UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q/A
(X) QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended December 31, 1999
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 000-24999
LOTUS PACIFIC, INC.
(Exact name of registrant as specified in its charter)
Delaware
(State of Organization)
52-1947160
(I.R.S. Employer Identification Number)
200 Centennial Avenue, Suite 201, Piscataway, New Jersey 08854
(Address of Principal Executive Offices)
(732) 885-1750
(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the proceeding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
(1) Yes X No (2) Yes X No
---- ---- ---- ----
Indicate the number of shares outstanding of each of the Registrant's
classes of common stock, as of March 27, 1999:
Class Number of Shares
Common Stock 63,466,474
Par Value $.001 Per Share
LOTUS PACIFIC, INC.
INDEX
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
a) Condensed Consolidated Balance Sheets as of December 31, 1999
(unaudited) and June 30, 1999 (audited)
b) Condensed Consolidated Statements of Operations (unaudited) for
the Three and Six Months Ended December 31, 1999 and 1998
c) Condensed Consolidated Statements of Cash Flows (unaudited) for
the Six Months Ended December 31, 1999 and 1998
d) Notes to Condensed Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Item 3. Quantitative and Qualitative Disclosure about Market Risk
PART II OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
Signatures
LOTUS PACIFIC, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
December 31, 1999 June 30, 1999
----------------- ---------------
(Unaudited) (Audited)
ASSETS
Current Assets:
Cash ............................... $ 22,155,704 $ 30,779,486
Accounts Receivable ................ 25,972,756 27,655,975
Inventories ........................ 5,301,757 4,972,965
Other current assets ............... 1,811,323 574,985
-------------- ------------
55,241,540 63,983,411
Property and equipment................ 3,563,996 3,104,090
Less: accumulated depreciation ....... (1,480,242) (1,235,567)
-------------- -------------
2,083,754 1,868,523
Other assets:
Intangible assets, net ............... 4,741,926 5,098,604
Goodwill, net......................... 121,421,214 128,157,062
Investment in affiliates.............. 9,254,796 1,453,928
Other................................. 77,055 197,890
------------ -----------
138,961,791 134,907,484
Total Assets ......................... $ 196,,287,085 $ 200,759,418
============== ==============
LIABILITIES AND STOCKHOLDERS EQUITY
Current liabilities:
Accounts Payable and
accrued expenses.................... $ 13,070,862 $ 8,950,281
Loan payable ........................ --- 195,565
Investment deposits ................. 37,800,015 44,695,000
Other current liabilities............. 42,359 ---
-------------- -------------
Total current liabilities............. 50,913,236 53,840,846
Minority interest in equity of
consolidated subsidiaries ........... 8,498,596 8,512,221
Stockholders' Equity:
Preferred Stock, Class A, $.001 par value,
4,300 shares authorized; 4,300 shares issued
and outstanding ..................... 4 4
Common Stock, $.001 par value, 100 million
shares authorized, 63,466,474 shares issued
and outstanding ..................... 63,466 64,344
Stock Warrants ....................... 80,000 80,000
Additional paid-in capital ........... 155,384,298 151,270,418
Translation Adjustment................ 18,347 ---
Accumulated deficit .................. (18,670,862) (13,008,415)
-------------- --------------
136,875,253 138,406,351
Total Liabilities &
Stockholders' Equity ............... $ 196,287,085 $ 200,759,418
============== ==============
The accompanying notes are an integral part of the financial statements
LOTUS PACIFIC, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Uaudited)
Three Months Ended Six Months Ended
December 31 December 31
----------------------------- --------------------------
1999 1998 1999 1998
-------------- ------------- -------------- ----------
Sales ......................... $ 19,609,595 $ 6,550,818 $ 30,665,361 $ 8,970,818
Cost of Sales................... 14,821,931 6,029,033 23,865,335 7,227,033
------------- ------------- ------------ -----------
Gross profit.................... 4,787,664 521,785 6,800,026 1,743,785
Operating expenses:
Selling, general & admin....... 3,934,503 703,498 6,053,175 1,410,521
Research and development ...... 959,010 483,995 1,899,956 1,049,738
Depreciation and amortization.. 3,688,002 711,600 7,305,851 1,423,398
------------- ------------- ------------ -----------
9,541,559 1,899,1923 15,258,982 3,883,657
Operating Income (Loss)......... (3,793,851) (1,377,407) (8,458,956) (2,139,872)
------------- ------------- ----------- ------------
Other income (expenses):
Interest Income ............... 62,138 4,793 136,809 13,440
Interest expense .............. (960,044) --- (960,044) ---
Other income ................. --- --- 38,784 ---
------------ ------------- ---------- -----------
(897,906) 4,793 (784,451) 13,440
Discontinued operations
Gain on disposal of discontinued LPF --- --- --- 100,000
------------ ------------- ------------ ------------
Net Income before income taxes,
equity in unconsolidated subsidiaries
and minority interests......... (4,691,757) (1,372,614) (9,243,407) (2,026,432)
Earnings in unconsolidated
subsidiary..................... 63,130 --- 655,287 ---
Minority interest in income (loss) of
Consolidated subsidiaries...... (172,909) (74,187) 35,289 (66,836)
------------- ------------ ------------ ------------
Net income (loss)............... $ (4,801,536) $ (1,298,427) $ (8,552,831) $ (1,959,596)
============= ============= ============= ============
Earnings Per Share
Basic ........................ $ (0.07) $ (0.03) $ (0.13) $ (0.04)
Diluted ...................... $ (0.07) $ (0.03) $ (0.13) $ (0.04)
Weighted Average Shares......... 63,466,474 47,499,304 63,466,474 47,488,428
The accompanying notes are an integral part of the financial statements
LOTUS PACIFIC, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended Six Months Ended
December 31, 1999 December 31, 1998
------------------ ------------------
CASH FLOW FROM OPERATING ACTIVITIES:
Net Loss ................................. $ (8,552,831) $ (1,959,596)
Adjustments to reconcile net income
to net cash used in operating activities
Depreciation & amortization ............. 7,305,851 1,757,202
Equity in earnings of unconsolidated
subsidiaries ........................... (655,287) ---
Minority interest ....................... (35,289) 498,466
Common Stock issued for service ......... --- 135,000
Change in assets and liabilities
Decrease in accounts receivable.......... 1,683,219 (4,491,258)
Decrease in prepaid expenses............. --- 729,084
(Increase) in inventories .............. (328,792) (13,650)
(Increase) in other current assets ...... (1,236,338) ---
Decrease in other assets ................ 120,835 ---
Increase in accounts payable
and accrued expenses .................... 4,120,581 2,003,815
Increase in notes receivable ............ --- (1,808,000)
Increase (decrease) in
Increase (decrease) in other liabilities . (153,206) ---
------------- -------------
Net cash provided used for operating activities 2,268,743 (3,148,937)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment ................... (530,740) ---
Sales of equipment ...................... --- 1,050
Sale of leasehold improvement ........... --- 74,571
Investment in affiliates ................ (3,466,800) 100,000
------------- -------------
Net Cash provided in investing activities (3,997,540) 175,621
CASH FLOW FROM FINANCING ACTIVITIES:
Issuance of common stock ............... --- 675,000
Decrease in Investment deposit .......... (6,894,985) ---
------------ ------------
Net Cash (used) provided by financing activities (6,894,985) 675,000
Net increase in cash ..................... (8,623,782) (2,298,316)
Cash beginning ........................... 30,779,486 3,193,127
--------------- --------------
Cash Ending .............................. $ 22,155,704 $ 894,811
=============== ==============
The accompanying notes are an integral part of the financial statements
LOTUS PACIFIC, INC. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 (UNAUDITED)
Note 1 Description of Business:
Lotus Pacific, Inc. ("LPFC") is a holding company focused on investing in and
managing, developing and operating a network of subsidiaries. LPFC and its
subsidiaries (the "Company") today are engaged in the development, manufacture
and distribution of devices used in supplying high-speed Internet access,
including cable modem and DSL devices and Internet set-top boxes, and in
providing private label online auction services.
Note 2 Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have
been prepared by the Company in accordance with the instructions to Form 10-Q
and Article 10 of Regulation S-X relating to interim financial statements.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements
and should be read in conjunction with the consolidated financial statements
and notes thereto included in the Annual Report on Form 10-K of Lotus Pacific,
Inc. for the year ended June 30, 1999 ("fiscal 1999").
In the opinion of management, all adjustments (consisting of normal recurring
accruals) necessary to present fairly the information set forth in the
accompanying condensed consolidated financial statements have been included.
The results reported in these condensed consolidated financial statements for
the three-month and six-month periods ended December 31, 1999 should not be
regarded as necessarily indicative of results that may be expected for the
year ending June 30, 2000 ("fiscal 2000").
The accompanying unaudited condensed consolidated financial statements include
the accounts of LPFC and four majority-owned subsidiaries: Regent Electronics
Corp. (87.3% owned), TurboNet Communications (81%), Arescom Inc. (81%) and
Lotus World, Inc. (94%) (see Note 5 regarding presentation of USS Online,
Inc.). The minority interests in the subsidiaries are reflected as such on the
balance sheet in accordance with generally accepted accounting principles. All
intercompany transactions have been eliminated in consolidation.
Note 3 Basic and Diluted Earnings Per Share
Basic earnings per share is computed on the basis of the weighted average
number of shares of common stock outstanding. Diluted earnings per share is
computed in the same manner except that the weighted average number of shares
outstanding assumes the exercise and conversion of certain stock warrants and
options.
For the three-month and six-month periods ended December 31, 1999, there was
no difference between basic and diluted earnings per share.
Note 4 Joint Venture
On September 1, 1999, LPFC entered into a 50-50 joint venture with TCL Holdings
(BVI) Ltd., to develop, manufacture and market Internet and network products
and services in China. TCL Holdings is a subsidiary of TCL Group, China's fifth
largest electronics manufacturer. LPFC's participation in the joint venture is
currently carried as an investment.
Note 5 Subsequent Events
As of December 31, 1999, LPFC owned 100% of the equity of USS Online, Inc.
("Online"), which had been held for disposition since the fourth quarter of
fiscal 1999 and was therefore carried as an investment. On February 8, 2000,
LPFC disposed of a 72% interest in Online, retaining a 28% minority interest
and recognizing a loss on the disposition of approximately $2,713,000. At
December 31, 1999, and at the time of the disposition of LPFC's common shares
which were carried by LPFC as treasury shares as of December 31, 1999 and will
be treated as outstanding shares as of February 8, 2000.
In the first quarter of 2000, LPFC has arranged sales of portions of its
interest in TurboNet Communications to foreign investors for cash consideration
of up to $80 million. The sales reduce LPFC's ownership of TurboNet to between
65% and 70% of the outstanding capital stock..
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
LPFC is a holding company focused on investing in and managing, developing and
operating a network of subsidiaries that develop and provide a wide range of
Internet-related products and services. Since 1997, LPFC has acquired and
currently maintains controlling equity interests in each of Regent Electronics
Corp., TurboNet Communications, Arescom, Inc., and Lotus World, Inc. The
Company's products include cable modem, DSL devices and Internet set-top boxes.
The Company also provides private label online auction services in foreign
markets.
RESULTS OF OPERATIONS
REVENUES
For the quarter ended December 31, 1999, the Company's revenue was $19.6
million, compared with $6.55 million for the same period of the previous year.
Revenue in the first half of fiscal 2000 was $30.67 million, an increase of
244% over the first two quarters of fiscal 1999. The revenue growth in the
three- and six-month periods was primarily due to sales by operations of
TurboNet Communications, acquired by LPFC in March 1999.
On September 1, 1999, LPFC entered into a 50-50 joint venture with TCL
Holdings (BVI) Ltd., to develop, manufacture and market Internet and network
products and services in the People's Republic of China ("PRC"). TCL Holdings
is a subsidiary of TCL Group, PRC's fifth largest electronics manufacturer.
The joint venture is currently in the development stage and has not generated
any revenue.
Lotus World, Inc. officially launched its AuctionLive website on December 18,
1999. AuctionLive is a private label hosted online auction site servicing
international clients. The architecture of AuctionLive is language-independent
allowing businesses to auction their products in almost any language. Lotus
World has eight regional offices in the greater China area with more than fifty
marketing agents. It has formed strategic alliances and partnerships with
several major Chinese players in Internet services, television and personal
computers, and commercial banking services, such as Shanghai Online, TCL
International Inc., and Industrial and Commercial Bank of China. For the
three-month and six-month periods ended December 31, 1999, Lotus World had no
significant impact on revenue.
DISCONTINUED OPERATIONS
In order to concentrate on its Internet-related products and services, on
September 30, 1998, the Company sold all of its textile and apparel business
(LPF International Corp. and Richtime Far East, Ltd.) for an aggregate $2.5
million in cash, realizing a non-recurring gain of $100,000.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses were $3.93 million in the second
quarter of fiscal 2000 compared to $704,000 in the corresponding quarter of
the prior year, a 490% increase. For the first two quarters of fiscal 2000,
selling, general and administrative expenses were $6.05 million, compared to
$1.41 million in the first two quarter of fiscal 1999, a 329% of increase. The
increases were attributable almost entirely to the businesses that LPFC
acquired or established during the second half of fiscal 1999.
RESEARCH AND DEVELOPMENT
In the second quarter of fiscal 2000, research and development expenses
increased $0.48 million to $0.96 million, or 98%, from $0.48 million in the
same quarter of fiscal 1999. For the six-month period ended December 31, 1999,
the Company's reaseach and development expenses also nearly doubled compared
to the same period of the last year. The increase was attributable almost
entirely to businesses acquired or established during the second half of
fiscal 1999.
DEPRECIATION & GOODWILL AMORTIZATION
The Company has accumulated approximately $134.7 million of goodwill from
acquisitions of businesses since September 1997. The goodwill is amortized on
a straight-line basis over 10 years. For the six-month period ended December
31, 1999, the Company's depreciation and goodwill amortization expenses were
approximately $7.31 million, compared to $1.76 million for the same period of
the prior year. The increae was attributable to acquisitions during the second
half of fiscal 1999.
NET LOSS AND LOSS PER SHARE
For the second quarter of fiscal 2000, the Company had a net loss of $4.8
million, or $0.07 per share, compared to $1.30 million or $0.03 per share of
net loss for the same period of the prior year. The increase in net loss was
mainly due to the increase in depreciation and goodwill amortization expense
and the operations of businesses acquired or established during the second half
of fiscal 1999. Excluding $3.69 million of depreciation and goodwill
amortization expenses, the net loss would be $1.1 million, or $0.02 per share.
The differences in per share amounts also reflect the issuance of 16,250,670
additional shares of common stock in connection with acquisitions made by LPFC
in the third quarter of fiscal 1999, net of certain treasury shares.
For the six-month period ended December 31, 1999, the Company had a net loss of
$8.55 million, or $0.13 per share, compared to $1.96 million of net loss for
the same period of the prior year. Excluding $7.3 million of depreciation and
goodwill amortization expenses, the net loss would be $1.3 million, or $0.02
per share.
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 1999, the Company's liquid assets, consisting of cash and
cash equivalents, totaled $22.2 million, compared with $30.8 million as of
June 30, 1999.
For the six-month period ended December 31, 1999, net cash provided by
operating activities was $2.3 million, compared with $3.1 million used at the
same period of the previous year. The increase in net cash provided by
operating activities was primarily due to the combination of an increase of
depreciation and amortization and an increase in other current assets
($1.2 million) resulting from the activities of businesses acquired or
established during the second half of fiscal 1999.
For the six-month period ended December 31, 1999, net cash used by investing
activities was $4.0 million. The Company purchased $530,740 of equipment and
invested $3.47 million in certain unrelated businesses.
For the six-month period ended December 31, 1998, the Company had cash inflow
of $675,000 from issue of common stock of LPFC. For the same period of 1999,
the Company used $6.9 million from its financing activities, due to return of
part of investment diposits.
In the third quarter of fiscal 2000, LPFC arranged sales of portions of its
interest in TurboNet Communications to unrelated foreign investors for cash
consideration of up to $80 million, reducing the Company's ownership of
TurboNet Communications to between 65% and 70%. The Company expects to use
the proceeds of the sales primarily for possible acquisitions, joint ventures
and investment in its subsidiaries.
The Company has no material long-term debt.
The Company believes that existing cash and cash equivalents together with
funds generated from operations and sales of TurboNet stock will be sufficient
to meet its operating and investment requirements for the next 12 months. The
Company's continuing operating and investing activities may nevertheless make
it necessary or desirable that LPFC obtain additional financing, through loans
or public or private offerings of its securities or securities of its
subsidiaries. There can be no assurance that any additional financing will be
available to the Company on commercially reasonable terms, if at all.
ITEM 3. Quantitative and Qualitative Disclosure about Market Risk
The Company has not entered into any transactions using derivative financial
instruments or derivative commodity instruments and believes that its exposure
to market risk associated with other financial instruments is not material.
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities and Use of Proceeds
None.
Item 3. Defaults by the Registrant on its Senior Securities
None.
Item 4. Submission of Matters to A Vote of Security Holders
None
Item 5. Other Information
(a) On February 8, 2000, Lotus Pacific ("LPFC") sold a controlling 72%
interest in USS Online, Inc. ("Online") to Travelway International
Limited ("Travelway"). In exchange, LPFC received 732,802 shares of
LPFC's outstanding stock, valued at $9.6313 per share, or a total of
$7,057,835. The value of the LPFC shares received was based on the
average of the closing prices of the LPFC stock in the over the
counter market on the 10 trading days preceding January 18, 2000,
when the terms of the transaction were agreed. The amount of the
consideration was negotiated based on a $10,000,000 valuation for
Online, which the Board of Director of LPFC deemed fair. LPFC will
recognize a loss on the transaction of approximately $2,713,000.
LPFC continues to hold 28% of Online's outstanding stock and has
advanced Online $1,550,000 as a short-term loan to meet capital
requirements. LPFC had previously reported its intention to divest
itself of control of Online.
Online owns all of the outstanding stock of U.S. Securities and
Futures Corporation ("USSF") and Professional Market Brokerage, Inc.
("PMB"). USSF is a securities firm headquartered on Wall Street in
New York City, offering online securities trading and other financial
and brokerage services to individuals and institutions. PMB is a
Chicago-based financial trading firm that provides online trading
services from an advanced Internet-based system. The two companies
were acquired by LPFC in February and March 1999. The assets of
Online at the time of the sale to Travelway included 877,500
previously acquired shares of the Company's common stock, which are
restricted securities within the meaning of Rule 144 under the
Securities Act of 1933. The shares were carried by LPFC as treasury
shares as of December 31, 1999.
Travelway is owned by Huaya Lu Tung who was, until the date of the
sale, the Treasurer of the Company. Concurrently with the sale,
Ms. Tung resigned from all positions with LPFC, and Jeremy Wang, who
is President and a director of the Company, resigned as President of
Online. Mr. Wang continues to serve as a minority director of Online.
Travelway had been the owner of USSF until February 23, 1999, when
it sold USSF to LPFC for consideration consisting of $2.5 million in
cash and 500,000 shares of LPFC's common stock.
As previously reported, shortly after the acquisition of USSF and
PMB, LPFC began to seek methods to divest itself of control and
reduce its investment in these entities. This change resulted from
a determination that these entities would not significantly benefit
from association with the Company's technology and resources, were
subject to significant litigation and regulatory risks and would
require managerial oversight and resources that would be better
devoted to the Company's core businesses. Accordingly, LPFC has
treated these entities as temporary investments since shortly after
the time of their acquisition and has not included their operations
in its consolidated financial statements except for a portion of the
third quarter of fiscal 1999 in which they were acquired.
In June 1999, to facilitate a disposition, ownership of both entities
was transferred to Online which was newly-formed for this purpose. On
July 12, 1999, LPFC reported certain transactions involving Online,
which were intended to effect a disposition of a substantial portion
of LPFC's interest in Online as of June 28, 1999. The proposed
transactions included the issuance of 5,000,000 shares of Online's
common stock to its senior management team and a planned distribution
to LPFC's stockholders of record on August 30, 1999 of options to
purchase 32,272,237 shares of Online's common stock at $.01 per share
for two years after an initial public offering of Online's common
stock.
For various administrative and regulatory reasons, LPFC's management
determined that the proposed transactions were not practicable, and
its prior decisions to carry out these transactions were rescinded.
Accordingly, the options were not granted, LPFC did not declare the
proposed distribution, and shares were not issued to Online's senior
management.
In light of the transactions that were proposed and pending as of
June 30, 1999, the Company's balance sheets as of June 30 and
September 30, 1999 reflected a net investment of $1,453,928 after
charges for the proposed distribution and the issuance of management
shares. These charges have been reversed as of December 31, 1999,
and the investment has been restated at $13,571,250. As of December
31, 1999, the Company continued to carry Online as an investment, in
the expectation that disposition of a controlling interest would be
effected within the next 60 days. In connection with the disposition
of 72% of Online, LPFC sustained a one-time loss of approximately
$2,713,000. The 28% of Online retained by the Company represents an
investment of approximately $3,799,950.
(b) During January and February, 2000, LPFC arranged sales of portions
of its interest in TurboNet Communications to unrelated foreign
investors for cash consideration of up to approximately $80,000,000,
reducing the Company's ownership of TurboNet Communications to
between 65% and 70% of the total outstanding common stock.
Item 6 Exhibits and Reports on Form 8-K
(a) Exhibits
Number Description
--------- -----------------------------------------------------
2 Stock Purchase Agreement, dated as of January 20, 2000,
between Lotus Pacific, Inc. and Travelway International
Limited, providing for the sale by registrant of 72% of
the outstanding stock of outstanding of USS Online, Inc.
27 Financial Data Schedule
(b) Reports on Form 8-K
None.
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
LOTUS PACIFIC, INC.
Date: March 28, 2000 By: /S/ Jeremy Wang
---------------------------
Jeremy Wang, President
By: /S/ David Li
--------------------------------
David Li, Chief Financial Officer