SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-Q
(X) QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended March 31, 1998
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 33-3272-W
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)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
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 _____
As of March 31, 1998, the Registrant had outstanding 47,273,054
shares of Common Stock, par value $.001 per share and 4,300
shares of Series A Preferred Stock.
LOTUS PACIFIC, INC.
INDEX
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets (unaudited)
as of March 31, 1998 and March 31, 1997
Condensed Consolidated Statements of Operations
(unaudited) for the Quarter ended March 31, 1998 and March 31, 1997
Condensed Consolidated Statements of Cash Flows (unaudited)
for the Quarter ended March 31, 1998 and March 31, 1997
Notes to Condensed Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
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
CONSOLIDATED BALANCE SHEET
March 31, 1998
(Unaudited)
ASSETS
March 31, 1998 March 31, 1997
Current Assets
Cash $4,890,340 $450,414
Accounts Receivable 3,080,746 131,390
Other Receivable 192,214 0
Inventory 599,000
Utilities Deposits 25,049 474
Total Currents Assets 8,787,348 582,278
Property and Equipment, net 1,333,189 4,323
Leasehold Improvement, net 27 0
Total Property & Equip. 1,333,815 4,323
Investments 172,395
Intangible Assets, net of accumulated
amortization of$284,804 5,257,238
Organization Costs 0 1,614
Total Assets 15,378,402 760,609
LIABILITIES AND STOCKHOLDERS EQUITY
Current Liabilities
Account Payable $1,870,982 326,022
Payroll Taxes Payable 31,793 1,991
Purchase Deposit 100,000 0
Total Current Liabilities 2,002,774 328,012
long-term Liabilities
Loan Payable 120,000
Minority Interest in Equity of
Consolidated Subsidiaries 1,290,115 0
Stockholders' Equity
Preferred Stock, 100,000 shares authorized,
4,300 shares issued and outstanding 4 4
Common Stock, 50 million shares authorized,
47,273,054 shares issued and outstanding 47,273 26,937
Additional paid-in capital 15,785,854 367,717
Stock Warrants 81,500 0
Accumulated Deficit (3,949,119) (37,939)
Total Stockholders' Equity 11,965,512 432,597
Total Liabilities &
Stockholders' Equity $15,378,402 760,609
Please see the notes to financial statements
LOTUS PACIFIC, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
For the Quarter Ended March 31, 1998
(Unaudited)
March 31, 1998 March 31, 1997
Net Sales $1,886,537 $590,099
Cost of Goods Sold 1,802,978 524,691
Gross Profit 83,559 65,408
Operating Expenses
Engineering, research and
development 1,747,573
Selling and Marketing 68,119
Administrative and general 798,431 22,247
2,614,123 22,247
Income from Operations (2,530,564) 43,161
Interest Income 9,983 1,830
Net Income (loss) before income taxes
and minority interest in income
ofconsolidated subsidiarie (2,520,581) 44,991
Minority Interest in Loss of Income
Consolidated Subsidiaries 296,128 0
Net Income (2,224,453) 44,991
Earnings (loss) Per Share
Basic ($0.047) $0.00
Diluted ($0.040) $0.00
Weighted Average Shares 47,016,054 26,937,054
Please see the notes to financial statements
LOTUS PACIFIC, INC. AND SUBSIDIARIES
STATEMENT OF CASH FLOWS
For the Quarter Ended March 31, 1998
(Unaudited)
March 31, 1998 March 31, 1997
CASH FLOW FROM
OPERATING ACTIVITIES
Net Income ($2,224,453) $44,991
Adjustments to reconcile net income to
net cash used in operating activities:
Depreciation & amortization 165,307 185
Decrease (increase) in:
Accounts receivable (3,272,745) (131,864)
Inventories (599,000) 0
Increase (decrease) in
Accounts payable 1,360,222 327,970
Minority interest in subsidiaries 874,821 0
Net cash used in
operating activities (3,695,848) 241,282
CASH FLOW FROM INVESTING ACTIVITIES:
Net purchase of equipment (4,251) (4,422)
Organization cost 0 (1,699)
Net cash used in investing activities (4,251) (6,121)
CASH FLOW FROM FINANCING ACTIVITIES:
Loan payable (100,000) 0
Issuance of common stock 1,806,000 0
Issuance of preferred stock 6,000,000 0
Issuance of warrants 1,500 0
Net cash provided by financing activities 7,707,500 0
Net increase in cash 4,007,401 235,160
Cash, beginning 882,939 215,254
Cash, ending 4,890,340 450,414
Please see the notes to financial statements
LOTUS PACIFIC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998 AND 1997
1. Description of Business:
Lotus Pacific, Inc. (the "Company") is a holding company
and its main business is conducted through its two
subsidiaries: Regent Electronics Corp.("Regent") and LPF
International Corp.("LPF").
Regent is a New Jersey based cybetech corporation.
It has total employees of 47 including its business
operation in Shanghai, P.R. China. Regent generates its income from
granting technology patent and licenses to manufacturers and from
selling teleweb system products and srvices to China or its neighboring
countries through a combination of direct sales, under resale agreement,
or through distribution channels, such as governmental authorities
and local cable TV stations. The Company owns 87.3% of Regent's
equity interest.
LPF International Corp., a newly formed and wholly owned
subsidiary of the Company, was set up on March 1, 1998. It was
incorporated in the State of Delaware, and is operated in New
York City, NY. The formation of this new subsidiary in the Unites
States is part of the Company's business strategy expand the
Company's existing textile and apparel business worldwide.
Richtime Far East Ltd.("Richtime"), a Hong Kong based subsidiary
of the Company, was merged into LPF pursuant to a corporate
resolution adopted by the Board of Directors. For the fiscal year
ended December 31, 1997, Richtime had total sales of
US $6,899,230 and a net income of US $ 611,180 from its apparel
import and export business.
2. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying unaudited condensed consolidated financial
statements for the three month periods ended March 31, 1998
and March 31, 1997 were prepared by the Company pursuant to
the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures,
normally included in financial statements prepared in generally
accepted accounting principles, were condensed or omitted
pursuant to such rules and regulations. These condensed
financial statements should be read in conjunction with the
financial statements and notes included in the Company's Annual
Report on Form 10-K for the year ended June 30, 1997.
In the opinion of management, all adjustments (which include
only normal recurring adjustments) considered necessary for a
fair presentation have been included. Operating results for
the three month periods ended March 31, 1998 has been included.
Business Combinations
On March 1, 1998, the Company set up a new wholly owned
subsidiary, LPF International Corp., registered in the State
of Delaware, and operated in New York, NY. This is to expand
the Company's existing textile and apparel business worldwide.
Principle of Consolidation
The accompanying financial statements include the accounts of
Lotus Pacific, Inc. and that of its 87.3% owned subsidiary,
Regent Electronics Corp. and wholly owned subsidiary LPF
International Corp. The 12.7 % non-owned portion of Regent
Electronics Corp. appears as minority interest on the balance
sheet in accordance with generally accepted accounting principles.
All the inter-company transactions were eliminated in consolidation.
Computation of Earning Per Share
The Company uses Statement of Financial Accounting Standards
(SFAS) No. 128, "Earnings Per Share.", in calculating earning
per share. This statement requires the presentation of basic
and diluted earnings per share. Basic earning per common share
is computed using the weighted average number of common shares
outstanding during the period. Diluted earnings per share is
computed using the weighted average number of common and
equivalent shares including stock options and warrants. All
earning per share amounts for all periods have been presented,
and where necessary, restated to conform to the Statement
128 requirements.
3. Inventory
The components of inventory consist of wholly finished
goods, 20,000 sets of chipsets for Wonder TV A6000.
4. Intangible Assets
Intangible assets consist of the acquisition of patents by
the Company in June 1997. The patents are carried at cost
and amortized over the useful life of 17 years.
5. Issuance of Stock
During this fiscal quarter, the Company issued, through
private placements, 451,500 shares of common stock to an
institution and eight accredited investors for total
consideration of $1,806,000. As of March 31, 1998, the
Company has 47,273,054 shares of common stock outstanding.
On February 8, 1998, the Company entered into a stock
subscription agreement with Hambrecht & Quist Asia Pacific
Limited and its affiliate Asia Pacific Growth Fund II, L.P.
("H&Q"). Pursuant to this agreement:
(1) H&Q invested US $6 million to acquire a 1.5 million
shares of preferred stock of Regent, a subsidiary of the Company.
After this transaction, H&Q holds 5.5% of equity interest
in Regent, the Company controls 87.3% equity interest of
Regent and Rightiming Electronics Corp. keeps 7.3%.
(2) Regent granted H&Q warrants to purchase an additional
US $6 million worth of its capital stock within five years.
(3) Subject to certain conditions, the Regent shares held
by H&Q may be converted into the common shares of the Company
after January 1, 2000.
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
1. Results of Operations
For the three-month period ended March 31, 1998, Regent
had $2.33 million of net operation loss, primarily due to
its $1.75 million of Research & Development expenditures.
The increase reflects the Company's ongoing research and
development efforts in a wide variety of areas of technology.
The Company has been actively looking into application of
Internet broadcast to China's regional cable TV networks, and
developing several software programs specialized for the Chinese
markets, such as financial network, educational programs. The
management of the Company expected such expenses as that in
research and development to be continued at a greater rate in
comparison to that of sales income, due to that fact that the
Company's investment is targeting at a broad market.
Net sales for the three month period ended March 31, 1998 at
LPF increased 221.9% to $1.89 million versus $0.59 million
for the same quarter last year, but decreased 41% from the
previous quarter ended December 31, 1997. The decrease in
net sales primarily resulted from the long three-week holidays,
Chinese New Year. The major market of LPF is in China and Hong Kong.
2. New Development in Operation
On May 1, 1998, the Company launched a new program to market
imported products to Chinese consumers through its multi-media
teleweb network system in China. The teleweb network system is
designed, developed, currently being finalized by Regent, a
subsidiary of the Company. This innovative system transmits
both Internet content and the Company's own information.
Chinese subscribers of this teleweb system could use either
telephone or TV broadcast cable to get access to the information
they need. The Company is in contact with potential manufacturers
who are interested in selling their products in China.
3. Liquidity and Capital Resources
The Company ended the third quarter of fiscal 1998 with
a cash position of approximately $4.9 million.
The Company used approximately $3.70 million of cash from
operations during the last quarter. Accounts receivable was
increased to $3.27 million during this quarter as a result of
increase in sales and delay in customer payment due to the
Chinese New Year. Inventory was increased to $0.6 million due
to the necessary accumulation of parts for production
of Wonder TV A6000.
The Company's working capital as of March 31, 1998 was
approximately $6.8 million. The Company generated cash from
financing activities in this fiscal quarter of approximately
$7.71 million, primarily as a result of Hambrecht & Quist's
investment in Regent and the issuance of new common stocks.
As of March 31, 1998 the Company had outstanding 47,273,054
shares of Common Stock, par value $.001 per share and 4,300
shares of Series A Preferred Stock.
The Company believes that funds from operations, existing
cash balances, and investors' investment will be sufficient
to meet the Company's cash requirement for the next twelve months.
PART II OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Changes in the Rights of the Registrant's Holders
None.
Item 3. Defaults by the Registrants on its Senior Securities
None.
Item 4. Submission of Matters to A Vote of Securities Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits None
(b) Reports on Form 8-K
1. Other Event - The Company filed the Stock Subscription
Agreement with Hambrecht & Quist Asia Pacific Limited
and its affiliate Asia Pacific Growth Fund II, L.P. on
March 2, 1998.
2.Other Event - The Company filed with the SEC a new
wholly owned subsidiary, LPF International Corp. on March 6, 1998.
Signature
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: 5/14/98 /S/ James Yao, Chairman & President
/S/ Gu Huang, Secretary & Treasurer
Pursuant to the requirements of the Securities Exchange Act
of 1934, this report has been signed below by the following
persons on behalf of the registrants and in capacities and
on the dates indicated.
/S/ James Liu, Director & Vice President
/S/ Jeremy Wang, Director
/S/ David Leung, Director & Vice President