issuer shall propose to pay any dividends or make any
distribution upon the Common Stock, or (b) if the Issuer shall offer generally
to the holder of Common Stock the right to subscribe to or purchase any shares
of any class of Common Stock or securities convertible into Common Stock or any
other similar rights, or (c) if there shall be any proposed capital
reorganization of the Issuer in which the Issuer is not the surviving entity,
recapitalization of the capital stock of the Issuer, consolidation or merger of
the Issuer with or into another corporation, sale, lease or other transfer of
all or substantially all of the property and assets of the Issuer, or voluntary
or involuntary dissolution, liquidation or winding up of the Issuer, or (d) if
the Issuer shall give to its stockholders any notices, report or other
communication respecting any significant or special action or event, then in
such event, the Issuer shall give to the Holder, at least ten days prior to the
relevant date described below (or such shorter period as is reasonably possible
if ten days is not reasonably possible), a notice containing a description of
the proposed action or event and stating the date or expected date on which a
record of the Issuer's stockholders is to be taken for any of the foregoing
purposes, and the date or expected date on which any such dividend,
distribution, subscription, reclassification, reorganization, consolidation,
combination, merger, conveyance, sale, lease or transfer, dissolution,
liquidation or winding up is to take place and the date or expected date, if any
is to be fixed, as of which the holders of Common Stock of record shall be
entitled to exchange their shares of Common Stock for securities or other
property deliverable upon such event.
Section 8. Registration Rights.
a. Demand Registration Rights. The Issuer covenants and agrees with
the holders of Warrants(the "Registrable Securities") that the Issuer will
file as promptly as practicable and, in any event, not later than July 31,
1998, at CC's expense for all reasonable registration cost, no more than
once, a new registration statement under the Securities Act, registering or
qualifying the Registrable Securities for sale. The Issuer will use its
best efforts, through its officers, directors, auditors and counsel in all
matters necessary or advisable, to file and cause to become effective such
registration statement as promptly as practicable and for a period of two
years thereafter to reflect in the Amendment or registration statement
financial statements which are prepared in accordance with Section 10(a)(3)
of the Securities Act and any facts or events arising that, individually,
or in the aggregate, represent a fundamental and/or material change in the
information set forth in the Amendment or registration statement to enable
any Holders of the Warrants to exercise such Warrants and sell Warrant
Shares, or to enable any holders of Warrant Shares to sell such Warrant
Shares, during said two year period. The Holders may sell the Registrable
Securities pursuant to the Amendment or registration statement without
exercising the Warrants.
8
<PAGE>
b. Action to be Taken by the Issuer. In connection with the
registration of Registrable Securities hereunder, the Issuer agrees to use
its best efforts to register or qualify the Registrable Securities for
offer or sale under state securities or Blue Sky laws of such jurisdictions
in which such holders shall reasonably request, provided, however, that no
qualification shall be required in any jurisdiction where, as a result
thereof, the Issuer would be subject to service of general process or to
taxation as a foreign corporation doing business in such jurisdiction to
which it is not then subject; and (iii) enter into a cross-indemnity
agreement, in customary form, with each underwriter, if any, and each
holder of securities included in such registration statement. CC agrees to
bear all reasonable registration costs for such a registration of the
Registrable Securities.
c. Action to be Taken by the Holders. The Issuer's obligations under
this Section 8 shall be conditioned upon a timely receipt by the Issuer in
writing of: (i) information as to the terms of such public offering
furnished by or on behalf of each holder of Registrable Securities
intending to make a public offering of his, her or its Registrable
Securities, and (ii) such other information as the Issuer may reasonably
require from such holders, or any underwriter for any of them, for
inclusion in such registration statement.
Section 9. Notices. All communications hereunder shall be in writing, and,
if sent to the Holder shall be sufficient in all respects if delivered, sent by
registered mail, or by facsimile and confirmed to the Holder at:
Corinthian Capital Limited
Av. Figueroa Alcorta 3800, Planta Baja
Buenos Aires, Argentina
Attention: Dante Quinterno
Telephone: 54-1-801-2500
Fax: 54-1-801-8012
With copies to: Stairs Dillenbeck Finley & Merle
300 Madison Avenue, Suite 2900
New York, NY 10017-5090
Attention: Santiago Rendon
Telephone: (212) 697-2700
Fax: (212) 687-3523
or if to any other Holder, addressed to such Holder at such address as it shall
have specified to the Issuer in writing, or, if sent to
9
<PAGE>
the Issuer, shall be delivered, sent by registered mail or by facsimile and
confirmed to the Issuer at:
Opal Technologies, Inc.
Suite 4704, 18 Harbour Road
Wanchai, Hong Kong
Attention: John Koon
Telephone: (852) 2541-1999
Facsimile: (852) 2854-3939
With copies to: Vanderkam & Sanders
440 Louisiana, Suite 475
Houston, TX 77002
Attention: Hank Vanderkam
Telephone: (713) 547-8900
Fax: (713) 547-8910
Section 11. Governing Law. The Issuer agrees that any action or proceeding
based hereon, or arising out of this Warrant, shall be brought and maintained
exclusively in the United States District Court for the Southern District of New
York. The Issuer and the Holder each hereby irrevocably submit to the
jurisdiction of the United States District Court for the Southern District of
New York for the purpose of any such action or proceeding as set forth above and
irrevocably agree to be bound by any judgement rendered thereby in connection
with such action or proceeding. Each of the Issuer and the Holder hereby
irrevocably waive, to the fullest extent permitted by law, any objection which
it may have or hereafter may have to the laying of venue of any such action or
proceeding brought in any such court referred to above and any claim that any
such action or proceeding has been brought in an inconvenient forum.
Dated: May 12, 1998
Opal Technologies, Inc.
By: /s/ John Koon
--------------------------------
Name: John Koon
Title: President
ATTEST:
/s/ Kenneth Poon
- ------------------------
Kenneth Poon, Secretary
10
<PAGE>
Schedule One
------------
ELECTION TO PURCHASE
The undersigned hereby irrevocably elects to exercise this Warrant and to
purchase shares of Opal Technologies, Inc. Common Stock issuable upon the
--
exercise of this Warrant, and requests that certificates for such shares be
issued in the name of:
-----------------------------------------------------------------------------
(Name)
-----------------------------------------------------------------------------
(Address)
-----------------------------------------------------------------------------
(United States Social Security or other taxpayer
identifying number, if applicable)
and, if different from above, be delivered to:
-----------------------------------------------------------------------------
(Name)
-----------------------------------------------------------------------------
(Address)
and, if the number of Warrant Shares so purchased are not all of the Warrant
Shares issuable upon exercise of this Warrant, that a Warrant to purchase the
balance of such Warrant Shares be registered in the name of, and delivered to,
the undersigned at the address stated below.
Date: , 19
------------------------- ------------
Name of Registered Owner:
----------------------------------------------------
---------------------------------------------------------------------------
Address:
--------------------------------------------------------------------
---------------------------------------------------------------------------
Signature:
-------------------------------------------------------------------
- -----------------------------------------------------------------------------
11
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<PERIOD-START> APR-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 134
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<RECEIVABLES> 3,081
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0
0
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